-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, MvH5WA42VFQLoG/+74wcN1BC3JWcXOWidJsagdKzU010HiF3Tguk82PB9isGwD1s iGLZW4WE1UfpFRJMf1/SQQ== 0001032210-00-000651.txt : 20000331 0001032210-00-000651.hdr.sgml : 20000331 ACCESSION NUMBER: 0001032210-00-000651 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 13 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000330 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FISHER COMPANIES INC CENTRAL INDEX KEY: 0001034669 STANDARD INDUSTRIAL CLASSIFICATION: GRAIN MILL PRODUCTS [2040] IRS NUMBER: 910222175 STATE OF INCORPORATION: WA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-22439 FILM NUMBER: 586522 BUSINESS ADDRESS: STREET 1: 1525 ONE UNION SQU STREET 2: 600 UNIVERSITY ST CITY: SEATTLE STATE: WA ZIP: 98101-3185 BUSINESS PHONE: 2066242752 MAIL ADDRESS: STREET 1: 1525 ONE UNION SQU STREET 2: 600 UNIVERSITY ST CITY: SEATTLE STATE: WA ZIP: 98101-3185 10-K 1 FORM 10-K UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13D OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1999 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 000-22439 FISHER COMPANIES INC. (Exact name of registrant as specified in its charter) Washington 91-0222175 (State of Incorporation) (IRS Employer Identification No.) 1525 One Union Square 600 University Street, Seattle, Washington 98101-3185 (Address of principal executive offices) (Zip Code) (206) 624-2752 (Registrant's telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: Name of Each Exchange Title of Each Class on Which Registered ------------------- ------------------- None Not Applicable Securities registered pursuant to Section 12(g) of the Act: Common Stock, $1.25 par value (Title of Class) 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 periods 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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K [_]. The aggregate market value of the voting stock held by nonaffiliates of the registrant as of March 15, 2000, based on the last sale price quoted on the OTC Bulletin Board, was approximately $294,898,000. The number of shares outstanding of each of the registrant's classes of common stock as of March 15, 2000 was: Title of Class Number of Shares Outstanding -------------- ---------------------------- Common Stock, $1.25 Par Value 8,550,690 shares DOCUMENTS INCORPORATED BY REFERENCE Portions of the Proxy Statement relating to the Annual Meeting of Shareholders to be held on April 27, 2000, are incorporated by reference under Part III of this Report. PART I ITEM 1. BUSINESS. Through its operating subsidiaries, Fisher Companies Inc. (the "Company") is actively engaged in television and radio broadcasting, the operation of satellite teleports, the development of other emerging technologies, and television programming production and syndication; flour milling and bakery products distribution; and real estate investment and proprietary property management. The Company was founded in 1910, and is incorporated in Washington. The Company provides direction and guidance to its operating subsidiaries. Note 10 to the consolidated financial statements contains information regarding the Company's industry segments for the years ended December 31, 1999, 1998, and 1997. BROADCASTING OPERATIONS INTRODUCTION The Company's broadcasting operations are conducted through Fisher Broadcasting Inc. ("Fisher Broadcasting"), a Washington corporation. The Company owns all of the outstanding capital stock of Fisher Broadcasting, except that 3% of the outstanding shares of a class of nonvoting participating preferred stock is owned by third parties. Fisher Broadcasting owns and operates, directly or through subsidiaries in Washington, Oregon Montana, Idaho, California and Georgia, twelve network-affiliated television stations (and a 50% interest in a thirteenth television station), 26 radio stations, and two broadcast satellite teleports, and provides emerging media development services. Fisher Broadcasting's television stations reach more than 4,200,000 households, or 4.2% of all U.S. television households (Nielsen Media Research). Its radio stations collectively represent the 26th largest radio group in the U.S. by revenue size (National Association of Broadcasters). Fisher Broadcasting's satellite teleports serve many of the Northwest's businesses and local, national and international news organizations. U. S. television markets are defined by Nielsen Media Research. Two of Fisher Broadcasting's television stations are located in top 25 television markets: KOMO TV 4 (ABC) Seattle-Tacoma, Washington, market rank 12; and KATU Television 2 (ABC), Portland, Oregon, market rank 23. One is located in television markets 50 to 100: KJEO TV 47 (CBS) Fresno-Visalia, California, market rank 54. The ten remaining television stations are located in markets 100 to 166: WFXG TV 54 (Fox), Augusta, Georgia, market rank 111; KVAL TV 13 (CBS), Eugene, Oregon and its satellite stations KPIC TV 4 (CBS), Roseburg, Oregon (50% owned by Fisher Broadcasting) and KCBY TV 11 (CBS), Coos Bay, Oregon, market rank 122; KIMA TV 29 (CBS), Yakima, Washington and its satellite stations KEPR TV 19 (CBS), Pasco, Washington and KLEW TV (3), Lewiston, Idaho, market rank 124; KBCI TV 2 (CBS), Boise, Idaho, market rank 125; WXTX 54 (Fox), Columbus, Georgia, market rank 127; and KIDK 3 (CBS), Idaho Falls, Idaho, market rank 166. See Broadcasting Operations - "Television - KOMO TV," "Television -KATU Television" and "Television - Fisher Television Regional Group." Fisher Broadcasting's radio operations are concentrated in large, medium and small markets located in Washington, Oregon and Montana (see "Broadcasting Operations- Radio - Seattle Radio Market; Portland Radio Market; and - Medium - and Small- Market Radio Operations"). Fisher Communications Inc. ("FishComm"), a wholly owned subsidiary of Fisher Broadcasting, owns and operates Fisher Broadcasting's satellite teleport services, Internet services, and emerging media development operations. Fisher Entertainment, an operating unit of Fisher Broadcasting, supplies programming for cable networks, broadcast syndication and emerging media. Its programming sources are internal content development, programming created through alliances with third party producers and repackaging of existing Fisher Broadcasting library product. As of December 31, 1999, Fisher Broadcasting employed 1,339 full- and part- time employees. ACQUISITION On July 1, 1999, Fisher Companies Inc. and Fisher Broadcasting Inc. completed acquisition of the broadcasting assets of Retlaw Enterprises, Inc., a California corporation, and eight wholly-owned limited liability companies. The broadcast assets acquired consist of ten network-affiliated television stations in seven markets located in California, the Pacific Northwest, and Georgia, as well as a fifty percent stock interest South West Oregon Television Broadcasting Corporation, licensee of a television station in Roseburg, Oregon. 2 Total consideration for the assets acquired was $216.7 million, which included $7.6 million of working capital. The acquisition was financed from proceeds of Senior Credit Facilities with Bank of America National Trust and Savings Association as Administrative Agent, Credit Suisse First Boston as Syndication Agent, and other financial institutions party thereto. Currently, the two acquired stations located in Columbus, Georgia and Augusta, Georgia are operated as a combined L.L.C that is known as Fisher Broadcasting - Georgia, L.L.C. The acquired station in Fresno, California is also operated as an L.L.C. and is known as Fisher Broadcasting - Fresno, L.L.C. The station in Roseburg, Oregon, continues to be owned by South West Oregon Television Broadcasting Corporation, and is managed by Fisher Broadcasting Inc. The remaining acquired television stations are owned and operated by Fisher Broadcasting Inc. The entire group of eleven stations operates under the name Fisher Television Regional Group. (See "Television - Fisher Television Regional Group.") TELEVISION General Overview Commercial television broadcasting began in the United States on a regular basis in the 1940s. There are a limited number of channels available for broadcasting in any one geographic area, and the license to operate a television station is granted by the Federal Communications Commission ("FCC"). Television stations that broadcast over the very high frequency ("VHF") band (channels 2- 13) of the spectrum generally have some competitive advantage over television stations that broadcast over the ultra-high frequency ("UHF") band (channels above 13) of the spectrum because VHF channels usually have better signal coverage and operate at a lower transmission cost. However, the improvement of UHF transmitters and receivers, the complete elimination from the marketplace of VHF-only television receivers and the expansion of cable and satellite television systems have reduced the competitive advantage of stations broadcasting over the VHF band. Television station revenues are primarily derived from the sale of local, regional and national advertising and, to a much lesser extent, from network compensation and studio rental and commercial production activities. Broadcast television stations' heavy reliance on advertising revenues renders the stations vulnerable to cyclical changes in the economy. The size of advertisers' budgets, which are affected by broad economic trends, affect the broadcast industry in general and, specifically, the revenues of individual broadcast television stations. Events outside the Company's control can adversely affect advertising revenues. For example, the Company has experienced declines in advertising revenue during some periods as a result of strikes in major industries and as a result of acquisitions of advertising clients by buyers that do not place advertising with Fisher Broadcasting stations. Television stations in the country are grouped by Nielsen Media Research ("Nielsen"), a company that provides audience measuring services, into approximately 210 generally recognized television markets that are ranked in size according to various formulae based upon an actual or potential audience. Each market is designated as an exclusive geographic area consisting of all counties in which the home-market commercial stations receive the greatest percentage of total viewing hours. Nielsen periodically publishes data on estimated audiences for television stations in the various markets throughout the country. These estimates are expressed in terms of the percentage of the total potential audience viewing a station in the market (the station's "rating") and of the percentage of the audience actually watching television (the station's "share"). Nielsen provides such data on the basis of total television households and selected demographic groupings in the market. The specific geographic markets are called Designated Market Areas, or "DMAs." Historically, three major broadcast networks, ABC, CBS, and NBC, dominated broadcast television. In recent years, The Fox Network ("Fox") has effectively evolved into the fourth major network, although the hours of network programming produced by Fox for its affiliated stations are fewer than those produced by the other three major networks. In addition, the United-Paramount Network ("UPN") and the Warner Brothers Network ("WB") have launched new television networks with a limited amount of weekly programming (see "Broadcasting Operations - Television - Network Affiliations"). The affiliation by a television station with one of the four major networks has a significant impact on the composition of the station's programming, revenues, expenses and operations. A typical affiliated station receives approximately 9 to 10 hours of each day's programming from the network. This programming, along with cash payments ("network compensation"), is provided to the affiliate by the network in exchange for a substantial majority of the advertising time sold during the airing of network programs. The network then sells this advertising time for its own account. The affiliate retains the revenues from time sold during designated breaks in and between network programs, and during programs produced by the affiliate or purchased from non- network sources. In acquiring programming to supplement network 3 programming, network affiliates compete primarily with other affiliates and independent stations in their markets. In addition, a television station may acquire programming through bartering arrangements. Under such arrangements, which are becoming increasingly popular with both network affiliates and independents, a national program distributor may receive advertising time in exchange for the programming it supplies, with the station paying no cash or a reduced fee for such programming. An affiliate of UPN or WB receives a smaller portion of its programming from the network compared to an affiliate of NBC, ABC, CBS or Fox. Currently, UPN and WB provide 10 hours and 11 hours, respectively, of programming per week to their affiliates. As a result of the smaller amount of programming provided by their networks, affiliates of UPN or WB must purchase or produce a greater amount of their programming, resulting in generally higher programming costs. These stations, however, retain a larger portion of the inventory of advertising time and the revenues obtained from the sale of such time than stations affiliated with the major networks. Broadcast television stations compete for advertising revenues primarily with other broadcast television stations, radio stations and, to a lesser extent, cable systems and other multichannel operators and programmers and newspapers serving the same market. Traditional network programming, and recently Fox programming, generally achieves higher audience levels than syndicated programs aired by independent stations. However, as greater amounts of advertising time are available for sale by independent stations and Fox affiliates in syndicated programs, those stations typically achieve a share of the television market advertising revenues that is greater than their share of the market's audience. Through the 1970s, network television broadcasting enjoyed virtual dominance in viewership and television advertising revenues because network- affiliated stations only competed with each other in local markets. Beginning in the 1980s, this level of dominance began to change as the FCC authorized more local stations, and marketplace choices expanded with the growth of independent stations, cable television services, wireless cable, and direct broadcast satellites. Cable television systems were first installed in significant numbers in the 1970s and were initially used to retransmit broadcast television programming to paying subscribers in areas with poor broadcast signal reception. In the aggregate, cable-originated programming has emerged as a significant competitor for viewers of broadcast television programming, although no single cable programming network regularly attains audience levels amounting to more than a small fraction of any of the major broadcast networks. The advertising share of cable networks increased during the 1980s and 1990s as a result of the growth in cable penetration (the percentage of television households that are connected to a cable system). In the 1980's, viewers in areas with poor broadcast reception, and limited cable television alternatives, began to receive non-broadcast satellite transmissions primarily intended for reception by the cable television industry. In the 1990's, high power Direct Broadcast Satellites ("DBS") went into operation, providing satellite distribution of programming services to increasing numbers of homes. In most cases the non-broadcast programming services distributed to DBS subscribers are the same as those distributed by cable television systems. DBS program services and DBS system operators insert advertising into these program services on a national basis, but presently do not compete with broadcasters for local advertising revenue. Notwithstanding such increases in cable and DBS viewership and advertising, over-the-air broadcasting remains the dominant distribution system for mass- market television advertising. Fisher Broadcasting believes that the market shares of television stations affiliated with NBC, ABC and CBS declined during the 1990's primarily because of the emergence of Fox and certain strong independent stations and, secondarily, because of increased cable penetration. Independent stations have emerged as viable competitors for television viewership share, particularly as a result of the availability of first-run, network-quality programming. In addition, there has been substantial growth in the number of home satellite dish receivers and videocassette recorders, which have further expanded the number of programming alternatives available to household audiences. Further advances in technology may increase competition for household audiences and advertisers. Video compression techniques, now in use with direct broadcast satellites and cable or wireless cable, are expected to permit greater numbers of channels to be carried within existing bandwidth. These compression techniques, as well as other technological developments, are applicable to all digital delivery systems, including over-the-air broadcasting, and have the potential to provide vastly expanded programming to highly targeted audiences. Reduction in the cost of creating additional channel capacity could lower entry barriers for new channels and encourage the development of increasingly specialized niche programming. This ability to reach very narrowly defined audiences is expected to alter the competitive dynamics for advertising expenditures. Fisher Broadcasting is unable to predict the effect that technological changes will have on the broadcast television industry or the future results of Fisher Broadcasting's operations. 4 Competition Competition in the television industry, including the markets in which Fisher Broadcasting's stations compete, takes place on several levels: competition for audience, competition for programming (including news), competition for advertisers and competition for local staff and management. Additional factors material to a television station's competitive position include signal coverage and assigned frequency. The television broadcasting industry is continually faced with technological change and innovation, the possible rise in popularity of competing entertainment and communications media, changing business practices such as use of local marketing agreements ("LMAs") and joint sales agreements ("JSAs"), and governmental restrictions or actions of federal regulatory bodies, including the FCC and the Federal Trade Commission, any of which could have a material effect on the broadcasting business in general and Fisher Broadcasting's business in particular. Audience. Stations compete for audiences on the basis of program -------- popularity, which has a direct effect on advertising rates. A majority of the daily programming on network-affiliated stations is supplied by the network with which such stations are affiliated. During periods of network programming, the stations are totally dependent upon the performance of the network programs in attracting viewers. The competition between the networks is intense and the success of any network's programming can vary significantly over time. Each station competes in non-network time periods on the basis of the performance of its programming during such time periods, using a combination of self-produced news, public affairs and other entertainment programming that each station believes will attract viewers. The competition between stations in non-network time periods is intense and here, too, success can vary over time. Fisher Broadcasting's stations compete for television viewership share against local network-affiliated and independent stations, as well as against cable and alternate methods of television distribution. These other transmission methods can increase competition for a station by bringing into its market distant broadcasting signals not otherwise available to the station's audience, and also by serving as a distribution system for non-broadcast programming originated on the cable system. Historically, cable operators have generally not sought to compete with broadcast stations for a share of the local news audience. To the extent cable operators elect to do so, the increased competition for local news audiences could have an adverse effect on Fisher Broadcasting's advertising revenues. Other sources of competition for Fisher Broadcasting's television stations include home entertainment systems (including video cassette recorder and playback systems, videodisks and television game devices), Internet, multipoint distribution systems, multichannel-multipoint distribution systems, wireless cable and satellite master antenna television systems. Fisher Broadcasting's stations also face competition from high-powered, direct broadcast satellite services which transmit programming directly to homes equipped with special receiving antennas or to cable television systems for transmission to their subscribers. Fisher Broadcasting competes with these sources of competition both on the basis of service and product performance (quality of reception and number of channels that may be offered) and price (the relative cost to utilize these systems compared to television viewing). Programming. Competition for non-network programming involves negotiating ----------- with national program distributors, or syndicators, which sell first-run and rerun packages of programming. Fisher Broadcasting's stations compete against in-market broadcast stations for exclusive access to off-network reruns and first-run product. Cable systems generally do not compete with local stations for programming, although various national cable networks continue to acquire programs that would have otherwise been offered to local television stations. Advertising. Advertising rates are based upon the size of the market in ----------- which a station operates, a program's popularity among the viewers an advertiser wishes to attract in that market, the number of advertisers competing for the available time, the demographic make-up of the market served by the station, the availability of alternative advertising media in the market area, the presence of aggressive and knowledgeable sales forces, and the development of projects, features and programs that tie advertiser messages to programming. Advertising rates are also determined by a station's overall ability to attract viewers in its market, as well as the station's ability to attract viewers among particular demographic groups that an advertiser may be targeting. Fisher Broadcasting's stations compete for advertising revenues with other television stations in their respective markets, as well as with other advertising media, such as newspapers, radio, magazines, outdoor advertising, transit advertising, yellow page directories, direct mail and local cable systems. In addition, another source of revenue is paid political and advocacy advertising, the amount of which fluctuates significantly, particularly being higher in national election years and very low in years in which there is little election or other ballot activity. Competition for advertising dollars in the television broadcasting industry occurs primarily within individual markets on the basis of the above factors as well as on the basis of advertising rates charged by competitors. Generally, a television broadcasting station in one market area does not compete with stations in other market areas. Fisher Broadcasting's television stations are located in highly competitive markets. 5 Network Affiliations Two of Fisher Broadcasting's television stations are affiliated with the ABC Television Network, nine (including 50% owned KPIC TV) are affiliated with the CBS Television Network and two are affiliated with the Fox Television Network. The stations' affiliation agreements provide each station the right to broadcast all programs transmitted by the network with which they are affiliated. In return, the network has the right to sell most of the advertising time during such broadcasts. Each station, except the Fox affiliates, receives a specified amount of network compensation for broadcasting network programs. To the extent a station's preemption of network programming exceeds a designated amount, such compensation may be reduced. The payments are also subject to decreases by the network during the term of the affiliation agreement under other circumstances, with provisions for advanced notice. Fisher Broadcasting's ABC affiliation agreements for KOMO TV and KATU expire in 2004. The CBS affiliation agreements for KIMA TV, KEPR TV, KLEW TV, KVAL TV, KCBY TV, KPIC TV, KBCI TV, KIDK TV and KJEO TV expire in 2006. The Fox affiliation agreements for WXTX TV and WFXG TV expire in 2001. Although Fisher Broadcasting expects to continue to be able to renew its affiliation agreements with ABC, CBS and Fox, no assurance can be given that such renewals will be obtained. Also, the networks are seeking to modify the terms of their contracts with affiliates. It is uncertain how the nature of network-affiliate relations will change in the future. The non-renewal or modification of one or both of those agreements could harm Fisher Broadcasting's results of operations. KOMO TV, Seattle, Washington Market Overview. KOMO TV, an ABC affiliate, operates in the Seattle-Tacoma --------------- market, the 12/th/ largest DMA in the nation, with approximately 1.6 million television households and a population of approximately 3.94 million. In 1999, approximately 74% of the population in the DMA subscribed to cable. Major industries in the market include aerospace, manufacturing, biotechnology, forestry, telecommunications, software, dot-com, transportation, retail and international trade. Major employers include Microsoft, Boeing, Safeco, Paccar, Nintendo, and Weyerhaeuser. In 1999 television advertising revenue for the Seattle-Tacoma DMA was nearly $329 million, as reported by Miller, Kaplan, Arase & Co., an accounting firm that provides the television industry with revenue figures. Station Performance. KOMO TV had an average audience share of 14.3%, 6 ------------------- a.m. - 2 a.m. during 1999. KOMO TV ranked second in its market in 1999, 6 a.m.- 2 a.m., among six competitors (Nielsen Media Research average ratings Feb-Nov, 1999). Fisher Broadcasting believes that KOMO TV has established a strong local presence in the Seattle-Tacoma market through the station's community involvement, local news operation and local non-news programming. KOMO TV broadcasts 30.5 hours per week of scheduled live local news programs. KOMO News 4 has been recognized for excellence by the National Association of Broadcasters, the Radio and Television News Directors' Association, the National Association of Television Arts and Sciences and other organizations that present broadcasting awards. KOMO TV broadcasts from its studios in Seattle. During the second quarter of 2000 it is anticipated that KOMO TV will move into new studios being constructed in the Fisher Plaza project. See Note 12 to the consolidated financial statements for information on the Fisher Plaza project. KATU Television, Portland, Oregon Market Overview. Portland, Oregon ranks as the 23rd largest DMA in the --------------- nation, with a population of approximately 2.5 million and approximately 1 million television households. Approximately 63% of Portland's population subscribed to cable in 1999. Portland maintains a balanced economy based upon services, wholesale/retail and manufacturing. Major employers include mass retail merchants and grocery store chains, health systems banking and high- technology companies. These employers include Fred Meyer, Albertson's, Inc., Wall Mart Stores, Intel, Providence Health System, Safeway Stores, Inc., Barrette Business Services, Inc., US Bank, Hewlett-Packard Company, Tektronix, Inc., Nike, Inc., as well as the United States Government and the State of Oregon. Station Performance. KATU, an ABC affiliate, had an average audience share ------------------- of 15% during 1999, 6 a.m. - 2 a.m. KATU ranked first in its market in 1999, 6 a.m. - 2 a.m., among six competitors (Nielsen Median Research). KATU currently broadcasts 32.5 hours per week of scheduled live local news programs. The station has won numerous awards for excellence and has a strong commitment to public affairs and local interest programming. KATU operates from studios in the city of Portland. 6 Fisher Television Regional Group KJEO TV, Fresno-Visalia, California Market Overview. Fresno-Visalia, California ranks as the 54th largest DMA --------------- in the nation, with a population of approximately 1.5 million and approximately 511,000 television households. Approximately 51% of Fresno's population subscribed to cable in 1999. Fresno's economy is primarily based upon agriculture production and related agricultural services and manufacturing. Major employers include companies such as Pacific Bell, Pacific Gas & Electric, Grundfos Pumps, Vendo, Foster Farms, Zacky Farms, and the regional government center of the Internal Revenue Service. Station Performance. KJEO TV, a CBS affiliate, had an average audience ------------------ share of 10% during the November 1999 rating period, 6 a.m. - 2 a.m. The station ranked fifth in its market in 1999, 6 a.m. - 2 a.m., among ten competitors (Nielsen Media Research). KJEO TV currently broadcasts 27 hours per week of scheduled live local news programs. The station has won numerous awards for excellence including the prestigious Edward R. Murrow Award. KJEO TV has a strong commitment to public affairs, as indicated by the National Society of Fund Raising Executives selecting KJEO TV as the 1999 Outstanding Philanthropic Organization, of the Central Valley. KJEO TV operates from studios in the city of Fresno. WFXG TV, Augusta, Georgia Market Overview. Augusta, Georgia ranks as the 115/th/ DMA in the nation ---------------- with a population of approximately 598,000 and approximately 228,000 television households. Approximately 65% of Augusta's DMA population subscribed to cable in 1999. Augusta is the second largest metropolitan area in Georgia. Major employers include Fort Gordon, the largest U.S. Signal Training facility; the Medical College of Georgia; Textron; John Deere; Savannah River Site and EZ-Go Golf Carts. Station Performance. WFXG TV, a Fox affiliate, had an average audience -------------------- share of 9% during 1999, 6 a.m. - 2 a.m. WFXG TV ranked first in its market in May 1999 during the 8 - 10 p.m. time period with adults 18 - 49 and was a member of the Fox #1 Club. (Nielsen Media Research). WFXG TV is committed to community affairs, not only with Kids Club, but also with the Red Cross, Ronald McDonald House and various other organizations. WFXG operates from studios in the city of Augusta. /1/KVAL TV+ (KVAL TV, KCBY TV, KPIC TV) Eugene, Coos Bay and Roseburg, Oregon Market Overview. Eugene/Springfield, Oregon ranks as the 122/nd/ largest DMA in the nation, with a population of approximately 550,000 and approximately 209,000 television households. This DMA includes Eugene, Springfield, Roseburg and Coos Bay, Oregon. Approximately 62% of the DMA population subscribed to cable in 1999. The economy of the Eugene/Springfield market has a diversity ranging from forest industry, agriculture, high-tech manufacturing - with tandem industries focusing on packaging, to tourism and the fishing industry. This DMA also has the economic benefit of having the University of Oregon in Eugene and Oregon State University in Corvallis, Oregon, forty miles to the north . Station Performance. KVAL+, CBS affiliates, had an average 6 a.m. - 2 a.m. audience share of 19% during 1999. It ranked first 6 a.m. - 2 a.m., among five competitors. (Nielsen Media Research) KVAL+ broadcasts 17 hours of live local news per week. KVAL+ has a long tradition of providing its local markets with award winning news, public affairs programming and information. The KVAL TV studios are located one mile outside the city of Eugene, Oregon. The studio facility for KPIC TV is located in the city of Roseburg, Oregon and the studio facilities for KCBY TV are located in the city of Coos Bay, Oregon. ______________________________ /1/ KVAL TV+ is a designation used by Fisher Broadcasting to identify the primary station KVAL TV and its satellites KCBY TV and KPIC TV that serve the Eugene/Springfield DMA). 7 /2/ KIMA TV+ (KIMATV, KEPR TV, KLEW TV), Yakima and Tri-Cities, Washington and Lewiston, Idaho Market Overview. The Yakima-Pasco-Richland and Kennewick DMA ranks as the ---------------- 124/th/ largest DMA in the nation, and has a population of approximately 527,000 and approximately 200,000 television households. Approximately 62% of the three station coverage area subscribed to cable in 1999. The KIMA+ market has an agriculture/food processing based economy, diversified with the nuclear technology/government, manufacturing, wholesale/retail trade, service and tourism industries. Major employers include food processors, such as Tree Top, Lam-Weston and Iowa Beef, as well as manufacturers such as Boise Cascade and Potlatch Corp. Other major employers are Washington Public Power Supply System, Siemens Power Corp. and the Department of Energy. Station Performance. KIMA TV+, CBS affiliated stations, had an average -------------------- household audience share of 13% during 1999, 6 a.m. - 2 a.m. and was ranked second among four competitors. KIMA TV+ currently broadcasts 17 hours per week of scheduled live local news programs. KIMA TV+ has a strong commitment to public affairs and local interest programming. KIMA TV+ operates from studios in Yakima and Pasco, Washington and Lewiston, Idaho. KBCI TV, Boise, Idaho Market Overview. Boise, Idaho ranks as the 125/th/ largest DMA in the --------------- nation, with a population of approximately 518,000 and approximately 200,000 television households. Approximately 48% of the Boise DMA population subscribed to cable in 1999. Boise is the state capitol and regional center for business, government, education, health care, and the arts. Boise maintains a balanced economy based upon services, wholesale/retail, manufacturing, agriculture, and government. Major employers include high technology companies such as Micron Technology and its subsidiaries (headquarters), Hewlett-Packard Company, micronpc.com and its subsidiaries (headquarters), and ZiLOG, as well as JR Simplot Company (headquarters), Albertson's (headquarters), Sears Regional Credit Card Operations Center, St. Luke's Regional Medical Center, St. Alphonsus Regional Medical Center, Boise Cascade (headquarters), Morrison Knudson (headquarters), Mountain Home Air Force Base, Idaho State Government, and United States Government. Station Performance. KBCI TV, a CBS affiliate, had an average audience ------------------- share of 13% in 1999, 6 a.m. - 2 a.m. KBCI ranked second in its market in 1999, 6 a.m. - 2 a.m. among five commercial competitors (Nielsen Media Research). KBCI TV currently broadcasts 12 1/2 hours per week of scheduled live local news programs. KBCI TV is the television home of Boise State University men's and women's athletics. The station has won numerous awards for excellence, including "Best Newscast" in 1999, and has a strong commitment to public affairs and local interest programming. KBCI TV operates from studios in the city of Boise. WXTX TV, Columbus, Georgia Market Overview. Columbus, Georgia ranks as the 127/th/ largest DMA in the --------------- nation with a population of approximately 481,000 and approximately 190,000 television households. According to Nielsen Media Research, 74% of the population in the Columbus DMA subscribed to cable in 1999. A large component of the Columbus economy is based upon textile manufacturing and services. Major employers include Fort Benning, the Muscogee County School System and the University System, as well as two Fortune 500 companies, AFLAC and SYNOVUS. Station Overview. WXTX TV, a Fox affiliate, had an average audience share ---------------- of 8% during 1999, 6 a.m. - 2 a.m. The station ranked first in two out of four rating periods in the market during 1999 between 8 pm to 10 pm, Monday through Sunday with adults 18-49 (Nielsen Media Research). This distinction garnered WXTX TV #1 club status among Fox affiliates in the nation for out-performing the other three affiliates in the local market. WXTX TV has a strong commitment to public affairs demonstrated by community service campaigns such as "Fox Faces of the Future," that address the issues and meet the needs of the community. WXTX TV operates from a studio located in the city of Columbus. KIDK TV, Idaho Falls, Idaho Market Overview. The Idaho Falls-Pocatello market ranks as the 166/th/ DMA ---------------- in the nation with a population of approximately 300,000 people. The November 1999 Nielsen Rating book reported 103,840 television households and approximately 56% of that population subscribed to cable. The Idaho Falls- Pocatello DMA consists of 15 counties located in Eastern Idaho and Western Wyoming. Pocatello and Idaho Falls are the second and third largest cities in Idaho and the two __________________________ /2/ KIMA+ is a designation used by Fisher Broadcasting to identify the primary station KIMA TV and its satellites KEPR TV and KLEW TV that serve the Yakima DMA/NSI (Nielsen Station Index). 8 largest cities in the DMA. Bechtel Inc. is the biggest employer in the region. Other industries in the area include agriculture, with the potato and grain industry and the commercial fertilizers industry, food processing, tourism, and small manufacturing. Major employers include Melaleuca Inc., J. R. Simplot Companies, FMC Corp., Idaho State University, and Ricks College. Station Performance. KIDK TV, a CBS affiliate, had an average audience -------------------- share of 14% during 1999, 6 a.m. - 2 a.m. KIDK ranked second in its market in 1999, 6 a.m. - 2 a.m., among four competitors according to Nielsen Media Research. KIDK TV currently broadcasts 14 hours per week of scheduled live local news programs. The staff at KIDK TV has won a number of awards and they are very involved in the local communities. KIDK TV operates from the main studio in Idaho Falls, Idaho and also operates an office in Pocatello for the News department and Sales staff. They are connected by microwave link and broadcast daily live news reports from the Pocatello studio. Digital/High Definition Television In January 1997, KOMO ABC 4 made history by becoming the first television station West of the Mississippi to transmit High Definition Digital Television. These transmissions took place over several days and were witnessed by several civic and industry leaders from throughout the Northwest. This milestone was made possible by on-site cooperative efforts of LARCAN Inc., Zenith Electronics Corporation, DiviCom Inc., Dielectric Communications, and the KOMO ABC 4 Engineering Department. Finding a way to transmit vast amounts of information in the same size channel (6 MHz) as the current analog standard television system proved to be quite a challenge. The new Digital Television ("DTV") standard, developed after years of research by the broadcast and electronics design community and approved by the FCC in December 1996, was the breakthrough that made such transmission possible. DTV brings with it three major changes to the way viewers experience television. First, DTV sets display pictures using a rectangular, wide-screen format, as opposed to the nearly square screens used by current analog TV sets. (In technical terms, this means DTV screens use a "16 by 9" aspect ratio while current analog TV sets use a "4 by 3" aspect ratio. Aspect ratio is the ratio of screen width to screen height.) Because of this new screen shape, watching programs on digital TV sets will be more like watching a movie at the theater, giving more life-like images and allowing the viewer to feel more involved in the action on screen. Second, DTV delivers 6 channels of CD-quality, digital surround sound using the same Dolby Digital technology heard in many movie theaters. Third, DTV can deliver high definition pictures with crisp, photographic quality, and greatly enhanced detail. KOMO began transmitting Standard Definition Digital Television signals on KOMO-DT Channel 38, 24 hours a day, for experimental test purposes during Spring 1998. KATU transmitted its first digital signals on KATU-DT Channel 43 during November 1998, which also marked the first High Definition broadcasts by ABC with the airing of feature length films. Both KOMO-DT and KATU-DT began transmitting digital signals before the FCC's required November 1, 1999 "DTV" start-of-service date. During Fall and Winter of 1998-99 KOMO engineers and consultants recorded test measurements of the KOMO channel 38 digital signal from 400 locations throughout the Puget Sound region. The results of these tests have been compiled and have provided information about digital signal coverage over hilly terrain. The test results will assist KOMO engineers to verify antenna performance. This information, along with similar tests conducted around the country by other broadcasters, will also help manufacturers design receivers that are capable of handling the reflection and ghosting characteristics of digital television signals. Both KOMO and KATU currently digitize and up-convert normal programming and pass through the ABC digital signals. Initially, KOMO operated its digital facility at reduced power under special experimental authority. Under current regulations, the FCC first issues a construction permit which authorizes a station to construct and commence program test operation of new digital facilities, and upon submission of an application demonstrating that the facility has been constructed in accordance with the construction permit, issues a formal license for the new facilities. KOMO was granted a construction permit authorizing its new full power digital facilities. Construction has been completed, and the new facilities are now in full power operation pursuant to program test authority. KOMO has been advised by its engineering staff that it has complied with all conditions of its FCC authorization, and its request for a license is pending before the FCC. KOMO management knows of no reason why its pending license application will not be granted in due course. KATU is presently operating at reduced power levels pending completion of a shared use tower currently under construction in Portland, Oregon. KATU is one of four members in the Sylvan Tower LLC that is constructing the tower, currently anticipated to be complete in the second quarter of 2000. Production and switching equipment necessary to generate local programming in high definition is planned to be added. However the speed with which this equipment is installed will depend on several 9 factors. First, the new equipment is just now becoming available from vendors. Second, a determination must be made as to the cost vs. technical performance of first generation equipment. Finally, the ultimate success of the conversion to digital television will depend on public acceptance and willingness to buy new digital television sets. Unless initial consumers embrace digital television and purchase enough units to cause home receiver prices to decline, the general public may not switch to the new technology, delaying or preventing its ultimate economic viability. On May 19, 1999, KOMO TV broadcast its 5 p.m. newscast in HDTV, the first time in the world a daily newscast was presented in HDTV (Sony Corporation). Since that time, KOMO TV has produced all of its news broadcasts simultaneously in HDTV on DT Channel 38 and in analogue on VHF Channel 4. On February 16, 2000, KOMO TV began to photograph, edit and broadcast all of its locally produced news field segments in digital 16:9 (widescreen) DTV format. Engineers at the station invented and constructed an automatic switching system in conjunction with a signal and aspect ratio conversion to allow for simultaneous presentation of the field material in 4:3 analogue on Channel 4 and 16:9 digital on Channel 38. KOMO TV has been recognized in national trade publications, including Broadcasting and Cable, Electronic Media, Digital Television, and Emmy Magazine, for its leadership in digital broadcasting. KOMO TV anticipates that it will begin broadcasting from its new studio building during the second quarter of 2000. The new facility is being designed for digital television production, and equipment purchases are being conditioned upon future compatibility with Fisher Broadcasting's digital broadcasting plans. KATU anticipates that it will equip its studios for digital program origination as the public begins purchasing digital receivers in large enough quantities to justify the transition. KATU will continue its migration to digital technology and program origination as local market receiver penetration increases, and the leveraging and learning opportunities from KOMO TV's digital conversion are fully realized. In September of 1999, KOMO TV installed the Electronic News and Production System (ENPS), a content creation and distribution product that will eventually link Fisher's broadcast facilities and provide a common archive and sharing of news material. ENPS also delivers content produced by KOMO TV to other digital media, including wireless phones. Management believes that KOMO TV was one of the first television stations in the world to embrace ENPS, which was designed at the British Broadcasting Corporation and the Associated Press. Forward Looking Statements The discussion above under "KOMO TV, Seattle, Washington" regarding construction of the new broadcasting facility for Fisher Broadcasting and all of the discussion regarding Fisher Broadcasting plans for conversion to HDTV include certain "forward looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995 (the "PLSRA"). This statement is included for the express purpose of availing the Company of the protections of the safe harbor provisions of the PLSRA. Management's ability to predict results or the effect of future plans is inherently uncertain, and is subject to factors that may cause actual results to differ materially from those projected. With respect to the planned move to new studio facilities in the Fisher Plaza, such factors could include unanticipated construction costs or delays in construction in connection with the building and parking facility, and delays or additional costs associated with the new equipment necessary to transmit a digital/high definition signal, as discussed below. RADIO General Overview Commercial radio broadcasting began in the United States in the early 1920s. There are a limited number of frequencies available for broadcasting in any one geographic area. The license to operate a radio station is granted by the FCC. There are currently two commercial radio broadcast bands, each of which employ different methods of delivering the radio signal to radio receivers. The AM band (amplitude modulation) consists of frequencies from 550 kHz to 1700 kHz. The FM (frequency modulation) band consists of frequencies from 88.1 MHz to 107.9 MHz. Radio listeners have gradually shifted over the years from AM to FM stations. Stations on the FM band are generally considered to have a competitive advantage over stations that broadcast on the AM band. FM reception is generally clearer than AM and provides greater tonal range and higher fidelity. Music formats that appeal to the younger demographics desired by the majority of advertisers are found almost exclusively on the FM band because of the disparity in the quality of reception. A radio station on the FM band, therefore, has an abundance of choices in format while AM stations tend to be limited to either spoken word formats or musical formats that appeal to adults 55 years of age and older. 10 Nationally, the FM listener share is now in excess of 75%, and approximately 56% of all commercial stations are on the FM band. Radio station revenues are derived almost exclusively from local, regional and national advertising. Radio stations generally employ a local sales force to call on local and regional advertisers and contract with a national firm to represent business from outside the market and/or region. Both sales forces are generally compensated by way of a commission on advertising time sold. Because radio stations rely on advertising revenues, they are sensitive to cyclical changes in the economy as well as the quality of the sales force. Radio is generally viewed as a highly targetable medium for advertisers. Radio stations are generally classified by their format, such as country, alternative, rock, news/talk, adult contemporary or oldies. A station's format and style of presentation enable it to target certain demographics. By capturing a specific audience share of a market's radio listeners, a station is able to market its broadcasting time to advertisers seeking to reach a specific audience. Most of a radio station's programming is produced locally, although syndicated or network programs contribute to many stations daily and weekly programming line-ups. These programs are obtained with either cash payments, barter agreements for air time on the station, or a combination of both. However, the emphasis on local programming provides radio stations with maximum flexibility in programming, retention of nearly its entire commercial inventory, and the revenue from sale of that time. Through the early 1970s, a handful of AM radio stations in each market dominated the listening shares. The rise of FM listening, brought about by an industry standard for FM stereo broadcast, essentially doubled the number of viable competitors in each market. In the early and mid-1980s, the FCC awarded additional FM signals to many communities, and a number of broadcasters moved the signals of suburban or rural stations closer to major metropolitan areas, to better cover the larger markets. In the early 1990s, the FCC expanded the AM band to 1700 kHz. The result of these increases in the number of viable competitors has been a significant decline in the listening shares reasonably available to the average radio station. By the late 1980s, the Radio Advertising Bureau estimated that one-third of all licensees were losing money. This, in part, led the FCC to relax its ownership regulations on radio stations and led to the creation of duopolies (ownership of more than one AM or FM station in a given market). The Telecommunications Act of 1996 further eased radio station ownership regulations governing multiple ownership (see "Broadcasting Operations - Licensing and Regulation Applicable to Television and Radio Broadcasting -Multiple Ownership Rules and Cross-Ownership Restrictions"). The common ownership of multiple stations in a single market allows for more aggressive marketing and can drive up the cost per rating point in such market. Further advances in technology may increase competition for radio listening shares. New media technologies, such as the delivery of audio programming by satellite, the internet, micro radio, digital audio broadcasting ("DAB") and cable television systems, are either in use currently or in development. Historically, the radio broadcasting industry has grown despite the introduction of new technologies for the delivery of entertainment and information, such as broadcast television, cable television, audio tapes and compact discs. A growing population and greater availability of radios, particularly car and portable radios, have contributed to this growth. There can be no assurance, however, that the development or introduction in the future of any new media technology will not have a material adverse effect on the radio broadcasting industry. The FCC has authorized the use of DAB to deliver audio programming direct from satellite. The Commission is also reviewing a proposal to allow In-Band-On- Channel DAB by existing radio broadcasters. This new technology would allow digital broadcasting by existing radio stations on their existing AM or FM frequencies. Because digital broadcasting is of a high quality, the adoption of proposed rules to allow this technology may increase the value of AM radio stations, by allowing them to broadcast a higher quality audio signal, more closely at parity with FM signals. Competition In recent years, a few companies have acquired large numbers of radio stations. Some of these companies syndicate radio programs or own networks whose programming is aired by Fisher Broadcasting's stations. Some of these large companies also operate radio stations in markets in which Fisher Broadcasting operates, and have much greater overall financial resources available for their operations. Competition in the radio industry, including each of the markets in which Fisher Broadcasting's radio stations compete, takes place primarily on three levels: competition for audience, competition for staff, and competition for advertisers. Additional significant factors affecting a radio station's competitive position include assigned frequency and signal strength. Another factor is competition for programming. The radio broadcasting industry is continually faced with technological change and innovation, the possible rise in popularity of competing entertainment and communications media, 11 as well as governmental restrictions or actions of federal regulatory bodies, including the FCC and the Federal Trade Commission, any of which could have a material adverse effect on the broadcasting business. Audience. Fisher Broadcasting's radio stations compete for audience on the -------- basis of programming popularity, which has a direct effect on advertising rates. As a program or station grows in ratings (percentage of total population reached), the station is capable of charging a higher rate for advertising. Formats, stations and music in major markets are highly researched through large-scale perceptual studies, auditorium-style music tests and weekly call- outs. All are designed to evaluate the distinctions and unique tastes of formats and listeners. In the early days of radio, and until the mid to late 1960s, many stations programmed a variety of elements to attract larger shares of audience. In today's competitive market, new formats and audience niches have created very targeted advertising vehicles and programming that is highly focused and tightly regulated to appeal to a narrow segment of the population. Formats in one market targeting similar audiences with slight variances in demographic appeal may be Classic Rock, Alternative Rock, Adult Album Alternative, and/or Album-Oriented- Rock. Tactical and strategic plans are utilized to attract larger shares of audience through marketing campaigns and promotions. Marketing campaigns through television, transit, outdoor, telemarketing or direct mail advertising are designed to improve a station's cume audience (total number of people listening) while promotional tactics such as cash giveaways, trips and prizes are utilized by stations to extend the TSL (time-spent-listening), which works in correlation to cume as a means of establishing a station's share of audience. In the effort to increase audience, the format of a station may be changed. Format changes can result in increased costs and create other difficulties which can harm the performance of the station. Fisher Broadcasting has experienced this effect. Advertising. Advertising rates are based upon the number and mix of media ----------- outlets, the audience size of the market in which a radio station operates, the total number of listeners the station attracts in a particular demographic group that an advertiser may be targeting, the number of advertisers competing for the available time, the demographic make-up of the market served by the station, the availability of alternative advertising media in the market area, the presence of aggressive and knowledgeable sales forces and the development of projects, features and programs that tie advertisers' messages to programming. Fisher Broadcasting's radio stations compete for revenue primarily with other radio stations and, to a lesser degree, with other advertising media such as television, cable, newspaper, yellow pages directories, direct mail, and outdoor and transit advertising. Competition for advertising dollars in the radio broadcasting industry occurs primarily within the individual markets on the basis of the above factors, as well as on the basis of advertising rates charged by competitors. Generally, a radio station in one market area does not compete with stations in other market areas. Staff. There is also competition for radio staff. The loss of key staff, ----- including key management, on-air personalities and sales staff, to competitors can, and in some instances has, significantly and adversely affected revenues and earnings of individual Fisher Broadcasting stations. Seattle Radio Market Introduction. Seattle, Washington is the 14th largest continuously rated ------------ radio metropolitan area in the nation (Arbitron Co.). The Seattle radio market has 20 FM and 31 AM stations licensed to the metro area according to the NAB (National Association of Broadcasters) Year Book. Fisher Broadcasting has owned and operated KOMO-AM since December 31, 1926 when the station signed on the air. When changes to FCC regulations allowed multiple station ownership in one market, Fisher Radio Seattle was formed, and Fisher Broadcasting purchased the assets of KVI-AM and KPLZ-FM. Since then, the staffs of all three stations and many operating functions have been consolidated into one facility in downtown Seattle. Station personnel work side-by-side to maximize available resources and to create program and sales successes. In addition, fiber optic links between the radio and television facilities allow resources to be shared with KOMO TV. A more detailed description of Fisher Broadcasting's Seattle radio stations is set forth below. KOMO-AM [1000 kHz / 50 kW (day/night), Affiliation: ABC Information ------- Network]. KOMO-AM, known as "KOMO News/Talk 1000," is one of the United States' heritage 50,000 watt radio stations. The station was ranked 13/th/ in the market in 1999 among 51 competitors with a 3.4% share of listening among Persons 12+, Monday-Sunday, 6:00 a.m. to 12 midnight, according to the Arbitron Company (four-book average). The station's primary target audience is Adults 35-54. KOMO News/Talk 1000 programs a combination of news and talk, featuring a variety of information services such as hourly news, weather, traffic, sports and talk programs concerning local and national news issues. KOMO is also the home of University of Washington Husky Sports. KVI-AM [570 kHz / 5 kW (day/night), Affiliation: ABC Entertainment ------ Network]. KVI-AM is known as "Talk Radio 570-KVI." During 1999, KVI was a leading talk radio station in Seattle, and ranked tenth overall among the 51 12 competitors in the market with a 4.0% share of listening among Persons 12+, Monday-Sunday, 6:00 a.m. to 12 midnight (Arbitron Co. four-book average). The station is a mixture of local talk programming featuring local and national hosts. While KVI and KOMO are complimentary formats, they maintain unique identities and format niches in the market. KPLZ-FM [101.5 MHz / 100 kW, Affiliation: Independent]. KPLZ-FM is known ------- as "Star 101.5," playing a mix of music from the 80s, 90s and today. During 1999, the station was tied for eleventh in the market with a 3.9% share of listening among Persons 12+, Monday-Sunday, 6:00 a.m. to 12 midnight (Arbitron Co. four-book average). Portland Radio Market Introduction. Portland, Oregon is the 25/th/ largest radio metropolitan ------------ area in the nation (Arbitron Co.). The FCC has licensed 14 FM and 26 AM stations in the Portland radio metro area according to the NAB (National Association of Broadcasters) Year Book. KOTK AM [1080 kHz / 50 kW (day), 10 kW (night), Affiliation: CNN]. KOTK-AM ------- is known as "Hot Talk 1080 KOTK." During 1999, KOTK-AM was the 17/th/ ranked radio station in the market, with a 1.6% share of listening Persons 12+, Monday- Sunday, 6:00 a.m. to 12:00 midnight, according to the Arbitron Company (four- book average). The station programs locally and nationally originated talk programming on contemporary topics. KOTK is also the home of University of Portland college basketball and University of Washington college football. KWJJ FM [99.5 MHz/52 kW, Affiliation: Independent]. During 1999, KWJJ-FM -------- was the eighth-ranked radio station in the Portland market, with a 4.7% share of listening Persons 12+, Monday-Sunday, 6:00 a.m. to 12:00 midnight, according the Arbitron Company (four-book average). KWJJ-FM plays country music from the past twenty years to today. Medium- and Small-Market Radio Operations Through Fisher Radio Regional Group Inc., Fisher Broadcasting operates radio stations in five small and medium markets in the northwestern United States. Fisher Radio Regional Group Inc. is the leading radio broadcaster in Montana, with a total of 16 radio stations and one construction permit in the four largest markets in the state. Additionally, Fisher Radio Regional Group Inc. owns five radio stations that serve the Wenatchee market, a market of approximately 55,000 people in the center of Washington State. Fisher Radio Regional Group Inc. has sought to acquire under-performing stations in small and medium markets at cash flow multiples that are considerably lower than in larger markets. The relaxation of federal multiple ownership rules has led Fisher Radio Regional Group Inc. to expand its holdings within its existing markets. The resulting synergy allows Fisher Radio Regional Group Inc. to better serve its communities while enjoying some economies of scale. 13 The following table sets forth general information for each of Fisher Radio Regional Group Inc.'s stations and the markets they serve.
