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U.S. SECURITIES AND EXCHANGE COMMISSION

Washington D.C. 20549

FORM 10-Q

For the quarterly period ended March 31, 2004

For the transition period from              to             

Commission File Number 0-22439

FISHER COMMUNICATIONS, INC.

(Exact Name of Registrant as Specified in Its Charter)

100 Fourth Ave. N

Suite 440

Seattle, Washington 98109

(Address of Principal Executive Offices) (Zip Code)

(206) 404-7000

(Registrant’s Telephone Number, Including Area Code)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period 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 whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).    Yes  x    No  ¨

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:

Common Stock, $1.25 par value, outstanding as of April 30, 2004: 8,618,388

PART I

FINANCIAL INFORMATION

Item 1. Financial Statements

The following Condensed Consolidated Financial Statements (unaudited) are presented for the Registrant, Fisher Communications, Inc., and its subsidiaries.

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ITEM 1 – FINANCIAL STATEMENTS

FISHER COMMUNICATIONS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

See accompanying notes to condensed consolidated financial statements.

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FISHER COMMUNICATIONS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

See accompanying notes to condensed consolidated financial statements.

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FISHER COMMUNICATIONS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

See accompanying notes to condensed consolidated financial statements.

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FISHER COMMUNICATIONS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

See accompanying notes to condensed consolidated financial statements.

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FISHER COMMUNICATIONS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. Basis of Presentation

The unaudited financial information furnished herein, in the opinion of management, reflects all adjustments which are necessary to state fairly the consolidated financial position, results of operations, and cash flows of Fisher Communications, Inc. and its consolidated subsidiaries (the “Company”) as of and for the periods indicated. Any adjustments are of a normal recurring nature. Fisher Communications, Inc.’s principal wholly owned subsidiaries include Fisher Broadcasting Company and Fisher Media Services Company. The Company presumes that users of the interim financial information herein have read or have access to the Company’s audited consolidated financial statements and that the adequacy of additional disclosure needed for a fair presentation, except in regard to material contingencies or recent subsequent events, may be determined in that context. Accordingly, footnote and other disclosures which would substantially duplicate the disclosures contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2003 filed by the Company have been omitted. The financial information herein is not necessarily representative of a full year’s operations.

2. New Accounting Pronouncements

In December 2003, the Financial Accounting Standards Board (the “FASB”) revised Statement of Financial Accounting Standard (“SFAS”) No. 132, “Employers’ Disclosures about Pensions and Other Postretirement Benefits, an amendment of FASB Statements No. 87, 88 and 106, a revision of FASB Statement No. 132.” SFAS 132R provides for expanded annual and quarterly disclosures with regard to pensions and other postretirement benefits, but does not change the measurement or recognition of those plans required by existing accounting standards. These additional disclosures are generally effective for the year ended December 31, 2003, with certain disclosures required for quarters beginning after December 15, 2003. Additional disclosures for our supplemental retirement program have been provided in these Condensed Consolidated Financial Statements, as required by SFAS 132R.

3. Discontinued Operations

The Company’s real estate subsidiary concluded the sale of its final two commercial office properties in October 2003 and recognized a gain on sale of $16,724,000. In December 2003, the Company then sold the property management operations conducted by the real estate subsidiary to a third party created by former employees of the Company’s real estate subsidiary and recognized a loss on sale of $215,000.

On December 1, 2003, Fisher Broadcasting Company completed the sale of substantially all of the assets of its two Georgia television stations, WFXG-TV, Augusta and WXTX-TV, Columbus, and recognized a gain on sale of $12,460,000; net proceeds from the sale were $40,725,000.

On December 18, 2003, Fisher Broadcasting Company completed the sale of substantially all of the assets of its two Portland, Oregon radio stations, KWJJ FM and KOTK AM, and recognized a gain on sale of $12,616,000; net proceeds from the sale were $42,033,000.

In connection with the Company’s restructuring, two of the businesses operated by the Company’s Media Services subsidiary – Fisher Entertainment LLC (“Fisher Entertainment”) and Civia, Inc. (“Civia”) – ceased operations during the second quarter of 2003, and those businesses were closed.

