Fisher Communications (FSCI) 10-Q 2006 Q3 Quarterly report

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington D.C. 20549

FORM 10-Q

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

For the quarterly period ended September 30, 2006

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

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)

100 Fourth Ave. N., Suite 510
Seattle, Washington 98109
(Address of Principal Executive Offices) (Zip Code)

(206) 404-7000
(Registrant’s Telephone Number, Including Area Code)

     Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yesþ Noo

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

Large accelerated filero           Accelerated filerþ           Non-accelerated filero

     Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yeso Noþ

     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 1, 2006: 8,720,091

PART I
FINANCIAL INFORMATION

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

1.	Condensed Consolidated Statements of Operations: Three and nine months ended September 30, 2006 and 2005
2.	Condensed Consolidated Balance Sheets: September 30, 2006 and December 31, 2005
3.	Condensed Consolidated Statements of Cash Flows: Nine months ended September 30, 2006 and 2005
4.	Condensed Consolidated Statements of Comprehensive Income: Three and nine months ended September 30, 2006 and 2005
5.	Notes to Condensed Consolidated Financial Statements
Item 2.	Management’s Discussion and Analysis of Financial Position and Results of Operations
Item 3.	Quantitative and Qualitative Disclosures about Market Risks
Item 4.	Controls and Procedures
PART II OTHER INFORMATION
Item 1.	Legal Proceedings
Item 1A.	Risk Factors
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds
Item 3.	Defaults upon Senior Securities
Item 4.	Submission of Matters to a Vote of Security Holders
Item 5.	Other Information
Item 6.	Exhibits
SIGNATURES
EXHIBIT INDEX
EXHIBIT 10.1
EXHIBIT 10.2
EXHIBIT 10.3
EXHIBIT 31.1
EXHIBIT 31.2
EXHIBIT 32.1
EXHIBIT 32.2

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ITEM 1 – FINANCIAL STATEMENTS

FISHER COMMUNICATIONS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

	Nine months ended						Three months ended
	September 30						September 30
	2006			2005			2006			2005
(in thousands, except per-share amounts)
(Unaudited)
Revenue	$	109,983		$	100,813		$	38,712		$	35,635
Costs and expenses
Cost of services sold (exclusive of depreciation reported separately below, amounting to $6,222, $8,599, $2,073 and $2,208, respectively)		55,411			55,792			20,677			19,877
Selling expenses		18,811			17,579			6,544			6,319
General and administrative expenses		21,328			22,519			7,145			6,493
Depreciation and amortization		7,515			10,261			2,488			2,642
		103,065			106,151			36,854			35,331
Income (loss) from operations		6,918			(5,338	)		1,858			304
Other income, net		2,814			2,658			1,047			904
Interest expense		(10,396	)		(10,241	)		(3,574	)		(3,466	)
Loss from continuing operations before income taxes		(664	)		(12,921	)		(669	)		(2,258	)
Provision (benefit) for federal and state income taxes		115			(5,235	)		115			(1,140	)
Loss from continuing operations		(779	)		(7,686	)		(784	)		(1,118	)
Income from discontinued operations, net of income taxes		675			738			113			328
Net loss	$	(104	)	$	(6,948	)	$	(671	)	$	(790	)
Income (loss) per share:
From continuing operations	$	(0.09	)	$	(0.89	)	$	(0.09	)	$	(0.13	)
From discontinued operations		0.08			0.09			0.01			0.04
Basic and diluted net loss per share	$	(0.01	)	$	(0.80	)	$	(0.08	)	$	(0.09	)
Shares used in computation of basic and diluted net loss per share		8,711			8,671			8,716			8,695

See accompanying notes to condensed consolidated financial statements.

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FISHER COMMUNICATIONS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

	September 30			December 31
	2006			2005
(in thousands, except share and per-share amounts)
(Unaudited)
ASSETS
Current Assets
Cash and cash equivalents	$	1,851		$	19,622
Receivables, net		29,988			28,166
Income taxes receivable		986			986
Deferred income taxes		923			665
Prepaid expenses		2,316			4,295
Television and radio broadcast rights		8,848			6,519
Assets held for sale		286
Total current assets		45,198			60,253
Marketable securities, at market value		177,397			170,053
Cash value of life insurance and retirement deposits		15,780			15,303
Television and radio broadcast rights		1,052			2,075
Goodwill, net		32,688			38,354
Intangible assets		32,784			1,244
Investment in equity investee		2,769			2,759
Prepaid financing fees and other assets		6,994			6,040
Assets held for sale		12,211
Property, plant and equipment, net		147,862			144,312
Total Assets	$	474,735		$	440,393
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities
Senior credit facility	$	13,000		$
Trade accounts payable		3,097			3,483
Accrued payroll and related benefits		6,889			7,355
Interest payable		563			3,809
Television and radio broadcast rights payable		7,761			5,524
Obligation under asset purchase agreement		9,800
Other current liabilities		5,170			4,520
Liabilities of businesses held for sale		610
Total current liabilities		46,890			24,691
Long-term debt		150,000			150,000
Accrued retirement benefits		19,734			19,644
Deferred income taxes		34,670			31,381
Other liabilities		8,184			5,056
Liabilities of businesses held for sale		48
Commitments and Contingencies
Stockholders’ Equity
Common stock, shares authorized 12,000,000, $1.25 par value; issued and outstanding 8,720,091 as of September 30, 2006 and 8,705,041 as of December 31, 2005		10,900			10,881
Capital in excess of par		9,331			8,590
Deferred compensation					(159	)
Accumulated other comprehensive income, net of income taxes:
Unrealized gain on marketable securities		114,373			109,600
Minimum pension liability		(2,172	)		(2,172	)
Retained earnings		82,777			82,881
Total Stockholders’ Equity		215,209			209,621
Total Liabilities and Stockholders’ Equity	$	474,735		$	440,393

See accompanying notes to condensed consolidated financial statements.

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FISHER COMMUNICATIONS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

	Nine months ended
	September 30
	2006			2005
(in thousands)
(Unaudited)
Cash flows from operating activities
Net loss	$	(104	)	$	(6,948	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities
Depreciation and amortization		7,623			10,445
Deferred income taxes		462			(6,033	)
Equity in operations of equity investees		(10	)		(20	)
Amortization of deferred loan costs		474			488
Amortization of television and radio broadcast rights		16,418			17,745
Payments for television and radio broadcast rights		(15,493	)		(16,840	)
Other		392			389
Change in operating assets and liabilities
Receivables		(1,821	)		(1,047	)
Prepaid expenses		693			616
Cash value of life insurance and retirement deposits		(477	)		(88	)
Other assets		(329	)		(14	)
Trade accounts payable, accrued payroll and related benefits, interest payable, and other current liabilities		(2,838	)		(5,486	)
Income taxes receivable and payable					1,036
Accrued retirement benefits		89			848
Other liabilities		3,184			94
Net cash provided by (used in) operating activities		8,263			(4,815	)
Cash flows from investing activities
Proceeds from collection of notes receivable					1,585
Proceeds from sale of marketable securities					247
Payments for options to purchase television stations		(1,100	)
Purchase of Seattle television station		(16,142	)
Payments toward purchase of Oregon television stations		(9,728	)
Purchase of property, plant and equipment		(12,633	)		(6,576	)
Net cash used in investing activities		(39,603	)		(4,744	)
Cash flows from financing activities
Payments under notes payable					(53	)
Borrowings under borrowing agreements		15,000
Payments on borrowing agreements		(2,000	)
Excess tax benefit from exercise of stock options		23
Payment of deferred loan costs					(87	)
Proceeds from exercise of stock options		546			3,068
Net cash provided by financing activities		13,569			2,928
Net decrease in cash and cash equivalents		(17,771	)		(6,631	)
Cash and cash equivalents, beginning of period		19,622			16,025
Cash and cash equivalents, end of period	$	1,851		$	9,394

See accompanying notes to condensed consolidated financial statements.

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FISHER COMMUNICATIONS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

	Nine months ended						Three months ended
	September 30						September 30
	2006			2005			2006			2005
(in thousands)
(Unaudited)
Net loss	$	(104	)	$	(6,948	)	$	(671	)	$	(790	)
Other comprehensive income (loss):
Unrealized gain (loss) on marketable securities		7,343			3,382			7,766			(2,912	)
Effect of income taxes		(2,570	)		(1,184	)		(2,718	)		1,020
Less: Reclassification adjustment for gains included in net loss					(106	)
		4,773			2,092			5,048			(1,892	)
Comprehensive income (loss)	$	4,669		$	(4,856	)	$	4,377		$	(2,682	)

See accompanying notes to condensed consolidated financial statements.

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FISHER COMMUNICATIONS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. Basis of Presentation

The unaudited financial information furnished herein, in the opinion of management, reflects all adjustments which are necessary to state fairly the consolidated financial position, results of operations, and cash flows of Fisher Communications, Inc. and its consolidated subsidiaries (the “Company”) as of and for the periods indicated. Any adjustments are of a normal recurring nature. Fisher Communications, Inc.’s principal wholly owned subsidiaries include Fisher Broadcasting Company and Fisher Media Services Company. The Company presumes that users of the interim financial information herein have read or have access to the Company’s audited consolidated financial statements and that the adequacy of additional disclosure needed for a fair presentation, except in regard to material contingencies or recent subsequent events, may be determined in that context. Accordingly, footnote and other disclosures which would substantially duplicate the disclosures contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2005 filed by the Company have been omitted. The financial information herein is not necessarily representative of a full year’s operations.

