Back to GetFilings.com
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 1997
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 000-22349
FISHER COMPANIES INC.
(Exact name of registrant as specified in its charter)
WASHINGTON 91-0222175
(State of Incorporation) (IRS Employer Identification No.)
1525 ONE UNION SQUARE
600 UNIVERSITY STREET, SEATTLE, WASHINGTON 98101-3185
(Address of principal executive offices) (Zip Code)
(206) 624-2752
(Registrant's telephone number, including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
Name of Each Exchange
Title of Each Class on Which Registered
------------------- ---------------------
None Not Applicable
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
Common Stock, $1.25 par value
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter periods that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K [ ].
The aggregate market value of the voting stock held by nonaffiliates of the
registrant as of March 16, 1998, based on the last sale price quoted on the OTC
Bulletin Board, was approximately $237,884,000.
The number of shares outstanding of each of the registrant's classes of
common stock as of March 16, 1998 was:
Title of Class Number of Shares Outstanding
-------------- ----------------------------
Common Stock, $1.25 Par Value 8,535,432 shares
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement relating to the Annual Meeting of Shareholders
to be held on April 30, 1998, are incorporated by reference under Part III of
this Report.
PART I
ITEM 1. BUSINESS.
Through its operating subsidiaries, Fisher Companies Inc. (the "Company")
is actively engaged in television and radio broadcasting, the operation of
satellite teleports and the exploitation of other emerging technologies; flour
milling and bakery products distribution; and real estate investment and
proprietary property management. 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, 1997,
1996 and 1995.
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 and Montana,
two network-affiliated television stations, 24 radio stations, two broadcast
satellite teleports, and provides emerging media development service. Fisher
Broadcasting's television stations reach nearly 2,500,000 households, or 2.5% of
all U.S. television households. Its radio stations collectively represent the
35th largest radio group in the U.S. by audience, reaching approximately
1,250,000 persons in total cume (the estimated number of persons who listen to a
station for a minimum of five minutes within a given time period). Fisher
Broadcasting's satellite teleports serve many of the Northwest's businesses and
news organizations.
Both of Fisher Broadcasting's television stations are located in the top 25
television markets: KOMO TV 4 (ABC) Seattle-Tacoma, Washington, market rank 12;
and KATU Television 2 (ABC), Portland, Oregon, market rank 24. See Broadcasting
Operations - "Television - KOMO TV" and - "Television - KATU Television."
Fisher Broadcasting's stations are rated either number one or two in overall
sign-on/sign-off audience delivery in their respective markets. 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.
As of December 31, 1997, Fisher Broadcasting employed 819 full- and part-
time employees.
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 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 television systems have reduced the competitive advantage of
stations broadcasting over the VHF band.
1
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.
Television stations in the country are grouped by A.C. Nielsen & Co.
("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 for local sale in and between
network programs, and during programs produced by the affiliate or purchased
from non-network sources. In acquiring programming to supplement network
programming, network affiliates compete primarily with other affiliates and
independent stations in their markets. In addition, a television station may
acquire programming through bartering arrangements. Under such arrangements,
which are becoming increasingly popular with both network affiliates and
independents, a national program distributor may receive advertising time in
exchange for the programming it supplies, with the station paying no cash or a
reduced fee for such programming.
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 six hours and nine 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 and, to a lesser extent, with radio
stations, cable system 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.
2
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 and cable television services.
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 1970s and 1980s as a result of the growth in
cable penetration (the percentage of television households that are connected to
a cable system). Notwithstanding such increases in cable 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 1980'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
video cassette 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 in development for cable and wireless cable, are
expected to permit greater numbers of channels to be carried with 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.
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,
and governmental restrictions or actions of federal regulatory bodies, including
the FCC and the Federal Trade Commission, any of which could have a material
effect on the broadcasting business in general and Fisher Broadcasting's
business in particular.
Audience. Stations compete for audiences on the basis of program
popularity, which has a direct effect on advertising rates. A majority of the
daily programming on network-affiliated stations is supplied by the network with
which such stations are affiliated. During periods of network programming, the
stations are totally dependent upon the performance of the network programs in
attracting viewers. The competition between the networks is intense and the
success of any network's programming can vary significantly over time. Each
station competes in non-network time periods on the basis of the performance of
its programming during such time periods, using a combination of self-produced
news, public affairs and other entertainment programming that each station
believes will attract viewers. The competition between stations in non-network
time periods is intense and here, too, success can vary over time.
Fisher Broadcasting's stations compete for television viewership share
against local network-affiliated and independent stations, as well as against
cable and alternate methods of television transmission. 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
3
programming originated on the cable system. Historically, cable operators have
not sought to compete with broadcast stations for a share of the local news
audience. To the extent cable operators elect to do so in the future, 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, such as DIRECT-TV, which transmit programming directly to homes
equipped with special receiving antennas or to cable television systems for
transmission to their subscribers. Fisher Broadcasting competes with these
sources of competition both on the basis of service and product performance
(quality of reception and number of channels that may be offered) and price (the
relative cost to utilize these systems compared to television viewing).
Programming. Competition for non-network programming involves negotiating
with national program distributors, or syndicators, which sell first-run and
rerun packages of programming. Fisher Broadcasting's stations compete against
in-market broadcast stations for exclusive access to off-network reruns and
first-run product. Cable systems generally do not compete with local stations
for programming, although various national cable networks continue to acquire
programs that would have otherwise been offered to local television stations.
Advertising. Advertising rates are based upon the size of the market in
which a station operates, a program's popularity among the viewers an advertiser
wishes to attract in that market, the number of advertisers competing for the
available time, the demographic make-up of the market served by the station, the
availability of alternative advertising media in the market area, the presence
of aggressive and knowledgeable sales forces, and the development of projects,
features and programs that tie advertiser messages to programming. Advertising
rates are also determined by a station's overall ability to attract viewers in
its market, as well as the station's ability to attract viewers among particular
demographic groups that an advertiser may be targeting. Fisher Broadcasting's
stations compete for advertising revenues with other television stations in
their respective markets, as well as with other advertising media, such as
newspapers, radio, magazines, outdoor advertising, transit advertising, yellow
page directories, direct mail and local cable systems. The amount of paid
political and advocacy advertising fluctuates significantly, particularly being
higher in national election years. 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.
NETWORK AFFILIATIONS
Fisher Broadcasting's television stations are both affiliated with the ABC
Television Network. The stations' affiliation agreements with ABC provide each
station with the right to broadcast all programs transmitted by the network. In
return, the network has the right to sell most of the advertising time during
such broadcasts. Each station 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. Although Fisher Broadcasting
expects to continue to be able to renew its affiliation agreements with ABC, no
assurance can be given that such renewals will be obtained. The non-renewal or
termination of one or both of those agreements could have a material adverse
effect on Fisher Broadcasting's results of operations.
KOMO TV, Seattle, Washington
Market Overview. KOMO TV, an ABC affiliate, operates in the Seattle-Tacoma
market, the 12th largest DMA in the nation, with approximately 1.5 million
television households and a population of approximately 3.9 million. In 1997,
approximately 73% of the population in the DMA subscribed to cable. Major
industries in the
4
market include aerospace, biotechnology, forestry, software, telecommunications,
transportation, retail and international trade. In 1997, television advertising
revenue for the Seattle-Tacoma DMA was nearly $300 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 14.4%, sign-
on to sign-off during 1997. KOMO TV ranked second in its market in 1997, sign-
on to sign-off, among six competitors (A.C. Nielsen Company average ratings Feb-
Nov, 1997). 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 25 hours per week of scheduled local news programs.
KOMO News 4 has been recognized for excellence by the National Association of
Broadcasters, the Radio and Television News Directors' Association, and the
National Association of Television Arts and Sciences.
KOMO TV was notified in April 1997 that it had received a George Foster
Peabody Award for "Excellence in Local TV Programming." There were 31
recipients of this international award which recognizes broadcasting and cable
excellence, with KOMO TV being one of the four commercial television stations in
the country to be honored. KOMO TV received the Peabody Award for its News 4
specials "War on Children" and "Earth Agenda."
KOMO TV broadcasts from its studios in Seattle. During 1997, Fisher
Broadcasting received Board of Directors approval to construct a new broadcast
center with digital equipment that will greatly expedite the transition from
analog to digital high definition television broadcasting. Estimated cost of
the new building and parking facility is $79,000,000. Construction is expected
to begin in spring 1998 with completion in 2000.
KATU TELEVISION, PORTLAND, OREGON
Market Overview. Portland, Oregon ranks as the 24th largest DMA in the
nation, with a population of approximately 2.5 million and approximately 980,000
television households. Approximately 63% of Portland's population subscribed to
cable in 1997. Portland maintains a balanced economy based upon services,
wholesale/retail and manufacturing. Major employers include high-technology
companies such as Intel Corporation, Hewlett-Packard Company and Tektronix,
Inc., as well as Nike, Inc., Kaiser Permanente, the United States Government and
the State of Oregon.
Station Performance. KATU, an ABC affiliate, had an average audience share
of 18% during 1997, sign-on to sign-off. KATU ranked first in its market in
1997, sign-on to sign-off, among six competitors (A.C. Nielsen Company average
ratings Feb-Nov, 1997). KATU currently broadcasts 26 hours per week of
scheduled local news programs. The station has won numerous awards for
excellence, including the 1997 National Edward R. Murrow Award for Continuing
News Coverage. In addition, KATU has a strong commitment to public affairs and
local interest programming.
KATU has developed a comprehensive Internet website to complement it's on-
air programming. The site provides updated news reports as well as in depth
listings of local community services and businesses. The station is in the
process of creating opportunities for its TV advertisers to participate in the
site as a way to generate incremental income for the station and provide added
value to its clients.
KATU operates from studios in the city of Portland. The station
continuously invests in new technology to improve the quality of its programs
and reduce operating costs.
DIGITAL/HIGH DEFINITION TELEVISION
On January 20, 1997, under an experimental license granted by the Federal
Communications Commission ("FCC"), KOMO TV became the first commercial broadcast
station on the West Coast to transmit digital high definition television. As
discussed in "Broadcasting Operations - Licensing and Regulations Application to
Television and Radio Broadcasting - Proposed Legislation and Regulations," the
FCC has recently announced its
5
licensing plan for digital television. KOMO TV and KATU Television expect to
transmit a digital/high definition signal on or before the date stipulated in
the FCC regulations. Advancements in digital technology are expected to replace
today's current analog standard, making it the first fundamental change in
television in over 50 years.
Digital television transmits its signal in digital binary code similar to
that used in computer systems to transmit data. Unlike the current analog
television standard, which transmits picture and sound information through
amplitude and frequency variation of a carrier wave, the binary nature of
digital television information allows for compression of picture and sound data.
This allows digital television broadcasters to transmit enough information to
create a high definition picture (see "Licensing and Regulation Applicable to
Television and Radio Broadcasting - Proposed Licensing and Regulation") or to
transmit several standard definition pictures within the same amount of spectrum
currently required for a single analog channel.
FORWARD LOOKING STATEMENTS
The discussion above under "KOMO TV, Seattle, Washington" regarding
construction of the new broadcasting facility for Fisher Broadcasting, and the
discussion above under "Digital/High Definition Television" regarding the
intention of KOMO TV and KATU Television to transmit a digital/high definition
signal on or before the date stipulated in FCC regulations, 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 construction of the new broadcasting center, 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.
