Ladies and gentlemen, thank you for standing by. Welcome to the Scripps Second Quarter Earnings Call. [Operator Instructions] As a reminder, this call is being recorded. I would now like to turn the conference over to our host, Carolyn Micheli. Please go ahead.

Thanks, Mary. Good morning, everyone, and thank you for joining us for a recap of The E.W. Scripps Company's Second Quarter results. We're going to start this morning with Rich Boehne, Scripps' Chairman, President and CEO; then Scripps' CFO and Treasurer, Tim Wesolowski, will talk about our second quarter performance; and finally, the Head of our TV division, Brian Lawlor, will lend to more color to the quarter and update you on our Granite acquisition. Then we'll open up the lines for your questions. Also in the room are Tim Stautberg, who heads our Newspaper division; and Doug Lyons, our Corporate Controller. Adam Symson, our Chief Digital Officer, could not join us today. A reminder that this conference call and webcast includes forward-looking statements and actual results may differ. Factors that may cause them to differ are outlined in our SEC filings. You can visit scripps.com for more information, such as today's release and financial tables. You also can sign up to receive e-mails anytime we disclose financial information, and you can listen to an audio replay of this call. The link to the replay will be up there this afternoon and will be available for a week. Now here's Rich Boehne with some business highlights.

Good morning. Thanks, Carolyn. Thanks, everybody, for joining us. Tim is going to focus on the results in just a few minutes, and Brian is going to add some color on television revenues, including a more encouraging outlook for national advertising. First, let me recap last week's announcement about our deal with Journal Communications, just in case you missed the news or our call last Thursday. Last week, we've finalized an agreement with Journal Communications that will merge our broadcast operations, also spin off our newspapers into a new publicly traded company. The structure of the deal, which the lawyers call a spin-spin, merge-merge, is definitely uncommon and maybe even unique. Most important, it's a creative way for Scripps to expand through television and a related radio strategy, and emerge on the other side financially stronger, more flexible and having unlocked value for our owners. In that same motion, we provide the newspapers with more scale, a strong some balance sheet and better control of their destinies. The newly created Journal Media Group will have newspapers in 14 markets that have all 4 U.S. coastlines, anchored by the Milwaukee Journal Sentinel and the Naples Daily News in Florida, these 2 are among the very best performing newspapers in this country. We estimate the new Journal Media Group revenue at more than $500 million. The company will be unencumbered by debt. It will have $10 million in cash at day 1, and the ability to focus on its own industry dynamics. The new Scripps will own 34 television stations and 35 radio stations in 27 different markets, from Detroit and Denver, to Phoenix, San Diego, Nashville, Milwaukee and Las Vegas. We'll be the fifth largest independent TV Station Group and we estimate revenue for this combined company to be more than…

Good morning. Our television division experienced nice growth in 3 of our 4 revenue lines: local and digital advertising, as well as retransmission revenue. Total television revenues grew 4%, lower than we expected because of the weakness in national advertising we're seeing across the industry. One of the quarter's bright spots was the closing on June 16 of our deal to acquire the ABC affiliate in Buffalo and the MyNetworkTV affiliate in Detroit. Results from these stations are included in our second quarter numbers, but with only 2 weeks of operation, didn't have much of an impact. We expect the 2 stations to add more than $15 million of revenue and $5 million of segment profit this year. Let's begin with second quarter consolidated results, then I'll get to the segment results in a moment. Total revenues increased 2% during the second quarter to $212 million. Our cost and expenses for segments shared services and corporate were up about 5% to $194 million, primarily due to increases in employee-related costs and $2.5 million of incremental expenses to grow our digital operations. We reported a loss from operations before income tax of $5.5 million in the 2014 quarter, while we reported income from operations before income taxes of $3.9 million in the 2013 quarter. This year, second quarter pretax loss was impacted by a $4 million charge to exit a multiemployer pension plan, as well as $4 million of acquisition and integration costs related to our Granite deal and the proposed merger with Journal Communications. Net loss was $3.4 million or $0.06 per share compared to net income of $3.2 million or $0.05 per share in the prior year quarter. The acquisition and pension cost I referred to a moment ago reduced earnings per share by $0.08 in the current period.…