2. Summary of Significant Accounting Policies

The significant accounting policies used in preparation of the consolidated financial statements are disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2005. Additional significant accounting policies for 2006 are disclosed below.

          Stock-based Compensation

On January 1, 2006, the Company adopted Statement of Financial Accounting Standards (“SFAS”) No. 123 (Revised), “Share-Based Payment,” (“SFAS 123(R)”) which requires the measurement and recognition of compensation for all stock-based awards made to employees, including stock options and restricted stock rights, based on estimated fair values. SFAS 123(R) supersedes previous accounting under Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees,” (“APB 25”) for periods beginning in 2006.

The Company adopted SFAS 123(R) using the modified prospective transition method, which requires the application of the accounting standard as of January 1, 2006. In accordance with the modified prospective transition method, the Company’s condensed consolidated financial statements for periods prior to the first quarter of 2006 have not been restated to reflect this change. Stock-based compensation recognized under the new standard is based on the value of the portion of the stock-based award that vests during the period, adjusted for expected forfeitures. Stock-based compensation recognized in the Company’s condensed consolidated financial statements for the first three quarters of 2006 includes compensation cost for stock-based awards granted prior to, but not fully vested as of, December 31, 2005, and stock-based awards granted subsequent to December 31, 2005.

The compensation cost for awards granted prior to December 31, 2005 is based on the grant-date fair value estimated in accordance with the pro forma provisions of SFAS 123, while awards granted after December 31, 2005 follow the provisions of SFAS 123(R). Compensation cost for awards granted prior to December 31, 2005 is recognized on a straight-line basis over the requisite service period for each separately remaining vesting portion of the award, while compensation cost for awards granted after December 31, 2005 is recognized on a straight-line basis over the requisite service period for the entire award.

Upon adoption of SFAS 123(R), the Company continued to use the Black-Scholes option pricing model as its method of valuation for stock option awards. The Company’s determination of the fair value of stock option awards on the date of grant using an option pricing model is affected by the Company’s stock price as well as assumptions

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regarding a number of highly complex and subjective variables. These variables include, but are not limited to, the expected life of the award, the Company’s expected stock price volatility over the term of the award, forfeitures, and actual and projected exercise behaviors. Although the fair value of stock option awards is determined in accordance with SFAS 123(R), the Black-Scholes option pricing model requires the input of subjective assumptions, and other reasonable assumptions could provide differing results.

          Variable Interest Entities

The Company, generally in connection with pending acquisitions subject to FCC consent and other contingencies, may enter into Joint Sales Agreements (“JSAs”) or Local Marketing Agreements (“LMAs”) with non-owned stations. As a result of these agreements, the Company may determine that the station is a Variable Interest Entity (“VIE”) and that the Company is the primary beneficiary of the variable interest. Under the terms of these agreements, the Company makes specific periodic payments to the station’s owner-operator in exchange for the right to provide programming and/or sell advertising on a portion of the station’s broadcast time. Nevertheless, the owner-operator retains control and responsibility for the operation of the station, including responsibility over all programming broadcast on the station. Generally, the Company continues to operate the station under the agreement until the termination of such agreement, which typically occurs on consummation of the acquisition of the station. The Company also may determine that a station is a VIE in connection with other types of local service agreements entered into with stations in markets in which the Company owns and operates a station.

3. Recent Accounting Pronouncements

In September 2006, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 157,Fair Value Measurements(“SFAS 157”). SFAS 157 defines fair value, establishes a market-based framework or hierarchy for measuring fair value, and expands disclosures about fair value measurements. SFAS 157 is applicable whenever another accounting pronouncement requires or permits assets and liabilities to be measured at fair value. SFAS 157 does not expand or require any new fair value measures; however, the application of this statement may change current practice. The requirements of SFAS 157 are effective for the Company’s fiscal year beginning January 1, 2008. The Company is in the process of evaluating this guidance and therefore has not yet determined the impact that SFAS 157 will have on its financial statements upon adoption.

In September 2006, the FASB issued SFAS No. 158,Employers Accounting for Defined Benefit Pension and Other Postretirement Plans – An Amendment of FASB Statements No. 87, 88, 106 and 132R(“SFAS 158”). SFAS 158 requires employers to recognize the underfunded or overfunded status of a defined benefit postretirement plan as an asset or liability in its statement of financial position and to recognize changes in the funded status in the year in which the changes occur through accumulated other comprehensive income, which is a component of stockholders’ equity. Additionally, SFAS 158 requires employers to measure the funded status of a plan as of the date of its year-end statement of financial position, which is consistent with the Company’s present measurement date. SFAS 158 does not change the amount of actuarially determined expense that is recorded in the consolidated statement of operations. The new reporting requirements and related new footnote disclosure rules of SFAS 158 are effective for fiscal years ending after December 15, 2006. The Company does not anticipate that adoption of this Standard will materially impact its financial statements.

In September 2006, the Securities and Exchange Commission (“SEC”) issued Staff Accounting Bulletin (“SAB”) No. 108, “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements.” SAB 108 provides guidance on the consideration of effects of the prior year misstatements in quantifying current year misstatements for the purpose of a materiality assessment. The SEC staff believes registrants must quantify errors using both a balance sheet and income statement approach and evaluate whether either approach results in quantifying a misstatement that, when all relevant quantitative and qualitative factors are considered, is material. SAB 108 is effective for the first annual period ending after November 15, 2006 with early application encouraged. The Company plans to adopt SAB 108 in its fiscal fourth quarter. The Company is currently assessing the impact of SAB 108 on its consolidated financial statements.

In July 2006, the FASB issued FASB Interpretation No. 48,Accounting for Uncertainty in Income Taxes – an Interpretation of FASB Statement 109 (“FIN 48” or the “Interpretation”)relating to income taxes. This Interpretation clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with FASB Statement No. 109,Accounting for Income Taxes.The Interpretation prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The Interpretation also provides

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guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. FIN 48 is effective for fiscal years beginning after December 15, 2006. The Company expects to adopt the new requirements in the first quarter of 2007 and is currently evaluating the impact that the adoption of FIN 48 will have on its consolidated financial statements.

In February 2006, the FASB issued Statement of Financial Accounting Standard No. 155, “Accounting for Certain Hybrid Instruments,”which is an amendment of FASB Statements No. 133 and 140. The statement is effective for all financial instruments acquired or issued after the beginning of an entity’s first fiscal year that begins after September 15, 2006. The Company does not anticipate that this standard will impact its financial statements.

4. Discontinued Operations

On May 30, 2006, the Company entered into an agreement to sell its 24 small-market radio stations located in Montana and Eastern Washington. This agreement was amended in the third quarter of 2006 to reduce to 19 the number of stations being sold pursuant to the agreement, at a total sales price of $29.1 million (see Note 13). The remaining five stations continue to be held for sale. In accordance with SFAS 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” the Company has reported the results of operations of these 24 stations as discontinued operations in the accompanying financial statements. These stations were included in the Company’s radio segment.

Operational data for these stations to be sold is summarized as follows (in thousands):

	Nine months ended						Three months ended
	September 30						September 30
	2006			2005			2006			2005
	(Unaudited)
Revenue	$	7,830		$	9,070		$	1,781		$	3,169
Income from discontinued operations:
Discontinued operating activities	$	1,046		$	1,135		$	178		$	504
Income tax effect		(371	)		(397	)		(65	)		(176	)
	$	675		$	738		$	113		$	328

The following table summarizes the classes of assets held for sale as of September 30, 2006 (in thousands):

Assets held for sale:
Goodwill, net	$	8,683
Property, plant and equipment, net		2,284
Intangible assets		1,244
Other assets		286
	$	12,497

5. Acquisitions

On June 26, 2006, the Company entered into a stock purchase agreement with African-American Broadcasting of Bellevue, Inc. (“AABB”), and its owner Christopher J. Racine. Under this agreement, the Company acquired an immediate 25 percent equity interest in AABB for $4.0 million and the right and obligation to acquire the remaining equity interest in AABB pending FCC approval of the transaction and the fulfillment of certain other closing conditions by AABB. On September 26, 2006, the Company acquired the remaining 75 percent equity interest in

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AABB for $12.0 million, and consolidated the entity as of that date.

On September 22, 2006, the Company entered into a second amendment to an asset purchase agreement dated December 7, 2005 with Equity Broadcasting Corporation and entities owned or controlled by EBC (“EBC”). The amendment provided, among other things, that the Company paid an additional $6.0 million non-refundable fee in consideration for deferring the consummation of the acquisition of two television stations in Oregon (the “Oregon closing”) to November 1, 2006, to be applied toward the purchase price of $19.3 million (see Note 13). As a result of the amended terms of the agreement and JSA, the Company has determined that it is the primary beneficiary of the two Oregon stations and as a result has consolidated the assets at their fair values as of September 22, 2006.

The primary assets acquired in these acquisitions are FCC licenses and property, plant and equipment. The Company’s purchase price allocations as reflected in the accompanying condensed consolidated balance sheet are preliminary and have not been finalized. The Company does not anticipate any significant differences between current values recorded and the fair values upon finalizing the purchase price allocations.

