Welcome to the second quarter 2013 earnings conference call. My name is Hilda, and I will be your operator for today. [Operator Instructions] Please note that this conference is being recorded. I will now turn the call over to Ms. Lou Anne Nabhan. Ms. Nabhan, you may begin.

Thank you, Helda, and good morning, everyone. Welcome to Media General's Second Quarter Conference Call and Webcast. Earlier today, we announced second quarter 2013 results. The press release is on our website. A transcript of the comments from today's call will be posted immediately after the call, and a replay will also be available. Today's presentation contains forward-looking statements, which are subject to various risks and uncertainties. They should be understood in the context of the company's publicly available report filed with the SEC, including the section on Risk Factors. Media General's future performance could differ materially from its current expectations. Our speakers today are George Mahoney, President and Chief Executive Officer; and Jim Woodward, Vice President of Finance and Chief Financial Officer. Let me now turn the presentation over to George.

Thank you, Lou Anne, and good morning, everyone. Our biggest news of the second quarter was announced on June 6 when, as I'm sure most of you know, Media General announced the merger agreement with Young Broadcasting. The combined company will own or operate 31 network-affiliated television stations across 28 markets, reaching approximately 15.5 million or 14% of U.S. TV households. These are 2 companies with common cultures and shared values, including importantly a commitment to top-quality local news and operating top-ranked stations. The new Media General will be more geographically diverse and will have a presence in more markets that generate unusually strong political revenues. Our increased size enhances our ability to capture retransmission fees and gain efficiencies with broadcast vendors, including providers of syndicated programming. The balance of network affiliation includes 12 CBS stations, 9 NBC stations, 7 ABC stations, 1 FOX, 1 CW and 1 MyNetwork. 16 of the 31 stations are located in the top 75 DMAs. Moreover, our new company will have a strong balance sheet and a dramatically enhanced credit profile. And on Monday of this week, you saw the latest installment on that front. We announced a new 4.25% credit agreement with a syndicate of lenders. It will be in place following the merger. The new credit facility consists of a $60 million revolver and an $885 million term loan. This puts the new Media General on an even stronger footing than we'd planned when we spoke with you on June 6. We had anticipated approximately $15 million of financing synergies as a result of the transaction. In fact, the synergies are now nearly doubling to $29 million. Our pro forma cash interest will be approximately $39 million annually, compared with the 2 companies' current standalone annual cash interest expense of $75 million.…

Thank you, George, and good morning, everyone. I'll start with some below-the-line items for the second quarter. Total interest expense of $19.5 million decreased from last year by $2.2 million or 10%. The decrease was due to debt repayments last year using the proceeds from the sale of our newspapers. Tax expense was $1.9 million in the second quarter compared with $3.4 million last year. Tax expense continues to be a noncash and related to our naked credit issue, as previously discussed in our public filings. Our net operating loss, or NOL, carryforward for tax purposes was approximately $330 million at the end of the second quarter. This NOL will be available to offset future taxable income for up to 20 years. The pending merger with Young Broadcasting may restrict our ability to utilize this existing NOL. Young also has significant NOLs that may be subject to restrictions. We continue to analyze the combined NOL position and finalize our tax planning strategy to maximize the annual utilization. Enterprise EBITDA in the second quarter, adjusted for merger-related expenses, was $18 million this year, compared with $23.6 million last year. The increase in operating costs, including network affiliation fees, combined with lower revenues due to the relative absence of Political revenues, resulted in the year-over-year decrease. Capital expenditures in the second quarter were $4.1 million compared with $2.7 million last year. The current quarter spending was spread over all stations and was mainly for equipment upgrades and replacements, vehicles, and building and set improvements. Our capital expenditures are directly related to improving our product and to remain competitive in our markets. We'll draw on our new credit agreement shortly after the completion of the merger. As George said, the new credit facilities, which are contingent upon the closing, consisted of a $60…

