<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended September 30, 1998
[ ] Transition Report Under Section 13 or 15(d) of the Exchange Act
For the transition period from ________________ to ____________________
Commission File Number 0-22439
FISHER COMPANIES INC.
(Exact Name of Registrant as Specified in Its Charter)
WASHINGTON 91-0222175
-------------------- -------------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization Identification Number
1525 ONE UNION SQUARE
600 University Street
SEATTLE, WASHINGTON 98101-3185
(Address of Principal Executive Offices) (Zip Code)
(206) 624-2752
(Registrant's Telephone Number, Including Area Code)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Exchange Act during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
Yes X No
----- -----
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date:
Common Stock, $1.25 par value, outstanding as of September 30, 1998:
8,542,362
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PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The following Consolidated Financial Statements are presented for the
Registrant, Fisher Companies Inc. and wholly owned subsidiaries.
1. Consolidated Statement of Income:
Three and nine months ended September 30, 1998 and 1997.
2. Consolidated Balance Sheet:
September 30, 1998 and December 31, 1997.
3. Consolidated Statement of Cash Flows:
Nine months ended September 30, 1998 and 1997.
4. Consolidated Statement of Comprehensive Income:
Three and nine months ended September 30, 1998 and 1997.
5. Notes to Consolidated Financial Statements.
2
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ITEM 1 -- FINANCIAL STATEMENTS
FISHER COMPANIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED THREE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
1998 1997 1998 1997
---------- ---------- --------- ---------
<S> <C> <C> <C> <C>
(In thousands except per share amounts)
Sales and other revenue:
Broadcasting $ 90,271 $ 85,017 $29,473 $28,964
Milling 79,890 95,375 26,609 31,031
Real estate 9,304 8,530 3,161 2,813
Corporate and other, primarily
dividends and interest income 3,025 2,773 1,107 980
-------- -------- ------- -------
182,490 191,695 60,350 63,788
-------- -------- ------- -------
Costs and expenses:
Cost of products and services sold 114,405 122,483 38,010 41,156
Selling expenses 14,553 13,537 5,085 4,525
General, administrative and
other expenses 28,332 26,759 9,656 8,565
-------- -------- ------- -------
157,290 162,779 52,751 54,246
-------- -------- ------- -------
Income from operations:
Broadcasting 21,050 24,081 6,183 8,167
Milling 1,007 1,844 542 395
Real estate 3,236 2,343 1,178 638
Corporate and other (93) 648 (304) 342
-------- -------- ------- -------
25,200 28,916 7,599 9,542
Interest expense 3,650 4,147 1,176 1,357
-------- -------- ------- -------
Income before provision for income taxes 21,550 24,769 6,423 8,185
Provision for federal and state income taxes 7,526 8,454 2,331 2,786
-------- -------- ------- -------
Net income $ 14,024 $ 16,315 $ 4,092 $ 5,399
-------- -------- ------- -------
Net income per common share $1.64 $1.91 $.48 $.63
Net income per common share
assuming dilution $1.64 $1.90 $.48 $.63
Weighted average number of
shares outstanding 8,540 8,534 8,542 8,535
Weighted average number of shares
outstanding assuming dilution 8,576 8,577 8,580 8,586
Dividends declared per share $.75 $.25
</TABLE>
See accompanying notes to consolidated financial statements.