The aforementioned real estate properties that were sold in October 2003, the sale of property management operations, and the sale of the Company’s Georgia television and Portland radio stations, as well as the closure of Fisher Entertainment and Civia, meet the criteria of a “component of an entity” as defined in SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.” The operations and cash flows of those components have been eliminated from the ongoing operations of the Company as a result of the disposals, and the Company does not have any significant involvement in the operations of those components after the disposal transactions. The results of operations of these components are reported as discontinued operations in the accompanying financial statements. The prior-period results of operations for these components have been reclassified to conform to the 2004 presentation.

In accordance with Emerging Issues Task Force Issue No. 87-24, “Allocation of Interest to Discontinued Operations,” the income or loss from discontinued operations of certain of these components includes an allocation of interest expense relating to debt that was required to be repaid from the net proceeds from sales, in addition to interest expense relating to mortgage loans on the properties sold.

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Financial information relating to the sale of the real estate subsidiary’s final two commercial office properties in October 2003 was initially reclassified to discontinued operations in the third quarter of 2003. Operational data for discontinued real estate properties is summarized as follows (in thousands):

The interest allocation in 2003 is based on $14,000,000 in net proceeds (after income taxes, closing costs, reimbursement from the buyer of certain other items, and retirement of mortgage obligations) that was required to pay down debt as a result of the October 2003 sale of real estate properties.

Financial information relating to the property management operations sold in December 2003 was initially reclassified to discontinued operations in the third quarter of 2003. Operational data for the property management operations sold is summarized as follows (in thousands):

In the first quarter of 2003, the Company’s real estate subsidiary recorded a gain of $1,063,000 resulting from a sale of real estate that occurred in 2000 that was accounted for under the installment method, because a significant portion of the proceeds was in the form of a note receivable. The balance of the note was received in full in March 2003, and the previously deferred gain was recognized as other income.

Financial information relating to the sale of the Georgia television stations was initially reclassified to discontinued operations in the first quarter of 2003. Operational data for the Georgia television stations sold is summarized as follows (in thousands):

The activity in the first quarter of 2004 relates to an adjustment to the purchase price resulting from revision of estimates of working capital at the closing date. The interest allocation is based on $39,300,000 in net proceeds (including working capital at closing, net of closing costs) that was required to pay down debt as a result of the sale.

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Financial information relating to the sale of the Portland, Oregon radio stations was initially reclassified to discontinued operations in the second quarter of 2003. Operational data for the Portland radio stations sold is summarized as follows (in thousands):

The interest allocation is based on $32,900,000 in net proceeds (after income taxes and closing costs) that was required to pay down debt as a result of the sale.

Prior to closing the sale, the Company entered into an agreement with the purchaser whereby the Company is required to further investigate certain environmental conditions at a transmission tower site in Portland that was included in the sale transaction. As a result, $1,000,000 was withheld from the purchase price and is included within accounts receivable at March 31, 2004 and December 31, 2003. The Company is participating in the State of Oregon Department of Environmental Quality’s Voluntary Cleanup Program and estimates that it will incur $300,000 in environmental consulting and other expenses to meet the requirements of the sale agreement, which amount was accrued as of December 31, 2003 and was charged against the gain on sale (which is included in discontinued operations). The Company currently estimates that its plan to address this issue can be substantially completed by the end of 2004, though that estimate is subject to various factors outside of the Company’s control. Under the agreement, if the Company incurs costs in excess of $380,000, the Company is reimbursed from the amount withheld. The Company is not able to estimate a range of loss that could occur if its current plan is not successful; however, after the amount withheld has been expended, the sale agreement limits the Company’s overall indemnification obligation to no more than $5 million.

Financial information relating to the media business closed was initially reclassified to discontinued operations in the second quarter of 2003. Operational data for the media businesses closed is summarized as follows (in thousands):

4. Derivative Instruments

On March 21, 2002, the Company entered into a variable forward sales transaction (the “Forward Transaction”) with a financial institution. As of March 31, 2004, the Company’s obligations under the Forward Transaction were collateralized by 3,000,000 shares of SAFECO Corporation common stock owned by the Company. A portion of the Forward Transaction is considered a derivative and, as such, the Company periodically measures its fair value and recognizes the derivative as an asset or a liability. The change in the fair value of the derivative is recorded in the statement of operations. The Company may in the future designate the Forward Transaction as a hedge and, accordingly, the change in fair value would be recorded in the statement of operations or in other comprehensive income, depending on its effectiveness. As of March 31, 2004, the Company could borrow up to $70,000,000 under the Forward Transaction. Proceeds from the Forward Transaction were used to repay prior debt, to finance construction of the Fisher Plaza project, and for general corporate purposes. The Forward Transaction matures in five separate six-month intervals beginning March 15, 2005 through March 15, 2007. The amount due at

