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U.S. SECURITIES AND EXCHANGE COMMISSION

Washington D.C. 20549

FORM 10-Q

For the quarterly period ended March 31, 2003

For the transition period from                      to                     

Commission File Number 0-22439

FISHER COMMUNICATIONS, INC.

(Exact Name of Registrant as Specified in Its Charter)

1525 One Union Square

600 University Street

Seattle, Washington 98101-3185

(Address of Principal Executive Offices) (Zip Code)

(206) 404-7000

(Registrant’s Telephone Number, Including Area Code)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes   x  No  ¨

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

Yes  x  No  ¨

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:

Common Stock, $1.25 par value, outstanding as of March 31, 2003: 8,594,060

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PART I

FINANCIAL INFORMATION

Item 1. Financial Statements

The following Condensed Consolidated Financial Statements (unaudited) are presented for the Registrant, Fisher Communications, Inc., and its subsidiaries.

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ITEM 1 – FINANCIAL STATEMENTS

FISHER COMMUNICATIONS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF INCOME

See accompanying notes to condensed consolidated financial statements.

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FISHER COMMUNICATIONS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEET

See accompanying notes to condensed consolidated financial statements.

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FISHER COMMUNICATIONS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

See accompanying notes to condensed consolidated financial statements.

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FISHER COMMUNICATIONS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

See accompanying notes to condensed consolidated financial statements.

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FISHER COMMUNICATIONS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. The unaudited financial information furnished herein, in the opinion of management, reflects all adjustments which are necessary to state fairly the consolidated financial position, results of operations, and cash flows of Fisher Communications, Inc. and subsidiaries (the “Company”) as of and for the periods indicated. Fisher Communications, Inc.’s principal wholly-owned subsidiaries include Fisher Broadcasting Company, Fisher Media Services Company, and Fisher Properties Inc. The Company presumes that users of the interim financial information herein have read or have access to the Company’s audited consolidated financial statements and that the adequacy of additional disclosure needed for a fair presentation, except in regard to material contingencies or recent subsequent events, may be determined in that context. Accordingly, footnote and other disclosures which would substantially duplicate the disclosures contained in Form 10-K for the year ended December 31, 2002 filed on March 25, 2003 by the Company have been omitted. The financial information herein is not necessarily representative of a full year’s operations.

2. Accounting change

In May 2002, the Financial Accounting Standards Board (FASB) issued FASB Statement No. 145 “Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections” (FAS 145). FAS 145, which updates, clarifies, and simplifies existing accounting pronouncements became effective for the Company’s 2003 financial statements. Accordingly, a loss from extinguishment of long-term debt reported by the Company as an extraordinary item in the 2002 financial statements has been reclassified to continuing operations.

On January 1, 2003, the Company adopted FASB Statement No. 143, “Accounting for Asset Retirement Obligations” (FAS 143). This statement requires entities to record the fair value of future liabilities for asset retirement obligations as an increase in the carrying amount of the related long-lived asset if a reasonable estimate of fair value can be made. Over time, the liability is accreted to its present value, and the capitalized cost is depreciated over the useful life of the related asset. The Company has certain legal obligations, principally related to leases on locations used for broadcast system assets, which fall within the scope of FAS 143. These legal obligations include a responsibility to remediate the leased sites on which these assets are located. In conjunction with the adoption of FAS 143, the Company did not record asset retirement obligations subject to the provisions of this statement as the fair value of these obligations could not reasonably be estimated.

In February 2003, the Company adopted FASB Interpretation No. 46, “Consolidation of Variable Interest Entities” (FIN 46). FIN 46 requires a variable interest entity to be consolidated by a company if that company is subject to a majority of the risk of loss from the variable interest entity’s activities or entitled to receive a majority of the entity’s residual returns or both. FIN 46 also requires disclosures about variable interest entities that a company is not required to consolidate but in which it has a significant variable interest. The consolidation requirements of FIN 46 apply immediately to variable interest entities created after January 31, 2003. Adoption of this portion of the interpretation did not have a material impact on the Company’s financial statements. The consolidation requirements apply to existing entities in the first fiscal year or interim period beginning after June 15, 2003. Certain of the disclosure requirements apply in all financial statements issued after January 31, 2003, regardless of when the variable interest entity was established. The impact of adoption of this portion of the interpretation is not expected to have a material impact on the company’s financial statements.