With respect to the intention of KOMO TV and KATU Television to transmit a
digital/high definition signal on or before the date stipulated in FCC
regulations, factors that may cause actual results to differ materially from
those projected include the increased costs of new equipment; the necessity of
training current staff to operate new technology or hiring new staff
knowledgeable in the technology; the timely availability of necessary new
equipment from manufacturers; the purchase of newly developed equipment that has
little or no track record of in-service broadcasting; the risk of purchasing
equipment that could soon be outdated due to rapid technological change; the
possibility that new transmission tower sites may be required; the necessity of
obtaining all required licenses and permits; material changes in, or material
additional requirements imposed by, FCC regulations; and the challenges and
risks involved in the conversion to digital/high definition signal transmission
generally, such as are described under "Licensing and Regulation Applicable to
Television and Radio Broadcasting - Proposed Legislation and Regulations."
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 two commercial 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. Nationally, the FM listener share is now in excess
of 75%, despite the fact that the number of AM and FM commercial stations in the
United States is approximately equal.
6
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.
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 and
psychographics. 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 programs contribute to many stations daily and weekly programming
line-ups. These syndicated 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 allowed radio stations from
communities on the fringe of many major metropolitan areas ("metro") to redirect
their signal patterns to cover the entire metro. In the early 1990s, the FCC
expanded the AM band to 1700 kHz. The result of this increase 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, 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 by satellite, and is considering whether
to authorize terrestrial DAB. DAB transmits audio information in binary code,
similar to that used in audio compact discs. Binary coding allows compression
of the broadcast signal, which allows more audio channels to be broadcast within
a given bandwidth. DAB will provide a medium for the delivery by satellite or
terrestrial means of multiple new, high quality audio programming formats to
local and national audiences. Terrestrial DAB may be used in the future by
radio broadcast stations either on existing or alternate broadcasting
frequencies, or on new frequency bands.
COMPETITION
In recent years, some companies have acquired large numbers of radio
stations. As of March 1998, six companies owned more than 100 radio stations
each, nationwide. Some of these companies also syndicate radio programs, some
of which are aired by Fisher Broadcasting's stations. Some of these large
companies operate radio stations in markets in which Fisher Broadcasting
operates, and have much greater overall financial resources available for their
operations.
7
Competition in the radio industry, including each of the markets in which
Fisher Broadcasting's radio stations compete, takes place primarily on two
levels: competition for audience and competition for advertisers. Additional
significant factors affecting a radio station's competitive position include
assigned frequency and signal strength. The radio broadcasting industry is
continually faced with technological change and innovation, the possible rise in
popularity of competing entertainment and communications media, as well as
governmental restrictions or actions of federal regulatory bodies, including the
FCC and the Federal Trade Commission, any of which could have a material adverse
effect on the broadcasting business.
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 cost-per-point to
advertising agencies, in particular, and direct advertisers, in general.
Formats, stations and music 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 early to mid-1970s, 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 or
psychographic 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 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.
Advertising. Advertising rates are based upon the 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. The amount of paid
political advertising on radio fluctuates significantly and follows no
particular pattern. Fisher Broadcasting's radio stations compete for revenue
primarily with other radio stations and, to a lesser degree, with other
advertising mediums 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.
There is also competition for radio staff. The loss of key staff,
including 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 ranks as the 13th largest radio
metropolitan area in the nation. The Seattle radio market has 20 FM and 31 AM
stations licensed to the metro area according to BIA Research Inc. "Investing in
Radio 1998".
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 a remodeled facility in downtown Seattle. Station personnel work side-by-
side to maximize available resources and talent at a considerable cost savings.
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.
8
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 14th in the market
in 1997 among 51 competitors with a 3.2% 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. With a staff of eight news
journalists, KOMO has one of the largest radio news staffs in the Northwest.
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 1997, KVI was the
leading talk radio station in Seattle, and ranked fifth overall among the 51
competitors in the market with a 4.5% 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 80s and 90s music. During 1997, the station
was ranked 10th 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 ranks as the 24th largest radio metro in
the nation. The FCC has licensed 14 FM and 25 AM stations in the Portland radio
metro area according to BIA Research Inc. "Investing in Radio 1998".
KOTK AM [1080 kHz / 50 kW (day), 10 kW (night), Affiliation: CNN] and KWJJ
FM [99.5 MHz / 52 kW, Affiliation: Independent]. During 1997, KWJJ-FM was the
fourth-ranked radio station in the Portland market, with a 5.6% share of
listening Persons 12+, Monday-Sunday, 6:00 a.m. to 12:00 midnight, according to
the Arbitron Company (four-book average). KOTK-AM was the 20th ranked radio
station in the market, with a 1.3% share of listening Persons 12+, Monday-
Sunday, 6:00 a.m. to 12:00 midnight, according to the Arbitron Company (four-
book average). KOTK-AM programming was modified in late 1997 from "classic
country" music to talk. KWJJ-FM programming consists of country music.
Separate sales staffs sell advertising time on the two stations.
In April 1997, the stations moved into a new broadcast facility in downtown
Portland. An investment of approximately $1.9 million was made in the new
facility, which equipped both radio stations with fully digital production and
broadcast equipment, communication links between KATU Television and both radio
stations, and computer equipment needed for traffic news, accounting and sales.
Fisher Broadcasting management believes that the new facility will improve
operating efficiencies and reduce operating costs.
MEDIUM- AND SMALL-MARKET RADIO OPERATIONS
Through Sunbrook, Fisher Broadcasting operates radio stations in five small
and medium markets in the northwestern United States. Sunbrook is the leading
radio broadcaster in Montana, with 14 radio stations in the four largest cities
in the state. Additionally, Sunbrook owns five radio stations in Wenatchee, a
market of approximately 55,000 people in the center of Washington State.
Sunbrook 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 Sunbrook to
expand its holdings within its existing markets. The resulting synergy allows
Sunbrook to better serve its communities while enjoying certain economies of
scale.
9
The following table sets forth general information for each of Sunbrook's
stations and the markets they serve.
# OF RATINGS(1) MARKET REVENUE
COMMERCIAL -------------------- ------------------
RADIO
DIAL STATIONS IN RANK IN STATION STATION $ (IN
MARKET STATION POSITION POWER THE MARKET MARKET SHARE SHARE THOUSANDS) FORMAT
- ---------------------------------------------------------------------------------------------------------------------------------
Billings, MT 12 $5,500
KRKX 94.1 FM 100 kW 2 11.1% 13% Classic Rock
KYYA 93.3 FM 100 kW 4 8.8% 12% Adult Contemp
KBLG(2) 910 AM 1 kW 5 7.6% 3% News/Talk
Missoula, MT 8 $4,800
KZOQ 100.1 FM 14 kW 1 21.8% 23% Classic Rock
KGGL 93.3 FM 43 kW 3 11.4% 22% Country
KYLT 1340 AM 1 kW 6 3.5% 7% Oldies
KGRZ 1450 AM 1 kW 7 (7) 1% Sports/Talk
Great Falls, MT 9 $3,000
KQDI FM 106.1 FM 100 kW 2 13.8% 18% Classic Rock
KAAK 98.9 FM 100 kW 5 10.0% 17% Adult Contemp
KXGF 1400 AM 1 kW 6 8.2% 3% Pop Standard
KQDI AM 1450 AM 1 kW 9 1.8% 2% News/Talk
Butte, MT 5 $1,500
KMBR 95.5 FM 50 kW 1 35.7% 20% Classic Rock
KAAR 92.5 FM 4.5 kW 2 26.8% 29% Country
KXTL 1370 AM 5 kW 5 (7) 5% Oldies/Talk
Wenatchee, WA 9 $2,900
KYSN(3) 97.7 FM 3 kW 2 14.5% 16% Country
KWWW(4) 96.7 FM .4 kW 3 13.3% 13% Adult Contemp
KXAA(5) 99.5 FM 5 kW 4 9.1% 10% Oldies
KZPH(6) 106.7 FM 3 kW 7 5.9% 7% Classic Rock
KWWX 1340 AM 1 kW 8 3.3% 6% Spanish
(1) Ratings information in the above chart refers to average-quarter-hour share
of listenership among total persons, Adults 12+, Monday through Sunday, 6
a.m. to midnight, and is subject to the qualifications listed in each
report. Sources:
Billings, Montana: Arbitron Ratings, Fall, 1997 Billings Market Report
Missoula, Montana: Willhight Research, Spring, 1997, Missoula Market Report
Great Falls, Montana: Arbitron Ratings, Fall, 1997 Great Falls Market Report
Butte, Montana: Arbitron Ratings Nationwide D.M.A. Report. Region 9, Spring, 1997 (shares and rankings are among
Butte, Mt. Stations)
Wenatchee, Washington: Hambleton Resources Audience Measurement, Fall, 1997 Wenatchee Market Report.
(2) KBLG's power is 1,000 watts days, 63 watts nights.
(3) KYSN is licensed to the city of East Wenatchee, Washington
(4) KWWW is licensed to the city of Quincy, Washington.
(5) KXAA is licensed to the city of Rock Island, Washington.
(6) KZPH is licensed to the city of Cashmere, Washington.
(7) Listenership below minimum reporting standards.
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.
10
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 complied with FCC regulations regarding equal
employment opportunity; 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, 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. Both of Fisher Broadcasting's television stations are presently
operating under regular five-year licenses, granted prior to recent FCC action
which extended license terms to eight years. These expire on January 31, 1999.
Fisher Broadcasting's and Sunbrook's radio stations in Washington and Oregon
were required to file license renewal applications on October 1, 1997. At this
time, some of these license renewal applications have been granted for eight
year terms, and the rest remain pending. The license terms for all of
Sunbrook'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 have a
material adverse effect on Fisher Broadcasting's television or radio
broadcasting operations.
MULTIPLE OWNERSHIP RULES AND CROSS OWNERSHIP RESTRICTIONS
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 10% 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. Pursuant to the
Telecommunications Act, the FCC has eliminated the restrictions on the number of
television stations in which a person or entity may have an attributable
interest, but instead establishes a national television reach limit of 35%. The
Telecommunications Act requires the FCC to conduct a rulemaking proceeding to
determine whether the local "duopoly" television ownership rules should be
retained, modified or eliminated. The present "duopoly" rules prohibit
attributable interests in two or more television stations with overlapping
service areas. The FCC initiated the rulemaking proceeding required by the
Telecommunications Act in November 1996. Initial comments to the FCC's
proposals were received by the FCC on February 7, 1997. While the FCC has
proposed to allow ownership of television stations where the stations do not
have substantial signal overlap and are in separate Designated Market Areas, the
majority of comments in the proceeding urged the FCC to adopt a looser standard,
thereby allowing more duopolies.
11
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 rule 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.
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. In a number of situations, a single party may control or
own an AM and/or an FM "duopoly" - two AM and/or two FM stations - in the same
market area. FCC rules also preclude the grant of applications for station
acquisitions that would result in the creation of new radio-television
combinations in the same market under common ownership, or the sale of such a
combination to a single party, subject to the availability of a waiver. Under
FCC policy, waiver applications that involve radio-television station
combinations in the top 50 TV markets where there would be at least 30
separately owned, operated and controlled broadcast licensees after the proposed
combination will generally be favorably received. 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. National ownership of television stations
by one entity, direct or indirect, is limited to a 35% national share, computed
by dividing the aggregate number of households in each market in which the
licensee owns a station by the total number of households nationally. In the
case of UHF television stations, the number of households in such markets is
halved for purposes of the foregoing formula.
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.
Fisher Broadcasting is unable to predict the ultimate outcome of possible
changes to these FCC rules and the impact such changes may have on its
broadcasting operations.
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 or their representatives. While the Company does not track the precise
percentage of stock owned by Aliens at any particular time, it does monitor the
citizenship of its large shareholders to ensure that the proportion of stock
held by U.S. citizens does not drop below the required minimum.