6. Local Marketing Agreement

On July 11, 2006, the Company entered into a Local Marketing Agreement with WatchTV, Inc. to manage four of their television stations located in Eastern Washington. The stations currently provide Spanish-language programming to the Yakima-Pasco-Richland-Kennewick television market through an affiliation with Univision. Contemporaneously with the Local Marketing Agreement, Fisher entered into an Option Agreement with WatchTV, whereby Fisher has the right to acquire the stations until June 30, 2007.

7. Senior Credit Facility

On September 20, 2004, the Company entered into a six-year senior credit facility (the “Revolver”). The Revolver provides for borrowings up to $20.0 million and is secured by substantially all of the Company’s assets (excluding certain real property and the Company’s investment in shares of Safeco Corporation common stock) and by all of the voting stock of its subsidiaries. Amounts borrowed under the Revolver bear interest at variable rates based at the Company’s option, on either (1) the LIBOR rate plus a margin of 250 basis points, or (2) the higher of the prime rate plus 175 basis points or the overnight federal funds rate plus 225 basis points. At September 30, 2006, $13.0 million was outstanding under the Revolver, at an interest rate of 7.83%. No amounts were outstanding under the Revolver at December 31, 2005.

8. Television and Radio Broadcast Rights and Other Broadcast Commitments

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

At September 30, 2006, the Company had commitments under license agreements amounting to $41.1 million for future rights to broadcast television and radio programs through 2011, and $4.7 million in related fees. As these programs will not be available for broadcast until after September 30, 2006, they have been excluded from the financial statements in accordance with provisions of SFAS No. 63, “Financial Reporting by Broadcasters.” In addition, the broadcasting subsidiary has exclusive rights to sell available advertising time for a radio station in Seattle (the “Joint Sales Agreement”). Under the Joint Sales Agreement, the broadcasting subsidiary has commitments for monthly payments totaling $9.1 million through 2011.

9. Retirement Benefits

The Company has a noncontributory supplemental retirement program for key management. No new participants have been admitted to this program since 2001. The program provides for vesting of benefits under certain circumstances. Funding is not required, but generally the Company has acquired annuity contracts and life insurance on the lives of the individual participants to assist in payment of retirement benefits. The Company is the owner and beneficiary of such policies; accordingly, the cash values of the policies as well as the accrued liability are reported in the financial statements. The program requires continued employment through the date of expected retirement. The cost of the program is accrued over the participants’ remaining years of service at the Company.

In June 2005, the program was amended to freeze the accrual of all benefits to active participants provided under the program. As a result, the Company recorded a charge of $451,000 in the second quarter of 2005 as a curtailment loss associated with an unrecognized transition obligation that was required to be recognized at the effective date of

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the program amendment. The Company will continue to recognize periodic pension cost related to the program, but the amount is expected to be lower as a result of the curtailment as there is no future service cost component. The curtailment loss was calculated based on a current discount rate of 5.02% and no future compensation increases. The program amendment in June 2005 resulted in a decrease of the Company’s projected benefit obligation of $597,000. Pursuant to the provisions of SFAS No. 88, “Employers’ Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination Benefits,” this gain was netted against unrecognized actuarial losses resulting in no impact in the Company’s Consolidated Statement of Operations.

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

	Nine months ended				Three months ended
	September 30				September 30
	2006		2005		2006		2005
Service cost	$		$	80	$		$
Interest cost		779		781		259		247
Amortization of loss		116		247		39		72
Recognition of remaining transition obligation, curtailment loss				451
Net periodic pension cost	$	895	$	1,559	$	298	$	319

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

	2006			2005
Discount rate		5.48	%		5.02% - 5.74	%
Rate of compensation increase		—			0.00% - 3.00	%

10. Income (loss) Per Share

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

The weighted average number of shares outstanding for the nine and three-month periods ended September 30, 2006 was 8,710,682 and 8,716,077, respectively. The dilutive effect of 7,900 restricted stock rights and options to purchase 219,425 shares are excluded for the nine and three-month periods ended September 30, 2006, because such rights and options were anti-dilutive due to the net loss for the periods; therefore, there is no difference in the calculation between basic and diluted per-share amounts.

The weighted average number of shares outstanding for the nine and three-month periods ended September 30, 2005 was 8,670,567 and 8,694,992, respectively. The dilutive effect of 1,000 restricted stock rights and options to purchase 336,615 shares are excluded for the nine and three-month periods ended September 30, 2005, because such rights and options were anti-dilutive due to the net loss for the periods; therefore, there is no difference in the calculation between basic and diluted per-share amounts.

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11. Stock-Based Compensation

Effective January 1, 2006, the Company adopted SFAS 123(R), which establishes accounting for stock-based awards exchanged for employee services, using the modified prospective application transition method. Accordingly, stock-based compensation cost is measured at grant date, based on the fair value of the award, and recognized over the requisite service period. Previously, the Company applied APB 25 and related Interpretations, as permitted by SFAS 123.

The Company maintains two incentive plans (the “Plans”), the Amended and Restated Fisher Communications Incentive Plan of 1995 (the “1995 Plan”) and the Fisher Communications Incentive Plan of 2001 (the “2001 Plan”). The 1995 Plan provided that up to 560,000 shares of the Company’s common stock could be issued to eligible key management employees pursuant to options and rights through 2002. The Company issues new shares of common stock upon option exercise or rights vesting. As of September 30, 2006, options and rights for 191,000 shares, net of forfeitures, had been issued. No further options and rights will be issued pursuant to the 1995 Plan. The 2001 Plan provides that up to 600,000 shares of the Company’s common stock may be issued to eligible key management employees pursuant to options and rights through 2008. As of September 30, 2006, options and rights for 227,000 shares had been issued, net of forfeitures.

Stock optionsThe Plans provide that eligible key management employees may be granted options to purchase the Company’s common stock at the fair market value on the date the options are granted. The options generally vest over five years and generally expire ten years from the date of grant. Non-cash compensation expense of $290,000 ($188,000 after-tax) and $54,000 ($35,000 after-tax) related to the options was recorded for the nine and three-month periods ended September 30, 2006, respectively. During the first quarter of 2005, the vesting on certain previously granted options was accelerated as part of a separation agreement with the Company’s former chief executive officer; as a result, the Company recognized non-cash compensation expense of $303,000 ($197,000 after-tax). No compensation expense related to stock options was recorded in the second or third quarter of 2005.

Restricted stock rightsThe Plans also provide that eligible key management employees may be granted restricted stock rights which entitle such employees to receive a stated number of shares of the Company’s common stock. The rights generally vest over five years and expire upon termination of employment. Non-cash compensation expense of $59,000 ($39,000 after-tax) and $8,000 ($5,000 after-tax) related to the rights was recorded for the nine and three-month periods ended September 30, 2006, respectively. Compensation expense related to restricted stock rights of $6,000 was recorded during the nine and three-month periods ended September 30, 2005.

          Determining Fair Value Under SFAS 123(R)

Valuation and Amortization Method.The Company estimates the fair value of stock option awards granted using the Black-Scholes option valuation model. The Company amortizes the fair value of all awards on a straight-line basis over the requisite service periods, which are generally the vesting periods.

Expected Life. The expected life of awards granted represents the period of time that they are expected to be outstanding. The Company determines the expected life based primarily on historical experience with similar awards, giving consideration to the contractual terms, vesting schedules, expected exercises and post-vesting forfeitures. Stock options granted by the Company generally vest 20% per year over five years and have contractual terms of ten years.

Expected Volatility. The Company estimates the volatility of its common stock at the date of grant based on the historical volatility of its common stock. The volatility factor the Company uses in the Black-Scholes option valuation model is based on its historical stock prices over the most recent period commensurate with the estimated expected life of the award.

12

Risk-Free Interest Rate.The Company bases the risk-free interest rate used in the Black-Scholes option valuation model on the implied yield currently available on U.S. Treasury zero-coupon issues with an equivalent remaining term equal to the expected life of the award.

Expected Dividend Yield.The Company uses an expected dividend yield of zero in the Black-Scholes option valuation model, consistent with the Company’s recent experience.

Expected Forfeitures.The Company primarily uses historical data to estimate pre-vesting option forfeitures. The Company records stock-based compensation only for those awards that are expected to vest.

The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model. A summary of the weighted average assumptions and results for options granted during the periods presented is as follows:

	Nine months ended						Three months ended
	September 30						September 30
	2006			2005			2006			2005
Assumptions:
Weighted average risk-free interest rate		4.8	%		4.1	%		5.0	%
Expected dividend yield		0			0			0
Expected volatility		33	%		31	%		32	%
Expected life of options	6 years			6 years			6 years
Weighted average fair value at date of grant	$	17.43		$	19.74		$	16.77

There were no stock options granted during the three months ended September 30, 2005.

          Stock-based Compensation Under SFAS 123(R)

Stock-based compensation expense related to stock-based awards under SFAS 123(R) for the nine and three-month periods ended September 30, 2006 totalled $349,000 and $62,000, respectively, which is included in general and administrative expenses in the Company’s Condensed Consolidated Statements of Operations.

