Sinclair Inc (SBGI) 2006 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the fourth quarter 2006 and year end Fisher Communications Incorporated earnings conference call. [OPERATOR INSTRUCTIONS] I would now like to turn the call over to Ms. Colleen Brown, President and CEO. Please proceed, ma'am.

Thank you, Jim. Good afternoon. Welcome to our fourth quarter 2006 conference call. With me here in Seattle at our offices is Mae Numata, our new Senior Vice President and Chief Financial Officer, and Corporate Secretary. Mae will provide you with a financial overview in a moment, and we will both be available for questions later in the call. Also with us today in Seattle is Joe Lovejoy, Senior Vice President Media Operations, and Jody Colligan, Vice President of Finance. I'll begin with a few overview comments. We are pleased to share with you that for the full year 2006 Fisher Communications became profitable from continuing operations for the first time in five years. Driven by a 25% gain in television revenue, Fisher delivered fourth quarter 2006 income from continuing operations of $7 million against prior year Q4 income from continuing operations of $1.6 million. In addition full year total revenue increased 13%, net income was $16.8 million compared to a net loss of $5.1 million in 2005. Net income for 2006 included income from discontinued operations of $609,000, and a gain from the sale of a portion of these operations for approximately $10 million.

Let me give you a little color on this performance. The fourth quarter benefited from political advertising revenue, although our markets did not have as highly contested races as some parts of the country did. In addition, compared to prior year, we saw strength in the retail, telecommunications and healthcare categories but softness in domestic automotive. Also during the fourth quarter we completed a number of strategic transactions. We closed on the sale of 18 of our 24 small market radio stations located in Montana and Eastern Washington, for $26.1 million. This transaction was structured as a like kind exchange for tax purposes and we used a portion of the proceeds, $19.3 million, to purchase two Oregon Univision affiliated stations. The remaining six small market radio stations were excluded from the original sale, of which five continue to be held for sale and the sixth is awaiting FCC approval to complete its sales transaction. In Seattle we purchased KWOG TV, a full power station with similar coverage footprint as KOMO television, our ABC affiliate in Seattle. We changed the callers and launched KUNS as new Univision affiliated station in Seattle on January 1, 2007.

The completion of these transactions created duopoly economics in our Seattle and Portland market. Additionally we are leveraging our existing centralized infrastructure to broadcast all of our Spanish language stations from our centralized uplink facility. To summarize the transaction activity in 2006, the sale of our small market radio stations, and the purchase of second stations in Seattle and Portland, and previously announced Boise and Yakima markets enabled Fisher to leverage the synergies and infrastructure of our cluster of Northwest stations. Furthermore, the purchase of these stations in our key markets creates an opportunity to enjoy duopoly economics and expand our service to Hispanic community, which aligns Fisher with the fastest growing population segment in our key markets.

We also invested in a number of other strategic initiatives to improve our operating performance during 2006 including news initiatives in Seattle, Portland and Boise, changes in personnel and the build out of the Fisher interactive network. You are seeing the results of the execution of the strategic plan Fisher has and will continue to execute key strategic initiatives to not only improve our current operating performance but also build our competitive advantage for the future. And now I'd like to turn it over to Mae.

Thank you, Colleen. Before we discuss our financial results let me remind those of you joining us that comments made during our call today may include forward-looking statements. These statements may be identified by the use of forward-looking terminology such as anticipate, believe, continue, could, estimate, expect, intend, may, might, plan, potential, predict, should or will or the negative thereof or comparable terminology. While we believe these expectations, assumptions, estimates and projections are reasonable, such forward-looking statements are only predictions and involve known and unknown risks and uncertainties, many of which are beyond our control. These risks and uncertainties include those discussed in our quarterly reports on Form 10-Q for the quarter ended September 30, 2006, filed in November, 2006, under the heading risk factors. We plan to file a 2006 Form 10-K in mid March with an updated listing of these factors. Given these risks and uncertainties you are cautioned not to place undue reliance on such forward-looking statements. The forward-looking statements are made only as of today's date. We do not undertake any obligation to update any such statements, or to publicly announce the results of any revisions to any such statements, to reflect future events or developments.