3
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FISHER COMPANIES INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
September 30 December 31
1998 1997
------------ -----------
(In thousands except share amounts) (Unaudited)
ASSETS
Current Assets:
Cash and short-term cash investments $ 5,318 $ 6,337
Receivables 36,115 44,623
Inventories 13,747 14,537
Prepaid expenses 3,199 6,922
Television and radio broadcast rights 11,835 6,912
-------- --------
Total current assets 70,214 79,331
-------- --------
Marketable Securities, at market value 127,956 149,616
-------- --------
Other Assets:
Cash value of life insurance and
retirement deposits 12,263 10,052
Television and radio broadcast rights 74 170
Intangible assets, net of amortization 48,978 49,533
Investments in equity investees 13,537 4,478
Other 2,545 3,117
-------- --------
77,397 67,350
-------- --------
Property, Plant and Equipment, net 146,352 142,456
-------- --------
$421,919 $438,753
-------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Notes payable $ 19,242 $ 18,363
Trade accounts payable 4,853 8,117
Accrued payroll and related benefits 4,554 5,274
Television and radio broadcast
rights payable 10,467 6,846
Income taxes payable 84 617
Other current liabilities 3,752 3,778
-------- --------
Total current liabilities 42,952 42,995
-------- --------
Long-term Debt, net of current maturities 51,508 55,615
-------- --------
Other Liabilities:
Accrued retirement benefits 12,129 12,059
Deferred income taxes 53,113 60,495
Television and radio broadcast rights
payable, long-term portion 633 24
Deposits and retainage payable 896 681
-------- --------
66,771 73,259
-------- --------
Minority Interests 33 33
-------- --------
Stockholders' Equity:
Common stock, shares authorized
12,000,000, $1.25 par value;
issued 8,542,362 in 1998 and
8,535,432 in 1997 10,678 10,669
Capital in excess of par 617 277
Accumulated other comprehensive
income - unrealized gain
on marketable securities, net of
deferred income taxes of $44,396
in 1998 and $51,977 in 1997 82,450 96,529
Retained earnings 166,910 159,376
-------- --------
260,655 266,851
-------- --------
$421,919 $438,753
-------- --------
See accompanying notes to consolidated financial statements
4
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FISHER COMPANIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
NINE MONTHS ENDED
SEPTEMBER 30
1998 1997
----------- ----------
(In thousands)
Cash flows from operating activities:
Net income $ 14,024 $ 16,315
Adjustments to reconcile net income
to net cash provided by
operating activities:
Depreciation and amortization 9,871 9,034
Increase in noncurrent deferred
income taxes 199 201
Issuance of stock pursuant to
vested stock rights and related
tax benefit 293 191
Loss on sale of property, plant
and equipment 261
Change in operating assets and liabilities:
Receivables 8,508 3,671
Inventories 790 1,174
Prepaid expenses 3,723 2,394
Cash value of life insurance and
retirement deposits (2,211) (174)
Other assets 572 207
Trade accounts payable, accrued payroll
and related benefits and other current
liabilities (4,010) (5,326)
Income taxes payable (533) (1,344)
Accrued retirement benefits 70 (302)
Deposits and retainage payable 215 75
Amortization of television and radio
broadcast rights 6,639 6,342
Payments for television and radio
broadcast rights (7,236) (6,879)
-------- --------
Net cash provided by operating activities 31,175 25,579
-------- --------
Cash flows from investing activities:
Proceeds from sale of property, plant
and equipment 601
Investments in equity investees (9,059) (3,203)
Purchase assets of radio stations (427) (3,949)
Purchase of property, plant and equipment (13,647) (12,625)
-------- --------
Net cash used in investing activities (22,532) (19,777)
-------- --------
Cash flows from financing activities:
Net borrowings under notes payable 5,275 6,118
Payments on borrowing agreements
and mortgage loans (8,503) (5,829)
Proceeds from exercise of stock options 56 44
Cash dividends paid (6,490) (6,346)
-------- --------
Net cash used in financing activities (9,662) (6,013)
-------- --------
Net decrease in cash and short-term
cash investments (1,019) (211)
Cash and short-term cash investments,
beginning of period 6,337 5,116
-------- --------
Cash and short-term cash investments,
end of period $ 5,318 $ 4,905
-------- --------
See accompanying notes to consolidated financial statements
FISHER COMPANIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(Unaudited)
NINE MONTHS ENDED THREE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
1998 1997 1998 1997
--------- ------- --------- --------
(In thousands)
Net income $ 14,024 $16,315 $ 4,092 $ 5,399
Other comprehensive income-unrealized
gain on securities, net of deferred
income taxes (14,079) 26,990 (7,368) 12,642
-------- ------- ------- -------
Comprehensive income $ (55) $43,305 $(3,276) $18,041
-------- ------- ------- -------
See accompanying notes to consolidated financial statements
5
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FISHER COMPANIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. The unaudited financial information furnished herein, in the opinion of
management, reflects all adjustments which are necessary to state fairly
the consolidated financial position, results of operations, and cash flows
of Fisher Companies Inc. (the "Company") as of and for the periods
indicated. The Company presumes that users of the interim financial
information herein have read or have access to the Company's audited
consolidated financial statements and that the adequacy of additional
disclosure needed for a fair presentation, except in regard to material
contingencies or recent subsequent events, may be determined in that
context. Accordingly, footnote and other disclosures which would
substantially duplicate the disclosures contained in Form 10-K for the year
ended December 31, 1997 filed on March 27, 1998 by the Company have been
omitted. The financial information herein is not necessarily representative
of a full year's operations. Certain prior year balances have been
reclassified to conform to the 1998 presentation.
