Acquisitions

6 Months Ended

Jun. 30, 2013

Acquisitions [Abstract]

Acquisitions

3. Acquisitions

Sinclair Acquisition

In April 2013, Sinclair Broadcast Group, Inc. (“Sinclair”), Sinclair Television of Seattle, Inc. (“Merger Sub”) and the Company announced that they had entered into a definitive merger agreement (the “Merger Agreement”) whereby Sinclair will acquire the Company in a merger transaction valued at approximately $373.3 million (the “Merger”).

Under the terms of the Merger Agreement, assuming the conditions to closing are satisfied or waived, Merger Sub will merge with and into the Company and the Company’s shareholders will receive $41.00 in cash for each share of the Company’s common stock they own. The Company currently expects the Merger to close during the third quarter of 2013, subject to the satisfaction or waiver of certain closing conditions, such as: (i) the approval of the Merger Agreement by the holders of two-thirds or more of the Company’s outstanding common stock, as required under Washington law, (ii) the grant by the FCC of consent to the transfer of control of the Company and its subsidiaries to Sinclair, (iii) the absence of any law or order that is in effect and that restrains, enjoins or otherwise prohibits the Merger and (iv) the receipt of consents under certain of the Company’s contracts. The consummation of the Merger is not subject to a financing condition.

The Merger Agreement contains certain termination rights for both Sinclair and the Company, including if the Merger is not completed on or before April 11, 2014 or if the approval of the Merger Agreement by the Company’s shareholders is not obtained. In addition, among other termination rights, Sinclair may terminate the Merger Agreement if the Company’s Board of Directors takes certain actions that result in a recommendation adverse to the Merger and the Company may terminate the Merger Agreement, subject to certain conditions, to accept a proposal that is superior to the terms and conditions of the Merger. The Merger Agreement also provides that, upon termination of the Merger Agreement under certain circumstances, the Company may be required to pay Sinclair a termination fee of $11.2 million.

For the six months ended June 30, 2013, the Company has incurred approximately $4.7 million in transaction related costs associated with the Merger. These costs have been expensed as incurred and are included within selling, general and administrative expense in the unaudited condensed consolidated statement of operations for the six months ended of June 30, 2013.

In connection with the announcement of the Merger Agreement, on April 17, 2013, a purported class action lawsuit was filed against the Company and its Board of Directors in King County Superior Court in the State of Washington, docketed as Halberstam v. Fisher Communications, Inc.., et al., Case No. 13-2-17171-6 SEA. An amended complaint was filed on April 23, 2013, and a second amended complaint was filed on June 3, 2013. The lawsuit alleges, among other things, that the Company’s Board of Directors breached its fiduciary duties to shareholders by failing to take steps to maximize shareholder value or to engage in a fair sale process before approving the proposed acquisition of the Company by Sinclair. The lawsuit also alleges that the Schedule 14A Preliminary Proxy Statement filed by the Company on May 16, 2013 omits and/or misrepresents certain purportedly material information. The plaintiff seeks relief that includes, among other things, an injunction prohibiting the consummation of the proposed Merger, damages for the breaches of fiduciary duty, and the payment of plaintiff’s attorneys’ fees and costs. The Company believes the lawsuit is without merit and intends to defend against it vigorously. There can be no assurance, however, with regard to the outcome. See Note 15. Subsequent Events for additional disclosure.

KMTR TV

On June 3, 2013, the Company’s wholly-owned subsidiary, Fisher Broadcasting – Oregon TV, L.L.C. (“Fisher Broadcasting”), completed the previously announced acquisition of assets of the television station KMTR (TV), together with certain related satellite stations (collectively the “Station”), which serve the Eugene, Oregon Nielsen Designated Market Area, for a total purchase price of $8.5 million from Newport Television LLC and Newport Television License LLC (together “Newport”). Concurrent with the execution of the Asset Purchase Agreement dated November 19, 2012, between Fisher Broadcasting and Newport, Fisher Broadcasting assigned to Roberts Media, LLC, an unrelated third party (“Roberts Media”), its rights under the Asset Purchase Agreement to acquire the FCC licenses with respect to the Station together with certain other of the Station’s operating and programming assets. Such assets are held by KMTR Television, LLC (“KMTR TV”), which is a wholly owned subsidiary of Roberts Media.

