<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 March 31, 2000
[_] 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 March 31, 2000:
8,551,195
<PAGE>
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 months ended March 31, 2000 and 1999.
2. Consolidated Balance Sheet:
March 31, 2000 and December 31, 1999.
3. Consolidated Statement of Cash Flows:
Three months ended March 31, 2000 and 1999.
4. Consolidated Statement of Comprehensive Income:
Three months ended March 31, 2000 and 1999.
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>
Three Months Ended March 31 2000 1999
- ---------------------------------------------------------------------------------------------------------
(in thousands, except per share amounts)
<S> <C> <C>
Sales and other revenue
Broadcasting $ 44,833 $ 28,122
Milling 27,193 26,999
Real estate 3,147 3,179
Corporate and other, primarily dividend income 1,168 1,098
- ---------------------------------------------------------------------------------------------------------
76,341 59,398
- ---------------------------------------------------------------------------------------------------------
Costs and expenses
Cost of products and services sold 44,588 39,720
Selling expenses 6,486 4,964
General, administrative and other expenses 15,975 10,872
- ---------------------------------------------------------------------------------------------------------
67,049 55,556
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Income from operations
Broadcasting 9,862 3,790
Milling (1,341) (590)
Real estate 1,128 1,033
Corporate and other (357) (391)
- ---------------------------------------------------------------------------------------------------------
9,292 3,842
Interest expense 5,945 1,049
- ---------------------------------------------------------------------------------------------------------
Income before provision for income taxes 3,347 2,793
Provision for federal and state income taxes 1,149 803
- ---------------------------------------------------------------------------------------------------------
Net income $ 2,198 $ 1,990
- ---------------------------------------------------------------------------------------------------------
Net income per share $ 0.26 $ 0.23
Net income per share assuming dilution $ 0.26 $ 0.23
Weighted average shares outstanding 8,551 8,542
Weighted average shares outstanding assuming dilution 8,574 8,573
Dividends declared per share $ 0.26 $ 0.26
</TABLE>
3
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FISHER COMPANIES INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
March 31 December 31
2000 1999
- ----------------------------------------------------------------------------------------------------------------------
(in thousands, except share and per share amounts) (Unaudited)
<S> <C> <C>
ASSETS
Current Assets
Cash and short-term cash investments $ 3,515 $ 3,609
Receivables 49,327 59,026
Inventories 11,390 13,755
Prepaid income taxes 1,338 1,276
Prepaid expenses 6,304 5,948
Television and radio broadcast rights 6,722 10,456
- ----------------------------------------------------------------------------------------------------------------------
Total current assets 78,596 94,070
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Marketable Securities, at market value 83,527 79,442
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Other Assets
Cash value of life insurance and retirement deposits 11,869 11,637
Television and radio broadcast rights 1,016 1,076
Intangible assets, net of amortization 243,124 244,367
Investments in equity investees 3,009 3,003
Other 8,846 9,290
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267,864 269,373
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Property, Plant and Equipment, net 248,586 235,627
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$ 678,573 $ 678,512
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Notes payable $ 29,808 $ 22,622
Trade accounts payable 10,910 13,040
Accrued payroll and related benefits 8,601 9,483
Television and radio broadcast rights payable 7,001 10,205
Dividends payable 2,223 2,223
Other current liabilities 2,959 2,538
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Total current liabilities 61,502 60,111
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Long-term Debt, net of current maturities 308,346 315,552
- ----------------------------------------------------------------------------------------------------------------------
Other Liabilities
Accrued retirement benefits 14,257 14,028
Deferred income taxes 46,359 44,008
Television and radio broadcast rights payable, long-term portion 570 795
Other liabilities 2,834 2,043
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64,020 60,874
- ----------------------------------------------------------------------------------------------------------------------
Stockholders' Equity
Common stock, shares authorized 12,000,000, $1.25 par value; issued
8,551,195 in 2000 and 8,550,690 in 1999 10,689 10,688
Capital in excess of par 2,226 2,168
Deferred compensation (492) (534)
Accumulated other comprehensive income - unrealized gain on marketable
securities, net of deferred income taxes of $28,826 in 2000 and $27,396 in
1999 53,533 50,878
Retained earnings 178,749 178,775
- ----------------------------------------------------------------------------------------------------------------------
244,705 241,975
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$ 678,573 $ 678,512
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
4