3. Discontinued operations

In October 2002, the Company’s real estate subsidiary concluded the sale of one industrial property. In December 2002, the real estate subsidiary concluded the sale of three industrial properties. The properties that were sold meet the criteria of a “component of an entity” as defined in FASB Statement No. 144 “Accounting for the Impairment or Disposal of Long-Lived Assets” (FAS 144). In accordance with the provisions of FAS 144, the results of operations of the properties sold through the date of sale, as well as the gain recognized on sales, are reported as discontinued operations in the accompanying financial statements. The prior year results of operations of the properties sold have been reclassified to conform to the 2003 presentation.

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The loss from discontinued operations of the real estate sold for the three months ended March 31, 2002 is summarized as follows (in thousands):

Revenue of the real estate sold amounted to $958,000 in the three months ended March 31, 2002.

On January 29, 2003, the broadcasting subsidiary signed an asset purchase agreement for the sale of its two Georgia television stations, WFXG-TV, Augusta and WXTX-TV, Columbus, for a purchase price of $40 million plus working capital. Completion of the sale is subject to FCC approval, receipt of consents to assignment of certain material agreements, and satisfaction of other customary closing conditions. The sale is expected to be completed in the third quarter of 2003. The stations to be sold meet the criteria of a “component of an entity” as defined in FAS 144. In accordance with the provisions of FAS 144, the results of operations of the stations through the date of completion of the sale, as well as the estimated loss to be recognized on the sale, are reported as discontinued operations in the accompanying financial statements. The prior year results of operations of the stations to be sold have been reclassified to conform to the 2003 presentation.

The loss from discontinued operations of the television stations to be sold is summarized as follows (in thousands):

Revenue of the stations to be sold amounted to $2,060,000 and $1,868,000 in the three months ended March 31, 2003 and 2002, respectively.

4. Derivative instruments

The Company is a party to a variable forward sales transaction (“Forward Transaction”) with a financial institution. The Company’s obligations under the Forward Transaction are collateralized by 3,000,000 shares of SAFECO Corporation common stock owned by the Company. A portion of the Forward Transaction is considered a derivative and, as such, the Company periodically measures its fair value and recognizes the derivative as an asset or a liability. The change in the fair value of the derivative is recorded in the income statement. The Company may in the future designate the Forward Transaction as a hedge and, accordingly, the change in fair value will be recorded in the income statement or in other comprehensive income depending on its effectiveness. The Company may borrow up to $70,000,000 under the Forward Transaction. The Forward Transaction will mature in five separate six-month intervals beginning March 15, 2005 through March 15, 2007. The amount due at each maturity date will be determined based on the market value of SAFECO common stock on such maturity date. Although the Company will have the option of settling the amount due in cash, or by delivery of shares of SAFECO common stock, the Company currently intends to settle in cash rather than by delivery of shares. The Company may prepay amounts due in connection with the Forward Transaction. During

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the term of the Forward Transaction, the Company will continue to receive dividends paid by SAFECO; however, any increase in the dividend amount above the present rate must be paid to the financial institution that is a party to the Forward Transaction. At March 31, 2003 the derivative portion of the Forward Transaction had a fair market value of $4,335,000. At March 31, 2003, $50,913,000 was outstanding under the Forward Transaction including accrued interest amounting to $4,461,000. Subsequent to March 31, 2003, the Company made a payment of $5,000,000 on the Forward Transaction.

In March 2002, the broadcasting subsidiary entered into an interest rate swap agreement fixing the interest rate at 6.87%, plus a margin based on the broadcasting subsidiary’s ratio of consolidated funded debt to consolidated EBITDA, on a portion of the floating rate debt outstanding under the broadcast facility. The notional amount of the swap is $65,000,000, which reduces as payments are made on principal outstanding under the broadcast facility, until termination of the contract in March 2004. At March 31, 2003 the fair market value of the swap agreement was a liability of $3,644,000.

Changes in the fair market value of the Forward Transaction and the interest rate swap agreement are included in Net loss on derivative instruments in the accompanying Condensed Consolidated Financial Statements.