2. In the fourth quarter of 1997 the Company adopted Statement of Financial
Accounting Standards No. 128 "Earnings per Share" (FAS 128) which changed
the Company's presentation and calculation of earnings per share. Net
income per share represents net income divided by the weighted average
number of shares outstanding during the year. Net income per share assuming
dilution represents net income divided by the weighted average number of
shares outstanding including the potentially dilutive impact of the stock
options and restricted stock rights issued under the Fisher Companies
Incentive Plan of 1995. Common stock options and restricted stock rights
are converted using the treasury stock method. Per share amounts for the
three and nine month periods ended September 30, 1997 have been
retroactively adjusted to this new presentation. The adoption of FAS 128
did not have a material impact on the Company's earnings per share.
In June 1998, Statement of Financial Accounting Standards No. 133,
Accounting for Derivative Instruments and Hedging Activities (FAS 133), was
issued. This pronouncement standardizes the accounting for derivative
instruments by requiring that an entity recognize those items as assets or
liabilities in the financial statements and measure them at fair value. FAS
133 is required to be adopted by the Company for the year ended December
31, 2000. Early adoption is permitted. The Company is currently reviewing
the requirements of FAS 133 and assessing its impact on the Company's
financial statements. The Company has not made a decision regarding the
period of adoption.
3. Inventories are summarized as follows (in thousands):
SEPTEMBER 30 DECEMBER 31
1998 1997
------------ -----------
Finished products $ 4,026 $ 5,114
Raw materials 9,569 9,258
Spare parts and supplies 152 165
------- -------
$13,747 $14,537
======= =======
4. In December 1996 an annual dividend in the amount of $.98 per share was
declared, payable quarterly during 1997 at the rate of $.245 per share. In
December 1997, March 1998, April 1998, and September 1998 a quarterly
dividend in the amount of $.25 per share was declared, payable in March,
June, September, and December 1998, respectively.
6
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ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL POSITION AND RESULTS
OF OPERATIONS
This discussion is intended to provide an analysis of significant trends and
material changes in the Company's financial position and operating results
during the three and nine month periods ended September 30, 1998 compared to the
similar periods in 1997.
CONSOLIDATED RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
1997
Sales and other revenue
- --------------------------------------------------------------------------------
Nine months ended September 30 1998 % Change 1997
$182,490,000 -4.8% $191,695,000
Sales and other revenue increased 6.2% and 9.1% for broadcasting and real estate
operations, respectively, in the nine months ended September 30, 1998, while
milling operations experienced a decline of 16.2%. Revenue of the corporate
segment increased 9.1% as a result of increases in dividends from marketable
securities.
Cost of products and services sold
- --------------------------------------------------------------------------------
Nine months ended September 30 1998 % Change 1997
$114,405,000 -6.6% $122,483,000
Percentage of revenue 62.7% 63.9%
The decrease in cost of products and services sold in 1998 is attributable to
lower cost of wheat used to produce flour and lower volume of flour sold by the
milling segment, offset by increased costs to acquire, produce, and promote
broadcast programming. The gross margin percentage from broadcasting operations
declined as a result of increased programming costs. The gross margin
percentage from milling operations increased as a result of improved milling
yield and a reduction of manufacturing expenses per cwt. of flour produced.
Margin from real estate operations improved due to revenue growth.
