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In the Broadcasting industry, Fisher Communications, Inc., (FSCI) has made its mark as far as creating, aggregating and distributing information and entertainment is concerned. It is an integrated media company that engages in television and radio broadcasting.

Fisher Communications, Inc. was founded in 1910, with its headquarters in Seattle, Washington. It actually began operation as a flour milling company before venturing into the world of broadcasting in 1926 through a radio station, KOMO Radio.

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The company operates 20 network-affiliated television stations. Add this to a 50%-owned station, Internet business, 3 Seattle radio stations and 1 managed radio station and you have a company to reckon with in the Broadcasting industry. The company's television stations reach up to 4.5 million households and cover 8 markets.

In the Internet world, the company runs 115 hyperlocal websites covering Seattle-Tacoma, Eugene, Portland, Bakersfield, and Boise. The sites' main focus is on news, entertainment and information. It also has other websites that cover lifestyle and entertainment generally.

Mobile Digital TV Services

The acquisition saga

On April 11, 2013, it was announced that Fisher and Sinclair have entered into a definitive merger agreement. This agreement will see Sinclair acquiring Fisher at approximately $373.3 million. With the acquisition successfully carried out, Fisher's shareholders will receive $41.00 in cash for each share of the company's stock they own. According to the management of Fisher, the merger is expected to close within Q3 of fiscal 2013. The merger is of course, subject to certain closing conditions.

A couple of days after the announcement of the merger, precisely on April 13, 2013, a lawsuit was filed against Fisher and its Board of Directors. The case, Halberstam v. Fisher Communications, Inc., alleged that the company's Board of Directors breached the fiduciary duties it owed shareholders. It was alleged that the company's Board of Directors did not engage in a fair sale process prior to the approval of the proposed acquisition.

Future Outlook

Management looks forward to a continued market share growth in the environment it operates in. This stems mainly from the fact that in terms of high quality and valuable broadcasting, the company has always maintained solid execution across every one of its broadcast stations.

The company's management believes that with the definitive merger agreement with Sinclair, it will provide the company's stations, team members and business partners a unique opportunity to grow more than ever before. Also, the merger is expected to deliver significant value to the company's shareholders, with the company directing its focus more on the continued growth of the stations for increased revenues.

The company's strength

The company has been able to achieve success and boost revenue by engaging in network affiliation. It has up to 20 television stations that are affiliated with well-known networks. While 13 stations are affiliated to a major network, the other seven are distributed among a couple of networks.

The company's revenue comes mostly from the sales of local, regional and national adverts. Retransmission consent fees, commercial production activities and tower rental are also said to generate revenue for the company.

According to the company's management, revenue from advertising is at its peak in the second and fourth quarters of every given fiscal year. The reason for this seasonal revenue is the increase in consumer advertising in the spring and retail advertising before and during the holiday season. During election years, which usually fall in within the fourth quarter, there is considerable increase in advertising revenue.

Risks

Some of the risks Fisher has to contend with include but are not limited to the following:

  • Loss emanating from unsuccessful integration of acquired television stations.
  • It relies mostly on network affiliation for revenue. For example, the company's two largest television stations, KOMO TV and KATU TV accounted for 59% of the company's television broadcasting revenue for Q1 fiscal 2013. The stations are affiliated with the ABC Television Network. Should the network affiliation contract be terminated or the contract not renewed, it means the company's business and financial results will be adversely affected.
  • The management is looking forward to continued growth and increased revenues with the proposed merger with Sinclair. There are possibilities that such benefits might not be realized with the transaction. Other risks associated with the merger include uncertainty of satisfactory closing conditions for the merger and if it is satisfactorily closed, the uncertainty of the respective parties carrying out their obligations as contained in the merger agreement. Should anything go wrong, it will have an adverse effect on the company's performance and overall financial result.

Q1 fiscal 2013 financial results

Fisher reported total revenues of $36.8 million for Q1 of fiscal 2013, which ended on March 31, 2013. This shows an increase of 8% in comparison to $33.9 million reported in the same quarter of the previous fiscal year.

There was an increase of $3.4 million revenue for the quarter from the Television segment. This shows a 12% increase in comparison to the same quarter of the previous year. This increase was attributed to increases in revenue from retransmission and core advertising.

The retransmission segment showed an increase of $2.9 million for the quarter, an increase of 82% in comparison to the same quarter of the previous year. There was a 17% increase in the automotive-related advertising category, 8% for retail advertising and 2% in professional services advertising, all compared to the same quarter of the previous year.

The company reported a 100% decrease in political advertising revenue for the quarter. This was attributed to the year being an off cycle election year. Revenue increases of 15% and 14% were reported for the company's ABC and CBS affiliated stations respectively. Revenue from the Radio segment decreased by $0.4 million, a 9% decrease in comparison to the same quarter of the previous year. The decrease was attributed to a decline in local advertising revenue, which was as a result of continued market softness.

The company further reported a net loss of $0.8 million in comparison to $1.9 million reported in the same quarter of the previous year. $1.2 million was reported as pre-tax transaction related expenses. It also reported an adjusted EBITDA of $2.2 million, a 51% increase in comparison to $1.5 million reported in the same quarter of the previous year.

The company's report showed an increase of $1.1 million in direct operating costs for the television segment. In comparison to the same quarter of the previous year, it is an 8% increase. A decrease of $51,000 in direct operating costs in the Radio segment was reported. This shows a 2% decrease in comparison to the same quarter of the previous year.

Cash and liquidity

The company reported a decrease in its liquidity. Cash and cash equivalents stood at $18.9 million, in comparison to $20.4 million reported in the same quarter of the previous year.

In terms of debt, the company is debt free while also maintaining an unused revolving credit facility valued at $30 million. With the company's cash on hand, the unused revolving credit facility and its operating cash flows, Fisher is confident it can provide funding for capital needs that may arise in the near future.

Valuation

Currently, the company's P/E ratio is 25.81 and is a premium in comparison to the S&P 500 average of 18.67 and the industry average of 19.07. Its price-to-book ratio stands at 3.02, which indicates a premium when compared to the S&P 500 average of 2.39 but a significant discount when compared to the industry average of 5.86. The stock's price-to-sales ratio of 2.13 is below the industry average of 2.60 but well above the S&P 500 average.

Conclusion

When you compare the company's gross profit margin for Q1 of fiscal 2013 to the same quarter of the previous fiscal year, it is essentially unchanged. The company's sales and net income have grown. Although the company outpaced its average competitor in the industry in terms of growth in revenues, that was not the case in the area of net income growth.

Also, there was a 39.51% decrease in stockholders' equity, in comparison to the same quarter of the previous year. Although the company reported a decrease in its liquidity, it is still extremely liquid. It currently maintains a Quick Ratio of 2.44 and that points to the fact that the company can cover any short-term cash needs it might have in the near future. In all, the company is unlikely to falter in its financial obligations in the near future even as investors watch to see how the proposed definitive merger with Sinclair will turn out - to be or not to be.

Source: Fisher Communications, Inc. - Taking A Closer Look