Sinclair, Inc. (SBGI) Q2 2013 Earnings Report, Transcript and Summary

David B. Amy - Chief Financial Officer, Executive Vice President, Secretary of SCI and Secretary of Sinclair Television Group Inc Lucy A. Rutishauser - Vice President of Corporate Finance and Treasurer Steven M. Marks - Chief Operating Officer, Vice President, Chief Operating Officer of Sinclair's Television Group and Vice President of Sinclair's Television Group David D. Smith - Chairman, Chief Executive Officer, President and Director of Sinclair Ventures Inc

Aaron Watts - Deutsche Bank AG, Research Division Marci Ryvicker - Wells Fargo Securities, LLC, Research Division Davis Hebert - Wells Fargo Securities, LLC, Research Division Douglas M. Arthur - Evercore Partners Inc., Research Division Lance W. Vitanza - CRT Capital Group LLC, Research Division Alexia S. Quadrani - JP Morgan Chase & Co, Research Division Edward J. Atorino - The Benchmark Company, LLC, Research Division Westcott Rochette - S&P Capital IQ Equity Research Andrew L. Finkelstein - Barclays Capital, Research Division Tracy B. Young - Evercore Partners Inc., Research Division

Greetings, and welcome to the Sinclair Broadcast Group Second Quarter 2013 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, David Amy, Executive Vice President and Chief Financial Officer. Thank you. Sir, you may begin.

Thank you, operator. And good morning, everyone. Participating on the call with me today are David Smith, President and CEO; Steve Marks, Chief Operating Officer of Sinclair Television Group; And Lucy Rutishauser, Vice President, Corporate Finance and Treasurer. Before we begin, Lucy will read our forward-looking statement disclaimer.

Thank you, Dave. Good morning. Certain matters discussed on this call may include forward-looking statements regarding, among other things, future operating results. Such statements are subject to a number of risks and uncertainties. Actual results in the future could differ from those described in the forward-looking statements as a result of various important factors. Such factors have been set forth in the company's most recent reports on Forms 10-Q, 10-K and 8-K, as filed with the SEC and included in our second quarter earnings release. The company undertakes no obligation to update these forward-looking statements. The company uses its website as a key source of company information, which can be accessed at www.sbgi.net. In accordance with Regulation FD, this call is being made available to the public. A webcast replay will be available on our website later today and will remain available until our next quarterly earnings release. Redistribution of this call is prohibited without the expressed written consent of the company. Included on the call will be a discussion of non-GAAP financial measures, specifically television broadcast cash flow, EBITDA, free cash flow and leverage. These metrics are not meant to replace GAAP measurements, but are provided as supplemental details to assist the public in their analysis and valuation of our company. A reconciliation of the non-GAAP financial measures to the GAAP measures in our financial statement is provided on our website under Investor Information Reports & Filings.

