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 March 31, 2013
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 May 1, 2013: 8,840,977
FINANCIAL INFORMATION
Item 1. | Financial Statements |
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The following Condensed Consolidated Financial Statements are presented for Fisher Communications, Inc., and its subsidiaries. |
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1. | 3 | |||||
2. | 4 | |||||
3. | Condensed Consolidated Balance Sheets (unaudited): March 31, 2013 and December 31, 2012 |
5 | ||||
4. | 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. | 21 | |||||
Item 4. | 21 | |||||
PART II | ||||||
OTHER INFORMATION | ||||||
Item 1. | 22 | |||||
Item 1A. | 22 | |||||
Item 2. | 23 | |||||
Item 3. | 23 | |||||
Item 4. | 23 | |||||
Item 5. | 23 | |||||
Item 6. | 24 | |||||
SIGNATURES | 25 | |||||
EXHIBIT INDEX | 26 |
2
Fisher Communications, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
(Unaudited)
Three months ended March 31, |
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(in thousands, except per-share amounts) | 2013 | 2012 | ||||||
Revenue |
$ | 36,791 | $ | 33,932 | ||||
Operating expenses |
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Direct operating costs |
17,646 | 16,656 | ||||||
Selling, general and administrative expenses |
16,213 | 14,554 | ||||||
Amortization of broadcast rights |
2,402 | 2,457 | ||||||
Depreciation and amortization |
1,794 | 1,757 | ||||||
Gain on sale of real estate, net |
| (373 | ) | |||||
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Total operating expenses |
38,055 | 35,051 | ||||||
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Loss from operations |
(1,264 | ) | (1,119 | ) | ||||
Loss on extinguishment of senior notes, net |
| (1,482 | ) | |||||
Other income, net |
30 | 30 | ||||||
Interest expense |
(30 | ) | (266 | ) | ||||
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Loss from operations before income taxes |
(1,264 | ) | (2,837 | ) | ||||
Benefit for income taxes |
(495 | ) | (973 | ) | ||||
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Net loss |
$ | (769 | ) | $ | (1,864 | ) | ||
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Net loss per share (basic and diluted) |
$ | (0.09 | ) | $ | (0.21 | ) | ||
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Weighted average shares outstanding (basic and diluted) |
8,800 | 8,847 | ||||||
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Dividends declared per share |
$ | 0.15 | $ | | ||||
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See accompanying notes to condensed consolidated financial statements.
3
Fisher Communications, Inc. and Subsidiaries
Condensed Consolidated Statements of Comprehensive Loss
(Unaudited)
Three months
ended March 31, |
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2013 | 2012 | |||||||
(in thousands) | ||||||||
Net loss |
$ | (769 | ) | $ | (1,864 | ) | ||
Other comprehensive income (loss): |
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Accumulated income |
68 | 36 | ||||||
Effect of income taxes |
(25 | ) | (13 | ) | ||||
Prior service cost |
15 | 15 | ||||||
Effect of income taxes |
(6 | ) | (5 | ) | ||||
Unrealized gains on available for sale securities |
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Less: reclassifications of gains included in net loss |
(13 | ) | | |||||
Effect of income taxes |
5 | | ||||||
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Other comprehensive income |
44 | 33 | ||||||
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Comprehensive loss |
$ | (725 | ) | $ | (1,831 | ) | ||
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See accompanying notes to condensed consolidated financial statements.
4
Fisher Communications, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(Unaudited)
March 31, | December 31, | |||||||
(in thousands, except share and per-share amounts) | 2013 | 2012 | ||||||
ASSETS |
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Current Assets |
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Cash and cash equivalents |
$ | 18,943 | $ | 20,403 | ||||
Receivables, net |
28,975 | 28,243 | ||||||
Income taxes receivable |
1,314 | 834 | ||||||
Deferred income taxes, net |
1,062 | 1,062 | ||||||
Prepaid expenses and other |
3,588 | 3,629 | ||||||
Broadcast rights |
4,298 | 6,690 | ||||||
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Total current assets |
58,180 | 60,861 | ||||||
Restricted cash |
125 | 3,624 | ||||||
Cash surrender value of life insurance and annuity contracts |
18,314 | 18,100 | ||||||
Goodwill, net |
13,293 | 13,293 | ||||||
Intangible assets, net |
40,013 | 40,072 | ||||||
Other assets |
5,414 | 5,208 | ||||||
Deferred income taxes, net |
685 | 711 | ||||||
Property, plant and equipment, net |
38,847 | 39,155 | ||||||
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Total Assets |
$ | 174,871 | $ | 181,024 | ||||
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LIABILITIES AND STOCKHOLDERS EQUITY |
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Current Liabilities |
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Accounts payable |
$ | 1,475 | $ | 1,496 | ||||
Accrued payroll and related benefits |
4,038 | 4,200 | ||||||
Broadcast rights payable |
4,057 | 6,488 | ||||||
Income taxes payable |
145 | 3,060 | ||||||
Current portion of accrued retirement benefits |
1,368 | 1,368 | ||||||
Other current liabilities |
9,083 | 7,260 | ||||||
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Total current liabilities |
20,166 | 23,872 | ||||||
Deferred income |
8,043 | 8,338 | ||||||
Accrued retirement benefits |
22,475 | 22,574 | ||||||
Other liabilities |
3,134 | 3,105 | ||||||
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Total liabilities |
53,818 | 57,889 | ||||||
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Commitments and Contingencies (Note 6) |
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Stockholders Equity |
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Common stock, shares authorized 12,000,000, $1.25 par value; 8,839,833 and 8,782,174 issued and outstanding at March 31, 2013 and December 31, 2012, respectively |
11,050 | 10,978 | ||||||
Capital in excess of par |
14,357 | 14,444 | ||||||
Accumulated other comprehensive income (loss), net of income taxes: |
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Accumulated loss |
(4,659 | ) | (4,702 | ) | ||||
Prior service cost |
(15 | ) | (24 | ) | ||||
Unrealized gain on available for sale securities |
| 8 | ||||||
Retained earnings |
100,320 | 102,431 | ||||||
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Total Stockholders Equity |
121,053 | 123,135 | ||||||
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Total Liabilities and Stockholders Equity |
$ | 174,871 | $ | 181,024 | ||||
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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)
Three months ended March 31, |
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Operating activities |
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Net loss |
$ | (769 | ) | $ | (1,864 | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities |
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Depreciation and amortization |
1,794 | 1,757 | ||||||
Deferred income taxes, net |
26 | 18 | ||||||
Loss on extinguishment of senior notes, net |
| 594 | ||||||
Loss in operations of equity investees |
50 | 44 | ||||||
Loss on disposal of property, plant and equipment |
17 | 11 | ||||||
Gain on sale of real estate, net |
| (373 | ) | |||||
Amortization of deferred financing fees |
13 | 19 | ||||||
Amortization of deferred gain on sale of Fisher Plaza |
(190 | ) | (190 | ) | ||||
Amortization of debt security investment premium |
| 74 | ||||||
Amortization of non-cash contract termination fee |
(365 | ) | (365 | ) | ||||
Amortization of broadcast rights |
2,402 | 2,457 | ||||||
Payments for broadcast rights |
(2,441 | ) | (2,651 | ) | ||||
Stock-based compensation |
830 | 451 | ||||||
Change in operating assets and liabilities, net |
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Receivables |
(732 | ) | 5,328 | |||||
Prepaid expenses and other |
41 | 12 | ||||||
Cash surrender value of life insurance and annuity contracts |
(214 | ) | (207 | ) | ||||
Other assets |
(227 | ) | 37 | |||||
Accounts payable, accrued payroll and related benefits and other current liabilities |
1,337 | (815 | ) | |||||
Interest payable |
| (1,556 | ) | |||||
Income taxes receivable and payable |
(3,395 | ) | (22,691 | ) | ||||
Accrued retirement benefits |
(46 | ) | (2 | ) | ||||
Other liabilities |
341 | 117 | ||||||
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Net cash used in operating activities |
(1,528 | ) | (19,795 | ) | ||||
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Investing activities |
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Investment in equity investee |
(11 | ) | (9 | ) | ||||
Purchase of held to maturity debt security investments |
| (82,733 | ) | |||||
Purchase of property, plant and equipment |
(1,182 | ) | (4,445 | ) | ||||
Proceeds from sale of available for sale debt security investments held as restricted cash |
3,499 | | ||||||
Proceeds from sale of held to maturity debt security investments |
| 7,628 | ||||||
Proceeds from maturity of held to maturity debt security investments |
| 25,000 | ||||||
Proceeds from sale of real estate |
| 570 | ||||||
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Net cash provided by (used in) investing activities |
2,306 | (53,989 | ) | |||||
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Financing activities |
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Repurchase of senior notes |
| (61,834 | ) | |||||
Repurchase of common stock |
| (86 | ) | |||||
Shares settled upon vesting of stock rights |
(845 | ) | (437 | ) | ||||
Payments on capital lease obligations |
(51 | ) | (47 | ) | ||||
Cash dividends paid |
(1,342 | ) | | |||||
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Net cash used in financing activities |
(2,238 | ) | (62,404 | ) | ||||
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Net decrease in cash and cash equivalents |
(1,460 | ) | (136,188 | ) | ||||
Cash and cash equivalents, beginning of period |
20,403 | 143,017 | ||||||
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Cash and cash equivalents, end of period |
$ | 18,943 | $ | 6,829 | ||||
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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 months ended March 31, 2013 are not necessarily indicative of the results that may be expected for the year ending December 31, 2013, or for any other period. The unaudited condensed consolidated balance sheet at December 31, 2012 has been derived from the audited consolidated financial statements at that date but does not include all of the information and disclosures 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, 2012 (2012 Form 10-K).