# of Audience Listening Market Revenue ------------------- ----------------------- Commercial Radio Stations Dial in the Rank in Station Station Market Station Position Power Market Market/3/ Share Share/4/ $ (000's) Format - ------------------------------------------------------------------------------------------------------------------------------- Billings, MT 15 $ 5,800 KRKX 94.1 FM 100 kW 1 16.7% 16% Classic Rock KYYA 93.3 FM 100 kW 6 7.8% 10% Adult Contemp KBLG/5/ 910 AM 1 kW 9 4.4% 3% News/Talk KCMT 96.3 FM 100 kW 11 2.2% 4% Country Missoula, MT 9 $ 5,100 KZOQ 100.1 FM 14 kW 1 22.8% 28% Classic Rock KGGL 93.3 FM 43 kW 3 12.9% 22% Country KGRZ 1450 AM 1 kW 9 2.0% 1% Sports/Talk KYLT 1340 AM 1 kW 10 1.0% 1% Oldies KXDR/6/ 98.7 FM 100 kW 3% Adult Contemp Great Falls, MT 9 $ 3,200 KAAK 98.9 FM 100 kW 1 32.7% 22% Adult Contemp KQDI FM 106.1 FM 100 kW 2 14.5% 21% Classic Rock KXGF 1400 AM 1 kW 6 3.6% 2% Pop Standard KQDI AM 1450 AM 1 kW 8 1.8% 2% News/Talk Butte, MT 5 $ 1,900 KMBR 95.5 FM 50 kW 1 25.0% 26% Classic Rock KAAR 92.5 FM 4.5 kW 4 11.1% 29% Country KXTL 1370 AM 5 kW 5 3% Oldies/Talk Wenatchee, WA 9 $ 3,200 KWWW/7/ 96.7 FM .4 kW 4 10.1% 15% Adult Contemp KZPH/8/ 106.7 FM 3 kW 5 9.6% 10% Classic Rock KYSN/9/ 97.7 FM 3 kW 6 9.0% 20% Country KAAP/10/ 99.5 FM 5 kW 7 4.9% 6% Soft Adult Contemporary KWWX 1340 AM 1 kW 9 .2% 8% Spanish
___________________________ /3/ Ratings information in the above chart refers to average-quarter hour share of listenership among total persons, Adults 25-54, Monday through Sunday, 6 a.m. to midnight, and is subject to the qualifications listed in each report. Sources: Billings, Montana: Arbitron Ratings, Spring, 1999 Billings Market Report Missoula, Montana: Arbitron Ratings, Spring, 1999, Missoula Market Report Great Falls, Montana: Arbitron Ratings, Spring, 1999, Great Falls Market Report Butte, Montana: Arbitron Ratings, Spring, 1999 County Coverage Study, Silver Bow County, Montana Wenatchee, Washington: Eastlan Resources Audience Measurement, Fall, 1999, Wenatchee Market Report /4/ Management estimate. /5/ KBLG's power is 1,000 watts days, 63 watts nights. /6/ KXDR is licensed to the city of Hamilton, Montana. It signed on the air July 16, 1999. No ratings are yet available for the station. Market revenue share figures reflect 5-1/2 months' revenue. /7/ KWWW is licensed to the city of Quincy, Washington /8/ KZPH is licensed to the city of Cashmere, Washington /9/ KYSN is licensed to the city of East Wenatchee, Washington, Washington /10/ KAAP is licensed to the city of Rock Island, Washington 14 LICENSING AND REGULATION APPLICABLE TO TELEVISION AND RADIO BROADCASTING The following is a brief discussion of certain provisions of the Communications Act of 1934, as amended (the "Communications Act"), most recently amended by the Telecommunications Act of 1996 (the "Telecommunications Act"), and of FCC regulations and policies that affect the television and radio broadcasting business conducted by Fisher Broadcasting. Reference should be made to the Communications Act, FCC rules and the public notices and rulings of the FCC, on which this discussion is based, for further information concerning the nature and extent of FCC regulation of television and radio broadcasting stations. License Renewal, Assignments and Transfers Broadcasting licenses for both radio and television stations are currently granted for a maximum of eight years and are subject to renewal upon application to the FCC. The FCC prohibits the assignment of a license or the transfer of control of a television or radio broadcasting license without prior FCC approval. In determining whether to grant or renew a broadcasting license, the FCC considers a number of factors pertaining to the applicant, including compliance with limitations on alien ownership, common ownership of broadcasting, cable and newspaper properties, and compliance with character and technical standards. During certain limited periods when a renewal application is pending, petitions to deny a license renewal may be filed by interested parties, including members of the public. Such petitions may raise various issues before the FCC. The FCC is required to hold evidentiary, trial-type hearings on renewal applications if a petition to deny renewal raises a "substantial and material question of fact" as to whether the grant of the renewal application would be inconsistent with the public interest, convenience and necessity. The FCC is required to renew a broadcast license if: the FCC finds that the station has served the public interest, convenience and necessity; there have been no serious violations by the licensee of either the Communications Act or the FCC's rules; and there have been no other violations by the licensee which taken together would constitute a pattern of abuse. Additionally, in the case of renewal of television licenses, the FCC considers the station's compliance with FCC programming and commercialization rules relating to programming for children. If the incumbent licensee fails to meet the renewal standard, and if it does not show other mitigating factors warranting a lesser sanction, such as a conditional renewal, the FCC has the authority to deny the renewal application and permit the submission of competing applications for that frequency. Failure to observe FCC rules and policies, including, but not limited to, those discussed herein, can result in the imposition of various sanctions, including monetary forfeitures, the grant of short-term (i.e., less than the full eight years) license renewals or, for particularly egregious violations, the denial of a license renewal application or revocation of a license. While the vast majority of such licenses are renewed by the FCC, there can be no assurance that Fisher Broadcasting's licenses will be renewed at their expiration dates, or, if renewed, that the renewal terms will be for eight years. The expiration date for the licenses of Fisher Broadcasting's television stations in Washington and Oregon is February 1, 2007; Fisher Broadcasting's three television stations in Idaho hold licenses expiring October 1, 2006; the license for Fisher Broadcasting's television station in California expires on December 1, 2006 and the licenses for Fisher Broadcasting's two television stations in Georgia have expiration dates of April 1, 2005. The license terms of Fisher Broadcasting's and Fisher Radio Regional Group's radio stations in Washington and Oregon expire February 1, 2006. The license terms for all of Fisher Radio Regional Group Inc.'s Montana radio stations expire on April 1, 2005. The non-renewal or revocation of one or more of Fisher Broadcasting's FCC licenses could harm Fisher Broadcasting's television or radio broadcasting operations. Multiple Ownership Rules and Cross Ownership Restrictions Attribution: The --------------------------------------------------------------------- FCC generally applies its ownership limits to "attributable" interests held by an individual, corporation, partnership or other association. In the case of corporations holding broadcast licenses, the interests of officers, directors and those who, directly or indirectly, have the right to vote 5% or more of the corporation's stock (or 20% or more of such stock in the case of insurance companies, mutual funds, bank trust departments and certain other passive investors that are holding stock for investment purposes only) are generally deemed to be attributable, as are interests held by officers and directors of a corporate parent of a broadcast licensee. In August 1999, the FCC adopted a new "equity/debt plus" attribution rule, which will make attributable interests of any party that holds a financial interest, whether equity or debt or some combination thereof, in excess of 33% of a licensee's total capital if such holder is either a significant program supplier to the licensee or if such holder has another media interest in the same market. National Television Limits. The FCC has conformed its national television --------------------------- station multiple ownership rules with the Telecommunications Act. Specifically, a single entity may hold "attributable interests" in an unlimited number of U.S. television stations provided that those stations operate in markets containing cumulatively no more than 35% of the television 15 homes in the United States. For this purpose, only 50% of the television households in a market are counted towards the 35% national restriction if the owned station is a UHF station (the "UHF discount"). An FCC rulemaking is under way to address how to measure audience reach, including whether to alter the "UHF discount," as part of the FCC's biennial review of the broadcast rules mandated by the Telecommunications Act. National Radio Limits. At present, the FCC imposes no limits on the number --------------------- of radio stations that may be directly or indirectly owned nationally by a single entity. Local Television Limits. The FCC's local station "multiple ownership" ----------------------- rules formerly provided that a license for a broadcast station would not be granted if the applicant (or a party with an "attributable interest" in the applicant) owned, or had an "attributable interest" in, another station of the same type which covered a similar service area (a "duopoly"). As directed by the Telecommunications Act, the FCC conducted various rulemaking proceedings to determine whether to retain, modify, or eliminate its limitations on the number of television stations that a person or entity may own, operate, or control, or have an "attributable interest" in, within the same television market. Under its previous duopoly regulations, the FCC prohibited ownership interests in television stations with overlapping signals of specified strengths. In August 1999, the FCC released an order to relax this prohibition, permitting, under certain conditions, common ownership of television stations within a common geographic area. Specifically, the FCC modified its rules to allow common ownership of two television stations, regardless of signal contour overlap, as long as each station is a different Designated Market Area ("DMA") (as determined by Nielsen Media Research or any successor entity). The FCC will continue its practice of allowing common television ownership in the same DMA if there is no Grade B contour overlap. The FCC will also now allow common ownership of two television stations in the same DMA as long as eight separately-owned full-power commercial and non-commercial television stations will remain after the transaction to place the two stations under common ownership is completed, provided that at least one of the stations in the transaction is not among the top-four rated stations in the market. In addition, the FCC will consider granting duopoly rule waivers to permit common ownership of two television stations in the same market in cases in which a same-market licensee is the only reasonably available buyer and the station being acquired is either "failed," "failing," or "unbuilt." The FCC will allow a party to own a television station (and a second television station, if otherwise permitted under the new television duopoly rule) along with any of the following radio station combinations in the same market: (i) up to six radio stations (any combination of AM and FM stations that complies with the local radio ownership rule) if at least 20 independent media voices would exist in the market after the transaction creating the television- radio combination; (ii) up to four radio stations (in compliance with local radio ownership rules) if at least 10 independent media voices would exist in the market after the transaction; or (iii) one radio station regardless of the number of independent media voices remaining in the market after the transaction. In those markets where a party owns only one television station and there would be at least 20 independent media voices in the market after the transaction, the FCC will allow common ownership of the television station and seven radio stations (again, in compliance with local radio ownership rules). The FCC will also allow waivers of the radio/TV cross-ownership rule in certain cases in which one of the stations in the proposed transaction is a failed station. Local Radio Limits. The FCC imposes less severe restraints on the control ------------------ or ownership of AM and FM radio stations that serve the same area than are imposed with regard to television stations. Pursuant to the Telecommunications Act, the limits on the number of radio stations one entity may own locally have been increased as follows: (i) in a market with 45 or more commercial radio stations, an entity may own up to eight commercial radio stations, not more than five of which are in the same service (AM or FM); (ii) in a market with between 30 and 44 (inclusive) commercial radio stations, an entity may own up to seven commercial radio stations, not more than four of which are in the same service; (iii) in a market with between 15 and 29 (inclusive) commercial radio stations, an entity may own up to six commercial radio stations, not more than four of which are in the same service; and (iv) in a market with 14 or fewer commercial radio stations, an entity may own up to five commercial radio stations, not more than three of which are in the same service, except that an entity may not own more than 50% of the stations in such market. These numerical limits apply regardless of the aggregate audience share of the radio stations sought to be commonly owned. FCC ownership rules continue to permit an entity to own one FM and one AM station in a local market regardless of market size. Irrespective of FCC rules governing radio ownership, however, the Department of Justice and the Federal Trade Commission have the authority to determine, and in certain radio transactions have determined, that a particular transaction presents antitrust concerns. Moreover, in certain recent cases the FCC has signaled a willingness to independently examine issues of market concentration notwithstanding a transaction's compliance with the numerical radio station limits. The FCC has also indicated that it may propose further revisions to its radio multiple ownership rules. LMAs and JSAs. A number of television and radio stations have entered into ------------- local marketing agreements ("LMAs"). While these agreements may take varying forms, pursuant to a typical LMA separately owned and licensed broadcast television stations agree to enter into cooperative arrangements of varying sorts, subject to compliance with the requirements of antitrust 16 laws and with the FCC's rules and policies. Under these types of arrangements, separately owned stations agree to function cooperatively in terms of programming, advertising sales, etc., subject to the requirement that the licensee of each station maintain independent control over the programming and operations of its own station and assures compliance with applicable FCC rules and policies. One typical type of LMA is a programming agreement between two separately owned broadcast stations serving a common service area, whereby the licensee of one station programs substantial portions of the broadcast day on the other licensee's station, subject to ultimate editorial and other controls being exercised by the latter licensee, and sells advertising time during such program segments. At present, FCC rules permit LMAs, but the licensee of a broadcast station brokering more than 15% of the time on another television station in its market is generally considered to have an attributable interest in the brokered station. Pre-existing television LMAs which do not conform to the FCC's new local television multiple ownership limitations must be terminated by August 5, 2001, unless they were entered into prior to November 5, 1996, in which case they are grandfathered, conditioned on the FCC's 2004 biennial review. During this initial grandfathering period and during the pendency of the 2004 review, these LMAs may continue in full force and effect, and may also be transferred and renewed by the parties, though the renewing parties and/or transferees take the LMAs subject to the review of the status of the LMA as part of the 2004 biennial review. At that time, the Commission will reevaluate these grandfathered television LMAs, on a case-by-case basis, to examine the competition, diversity, equities, and public interest factors they raise and to determine whether these LMAs should continue to be grandfathered. The FCC's rules also prohibit a radio licensee from simulcasting more than 25% of its programming on another station in the same broadcast service (i.e., AM-AM or FM- FM) on a commonly owned station or through a time brokerage or LMA arrangement where the stations serve substantially the same area. Some television and radio stations have entered into cooperative arrangements commonly known as joint sales agreements ("JSAs"). While these agreements may take varying forms, under the typical JSA a station licensee obtains, for a fee, the right to sell substantially all of the commercial advertising on a separately-owned and licensed station in the same market. The typical JSA also customarily involves the provision by the selling licensee of certain sales, accounting, and "back office" services to the station whose advertising is being sold. The typical JSA is distinct from an LMA in that a JSA (unlike an LMA) normally does not involve programming. The FCC has determined that issues of joint advertising sales should be left to enforcement by antitrust authorities, and therefore does not generally regulate joint sales practices between stations. Currently, stations for which a licensee sells time under a JSA are not deemed by the FCC to be attributable interests of that licensee. Cross-Interest Policy. At the time it adopted its "equity/debt plus" --------------------- attribution rule, the FCC eliminated its cross-interest policy, under which the FCC considered certain meaningful relationships among competing media outlets in the same market, even if the ownership rules did not specifically prohibit the relationship, to determine whether, in a particular market, the meaningful relationships between competitors could have a significant adverse effect upon economic competition and program diversity. Television/Cable Cross Ownership. The statutory prohibition against -------------------------------- television station/cable system cross-ownership is repealed in the Telecommunications Act, but the FCC's parallel cross-ownership rule remains in place. The television station/daily newspaper cross-ownership prohibition in the FCC rules was not repealed by the Telecommunications Act. The FCC, however, is conducting a proceeding regarding waivers of that restriction. The Telecommunications Act requires the FCC to review its ownership rules biennially as part of its regulatory reform obligations. If an attributable stockholder of the Company has or acquires an attributable interest in other television or radio stations, or in daily newspapers or cable systems, depending on the size and location of such stations, newspapers, or cable systems, or if a proposed acquisition by the Company or Fisher Broadcasting would cause a violation of the FCC's multiple ownership rules or cross-ownership restrictions, Fisher Broadcasting may be unable to obtain from the FCC one or more authorizations needed to conduct its business and may be unable to obtain FCC consents for certain future acquisitions. Alien Ownership Under the Communications Act, broadcast licenses may not be granted to or held by any foreign corporation, or a corporation having more than one-fifth of its capital stock owned of record or voted by non-U.S. citizens (including a non-U.S. corporation), foreign governments or their representatives (collectively, "Aliens"). The Communications Act also prohibits a corporation, without an FCC public interest finding, from holding a broadcast license if that corporation is controlled, directly or indirectly, by a foreign corporation, or a corporation in which more than one-fourth of the capital stock is owned of record or voted by Aliens. The FCC has issued interpretations of existing law under which these restrictions in modified form apply to other forms of business organizations, including general and limited partnerships. As a result of these provisions, and without an FCC public interest finding, the Company, which serves as a holding company for its television station licensee subsidiaries, cannot have more than 25% of its capital stock owned of record or voted by Aliens. While the Company does not track the precise percentage of stock owned by Aliens at any particular time, it does take steps to confirm 17 continued compliance with these alien ownership restrictions when it files FCC applications for new stations or major changes in its stations. Programming and Operation The Communications Act requires broadcasters to serve the "public interest." Since the late 1970s, the FCC gradually relaxed or eliminated many of the more formalized procedures it had developed to promote the broadcast of certain types of programming responsive to the needs of a station's community of license. Broadcast station licensees continue, however, to be required to present programming that is responsive to community problems, needs and interests and to maintain certain records demonstrating such responsiveness. Complaints from viewers concerning a station's programming may be considered by the FCC when it evaluates license renewal applications, although such complaints may be filed, and generally may be considered by the FCC, at any time. Stations must also follow various FCC rules that regulate, among other things, children's television programming, political advertising, sponsorship identifications, contest and lottery advertising, obscene and indecent broadcasts, and technical operations, including limits on radio frequency radiation. On February 2, 2000, the FCC released the text of a Report and Order, which adopted a new equal employment opportunities ("EEO") rule. The new rule requires broadcast licensees to provide equal opportunity in employment to all qualified persons, and prohibits discrimination against any person by broadcast stations because of race, color, religion, national origin or sex. The EEO rule requires each station to establish, maintain and carry out a positive continuing program of specific practices designed to ensure equal opportunity and nondiscrimination in every aspect of station employment policy and practice. It requires stations to recruit for every job vacancy using a variety of recruitment sources sufficient to widely disseminate information concerning the vacancy. In addition, stations are required either (a) to provide notification of each vacancy to any organization that distributes information about employment opportunities upon request and to engage in a specific number of EEO initiatives, or (b) to adopt alternative recruitment techniques that will result in a diverse pool of job applicants. Stations will be required to maintain extensive records regarding their efforts to comply with the rule, to submit regular reports to the FCC evaluating their EEO programs, and each station's performance will be reviewed by the FCC at mid-point of their renewal term and as part of the renewal process. Stations with few employees are exempted from certain portions of the FCC's EEO requirements. Syndicated Exclusivity/Territorial Exclusivity Effective January 1, 1990, the FCC reimposed syndicated exclusivity rules and expanded the existing network non-duplication rules. The syndicated exclusivity rules allow local broadcast stations to require that cable television operators black out certain syndicated, non-network programming carried on "distant signals" (i.e., signals of broadcast stations, including so- called superstations, that serve areas substantially removed from the local community). Under certain circumstances, the network non-duplication rule allows local broadcast network affiliates to require that cable television operators black out duplicative network broadcast programming carried on more distant signals. Restrictions on Broadcast Advertising The advertising of cigarettes on broadcast stations has been banned for many years. The broadcast advertising of smokeless tobacco products has more recently been banned by Congress. Certain Congressional committees have examined legislative proposals to eliminate or severely restrict the advertising of alcohol, including beer and wine. Fisher Broadcasting cannot predict whether any or all of such proposals will be enacted into law and, if so, what the final form of such law might be. The elimination of all beer and wine advertising would have an adverse effect on Fisher Broadcasting's stations' revenues and operating income, as well as the revenues and operating incomes of other stations that carry beer and wine advertising. Additionally, the FCC has promulgated a number of regulations prohibiting, with certain exceptions, advertising relating to lotteries and casinos. The U.S. Court of Appeals for the Ninth Circuit (which includes Washington, Oregon, Idaho and Montana) has ruled that the limits on casino advertising are unconstitutional and therefore invalid. The U.S. Supreme Court has declined to review that decision. In June 1999, the U.S. Supreme Court held that current federal law cannot be applied under the First Amendment to prohibit advertisements of lawful private casino gambling on broadcast stations located in Louisiana. The Supreme Court's holding, however, did not specifically address any similar state law prohibitions. In September 1999, the FCC released a Public Notice indicating that, in the U.S. Government's brief in a case before the U.S. Court of Appeals for the Third Circuit, the Government, in light of the Supreme Court's reasoning, has concluded that 18 U.S.C. (S) 1304 (broadcasting lottery information), as currently written, may not constitutionally be applied to truthful advertisements for lawful casino gambling, regardless of whether the broadcaster who transmits the advertisement is located in a state that permits casino 18 gambling or a state that prohibits it. The FCC indicated that it would re- evaluate this matter following the Third Circuit's disposition of this case. The FCC has also placed limits upon the amount of commercialization during, and adjacent to, television programming intended for an audience of children ages 12 and under. Closed Captioning In late 1998, on reconsideration of its decision earlier that year regarding requirements for closed captioning of video programming, the FCC adopted rules requiring that 100% of all new English-language video programming be closed captioned by January 2006, and all new Spanish-language programming be closed captioned by January 2010. The FCC was required to develop closed captioning rules by the Telecommunications Act. English and Spanish language programming first exhibited prior to January 1, 1998, is subject to different compliance schedules. In all cases, the FCC's new rules require programming distributors to continue to provide captioning at substantially the same level as the average level of captioning that they provided during the first six months of 1997, even if that amount exceeds the benchmarks applicable under the new rules. Certain station and programming categories are exempt from the closed captioning rules, including stations or programming for which the captioning requirement has been waived by the FCC after a showing of undue burden has been made. Other Programming Restrictions The Telecommunications Act requires that any newly manufactured television set with a picture screen of 13 inches or greater be equipped with a feature designed to enable viewers to block all programs with a certain violence rating (the "v-chip"). In an Order adopted March 12, 1998, the FCC required that at least one-half of all television receiver models with screen sizes 13 inches or greater produced after July 1, 1999 have the v-chip technology installed, and that all such television receivers have v-chips by January 1, 2000. The television industry has adopted, effective January 1, 1997, and subsequently revised, August 1, 1997, a voluntarily rating scheme regarding violence and sexual content contained in television programs. The March 12, 1998 order found that the industry scheme meets the standards of the Telecommunications Act. Fisher Broadcasting cannot predict whether the v-chip and a ratings system will have any significant effect on the operations of its business. The FCC has adopted regulations effectively requiring television stations to broadcast a minimum of three hours per week of programming designed to meet specifically identifiable educational and informational needs, and interests, of children. Present FCC regulations require that each television station licensee appoint a liaison responsible for children's' programming. Information regarding children's programming and commercialization during such programming is required to be compiled quarterly and made available to the public. This programming information is also required to be filed with the FCC annually. Fisher Broadcasting does not believe that the FCC children's programming regulations described above have, or will have, an adverse effect on the operation of its business. Cable "Must-Carry" or "Retransmission Consent" Rights The 1992 Cable Act requires television broadcasters to make an election to exercise either "must-carry" or "retransmission consent" rights in connection with the carriage of television stations by cable television systems in the station's local market. If a broadcaster chooses to exercise its must-carry rights, it may demand carriage on a specified channel on cable systems within its market, which, in certain circumstances, may be denied. Must-carry rights are not absolute, and their exercise is dependent on variables such as the number of activated channels on and the location and size of the cable system, the amount of duplicative programming on a broadcast station, and the technical quality of the signal delivered by the station to the cable system headend. If a broadcaster chooses to exercise its retransmission consent rights, it may prohibit cable systems from carrying its signal, or permit carriage under a negotiated compensation arrangement. Each Fisher Broadcasting station has elected either to require retransmission consent or to exercise its must-carry rights with regard to each cable system in their respective DMAs and are currently being carried by all of the cable systems deemed material by Fisher Broadcasting to the operation of those stations. It is the cable industry's desire to eliminate the must-carry provision as the television converts to DTV. Elimination of must-carry could adversely affect Fisher Broadcasting's results of operations. Satellite Home Viewer Act The Satellite Home Viewer Act ("SHVA") permits satellite carriers and direct broadcast satellite carriers to provide to certain satellite dish subscribers a package of network affiliated stations as part of their service offering. This service is 19 not intended to be offered to subscribers who are capable of receiving their local affiliates off the air through the use of conventional rooftop antennas or who have received network affiliated stations by cable within the past 90 days. Furthermore, the package of affiliate stations is intended to be offered only for private home viewing, and not to commercial establishments. The purpose of the SHVA is to facilitate the ability of viewers in so-called "white areas" to receive broadcast network programming when they are unable to receive such programming from a local affiliate, while protecting local affiliates from having the programming of their network imported into their market by satellite carriers. As a result of litigation, certain satellite carriers were prohibited from offering program packages that include the package of network affiliates to subscribers that were outside of "white areas." In response to the concerns of broadcasters, satellite carriers, and viewers, Congress enacted the Satellite Home Viewer Improvement Act of 1999 ("1999 SHVIA"), on November 29, 1999. This act authorizes satellite carriers to add more local and national broadcast programming to their offerings, and to make that programming available to subscribers who previously have been prohibited from receiving broadcast fare via satellite under compulsory licensing provisions of the copyright law. The legislation generally seeks to place satellite carriers on an equal footing with local cable operators when it comes to the availability of broadcast programming, including the reception of local broadcast signals by satellite retransmission ("local into local") and thus give consumers more and better choices in selecting a multichannel video program distributor ("MVPD"). Among other things, the new legislation requires broadcasters, until 2006, to negotiate in good faith with satellite carriers and MVPDs with respect to their retransmission of the broadcasters' signals, and prohibits broadcasters from entering into exclusive retransmission agreements. Fisher Broadcasting has undertaken negotiations with two MVPDs regarding local into local satellite retransmission of the signals of KOMO TV in Seattle, KATU in Portland, and its other television stations, when and if local into local service becomes available. Fisher Broadcasting cannot predict whether or on what terms agreement will be reached as a result of such negotiations, nor can it predict the economic impact on its stations if it is unable to reach agreement for the local into local satellite retransmission of any or all of its stations. The FCC has initiated several rulemakings to implement the 1999 SHVIA, including a proceeding to determine whether, and to what extent, the FCC's network non- duplication, syndicated exclusivity and sports blackout rules should apply to satellite retransmissions, and to resolve a number of issues relating to retransmission consent issues. Fisher Broadcasting cannot predict the outcome of those proceedings. Digital Television In February 1998, the FCC issued regulations regarding the implementation of advanced television in the United States. These regulations govern a new form of digital telecasting ("DTV") based on technical standards adopted by the FCC in December 1996. DTV is the technology that allows the broadcast and reception of a digital binary code signal, in contrast to the current analog signal, which is transmitted through amplitude and frequency variation of a carrier wave. Digitally transmitted sound and picture data can be compressed, allowing broadcasters to transmit several standard definition pictures within the same amount of spectrum currently required for a single analog channel. DTV also allows broadcasters to transmit enough information to create a high definition television ("HDTV") signal. The FCC's regulations permit, but do not require, broadcasters to provide an HDTV signal, which features over 1,000 lines of resolution, rather than the 525 lines of resolution used in analog television sets. The greater number of lines of resolution will allow HDTV to provide a far more detailed picture than existing television sets can produce. Under the FCC's DTV rules each existing station will be given a second channel on which to initiate DTV broadcasts. The FCC has specified the channel and the maximum power that may be radiated by each station. DTV stations will be limited to 1 million watts Effective Radiated Power, and no station has been assigned less than 50 thousand watts Effective Radiated Power. The FCC has stated that the new channels will be paired with existing analog channels, and broadcasters will not be permitted to sell their DTV channels, while retaining their analog channels, and vice versa. Each station operated by Fisher Broadcasting and its affiliates has been allocated a second DTV channel. Affiliates of the ABC, CBS, Fox and NBC television networks in the top 10 television markets had until May 1, 1999, to construct and commence operation of DTV facilities on their newly allocated DTV channels. Affiliates of those networks in markets 11 through 30 had until November 1, 1999 to do the same. All other commercial television stations will be given until May 1, 2002 to place a DTV signal on the air, and all non-commercial stations will have until May 1, 2003. Stations will have one-half of the specified construction periods in which to apply to the FCC for a construction permit authorizing construction of the new DTV facilities. The FCC has indicated its intention to act expeditiously on such applications. While the FCC has announced its intention to grant extensions of the construction deadlines in appropriate cases, the impact of failing to meet these applications and construction deadlines cannot be predicted at this time. 20 Fisher Broadcasting has already constructed and commenced DTV operation of stations KOMO-DT in Seattle and KATU-DT in Portland. Applications were timely filed for DTV stations to be paired with each of the other Fisher Broadcasting television stations. Once a Fisher Broadcasting station begins operation of its new DTV facilities it will be required to deliver, at a minimum, a free programming service with picture resolution at least as good as that of the current analog service provided by the station, and will have to be aired during the same time periods as the current service. It may prove possible to provide more than one of such "analog equivalent" signals over a single DTV channel, or to mix an "analog equivalent" signal with other forms of digital material. The FCC will not require a broadcaster to transmit a higher quality, HDTV signal over a DTV channel; the choice as to whether to transmit an HDTV signal or one or more "analog equivalent" channels will be left up to the station licensee. It is not believed possible, under the present state of the art, to transmit additional program material over the DTV signal while it is transmitting in the HDTV mode. It cannot be predicted whether competitors of Fisher Broadcasting's television stations will operate in the HDTV or "analog equivalent" mode or the economic impact of such choices on the stations' operations. Stations operating in the DTV mode will be subject to existing public service requirements. The FCC has announced that it will consider imposing additional public service requirements, such as free advertising time for federal political candidates, and increased news, public affairs, and children's programming requirements, in the future. It cannot be predicted whether such changes will be adopted, or any impact they might have on station operations. By 2003, DTV stations will have to devote at least one-half of their broadcast time to duplication of the programming on their paired analog stations. In 2004, this simulcasting requirement will increase to 75%, and to 100% in 2005. The FCC has indicated that the transition from analog to digital service will end in 2006, at which time one of the two channels being used by broadcasters will have to be relinquished to the government, and DTV transmissions will be "repacked" into channels 2-51. Congress has established certain conditions that, if met, would allow the FCC to delay the termination of analog broadcasting beyond 2006. In addition, the FCC, in November 1998, voted to impose a fee on DTV licensees providing ancillary and supplementary services via their digital spectrum. The fee will equal five percent of gross revenues obtained from the provision of such ancillary and supplementary services, but will not be assessed against revenues generated by the traditional sale of broadcast time for advertising. The FCC said that it was following the stated goals of the Telecommunications Act to recover a portion of the value of the DTV spectrum, avoid unjust enrichment of broadcasters, and recover an amount equal to that which would have been obtained if the spectrum had been auctioned for such ancillary services. Implementation of DTV is expected to generally improve the technical quality of television signals received by viewers. Under certain circumstances, however, conversion to DTV may reduce a station's geographic coverage area or result in some increased interference. Also, the FCC's allocations could reduce the competitive advantage presently enjoyed by several of Fisher Broadcasting's television stations, including its stations in Seattle and Portland, which operate on low VHF channels serving broad areas. Implementation of DTV will impose substantial additional costs on television stations because of the need to replace equipment and because some stations will operate at higher utility costs. Fisher Broadcasting estimates that the adoption of DTV would require a broad range of capital expenditures to provide facilities and equipment necessary to produce and broadcast DTV programming. The introduction of this new technology will require that customers purchase new receivers (television sets) for DTV signals or, if available by that time, adapters for their existing receivers. The FCC's authorized DTV system utilizes a form of modulation known as 8- VSB. Several broadcast groups have raised questions concerning the efficacy of the 8-VSB modulation standard, particularly in urban settings, due to multipath problems exhibited in some first-generation DTV receivers.. A Petition for Expedited Rulemaking was filed with the FCC requesting that the FCC modify its rules to allow broadcasters to transmit DTV signals using COFDM, a different modulation technique, in addition to the current 8-VSB modulation standard. On February 4, 2000, the FCC denied that rulemaking request, but stated however that the issue of the adequacy of the DTV standard is more appropriately addressed in the context of its forthcoming biennial review of the entire DTV transition, and that, as a part of that proceeding, the FCC will encourage parties to comment on concerns regarding the 8-VSB standard. Fisher Broadcasting cannot predict whether the DTV modulation scheme will be changed or the impact of such a change on its future DTV operations. Class A LPTV Stations. The low-power television ("LPTV") service was established by the FCC in 1982 as a secondary spectrum priority service. LPTV stations have been prohibited from causing objectionable interference to existing full service television stations such as operated by Fisher Broadcasting and which must yield to facilities increases of existing 21 full service stations or to new full service stations. On November 29, 1999, Congress enacted the Community Broadcasters Protection Act of 1999 (the "CPBA") which required the Commission to prescribe regulations establishing a Class A license available to licensees of qualifying LPTV stations. The CBPA directs that Class A licensees be accorded primary status as a television broadcaster as long as the station continues to meet the requirements set forth in the statute for a qualifying LPTV station. In addition to other matters, the CBPA set out certain certification and application procedures for LPTV licensees seeking to obtain Class A status, prescribes the criteria LPTV stations must meet to be eligible for a Class A license, and outlines the interference protection Class A applicants must provide to analog, DTV, LPTV and TV translator stations. The FCC issued an Order and Notice of Proposed Rule Making on January 13, 2000, proposing rules to implement the CBPA. Fisher Broadcasting cannot predict whether Class A LPTV stations will limit the ability of Fisher Broadcasting to make modifications to its existing and currently proposed television facilities. Low Power FM. On January 27, 2000, the FCC adopted a Report and Order creating two new classes of low power FM ("LPFM") stations. They would operate with a maximum power of 100 and 10 watts, respectively, and eligible licensees are limited to non-profit entities proposing non-commercial operation. The new LPFM stations would be required to met minimum separation requirements to protect the service contours of existing FM, FM translator and FM booster stations, and proposed FM and FM translator stations. Certain parties which proposed that the new service permit individuals and for-profit entities to operate LPFM stations on a commercial basis may seek reconsideration or judicial review of the Report and Order. Fisher Broadcasting cannot predict the outcome of such a review, or whether LPFM stations as currently contemplated will limit the ability of Fisher Broadcasting to make modifications to its existing and currently proposed radio facilities. Proposed Legislation and Regulations Under certain circumstances, broadcast stations currently are required to provide political candidates with discounted air time in the form of lowest unit rates. A number of changes have been proposed before Congress to mandate public service obligations on broadcast stations such as the provision of free or discounted air time for political candidates. From time to time, legislation is introduced to change campaign financing or limit political contributions. Fisher Broadcasting is unable to predict the outcome of this debate regarding political advertising and campaign finance reform. Requirements to provide free air time to candidates or to provide further discounts for air time, as well as any legislation that results in decreasing political or advocacy spending, could adversely affect the financial performance of Fisher Broadcasting. Other matters that could affect Fisher Broadcasting's stations include technological innovations affecting the mass communications industry such as technical allocation matters, including assignment by the FCC of channels for additional broadcast stations, low-power television stations and wireless cable systems and their relationship to and competition with full-power television broadcasting service. Congress and the FCC also have under consideration, or may in the future consider and adopt, new laws, regulations and policies regarding a wide variety of matters that could, directly or indirectly, affect the operation, ownership and profitability of Fisher Broadcasting's broadcasting business, resulting in the loss of audience share and advertising revenues of the stations, and affecting Fisher Broadcasting's ability to acquire additional, or retain ownership of existing, broadcast stations, or finance such acquisitions. Such matters include, for example, (i) changes to the license renewal process; (ii) imposition of spectrum use or other governmentally imposed fees upon a licensee; (iii) proposals to change rules or policies relating to political broadcasting; (iv) technical and frequency allocation matters, including those relative to the implementation of DTV; (v) proposals to restrict or prohibit the advertising of beer, wine and other alcoholic beverages on broadcast stations; (vi) changes to broadcast technical requirements; and (vii) proposals to limit the tax deductibility of advertising expenses by advertisers. Fisher Broadcasting cannot predict what other matters might be considered in the future, nor can it judge in advance what impact, if any, the implementation of any of these proposals or changes might have on its broadcasting business. The foregoing is a summary of the material provisions of the Communications Act, the Telecommunications Act, and other Congressional acts or related FCC regulations and policies applicable to Fisher Broadcasting. Reference is made to the Communications Act, the Telecommunications Act, and other Congressional acts, such regulations, and the public notices promulgated by the FCC, on which the foregoing summary is based, for further information. There are many additional FCC regulations and policies, and regulations and policies of other federal agencies, that govern political broadcasts, public affairs programming, equal employment opportunities and other areas affecting Fisher Broadcasting's broadcasting business and operations. 