As Filed With the Securities and Exchange Commission on June 18, 1997
Registration No.
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________
PRE-EFFECTIVE AMENDMENT NO. 2
to
FORM 10
GENERAL FORM FOR
REGISTRATION OF SECURITIES
Pursuant to Section 12(b) or 12(g) of
the Securities Exchange Act of 1934
__________
FISHER COMPANIES INC.
(Exact name of registrant as specified in its charter)
Washington 91-0222175
(State or other jurisdiction (I.R.S. employer identification number)
of incorporation or organization)
1525 One Union Square 98101-3185
600 University Street (Zip code)
Seattle, Washington
(Address of principal
executive offices)
(206) 624-2752
(Registrant's telephone number, including area code)
Securities to be registered
pursuant to Section 12(b) of the Act:
None
Securities to be registered
pursuant to Section 12(g) of the Act:
Common Stock, $2.50 par value
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FISHER COMPANIES INC.
FORM 10 REGISTRATION STATEMENT
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.
The Company was founded in 1910 as Fisher Flouring Mills Company ("FFMCO"),
and was reorganized into its current structure in 1971, by means of mergers with
two milling-related entities that had common ownership with FFMCO and an entity
with real estate investments that had similar ownership with FFMCO and the
establishment of two additional operating subsidiaries, Fisher Mills Inc.
("FMI") and Fisher Properties Inc. ("FPI"). At the same time, FFMCO became a
holding company and was renamed Fisher Companies Inc.
FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS (1):
CORPORATE,
ELIMINATIONS
BROADCASTING MILLING REAL ESTATE & OTHER CONSOLIDATED
------------ -------- ----------- ------------ ------------
SALES AND OTHER
REVENUE
1996 $111,967 $135,697 $13,556 $ 4,000 $265,220
1995 101,192 112,360 10,941 4,087 228,580
1994 87,112 93,277 8,659 3,460 192,508
INCOME FROM OPERATIONS
1996 34,025 3,410 5,749 1,948 45,132
1995 31,518 2,907 3,267 2,152 39,844
1994 26,066 1,078 2,199 2,236 31,579
IDENTIFIABLE ASSETS
1996 120,911 57,638 86,600 129,000 394,149
1995 97,532 54,565 90,212 110,726 353,035
1994 84,760 47,899 90,887 84,526 308,072
(1) In thousands of dollars.
BROADCASTING OPERATIONS
-----------------------
INTRODUCTION
The Company's broadcasting operations are conducted through Fisher
Broadcasting Inc. ("Fisher Broadcasting"), a Washington corporation. Fisher
Broadcasting was incorporated by
1
FFMCO in 1926 as Fisher's Blend Stations Inc. to operate radio broadcasting
properties, and was renamed Fisher Broadcasting Inc. in 1978. 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, 23 radio stations, two broadcast satellite teleports, and
provides emerging media development service. Fisher Broadcasting's television
stations reach approximately 2,500,000 households, or 2.5% of all U.S.
television households; its radio stations collectively represent the 37th
largest radio group in the U.S. by audience, reaching approximately 1,300,000
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); and its satellite
teleports serve many of the Northwest's businesses and news organizations.
Fisher Broadcasting believes that the foundation of its success in the broadcast
and news media businesses is its commitment to creating value in today's
broadcasting environment and in tomorrow's emerging communications marketplace.
Throughout its 70 year history, Fisher Broadcasting has been committed to
maximizing shareholder value by looking for ways to leverage its core
competencies in a manner that serves Fisher Broadcasting's viewers, listeners,
vendors and clients.
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. In Seattle, KOMO News 1000,
`Hot Talk' KVI 570, and STAR 101.5 (KPLZ) are uniquely positioned radio stations
that serve a broad base of listeners with news, information and entertainment.
See "Broadcasting Operations - Radio - Seattle Radio Market." In Portland,
Oregon, the KWJJ AM/FM stations deliver country music to the total metropolitan
population of approximately 1,900,000. See "Broadcasting Operations - Radio -
Portland Radio Market." Sunbrook Communications, Inc. ("Sunbrook"), a wholly-
owned subsidiary of Fisher Broadcasting, owns and operates 18 radio stations in
Washington and Montana. See "Broadcasting Operations - Radio - 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.
FishComm is committed to the full use of existing Fisher Broadcasting facilities
and services and to leading the way into the future of emerging new media and
emerging technologies. By generating new revenue from existing facilities, such
as satellite communications receive and transmit facilities, FishComm is
positioned to leverage Fisher Broadcasting's core competencies. See
"Broadcasting Operations - Satellite, Internet, and Emerging Media Operations."
As of December 31, 1996, Fisher Broadcasting employed 780 full- and part-
time employees, 136 of whom are covered by five collective bargaining agreements
with three labor unions. KOMO TV's IBEW (International Brotherhood of
Electrical Workers) and AFTRA (American Federation of Television and Radio
Artists) Staff Artists contracts expire on May 31
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and December 1, 1997, respectively. The station's IATSE (International Alliance
of Theatrical Stage Employees) contracts for photographers and for film and tape
editors expire on May 1 and June 1, 1998, respectively. KATU's IATSE contract
for photographers expires September 1, 1997. KWJJ AM/FM's IBEW contract for its
on-air staff expires on December 4, 1997. Negotiations for the three-year
contracts usually begin approximately one month prior to the end of the
contract. Fisher Broadcasting believes its relations with employees to be good.
TELEVISION AND RADIO OPERATIONS
Fisher Broadcasting focuses on increasing shareholder value and
profitability by serving the needs and wants of the diverse communities in which
it operates. Management believes that increased audience share and revenue
growth each flow from a commitment to serve the various audiences in the
community. Fisher Broadcasting strives to develop and maintain the highest
ranked stations in each of its markets, while maintaining careful control of
programming and other operating costs.
POSITIONING AND BRANDING STATIONS
In each of its markets, Fisher Broadcasting positions its stations in a
manner that creates and reinforces a local "brand" with which the viewer,
listener or advertiser can identify. In developing and implementing this
positioning, each broadcasting operation utilizes a market-specific planning
process designed to integrate news and entertainment programming with customized
promotional and sales strategies. Fisher Broadcasting's positioning varies by
market, taking into account service to the community, demographics, competition,
and other market dynamics and opportunities. See "Broadcasting Operations -
Television - General Overview" and "- Radio - General Overview."
BUILDING ON LOCAL NEWS INFORMATION AND ENTERTAINMENT PROGRAMMING FRANCHISES
Each Fisher Broadcasting station strives to build audience loyalty by
focusing on local news and entertainment programming. Fisher Broadcasting
believes a strong, well-defined local news product builds viewer loyalty. In
addition, each station also produces information, entertainment, public affairs
and children's programs that enhance Fisher Broadcasting's ties to the local
communities served by such station. Dedication to public service and community
affairs also serves to strengthen Fisher Broadcasting's bond with the viewers,
listeners and advertisers in such communities. See "Broadcasting Operations -
Television - Competition" and "- Radio - Competition."
INVESTING IN EMPLOYEES
Fisher Broadcasting believes that its employees are its most important and
valuable resource. Each employee has the opportunity to participate in training
to assist him or her in the continual process of generating a new future, both
for the employee and for Fisher Broadcasting. Through Fisher University, a
program for employees of the Company and all of its subsidiaries, employees
receive training that emphasizes the importance of Fisher Broadcasting's
historical strengths, while addressing current and future challenges.
3
INVESTING IN TECHNOLOGY AND OTHER CAPITAL IMPROVEMENTS
Fisher Broadcasting regularly invests in capital equipment that will either
increase worker productivity, reduce station operating costs, or improve signal
quality and strength. Capital expenditures for Fisher Broadcasting's television
and radio operations over the past five years were approximately $18.5 million.
Fisher Broadcasting believes that its capital investment program enables it to
enhance the quality of its programming production and gain competitive
advantages in the local markets served by its stations.
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 just announced its licensing plan for digital television. 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, and
Fisher Broadcasting is prepared to make the necessary investment in order to
fully exploit this technology.
Digital television tramsmits 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 variations 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.
ACQUISITIONS
In early 1994, Fisher Broadcasting owned and operated two television
stations (KOMO TV, Seattle and KATU Television, Portland) and one radio station
(KOMO AM, Seattle). Since that time, Fisher Broadcasting has acquired two
additional radio stations in Seattle, two radio stations in Portland, and
eighteen radio stations in Washington and Montana. See "Broadcasting Operations
- - Radio."
Fisher Broadcasting plans to continue to evaluate and, if appropriate,
pursue acquisition opportunities in television, radio, and emerging media
markets. Any acquisition would target broadcast and emerging media properties
that could be acquired on favorable terms and offer attractive opportunities for
the successful application of Fisher Broadcasting's operating strategies or
would be complementary to its current operations and core competencies. In
assessing acquisition opportunities, Fisher Broadcasting will consider various
factors, including (1) price, (2) available resources for acquisition, (3)
government regulation of station ownership, (4) whether the size, location,
network affiliation, and other characteristics of any acquisition candidate
would complement Fisher Broadcasting's current broadcast operating commitments,
(5) whether the projected population growth, audience demographics, and business
development opportunities in the acquisition candidate's markets would
facilitate increased advertising revenues, and (6) whether any acquisition
candidate would provide station- and market-specific opportunities to increase
revenues and leverage Fisher Broadcasting's core competencies and existing
technology commitments. Fisher Broadcasting does not presently have any
agreements or understandings to acquire or sell broadcast or emerging media
properties. Fisher Broadcasting is not committed to any timetable for
acquisitions nor to any number or level of acquisitions. There can be no
guarantee that Fisher Broadcasting will make future acquisitions and, if there
are such acquisitions, no guarantee as to the number of stations or the size of
the markets any such stations might serve.
4
EXPANDING PROGRAMMING PRODUCTION
Fisher Broadcasting seeks to address and satisfy the news, information,
entertainment and public outreach needs of the local communities served by each
station. Fisher Broadcasting believes that consistent focus on such needs is
one of the principal reasons why various Fisher Broadcasting programs have
received significant local and national attention. This attention has, in turn,
led to the syndication of some of Fisher Broadcasting's programming efforts.
Fisher Broadcasting believes that syndication is an area of emerging growth,
creating new revenue opportunities without commensurate increases in expenses.
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.
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."
5
Nielsen uses two methods of determining a station's rating and share. In
larger geographic markets, ratings are determined by a combination of meters
connected directly to selected television sets and weekly viewer-completed
diaries. In smaller markets, ratings are determined by weekly diaries only.
Both markets in which Fisher Broadcasting has television stations are metered.
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. Cable systems generally do not compete
with local stations for programming, although various national cable networks
from time to time have acquired programs that would otherwise have been offered
to local stations. 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 twelve hours and seventeen hours, respectively, of
programming per day 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.
In contrast to a network-affiliated station, an independent station
purchases or produces all of the programming that it broadcasts, generally
resulting in higher programming costs, although the independent station is, in
theory, able to retain its entire inventory of advertising time and all of the
revenue obtained from the sale of such time. Barter and cash-plus-barter
arrangements, however, also have become increasingly popular among independent
stations.
6
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. 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.
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COMPETITION
Competition in the television industry, including the markets in which
Fisher Broadcasting's stations compete, takes place on several levels:
competition for audience, competition for programming (including news) and
competition for advertisers. 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
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), 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 (such as
"Home Improvement") and first-run product
8
(such as "The Oprah Winfrey Show"). Cable systems generally do not compete with
local stations for programming, although various national cable networks from
time to time have acquired 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 advertising fluctuates significantly and follows no predictable
pattern. 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 1996,
approximately 72% of the population in the DMA subscribed to cable. According
to recent U.S. Census Bureau reports, the market's metropolitan audience had an
average household income of approximately $50,300, as compared to the national
average of approximately $46,800. Major industries in the market include
aerospace, biotechnology, forestry, software, telecommunications,
transportation, retail and international trade. Major employers include The
Boeing Company, Microsoft Corporation,
9
Nordstrom, Inc. and Alaska Airlines, Inc. In 1996, television advertising
revenue for the Seattle-Tacoma DMA was $276 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 18%, sign on
-------------------
to sign off from 1992-1996. 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 has made a major commitment to enhancing the health and welfare of
the Northwest's young people and their families with its "For Kids' Sake"
campaign. KOMO TV fulfills this commitment with a significant schedule of
programming, projects, and community outreach activities and events. Since the
campaign's inception in 1987, KOMO TV has been recognized for its leadership in
the area of children and families by the White House, the National Association
of Broadcasting, the National Association of Television Arts and Sciences, and
the National Association of Television Programmers and Executives. Now in its
11th year, KOMO TV's "For Kids Sake" campaign has helped raise over $24 million
for Children's Hospital and Medical Center in Seattle, Washington; collected
over 2.8 million pounds of food to help feed hungry families in Western
Washington; produced award-winning prime time specials on issues of concern to
Northwest families; and encouraged thousands of young people to "Read as much as
you watch TV."
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 also has a long-standing history of local non-news programming.
"Northwest Afternoon" is a live Monday through Friday talk program designed to
meet the information and entertainment needs of the female audience. "Town
Meeting," which airs on Sundays at 6:00 p.m., is a weekly public affairs program
that provides a forum for viewers to share and discuss important issues in their
lives. KOMO TV also airs a number of syndicated programs, including "Live with
Regis and Kathie Lee," "Wheel of Fortune," "Jeopardy," and, beginning in the
fall of 1997, "The Rosie O'Donnell Show."
KOMO TV broadcasts from its studios in Seattle. Currently, Fisher
Broadcasting is contemplating a new broadcast center with digital equipment that
would greatly expedite the transition from analog to digital high definition
television broadcasting. Planning of the contemplated facility is in the
initial stage only, and no decision has been made to proceed. If subsequent
planning and actual construction is approved and proceeds according to Fisher
10
Broadcasting's preliminary objectives, it is anticipated that KOMO TV's move
into such new facility would be completed by January 1, 2000.
KOMO TV MARKET/STATION DATA
1992 1993 1994 1995 1996
--------- --------- --------- --------- ---------
Market revenue (in thousands)........... $211,472 $218,347 $254,376 $258,660 $275,594
Market revenue growth over prior
period................................ 8.9% 3.3% 16.5% 1.7% 6.5%
Market rank (DMA)....................... 13 13 12 12 12
Television homes (in thousands)......... 1,390 1,428 1,429 1,464 1,492
Total commercial competitors in market.. 8 8 8 8 8
Station rank in market, sign on to sign
off.................................... 1 1 2 2 2
Station audience share, sign on to sign
off.................................... 19% 19% 18% 17% 15%
Station rank in market 4:00 p.m. to
8:00 p.m............................... 2 2 1 1 2
Station audience share 4:00 p.m. to
8:00 p.m................................ 20% 22% 23% 21% 19%
- ---------------------
Source: Miller, Kaplan, Arase & Co.; The A.C. Nielsen Co.
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 952,700
television households. Approximately 63% of Portland's population subscribed to
cable in 1996. In 1996, the average household income in the Portland DMA was
approximately $44,500. Portland maintains a balanced economy with services,
wholesale/retail and manufacturing representing approximately 26%, 25% and 16%
of total employment, respectively. 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 20% during the past five years, sign-on to sign-off. KATU currently
broadcasts 26 hours per week of scheduled local news programs. The station has
won numerous local and regional awards for excellence, including the 1995
Associated Press award for Best Newscast in Oregon. In addition, KATU has a
strong commitment to public affairs and local interest programming. "AM
Northwest" is a daily, hour-long topical interest program directed at women
viewers. "Town Hall" is a weekly public affairs discussion program that airs
Sunday evenings at 6:00 p.m. The station's syndicated programming includes
"Wheel of Fortune," "Jeopardy" and "The Rosie O'Donnell Show."
KATU also devotes a large amount of air time and resources to community
service projects. When massive flooding afflicted Oregon and Southwest
Washington in February 1996, the station organized a relief effort that raised
nearly one million dollars for flood victims. Each
11
year the station broadcasts the Children's Miracle Network Telethon benefiting
Portland's Doernbecher Children's Hospital. Since 1994, the station has
supported an annual campaign that has raised nearly $2 million to help local
schools. The station also supports numerous community service events and
projects throughout the year with public service announcements and programming
support.
KATU has developed a local on-line computer service, offering viewers news,
weather and programming information via the station's own electronic bulletin
board. The station is in the process of expanding that service via the
Internet, and intends to involve its TV advertisers in the service 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.
KATU MARKET/STATION DATA
1992 1993 1994 1995 1996
--------- --------- --------- --------- ---------
Market revenue (in thousands)........... $118,600 $118,900 $138,700 $145,200 $161,050
Market revenue growth over prior
period................................. 7.7% 0.2% 16.7% 4.7% 11.0%
Market rank (DMA)....................... 27 27 27 24 24
Television homes (in thousands)......... 846 868 890 920 953
Total commercial competitors in market. 6 6 7 8 8
Station rank in market, sign on to
sign off............................... 1 1 1 1 1
Station audience share, sign on to
sign off............................... 20% 22% 21% 19% 17%
Station rank in market 4:00 p.m. to
8:00 p.m............................... 1 1 1 1 1
Station audience share 4:00 p.m. to
8:00 p.m................................ 23% 27% 25% 23% 22%
- ---------------------
Source: Laura M. Lekas, C.P.A.; The A.C. Nielsen Co.
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
12
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.
Radio station revenues are derived almost exclusively from local, regional
and national advertising. At present, approximately 80% of the average
station's revenues are derived from local and regional advertisers, and 20% or
less is from national advertisers located outside of the radio station's market.
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. The growth in radio revenues, though, has been relatively stable
over the past two decades. With the exception of 1991, when total radio
advertising revenue fell by 3.1% from the preceding year, radio advertising
revenues over the past 15 years have grown faster than inflation and the Gross
National Product. In 1995, the Radio Advertising Bureau estimated that the
industry garnered in excess of $11 billion in total advertising revenues.
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. For example, grocery and department stores
find that the majority of purchases are made by women between 25 and 49 years of
age. In a market of Seattle's size, as many as six radio stations may target
women aged 25-49, developing music and on-air presentations to serve the needs
of such women.
Most of a radio station's programming is produced locally, although
syndicated programs such as Rush Limbaugh and Dr. Joy Brown, as well as weekly
countdown shows, 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.
Advertisers and stations utilize data published by audience measuring
services to estimate how many people within particular geographical markets and
demographics listen to specific stations. Arbitron is the largest audience
measuring service. Arbitron measures audience on either a quarterly, semi-
annual, or annual basis, depending on market size. Both Seattle and Portland
are quarterly measurement markets. Arbitron's audience estimates are based on
geographically and demographically representative samples of radio listeners who
agree to record their radio listening for one week in diaries provided by
Arbitron. The quarterly sample sizes vary by market size, but generally
represent 0.1625% of a market's total population. Arbitron estimates a radio
station's cumulative (cume) audience, and time spent listening (the amount of
time each listener spent with that radio station). Arbitron then estimates by
hour (i.e.,
13
7:00 a.m. to 8:00 a.m.) and daypart (i.e., 6:00 a.m. to 10:00 a.m., or morning
drive) how many listeners are tuned to each radio station in a given 15-minute
span of time, or average quarter-hour persons (AQH Persons). The estimated
number is then compared to the total population in a given demographic and
expressed as a rating (AQH Rating), or compared to the total number of people in
the demographic who were listening to a radio in the given daypart and expressed
as a share (AQH Share).
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,
similiar 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
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
14
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.
SEATTLE RADIO MARKET
Introduction. Seattle, Washington ranks as the 13th largest radio
------------
metropolitan area in the nation, with a Persons aged 12+ population of
approximately 2,745,000 and a total population of approximately 3,260,000. The
Seattle-Tacoma radio metropolitan area ("metro") is comprised of King,
Snohomish, Pierce, Kitsap, Thurston and Island counties. Using PRIZM (a market
segmentation analysis developed by Claritas, Inc., and provided to The Arbitron
Company), Seattle's largest population concentration is Affluentials (upwardly
mobile young singles and couples; white-collar suburban families) at
approximately 20% of the population, compared to an approximately 9.5% national
average. Median household income for the metro is approximately
15
$50,100 and total retail expenditures per household are approximately $24,500.