The significant accounting policies used in preparation of the unaudited condensed consolidated financial statements are disclosed in the Companys 2012 Form 10-K. Except as described below, there have been no recent accounting pronouncements or changes in accounting pronouncements during the three months ended March 31, 2013, as compared to the recent accounting pronouncements described in the Companys 2012 Form 10-K, that are of significance, or potential significance, to the Company.
In February 2013, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2013-02: Reporting of Amounts Reclassified out of Accumulated Other Comprehensive Income. This update requires the Company to provide information about the amounts reclassified out of accumulated other comprehensive income by component. The amendments require the Company to present the effects on income statement line items of certain significant amounts reclassified from accumulated other comprehensive income/loss. The standard is effective for public entities for annual periods, and interim periods within those periods, beginning after December 15, 2012. The Company adopted the amended accounting guidance, which did not have a material impact on the Companys 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 that the Company has the ability to access.
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 cash equivalents, marketable securities and debt security investments. As of March 31, 2013 and December 31, 2012, the reported fair value of marketable securities, using Level 1 inputs, was $600,000. Marketable securities are included in other assets on the Companys unaudited condensed consolidated balance sheets. As of March 31, 2013, the Company no longer held debt security investments included in restricted cash. During March 2013, the Company sold the remainder of its debt security investments to be included in cash equivalents. The reported fair value of debt security investments as of December 31, 2012, using Level 1 inputs, was $3.5 million and is included in restricted cash on the Companys unaudited condensed consolidated balance sheets.
Cash equivalents consist of $5.0 million at March 31, 2013 and December 31, 2012, for which the fair value is measured using Level 1 inputs. The carrying amount of cash equivalents approximates fair value.
7
3. Variable Interest Entities
As of March 31, 2013 and December 31, 2012, the Company had variable interests in two stations and was the primary beneficiary of these Variable Interest Entities (VIEs). The Company holds the power to direct activities that significantly impact the economic performance of the VIEs and can participate in returns that would be considered significant to the VIEs and therefore consolidates the assets and liabilities of these stations.
The $750,000 investment in South Sound Broadcasting LLC (South Sound) in connection with the Local Marketing Agreement qualifies as a VIE. The Company is not considered a primary beneficiary of this VIE and the 7.5% ownership interest in the station is accounted for using the cost method of accounting. The Companys maximum exposure to losses as of March 31, 2013 and December 31, 2012 was $1.4 million.
The carrying amount of the investments in the VIEs for which the Company is the primary beneficiary as of March 31, 2013 and December 31, 2012 is as follows (in thousands):
March 31, 2013 |
December 31, 2012 |
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Investments |
$ | 2,293 | $ | 2,225 | ||||
Maximum exposure to losses |
2,293 | 2,225 |
4. Goodwill and Intangible Assets
The following table summarizes the carrying amount of goodwill and intangible assets (in thousands):
March 31, 2013 | December 31, 2012 | |||||||||||||||||||||||
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 | (1,262 | ) | 2,298 | 3,560 | (1,203 | ) | 2,357 | ||||||||||||||||
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Total intangible assets |
$ | 41,275 | $ | (1,262 | ) | $ | 40,013 | $ | 41,275 | $ | (1,203 | ) | $ | 40,072 | ||||||||||
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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 months ended March 31, 2013 and 2012 was $59,000 and $58,000, respectively. |
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.
8
The following table presents the estimated amortization expense for the Companys intangible assets subject to amortization for the remainder of 2013 and each of the next five years and thereafter (in thousands):
2013 |
$ | 177 | ||
2014 |
236 | |||
2015 |
236 | |||
2016 |
236 | |||
2017 |
236 | |||
2018 |
236 | |||
Thereafter |
941 | |||
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$ | 2,298 | |||
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5. 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.
6. Broadcast Rights and Other Commitments
Broadcast Rights
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 March 31, 2013, the Company had commitments under various agreements of $31.3 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.
Hines Lease Commitment
In December 2011, 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.
Credit Facility
In November 2012, the Company entered into a credit agreement (the Credit Agreement) with JPMorgan Chase Bank, N.A. as Administrative Agent and Lender, for a $30 million senior secured revolving credit facility (the Credit Facility). The Credit Facility will mature in 2017. In addition to the $30 million revolving credit facility, the Credit Agreement provides for a subfacility for the issuance of standby letters of credit in an amount to be determined by JPMorgan and the Company. Borrowings under the Credit Facility will accrue interest at a variable rate. The interest rate will be calculated using either an Alternate Base Rate (ABR) or the Eurodollar Rate, plus, in each case, an applicable margin determined by the Companys leverage ratio in accordance with the terms of the Credit Agreement. The ABR is equal to the highest of (i) the rate of interest publicly announced by JPMorgan Chase Bank, N.A. as its prime rate in effect at its principal office in New York City (the Prime Rate), (ii) the federal funds effective rate from time to time plus 0.50% and (iii) the Eurodollar Rate applicable for an interest period of one month plus 1.00%.
The Credit Agreement contains customary affirmative and negative covenants for comparable financings, including but not limited to, limitations on liens, indebtedness, investments, mergers and other fundamental changes, sales and other dispositions and dividends and other distributions. The Credit Agreement also contains customary events of default and remedies in the event of an occurrence of an event of default, including the acceleration of any amounts outstanding under the Credit Agreement. Additionally, the Credit Agreement includes certain customary conditions that must be met for the Company to borrow under the Credit Facility.
Under the Credit Agreement, the Company is required to maintain certain financial ratios, including a leverage ratio and fixed charge coverage ratio. As of March 31, 2013, the Company incurred costs of approximately $256,000 directly related to obtaining the Credit Facility. These costs have been deferred on the unaudited and condensed consolidated balance sheet in other assets and are being amortized to interest expense over the life of the Credit Facility. As of March 31, 2013, the Company had no outstanding indebtedness under the Credit Facility.
9
Asset Purchase Agreement
On November 19, 2012, Fisher Broadcasting Oregon TV, L.L.C. (Fisher Broadcasting), a wholly-owned subsidiary of Fisher Communications, Inc. entered into an Asset Purchase Agreement (the Purchase Agreement) with Newport Television LLC and Newport Television License LLC to acquire, subject to prior approval from the Federal Communications Commission (the FCC), operating assets of television station KMTR(TV), together with certain related satellite stations (collectively, the Station), which serve the Eugene, Oregon Nielsen Designated Market Area, for a total purchase price of $8.5 million. Concurrently, Fisher Broadcasting assigned to Roberts Media, LLC, an unrelated third party (Roberts Media), its rights under the Purchase Agreement to acquire the FCC licenses with respect to the Station together with certain other of the Stations operating and programming assets. Pursuant to the Purchase Agreement, the Company paid the Station a deposit of 10% of the total purchase price, or $850,000.
