10-K 1 d10k.txt FORM 10-K FOR THE PERIOD ENDED 12/31/01 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, 2001 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 COMMUNICATIONS, 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) 404-7000 (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 1, 2002, based on the last sale price reported on the Nasdaq National Market, was approximately $243,791,000. The number of shares outstanding of each of the registrant's classes of common stock as of March 1, 2002 was: Title of Class Number of Shares Outstanding -------------- ---------------------------- Common Stock, $1.25 Par Value 8,591,658 shares DOCUMENTS INCORPORATED BY REFERENCE Portions of the Proxy Statement relating to the Annual Meeting of Shareholders to be held on April 25, 2002, are incorporated by reference under Part III of this Report. PART I ITEM 1. BUSINESS This annual report on Form 10-K contains forward-looking statements. These statements relate to future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology such as "may," "will," "should," "expect," "plan," "intend," "anticipate," "believe," "estimate," "predict," "potential," or "continue," the negative of such terms or other comparable terminology. These statements are only predictions. Actual events or results may differ materially. In evaluating these statements, you should specifically consider various factors, including the risks outlined in the section entitled "Additional Factors that May Affect Our Business, Financial Condition and Future Results" below and elsewhere in this annual report. These factors may cause our actual results to differ materially from any forward-looking statement. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, level of activity, performance, or achievements. Moreover, neither we nor any other person assumes responsibility for the accuracy and completeness of the forward-looking statements. We are under no duty to update any of the forward-looking statements after the date of this annual report to conform such statements to actual results or to changes in our expectations. COMPANY DESCRIPTION Fisher Communications, Inc. is a communications and media company comprised of three subsidiaries: Fisher Broadcasting Company, Fisher Media Services Company, and Fisher Properties Inc. We are focused primarily on broadcasting and media services, but we also currently maintain a portfolio of commercial real estate assets through our subsidiary, Fisher Properties Inc. In 2001 we changed our name from Fisher Companies Inc. to Fisher Communications, Inc. and listed on the Nasdaq National Market to increase visibility for the company and facilitate trading for shareholders. The broadcasting subsidiary owns and operates eleven network-affiliated television stations (and owns a 50% interest in a company that owns a twelfth television station), and also owns and operates 28 radio stations. The television and radio stations are located in Washington, Oregon, Idaho, and Montana, with the exception of two Fox-affiliated television stations located in Augusta and Columbus, Georgia. Seattle and Portland are our two largest markets for both television and radio (ranked 12th and 23rd; 14th and 24th, respectively, based on Designated Market Area rankings by Nielsen Media Research). Fisher's television stations reach nearly 4,000,000 households (approximately 4% of U.S. television households) according to Nielsen Media Research. Our radio stations represent the 26th largest radio group in the U.S. in terms of revenue. Fisher Media Services Company was formed in 2001 to develop and manage three principle businesses: Fisher Entertainment, a producer and distributor of content for cable and television; Fisher Pathways, offering satellite transmission services; and Fisher Plaza, a digital hub that houses and serves an array of communications and media clients. Fisher Communications, Inc. was founded in 1910, and is incorporated in the state of Washington. As of December 31, 2001, the company had 1,016 full-time employees. As used herein, unless the context requires otherwise, when we say "we," "us" or "our," we are referring to Fisher Communications, Inc. and its consolidated subsidiaries. Note 11 to the consolidated financial statements contains information regarding our industry segments for the years ended December 31, 2001, 2000, and 1999. Beginning in 2002, financial performance of the company will be reported in three operating segments: broadcasting, media services, and real estate. COMPANY STRATEGY Fisher's goal is to be a fully integrated communications and media company. Our strategy includes the following components: Restructure corporate enterprise to support greater functional integration of core competencies and to improve operational efficiencies. In 2001, we restructured our broadcasting subsidiary, Fisher Broadcasting Company, and established a new subsidiary, Fisher Media Services Company. We continue to implement our corporate restructuring that we expect will improve the performance and efficiency of our operations. The purpose of this restructuring is to enable us to focus on our objective of becoming a company that fully integrates broadcast communications and media services operations. 2 To build upon our broadcasting foundation, we created Fisher Media Services Company. It produces and provides programming through its subsidiary, Fisher Entertainment. It offers content distribution and media transmission services through its subsidiary, Fisher Pathways. In addition, it owns and operates Fisher Plaza. Fisher Plaza is a communication hub facility for the creation, aggregation, transmission and distribution of media (audio, video, still images, and text) through multiple channels, including satellite, television, cable, radio and terrestrial wired and wireless telecommunications. Fisher Plaza is also designed to serve as a community for media and communications enterprises, which has made it a convergence point for content creation and distribution that we believe meets the demands of today's businesses and consumers. In addition to serving as the home of Fisher's KOMO TV, the Seattle facility houses several media, communications and high-tech companies, including ABC News, AT&T, Internap Network Services Corporation, Looking Glass Networks, MetroMedia Fiber Networks, Qwest, S/2/ Entertainment, Sonic Telecom, Tech TV, Terabeam Networks, Time Warner Telecom, Verizon, and Worldcom Construction of the second building at Fisher Plaza began in the fourth quarter of 2000, and is expected to be completed in the fall of 2002. Fisher Entertainment and Fisher Pathways benefit from and extend the capabilities of Fisher Plaza. Our commercial real estate subsidiary, Fisher Properties Inc., continues in its present form. Given our emphasis on communications and media, we recently considered a sale of its real estate portfolio through a bid process. Due to buyer response as a result of current market conditions, we presently are not seeking to sell the entire portfolio of real estate assets, but will continue to explore opportunistically the sale of individual properties. As part of our corporate restructuring, we sold the assets and working capital used in our flour milling operations in Seattle, Blackfoot, Modesto, and Portland on April 30, 2001, and we completed the sale of the distribution assets and working capital of Fisher Mills Inc. and its subsidiary Sam Wylde Flour Company, Inc. on June 29, 2001. Consistent with the restructuring was the elimination of the boards of directors and a substantial amount of redundant management and support positions. Beginning in 2002, Fisher Broadcasting Company, Fisher Media Services Company and Fisher Properties Inc. each will be reported as a separate business segment in our financial statements. Improve competitive position and operational efficiencies of our broadcast communications properties. We believe Fisher Plaza will enable us to achieve operational efficiencies by centralizing several key aspects of programming and distribution for our broadcast properties. For example, we plan to combine our Seattle radio and television news gathering and production operations at Fisher Plaza. In addition, we expect that news stories from our broadcast properties will be centrally indexed and stored at Fisher Plaza in a digital format for electronic distribution to our stations. We will consider opportunistic acquisitions and divestitures of broadcast properties that could improve the overall strength of Fisher Broadcasting Company. For example, we will look at potential acquisitions of broadcast properties in order to do one or more of the following: improve efficiencies, establish or expand a strategically located geographic footprint, improve our ability to acquire syndicated programming, leverage relationships with networks, and expand our talent pool. Whether, and to what extent, we acquire additional broadcasting properties will depend on a number of factors, including but not limited to the availability of such properties, the relative costs and benefits of such opportunities as compared with non-broadcast opportunities, the cost of financing, acceptable levels of debt, and the manner in which broadcast acquisition alternatives might complement our other operations. However, we can provide no assurance that we will acquire or sell broadcast properties or, if we do so, when we might make such acquisitions or dispositions or how significant they might be. Expand relationships with customers and audience by distributing content through additional channels. We are developing new opportunities for creating, aggregating and distributing content through non-broadcast media channels. We are co-developing ways to re-purpose and more fully utilize the content generated by our broadcast operations by delivering it through alternative media channels such as cell phones, the Internet and web-enabled personal digital assistants. The goal of these efforts is to enable us to deliver highly localized and personalized information that will deepen the trust and loyalty of our audiences. We also believe that by utilizing both its physical infrastructure and the competencies of its residents, Fisher Plaza can be an important component in support of our efforts to digitize and distribute broadcast content and other media through multiple channels. For example, Fisher is collaborating with Ingeniux, a Seattle software company, to seek to create media management software tools to automate the re-purposing of some broadcast content to web sites and IP (Internet Protocol) addressable devices, such as cell phones, pagers, personal digital assistants, and personal computers. Presently, three Fisher television stations use this software and have experienced dramatically increased web site usage. Additionally, working with AT&T Broadband, KOMO TV is delivering text news stories to cable set top boxes for television viewing in thousands of homes in the Tacoma, Washington area using Fisher developed software. Fisher is also working with Weather Central to deliver highly customized weather forecasts via the Internet, with the objective of enhancing loyalty and trust with its audience and creating further sales opportunities with its advertisers. 3 Develop strategic relationships. We are seeking to develop relationships to help us to achieve our objective of becoming a fully integrated communications and media company, to enable us to focus on our core competencies, and to take advantage of the expertise and financial resources of others. Develop opportunities to cross sell broadcast advertising within our markets and the Northwest region. We are seeking to expand our cross selling of broadcast advertising within markets in which we own one or more television and radio stations and within the Northwest region. The objective of this effort is to better serve our advertising clients and increase the efficiency and effectiveness of our sales efforts. TELEVISION AND RADIO STATIONS Our broadcasting operations are conducted through Fisher Broadcasting Company ("Fisher Broadcasting"), a Washington corporation (formerly Fisher Broadcasting Inc.). Fisher Communications, Inc. owns all the outstanding capital stock of Fisher Broadcasting. Fisher Broadcasting had approximately 951 full-time employees as of December 31, 2001. TELEVISION The following table sets forth certain information regarding our television stations.
Analog Average DMA(1) Network Channel/ Audience Rank in Station Market Area Rank Affiliation Frequency/(2)/ Share/(3)/ Market/(3)/ ---------------- -------------------- ---------- ------------ --------------- ----------- ------------- KOMO Seattle-Tacoma, WA 12 ABC 4/VHF 11.2% 2 KATU Portland, OR 23 ABC 2/VHF 13.4% 2 WFXG Augusta, GA 114 FOX 54/UHF 8% 3 KVAL/(4)/ Eugene, OR 123 CBS 13/VHF 16% 1 KCBY/(4)/ Coos Bay, OR 123 CBS 11/VHF 16% KPIC/(4)//(5)/ Roseburg, OR 123 CBS 4/VHF 16% KBCI Boise, ID 121 CBS 2/VHF 12% 2 KIMA/(6)/ Yakima, WA 125 CBS 29/UHF 12% 2 KEPR/(6)/ Pasco/Richland/ Kennewick, WA 125 CBS 19/UHF 12% 2 KLEW Lewiston, ID NA/(7)/ CBS 3/VHF NA/(7)/ NA/(7)/ WXTX Columbus, GA 126 FOX 54/UHF 6% 3 KIDK Idaho Falls, ID 166 CBS 3/VHF 12% 2
------------------- /(1)/ Designated Market Area ("DMA") represents an exclusive geographic area of counties in which the home market stations are estimated to have the largest quarter-hour audience share (Nielsen Media Research). /(2)/ VHF refers to very high frequency band (channels 2-13) of the spectrum. UHF refers to ultrahigh frequency band (channels above 13) of the spectrum. In addition, each of these stations has been allocated a digital channel television frequency. /(3)/ 6 a.m. - 2 a.m. per Nielsen Media Research average ratings February, May, July, and November 2001. /(4)/ Station ranking is for three-station group designated as KVAL+ by Nielsen Media Research. /(5)/ Fisher Broadcasting owns a 50% interest in South West Oregon Television Broadcasting Corporation, licensee of KPIC. /(6)/ Station ranking is for two-station group designated as KIMA+ by Nielsen Media Research. /(7)/ Although included as part of the Spokane, WA DMA, KLEW primarily serves the Lewiston, ID, Clarkston, WA audience that is only a small portion of the Spokane DMA. GENERAL OVERVIEW 4 Commercial television broadcasting began in the United States on a regular basis in the 1940s. The Federal Communications Commission ("FCC") grants licenses to build and operate broadcast television stations, and currently, a limited number of channels are available for television broadcasting in any one geographic area. Television stations that broadcast over the VHF band generally have some competitive advantage over those that broadcast over the UHF band (channels above 13) 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. There are approximately 105 million U.S. television households of which approximately 73 million are wired cable households and approximately 15 million receive television via direct broadcast satellite. Overall household television viewing has risen to slightly more than 53 hours per week. The average home receives 89.2 channels and views 14.1 channels for 10 or more continuous minutes per week. (Nielsen Media Research) Television stations primarily receive revenues from the sale of local, regional and national advertising and, to a much lesser extent, from network compensation, tower 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 sensitive to broad economic trends, affects the broadcast industry in general and, specifically, the revenues of individual broadcast television stations. Events outside our control can adversely affect advertising revenues. For example, Fisher Broadcasting has experienced declines in advertising revenue during some periods as a result of strikes in major industries. Political and advocacy advertising can constitute, and in the past has constituted, a significant revenue source in some years, particularly national election years. The amount of such revenue in election years depends on many factors, such as whether Washington and Oregon are contested states in a presidential election. Political and advocacy revenue is very low in years in which there is little election or other ballot activity. NETWORK AFFILIATIONS A television station's affiliation with one of the four major television networks (ABC, CBS, NBC and FOX) has a significant impact on the composition of the station's programming, revenues, expenses and operations. A station affiliated with ABC, CBS or NBC typically receives approximately 9 to 10 hours of each day's programming from the network. This programming, along with cash payments, is generally 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 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. Generally, FOX-affiliated stations receive fewer hours of programming from the FOX Television Network than stations affiliated with ABC, CBS or NBC receive from those networks. Two of Fisher Broadcasting's television stations are affiliated with the ABC Television Network, eight (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. 5 The network affiliation agreements for our television stations have the following expiration dates:
Network Station Market Area Affiliation Expiration Date ------- ------------------- ------------------ ------------------------ KOMO Seattle-Tacoma, WA ABC September 1, 2004 KATU Portland, OR ABC September 1, 2004 KVAL Eugene, OR CBS February 28, 2006 KCBY Coos Bay, OR CBS February 28, 2006 KPIC/(1)/ Roseburg, OR CBS February 28, 2006 KIMA Yakima, WA CBS February 28, 2006 KEPR Pasco/Richland/ CBS February 28, 2006 Kennewick, WA KLEW Lewiston, ID CBS February 28, 2006 KBCI Boise, ID CBS February 28, 2006 KIDK Idaho Falls, ID CBS February 28, 2006 WFXG Augusta, GA FOX May 31, 2004 WXTX Columbus, GA FOX May 31, 2004
---------------- /(1)/ Fisher Broadcasting owns a 50% interest in South West Oregon Television Broadcasting Corporation, licensee of KPIC. 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. Generally, the networks use a contract renewal with affiliates as an opportunity to modify contract terms. It is uncertain how network-affiliate relations will change in the future. The nonrenewal or modification of a network affiliation agreement could materially harm Fisher Broadcasting's results of operations. ADDITIONAL INFORMATION ABOUT TELEVISION MARKETS AND STATIONS KOMO TV, SEATTLE-TACOMA, WASHINGTON Market Overview. KOMO TV operates in the Seattle-Tacoma market, which has --------------- approximately 1.6 million television households and a population of approximately 4.1 million. In 2001, approximately 74% of the population in the DMA subscribed to cable, and 9.8% received local stations via alternative delivery systems, like direct satellite. (Nielsen Media Research) Major industries in the market include aerospace, manufacturing, biotechnology, forestry, telecommunications, software, Internet products and services, transportation, retail and international trade. Major employers include Microsoft, Boeing, SAFECO, Paccar, Nintendo, Amazon.com, Inc., the University of Washington and Weyerhaeuser. The 2001 television revenue for the Seattle-Tacoma DMA was estimated to be $290 million, as reported by Miller, Kaplan, Arase & Co., LLP, an accounting firm that provides the television industry with revenue figures. Station Performance. KOMO TV's commitment to be the market leader in local news ------------------- is manifested on multiple distribution platforms. KOMO TV produces 33 hours of live local television news per week on its analog and digital channels. KOMO TV News is the first local television station in the nation to provide local news to cell phones through a relationship with AT&T Wireless. KOMO TV produces Northwest Afternoon, a daily 60-minute talk program, which typically ranks number one in its time period. The Radio Television and News Directors' Association has recognized KOMO TV nationally in the past year for its investigative reports. The Association of Television Arts and Sciences awarded 13 Emmys to the station for program and individual excellence in 2001. KOMO TV serves actively in its community, participating in numerous civic and charitable events. KATU, PORTLAND, OREGON Market Overview. KATU serves a market of approximately 2.7 million people and --------------- approximately 1 million television households. Approximately 63% of Portland's population subscribed to cable in 2001. (Nielsen Media Research) The 6 Portland metro area has a broad base of manufacturing, distribution, wholesale and retail trade, regional government and business services. High-tech companies, including Intel, employ more than 60,000 people in the region. International trade is an important aspect of the local economy. Other major employers in the Portland area include Fred Meyer, Oregon Health Sciences University, Providence Health System, Legacy Health System, Nike and Freightliner. Station Performance. KATU currently broadcasts 30.5 hours of live local news ------------------- weekly. For over 25 years, KATU has been a Portland market leader in local program production. KATU has a long history of public service and involvement in the community. It is the only station in Portland providing real-time closed captioning of its newscasts. KIMA TV, KEPR TV, KLEW TV, YAKIMA AND TRI-CITIES, WASHINGTON AND LEWISTON, IDAHO. Market Overview. KIMA TV serves the Yakima, Washington area and KEPR TV serves --------------- the Pasco-Richland-Kennewick (the "Tri-Cities"), Washington area. Yakima and the Tri-Cities areas comprise the Yakima DMA, which serves approximately 547,000 people in approximately 209,000 households and has a 60% cable penetration. KLEW TV is the exclusive local station in Lewiston, Idaho and is part of the Spokane, Washington DMA. Lewiston's KLEW TV serves approximately 165,000 people in approximately 63,000 households with a 66% cable penetration. KEPR TV and KLEW TV are KIMA TV's satellite stations, which are defined as full-power terrestrial broadcast stations authorized to retransmit all or part of the programming of a parent station that is ordinarily commonly owned. The area covered by KIMA, KEPR and KLEW has an economic base that consists primarily of agriculture, nuclear technology, government, manufacturing and the wholesale/retail, service and tourism industries. Major employers include food processors such as Tree Top, Snokist, Lamb Weston, Washington Beef and Del Monte, as well as manufacturers such as Boise Cascade, Western RV Manufacturing, Potlatch Corp. and Blount Manufacturing. Other major employers are Fluor Daniel, Bechtel, Pacific N.W. Labs, Lockheed Martin and Siemens Power Corp. Station Performance. KIMA and KEPR each broadcast 9.5 hours per week of ------------------- scheduled live local news programs and are a leader in the market. According to Nielsen Media Research, the combined households of KIMA and KEPR exceed the combined households of the NBC affiliates and the combined households of the ABC affiliates in the Yakima DMA. KLEW TV broadcasts five hours of scheduled live, local news per week. KIMA/KEPR/KLEW have demonstrated a commitment to public affairs and local interest programming. All three stations have won numerous awards for having superior service in the news arena. KBCI TV, BOISE, IDAHO Market Overview. KBCI serves the Boise, Idaho DMA, which has a total population --------------- of approximately 566,000 and approximately 220,000 TV households. An estimated 44% of the television households in the Boise DMA subscribe to cable television. (Nielsen Media Research) The Boise area ranked among the top five fastest growing metropolitan areas in the United States from 1990 to 2000. Boise is the state capital and regional center for business, government, education, health care and the arts. Major employers include high-tech companies such as Micron Technology, Inc. and its subsidiaries, Hewlett-Packard Company, micronpc.com, Crucial Technology and ZiLOG, as well as JR Simplot Company, Albertson's, Saint Alphonsus Regional Medical Center, St. Luke's Regional Medical Center, DirecTV, US Bank, Idaho Power Company, Boise Cascade, Sears Boise Regional Credit Card Operations Center, Washington Group International (formerly Morrison Knudson), Mountain Home Air Force Base, the Idaho State government and the United States government. Station Performance. KBCI currently broadcasts 15 hours per week of live local ------------------- news programs and broadcasts Boise State University men's and women's athletics. The station has won numerous awards for excellence in television broadcasting, including "Best Newscast" in 1999, 2000 and 2001 from the Idaho State Broadcasters Association and the Idaho Press Club. The station has a strong commitment to community affairs with major support provided to a variety of local nonprofit, community-based organizations. KIDK TV, IDAHO FALLS/POCATELLO, IDAHO Market Overview. KIDK serves the Idaho Falls/Pocatello DMA with a total ---------------- population of approximately 301,000 and approximately 105,000 TV households. An estimated 51% of the television households subscribe to cable. (Nielsen Media Research) The Idaho Falls/Pocatello DMA consists of 15 counties located in Eastern Idaho and Western Wyoming. Idaho Falls and Pocatello, 50 miles apart, are the two largest cities in the DMA. Bechtel, Inc., contractor for operation of the Idaho National 7 Engineering & Environmental Laboratory, is the largest employer in the region. Other major employers include Melaluca, Inc., JR Simplot Company, FMC Corp., Idaho State University and BYU-Idaho. Station Performance. KIDK broadcasts 14 1/2 hours per week of live local news ------------------- programs. KIDK operates from its main studio in Idaho Falls. In November 2001, Nielsen Media Research reported KIDK as the station with the most growth in local news ratings in the Idaho Falls/Pocatello DMA. KVAL+ (KVAL TV, KCBY TV, KPIC TV), EUGENE, COOS BAY AND ROSEBURG, OREGON Market Overview. The Eugene/Springfield DMA includes Eugene, Springfield, --------------- Roseburg, Coos Bay and Corvallis, Oregon. It has a population of approximately 530,000 with approximately 216,000 television households. Approximately 64% of the DMA population subscribed to cable in 2001. (Nielsen Media Research) KCBY TV and KPIC TV are satellite stations of KVAL TV. The area's economic base includes forest products, agriculture, high-tech manufacturing, packaging, tourism and fishing. Major employers include the state's two major universities-University of Oregon in Eugene and Oregon State University in Corvallis, Sony Disc Manufacturing, Hyundai Semiconductor, Hewlett Packard, Symantec Software, Sacred Heart Medical Center and Roseburg Forest Products. Station Performance. In the local programming time period from 3 p.m.-8 p.m., ------------------- KVAL+ has the largest audience share in its DMA. KVAL+ numbers almost exceed the combined audience shares of its competition. In addition, KVAL+ has historically out-performed the CBS national Nielsen ratings. (Nielsen Media Research) KVAL+ broadcasts 17 hours of live local news per week. KVAL TV produces a local news window on CNN Headline News every hour every day. KVAL+ has a long tradition of award-winning news, public affairs programming and information. In addition to broadcasting its signal to the DMA, KVAL+ has the ability to `narrowcast' with relevant individual news, weather and commercialization to the Eugene, Roseburg, Coos Bay, Florence and Corvallis/Albany markets. WFXG TV, AUGUSTA, GEORGIA Market Overview. Augusta, Georgia has a total population of approximately --------------- 600,000 people. Of the market's approximately 234,000 television households, 72% subscribe to cable. (Nielsen Media Research) Augusta is the state's second largest metropolitan area. Major employers include the United States Military (Ft. Gordon), Textron, Medical College of GA, John Deere, Delta Airlines (Reservation Center) and EZ-Go Golf Carts. WFXG continues to outperform the average FOX network prime-time rating average in terms of audience delivery. WFXG is committed to active involvement in community affairs. WXTX TV, COLUMBUS, GEORGIA Market Overview. Columbus, Georgia has a population of approximately 479,000. Of --------------- the market's approximately 197,000 television households, 76% subscribe to cable. Columbus ranks as Georgia's third largest metropolitan area. Major employers include Fort Benning, AFLAC, Muscogee County School System, The University System, Dolly Madison Bakeries and Synovus. Station Overview. WXTX remains active in community affairs and produces a broad ---------------- range of public affairs campaigns. COMPETITION Broadcast television stations compete for advertising revenues primarily with other broadcast television stations and networks, radio stations, cable systems, satellite broadcast systems, syndicated programmers, Internet websites and print media, and, to some extent, with outdoor advertising. Competition within the television industry, including the markets in which Fisher Broadcasting's stations compete, is intense. This competition 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 faces continuing technological change and innovation, the possible rise in popularity of competing entertainment and communications media, changing business practices such as television "duopolies" (owning and operating two stations in the 8 same market), 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 these factors could materially harm the television broadcasting industry and Fisher Broadcasting's business in particular. Audience. Stations compete for audience on the basis of program popularity, -------- which has a direct effect on advertising rates. During periods of network programming, the stations are totally dependent on 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 during such time periods of its programming and syndicated programming it has purchased 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 programming and alternate methods of television program 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 nonbroadcast programming originated on the cable system. To the extent cable operators and broadcasters increase the amount of local news programming, the heightened competition for local news audiences could have a material 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, DVD players and television game devices), Internet websites, wireless cable and satellite master antenna television systems. Fisher Broadcasting's stations also face competition from 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 product performance (quality, variety, information and entertainment value of content) and price (the cost to utilize these systems). Programming. Competition for syndicated programming involves negotiating with ----------- national program distributors, or syndicators. Fisher Broadcasting's stations compete against in-market broadcast stations for exclusive access to syndicated programming. Cable system operators generally do not compete with local stations for programming; however various national cable networks acquire programs that might have otherwise been offered to local television stations. Advertising. Advertising rates are based on 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. 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, Internet websites, 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. Staff and Management. The loss of key staff, including management, on-air -------------------- personalities and sales staff, to competitors can adversely affect revenues and earnings of television stations. DIGITAL/HIGH DEFINITION TELEVISION ("HDTV") The Digital Television ("DTV") standard, developed after years of research, and approved by the FCC in December 1996, was the breakthrough that made possible the transmission of vast amounts of information in the same size channel (6 MHz) as the current analog standard television system. 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 9 the ratio of screen width to screen height.) Because of this screen shape, watching programs on digital TV sets can be similar to watching a movie at the theater, giving more lifelike images and allowing the viewer to feel more involved in the action on screen. Second, DTV delivers six 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. The following chart sets forth certain information regarding our channel allocation and status for digital/high definition television. Currently Digital Channel Broadcasting in Station Market Area Allocation Digital Format/(1)/ KOMO Seattle-Tacoma, WA 38 Yes (HDTV) KATU Portland, OR 43 Yes (HDTV) WFXG Augusta, GA 51 No KVAL Eugene, OR 25 Yes KCBY Coos Bay, OR 21 No KPIC Roseburg, OR 19 No KBCI Boise, ID 28 No KIMA Yakima, WA 33 No KEPR Pasco/Richland/Kennewick 18 No KLEW Lewiston, ID 32 No WXTX Columbus, GA 49 No KIDK Idaho Falls, ID 36 No ________________ /(1)/ Those stations that do not currently broadcast in HDTV are required to comply with the FCC rules that require them to broadcast a digital signal by May 2, 2002. RADIO The following table sets forth certain information regarding our radio stations located in Seattle and Portland.