Thank you, Jim. Here's some thoughts for you about our third quarter. In last year's Q3, Political revenues were $19.6 million and revenues from the Summer Olympics were $15.5 million. Our total station revenues will decrease this year as a result. However, excluding Olympic revenues, Core Local and National broadcast gross time sales are expected to increase in the mid to high single digits. Retransmission revenues are expected to increase approximately 43% from last year's third quarter. We have a full slate of special revenue initiatives and new business goals at all of our stations. These are going very well, and they're helping to offset some of this year's lower Political revenues. For example, in June, WFLA and the Tampa Bay Buccaneers announced a new multi-year media rights agreement to broadcast preseason games through the 2017 football season. This is a point with television and it will help replace some of the lost Olympic revenues from last year's third quarter. We've also acquired the rights to produce other special features and ancillary programming tied to the Bucs that will benefit us all through the NFL season. Finally, we continue to focus intently on completing our merger with Young and on the integration we've mentioned. We're excited about our prospects and our opportunities as a larger broadcaster. We look forward to providing enhanced value to our shareholders as an acquirer in our industry's continuing consolidation. Because they're immediately accretive, we'll be focused particularly on creating more duopolies. And now, we'll be pleased to take your questions.

[Operator Instructions] Our first question comes from Barry Lucas from Gabelli & Company.

A couple of -- George and Jim, if you could just refresh my memory, other than the DISH agreement, which you're currently negotiating, any other major deals that come up toward the end of the year and/or what happens in '14?

Yes, Barry. We do have DISH. DISH is about 12% or so of all of our households. And we have Charter, and we also have Comcast coming up. The Charter number is about 5.5%, I think, and the Comcast number, I'm looking for and I'm not seeing it at the moment.

It's right under 10%.

Right about 10%, I think.

And those are '13's or by year end?

Those are at the end of '13, right. And this, of course, is the end of the third quarter.

Right. And '14 major deals?

I don't have that in front of me. We begin to roll through and we have Verizon in 2014.

At the end of '14, Barry.

All right. You've called out the Olympic contribution in the third quarter of '12 and pretty impressive in reflection of big NBC affiliates, but not all that Olympic money was incremental. So if you were to look at that, how much -- it's not like we're going to dial $19 million out of the revenue base. So what do you think was really incremental last year?

About $10 million there.

Okay. And it sounds like you're -- you've maybe pushed the timing up a little bit on closing the Young merger end of third quarter. Is anything particular going on there?

Jim, why don't you take that?

Well, that may be optimistic, but we will push that date. The thing that gives me some reason to believe that could happen is, as George said, Hard-Scott is done. Our FCC applications are pretty clean, there's no overlap. And we continue to work with the FCC to push us along, especially given that our applications are just not controversial whatsoever. We are out there visiting with them. Andy Carington, who's our General Counsel, is out there visiting with them. If not every week, every other week, you could find us there, knocking on doors and pressing along. And then the big thing that will drive that, I think, is the comments from the FCC on the S-4 of the proxy. And we expect those comments in about a week or 2 at the most. And we're ready for the comments. We expect we'll have some, but we'll get to see how good a job we've done anticipating what those are and having the draft and prepared responses to go quickly.

So if -- I mean this may look like a little bit tough to pin down, but if you've got the comments from the SEC in mid-August and responded to them with pretty good speed, which we all expect, that would suggest that the shareholder meeting could be in the middle or very latter part of September. And if all the other approvals came through on a timely basis, it is certainly possible, maybe not probable, but 9/30 is in the realm of possibility?

It is. And I think that's where we're thinking about it. A lot of good things have got to fall into place and fall our way to hit that, but it's possible. But it's what we say or Q4.

Great, and last area maybe is the bigger picture. Albritton is done. Most of the big deals now are essentially off the table. As you integrate Young and think about your household reach, is there a target in mind like how big you'd like to be? How important is it to be bigger? And I throw that out in light of the Time Warner/CBS confrontation here in New York. And so if they are selling the newspapers and acquiring Young, what do you want be when you grow up?