Thanks, Tim. Many of the good things we're doing on the local side were overshadowed by double-digit decline in national advertising. Like others, we were challenged by a sluggish economy, a weak upfront and an almost nonexistent scatter market. As we look across our footprint, some of our biggest declines were unfortunately in several of our largest markets. Unlike local, which showed key category growth, most of our national categories showed year-to-year declines, and that includes auto, professional services and even fast food and dining. However, I am happy to report that the third quarter is looking more promising for national ad sales at the Scripps stations. July finished better to prior year than any month in the second quarter, and we expect that to be the case for August and September as well. Some of the categories that were off in the second quarter are pacing to be positive in the third, and so we are hopeful that the national ad market is starting to come back. We still have dollars to write and we don't know that we will get back to prior year, but we expect the picture to look better than it did in second quarter. Of course, the good problem to have is finding the inventory to make it all work with an expected strong political third quarter. Our second quarter political was right where we expected, and our political footprint has a heavy third quarter primary calendar, which we expect to capitalize on. Colorado, Michigan and Florida will be some of the busiest political spending states in the U.S. in the second half of the year, while markets like Phoenix and San Diego will also be very active and should help us hit $65 million. Finally, I'd like to update you on our Granite…

[Operator Instructions] And our first question comes from the line of Michael Lupinski (sic) [Michael Kupinski] with Noble Financial.

So looking at the -- you guys mentioned that the disparity in markets among your larger markets with national kind of reflected more the decline, I guess, in national than others, and that's largely expected, I would imagine. But on local, you guys kind of did a much better job on local. You gave some color on how that happened. But were you seeing any disparity between markets in local?

Mike, it's Brian. There were some volatility on the local side. We had a couple of markets that were pretty healthy, and we were able to take advantage of that. We also had some others that we're showing some year-to-year declines. A lot of it is a geographic issue as to how regional and national accounts play out. Automotive may be national in most of our markets, but may look different in a market like Detroit, so some of that fluctuates. But I think, overall, we saw growth across all of our markets if you were to aggregate them on the local side, and we were able to outperform those, as Rich talked about, really with a focus on development of new to TV dollars. And. As Rich said, we have a record quarter there, so we felt pretty good about that.

And in terms of national advertising and the pace, it looks -- it sounds like pacings are improving there. When you're talking to advertisers, do they give any particular reasons for the just kind of like cutting back in the second quarter? What are -- what is the sense of what you're hearing from advertisers why they're now starting to spend a little bit more?

It was an interesting quarter. I think we touched on it earlier, but the upfronts were a little sluggish, and really, there wasn't a lot of pressure at the network or on network cable. And so we saw a very little scatter coming down. Usually that will flow to top 20, top 25 markets. Also if the networks under-deliver and they owe a lot of -- made good weight that puts pressure on our inventory that pushes things down, and we didn't see a lot of that happening. It looks like they've -- most of the networks did fairly well in ratings performance in the first half relative to the estimates they guaranteed, so they didn't have that under-delivery weight that was kind of clogging them up. And then as I touched on, I think being an ABC station, there were a couple of dynamics that were unique. A year ago, with the Heat in the finals, it went 7 games. This year that didn't play out and ended in 5, so we left some money on the table there. The World Cup threw some money away. We were hoping some of that would come back if the U.S. had gone on a little longer, that didn't happen. So I think there were just a couple of unique things that seems to all happen at once in the quarter that really made it challenging for us on the national side.

And can you give us a sense that advertising, particularly back-to-school and retail and so forth, is kind of coming back a little bit, too? I mean, what are retailers thinking about the holiday season?