Thank you, Lucy. It's been another great quarter for the company. So before we go through the results, let me review some of the activities that have taken place since our last earnings call. Last week, we announced that we entered into a definitive agreement to purchase the stock of Perpetual Corporation and the equity interest of Charleston Television, LLC, both owned and controlled by the Allbritton family for an aggregate purchase price of $985 million. The Allbritton stations consist of 7 ABC affiliates, covering 4.9% of the U.S. TV households, and NewsChannel 8, a 24-hour local cable satellite news network covering the Washington D.C. metropolitan area. The transaction is expected to close in the fourth quarter of 2013 and is subject to FCC approval, antitrust clearance, as applicable, and customary closing conditions. We intend to fund the acquisition through a bank loan and/or the debt markets. The Allbritton transaction before the benefit of the cable news channel carriage expansion, the Baltimore-Washington market efficiencies and having a news bureau in our nation’s capital through WJLA. It is expected to generate approximately $46 million to $61 million of free cash flow in 2014. That's $0.46 to $0.61 of free cash flow per share, depending upon financing strategy. Yesterday, on the shareholders' official communications approved our previously announced merger agreement. We expect FCC approval to be forthcoming, and we will close shortly thereafter. In May, we closed on the acquisition of 4 television stations by COX Media Group from $99 million, less working capital adjustments, including $4.3 million of accounts receivable acquired, and entered into an agreement to provide sales services to one other station with Deerfield Media. The transaction was funded through cash on hand. In June, we entered into a definitive agreement to purchase the stock and broadcast assets of 4 television stations owned by Titan, or TTBG, for an aggregate purchase price of $115.35 million. And to the markets, the company will also assume Titan agreements to provide sales and other services to 2 other stations. These stations are located in 3 markets and reached 1% of U.S. television households. The transaction is expected to close late in the third quarter or early fourth quarter, and is subject to the approval of the FCC. In June, we purchased the assets of Dielectric from SPX Corporation for under $5 million. Dielectric is the nation's largest manufacturer of broadcast television, radio and wireless antennas, transmission lines and RF systems. In May, we completed a public offering of 18 million primary shares of Class A common stock priced to the public of $27.25 per share. The net proceeds of the offering, which totaled approximately $472.4 million, will be used to fund pending and future potential acquisitions and for general corporate purposes. And now, let's turn to our results. Net broadcast revenues for the second quarter were $279.3 million, an increase of 28.4% or $61.7 million higher than the second quarter 2012 and coming in within guidance. Excluding $50 million from the acquisitions, same-station revenues were up 5.4% and up 10.7% when you exclude political. Growth came primarily from retrans, time sales and digital interactive. Television operating expenses in the second quarter, defined as station production and station SG&A expenses before barter were $139 million, up 33.4% or $34.8 million from second quarter last year. Excluding $25.4 million related to the acquisitions and $700,000 of stock-based compensation, same-station expenses were up $9.1 million or 8.7%, which was $2 million favorable to our guidance with the open salary positions and bonus savings. The increase to expense versus last year was due primarily to higher reverse retrans fees and compensation. Corporate overhead in the quarter was $11.4 million, up $3.9 million versus the same period last year, of which $1 million of the increase is related to stock-based compensation. The remainder of the increase was due primarily to higher staffing for the newly acquired stations, higher health insurance claims and acquisition-related costs. For our fourth quarter estimate, our corporate overhead is expected to increase, the number will not reflect the ongoing run rate for next year as a result of the fourth quarter forecast, including one-time acquisition costs and the addition of Barrington and Fisher. Excluding one-time acquisition costs and stock-based compensation and adjusting for synergies, overhead would be more in the high $40 million range on an annualized basis. Television broadcast cash flow in the quarter was $120.9 million, up $23.7 million or 24.4% from last year's second quarter BCF. The broadcast cash flow margin on net broadcast revenues for the quarter was 43.3%. EBITDA was $113.1 million in the quarter, up $21.1 million or 23.1% higher than the same period last year and exceeding our guidance. The EBITDA margin on total revenues was 36% for the quarter. On a same-station basis, EBITDA was $89.7 million, down 2.4% in the quarter or $2.2 million and coming in at the high end of our guidance. Of course, the decline was due to the absence of $10.3 million of political revenues in the quarter. Net interest expense for the quarter was $45.4 million, up $16.1 million versus the second quarter last year. The increase was due primarily to the financings related to the acquisitions, and a one-time charge of approximately $4.8 million related to a portion of the financing costs on the new bank credit agreement that we could not defer. Our weighted average cost of debt for the company is an attractive 6.6%, which still includes $500 million of second lien debt at 9.25%. In connection with the bank credit agreement refinancing, we recorded a $16.3 million loss related to the extinguishment of the bank debt. This is a noncash expense related to the write-down of the deferred financing fees and original issue discount on our prior credit agreement. Diluted earnings per share on 93.6 million weighted average common shares was $0.19 in the quarter as compared to $0.37 in the same period last year. The extinguishment of debt charge cost reduced diluted earnings per share by $0.11 in the quarter. We generated $56.3 million of free cash in the quarter, of which $14.9 million was distributed to shareholders. Over the past year, we have converted 51.2% of our EBITDA into free cash. We continue to grow and diversify our portfolio of assets and through our scale, national footprint and operating synergies, we are creating meaningful free cash flows. Now Lucy will take you through the balance sheet and cash flow highlights.