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each maturity date is determined based on the market value of SAFECO common stock on such maturity date. Although the Company has the option of settling the amount due in cash or by delivery of shares of SAFECO common stock, the Company currently intends to settle in cash rather than by delivery of shares. The Company may prepay amounts due in connection with the Forward Transaction. During the term of the Forward Transaction, the Company will continue to receive dividends paid by SAFECO; however, any increase in the dividend amount above the rate as of the date of the Forward Transaction must be paid to the financial institution that is a party to the Forward Transaction. At March 31, 2004, the derivative portion of the Forward Transaction had a fair market value resulting in a liability of $15,151,000, compared to a liability of $5,072,000 as of December 31, 2003; this $10,079,000 change in value during the first quarter of 2004 is included in net loss on derivative instruments in the accompanying financial statements. The Forward Transaction does not specify an interest rate; rather, amounts are borrowed at a discount, and the discount is amortized as interest expense over the life of the loan.

Subsequent to March 31, 2004, the Company terminated one tranche of the Forward Transaction with a maturity date of March 15, 2007. As a result of this termination, the latest maturity under the Forward Sale is October 10, 2006, the maximum amount available for borrowing under the Forward Transaction has been reduced by approximately $3,500,000, and the number of shares of SAFECO Corporation common stock owned by the Company which are collateral for the Forward Transaction has been reduced to 2,600,000 shares. In connection with the termination, the Company paid a termination fee of $2,500,000. The unrealized loss on the terminated tranche at March 31, 2004 was $2,064,000. The termination will be accounted for in the second quarter of 2004.

In March 2002, the broadcasting subsidiary entered into an interest rate swap agreement fixing the interest rate at 6.87%, plus a margin based on the broadcasting subsidiary’s ratio of consolidated funded debt to consolidated EBITDA, on a portion of the floating-rate debt outstanding under the broadcast borrowing facility. The swap expired in March 2004; therefore, the interest rate on those borrowings is no longer at a fixed rate. At December 31, 2003, the swap had a fair market value resulting in a liability of $907,000; because the swap expired in the first quarter of 2004, a gain of $907,000 is included in net gain (loss) on derivative instruments in the accompanying Condensed Consolidated Financial Statements. The interest rate swap liability is included in other current liabilities as of December 31, 2003.

5. Television and Radio Broadcast Rights and Other Broadcast Commitments

The Company acquires television and radio broadcast rights, and may make commitments for program rights where the cost exceeds the projected direct revenue from the program. The impact of such contracts on the Company’s overall financial results is dependent on a number of factors, including popularity of the program, increased competition from other programming, and strength of the advertising market. Estimates of future revenues can change significantly and, accordingly, are reviewed periodically for potential impairment.

At March 31, 2004, the Company had commitments under license agreements amounting to $65,115,000 for future rights to broadcast television and radio programs through 2010, and $10,334,000 in related fees. As these programs will not be available for broadcast until after March 31, 2004, they have been excluded from the financial statements in accordance with provisions of SFAS No. 63, “Financial Reporting by Broadcasters.” In 2002, the broadcasting subsidiary acquired exclusive rights to sell available advertising time for a radio station in Seattle (“Joint Sales Agreement”). Under the Joint Sales Agreement, the broadcasting subsidiary has commitments for monthly payments totaling $10,482,000 through 2008.

6. Retirement Benefits

The Company maintained qualified defined benefit pension plans covering substantially all employees not covered by union plans. Benefits were based on years of service and, in one of the pension plans, on the employees’ compensation at retirement. The Company annually accrued the normal costs of the pension plans plus the amortization of prior service costs over periods ranging to fifteen years. Such costs were funded in accordance with the provisions of the Internal Revenue Code. In June 2000, benefit accruals ceased under the pension plan for employees of the broadcasting subsidiary, and the pension plan was terminated, with substantially all plan assets distributed to plan participants in January 2002. In July 2001, benefit accruals ceased under the pension plan for non-broadcasting employees, and plan assets were distributed to participants between 2001 and the first half of 2003.