Also concurrently with the Purchase Agreement, Fisher Broadcasting and Roberts Media entered into a Shared Services Agreement pursuant to which Fisher Broadcasting would, following the acquisition of certain Station assets by Roberts Media, provide for a fee technical, engineering and certain other services to support Roberts Medias operation of the Station. In addition, pursuant to the Shared Services Agreement, Fisher Broadcasting, following the closing under the Purchase Agreement, would have the right to provide up to 15% of the Stations weekly programming and sell all of the local advertising on the Station on a commissioned basis. The Shared Services Agreement will be effective upon the closing of the Station acquisition, which is expected to occur in the first half of 2013.
7. Retirement Benefits
The Company maintains a noncontributory supplemental retirement program that was established for key management. No new participants have been admitted to this program since 2001 and the benefits of active participants were frozen in 2005. The program participants do not include any of the Companys current executive officers. The supplemental retirement program requires continued employment or disability through the date of expected retirement. The cost of the program is accrued over the average expected future lifetime of the participants. 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 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 March 31, |
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2013 | 2012 | |||||||
Interest cost |
$ | 204 | $ | 234 | ||||
Amortization of loss |
77 | 45 | ||||||
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Net periodic pension cost |
$ | 281 | $ | 279 | ||||
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The discount rate used to determine net periodic pension cost was 3.55% and 4.48% for the three months ended March 31, 2013 and 2012 respectively.
10
8. Net loss per share
Net loss per share is based upon the net loss divided by weighted average number of shares outstanding during the period. Common stock options and restricted stock rights/units are converted using the treasury stock method.
Basic and diluted net loss per share has been computed as follows (in thousands, except per-share amounts):
Three months ended March 31, |
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2013 | 2012 | |||||||
Loss from operations, net of income taxes |
$ | (769 | ) | $ | (1,864 | ) | ||
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Weighted average shares outstanding (basic and diluted) |
8,800 | 8,847 | ||||||
|
|
|
|
|||||
Net loss per share (basic and diluted) |
$ | (0.09 | ) | $ | (0.21 | ) | ||
|
|
|
|
For the three months ended March 31, 2013, the effect of 177,008 restricted stock rights/units and options to purchase 254,232 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 March 31, 2012, the effect of 112,694 restricted stock rights/units and options to purchase 263,098 shares are excluded from the calculation of weighted average shares outstanding because such rights/units and options were anti-dilutive.
9. Stock-Based Compensation
Stock-based compensation expense for the three months ended March 31, 2013 and 2012 was $830,000 and $451,000, respectively. Stock-based compensation expense is included in selling, general and administrative expenses in the Companys unaudited condensed consolidated statements of operations.
10. Income Taxes
The Company records an income tax provision or benefit based upon its estimated annual effective tax rate, which is estimated at 39.5% and 34.3% for the three months ended March 31, 2013 and 2012, respectively.
As of March 31, 2013 and December 31, 2012, 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):
March 31, 2013 |
December 31, 2012 |
|||||||
Balance at beginning of period |
$ | 632 | $ | 632 | ||||
Increase of unrecognized tax benefits related to prior years |
| | ||||||
|
|
|
|
|||||
Balance at end of period |
$ | 632 | $ | 632 | ||||
|
|
|
|
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 statutes 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 in the Companys tax obligations.
The State of California and the State of Oregon conducted an examination of the Companys 2007 and 2008 state income tax returns. In October 2012, the Company received letters from the State of California, including a Closing Letter agreeing with the Companys non-business income position subject to additional review, and an additional letter closing the 2007 examination. In connection with the State of Oregon audit, 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. Although the Company has engaged in discussions with the State of Oregon regarding this assessment, it continues 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 income 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.
11
The Company assesses the likelihood of the realizability of its deferred tax assets on a quarterly basis. As of March 31, 2013 and December 31, 2012, the Company had a valuation allowance of approximately $411,000 on certain of its deferred income tax assets. The amount of net deferred income 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 income tax assets.
11. 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 operated television stations (including a 50%-owned station) and internet business. The radio reportable segment includes the operations of the Companys three Seattle radio stations and one managed radio station. The Companys corporate headquarters and Seattle-based 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 operations to measure the operating performance of its segments which represents income/(loss) from 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 operations excludes the allocation of corporate costs and Fisher Plaza rent expense. The non-segment expenses include corporate and administrative expenses that have not been allocated to the operations of the television or radio segments.
Operating results and other financial data for each segment are as follows:
Three months ended March 31, |
||||||||
(dollars in thousands) | 2013 | 2012 | ||||||
Revenue |
||||||||
Television |
$ | 32,560 | $ | 29,159 | ||||
Radio |
4,320 | 4,733 | ||||||
|
|
|
|
|||||
Total segment revenue |
36,880 | 33,892 | ||||||
Intercompany and other |
(89 | ) | 40 | |||||
|
|
|
|
|||||
$ | 36,791 | $ | 33,932 | |||||
|
|
|
|
|||||
Segment income from operations |
||||||||
Television |
$ | 6,681 | $ | 5,079 | ||||
Radio |
613 | 798 | ||||||
|
|
|
|
|||||
Total segment income from operations |
7,294 | 5,877 | ||||||
Corporate and other |
(5,496 | ) | (4,341 | ) | ||||
Fisher Plaza rent |
(1,268 | ) | (1,271 | ) | ||||
|
|
|
|
|||||
$ | 530 | $ | 265 | |||||
|
|
|
|
|||||
Depreciation and amortization |
||||||||
Television |
$ | 1,517 | $ | 1,487 | ||||
Radio |
43 | 29 | ||||||
|
|
|
|
|||||
Total segment depreciation and amortization |
1,560 | 1,516 | ||||||
Corporate and other |
234 | 241 | ||||||
|
|
|
|
|||||
$ | 1,794 | $ | 1,757 | |||||
|
|
|
|
|||||
March 31, 2013 |
December 31, 2012 |
|||||||
Total assets | ||||||||
Television |
$ | 112,613 | $ | 113,998 | ||||
Radio |
14,771 | 15,016 | ||||||
|
|
|
|
|||||
Total segment assets |
127,384 | 129,014 | ||||||
Corporate and other |
47,487 | 52,010 | ||||||
|
|
|
|
|||||
$ | 174,871 | $ | 181,024 | |||||
|
|
|
|
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 of significance relative to consolidated revenue, segment income from continuing operations or total assets.
12
A reconciliation of segment income from operations to loss from operations is as follows (dollars in thousands):
Three months ended March 31, |
||||||||
2013 | 2012 | |||||||
Segment income from operations |
$ | 530 | $ | 265 | ||||
Adjustments: |
||||||||
Gain on sale of real estate, net |
| 373 | ||||||
Depreciation and amortization |
(1,794 | ) | (1,757 | ) | ||||
|
|
|
|
|||||
Loss from operations |
$ | (1,264 | ) | $ | (1,119 | ) | ||
|
|
|
|
12. Stock Repurchase Program
In December 2012, the Companys Board of Directors approved a 2013 stock repurchase program authorizing the repurchase of up to an aggregate of $15 million of its outstanding shares of common stock. The program authorized share repurchases from time-to-time, at the Companys discretion, on the open market at prevailing market prices or in negotiated transactions off the market. The repurchase program was terminated by the Board of Directors on April 26, 2013. As of March 31, 2013 and December 31, 2012, no shares had been repurchased under the program.
In December 2011, the Companys Board of Directors approved a 2012 stock repurchase program authorizing the repurchase of up to an aggregate of $25.0 million of its outstanding shares of common stock. The program authorized share repurchases from time-to-time, at the Companys discretion, on the open market at prevailing market prices or in negotiated transactions off the market. The repurchase program expired at the end of 2012. The Company repurchased and retired 2,990 shares for an aggregate cost of $86,000 during the quarter ended March 31, 2012 which reduced capital in excess of par by the excess cost over par value in the Companys unaudited condensed consolidated balance sheet at March 31, 2012.
