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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 June 30, 2002





| ̈ |  | Transition Report Under Section 13 or 15(d) of the Exchange Act
|- |  | ---------------------------------------------------------------




For the transition period from  to





Commission File Number 0-22439





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FISHER COMMUNICATIONS, INC.


(Exact Name of Registrant as Specified in Its Charter)





WASHINGTON

91-0222175(State or Other Jurisdiction of Incorporation or Organization)

(I.R.S. Employer Identification Number)





1525 One Union Square


600 University Street


Seattle, Washington 98101-3185


(Address of Principal Executive Offices) (Zip Code)





(206)
404-7000


(Registrants Telephone Number, Including Area Code)





---




Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or
15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90
days.    Yes  x    No  ̈





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





Common Stock, $1.25 par value, outstanding as of June 30, 2002: 8,594,060





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PART I





FINANCIAL INFORMATION





Item 1.    Financial Statements





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





1.

Condensed Consolidated Statement of Operations:Three and six months ended June 30, 2002 and 2001.2.

Condensed Consolidated Balance Sheet:June 30, 2002 and December 31, 2001.3.

Condensed Consolidated Statement of Cash Flows:Six months ended June 30, 2002 and 2001.4.

Condensed Consolidated Statement of Comprehensive Income:Three and six months ended June 30, 2002 and 2001.5.

Notes to Condensed Consolidated Financial Statements.




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##### Table of Contents

ITEM 1FINANCIAL STATEMENTS





FISHER COMMUNICATIONS, INC. AND SUBSIDIARIES





CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS





Six months endedJune 30


Three months endedJune 302002


2001


2002

2001(in thousands, except per share amounts)(Unaudited)RevenueBroadcasting

$
64,908


$
72,876


$
35,061

$
38,061Media services


3,113



2,791



1,481


1,346Real estate


6,505



5,927



3,302


2,95474,526



81,594



39,844


42,361Costs and expensesCost of services sold


34,098



33,426



16,920


16,217Selling expenses


9,763



10,255



5,183


5,419General and administrative expenses


21,316



22,727



10,743


11,237Depreciation and amortization


9,917



12,032



4,946


6,20375,094



78,440



37,792


39,076Income (loss) from operations


(568
)


3,154



2,052


3,285Net gain on derivative instruments


6,103







6,828Other income, net


1,376



1,879



789


635Equity in operations of equity investees


32



1



33


4Interest expense


10,423



8,875



5,422


4,229Income (loss) from continuing operations before income taxes and extraordinary item


(3,480
)


(3,841
)


4,280


(305
)Provision for federal and state income taxes (benefit)


(1,300
)


(1,333
)


760


(112
)Income (loss) from continuing operations before extraordinary item


(2,180
)


(2,508
)


3,520


(193
)Loss from discontinued operations of milling businesses, net of income tax benefit of $173






(327
)





(327
)Income (loss) before extraordinary item


(2,180
)


(2,835
)


3,520


(520
)Extraordinary itemloss from extinguishment of long-term debt, net of income tax benefit of $1,206


(2,058
)Net income (loss)

$
(4,238
)

$
(2,835
)

$
3,520

$
(520
)Income (loss) per share:From continuing operations

$
(0.25
)

$
(0.29
)

$
0.41

$
(0.02
)From discontinued operations






(0.04
)





(0.04
)Income (loss) before extraordinary item


(0.25
)


(0.33
)


0.41


(0.06
)Extraordinary item


(0.24
)Net income (loss)

$
(0.49
)

$
(0.33
)

$
0.41

$
(0.06
)Income (loss) per share assuming dilution:From continuing operations

$
(0.25
)

$
(0.29
)

$
0.41

$
(0.02
)From discontinued operations






(0.04
)





(0.04
)Income (loss) before extraordinary item


(0.25
)


(0.33
)


0.41


(0.06
)Extraordinary item


(0.24
)Net income (loss)

$
(0.49
)

$
(0.33
)

$
0.41

$
(0.06
)Weighted average shares outstanding


8,592



8,561



8,593


8,563Weighted average shares outstanding assuming dilution


8,592



8,561



8,613


8,563Dividends declared per share

$
0.52


$
0.26


$
0.26

$






See accompanying notes to condensed consolidated financial statements.




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##### Table of Contents




FISHER COMMUNICATIONS, INC. AND SUBSIDIARIES





CONDENSED CONSOLIDATED BALANCE SHEET





June 30 2002


December 31 2001(in thousands, except share and per share amounts)(Unaudited)ASSETSCurrent AssetsCash and short-term cash investments

$
11,874


$
3,568Receivables, net


28,823



33,081Prepaid income taxes


7,550



10,760Prepaid expenses


6,072



4,251Television and radio broadcast rights


3,135



10,318Net working capital of discontinued operations


777



216Total current assets


58,231



62,194Marketable Securities, at market value


96,973



97,107Other AssetsCash value of life insurance and retirement deposits


12,704



12,403Television and radio broadcast rights


7,088



1,725Goodwill, net


189,133



189,133Investments in equity investees


2,860



2,594Other


22,330



12,232Net noncurrent assets of discontinued operations


1,863



1,635235,978



219,722Property, Plant and Equipment, net


252,860



244,094$
644,042


$
623,117LIABILITIES AND STOCKHOLDERS EQUITYCurrent LiabilitiesNotes payable

$
4,796


$
25,469Trade accounts payable


4,498



5,490Accrued payroll and related benefits


7,733



7,616Television and radio broadcast rights payable


1,922



8,980Other current liabilities


3,206



5,259Total current liabilities


22,155



52,814Long-term Debt, net of current maturities


307,491



261,480Other LiabilitiesAccrued retirement benefits


11,935



12,028Deferred income taxes


62,982



50,994Television and radio broadcast rights payable, long-term portion


1,007



1,570Other liabilities


7,538



6,77783,462



71,369Stockholders EquityCommon stock, shares authorized 12,000,000, $1.25 par value; issued 8,594,060 in 2002 and 8,591,658 in 2001


10,743



10,739Capital in excess of par


3,486



3,486Deferred compensation


(53
)


(66
)Accumulated other comprehensive incomenet of income taxes:Unrealized gain on marketable securities


62,273



62,360Net loss on interest rate swap






(2,256
)Retained earnings


154,485



163,191230,934



237,454$
644,042


$
623,117





See accompanying notes to condensed consolidated financial statements.




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FISHER COMMUNICATIONS, INC. AND SUBSIDIARIES





CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS





Six months ended June 302002


2001(in thousands)(Unaudited)Cash flows from operating activitiesNet loss

$
(4,238
)

$
(2,835
)Adjustments to reconcile net loss to net cash provided by operating activitiesDepreciation and amortization


9,944



13,559Noncurrent deferred income taxes


12,036



5,756Net (gain) loss in equity investees


(32
)


1,631Increase in fair market value of derivative under forward transaction


(9,677
)Extraordinary itemloss from extinguishment of debt


3,264Amortization of television and radio broadcast rights


7,857



7,682Payments for television and radio broadcast rights


(13,657
)


(8,383
)Other


105



(81
)Change in operating assets and liabilitiesReceivables


4,269



7,009Inventories






(321
)Prepaid income taxes


3,210



(7,610
)Prepaid expenses


(1,821
)


(3,337
)Cash value of life insurance and retirement deposits


(301
)


(340
)Other assets


636



(1,031
)Trade accounts payable, accrued payroll and related benefits and other current liabilities


(709
)


(8,516
)Accrued retirement benefits


(93
)


(574
)Other liabilities


3,788



146Net cash provided by operating activities


14,581



2,755Cash flows from investing activitiesProceeds from sale of discontinued milling business assets






49,769Proceeds from sale of property, plant and equipment


376



212Purchase of property, plant and equipment


(21,562
)


(18,324
)Investments in equity investees






(1,496
)Net cash provided by (used in) investing activities


(21,186
)


30,161Cash flows from financing activitiesNet (payments) borrowings under notes payable


(8,259
)


2,311Borrowings under borrowing agreements and mortgage loans


255,131



13,000Payments on borrowing agreements and mortgage loans


(222,461
)


(34,464
)Payment of deferred loan costs


(5,053
)Retirement of preferred stock of subsidiary






(6,675
)Proceeds from exercise of stock options


21Cash dividends paid


(4,468
)


(4,452
)Net cash provided by (used in) financing activities


14,911



(30,280
)Net increase in cash and short-term cash investments


8,306



2,636Cash and short-term cash investments, beginning of period


3,568



275Cash and short-term cash investments, end of period

$
11,874


$
2,911





See accompanying notes to condensed consolidated financial statements.