5. Television and radio broadcast rights and other commitments:

The broadcasting subsidiary acquires television and radio broadcast rights, and at March 31, 2003 has commitments under license agreements amounting to $72,367,000 for future rights to broadcast television and radio programs through 2008, and $11,574,000 in related fees. As these programs will not be available for broadcast until after March 31, 2003, they have been excluded from the financial statements. In addition, the broadcasting subsidiary has commitments under a Joint Sales Agreement totaling $13,029,000 through 2007.

6. Income (loss) per share:

Net income (loss) per share represents net income (loss) divided by the weighted average number of shares outstanding during the year. Net income (loss) per share assuming dilution represents net income (loss) divided by the weighted average number of shares outstanding, including the potentially dilutive impact of the stock options and restricted stock rights issued under the Company’s incentive plans. Common stock options and restricted stock rights are converted using the treasury stock method.

The weighted average number of shares outstanding as of March 31, 2003 was 8,594,060. The dilutive effect of 1,504 restricted stock rights and options to purchase 422,798 shares are excluded for the three months ended March 31, 2003 because such rights and options were anti-dilutive.

The weighted average number of shares outstanding as of March 31, 2002 was 8,591,658. The dilutive effect of 3,612 restricted stock rights and options to purchase 441,161 shares are excluded for the three months ended March 31, 2002 because such rights and options were anti-dilutive.

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7. Stock-based compensation:

The Company accounts for common stock options and restricted common stock rights in accordance with Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations. No stock-based compensation is reflected in net loss, as all options granted had an exercise price equal to the market value of the underlying common stock on the date of grant. The following table illustrates the effect on net loss and net loss per share if the Company had applied the fair value recognition provisions of FASB Statement No. 123, Accounting for Stock-Based Compensation, to stock-based employee compensation (in thousands, except per share amounts):

8. Segment information:

The Company operates its continuing operations as three principal business segments: broadcasting, media services, and real estate. Income (loss) from operations by business segment consists of revenue less operating expenses. In computing income from operations by business segment, other income, net, and equity in operations of equity investees have not been included, and net loss on derivative instruments, loss from extinguishment of long-term debt, interest expense, and income taxes have not been deducted. Identifiable assets by business segment are those assets used in the operations of each segment. Corporate assets are principally marketable securities.

Identifiable assets for each segment are as follows (in thousands):

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Income (loss) from continuing operations for each segment are as follows (in thousands):

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ITEM 2 – MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL POSITION AND RESULTS OF  OPERATIONS

The following discussion and analysis should be read in conjunction with the 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 “Additional Factors That May Affect Our Business, Financial Condition And Future Results”, and those discussed in our annual report on Form 10-K for the year ended December 31, 2002. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this report. 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 position and operating results during the three month period ended March 31, 2003 compared with the similar period in 2002.

In October 2002, our real estate subsidiary concluded the sale of the subsidiary’s Fisher Commerce Center industrial property. Net proceeds from the sale were $8,993,000. In December 2002 the subsidiary concluded the sale of three industrial properties. Net proceeds from the sale were $37,510,000. The results of operations of the properties sold in October and December 2002 are reported as discontinued operations for the three months ended March 31, 2002 in the accompanying condensed consolidated financial statements.

On January 29, 2003, the broadcasting subsidiary signed an asset purchase agreement for the sale of its two Georgia television stations, WFXG-TV, Augusta and WXTX-TV, Columbus, for a purchase price of $40 million plus working capital. Completion of the sale is subject to FCC approval, receipt of consents to assignment of certain material agreements, and satisfaction of other customary closing conditions. The sale is expected to be completed in the third quarter of 2003. The stations to be sold meet the criteria of a “component of an entity” as defined in FASB Statement No. 144 “Accounting for the Impairment or Disposal of Long-Lived Assets” (FAS 144). In accordance with the provisions of FAS 144, the results of operations of the stations through the date of completion of the sale, as well as the estimated loss to be recognized on the sale, are reported as discontinued operations in the accompanying condensed consolidated financial statements. The prior year results of operations of the stations to be sold have been reclassified to conform to the 2003 presentation.

In connection with our ongoing corporate restructuring, we expect to discontinue operations at Fisher Properties and Fisher Media Services during 2003. In particular, we expect to sell the remaining two commercial properties at Fisher Properties, West Lake Union Center and Fisher Business Center, plus the property management operation. In addition, we expect that the media services businesses of Fisher Entertainment, Fisher Pathways, and Civia will either be sold, absorbed into our broadcasting operations, or shut down. We expect that such actions will reduce the revenue, operating expenses, depreciation, and income or loss attributable to our media services and real estate business segments.

