FISHER COMMUNICATIONS INC - FORM 10-Q

FISHER COMMUNICATIONS INC - FORM 10-Q - November 8, 2011

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EXCEL - IDEA: XBRL DOCUMENT - FISHER COMMUNICATIONS INC	Financial_Report.xls
EX-32.2 - SECTION 906 CFO CERTIFICATION - FISHER COMMUNICATIONS INC	d236220dex322.htm
EX-31.2 - SECTION 302 CFO CERTIFICATION - FISHER COMMUNICATIONS INC	d236220dex312.htm
EX-32.1 - SECTION 906 CEO CERTIFICATION - FISHER COMMUNICATIONS INC	d236220dex321.htm
EX-31.1 - SECTION 302 CEO CERTIFICATION - FISHER COMMUNICATIONS INC	d236220dex311.htm

UNITED STATES

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 September 30, 2011

¨	Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from to

Commission File Number: 0-22439

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)

140 Fourth Ave. N., Suite 500

Seattle, Washington 98109

(Address of Principal Executive Offices) (Zip Code)

(206) 404-7000

(Registrant’s Telephone Number, Including Area Code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

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

Common Stock, $1.25 par value, outstanding as of November 2, 2011: 8,829,490


PART I FINANCIAL INFORMATION

Item 1.	Financial Statements

	The following Condensed Consolidated Financial Statements are presented for Fisher Communications, Inc., and its subsidiaries.

	1. Condensed Consolidated Statements of Operations (unaudited): Three and nine months ended September 30, 2011 and 2010	3

	2. Condensed Consolidated Balance Sheets (unaudited): September 30, 2011 and December 31, 2010	4

	3. Condensed Consolidated Statements of Cash Flows (unaudited): Nine months ended September 30, 2011 and 2010	5

	4. Condensed Consolidated Statements of Comprehensive Income (unaudited): Three and nine months ended September 30, 2011 and 2010	6

	5. Notes to Condensed Consolidated Financial Statements (unaudited)	7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	20

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	29

Item 4.	Controls and Procedures	29

PART II OTHER INFORMATION

Item 1.	Legal Proceedings	30

Item 1A.	Risk Factors	30

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	30

Item 3.	Defaults Upon Senior Securities	30

Item 4.	(Removed and Reserved)	30

Item 5.	Other Information	30

Item 6.	Exhibits	31

SIGNATURES		32

EXHIBIT INDEX		33

Fisher Communications, Inc. and Subsidiaries

Condensed Consolidated Statements of Operations

(Unaudited)


	Three months ended September 30,						Nine months ended September 30,
(in thousands, except per-share amounts)	2011			2010			2011			2010
Revenue	$	39,700		$	41,831		$	117,602		$	117,227

Operating expenses
Direct operating costs		17,704			17,441			52,595			51,834
Selling, general and administrative expenses		12,642			13,720			40,809			41,340
Amortization of broadcast rights		2,449			2,953			8,324			8,886
Depreciation and amortization		2,697			3,525			8,027			10,843
Gain on sale of real estate, net		—			—			(4,089	)		—
Plaza fire reimbursements, net		(40	)		(2,919	)		(223	)		(3,319	)
Gain on asset exchange, net		—			(275	)		—			(2,057	)

Total operating expenses		35,452			34,445			105,443			107,527

Income from continuing operations		4,248			7,386			12,159			9,700
Loss on extinguishment of senior notes, net		(298	)		—			(1,356	)		(72	)
Other income, net		34			31			214			194
Interest expense		(1,572	)		(2,368	)		(5,697	)		(7,630	)

Income from continuing operations before income taxes		2,412			5,049			5,320			2,192
Provision for income taxes		893			1,785			1,978			802

Income from continuing operations, net of income taxes		1,519			3,264			3,342			1,390
Income (loss) from discontinued operations, net of income taxes		(75	)		56			(9	)		79

Net income	$	1,444		$	3,320		$	3,333		$	1,469

Net income (loss) per share:
From continuing operations	$	0.17		$	0.37		$	0.38		$	0.16
From discontinued operations		(0.01	)		0.01			—			0.01

Net income per share	$	0.16		$	0.38		$	0.38		$	0.17

Net income (loss) per share assuming dilution:
From continuing operations	$	0.17		$	0.37		$	0.38		$	0.16
From discontinued operations		(0.01	)		0.01			(0.01	)		0.01

Net income per share	$	0.16		$	0.38		$	0.37		$	0.17

Weighted average shares outstanding		8,836			8,801			8,827			8,797

Weighted average shares outstanding assuming dilution		8,900			8,845			8,898			8,837

See accompanying notes to condensed consolidated financial statements.

Fisher Communications, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(Unaudited)


	September 30, 2011			December 31, 2010
(in thousands, except share and per-share amounts)	September 30, 2011			December 31, 2010
ASSETS
Current Assets
Cash and cash equivalents	$	27,286		$	52,945
Receivables, net		28,992			30,755
Income taxes receivable		92			1,353
Deferred income taxes, net		1,649			1,649
Prepaid expenses and other		2,072			2,863
Cash surrender value of annuity contracts		—			2,397
Television broadcast rights		9,325			7,855
Current assets held for sale		23			52

Total current assets		69,439			99,869
Cash surrender value of life insurance and annuity contracts		17,077			16,499
Goodwill, net		13,293			13,293
Intangible assets, net		40,366			40,543
Other assets		6,439			7,376
Assets held for sale		611			485
Property, plant and equipment, net		140,119			142,827

Total Assets	$	287,344		$	320,892

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities
Accounts payable	$	2,686		$	4,017
Accrued payroll and related benefits		5,035			7,896
Interest payable		240			2,552
Television broadcast rights payable		8,970			7,849
Income taxes payable		1,250			—
Current portion of accrued retirement benefits		1,117			1,117
Other current liabilities		7,239			4,388
Liabilities of business held for sale		28			27

Total current liabilities		26,565			27,846
Long-term debt		66,834			101,440
Accrued retirement benefits		18,956			18,982
Deferred income taxes, net		448			417
Other liabilities		4,953			6,981

Total liabilities		117,756			155,666

Commitments and Contingencies (Note 9)

Stockholders’ Equity
Common stock, shares authorized 12,000,000, $1.25 par value; 8,829,490 and 8,790,399 issued and outstanding at September 30, 2011 and December 31, 2010, respectively		11,037			10,988
Capital in excess of par		14,195			13,273
Accumulated other comprehensive income (loss), net of income taxes:
Accumulated loss		(2,147	)		(2,176	)
Prior service cost		(71	)		(100	)
Retained earnings		146,574			143,241

Total Stockholders’ Equity		169,588			165,226

Total Liabilities and Stockholders’ Equity	$	287,344		$	320,892

See accompanying notes to condensed consolidated financial statements.

Fisher Communications, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(Unaudited)


	Nine months ended September 30,
(in thousands)	2011			2010
Operating activities
Net income	$	3,333		$	1,469
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation and amortization		8,027			10,843
Deferred income taxes		31			(135	)
Amortization of deferred financing fees		235			312
Amortization of broadcast rights		8,324			8,886
Payments for broadcast rights		(8,688	)		(9,103	)
Gain on exchange of assets, net		—			(2,057	)
Loss on extinguishment of senior notes, net		416			72
Loss on disposal of property, plant and equipment		75			215
Gain on sale of radio station		(48	)		—
Gain on sale of real estate, net		(4,089	)		—
Amortization of non-cash contract termination fee		(1,096	)		(1,096	)
Equity in operations of equity investee		188			41
Stock-based compensation		1,174			958
Change in operating assets and liabilities, net
Receivables		1,791			(1,419	)
Prepaid expenses and other		791			256
Cash surrender value of life insurance and annuity contracts		1,819			(692	)
Other assets		203			(46	)
Accounts payable, accrued payroll and related benefits and other current liabilities		(1,593	)		6,161
Interest payable		(2,312	)		(2,782	)
Income taxes receivable and payable		2,514			10,993
Accrued retirement benefits		31			45
Other liabilities		(783	)		(507	)

Net cash provided by operating activities		10,343			22,414

Investing activities
Proceeds from sale of radio station		48			—
Contribution to equity investee		(88	)		(23	)
Net cash in consolidation of equity investee		—			75
Purchase of radio stations		(113	)		—
Purchase of property, plant and equipment		(5,070	)		(8,854	)
Proceeds from sale of real estate		4,164			—

Net cash used in investing activities		(1,059	)		(8,802	)

Financing activities
Repurchase of senior notes		(34,606	)		(17,160	)
Shares settled upon vesting of stock rights		(278	)		(104	)
Payments on capital lease obligations		(134	)		(124	)
Proceeds from exercise of stock options		75			—

Net cash used in financing activities		(34,943	)		(17,388	)

Net decrease in cash and cash equivalents		(25,659	)		(3,776	)
Cash and cash equivalents, beginning of period		52,945			43,982

Cash and cash equivalents, end of period	$	27,286		$	40,206

See accompanying notes to condensed consolidated financial statements.

Fisher Communications, Inc. and Subsidiaries

Condensed Consolidated Statements of Comprehensive Income

(Unaudited)


	Three months ended September 30,						Nine months ended September 30,
(in thousands)	2011			2010			2011			2010
Net income	$	1,444		$	3,320		$	3,333		$	1,469

Other comprehensive income:

Accumulated income		15			—			44			—
Effect of income taxes		(5	)		—			(15	)		—

Prior service cost		15			15			45			45
Effect of income taxes		(6	)		(5	)		(16	)		(15	)


Other comprehensive income		19			10			58			30


Comprehensive income	$	1,463		$	3,330		$	3,391		$	1,499

See accompanying notes to condensed consolidated financial statements.

Fisher Communications, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Unaudited)

1.	Basis of Presentation

The accompanying unaudited condensed consolidated financial statements of Fisher Communications, Inc. and its wholly-owned subsidiaries (the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Accordingly, they do not include all of the information and notes required by generally accepted accounting principles for annual financial statements. In the opinion of management, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair statement have been included in the periods presented. Operating results for the three and nine months ended September 30, 2011 are not necessarily indicative of the results that may be expected for the year ending December 31, 2011, or for any other period. The balance sheet at December 31, 2010 has been derived from the audited consolidated financial statements at that date but does not include all of the information and notes required by GAAP for annual financial statements. These unaudited condensed consolidated financial statements and notes should be read in conjunction with the Company’s audited consolidated financial statements and accompanying notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2010 (“2010 Form 10-K”).

