UNITED STATES
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 June 30, 2012
or
¨ | Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the transition period from to
Commission File Number: 0-22439
FISHER COMMUNICATIONS, INC.
(Exact Name of Registrant as Specified in Its Charter)
WASHINGTON | 91-0222175 | |
(State or Other Jurisdiction of Incorporation or Organization) |
(I.R.S. Employer Identification Number) |
140 Fourth Ave. N., Suite 500
Seattle, Washington 98109
(Address of Principal Executive Offices) (Zip Code)
(206) 404-7000
(Registrants 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 Securities Exchange Act of 1934 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 by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ¨ | Accelerated filer | x | |||
Non-accelerated filer | ¨ (Do not check if a smaller reporting company) | Smaller reporting company | ¨ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
Indicate the number of shares outstanding of each of the issuers classes of common stock, as of the latest practicable date:
Common Stock, $1.25 par value, outstanding as of August 2, 2012: 8,875,011
PART I FINANCIAL INFORMATION |
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Item 1. |
Financial Statements |
The following Condensed Consolidated Financial Statements are presented for Fisher Communications, Inc., and its subsidiaries.
1. |
Condensed Consolidated Statements of Operations (unaudited): Three and six months ended June 30, 2012 and 2011 |
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3 |
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2. |
Condensed Consolidated Statements of Comprehensive Income (unaudited): Three and six months ended June 30, 2012 and 2011 |
4 | ||||
3. |
Condensed Consolidated Balance Sheets (unaudited): June 30, 2012 and December 31, 2011 |
5 | ||||
4. |
Condensed Consolidated Statements of Cash Flows (unaudited): Six months ended June 30, 2012 and 2011 |
6 | ||||
5. |
Notes to Condensed Consolidated Financial Statements (unaudited) | 7 | ||||
Item 2. |
Managements Discussion and Analysis of Financial Condition and Results of Operations | 15 | ||||
Item 3. |
Quantitative and Qualitative Disclosures About Market Risk | 23 | ||||
Item 4. |
Controls and Procedures | 23 | ||||
PART II | ||||||
OTHER INFORMATION | ||||||
Item 1. |
Legal Proceedings | 24 | ||||
Item 1A. |
Risk Factors | 24 | ||||
Item 2. |
Unregistered Sales of Equity Securities and Use of Proceeds | 24 | ||||
Item 3. |
Defaults Upon Senior Securities | 24 | ||||
Item 4. |
Mine Safety Disclosures | 24 | ||||
Item 5. |
Other Information | 24 | ||||
Item 6. |
Exhibits | 25 | ||||
26 | ||||||
27 |
2
Fisher Communications, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
(Unaudited)
Three months ended June 30, | Six months ended June 30, | |||||||||||||||
(in thousands, except per-share amounts) | 2012 | 2011 | 2012 | 2011 | ||||||||||||
Revenue |
$ | 42,270 | $ | 40,350 | $ | 76,202 | $ | 77,902 | ||||||||
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Operating expenses |
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Direct operating costs |
15,932 | 17,217 | 32,588 | 34,891 | ||||||||||||
Selling, general and administrative expenses |
15,081 | 13,417 | 29,635 | 28,167 | ||||||||||||
Amortization of broadcast rights |
2,436 | 2,905 | 4,893 | 5,875 | ||||||||||||
Depreciation and amortization |
1,748 | 2,672 | 3,505 | 5,330 | ||||||||||||
Loss (gain) on sale of real estate, net |
209 | (4,089 | ) | (164 | ) | (4,089 | ) | |||||||||
Plaza fire reimbursements, net |
| (105 | ) | | (183 | ) | ||||||||||
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Total operating expenses |
35,406 | 32,017 | 70,457 | 69,991 | ||||||||||||
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Income from continuing operations |
6,864 | 8,333 | 5,745 | 7,911 | ||||||||||||
Loss on extinguishment of senior notes, net |
| (948 | ) | (1,482 | ) | (1,058 | ) | |||||||||
Other income, net |
64 | 100 | 94 | 180 | ||||||||||||
Interest expense |
(10 | ) | (1,878 | ) | (276 | ) | (4,125 | ) | ||||||||
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Income from continuing operations before income taxes |
6,918 | 5,607 | 4,081 | 2,908 | ||||||||||||
Provision for income taxes |
2,636 | 2,065 | 1,663 | 1,085 | ||||||||||||
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Income from continuing operations, net of income taxes |
4,282 | 3,542 | 2,418 | 1,823 | ||||||||||||
Income from discontinued operations, net of income taxes |
| 74 | | 66 | ||||||||||||
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Net income |
$ | 4,282 | $ | 3,616 | $ | 2,418 | $ | 1,889 | ||||||||
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Net income per share: |
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From continuing operations |
$ | 0.48 | $ | 0.40 | $ | 0.27 | $ | 0.21 | ||||||||
From discontinued operations |
| 0.01 | | 0.01 | ||||||||||||
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Net income per share |
$ | 0.48 | $ | 0.41 | $ | 0.27 | $ | 0.21 | ||||||||
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Net income per share assuming dilution: |
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From continuing operations |
$ | 0.48 | $ | 0.40 | $ | 0.27 | $ | 0.21 | ||||||||
From discontinued operations |
| 0.01 | | 0.01 | ||||||||||||
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Net income per share |
$ | 0.48 | $ | 0.41 | $ | 0.27 | $ | 0.21 | ||||||||
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Weighted average shares outstanding |
8,874 | 8,834 | 8,860 | 8,822 | ||||||||||||
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Weighted average shares outstanding assuming dilution |
8,928 | 8,895 | 8,936 | 8,892 | ||||||||||||
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See accompanying notes to condensed consolidated financial statements.
3
Fisher Communications, Inc. and Subsidiaries
Condensed Consolidated Statements of Comprehensive Income
(Unaudited)
Three months ended June 30, | Six months ended June 30, | |||||||||||||||
2012 | 2011 | 2012 | 2011 | |||||||||||||
(in thousands) | ||||||||||||||||
Net income |
$ | 4,282 | $ | 3,616 | $ | 2,418 | $ | 1,889 | ||||||||
Other comprehensive income (loss): |
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Accumulated income |
36 | 14 | 72 | 29 | ||||||||||||
Effect of income taxes |
(13 | ) | (5 | ) | (26 | ) | (10 | ) | ||||||||
Prior service cost |
15 | 15 | 30 | 30 | ||||||||||||
Effect of income taxes |
(6 | ) | (5 | ) | (11 | ) | (10 | ) | ||||||||
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Other comprehensive income |
32 | 19 | 65 | 39 | ||||||||||||
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Comprehensive income |
$ | 4,314 | $ | 3,635 | $ | 2,483 | $ | 1,928 | ||||||||
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See accompanying notes to condensed consolidated financial statements.
4
Fisher Communications, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(Unaudited)
(in thousands, except share and per-share amounts) | June 30, 2012 |
December 31, 2011 |
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ASSETS |
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Current Assets |
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Cash and cash equivalents |
$ | 8,415 | $ | 143,017 | ||||
Short-term debt security investments |
55,092 | 33,481 | ||||||
Receivables, net |
31,482 | 32,402 | ||||||
Income taxes receivable |
| 117 | ||||||
Deferred income taxes, net |
1,825 | 1,825 | ||||||
Prepaid expenses and other |
2,102 | 3,062 | ||||||
Broadcast rights |
2,020 | 6,789 | ||||||
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Total current assets |
100,936 | 220,693 | ||||||
Restricted cash |
3,603 | 3,594 | ||||||
Long-term debt security investments |
28,400 | | ||||||
Cash surrender value of life insurance and annuity contracts |
17,676 | 17,278 | ||||||
Goodwill, net |
13,293 | 13,293 | ||||||
Intangible assets, net |
40,190 | 40,307 | ||||||
Other assets |
5,722 | 5,006 | ||||||
Deferred income taxes, net |
3,329 | 3,367 | ||||||
Assets held for sale |
| 658 | ||||||
Property, plant and equipment, net |
39,492 | 40,921 | ||||||
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Total Assets |
$ | 252,641 | $ | 345,117 | ||||
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LIABILITIES AND STOCKHOLDERS EQUITY |
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Current Liabilities |
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Current maturities of long-term debt |
$ | | $ | 61,834 | ||||
Accounts payable |
1,845 | 3,754 | ||||||
Accrued payroll and related benefits |
3,222 | 4,660 | ||||||
Interest payable |
| 1,556 | ||||||
Broadcast rights payable |
1,648 | 6,541 | ||||||
Income taxes payable |
1,276 | 21,468 | ||||||
Current portion of accrued retirement benefits |
1,302 | 1,302 | ||||||
Other current liabilities |
5,982 | 8,708 | ||||||
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Total current liabilities |
15,275 | 109,823 | ||||||
Deferred income |
8,943 | 10,036 | ||||||
Accrued retirement benefits |
20,450 | 20,525 | ||||||
Other liabilities |
3,112 | 2,688 | ||||||
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Total liabilities |
47,780 | 143,072 | ||||||
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Commitments and Contingencies (Note 7) |
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Stockholders Equity |
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Common stock, shares authorized 12,000,000, $1.25 par value; 8,874,834 and 8,832,177 issued and outstanding at June 30, 2012 and December 31, 2011, respectively |
11,094 | 11,040 | ||||||
Capital in excess of par |
14,958 | 14,679 | ||||||
Accumulated other comprehensive loss, net of income taxes: |
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Accumulated loss |
(3,242 | ) | (3,288 | ) | ||||
Prior service cost |
(43 | ) | (62 | ) | ||||
Retained earnings |
182,094 | 179,676 | ||||||
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Total Stockholders' Equity |
204,861 | 202,045 | ||||||
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Total Liabilities and Stockholders Equity |
$ | 252,641 | $ | 345,117 | ||||
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See accompanying notes to condensed consolidated financial statements.