Number of Audience Listening Commercial ---------------------- Radio Dial Market Stations in Rank in Station Market Station Position Power Rank the Market Market/(1)/ Share/(1)/ Format -------------- ----------- ------------ -------- -------- ------------- ----------- ---------- ------------ Seattle, WA 14 51 KOMO AM 1000 kHz 50 kW 13 2.9% News/Talk KVI AM 570 kHz 5 kW 6 4.2% Talk KPLZ FM 101.5 MHz 100 kW 16 2.8% Today's Best Variety Portland, OR 24 43 KOTK AM 1080 kHz 50 kW 18 1.3% Talk KWJJ FM 99.5 MHz 52 kW 5 4.3% Country
------------------- /(1)/ Ratings information in the above chart refers to average quarter-hour share of listenership among total persons, 12+, Monday through Sunday, 6 a.m. to midnight, and is subject to the qualifications listed in each report. Source: Arbitron Co. four-book average -- Winter -- Fall 2001. GENERAL OVERVIEW Commercial radio broadcasting began in the United States in the early 1920s. Only a limited number of frequencies are available for broadcasting in any one geographic area. The FCC grants the license to operate a radio station. Currently, two commercial radio broadcast bands provide free, over-the-air radio service, each of which employs different methods of 10 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 station revenues are derived almost exclusively from local, regional and national advertising. Radio stations' heavy reliance on advertising revenues renders the stations vulnerable to cyclical changes in the economy. The size of advertisers' budgets, which are sensitive to broad economic trends, affects the broadcast industry in general and, specifically, the revenues of individual radio stations. Events outside of our control can adversely affect advertising revenues. FISHER RADIO SEATTLE (KOMO AM, KVI AM, KPLZ FM), SEATTLE, WASHINGTON Fisher Radio Seattle stations broadcast to nearly 21,000 square miles of Western Washington with information and entertainment radio services. Fisher Radio Seattle is committed to supporting our community with news and talk programming that addresses local issues that affect the local population and is actively involved in the community by conducting fundraisers for civic and charitable organizations Fisher Radio Seattle stations have won several awards for news coverage from the Radio and Television News Directors' Association and from the Associated Press. In addition, they have received many awards for excellence in commercial production, fundraising and community involvement and community event development. FISHER RADIO PORTLAND (KOTK AM, KWJJ FM), PORTLAND, OREGON Fisher Radio Portland stations broadcast to a six-county metropolitan population of approximately 1,755,000. Fisher Radio Portland is committed to serving its community through the airing of public service announcements, as well as sponsoring and organizing various community events and fundraisers. KOTK broadcasts news and talk programming. KWJJ is a country music station and was honored by the Oregon Association of Broadcasters in 2001 as its Station of the Year. 11 FISHER RADIO REGIONAL GROUP The following table sets forth general information for Fisher Radio Regional Group Inc.'s stations and the markets they serve.
Number of Audience Listening Commercial ---------------------- Radio Dial Stations in Rank in Station Market Station Position Power the Market Market/(1)/ Share Format ------------- ------------ ------------ ------- ------------- ----------- ---------- ---------- Billings, MT 16 KRZN 96.3 FM 100 kW 4 8.1% Active Rock KRKX 94.1 FM 100 kW T5 6.2% Classic Rock KBLG 910 AM 1 kW/(2)/ 7 5.6% News/Talk KYYA 93.3 FM 100 kW 8 5.0% A.C./(3)/ Missoula, MT 11 KZOQ 100.1 FM 14 kW 1 13.5% Classic Rock KGGL 93.3 FM 43 kW 4 8.5% Country KXDR 98.7 FM 100 kW 6 8.2% A.C. KGRZ 1450 AM 1 kW 6 8.2% Sports/Talk KYLT 1340 AM 1 kW 9 1.9% Oldies Great Falls, MT 12 KAAK 98.9 FM 100 kW 1 18.8% A.C. KQDI 106.1 FM 100 kW 5 9.4% Classic Rock KXGF 1400 AM 1 kW 6 8.2% Pop Standard KQDI 1450 AM 1 kW 7 4.7% News/Talk KIKF 104.9 FM 94 kW /(4)/ /(4)/ Country KINX 107.3 FM 94 kW /(4)/ Active Rock /(4)/ Butte, MT 5 KMBR 95.5 FM 50 kW 1 25.7% Classic Rock KAAR 92.5 FM 4.5 kW 2 20.0% Country KXTL 1370 AM 5 kW /(5)/ /(5)/ Oldies/Talk Wenatchee, WA 10 KWWW 96.7 FM 0.4 kW 3 10.4% Hot A.C. KZPH 106.7 FM 3 kW 4 9.0% Classic Rock KYSN 97.7 FM 3 kW 6 5.8% Country KAAP 99.5 FM 5 kW T8 2.3% Soft A.C. KWWX 1340 AM 1 kW /(5)/ /(5)/ Spanish
--------------------------- /(1)/ Ratings information in the above chart refers to average quarter-hour share of listenership among total persons, age 12+, Monday through Sunday, 6 a.m. to midnight, and is subject to the qualifications listed in each report. Sources: (a) Billings, Montana: Arbitron Ratings, Spring, 2001 Billings Market Report; (b) Missoula, Montana: Eastlan Resources, Fall, 2001 Missoula/Hamilton Market Report; (c) Great Falls, Montana: Arbitron Ratings, Spring, 2001 Great Falls Market Report; (d) Butte, Montana: Arbitron Ratings 2001 Montana County Coverage Study, Silver Bow County; and (e) Wenatchee, Washington: Eastlan Resources Audience Measurement, Fall, 2001 Wenatchee Market Report. "T" refers to a tie. /(2)/ KBLG, Billings, operates with power of 1,000 watts day and 63 watts night. /(3)/ A.C. stands for the "Adult Contemporary" format. /(4)/ KIKF and KINK are new stations that signed on the air after the ratings were conducted. /(5)/ Listenership is below minimum report standards. Fisher Radio Regional Group operates 18 stations in four Montana markets (Billings, Missoula, Great Falls and Butte), and five stations in Wenatchee, Washington. 12 Billings is the largest city in Montana, with a metropolitan population of approximately 130,000. It serves as a retail hub for portions of three states and home to a regional medical center and two colleges. Primary industries include agriculture and oil refining. Fisher's four Billings radio stations are long-time leaders in community service. Missoula is the second largest city in Montana. The Missoula market area is comprised of two counties, with a combined population of approximately 130,000. One of those counties, Ravalli, was the state's fastest growing during the 1990's. Missoula is home to the University of Montana, with approximately 12,000 students. The region's other primary industry is timber. Fisher's Missoula radio cluster received the Montana Broadcasters' Association award for "Best Public Service" in 2001. The Great Falls market is Montana's third largest, with a population of approximately 80,000. The largest single employer is Malmstrom Air Force Base. Agriculture is the other primary industry. Fisher has operated four stations in Great Falls for a number of years, and recently signed on two additional FM stations. Both of the new FM stations broadcast from a new mountaintop transmitter site, providing signals that cover a larger area than any of the other FM radio stations in Great Falls. Butte, Montana has a population of approximately 35,000. The city's largest employers include Montana Power Company ASiMI, a silicon manufacturer and a regional medical center. Tourism is another primary industry, as Butte is at the junction of the two Interstate highways that serve Montana, and is only about 150 miles from Yellowstone National Park. Fisher operates three of the five radio stations in Butte. Fisher Radio Regional Group operates five radio stations in an area including Wenatchee, Quincy and Moses Lake, Washington. These three cities in central Washington have a regional population of approximately 90,000. Agriculture is the primary industry, and Wenatchee is known as "the apple capital of America." The region has no local television stations, so radio stations play an important role in the lives of these communities. Approximately one-quarter of the region's population is Hispanic, and one of Fisher's stations is the heritage Spanish-language station. COMPETITION A small number of companies control a large number of radio stations within the United States. Some of these companies syndicate radio programs or own networks whose programming is aired by Fisher Broadcasting's stations. Some of these companies also operate radio stations in markets in which Fisher Broadcasting operates, have greater overall financial resources available for their operations and may control large national networks of radio sales representatives. Competition in the radio industry, including each of the markets in which Fisher Broadcasting's radio stations compete, takes place on several levels: competition for audience, competition for advertisers, competition for programming and competition for staff and management. Additional significant factors affecting a radio station's competitive position include assigned frequency and signal strength. The radio broadcasting industry is continually faced with technological change and innovation and the possible rise in popularity of competing entertainment and communications media, 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. The FCC has authorized Direct Audio Radio from Satellite ("DARS") to broadcast over a separate frequency spectrum (the "S" band, between 2.31 and 2.36 GHz). One company, XM has begun service, and a second DARS company, SIRIUS, has announced its plan to begin satellite service in the fall of 2002. Each company offers approximately 100 different programming channels on a monthly fee basis. Radios capable of receiving these new digital signals are available as after-market equipment and in selected 2002 model vehicles. While DARS stations are not expected to compete for local advertising revenues, they will compete for listenership, and may dilute the overall radio audience. 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 audience, the station is capable of charging a higher rate for advertising. Formats, stations and music are often 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. New formats and audience niches have created targeted advertising vehicles and programming that are focused to appeal to a narrow segment of the population. Tactical and strategic plans are utilized to attract larger audiences through marketing campaigns and promotions. Marketing campaigns using 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 13 be changed. Format changes can result in increased costs and create other difficulties that can harm the performance of the station. Fisher Broadcasting has experienced this effect. The recent proliferation of radio stations and other companies streaming their programming over the Internet has created additional competition for local radio stations. These Internet channels provide further choice for listeners, in addition to the existing over-the-air radio stations and the DARS stations. The number of entities streaming audio abated somewhat during 2001, as some traditional broadcasters and Internet broadcasters temporarily curtailed their streaming, due to uncertainty relating to royalties. Nevertheless, a fall 2001 survey by the Arbitron Company and Edison Media Research revealed that 52% of people who have access to the Internet have either watched or listened to streaming media. In February 2002, a Copyright Arbitration Royalty Panel (CARP) of the Library of Congress issued its "webcasting" decision which recommended rates for the compulsory copyright license which covers streaming audio transmissions by radio stations and other Internet music providers. The Company cannot predict whether the CARP decision will be adopted by the Register of Copyright, or what effect the rates, if implemented, will have on streaming audio as a competitor to over-the-air radio. Advertising. Advertising rates are based on 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, Internet 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 and Management. The loss of key staff, including management, on-air -------------------- personalities and sales staff, to competitors can adversely affect revenues and earnings of radio stations. MEDIA SERVICES FISHER PLAZA In 2000, we completed the first of two buildings at Fisher Plaza, our new state-of-the-art communications center located in Seattle. Fisher Plaza is designed to enable the distribution of analog and digital media content through numerous distribution channels, including broadcast, satellite, cable, Internet, broadband (high speed digital transmission of voice, data and/or video), and wired and wireless communication systems. In addition to serving as the home of Seattle's KOMO TV, Fisher Plaza houses several high-tech companies, including Internap Network Services Corporation, a leading provider of Internet connectivity services, and Terabeam Corporation. Construction of the second building commenced in the fourth quarter of 2000 and is expected to be complete in the fall of 2002. FISHER PATHWAYS Fisher Pathways, Inc. (Fisher Pathways) is a media transmission and services provider. It connects media and businesses to the desired target(s) using third-party satellite and fiber distribution networks to and from any point on the globe that has broadcast receive capability. Its objectives are to continue to grow its core business while diversifying and growing complementary lines of business, in part using the capabilities of Fisher Plaza and the community of businesses resident within that facility. Today, Fisher Pathways' core business consists of operating satellite communications teleports in Seattle and Portland, primarily transmitting news, corporate and sporting events originating from these two markets for distant market consumption. The Seattle and Portland teleports are connected to each other via a bi-directional microwave link and to all major NW sports venues via fiber lines. The list of Fisher Pathways' current clients includes ABC, CNN, ESPN, MSNBC, FOX News, China's Skyarc Media, Microsoft and Tech TV. Fisher Pathways 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, Fisher Pathways offers studio facilities for satellite interviews and distance learning, satellite and fiber booking services and tape playout capability in both Seattle and Portland markets. We believe that our combination of fiber optic and satellite communication capabilities provides Fisher Pathways with a competitive advantage in the efficient transmission of point-to-point and point-to-multipoint video and audio to and from the Pacific Northwest. 14 Current revenues attributable to Fisher Pathways' operations are not material to our results of operations. Fisher Pathways' revenues and earnings remain mainly event-driven. News and sporting events occurring in the Northwest, primarily Portland and Seattle, create the demand, and therefore affect revenues received, for the transmission services that Fisher Pathways provides. OTHER We own 2 million shares of the common stock of Terabeam Corporation, which we acquired for an aggregate of $1 million in December 1998. Terabeam Corporation is a provider of fiberless broadband IP services over the first/last mile link of global communications networks. AN Systems, L.L.C. AN Systems, L.L.C. (AN Systems) was a developer of a new ------------------ public advertising network which uses a display device known as the Civia Media Terminal that delivers information in public places such as office buildings and other venues. Under terms of various agreements the Company and its subsidiaries agreed, among other things, to lend funds to AN Systems, to defer collection of certain amounts due under the agreements, and to provide AN Systems with certain office space. Loans by the Company were evidenced by convertible promissory notes issued by AN Systems and, at December 31, 2001, totaled $5,424,000. Effective January 1, 2002, AN Systems was merged into Civia, Inc. (Civia) and, immediately prior to the merger, the Company elected to convert $2,000,000 of such loans into a 65.1% equity interest in Civia. PROGRAM CONTENT DEVELOPMENT AND PRODUCTION Fisher Entertainment's mission is to develop original program content, exploit the library of programming created by Fisher Broadcasting and establish alliances with other producers and programming buyers to enhance creative output and merge complementary skills. Fisher Entertainment has taken advantage of Fisher Plaza's digital production facility to create content cost-effectively. Fisher Entertainment focuses on supplying original productions for broadcast syndication and national cable television networks. The Other Half, a daily, one-hour daytime talk show co-developed and co-produced by Fisher Entertainment, is syndicated by NBC Enterprises and is seen in 180 U.S. television markets. Current revenues attributable to Fisher Entertainment's operations are not material to our results of operations. FISHER ENTERTAINMENT MARKETS Fisher Entertainment's primary marketplace is series programming for both cable and the first-run syndication markets. Cable. It is estimated that national cable networks spent $3.1 billion on ----- original program production in 2001. (Paul Kagan & Associates) Most of these original productions 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 40 ad-supported basic cable networks that achieve reported ratings. (Cable Sweeps) Fisher Entertainment is currently targeting eight cable networks for series programming development: MTV, VH1, Comedy Central, ABC Family, USA, The Learning Channel, The Travel Channel and TNN. In 2001, Fisher Entertainment contracted to produce two one-hour specials on volcanoes for The Travel Channel, with delivery scheduled for the second quarter of 2002. These specials are being produced for national telecast utilizing library footage from our broadcast stations. Broadcast Syndication. The market for broadcast syndication is highly --------------------- competitive. First-run syndication is the production of original programs that are sold on a station-by-station, market-by-market basis. Broadcasters compete for a limited number of available programs. Fisher Entertainment has had success in this regard with The Other Half, as evidenced by its airing in 180 U.S. markets. It intends to pursue additional opportunities in syndicated series development in conjunction with production and distribution partners while carefully managing related costs and risks. Copyright retention and production financing will be addressed on a project-by-project basis. Fisher Station Distribution. Fisher Entertainment produced a four-part Body --------------------------- Female series of women's health specials in 2001, that aired on all of Fisher's television stations. A new three-part Body Female series is being produced in 2002 to meet 15 the ongoing need of Fisher's television stations for women's health specials with a specific Northwest focus. Fisher Entertainment continues to create value from the Fisher station libraries by licensing footage to outside producers. 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 Broadcasting licenses are currently granted for a standard term of eight years. Those licenses are subject to renewal upon application to the FCC. In determining whether to grant or renew a broadcasting license, the FCC considers a number of factors pertaining to the applicant, including compliance with alien ownership limitations; limits on common ownership of broadcasting, cable and newspaper properties; and character, technical and other regulatory standards. Additionally, in the case of television license renewal, the FCC considers the station's compliance with FCC programming and commercialization rules relating to programming for children. 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 it 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 that taken together would constitute a pattern of abuse. 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 our television stations are as follows: Station Market Area Expiration Date ----------- --------------------------- ------------------ KOMO Seattle-Tacoma, WA February 1, 2007 KATU Portland, OR February 1, 2007 WFXG Augusta, GA April 1, 2005 KVAL Eugene, OR February 1, 2007 KCBY Eugene, OR February 1, 2007 KPIC Roseburg, OR February 1, 2007 KIMA Yakima, WA February 1, 2007 KEPR Pasco/Richland/Kennewick, WA February 1, 2007 KLEW Lewiston, ID October 1, 2006 KBCI Boise, ID October 1, 2006 WXTX Columbus, GA April 1, 2005 KIDK Idaho Falls, ID October 1, 2006 16 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 materially harm Fisher Broadcasting's television or radio broadcasting operations. ASSIGNMENT AND TRANSFER OF LICENSES 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 order to obtain such consent, an application must be filed with the FCC on the appropriate form, and the FCC provided with certain information required by the form and its rules. Assignment and transfer applications are subject to public notice, and interested parties may file a petition to deny such an application. In deciding whether to grant an assignment or transfer application, the FCC considers the qualifications of the assignee or transferee, the compliance of the transaction with its multiple ownership and other rules, and other factors in order to determine whether the public interest would be served by such change in ownership. If the FCC finds unresolved substantial and material questions of fact affecting whether the public interest would be served by grant of an assignment or transfer application, it is required to conduct an evidentiary hearing to resolve such outstanding issues. MULTIPLE OWNERSHIP RULES AND CROSS OWNERSHIP RESTRICTIONS The FCC has adopted complex regulations that limit the attributable ownership interests which may be held by a single individual or entity. The following is a summary of those regulations. 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 addition, 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 are considered attributable under the "debt/equity plus" rule if such holder is either a significant program supplier to the licensee or if such holder has another media interest in the same market. TELEVISION National Ownership Limits. Under FCC regulations, no individual or entity may ------------------------- hold an attributable interest in TV stations that have an aggregate national audience reach exceeding 35% of television households. For this purpose, the FCC counts the television households in each Nielsen DMA in which a party has an attributable interest in a television station as a percentage of the total television households in all DMAs. Only 50% of the television households in a DMA are counted toward the 35% national restriction if the owned station is a UHF station (the "UHF discount"), and households are counted only once regardless of how many interests a party may have in a particular DMA. On February 19, 2002, the United States Court of Appeals for the District of Columbia Circuit ruled that, while the 35% national television station ownership limit was not unconstitutional, its adoption was arbitrary, capricious and contrary to law. The case was remanded to the FCC to further consider whether to repeal or modify the rule. The FCC has not announced whether it will appeal that decision. The FCC has announced its intention to implement a phased-in elimination of the UHF discount near the completion of the transition to digital television. Local Television Limits. The FCC's rules allow common ownership of two ----------------------- television stations, regardless of signal contour overlap, as long as each station is in a different DMA. The FCC also allows common ownership of two television stations in the same DMA if there is no Grade B contour overlap of the two stations. The FCC will also allow an entity holding an attributable interest in one television station in a DMA to acquire a second television station in the same DMA as long as eight separately owned, full-power commercial and noncommercial television stations will remain after the transaction to place the two stations under common ownership is completed, and 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 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." Television/Cable Cross Ownership. The FCC's rules have effectively prohibited a -------------------------------- cable television system (including all parties under common control) from owning an interest in a television station that places a predicted Grade B contour over any portion of the system, and, conversely, prohibit television stations from owning interests in cable systems within their predicted Grade B 17 contour (the "Cable/TV Cross Ownership Rule"). On February 19, 2002, the U.S. Court of Appeals for the District of Columbia Circuit ruled that the Cable/TV Cross Ownership Rule was arbitrary, capricious and contrary to law, vacated the rule, and ordered the FCC to repeal it forthwith. RADIO National Ownership 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 Ownership Limits. The FCC limits the number of attributable interests in ---------------------- radio stations that one entity may own locally. These limits are based on radio "markets" that are determined on a case-by-case method by the FCC with reference to a contour overlap standard. FCC rules provide that (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 under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the "HSR Act") 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 and HSR Act approval by the Department of Justice. The FCC has closely scrutinized and invited public comment on applications involving potential ownership of station combinations with high aggregate estimated advertising revenue percentages within a market. On December 6, 2000, the FCC adopted a Notice of Rulemaking in which it proposed to revise the manner in which it administers the local radio ownership rule, and particularly its method of defining radio markets. Among other things, the FCC indicated it would consider using Arbitron market definitions, rather than overlapping contours, to obtain a more accurate measure of radio markets, or, alternatively, to retain the contour overlap method of defining a geographic radio market, but to revise the standard for determining how many stations are in the market and how many of those stations a particular owner is deemed to own. That rulemaking remains pending. Combined Ownership of Radio and Television. The FCC will allow a party to own a ------------------------------------------ television station (and a second television station, if otherwise permitted under the FCC's rules) 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. 