With that accomplished I will present our financial results. We issued our quarterly and year end earnings release earlier today and, as previously stated, we plan to file our Form 10-K in mid March. Those documents include in-depth information regarding our financial results so please refer to those sources for additional information. Let me briefly summarize the sources of our revenue for 2006. Television accounted for 69% of total revenue. Our two ABC affiliated stations located in Seattle and Portland accounted for just over half of the company's total 2006 revenue. Radio accounted for 24% of total revenue, excluding discontinued operations. As Colleen mentioned, during fourth quarter we closed on the sale of 18 of our 24 small market radio stations in Montana and Eastern Washington for approximately $26.1 million. All 24 stations have been carved out of the radio segment presentation and is disclosed under the caption, discontinued operations. A third source is Fisher Plaza which accounts for 6% of total revenue. We reported a total revenue increase of 23% to $44.7 million in the fourth quarter 2006, compared to $36.2 million in the fourth quarter of 2005.

For the year ended 2006 we reported revenue of approximately $155 million, compared to $137 million in 2005, a 13% increase. Broadcast revenue increased in 2006 due to higher revenue in national, local and political advertising. In fourth quarter 2006, as compared to fourth quarter 2005, the increase was in part due to political advertising as well as stronger local sales performance and the success of our recently purchased Univision stations. Our radio operation showed improvement -- improved revenue in both fourth quarter and for the year as compared to 2005, primarily as a result of increased local revenues. We attribute the increase to improved performance on KOMO AM

Total operating expenses decreased 5% to $135.6 million in 2006 as compared to 2005. Total operating expenses decreased 11% to $32.6 million in fourth quarter 2006 as compared to fourth quarter 2005. These decreases were due to lower selling, general, and administrative expenses and depreciation expense. SG&A expenses decreased 8% to $54 million in 2006 as compared to 2005. This included a one time non-cash charge of $4.3 million in the fourth quarter of 2005 relating to our change in national television rep firms. Severance cost charged in 2005, and lower Sarbanes-Oxley compliance costs incurred in 2006 as compared to 2005. Depreciation expense declined 20% to $10.2 million in 2006 as compared to 2005. This decline is reflective of many assets becoming fully depreciated in late 2005 and is partially offset by assets placed in service at Fisher Plaza and purchases of assets and additional stations in the second half of 2006. The company reported income from continuing operations of $7 million in the fourth quarter of 2006 compared to $1.6 million in the fourth quarter of 2005. We recorded a significant tax benefit of $3.1 million in the fourth quarter of 2005 as we dissolved certain wholly-owned inactive subsidiaries. This explains the fourth quarter 2005 tax benefit exceeding the amount of pretax loss as well as the overall higher than anticipated tax benefit for the 2005 annual period.

For the 2006 year, the company reported income from continued operations of $6.3 million compared to a net loss from continuing operations of $6.1 million in 2005. Including income from discontinued operations of $600,000 and a gain on sale of discontinued operations of $10 million, 2006 consolidated net income was $16.8 million compared to the net loss of $5.1 million in 2005. We ended the year with cash, restricted cash and short term investments of $15.9 million. We had working capital of $31 million, primarily due to our positive operating cash flows and the sale of 18 of our 24 small market radio stations. These gains were offset by the fourth quarter repayment of net short term borrowings of $13 million from our $20 million credit facility. As of the end of 2006, we had the entire $20 million credit facility available to us. Our investment in Safeco stock was valued at $188 million as of year end 2006.

As we have done over the past few quarters, I would like to take a few moments and review our operating cash flow as defined under our debt agreement. Based on the year ended 2006, we calculate our operating cash flow to be $33.4 million, excluding the effect of our discontinued operations and the sale of a Fisher radio regional group. Let me walk through the summarized calculation. Consolidated net income was $6.3 million. Exclude the effective income taxes of $2.7 million. Add back interest expense of $14 million. Add depreciation and non-cash amortization of $9.4 million. And add back the net of non-cash program amortization over cash paid for programming. These amounts are found in our statements of cash flows, the amount is $1 million. That concludes the prepared portion of our presentation. Thank you for listening. At this time, I ask Tim to assist us with responding to questions that you may have.

[OPERATOR INSTRUCTIONS] Your first question comes from the line of Bishop Cheen from Wachovia. Please proceed.

Hi, Colleen, thanks for taking the question. Welcome, Mae.

Thank you, hi Bishop, how are you today?

Hi Jody, hi Joy. Okay. So this is a pretty good quarter and pretty good year and you are doing some portfolio shaping in terms of your assets. The radio group, the smaller market radio group is gone. You're keeping the large market. You are adding TV. I'm assuming the expectation is all the shaping is going to give you better bang for the buck on the EBITDA and earnings side. On the revenue side would we notice it as well or is it just the TV operations that you are creating are so much higher margin? And then the follow-up question to that, when do you think we would start noticing it in the broad stroke of earnings in, on Fisher?