5
Fisher Communications, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Six months ended June 30, | ||||||||
(in thousands) | 2012 | 2011 | ||||||
Operating activities |
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Net income |
$ | 2,418 | $ | 1,889 | ||||
Adjustments to reconcile net income to net cash provided by (used in)operating activities |
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Depreciation and amortization |
3,505 | 5,330 | ||||||
Deferred income taxes, net |
37 | 21 | ||||||
Loss on extinguishment of senior notes, net |
594 | 318 | ||||||
Loss in operations of equity investees |
74 | 84 | ||||||
Loss on disposal of property, plant and equipment, net |
20 | 52 | ||||||
Gain on sale of radio station, net |
| (48 | ) | |||||
Gain on sale of real estate, net |
(164 | ) | (4,089 | ) | ||||
Amortization of deferred financing fees |
19 | 170 | ||||||
Amortization of deferred gain on sale of Fisher Plaza |
(379 | ) | | |||||
Amortization of debt security investment premium |
85 | | ||||||
Amortization of non-cash contract termination fee |
(731 | ) | (731 | ) | ||||
Amortization of broadcast rights |
4,893 | 5,875 | ||||||
Payments for broadcast rights |
(5,027 | ) | (6,057 | ) | ||||
Stock-based compensation |
826 | 733 | ||||||
Change in operating assets and liabilities, net |
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Receivables |
920 | 1,358 | ||||||
Prepaid expenses and other |
961 | 408 | ||||||
Cash surrender value of life insurance and annuity contracts |
(398 | ) | 2,019 | |||||
Other assets |
96 | 136 | ||||||
Accounts payable, accrued payroll and related benefits and other current liabilities |
(2,423 | ) | (2,595 | ) | ||||
Interest payable |
(1,556 | ) | (651 | ) | ||||
Income taxes receivable and payable |
(20,075 | ) | 1,662 | |||||
Accrued retirement benefits |
(11 | ) | 31 | |||||
Other liabilities |
546 | (428 | ) | |||||
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Net cash provided by (used in) operating activities |
(15,770 | ) | 5,487 | |||||
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Investing activities |
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Investment in equity investee |
(32 | ) | (77 | ) | ||||
Purchase of debt security investments |
(82,733 | ) | | |||||
Purchase of investment in a radio station |
(750 | ) | | |||||
Purchase of option to acquire a radio station |
(615 | ) | | |||||
Proceeds from sale of debt security invesments |
7,628 | | ||||||
Proceeds from maturity of debt security invesments |
25,000 | | ||||||
Purchase of radio stations |
| (113 | ) | |||||
Purchase of property, plant and equipment |
(5,731 | ) | (3,009 | ) | ||||
Proceeds from sale of radio station |
| 48 | ||||||
Proceeds from sale of real estate |
825 | 4,164 | ||||||
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Net cash provided by (used in) investing activities |
(56,408 | ) | 1,013 | |||||
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Financing activities |
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Repurchase of senior notes |
(61,834 | ) | (25,860 | ) | ||||
Repurchase of common stock |
(86 | ) | | |||||
Shares settled upon vesting of stock rights |
(433 | ) | (273 | ) | ||||
Payments on capital lease obligations |
(96 | ) | (89 | ) | ||||
Proceeds from exercise of stock options |
25 | 75 | ||||||
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Net cash used in financing activities |
(62,424 | ) | (26,147 | ) | ||||
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Net decrease in cash and cash equivalents |
(134,602 | ) | (19,647 | ) | ||||
Cash and cash equivalents, beginning of period |
143,017 | 52,945 | ||||||
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Cash and cash equivalents, end of period |
$ | 8,415 | $ | 33,298 | ||||
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See accompanying notes to condensed consolidated financial statements.
6
Fisher Communications, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
1. Basis of Presentation and Significant Accounting Policies
The accompanying unaudited condensed consolidated financial statements of Fisher Communications, Inc. and its wholly-owned subsidiaries (the Company) have been prepared in accordance with generally accepted accounting principles in the United States of America (GAAP) for interim financial information and pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). Accordingly, they do not include all of the information and notes required by GAAP for annual financial statements. In the opinion of management, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair statement have been included in the periods presented. Operating results for the three and six months ended June 30, 2012 are not necessarily indicative of the results that may be expected for the year ending December 31, 2012, or for any other period. The unaudited condensed consolidated balance sheet at December 31, 2011 has been derived from the audited consolidated financial statements at that date but does not include all of the information and notes required by GAAP for annual financial statements. These unaudited condensed consolidated financial statements and notes should be read in conjunction with the Companys audited consolidated financial statements and accompanying notes included in the Companys Annual Report on Form 10-K for the year ended December 31, 2011 (2011 Form 10-K).
Certain reclassifications have been made to the unaudited condensed consolidated financial statements in the prior year to conform to the current year presentation.
The significant accounting policies used in preparation of the unaudited condensed consolidated financial statements are disclosed in the Companys 2011 Form 10-K. Except as described below, there have been no recent accounting pronouncements or changes in accounting pronouncements during the three and six months ended June 30, 2012, as compared to the recent accounting pronouncements described in the Companys 2011 Form 10-K, that are of significance, or potential significance, to the Company.
In June 2011, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2011-05, which amends the disclosure requirements for presentation of comprehensive income. Subsequently, in December 2011, the FASB indefinitely deferred the effective date of the portion of ASU No. 2011-05 requiring the separate presentation of reclassifications out of accumulated other comprehensive income. The implementation of the amended accounting guidance did not have a material impact on our consolidated financial position or results of operations.
2. Fair Value Measurements
The Company measures certain financial assets at fair value on a recurring basis. The fair value of these financial assets was determined based on three levels of inputs, of which, the first two levels are considered observable and the last unobservable. The three levels of inputs that may be used to measure fair value are as follows:
Level 1 Quoted prices in active markets for identical assets or liabilities.
Level 2 Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities; or the fair value is determined through the use of models or other valuation methodologies.
Level 3 Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. The inputs to determine fair value require significant management judgment or estimation.
Assets and liabilities measured at fair value on a recurring basis consist of marketable securities. As of June 30, 2012 and December 31, 2011, the reported fair value of marketable securities, using Level 1 inputs, was $1.0 million. Marketable securities are included in other assets on the Companys unaudited condensed consolidated balance sheets.
As of June 30, 2012, the Company did not have any outstanding fixed interest rate debt. As of December 31, 2011, all of the Companys debt was at a fixed interest rate and totaled $61.8 million. The fair market value of fixed interest rate debt is subject to interest rate risk. Generally, the fair market value of fixed interest rate debt will increase as interest rates fall and decrease as interest rates rise. The estimated fair value of the Companys debt, using Level 2 inputs, at December 31, 2011 was $62.9 million. The fair value of debt is based on estimates made by investment bankers based on the fair value of the Companys fixed interest rate debt. For fixed interest rate debt, interest rate changes do not impact financial position, operations or cash flows.
Restricted cash consists of $3.6 million at June 30, 2012 and December 31, 2011, for which the fair value is measured using Level 1 inputs. Cash equivalents consist of $7.9 million and $145.4 million at June 30, 2012 and December 31, 2011, respectively, for which the fair value is measured using Level 1 inputs. The carrying amount of restricted cash and cash equivalents approximates fair value.
7
3. Debt Security Investments
The Companys debt security investments are held in United States Treasury securities. The Company has classified these investments as held-to-maturity as the Company has the intent and ability to hold these securities to maturity. Investments with original maturities of greater than 90 days and current maturities of one year or less are recorded as short-term. Investments with current maturities of greater than one year are recorded as long-term. The securities are carried at amortized cost, and interest income is recorded using an effective interest rate with the associated discount or premium amortized to interest income, which is reported in Other income, net in the unaudited condensed consolidated statement of operations.
The following table summarizes amortized cost, gross unrealized gains, gross unrealized losses and the fair value of debt security investments (in thousands):
June 30, 2012 | December 31, 2011 | |||||||||||||||||||||||||||||||
(in thousands) | Amortized Cost |
Gross Unrealized Gains |
Gross Unrealized Losses |
Fair Value | Amortized Cost |
Gross Unrealized Gains |
Gross Unrealized Losses |
Fair Value | ||||||||||||||||||||||||
U.S. Treasury securities |
$ | 83,492 | $ | | $ | (45 | ) | $ | 83,447 | $ | 33,481 | $ | | $ | (2 | ) | $ | 33,479 |
The following table presents the amortized cost and the fair value of debt security investments, by contractual maturity (in thousands):
June 30, 2012 | ||||||||
(in thousands) | Amortized Cost |
Fair Value | ||||||
Due in one year or less |
$ | 55,092 | $ | 55,070 | ||||
Due after one year through five years |
28,400 | 28,377 | ||||||
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Total securities held to maturity |
$ | 83,492 | $ | 83,447 | ||||
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The fair value for debt security investments are estimated using best available evidence including broker quotes, prices for similar investments, interest rates and credit risk. Debt security investments are reviewed periodically to determine if a permanent decline in fair value has occurred that would require impairment of the carrying value. No impairments on the debt security investments have been recorded as of June 30, 2012 and December 31, 2011.
4. Goodwill and Intangible Assets
The following table summarizes the carrying amount of goodwill and intangible assets (in thousands):
June 30, 2012 | December 31, 2011 | |||||||||||||||||||||||
Gross carrying amount |
Accumulated amortization |
Net | Gross carrying amount |
Accumulated amortization |
Net | |||||||||||||||||||
Goodwill (1) |
$ | 13,293 | $ | | $ | 13,293 | $ | 13,293 | $ | | $ | 13,293 | ||||||||||||
Intangible assets: |
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Broadcast licenses (1) |
$ | 37,430 | $ | | $ | 37,430 | $ | 37,430 | $ | | $ | 37,430 | ||||||||||||
Other intangible assets |
285 | | 285 | 285 | | 285 | ||||||||||||||||||
Intangible assets subject to amortization (2) |
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Network affiliation agreement |
3,560 | (1,085 | ) | 2,475 | 3,560 | (968 | ) | 2,592 | ||||||||||||||||
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Total intangible assets |
$ | 41,275 | $ | (1,085 | ) | $ | 40,190 | $ | 41,275 | $ | (968 | ) | $ | 40,307 | ||||||||||
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(1) | Goodwill and broadcast licenses are considered indefinite-lived assets for which no periodic amortization is recognized. The television and radio broadcast licenses are issued by the Federal Communications Commission (FCC) and provide the Company with the exclusive right to utilize certain frequency spectrum to air its stations programming. While FCC licenses are issued for only a fixed time, renewals of FCC licenses have occurred routinely and at nominal cost. Moreover, the Company has determined that there are currently no legal, regulatory, contractual, competitive, economic or other factors that limit the useful lives of its FCC licenses. |
(2) | Intangible assets subject to amortization are amortized on a straight-line basis. Total amortization expense for intangible assets subject to amortization for the three and six months ended June 30, 2012 was $59,000 and $117,000, respectively. Total amortization expense for intangible assets subject to amortization for the three and six months ended June 30, 2011 was $59,000 and $118,000, respectively. |
8
The Company tests goodwill and intangible assets for impairment at least annually, as of October 1st of each year, or whenever events indicate that impairment may exist. The Company has determined that the impairment test should be conducted at the reporting unit level, which, with respect to the broadcast operations, requires separate assessment of each of the Companys television and radio station groups. The Company determines fair value based on valuation methodologies that include an analysis of market transactions for comparable businesses, discounted cash flows, and a review of the underlying assets of the reporting unit.