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 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 ensure 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 entered into prior to November 5, 1996, have been 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 a status review of the LMA 18 as part of the 2004 biennial review. At that time, the FTC 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 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. Newspaper/Broadcast Cross-Ownership. The FCC's rules effectively prohibit a ----------------------------------- radio or television broadcast station to be licensed to an entity that, directly or indirectly, owns, operates or controls a daily newspaper that is published in a community within certain defined signal strength contours of the broadcast station (the "Newspaper/Broadcast Cross-Ownership Rule"). On September 13, 2001, the FCC issued a Notice of Proposed Rulemaking regarding the Newspaper/Broadcast Cross-Ownership Rule. The FCC asked for comments on a wide variety of options including retention of the rule in its current form, modifying the geographic scope of the rule, modifying the media covered by the rule, applying a market concentration or market voice count test, and eliminating the rule completely. Effect of Noncompliance. 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 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 and listeners 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. Disclosure Requirements. On September 12, 2000, the FCC proposed to standardize ----------------------- and enhance public interest disclosure requirements for television broadcasters. In a Notice of Proposed Rulemaking approved that date, the FCC tentatively 19 concluded that television broadcasters should place information in their public files on a quarterly basis. The information would be on a standardized form, and would replace the current programs-issues lists maintained by television licensees. Among the information that would be required are the amounts of programming broadcast in certain categories, such as news and public affairs programming, and information as to the licensee's closed-captioning and video description activities. It is contemplated that the information would be retained in a station's public file until final action had been taken on its next renewal application. No decision has been issued by the FCC regarding this rulemaking. Equal Employment Opportunities Outreach. On April 18, 2000, a new FCC equal --------------------------------------- employment opportunities ("EEO") rule went into effect. The new rule required broadcast licensees to provide equal opportunity in employment to all qualified persons, and prohibited discrimination against any person by broadcast stations because of race, color, religion, national origin or sex. The EEO rule required 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, and to document the station's EEO practices and results. On January 16, 2001, the U.S. Court of Appeals for the District of Columbia Circuit issued a decision invalidating the FCC's EEO rule on constitutional grounds and on January 22, 2002, the U.S. Supreme Court declined to hear an appeal of that decision. On December 31, 2001, the FCC initiated a new rulemaking proceeding looking toward the imposition of an alternative EEO rule that would comply with the Court's decision and meet the FCC's goal of non-discrimination and broad outreach to disadvantaged minorities. Among the proposals to be considered by the FCC is imposition of a rule that would require stations 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 outreach initiatives. The FCC has also proposed to require stations to maintain extensive records regarding their efforts to comply with the rule, to submit regular reports to the FCC evaluating their EEO programs, and to be the subject of an FCC review of EEO compliance at the mid point of their renewal term as well as part of the renewal process. The FCC has also proposed that stations with few employees would be exempted from certain portions of the FCC's EEO requirements. Political Advertising. Political advertising is subject to pervasive federal --------------------- regulation. Broadcast stations are required by the doctrine of "reasonable access" to sell some advertising time for use by legally qualified candidates for federal office. While there is no comparable right of reasonable access for state or local candidates, once time is sold for any candidate, his or her opponents have the right to purchase comparable amounts and quality of time for their own use. The advertising rates that can be charged a candidate or his or her official committee for advertising "uses" positive broadcasts that feature the identifiable voice or image of the candidate are also subject to FCC regulation. Legally qualified candidates are always entitled, at a minimum, to purchase time for a "use" at rates comparable to what other, nonpolitical candidates pay. During certain periods prior to elections, broadcast stations may charge candidates purchasing time for a use no more than their "lowest unit charge" for the same class and amount of time for the same period. In essence, the candidate must be sold advertisements at the lowest charge the station is receiving from its most favored advertisers for the same class, length of spot and time period, even though the candidate did not buy the volume of advertising purchased by the favored commercial advertiser. In accepting political advertising, stations are prohibited from considering the content of the advertisement, and may not censor such advertisements in any way except to insure that they contain adequate sponsorship identification. RESTRICTIONS ON BROADCAST ADVERTISING ------------------------------------- Tobacco and Alcohol 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, and such proposals may attract greater support because of the announced decision by one of the major national television network in 2001 to accept "hard liquor" advertising under limited circumstances. We 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. Lottery Advertising. The FCC has promulgated a number of regulations ------------------- prohibiting, with certain exceptions, broadcast 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 advertising 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. In September 1999, the FCC released a Public Notice indicating that, in the U.S. government's brief in an appeal before the U.S. Court of Appeals for the Third Circuit, the government has concluded that the statutory prohibition against 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 gambling or a state that prohibits it. The FCC does not 20 interpret the decisions of these courts as applying to forms of lotteries other than casino gambling. The FCC has not withdrawn its September 1999 Public Notice or otherwise reconsidered its position as set forth in that Public Notice. None of these court decisions specifically address any state law prohibitions on the broadcast advertising of lottery information, including casino gambling, within their borders. If state law prohibits such advertising, it is the FCC's position that such prohibition will control notwithstanding any freedom granted under federal law. Children's Advertising. The FCC has adopted regulations that place quantitative ---------------------- limits on the amount of commercialization during, and adjacent to, television programming intended for an audience of children ages 12 and under. In addition, the FCC's regulations prohibit certain advertising practices, including host selling, that could influence viewers who are children. The FCC has issued a number of forfeitures for violation of these regulations, and has issued substantial forfeitures even in cases where it appears that the violation was inadvertent. Closed Captioning. Under FCC regulations, adopted pursuant to the ----------------- Telecommunications Act, 100% of all new English-language video programming must be closed-captioned by January 2006. Programming first exhibited prior to January 1, 1998 is subject to different compliance schedules. In all cases, the FCC's 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. Video Descriptions. Video description involves the insertion into a TV program ------------------ of narrated descriptions of settings and actions that are not otherwise reflected in the dialogue, such as the movement of a person in the scene, and are intended to assist the visually impaired. On July 21, 2000, the FCC adopted rules that require, effective April 1, 2003, that television broadcast stations affiliated with the ABC, NBC, CBS and Fox networks in the top 25 DMAs provide a minimum of 50 hours per calendar quarter of described prime time and/or children's programming, and to "pass through" any video description it receives from a programming provider if technically capable of doing so. In addition, all stations providing local emergency information as part of a regularly scheduled newscast, or as part of a newscast that interrupts regularly scheduled programming, will be required to make the critical details of this information accessible to persons with visual disabilities in the local area, and all stations providing emergency information through a "crawl" or a "scroll" will be required to accompany that information with an aural tone to alert persons with visual disabilities. The FCC did adopt an exemption for those showing it would be an undue burden to comply. Video description or programming is to be provided on TV through the use of the Secondary Audio Programming ("SAP") channel, which is currently used by some broadcasters to provide simultaneous transmission of dialogue in an alternative language, such as Spanish. Fisher operates two television stations-KOMO-TV, Seattle, and KATU, Portland-in the top 25 DMAs, both of which are affiliated with the ABC network OTHER PROGRAMMING RESTRICTIONS ------------------------------ Ratings. The television industry has adopted, effective January 1, 1997, and ------- subsequently revised, on August 1, 1997, a voluntary rating scheme regarding violence and sexual content contained in television programs. FCC rules, adopted to effectuate a Telecommunications Act provision, required that at least one-half of all television receiver models with screen sizes 13 inches or greater produced after July 1, 1999 have technology installed designed to enable viewers to block all programs with a certain violence rating (the "v-chip"), and that all such television receivers produced since January 1, 2000 have v-chips. We cannot predict whether the v-chip and ratings system will have any significant effect on the operations of our business. Children's Programming. 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, and is reviewed as part of each station's renewal application. CABLE AND SATELLITE TELEVISION "Must-Carry" or "Retransmission Consent" Rights. The 1992 Cable Act requires ----------------------------------------------- television broadcasters to make a periodic 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 21 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 its respective DMA and each station is currently being carried by all the cable systems deemed material by Fisher Broadcasting to the operation of those stations. The next election will take place on October 1, 2002, to be effective January 1, 2003. It is the cable industry's desire to eliminate the must-carry provision as the broadcast television industry converts to DTV. Elimination of must-carry could adversely affect Fisher Broadcasting's results of operations. Syndicated Exclusivity/NonDuplication Protection. The FCC's syndicated ------------------------------------------------ exclusivity rules allow local broadcast stations to require that, under certain circumstances, 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). The network nonduplication rule allows local broadcast network affiliates to require, under certain circumstances, that cable television operators black out duplicative network broadcast programming carried on more distant signals. Satellite Home Viewer Act. The Satellite Home Viewer Act (the "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 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 legislation and implementing regulation require broadcasters, until 2006, to negotiate in good faith with satellite carriers and MVPDs with respect to their retransmission of the broadcasters' signals, and prohibit broadcasters from entering into exclusive retransmission agreements. The law also requires that satellite carriers carry upon request all local television stations' signals in local markets in which the satellite carriers carry at least one local television station signal pursuant to the statutory copyright license, subject to the other carriage provisions contained in the 1999 SHVIA. The FCC has concluded several rulemakings to implement the 1999 SHVIA, including a proceeding to determine whether, and to what extent, the FCC's network nonduplication, syndicated exclusivity and sports blackout rules should apply to satellite retransmissions, and to resolve a number of issues relating to retransmission consent issues. In general the FCC imposed standards on satellite carriage similar to those in place for the cable industry. 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 receive 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 22 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 noncommercial 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. Fisher Broadcasting has already constructed and commenced DTV operation of stations KOMO-DT, Seattle, KATU-DT, Portland, KBCI-DT, Boise and KVAL-DT, Eugene. Construction permits have been obtained authorizing DTV stations to be paired with each of the other Fisher Broadcasting television stations. KVAL-DT is operating pursuant to Special Temporary Authority with lower powered facilities than specified in its construction permit, and it is anticipated that the remaining DTV stations of Fisher Broadcasting will be constructed with lower powered facilities. In a November 15, 2001 order, the FCC indicated that, upon request, it would extend the date for initiation of full powered operation of digital facilities indefinitely so long as low powered operations commenced by May 1, 2002. Fisher Broadcasting anticipates that, barring unforeseen circumstances, it will meet that deadline for each of its 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. We cannot predict 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 initiated rulemakings contemplating the imposition of 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. We cannot predict 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. This simulcasting requirement will increase to 75% in 2004 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 5% 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 23 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. The FCC has affirmed the 8-VSB modulation system as the DTV transmission standard, concluding that there is no reason to revisit its decision denying a request to allow use of an alternative DTV modulation standard. The FCC initially set dates for stations with both analog and digital channel assignments within the DTV core (channels 2-51) to elect which channel they will use for their post-transition digital channel. It also held that broadcasters need not replicate with their digital signal the entire Grade B service area of their analog station. However, the Commission said that commercial stations will lose interference protection to those portions of their existing NTSC service area that they do not replicate with their DTV signal by December 31, 2004. On November 15, 2001, the FCC issued an order which deferred the dates by which stations must elect their post-transition channel and the date by which they must replicate their NTSC service area or lose interference protection. On December 22, 2000, the FCC issued new rules giving digital-only television stations must-carry status. The FCC tentatively decided that a local TV station may not assert a right to carriage for both its analog and digital signals ("dual carriage"). A further rulemaking was initiated to consider that issue, as well as to resolve a number of other issues relating to the DTV marketplace. We cannot predict the outcome of that proceeding. NEW BROADCAST SERVICES 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 that must yield to facilities increases of existing 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 FCC 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 sets 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 has issued rules implementing the Class A license class, and has granted a number of Class A authorizations. We cannot predict whether Class A stations will limit the ability of Fisher Broadcasting to make modifications to its existing and currently proposed television facilities. Low Power FM. Low power FM ("LPFM") stations operate with a maximum power of 100 ------------ and 10 watts, respectively, and eligible licensees are limited to nonprofit entities proposing noncommercial operation. The LPFM stations are required to meet minimum separation requirements to protect the service contours of existing FM, FM translator and FM booster stations, and proposed FM and FM translator stations. The FCC has accepted applications for new LPFM stations on a state-by-state basis pursuant to a timetable set forth in its rules, and the first LPFM construction permits were granted in 2001. PROPOSED LEGISLATION AND REGULATIONS As discussed above, under certain circumstances, broadcast stations currently are required to provide political candidates with discounted airtime 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 airtime 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 airtime to candidates or to provide further discounts for airtime, 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. 24 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 on 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; (vii) proposals to limit the tax deductibility of advertising expenses by advertisers and (viii) changes in ownership rules and caps. 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. REAL ESTATE OPERATIONS INTRODUCTION Fisher Properties Inc. ("FPI"), is a wholly owned subsidiary of the Company. Historically, FPI has been a proprietary real estate company engaged in the acquisition, development, ownership and management of a diversified portfolio of real estate properties, principally located in the greater Seattle, Washington area. Increasingly, FPI is focusing on providing real estate management, communication infrastructure, project management and support services to our broadcasting and media operations. As of December 31, 2001, FPI's portfolio of real estate assets included 23 commercial and industrial buildings containing over 1.3 million square feet of leasable space serving approximately 140 tenants and a 201-slip marina. FPI also owns 40 acres of unimproved residential land and manages the development and operations of the 200,000-square-foot Fisher Plaza. FPI manages, leases and operates the real estate that it owns. FPI does not manage properties for third-party owners. FPI had 44 employees as of December 31, 2001. In November 2001, FPI placed its portfolio of commercial and industrial properties on the market. Due to current market conditions, Fisher Communications presently is not seeking to sell its entire portfolio of real estate assets, but will continue to explore opportunistically the sale of individual properties. BUSINESS FPI's historical business model focused on real estate revenue enhancement, development and acquisition of selected strategic real estate and other property-related activities. Cash flow from real estate operations was used to reduce real estate debt, maintain properties, and finance real estate operations, and for capital investment in real estate development. FPI's operations historically have been cash flow positive. As stated in Note 11 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. 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. Future activities are expected to move toward service-related revenue generation and away from acquisition and development of physical assets. DEVELOPMENT ACTIVITIES During 2001, FPI continued its significant involvement in the development of Fisher Plaza. The first of the two buildings planned for the site and that now houses KOMO TV was completed in 2000. Construction of the second building 25 commenced in the fourth quarter of 2000 and has continued through 2001 and into 2002. A fall 2002 completion of the entire complex is projected. OPERATING PROPERTIES FPI's portfolio of operating properties is classified into three business categories: (i) office; (ii) warehouse and industrial; and (iii) marina 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 Space 12/31/01 ----------------------------- --------- -------------- --------- --------- -------------- -------- OFFICE West Lake Union Center Fee 100% 1994 1.24 185 SF 100% Seattle, WA Parking for 487 Cars Fisher Business Center Fee 100% 1986 9.75 195,000 SF 93% Lynnwood, WA Parking for 733 Cars Marina Mart Fee 100% Renovated 1993 * 18,950 SF 58% Seattle, WA Rock Salt Steak House Fee 100% Renovated 1987 * 10,160 SF 100% Seattle, WA 1530 Building Fee 100% Renovated 1985 * 10,160 SF 75% Seattle, WA INDUSTRIAL Fisher ITC Fee 100% 2000 14.6 274,000 SF 71% Auburn, WA Pacific North Equipment Co. Fee 100% N/A 5.5 38,000 SF 100% Kent, WA Fisher Commerce Center Fee 100% N/A 10.21 171,400 SF 86% Kent, WA Fisher Industrial Park Fee 100% 1982 & 1992 22.08 398,600 SF 100% Kent, WA MARINA Marina Mart Moorings Fee & Leased 100% 1939 - 1987 5.01 Fee and 201 Slips 98% Seattle, WA 2.78 Leased
