Summary of Significant Accounting Policies

12 Months Ended

Feb. 29, 2012

Summary of Significant Accounting Policies [Abstract]

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

1. 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”). Emmis’ foreign subsidiaries report on a fiscal year ending December 31, which Emmis consolidates into its fiscal year ending February 28 (29). 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 four FM radio stations serving the nation’s top two markets – New York and Los Angeles, although one station in each market is operated pursuant to a Local Marketing Agreement (LMA) whereby a third party provides the programming for the station and sells all advertising within that programming. Additionally, we own and operate fourteen FM and two 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 domestic radio businesses, we operate a radio news network in Indiana, and publish Texas Monthly, Los Angeles, Atlanta, Indianapolis Monthly, Cincinnati, Orange Coast, and Country Sampler and related magazines. Internationally, we own and operate national radio networks in Slovakia and Bulgaria. We also engage in various businesses ancillary to our business, such as website design and development, and digital sales consulting.

Substantially all of ECC’s business is conducted through its subsidiaries. Our Amended and Restated Revolving Credit and Term Loan Agreement, dated November 2, 2006, as further amended on various dates (the “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. Revenue associated with guaranteed minimum national sales is recognized when shortfalls in national sales become probable as further discussed in Note 1s.

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 29, 2012 was as follows:

	Balance At							Balance
	Beginning							At End
	Of Year		Provision		Write-Offs			Of Year
Year ended February 28, 2010		2,062		1,899		(1,994	)		1,967
Year ended February 28, 2011		1,967		817		(1,216	)		1,568
Year ended February 29, 2012		1,568		348		(667	)		1,249

e. Local Programming and Marketing Agreement Fees

The Company from time to time enters into local programming and marketing agreements (LMAs) in connection with acquisitions of radio stations, pending regulatory approval of transfer of the FCC licenses. Under the terms of these agreements, the Company makes specified periodic payments to the owner-operator in exchange for the right to program and sell advertising for a specified portion of the station’s inventory of broadcast time. The 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. The Company also enters into LMAs in connection with dispositions of radio stations. In such cases the Company may receive periodic payments in exchange for allowing the buyer to program and sell advertising for a portion of the station’s inventory of broadcast time.

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 will continue for up to 7 years, for $7 million a year plus reimbursement of certain expenses. At any time during the LMA, GRC has the right to purchase the station for $110 million. At the end of the term, Emmis has the right to require GRC to purchase the station for the same amount. Under the LMA, Emmis continues to own and operate the station, with GRC providing Emmis with programming to be broadcast. On April 13, 2012, Emmis and GRC amended the terms of the Put and Call Agreement. See Note 18 for discussion of the amendment.

The consummation of the LMA and Put and Call Agreement for KXOS-FM resulted in the creation of a variable interest entity (“VIE”) pursuant to ASC 810-10. This VIE holds the FCC license for KXOS-FM and the VIE has no material liabilities. As noted earlier, Emmis receives an LMA fee from GRC related to GRC’s use of the FCC License held by the VIE. Emmis’ carrying value in the KXOS-FM FCC license is disclosed in Note 10. As is the case with all of Emmis’ FCC licenses and as discussed further in Note 10, the fair value of an FCC license is primarily driven by market revenues, market revenue growth rates, discount rates and other factors generally beyond our control. Emmis has reported impairment losses related to KXOS-FM in prior years and may incur impairment losses in the future. Any such impairment losses are noncash in nature and have no impact on our cash flows or compliance with covenants contained in our senior credit facility. Pursuant to a review of the variable interest guidance included within ASC 810-10, the Company concluded that it is the primary beneficiary of the VIE and thus should consolidate the VIE. In its assessment, Emmis considered, among other factors, its role in the design and creation of the VIE and power over the activities that most significantly impact the economic performance of the VIE.

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).

On April 26, 2012, Emmis entered into an LMA for WRKS-FM in New York. See Note 18 for discussion of the WRKS-FM LMA.