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FISHER COMPANIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31 2000 1999
- ----------------------------------------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C>
Cash flows from operating activities
Net income $ 2,198 $ 1,990
Adjustments to reconcile net income to net cash provided by
operating activities
Depreciation and amortization 5,532 3,389
Increase in noncurrent deferred income taxes 921 94
Tax benefit from exercise of stock options 4
Amortization of deferred compensation 78 91
Net (gain) loss in equity investees (6) 385
Gain on sale and disposition of property, plant and equipment (47)
Change in operating assets and liabilities
Receivables 10,218 5,861
Inventories 2,510 1,475
Prepaid income taxes (62)
Prepaid expenses (363) 665
Cash value of life insurance and retirement deposits (232) (252)
Other assets 444 (589)
Income taxes payable 348
Trade accounts payable, accrued payroll and related
benefits and other current liabilities (3,280) (2,626)
Accrued retirement benefits 229 (318)
Other liabilities 791 99
Amortization of television and radio broadcast rights 4,079 3,347
Payments for television and radio broadcast rights (3,714) (2,880)
- ----------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 19,300 11,079
- ----------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities
Proceeds from sale of property, plant and equipment 302
Investments in equity investees (1,182)
Purchase of property, plant and equipment (17,471) (5,599)
- ----------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (17,169) (6,781)
- ----------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities
Net borrowings (payments) under notes payable 4,345 (4,750)
Borrowings under borrowing agreements 3,000
Payments on borrowing agreements and mortgage loans (4,365) (339)
Proceeds from exercise of stock options 19
Cash dividends paid (2,224) (2,251)
- ----------------------------------------------------------------------------------------------------------------------------
Net cash used in financing activities (2,225) (4,340)
- ----------------------------------------------------------------------------------------------------------------------------
Net decrease in cash and short-term cash investments (94) (42)
Cash and short-term cash investments, beginning of period 3,609 3,968
- ----------------------------------------------------------------------------------------------------------------------------
Cash and short-term cash investments, end of period $ 3,515 $ 3,926
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
Certain 1999 balances have been reclassified to conform to 2000 classifications.
See accompanying notes to consolidated financial statements.
5
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FISHER COMPANIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31 2000 1999
- ----------------------------------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C>
Net income $ 2,198 $ 1,990
Other comprehensive income - unrealized gain (loss) on marketable
securities, net of deferred income taxes of $1,430 in 2000
and $(2,519) in 1999 2,655 (4,677)
- ----------------------------------------------------------------------------------------------------------------------------
Comprehensive income $ 4,853 $ (2,687)
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
6
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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, 1999 filed on March 25, 2000 by the Company have been
omitted. The financial information herein is not necessarily representative
of a full year's operations.
2. Inventories are summarized as follows (in thousands):
March 31 December 31
2000 1999
-------- -----------
Finished products $ 5,939 $ 6,079
Raw materials 5,323 7,552
Spare parts and supplies 128 124
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$ 11,390 $ 13,755
-------- -----------
3. 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 ending December
31, 2001. The Company is currently reviewing the requirements of FAS 133
and assessing its impact on the Company's financial statements.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101, Revenue Recognition in Financial Statements
(SAB 101) which must be adopted by the Company by June 30, 2000. SAB 101
provides additional guidance on revenue recognition as well as criteria for
when revenue is generally realized and earned. The Company is currently
reviewing the requirements of SAB 101 and assessing its impact on the
Company's financial statements.
4. Acquisitions:
On July 1, 1999 the Company and its broadcasting subsidiary completed the
acquisition of ten network-affiliated television stations and 50% of the
outstanding stock of a corporation that owns one television station. The
acquired properties are in seven markets located in California, the Pacific
Northwest, and Georgia. Total consideration was $216.7 million, which
included $7.6 million of working capital. Funding for the transaction was
from an eight-year senior credit facility in the amount of $230 million.
Also on July 1, the Company and its milling subsidiary purchased from Koch
Agriculture Company its 50% interest in the limited liability company (LLC)
which owns and operates flour milling facilities in Blackfoot, Idaho. The
$19 million purchase price was funded from bank lines of credit. Prior to
July 1, the milling subsidiary used the equity method to account for its
50% interest in the LLC. Subsequent to the acquisition the LLC became a
wholly-owned subsidiary and operating results are fully consolidated in the
milling segment.