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The net periodic pension cost for the Company’s terminated qualified defined benefit pension plans is as follows (in thousands):

The Company has a noncontributory supplemental retirement program for key management. The program provides for vesting of benefits under certain circumstances. Funding is not required, but generally the Company has acquired annuity contracts and life insurance on the lives of the individual participants to assist in payment of retirement benefits. The Company is the owner and beneficiary of such policies; accordingly, the cash values of the policies, as well as the accrued liability, are reported in the financial statements. The program requires continued employment through the date of expected retirement. The cost of the program is accrued over the participants’ remaining years of service with the Company. The measurement date for the supplemental retirement program is December 31.

The net periodic pension cost for the Company’s supplemental retirement plan is as follows (in thousands):

Assumptions used to determine net periodic pension costs are as follows:

7. Income (loss) Per Share

Net income (loss) per share represents net income (loss) divided by the weighted average number of shares outstanding during the period. Net income (loss) per share assuming dilution represents net income (loss) divided by the weighted average number of shares outstanding, including the potentially dilutive impact of stock options and restricted stock rights issued under the Company’s incentive plans. Stock options and restricted stock rights are converted using the treasury stock method.

The weighted average number of shares outstanding for the three-month period ended March 31, 2004 was 8,611,994. The dilutive effect of 460 restricted stock rights and options to purchase 488,830 shares are excluded for the three-month period ended March 31, 2004, because such rights and options were anti-dilutive; therefore, there is no difference in the calculation between basic and diluted per-share amounts.

The weighted average number of shares outstanding for the three-month period ended March 31, 2003 was 8,594,060. The dilutive effect of 1,504 restricted stock rights and options to purchase 422,798 shares are excluded for the three-month period ended March 31, 2003, because such rights and options were anti-dilutive; therefore, there is no difference in the calculation between basic and diluted per-share amounts.

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8. Stock-Based Compensation

The Company accounts for common stock options and restricted common stock rights in accordance with Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees,” and related interpretations. No stock-based compensation is generally reflected in net loss, as all options granted had an exercise price equal to the market value of the underlying common stock on the date of grant.

The following table illustrates the effect on net loss and net loss per share if the Company had applied the fair value recognition provisions of SFAS No. 123, “Accounting for Stock-Based Compensation,” to stock-based employee compensation (in thousands, except per share amounts):

9. Segment Information

The Company reports financial data for three reportable segments: television, radio, and Fisher Plaza. The television reportable segment includes the operations of the Company’s nine network-affiliated television stations, and a 50% interest in a company that owns a tenth television station. The radio reportable segment includes the operations of the Company’s 27 radio stations. Corporate expenses of the broadcasting business unit are allocated to the television and radio reportable segments based on a ratio that approximates historic revenue and operating expenses of the segments. The Fisher Plaza reportable segment includes the operations of a communications center located in Seattle that serves as home of the Company’s Seattle television and radio operations, the Company’s corporate offices, and third-party tenants.

The Company formerly reported financial data for a remaining “all other” category. The operations of Fisher Pathways, Inc., a provider of satellite transmission services, as well as Fisher Media Services Company’s corporate expenses, were included in this “all other” category. Beginning in the first quarter of 2004, the Company began reporting the operations of Fisher Pathways, Inc., in the television reportable segment, consistent with changes in the financial and operational oversight of those operations. Also beginning in the first quarter of 2004, the Company began reporting Fisher Media Services Company’s corporate expenses in the Fisher Plaza reportable segment, consistent with that entity’s sole operational focus and the fact that management evaluates the operations of these activities together. Prior-period segmental data has been revised to conform to the first quarter 2004 presentation.

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Revenue for each reportable segment is as follows (in thousands):

Income (loss) before interest and income taxes for each reportable segment is as follows (in thousands):

The following table reconciles total segment loss from continuing operations before interest and income taxes shown above to consolidated loss from continuing operations before income taxes (in thousands):

Identifiable assets for each reportable segment are as follows (in thousands):

Identifiable assets by reportable segment are those assets used in the operations of each segment. Corporate assets are principally marketable securities.

