SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | 12 Months Ended |
Feb. 28, 2014 |
Accounting Policies [Abstract] | ' |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | ' |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
a. Principles of Consolidation |
The following discussion pertains to Emmis Communications Corporation (“ECC”) and its subsidiaries (collectively, “Emmis,” the “Company,” or “we”). All significant intercompany balances and transactions have been eliminated. |
b. Organization |
Emmis is a diversified media company with radio broadcasting and magazine publishing operations. We own and operate three FM radio stations serving the nation’s top two markets – New York and Los Angeles, although one station in New York is operated pursuant to a Local Programming and Marketing Agreement ("LMA") whereby a third party provides the programming for the station and sells all advertising within that programming. On March 1, 2014, we began operating two additional stations in New York (one FM and one AM) pursuant to an LMA. See Note 1e below for more discussion of LMAs. Additionally, we own and operate fifteen FM and three AM radio stations with strong positions in St. Louis, Austin (we have a 50.1% controlling interest in our radio stations located there), Indianapolis and Terre Haute. In addition to our radio businesses, we operate a radio news network in Indiana, and publish Texas Monthly, Los Angeles, Atlanta, Indianapolis Monthly, Cincinnati and Orange Coast. |
Substantially all of ECC’s business is conducted through its subsidiaries. Our credit agreement, dated December 28, 2012 (the “2012 Credit Agreement”), contains certain provisions that may restrict the ability of ECC’s subsidiaries to transfer funds to ECC in the form of cash dividends, loans or advances. |
c. Revenue Recognition |
Broadcasting revenue is recognized as advertisements are aired. Publication revenue is recognized in the month of delivery of the publication. Both broadcasting revenue and publication revenue recognition is subject to meeting certain conditions such as persuasive evidence that an arrangement exists and collection is reasonably assured. These criteria are generally met at the time the advertisement is aired for broadcasting revenue and upon delivery of the publication for publication revenue. Advertising revenues presented in the financial statements are reflected on a net basis, after the deduction of advertising agency fees, usually at a rate of 15% of gross revenues. |
d. Allowance for Doubtful Accounts |
An allowance for doubtful accounts is recorded based on management’s judgment of the collectability of receivables. When assessing the collectability of receivables, management considers, among other things, historical loss experience and existing economic conditions. The activity in the allowance for doubtful accounts for the three years ended February 28, 2014 was as follows: |
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| Balance At | | Provision | | Write-Offs | | Balance | | | | | | | | | | | | | | | | | |
Beginning | At End | | | | | | | | | | | | | | | | | |
Of Year | Of Year | | | | | | | | | | | | | | | | | |
Year ended February 28, 2012 | $ | 1,359 | | | $ | 232 | | | $ | (576 | ) | | $ | 1,015 | | | | | | | | | | | | | | | | | | |
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Year ended February 28, 2013 | 1,015 | | | 86 | | | (578 | ) | | 523 | | | | | | | | | | | | | | | | | | |
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Year ended February 28, 2014 | 523 | | | 510 | | | (459 | ) | | 574 | | | | | | | | | | | | | | | | | | |
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e. Local Programming and Marketing Agreement Fees |
The Company from time to time enters into LMAs in connection with acquisitions and dispositions of radio stations, pending regulatory approval of transfer of the FCC licenses. Under the terms of these agreements, the acquiring company makes specified periodic payments to the holder of the FCC license in exchange for the right to program and sell advertising for a specified portion of the station’s inventory of broadcast time. The acquiring company records revenues and expenses associated with the portion of the station’s inventory of broadcast time it manages. Nevertheless, as the holder of the FCC license, the owner-operator retains control and responsibility for the operation of the station, including responsibility over all programming broadcast on the station. |
Active LMAs |
On February 11, 2014, the Company entered into an LMA in connection with its agreement to purchase WBLS-FM and WLIB-AM in New York City from YMF Media New York LLC and YMF Media New York License LLC (collectively, "YMF"). The LMA, which commenced on March 1, 2014, gives Emmis the right to program and sell advertising for the two New York stations. Emmis will pay YMF $1.3 million per month and reimburse YMF for certain monthly expenses. After the first closing of the transaction, the LMA will continue in effect until the 2nd closing at a reduced monthly fee of approximately $0.7 million. This LMA had no effect on our results of operations for the three years ended February 2014 as it did not commence until March 1, 2014. See Note 8 for more discussion of the Company's pending purchase of WBLS-FM and WLIB-AM from YMF. |
On April 26, 2012, the Company entered into an LMA with New York AM Radio, LLC (“98.7FM Programmer”) pursuant to which, commencing April 30, 2012, 98.7FM Programmer purchased from Emmis the right to provide programming on 98.7FM until August 31, 2024. Disney Enterprises, Inc., the parent company of 98.7FM Programmer, has guaranteed the obligations of 98.7FM Programmer under the LMA. The Company retains ownership and control of the Station, including the related FCC license during the term of the LMA and received an annual fee from 98.7FM Programmer of $8.4 million for the first year of the term under the LMA, which fee increases by 3.5% each year thereafter until the LMA’s termination. This LMA fee revenue is recorded on a straight-line basis over the term of the LMA. Emmis retains the FCC license of 98.7FM after the term of the LMA expires. |
Terminated LMAs |