13. Other Comprehensive Loss
The schedule below details the components and amounts reclassified from other comprehensive loss for the three months ended March 31, 2013 (in thousands):
Changes in Accumulated Other Comprehensive Income (loss) by For the Period Ended March 31, 2013 |
||||||||||||||||
Accumulated Loss |
Prior Service Cost |
Unrealized Gains on Available for Sale Securities |
Total | |||||||||||||
Beginning balance |
$ | (4,702 | ) | $ | (24 | ) | $ | 8 | $ | (4,718 | ) | |||||
Other comprehensive income before reclassifications |
| | | | ||||||||||||
Amounts reclassified from accumulated other comprehensive income |
43 | 9 | (8 | ) | 44 | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net current-period other comprehensive income (loss) (b) |
43 | 9 | (8 | ) | 44 | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Ending balance |
$ | (4,659 | ) | $ | (15 | ) | $ | | $ | (4,674 | ) | |||||
|
|
|
|
|
|
|
|
(a) | All amounts are net-of-tax. Amounts in parentheses indicate debits. |
(b) | See separate table below for details about these reclassifications. |
13
Reclassifications out of Accumulated Other Comprehensive Income (loss) by Component© For the Period Ended March 31, 2013 | ||||||
Details about Accumulated Other Comprehensive Income (Loss) Components |
Amount Reclassified from Accumulated Other Comprehensive Income (Loss) |
Affected Line Item in the | ||||
Accumulated loss |
||||||
Amortization of actuarial loss |
$ | 68 | Selling, general and administrative expense | |||
(25 | ) | Benefit for income taxes | ||||
|
|
|||||
$ | 43 | Net of tax | ||||
|
|
|||||
Amortization of supplemental retirement program items |
||||||
Prior service cost |
$ | 15 | Selling, general and administrative expense | |||
(6 | ) | Benefit for income taxes | ||||
|
|
|||||
$ | 9 | Net of tax | ||||
|
|
|||||
Unrealized gains and losses on available for sale securities |
||||||
$ | (13 | ) | Other income/(expense) | |||
5 | Provision for income taxes | |||||
|
|
|||||
$ | (8 | ) | Net of tax | |||
|
|
|||||
Total reclassifications for the period |
$ | 44 | Net of tax | |||
|
|
(c) | Amounts in parentheses indicate debits to profit/loss. |
14. Subsequent Events
In April 2013, Sinclair Broadcast Group, Inc. (Sinclair), Sinclair Television of Seattle, Inc. (Merger Sub) and the Company announced that they had entered into a definitive merger agreement (the Merger Agreement) whereby Sinclair will acquire the Company in a merger transaction valued at approximately $373.3 million (the Merger).
Under the terms of the Merger Agreement, assuming the conditions to closing are satisfied or waived, Merger Sub will merge with and into the Company and the Companys shareholders will receive $41.00 in cash for each share of the Companys common stock they own. The Company currently expects the Merger to close during the third quarter of 2013, subject to certain closing conditions, including, among others, (i) the approval of the Merger Agreement by the holders of 2/3 or more of the Companys outstanding common stock, as required under Washington law, (ii) the expiration or termination of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, (iii) the grant by the FCC of consent to the transfer of control of the Company and its subsidiaries to Sinclair, (iv) the absence of any law or order that is in effect and that restrains, enjoins or otherwise prohibits the Merger and (v) the receipt of consents under certain of the Companys contracts. The consummation of the Merger is not subject to a financing condition.
The Merger Agreement contains certain termination rights for both Sinclair and the Company, including if the Merger is not completed on or before April 11, 2014 or if the approval of the Merger Agreement by the Companys shareholders is not obtained. In addition, among other termination rights, Sinclair may terminate the Merger Agreement if the Company Board takes certain actions that result in a recommendation adverse to the Merger and the Company may terminate the Merger Agreement, subject to certain conditions, to accept a proposal that is superior to the terms and conditions of the Merger. The Merger Agreement also provides that, upon termination of the Merger Agreement under certain circumstances, the Company may be required to pay Sinclair a termination fee of $11.2 million.
Legal Proceedings
In connection with the announcement of the Merger Agreement, on April 13, 2013, a purported class action lawsuit was filed against the Company and its Board of Directors in King County Superior Court in the State of Washington, docketed as Halberstam v. Fisher Communications, Inc.., et al., Case No. 13-2-17171-6 SEA. The lawsuit alleges, among other things, that the Companys Board of Directors breached its fiduciary duties to shareholders by failing to take steps to maximize shareholder value or to engage in a fair sale process before approving the proposed acquisition of the Company by Sinclair. The plaintiff seeks relief that includes, among other things, an injunction prohibiting the consummation of the proposed Merger, damages for the breaches of fiduciary duty, and the payment of plaintiffs attorneys fees and costs. The Company believes the lawsuit is without merit and intends to defend against it vigorously. There can be no assurance, however, with regard to the outcome.
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, 2012, which was filed with the Securities and Exchange Commission on March 4, 2013. 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 months ended March 31, 2013 compared with the corresponding period in 2012.
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. We have 13 television stations which are affiliated with one of the four major networks and seven which are either affiliated with Univision or CW Plus. Our two largest television stations, KOMO TV and KATU TV, accounted for approximately 59% percent of our television broadcasting revenue for the three months ended March 31, 2013 and are affiliated with the ABC Television Network. Our affiliation agreements with the ABC Television Network generally expire in August 2014. Our affiliation agreements with the CBS Television Network generally expire in February 2016. Our FOX affiliation agreements for KBFX-CA in Bakersfield, California and KXPI-LP in Idaho Falls, Idaho, generally expire in June 2014 and in June 2015, respectively. Our affiliation agreements with Univision generally expire in December 2014. The termination or non-renewal of any of our major network affiliation agreements could adversely affect our business and results. 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 broadcasting operations. Information on significant trends is provided in the section entitled Consolidated Results of Operations.
Significant Developments
The following significant developments impacted our financial statements for the three months ended March 31, 2013 and 2012.
Sinclair Acquisition. On April 11, 2013, we entered into the Merger Agreement whereby Sinclair will acquire us in a merger transaction valued at approximately $373.3 million. Under the terms of the Merger Agreement, assuming the conditions to closing are satisfied or waived, our shareholders will receive $41.00 in cash for each share of the Companys common stock they own. We currently expect the Merger to close during the third quarter of 2013, subject to certain closing conditions, including, among others, (i) the approval of the Merger Agreement by the holders of 2/3 or more of our outstanding common stock, as required under Washington law, (ii) the expiration or termination of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, (iii) the grant by the FCC of consent to the transfer of control of the Company and its subsidiaries to Sinclair, (iv) the absence of any law or order that is in effect and that restrains, enjoins or otherwise prohibits the Merger and (v) the receipt of consents under certain of our contracts. The consummation of the Merger is not subject to a financing condition.
On April 13, 2013, a purported class action lawsuit was filed against the Company and our Board of Directors in King County Superior Court in the State of Washington, docketed as Halberstam v. Fisher Communications, Inc., et al., Case No. 13-2-17171-6 SEA. The lawsuit alleges, among other things, that our Board of Directors breached its fiduciary duties to shareholders by failing to take steps to maximize shareholder value or to engage in a fair sale process before approving the proposed acquisition of the Company by Sinclair. For additional information, including the risks associated with this litigation, see Items 1 and 1A in Part II of this report.
15
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 we have 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 do not include any revenue, operating expense or depreciation from Fisher Plaza, and include rent expense, related to the Lease with Hines.
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, 2012 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, 2012.
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 internet business. The radio segment includes the operations of our three 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, radio and internet operations, our corporate offices and third-party tenants. Our corporate headquarters and Seattle-based television, radio and internet 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 (loss) from operations to measure the operating performance of our segments which represents income (loss) from operations before depreciation and amortization and gain on sale of real estate, net. Additionally, the performance metric for segment income (loss) from operations excludes the allocation of certain corporate expenses and rent expense for our lease at Fisher Plaza as management does not review our reportable segments with those allocations.