Major industries in the market include aerospace, biotechnology, forestry,
software, telecommunications, transportation, retail and international trade.
Major employers include the Boeing Company, Microsoft Corporation, Nordstrom
Inc. and Alaska Airlines Inc. Seattle is tied with Chicago as the most
competitive News/Talk radio market in the nation, with a format reach of 21.5%
compared to a national average of 12.5%, and a West-Regional average of 15.1%.
Radio advertising revenue for the Seattle-Tacoma market was approximately $135
million in 1996, as compiled by Miller, Kaplan, Arase & Co., an accounting firm
that provides the radio industry with revenue figures. The Seattle radio market
has 18 FM and 29 AM stations licensed to the metro.
Figures set forth in the preceding discussion of the Seattle radio market
vary from those set forth in the discussion of the Seattle television market
(see "Broadcasting Operations - KOMO TV - Market Overview"), as different size
and measurement criteria are applied by the relevant rating organizations in the
two separate markets.
MARKET DATA
SEATTLE-TACOMA, WASHINGTON 1992 1993 1994 1995 1996
----------- ----------- ----------- ----------- -----------
Market Revenue (in thousands) $ 94,100 $ 102,700 $ 114,400 $ 127,175 $ 134,844
Market Revenue Growth over prior period 3.5% 9.1% 11.4% 11.2% 6.0%
Market Rank (Arbitron Metro) 13 13 13 13 13
Persons 12+ Population 2,342,500 2,365,100 2,696,500 2,696,500 2,698,900
Total commercial competitors in market 47 47 47 47 47
- ---------------------
Source: Miller, Kaplan, Arase & Co.; The Arbitron Company.
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 Broadcasting pioneered new
ground. Fisher Radio Seattle was formed on May 5, 1994 when Fisher Broadcasting
purchased the assets of KVI-AM and KPLZ-FM. Since then, all three station
staffs and many of the stations' operating functions have been consolidated into
a $1.3 million facility in downtown Seattle. Fisher Broadcasting believes that
the synergies achieved through collaborative efforts benefit all three of its
Seattle radio stations. As a result, 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.
KOMO-AM [1000 KHz / 50 kw (day/night), Affiliate: ABC Information
-------
Network]. KOMO-AM, known as "KOMO News 1000," is one of the United States'
heritage 50,000 watt radio stations. The station was ranked 12th in the market
in 1996 (average) with a 3.7% share of listening among Persons 12+, Monday-
Sunday, 6:00 a.m. to 12 midnight. The station's primary target audience is
Adults 35-54. KOMO News 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. While the station has always enjoyed a strong reputation for
information services, the News/Talk format is an evolution from the long-time
full-service format and is a relatively new development for KOMO-AM. As home of
University of Washington Husky Sports, the station builds on the large
University alumni base
16
in the Northwest and works together with the University on many promotional and
community events throughout the year. In addition to news, talk and sports
programming, the station participates in numerous community service sponsorships
with local organizations, such as Food Lifeline, Children's Hospital, and the
Fred Hutchinson Cancer Research Center, to serve the needs and interests of the
community.
Fisher Broadcasting believes the investments made in talent and marketing
strategies will support growth in the station's new format.
KOMO-AM STATION DATA
1992 1993 1994 1995 1996
-------- -------- -------- -------- --------
Station rank in market Mon-Sun, 6 a.m. to 12-
mid, AQH Share 4 6 10 15 12
Station audience AQH share in market Mon-Sun,
6 a.m. to 12-mid 5.2% 4.7% 4.1% 3.3% 3.7%
Station rank in market for cumulative weekly
audience Mon-Sun, 6 a.m. to 12-mid 3 5 7 7 7
Station cumulative audience in market Mon-Sun,
6 a.m. to 12-mid 378,400 378,800 331,000 317,100 337,100
- -----------------------------
Source: The Arbitron Company
KVI-AM [570 KHz / 5 kw (day/night), Affiliate: ABC Entertainment Network].
------
KVI-AM is known as "Hot Talk 570-KVI." KVI was the leading talk radio station
in Seattle, tied for fourth among all stations in the market with a 5.2% share
of listening among Persons 12+, Monday-Sunday, 6:00 a.m. to 12 midnight
(Arbitron-Summer 1996), and eighth among its target audience of Adults 25-54.
KVI's programming mission is to enlighten, educate and inform through listener
issue-oriented, entertaining talk radio. The station is a mixture of local
programming featuring strong local hosts, including the nationally recognized
Michael Medved, and national programming such as Rush Limbaugh and Mike Reagan.
KVI's commitment to numerous community service projects is exemplified by its
efforts on behalf of the Make-A-Wish Foundation. Each year, the station
sponsors a Make-A-Wish Foundation Radiothon to raise money for children with
life-threatening diseases. Last year, KVI and its listeners raised over
$160,000 and 800,000 frequent flier miles in just six hours to support the
children of the Make-A-Wish Foundation. Other community oriented projects have
ranged from grass-roots support of replacing a vandalized statue in West Seattle
to supporting a local retail store victimized by crime. While KVI and KOMO are
complimentary formats, they maintain unique identities and format niches in the
market.
KVI-AM STATION DATA
1992 1993 1994 1995 1996
-------- -------- -------- -------- --------
Station rank in market
Mon-Sun, 6 a.m. to 12-mid, AQH Share 18 5 3 3 5
Station audience AQH share in market
Mon-Sun, 6 a.m. to 12-mid 2.0% 4.6% 5.9% 5.4% 5.2%
Station rank in market for cumulative weekly
audience Mon-Sun, 6 a.m. to 12-mid 16 12 12 11 12
Station cumulative audience in market
Mon-Sun, 6 a.m. to 12-mid 136,200 247,100 261,100 264,000 246,100
- -----------------------------
Source: The Arbitron Company
17
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. In January 1994, the
station's format shifted to Adult Top 40 or Hot Adult Contemporary. The station
was ranked 9th in the market with a 4.0% share of listening among Persons 12+,
Monday-Sunday, 6:00 a.m. to 12 midnight (Arbitron-Average 1996).
The station is involved in numerous promotional and community events every
year. KPLZ-FM sponsors events such as the Northwest Women's Show, the Teacher
of the Week recognition contest, the Baby Star Team, and the Back To School
Fashion Show and Concert. In addition, the station hosts the annual Starlight
Foundation Auction and Golf Tournament, the Sharing Sleigh and the Terry Fox
Run. The station features a weekly community service program called the Pulse
of Puget Sound.
KPLZ-FM STATION DATA
1992 1993 1994 1995 1996
-------- -------- -------- -------- --------
Station rank in market
Mon-Sun, 6 a.m. to 12-mid, AQH Share 5 12 11 13 9
Station audience AQH share in market
Mon-Sun, 6 a.m. to 12-mid 4.9% 3.2% 4.0% 3.7% 4.0%
Station rank in market for cumulative weekly
audience Mon-Sun, 6 a.m. to 12-mid 3 6 6 6 4
Station cumulative audience in market
Mon-Sun, 6 a.m. to 12-mid 389,800 322,100 345,300 332,900 359,300
- -----------------------------
Source: The Arbitron Company
PORTLAND RADIO MARKET
Introduction. Portland, Oregon ranks as the 24th largest radio metro in
------------
the nation, with a Persons 12+ population of approximately 1,600,000 and a total
population of approximately 1,900,000. The radio metro is comprised of
Multnomah, Washington, Clackamas, Marion and Yamhill counties in Oregon and
Clark County in the State of Washington. Median household income for the metro
was approximately $46,200, and total retail expenditures per household were
approximately $25,150. The Portland metro maintains a balanced economy with
services, wholesale/retail and manufacturing representing approximately 26%, 25%
and 16% of total employment, respectively. Major employers include such
companies as Intel Corporation, Hewlett Packard Company, Nike, Inc. and
Tektronix, Inc., as well as Kaiser Permanente, the United States Government and
the State of Oregon. The FCC has licensed 14 FM and 13 AM stations in the
Portland radio metro.
Figures set forth in the preceding discussion of the Portland radio market
may vary from those set forth in the discussion of the Portland television
market (see "Broadcasting Operations -- KATU Television-Market Overview") as
different size and measurement criteria are applied by the relevant rating
organizations to the two separate markets.
KWJJ AM [1080 KHz / 50 kw (day), 10 kw (night), Affiliation: Independent]
-------
and KWJJ FM [99.9 MHz / 52 kw, Affiliation: Independent]. KWJJ-FM was the
second-ranked radio station in the Portland market, with a 7.2% share of
listening Persons 12+, Monday-Sunday, 6:00 a.m. to 12:00 midnight, as of the
Summer 1996 Arbitron survey. KWJJ-AM was the 17th ranked
18
radio station in the market, with a 1.7% share of listening Persons 12+, Monday-
Sunday, 6:00 a.m. to 12:00 midnight, as of the Summer 1996 Arbitron survey. Both
radio stations program a mix of country music, with KWJJ-FM playing contemporary
country hits and KWJJ-AM playing classic country favorites. Advertising time on
the two stations is sold to advertisers as a combination (i.e., for one price,
advertisers receive commercials on both radio stations). Among radio formats,
country music has garnered an average 14% of the market's radio listening shares
over the past decade, ranking it consistently #1 or #2 among format preferences
in the market. KWJJ-AM has a 50,000 watt signal.
KWJJ AM/FM participates in numerous community service sponsorships with
local organizations, such as Doernbecher Children's Hospital, Western Youth
Development, Salmon Aid and the Oregon City Chamber of Commerce. The stations
also produce and broadcast a weekly half-hour public service show called Metro
Magazine.
Since purchasing the Portland radio stations in June 1996, Fisher
Broadcasting has made a substantial investment to upgrade the stations'
facilities and equipment. In April 1997, the stations moved into new broadcast
facilities in downtown Portland. An investment of approximately $1.9 million is
being made in the new facility, which will equip 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 expects that the new facility
will improve operating efficiencies and reduce operating costs.
KWJJ MARKET/STATION DATA (1)
1992 1993 1994 1995 1996
----------- ----------- ----------- ----------- -----------
Market Revenue (in thousands) $ 52,081 $ 57,858 $ 66,056 $ 73,194 $ 86,159
Market Revenue Growth over prior period 9.7% 11.1% 14.2% 10.8% 17.7%
Market Rank (Arbitron Metro) 25 25 26 24 24
Persons 12+ Population 1,432,900 1,473,700 1,511,600 1,563,300 1,598,800
Total commercial competitors in market 25 25 26 27 27
Station rank in market,
Mon-Sun, 6 a.m. to 12-mid, AQH Share 7 7 1 1 2
Station audience AQH share in market
Mon-Sun, 6 a.m. to 12-mid 6.2% 6.3% 8.1% 8.7% 8.1%
Station rank in market for cumulative weekly
audience, Mon-Sun, 6 a.m. to 12-mid 7 6 2 1 2
Station cumulative audience in market,
Mon-Sun, 6 a.m. to 12-mid 204,000 242,000 286,200 294,000 308,500
- -------------------------
Source: Miller, Kaplan, Arase & Co.; The Arbitron Company
MEDIUM- AND SMALL-MARKET RADIO OPERATIONS
Introduction. The local radio station plays a significant role in smaller
------------
communities in America. In communities that do not have their own TV station,
the primary source of up-to-date news is the radio. In all small markets,
radio choices are limited. Radio stations have benefited in this environment,
where the local schools, civic clubs, churches, and government depend upon their
local radio stations as the primary source for local news, weather information,
19
and other matters of local interest such as the school lunch menu and the high
school's football game.
Small-market radio has also benefited from an advertising sales environment
in which most sales occur through direct contact with local retailers rather
than through national advertising agencies. Typically, a national advertiser
utilizes a long-term strategy to deliver a set number of ratings points at the
lowest possible cost-per-point. Thus, the revenue is often outside of the
broadcaster's control. In contrast, small-market radio can more easily control
its destiny as a result of its direct ties to local advertisers who are
generally small, independent merchants.
Recent changes in the multiple ownership limitations under federal law have
resulted in increased competition among acquisition-minded broadcast companies
for major-market radio stations. Consequently, significant consolidation has
occurred, reducing the acquisition opportunities that are available in the major
markets and leading, in turn, to increased interest in small and medium markets.
Small markets are increasingly inhabited by larger group broadcasters.
Fisher Broadcasting believes that Sunbrook is well-positioned to compete in this
environment, having succeeded over the past decade in its strategy to reach the
largest number of listeners in selected markets. Sunbrook is committed to
increasing listenership through research, marketing, and community service.
Fisher Broadcasting believes that this commitment will continue to build long-
term value as the Sunbrook-operated stations capitalize on their audience
leadership to generate increased revenue, and on their experience in strict cost
controls to maximize operating income.
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 four radio stations and has a joint
sales agreement with a fifth station 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.
The following table sets forth general information for each of Sunbrook's
stations and the markets they serve.
20
# OF RATINGS(1) MARKET REVENUE
COMMERCIAL --------------------- ---------------------
DIAL RADIO STATIONS RANK IN STATION STATION $ (IN
MARKET STATION POSITION POWER IN THE MARKET MARKET SHARE SHARE THOUSANDS) FORMAT
- -------------------------------------------------------------------------------------------------------------------------------
Billings, MT $5,300
KRKX 93.3 FM 100 Kw 12 3 11.9% 12% Adult Contemp
KYYA 94.1 FM 100 Kw 4 10.6% 14% Classic Rock
KBLG(2) 910 AM 1 Kw 8 5.0% 4% News/Talk
Missoula, MT $4,500
KZOQ 100.1 FM 14 Kw 8 1 24.5% 21% Classic Rock
KGGL 93.3 FM 43 Kw 2 19.5% 19% Country
KYLT 1340 AM 1 Kw 7 3.1% 6% Oldies
KGRZ 1450 AM 1 Kw 8 1.8% 2% Sports/Talk
Great Falls, MT $3,000
KAAK 98.9 FM 100 Kw 8 2 15.9% 23% Adult Contemp
KQDI 106.1 FM 100 Kw 3 12.0% 20% Classic Rock
KXGF 1400 AM 1 Kw 5 8.3% 3% Pop Standards
KMSL 1450 AM 1 Kw 8 1.9% 3% News/Talk
Butte, MT $1,500
KAAR 92.5 FM 4.5 Kw 5 1 40.9% 27% Country
KMBR 95.5 FM 50 Kw 2 15.9% 23% Classic Rock
KXTL 1370 AM 5 Kw 5 6.8% 7% Oldies/Talk
Wenatchee, WA $3,100
KYSN 97.7 FM 3 Kw 9 1 22.2% 22% Country
KWWW(3) 96.7 FM .5 Kw 2 14.6% 16% Adult Contemp
KZPH(4) 106.7 FM 3 Kw 5 8.6% 8% Classic Rock
KXAA(5) 99.5 FM 5 Kw 6 7.9% 14% Oldies
KWWX 1340 AM 1 Kw 9 (6) 5% 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, 1996 Billings Market Report
Missoula, Montana: Willhight Research, Spring, 1996, Missoula Market
Report
Great Falls, Montana: Arbitron Ratings, Spring, 1996 Great Falls Market
Report
Butte, Montana: Arbitron Ratings, 1996 County Coverage Study,
Silver-Bow County
Wenatchee, Washington: Willhight Research, Winter, 1996 Wenatchee Market
Report.
(2) KBLG's power is 1,000 watts days, 63 watts nights.
(3) KWWW is licensed to the city of Quincy, Washington.
(4) Sunbrook sells advertising on KZPH under a joint sales agreement. KZPH is
licensed to the city of Cashmere, Washington.
(5) KXAA is licensed to the city of Rock Island, Washington.
(6) Listenership below minimum reporting standards.
The following discussion briefly describes the radio stations owned and
operated by Sunbrook, and such stations' respective markets.
Montana. Sunbrook is Montana's largest radio broadcaster, with stations in
-------
the state's four largest markets. Available rating information (derived from
the sources listed in footnote (1) to the preceding table) indicates that nearly
250,000 Montanans listen to a Sunbrook radio station each week, representing
nearly one out of every three people in the state. A brief discussion of each
Montana market and Sunbrook's stations follows.
Billings, Montana. Billings is Montana's largest market (population
approximately 125,000) and a regional trade center. Billings is a livestock
center for a four-state region and is also home to two petroleum refineries and
two local colleges. The Billings market is served by twelve commercial radio
stations, three local television stations, and one local newspaper.
Recent combined historical audience performance of Sunbrook's three
Billings stations is set forth below.
21
1992 1993 1994 1995 1996
---- ---- ---- ---- ----
Combined Audience Share 20.0% 29.7% 34.0% 28.8% 26.4%
Group Ownership Audience Rank 2 2 2 2 2
- -------------------------
Source: The Arbitron Company
(Average-quarter-hour share of total audience Persons 12+, Monday through
Sunday, 6 a.m. to midnight).
Missoula, Montana. Missoula is Montana's second largest market. Its
current population is approximately 86,000. The wood and paper products
industry provides the largest employment base, followed by the U.S. Forest
Service, which has regional headquarters and a fire-fighting school in Missoula.
the city is home to the University of Montana, which is also one of the city's
largest employers and provides a strong influence on the community's lifestyle.
Missoula is served by eight commercial radio stations, three local television
stations, and a daily newspaper.
Recent combined historical audience performance of Sunbrook's four
Missoula stations is set forth below.
1992 1993 1994 1995 1996
---- ---- ---- ---- ----
Combined Audience Share 47.4% 37.5% 39.8% 42.0% 48.9%
Group Ownership Audience Rank(1) 1 1 1 1 1
- ----------------------
(1) The data above reflect the position of the four combined stations which
Sunbrook now owns. Sunbrook did not own or operate all four of these stations
during all five of these years.
(Audience information from Willhight Research, Missoula Spring reports from each
year noted, 1993 through 1996. Average-quarter-hour share of total audience
Persons 12+, Monday through Sunday, 6 a.m. to midnight. 1992 information from
American Radio Research, Spring Missoula report, Brand Loyal Listeners, total
audience Persons 12+).
Great Falls, Montana. Great Falls is Montana's third largest market, with
a population of approximately 84,000. Agriculture and the Malmstrom Air Force
Base are major forces in the Great Falls economy. Great Falls is served by
eight commercial radio stations, three television stations, and one daily
newspaper.
Recent combined historical audience performance of Sunbrook's four Great
Falls stations is set forth below.
1992 1993 1994 1995 1996
---- ---- ---- ---- ----
Combined Audience Share 41.1% 34.4% 34.6% 44.2% 38.1%
Group Ownership Audience Rank(1) 1 1 1 1 2
- ---------------------
(1) The data above reflect the position of the four combined stations which
Sunbrook now owns. Sunbrook did not own or operate all four of these stations
during all five of these years.
(Audience information from Arbitron ratings, Great Falls Spring reports for each
year noted. Average-quarter-hour share of total audience Persons 12+, Monday
through Sunday, 6 a.m. to midnight).
Butte, Montana. Butte is Montana's fourth largest city, with a population
of approximately 35,000. While the city has, historically, been a mining town,
mining interests today only employ approximately 400 people. The largest
employer in Butte is the state's primary electric utility, Montana Power
Company, which has its corporate headquarters in the
22
city and employs nearly 1,000 people. Butte is served by three television
stations, five commercial radio stations, and one newspaper.
Recent combined historical audience performance of Sunbrook's three Butte
stations is set forth below.
1992 1993 1994 1995 1996
---- ---- ---- ---- ----
Combined Audience Share 33.0% 60.8% 55.6% 63.6% 63.6%
Group Ownership Audience Rank 2 1 1 1 1
- ------------------------
Source: Arbitron County Coverage Report, Silver Bow County, for 1994, 1995 &
1996. Willhight Research, Butte Report, Spring, 1993. Average quarter-hour
share of total audience Persons 12+, Monday through Sunday, 6 a.m. to midnight.