Selling expenses
- --------------------------------------------------------------------------------
Nine months ended September 30 1998 % Change 1997
$14,553,000 7.5% $13,537,000
Percentage of revenue 8.0% 7.1%
Selling expenses increased at the broadcasting segment as a result of increased
commissions and related expenses attributable to increased broadcasting revenue.
Selling expenses increased at the milling segment's Southern California
Distribution Center where new products are being introduced and incentives are
being offered to stimulate business.
7
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General and administrative expenses
- --------------------------------------------------------------------------------
Nine months ended September 30 1998 % Change 1997
$28,332,000 5.9% $26,759,000
Percentage of revenue 15.5% 14.0%
The increase in general and administrative expenses incurred in 1998 is largely
attributable to provision for anticipated losses recorded by the broadcasting
segment in the first quarter, and to increased personnel, consulting, and other
administrative expense at the corporate segment. General and administrative
expenses declined at the milling segment as a result of emphasis on expense
control.
Interest expense
- --------------------------------------------------------------------------------
Nine months ended September 30 1998 % Change 1997
$3,650,000 -12.0% $4,147,000
Interest expense declined in 1998 compared with 1997 as a result of lower
average borrowing outstanding during 1998 and the fact that interest relating to
costs incurred for construction of the digital broadcasting facility for KOMO
Television, which commenced in Spring 1998, is capitalized as a cost of that
facility. The average interest rate was 7.1% in 1998 and 7.0% in 1997.
Provision for federal and state income taxes
- --------------------------------------------------------------------------------
Nine months ended September 30 1998 % Change 1997
$7,526,000 -11.0% $8,454,000
Effective tax rate 34.9% 34.1%
The provison for federal and state income taxes varies directly with pre-tax
income. The effective tax rate is less than the statutory rate for both periods
primarily due to a deduction for dividends received, offset by the impact of
state income taxes, net of the federal income tax benefit. During 1998, a
greater proportion of pre-tax income was subject to state income tax (income
earned in Washington State is not subject to state income tax) compares to 1997,
with the result that the effective rate has increased.
THREE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 1997
Sales and other revenue
- --------------------------------------------------------------------------------
Three months ended September 30 1998 % Change 1997
$60,350,000 -5.4% $63,788,000
Sales and other revenue increased 1.8% and 12.4% for broadcasting and real
estate operations, respectively, in the three months ended September 30, 1998,
while milling operations experienced a decline of 14.3%. Revenue of the
corporate segment increased 12.9% as a result of increases in dividends from
marketable securities.
8
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Cost of products and services sold
- --------------------------------------------------------------------------------
Three months ended September 30 1998 % Change 1997
$38,010,000 -7.6% $41,156,000
Percentage of revenue 63.0% 64.5%
The decrease in cost of products and services sold in 1998 is attributable to
lower cost of wheat used to produce flour and lower volume of flour sold by the
milling segment, offset by increased costs to acquire, produce, and promote
broadcast programming. The gross margin percentage from broadcasting declined
as a result of increased programming costs. The gross margin percentage from
milling operations increased as a result of improved milling yield and a
reduction of manufacturing expenses per cwt. of flour produced. Margin from
real estate operations improved due to revenue growth.
Selling expense
- --------------------------------------------------------------------------------
Three months ended September 30 1998 % Change 1997
$5,085,000 12.4% $4,525,000
Percentage of revenue 8.4% 7.1%
Selling expenses increased as a result of increased commissions and related
expenses attributable to increased broadcasting revenue. Selling expenses
increased at the milling segment's Southern California Distribution Center where
new products are being introduced and incentives are being offered to stimulate
business.
General and administrative expenses
- --------------------------------------------------------------------------------
Three months ended September 30 1998 % Change 1997
$9,656,000 12.7% $8,565,000
Percentage of revenue 16.0% 13.4%
General and administrative expenses increased at the broadcasting, milling, and
corporate segments, and declined modestly at the real estate segment. The
increased expenses generally relate to higher personnel, consulting, and other
administrative costs.