The above transactions are accounted for under the purchase method.
Accordingly, the Company has recorded identifiable assets and liabilities
of the acquired properties at their fair market value. The excess of the
purchase price over the fair market value of the assets acquired has been
allocated to goodwill. The results of operations
7
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of the acquired properties are included in the financial statements from
the date of acquisition. Unaudited pro forma results as if the acquired
properties had been included in the financial results during the three
months ended March 31, 1999 are as follows:
Three months
ended
March 31
1999
(in thousands, except per share amounts)
Sales and other revenue
Broadcasting $ 42,797
Milling 26,999
Real Estate 3,179
Corporate and other 1,098
---------------
$ 74,073
---------------
Net income $ (955)
Net income per share ($0.11)
Net income per share assuming dilution ($0.11)
5. Borrowing and swap agreements:
In June 1999 the Company entered into an eight-year senior secured credit
facility (senior credit facility) with a group of banks in the amount of
$230,000,000 to finance the acquisition of television stations described in
Note 4 above and for general corporate purposes. The senior credit facility
is secured by a first priority perfected security interest in the
broadcasting subsidiary's capital stock that is owned by the Company. The
senior credit facility also places limitations on various aspects of the
Company's operations (including the payment of dividends) and requires
compliance with certain financial ratios. In addition to an amortization
schedule which requires repayment of all borrowings under the senior credit
facility by June 2007, the amount available under the senior credit
facility reduces each year beginning in 2002. Amounts borrowed under the
senior credit facility bear interest at variable rates based on the
Company's ratio of funded debt to operating cash flow. At March 31, 2000,
$225,000,000 was outstanding under the senior credit facility at a blended
interest rate of 8.54%.
In August 1999 the Company entered into an interest rate swap contract
fixing the interest rate at 6.52%, plus a margin based on the Company's
ratio of funded debt to operating cash flow, on $90 million floating rate
debt outstanding under the senior credit facility. The notional amount of
the swap reduces as payments are made on principal outstanding under the
senior credit facility until termination of the contract on December 30,
2004.
8
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6. Income per share is computed as follows:
Three months ended
March 31
2000 1999
Weighted average common shares
outstanding during the period: 8,550,764 8,542,384
Dilutive effect of:
Restricted stock rights 12,757 16,117
Stock options 10,091 14,481
---------- ----------
Weighted average shares
outstanding assuming dilution 8,573,612 8,572,982
========== ==========
Net income $2,198,000 $1,990,000
Net income per common share $ 0.26 $ 0.23
Net income per common share
assuming dilution $ 0.26 $ 0.23
7. Subsequent event:
On May 8, 2000, the Company's broadcasting subsidiary entered into an
agreement to sell its wholly owned membership interest in a limited
liability company, which owns and operates KJEO-TV in Fresno, CA, for $60
million plus working capital. The sale, which is subject to approval of
disclosure schedules and to regulatory approvals, is expected to be
completed by the end of third quarter 2000. Net proceeds will be used to
reduce the senior credit facility.
9
<PAGE>
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 month period ended March 31, 2000 compared with the similar
period in 1999.
On July 1, 1999, the Company and its broadcasting subsidiary completed the
acquisition of ten network-affiliated television stations and 50% of the
outstanding stock of a corporation that owns one television station. The
acquired properties are in seven markets located in California, the Pacific
Northwest, and Georgia (the "Fisher Television Regional Group"). Total
consideration was $216.7 million, which included $7.6 million of working capital
(primarily accounts receivable and prepaid expenses, less accounts payable and
other current liabilities). Funding for the transaction was from a senior credit
facility in the amount of $230 million.
On July 1, 1999, the Company and the milling subsidiary purchased the remaining
50% interest in the limited liability company (LLC) which owns and operates
flour milling facilities in Blackfoot, Idaho. The $19 million purchase price was
funded from bank lines of credit. Prior to July 1, the milling subsidiary used
the equity method to account for its 50% interest in the LLC. Subsequent to the
acquisition the LLC became a wholly-owned subsidiary, and operating results of
the Blackfoot facility are fully consolidated in the milling segment.
Each of these transactions had an effect on the comparative results of
operations in terms of revenue, costs and expenses, and operating income
referred to in the following analysis.