Percentage comparisons have been omitted within the following tables where they are not considered meaningful.

CRITICAL ACCOUNTING POLICIES

The SEC has defined a company’s critical accounting policies as the ones that are most important to the portrayal of the company’s financial condition and results of operations, and which require the company to make its most difficult and subjective judgments, often as a result of the need to make estimates of matters that are inherently uncertain. Based on this definition, we have identified our critical accounting policies below. We also have other key accounting policies, which involve the use of estimates, judgments and assumptions that are significant to understanding our results. For a detailed discussion on the application of these and other accounting policies, see

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Note 1 to the Consolidated Financial Statements contained in our annual report on Form 10-K for the year ended December 31, 2002.

Estimates. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Allowance for doubtful accounts. We evaluate the collectibility of our accounts receivable based on a combination of factors. In circumstances where we are aware of a specific customer’s inability to meet its financial obligations, we record a specific reserve to reduce the amounts recorded to what we believe will be collected. For all other customers, we recognize reserves for bad debts based on historical experience of bad debts as a percent of accounts receivable for each business unit, adjusted for relative improvements or deteriorations in the aging and changes in current economic conditions.

Television and radio broadcast rights. Television and radio broadcast rights are recorded as assets when the license period begins and the programs are available for broadcasting, at the gross amount of the related obligations. Costs incurred in connection with the purchase of programs to be broadcast within one year are classified as current assets, while costs of those programs to be broadcast after one year are considered noncurrent. The costs are charged to operations over their estimated broadcast periods using the straight-line method. Program obligations are classified as current or noncurrent in accordance with the payment terms of the license agreement. Costs of programs which are not available for broadcast are not recorded as assets and are disclosed as commitments.

Accounting for derivative instruments. We utilize an interest rate swap in the management of our variable rate exposure. The interest rate swap is held at fair value with the change in fair value being recorded in the statement of income.

We entered into a variable forward sales transaction with a financial institution. Our obligations under the Forward Transaction are collateralized by 3,000,000 shares of SAFECO Corporation common stock owned by us. A portion of the Forward Transaction will be considered a derivative and, as such, we will periodically measure its fair value and recognize the derivative as an asset or a liability. The change in the fair value of the derivative is recorded in the income statement. We may in the future designate the Forward Transaction as a hedge and, accordingly, the change in fair value will be recorded in the income statement or in other comprehensive income depending on its effectiveness.

Goodwill and long-lived intangible assets. Goodwill represents the excess of purchase price of certain broadcast properties over the fair value of tangible net assets acquired and is accounted for under the provision of Statement of Financial Accounting Standards No. 142.

On January 1, 2002, we adopted Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets” (FAS 142). Upon adoption we ceased amortizing goodwill. Goodwill is now tested for impairment annually or whenever events or circumstances occur indicating that goodwill might be impaired. We have determined that indefinite-lived intangible assets resulting from past business combinations are to be accounted for as goodwill. In the second quarter of 2002 we completed the first step of the transitional impairment test for goodwill and found no indication of impairment. The determination of fair value is a critical and complex consideration when assessing impairment under FAS 142 that involves significant assumptions and estimates. These assumptions and estimates were based on our best judgments. We completed our annual test for impairment of goodwill during the fourth quarter of 2002 and found no indication of impairment. Our judgments regarding the existence of impairment indicators include: an assessment of the impacts of legal factors and market and economic conditions; the results of our operational performance and strategic plans; competition and market share; any potential for the sale or disposal of a significant portion of our business; and availability of sources of funding to conduct our principal operations. In the future, it is possible that such assessments could cause us to conclude that impairment indicators exist and that certain assets are impaired. The carrying value of goodwill is $135 million as of March 31, 2003.

Whenever changes in circumstances indicate that the carrying amount may not be recoverable we assess the recoverability of intangible and long-lived assets by reviewing the performance of the underlying operations, in particular, the operating cash flows (earnings before interest, income taxes, depreciation and amortization) of the operation.

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CONSOLIDATED RESULTS OF OPERATIONS

Operating results for the three months ended March 31, 2003 showed a consolidated loss of $21,375,000 including loss from discontinued operations amounting to $18,297,000. Net loss for the three months ended March 31, 2002 was $7,758,000 including income from discontinued operations amounting to $276,000.