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,
12
political advertising, sponsorship identifications, contest and lottery
advertising, obscene and indecent broadcasts, and technical operations,
including limits on radio frequency radiation. In addition, broadcast licensees
must develop and implement affirmative action programs designed to promote equal
employment opportunities, and must submit reports to the FCC with respect to
these matters on an annual basis and in connection with a license renewal
application.
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 demand 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 recently ruled that the limits on
casino advertising are unconstitutional and therefore invalid. The U.S. Supreme
Court has declined to review that decision. As a result, the FCC has suspended
enforcement of the casino advertising rule in the Ninth Circuit, which includes
Washington, Oregon and Montana. 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.
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 filed quarterly with the FCC and made available to the public.
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.
13
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
and the amount of duplicative programming on a broadcast station. 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. Fisher Broadcasting has executed
retransmission consent agreements with all of the cable systems operating within
the DMAs of its two television stations.
PROPOSED LEGISLATION AND REGULATIONS
On February 3, 1998, the FCC finalized its 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. KOMO-TV was allotted DTV Channel 38, and
KATU(TV) was allotted DTV Channel 43.
Affiliates of the ABC, CBS, Fox and NBC television networks in the top 10
television markets will be given 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 will be given 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. As ABC affiliates operating in markets 12 and 24,
Fisher Broadcasting's Seattle and Portland television stations will be required
to commence DTV broadcasts by November 1, 1999. 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.
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.
14
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 which, if met, would allow the FCC to delay the termination
of analog broadcasting beyond 2006.
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 Fisher Broadcasting's Seattle and
Portland television stations, 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.
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 expand the FCC's equal employment opportunity rules and other
matters relating to minority and female involvement in broadcasting; (iv)
proposals to increase the benchmarks or thresholds for attributing ownership
interest in broadcast media; (v) proposals to change rules or policies relating
to political broadcasting; (vi) technical and frequency allocation matters,
including those relative to the implementation of DTV; (vii) proposals to
restrict or prohibit the advertising of beer, wine and other alcoholic beverages
on broadcast stations; (viii) changes in the FCC's cross-interest, multiple
ownership, alien ownership and cross-ownership policies; (ix) changes to
broadcast technical requirements; and (x) 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 television 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 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.
15
SATELLITE, INTERNET, AND EMERGING MEDIA OPERATIONS
INTRODUCTION
FishComm is a regional satellite teleport operator, Internet service
provider, and emerging media development company. FishComm was created to expand
on Fisher Broadcasting's capacity to develop revenue from existing resources,
such as satellite communication 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 communication
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 by microwave. KU-band satellite
transmissions are handled by a mobile truck. The list of FishComm's current
clients include ABC, NBC, AT&T, CNN, ESPN, Fox, the National Basketball
Association and Microsoft Corporation for occasional use video purposes, and
Primetime 24 and Canadian Communications Corporation for continuous use
purposes. FishComm also operates a fiber optic terminal, with connectivity to
the VYVX fiber optic national network, for the point-to-point transmission of
audio and video signals. 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 also has developed a presence on the Internet World Wide Web for
the Company and its subsidiaries, providing e-mail and Internet connectivity as
well as home page design, execution and implementation. FishComm Internet
servers provide the bandwidth for possible intercompany intranet applications,
with excess bandwidth available for sale to host potential outside users.
Current revenues attributable to FishComm's operations are not material to the
Company's results of operations. As the Internet grows, potential applications
also are expected to grow.
COMPANY PERFORMANCE
From its inception, FishComm has focused on profitably marketing the excess
capacity of Fisher Broadcasting's existing resources. The capacity of Fisher
Broadcasting's existing satellite transmission equipment, for instance, has been
increased from 1% use for revenue generation to 14% use in just two years. KU-
band satellite transmissions are often handled by production companies that
utilize mobile trucks for one-time-only events. FishComm will compete for this
business through the use of its mobile truck. Currently FishComm's revenues and
earnings are event driven. News and sporting events occurring in the Northwest
that are of interest outside the region create a demand for uplink services that
FishComm provides. When such events occur, FishComm's revenues and earnings
increase. However, in those periods when such events do not occur, FishComm's
revenues and earnings decline.
FishComm's Internet and emerging media operations continue to provide a
platform for experimentation and learning associated with new media development.
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. A mill in Blackfoot, Idaho, which is owned and
operated jointly by FMI and another party (see "Flour Milling and Food
Distribution Operations - Marketing"), commenced operations in April 1997.
FMI produces approximately 2,500,000 pounds of flour daily. 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
16
Washington, Idaho, Montana and California, and is delivered directly to the
mills by rail or truck. During 1997, FMI operated its mills on more than 329
days.
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 with primarily company drivers.
The combination of relatively limited new construction and increased demand
due to population increase and per capita flour consumption has equalized supply
and demand. U.S. flour mills are currently operating at approximately 91% of
rated capacity based upon a six day, 24 hour per day work week. Although the
current market environment is expected to create opportunity for improved profit
margins, the considerable expense and time required to bring new milling
capacity on line serves as a barrier to entry into the market.
As of December 31, 1997, FMI had 205 full-time employees.
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 40 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. FMI
intends to evaluate and, as appropriate, engage in new mill construction and
acquisition of food distribution operations. The building and associated
support structure at FMI's new Blackfoot, Idaho mill (see "Flour Milling and
Food Distribution Operations - Marketing" below) has been designed to double the
company's current compact milling capacity. The food distribution division
continues to evaluate expansion opportunities through acquisitions in its
current marketing area.
COMPETITION
The U.S. milling industry is currently composed of 197 flour mills, down
from 252 in 1981, with a median mill size of approximately 7,500 cwts per day
capacity. During the same period, the number of milling companies has decreased
from 166 to 91. The largest five manufacturers account for approximately 74% of
total U.S. production. FMI, at 25,000 cwts of daily capacity, ranks 13th 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 accounts for more than fifteen percent of FMI's total
revenues.
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
17
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 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.
FMI markets its flour through the use of branded products such as Mondako
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 and Canada. 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 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
installed in Blackfoot, Idaho during 1997. To FMI's knowledge, there are only
20 compact milling units in operation in the world. FMI operates six compact
milling units, 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.
FMI and Koch Agriculture, Inc. of Wichita, Kansas ("Koch") are each 50%
interest owners in the limited liability company which owns and operates the
Blackfoot mill (the "Koch Fisher Mills L.L.C."). In addition to the two compact
milling units that began operating in Blackfoot during 1997, construction of a
conventional flour mill, with capacity to produce more than 1,000,000 pounds of
flour each day, commenced in November 1997. FMI anticipates its investment in
the conventional mill project will not exceed $10 million. FMI's investment
will be funded through existing lines of credit and is expected to be repaid
from cash flow from the projects. In addition to the direct investment by FMI,
the Company may guarantee FMI's proportionate share (50%) of up to $10 million
of industrial revenue bonds which will provide a portion of the projects'
funding.
RISKS ASSOCIATED WITH FOOD PRODUCTION
The food manufacturing and distribution industry is subject to varying
degrees of risk. 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 affect 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 foresseable 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.
18
REVENUES BY CLASS
FMI's revenue by product class for 1997 is summarized as follows (in
thousands):
FLOUR $ 73,381
Millfeed 10,089
Food distribution and other 40,471
--------
$123,941
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 management of a diversified portfolio of real estate properties,
principally located in the Seattle, Washington metropolitan area. FPI had 29
employees as of December 31, 1997.
As of December 31, 1997, FPI's portfolio of real estate assets included 24
commercial and industrial buildings containing over 1.1 million square feet of
leaseable space with approximately 160 tenants and a 201 slip marina. FPI also
owns approximately 320 acres of unimproved land. A partnership in which FPI has
a 50% interest has an option to acquire this land and an adjacent 160 acres for
future residential development.
FPI estimates that the total fair market value of FPI's real estate
holdings was approximately $125 million as of December 31, 1997, excluding any
related liabilities and potential liquidation costs. Although the foregoing
fair market value estimate is based on information and assumptions considered to
be adequate and reasonable by FPI, such estimate requires significant subjective
judgments to be 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 reducing debt, enhancing the revenue stream of FPI's
existing properties, and acquiring or developing selected strategic properties.
The cash flow from real estate operations is used entirely to pay 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 1995 and
1997. FPI also would have incurred a loss in 1996, except for gain from the
sale of real property. The majority of FPI's existing operating properties were
developed by FPI. FPI anticipates that 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. FPI is significantly involved in planning and development of
new studio space and corporate offices for Fisher Broadcasting on a block of
land owned partially by Fisher Broadcasting and partially by FPI at Fourth
Avenue and
19
Denny Street in Seattle (see "Broadcasting Operations - KOMO TV"). FPI has Board
of Directors approval to undertake pre-development activities for additional
development of the KOMO Block at estimated cost of $2,000,000.
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. FPI has no current plans to sell any of its properties.
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, 1997 with
respect to FPI's properties. The following table includes FPI's significant
properties:
APPROX.
OWNERSHIP FPI'S YEAR LAND AREA RENTABLE % LEASED
NAME AND LOCATION INTEREST INTERREST DEVELOPED (ACRES) SPACE 12/31/97
- ----------------- --------- --------- --------- --------- -------- --------
MARINA
Marina Mart Moorings Fee & 100% 1939 5.01 Fee & 2.78 201 Slips 98%
Seattle, WA Leased to Leased
1987
OFFICE
West Lake Union Center Fee 100% 1994 1.24 185,000 SF 100%
Seattle, WA 487 car garage
I-90 Building Fee 100% Renovated 1990 .34 28,265 SF 93%
Seattle, WA 22 car garage
Fisher Business Center Fee 100% 1986 9.75 195,000 SF 98%
Lynnwood, WA Parking for 733
cars
Marina Mart Fee 100% Renovated 1993 * 18,950 SF 100%
Seattle, WA
Latitude 47 Restaurant Fee 100% Renovated 1987 * 15,470 SF 100%
Seattle, WA
1530 Building Fee 100% Renovated 1985 * 10,160 SF 88%
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 98%
Kent, WA
Fisher Industrial Cente Fee 100% Redeveloped 1980 3.3 80,475 SF 100%
Seattle, WA
Pacific North Equipment Fee 100% NA 5.5 38,000 SF 100%
Kent, WA
1741 Building Fee 100% Renovated 1989 .41 5,212 SF 100%
Seattle, WA
* Undivided land portion of Marina.
In addition to the above listed properties, FPI owns a 2.6 acre parking lot
that serves Fisher Mills Inc. in Seattle, a one acre parking lot in Seattle that
has served Fisher Broadcasting and is part of the redevelopment of the KOMO
Block discussed above, 320 acres of unimproved land, held for future
development, and a small residential property in Seattle. FPI does not
currently intend to acquire other parking or residential properties.
20
West Lake Union Center, Fisher Business Center, Fisher Industrial 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 50% of the estimated value of the total owned
real estate. It is FPI's objective to reduce this ratio 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.
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 which
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, 1997, the Company's
investment constituted 2.1% of the outstanding common stock of SAFECO. The
market value of the Company's investment in SAFECO common stock as of December
31, 1997 was approximately $146,366,000, representing 33% of the Company's total
assets as of that date. Dividends received with respect to the Company's SAFECO
common stock constituted 13.3% of the Company's net income for 1997. 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.
Fisher Broadcasting's television stations operate from offices and studios
owned by Fisher Broadcasting and located in Seattle, Washington and Portland,
Oregon. Television transmitting facilities and towers are also owned by Fisher
Broadcasting. Radio studios are generally located in leased space. Radio
transmitting facilities and towers are owned by Fisher Broadcasting, except
KWJJ-FM and the stations operated by Sunbrook, 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.
21
In California, FMI's food distribution activities and compact flour mill operate
from leased facilities in Rancho Cucamonga and Modesto, respectively.