Thanks, Dave. Total debt at June 30 was $2.45 billion. Included in that amount was $70.5 million of the nonrecourse VIE and nonwholly-owned subsidiary debt that we are required to consolidate on our books. We ended the quarter with $550.8 million of cash on hand and have the full $100 million revolving commitment available to us. Capital expenditures in the second quarter were $9.7 million. And with the addition of the Fisher and Titan stations, we now expect CapEx for the year to be approximately $58 million. Cash programming payments in the second quarter were $22.7 million and are estimated to be $92.2 million for the full year, including amounts for Fisher and Titan. Total net leverage through the holding company at quarter end was 3.49x. This excludes the VIE and nonrecourse debt and is net of cash. The first lien indebtedness ratio was 0.83x on a covenant of 3.75x. The total indebtedness ratio through the television operating company was 4.35x on a covenant of 7x, and interest coverage was 3.38x on a covenant of 1.25x. Assuming all announced transactions, including the Allbritton stations plus expected synergies, our 2012, 2013 pro forma total net leverage is expected to be approximately 4.75x. Now for those of you who have followed the company for years, you'll appreciate this next statistic, which points out just how much we have grown the company and strengthened the balance sheet. If I look back 10 years, our blended 2002, 2003 total net leverage through the parent was approximately 6.4x on $257 million of average EBITDA. 10 years later, so for 2012, 2013 blended, we are estimating pro forma net leverage to be 4.75x or almost 1.7 turns lower, and that's after having purchased over $3 billion in assets and paid almost $400 million in common stock dividend during that period. So just think about that for a minute, it speaks volumes to our free cash flow generation and how quickly the company can delever. With that, I'll turn it over to Steve Marks, who will take you through our operating performance.

Thank you, Lucy. And good morning, everybody. As Dave mentioned, net broadcast revenues of $279.3 million in the second quarter was within our guidance. On a same-station basis, net broadcast revenues were up 5.4% and up 10.7%, excluding political. Political revenues in the quarter were $1.5 million as compared to $11.4 million in second quarter last year. Including our acquisitions, local broadcast revenues were up 35.9% in the second quarter, while on a same-station basis, local net broadcast revenues were up 12.5% when excluding political. Including the acquisitions, national broadcast revenues were up 7% in the quarter, while on a same-station basis, national net broadcast revenues were up 4.3% when excluding political. On a same-station basis, the automotive category was up 6% in the quarter. We also saw a growth in telecom, furniture, grocery and direct response. Schools, paid programming and restaurants were soft. Turning to our outlook for third quarter of 2013. We are expecting net broadcast revenues to be approximately $270.5 million to $275.5 million, up 20.2% to 22.4% as compared to third quarter 2012. This assumes $1.6 million of political versus $27.8 million in the same period last year. Excluding the acquisitions, same-station net broadcast revenues are expected to be down 1.8% to 4%, but up 8.8% to 11.4% when excluding political. Categories expected to grow on a same station basis are once again, automotive, soft drinks, internet and media, while toys, games, movies and telecommunications are expected to be down. Auto, on a same-station basis, is expected to be up by high single-digit percents in third quarter. On the expense side, we are forecasting TV production and SG&A expenses in the third quarter to be approximately $145.8 million. On a same-station basis, expenses are expected to be up 7% in the third quarter and 7.5% for the year. As we discussed last quarter, the full year estimates include the high reverse retrans associated with 2 of our CBS stations to which we have not been paying reverse, as well as higher reverse primarily associated with the renewal of the DIRECTV and Mediacom agreements. For the year, net retrans is expected to grow. We expect EBITDA in the third quarter to be approximately $93.7 million to $98.7 million, a decrease of 1% to 6.1% due to the absence of $26.2 million in political revenues. On a same-station basis, EBITDA is expected to be down 18.8% to 23.9%, but up 10.7% when political is excluded. Based on our guidance, free cash flow in the quarter is expected to be in the mid to high $30 million range. And with that, I would like to open it up to questions.

[Operator Instructions] And our first question comes from the line of Aaron Watts with Deutsche Bank.

Just a couple for me. Steve, I think last quarter, you talked about some accounts switching from sort of the national categorization to the local. Just curious if you saw that again in the second quarter, and maybe you can just talk to kind of the difference between local and national performance?

I think we were a little bit top heavy on the local side, if memory serves me correctly. The account switches go back and forth over time, and we really concentrate on total billing. Our performance in second quarter, I believe, can be put up against any broadcaster in the industry. We continue to see, as we mentioned, strong automotive, a real strong quarter in telecommunications. So whatever bucket you're putting it in, our performance was extremely strong in second quarter.

Okay. And then, secondly, just on the potential for some incremental or health care ad spending later in the year. Can you maybe talk about whether you view that as being completely incremental-type spending or whether you might see a pullback from some of your traditional advertisers as they consider some increased health care costs they might be facing?