----------------------------- * Undivided land portion of Marina. In addition to the above-listed properties, FPI owns 40 acres of unimproved residential land near Marysville, Washington; and a small residential property in Seattle. FPI does not currently intend to acquire other properties. West Lake Union Center, Fisher Business Center, Fisher Industrial Park, Fisher Commerce Center and Fisher ITC are encumbered by nonrecourse, 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. 26 INVESTMENT IN SAFECO CORPORATION A substantial portion of the Company's assets are 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, 2001, the Company's investment constituted 2.4% of the outstanding common stock of SAFECO. The market value of the Company's investment in SAFECO common stock as of December 31, 2001 was approximately $93,524,000, representing 15% of the Company's total assets as of that date. Dividends received with respect to the Company's SAFECO common stock amounted to $2,777,000 during 2001. In February 2001, SAFECO reduced its quarterly dividend from $0.37 to $0.185 per share. SAFECO's common stock price ranged from $21.50 to $32.95 per share during 2001. 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. 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. SAFECO common stock trades on The NASDAQ Stock Market under the symbol "SAFC." As further discussed in Note 14 to the Notes to Consolidated Financial Statements, 3,000,000 shares of the SAFECO common stock owned by the Company are collateral under and subject to the agreement between the Company and a financial institution with respect to a variable forward sale transaction. ADDITIONAL FACTORS THAT MAY AFFECT OUR BUSINESS, FINANCIAL CONDITION AND FUTURE RESULTS The following risk factors and other information included in this Annual Report should be carefully considered. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties not presently known to us or that we currently deem immaterial also may impair our business operations. If any of the following risks occur, our business, financial condition, operating results and cash flows could be materially adversely affected. A CONTINUING ECONOMIC DOWNTURN IN THE SEATTLE, WASHINGTON OR PORTLAND, OREGON AREAS COULD ADVERSELY AFFECT OUR OPERATIONS, REVENUE, CASH FLOW AND EARNINGS. Our operations are concentrated primarily in the Pacific Northwest. The Seattle, Washington and Portland, Oregon markets are particularly important for our financial well being. Operating results during 2001 were adversely impacted by a softening economy, and a continuing economic downturn in these markets could have a material adverse effect on our operations and financial condition. Because our costs of products and services are relatively fixed, we may be unable to significantly reduce costs if our revenues continue to decline. If our revenues do not increase or continue to decline, we could continue to suffer net losses or such net losses could increase. IF THE MARKET VALUE OF THE SAFECO COMMON STOCK WE OWN DECLINES, IT MAY MATERIALLY AND ADVERSELY AFFECT OUR FINANCIAL CONDITION. We have obtained proceeds from a loan collateralized by the shares of SAFECO stock we own. We are currently seeking to obtain proceeds pursuant to a variable forward sale transaction, some of which we intend to use to repay the loan. If the market value of our SAFECO stock declines significantly while we are seeking to obtain the proceeds under the variable forward sale transaction, the decline may significantly decrease the amount of proceeds we can obtain under that transaction, and may cause all or part of the loan to become immediately due and payable. If all or part of the loan becomes due and payable, the Company may be required to sell assets, including securities owned by the Company, to repay the loan. If the amount of proceeds we can obtain under the variable forward sale transaction decreases significantly, it may materially and adversely affect our financial condition and the Company may sell assets to satisfy its liquidity needs. OUR DEBT SERVICE CONSUMES A SUBSTANTIAL PORTION OF THE CASH WE GENERATE, BUT OUR ABILITY TO GENERATE CASH DEPENDS ON MANY FACTORS BEYOND OUR CONTROL. We currently use a significant portion of our operating cash flow to service our debt. Our leverage makes us vulnerable to an increase in interest rates or a downturn in the operating performance of our businesses or a decline in general economic conditions. It further limits our ability to obtain additional financing for working capital, capital expenditures, acquisitions, debt service requirements or other purposes, and may limit our ability to pay dividends. Finally, it inhibits our ability to 27 compete with competitors who are less leveraged than we are, and it restrains our ability to react to changing market conditions, changes in our industry and economic downturns. Prevailing economic conditions and financial, business and other factors, many of which are beyond our control, will affect our ability to satisfy our debt obligations. If in the future we cannot generate sufficient cash flow from operations to meet our obligations, we may need to refinance our debt, obtain additional financing, forego or delay acquisitions and capital expenditures or sell assets. Any of these actions could adversely affect the value of our common stock. We cannot assure you that we will generate sufficient cash flow or be able to obtain sufficient funding to satisfy our debt service requirements. COMPETITION IN THE BROADCASTING INDUSTRY AND THE RISE OF ALTERNATIVE ENTERTAINMENT AND COMMUNICATIONS MEDIA MAY RESULT IN LOSSES OF AUDIENCE SHARE AND ADVERTISING REVENUE BY OUR STATIONS. We cannot assure you that any of our stations will continue to maintain or increase its current audience ratings or advertising revenue market share. Fisher Broadcasting's television and radio stations face intense competition from local network affiliates and independent stations, as well as from cable and alternative methods of broadcasting brought about by technological advances and innovations. The stations compete for audiences on the basis of programming popularity, which has a direct effect on advertising rates. Additional significant factors affecting a station's competitive position include assigned frequency and signal strength. The possible rise in popularity of competing entertainment and communications media could also have a materially adverse effect on Fisher Broadcasting's audience share and advertising revenue. We cannot predict either the extent to which such competition will materialize or, if such competition materializes, the extent of its effect on our business. OUR RESTRUCTURING MAY CAUSE DISRUPTION OF OPERATIONS AND DISTRACTION OF MANAGEMENT, AND MAY NOT ACHIEVE THE DESIRED RESULTS. We continue to implement a restructuring of our corporate enterprise with the objective of allowing greater functional integration of core competencies and improving operational efficiencies. This restructuring may disrupt operations and distract management, which could have a material adverse effect on our operating results. We cannot predict whether this restructuring will achieve the desired benefits, or whether our company will be able to fully integrate our broadcast communications, media services and other operations. We cannot assure you that the restructuring will be completed in a timely manner or that any benefits of the restructuring will justify its costs. We may incur costs in connection with the restructuring in the areas of professional fees, marketing expenses, employment expenses, and administrative expenses. In addition, we may incur additional costs which we are unable to predict at this time. THE SEPTEMBER 11, 2001 TERRORIST ATTACKS MAY CONTINUE TO AFFECT OUR RESULTS OF OPERATIONS. We may continue to be affected by the events of September 11, 2001, in New York, Washington, D.C., and Pennsylvania, as well as by the actions taken by the United States in response to such events. At this time, we cannot determine the ultimate extent of the effect of these events and their aftermath on the operating results of our television and radio broadcasting operations. However, as a result of expanded news coverage following the attacks and subsequent military action, we experienced a loss in advertising revenues. The events of September 11 negatively affected economic activity in the United States and globally, including the markets in which we operate. If weak economic conditions continue or worsen, our financial condition and results of operations may be materially and adversely affected. Furthermore, there is no assurance that there will not be further terrorist attacks against the United States or United States businesses, including real or threatened attacks. Although we have received no specific threats of such attacks, any such attacks might directly impact our physical facilities or our personnel, potentially causing substantial losses or disruptions in our operations. Our insurance coverage may not be adequate to cover the losses and interruptions caused by terrorist attacks. Insurance premiums may increase, or adequate coverage may not be available. OUR EFFORTS TO DEVELOP NEW BUSINESS OPPORTUNITIES ARE SUBJECT TO TECHNOLOGICAL RISK AND MAY NOT BE SUCCESSFUL, OR RESULTS MAY TAKE LONGER THAN EXPECTED TO REALIZE. We are developing new opportunities for creating, aggregating and distributing content through non-broadcast media channels, such as the Internet, cell phones, and web-enabled personal digital assistants. The success of our efforts is subject to technological innovations and risks beyond our control, so that the anticipated benefits may take longer than expected to realize. In addition, we have limited experience in non-broadcast media, which may result in errors in the conception, design or implementation of a strategy to take advantage of the opportunities available in that area. We therefore cannot give any assurance that our efforts will result in successful products or services. 28 THE FCC'S EXTENSIVE REGULATION OF THE BROADCASTING INDUSTRY LIMITS OUR ABILITY TO OWN AND OPERATE TELEVISION AND RADIO STATIONS AND OTHER MEDIA OUTLETS. The broadcasting industry is subject to extensive regulation by the Federal Communications Commission ("FCC") under the Communications Act of 1934, as amended. Compliance with and the effects of existing and future regulations could have a material adverse impact on us. Issuance, renewal or transfer of broadcast station operating licenses requires FCC approval, and we cannot operate our stations without FCC licenses. Failure to observe FCC rules and policies 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 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. If the FCC decides to include conditions or qualifications in any of our licenses, we may be limited in the manner in which we may operate the affected stations. The Communications Act and FCC rules impose specific limits on the number of stations and other media outlets an entity can own in a single market. The FCC attributes interests held by, among others, an entity's officers, directors and stockholders to that entity for purposes of applying these ownership limitations. The existing ownership rules or proposed new rules may prevent us from acquiring additional stations in a particular market. We may also be prevented from engaging in a swap transaction if the swap would cause the other company to violate these rules. DEPENDENCE ON KEY PERSONNEL MAY EXPOSE US TO ADDITIONAL RISKS. Our business is dependent on the performance of certain key employees, including our chief executive officer and other executive officers. We also employ several on-air personalities who have significant loyal audiences in their respective markets. A substantial majority of our executive officers do not have employment contracts with us. We can give no assurance that all such key personnel will remain with us. The loss of any key personnel could adversely affect our operations and financial results. THE NON-RENEWAL OR MODIFICATION OF AFFILIATION AGREEMENTS WITH MAJOR TELEVISION NETWORKS COULD HARM OUR OPERATING RESULTS. Our television stations' affiliation with one of the four major television networks (ABC, CBS, NBC and FOX) has a significant impact on the composition of the stations' programming, revenues, expenses and operations. We cannot give any assurance that we will be able to renew our affiliation agreements with the networks at all, or on satisfactory terms. In recent years, the networks have been attempting to change affiliation arrangements in manners that would disadvantage affiliates. The non-renewal or modification of any of the network affiliation agreements could have a material adverse effect on our operating results. A NETWORK MIGHT ACQUIRE A TELEVISION STATION IN ONE OF OUR MARKETS, WHICH COULD HARM OUR BUSINESS AND OPERATING RESULTS. If a network acquires a television station in a market in which we own a station affiliated with that network, the network will likely decline to renew the affiliation agreement for our station in that market, which could materially and adversely affect our business and results of operations. OUR OPERATIONS MAY BE ADVERSELY AFFECTED BY POWER OUTAGES, INCREASED ENERGY COSTS OR EARTHQUAKES IN THE PACIFIC NORTHWEST. Our corporate headquarters and a significant portion of our operations are located in the Pacific Northwest. The Pacific Northwest has from time-to-time experienced earthquakes and experienced a significant earthquake on February 28, 2001 which caused damage to some of our facilities. We do not know the ultimate impact on our operations of being located near major earthquake faults, but an earthquake could materially adversely affect our operating results. In addition, the Pacific Northwest may experience power shortages or outages and increased energy costs. Power shortages or outages could cause disruptions to our operations, which in turn may result in a material decrease in our revenues and earnings and have a material adverse effect on our operating results. Power shortages or increased energy costs in the Northwest could adversely affect the region's economy and our advertising, which could reduce our advertising revenues. Our insurance coverage may not be adequate to cover the losses and interruptions caused by earthquakes and power outages. 29 OUR DEVELOPMENT, OWNERSHIP AND OPERATION OF REAL PROPERTY IS SUBJECT TO RISKS, INCLUDING THOSE RELATING TO THE ECONOMIC CLIMATE, LOCAL REAL ESTATE CONDITIONS, POTENTIAL INABILITY TO PROVIDE ADEQUATE MANAGEMENT, MAINTENANCE AND INSURANCE, POTENTIAL COLLECTION PROBLEMS, RELIANCE ON SIGNIFICANT TENANTS, AND REGULATORY RISKS. Revenue and operating income from our properties and the value of our properties may be adversely affected by the general economic climate, the local economic climate and local real estate conditions, including prospective tenants' perceptions of attractiveness of the properties and the availability of space in other competing properties. We are developing the second building at Fisher Plaza which entails significant investment by us. The softened economy in the Seattle area could adversely affect our ability to lease the space of our properties on attractive terms or at all, which could have a material adverse effect on our operating results. Other risks relating to our real estate operations include the potential inability to provide adequate management, maintenance and insurance, and the potential inability to collect rent due to bankruptcy or insolvency of tenants or otherwise. Several of our properties are leased to tenants that occupy substantial portions of such properties and the departure of one or more of them or the inability of any of them to pay their rents or other fees could have a significant adverse effect on our real estate revenues. 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. We carry comprehensive liability, fire, extended coverage and rent loss insurance with respect to our properties. There are, however, certain losses that may be either uninsurable, not economically insurable or in excess of our current insurance coverage limits. If an uninsured loss occurs with respect to a property, it could materially and adversely affect our operating results. A REDUCTION ON THE PERIODIC DIVIDEND ON THE COMMON STOCK OF SAFECO MAY ADVERSELY AFFECT OUR REVENUE, CASH FLOW AND EARNINGS. We are a 2.4% stockholder of the common stock of SAFECO. If SAFECO reduces its periodic dividends, it will negatively affect our revenue, cash flow and earnings. In February 2001, SAFECO reduced its quarterly dividend from $0.37 to $0.185 per share. ANTITRUST LAW AND OTHER REGULATORY CONSIDERATIONS COULD PREVENT OR DELAY EXPANSION OF OUR BUSINESS OR ADVERSELY AFFECT OUR REVENUES. The completion of any future transactions we may consider will likely be subject to the notification filing requirements, applicable waiting periods and possible review by the Department of Justice or the Federal Trade Commission under the Hart-Scott-Rodino Act. Any television or radio station acquisitions or dispositions will be subject to the license transfer approval process of the FCC. Review by the Department of Justice or the Federal Trade Commission may cause delays in completing transactions and, in some cases, result in attempts by these agencies to prevent completion of transactions or to negotiate modifications to the proposed terms. Review by the FCC, particularly review of concentration of market revenue share, may also cause delays in completing transactions. Any delay, prohibition or modification could adversely affect the terms of a proposed transaction or could require us to abandon an acquisition or disposition opportunity. In addition, campaign finance reform laws or regulations could result in a reduction in funds being spent on advertising in certain political races, which would adversely affect our revenues and results of operations in election years. OUR INVESTMENTS IN HDTV AND DIGITAL BROADCASTING MAY NOT RESULT IN REVENUE SUFFICIENT TO JUSTIFY THE INVESTMENT. The ultimate success of digital television broadcasting will depend on programming being produced and distributed in a digital format, the effect of current or future laws and regulations relating to digital television, including the FCC's determination with respect to "must-carry" rules for carriage of each station's digital channel and receiver standards for digital reception, and public acceptance and willingness to buy new digital television sets. Unless 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. Our investments in HDTV and digital broadcasting may not generate earnings and revenue sufficient to justify the investments. 30 THE RISKS INHERENT IN A NEW BUSINESS VENTURE MAY ADVERSELY AFFECT THE OPERATING RESULTS OF FISHER ENTERTAINMENT. While Fisher Broadcasting has created programming in the past, we do not have significant experience in the creation and distribution of programming on the scale contemplated by Fisher Entertainment. Factors that could materially and adversely affect the results of Fisher Entertainment include competition from existing and new competitors, as well as related performance and price pressures, potential difficulties in relationships with cable and television networks, failure to obtain air time for the programming produced and the changing tastes and personnel of the acquirers of programming. There are many inherent risks in a new business venture such as Fisher Entertainment, including startup costs, performance of certain key personnel, and the unpredictability of audience tastes. ACQUISITIONS COULD DISRUPT OUR BUSINESS AND HARM OUR FINANCIAL CONDITION AND ARE IN ANY EVENT UNCERTAIN. We may opportunistically acquire broadcasting and other assets we believe will improve our competitive position. However, any acquisition may fail to increase our cash flow or yield other anticipated benefits due to a number of other risks, including: . failure or unanticipated delays in completing acquisitions due to difficulties in obtaining regulatory approval, . failure of an acquisition to maintain profitability, generate cash flow, or provide expected benefits, . difficulty in integrating the operations, systems and management of any acquired assets or operations, . diversion of management's attention from other business concerns, and . loss of key employees of acquired assets or operations. Some competitors for acquisition of broadcasting or other assets are likely to have greater financial and other resources than we do. We cannot predict the availability of acquisition opportunities in which we might be interested. 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 KPLZ-FM, KWJJ-FM and some of the stations operated by Fisher Radio Regional Group, where such facilities are situated on leased land. Property operated by our 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, and Fisher Industrial Technical Center. We believe that the properties owned or leased by our operating subsidiaries are generally in good condition and well maintained, and are adequate for present operations. ITEM 3. LEGAL PROCEEDINGS We are parties to various claims, legal actions and complaints in the ordinary course of our businesses. In our opinion, all such matters are adequately covered by insurance, are without merit or are of such kind, or involve such amounts, that unfavorable disposition would not have a material adverse effect on our consolidated financial position or results of operations. 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 2001. 31 PART II ITEM 5. MARKET PRICE OF AND DIVIDENDS ON REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS On May 18, 2001 our Common Stock began trading on the Nasdaq National Market under the symbol "FSCI." Prior to that date bid and ask prices were quoted in the Pink Sheets and on the OTC Bulletin Board. The following table sets forth the high and low prices for the Common Stock for the periods indicated. In determining the high and low prices for the period after May 18, 2001, we used the high and low sales prices as reported on the Nasdaq National Market, and for the period prior to May 18, 2001, we used the high and low bid prices as quoted on the Pink Sheets and on the OTC Bulletin Board. CAPTION> Quarterly Common Stock Price Ranges ----------------------------------- 2001 2000 ---- ---- Quarter High Low High Low ------- ---- --- ---- --- 1st $59.50 $50.00 $63.50 $54.00 2nd 72.89 49.25 80.00 60.00 3rd 70.50 44.50 74.00 70.25 4th 54.02 40.50 72.00 42.00
--------------- The approximate number of record holders of our Common Stock as of December 31, 2001 was 361. We paid cash dividends on our Common Stock of $1.04 per share for each of the fiscal years 2001 and 2000. Annual cash dividends have been paid on our Common Stock every year since our reorganization in 1971. We currently expect that comparable cash dividends will continue to be paid in the future, although our ability to do so may be affected by the terms of our credit facilities and other factors described in the subsection "Liquidity and Capital Resources" in "Management's Discussion and Analysis of Financial Condition and Results of Operations" and in the section entitled "Additional Factors That May Affect Our Business, Financial Condition and Future Results." 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. 32 SELECTED FINANCIAL DATA
Year ended December 31, 2001 2000 1999 1998 1997 --------------------------------------------------------------------- (All amounts in thousands except per share data) Revenue Continuing operations $ 161,641 $ 209,662 $ 163,875 $ 139,902 $ 136,039 Discontinued operations 44,675 112,012 114,942 108.056 129,941 --------------------------------------------------------------------- $ 206,316 $ 321,764 $ 278,817 $ 247,958 $ 260,034 ===================================================================== Income (loss) Continuing operations $ (7,936) $ 31,857 $ 23,061 $ 22,460 $ 23,628 Discontinued operations (327) (17,327) (4,968) (1,403) (1,101) --------------------------------------------------------------------- Net income (loss) $ (8,263) $ 14,530 $ 18,039 $ 21,057 $ 24,729 ===================================================================== Per common share data Income (loss) per share Continuing operations $ (0.92) $ 3.72 $ 2.70 $ 2.63 $ 2.77 Discontinued operations $ (0.04) $ (2.02) $ (0.58) $ (0.16) $ 0.13 --------------------------------------------------------------------- Net income (loss) $ (0.96) $ 1.70 $ 2.12 $ 2.17 $ 2.90 ===================================================================== Income (loss) per share assuming dilution Continuing operations $ (0.92) $ 3.71 $ 2.69 $ 2.62 $ 2.75 Discontinued operations (0.04) $ (2.02) $ (0.58) $ (0.16) $ 0.13 --------------------------------------------------------------------- Net income (loss) $ (0.96) $ 1.69 $ 2.11 $ 2.46 $ 2.88 ===================================================================== Cash divedends declared/(1)/ $ 0.78 $ 1.04 $ 1.04 $ 1.01 $ 0.25 December 31, 2001 2000 1999 1998 1997 --------------------------------------------------------------------- Working capital $ 9.380 $ 10,121 $ 33,959 $ 34,254 $ 36,336 Total assets/(2)/ 623,117 646,804 678,512 439,522 438,753 Total debt 286,949 283,055 338,174 76,736 73,978 Stockholders' equity 237,454 262,710 241,975 266,548 266,851