We're pretty happy with the way we're feeling right now of growing up now, Barry.

We're maturing nicely.

Yes, we like it. So what we said, of course, is that we're interested, first off, in duopolies. But as you know, we've also focused on getting strong markets. And so we'll be opportunistic. As we see strong markets become available, we'll be playing.

The next question comes from John Cornwright [ph].

A couple years ago, we would have said the retransmission's gross margin is 100%. You're doing $13 million a quarter. When we look towards the end of the year, you may be a little higher than that or early next year. What would you say the gross margin is then netting out the reverse?

Jim, do you want to take that?

Yes, I think the gross margins for retrans, when it's all settled and done, you're paying reverse comp everywhere. I think it's going to be about a 50/50 share.

50/50? Now...

Once it's all down. Now, it will ramp -- it will have to ramp, in this case, ramp down to that because you're not paying reverse comp. That's staggered. And then it just depends on the negotiations with the networks as to where they start out with their fees. Do they start out at a certain level? Does that ramp up? So there's -- but I think over time, John, that will turn out to be about a 50/50 share.

And John, just sort of finish that up, our NOLs have helped us a lot, there are obviously, in dropping things straight to the bottom line. And as I think you know, our network affiliation with ABC for one of our stations comes out next summer of '14, but we're not paying any retrans on ABC until then on the Media General stations. And of course, our CBS agreements don't come up until the first half of '15. And so all retrans for our CBS stations are dropping to the bottom line all the way through that period.

Do you think it's only NBC where you're paying reverse right now?

Yes, sir. That's correct.

But when you get to that point, 2 or 3 years out, you think it will be 50/50?

We think that's about right, and we think that's what the industry is also feeling.

Are you still confident that the gross retrans increases will more than compensate for the reverse, and therefore, the net dollars will grow even if it's a kind of a slower rate?

Yes, sir, we are, and we're feeling better about that with the consolidation in our industry and our ability to get fairly compensated from cable companies.

Okay. Also I wanted to ask you, what is the overhead running right now, corporate overhead? I mean, you have $9 million a quarter, but that's more than just overhead, right?

Yes, if you look -- it's on -- I'll answer your question and I'll point you to the detail, John. On Page 6 of the press release, it says corporate and other expenses. It's running about $4.2 million right now.

So you're down around $17 million annualized corporate overhead?

Yes.

Wow, okay. That's even better than I thought it would be.

The next question comes from Aaron Watts [Operator Instructions]

A couple of questions for me. I guess one, just starting the quarter, I think you said that your Local time sales were up a little bit less than your National time sales. I was just curious what's driving kind of the disparity there and whether that's a theme that you've seen continuing into the third quarter.

I think that it's important to look at the 2 together. What you see between National and Local sometimes is accounts hopping from one to the other. So I think it really is a combined thing, the combined number that makes the most sense to focus on, quarter in and quarter out.

Okay, got it. Yes, that's helpful. Similar to what we've heard from others as well, so makes sense. A little later in the year, we've been hearing from others that they may see a boost from some of the health care initiatives that are being rolled out. How are you thinking about that? Is that incremental revenue for you? And maybe some thoughts around the timing of when you might see that appear?

Well, it is absolutely incremental, Aaron. It's not something that's budgeted for us. It's not something that's in our forecast right now. But everybody knows that it's out there. We're beginning to hear a little bit about it, but I will not say that we have anything-specific on the books yet. So what we're hearing is that they want to push their spending to something that's relatively close within a month or so of the beginning of Obamacare on October 1. And so we think that's the timing for this. But we believe that there's money, not just from the government, but also from the private sector as various health care providers compete for business.

[Operator Instructions] We show no further questions.

Thank you, ladies and gentlemen. Obviously, it's been a huge and transformative quarter for Media General. We appreciate your attention this morning and your confidence in us. We look forward to updating you further on our progress. Goodbye for now.

. Thank you, ladies and gentlemen. This concludes today's conference. we thank you for participating. You may now disconnect.