Bishop, those are good questions. The first one regarding when did we start noticing it on the revenue side. Obviously when you subtract out discontinued operations and add in these acquisitions, there is going to be a trade-off. However, I think it's a pretty even trade-off. That's what we've seen so far year to date and in 2006. And I would expect those efficiencies to continue to grow, and frankly with the past experience with Univision and the Spanish language growth in the marketplace, it suggests that it's going to have a higher growth rate than standard radio. So the hope is that it is accelerated but in our past experience has been very solid and we've just begun. So I would expect that the margins are where you will really see the difference.

Okay, and you think we might start noticing it mid year? Because even though you don't tell us what the political is, we have to think that political was a noticeable incremental. And that political will not be there in '07, a good expectation. So it's got to be replaced. And the question is as we get to New Years Eve, 2007, will we replace a good chunk of it?

Obviously we benefit from political. One thing that was unique in the Northwest is our political is extremely concentrated in a narrow window unlike many other parts of the country. We just didn't have all the races that created such a momentum in many peer market companies. But what I will say is that when you have that kind of concentration, you end up displacing a lot of regular advertising which we did experience. So while it did affect us it did not affect us to the degree that our peer companies are dealing with. And as far as when do we expect Univision to, or our affiliates to kick in, we just started Seattle as a Univision affiliate in January, I can say with past experience it took us a few months to get up and running, but beyond that it just picks up speed, and we saw very strong results as we got into the months in 2006 with the Univision performance. And I would, I have no reason to believe that we won't build on that value.

Okay. And then the last question, in the past few years there's always been a large one time charge that you have to do a little bit of EBITDA gymnastics to get to it and add it back. As we get into '07 now, things look pretty clean, you're not swapping out reps, the executive suite seems stable, is it our expectation there is not going to be a large extraordinary charge, we're not eliminating derivatives or extinguishing debt or any of those big chunky noticeable charges?

Yes, Bishop, you know hindsight is 20/20 right now there has been a lot of clean up and a lot of straightening out, and we've been very comfortable that we have touched everything at this point. I always reserve the right for something, but at this point I feel very good about where we stand financially and with our balance sheets and our income statements and all the other things that sit out there that you just mentioned, I feel very good about where we sit.

That's the end of my grand inquisition. Thank you, Colleen.

[OPERATOR INSTRUCTIONS] Your next question comes from the line of Tom Kerr from Reed Conner. Please proceed.

Hi guys.

Hi, Tom.

Hi. Two quick questions, one just back on the television segment, I mean, any thoughts about margins you can share with us in '07? Just pick a number, could an EBITDA margin get above 20%, 25% in '07 because of the good growth we're seeing? And second question is, with regard to the Safeco stock, any more thoughts on that, especially since it's selling at an all time high, would there be something going on in '07 or is that more of an'08 time frame where we can expect something on that?

Both good questions, Tom. You know we don't give forward looking projections but I can say on the margin growth, and I've stated this before, normal margin growth should be in the mid 30s to high 30s in large and small market. Obviously we are not there yet and we are absolutely focused on improving performance. So there is room for growth. And then the second part of that with Safeco, as you know, we have as a company owned Safeco since I believe 1924 when Safeco was first started and we were one of the original shareholders. We are a very large shareholder. So anything we do at Safeco is going to take a lot of consideration to be tax efficient, to be strategic, and to prove out any value to the shareholders. So I would say we always look at, and we are evaluating the best use of our assets and we will continued to so. But it will be a very strategic decision, if there is ever a decision different than the one that we have right now, with holding our Safeco stock.

Do you guys have advisors that are helping you with those thoughts right now?

We have many advisors, yes.

Okay. And just back on the television margin question, you said 25% to 30% margin growth. Did you mean margin percent?

What I was referring to is typically you see 35% to 38%, 39% margins in our business. And that's a very typical number and actually I believe that was the average the last year in that range in the industry. We obviously have room for growth and we are shooting to be better than average, but that doesn't mean we will immediately get there. We are working to improve our performance and it is our goal to improve our margins.

Great. Thanks.

Thanks, Tom.

At this time there are no further questions. I would like to turn the conference back over to Ms. Colleen Brown for closing remarks.

Well, thank you everybody. This has been quite the year. As you can imagine doing a turn around is always rewarding and challenging. We have more to do. We recognize that. We are running fast and furiously and we consider ourselves on the right track and believe that we have delivered a 2006 year that we wanted to deliver and we have got our sights set on the target for 2007, and that's where we are headed right now. So thank you for your time and for listening in.

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Good day.