American Radio Research, Butte Report, Spring, 1992, Brand-loyal listeners,
total audience Persons 12+.
Washington. In addition to being the largest radio group in Montana,
----------
Sunbrook also is the market leader in Wenatchee, Washington, a market of
approximately 55,000 people that is located in the center of Washington. While
agriculture dominates the local economy, an aluminum manufacturing facility also
provides significant employment. The Wenatchee market is served by nine
commercial radio stations and one local newspaper. There are no local
television stations in Wenatchee.
Recent combined historical audience performance of Sunbrook's four
Wenatchee area stations and the station with which it has a joint sales
agreement is set forth below.
1992 1993 1994 1995 1996
----- ----- ----- ----- -----
Combined Audience Share 49.2% 58.0% 65.2% 57.5% 53.3%
Group Ownership Audience Rank(1) 1 1 1 1 1
- ----------------------
(1) The data above reflect the position of the four combined stations which
Sunbrook now owns and the station with which it has a joint sales agreement.
Sunbrook did not own or operate all four of the stations that it now owns during
all five of these years.
Source: Willhight Research, Wenatchee Report, Winter, 1994, 1995 and 1996,
Average quarter-hour share of total audience Persons 12+, Monday through Sunday,
6 a.m. to midnight. American Radio Research, Wenatchee Report, Spring, 1992
and 1993, Brand-loyal listeners, total audience Persons 12+.
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 broadcasting stations.
LICENSE RENEWAL, ASSIGNMENTS AND TRANSFERS
Broadcasting licenses for both radio and television stations are currently
granted for a maximum of eight years and are subject to renewal upon application
to the FCC. The FCC prohibits the assignment of a license or the transfer of
control of a television or radio
23
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. The Telecommunications Act,
which has been enacted, but not yet fully implemented by the FCC, eliminates the
comparative renewal process and simplifies license renewal. 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 then 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, that expire on January 31, 1999.
Fisher Broadcasting's and Sunbrook's radio stations in Washington and Oregon
currently operate under seven-year licenses, also granted prior to recent FCC
action extending the term of radio licenses to eight years, that expire on
January 31, 1998. The license terms for all of Sunbrook's Montana radio
stations expire on April 1, 1997. Sunbrook has filed applications for renewal
of these stations' licenses. Upon renewal, such licenses would extend until
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
24
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.
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 FCC intends to conduct a proceeding
on repeal of this cross-ownership restriction. The television station/daily
newspaper cross-ownership prohibition in the FCC rule was not repealed by the
Telecommunications Act. The FCC, however, intends to conduct a rule-making
proceeding on whether to repeal such 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, depending on the size and location of such stations and/or
newspapers, 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.
25
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 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 another corporation, more than one-fourth of the
capital stock of which 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, 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.
26
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 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"). The FCC, after consulting with the TV manufacturing industry,
will specify the effective date of this requirement, which may not be less than
two years after enactment of the law. The FCC is directed to oversee the
adoption of standards for this blocking technology. The television industry has
adopted, effective January 1, 1997, a voluntarily rating scheme regarding
violence and sexual content contained in television programs. The FCC has
indicated that it will accept public comments on the industry rating scheme, and
will subsequently make a decision as to whether such 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, which will take effect September 1, 1997,
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.
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
27
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.
On March 31, 1997, the United States Supreme Court upheld the
constitutionality of the must-carry provisions of the 1992 Cable Act. The Court
held that the must-carry provisions were "content neutral" and thus not subject
to strict scrutiny, and that Congress' stated interests in preserving the
benefits of free, over-the-air local broadcast television, promoting the
widespread dissemination of information from a multiplicity of sources and (in
the view of a four justice plurality) promoting fair competition in the market
for television programming qualified as important governmental interests. The
Court concluded that Congress had established an extensive evidentiary record
justifying the predictive judgment that the must-carry provisions served
important governmental interests, and that Congress' judgment deserved great
deference from the Court.
PROPOSED LEGISLATION AND REGULATIONS
On April 3, 1997, the FCC adopted new regulations regarding the
implementation of advanced television in the United States. These new
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.
While the formal regulations have not yet been released, the FCC has
announced a number of key aspects of its implementation program.
Each existing station will be given a second channel in the range of
channels 2 through 51 on which to initiate DTV broadcasts. The FCC will specify
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 will be assigned less than 50 thousand watts Effective Radiated Power.
The FCC has announced its intention to release a list of channel and power
allotments in the immediate future, but it is not known at this time which
channels and power levels will be allocated to Fisher Broadcasting's Seattle and
Portland television stations or their competitors. 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.
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 five
years to place a DTV signal on the air, and all non-commercial stations will
have six years to begin operation of a DTV signal. 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
28
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. ABC has
announced that it intends to supply its affiliates with an HDTV feed of network
programming, and it is not believed possible, under the present state of the
art, to transmit additional program information 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 to the economic impact of such choices on the stations'
operations.
Stations operating in the DTV mode will be subject to existing public
service requirements. The FCC has announced that it will consider imposing
additional public service requirements, such as free advertising time for
federal political candidates, and increased news, public affairs, and children's
programming requirements, in the future. It cannot be predicted whether such
changes will be adopted, or any impact they might have on station operations.
By 2002, 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 2003, this simulcasting requirement will increase to 75%, and to
100% in 2004 and 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 2-46 or channels 7-51. It is
unknown whether licensees will be permitted to retain their former analog
channels if they operate using DTV technology, and relinquish their new digital
channels, or whether they will be required to utilize the newly allotted
channels, and return their former analog channels.
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 average capital expenditures of
approximately $8-10 million per station to provide facilities and equipment
necessary to produce the broadcast DTV programming. The
29
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.
When the Telecommunications Act was passed, certain leaders in Congress
asked the FCC to postpone issuing DTV licenses pending consideration of possible
future legislation that might require broadcasters to bid at auctions for DTV
channels or which might require that the current conventional channels be
returned to the government on an expedited schedule. In the course of the
debate on the federal budget, some leaders in Congress have proposed various
plans that might require the auctioning of the spectrum which broadcasters will
need in order to provide DTV. Various plans for raising revenue also include
provisions to require the auctioning of radio frequencies in bands which
encompass those currently licensed for use by broadcasters, including those
channels used for "auxiliary" purposes, such as remote pickups in electronic
news gathering and studio-to-transmitter links. Hearings on spectrum auctions
and usage were recently held by Congress. While the FCC has authorized DTV in
the United States, Fisher Broadcasting cannot predict whether Congress will
attempt to modify the FCC's actions, or the effect DTV authorizations might have
on Fisher Broadcasting's television broadcasting business. Fisher Broadcasting
cannot predict whether legislation requiring auctions for DTV spectrum will be
enacted or the effect of such legislation.
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
30
Telecommunications Act, 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.
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, COMPETITION AND COMMITMENTS
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. FishComm's Internet program is
currently in the development stage.
31
FLOUR MILLING AND FOOD DISTRIBUTION OPERATIONS
----------------------------------------------
INTRODUCTION
FMI, a wholly owned subsidiary of the Company, 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 was incorporated in
Washington State in 1971, although it has conducted flour milling operations
since 1910, initially as FFMCO.
FMI produces approximately two million 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 Washington, Idaho, Montana and California, and is delivered
directly to the mills by rail or truck. FMI expects that the Blackfoot mill
will add an additional 200,000 pounds of daily capacity. During 1996, FMI
operated its mills on more than 320 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.
Per capita flour consumption in the U.S. has risen steadily over the past
twenty-five years, from 111 pounds to 148 pounds in 1996. Production of wheat
flour by U.S. mills in 1996 reached a new all-time record of 396,176,000 one-
hundred pound units ("cwts"), up 1.9% from 388,689,000 cwts in 1995, according
to the Bureau of Census. Acceptance by the American public of the new food
pyramid and nutritional labeling have been instrumental in promoting
carbohydrate-based food. Due to changes in the American diet, and increased
emphasis on the importance of grain-based products, there has been a significant
growth of specialty bread shops in general, and in particular, a sharp increase
in the number of bagel producers. Other specialty items such as tortillas,
muffins and pretzels also contribute to the increased consumption of flour based
foods.
Construction of conventional milling capacity has been limited in the last
five years primarily to mills capable of producing durum flour. Construction
costs are typically expressed in the cost of producing one cwt of flour on a
daily basis. Costs for land, buildings, wheat cleaning equipment and milling
equipment are currently between $2,000 and $3,000 per cwt of rated daily
capacity.
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
32
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 January 1, 1997, FMI had 191 full-time employees, 101 of whom are
covered by collective bargaining agreements with three labor unions. On July 1,
1996, FMI negotiated five-year collective bargaining agreements with the
International Longshoremen and Warehouseman's Union and with the AFL-CIO
covering the Seattle plant. Two separate contracts with the International
Brotherhood of Teamsters expire March 31, 1998 and December 31, 1999. FMI
considers its relations with its employees to be good.
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 21,000 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,
33
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 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's milling division also utilizes its technical service department as a
value-added sales tool. The technical service department is accountable for
developing and training salespersons in the company's network of food service
distributors. The service department also provides on-site product trouble-
shooting and formulation assistance to small retail bakers and restaurants.
FMI markets its flour through the use of branded products such as
Mondako(R) and Power(R) and product category branded ingredients under the name
Sol Brillante(R). 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 a KSU shortflow. The "shortflow" or "compact"
process reduces the amount of building and equipment required to mill flour.
The electronically controlled modular units can be installed at approximately 60
percent of the cost of a conventional mill and in one-third of the construction
time. While compact units do not replace the need for conventional milling
capacity, they do provide flexible milling capacity for niche milling segments.
Since 1991, FMI has installed four additional compact units, including the
recently completed flour mill in Blackfoot, Idaho which added a KSU 2000 milling
unit to FMI's capacity. To FMI's knowledge, there are only 15 compact milling
units in operation in the world. FMI operates five 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. The Blackfoot, Idaho
Compact unit is owned and operated jointly with Koch Agriculture Company of
Wichita, Kansas ("Koch"). FMI and 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."). FMI and Koch have announced their plans to expand the
Blackfoot compact mill, and to construct a conventional flour mill at the
Blackfoot site. These projects will be constructed, owned and operated by the
Koch Fisher Mills L.L.C. FMI anticipates its investment in these projects 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.
34
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 effect FMI's revenues
and results of operations. Certain risks are associated with the production and
sale of food products. Food producers can be liable for damages if contaminated
food causes injury to consumers. Although flour is not a highly perishable
product, FMI is subject to some risk as a result of its need for timely and
efficient transportation of its flour. Costs associated with compliance with
environmental laws can adversely affect profitability, although FMI's historical
and currently anticipated costs of compliance have not had, and are not expected
to have in the forseeable future, a material effect on the capital expenditures,
earnings or competitive postion of FMI. In addition, the amount of wheat
available for milling, and consequently the price of wheat, is affected by
weather and growing conditions.
REVENUES BY CLASS
FMI's revenue by product class is summarized as follows:
1994 1995 1996
(In thousands)
FLOUR $50,122 $ 61,535 $ 75,319
MILLFEED 7,595 7,828 11,428
FOOD DISTRIBUTION AND OTHER 35,560 42,997 48,950
------- -------- --------
$93,277 $112,360 $135,697
REAL ESTATE OPERATIONS
----------------------
INTRODUCTION
FPI, a wholly owned subsidiary of the Company, 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. The real estate development and
acquisition activities currently conducted by FPI were initiated prior to 1971,
at which time various real estate interests were consolidated into FPI, in the
Fisher Companies Inc. reorganization. (See "Real Estate Operations -
Business"). FPI had 31 employees as of January 1, 1997.
As of December 31, 1996, 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, a 201 slip marina, and more than
320 acres of unimproved residential land held for development. FPI's most
recent development is the 185,000 square foot West Lake Union Center located
adjacent to Lake Union, in Seattle, Washington. The ten-story office building
was completed in 1994 and achieved 99% occupancy in 1996. FPI's real estate
assets also include interests in two partnerships. The largest such partnership
is Fisher Business Center, a 195,000 square foot, two-building, office complex
located in Lynnwood, Washington. FPI owns 95% of the Fisher Business Center;
the remaining 5% interest is owned by Mr. William W.
35
Krippaehne, President of the Company. (See "Item 7 - Certain Relationships and
Related Transactions").
FPI estimates that the total fair market value of FPI's real estate
holdings was approximately $120 million as of December 31, 1996, including FPI's
partnership interests and 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 included in this Form
10, the 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 1994 and 1995. 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, by developing, owning, and
managing a diverse portfolio of properties in a relatively small geographic
area, it can better control the overall character of FPI's developments.
DEVELOPMENT AND ACQUISITION ACTIVITIES
FPI plans to increase its ownership of industrial and office properties in
the Seattle area. FPI intends to be significantly involved in planning and
development of contemplated new studio space and corporate offices for Fisher
Broadcasting and others on a block of land owned partially by Fisher
Broadcasting and partially by FPI at Fourth Avenue and Denny Street in Seattle,
if current preliminary plans result in a decision to proceed with the project
(see "Broadcasting Operations - KOMO TV").
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.
36
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, 1996 with
respect to FPI's properties. The following table includes FPI's significant
properties:
OWNERSHIP FPI'S YEAR LAND AREA RENTABLE % LEASED
NAME AND LOCATION INTEREST INTEREST DEVELOPED (ACRES) SPACE) 12/31/96
----------------- -------- -------- --------- ------- ------ --------
MARINA
Marina Mart Moorings Fee & Leased 100% 1939 5.01 Fee & 201 Slips 98%
Seattle, WA to 2.78 Leased
1987
OFFICE
West Lake Union Center Fee 100% 1994 1.24 185,000 SF 99%
Seattle, WA 487 car
garage
I-90 Building Fee 100% Renovated .34 28,265 SF 93%
Seattle, WA 1990 22 car garage
Fisher Business Center Fee 95% 1986 9.75 195,000 SF 86%
Lynnwood, WA Parking for
733 cars
Marina Mart Fee 100% Renovated * 18,950 SF 100%
Seattle, WA 1993
Latitude 47 Restaurant Fee 100% Renovated * 15,470 SF 100%
Seattle, WA 1987
1530 Building Fee 100% Renovated * 10,160 SF 97%
Seattle, WA 1985
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 96%
Seattle, WA
Fisher Industrial Center Fee 100% Redeveloped 3.3 80,475 SF 96%
Seattle, WA 1980
Pacific North Equipment Co. Fee 100% NA 5.5 38,000 SF 100%
Kent, 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 that serves
Fisher Broadcasting in Seattle, 320 acres of unimproved residential property in
Marysville, Washington, held for future development, and a small residential
property in Seattle. FPI does not currently intend to acquire other parking or
residential properties.
37
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.
One of FPI's properties is leased to, and occupied by, a single tenant, and
several 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, 1996, the Company's
investment constituted 2.4% of the outstanding common stock of SAFECO. The
market value of the Company's investment in SAFECO common stock as of December
31, 1996, 1995, and 1994, was approximately $118,406,000, $103,582,000, and
$78,062,000, respectively, representing 30%, 29.3%, and 25.3%, respectively, of
the Company's total assets as of such dates. Dividends paid with respect to the
Company's SAFECO common stock constituted 11.4%, 12.1%, and 15.0% of the
Company's net income for the years 1996, 1995, and 1994, respectively. As of
April 15, 1997, the market value of the SAFECO common stock beneficially owned
by the Company was $116,342,000. 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
38
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".
39
ITEM 2 - FINANCIAL INFORMATION.
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.
SELECTED FINANCIAL DATA
YEAR ENDED DECEMBER 31,
1992 1993 1994 1995 1996
--------- -------- -------- -------- ---------
(All amounts in thousands except per share data)
Sales and other revenue
Broadcasting $ 70,763 $ 73,291 $ 87,112 $101,192 $111,967
Milling 88,696 94,490 93,277 112,360 135,697
Real estate 5,944 6,462 8,659 10,941 13,556
Corporate and other, primarily
dividends and interest income (1) 2,843 3,232 3,460 4,087 4,000
-------- -------- -------- -------- --------
$168,246 $177,475 $192,508 $228,580 $265,220
======== ======== ======== ======== ========
Operating income
Broadcasting $ 12,905 $ 15,947 $ 26,066 $ 31,518 $ 34,025
Milling 577 737 1,078 2,907 3,410
Real estate 1,388 1,476 2,199 3,267 5,749
Corporate and other 958 1,852 2,236 2,152 1,948
-------- -------- -------- -------- --------
$ 15,828 $ 20,012 $ 31,579 $ 39,844 $ 45,132
======== ======== ======== ======== ========
Income before effect of a change
in accounting method $ 9,621 $ 12,343 $ 18,152 $ 22,683 $ 26,086
Cumulative effect of a change in
method of accounting for
postretirement benefits (2) (1,305)
-------- -------- -------- -------- --------
Net income $ 9,621 $ 12,343 $ 16,847 $ 22,683 $ 26,086
======== ======== ======== ======== ========
Per common share data (3)
Income before effect of a
change in accounting method $ 2.26 $ 2.89 $ 4.26 $ 5.32 $ 6.12
Cumulative effect of a change in
method of accounting for
postretirement benefits (2) (0.31)
-------- -------- -------- -------- --------
Net income $ 2.26 $ 2.89 $ 3.95 $ 5.32 $ 6.12
======== ======== ======== ======== ========
Cash dividends declared (4) $ 1.26 $ 1.26 $ 1.34 $ 1.52 $ 3.68
======== ======== ======== ======== ========
40
DECEMBER 31,
1992 1993 1994 1995 1996
-------- -------- -------- -------- --------
Working capital $ 44,787 $ 48,989 $ 47,227 $ 49,744 $ 42,421
Total assets (5) 179,851 211,000 308,072 353,035 394,149
Total debt 46,714 67,563 75,859 71,869 74,971
Stockholders' equity (5) 101,071 107,996 170,751 203,681 232,129
(1) Included in this amount are dividends received from the Company's
investment in SAFECO Corporation common stock amounting to $2,342 in 1992,
$2,582 in 1993, $2,822 in 1994, $3,062 in 1995 and $3,333 in 1996.
(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) 1994 and prior per-share amounts have been restated for a four-for-one
stock split that was effective May 15, 1995.
(4) 1992 through 1995 amounts were declared and paid. 1996 includes $1.96 per
share declared for payment in 1997.
(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, 1994 - $79,531; December 31, 1995 - $105,401; December 31,
1996 - $120,468. Stockholders' equity includes unrealized gain on
marketable securities, net of deferred income tax, as follows: December
31, 1994 - $51,695; December 31, 1995 - $68,510; December 31, 1996 -
$78,304.
41
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL POSITION AND RESULTS OF OPERATIONS
CONSOLIDATED RESULTS OF OPERATIONS
Year ended December 31, 1996 compared to year ended December 31, 1995
- ---------------------------------------------------------------------
Sales and other revenue in 1996 increased by $36,640,000 or 16.0% to
$265,220,000 from $228,580,000 in 1995. Broadcasting, milling, and real estate
operations had increases in sales and other revenue of 10.6%, 20.8%, and 23.9%,
respectively.
Cost of products and services sold in 1996 increased by $25,138,000 or
17.4% to $170,016,000 from $144,878,000 in 1995. The increase resulted
primarily from increased costs to acquire and produce broadcasting programming
and from historically high wheat prices. As a percentage of sales and other
revenue, cost of products and services sold was 64.1% and 63.4% in 1996 and
1995, respectively. The increase in the cost of products and services sold as a
percentage of sales and other revenue was due to lower margins at recently
acquired radio stations which operate in smaller markets and have a lower return
than larger market radio stations.
Selling expenses in 1996 increased by $3,071,000 or 22.1% to
$16,941,000 from $13,870,000 in 1995. The increase is the result of increased
sales by broadcasting and milling operations and additional selling expenses
incurred at recently acquired radio stations. As a percentage of sales and
other revenue, selling expenses were 6.4% and 6.1% in 1996 and 1995,
respectively.