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10. Other Commitments

In connection with a review of strategic alternatives in late 2002 and early 2003, the Company entered into retention agreements with certain officers and employees which required payments in January 2004, if the officers and employees continued their employment with the Company until that date. The Company accrued the amounts specified over the service period specified in the agreements. The Company also maintained agreements which provided that if a change in control should occur, certain officers will receive severance payments and health and welfare benefits. On January 15, 2004, the Company made payments totaling $3,548,000 under the agreements, and the agreements terminated.

11. Borrowing Agreements

The Company’s media services subsidiary maintains a three-year senior secured credit facility (the “Media Facility”) with two banks. The Media Facility is collateralized by a first deed of trust on the Fisher Plaza property, which had a carrying amount of $121,270,000 as of March 31, 2004. The Media Facility is governed by a credit agreement that requires compliance with certain financial ratios. As of March 31, 2004, the media services subsidiary was not in compliance with one of the financial ratios; such non-compliance was subsequently waived by the lenders. At March 31, 2004, $25,370,000 was outstanding under the Media Facility, and this amount is classified as a current liability in accordance with the February 28, 2005 expiration of the Media Facility.

12. Reclassifications

Certain prior-period balances have been reclassified to conform to the current-period presentation. Such reclassifications had no effect on net loss or stockholders’ equity.

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ITEM 2 - MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL POSITION AND RESULTS OF OPERATIONS

The following discussion and analysis should be read in conjunction with the Financial Statements and related Notes thereto included elsewhere in this quarterly report on Form 10-Q. Some of the statements in this quarterly report are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include all passages containing verbs such as `aims, anticipates, believes, estimates, expects, hopes, intends, plans, predicts, projects or targets’ or nouns corresponding to such verbs. Forward-looking statements also include any other passages that are primarily relevant to expected future events or that can only be fully evaluated by events that will occur in the future. There are many risks and uncertainties that could cause actual results to differ materially from those predicted in our forward-looking statements, including, without limitation, those factors discussed under the caption “Additional Factors That May Affect Our Business, Financial Condition And Future Results,” and those discussed in our annual report on Form 10-K for the year ended December 31, 2003. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this report. We undertake no obligation to revise any forward-looking statements in order to reflect events or circumstances that may subsequently arise. Readers are urged to carefully review and consider the various disclosures made in this report and in our other reports filed with the Securities and Exchange Commission that attempt to advise interested parties of the risks and factors that may affect our business, prospects and results of operations. As used herein, unless the context requires otherwise, when we say “we”, “us”,” our”, or the “Company”, we are referring to Fisher Communications, Inc. and its consolidated subsidiaries.

This discussion is intended to provide an analysis of significant trends, if any, and material changes in our financial position and operating results of our business units during the three-month period ended March 31, 2004 compared with the corresponding period in 2003.

Our broadcasting operations receive revenues from the sale of local, regional and national advertising and, to a much lesser extent, from network compensation, satellite and fiber transmission services, tower rental and commercial production activities. Our operating results are therefore sensitive to broad economic trends that affect the broadcasting industry in general, as well as local and regional trends, such as those in the Northwest economy. Our period-to-period revenues are also affected by political and advocacy advertising, and national election years such as 2004 typically result in increased revenues in that category. Television revenues are significantly affected by network affiliation, and the success of programming offered by those networks. Our two largest television stations, representing approximately three-fourths of our television revenues, are affiliated with the ABC Television Network, and the remaining eight television stations (including 50%-owned KPIC TV) are affiliated with the CBS Television Network. Our broadcasting operations are subject to competitive pressures from traditional broadcasting sources, as well as from alternative methods of delivering information and entertainment, and these pressures may cause fluctuations in operating results.

In May 2002, our broadcasting subsidiary entered into a radio rights agreement (the “Rights Agreement”) to broadcast Seattle Mariners baseball games on KOMO AM for the 2003 through 2008 baseball seasons. The Rights Agreement has led to significantly increased overall revenues at our Seattle radio operations, as well as significantly increased programming, selling, promotional, and other costs, as we seek to elevate the position of our Seattle radio operations in the Seattle market. The impact of the Rights Agreement is greater during periods that include the broadcast of Mariners baseball games; therefore, the impact on the periods ended March 31, 2004 and 2003 are less than what is expected for the second and third quarters of the calendar year. We also changed to an all-news format for KOMO AM in 2002. These changes have led to improved ratings for KOMO AM in the Seattle market, and we expect that these investments will lead to improved operating performance for our Seattle radio operations.