The following table sets forth our results of operations for the three months ended March 31, 2013 and 2012, including the dollar and percentage variances between these periods. Percentage variances have been omitted where they are not considered meaningful.
16
Comparison of three months ended March 31, 2013 and 2012
Three months ended March 31, |
Variance | |||||||||||||||
(in thousands) | 2013 | 2012 | $ | % | ||||||||||||
Revenue |
||||||||||||||||
Television |
$ | 32,560 | $ | 29,159 | $ | 3,401 | 12 | % | ||||||||
Radio |
4,320 | 4,733 | (413 | ) | (9 | %) | ||||||||||
|
|
|
|
|
|
|||||||||||
Total segment revenue |
36,880 | 33,892 | 2,988 | 9 | % | |||||||||||
Intercompany and other |
(89 | ) | 40 | (129 | ) | (323 | %) | |||||||||
|
|
|
|
|
|
|||||||||||
Consolidated revenue |
36,791 | 33,932 | 2,859 | 8 | % | |||||||||||
Direct operating costs |
||||||||||||||||
Television |
15,195 | 14,057 | (1,138 | ) | (8 | %) | ||||||||||
Radio |
2,309 | 2,360 | 51 | 2 | % | |||||||||||
|
|
|
|
|
|
|||||||||||
Total segment direct operating costs |
17,504 | 16,417 | (1,087 | ) | (7 | %) | ||||||||||
Corporate and other |
142 | 239 | 97 | 41 | % | |||||||||||
|
|
|
|
|
|
|||||||||||
Consolidated direct operating costs |
17,646 | 16,656 | (990 | ) | (6 | %) | ||||||||||
Selling, general and administrative expenses |
||||||||||||||||
Television |
8,282 | 7,566 | (716 | ) | (9 | %) | ||||||||||
Radio |
1,398 | 1,575 | 177 | 11 | % | |||||||||||
|
|
|
|
|
|
|||||||||||
Total segment selling, general and administrative expenses |
9,680 | 9,141 | (539 | ) | (6 | %) | ||||||||||
Corporate and other |
5,265 | 4,142 | (1,123 | ) | (27 | %) | ||||||||||
Fisher Plaza rent |
1,268 | 1,271 | 3 | 0 | % | |||||||||||
|
|
|
|
|
|
|||||||||||
Consolidated selling, general and administrative expenses |
16,213 | 14,554 | (1,659 | ) | (11 | %) | ||||||||||
Amortization of broadcast rights |
||||||||||||||||
Television |
2,402 | 2,457 | 55 | 2 | % | |||||||||||
Segment income |
||||||||||||||||
Television |
6,681 | 5,079 | 1,602 | 32 | % | |||||||||||
Radio |
613 | 798 | (185 | ) | (23 | %) | ||||||||||
|
|
|
|
|
|
|||||||||||
Total segment income from operations |
7,294 | 5,877 | 1,417 | 24 | % | |||||||||||
Corporate and other |
(5,496 | ) | (4,341 | ) | (1,155 | ) | (27 | %) | ||||||||
Fisher Plaza rent |
(1,268 | ) | (1,271 | ) | 3 | 0 | % | |||||||||
|
|
|
|
|
|
|||||||||||
Subtotal |
530 | 265 | 265 | 100 | % | |||||||||||
Depreciation and amortization |
||||||||||||||||
Television |
1,517 | 1,487 | (30 | ) | (2 | %) | ||||||||||
Radio |
43 | 29 | (14 | ) | (48 | %) | ||||||||||
|
|
|
|
|
|
|||||||||||
Total segment depreciation and amortization |
1,560 | 1,516 | (44 | ) | (3 | %) | ||||||||||
Corporate and other |
234 | 241 | 7 | 3 | % | |||||||||||
|
|
|
|
|
|
|||||||||||
Consolidated depreciation and amortization |
1,794 | 1,757 | (37 | ) | (2 | %) | ||||||||||
Gain on sale of real estate, net |
| (373 | ) | (373 | ) | (100 | %) | |||||||||
|
|
|
|
|
|
|||||||||||
Loss from operations |
(1,264 | ) | (1,119 | ) | (145 | ) | (13 | %) | ||||||||
Loss on extinguishment of senior notes, net |
| (1,482 | ) | 1,482 | 100 | % | ||||||||||
Other income, net |
30 | 30 | | 0 | % | |||||||||||
Interest expense |
(30 | ) | (266 | ) | 236 | 89 | % | |||||||||
|
|
|
|
|
|
|||||||||||
Loss from operations before income taxes |
(1,264 | ) | (2,837 | ) | 1,573 | 55 | % | |||||||||
Benefit for income taxes |
(495 | ) | (973 | ) | (478 | ) | (49 | %) | ||||||||
|
|
|
|
|
|
|||||||||||
Net loss |
$ | (769 | ) | $ | (1,864 | ) | $ | 1,095 | 59 | % | ||||||
|
|
|
|
|
|
17
Revenue
The following table sets forth our main types of revenue by segment for the three months ended March 31, 2013 and 2012:
Three months ended March 31, | ||||||||||||||||||||
(in thousands) | 2013 | % total revenue |
2012 | % total revenue |
% change |
|||||||||||||||
Core advertising (local and national) |
$ | 23,418 | 64 | % | $ | 22,214 | 65 | % | 5 | % | ||||||||||
Political |
| 0 | % | 519 | 2 | % | -100 | % | ||||||||||||
Internet |
1,065 | 3 | % | 1,282 | 4 | % | -17 | % | ||||||||||||
Retransmission |
6,523 | 18 | % | 3,577 | 11 | % | 82 | % | ||||||||||||
Trade, barter and other |
1,554 | 4 | % | 1,567 | 5 | % | -1 | % | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Television |
32,560 | 88 | % | 29,159 | 86 | % | 12 | % | ||||||||||||
Core advertising (local and national) |
4,132 | 11 | % | 4,458 | 13 | % | -7 | % | ||||||||||||
Political |
12 | 0 | % | 40 | 0 | % | -70 | % | ||||||||||||
Trade, barter and other |
176 | 0 | % | 235 | 1 | % | -25 | % | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Radio |
4,320 | 12 | % | 4,733 | 14 | % | -9 | % | ||||||||||||
Intercompany and other |
(89 | ) | 0 | % | 40 | 0 | % | -323 | % | |||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total Revenue |
$ | 36,791 | 100 | % | $ | 33,932 | 100 | % | 8 | % | ||||||||||
|
|
|
|
|
|
|
|
|
|
Television. Television revenue increased $3.4 million, or 12%, in the three months ended March 31, 2013 compared to the same period in 2012. This increase was primarily due to increases in retransmission revenue and core advertising, offset partially by decreases in political advertising.
The increase of $2.9 million, or 82%, in retransmission revenue for the three months ended March 31, 2013 compared to the same period in 2012 was primarily due to retransmission consent contract renewals for the 2012-2014 cycle completed during the second quarter of 2012.
Automotive-related advertising, one of our largest advertising categories, increased 17% for the three months ended March 31, 2013 compared to the same period in 2012. Results of other advertising categories for the three months ended March 31, 2013, compared to the same period in 2012 include retail (+8%) and professional services (+2%).
Political advertising revenue decreased 100% for the three months ended March 31, 2013 compared to the same period in 2012 due to 2013 being an off cycle election year.
Revenue from our ABC-affiliated stations increased 15% in the three months ended March 31, 2013 compared to the same period in 2012 primarily due to increases in retransmission revenue and local advertising revenue. Revenue from our CBS-affiliated stations increased 14% in the three months ended March 31, 2013 compared to the same period in 2012 as a result of increases in retransmission revenue and local advertising revenue.
Radio. Radio revenue decreased $400,000, or 9%, in the three months ended March 31, 2013 compared to the same period in 2012. The decrease is primarily a result of a decline in local advertising revenue due to continued market softness.
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 $1.1 million, or 8%, in the three months ended March 31, 2013 compared to the same period in 2012. The net increase primarily reflects a $2.0 million increase in costs related to network fees offset by decreases in television segment compensation and benefits expense.