Consolidated Results of Operations
Consolidated net income for the three months ended March 31, 2000 increased
10.5% compared with the three months ended March 31, 1999, from $1,990,000 to
$2,198,000. Several factors which are a direct result of the acquisitions
described above impacted first quarter 2000 pre-tax income, including interest
expense of approximately $5,100,000 and amortization of intangible assets of
approximately $1,200,000 relating to the acquisition of the Fisher Television
Regional Group, interest expense of approximately $340,000 relating to the
acquisition of the remaining 50% interest in the Blackfoot facility, and
additional operating expense incurred as a result of owning 100% of the
Blackfoot facility.
Sales and other revenue
- --------------------------------------------------------------------------------
Three months ended March 31 2000 % Change 1999
$76,341,000 28.5% $59,398,000
If the newly acquired television stations were excluded from first quarter 2000
results, consolidated sales and other revenue would represent an 11.5% increase
over the first quarter of 1999. Increases in sales and other revenue during the
three months ended March 31, 2000, compared with the similar period of 1999,
were 59.4% for broadcasting operations (23.5% excluding the newly acquired
television stations), 0.7% for milling operations, -1.0% for real estate
operations, and 6.4% for the corporate segment. The increase in corporate
segment revenue is principally attributable to an increase in dividends from
marketable securities.
Cost of products and services sold
- --------------------------------------------------------------------------------
Three months ended March 31 2000 % Change 1999
$44,588,000 12.3% $39,720,000
Percentage of revenue 58.4% 66.9%
The increase in cost of products and services sold in 2000 is primarily
attributable to increased costs to acquire and produce broadcast programming at
the newly acquired television stations. A nominal increase in the cost of
products and services sold at the milling segment was partially offset by lower
costs to operate and maintain real estate properties.
Selling expenses
- --------------------------------------------------------------------------------
Three months ended March 31 2000 % Change 1999
$ 6,486,000 30.7% $ 4,964,000
Percentage of revenue 8.5% 8.4%
10
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Selling expenses increased as a result of increased commissions and related
expenses resulting from increased broadcasting revenue, including selling
expenses at the newly acquired television stations.
General and administrative expenses
- --------------------------------------------------------------------------------
Three months ended March 31 2000 % Change 1999
$15,975,000 46.9% $10,872,000
Percentage of revenue 20.9% 18.3%
General and administrative expenses increased at each business segment, with
approximately $3,100,000 attributable to the newly acquired television stations,
including amortization of intangible assets. Each business segment also
incurred increased costs related to personnel and employee benefits, and other
administrative expenses.
Interest expense
- --------------------------------------------------------------------------------
Three months ended March 31 2000 % Change 1999
$ 5,945,000 466.7% $ 1,049,000
Interest expense includes interest on borrowed funds, loan fees, and net
payments under a swap agreement. The increase in 2000 interest expense compared
with 1999 is primarily attributable to funds borrowed to finance the acquisition
of television stations and the acquisition of the remaining 50% interest in the
Blackfoot flour mill. Interest incurred on funds borrowed to finance
construction of Fisher Plaza and other significant capital projects is
capitalized as part of the cost of the related project.
Provision for federal and state income taxes
- --------------------------------------------------------------------------------
Three months ended March 31 2000 % Change 1999
$ 1,149,000 43.4% $ 803,000
Effective tax rate 34.4% 28.7%
The provision 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.
Other comprehensive income
- --------------------------------------------------------------------------------
Three months ended March 31 2000 % Change 1999
$ 2,655,000 156.6% $(4,677,000)
Other comprehensive income represents the change in the fair market value of the
Company's marketable securities, net of deferred income taxes, measured from the
end of the preceding year through the end of the respective quarter ended March
31. A significant portion of the marketable securities consists of 3,002,376
shares of SAFECO Corporation. The per share market price of SAFECO Corporation
common stock was $25.56 at March 31, 2000, $24.88 at December 31, 1999, $40.44
at March 31, 1999, and $42.94 at December 31, 1998. Unrealized gains and losses
are a separate component of stockholders' equity.
Broadcasting Operations
Sales and other revenue
- --------------------------------------------------------------------------------
Three months ended March 31 2000 % Change 1999
$44,833,000 59.4% $28,122,000
Revenue from the newly acquired television stations totaled $10,100,000 in 2000.