22 SATELLITE, INTERNET, AND EMERGING MEDIA OPERATIONS Introduction Fisher Communications (FishComm) is a regional satellite teleport operator and emerging media development company. FishComm was created in 1995 to expand on Fisher Broadcasting's capacity to develop revenue from existing resources, such as satellite communications receive and transmit facilities, and to investigate the potential for revenue streams from new technologies such as the Internet. Since its inception, FishComm has operated satellite communications teleports in Portland and Seattle, primarily supplying news and sporting event video originating from these two markets for distant multi- and single market consumption. The Portland teleport consists of two C-band transmit and receive satellite dishes, while the Seattle Teleport consists of four such dishes. The teleports are connected to each other via a bi-directional microwave line and to all major NW sports venues via fiber lines. KU-band satellite transmissions are handled by a mobile truck. The list of FishComm's current clients includes ABC, CNN, ESPN, MSNBC, ESPN, Fox News, Microsoft and Conus for occasional use video purposes and Canadian Communications Corporation for continuous use purposes. FishComm also operates a fiber optic terminal with connectivity to the Vyvx national fiber optic network for point to point transmission of audio and video signals. In addition FishComm offers studio facilities for satellite interviews and distance learning, satellite and fiber booking services and tape playout capability in both Portland and Seattle markets. Fisher Broadcasting believes that the combination of fiber optic and satellite communication capabilities provides FishComm with a competitive advantage in the efficient transmission of point-to-point and point-to-multi-point video and audio from the Pacific Northwest. FishComm's Internet division currently provides bandwidth and e-mail services internally to other divisions of Fisher Companies Inc. Current revenues attributable to FishComm's operations are not material to the Company's results of operations. As the Internet continues to expand, potential applications internally and externally could increase. Company Performance From its inception, FishComm has focused on profitably marketing the excess capacity of Fisher Broadcasting's existing resources and adding to those resources to increase service offerings as the business expands and grows. Revenues generated through existing video transmission services and other associated services (i.e. studio use, tape playout, booking services) have increased in excess of 10% in the past year. The addition of a KU-band truck has given FishComm the ability to offer on-site transmission services to clients, which in itself has increased revenues substantially. FishComm's revenues and earnings remain mainly event driven. News and sporting events occurring in the Northwest, primarily Portland and Seattle, create the demand, and therefore effect revenues received, for the transmission services that FishComm provides. Other Fisher Companies Inc. owns 500,000 shares of the common stock of TeraBeam Corporation which it acquired for $2 per share in December, 1998. TeraBeam Corporation is engaged in the development of a high-speed optical free-space wireless transmission system for integrated data, video, and telephony for the business and consumer markets. PROGRAM CONTENT PRODUCTION AND SYNDICATION Introduction The mission of Fisher Entertainment is to supply programming for cable networks, broadcast syndication and emerging media. It plans to fulfill this mission in several ways: developing original program content, exploiting the library of programming previously created by Fisher Broadcasting and establishing alliances with other producers to enhance creative output and merge complementary skills. Fisher Broadcasting has significant experience in producing original programming. For example, KOMO-TV's weekday program, Northwest Afternoon and KATU's morning program, AM Northwest, are two of the longest running locally produced daytime programs in the U.S. In addition, both KOMO and KATU have won numerous awards over the years for their locally produced programs. As a content provider, Fisher Entertainment will take advantage of Fisher Broadcasting's expertise and the opportunities presented in the Fisher Plaza digital production facility anticipated to open in the second quarter of 2000. This state-of-the- art production facility is expected to provide Fisher Entertainment with a competitive advantage in producing cost-effective television content. Fisher Entertainment's focus will be primarily on supplying original productions for national cable television networks, secondarily for broadcast syndication, and thirdly, with a longer term focus, for emerging internet-based service providers. 23 General Overview There are nearly 100 million U.S. television households of which approximately 68 million are wired cable households and 10.5 million receive television via direct broadcast satellite. Over the past five years, total U.S. TV households have increased by approximately 6 million, while cable households have increased by 9.5 million and virtually all of the 10.5 million DBS households have been added. Thus, the potential audience for programming delivered by satellite and cable networks has increased at a rate more than three times that of all U.S. TV households during that period. Overall household television viewing has risen to slightly more than 50 hours per week. The average home receives 43 channels and views 10 channels for 10 or more continuous minutes per week. With the proliferation of viewing alternatives, the time spent per channel has decreased from 5.1 to 4.9 hours per channel per week (Nielsen Media Research). While adult viewing is increasing, viewing among teens and children is decreasing. The proliferation of viewing alternatives has increased the demand for more quality programming by cable channels and over the air broadcasters. It is projected that national broadcast spending will grow 7.5% in 2000 over 1999, while network cable spending will grow 24% (Myers Group). Syndication revenue is comprised of national advertising in off-network reruns and original first-run daily and weekly programs produced for sale on a market by market basis. Syndicated programs fill the available time periods when there are no network programs. Syndication is an effective vehicle for national advertisers when a program achieves 80+% coverage of U.S. TV households through local market station sales. Syndicated programming is a staple for many cable networks, as well as over the air broadcasters. It is currently estimated that 42% of TV households have video games, 40% have home computers and 10% have home Internet access. Including the home, the workplace and school, 39% of persons 16 or older in the U.S. and Canada (88 million) have access to the Internet, 21% (47 million) have used the world wide web in the past three months and 15% of those (5.6 million) have used it to purchase a product or service on-line (Nielsen Media Research). Internet advertising revenues were virtually non-existent in 1995. It is estimated that advertisers spent $2.5 billion on Internet advertising in 1999, an increase of 75% over 1998, and that there will be a further 80% growth in online advertising revenues to $4.3 billion in 2000 (Myers Group). Competitive Marketplace Cable. It is estimated that national cable networks spend $2.25 billion on ------ original program production and as advertising revenues grow, budgets for original production are forecast to expand. The demand for original productions is expected to continue to escalate (Paul Kagan & Associates). Most cable networks rely on outside suppliers to fill their needs for non- fiction original productions. The majority of these original programs are commissioned from independent (non-studio affiliated) suppliers with whom the cable networks have long-term relationships. The cable networks often retain all ownership rights under these agreements. There are forty ad supported basic cable networks that achieve reported ratings. Twenty-four are fully distributed networks with more than 50 million households. Sixteen are mid-size networks with up to 50 million households. Fisher Entertainment is currently targeting ad supported cable networks for developing production alliances either because they are heavily reliant on externally produced product or because they pay consequential license fees. Seven are fully distributed (USA, Lifetime, MTV, Comedy Central, Fox Family, Discovery Network, and The Learning Channel). Six are mid-size (Disney Channel, Animal Planet, Home & Garden, Food Network, Court TV and Travel Channel). Fisher Entertainment currently has three one-hour specials in production for Discovery Networks with combined production fees in excess of $500,000. They are Mt. St. Helens' Fury, which capitalizes on KOMO TV and KATU library footage, plus Daytona Bike Week and Scream Machines. Fisher Entertainment is positioning itself to become a recognized cable content provider. Unlike its competitors, which primarily operate on a work-for- hire basis, Fisher Entertainment's business plan is predicated on strategic alliances in which it retains rights and equity in the creative television content it produces for cable and, as often as possible, retains telecast rights on the Fisher stations. Despite the growth in advertising revenues for the cable sector, individual networks continue to seek economies in original production to bolster operating cash flow. 24 Broadcast Syndication. First-run syndication is the production of original ---------------------- programs that are sold on a station-by-station, market-by-market basis. Stations pay for the programs with cash, with a portion of the commercial time within the program (barter), or a combination of the two. There is a high level of competition for a limited number of available station time periods. Fisher Entertainment's goal is to enter the syndication marketplace in the 2000/2001 broadcast season on a limited basis with a weekly series funded largely through local station advertising revenues. Syndication is but one platform in a multiple platform approach to developing content. Broadcast syndication has shown the same downward pressure on rating delivery as network primetime due to the proliferation of viewing alternatives. As a result, profit pressures have increased. Strong production partnerships and production economies are as essential to profits in syndication as they are in cable. Secondary revenue opportunities such as foreign sales, ancillary revenues and back-end cable sales are important to determining which syndication projects to launch. The goal of Fisher Entertainment is to select and/or co-venture broadcast syndication productions with strong potential in domestic syndication and good opportunities to generate secondary revenues. Emerging Media. Internet content is in its infancy. Fisher Entertainment --------------- plans to supply digital programming for Internet distribution when the Fisher Plaza digital production facility is completed, which is expected to be in the second quarter of 2000. It is also a goal of Fisher Entertainment to establish strategic program production alliances with Internet service providers with a view to creating content for broadcast television and cable that extends the Internet brand to a mass television audience. In addition, Fisher Entertainment continues in its plan to exploit the Fisher station libraries by developing a searchable database of program materials for outside producers and out-of-market stations accessed via the Internet. Forward Looking Statements The current and proposed business plans of Fisher Entertainment discussed above include certain "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995 (the "PSLRA"). This statement is included for the express purpose of availing the Company of the protections of the safe harbor provisions of the PSLRA. Management's ability to predict results or the effect of future plans is inherently uncertain, and is subject to factors that may cause actual results to differ materially from those projected. Factors that could affect the actual results include unanticipated changes in the very rapidly developing cable, syndication and internet industries, the effects of intense competition and related performance and price pressures, both from existing competitors and new competitors that can be expected to enter into these markets, and uncertainties inherent in the start up of any new business venture, particularly in industries that are evolving as quickly and dramatically as those in which Fisher Entertainment will compete. While Fisher Broadcasting has created significant programming in the past, neither Fisher Broadcasting nor Fisher Companies has experience in the creation and distribution of programming on the scale contemplated by Fisher Entertainment. In addition to this inexperience and the other factors set out above, the risks associated with this new division include: startup costs, performance of certain key personnel new to the Company, the difficulties of retaining high content standards while producing mass appeal entertainment and the unpredictability of audience tastes. FLOUR MILLING AND FOOD DISTRIBUTION OPERATIONS INTRODUCTION The Company's flour milling and food distribution operations are conducted through Fisher Mills Inc. ("FMI"), a wholly owned subsidiary of the Company. FMI is a manufacturer of wheat flour and a distributor of bakery products. Wheat flour is produced at FMI's milling sites in Seattle, Washington; Portland, Oregon and Modesto, California. FMI and Koch Agriculture Company of Wichita, Kansas were, until July 1, 1999 each 50% owners of a limited liability company called Koch Fisher Mills LLC which owned and operated a flour milling facility in Blackfoot, Idaho. FMI had operating and sales responsibilities for the Blackfoot Facility. On July 1, 1999, the Company and FMI purchased the Koch interests and the Blackfoot facility is now operated as a wholly owned subsidiary known as Fisher Mills LLC. The Blackfoot facility commenced operations in April 1997, and was significantly expanded during 1998 with construction of a conventional flour mill, which began operations in December of 1998. During 1998, FMI produced approximately 2 million pounds of flour daily. FMI anticipates that, when the Blackfoot mill expansion achieves full commercial production, the Blackfoot facility will add an additional 1.25 million pounds of flour per day. To date, FMI has been unable to sell the full output of the Blackfoot facility. Fluctuations in wheat prices can result in fluctuations in FMI's revenues and profits. FMI seeks to hedge flour sales through the purchase of wheat futures or cash wheat. FMI does not speculate in the wheat market. Wheat is purchased from grain merchandisers in 25 Washington, Idaho, Montana and California, and is delivered directly to the mills by rail or truck. Manufactured flour is delivered to customers by rail or truck. Bakery products purchased from other food manufacturers are warehoused and distributed, along with FMI-manufactured flour, from FMI's three warehouses in Seattle, Washington; Portland, Oregon and Rancho Cucamonga, California. FMI's distribution division markets its products primarily in the retail bakery and food manufacturing industries. FMI makes deliveries using company owned and leased vehicles. As of December 31, 1999, FMI had 243 full-time employees. In March, 2000, U.S. Bancorp Piper Jaffray Inc. was engaged as a financial advisor to assist management with the sale of its flour milling and bakery products distribution operations. The Company believes that the sale of these assets will help to focus its resources on its remaining businesses and on becoming a more fully integrated communications and media enterprise. BUSINESS PRODUCTS FMI's mills produce wheat flour for sale to a wide variety of end-users. FMI primarily serves specialty niche markets with bag product for smaller manufacturers, institutional markets such as restaurants and hotels, retail and in-store bakeries. Bulk flour shipped in rail cars and tanker trucks is delivered to large wholesale bakeries and mix manufacturers. FMI produces approximately 50 grades of flour, ranging from high-gluten spring wheat flour to low-protein cake and cookie flour. FMI believes that it differentiates itself from competitors by producing high quality specialty flours for specific applications. FMI also produces millfeed for sale to the animal feed industry. Millfeed is incorporated into feed rations for dairy cattle and other livestock. FMI's food distribution division purchases and markets approximately 2,000 bakery related items, including grain commodities (such as corn, oats, rye and barley products), mixes, sugars and shortenings, paper goods, and other items. Where appropriate, FMI takes advantage of bulk buying discounts and exclusive supplier agreements to purchase bakery products at favorable market prices. COMPETITION The U.S. milling industry is currently composed of 200 flour mills, down from 252 in 1981, with a median mill size of approximately 7,500 hundred-weights (cwt). per day capacity. During the same period, the number of milling companies has decreased from 166 to 95. Despite a decline in the number of milling companies, milling capacity has increased. The largest five manufacturers account for approximately 67% of total U.S. capacity. FMI, at 36,500 cwt of daily capacity (including the output of the Blackfoot facility), ranks 8th in the U.S. MARKETING FMI's milling division markets its products principally in the states of Washington, Oregon and California. The majority of FMI's flour sales are made under contractual agreements with large wholesale bakeries, mix manufacturers, blending facilities, food service distributors, and finished food manufacturers. No flour customer accounted for more than ten percent of FMI's total revenues during 1998. FMI's food distribution division, including its wholly-owned subsidiary, Sam Wylde Flour Co., Inc., markets its products primarily within a 100-mile radius of FMI's warehouses. FMI's customer base consists primarily of retail and wholesale bakeries, in-store bakeries, retail and wholesale donut shops, retail and wholesale bagel shops and small food manufacturers. FMI's milling division strives to differentiate itself from its competition with a strong service and technical department, an emphasis on branded products, new product development, and growth through the development of conventional and compact milling units. FMI targets its marketing in food groups that are in emerging or growth product life cycles. These food groups are characterized by growth rates higher than average, fragmented market share and a need for technological assistance in product formulation. FMI evaluates market conditions related to each of its products and will exit certain product categories where market consolidation, over capacity and lack of growth lead to lower flour margins. 26 FMI's milling division also utilizes its technical service department as a value-added sales tool. The technical service department is accountable for developing and training salespersons in the company's network of food service distributors. The technical service department also provides on-site product trouble-shooting and formulation assistance to small retail bakers and restaurants. FMI markets its flour through the use of branded products such as Mondako, Golden Mountain, and Power and product category branded ingredients under the name Sol Brillante. This marketing strategy builds brand identity and differentiates a group of products from other products in the market. Trademarks are also registered in selected international markets in which FMI is engaged in business. In the past three years, FMI has sold products in Russia, Mexico, Japan, Argentina, Indonesia, Hong Kong, Guam, Marshall Islands, and Canada. The global currency crisis of 1998 severely restricted export sales to Asia and Russia in the past year. FMI's international sales are not, in the aggregate, material to FMI's financial condition or results of operation. See Note 10 to the consolidated financial statements regarding the amount of international sales. In 1991, FMI became the first milling company in the country to install a new milling concept called a KSU shortflow. The "shortflow" or "compact" process reduces the amount of building and equipment required to mill flour. The electronically controlled modular units can be installed at approximately 60 percent of the cost of a conventional mill and in one-third of the construction time. While compact units do not replace the need for conventional milling capacity, they do provide flexible milling capacity for niche milling segments. Since 1991, FMI has installed five additional compact units, including two units at the Blackfoot facility. FMI operates six compact milling units (including the Blackfoot facility), and to its knowledge no other milling company operates more than one. FMI thus believes that it is the world leader in compact flour production. RECENT DEVELOPMENTS In March, 2000, U.S. Bancorp Piper Jaffray Inc. was engaged as a financial advisor to assist management with the sale of its flour milling and bakery products distribution operations. The Company believes that the sale of these assets will help to focus its resources on its remaining businesses and on becoming a more fully integrated communications and media enterprise. RISKS ASSOCIATED WITH FOOD PRODUCTION The food manufacturing and distribution industry is subject to significant risk. The size and distribution of the U. S. wheat crop in any given year can adversely impact the economics of the Blackfoot mill, which sells most of its product to customers in locations distant from that mill in competition with mills much closer to those customers. Competition in the food industry is intense. Food production is a heavily regulated industry, and federal laws or regulations promulgated by the Food and Drug Administration, or agencies having jurisdiction at the state level, could adversely effect FMI's revenues and results of operations. Certain risks are associated with the production and sale of food products. Food producers can be liable for damages if contaminated food causes injury to consumers. Although flour is not a highly perishable product, FMI is subject to some risk as a result of its need for timely and efficient transportation of its flour. Costs associated with compliance with environmental laws can adversely affect profitability, although FMI's historical and currently anticipated costs of compliance have not had, and are not expected to have in the foreseeable future, a material effect on the capital expenditures, earnings or competitive position of FMI. The amount of wheat available for milling, and consequently the price of wheat, is affected by weather and growing conditions. There is competition for certain staff, including competition for sales staff in the food distribution portion of FMI's business. Loss of key sales staff can, and in some instances has, significantly and adversely affected certain food distribution operations. Production of food products also depends on transportation and can be adversely affected if a key carrier serving a facility (e.g., a railroad) experiences operational difficulties. There can be no assurance that FMI will be able to generate sales sufficient to take full advantage of the cost efficiencies of the Blackfoot facility and, to date, FMI has been unable to do so. REAL ESTATE OPERATIONS INTRODUCTION The Company's real estate operations are conducted through Fisher Properties Inc. ("FPI") a wholly owned subsidiary of the Company. FPI is a proprietary real estate company engaged in the acquisition, development, ownership and 27 management of a diversified portfolio of real estate properties, principally located in the Seattle, Washington metropolitan area. FPI had 40 employees as of December 31, 1999. As of December 31, 1999, FPI's portfolio of real estate assets included 19 commercial and industrial buildings containing over 1.1 million square feet of leaseable space serving approximately 110 tenants and a 201-slip marina. FPI also owns 320 acres of unimproved residential land. A partnership in which FPI has a 50% interest has an option to acquire this land and an adjacent 160 acres for future development. FPI estimates that, based on capitalization of real estate net operating income and investment in new development, the total fair market value of FPI's real estate holdings was approximately $133 million as of December 31, 1999, excluding any related liabilities and potential liquidation costs. Although the foregoing fair market value estimate is based on information and assumptions considered adequate and reasonable by FPI, such estimate requires significant subjective judgments made by FPI. Such estimate is not based on technical appraisals and will change from time to time, and could change materially, as economic and market factors change, and as management evaluates those and other factors. FPI's owned real estate is managed, leased, and operated by FPI. More than half of FPI's employees are engaged in activities related to service of FPI's existing buildings and their tenants. FPI does not manage properties for third- party owners, nor does it anticipate doing so in the future. BUSINESS FPI focuses on enhancing the revenue stream of FPI's existing properties and acquiring or developing selected strategic properties. Cash flow from real estate operations is used entirely to reduce real estate debt, maintain properties, and otherwise finance real estate operations. As stated in Note 10 to the consolidated financial statements, income from operations reported for the real estate segment excludes interest expense. When interest expense is taken into account, real estate operations have historically had negative income or nominal profit, including negative income in 1997 and 1998. FPI also would have incurred a loss in 1999, except for gain from the sale of real property. The majority of FPI's existing operating properties were developed by FPI. FPI anticipates most future acquisition and development activities will be located near existing facilities to promote business efficiencies. FPI believes that developing, owning, and managing a diverse portfolio of properties in a relatively small geographic area minimizes ownership risk. DEVELOPMENT AND ACQUISITION ACTIVITIES FPI plans to increase its ownership of industrial and office properties in the Seattle area. Land was acquired in Auburn, Washington during 1999 for development of a 270,000 square foot industrial project. FPI's Board of Directors has approved reinvestment of condemnation proceeds from the Fourth Avenue properties (described below) to develop this project. FPI also continues its significant involvement in the planning and development of a project located on a block of land owned partially by Fisher Broadcasting and partially by FPI at Fourth Avenue and Denny Way in Seattle, and is known as Fisher Plaza (see "Broadcasting Operations - KOMO TV"). FPI's Board of Directors has authorized $2,000,000 to undertake pre-development activities for further development of the site. The timing and amount of further investment is uncertain. Other investment decisions are subject to a variety of factors, including: interest rates; available real estate opportunities; the relationship of those opportunities to the Company's future business decisions on how much of its capital and borrowing capacity should be devoted to real estate at any given time and how much should be devoted to other aspects of the Company's business. From time to time, FPI may consider selling a property when it reaches a certain maturity, no longer fits FPI's investment goals, or is under threat of condemnation. During 1999 the Washington State Department of Transportation acquired, under threat of condemnation for its fair market value, several of FPI's properties on Fourth Avenue South in Seattle. 28 OPERATING PROPERTIES FPI's portfolio of operating properties are classified into three business categories: (i) marina properties; (ii) office; and (iii) warehouse and industrial. Note 4 to the consolidated financial statements sets forth the minimum future rentals from leases in effect as of December 31, 1999 with respect to FPI's properties. The following table includes FPI's significant properties:
Ownership Year Land Area Approx. % Leased Name and Location Interest FPI's Interest Developed (Acres) Rentable 12/31/99 ----------------- -------- --------------- --------- --------- -------- -------- Space ----- MARINA Marina Mart Moorings Fee & Leased 100% 1939 5.01 Fee & 2.78 201 Slips 97% Seattle, WA through Leased 1987 OFFICE West Lake Union Center Fee 100% 1994 1.24 185,000 SF 100% Seattle, WA 487 car garage Fisher Business Center Fee 100% 1986 9.75 195,000 SF 99% Lynnwood, WA Parking for 733 cars Marina Mart Fee 100% Renovated 1993 * 18,950 SF 100% Seattle, WA Rock Salt Steak House Fee 100% Renovated 1987 * 15,470 SF 100% Seattle, WA 1530 Building Fee 100% Renovated 1985 * 10,160 SF 100% Seattle, WA INDUSTRIAL Fisher Industrial Park Fee 100% 1982 and 22.08 398,600 SF 100% Kent, WA 1992 Fisher Commerce Center Fee 100% NA 10.21 171,400 SF 86% Kent, WA Pacific North Equipment Co. Fee 100% NA 5.5 38,000 SF 100% Kent, WA 1741 Building Fee 100% Renovated 1989 .41 5,212 SF 100% Seattle, WA
* Undivided land portion of Marina. In addition to the above listed properties: FPI acquired a 14.6 acre site in Auburn, Washington in 1999 that is being prepared for the construction of a light industrial project; owns land and easement area that will serve Fisher Mills once reconfigured by the Port of Seattle during 2000; a one acre parking lot in Seattle that has served Fisher Broadcasting and is part of the development of the Fisher Plaza discussed above; 320 acres of unimproved land that obtained preliminary plat approval in 1999; and a small residential property in Seattle. FPI does not currently intend to acquire other parking or residential properties. West Lake Union Center, Fisher Business Center, Fisher Industrial Park, and Fisher Commerce Center are encumbered by liens securing non-recourse, long-term debt financing that was obtained by FPI in connection with the development or refinancing of such properties. Each of these properties produces cash flow that exceeds debt service, and in no case does such debt exceed 75% of the estimated value of the financed property. Total FPI debt is approximately 37% of the estimated value of the total owned real estate. It is FPI's objective to reduce this debt over time with excess cash flow not needed for capital investments. FPI believes that it currently has sufficient credit and cash flow to meet its investment objectives. 29 RISKS ASSOCIATED WITH REAL ESTATE The development, ownership and operation of real property is subject to varying degrees of risk. FPI's revenue, operating income and the value of its properties may be adversely affected by the general economic climate, the local economic climate and local real estate conditions, including the perceptions of prospective tenants of attractiveness of the properties and the availability of space in other competing properties; FPI's ability to provide adequate management, maintenance and insurance; the inability to collect rent due to bankruptcy or insolvency of tenants or otherwise; and increased operating costs. Several of FPI's properties are leased to, and occupied by, single tenants that occupy substantial portions of such properties. Real estate income and values may also be adversely affected by such factors as applicable laws and regulations, including tax and environmental laws, interest rate levels and the availability of financing. FPI carries comprehensive liability, fire, extended coverage and rent loss insurance with respect to its properties, with policy specifications and insured limits customary for similar properties. There are, however, certain types of losses that may be either uninsurable or not economically insurable. If an uninsured loss occurs with respect to a property, FPI could lose both its invested capital in and anticipated profits from such property. INVESTMENT IN SAFECO CORPORATION A substantial portion of the Company's assets is represented by an investment in 3,002,376 shares of the common stock of SAFECO Corporation, an insurance and financial services corporation ("SAFECO"). The Company has been a stockholder of SAFECO since 1923. At December 31, 1999, the Company's investment constituted 2.3% of the outstanding common stock of SAFECO. The market value of the Company's investment in SAFECO common stock as of December 31, 1999 was approximately $74,684,000, representing 12% of the Company's total assets as of that date. Dividends received with respect to the Company's SAFECO common stock constituted 21.4% of the Company's net income for 1999. A significant decline in the market price of SAFECO common stock or a significant reduction in the amount of SAFECO's periodic dividends could have a material adverse effect on the financial condition or results of operation of the Company. The Company has no present intention of disposing of its SAFECO common stock or its other marketable securities, although such securities are classified as investments available for sale under applicable accounting standards (see "Notes to Consolidated Financial Statements; Note 1: Operations and Accounting Policies: Marketable Securities"). Mr. William W. Krippaehne, Jr., President, CEO, and a Director of the Company, is a Director of SAFECO. SAFECO's common stock is registered under the Securities Exchange Act of 1934, as amended, and further information concerning SAFECO may be obtained from reports and other information filed by SAFECO with the Securities and Exchange Commission (the "Commission"). SAFECO common stock trades on The NASDAQ Stock Market under the symbol "SAFC". ITEM 2. DESCRIPTION OF PROPERTIES. Television stations operate from offices and studios owned by Fisher Broadcasting. Television transmitting facilities and towers are also generally owned by Fisher Broadcasting although some towers are sited on leased land. KATU Television in Portland, Oregon is a participant with three other broadcast companies in a the Sylvan Tower LLC formed to construct and operate a joint use tower and transmitting site for the broadcast of radio and digital television signals. The land on which this facility is sited is leased by the LLC from one of the participants under the terms of a 40 year lease. Radio studios are generally located in leased space. Radio transmitting facilities and towers are owned by Fisher Broadcasting, except KWJJ-FM and some of the stations operated by Fisher Radio Regional Group, where such facilities are situated on leased land. The Seattle flour mill and food distribution facility operate from FMI- owned facilities in Seattle, Washington. The compact flour mill and food distribution facilities located in Portland, Oregon, are owned by FMI. In California, FMI's food distribution activities and compact flour mill operate from leased facilities in Rancho Cucamonga and Modesto, respectively. The Blackfoot, Idaho flour mills operates from owned facilities. Property operated by the Company's real estate subsidiary, FPI, is described under "Real Estate Operations - Operating Properties." Real estate projects that are subject to non-recourse mortgage loans are West Lake Union Center, Fisher Business Center, Fisher Industrial Park, and Fisher Commerce Center. The Company believes that the properties owned or leased by its operating subsidiaries are generally in good condition and well maintained, and are adequate for present operations. 30 ITEM 3. LEGAL PROCEEDINGS The Company and its subsidiaries are parties to various claims, legal actions and complaints in the ordinary course of their businesses. In the Company's 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 the consolidated financial position or results of operations of the Company. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS No matters were submitted to a vote of securities holders in the fourth quarter of 1999. PART II ITEM 5. MARKET PRICE OF AND DIVIDENDS ON REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS Bid and ask prices for the Company's Common Stock are quoted in the Pink Sheets and on the OTC Bulletin Board. As of December 31, 1999, there were eight Pink Sheet Market Makers and ten Bulletin Board Market Makers. The OTC Bulletin Board constitutes a limited and sporadic trading market and does not constitute an "established trading market". The range of high and low bid prices for the Company's Common Stock for each quarter during the two most recent fiscal years is as follows:
Quarterly Common Stock Price Ranges /(1)/ ----------------------------------------- 1999 1998 ---- ---- Quarter High Low High Low - ------- ---- --- ---- --- 1/st/ $66.00 $55.25 $64.25 $59.00 2/nd/ 62.50 56.50 73.25 63.75 3/rd/ 62.63 58.50 72.50 63.00 4/th/ 62.00 57.00 68.50 57.50
___________________________ (1) This table reflects the range of high and low bid prices for the Company's Common Stock during the indicated periods, as published in the NQB Non-NASDAQ Price Report by the National Quotation Bureau. The quotations merely reflect the prices at which transactions were proposed, and do not necessarily represent actual transactions. Prices do not include retail markup, markdown or commissions. The approximate number of record holders of the Company's Common Stock as of December 31, 1999 was 409. In December 1997 the Board of Directors authorized a two-for-one stock split effective March 6, 1998 for shareholders of record on February 20, 1998. In connection with the stock split, the par value of the Company's Common Stock was adjusted from $2.50 per share to $1.25 per share. All share and per share amounts reported in this Form 10-K have been adjusted to reflect the split. The Company paid cash dividends on its Common Stock of $1.00 and $1.04 per share (adjusted to reflect the two-for-one stock split described above), respectively, for the fiscal years 1998 and 1999. On December 1, 1999, the Company declared a dividend of $.26 per share, payable on March 3, 2000 to shareholders of record on February 18, 2000. Annual cash dividends have been paid on the Company's Common Stock every year since the Company's reorganization in 1971. The Company currently expects that comparable cash dividends will continue to be paid in the future, although its ability to do so may be affected by the terms of the senior secured credit facilities described in Liquidity and Capital Resources in Management's Discussion and Analysis of Financial Position and Results of Operations. ITEM 6. SELECTED FINANCIAL DATA. The following financial data of the Company are derived from the Company's historical audited financial statements and related footnotes. The information set forth below should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the financial statements and related footnotes contained elsewhere in this Form 10-K. Selected Financial Data
Year ended December 31, 1999 1998 1997 1996 1995 ------------------------------------------------------------------ (All amounts in thousands except per share data) Sales and other revenue Broadcasting $ 152,223 $ 127,637 $ 120,792 $ 111,967 $ 101,192 Milling 114,942 108,056 123,941 135,697 112,360 Real estate 24,572 12,265 11,446 13,556 10,941 Corporate and other, primarily dividends and interest income (1) 4,761 4,224 3,855 4,000 4,087 -------------------------------------------------------------------- $ 296,498 $ 252,182 $ 260,034 $ 265,220 $ 228,580 ==================================================================== Operating income Broadcasting $ 34,862 $ 33,937 $ 36,754 $ 34,025 $ 31,518 Milling (6,121) (1,440) 2,431 3,410 2,907 Real estate 16,028 4,117 3,231 5,749 3,267 Corporate and other (3,275) (59) 863 1,948 2,152 -------------------------------------------------------------------- $ 41,494 $ 36,555 $ 43,279 $ 45,132 $ 39,844 ==================================================================== Net income $ 18,093 $ 21,057 $ 24,729 $ 26,086 $ 22,683 ==================================================================== Per common share data (2) Net income $ 2.12 $ 2.47 $ 2.90 $ 3.06 $ 2.66 Net income assuming dilution $ 2.11 $ 2.46 $ 2.88 $ 3.05 $ 2.66 Cash dividends declared (3) $ 1.26 $ 1.01 $ 0.25 $ 1.84 $ 0.76 December 31, 1999 1998 1997 1996 1995 -------------------------------------------------------------------- Working capital $ 33,959 $ 34,254 $ 36,336 $ 42,271 $ 49,744 Total assets (4) 678,512 439,522 438,753 394,149 353,035 Total debts 338,174 76,736 73,978 74,971 71,869 Stockholders' equity 241,975 266,548 266,851 232,129 203,681
(1) Included in this amount are dividends received from the Company's investment in SAFECO Corporation common stock amounting to $4,323 in 1999; $4,023 in 1998; $3,663 in 1997; $3,333 in 1996; and $3,062 in 1995. (2) Per-share amounts have been adjusted for a two-for-one stock split that was effective March 6, 1998 and a four-for-one stock split that was effective May 15, 1995. (3) 1999 and 1998 amount includes $.26 per share declared for payment in 2000 and 1999, respectively. 1997 amount was declared for payment in first quarter 1998. 1996 includes $.98 per share declared for payment in 1997. 1995 amount was declared and paid. (4) The Company applies Financial Accounting Standards Board's Statement of Financial Accounting Standards No. 115 "Accounting for Certain Investments in Debt and Equity Securities" (FAS 115), which requires investments in equity securities, be designated as either trading or available-for-sale. While the Company has no present intention to dispose of its investments in marketable securities, it has classified its investments as available-for-sale and, beginning in 1994, those investments are reported at fair market value. Accordingly, total assets include unrealized gain on marketable securities as follows: December 31, 1999 - $78,274; December 31, 1998 - $131,132; December 31, 1997 - $148,506; 32 December 31, 1996 - $120,468; December 31, 1995 - $105,401. Stockholders' equity includes unrealized gain on marketable securities, net of deferred income tax, as follows: December 31, 1999 - $50,878; December 31, 1998 - $85,236; December 31, 1997- $96,529; December 31, 1996 - $78,304; December 31, 1995 - $68,510. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL POSITION AND RESULTS OF OPERATIONS This discussion is intended to provide an analysis of significant trends and material changes in the Company's financial position and operating results during the period 1997 through 1999. In 1997, the Company's broadcasting subsidiary acquired three small-market radio stations in Montana and eastern Washington. On July 1, 1999, the Company and its broadcasting subsidiary completed the acquisition of ten network- affiliated television stations and 50% of the outstanding stock of a corporation that owns one television station. The acquired properties are in seven markets located in California, the Pacific Northwest, and Georgia (the "Fisher Television Regional Group"). Total consideration was $216.7 million, which included $7.6 million of working capital (primarily accounts receivable and prepaid expenses, less accounts payable and other current liabilities). Funding for the transaction was from a senior credit facility in the amount of $230 million. During 1997 and 1998, the milling subsidiary was a 50% member of a Limited Liability Company (LLC) which owned and operated a flour milling facility in Blackfoot, Idaho. The LLC began operations with one compact milling unit in April 1997. During 1997 a second compact milling unit was installed at the Blackfoot site, and construction of a conventional flour mill commenced. Construction of the conventional flour mill was completed in December 1998. On July 1, 1999, the Company and the milling subsidiary purchased the remaining 50% interest in the LLC. The $19 million purchase price was funded from bank lines of credit. Prior to July 1, the milling subsidiary used the equity method to account for its 50% interest in the LLC. Subsequent to the acquisition the LLC became a wholly-owned subsidiary, and operating results of the Blackfoot facility are fully consolidated in the milling segment. In June 1999, the Company's real estate subsidiary sold, under threat of condemnation, certain improved property in Seattle, Washington. Total gain on the sale, including proceeds awarded in December, was $12,825,000. Each of these transactions had an effect on the comparative results of operations in terms of revenue, costs and expenses, and operating income referred to in the following analysis. The Company plans to continue to implement strategic actions to further improve its competitiveness. These actions include a continuing focus on revenue and net income growth to enhance long-term shareholder value, while at the same time maintaining a strong financial position. CONSOLIDATED RESULTS OF OPERATIONS Consolidated net income for the year ended December 31, 1999 declined 14.1% compared with 1998, from $21,057,000 to $18,093,000 (including a $8,337,000 gain in 1999 from condemnation of real estate, net of income tax). Several major factors which are a direct result of the acquisitions described above impacted 1999 consolidated net income, including interest expense of approximately $9,300,000 and goodwill amortization amounting to $2,444,000 relating to the acquisition of the Fisher Television Regional Group, interest expense of approximately $725,000 relating to the acquisition of Koch Agriculture Company's 50% interest in the Blackfoot facility, and additional operating expense incurred as a result of owning 100% of the Blackfoot facility. In addition, during the year the milling segment incurred charges including an additional provision for bad debts of $1,077,000 and $390,000 for write-off of certain fixed assets not in service. Consolidated net income for the year ended December 31, 1998 declined 14.8% compared with the record established in 1997, from $24,729,000 to $21,057,000. As more fully discussed below, income from broadcasting operations declined 7.7%, the milling segment reported a loss from operations, and income from real estate operations improved 27.4% compared with 1997. 33
Sales and other revenue - --------------------------------------------------------------------------------------------- 1999 % Change 1998 % Change 1997 $296,498,000 17.6% $252,182,000 -3.0% $260,034,000
Sales and other revenue increased 19.3% and 6.4% for broadcasting and milling operations, respectively, in the year ended December 31, 1999. The increase in broadcasting revenue is primarily attributable to the Fisher Television Regional Group. The increase in milling revenue is attributable to increased sales at both the milling and distribution divisions. Revenue of the real estate segment increased $12,300,000, largely the result of the gain from condemnation of real estate. Revenue of the corporate segment increased 12.7% as a result of increases in dividends from marketable securities and other revenue. Sales and other revenue increased 5.7% and 7.2% for broadcasting and real estate operations, respectively, in 1998, while milling operations experienced a decline of 12.8%. Revenue of the corporate segment increased 9.6% in 1998 due to an increase in dividends from marketable securities.