In addition to our broadcasting operations, we own and operate Fisher Plaza, a communications center located in Seattle. In addition to serving as the home of our corporate offices and KOMO TV, and radio stations KVI AM, KOMO AM and KPLZ FM, Fisher Plaza is designed to enable the distribution of analog and digital media content through numerous distribution channels, including broadcast, satellite, cable, Internet, broadband (high speed digital transmission of voice, data and/or video), and wired and wireless communication systems. Fisher Plaza also houses other companies with complementary needs for the mission critical infrastructure provided at the facility. As of March 31, 2004, 73% of Fisher Plaza was occupied or committed for occupancy, including 41% occupied by Fisher entities; the total occupied or committed for occupancy was 70% at December 31, 2003. We continue to market Fisher Plaza to potential third-party tenants.

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Management focuses on key metrics from operational data within the Company’s broadcasting and Fisher Plaza operations. Information on significant trends is provided in the section entitled “Consolidated Results of Operations.”

CRITICAL ACCOUNTING POLICIES

The SEC has defined a company’s critical accounting policies as the ones that are most important to the portrayal of the company’s financial condition and results of operations, and which require the company to make its most difficult and subjective judgments, often as a result of the need to make estimates of matters that are inherently uncertain. Our critical accounting policies and estimates include the estimates used in determining the value of goodwill and other intangible assets, derivative instruments, television and radio broadcast rights, the cost of pension programs, the amount of tax accruals and the amount of the allowance for doubtful accounts. For a detailed discussion of our critical accounting policies and estimates, please refer to our Annual Report on Form 10-K for the year ended December 31, 2003. There were no material changes in the application of our critical accounting policies and estimates subsequent to that report. We have discussed the development and selection of these critical accounting estimates with the Audit Committee of our board of directors, and the Audit Committee has reviewed our disclosures relating to them.

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.

CONSOLIDATED RESULTS OF OPERATIONS

We report financial data for three reportable segments: television, radio, and Fisher Plaza. The television reportable segment includes the operations of our nine network-affiliated television stations, and a 50% interest in a company that owns a tenth television station. The radio reportable segment includes the operations of our 27 radio stations. Corporate expenses of the broadcasting business unit are allocated to the television and radio reportable segments based on a ratio that approximates historic revenue and operating expenses of the segments. The Fisher Plaza reportable segment includes the operations of a communications center located in Seattle that serves as home of our Seattle television and radio operations, our corporate offices, and third-party tenants.

The Company formerly reported financial data for a remaining “all other” category. The operations of Fisher Pathways, Inc., a provider of satellite transmission services, as well as Fisher Media Services Company’s corporate expenses, were included in this “all other” category. Beginning in the first quarter of 2004, the Company began reporting the operations of Fisher Pathways, Inc., in the television reportable segment, consistent with changes in the financial and operational oversight of those operations. Also beginning in the first quarter of 2004, the Company began reporting Fisher Media Services Company’s corporate expenses in the Fisher Plaza reportable segment, consistent with that entity’s sole operational focus. Prior-period segmental data has been revised to conform to the first quarter 2004 presentation.

Loss from continuing operations for the three months ended March 31, 2004 was $9,713,000. Results for this period included a net loss on derivative instruments of $9,172,000 ($5,843,000 after tax).

Loss from continuing operations for the three months ended March 31, 2003 was $2,869,000. These results included a net loss on derivative instruments amounting to $242,000 ($154,000 after tax), and a gain amounting to $3,675,000 ($2,341,000 after tax) on sale of certain marketable securities.

Percentage comparisons have been omitted within the following tables where they are not considered meaningful.

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Revenue

Overall television net revenue increased by $1,257,000 in the first quarter of 2004, as compared to the first quarter of 2003, and each of our television broadcasting groups reported increased revenues. The increase was primarily attributable to higher political advertising, and that advertising was heavily weighted toward the end of the quarter as political campaigns began spending on broadcast advertising in certain of our markets. The increase was also due to generally increased local advertising revenue in the first quarter of 2004, as compared to the first quarter of 2003; we have focused significant efforts on improving our local advertising success. The overall increase in revenue was offset, in part, by decreased national advertising at our ABC-affiliated stations. Our two largest television stations, KOMO TV in Seattle and KATU in Portland, representing approximately three-fourths of our television revenues, are affiliated with ABC.

