NOTE 1

Operations and Significant Accounting Policies

The principal operations of Fisher Communications, Inc. and subsidiaries (the "Company") are television and radio broadcasting. Prior to its sale on December 15, 2011, the Company also owned and operated Fisher Plaza, a mixed-use facility that houses a variety of office, retail, technology and other media and communications companies. The Company conducts its business in Washington, Oregon, Idaho and California. A summary of significant accounting policies is as follows:

Principles of consolidation. The consolidated financial statements are presented on an accrual basis in accordance with accounting principles generally accepted in the United States of America ("GAAP") and include the accounts of Fisher Communications, Inc. and its wholly-owned subsidiaries. Television and radio broadcasting operations are conducted through Fisher Broadcasting Company. Fisher Media Services Company operated Fisher Plaza, which was sold on December 15, 2011. All material intercompany balances and transactions have been eliminated.

Estimates. The preparation of these consolidated financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosure of contingent assets and liabilities. On an on-going basis, the Company evaluates its estimates including, but not limited to, those affecting revenues, goodwill and intangibles impairment, the estimated useful lives of tangible and intangible assets, valuation allowances for receivables and broadcast rights, stock-based compensation expense, valuation allowances for deferred income taxes and accruals of liabilities and contingencies. The Company bases its estimates on historical experience and various other assumptions that it believes to be reasonable under the circumstances, the results of which form its basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.

Television broadcast licenses. The Company's broadcast operations are subject to the jurisdiction of the Federal Communications Commission (the "FCC") under the Communications Act of 1934, as amended (the "Communications Act"). The Communications Act empowers the FCC to regulate many aspects of the broadcasting industry, including the granting and renewal of broadcast licenses. The cost of certain acquired indefinite-lived television licenses is included in intangible assets in the consolidated balance sheets.

Revenue recognition. Television and radio revenue is recognized, net of advertising agency commissions, when the advertisement is broadcast, subject to meeting certain conditions such as persuasive evidence that an arrangement exists, the price is fixed or determinable and collection is reasonably assured. These criteria are generally met at the time an advertisement is broadcast, and the revenue is recorded net of advertising agency commission. The Company may trade certain advertising time for products or services, as well as barter advertising time for program material. Trade transactions are generally reported at the estimated fair value of the product or service received, while barter transactions are reported at management's estimate of the value of the advertising time exchanged, which approximates the fair value of the program material received. Revenue is reported on trade and barter transactions when commercials are broadcast and expenses are reported when products or services are utilized or when programming airs. The Company receives consideration from certain satellite, cable and wireless providers in return for consent to the retransmission of the signals of the Company's television stations. Revenues from retransmission consent and satellite transmission services are recognized when the service is performed and collection is considered probable. Revenue from production of broadcast media content is recognized when a contracted production is available for distribution. Website advertising revenue is recognized as services are delivered. Rentals from broadcast tower and real estate leases are recognized on a straight-line basis over the term of the lease.

Termination of national advertising representation firms. Broadcasters may periodically terminate existing agreements with national advertising representation firms; under such circumstances, the successor firm generally satisfies the broadcaster's contractual termination obligation to the predecessor firm with no cash payment made by the broadcaster. When the Company terminates national advertising representation agreements with contractual termination penalties, the Company recognizes a non-cash termination charge to selling, general and administrative expenses and amortizes the resulting liability as a reduction of expense over the term of the new agreement. In the second quarter of 2008, the Company recognized a net non-cash termination charge of $5.0 million and will recognize a non-cash benefit over the five year term of the new agreement.

Cash and cash equivalents. The Company considers all highly liquid investments that have maturities at the date of purchase of 90 days or less to be cash equivalents. The Company's cash equivalents comprise primarily of United States Treasury obligations.

Short-term investments. The Company's short-term investments are comprised of investments in United States Treasury securities with original maturities of greater than 91 days but less than one year. The Company has classified its short-term investments as held-to-maturity as the Company has the intent and ability to hold these securities to maturity. The securities are carried at amortized cost, and interest income is recorded using an effective interest rate with the associated discount amortized to interest income. The short-term investments carrying value of $33.5 million approximates fair value at December 31, 2011. Fair value for these investments are estimated using best available evidence including broker quotes, prices for similar investments, interest rates and credit risk. Investments are reviewed periodically to determine if a permanent decline in fair value has occurred that would require impairment of the investment carrying value. No impairments on the short-term investments have been recorded.