Certain reclassifications have been made to the condensed consolidated financial statements in the prior year to conform to the current year presentation.

2.	Significant Accounting Policies and Recent Accounting Pronouncements

The significant accounting policies used in preparation of the unaudited condensed consolidated financial statements are disclosed in the Company’s 2010 Form 10-K. With the exception of those discussed below, there have been no recent accounting pronouncements or changes in accounting pronouncements during the three and nine months ended September 30, 2011, as compared to the recent accounting pronouncements described in the Company’s 2010 Form 10-K, that are of significance, or potential significance, to the Company.

The Company determined its six radio stations in Great Falls, Montana met the criteria for classification as a discontinued operation because of the Company’s June 2011 definitive agreement to sell the stations to STARadio Corp. In accordance with authoritative guidance, the Company has reported the results of operations of these small-market stations as discontinued operations in the accompanying unaudited condensed consolidated financial statements. For all previously reported periods, certain amounts in the unaudited condensed consolidated financial statements have been reclassified. The assets and liabilities of the radio stations have been classified as held for sale and the net results of the operations have been reclassified from continuing operations to discontinued operations. See Note 5 to the unaudited condensed consolidated financial statements for more information.

As part of its ongoing review of property, plant and equipment asset lives, the Company determined that the asset lives of certain of its machinery and equipment categories should be increased. The increase in the lives ranged from one to ten years depending on the category. A change in depreciation method is considered a change in accounting estimate. The Company adjusted the remaining lives of existing assets effective January 1, 2011 and as a result the Company expects that future depreciation will be lower than in the prior periods. The impact of this change in estimate for the three months ended September 30, 2011 increased pre-tax income from continuing operations by approximately $815,000, increased net income by approximately $514,000 and increased diluted net income from continuing operations per share by $0.06. The impact of this change in estimate for the nine months ended September 30, 2011 increased pre-tax income from continuing operations by approximately $2.4 million, increased net income by approximately $1.5 million and increased diluted net income from continuing operations per share by $0.17.

3.	Fair Value Measurements

The Company measures certain financial assets at fair value on a recurring basis. The fair value of these financial assets was determined based on three levels of inputs, of which, the first two levels are considered observable and the last unobservable. The three levels of inputs that may be used to measure fair value are as follows:

Level 1 – Quoted prices in active markets for identical assets or liabilities.

Level 2 – Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

Assets and liabilities measured at fair value on a recurring basis consist solely of marketable securities. As of September 30, 2011 and December 31, 2010, the reported fair value of marketable securities, using Level 1 inputs, was $931,000 and $1.0 million, respectively. Marketable securities are included in other assets on the Company’s unaudited condensed consolidated balance sheets.

As of September 30, 2011 and December 31, 2010, all of the Company’s debt was at a fixed rate and totaled $66.8 million and $101.4 million, respectively. The fair market value of long-term fixed interest rate debt is subject to interest rate risk. Generally, the fair market value of fixed interest rate debt will increase as interest rates fall and decrease as interest rates rise. The estimated fair value of the Company’s long-term debt, using Level 2 inputs, at September 30, 2011 and December 31, 2010 was $67.3 million and $104.2 million, respectively. The fair value of long-term debt is based on estimates made by investment bankers based on the fair value of the Company’s fixed rate long-term debt. For fixed rate debt, interest rate changes do not impact financial position, operations or cash flows.

4.	Goodwill and Intangible Assets

The following table summarizes the carrying amount of goodwill and intangible assets (in thousands):


	September 30, 2011							December 31, 2010
	Gross carrying amount		Accumulated amortization			Net		Gross carrying amount		Accumulated amortization			Net
Goodwill (1)	$	13,293	$	—		$	13,293	$	13,293	$	—		$	13,293

Intangible assets:
Broadcast licenses (1)	$	37,430	$	—		$	37,430	$	37,430	$	—		$	37,430
Other intangible assets		285		—			285		285		—			285
Intangible assets subject to amortization (2)
Network affiliation agreement		3,560		(909	)		2,651		3,560		(732	)		2,828

Total intangible assets	$	41,275	$	(909	)	$	40,366	$	41,275	$	(732	)	$	40,543

(1)

Goodwill and broadcast licenses are considered indefinite-lived assets for which no periodic amortization is recognized. The television and radio broadcast licenses are issued by the Federal Communications Commission (“FCC”) and provide the Company with the exclusive right to utilize certain frequency spectrum to air its stations’ programming. While FCC licenses are issued for only a fixed time, renewals of FCC licenses have occurred routinely and at nominal cost. Moreover, the Company has determined that there are currently no legal, regulatory, contractual, competitive, economic or other factors that limit the useful lives of its FCC licenses.

(2)

Intangible assets subject to amortization are amortized on a straight-line basis. Total amortization expense for intangible assets subject to amortization for the three and nine months ended September 30, 2011 was $59,000 and $177,000, respectively. Total amortization expense for intangible assets subject to amortization for the three and nine months ended September 30, 2010 was $60,000 and $177,000, respectively.

The Company tests goodwill and intangible assets for impairment at least annually, as of October 1^st of each year, or whenever events indicate that impairment may exist. The Company has determined that the impairment test should be conducted at the reporting unit level, which, with respect to the broadcast operations, requires separate assessment of each of the Company’s television and radio station groups. The Company determines fair value based on valuation methodologies that include an analysis of market transactions for comparable businesses, discounted cash flows, and a review of the underlying assets of the reporting unit.

The following table presents the estimated amortization expense for the Company’s intangible assets subject to amortization for the remainder of 2011 and each of the next five years and thereafter (in thousands):


Year ending December 31,
2011	$	59
2012		236
2013		236
2014		236
2015		236
2016		236
Thereafter		1,412

	$	2,651

5.	Discontinued Operations

In June 2011, the Company entered into a definitive agreement to sell its six Great Falls, Montana radio stations (the “Montana Stations”) to STARadio Corp. (“STARadio”), which is based in Quincy, Illinois for $1.8 million, subject to certain adjustments. The Company entered into a Time Brokerage Agreement (“TBA”) whereby STARadio will provide programming and related services and will sell the advertising inventory of the Montana Stations. The TBA remains in effect until the closing of the sale or termination of the purchase and sale agreement, whichever is earlier.

In accordance with authoritative guidance the Company has reported the results of operations of the Montana Stations as discontinued operations in the accompanying unaudited condensed consolidated financial statements. For all reported periods, the Company reclassified to discontinued operations the results of the Montana Stations. The Montana Stations were previously included in the Company’s radio segment.

6.	Sale of Real Estate

In June 2011, the Company completed the sale of two real estate parcels in Seattle, Washington not essential to current operations and received $4.2 million in pre-tax net proceeds. The Company recognized a gain of $4.1 million, which is presented as a gain on the sale of real estate, net on the Company’s unaudited condensed consolidated statement of operations for the nine months ended September 30, 2011.

7.	Joint Sales Agreement

In December 2010, the Company entered into a ten year Joint Sales Agreement (“JSA”) with NPG of Idaho, Inc., a subsidiary of News Press & Gazette Company (“NPG”), which owns and operates KIFI-TV an Idaho Falls, Idaho television station. The JSA was effective January 1, 2011. Under the JSA, NPG provides certain services supporting the operation of the Company’s television station in Idaho Falls, KIDK-TV, and sells substantially all of the station’s commercial advertising. The Company pays NPG a fixed fee pursuant to the JSA, and a performance bonus based on station performance. Contemporaneously with the JSA, the Company has entered into an option agreement with NPG, whereby NPG has a conditional option to acquire KIDK-TV from the Company until January 1, 2021, effective on the expiration or termination of the indenture governing our 8.625% Senior Notes due in 2014 (“Senior Notes”). KIDK-TV is consolidated into the Company’s unaudited condensed consolidated statements because the Company has determined that it is deemed to have a controlling financial interest in KIDK-TV for financial reporting purposes as the Company does maintain ultimate control over the policies and/or operations of the station that could most significantly impact the station. Advertising revenues earned under this JSA are recorded as revenue and JSA fees and programming expenses are recorded as operating costs.

8.	Extinguishment of Senior Notes

During the three months ended September 30, 2011, the Company redeemed or repurchased $8.7 million aggregate principal amount of Senior Notes for a total consideration of $8.9 million in cash plus accrued interest of $263,000. The Company recorded a loss on extinguishment of debt of $298,000, including a charge for related unamortized debt issuance costs of approximately $98,000.

During the nine months ended September 30, 2011, the Company redeemed or repurchased $34.6 million aggregate principal amount of Senior Notes for a total consideration of $35.5 million in cash plus accrued interest of $572,000. The Company recorded a loss on extinguishment of debt of $1.4 million, including a charge for related unamortized debt issuance costs of $416,000.

During the nine months ended September 30, 2010, the Company redeemed or repurchased $17.4 million aggregate principal amount of Senior Notes for a total consideration of $17.2 million in cash plus accrued interest of $272,000. The Company recorded a net loss on extinguishment of debt of $72,000, comprised of a charge for related unamortized debt issuance costs of $272,000, partially offset by a gain on extinguishment of debt of $200,000.

9.	Television and Radio Broadcast Rights and Other Broadcast Commitments

The Company acquires television and radio broadcast rights. The impact of such contracts on the Company’s overall financial results is dependent on a number of factors, including popularity of the program, increased competition from other programming, and strength of the advertising market. It is possible that the cost of commitments for program rights may ultimately exceed direct revenue from the program. Estimates of future revenue can change significantly and, accordingly, are reviewed periodically to determine whether impairment is expected over the life of the contract.

As of September 30, 2011, the Company had commitments under various agreements of $26.1 million for future rights to broadcast television programs, rights to sell available advertising time on third party radio stations and commitments under certain network affiliate agreements.

10.

Retirement Benefits

The Company has a noncontributory supplemental retirement program for former executives of the Company. No new participants have been admitted to this program since 2001 and no current executive officers participate in the program. The program provides for vesting of benefits under certain circumstances. Funding is not required, but the Company has made investments in annuity contracts and maintains life insurance policies on the lives of the individual participants to assist in payment of retirement benefits. The Company is the owner and beneficiary of the annuity contracts and life insurance policies; accordingly, the cash value of the annuity contracts and the cash surrender value of the life insurance policies are reported on the consolidated balance sheet in the financial statements and the appreciation is included in the consolidated statement of operations. The supplemental retirement program requires continued employment or disability through the date of expected retirement. The cost of the program is accrued over the average expected future lifetime of the participants.