Radio. Direct operating costs for the radio segment decreased $51,000, or 2%, in the three months ended March 31, 2013 compared to the same period in 2012.
Corporate and other. Other non-segment direct operating costs consist primarily of the centralized network operating center and corporate engineering department. In the three months ended March 31, 2013, non-segment direct operating costs decreased $97,000, or 41%, compared to the same period in 2012.
Selling, general and administrative expenses
Television. Selling, general and administrative expenses in our television segment increased $716,000, or 9%, in the three months ended March 31, 2013, compared to the same period in 2012 primarily due to $300,000 in combined increases in segment compensation and benefits expenses, $200,000 in agency commissions and a $175,000 increase in bad debts expense.
18
Radio. Selling, general and administrative expenses in our radio segment decreased $177,000, or 11%, in the three months ended March 31, 2013 compared to the same period in 2012 primarily due to overall savings in segment compensation and benefits expenses.
Corporate and other. Corporate and other expenses, including transaction related costs, consist primarily of corporate costs and various centralized functions. For the three months ended March 31, 2013, corporate and other expenses increased $1.1 million, or 27%, compared to the same period in 2012 primarily due to $1.2 million in transaction related costs and a $380,000 increase in stock compensation expense. Such increases were offset by a reduction in legal and other professional services expenses of approximately $300,000.
Fisher Plaza rent. In connection with the December 2011 sale of Fisher Plaza we entered into a lease with Hines pursuant to which we leased 121,000 rentable square feet of Fisher Plaza. Fisher Plaza rent expense for the three months ended March 31, 2013 and March 31, 2012 was $1.3 million. This expense reflects the costs associated with leasing a portion of Fisher Plaza which serves as our corporate headquarters and the location of our Seattle-based television, radio and internet operations.
Amortization of broadcast rights
Television. Amortization of program rights for our television segment decreased $55,000, or 2%, for the three months ended March 31, 2013 compared to the same period in 2012 primarily due to reduced obligations resulting from renegotiated contracts.
Depreciation and amortization
Television. Depreciation and amortization for our television segment increased $30,000, or 2%, in the three months ended March 31, 2013 compared to the same period in 2012.
Radio. Depreciation and amortization for our radio segment increased $14,000, or 48%, in the three months ended March 31, 2013, compared to the same period in 2012.
Other. Other depreciation and amortization decreased $7,000, or 3%, in the three months ended March 31, 2013 compared to the same period in 2012.
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. There were no real estate sale transactions in the three months ended March 31, 2013.
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.
Other income, net
Other income, net, typically consists of interest and other miscellaneous income received. During the three months ended March 31, 2013, other income, net, remained consistent with same period in 2012.
Interest expense
Interest expense in the three months ended March 31, 2013 decreased $236,000, or 89%, from the same period in 2012 due to the redemption of outstanding Senior Notes in January 2012.
Provision for income taxes
Our effective tax rate was 39.5% and 34.3% for the three months ended March 31, 2013 and 2012, 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.
19
Liquidity and Capital Resources
Liquidity
Our sources of liquidity consist primarily of cash and cash equivalents, short-term investments in debt securities 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 to provide sufficient liquidity to meet our cash requirements for operations, projected working capital requirements, planned capital expenditures and commitments for at least the next 12 months. In November 2012, we obtained a $30.0 million senior secured revolving credit facility with JPMorgan Chase Bank, N.A. as Administrative Agent and Lender to fund potential future capital needs.
Cash on hand and the revolving credit facility, together with operating cash flows, are expected to provide the necessary funding of future capital needs related to our November 19, 2012, Asset Purchase Agreement (the Purchase Agreement) with Newport Television LLC and Newport Television License LLC to acquire, subject to prior approval from the FCC, operating assets of television station KMTR(TV), together with certain related satellite stations, which serve the Eugene, Oregon Nielsen Designated Market Area, for a total purchase price of $8.5 million.
Capital Resources
Cash and cash equivalents were approximately $18.9 million as of March 31, 2013 compared to $20.4 million as of December 31, 2012. The net decrease of $1.5 million for the quarter was comprised primarily of $2.9 million in income tax payments, $1.5 million in 2012 short term incentive plan payments, $1.3 million in dividend payments and $1.2 million in purchases of property, plant and equipment. Such decreases were offset by cash generated from the sale of $3.5 million in debt securities and cash flows from operations of $1.9 million.
Net cash provided by (used in) operating activities
Net cash used in operating activities for the three months ended March 31, 2013 of $1.5 million consisted of our net loss of $769,000, adjusted for non-cash charges of $4.6 million, which consisted primarily of depreciation and amortization and amortization of broadcast rights, offset by a $2.9 million decrease in working capital and $2.4 million of payments for broadcast rights.
Net cash used in operating activities for the three months ended March 31, 2012 of $19.8 million consisted of our net loss of $1.9 million, adjusted for non-cash charges of $4.5 million, which consisted primarily of depreciation and amortization and amortization of broadcast rights, offset by a $19.7 million decrease in working capital, which includes income tax payments, net, of $21.7 million, and $2.7 million of payments for broadcast rights.
Net cash provided by (used in) investing activities
During the three months ended March 31, 2013, net cash provided by investing activities of $2.3 million consisted primarily of proceeds from the sale of our remaining available for sale debt security investments of $3.5 million offset by purchases of property, plant and equipment of $1.2 million.
During the three months ended March 31, 2012, net cash used in investing activities of $54.0 million consisted primarily of purchases of debt security investments of $82.7 million in the form of U.S. Treasury securities and purchases of property, plant and equipment of $4.4 million, 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.
Net cash used in financing activities
Net cash used in financing activities for the three month ended March 31, 2013 was $2.2 million primarily due to the payment of $1.3 million in cash dividends and net share settlements for employee stock compensation tax withholding obligations of $845,000.
Net cash used in financing activities for the three months ended March 31, 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 $437,000.
Recent Accounting Pronouncements
Refer to Note 1 of our unaudited condensed consolidated financial statements included in Part I, Item 1 of this report.
20
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.
At March 31, 2013, the Company no longer held debt security investments subject to exposure of loss due to changes in financial rates. Other than the aforementioned, there have been no material changes from the quantitative and qualitative discussion about market risk previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2012.
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 March 31, 2013. Based on their evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of our fiscal quarter ended March 31, 2013, 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 March 31, 2013 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.
21
PART II
OTHER INFORMATION
ITEM 1. | LEGAL PROCEEDINGS |
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.
As disclosed in Note 14 to our unaudited condensed consolidated financial statements included in Part I, Item 1 of this report, on April 11, 2013 we announced that we had entered into a Merger Agreement with Sinclair. On April 13, 2013, a purported class action lawsuit was filed against the Company and its Board of Directors in King County Superior Court in the State of Washington, docketed as Halberstam v. Fisher Communications, Inc.., et al., Case No. 13-2-17171-6 SEA. The lawsuit alleges, among other things, that our Board of Directors breached its fiduciary duties to shareholders by failing to take steps to maximize shareholder value or to engage in a fair sale process before approving the proposed acquisition of the Company by Sinclair. The plaintiff seeks relief that includes, among other things, an injunction prohibiting the consummation of the proposed Merger, damages for the breaches of fiduciary duty, and the payment of plaintiffs attorneys fees and costs. We believe the lawsuit is without merit and intend to defend against it vigorously. There can be no assurance, however, with regard to the outcome. For risks related to this litigation, see Item 1A in this Part II of this report.
ITEM 1A. | RISK FACTORS |
The risk factors set forth below are in addition to the risk factors previously disclosed in Part I, Item 1A. Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2012, filed with the SEC on March 4, 2013, which includes a detailed discussion of risk factors that could have a material effect on our business, financial condition and future results, and is herein incorporated by reference.
Failure to complete the Merger could negatively impact our stock price and adversely affect our future financial condition, operations and prospects.