Obviously, here we are in second week of August and we are seeing back-to-school starting to kick in, and we think it'll continue to build over the next 2 or 3 weeks as the Midwest starts school in 2 weeks, and the Northeast doesn't start for another 5 or 6 weeks. And so it's staggered, but we are seeing healthy spending in some of the back-to-school categories.

Okay, that's good. And in terms of -- you mentioned about the prospects of making future acquisitions. Do you have any thoughts in terms of timing? Because obviously, you guys spend a lot of time putting together this deal, and it's still in front of you. But any thoughts in terms of the prospect of making acquisitions, the timing of such making those further acquisitions?

Mike, it's Rich. Obviously, yes, we're in the middle of a fairly complicated transaction we need to get done. But that's not to say we wouldn't be opportunistic if we saw some opportunity pop up to consolidate in a market or add something that made sense. We would figure out how to do it. But at the moment, we're kind of busy.

Okay, perfect. And it seems like in terms of -- just going back to advertising one more time, your political advertising seems to be, so far it's not, obviously, a huge number yet, but the second half is much better. But it seems like it's pacing a little bit better than expected. And in terms of your guidance for the third quarter, a little bit better than what I was looking for. Are you feeling a little bit more optimistic about political advertising? Earlier, you have kind of a relatively downcast view of political, but it seems like there's a little bit -- coming a little bit better than expected, and I was if your attitude has kind of changed, or if you think there's some positive upside there.

Mike, it's Brian again. Look, I don't think our political view has changed much. Early on, I think we're kind of looking in the $65 million range and we still feel like that's a pretty good number. It's probably only fluctuated $2 million or $3 million in our models. The 5.2 in the second quarter, if you go back to the last midterm election, we had 4.4 then but we didn't have Colorado in our portfolio, so it's kind of even. But as we look out to third quarter, we do have some -- I think we have 5 or 6 markets with primaries, Florida, Arizona, Kansas, Missouri, Michigan, and we see some good spending relative to those primaries. And then the senate, the gubernatorial, we got 10 gubernatorials; a couple of them, Kansas, Florida, Michigan, Colorado, Ohio, we expect to be really good races. We've got 12 competitive House races. We've got 6 Senate races, 3 of which, Michigan has got an open one, Utah and Colorado, and then McConnell's getting pushed pretty good in Kentucky, and much of that's moving into Cincinnati. So what's missing in some of our places is just the third-party money, like this great money around the Florida gubernatorial from the candidate side, but we're really not seeing a lot of third-party money coming in. So that's why we continue to feel good about the 65. When you put that together, there's always risk, but there's always your hope for something that gets good and ugly, and lots of third-party money comes in, and we really haven't seen that yet. But maybe some of that will play itself out.

Our next question comes from the line of Barry Lucas with Gabelli & Company.

Just have a couple here, and I was hoping that Brian could provide a -- given the weight of auto in terms of total TV revenues, any difference that you can ascribe national auto represents how much of, give or take, of your -- of the total auto versus local, and what the disparity was between the 2?

Barry, he's digging that out. If you got a second question.

No, no, no.

Sure.

Hold on, he's got it, Barry.

All right, Brian.

This is Brian. There wasn't a huge disparity. I mean, auto was down 1 in the quarter, so we weren't far off there. On the local side, I think we were kind of plus 2. And on the national side, we were minus 5, something like that, so that's how you got to minus 1. Inside of it, domestic dealer groups and factory foreign are up in their spending. What we're seeing is the factory domestic and the foreign dealer groups, so kind of balancing each other out, that's where their declines are. I was going last night kind of automaker by automaker through and looking in couple of that GM categories or the GM products, Cadillac, and 1 or 2 others are actually were up in the quarter. Ford performed well. We did see some of the foreign brands on the dealer group side that dropped off, and some of them fairly significantly. So not really a pattern. It's really kind of a brand-by-brand, manufacturer-by-manufacturer story.

Okay. And I think Tim mention that the U.S. spending on the digital initiatives. So I'm just wondering, as I look at kind of the contributions digital versus the accelerated costs, is something said there that maybe it's not turning out quite as good as you expected and you're tapering the spend? Or how should we think about that, Tim?