The following table presents the estimated amortization expense for the Companys intangible assets subject to amortization for the remainder of 2012 and each of the next five years and thereafter (in thousands):
Years ending December 31, |
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2012 |
$ | 119 | ||
2013 |
236 | |||
2014 |
236 | |||
2015 |
236 | |||
2016 |
236 | |||
2017 |
236 | |||
Thereafter |
1,176 | |||
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$ | 2,475 | |||
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5. Discontinued Operations
In October 2011, the Company sold its six Great Falls, Montana radio stations (the Montana Stations) to STARadio Corp. (STARadio), which is based in Quincy, Illinois for $1.8 million, subject to certain adjustments. In accordance with authoritative guidance, the Company has reported the results of operations of the Montana Stations as discontinued operations in the accompanying unaudited condensed consolidated financial statements. For all previously reported periods, the Company reclassified the results of the Montana Stations from continuing operations to discontinued operations. The Montana Stations were previously included in the Companys radio segment.
6. Extinguishment of Senior Notes
In January 2012, the Company redeemed the remaining $61.8 million aggregate principal amount of its 8.625% Senior Notes due in 2014 (Senior Notes) for a total consideration of $62.7 million in cash plus accrued interest of $1.8 million. The Company recorded a loss on extinguishment of debt of $1.5 million, including a charge for related unamortized debt issuance costs of approximately $594,000. As a result of the redemption of the remaining outstanding Senior Notes, the Company is no longer subject to provisions contained in the Senior Notes indenture, including various debt covenants and other restrictions, and the Company no longer is required to report financial information for its subsidiary guarantors of the Senior Notes.
During the three months ended June 30, 2011, the Company redeemed or repurchased $23.3 million aggregate principal amount of Senior Notes for a total consideration of $23.9 million in cash plus accrued interest of $231,000. The Company recorded a loss on extinguishment of debt of $948,000, including a charge for related unamortized debt issuance costs of approximately $283,000.
During the six months ended June 30, 2011, the Company redeemed or repurchased $25.9 million aggregate principal amount of Senior Notes for a total consideration of $26.6 million in cash plus accrued interest of $309,000. The Company recorded a loss on extinguishment of debt of $1.1 million, including a charge for related unamortized debt issuance costs of approximately $318,000.
7. Broadcast Rights and Other Commitments
The Company acquires broadcast rights during the ordinary course of business. The impact of such contracts on the Companys overall financial results is dependent on a number of factors, including popularity of the program, increased competition from other programming, and strength of the advertising market. It is possible that the cost of commitments for program rights may ultimately exceed direct revenue from the program. Estimates of future revenue can change significantly and, accordingly, are reviewed periodically to determine whether impairment is expected over the life of the contract.
As of June 30, 2012, the Company had commitments under various agreements of $28.1 million for future rights to broadcast television programs, rights to sell available advertising time on a third party radio station and commitments under certain network affiliate agreements.
9
The Company entered into a reimbursement agreement with Hines Global REIT (Hines) whereby the Company may be required to reimburse Hines up to $1.5 million if the power and/or chiller consumption by certain existing Fisher Plaza tenants, including the Company, exceeds specified levels and Hines is required to install additional power and/or chiller facilities. This reimbursement agreement expires on December 31, 2023.
8. Local Marketing Agreement
In June 2012, the Company amended its Local Marketing Agreement (LMA) with South Sound Broadcasting LLC (South Sound) to manage South Sounds FM radio station licensed in Oakville, Washington for another five years. The station broadcasts the Companys KOMO NewsRadio AM programming to FM listeners in the Seattle Tacoma radio market. Contemporaneously with the LMA, the Company entered into an option agreement with South Sound, whereby the Company has the right to acquire the station until January 2017. This amended LMA and related option agreement supersedes and terminates a previous LMA and option agreement between the Company and South Sound. Under the terms of the previous option agreement, the Company was obligated to pay South Sound up to approximately $1.4 million if the Company did not exercise the option prior to its expiration. Pursuant to the amended LMA, the $1.4 million fee was eliminated and instead the Company paid South Sound $750,000 for a 7.5% ownership interest in South Sound and $615,000 for a new option agreement. The consideration for the new option agreement is non-refundable, but will be applied to the purchase price if the Company chooses to exercise the option. The consideration for the option agreement and the investment in South Sound are presented within other assets on the Companys unaudited condensed consolidated balance sheet as of June 30, 2012. Due to the term of the LMA and the uncertainties associated with the exercise of the option agreement, South Sound does not meet the criteria for consolidation. Advertising revenues earned under this LMA are recorded as revenue and LMA fees and programming expenses are recorded as operating costs.
9. Retirement Benefits
The Company has a noncontributory supplemental retirement program for former members of key management. No new participants have been admitted to this program since 2001 and no current executive officers participate in the program. The program provides for vesting of benefits under certain circumstances. Funding is not required, but the Company has made investments in annuity contracts and maintains life insurance policies on the lives of the individual participants to assist in payment of retirement benefits. The Company is the owner and beneficiary of the annuity contracts and life insurance policies; accordingly, the cash value of the annuity contracts and the cash surrender value of the life insurance policies are reported on the unaudited condensed consolidated balance sheet in the financial statements and the appreciation is included in the unaudited condensed consolidated statement of operations.
In June 2005, the program was amended to freeze accrual of all benefits to active participants provided under the program. The Company continues to recognize periodic pension cost related to the program, but the amount is lower as a result of the curtailment.
The net periodic pension cost for the Companys supplemental retirement program is as follows (in thousands):
Three months ended June 30, | Six months ended June 30, | |||||||||||||||
2012 | 2011 | 2012 | 2011 | |||||||||||||
Interest cost |
$ | 234 | $ | 250 | $ | 468 | $ | 500 | ||||||||
Amortization of loss |
45 | 22 | 90 | 44 | ||||||||||||
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Net periodic pension cost |
$ | 279 | $ | 272 | $ | 558 | $ | 544 | ||||||||
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The discount rate used to determine net periodic pension cost was 4.48% for both the three and six months periods ended June 30, 2012. The discount rate used to determine net periodic pension cost was 5.22% for both the three and six month periods ended June 30, 2011.
10. Net income per share
Net income per share is based upon the net income divided by weighted average number of shares outstanding during the period. Net income per share assuming dilution is based upon the net income divided by weighted average number of shares and share equivalents outstanding, including the potentially dilutive impact of stock options and restricted stock rights/units issued under the Companys incentive plans. Common stock options and restricted stock rights/units are converted using the treasury stock method.
10
Basic and diluted net income per share has been computed as follows (in thousands, except per-share amounts):
Three months ended June 30, | Six months ended June 30, | |||||||||||||||
2012 | 2011 | 2012 | 2011 | |||||||||||||
Income from continuing operations, net of income taxes |
$ | 4,282 | $ | 3,542 | $ | 2,418 | $ | 1,823 | ||||||||
Income from discontinued operations, net of income taxes |
| 74 | | 66 | ||||||||||||
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Net income |
$ | 4,282 | $ | 3,616 | $ | 2,418 | $ | 1,889 | ||||||||
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Weighted average shares outstanding |
8,874 | 8,834 | 8,860 | 8,822 | ||||||||||||
Weighted effect of dilutive options and rights |
54 | 61 | 76 | 70 | ||||||||||||
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Weighted average shares outstanding assuming dilution |
8,928 | 8,895 | 8,936 | 8,892 | ||||||||||||
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Net income per share: |
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From continuing operations |
$ | 0.48 | $ | 0.40 | $ | 0.27 | $ | 0.21 | ||||||||
From discontinued operations |
| 0.01 | | 0.01 | ||||||||||||
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Net income per share |
$ | 0.48 | $ | 0.41 | $ | 0.27 | $ | 0.21 | ||||||||
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Net income per share assuming dilution: |
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From continuing operations |
$ | 0.48 | $ | 0.40 | $ | 0.27 | $ | 0.21 | ||||||||
From discontinued operations |
| 0.01 | | 0.01 | ||||||||||||
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Net income per share |
$ | 0.48 | $ | 0.41 | $ | 0.27 | $ | 0.21 | ||||||||
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For the three months ended June 30, 2012, the effect of zero restricted stock rights/units and options to purchase 263,740 shares are excluded from the calculation of weighted average shares outstanding because such rights/units and options were anti-dilutive. For the six months ended June 30, 2012, the effect of zero restricted stock rights/units and options to purchase 257,257 shares are excluded from the calculation of weighted average shares outstanding because such rights/units and options were anti-dilutive.
For the three months ended June 30, 2011, the effect of zero restricted stock rights/units and options to purchase 212,709 shares are excluded from the calculation of weighted average shares outstanding because such rights/units and options were anti-dilutive. For the six months ended June 30, 2011, the effect of 380 restricted stock rights/units and options to purchase 212,100 shares are excluded from the calculation of weighted average shares outstanding because such rights/units and options were anti-dilutive.