General and administrative expenses in 1996 increased by $3,143,000 or
10.5% to $33,131,000 from $29,988,000 in 1995. The increase relates primarily
to general and administrative expenses at recently acquired radio stations and
the Rancho Cucamonga food distribution center which operated for the entire year
compared to seven months in 1995. As a percentage of sales and other revenue,
general and administrative expenses were 12.5% and 13.1% in 1996 and 1995,
respectively.
Interest expense increased in 1996 by $391,000 or 7.4% to $5,671,000
from $5,280,000 in 1995. The increase in interest expense is due to higher
average long-term debt balances outstanding during 1996 compared to 1995.
Additionally, the average interest rate during 1996 and 1995 was 7.7% and 7.1%,
respectively, which further impacted the effect of the increase in average long-
term debt outstanding on interest expense.
Provision for federal and state income taxes in 1996 increased by
$1,494,000 or 12.6% to $13,375,000 from $11,881,000 in 1995. For 1996 and 1995,
the Company's effective tax rate was 33.9% and 34.4%, respectively. The
decrease in the effective tax rate in 1996 was due to increased dividend income
for which a dividends received deduction is available.
42
Year ended December 31, 1995 compared to year ended December 31, 1994
- ---------------------------------------------------------------------
Sales and other revenue in 1995 increased by $36,072,000 or 18.7% to
$228,580,000 from $192,508,000 in 1994. Broadcasting, milling, and real estate
operations had increases in sales and other revenue of 16.2%, 20.5%, and 26.4%,
respectively.
Cost of products and services sold in 1995 increased by $20,395,000 or
16.4% to $144,878,000 from $124,483,000 in 1994. The increase is primarily
related to growth at recently acquired radio stations and food distribution
operations, increased costs to acquire and produce broadcasting programming, and
historically high wheat prices. As a percentage of sales and other revenue,
costs of products and services sold was 63.4% and 64.7% in 1995 and 1994,
respectively. The decrease in costs of products and services sold as a
percentage of net revenue is due, in part, to increased margins at KVI-AM and
KPLZ-FM, which had improved ratings in 1995. These stations were included in
broadcasting operations for the entire year of 1995 compared to only seven
months in 1994.
Selling expenses in 1995 increased by $2,854,000 or 25.9% to
$13,870,000 from $11,016,000 in 1994. The increase in selling expenses is due
principally to the growth at acquired and existing radio stations and at the
Rancho Cucamonga food distribution center. As a percentage of sales and other
revenue, selling expenses were 6.1% and 5.7% in 1995 and 1994, respectively.
General and administrative expenses in 1995 increased by $4,558,000 or
17.9% to $29,988,000 from $25,430,000 in 1994. The increase is primarily due to
general and administrative expenses at recently acquired and existing radio
stations and at the Rancho Cucamonga food distribution center. As a percentage
of sales and other revenue, general and administrative expenses were 13.1% and
13.2% in 1995 and 1994, respectively.
Interest expense increased in 1995 by $1,275,000 or 31.8% to
$5,280,000 from $4,005,000 in 1994. The increase in interest expense is due to
the Company incurring higher average interest rates. The average interest rate
on the Company's long-term debt during 1995 and 1994 was 7.1% and 5.6%,
respectively.
Provision for federal and state income taxes in 1995 increased by
$2,459,000 or 26.1% to $11,881,000 from $9,422,000 in 1995. For 1995 and 1994,
the Company's effective tax rate was 34.4% and 34.2%, respectively.
Year ended December 31, 1994 compared to year ended December 31, 1993
- ---------------------------------------------------------------------
Sales and other revenue in 1994 increased by $15,033,000 or 8.5% to
$192,508,000 from $177,475,000 in 1993. Sales and other revenue increased at
broadcasting and real estate operations by 17.9% and 33.8%, respectively, while
milling operations had a decrease in sales and other revenue of 1.4%.
Cost of products and services sold in 1994 decreased by $3,346,000 or
2.6% to $124,483,000 from $127,829,000 in 1993. The decrease is primarily
related to lower milling revenue and expiration and renegotiation of certain
television and radio broadcasting rights
43
contracts. As a percentage of sales and other net revenue, cost of products and
services sold was 64.7% and 72.0% in 1994 and 1993, respectively. The decrease
in costs of products and services sold as a percentage of net revenue is
primarily due to lower costs at the broadcasting operations and improvements in
the gross margin percentage at the milling operations.
Selling expenses in 1994 increased by $1,762,000 or 19.0% to
$11,016,000 from $9,254,000 in 1993. The increase in selling expenses is due to
acquisition of KVI-AM and KPLZ-FM in May 1994 and additional selling expenses at
existing broadcasting operations, a function of increasing revenue. As a
percentage of sales and other revenue, selling expenses were 5.7% and 5.2% in
1994 and 1993, respectively.
General and administrative expenses in 1994 increased by $3,736,000 or
17.2% to $25,430,000 from $21,694,000 in 1993. The increase is largely
attributed to general and administrative expenses at KVI-AM and KPLZ-FM which
were acquired in May 1994, a non-recurring charge of $1,200,000 for
restructuring broadcasting operations, and adoption of 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. As a percentage of sales and other
revenue, general and administrative expenses were 13.2% and 12.2% in 1994 and
1993, respectively. The increase in general and administrative expenses as a
percentage of sales and other revenue was due to the non-recurring restructuring
charge and the adoption of FAS 106.
Interest expense increased in 1994 by $2,166,000 or 117.8% to
$4,005,000 from $1,839,000 in 1993. The increase in interest expense is due to
increased long-term debt balances resulting from debt financing of the West Lake
Union Center project which opened in March 1994 and higher average interest
rates. The average interest rate on the Company's long-term debt during 1994 and
1993 was 5.6% and 3.2%, respectively.
Provision for federal and state income taxes in 1994 increased by
$3,592,000 or 61.6% to $9,422,000 from $5,830,000 in 1993. For 1994 and 1993,
the Company's effective tax rate was 34.2% and 32.1%, respectively. The lower
effective tax rate in 1993 was primarily due to a rehabilitation tax credit
received related to restoration activities by real estate operations at the
Marina Mart Building.
BROADCASTING OPERATIONS
Year ended December 31, 1996 compared to year ended December 31, 1995
- ---------------------------------------------------------------------
Broadcasting revenue in 1996 increased by $10,775,000 or 10.6% to
$111,967,000 from $101,192,000 in 1995. The increase in broadcasting revenue
is, in part, due to the revenue earned at KWJJ-AM/FM and four radio stations in
eastern Washington and Montana which were acquired during 1996. These stations
contributed net revenue of approximately $4,600,000 in 1996. Additionally,
revenue at the two television stations increased by $3,968,000 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.
44
Operating income in 1996 increased by $2,507,000 or 8.0% to
$34,025,000 from $31,518,000 in 1995. As a percentage of broadcasting revenue,
operating income was 30.4% and 31.1% in 1996 and 1995, respectively.
Broadcasting operating expenses outpaced the growth in broadcasting revenue
primarily due to the operation of recently acquired radio stations in eastern
Washington and Montana. These stations have a lower return on revenue than
stations in larger markets because advertising time is sold for lower rates
while operating expenses are somewhat comparable to radio stations in larger
markets.
Year ended December 31, 1995 compared to year ended December 31, 1994
- ---------------------------------------------------------------------
Broadcasting revenue in 1995 increased by $14,080,000 or 16.2% to
$101,192,000 from $87,112,000 in 1994. The increase in broadcasting revenue is,
in part, due to a full year of operations of KVI-AM and KPLZ-FM in 1995,
compared to seven months of operations in 1994, as well as improved audience
ratings for those stations during 1995. Revenue from KVI-AM and KPLZ-FM in 1995
increased $5,206,000 over 1994. Revenue from the twelve radio stations acquired
in March 1995 totaled $4,960,000. Additionally, television revenue grew 3.9%.
This increase was due in part to an increase in the stations' share of national
advertising revenue at a time when the local advertising markets experienced
little growth.
Operating income in 1995 increased by $5,452,000 or 20.9% to
$31,518,000 from $26,066,000 in 1994. As a percentage of broadcasting revenue,
operating income was 31.1% and 29.9% in 1995 and 1994, respectively. The
increase in operating income exceeded the growth in broadcasting revenue due to
the ability of broadcasting operations to leverage its selling, general and
administrative expenses for its Seattle radio stations (KOMO-AM, KVI-AM and
KPLZ-FM) and improved ratings performance of KVI-AM and KPLZ-FM.
Year ended December 31, 1994 compared to year ended December 31, 1993
- ---------------------------------------------------------------------
Broadcasting revenue in 1994 increased by $13,821,000 or 18.9% to
$87,112,000 from $73,291,000 in 1993. The increase in broadcasting revenue is,
in part, due to revenue earned by radio stations KVI-AM and KPLZ-FM which were
acquired in May 1994. These stations contributed $6,400,000 to broadcasting
revenue in 1994. Revenue from television operations increased $8,596,000 as a
result of increased demand for advertising spots which increased advertising
rates. The increases in revenue were partially offset by a decline in KOMO-AM
radio revenue attributed to lower ratings.
Operating income in 1994 increased by $10,119,000 or 63.5% to
$26,066,000 from $15,947,000 in 1993. As a percentage of broadcasting revenue,
operating income was 30.0% and 21.6% in 1994 and 1993, respectively. The
increase in operating income resulted from the expiration of certain television
broadcasting contracts and renegotiation of the contract for rights to broadcast
University of Washington Husky sports on KOMO-AM which resulted in lower
operating expenses. Additionally, an improved local economy caused greater
demand for advertising time which increased broadcasting revenue without
significant sales and administrative expenditures.
45
MILLING OPERATIONS
Year ended December 31, 1996 compared to year ended December 31, 1995
- ---------------------------------------------------------------------
Revenue from the milling subsidiary in 1996 increased by $23,337,000
or 20.8% to $135,697,000 from $112,360,000 in 1995. The increase in revenue is
primarily due to increased sales prices for flour which resulted from
historically high wheat prices 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 Rancho Cucamonga food distribution
operation in 1996 compared to seven months activity in 1995.
Operating income in 1996 increased by $503,000 or 17.3% to $3,410,000
from $2,907,000 in 1995. As a percentage of milling revenue, operating income
was 2.5% and 2.6% in 1996 and 1995, respectively. The consistency of operating
income as a percentage of milling revenue was due to similar gross margin
percentage in 1996 and 1995 and the milling operations ability to leverage its
operating expenses during a period of increased sales volumes.
Year ended December 31, 1995 compared to year ended December 31, 1994
- ---------------------------------------------------------------------
Revenue from the milling subsidiary in 1995 increased by $19,083,000,
or 20.5% to $112,360,000 from $93,277,000 in 1994. The increase in milling
revenue was primarily due to increased sales prices for flour which were driven
by higher wheat prices and increased sales volume at both the milling and food
distribution divisions. Flour sales volume increased 7.9% in 1995. Revenue
from the food distribution division increased $6,824,000 primarily as a result
additional sales at the Rancho Cucamonga food distribution operation which was
acquired in June of 1995.
Operating income in 1995 increased by $1,829,000 or 169.7% to
$2,907,000 from $1,078,000 in 1994. As a percentage of milling revenue,
operating income was 2.6% and 1.2% in 1995 and 1994, respectively. The increase
in operating income and operating income as a percentage of milling revenue was
due to improved gross margin percentage particularly in the food distribution
division. Gross margin for the food distribution division increased to 14.3% in
1995 from 12.4% in 1994, as a result of emphasis to increase sales to higher
margin bakery customers.
Year ended December 31, 1994 compared to year ended December 31, 1993
- ---------------------------------------------------------------------
Revenue from the milling subsidiary in 1994 decreased $1,213,000 or
1.3% to $93,277,000 from $94,490,000 in 1993. The decrease in milling revenue
resulted from a decrease in sales volume of 3.4% as the milling division
discontinued sales to certain low-margin bulk flour accounts. The decrease in
sales volume was partially offset by higher flour prices.
Operating income in 1994 increased by $341,000 or 46.3% to $1,078,000
from $737,000 in 1993. As a percentage of milling revenue, operating income was
1.2% and 0.8% in 1994 and 1993, respectively. The increase in operating income
and operating income as a percentage of
46
milling revenue was the result of an improvement in gross margin percentage of
2.8% to 11.8% in 1994 compared to 9.0% in 1993.
REAL ESTATE OPERATIONS
Year ended December 31, 1996 compared to year ended December 31, 1995
- ---------------------------------------------------------------------
Real estate revenue in 1996 increased by $2,615,000 or 23.9% to
$13,556,000 from $10,941,000 in 1995. The increase in real estate revenue is
primarily due to a gain of $2,300,000 on the sale of property which was sold
under the threat of condemnation. Real estate revenue also increased due to
higher average occupancy levels which were 95.3% and 93.7% in 1996 and 1995,
respectively.
Operating income in 1996 increased by $2,482,000 or 76.0% to
$5,749,000 from $3,267,000 in 1995. As a percentage of real estate revenue,
operating income was 42.4% and 29.9% in 1996 and 1995, respectively. The
increase in operating income is primarily due to a gain of $2,300,000 on the
sale of property.
Year ended December 31, 1995 compared to year ended December 31, 1994
- ---------------------------------------------------------------------
Real estate revenue in 1995 increased by $2,282,000 or 26.4% to
$10,941,000 from $8,659,000 in 1994. The increase in real estate revenue is
primarily due to higher occupancy rates and to rental income from the West Lake
Union Center project which was in operation for the entire year compared to ten
months of 1994. Average occupancy levels in 1995 and 1994 were 93.7% and 86.9%,
respectively.
Operating income in 1995 increased by $1,068,000 or 48.6% to
$3,267,000 from $2,199,000 in 1994. As a percentage of revenue, operating
income was 29.9% and 25.4% in 1995 and 1994, respectively. The increase in
operating income is primarily due to higher occupancy rates which increased
revenue but did not require significant additional operating expenses.
Year ended December 31, 1994 compared to year ended December 31, 1993
- ---------------------------------------------------------------------
Real estate revenue in 1994 increased by $2,197,000 or 34.0% to
$8,659,000 from $6,462,000 in 1993. The increase in real estate revenue was, in
part, due to rental income from the West Lake Union Center project which opened
in March 1994 and was 77% occupied by year end. Additionally, real estate
revenue increased as average occupancy levels increased to 86.9% in 1994
compared to 85.6% in 1993.
Operating income in 1994 increased by $723,000 or 49.0% to $2,199,000
from $1,476,000 in 1993. As a percentage of real estate revenue, operating
income was 25.4% and 22.8% in 1994 and 1993, respectively. The increase in
operating income is due to higher occupancy rates which increased revenue but
did not require significant additional operating expenses.
47
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 1996, the Company had working capital of
$42,421,000 and cash and short-term cash investments totaling $5,116,000. 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. See Note
5 of the "Notes to Consolidated Financial Statements" for information regarding
amounts available to the Company under its lines of credit, applicable maturity
dates and interest rates.
Net cash provided by operating activities was $32,511,000 for the year
ended December 31, 1996. 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 components of working capital. Net
cash used in investing activities was $42,554,000 for the year ended December
31, 1996. The principle use of cash in investing activities was $36,684,000 for
acquisition of the assets of KWJJ-AM/FM and four radio stations in eastern
Washington and Montana, and $8,730,000 to purchase property, plant and equipment
used in operations. Net cash used by financing activities was $4,330,000 for
the year ended December 31, 1996. Cash for financing activities was provided by
borrowing under a mortgage loan agreement in the amount of $27,000,000 and
$17,000,000 under a line of credit. Proceeds from the mortgage loan were used
to repay construction period financing for the West Lake Union Center project.
Proceeds from the line of credit were used as partial payment to acquire the
assets of KWJJ-AM/FM. In addition, during 1996 the Company repaid $5,000,000 on
the line of credit and retired other debt amounting to $4,200,000. Cash paid for
dividends to stockholders totaled $7,432,000 or $1.72 per common share.
ITEM 3 - 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. 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.
48
ITEM 4 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Principal Stockholders. The following table sets forth information as of
April 15, 1997, with respect to the shares of the common stock, $2.50 par value
of the Company ("Company Common Stock") beneficially owned by (i) each person
known by the Company to own beneficially more than 5% of Company Common Stock,
(ii) each director of the Company, (iii) the five most highly compensated
executive officers of the Company (including certain executive officers of
subsidiaries of the Company - see "Executive Compensation"), and (iv) all
directors and executive officers of the Company as a group. The number of
shares beneficially owned by each stockholder, director or executive officer is
determined according to rules of the Commission, and the information is not
necessarily indicative of beneficial ownership for any other purpose. Under
such rules, beneficial ownership includes any shares as to which the individual
or entity has sole or shared voting power or investment power. As a
consequence, several persons may be deemed to be the "beneficial owners" of the
same shares. Except as noted below, each holder has sole voting and investment
power with respect to shares of Company Common Stock listed as owned by such
person or entity. When a person is a "co-trustee" or one of a number of
directors of a corporation that owns shares of the Company's Common Stock, he or
she has shared voting and investment power.
NUMBER OF PERCENTAGE OF
NAME AND ADDRESS SHARES OF OUTSTANDING
OF BENEFICIAL OWNER COMMON STOCK COMMON STOCK
------------------- ------------ ------------
BANK OF AMERICA NT & SA/(1)/........ 779,502 18.3%
P.O. Box 34260
Seattle, WA 98124-1260
TRUSTEES OF THE D. R. FISHER
TRUST UW OF D. R.
FISHER/(2)/....................... 238,504 5.6%
P.O. Box 98549
Des Moines, WA 98198
O. D. FISHER
INVESTMENT CO./(3)/............... 232,816 5.5%
1525 One Union Square
Seattle, WA 98101
LULA FISHER WARREN
TRUST/(4)/........................ 240,184 5.6%
The Bank of California
P.O. Box 3123
Seattle, WA 98114
49
NUMBER OF PERCENTAGE OF
NAME OF DIRECTOR/ SHARES OF OUTSTANDING
EXECUTIVE OFFICER COMMON STOCK COMMON STOCK
----------------- ------------ ------------
Robin E. Campbell/(5)/.............. 460,780 10.8%
James W. Cannon..................... 0 *
Phelps K. Fisher/(6)/............... 134,471 3.2%
William O. Fisher/(7)/.............. 240,704 5.6%
Carol H. Fratt/(8)/................. 300 *
Donald G. Graham, Jr./(9)/.......... 484,144 11.3%
Donald G. Graham, III/(10)/......... 240,016 5.6%
William W. Krippaehne, Jr./(11)/.... 2,938 *
John D. Mangels..................... 400 *
Jean F. McTavish/(12)/.............. 35,400 *
Jacklyn F. Meurk/(13)/.............. 45,516 1.1%
W. W. Warren/(14)/.................. 412,576 9.7%
W. W. Warren, Jr./(15)/............. 465 *
George D. Fisher/(16)/.............. 357,368 8.4%
Patrick M. Scott/(17)/.............. 4,305 *
Terry L. Barrans/(18)/.............. 815 *
Mark A. Weed/(19)/.................. 1,000 *
David D. Hillard/(20)/.............. 205 *
Directors and Executive Officers
as a Group (18 Persons)/(21)(22)/... 1,717,267 40.2%
- ------------------
* Represents holdings of less than 1%.
(1) Bank of America National Trust and Savings Association, as a fiduciary,
possesses sole voting power as to 510,678 shares of Company Common Stock,
sole investment power as to 665,674 shares of Company Common Stock, and
shared investment power as to 35,280 shares of Company Common Stock under a
number of wills, trusts and agency arrangements.
(2) Three trustees of the D.R. Fisher Trust share voting and investment power
as to the 238,504 shares held by such trust. The shares held by the D.R.