As of September 30, 2006, the Company had approximately $975,000 of total unrecognized compensation cost related to non-vested stock-based awards granted under all equity compensation plans. Total unrecognized compensation cost will be adjusted for any future changes in estimated forfeitures. The Company expects to recognize this cost over a period of approximately five years (or a weighted average period of 1.8 years). A greater percentage of the stock-based compensation expense is recognized in the first few years due to the prior method under APB 25 for which compensation cost is recognized on a straight-line basis over the requisite service period for each separately vesting portion of the award, while compensation cost for awards granted after December 31, 2005 is recognized on a straight-line basis over the requisite service period for the entire award.

13

The following table presents the impact of the Company’s adoption of SFAS 123(R) on selected line items from our condensed consolidated financial statements for the nine and three-month periods ended September 30, 2006 (in thousands, except per share amounts):

	Nine months ended			Three months ended
	September 30			September 30
Condensed consolidated statement of operations:
Decrease in income from operations	$	(290	)	$	(54	)
Increase in loss before income taxes		(290	)		(54	)
Increase in net loss		(188	)		(35	)
Increase in basic and diluted net loss per share		(0.02	)		—
Condensed consolidated statement of cash flows:
Decrease in net cash provided by operating activities		(23	)		(13	)
Increase in net cash provided by financing activities		23			13

     Stock Award Activity

A summary of stock options and restricted stock rights is as follows:

	Stock Options								Restricted Stock Rights
				Weighted		Weighted
				Average		Average						Weighted
				Exercise		Remaining	Aggregate					Average
	Number			Price Per		Contractual	Intrinsic		Number			Grant-Date
	of Shares			Share		Life	Value		of Shares			Fair Value
Outstanding at December 31, 2005		275,430		$	52.88					4,000		$	46.89
Options and stock rights granted		47,100			42.40					6,400			42.70
Options exercised/stock rights vested		(14,800	)		36.86					(250	)		49.75
Options expired		(4,000	)		37.25
Options and stock rights forfeited		(84,305	)		49.94					(2,250	)		45.05
Outstanding at September 30, 2006		219,425		$	53.20	5.4 years	$	54,285		7,900		$	43.93
Exercisable at September 30, 2006		150,600		$	56.85	3.8 years	$	39,400

The aggregate intrinsic value of options outstanding at September 30, 2006 is calculated as the difference between the market price of the underlying common stock and the exercise price of the options for the 18,500 options that had exercise prices that were lower than the $41.55 closing market price of the Company’s common stock at September 30, 2006.

The total intrinsic value of options exercised during the nine and three-month periods ended September 30, 2006 was $69,000 and $40,000 respectively, determined as of the date of exercise. The total intrinsic value of options exercised during the nine months ended September 30, 2005 was $848,000, determined as of the date of exercise. No options were exercised during the three months ended September 30, 2006. During the nine months ended September 30, 2006, 250 restricted stock rights vested, with a total fair value of $11,000. During the nine months ended September 30, 2005, 60 restricted stock rights vested, with a total fair value of $3,000. No restricted stock rights vested during the three months ended September 30, 2006 or 2005.

14

     Pro Forma Information Under SFAS 123 and APB 25

Prior to fiscal 2006, stock-based compensation plans were accounted for using the intrinsic value method prescribed in APB 25 and related interpretations. Had compensation cost for the plans been determined based on the fair value at the grant dates for awards under those plans consistent with the method of SFAS 123, the Company’s net loss and basic and diluted net loss per share would have been changed to the pro forma amounts indicated below (in thousands, except for per share data):

	Nine months ended			Three months ended
	September 30, 2005			September 30, 2005
Net loss, as reported	$	(6,948	)	$	(790	)
Add: stock-based compensation included in net loss, net of tax		197			—
Deduct: total stock-based compensation determined under fair value method for all awards, net of tax		(266	)		(85	)
Pro forma net loss	$	(7,017	)	$	(875	)
Basic and diluted net loss per share:
As reported	$	(0.80	)	$	(0.09	)
Pro forma	$	(0.81	)	$	(0.10	)

12. Segment Information

The Company reports financial data for three reportable segments: television, radio, and Fisher Plaza. The television reportable segment includes the operations of the Company’s 14 network-affiliated television stations, and a 50% interest in a company that owns a 15th television station. The radio reportable segment includes the operations of the Company’s three Seattle radio stations, while operations of the Company’s 24 small-market radio stations are reported as discontinued operations. Corporate expenses of the broadcasting business unit are allocated to the television and radio reportable segments based on a ratio that approximates historic revenue and operating expenses of the segments. The Fisher Plaza reportable segment includes the operations of a communications center located 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.

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

	Nine months					Three months
	ended September 30					ended September 30
	2006		2005			2006		2005
Television	$	73,322	$	65,883		$	24,472	$	21,687
Radio		29,986		29,049			11,814		11,958
Fisher Plaza		6,662		5,998			2,370		2,002
Corporate and eliminations		13		(117	)		56		(12	)
	$	109,983	$	100,813		$	38,712	$	35,635

15

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

	Nine months						Three months
	ended September 30						ended September 30
	2006			2005			2006			2005
Television	$	12,303		$	3,708		$	3,619		$	2,273
Radio		(539	)		(1,163	)		(332	)		(95	)
Fisher Plaza		1,602			172			513			70
Corporate and eliminations		(3,634	)		(5,397	)		(895	)		(1,040	)
	$	9,732		$	(2,680	)	$	2,905		$	1,208

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

	Nine months						Three months
	ended September 30						ended September 30
	2006			2005			2006			2005
Total segment income (loss) before interest and income taxes	$	9,732		$	(2,680	)	$	2,905		$	1,208
Interest expense, net		(10,396	)		(10,241	)		(3,574	)		(3,466	)
	$	(664	)	$	(12,921	)	$	(669	)	$	(2,258	)

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

	September 30		December 31
Total assets	2006		2005
Television	$	121,936	$	92,543
Radio		27,643		41,487
Fisher Plaza		119,768		118,611
Corporate and eliminations		192,891		187,752
Continuing operations	$	462,238	$	440,393

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

16

13. Subsequent Events

On October 31, 2006, the Company completed the sale of 18 of 24 small-market radio stations located in Montana and Eastern Washington for $26.1 million. The closing on the sale of one additional Montana station to the same buyer is currently pending FCC approval. The remaining five stations were excluded from this agreement in order to secure FCC approval, but continue to be held for sale.

On November 1, 2006, the Company finalized the Oregon closing with EBC for $19.3 million (see Note 5).

14. Financial Information for Guarantors

On September 20, 2004, the Company completed an offering of $150.0 million of 8.625% senior notes due 2014. The notes are unconditionally guaranteed, jointly and severally, on an unsecured, senior basis by the 100% owned subsidiaries of the Company.

Presented below are condensed consolidated statements of operations for the three and nine months ended September 30, 2006 and 2005, and cash flows for the nine months ended September 30, 2006 and 2005. Also presented are the condensed consolidated balance sheets as of September 30, 2006 and December 31, 2005. The condensed consolidated information is presented for the Company (issuer) with its investments 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 in marketable securities.

17

Financial Information for Guarantors
Condensed Consolidated Statement of Operations
for the nine months ended September 30, 2006

				100%						Fisher
	Fisher			Owned						Communications,
	Communications,			Guarantor						Inc. and
	Inc.			Subsidiaries			Eliminations			Subsidiaries
(in thousands)
Revenue	$			$	110,139		$	(156	)	$	109,983
Costs and expenses
Cost of services sold					54,171			1,240			55,411
Selling expenses					18,811						18,811
General and administrative expenses		6,144			16,580			(1,396	)		21,328
Depreciation and amortization		184			7,331						7,515
		6,328			96,893			(156	)		103,065
Income (loss) from operations		(6,328	)		13,246			—			6,918
Other income, net		2,551			263						2,814
Equity in income of subsidiaries		9,207						(9,207	)		—
Interest expense		(10,391	)		(5	)					(10,396	)
Income (loss) from continuing operations before income taxes		(4,961	)		13,504			(9,207	)		(664	)
Provision (benefit) for federal and state income taxes		(4,857	)		4,972						115
Income (loss) from continuing operations		(104	)		8,532			(9,207	)		(779	)
Income from discontinued operations, net of income taxes					675						675
Net income (loss)	$	(104	)	$	9,207		$	(9,207	)	$	(104	)

18

Financial Information for Guarantors
Condensed Consolidated Statement of Operations
for the nine months ended September 30, 2005

				100%					Fisher
	Fisher			Owned					Communications,
	Communications,			Guarantor					Inc. and
	Inc.			Subsidiaries		Eliminations			Subsidiaries
(in thousands)
Revenue	$			$	100,944	$	(131	)	$	100,813
Costs and expenses
Cost of services sold					54,624		1,168			55,792
Selling expenses					17,579					17,579
General and administrative expenses		7,569			16,249		(1,299	)		22,519
Depreciation and amortization		183			10,078					10,261
		7,752			98,530		(131	)		106,151
Income (loss) from operations		(7,752	)		2,414		—			(5,338	)
Other income, net		2,164			494					2,658
Equity in income of subsidiaries		2,610					(2,610	)		—
Interest expense		(10,241	)							(10,241	)
Income (loss) from continuing operations before income taxes		(13,219	)		2,908		(2,610	)		(12,921	)
Provision (benefit) for federal and state income taxes		(6,271	)		1,036					(5,235	)
Income (loss) from continuing operations		(6,948	)		1,872		(2,610	)		(7,686	)
Income from discontinued operations, net of income taxes					738					738
Net income (loss)	$	(6,948	)	$	2,610	$	(2,610	)	$	(6,948	)