Certain prior year balances have been reclassified to conform to the 2001 presentation. /(1)/Amounts for 2000, 1999 and 1998 include $.26 per share declared for payment in the subsequent year. 1997 amount was declared for payment in first quarter 1998. /(2)/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. The Company has classified its investments as available-for-sale and those investments are reported at fair market value. Accordingly, total assets include unrealized gain on marketable securities as follows: December 31, 2001 - $95,939; December 31, 2000 - $100,912; December 31, 1999 - $78,274; December 31, 1998 - $131,132; December 31, 1997 - $148,506. Stockholders' equity includes unrealized gain on marketable securities, net of deferred income tax, as follows: December 31, 2001 - $62,360; December 31, 2000 - $65,593; December 31, 1999 - $50,878; December 31, 1998 - $85,236; December 31, 1997 - $96,529. 33 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This annual report on Form 10-K contains forward-looking statements that involve known and unknown risks and uncertainties, such as statements of our plans, objectives, expectations, and intentions. Words such as "may," "could," "would," "expect," "anticipate," "intend," "plan," "believe," "estimate" and variations of such words and similar expressions are intended to identify such forward-looking statements. You should not place undue reliance on these forward-looking statements, which are based on our current expectations and projections about future events, are not guarantees of future performance, are subject to risks, uncertainties, and assumptions (including those described herein) and apply only as of the date of this report. Our actual results could differ materially from those anticipated in the forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in the section entitled "Additional Factors that May Affect Our Business, Financial Condition and Future Results" as well as those discussed in this sections and elsewhere in this annual report. This discussion is intended to provide an analysis of significant trends and material changes in our financial position and operating results during the period 1999 through 2001. 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 amounted to $12,825,000, of which $9,827,000 was recognized in June 1999 and $2,998,000 was recognized in December 1999. 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 were in seven markets located in California, the Pacific Northwest, and Georgia (the "Fisher Television Regional Group" or the "newly acquired stations"). 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. On July 1, 1999, the Company and the milling subsidiary purchased the remaining 50% interest in the limited liability company (LLC) which owned and operated flour milling facilities in Blackfoot, Idaho. The $19 million purchase price was funded from bank lines of credit. Prior to July 1, our 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. The first clients of the Fisher Plaza project began moving into that facility during May 2000. Financial results for the portion of the project not occupied by KOMO TV are included in the real estate segment. On August 1, 2000, our broadcasting subsidiary completed the sale of its wholly owned membership interest in a limited liability company, which owned and operated KJEO-TV in Fresno, CA, for $60 million, resulting in a gain of $15,722,000. On October 27, 2000, the Board of Directors authorized management to negotiate one or more transactions with third parties with respect to a sale of Fisher Mills, with terms of a specific transaction subject to approval of the Board. Accordingly, the operating results, net current liabilities, and net noncurrent assets of Fisher Mills have been reported as discontinued operations in the accompanying financial statements. On April 30, 2001, the sale of the assets and working capital used in the Seattle, Blackfoot, Modesto, and Portland flour milling operations was completed. On June 29, 2001 the sale of the distribution assets and working capital of Fisher Mills Inc. and its subsidiary Sam Wylde Flour Co. was completed. Proceeds from the transactions totaled $49,910,000 including working capital. On November 6, 2001, the Board of Directors approved management's recommendation to consider selling the real estate portfolio held by the Company's real estate subsidiary. The bid process was completed in February 2002. Due to current market conditions, we are presently not seeking to sell the entire portfolio of real estate assets, but will continue to explore opportunistically the sale of individual properties. Any offers received from potential purchasers are subject to approval of the Board of Directors. We continue to implement a corporate restructuring, begun in 2001, that we expect will lead to improved efficiencies. The purpose of this restructuring is to enable us to focus on our objective of becoming a company that fully integrates broadcast communications and media services operations. 34 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. Certain prior year balances have been reclassified to conform to the 2001 presentation. Such reclassifications had no effect on net income or loss. CONSOLIDATED RESULTS OF OPERATIONS Operating results for the year ended December 31, 2001 showed a consolidated net loss of $8,263,000 compared with net income of $14,530,000 reported for the year ended December 31, 2000. Results for 2001 include a loss of $327,000, net of tax effects, from the milling businesses, which is reported as discontinued operations. Broadcasting revenue declined $50,299,000 compared with 2000. Factors occurring during 2001 which contributed to the decline include decreased advertiser demand, particularly by national advertisers, relative weakness of ABC Network programming, competition for viewers and listeners as a result of the popularity of the Seattle Mariners baseball game programming on a competing station, a decline in revenue from political advertising, of approximately $23,700,000, and the absence of revenue from KJEO-TV which contributed approximately $5,200,000 of revenue in 2000 prior to sale on August 1st of that year. The adverse effects of the events of September 11, 2001 also contributed to the decline in broadcast revenue as our television stations aired continuous, commercial-free, network news coverage for several days following the events and a number of advertisers cancelled or delayed previously scheduled advertising. Total expenses relating to broadcasting operations, including interest and depreciation, decreased approximately $15,100,000. Operating income from real estate operations improved in 2001 compared with 2000 due to improved margins and the completion of phase one and operations at Fisher Plaza. Corporate expenses increased primarily due to reassignment of personnel and other costs, including severance and related expenses of approximately $3,200,000, associated with the Company's restructuring. Interest expense declined as a result of a combination of reduced borrowing and lower interest rates. Consolidated net income for the year ended December 31, 2000 amounted to $14,530,000 compared with $18,093,000 reported for the year ended December 31, 1999. The loss from discontinued operations of milling businesses for the year ended December 31, 2000 includes results of operations of the milling businesses through September 30, 2000 amounting to $1,665,000, net of income tax benefit of $962,000, and estimated loss from disposal of the milling businesses amounting to $15,662,000, net of income tax benefit of $8,434,000. Components of the estimated loss include the excess of net book value of assets over projected sales proceeds, estimated costs of sale including employee severance, and estimated operating results during the phase-out period. Excluding loss from discontinued operations of the milling businesses, income from continuing operations for the year ended December 31, 2000 was $31,857,000 compared with $23,061,000 reported for 1999. Our 2000 results include after tax gains from the sale of KJEO-TV, amounting to $9,747,000, and from the sale of two parcels of real estate, amounting to $554,000. Excluding these non-recurring gains and the gain from real estate, sold under threat of condemnation, of $8,337,000, net of tax, recognized in 1999, income from continuing operations for the year ended December 31, 2000 increased 46.4% compared with the year ended December 31, 1999. Milling operation results are included in the caption labeled "Discontinued Operations." REVENUE -------------------------------------------------------------------------------- 2001 %Change 2000 %Change 1999 Broadcasting $145,513,000 -25.7% $195,812,000 28.7% $152,128,000 Real estate 16,128,000 16.4% 13,850,000 17.9% 11,747,000 In total, revenue declined 22.9% in year ended December 31, 2001 compared with year ended December 31, 2000. Total revenue increased 27.9% in the year ended December 31, 2000 compared with year ended December 31, 1999. Broadcasting and real estate operations are discussed further on pages 38 - 40. 35 COST OF PRODUCTS AND SERVICES SOLD -------------------------------------------------------------------------------- 2001 %Change 2000 %Change 1999 $71,226,000 -0.6% $71,628,000 14.3% $62,689,000 Percentage of revenue 44.1% 34.2% 38.3% The cost of products and services sold consists primarily of costs to acquire, produce, and promote broadcast programming, including salaries, and costs to operate the properties reported in the real estate segment. These costs are relatively fixed in nature, and do not vary directly with revenue. During the year ended December 31, 2001 operating expenses of the broadcasting operations increased modestly compared with 2000, after adjusting 2000 to exclude expenses of KJEO-TV, which was sold in August of that year. Overall operating costs of the real estate operations decreased approximately $300,000, or 17.1%. Operating expenses of the broadcasting operations increased $8,931,000 during the year ended December 31, 2000 compared with 1999, after adjustment to exclude expenses of KJEO-TV, which was sold in August 2000. Overall operating costs of the real estate operations increased approximately $540,000. Broadcasting and real estate operations are discussed further on pages 38 - 40. SELLING EXPENSES --------------------------------------------------------------------------------
2001 %Change 2000 %Change 1999 $21,179,000 -7.1% $22,791,000 33.1% $17,118,000 Percentage of revenue 13.1% 10.9% 10.4%
Selling expenses are incurred by the broadcasting operations. The principal cause of the reduction in selling expenses is the overall decrease in revenue, which resulted in decreased sales department compensation, primarily in the form of sales commissions. If the selling expenses incurred by KJEO-TV reflected in operating results for the first seven months of 2000 are excluded, the percentage decrease would be 4.5%. The increase in selling expenses as a percentage of revenue reflects the relatively fixed nature of certain sales department costs, such as management salaries, information systems, and ratings services. The increase for the year ended December 31, 2000 compared with 1999 is a result of costs incurred by the television stations acquired in 1999 and increased commissions and related expenses attributable to increased broadcasting revenue. GENERAL AND ADMINISTRATIVE EXPENSES -------------------------------------------------------------------------------- 2001 %Change 2000 %Change 1999 $39,713,000 -9.4% $43,822,000 11.4% $39,349,000 Percentage of revenue 24.6% 20.9% 24.0% General and administrative expenses declined at the broadcasting operations largely due to cessation of benefit accruals for the broadcasting subsidiary's defined benefit plan (which was terminated in January 2002), reduction in personnel costs as a result of the retirement of a senior officer in early 2001, and decrease of expenses attributable to KJEO-TV as a result of the sale on August 1, 2000. Expenses declined with respect to the real estate operations primarily as expenses associated with certain officers were transferred to the corporate segment in connection with the Company's restructuring. The corporate segment incurred increased costs in connection with reassignment of personnel and other costs associated with the restructuring, including severance and related expenses of approximately $3,200,000, and a donation of $1,000,000 to fund a civic project in Seattle, Washington. General and administrative expenses increased in all business segments during 2000. The increase at the broadcasting segment is largely attributable to costs incurred by the newly acquired television stations, higher employee benefit costs, and higher legal and consulting expenses. The real estate segment experienced increased salaries and employee benefit costs. The corporate segment incurred increased costs in connection with additional personnel. 36 DEPRECIATION AND AMORTIZATION ------------------------------------------------------------------------------- 2001 %Change 2000 %Change 1999 $24,809,000 13.4% $21,889,000 48.0% $14,784,000 Percentage of revenue 15.3% 10.4% 9.0% The increases in depreciation expense relate primarily to Fisher Plaza and the Fisher Industrial Technology Center, located in Auburn, Washington, owned by the real estate subsidiary. Depreciation of Fisher Plaza, and new broadcast and related equipment and digital studios acquired by KOMO TV, began in June of 2000. Construction of the Fisher Industrial Technology Center was complete in Fall 2000, and tenants began occupancy in mid-2001. OTHER INCOME, NET ------------------------------------------------------------------------------- 2001 %Change 2000 %Change 1999 $3,210,000 -84.9% $21,199,000 20.5% $17,586,000 Other income, net in 2001 includes primarily dividends received on marketable securities and also interest and miscellaneous income. The decline in other income, net for the year ended December 31, 2001 compared to 2000 is attributable to a reduction in the dividend paid by SAFECO Corporation and the inclusion in 2000 of gain from the sale of KJEO-TV in the amount of $15,722,000 and gain from sale of two parcels of real estate in the amount of $852,000. After deducting income taxes, the gains were $9,747,000 and $554,000, respectively. For the year ended December 31, 2000, other income, net includes the gains from the sale of KJEO-TV and from sale of real estate described in the preceding paragraph. The 1999 amount includes $12,825,000 gain from sale of real estate. Dividend income was largely unchanged from 1999 to 2000. (LOSS) GAIN IN EQUITY INVESTEES ------------------------------------------------------------------------------- 2001 % Change 2000 1999 $(4,572,000) 377.4% $(958,000) $94,000 Investments in entities over which we have significant influence, however do not control, (equity investees) are accounted for using the equity method. The loss in equity investees includes our pro rata share of losses incurred by such investees and, for the year ended December 31, 2001, relate principally to loans for development of the Civia Media Terminal. INTEREST EXPENSE ------------------------------------------------------------------------------- 2001 %Change 2000 %Change 1999 $17,847,000 -16.4% $21,360,000 72.7% $12,367,000 Interest expense includes interest on borrowed funds, loan fees, and net payments under a swap agreement, and is net of interest allocated to discontinued operations based on net borrowing of the discontinued operations. The decrease in interest expense for the year ended December 31, 2001 compared with 2000 is attributable to lower amounts of borrowed funds outstanding and to lower interest rates. Interest incurred in connection with funds borrowed to finance construction of Fisher Plaza and other significant capital projects is capitalized as part of the cost of the related project. The increase in 2000 interest expense compared with 1999 is attributable to funds borrowed in July 1999 to finance the acquisition of television stations and the acquisition of 50% interest in the Blackfoot flour mill. PROVISION FOR FEDERAL AND STATE INCOME TAXES (BENEFIT) -------------------------------------------------------------------------------- 2001 % Change 2000 % Change 1999 $(6,559,000) -139.6% $16,556,000 35.8% $12,187,000 Effective tax rate 45.3% 34.2% 34.6% The provision for federal and state income taxes varies directly with pre-tax income. The tax benefit in 2001 reflects our ability to utilize a net operating loss carryback. The effective tax rate varies from the statutory rate for all years primarily due to a deduction for dividends received, offset by the impact of state income taxes. 37 OTHER COMPREHENSIVE INCOME (LOSS) -------------------------------------------------------------------------------- 2001 % Change 2000 % Change 1999 $(5,489,000) -137.3% $14,715,000 142.8% $(34,358,000) Other comprehensive income (loss) includes unrealized gain or loss on our marketable securities and the effective portion of the change in fair value of an interest rate swap agreement, and is net of income taxes. During the year ended December 31, 2001, the value of the marketable securities declined $3,233,000, net of tax. 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 $31.15 at December 31, 2001, $32.88 at December 31, 2000, and $24.88 at December 31, 1999. Unrealized gains and losses, net of tax, are a separate component of stockholders' equity. BROADCASTING OPERATIONS REVENUE ------------------------------------------------------------------------------- 2001 % Change 2000 %Change 1999 $145,513,000 -25.7% $195,812,000 28.7% $152,128,000 During the year ended December 31, 2001, as compared with 2000, our revenue from local advertisers declined $19,300,000; our national advertising revenue declined $21,400,000; and our political advertising revenue decreased $23,700,000. These declines were partially offset by commissions paid to advertising agencies, with the result that net revenue from broadcasting operations declined $50,299,000 in 2001, compared with 2000. Comparability between the periods is affected by the sale by the Company's broadcasting subsidiary, in August 2000, of all of the membership interest in a limited liability company which owned and operated KJEO-TV. If, for purposes of comparison, revenue from KJEO-TV is excluded from the 2000 revenue, the decrease in revenue from broadcasting operations for the year ended December 31, 2001 compared with 2000 would be 23.1%. Factors occurring during 2001 which have contributed to the decline include decreased advertiser demand, particularly by national advertisers, relative weakness of ABC Network programming, competition for viewers and listeners in the Seattle market as a result of the popularity of the Seattle Mariners baseball game programming on a competing station, a decline in revenue from political advertising of approximately $23,700,000, and the absence of revenue from KJEO-TV, which had contributed approximately $5,200,000 of revenue in 2000. The adverse effects of the events of September 11, 2001 also contributed to the decline in broadcast revenue as our television stations aired continuous, commercial-free, network news coverage for several days following the events and a number of advertisers cancelled or delayed previously scheduled advertising. KOMO TV in Seattle and KATU Television in Portland experienced declines in net revenue of 31.3% and 30.4%, respectively, in 2001 compared to 2000. Revenue in 2001 from the smaller market television stations declined 16.3% (adjusted to exclude KJEO-TV) from the year ago period. Revenue from the Company's Seattle and Portland radio groups declined 16.2% and 17.2%, respectively, from the year ago period. Revenue from the small market radio operations declined 6.5% from the year ago period. Our satellite teleport and Fisher Entertainment divisions generated revenue of approximately $1,400,000 and $1,200,000, respectively in 2001. Revenue from the television stations acquired in July 1999 totaled $21,350,000 in the six months ended June 30, 2000. If, for purposes of comparison, that amount is excluded, revenue of $174,462,000 for the year ended December 31, 2000 would represent a 14.7% increase over 1999. Revenue increased in 2000 at all broadcasting operations, with the largest increases realized by the Seattle, Portland and Regional television stations due to high demand for advertising by political action committees ("PACs") and, to a lesser degree, candidates for political office. KOMO TV revenue increased 27% for the year ended December 31, 2000 compared to 1999. Political advertising revenue accounted for 68% of KOMO TV's overall revenue increase, while national sales declined 2% from 1999. KATU Television revenue for the year ended December 31, 2000 increased 15% compared to 1999. Political advertising revenue accounted for all of the overall revenue increase, as national sales for KATU declined 9% during the period and more than offset the 2% improvement in local sales. Revenue from the Fisher Television Regional Group increased approximately $18,610,000 compared with the year ended December 31, 1999; however, the Company owned the stations only six months during that period. Seattle radio revenue improved 12% for the twelve months ended December 31, 2000 compared to the same period in 1999. Political advertising was not as significant a factor in the Seattle radio market as it was for television stations during 2000; however, about 10% of the overall revenue growth for Fisher's Seattle radio group was derived from political advertising sales. All three of the Seattle stations, KOMO AM, KVI AM and KPLZ FM, reported increased advertising sales during 2000 when compared to the prior year. Portland radio sales improved 11% for the twelve months ended December 31, 2000, 38 compared to 1999. The growth was due to increases in both local and political sales, while national sales declined 8%. Political sales represented approximately one-half of the overall increase. The Fisher Radio Regional Group of small market stations in Montana and Wenatchee, Washington experienced a 10% increase in advertising sales in 2000, with growth occurring in each of the five markets. Our satellite teleport and Fisher Entertainment divisions generated revenue of approximately $1,200,000 and $900,000, respectively in 2000. INCOME FROM OPERATIONS ------------------------------------------------------------------------------- 2001 %Change 2000 %Change 1999 $8,613,000 -83.4% $51,764,000 49.8% $34,554,000 Percentage of revenue 5.9% 26.4% 22.7% The decline in income from broadcasting operations for the year ended December 31, 2001 compared with 2000 is primarily due to the decline in revenue discussed above. If adjusted to exclude the operating results attributable to KJEO-TV, operating expenses for 2001 would be approximately $2,900,000 lower than those incurred in 2000. Depreciation expense increased approximately $2,800,000 largely due to KOMO TV's new broadcast equipment and studios. Excluding operating income from the Fisher Television Regional Group that was only included in 1999 results for the second half of the year, the increase in income from operations for the year ended December 31, 2000 is 52.2% compared with 1999. Each broadcasting group except the Portland radio group experienced an improvement in 2000 compared with the prior year as increases in revenue exceeded increases in operating expenses. Overall, operating expenses at the broadcasting segment increased 23.2% in 2000, including the effect of the operating costs of the newly acquired stations. Aside from the additional costs of operating the regional television group for the entire year 2000, other significant cost increases included depreciation of KOMO TV's new digital broadcast equipment in Fisher Plaza, local sales commissions and merchandising expenses that accompanied the significant growth in local sales during the year and increased employment costs including benefits. REAL ESTATE OPERATIONS REVENUE -------------------------------------------------------------------------------- 2001 %Change 2000 % Change 1999 $16,128,000 16.4% $13,850,000 17.9% $11,747,000 The real estate segment includes our real estate subsidiary and the portion of the Fisher Plaza project not occupied by KOMO TV. Rents from the first building at Fisher Plaza, which was 80% occupied at December 31, 2001, approximated $3,896,000 during 2001 compared with $1,589,000 in 2000. During 2001 marketing efforts were underway for the five-building project in Auburn, Washington, known as the Fisher Industrial Technology Center (the Fisher ITC), which was substantially completed by the real estate subsidiary in September 2000. Rental income from Fisher ITC during 2001 totaled $193,000. At year-end the Fisher ITC project was 71% leased. Revenue of the real estate segment increased in 2000 as a result of rent increases, and rental income from Fisher Plaza, which approximated $1,589,000. The first clients began moving into Fisher Plaza in May 2000. Comparison with 1999 results is impacted by the loss of revenue from two properties sold in June 1999. If revenue from those properties were excluded from 1999 revenue, the percentage increase would be 23.1%. INCOME FROM OPERATIONS ------------------------------------------------------------------------------- 2001 %Change 2000 %Change 1999 $6,946,000 42.5% $4,875,000 52.2% $3,203,000 Percentage of revenue 43.1% 35.2% 27.3% The increase in operating income for the real estate segment for the year ended December 31, 2001, compared with 2000, is primarily attributable to the operations of the portion of Fisher Plaza not occupied by KOMO TV. Exclusive of the Fisher ITC, which was in lease-up phase during 2001, average occupancy of the properties operated by the real estate subsidiary during 2001 was 97% compared with 92% during 2000. 