11. Stock-Based Compensation
Stock-based compensation expense for the three and six months ended June 30, 2012 was $374,000 and $826,000, respectively. Stock-based compensation expense for the three and six months ended June 30, 2011 was $433,000 and $733,000, respectively. Stock-based compensation expense is included in selling, general and administrative expenses in the Companys unaudited condensed consolidated statements of operations.
12. Income Taxes
The Company records an income tax provision or benefit based upon its estimated annual effective tax rate, which is estimated at 40.8% and 37.3% for the six months ended June 30, 2012 and 2011, respectively.
As of June 30, 2012 and December 31, 2011, the Company had $632,000 of unrecognized tax benefits and no penalties or interest was accrued. If the unrecognized tax benefits were recognized $410,000 would impact the effective tax rate.
A reconciliation of the change in the amount of gross unrecognized income tax benefits is as follows (in thousands):
June 30, 2012 | December 31, 2011 | |||||||
Balance at beginning of period |
$ | 632 | $ | | ||||
Increase of unrecognized tax benefits related to prior years |
| 632 | ||||||
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Balance at end of period |
$ | 632 | $ | 632 | ||||
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Although the timing and outcome of income tax audits is uncertain, it is possible that unrecognized tax benefits may be reduced as a result of the lapse of the applicable statues of limitations in federal and state jurisdictions within the next 12 months. Currently, the Company cannot reasonably estimate the amount of reductions, if any, during the next 12 months. Any such reduction could be impacted by other changes in unrecognized tax benefits and could result in changes to in the Companys tax obligations.
11
The State of California conducted an examination of the Companys 2007 and 2008 state tax returns and in April 2012, the Company received a preliminary determination seeking approximately $450,000 in unpaid taxes in connection with the Companys treatment of the proceeds from its 2008 sale of Safeco Corporation stock and dividends received. The Company intends to oppose the State of Californias position. The final disposition of the proposed audit adjustments could require the Company to make additional payments of taxes, interest and penalties, which could materially affect its effective tax rate.
The State of Oregon conducted an examination of the Companys 2007 and 2008 state tax returns and in November 2011, the Company received a Proposed Auditors Report from the State of Oregon seeking approximately $800,000 in unpaid taxes, interest and penalties in connection with the Companys treatment of the proceeds from its 2007 and 2008 sales of Safeco Corporation stock and dividends received. The Company intends to oppose the State of Oregons position. The final disposition of the proposed audit adjustments could require the Company to make additional payments of taxes, interest and penalties, which could materially affect its effective tax rate.
The determination of the Companys provision for income taxes and valuation allowance requires significant judgment, the use of estimates and the interpretation and application of complex tax laws. In assessing whether and to what extent deferred tax assets can be realized, the Company considers whether it is more likely than not that some portion or all of the deferred tax assets will be realized.
The Company assesses the likelihood of the realizability of its deferred tax assets on a quarterly basis. As of June 30, 2012 and December 31, 2011, the Company had a valuation allowance of approximately $480,000 on certain of its deferred tax assets. The amount of net deferred tax assets considered realizable, however, could be reduced in the future if the Companys projections of future taxable income are reduced or if the Company does not perform at the levels that it is projecting. This could result in an increase in the Companys valuation allowance for deferred tax assets.
13. Segment Information
The Company reports financial data for two segments: television and radio. The television segment includes the operations of the Companys 20 owned and/or operated television stations (including a 50%-owned television station) and the Companys developing media business. The radio segment includes the operations of the Companys three radio stations and one managed radio station. Prior to 2012, the Company also included Fisher Plaza as a reportable segment which included the operations of a communications center located near downtown Seattle that serves as home of the Companys Seattle television operations, radio operations, the corporate offices and third-party tenants. In December 2011, the Company completed the sale of Fisher Plaza to Hines for $160.0 million in cash. The Companys corporate headquarters and Seattle television, radio and developing media operations continue to be located at Fisher Plaza.
The Company discloses information about its reportable segments based on measures it uses in assessing the performance of its reportable segments. The Company uses segment income from continuing operations to measure the operating performance of its segments which represents income from continuing operations before depreciation and amortization, loss (gain) on sale of real estate, net and Plaza fire reimbursements, net. Additionally, the performance metric for segment income from continuing operations excludes the allocation of corporate costs and Fisher Plaza rent expense. Prior period financial information has been restated to conform to current period presentation.
Operating results and other financial data for each segment are as follows:
12
Three months ended | Six months ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
(dollars in thousands) | 2012 | 2011 | 2012 | 2011 | ||||||||||||
Revenue |
||||||||||||||||
Television |
$ | 36,778 | $ | 30,934 | $ | 65,937 | $ | 60,035 | ||||||||
Radio |
5,566 | 5,673 | 10,299 | 10,532 | ||||||||||||
Fisher Plaza |
| 3,811 | | 7,508 | ||||||||||||
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Total segment revenue |
42,344 | 40,418 | 76,236 | 78,075 | ||||||||||||
Intercompany and other |
(74 | ) | (68 | ) | (34 | ) | (173 | ) | ||||||||
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$ | 42,270 | $ | 40,350 | $ | 76,202 | $ | 77,902 | |||||||||
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Segment income from continuing operations |
||||||||||||||||
Television |
$ | 12,373 | $ | 6,775 | $ | 17,452 | $ | 11,430 | ||||||||
Radio |
1,835 | 1,710 | 2,633 | 1,882 | ||||||||||||
Fisher Plaza |
| 2,451 | | 4,652 | ||||||||||||
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Total segment income from continuing operations |
14,208 | 10,936 | 20,085 | 17,964 | ||||||||||||
Corporate, Fisher Plaza rent and other |
(5,387 | ) | (4,125 | ) | (10,999 | ) | (8,995 | ) | ||||||||
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$ | 8,821 | $ | 6,811 | $ | 9,086 | $ | 8,969 | |||||||||
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Depreciation and amortization |
||||||||||||||||
Television |
$ | 1,490 | $ | 1,162 | $ | 2,977 | $ | 2,326 | ||||||||
Radio |
30 | 24 | 59 | 47 | ||||||||||||
Fisher Plaza |
| 1,205 | | 2,408 | ||||||||||||
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Total segment depreciation and amortization |
1,520 | 2,391 | 3,036 | 4,781 | ||||||||||||
Corporate and other |
228 | 281 | 469 | 549 | ||||||||||||
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$ | 1,748 | $ | 2,672 | $ | 3,505 | $ | 5,330 | |||||||||
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June 30, | December 31, | |||||||
2012 | 2011 | |||||||
Total assets |
||||||||
Television |
$ | 115,302 | $ | 122,357 | ||||
Radio |
14,898 | 13,435 | ||||||
Fisher Plaza |
| 377 | ||||||
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Total segment assets |
130,200 | 136,169 | ||||||
Corporate and other |
122,441 | 208,948 | ||||||
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$ | 252,641 | $ | 345,117 | |||||
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Fisher Plaza rent expense of $1.3 million and $2.5 million is included in the Corporate, Fisher Plaza rent and other segment income from continuing operations for the three and six months ended June 30, 2012, respectively.
13
Intercompany and other non-segment revenue relates to sales between our television and radio stations and miscellaneous amounts not attributable to the operations of television or radio segments.
No geographic areas outside the United States were significant relative to consolidated revenue, segment income from continuing operations or total assets.
A reconciliation of segment income from continuing operations to income from continuing operations is as follows (dollars in thousands):
Three months ended | Six months ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2012 | 2011 | 2012 | 2011 | |||||||||||||
Segment income from continuing operations |
$ | 8,821 | $ | 6,811 | $ | 9,086 | $ | 8,969 | ||||||||
Adjustments: |
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(Loss) gain on sale of real estate, net |
(209 | ) | 4,089 | 164 | 4,089 | |||||||||||
Plaza fire reimbursements, net |
| 105 | | 183 | ||||||||||||
Depreciation and amortization |
(1,748 | ) | (2,672 | ) | (3,505 | ) | (5,330 | ) | ||||||||
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Income from continuing operations |
$ | 6,864 | $ | 8,333 | $ | 5,745 | $ | 7,911 | ||||||||
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14. Stock Repurchase Program
In December 2011, the Companys Board of Directors approved a stock repurchase program authorizing the repurchase of up to an aggregate of $25.0 million of its outstanding shares of common. The repurchases will be made from time-to-time, at the Company's discretion, on the open market at prevailing market prices or in negotiated transactions off the market. The repurchase program expires at the end of 2012, subject to periodic evaluation by the Board of Directors based on circumstances during the course of the year. No shares were repurchased during the three months ended June 30, 2012. The Company repurchased and retired 2,990 shares for an aggregate cost of $86,000 during the six months ended June 30, 2012, which reduced capital in excess of par by the excess cost over par value in the Companys unaudited condensed consolidated balance sheet at June 30, 2012. There were no unsettled share repurchases at June 30, 2012.
14
ITEM 2. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
The following discussion and analysis should be read in conjunction with the unaudited condensed consolidated financial statements and related notes thereto included elsewhere in this quarterly report on Form 10-Q. Some of the statements in this quarterly report are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include all passages containing verbs such as aims, anticipates, believes, estimates, expects, hopes, intends, plans, predicts, projects or targets or nouns corresponding to such verbs. Forward-looking statements also include any other passages that are primarily relevant to expected future events or that can only be fully evaluated by events that will occur in the future. There are many risks and uncertainties that could cause actual results to differ materially from those predicted in our forward-looking statements, including, without limitation, those factors discussed under the caption Risk Factors in Item 1A of Part I of our Annual Report on Form 10-K for the fiscal year ended December 31, 2011, which was filed with the Securities and Exchange Commission on March 9, 2012. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this report. Except as required by law, we undertake no obligation to revise any forward-looking statements in order to reflect events or circumstances that may subsequently arise. Readers are urged to carefully review and consider the various disclosures made in this report and in our other reports filed with the Securities and Exchange Commission that attempt to advise interested parties of the risks and factors that may affect our business, prospects and results of operations. As used herein, unless the context requires otherwise, when we say we, us, our, or the Company, we are referring to Fisher Communications, Inc. and its consolidated subsidiaries.