Revenue

First quarter 2003 broadcasting revenue increased $825,000, compared with the same period of last year. Television revenues, net of sales commissions, increased 4%. Net revenue from overall radio operations was essentially unchanged compared with first-quarter 2002.

Our Seattle and Portland television stations experienced revenue increases of 1% and 6%, respectively. Based on information published by Miller, Kaplan, Arase & Co. (Miller Kaplan), revenue for the overall Seattle television market increased 4% during first quarter of 2003, and revenue for the overall Portland television market decreased 3%. Our smaller market television operations experienced increased revenues ranging from 1% to 28%, except for KBCI in Boise, Idaho, which experienced a decline of 1%.

First quarter revenue at our small market radio stations in Eastern Washington and Montana increased 12%. Revenue at Seattle and Portland radio operations declined 3% and 6%, respectively. Miller Kaplan reported that, for the first quarter of 2003, radio revenues for the Seattle market increased 5%, and revenues for the Portland radio market increased 6%.

The increase in revenue for the media services segment in 2003 is due to increased revenue from program production and development at Fisher Entertainment and from increased revenue at Fisher Plaza, where a tenant paid a significant penalty for early termination of premises agreements.

The comparison of real estate revenue is impacted by rents from the Lake Union properties which are included in results for the first quarter of 2002, but are not included in 2003 as the property was sold in September 2002.

Cost of services sold

The cost of services sold consists primarily of costs to acquire, produce, and promote broadcast programming, operating costs of the businesses in the media services segment, and costs to operate the properties held by the real estate segment. These costs are relatively fixed in nature, and do not necessarily vary on a proportional basis with revenue.

Overall operating expenses at the broadcasting segment for first quarter of 2003 declined modestly compared with the first quarter of 2002. Increases in a number of expense categories at our television stations were more than offset by a reduction in the cost of syndicated programming. Our Seattle radio operations reported increased operating expenses as a result of the 24 hour news format adopted by KOMO AM in the fall of 2002 and additional costs associated with the broadcast of Seattle Mariners baseball.

The increase in operating expenses in the media services segment is principally due to program production and development at Fisher Entertainment and to increases in insurance, utilities, and other operating costs at Fisher Plaza.

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The decline in real estate operating expenses relates primarily to costs of operating the Lake Union properties during the first quarter of 2002. Those properties were sold in the fall of 2002 and, therefore, are excluded from 2003 results.

Selling expenses

The increase in selling expenses at our broadcasting segment in 2003 is principally due to costs incurred at Seattle Radio operations in connection with a joint sales agreement that became effective in March 2002, and additional sales personnel and other costs related to the rights agreement to broadcast Seattle Mariners baseball games on KOMO AM.

The increase in selling expenses at the media services segment is primarily due to marketing efforts for Fisher Plaza.

General and administrative expenses

The increase in broadcasting general and administrative expenses is principally due to higher medical benefits. Other employee-related costs increased at our Seattle radio operations as a result of additional personnel required for the all-news format and broadcast of Seattle Mariners baseball.

The decrease in general and administrative expenses at the media services segment is primarily attributable to expenses incurred by Civia, Inc. during the first quarter of 2002 in connection with development of the Civia Media Terminal. No development took place in 2003.

The decrease in general and administrative expenses in the real estate segment is primarily attributable to a decrease in salaries and related costs as a result of staff reductions as the Company continues to reduce its real estate portfolio.

The increase in general and administrative expenses at the corporate segment is principally related to legal and consulting fees incurred in connection with a review of strategic alternatives that concluded in February 2003.

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Depreciation and amortization

The increase in depreciation and amortization at the broadcasting segment is largely attributable to capital expenditures made in connection with the relocation of Seattle radio operations to Fisher Plaza in fall of 2002.

The increase in depreciation in the media services segment is attributable to operations of Fisher Plaza.

The decrease in depreciation and amortization at our real estate segment relates primarily to depreciation of the Lake Union properties during the first quarter of 2002. Those properties were sold in the fall of 2002 and, therefore, are excluded from 2003 results.

Income (Loss) from operations

Income (loss) from operations by business segment consists of revenue less operating expenses. In computing income from operations by business segment, other income, net, and equity in operations of equity investees have not been included, and net loss on derivative instruments, loss from extinguishment of long-term debt, interest expense, and income taxes have not been deducted. Identifiable assets by business segment are those assets used in the operations of each segment.