Fisher Trust are also reported as beneficially owned by two of such
trustees, Messrs. William O. Fisher and George D. Fisher.
(3) Mr. Donald G. Graham, Jr., President, director and a 14.40% shareholder of
the O.D. Fisher Investment Company ("ODFICO"), has sole voting power with
respect to the shares of Company Common Stock owned by ODFICO. Ms. Robin
Campbell is Chairman of the Board of Directors of ODFICO, and a 4.96%
shareholder thereof; Mr. Donald G. Graham, III is Vice President, a
director, and a 3.86% shareholder of ODFICO. The 232,816 shares owned by
ODFICO are also reported as beneficially owned by Ms. Campbell and Messrs.
Donald G. Graham, Jr. and Donald G. Graham, III.
(4) The 240,184 shares held by the Lula Fisher Warren Trust are also reported
in this table as beneficially owned by Mr. W. W. Warren, who shares voting
and investment power as one of several trustees of such trust.
(5) Ms. Campbell owns 114,144 shares. In addition, she shares voting power, as
co-trustee, as to 7,040 shares held by Trust A Under the Will of Peggy
Locke Newman and 106,780 shares held by Trust B Under the Will of Peggy
Locke Newman. Additionally, Ms. Campbell shares investment power as to the
232,816 shares held by the O.D. Fisher Investment Company (see footnote
(3)).
(6) Mr. Phelps K. Fisher owns 41,517 shares. In addition, he has sole voting
power and shared investment power as to 67,436 shares owned by K.R. Fisher
Investment Company, and has sole voting power, pursuant to a power of
attorney, as to 7,036 shares and 7,096 shares, respectively, owned by two
of his adult sons. Mr. Fisher's wife owns 11,386 shares.
50
(7) Mr. William O. Fisher owns 2,200 shares. In addition, he shares voting and
investment power as one of three trustees of the D.R. Fisher Trust, as to
the 238,504 shares held by such trust.
(8) Mrs. Fratt owns 100 shares, and her husband owns 200 shares.
(9) Mr. Donald G. Graham, Jr. owns 36,960 shares. In addition, he has sole
voting power and shared investment power as to the 232,816 shares owned
by the O.D. Fisher Investment Company. Additionally, Mr. Graham has voting
power as to a total of 214,368 shares held by (i) two trusts under the will
of Nellie Hughes Fisher, and (ii) two trusts under the will of O.D. Fisher.
(10) Mr. Donald G. Graham, III, owns 7,200 shares. In addition, he shares
investment power as to 232,816 shares owned by the O.D. Fisher Investment
Company (see footnote (3)).
(11) Mr. Krippaehne holds 228 shares in an Individual Retirement Account and
owns 1,390 shares jointly with his wife. Includes 1,320 shares subject to
purchase within sixty days upon the exercise of stock options.
(12) Ms. McTavish owns 120 shares. In addition, she shares voting power, as
one of three trustees, as to 35,280 shares held by a trust under the will
of Vivien S. Fisher. Ms. McTavish is also one of two income beneficiaries
under such trust.
(13) Ms. Meurk owns 900 shares jointly with her husband. She also has sole
voting power, as trustee under the will of Ethyln Gaige Fisher, as to 9,284
shares held by that trust. She is also a general partner in the Meurk
Family Limited Partnership, which owns 5,720 shares, and shares voting and
investment power with respect to such shares. Ms. Meurk also shares voting
and investment power, as a trustee of the Revocable Living Trust of Elaine
Fisher Gourlie, as to the 29,612 shares held by that trust.
(14) Mr. W. W. Warren owns 12,420 shares. In addition, he shares voting and
investment power, as one of several Trustees, as to 240,184 shares owned by
the Lula Fisher Warren Trust; Mr. Warren is an income beneficiary of such
trust. Mr. Warren also has sole voting power and shares investment power
with respect to 159,972 shares owned by Warren Investment Company, of which
he is President and a Director.
(15) Mr. W. W. Warren, Jr. owns 465 shares jointly with his wife.
(16) Mr. George D. Fisher owns 2,400 shares. In addition, he shares voting and
investment power as one of three trustees of the D.R. Fisher Trust, as to
the 238,504 shares held by such trust. Mr. Fisher is also President and a
director of the D.R. Fisher Company, which owns 116,464 shares, and has
sole voting power and shares investment power with respect to such shares.
(17) Mr. Scott owns 700 shares and owns 2,465 shares jointly with his wife.
Includes 1,140 shares subject to purchase within sixty days upon the
exercise of stock options.
(18) Mr. Barrans owns 180 shares and owns 445 shares jointly with his wife.
Includes 190 shares subject to purchase within sixty days upon exercise of
stock options.
(19) Mr. Weed's beneficial ownership includes 260 shares subject to purchase
within sixty days upon the exercise of stock options.
(20) Mr. Hillard owns 205 shares jointly with his wife.
(21) Includes 2,910 shares subject to purchase within sixty days by all
Directors and Executive Officers as a Group.
(22) The total number of shares and percentage of outstanding Company Common
Stock for the Group eliminates the duplication of any shares deemed to be
beneficially owned by more than one member of the Group.
ITEM 5 - DIRECTORS AND EXECUTIVE OFFICERS.
The following information is provided with respect to the directors and
executive officers of the Company.
51
MANAGEMENT
----------
EXECUTIVE OFFICERS AND DIRECTORS:
NAME POSITION WITH COMPANY
- ---- ---------------------
William W. Krippaehne, Jr./(1)/....................... President, Chief Executive Officer,
and Director
David D. Hillard...................................... Senior Vice President, Chief Financial Officer,
and Secretary
Glen P. Christofferson................................ Vice President and Controller
Robin E. Campbell..................................... Director
James W. Cannon /(2)/................................. Director
George D. Fisher...................................... Director
Phelps K. Fisher /(4)/................................ Director
William O. Fisher..................................... Director
Carol H. Fratt........................................ Director
Donald G. Graham, Jr. /(1)(2)(3)(4)/.................. Director
Donald G. Graham, III................................. Director
John D. Mangels /(2)(3)/.............................. Director
Jean F. McTavish /(1)(3)(4)/.......................... Director
Jacklyn F. Meurk /(1)(3)(4)/.......................... Director
W. W. Warren /(1)(2)(4)/.............................. Director
W. W. Warren, Jr. /(3)/............................... Director
- -----------------------
(1) Member of the Executive Committee
(2) Member of the Compensation Committee
(3) Member of the Audit Committee
(4) Member of the Nominating Committee
The Company has three classes of Directors: Class 1, Class 2 and Class 3,
the terms of office of which will expire, respectively, at the annual meetings
of stockholders in 2000, 1998, and 1999. The term of the current Class 1
Directors, Robin E. Campbell, James W. Cannon, George D. Fisher, Phelps K.
Fisher, and William O. Fisher, will expire at the 2000 Annual Meeting of the
Company's stockholders. The term of the current Class 2 Directors, Carol H.
Fratt, Donald G. Graham, Jr., Donald G. Graham, III, W. W. Krippaehne, Jr., and
John D. Mangels, will expire at the 1998 Annual Meeting of the Company's
stockholders. The term of the current Class 3 Directors, Jean F. McTavish,
Jacklyn F. Meurk, W. W. Warren, and W. W. Warren, Jr., will expire at the 1999
Annual Meeting of the Company's stockholders. Successors to any Directors whose
terms are expiring are elected to three year terms and hold office until their
successors are elected and qualified. Executive officers of the Company are
elected by the Board of Directors annually, for one-year terms, at each annual
meeting of the Board of Directors of the Company.
William W. Krippaehne, Jr., 46, is President and Chief Executive Officer of
the Company, and a Director of the Company. He has served as President since
April 1991, and as
52
Chief Executive Officer since June 1993, and as a Director since March 1982. Mr.
Krippaehne also serves as a Director of Fisher Broadcasting, FPI, FMI, and
SAFECO Corporation.
David D. Hillard, 54, was elected Senior Vice President of the Company in
April 1996, and has served as Chief Financial Officer and Secretary since
December 1992. Prior to that, Mr. Hillard served as Assistant Treasurer of the
Company, from May 1979.
Glen P. Christofferson, 37, has been Vice President and Controller of the
Company since April 1996. From December 1992 until April 1996, he served as
Controller of the Company. Prior to such time, Mr. Christofferson was the Vice
President-Finance of the Seattle Supersonics basketball organization.
Robin E. Campbell, 51, has owned and operated a jewelry design and
appraisal business since 1986. Ms. Campbell has served as a Director of the
Company since April 1996.
James W. Cannon, 69, is the retired Executive Vice President of SAFECO
Corporation and retired President of SAFECO's Property and Casualty Insurance
Companies. Mr. Cannon retired from such positions on December 31, 1992. SAFECO
is engaged in insurance and financial services activities. Mr. Cannon has served
as a Director of the Company since April 1993.
George D. Fisher, 48, is Vice President and Secretary of Hunting, Fisher &
Co. P.S., C.P.A.s, positions he has held since 1976. Mr. Fisher has served as a
Director of the Company since December 4, 1996, when he was elected by the Board
of Directors to fill the vacancy created by the death of Mr. G. O. Fisher. Mr.
Fisher is the brother of Mr. William O. Fisher.
Phelps K. Fisher, 62, is the Executive Vice President - Marketing of Fisher
Broadcasting, a position he has held since May 1993. Prior to such time, Mr.
Fisher served as Vice President and Director of Marketing of Fisher
Broadcasting. Mr. Fisher has served as a Director of the Company since March
1979. Mr. Fisher also serves as a Director of Fisher Broadcasting, FPI and FMI.
William O. Fisher, 46, is a partner in the law firm of Pillsbury, Madison &
Sutro LLP, a position he has held since 1987. Mr. Fisher has served as a
Director of the Company since April 1993. Mr. Fisher is the brother of Mr.
George D. Fisher.
Carol H. Fratt, 52, is a landscape designer. Since 1989, she has owned and
operated a landscape design business. Ms. Fratt has served as a Director of the
Company since April 1993. Ms. Fratt is the niece of Ms. Jean McTavish.
Donald G. Graham, Jr., 73, has served as Chairman of the Board of Directors
of the Company since June 1993. Mr. Graham was President and Chief Executive
Officer of the Company from January 1974 to April 1991, and served as Chairman
and Chief Executive Officer of the Company from April 1991 to May 1993. Mr.
Graham has been a Director of the Company since May 1972. Mr. Graham also
serves as a Director of Fisher Broadcasting, FPI and FMI. Mr. Graham is the
father of Donald G. Graham, III.
53
Donald G. Graham, III, 42, is, and has been since 1983, a commercial
photographer. Mr. Graham has served as a Director of the Company since April
1993. Mr. Graham is the son of Donald Graham, Jr.
John D. Mangels, 71, is the retired Chairman and Chief Executive Officer of
Security Pacific Bancorporation Northwest and Security Pacific Bank Washington.
Mr. Mangels has served as a Director of the Company since December 1990.
Jean F. McTavish, 74, is a homemaker and is involved in a number of
community and charitable activities. Ms. McTavish has served as a Director of
the Company since November 1979. Ms. McTavish is also a member of the Boards of
Directors of Fisher Broadcasting and FPI. Ms. McTavish is the first cousin of
Mr. W. W. Warren. Ms. McTavish is the aunt of Ms. Carol H. Fratt.
Jacklyn F. Meurk, 74, manages property, assets and investments for family
trusts, partnerships and other interests. She is a member of the Boards of
Directors of the Virginia Mason Medical Center and the Virginia Mason Health
System. Ms. Meurk has served as a Director of the Company since January 1973.
Ms. Meurk also serves as a Director of FPI.
W. W. Warren, 85, is the retired Chairman and Chief Executive Officer of
Fisher Broadcasting. Mr. Warren has served as a Director of the Company since
March 1979. Mr. Warren also serves as a Director of Fisher Broadcasting. Mr.
Warren is the first cousin of Ms. Jean McTavish and the father of Mr. W. W.
Warren, Jr.
W. W. Warren, Jr., 58, is a Professor of Physics and the Director of the
W. M. Keck Nuclear Magnetic Resonance Laboratory at Oregon State University,
positions he has held since 1991. Mr. Warren has served as a Director of the
Company since March 1992. Mr. Warren is the son of Mr. W. W. Warren.
COMMITTEES OF THE BOARD OF DIRECTORS OF THE COMPANY
The standing committees of the Board of Directors of the Company are the
Executive Committee, the Audit Committee, the Compensation Committee, and the
Nominating Committee. The Company also has a Stock Purchase Committee, although
such committee does not currently meet regularly. The Executive Committee has
authority to exercise all of the authority of the Board of Directors.
Additionally, the Executive Committee has the power and duty to vote the stock
of all subsidiaries of the Company and to make all decisions and determinations
with respect to such subsidiaries. The Audit Committee reviews the Company's
audit plan, the scope of activities of the Company's independent auditors, the
results of the audit after completion, and the fees for related services
performed during the year. The Audit Committee also recommends to the Board of
Directors the firm to be appointed as independent auditors. At times, the Audit
Committee meets with representatives of the Company's independent auditors
without any officers or employees of the Company present. The Compensation
Committee reviews and approves, in advance, the Company's retirement and benefit
plans, determines the compensation of officers of the Company, and authorizes
and approves bonus and incentive programs for executive personnel. The
Compensation Committee also reviews and recommends changes in compensation for
members of the Board of Directors, and administers the Fisher Companies
Incentive Plan of 1995. The Nominating Committee
54
considers and recommends to the Board of Directors nominees for possible
election to the Board of Directors and considers other matters pertaining to the
size and composition of the Board of Directors and its Committees.
DIRECTORS' COMPENSATION
The Board of Directors of the Company is comprised of fourteen Directors,
two of whom are salaried employees of the Company or one of its subsidiaries.
The members of the Company's Board of Directors who are not officers of the
Company, or its subsidiaries, receive an annual retainer of $12,000. The
Chairman of the Board of Directors receives a total annual retainer of $55,000.
In addition, every Director receives a fee of $1,000 for each Board of
Directors or Committee meeting attended. The Company also pays the Chairmen of
the Audit Committee and the Compensation Committee an annual retainer of $3,000.
Directors are reimbursed for travel expenses incurred, and receive a per diem
payment of $200, in connection with travel to and from Board of Directors or
Committee meetings.
ITEM 6 - EXECUTIVE COMPENSATION
The following information is provided regarding the compensation paid by
the Company or its subsidiaries, as the case may be, to the Chief Executive
Officer of the Company and the most highly compensated executive officers of the
Company or its subsidiaries, as the case may be, in fiscal year 1996. In
accordance with applicable regulations promulgated by the Commission,
information regarding Messrs. Scott, Weed and Barrans, who are the CEOs of
Fisher Broadcasting, FPI and FMI, respectively, is included because such persons
perform policy making functions for the Company.
SUMMARY COMPENSATION TABLE
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
-------------------------------------- ---------------------------------------------
RESTRICTED SECURITIES
OTHER ANNUAL STOCK UNDERLYING ALL OTHER
YEAR SALARY BONUS COMPENSATION(1) AWARDS(2) OPTIONS (3) COMPENSATION(4)
---- -------- -------- --------------- --------- ----------- ----------------
WILLIAM W. KRIPPAEHNE, JR. 1996 $410,000 $220,000 $2,000 $115,475 6,600 $4,500
President and CEO
PATRICK M. SCOTT 1996 385,000 165,000 1,709 98,713 5,700 4,500
President and CEO,
Fisher Broadcasting Inc.
MARK A. WEED 1996 193,500 65,000 387 22,350 1,300 4,500
President and CEO,
Fisher Properties Inc.
TERRY L. BARRANS 1996 172,500 60,000 290 16,763 950 4,500
President and CEO,
Fisher Mills Inc.
DAVID D. HILLARD 1996 147,917 35,000 355 20,488 0 4,500
Senior Vice President,
Chief Financial Officer
- ------------------------------------------------------------------------------------------------------------------------------------
(1) This column reflects dividends paid on stock rights awarded under the
Fisher Companies Incentive Plan of 1995. See footnote (2) below.
(2) This column shows the market value of restricted stock awards made pursuant
to the Fisher Companies Incentive Plan of 1995. The restricted stock
awards vest (i.e., stock is issuable or an equivalent cash payment is
payable) in an amount equal to 20% of the total restricted stock award, on
each of five annual target dates designated in the written agreement
granting such awards, conditioned on the continued employment of the
awardee
55
through such target dates. Each of the restricted stock awards
reflected in this column was made on February 28, 1996, and provides for
vesting dates commencing March 15, 1997 (and continuing on March 15 of each
of the following four years). The total number of shares awarded to the
named executives, subject to the vesting schedule described above, is: Mr.
Krippaehne, 1,550; Mr. Scott, 1,325; Mr. Weed, 300; Mr. Barrans, 225; and
Mr. Hillard, 275. The Fisher Companies Incentive Plan of 1995 provides for
the annual payment of additional compensation to persons holding restricted
stock rights, whether or not vested, in an amount equal to any dividend
that would have been payable to the holder of such rights if the holder had
owned the stock subject to such rights. The value of the restricted stock
awards, on a per-share basis, as of April 14, 1997, was $116.00, based upon
the average of the bid and ask price of Company Common Stock on such date.
(3) This column reflects the number of shares of Company Common Stock issuable
upon exercise of stock options granted.
(4) This column reflects Company contributions to the Fisher Broadcasting
401(k) Retirement Plan and the Fisher 401(k) Retirement Plan.
The following table sets forth stock options granted during 1996 to the
executive officers named in the "Summary Compensation Table" above, pursuant to
the Fisher Companies Incentive Plan of 1995. All such stock options were granted
on February 28, 1996.
OPTION/SAR GRANTS IN FISCAL YEAR 1996 POTENTIAL REALIZABLE
VALUE AT ASSUMED ANNUAL
RATES OF STOCK PRICE
APPRECIATION FOR
INDIVIDUAL GRANTS OPTION TERM/(3)/
- -----------------------------------------------------------------------------------------------------------------------------------
Percent of
Number of Total Options
Securities Granted to
Underlying Options Employees in Exercise Price Expiration
Name Granted(1) Fiscal Year ($/Sh) (2) Date 5% 10%
---- ---------- ----------- -------------- ----------- -------- --------
William W. Krippaehne, Jr. 6,600 31% $74.50 2/28/2006 $121.36 $193.25
Patrick M. Scott 5,700 27% $74.50 2/28/2006 $121.36 $193.25
Mark A. Weed 1,300 6% $74.50 2/28/2006 $121.36 $193.25
Terry L. Barrans 950 5% $74.50 2/28/2006 $121.36 $193.25
(1) The options are non-qualified stock options and become exercisable in five
equal annual installments beginning March 15, 1997.
(2) The per-share option exercise price represents the fair market value of the
Company's Common Stock at the date of grant, based on the average of the
bid and ask price of such stock on such date.
(3) The dollar amounts under these columns result from calculations at the 5%
and 10% assumed appreciation rate established by the Commission and,
therefore, are not intended to forecast possible future appreciation, if
any, of the Company's Common Stock price.
Mr. Patrick M. Scott, one of the named executive officers, is covered by
the Fisher Broadcasting Inc. Retirement Plan (the "Fisher Broadcasting Pension
Plan"), which is a funded, qualified, non-contributory, defined benefit plan
that covers employees of Fisher Broadcasting. The Fisher Broadcasting Pension
Plan provides benefits based on the participant's highest 3-year annual average
salary and the participant's length of service. The amounts payable under the
Fisher Broadcasting Pension Plan are in addition to any Social Security benefit
to be received by a participant. The Fisher Broadcasting Pension Plan benefit
vests 20% after 3 years of service with Fisher Broadcasting, and an additional
20% for each year of service thereafter until 7 years
56
of service, when the benefits are 100% vested. As of December 31, 1996, Mr.
Scott had 28 years of credited service under the terms of the Fisher
Broadcasting Pension Plan.