Based on information published by Miller, Kaplan, Arase & Co., LLP (Miller Kaplan), total spot revenue for the overall Seattle television market increased 6.5% in the first quarter of 2004, as compared to the first quarter of 2003, and total spot revenue for the overall Portland television market increased 11.7% over these same periods. Our Seattle and Portland television stations experienced spot revenue increases of 5.6% and 5.8%, respectively, in the first quarter of 2004, as compared to the first quarter of 2003. We believe that the weak performance of ABC programming contributes to lower-than-market performance at these stations. Our Seattle and Portland total revenues increased 6.3% and 5.0%, respectively, in the first quarter of 2004, as compared to the first quarter of 2003. Revenue from our remaining television stations increased by 14.5% in the first quarter of 2004, as compared to the first quarter of 2003.

Our radio operations showed strong revenue growth in the first quarter of 2004, compared to the first quarter of 2003, primarily as a result of KOMO AM’s increased performance in the Seattle market. Excluding revenues specifically attributable to Seattle Radio’s agreement with the Seattle Mariners to broadcast baseball games, KOMO AM’s revenues increased more than 100% in the first quarter of 2004, compared to the first quarter of 2003. We attribute the increase to the synergistic effect of the Seattle Mariners programming, as well as our converting KOMO AM to an all-news format in September 2002. Miller Kaplan data, which excludes sports programming, reported that radio revenues for the Seattle market grew 5.9% during the first quarter of 2004, as compared to the first quarter of 2003. Total Seattle Radio revenue increased 15.6% in the first quarter of 2004, as compared to the first quarter of 2003. Revenue from our Seattle Radio operations comprises approximately 68% of our total radio revenue.

Fisher Plaza first opened in May of 2000, and the second phase of the project was open for occupancy in the summer of 2003. The decrease in revenue in the first quarter of 2004, as compared to the first quarter of 2003, is due to a significant penalty paid by a tenant during the first quarter of 2003 for early termination of an occupancy agreement. The Seattle-area real estate market continues to be soft, which may delay our ability to reach full occupancy.

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Cost of services sold

The cost of services sold consists primarily of costs to acquire, produce, and promote broadcast programming for the television and radio segments, and costs to operate Fisher Plaza. Many of these costs are relatively fixed in nature and do not necessarily vary on a proportional basis with revenue.

The slight decrease in the television segment cost of services sold in the first quarter of 2004, as compared to the first quarter of 2003, is primarily the result of lower programming and syndication costs. The overall decrease was offset somewhat by increased news department expenses.

Lower cost of services sold at our radio segment are primarily attributable to timing differences relating to the amortization of capitalized Mariners baseball broadcast rights (with amortization based on actual season-to-date revenue as a percentage of total projected revenue) as well as lower programming costs due to a change in syndicated programming at KVI AM in Seattle. These decreases were offset somewhat by selected increased promotional activities.

The corporate and eliminations category consists primarily of the reclassification and elimination of certain operating expenses between operating segments; for example, KOMO TV and Seattle Radio recognize facilities-related expenses as general and administrative, while Fisher Plaza records the reimbursement of these expenses as reduction of cost of services sold. The increase in the first quarter of 2004, as compared to the first quarter of 2003, is due primarily to intersegment facilities-related expenses.

Selling expenses

The increases in selling expenses in the television and radio segments in the first quarter of 2004, as compared to the first quarter of 2003, are due primarily to increased sales commissions on higher revenue levels.

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General and administrative expenses

The television and radio segments had lower general and administrative expenses in the first quarter of 2004, as compared to the first quarter of 2003, due to cost control measures that included the suspension of our 401(k) plan matching contributions. These savings were offset somewhat in the first quarter of 2004 as a result of employee termination expenses totaling $500,000, and increased intersegment facilities-related expenses. In the first quarter of 2004, as a result of operational decisions and cost control measures, we terminated 23 people in our broadcast operations. We anticipate annual savings of approximately $1,500,000 from this action.

The corporate group incurred lower expenses in the first quarter of 2004, as compared to the first quarter of 2003, primarily as a result of reduced retention accruals and the absence of certain pension-related expenses that were recognized in the first quarter of 2003 in connection with a pension plan settled in 2003, as well as lower legal and consulting expenses. These decreases were offset in part by costs associated with additional finance personnel, as well as consulting and professional fees relating to increased regulatory requirements under the Sarbanes-Oxley Act of 2002.