I'll let Tim talk about the numbers. It's Rich. No, we just have a little slower-than-expected spending, particularly on ramping up of the sales forces that doesn't have anything to do with anything other than just finding the right people in the markets of greatest opportunity. But, I guess, the little bit slower spending there probably comes at a good time, but there's no signal there. Do you want to take about the numbers?

Still very much committed to the strategy. And we've hired a lot of sales folks, we've learned some things during that process and we've always been selective and we're really just looking for the right people that when we hire them, they can hit the ground running. Wouldn't read too much into. And nothing into it in terms of the strategy.

And Barry, your question is a good reminder that an awful lot of our focus in digital is on developing those local digital marketplaces, where it was a result of research. We think there's very good opportunity, which is why we're making those investments.

Okay. Last one for me, Rich. And obviously, your early days in trying to get the Journal deal close, very complicated. But obviously, you don't own the stations yet. What are the kinds of things you can do before you get into it so you make sure that you really hit the ground running on day 1?

Well, there's not a whole lot we can do since we don't own them. I think we'll make some visits and start to get to know people as best as we can. And obviously, we're now talking with the Journal folks every single day about just about every aspect of the business, so we'll do everything we can. But until we get the deal closed, there's really no decisions we can make. Anything else, Brian?

No, no, I think if you look at the stations, they're really good stations and some real good markets, I mean, Nashville, Milwaukee, Las Vegas, those are big markets, big cash flow contributors. And so we're spending some time, I'm spending some time just kind of researching the markets, getting to know the markets. As we touched on in the call, they've had a strategy of putting radio and television together. And so I'm better understanding how they use each other promotionally, and to kind of grow their brands together among just understanding how they can joint sale in the benefits to advertisers and additional services we can provide with some of our digital strategy there. And also in the markets that we see geographic opportunities, so Tucson to Phoenix, Lansing to Detroit, Fort Myers to Tampa and West Palm, I think we're all starting to get to know each other a little bit, and then looking at what kind of coverage opportunities and joint sales opportunities could exist that could make all of those assets better by being part of a bigger company.

The other thing we do ahead, Barry, on a deal like this is there's everything like benefit plans and all of the stuff that's behind the scenes. We have an opportunity now to have all that integration, planning and just almost virtually done on the day we closed, which is a huge help to hitting the ground running and getting off to a great start.

[Operator Instructions] And next we have Craig Huber with Huber Research Partners.

My first question, can you just -- unless I missed this, auto for television, what was the overall percent change there year-over-year? And then what's your best guess to how it's tracking the pacings there for the third quarter?

Craig, it's Brian. Year-to-year in the second quarter, auto was down 1.

And how do you think it's going for third?

Look, there's still a lot of business to write September. It was typically a month we put a lot of dollars on us. We get closer as we start introducing new models and all. So I would say we're kind of pacing in that flat range right now, but we're hopeful that with some ads and hopefully, no pullbacks or cancelations, then we can grow that.

What do you think is holding it back right now? Why is it roughly flattish these last 2 quarters? Anything else you can [indiscernible]

I think it's soft network. A lot of times, the heavy ups that come are pushed down from a tight network cable or national cable network. And so I think we're seeing a little bit less of that.

Do you think that's ratings-driven? Do you think it's movement to digital? Do you think it's macro-driven? All of the above? What's your sense?

I don't think its ratings-driven. Look, you asked some of it is digital, we've certainly seen that trend and that has existed in the auto category for a couple of years. But beyond that, I just think the network is open for business. And so auto continues to be active on the network level, and less of that is getting pushed down to, say, the top 25 markets where we got a pretty good footprint.

On the ratings front for your local TV station, I know it's a broad question, but how would you categorize if you could just put some numbers around the percent change of your full daypart rating to your local TV stations on a year-over-year basis? Are they flat? Are they up 5%? Down 5%? What's your sense there?