Excluding the newly acquired stations, first quarter 2000 sales and other
revenue from broadcasting operations would represent a 23.5% increase over first
quarter 1999. Revenue from KOMO Television in Seattle increased approximately
$4,500,000 during the three months ended March 31, 2000. Increases in all
advertising categories were partially offset by a decline in network
compensation. Revenue from KATU Television in Portland increased approximately
$400,000. Increases in local and political advertising were partially offset by
declines in national advertising sales and network compensation. Revenue from
radio operations increased approximately $1,500,000, including $1,100,000 from
the
11
<PAGE>
Company's Seattle radio stations (KOMO AM, KVI AM and KPLZ-FM), $236,000 from
Portland radio operations (KWJJ-FM and KOTK), and $150,000 from the 21 small
market stations in Montana and Eastern Washington.
Income from operations
- --------------------------------------------------------------------------------
Three months ended March 31 2000 % Change 1999
$ 9,862,000 160.2% $ 3,790,000
Percentage of revenue 22.0% 13.5%
Income from operations of the newly acquired television stations was
approximately $750,000 in first quarter 2000. Excluding the newly acquired
stations, the increase in income from operations for the first quarter compared
with the first quarter of 1999 is principally due to revenue growth at each
broadcasting station. Exclusive of the newly acquired stations, costs to acquire
and produce broadcast programming declined modestly; selling expenses increased
as a result of increased sales; and general and administrative expenses
increased due to increases in employee benefit costs, legal expenses and
provision for doubtful accounts.
Milling Operations
Sales and other revenue
- --------------------------------------------------------------------------------
Three months ended March 31 2000 % Change 1999
$27,193,000 .7% $26,999,000
First quarter sales of the milling division declined 5.4% compared with first
quarter 1999 levels. During the first quarter of 2000 wheat prices continued to
move lower with the result that average flour prices were 9.0% lower than 1999
prices, as flour prices are largely dependent on the cost of wheat purchased to
produce flour. Volume of flour sold increased 17.3%.
Distribution division sales for the first quarter increased 4.4%, compared with
1999 levels. The increase is primarily due to increased revenue and unit volume
at the Southern California distribution center.
Income from operations
- --------------------------------------------------------------------------------
Three months ended March 31 2000 % Change 1999
$(1,341,000) 127.2% $ (590,000)
Percentage of revenue -4.9% -2.2%
Income from operations is determined by deducting operating expenses from gross
margin on sales. During the first three months of 2000 flour sales margins
continued to be under downward pressure as wheat markets remained soft. In
addition, the industry and Fisher continued to suffer reductions in revenue and
margins on millfeed, that portion of the wheat that does not yield flour and is
sold to the animal feed markets. Average monthly margins on millfeed sales
declined approximately $42,000 compared with first quarter 1999. These factors
resulted in a 59.9% decline in first quarter gross margin for the milling
division. Operating expenses for the quarter increased $330,000, or 68.9%, due
to a number of factors including expenses relating to personnel and marketing.
Also, costs associated with ownership of 100% of the Blackfoot mill affect
comparability with first quarter 1999. While production at Blackfoot is
increasing, operations remain below full capacity.
The distribution division had mixed results during the first quarter. Income
from operations of the Seattle and Portland distribution centers declined
$216,000 due to lower revenue and margins. Operating income from the Southern
California distribution center increased $221,000 as sales increased, and
margins improved due in part to reorganization of logistics and delivery
functions.
Real Estate Operations
Sales and other revenue
- --------------------------------------------------------------------------------
Three months ended March 31 2000 % Change 1999
$ 3,147,000 -1.0% $ 3,179,000
First quarter real estate revenue decreased compared with 1999 due primarily to
loss of revenue from two properties sold under threat of condemnation in June,
1999. That decline was partially offset by rental rate adjustments
12
<PAGE>
associated with lease renewal activity, contracted rent escalations, and a
cancellation fee collected from a vacating tenant. Average occupancy during the
three months ended March 31, 2000 and 1999 was 98.1% and 97.5%, respectively.
Income from operations
- --------------------------------------------------------------------------------
Three months ended March 31 2000 % Change 1999
$ 1,128,000 9.2% $ 1,033,000
Percentage of revenue 35.9% 32.5%
The improvement in operating income is attributable to a reduction in operating
expenses and depreciation.