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FISHER COMMUNICATIONS, INC. AND SUBSIDIARIES





CONDENSED CONSOLIDATED STATEMENT OF
COMPREHENSIVE INCOME





Six months ended June 30


Three months ended June 302002


2001


2002


2001(In thousands)(Unaudited)Net income (loss)

$
(4,238
)

$
(2,835
)

$
3,520


$
(520
)Other comprehensive income:Cumulative effect of accounting change, net of income tax benefit of $489






(907
)Unrealized gain (loss) on marketable securities


(134
)


(9,868
)


(3,388
)


4,216Effect of income taxes


47



3,453



1,186



(1,476
)Net gain (loss) on interest rate swap


835



(1,177
)






111Effect of income taxes


(292
)


412







(39
)Loss on settlement of interest rate swap reclassified to operations, net of income tax benefit of $923


1,713







Comprehensive income (loss)

$
(2,069
)

$
(10,922
)

$
1,318


$
2,292





See accompanying notes to condensed consolidated financial statements.




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FISHER COMMUNICATIONS, INC.





NOTES TO CONDENSED 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 Communications, Inc. and subsidiaries (the Company) as of and for the periods indicated. Fisher Communications, Inc.s wholly-owned subsidiaries
include Fisher Broadcasting Company, Fisher Media Services Company, Fisher Mills Inc., and Fisher Properties Inc. 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-K for the year ended December 31, 2001 filed on March 27, 2002 by the Company have been omitted. The financial information herein is not necessarily
representative of a full years operations.
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




|2. |  | Discontinued operations
|-- |  | -----------------------




| |  | During 2001 substantially all of the assets and working capital used in the Companys flour milling and food distributions operations were sold. Net
working capital of discontinued operations includes net current assets of the discontinued milling operations remaining during the wind-up phase. Net noncurrent assets of discontinued operations includes the book value of property, plant and
equipment not included in the sales described above and other noncurrent assets less noncurrent liabilities relating to the discontinued milling operations.
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




|3. |  | Derivative instruments
|-- |  | ----------------------




| |  | On March 21, 2002 the Company entered into a variable forward sales transaction (forward transaction) with a financial institution. The Companys
obligations under the forward transaction are collateralized by 3,000,000 shares of SAFECO Corporation common stock owned by the Company. A portion of the forward transaction will be considered a derivative and, as such, the Company will
periodically measure its fair value and recognize the derivative as an asset or a liability. The change in the fair value of the derivative is recorded in the income statement. The Company may in the future designate the forward transaction as a
hedge and, accordingly, the change in fair value will be recorded in the income statement or in other comprehensive income depending on its effectiveness. As of June 30, 2002 the derivative portion of the forward transaction had a fair market value
of $9,677,000, which is reported in other assets in the accompanying financial statements. Changes in the fair value of the forward transaction are included in net gain on derivative instruments in the accompanying financial statements. The amount
available under the forward transaction is dependent on interest rates. The Company presently has authority from its board of directors to borrow proceeds of up to $70,000,000. As of June 30, 2002, $47,707,000, including accrued interest, was
outstanding under the forward transaction.
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| |  | The broadcasting subsidiary entered into an interest rate swap agreement fixing the interest rate at 6.87%, plus a margin based on the broadcasting
subsidiarys ratio of consolidated funded debt to consolidated EBITDA (earnings before interest, taxes, depreciation, and amortization), on a portion of its floating rate debt. The notional amount of the swap is $65,000,000, which reduces as
payments are made on principal outstanding under the floating rate debt, until termination of the contract in March 2004. As of June 30, 2002 the fair market value of the swap agreement declined $938,000 since inception in March 2002. Changes in the
fair market value of the swap agreement are included in net gain on derivative instruments in the accompanying financial statements.
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




|4. |  | Television and radio broadcast rights and other commitments
|-- |  | -----------------------------------------------------------




| |  | The Company acquires television and radio broadcast rights, and has commitments under license agreements amounting to $80,084,000 for future rights to broadcast
television and radio programs through 2008, and $12,000,000 in related fees. As these programs will not be available for broadcast until a future date, they have been excluded from the financial statements. In addition, the Company has commitments
under a Joint Sales Agreement totaling $14,872,000 through 2007.
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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FISHER COMMUNICATIONS, INC.





NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)







|5. |  | Income (loss) per share
|-- |  | -----------------------




| |  | Income (loss) per share is computed as follows:
| |  | -----------------------------------------------




Six months ended June 30


Three months ended June 302002


2001


2002

2001(Unaudited)Weighted average common shares outstanding during the period


8,592,183



8,560,578



8,592,708


8,563,114Dilutive effect of:Restricted stock rights










1,796Stock options










18,712Weighted average shares outstanding assuming dilution


8,592,183



8,560,578



8,613,216


8,563,114Income (loss) from continuing operations

$
(2,180
)

$
(2,508
)

$
3,520

$
(193
)Loss from discontinued operations of milling businesses, net of income tax benefit






(327
)





(327
)Income (loss) before extraordinary item


(2,180
)


(2,835
)


3,520


(520
)Extraordinary item, net of income tax benefit


(2,058
)Net income (loss)

$
(4,238
)

$
(2,835
)

$
3,520

$
(520
)Income (loss) per share:From continuing operations

$
(0.25
)

$
(0.29
)

$
0.41

$
(0.02
)From discontinued operations






(0.04
)





(0.04
)Income (loss) before extraordinary item


(0.25
)


(0.33
)


0.41


(0.06
)Extraordinary item


(0.24
)Net income (loss)

$
(0.49
)

$
(0.33
)

$
0.41

$
(0.06
)Income (loss) per share assuming dilution:From continuing operations

$
(0.25
)

$
(0.29
)

$
0.41

$
(0.02
)From discontinued operations






(0.04
)





(0.04
)Income (loss) before extraordinary item


(0.25
)


(0.33
)


0.41


(0.06
)Extraordinary item


(0.24
)Net income (loss)

$
(0.49
)

$
(0.33
)

$
0.41

$
(0.06
)





| |  | The dilutive effect of 1,474 restricted stock rights and options to purchase 442,933 shares are excluded for the six month period ended June 30, 2002 because
such rights and options were anti-dilutive. The dilutive effect of 4,728 restricted stock rights and options to purchase 490,988 shares are excluded for the six month and three month periods ended June 30, 2001 because such rights and options were
anti-dilutive.
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




|6. |  | Segment information
|-- |  | -------------------




| |  | Effective January 1, 2002, the Company restructured its continuing operations into three principal business segments: broadcasting, media services, and real
estate. The operations of Fisher Entertainment LLC, a producer of content for cable and television, and Fisher Pathways, Inc., a provider of satellite transmission services, are included in the media services segment. Previously these businesses
were reported in the broadcasting segment. The operations of the portion of Fisher Plaza not occupied by KOMO TV, which previously were reported in the real estate segment, are also included in the media services segment. Fisher Plaza operations
attributable to KOMO TV are included in the broadcasting segment. The media services segment also includes the operations of Civia, Inc. Certain 2001 balances have been reclassified to conform to 2002 classifications.
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| |  | Income from operations by business segment consists of revenue less operating expenses. In computing income from operations by business segment, other income
(expense), net, has not been included, and
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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FISHER COMMUNICATIONS, INC.





NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)




| |  | interest expense, income taxes and unusual items have not been deducted. Identifiable assets by business segment are those assets used in the operations of each
segment. Corporate assets are principally marketable securities.
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| |  | Identifiable assets for each segment are as follows:
| |  | ----------------------------------------------------




June 30 2002

December 31 2001Broadcasting

$
334,182

$
340,638Media services


79,799


62,936Real estate


94,537


93,328Corporate, eliminations and other


132,884


124,364Continuing operations


641,402


621,266Discontinued operationsnet


2,640


1,851$
644,042

$
623,117





| |  | Income (loss) from operations for each segment are as follows:
| |  | --------------------------------------------------------------




Six months ended June 30


Three months ended June 302002


2001


2002


2001Broadcasting

$
3,194


$
6,005


$
3,958


$
5,220Media services


(1,418
)


(438
)


(788
)


(703
)Real estate


2,000



2,105



1,112



1,030Corporate, eliminations and other


(4,344
)


(4,518
)


(2,230
)


(2,262
)$
(568
)

$
3,154


$
2,052


$
3,285





|7. |  | Recent Accounting Pronouncements
|-- |  | --------------------------------




| |  | On January 1, 2002, the Company adopted Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets (FAS 142). FAS 142
changes the accounting for goodwill from an amortization method to an impairment-only approach. Goodwill is to be tested for impairment upon adoption of FAS 142, and will be tested annually or whenever events or circumstances occur indicating that
goodwill might be impaired. The Company has determined that indefinite-lived intangible assets resulting from past business combinations are to be accounted for as goodwill. The Company has completed the first step of the transitional impairment
test for goodwill and found no impairment. The determination of fair value is a critical and complex consideration when assessing impairment under FAS 142 that involves significant assumptions and estimates. These assumptions and estimates were
based on the Companys best judgments. In the future, impairment must be assessed at least annually for these assets, or when indications of impairment exist. The Companys judgments regarding the existence of impairment indicators include
the Companys assessment of the impacts of legal factors and market and economic conditions; the results of the Companys operational performance and strategic plans; competition and market share; any potential for the sale or disposal of
a significant portion of the Companys business; and availability of sources of funding to conduct the Companys principal operations. In the future, it is possible that such assessments could cause the Company to conclude that impairment
indicators exist and that certain assets are impaired. The aggregate carrying value of the Companys goodwill is $189 million as of June 30, 2002.
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| |  | As required by FAS 142, the results for periods prior to adoption have not been restated. The following table reconciles the reported net loss and net loss per
share to that which would have resulted for the six and three month periods ended June 30, 2001 if FAS 142 had been adopted effective in 2001.
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents



FISHER COMMUNICATIONS, INC.





NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)







Six months ended June 30 2001


Three months ended June 30 2001Net loss

$
(2,835
)

$
(520
)Goodwill amortization, net of income tax benefit


1,703



857Pro forma net income (loss)

$
(1,132
)

$
337Net loss per share:Basic

$
(0.33
)

$
(0.06
)Assuming dilution

$
(0.33
)

$
(0.06
)Pro forma net income (loss) per share:Basic

$
(0.13
)

$
0.04Assuming dilution

$
(0.13
)

$
0.04





| |  | In May 2002, the Financial Accounting Standards Board (FASB) issued FASB Statement No. 145 Rescission of FASB Statements No. 4, 44, and 64, Amendment of
FASB Statement No. 13, and Technical Corrections (FAS 145). FAS 145, which updates, clarifies, and simplifies existing accounting pronouncements, addresses the reporting of debt extinguishments and accounting for certain lease modifications
that have economic effects that are similar to sale-leaseback transactions. The provisions of FAS 145 shall be effective for financial statements issued for fiscal years beginning after May 15, 2002. The Company is currently assessing the impact of
FAS 145 on its financial statements.
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| |  | In July 2002, the FASB issued FASB Statement No. 146 Accounting for Costs Associated with Exit or Disposal Activities (FAS 146). FAS 146 addresses
financial accounting and reporting for costs associated with exit or disposal activities. The provisions of FAS 146 shall be effective for exit or disposal activities initiated after December 31, 2002. The Company is currently assessing the impact
of FAS 146 on its financial statements.
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




|8. |  | Subsequent events
|-- |  | -----------------




| |  | At a meeting held on July 3, 2002, the Companys board of directors voted to suspend payment of the quarterly dividend.
| |  | -----------------------------------------------------------------------------------------------------------------------




| |  | On July 19, 2002, the Companys broadcasting subsidiary entered into a non-binding letter of intent for the sale of all member interests in the limited
liability company which owns the FCC licenses and the assets associated with the operation of television stations WFXG-TV, Augusta, Georgia and WXTX-TV, Columbus, Georgia. The transaction is subject to negotiation of a purchase and sale agreement,
completion of due diligence, negotiation and execution of network affiliation agreements, and FCC consent to assignment of the licenses. If the transaction is concluded, the broadcasting subsidiary may incur a loss.
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| |  | On July 26, 2002, the Companys real estate subsidiary received notification that inspection contingencies contained in a purchase and sale agreement for
sale of certain of that subsidiarys property located on Lake Union in Seattle had been satisfied. Closing of the transaction is anticipated to occur in early September. The transaction is expected to result in a gain of approximately
$3,700,000 net of income tax effects.
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| |  | On July 30, 2002, the Company received notice of a buyers intent to proceed with the purchase of land and a building located in Portland, Oregon, which is
owned by the Companys flour milling subsidiary. The transaction is anticipated to close in late August. No gain or loss is anticipated, as the property is included in discontinued operations of the milling businesses.
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| |  | Net proceeds from these sales, after income taxes, are expected to be used to reduce debt and to fund construction of Fisher Plaza.
| |  | -----------------------------------------------------------------------------------------------------------------------------------






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##### Table of Contents




ITEM 2MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL POSITION AND RESULTS OF OPERATIONS





The following discussion and analysis should be read in
conjunction with the Financial Statements and related Notes thereto included elsewhere in this Form 10-Q. Except for the historical information, the following discussion contains forward-looking statements that involve risks and uncertainties, such
as our objectives, expectations and intentions. Our actual results could differ materially from results that may be anticipated by such forward-looking statements and discussed elsewhere herein. Factors that could cause or contribute to such
differences include, but are not limited to, those discussed below, those discussed under the caption Additional Factors That May Affect Our Business, Financial Condition And Future Results, and those discussed in our Form 10-K for the
year ended December 31, 2001. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this report. We undertake no obligation to revise any forward-looking statements in order to
reflect events or circumstances that may subsequently arise. Readers are urged to carefully review and consider the various disclosures made in this report and in our other reports filed with the Securities and Exchange Commission that attempt to
advise interested parties of the risks and factors that may affect our business, prospects and results of operations. As used herein, unless the context requires otherwise, when we say we, us, our, or the
Company, we are referring to Fisher Communications, Inc. and its consolidated subsidiaries.





This
discussion is intended to provide an analysis of significant trends and material changes in our financial position and operating results during the three- and six-month periods ended June 30, 2002 compared with the similar period in 2001.





Effective January 1, 2002, we restructured our continuing operations into three principal business segments:
broadcasting, media services, and real estate. Accordingly, the operations of Fisher Entertainment LLC, a producer of content for cable and television, and Fisher Pathways, Inc., a provider of satellite transmission services, are included in the
media services segment. Previously these businesses were reported in the broadcasting segment. The operations of the portion of Fisher Plaza not occupied by KOMO TV, which previously were reported in the real estate segment, are also included in the
media services segment. Fisher Plaza operations attributable to KOMO TV are included in the broadcasting segment. The media services segment also includes the consolidated operations of Civia, Inc. In 2002, we converted certain loans into a majority
equity interest in Civia, Inc. During the second quarter of 2002, we purchased all remaining minority equity interests in Civia. Accordingly, Civias 2002 operating results are consolidated, while its 2001 results are reported under the equity
method. Certain 2001 balances have been reclassified to conform to 2002 classifications.





