-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, IQmX9lduq9JqtNLs78hTEzHuXpn43B/jgJnnaJm4spFRkiog4xhePCa7taukCER+ 9xckTZ80qmfhxGU+AUXRgw== 0001032210-98-001236.txt : 19981116 0001032210-98-001236.hdr.sgml : 19981116 ACCESSION NUMBER: 0001032210-98-001236 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19980930 FILED AS OF DATE: 19981113 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FISHER COMPANIES INC CENTRAL INDEX KEY: 0001034669 STANDARD INDUSTRIAL CLASSIFICATION: GRAIN MILL PRODUCTS [2040] IRS NUMBER: 910222175 STATE OF INCORPORATION: WA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-22439 FILM NUMBER: 98747608 BUSINESS ADDRESS: STREET 1: 1525 ONE UNION SQU STREET 2: 600 UNIVERSITY ST CITY: SEATTLE STATE: WA ZIP: 98101-3185 BUSINESS PHONE: 2066242752 MAIL ADDRESS: STREET 1: 1525 ONE UNION SQU STREET 2: 600 UNIVERSITY ST CITY: SEATTLE STATE: WA ZIP: 98101-3185 10-Q 1 FORM 10-Q FOR THE PERIOD ENDED 09/30/1998 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 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 ITEM 1 -- FINANCIAL STATEMENTS FISHER COMPANIES INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF INCOME (Unaudited)
NINE MONTHS ENDED THREE MONTHS ENDED SEPTEMBER 30 SEPTEMBER 30 1998 1997 1998 1997 ---------- ---------- --------- --------- (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
See accompanying notes to consolidated financial statements. 3 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 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 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 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 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 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 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 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 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 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 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 The Company has adopted a five-step process toward Year 2000 readiness:
Projected Completion Date 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
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 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 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 EX-11 2 STATEMENT RE COMPUTATION OF PER SHARE EARNINGS EXHIBIT 11 FISHER COMPANIES INC. COMPUTATION OF PER SHARE EARNINGS
Nine Months Ended Three Months Ended September 30 September 30 1998 1997 1998 1997 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 ===== ===== ==== ====
Share amounts have been restated to reflect the two-for-one stock split that was effective March 6, 1998. 1 EX-27 3 FINANCIAL DATA SCHEDULE
5 1,000 9-MOS DEC-31-1998 JAN-01-1998 SEP-01-1998 5,318 127,956 37,397 1,282 13,747 70,214 254,461 108,109 421,919 42,952 51,508 0 0 10,678 249,977 421,919 179,465 182,490 114,405 114,405 42,293 592 3,650 21,550 7,526 14,024 0 0 0 14,024 1.64 1.64
-----END PRIVACY-ENHANCED MESSAGE-----