19

Financial Information for Guarantors
Condensed Consolidated Statement of Operations
for the three months ended September 30, 2006

				100%					Fisher
	Fisher			Owned					Communications,
	Communications,			Guarantor					Inc. and
	Inc.			Subsidiaries		Eliminations			Subsidiaries
(in thousands)
Revenue	$			$	38,764	$	(52	)	$	38,712
Costs and expenses
Cost of services sold					20,248		429			20,677
Selling expenses					6,544					6,544
General and administrative expenses		1,921			5,705		(481	)		7,145
Depreciation and amortization		60			2,428					2,488
		1,981			34,925		(52	)		36,854
Income (loss) from operations		(1,981	)		3,839		—			1,858
Other income, net		975			72					1,047
Equity in income of subsidiaries		2,543					(2,543	)		—
Interest expense		(3,574	)							(3,574	)
Income (loss) from continuing operations before income taxes		(2,037	)		3,911		(2,543	)		(669	)
Provision (benefit) for federal and state income taxes		(1,366	)		1,481					115
Income (loss) from continuing operations		(671	)		2,430		(2,543	)		(784	)
Income from discontinued operations, net of income taxes					113					113
Net income (loss)	$	(671	)	$	2,543	$	(2,543	)	$	(671	)

20

Financial Information for Guarantors
Condensed Consolidated Statement of Operations
for the three months ended September 30, 2005

				100%					Fisher
	Fisher			Owned					Communications,
	Communications,			Guarantor					Inc. and
	Inc.			Subsidiaries		Eliminations			Subsidiaries
(in thousands)
Revenue	$			$	35,652	$	(17	)	$	35,635
Costs and expenses
Cost of services sold					19,487		390			19,877
Selling expenses					6,319					6,319
General and administrative expenses		1,883			5,017		(407	)		6,493
Depreciation and amortization		49			2,593					2,642
		1,932			33,416		(17	)		35,331
Income (loss) from operations		(1,932	)		2,236		—			304
Other income, net		759			145					904
Equity in income of subsidiaries		1,833					(1,833	)
Interest expense		(3,466	)							(3,466	)
Income (loss) from continuing operations before income taxes		(2,806	)		2,381		(1,833	)		(2,258	)
Provision (benefit) for federal and state income taxes		(2,016	)		876					(1,140	)
Income (loss) from continuing operations		(790	)		1,505		(1,833	)		(1,118	)
Income from discontinued operations, net of income taxes					328					328
Net income (loss)	$	(790	)	$	1,833	$	(1,833	)	$	(790	)

21

Financial Information for Guarantors
Condensed Consolidated Balance Sheet
as of September 30, 2006

				100%					Fisher
	Fisher			Owned					Communications,
	Communications,			Guarantor					Inc. and
	Inc.			Subsidiaries		Eliminations			Subsidiaries
(in thousands)
ASSETS
Current Assets
Cash and cash equivalents	$	1,481		$	370	$			$	1,851
Receivables, net		534			29,454					29,988
Due from affiliate		8,294					(8,294	)		—
Income taxes receivable		1,538					(552	)		986
Deferred income taxes		73			850					923
Prepaid expenses		255			2,061					2,316
Television and radio broadcast rights					8,848					8,848
Assets held for sale					286					286
Total current assets		12,175			41,869		(8,846	)		45,198
Marketable securities, at market value		176,960			437					177,397
Investment in consolidated subsidiaries		234,263					(234,263	)		—
Cash value of life insurance and retirement deposits		5,378			10,402					15,780
Television and radio broadcast rights					1,052					1,052
Goodwill, net					32,688					32,688
Intangible assets					32,784					32,784
Investments in equity investee					2,769					2,769
Prepaid financing fees and other assets		4,696			2,298					6,994
Assets held for sale					12,211					12,211
Property, plant and equipment, net		888			146,974					147,862
Total Assets	$	434,360		$	283,484	$	(243,109	)	$	474,735
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities
Senior credit facility	$	13,000		$		$			$	13,000
Trade accounts payable		795			2,302					3,097
Payable to affiliate					8,294		(8,294	)		—
Accrued payroll and related benefits		1,034			5,855					6,889
Interest payable		563								563
Television and radio broadcast rights payable					7,761					7,761
Income taxes payable					552		(552	)		—
Obligation under asset purchase agreement					9,800					9,800
Other current liabilities		1,463			3,707					5,170
Liabilities of businesses held for sale					610					610
Total current liabilities		16,855			38,881		(8,846	)		46,890
Long-term debt		150,000								150,000
Accrued retirement benefits		19,649			85					19,734
Deferred income taxes		32,582			2,088					34,670
Other liabilities		65			8,119					8,184
Liabilities of businesses held for sale					48					48
Stockholders’ Equity
Common stock		10,900			1,131		(1,131	)		10,900
Capital in excess of par		9,331			164,234		(164,234	)		9,331
Accumulated other comprehensive income, net of income taxes:
Unrealized gain on marketable securities		114,373								114,373
Minimum pension liability		(2,172	)							(2,172	)
Retained earnings		82,777			68,898		(68,898	)		82,777
Total Stockholders’ Equity		215,209			234,263		(234,263	)		215,209
Total Liabilities and Stockholders’ Equity	$	434,360		$	283,484	$	(243,109	)	$	474,735

22

Financial Information for Guarantors
Condensed Consolidated Balance Sheet
as of December 31, 2005

				100%					Fisher
	Fisher			Owned					Communications,
	Communications,			Guarantor					Inc. and
	Inc.			Subsidiaries		Eliminations			Subsidiaries
(in thousands)
ASSETS
Current Assets
Cash and cash equivalents	$	3,660		$	15,962	$			$	19,622
Receivables, net		105			28,061					28,166
Due from affiliate		6,184					(6,184	)		—
Income taxes receivable		1,538					(552	)		986
Deferred income taxes		7			658					665
Prepaid expenses		414			3,881					4,295
Television and radio broadcast rights					6,519					6,519
Total current assets		11,908			55,081		(6,736	)		60,253
Marketable securities, at market value		169,634			419					170,053
Investment in consolidated subsidiaries		225,057					(225,057	)		—
Cash value of life insurance and retirement deposits		5,115			10,188					15,303
Television and radio broadcast rights					2,075					2,075
Goodwill, net					38,354					38,354
Intangible assets					1,244					1,244
Investments in equity investee					2,759					2,759
Prepaid financing fees and and other assets		5,169			871					6,040
Property, plant and equipment, net		904			143,408					144,312
Total Assets	$	417,787		$	254,399	$	(231,793	)	$	440,393
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities
Trade accounts payable	$	693		$	2,790	$			$	3,483
Payable to affiliate					6,184		(6,184	)		—
Accrued payroll and related benefits		1,113			6,242					7,355
Interest payable		3,809								3,809
Television and radio broadcast rights payable					5,524					5,524
Income taxes payable					552		(552	)		—
Other current liabilities		2,058			2,462					4,520
Total current liabilities		7,673			23,754		(6,736	)		24,691
Long-term debt		150,000								150,000
Accrued retirement benefits		19,560			84					19,644
Deferred income taxes		30,868			513					31,381
Other liabilities		65			4,991					5,056
Stockholders’ Equity
Common stock		10,881			1,131		(1,131	)		10,881
Capital in excess of par		8,590			164,234		(164,234	)		8,590
Deferred compensation		(159	)							(159	)
Accumulated other comprehensive income, net of income taxes:
Unrealized gain on marketable securities		109,600								109,600
Minimum pension liability		(2,172	)							(2,172	)
Retained earnings		82,881			59,692		(59,692	)		82,881
Total Stockholders’ Equity		209,621			225,057		(225,057	)		209,621
Total Liabilities and Stockholders’ Equity	$	417,787		$	254,399	$	(231,793	)	$	440,393

23

Financial Information for Guarantors
Condensed Consolidated Statement of Cash Flows
for the nine months ended September 30, 2006

				100%					Fisher
	Fisher			Owned					Communications,
	Communications,			Guarantor					Inc. and
	Inc.			Subsidiaries			Eliminations		Subsidiaries
(in thousands)
Net cash provided by (used in) operating activities	$	(15,577	)	$	23,840		$		$	8,263
Cash flows from investing activities
Payment of options for purchase of television stations					(1,100	)				(1,100	)
Purchase of Seattle television station					(16,142	)				(16,142	)
Payments towards purchase of Oregon television stations					(9,728	)				(9,728	)
Purchase of property, plant and equipment		(169	)		(12,464	)				(12,633	)
Net cash used in investing activities		(169	)		(39,434	)		—		(39,603	)
Cash flows from financing activities
Borrowings under borrowing agreements		15,000								15,000
Payments on borrowing agreements		(2,000	)							(2,000	)
Excess tax benefit from exercise of stock options		23								23
Proceeds from exercise of stock options		546								546
Net cash provided by financing activities		13,569			—			—		13,569
Net decrease in cash and cash equivalents		(2,177	)		(15,594	)		—		(17,771	)
Cash and cash equivalents, beginning of period		3,660			15,962					19,622
Cash and cash equivalents, end of period	$	1,483		$	368		$	—	$	1,851

24

Financial Information for Guarantors
Condensed Consolidated Statement of Cash Flows
for the nine months ended September 30, 2005