Interest expense
- --------------------------------------------------------------------------------
Three months ended September 30 1998 % Change 1997
$1,176,000 -13.3% $1,357,000
Interest expense declined in 1998 compared with 1997 due to lower average
borrowing outstanding during 1998 and the fact that interest relating to costs
incurred for construction of the digital broadcasting facility for KOMO
Television, which commenced in Spring 1998, is capitalized as a cost of that
facility. As discussed above, the average interest rate in 1998 was slightly
higher than in 1997.
9
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Provision for federal and state income taxes
- --------------------------------------------------------------------------------
Three months ended September 30 1998 % Change 1997
$2,331,000 -16.3% $2,786,000
Effective tax rate 36.3% 34.0%
The provision for federal and state income taxes varies directly with pre-tax
income. the effective tax rate typically is lower than the statutory rate due to
a deduction for dividends received, offset by the impact of state income taxes,
net of the federal income tax benefit. During the third quarter of 1998, a
greater proportion of pre-tax income was subject to state income tax (income
earned in Washington State is not subject to state income tax) compared to third
quarter 1997, with the result that the effective rate for the period exceeded
the statutory rate.
BROADCASTING OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
1997
Sales and other revenue
- --------------------------------------------------------------------------------
Nine months ended September 30 1998 % Change 1997
$90,271,000 6.2% $85,017,000
Revenue from KOMO Television in Seattle increased approximately $1,200,000
during the nine months ended September 30, 1998 while revenue from KATU
Television in Portland increased approximately $2,200,000. Both stations
experienced increases in national advertising. KATU also experienced increased
local revenue, while KOMO reported a decline. Revenue from radio operations
increased approximately $1,800,000, including $1,100,000 from the Company's
Seattle radio stations (KOMO AM, KVI AM and KPLZ-FM), $500,000 from the nineteen
small market stations in Montana and Eastern Washington, and $200,000 from
Portland radio operations (KWJJ-FM and KOTK). 1998 political revenue earned by
the broadcasting segment was more than double the amount earned in 1997.
Income from operations
- --------------------------------------------------------------------------------
Nine months ended September 30 1998 % Change 1997
$21,050,000 -12.6% $24,081,000
Percentage of revenue 23.3% 28.3%
Compared with 1997, operating results during the nine months ended September 30,
1998 were mixed. Declines in operating income from Seattle television and radio
operations and Portland radio operations were not entirely offset by increased
income from Portland television, small market radio operations, and the
satellite technology division. Operating expenses at the broadcasting segment
increased 12.0% in 1998 largely due to increased costs to acquire, produce and
promote broadcast programming and selling expenses incurred as a result of an
overall increase in revenue. 1998 results also include provision, recorded in
the first quarter, for anticipated losses incurred from (i) the sale of former
Portland radio studios, as part of obtaining new facilities for KWJJ-FM and
KOTK, and (ii) an interest in Affiliate Enterprises, Inc.
10
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THREE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 1997
Sales and other revenue
- --------------------------------------------------------------------------------
Three months ended September 30 1998 % Change 1997
$29,473,000 1.8% $28,964,000
Revenue from KATU Television increased approximately $600,000 during the third
quarter of 1998, while KOMO Television reported a decline of approximately
$1,250,000. Local advertising revenue increased at KATU. Both television
stations experienced declines in national advertising. Revenue from radio
operations increased approximately $1,200,000, including $850,000 from the
Company's Seattle radio stations, $125,000 from small market stations, and
$175,000 from Portland radio operations. All stations reported significant
political revenue during the quarter.
Income from operations
- --------------------------------------------------------------------------------
Three months ended September 30 1998 % Change 1997
$6,183,000 -24.3% $8,167,000
Percentage of revenue 21.0% 28.2%
Third quarter 1998 results were similar to results for the first nine months, as
declines in operating income from Seattle television and radio operations and
Portland radio operations were not entirely offset by increased income from
Portland television and small market radio operations. Third quarter 1998
operating expenses at the broadcasting segment increased 16.6% largely due to
increased costs to acquire, produce and promote broadcast programming and
selling expenses incurred as a result of an overall increase in revenue.