39 The increase in operating income for the real estate segment for the year ended December 31, 2000, compared with 1999, is also primarily attributable to the operations of Fisher Plaza. Results for 1999 include operating income of approximately $270,000 from the two properties that were sold in June of that year. DISCONTINUED OPERATIONS LOSS FROM DISCONTINUED OPERATIONS OF MILLING BUSINESSES ------------------------------------------------------------------------------- 2001 % Change 2000 %Change 1999 $327,000 -98.1% $17,327,000 248.8% $4,968,000 The loss from discontinued operations of milling businesses for the year ended December 31, 2001 reflects an increase in the estimate of benefits for employees of the milling and distribution operations. Based upon updated information from its actuaries, the Company increased the estimated loss from discontinued operations by $500,000, or $327,000 net of taxes. The loss from discontinued operations of milling businesses for the year ended December 31, 2000 includes results of operations of the milling businesses through September 30, 2000 amounting to $1,665,000, net of income tax benefit of $962,000, and estimated loss from disposal of the milling businesses amounting to $15,662,000, net of income tax benefit of $8,434,000. Components of the estimated loss include the excess of net book value of assets over projected sales proceeds, estimated costs of sale including employee severance, and estimated operating results during the phase-out period. The loss from discontinued operations of milling businesses for the year ended December 31, 1999 represents the results of operations of the milling businesses during that year. RECENT ACCOUNTING PRONOUNCEMENTS In June 2001, the Financial Accounting Standards Board (FASB) approved FASB Statement No. 141 (FAS 141), "Business Combinations", and FASB Statement No. 142 (FAS 142), "Goodwill and Other Intangible Assets." FAS 141 establishes new standards for accounting and reporting requirements for business combinations initiated after June 30, 2001 and prohibits the use of the pooling-of-interests method for combinations initiated after June 30, 2001. FAS 142 changes the accounting for goodwill and intangible assets with indefinite lives from an amortization method to an impairment-only approach. Upon adoption of FAS 142, goodwill will be tested at the reporting unit annually and whenever events or circumstances occur indicating that goodwill might be impaired. Amortization of goodwill, including goodwill recorded in past business combinations, will cease. The adoption date for the Company was January 1, 2002. We are still assessing what the impact of FAS 141 and FAS 142 will be on our results of operations and financial position. In June 2001, the FASB issued Statement No. 143 (FAS 143), "Accounting for Asset Retirement Obligations", which establishes requirements for the financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. FAS 143 is effective for fiscal years beginning after June 15, 2002, with earlier application encouraged. In August 2001, the FASB issued Statement No. 144 (FAS 144) "Accounting for the Impairment or disposal of Long-Lived Assets", which establishes requirements for the financial accounting and reporting for the impairment of long-lived assets and for long-lived assets to be disposed of. The provisions of FAS 144 shall be effective for financial statements issued for fiscal years beginning after December 31, 2001, and interim periods within those fiscal years. We are currently assessing the impact of FAS 143 and FAS 144 on our financial statements. LIQUIDITY AND CAPITAL RESOURCES As of December 31, 2001, we had working capital of $9,380,000 and cash and short-term cash investments totaling $3,568,000. We intend to finance working capital, debt service, capital expenditures, and dividend requirements primarily through operating activities. However, we will consider using available lines of credit to fund acquisition activities and significant real estate development activities. In this regard, we had a five-year unsecured revolving line of credit (revolving line of credit) with two banks for a maximum amount of $100,000,000 to finance construction of Fisher Plaza and for general corporate purposes. The revolving line of credit provided that borrowings under the line would bear interest at variable rates. The revolving line of credit also placed limitations on the disposition or encumbrance of certain assets and required us to maintain certain financial ratios. At December 31, 2001, the revolving line of credit was fully drawn. Approximately $19,700,000 was available under short-term working capital lines of credit. 40 The unsecured revolving line of credit and the senior credit facility required us to comply with several covenants, including covenants with respect to the maintenance of some financial ratios. As of December 31, 2001, we were not in compliance with certain covenants. As a result of such noncompliance, the lenders could have required us to immediately repay all principal and interest outstanding, thus causing the long-term debt to be classified as current. However, subsequent to year-end we requested and received agreement from the lenders to forbear from exercising remedies under the revolving line of credit and the senior credit facility during the period from December 31, 2001 through March 31, 2002. Subsequent to year-end we repaid these obligations through the use of proceeds from new financings (see Note 14 of Notes to Consolidated Financial Statements). As a result, we have continued to present the debt as long-term on the balance sheet. In addition, as a result of such repayment of the unsecured revolving line of credit and the senior credit facility we will record an extraordinary loss of approximately $3,500,000 as a result of its write off of the related deferred loan costs. We will also record a loss of approximately $2,700,000 as a result of termination of a related interest rate swap agreement. On October 27, 2000, the Board of Directors authorized management to negotiate one or more transactions with third parties with respect to a sale of Fisher Mills, with terms of a specific transaction subject to approval of the Board. Accordingly, the operating results, net working capital, and net noncurrent assets of Fisher Mills are reported as discontinued operations in the accompanying financial statements. On April 30, 2001 the sale of the assets and working capital used in the Seattle, Blackfoot, Modesto, and Portland flour milling operations was completed. On June 29, 2001 the sale of the distribution assets and working capital of Fisher Mills Inc. and its subsidiary Sam Wylde Flour Co. was completed. Proceeds from the transactions totaled $49,910,000 including working capital. Net cash provided by operating activities during the year ended December 31, 2001 was $8,533,000. Net cash provided by operating activities consists of our net income, increased by non-cash expenses such as depreciation and amortization, and adjusted by changes in operating assets and liabilities. Net cash provided by investing activities during the year was $5,383,000, including $49,910,000 proceeds from the sales of milling and distribution assets and working capital, reduced by $40,420,000 for purchase of property, plant and equipment (including the Fisher Plaza project) and $4,109,000 for investments in equity investees. Net cash used in financing activities was $10,566,000, comprised of payments of $49,697,000 on borrowing agreements and mortgage loans, $6,675,000 for retirement of preferred stock of our broadcasting subsidiary, cash dividends paid to stockholders totaling $8,919,000 or $1.04 per share, reduced by net borrowings under notes payable and borrowing agreements totaling $54,036,000 and proceeds from exercise of stock options of $1,249,000. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS The market risk in our financial instruments represents the potential loss arising from adverse changes in financial and commodity market prices and rates. We are exposed to market risk in the areas of interest rates and securities prices. These exposures are directly related to our normal funding and investing activities. Interest Rate Exposure Our strategy in managing exposure to interest rate changes is to maintain a balance of fixed- and variable-rate instruments. See Note 6 to the consolidated financial statements for information regarding the contractual interest rates of the Company's debt. We will also consider entering into interest rate swap agreements at such times as we deem appropriate. At December 31, 2001, the fair value of our fixed-rate debt is estimated to be approximately $2,000,000 greater than the carrying amount, based on current borrowing rates. Market risk is estimated as the potential change in fair value resulting from a hypothetical 10 percent change in interest rates. With respect to our fixed-rate debt, such market risk amounted to $1,639,000 at December 31, 2001. We also had $229,397,000 in variable-rate debt outstanding at December 31, 2001. A hypothetical 10 percent change in interest rates underlying these borrowings would result in a $1,340,000 annual change in our pre-tax earnings and cash flows. We are a party to an interest rate swap agreement fixing the interest rate at 6.52%, plus a margin based on the ratio of funded debt to operating cash flow, on a portion of the variable-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, 2001, the fair value of the swap agreement was ($3,471,000). A hypothetical 10 percent change in interest rates would change the fair value of our swap agreement by approximately $374,000 at December 31, 2001. Marketable Securities Exposure The fair value of our investments in marketable securities at December 31, 2001 was $97,107,000. Marketable securities consist of equity securities traded on a national securities exchange or reported on the Nasdaq stock market. A significant portion of the marketable securities consists of 3,002,376 shares of SAFECO Corporation. As of December 31, 2001, these 41 shares represented 2.4% of the outstanding common stock of SAFECO Corporation. SAFECO's common stock price has been volatile in recent years, and ranged from $21.50 to $32.95 per share during 2001. We have classified our investments as available-for-sale under applicable accounting standards. Mr. William W. Krippaehne Jr., President, CEO, and a Director of Fisher Communications, Inc., is a Director of SAFECO. A hypothetical 10 percent change in market prices underlying these securities would result in a $9,711,000 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. Subsequent to year-end the Company pledged 3,000,000 shares of SAFECO Corporation stock owned by it as collateral under a margin loan and a variable forward sales transaction (see Note 14 of Notes to Consolidated Financial Statements). 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. 42 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 our Annual Meeting of Shareholders to be held on April 25, 2002, 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 25, 2002, 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 our Annual Meeting of Shareholders to be held on April 25, 2002, 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 our Annual Meeting of Shareholders to be held on April 25, 2002, is incorporated herein by reference. 43 PART IV ITEM 14 EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) (1) Consolidated Financial Statements: . Reports of Management and Independent Accountants . Consolidated Statement of Income for the years ended December 31, 2001, 2000, and 1999 . Consolidated Balance Sheet at December 31, 2001 and 2000 . Consolidated Statement of Stockholders' Equity for the years ended December 31, 2001, 2000, and 1999 . Consolidated Statement of Cash Flows for the years ended December 31, 2001, 2000, and 1999 . Consolidated Statement of Comprehensive Income for the years ended December 31, 2001, 2000, and 1999 . Notes to Consolidated Financial Statements (2) Financial Statement Schedules: . Report of Independent Accountants . Schedule II - Valuation and Qualifying Accounts for the years ended December 31, 2001, 2000, and 1999 . Schedule III - Real Estate and Accumulated Depreciation at December 31, 2001 (3) Exhibits: See "Exhibit Index." (b) Forms 8-K filed during the fourth quarter of 2001: A report on Form 8-K was filed with the Commission on November 15, 2001 announcing the Company's intention to sell the real estate assets held by its subsidiary, Fisher Properties Inc. A report on Form 8-K was filed with the Commission on November 21, 2001 announcing that waiver for the Company's noncompliance with certain covenants contained in certain of the Company's credit facilities was granted by the lenders and that, as of September 30, 2001, $205,284,000 of principal outstanding under the credit facilities was no longer classified as current. 44 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 accounting principles generally accepted in the United States of America. 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 auditing standards generally accepted in the United States of America and provide an objective, independent report on such financial statements. 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 Communications, Inc: In our opinion, the accompanying consolidated balance sheet 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 Communications, Inc. (formerly Fisher Companies Inc.) and its subsidiaries at December 31, 2001 and 2000, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2001 in conformity with accounting principles generally accepted in the United States of America. 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 of America, 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 our opinion. /s/ PricewaterhouseCoopers LLP PricewaterhouseCoopers LLP Seattle, Washington March 21, 2002 45 FISHER COMMUNICATIONS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF INCOME
Year Ended December 31 2001 2000 1999 ---------------------------------------------------------------------------------------- (in thousands, except per share amounts) Revenue Broadcasting $ 145,513 $ 195,812 $ 152,128 Real estate 16,128 13,850 11,747 ---------------------------------------------------------------------------------------- 161,641 209,662 163,875 ---------------------------------------------------------------------------------------- Costs and expenses Cost of products and services sold 71,226 71,628 62,689 Selling expenses 21,179 22,791 17,118 General and administrative expenses 39,713 43,822 39,349 Depreciation and amortization 24,809 21,889 14,784 ---------------------------------------------------------------------------------------- 156,927 160,130 133,940 ---------------------------------------------------------------------------------------- Income from operations 4,714 49,532 29,935 Other income, net 3,210 21,199 17,586 (Loss) gain in equity investees (4,572) (958) 94 Interest expense (17,847) (21,360) (12,367) ---------------------------------------------------------------------------------------- Income (loss) from continuing operations before provision for income taxes (14,495) 48,413 35,248 Provision for federal and state income taxes (benefit) (6,559) 16,556 12,187 ---------------------------------------------------------------------------------------- Income (loss) from continuing operations (7,936) 31,857 23,061 Loss from discontinued operations of milling businesses, net of income tax (327) (17,327) (4,968) ---------------------------------------------------------------------------------------- Net income (loss) $ (8,263) $ 14,530 $ 18,093 ---------------------------------------------------------------------------------------- Income (loss) per share: From continuing operations $ (0.92) $ 3.72 $ 2.70 From discontinued operations (0.04) (2.02) (0.58) ---------------------------------------------------------------------------------------- Net income (loss) per share $ (0.96) $ 1.70 $ 2.12 ---------------------------------------------------------------------------------------- Income (loss) per share assuming dilution: From continuing operations $ (0.92) $ 3.71 $ 2.69 From discontinued operations (0.04) (2.02) (0.58) ---------------------------------------------------------------------------------------- Net income (loss) per share assuming dilution $ (0.96) $ 1.69 $ 2.11 ---------------------------------------------------------------------------------------- Weighted average shares outstanding 8,575 8,556 8,548 Weighted average shares outstanding assuming dilution 8,575 8,593 8,575
See accompanying notes to consolidated financial statements. 46 FISHER COMMUNICATIONS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET
December 31 2001 2000 ------------------------------------------------------------------------------------------ (in thousands, except share and per share amounts) ASSETS Current Assets Cash and short-term cash investments $ 3,568 $ 218 Receivables 33,081 40,375 Prepaid income taxes 10,760 563 Prepaid expenses 4,251 3,862 Television and radio broadcast rights 10,318 10,253 Net working capital of discontinued operations 216 10,526 ------------------------------------------------------------------------------------------ Total current assets 62,194 65,797 ------------------------------------------------------------------------------------------ Marketable Securities, at market value 97,107 102,080 ------------------------------------------------------------------------------------------ Other Assets Cash value of life insurance and retirement deposits 12,403 11,725 Television and radio broadcast rights 1,725 927 Intangible assets, net of amortization 189,133 194,316 Investments in equity investees 2,594 3,057 Other 12,232 10,017 Net noncurrent assets of discontinued operations 1,635 39,236 ------------------------------------------------------------------------------------------ 219,722 259,278 ------------------------------------------------------------------------------------------ Property, Plant and Equipment, net 244,094 219,649 ------------------------------------------------------------------------------------------ $ 623,117 $ 646,804 ------------------------------------------------------------------------------------------ LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities Notes payable $ 25,469 $ 25,642 Trade accounts payable 5,490 4,981 Accrued payroll and related benefits 7,616 10,458 Television and radio broadcast rights payable 8,980 9,002 Dividends payable 2,225 Other current liabilities 5,259 3,368 ------------------------------------------------------------------------------------------ Total current liabilities 52,814 55,676 ------------------------------------------------------------------------------------------ Long-term Debt, net of current maturities 261,480 257,413 ------------------------------------------------------------------------------------------ Other Liabilities Accrued retirement benefits 12,028 13,638 Deferred income taxes 50,994 53,648 Television and radio broadcast rights payable, long-term portion 1,570 794 Other liabilities 6,777 2,934 ------------------------------------------------------------------------------------------ 71,369 71,014 ------------------------------------------------------------------------------------------ Commitments and Contingencies Stockholders' Equity Common stock, shares authorized 12,000,000, $1.25 par value; issued 8,591,658 in 2001 and 8,558,042 in 2000 10,739 10,698 Capital in excess of par 3,486 2,140 Deferred compensation (66) (135) Accumulated other comprehensive income - net of income taxes: Unrealized gain on marketable securities 62,360 65,593 Net loss on interest rate swap (2,256) Retained earnings 163,191 184,405 ------------------------------------------------------------------------------------------ 237,454 262,701 ------------------------------------------------------------------------------------------ $ 623,117 $ 646,804 ------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements. 47 FISHER COMMUNICATIONS, 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, 1998 8,542,384 $ 10,678 $ 1,792 $ (733) $ 85,236 $ 169,575 $ 266,548 Net income 18,093 18,093 Other comprehensive income (loss) (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 Net income 14,530 14,530 Other comprehensive income 14,715 14,715 Issuance of common stock rights, net of forfeitures (69) 69 Amortization of deferred compensation 330 330 Issuance of common stock under rights and options, and related tax benefit 7,352 10 41 51 Dividends (8,900) (8,900) ------------------------------------------------------------------------------------------------------------------------------ Balance December 31, 2000 8,558,042 10,698 2,140 (135) 65,593 184,405 262,701 Net loss (8,263) (8,263) Other comprehensive income (loss) (5,489) (5,489) Amortization of deferred compensation 69 69 Issuance of common stock under rights and options, and related tax benefit 33,616 41 1,346 1,387 Redemption of preferred stock of subsidiary (6,257) (6,257) Dividends (6,694) (6,694) ------------------------------------------------------------------------------------------------------------------------------ Balance December 31, 2001 8,591,658 $ 10,739 $ 3,486 $ (66) $ 60,104 $ 163,191 $ 237,454 ------------------------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements. 48 FISHER COMMUNICATIONS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS
Year Ended December 31 2001 2000 1999 ----------------------------------------------------------------------------------------------------------- (in thousands) Cash flows from operating activities Net income (loss) $ (8,263) $ 14,530 $ 18,093 Adjustments to reconcile net income (loss) to net cash provided by Operating activities Depreciation and amortization 26,362 26,146 17,975 Noncurrent deferred income taxes 2,222 (1,420) 7,461 Net loss in equity investees 4,572 958 689 Amortization of deferred loan costs 778 828 500 Gain on sale of real estate (852) (12,825) Gain on sale of KJEO TV (15,722) Net loss from discontinued operations 17,327 Other 286 (232) 937 Change in operating assets and liabilities Receivables 8,064 7,621 (3,111) Inventories 5,354 38 Prepaid income taxes (10,373) 888 (1,276) Prepaid expenses (1,402) 691 2,199 Cash value of life insurance and retirement deposits (725) (772) (738) Other assets (2,301) (2,454) (6,505) Income taxes payable (457) Trade accounts payable, accrued payroll and related benefits and other current liabilities (10,547) 4,770 3,246 Accrued retirement benefits (1,578) 770 730 Other liabilities 1,548 1,230 1,060 Amortization of television and radio broadcast rights 16,181 15,837 14,606 Payments for television and radio broadcast rights (16,291) (16,689) (14,771) ----------------------------------------------------------------------------------------------------------- Net cash provided by operating activities 8,533 58,809 27,851 ----------------------------------------------------------------------------------------------------------- Cash flows from investing activities Proceeds from sale of discontinued milling business assets 49,910 Proceeds from sale of KJEO TV 60,000 Proceeds from sale of real estate and property, plant and equipment 2 2,396 17,120 Investments in equity investees (4,109) (1,011) (1,375) Purchase assets of television and radio stations (221,160) Purchase of 50% interest in Blackfoot flour mill (19,000) Purchase of property, plant and equipment (40,420) (59,587) (56,376) ----------------------------------------------------------------------------------------------------------- Net cash provided by (used in) investing activities 5,383 1,798 (280,791) ----------------------------------------------------------------------------------------------------------- Cash flows from financing activities Net (payments) borrowings under notes payable (560) (2,706) 596 Borrowings under borrowing agreements 54,036 11,000 262,201 Payments on borrowing agreements and mortgage loans (49,697) (63,413) (1,358) Redemption of preferred stock of subsidiary (6,675) Proceeds from exercise of stock options 1,249 19 33 Cash dividends paid (8,919) (8,898) (8,891) ----------------------------------------------------------------------------------------------------------- Net cash provided by (used in) financing activities (10,566) (63,998) 252,581 ----------------------------------------------------------------------------------------------------------- Net increase (decrease) in cash and short-term cash investments 3,350 (3,391) (359) Cash and short-term cash investments, beginning of period 218 3,609 3,968 ----------------------------------------------------------------------------------------------------------- Cash and short-term cash investments, end of period $ 3,568 $ 218 $ 3,609 ----------------------------------------------------------------------------------------------------------- Supplementalcash flow information is include in Notes 5,6,8 and 9. See accompanying notes to consolidate financial statements.