Completion of the Merger is subject to the satisfaction or waiver of various conditions, including the receipt of approval by the holders of 2/3 or more of our outstanding shares of common stock and from government or regulatory agencies, and receipt of consents under certain of our contracts. There is no assurance that all of the various conditions will be satisfied, or that the Merger will be completed on the proposed terms, within the expected time frame, or at all. In addition, the absence of a decree, ruling or preliminary or permanent injunction of any governmental entity having jurisdiction which prohibits, restrains or enjoins consummation of the Merger, is a condition to completion of the Merger. Therefore, shareholder litigation in connection with the Merger may result in a delay in or prevent the completion of the Merger.
Because the share price of our common stock after the announcement of the Merger Agreement may reflect an assumption that the Merger will be completed, the share price of our stock may drop, potentially significantly, if the Merger is not completed. In addition, under circumstances defined in the Merger Agreement, we may be required to pay a termination fee of up to approximately $11.2 million if the Merger Agreement is terminated. Certain additional costs associated with the Merger or the related litigation have already been incurred or may be payable by us even if the Merger is not completed.
These effects and costs associated with the failure to complete the Merger could materially and adversely impact our revenues, earnings and cash flows and other business results and financial condition, as well as the market price of our common stock and our perceived acquisition value. In addition, whether or not the Merger is completed, we will continue to incur costs, fees, expenses and charges related to the Merger and the related litigation while the Merger is pending, which may materially and adversely affect our business results and financial condition.
22
While the Merger is pending, we are subject to business uncertainties and contractual restrictions that could materially adversely affect our operations and the future of our business or result in a loss of employees.
The Merger Agreement includes restrictions on the conduct of our business pending the completion of the Merger, generally requiring us to conduct our business in the ordinary course and subjecting us to a variety of specified limitations absent Sinclairs prior written consent. We may find that these and other contractual arrangements in the Merger Agreement may delay or prevent us from responding effectively, or limit our ability to respond effectively, to competitive pressures, industry developments and future business opportunities that may arise during such period, even if our management thinks they may be advisable. The pendency of the Merger may also divert our managements attention and our resources from ongoing business and operations. Our employees, customers and suppliers may have uncertainties about the effects of the Merger. In connection with the Merger, it is possible that some customers, suppliers and other persons with whom we have a business relationship may delay or defer certain business decisions or might decide to seek to terminate, change or renegotiate their relationship with us. In addition, certain of our affiliation, programming and operational agreements require that we obtain third-party consents to transfer such agreements in connection with the Merger, or provide such third-parties with early termination rights due to the Merger. There can be no assurances that we will be able to obtain the required contractual consents or that such third-parties will not exercise their early termination rights. Also, current and prospective employees may experience uncertainty about their future roles with us following completion of the Merger, which may materially adversely affect our ability to attract and retain key employees.
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.
ITEM 5. | OTHER INFORMATION |
None.
23
ITEM 6. | EXHIBITS |
10.1+ | Fisher Communications, Inc. 2013 Management Short-Term Incentive Plan, as Amended (filed herewith). | |
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 March 31, 2013, formatted in XBRL (eXtensible Business Reporting Language): (i) Condensed Consolidated Statements of Operations for the three months ended March 31, 2013 and 2012, (ii) Condensed Consolidated Statements of Comprehensive Loss for the three months ended March 31, 2013 and 2012 (iii) Condensed Consolidated Balance Sheets as of March 31, 2013 and December 31, 2012, (iv) Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2013 and 2012, and (v) the Notes to Condensed Consolidated Financial Statements. |
+ | Management contract or compensatory plan or arrangement. |
24
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: May 6, 2013 |
/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 |
25
Exhibit No. |
Description | |
10.1+ | Fisher Communications, Inc. 2013 Management Short-Term Incentive Plan, as Amended (filed herewith). | |
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 March 31, 2013, formatted in XBRL (eXtensible Business Reporting Language): (i) Condensed Consolidated Statements of Operations for the three months ended March 31, 2013 and 2012, (ii) Condensed Consolidated Statements of Comprehensive Loss for the three months ended March 31, 2013 and 2012, (iii) Condensed Consolidated Balance Sheets as of March 31, 2013 and December 31, 2012, (iv) Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2013 and 2012, and (v) the Notes to Condensed Consolidated Financial Statements. |
+ | Management contract or compensatory plan or arrangement. |
26
Exhibit 10.1
Fisher Communications, Inc. Management Short Term Incentive Plan -2013
Purpose
The purpose of the Management Short Term Incentive Plan (the Plan) is to reward performance by focusing Fisher Communications key management employees on setting high standards and achieving performance goals.
Administration of the Plan
The Compensation Committee of the Board of Directors of Fisher Communications (the Committee) will approve final disposition of all matters pertaining to the administration of the Plan. The Committees decisions affecting the construction of the Plan will be final and binding on all parties.
The President and Chief Executive Officer (CEO) of Fisher Communications, on behalf of the Committee, has the responsibility to administer the Plan. The CEO will review goals for all plan participants. The Committee will review and approve Company financial goals, individual goals and final performance results and payouts.
Responsibilities for actions taken under the Plan and associated time frames are:
Responsibilities |
CEO | Participant | Finance and Administration |
Committee | ||||
Goal setting for upcoming year (Company financial and individual) | December 2012- January 2013 |
December 2012- January 2013 |
October 2012- December 2013 |
|||||
Goal approval for upcoming year | February 2013- March 2013 | |||||||
Evaluation of performance results at the end of the Plan period | January 2014- February 2014 |
January 2014- February 2014 |
||||||
Calculation of payouts | March 2014 | March 2014 | ||||||
Approval of payouts and performance results for previous year | February 2014- March 2014 | |||||||
Communication of payouts | March 2014 | |||||||
Payouts to participants | By March 15, 2014 |
Page 1 | Effective February 2013 |
Fisher Communications, Inc. Management Short Term Incentive Plan -2013
Plan Period
The plan period is defined as January 1, 2013 through December 31, 2013.
Plan Participants
Participants in the Plan will be corporate officers and other key management employees approved by the Committee that are responsible for directing and performing functions that have significant impact on Fisher Communications performance. At the current time they are:
| President and Chief Executive Officer |
| Executive Vice President, Operations |
| Senior Vice President, General Counsel and Corporate Secretary |
| Senior Vice President, Revenue and Business Development |
| Senior Vice President, Chief Financial Officer |
| Vice President, Human Resources |
| Vice President, Technology |
| Vice President, Corporate Development & Investor Relations |
Newly hired employees who are added as participants to the Plan during the year may receive prorated incentive awards as recommended by the CEO and approved by the Committee.
Plan Performance Measures and Weights
Performance measures are established before the end of the first quarter of the Plan period.
Performance measures for all of the above employees will consist of 100% of the incentive based on Company Financial Performance or Fishers Adjusted EBITDA (which may be adjusted for certain circumstances by the Compensation Committee).
Award payments for Adjusted EBITDA component will be based on the Payout as a Percent of Target which corresponds to the EBITDA achievement as a percent of target. The EBITDA payout will be calculated as follows: Payout as a percent of target x participants target bonus percent x 100%.
Please refer to the Corporate Matrix for illustration of award potential for the Adjusted EBITDA component of the incentive.
Award Schedule
At the beginning of the Plan year, a performance/payout schedule will be developed that specifies threshold, target, and maximum Company financial performance levels and the corresponding percentage of the target award that would be earned for each performance level.
Page 2 | Effective February 2013 |
Fisher Communications, Inc. Management Short Term Incentive Plan -2013
Target Incentive Awards
Target incentive awards are expressed as a percentage of base salary and vary by position level and accountabilities.
Payment of Awards
A participants payout is calculated as follows:
| Confirm target opportunity as % of base salary |
| Assess level of Company financial performance versus target performance |
| Determine payout as a percent of target for Company financial results |
Termination
Retirement or Disability In the event of termination of employment through retirement or as a result of total disability as defined in Fisher Broadcasting benefit plans, the award will be prorated for the number of months of the year completed prior to termination. Retirement is defined as termination of employment on or after age 65. The award is contingent upon actual performance against goals during the months served. The award will be paid out at the normal payout date or earlier, at the discretion of the Committee.