				100%					Fisher
	Fisher			Owned					Communications,
	Communications,			Guarantor					Inc. and
	Inc.			Subsidiaries			Eliminations		Subsidiaries
(in thousands)
Net cash used in operating activities	$	(2,520	)	$	(2,295	)	$		$	(4,815	)
Cash flows from investing activities
Proceeds from collection of notes receivable					1,585					1,585
Proceeds from sale of marketable securities		73			174					247
Purchase of property, plant and equipment		(233	)		(6,343	)				(6,576	)
Net cash used in investing activities		(160	)		(4,584	)		—		(4,744	)
Cash flows from financing activities
Payments under notes payable		(44	)		(9	)				(53	)
Payment of deferred loan costs		(87	)							(87	)
Proceeds from exercise of stock options		3,068								3,068
Net cash provided by (used in) financing activities		2,937			(9	)		—		2,928
Net increase (decrease) in cash and cash equivalents		257			(6,888	)		—		(6,631	)
Cash and cash equivalents, beginning of period		1,007			15,018					16,025
Cash and cash equivalents, end of period	$	1,264		$	8,130		$	—	$	9,394

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

The following discussion and analysis should be read in conjunction with the Financial Statements and related Notes thereto included elsewhere in this quarterly report onForm 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 onForm 10-K for the fiscal year ended December 31, 2005, which was filed with the Securities and Exchange Commission on March 15, 2006 and any changes thereto disclosed on our Quarterly Report onForm 10-Q for the quarter ended March 31, 2006, which was filed with the Securities and Exchange Commission on May 9, 2006. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this report. We undertake no obligation to revise any forward-looking statements in order to reflect events or circumstances that may subsequently arise. Readers are urged to carefully review and consider the various disclosures made in this report and in our other reports filed with the Securities and Exchange Commission that attempt to advise interested parties of the risks and factors that may affect our business, prospects and results of operations. As used herein, unless the context requires otherwise, when we say “we”, “us”, “our”, or the “Company”, we are referring to Fisher Communications, Inc. and its consolidated subsidiaries.

This discussion is intended to provide an analysis of significant trends, if any, and material changes in our financial position and operating results of our business units during the three and nine-month periods ended September 30, 2006, compared with the corresponding periods in 2005.

We are an integrated media company. We own and operate 14 network-affiliated television stations and nine radio stations. This station count includes the two Oregon television stations purchased in November 2006, and excludes the 18 small-market radio stations sold in October 2006, as further discussed below. We also own a 50% interest in a company that owns a 15th television station. Our television and radio stations are located in Washington, Oregon, Idaho, and Montana. We also own and operate Fisher Plaza, a communications facility located near downtown Seattle that serves as the home for our corporate offices and our Seattle television and radio stations. We also own approximately 3.0 million shares of common stock of Safeco Corporation, a publicly traded insurance company.

Our broadcasting operations receive revenue from the sale of local, regional, and national advertising and, to a much lesser extent, from network compensation, satellite and fiber transmission services, satellite retransmission, tower rental, and commercial production activities. Our operating results are therefore sensitive to broad economic trends that affect the broadcasting industry in general, as well as local and regional trends, such as those in the Northwest economy. Excluding revenue derived from seasonal sports rights, 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 national 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, representing approximately three-fourths of our television revenue, are affiliated with ABC. We have three Univision-affiliated television stations and two Telefutura-affiliated television stations, and the remaining eight television stations (including 50%-owned KPIC TV) are affiliated with CBS. 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.

On November 1, 2006, the Company finalized the purchase of two Oregon television stations for $19.3 million. This transaction was initially announced in December 2005 and included the purchase of two Idaho TV stations,

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which was finalized in May 2006. A second amendment to this purchase agreement in September 2006 included a one-year option to purchase one to three additional television stations in the Northwest.

On October 31, 2006, the Company completed the sale of 18 of 24 small-market radio stations located in Montana and Eastern Washington for $26.1 million. The closing on the sale of one additional Montana station to the same buyer is currently pending FCC approval. The remaining five stations were excluded from this agreement in order to secure FCC approval, but continue to be held for sale. The 24 station group is treated as discontinued operations in the accompanying financial data.

In September 2006, the Company completed a stock purchase of African-American Broadcasting of Bellevue, Inc. (“AABB”), with its owner Christopher J. Racine. Under this agreement, the Company acquired 100 percent equity interest in AABB for $16.0 million, which was consolidated as of September 26, 2006.

In July 2006, the Company entered into a Local Marketing Agreement (“LMA”) with WatchTV, Inc. to manage four of their television stations located in Eastern Washington. The stations currently provide Spanish-language programming to the Yakima-Pasco-Richland-Kennewick television market through an affiliation with Univision. Contemporaneously with the LMA, the Company entered into an option agreement with WatchTV, whereby the Company has the right to acquire the stations until June 30, 2007.

In May 2002, we entered into a radio rights agreement (the “Rights Agreement”) to broadcast Seattle Mariners baseball games on KOMO AM for the 2003 through 2008 baseball seasons. The impact of the Rights Agreement is greater during periods that include the broadcast of Mariners baseball games; therefore, the impact on the first and fourth quarters of each year is less than what is expected for the second and third quarters of the calendar year. We also changed to an all-news format for KOMO AM in September 2002. These changes have led to improved ratings for KOMO AM in the Seattle market over the past few years. Nevertheless, the success of this programming is dependent, in part, on factors beyond our control, such as the competitiveness of the Seattle Mariners and the successful marketing of the team.

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 the infrastructure provided at this facility. Fisher Plaza was first opened for occupancy in May 2000, and the second phase of the project was opened for occupancy in the summer of 2003. As of September 30, 2006, approximately 93% of Fisher Plaza was occupied or committed for occupancy (42% was occupied by Fisher entities), compared to 91% occupied or committed for occupancy at December 31, 2005 and 90% at September 30, 2005. 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 real estate conditions, including the availability of space in other competing properties.

On September 20, 2004 we completed an offering of $150.0 million of 8.625% senior notes due 2014 and used the net cash proceeds to retire our previous debt facilities and terminate the forward sales contract covering shares of our investment in Safeco Corporation. The notes are unconditionally guaranteed, jointly and severally, on an unsecured, senior basis by the current and future material domestic subsidiaries of the Company. Interest on the notes is payable semiannually in arrears on March 15 and September 15 of each year.

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.”

CRITICAL ACCOUNTING POLICIES

The SEC has defined a company’s critical accounting policies as the ones that are most important to the portrayal of the company’s financial condition and results of operations, and which require the company to make its most difficult and subjective judgments, often as a result of the need to make estimates of matters that are inherently uncertain. Our critical accounting policies and estimates include the estimates used in determining the recoverability of goodwill and other indefinite-lived intangible assets, the value of television and radio broadcast rights, the cost of

27

pension programs, the amount of tax accruals and the amount of the allowance for doubtful accounts. For a detailed discussion of our critical accounting policies and estimates, please refer to our Annual Report on Form 10-K for the year ended December 31, 2005. There have been no material changes in the application of our critical accounting policies and estimates subsequent to that report. We have discussed the development and selection of these critical accounting estimates with the Audit Committee of our board of directors.

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.

CONSOLIDATED RESULTS OF OPERATIONS

We report financial data for three reportable segments: television, radio and Fisher Plaza. The television reportable segment includes the operations of the Company’s 14 network-affiliated television stations, and a 50% interest in a company that owns a 15th television station. The radio reportable segment includes the operations of the Company’s three Seattle radio stations, while operations of the Company’s 24 small-market radio stations are reported as discontinued operations. Corporate expenses of the broadcasting business unit are allocated to the television and radio reportable segments based on a ratio that approximates historic revenue and operating expenses of the segments. The Fisher Plaza reportable segment consists of the operations of Fisher Plaza. Fisher-owned entities that reside at Fisher Plaza do not pay rent; however, these entities do pay common-area maintenance expenses. The segmental data includes additional allocation of depreciation and certain operating expenses from Fisher Plaza to the Seattle-based television and radio operations.