This discussion is intended to provide an analysis of significant trends and material changes in our financial condition and operating results during the three and six months ended June 30, 2012 compared with the corresponding periods in 2011.
Overview
We are an integrated media company. We own or operate 13 full power (including a 50%-owned television station) and seven low power television stations and three owned radio stations (in addition to one managed radio station). Our television stations are located in Washington, Oregon, Idaho and California, and our radio stations are located in Washington.
Our operations receive revenue from the sale of local, regional and national advertising and, to a much lesser extent, from retransmission consent fees, tower rental and commercial production activities. Our operating results are, therefore sensitive to broad economic trends that affect the broadcasting industry in general, as well as local and regional trends, particularly those affecting the Pacific Northwest economy. The advertising revenue of our stations is generally highest in the second and fourth quarters of each year, due in part to increases in consumer advertising in the spring, and retail advertising in the period leading up to and including the holiday season. In addition, advertising revenue is generally higher during election years due to spending by political candidates and advocacy groups. This political spending typically is heaviest during the fourth quarter.
Our television revenue is significantly affected by network affiliation and the success of programming offered by those networks. Our two largest television stations, KOMO TV and KATU TV, accounted for approximately 60% percent of our television revenue for the six months ended June 30, 2012 and are affiliated with the ABC Television Network. We have thirteen television stations which are affiliated with one of the four major networks. Six of our television stations are affiliated with Univision. Our remaining television stations are independent or subscribe to various programming services. We have affiliation agreements with the ABC Television Network with current terms expiring in August 2014. Our affiliation agreements with the CBS Television Network generally expire in February 2016. Our affiliation agreements with FOX Television Network expire in June 2014 and June 2015. Our affiliation agreement with Univision expires in December 2014. Our broadcasting operations are subject to competitive pressures from traditional broadcasting sources, as well as from alternative methods of delivering information and entertainment, and these pressures may cause fluctuations in operating results.
Management focuses on key metrics from operational data within our operations. Information on significant trends is provided in the section entitled Consolidated Results of Operations.
Significant Developments
The following significant developments affect the comparability of our financial statements for the three and six months ended June 30, 2012 and 2011.
Local Marketing Agreement. In June 2012, we amended our Local Marketing Agreement (LMA) with South Sound Broadcasting LLC (South Sound) to manage South Sounds FM radio station licensed in Oakville, Washington for another five years. The station broadcasts our KOMO News Radio AM programming to FM listeners in the Seattle Tacoma radio market. This LMA and related option agreement supersedes and terminates a previous LMA and option agreement between us and South Sound. Under the terms of the previous option agreement, we were obligated to pay South Sound up to approximately $1.4 million if we did not exercise the option prior to its expiration. Pursuant to the amended LMA, the $1.4 million fee was eliminated and instead we paid South Sound $750,000 for a 7.5% ownership interest in South Sound
15
and $615,000 for a new option agreement, whereby we have the right to acquire the station until January 2017. The consideration for the new option agreement is non-refundable, but will be applied as to the purchase price if we choose to exercise the option. The consideration for the option agreement and the investment in South Sound are presented as other assets on our unaudited condensed consolidated balance sheet as of June 30, 2012. Advertising revenue earned under this LMA is recorded as operating revenue and LMA fees and programming expenses are recorded as operating costs.
Redemption of Senior Notes. In January 2012, we redeemed the remaining $61.8 million aggregate principal amount of our 8.625% Senior Notes due in 2014 (Senior Notes) for a total consideration of $62.7 million in cash plus accrued interest of $1.8 million. We recorded a loss on extinguishment of debt of $1.5 million, including a charge for related unamortized debt issuance costs, of approximately $594,000. As a result of the redemption of the remaining outstanding Senior Notes, we are no longer subject to provisions contained in the indenture, including various debt covenants and other restrictions.
Sale and Leaseback of Fisher Plaza. In December 2011, we completed the sale of Fisher Plaza to Hines Global REIT (Hines) for $160.0 million in cash. In connection with the sale of Fisher Plaza we entered into a lease (the Lease) with Hines pursuant to which we leased 121,000 rentable square feet of Fisher Plaza. The Lease has an initial term that expires on December 31, 2023 and the Company has the right to extend the term for three successive five-year periods. Our corporate headquarters and Seattle television, radio and developing media operations continue to be located at Fisher Plaza. Given our sale of Fisher Plaza in December 2011, our consolidated results in 2012 and in future years will not include any revenue, operating expense or depreciation from Fisher Plaza, and will include rent expense, related to the Lease with Hines.
Expiration of KING FM Agreement. In May 2011, our Joint Sales Agreement with the classical music station KING FM expired and was not renewed. As a result we no longer record advertising revenue and operating expenses related to KING FM subsequent to the expiration of the agreement.
Critical Accounting Policies
Our discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates including, but not limited to, those affecting revenues, goodwill and intangibles impairment, the useful lives of tangible and intangible assets, valuation allowances for receivables and broadcast rights, stock-based compensation expense, valuation allowances for deferred income taxes and liabilities and contingencies. The brief discussion below is intended to highlight some of the judgments and uncertainties that can impact the application of these policies and the specific dollar amounts reported on our financial statements. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form our basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions, or if management made different judgments or utilized different estimates. Many of our estimates or judgments are based on anticipated future events or performance, and as such are forward-looking in nature, and are subject to many risks and uncertainties, including those discussed in our Annual Report on Form 10-K for the year ended December 31, 2011 and elsewhere in this Quarterly Report on Form 10-Q. Except as otherwise required by law, we do not undertake any obligation to update or revise this discussion to reflect any future events or circumstances.
For a detailed discussion of our critical accounting policies and estimates, please refer to our Annual Report on Form 10-K for the year ended December 31, 2011.
There have been no material changes in the application of our critical accounting policies and estimates subsequent to that report.
Consolidated Results of Operations
We report financial data for two reportable segments: television and radio. The television segment includes the operations of our 20 owned and/or operated television stations (including a 50%-owned television station) and our developing media business. The radio segment includes the operations of our three owned radio stations and one managed radio station. Prior to 2012, we also included Fisher Plaza as a reportable segment which consisted of the operations of a communications center located near downtown Seattle that serves as the home of our Seattle-based television and radio operations, our corporate offices and third-party tenants. Our corporate headquarters and Seattle television, radio and developing media operations continue to be located at Fisher Plaza.
We disclose information about our reportable segments based on the measures we use in assessing the performance of those reportable segments. We use segment income from continuing operations to measure the operating performance of our segments which represents income from continuing operations before depreciation and amortization, loss (gain) on sale of real estate, net, and Plaza fire reimbursements, net. Additionally, the performance metric for segment income from continuing operations excludes the allocation of corporate costs and Fisher Plaza rent expense. Prior period financial information has been restated to conform to current period presentation.
16
The following table sets forth our results of operations for the three and six months ended June 30, 2012 and 2011, including the dollar and percentage variances between these periods. Percentage variances have been omitted where they are not considered meaningful.
17
Three months ended | Six months ended | |||||||||||||||||||||||||||||||
June 30, | Variance | June 30, | Variance | |||||||||||||||||||||||||||||
(in thousands) | 2012 | 2011 | $ | % | 2012 | 2011 | $ | % | ||||||||||||||||||||||||
Revenue |
||||||||||||||||||||||||||||||||
Television |
$ | 36,778 | $ | 30,934 | $ | 5,844 | 19 | % | $ | 65,937 | $ | 60,035 | $ | 5,902 | 10 | % | ||||||||||||||||
Radio |
5,566 | 5,673 | (107 | ) | (2 | %) | 10,299 | 10,532 | (233 | ) | (2 | %) | ||||||||||||||||||||
Fisher Plaza |
| 3,811 | (3,811 | ) | (100 | %) | | 7,508 | (7,508 | ) | (100 | %) | ||||||||||||||||||||
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Total segment revenue |
42,344 | 40,418 | 1,926 | 5 | % | 76,236 | 78,075 | (1,839 | ) | (2 | %) | |||||||||||||||||||||
Intercompany and other |
(74 | ) | (68 | ) | (6 | ) | (9 | %) | (34 | ) | (173 | ) | 139 | 80 | % | |||||||||||||||||
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Consolidated revenue |
42,270 | 40,350 | 1,920 | 5 | % | 76,202 | 77,902 | (1,700 | ) | (2 | %) | |||||||||||||||||||||
Direct operating costs |
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Television |