On April 3, 2009, Emmis entered into an LMA and a Put and Call Agreement for KXOS-FM in Los Angeles with a subsidiary of Grupo Radio Centro, S.A.B. de C.V (“GRC”), a Mexican broadcasting company. The LMA for KXOS-FM started on April 15, 2009 and terminated upon the sale of the station on August 23, 2012 (see Note 8 for more discussion of the sale transaction). |
On June 20, 2011, Emmis entered into an LMA for WRXP-FM in New York, WKQX-FM in Chicago and WLUP-FM in Chicago with LMA Merlin Media LLC. The LMA for these stations started on July 15, 2011 and terminated upon the sale of a controlling interest in these stations on September 1, 2011 (see Note 8 for more discussion of the sale transaction). |
LMA fees were recorded as net revenues (except for discontinued operations) in the accompanying consolidated statements of operations and were as follows for the years ended February 2012, 2013 and 2014: |
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| For the years ended February 28 (29), | | | | | | | | | | | | | | | | | | | | | |
| 2012 | | 2013 | | 2014 | | | | | | | | | | | | | | | | | | | | | |
Continuing Operations: | | | | | | | | | | | | | | | | | | | | | | | | | | |
98.7FM, New York | $ | — | | | $ | 8,609 | | | $ | 10,331 | | | | | | | | | | | | | | | | | | | | | | |
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Merlin Media | 310 | | | — | | | — | | | | | | | | | | | | | | | | | | | | | | |
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Total | $ | 310 | | | $ | 8,609 | | | $ | 10,331 | | | | | | | | | | | | | | | | | | | | | | |
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Discontinued Operations: | | | | | | | | | | | | | | | | | | | | | | | | | | |
KXOS-FM, Los Angeles | $ | 7,000 | | | $ | 3,331 | | | $ | — | | | | | | | | | | | | | | | | | | | | | | |
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f. Share-based Compensation |
The Company determines the fair value of its employee stock options at the date of grant using a Black-Scholes option-pricing model. The Black-Scholes option pricing model was developed for use in estimating the value of exchange-traded options that have no vesting restrictions and are fully transferable. The Company’s employee stock options have characteristics significantly different than these traded options. In addition, option pricing models require the input of highly subjective assumptions, including the expected stock price volatility and expected term of the options granted. The Company relies heavily upon historical data of its stock price when determining expected volatility, but each year the Company reassesses whether or not historical data is representative of expected results. See Notes 3 and 4 for more discussion of share-based compensation. |
g. Cash and Cash Equivalents |
Emmis considers time deposits, money market fund shares and all highly liquid debt investment instruments with original maturities of three months or less to be cash equivalents. At times, such deposits may be in excess of FDIC insurance limits. |
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h. Restricted Cash |
Restricted cash generally represents either cash on deposit in trust accounts related to our 98.7FM LMA in New York City that services long-term debt as discussed in Note 5, or cash collected by our wholly-owned subsidiary, NextRadio LLC. Usage of cash collected by NextRadio LLC is restricted for specific purposes by funding agreements. For more discussion of NextRadio LLC, see Note 9. |
i. Property and Equipment |
Property and equipment are recorded at cost. Depreciation is generally computed using the straight-line method over the estimated useful lives of the related assets, which are 39 years for buildings, the shorter of economic life or expected lease term for leasehold improvements, five to seven years for broadcasting equipment, five years for automobiles, and three to five years for office equipment. Maintenance, repairs and minor renewals are expensed as incurred; improvements are capitalized. On a continuing basis, the Company reviews the carrying value of property and equipment for impairment. If events or changes in circumstances were to indicate that an asset carrying value may not be recoverable, a write-down of the asset would be recorded through a charge to operations. See Note 1r for more discussion of impairment losses related to our property and equipment. Depreciation expense for the years ended February 2012, 2013 and 2014 was $4.7 million, $4.7 million and $4.8 million, respectively. |
j. Intangible Assets and Goodwill |
Indefinite-lived Intangibles and Goodwill |
In connection with past acquisitions, a significant amount of the purchase price was allocated to radio broadcasting licenses, goodwill and other intangible assets. Goodwill consists of the excess of the purchase price over the fair value of tangible and identifiable intangible net assets acquired. In accordance with ASC Topic 350, “Intangibles—Goodwill and Other,” goodwill and radio broadcasting licenses are not amortized, but are tested at least annually for impairment at the reporting unit level and unit of accounting level, respectively. We test for impairment annually, on December 1 of each year, or more frequently when events or changes in circumstances or other conditions suggest impairment may have occurred. Impairment exists when the asset carrying values exceed their respective fair values, and the excess is then recorded to operations as an impairment charge. See Note 10, Intangible Assets and Goodwill, for more discussion of our interim and annual impairment tests performed during the three years ended February 28, 2014. |
Definite-lived Intangibles |
The Company’s definite-lived intangible assets are trademarks which are amortized over the period of time the trademarks are expected to contribute directly or indirectly to the Company’s future cash flows. |
k. Discontinued operations and assets held for sale |
The results of operations and related disposal gains and losses for business units that the Company has sold, expects to sell, or has ceased operations are classified in discontinued operations for all periods presented. |
A summary of the income from discontinued operations is presented below: |