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 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.
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 1997.
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, 1997, there were five
Pink Sheet Market Makers and eight Bulletin Board Market Makers. 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 (adjusted to reflect the two-for-
one stock split that was effective March 6, 1998):
QUARTERLY COMMON STOCK PRICE RANGES (1)
1997 1996
------------------ ------------------
QUARTER HIGH LOW HIGH LOW
------- ------ ------ ------ ------
1ST $60.50 $48.82 $40.00 $36.75
2ND 64.00 56.25 43.00 40.00
3RD 65.50 60.50 50.00 42.63
4TH 61.50 59.50 50.00 48.50
- ---------------
(1) This table reflects the range of high and low bid prices for the Company's
Common Stock during the indicated periods, as published in the NQB Non-
NASDAQ Price Report by the National Quotation Bureau. The quotations
merely reflect the prices at which transactions were proposed, and do not
necessarily represent actual transactions. Prices do not include retail
markup, markdown or commissions.
The approximate number of record holders of the Company's Common stock as
of December 31, 1997 was 482.
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.
22
The Company paid cash dividends on its Common Stock of $.86 and $.98 per
share (adjusted to reflect the two-for-one stock split described above),
respectively, for the fiscal years 1996 and 1997. Commencing in 1998, dividends
will be declared on a quarterly basis, as opposed to the Company's past practice
of declaring an annual dividend payable on quarterly payment dates.
Accordingly, the Company declared, on December 3, 1997, a dividend of $.25 per
share, payable on March 6, 1998 to shareholders of record on February 20, 1998.
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.
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 Registration
Statement.
23
SELECTED FINANCIAL DATA
YEAR ENDED DECEMBER 31,
1997 1996 1995 1994 1993
-------- -------- -------- --------- --------
(All amounts in thousands except per share data)
Sales and other revenue
Broadcasting........................ $120,792 $111,967 $101,192 $ 87,112 $ 73,291
Milling............................. 123,941 135,697 112,360 93,277 94,490
Real estate......................... 11,446 13,556 10,941 8,659 6,462
Corporate and other, primarily
dividends and interest income (1).. 3,855 4,000 4,087 3,460 3,232
-------- -------- -------- -------- --------
$260,034 $265,220 $228,580 $192,508 $177,475
======== ======== ======== ======== ========
Operating income
Broadcasting........................ $ 36,754 $ 34,025 $ 31,518 $ 26,066 $ 15,947
Milling............................. 2,431 3,410 2,907 1,078 737
Real estate......................... 3,231 5,749 3,267 2,199 1,476
Corporate and other................. 863 1,948 2,152 2,236 1,852
-------- -------- -------- -------- --------
$ 43,279 $ 45,132 $ 39,844 $ 31,579 $ 20,012
======== ======== ======== ======== ========
Income before effect of a change
in accounting method................ $ 24,729 $ 26,086 $ 22,683 $ 18,152 $ 12,343
Cumulative effect of a change in
method of accounting for
postretirement benefits (2)......... (1,305)
-------- -------- -------- -------- --------
Net income........................... $ 24,729 $ 26,086 $ 22,683 $ 16,847 $ 12,343
======== ======== ======== ======== ========
Per common share data (3)
Income before effect of a
change in accounting method........ $ 2.90 $ 3.06 $ 2.66 $ 2.13 $ 1.45
Cumulative effect of a change in
method of accounting for
postretirement benefits (2)........ (0.15)
-------- -------- -------- -------- --------
Net income.......................... $ 2.90 $ 3.06 $ 2.66 $ 1.98 $ 1.45
======== ======== ======== ======== ========
Income per common share
assuming dilution: (3)
Income before effect of a
change in accounting method...... $ 2.88 $ 3.05 $ 2.66 $ 2.13 $ 1.45
Cumulative effect of a change
in method of accounting for
postretirement benefits (2)...... (0.15)
-------- -------- -------- -------- --------
Net income assuming dilution....... $ 2.88 $ 3.05 $ 2.66 $ 1.98 $ 1.45
======== ======== ======== ======== ========
Cash dividends declared (4) $ 0.25 $ 1.84 $ 0.76 $ 0.67 $ 0.63
======== ======== ======== ======== ========
24
DECEMBER 31,
1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
Working capital............ $ 36,336 $ 42,271 $ 49,744 $ 47,227 $ 48,989
Total assets (5)........... 438,753 394,149 353,035 308,072 211,000
Total debt................. 73,978 74,971 71,869 75,859 67,563
Stockholders' equity (5)... 266,851 232,129 203,681 170,751 107,996
(1) Included in this amount are dividends received from the Company's
investment in SAFECO Corporation common stock amounting to $3,663 in 1997;
$3,333 in 1996; $3,062 in 1995; $2,822 in 1994 and $2,582 in 1993.
(2) In 1994, the Company adopted the Financial Accounting Standards Board's
Statement of Financial Accounting Standards No. 106, "Employers' Accounting
for Postretirement Benefits Other Than Pensions" (FAS 106), which requires
that the cost of health care and life insurance benefits provided to
certain retired employees be accrued during the years that employees render
service. Health care and life insurance benefits are provided to all non-
broadcasting employees. The Company elected to immediately recognize the
accumulated benefit obligation, measured as of December 31, 1993.
Accordingly, the $2,012 cumulative effect of this change in accounting
method on years prior to 1994 ($1,305 after income tax effects) is deducted
from the results of operations for 1994.
(3) 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.
(4) 1997 amount was declared for payment in first quarter 1998. 1996 includes
$.98 per share declared for payment in 1997. 1993 through 1995 amounts
were declared and paid.
(5) In the first quarter of 1994, the Company adopted the 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, 1997 - $148,506; December 31, 1996 - $120,468; December 31,
1995 - $105,401; December 31, 1994 - $79,531. Stockholders' equity
includes unrealized gain on marketable securities, net of deferred income
tax, as follows: December 31, 1997 - $96,529; December 31, 1996 - $78,304;
December 31, 1995 - $68,510; December 31, 1994 - $51,695.
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 1995 through 1997.
During this three year period, the Company's broadcasting subsidiary
acquired nineteen small-market radio stations in Montana and eastern Washington
and two radio stations in Portland, Oregon. In 1995 the Company's milling
subsidiary expanded its food distribution activities in Southern California by
assuming the operations of a significant bakery distribution company, which was
merged with the milling subsidiary's existing food distribution operations and
relocated in Rancho Cucamonga, near Los Angeles.
In July 1996 the milling subsidiary became a 50% member of a Limited
Liability Company formed to construct and operate a compact flour mill in
Blackfoot, Idaho. During 1997 an additional compact milling unit was installed
at the Blackfoot site, and construction of a conventional flour mill commenced.
Further, in 1996 the Company's real estate subsidiary sold, under threat of
condemnation, certain unimproved property in Seattle, Washington and, in 1997,
reinvested the proceeds of the sale in income producing property adjacent to an
existing industrial park.
25
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
SALES AND OTHER REVENUE
- --------------------------------------------------------------------------------
1997 % Change 1996 % Change 1995
$260,034,000 -2.0% $265,220,000 16.0% $228,580,000
Sales and other revenue increased 7.9% for broadcasting operations in 1997,
while milling and real estate operations experienced declines of 8.7% and 15.6%,
respectively.
In 1996 sales and other revenue increased 10.6%, 20.8%, and 23.9% for
broadcasting, milling, and real estate operations, respectively.
Revenue of the corporate segment declined in 1996 and 1997 as increases in
dividends from marketable securities were more than offset by reduced interest
income as short-term cash investments were liquidated to partially fund
acquisition of the Portland radio properties.
COST OF PRODUCTS AND SERVICES SOLD
- --------------------------------------------------------------------------------
1997 % Change 1996 % Change 1995
$162,715,000 -4.3% $170,016,000 17.4% $144,878,000
Percentage of
revenue 62.6% 64.1% 63.4%
Lower costs to produce flour offset by increased costs to acquire and
produce broadcast programming caused a decrease in cost of products and services
sold in 1997. Improved margins at broadcasting and milling operations
contributed to a reduction in cost of products and services sold as a percentage
of revenue.
Higher costs to acquire and produce broadcast programming and historically
high wheat prices caused the significant increase in the cost of products and
services sold in 1996. The increase in cost of products and services sold as a
percentage of revenue was due to lower margins at recently acquired radio
stations that operate in smaller markets and have a lower return than larger
market radio stations.
SELLING EXPENSES
- --------------------------------------------------------------------------------
1997 % Change 1996 % Change 1995
$18,228,000 7.6 % $16,941,000 22.1% $13,870,000
Percentage of
revenue 7.0% 6.4% 6.1%
Selling expenses have increased each year as a result of increased
commissions and related expenses resulting from increased broadcasting revenue,
increased volume of flour sold, and additional selling expenses incurred at
recently acquired radio stations.
GENERAL AND ADMINISTRATIVE EXPENSES
- --------------------------------------------------------------------------------
1997 % Change 1996 % Change 1995
$35,812,000 8.1% $33,131,000 10.5% $29,988,000
Percentage of
revenue 13.8% 12.5% 13.1%
The increase in general and administrative expenses incurred in 1997
relates primarily to general and administrative expenses at recently acquired
radio stations, as well as increased personnel and other administrative expense
at each segment. The fluctuations in general and administrative expenses
expressed as a percentage of revenue are due to the fact that such expenses are
relatively fixed, and do not vary directly with revenue.
26
General and administrative expenses at recently acquired radio stations,
plus the expanded Los Angeles Food Distribution Center that operated for all of
1996 compared to seven months in 1995, caused the increase in 1996.
INTEREST EXPENSE
- --------------------------------------------------------------------------------
1997 % Change 1996 % Change 1995
$5,467,000 -3.6% $5,671,000 7.4% $5,280,000
Interest expense declined in 1997 compared with 1996 due to lower average
borrowing outstanding during 1997. The average interest rate was 7.0% in 1997
and 1996.
The increase in 1996 interest expense compared with 1995 was due to higher
average debt balances outstanding during 1996, including borrowing to partially
fund acquisition of the Portland radio properties. Additionally, the average
interest rate during 1996 and 1995 was 7.0% and 7.2%, respectively, which
further impacted the effect of the increase in average debt outstanding on
interest expense.
PROVISION FOR FEDERAL AND STATE INCOME TAXES
- --------------------------------------------------------------------------------
1997 % Change 1996 % Change 1995
$13,083,000 -2.2% $13,375,000 12.6% $11,881,000
Effective tax rate 34.6% 33.9% 34.4%
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, net of the federal income tax benefit. The lower
effective tax rate in 1996 compared to 1997 and 1995 is due primarily to lower
state income taxes which included a refund of state tax paid in prior years.
BROADCASTING OPERATIONS
SALES AND OTHER REVENUE
- --------------------------------------------------------------------------------
1997 % Change 1996 % Change 1995
$120,792,000 7.9% $111,967,000 10.6% $101,192,000
The increase in 1997 broadcasting revenue compared with 1996, is due in
part to revenue earned at KWJJ-AM/FM in Portland, Oregon and six radio stations
in eastern Washington and Montana acquired between May 1996 and January 1997.
These stations contributed net revenue of approximately $8,500,000 during 1997,
compared with $4,600,000 in 1996. Revenue from the Company's Seattle radio
stations (KOMO AM, KVI AM and KPLZ-FM) increased $3,000,000 over 1996 due to a
strong advertising market during 1997. Revenue from KOMO Television in Seattle
increased approximately $3,000,000 in 1997 as a result of increased local and
national advertising revenue, offset by lower revenue from political advertising
in 1997 which was not a major political year.