13,574 | 13,554 | (20 | ) | (0 | %) | 27,631 | 27,180 | (451 | ) | (2 | %) | ||||||||||||||||||||
Radio |
2,161 | 2,291 | 130 | 6 | % | 4,521 | 4,814 | 293 | 6 | % | ||||||||||||||||||||||
Fisher Plaza |
| 1,241 | 1,241 | 100 | % | | 2,624 | 2,624 | 100 | % | ||||||||||||||||||||||
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Total segment direct operating costs |
15,735 | 17,086 | 1,351 | 8 | % | 32,152 | 34,618 | 2,466 | 7 | % | ||||||||||||||||||||||
Corporate and other |
197 | 131 | (66 | ) | (50 | %) | 436 | 273 | (163 | ) | (60 | %) | ||||||||||||||||||||
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Consolidated direct operating costs |
15,932 | 17,217 | 1,285 | 7 | % | 32,588 | 34,891 | 2,303 | 7 | % | ||||||||||||||||||||||
Selling, general and administrative expenses |
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Television |
8,395 | 7,700 | (695 | ) | (9 | %) | 15,961 | 15,550 | (411 | ) | (3 | %) | ||||||||||||||||||||
Radio |
1,570 | 1,672 | 102 | 6 | % | 3,145 | 3,836 | 691 | 18 | % | ||||||||||||||||||||||
Fisher Plaza |
| 119 | 119 | 100 | % | | 232 | 232 | 100 | % | ||||||||||||||||||||||
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Total segment selling, general and admininstrative expenses |
9,965 | 9,491 | (474 | ) | (5 | %) | 19,106 | 19,618 | 512 | 3 | % | |||||||||||||||||||||
Corporate, Fisher Plaza rent and other |
5,116 | 3,926 | (1,190 | ) | (30 | %) | 10,529 | 8,549 | (1,980 | ) | (23 | %) | ||||||||||||||||||||
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Consolidated selling, general and administrative expenses |
15,081 | 13,417 | (1,664 | ) | (12 | %) | 29,635 | 28,167 | (1,468 | ) | (5 | %) | ||||||||||||||||||||
Amortization of broadcast rights |
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Television |
2,436 | 2,905 | 469 | 16 | % | 4,893 | 5,875 | 982 | 17 | % | ||||||||||||||||||||||
Segment income from continuing operations |
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Television |
12,373 | 6,775 | 5,598 | 83 | % | 17,452 | 11,430 | 6,022 | 53 | % | ||||||||||||||||||||||
Radio |
1,835 | 1,710 | 125 | 7 | % | 2,633 | 1,882 | 751 | 40 | % | ||||||||||||||||||||||
Fisher Plaza |
| 2,451 | (2,451 | ) | (100 | %) | | 4,652 | (4,652 | ) | (100 | %) | ||||||||||||||||||||
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Total segment income from continuing operations |
14,208 | 10,936 | 3,272 | 30 | % | 20,085 | 17,964 | 2,121 | 12 | % | ||||||||||||||||||||||
Corporate, Fisher Plaza rent and other |
(5,387 | ) | (4,125 | ) | (1,262 | ) | (31 | %) | (10,999 | ) | (8,995 | ) | (2,004 | ) | (22 | %) | ||||||||||||||||
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Subtotal |
8,821 | 6,811 | 2,010 | 30 | % | 9,086 | 8,969 | 117 | 1 | % | ||||||||||||||||||||||
Depreciation and amortization |
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Television |
1,490 | 1,162 | (328 | ) | (28 | %) | 2,977 | 2,326 | (651 | ) | (28 | %) | ||||||||||||||||||||
Radio |
30 | 24 | (6 | ) | (25 | %) | 59 | 47 | (12 | ) | (26 | %) | ||||||||||||||||||||
Fisher Plaza |
| 1,205 | 1,205 | 100 | % | | 2,408 | 2,408 | 100 | % | ||||||||||||||||||||||
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Total segment depreciation and amortization |
1,520 | 2,391 | 871 | 36 | % | 3,036 | 4,781 | 1,745 | 36 | % | ||||||||||||||||||||||
Corporate and other |
228 | 281 | 53 | 19 | % | 469 | 549 | 80 | 15 | % | ||||||||||||||||||||||
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Consolidated depreciation and amortization |
1,748 | 2,672 | 924 | 35 | % | 3,505 | 5,330 | 1,825 | 34 | % | ||||||||||||||||||||||
Loss (gain) on sale of real estate, net |
209 | (4,089 | ) | (4,298 | ) | (105 | %) | (164 | ) | (4,089 | ) | (3,925 | ) | (96 | %) | |||||||||||||||||
Plaza fire reimbursements, net |
| (105 | ) | (105 | ) | (100 | %) | | (183 | ) | (183 | ) | (100 | %) | ||||||||||||||||||
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Income from continuing operations |
6,864 | 8,333 | (1,469 | ) | (18 | %) | 5,745 | 7,911 | (2,166 | ) | (27 | %) | ||||||||||||||||||||
Loss on extinguishment of senior notes, net |
| (948 | ) | 948 | 100 | % | (1,482 | ) | (1,058 | ) | (424 | ) | (40 | %) | ||||||||||||||||||
Other income, net |
64 | 100 | (36 | ) | (36 | %) | 94 | 180 | (86 | ) | (48 | %) | ||||||||||||||||||||
Interest expense |
(10 | ) | (1,878 | ) | 1,868 | 99 | % | (276 | ) | (4,125 | ) | 3,849 | 93 | % | ||||||||||||||||||
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Income from continuing operations before income taxes |
6,918 | 5,607 | 1,311 | 23 | % | 4,081 | 2,908 | 1,173 | 40 | % | ||||||||||||||||||||||
Provision for income taxes |
2,636 | 2,065 | (571 | ) | (28 | %) | 1,663 | 1,085 | (578 | ) | (53 | %) | ||||||||||||||||||||
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Income from continuing operations, net of income taxes |
4,282 | 3,542 | 740 | 21 | % | 2,418 | 1,823 | 595 | 33 | % | ||||||||||||||||||||||
Income from discontinued operations, net of income taxes |
| 74 | (74 | ) | (100 | %) | | 66 | (66 | ) | (100 | %) | ||||||||||||||||||||
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Net income |
$ | 4,282 | $ | 3,616 | $ | 666 | 18 | % | $ | 2,418 | $ | 1,889 | $ | 529 | 28 | % | ||||||||||||||||
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Comparison of three and six months ended June 30, 2012 and 2011
No comparisons for the three and six months ended June 30, 2012 compared to the same periods in 2011 are included for the Fisher Plaza segment in the discussion below because, effective on the sale of Fisher Plaza, it is no longer a reportable segment and is not included in results of operations for 2012.
Revenue
The following table sets forth our main types of revenue by segment for the three and six months ended June 30, 2012 and 2011:
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Three months ended June 30, | Six months ended June 30, | |||||||||||||||||||||||||||||||||||||||
(in thousands) |
2012 | % change |
% total revenue |
2011 | % total revenue |
2012 | % change |
% total revenue |
2011 | % total revenue |
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Core advertising (local and national) |
$ | 25,943 | 8 | % | 61 | % | $ | 24,052 | 60 | % | $ | 48,157 | 3 | % | 63 | % | $ | 46,803 | 60 | % | ||||||||||||||||||||
Political |
943 | 255 | % | 2 | % | 266 | 1 | % | 1,462 | 313 | % | 2 | % | 354 | 0 | % | ||||||||||||||||||||||||
Developing Media |
1,298 | -5 | % | 3 | % | 1,372 | 3 | % | 2,580 | 1 | % | 3 | % | 2,550 | 3 | % | ||||||||||||||||||||||||
Retransmission |
6,269 | 89 | % | 15 | % | 3,315 | 8 | % | 9,846 | 49 | % | 13 | % | 6,617 | 8 | % | ||||||||||||||||||||||||
Trade, barter and other |
2,325 | 21 | % | 6 | % | 1,929 | 5 | % | 3,892 | 5 | % | 5 | % | 3,711 | 5 | % | ||||||||||||||||||||||||
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Television |
36,778 | 19 | % | 87 | % | 30,934 | 77 | % | 65,937 | 10 | % | 87 | % | 60,035 | 77 | % | ||||||||||||||||||||||||
Core advertising (local and national) |
5,284 | 0 | % | 13 | % | 5,276 | 13 | % | 9,742 | -2 | % | 13 | % | 9,892 | 13 | % | ||||||||||||||||||||||||
Political |
18 | -81 | % | 0 | % | 94 | 0 | % | 58 | -54 | % | 0 | % | 127 | 0 | % | ||||||||||||||||||||||||
Trade, barter and other |
264 | -13 | % | 1 | % | 303 | 1 | % | 499 | -3 | % | 1 | % | 513 | 1 | % | ||||||||||||||||||||||||
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Radio |
5,566 | -2 | % | 13 | % | 5,673 | 14 | % | 10,299 | -2 | % | 14 | % | 10,532 | 14 | % | ||||||||||||||||||||||||
Fisher Plaza |
| -100 | % | 0 | % | 3,811 | 9 | % | | -100 | % | 0 | % | 7,508 | 10 | % | ||||||||||||||||||||||||
Intercompany and other |
(74 | ) | 9 | % | 0 | % | (68 | ) | 0 | % | (34 | ) | -80 | % | 0 | % | (173 | ) | 0 | % | ||||||||||||||||||||
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Total Revenue |
$ | 42,270 | 5 | % | 100 | % | $ | 40,350 | 100 | % | $ | 76,202 | -2 | % | 100 | % | $ | 77,902 | 100 | % | ||||||||||||||||||||
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Television. Television revenue increased $5.8 million and $5.9 million in the three and six months ended June 30, 2012, respectively, compared to the same periods in 2011. This increase was primarily due to an increase in retransmission revenue, core advertising and political advertising.
The increase of $3.0 million in retransmission revenue for the three months ended June 30, 2012 compared to the same period in 2011 was primarily a result of finalizing the renewal of substantially all of our retransmission consent contracts for the 2012-2014 cycle in the second quarter of 2012. The periods covered by these agreements began during the first quarter of 2012. Accordingly, $0.7 million of the retransmission revenue recorded in the second quarter of 2012 was attributable to those contracts for the first quarter of 2012. If the $0.7 million of retransmission revenue had been recorded in the first quarter of 2012, second quarter 2012 retransmission revenue would have increased $2.3 million, or 68% compared to the second quarter of 2011.
Automotive-related advertising, one of our largest advertising categories, increased 20% for the three months ended June 30, 2012, compared to the same period in 2011. Professional-services and retail related advertising increased 14% and 10%, respectively, compared to the same period in 2011.
Automotive-related advertising increased 12% for the six months ended June 30, 2012, compared to the same period in 2011. Professional-services and retail related advertising increased 8% and 10%, respectively, compared to the same period in 2011.
Revenue from our ABC-affiliated stations increased 21% and 9% in the three and six months ended June 30, 2012, respectively, compared to the same periods in 2011, primarily due to increases in retransmission revenue and local advertising revenue, partially offset by a decrease in national advertising revenue. Revenue from our CBS-affiliated stations increased 20% and 15% in the three and months ended June 30, 2012, respectively, compared to the same periods in 2011, as a result of increases in retransmission revenue and local and national advertising.
Radio. Radio revenue declined by 2% in both the three and six months ended June 30, 2012, respectively, compared to the same periods in 2011, primarily as a result of the non-renewal of our ten year Joint Sales Agreement with KING FM, which expired in second quarter 2011.
Intercompany and other. Intercompany and other non-segment revenue relates primarily to sales between our segments and miscellaneous amounts not attributable to the operations of our segments.