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| Year ended February 28 (29), | | | | | | | | | | | | | | | | | | | | | |
| 2012 | | 2013 | | 2014 | | | | | | | | | | | | | | | | | | | | | |
Income (loss) from operations: | | | | | | | | | | | | | | | | | | | | | | | | | | |
Slager (Radio) | $ | (312 | ) | | $ | — | | | $ | — | | | | | | | | | | | | | | | | | | | | | | |
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Flint Peak Tower Site (Radio) | 1 | | | — | | | — | | | | | | | | | | | | | | | | | | | | | | |
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KXOS-FM (Radio) | (261 | ) | | (223 | ) | | — | | | | | | | | | | | | | | | | | | | | | | |
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Emmis Interactive Inc. (Radio) | (4,692 | ) | | (2,815 | ) | | — | | | | | | | | | | | | | | | | | | | | | | |
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Slovakia Radio Network (Radio) | 1,160 | | | 782 | | | — | | | | | | | | | | | | | | | | | | | | | | |
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Bulgaria Radio Network (Radio) | (618 | ) | | (810 | ) | | — | | | | | | | | | | | | | | | | | | | | | | |
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Sampler Publications (Publishing) | 387 | | | (171 | ) | | — | | | | | | | | | | | | | | | | | | | | | | |
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Total | (4,335 | ) | | (3,237 | ) | | — | | | | | | | | | | | | | | | | | | | | | | |
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Provision for income taxes | 5,544 | | | 532 | | | — | | | | | | | | | | | | | | | | | | | | | | |
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Loss from operations, net of tax | (9,879 | ) | | (3,769 | ) | | — | | | | | | | | | | | | | | | | | | | | | | |
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Gain (loss) on sale of discontinued operations: | | | | | | | | | | | | | | | | | | | | | | | | | | |
Flint Peak Tower Site (Radio) | 4,882 | | | — | | | — | | | | | | | | | | | | | | | | | | | | | | |
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KXOS-FM (Radio) | — | | | 32,757 | | | — | | | | | | | | | | | | | | | | | | | | | | |
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Emmis Interactive Inc. (Radio) | — | | | (654 | ) | | — | | | | | | | | | | | | | | | | | | | | | | |
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Slovakia Radio Network (Radio) | — | | | 14,798 | | | — | | | | | | | | | | | | | | | | | | | | | | |
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Bulgaria Radio Network (Radio) | — | | | (1,254 | ) | | — | | | | | | | | | | | | | | | | | | | | | | |
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Sampler Publications (Publishing) | — | | | 695 | | | — | | | | | | | | | | | | | | | | | | | | | | |
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Total | 4,882 | | | 46,342 | | | — | | | | | | | | | | | | | | | | | | | | | | |
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Benefit for income taxes | — | | | (7,507 | ) | | — | | | | | | | | | | | | | | | | | | | | | | |
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Gain on sale of discontinued operations, net of tax | 4,882 | | | 53,849 | | | — | | | | | | | | | | | | | | | | | | | | | | |
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(Loss) income from discontinued operations, net of tax | $ | (4,997 | ) | | $ | 50,080 | | | $ | — | | | | | | | | | | | | | | | | | | | | | | |
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In accordance with the provisions of Accounting Standards Codification (“ASC”) 205-20-45, the Company allocated interest expense to discontinued operations associated with the portion of term loans required to be repaid as a result of dispositions. |
Discontinued Operation – Slovakia Radio |
On February 25, 2013, Emmis completed the sale of its Slovakian radio network to Bauer Ausland 1 GMBH for $21.2 million in cash. Emmis believed the sale of its international radio properties would better enable the Company to focus its efforts on its domestic radio stations. In connection with the sale, Emmis recorded a gain on sale of assets of approximately $14.8 million, which is included in income from discontinued operations in the accompanying consolidated statements of operations. Emmis included the results of operations of its Slovakian radio network for the period January 1, 2012 through the sale of the network on February 25, 2013 in discontinued operations in its year ended February 28, 2013. Net income of the Slovakia radio network for the period beginning January 1, 2013 through the sale of the network on February 25, 2013 was not material. |
The operations of our Slovakian radio network had historically been included in the radio segment. The following table summarizes certain operating results of our Slovakian radio network for all periods presented: |
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| For the year ended February 28 (29), | | | | | | | | | | | | | | | | | | | | | |
| 2012 | | 2013 | | 2014 | | | | | | | | | | | | | | | | | | | | | |
Net revenues | $ | 12,111 | | | $ | 11,375 | | | $ | — | | | | | | | | | | | | | | | | | | | | | | |
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Station operating expenses, excluding depreciation and amortization expense | 8,151 | | | 8,663 | | | — | | | | | | | | | | | | | | | | | | | | | | |
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Depreciation and amortization | 1,291 | | | 781 | | | — | | | | | | | | | | | | | | | | | | | | | | |
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Gain on sale of assets | — | | | 244 | | | — | | | | | | | | | | | | | | | | | | | | | | |
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Interest expense | 1,517 | | | 1,461 | | | — | | | | | | | | | | | | | | | | | | | | | | |
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Other income, net | (8 | ) | | (68 | ) | | — | | | | | | | | | | | | | | | | | | | | | | |
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Gain on sale of business | — | | | 14,798 | | | — | | | | | | | | | | | | | | | | | | | | | | |
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Provision for income taxes | 644 | | | 532 | | | — | | | | | | | | | | | | | | | | | | | | | | |