Liquidity and Capital Resources
As of March 31, 2000, the Company had working capital of $17,094,000 and
cash and short-term cash investments totaling $3,515,000. 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 a five-year unsecured revolving line of credit (revolving line of
credit) with two banks for a maximum amount of $100,000,000 to finance
construction of the Fisher Plaza Project and for general corporate purposes. The
revolving line of credit provides that borrowings under the line will bear
interest at variable rates. The revolving line of credit also places limitations
on the disposition or encumbrance of certain assets and requires the Company to
maintain certain financial ratios.
In June 1999 the Company entered into an eight-year senior secured credit
facility (senior credit facility) with a group of banks in the amount of
$230,000,000 to finance the acquisition of Fisher Television Regional Group and
for general corporate purposes. In addition to an amortization schedule which
requires repayment of all borrowings under the senior credit facility by June
2007, the amount available under the senior credit facility reduces each year
beginning in 2002. Amounts borrowed under the senior credit facility bear
interest at variable rates based on the Company's ratio of funded debt to
operating cash flow. The senior credit facility is secured by a first priority
perfected security interest in the broadcasting subsidiary's capital stock that
is owned by the Company. The senior credit facility also places limitations on
various aspects of the Company's operations (including the payment of dividends)
and requires compliance with certain financial ratios.
In August 1999 the Company entered into an interest rate swap contract
fixing the interest rate at 6.52%, plus a margin based on the Company's ratio of
funded debt to operating cash flow, on $90 million floating rate debt
outstanding under the senior credit facility. The notional amount of the swap
reduces as payments are made on principal outstanding under the senior credit
facility until termination of the contract on December 30, 2004.
Net cash provided by operating activities during the three months ended
March 31, 2000 was $19,300,000. 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
$17,169,000; principally $17,178,000 for purchase of property, plant and
equipment used in operations (including the Fisher Plaza project). Net cash used
in financing activities was $2,225,000, including net borrowings under notes
payable totaling $4,345,000, payments totaling $4,365,000 on borrowing
agreements and mortgage loans, and cash dividends paid to stockholders totaling
$2,224,000 or $.26 per share.
On May 8, 2000, the Company's broadcasting subsidiary entered into an
agreement to sell its wholly owned membership interest in a limited liability
company, which owns and operates KJEO-TV in Fresno, CA, for $60 million plus
working capital. The sale, which is subject to approval of disclosure schedules
and to regulatory approvals, is expected to be completed by the end of third
quarter 2000. Net proceeds will be used to reduce the senior credit facility.
On March 8, 2000, the Board of Directors approved management's
recommendation to engage U.S. Bancorp Piper Jaffray Inc. to assist with the sale
of the milling businesses. Offers received from potential purchasers are subject
to acceptance of the Board of Directors. Net proceeds will be used to reduce the
senior credit facility.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
13
<PAGE>
The market risk in the Company's financial instruments represents the
potential loss arising from adverse changes in financial and commodity market
prices and rates. The Company is exposed to market risk in the areas of interest
rates, securities prices and grain prices. These exposures are directly related
to its normal funding and investing activities and to its use of agricultural
commodities in its operations.
Interest Rate Exposure
The Company's strategy in managing exposure to interest rate changes is to
maintain a balance of fixed- and variable-rate instruments. See Note 5 to the
Company's 1999 consolidated financial statements for information regarding the
contractual interest rates of the Company's debt. The Company will also consider
entering into interest rate swap agreements at such times as it deems
appropriate. At March 31, 2000, the fair value of the Company's debt is
estimated to approximate the carrying amount. Market risk is estimated as the
potential change in fair value resulting from a hypothetical 10 percent change
in interest rates, and on the Company's fixed rate debt, amounts to $1,600,000
at March 31, 2000.
The Company also has $287,062,000 in variable-rate debt outstanding at
March 31, 2000. A hypothetical 10 percent change in interest rates underlying
these borrowings would result in a $2,432,000 annual change in the Company's
pre-tax earnings and cash flows.
In August 1999 the Company entered into an interest rate swap agreement
fixing the interest rate at 6.52%, plus a margin based on the Company's ratio of
funded debt to operating cash flow, on $90 million floating rate debt
outstanding under the senior credit facility. The notional amount of the swap
reduces as payments are made on principal outstanding under the senior credit
facility until termination of the contract on December 30, 2004. At March 31,
2000, the fair value of the swap agreement was $1,102,000. A hypothetical 10
percent change in interest rates would change the fair value of the Company's
swap agreement by approximately $1,450,000 at March 31, 2000.