Cost of products and services sold - ----------------------------------------------------------------------------------------------------------- 1999 % Change 1998 % Change 1997 $174,468,000 10.8% $157,526,000 -3.2% $162,715,000 Percentage of revenue 58.8% 62.5% 62.6%
The increase in cost of products and services sold in 1999 is attributable to (i) costs incurred by the television stations acquired on July 1, which were not included in 1998 results, (ii) increased costs to acquire, produce, and promote broadcast programming at existing broadcast stations, (iii) costs incurred by the Blackfoot flour mill, which became a 100% owned subsidiary on July 1, and (iv) increased volume of distribution sales, partially offset by lower cost of wheat used to produce flour. The decline in cost of products and services sold as a percent of revenue is primarily due to inclusion of the gain from condemnation of real estate in 1999 results. The decrease in cost of products and services sold in 1998 is attributable to lower cost of wheat used to produce flour and lower volume of flour sold by the milling segment, partially offset by increased costs to acquire, produce, and promote broadcast programming.
Selling expenses - ---------------------------------------------------------------------------------------------------- 1999 % Change 1998 % Change 1997 $26,325,000 30.3% $20,203,000 10.8% $18,228,000 Percentage of revenue 8.9% 8.0% 7.0%
Selling expenses increased at the broadcasting segment in 1999 as a result of costs incurred by the newly acquired television stations and increased commissions and related expenses attributable to increased broadcasting revenue. Selling expenses increased at the milling segment as a result of a $1,077,000 increase in the provision for bad debts during the year and from increased delivery and promotion expenses at distribution operations. Selling expenses have increased each year as a result of increased commissions and related expenses resulting from increased broadcasting revenue. During 1998 the milling segment experienced increases in provision for doubtful accounts and advertising and promotion expenses.
General and administrative expenses - ---------------------------------------------------------------------------------------------------- 1999 % Change 1998 % Change 1997 $54,211,000 43.0% $37,898,000 5.8% $35,812,000 Percentage of revenue 18.3% 15.0% 13.8%
General and administrative expenses increased in all business segments during 1999. The increase at the broadcasting segment is largely attributable to costs incurred by the newly acquired television stations, to costs related to the Fisher Entertainment division, and to higher employee benefit costs at other operations. In addition to costs incurred to recruit and relocate management personnel and increased costs related to information systems, general and administrative expenses at the milling segment include the milling segment's 50% share of the loss of the Blackfoot milling facility prior to July 1. The real estate segment experienced increased depreciation expense, salaries, and employee benefit costs. The corporate 34 segment incurred increased costs in connection with additional personnel, employee benefit costs, a new corporate marque and brand identity program, and new strategic initiatives. The increase in general and administrative expenses incurred in 1998 relates to additional depreciation of the Seattle broadcasting facility to be replaced by the new Fisher Plaza project in 2000, as well as to increased personnel and other expenses relating to growth and new strategic initiatives at the corporate segment.
Interest expense - ---------------------------------------------------------------------------------------- 1999 % Change 1998 % Change 1997 $13,871,000 211.7% $4,451,000 -18.6% $5,467,000
Interest expense includes interest on borrowed funds, loan fees, and net payments under a swap agreement. The primary cause of the increase in 1999 interest expense compared with 1998 is attributable to funds borrowed to finance the acquisition of television stations and the acquisition of the 50% interest in the Blackfoot flour mill previously owned by Koch Agriculture Company. Interest incurred in connection with funds borrowed to finance construction of the Fisher Plaza project and other significant capital projects is capitalized as part of the cost of the related project. Interest expense declined in 1998 compared with 1997 due to lower average borrowing outstanding during 1998 and to the capitalization of interest related to borrowing for acquisition of property, plant and equipment.
Provision for federal and state income taxes - --------------------------------------------------------------------------------------------- 1999 % Change 1998 % Change 1997 $9,530,000 -13.7% $11,047,000 -15.6% $13,083,000 Effective tax rate 34.5% 34.4% 34.6%
The provision for federal and state income taxes varies directly with pre- tax income. The effective tax rate is less than the statutory rate for all years primarily due to a deduction for dividends received, offset by the impact of state income taxes.
Other comprehensive income - --------------------------------------------------------------------------------------------- 1999 % Change 1998 % Change 1997 $(34,358,000) -204.2% $(11,293,000) -162.0% $18,225,000
Other comprehensive income represents the change in the fair market value of the Company's marketable securities, net of deferred income taxes. A significant portion of the marketable securities consists of 3,002,376 shares of SAFECO Corporation. The per share market price of SAFECO Corporation common stock was $24.88 at December 31, 1999, $42.94 at December 31, 1998, and $48.75 at December 31, 1997. Unrealized gains and losses are a separate component of stockholders' equity. BROADCASTING OPERATIONS
Sales and other revenue - ----------------------------------------------------------------------------------------------- 1999 % Change 1998 % Change 1997 $152,223,000 19.3% $127,637,000 5.7% $120,792,000
1999 broadcasting revenues include the television stations acquired July 1 and, therefore, are not directly comparable with 1998. The new television stations, known as Fisher Television Regional Group, earned revenues of $22,000,000 subsequent to the acquisition. Excluding the newly acquired stations, 1999 broadcasting revenue was 2% greater than the record revenue recorded in 1998, which included more than $5,000,000 from political advertising. Revenue from KOMO TV in Seattle increased modestly as increased revenue from local and national advertising and paid programming more than offset a decline in political advertising. KATU Television in Portland reported a decline in revenue of approximately 7% as all advertising categories declined. Revenue from radio operations increased approximately $3,500,000, including $3,100,000 from the Company's Seattle radio stations (KOMO AM, KVI AM and KPLZ- FM), and $750,000 from the twenty-one small market stations in Montana and Eastern Washington. Revenue from Portland radio operations (KWJJ-FM and KOTK) declined approximately $350,000. Fisher Communications and the recently formed Fisher Entertainment division earned revenue of approximately $1,000,000 and $500,000, respectively. 35 Strong demand for television time by political advertisers contributed to record revenues for the broadcasting segment in 1998. Overall revenues fell short of management's expectations however, due in large measure to reduced automotive advertising during the second half of the year. Labor strikes in the automotive, airline, and telecommunications sectors, and consolidation of businesses in the telecommunications and banking industries, resulted in reduction or elimination of advertising budgets compared to previous years. KATU Television in Portland was able to produce a revenue increase of $3,400,000 despite reduced advertising by key automotive and telecommunications accounts. Increased political advertising accounted for nearly 40% of KATU's growth and most of the remaining growth was generated through development of new local advertising accounts and non-traditional revenue. In general, advertiser demand was stronger in the Portland market during 1998 than was the case throughout much of the country, including the Seattle market. For KOMO TV (Seattle), increases in political and national advertising offset a decrease in local business, resulting in an overall revenue increase of $850,000. Automotive advertising in 1998 was nearly $1,200,000 less than the prior year, which accounted for a substantial portion of the station's local revenue decrease. KOMO TV sales were also impacted by lower audience ratings during the ABC network "prime time" evening period. Newly acquired syndicated programming resulted in improved ratings and revenue during the early afternoon time periods. Radio operations reported a combined revenue increase of $2,500,000 in 1998. Seattle and Portland radio market conditions were strong throughout 1998 with double digit advertising growth noted in each market during the year. Revenue growth for the Seattle radio stations was slightly lower than the market, although STAR 101.5 (KPLZ-FM), an Adult Contemporary format FM, benefited from improved audience ratings that moved the station into the top five in the market. STAR's revenue growth exceeded that of the market as a result. Revenue for the Portland radio operations improved 3.4% for 1998, less than that of the overall market. A format change on the Portland AM station resulted in a decline in revenue for Portland radio operations during the first half of 1998, with accelerating growth during the second half of the year, as audience ratings began to grow. Revenue growth for the smaller-market radio station group, which has stations in Eastern Washington and Montana, was 8.5%.
Income from operations - ----------------------------------------------------------------------------------------------- 1999 % Change 1998 % Change 1997 $34,862,000 2.7% $33,937,000 -7.7% $36,754,000 Percentage of revenue 22.9% 26.6% 30.4%
Operating income from the newly acquired Fisher Television Regional Group and increased operating income from Seattle television and radio operations and the small-market radio group were partially offset by declines in operating income at Portland television and radio operations. Operating expenses at the broadcasting segment increased 25.3% in 1999, primarily due to the operating costs of the newly acquired stations and the recently formed Fisher Entertainment division. Operating expenses of on-going broadcast operations increased 4.2% due primarily to increased depreciation and administration expenses, including employee benefit costs. 1998 results were impacted by a provision, recorded in the first quarter, for anticipated losses incurred from (i) the sale of former Portland radio studios, as part of obtaining new facilities for KWJJ-FM and KOTK, and (ii) an interest in Affiliate Enterprises, Inc. Following the strongest year in the broadcasting subsidiary's history, operating income declined in 1998. The decline resulted from revenue growth that did not meet management's expectations and did not fully offset increased expenses at several of the operations. Specifically, programming costs increased due to the acquisition of new syndicated programs, investment in news programming, and emphasis on promotion. Both KOMO Television in Seattle and KATU Television in Portland expanded news programming in response to intense competition for local news audience. Syndicated programming costs also increased at both stations. KOMO's 1998 results reflect the full-year cost of programming acquired during the Fall of 1997. KATU incurred additional costs to renew existing programs at higher license fees. The Portland radio group also incurred higher programming costs in 1998 as a consequence of changing the format of the AM station from music to talk. This change, which occurred during the fourth quarter of 1997, entailed the licensing of syndicated programming as well as hiring of local program hosts. The Seattle radio group also added new syndicated programming on its AM stations and increased promotion of its FM station, STAR 101.5. MILLING OPERATIONS
Sales and other revenue - ---------------------------------------------------------------------------------------------- 1999 % Change 1998 % Change 1997 $114,942,000 6.4% $108,056,000 -12.8% $123,941,000
In 1996 the milling segment and Koch Agriculture, Inc. formed a limited liability company (LLC) to operate a flour milling facility in Blackfoot, Idaho, with each member owning a 50% interest. The LLC began operations with one compact 36 milling unit in April 1997. Subsequently, a second compact milling unit was installed. During 1998 a 10,000 hundred-weight (cwt) conventional flour mill was constructed, which began operations in December. On July 1, 1999 Fisher acquired the 50% interest in the Blackfoot facility previously owned by Koch Agriculture, and subsequent operating results are fully consolidated. Prior to July 1 the investment in the LLC was accounted for using the equity method, and the milling segment's 50% interest in operating results was included in general and administrative expenses. Flour prices are largely dependent on the cost of wheat purchased to produce flour. During 1999 and 1998 wheat prices continued to decline compared to the prices experienced in 1997. Average flour prices in 1999 were 6.2% lower than 1998 prices while flour sales volume increased 15.6%. 1999 revenue of the milling division, including the Blackfoot mill from July 1, increased $2,700,000, or 4.2% over 1998 revenue. Average flour prices in 1998 were 8.4% lower than in 1997, and flour sales volume declined 3.9%, with the result that milling division revenue was $13,995,000, or 17.9% below the 1997 level. Food distribution sales for 1999 were $4,200,000, or 9.6% above 1998 levels. The increased 1999 sales were due primarily to increased sales volumes at all three distribution center locations. 1998 food distribution sales decreased $1,890,000, or 4.1% compared to 1997. The decrease in 1998 sales was due to a combination of lower sales prices, particularly for flour products, and lower sales volume, primarily in the Southern California market served by the Southern California distribution center where reorganization of sales territories, changes in sales personnel and strong competition negatively impacted volume.
Income from operations - ----------------------------------------------------------------------------------------------------- 1999 % Change 1998 % Change 1997 $(6,121,000) -325.1% $(1,440,000) -159.2% $2,431,000 Percentage of revenue -5.3% -1.3% 2.0%
Income from operations is determined by deducting cost of goods sold and operating expenses from gross margin on sales. During 1999 flour sales margins continued to be under downward pressure. Wheat markets remained soft, and per capita consumption of flour declined slightly, while industry milling capacity increased by 59,000 cwt daily and six-day operating rates dropped further to an estimated 86.7%. Export sales of flour remained at lows. Additionally, the industry and Fisher suffered substantial reductions in revenues and margins on millfeed, that portion of the wheat that does not yield flour and is sold to the animal feed markets. Average monthly margin from millfeed sales declined approximately $31,000 per month in 1999 and $29,000 per month in 1998 compared to the respective prior years. These factors contributed to gross margins after cost of goods sold decreasing in 1999 by 11.8%. Operating expenses increased 35.3% compared to 1998, due to a number of factors including a $1,077,000 increase in the provision for bad debts and increased expenses related to personnel, consulting, and delivery expenses. Also, certain fixed assets no longer in service totaling $390,000 were written off. While the production at the Blackfoot Mill is increasing, operations remain below full capacity. Operating results for 1999 include the milling segment's share of losses from the Blackfoot facility of approximately $1,450,000. To date, the Blackfoot facility has not operated at full capacity as FMI has been unable to sell the full output of the facility. Therefore, the desired cost efficiencies of the Blackfoot facility have not been achieved. The distribution division had mixed results during 1999. The Seattle and Portland units had strong results, continuing to build on the solid performance of 1998. However, the Southern California distribution center continued to incur losses throughout the year, but at a diminishing rate. With the mid-year hiring of a new general manager, reorganization of the logistics and delivery functions, and exiting long-distance markets that were unprofitable, the Southern California distribution center achieved improved operating performance during the second half of the year. 1998 was also a difficult year for the milling segment. Flour margins were depressed for several reasons. Wheat markets remained in retreat, forcing flour prices lower. At the same time industry milling capacity increased approximately 19,000 cwt daily, six-day operating rates dropped to 89.1%, and the industry experienced a substantial decrease in export sales of wheat and flour. For Fisher, where the largest export sales market was eastern Russia, shipments dropped from 475,000 cwt in 1997 to 60,000 in 1998 with a corresponding loss in margin of approximately $400,000. Bad debt expense was adversely impacted by several failures of export and domestic customers to honor their contracts and to pay their debts. Also, the industry, and Fisher, suffered substantial reductions in revenues and margins on millfeed, resulting in a decline in monthly margin of approximately $70,000 from January to December 1998. During 1998 the Seattle and Portland distribution units operated well, building sales revenues, market share and improving profitability over the previous year. In contrast, the Southern California unit suffered significant losses. Partly due to management turnover, the unit was unable to effectively control operations and compete. 37 REAL ESTATE OPERATIONS
Sales and other revenue - ---------------------------------------------------------------------------------------------- 1999 % Change 1998 % Change 1997 $24,572,000 100.3% $12,265,000 7.2% $11,446,000
1999 real estate revenue includes gain from condemnation of real estate in the amount of $12,825,000. In June 1999, Fisher Properties received $13,100,000 in initial condemnation proceeds from the Washington State Department of Transportation under terms of a possession and use agreement for two properties located on Fourth Avenue South in Seattle. Fair market value negotiations continued throughout the remainder of the year, and in December additional proceeds of $3,400,000 were awarded. Excluding the condemnation gain, revenue decreased 4.2% compared with 1998, due to loss of revenue from the properties sold. Real estate market conditions in the Seattle area continued strong, and contributed to an average occupancy level of 97.9% during 1999 and higher rental rates for new and renewing leases. 1998 revenue increased $819,000 over 1997, as the average occupancy rate in 1998 was 98.2% compared with 94.0% in 1997. The decline in average occupancy for 1997 was largely attributable to a vacancy during part of the year resulting from bankruptcy of a tenant.
Income from operations - --------------------------------------------------------------------------------------------------------- 1999 % Change 1998 % Change 1997 $16,028,000 289.3% $4,117,000 27.4% $3,231,000 Percentage of revenue 65.2% 33.6% 28.2%
The 1999 real estate gain similarly affects comparability of income from operations between the periods. When the gain is excluded, operating income as a percentage of revenue is 27.2% in 1999. The decline in 1999 income from operations, adjusted to exclude the real estate gain, compared with 1998 is attributable partially to loss of income from the real estate sold, and to increased operating expenses, including certain one-time operating charges resulting from the condemnation and increased repair, maintenance, and personnel costs. The improvement in 1998 income from operations compared with 1997 is due to increased revenue, and to lower administrative and net operating expenses. LIQUIDITY AND CAPITAL RESOURCES As of December 31, 1999, the Company had working capital of $33,959,000 and cash and short-term cash investments totaling $3,609,000. The Company intends to finance working capital, debt service, capital expenditures, and dividend requirements primarily through operating activities. However, the Company will consider using available lines of credit to fund acquisition activities and significant real estate project development activities. In this regard, the Company has a five-year unsecured revolving line of credit (revolving line of credit) with two banks in a maximum amount of $100,000,000 to finance construction of the Fisher Plaza Project and for general corporate purposes. See Note 12 to the consolidated financial statements for information concerning the Fisher Plaza project.. The revolving line of credit provides that borrowings under the line will bear interest at variable rates. The revolving line of credit also places limitations on the disposition or encumbrance of certain assets and requires the Company to maintain certain financial ratios. In June 1999 the Company entered into an eight-year senior secured credit facility (senior credit facility) with a group of banks in the amount of $230,000,000 to finance the acquisition of Fisher Television Regional Group and for general corporate purposes. See Notes 5 and 11 to the consolidated financial statements for information concerning the acquisition and the senior credit facility. In addition to an amortization schedule which requires repayment of all borrowings under the senior credit facility by June 2007, the amount available under the senior credit facility reduces each year beginning in 2002. Amounts borrowed under the senior credit facility bear interest at variable rates based on the Company's ratio of funded debt to operating cash flow. The senior credit facility is secured by a first priority perfected security interest in the broadcasting subsidiary's capital stock that is owned by the Company. The senior credit facility also places limitations on various aspects of the Company's operations (including the payment of dividends) and requires compliance with certain financial ratios. The revolving line of credit and the senior credit facility required that the Company maintain an interest coverage ratio of 2.25 to 1. At September 30, 1999 the Company's interest coverage ratio was 2.06 to 1. The interest coverage ratio required by the revolving line of credit and the senior credit facility was subsequently modified to 1.80 to 1 from September 30, 1999 through December 31, 2000 with periodic increases thereafter. All other covenants and conditions of the revolving line of credit and the senior credit facility remained unchanged. In connection with the modification the Company paid a fee of $230,000 to the lenders. 38 In August 1999 the Company entered into an interest rate swap contract fixing the interest rate at 6.52%, plus a margin based on the Company's ratio of funded debt to operating cash flow, on $90 million floating rate debt outstanding under the senior credit facility. The notional amount of the swap reduces as payments are made on principal outstanding under the senior credit facility until termination of the contract on December 30, 2004. Net cash provided by operating activities during the year ended December 31, 1999 was $27,851,000. Net cash provided by operating activities consists of the Company's net income, increased by non-cash expenses such as depreciation and amortization, and adjusted by changes in operating assets and liabilities. Net cash used in investing activities during the period was $280,791,000; principally $221,160,000 for the acquisition of Fisher Television Regional Group, and related acquisition costs; $19,000,000 for acquisition of a 50% interest in the limited liability company which operates the Blackfoot flour milling facilities; $56,376,000 for purchase of property, plant and equipment used in operations (including the Fisher Plaza project); reduced by proceeds received from sale of property, plant and equipment in the amount of $17,120,000. Net cash provided by financing activities was $252,581,000, including borrowings under borrowing agreements and notes payable totaling $262,797,000, payments totaling $1,358,000 on borrowing agreements and mortgage loans, and cash dividends paid to stockholders totaling $8,891,000 or $1.04 per share. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS The market risk in the Company's financial instruments represents the potential loss arising from adverse changes in financial and commodity market prices and rates. The Company is exposed to market risk in the areas of interest rates, securities prices and grain prices. These exposures are directly related to its normal funding and investing activities and to its use of agricultural commodities in its operations. Interest Rate Exposure The Company's strategy in managing exposure to interest rate changes is to maintain a balance of fixed- and variable-rate instruments. See Note 5 to the consolidated financial statements for information regarding the contractual interest rates of the Company's debt. The Company will also consider entering into interest rate swap agreements at such times as it deems appropriate. At December 31, 1999, the fair value of the Company's debt is estimated to approximate the carrying amount. Market risk is estimated as the potential change in fair value resulting from a hypothetical 10 percent change in interest rates, and on the Company's fixed rate debt, amounts to $1,900,000 at December 31, 1999. The Company also has $286,717,000 in variable-rate debt outstanding at December 31, 1999. A hypothetical 10 percent change in interest rates underlying these borrowings would result in a $2,259,000 annual change in the Company's pre-tax earnings and cash flows. In August 1999 the Company entered into an interest rate swap agreement fixing the interest rate at 6.52%, plus a margin based on the Company's ratio of funded debt to operating cash flow, on $90 million floating rate debt outstanding under the senior credit facility. The notional amount of the swap reduces as payments are made on principal outstanding under the senior credit facility until termination of the contract on December 30, 2004. At December 31, 1999, the fair value of the swap agreement was $680,000. A hypothetical 10 percent change in interest rates would change the fair value of the Company's swap agreement by approximately $1,600,000 at December 31, 1999. Marketable Securities Exposure The fair value of the Company's investments in marketable securities at December 31, 1999 was $79,422,000. Marketable securities consist of equity securities traded on a national securities exchange or reported on the NASDAQ securities market. A significant portion of the marketable securities consists of 3,002,376 shares of SAFECO Corporation. As of December 31, 1999, these shares represented 2.3% of the outstanding common stock of SAFECO Corporation. While the Company has no intention to dispose of its investments in marketable securities, it has classified its investments as available-for-sale under applicable accounting standards. Mr. William W. Krippaehne, Jr., President, CEO, and a Director of the Company, is a Director of SAFECO. A hypothetical 10 percent change in market prices underlying these securities would result in a $7,944,000 change in the fair value of the marketable securities portfolio. Although changes in securities prices would affect the fair value of the marketable securities portfolio and cause unrealized gains or losses, such gains or losses would not be realized unless the investments are sold. Commodity Price Exposure The Company has exposure to adverse price fluctuations associated with its grain and flour inventories, product gross margins, and certain anticipated transactions in its milling operations. Commodities such as wheat are purchased at market prices that are subject to volatility. As an element of its strategy to manage the risk of market price fluctuations, the Company enters into various exchange-traded futures contracts. The Company closely monitors and manages its exposure to 39 market risk on a daily basis in accordance with formal policies established for this activity. These policies limit the level of exposure to be hedged. All transactions involving derivative financial instruments are required to have a direct relationship to the price risk associated with existing inventories or future purchase and sales of its products. The Company enters into both forward purchase and sales commitments for wheat flour. At the same time, the Company enters into generally matched transactions using offsetting forward commitments and/or exchange-traded futures contracts to hedge against price fluctuations in the market price of wheat. The Company determines the fair value of its exchange-traded contracts based on the settlement prices for open contracts, which are established by the exchange on which the instruments are traded. The margin accounts for open commodity futures contracts, which reflect daily settlements as market values change, represent the Company's basis in those contracts. As of December 31, 1999, the carrying value of the Company's investment in commodities futures contracts and the total net deferred gains and losses on open contracts are immaterial. At December 31, 1999, the actual open positions of these instruments and the potential near-term losses in earnings, fair value, and/or cash flows from changes in market rates or prices are not material. YEAR 2000 The Year 2000 or Y2K problem arose as many computer systems, software programs, and other microprocessor-dependent devices were created using only two digit dates, such that 2000 was represented as 00. It was widely feared these systems would not recognize certain dates, including the year 2000, with the result that processors and programs would fail to complete the processing of information or revert back to the year 1900. The Company recognized the need to reduce the risks of potential related systems failures, and in August 1998 established a Y2K Task Force to address these risks. The Y2K Task Force coordinated the identification and testing of computer hardware, software applications, and other equipment which utilized microprocessors or date dependent functions, with a goal to ensure availability and integrity of the information systems and the reliability of the operational systems and manufacturing processes utilized by the Company and its subsidiaries. Problems discovered were minor, and were remediated. Costs incurred in connection with the Year 2000 problem were approximately $350,000. To date there has been no material adverse effect, nor does the Company believe there will be any future material adverse effect, on the Company's business, results of operations, or financial position as a result of the Year 2000 problem. However, there can be no assurance that failure to address the Year 2000 problem by customers, vendors and others with whom the Company and its subsidiaries do business will not have a material adverse effect on the Company or its subsidiaries. PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 The discussion above under "Year 2000" includes certain "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995 (the "PSLRA"). This statement is included for the express purpose of availing the Company of the protections of the safe harbor provisions of the PSLRA. Management's ability to predict results or the effect of future plans is inherently uncertain, and is subject to factors that may cause actual results to differ materially from those projected. Factors that could affect the actual results include the possibility that remediation programs will not operate as intended, the Company's failure to completely identify all software or hardware applications requiring remediation, unexpected costs, and the uncertainty associated with the impact of Year 2000 issues on the Company's customers, vendors and others with whom it does business. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The financial statements and related documents listed in the index set forth in Item 14 in this report are filed as part of this report. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 40 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information set forth under the headings "Information With Respect to Nominees and Directors Whose Terms Continue", "Security Ownership of Certain Beneficial Owners and Management", and "Compliance With Section 16(a) Filing Requirements" contained in the definitive Proxy Statement for the Company's Annual Meeting of Shareholders to be held on April 27, 2000, is incorporated herein by reference. ITEM 11. EXECUTIVE COMPENSATION The information set forth under the heading "Executive Compensation" and "Information With Respect to Nominees and Directors Whose Terms Continue" contained in the definitive Proxy Statement for the Company's Annual Meeting of Shareholders to be held on April 27, 2000, is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information set forth under the heading "Security Ownership of Certain Beneficial Owners and Management" contained in the definitive Proxy Statement for the Company's Annual Meeting of Shareholders to be held on April 27, 2000, is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information set forth under the heading "Transactions With Management" contained in the definitive Proxy Statement for the Company's Annual Meeting of Shareholders to be held on April 27, 2000, is incorporated herein by reference. 41 PART IV ITEM 14 EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) (1) Reports of Management and Independent Accountants. (2) Consolidated Statement of Income for the years ended December 31, 1999, December 31, 1998 and December 31, 1997. (3) Consolidated Statements of Stockholders' Equity. (4) Consolidated Balance Sheets at December 31, 1999 and December 31, 1998. (5) Consolidated Statements of Cash Flows for the years ended December 31, 1999, December 31, 1998 and December 31, 1997. (6) Consolidated Statements of Comprehensive Income for the years ended December 31, 1999, December 31, 1998 and December 31, 1997. (7) Notes to Consolidated Financial Statements. (8) Financial Statement Schedule: 8.1 Report of Independent Accountants 8.2 Schedule III - Real Estate and Accumulated Depreciation at December 31, 1999 (b) Exhibits: See "Exhibit Index." (c) Forms 8-K filed during fiscal year 1999. A Form 8-K was filed on June 2, 1999 with respect to the announcement of an agreement for the Company and its wholly- owned subsidiary, Fisher Mills Inc. ("Fisher Mills") to acquire the 50% interest of Koch Agriculture Company ("Koch Agriculture") in the Blackfoot, Idaho flour milling facility. A Form 8-K was filed on July 15, 1999 with respect to the announcement of completion of the acquisition of the broadcasting assets of Retlaw Enterprises, Inc. by the Company and its subsidiary, Fisher Broadcasting Inc. A Form 8-K/A was filed on September 14, 1999 which included financial statements, pro forma financial information, and exhibits relating to the acquisition of the broadcasting assets of Retlaw Enterprises, Inc. by the Company and its subsidiary, Fisher Broadcasting Inc. 42 Report of Management Management is responsible for the preparation of the Company's consolidated financial statements and related information appearing in this annual report. Management believes that the consolidated financial statements fairly reflect the form and substance of transactions and that the financial statements reasonably present the Company's financial position and results of operations in conformity with generally accepted accounting principles. Management also has included in the Company's financial statements amounts that are based on estimates and judgments which it believes are reasonable under the circumstances. The independent accountants audit the Company's consolidated financial statements in accordance with generally accepted auditing standards and provide an objective, independent review of the fairness of reported operating results and financial position. The Board of Directors of the Company has an Audit Committee composed of five non-management Directors. The Committee meets periodically with management and the independent accountants to review accounting, control, auditing and financial reporting matters. /s/ William W. Krippaehne, Jr. William W. Krippaehne, Jr. President and Chief Executive Officer /s/ Warren J. Spector Warren J. Spector Executive Vice President and Chief Operating Officer /s/ David D. Hillard David D. Hillard Senior Vice President and Chief Financial Officer Report of Independent Accountants To the Stockholders and Board of Directors of Fisher Companies Inc. In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of income, of stockholders' equity, of comprehensive income and of cash flows present fairly, in all material respects, the financial position of Fisher Companies Inc. and its subsidiaries at December 31, 1999 and 1998, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1999 in conformity with accounting principles generally accepted in the United States. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. /s/ PricewaterhouseCoopers LLP PricewaterhouseCoopers LLP Seattle, Washington February 29, 2000 43 FISHER COMPANIES INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF INCOME
Year Ended December 31 1999 1998 1997 - --------------------------------------------------------------------------------------------------------------------------- (in thousands, except per share amounts) Sales and other revenue Broadcasting $ 152,223 $ 127,637 $ 120,792 Milling 114,942 108,056 123,941 Real estate 24,572 12,265 11,446 Corporate and other, primarily dividends and interest income 4,761 4,224 3,855 - --------------------------------------------------------------------------------------------------------------------------- 296,498 252,182 260,034 - --------------------------------------------------------------------------------------------------------------------------- Costs and expenses Cost of products and services sold 174,468 157,526 162,715 Selling expenses 26,325 20,203 18,228 General, administrative and other expenses 54,211 37,898 35,812 - --------------------------------------------------------------------------------------------------------------------------- 255,004 215,627 216,755 - --------------------------------------------------------------------------------------------------------------------------- Income from operations Broadcasting 34,862 33,937 36,754 Milling (6,121) (1,440) 2,431 Real estate 16,028 4,117 3,231 Corporate and other (3,275) (59) 863 - --------------------------------------------------------------------------------------------------------------------------- 41,494 36,555 43,279 Interest expense 13,871 4,451 5,467 - ---------------------------------------------------------------------------------------------------------------------------- Income before provision for income taxes 27,623 32,104 37,812 Provision for federal and state income taxes 9,530 11,047 13,083 - --------------------------------------------------------------------------------------------------------------------------- Net income $ 18,093 $ 21,057 $ 24,729 - --------------------------------------------------------------------------------------------------------------------------- Net income per share $ 2.12 $ 2.47 $ 2.90 Net income per share assuming dilution $ 2.11 $ 2.46 $ 2.88 Weighted average shares outstanding 8,548 8,541 8,534 Weighted average shares outstanding assuming dilution 8,575 8,575 8,577
See accompanying notes to consolidated financial statements. 44 FISHER COMPANIES INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Accumulated Capital in Other Common Stock Excess Deferred Comprehensive Retained Total Shares Amount of Par Compensation Income Earnings Equity - ---------------------------------------------------------------------------------------------------------------------------------- (In thousands except share amounts) Balance December 31, 1996 8,530,344 $ 10,663 $ 48 $ 78,304 $ 143,114 $ 232,129 Net income 24,729 24,729 Other compehensive income-unrealized gain on securities net of deferred income taxes 18,225 18,225 Issuance of common stock under rights and options, and related tax benefit 5,088 6 229 235 Dividends (8,467) (8,467) - ---------------------------------------------------------------------------------------------------------------------------------- Balance December 31, 1997 8,535,432 10,669 277 96,529 159,376 266,851 Net income 21,057 21,057 Other compehensive income-unrealized gain on securities net of deferred income taxes (11,293) (11,293) Issuance of common stock rights 1,169 $ (1,169) Amortization of deferred compensation 436 436 Issuance of common stock under rights and options, and related tax benefit 6,952 9 346 355 Dividends (10,858) (10,858) - ---------------------------------------------------------------------------------------------------------------------------------- Balance December 31, 1998 8,542,384 10,678 1,792 (733) 85,236 169,575 266,548 Net income 18,093 18,093 Other compehensive income-unrealized gain on securities net of deferred income taxes (34,358) (34,358) Issuance of common stock rights 222 (222) Amortization of deferred compensation 421 421 Issuance of common stock under rights and options, and related tax benefit 8,306 10 154 164 Dividends (8,893) (8,893) - ---------------------------------------------------------------------------------------------------------------------------------- Balance December 31, 1999 8,550,690 $ 10,688 $ 2,168 $ (534) $ 50,878 $ 178,775 $ 241,975 - ----------------------------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements. 45 FISHER COMPANIES INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET
December 31 1999 1998 - ------------------------------------------------------------------------------------------------------------------------ (in thousands, except share and per share amounts) ASSETS Current Assets Cash and short-term cash investments $ 3,609 $ 3,968 Receivables 59,026 44,481 Inventories 13,755 11,009 Prepaid income taxes 1,276 Prepaid expenses 5,948 6,993 Television and radio broadcast rights 10,456 8,190 - ------------------------------------------------------------------------------------------------------------------------ Total current assets 94,070 74,641 - ------------------------------------------------------------------------------------------------------------------------ Marketable Securities, at market value 79,442 132,281 - ------------------------------------------------------------------------------------------------------------------------ Other Assets Cash value of life insurance and retirement deposits 11,637 10,900 Television and radio broadcast rights 1,076 49 Intangible assets, net of amortization 244,367 48,650 Investments in equity investees 3,003 15,126 Other 9,290 3,285 - ------------------------------------------------------------------------------------------------------------------------ 269,373 78,010 - ------------------------------------------------------------------------------------------------------------------------ Property, Plant and Equipment, net 235,627 154,590 - ------------------------------------------------------------------------------------------------------------------------ $ 678,512 $ 439,522 - ------------------------------------------------------------------------------------------------------------------------ LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities Notes payable $ 22,622 13,479 Trade accounts payable 13,040 8,454 Accrued payroll and related benefits 9,483 5,071 Television and radio broadcast rights payable 10,205 7,675 Income taxes payable 457 Dividends payable 2,223 2,221 Other current liabilities 2,538 3,030 - ------------------------------------------------------------------------------------------------------------------------ Total current liabilities 60,111 40,387 - ------------------------------------------------------------------------------------------------------------------------ Long-term Debt, net of current maturities 315,552 63,257 - ------------------------------------------------------------------------------------------------------------------------ Other Liabilities Accrued retirement benefits 14,028 13,298 Deferred income taxes 44,008 55,048 Television and radio broadcast rights payable, long-term portion 795 Other liabilities 2,043 984 - ------------------------------------------------------------------------------------------------------------------------ 60,874 69,330 - ------------------------------------------------------------------------------------------------------------------------ Stockholders' Equity Common stock, shares authorized 12,000,000, $1.25 par value; issued 8,550,690 in 1999 and 8,542,384 in 1998 10,688 10,678 Capital in excess of par 2,168 1,792 Deferred compensation (534) (733) Accumulated other comprehensive income - unrealized gain on marketable securities, net of deferred income taxes of $27,396 in 1999 and $45,935 in 1998 50,878 85,236 Retained earnings 178,775 169,575 - ------------------------------------------------------------------------------------------------------------------------ 241,975 266,548 - ------------------------------------------------------------------------------------------------------------------------ $ 678,512 $ 439,522 - ------------------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements. 46 FISHER COMPANIES INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS
Year Ended December 31 1999 1998 1997 - --------------------------------------------------------------------------------------------------------------------------- (in thousands) Cash flows from operating activities Net income $ 18,093 $ 21,057 $ 24,729 Adjustments to reconcile net income to net cash provided by operating activities Depreciation and amortization 17,975 13,176 11,975 Increase in noncurrent deferred income taxes 7,461 595 1,199 Issuance of stock pursuant to vested stock rights and related tax benefit 131 298 191 Amortization of deferred compensation 421 436 Net loss in equity investees 689 (Gain) loss on sale and disposition of property, plant and equipment (12,440) 466 Change in operating assets and liabilities Receivables (3,111) 142 (14) Inventories 38 3,528 (1,338) Prepaid income taxes (1,276) Prepaid expenses 2,199 (71) 937 Cash value of life insurance and retirement deposits (738) (848) (690) Other assets (6,005) (168) 570 Income taxes payable (457) (160) (530) Trade accounts payable, accrued payroll and related benefits and other current liabilities 3,246 (614) (1,285) Accrued retirement benefits 730 1,239 135 Other liabilities 1,060 270 5 Amortization of television and radio broadcast rights 14,606 11,822 9,396 Payments for television and radio broadcast rights (14,771) (12,174) (9,240) - --------------------------------------------------------------------------------------------------------------------------- Net cash provided by operating activities 27,851 38,994 36,040 - --------------------------------------------------------------------------------------------------------------------------- Cash flows from investing activities Proceeds from sale of property, plant and equipment 17,120 609 Investments in equity investees (1,375) (10,648) (3,755) Purchase assets of television and radio stations (221,160) (427) (3,949) Purchase of 50% interest in Blackfoot flour mill (19,000) Purchase of property, plant and equipment (56,376) (25,075) (17,699) - --------------------------------------------------------------------------------------------------------------------------- Net cash used in investing activities (280,791) (35,541) (25,403) - --------------------------------------------------------------------------------------------------------------------------- Cash flows from financing activities Net (payments) borrowings under notes payable 596 (5,024) 9,004 Borrowings under borrowing agreements 262,201 12,000 120 Payments on borrowing agreements and mortgage loans (1,358) (4,218) (10,117) Proceeds from exercise of stock options 33 57 44 Cash dividends paid (8,891) (8,637) (8,467) - --------------------------------------------------------------------------------------------------------------------------- Net cash provided by (used in) financing activities 252,581 (5,822) (9,416) - --------------------------------------------------------------------------------------------------------------------------- Net increase (decrease) in cash and short-term cash investments (359) (2,369) 1,221 Cash and short-term cash investments, beginning of period 3,968 6,337 5,116 - --------------------------------------------------------------------------------------------------------------------------- Cash and short-term cash investments, end of period $ 3,609 $ 3,968 $ 6,337 - ---------------------------------------------------------------------------------------------------------------------------
Supplemental cash flow information is included in Notes 5, 7 and 8. See accompanying notes to consolidated financial statements. 47 FISHER COMPANIES INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Year Ended December 31 1999 1998 1997 - ---------------------------------------------------------------------------------------------------------------------------- (In thousands) Net income $ 18,093 $ 21,057 $ 24,729 Other comprehensive income - unrealized gain (loss) on marketable securities, net of deferred income taxes of $(18,501) in 1999, $(6,042) in 1998 and $ 9,813 in 1997 (34,358) (11,293) 18,225 - ---------------------------------------------------------------------------------------------------------------------------- Comprehensive income $ (16,265) $ 9,764 $ 42,954 - ----------------------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements. 48 FISHER COMPANIES INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 Operations And Accounting Policies The principal operations of Fisher Companies Inc. and subsidiaries (the Company) are television and radio broadcasting, flour milling and distribution of bakery supplies, and proprietary real estate development and management. The Company conducts its business primarily in Washington, Oregon, California, Georgia and Montana. A summary of significant accounting policies is as follows: Principles of consolidation The consolidated financial statements include the --------------------------- accounts of Fisher Companies Inc. and its majority-owned subsidiaries. All material intercompany balances and transactions have been eliminated. 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. Revenue recognition Television and radio revenue is recognized when the ------------------- advertisement is broadcast. Sales of flour and food products are recognized when the product is shipped. Rentals from real estate leases are recognized over the term of the lease. Short-term cash investments Short-term cash investments are comprised of --------------------------- repurchase agreements collateralized by U.S. Government securities held by major banks. The recorded amount represents market value because of the short maturity of the investments. The Company considers short-term cash investments which have original maturities of 90 days or less to be cash equivalents. Inventories Inventories of grain and the grain component of finished products ----------- are valued at cost. Grain forward and future contracts are entered into by the milling subsidiary to protect the Company from risks related to commitments to buy grain and sell flour. Gains and losses arising from grain hedging activity are a component of the cost of the related inventory. The market value of hedges is based on spot prices obtained from brokers. All other inventories and inventory components are valued at the lower of average cost or market. Television and radio broadcast rights Costs of television and radio broadcast ------------------------------------- rights are charged to operations using accelerated or straight-line methods of amortization selected to match expense with anticipated revenue over the contract life. Asset costs and liabilities for television and radio broadcast rights are recorded without discount for any noninterest-bearing liabilities. Those costs and liabilities attributable to programs scheduled for broadcast after one year have been classified as noncurrent assets and liabilities in the accompanying financial statements. Marketable securities Marketable securities consist of equity securities --------------------- traded on a national securities exchange or reported on the NASDAQ securities market. A significant portion of the marketable securities consists of 3,002,376 shares of SAFECO Corporation at December 31, 1999 and 1998. As of December 31, 1999, these shares represented 2.3% of the outstanding common stock of SAFECO Corporation. Market value is based on closing per share sale prices. While the Company has no intention to dispose of its investments in marketable securities, it has classified its investments as available-for-sale and those investments are reported at fair market value. Unrealized gains and losses are a separate component of stockholders' equity. Investments in equity investees Investments in equity investees represent ------------------------------- investments in 50% owned entities, and are accounted for using the equity method. The principal component consisted of the 50% investment in the Koch Fisher Mills LLC which became a wholly-owned subsidiary in 1999 (see Note 11). Intangible assets Intangible assets represent the excess of purchase price of ----------------- certain broadcast and milling properties over the fair value of tangible net assets acquired (goodwill) and are amortized based on the straight-line method over the estimated useful life of 40 years. Accumulated amortization at December 31, 1999 and 1998 is $7,755,000 and $3,948,000, respectively. Property, plant and equipment Replacements and improvements are capitalized ----------------------------- while maintenance and repairs are charged as expense when incurred. Property, plant and equipment are stated at historical cost. Gains or losses on dispositions of property, plant and equipment are included in income. Real estate taxes, interest expense and certain other costs related to real estate projects constructed for lease to third parties are capitalized as a cost of such projects until the project, including major tenant improvements, is substantially completed. A project is generally considered to be substantially completed when a predetermined occupancy level has been reached or the project has been available for occupancy for a period of one year. Costs, including depreciation, applicable to a project are charged to expense based on the ratio of occupied space to total rentable space until the project is substantially completed, after which costs are expensed as incurred. For financial reporting purposes, depreciation of plant and equipment is determined primarily by the straight-line method over the estimated useful lives of the assets as follows: Buildings and improvements 30-55 years Machinery and equipment 3-20 years Land improvements 10-55 years 49 Impairment of long-lived assets The Company assesses 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. No losses from impairment of value have been recorded in the financial statements. Income taxes Deferred income taxes are provided for all significant ------------ temporary differences in reporting for financial reporting purposes versus income tax reporting purposes. Advertising The Company expenses advertising costs at the time the ----------- advertising first takes place. Net advertising expense was $3,343,000, $3,588,000 and $2,191,000 in 1999, 1998 and 1997, respectively. Earnings per share Net income per share represents net income divided by ------------------ the weighted average number of shares outstanding during the year. Net income per share assuming dilution represents net income divided by the weighted average number of shares outstanding, including the potentially dilutive impact of the stock options and restricted stock rights issued under the Fisher Companies Incentive Plan of 1995. Common stock options and restricted stock rights are converted using the treasury stock method. A reconciliation of the number of shares outstanding to the weighted average number of shares outstanding assuming dilution is as follows: Year Ended December 31 1999 1998 1997 --------- --------- --------- Shares outstanding at beginning of period 8,542,384 8,535,432 8,530,344 Weighted average of shares issued 6,070 5,239 3,846 --------- --------- --------- 8,548,454 8,540,671 8,534,190 Dilutive effect of: Restricted stock rights 13,570 15,460 23,391 Stock options 12,731 18,785 19,250 --------- --------- --------- 8,574,755 8,574,916 8,576,831 --------- --------- --------- Fair value of financial instruments The carrying amount of cash and ----------------------------------- short-term cash investments, receivables, inventories, marketable securities, trade accounts payable and broadcast rights payable approximate fair value. The fair value of notes payable and long-term debt approximates the recorded amount based on borrowing rates currently available to the Company. From time to time, the Company uses interest rate swap agreements to manage interest rate risk on floating rate debt. Each interest rate swap agreement is matched as a hedge against a specific debt instrument, and is generally entered into at the time the related floating rate debt is issued in order to convert the floating rate debt to fixed rates. Fair value of these instruments is based on estimated current settlement cost. Amounts currently due to or from interest rate swap counterparties are recorded in interest expense in the period in which they accrue. Recent accounting pronouncements In June 1998, Statement of Financial -------------------------------- Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities (FAS 133), was issued. This pronouncement standardizes the accounting for derivative instruments by requiring that an entity recognize those items as assets or liabilities in the financial statements and measure them at fair value. FAS 133 is required to be adopted by the Company for the year ending December 31, 2000. The Company is currently reviewing the requirements of FAS 133 and assessing its impact on the Company's financial statements. Reclassifications Certain prior year balances have been reclassified to ----------------- conform to the 1999 presentation. NOTE 2 Receivables Receivables are summarized as follows (in thousands): December 31 1999 1998 ----------- ----------- Trade accounts $ 59,553 $ 45,424 Other 1,482 413 ----------- ----------- 61,035 45,837 Less-Allowance for doubtful accounts 2,009 1,356 ----------- ----------- $ 59,026 $ 44,481 ----------- ----------- 50 NOTE 3 Inventories Inventories are summarized as follows (in thousands): December 31 1999 1998 ----------- ----------- Finished products $ 6,079 $ 3,906 Raw materials 7,552 6,983 Spare parts and supplies 124 120 ----------- ----------- $ 13,755 $ 11,009 ----------- ----------- NOTE 4 Property, Plant And Equipment Property, plant and equipment are summarized as follows (in thousands): December 31 1999 1998 ----------- ----------- Building and improvements $ 137,725 $ 126,575 Machinery and equipment 127,940 95,532 Land and improvements 23,979 17,733 ----------- ----------- 289,644 239,840 Less-Accumulated depreciation 115,875 107,664 ----------- ----------- 173,769 132,176 Construction in progress 61,858 22,414 ----------- ----------- $ 235,627 $ 154,590 ----------- ----------- The Company's real estate subsidiary receives rental income principally from the lease of warehouse, office and retail space, boat moorages and unimproved properties under gross and net leases which expire at various dates through 2008. These leases are accounted for as operating leases. The subsidiary generally limits lease terms to periods not in excess of five years. Minimum future rentals from leases which were in effect at December 31, 1999 are (in thousands): Year Rentals --------- 2000 $ 9,704 2001 7,653 2002 6,587 2003 6,037 2004 3,029 Thereafter 1,346 --------- $ 34,356 --------- Property held by the real estate subsidiary includes property leased to third parties and to other subsidiaries of the Company and property held for future development. The investment in property held for lease to third parties included in property, plant and equipment at December 31, 1999 includes buildings, equipment and improvements of $94,077,000, land and improvements of $12,978,000 and accumulated depreciation of $32,042,000. Interest capitalized relating to construction of property, plant and equipment amounted to approximately $2,270,000 and $630,000 in 1999 and 1998, respectively. No interest was capitalized in 1997. 51 NOTE 5 Notes Payable And Long-Term Debt Notes payable The Company maintains bank lines of credit which totaled ------------- $25,000,000 at December 31, 1999. The lines are unsecured and bear interest at rates no higher than the prime rate. $7,000,000 was outstanding under the lines at December 31, 1999. The notes payable to directors, stockholders and others comprise notes payable on demand. Such notes bear interest at rates equivalent to those available to the Company for short-term cash investments. Interest on such notes amounted to $281,000, $534,000 and $573,000 in 1999, 1998 and 1997, respectively. Notes payable are summarized as follows (in thousands): December 31 1999 1998 --------- --------- Banks $ 7,000 $ 5,760 Directors, stockholders and others 5,717 6,361 Current maturities of long-term debt 9,905 1,358 --------- --------- $ 22,622 $ 13,479 --------- --------- Long-term debt - -------------- Lines of credit The Company maintains an unsecured reducing revolving line --------------- of credit with a bank in the amount of $100,000,000 to finance construction of the Fisher Plaza project (see Note 12) and for general corporate purposes. During 1999 the line was for $75,000,000, and it increases to a maximum amount of $100,000,000 in 2001. The revolving line of credit is governed by a credit agreement which provides that borrowings under the line will bear interest at a variable rate not to exceed the bank's publicly announced reference rate. The agreement also places limitations on the disposition or encumbrance of certain assets and requires the Company to maintain certain financial ratios. The line matures in 2003 and may be extended for two additional years. At December 31, 1999 $49,000,000 was outstanding under the line at an interest rate of 8.72%. In June 1999 the Company entered into an eight-year senior secured credit facility (senior credit facility) with a group of banks in the amount of $230,000,000 to finance the acquisition of eleven television stations (see Note 11) and for general corporate purposes. The senior credit facility is secured by a first priority perfected security interest in the broadcasting subsidiary's capital stock that is owned by the Company. The senior credit facility also places limitations on various aspects of the Company's operations (including the payment of dividends) and requires compliance with certain financial ratios. In addition to an amortization schedule which requires repayment of all borrowings under the senior credit facility by June 2007, the amount available under the senior credit facility reduces each year beginning in 2002. Amounts borrowed under the senior credit facility bear interest at variable rates based on the Company's ratio of funded debt to operating cash flow. At December 31, 1999, $225,000,000 was outstanding under the senior credit facility at a blended interest rate of 8.5%. Mortgage loans The real estate subsidiary maintains the following mortgage -------------- loans: Principal amount of $4,229,000 secured by an industrial park with a book value of $5,672,000 at December 31, 1999. The nonrecourse loan requires monthly payments including interest of $30,000. The loan matures in May 2006 and bears interest at 6.88%. The interest rate is subject to adjustment in May 2001 to the then-prevailing market rate for loans of a similar type and maturity; the real estate subsidiary may prepay all or part of the loan on that date. Principal amount of $9,769,000 secured by an industrial park with a book value of $11,358,000 at December 31, 1999 and principal amount of $12,688,000 secured by two office buildings with a book value of $17,205,000 at December 31, 1999. The loans mature in 2008, bear interest at 7.04% and require monthly payments of $78,000 and $101,000, respectively, including interest. These mortgage loans are nonrecourse. The interest rates are subject to adjustment in December 2003 to the then prevailing rate for loans of a similar type and maturity; all or a portion of the outstanding principal balance may be prepaid on those dates. Principal amount of $24,469,000 secured by an office building and parking structure with a book value of $30,876,000 at December 31, 1999. The nonrecourse loan matures in February 2006, bears interest at 7.72% and requires monthly payments of principal and interest amounting to $221,000. 52 Long-term debt is summarized as follows (in thousands): December 31 1999 1998 --------- --------- Notes payable under bank lines of credit $ 274,000 $ 12,000 Mortgage loans payable 51,155 52,498 Other 302 117 --------- --------- 325,457 64,615 Less-Current maturities 9,905 1,358 --------- --------- $ 315,552 $ 63,257 --------- --------- Future maturities of notes payable and long-term debt are as follows (in thousands):
Directors, Mortgage Stockholders Bank Lines Loans Banks and Others of Credit and Other Total ------------ ------------ ------------ ------------ ------------ 2000 $ 7,000 $ 5,717 $ 8,437 $ 1,468 22,622 2001 14,063 1,578 15,641 2002 25,625 1,698 27,323 2003 27,500 1,825 29,325 2004 35,938 1,963 37,901 Thereafter 162,437 42,925 205,362 ------------ ------------ ------------ ------------ ------------ $ 7,000 $ 5,717 $ 274,000 $ 51,457 $ 338,174 ------------ ------------ ------------ ------------ ------------
Cash paid for interest (net of amounts capitalized) during 1999, 1998 and 1997 was $13,324,000, $4,408,000 and $5,512,000, respectively. In August 1999 the Company entered into an interest rate swap agreement fixing the interest rate at 6.52%, plus a margin based on the Company's ratio of funded debt to operating cash flow, on $90 million floating rate debt outstanding under the senior credit facility. The notional amount of the swap reduces as payments are made on principal outstanding under the senior credit facility until termination of the contract on December 30, 2004. At December 31, 1999, the fair value of the swap agreement was $680,000. No carrying amount was recorded. NOTE 6 Television And Radio Broadcast Rights Television and radio broadcast rights acquired under contractual arrangements were $14,852,000 and $12,981,000 in 1999 and 1998, respectively. At December 31, 1999, the broadcasting subsidiary had executed license agreements amounting to $45,150,000 for future rights to television and radio programs. As these programs will not be available for broadcast until after December 31, 1999, they have been excluded from the financial statements. NOTE 7 Stockholders' Equity The Board of Directors authorized a two-for-one stock split effective March 6, 1998 for stockholders of record on February 20, 1998. In connection with the stock split, the par value of the Company's common stock was adjusted from $2.50 per share to $1.25 per share. All share and per share amounts reported in the financial statements have been adjusted to reflect the stock split. The Fisher Companies Incentive Plan of 1995 (the Plan) provides that up to 560,000 shares of the Company's common stock may be issued or sold to eligible key management employees pursuant to options and rights through 2002. Stock options The Plan provides that eligible key management employees may ------------- be granted options to purchase the Company's common stock at the fair market value on the date the options are granted. The options generally vest over five years and generally expire ten years from the date of grant. 53 Restricted stock rights The Plan also provides that eligible key ----------------------- management employees may be granted restricted stock rights which entitle such employees to receive a stated number of shares of the Company's common stock. The rights generally vest over five years and expire upon termination of employment. Compensation expense of $421,000, $436,000 and $357,000 related to the rights was recorded during 1999, 1998 and 1997, respectively. A summary of stock options and restricted stock rights is as follows:
Restricted Stock Options Stock Rights Weighted Number Average Exercise Number of Shares Price Per Share of Shares ---------------- ---------------- ---------------- Balance, December 31, 1996 42,000 $ 37.25 19,400 Shares granted 69,770 57.50 10,080 Options exercised (1,180) 37.25 Stock rights vested (3,988) Shares forfeited (1,810) 57.50 (1,290) ---------------- ---------------- ---------------- Balance, December 31, 1997 108,780 49.90 24,202 Shares granted 67,250 65.50 5,990 Options exercised (1,402) 40.46 Stock rights vested (5,778) Shares forfeited (1,550) 61.37 (716) ---------------- ---------------- ---------------- Balance, December 31, 1998 173,078 55.94 23,698 Shares granted 63,900 63.00 3,520 Options exercised (900) 37.25 Stock rights vested (7,657) Shares forfeited (685) 61.24 (88) ---------------- ---------------- ---------------- Balance, December 31, 1999 235,393 $ 57.91 19,473 ---------------- ---------------- ----------------
The weighted average remaining contractual life of options outstanding at December 31, 1999 is 7.5 years. At December 31, 1999 and 1998, options for 71,966 and 28,935 shares are exercisable at a weighted average exercise price of $52.93 and $47.08 per share, respectively. The Company accounts for common stock options and restricted common stock rights issued pursuant to the Plan in accordance with Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" (APB 25). Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" (FAS 123), requires companies who elect to adopt its provisions to utilize a fair value approach for accounting for stock compensation. The Company has elected to continue to apply the provisions of APB 25 in its financial statements. If the provisions of FAS 123 were applied to the Company's stock options, net income, net income per share and net income per share assuming dilution would have been reduced by approximately $500,000, $443,000 and $277,000, or $0.06, $0.05 and $0.03 per share during 1999, 1998 and 1997, respectively. The fair value of each stock option is estimated on the date of grant using the Black-Scholes option-pricing model with the following assumptions used for grants in 1999, 1998 and 1997, respectively: dividend yield of 1.70%, 1.89% and 2.05%, volatility of 14.96%, 17.38% and 15.16%, risk-free interest rate of 5.13%, 5.61% and 6.38%, assumed forfeiture rate of 0%, and an expected life of five years in all three years. Under FAS 123, the weighted average fair value of stock options granted during 1999, 1998 and 1997, respectively, was $12.45, $14.40 and $12.36. Cash dividends were paid at the rate of $1.04, $1.00 and $.98 per share in 1999, 1998 and 1997, respectively. On December 1, 1999 the Board of Directors declared a dividend in the amount of $.26 per share payable March 3, 2000 to stockholders of record on February 18, 2000. 54 NOTE 8 Income Taxes Income taxes have been provided as follows (in thousands): Year Ended December 31 1999 1998 1997 --------- --------- --------- Payable currently $ 3,167 $ 10,968 $ 12,052 Current and noncurrent deferred income taxes 6,363 79 1,031 --------- --------- --------- $ 9,530 $ 11,047 $ 13,083 --------- --------- --------- Reconciliation of income taxes computed at federal statutory rates to the reported provisions for income taxes is as follows (in thousands): Year Ended December 31 1999 1998 1997 --------- --------- --------- Normal provision computed at 35% of pretax income $ 9,668 $ 11,236 $ 13,234 Dividends received credit (1,086) (1,013) (925) State taxes, net of federal tax benefit 688 715 654 Other 260 109 120 --------- --------- --------- $ 9,530 $ 11,047 $ 13,083 --------- --------- --------- Deferred tax assets (liabilities) are summarized as follows (in thousands): December 31 1999 1998 --------- --------- Current: Accrued employee benefits $ 594 $ (528) Allowance for doubtful accounts 595 490 Accrued property tax (423) (349) Other 302 349 --------- --------- $ 1,068 $ (38) --------- --------- Noncurrent: Unrealized gain on marketable securities $ (27,396) $ (45,935) Property, plant and equipment (19,922) (12,350) Accrued employee benefits 3,310 3,237 --------- --------- $ (44,008) $ (55,048) --------- --------- The current deferred tax asset is reflected in prepaid expenses. Cash paid for income taxes during 1999, 1998 and 1997 was $4,869,000, $11,011,000 and $12,457,000, respectively. NOTE 9 Retirement Benefits The Company has qualified defined benefit pension plans covering substantially all employees not covered by union plans. Benefits are based on years of service and, in one of the pension plans, on the employees' compensation at retirement. The Company accrues annually the normal costs of the pension plans plus the amortization of prior service costs over periods ranging to 15 years. Such costs are funded in accordance with provisions of the Internal Revenue Code. 55 Changes in the projected benefit obligation and the fair value of assets for the Company's pension plans are as follows (in thousands):
December 31 1999 1998 -------------- -------------- Projected benefit obligation - beginning of year $ 32,081 $ 27,973 Service cost 1,536 1,345 Interest cost 2,106 2,032 Liability experience (4,926) 2,640 Benefit payments (3,857) (1,909) -------------- -------------- Projected benefit obligation - end of year $ 26,940 $ 32,081 -------------- -------------- Fair value of plan assets - beginning of year $ 28,816 $ 30,258 Actual return on plan assets 3,237 601 Benefits paid (3,857) (1,909) Plan expenses (111) (134) -------------- -------------- Fair value of plan assets - end of year $ 28,085 $ 28,816 -------------- --------------
The composition of the prepaid pension cost and the funded status are as follows (in thousands):
December 31 1999 1998 -------------- -------------- Projected benefit obligation $ 26,940 $ 32,081 Fair value of plan assets 28,086 28,816 -------------- -------------- Funded status 1,146 (3,265) Unrecognized prior service cost 210 269 Unrecognized net (gain) loss (1,268) 4,624 -------------- -------------- Prepaid pension cost $ 88 $ 1,628 -------------- --------------
The net periodic pension cost for the Company's qualified defined benefit pension plans is as follows (in thousands):
Year Ended December 31 1999 1998 1997 -------------- -------------- -------------- Service cost $ 1,590 $ 1,345 $ 1,334 Interest cost 2,106 2,032 1,882 Expected return on assets (2,459) (2,483) (2,202) Amortization of transition asset (56) (67) Amortization of prior service cost 58 50 375 Amortization of loss 245 18 -------------- -------------- -------------- Net periodic pension cost $ 1,540 $ 888 $ 1,340 -------------- -------------- --------------
The discount rate used in determining the actuarial present value of the projected benefit obligation at December 31, 1999 and 1998 was 7.75% and 6.75%, respectively; the rate of increase in future compensation was 4.5%. The expected long-term rate of return on assets ranged from 8.5% to 9.25% in both years. The Company has a noncontributory supplemental retirement program for key management. The program provides for vesting of benefits under certain circumstances. Funding is not required, but generally the Company has acquired annuity contracts and life insurance on the lives of the individual participants to assist in payment of retirement benefits. The Company is the owner and beneficiary of such policies; accordingly, the cash value of the policies as well as the accrued liability are reported in the financial statements. The program requires continued employment through the date of expected retirement and the cost of the program is accrued over the participants' remaining years of service. 56 Changes in the projected benefit obligation and accrued pension cost of the Company's supplemental retirement program are as follows (in thousands):
December 31 1999 1998 -------------- -------------- Projected benefit obligation - beginning of year $ 12,100 $ 11,372 Service cost 439 443 Interest cost 702 649 Assumption changes 330 Benefit payments (782) (694) -------------- -------------- Projected benefit obligation - end of year 12,459 12,100 Appreciation of policy value 516 301 Unrecognized net loss (1,165) (1,171) -------------- -------------- Accrued pension cost $ 11,810 $ 11,230 -------------- --------------
The net periodic pension cost for the Company's supplemental retirement program is as follows (in thousands):
Year Ended December 31 1999 1998 1997 -------------- -------------- -------------- Service cost $ 439 $ 443 $ 344 Interest cost 702 649 618 Amortization of transition asset (1) (1) (1) Amortization of loss 78 47 26 -------------- -------------- -------------- Net periodic pension cost $ 1,218 $ 1,138 $ 987 -------------- -------------- --------------
The discount rate used in determining the actuarial present value of the projected benefit obligation at December 31, 1999 and 1998 was 7.75% and 6.75%; the rate of increase in future compensation was 4.5%. The Company has two defined contribution retirement plans which are qualified under Section 401(k) of the Internal Revenue Code. The two plans were merged effective January 1, 2000. All U.S. employees who are age 21 or older and have completed one year of service are eligible to participate. The Company matches employee contributions up to a maximum of 3% of gross pay. Employer contributions to the plans were $1,283,000, $1,036,000, and $876,000 in 1999, 1998 and 1997, respectively. Health care and life insurance benefits are provided to all retired non-broadcasting employees. The net periodic postretirement benefit cost was $128,000, $109,000 and $64,000 in 1999, 1998 and 1997, respectively. The accrued postretirement benefit cost at December 31, 1999 and 1998 was $1,602,000 and $1,859,000, respectively. The discount rate used in determining the actuarial present value of the accumulated postretirement benefit obligation at December 31, 1999 and 1998 was 7.75% and 6.75%, respectively. A one percent increase in the health care cost trend rate would not have had a significant effect on plan costs or the accumulated benefit obligation in 1999 and 1998. Plan costs are generally based on a defined maximum employer contribution which is not directly subject to health care cost trend rates. 57 NOTE 10 Segment Information The operations of the Company are organized into three principal business segments, broadcasting, milling and real estate. Operating results and other financial data for each segment are as follows (in thousands):
Corporate, Eliminations Broadcasting Milling Real Estate & Other Consolidated ---------------- ---------------- ---------------- ---------------- --------------- Sales and other revenue 1999 $ 152,223 $ 114,942 $ 24,572 $ 4,761 $ 296,498 1998 127,637 108,056 12,265 4,224 252,182 1997 120,792 123,941 11,446 3,855 260,034 Income from operations 1999 $ 34,862 $ (6,121) $ 16,028 $ (3,275) $ 41,494 1998 33,937 (1,440) 4,117 (59) 36,555 1997 36,754 2,431 3,231 863 43,279 Interest expense 1999 $ 18 $ 3,807 $ 10,046 $ 13,871 1998 20 4,053 378 4,451 1997 4,156 1,311 5,467 Identifiable assets 1999 $ 405,415 $ 87,475 $ 92,256 $ 93,366 $ 678,512 1998 148,046 66,097 86,766 138,613 439,522 1997 135,896 60,007 88,770 154,080 438,753 Capital expenditures 1999 $ 41,584 $ 4,887 $ 9,735 $ 170 $ 56,376 1998 20,091 1,948 2,961 75 25,075 1997 8,978 2,933 5,729 59 17,699 Depreciation and amortization 1999 $ 10,352 $ 3,191 $ 4,348 $ 84 $ 17,975 1998 6,304 2,353 4,455 64 13,176 1997 5,325 2,239 4,355 56 11,975
Intersegment sales are not significant. Income from operations by business segment is total sales and other revenue less operating expenses. In computing income from operations by business segment, interest income and dividends from marketable securities have not been added, and interest expense, income taxes and unusual items 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. Capital expenditures are reported exclusive of acquisitions. No geographic areas outside the United States were material relative to consolidated sales and other revenue, income from operations or identifiable assets. Export sales by the milling subsidiary were $540,000 in 1999, $723,000 in 1998 and $6,100,000 in 1997. NOTE 11 Acquisitions In January 1997, assignment of Federal Communications Commission (FCC) licenses for two radio broadcasting stations in Missoula, Montana was completed, and the broadcasting subsidiary acquired the assets, including real estate, of those stations for $3.9 million. In November 1997, upon assignment of FCC licenses, the broadcasting subsidiary acquired the assets of a radio broadcasting station in Wenatchee, Washington for $335,000 plus certain additional costs in 1998. On July 1, 1999, the Company and its broadcasting subsidiary completed the acquisition of ten network-affiliated television stations and 50% of the outstanding stock of a corporation that owns one television station. The acquired properties are in seven markets located in California, the Pacific Northwest, and Georgia. Total consideration was $216.7 million, which included $7.6 million of working capital. Funding for the transaction was from an eight-year senior credit facility in the amount of $230 million. 58 Also on July 1, 1999, the Company and its milling subsidiary purchased from Koch Agriculture Company its 50% interest in the limited liability company (LLC) which owns and operates flour milling facilities in Blackfoot, Idaho. The $19 million purchase price was funded from bank lines of credit. Prior to July 1, the milling subsidiary used the equity method to account for its 50% interest in the LLC. Subsequent to the acquisition the LLC became a wholly-owned subsidiary and operating results are fully consolidated in the milling segment. The above transactions are accounted for under the purchase method. Accordingly, the Company has recorded identifiable assets and liabilities of the acquired properties at their fair market value. The excess of the purchase price over the fair market value of the assets acquired has been allocated to goodwill. The results of operations of the acquired properties are included in the financial statements from the date of acquisition. Unaudited pro forma results as if the acquired properties had been included in the financial results during the year of acquisition and the year prior to acquisition are as follows:
Year Ended December 31 1999 1998 ---------- ----------- (in thousands, except per share amounts. All amounts are unaudited) Sales and other revenue Broadcasting $ 175,398 $ 172,668 Milling 122,755 117,442 Real Estate 24,572 12,265 Corporate and other 4,745 4,567 ---------- ----------- $ 327,470 $ 306,942 ---------- ----------- $ 12,329 $ 11,513 Net income Income per share $ 1.44 $ 1.35 Income per share assuming dilution $ 1.44 $ 1.34
The pro forma results are not necessarily indicative of what actually would have occurred if the acquisition had been in effect for the entire period presented. In addition, they are not intended to be a projection of future results and do not reflect any efficiencies that might be achieved from combined operations. NOTE 12 Commitments In May 1998 the Company began redevelopment of the site on which KOMO Television is currently located. The project, known as Fisher Plaza, encompasses several elements including a new building and associated underground parking facilities that will serve the needs of KOMO Television and Fisher Broadcasting Inc. Estimated cost of the new building and parking facility is $79,000,000. Completion is anticipated in Spring 2000. In addition, the real estate subsidiary intends to undertake pre-development activities for additional development of the Fisher Plaza site at an estimated cost of $2,000,000. Costs incurred at December 31, 1999 totaled $42,100,000. 59 NOTE 13 Interim Financial Information (Unaudited) Data may not add due to rounding (in thousands except per share amounts).