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Discontinued Operation – Bulgaria Radio |
On January 3, 2013, Emmis completed the sale of its Bulgarian radio network to Reflex Media EEOD for $1.7 million in cash. Emmis believed the sale of its international radio properties would better enable the Company to focus its efforts on its domestic radio stations. In connection with the sale, Emmis recorded a loss on sale of assets of approximately $1.3 million, which is included in income from discontinued operations in the accompanying consolidated statements of operations. The loss on disposal primarily resulted from the reclassification of accumulated currency translation adjustments. |
The operations of our Bulgarian radio network had historically been included in the radio segment. The following table summarizes certain operating results of our Bulgarian radio network for all periods presented: |
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| For the year ended February 28 (29), | | | | | | | | | | | | | | | | | | | | | |
| 2012 | | 2013 | | 2014 | | | | | | | | | | | | | | | | | | | | | |
Net revenues | $ | 1,407 | | | $ | 1,152 | | | $ | — | | | | | | | | | | | | | | | | | | | | | | |
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Station operating expenses, excluding depreciation and amortization expense | 1,990 | | | 1,769 | | | — | | | | | | | | | | | | | | | | | | | | | | |
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Depreciation and amortization | 239 | | | 174 | | | — | | | | | | | | | | | | | | | | | | | | | | |
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Other expense (income), net | (204 | ) | | 19 | | | — | | | | | | | | | | | | | | | | | | | | | | |
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Loss on sale of business | — | | | (1,254 | ) | | — | | | | | | | | | | | | | | | | | | | | | | |
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Discontinued Operation — Emmis Interactive |
On October 31, 2012, Emmis completed the sale of Emmis Interactive Inc., a subsidiary of Emmis that provided a content management system, data analytic tools and related services, to Marketron Broadcast Solutions, LLC (“Marketron”) for no net proceeds. The sale of Emmis Interactive Inc. allowed Emmis to mitigate expected future operating losses and focus its efforts on its domestic radio operations and other promising technology initiatives. Marketron assumed operating control of Emmis Interactive, Inc., on October 4, 2012. In connection with the sale, Emmis recorded a loss on sale of assets of approximately $0.7 million, which is primarily related to severance for former employees and is included in income from discontinued operations in the accompanying consolidated statements of operations. |
The operations of Emmis Interactive Inc. had historically been included in the radio segment. The following table summarizes certain operating results of Emmis Interactive Inc. for all periods presented: |
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| For the year ended February 28 (29), | | | | | | | | | | | | | | | | | | | | | |
| 2012 | | 2013 | | 2014 | | | | | | | | | | | | | | | | | | | | | |
Net revenues | $ | 4,809 | | | $ | 2,743 | | | $ | — | | | | | | | | | | | | | | | | | | | | | | |
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Station operating expenses, excluding depreciation and amortization expense | 8,656 | | | 4,698 | | | — | | | | | | | | | | | | | | | | | | | | | | |
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Depreciation and amortization | 845 | | | 257 | | | — | | | | | | | | | | | | | | | | | | | | | | |
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Other income, net | — | | | (134 | ) | | — | | | | | | | | | | | | | | | | | | | | | | |
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Impairment loss | — | | | 737 | | | — | | | | | | | | | | | | | | | | | | | | | | |
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Loss on sale of business | — | | | (654 | ) | | — | | | | | | | | | | | | | | | | | | | | | | |
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Discontinued Operation – Country Sampler, Smart Retailer and related publications |
On October 1, 2012, Emmis completed the sale of Country Sampler magazine, Smart Retailer magazine, and related publications (altogether the “Sampler Publications”) and certain real estate used in their operations to subsidiaries of DRG Holdings, LLC. Emmis believed the sale of the Sampler Publications, which were niche crafting publications, would enable it to more clearly focus on its core city and regional publications. Emmis received gross proceeds from the sale of $8.7 million, incurred approximately $0.2 million in transaction expenses and tax obligations, and used the remaining $8.5 million to repay term loans under the Amended and Restated Revolving Credit and Term Loan Agreement, dated November 2, 2006, as further amended (the "2006 Credit Agreement"). In connection with the sale, Emmis recorded a gain on sale of assets of approximately $0.7 million, which is included in income from discontinued operations in the accompanying consolidated statements of operations. |
In accordance with the provisions of Accounting Standards Codification (“ASC”) 205-20-45, the Company allocated interest expense associated with the estimate of term loans required to be repaid as a result of the sale of the Sampler Publications to its operations for all periods presented. |
The operations of the Sampler Publications had historically been included in the publishing segment. The following table summarizes certain operating results of the Sampler Publications for all periods presented: |
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| For the year ended February 28 (29), | | | | | | | | | | | | | | | | | | | | | |
| 2012 | | 2013 | | 2014 | | | | | | | | | | | | | | | | | | | | | |
Net revenues | $ | 8,462 | | | $ | 5,298 | | | $ | — | | | | | | | | | | | | | | | | | | | | | | |
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Station operating expenses, excluding depreciation and amortization expense | 7,250 | | | 4,985 | | | — | | | | | | | | | | | | | | | | | | | | | | |
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Depreciation and amortization | 86 | | | 44 | | | — | | | | | | | | | | | | | | | | | | | | | | |