At a meeting held on
July 3, 2002, the Companys board of directors voted to suspend payment of the quarterly dividend.





On July
19, 2002, the Companys broadcasting subsidiary entered into a non-binding letter of intent for the sale of all member interests in the limited liability company which owns the FCC licenses and the assets associated with the operation of
television stations WFXG-TV, Augusta, Georgia and WXTX-TV, Columbus, Georgia. The transaction is subject to negotiation of a purchase and sale agreement, completion of due diligence, negotiation and execution of network affiliation agreements, and
FCC consent to assignment of the licenses. If the transaction is concluded, the broadcasting subsidiary may incur a loss.





On July 26, 2002, the Companys real estate subsidiary received notification that inspection contingencies contained in a purchase and sale agreement for sale of certain of that subsidiarys property located on Lake Union
in Seattle had been satisfied. Closing of the transaction is anticipated to occur in early September. The transaction is expected to result in a gain of approximately $3,700,000 net of income tax effects.





On July 30, 2002, the Company received notice of a buyers intent to proceed with the purchase of land and a building located in
Portland, Oregon, which is owned by the Companys flour milling subsidiary. The transaction is anticipated to close in late August. No gain or loss is anticipated, as the property is included in discontinued operations of the milling
businesses.





The terms of the proposed sale of the Georgia television stations have not yet been formalized and
the Company and the proposed buyer of the Georgia television stations may be unable to reach agreement on final terms or may reach agreement on terms, including the purchase price, that are substantially different from the terms contained in the
non-binding letter of intent. The sale of the Lake Union properties and Oregon property may not be consummated in the event the conditions to the closing of the transactions are not satisfied by the Company or the buyers.





Net proceeds from these sales, after income taxes, are expected to be used to reduce debt and to fund construction of Fisher Plaza.





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





CRITICAL ACCOUNTING POLICIES





On January 1, 2002, we adopted Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets (FAS 142). FAS 142 changes the accounting for goodwill from an
amortization method to an impairment-only approach. Goodwill is to be tested for impairment upon adoption of FAS 142, and will be tested annually or whenever events or circumstances occur indicating that goodwill might be impaired. We have
determined that indefinite-lived intangible assets resulting from past business combinations are to be accounted for as goodwill. We have completed the first step of the transitional impairment test for goodwill and found no impairment. The
determination of fair value is a critical and complex consideration when assessing impairment under FAS 142 that involves significant assumptions and estimates. These assumptions and estimates were based on our best judgments. In the future,
impairment must be assessed at least annually for these assets, or when indications of impairment exist. Our judgments regarding the existence of impairment indicators include our assessment of the impacts of legal factors and market and economic
conditions; the results of our operational performance and strategic plans; competition and market share; any potential for the sale or disposal of a significant portion of our business; and availability of sources of funding to conduct our
principal operations. In the future, it is possible that such assessments could cause us to conclude that impairment indicators exist and that certain assets are impaired. The aggregate carrying value of our goodwill is $189 million as of June 30,
2002.




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CONSOLIDATED RESULTS OF OPERATIONS





Operating results for the six months ended June 30, 2002 showed a consolidated loss of $4,238,000 including an extraordinary loss item amounting to $2,058,000, net of
income taxes, for write-off of deferred loan costs relating to early extinguishment of long-term debt that was repaid during the first quarter. Net loss for the six months ended June 30, 2001 was $2,835,000, including a loss of $327,000 from
discontinued operations of milling businesses.





Operating results for the three months ended June 30, 2002 showed
consolidated net income of $3,520,000. Second quarter results include net gain on derivative instruments amounting to $6,828,000, before income tax effects. Excluding net after-tax gains on derivative instruments, second quarter results would have
been a loss of $785,000. Net loss for the three months ended June 30, 2001 was $520,000, including a loss of $327,000 from discontinued operations of milling businesses.





Revenue





Six months ended June 30

Three months ended June 302002

% Change


2001

2002

% Change


2001Broadcasting

$
64,908,000

-10.9
%

$
72,876,000

$
35,061,000

-7.9
%

$
38,061,000Media services


3,113,000

11.5
%


2,791,000


1,481,000

10.1
%


1,346,000Real estate


6,505,000

9.8
%


5,927,000


3,302,000

11.8
%


2,954,000Consolidated

$
74,526,000

-8.7
%

$
81,594,000

$
39,844,000

-5.9
%

$
42,361,000





Broadcasting revenue declined $7,968,000 during the six months
ended June 30, 2002, compared with the same period of 2001, due largely to a weak economy in the Northwest and relatively weak performance by the ABC television network. Television revenues, net of sales commissions, were down 14%. Net revenue from
radio operations declined 2%.





Based on information published by Miller, Kaplan, Arase & Co. (Miller Kaplan),
during the six-month period ended June 30, 2002, revenue for the overall Seattle television market declined 12%, and revenue for the overall Portland television market declined less than 1%. Our Seattle and Portland television stations experienced
revenue declines of 23% and 12%, respectively, during the six-month period. We believe that the performance of ABC and coverage of the Winter Olympic Games on a competing network were contributing factors. We also believe that KOMO TV in Seattle is
impacted by the success of the Seattle Mariners baseball team, whose games are broadcast on a competing station. Our smaller market television operations experienced mixed revenue results with the Oregon and Idaho stations reporting flat or
increased revenue and the Washington and Georgia station groups reporting declines.





Our radio operations also
reported mixed revenue results during the first six months of 2002. Local and national revenues for our Seattle radio operations declined 15% during the six-month period due, in part, to a decline in ratings, while local and national revenues at our
Portland radio stations increased 23% due, in part, to improving ratings. Miller Kaplan reported that local and national radio revenues for the Seattle and Portland radio markets declined 10% and 1%, respectively, during the same period. Six-month
revenue at our small market radio stations in Eastern Washington and Montana increased 6%.





Second quarter 2002
broadcasting revenue declined $3,000,000, compared with the same period of last year. Net television revenues were down 11%. Net revenue from radio operations was unchanged from the second quarter of 2001.





During the second quarter our Seattle and Portland television stations experienced revenue declines of 22% and 7%, respectively. Our
smaller market television operations experienced revenue increases ranging from 14% to 25%, except for the Washington and Georgia station groups, which experienced declines of 1% and 8%, respectively, compared with the same period last year.





The increases in revenue for the media services segment for the six months ended June 30, 2002 and the second
quarter are principally due to revenues from program production and development at Fisher Entertainment, and revenue from Fisher Plaza. Revenue from Fisher Pathways declined 42% during the six-month period and 48% during the second quarter ended
June 30, 2002, compared with the same periods last year, due to a decline in demand for our satellite transmission services.




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The increase in real estate revenue is primarily due to rents from the Fisher
Industrial Technology Center (Fisher ITC) located in Auburn, Washington, which was 71% leased during 2002. Fisher ITC was in lease-up phase during 2001, with the first tenant taking occupancy in May.





Cost of services sold





Six months ended June 30


Three months ended June 302002


% Change


2001


2002


% Change


2001Broadcasting

$
31,495,000


-3.5
%

$
32,652,000


$
15,595,000


-0.7
%

$
15,712,000Media services


1,485,000






84,000



779,000






139,000Real estate


1,118,000


62.1
%


690,000



546,000


49.0
%


366,000Consolidated

$
34,098,000


2.0
%

$
33,426,000


$
16,920,000


4.3
%

$
16,217,000Percentage of revenue


45.8
%





41.0
%


42.5
%





38.3
%





The cost of services sold consists primarily of costs to acquire,
produce, and promote broadcast programming, operating costs of the businesses in the media services segment, and costs to operate the properties held by the real estate segment. These costs are relatively fixed in nature, and do not necessarily vary
on a proportional basis with revenue.





