Income Taxes

12 Months Ended

Feb. 29, 2012

Income Taxes [Abstract]

INCOME TAXES

13. INCOME TAXES

United States and foreign income (loss) before income taxes for the years ended February 2010, 2011 and 2012 was as follows:

	2010			2011			2012
United States	$	(156,096	)	$	(3,801	)	$	(1,777	)
Foreign		(2,989	)		1,092			1,191
Loss before income taxes	$	(159,085	)	$	(2,709	)	$	(586	)

The benefit for income taxes for the years ended February 2010, 2011 and 2012 consisted of the following:

	2010			2011			2012
Current:
Federal	$	(6,794	)	$	(123	)	$	529
State		527			(464	)		1,509
Foreign		990			928			767
		(5,277	)		341			2,805
Deferred:
Federal		(28,855	)		2,292			(25,742	)
State		(5,454	)		3,906			(4,413	)
Foreign		(366	)		(235	)		(122	)
		(34,675	)		5,963			(30,277	)
Provision (benefit) for income taxes	$	(39,952	)	$	6,304		$	(27,472	)
Other Tax Related Information:
Taxes associated with noncontrolling interest earnings		—			—			—
Tax provision of discontinued operations		514			148			729

The provision (benefit) for income taxes for the years ended February 2010, 2011 and 2012 differs from that computed at the Federal statutory corporate tax rate as follows:

	2010			2011			2012
Computed income tax benefit at 35%	$	(55,680	)	$	(949	)	$	(205	)
State income tax		(4,927	)		3,442			(2,904	)
Foreign taxes		(533	)		255			145
Federal net operating loss carryback		(6,793	)		—			—
Tax benefit resulting from swap expiration and related OCI reversal		—			(1,993	)		(786	)
Allocation of tax benefit from discontinued operations		(112	)		(148	)		(729	)
Nondeductible stock compensation and Section 162 disallowance		1,154			1,065			270
Entertainment disallowance		546			529			504
Change in valuation allowance		21,113			5,111			(23,672	)
Tax attributed to noncontrolling interest		(1,318	)		(1,572	)		(1,496	)
Impairment charges on goodwill with no tax basis		3,825			—			—
Alternative minimum tax		—			—			529
Forgiveness of intercompany foreign loans		2,548			525			752
Other		225			39			120
Provision (benefit) for income taxes	$	(39,952	)	$	6,304		$	(27,472	)

The components of deferred tax assets and deferred tax liabilities at February 28, 2011 and February 29, 2012 are as follows:

	2011			2012
Deferred tax assets:
Net operating loss carryforwards	$	50,795		$	40,984
Intangible assets		41,562			20,157
Compensation relating to stock options		2,180			2,136
Interest rate exchange agreement		122			—
Deferred revenue		4,629			2,959
Capital loss carryforwards		—			1,790
Tax credits		1,405			1,405
Investments in subsidiairies		1,853			4,199
Other		4,113			3,689
Valuation allowance		(87,814	)		(58,801	)
Total deferred tax assets		18,845			18,518
Deferred tax liabilities
Indefinite-lived intangible assets		(81,411	)		(52,558	)
Fixed assets		(2,110	)		(1,544	)
Foreign unremitted earnings		(3,167	)		(3,148	)
Cancellation of debt income		(13,465	)		(13,465	)
Other		(103	)		(451	)
Total deferred tax liabilities		(100,256	)		(71,166	)
Net deferred tax liabilities	$	(81,411	)	$	(52,648	)

A valuation allowance is provided when it is more likely than not that some portion of the deferred tax asset will not be realized. The Company decreased its valuation allowance by a net $29.0 million to $58.8 million as of February 29, 2012 from $87.8 million as of February 28, 2011 to reflect a valuation allowance for the majority of its total domestic net deferred tax assets. The decrease in the valuation allowance was primarily the result of the sale of a controlling interest in Merlin Media LLC which reduced net operating losses and intangible assets in fiscal 2012. The Company does not benefit its deferred tax assets (“DTAs”) based on the deferred tax liabilities (“DTLs”) related to indefinite-lived intangibles and investments in subsidiaries that are not expected to reverse during the carry-forward period. Because these DTLs would not reverse until some future indefinite period when the intangibles are either sold or impaired, any resulting temporary differences cannot be considered a source of future taxable income to support realization of the DTAs.