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Loss on disposal of assets | 23 | | | — | | | — | | | | | | | | | | | | | | | | | | | | | | |
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Interest expense | 716 | | | 440 | | | — | | | | | | | | | | | | | | | | | | | | | | |
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Gain on sale of business | — | | | 695 | | | — | | | | | | | | | | | | | | | | | | | | | | |
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Provision (benefit) for income taxes | 516 | | | (2,764 | ) | | — | | | | | | | | | | | | | | | | | | | | | | |
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Discontinued Operation – KXOS-FM |
On August 23, 2012, Emmis completed the sale of KXOS-FM in Los Angeles for $85.5 million in cash. In connection with the sale, Emmis recorded a gain on sale of assets of approximately $32.8 million, which is included in income from discontinued operations in the accompanying consolidated statements of operations. KXOS-FM had previously been operating pursuant to a local programming and marketing agreement, which is discussed in more detail above. |
In accordance with the provisions of Accounting Standards Codification (“ASC”) 205-20-45, the Company allocated interest expense associated with the portion of term loans required to be repaid as a result of the sale of KXOS-FM to its operations for all periods presented. |
The operations of KXOS-FM had historically been included in the radio segment. The following table summarizes certain operating results of KXOS-FM for all periods presented: |
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| For the years ended February 28 (29), | | | | | | | | | | | | | | | | | | | | | |
| 2012 | | 2013 | | 2014 | | | | | | | | | | | | | | | | | | | | | |
Net revenues | $ | 7,000 | | | $ | 3,331 | | | $ | — | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
Station operating expenses, excluding depreciation and amortization expense | 93 | | | 27 | | | — | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
Depreciation and amortization expense | 462 | | | 169 | | | — | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
Gain on sale of assets | 1 | | | — | | | — | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
Interest expense | 6,707 | | | 3,358 | | | — | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
Gain on sale of station, net of taxes | — | | | 32,757 | | | — | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
Provision (benefit) for income taxes | 4,384 | | | (4,743 | ) | | — | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
Discontinued Operation – Flint Peak Tower Site |
On April 6, 2011, Emmis sold land, towers and other equipment at its Glendale, CA tower site (the “Flint Peak Tower Site”) to Richland Towers Management Flint, Inc. for $6.0 million in cash. In connection with the sale, Emmis recorded a gain on sale of assets of approximately $4.9 million. Net proceeds from the sale were used to repay amounts outstanding under the 2006 Credit Agreement. |
The operations of the Flint Peak Tower Site had historically been included in the radio segment. The following table summarizes certain operating results for the Flint Peak Tower Site for all periods presented: |
|
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year ended February 28 (29), | | | | | | | | | | | | | | | | | | | | | |
| 2012 | | 2013 | | 2014 | | | | | | | | | | | | | | | | | | | | | |
Net revenues | $ | 59 | | | $ | — | | | $ | — | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
Station operating expenses, excluding depreciation and amortization expense | 51 | | | — | | | — | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
Depreciation and amortization | 7 | | | — | | | — | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
Gain on sale of assets | 4,882 | | | — | | | — | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
Discontinued Operation – Slager |
On October 28, 2009, the Hungarian National Radio and Television Board (ORTT) announced that it awarded to another bidder the national radio license then held by our majority-owned subsidiary, Slager. Slager ceased broadcasting effective November 19, 2009. We are seeking equitable relief through the International Centre for Settlement of Investments Disputes (“ICSID”) as we believe the award of the license by the ORTT to another bidder violated law and various bilateral agreements. For developments related to our ICSID case that occurred subsequent to February 28, 2014, see Note 18, Subsequent Events. |
Slager had historically been included in the radio segment. The following table summarizes certain operating results for Slager for all periods presented: |
|
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year ended February 28 (29), | | | | | | | | | | | | | | | | | | | | | |
| 2012 | | 2013 | | 2014 | | | | | | | | | | | | | | | | | | | | | |
Net revenues | $ | 30 | | | $ | — | | | $ | — | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
Station operating expenses, excluding depreciation and amortization expense | 344 | | | — | | | — | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
Other income (expense), net | 2 | | | — | | | — | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
Net loss attributable to minority interests | (48 | ) | | — | | | — | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
|
Summary of Assets and Liabilities of Discontinued Operations: |
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| As of February 28, | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2013 | | 2014 | | | | | | | | | | | | | | | | | | | | | | | | | |