49 FISHER COMMUNICATIONS,INC.ANDSUBSIDIARIES CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Year Ended December 31 2001 2000 1999 ----------------------------------------------------------------------------------------------------------- (in thousands) Net income (loss) $ (8,263) $ 14,530 $ 18,093 Other comprehensive income (loss): Cumulative effect of accounting change, net of income tax benefit of $489 (907) Unrealized gain (loss) on marketable securities (4,974) 22,638 (52,859) Effect of income taxes 1,741 (7,923) 18,501 Net (loss) on interest rate swap (2,076) Effect of income taxes 727 ----------------------------------------------------------------------------------------------------------- Comprehensive income (loss) $ (13,752) $ 29,245 $ (16,265) -----------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements. 50 FISHER COMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 OPERATIONS AND ACCOUNTING POLICIES The principal operations of Fisher Communications, Inc. and subsidiaries (the Company) are television and radio broadcasting, proprietary real estate development and management, and other media operations including program production as well as satellite and fiber transmission. As explained in Note 2 the Company sold its flour milling and bakery supply distribution businesses during 2001. 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 Communications, Inc. and its wholly-owned subsidiaries. Television and radio broadcasting, and other media operations are conducted through Fisher Broadcasting. Real estate operations are conducted through Fisher Properties Inc. Fisher Media Services Company was formed in 2001 to conduct other media operations, including Fisher Plaza, beginning in 2002. 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. Rentals from real estate leases are recognized on a straight-line basis 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 Company considers short-term cash investments which have original maturities at date of purchase of 90 days or less to be cash equivalents. 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 stock market. A significant portion of the marketable securities consists of 3,002,376 shares of SAFECO Corporation at December 31, 2001 and 2000. As of December 31, 2001, these shares represented 2.4% of the outstanding common stock of SAFECO Corporation. Mr. William W. Krippaehne Jr., President, CEO and a Director of the Company, is a Director of SAFECO. Market value is based on closing per share sale prices. The Company has classified its investments as available-for-sale under applicable accounting standards and those investments are reported at fair market value. Unrealized gains and losses are a separate component of stockholders' equity, net of any related tax effect. Investments in equity investees Investments in equity investees represent ------------------------------- investments in entities over which the Company does not have control, but has significant influence and owns 50% or less. Such investments are accounted for using the equity method (See note 4). Intangible assets Intangible assets represent the excess of purchase price ----------------- of certain broadcast properties over the fair value of tangible net assets acquired and are amortized based on the straight-line method over the estimated useful life of 40 years. Accumulated amortization at December 31, 2001 and 2000 is $17,512,000 and $12,573,000, respectively (See "Recent Accounting Pronouncements"). 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. 51 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 3-55 years Machinery and equipment 3-25 years Land improvements 10-55 years Impairment of long-lived assets Whenever changes in circumstances indicate ------------------------------- that the carrying amount may not be recoverable 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. 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. Advertising expense was $4,409,000, $4,337,000, and $3,343,000 in 2001, 2000, and 1999, respectively. Earnings per share Net income (loss) per share represents net income ------------------ (loss) divided by the weighted average number of shares outstanding during the year. Net income (loss) per share assuming dilution represents net income (loss) divided by the weighted average number of shares outstanding, including the potentially dilutive impact of the stock options and restricted stock rights issued under the Company's incentive plans. Common stock options and restricted stock rights are converted using the treasury stock method. 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 2001 2000 1999 ---------- ---------- ---------- Shares outstanding at beginning of period 8,558,042 8,550,690 8,542,384 Weighted average of shares issued 16,535 5,351 6,070 ---------- ---------- ---------- 8,574,577 8,556,041 8,548,454 Dilutive effect of: Restricted stock rights 9,613 13,570 Stock options 27,402 12,731 ---------- ---------- ---------- 8,574,577 8,593,056 8,574,755 ---------- ---------- ---------- The dilutive effect of 3,612 restricted stock rights and options to purchase 413,613 shares are excluded for the year ended December 31, 2001 because such rights and options were anti-dilutive. All restricted stock rights and options were dilutive for the year ended December 31, 2000. The dilutive effect of options to purchase 130,025 shares is excluded for the year ended December 31, 1999 because such options were anti-dilutive. 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 due to their short maturities. The fair value of notes payable and variable-rate long-term debt approximates the recorded amount based on borrowing rates currently available to the Company. At December 31, 2001, the fair value of our fixed-rate debt is estimated to be approximately $2,000,000 greater than the recorded amount, based on current borrowing rates. Accounting change Effective January 1, 2001, the Company adopted Statement ----------------- of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities (FAS 133), as amended. This pronouncement establishes accounting and reporting standards for derivative instruments, and requires that an entity recognize those items as assets or liabilities in the financial statements and measure them at their fair value. If the derivative is designated as a cash flow hedge, the effective portion of the change in fair value of the derivative is recorded in other comprehensive income, and the ineffective portion is recorded in earnings. Changes in the fair value of derivatives not designated as hedges are recognized in earnings. The Company uses an interest rate swap, designated as a cash flow hedge, to manage exposure to interest rate risks. In accordance with FAS 133, the effective portion of the change in fair value of the swap is recorded in other comprehensive income. Adoption of FAS 133 resulted in a reduction to other comprehensive income of $907,000, net of income tax of $489,000, which is reported as the cumulative effect of the accounting change. There was no effect on net income or loss. The effective portion of the change in fair value of the interest rate swap from January 1, 2001 through December 31, 2001 is included in other comprehensive income. The fair value of the interest rate swap is included in other liabilities. Recent accounting pronouncements In June 2001, the Financial Accounting -------------------------------- Standards Board (FASB) approved FASB Statement No. 141 (FAS 141), "Business Combinations", and FASB Statement No. 142 (FAS 142), "Goodwill and Other Intangible Assets." FAS 141 establishes new standards for accounting and reporting requirements for business combinations initiated after June 30, 2001 and prohibits the use of the pooling-of-interests method for combinations initiated after June 30, 2001. FAS 142 changes the accounting for goodwill and intangible assets with indefinite lives from an amortization method to an impairment-only approach. Upon adoption of FAS 142, goodwill will be tested at the reporting unit annually and whenever events or circumstances occur indicating that goodwill might be impaired. 52 Amortization of goodwill, including goodwill recorded in past business combinations, will cease. The adoption date for the Company was January 1, 2002. We are still assessing what the impact of FAS 141 and FAS 142 will be on our results of operations and financial position. In June 2001, the FASB issued Statement No. 143 (FAS 143), "Accounting for Asset Retirement Obligations", which establishes requirements for the financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. FAS 143 is effective for fiscal years beginning after June 15, 2002, with earlier application encouraged. In August 2001, the FASB issued Statement No. 144 (FAS 144) "Accounting for the Impairment or disposal of Long-Lived Assets", which establishes requirements for the financial accounting and reporting for the impairment of long-lived assets and for long-lived assets to be disposed of. The provisions of FAS 144 shall be effective for financial statements issued for fiscal years beginning after December 31, 2001, and interim periods within those fiscal years. We are currently assessing the impact of FAS 143 and FAS 144 on our financial statements. Reclassifications Certain prior year balances have been reclassified to ----------------- conform to the 2001 presentation. Such reclassifications had no effect on net income or loss. NOTE 2 DISCONTINUED OPERATIONS On October 27, 2000 the Board of Directors authorized management to negotiate one or more transactions with third parties with respect to a sale of Fisher Mills, with terms of a specific transaction subject to approval of the Board. Accordingly, the operating results, net current liabilities, and net noncurrent assets of Fisher Mills have been reported as discontinued operations in the accompanying financial statements. On April 30, 2001, the sale of the assets and working capital used in the Seattle, Blackfoot, Modesto, and Portland flour milling operations was completed. On June 29, 2001, the sale of the distribution assets and working capital of Fisher Mills Inc. and its subsidiary Sam Wylde Flour Co. was completed. Proceeds from the transactions totaled $49,910,000 including working capital. As a result of these sales, and an increase in the estimate of benefits for employees of the milling and distribution operations based upon updated information from its actuaries, the Company increased the estimated loss from discontinued operations by $500,000. This revision in estimate, net of taxes, was recorded as loss from discontinued operations in the quarter ended June 30, 2001. The loss from discontinued operations of the milling businesses is summarized as follows (in thousands): Year Ended December 31 2001 2000 1999 --------- ---------- ---------- Loss from operations: Before income taxes $ 2,627 $ 7,625 Income tax benefit (962) (2,657) --------- ----------- ---------- 1,665 4,968 Estimated loss from disposal of milling businesses: Before income taxes $ 500 24,096 Income tax benefit (173) (8,434) --------- ----------- ---------- 327 15,662 --------- ----------- ---------- $ 327 $ 17,327 $ 4,968 --------- ----------- ---------- Net working capital of discontinued operations includes net current assets relating to the discontinued milling operations. Net noncurrent assets of discontinued operations includes the book value of property, plant and equipment not included in the sales described above and other noncurrent assets less noncurrent liabilities relating to the discontinued milling operations. Revenue of the discontinued milling operations was $44,675,000, $112,102,000, and $114,942,000 for the years ended December 31, 2001, 2000, and 1999, respectively. 53 NOTE 3 RECEIVABLES Receivables are summarized as follows (in thousands): December 31 2001 2000 ----------- ----------- Trade accounts $ 32,241 $ 40,274 Other 1,545 1,113 ----------- ----------- 33,786 41,387 Less-Allowance for doubtful accounts 705 1,012 ----------- ----------- $ 33,081 $ 40,375 ----------- ----------- Net receivables of the discontinued milling operations amounting to $11,520,000 are not included in the December 31, 2000 amounts above. NOTE 4 INVESTMENTS IN EQUITY INVESTEES Investments in entities over which the Company does not have control, but has significant influence and owns 50% or less, are accounted for using the equity method. The Company's investments are reported in the consolidated balance sheet as "Investments in equity investees" and its share of income or losses is reported as "(Loss) gain in equity investees" in the consolidated statement of income. Tulalip Estates The real estate subsidiary maintained a 50% interest in a --------------- joint venture formed to develop residential real estate owned by the joint venture. The joint venture was dissolved during 2000 and the real estate subsidiary received distribution of its interest. South West Oregon Television Broadcasting Corporation In connection with ----------------------------------------------------- the 1999 acquisition of network-affiliated television stations (see Note 12) the broadcasting subsidiary acquired 50% of the outstanding stock of South West Oregon Broadcasting Corporation (South West Oregon Television), licensee of a television station in Roseburg, Oregon. The broadcasting subsidiary serves as manager of the station. AN Systems, L.L.C. AN Systems, L.L.C. (AN Systems) was a developer of a ------------------ new public advertising network which uses a display device known as the Civia Media Terminal that delivers information in public places such as office buildings and other venues. Under terms of various agreements the Company and its subsidiaries agreed, among other things, to lend funds to AN Systems, to defer collection of certain amounts due under the agreements, and to provide AN Systems with certain office space. Loans by the Company were evidenced by convertible promissory notes issued by AN Systems and, at December 31, 2001, totaled $5,424,000. Effective January 1, 2002, AN Systems was merged into Civia, Inc. (Civia) and, immediately prior to the merger, the Company elected to convert $2,000,000 of such loans into a 65.1% equity interest in Civia. At December 31, 2001, AN Systems was indebted to the Company for occupancy and related costs amounting to $334,000. Also, at December 31, 2001, the Company is contingently obligated in the amount of $1,568,000 as guarantor of a bank credit facility on behalf of AN Systems. The Company has not recognized income from management fees and interest amounting to $400,000 and $343,000, respectively, as it has agreed to defer collection of such amounts. These amounts have also been excluded from the Loss in equity investees in the consolidated statement of Income. 54 Investments in equity investees are summarized as follows (in thousands): South West Tulalip Oregon Estates Television AN Systems Total ----------- ----------- ------------- --------- Balance, December 31, 1998 $ 180 $ 180 Acquisition $ 2,730 2,730 Equity in net income (loss) (1) 95 94 ----------- ------------ ------------- --------- Balance, December 31, 1999 179 2,825 3,004 Loans $ 1,315 1,315 Distributions received (179) (125) (304) Equity in net income (loss) 122 (1,080) (958) ----------- ------------ ------------- --------- Balance, December 31, 2000 0 2,822 235 3,057 Loans 4,109 4,109 Equity in net income (loss) 7 (4,579) (4,572) ----------- ------------ ------------- --------- Balance, December 31, 2001 $ 0 $ 2,829 $ (235) $ 2,594 ----------- ------------ ------------- --------- Operating results of a 50% interest in a limited liability company owned by the milling subsidiary are excluded from 1999 amounts above as they are now included in discontinued operations. NOTE 5 PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment are summarized as follows (in thousands): December 31 2001 2000 ------------ ------------ Building and improvements $ 189,405 $ 179,743 Machinery and equipment 105,825 100,849 Land and improvements 23,227 23,406 ------------ ----------- 318,457 303,998 Less-Accumulated depreciation 109,036 90,169 ------------ ----------- 209,421 213,829 Construction in progress 34,673 5,820 ------------ ----------- $ 244,094 $ 219,649 ------------ ----------- Net property, plant and equipment of the discontinued milling operations amounting to $2,612,000 and $31,996,000, respectively, are not included in the December 31, 2001 and 2000 amounts above. Property, plant and equipment additions totaling $3,377,000 are included in current liabilities at December 31, 2001. 55 The Company receives rental income principally from the lease of warehouse, office and retail space, and boat moorages under gross and net leases and agreements which expire at various dates through 2010. These leases and agreements are accounted for as operating leases. The Company generally limits lease terms to periods not in excess of five years. Minimum future rentals from leases and agreements which were in effect at December 31, 2001 are (in thousands): Year Rentals ------------ 2002 $ 12,796 2003 11,001 2004 7,472 2005 4,478 2006 2,609 Thereafter 1,925 ----------- $ 40,281 ----------- Property, plant and equipment includes property leased to third parties and to other subsidiaries of the Company. The investment in property held for lease to third parties included in property, plant and equipment at December 31, 2001 includes buildings, equipment and improvements of $141,247,000, land and improvements of $17,390,000, and accumulated depreciation of $40,716,000. Interest capitalized relating to construction of property, plant and equipment amounted to approximately $1,816,000, $4,215,000, and $2,270,000 in 2001, 2000, and 1999, respectively. Other income, net during the year ended December 31, 2000 includes $15,722,000 gain on sale of KJEO TV which was sold on August 1, 2000 for $60,000,000. Proceeds from the sale were used to reduce the senior credit facilities and other borrowings. Other income, net during the year ended December 31, 1999 includes $12,825,000 gain from condemnation of real estate. Proceeds amounted to $16,500,000, and were primarily reinvested in property leased to third parties. NOTE 6 NOTES PAYABLE AND LONG-TERM DEBT Notes payable The Company maintains bank lines of credit which totaled ------------- $25,000,000 at December 31, 2001. The lines are unsecured and bear interest at rates no higher than the prime rate. At December 31, 2001, $5,355,000 was outstanding under the lines at an interest rate of 5.5%. The weighted average interest rate on borrowings outstanding during 2001 was 5.76%. The lines of credit expired January 31, 2002 and were subsequently extended to March 15, 2002 in the amount of $10,000,000. The notes payable to directors, shareholders and others are comprised of notes payable on demand. Such notes bear interest at rates equivalent to those available to the Company for short-term cash investments. At December 31, 2001, $4,096,000 was outstanding under such notes at an interest rate of 0.87%. The weighted average interest rate on borrowings outstanding during 2001 was 2.87%. Interest on such notes amounted to $129,000, $314,000, and $281,000 in 2001, 2000, and 1999, respectively. Notes payable are summarized as follows (in thousands): December 31 2001 2000 ---------- ---------- Banks $ 5,355 $ 5,075 Directors, stockholders and others 4,097 4,936 Current maturities of long-term debt 16,017 15,631 ---------- ---------- $ 25,469 $ 25,642 ---------- ---------- Long-term debt -------------- Lines of credit The Company maintains an unsecured revolving line of --------------- credit with a bank in the principal amount of $100,000,000 to finance construction of the Fisher Plaza project (see Note 13) and for general corporate purposes. The revolving line of credit is governed by a credit agreement that 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 certain aspects of the Company's operations and requires the Company to maintain certain financial ratios. The line matures in 2003. At December 31, 2001, $100,000,000 was outstanding under the line at a blended interest rate of 5.74%. In June 1999, the Company entered into an eight-year senior secured credit facility (senior credit facility) with a group of banks in the principal amount of $230,000,000 to finance the acquisition of television stations (see Note 12) 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 that 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 56 operating cash flow. At December 31, 2001, $119,946,000 was outstanding under the senior credit facility at a blended interest rate of 6.0%. The unsecured revolving line of credit and the senior credit facility required the Company to comply with several covenants, including covenants with respect to the maintenance of some financial ratios. As of December 31, 2001, the Company was not in compliance with certain covenants. As a result of such noncompliance, the lenders could have required the Company to immediately repay all principal and interest outstanding, thus causing the long-term debt to be classified as current. However, subsequent to year-end the Company requested and received agreement from the lenders to forbear from exercising remedies under the revolving line of credit and the senior credit facility during the period from December 31, 2001 through March 31, 2002. Subsequent to year-end the Company repaid these obligations through the use of proceeds from new financings (see Note 14). As a result, the Company has continued to present the debt as long-term on the balance sheet. In addition, as a result of such repayment of the unsecured revolving line of credit and the senior credit facility the Company will record an extraordinary loss of approximately $3,500,000 as a result of its write off of the related deferred loan costs. The Company will also record a loss of approximately $2,700,000 as a result of termination of a related interest rate swap agreement. Mortgage loans The real estate subsidiary maintains the following mortgage -------------- loans: Principal amount of $4,088,000, collateralized by an industrial park. The nonrecourse loan requires monthly payments including interest of $31,000. The loan matures in May 2006 and bears interest at 7.19%. Principal amount of $9,242,000, collateralized by an industrial park, and principal amount of $12,004,000, collateralized by two office buildings. 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 $22,820,000, collateralized by an office building and parking structure. The nonrecourse loan matures in February 2006, bears interest at 7.72% and requires monthly payments of principal and interest amounting to $221,000. Principal amount of $9,150,000, collateralized by an industrial park. The nonrecourse loan matures in January 2012, bears interest at 6.32% and requires monthly payments of principal and interest amounting to $61,000. The interest rate is subject to adjustment in January 2007 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. Long-term debt is summarized as follows (in thousands): December 31 2001 2000 ------------ ------------ Notes payable under bank lines of credit $ 219,946 $ 223,062 Mortgage loans payable 57,304 49,709 Other 247 273 ------------ ------------ 277,497 273,044 Less-current maturities 16,017 15,631 ------------ ------------ $ 261,480 $ 257,413 ------------ ------------ Future maturities of notes payable and long-term debt are as follows (in thousands):
Directors, Mortagage Stockholders Bank Liners Loans Banks and Others of Credit and Other Total ---------- ------------- ------------ ----------- ----------- 2002 $ 5,355 $ 4,097 $ 14,160 $ 1,857 $ 25,469 2003 114,992 1,992 116,984 2003 18,739 2,140 20,879 2004 19,850 2,301 22,151 2005 19,803 23,507 43,310 Thereafter 32,402 25,754 58,156 ---------- ------------- ------------ ----------- ---------- $ 5,335 $ 4,097 $ 219,946 $ 57,551 $ 286,949 ---------- ------------- ------------ ----------- ----------
Cash paid for interest (net of amounts capitalized) during 2001, 2000, and 1999 was $17,564,000, $22,445,000, and $13,324,000, respectively. We are a party to an interest rate swap agreement fixing the interest rate at 6.52%, plus a margin based on the our ratio of funded debt to operating cash flow, on a portion of the variable-rate debt outstanding under the senior credit facility. The notional amount of the swap 57 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, 2001, the fair value of the swap agreement was ($3,471,000). NOTE 7 TELEVISION AND RADIO BROADCAST RIGHTS Television and radio broadcast rights acquired under contractual arrangements were $17,044,000 and $16,170,000 in 2001 and 2000, respectively. At December 31, 2001, the broadcasting subsidiary had executed license agreements amounting to $31,032,000 for future rights to television and radio programs. As these programs will not be available for broadcast until after December 31, 2001, they have been excluded from the financial statements. NOTE 8 STOCKHOLDERS' EQUITY The Company maintains two incentive plans (the Plans), the Amended and Restated Fisher Communications Plan of 1995 (the 1995 Plan) and the Fisher Communication Incentive Plan of 2001 (the 2001 Plan). The 1995 Plan provided that up to 560,000 shares of the Company's common stock may be issued to eligible key management employees pursuant to options and rights through 2002. As of December 31, 2001 options and rights for 479,443 shares, net of forfeitures, had been issued. No further options and rights will be issued pursuant to the 1995 Plan. The 2001 Plan provides that up to 600,000 shares of the Company's common stock may be issued to eligible key management employees pursuant to options and rights through 2008. Stock options The Plans provide 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. Restricted stock rights The Plans also provide 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. Non-cash compensation expense of $69,000, $330,000, and $421,000 related to the rights was recorded during 2001, 2000, and 1999, 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, 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 Shares granted 121,100 59.88 500 Options exercised (505) 37.25 Stock rights vested (6,942) Shares forfeited (850) 61.74 (44) ------------ ---------- --------------- Balance, December 31, 2000 355,138 58.60 12,987 Shares granted 135,850 60.00 Options exercised (25,535) 48.93 Stock rights vested (8,331) Shares forfeited (51,840) 60.73 (1,044) ------------ ---------- --------------- Balance, December 31, 2001 413,613 $ 59.39 3,612 ------------ ---------- --------------- The weighted average remaining contractual life of options outstanding at December 31, 2001 is 6.0 years. At December 31, 2001 and 2000, options for 201,662 and 117,240 shares are exercisable at a weighted average exercise price of $58.80 and $54.94 per share, respectively. The Company accounts for common stock options and restricted common stock rights issued pursuant to the Plans in accordance with Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (APB 25) and related interpretations. Statement 58 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 $942,000, $767,000, and $500,000, or $0.11, $0.09, and $0.06 per share during 2001, 2000, and 1999, 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 2001, 2000, and 1999, respectively: dividend yield of 1.55%, 1.61%, and 1.70%, volatility of 30.0%, 15.47%, and 14.96%, risk-free interest rate of 5.34%, 6.61%, and 5.13%, 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 2001, 2000, and 1999, respectively, was $18.56, $14.36, and $12.45. Cash dividends were paid at the rate of $1.04 per share in 2001, 2000 and 1999. On February 13, 2002 the Board of Directors declared a dividend in the amount of $.26 per share payable March 1, 2002 to stockholders of record on February 15, 2002. Preferred stock redemption During the second quarter of 2001 the -------------------------- broadcasting subsidiary redeemed outstanding preferred stock held by minority investors for $6,675,000. The redemption has been accounted for as a capital transaction. NOTE 9 INCOME TAXES Income taxes have been provided as follows (in thousands): Year Ended December 31 2001 2000 1999 ------------ ------------ ------------ Payable (receivable) currently Continuing operations $ (6,069) $ 12,756 $ 6,534 Discontinued operation (6,124) (1,516) (3,367) ------------ ------------ ------------ $ (12,193) $ 11,240 $ 3,167 ------------ ------------ ------------ Current and noncurrent deferred income taxes Continuing operations $ (490) $ 3,800 $ 5,653 Discontinued operations 5,951 (7,880) 710 ------------ ------------ ------------ $ 5,461 $ (4,080) $ 6,363 ------------ ------------ ------------ Total Continuing operations $ (6,559) $ 16,556 $ 12,187 Discontinued operations (173) (9,396) (2,657) ------------ ------------ ------------ $ (6,732) $ 7,160 $ 9,530 ------------ ------------ ------------ For income tax reporting purposes the Company had net operating losses of approximately $48,900,000 as of December 31, 2001, of which approximately $33,151,000 will be carried back to 1999 and 2000. The remaining $15,749,000 may be carried forward to reduce income subject to tax through 2021. In addition, at December 31, 2001, the Company had Alternative Minimum Tax Credit of approximately $819,000 which may be carried forward indefinitely, and can be used to reduce the Company's regular income tax liability. Reconciliation of income taxes computed at federal statutory rates to the reported provisions for income taxes on continuing operations is as follows (in thousands): Year Ended December 31 2001 2000 1999 ----------- ----------- ----------- Normal provision (benefit) computed at 35% of pretax income $ (5,073) $ 16,944 $ 12,337 Dividends received credit (707) (1,115) (1,086) State taxes, net of federal tax benefit (974) 560 688 Other 195 167 248 ----------- ----------- ----------- $ (6,559) $ 16,556 $ 12,187 ----------- ----------- ----------- 59 Deferred tax assets (liabilities) are summarized as follows (in thousands): December 31 2001 2000 ----------- ------------ Assets Net operating loss and credit carryforwards $ 6,350 Accrued employee benefits 3,844 $ 3,413 Allowance for doubtful accounts 248 294 Other 90 54 ----------- ------------ 10,532 3,761 ----------- ------------ Liabilities Accumulated other comprehensive income (32,364) (35,319) Property, plant and equipment (27,132) (20,822) Accrued property tax (530) (547) ----------- ------------ (60,026) (56,688) ----------- ------------ Net $ (49,494) $ (52,927) ----------- ------------ Current $ 1,500 $ 721 Noncurrent (50,994) (53,648) ----------- ------------ $ (49,494) $ (52,927) ----------- ------------ The current deferred tax asset is reflected in prepaid expenses. Current and noncurrent deferred tax assets of the discontinued milling operations as of December 31, 2000 amounted to $2,805,000 and $3,168,000, respectively. Cash received from income tax refunds during 2001 was $2,690,000. Cash paid for income taxes during 2000, and 1999, was $12,425,100, and $4,869,000, respectively. NOTE 10 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 annually accrues 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. In June 2000 benefit accruals ceased under the pension plan for employees of the broadcasting subsidiary, and that plan is in the process of being terminated. Substantially all plan assets were distributed to participants in January 2002. In July 2001 benefit accruals ceased under the pension plan for non-broadcasting employees, and that plan is in the process of being terminated. The Company does not anticipate a reversion of excess plan assets, if any. 