Everything that we hear is that it's going to be a windfall that will conclude the year with the preponderance of it coming in fourth quarter. There is some expectation that some of these Obamacare dollars will start in September. We're starting to see a minimal avail request for September. But we do expect it to heat up throughout the remainder of the quarter. And all the dollar figures that have been mentioned on previous phone calls, we believe will come to the marketplace. It's just a question of when, not if. I don't think it will crowd anybody out from spending money. And I do believe it's a category that, obviously, we consider to be in the issue advertising category. So it sort of like a -- probably you could consider that a one-time hit since it's really categorized as -- in our system, as political or issue advertising.

Okay, great. And last one for me. I saw a report that the FCC maybe thinking about putting a hard cap on reset [ph] at 39%, can you maybe just talk about what that might mean for your strategic outlook and how you think about further acquisitions?

I think it's way too early to kind of start speculating about what the FCC is thinking. I mean it just came out of there so ago. I think you need to give the industry a little bit of time to go, sort through what the reality of it is and the timeframe in which something might be promulgated by the agency. So I'm not concerned about it right now. It will take some time to do something because they frankly up to go out do an MCRM [ph] which could take a considerable amount of time. There's been an awful lot of people filing comments and giving their thoughts to the agency about what's right with it and what's wrong with it and expect us to be in along with everybody else. These things just don't happen in the blink of an eye, take a bit -- take a lot of time. So I'm not too concerned about it right now because we have a lot of things in the pipe that -- as everybody else, that my sense is likely not be dealt with in the context of any future regulations.

Our next question comes from the line of Marci Ryvicker with Wells Fargo.

I have couple. I just want to follow up on that last question. So David, it sounds like with respect to the UHF discount, this doesn't really change any timing for anything you're looking at today. It doesn't speed it up and it doesn't delay it. Is that the right characterization?

Yes, I think that's a fair characterization. I mean, this is not something that's going to happen tomorrow, next week or next month. This is typically, as you know, have been following the industry a while. They got an issue on those both rulemaking and extra comments, and that's when the kind of the game begins, kind of evaluating what all those comments mean and the relevance of them. I think, quite frankly, when you look at the idea, I expect this kind of comments to be tossed in the file. When you look at trying to constrain broadcasters in this competitive landscape today, to me, it doesn't make a lot of sense, given what the competitive landscape looks like. So when you think about the idea that there's essentially 3 phone companies in the United States, all of which is basically a monopoly. You look at the cable industry, they consist of essentially 4 practical players who pretty much control the country, 2 satellite players that control the country. The idea that you would want to constrain a broadcaster is, to me, is nonsensical. And I think we just have to go try to make those points to the FCC. The world has changed, the competitive landscape has changed dramatically. And we really need to be unshackled dramatically in order to compete against these folks because these folks are in our business, and in spite of what the agency and other people may want to believe, we compete against cable companies every day. We compete against phone companies every day. And so it's going to get even more complicated with phone companies from a competitive perspective. They come into our business and frankly, I'm okay with that, but let us go. Let us go compete. So we're going to make these arguments, as I suspect will lots of other people.

Okay. And just following on this kind of line of thinking, it feels like there's another stage of M&A, and then it potentially can happen soon with the roll-up with some of that share plays [ph] that are still out there. What -- how should we think about how you may use your free cash flow post consolidation? Would you consider a buyback at some point?

I think in theory, sure. I mean, that's always an option, but I think it's way too early. There's still a lot of work to be done with regard to the consolidation and expansion of other opportunities that exist within the current platform.

And I have one kind of a big picture question. Investors have been questioning whether or not there's been a change in strategy at Sinclair now that you're launching the cable network associated with Allbritton. Can you specifically talk about the incremental cost you might be spending there, and then, David, can you maybe speak to whether or not you view investor statements as correct? Has there been a change in strategy at Sinclair?

I think there's way too much noise about cable channel in Washington D.C. and what we intend to do. Our view of it is fairly limited at this point in time, other than to say that if and when we did close on the Allbritton transaction, we're being handed essentially an asset there that is completely undeveloped because of the inability of Allbritton to reach what we reach. So I don't view this any more complicated than effectively taking a television show, if you will, in the simplest form and providing broad distribution across the country. So I think there's way too much conversation and discussion about what this is really all about. We view this as an opportunity to take our local news platform, which are already built, already in place, full-time running businesses, and expand them in lots of other venues and be coupled to a national -- potentially national cable operation that comes out of Washington, D.C. So the issue for us is, where is it carried? Is it going to be carried over the air on kind of D2 channel? Is it going to be carried on cable? Is it going to be carried on satellite? Those are all details to be worked out, but in terms of the structure of it, it's already in place. And maybe it requires some additional talent or something to maybe kind of affect some change in our view of what we want in terms of content on the air. But in a grand scheme of things, it's just not material, in terms of -- the actual construction of it because it's done.