Current assets: | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Cash and cash equivalents | $ | 579 | | | $ | — | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Accounts receivable, net | 128 | | | — | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Prepaid expenses | 17 | | | — | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Income tax receivable | 34 | | | — | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Other | 4 | | | — | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total current assets | 762 | | | — | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Current liabilities: | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Accounts payable and accrued expenses | $ | 2,169 | | | $ | — | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Accrued salaries and commissions | — | | | — | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Deferred revenue | — | | | — | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Other current liabilities | — | | | — | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total current liabilities | 2,169 | | | — | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
l. Advertising and Subscription Acquisition Costs |
Advertising and subscription acquisition costs are expensed the first time the advertising takes place, except for certain direct-response advertising related to the identification of new magazine subscribers, the primary purpose of which is to elicit sales from customers who can be shown to have responded specifically to the advertising and that results in probable future economic benefits. When determining probable future economic benefits, the Company includes in its analysis future revenues from renewals if sufficient operating history exists. These direct-response advertising costs are capitalized as assets and amortized over the estimated period of future benefit, ranging from six months to two years subsequent to the promotional event. As of each balance sheet date, the Company evaluates the realizability of capitalized direct-response advertising by comparing the carrying value of such assets on a campaign-by-campaign basis to the probable remaining future primary net revenues expected to result directly from such advertising. If the carrying amounts of such advertising exceed the remaining future primary net revenues that are likely to be realized from such advertising, the excess is recorded as advertising expense immediately. No direct-response advertising costs were capitalized as of the years ended February 28, 2013 and 2014. Advertising expense for the years ended February 2012, 2013 and 2014 was $4.6 million, $4.1 million and $2.8 million, respectively. |
m. Investments |
For those investments in common stock or in-substance common stock in which the Company has the ability to exercise significant influence over the operating and financial policies of the investee, the investment is accounted for under the equity method. For other investments held at February 28, 2014, the Company applies the accounting guidance for certain investments in debt and equity securities. Emmis’ equity method investments report on a fiscal year ending December 31, which Emmis incorporates into its fiscal year ended February 28. |
Emmis has various investments, the carrying values of which are summarized in the following table and discussed below: |
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| For the years ending February 28 (29), | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2013 | | 2014 | | | | | | | | | | | | | | | | | | | | | | | | | |
Available-for-sale investments | $ | 6,500 | | | $ | 6,750 | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Equity method investment—Texas tower partnership | 1,389 | | | — | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Other equity method investments | — | | | 431 | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total investments | $ | 7,889 | | | $ | 7,181 | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Equity method investments |
Emmis, through its partnership in the Austin market, owned a 25% ownership interest in a company that held a tower site in Austin, Texas. Emmis, through its partnership in the Austin market, purchased the Texas tower partnership during the year ended February 28, 2014. |
In connection with the sale of its controlling interest in Merlin Media LLC on September 1, 2011, the Company retained an initial 20.6% common equity interest in Merlin Media LLC. The fair value of this common equity interest as of September 1, 2011, was approximately $5.6 million. Emmis determined that the investment in the common equity of Merlin Media LLC was impaired at February 29, 2012 and the impairment was other-than-temporary. As such, Emmis recognized an impairment loss of $3.1 million recorded in other income (expense), net in the accompanying consolidated statements of operations related to its common equity investment. Emmis previously recorded $2.5 million of equity method losses prior to recognizing the investment impairment. The impairment loss reduced the carrying value of the investment in Merlin Media LLC common equity to zero as of February 29, 2012. See Note 8 for more discussion of the sale of a controlling interest in Merlin Media LLC and Note 15 for discussion of other income (expense), net. |
Available for sale investments |
Emmis’ available for sale investments are investments in the preferred shares of non-public companies. These investments are accounted for under the provisions of ASC 320. |
Emmis made investments totaling $0.5 million in iBiquity, Inc, a company that specializes in digital radio transmission technology. During the years ended February 2012 and 2013, Emmis recorded noncash impairment charges of less than $0.1 million and $0.2 million, respectively, in other income (expense), net in the accompanying consolidated statements of operations, as it deemed the investment was impaired and the impairment was other-than-temporary. The impairment charge recorded during the year ended February 28, 2013 reduced the carrying value of this investment to zero as of February 28, 2013. |
During the year ended February 28, 2013, Emmis made investments totaling $6.0 million in Courseload, Inc, a provider of online textbooks and other course material. Emmis made an additional investment of $0.25 million in Courseload, Inc. during the year ended February 28, 2014. This investment is carried at fair value, which the Company determined approximates the original acquisition cost of $6.25 million. |
During the year ended February 28, 2013, Emmis made investments totaling $0.5 million in TuneIn, Inc., an on-line access point for over-the-air radio streams and other on-demand audio programming such as podcasts, interviews and concerts. This investment is carried at fair value, which the Company believes approximates the original acquisition cost of $0.5 million. |