In June 2005, the program was amended to freeze accrual of all benefits to active participants provided under the program. The Company continues to recognize periodic pension cost related to the program, but the amount is lower as a result of the curtailment.

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


	Three months ended September 30,				Nine months ended September 30,
	2011		2010		2011		2010
Interest cost	$	250	$	254	$	750	$	762
Amortization of loss		22		10		66		30

Net periodic pension cost	$	272	$	264	$	816	$	792

The discount rate used to determine net periodic pension cost was 5.22% for both the three and nine month periods ended September 30, 2011. The discount rate used to determine net periodic pension cost was 5.57% for both the three and nine month periods ended September 30, 2010.

11.

Income per share

Net income per share is based upon the weighted average number of shares outstanding during the period. Net income per share assuming dilution is based upon the weighted average number of shares and share equivalents outstanding, including the potentially dilutive impact of stock options and restricted stock rights/units issued under the Company’s incentive plans. Common stock options and restricted stock rights/units are converted using the treasury stock method.

Basic and diluted net income per share has been computed as follows (in thousands, except per-share amounts):


	Three months ended September 30,					Nine months ended September 30
	2011			2010		2011			2010
Income from continuing operations, net of income taxes	$	1,519		$	3,264	$	3,342		$	1,390
Income (loss) from discontinued operations, net of income taxes		(75	)		56		(9	)		79

Net income	$	1,444		$	3,320	$	3,333		$	1,469

Weighted average shares outstanding		8,836			8,801		8,827			8,797
Weighted effect of dilutive options and rights		64			44		71			40

Weighted average shares outstanding assuming dilution		8,900			8,845		8,898			8,837

Net income (loss) per share:
From continuing operations	$	0.17		$	0.37	$	0.38		$	0.16
From discontinued operations		(0.01	)		0.01		—			0.01

Net income per share	$	0.16		$	0.38	$	0.38		$	0.17

Net income (loss) per share assuming dilution:
From continuing operations	$	0.17		$	0.37	$	0.38		$	0.16
From discontinued operations		(0.01	)		0.01		(0.01	)		0.01

Net income per share	$	0.16		$	0.38	$	0.37		$	0.17

For the three months ended September 30, 2011, the effect of zero restricted stock rights/units and options to purchase 204,994 shares are excluded from the calculation of weighted average shares outstanding because such rights/units and options were anti-

dilutive. For the nine months ended September 30, 2011, the effect of 53 restricted stock rights/units and options to purchase 209,706 shares are excluded from the calculation of weighted average shares outstanding because such rights/units and options were anti-dilutive.

For the three months ended September 30, 2010, the effect of 109,046 restricted stock rights/units and options to purchase 277,365 shares are excluded from the calculation of weighted average shares outstanding because such rights/units and options were anti-dilutive. For the nine months ended September 30, 2010, the effect of 95,866 restricted stock rights/units and options to purchase 270,631 shares are excluded from the calculation of weighted average shares outstanding because such rights/units and options were anti-dilutive.

12.

Stock-Based Compensation

Stock-based compensation expense for the three and nine months ended September 30, 2011 was $442,000 and $1,174,000, respectively. Stock-based compensation expense for the three and nine months ended September 30, 2010 was $355,000 and $958,000, respectively. Stock-based compensation expense is included in selling, general and administrative expenses in the Company’s unaudited condensed consolidated statements of operations.

13.

Income Taxes

The Company records an income tax provision or benefit based upon its estimated annual effective tax rate, which is estimated at 36.3% and 36.6% for the nine months ended September 30, 2011 and 2010, respectively.

The Company recognizes tax expense related to uncertain tax provisions as part of its income tax provision and recognizes interest and penalties related to uncertain tax positions in interest expense. As of September 30, 2011 and December 31, 2010, the Company had not accrued any amounts for interest or penalties related to uncertain tax positions.

The U.S. federal statute of limitations remains open for the year 2007 and onward. The IRS recently completed a field examination of the Company’s 2008 and 2009 U.S. tax returns, and the Company agreed upon and paid a final settlement. The State of California and the State of Oregon are currently conducting an examination of the Company’s 2007 and 2008 state tax returns.

In November 2011, the Company received a Proposed Auditor’s Report from the State of Oregon seeking approximately $800,000 in unpaid taxes and penalties in connection with the Company’s treatment of the proceeds from its 2007 and 2008 sales of Safeco Corporation stock. The Company intends to oppose the State of Oregon’s position. The final disposition of the proposed audit adjustments could require the Company to make additional tax payments, which could materially affect its effective tax rate.

The determination of the Company’s provision for income taxes and valuation allowance requires significant judgment, the use of estimates and the interpretation and application of complex tax laws. In assessing whether and to what extent deferred tax assets can be realized, the Company considers whether it is more likely than not that some portion or all of the deferred tax assets will be realized.

The Company assesses the likelihood of the realizability of its deferred tax assets on a quarterly basis. Consistent with prior years, the Company recorded a full valuation allowance against the Company’s state deferred tax assets, as it is more likely than not that a tax benefit for the deferred tax assets will not be recognized based upon all available evidence. As a result, the Company’s effective tax rate is not affected by changes in state rates. At September 30, 2011 and December 31, 2010, the Company has not recorded a valuation allowance on its federal deferred tax assets as management believes that it is more likely than not that the Company’s federal deferred tax assets are realizable. The amount of net deferred tax assets considered realizable, however, could be reduced in the future if the Company’s projections of future taxable income are reduced or if the Company does not perform at the levels that it is projecting. This could result in an increase in the Company’s valuation allowance for federal deferred tax assets.

14.

Segment Information

The Company reports financial data for three segments: television, radio and Fisher Plaza. The television segment includes the operations of the Company’s 20 owned and/or operated television stations (including a 50%-owned television station) and the Company’s internet business. The radio segment includes the operations of the Company’s three radio stations and one managed radio station. The Fisher Plaza segment includes the operations of a communications center located near downtown Seattle that serves as home of the Company’s Seattle television and radio operations, the Company’s corporate offices and third-party tenants. The segment data includes additional allocation of depreciation and certain operating expenses from Fisher Plaza to our television and radio segments, and certain corporate expenses are allocated to our television and radio segments on a pro-rata basis. Other includes corporate and administrative expenses that are not attributable to the operations of the television, radio or Fisher Plaza segments.

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


	Three months ended September 30,					Nine months ended September 30,
	2011			2010		2011			2010
Television	$	30,522		$	31,986	$	90,557		$	89,634
Radio		5,344			6,179		15,876			17,057
Fisher Plaza		3,853			3,666		11,361			10,659
Other		(19	)		—		(192	)		(123	)

	$	39,700		$	41,831	$	117,602		$	117,227

For the three and nine months ended September 30, 2011 intercompany sales amounted to $19,000 and $192,000, respectively, relating primarily to sales between the Company’s television and radio segments. For the three and nine months ended September 30, 2010 intercompany sales amounted to nil and $123,000, respectively, relating primarily to sales between the Company’s television and radio segments.

Income (loss) from continuing operations for each segment is as follows (in thousands):


	Three months ended September 30,						Nine months ended September 30,
	2011			2010			2011			2010
Television	$	4,417		$	4,521		$	11,261		$	9,479
Radio		1,155			1,599			2,423			2,241
Fisher Plaza		2,131			4,583			6,471			8,055
Other		(3,455	)		(3,317	)		(7,996	)		(10,075	)

	$	4,248		$	7,386		$	12,159		$	9,700

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


	September 30,		December 31,
	2011		2010
Television	$	117,591	$	141,707
Radio		13,493		14,483
Fisher Plaza		104,822		108,271
Other		50,804		55,894

		286,710		320,355
Assets held for sale		634		537

	$	287,344	$	320,892

15.

Plaza Fire Reimbursements, Net

In July 2009, an electrical fire contained within a garage level equipment room of the east building of Fisher Plaza disrupted city-supplied electrical service to that building. A third-party investigation concluded that the fire appears to have been caused by a malfunction of bus duct equipment manufactured by a third-party.

The Company recorded the Plaza fire expenses as incurred and recorded insurance reimbursements within operating results in the period the reimbursements are considered probable and certain. During the three and nine months ended September 30, 2011, the

Company recorded net reimbursements of $40,000 and $223,000, respectively, which is included in Plaza fire reimbursements, net on the Company’s unaudited condensed consolidated statement of operations. During the three and nine months ended September 30, 2010, the Company recorded net reimbursements of $2.9 million and $3.3 million, respectively. In total, the Company incurred approximately $6.8 million in cash expenditures related to the Plaza fire, comprised of remediation expenses of $3.7 million and capital expenditures of $3.1 million. To date, the Company has received total insurance reimbursements of $6.1 million, which represents all of the Company’s expected reimbursements.

16.

Sprint Nextel Asset Exchange

In 2004, the Federal Communications Commission (“FCC”) approved a spectrum allocation exchange between Sprint Nextel Corporation (“Nextel”) and public safety entities to eliminate interference caused to public safety radio licenses by Nextel’s operations.

In order to utilize this spectrum, Nextel was required to relocate broadcasters to new spectrum by replacing all analog equipment currently used by broadcasters with comparable digital equipment. The Company agreed to accept the substitute equipment provided by Nextel in all of its markets, and in turn relinquished its existing equipment back to Nextel. All replacement equipment purchases were paid for directly by Nextel. All other reasonable and necessary costs incurred by the Company in conjunction with the exchange, both internal and external, have been reimbursed by Nextel.

The Company recognized a gain of $275,000 and $2.1 million for the three and nine months ended September 30, 2010, respectively, which is included in gain on asset exchange, net on the Company’s unaudited condensed consolidated statement of operations. The gain represents the amount of the substitute equipment put into use during the quarter, including installation costs and net of assets disposed. This gain on asset exchange was not reported as a capital expenditure on the statement of cash flows as it was not a cash outflow. The Company did not recognize a gain for the three and nine months ended September 30, 2011.

At September 30, 2011, the Company had approximately $84,000 of the substitute equipment that had been received but not yet installed. The $84,000 is recorded as deferred gain in other current liabilities on the Company’s unaudited condensed consolidated balance sheet. Once the equipment is fully installed and is in use, the deferred gain will be recorded as a gain on the Company’s unaudited condensed consolidated statement of operations.

17.