First Second Third Fourth Quarter Quarter Quarter Quarter Annual -------- -------- -------- -------- --------- Sales and other revenue 1999 $ 59,398 $ 73,681 $ 76,045 $ 87,374 $ 296,498 1998 58,237 63,903 60,350 69,692 252,182 1997 60,510 67,397 63,788 68,339 260,034 Income from operations 1999 $ 3,842 $ 17,741 $ 5,748 $ 14,163 $ 41,494 1998 6,267 11,334 7,599 11,355 36,555 1997 7,160 12,214 9,542 14,363 43,279 Net income 1999 $ 1,990 $ 10,840 $ (106) $ 5,369 $ 18,093 1998 3,375 6,557 4,092 7,033 21,057 1997 3,881 7,035 5,399 8,414 24,729 Net income per share 1999 $ 0.23 $ 1.27 $ (0.01) $ 0.63 $ 2.12 1998 0.40 0.77 0.48 0.82 2.47 1997 0.45 0.82 0.63 0.99 2.90 Net income per share assuming dilution 1999 $ 0.23 $ 1.26 $ (0.01) $ 0.63 $ 2.11 1998 0.39 0.76 0.48 0.82 2.46 1997 0.45 0.82 0.63 0.98 2.88 Dividends paid per share 1999 $ 0.260 $ 0.260 $ 0.260 $ 0.260 $ 1.04 1998 0.250 0.250 0.250 0.250 1.00 1997 0.245 0.245 0.245 0.245 0.98 Common stock closing market prices ( see Note 7) 1999 High $ 67.50 $ 64.00 $ 63.50 $ 62.50 $ 67.50 Low 56.50 56.50 58.50 56.50 56.50 1998 High $ 66.00 $ 75.75 $ 73.75 $ 69.50 $ 75.75 Low 59.00 64.00 64.00 57.00 57.00
60 REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE To the Board of Directors of Fisher Companies Inc. Our audits of the consolidated financial statements referred to in our report dated February 29, 2000 appearing in this Annual Report on Form 10-K also included an audit of Financial Statement Schedule III of this Form 10-K. In our opinion, the financial statement schedule presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. /s/ PricewaterhouseCoopers LLP PricewaterhouseCoopers LLP Seattle, Washington February 29, 2000 61 Schedule III FISHER COMPANIES INC. AND SUBSIDIARIES Real Estate and Accumulated Depreciation (note 1) December 31, 1999
Cost capitalized Initial cost to Subsequent to Gross amount at which carried Accumu- Company Acquisition at December 31, 1999 lated ------------------- ------------------- ------------------------------ depre- Date of Buildings Land Buildings ciation comple- and Carrying and and and tion of Encum- Improve- Improve- costs Improve- Improve- amorti- construc- Description brances Land ments ments (note 2) ments ments Total zation tion - -------------------- ------- -------- --------- ------- ---------- --------- ----------- -------- ------- --------- (in thousands) MARINA Marina Mart Moorings Various Seattle, WA - (note 4) (note 4) $ 3,232 $ 107 $ 3,125 $ 3,232 $ 1,246 to 1987 OFFICE West Lake Union Center Seattle, WA $24,469 $ 266 $ 36,253 2,961 1,372 38,108 39,480 8,604 1994 Fisher Business Center Lynnwood, WA 12,688 2,230 17,850 6,407 3,155 23,332 26,487 9,282 1986 Marina Mart Renovated Seattle, WA - (note 4) (note 4) 3,540 122 3,418 3,540 863 1993 Latitude 47 Restaurant Renovated Seattle, WA - (note 4) (note 4) 2,296 (note 5) 2,296 2,296 984 1987 1530 Building Renovated Seattle, WA - (note 4) (note 4) 2,212 (note 5) 2,212 2,212 987 1985 INDUSTRIAL Fisher Industrial Park 1982 and Kent, WA 9,769 2,019 4,739 11,141 4,461 13,438 17,899 6,541 1992 Fisher Commerce Center Kent, WA 4,229 1,804 4,294 2,060 2,132 6,026 8,158 2,486 Purchased Pacific North Equipment Kent, WA 1,582 1,344 - 1,582 1,344 2,926 616 Purchased MISCELLANEOUS INVESTMENTS, less than 5% of total - 154 - 671 47 778 825 433 various ------- ------ ------- ------- ------- ------- -------- ------- $51,155 $8,055 $64,480 $34,520 $12,978 $94,077 $107,055 $32,042 ======= ====== ======= ======= ======= ======= ======== ======= Life on which depre- ciation in latest income Date state- acquired ment is Description (Note 3) computed - ---------------- -------- -------- MARINA Marina Mart Moorings Seattle, WA 1939 (note 9) OFFICE West Lake Union Center Seattle, WA (note 9) Fisher Business Center Lynnwood, WA 1980 (note 9) Marina Mart Seattle, WA (note 9) Latitude 47 Restaurant Seattle, WA (note 9) 1530 Building Seattle, WA (note 9) INDUSTRIAL Fisher Industrial Park Kent, WA 1980 (note 9) Fisher Commerce Center Kent, WA 1989 (note 9) Pacific North Equipment Kent, WA 1997 (note 9) MISCELLANEOUS INVESTMENTS, less than 5% of total various (note 9)
(Continued) 62 Schedule III, continued FISHER COMPANIES INC. AND SUBSIDIARIES Real Estate and Accumulated Depreciation (note 1) December 31, 1999 Notes: (1) Schedule III includes property held for lease to third parties by the Company's real estate subsidiary. Reference is made to notes 1, 4 and 5 to the consolidated financial statements. (2) The determination of these amounts is not practicable and, accordingly, they are included in improvements. (3) Where specific acquisition date is not shown property investments were acquired prior to 1971 and have been renovated or redeveloped as indicated. (4) Initial cost is not readily available as property has been renovated or redeveloped. Initial cost is included in subsequent improvements. (5) Undivided land portion of Marina. (6) The changes in total cost of properties for the years ended December 31, 1999, 1998 and 1997 are as follows (in thousands):
1999 1998 1997 ---- ---- ---- Balance at beginning of year $113,091 $112,253 $107,874 Cost of improvements 2,239 993 5,191 Cost of properties sold (8,090) Cost of improvements retired (185) (155) (812) -------- -------- -------- Balance at end of year $107,055 $113,091 $112,253 ======== ======== ========
(7) The changes in accumulated depreciation and amortization for the years ended December 31, 1999, 1998 and 1997 are as follows (in thousands):
1999 1998 1997 ---- ---- ---- Balance at beginning of year $32,995 $29,076 $25,740 Depreciation and amortization charged to operations 3,970 4,055 4,056 Retirements and other (4,923) (136) (720) ------- ------- ------- Balance at end of year $32,042 $32,995 $29,076 ======= ======= =======
(8) The aggregate cost of properties for Federal income tax purposes is approximately $110,433,000 at December 31, 1999. (9) Reference is made to note 1 to the consolidated financial statements for information related to depreciation. 63 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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, on the 30th day of March, 2000. FISHER COMPANIES INC. -------------------------------------- (Registrant) By: /s/ Donald G. Graham, Jr. ------------------------- Donald G. Graham, Jr. Chairman of the Board Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated:
Signatures Title Date - ---------- ----- ---- Principal Executive Officer: /s/ William W. Krippaehne, Jr. President, Chief Executive March 30, 2000 - -------------------------------------- Officer, and Director William W. Krippaehne, Jr. Principal Operating Officer /s/ Warren J. Spector Executive Vice President March 30, 2000 - -------------------------------------- and Chief Operating Officer Warren J. Spector Chief Financial and Accounting Officer: /s/ David D. Hillard Senior Vice President and March 30, 2000 - -------------------------------------- Chief Financial Officer, David D. Hillard and Secretary A Majority of the Board of Directors: /s/ James W. Cannon * Director March 30, 2000 - -------------------------------------- James W. Cannon /s/ George D. Fisher * Director March 30, 2000 - -------------------------------------- George D. Fisher /s/ Phelps K. Fisher * Director March 30, 2000 - -------------------------------------- Phelps K. Fisher /s/ William O. Fisher * Director March 30, 2000 - -------------------------------------- William O. Fisher /s/ Carol H. Fratt * Director March 30, 2000 - -------------------------------------- Carol H. Fratt
64
Signatures Title Date - ---------- ----- ---- /s/ Donald G. Graham, III * Director March 30, 2000 - -------------------------------------- Donald G. Graham, III /s/ Robin J. Campbell Knepper * Director March 30, 2000 - -------------------------------------- Robin J. Campbell Knepper /s/ John D. Mangels * Director March 30, 2000 - -------------------------------------- John D. Mangels /s/ Jean F. McTavish * Director March 30, 2000 - -------------------------------------- Jean F. McTavish /s/ Jacklyn F. Meurk * Director March 30, 2000 - -------------------------------------- Jacklyn F. Meurk /s/ George F. Warren, Jr. * Director March 30, 2000 - -------------------------------------- George F. Warren, Jr. /s/ William W. Warren, Jr. * Director March 30, 2000 - -------------------------------------- William W. Warren, Jr.
* By: /s/ William W. Krippaehne, Jr. - ------------------------------------- William W. Krippaehne, Jr., - --------------------------- Attorney-in-fact - ---------------- 65 EXHIBIT INDEX -------------
Exhibit No. Description ----------- ----------- 2.1* Asset Purchase and Sale Agreement Among Fisher Companies Inc., and Fisher Broadcasting Inc., as the Purchaser and Retlaw Enterprises, Inc., Retlaw Broadcasting, L.L.C., Retlaw Broadcasting of Boise, L.L.C., Retlaw Broadcasting of Fresno, L.L.C., Retlaw Broadcasting of Idaho Falls, L.L.C., Retlaw Broadcasting of Yakima, L.L.C., Retlaw Broadcasting of Eugene, L.L.C., Retlaw Broadcasting of Columbus, L.L.C., and Retlaw Broadcasting of Augusta, L.L.C., as the Sellers dated November 18, 1998, as amended November 30, 1998 and December 7, 1998 (filed as Exhibit 10.8 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1998 (File No. 000-22439). 2.2* Amendment No. 3 to Asset Purchase and Sale Agreement dated as of June 30, 1999 (filed as Exhibit 2.2 of the Company's Current Report on Form 8-K dated July 1, 1999 (File No. 000-22439). 2.3* Amendment No. 4 to Asset Purchase and Sale Agreement dated as of July 1, 1999 (filed as Exhibit 2.3 of the Company's Current Report on Form 8-K dated July 1, 1999 (File No. 000-22439). 3.1* Articles of Incorporation (filed as Exhibit 3.1 of the Company's Registration Statement on Form 10 (File No. 000-22439). 3.2* Articles of Amendment to the Amended and Restated Articles of Incorporation filed December 10, 1997 (filed as Exhibit 3.2 of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1997 (File No. 000-22439). 3.3* Bylaws (filed as Exhibit 3.3 of the Company's Registration Statement on Form 10 (File No. 000-22439). 10.1* Primary Television Affiliation Agreement between Fisher Broadcasting Inc. and American Broadcasting Companies, Inc., dated April 17, 1995, regarding KOMO TV (filed as Exhibit 10.1 of the Company's Registration Statement on Form 10 (File No. 000-22439). 10.2 Side letter amendment to Primary Television Affiliation Agreement between Fisher Broadcasting Inc. and American Broadcasting Companies, Inc., dated June 30, 1999, regarding KOMO TV. 10.3* Primary Television Affiliation Agreement between Fisher Broadcasting Inc. and American Broadcasting Companies, Inc., dated April 17, 1995, regarding KATU TV (filed as Exhibit 10.2 of the Company's Registration Statement on Form 10 (File No. 000-22439). 10.4 Side letter amendment to Primary Television Affiliation Agreement between Fisher Broadcasting Inc. and American Broadcasting Companies, Inc., dated June 30, 1999, regarding KATU TV. 10.5 Amended and Restated Fisher Companies Incentive Plan of 1995.
66 10.6* Fisher Companies Inc. Supplemental Pension Plan, dated February 29, 1996 (filed as Exhibit 10.4 of the Company's Registration Statement on Form 10 (File No. 000-22439). 10.7* Fisher Broadcasting Inc. Supplemental Pension Plan, dated March 7, 1996 (filed as Exhibit 10.5 of the Company's Registration Statement on Form 10 (File No. 000-22439). 10.8* Fisher Mills Inc. Supplemental Pension Plan, dated March 1, 1996 (filed as Exhibit 10.6 of the Company's Registration Statement on Form 10 (File No. 000-22439). 10.9* Fisher Properties Inc. Supplemental Pension Plan, dated March 1, 1996 (filed as Exhibit 10.7 of the Company's Registration Statement on Form 10 (File No. 000-22439). 10.10* Credit Agreement among Fisher Companies Inc. and Bank of America National Trust and Savings Association, doing business as Seafirst Bank as Agent, and Bank of America National Trust and Savings Association, doing business as Seafirst Bank and U. S. Bank National Association as Banks dated May 26, 1998 (filed as Exhibit 10.9 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1998 (File No. 000-22439). 10.11 First amendment to Credit Agreement among Fisher Companies Inc. and Bank of America National Trust and Savings Association, doing business as Seafirst Bank as Agent, and Bank of America National Trust and Savings Association, doing business as Seafirst Bank and U. S. Bank National Association as Banks dated May 26, 1998 10.12 Second amendment to Credit Agreement among Fisher Companies Inc. and Bank of America National Trust and Savings Association, doing business as Seafirst Bank as Agent, and Bank of America National Trust and Savings Association, doing business as Seafirst Bank and U. S. Bank National Association as Banks dated May 26, 1998 10.13* Membership Purchase Agreement between Koch Agriculture Company, Fisher Mills Inc. and Fisher Companies Inc. (filed as Exhibit 10.1 to the Company's Quarterly Report for the period ended September 30, 1999 (File No. 000-2439). 10.14* Credit Agreement dated as of June 24, 1999 among Fisher Companies Inc. and financial institutions named therein (filed as Exhibit 10.2 to the Company's Quarterly Report for the period ended September 30, 1999 (File No. 000-2439). 10.15* First Amendment to Credit Agreement dated as of June 24, 1999 among Fisher Companies Inc. and financial institutions named therein (filed as Exhibit 10.3 to the Company's Quarterly Report for the period ended September 30, 1999 (File No. 000-2439). 10.16 Second Amendment to Credit Agreement dated as of June 24, 1999 among Fisher Companies Inc. and financial institutions named therein
67 10.17 Form of Affiliation Agreement between CBS Television Network and Retlaw Enterprises, Inc. regarding KJEO-TV, KJEO-TV, KIMA-TV, KBCI-TV, KIDK-TV, KVAL-TV, KCBY-TV and KPIC-TV. 10.18 Form of Demand Note between the Registrant and certain of its directors and affiliates of its directors. 22.1 Subsidiaries of the Registrant. 23.1 Consent of PricewaterhouseCoopers LLP. 24.1 Form of Power of Attorney authorizing certain officers to execute Form 10-K for the year ended December 31, 1999 and any and all amendments thereto, signed by James W. Cannon, George D. Fisher, Phelps K. Fisher, William O. Fisher, Carol H. Fratt, Donald G. Graham, III, Robin J. Campbell Knepper, John D. Mangels, Jean F. McTavish, Jacklyn F. Meurk, George F. Warren, Jr., and William W. Warren, Jr. 27.1 Financial Data Schedule fiscal year end 1999.
* Incorporated by reference. 68 EX-10.2 2 SIDE LETTER AMENDMENT REGARDING KOMO TV Exhibit 10.2 June 30, 1999 Patrick Scott President & CEO Fisher Broadcasting Inc. 100 Fourth Avenue N. Seattle, WA 98109 Re: KOMO/Seattle, WA Dear Pat: If approved by your station, this document will constitute a side letter amendment to the existing affiliation agreement between American Broadcasting Companies, Inc. (hereinafter, "ABC" or "Network") and your station (hereinafter, the "Amendment"). ABC reserves the right to terminate this Amendment if comparable side letter amendments have not been accepted by non-owned ABC- affiliated stations representing 66% coverage of the country by July 16, 1999. I. INVENTORY SWAP/NFL CONTRIBUTION A. 8 Additional Primetime Spots per Week to Your Station from Network: 1. 2 "A" program spots per week 2. 4 "B" program spots per week 3. 2 "C" program spots per week 4. Dividing the Network's weekly primetime program schedule into one-thirds, the "A" spots shall come from spots appearing in the top rated one-third, the "B" spots shall come from spots appearing in the middle rated one-third, and the "C" spots shall come from spots in the lowest rated one-third of the Network's primetime program schedule. The allocation and placement of the spots will be made within 60 days prior to the start of each new Network television season. March 28, 2000 Page 2 B. To Network from Your Station 1. A total annual payment by your station of $936,204. This payment will be made through an equal monthly reduction from your station's Network compensation. The payment has been calculated on the basis of the following methodology: A $45 million aggregate annual payment by non-ABC-Owned Stations through monthly deduction from Network compensation, and to the extent there is inadequate Network compensation to cover the payment, through equal monthly payments. The amount of payment required of each Station will be based upon the pro-rata percentage of the station's market coverage of total U.S. television households (excluding coverage by ABC-owned stations) which amounts to 74.888% The amount of the annual $45 million payment by non-owned ABC stations will be reduced in proportion to any increase in the present percentage of coverage of U.S. television households by television stations owned or operated by ABC or its affiliated companies. (E.g. if ABC's coverage were to increase to 30%, the aggregate annual affiliate payment would be reduced to $41,528,877.) If that were to happen, the amount of payment required of your station would be reduced correspondingly. 2. 10 Children's spots per week. C. Children's Clearances: Your station shall maintain its current level and time period scheduling of Children's clearances. ABC warrants that during the three year term of the agreement, the Network will continue to provide the quantity of educational and informational programming that satisfies the FCC's Children's television rules (currently three hours per week) and that Network-supplied commercial matter in all Children's programming will not exceed FCC restrictions. ABC will indemnify and hold your station harmless against any breach by the Network of the Children's program and commercial content warranty. D. Term: The provisions of this Section I (Inventory Swap/NFL Contribution) shall have a term of 3 years beginning August 1, 1999. March 28, 2000 Page 3 E. Guarantees Against Dilution During the Term of the Inventory Swap/NFL Contribution Plan: 1. The Network agrees that it will afford your station commercial units of the same number and length and with substantially the same placement as during the 1998-1999 Network television season. The Network will also add the two (2) units per hour of inventory for your station to auto racing, golf and horse racing as set out in the body of Pat Fili's June 4, 1999 letter. (A copy of that letter is attached). 2. Network agrees that apart from the program categories listed in the body of Pat Fili's June 4, 1999 letter, and except as might arise in the enforcement or negotiation of individual contracts, Network will continue to offer your station the same cash compensation currently offered. 3. Your station guarantees that it will maintain at least its current level of clearance and time period scheduling of "The View" and "Politically Incorrect" through July 31, 2000. II. SOAP CHANNEL PARTICIPATION A. Soap Channel Cable Service Revenue Sharing: 1. Your station, along with other affiliates accepting the terms set forth herein (including ABC Owned Stations) will have an economic participation in The Soap Channel Cable Service by receiving one of the following annual distributions, whichever is greater: a. $0.01/month per revenue-generating Soap Channel subscriber in the affiliate's market. b. 15% of total annual subscriber revenue generated in the affiliate's market capped at $0.03 per revenue-generating sub/month. c. 10% of total subscriber revenue generated in the affiliate's market, without a cap. d. 15% of annual net profits generated in the affiliate's market. March 28, 2000 Page 4 2. The term "market" means your station's DMA. Revenues generated in a DMA adjacent to that of an ABC affiliate but in which no ABC affiliated station exists shall be credited to an ABC station or stations outside that DMA based upon their respective viewing shares in that DMA. 3. The term "cable service" includes the distribution of programming by any video delivery system now known or hereafter devised, including, but not limited to, television stations, satellite, wireless, telephone and cable systems. 4. The terms "revenue-generating Soap Channel subscriber" and "subscriber revenue" mean the subscriber fee paid by the cable service, without regard to launch fees. 5. The term "net profits" (as used in this section) means gross revenue less any costs incurred by The Soap Channel cable service, subject to independent audit. 6. The term "Soap Channel Cable Service" means that programming service that was announced by ABC on April 8, 1999. If that service is partially owned by ABC or is merged with the Soap Channel announced by Sony, the affiliate participation in annual net profits as set out in paragraph II. A.(l)(d) will be diluted in the same proportion as ABC's interest in the service. Affiliate participation under the formula set out in paragraph II. A. (1) (a)-(c) will not be subject to dilution or reduction. B. Daytime Clearances: Your station shall maintain current level and time period scheduling of clearances for the following ABC Soaps: General Hospital, All My Children, One Life To Live and Port Charles, or for any replacement soap opera programming. C. Exclusivity: ABC has immediate repurposing rights for its soaps for the purposes and as provided in this section II for the term stated in paragraph D below. March 28, 2000 Page 5 D. Term 1. The term of the provisions of Section II of this Amendment shall be for the duration of your station's ABC affiliation agreement. 2. The same terms of Soap Channel Participation will apply during the term of the renewal of current affiliation agreements. III. EXCLUSIVITY A. Entertainment: 1. Series: ABC will not repurpose any Primetime Entertainment series episode within 180 days of the end of its original airing on the Network or the expiration of that television season (Sept.-Sept.), whichever is earlier. (In no event will ABC repurpose any such series episode within 90 days of the end of its original airing on the Network.) 2. Made for TV Movies, Mini-Series and Specials: ABC will not repurpose within 60 days of the end of original airing on the Network. 3. Awards Shows and other timely Specials: ABC will not repurpose within 48 hours of the end of original airing on the Network. 4. ABC will not promote the repurposed Entertainment programming prior to its original airing on the Network. ABC will obtain contractual commitments from licensees imposing the same promotion limitations, but ABC will have no liability to affiliates in the event of a breach by such licensee. 5. The above notwithstanding, ABC will be free to repurpose up to 25% of the Primetime Entertainment schedule without any restrictions. B. Sports: 1. Programs: ABC will not repurpose any Sports program in its entirety within 48 hours of the end of its original airing on the Network. March 28, 2000 Page 6 2. Excerpts: ABC will not repurpose excerpts (defined as 40% or less) of any Sports program within 4 hours of the end of its original airing on the Network. 3. Highlights: ABC will continue to be free to use highlights drawn from any Sports program anytime after its original airing on the Network. The term "highlight" is defined by reference to custom and practice within the broadcast industry. C. News: 1. ABC has immediate and unrestricted repurposing rights for breaking news coverage unless it has preempted Network programming for such coverage in which case it will have unrestricted repurposing rights immediately following the preemption of Network programming for such coverage. 2. ABC will not repurpose any "hard" News program (e.g., WNT & Nightline) within 4 hours of the end of its original airing on the Network, and any timely News program (e.g., GMA) within 2 hours of the end of its original airing on the Network. Upon request by ABC, affiliates will not repurpose in the same time period in which ABC is airing "hard" News any News program content that has been provided by ABC. 3. ABC will not repurpose any "soft" News program (e.g., Newsmagazines) in its entirety within 60 days of the end of its original airing on the Network. ABC may repurpose excerpts of any Newsmagazine program within 60 days after the end of its original airing on the Network if the new program does not contain more than 50% of any one original Newsmagazine program and the original Newsmagazine program titles are not used unless modified (e.g., "Best of 20/20"). 4. Politically Incorrect: ABC will not repurpose within 4 hours of the end of its original airing on the Network. D. Daytime: 1. ABC has immediate and unrestricted repurposing right for its soaps as provided for herein. ABC will limit its repurposing of its soaps to the Soap Channel Cable Service unless and until the launch of such channel fails. In the event that ABC repurposes its soaps apart from March 28, 2000 Page 7 the Soap Channel Cable Service, your station will be entitled to an economic participation from such repurposing by receiving an annual distribution based on 15% of annual net profits generated by such repurposing in your station's market. For the purposes of this paragraph only "net profits" means gross revenue less any direct out of pocket costs incurred by ABC in repurposing its soaps. The term "direct out of pocket costs'' means amounts paid by ABC to third parties specifically and solely for the repurposing of the soap operas (e.g., third party participations, residuals, rights clearance costs and the like). The term excludes amounts paid to Disney/ABC, any of their respective subsidiaries or any of their employees, save residuals or third party participations that may be owed to such employees. The calculation of net profits as set out in this paragraph will be subject to independent audit. The provision of this paragraph related to ABC's repurposing soaps apart from a Soap Channel Cable Service and the right of your station to an economic participation in such repurposing shall be subject to the term limitations set out in paragraph E below. 2. ABC will not repurpose The View or any replacement programming referenced in paragraph II.B above that is not a soap opera within 4 hours of the end of its original airing on the Network. E. Term: The term of the provisions of this Section III shall be coterminous with the term of Section I (the Inventory Swap/NFL Contribution Plan) of this Amendment. IV. FURTHER FLEXIBILITY The parties recognize that ABC may wish to repurpose certain programming in a manner that is at variance with the limitations set forth above. Your station authorizes the Network's Affiliate Board to act fully on your behalf to accept or reject ABC's requests for such a variance and agrees that neither the Affiliate Board nor those acting on its behalf will be liable to you for the decisions it makes to accept or reject a variance. The Affiliate Board will be required to meet with ABC promptly upon receiving a request for such a variance, and will not act unreasonably in withholding its approval. March 28, 2000 Page 8 V. MISCELLANEOUS 1. The geographical scope of exclusivity shall be your station's DMA or any lesser area as may be required by the FCC under existing rules. 2. The exclusivity provisions prohibit repurposing by any video delivery system now known or hereafter devised, including, but not limited to, television stations, satellite, wireless, telephone and cable systems. 3. The prohibition against and the contractual provisions restricting the pre-promotion of Entertainment programming (as set out in paragraph III.A (4)) apply as well to all other program classifications, e.g., news and sports. 4. If comparable side letter amendments are accepted by the requisite number of affiliates, then as to those accepting affiliates ABC agrees not to implement before August 1, 2002 any of the measures outlined in the attachment to Pat Fili's June 4, 1999 letter entitled "1999-2000 Season Format Adjustments", except the compensation reduction outlined in the body of that letter which will be implemented as to all affiliates. With respect to any affiliates who do not accept such a comparable side letter agreement, ABC reserves all of its rights including the measures outlined in the attachment to the letter. 5. If ABC should desire to program or create a channel that is designed to repurpose a significant portion of any class of ABC Network programming that involves the creation of an asset, ABC agrees to enter into good faith negotiations about affiliate financial participation in such asset but ABC shall be under no legally enforceable obligation to come to agreement with affiliates about any such participation. 6. In the event that your station's existing affiliation agreement imposes greater clearance obligations than set forth herein, those clearance obligations will continue to apply. 7. The provisions of your station's existing affiliation agreement relating to the application of FCC rules to clearance commitments will continue to apply. 8. This Amendment shall be governed by New York Law. If your station wishes to agree to the Amendment, please execute the enclosed copy of this letter in the space provided below and return it to me before July 16, 1999. Very truly yours, John L. Rouse Senior Vice President Affiliate Relations Accepted and Agreed To: KOMO/Seattle, WA By: ____________________________ Title: _________________________ Dated: _________________________ EX-10.4 3 SIDE LETTER AMENDMENT REGARDING KATU TV Exhibit 10.4 June 30, 1999 Patrick Scott President & CEO Fisher Broadcasting Inc. 100 Fourth Avenue N. Seattle, WA 98109 Re: KATU/Portland, OR Dear Pat: If approved by your station, this document will constitute a side letter amendment to the existing affiliation agreement between American Broadcasting Companies, Inc. (hereinafter, "ABC" or "Network") and your station (hereinafter, the "Amendment"). ABC reserves the right to terminate this Amendment if comparable side letter amendments have not been accepted by non-owned ABC- affiliated stations representing 66% coverage of the country by July 16, 1999. I. INVENTORY SWAP/NFL CONTRIBUTION A. 8 Additional Primetime Spots per Week to Your Station from Network: 1. 2 "A" program spots per week 2. 4 "B" program spots per week 3. 2 "C" program spots per week 4. Dividing the Network's weekly primetime program schedule into one-thirds, the "A" spots shall come from spots appearing in the top rated one-third, the "B" spots shall come from spots appearing in the middle rated one-third, and the "C" spots shall come from spots in the lowest rated one-third of the Network's primetime program schedule. The allocation and placement of the spots will be made within 60 days prior to the start of each new Network television season. B. To Network from Your Station 1. A total annual payment by your station of $600,901. This payment will be made through an equal monthly reduction from your station's Network compensation. The payment has been calculated on the basis of the following methodology: A $45 million aggregate annual payment by non-ABC-Owned stations through monthly deduction from Network compensation, and to the extent there is inadequate Network compensation to cover the payment, through equal monthly payments. The amount of payment required of each Station will be based upon the pro-rata percentage of the station's market coverage of total U.S. television households (excluding coverage by ABC-owned stations) which amounts to 74.888%. The amount of the annual $45 million payment by non-owned ABC stations will be reduced in proportion to any increase in the present percentage of coverage of U.S. television households by television stations owned or operated by ABC or its affiliated companies. (E.g. if ABC's coverage were to increase to 30%, the aggregate annual affiliate payment would be reduced to $41,528,877.) If that were to happen, the amount of payment required of your station would be reduced correspondingly. 2. 10 Children's spots per week. C. Children's Clearances: Your station shall maintain its current level and time period scheduling of Children's clearances. ABC warrants that during the three year term of the agreement, the Network will continue to provide the quantity of educational and informational programming that satisfies the FCC's Children's television rules (currently three hours per week) and that Network- supplied commercial matter in all Children's programming will not exceed FCC restrictions, ABC will indemnify and hold your station harmless against any breach by the network of the Children's program and commercial content warranty. D. Term: The provisions of this Section I (Inventory Swap/NFL Contribution) shall have a term of 3 years beginning August l, 1999. E. Guarantees Against Dilution During the Term of the Inventory Swap/NFL Contribution Plan: -2- 1. The Network agrees that it will afford your station commercial units of the same number and length and with substantially the same placement as during the l998-l999 Network television reason. The Network will also add the two (2) units per hour of inventory for your station to auto racing, golf and horse racing as set out in the body of Pat Fili's June 4, 1999 letter. (A copy of that letter is attached). 2. Network agrees that apart from the program categories listed in the body of Pat Fili's June 4, 1999 letter, and except as might arise in the enforcement or negotiation of individual contracts, Network will continue to offer your station the same cash compensation currently offered. 3. Your station guarantees that it will maintain at least its current level of clearance and time period scheduling of "The View,"and "Politically Incorrect" through July 3l, 2000. II. SOAP CHANNEL PARTICIPATION A. Soap Channel Cable Service Revenue Sharing: 1. Your station, along with other affiliates accepting the terms set forth herein (including ABC Owned Stations) will have an economic participation in The Soap Channel Cable Service by receiving one of the following annual distributions, whichever is greater: a. $0.01/month per revenue-generating Soap Channel subscriber in the affiliate's market. b. 15% of total annual subscriber revenue generated in the affiliate's market capped at $0.03 per revenue-generating sub/month. c. 10% of total subscriber revenue generated in the affiliate's market, without a cap. d. 15% of annual net profits generated in the affiliate's market. -3- 2. The term "market" means your station's DMA. Revenues generated in a DMA adjacent to that of an ABC affiliate but in which no ABC affiliated station exists shall be credited to an ABC station or stations outside that DMA based upon their respective viewing shares in that DMA. 3. The term "cable service" includes the distribution of programming by any video delivery system now known or hereafter devised, including, but not limited to, television stations, satellite, wireless, telephone and cable systems. 4. The terms "revenue-generating Soap Channel subscriber" and "subscriber revenue" mean the subscriber fee paid by the cable service, without regard to launch fees. 5. The term "net profits" (as used in this section) means gross revenue less any costs incurred by The Soap Channel cable service, subject to independent audit. 6. The term "Soap Channel Cable Service" means that programming service that was announced by ABC on April 8, 1999. If that service is partially owned by ABC or is merged with the Soap Channel announced by Sony, the affiliate participation in annual net profits as set out in paragraph II. A.(l)(d) will be diluted in the same proportion as ABC's interest in the service. Affiliate participation under the formula set out in paragraph II. A.(l)(a)-(c) will not be subject to dilution or reduction. B. Daytime Clearances: Your station shall maintain current level and time period scheduling of clearances for the following ABC Soaps: General Hospital, All My Children, One Life To Live and Port Charles, or for any replacement soap opera programming. C. Exclusivity: ABC has immediate repurposing rights for its soaps for the purposes and as provided in this section II for the term stated in paragraph D below. D. Term: -4- 1. The term of the provisions of Section II of this Amendment shall be for the duration of your station's ABC affiliation agreement. 2. The same terms of Soap Channel Participation will apply during the term of the renewal of current affiliation agreements. III. EXCLUSIVITY A. Entertainment: 1. Series: ABC will not repurpose any Primetime Entertainment series episode within 180 days of the end of its original airing on the Network or the expiration of that television season (Sept.-Sept.), whichever is earlier. (In no event will ABC repurpose any such series episode within 90 days of the end of its original airing on the Network.) 2. Made for TV Movies, Mini-Series and Specials: ABC will not repurpose within 60 days of the end of original airing on the Network. 3. Awards Shows and other timely Specials: ABC will not repurpose within 48 hours of the end of original airing on the Network. 4. ABC will not promote the repurposed Entertainment programming prior to its original airing on the Network. ABC will obtain contractual commitments from licensees imposing the same promotion limitations, but ABC will have no liability to affiliates in the event of a breach by such licensee. 5. The above notwithstanding, ABC will be free to repurpose up to 25% of the Primetime Entertainment schedule without any restrictions. B. Sports: 1. Programs: ABC will not repurpose any Sports program in its entirety within 48 hours of the end of its original airing on the Network. -5- 2. Excerpts: ABC will not repurpose excerpts (defined as 40% or less) of any Sports program within 4 hours of the end of its original airing on the Network. 3. Highlights: ABC will continue to be free to use highlights drawn from any Sports program anytime after its original airing on the Network. The term "highlight" is defined by reference to custom and practice within the broadcast industry. C. News: 1. ABC has immediate and unrestricted repurposing rights for breaking news coverage unless it has preempted Network programming for such coverage in which case it will have unrestricted repurposing rights immediately following the preemption of Network programming for such coverage. 2. ABC will not repurpose any "hard" News program (e.g.,WNT & Nightline) within 4 hours of the end of its original airing on the Network, and any timely News program (e.g., GMA) within 2 hours of the end of its original airing on the Network. Upon request by ABC, affiliates will not repurpose in the same time period in which ABC is airing "hard" News any News program content that has been provided by ABC. 3. ABC will not repurpose any "soft'' News program (e.g., Newsmagazines) in its entirety within 60 days of the end of its original airing on the Network. ABC may repurpose excerpts of any Newsmagazine program within 60 days after the end of its original airing on the Network if the new program does not contain more than 50% of any one original Newsmagazine program and the original Newsmagazine program titles are not used unless modified (e.g., "Best of 20/20"). 4. Politically Incorrect: ABC will not repurpose within 4 hours of the end of its original airing on the Network. D. Daytime: 1. ABC has immediate and unrestricted repurposing right for its soaps as provided for herein. ABC will limit its repurposing of its soaps to the Soap Channel Cable Service unless and until the -6- launch of such channel fails. In the event that ABC repurposes its soaps apart from the Soap Channel Cable Service, your station will be entitled to an economic participation from such repurposing by receiving an annual distribution based on 15% of annual net profits generated by such repurposing in your station's market. For the purposes of this paragraph only "net profits" means gross revenue less any direct out-of-pocket costs incurred by ABC in repurposing its soaps. The term "direct out- of-pocket costs" means amounts paid by ABC to third parties specifically and solely for the repurposing of the soap operas (e.g. third party participations, residuals, rights clearance costs and the like). The term excludes amounts paid to Disney/ABC, any of their respective subsidiaries or any of their employees, save residuals or third party participations that may be owed to such employees. The calculation of net profits as set out in this paragraph will be subject to independent audit. The provision of this paragraph related to ABC's repurposing soaps apart from a Soap Channel Cable Service and the right of your station to an economic participation in such repurposing shall be subject to the term limitations set out in paragraph E below. 2. ABC will not repurpose The View or any replacement programming referenced in paragraph II.B above that is not a soap opera within 4 hours of the end of its original airing on the Network. E. Term: The term of the provisions of this Section III shall be coterminous with the term of Section I (the Inventory Swap/NFL Contribution Plan) of this Amendment. IV. FURTHER FLEXIBILITY The parties recognize that ABC may wish to repurpose certain programming in a manner that is at variance with the limitations set forth above. Your station authorizes the Network's Affiliate Board to act fully on your behalf to accept or reject ABC's requests for such a variance and agrees that neither the Affiliate Board nor those acting on its behalf will be liable to you for the decisions it makes to accept or reject a variance. The Affiliate Board will be required to meet with ABC promptly upon -7- receiving a request for such a variance, and will not act unreasonably in withholding its approval. V. MISCELLANEOUS 1. The geographical scope of exclusivity shall be your station's DMA or any lesser area as may be required by the FCC under existing rules. 2. The exclusivity provisions prohibit repurposing by any video delivery system now known or hereafter devised, including, but not limited to, television stations, satellite, wireless, telephone and cable systems. 3. The prohibition against and the contractual provisions restricting the pre-promotion of Entertainment programming (as set out in paragraph III.A (4)) apply as well to all other program classifications, e.g., news and sports. 4. If comparable side letter amendments are accepted by the requisite number of affiliates, then as to those accepting affiliates ABC agrees not to implement before August 1, 2002 any of the measures outlined in the attachment to Pat Fili's June 4, 1999 letter entitled "1999-2000 Season Format Adjustments", except the compensation reduction outlined in the body of that letter which will be implemented as to all affiliates. With respect to any affiliates who do not accept such a comparable side letter agreement, ABC reserves all of its rights including the measures outlined in the attachment to the letter. 5. If ABC should desire to program or create a channel that is designed to repurpose a significant portion of any class of ABC Network programming that involves the creation of an asset, ABC agrees to enter into good faith negotiations about affiliate financial participation in such asset but ABC shall be under no legally enforceable obligation to come to agreement with affiliates about any such participation. 6. In the event that your station's existing affiliation agreement imposes greater clearance obligations than set forth herein, those clearance obligations will continue to apply. -8- 7. The provisions of your station's existing affiliation agreement relating to the application of FCC rules to clearance commitments will continue to apply. 8. This Amendment shall be governed by New York Law. * * * If your station wishes to agree to the Amendment, please execute the enclosed copy of this letter in the space provided below and return it to me before July 16, 1999. Very truly yours, John L. Rouse Senior Vice President Affiliate Relations Accepted and Agreed to: KATU/Portland, OR By: _______________________ Title: ____________________ Dated: ____________________ -9- EX-10.5 4 AMENDED FISHER CO. INCENTIVE PLAN OF 1995 Exhibit 10.5 AMENDED AND RESTATED FISHER COMPANIES INCENTIVE PLAN OF 1995 1. Purpose The purpose of the Plan is to provide selected eligible key employees of Fisher Companies Inc. ("Company") or any present or future subsidiary of the Company with an inducement to remain in the employ of the Company and to participate in the ownership of the Company, and with added incentives to advance the interests of the Company and increase the value of the Company's common stock. 2. Definitions (a) "Committee" shall mean the committee described in Section 3 hereof and selected by the Company's Board of Directors to administer the Plan. (b) "Nonemployee Director" has the meaning set forth in Rule 16b-3 under the Securities Exchange Act of 1934, as amended. (c) "Options" means any incentive stock option or non-statutory stock option granted hereunder. (d) "Rights" means any restricted stock right or performance stock right granted hereunder. (e) "Subsidiary" as used in the Plan shall mean any corporation in an unbroken chain of corporations beginning with the Company if each of the corporations other than the last corporation in the broken chain, owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in such chain. 3. Administration (a) The Plan shall be administered by a Committee appointed by the Board of Directors and to consist of not less than three members of the Board of Directors, all of whom shall be Nonemployee Directors. (b) Subject to the terms of the Plan, the Committee shall have full and final authority to determine the persons who are to be granted Options and Rights under the Plan and the number of shares subject to each Option and Right, the option price, the form, terms and conditions, including but not limited to any target stock prices or any performance goals of the Options, whether the Options granted shall be incentive stock options or non-statutory stock options, or both, the time or times when each Option becomes exercisable, the duration of the exercise period and the terms and conditions of all 1 Rights granted hereunder, and to make such other determinations as may be appropriate or necessary for the administration of the Plan. (c) The Committee shall select one of its members as the Chairman, and shall hold its meetings at such times and places as it shall deem advisable. At least one-half of its members shall constitute a quorum for the conduct of business, and any decision or determination approved by a majority of members present at any meeting in which a quorum exists shall be deemed to have been made by the Committee. In addition, any decision or determination reduced to writing and signed by all of the members shall be deemed to have been made by the Committee. The Committee may appoint a Secretary, shall keep minutes of its meetings, and may make such rules and regulations for the conduct of its business and for the carrying out of the Plan as it shall deem appropriate. (d) The interpretation and construction by the Committee of any provisions of the Plan and of the Options and Rights granted thereunder shall be final and conclusive on all persons having any interest thereunder. 