Although no unrealized or realized gains or losses have been recognized on these investments, unrealized gains and losses would be reported in other comprehensive income until realized, at which point they would be recognized in the consolidated statements of operations. If the Company determines that the value of an investment is other-than-temporarily impaired, the Company will recognize, through the statements of operations, a loss on the investment. |
Cost method investment |
In connection with the sale of its controlling interest in Merlin Media LLC on September 1, 2011, the Company retained a preferred equity interest in Merlin Media LLC with a par value of $28.7 million. The fair value of this preferred equity interest as of September 1, 2011, was approximately $10.8 million. As the preferred equity interest in Merlin Media LLC is non-redeemable and does not have a readily determinable fair value, as defined by accounting standards, this investment is accounted for under the cost method. Emmis determined that the investment in the preferred equity of Merlin Media LLC was impaired at February 29, 2012 and the impairment was other-than-temporary. As such, Emmis recognized an impairment loss of $10.8 million recorded in other income (expense), net in the accompanying consolidated statements of operations related to its preferred equity investment. The impairment loss reduced the carrying value of the investment in Merlin Media LLC preferred equity to zero as of February 29, 2012. See Note 8 for more discussion of the sale of a controlling interest in Merlin Media LLC and Note 16 for detail of other income (expense), net. |
n. Deferred Revenue and Barter Transactions |
Deferred revenue includes deferred magazine subscription revenue, deferred barter and other transactions in which payments are received prior to the performance of services (i.e. cash-in-advance advertising and prepaid LMA payments). Magazine subscription revenue is recognized when the publication is shipped. Barter transactions are recorded at the estimated fair value of the product or service received. Broadcast revenue from barter transactions is recognized when commercials are broadcast or a publication is delivered. The appropriate expense or asset is recognized when merchandise or services are used or received. Barter revenues for the years ended February 2012, 2013 and 2014 were $12.5 million, $9.2 million and $8.5 million, respectively, and barter expenses were $12.4 million, $9.2 million, and $8.7 million, respectively. |
o. Foreign Currency Translation |
The functional currencies of our international radio entities, all of which have now been sold or have ceased operations, are shown in the following table. The balance sheets of these entities were translated from their functional currencies to the U.S. dollar using the current exchange rate in effect at the subsidiaries’ balance sheet date (December 31 for our international radio entities). The results of operations for our international radio entities were translated using an average exchange rate for the period. The net translation adjustments reflected in shareholders’ (deficit) equity during the respective periods were as follows: |
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| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Functional | | For the Years Ended February 28 (29), | | | | | | | | | | | | | | | | | | | |
| Currency | | 2012 | | 2013 | | 2014 | | | | | | | | | | | | | | | | | | | |
Foreign currency translation adjustments | | | | | | | | | | | | | | | | | | | | | | | | | | |
Slovakia | Euro | | $ | (353 | ) | | $ | 23 | | | $ | (11 | ) | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
Bulgaria | Leva | | 256 | | | (175 | ) | | — | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
Hungary | Forint | | — | | | — | | | — | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
Reclassification due to substantial liquidation | | | | | | | | | | | | | | | | | | | | | | | | | | |
Slovakia | Euro | | $ | — | | | $ | 3,324 | | | $ | — | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
Bulgaria | Leva | | — | | | (1,971 | ) | | — | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
Hungary | Forint | | — | | | — | | | — | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| | | $ | (97 | ) | | $ | 1,201 | | | $ | (11 | ) | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
p. Earnings Per Share |
ASC Topic 260 requires dual presentation of basic and diluted income (loss) per share (“EPS”) on the face of the income statement for all entities with complex capital structures. Basic EPS is computed by dividing net income (loss) attributable to common shareholders by the weighted-average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted. Potentially dilutive securities at February 2012, 2013 and 2014 consisted of stock options, restricted stock awards and preferred stock. |
The following table sets forth the calculation of basic and diluted net income (loss) per share from continuing operations: |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| For the year ended |
| February 29, 2012 | | February 28, 2013 | | February 28, 2014 |
| Net Income | | Shares | | Net Income Per Share | | Net Loss | | Shares | | Net Loss | | Net Income | | Shares | | Net Income |
Per Share | Per Share |
| (amounts in 000’s, except per share data) |
Basic net income (loss) per common share: | | | | | | | | | | | | | | | | | |
Net income (loss) available to common shareholders from continuing operations | $ | 84,443 | | | 38,293 | | | $ | 2.21 | | | $ | (8,114 | ) | | 39,034 | | | $ | (0.21 | ) | | $ | 43,806 | | | 40,506 | | | $ | 1.08 | |
|
Impact of equity awards | — | | | 967 | | | | | — | | | — | | | | | — | | | 3,264 | | | |
|
Impact of conversion of preferred stock into common stock | (53,301 | ) | | 5,693 | | | | | — | | | — | | | | | (325 | ) | | 2,272 | | | |
|
Diluted net income (loss) per common share: | | | | | | | | | | | | | | | | | |
Net income (loss) available to common shareholders from continuing operations | $ | 31,142 | | | 44,953 | | | $ | 0.69 | | | $ | (8,114 | ) | | 39,034 | | | $ | (0.21 | ) | | $ | 43,481 | | | 46,042 | | | $ | 0.94 | |