The amount of retirement benefits payable to Mr. Scott will be determined
pursuant to the supplemental retirement plan in which he participates. Because
the Fisher Broadcasting Pension Plan is a qualified pension plan, the amount of
covered compensation thereunder was limited by applicable tax laws to $150,000
per year in 1996. Retirement benefits payable to Mr. Scott under the Fisher
Broadcasting Pension Plan will constitute a portion of the total retirement
benefits payable to him under the supplemental pension plan in which he
participates; such percentage will vary depending on subsequent changes to the
limitations imposed by tax laws and actual years of service, but will not affect
the total payments due him under the supplemental pension plan. The
supplemental pension plan in which Mr. Scott participates is described
below.
All named executive officers except Mr. Scott are covered by the Retirement
Plan for Certain Employees of Fisher Mills Inc. (the "Retirement Plan"). The
Retirement Plan is a funded, qualified, non-contributory defined benefit plan
that covers all employees of the Company, FPI, and FMI. The Retirement Plan
provides benefits based on a participant's length of service. The amounts
payable under the Retirement Plan are in addition to any Social Security benefit
to be received by a participant. The Retirement Plan benefit vests 100% upon
completion of five years of service with the Company, FPI, or FMI, as the case
may be. As of December 31, 1996, the following named executive officers have
the following years of credited service under the terms of the Retirement Plan:
Mr. Krippaehne, 15 years; Mr. Weed, 9 years; Mr. Barrans, 20 years: and Mr.
Hillard, 18 years.
The Company and its subsidiaries have supplemental retirement plans
("SRPs") for certain executive and management personnel of the Company, Fisher
Broadcasting, FPI and FMI. The SRPs are non-funded, non-qualified, non-
contributory defined benefit plans. The SRPs do not require funding, 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. The
SRPs require continued employment through the date of expected retirement. The
SRPs provide that the SRP benefits, together with all other pension and
retirement benefits provided by the employing entity, including an amount equal
to one-half of the participant's Social Security benefits, will represent a
specified percentage (between 50% and 70%) of the participant's average annual
compensation. "Average annual compensation" for purposes of the SRPs is
determined by averaging the participant's base salary over a period of the three
consecutive years that will provide the highest average. The SRPs provide for
payment of accrued benefits in the event of involuntary termination prior to age
65, and for death or disability benefits in the event of death or permanent
disability prior to age 65. Each of Messrs. Krippaehne, Scott, Weed, Barrans
and Hillard is a participant in an SRP.
Fisher Broadcasting has established a 401(k) Retirement Plan (the "Fisher
Broadcasting 401(k) Plan") to provide a savings incentive for employees. The
Fisher Broadcasting 401(k) Plan involves a contribution by Fisher Broadcasting,
matching participant contributions on a dollar-for-dollar basis up to a maximum
of 3% of participant compensation. Fisher Broadcasting contributions to the
Fisher Broadcasting Inc. 401(k) Plan vest at the rate of 20% per year of
service, commencing with the third year of completed service. Employees who
have completed at least one year of service with Fisher Broadcasting, including
Mr. Patrick M. Scott, are eligible to participate in the Fisher Broadcasting
401(k) Plan.
A plan entitled Fisher 401(k) Retirement Plan (the "Fisher 401(k) Plan")
has been established for employees of the Company, FMI, and FPI. The Fisher
401(k) Plan has the same levels of employer contributions, vesting schedule,
and standards of eligibility as the Fisher Broadcasting 401(k) Plan described
above. Messrs. Krippaehne, Weed, Barrans, and Hillard are eligible to
participate in the Fisher 401(k) Plan.
57
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During 1996, the following persons served as members of the Company's
Compensation Committee of the Board of Directors: James W. Cannon, Donald G.
Graham, Jr., John D. Mangels, and W. W. Warren. Mr. Graham was formerly
President and Chief Executive Officer of the Company, having served in such
capacity from 1974 to 1991, and served as Chairman and Chief Executive Officer
of the Company from 1991 to 1993. Prior to retirement, Mr. Warren was the Chief
Executive Officer of Fisher Broadcasting. Mr. Graham serves as the executor of
two estates, and as trustee of two trusts, which have made loans to the Company,
and as attorney-in-fact for his mother, who has made a loan to the Company. See
"Certain Relationships and Related Transactions" below.
ITEM 7 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Certain directors and shareholders of the Company (together with employees
and others), and/or entities in which such persons have direct or indirect
interests, have made working capital loans to the Company. Such persons and/or
entities hold promissory notes ("Notes") from the Company reflecting such loans.
At April 30, 1997, the total amount of Notes payable was approximately $9.8
million. The Notes are payable either on demand, or in 90 days, and bear
interest at rates equivalent to rates available to the Company for short-term
cash equivalents. Of the approximately $9.8 million in principal amount of Notes
outstanding at April 30, 1997, approximately $8.5 million consisted of demand
notes, accruing interest at a rate equal to the 90-day certificate of deposit
("CD") rate for CDs of $100,000 or more as announced from time to time by
Seafirst Bank, less 0.25%. Approximately $1.3 million of the Notes outstanding
as of April 30, 1997, were Notes having a 90-day maturity, and providing for
interest at a rate equal to the 90-day CD rate for CDs of $100,000 or more as
announced from time to time by Seafirst Bank, plus 0.35%. The Company currently
anticipates that it will continue to borrow funds under these loan arrangements
in the future, at approximately historical levels, although the exact amount of
such Notes outstanding at any particular time is expected to fluctuate
significantly from time to time and, consequently, cannot be predicted.
At April 30, 1997, the Company was indebted under the loans described above
to directors, or to entities in which such directors have a direct or indirect
interest or serve in some capacity, in the following amounts: (i) Mr. George D.
Fisher, $350,000 personally and $2,038,000 to entities of which he is a trustee,
officer, and/or shareholder, (ii) Mr. Phelps K. Fisher, $122,000 personally and
$48,000 to a corporation of which he is an officer and shareholder; (iii) Mr.
Donald G. Graham, Jr., $2,550,000 to two estates of which he is the executor and
two trusts of which he is a trustee; and (iv) Jacklyn F. Meurk, $150,000 to a
limited partnership of which she is a general partner. Additionally, the
Company is indebted to Mrs. Donald G. Graham, the mother of Mr. Donald G.
Graham, Jr., in the amount of $1,504,000; to Mrs. Allie Fisher, the mother of
Mr. George D. Fisher, in the amount of $2,140,000; and to Mrs. Susan Hubbach,
the mother of Mrs. Carol Fratt, in the amount of $34,000. The Company is also
indebted to the D.R. Fisher Trust, which owns 5.6% of outstanding Company Common
Stock, in the amount of $823,000 (such sum is also included in the amount shown
for Mr. George D. Fisher above, as he is one of three trustees of such
trust).
In 1984, FPI and Mr. William W. Krippaehne, Jr., entered into a joint
venture to construct and operate for lease two office buildings in Lynnwood,
Washington. At that time, Mr. Krippaehne was President of FPI; he is now
President and Chief Executive Officer of the Company. FPI contributed land at
its fair market value ($2,230,000) and paid design fees and project costs of
$29,932 for a 95% interest in the joint venture, and Mr. Krippaehne contributed
$118,944 cash for a 5% interest. The joint venture agreement provides that
profits and losses, additional cash contributions, if any, and distributions
shall be allocated in proportion to the original contributions. The joint
venture owns the Fisher Business Center in Lynnwood, Washington. (See "Real
Estate Operations - Operating Properties".)
ITEM 8 - 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.
58
ITEM 9 - 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 April 11, 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:
QUARTERLY COMMON STOCK PRICE RANGES (1)
---------------------------------------
1996 1995
------------------- -----------------
QUARTER HIGH LOW HIGH LOW
- ---------- -------- -------- ------- -------
1ST $ 80.00 $73.50 $69.00 $56.75
2ND 86.00 80.00 73.25 70.00
3RD 100.00 85.25 75.50 72.25
4TH 100.00 97.00 75.00 74.00
- -----------
(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. Prices for 1995 have been
adjusted to reflect a four-for-one stock split that was effective May 15, 1995.
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 April 15, 1997 was 512.
The Company paid cash dividends on its Common Stock of $1.52 and $1.72 per
share, respectively, for the fiscal years 1995 and 1996. In addition, the
Company declared, on December 4, 1996, a dividend of $1.96 per share for 1997,
which will be payable at a rate of $0.49 per quarter to shareholders of record
on such quarterly payment dates during 1997. 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 10 - RECENT SALES OF REGISTRANT'S SECURITIES TO BE REGISTERED
In 1997 (March 15 through April 15), the Company sold 390 shares of Company
Common Stock to certain officers and employees of the Company, Fisher
Broadcasting, FMI and FPI, upon the exercise of non-qualified stock options
previously granted to such persons under the Fisher Companies Incentive Plan of
1995. The aggregate price for the Company Common Stock sold to such persons was
$29,055. No underwriting discounts or commissions were paid in connection with
such sale. The issuance and sale of Company Common Stock pursuant to the Fisher
Companies Incentive Plan of 1995 is exempt from registration under the
Securities Act of 1933, as amended, pursuant to Section 4(2) of such Act, as a
sale of securities not involving a public offering. The Company intends to
register Company Common Stock issued pursuant to the Fisher Companies Incentive
Plan of 1995, on a Form S-8 registration statement under the
59
Securities Act of 1933, to be effective immediately following the effective date
of this Registration Statement.
ITEM 11 - DESCRIPTION OF REGISTRANT'S SECURITIES TO BE REGISTERED
DESCRIPTION OF CAPITAL STOCK
The Company is currently authorized to issue 12,000,000 shares of Company
Common Stock, $2.50 par value per share. The following description of the
Company Common Stock and the material provisions of the Company's Amended and
Restated Articles of Incorporation (the "Articles") and Bylaws is a summary
and is qualified in its entirety by reference to, the Articles and Bylaws,
copies of which have been filed as exhibits to this Registration
Statement.
VOTING
The holders of Company Common Stock are entitled to one vote per share held
of record on all matters submitted to a vote of the stockholders, except in the
case of election of directors. The Bylaws provide for cumulative voting for
director elections, giving each stockholder the right to vote the number of
shares owned by such shareholder times the number of persons being elected as
directors and for whose election such shareholder has a right to vote, or to
cumulate such votes by giving one candidate as many votes as the number of
directors being elected multiplied by the number of shares owned, or by
distributing such votes on the same principle among any number of candidates.
The Bylaws provide that a majority of shares entitled to vote constitutes a
quorum, and that the affirmative vote of the majority of the shares represented
at a meeting at which a quorum is present constitutes the act of the
stockholders, unless the vote of a greater number is required by law or by the
Articles. The Articles contain no provisions requiring a greater number of
votes than provided in the Bylaws.
DIVIDENDS AND OTHER DISTRIBUTIONS (INCLUDING DISTRIBUTIONS UPON LIQUIDATION)
All shares of Common Stock are equal in respect of dividends and other
distributions in cash, stock or property, including distributions upon
liquidation of the Company.
TRANSFERABILITY OF SHARES
The shares of Common Stock are freely transferable, subject to certain
restrictions on resale imposed on (i) affiliates of the Company, and (ii)
persons having received shares of Company Common Stock pursuant to the Incentive
Plan of 1995.
WASHINGTON LAW REGARDING CERTAIN BUSINESS TRANSACTIONS
Certain provisions of the Revised Code of Washington ("RCW"), summarized
below, may be considered to have an anti-takeover effect and may delay, deter,
or prevent a tender offer, proxy contest or other takeover attempt that a
stockholder might consider to be in such stockholder's best interest, including
such an attempt as might result in payment of a premium over the market price
for shares held by stockholders.
60
As a Washington corporation, the Company is subject to the provisions of
the RCW, including Section 23B.19. In general, Section 23B.19 prohibits a
Washington corporation from engaging in a "significant business transaction" for
a period of five years after the acquisition of ten percent or more of the
corporation's outstanding stock by a third party (an "acquiring person"), unless
the significant business transaction or the acquisition of the threshold number
of shares by the acquiring person is approved, prior to the acquisition of the
shares, by a majority of the directors of the corporation. "Significant
business transactions" are defined to include, among other things, (i) merger of
the target corporation or any subsidiary thereof with the acquiring person or
any affiliate; (ii) sale, lease, mortgage, or other disposition or encumbrance,
to or with the acquiring person or affiliate, of five percent or more of the
target corporation's assets; (iii) termination of five percent or more of the
employees of the target corporation or its subsidiaries employed in Washington;
(iv) issuance, transfer or redemption by the target corporation or any
subsidiary, of shares, or of options, warrants, or rights to acquire shares of
the target corporation or any subsidiary, to or beneficially owned by an
acquiring person, unless on the same terms as are offered to all other target
corporation shareholders; and (v) the liquidation or dissolution of the target
corporation proposed by, or pursuant to an agreement or understanding with, an
acquiring person or affiliate.
SPECIAL MEETINGS OF SHAREHOLDERS
The Bylaws provide that special meetings of shareholders may be called by
the Chairman of the Board of Directors, the President or by the Secretary at the
request of any three or more directors.
CLASSIFIED BOARD OF DIRECTORS
The Articles and the Bylaws provide for the division of the Board of
Directors into three classes nearly equal in size as possible with staggered
three-year terms (except for the current terms of current Class 2 and Class 3
directors, which are 2 years and 3 years, respectively). At each annual meeting
of the shareholders, successors to the directors whose terms expire at that
annual meeting are elected for a three-year term, with each director to hold
office until a successor has been duly elected and qualified. As a result,
approximately one-third of the Board of Directors will be elected each year.
See "Management--Executive Officers and Directors."
ITEM 12 - INDEMNIFICATION OF DIRECTORS AND OFFICERS
DIRECTOR LIABILITY AND INDEMNIFICATION
The Articles and the Bylaws, taken together, provide that the Company shall
indemnify any person who was or is involved in any manner or was or is
threatened to be made so involved in any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative, or
investigative, by reason of the fact that such person is or was a director or
director-officer of the Company or any of its subsidiaries, against all
expenses, judgments, fines and amounts paid in settlement actually and
reasonably incurred by such person in connection with such proceeding. The
Company may not, however, provide such indemnification on account of (a) acts or
omissions finally adjudged to be intentional misconduct or knowing violation of
law; (b) conduct finally adjudged to be in violation of RCW Section 23B.08.310;
or (c) any transaction with respect to which it was finally adjudged that such
person personally
61
received a benefit in money, property, or services to which such person was not
entitled (the foregoing instances being defined in the Company's Bylaws as
"egregious conduct"). The Articles provide that no director of the Company will
be liable to the Company or to its shareholders, or to any subsidiary or its
shareholders, for monetary damages for conduct as a director or director-officer
except in instances involving egregious conduct. The rights to indemnification
provided by the Articles and Bylaws include the right to receive payment of any
expenses incurred by the person being indemnified in connection with a
proceeding in advance of the final disposition of the proceeding consistent with
applicable law. Such rights are not exclusive of any other rights to which any
person seeking indemnification may otherwise be entitled. The Articles and
Bylaws also specify or incorporate by reference certain procedures, presumptions
and remedies that apply with respect to the right to indemnification and the
advancement of expenses.
62
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 and of cash flows
present fairly, in all material respects, the financial position of Fisher
Companies Inc. and its subsidiaries at December 31, 1996 and 1995, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1996, 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
February 21, 1997
63
ITEM 13 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
FISHER COMPANIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
YEAR ENDED DECEMBER 31 1994 1995 1996
- --------------------------------------------------------------------------------------------------
(In thousands except per share amounts)
Sales and other revenue:
Broadcasting $ 87,112 $101,192 $111,967
Milling 93,277 112,360 135,697
Real estate 8,659 10,941 13,556
Corporate and other, primarily dividends and interest income 3,460 4,087 4,000
- --------------------------------------------------------------------------------------------------
192,508 228,580 265,220
- --------------------------------------------------------------------------------------------------
Costs and expenses:
Cost of products and services sold 124,483 144,878 170,016
Selling expenses 11,016 13,870 16,941
General, administrative and other expenses 25,430 29,988 33,131
- --------------------------------------------------------------------------------------------------
160,929 188,736 220,088
- --------------------------------------------------------------------------------------------------
Income from operations 31,579 39,844 45,132
Interest expense 4,005 5,280 5,671
- --------------------------------------------------------------------------------------------------
Income before provision for income taxes and effect of
change in accounting method 27,574 34,564 39,461
Provision for federal and state income taxes 9,422 11,881 13,375
- --------------------------------------------------------------------------------------------------
Income before effect of change in accounting method 18,152 22,683 26,086
Cumulative effect of change in method of accounting for
postretirement benefits, net of tax (1,305)
- --------------------------------------------------------------------------------------------------
Net income $ 16,847 $ 22,683 $ 26,086
- --------------------------------------------------------------------------------------------------
Income per common share:
Income before effect of change in accounting method $ 4.26 $5.32 $6.12
Cumulative effect of change in method of accounting for
postretirement benefits, net of tax (.31)
- --------------------------------------------------------------------------------------------------
Net income $ 3.95 $5.32 $6.12
- --------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
64
FISHER COMPANIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Unrealized
Gain on
Common Capital in Marketable Retained Total
Stock excess of par Securities Earnings Equity
- ----------------------------------------------------------------------------------------------------------------------------
(In thousands)
Balance, December 31, 1993 $10,663 $ 48 $ 97,285 $107,996
Change in method
of accounting,
January 1, 1994 $54,948 54,948
Net income 16,847 16,847
Dividends paid (5,787) (5,787)
Net decrease (3,253) (3,253)
- ----------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1994 10,663 48 51,695 108,345 170,751
Net income 22,683 22,683
Dividends paid (6,568) (6,568)
Net increase 16,815 16,815
- ----------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1995 10,663 48 68,510 124,460 203,681
Net income 26,086 26,086
Dividends paid (7,432) (7,432)
Net increase 9,794 9,794
- ----------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1996 $10,663 $ 48 $78,304 $143,114 $232,129
- ----------------------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements
65
FISHER COMPANIES INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
YEAR ENDED DECEMBER 31
1995 1996
- ------------------------------------------------------------------------------------------------------------------------------------
ASSETS
- ------------------------------------------------------------------------------------------------------------------------------------
(In thousands except share amounts)
Current Assets:
Cash and short-term cash investments $ 19,489 $ 5,116
Receivables 41,675 44,759
Inventories 11,793 13,199
Prepaid expenses 6,384 7,859
Television and radio broadcast rights 5,606 5,383
- ------------------------------------------------------------------------------------------------------------------------------------
Total current assets 84,947 76,316
- ------------------------------------------------------------------------------------------------------------------------------------
Marketable Securities, at market value 106,447 121,545
- ------------------------------------------------------------------------------------------------------------------------------------
Other Assets:
Cash value of life insurance and retirement deposits 8,881 9,362
Television and radio broadcast rights 1,010 317
Intangible assets, net of amortization 14,641 47,982
Other 3,075 4,033
- ------------------------------------------------------------------------------------------------------------------------------------
27,607 61,694
- ------------------------------------------------------------------------------------------------------------------------------------
Property, Plant and Equipment, net 134,034 134,594
- ------------------------------------------------------------------------------------------------------------------------------------
$353,035 $394,149
- ------------------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Notes payable $ 13,759 $ 9,258
Trade accounts payable 6,782 8,674
Accrued payroll and related benefits 4,058 4,536
Television and radio broadcast rights payable 5,056 5,036
Income taxes payable 2,054 1,147
Other current liabilities 3,494 5,244
- -----------------------------------------------------------------------------------------------------------------------------------
Total current liabilities 35,203 33,895
- ------------------------------------------------------------------------------------------------------------------------------------
Long-term Debt, net of current maturities 58,110 65,713
- ------------------------------------------------------------------------------------------------------------------------------------
Other Liabilities:
Accrued retirement benefits 11,496 11,924
Deferred income taxes 42,705 49,483
Television and radio broadcast rights payable, long-term portion 860 296
Deposits and retainage payable 947 676
- -----------------------------------------------------------------------------------------------------------------------------------
56,008 62,379
- ------------------------------------------------------------------------------------------------------------------------------------
Minority Interests 33 33
- ------------------------------------------------------------------------------------------------------------------------------------
Commitments and Contingencies (Notes 11 and 12)
- ------------------------------------------------------------------------------------------------------------------------------------
Stockholders' Equity:
Common stock, shares authorized 12,000,000, $2.50 par value;
issued 4,265,172 10,663 10,663
Capital in excess of par 48 48
Unrealized gain on marketable securities, net of deferred
income taxes of $36,891 in 1995 and $42,164 in 1996 68,510 78,304
Retained earnings 124,460 143,114
- ------------------------------------------------------------------------------------------------------------------------------------
203,681 232,129
- ------------------------------------------------------------------------------------------------------------------------------------
$353,035 $394,149
- ------------------------------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements
66
FISHER COMPANIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31
1994 1995 1996
- -------------------------------------------------------------------------------------------------------------
(In thousands)
Cash flows from operating activities:
Net income $ 16,847 $ 22,683 $ 26,086
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 8,387 9,747 10,753
(Decrease) increase in noncurrent deferred income taxes (8) 910 1,505
Gain on sale of real estate (2,300)
Cumulative effect of change in method of accounting for
postretirement benefits, before tax 2,012
Change in operating assets and liabilities:
Receivables (4,820) (5,869) (3,084)
Inventories 792 (2,518) (1,406)
Prepaid expenses (986) (82) (1,475)
Cash value of life insurance and retirement deposits (363) (335) (481)
Income taxes payable 843 711 (907)
Trade accounts payable, accrued payroll and related
benefits and other current liabilities (3,467) 4,175 4,120
Other assets 360 (564) (958)
Accrued retirement benefits 240 128 428
Deposits and retainage payable (567) (77) (271)
Amortization of television and radio broadcast rights 7,993 8,119 8,575
Payments for television and radio broadcast rights (7,802) (8,067) (8,243)
Other, net 94 270 169
- ------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 19,555 29,231 32,511
- ------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Proceeds from sale of real estate 2,860
Purchase assets of radio stations (11,282) (6,740) (36,684)
Purchase of property, plant and equipment (16,640) (10,784) (8,730)
- -------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (27,922) (17,524) (42,554)
- -------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Net borrowings under notes payable 3,518 1,662 (4,698)
Borrowings under borrowing agreements and mortgage loans 9,431 44,000
Payments on borrowing agreements and mortgage loans (4,653) (5,652) (36,200)
Cash dividends paid (5,787) (6,568) (7,432)
- -------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities 2,509 (10,558) (4,330)
- -------------------------------------------------------------------------------------------------------------
Net (decrease) increase in cash and short-term cash investments (5,858) 1,149 (14,373)
Cash and short-term cash investments, beginning of year 24,198 18,340 19,489
- -------------------------------------------------------------------------------------------------------------
Cash and short-term cash investments, end of year $ 18,340 $ 19,489 $ 5,116
- -------------------------------------------------------------------------------------------------------------
Supplemental cash flow information is included in Notes 5 and 8.