Financial Information for Guarantors

At September 30, 2011, the Company had $66.8 million aggregate principal amount of Senior Notes outstanding. The Senior Notes are fully and unconditionally guaranteed, jointly and severally, on an unsecured, senior basis by the current and future material domestic subsidiaries of the Company.

Presented below are unaudited condensed consolidated statements of operations for the three and nine months ended September 30, 2011 and 2010, and unaudited condensed consolidated statements of cash flows for the nine months ended September 30, 2011 and 2010. Also presented are the unaudited condensed consolidated balance sheets as of September 30, 2011 and December 31, 2010. The unaudited condensed consolidated information is presented for the Company with its investments in consolidated subsidiaries accounted for under the equity method, the 100%-owned guarantor subsidiaries, eliminations, and the Company on a consolidated basis. The Company (issuer) information consists primarily of corporate oversight and administrative personnel and related activities, as well as certain investments.

Financial Information for Guarantors

Condensed Consolidated Statement of Operations

For the three months ended September 30, 2011

(Unaudited)


(In thousands)	Fisher Communications, Inc.			100% Owned Guarantor Subsidiaries			Eliminations			Fisher Communications, Inc. and Subsidiaries
Revenue	$	—		$	39,700		$	—		$	39,700
Operating expenses
Direct operating costs		144			17,552			8			17,704
Selling, general and administrative expenses		3,839			8,811			(8	)		12,642
Amortization of program rights		—			2,449			—			2,449
Depreciation and amortization		273			2,424			—			2,697
Plaza fire reimbursements, net		—			(40	)		—			(40	)

Total operating expenses		4,256			31,196			—			35,452

Income (loss) from continuing operations		(4,256	)		8,504			—			4,248
Loss on extinguishment of senior notes, net		(298	)		—			—			(298	)
Other income, net		59			(25	)		—			34
Equity in income of consolidated subsidiaries		5,263			—			(5,263	)		—
Interest expense		(1,560	)		(12	)		—			(1,572	)

Income (loss) from continuing operations before income taxes		(792	)		8,467			(5,263	)		2,412
Provision (benefit) for income taxes		(2,236	)		3,129			—			893

Income (loss) from continuing operations, net of income taxes		1,444			5,338			(5,263	)		1,519
Loss from discontinued operations, net of income taxes		—			(75	)		—			(75	)

Net income (loss)	$	1,444		$	5,263		$	(5,263	)	$	1,444

Financial Information for Guarantors

Condensed Consolidated Statement of Operations

For the nine months ended September 30, 2011

(Unaudited)


(In thousands)	Fisher Communications, Inc.			100% Owned Guarantor Subsidiaries			Eliminations			Fisher Communications, Inc. and Subsidiaries
Revenue	$	—		$	117,602		$	—		$	117,602
Operating expenses
Direct operating costs		417			52,158			20			52,595
Selling, general and administrative expenses		13,238			27,591			(20	)		40,809
Amortization of program rights		—			8,324			—			8,324
Depreciation and amortization		823			7,204			—			8,027
Gain on sale of real estate, net		(4,089	)		—			—			(4,089	)
Plaza fire reimbursements, net		—			(223	)		—			(223	)

Total operating expenses		10,389			95,054			—			105,443

Income (loss) from continuing operations		(10,389	)		22,548			—			12,159
Loss on extinguishment of senior notes, net		(1,356	)		—			—			(1,356	)
Other income, net		196			18			—			214
Equity in income of consolidated subsidiaries		14,143			—			(14,143	)		—
Interest expense		(5,658	)		(39	)		—			(5,697	)

Income (loss) from continuing operations before income taxes		(3,064	)		22,527			(14,143	)		5,320
Provision (benefit) for income taxes		(6,397	)		8,375			—			1,978

Income (loss) from continuing operations, net of income taxes		3,333			14,152			(14,143	)		3,342
Loss from discontinued operations, net of income taxes		—			(9	)		—			(9	)

Net income (loss)	$	3,333		$	14,143		$	(14,143	)	$	3,333

Financial Information for Guarantors

Condensed Consolidated Statement of Operations

For the three months ended September 30, 2010

(Unaudited)


(In thousands)	Fisher Communications, Inc.			100% Owned Guarantor Subsidiaries			Eliminations			Fisher Communications, Inc. and Subsidiaries
Revenue	$	—		$	41,831		$	—		$	41,831
Operating expenses
Direct operating costs		115			17,274			52			17,441
Selling, general and administrative expenses		4,967			8,805			(52	)		13,720
Amortization of program rights		—			2,953			—			2,953
Depreciation and amortization		393			3,132			—			3,525
Plaza fire reimbursements, net		—			(2,919	)		—			(2,919	)
Gain on asset exchange, net		—			(275	)		—			(275	)

Total operating expenses		5,475			28,970			—			34,445

Income (loss) from continuing operations		(5,475	)		12,861			—			7,386
Other income, net		37			(6	)		—			31
Equity in income of consolidated subsidiaries		8,342			—			(8,342	)		—
Interest expense		(2,353	)		(15	)		—			(2,368	)

Income (loss) from continuing operations before income taxes		551			12,840			(8,342	)		5,049
Provision (benefit) for income taxes		(2,769	)		4,554			—			1,785

Income (loss) from continuing operations, net of income taxes		3,320			8,286			(8,342	)		3,264
Income from discontinued operations, net of income taxes		—			56			—			56

Net income (loss)	$	3,320		$	8,342		$	(8,342	)	$	3,320

Financial Information for Guarantors

Condensed Consolidated Statement of Operations

For the nine months ended September 30, 2010

(Unaudited)


(In thousands)	Fisher Communications, Inc.			100% Owned Guarantor Subsidiaries			Eliminations			Fisher Communications, Inc. and Subsidiaries
Revenue	$	—		$	117,227		$	—		$	117,227
Operating expenses
Direct operating costs		332			51,344			158			51,834
Selling, general and administrative expenses		11,007			30,491			(158	)		41,340
Amortization of program rights		—			8,886			—			8,886
Depreciation and amortization		1,174			9,669			—			10,843
Plaza fire reimbursements, net		—			(3,319	)		—			(3,319	)
Gain on asset exchange, net		—			(2,057	)		—			(2,057	)

Total operating expenses		12,513			95,014			—			107,527

Income (loss) from continuing operations		(12,513	)		22,213			—			9,700
Loss on extinguishment of senior notes, net		(72	)		—			—			(72	)
Other income, net		233			(39	)		—			194
Equity in income of consolidated subsidiaries		14,389			—			(14,389	)		—
Interest expense		(7,581	)		(49	)		—			(7,630	)

Income (loss) from continuing operations before income taxes		(5,544	)		22,125			(14,389	)		2,192
Provision (benefit) for income taxes		(7,013	)		7,815			—			802

Income (loss) from continuing operations, net of income taxes		1,469			14,310			(14,389	)		1,390
Income from discontinued operations, net of income taxes		—			79			—			79

Net income (loss)	$	1,469		$	14,389		$	(14,389	)	$	1,469

Financial Information for Guarantors

Condensed Consolidated Balance Sheet

As of September 30, 2011

(Unaudited)


(In thousands)	Fisher Communications, Inc.			100% Owned Guarantor Subsidiaries		Eliminations			Fisher Communications, Inc. and Subsidiaries
ASSETS
Current Assets
Cash and cash equivalents	$	26,790		$	496	$	—		$	27,286
Receivables, net		—			28,992		—			28,992
Due from affiliates		(78,170	)		78,170		—			—
Income taxes receivable		—			92		—			92
Deferred income taxes		468			1,181		—			1,649
Prepaid expenses and other		708			1,364		—			2,072
Television broadcast rights		—			9,325		—			9,325
Current assets held for sale		—			23		—			23

Total current assets		(50,204	)		119,643		—			69,439
Investment in consolidated subsidiaries		275,956			—		(275,956	)		—
Cash surrender value of life insurance and annuity contracts		17,077			—		—			17,077
Goodwill, net		—			13,293		—			13,293
Intangible assets, net		—			40,366		—			40,366
Other assets		2,223			4,216		—			6,439
Assets held for sale		—			611		—			611
Property, plant and equipment, net		2,295			137,824		—			140,119

Total Assets	$	247,347		$	315,953	$	(275,956	)	$	287,344

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities
Accounts payable	$	199		$	2,487	$	—		$	2,686
Accrued payroll and related benefits		1,084			3,951		—			5,035
Interest payable		240			—		—			240
Television broadcast rights payable		—			8,970		—			8,970
Income taxes payable		(7,169	)		8,419		—			1,250
Current portion of accrued retirement benefits		1,117			—		—			1,117
Other current liabilities		820			6,419		—			7,239
Liabilities of business held for sale		—			28		—			28

Total current liabilities		(3,709	)		30,274		—			26,565
Long-term debt		66,834			—		—			66,834
Accrued retirement benefits		18,956			—		—			18,956
Deferred income taxes		(4,095	)		4,543		—			448
Other liabilities		(227	)		5,180		—			4,953

Total liabilities		77,759			39,997		—			117,756

Stockholders’ Equity
Common stock		11,037			1,131		(1,131	)		11,037
Capital in excess of par		14,195			164,233		(164,233	)		14,195
Accumulated other comprehensive income (loss), net of income taxes:
Accumulated loss		(2,147	)		—		—			(2,147	)
Prior service cost		(71	)		—		—			(71	)
Retained earnings		146,574			110,592		(110,592	)		146,574

Total Stockholders’ Equity		169,588			275,956		(275,956	)		169,588

Total Liabilities and Stockholders’ Equity	$	247,347		$	315,953	$	(275,956	)	$	287,344

Financial Information for Guarantors

Condensed Consolidated Balance Sheet

As of December 31, 2010

(Unaudited)


(In thousands)	Fisher Communications, Inc.			100% Owned Guarantor Subsidiaries			Eliminations			Fisher Communications, Inc. and Subsidiaries
ASSETS
Current Assets
Cash and cash equivalents	$	27,563		$	25,382		$	—		$	52,945
Receivables, net		—			30,755			—			30,755
Due from affiliate		(43,724	)		43,724			—			—
Income taxes receivable		16,938			(15,585	)		—			1,353
Deferred income taxes		467			1,182			—			1,649
Prepaid expenses and other		1,543			1,320			—			2,863
Cash surrender value of annuity contracts		2,397			—			—			2,397
Television broadcast rights		—			7,855			—			7,855
Current assets held for sale		—			52			—			52