MILLING OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
1997
Sales and other revenue
- --------------------------------------------------------------------------------
Nine months ended September 30 1998 % Change 1997
$79,890,000 -16.2% $95,375,000
Flour prices are largely dependent on the cost of wheat purchased to produce
flour. During 1998 average wheat prices were lower than in 1997, with the result
that average flour prices in 1998 were 9% lower than in 1997. Flour sales volume
also declined 6% during the first nine months of 1998. In addition, revenue from
the food distribution division declined 11%. The decline is due largely to lower
sales volume in the Southern California market served by the Rancho Cucamonga
Food Distribution Center where reorganization of sales territories and changes
in sales personnel during the latter part of 1997, combined with strong
competition, continued to negatively impact volume. Declining flour prices also
impacted distribution revenue.
11
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Income from operations
- --------------------------------------------------------------------------------
Nine months ended September 30 1998 % Change 1997
$1,007,000 -45.4% $1,844,000
Percentage of revenue 1.3% 1.9%
Income from operations is determined by deducting operating expenses from gross
margin on sales. Gross margin percentages at both the milling and food
distribution divisions increased in 1998 as milling yields improved and
manufacturing costs per cwt. were reduced. Operating expenses increased modestly
compared with 1997, however emphasis on expense control did not entirely offset
the impact of lower sales volume.
THREE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 1997
Sales and other revenue
- -------------------------------------------------------------------------------
Three months ended September 30 1998 % Change 1997
$26,609,000 -14.3% $31,031,000
Flour prices are largely dependent on the cost of wheat purchased to produce
flour. As discussed above, 1998 average wheat prices were lower than in 1997,
with the result that average flour prices in 1998 were lower than in 1997. Third
quarter flour sales volume also declined 6% compared with the third quarter of
1997. Revenue from the food distribution division increased modestly during the
quarter as increased revenue earned by the Portland Distribution Center exceeded
declines at the Seattle and Southern California locations.
Income from operations
- --------------------------------------------------------------------------------
Three months ended September 30 1998 % Change 1997
$542,000 37.5% $395,000
Percentage of revenue 2.0% 1.3%
Income from operations is determined by deducting operating expenses from gross
margin on sales. Third quarter 1998 gross margin percentages improved compared
with 1997, and the first nine months of 1998, as milling yields improved and
manufacturing costs per cwt. were reduced. Operating expenses increased 16%
compared with third quarter 1997.
REAL ESTATE OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
1997
Sales and other revenue
- --------------------------------------------------------------------------------
Nine months ended September 30 1998 % Change 1997
$9,304,000 9.1% $8,530,000
Real estate revenue increased in 1998 due to higher occupancy levels and
increasing rental rates. Average occupancy during the nine months ended
September 30, 1998 and 1997 was 98.2% and 93.3%, respectively.
12
<PAGE>
Income from operations
- --------------------------------------------------------------------------------
Nine months ended September 30 1998 % Change 1997
$3,236,000 38.1% $2,343,000
Percentage of revenue 34.8% 27.5%
The improvement in operating income is attributable to increased revenue.
Overall operating expenses and depreciation declined modestly compared with
1997.
THREE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 1997
Sales and other revenue
- --------------------------------------------------------------------------------
Three months ended September 30 1998 % Change 1997
$3,161,000 12.4% $2,813,000
Third quarter 1998 real estate revenue increased due to the higher occupancy
levels and rental rates discussed above.
Income from operations
- --------------------------------------------------------------------------------
Three months ended September 30 1998 % Change 1997
$1,178,000 84.6% $638,000
Percentage of revenue 37.3% 22.7%
The improvement in operating income is attributable to increased revenue.