Restricted cash. The Company's restricted cash is comprised of segregated funds pledged as collateral for a letter of credit as required by a lease agreement.

Concentration of credit risk. Financial instruments that potentially subject the Company to concentration of credit risk are primarily cash and cash equivalents, short-term investments and receivables. The Company maintains its cash and cash equivalents in accounts primarily with one major financial institution, in the form of demand deposits and other cash and cash equivalents. Additionally, the Company maintains all of its short-term investments in United States Treasury securities. Deposits in these institutions may exceed the amounts of federal insurance provided on such deposits. Concentration of credit risk with respect to receivables is limited due to the large number of customers in the Company's customer base and their dispersion across different industries and geographic areas. The Company does not generally require collateral or other security for its receivables.

Television broadcast rights. Television broadcast rights are recorded as assets when the license period begins and the programs are available for broadcast, at the gross amount of the related obligations (or, for non-sports first-run programming, at the amount of the annual obligation). Costs incurred in connection with the purchase of programs to be broadcast within one year are classified as current assets, while costs of those programs to be broadcast after one year are considered non-current. These programming costs are charged to operations over their estimated broadcast periods using either the straight-line method or in proportion to estimated revenue of the related program. Television broadcast rights obligations are classified as current or non-current in accordance with the payment terms of the license agreement.

Investments. Investments in equity investees represent investments in entities for which the Company does not have controlling interest, but has significant influence. Such investments are accounted for using the equity method of accounting. Investments in which the Company does not have a controlling interest or significant influence are accounted for using the cost method of accounting. The Company's investments in equity and cost method investees are included in other assets on the consolidated balance sheets. The Company's share of each equity method investment in equity investee's earnings (losses) is included in other income, net on the consolidated statements of operations. An impairment on the investment in equity investee is recognized if the decline in value is other than temporary.

Goodwill and indefinite-lived intangible assets. Goodwill represents the excess of purchase price of certain media properties over the fair value of acquired tangible and identifiable intangible net assets. Indefinite-lived intangible assets consist of certain television licenses. In making estimates of fair values for the purposes of allocating the purchase price, the Company relies primarily on its extensive knowledge of the market and, if considered appropriate, obtains appraisals from appraisers. In estimating the fair value of the tangible and intangible assets acquired, the Company considers information obtained about each property as a result of pre-acquisition due diligence, including appraisals that may be obtained in connection with the acquisition or financing of the respective assets. The Company tests for the potential impairment of goodwill and indefinite-lived intangible assets at least annually, or whenever events indicate that an impairment may exist.

Under new accounting guidance adopted for 2011, the Company evaluates qualitative factors, including macroeconomic conditions, industry and market considerations, cost factors and overall financial performance to determine whether it is necessary to perform the first step of the two-step goodwill test. This step is referred to as "Step 0". Step 0 involves, among other qualitative factors, weighing the relative impact of factors that are specific to the reporting unit as well as industry and macroeconomic factors. Reporting unit specific factors are considered, including the results of the most recent impairment tests, as well as financial performance and changes to the reporting units' carrying amounts since the most recent impairment tests. The Company considers industry and macroeconomic factors, including growth projections from independent sources and significant developments or transactions within the industry, during the period of evaluation and assesses if the factors have a positive, neutral or negative impact on the fair value of each reporting unit. After assessing those various factors, if it is determined that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, then the entity will need to proceed to the first step of the two-step goodwill impairment test. The first step of the goodwill impairment test involves a comparison of the fair value of each of the Company's reporting units with the carrying amounts of net assets, including goodwill, related to each reporting unit. If the carrying amount exceeds a reporting unit's fair value, the second step of the impairment test is performed to measure the amount of impairment loss, if any. The impairment loss is measured based on the amount by which the carrying amount of goodwill exceeds the implied fair value of goodwill in the reporting unit being tested. Fair values are determined based on valuations that rely primarily on the discounted cash flow method and market multiples of current earnings. This method uses future projections of cash flows from each of the Company's reporting units and includes, among other estimates, projections of future advertising revenue and operating expenses, market supply and demand, projected capital spending and an assumption of the Company's weighted average cost of capital. The Company's indefinite-lived assets (broadcast licenses), which are not subject to amortization, are tested for impairment at least annually by applying a fair-value-based test as required. The Company's evaluations of fair values include analyses based on the estimated future cash flows generated by the underlying assets, estimated trends and other relevant determinants of fair value for these assets. If the fair value of the asset is less than its carrying amount, a loss is recognized for the difference between the fair value and its carrying value. Changes in any of these estimates, projections and assumptions could have a material effect on the fair value of these assets in future measurement periods and result in an impairment of goodwill or indefinite-lived intangibles which could materially affect the Company's results of operations.