The increase in 1996 broadcasting revenue compared with 1995 was partially
due to the revenue earned at KWJJ-AM/FM, and by the four radio stations in
eastern Washington and Montana which were acquired during 1996 and contributed
net revenue of approximately $4,600,000 during that year. Additionally, revenue
at the two television stations increased by $4,000,000 primarily due to growth
in local advertising sales and to additional political and advocacy advertising
during the 1996 campaign year. The remaining increase in revenue is attributed
to the full year of operations in 1996 of the twelve radio stations acquired in
March 1995.
INCOME FROM OPERATIONS
- --------------------------------------------------------------------------------
1997 % Change 1996 % Change 1995
$36,754,000 8.0% $34,025,000 8.0% $31,518,000
Percentage of
revenue 30.4% 30.4% 31.1%
Operating income increased due to higher revenue at most broadcasting
properties. Increased costs to acquire and produce broadcast programming were
offset by cost control on operating expenses.
27
Broadcasting operating expenses increased 11.8% in 1996, outpacing the
growth in broadcasting revenue primarily due to the operation of recently
acquired radio stations in eastern Washington and Montana. These small-market
stations have a lower return on revenue than the Company's other stations which
operate in larger markets.
MILLING OPERATIONS
SALES AND OTHER REVENUE
- --------------------------------------------------------------------------------
1997 % Change 1996 % Change 1995
$123,941,000 -8.7% $135,697,000 20.8% $112,360,000
Flour prices are largely dependent on the cost of wheat purchased to
produce flour. During 1997 wheat prices were lower than the historically high
levels experienced in 1996, with the result that average flour prices in 1997
were 13% lower than in 1996. An increase in flour sales volume of 6.9% during
1997 was not sufficient to offset the effect of lower prices, and 1997 milling
division revenue declined $4,916,000 or 5.9%. Food distribution division
revenue decreased $6,761,000 or 12.9% in 1997. The decline is due to a
combination of lower sales prices and lower sales volume, particularly in the
Southern California market served by the Los Angeles Food Distribution Center
where reorganization of sales territories, changes in sales personnel and strong
competition during the latter part of the year negatively impacted volume.
Revenue in 1996 increased primarily due to increased sales prices for flour
resulting from historically high wheat prices during 1996 and from increased
sales volume in both the milling and food distribution divisions. Flour sales
volume increased 6.2% in 1996. Revenue from the food distribution division
increased $7,908,000 due largely to a full year of operations of the expanded
Los Angeles Food Distribution Center in 1996 compared to seven months activity
in 1995.
INCOME FROM OPERATIONS
- --------------------------------------------------------------------------------
1997 % Change 1996 % Change 1995
$2,431,000 -28.7% $3,410,000 17.3% $2,907,000
Percentage of
revenue 2.0% 2.5% 2.6%
Income from operations is determined by deducting operating expenses from
gross margin on sales. The gross margin percentage increased at both the
milling and food distribution divisions in 1997. However, lower wheat prices
and lower food distribution volume, particularly at Los Angeles, offset the
improvements in gross margin percentage through a reduction in revenue.
Operating expenses remained consistent during 1997 and 1996.
The consistency of operating income as a percentage of milling revenue in
1996 as compared with 1995 was due to similar gross margin percentages in both
years and the milling operation's ability to leverage its operating expenses
during a period of increased sales volumes.
REAL ESTATE OPERATIONS
SALES AND OTHER REVENUE
- --------------------------------------------------------------------------------
1997 % Change 1996 % Change 1995
$11,446,000 -15.6% $13,556,000 23.9% $10,941,000
Comparability of sales and other revenue between periods is affected by a
gain on sale of real estate amounting to $2,300,000 that occurred in April 1996.
If the 1996 amount is adjusted to exclude that transaction, 1997 revenue
increased 1.7% over 1996, and 1996 increased 2.9% over 1995. Average occupancy
levels for 1997, 1996 and 1995 were 94.0%, 95.1% and 93.7%, respectively. The
decline in average occupancy for 1997 was largely attributable to a vacancy
during part of the year resulting from bankruptcy of a tenant.
28
INCOME FROM OPERATIONS
- ------------------------------------------------------------------------------
1997 % Change 1996 % Change 1995
$3,231,000 -43.8% $5,749,000 76.0% $3,267,000
Percentage of revenue 28.2% 42.4% 29.9%
Comparability of income from operations between the periods is similarly
affected by the 1996 real estate gain. When the gain is excluded, operating
income as a percentage of revenue is 30.6% in 1996. Fluctuations in vacancy
rates during the periods, plus higher personnel costs and other expenses in
1997, contributed to the change in operating income as a percentage of sales and
other revenue.
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 1997, the Company had working capital of $36,336,000 and
cash and short-term cash investments totaling $6,337,000. 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 obtained a commitment letter from a bank for a five-year unsecured
revolving line of credit in a maximum amount of $100,000,000 to finance
construction of the KOMO Block Project. The revolving line of credit will be
governed by a credit agreement, the terms of which have not yet been negotiated.
For the year ended December 31, 1997 net cash provided by operating
activities was $36,040,000. 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 1997 was $25,403,000. The
principle uses of cash in investing activities were $3,949,000 for acquisition
of the assets of three small-market radio stations in Montana and eastern
Washington, $3,755,000 invested in the 50% owned Koch Fisher Mills L.L.C., and
$17,699,000 to purchase property, plant and equipment used in operations. Net
cash used in financing activities was $9,416,000. Cash provided for financing
activities was obtained through net borrowings of $9,004,000 under lines of
credit and notes from shareholders and directors. Proceeds from these net
borrowings were used to finance acquisition of assets of the radio stations,
investment in the L.L.C. referred to above, and purchase of property, plant and
equipment to the extent such purchases exceeded net cash provided by operating
activities. In addition, during 1997 the Company repaid $10,117,000 due on
borrowing agreements and mortgage loans, and received proceeds of $44,000 from
the exercise of stock options. Cash paid for dividends to stockholders totaled
$8,467,000 or $.98 per share (adjusted for the two-for-one stock split that was
effective March 6, 1998).
YEAR 2000
The Company is actively assessing the impact of the upcoming change in the
century on its computer software and hardware, and on the Company's products,
services and competitive conditions. Certain software applications have been
identified for replacement prior to the year 2000. Based on its analysis to
date, the Company believes that the impact of year 2000 issues will not be
material to the Company's business, operations or financial condition, and that
the cost of remediating such matters will not be material. However, the impact
of the failure of computer systems of customers, vendors and others with whom
the Company does business is uncertain and has not been assessed by the Company.
FORWARD LOOKING STATEMENTS
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 timely or 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.
29
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.
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 30, 1998, 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 30, 1998, 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 30, 1998,
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 30, 1998, is incorporated herein by reference.
30
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,
1997, December 31, 1996 and December 31, 1995.
(3) Consolidated Statements of Stockholders' Equity.
(4) Consolidated Balance Sheets at December 31, 1997 and December 31,
1996.
(5) Consolidated Statements of Cash Flows for the years ended December 31,
1997, December 31, 1996 and December 31, 1995.
(6) Consolidated Statements of Comprehensive Income for the years ended
December 31, 1997, December 31, 1996 and December 31, 1995.
(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, 1997
(b) Exhibits: See "Exhibit Index."
(c) Forms 8-K filed during fiscal year 1997: None
31
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/ 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 sheet and the related
consolidated statements of income, of stockholders' equity, of comprehensive
income and of cash flows present fairly, in all material respects, the financial
position of Fisher Companies Inc. and its subsidiaries at December 31, 1997 and
1996, and the results of their operations and their cash flows for each of the
three years in the period ended December 31, 1997, in conformity with generally
accepted accounting principles. 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 generally accepted auditing
standards 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/ Price Waterhouse LLP
Price Waterhouse LLP
Seattle, Washington
March 6, 1998
32
FISHER COMPANIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
YEAR ENDED DECEMBER 31 1997 1996 1995
- -----------------------------------------------------------------------------------------------
(In thousands except per share amounts)
Sales and other revenue:
Broadcasting $120,792 $111,967 $101,192
Milling 123,941 135,697 112,360
Real estate 11,446 13,556 10,941
Corporate and other, primarily dividends and interest income 3,855 4,000 4,087
- -----------------------------------------------------------------------------------------------
260,034 265,220 228,580
- -----------------------------------------------------------------------------------------------
Costs and expenses:
Cost of products and services sold 162,715 170,016 144,878
Selling expenses 18,228 16,941 13,870
General, administrative and other expenses 35,812 33,131 29,988
- -----------------------------------------------------------------------------------------------
216,755 220,088 188,736
- -----------------------------------------------------------------------------------------------
Income from operations 43,279 45,132 39,844
Interest expense 5,467 5,671 5,280
- -----------------------------------------------------------------------------------------------
Income before provision for income taxes 37,812 39,461 34,564
Provision for federal and state income taxes 13,083 13,375 11,881
- -----------------------------------------------------------------------------------------------
Net income $ 24,729 $ 26,086 $ 22,683
- -----------------------------------------------------------------------------------------------
Net income per share $2.90 $3.06 $2.66
Net income per share assuming dilution $2.88 $3.05 $2.66
Weighted average number of shares outstanding 8,534 8,530 8,530
Weighted average number of shares outstanding assuming dilution 8,577 8,552 8,530
See accompanying notes to consolidated financial statements.