Overall operating expenses and depreciation declined 10% and 8%, respectively,
compared with third quarter 1997.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 1998, the Company had working capital of $27,262,000 and
cash and short-term cash investments totaling $5,318,000. The Company intends to
finance working capital, debt service, capital expenditures, and dividend
requirements primarily through operating activities. However, the Company will
consider using available lines of credit to fund acquisition activities and
significant real estate project development activities. In this regard, the
Company has obtained a five-year unsecured revolving line of credit from a bank
in a maximum amount of $100,000,000 to finance construction of a new digital
broadcasting facility for KOMO Television (to be called Fisher Plaza), and for
working capital and other general corporate purposes. The revolving line of
credit is governed by a credit agreement which provides that borrowings under
the line will bear interest at a variable rate not to exceed the bank's publicly
announced reference rate. The agreement also places limitations on the
disposition or encumbrance of certain assets and requires the Company to
maintain certain financial ratios. Net cash provided by operating activities
during the nine months ended September 30, 1998 was $31,175,000. Net cash
provided by operating activities consists of the Company's net income, increased
by non-cash expenses such as depreciation and amortization, and adjusted by
changes in operating assets and liabilities. Net cash used in investing
activities during the period was $22,532,000, consisting of $13,647,000 for
purchase of property, plant and equipment used in operations, including
construction of Fisher Plaza, $427,000 to purchase assets of radio stations, and
$9,059,000 for additional investment in a limited liability company formed to
construct and
13
<PAGE>
operate a compact flour mill in Blackfoot, Idaho in which the milling subsidiary
is a 50% member. Net cash used in financing activities was $9,662,000,
consisting of net borrowings of $5,275,000 under lines of credit and notes from
shareholders and directors reduced by payment of $8,503,000 on borrowing
agreements and mortgage loans, and cash dividends paid to stockholders totaling
$6,490,000 or $.25 per share.
YEAR 2000
The YEAR 2000 or Y2K problem is predictable in its timing, but unpredictable in
its effects. In order to conserve limited computer memory, many programs were
written using only two digits to write a date, so that 1999 was represented as
99. But, as 99 is a higher number than 00, these programs do not recognize the
year 2000, instead reverting back to the year 1900. As a result, as we approach
the year 2000, computer systems and software used by many companies in a very
wide variety of applications will experience operating difficulties unless they
are modified or upgraded to adequately process information involving, related
to, or dependent upon the century change. Significant uncertainty exists
concerning the scope and magnitude of problems associated with the century
change.
The Company recognizes the need to ensure its operations will not be adversely
affected by Year 2000 software failures, and in August 1998 established a Y2K
Task Force to address Year 2000 risks. The Y2K Task Force, comprised of senior
management from each of the Company's business segments and third party
consultants, is leading the Year 2000 risk management efforts. The Y2K Task
Force is coordinating the identification and testing of computer hardware and
software applications that will attempt to ensure availability and integrity of
the information systems and the reliability of the operational systems and
manufacturing processes utilized by the Company or its subsidiaries. The Company
expects the review and testing to be a vital, ongoing process leading up to and
beyond the century change. The total cost of these Year 2000 compliance
activities is not anticipated to be material to the Company's financial position
or its results of operations.
The Company also faces risk to the extent suppliers of products, services, and
systems relied upon by the Company and others with whom the Company or its
subsidiaries transacts business do not comply with Year 2000 requirements. In
the event any such third parties cannot provide the Company or its subsidiaries
with products, services, or systems that meet the Year 2000 requirements on a
timely basis, or in the event Year 2000 issues prevent such third parties from
timely delivery of products or services required by the Company or its
subsidiaries, the Company's results of operations could be materially adversely
affected. To the extent Year 2000 issues cause significant delays in, or
cancellation of, decisions to purchase, the Company's products or services, the
Company's business, results of operations, and financial position would be
materially adversely affected. The Company is assessing these risks and in some
cases has initiated formal communications with significant suppliers and
customers to determine the extent to which the Company is vulnerable to these
third parties' failure to remediate their own Year 2000 issues.
14
<PAGE>
The Company has adopted a five-step process toward Year 2000 readiness:
<TABLE>
<CAPTION>
Projected Completion Date
<S> <C>
1) Internal Systems Inventory 1st Quarter 1999
2) Systems Testing and Repairs 1st Quarter 1999
3) External Risk Assessment 2nd Quarter 1999
4) Contingency Planning 4th Quarter 1999
5) Catastrophic Risk Transfer 2nd Quarter 1999
</TABLE>
The Company is also assessing the potential overall impact of the impending
century change on its business, results of operations, and financial position.