Emphasis on expense control resulted in a reduction in operating expenses
at the broadcasting segment for the first six months of 2002, compared with the first half of 2001. The largest decline was in salaries and related expenses due to staff reduction; however, many other operating expenses in the segment declined. A
decline in operating expenses at the broadcasting segment during the second quarter was partially offset by costs incurred in connection with a Joint Sales Agreement that became effective in March 2002.





Operating expenses in the media services segment increased as each of the businesses included in the segment incurred additional costs in
connection with growth, with the largest increase at Fisher Plaza, where certain costs were deferred during 2001. Prior year operating expenses for the media services segment reflect adjustments to prior estimates of common area costs received from
occupants and customers at Fisher Plaza.





The real estate segment experienced increased operating costs in several
categories, including repairs and maintenance, energy and utilities, and insurance. In addition, certain operating costs relating to Fisher ITC were capitalized during the first six months of 2001 as the facility was in lease-up phase.





Selling expenses





Six months ended June 30


Three months ended June 302002


% Change


2001


2002


% Change


2001Broadcasting

$
9,536,000


-6.8
%

$
10,230,000


$
5,074,000


-6.1
%

$
5,402,000Media services


227,000






25,000



109,000






17,000Consolidated

$
9,763,000


-4.8
%

$
10,255,000


$
5,183,000


-4.3
%

$
5,419,000Percentage of revenue


13.1
%





12.6
%


13.0
%





12.8
%





Emphasis on expense control and reduced revenue resulted in a
reduction in selling expenses at the broadcasting segment for the first half and second quarter of 2002, compared with the similar periods of 2001. The largest cost reductions were in salaries and commissions.





Selling expenses at the media services segment increased during the first half and second quarter of 2002, compared with the same periods
last year, due to efforts to increase revenue growth at Fisher Pathways and at Civia, Inc.




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General and administrative expenses





Six months ended June 30


Three months ended June 302002


% Change


2001


2002


% Change


2001Broadcasting

$
13,957,000


-4.8
%

$
14,654,000


$
7,083,000


2.7
%

$
6,894,000Media services


1,936,000


-17.6
%


2,351,000



935,000


-38.0
%


1,507,000Real estate


1,197,000


-6.9
%


1,286,000



555,000


-10.0
%


617,000Corporate, eliminations & other


4,226,000


-4.7
%


4,436,000



2,170,000


-2.2
%


2,219,000Consolidated

$
21,316,000


-6.2
%

$
22,727,000


$
10,743,000


-4.4
%

$
11,237,000Percentage of revenue


28.6
%





27.9
%


27.0
%





26.5
%





Emphasis on expense control during the first half and second
quarter of 2002 resulted in expense reductions, or minimized expense increases, in many expense categories throughout the company.





Depreciation and amortization





Six months ended June 30


Three months ended June 302002


% Change


2001


2002


% Change


2001Broadcasting

$
6,727,000


-27.9
%

$
9,335,000


$
3,352,000


-30.7
%

$
4,834,000Media services


881,000


14.7
%


769,000



444,000


15.3
%


385,000Real estate


2,190,000


18.6
%


1,846,000



1,090,000


15.6
%


943,000Corporate, eliminations & other


119,000


44.1
%


82,000



60,000


44.3
%


41,000Consolidated

$
9,917,000


-17.6
%

$
12,032,000


$
4,946,000


-20.3
%

$
6,203,000Percentage of revenue


13.3
%





14.7
%


12.4
%





14.6
%





The decline in depreciation and amortization at the broadcasting
segment is primarily due to a new accounting standard that provides for discontinuation of goodwill amortization beginning January 1, 2002. Goodwill amortization amounted to $2,600,000 during the first six months of 2001 and $1,309,000 during the
second quarter of 2001. Depreciation expense remained relatively constant.





The increase in depreciation in the
media services segment is attributable to operations of Fisher Plaza and Civia, Inc. Depreciation on a portion of Fisher Plaza did not begin in the first half of 2001 as the project was not substantially complete.





The increase in depreciation in the real estate segment is primarily attributable to Fisher ITC, which was 71% leased in 2002, but was
vacant until May of 2001.





Income (Loss) from operations





Six months ended June 30


Three months ended June 302002


% Change


2001


2002


% Change


2001Broadcasting

$
3,194,000


-46.8
%

$
6,005,000


$
3,958,000


-24.2
%

$
5,220,000Media services


(1,418,000
)





(438,000
)


(788,000
)

-12.0
%


(703,000
)Real estate


2,000,000


-5.0
%


2,105,000



1,112,000


8.0
%


1,030,000Corporate, eliminations & other


(4,344,000
)

-3.8
%


(4,518,000
)


(2,230,000
)

-1.4
%


(2,262,000
)Consolidated

$
(568,000
)




$
3,154,000


$
2,052,000


-37.5
%

$
3,285,000





Income (loss) from operations by business segment consists of
revenue less operating expenses. In computing income from operations by business segment, net gain on derivative instruments and other income, net, have not been included, and interest expense, income taxes and unusual items have not been deducted.







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##### Table of Contents




Net gain on derivative instruments





Six months ended June 30

Three months ended June 302002

2001

2002

2001$6,103,000

$-0-

$6,828,000

$-0-





Net gain on derivative instruments includes unrealized gain
resulting from an increase in fair value of a variable forward sales transaction amounting to $9,677,000 in the first half of 2002 and $7,637,000 in the second quarter of 2002, and unrealized loss from a decline in fair value of an interest rate
swap agreement amounting to $938,000 in the first half and $809,000 in the second quarter of 2002 (See Note 3 to the Condensed Consolidated Financial Statements). The net gain for the six months ended June 30, 2002 also includes a realized loss
amounting to $2,636,000 from termination, in March, of an interest rate swap agreement.





Other income, net





Six months ended June 30

Three months ended June 302002

% Change

2001

2002

% Change

2001$1,376,000

-26.8%

$1,879,000

$789,000

24.2%

$635,000





Other income, net includes dividends received on marketable
securities and, to a lesser extent, interest and miscellaneous income. The decline in the six months ended June 30, 2002 is primarily due to a reduction in the quarterly dividend paid by SAFECO Corporation effective in February 2001.





Interest expense





Six months ended June 30

Three months ended June 302002

% Change

2001

2002

% Change

2001$10,423,000

17.4%

$8,875,000

$5,422,000

28.2%

$4,229,000





Interest expense includes interest on borrowed funds, loan fees,
and net payments under interest rate swap agreements. The increases in 2002 interest expense, compared with 2001, are attributable to higher amounts borrowed during 2002, partially offset by lower interest rates. Interest incurred in connection with
funds borrowed to finance construction of Fisher Plaza and other significant capital projects is capitalized as part of the cost of the related project. Interest capitalized during the six months ended June 30, 2002 and 2001 amounted to $1,027,000
and $1,147,000, respectively. Interest capitalized during the three months ended June 30, 2002 and 2001 amounted to $627,000 and $558,000, respectively.





Provision for federal and state income taxes (benefit)





Six months ended June 30


Three months ended June 302002


% Change


2001


2002


% Change

2001$
(1,300,000
)

-2.5
%

$
(1,333,000
)

$
760,000




$
(112,000
)Effective tax rate


37.4
%





34.7
%


17.8
%




36.7
%





The provision for federal and state income taxes varies directly
with pre-tax income. The tax benefits reflect our ability to utilize net operating loss carrybacks. The effective tax rate varies from the statutory rate primarily due to a deduction for dividends received, offset by the impact of state income
taxes.





Extraordinary item, net of income tax benefit





Six months ended June 30

Three months ended June 302002

2001

2002

2001$(2,058,000)

$-0-

$-0-

$-0-





We repaid certain loans in March 2002 and, as a result, wrote off
deferred loan costs amounting to $3,264,000. Net of income tax benefit this charge amounted to $2,058,000.