Depreciation and amortization

Depreciation for the television segment declined in the first quarter of 2004, as compared to the first quarter of 2003, as a result of generally reduced capital spending over the past few years.

The increase in depreciation in the Fisher Plaza segment in the first quarter of 2004, as compared to the first quarter of 2003, is primarily due to commencing depreciation on the second building of the facility in July 2003 when the building was placed in service.

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Income (loss) from operations

Income (loss) from operations by segment consists of revenue less operating expenses. Income (loss) from operations by segment excludes net gain (loss) on derivative instruments, other income, net, and interest expense, net.

Net gain (loss) on derivative instruments

On March 21, 2002, we entered into a variable forward sales transaction (the “Forward Transaction”) with a financial institution. As of March 31, 2004, our obligations under the Forward Transaction were collateralized by 3,000,000 shares of SAFECO Corporation common stock owned by the Company. A portion of the Forward Transaction is considered a derivative and, as such, we periodically measure its fair value and recognize the derivative as an asset or a liability. The change in the fair value of the derivative is recorded in the statement of operations. The value of the Forward Transaction can change significantly, based primarily on changes in the value of SAFECO Corporation common stock, changes in underlying assumptions concerning the volatility of SAFECO common stock, and changes in interest rates.

Subsequent to March 31, 2004, the Company terminated one tranche of the Forward Transaction with a maturity date of March 15, 2007. As a result of this termination, the latest maturity under the Forward Sale is October 10, 2006, the maximum amount available for borrowing under the Forward Transaction has been reduced by approximately $3,500,000, and the number of shares of SAFECO Corporation common stock owned by the Company which are collateral for the Forward Transaction has been reduced to 2,600,000 shares. In connection with the termination, the Company paid a termination fee of $2,500,000. The unrealized loss on the terminated tranche at March 31, 2004 was $2,064,000. The termination will be accounted for in the second quarter of 2004.

In connection with borrowings for our broadcasting operations, the broadcasting subsidiary entered into an interest rate swap agreement (the “Swap Agreement”) fixing the interest rate at 6.87%, plus a margin based on the broadcasting subsidiary’s ratio of consolidated funded debt to consolidated EBITDA, on a portion of the floating rate debt outstanding under these borrowings. The change in value of the Swap Agreement is recorded in the statement of operations. The value of the Swap Agreement can change significantly, based primarily on changes in market interest rates. The interest rate swap expired in March 2004; therefore, the interest rate on these borrowings is no longer at a fixed rate.

Net loss on derivative instruments in the first quarter of 2004 consists of unrealized loss resulting from changes in fair value of the Forward Transaction derivative amounting to $10,079,000, offset in part by an unrealized gain from changes in fair value of the Swap Agreement amounting to $907,000. The loss of the Forward Transaction was primarily attributable to the increased value of SAFECO Corporation common stock during the first quarter of 2004. The Company recorded a $12,580,000 pre-tax increase in value of its marketable securities during the first quarter of 2004, and that increase is reflected, after tax effects, in the Condensed Consolidated Statement of Comprehensive Income.

Net gain on derivative instruments in the first quarter of 2003 includes unrealized loss resulting from changes in fair value of the Forward Transaction amounting to $892,000, and unrealized gain from changes in fair value of the Swap Agreement amounting to $650,000.

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Other income, net

Other income, net, includes dividends received on marketable securities and, to a lesser extent, interest and miscellaneous income. The decrease in the first quarter of 2004, in comparison to the first quarter of 2003, is due primarily to gains on the sales of marketable securities amounting to $3,675,000 in the first quarter of 2003.

Interest expense, net

Interest expense includes interest on borrowed funds, amortization of loan fees, and net payments under the Swap Agreement. In accordance with Emerging Issues Task Force Issue No. 87-24, “Allocation of Interest to Discontinued Operations,” interest expense in the first quarter of 2003 relating to debt that was required to be repaid from the net proceeds from certain sales has been reclassified to discontinued operations.

Benefit for federal and state income taxes

The provision (benefit) for federal and state income taxes varies directly with pre-tax income. The effective tax rate varies from the statutory rate primarily due to a deduction for dividends received, offset by the impact of state income taxes.

Other comprehensive income (loss)