Yes, I would just add to that. It's opportunistic in the greatest order if you take a look at the -- if you follow some statistics here, Marci, on our news operations. We have 97 stations right now that are producing and broadcasting news in 68 markets. So for us, to look at this is a way to capitalize on that opportunity, it's about distribution. So anytime you can distribute your content in more ways than one, that's a good thing. So not only do we have opportunities through digital subchannels within our markets, and now we add on a cable channel within our markets.

Internet capabilities. All of the above.

Internet, yes. The expansion of that is just significant.

I think the thing that you have to kind of give some thought to here is that we've become, I'm guessing, probably the single biggest news producer, local news producer in the country. That's an awful lot of content that we have to now go think about and be very thoughtful about, how to distribute, and when you tie that to an already existing cable platform in Washington, it's been there 20 plus years, we just see it as kind of a free option to go build the business, that's all it is. So I think there's been -- kind of a curious reaction to me is the notion that we would want to go spend zillions of dollars to go build a CNN that nobody watches, it doesn't make a lot of sense to us. Honestly, it really doesn't.

And our next question comes from the line of Davis Hebert with Wells Fargo.

I wanted to focus on another topic of consolidation on the cable and satellite side. Do you guys view any risk to your retrans line? Scale aside, is there any language in your retrans contracts that would favor a lower rate, if Time Warner Cable were to buy another large operator?

I can't imagine that kind of language exists in anywhere.

Okay. Any of those consolidation, conversation, does this cause you any worry in terms of these distributors gaining scale?

No, not that all.

Okay. And then, just focus on the balance sheet, you have the second liens, I believe, callable in November. You have the excess cash on the balance sheet and financing some of these announced acquisitions. Just wondering if you have any thoughts about how you think about leverage going forward and where you think you'd like to see credit facility leverage versus the unsecured op-co? Any color there?

Yes. So Davis, one of the things we talked about is the 2012, '13 blended total net leverage. And that would assume Allbritton being debt financed. And so you're looking at 4.75x, which is well below sort of the threshold the rating agencies have set to maintain our credit rating. And when you look at kind of where we ended the second quarter, even on a first lien basis, it will be in less than 1x leverage. We have a lot of capacity, really at all parts of the cap table, and so we'll be looking to see what makes no sense in terms of financing Allbritton and refinancing the 9s [ph] and which part of the cap table we'll go to. But the point being is the leverage, the leverage is low, the balance sheet is strong and we can access any part of the cap table that we wanted to, to finance both of those transactions.

Okay. And as you think about other acquisitions in the pipeline, you said you have capacity to probably add some more leverage, but would equity financing also be on the table as well?

We had gone out earlier in May with that offering, and the intent of that offering was to really provide the flexibility that Lucy just outlined over. So we're not -- we will never take anything off the table, but certainly, that's not our intent. Our intent was with the offering to provide us with the flexibility that we're looking for to lower our cost of capital as we make these -- as we close on these deals going forward.

Okay, that's helpful. And then last one for me, given your scale and your reach and your large footprint now, I'm wondering if you could walk through -- are there any distinctions between geographic footprints in terms of performance, or is it fairly democratic, the strength you're seeing on the core ad sales front?

I think it's pretty consistent across the country. There's no one pocket that is unusually hot and there's no one pocket that is suffering. So it's a pretty consistent story throughout the country for us.

Any distinction between like larger markets versus smaller markets? I know in radio, we saw some of the larger markets do fairly well in Q2.

The only thing that I could point to, and I think this is a point worth making, with our recent acquisitions, we could rightfully be concerned about matriculating new acquisitions into our systems. We enjoyed some outstanding markets in the second quarter from Albany, Cincinnati, Grand Rapids, West Palm Beach, Salt Lake City, Rochester, Harrisburg, Mobile, all of these markets that I just mentioned are new to our resume and had outstanding performances in the second quarter. And you couple that with some of our other strength markets like Columbus, Baltimore, Asheville, we are outperforming marketplaces on a consistent basis, with our biggest billing television stations.