Since the Year 2000 problem is pervasive, there can be no assurance that the
Company will identify and remediate all significant Year 2000 problems, or that
such problems will not have a material adverse effect on the Company's business,
results of operations, or financial position. Accordingly, the Company will
continue to develop contingency plans in anticipation of unexpected Year 2000
events. Based on available information, the Company does not believe any
material exposure to significant business interruption exists as a result of
Year 2000 compliance issues.
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
The discussion above under "Year 2000" includes certain "forward looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995 (the "PSLRA"). This statement is included for the express purpose of
availing the Company of the protections of the safe harbor provisions of the
PSLRA. Management's ability to predict results or the effect of future plans is
inherently uncertain, and is subject to factors that may cause actual results to
differ materially from those projected. Factors that could affect the actual
results include the possibility that remediation programs will not operate as
intended, the Company's failure to timely or completely identify all software or
hardware applications requiring remediation, unexpected costs, and the
uncertainty associated with the impact of year 2000 issues on the Company's
customers, vendors and others with whom it does business.
15
<PAGE>
PART II
OTHER INFORMATION
ITEM 5. OTHER INFORMATION
In March, 1998 Terry Barrans, President and CEO of the Company's milling
subsidiary, was diagnosed with colon cancer. Mr. Barrans is currently undergoing
chemotherapy and radiation treatment. The prognosis for Mr. Barrans and the
impact of his illness on the Company or the milling subsidiary is uncertain. In
September, 1998 R. Bryce Seidl joined Fisher Mills as Executive Vice President
and Chief Operating Officer. Mr. Siedl will be responsible for day-to-day
management of the milling and food distribution divisions.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits: Exhibit 11, Statement re Computation of Per Share Earnings
Exhibit 27, Financial Data Schedule
(b) Reports on Form 8-K: None
16
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FISHER COMPANIES INC.
(Registrant)
Dated November 12, 1998 /s/ William W. Krippaehne, Jr.
William W. Krippaehne, Jr.
President and Chief Executive Officer
Dated November 12, 1998 /s/ David D. Hillard
David D. Hillard
Senior Vice President and Chief
Financial Officer
17
<PAGE>
EXHIBIT 11
FISHER COMPANIES INC.
COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
September 30 September 30
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Weighted average common shares
outstanding during the period: 8,540,073 8,533,775 8,542,162 8,535,299
Dilutive effect of:
Restricted stock rights 15,969 24,338 15,834 25,492
Stock options 19,468 19,237 22,063 25,305
----------- ----------- ----------- -----------
Weighted average shares
outstanding assuming dilution 8,575,510 8,577,350 8,580,059 8,586,096
=========== =========== ========== ==========
Net income $14,024,000 $16,315,000 $4,092,000 $5,399,000
=========== =========== ========== ==========
Net income per common share $1.64 $1.91 $.48 $.63
===== ===== ==== ====
Net income per common share
assuming dilution $1.64 $1.90 $.48 $.63
===== ===== ==== ====
</TABLE>
Share amounts have been restated to reflect the two-for-one stock split that was
effective March 6, 1998.
1
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-01-1998
<CASH> 5,318
<SECURITIES> 127,956
<RECEIVABLES> 37,397
<ALLOWANCES> 1,282
<INVENTORY> 13,747
<CURRENT-ASSETS> 70,214
<PP&E> 254,461
<DEPRECIATION> 108,109
<TOTAL-ASSETS> 421,919
<CURRENT-LIABILITIES> 42,952
<BONDS> 51,508
0
0
<COMMON> 10,678
<OTHER-SE> 249,977
<TOTAL-LIABILITY-AND-EQUITY> 421,919
<SALES> 179,465
<TOTAL-REVENUES> 182,490
<CGS> 114,405
<TOTAL-COSTS> 114,405
<OTHER-EXPENSES> 42,293
<LOSS-PROVISION> 592
<INTEREST-EXPENSE> 3,650
<INCOME-PRETAX> 21,550
<INCOME-TAX> 7,526
<INCOME-CONTINUING> 14,024
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 14,024
<EPS-PRIMARY> 1.64
<EPS-DILUTED> 1.64
</TABLE>