Total current assets		5,184			94,685			—			99,869
Investment in consolidated subsidiaries		262,372			—			(262,372	)		—
Cash surrender value of life insurance and annuity contracts		16,499			—			—			16,499
Goodwill, net		—			13,293			—			13,293
Intangible assets, net		—			40,543			—			40,543
Other assets		2,874			4,502			—			7,376
Assets held for sale		—			485			—			485
Property, plant and equipment, net		2,265			140,562			—			142,827

Total Assets	$	289,194		$	294,070		$	(262,372	)	$	320,892

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities
Accounts payable	$	96		$	3,921		$	—		$	4,017
Payroll and related benefits		3,182			4,714			—			7,896
Interest payable		2,552			—			—			2,552
Television broadcast rights payable		—			7,849			—			7,849
Current portion of accrued retirement benefits		1,117			—			—			1,117
Other current liabilities		889			3,499			—			4,388
Liabilities of business held for sale		—			27			—			27

Total current liabilities		7,836			20,010			—			27,846
Long-term debt		101,440			—			—			101,440
Accrued retirement benefits		18,982			—			—			18,982
Deferred income taxes, net		(4,126	)		4,543			—			417
Other liabilities		(164	)		7,145			—			6,981

Total liabilities		123,968			31,698			—			155,666

Stockholders’ Equity
Common stock		10,988			1,131			(1,131	)		10,988
Capital in excess of par		13,273			164,233			(164,233	)		13,273
Accumulated other comprehensive income (loss), net of income taxes:
Accumulated loss		(2,176	)		—			—			(2,176	)
Prior service cost		(100	)		—			—			(100	)
Retained earnings		143,241			97,008			(97,008	)		143,241

Total Stockholders’ Equity		165,226			262,372			(262,372	)		165,226

Total Liabilities and Stockholders’ Equity	$	289,194		$	294,070		$	(262,372	)	$	320,892

Financial Information for Guarantors

Condensed Consolidated Statement of Cash Flows

For the nine months ended September 30, 2011

(Unaudited)


(In thousands)	Fisher Communications, Inc.			100% Owned Guarantor Subsidiaries			Eliminations			Fisher Communications, Inc. and Subsidiaries
Net cash provided by operating activities	$	5,445		$	4,898		$	—		$	10,343

Investing activities
Redemption of capital		25,138			—			(25,138	)		—
Proceeds from the sale of radio station		—			48			—			48
Contribution to equity investee		—			(88	)		—			(88	)
Purchase of radio stations		—			(113	)		—			(113	)
Purchases of property, plant and equipment		(711	)		(4,359	)		—			(5,070	)
Proceeds from the sale of real estate		4,164			—			—			4,164

Net cash provided by (used in) investing activities		28,591			(4,512	)		(25,138	)		(1,059	)

Financing activities
Redemption of capital		—			(25,138	)		25,138			—
Repurchase of senior notes		(34,606	)		—			—			(34,606	)
Shares settled upon vesting of stock rights		(278	)		—			—			(278	)
Payments on capital lease obligations		—			(134	)		—			(134	)
Proceeds from exercise of stock options		75			—			—			75

Net cash used in financing activities		(34,809	)		(25,272	)		25,138			(34,943	)

Net decrease in cash and cash equivalents		(773	)		(24,886	)		—			(25,659	)
Cash and cash equivalents, beginning of period		27,563			25,382			—			52,945

Cash and cash equivalents, end of period	$	26,790		$	496		$	—		$	27,286

Financial Information for Guarantors

Condensed Consolidated Statement of Cash Flows

For the nine months ended September 30, 2010

(Unaudited)


(In thousands)	Fisher Communications, Inc.			100% Owned Guarantor Subsidiaries			Eliminations			Fisher Communications, Inc. and Subsidiaries
Net cash provided by operating activities	$	13,990		$	8,424		$	—		$	22,414

Investing activities
Redemption of capital		10,000			—			(10,000	)		—
Contribution to equity investee		—			(23	)		—			(23	)
Net cash in consolidation of equity investee		—			75			—			75
Purchases of property, plant and equipment		(1,041	)		(7,813	)		—			(8,854	)

Net cash provided by (used in) investing activities		8,959			(7,761	)		(10,000	)		(8,802	)


Financing activities
Redemption of capital		—			(10,000	)		10,000			—
Repurchase of senior notes		(17,160	)		—			—			(17,160	)
Shares settled upon vesting of stock rights		(104	)		—			—			(104	)
Payments on capital lease obligations		—			(124	)		—			(124	)

Net cash used in financing activities		(17,264	)		(10,124	)		10,000			(17,388	)

Net increase (decrease) in cash and cash equivalents		5,685			(9,461	)		—			(3,776	)
Cash and cash equivalents, beginning of period		8,840			35,142			—			43,982

Cash and cash equivalents, end of period	$	14,525		$	25,681		$	—		$	40,206

18.

Subsequent Event

In November 2011, the Company completed the sale of its six Great Falls, Montana radio stations to STARadio Corp., for approximately $1.8 million. The Company expects to record a gain on sale in the line item “income (loss) from discontinued operations, net of income taxes” in the fourth quarter.

ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis should be read in conjunction with the unaudited condensed consolidated financial statements and related notes thereto included elsewhere in this quarterly report on Form 10-Q. Some of the statements in this quarterly report are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include all passages containing verbs such as “aims”, “anticipates”, “believes”, “estimates”, “expects”, “hopes”, “intends”, “plans”, “predicts”, “projects” or “targets” or nouns corresponding to such verbs. Forward-looking statements also include any other passages that are primarily relevant to expected future events or that can only be fully evaluated by events that will occur in the future. There are many risks and uncertainties that could cause actual results to differ materially from those predicted in our forward-looking statements, including, without limitation, those factors discussed under the caption “Risk Factors” in Item 1A of Part I of our Annual Report on Form 10-K for the fiscal year ended December 31, 2010, which was filed with the Securities and Exchange Commission on March 8, 2011. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this report. Except as required by law, 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 condition and operating results during the three and nine months ended September 30, 2011, compared with the corresponding periods in 2010.

Overview

We are an integrated media company. We own or operate 13 full power (including a 50%-owned television station) and seven low power television stations and ten owned or managed radio stations. Our television stations are located in Washington, Oregon, Idaho and California, and our radio stations are located in Washington and Montana. We also own and operate Fisher Plaza, a mixed-use commercial facility located near downtown Seattle that serves as the home of our corporate offices and our Seattle television and radio stations. We lease almost 60% of the space at Fisher Plaza to a variety of unaffiliated companies.

Our broadcasting operations receive revenue from the sale of local, regional and national advertising and, to a much lesser extent, from retransmission consent fees, tower rental and commercial production activities. Our operating results are, therefore sensitive to broad economic trends that affect the broadcasting industry in general, as well as local and regional trends, particularly those affecting the Pacific Northwest economy. The advertising revenue of our stations is generally highest in the second and fourth quarters of each year, due in part to increases in consumer advertising in the spring, and retail advertising in the period leading up to and including the holiday season. In addition, advertising revenue is generally higher during election years due to spending by political candidates and advocacy groups. This political spending typically is heaviest during the fourth quarter.

Our television revenue is significantly affected by network affiliation and the success of programming offered by those networks. Our two largest television stations, KOMO TV and KATU TV, accounted for approximately 60% percent of our television broadcasting revenue for the nine months ended September 30, 2011 and are affiliated with the ABC Television Network. We have twelve television stations which are affiliated with one of the four major networks; six of our television stations are affiliated with Univision; and the remainder of our television stations are independent or subscribe to various programming services. We have affiliation agreements with the ABC Television Network with current terms expiring in August 2014. Our affiliation agreements with the CBS Television Network generally expire in February 2016. Our affiliation agreement with FOX Television Network for KBFX-CA in Bakersfield, California, expired in June 2010. A new agreement with FOX Television Network for KBFX-CA has been executed with an initial term expiring in June 2014. The expiration of our affiliation agreement with Univision was extended from September 2011 to December 2011. We are currently negotiating the terms of a new agreement with Univision. The non-renewal of any of our major network affiliation agreements could adversely affect our business and results. Our broadcasting operations are subject to competitive pressures from traditional broadcasting sources, as well as from alternative methods of delivering information and entertainment, and these pressures may cause fluctuations in operating results.

In addition to our broadcasting operations, we own and operate Fisher Plaza, and we lease space to other companies that are attracted by the property location and infrastructure provided at this facility. As of September 30, 2011 and December 31, 2010, approximately 96% of Fisher Plaza was occupied or committed for occupancy (41% occupied by Fisher entities). Revenue and operating income from Fisher Plaza are dependent upon the general economic climate, the Seattle economic climate, the outlook of the telecommunications and technology sectors and commercial real estate conditions, including the availability of space in other competing properties.

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

Significant Developments

The following significant developments affect the comparability of our financial statements for the three and nine months ended September 30, 2011 and 2010.

Time Brokerage Agreement and Sale of Great Fall Radio Stations. In June 2011, we entered into a definitive agreement to sell our six Great Falls, Montana radio stations (the “Montana Stations”) to STARadio Corp. (“STARadio”) for $1.8 million, subject to certain adjustments. We entered into a Time Brokerage Agreement (“TBA”) whereby STARadio will provide programming and related services and will sell the advertising inventory of the Montana Stations. The TBA remains in effect until the closing of the sale or termination of the purchase and sale agreement, whichever is earlier.

In accordance with authoritative guidance we have reported the results of operations of the Montana Stations as discontinued operations in the unaudited consolidated condensed financial statements. For all reported periods, we reclassified to discontinued operations the results of the Montana Stations. The Montana Stations were previously included in our radio segment.

Sale of real estate. In June 2011, we completed the sale of two real estate parcels in Seattle, Washington not essential to our current operations and received $4.2 million in pre-tax net proceeds. We recognized a gain of $4.1 million, which is presented as a gain on the sale of real estate, net in the unaudited condensed consolidated statement of operations for the nine months ended September 30, 2011.

Joint Sales Agreement. In December 2010, we entered into a ten year Joint Sales Agreement (“JSA”) with NPG of Idaho, Inc., a subsidiary of News Press & Gazette Company (“NPG”), which owns and operates KIFI-TV, an Idaho Falls, Idaho television station. The JSA was effective January 1, 2011. Under the JSA, NPG provides certain services supporting the operation of our television station in Idaho Falls, KIDK-TV, and sells substantially all of the station’s commercial advertising. We pay NPG a fixed fee pursuant to the JSA, and a performance bonus based on station performance. Contemporaneously with the JSA, we entered into an option agreement with NPG, whereby they have a conditional option to acquire KIDK-TV from us until January 1, 2021, effective on the expiration or termination of the indenture governing our Senior Notes. KIDK-TV is consolidated into our unaudited condensed consolidated statements. We have determined that we are deemed to have a controlling financial interest in KIDK-TV for financial reporting purposes as we do maintain ultimate control over the policies and/or operations of the station that could most significantly impact the station. Advertising revenues earned under this JSA are recorded as revenue and JSA fees and programming expenses are recorded as operating costs.