Our next question comes from the line of Lance Vitanza with CRT.

I had a follow-up to the last question and then one additional question. I was wondering if you could be a little bit more specific with respect to how much of the strength that you're seeing -- I mean, you're up 11%, ex political. How much of that was the markets performing well versus how much was you taking share away from other operators?

Well, we clearly took away share in the second quarter with those markets that I just mentioned because a lot of those markets, which, again, are some of our biggest billing markets, enjoyed, in fact, some all-time highs in terms of their revenue shares. And when you take a look at third quarter, we are not fortunate enough to have a bevy full of NBC stations. So we're going up against Olympic numbers last year where we didn't really participate to any great degree in the Olympics because of not having a lot of NBC stations. So our performance in the third quarter, my anticipation would mirror it, not beat [ph] what was a really strong performance in second quarter.

Got it. Okay. And then the next -- the other question I had was, you mentioned reverse retrans as putting pressure on cost, and I heard the commentary regarding the CBS where you have been paying no reverse retrans and then it sounds like you had to re kind of deal with DIRECTV. But generally speaking, putting those issues aside, are reverse retrans costs -- are they going to grow -- should we expect them to grow at about the same pace as retrans revenue going forward? Or do they grow more quickly, as they're sort of catching up?

You'll see some catching-up because not all of our affiliation agreements are being out for reverse retrans at this point. Some of the acquisitions we've made are kind of -- I don't know if you can call it grandfathering, but as we took on the assignment of those affiliation agreements, there's still, in some cases, 1 year or 2 left before they'll start converting reverse retrans payments. So there will be some catching-up as we go forward here in the next couple or 3 years.

Our next question comes from the line of Alexia Quadrani with JPMorgan. Alexia S. Quadrani - JP Morgan Chase & Co, Research Division: Just staying on that retrans topic. I guess given the lot of negative attention that CBS and Time Warner Cable have gotten recently, do you think there's any likelihood in general that Congress may get involved in these discussions you guys have with the cable distributors? And I guess, along that same topic, are you seeing these discussions, again, you don't talk about any specific discussion, sort of in general, getting more challenging as more people are out there sort of demanding for more retrans or political revenue?

I don't expect to see the Congress inject themselves into this discussion. And frankly, if they were going to, the discussion should be how can Congress help the broadcasters. As bizarre as that may sound because, when you look at the scale of the cable companies versus every broadcaster in this country, they dwarf us in the grand scheme of things. I mean, Time Warner is roughly 10x the size of Sinclair, and Comcast is 50x the size of Sinclair. We just kind of walk down the ladder. So -- and we're a large-scale broadcaster. So take Time Warner and lay them up against Nexstar, or some of the smaller companies out there, they just dwarf them. So the notion that cable company would be going to Congress and asking for help to fight off little toy broadcasters is cannibal to me. I can't imagine any congressman looking at that with a straight face and do nothing other than say, you got to be kidding me. So I just don't see that happening anytime soon. As it relates to kind of last part of the question, I don't know that there's going to be any more friction today than there has been in the last 10 years. It's just -- it is what it is. It's just the nature of the relationship, and I don't see it going away. It is just part of the business. It's here to stay.

And our next question comes from the line of Edward Atorino with Benchmark.

Could you maybe give us a ballpark of what the acquisition contribution could be for the fourth quarter?

Yes, so Ed, we should have that if you take a look in the outlook section of our earnings release this morning. These numbers should be there. But if you have any questions, just give me a call.

Ed, we're assuming Fisher and Barrington as of October 1, and as I mentioned with the vote yesterday and with FCC approval, we might -- we would probably have Fisher closed before October 1. So that ought to create some more confusion, I guess, in terms of your numbers as we bring Fisher in before our model, but we have not provided that to you as far as an expectation of an earlier close than October 1.

Yes, and I was also going to say to that because Allbritton, we expect to close sometime in the fourth quarter. They are not in our model at all. Okay?

Okay. Fisher seems to have low margins. Why and how quickly can you get those margins up, I guess?

I think you should look at us to attack that immediately and kind of bore in to it and do what's necessary, that's just not going to stand.

Our next question comes from the line of Howard Rosencrans with Value Advisory.