Direct operating costs
Direct operating costs consist primarily of costs to produce and promote programming for the television and radio segments. Many of these costs are relatively fixed in nature and do not necessarily vary on a proportional basis with revenue.
Television. Direct operating costs for the television segment increased $20,000 and $451,000 in the three and six months ended June 30, 2012, respectively, compared to the same periods in 2011.The increase in the six months ended June 30, 2012 compared to the same period in 2011 primarily reflects an increase in costs related to the continued development and expansion of our developing media business and an increase in compensation related costs.
Radio. Direct operating costs for the radio segment decreased $130,000 and $293,000 in the three and six months ended June 30, 2012, respectively, compared to the same periods in 2011. The decrease in the three months ended June 30, 2011, compared to the same period in 2011 was primarily due to a decrease in the cost of music rights as the result of an industry-wide legal settlement. The decrease in the six months ended June 30, 2011, compared to the same period in 2011 was primarily due to a reduction in advertising costs for our radio stations and a decrease in the cost of music rights as the result of an industry-wide legal settlement.
Other. Other non-segment direct operating costs consist primarily of the centralized network operating center and corporate engineering department. In the three and six months ended June 30, 2012, non-segment direct operating costs increased $66,000 and $163,000 compared to the same periods in 2011, respectively.
19
Selling, general and administrative expenses
Television. Selling, general and administrative expenses in our television segment increased $695,000 and $411,000 in the three and six months ended June 30, 2012, respectively, compared to the same periods in 2011. Prior years expenses were reduced by vacation accrual savings related to our revised vacation policy. Additionally, in 2012, advertising and audience survey costs increased compared to the same periods in 2011.
Radio. The decrease of $102,000 and $691,000 in selling, general and administrative expenses in our radio segment in the three and six months ended June 30, 2012, respectively, compared to the same periods in 2011 was primarily due to cost savings as a result of the non-renewal of our ten year Joint Sales Agreement with KING FM, which expired in second quarter 2011.
Corporate, Fisher Plaza rent and other. Other selling, general and administrative expenses consist primarily of corporate costs, various centralized functions and Fisher Plaza rent. For the three and six months ended June 30, 2012, other selling, general and administrative expenses increased $1.2 million and $2.0 million compared to the same periods in 2011, respectively. The increase was primarily due to Fisher Plaza rent costs included in 2012. The 2011 amounts also included costs related to the proxy contest initiated by FrontFour Capital Group in 2011 and savings related to our revised vacation policy.
Amortization of broadcast rights
Television. Amortization of program rights for our television segment decreased $469,000 and $982,000 in the three and six months ended June 30, 2012, respectively, compared to the same periods in 2011, primarily due to reduced obligations as a result of renegotiated contracts.
Depreciation and amortization
Television. Depreciation and amortization for our television segment increased $328,000 and $651,000 in the three and six months ended June 30, 2012 compared to the same periods in 2011, respectively, primarily due to investments in our broadcasting equipment at KOMO and KATU.
Radio. Depreciation and amortization for our radio segment increased $6,000 and $12,000 in the three and six months ended June 30, 2012, respectively, compared to the same periods in 2011.
Other. Other depreciation and amortization decreased $53,000 and $80,000 in the three and six months ended June 30, 2012, respectively, compared to the same periods in 2011 as certain assets have become fully depreciated.
Loss (gain) on sale of real estate, net
In January 2012, we completed the sale of two real estate parcels not essential to current operations and received $570,000 in net proceeds. In June 2012, we completed the sale of a real estate parcel not essential to current operations and received $253,000 in net proceeds. We recognized a loss on sale of real estate, net of $209,000 and a gain on sale of real estate, net of $164,000 for the three and six months ended June 30, 2012, respectively.
In June 2011, we completed the sale of two real estate parcels not essential to current operations and received $4.2 million in net proceeds. We recognized a gain on the sale of real estate, net of $4.1 million for the three and six months ended June 30, 2011.
Plaza fire reimbursements, net
No Plaza fire reimbursements were received in the three and six months ended June 30, 2012. Plaza fire reimbursements, net of $105,000 and $183,000 represent net insurance reimbursements related to the July 2009 Fisher Plaza fire received in the three and six months ended June 30, 2011, respectively.
Loss on extinguishment of senior notes, net
In January 2012, we redeemed the remaining $61.8 million aggregate principal amount of Senior Notes for a total consideration of $62.7 million in cash plus accrued interest of $1.8 million. We recorded a loss on extinguishment of debt of $1.5 million, including a charge for related unamortized debt issuance costs, of approximately $594,000.
During the three months ended June 30, 2011, we redeemed or repurchased $23.3 million aggregate principal amount of Senior Notes for a total consideration of $23.9 million in cash plus accrued interest of $231,000. We recorded a loss on extinguishment of debt of $948,000, including a charge for related unamortized debt issuance costs, of approximately $283,000.
During the six months ended June 30, 2011, we redeemed or repurchased $25.9 million aggregate principal amount of Senior Notes for a total consideration of $26.6 million in cash plus accrued interest of $309,000. We recorded a loss on extinguishment of debt of $1.1 million, including a charge for related unamortized debt issuance costs, of approximately $318,000.
20
Other income, net
Other income, net, typically consists of interest and other miscellaneous income received. During the three and six months ended June 30, 2012, other income, net, decreased $36,000 and $86,000, respectively, compared to the same periods in 2011. The decrease in the six months ended June 30, 2012 compared to the same period in 2011 was primarily due to a miscellaneous insurance reimbursement received in 2011.
Interest expense
Interest expense in the three and six months ended June 30, 2012 decreased $1.9 million and $3.8 million, respectively, from the same periods in 2011, due to the redemption of outstanding Senior Notes in January 2012.
Provision for income taxes
Our effective tax rate was 40.8% and 37.3% for the six months ended June 30, 2012 and 2011, respectively. Our effective tax rate is calculated on the statutory rate of 35%, adjusted for state income taxes, changes in certain tax account balances and estimated permanent differences, including non-deductible expenses, and changes in discrete or other non-recurring items. We record our income tax provision or benefit based upon our estimated annual effective tax rate.
Income from discontinued operations, net of income taxes
In October 2011, we completed the sale of our six Montana Stations (the Montana Stations) to STARadio for $1.8 million, subject to certain adjustments. In accordance with authoritative guidance we have reported the results of operations of the Montana Stations as discontinued operations in the unaudited condensed consolidated financial statements. See Note 5 to the unaudited condensed consolidated financial statements for more information on our discontinued operations.
Liquidity and Capital Resources
Liquidity
Our liquidity is primarily dependent upon cash and cash equivalents, short-term and long-term debt security investments and net cash generated from operating activities. Our net cash generated from operating activities is sensitive to many factors, including changes in working capital and the timing and magnitude of capital expenditures. Working capital at any specific point in time is dependent upon many variables, including operating results, receivables and the timing of cash receipts and payments.
We expect cash flows from operations and our cash, cash equivalents, short-term and long-term investments in debt securities to provide sufficient liquidity to meet our cash requirements for operations, projected working capital requirements and planned capital expenditures and commitments for at least the next 12 months. In the future, we may obtain a credit facility depending on market conditions and our current needs.
In January 2012, we redeemed the remaining $61.8 million aggregate principal amount of our Senior Notes for a total consideration of $62.7 million in cash plus accrued interest of $1.8 million. We recorded a loss on extinguishment of debt of $1.5 million, including a charge for related unamortized debt issuance costs, of approximately $594,000. As a result of our redemption of the remaining outstanding Senior Notes, we are no longer subject to provisions contained in the Senior Notes indenture, including various debt covenants and other restrictions.
Capital Resources
Cash and cash equivalents were approximately $8.4 million as of June 30, 2012 compared to cash and cash equivalents of $143.0 million as of December 31, 2011. The decrease in cash and cash equivalents of $134.6 million was primarily due to the purchase of debt security investments of $82.7 million in the form of U.S. Treasury securities, our redemption of Senior Notes for a total consideration of $62.7 million and income tax payments, net, of $21.7 million, offset by proceeds from the sale or maturity of debt security investments of $32.6 million during the six months ended June 30, 2012.
Short-term and long-term debt security investments were approximately $83.5 million as of June 30, 2012 compared to short-term debt security investments of approximately $33.5 million as of December 31, 2011. Our debt security investments are held in U.S. Treasury securities and are carried at amortized cost.
21
Net cash provided by (used in) operating activities
Net cash used in operating activities for the six months ended June 30, 2012 of $15.8 million consists of our net income of $2.4 million, adjusted for non-cash charges of $8.8 million, which consisted primarily of depreciation and amortization and amortization of broadcast rights, offset by a $22.0 million decrease in working capital, which includes income tax payments, net, of $21.7 million, and $5.0 million of payments for broadcast rights.
Net cash provided by operating activities for the six months ended June 30, 2011 of $5.5 million consists of our net income of $1.9 million adjusted for our non-cash charges of $7.8 million, which consisted primarily of depreciation and amortization, amortization of broadcast rights gain on sale of real estate and stock-based compensation, and a $1.9 million increase in working capital, which includes $2.4 million received on an annuity contract of a retiree, offset by $6.1 million of payments for broadcast rights.
Net cash provided by (used in) investing activities
During the six months ended June 30, 2012, net cash used in investing activities of $56.4 million consisted primarily of purchases of debt security investments of $82.7 million in the form of U.S. Treasury securities, purchases of property, plant and equipment of $5.7 million, an investment in a radio station of $750,000 and a purchase of an option to acquire a radio station of $615,000 pursuant to the new South Sound LMA (see Note 8), partially offset by $32.6 million in proceeds received from the sale or maturity of debt security investments in the form of U.S. Treasury securities.
During the six months ended June 30, 2011, cash flows provided by investing activities of $1.0 million consisted primarily of proceeds received from the sale of real estate of $4.2 million, partially offset by $3.0 million in purchases of property, plant and equipment.
Net cash used in financing activities
Net cash used in financing activities for the six months ended June 30, 2012 was $62.4 million primarily due to the redemption of $61.8 million aggregate principal amount of Senior Notes and net share settlement for employee stock compensation tax withholding obligations of $433,000.