ACME Agreement. In March 2010, we entered into a three year consulting and license agreement with ACME Television, LLC (“ACME”) which was effective April 1, 2010. Under the terms of the agreement we provide consulting services to ACME’s The Daily Buzz television show and we also license certain assets of the program in order to produce unique content to be distributed on both traditional broadcast and newly created digital platforms. In conjunction with the agreement, we were granted an option to purchase the ownership rights to The Daily Buzz television show until September 30, 2012. Due to the terms of the agreement and uncertainties associated with the exercise of our option agreement, The Daily Buzz television show does not meet the criteria for consolidation. Revenue earned under this agreement is recorded in revenue and programming and other expenses are recorded in operating costs.

Repurchase of Senior Notes. During the third quarter of 2011, we redeemed or repurchased $8.7 million aggregate principal amount of our 8.625% Senior Notes due in 2014 (“Senior Notes”) for a total consideration of $8.9 million in cash plus accrued interest of $263,000. We recorded a loss on extinguishment of debt of $298,000, including a charge for related unamortized debt issuance costs, of approximately $98,000.

During the nine months ended September 30, 2011, we redeemed or repurchased $34.6 million aggregate principal amount of Senior Notes for a total consideration of $35.5 million in cash plus accrued interest of $572,000. We recorded a loss on extinguishment of debt of $1.4 million, including a charge for related unamortized debt issuance costs, of approximately $416,000.

During the nine months ended September 30, 2010, we redeemed or repurchased $17.4 million aggregate principal amount of Senior Notes for a total consideration of $17.2 million in cash plus accrued interest of $272,000. We recorded a net loss on extinguishment of debt of $72,000, comprised of a charge for related unamortized debt issuance costs of $272,000, partially offset by a gain on extinguishment of debt of $200,000.

Critical Accounting Policies

Our discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The

preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates including, but not limited to, those affecting revenue, goodwill, intangibles and television and broadcast rights impairment, the useful lives of tangible and intangible assets, valuation allowances for deferred tax assets, accounts receivable and broadcast rights, stock-based compensation expense, income tax provisions and contingencies. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form our basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions, or if management made different judgments or utilized different estimates. Many of our estimates or judgments are based on anticipated future events or performance, and as such are forward-looking in nature, and are subject to many risks and uncertainties, including those discussed in our Annual Report on Form 10-K for the year ended December 31, 2010 and elsewhere in this Quarterly Report on Form 10-Q. Except as otherwise required by law, we do not undertake any obligation to update or revise this discussion to reflect any future events or circumstances.

For a detailed discussion of our critical accounting policies and estimates, please refer to our Annual Report on Form 10-K for the year ended December 31, 2010.

There have been no material changes in the application of our critical accounting policies and estimates subsequent to that report except for those discussed below. We have discussed the development and selection of these critical accounting estimates with the Audit Committee of our Board of Directors.

We determined that six radio stations in Great Falls, Montana met the criteria for classification as a discontinued operation because of our June 2011 definitive agreement to sell the stations to STARadio. In accordance with authoritative guidance, we have reported the results of operations of these small-market stations as discontinued operations in the unaudited condensed consolidated financial statements. For all previously reported periods, certain amounts in the unaudited condensed consolidated financial statements have been reclassified. The assets and liabilities of the radio stations have been classified as held for sale and the net results of the operations have been reclassified from continuing operations to discontinued operations. See Note 5 to the unaudited condensed consolidated financial statements for more information.

As part of our ongoing review of property, plant and equipment asset lives, we determined that the asset lives of certain machinery and equipment categories should be increased. The increase in the lives ranged from one to ten years depending on the category. A change in depreciation method is considered a change in accounting estimate. We adjusted the remaining lives of existing assets effective January 1, 2011 and as a result we expect that future depreciation will be lower than in the prior periods. The impact of this change in estimate for the three months ended September 30, 2011 increased our pre-tax income from continuing operations by approximately $815,000, increased our net income by approximately $514,000 and increased our diluted net income from continuing operations per share by $0.06. The impact of this change in estimate for the nine months ended September 30, 2011 increased our pre-tax income from continuing operations by approximately $2.4 million, increased our net income by approximately $1.5 million and increased our diluted net income from continuing operations per share by $0.17.

Consolidated Results of Operations

We report financial data for three reportable segments: television, radio and Fisher Plaza. The television segment includes the operations of our 20 owned and/or operated television stations (including a 50%-owned television station) and our internet business. The radio segment includes the operations of our three radio stations and one managed radio station. The Fisher Plaza segment consists of the operations of Fisher Plaza, a retail, office and communications center located near downtown Seattle that serves as the home of our Seattle-based television and radio operations, our corporate offices and third-party tenants. Fisher-owned entities that reside at Fisher Plaza do not pay rent or common area maintenance expenses. The segment data includes an allocation of depreciation and certain operating expenses from Fisher Plaza to our television and radio segments, and certain corporate expenses are allocated to our television and radio segments on a pro-rata basis. The other segment includes corporate and administrative expenses that are not attributable to the operations of the television, radio or Fisher Plaza segments.

The following table sets forth our results of operations for the three and nine months ended September 30, 2011 and 2010, including the dollar and percentage variances between such periods. Percentage variances have been omitted where they are not considered meaningful.


	Three months ended September 30,						Variance						Nine months ended September 30,						Variance
(in thousands)	2011			2010			$			%			2011			2010			$			%
Revenue
Television	$	30,522		$	31,986		$	(1,464	)		-5	%	$	90,557		$	89,634		$	923			1	%
Radio		5,344			6,179			(835	)		-14	%		15,876			17,057			(1,181	)		-7	%
Fisher Plaza		3,853			3,666			187			5	%		11,361			10,659			702			7	%
Other		(19	)		—			(19	)		—			(192	)		(123	)		(69	)		-56	%

Consolidated		39,700			41,831			(2,131	)		-5	%		117,602			117,227			375			0	%
Direct operating costs
Television		13,938			13,416			522			4	%		41,459			39,948			1,511			4	%
Radio		2,372			2,013			359			18	%		7,205			6,858			347			5	%
Fisher Plaza		917			1,148			(231	)		-20	%		2,500			3,096			(596	)		-19	%
Other		477			864			(387	)		-45	%		1,431			1,932			(501	)		-26	%

Consolidated		17,704			17,441			263			2	%		52,595			51,834			761			1	%
Selling, general and administrative expenses
Television		8,146			9,125			(979	)		-11	%		24,854			26,400			(1,546	)		-6	%
Radio		1,695			2,367			(672	)		-28	%		5,881			7,413			(1,532	)		-21	%
Fisher Plaza		82			75			7			9	%		320			395			(75	)		-19	%
Other		2,719			2,153			566			26	%		9,754			7,132			2,622			37	%

Consolidated		12,642			13,720			(1,078	)		-8	%		40,809			41,340			(531	)		-1	%
Amortization of program rights
Television		2,449			2,953			(504	)		-17	%		8,324			8,886			(562	)		-6	%

Consolidated		2,449			2,953			(504	)		-17	%		8,324			8,886			(562	)		-6	%
Depreciation and amortization
Television		1,572			2,246			(674	)		-30	%		4,659			6,978			(2,319	)		-33	%
Radio		122			200			(78	)		-39	%		367			545			(178	)		-33	%
Fisher Plaza		763			779			(16	)		-2	%		2,293			2,432			(139	)		-6	%
Other		240			300			(60	)		-20	%		708			888			(180	)		-20	%

Consolidated		2,697			3,525			(828	)		-23	%		8,027			10,843			(2,816	)		-26	%
Gain on sale of real estate, net
Other		—			—			—			—			(4,089	)		—			(4,089	)		—

Consolidated		—			—			—			—			(4,089	)		—			(4,089	)		—
Plaza fire reimbursements, net
Fisher Plaza		(40	)		(2,919	)		2,879			99	%		(223	)		(3,319	)		3,096			93	%

Consolidated		(40	)		(2,919	)		2,879			99	%		(223	)		(3,319	)		3,096			93	%
Gain on asset exchange, net
Television		—			(275	)		275			100	%		—			(2,057	)		2,057			100	%

Consolidated		—			(275	)		275			100	%		—			(2,057	)		2,057			100	%
Income (loss) from continuing operations
Television		4,417			4,521			(104	)		-2	%		11,261			9,479			1,782			19	%
Radio		1,155			1,599			(444	)		-28	%		2,423			2,241			182			8	%
Fisher Plaza		2,131			4,583			(2,452	)		-54	%		6,471			8,055			(1,584	)		-20	%
Other		(3,455	)		(3,317	)		(138	)		-4	%		(7,996	)		(10,075	)		2,079			21	%

Consolidated		4,248			7,386			(3,138	)		-42	%		12,159			9,700			2,459			25	%
Loss on extinguishment of senior notes, net		(298	)		—			(298	)		—			(1,356	)		(72	)		(1,284	)		-1783	%
Other income, net		34			31			3			10	%		214			194			20			10	%
Interest expense		(1,572	)		(2,368	)		796			34	%		(5,697	)		(7,630	)		1,933			25	%

Income from continuing operations before income taxes		2,412			5,049			(2,637	)		-52	%		5,320			2,192			3,128			143	%
Provision for income taxes		893			1,785			(892	)		-50	%		1,978			802			1,176			147	%

Income from continuing operations, net of income taxes		1,519			3,264			(1,745	)		-53	%		3,342			1,390			1,952			140	%
Income (loss) from discontinued operations, net of income taxes		(75	)		56			(131	)		-234	%		(9	)		79			(88	)		-111	%

Net income	$	1,444		$	3,320		$	(1,876	)		-57	%	$	3,333		$	1,469		$	1,864			127	%

Comparison of three and nine months ended September 30, 2011 and 2010

Revenue

The following table sets forth our main types of revenue by segment for the three and nine months ended September 30, 2011 and 2010;