See accompanying notes to consolidated financial statements
67
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., its majority-owned subsidiaries and a
joint venture in which the Company's real estate subsidiary is the majority
partner (see Note 4). 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 discount
---------------------------
notes issued by federal agencies and 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 futures and option 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.
68
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 the marketable securities consists of
3,002,376 shares of SAFECO Corporation at December 31, 1995 and 1996. As of
December 31, 1996, these shares represented 2.4% 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, 1995
and 1996 is $358,000 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.
Property, plant and equipment. Replacements and improvements are
-----------------------------
capitalized while maintenance and repairs are charged as expense when incurred.
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 $1,148,000,
$1,892,000 and $2,507,000 in 1994, 1995 and 1996, respectively.
Earnings per share. Income per common share has been calculated on the
------------------
basis of the weighted average number of shares outstanding during the year.
69
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 1994 and 1995 balances have been reclassified
-----------------
to conform to the 1996 presentation.
NOTE 2
RECEIVABLES
Receivables are summarized as follows (in thousands):
- ----------------------------------------------------------------------------
December 31 1995 1996
- ----------------------------------------------------------------------------
Trade accounts $42,614 $45,704
Other 668 473
- ----------------------------------------------------------------------------
43,282 46,177
Less - Allowance for
doubtful accounts 1,607 1,418
- ----------------------------------------------------------------------------
$41,675 $44,759
- ----------------------------------------------------------------------------
NOTE 3
INVENTORIES
Inventories are summarized as follows (in thousands):
- ----------------------------------------------------------------------------
December 31 1995 1996
- ----------------------------------------------------------------------------
Finished products $ 4,296 $ 4,758
Raw materials 7,296 8,255
Spare parts and supplies 201 186
- ----------------------------------------------------------------------------
$11,793 $13,199
- ----------------------------------------------------------------------------
70
NOTE 4
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are summarized as follows (in thousands):
- -------------------------------------------------------
December 31 1995 1996
- -------------------------------------------------------
Buildings and improvements $118,386 $120,128
Machinery and equipment 82,397 84,033
Land and improvements 15,935 16,622
- -------------------------------------------------------
216,718 220,783
Less Accumulated depreciation 85,838 91,487
- -------------------------------------------------------
130,880 129,296
Construction in progress 3,154 5,298
- -------------------------------------------------------
$134,034 $134,594
- -------------------------------------------------------
The Company's real estate subsidiary and the president of the Company are
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. The joint venture
agreement provides that profits and losses, additional cash contributions, if
any, and distributions be allocated in proportion to the original contributions.
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, 1996 are (in
thousands):
Year Rentals
- ---- -------
1997 $9,133
1998 7,620
1999 6,148
2000 4,313
2001 2,714
Thereafter 4,761
- ---------------------------------------------
$34,689
- ---------------------------------------------
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, 1996 includes
buildings, equipment and improvements of $95,912,000, land and improvements of
$11,962,000 and accumulated depreciation of $25,740,000.
71
Interest capitalized relating to construction of property, plant and
equipment amounted to approximately $758,000 and $97,000 in 1994 and 1995,
respectively. No interest was capitalized in 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, 1996. The lines are unsecured and bear interest at
rates no higher than the prime rate. No borrowings were outstanding under the
lines at December 31, 1996.
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 $238,000, $401,000 and $430,000 in 1994, 1995 and 1996,
respectively.
Notes payable are summarized as follows (in thousands):
- ---------------------------------------------
December 31 1995 1996
- ---------------------------------------------
Banks $ 6,255
Directors, stockholders
and others 6,584 $8,141
Current maturities of
long-term debt 920 1,117
- ---------------------------------------------
$13,759 $9,258
- ---------------------------------------------
Long-term debt.
- --------------
Line 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. $12,000,000 was outstanding under the line at December 31, 1996.
Mortgage loans. The real estate subsidiary maintains the following
--------------
mortgage loans:
Principal amount of $4,411,000 secured by an industrial park with a book
value of $6,213,000 at December 31, 1996. The nonrecourse loan requires monthly
payments including interest of $29,836. 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 $12,784,000 secured by two industrial parks with a
combined book value of $13,320,000 at December 31, 1996 and principal amount of
$11,111,000 secured by the Lynnwood project owned by the real estate joint
venture with a book value of $17,123,000 at
72
December 31, 1996. The loans mature in 2008, bear interest at 7.75% and require
monthly payments of $101,025 and $87,807, 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 $26,511,000 secured by an office building and parking
structure with a book value of $34,782,000 at December 31, 1996. The nonrecourse
loan matures in February 2006, bears interest at 7.72% and requires monthly
payments of principal and interest amounting to $221,157.
Long-term debt is summarized as follows (in thousands):
- ----------------------------------------------------------------------------
December 31 1995 1996
- ----------------------------------------------------------------------------
Notes payable under
bank lines of credit $30,268 $12,000
Mortgage loans payable 28,747 54,817
Other 15 13
- ----------------------------------------------------------------------------
59,030 66,830
Less - Current maturities 920 1,117
- ----------------------------------------------------------------------------
$58,110 $65,713
- ----------------------------------------------------------------------------
Future maturities of notes payable and long-term debt are as follows (in
thousands):
- -----------------------------------------------------------------------------
Directors, Bank Mortgage
Stockholders Line Loans
and Others of Credit and Other Total
- ----------------------------------------------------------------------------
1997 $8,141 $ 1,117 $ 9,258
1998 1,206 1,206
1999 1,301 1,301
2000 1,405 1,405
2001 1,517 1,517
Thereafter $12,000 48,284 $60,284
- ----------------------------------------------------------------------------
$8,141 $12,000 $54,830 $74,971
- ----------------------------------------------------------------------------
Cash paid for interest (net of amounts capitalized) during 1994, 1995 and
1996 was $3,950,000, $5,071,000 and $6,184,000, respectively.
73
NOTE 6
TELEVISION AND RADIO BROADCAST RIGHTS
At December 31, 1996, the long-term portion of television and radio
broadcast rights payable is primarily due in 1997.
Television and radio broadcast rights acquired under contractual
arrangements were $9,187,000 and $7,658,000 in 1995 and 1996, respectively.
At December 31, 1996, the broadcasting subsidiary had executed license
agreements amounting to $29,056,000 for future rights to television and radio
programs. As these programs will not be available for broadcast until after
December 31, 1996, they have been excluded from the financial statements.
NOTE 7
STOCKHOLDERS' EQUITY
The Board of Directors authorized a four-for-one stock split which was
effective May 15, 1995. Accordingly, 1994 per share amounts and number of shares
have been restated.
During 1995 the stockholders approved the Fisher Companies Incentive Plan
of 1995 (the Plan) which provides that up to 280,000 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. Options to purchase 21,000
shares were granted in 1996 at an exercise price of $74.50 per share. These
options remained outstanding and unvested at December 31, 1996.
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. Restricted stock rights
issued in 1996 entitled employees to receive a total of 9,700 common shares.
Compensation expense of $145,000 related to the rights was recorded during the
year ended December 31, 1996.
The Company accounts for common stock options and restricted stock rights
of the Plan under 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 and restricted stock rights, net income and earnings per
share would have been reduced by approximately $163,000, or $0.04 per share. The
fair value of each stock option and restricted stock right is estimated on the
date of grant using the Black-Scholes option-pricing model with the following
assumptions: dividend yield of 2.07%, volatility of 17.77%, risk-free interest
rate of 5.74%, assumed forfeiture rate of 0%, and an expected life of 5 years
for stock options and 1 to 5 years for stock rights. Under FAS 123, the weighted
average fair value for stock options and restricted stock rights granted during
the year ended December 31, 1996 was $16.11 and $70.06, respectively.
74
Cash dividends are as follows (in thousands except per share amounts):
- --------------------------------------------------------------------------------
Year Ended December 31 1994 1995 1996
- --------------------------------------------------------------------------------
Fisher Companies Inc. common stock,
$1.34, $1.52 and $1.72 per share, respectively $5,715 $6,482 $7,337
Subsidiary's preferred stock held by
minority interest 72 86 95
- --------------------------------------------------------------------------------
$5,787 $6,568 $7,432
- --------------------------------------------------------------------------------
NOTE 8
INCOME TAXES
Income taxes have been provided as follows (in thousands):
- --------------------------------------------------------------------------------
Year Ended December 31 1994 1995 1996
- --------------------------------------------------------------------------------
Payable currently $8,390 $11,509 $11,630
Current and noncurrent
deferred income taxes 1,032 372 1,745
- --------------------------------------------------------------------------------
$9,422 $11,881 $13,375
- --------------------------------------------------------------------------------
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 1994 1995 1996
- --------------------------------------------------------------------------------
Normal provision computed
at 35% of pretax income before change in
accounting method $9,653 $12,098 $13,811
Dividends received credit (713) (776) (844)
Rehabilitation investment tax credit (6)
State taxes, net of federal tax benefit 336 426 309
Other 152 133 99
- --------------------------------------------------------------------------------
$9,422 $11,881 $13,375
- --------------------------------------------------------------------------------
75
Deferred tax assets (liabilities) are summarized as follows (in thousands):
- ---------------------------------------------------------------------
December 31 1995 1996
- ---------------------------------------------------------------------
Current:
Accrued employee benefits $ (759) $ (923)
Allowance for doubtful accounts 554 495
Accrued property tax (176) (227)
Other 180 194
- ---------------------------------------------------------------------
$ (201) $ (461)
- ---------------------------------------------------------------------
Noncurrent
Unrealized gain on marketable securities $(36,891) $(42,164)
Property, plant and equipment (9,021) (10,432)
Accrued employee benefits 3,207 3,113
- ---------------------------------------------------------------------
$(42,705) $(49,483)
- ---------------------------------------------------------------------
The current deferred tax liability is reflected in other current
liabilities.
Cash paid for income taxes during 1994, 1995 and 1996 was $7,855,000,
$9,938,000 and $12,636,000, respectively.
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 1995 1996
- -----------------------------------------------------------
Plan assets at fair value-
Insurance contracts and
marketable securities $ 23,782 $ 26,745
Actuarial present values
of benefit obligations
Vested benefits (18,945) (20,620)
Nonvested benefits (1,352) (1,501)
- -----------------------------------------------------------
Accumulated benefit
obligation the actuarial
present value of pension
benefits earned to date
based on current
compensation levels (20,297) (22,121)
Excess of plan assets
over accumulated
benefit obligation $ 3,485 $ 4,624
- -----------------------------------------------------------
76
The composition of the prepaid pension cost is as follows (in thousands):
- -----------------------------------------------------------
December 31 1995 1996
- -----------------------------------------------------------
Plan assets at fair value $ 23,782 $ 26,745
Projected benefit obligation
- -the actuarial present
value of pension benefits
earned to date reflecting
assumed increases to
compensation levels (23,885) (25,668)
Items not yet recognized in
earnings to be amortized
over the average
remaining service period
of plan participants:
Prior service costs resulting
from plan amendments 1,142 693
Net asset at adoption
of FAS 87 (191) (124)
Net loss from past
experience different
from assumed 1,437 1,108
- -----------------------------------------------------------
Prepaid pension cost
included in the
consolidated balance sheet $ 2,285 $ 2,754
- -----------------------------------------------------------
The discount rate used in determining the actuarial present value of the
projected benefit obligation at December 31, 1995 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.
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.
77
Amounts charged to expense for the respective plans are as follows (in
thousands):
- ------------------------------------------------------------------------
Y e a r E n d e d D e c e m b e r 31 1994 1995 1996
- ------------------------------------------------------------------------
Qualified defined benefit
pension plans:
Benefits earned
during the year $ 1,182 $1,058 $1,182
Interest cost on projected
benefit obligation 1,715 1,655 1,739
Net amortization and
deferral of items not
recognized in earnings (2,389) 3,010 484
- ------------------------------------------------------------------------
508 5,723 3,405
Less: Actual return
on plan assets (1,063) 4,300 2,072
- ------------------------------------------------------------------------
Net pension cost, qualified
defined benefit plans 1,571 1,423 1,333
Qualified defined contribution
retirement plans 690 855 940
Supplemental retirement
program 506 614 609
Contributions to union
pension plans 92 110 120
- ------------------------------------------------------------------------
$ 2,859 $3,002 $3,002
- ------------------------------------------------------------------------
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 retired non-broadcasting
employees. The Company elected to immediately recognize the accumulated benefit
obligation, measured as of January 1, 1994. Accordingly, the $2,012,000
cumulative effect of this change in accounting method on years prior to 1994
($1,305,000 after income tax effects) is deducted from the results of operations
for 1994. Cash flow is not affected.
The Company's net periodic postretirement cost was $197,000, $153,000 and
$112,000 in 1994, 1995 and 1996, respectively. The accrued postretirement
benefit cost at December 31, 1995 and 1996 was $2,158,000 and $1,905,000,
respectively.
The discount rate used in determining the actuarial present value of the
accumulated postretirement benefit obligation at December 31, 1995 and 1996 was
7.5%. A one percent increase in the health care cost trend rate would not have
had a significant affect on plan costs or the accumulated benefit obligation in
1995 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.
78
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
1994 $ 87,112 $ 93,277 $ 8,659 $ 3,460 $192,508
1995 101,192 112,360 10,941 4,087 228,580
1996 111,967 135,697 13,556 4,000 265,220
Income from operations
1994 $ 26,066 $ 1,078 $ 2,199 $ 2,236 $ 31,579
1995 31,518 2,907 3,267 2,152 39,844
1996 34,025 3,410 5,749 1,948 45,132
Identifiable assets
1994 $ 84,760 $ 47,899 $90,887 $ 84,526 $308,072
1995 97,532 54,565 90,212 110,726 353,035
1996 120,911 57,638 86,600 129,000 394,149
Capital expenditures
1994 $ 4,053 $ 1,055 $11,479 $ 53 $ 16,640
1995 4,934 2,495 3,319 36 10,784
1996 5,092 2,207 1,365 66 8,730
Depreciation and amortization
1994 $ 3,100 $ 1,794 $ 3,462 $ 31 $ 8,387
1995 3,587 1,915 4,211 34 9,747
1996 4,391 2,009 4,314 39 10,753
Intersegment sales are not significant. Income from operations by business
segment is total sales and other revenue less operating expenses. In computing
income from operations by business segment, interest income and dividends from
marketable securities have not been added, and interest expense, income taxes
and unusual items have not been deducted. Identifiable assets by business
segment are those assets used in the operations of each segment. Corporate
assets are principally long-term equity investments. 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 $2,100,000 in 1994,
$2,300,000 in 1995 and $2,600,000 in 1996.
79
NOTE 11
ACQUISITIONS
On June 20, 1996, assignment of Federal Communication Commission (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.
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.
On May 5, 1994, assignment of FCC licenses and acquisition of the assets of
KPLZ-FM and KVI-AM in Seattle, Washington was completed. The acquisition cost
was $11.3 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
(in thousands except per share amounts):
- ---------------------------------------------------------------
Year ended December 31 1994 1995 1996
- ---------------------------------------------------------------
(All amounts are unaudited)
Sales and other revenue $200,449 $234,461 $267,782
Net income $ 17,624 $ 22,351 $ 25,950
Income per share $ 4.13 $ 5.24 $ 6.08
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 or short flow flour mill in Idaho. The agreement provides for each 50%
member to share equally in initial capital contributions, profits and losses,
additional capital contributions, if any, and distributions. Construction of the
flour mill is in progress, with completion expected in April 1997. Original
capital commitments by each member amount to $1.6 million.
80
NOTE 12
SUBSEQUENT EVENTS
The broadcasting subsidiary has entered into agreements to purchase the
assets (including assignment of FCC licenses and real estate) of an AM and an FM
radio broadcasting station in Missoula, Montana. Assignment of FCC licenses
occurred on January 15, 1997 and the acquisition was completed on that date at a
cost of $3.9 million.
In January 1997 the real estate subsidiary entered into an agreement in
principle to acquire 5.5 acres of improved real estate located adjacent to an
existing industrial park at a cost of $2.8 million. The transaction is expected
to be completed in the first quarter of 1997.
81
REPORT OF INDEPENDENT ACCOUNTANTS
ON FINANCIAL STATEMENT SCHEDULE
To the Stockholders and
Board of Directors of
Fisher Companies Inc.