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##### Table of Contents




Other comprehensive income (loss)





Six months ended June 30

Three months ended June 302002

2001

2002

2001$2,169,000

$(8,087,000)

$(2,202,000)

$2,812,000





Other comprehensive income (loss) includes unrealized gain or loss
on our marketable securities and the effective portion of the change in fair value of an interest rate swap agreement, and is net of income taxes. During the six- and three-month periods ended June 30, 2002 the value of our marketable securities
decreased $87,000 and $2,202,000, respectively, net of tax. A significant portion of the marketable securities consists of 3,002,376 shares of SAFECO Corporation common stock. The per share market price of SAFECO Corporation common stock was $31.15
at December 31, 2001, $32.04 at March 31, 2002, $30.89 at June 30, 2002, $32.88 at December 31, 2000, $28.19 at March 31, 2001, and $29.50 at June 30, 2001.





During the period from January 1 through March 21, 2002 we used an interest rate swap, designated as a cash flow hedge, to manage exposure to interest rate risks. During this period the fair value of
the swap increased $543,000, net of tax, which is recorded in other comprehensive income. In connection with the refinancing of our long-term debt the swap agreement was terminated and the remaining negative fair market value ($1,713,000 net of tax
benefit) was reclassified to operations.





Unrealized gains and losses are reported as accumulated other
comprehensive income, a separate component of stockholders equity.





Liquidity and Capital Resources





As of June 30, 2002 we had working capital of $36,075,000 and cash and short-term cash investments totaling $11,874,000. We intend to
finance working capital, debt service, capital expenditures, and dividend requirements primarily through operating activities. However, we will consider using available credit facilities to fund acquisition activities and significant real estate
project development activities. As of June 30, 2002, approximately $37,000,000 is available under existing credit facilities.





Net cash provided by operating activities during the six months ended June 30, 2002 was $14,581,000. Net cash provided by operating activities consists of our net income or loss, increased by non-cash expenses such as depreciation
and amortization, and adjusted by changes in operating assets and liabilities. Net cash used in investing activities during the period was $21,186,000, primarily for purchase of property, plant and equipment (including for the Fisher Plaza project).
Net cash provided by financing activities was $14,911,000, comprised of borrowings under borrowing agreements and mortgage loans of $255,131,000 less payments of $222,461,000 on borrowing agreements and mortgage loans, as two prior credit facilities
were repaid from proceeds from new credit facilities, payments on notes payable of $8,259,000, payment of deferred loan costs of $5,053,000 paid in connection with obtaining new credit facilities, and cash dividends paid to stockholders totaling
$4,468,000 or $.52 per share. At a meeting held on July 3, 2002, the Companys board of directors voted to suspend payment of the quarterly dividend.





ADDITIONAL FACTORS THAT MAY AFFECT OUR BUSINESS, FINANCIAL CONDITION AND FUTURE RESULTS





The following risk factors and other information included in this Quarterly Report should be carefully considered. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties not
presently known to us or that we currently deem immaterial also may impair our business operations. If any of the following risks occur, our business, financial condition, operating results and cash flows could be materially adversely affected.





A continuing economic downturn in the Seattle, Washington or Portland, Oregon areas could adversely affect our operations,
revenue, cash flow and earnings.





Our operations are concentrated primarily in the Pacific Northwest. The
Seattle, Washington and Portland, Oregon markets are particularly important for our financial well being. Operating results during 2001 and 2002 were adversely impacted by a soft economy, and a continuing economic downturn in these markets could
have a material adverse effect on our operations and financial condition. Because our costs of services are relatively fixed, we may




16




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##### Table of Contents

be unable to significantly reduce costs if our revenues continue to decline. If our revenues do not increase or if they continue to decline, we could continue to suffer net losses or such net
losses could increase.





Our debt service consumes a substantial portion of the cash we generate, but our ability to generate cash
depends on many factors beyond our control.





We currently use a significant portion of our operating cash flow
to service our debt. Our leverage makes us vulnerable to an increase in interest rates or a downturn in the operating performance of our businesses or a decline in general economic conditions. It further limits our ability to obtain additional
financing for working capital, capital expenditures, acquisitions, debt service requirements or other purposes, and may limit our ability to pay dividends. Finally, it inhibits our ability to compete with competitors who are less leveraged than we
are, and it constrains our ability to react to changing market conditions, changes in our industry and economic downturns.





Prevailing economic conditions and financial, business and other factors, many of which are beyond our control, will affect our ability to satisfy our debt obligations. If in the future we cannot generate sufficient cash flow from
operations to meet our obligations, we may need to refinance our debt, obtain additional financing, forego or delay acquisitions and capital expenditures, or sell assets. Any of these actions could adversely affect the value of our common stock. We
cannot assure you that we will generate sufficient cash flow or be able to obtain sufficient funding to satisfy our debt service requirements.





Competition in the broadcasting industry and the rise of alternative entertainment and communications media may result in losses of audience share and advertising revenue by our stations.





We cannot assure you that any of our stations will maintain or increase its current audience ratings or advertising revenue market share.
Fisher Broadcastings television and radio stations face intense competition from local network affiliates and independent stations, as well as from cable and alternative methods of broadcasting brought about by technological advances and
innovations. The stations compete for audiences on the basis of programming popularity, which has a direct effect on advertising rates. Additional significant factors affecting a stations competitive position include assigned frequency and
signal strength. The possible rise in popularity of competing entertainment and communications media could also have a materially adverse effect on Fisher Broadcastings audience share and advertising revenue. We cannot predict either the
extent to which such competition will materialize or, if such competition materializes, the extent of its effect on our business.





The
performance of the television networks could harm our operating results.





The operating results of our
broadcasting operations are primarily dependent on advertising revenues. Our Seattle and Portland television stations are affiliated with the ABC Television Network. Popularity of programming on ABC lagged behind other networks during 2001 and 2002
and, contributed to a decline in audience ratings, which negatively impacted revenues for our Seattle and Portland television stations. Continued weak performance by ABC could harm our business and results of operations.





Our operating results are dependent on the success of programming aired by our television and radio stations.





We make significant commitments to acquire rights to television and radio programs under multi-year agreements. The success of such
programs is dependent partly upon unpredictable and volatile factors beyond our control such as audience preferences, competing programming, and the availability of other entertainment activities. A shift in audience preferences could cause our
programming not to gain popularity or decline in popularity, which could cause our advertising revenues to decline. In some instances, we may have to replace programs before their costs have been fully-amortized, resulting in write-offs that
increase operating costs.





A write-down of goodwill to comply with new accounting standards would harm our operating results.





Approximately $189 million, or 29% of our total assets as of June 30, 2002, consists of unamortized goodwill.
On January 1, 2002, we adopted Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets (FAS 142). FAS 142 changes the accounting for goodwill from an amortization method to an impairment-only approach.
Goodwill is to be tested for impairment upon adoption of FAS 142, and will be tested annually or whenever events or circumstances occur indicating that goodwill might be impaired. We have determined that indefinite-lived intangible assets resulting
from past business combinations are to be accounted for as goodwill. We have completed the first step of the transitional impairment test for goodwill and found no impairment. The determination of fair value is a critical and complex consideration
when assessing impairment under FAS 142 that




17




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##### Table of Contents

involves significant assumptions and estimates. These assumptions and estimates were based on our best judgments. In the future, impairment must be assessed at least annually for these assets, or
when indications of impairment exist. Our judgments regarding the existence of impairment indicators include our assessment of the impacts of legal factors and market and economic conditions; the results of our operational performance and strategic
plans; competition and market share; any potential for the sale or disposal of a significant portion of our business; and availability of sources of funding to conduct our principal operations. In the future, it is possible that such assessments
could cause us to conclude that impairment indicators exist and that certain assets are impaired which, would harm our operating results.





Our restructuring may cause disruption of operations and distraction of management, and may not achieve the desired results.