	Three months ended September 30,														Nine months ended September 30,
	2011			% change			% total revenue			2010		% total revenue			2011			% change			% total revenue			2010			% total revenue
Core advertising (local and national)	$	22,775			9	%		57	%	$	20,954		50	%	$	69,578			7	%		59	%	$	65,220			56	%
Political		947			-80	%		2	%		4,651		11	%		1,301			-81	%		1	%		6,901			6	%
Internet		1,408			52	%		4	%		924		2	%		3,958			67	%		3	%		2,373			2	%
Retransmission		3,420			4	%		9	%		3,295		8	%		10,037			9	%		9	%		9,235			8	%
Trade, barter and other		1,972			-9	%		5	%		2,162		5	%		5,683			-4	%		5	%		5,905			5	%

TV		30,522			-5	%		77	%		31,986		76	%		90,557			1	%		77	%		89,634			76	%
Core advertising (local and national)		5,059			-10	%		13	%		5,635		13	%		14,951			-6	%		13	%		15,853			14	%
Political		22			-92	%		0	%		272		1	%		149			-60	%		0	%		377			0	%
Trade, barter and other		263			-3	%		1	%		272		1	%		776			-6	%		1	%		827			1	%

Radio		5,344			-14	%		13	%		6,179		15	%		15,876			-7	%		13	%		17,057			15	%
Plaza		3,853			5	%		10	%		3,666		9	%		11,361			7	%		10	%		10,659			9	%
Other		(19	)					0	%		—		0	%		(192	)		56	%		0	%		(123	)		0	%

Total Revenue	$	39,700			-5	%		100	%	$	41,831		100	%	$	117,602			0	%		100	%	$	117,227			100	%

Television. Television revenue decreased $1.5 million in the three months ended September 30, 2011 compared to the same period in 2010. This decrease was due to a decrease in political advertising of $3.7 million, offset by increases in core advertising of $1.8 million, internet advertising of $484,000 and retransmission revenue of $125,000.

Television revenue increased $923,000 in the nine months ended September 30, 2011 compared to the same period in 2010, primarily due to increases in core advertising of $4.4 million, internet advertising of $1.6 million and retransmission revenue of $802,000, offset by a decrease in political spending of $5.6 million.

Automotive -related advertising, one of our largest advertising categories, increased 3% for the three months ended September 30, 2011 compared to the same period in 2010. Professional services-related advertising increased 26% and retail increased 16%, compared to the same period in 2010.

Automotive-related advertising increased 8% for the nine months ended September 30, 2011 compared to the same period in 2010. Other advertising categories including telecommunications increased 6%, professional services increased 10% and retail increased 5% have also shown improvement compared to the same period in 2010.

Revenue from our ABC-affiliated stations decreased 7% in the three months ended September 30, 2011 and remained flat for the nine months ended September 30, 2011 compared to the same periods in 2010, primarily due to a decrease in political revenue partially offset by increases in core advertising. Revenue from our CBS-affiliated stations decreased 7% and 4% in the three and nine months ended September 30, 2011 compared to the same periods in 2010, as a result of a decline in political and national advertising, partially offset by an increase in local advertising.

Radio. Radio revenue declined by 14% and 7%, respectively, in the three and nine months ended September 30, 2011 compared to the same periods in 2010, primarily due to a decrease in core advertising as a result of a general market decline and further impacted by the format change in late 2010 at KVI and the conclusion of our ten year Joint Sales Agreement with KING FM, which was not renewed in the second quarter of 2011.

Fisher Plaza. Revenue increased 5% and 7%, respectively, in the three and nine months ended September 30, 2011 compared to the same periods in 2010, primarily due to increased rental revenue and increased fees for our telecom facilities. As of September 30, 2011, approximately 96% of Fisher Plaza was occupied or committed for occupancy (41% was occupied by Fisher entities).

Direct operating costs

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

Direct operating costs for the television segment increased $522,000 and $1.5 million, respectively, in the three and nine months ended September 30, 2011 compared to the same periods in 2010. The increase primarily reflects an increase in costs related to the continued development and expansion of our internet business.

Direct operating costs for the radio segment increased $359,000 and $347,000, respectively, in the three and nine months ended September 30, 2011 compared to the same periods in 2010. The increase was primarily due to an increase in the cost of music rights and advertising for our radio stations.

Direct operating costs decreased at Fisher Plaza $231,000 and $596,000, respectively, in the three and nine months ended September 30, 2011 compared to the same periods in 2010, primarily due to timing of planned maintenance activities.

The other category consists primarily of the reclassification and elimination of certain operating expenses between operating segments. For example, KOMO TV and our Seattle-based radio stations recognize facilities-related expenses as selling, general and administrative expenses, while Fisher Plaza records the reimbursement of these intercompany expenses as a reduction of direct operating costs.

Selling, general and administrative expenses

Selling, general and administrative expenses in our television segment decreased $979,000 and $1.5 million, respectively, in the three and nine months ended September 30, 2011 compared to the same periods in 2010 as a result of a reduction in compensation costs and a credit related to a change in our vacation policy.

The decrease of $672,000 and $1.5 million, respectively, in selling, general and administrative expenses in our radio segment in the three and nine months ended September 30, 2011 compared to the same period in 2010 was primarily due to cost savings as a result of the non-renewal of our ten year Joint Sales Agreement with KING FM, a decrease in compensation costs related to our format change in late 2010 at KVI and a credit related to a change in our vacation policy.

Selling, general and administrative expenses increased $7,000 and decreased $75,000, respectively, at Fisher Plaza in the three and nine months ended September 30, 2011 compared to the same periods in 2010. The decrease in the first nine months of September 30, 2011 compared to the same period in 2010 is due to a loss on disposal of assets that was incurred in 2010.

Other selling, general and administrative expenses increased $566,000 and $2.6 million in the three and nine months ended September 30, 2011, respectively, compared to the same periods in 2010. The increase for the three months ended September 30, 2011 was primarily due to employer contributions to the defined contribution plan and costs incurred related to the Plaza strategic review of $198,000. The increase for the nine months ended September 30, 2011 was primarily due to costs incurred as a result of the proxy contest initiated by FrontFour Capital Group of $1.6 million, employer contributions to the defined contribution plan and severance costs.

Amortization of program rights

Amortization of program rights for our television segment decreased $504,000 and $562,000, respectively, in the three and nine months ended September 30, 2011 compared to the same periods in 2010, primarily due to reduced obligations as a result of renegotiated contracts.

Depreciation and amortization

Depreciation and amortization for our television segment decreased $674,000 and $2.3 million, respectively, in the three and nine months ended September 30, 2011 compared to the same periods in 2010 primarily due to the change in fixed asset lives and significantly lower capital expenditures in 2011. Refer to Note 2 of our unaudited condensed consolidated financial statements for further discussion of the change in fixed asset lives.

Depreciation and amortization for our radio segment decreased $78,000 and $178,000, respectively, in the three and nine months ended September 30, 2011 compared to the same periods in 2010, primarily due to the change in fixed asset lives.

Depreciation and amortization for our Fisher Plaza segment decreased $16,000 and $139,000, respectively, in the three and nine months ended September 30, 2011 compared to the same periods in 2010, primarily due to certain assets reaching the end of their depreciable lives.

Other depreciation and amortization decreased $60,000 and $180,000, respectively, in the three and nine months ended September 30, 2011 compared to the same periods in 2010, primarily due to the change in fixed asset lives.

Gain on sale of real estate, net

In June 2011, we completed the sale of two real estate parcels in Seattle, Washington not essential to our current operations resulting in net proceeds of $4.2 million. We recognized a gain on sale of real estate, net, of $4.1 million for the nine months ended September 30, 2011.

Plaza fire reimbursements, net

Plaza fire reimbursements, net of $40,000 and $223,000 represent net insurance reimbursements related to the July 2009 Fisher Plaza fire received in the three and nine months ended September 30, 2011, respectively. Net insurance reimbursements of $2.9 million and $3.3 million were received in the three and nine months ended September 30, 2010, respectively.

Gain on asset exchange, net

Gain on asset exchange, net was $275,000 and $2.1 million for the three and nine months ended September 30, 2010, respectively. This amount represents the substitute equipment received from Sprint Nextel and the costs of installing the equipment. Upon installation and use of the equipment, the gain net of disposals was recorded.

Loss on extinguishment of senior notes, net

During the three months ended September 30, 2011, we redeemed or repurchased $8.7 million aggregate principal amount of Senior Notes for a total consideration of $8.9 million in cash plus accrued interest of $263,000. We recorded a loss on extinguishment of debt of $298,000, including a charge for related unamortized debt issuance costs, of approximately $98,000.

Other income, net

Other income, net, typically consists of interest and other miscellaneous income received. During the three and nine months ended September 30, 2011, other income, net, increased $3,000 and $20,000, compared to the same periods in 2010.

Interest expense

Interest expense consists primarily of interest on our Senior Notes and amortization of the related financing fees. Interest expense in the three and nine months ended September 30, 2011 decreased $796,000 and $1.9 million, respectively, from the same periods in 2010, primarily due to the decline in the outstanding principal balance following our redemption or repurchase of Senior Notes during 2010 and 2011.

Provision for income taxes

Our effective tax rate was 36.3% and 36.6% for the nine months ended September 30, 2011 and 2010, respectively. Our effective tax rate is calculated on the statutory rate of 35%, adjusted for estimated permanent differences, including non-deductible expenses, and changes in discrete or other non-recurring items. We record our income tax provision or benefit based upon our estimated annual effective tax rate.

Consistent with prior years, we recorded a full valuation allowance against our state deferred tax assets, as it is more likely than not that a tax benefit for the deferred tax assets will not be recognized based upon all available evidence. As a result, our effective tax rate is not affected by changes in state rates.

Income (loss) from discontinued operations, net of income taxes

The income (loss) from discontinued operations is related to our small market radio stations held for sale and is presented net of income taxes. See Note 5 to the unaudited condensed consolidated financial statements for more information on our discontinued operations.

Liquidity and Capital Resources

Liquidity

Our liquidity is primarily dependent upon cash and cash equivalents and net cash generated from operating activities. Our net cash generated from operating activities is sensitive to many factors, including changes in working capital and the timing and magnitude of capital expenditures. Working capital at any specific point in time is dependent upon many variables, including operating results, receivables and the timing of cash receipts and payments.

We expect cash flows from operations and our cash and cash equivalents to provide sufficient liquidity to meet our cash requirements for operations, projected working capital requirements and planned capital expenditures and commitments for at least the next 12 months. In the future, we may obtain a credit facility depending on market conditions and our current needs.