|
Shares excluded from the calculation as the effect of their conversion into shares of our common stock would be antidilutive were as follows: |
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| For the year ended February 28 (29), | | | | | | | | | | | | | | | | | | | | | | | | |
| 2012 | | 2013 | | 2014 | | | | | | | | | | | | | | | | | | | | | | | | |
| (shares in 000’s ) | | | | | | | | | | | | | | | | | | | | | | | | |
Preferred stock | — | | | 2,288 | | | — | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
Stock options and restricted stock awards | 6,651 | | | 6,953 | | | 1,995 | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
Antidilutive common share equivalents | 6,651 | | | 9,241 | | | 1,995 | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
q. Income Taxes |
The Company accounts for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequence of events that have been recognized in the Company’s financial statements or income tax returns. Income taxes are recognized during the year in which the underlying transactions are reflected in the consolidated statements of operations. Deferred taxes are provided for temporary differences between amounts of assets and liabilities as recorded for financial reporting purposes and amounts recorded for income tax purposes. After determining the total amount of deferred tax assets, the Company determines whether it is more likely than not that some portion of the deferred tax assets will not be realized. If the Company determines that a deferred tax asset is not likely to be realized, a valuation allowance will be established against that asset to record it at its expected realizable value. |
r. Long-Lived Tangible Assets |
The Company periodically considers whether indicators of impairment of long-lived tangible assets are present. If such indicators are present, the Company determines whether the sum of the estimated undiscounted cash flows attributable to the assets in question are less than their carrying value. If less, the Company recognizes an impairment loss based on the excess of the carrying amount of the assets over their respective fair values. Fair value is determined by discounted future cash flows, appraisals and other methods. If the assets determined to be impaired are to be held and used, the Company recognizes an impairment charge to the extent the asset’s carrying value is greater than the fair value. The fair value of the asset then becomes the asset’s new carrying value, which, if applicable, the Company depreciates or amortizes over the remaining estimated useful life of the asset. |
s. Estimates |
The preparation of financial statements in accordance with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses in the financial statements and in disclosures of contingent assets and liabilities. Actual results could differ from those estimates. |
t. National Representation Agreement |
On October 1, 2007, Emmis terminated its existing national sales representation agreement with Interep National Radio Sales, Inc. (“Interep”) and entered into a new agreement with Katz Communications, Inc. (“Katz”) extending through March 2018. Emmis’ existing contract with Interep extended through September 2011. Emmis, Interep and Katz entered into a tri-party termination and mutual release agreement under which Interep agreed to release Emmis from its future contractual obligations in exchange for a one-time payment of $15.3 million, which was paid by Katz on behalf of Emmis as an inducement for Emmis to enter into the new long-term contract with Katz. Emmis measured and recognized the charge associated with terminating the Interep contract as of the effective termination date, which was recorded as a noncash contract termination fee in the year ended February 2008. The liability established as a result of the termination represents an incentive received from Katz that is being recognized as a reduction of our national agency commission expense over the term of the agreement with Katz. The current portion of this liability is included in other current liabilities and the long-term portion of this liability is included in other noncurrent liabilities in the accompanying consolidated balance sheets at February 28, 2013 and 2014. |
u. Liquidity |
The Company continually projects its anticipated cash needs, which include its operating needs, capital needs, principal and interest payments on its indebtedness and preferred stock dividends. As of the filing of this Form 10-K, management believes the Company can meet its liquidity needs through the end of fiscal year 2015 with cash and cash equivalents on hand, projected cash flows from operations, and, to the extent necessary, through its borrowing capacity under the 2012 Credit Agreement, which was $20.0 million at February 28, 2014. Based on these projections, management also believes the Company will be in compliance with its debt covenants through the end of fiscal year 2015. |
v. Recent Accounting Pronouncements |
In February 2013, the accounting guidance was modified with respect to how to report the effect of a significant reclassification out of accumulated other comprehensive income. This guidance was effective for the Company as of March 1, 2013 and was applied prospectively. The adoption of this guidance did not materially change the presentation of the Company’s consolidated financial statements. |
In June 2013, the FASB issued a new accounting standard that will require the presentation of certain unrecognized tax benefits as reductions to deferred tax assets rather than as liabilities in the consolidated balance sheets when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists. The new standard requires adoption on a prospective basis for the Company as of March 1, 2014. The Company does not anticipate that this adoption will have a significant impact on its financial position, results of operations, or cash flows. |
w. Reclassifications |
Certain reclassifications have been made to the prior years’ financial statements to be consistent with the February 28, 2014 presentation. The reclassifications have no impact on net income previously reported. |