It's actually Brian Winter. 2014 looks like it's shaping up as a very, very strong mid-term year. And I'm wondering if you -- I'm wondering if you could give us a little color on how you think it might compare for you guys as well as the industry versus presidential advertising year.

We haven't really concentrated on race-by-race yet, it's funny that you mentioned that. Of course, we were just talking about it yesterday, and we're about to get into it in a big way in the next week or 2. But if you take a look at the trends recently, it obviously will bode well for us because the increases in both political and issue had been astronomical over the last 4 election cycles, whether it be mid-term or presidential. So you couple that with some of the acquisitions that we made that are in some key political battlegrounds, it bodes very well for us. And then, on top of that, another interesting point is that we'll start the year off with a whole host of Super Bowls that will be airing on Fox, which is our biggest affiliate that we're associated with. And then to take it yet even one step further, we have fortified a lot of our stations with new and fresh programming that literally begins next month. Programs such as Modern Family, which will be airing 5 days a week and enter into a lot of our program lineups. Of course, our resume stations. Arsenio Hall is debuting next month, Queen Latifah will begin next month, Bethenny. All of these programs that I'm mentioning, we have high hopes for, coupled with what I mentioned about numerous markets enjoying the Super Bowl, as well as historical information on political that absolutely should be a "can't miss." It should be a, quite frankly, a very strong year and we look forward to 2014.

Our next question comes from the line of Kevin Zoo [ph] from Wells Fargo.

I just had -- I was wondering if you could give an update on achieved synergies versus your pro forma 2011 and 2012, I guess just excluding the unachieved synergy number?

We pretty much achieved our synergies once we close on the deal. There's going to be some transition that takes place in terms of consolidating end markets where we -- a combination like this. Steven was talking earlier like Mobile, and what we don't put in as a -- for example, the forecast of growth in the market and in terms of our ratings and our share. So these synergies that we provide are more of expense related or strictly revenue related from a retrans standpoint. We don't really get beyond those areas. Those are -- those benefits that you're seeing from us that Steve talked about are additive to everything that we've been doing or everything that we've related to you in terms of our expectations on the acquisitions.

Well, what portion is related to, I guess, retrans that has yet -- not yet to be rolled over?

I'm not sure exactly what you mean, but as far as the retrans, we have...

Or in the future, I guess.

As we close, those fall under our agreements.

[Operator Instructions] Our next question comes from the line of Westcott Rochette with S&P Capital IQ. Westcott Rochette - S&P Capital IQ Equity Research: It's Westcott Rochette. Can I ask you 2 applying on the auction process for the spectrum? Now that you've gone through kind of a comment period with congress. How do you view that progressing and whether you think it's going to be on track either for you or for the industry?

Yes, I think it's a little too early to tell. I think the NAB's position, the industry's position is, let's get on with it and get it over with, so we can start the repacking process, which is fine with us. But I think what you're starting to see surface now are the kinds of really complex issues that were raised a number of years ago that were kind of fundamentally just kind of overlooked by the agency and Congress. And what's interesting is, when you go to The Hill and you talk to congressmen about the consequences of auctions in any number of areas around the country, the congressmen, literally, are aghast at what's going on because they weren't aware of what was happening. And either there's just misinformation that was floating around The Hill as to, here's what's going to happen, or they just didn't frankly understand, is unknown. But I would tell you, there isn't a congressman that you don't go to, you don't sit down and say, "Did you understand this was going to happen?" And they say, "We had no idea that was going to happen." So there are lots of issues like this that are starting to kind of creep up to the surface here and get attention that are terrible negative consequences to a potential auction. So far be it for me to second guess where the auction goes or when it goes or is successful, but I would tell you that the idea that, literally, hundreds and maybe thousands of low-power television stations and translators in this country that reached just tens of millions of people weren't known by Congress that they're going to be wiped out. So that kind of information is now suddenly surfacing, and people are saying, "I didn't know that was going to happen." So all that's got to be digested by the agency and by Congress to kind of figure out what that means in the grand scheme of things, and is it going to be tolerated? The idea -- this came out a while ago and it continues to kind of hover around out there in the cloud. The idea that all the television stations in the city of Detroit would go away by virtue of an auction just seems impossible to me. And I'm sure, to us, to the people who own the television stations there. But that's a byproduct that will propose auctions. And it's just not Detroit, it's all along the borders. So I think when the whole process was put together and the plan was put together, they just -- they either missed that kind of stuff or didn't understand the real technicalities of it, which are now kind of come into full view. But my sense is that it's not going to happen tomorrow, it's not going to happen next week. It may not even happen next year because all of the stuff is just now kind of floating to surface. It's got to be dealt with somehow. So I guess, that's the -- the best bet we have is that we'd like to get it done and get it over with so we could start a repack and be finished. But I'm just not sure that it's going to happen according to plan despite what people might say.