LMA fees, recorded as net revenues in the accompanying consolidated statements of operations, for the years ended February 2010, 2011 and 2012 were as follows:

	For the years ended February 28 (29)
	2010		2011		2012
Grupo Radio Centro LMA	$	6,125	$	7,000	$	7,000
Merlin Media LMA		—		—		310
Total	$	6,125	$	7,000	$	7,310

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 Note 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.

h. 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 1q for more discussion of impairment losses related to our property and equipment. Depreciation expense for the years ended February 2010, 2011 and 2012 was $8.7 million, $8.2 million and $7.0 million, respectively.

i. 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 29, 2012.

Definite-lived Intangibles

The Company’s definite-lived intangible assets consist primarily of our foreign broadcasting license in Slovakia and trademarks which are amortized over the period of time the assets are expected to contribute directly or indirectly to the Company’s future cash flows. The cost of the broadcast license in Slovakia is being amortized over the term of the license, which expires in February 2021.

j. Discontinued operations and assets held for sale

The results of operations and related disposal costs, 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:

	Year ended February 28 (29),
	2010			2011			2012
Income (loss) from operations:
Slager Radio (Hungary)	$	1,404		$	(2,740	)	$	(312	)
Flint Peak Tower Site		311			362			1
Belgium		(944	)		—			—
Other		(37	)		—			—
Total		734			(2,378	)		(311	)
Provision for income taxes		513			148			—
Income (loss) from operations, net of tax		221			(2,526	)		(311	)
Gain (loss) on sale of discontinued operations:
Belgium		420			—			—
Flint Peak Tower Site		—			—			4,882
Total		420			—			4,882
Provision for income taxes		—			—			729
Gain (loss) on sale of discontinued operations, net of tax		420			—			4,153
Income (loss) from discontinued operations, net of tax	$	641		$	(2,526	)	$	3,842

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.

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),
	2010		2011			2012
Net revenues	$	12,914	$	41		$	30
Station operating expenses, excluding depreciation and amortization expense		10,534		940			344
Depreciation and amortization		1,837		—			—
Interest expense		58		—			—
Other income (expense)		919		(1,841	)		2
Income (loss) before taxes		1,404		(2,740	)		(312	)
Provision for income taxes		401		—			—
Net income (loss) attributable to minority interests		398		(469	)		(48	)

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 credit facility.

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),
	2010		2011		2012
Net revenues	$	464	$	558	$	59
Station operating expenses, excluding depreciation and amortization expense		101		128		51
Depreciation and amortization		52		68		7
Gain on sale of assets		—		—		4,882
Income before taxes		311		362		4,883
Provision for income taxes		112		148		729
Net income		199		214		4,154

Discontinued Operation – Belgium

On May 29, 2009, Emmis sold the stock of its Belgium radio operation to Alfacam Group NV, a Belgian corporation, for 100 euros. Emmis desired to exit Belgium as its financial performance in the market failed to meet expectations. The sale allowed Emmis to eliminate further operating losses. Emmis recorded a full valuation allowance against the net operating losses generated by the Belgium radio operation for all periods presented. Belgium had historically been included in the radio segment. The following table summarizes certain operating results for Belgium for all periods presented:

	For the year ended February 28 (29),
	2010		2011		2012
Net revenues	$	703	$	—	$	—
Station operating expenses, excluding depreciation and amortization expense		1,647		—		—
Loss before income taxes		944		—		—

Summary of Assets and Liabilities of Discontinued Operations:

	As of February 28, 2011				As of February 29, 2012
			Flint Peak Tower				Flint Peak Tower
	Slager		Site & Other		Slager		Site & Other
Current assets:
Cash and cash equivalents	$	1,658	$	—	$	914	$	—
Accounts receivable, net		63		—		—		—
Prepaid expenses		—		—		77		—
Income tax receivable		308		—		—		—
Other		34		—		—		—
Total current assets		2,063		—		991		—
Noncurrent assets:
Property and equipment, net		—		925		—		—
Other noncurrent assets		20		—		8		—
Total noncurrent assets		20		925		8		—
Total assets	$	2,083	$	925	$	999	$	—
Current liabilities:
Accounts payable and accrued expenses	$	723	$	131	$	457	$	94
Total current liabilities	$	723	$	131	$	457	$	94

Airplane

On December 1, 2008, Emmis exercised its early purchase option on its leased Gulfstream airplane. Emmis paid $10.2 million in cash, net of a refundable deposit of $4.2 million, to AVN Air, LLC, the lessor of the aircraft. Emmis immediately began marketing the airplane for sale, and in February 2009, entered into an agreement to sell the aircraft for $9.1 million in cash. We closed on the sale of the airplane on April 14, 2009.

k. 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. As of February 28 (29), 2011 and 2012, direct-response advertising costs capitalized as assets were approximately $1.6 million and $1.4 million, respectively. On an interim basis, the Company defers non direct-response advertising costs for major advertising campaigns for which future benefits can be demonstrated. These costs are amortized over the shorter of the period benefited or the remainder of the fiscal year. Advertising expense for the years ended February 2010, 2011 and 2012 was $5.2 million, $5.1 million and $5.0 million, respectively.

l. Investments

For those investments 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 those investments in which the Company does not have such significant influence, 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 (29).

Emmis has various investments, the carrying values of which are summarized in the following table:

	For the years ending February 28 (29),
	2011		2012
Broadcast tower site investment—Texas	$	1,351	$	1,531
Broadcast tower site investment—New Jersey		1,150		—
Other equity method investments		124		—
Total equity method investments		2,625		1,531
Available-for-sale investment		189		160
Total investments	$	2,814	$	1,691

Equity method investments

Emmis, through its partnership in the Austin market, has a 25% ownership interest in a company that operates a tower site in Austin, Texas. During the year ended February 29, 2012, the Company sold its 50% share of a partnership in which the sole asset is land in New Jersey on which a transmission tower is located to the other partner for $1.3 million in cash. Proceeds from the sale were used to repay amounts outstanding under our senior credit facility. No material gain or loss was recorded on the sale.

In connection with the sale of its controlling interest in Merlin Media LLC on September 1, 2011, the Company retained a 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 recorded in other income (expense), net in the accompanying consolidated statements of operations related to its common equity investment. See Note 8 for more discussion of the sale of a controlling interest in Merlin Media LLC and Note 16 for discussion of other income (expense), net.

Available for sale investments

During the year ended February 28, 2009, Emmis made an investment of $0.3 million in a company that specialized in the development and distribution of mobile and on-line games. The cumulative investment in this company was $1.3 million as of February 28, 2009. During the year ended February 28, 2009, Emmis recorded a noncash impairment charge of $1.3 million, recorded in other expense in the accompanying consolidated statements of operations, as it deemed the investment was fully impaired and the impairment was other-than-temporary.

Emmis has made investments totaling $0.5 million in a company that specializes in digital radio transmission technology. During the years ended February 28, 2011 and February 29, 2012, Emmis recorded noncash impairment charges of $0.3 million and less than $0.1 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. This investment is carried at fair value, which totaled $0.2 million as of February 29, 2012. Although no unrealized or realized gains or losses have been recognized on this investment, 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 the 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 recorded in other income (expense), net in the accompanying consolidated statements of operations related to its preferred equity investment. See Note 8 for more discussion of the sale of a controlling interest in Merlin Media LLC and Note 16 for discussion of other income (expense), net.

m. Deferred Revenue and Barter Transactions

Deferred revenue includes deferred magazine subscription revenue and deferred barter. 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 2010, 2011 and 2012 were $13.5 million, $12.8 million and $12.5 million, respectively, and barter expenses were $13.8 million, $13.5 million, and $12.4 million, respectively.