Net loss on derivative instruments

During the first quarter of 2003, net loss on derivative instruments includes unrealized loss resulting from a decrease in fair value of a variable forward sales transaction amounting to $892,000, partially offset by unrealized gain from an increase in the fair value of an interest rate swap agreement amounting to $650,000.

The amount for 2002 includes an unrealized gain resulting from an increase in fair value of the variable forward sales transaction amounting to $2,040,000, offset by an unrealized loss in an interest rate swap agreement amounting to $129,000, and a realized loss of $2,636,000 on termination of an interest rate swap agreement.

Loss from extinguishment of long-term debt

We repaid certain loans in March 2002 and, as a result, expensed deferred loan costs amounting to $3,264,000. This expense was previously reported in the 2002 financial statements as an extraordinary item in the amount of $2,058,000, net of income tax benefit.

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Other income, net

Other income, net includes dividends received on marketable securities and, to a lesser extent, interest and miscellaneous income. The amount for 2003 also includes gains on sale of marketable securities amounting to $3,657,000 and income from prepayment of an installment note receivable.

Interest expense

Interest expense includes interest on borrowed funds, loan fees, and net payments under a swap agreement. The increase in interest expense results from several factors, including: higher interest rates on some borrowings; an interest rate swap agreement that has a higher fixed interest rate than was in effect during the first quarter of 2002; we paid a premium in February 2003 in connection with prepayment of certain long-term debt. Interest capitalized in connection with the Fisher Plaza project amounted to $669,000 and $399,000 during the three months ended March 31, 2003 and 2002, respectively.

Provision for federal and state income taxes (benefit)

The provision for federal and state income taxes varies directly with pre-tax income. The tax benefits reflect our ability to utilize net operating losses. The effective tax rate varies from the statutory rate primarily by due to a deduction for dividends received, offset by the impact of state income taxes.

Other comprehensive income (loss)

Other comprehensive income (loss) includes unrealized gain or loss on our marketable securities and, during a portion of 2002, the effective portion of the change in fair value of an interest rate swap agreement, and is net of income taxes.

During the three months ended March 31, 2003 the value of our marketable securities increased $587,000, net of tax. Also during the period, we realized gain amounting to $2,024,000, net of tax, from sale of our investment in Weyerhaeuser Company common stock, which was reclassified to operations.

At March 31, 2003, our marketable securities consisted of 3,002,376 shares of SAFECO Corporation. The per share market price of SAFECO Corporation common stock was $34.67 at December 31, 2002, $34.97 at March 31, 2003, $31.15 at December 31, 2001, and $32.04 at March 31, 2002.

During the period from January 1, 2002 through March 21, 2002 we used an interest rate swap, designated as a cash flow hedge, to manage exposure to interest rate risks. During this period the fair value of the swap increased $543,000, net of tax, which is recorded in other comprehensive income. In connection with the refinancing of our long-term debt, the swap agreement was terminated and the remaining negative fair market value of $2,636,000 ($1,713,000 net of tax benefit) was reclassified to operations.

Unrealized gains and losses are reported as accumulated other comprehensive income, a separate component of stockholders’ equity.

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Liquidity and Capital Resources

As of March 31, 2003 we had working capital of $32,687,000 and cash and short-term cash investments totaling $14,063,000. We intend to finance working capital, debt service, and capital expenditures primarily through operating activities. However, we will consider using available credit facilities to fund significant development activities. As of March 31, 2003, approximately $40,000,000 is available under existing credit facilities.

Net cash provided by operating activities during the three months ended March 31, 2003 was $9,047,000. Net cash provided by operating activities consists of our net income, increased by non-cash expenses such as depreciation and amortization, and adjusted by changes in operating assets and liabilities. Net cash provided by investing activities during the period was $9,876,000, including restricted cash of $12,778,000 that became available for general corporate purposes during the first quarter, reduced by $3,013,000 invested for purchase of property, plant and equipment (including the Fisher Plaza project). Net cash used in financing activities was $28,375,000, primarily for payments on borrowing agreements and mortgage loans.

As of March 31, 2003, future maturities of notes payable and long-term debt, and television and radio broadcast rights are as follows (in thousands):