33
FISHER COMPANIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Accumulated
Capital in Other
Common Stock Excess Comprehensive Retained Total
Shares Amount of Par Income Earnings Equity
- ----------------------------------------------------------------------------------------------------------------------------------
(In thousands except share amounts)
Balance, December 31, 1994 8,530,344 $10,663 $ 48 $51,695 $108,345 $170,751
Net income 22,683 22,683
Other comprehensive income unrealized gain on
securities net of deferred income taxes 16,815 16,815
Dividends paid (6,568) (6,568)
- ----------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1995 8,530,344 10,663 48 68,510 124,460 203,681
Net income 26,086 26,086
Other comprehensive income unrealized gain on
securities net of deferred income taxes 9,794 9,794
Dividends paid (7,432) (7,432)
- ----------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1996 8,530,344 10,663 48 78,304 143,114 232,129
Net income 24,729 24,729
Other comprehensive 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 paid (8,467) (8,467)
- ----------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1997 8,535,432 $10,669 $277 $96,529 $159,376 $266,851
- ----------------------------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements
34
FISHER COMPANIES INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
DECEMBER 31
1997 1996
- -----------------------------------------------------------------------------------------
(In thousands except share amounts)
ASSETS
Current Assets:
Cash and short-term cash investments $ 6,337 $ 5,116
Receivables 44,623 44,609
Inventories 14,537 13,199
Prepaid expenses 6,922 7,859
Television and radio broadcast rights 6,912 5,383
- -----------------------------------------------------------------------------------------
Total current assets 79,331 76,166
- -----------------------------------------------------------------------------------------
Marketable Securities, at market value 149,616 121,545
- -----------------------------------------------------------------------------------------
Other Assets:
Cash value of life insurance and retirement deposits 10,052 9,362
Television and radio broadcast rights 170 317
Intangible assets, net of amortization 49,533 47,982
Investments in equity investees 4,478 723
Other 3,117 3,633
- -----------------------------------------------------------------------------------------
67,350 62,017
- -----------------------------------------------------------------------------------------
Property, Plant and Equipment, net 142,456 134,421
- -----------------------------------------------------------------------------------------
$438,753 $394,149
- -----------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Notes payable $ 18,363 $ 9,258
Trade accounts payable 8,117 8,674
Accrued payroll and related benefits 5,274 4,536
Television and radio broadcast rights payable 6,846 5,036
Income taxes payable 617 1,147
Other current liabilities 3,778 5,244
- -----------------------------------------------------------------------------------------
Total current liabilities 42,995 33,895
- -----------------------------------------------------------------------------------------
Long-term Debt, net of current maturities 55,615 65,713
- -----------------------------------------------------------------------------------------
Other Liabilities:
Accrued retirement benefits 12,059 11,924
Deferred income taxes 60,495 49,483
Television and radio broadcast rights payable, long-term portion 24 296
Deposits and retainage payable 681 676
- -----------------------------------------------------------------------------------------
73,259 62,379
- -----------------------------------------------------------------------------------------
Minority Interests 33 33
- -----------------------------------------------------------------------------------------
Commitments and Contingencies (Notes 11 and 12)
- -----------------------------------------------------------------------------------------
Stockholders' Equity:
Common stock, shares authorized 12,000,000, $1.25 par value;
issued 8,535,432 in 1997 and 8,530,344 in 1996 10,669 10,663
Capital in excess of par 277 48
Accumulated other comprehensive income - unrealized gain
on marketable securities, net of deferred
income taxes of $51,977 in 1997 and $42,164 in 1996 96,529 78,304
Retained earnings 159,376 143,114
- -----------------------------------------------------------------------------------------
266,851 232,129
- -----------------------------------------------------------------------------------------
$438,753 $394,149
- -----------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements
35
FISHER COMPANIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31
1997 1996 1995
- ----------------------------------------------------------------------------------------------------------------
(In thousands)
Cash flows from operating activities:
Net income $ 24,729 $ 26,086 $ 22,683
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 11,975 10,753 9,747
Increase in noncurrent deferred income taxes 1,199 1,505 910
Issuance of stock pursuant to vested stock rights
and related tax benefit 191
Gain on sale of real estate (2,300)
Change in operating assets and liabilities:
Receivables (14) (2,934) (5,869)
Inventories (1,338) (1,406) (2,518)
Prepaid expenses 937 (1,475) (82)
Cash value of life insurance and retirement deposits (690) (481) (335)
Income taxes payable (530) (907) 711
Trade accounts payable, accrued payroll and related
benefits and other current liabilities (1,285) 4,120 4,175
Other assets 516 (558) (564)
Accrued retirement benefits 135 428 128
Deposits and retainage payable 5 (271) (77)
Amortization of television and radio broadcast rights 9,396 8,575 8,119
Payments for television and radio broadcast rights (9,240) (8,243) (8,067)
Other, net 54 173 270
- ----------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 36,040 33,065 29,231
- ----------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Proceeds from sale of real estate 2,860
Investments in equity investees (3,755) (554)
Purchase assets of radio stations (3,949) (36,684) (6,740)
Purchase of property, plant and equipment (17,699) (8,730) (10,784)
- ----------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (25,403) (43,108) (17,524)
- ----------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Net borrowings under notes payable 9,004 (4,698) 1,662
Borrowings under borrowing agreements and mortgage loans 120 44,000
Payments on borrowing agreements and mortgage loans (10,117) (36,200) (5,652)
Proceeds from exercise of stock options 44
Cash dividends paid (8,467) (7,432) (6,568)
- ----------------------------------------------------------------------------------------------------------------
Net cash used in financing activities (9,416) (4,330) (10,558)
- ----------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and short-term cash investments 1,221 (14,373) 1,149
Cash and short-term cash investments, beginning of year 5,116 19,489 18,340
- ----------------------------------------------------------------------------------------------------------------
Cash and short-term cash investments, end of year $ 6,337 $ 5,116 $ 19,489
- ----------------------------------------------------------------------------------------------------------------
Supplemental cash flow information is included in Notes 5 and 8.
See accompanying notes to consolidated financial statements
FISHER COMPANIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
YEAR ENDED DECEMBER 31
1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------
(In thousands)
Net income $24,729 $26,086 $22,683
Other comprehensive income unrealized gain on securities net of deferred
income taxes of $9,813 in 1997, $5,273 in 1996 and $9,055 in 1995 18,225 9,794 16,815
- ---------------------------------------------------------------------------------------------------------------------
Comprehensive income $42,954 $35,880 $39,498
- ---------------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements
36
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 are
television and radio broadcasting, flour milling and distribution of bakery
supplies, and proprietary real estate development and management. The Companies
conduct business primarily in Washington, Oregon, California 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.
Short-term cash investments. Short-term cash investments comprise
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. For purposes of the statement of cash flows, 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 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.
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.
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 attributable to programs scheduled for broadcast after
one year have been classified as noncurrent assets 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, 1997 and 1996. As of
December 31, 1997, these shares represented 2.1% 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.
Intangible assets. Intangible assets represent the excess of purchase
price of certain broadcast 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, 1997
and 1996 is $2,467,000 and $1,169,000, respectively. The Company periodically
reviews its intangible assets to determine whether impairment has occurred. The
Company assesses the recoverability of intangible assets by reviewing the
performance of the underlying operations, in particular the operating cash flows
(earnings before income taxes, depreciation and amortization) of the operation.
No losses from impairment of value have been recorded in the financial
statements.
Investments in equity investees. Investments in equity investees represent
investments in 50% owned entities, primarily the Koch Fisher Mills L.L.C. (See
Note 11).
Property, plant and equipment. Replacements and improvements are
capitalized while maintenance and repairs are charged as expense when incurred.
37
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
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 $2,191,000,
$2,507,000 and $1,892,000 in 1997, 1996 and 1995, respectively.
Earnings per share. In the fourth quarter of 1997 the Company adopted
Statement of Financial Accounting Standards No. 128 "Earnings per Share" (FAS
128) which changed the Company's presentation and calculation of 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. Per share amounts for all periods have been
retroactively adjusted to this new presentation. The adoption of FAS 128 did
not have a material impact on the Company's earnings per share.
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 1997 1996 1995
- ------------------------------------------- --------- --------- ---------
Shares outstanding at beginning of period.. 8,530,344 8,530,344 8,530,344
Weighted average of shares issued.......... 3,846
Dilutive effect of:
Restricted stock rights................. 23,391 16,166
Stock options........................... 19,250 5,892
--------- --------- ---------
8,576,831 8,552,402 8,530,344
========= ========= =========
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.
Reclassifications. Certain prior year balances have been reclassified to
conform to the 1997 presentation.
38
NOTE 2
RECEIVABLES
Receivables are summarized as follows (in thousands):
December 31 1997 1996
- ------------------------------------------------------------------
Trade accounts $ 45,446 $ 45,704
Other 436 323
- ------------------------------------------------------------------
45,882 46,027
Less - Allowance for doubtful accounts 1,259 1,418
- ------------------------------------------------------------------
$ 44,623 $ 44,609
- ------------------------------------------------------------------
NOTE 3
INVENTORIES
Inventories are summarized as follows (in thousands):
December 31 1997 1996
- ------------------------------------------------------------------
Finished products $ 5,114 $ 4,758
Raw materials 9,258 8,255
Spare parts and supplies 165 186
- ------------------------------------------------------------------
$ 14,537 $ 13,199
- ------------------------------------------------------------------
NOTE 4
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are summarized as follows (in thousands):
December 31 1997 1996
- ------------------------------------------------------------------
Buildings and improvements $125,066 $120,128
Machinery and equipment 93,075 84,033
Land and improvements 18,565 16,449
- ------------------------------------------------------------------
236,706 220,610
Less - Accumulated depreciation 100,455 91,487
- ------------------------------------------------------------------
136,251 129,123
Construction in progress 6,205 5,298
- ------------------------------------------------------------------
$142,456 $134,421
- ------------------------------------------------------------------
Prior to December 1997 the Company's real estate subsidiary and the
president of the Company were partners in a joint venture established in 1984 to
construct and operate for lease to third parties two office buildings in
Lynnwood, Washington. The subsidiary contributed land at its fair value for a
95% interest in the venture. The minority partner contributed cash for a 5%
interest. In December 1997 the real estate subsidiary acquired the President's
interest at its fair value.
39
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 2005. 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, 1997 are
(in thousands):
YEAR RENTALS
---- -------
1998 $10,033
1999 8,556
2000 6,405
2001 4,339
2002 3,410
Thereafter 7,764
-------------------------------------
$40,507
-------------------------------------
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, 1997 includes
buildings, equipment and improvements of $98,493,000, land and improvements of
$13,760,000 and accumulated depreciation of $29,076,000.
Interest capitalized relating to construction of property, plant and
equipment amounted to approximately $97,000 in 1995. No interest was
capitalized in 1997 and 1996.
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, 1997. The lines are unsecured and bear interest at
rates no higher than the prime rate. $7,605,000 was outstanding under the lines
at December 31, 1997.
The notes payable to directors, stockholders and others comprise notes
payable on demand and in 90 days. Such notes bear interest at rates equivalent
to those available to the Company for short-term cash investments. Interest on
such notes amounted to $573,000, $430,000 and $401,000 in 1997, 1996 and 1995,
respectively.
Notes payable are summarized as follows (in thousands):
December 31 1997 1996
- ---------------------------------------------------------------
Banks $ 7,605
Directors, stockholders and others 9,540 $8,141
Current maturities of long-term debt 1,218 1,117
- ---------------------------------------------------------------
$18,363 $9,258
- ---------------------------------------------------------------
Long-term debt.
Lines of credit. The Company maintains an unsecured reducing revolving
line of credit with a bank in the amount of $45,000,000, for the purpose of
funding potential acquisitions of broadcast properties. The amount available
under the line is reduced by $5,000,000 in September 1998 and 1999, and by
$10,000,000 in September 2000 and 2001. The line matures in September 2002.
Borrowings under the line bear interest at a variable rate not to exceed the
bank's prime lending rate. $3,000,000 was outstanding under the line at
December 31, 1997.
The Company has a commitment from a bank for a five-year unsecured
revolving line of credit to finance construction of the KOMO Block Project (See
Note 12) and for general corporate purposes. The commitment is in the initial
amount of $35,000,000, increasing to a maximum amount of $100,000,000 in the
fourth year. The commitment provides that borrowings under the line will bear
interest at a variable rate not to exceed the bank's prime lending rate and that
the loan may be extended for two years beyond the initial five-year term.
40
Mortgage loans. The real estate subsidiary maintains the following
mortgage loans:
Principal amount of $4,354,000 secured by an industrial park with a book
value of $6,096,000 at December 31, 1997. 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 $12,554,000 secured by two industrial parks with a
combined book value of $13,117,000 at December 31, 1997 and principal amount of
$10,912,000 secured by the Lynnwood project with a book value of $16,948,000 at
December 31, 1997. The loans mature in 2008, bear interest at 7.75% and require
monthly payments of $101,000 and $88,000, respectively, including interest.
These mortgage loans are nonrecourse; however, the real estate subsidiary has
guaranteed 20% of the combined outstanding principal balance until certain loan
to value ratios are reached. The interest rates are subject to adjustment in
December 1998 and 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. The agreements provide that the real estate subsidiary
maintain a stipulated minimum net worth and hold marketable securities with a
market value equal to 75% of the outstanding principal balance of the loans.
Principal amount of $25,882,000 secured by an office building and parking
structure with a book value of $33,314,000 at December 31, 1997. The
nonrecourse loan matures in February 2006, bears interest at 7.72% and requires
monthly payments of principal and interest amounting to $221,000.