We continue to implement a restructuring of our corporate enterprise with the objective of allowing greater functional integration of core competencies and improving operational efficiencies. This
restructuring may disrupt operations and distract management, which could have a material adverse effect on our operating results. We cannot predict whether this restructuring will achieve the desired benefits, or whether our company will be able to
fully integrate our broadcast communications, media services and other operations. We cannot assure you that the restructuring will be completed in a timely manner or that any benefits of the restructuring will justify its costs. We may incur costs
in connection with the restructuring in the areas of professional fees, marketing expenses, employment expenses, and administrative expenses. In addition, we may incur additional costs which we are unable to predict at this time.





Our efforts to develop new business opportunities are subject to technological risk and may not be successful, or results may take longer than
expected to realize.





We are developing new opportunities for creating, aggregating and distributing content
through non-broadcast media channels, such as the Internet, cell phones, and web-enabled personal digital assistants. The success of our efforts is subject to technological innovations and risks beyond our control, so that the anticipated benefits
may take longer than expected to realize. In addition, we have limited experience in non-broadcast media, which may result in errors in the conception, design or implementation of a strategy to take advantage of the opportunities available in that
area. We therefore cannot give any assurance that our efforts will result in successful products or services.





The FCCs
extensive regulation of the broadcasting industry limits our ability to own and operate television and radio stations and other media outlets.





The broadcasting industry is subject to extensive regulation by the Federal Communications Commission (FCC) under the Communications Act of 1934, as amended. Compliance with and the effects
of existing and future regulations could have a material adverse impact on us. Issuance, renewal or transfer of broadcast station operating licenses requires FCC approval, and we cannot operate our stations without FCC licenses. Failure to observe
FCC rules and policies 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 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. If the FCC decides to include conditions or qualifications in any of our licenses, we may be limited in the manner in which we may operate the affected stations.





The Communications Act and FCC rules impose specific limits on the number of stations and other media outlets an entity can own in a
single market. The FCC attributes interests held by, among others, an entitys officers, directors, certain stockholders, and in some circumstances, lenders, to that entity for purposes of applying these ownership limitations. The existing
ownership rules or proposed new rules may prevent us from acquiring additional stations in a particular market. We may also be prevented from engaging in a swap transaction if the swap would cause the other company to violate these rules.





The FCC is currently considering whether to modify its national and local television ownership limitations, as
well as its local radio ownership limitations. We cannot predict what action the FCC will take. If the FCC adopts proposals to allow large broadcast groups to expand further their ownership on a national basis, to permit a single entity to own more
than one station in markets with fewer independently owned stations, or to allow radio operators to increase their level of ownership in local markets, our existing operations could face increased competition from entities with significantly greater
resources, and greater economies of scale, than Fisher Broadcasting.




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Dependence on key personnel may expose us to additional risks.





Our business is dependent on the performance of certain key employees, including our chief executive officer and other executive officers.
We also employ several on-air personalities who have significant loyal audiences in their respective markets. A substantial majority of our executive officers do not have employment contracts with us. We can give no assurance that all such key
personnel will remain with us. The loss of any key personnel could harm our operations and financial results.





The non-renewal or
modification of affiliation agreements with major television networks could harm our operating results.





Our
television stations affiliation with one of the four major television networks (ABC, CBS, NBC and FOX) has a significant impact on the composition of the stations programming, revenues, expenses and operations. We cannot give any
assurance that we will be able to renew our affiliation agreements with the networks at all, or on satisfactory terms. In recent years, the networks have been attempting to change affiliation arrangements in manners that would disadvantage
affiliates. The non-renewal or modification of any of the network affiliation agreements could harm our operating results.





A network
might acquire a television station in one of our markets, which could harm our business and operating results.





If a network acquires a television station in a market in which we own a station affiliated with that network, the network will likely decline to renew the affiliation agreement for our station in that market, which could harm our
business and results of operations.





The September 11, 2001 terrorist attacks may continue to affect our results of operations.





We may continue to be affected by the events of September 11, 2001, as well as by the actions taken by the
United States in response to such events. At this time, we cannot determine the ultimate extent of the effect of these events and their aftermath on the operating results of our television and radio broadcasting operations. However, as a result of
expanded news coverage following the attacks and subsequent military action, we experienced a loss in advertising revenues. The events of September 11 negatively affected economic activity in the United States and globally, including the markets in
which we operate. If weak economic conditions continue or worsen, our financial condition and results of operations may be materially and adversely affected. Furthermore, there is no assurance that there will not be further terrorist attacks against
the United States or United States businesses, including real or threatened attacks. Although we have received no specific threats of such attacks, any such attacks might directly impact our physical facilities or our personnel, potentially causing
substantial losses or disruptions in our operations. Our insurance coverage may not be adequate to cover the losses and interruptions caused by terrorist attacks. Insurance premiums may increase, or adequate coverage may not be available.





Our operations may be adversely affected by power outages, increased energy costs or earthquakes in the Pacific Northwest.





Our corporate headquarters and a significant portion of our operations are located in the Pacific Northwest.
The Pacific Northwest has from time-to-time experienced earthquakes and experienced a significant earthquake on February 28, 2001 which caused damage to some of our facilities. We do not know the ultimate impact on our operations of being located
near major earthquake faults, but an earthquake could harm our operating results. In addition, the Pacific Northwest may experience power shortages or outages and increased energy costs. Power shortages or outages could cause disruptions to our
operations, which in turn may result in a material decrease in our revenues and earnings and have a material adverse effect on our operating results. Power shortages or increased energy costs in the Northwest could harm the regions economy,
which could reduce our advertising revenues. Our insurance coverage may not be adequate to cover the losses and interruptions caused by earthquakes and power outages.




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Our development, ownership and operation of real property is subject to risks, including those
relating to the economic climate, local real estate conditions, potential inability to provide adequate management, maintenance and insurance, potential collection problems, reliance on significant tenants, and regulatory risks.





Revenue and operating income from our properties and the value of our properties may be adversely affected by the general
economic climate, the local economic climate and local real estate conditions, including prospective tenants perceptions of attractiveness of the properties and the availability of space in other competing properties. We are developing the
second building at Fisher Plaza which entails significant investment by us. The softened economy in the Seattle area could adversely affect our ability to lease the space of our properties on attractive terms or at all, which could harm our
operating results. Other risks relating to our real estate operations include the potential inability to provide adequate management, maintenance and insurance, and the potential inability to collect rent due to bankruptcy or insolvency of tenants
or otherwise. Several of our properties are leased to tenants that occupy substantial portions of such properties and the departure of one or more of them or the inability of any of them to pay their rents or other fees could have a significant
adverse effect on our real estate revenues. 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. We carry comprehensive liability, fire, extended coverage and rent loss insurance with respect to our properties. There are, however, certain losses that may be either uninsurable, not economically insurable or in excess of our current
insurance coverage limits. If an uninsured loss occurs with respect to a property, it could harm our operating results.





A reduction
on the periodic dividend on the common stock of SAFECO may adversely affect our revenue, cash flow and earnings.





We are a 2.3% stockholder of the common stock of SAFECO Corporation. If SAFECO reduces its periodic dividends, it will negatively affect our revenue, cash flow and earnings. In February 2001, SAFECO reduced its quarterly dividend
from $0.37 to $0.185 per share.





Antitrust law and other regulatory considerations could prevent or delay expansion of our business or
adversely affect our revenues.





The completion of any future transactions we may consider may be subject to
the notification filing requirements, applicable waiting periods and possible review by the Department of Justice or the Federal Trade Commission under the Hart-Scott-Rodino Act. Any television or radio station acquisitions or dispositions will be
subject to the license transfer approval process of the FCC. Review by the Department of Justice or the Federal Trade Commission may cause delays in completing transactions and, in some cases, result in attempts by these agencies to prevent
completion of transactions or to negotiate modifications to the proposed terms. Review by the FCC, particularly review of concentration of market revenue share, may also cause delays in completing transactions. Any delay, prohibition or modification
could adversely affect the terms of a proposed transaction or could require us to abandon an acquisition or disposition opportunity. In addition, campaign finance reform laws or regulations could result in a reduction in funds being spent on
advertising in certain political races, which would adversely affect our revenues and results of operations in election years.