That's a hard question. When you say full dayparts, there's so many different dynamics that come into that. You've got your local news, which is what we can really control and where we spend most of our time. We get syndicated programming, we have our own programming, we have network programming. And so I think if you just to make a broad comment on it, it's probably in the range of where it was a year ago. I think we're having a positive impact in many of our markets on the local news side. Some syndicated is up, some is down. We've been able to make an impact with our own programming that we think is driving margin for the group. NBC has had a good first half of the year. NBC typically has the best summer of the networks, and so we're seeing that the network stations -- the NBC stations, are pacing better for us right now than our ABCs are. And the ABC prime time is a little soft. So I think overall, we're kind -- I haven't seen a significant move positively or negatively if I was just to kind of roll everything up together.

In the Granite stations, they were just miniscule of a couple hundred thousand dollars of revenue in the quarter? I mean, how small was it is for modeling purposes?

It was just over $1 million of revenue and a couple of hundred thousand in the segment profit in the second quarter.

Got it. And then on, I guess, Brian, on station swaps, I heard a lot about it in the marketplace. Everybody wants to do stations swaps, obviously, over the years. It hasn't been all that many stations swaps. Can you maybe just talk about why that is, please?

Look, I think it's just depends on the players. There's been across the industry kind of a roll-up strategy, and so some of our peers have tried to get as many stations as possible. I think well, I guess we've done 3 deals now in the last 3 years in terms of transactions that grew. So you may think our strategy is rolled up, but our strategy is really more strategic, and we see all of these as opportunities to grow our cash flow and complement the stations we already have. But I think you probably see a little bit more of the swaps as we get closer to that 2-year date on JSAs and FCC's requirement to unbundle those. So there'd some folks that have to get rid of stations, and there may be some moves or trades that go on between companies as it relates to that. But I think the FCC pressure now on kind of singular voices and markets will probably require some groups as you're trying to acquire groups to move along JSAs. But my expectation is there'll probably be a bit more trading in the last few years than you've seen in the past.

Craig, it's Rich. If you stand back and look at swaps, they're always more challenging because value is in the eye of the beholder. And when you're swapping one of your assets for somebody else's assets, it's just harder than an auction process to kind of come to agreed value, which is always makes it a little tougher.

Okay. I guess my last question here. On the bottom of the Page 2, you mentioned in talking about your TV stations this last quarter, it included severance costs associated with the new mater control hub in Indianapolis. How significant was that severance cost there -- what was it? Was sort of around here?

More than $0.5 million.

Is that in line with kind of what you guys typically run in your group, or no? What would you say?

In terms of severance cost?

Yes. It sounds high, right?

It's not uncommon to do things like this. We, of course, have more activities like this in the other segment, but we've done -- we're always looking at ways of improving our efficiencies and this was between sort of the $0.5 million or $1 million range, somewhere in there. It's not uncommon at all.

And this is a big initiative for us. We had a master control hub for the stations that we acquired from -- through McGraw-Hill in Indianapolis, and we spent the last 2 years really looking at the efficiency and the effectiveness of that operation, and felt that there was a good return on the investment. And so, a good part of our capital this year went to work to build out a much larger hub that were based in Indianapolis. And so we've been busy this summer transitioning all of our legacy stations over into that, and it has required an FTE reduction at every one of those stations. And therefore, a fairly sizable severance pay off to scale it.

Actually I do have one more question. Brian, as you're looking at your TV categories for the third quarter, could you be a little more specific on which ones your feeling meaningfully better about than what happened in the second quarter?

Probably the biggest change we see right now is services. Services is pacing really well for the third quarter. It was down a couple of points in the second quarter. So that's probably the 1 communications looks good, home; categories been good all year and continues to look good. But probably, the biggest change is a nice rebound in services.

[Operator Instructions] And at this time, we have no one queuing up. Please continue.

Thank you, Mary. Thank you, everyone, for joining us today. Take care.