Long-term debt is summarized as follows (in thousands):
December 31 1997 1996
- ---------------------------------------------------------------------------
Notes payable under bank line of credit $ 3,000 $12,000
Mortgage loans payable 53,702 54,817
Other 131 13
- ---------------------------------------------------------------------------
56,833 66,830
Less Current maturities 1,218 1,117
- ---------------------------------------------------------------------------
$55,615 $65,713
- ---------------------------------------------------------------------------
Future maturities of notes payable and long-term debt are as follows (in
thousands):
DIRECTORS, BANK MORTGAGE
STOCKHOLDERS LINE LOANS
BANKS AND OTHERS OF CREDIT AND OTHER TOTAL
- ------------------------------------------------------------------------
1998 $7,605 $9,540 $ 1,218 $18,363
1999 1,305 1,305
2000 1,399 1,399
2001 1,500 1,500
2002 $3,000 1,608 4,608
Thereafter 46,803 46,803
- ------------------------------------------------------------------------
$7,605 $9,540 $3,000 $53,833 $73,978
- ------------------------------------------------------------------------
Cash paid for interest (net of amounts capitalized) during 1997, 1996 and
1995 was $5,512,000, $6,184,000 and $5,071,000, respectively.
NOTE 6
TELEVISION AND RADIO BROADCAST RIGHTS
At December 31, 1997, the long-term portion of television and radio
broadcast rights payable is primarily due in 1999.
Television and radio broadcast rights acquired under contractual
arrangements were $10,778,000 and $7,658,000 in 1997 and 1996, respectively.
At December 31, 1997, the broadcasting subsidiary had executed license
agreements amounting to $39,058,000 for future rights to television and radio
programs. As these programs will not be available for broadcast until after
December 31, 1997, they have been excluded from the financial statements.
41
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.
During 1995 the stockholders approved the Fisher Companies Incentive Plan
of 1995 (the Plan) which 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.
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
$357,000 and $145,000 related to the rights was recorded during 1997 and 1996,
respectively.
A summary of stock options and restricted stock rights from the first date
of grant on February 28, 1996 is as follows:
Stock Options Restricted Stock Rights
--------------------------------------- -----------------------
Number Weighted Average Exercise Number
of Shares Price Per Share of Shares
- -----------------------------------------------------------------------------------------------------
Shares granted February 28, 1996 42,000 $37.25 19,400
- -----------------------------------------------------------------------------------------------------
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
- -----------------------------------------------------------------------------------------------------
The weighted average remaining contractual life of options outstanding at
December 31, 1997 is 8.5 years. At December 31, 1997, options for 7,446 shares
are exercisable at a weighted average exercise price of $37.25 per share.
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). In
1995, the Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 123 "Accounting for Stock-Based Compensation" (FAS 123)
which 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 $277,000 and $163,000, or $0.03 and $0.02 per
share during 1997 and 1996, 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 1997 and 1996, respectively:
dividend yield of 2.05% and 2.07%, volatility of 15.16% and 17.77%, risk-free
interest rate of 6.38% and 5.74%, assumed forfeiture rate of 0% and an expected
life of 5 years in both years. Under FAS 123, the weighted average fair value
of stock options granted during 1997 and 1996, respectively, was $12.36 and
$8.06.
42
Cash dividends are as follows (in thousands except per share amounts):
- ------------------------------------------------------------------------------
Year Ended December 31 1997 1996 1995
- ------------------------------------------------------------------------------
Fisher Companies Inc. common stock, $.98,
$.86 and $.76 per share, respectively $ 8,363 $ 7,337 $ 6,482
Subsidiary's preferred stock held by
minority interest 104 95 86
- ------------------------------------------------------------------------------
$ 8,467 $ 7,432 $ 6,568
- ------------------------------------------------------------------------------
NOTE 8
INCOME TAXES
Income taxes have been provided as follows (in thousands):
- ------------------------------------------------------------------------------
Year Ended December 31 1997 1996 1995
- ------------------------------------------------------------------------------
Payable currently $12,052 $11,630 $11,509
Current and noncurrent
deferred income taxes 1,031 1,745 372
- ------------------------------------------------------------------------------
$13,083 $13,375 $11,881
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 1997 1996 1995
- ------------------------------------------------------------------------------
Normal provision computed at 35% of
pretax income $13,234 $13,811 $12,098
Dividends received credit (925) (844) (776)
State taxes, net of federal tax benefit 654 309 426
Other 120 99 133
- -------------------------------------------------------------------------------
$ 13,083 $ 13,375 $ 11,881
- ------------------------------------------------------------------------------
Deferred tax assets (liabilities) are summarized as follows (in thousands):
- -----------------------------------------------------------------------------
December 31 1997 1996
- -----------------------------------------------------------------------------
Current:
Accrued employee benefits $ (839) $ (923)
Allowance for doubtful accounts 453 495
Accrued property tax (321) (227)
Other 207 194
- -----------------------------------------------------------------------------
$ (500) $ (461)
- -----------------------------------------------------------------------------
Noncurrent:
Unrealized gain on marketable securities $(51,977) $(42,164)
Property, plant and equipment (11,538) (10,432)
Accrued employee benefits 3,020 3,113
- ------------------------------------------------------------------------------
$(60,495) $(49,483)
- ------------------------------------------------------------------------------
The current deferred tax liability is reflected in other current
liabilities.
Cash paid for income taxes during 1997, 1996 and 1995 was $12,457,000,
$12,636,000 and $9,938,000, respectively.
43
NOTE 9
RETIREMENT BENEFITS
The Company and its subsidiaries have qualified defined benefit pension
plans covering substantially all of their 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 Companies accrue annually the normal
costs of their 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.
The funded status of the Companies' pension plans is as follows (in
thousands):
- -------------------------------------------------------------------------------
December 31 1997 1996
- -------------------------------------------------------------------------------
Plan assets at fair value -
Insurance contracts and marketable securities $ 30,258 $ 26,745
Actuarial present values of benefit obligations
Vested benefits (20,412) (20,620)
Nonvested benefits (2,622) (1,501)
- -------------------------------------------------------------------------------
Accumulated benefit obligation - the actuarial
present value of pension benefits earned to date
based on current compensation levels (23,034) (22,121)
- -------------------------------------------------------------------------------
Excess of plan assets over accumulated
benefit obligation $ 7,224 $ 4,624
- -------------------------------------------------------------------------------
The composition of the prepaid pension cost is as follows (in thousands):
- -------------------------------------------------------------------------------
December 31 1997 1996
- -------------------------------------------------------------------------------
Plan assets at fair value $ 30,258 $ 26,745
Projected benefit obligation
the actuarial present value of pension
benefits earned to date reflecting
assumed increases to compensation levels (27,973) (25,668)
Items not yet recognized in earnings to be
mortized over the average remaining
service period of plan participants:
Prior service costs resulting
from plan amendments 319 693
Net asset at adoption of FAS 87 (56) (124)
Net (gain) loss from past experience different
from assumed (31) 1,108
- --------------------------------------------------------------------------------
Prepaid pension cost included in the
consolidated balance sheet $ 2,517 $ 2,754
- --------------------------------------------------------------------------------
The discount rate used in determining the actuarial present value of the
projected benefit obligation at December 31, 1997 and 1996 was 7.5%; 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 and its subsidiaries have 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 Companies have acquired annuity contracts and life insurance on the lives of
the individual participants to assist in payment of retirement benefits. The
Companies are the owners and beneficiaries 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.
44
The Companies have two defined contribution retirement plans which are
qualified under Section 401(k) of the Internal Revenue Code. All U.S. employees
who are age 21 or older and have completed one year of service are eligible to
participate. The Companies match employee contributions up to a maximum of 3%
of gross pay.
Amounts charged to expense for the respective plans are as follows (in
thousands):
- ---------------------------------------------------------------------------
Year Ended December 31 1997 1996 1995
- ---------------------------------------------------------------------------
Qualified defined benefit pension plans:
Benefits earned during the year $1,334 $1,182 $1,058
Interest cost on projected benefit obligation 1,882 1,739 1,655
Net amortization and deferral of items not
recognized in earnings 2,551 484 3,010
- ---------------------------------------------------------------------------
5,767 3,405 5,723
Less: Actual return on plan assets 4,427 2,072 4,300
- ---------------------------------------------------------------------------
Net pension cost, qualified defined benefit plans 1,340 1,333 1,423
Qualified defined contribution retirement plans 876 940 855
Supplemental retirement programs 721 609 614
Contributions to union pension plans 118 120 110
- ---------------------------------------------------------------------------
$3,055 $3,002 $3,002
- ---------------------------------------------------------------------------
The Company's net periodic postretirement cost was $64,000, $112,000 and
$153,000 in 1997, 1996 and 1995, respectively. The accrued postretirement
benefit cost at December 31, 1997 and 1996 was $1,866,000 and $1,905,000,
respectively.
The discount rate used in determining the actuarial present value of the
accumulated postretirement benefit obligation at December 31, 1997 and 1996 was
7.5%. 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
1997 and 1996. Beginning in 1996 plan costs are generally based on a defined
maximum employer contribution which is not directly subject to health care cost
trend rates.
45
NOTE 10
SEGMENT INFORMATION
The operations of the Company are organized into three principal business
segments, broadcasting, milling and real estate. Operating results and other
financial data for each segment are as follows (in thousands):
CORPORATE,
ELIMINATIONS
BROADCASTING MILLING REAL ESTATE & OTHER CONSOLIDATED
- ---------------------------------------------------------------------------------------------
Sales and other revenue
1997 $120,792 $123,941 $11,446 $ 3,855 $260,034
1996 111,967 135,697 13,556 4,000 265,220
1995 101,192 112,360 10,941 4,087 228,580
Income from operations
1997 $ 36,754 $ 2,431 $ 3,231 $ 863 $ 43,279
1996 34,025 3,410 5,749 1,948 45,132
1995 31,518 2,907 3,267 2,152 39,844
Interest expense
1997 $ 4,156 $ 1,311 $ 5,467
1996 4,365 1,306 5,671
1995 4,597 683 5,280
Identifiable assets
1997 $135,896 $ 60,007 $88,770 $154,080 $438,753
1996 120,911 57,638 86,600 129,000 394,149
1995 97,532 54,565 90,212 110,726 353,035
Capital expenditures
1997 $ 8,978 $ 2,933 $ 5,729 $ 59 $ 17,699
1996 5,092 2,207 1,365 66 8,730
1995 4,934 2,495 3,319 36 10,784
Depreciation and amortization
1997 $ 5,325 $ 2,239 $ 4,355 $ 56 $ 11,975
1996 4,391 2,009 4,314 39 10,753
1995 3,587 1,915 4,211 34 9,747
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. Income before provision for income
taxes is computed by deducting interest expense from income from operations.
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 $6,100,000 in 1997,
$2,600,000 in 1996 and $2,300,000 in 1995.
NOTE 11
ACQUISITIONS
On January 15, 1997 assignment of Federal Communication 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.
On June 20, 1996, assignment of FCC licenses for radio broadcasting
stations KWJJ-AM/FM in Portland, Oregon was completed, and the broadcasting
subsidiary acquired the assets, including real estate, of those stations for
$35.2 million. Additionally, during May and June 1996, upon assignment of FCC
licenses, the broadcasting subsidiary acquired the assets of four radio
broadcasting stations in Eastern Washington and Montana for $1.5 million.
46
On March 1, 1995, assignment of FCC licenses and acquisition of the assets
of ten radio broadcasting stations in Montana and two in Eastern Washington by
the broadcasting subsidiary was completed. The acquisition cost was $6.7
million.
The above transactions are accounted for under the purchase method.
Accordingly, the Company has recorded identifiable assets and liabilities of the
acquired stations 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 radio stations are included
in the financial statements from the date of acquisition. Unaudited pro forma
results as if the acquired stations had been included in the financial results
during the year of acquisition and the year prior to acquisition are as follows
(1997 is excluded as there is no material difference between the pro forma
results and the results reported in the financial statements):
YEAR ENDED DECEMBER 31 1996 1995
- ---------------------------------------- ------------------ -----------------
(All amounts are unaudited) in thousands except per share amounts
Sales and other revenue $269,031 $234,461
Net income $ 26,091 $ 22,351
Net income per share $ 3.06 $ 2.62
Net income per share assuming dilution $ 3.05 $ 2.62
The pro forma results are not necessarily indicative of what actually would
have occurred if the acquisition had been in effect for the entire periods
presented. In addition, they are not intended to be a projection of future
results and do not reflect any synergies that might be achieved from combined
operations.