Our
investments in HDTV and digital broadcasting may not result in revenue sufficient to justify the investment.





The ultimate success of digital television broadcasting will depend on programming being produced and distributed in a digital format, the effect of current or future laws and regulations relating to digital television, including the
FCCs determination with respect to must-carry rules for carriage of each stations digital channel and receiver standards for digital reception, and public acceptance and willingness to buy new digital television sets. Unless
consumers embrace digital television and purchase enough units to cause home receiver prices to decline, the general public may not switch to the new technology, delaying or preventing its ultimate economic viability. Our investments in HDTV and
digital broadcasting may not generate earnings and revenue sufficient to justify the investments.




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We periodically engage in new business ventures which may adversely affect our operating results.





While Fisher Broadcasting has created programming in the past, we do not have significant experience in the
creation of programming on the scale contemplated by Fisher Entertainment. Factors that could harm the results of Fisher Entertainment include competition from existing and new competitors, as well as related performance and price pressures,
potential difficulties in relationships with cable and television networks, failure to obtain air time for the programming produced and the changing tastes and personnel of the acquirers of programming. There are many inherent risks in new business
ventures such as Fisher Entertainment and Civia, Inc., including startup costs, performance of certain key personnel, the unpredictability of audience tastes, and product acceptance.





Acquisitions could disrupt our business and harm our financial condition and are in any event uncertain.





We may opportunistically acquire broadcasting and other assets we believe will improve our competitive position. However, any acquisition may fail to increase our cash flow or yield other anticipated
benefits due to a number of other risks, including:





| |  |  | failure or unanticipated delays in completing acquisitions due to difficulties in obtaining regulatory approval,
| | - |  | ----------------------------------------------------------------------------------------------------------------




| |  |  | failure of an acquisition to maintain profitability, generate cash flow, or provide expected benefits,
| | - |  | ------------------------------------------------------------------------------------------------------




| |  |  | difficulty in integrating the operations, systems and management of any acquired assets or operations,
| | - |  | ------------------------------------------------------------------------------------------------------




| |  |  | diversion of managements attention from other business concerns, and
| | - |  | ---------------------------------------------------------------------




| |  |  | loss of key employees of acquired assets or operations.
| | - |  | -------------------------------------------------------




Some competitors for acquisition of broadcasting or other assets are likely to have greater financial and other resources than we do. We cannot predict the availability of
acquisition opportunities in which we might be interested.





ITEM 3QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS





The market risk in our financial instruments represents the potential loss arising from adverse changes in
financial rates. We are exposed to market risk in the areas of interest rates and securities prices. These exposures are directly related to our normal funding and investing activities.





Interest Rate Exposure





Our strategy in managing
exposure to interest rate changes is to maintain a balance of fixed- and variable-rate instruments. We will also consider entering into interest rate swap agreements at such times as it deems appropriate.





As of June 30, 2002, our fixed rate debt totaled $114,864,000. The fair value of our fixed-rate debt is estimated to be approximately
$1,776,000 greater than the carrying amount. Market risk is estimated as the potential change in fair value resulting from a hypothetical 10 percent change in interest rates and, as of June 30, 2002, amounted to $2,934,000.





We also had $197,193,000 in variable-rate debt outstanding as of June 30, 2002. A hypothetical 10 percent change in interest rates
underlying these borrowings would result in a $1,225,000 annual change in our pre-tax earnings and cash flows.





We
are a party to an interest rate swap agreement fixing the interest rate at 6.87%, plus a margin based on the broadcasting subsidiarys ratio of consolidated funded debt to consolidated EBITDA, on a portion of our floating rate debt outstanding
under an eight-year credit facility (broadcast facility). The notional amount of the swap reduces as payments are made on principal outstanding under the broadcast facility until termination of the contract on March 22, 2004. As of June 30, 2002,
the notional amount of the swap was $65,000,000 and the fair value of the swap agreement was a liability of $4,274,000. A hypothetical 10 percent change in interest rates would change the fair value of our swap agreement by approximately $241,000 as
of June 30, 2002. We have not designated the swap as a cash flow hedge;




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accordingly changes in the fair value of the swap are reported in net gain on derivative instruments in the accompanying Condensed Consolidated Financial Statements.





Marketable Securities Exposure





The fair value of our investments in marketable securities as of June 30, 2002 was $96,973,000. Marketable securities consist of equity securities traded on a national securities exchange or reported on the NASDAQ securities market.
A significant portion of the marketable securities consists of 3,002,376 shares of SAFECO Corporation common stock. As of June 30, 2002, these shares represented 2.3% of the outstanding common stock of SAFECO Corporation. While we currently do not
intend to dispose of our investments in marketable securities, we have classified the investments as available-for-sale under applicable accounting standards. Mr. William W. Krippaehne, Jr., President, CEO, and a Director of the Company, is a
Director of SAFECO Corporation. A hypothetical 10 percent change in market prices underlying these securities would result in a $9,697,000 change in the fair value of the marketable securities portfolio. Although changes in securities prices would
affect the fair value of the marketable securities portfolio and cause unrealized gains or losses, such gains or losses would not be realized unless the investments are sold.





As of June 30, 2002, 3,000,000 shares of SAFECO Corporation common stock owned by the company were pledged as collateral under a variable forward sales transaction (forward
transaction) with a financial institution. A portion of the forward transaction will be considered a derivative and, as such, we will periodically measure its fair value and recognize the derivative as an asset or a liability. The change in the fair
value of the derivative is recorded in the income statement. As of June 30, 2002 the derivative portion of the forward transaction had a fair market value of $9,677,000, which is included in net gain on derivative instruments in the accompanying
Condensed Consolidated Financial Statements. A hypothetical 10 percent change in the market price of SAFECO Corporation stock would change the market value of the forward transaction by approximately $6,000,000. A hypothetical 10 percent change in
interest rates or in volatility would change the market value of the forward transaction by approximately $1,000,000.




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PART II





OTHER INFORMATION





Item 1.    Legal
Proceedings





The Company and its subsidiaries are parties to various claims, legal actions and complaints in
the ordinary course of their businesses. In the Companys opinion, all such matters are adequately covered by insurance, are without merit or are of such kind, or involve such amounts, that unfavorable disposition would not have a material
adverse effect on the consolidated financial position or results of operations of the Company.





Item 2.    Changes
in Securities and Use of Proceeds





None





Item 3.    Defaults Upon Senior Securities





None





Item 4.    Submission of Matters to a Vote of Security Holders





The Annual Meeting of Stockholders was held April 25, 2002.





The four nominees elected to the Board of Directors for three year terms expiring in 2005 are listed below. There were no broker non-votes with respect to any of the
nominees.





Votes For

Votes WithheldJean F. McTavish

6,763,419

183,298Jacklyn F. Meurk

6,757,968

188,749George F. Warren

6,710,084

165,633William W. Warren, Jr.

6,710,034

165,683





Continuing as Directors are James W. Cannon, Phelps K. Fisher, and
Robin J. Campbell Knepper, whose terms expire in 2003, and Carol H. Fratt, Donald G. Graham, Jr., Donald G. Graham, III, William W. Krippaehne, Jr., and John D. Mangels, whose terms expire in 2004.





Item 5.    Other Information





None





Item 6.    Exhibits and Reports on Form 8-K





(a)  Exhibits:





10.1

Confirmation of OTC Variable Forward Sale Transaction, dated June 3, 200210.2

Confirmation of OTC Variable Forward Sale Transaction, dated June 3, 200299.1

Certification of CEO pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 200299.2

Certification of CFO pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002





(b)  Reports on Form 8-K:





A report on Form 8-K was filed with the Commission on July 3, 2002 announcing that the Companys Board of Directors
had voted to suspend payment of the Companys quarterly dividend.




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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 COMMUNICATIONS, INC. (Registrant)Dated

August 14, 2002







/S/    DAVID D.
HILLARDDavid D. Hillard Senior Vice
President and Chief Financial Officer




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