Property, plant and equipment, net. Property, plant and equipment are stated at historical cost, net of related accumulated depreciation. Gains or losses on dispositions of property, plant and equipment are included in income from continuing operations, or in discontinued operations, based on the nature of the disposition. Replacements and improvements are capitalized and repairs and maintenance are expensed as incurred.

Real estate taxes, interest expense and certain other costs related to real estate projects constructed for lease to third parties are capitalized as a cost of such projects until the project, including major tenant improvements, is substantially completed. A project is considered to be substantially completed when a predetermined occupancy level has been reached or the project has been available for occupancy for a period of one year. Costs, including depreciation, applicable to a project are charged to expense based on the ratio of occupied space to total rentable space until the project is substantially completed, after which such costs are expensed as incurred.

Depreciation of property, plant and equipment is determined using the straight-line method over the estimated useful lives of the assets as follows:


Buildings and improvements			10–55 years
Machinery and equipment			3–25 years
Land improvements			10–30 years

In 2011, as part of its ongoing review of property, plant and equipment estimated asset lives the Company determined that the asset lives of certain of its machinery and equipment categories should be increased. The increase in the lives ranged from one to ten years depending on the category. A change in depreciation method is considered a change in accounting estimate. The Company adjusted the remaining lives of existing assets effective January 1, 2011. The impact of this change in estimate for the year ended December 31, 2011 increased pre-tax income from continuing operations by approximately $3.3 million, increased net income by approximately $2.2 million and increased diluted net income from continuing operations per share by $0.24.

The Company classifies the net carrying values of stations or other assets as held for sale when the stations or assets are actively marketed, their sale is considered probable within one year and various other criteria relating to their disposition are met. The Company discontinues depreciation of the stations or assets at that time, but continues to recognize operating revenues and expenses until the date of sale. The Company reports revenues and expenses of stations or assets classified as held for sale in discontinued operations for all periods presented if the Company will sell or has sold the stations or assets on terms where the Company has no continuing involvement with them after the sale. If active marketing ceases or the stations or assets no longer meet the criteria to be classified as held for sale, the Company reclassifies the stations or assets as held for use, resumes depreciation and recognizes the expense for the period that the Company classified the assets as held for sale. The Company evaluates the recoverability of the carrying amount of long-lived tangible assets whenever events or changes in circumstances indicate that the carrying amount of an asset may not be fully recoverable. The Company uses judgment when applying the impairment rules to determine when an impairment test is necessary. Factors considered which could trigger an impairment review include significant underperformance relative to historical or forecasted operating results, a significant decrease in the market value of an asset, a significant change in the extent or manner in which an asset is used and significant negative cash flows or industry trends.

Impairment losses are measured as the amount by which the carrying value of an asset exceeds its estimated fair value, which is primarily based on market transactions for comparable businesses, discounted cash flows and a review of the underlying assets of the reporting unit. In estimating these future cash flows, the Company uses future projections of cash flows directly associated with, and that are expected to arise as a direct result of, the use and eventual disposition of the assets. These projections contain estimates and judgments that are significant and subjective. If it is determined that a long-lived asset is not recoverable, an impairment loss is calculated based on the excess of the carrying amount of the long-lived asset over its fair value. Changes in any of the Company's estimates could have a material effect on the estimated future cash flows expected to be generated by the asset and could result in a future impairment of the related assets with a material effect on the Company's future results of operations.

Fair value of financial instruments. The carrying amount of cash equivalents, short-term investments, receivables, marketable securities, accounts payable and television broadcast rights asset and payable approximate fair value due to their short maturities.

The estimated fair value of the Company's long-term debt, using Level 2 inputs, at December 31, 2011 and 2010 was $62.9 million and $104.2 million, respectively. The fair value of long-term debt is based on estimates made by investment bankers based on the fair value of the Company's fixed rate long-term debt. For fixed rate debt, interest rate changes do not impact financial position, operations or cash flows.