4. Shares Subject to Plan Subject to the provisions of Section 18 (relating to adjustment due to changes in capital structure), the number of shares of stock which may be issued and sold pursuant to Options and Rights granted under the Plan shall not exceed Seventy Thousand (70,000) shares of the Company's common stock (Two Hundred Eighty Thousand (280,000) shares in the event of a four-for- one stock split that will be effective May 15, 1995, subject to stockholder approval of an increase in the number of authorized shares). If any Options or Rights granted under the Plan shall terminate or expire without having been exercised in full, the stock not purchased or acquired under such Options or Rights shall be available again for the purposes of the Plan. 5. Eligibility (a) Options and Rights may be granted only to salaried key management employees of the Company or a Subsidiary (including officers and directors who are also salaried employees) who, in the judgment of the Committee, will perform services of special importance in the management, operation and development of the business of the Company or the businesses of one or more of its Subsidiaries, provided: (i) The Option or Right grant date for an employee shall not occur during or after the calendar year in which the employee reaches the age of 65, and (ii) An Option or Right shall not be granted to an employee who, immediately after the Option or Right is granted, owns stock possessing more than five percent (5%) of the total combined voting power or value of all classes of stock of the Company or a Subsidiary. (b) For purposes of determining the stock owned at a given time by an individual under Section 5(a)(ii) hereof, the following rules shall apply: 2 (i) Stock which the individual may purchase or acquire under outstanding Options or Rights shall be treated as stock owned by such individual; (ii) Stock owned directly or indirectly by or for the individual's brothers, sisters, spouse, ancestors and lineal descendants shall be considered as owned by such individual; (iii) Stock owned directly or indirectly by or for a corporation, partnership, estate or trust, shall be considered as owned proportionately by or for its shareholders, partners or beneficiaries. 6. Price and Term of Option (a) The exercise price under each Option will be determined by the Committee but shall not be less than 100% of the fair market value of the shares of stock covered by the Option at the time of the grant of the Option, as determined by the Committee, (b) The term of each Option shall be as determined by the Committee, but not in excess of ten (10) years from the date it is granted. An Option granted for an initial term of less than ten (10) years may be extended by amendment for a period of up to ten (10) years from the date of the initial grant, provided that no such amendment of an incentive stock Option shall be made without the prior consent of the optionee. 7. Limitations on Exercise of Option Rights (a) Except as provided in Section 13 hereof, the optionee must remain in the continuous employ of the Company and/or its Subsidiaries for at least one year from the date the Option is granted before any part thereof or right thereunder may be exercised. Absence on leave or on account of illness or disability under rules established by the Committee shall not, however, be deemed an interruption of employment for purposes of the Plan. Thereafter, the Option may be exercisable in whole or in installments in accordance with its terms, as determined by the Committee. (b) The minimum number of shares with respect to which option rights may be exercised in part at any time shall be determined by the Committee at the time the Option is granted. (c) With respect to incentive stock Options granted to an employee under the Plan, the aggregate fair market value (determined at the time the Options are granted) of the stock with respect to which incentive stock Options are exercisable for the first time by such employee during any calendar year (including all such plans of the Company and its Subsidiaries) shall not exceed $100,000. 8. Method of Exercise of Option Each exercise of an Option granted hereunder, whether in whole or in part, shall be by written notice to the Chief Executive Officer of the Company designating the number of shares as to which the Option is exercised, and, where stock is to be purchased pursuant to such exercise, shall be accompanied by payment in full for the number of shares so 3 designated. Stock to be purchased under the Plan may be paid for in cash, in shares of the Company's common stock (held by the Optionee for more than six months) at their fair market value on the date of exercise, or partly in cash and partly in such shares. Fractional shares may not be purchased under an Option, and fractional shares may not be delivered to the Company for payment of the option price. No shares shall be issued until full payment thereof has been made. Each optionee who has exercised an Option shall, upon notification of the amount due and prior to or concurrently with delivery of the certificates representing the shares, pay to the Company amounts necessary to satisfy applicable federal, state and local withholding tax requirements. 9. Form of Option Agreement Each Option agreement shall contain the essential terms of the Option and such other provisions as the Committee shall from time to time determine, but such Option agreements need not be identical. If the Option is an incentive stock option, the instrument evidencing such Option shall contain such terms and provisions relating to exercise and otherwise as may be necessary to render it an incentive stock option under the applicable provisions of the Internal Revenue Code of 1986, as amended (presently Section 422 thereof), and the Regulations thereunder, or corresponding provisions of subsequent laws and regulations. 10. Financing of Options The Company and its Subsidiaries may not extend credit, arrange credit, guarantee obligations, or otherwise aid employees in financing their purchases of stock pursuant to Options granted under this Plan. 11. Restricted Stock Rights (a) The Committee may grant any eligible employee restricted stock rights which entitle such employee to receive a stated number of shares of the Company's stock if the employee for a stated number of years remains continuously employed by the Company or a Subsidiary or, following the employee's normal retirement, serves on the Board of Directors of the Company or in another capacity approved by the Committee (the "Restricted Period"). At the time the restricted stock right is issued, the Committee shall designate the length of the Restricted Period and the service that will qualify under the Restricted Period; provided, however, in no event may the Restricted Period extend beyond the fifth anniversary date of the employee's termination of employment. The Committee shall also have full and final authority to select the employees who receive restricted stock rights, to specify the number of shares of stock subject to each such right, and to establish the other terms, conditions and definitions that govern such rights. (b) The Company shall pay to each holder of an unexpired restricted stock right during the Restricted Period, as additional compensation, an amount of cash equal to the dividends that would have been payable to the holder of such right during the Restricted Period if the holder had owned the stock subject to the right. Such amount shall be paid as near in time as reasonably practical to the applicable dividend payment dates. 4 (c) At the expiration of each Restricted Period, the Company shall issue to the holder of the restricted stock right the shares of stock relating to such Restricted Period, provided all conditions have been met. (d) Upon grant of a restricted stock right, the Company shall deliver to the recipient a document which sets forth and describes in detail the terms and conditions of the right. 12. Performance Stock Rights (a) The Committee may grant to an eligible employee performance stock rights which entitle such employee to receive a stated number of shares of the Company's common stock if the employee attains certain specified performance goals within a stated performance period. The Committee shall have full and final authority to select the employees who receive performance stock rights, to specify the number of shares of stock subject to each such right, to establish the performance requirements, to establish the performance period and to establish the terms, conditions and definitions that govern such rights. (b) Unlike restricted stock rights, the Company shall not pay to each holder of an unexpired performance stock right during the performance period an amount of cash equal to the dividends that would have been payable to the holder during the performance period if the holder had owned the stock subject to the right. (c) At such time that the performance requirements of a performance stock right are satisfied, the Company shall issue to the holder of the performance stock right the shares of stock subject to the right. If the performance requirements are not met by the expiration of the performance period, the performance stock right shall expire and the holder thereof shall have no further rights thereunder. (d) Upon granting a performance stock right, the Company shall issue to the recipient a document which sets forth and describes in detail the terms and conditions of the right. 13. Termination of Employment (a) In the event the employment of an optionee by the Company or a Subsidiary shall terminate for any reason other than the optionee's normal retirement, the optionee having become age 65, physical disability as hereinafter provided or death, the Option may be exercised by the optionee at any time prior to the expiration date of the Option or the expiration of three months after the date of such termination of employment, whichever is the shorter period, but only if and to the extent the optionee was entitled to exercise the Option at the date of such termination. (b) If an optionee retires under the normal retirement policies of the Company or a Subsidiary having become age 65, the Option may be exercised by the optionee at any time prior to the expiration date of the Option but in any event no later than the fifth anniversary date of the optionee's termination of employment. 5 (c) If an optionee dies while in the employ of the Company or a Subsidiary, or dies following termination of employment but during the period that the Option could have been exercised by the optionee, the optionee's Option rights may be exercised at any time by the person or persons to whom such rights under the Option shall pass by will or by the laws of descent and distribution, and, with respect to such decedents, such Options may be exercised without regard to the limitation provided in Section 7(a) (relating to one year of employment) or installment limitations, if any, that would otherwise apply. But with respect to a decedent whose employment was terminated for any reason other than normal retirement, death or disability within the meaning of Section 22(e)(3) of the Internal Revenue Code of 1986, as amended, such Option rights may be exercised only to the extent exercisable on the date of termination of employment. (d) In the event of the termination of the optionee's employment because of the disability within the meaning of Section 22(e)(3) of the Internal Revenue Code of 1986, as amended, the Option may be exercised by the optionee at any time prior to the expiration date of the Option or the expiration of one year after the date of such termination, whichever is the shorter period, and, with respect to such optionee, such Option may be exercised without regard to the limitation provided in Section 7(a) (relating to one year of employment) or installment limitations, if any, that would otherwise apply. (e) In the event a holder of restricted stock rights issued under the provisions of Section 11 hereof fails to satisfy the employment or service requirements for the issuance of stock under such rights for any reason other than death or disability as herein defined, such holder shall lose all rights to receive stock under the provisions of the restricted stock rights. In the event a holder of a restricted stock right is unable to satisfy the requirements of a restricted stock right because of death or disability within the meaning of Section 22(e)(3) of the Internal Revenue Code of 1986, as amended, then, the holder or the personal representative of the holder's estate, as the case may be, shall be issued a number of shares of stock equal in number to the total number of unissued shares covered by such restricted stock rights. Such shares shall be issued or payment made without regard to any employment or other service requirement stated in the restricted stock rights. (f) In the event the employment of an employee who holds a performance stock right granted under the provisions of Section 12 hereof terminates for any reason prior to the expiration of the performance period specified in the performance stock right, then, except to the extent the Committee may decide otherwise in select situations, such employee shall lose all fights to thereafter receive any stock under such performance stock right. (g) To the extent that the Option of any deceased optionee or of any optionee whose employment is terminated shall not have been exercised within the time periods provided above, all further rights to purchase shares pursuant to such Option shall cease and terminate at the expiration of such period. 6 (h) If a corporation ceases to be a Subsidiary of the Company, employees of such corporation shall be deemed to have terminated their employment with the Company or a Subsidiary of the Company for purposes of this Plan. 14. Options and Rights Not Transferable Any Option or Right granted hereunder shall not be transferable except by will or by the laws of descent and distribution of the state or country of the employee's domicile at the date of death, and, during the lifetime of the person to whom the Option or Right is granted, only the optionee or the guardian of the optionee may exercise it. 15. Rights as Stockholder Neither a person to whom an Option or Right is granted, nor such person's legal representative, heir, legatee or distributee, shall be deemed to be the holder of, or to have any rights of a holder with respect to, any shares subject to such Option or Right, until after the stock is issued. 16. Amendments to the Plan The Company's Board of Directors may from time to time make such amendments to the Plan as it may deem proper and in the best interests of the Company or a Subsidiary, provided that - (a) No amendment shall be made which (i) would impair, without the consent of the applicable employee, any Option or Right theretofore granted under the Plan or deprive any employee of any shares of stock which he may have acquired through or as a result of the Plan, or (ii) would withdraw the administration of the Plan from a Committee of Directors of the Company meeting the qualifications set forth in Section 3(a) hereof. (b) Any such amendment which would -- (i) Materially increase the benefits accruing to participants under the Plan, (ii) Increase the number of securities which may be issued under the Plan, or (iii) Materially modify the requirements as to eligibility for participation in the Plan shall be submitted to the shareholders of the Company for their approval at the next annual or special meeting after adoption by the Board of Directors, and if such shareholder approval is not obtained, the amendment, together with any actions taken under the Plan on the necessary authority of such amendment, shall be null and void. 7 17. Termination of the Plan Options and Rights may be granted under the Plan at any time prior to the seventh (7th) anniversary date of the effective date of the Plan, on which anniversary date the Plan will expire except as to those Options and Rights then outstanding thereunder, which Options and Rights shall remain in effect until they have been exercised or have expired in accordance with their terms. The Plan may be abandoned or terminated at any time by the Company's Board of Directors, except with respect to Options and Rights then outstanding under the Plan. 18. Changes in Capital Structure (a) Except as provided in subparagraph (c), in the event that the outstanding shares of stock are hereafter increased or decreased or changed into or exchanged for a different number or kind of shares or other securities of the Company or of another corporation, by reason of any reorganization, merger, consolidation, recapitalization, reclassification, stock split-up, combination of shares, dividend payable in shares, rights offering, change in the corporate structure of the Company, or otherwise appropriate adjustment shall be made in the number and kind of shares for which Options and Rights may be granted under the Plan. In addition, an appropriate adjustment shall be made in the number and kind of shares as to which outstanding Options and Rights, or portions thereof then unexercised, shall be exercisable, to the end that the proportionate interest of the existing holder of an Option or Right shall be maintained as before the occurrence of such event. Such adjustment in outstanding Options and Rights shall be made without change in the total price applicable to the unexercised portion of the Option and Right and with a corresponding adjustment in the exercise price per share. Any such adjustment made by the Board of Directors shall be conclusive. (b) In the event of dissolution or liquidation of the Company or a reorganization, merger or consolidation with one or more corporations, in lieu of providing for Options and Rights as provided for above in this Section 18, the Board of Directors of the Company may, in its sole discretion, provide a 30-day period immediately prior to such event during which optionees shall have the right to exercise Options in whole or in part without any limitations on exercisability. 19. Approvals The obligation of the Company under this Plan shall be subject to the approval of such state or federal authorities or agencies, if any, as may have jurisdiction in the matter. Shares shall not be issued with respect to an Option or Right unless the exercise and the issuance and delivery of the shares shall comply with all relevant provisions of law, including, without limitation, any applicable state securities laws, the Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as amended, the Internal Revenue Code of 1986, as amended, the respective rules and regulations promulgated thereunder, and the requirements of any stock exchange upon which the shares may then be listed, and shall be further subject to the approval of counsel for the Company with respect to such compliance. Inability of the Company to obtain from any regulatory body having jurisdiction authority deemed by the 8 Company's counsel to be necessary to the lawful issuance and sale of any shares hereunder shall relieve the Company of any liability for the nonissuance or sale of such shares. The Board may require any action or agreement by an employee holding an Option or Right as may from time to time be necessary to comply with the federal and state securities laws. The Company shall not be obliged to register Options or Rights, or stock granted or purchased under the Plan. 20. Employment Rights Nothing in this Plan or any Option or Right granted pursuant thereto shall confer upon any employee any right to be continued in the employment of the Company or any Subsidiary of the Company, or to interfere in any way with the right of the Company, in its sole discretion, to terminate such employee's employment at any time. 21. Effective Date of the Plan The original effective date of this Plan is April 27, 1995. This Plan was amended effective April 11, 1997. This Plan was further amended on April 29, 1999, effective with regard to all grants of Options or Rights on or after April 29,1999, and to Options or Rights granted prior thereto, provided that the optionee or the holder of the Rights consents to the application of the April 29, 1999, amendment. 9 EX-10.11 5 1ST AMENDMENT TO CREDIT AGREEMENT DATED 5/26/98 Exhibit 10.11 FIRST AMENDMENT TO CREDIT AGREEMENT THIS FIRST AMENDMENT TO CREDIT AGREEMENT ("Amendment") is made this 25th day of June, 1999, by and among FISHER COMPANIES INC. ("Borrower"), and Bank of America National Trust and Savings Association doing business as SEAFIRST BANK and U.S. BANK NATIONAL ASSOCIATION (each individually a "Bank" and collectively the "Banks") and Bank of America National Trust and Savings Association doing business as SEAFIRST BANK, as agent for Banks ("Agent"). Recitals A. Borrower, Banks and Agent are parties to that certain Credit Agreement dated as of May 26, 1998 ("Credit Agreement") and the related Loan Documents described therein. B. The parties hereto now desire to make certain changes to the Credit Agreement and the other Loan Documents all on the terms and conditions which follow. NOW, THEREFORE, the parties agree as follows: Agreement 1. Definitions. Capitalized terms used herein and not otherwise defined shall have the meanings given in the Credit Agreement. 2. Amendments to Credit Agreement. The Credit Agreement is amended as follows: 2.1 Amendment to Definitions. In Article 1, amendments are made to the definitions, as follows: (a) The definition of "Adjusted Leverage Ratio" is added to read as follows: 1.33 Adjusted Leverage Ratio shall mean, for any period, the ratio of (a) Funded Debt of Borrower and its Subsidiaries on a consolidated basis as of the end of such period to (b) Adjusted Operating Cash Flow for such period. (b) The definition of "Adjusted Cash Flow" is added to read as follows: 1.34 Adjusted Cash Flow shall mean, for any period, Adjusted Operating Cash Flow for such period minus dividend payments made on account of any shares of any class of capital stock of Borrower during such period. (c) The definition of "Adjusted Operating Cash Flow" is added to read as follows: 1.35 Adjusted Operating Cash Flow shall mean, for any period, Operating Cash Flow for such period plus the lesser of (a) gains resulting from the sale or condemnation of real property and related improvements owned by Fisher Properties Inc. during such period or (b) Five Million Dollars ($5,000,000). (d) The definition of "Capitalization Ratio" is amended and restated to read as follows: 1.7 Intentionally left blank. (e) The definition of "EBITDA" is amended and restated to read as follows: 1.11 EBITDA shall mean, for any period, the net income (or net loss), plus the sum of (i) interest expense (including capitalized interest and the interest component of rentals paid or accrued under capital leases), (ii) income tax expense, (iii) depreciation expense, (iv) amortization expense (including, without limitation, film amortization), (v) non-cash extraordinary, unusual or nonrecurring losses, (vi) losses resulting from the sale of capital assets and (vii) barter expenses, minus the sum of (i) non-cash extraordinary, unusual or nonrecurring gains, (ii) gains resulting from the sale or condemnation of capital assets and (iii) barter revenues, in each case determined on a consolidated basis in accordance with GAAP for such period. (f) The definition of "Fee Margin" is added to read as follows: 1.36 Fee Margin shall have the meaning given in the table set forth in the definition of Margin. (g) The definition of "Leverage Ratio" is added to read as follows: 1.37 Leverage Ratio shall mean, for any period, the ratio of (a) Funded Debt of Borrower and its Subsidiaries on a consolidated basis as of the end of such period to (b) Operating Cash Flow for such period. (h) The definition of "Leverage Rating" is added to read as follows: 1.38 Leverage Rating means a rating determined in accordance with the following table:
Leverage Ratio Leverage Rating -------------- --------------- equal to or less than 3.5 to 1.0 Level 1 greater than 3.5 to 1.0, but equal Level 2 to or less than 4.0 to 1.0 greater than 4.0 to 1.0, but equal Level 3 to or less than 4.5 to 1.0 greater than 4.5 to 1.0, but equal Level 4 to or less than 5.0 to 1.0 greater than 5.0 to 1.0, but equal Level 5 to or less than 5.5 to 1.0 greater than 5.5 to 1.0 Level 6
-2- The Leverage Rating shall be determined in accordance with the following procedures on the basis of the Leverage Ratio as of the end of Borrower's most recently completed fiscal quarter (the "Prior Quarter"), and shall be effective as of the first day of the month following Agent's receipt of the financial reports in respect of each such Prior Quarter pursuant to Section 7.4. All resulting adjustments in the Margins shall be effective as of the first day of the month following Agent's receipt of such financial reports. If Borrower shall fail to provide the financial reports due in respect of the Prior Quarter for a period of five (5) days after the date required pursuant to Section 7.4, from and after the date on which such financial statements are due and until the first day of the month following Agent's receipt of such financial statements, any payments of fees or interest due hereunder shall be calculated and paid as if the Leverage Rating was one level higher than the Leverage Rating applicable as of the date such financial statements were due pursuant to Section 7.4. Notwithstanding the foregoing to the contrary, the Leverage Rating shall not be less than "Level 5" for the period commencing on the date that the Retlaw Transaction is consummated and ending on the first day of the month following Agent's receipt of the financial reports in respect of the first fiscal quarter of Borrower that ends on a date following the date the Retlaw Transaction is consummated. (i) The definition of "Margin" is amended and restated to read as follows: 1.24 Margin shall mean on any date, a per annum interest rate determined in accordance with the following table:
Borrower's Margin For Leverage Rating Libor Rate Loans Fee Margin --------------- ---------------- ---------- Level 1 1.00% .250% Level 2 1.25% .375% Level 3 1.50% .375% Level 4 1.75% .375% Level 5 2.00% .500% Level 6 2.25% .500%
(j) The definition of "Operating Cash Flow" is added to read as follows: 1.39 Operating Cash Flow shall mean, for any period, the EBITDA of Borrower and its Subsidiaries for such period minus payments made to obtain broadcasting programming made by Borrower or any of its Subsidiaries during such period. For purposes of this definition, EBITDA and payments made to obtain broadcasting programming shall for any period of four consecutive fiscal quarters ending September 30, 1999, December 31, 1999 and March 31, 2000, mean and include for that portion of such period that precedes July 1, 1999, the EBITDA derived from and the payments made to obtain broadcasting programming made by Retlaw Enterprises, Inc. and its Subsidiaries during such period in connection with the operation of the assets acquired by Borrower as part of the Retlaw Transaction. (k) The definition of "Retlaw Transaction" is added to read as follows: -3- 1.40 Retlaw Transaction shall mean the acquisition by Borrower of eleven (11) television stations from Retlaw Enterprises, Inc., a California corporation, and its Subsidiaries. 2.3 Amendments to Article 7. Sections 7.2 and 7.3 are hereby deleted and the following substituted in their stead: 7.2 Financial Covenants. (a) Adjusted Leverage Ratio. Borrower shall maintain on a consolidated basis for each period of four consecutive fiscal quarters ending during the periods set forth below an Adjusted Leverage Ratio of not more than the amount set forth below opposite such period:
Period Ratio ------ ----- From July 1, 1999 through and including the 5.75 to 1 four consecutive fiscal quarters ending June 30, 2000 From September 30, 2000 through and 5.50 to 1 including the four consecutive fiscal quarters ending December 31, 2000 For the four consecutive fiscal quarters 5.25 to 1 ending March 31, 2001 From June 30, 2001 through and including 5.00 to 1 the four consecutive fiscal quarters ending September 30, 2001 From December 31, 2001 through and 4.50 to 1 including the four consecutive fiscal quarters ending September 30, 2002 From December 31, 2002 through and 4.00 to 1 including the four consecutive fiscal quarters ending September 30, 2003 For the four consecutive fiscal quarters 3.50 to 1 ending December 31, 2003 and thereafter
(b) Interest Coverage Ratio. Borrower shall maintain on a consolidated basis for each period of four consecutive fiscal quarters, an Interest Coverage Ratio of not less than 2.25 to 1. As used herein, "Interest Coverage Ratio" means, for any period, the ratio of (a) Adjusted Cash Flow of Borrower and its Subsidiaries for such period to (b) interest expense (including capitalized interest and the interest component of rentals paid or accrued under capital leases) of Borrower and its Subsidiaries for such period provided, however, that for purposes of this subsection and subsection 6.15(c), "interest expense" for the four consecutive fiscal quarters ending on September 30, 1999, December 31, 1999 and March 31, 2000 shall be calculated in accordance with the following formula: (i) interest expense for the four quarter period ending on September 30, 1999, shall be four times -4- Borrower's consolidated interest expense for the quarter ending on September 30, 1999; (ii) interest expense for the four quarter period ending on December 31, 1999, shall be two times Borrower's consolidated interest expense for the two quarter period ending on December 31, 1999; and (iii) interest expense for the four quarter period ending on March 31, 2000, shall be four-thirds (4/3) of Borrower's consolidated interest expense for the three quarter period ending on March 31, 2000. (c) Fixed Charge Coverage Ratio. Borrower shall maintain on a consolidated basis for each period of four consecutive fiscal quarters, a Fixed Charge Coverage Ratio of not less than 1.20 to 1. As used herein, "Fixed Charge Coverage Ratio" means, for any period, the ratio of (a) Adjusted Cash Flow of Borrower and its Subsidiaries for such period minus expenditures made by Borrower or any Subsidiary during such period to repair, renew or replace its property where the failure to do so could reasonably be expected to have a material adverse effect on Borrower, Fisher Broadcasting Inc., Fisher Properties Inc., Fisher Mills Inc. or Borrower and its Subsidiaries considered as a whole to (b) cash interest expense (including the interest component of rentals paid under capital leases) of Borrower and its Subsidiaries for such period plus all scheduled payments of principal in respect of Debt for borrowed money (other than the Revolving Loans and unsecured revolving demand loans payable by Borrower from time to time to its officers and shareholders) required to be made by Borrower and its Subsidiaries during such period. For purposes of this subsection, "expenditures made by Borrower or any Subsidiary during such period to repair, renew or replace its property" shall for any period of four consecutive fiscal quarters ending September 30, 1999, December 31, 1999 or March 31, 2000, mean and include for that portion of such four quarter period that precedes July 1, 1999, all such expenditures made by Retlaw Enterprises, Inc. and its Subsidiaries in respect of the assets acquired by Borrower as part of the Retlaw Transaction. 7.3 Intentionally left blank. 3. Amendments to other Loan Documents. Each other Loan Document which makes reference to the Credit Agreement is hereby amended to clarify that such reference is to the Credit Agreement as the same is amended by this Amendment and as the same may be amended from time to time hereafter. 4. Conditions to Effectiveness. Notwithstanding anything contained herein to the contrary, this Amendment shall not become effective until each of the following conditions is fully and simultaneously satisfied: 4.1 Delivery of Amendment. Borrower, Agent and each Bank shall have executed and delivered counterparts of this Amendment to Agent; 4.2 Corporate Authority. Agent shall have received in form and substance reasonably satisfactory to it such evidence of corporate authority and action as Agent or any Bank shall request demonstrating that the execution, delivery and performance of this Amendment has been duly authorized by Borrower; -5- 4.3 Consent of Guarantors. Fisher Broadcasting Inc., Fisher Mills Inc. and Fisher Properties Inc. shall each have executed the subjoined Guarantors' Consent; 4.4 Representations True; No Default. The representations of Borrower as set forth in Article 6 of the Credit Agreement shall be true on and as of the date of this Amendment with the same force and effect as if made on and as of this date. No Event of Default and no event which, with notice or lapse of time or both, would constitute an Event of Default, shall have occurred and be continuing or will occur as a result of the execution of this Amendment; 4.5 Retlaw Transaction. Evidence satisfactory to Agent and Banks that Borrower has consummated the Retlaw Transaction; and 4.5 Other Documents. Agent and Banks shall have received such other documents, instruments, and undertakings as Agent and such Bank may reasonably request. 5. No Further Amendment. Except as expressly modified by this Amendment, the Credit Agreement and the other Loan Documents shall remain unmodified and in full force and effect and the parties hereby ratify their respective obligations thereunder. Without limiting the foregoing, Borrower expressly reaffirms and ratifies its obligation to pay or reimburse Agent and Banks on request for all reasonable expenses, including legal fees, actually incurred by Agent or such Bank in connection with the preparation of this Amendment and the closing of the transactions contemplated hereby and thereby. 6. Miscellaneous. 6.1 Entire Agreement. This Amendment comprises the entire agreement of the parties with respect to the subject matter hereof and supersedes all prior oral or written agreements, representations or commitments. 6.2 Counterparts. This Amendment may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original, and all of which taken together shall constitute one and the same Amendment. 6.3 Governing Law. This Amendment and the rights and obligations of the parties hereto shall be construed and interpreted in accordance with the internal laws of the State of Washington. 6.4 Oral Agreements Not Enforceable. ORAL AGREEMENTS OR ORAL COMMITMENTS TO LOAN MONEY, EXTEND CREDIT, OR TO FOREBEAR FROM ENFORCING REPAYMENT OF A DEBT ARE NOT ENFORCEABLE UNDER WASHINGTON LAW. -6- EXECUTED AND DELIVERED by the duly authorized officers of the parties as of the date first above written. Borrower: Agent: FISHER COMPANIES INC. SEAFIRST BANK By _________________________________ By __________________________________ Title ______________________________ Title _______________________________ Banks: SEAFIRST BANK U.S. BANK NATIONAL ASSOCIATION By _________________________________ By __________________________________ Title ______________________________ Title _______________________________ -7- GUARANTORS' CONSENT Fisher Broadcasting Inc., Fisher Mills Inc. and Fisher Properties Inc. ("Guarantors") are guarantors of the indebtedness, liabilities and obligations of Fisher Companies Inc. ("Borrower") under the Credit Agreement and the other Loan Documents referred to in the within and foregoing First Amendment to Credit Agreement ("Amendment"). The Guarantors hereby acknowledge that they have received a copy of the Amendment and hereby consent to its contents (notwithstanding that such consent is not required). Each Guarantor hereby confirms that its guarantee of the obligations of Borrower remains in full force and effect, and that the obligations of Borrower under the Loan Documents shall include the obligations of Borrower under the Loan Documents as amended by the Amendment. Guarantors: FISHER BROADCASTING INC. FISHER MILLS INC. By _________________________________ By __________________________________ Title ______________________________ Title _______________________________ FISHER PROPERTIES INC. By _________________________________ Title ______________________________ -8- EX-10.12 6 2ND AMENDMENT TO CREDIT AGREEMENT DATED 5/26/98 Exhibit 10.12 SECOND AMENDMENT TO CREDIT AGREEMENT THIS SECOND AMENDMENT TO CREDIT AGREEMENT ("Amendment") is made effective as of September 30, 1999, by and among FISHER COMPANIES INC. ("Borrower"), and BANK OF AMERICA, N. A. and U.S. BANK NATIONAL ASSOCIATION (each individually a "Bank" and collectively the "Banks") and BANK OF AMERICA, N. A., as agent for Banks ("Agent"). Recitals A. Borrower, Banks and Agent are parties to that certain Credit Agreement dated as of May 26, 1998 as the same was amended pursuant to that certain First Amendment to Credit Agreement by and among the parties hereto as of June 25, 1999 ("Credit Agreement") and the related Loan Documents described therein. B. The parties hereto now desire to make certain changes to the Credit Agreement and the other Loan Documents all on the terms and conditions that follow. NOW, THEREFORE, the parties agree as follows: Agreement 1. Definitions. Capitalized terms used herein and not otherwise defined shall have the meanings given in the Credit Agreement. 2. Amendment to Section 7.2 of the Credit Agreement. Section 7.2(b) of the Credit Agreement is hereby deleted and the following substituted in its stead: (b) Interest Coverage Ratio. Borrower shall maintain on a consolidated basis for each period of four consecutive fiscal quarters, an Interest Coverage Ratio of not less than the applicable minimum ratio set forth below:
Period Minimum Ratio ------ ------------- For the periods of four consecutive fiscal 1.80 to 1 quarters ending on or before December 31, 2000 For the periods of four consecutive fiscal 1.90 to 1 quarters ending after December 31, 2000 and on or before December 31, 2001 For the periods of four consecutive fiscal 2.00 to 1 quarters ending after December 31, 2001 and on or before December 31, 2002 For the periods of four consecutive fiscal 2.25 to 1 quarters ending after December 31, 2002
As used herein, "Interest Coverage Ratio" means, for any period, the ratio of (a) Adjusted Cash Flow of Borrower and its Subsidiaries for such period to (b) interest expense (including capitalized interest and the interest component of rentals paid or accrued under capital leases) of Borrower and its Subsidiaries for such period, provided, however, that for purposes of this subsection and subsection 6.15(c), "interest expense" for the four consecutive fiscal quarters ending on September 30, 1999, December 31, 1999 and March 31, 2000 shall be calculated in accordance with the following formula: (i) interest expense for the four quarter period ending on September 30, 1999, shall be four times Borrower's consolidated interest expense for the quarter ending on September 30, 1999; (ii) interest expense for the four quarter period ending on December 31, 1999, shall be two times Borrower's consolidated interest expense for the two quarter period ending on December 31, 1999; and (iii) interest expense for the four quarter period ending on March 31, 2000, shall be four-thirds (4/3) of Borrower's consolidated interest expense for the three quarter period ending on March 31, 2000. 4. Conditions to Effectiveness. Notwithstanding anything contained herein to the contrary, this Amendment shall not become effective until each of the following conditions is fully and simultaneously satisfied: 4.1 Delivery of Amendment. Borrower, Agent and each Bank shall have executed and delivered counterparts of this Amendment to Agent; 4.2 Corporate Authority. Agent shall have received in form and substance reasonably satisfactory to it such evidence of corporate authority and action as Agent or any Bank shall request demonstrating that the execution, delivery and performance of this Amendment has been duly authorized by Borrower; 4.3 Consent of Guarantors. Fisher Broadcasting Inc., Fisher Mills Inc. and Fisher Properties Inc. shall each have executed the subjoined Guarantors' Consent; 4.4 Representations True; No Default. The representations of Borrower as set forth in Article 6 of the Credit Agreement shall be true on and as of the date of this Amendment with the same force and effect as if made on and as of this date. No Event of Default and no event which, with notice or lapse of time or both, would constitute an Event of Default, shall have occurred and be continuing or will occur as a result of the execution of this Amendment; 4.5 Other Documents. Agent and Banks shall have received such other documents, instruments, and undertakings as Agent and such Bank may reasonably request. 5. No Further Amendment. Except as expressly modified by this Amendment, the Credit Agreement and the other Loan Documents shall remain unmodified and in full force and effect and the parties hereby ratify their respective obligations thereunder. Without limiting the foregoing, Borrower expressly reaffirms and ratifies its obligation to pay or reimburse Agent and Banks on request for all reasonable expenses, including legal fees, actually incurred by Agent or such Bank in connection with the preparation of this Amendment and the closing of the transactions contemplated hereby and thereby. -2- 6. Miscellaneous. 6.1 Entire Agreement. This Amendment comprises the entire agreement of the parties with respect to the subject matter hereof and supersedes all prior oral or written agreements, representations or commitments. 6.2 Counterparts. This Amendment may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original, and all of which taken together shall constitute one and the same Amendment. 6.3 Governing Law. This Amendment and the rights and obligations of the parties hereto shall be construed and interpreted in accordance with the internal laws of the State of Washington. 6.4 Oral Agreements Not Enforceable. ORAL AGREEMENTS OR ORAL COMMITMENTS TO LOAN MONEY, EXTEND CREDIT, OR TO FOREBEAR FROM ENFORCING REPAYMENT OF A DEBT ARE NOT ENFORCEABLE UNDER WASHINGTON LAW. EXECUTED AND DELIVERED by the duly authorized officers of the parties as of the date first above written. Guarantors: FISHER COMPANIES INC. BANK OF AMERICA, N. A. By_________________________________ By__________________________________ Title______________________________ Title_______________________________ Banks: BANK OF AMERICA, N.A. U.S. BANK NATIONAL ASSOCIATION By_________________________________ By__________________________________ Title______________________________ Title_______________________________ -3- GUARANTORS' CONSENT Fisher Broadcasting Inc., Fisher Mills Inc. and Fisher Properties Inc. ("Guarantors") are guarantors of the indebtedness, liabilities and obligations of Fisher Companies Inc. ("Borrower") under the Credit Agreement and the other Loan Documents referred to in the within and foregoing Second Amendment to Credit Agreement ("Amendment"). The Guarantors hereby acknowledge that they have received a copy of the Amendment and hereby consent to its contents (notwithstanding that such consent is not required). Each Guarantor hereby confirms that its guarantee of the obligations of Borrower remains in full force and effect, and that the obligations of Borrower under the Loan Documents shall include the obligations of Borrower under the Loan Documents as amended by the Amendment. Guarantors: FISHER BROADCASTING INC. FISHER MILLS INC. By_________________________________ By__________________________________ Title______________________________ Title_______________________________ FISHER PROPERTIES INC. By_________________________________ Title______________________________ -4- EX-10.16 7 2ND AMENDMENT TO CREDIT AGREEMENT DATED 6/24/99 Exhibit 10.16 SECOND AMENDMENT TO CREDIT AGREEMENT THIS SECOND AMENDMENT TO CREDIT AGREEMENT (the "Amendment"), dated as of September 31, 1999, is entered into by and among FISHER COMPANIES INC. (the "Company"), BANK OF AMERICA, N.A., as agent for itself and the Lenders (the "Agent"), and the several financial institutions party to the Credit Agreement described below (collectively, the "Lenders"). RECITALS A. Reference is hereby made to that certain Credit Agreement dated as of June 24, 1999 as the same was amended pursuant to that certain First Amendment to Credit Agreement dated as of August 24, 1999 in each case by and among the Company, Lenders and Agent (the "Credit Agreement") pursuant to which the Agent and the Lenders have extended certain credit facilities to the Company. B. The Company has requested that the Lenders agree to amend the Credit Agreement. C. The Lenders are willing to amend the Credit Agreement, subject to the terms and conditions of this Amendment. NOW, THEREFORE, for valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereto hereby agree as follows: 1. Defined Terms. Unless otherwise defined herein, capitalized terms used herein shall have the meanings, if any, assigned to them in the Credit Agreement. 2. Amendment to Credit Agreement. Section 6.15(b) of the Credit Agreement shall be amended and restated to read as follows: (b) Interest Coverage Ratio. The Company shall maintain on a consolidated basis for each period of four consecutive fiscal quarters, an Interest Coverage Ratio of not less than the applicable minimum ratio set forth below:
Period Minimum Ratio ------ ------------- For the periods of four consecutive 1.80 to 1 fiscal quarters ending on or before December 31, 2000 For the periods of four consecutive 1.90 to 1 fiscal quarters ending after December 31, 2000 and on or before December 31, 2001
For the periods of four consecutive 2.00 to 1 fiscal quarters ending after December 31, 2001 and on or before December 31, 2002 For the periods of four consecutive 2.25 to 1 fiscal quarters ending after December 31, 2002
As used herein, "Interest Coverage Ratio" means, for any period, the ratio of (a) Adjusted Cash Flow of the Company and its Subsidiaries for such period to (b) interest expense (including capitalized interest and the interest component of rentals paid or accrued under capital leases) of the Company and its Subsidiaries for such period, provided, however, that for purposes of this subsection and subsection 6.15(c), "interest expense" for the four consecutive fiscal quarters ending on September 30, 1999, December 31, 1999 and March 31, 2000 shall be calculated in accordance with the following formula: (i) interest expense for the four quarter period ending on September 30, 1999, shall be four times the Company's consolidated interest expense for the quarter ending on September 30, 1999; (ii) interest expense for the four quarter period ending on December 31, 1999, shall be two times the Company's consolidated interest expense for the two quarter period ending on December 31, 1999; and (iii) interest expense for the four quarter period ending on March 31, 2000, shall be four-thirds (4/3) of the Company's consolidated interest expense for the three quarter period ending on March 31, 2000. 3. Representations and Warranties. The Company hereby represents and warrants to the Agent and the Lenders as follows: (a) No Default or Event of Default has occurred and is continuing. (b) The execution, delivery and performance by the Company of this Amendment have been duly authorized by all necessary corporate and other action and do not and will not require any registration with, consent or approval of, notice to or action by, any Person (including any Governmental Authority) in order to be effective and enforceable. The Credit Agreement as amended by this Amendment constitutes the legal, valid and binding obligations of the Company, enforceable against it in accordance with its respective terms. without defense, counterclaim or offset. (c) All representations and warranties of the Company contained in the Credit Agreement are true and correct. -2- (d) The Company is entering into this Amendment on the basis of its own investigation and for its own reasons, without reliance upon the Agent and the Lenders or any other Person. 4. Effective Date. This Amendment will become effective as of September 30, 1999, at such time as (a) the Agent has received from the Company and the Lenders a duly executed original (or, if elected by the Agent, an executed facsimile copy) of this Amendment, together with a duly executed Guarantor Acknowledgment and Consent in the form attached hereto; and (b) the Company has paid in full certain amendment fees to the Agent and certain Lenders in accordance with the terms of that certain letter dated November 1, 1999 from the Agent to the Lenders in respect of this Amendment; and (c) Agent shall have received in form and substance reasonably satisfactory to it such evidence of corporate authority and action as Agent or any Lender shall request demonstrating that the execution, delivery and performance of this Amendment has been duly authorized by the Company. 5. Reservation of Rights. The Company acknowledges and agrees that the execution and delivery by the Agent and the Lenders of this Amendment shall not be deemed to create a course of dealing or otherwise obligate the Agent or the Lenders to forbear or execute similar amendments under the same or similar circumstances in the future. 6. Miscellaneous. (a) Except as herein expressly amended, all terms, covenants and provisions of the Credit Agreement are and shall remain in full force and effect and all references therein to such Credit Agreement shall henceforth refer to the Credit Agreement as amended by this Amendment. This Amendment shall be deemed incorporated into, and a part of, the Credit Agreement. (b) This Amendment shall be binding upon and inure to the benefit of the parties hereto and thereto and their respective successors and assigns. No third party beneficiaries are intended in connection with this Amendment. (c) This Amendment shall be governed by and construed in accordance with the law of the State of Washington. (d) This Amendment may be executed in any number of counterparts, each of which shall be deemed an original, but all such counterparts together shall constitute but one and the same instrument. Each of the parties hereto understands and agrees that this document (and any other document required herein) may be delivered by any party thereto either in the form of an executed original or an executed original sent by facsimile transmission to be followed promptly by mailing of a hard copy original, and that receipt by the Agent of a facsimile transmitted document purportedly bearing the signature of a Lender or the Company shall bind such Lender or the Company, respectively, with the same force and effect as the delivery of a hard copy original. Any failure by the Agent to receive the hard copy executed original of such document shall not diminish the binding effect of receipt of the facsimile transmitted executed original of such document of the party whose hard copy page was not received by the Agent. -3- (e) This Amendment, together with the Credit Agreement, contains the entire and exclusive agreement of the parties hereto with reference to the matters discussed herein and therein. This Amendment supersedes all prior drafts and communications with respect thereto. This Amendment may not be amended except in accordance with the provisions of Section 10.01 of the Credit Agreement. (f) If any term or provision of this Amendment shall be deemed prohibited by or invalid under any applicable law, such provision shall be invalidated without affecting the remaining provisions of this Amendment or the Credit Agreement, respectively. (g) The Company covenants to pay to or reimburse the Agent and the Lenders, upon demand, for all costs and expenses (including allocated costs of in-house counsel) incurred in connection with the development, preparation, negotiation, execution and delivery of this Amendment, including without limitation appraisal, audit, search and filing fees incurred in connection therewith. 5. Oral Agreements Not Enforceable. ORAL AGREEMENTS OR ORAL COMMITMENTS TO LOAN MONEY, EXTEND CREDIT, OR TO FOREBEAR FROM ENFORCING REPAYMENT OF A DEBT ARE NOT ENFORCEABLE UNDER WASHINGTON LAW. IN WITNESS WHEREOF, the parties hereto have executed and delivered this Amendment as of the date first above written. FISHER COMPANIES INC. By:__________________________________ Title:_______________________________ BANK OF AMERICA, N.A., as Agent By:__________________________________ Title:_______________________________ BANK OF AMERICA, N.A., as a Lender By:__________________________________ Title:_______________________________ -4- U.S. BANK NATIONAL ASSOCIATION, as a Lender By:__________________________________ Title:_______________________________ CREDIT SUISSE FIRST BOSTON, as a Lender By:__________________________________ Title:_______________________________ BANKBOSTON, N.A. as a Lender By:__________________________________ Title:_______________________________ THE BANK OF NOVA SCOTIA, as a Lender By:__________________________________ Title:_______________________________ BANK OF MONTREAL, as a Lender By:__________________________________ Title:_______________________________ KEY CORPORATE CAPITAL INC., as a Lender By:__________________________________ Title:_______________________________ THE BANK OF NEW YORK, as a Lender By:__________________________________ Title:_______________________________ -5- UNION BANK OF CALIFORNIA, N.A., as a Lender By:__________________________________ Title:_______________________________ THE FUJI BANK, LIMITED, as a Lender By:__________________________________ Title:_______________________________ CITY NATIONAL BANK, as a Lender By:__________________________________ Title:_______________________________ CREDIT SUISSE FIRST BOSTON, as Syndication Agent By:__________________________________ Title:_______________________________ By:__________________________________ Title:_______________________________ -6- EX-10.17 8 FORM OF AFFILIATION AGREEMENT Exhibit 10.17 CBS TELEVISION NETWORK A Division of CBS Inc. AFFILIATION AGREEMENT CBS TELEVISION NETWORK, A Division of CBS Inc., 51 West 52 Street, New York, New York 10019 ("CBS"), and RETLAW ENTERPRISES, INC., P.O. Box 702, Yakima, Washington 98907 ("Broadcaster"), licensed to operate television station _______ at __________ on channel number ___ ("Affiliated Station"), hereby mutually covenant and agree, as of the 13th day of February, 1996, as follows: 1. Offer, Acceptance and Delivery of Network Programs. Broadcaster shall have a "first call" on CBS network television programs ("Network Programs") as follows: (a) Offer of Network Programs. CBS shall offer to Broadcast for broadcasting by Affiliated Station those Network Programs which are to be broadcast on a network basis by any television broadcast station licensed to operate in Affiliated Station's community of license. (b) Acceptance of Network Programs. As to any offer described in Paragraph 1(a) of this Agreement, Broadcaster may accept such offer only by notifying CBS, by means of CBS's computer-based communications system, of such acceptance within 72 hours (exclusive of Saturdays, Sundays and holidays), or such longer period as CBS may specify therein, after such offer; provided, however, that, if the first broadcast referred to in such offer is scheduled to occur less than 72 hours after the making of the offer, Broadcaster shall notify CBS of the acceptance or rejection of such offer as promptly as possible and in any event prior to the first broadcast time specified in such offer. Such acceptance shall constitute Broadcaster's agreement that Affiliated Station will broadcast such Network Program or Programs in accordance with the terms of this Agreement and of such offer, and so long as Affiliated Station so broadcasts such Network Program or Programs, CBS will not, subject to its rights in the program material, authorize the broadcast thereof on a network basis by any other television broadcast station licensed to operate in Affiliated Station's community of license; provided, however, that CBS shall have the right to authorize any television broadcast station, wherever licensed to operate, to broadcast any Network Program consisting of an address by the President of the United States of America on a subject of public importance or consisting of coverage of a matter of immediate national concern. If, as to any Network Program offered hereunder, Broadcaster does not notify CBS as provided for in this Paragraph 1(b), Broadcaster shall have no rights with respect to such Network Program, and CBS may offer such Network Program on the same or different terms to any other television broadcast station or stations licensed to operate in Affiliated Station's community of license; provided, however, that, if any Network Program offered hereunder is accepted, by Affiliated Station, upon any other terms or conditions to which CBS agrees in writing, then the provisions of this Agreement shall apply to the broadcast of such Network Program except to the extent such provisions are expressly varied by the terms and conditions of such acceptance as so agreed to by CBS. (c) Delivery of Network Programs. Any obligation of CBS to furnish Network Programs for broadcasting by Affiliated Station is subject to CBS's making of arrangements satisfactory to it for the delivery of Network Programs to Affiliated Station. 2. Payment to Broadcasters. (a) Definitions. (i) "Live Time Period" means the time period or periods specified by CBS in its initial offer of a Network Program to Broadcaster for the broadcast of such Network Program over Affiliated Station; (ii) "Affiliated Station's Network Rate" shall be $____ and is used herein solely for purposes of computing payments by CBS to Broadcaster; (iii) "Commercial Availability" means a period of time made available by CBS during a Network Commercial Program for one or more Network Commercial Announcements or local cooperative commercial announcements; and (iv) "Network Commercial Announcements" means a commercial announcement broadcast over Affiliated Station during a Commercial Availability and paid for by or on behalf of one or more CBS advertisers, but does not include announcements consisting of billboards, credits, public service announcements, promotional announcements and announcements required by law. (b) Payment for Broadcast of Programs. For each Network Commercial Program or portion thereof, except those specified in Paragraph 2(c) hereof, which is broadcast over Affiliated Station during the Live Time Period therefor and the Live Time Period for which is set forth in the -2- table below, CBS shall pay Broadcaster the amount resulting from multiplying the following: (i) Affiliated Station's Network Rate; by (ii) the percentage set forth below opposite such time period (which, unless otherwise specified, is expressed in Affiliated Station's then-current local time); by (iii) the fraction of an hour substantially occupied by such program or portion thereof; by (iv) the fraction of the aggregate length of all Commercial Availabilities during such program or portion thereof occupied by Network Commercial Announcements. Table
Monday through Friday 7:00 a.m. - 9:00 a.m. ......................................... 11.2% 9:00 a.m. - 11:00 a.m. ........................................ 15% 11:00 a.m. - 3:00 p.m. ........................................ 6% 3:00 p.m. - 5:00 p.m. ......................................... 12% 5:00 p.m. - 8:00 p.m. ......................................... 15% 8:00 p.m. - 11:00 p.m. ........................................ 30% 11:00 p.m. - 12:00 a.m. ....................................... 15% Saturday 7:00 a.m. - 8:00 a.m. ......................................... 7% 8:00 a.m. - 5:00 p.m. ......................................... 12% 5:00 p.m. - 8:00 p.m. ......................................... 15% 8:00 p.m. - 11:00 p.m. ........................................ 30% 11:00 p.m. - 12:00 a.m. ....................................... 15% Sunday 11:30 a.m. - 5:00 p.m. ........................................ 12% 5:00 p.m. - 7:00 p.m. ......................................... 15% 7:00 p.m. - 11:00 p.m. ........................................ 30% 11:00 p.m. - 12:00 a.m. ....................................... 15%
For each Network Program or portion thereof, except those specified in Paragraph 2(c) hereof, which is broadcast by Affiliated Station during a time period -3- other than the Live Time Period therefor and the Live Time Period for which is set forth in the table above, CBS shall pay Broadcaster as if Affiliated Station had broadcast such program or portion thereof during such Live Time Period, except that: (i) if the percentage set forth above opposite the time period during which Affiliated Station broadcast such program or portion thereof is less than that set forth opposite such Live Time Period, then CBS shall pay Broadcaster on the basis of the time period during which Affiliated Station broadcast such program or portion thereof; and (ii) if the time period or any portion thereof during which Affiliated Station broadcast such program is not set forth in the table above, then CBS shall pay Broadcaster in accordance with Paragraph 2(c) hereof. (c) Payment for Broadcast of Other Programs. For the following programs, the percentages listed below (rather than those daypart percentages set forth in the table in Paragraph 2(b) hereinabove) shall be used in computing payment to Affiliated Station: Monday-Friday Daytime Game shows.................... 15% Monday-Friday Continuing Dramas..................... 6% Monday-Friday Late Night Daypart.................... 46.5% per telecast for live clearance or 11.5% per telecast for delayed clearance Monday-Friday CBS EVENING NEWS...................... 5% CBS Sports programs................................. 0% CBS SUNDAY MORNING and FACE THE NATION.............. 8%
Notwithstanding the payment obligations set forth in Paragraph 2(b) above, CBS shall pay Broadcaster such amounts as specified in CBS's program offer for Network Programs broadcast by Affiliated Station consisting of (i) special event programs (including, but not limited to, such programs as awards programs, mini- series, movie specials, entertainment specials, special-time-period broadcasts of -4- regularly-scheduled series, and new specials such as political conventions, election coverage, presidential inaugurations and related events), (ii) paid political programming, and (iii) programs for which CBS specified a Live Time Period, or which Affiliated Station broadcast during a time period, any portion of which is not set forth in the table above. (d) Deduction. From the amounts otherwise payable to Broadcaster hereunder, there shall be deducted, for each week of the term of this Agreement, a sum equal to 168% of Affiliated Station's Network Rate. (e) Changes in Rate. CBS may reduce Affiliated Station's Network Rate in connection with a re- evaluation and reduction of the Affiliated Station Network Rate of CBS's affiliated stations in general, by giving Affiliated Station at least thirty- days' prior notice of such reduction in Affiliated Station's Network Rate in which event Broadcaster may terminate this Agreement, effective as of the effective date of any such reduction, on not less than fifteen-days' prior notice to CBS. In order to reflect differences in the importance of compensation payments to stations in markets of varying size, the size of any general reduction of the Network Rate of CBS's affiliated stations pursuant to this Paragraph 2(e) may vary to a reasonable degree according to each station's market-size category (i.e., 1-50, 51-100, 101-150 or 151+). Further, CBS agrees that in the event of such an across-the-board rate reduction, Affiliated Station's Network Rate shall be reduced accordingly until thirty days after the effective date of the reduction, at which time, unless, with affiliated Station's approval, an additional corresponding benefit of equal value has accrued to the station, the Network Rate shall be restored to the previous level and a retroactive adjustment shall be made to make up the compensation difference. (f) Time of Payment. CBS shall make the payments hereunder reasonably promptly after the end of each four-week or five-week accounting period of CBS for Network Commercial Programs broadcast during such accounting period. (g) Reports. Broadcaster shall submit to CBS in the manner requested by CBS such reports as CBS may reasonably request concerning the broadcasting of Network Programs by Affiliated Station. -5- 3. Term and Termination. (a) Term. The term of this Agreement shall be the period commencing on March 1, 1996 and expiring on February 28, 2006; provided, however, that, unless Broadcaster or CBS shall notify the other at least six months prior to the expiration of the original period or any subsequent five-year period that the party giving such notice does not wish to have the term extended beyond such period, the term of this Agreement shall be automatically extended upon the expiration of the original period and each subsequent extension thereof for an additional period of five years. Notwithstanding any provision of any offer or acceptance under Paragraph 1 hereof, upon the expiration or any termination of the term of this Agreement, Broadcaster shall have no right whatsoever to broadcast over Affiliated Station any Network Program. (b) Termination on Transfer of License or Interest in Broadcaster. Broadcaster shall notify CBS forthwith if any application is made to the Federal Communications Commission relating to a transfer either of any interest in Broadcaster or of Broadcaster's license for Affiliated Station. In the event that CBS shall reasonably disapprove of the proposed transferee, CBS shall have the right to terminate this Agreement effective as of the effective date of any such transfer (except a transfer within the provisions of Section 73.3540(f) of the Federal Communications Commission's present Rules and Regulations) by giving Broadcaster notice thereof, and of its reasons for disapproving of the proposed transferee, within thirty days after the date on which Broadcaster gives CBS notice of the making of such application. If CBS does not so terminate this Agreement, Broadcaster shall, prior to the effective date of any such transfer of any interest in Broadcaster or of Broadcaster's license for Affiliated Station, and as a condition precedent to such transfer, procure and deliver to CBS, in form reasonably satisfactory to CBS, the agreement of the proposed transferee that, upon consummation of the transfer, the transferee will unconditionally assume and perform all obligations of Broadcaster under this Agreement. Upon delivery of said agreement to CBS, in form satisfactory to it, the provisions of this Agreement applicable to Broadcaster shall, effective upon the date of such transfer, be applicable to such transferee. Broadcaster's obligations to procure the assumption of this Agreement by any transferee of Affiliated Station as a condition precedent to such transfer shall be deemed to be of the essence of this Agreement; further, Broadcaster expressly recognizes that money damages will be inadequate to compensate CBS for the breach -6- of such obligation, and that CBS shall accordingly be entitled to equitable relief to enforce the same. (c) Termination on Change of Transmitter Location, Power, Frequency or Hours of Operation of Affiliated Station. Broadcaster shall notify CBS forthwith if application is made to the Federal Communications Commission to modify the transmitter location, power or frequency of Affiliated Station or Broadcaster plans to modify the hours of operation of Affiliated Station. CBS shall have the right to terminate this Agreement, effective upon the effective date of such modification, by giving Broadcaster notice thereof within thirty (30) days after the date on which Broadcaster gives CBS notice of the application or plan for such modification. If Broadcaster fails to notify CBS as required herein, then CBS shall have the right to terminate this Agreement by giving Broadcaster thirty (30) days' notice thereof within thirty (30) days of the date on which CBS first learns of such application. (d) Termination in the Event of Bankruptcy. Upon one (1) month's notice, CBS may terminate this Agreement if a petition in bankruptcy is filed by or on behalf of Broadcaster, or Broadcaster otherwise takes advantage of any insolvency law, or an involuntary petition in bankruptcy is filed against Broadcaster and not dismissed within thirty (30) days thereafter, or if a receiver or trustee of any of Broadcaster's property is appointed at any time and such appointment is not vacated within thirty (30) days thereafter (it being understood that Broadcaster will have a similar right of termination upon the occurrence of any such event with respect to CBS). (e) Termination in the Event of Breach. Each party, effective upon notice to the other, may, in addition to its other rights, terminate this Agreement if any material representation, warranty or agreement of the other party contained in this Agreement has been breached. 4. Use of Network Programs. (a) General Broadcaster shall not broadcast any Network Program over Affiliated Station unless such Network Program has first been offered by CBS to Broadcaster for broadcasting over Affiliated Station and has been accepted by Broadcaster in accordance with this Agreement. Except with the prior written consent of CBS, -7- Broadcaster shall neither sell any Network Program, in whole or in part, or any time therein, for sponsorship, nor otherwise use Network Programs except as specifically authorized in this Agreement. Affiliated Station shall not broadcast any commercial announcement or announcements during any interval, within a Network Program, which is designated by CBS to Affiliated Station as being for the sole purpose of making a station identification announcement. Broadcaster shall, with respect to each Network Program broadcast over Affiliated Station, broadcast such Network Program in its entirety (including but not limited to commercial announcements, billboards, credits, public service announcements, promotional announcements and network identification), without interruption, alteration, compression, deletion or addition of any kind, from the beginning of the Network Program to the final system cue at the conclusion of the Network Program. Nothing herein shall be construed as preventing Broadcaster's deletion of (i) part of a Network Program in order to broadcast an emergency announcement or news bulletin; (ii) a promotional announcement for a Network Program not to be broadcast over Affiliated Station (provided that Affiliated Station shall broadcast an alternative promotional announcement for CBS network programming in place of the deleted promotional announcement); (iii) such words, phrases or scenes as Broadcaster, in the reasonable exercise of its judgment, determines it would not be in the public interest to broadcast over Affiliated Station; provided, however, that Broadcaster shall not substitute for any material deleted pursuant to this clause (iii) any commercial or promotional announcement of any kind whatsoever; and provided further that Broadcaster shall notify CBS of every such deletion within 72 hours thereof. Broadcaster shall not, without CBS's prior written consent, authorize or permit any Network Program, recording, or other material furnished by CBS to Broadcaster or Affiliated Station hereunder to be recorded, duplicated, rebroadcast, retransmitted or otherwise used for any purpose whatsoever other than broadcasting by Affiliated Station as provided herein; except that Broadcaster may assert a right to carriage of Affiliated Station's signal by a cable system pursuant to the provisions of Section 4 of the Cable Consumer Protection and Competition Act of 1992 (the "1992 Cable Act") and may, to the extent permitted by paragraph 4(b) hereof, grant consent to the retransmission of such signal by a cable system or other multichannel video programming distributor, as defined by said Act, pursuant to the provisions of Section 6 thereof. (b) Retransmission Consent. Broadcaster may grant consent to the retransmission of Affiliated Station's signal by a cable system or other multichannel video programming distributor pursuant to the provisions of Section 6 of the 1992 Cable Act (hereafter "retransmission consent"), provided that one of the following conditions applies at the time retransmission consent is granted: -8- (i) the cable system or other multichannel program service on which Affiliated Station's signal is to be transmitted serves television homes within Affiliated Station's television market; (ii) the majority of television homes served by the cable system or other multichannel program service on which Affiliated Station's signal is to be retransmitted are within a county or community in which Affiliated Station's signal is, and has been since October 5, 1992, "significantly viewed" as defined in Section 76.54 of the FCC's rules; or (iii) the cable system or other multichannel program service on which Affiliated Station's signal is to be retransmitted carried signal on October 5, 1992, and does not receive such signal by satellite delivery. Notwithstanding anything to the contrary in the foregoing, in no case shall retransmission consent be granted to a television receive-only satellite service, or a direct broadcast satellite service, if Affiliated Station's signal is to be retransmitted by such service to television homes outside of Affiliated Station's television market other than "unserved household(s)," as that term is defined in Section 119(d) of Title 17, United States Code, as in effect on October 5, 1992. For purposes of this paragraph, a station's "television market" shall be defined in the same manner as set forth in Sections 76.55(e) and 76.59 of the FCC's rules. (c) Taped Recordings of Network Programs. When authorized to make a taped delayed broadcast of a Network Program, Broadcaster shall use Broadcaster-owned tape to record the Network Program when transmitted by CBS only for a single broadcast by Affiliated Station and shall erase the Program recorded on the tape within 24 hours of broadcasting the Network Program and observe any limitations which CBS may place on the exploitation of the Network Program so recorded and erased. 5. Rejection, Refusal, Substitution and Cancellation of Network Programs. (a) Rights of Broadcaster and CBS. With respect to Network Programs offered to or already accepted hereunder by Broadcaster, nothing in this Agreement shall be construed to prevent or hinder: (i) Broadcaster from rejecting or refusing any such Network Program which Broadcaster reasonably believes to be unsatisfactory or unsuitable or -9- contrary to the public interest, or from substituting a program which, in Broadcaster's opinion, is of greater local or national importance; or (ii) CBS from substituting one or more other Network Programs, in which event CBS shall offer such substituted program or programs to Broadcaster pursuant to the provisions of Paragraph 1 hereof; or (iii) CBS from canceling one or more Network Programs. (b) Notice. In the event of any such rejection, refusal, substitution or cancellation by either party hereto, such party shall notify the other thereof as soon as practicable by telex or by such computer-based communications system as CBS may develop for notifications of this kind. Notice given to CBS shall be addressed to CBS Affiliate Relations. 6. Disclosure of Information. CBS shall endeavor in good faith, before furnishing any Network Program, to disclose to Broadcaster information of which CBS has knowledge concerning the inclusion of any matter in such Network Program for which any money, service or other valuable consideration is directly or indirectly paid or promised to, or charged or accepted by, CBS or any employee of CBS or any other person with whom CBS deals in connection with the production or preparation of such Network Program. As used in this Paragraph 6, the term "service or other valuable consideration" shall not include any service or property furnished without charge or at a nominal charge for use in, or in connection with, any Network Program "unless it is so furnished in consideration for an identification in a broadcast of any person, product, service, trademark, or brand name beyond an identification which is reasonably related to the use of such service or property on the broadcast," as such words are used in Section 317 of the Communications Act of 1934 as amended. The provisions of this Paragraph 6 requiring the disclosure of information shall not apply in any case where, because of a waiver granted by the Federal Communications Commission, an announcement is not required to be made under said Section 317. The inclusion in any such Network Program of an announcement required by said Section 317 shall constitute the disclosure to Broadcaster required by this Paragraph 6. 7. Indemnification. CBS will indemnify Broadcaster from and against any and all claims, damages, liabilities, costs and expenses arising out of the broadcasting, pursuant to this -10- Agreement, of Network Programs furnished by CBS to the extent that such claims, damages, liabilities, costs and expenses are (i) based upon alleged libel, slander, defamation, invasion of the right of privacy, or violation or infringement of copyright or literary or dramatic rights; (ii) based upon the broadcasting of Network Programs as furnished by CBS, without any deletions by Broadcaster; and (iii) not based upon any material added by Broadcaster to such Network Programs (as to which deletions and added material Broadcaster shall, to the like extent, indemnify CBS, all network advertisers, if any, on such Network Program, and the advertising agencies of such advertisers). Furthermore, each party will so indemnify the other only if such other party gives the indemnifying party prompt notice of any claim or litigation to which its indemnity applies; it being agreed that the indemnifying party shall have the right to assume the defense of any or all claims or litigation to which its indemnity applies and that the indemnified party will cooperate fully with the indemnifying party in such defense and in the settlement of such claim or litigation. Except as herein provided to the contrary, neither Broadcaster nor CBS shall have any rights against the other party hereto for claims by third persons or for the non-operation of facilities or the non-furnishing of Network Programs for broadcasting if such non-operation or non-furnishing is due to failure of equipment, action or claims by any third person, labor dispute or any cause beyond such party's reasonable control. 8. News Reports Included in Affiliated Station's Local News Broadcasts. As provided in the agreements pertaining to CBS Newsnet and CBS regional news cooperatives (but as a separate obligation of this Affiliation Agreement as well), Broadcaster shall make available, on request by CBS News, coverage produced by Affiliated Station of news stories and breaking news events of national and/or regional interest, to CBS News and to regional news cooperatives operated by CBS News. Affiliated Station shall be compensated at CBS News' then-prevailing rates for material broadcast by CBS News or included in the national Newsnet service. 9. Non-Duplication of Network Programs. (a) For purposes of this paragraph, a television station's "Network Exclusivity Zone" shall mean the zone within thirty-five (35) miles of the station's reference points, or, in the case of a "small market television station," as defined in Section 76.92 of the FCC rules, the zone within 55 miles of said reference points; provided, however, that in no case shall the "Network Exclusivity Zone" include an area within the Designated Market Area ("DMA"), as most recently determined by the A.C. Nielsen Company, of another CBS Television Network Affiliate. A station's "reference points" for purposes of this paragraph shall be as defined in -11- Section 73.658(m) of the FCC rules, and shall be deemed to include, with respect to a station in a hyphenated market, the reference points of each named community in that market. (b) Broadcaster shall be entitled to exercise, within Affiliated Station's Network Exclusivity Zone, the protection against duplication of network programming, as provided by Sections 76.92 through 76.97 of the FCC rules, with respect to a Network Program during the period beginning one (1) day before and ending seven (7) days after the delivery of such Network Program by CBS to Broadcaster; provided, however, that such right shall apply only to Network Programs broadcast in the live time period as offered or on no more than a one day delay as accepted by CBS; and provided further that nothing herein shall be deemed to preclude CBS from granting to any other broadcast television station licensed to any other community similar network non-duplication rights within that station's Network Exclusivity Zone, and Broadcaster's aforesaid right of network non-duplication shall not apply with respect to the transmission of the programs of another CBS affiliate (current or future) by a "community unit," as that term is defined by the rules of the FCC, located (wholly or partially) within the area in which Broadcaster's Network Exclusivity Zone overlaps the Network Exclusivity Zone of that other CBS affiliate. (c) Broadcaster's network non-duplication rights under this paragraph shall be subject to cancellation by CBS on six (6) months written notice to Broadcaster. Any such cancellation by CBS shall not affect any of the other rights and obligations of the parties under this Agreement. 10. Assignment, Conveyance and Conditions for Use of Descramblers. (a) For value received, CBS hereby conveys, transfers, and assigns to Broadcaster, all of its rights, title and interest in and to the tangible personal property consisting of two (2) Videocipher 1B Descramblers (the "Descramblers") subject to the following conditions: (i) Broadcaster may not assign its rights in the Descramblers to any party without CBS's written approval. (ii) At the termination or expiration of this Agreement, Broadcaster's rights in the Descramblers shall cease and Broadcaster shall take appropriate steps to assign the Descramblers to CBS. (b) Broadcaster shall use the Descramblers solely in connection with the broadcast rights granted and specified in the Agreement. -12- (c) CBS makes no warranties whatsoever, either express or implied, in respect of the equipment including, but not limited to, any warranties of merchantability or fitness for a particular purpose. (d) Broadcaster shall be solely responsible for any and all installation and other related costs or charges in connection with the use and installation of the Descramblers. Broadcaster shall at all times use and maintain the Descramblers as instructed by CBS and the manufacturer and shall use its best efforts to assure that the Descramblers are kept in good condition and that no tampering with the Descramblers or other breach of security, as defined in subparagraph (g) below, occurs. Broadcaster shall promptly notify the CBS Satellite Management Center by telephone of any defect or failure in the operation of the Descramblers and shall follow such procedures as are established by CBS for the replacement or repair of the Descramblers. CBS shall be responsible for the cost of correcting any defect or of rectifying any failure of the Descramblers to operate during the Term of the Agreement, provided that Broadcaster shall be responsible for any costs associated with its failure to follow the prescribed procedures. (e) In addition to its rights under paragraph 7 of the Agreement, CBS will not be liable for any damages resulting from the operation of the Descramblers or from the failure of the Descramblers to function properly or, any loss, cost or damage to Broadcaster or others arising from defects or non-performance of the Descramblers. (f) If Broadcaster makes any use of the Descramblers in violation of the terms and conditions of this Agreement, said use shall be a material breach of this Agreement. (g) Should Broadcaster's willful acts or negligence result in any breach in the security of the two Descramblers covered by this Agreement, such breach of security shall be a material breach of this Agreement. Breach of security shall include but not be limited to any theft of all or part of the Descramblers, any unauthorized reproduction of all or part of the Descramblers, any unauthorized reproduction of the code involved in descrambling the network feed from CBS to Broadcaster, or any related misappropriation of the physical property or intellectual property contained in the Descramblers. 11. General. (a) As of the beginning of the term hereof, this Agreement takes the place of, and is substituted for, any and all television affiliation agreements heretofore existing between Broadcaster and CBS concerning Affiliated Station, subject only to the fulfillment of any obligations thereunder relating to events occurring prior to the -13- beginning of the term hereof. This Agreement cannot be changed or terminated orally and no waiver by either Broadcaster or CBS of any breach of any provision hereof shall be or be deemed to be a waiver of any preceding or subsequent breach of the same or any other provision of this Agreement. (b) The obligations of Broadcaster and CBS under this Agreement are subject to all applicable federal, state and local law, rules and regulations (including but not limited to the Communications Act of 1934 as amended and the Rules and Regulations of the Federal Communications Commission) and this Agreement and all matters or issues collateral thereto shall be governed by the law of the State of New York applicable to contracts performed entirely therein. (c) Neither Broadcaster nor CBS shall be or be deemed to be or hold itself out as the agent of the other under this Agreement. (d) Unless specified otherwise, all notices given hereunder shall be given in writing, by personal delivery, mail, telegram, telex system or private wire at the respective addresses of Broadcaster and CBS set forth above, unless either party at any time or times designates another address for itself by notifying the other party thereof by certified mail, in which case all notices to such party shall thereafter be given at its most recently so designated address. Notice given by mail shall be deemed given on the date of mailing thereof with postage prepaid. Notice given by telegram shall be deemed given on delivery of such telegram to a telegraph office with charges therefor prepaid or to be billed to the sender thereof. Notice given by private wire shall be deemed given on the sending thereof. (e) The titles of the paragraphs in this Agreement are for convenience only and shall not in any way affect the interpretation of this Agreement. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written. RETLAW ENTERPRISES, INC. CBS TELEVISION NETWORK A Division of CBS Inc. By _______________________________ By __________________________________ -14- EX-10.18 9 FORM OF PROMISSORY NOTE EXHIBIT 10.18 Form of Promissory Note $ ___________ Seattle, Washington - __________ On demand after date we promise to pay to the order of ________________________________ ________________________________________________________________________ Dollars Payable at above - with interest from date at the rate for 90-day certificate of deposit for $100,000 or more set each Monday by Seafirst Bank minus 25 basis points. FISHER COMPANIES INC. _______________________________________ Glen P. Christofferson - Vice President No. 330 Due On Demand At December 31, 1999, the Company was indebted under loans to directors or to entities in which such directors have a direct or indirect interest or serve in some capacity, in the following amounts: (i) Mr. Phelps K. Fisher, $182,000; (ii) Mr. Donald G. Graham, Jr., $1,716,000 to an estate of which he is the executor and two trusts of which he is a trustee, and $4,000 to a corporation of which he is an officer and a director; and (iii) Jacklyn F. Meurk, $150,000 jointly with her spouse. Additionally, the Company is indebted to Mrs. Donald G. Graham, the mother of Mr. Donald G. Graham, Jr., in the amount of $2,904,000 and to Mrs. Susan Hubbach, the mother of Mrs. Carol Fratt, in the amount of $34,000. Such loans were documented by promissory notes substantially similar to the form of promissory note set forth in this exhibit. EX-22.1 10 FISHER COMPANIES INC. SUBSIDIARIES Exhibit. 22.1 Fisher Companies Inc. Subsidiaries Subsidiary State of Incorporation - ---------- ---------------------- Fisher Broadcasting Inc. Washington Fisher Mills Inc. Washington Fisher Properties Inc. Washington Fisher Communications Inc. (1) Washington Fisher Radio Regional Group Inc. (1) Washington Sam Wylde Flour Co., Inc. (2) Washington Valley Milling Co. (2) Washington Fisher Baking Supply Limited (2) Canada Trotwood Inc. (3) Washington Fisher Mills L.L.C. (4) Washington Fisher Broadcasting - Georgia, L.L.C. (1) Delaware Fisher Broadcasting - Fresno, L.L.C. (1) Delaware _____________________________ (1) Wholly owned by Fisher Broadcasting Inc. (2) Wholly owned by Fisher Mills Inc. (3) Wholly owned by Fisher Properties Inc. (4) Owned 99% by Fisher Mills Inc. and 1% by Fisher Companies Inc. EX-23.1 11 CONSENT OF PRICEWATERHOUSECOOPERS LLP EXHIBIT 23.1 Consent of Independent Accountants We hereby consent to the incorporation by reference in the Registration Statement on Form S-8 (No. 333-32103) of Fisher Companies Inc. of our report dated February 29 2000 appearing in this Form 10-K. We also consent to the incorporation by reference of our report on the Financial Statement Schedule, which appears in this Form 10-K. /s/ PricewaterhouseCoopers LLP PricewaterhouseCoopers LLP Seattle, Washington March 24, 2000 EX-24.1 12 FORM OF POWER OF ATTORNEY Exhibit 24.1 POWER OF ATTORNEY The undersigned, ____________________, hereby authorizes and appoints William W. Krippaehne, Jr., Warren J. Spector and David D. Hillard, and each of them, with full power of substitution and resubstitution and full power to act without the other, as his true and lawful attorney-in-fact and agent to act in his name, place and stead and to execute in the name and on behalf of him, individually and in each capacity stated below, and to file, the Annual Report of Fisher Companies Inc. on Form 10-K for the fiscal year ended December 31, 1999 (the "Annual Report"), any and all amendments to the Annual Report, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing, ratifying and confirming all that said attorneys-in-fact and agents or any of them or their and his or her substitute or substitutes, may lawfully do or cause to be done by virtue thereof. __________________________________ Signature EX-27.1 13 FINANCIAL DATA SCHEDULE
5 1,000 YEAR DEC-31-1999 JAN-01-1999 DEC-31-1999 3,609 79,442 61,035 2,009 13,755 94,070 351,502 115,875 678,512 60,111 0 0 0 10,688 231,107 678,512 291,737 296,498 174,468 174,468 78,203 2,333 13,871 27,623 9,530 18,093 0 0 0 18,093 2.12 2.11
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