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