The Financial Accounting Standards Board ("FASB") issued authoritative guidance for fair value measurements, which defined fair value, established a framework for measuring fair value and expanded disclosures about assets and liabilities measured at fair value in the financial statements. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. A three-tier hierarchy, which prioritizes the inputs used to measure fair value is as follows:

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

Level 2—Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities; or the fair value is determined through the use of models or other valuation methodologies.

Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. The inputs to determined fair value require significant management judgment or estimation.

Assets and liabilities measured at fair value on a recurring basis consist of marketable securities, for which the reported fair value of approximately $1.0 million and $1.0 million at December 31, 2011 and 2010, respectively, is measured using Level 1 inputs.

Restricted cash consists of $3.6 million, for which the fair value is measured using Level 1 inputs. Cash equivalents consist of $145.4 million and $53.8 million at December 31, 2011 and 2010, respectively, for which the fair value is measured using Level 1 inputs.

Deferred financing costs. The Company capitalizes costs associated with financing activities and amortizes such costs to interest expense using the effective interest method over the term of the underlying financing arrangements.

Deferred income. The Company has deferred income associated with cash and other assets received related to revenue and/or sale-leaseback transactions for which the income has not yet been recognized. The income is recognized as the revenue is earned, and income under the sale-leaseback transaction is recognized on a straight-line basis over the initial term of the related lease arrangement.

Variable interest entities. The Company may enter into Joint Sales Agreements ("JSAs") or Local Marketing Agreements ("LMAs") with non-owned stations. 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. 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. 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.

Advertising. The Company expenses advertising costs at the time the advertising first takes place. Advertising expense totaled approximately $2.0 million, $2.4 million and $2.0 million in 2011, 2010 and 2009, respectively.

Operating leases. The Company has operating leases for television and radio transmitting facilities, tower locations, corporate headquarters and certain other operational and administrative equipment. The television and radio transmitting facilities lease agreements are for periods up to 30 years, with certain renewal options. The corporate headquarters lease agreement is for an initial period up to 12 years, with certain renewal options. The Company recognizes lease expense on a straight-line basis when cash payments fluctuate over the initial term of the lease.

Capital leases. For equipment under capital lease arrangements, an asset is recorded based on the net present value of the lease payments, which may not exceed the fair value of the underlying leased equipment, and a corresponding long-term liability is recorded. Lease payments are allocated between principal and interest on the lease obligation and the capital lease asset is depreciated over the term of the related lease.

Income taxes. Deferred income taxes are provided for temporary differences in reporting for financial reporting versus income tax reporting purposes. The Company evaluates both positive and negative evidence that it believes is relevant in assessing whether the Company will realize its deferred tax assets. The determination of the Company's provision for income taxes and valuation allowance requires significant judgment, the use of estimates and the interpretation and application of complex tax laws. In assessing whether deferred tax assets can be realized, the Company considers whether it is more likely than not that some portion or all of the deferred tax assets will be realized.

The Company assesses the likelihood of the realizability of its deferred tax assets on a quarterly basis. During the fourth quarter of 2011, the Company released $1.8 million of our valuation allowance based on the analysis of all available evidence. At December 31, 2011, the Company had a valuation allowance on certain of its deferred tax assets. The amount of net deferred tax assets considered realizable, however, could be reduced in the future if the Company's projections of future taxable income are reduced or if the Company does not perform at the levels that it is projecting. This could result in an increase in the Company's valuation allowance for deferred tax assets.

The Company recognizes income tax expense related to uncertain tax positions as part of its income tax provision and recognizes interest and penalties related to uncertain tax positions in interest expense. The uncertain tax position must reach a certain recognition threshold that a tax position is required to meet before being recognized in the financial statements. The application of income tax law is inherently complex. Laws and regulations in this area are voluminous and are sometimes ambiguous. As such, the Company is required to make certain subjective assumptions and judgments regarding its income tax exposures. Interpretations of and guidance surrounding income tax laws and regulations change over time. As such, changes in the Company's subjective assumptions and judgments can materially affect amounts recognized in the consolidated financial statements. As of December 31, 2011, the Company had $632,000 of unrecognized tax benefits which includes the estimated usage of net operating losses from those years. No penalties or interest was accrued on the unrecognized tax benefit. If the unrecognized tax benefits were recognized $410,000 would impact the effective tax rate. No reserves for uncertain income tax positions were recorded for the years ended December 31, 2010 and 2009.