Marketable Securities Exposure
The fair value of the Company's investments in marketable securities at
March 31, 2000 was $83,527,000. Marketable securities consist of equity
securities traded on a national securities exchange or reported on the NASDAQ
securities market. A significant portion of the marketable securities consists
of 3,002,376 shares of SAFECO Corporation. As of March 31, 2000, these shares
represented 2.4% of the outstanding common stock of SAFECO Corporation. While
the Company has no intention to dispose of its investments in marketable
securities, it has classified its investments as available-for-sale under
applicable accounting standards. Mr. William W. Krippaehne, Jr., President, CEO,
and a Director of the Company, is a Director of SAFECO. A hypothetical 10
percent change in market prices underlying these securities would result in a
$8,353,000 change in the fair value of the marketable securities portfolio.
Although changes in securities prices would affect the fair value of the
marketable securities portfolio and cause unrealized gains or losses, such gains
or losses would not be realized unless the investments are sold.
Commodity Price Exposure
The Company has exposure to adverse price fluctuations associated with its
grain and flour inventories, product gross margins, and certain anticipated
transactions in its milling operations. Commodities such as wheat are purchased
at market prices that are subject to volatility. As an element of its strategy
to manage the risk of market price fluctuations, the Company enters into various
exchange-traded futures contracts. The Company closely monitors and manages its
exposure to market risk on a daily basis in accordance with formal policies
established for this activity. These policies limit the level of exposure to be
hedged. All transactions involving derivative financial instruments are required
to have a direct relationship to the price risk associated with existing
inventories or future purchase and sales of its products.
The Company enters into both forward purchase and sales commitments for
wheat flour. At the same time, the Company enters into generally matched
transactions using offsetting forward commitments and/or exchange-traded futures
contracts to hedge against price fluctuations in the market price of wheat.
The Company determines the fair value of its exchange-traded contracts
based on the settlement prices for open contracts, which are established by the
exchange on which the instruments are traded. The margin accounts for
14
<PAGE>
open commodity futures contracts, which reflect daily settlements as market
values change, represent the Company's basis in those contracts. As of March 31,
2000, the carrying value of the Company's investment in commodities futures
contracts and the total net deferred gains and losses on open contracts are
immaterial. At March 31, 2000, the actual open positions of these instruments
and the potential near-term losses in earnings, fair value, and/or cash flows
from changes in market rates or prices are not material.
YEAR 2000
The Year 2000 or Y2K problem arose as many computer systems, software
programs, and other microprocessor-dependent devices were created using only two
digit dates, such that 2000 was represented as 00. It was widely feared these
systems would not recognize certain dates, including the year 2000, with the
result that processors and programs would fail to complete the processing of
information or revert back to the year 1900.
The Company recognized the need to reduce the risks of potential related
systems failures, and established a Y2K Task Force to address these risks. The
Y2K Task Force coordinated the identification and testing of computer hardware,
software applications, and other equipment which utilized microprocessors or
date dependent functions, with a goal to ensure availability and integrity of
the information systems and the reliability of the operational systems and
manufacturing processes utilized by the Company and its subsidiaries. Problems
discovered were minor, and were remediated. Costs incurred in connection with
the Year 2000 problem were approximately $350,000.
To date there has been no material adverse effect, nor does the Company
believe there will be any future material adverse effect, on the Company's
business, results of operations, or financial position as a result of the Year
2000 problem. However, there can be no assurance that failure to address the
Year 2000 problem by customers, vendors and others with whom the Company and its
subsidiaries do business will not have a material adverse effect on the Company
or its subsidiaries.
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 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 1. Legal Proceedings
None
Item 2. Changes in Securities and Use of Proceeds
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits: Exhibit 27, Financial Data Schedule
(b) Reports on Form 8-K:
A report on Form 8-K was filed with the Commission on March 14, 2000
announcing that the Company's board of directors approved management's
recommendation to engage U. S. Bancorp Piper Jaffray Inc. as a financial advisor
to assist management with the sale of its flour milling and bakery products
distribution businesses.
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 May 12, 2000 /s/ Warren J. Spector
------------ --------------------------------------------------
Warren J. Spector
Executive Vice President and Chief Operating
Officer
Dated May 12, 2000 /s/ David D. Hillard
------------ --------------------------------------------------
David D. Hillard
Senior Vice President and Chief Financial
Officer
17
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