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

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	Nine months												Three months
(dollars in thousands)	ended September 30,						Variance						ended September 30,						Variance
(Unaudited)	2006			2005			$			%			2006			2005			$			%
Revenue
Television	$	73,322		$	65,883		$	7,439			11.3	%	$	24,472		$	21,687		$	2,785			12.8	%
Radio		29,986			29,049			937			3.2	%		11,814			11,958			(144	)		-1.2	%
Fisher Plaza		6,662			5,998			664			11.1	%		2,370			2,002			368			18.4	%
Corporate and eliminations		13			(117	)		130						56			(12	)		68
Consolidated		109,983			100,813			9,170			9.1	%		38,712			35,635			3,077			8.6	%
Cost of services sold
Television		33,993			34,483			(490	)		-1.4	%		11,741			11,076			665			6.0	%
Radio		17,829			18,136			(307	)		-1.7	%		7,587			7,696			(109	)		-1.4	%
Fisher Plaza		2,349			2,003			346			17.3	%		920			715			205			28.7	%
Corporate and eliminations		1,240			1,170			70						429			390			39
Consolidated		55,411			55,792			(381	)		-0.7	%		20,677			19,877			800			4.0	%
Selling expenses
Television		9,861			9,024			837			9.3	%		3,276			3,091			185			6.0	%
Radio		8,800			8,235			565			6.9	%		3,219			3,121			98			3.1	%
Fisher Plaza		150			320			(170	)		-53.1	%		49			107			(58	)		-54.2	%
Consolidated		18,811			17,579			1,232			7.0	%		6,544			6,319			225			3.6	%
General and administrative expenses
Television		12,977			12,445			532			4.3	%		4,453			3,808			645			16.9	%
Radio		3,318			3,047			271			8.9	%		1,141			968			173			17.9	%
Fisher Plaza		241			687			(446	)		-64.9	%		95			292			(197	)		-67.5	%
Corporate and eliminations		4,792			6,340			(1,548	)		-24.4	%		1,456			1,425			31			2.2	%
Consolidated		21,328			22,519			(1,191	)		-5.3	%		7,145			6,493			652			10.0	%
Depreciation and amortization
Television		4,361			6,397			(2,036	)		-31.8	%		1,426			1,489			(63	)		-4.2	%
Radio		649			879			(230	)		-26.2	%		207			284			(77	)		-27.1	%
Fisher Plaza		2,321			2,800			(479	)		-17.1	%		795			819			(24	)		-2.9	%
Corporate and eliminations		184			185			(1	)		-0.5	%		60			50			10			20.0	%
Consolidated		7,515			10,261			(2,746	)		-26.8	%		2,488			2,642			(154	)		-5.8	%
Income (loss) from operations
Television		12,130			3,534			8,596						3,577			2,223			1,354
Radio		(610	)		(1,248	)		638						(340	)		(111	)		(229	)
Fisher Plaza		1,601			188			1,413						511			69			442
Corporate and eliminations		(6,203	)		(7,812	)		1,609						(1,890	)		(1,877	)		(13	)
Consolidated		6,918			(5,338	)		12,256						1,858			304			1,554
Other income, net		2,814			2,658			156						1,047			904			143
Interest expense		(10,396	)		(10,241	)		(155	)					(3,574	)		(3,466	)		(108	)
Loss from continuing operations before income taxes		(664	)		(12,921	)		12,257						(669	)		(2,258	)		1,589
Provision (benefit) for federal and state income taxes		115			(5,235	)		5,350						115			(1,140	)		1,255
Loss from continuing operations		(779	)		(7,686	)		6,907						(784	)		(1,118	)		334
Income from discontinued operations, net of income taxes		675			738			(63	)					113			328			(215	)
Net loss	$	(104	)	$	(6,948	)	$	6,844					$	(671	)	$	(790	)	$	119

29

Comparison of Fiscal Nine and Three-Month Periods Ended September 30, 2006, and September 30, 2005

Revenue

Television revenue increased in the three and nine-month periods ended September 30, 2006 compared to the same periods in 2005, primarily due to improved national and local advertising in most of our markets as well as increased political advertising in certain markets. The increase was led by improvements at our two ABC-affiliated stations. Total revenue for our Seattle and Portland television stations increased 13.6% and 12.9%, respectively, in the first nine months of 2006 as compared to the same period in 2005. Revenue from the remaining television stations increased slightly in the first nine months of 2006 as compared to the like period in 2005. In May 2005, we signed agreements with ABC to renew that network’s affiliation at KOMO TV in Seattle and KATU TV in Portland through August 2009. In January 2006, we also renewed affiliation agreements with CBS through February 2016. The terms of the renewal include decreasing network compensation, and we are recognizing network compensation revenue on a straight-line basis over the term of the agreements. Television network compensation revenue decreased to $722,000 in the first nine months of 2006, compared to $1.5 million in the same period of 2005.

Radio revenue increased in the nine-month period ended September 30, 2006, as compared to the same period in 2005, primarily as a result of increased local revenue at our Seattle stations. Excluding revenue specifically attributable to Seattle Radio’s agreement with the Seattle Mariners to broadcast baseball games, total radio revenue increased 4.7% in the first nine months of 2006, compared to the first nine months of 2005. We attribute the increase to improved ratings and a more aggressive sales strategy. Radio revenue decreased slightly in the three-month period ended September 30, 2006, as compared to the same period in 2005, primarily as a result of decreased revenue during broadcasts of the Mariner’s baseball games. Revenue from our small-market radio operations has been included in the discontinued operations category due to the pending sale of those stations announced in May 2006. The sale of 18 of the 24 small-market radio stations was completed on October 31, 2006, with the sale of one additional station to the same buyer currently pending FCC approval. The remaining five stations continue to be held for sale.

Fisher Plaza first opened in May of 2000, and the second phase of the project was open for occupancy in the summer of 2003. The increase in revenue in the three and nine-month periods ended September 30, 2006, as compared to the same periods of 2005, was due primarily to increased rents and service fees.

Cost of services sold

The cost of services sold consists primarily of costs to acquire, produce, and promote broadcast programming for the television and radio segments, and costs to operate Fisher Plaza. Many of these costs are relatively fixed in nature and do not necessarily vary on a proportional basis with revenue. The decrease in the television segment cost of services sold in the nine-month period ended September 30, 2006, as compared to the same period in 2005, is primarily the result of lower syndicated programming costs. In particular, the nine months of 2005 included syndicated programming costs for a television program that was cancelled later in 2005; 2006 replacement programming was at a lower cost. The increase in the television segment cost of services sold in the three-month period ended September 30, 2006, as compared to the same quarter of 2005, is primarily the result of investments in our news product at certain stations and start up costs related to our Spanish-language operations.

Cost of services sold at our radio segment in the three and nine-months of 2006 is similar to the comparable periods in 2005. Expenses fluctuate seasonally consistent with the effect of the Seattle Mariners programming.

The increase in cost of services sold at Fisher Plaza in the three and nine-months of 2006 over the same 2005 periods was primarily attributable to the increased costs to provide services at a higher third-party tenant occupancy level, for which expense reimbursements are classified as revenue.

The corporate and eliminations category consists primarily of the reclassification and elimination of certain operating expenses between operating segments. For example, KOMO TV and Seattle Radio recognize facilities-

30

related expenses as general and administrative, while Fisher Plaza records the reimbursement of these intercompany expenses as a reduction of cost of services sold.

Selling expenses

The increase in selling expenses in the television segment in the three and nine-month periods ended September 30, 2006, as compared to the same periods in 2005, was due primarily to increased commission-based expense at our television stations. The increase in selling expenses in the radio segment in the three and nine-month periods ended September 30, 2006, as compared to the same periods in 2005, was also due primarily to increased commission expense as a result of increased local revenue.

Decreased selling expense at Fisher Plaza for the three and nine-month periods ended September 30, 2006, as compared to the same periods in 2005, was due primarily to reduced marketing efforts in 2006 as the property was becoming substantially occupied.

General and administrative expenses

The television segment had increased general and administrative costs during the three and nine-month periods ended September 30, 2006, as compared to the corresponding 2005 periods primarily due to station-related severance costs incurred during the third quarter of 2006. The radio segment had increased general and administrative costs during the three and nine-month periods ended September 30, 2006, as compared to the corresponding 2005 periods primarily due to higher employment-related costs.

Decreased general and administrative expense at Fisher Plaza for the three and nine-month periods ended September 30, 2006, as compared to the corresponding 2005 periods, was due primarily to lower required administration and headcount levels due to management’s centralization of such functions to the corporate group in mid 2005.

The corporate group incurred lower general and administrative expenses in the first nine months of 2006, as compared to the same period of 2005, due primarily to reduced pension-related expense, decreased Sarbanes-Oxley related audit fees, and decreased severance-related expenses. In the first quarter of 2005, severance-related expense totaling approximately $1.0 million was recognized for the Company’s former chief executive officer. During the second quarter of 2006, approximately $300,000 of severance-related expense was recognized for an executive officer. As 2006 is the third year of compliance with the Sarbanes-Oxley Act of 2002, related expenses have been significantly reduced from prior year levels. Lower pension-related costs have been recognized during 2006 due to the curtailment of a supplemental employee retirement plan in the second quarter of 2005.

Depreciation

Depreciation for the television, radio, and Plaza segments declined in the three and nine-month periods ended September 30, 2006, as compared to the same periods in 2005, as a result of certain assets having become fully depreciated.

Other income, net

Other income, net, includes primarily dividends received on marketable securities and, to a lesser extent, interest and miscellaneous income. The increase in other income, net in the three and nine-month periods ended September 30, 2006 over the same 2005 periods was primarily attributable to increased dividends received from our investment in Safeco Corporation common stock.

Interest expense

Interest expense consists primarily of interest on our $150 million senior notes, amortization of loan fees, and interest on borrowings under our $20.0 million senior credit facility.

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Provision (benefit) for federal and state income taxes

The provision or benefit for federal and state income taxes varies with pre-tax income or loss. Consequently, the changes in federal and state income taxes were primarily due to fluctuating income or losses from continuing operations before income taxes. The effective tax rate varies from the statutory rate primarily due to a deduction for dividends received from our investment in Safeco corporate common stock, changes in cash surrender value of life insurance policies held by the Company (for which proceeds are received tax-free if held to maturity), and the impact of other permanent tax differences. As required by accounting rules for interim financial reporting, we record our income tax provision or benefit based upon our estimated annual effective tax rate of 23% for 2006. In addition, during the three-months ended September 30, 2006 we recognized additional federal income tax expense as a result of a tax audit of approximately $388,000. The estimated effective tax rate in the 2006 period was lower than in the same period in 2005 due primarily to the relationship between the amount of estimated annual permanent differences and our estimated annual pretax income or loss.