Company Transaction In the event of a Company Transaction (as that term is defined in Fishers Amended and Restated 2008 Equity Incentive Plan) during 2013, participants will earn a prorated portion of their target award for the period until the Company Transactions effective date (the Transaction Effective Date) and will not be eligible to earn an award for any period during 2013 after the Transaction Effective Date. The proration will be calculated based upon the number of full weeks worked by the participant during 2013 prior to the Transaction Effective Date. In such event, the prorated awards will be payable only to participants who are employed by Fisher Communications as of the Transaction Effective Date and will be paid within 30-days after the Transaction Effective Date.
Death If the participant dies, any unpaid awards will be paid to his or her estate in one lump sum. The amount of the award will be prorated for the number of months of the year completed prior to the participants death. The award is contingent upon actual performance against goals during the months served. The award will be paid out at the normal payout date or earlier, at the discretion of the Committee.
Termination for Reasons Other Than Retirement, Disability or Death In the event of termination of employment for any other reason, the participant will not be entitled to any incentive compensation for the Plan period [subsequent to termination, unless otherwise approved by the Committee.
Amendment or Termination of the Plan The Committee may terminate, amend or modify this Plan at any time.
Page 3 | Effective February 2013 |
Fisher Communications, Inc. Management Short Term Incentive Plan -2013
Other Considerations
Right of Assignment No right or interest in the Plan is assignable or transferable, or subject to any lien, directly, by operation of law, or otherwise, including levy, garnishment, attachment, pledge, or bankruptcy.
Right of Employment Participation under this Plan does not guarantee any right to continued employment; management reserves the right to dismiss participants. Participation in any one Plan period does not guarantee the participant the right to participation in any subsequent Plan period.
Withholding for Taxes Fisher Broadcasting has the right to deduct from all awards under this Plan any taxes required by law to be withheld with respect to such payments.
Page 4 | Effective February 2013 |
Fisher Communications, Inc. Management Short Term Incentive Plan -2013
Corporate Matrix
Corporate Performance (EBITDA) as a % of Target |
Payout As a % of Target |
|||
80% |
0 | % | ||
81% |
1 | % | ||
82% |
8 | % | ||
83% |
10 | % | ||
84% |
13 | % | ||
85% |
15 | % | ||
86% |
18 | % | ||
87% |
23 | % | ||
88% |
28 | % | ||
89% |
33 | % | ||
90% |
38 | % | ||
91% |
43 | % | ||
92% |
48 | % | ||
93% |
53 | % | ||
94% |
60 | % | ||
95% |
68 | % | ||
96% |
75 | % | ||
97% |
83 | % | ||
98% |
90 | % | ||
99% |
98 | % | ||
100% |
100 | % | ||
101% |
105 | % | ||
102% |
110 | % | ||
103% |
115 | % | ||
104% |
120 | % | ||
105% |
125 | % | ||
106% |
130 | % | ||
107% |
135 | % | ||
108% |
140 | % | ||
109% |
145 | % | ||
110% |
150 | % | ||
111% |
155 | % | ||
112% |
160 | % | ||
113% |
165 | % | ||
114% |
170 | % | ||
115% |
175 | % | ||
116% |
180 | % | ||
117% |
185 | % | ||
118% |
190 | % | ||
119% |
195 | % | ||
120% |
200 | % |
Page 5 | Effective February 2013 |
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: May 6, 2013 | ||||||
/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: May 6, 2013 | ||||||
/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 March 31, 2013 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: May 6, 2013 | ||||||
/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 March 31, 2013 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: May 6, 2013 | ||||||
/s/ Hassan N. Natha | ||||||
Hassan N. Natha | ||||||
Senior Vice President and Chief Financial Officer |
Net Loss Per Share (Details) (USD $)
In Thousands, except Per Share data, unless otherwise specified |
3 Months Ended | |
---|---|---|
Mar. 31, 2013
|
Mar. 31, 2012
|
|
Basic and diluted net income per share | ||
Loss from operations, net of income taxes | $ (769) | $ (1,864) |
Weighted average shares outstanding (basic and diluted) | 8,800 | 8,847 |
Net loss per share (basic and diluted) | $ (0.09) | $ (0.21) |
Segment Information (Details Textual)
|
3 Months Ended |
---|---|
Mar. 31, 2013
Segment
|
|
Segment Information (Textual) [Abstract] | |
Number of segments | 2 |
Television [Member]
|
|
Segment Information (Additional Textual) [Abstract] | |
Number of operating segments | 20 |
Operating segments, percentage | 50.00% |
Radio [Member]
|
|
Segment Information (Additional Textual) [Abstract] | |
Number of owned radio stations | 3 |
Number of managed radio stations | 1 |
Goodwill and Intangible Assets (Details 1) (USD $)
In Thousands, unless otherwise specified |
Mar. 31, 2013
|
---|---|
Amortization expense for the Company's intangible assets | |
2013 | $ 177 |
2014 | 236 |
2015 | 236 |
2016 | 236 |
2017 | 236 |
2018 | 236 |
Thereafter | 941 |
Total | $ 2,298 |
Net Loss Per Share (Tables)
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3 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Mar. 31, 2013
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Net Loss Per Share [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Basic and diluted net loss per share |
|
Subsequent Events (Details) (USD $)
|
Mar. 31, 2013
|
---|---|
Subsequent Events (Textual) [Abstract] | |
Merger transaction value | $ 373,300,000 |
Dividends declared per share | 41.00 |
Premium to the closing price of the Company's common stock | 44.00% |
Termination fee | $ 11,200,000 |
Income Taxes (Details) (USD $)
In Thousands, unless otherwise specified |
3 Months Ended | 12 Months Ended |
---|---|---|
Mar. 31, 2013
|
Dec. 31, 2012
|
|
Reconciliation of the change in the amount of gross unrecognized income tax benefits | ||
Balance at beginning of period | $ 632 | $ 632 |
Increase of unrecognized tax benefits related to prior years | ||
Balance at end of period | $ 632 | $ 632 |
Retirement Benefits (Details) (USD $)
In Thousands, unless otherwise specified |
3 Months Ended | |
---|---|---|
Mar. 31, 2013
|
Mar. 31, 2012
|
|
Net periodic pension cost for the Company's supplemental retirement program | ||
Interest cost | $ 204 | $ 234 |
Amortization of loss | 77 | 45 |
Net periodic pension cost | $ 281 | $ 279 |
Stock Repurchase Program (Details) (USD $)
|
1 Months Ended | 3 Months Ended | 12 Months Ended | |
---|---|---|---|---|
Dec. 31, 2012
|
Dec. 31, 2011
|
Mar. 31, 2013
|
Dec. 31, 2012
|
|
Stock Repurchase Program (Textual) [Abstract] | ||||
Stock repurchase of its outstanding shares | $ 15,000,000 | $ 25,000,000 | ||
Number of shares repurchased under the program | 0 | 0 | ||
Repurchase program termination date | Apr. 26, 2013 | |||
Stock repurchased and retired | 2,990 | |||
Cost of stock repurchased and retired | $ 86,000 |
Variable Interest Entities
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3 Months Ended | ||||||||||||||||||||||||||||||||||||
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Mar. 31, 2013
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Variable Interest Entities [Abstract] | |||||||||||||||||||||||||||||||||||||
Variable Interest Entities |
3. Variable Interest Entities As of March 31, 2013 and December 31, 2012, the Company had variable interests in two stations and was the primary beneficiary of these Variable Interest Entities (“VIEs”). The Company holds the power to direct activities that significantly impact the economic performance of the VIEs and can participate in returns that would be considered significant to the VIEs and therefore consolidates the assets and liabilities of these stations. The $750,000 investment in South Sound Broadcasting LLC (“South Sound”) in connection with the Local Marketing Agreement qualifies as a VIE. The Company is not considered a primary beneficiary of this VIE and the 7.5% ownership interest in the station is accounted for using the cost method of accounting. The Company’s maximum exposure to losses as of March 31, 2013 and December 31, 2012 was $1.4 million. The carrying amount of the investments in the VIEs for which the Company is the primary beneficiary as of March 31, 2013 and December 31, 2012 is as follows (in thousands):
|