In July 1996 the milling subsidiary entered into an agreement to become a
50% member of a Limited Liability Company formed to construct and operate a
compact flour mill in Blackfoot, Idaho to be owned and operated by Koch Fisher
Mills L.L.C. The agreement provides for each 50% member to share equally in
initial capital contributions, profits and losses, additional capital
contributions, if any, and distributions. In April 1997 the Company committed
up to $10 million to the milling subsidiary to fund the milling subsidiary's
share of the cost to construct a conventional flour mill at the Blackfoot site.
Construction of the conventional flour mill began in November 1997 and is
expected to be complete in late 1998. The milling subsidiary's investment in
the L.L.C. is accounted for by the equity method and is reported in investments
in equity investees in the accompanying balance sheet. The Company's share of
earnings of the L.L.C. was $32,000 in 1997 and $0 in 1996.
NOTE 12
COMMITMENTS
The Company intends to redevelop the KOMO Block site in Seattle, Washington
on which KOMO Television is currently located. The KOMO Block Project
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. Construction is expected to begin in spring 1998 with
completion in 2000. In addition, the real estate subsidiary intends to
undertake pre-development activities for additional development of the KOMO
Block at an estimated cost of $2,000,000.
47
NOTE 13
INTERIM FINANCIAL INFORMATION (UNAUDITED)
Data may not add due to rounding
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER ANNUAL
- -----------------------------------------------------------------------------------------------
Sales and other revenue
1997 $60,510 $67,397 $63,788 $68,339 $260,034
1996 57,518 68,669 66,360 72,673 265,220
1995 48,810 56,729 57,955 65,086 228,580
Income from operations
1997 $ 7,160 $12,214 $ 9,542 $14,363 $ 43,279
1996 6,138 14,858 10,083 14,053 45,132
1995 7,738 10,973 8,435 12,698 39,844
Net income
1997 $ 3,881 $ 7,035 $ 5,399 $ 8,414 $ 24,729
1996 3,244 8,770 5,597 8,475 26,086
1995 4,288 6,280 4,675 7,440 22,683
Net income per share
1997 $ .45 $ .82 $ .63 $ .99 $ 2.90
1996 .38 1.03 .66 .99 3.06
1995 .50 .74 .55 .87 2.66
Net income per share assuming dilution
1997 $ .45 $ .82 $ .63 $ .98 $ 2.88
1996 .38 1.03 .65 .99 3.05
1995 .50 .74 .55 .87 2.66
Dividends paid per share
1997 $ .245 $ .245 $ .245 $ .245 $ .98
1996 .215 .215 .215 .215 .86
1995 .190 .190 .190 .190 .76
Common stock closing market prices (See Note 7)
1997
High $ 66.00 $ 66.00 $ 70.00 $ 63.50 $ 70.00
Low 49.00 57.00 60.50 59.50 49.00
1996
High 42.00 43.75 52.75 51.50 52.75
Low 36.88 40.00 42.63 48.50 36.88
48
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 March 6, 1998 appearing in this Form 10-K also included an audit of
Financial Statement Schedule III. 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/ Price Waterhouse LLP
Price Waterhouse LLP
Seattle, Washington
March 6, 1998
49
Schedule III
FISHER COMPANIES INC. AND SUBSIDIARIES
Real Estate and Accumulated Depreciation (note 1)
December 31, 1997
LIFE ON
COST CAPITALIZED GROSS AMOUNT WHICH
INITIAL COST TO SUBSEQUENT TO AT WHICH CARRIED ACCUMU- DEPRE-
COMPANY ACQUISITION AT DECEMBER 31, 1997 LATED CIATION
--------------- ----------------- ------------------------- DEPRE- DATE OF IN LATEST
BUILDINGS LAND BUILDINGS CIATION COMPLE- INCOME
AND CARRYING AND AND AND TION OF DATE STATE-
ENCUM- IMPROVE- IMPROVE- COSTS IMPROVE- IMPROVE- AMORTI- CONSTRUC- ACQUIRED MENT IS
DESCRIPTION BRANCES LAND MENTS MENTS (NOTE 2) MENTS MENTS TOTAL ZATION TION (NOTE 3) COMPUTED
- ----------- ------- ---- --------- ------- -------- -------- --------- ----- ------- --------- -------- ---------
(in thousands)
MARINA
Marina Mart
Moorings Various to
Seattle, WA -- (note 4) (note 4) $ 3,023 $ 107 $ 2,916 $ 3,023 $ 1,094 1987 1939 (note 10)
OFFICE
West Lake Union
Center
Seattle, WA 25,882 $ 266 $36,253 2,281 1,372 37,428 38,800 5,486 1994 (note 10)
I-90 Building Renovated
Seattle, WA -- (note 4) (note 4) 3,445 41 3,404 3,445 1,018 1990 (note 10)
Fisher Business
Center
Lynnwood, WA 10,912 2,230 17,850 4,550 3,155 21,475 24,630 7,682 1986 1980 (note 10)
Marina Mart Renovated
Seattle, WA -- (note 4) (note 4) 3,502 122 3,380 3,502 661 1993 (note 10)
Latitude 47
Restaurant Renovated
Seattle, WA -- (note 4) (note 4) 2,295 (note 5) 2,295 2,295 877 1987 (note 10)
1530 Building Renovated
Seattle, WA -- (note 4) (note 4) 2,158 (note 5) 2,158 2,158 882 1985 (note 10)
INDUSTRIAL
Fisher
Industrial Park 1982 and
Kent, WA 12,554 2,019 4,739 10,674 4,461 12,971 17,432 5,447 1992 1992 (note 10)
Fisher Commerce
Center
Kent, WA 4,354 1,804 4,294 1,953 2,128 5,923 8,051 1,955 Purchased 1989 (note 10)
Pacific North
Equipment
Kent, WA 1,582 1,344 1,582 1,344 2,926 168 Purchased 1997 (note 10)
Fisher Industrial
Center Redeveloped
Seattle, WA (note 6) 255 2,015 2,241 338 4,173 4,511 3,379 1980 (note 10)
MISCELLANEOUS
INVESTMENTS,
less than 5% of
total -- 154 -- 1,326 454 1,026 1,480 427 various various (note 10)
------- ------ ------- ------- ------- ------- -------- -------
$53,702 $8,310 $66,495 $37,448 $13,760 $98,493 $112,253 $29,076
======= ====== ======= ======= ======= ======= ======== =======
(Continued)
50
Schedule III, continued
FISHER COMPANIES INC. AND SUBSIDIARIES
REAL ESTATE AND ACCUMULATED DEPRECIATION (NOTE 1)
DECEMBER 31, 1997
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) Encumbrance included with Fisher Industrial Park.
(7) The changes in total cost of properties for the years ended December 31,
1997, 1996 and 1995 are as follows (in thousands):
1997 1996 1995
-------- -------- --------
Balance at beginning of year............ $107,874 $108,704 $105,485
Cost of improvements................... 5,191 1,162 3,407
Cost of properties sold................ (560)
Cost of improvements retired........... (812) (1,432) (188)
-------- -------- --------
Balance at end of year.................. $112,253 $107,874 $108,704
======== ======== ========
(8) The changes in accumulated depreciation and amortization for the years
ended December 31, 1997, 1996 and 1995 are as follows (in thousands):
1997 1996 1995
------- ------- -------
Balance at beginning of year............. $25,740 $23,064 $19,234
Depreciation and amortization
charged to operations.................. 4,056 3,997 3,995
Retirements and other................... (720) (1,321) (165)
------- ------- -------
Balance at end of year................... $29,076 $25,740 $23,064
======= ======= =======
(9) The aggregate cost of properties for Federal income tax purposes is
approximately $103,549,000 at December 31, 1997.
(10) Reference is made to note 1 to the consolidated financial statements for
information related to depreciation.
51
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 24th day of
March, 1998.
FISHER COMPANIES INC.
--------------------------------
(Registrant)
By: /s/ Donald G. Graham, Jr.
Donald G. Graham, Jr.
Chairman of the Board
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the date indicated:
Signatures Title Date
- ---------- ----- ----
Principal Executive Officer:
/s/ William W. Krippaehne, Jr. President, Chief Executive March 18, 1998
- --------------------------------------------- Officer, and Director
William W. Krippaehne, Jr.
Chief Financial and Accounting Officer:
/s/ David D. Hillard Senior Vice President and March 24, 1998
- --------------------------------------------- Chief Financial Officer,
David D. Hillard and Secretary
A Majority of the Board of Directors:
/s/ Robin E. Campbell Director March 25, 1998
- ---------------------------------------------
Robin E. Campbell
/s/ James W. Cannon Director March 20, 1998
- ---------------------------------------------
James W. Cannon
/s/ George D. Fisher Director March 19, 1998
- ---------------------------------------------
George D. Fisher
/s/ Phelps K. Fisher Director March 24, 1998
- ---------------------------------------------
Phelps K. Fisher
52
Signatures Title Date
- ---------- ----- ----
/s/ William O. Fisher Director March 22, 1998
- ---------------------------------------------
William O. Fisher
/s/ Carol H. Fratt Director March 24, 1998
- ---------------------------------------------
Carol H. Fratt
/s/ Donald G. Graham, III Director March 24, 1998
- ---------------------------------------------
Donald G. Graham, III
/s/ John D. Mangels Director March 20, 1998
- ---------------------------------------------
John D. Mangels
/s/ Jean F. McTavish Director March 24, 1998
- ---------------------------------------------
Jean F. McTavish
/s/ Jacklyn F. Meurk Director March 20, 1998
- ---------------------------------------------
Jacklyn F. Meurk
/s/ W. W. Warren Director March 19, 1998
- ---------------------------------------------
W. W. Warren
/s/ W. W. Warren, Jr. Director March 19, 1998
- ---------------------------------------------
W. W. Warren, Jr.
53
EXHIBIT INDEX
-------------
Exhibit No. Description
----------- -----------
3.1* Articles of Incorporation.
3.2 Articles of Amendment to the Amended and Restated Articles of
Incorporation filed December 10, 1997.
3.3* Bylaws.
10.1* Primary Television Affiliation Agreement between FBI and American
Broadcasting Companies, Inc., dated April 17, 1995, regarding KOMO
TV.
10.2* Primary Television Affiliation Agreement between FBI and American
Broadcasting Companies, Inc., dated April 17, 1995, regarding KATU
TV.
10.3* Fisher Companies Inc. Incentive Plan of 1995.
10.4* Fisher Companies Inc. Supplemental Pension Plan, dated February
29, 1996.
10.5* Fisher Broadcasting Inc. Supplemental Pension Plan, dated March 7,
1996.
10.6* Fisher Mills Inc. Supplemental Pension Plan, dated March 1, 1996.
10.7* Fisher Properties Inc. Supplemental Pension Plan, dated March 1,
1996.
22* Subsidiaries of the Registrant.
23 Consent of Price Waterhouse LLP.
27.1 Financial Data Schedule Fiscal year end 1997.
27.2 Financial Data Schedule Fiscal year end 1996.
27.3 Financial Data Schedule Fiscal quarters ended March 31, 1997,
June 30, 1997 and September 30, 1997.
* Incorporated by reference to the Exhibit of the same number filed as part of
the Company's Registration Statement on Form 10 (File No. 000-22349).
54