The Company has considered future taxable income and ongoing prudent and feasible tax-planning strategies in assessing the need for the valuation allowance. The Company will assess quarterly whether it remains more likely than not that the deferred tax assets will not be realized. In the event the Company determines at a future time that it could realize its deferred tax assets in excess of the net amount recorded, the Company will reduce its deferred tax asset valuation allowance and decrease income tax expense in the period when the Company makes such determination.

The Company has federal NOLs of $96 million and state NOLs of $165 million available to offset future taxable income. These net operating losses include an unrealized benefit of approximately $0.8 million related to share-based compensation that will be recorded in equity when realized. The federal net operating loss carryforwards begin expiring in 2028, and the state net operating loss carryforwards expire between the years ending February 2013 and February 2033. A valuation allowance has been provided for the net operating loss carryforwards related to Federal and state net operating losses as it is more likely than not that substantially all of these net operating losses will expire unutilized.

The $1.4 million of tax credits at February 28 (29), 2011 and 2012 relate primarily to alternative minimum tax carryforwards that can be carried forward indefinitely. A valuation allowance has been placed against this deferred tax asset. A valuation allowance has also been placed against the deferred tax asset for capital loss carry forwards in the amount of $1.8 million.

United States Federal and state deferred income taxes have been recorded on undistributed earnings of foreign subsidiaries because such earnings are not intended to be indefinitely reinvested in these foreign operations. At February 29, 2012, we had an aggregate of $7.7 million of unremitted earnings of foreign subsidiaries that, when distributed, would result in additional U.S. income taxes of $3.2 million.

During the year ended February 28, 2010 the Company recorded a $6.8 million benefit related to previous tax paid by Emmis, which was recouped during the year ended February 28, 2011 due to the signing of the Worker, Homeownership, and Business Assistance Act of 2009. This act allowed Emmis to extend the previously allowed two-year carryback period on NOLs to five years and permitted the full offset of alternative minimum tax during such extended carryback period.

The Company has adopted FASB Accounting Standards Codification Topic 740-10, Accounting for Uncertainty in Income Taxes (“ASC 740-10”). ASC 740-10 clarifies the accounting for uncertainty in income taxes by prescribing a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken within a tax return. For those benefits to be recognized, a tax position must be more-likely-than-not to be sustained upon examination by taxing authorities. The amount recognized is measured as the largest benefit that is greater than 50 percent likely of being realized upon ultimate settlement. As of February 29, 2012, the estimated value of the Company’s net uncertain tax positions is approximately $0.5 million, which is included in other current liabilities, as the Company expects to settle the item within the next 12 months.

The following is a tabular reconciliation of the total amounts of gross unrecognized tax benefits for the years ending February 28, 2011 and February 29, 2012:

	For the year ending February 28 (29),
	2011			2012
Gross unrecognized tax benefit – opening balance	$	657		$	525
Gross increases – tax positions in prior periods		—			—
Gross decreases – settlements with taxing authorities		—			—
Gross decreases – lapse of applicable statute of limitations		(132	)		—
Gross unrecognized tax benefit – ending balance	$	525		$	525

Included in the balance of unrecognized tax benefits at February 29, 2012 are $0.5 million of tax benefits that, if recognized, would reduce the Company’s provision for income taxes. Of the total unrecognized tax benefits as of February 29, 2012, it is reasonably possible that $0.5 million could change in the next twelve months due to audit settlements, expiration of statute of limitations or other resolution of uncertainties. The amount relates primarily to the allocation of income among multiple jurisdictions. Due to the uncertain and complex application of tax regulations, it is possible that the ultimate resolution of audits may result in liabilities that could be different from this estimate. In such case, the Company will record additional tax expense or tax benefit in the tax provision, or reclassify amounts on the accompanying consolidated balance sheets in the period in which such matter is effectively settled with the taxing authority.

The Company recognizes interest accrued related to unrecognized tax benefits and penalties as income tax expense. Related to the uncertain tax benefits noted above, the Company accrued an immaterial amount of interest during the year ending February 29, 2012 and in total, as of February 29, 2012, has recognized a liability for interest of $0.2 million.

The Company files income tax returns in the U.S. federal jurisdiction, various state jurisdictions and various international jurisdictions. The Company has a number of federal, state and foreign income tax years still open for examination as a result of the net operating loss carryforwards. Accordingly the Company is subject to examination for both U.S. federal and certain state tax return purposes for the years ending February 28, 2003 to present.