Net cash used in financing activities for the six months ended June 30, 2011 was $26.1 million primarily due to the redemption or repurchase of $25.9 million aggregate principal amount of Senior Notes, net share settlement for employee stock compensation tax withholding obligations of $273,000 and payments on capital lease agreements, partially offset by proceeds from exercise of stock options.
Recent Accounting Pronouncements
Refer to Note 1 to our unaudited condensed consolidated financial statements included in Part I, Item 1 of this report.
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ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
The market risk in our financial instruments represents the potential loss arising from adverse changes in financial rates. We are exposed to market risk primarily in the area of interest rates. This exposure is directly related to our normal funding activities.
As June 30, 2012 we had no outstanding fixed interest rate debt. At December 31, 2011, all of our debt was at a fixed interest rate and totaled $61.8 million. The fair market value of long-term fixed interest rate debt is subject to interest rate risk. Generally, the fair market value of fixed interest rate debt will increase as interest rates fall and decrease as interest rates rise. The estimated fair value of our fixed interest rate debt at December 31, 2011 was approximately $62.9 million, which was approximately $1.1 million more than its carrying value. Market risk is estimated as the potential change in fair market value resulting from a hypothetical 10% change in interest rates and, as of December 31, 2011, amounted to $1.3 million. Fair market values are determined based on estimates made by investment bankers based on the fair value of the Companys fixed interest rate debt. For fixed interest rate debt, interest rate changes do not impact financial position, operations or cash flows.
ITEM 4. | CONTROLS AND PROCEDURES |
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the Exchange Act)) as of the end of our fiscal quarter ended June 30, 2012. Based on their evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of our fiscal quarter ended June 30, 2012, our disclosure controls and procedures were effective in ensuring that the information required to be disclosed by us in the reports that we file or submit under the Exchange Act is (i) recorded, processed, summarized and reported, within the time periods specified in the SECs rules and forms, and (ii) accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
We made no change in our internal control over financial reporting during the fiscal quarter ended June 30, 2012 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. We intend to continue to refine our internal control over financial reporting on an ongoing basis, as we deem appropriate with a view towards continuous improvement.
23
We are parties to various claims, legal actions and complaints in the ordinary course of our businesses. In managements opinion, all such matters are adequately covered by insurance, are without merit or are of such kind, or involve such amounts, that unfavorable disposition would not have a material adverse effect on our consolidated financial position, results of operations or cash flows.
There have not been any material changes to the risk factors set forth in Part 1, Item 1A in our Annual Report on Form 10-K for the year ended December 31, 2011, filed with the Securities and Exchange Commission on March 9, 2012.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
None.
None.
24
31.1 | Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer. | |
31.2 | Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer. | |
32.1 | Section 1350 Certification of Chief Executive Officer. | |
32.2 | Section 1350 Certification of Chief Financial Officer. | |
101 | The following financial information from Fisher Communication, Inc.s Quarterly Report on Form 10-Q for the quarter ended June 30, 2012, formatted in XBRL (eXtensible Business Reporting Language): (i) Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2012 and 2011, (ii) Condensed Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 2012 and 2011, (iii) Condensed Consolidated Balance Sheets as of June 30, 2012 and December 31, 2011, (iv) Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2012 and 2011, and (v) the Notes to Condensed Consolidated Financial Statements. |
25
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 COMMUNICATIONS, INC. | ||
Date: August 7, 2012 | /s/ Hassan N. Natha | |
| ||
Hassan N. Natha Senior Vice President and Chief Financial Officer (Signing on behalf of the registrant and as Principal Financial Officer) |
26
Exhibit No. |
Description | |
31.1 | Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer. | |
31.2 | Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer. | |
32.1 | Section 1350 Certification of Chief Executive Officer. | |
32.2 | Section 1350 Certification of Chief Financial Officer. | |
101 | The following financial information from Fisher Communication, Inc.s Quarterly Report on Form 10-Q for the quarter ended June 30, 2012, formatted in XBRL (eXtensible Business Reporting Language): (i) Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2012 and 2011, (ii) Condensed Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 2012 and 2011, (iii) Condensed Consolidated Balance Sheets as of June 30, 2012 and December 31, 2011, (iv) Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2012 and 2011, and (v) the Notes to Condensed Consolidated Financial Statements. |
27
Exhibit 31.1
CERTIFICATION
I, Colleen B. Brown, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Fisher Communications, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and
5. The registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting.
Date: August 7, 2012
/s/ Colleen B. Brown |
Colleen B. Brown |
President and Chief Executive Officer |
Exhibit 31.2
CERTIFICATION
I, Hassan Natha, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Fisher Communications, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and
5. The registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting.
Date: August 7, 2012
/s/ Hassan N. Natha |
Hassan N. Natha |
Senior Vice President and |
Chief Financial Officer |
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Fisher Communications, Inc. (the Company) on Form 10-Q for the period ended June 30, 2012 as filed with the Securities and Exchange Commission on the date hereof (the Form 10-Q), I, Colleen B. Brown, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that:
(1) | The Form 10-Q fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and |
(2) | The information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company. |
Date: August 7, 2012
/s/ Colleen B. Brown |
Colleen B. Brown |
President and Chief Executive Officer |
Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Fisher Communications, Inc. (the Company) on Form 10-Q for the period ended June 30, 2012 as filed with the Securities and Exchange Commission on the date hereof (the Form 10-Q), I, Hassan Natha, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that:
(1) | The Form 10-Q fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and |
(2) | The information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company. |
Date: August 7, 2012
/s/ Hassan N. Natha |
Hassan N. Natha |
Senior Vice President and |
Chief Financial Officer |
Retirement Benefits (Details) (USD $)
In Thousands, unless otherwise specified |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jun. 30, 2012
|
Jun. 30, 2011
|
Jun. 30, 2012
|
Jun. 30, 2011
|
|
Net periodic pension cost | ||||
Interest cost | $ 234 | $ 250 | $ 468 | $ 500 |
Amortization of loss | 45 | 22 | 90 | 44 |
Net periodic pension cost | $ 279 | $ 272 | $ 558 | $ 544 |
Segment Information (Details Textual) (USD $)
In Millions, unless otherwise specified |
3 Months Ended | 6 Months Ended | |
---|---|---|---|
Jun. 30, 2012
|
Jun. 30, 2012
Segment
|
Dec. 31, 2011
|
|
Segment Reporting Information [Line Items] | |||
Number of segments | 2 | ||
Segment Reporting (Textual) [Abstract] | |||
Sale of Fisher Plaza | $ 160.0 | ||
Fisher Plaza rent expense | $ 1.3 | $ 2.5 | |
Television [Member]
|
|||
Segment Reporting Information [Line Items] | |||
Number of operating segments | 20 | ||
Operating Segments, Percentage | 50.00% |
Goodwill and Intangible Assets (Details 1) (USD $)
In Thousands, unless otherwise specified |
Jun. 30, 2012
|
---|---|
Amortization expense for the Company's intangible assets | |
2012 | $ 119 |
2013 | 236 |
2014 | 236 |
2015 | 236 |
2016 | 236 |
2017 | 236 |
Thereafter | 1,176 |
Total | $ 2,475 |
Net Income Per Share (Tables)
|
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2012
|
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Net Income Per Share [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Basic and diluted net income per share |
Basic and diluted net income per share has been computed as follows (in thousands, except per-share amounts):
|
Net Income Per Share (Details Textual)
|
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jun. 30, 2012
|
Jun. 30, 2011
|
Jun. 30, 2012
|
Jun. 30, 2011
|
|
Restricted Stock Units (RSUs) [Member]
|
||||
Net Income Per Share (Textual) [Abstract] | ||||
Stock-based compensation expense | 0 | 0 | 0 | 380 |
Stock Options [Member]
|
||||
Net Income Per Share (Textual) [Abstract] | ||||
Stock-based compensation expense | 263,740 | 212,709 | 257,257 | 212,100 |
Broadcast Rights and Other Commitments (Details) (USD $)
In Millions, unless otherwise specified |
6 Months Ended |
---|---|
Jun. 30, 2012
|
|
Broadcast Rights and Other Commitments (Textual) [Abstract] | |
Commitments under various agreements | 28.1 |
Reimbursement expenses | $ 1.5 |
Reimbursement agreement expiry date | Dec. 31, 2023 |
Segment Information (Details 1) (USD $)
In Thousands, unless otherwise specified |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jun. 30, 2012
|
Jun. 30, 2011
|
Jun. 30, 2012
|
Jun. 30, 2011
|
|
Reconciliation of segment income from continuing operations to income from continuing operations | ||||
Segment income from continuing operations | $ 8,725 | $ 6,811 | $ 8,990 | $ 8,969 |
Adjustments: | ||||
Loss (gain) on sale of real estate, net | (209) | 4,089 | 164 | 4,089 |
Plaza fire reimbursements, net | 105 | 183 | ||
Depreciation and amortization | (1,748) | (2,672) | (3,505) | (5,330) |
Income from continuing operations | $ 6,768 | $ 8,333 | $ 5,649 | $ 7,911 |
Debt Security Investments
|
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2012
|
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Debt Security Investments [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Debt Security Investments |
3. Debt Security Investments The Company’s debt security investments are held in United States Treasury securities. The Company has classified these investments as held-to-maturity as the Company has the intent and ability to hold these securities to maturity. Investments with original maturities of greater than 90 days and current maturities of one year or less are recorded as short-term. Investments with current maturities of greater than one year are recorded as long-term. The securities are carried at amortized cost, and interest income is recorded using an effective interest rate with the associated discount or premium amortized to interest income, which is reported in “Other income, net” in the unaudited condensed consolidated statement of operations. The following table summarizes amortized cost, gross unrealized gains, gross unrealized losses and the fair value of debt security investments (in thousands):
The following table presents the amortized cost and the fair value of debt security investments, by contractual maturity (in thousands):
The fair value for debt security investments are estimated using best available evidence including broker quotes, prices for similar investments, interest rates and credit risk. Debt security investments are reviewed periodically to determine if a permanent decline in fair value has occurred that would require impairment of the carrying value. No impairments on the debt security investments have been recorded as of June 30, 2012 and December 31, 2011. |