Concurrently with the completion of the acquisition of the Station, KMTR TV obtained third-party financing for its acquisition of the Station assets of $1.7 million (the “KMTR Credit Facility”) due in 2017. The Company has agreed to guarantee (the “Guarantee”) the KMTR Credit Facility to finance its portion of the acquisition through 2017. Borrowings under the KMTR Credit Facility will accrue interest at a variable rate. The interest rate is calculated using either an Alternate Base Rate (“ABR”) or the Eurodollar Rate, plus, in each case, an applicable margin determined by the Company’s leverage ratio in accordance with the terms of the Credit Agreement. The ABR is equal to the highest of (i) the rate of interest publicly announced by JPMorgan Chase Bank, N.A. as its prime rate in effect at its principal office in New York City (the “Prime Rate”), (ii) the federal funds effective rate from time to time plus 0.50% and (iii) the Eurodollar Rate applicable for an interest period of one month plus 1.00%.

The KMTR Credit Facility contains customary affirmative and negative covenants for comparable financings, including but not limited to, limitations on liens, indebtedness, investments, mergers and other fundamental changes, sales and other dispositions and dividends and other distributions.

In connection with the closing, the Company entered into an amendment (the “First Amendment”) to the credit agreement dated November 19, 2012, between the Company and JPMorgan Chase Bank, N.A. as Administrative Agent and Lender and the lenders party thereto (the “Credit Agreement”). The First Amendment provides that (i) a default under the KMTR Credit Facility (including a default by the Company under the Guarantee) will constitute a default under the Credit Agreement, and (ii) that the collateral pledged to secure the obligations of the Company under the Credit Facility will constitute collateral to secure the obligations under the KMTR Credit Facility.

For financial reporting purposes, the Company is consolidating the operating activities, assets and liabilities of KMTR TV as the Company is the primary beneficiary and has the power to direct the activities impacting the economic performance, obligation to absorb losses and right to receive returns that would be significant to KMTR TV. At closing, in addition to the $1.7 million KMTR Credit Facility, the Company paid the Station $5.9 million plus $850,000 cash escrow previously paid in November 2012, less net assumed liabilities of $92,000.

Under the acquisition method of accounting the purchase price has been allocated to the acquired consolidated assets and assumed liabilities based on estimated fair values (in thousands):

Property, plant and equipment	$	3,358
Intangible assets—Network affiliation agreement (useful life of 15 years)		2,180
Intangible assets—FCC licenses (indefinite life, not subject to amortization)		1,500
Intangible assets—Advertiser relationships (useful life of 6 years)		1,000
Intangible assets—Programming (useful life of 5 years)		110
Leasehold interests liability		(100	)
Net assumed liabilities		(92	)
Recognized value of net assets (other than goodwill) acquired	$	7,956
Deferred tax asset for $90 of taxable temporary differences		33
Goodwill (tax deductible)		409
Consideration paid for the acquiree	$	8,398

The final allocation presented above is based upon management’s estimate of the fair values using valuation techniques including income, cost and market approaches. In estimating the fair value of the acquired assets and assumed liabilities, the fair value estimates are based on, but not limited to, expected future revenue and cash flows, expected future growth rates, and estimated discount rates. Goodwill is calculated as the excess of the consideration transferred over the fair value of the identifiable net assets acquired and represents the future economic benefits expected to arise from other intangible assets acquired that do not qualify for separate recognition, including assembled workforce and non-contractual relationships, as well as expected future synergies. The Company expects that goodwill will be deductible for tax purposes.