Liquidity and capital resources

In September 2004, we completed a $150.0 million offering of 8.625% senior notes due 2014 and used $143.9 million of the initial $144.5 million net proceeds to retire existing debt and to settle the outstanding obligations. The notes are unconditionally guaranteed, jointly and severally, on an unsecured, senior basis by our current and future material domestic subsidiaries. Interest on the notes is payable semiannually in arrears on March 15 and September 15 of each year. In September 2004, we also entered into a new six-year senior credit facility with a financial institution for borrowings of up to $20.0 million. The credit facility is collateralized by substantially all of the Company’s assets (excluding certain real property and our investment in shares of Safeco Corporation common stock).

Our current assets as of September 30, 2006 included cash and cash equivalents totaling $1.9 million, and we had a working capital deficit of $1.7 million due to the acquisition of a television station in Seattle and additional deposits toward the purchase of two Oregon television stations funded by operating cash and borrowing under our $20.0 million credit facility. As of December 31, 2005, our current assets included cash and cash equivalents totaling $19.6 million, and we had working capital of $35.6 million. We intend to finance working capital, debt service and capital expenditures primarily through operating activities and use of the senior credit facility. As of September 30, 2006, $7.0 million was available under the credit facility.

In November 2006, the Company finalized the purchase of two Oregon television stations for $19.3 million. This transaction was initially announced in December 2005 and included the purchase of two Idaho TV stations which was finalized in May 2006. A second amendment to this purchase agreement in September 2006 included a one year option to purchase one to three additional television stations in the Northwest.

In October 2006, the Company completed the sale of 18 of 24 small-market radio stations located in Montana and Eastern Washington for $26.1 million. The closing on the sale of one additional Montana station to the same buyer is currently pending FCC approval. The remaining five stations were excluded from this agreement in order to secure FCC approval, but continue to be held for sale. The 24 station group is treated as discontinued operations in the accompanying financial data. A portion of the proceeds from this sale were used to partially fund the purchase of the two Oregon television stations noted above, in addition to being utilized to pay down the outstanding balance on our senior credit facility.

In September 2006, the Company completed a stock purchase of AABB, with its owner Christopher J. Racine. Under this agreement, the Company acquired 100 percent equity interest in AABB for $16.0 million.

In July 2006, the Company entered into an LMA with WatchTV, Inc. to manage four of their television stations located in Eastern Washington. The stations currently provide Spanish-language programming to the Yakima-Pasco-Richland-Kennewick television market through an affiliation with Univision. Contemporaneously with the LMA, the Company entered into an option agreement with WatchTV, whereby the Company has the right to acquire the stations until June 30, 2007.

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Net cash provided by operating activities during the nine months ended September 30, 2006 was $8.3 million, compared to net cash used in operations of $4.8 million in the nine months ended September 30, 2005. Net cash provided by (used in) operating activities consists of our net income loss, adjusted by non-cash expenses such as depreciation and amortization, further adjusted by changes in deferred income tax and changes in operating assets and liabilities. Net cash used in investing activities during the period ended September 30, 2006 included $16.1 million paid as an investment in AABB, $1.1 million paid for options to purchase additional television stations, $9.7 million paid towards the purchase of the Oregon television stations from EBC, and $12.6 million used to purchase property, plant and equipment. Net cash used in investing activities during the nine months ended September 30, 2005 included $6.6 million used to purchase property, plant and equipment, which was partially offset by the collection of two notes receivable totalling $1.6 million related to prior year asset sales. Broadcasting is a capital-intensive business; however, we have no significant commitments for the purchase of capital items. During 2006, we constructed full power digital broadcasting facilities or obtained waivers for extended construction for certain of our smaller market television stations to be in compliance with FCC rules.

Net cash provided by financing activities in the nine months ended September 30, 2006 was $13.6 million, consisting primarily of net borrowing against our revolving credit facility. Net cash provided by financing activities in the nine months ended September 30, 2005 was $2.9 million, comprised primarily of $3.1 million of proceeds from the exercise of stock options, partially offset by payments of notes payable and deferred loan costs.

We are subject to various debt covenants and other restrictions – including the requirement for early payments upon the occurrence of certain events, including the sale of assets – the violation of which could require repayment of outstanding borrowings and affect our credit rating and access to other financing. The Company was in compliance with all debt covenant requirements at September 30, 2006.

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ITEM 3 — QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS

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

Interest Rate Exposure

As a result of our September 20, 2004 placement of $150.0 million of 8.625% senior notes due 2014, substantially all of our debt as of September 30, 2006, is at a fixed rate. As of September 30, 2006, our fixed-rate debt totaled $150.0 million. The fair value of long-term fixed interest rate debt is subject to interest rate risk. Generally, the fair 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, 2006 was approximately $157.5 million, which was approximately $7.5 million more than its carrying value. Market risk is estimated as the potential change in fair value resulting from a hypothetical 10% change in interest rates and, as of September 30, 2006, amounted to approximately $7.1 million. Fair market values are determined based on estimates made by investment bankers. For fixed rate debt, interest rate changes do not impact book value, operations or cash flows.

Marketable Securities Exposure

The fair value of our investments in marketable securities as of September 30, 2006 was $177.4 million, compared to $170.1 million as of December 31, 2005. Marketable securities consist primarily of 3.0 million shares of Safeco Corporation common stock, valued based on the closing per-share sale price on the specific-identification basis as reported on the Nasdaq stock market. As of September 30, 2006, these shares represented 2.6% of the outstanding common stock of Safeco Corporation. We have classified the investments as available-for-sale under applicable accounting standards. A hypothetical 10% change in market prices underlying these securities would result in a $17.7 million change in the fair value of the marketable securities portfolio. Although changes in securities prices would affect the fair value of the marketable securities and cause unrealized gains or losses, such gains or losses would not be realized unless the investments are sold.

ITEM 4 — CONTROLS AND PROCEDURES

The Company’s Chief Executive Officer and Vice President Finance and Acting Chief Financial Officer have evaluated the effectiveness of the Company’s 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”)) and, based on their evaluation, the Chief Executive Officer and Vice President Finance and Acting Chief Financial Officer have concluded that, as of the end of the Company’s fiscal quarter ended September 30, 2006, these disclosure controls and procedures are effective in ensuring that the information that the Company is required to disclose in the reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Commission’s rules and forms, and that, as of the end of the Company’s fiscal quarter ended September 30, 2006, the disclosure controls and procedures are effective in ensuring that the information required to be reported is accumulated and communicated to the Company’s management, including its Chief Executive Officer and Vice President Finance and Acting Chief Financial Officer, to allow timely decisions regarding required disclosure.

We made no changes in internal control over financial reporting during the third fiscal quarter of 2006 that materially affected or is reasonably likely to materially affect our internal control over financial reporting. We intend to continue to refine our internal control on an ongoing basis as we deem appropriate with a view towards continuous improvement.

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PART II

OTHER INFORMATION

Item 1. Legal Proceedings

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

Item 1A. Risk Factors

Except as described in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2006 filed with the Securities and Exchange Commission on May 9, 2006, there have not been any material changes during the quarter ended September 30, 2006 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, 2005, filed with the Securities and Exchange Commission on March 15, 2006.

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

None

Item 3. Defaults Upon Senior Securities

None

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

None.

Item 5. Other Information

None

Item 6. Exhibits

(a) Exhibits:

10.1	Joint Sales Agreement dated July 1, 2006 between La Grande Broadcasting, Inc., Fisher Broadcasting – Portland TV, L.L.C. and Equity Broadcasting Company.
10.2	Amendment No. 2 to Purchase and Sale Agreement dated August 24, 2006 by and among Cherry Creek Radio LLC, Fisher Communications, Inc. and Fisher Radio Regional Group Inc.
10.3	Second Amendment and Agreement Regarding Asset Purchase Agreement dated September 22, 2006 by and among Fisher Radio Regional Group Inc., Equity Broadcasting Corporation, La Grande Broadcasting, Inc., EBC Boise, Inc. and EBC Pocatello, Inc.
31.1	Certification of Chief Executive Officer.
31.2	Certification of Acting Chief Financial Officer.
32.1	Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2	Certification of Acting Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	FISHER COMMUNICATIONS, INC.       (Registrant)
Dated: November 8, 2006	/s/ Jodi A. Colligan
	Jodi A. Colligan
	Vice President Finance Acting Chief Financial Officer

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EXHIBIT INDEX

Exhibit No.	Description
10.1	Joint Sales Agreement dated July 1, 2006 between La Grande Broadcasting, Inc., Fisher Broadcasting — Portland TV, L.L.C. and Equity Broadcasting Company.
10.2	Amendment No. 2 to Purchase and Sale Agreement dated August 24, 2006 by and among Cherry Creek Radio LLC, Fisher Communications, Inc. and Fisher Radio Regional Group Inc.
10.3	Second Amendment and Agreement Regarding Asset Purchase Agreement dated September 22, 2006 by and among Fisher Radio Regional Group Inc., Equity Broadcasting Corporation, La Grande Broadcasting, Inc., EBC Boise, Inc. and EBC Pocatello, Inc.
31.1	Certification of Chief Executive Officer.
31.2	Certification of Acting Chief Financial Officer.
32.1	Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2	Certification of Acting Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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