Our audits of the consolidated financial statements of Fisher Companies Inc. and
its subsidiaries referred to in our report dated Frbruary 21, 1997 appearing in
this Form 10 also included an audit of Financial Statement Schedule III of
Fisher Companies Inc. and its subsidiaries. In our opinion, the Financial
Statement Schedule of Fisher Companies Inc. and its subsidiaries 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
February 21, 1997
82
SCHEDULE III
FISHER COMPANIES INC. AND SUBSIDIARIES
Real Estate and Accumulated Depreciation (note 1)
December 31, 1996
Life on
Cost capitalized which
Initial cost to subsequent to Gross amount at which carried Accumu- depre-
Company acquisition at December 31, 1996 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) $2,835 $ 107 $ 2,728 $ 2,835 $1,029 1987 1939 (note 10)
OFFICE
West Lake Union Center
Seattle, WA 26,511 $ 266 $36,253 2,142 1,372 37,289 38,661 3,879 1994 (note 10)
I-90 Building Renovated
Seattle, WA - (note 4) (note 4) 3,395 41 3,354 3,395 926 1990 (note 10)
Fisher Business Center
Lynnwood, WA 11,111 2,230 17,850 4,473 3,065 21,488 24,553 7,535 1986 1980 (note 10)
Marina Mart Renovated
Seattle, WA - (note 4) (note 4) 3,501 122 3,379 3,501 536 1993 (note 10)
Latitude 47 Restaurant Renovated
Seattle, WA - (note 4) (note 4) 2,295 (note 5) 2,295 2,295 823 1987 (note 10)
1530 Building Renovated
Seattle, WA - (note 4) (note 4) 2,158 (note 5) 2,158 2,158 836 1985 (note 10)
(Continued)
83
Schedule III, continued
FISHER COMPANIES INC. AND SUBSIDIARIES
Real Estate and Accumulated Depreciation (note 1)
December 31, 1996
Life on
Cost capitalized which
Initial cost to subsequent to Gross amount at which carried Accumu- depre-
Company acquisition at December 31, 1996 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)
INDUSTRIAL
Fisher Industrial Park 1982 and
Kent, WA 12,784 2,019 4,739 10,172 4,458 12,472 16,930 4,890 1992 1980 (note 10)
Fisher Commerce Center
Kent, WA 4,411 1,804 4,294 1,808 2,003 5,903 7,906 1,693 Purchased 1989 (note 10)
Fisher Industrial Center Redeveloped
Seattle, WA (note 6) 255 2,015 2,187 338 4,119 4,457 3,267 1980 (note 10)
MISCELLANEOUS
INVESTMENTS,
less than 5% of total - 154 - 1,029 456 727 1,183 326 various various (note 10)
------- ------ ------- ------- -------- ------- ------- -------- -------
$54,817 $6,728 $65,151 $35,995 $11,962 $95,912 $107,874 $25,740
======= ====== ======= ======= ======= ======= ======== =======
(Continued)
84
Schedule III, continued
FISHER COMPANIES INC. AND SUBSIDIARIES
Real Estate and Accumulated Depreciation (note 1)
December 31, 1996
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, 1996, 1995 and 1994 are as follows (in thousands):
1996 1995 1994
-------- --------- ---------
Balance at beginning of year $108,704 $105,485 $ 92,536
Cost of improvements 1,162 3,407 13,131
Cost of properties sold (560) - -
Cost of improvements retired (1,432) (188) (182)
-------- -------- --------
Balance at end of year $107,874 $108,704 $105,485
======== ======== ========
(8) The changes in accumulated depreciation and amortization for the years ended December 31, 1996, 1995 and 1994 are as follows
(in thousands):
1996 1995 1994
-------- -------- --------
Balance at beginning of year $23,064 $19,234 $16,102
Depreciation and amortization charged to operations 3,997 3,995 3,287
Retirements and other (1,321) (165) (155)
------- ------- -------
Balance at end of year $25,740 $23,064 $19,234
======= ======= =======
(9) The aggregate cost of properties for Federal income tax purposes is approximately $99,599,000 at December 31, 1996.
(10) Reference is made to note 1 to the consolidated financial statements for information related to depreciation.
Commencing on the following page is the Quarterly Report on Form 10-Q for
the period ended March 31, 1997, as filed by the Company with the Securities
Exchange Commission on June 6, 1997.
85
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended March 31, 1997
[ ] Transition Report Under Section 13 or 15(d) of the Exchange Act
For the transition period from _______________ to _____________
Commission File Number 0-22439
FISHER COMPANIES INC.
(Exact Name of Registrant as Specified in Its Charter)
WASHINGTON 91-0222175
------------------------------ ---------------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization Identification Number
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)
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 No X
------ ------
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date:
Common Stock, $2.50 par value, outstanding as of March 31, 1997: 4,267,516
86
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The following Consolidated Financial Statements are presented for the
Registrant, Fisher Companies Inc. and wholly owned subsidiaries.
1. Consolidated Statement of income:
Three months ended March 31, 1997 and 1996.
2. Consolidated Balance sheet:
March 31, 1997 and December 31, 1996.
3. Consolidated Statement of Cash Flows:
Three months ended March 31, 1997 and 1996.
4. Notes to Consolidated Financial Statements.
87
ITEM 1 - FINANCIAL STATEMENTS
FISHER COMPANIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
THREE MONTHS ENDED MARCH 31 1997 1996
- --------------------------- ---------- ---------
(In thousands except share and per share amounts)
(Unaudited)
Sales and other revenue:
Broadcasting $ 25,217 $ 22,295
Milling 31,585 31,249
Real estate 2,812 2,917
Corporate and other, primarily dividends and interest income 896 1,057
---------- ---------
60,510 57,518
---------- ---------
Costs and expenses:
Cost of products and services sold 40,076 39,450
Selling expenses 4,331 3,856
General, administrative and other expenses 8,943 8,074
---------- ---------
53,350 51,380
---------- ---------
Income from operations 7,160 6,138
Interest expense 1,382 1,337
---------- ---------
Income before provision for income taxes 5,778 4,801
Provision for federal and state income taxes 1,897 1,557
---------- ---------
Net income $ 3,881 $ 3,244
---------- ---------
Net income per common share $.91 $.76
---------- ---------
Weighted average common shares and equivalents outstanding 4,283,609 4,265,172
---------- ---------
Dividends declared per share $1.72
---------
See accompanying notes to consolidated financial statements.
88
FISHER COMPANIES INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
MARCH 31 DECEMBER 31
1997 1996
---------- ---------
ASSETS
(In thousands except share amounts)
(Current year unaudited)
Current Assets:
Cash and short-term cash investments $ 3,936 $ 5,116
Receivables 38,747 44,759
Inventories 16,661 13,199
Prepaid expenses 6,769 7,859
Television and radio broadcast rights 3,299 5,383
-------- --------
Total current assets 69,412 76,316
-------- --------
Marketable Securities, at market value 123,051 121,545
-------- --------
Other Assets:
Cash value of life insurance and retirement deposits 9,400 9,362
Television and radio broadcast rights 235 317
Intangible assets, net of amortization 50,511 47,982
Other 4,401 4,033
-------- --------
64,547 61,694
-------- --------
Property, Plant and Equipment, net 138,896 134,594
-------- --------
$395,906 $394,149
-------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Notes payable $ 17,268 $ 9,258
Trade accounts payable 6,331 8,674
Accrued payroll and related benefits 3,384 4,536
Television and radio broadcast rights payable 3,400 5,036
Income taxes payable 1,984 1,147
Other current liabilities 3,463 5,244
-------- --------
Total current liabilities 35,830 33,895
-------- --------
Long-term Debt, net of current maturities 62,517 65,713
-------- --------
Other Liabilities:
Accrued retirement benefits 11,763 11,924
Deferred income taxes 49,896 49,483
Television and radio broadcast rights payable, long-term portion 119 296
Deposits and retainage payable 700 676
-------- --------
62,478 62,379
-------- --------
Minority Interests 33 33
-------- --------
Stockholders' Equity:
Common stock, shares authorized 12,000,000, $2.50 par value;
issued 4,267,516 in 1997 and 4,265,172 in 1996 10,669 10,663
Capital in excess of par 216 48
Unrealized gain on marketable securities, net of deferred
income taxes of $42,691 in 1997 and $42,164 in 1996 79,283 78,304
Retained earnings 144,880 143,114
-------- --------
235,048 232,129
-------- --------
$395,906 $394,149
-------- --------
See accompanying notes to consolidated financial statements.
89
FISHER COMPANIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
THREE MONTHS ENDED MARCH 31 1997 1996
------- --------
(In thousands)
(Unaudited)
Cash flows from operating activities:
Net income $ 3,881 $ 3,244
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 2,959 2,501
Noncurrent deferred income taxes (114) (57)
Issuance of stock pursuant to vested stock rights
and related tax benefit 146
Change in operating assets and liabilities:
Receivables 6,012 5,434
Inventories (3,462) (2,482)
Prepaid expenses 1,090 (2,064)
Cash value of life insurance and retirement deposits (38) 9
Income taxes payable 837 (377)
Trade accounts payable, accrued payroll and related
benefits and other current liabilities (5,276) (330)
Other assets (368) (500)
Accrued retirement benefits (161) (29)
Deposits and retainage payable 24 22
Amortization of television and radio broadcast rights 2,247 2,217
Payments for television and radio broadcast rights (1,894) (1,710)
Other, net 8 10
------- --------
Net cash provided by operating activities 5,891 5,888
------- --------
Cash flows from investing activities:
Purchase assets of radio stations (3,949)
Purchase of property, plant and equipment (5,849) (2,472)
------- --------
Net cash used in investing activities (9,798) (2,472)
------- --------
Cash flows from financing activities:
Net borrowings under notes payable 5,085 1,157
Borrowings under borrowing agreements and mortgage loans 27,000
Payments on borrowing agreements and mortgage loans (271) (27,152)
Proceeds received from exercise of stock options 28
Cash dividends paid (2,115) (1,859)
------- --------
Net cash provided by (used in) financing activities 2,727 (854)
------- --------
Net change in cash and short-term cash investments (1,180) 2,562
Cash and short-term cash investments, beginning of period 5,116 19,489
------- --------
Cash and short-term cash investments, end of period $ 3,936 $ 22,051
------- --------
See accompanying notes to consolidated financial statements.
90
FISHER COMPANIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. 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 Companies Inc. (the "Company") as of and for the periods indicated.
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 Form 10 for the year ended December 31, 1996 filed on April 25,
1997 by the Company have been omitted. The financial information herein is
not necessarily representative of a full year's operations.
2. In February 1997, Statement of Financial Accounting Standards No. 128,
Earnings per Share (SFAS 128), was issued. This pronouncement modifies the
calculation and disclosure of earnings per share (EPS) and will be adopted
by the Company in its financial statements for the year ended December 31,
1997. Early adoption is not permitted. After the adoption date, EPS data for
all periods presented, including quarterly financial data, is required to be
restated to conform to the provisions of SFAS 128.
3. Inventories are summarized as follows (in thousands):
March 31 December 31
1997 1996
------- -------
Finished products $ 5,625 $ 4,758
Raw materials 10,880 8,255
Spare parts and supplies 156 186
------- -------
$16,661 $13,199
======= =======
4. Dividends declared in March 1996 were payable quarterly at the rate of $.43
per share. In December 1996 an annual dividend in the amount of $1.96 per
share was declared, payable quarterly during 1997 at the rate of $.49 per
share.
91
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
CONSOLIDATED RESULTS OF OPERATIONS
Sales and other revenue for the three months ended March 31, 1997 increased by
$2,992,000 or 5.2% to $60,510,000 from $57,518,000 for the three months ended
March 31, 1996. Broadcasting and milling operations had increases in sales and
other revenue of 13.1% and 1.1%, respectively, while real estate operations had
a decrease in sales and other revenue of 3.6%.
Cost of products and services sold for the three months ended March 31, 1997
increased by $626,000 or 1.6% to $40,076,000 from $39,450,000 for the three
months ended March 31, 1996. The increase resulted primarily from increased
costs to acquire and produce broadcasting programming. As a percentage of sales
and other revenue, cost of products and services sold was 66.2% and 68.6% for
the three months ended March 31, 1997 and 1996, respectively. The decrease in
costs and services sold as a percentage of sales and other revenue was due
primarily to improved margins from milling operations.
Selling expenses for the three months ended March 31, 1997 increased by $475,000
or 12.3% to $4,331,000 from $3,856,000 for the three months ended March 31,
1996. The increase is the result of increased sales by broadcasting and milling
operations and additional selling expenses incurred at recently acquired radio
stations. As a percentage of sales and other revenue, selling expenses were 7.2%
and 6.7% for the three months ended March 31, 1997 and 1996, respectively.
General and administrative expenses for the three months ended March 31, 1997
increased by $869,000 or 10.8% to $8,943,000 from $8,074,000 for the three
months ended March 31, 1996. The increase relates primarily to general and
administrative expenses at recently acquired radio stations. As a percentage of
sales and other revenue, general and administrative expenses were 14.8% and
14.0% for the three months ended March 31, 1997 and 1996, respectively.
Interest expense for the three months ended March 31, 1997 increased by $45,000
or 3.4% to $1,382,000 from $1,337,000 for the three months ended March 31, 1996.
The increase in interest expense is due to higher average long-term debt
balances outstanding during the three months ended March 31, 1997 compared to
the three months ended March 31, 1996. The average interest rate during the
three months ended March 31, 1997 and 1996 was 7.0% and 7.2% respectively, which
partially offset the effect of the increase in average long-term debt
outstanding on interest expense.
Provision for federal and state income taxes for the three months ended March
31, 1997 increased by $340,000 or 21.8% to $1,897,000 from $1,557,000 for the
three months ended March 31, 1996. For the three months ended March 31, 1997 and
1996, the Company's effective tax rate was 32.8% and 32.4%, respectively.
92
BROADCASTING OPERATIONS
Broadcasting revenue for the three months ended March 31, 1997 increased by
$2,922,000 or 13.1 % to $25,217,000 from $22,295,000 for the three months ended
March 31, 1996. The increase in broadcasting revenue is, in part, due to the
revenue earned at KWJJ-AM/FM and six radio stations in eastern Washington and
Montana which were acquired between May 1996 and January 1997. These stations
contributed net revenue of approximately $1,764,000 during the three months
ended March 31, 1997. Revenue from the Company's Seattle radio stations (KOMO-
AM, KVI-AM and KPLZ-FM) increased $1,014,000 or 26.6% over the three months
ended March 31, 1996 due to a strong local advertising market during the three
months ended March 31, 1997. Additionally, television revenue increased 1.9% due
to strong local advertising sales partially offset by slightly declining
national advertising sales.
Operating income for the three months ended March 31, 1997 increased by
$1,276,000 or 32.0% to $5,260,000 from $3,984,000 for the three months ended
March 31, 1996. As a percentage of broadcasting revenue, operating income was
20.9% and 17.9% for the three months ended March 31, 1997 and 1996,
respectively. The increase in operating income exceeded the growth in
broadcasting revenue primarily due to a strong market for local advertising
time, which increased broadcasting revenue without significant sales and
administrative expenditures.
MILLING OPERATIONS
Revenue from the milling subsidiary for the three months ended March 31, 1997
increased by $336,000 or 1.1 % to $31,585,000 from $31,249,000 for the three
months ended March 31, 1996. The increase in milling revenue was the net result
of increased revenues in the milling division partially offset by decreased
revenues in the food distribution division. Milling division revenue increased
$661,000 or 3.1%, which was primarily driven by a 9.6% increase in flour sales
volume partially offset by declining prices. Revenue from food distribution
decreased $1,403,000 or 10.3% as sales volume decreased 5.6% and prices
decreased as the product mix changed.
Operating income for the three months ended March 31, 1997 increased by $216,000
or 35.5% to $824,000 from $608,000 for the three months ended March 31, 1996. As
a percentage of milling revenue, operating income was 2.6% and 1.9% for the
three months ended March 31, 1997 and 1996, respectively. The increase in
operating income as a percentage of milling revenue was due to improved gross
margin percentages, particularly in the food distribution division. Gross margin
for the food distribution division increased to 17.3% for the three months ended
March 31, 1997 from 14.4% for the three months ended March 31, 1996, as a result
of an emphasis on sales of higher margin products.
REAL ESTATE OPERATIONS
Real estate revenue for the three months ended March 31, 1997 decreased by
$105,000 or 3.6% to $2,812,000 from $2,917,000 for the three months ended March
31, 1996. The decrease in real estate revenue is primarily due to the absence of
$128,000 in lease cancellation fees which were included in revenue during the
three months ended March 31, 1996. The decrease in lease cancellation fees was
partially offset by an increase in real estate revenues due to higher
93
occupancy rates. Average occupancy levels for the three months ended March 31,
1997 and 1996 were 95.7% and 94.9%, respectively.
Operating income for the three months ended March 31, 1997 decreased by $215,000
or 20.7% to $822,000 from $1,037,000 for the three months ended March 31, 1996.
As a percentage of revenue, operating income was 29.2% and 35.6% for the three
months ended March 31, 1997 and 1996, respectively. The decrease in operating
income as a percentage of real estate revenue was due to higher personnel costs
and lower lease cancellation fees. These factors resulted in decreased revenue
and slightly higher operating expenses.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 1997, the Company had working capital of $33,582,000 and cash
and short-term cash investments totaling $3,936,000. 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.
Net cash provided by operating activities was $5,891,000 for the three months
ended March 31, 1997. 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 components of working capital. Net cash
used in investing activities was $9,798,000 for the three months ended March 31,
1997. The principle uses of cash in investing activities were $3,949,000 for
acquisition of the assets of two radio stations in Montana and $5,849,000 to
purchase property, plant and equipment used in operations. Net cash provided by
financing activities was $2,727,000 for the three months ended March 31, 1997.
Cash provided for financing activities was obtained through net borrowings of
$5,085,000 under lines of credit and notes from shareholders and directors.
Proceeds from these net borrowings were used to finance acquisition of assets of
two Montana radio stations and purchase of property, plant and equipment to the
extent such purchases exceeded net cash provided by operating activities. In
addition, during the three months ended March 31, 1997 the Company repaid
$271,000 due on mortgage loans and received proceeds of $28,000 from the
exercise of stock options. Cash paid for dividends to stockholders totaled
$2,115,000 or $.49 per common share.
94
PART II
OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits: Exhibit 11, Statement re Computation of Per Share Earnings
Exhibit 27, Financial Data Schedule
(b) Reports on Form 8-K: None
95
SIGNATURES
Pursuant to the requirements 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.
FISHER COMPANIES INC.
(Registrant)
Dated June 5, 1997 /s/ William W. Krippaehne, Jr.
- ---------------------- --------------------------------------
William W. Krippaehne, Jr.
President and Chief Executive Officer
Dated June 5, 1997 /s/ David D. Hillard
- ---------------------- --------------------------------------
David D. Hillard
Senior Vice President and Chief Financial
Officer
96
ITEM 14 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not Applicable.
ITEM 15 - FINANCIAL STATEMENTS AND EXHIBITS INDEX
(a)(1) Report of Independent Accountants.
(2) Consolidated Statement of Income for the years ended December
31, 1996, December 31, 1995 and December 31, 1994.
(3) Consolidated Statements of Stockholders' Equity.
(4) Consolidated Balance Sheets at December 31, 1996 and December
31, 1995.
(5) Consolidated Statements of Cash Flows for the years ended
December 31, 1996, December 31, 1995 and December 31, 1994.
(6) Notes to Consolidated Financial Statements.
(7) Financial Statement Schedule:
7.1 Report of Independent Accountants
7.2 Schedule III - Real Estate and Accumulated Depreciation
at December 31, 1996.
(8) Form 10-Q for quarter ended March 31, 1997
(b) Exhibits: See "Exhibit Index."
97
SIGNATURES
----------
Pursuant to the requirements of Section 12 of the Securities Exchange Act
of 1934, the registrant has duly caused this amendment to the registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized.
FISHER COMPANIES INC.
---------------------
(Registrant)
Date: June 17, 1997 By: /s/ William W. Krippaehne, Jr.
------------------------------
William W. Krippaehne, Jr.
President and Chief Executive Officer
98
EXHIBIT INDEX
-------------
Exhibit No. Description
- ----------- -----------
3.1 * Articles of Incorporation.
3.2 * Bylaws.
4.1 * Form of Stock Certificate.
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.
11 * Statement re Computation of Per Share Earnings
10.7 * Fisher Properties Inc. Supplemental Pension
Plan, dated March 1, 1996.
22 * Subsidiaries of the Registrant.
27 * Financial Data Schedule.
* Previously filed.
99