n. Foreign Currency Translation

The functional currencies of our international radio entities are shown in the following table. The balance sheets of these entities have been 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 have been translated using an average exchange rate for the period. During fiscal 2011 we reclassified $2.0 million of accumulated foreign currency losses related to our investment in Slager due to the substantial liquidation of that entity during the period. Subsequent to the reclassification, no translation adjustments are recorded for Slager in accumulated other comprehensive income. The net translation adjustments reflected in shareholders’ deficit during the respective periods were as follows:

		For the Years Ended February 28,
	Functional
	Currency	2010			2011			2012
Foreign currency transalation adjustments
Slovakia	Euro	$	(99	)	$	(773	)	$	(353	)
Bulgaria	Leva		290			(81	)		256
Hungary	Forint		(1,018	)		170			—
Belgium	Euro		(538	)		—			—
Reclassification due to substantial liquidation
Hungary	Forint		—			2,002			—
		$	(1,365	)	$	1,318		$	(97	)

o. 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 for the years ended February 2010, 2011 and 2012 consisted of stock options, restricted stock awards and the 6.25% Series A cumulative convertible preferred stock. Each share of our outstanding preferred stock in which the Company has not obtained rights may, at the election of the preferred holder, convert into 2.44 shares of common stock. Conversion of these shares of preferred stock into common stock would be dilutive for the year ended February 29, 2012. As such, the preferred dividends of $8.6 million and the extinguishment gain of $61.9 million have been added to net income attributable to common shareholders for purposes of calculating diluted net income per common share for the year then ended.

Included below is a summary of the shares added to basic weighted-average shares outstanding for purposes of calculating diluted EPS:

	For the year ended February 28 (29),
	2010		2011		2012
	(shares in 000’s)
6.25% Series A cumulative convertible preferred stock		—		—		5,693
Stock options and restricted stock awards		—		—		967
Common share equivalents		—		—		6,660

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),
	2010		2011		2012
	(shares in 000’s)
6.25% Series A cumulative convertible preferred stock		6,854		6,854		—
Stock options and restricted stock awards		8,650		8,266		6,651
Antidilutive common share equivalents		15,504		15,120		6,651

p. 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.

q. 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.

The Company recorded impairment charges for various definite-lived intangible assets during the year ended February 28, 2010. See Note 10 for more discussion.

r. 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.

s. 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 (29), 2011 and 2012.

t. 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 2013 with cash and cash equivalents on hand, projected cash flows from operations, cash from transactions outlined in Note 18, and, to the extent necessary, through its borrowing capacity under the Credit Agreement, which was approximately $13.5 million at February 29, 2012. Based on these projections, and the transactions outlined in Note 18, management also believes the Company will be in compliance with its debt covenants through the end of fiscal year 2013.

u. Recent Accounting Pronouncements

In June 2011, the Financial Accounting Standards Board (“FASB”) issued guidance for comprehensive income which requires that all components of other comprehensive income be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements. In the two-statement approach, the first statement should present total net income and its components followed consecutively by a second statement that should present total other comprehensive income, the components of other comprehensive income, and the total of comprehensive income. Also, the entity is required to present reclassification adjustments for items that are reclassified from other comprehensive income to net income on the face of the financial statements. The new guidance should be applied retrospectively and is effective for the Company on March 1, 2012. As this guidance only changes the format of the financial statements, the Company does not expect this to have an impact on results of operations, cash flows or financial condition.

In September 2011, the FASB issued guidance to simplify how entities test goodwill for impairment. The guidance permits an entity 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 determining whether it is necessary to perform the two-step impairment test. An entity is not required to calculate the fair value of a reporting unit unless the entity determines that it is more likely than not that its fair value is less than its carrying value. The Company does not expect that this guidance, which will be effective for the Company as of March 1, 2012, will have a material effect on the Company’s results of operations, cash flows or financial condition.