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 2001 2000 ---------- ----------- Projected benefit obligation - beginning of year $ 26,887 $ 26,940 Service cost 309 1,065 Interest cost 1,871 1,918 Liability experience 2,030 (79) Benefit payments (10,971) (2,611) Other (1,534) (346) ---------- ----------- Projected benefit obligation - end of year $ 18,592 $ 26,887 ---------- ----------- Fair value of plan assets - beginning of year $ 26,991 $ 28,085 Actual return on plan assets 1,872 1,641 Benefits paid (10,971) (2,611) Plan expenses (261) (124) ---------- ----------- Fair value of plan assets - end of year $ 17,631 $ 26,991 ---------- ----------- 60 The composition of the prepaid pension cost and the funded status are as follows (in thousands): December 31 2001 2000 --------------- --------------- Projected benefit obligation $ 18,592 $ 26,887 Fair value of plan assets 17,631 26,991 --------------- --------------- Funded status (961) 104 Unrecognized prior service cost 165 Unrecognized net gain 422 (970) --------------- --------------- Accrued prepaid pension cost $ (539) $ (701) --------------- --------------- The net periodic pension cost for the Company's qualified defined benefit pension plans is as follows (in thousands): Year Ended December 31 2001 2000 1999 ------------ ------------ ------------ Service cost $ 309 $ 1,119 $ 1,590 Interest cost 1,871 1,918 2,106 Expected return on assets (2,044) (2,375) (2,459) Amortization of transition asset Amortization of prior service cost 39 45 58 Amortization of (gain) loss (2) 245 Settlement 1,021 Curtailment (1,358) Other 84 ------------ ------------ ------------ Net periodic pension cost $ (162) $ 789 $ 1,540 ------------ ------------ ------------ The discount rate used in determining the actuarial present value of the projected benefit obligation at December 31, 2001 ranged from 6.0% to 7.0%. The discount rate used in determining the actuarial present value of the projected benefit obligation at December 31,2000 was 7.75%. The rate of increase in future compensation ranged from 4.0% to 4.5% in both years. The expected long-term rate of return on assets ranged from 7.0% to 9.25% in 2001 and 8.5% to 9.25% in 2000. 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 values 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. Changes in the projected benefit obligation and accrued pension cost of the Company's supplemental retirement program are as follows (in thousands):
December 31 2001 2000 --------------- ----------------- Projected benefit obligation - beginning of year $ 12,740 $ 12,459 Service cost 560 417 Interest cost 886 769 Assumption changes 892 158 Liability experience 2,492 Benefit payments (1,268) (1,063) ---------------- ----------------- Projected benefit obligation - end of year 16,302 12,740 Appreciation of policy value (129) 439 Unrecognized net loss (3,573) (794) ---------------- ----------------- Accrued pension cost $ 12,600 $ 12,385 ---------------- -----------------
61 The net periodic pension cost for the Company's supplemental retirement program is as follows (in thousands): Year Ended December 31 2001 2000 1999 ------------ ------------- ------------ nService cost $ 560 $ 417 $ 439 Interest cost 886 769 702 Amortization of transition asset (1) (1) (1) Amortization of loss 38 72 78 ------------ ------------- ------------ Net periodic pension cost $ 1,483 $ 1,257 $ 1,218 ------------ ------------- ------------ The discount rate used in determining the actuarial present value of the projected benefit obligation at December 31, 2001 was 7.25% and 7.75% at December 31, 2000. The rate of increase in future compensation was 4.5%. The Company has a defined contribution retirement plan which is qualified under Section 401(k) of the Internal Revenue Code. All full-time U.S. employees are eligible to participate. The Company matches employee contributions up to a maximum of 3% of gross pay. Employer contributions to the plans were $1,786,000, $1,720,000, and $1,283,000 in 2001, 2000, and 1999, respectively. Health care and life insurance benefits were provided to all retired non-broadcasting employees until June 2001 when, coincidental with sale of the milling businesses, such benefits were terminated. In connection with the termination, the Company distributed to each retired participant an amount equivalent to the present value, based on the participant's age and life expectancy, of the monthly health care premium that was currently being paid on behalf of the participant. Such payments totaled $772,000. The Company also distributed to each participant the face value of the group life coverage that was maintained on behalf of the participant. Such payments totaled $101,000. 62 NOTE 11 SEGMENT INFORMATION The continuing operations of the Company have been organized into two principal business segments; broadcasting and real estate. Operating results and other financial data for each segment are as follows (in thousands):
Corporate, Discontinued Eliminations Continuing Milling Broadcasting Real Estate & Other Operations Operations Consolidated -------------- -------------- -------------- ------------- ---------------- --------------- Revenue 2001 $ 145,513 $ 16,128 $ 161,641 $ 44,675 $ 206,316 2000 195,812 13,850 209,662 112,102 321,764 1999 152,128 11,747 163,875 114,942 278,817 Income from operations 2001 $ 8,613 $ 6,946 $ (10,845) $ 4,714 $ 538 $ 5,252 2000 51,764 4,875 (7,107) 49,532 (917) 48,615 1999 34,554 3,203 (7,822) 29,935 (5,332) 24,603 Interest expense 2001 $ 266 $ 2,949 $ 14,632 $ 17,847 $ 382 $ 18,229 2000 30 2,880 18,450 21,360 1,782 23,142 1999 18 3,807 8,542 12,367 1,504 13,871 Identifiable assets 2001 $ 341,914 $ 152,997 $ 126,355 $ 621,266 $ 1,851 $ 623,117 2000 356,230 127,681 113,131 597,042 49,762 646,804 1999 405,415 92,256 93,366 591,037 87,475 678,512 Capital expenditures 2001 $ 9,877 $ 32,904 $ 1,603 $ 44,384 $ 50 $ 44,434 2000 32,223 25,203 741 58,167 1,420 59,587 1999 41,584 9,735 170 51,489 4,887 56,376 Depreciation and amortization 2001 $ 19,350 $ 5,270 $ 189 $ 24,809 $ 1,553 $ 26,362 2000 17,293 4,470 126 21,889 4,257 26,146 1999 10,352 4,348 84 14,784 3,191 17,975
Intersegment sales are not significant. Income from operations by business segment consist of revenue, less operating expenses and depreciation and amortization. In computing income from operations by business segment, other income, net, has 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. Capital expenditures for the Fisher Plaza project are allocated to the broadcasting and real estate segments. 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 $554,000 and $540,000 in 2000 and 1999, respectively. NOTE 12 ACQUISITIONS On July 1, 1999, the Company and its broadcasting subsidiary completed the acquisition of network-affiliated television stations and 50% of the outstanding stock of a corporation that owns one television station. The acquired properties were 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. 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 were fully consolidated in the milling segment, now presented as discontinued operations. 63 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 1999 are as follows:
Year Ended December 31 1999 ---------------- (in thousands, except per share amounts. All amounts are unaudited) Revenue $ 175,398 Broadcasting 11,747 ---------------- Real Estate $ 187,145 ---------------- Income from continuing operations $ 18,289 Income per share: From continuing operations $2.14 From continuing operations assuming dilution $2.13
The milling acquisition has been excluded from the above summary as it is now included in discontinued operations. 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 13 COMMITMENTS AND CONTINGENCIES In May 1998 the Company began redevelopment of the site on which KOMO Television was located. The project, known as Fisher Plaza, encompasses several elements including two new buildings and associated underground parking facilities that serve the needs of KOMO Television and certain subsidiaries of the Company as well as third parties. The project is being constructed in two phases. The first clients of the project began moving into the facility during May 2000. Completion of the parking facility is anticipated in early 2002 and completion of the second building is anticipated in Fall 2002. Estimated cost of the project is $131,400,000. Costs incurred at December 31, 2001 totaled $97,700,000. Financial results for the portion of the project not occupied by KOMO Television are included in the real estate segment. The Company is subject to certain legal proceedings that have arisen in the ordinary course of its business. After consultation with legal counsel management does not anticipate that disposition of these proceedings will have a material effect on the consolidated financial position or results of operations. NOTE 14 SUBSEQUENT EVENTS (Unaudited) On March 21, 2002, the Company's media services subsidiary entered into a three-year senior secured credit facility (media facility) with two banks in the principal amount of $60,000,000 to fund partial payment of the unsecured revolving line of credit (see Note 6). The media facility is collateralized by a first deed of trust on the Fisher Plaza property. The maximum amount available under the media facility may be reduced in August 2003 if the amount outstanding is equal to or less than a specified percentage of the appraised value of the Fisher Plaza property at that time. The media facility is governed by a credit agreement that provides that borrowings will bear interest at variable rates based, at the media services subsidiary's option, on the LIBOR rate plus a maximum margin of 450 basis points, or the prime rate plus a maximum margin of 325 basis points. The credit agreement places limitations on various aspects of the Company's operations (including the payment of dividends and limitations on capital expenditures), requires compliance with certain financial ratios, and requires prepayment upon the occurrence of certain events. The media facility expires March 15, 2005 and the amount outstanding is due and payable on that date. On March 21, 2002 the Company obtained from a financial institution a $42,400,000 loan (margin loan) collateralized by 3,000,000 shares of SAFECO Corporation common stock owned by the Company. Proceeds from the loan were used to fund partial payment of the unsecured line of credit and to pay amounts due under bank lines of credit (see Note 6). On March 21, 2002, the Company entered into a variable forward sales transaction (forward transaction) with a financial institution. The Company's obligations under the forward transaction are collateralized by 3,000,000 shares of SAFECO Corporation common stock owned by the Company. A portion of the forward transaction will be considered a derivative and, as such, the Company will periodically measure its fair value and recognize the derivative as an asset or a liability. The change in the fair value of the derivative will be recorded either in the income statement or in other comprehensive income depending on its effectiveness. Under the terms of the forward 64 transaction, the Company will receive up to $70,000,000. Proceeds from the forward transaction will be used to repay the margin loan discussed above, to finance construction of the Fisher Plaza project (see Note 13), and for general corporate purposes. The forward transaction will mature in five separate six-month intervals beginning March 15, 2005 through March 15, 2007. The amount due at each maturity date will be determined based on the market value of SAFECO common stock on such maturity date. Although the Company will have the option of settling the amount due in cash, or by delivery of shares of SAFECO common stock, the Company currently intends to settle in cash rather than by delivery of shares. The Company may prepay amounts due in connection with the forward transaction. During the term of the forward transaction, the Company will continue to receive dividends paid by SAFECO; however, any increase in the dividend amount above the present rate must be paid to the financial institution that is a party to the forward transaction. Also on March 21, 2002, the Company's broadcasting subsidiary entered into an eight-year credit facility (broadcast facility) with a group of banks in the amount of $150,000,000, of which $130,000,000 was borrowed at closing, to fund payment of the senior credit facility (see Note 6), repayment of other borrowings, and for general corporate purposes. The broadcast facility is collateralized by a first priority lien on: (i) the broadcasting subsidiary's capital stock, (ii) all equity interests in direct and indirect subsidiaries of the broadcast subsidiary, and (iii) all tangible and intangible assets of the broadcasting subsidiary and its direct and indirect subsidiaries. The broadcast facility places limitations on various aspects of the broadcast subsidiary's operations (including the payment of dividends to the Company) and requires compliance with certain financial ratios. In addition to amortization schedules that require repayment of all borrowings under the broadcast facility by February 2010, the amount available under the broadcast facility reduces each year beginning in 2003. Amounts borrowed under the broadcast facility bear interest at variable rates based, at the broadcast subsidiary's option, on the LIBOR rate plus a maximum margin of 425 basis points, or the prime rate plus a maximum margin of 250 basis points. Maximum margins are determined based on the broadcasting subsidiary's ratio of consolidated funded debt to consolidated EBITDA. 65 NOTE 15 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 ---------- ---------- ---------- --------- ---------- Revenue 2001 $ 39,233 $ 42,361 $ 37,442 $ 42,605 $ 161,641 Reclassification adjustment 385 387 384 ---------- ---------- ---------- --------- ---------- As previously reported $ 39,618 $ 42,748 $ 37,826 $ 42,605 $ 161,641 2000 47,975 53,135 49,878 58,675 209,662 Income from continuing operations 2001 $ (2,315) $ (193) $ (3,666) $ (1,762) $ (7,936) 2000 3,386 5,435 13,319 9,717 31,857 Loss from discontinued operations 2001 $ 0 $ (327) $ 0 $ 0 $ (327) 2000 (1,188) (23) (14,166) (1,950) (17,327) Net income 2001 $ (2,315) $ (520) $ (3,666) $ (1,762) $ (8,263) 2000 2,198 5,412 (847) 7,767 14,530 Income per share: From continuing operations 2001 $ (0.27) $ (0.02) $ (0.43) $ (0.20) $ (0.92) 2000 0.40 0.63 1.56 1.14 3.72 From discontinued operations 2001 $ 0.00 $ (0.04) $ 0.00 $ 0.00 $ (0.04) 2000 (0.14) 0.00 (1.66) (0.23) (2.02) Net income 2001 $ (0.27) $ (0.06) $ (0.43) $ (0.20) $ (0.96) 2000 0.26 0.63 (0.10) 0.91 1.70 Net income per share assuming dilution: From continuing operations 2001 $ (0.27) $ (0.02) $ (0.43) $ (0.20) $ (0.92) 2000 0.39 0.63 1.55 1.13 3.71 From discontinued operations 2001 $ 0.00 $ (0.04) $ 0.00 $ 0.00 $ (0.04) 2000 (0.14) 0.00 (1.65) (0.23) (2.02) Net income 2001 $ (0.27) $ (0.06) $ (0.43) $ (0.20) $ (0.96) 2000 0.26 0.63 (0.10) 0.90 1.69 Dividends paid per share 2001 $ 0.26 $ 0.26 $ 0.26 $ 0.26 $ 1.04 2000 0.26 0.26 0.26 0.26 1.04 Common stock closing market prices ( see Note 8) 2001 High $ 61.25 $ 72.89 $ 70.50 $ 54.02 $ 72.89 Low 51.50 50.00 44.50 40.50 40.50 2000 High $ 65.00 $ 83.50 $ 76.00 $ 73.00 $ 83.50 Low 51.50 60.75 71.00 44.00 44.00
66 REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULES To the Board of Directors of Fisher Communications, Inc. Our audits of the consolidated financial statements referred to in our report dated March 21, 2002 appearing in this December 31, 2001 Annual Report to the Stockholders of Fisher Communications, Inc. on Form 10-K also included an audit of the financial statement schedules listed in Item 14(a) (2) of this Form 10-K. In our opinion, these financial statement schedules present 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 March 21, 2002 67 Schedule II FISHER COMMUNICATIONS, INC. AND SUBSIDIARIES Valuation and Qualifying Accounts (in thousands) Year Ended December 31 2001 2000 1999 ---------- ---------- --------- Allowance for doubtful accounts Balance at beginning of year $ 1,012 $ 2,009 $ 1,356 Additions charged to expense 1,047 1,318 2,333 Acquistions 295 Balances written off, net of recoveries (1,354) (1,615) (1,975) Reclassified to net working capital of discontinued operations (700) ---------- ---------- --------- Balance at end of year $ 705 $ 1,012 $ 2,009 ========== ========== ========= 68 Schedule III FISHER COMMUNICATIONS, INC. AND SUBSIDIARIES Real Estate and Accumulated Depreciation (note 1) December 31, 2001
Cost capitalized Initial cost to Subsequent to Gross amount at which carried Accumu- Company Acquisition at December 31, 2001 lated ---------------- ---------------- ----------------------------- depre- Date of Buildings Land Buildings ciation Comple- and Carrying and And and tion of Date Encum- Improve- Improve- costs Improve- Improve- amorti- construc- Acquired Description Brances Land ments ments (note 2) ments ments Total zation tion (Note 3) ----------------- -------- ------ --------- -------- -------- -------- ------- ------- -------- -------- --------- (in thousands) MARINA Marina Mart Moorings Various to Seattle, WA - (note 4) (note 4) $ 3,514 $ 346 $ 3,168 $ 3,514 $ 1,426 1987 1939 OFFICE West Lake Union Center Seattle, WA $22,820 $ 266 $36,253 3,205 1,372 38,352 39,724 11,529 1994 Fisher Business Center Lynnwood, WA 12,004 2,230 17,850 8,694 3,155 25,619 28,774 11,010 1986 1980 Marina Mart Renovated Seattle, WA - (note 4) (note 4) 3,579 122 3,457 3,579 1,056 1993 Latitude 47 Restaurant Renovated Seattle, WA - (note 4) (note 4) 2,333 (note 5) 2,333 2,333 1,085 1987 1530 Building Renovated Seattle, WA - (note 4) (note 4) 2,291 (note 5) 2,291 2,291 1,102 1985 INDUSTRIAL Fisher Industrial Park 1982 and Kent, WA 9,242 2,019 4,739 11,450 4,618 13,590 18,208 7,548 1992 1980 Fisher Commerce Center Kent, WA 4,088 1,804 4,294 2,301 2,173 6,226 8,399 2,898 Purchased 1989 Pacific North Equipment, WA - 1,582 1,344 - 1,582 1,344 2,926 1,064 Purchased 1997 Fisher Industrial Technology Center Auburn, WA 9,150 3,378 11,540 2,971 3,379 14,511 17,890 324 2000 2000 MISCELLANEOUS INVESTMENTS, less than 5% of total - 154 - 532 - 424 424 255 Various Various ------- ------ ------ ------- ------- -------- -------- ------- $57,304 $11,433 $76,020 $40,870 $16,747 $111,315 $128,062 $39,297 ======= ======= ======= ======= ======= ======== ======== ======= (Continued) Life on which depre- ciation in latest income state- ment is Description computed ------------- MARINA Marina Mart Moorings Seattle, WA (note 9) OFFICE West Lake Union Center Seattle, WA (note 9) Fisher Business Center Lynnwood, WA (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 (note 9) Fisher Commerce Center Kent, WA (note 9) Pacific North Equipment Kent, WA (note 9) Fisher Industrial Technology Center Auburn, WA (note 9) MISCELLANEOUS INVESTMENTS, less than 5% of total (note 9) (Continued)
69 Schedule III, continued FISHER COMMUNICATIONS, INC. AND SUBSIDIARIES Real Estate and Accumulated Depreciation (note 1) December 31, 2001 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, 5 and 6 to the consolidated financial statements. The Fisher Plaza project is not included in Schedule III as a substantial portion of the project is occupied by KOMO TV. Amounts related to the portion of the Fisher Plaza project that is in service as of December 31, 2001 are: Land and improvements $1,497,000, buildings and improvements $69,690,000, and accumulated depreciation $3,305,000. (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, 2001, 2000, and 1999 are as follows (in thousands):
2001 2000 1999 ---- ---- ---- Balance at beginning of year $124,075 $107,055 $113,091 Cost of improvements 4,684 17,020 2,239 Cost of properties sold (319) (8,090) Cost of improvements retired (117) (185) -------- -------- ------- Balance at end of year $128,323 $124,075 $107,055 ======== ======== =======
(7) The changes in accumulated depreciation and amortization for the years ended December 31, 2001, 2000, and 1999 are as follows (in thousands):
2001 2000 1999 ---- ---- ---- Balance at beginning of year $35,431 $32,042 $32,995 Depreciation and amortization charged to operations 3,928 3,389 3,970 Retirements and other (62) (4,923) ------- ------- ------- Balance at end of year $39,297 $35,431 $32,042 ======= ======= =======
(8) The aggregate cost of properties for Federal income tax purposes is approximately $128,368,000 at December 31, 2001. (9) Reference is made to note 1 to the consolidated financial statements for information related to depreciation. 70 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 22nd day of March, 2002. FISHER COMMUNICATIONS, 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 22, 2002 ------------------------------ Officer, and Director William W. Krippaehne Jr. Principal Operating Officer /s/ Warren J. Spector Executive Vice President and March 22, 2002 --------------------- Chief Operating Officer Warren J. Spector Chief Financial and Accounting Officer: /s/ David D. Hillard Senior Vice President and March 22, 2002 -------------------- Chief Financial Officer, and David D. Hillard Assistant Secretary A Majority of the Board of Directors: /s/ James W. Cannon Director March 22, 2002 ------------------- James W. Cannon /s/ Phelps K. Fisher Director March 22, 2002 -------------------- Phelps K. Fisher /s/ Donald G. Graham, III Director March 22, 2002 ------------------------- Donald G. Graham, III /s/ Robin J. Campbell Knepper Director March 22, 2002 ----------------------------- Robin J. Campbell Knepper /s/ John D. Mangels Director March 22, 2002 ------------------- John D. Mangels
71
Signatures Title Date ---------- ----- ---- /s/ Jean F. McTavish Director March 22, 2002 -------------------- Jean F. McTavish /s/ Jacklyn F. Meurk Director March 22, 2002 -------------------- Jacklyn F. Meurk /s/ George F. Warren, Jr. Director March 22, 2002 ------------------------- George F. Warren, Jr. /s/ William W. Warren, Jr. Director March 22, 2002 -------------------------- William W. Warren, Jr.
72 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)). 2.4* Purchase Agreement, dated May 8, 2000, by and between Fisher Broadcasting Inc, Fisher Broadcasting-Fresno and AK Media Group (filed as Exhibit 10.1 of the Company's Current Report on Form 8-K dated May 8, 2000 (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* Articles of Amendment to the Amended and Restated Articles of Incorporation filed March 8, 2001 (filed as Exhibit 3.3 of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2001 (File No. 000-22439)). 3.4 Bylaws. 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 (filed as Exhibit 10.2 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1999 (File No. 000-22439)).
73 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 (filed as Exhibit 10.4 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1999 (File No. 000-22439)). 10.5* 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)). 10.6* 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)). 10.7* 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)). 10.8* 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)). 10.9* 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)). 10.10* 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 (filed as Exhibit 10.17 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1999 (File No. 000-22439)). 10.11* Form of Demand Note between the Registrant and certain of its directors and affiliates of its directors (filed as Exhibit 10.18 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1999 (File No. 000-22439)). 10.12* Agreement dated June 29,2000 between Patrick M. Scott, Karen L. Scott, Fisher Companies Inc., and Fisher Broadcasting Inc. (filed as Exhibit 10.1 to the Company's Quarterly Report for the period ended September 30, 2000 (File No. 000-22439)). 10.13* Agreement dated March 31, 2000 between Fisher Mills Inc. and R. Bryce Seidl. (Filed as Exhibit 10.21 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2000. (File No. 000-22439)).
74 10.14* Amended and Restated Fisher Communications Incentive Plan of 1995. (Filed as Exhibit 10.22 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2000 (File No. 000-22439)). 10.15* Fisher Communications Incentive Plan of 2001. (Filed as Exhibit 10.23 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2000 (File No. 000-22439)). 10.16* Asset Purchase Agreement, dated March 16, 2001, between Pendleton Flour Mills, L.L.C., Fisher Mills Inc., Fisher Mills - Blackfoot L.L.C., and Fisher Properties Inc. (Filed as Exhibit 10.1 to the Company's Current Report on Form 8-K filed dated March 16, 2001 (File No. 000-22439)). 10.17 Station Affiliation Agreement between Fox Broadcasting Company and Fisher Broadcasting - Georgia, L.L.C., regarding WXTX TV, dated April 20, 2001. 10.18 Station Affiliation Agreement between Fox Broadcasting Company and Fisher Broadcasting - Georgia, L.L.C., regarding WFXG TV, dated April 20, 2001. 10.19 Investor CreditLine Service Client Agreement, dated as of February 30, 2002, between the Company and Merrill Lynch, Pierce, Fenner & Smith Incorporated. 10.21 Amended and Restated Indicative Term Sheet, effective as of March 21, 2002 between the Registrant and Merrill Lynch International. 10.22 Credit Agreement among Fisher Broadcasting Company as Borrower, Its Domestic Subsidiaries as Guarantors, the Lenders Parties Thereto, First Union National Bank, as Administrative Agent, Bank of America, N.A. and The Bank of New York, as Co-Syndication Agents, and National City Bank, as Documentation Agent dates as of March 21, 2002 10.23 Loan Agreement dated as of March 21, 2002 among Fisher Media Services Company as the Borrower, Bank of America, as the Agent, and Bank of America, N.A. U.S. Bank National Association, as the Lenders 21.1 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, 2001 and any and all amendments thereto, signed by James W. Cannon, Phelps K. Fisher, Donald G. Graham, Jr., 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.
* Incorporated by reference. 75