Our next question comes from the line of Andrew Finkelstein with Barclays.

A couple of questions. David Amy, I just wanted -- I thought I'd follow up on expenses and typically, we used to see pretty low expense growth in the odd years from -- obviously, we know we have some of that reverse retrans in there. What is the core expense growth look like away from reverse? And maybe could you talk about some of the items that are boosting that maybe a little bit higher this year? And lastly with that, do you think that normalizes going forward?

Yes, you're saying is a lot of additions to the company in terms of the station acquisition. So that's driving some of your expense growth. And so we tried to back that up to illustrate what that is on a same-station basis. And from that standpoint, you're primarily going to be looking at a reverse retrans number, that's the primary driver. And then, of course, we're building the company. And a lot of times, we're getting the question about being able to absorb all these businesses that we're acquiring, all these stations we're acquiring, so we have laid down a lot of expense in that regard, just these different functional areas, whether it's in the sales or the digital interactive part of our business or operations, engineering, just about every function where we've expanded. So you're seeing that as a real cost driver as we take on and prepare ourselves really for -- with the acquisitions that we'll be closing shortly.

Yes, and Andrew, I would just add to that. So we talk every quarter about just our conservative nature and forecasting TV operating expense and fully loading for staffing and compensation and bonuses. So just as a data point, when we came into the year, we had guided for the full year same-station TV expense growth to be up 9.4%. If you look our most recent guidance now, it's worth to only be up 7.5%. So you're seeing a lot of that, that conservative nature of the forecasting now flowing through and as we go through the year, the same-station growth coming down.

When you look longer term, do you think, commissions aside and political years, that the business expense growth is low to mid single-digit longer term? And acquisitions aside, obviously.

We certainly hope to keep it below mid-single digits. When you say that, I think you're talking about 4%, 5% for the expense growth.

Absent reverse.

Yes. Right, absent reverse. I was just saying to mitigate cost increases we -- with technology moving in the direction it had, I've mentioned this in the past, we were able to do a lot of consolidation in terms of operations and traffic, and a lot of our functional areas administratively have been able to capture that and then just to reduce our operating costs. So that's the benefit in terms of being able to keep our costs going forward.

Okay. For Steve, I guess, some of the radio guys and maybe the newspapers too saw a slowdown in advertising in July, and it seems like back to school is maybe a little softer. Some of the retailers also yesterday sort of talked about softer back-to-school season. Your pacing, obviously, for third quarter is really strong. What have you guys seen out of the retail category going into back to school?

Well, first of all, we had a very strong July, and what's interesting about July in our business is, last July on the broadcast calendar was a 5-week month. This year, the broadcast calendar for July is 4 weeks, and we exceeded our expectation for July with 1 less week to work with. So we're off to a really good start for third quarter. Everything that I've heard in terms of retail and back to school is extremely positive, so -- especially the back-to-school stuff. So whether that's actually going to take place or not, we still have a few weeks to see whether those dollars are going to be spent. We haven't seen it yet, but we are hearing that back-to-school stuff could be halfway decent.

And our next question comes from the line of Doug Arthur with Evercore.

This is actually 2 questions from Tracy Young. First, I may have missed this, but have you identified the legal cost related to some of the acquisition things you have been doing? And second, Steve, you did talk about a pickup, it sounds like in auto business, is that coming from Tier 1, Tier 2, or foreign or domestic? Can you give some color on that?

So Tracy, we don't break out the level of expenses to that extent. But I will say that as Dave Amy spoke in his opening remarks, a big driver of the corporate expense increases for this year has been related to a lot of the acquisition costs and the refinancing costs.

So it's legal.

It seems we have no further questions at this time. I'd like to turn the floor back over for any closing comments.

Thank you, operator, and thank you, everyone. And this closes our earnings call for this morning, and feel free to contact us with any other questions that you might have.

Thank you. This concludes today's teleconference. You may disconnect your lines at this time and thank you for your participation.