Net income (loss) per share. Net income (loss) per share represents net income (loss) divided by the weighted average number of shares outstanding during the year. 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.

A reconciliation of net income (loss) per share and net income (loss) per share assuming dilution is as follows (in thousands, except per share amounts):


	Year Ended December 31,
	2011		2010		2009
Income (loss) from continuing operations, net of income taxes	$	35,867	$	9,604	$	(9,230	)
Income (loss) from discontinued operations, net of income taxes		568		142		(100	)

Net income (loss)	$	36,435	$	9,746	$	(9,330	)

Weighted average shares outstanding		8,829		8,796		8,776
Weighted effect of dilutive options and rights		75		47		—

Weighted average shares outstanding assuming dilution		8,904		8,843		8,776

Net income (loss) per share:
From continuing operations	$	4.06	$	1.09	$	(1.05	)
From discontinued operations		0.07		0.02		(0.01	)

Net income (loss) per share	$	4.13	$	1.11	$	(1.06	)

Net income (loss) per share assuming dilution:
From continuing operations	$	4.03	$	1.09	$	(1.05	)
From discontinued operations		0.06		0.01		(0.01	)

Net income (loss) per share	$	4.09	$	1.10	$	(1.06	)

The effect of 40 restricted stock rights and options to purchase 204,645 shares of the Company's common stock are excluded from the calculation of weighted average shares outstanding for the year ended December 31, 2011 because such options and rights were anti-dilutive. The effect of 129,391 restricted stock rights and options to purchase 275,420 shares of the Company's common stock are excluded from the calculation of weighted average shares outstanding for the year ended December 31, 2010 because such options and rights were anti-dilutive. The effect of 74,708 restricted stock rights and options to purchase 254,021 shares of the Company's common stock are excluded from the calculation of weighted average shares outstanding for the year ended December 31, 2009 because such options and rights were anti-dilutive.

Stock-based compensation. The Company uses the Black-Scholes option pricing model to estimate the fair value of stock option awards. The Company's estimation of the fair value of stock option awards on the date of grant is affected by the Company's stock price, as well as assumptions regarding a number of variables. These variables include, but are not limited to, the expected term of the award, expected stock price volatility over the term of the award, forfeitures and projected exercise behaviors. The Company's estimation of the fair value of stock option awards using the Black-Scholes option pricing model requires the input of subjective assumptions and other reasonable assumptions could yield differing results.

Recent accounting pronouncements

In September 2011, the FASB issued an update to the authoritative guidance on testing goodwill for impairment. This update simplifies the goodwill impairment test and allows companies to first decide whether they need to perform the two-step test by allowing them to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for assessing whether it is necessary to perform the two-step impairment test. The update is effective for annual and interim tests performed for fiscal years beginning after December 15, 2011, although early adoption is permitted. The Company has early adopted the new guidance. The effect of adopting this statement did not have an impact on the Company's consolidated financial statements.

In June 2011, the FASB issued an update to the authoritative guidance on the presentation of other comprehensive income. The update eliminates the option to report other comprehensive income and its components in the statement of changes in stockholders' equity and requires an entity to present the total of comprehensive income, the components of net income and the components of other comprehensive income either in a single continuous statement or in two separate but consecutive statements. This pronouncement is effective for annual and interim periods beginning after December 15, 2011. The effect of adopting this statement is not expected to have a material impact on the Company's consolidated financial statements.

In June 2009, the FASB issued an update to the authoritative guidance on consolidation. This update addresses the effects on certain provisions of previous accounting guidance related to the consolidation of variable interest entities as a result of the elimination of the qualifying special-purpose entity concept and concerns about the application of certain key provisions of consolidation guidance, including those in which the accounting and disclosures under the standard do not always provide timely and useful information about an enterprise's involvement in a variable interest entity. This update was effective January 1, 2010. Based on the updated authoritative guidance discussed above, the Company determined that it was appropriate to consolidate its investment in Southwest Oregon Broadcasting Corporation. The Company owns 50% of the outstanding stock of Southwest Oregon Broadcasting Corporation, licensee of a television station in Roseburg, Oregon for which the Company serves as the manager. The consolidation of this equity investment did not have a significant impact on the Company's consolidated financial statements. As of January 1, 2010 the impact of this consolidation was a $602,000 charge to beginning retained earnings.