Capital Resources

Cash and cash equivalents were approximately $27.3 million as of September 30, 2011 compared to cash and cash equivalents of $52.9 million as of December 31, 2010. The decrease in cash and cash equivalents of $25.7 million was primarily due to our redemptions and repurchases of Senior Notes for a total consideration of $35.5 million during the nine months ended September 30, 2011.

As of September 30, 2011, we had outstanding $66.8 million aggregate principal amount of our Senior Notes. See “Description of Indebtedness” below. The Senior Notes Indenture contains certain restrictive and financial covenants applicable to our business, and we analyze our compliance with those covenants on an ongoing basis. We were in compliance with the debt covenant requirements at September 30, 2011 and December 31, 2010.

Net cash provided by operating activities

Net cash provided by operating activities for the nine months ended September 30, 2011 of $10.3 million consists of our net income of $3.3 million, adjusted for non-cash charges of $13.2 million, which consisted primarily of depreciation and amortization, amortization of broadcast rights, gain on sale of real estate, stock-based compensation and premium paid upon redemption or repurchase of our Senior Notes, and a $2.5 million increase in working capital, which includes $2.4 million received on an annuity contract of a retiree, offset by $8.7 million of payments for broadcast rights.

Net cash provided by operating activities for the nine months ended September 30, 2010 of $22.4 million consists of our net income of $1.5 million plus our net non-cash charges of $20 million, which consisted primarily of depreciation and amortization, amortization of broadcast rights and gain on exchange of assets and a $4 million change in working capital, of which $10.0 million related to the receipt of an income tax refund, less $9.1 million of payments for broadcast rights.

Net cash used in investing activities

During the nine months ended September 30, 2011, net cash used in investing activities of $1.1 million consisted primarily of purchases of property, plant and equipment of $5.1 million partially offset by $4.2 million in proceeds received from the sale of real estate. During the nine months ended September 30, 2010, net cash used in investing activities of $8.8 million consisted primarily of purchases of property, plant and equipment.

Net cash used in financing activities

Net cash used in financing activities for the nine months ended September 30, 2011 was $34.9 million primarily due to the redemption or repurchase of $34.6 million aggregate principal amount of Senior Notes and net share settlement for employee stock compensation tax withholding obligations of $278,000.

Net cash used in financing activities for the nine months ended September 30, 2010 was $17.4 million, primarily due to the redemption or retirement of $17.4 million aggregate principal amount of Senior Notes for total consideration of $17.2 million in cash.

Description of Indebtedness

At September 30, 2011, we had $66.8 million aggregate principal amount of our Senior Notes outstanding. The Senior Notes are fully and unconditionally guaranteed, jointly and severally, on an unsecured, senior basis by our current and future material domestic subsidiaries. Interest on the Senior Notes is payable semiannually in arrears on March 15 and September 15 of each year. The Senior Notes are due on September 15, 2014.

The indenture governing our Senior Notes contains provisions that limit our ability to distribute proceeds from asset sales. In the event that we do not use the proceeds from asset sales for qualifying purposes (as specified in the indenture) within 360 days from the date of sale, we will be required to offer to repurchase outstanding Senior Notes at par value to the extent of such unused proceeds. Under the indenture, qualifying purposes include: (i) repayment of secured indebtedness; (ii) purchase of assets used or useful in our business; (iii) certain acquisitions of other companies; (iv) expenditures used or useful in our business; and (v) certain investments in our company or our subsidiaries. We were in compliance with the debt covenant requirements at September 30, 2011 and December 31, 2010.

We are subject to various debt covenants and other restrictions under the indenture, including the requirement for early payments upon the occurrence of certain events, the violation of which could require repayment of the Senior Notes and affect our credit rating and access to other financing.

Recent Accounting Pronouncements

In August 2010, the FASB issued an exposure draft on lease accounting that would require entities to recognize assets and liabilities arising from lease contracts on the balance sheet. The proposed exposure draft states that lessees and lessors should apply a “right-of-use model” in accounting for all leases. Under the proposed model, lessees would recognize an asset for the right to use the leased asset, and a liability for the obligation to make rental payments over the lease term. The lease term is defined as the longest possible term that is “more likely than not” to occur. The accounting by a lessor would reflect its retained exposure to the risks or benefits of the underlying leased asset. A lessor would recognize an asset representing its right to receive lease payments based on the expected term of the lease. Comments on this exposure draft were due by December 15, 2010 and the final standard is expected to be issued in early 2012. We have not yet evaluated the impact, if any, this proposed standard will have on our consolidated financial statements.

In June 2011, the FASB issued an accounting standard update relating to the presentation of other comprehensive income. The accounting update eliminates the option to present components of other comprehensive income as part of the statement of stockholders’ equity. Instead, other comprehensive income must be reported in either a single continuous statement of comprehensive income (which would contain the current income statement presentation followed by the components of other comprehensive income and a total amount for comprehensive income), or in two separate, but consecutive statements. This guidance is effective for our fiscal year beginning January 1, 2012. We do not expect the guidance to impact our consolidated financial statements.

In September 2011, the FASB issued an accounting standard update on testing goodwill for impairment. The accounting update provides an entity the option to first perform a qualitative assessment to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If an entity determines that this is the case, it is required to perform the currently prescribed two-step goodwill impairment test to identify potential goodwill impairment and measure the amount of goodwill impairment loss to be recognized for that reporting unit (if any). If an entity determines the fair value of a reporting unit is less than its carrying amount, the two-step goodwill impairment test is not required. This guidance is effective for our fiscal year beginning January 1, 2012.

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The market risk in our financial instruments represents the potential loss arising from adverse changes in financial rates. We are exposed to market risk primarily in the area of interest rates. This exposure is directly related to our normal funding activities.

At September 30, 2011 and December 31, 2010, all of our debt was at a fixed rate and totaled $66.8 million and $101.4 million, respectively. The fair market value of long-term fixed interest rate debt is subject to interest rate risk. Generally, the fair market value of fixed interest rate debt will increase as interest rates fall and decrease as interest rates rise. The estimated fair value of our long-term debt at September 30, 2011 was approximately $67.3 million, which was approximately $500,000 more than its carrying value. The estimated fair value of our long-term debt at December 31, 2010 was approximately $104.2 million, which was approximately $2.8 million more than its carrying value. Market risk is estimated as the potential change in fair market value resulting from a hypothetical 10% change in interest rates and, as of September 30, 2011, amounted to $1.5 million. Fair market values are determined based on market quotes by brokers. For fixed rate debt, interest rate changes do not impact financial position, operations or cash flows.

ITEM 4.

CONTROLS AND PROCEDURES

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of our fiscal quarter ended September 30, 2011. Based on their evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of our fiscal quarter ended September 30, 2011, our disclosure controls and procedures were effective in ensuring that the information required to be disclosed by us in the reports that we file or submit under the Exchange Act is (i) recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms, and (ii) accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

We made no change in our internal control over financial reporting during the fiscal quarter ended September 30, 2011 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. We intend to continue to refine our internal control over financial reporting on an ongoing basis, as we deem appropriate with a view towards continuous improvement.

PART II

OTHER INFORMATION

ITEM 1.

LEGAL PROCEEDINGS

We are parties to various claims, legal actions and complaints in the ordinary course of our businesses. In management’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 our consolidated financial position, results of operations or cash flows.

ITEM 1A.

RISK FACTORS

There have not been any material changes to the risk factors set forth in Part 1, Item 1A in our Annual Report on Form 10-K for the year ended December 31, 2010, filed with the Securities and Exchange Commission on March 8, 2011.

ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None.

ITEM 3.

DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4.

(REMOVED AND RESERVED)

ITEM 5.

OTHER INFORMATION

None.

ITEM 6.

EXHIBITS



10.1*		Primary Television Affiliation Agreement, executed on July 28, 2011, by and between American Broadcasting Companies and Fisher Broadcasting-Seattle TV, LLC (with certain confidential information deleted therefrom) (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on August 3, 2011 (File No. 000-22439)).

10.2*		Primary Television Affiliation Agreement, executed on July 28, 2011, by and between American Broadcasting Companies and Fisher Broadcasting-Portland TV, LLC (with certain confidential information deleted therefrom) (filed as Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on August 3, 2011 (File No. 000-22439)).

31.1		Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer.

31.2		Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer.

32.1		Section 1350 Certification of Chief Executive Officer.

32.2		Section 1350 Certification of Chief Financial Officer.

101		The following financial information from Fisher Communication, Inc.’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2011, formatted in XBRL (eXtensible Business Reporting Language): (i) Condensed Consolidated Statements of Income for the three and nine months ended September 30, 2011 and 2010, (ii) Condensed Consolidated Balance Sheets at September 30, 2011, and December 31, 2010, (iii) Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2011 and 2010, and (iv) the Notes to Condensed Consolidated Financial Statements.

*	Incorporated herein by reference.

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.

Date: November 8, 2011		/s/ Hassan N. Natha
		Hassan N. Natha Senior Vice President and Chief Financial Officer (Signing on behalf of the registrant and as Principal Financial Officer)

EXHIBIT INDEX


Exhibit No.		Description

10.1*		Primary Television Affiliation Agreement, executed on July 28, 2011, by and between American Broadcasting Companies and Fisher Broadcasting-Seattle TV, LLC (with certain confidential information deleted therefrom) (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on August 3, 2011 (File No. 000-22439)).

10.2*		Primary Television Affiliation Agreement, executed on July 28, 2011, by and between American Broadcasting Companies and Fisher Broadcasting-Portland TV, LLC (with certain confidential information deleted therefrom) (filed as Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on August 3, 2011 (File No. 000-22439)).

31.1		Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer.

31.2		Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer.

32.1		Section 1350 Certification of Chief Executive Officer.

32.2		Section 1350 Certification of Chief Financial Officer.

101		The following financial information from Fisher Communication, Inc.’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2011, formatted in XBRL (eXtensible Business Reporting Language): (i) Condensed Consolidated Statements of Income for the three and nine months ended September 30, 2011 and 2010, (ii) Condensed Consolidated Balance Sheets at September 30, 2011, and December 31, 2010, (iii) Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2011 and 2010, and (iv) the Notes to Condensed Consolidated Financial Statements.

*	Incorporated herein by reference.

Large accelerated filer

Accelerated filer

Non-accelerated filer

¨ (Do not check if a smaller reporting company)

Smaller reporting company