Attached files
file | filename |
---|---|
EX-31.1 - EX-31.1 - GLOBAL TRAFFIC NETWORK, INC. | c62735exv31w1.htm |
EX-31.2 - EX-31.2 - GLOBAL TRAFFIC NETWORK, INC. | c62735exv31w2.htm |
EX-10.1 - EX-10.1 - GLOBAL TRAFFIC NETWORK, INC. | c62735exv10w1.htm |
EX-99.1 - EX-99.1 - GLOBAL TRAFFIC NETWORK, INC. | c62735exv99w1.htm |
EX-10.2 - EX-10.2 - GLOBAL TRAFFIC NETWORK, INC. | c62735exv10w2.htm |
EX-32.1 - EX-32.1 - GLOBAL TRAFFIC NETWORK, INC. | c62735exv32w1.htm |
Table of Contents
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
þ | QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended December 31, 2010
OR
o | TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File No. 0-51838
Global Traffic Network, Inc.
(Exact Name of Registrant as Specified in Its Charter)
Nevada (State or other jurisdiction of incorporation or organization) |
33-1117834 (I.R.S. Employer Identification No.) |
|
880 Third Avenue, 6th Floor New York, New York (Address of principal executive offices) |
10022 (Zip Code) |
(212) 896-1255
(Issuers telephone number, including area code)
(Issuers telephone number, including area code)
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period
that the registrant was required to submit and post such files). Yes o No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large
accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the
Exchange Act. (Check one):
Large accelerated filer o | Accelerated filer o | Non-accelerated filer o (Do not check if a smaller reporting company) |
Smaller reporting company þ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act). Yes o No þ
As of
February 9, 2011, the registrant had 18,548,420 shares of common stock outstanding.
Global Traffic Network, Inc.
Index
Table of Contents
Part 1 Financial Information
Item 1 Financial Statements
GLOBAL TRAFFIC NETWORK, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)
CONSOLIDATED BALANCE SHEETS
(In thousands)
December 31, | June 30, | |||||||
2010 | 2010 | |||||||
(Unaudited) | (Unaudited) | |||||||
ASSETS: |
||||||||
Current Assets: |
||||||||
Cash and cash equivalents |
$ | 29,504 | $ | 19,564 | ||||
Accounts receivable net of allowance for
doubtful accounts of $117 and $69 at December
31, 2010 and June 30, 2010 |
26,291 | 18,790 | ||||||
Prepaids and other current assets |
1,653 | 1,989 | ||||||
Deferred tax assets |
337 | 239 | ||||||
Total current assets |
57,785 | 40,582 | ||||||
Property and equipment, net |
6,482 | 6,693 | ||||||
Intangible assets, net |
12,269 | 13,013 | ||||||
Goodwill |
4,447 | 4,257 | ||||||
Deferred tax assets |
170 | 129 | ||||||
Other assets |
383 | 414 | ||||||
Total assets |
$ | 81,536 | $ | 65,088 | ||||
LIABILITIES AND SHAREHOLDERS EQUITY: |
||||||||
Current Liabilities: |
||||||||
Accounts payable and accrued expenses |
$ | 15,175 | $ | 11,709 | ||||
Deferred revenue |
339 | 810 | ||||||
Income taxes payable |
2,236 | 1,306 | ||||||
Total current liabilities |
17,750 | 13,825 | ||||||
Deferred tax liabilities |
2,936 | 2,747 | ||||||
Other liabilities |
447 | 349 | ||||||
Total liabilities |
21,133 | 16,921 | ||||||
Preferred stock, $.001 par value;
10,000,000 authorized; 0 issued and
outstanding as of December 31, 2010 and June
30, 2010 |
| | ||||||
Common stock, $.001 par value; 100,000,000
shares authorized; 18,474,731 shares issued
and outstanding as of December 31, 2010 and
18,409,834 shares issued and outstanding as
of June 30, 2010 |
18 | 18 | ||||||
Additional paid in capital |
52,066 | 51,391 | ||||||
Accumulated other comprehensive income |
6,866 | 389 | ||||||
Retained earnings (accumulated deficit) |
1,453 | (3,631 | ) | |||||
Total shareholders equity |
60,403 | 48,167 | ||||||
Total liabilities and shareholders equity |
$ | 81,536 | $ | 65,088 | ||||
See accompanying notes to the consolidated financial statements
3
Table of Contents
GLOBAL TRAFFIC NETWORK, INC.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands except share and per share amounts)
CONSOLIDATED STATEMENTS OF INCOME
(In thousands except share and per share amounts)
Three Months Ended | Six Months Ended | |||||||||||||||
December 31 | December 31 | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
(Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | |||||||||||||
Revenues |
$ | 31,811 | $ | 25,624 | $ | 57,114 | $ | 45,981 | ||||||||
Operating expenses (exclusive of
depreciation and amortization shown
separately below) |
18,189 | 16,727 | 34,321 | 31,687 | ||||||||||||
Selling, general and administrative expenses |
6,743 | 5,664 | 12,096 | 10,416 | ||||||||||||
Depreciation and amortization expense |
1,486 | 1,310 | 2,913 | 2,557 | ||||||||||||
Net operating income |
5,393 | 1,923 | 7,784 | 1,321 | ||||||||||||
Interest expense |
| 9 | | 15 | ||||||||||||
Other (income) (including interest income
of $290 and $162 for the three months ended
December 31, 2010 and 2009 and interest
income of $540 and $313 for the six months
ended December 31, 2010 and 2009) |
(297 | ) | (199 | ) | (548 | ) | (508 | ) | ||||||||
Other expense |
4 | 3 | 7 | 30 | ||||||||||||
Net income before income taxes |
5,686 | 2,110 | 8,325 | 1,784 | ||||||||||||
Income tax expense |
1,936 | 1,288 | 3,241 | 1,996 | ||||||||||||
Net income (loss) |
$ | 3,750 | $ | 822 | $ | 5,084 | $ | (212 | ) | |||||||
Income (loss) income per common share: |
||||||||||||||||
Basic |
$ | 0.21 | $ | 0.05 | $ | 0.28 | $ | (0.01 | ) | |||||||
Diluted |
$ | 0.20 | $ | 0.05 | $ | 0.27 | $ | (0.01 | ) | |||||||
Weighted average common shares outstanding: |
||||||||||||||||
Basic |
18,178,570 | 18,091,502 | 18,173,925 | 18,091,502 | ||||||||||||
Diluted |
18,742,974 | 18,121,113 | 18,528,757 | 18,091,502 |
See accompanying notes to the consolidated financial statements
4
Table of Contents
GLOBAL TRAFFIC NETWORK, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Six Months | ||||||||
Ended | ||||||||
December 31, | ||||||||
2010 | 2009 | |||||||
(Unaudited) | (Unaudited) | |||||||
Cash flows from operating activities: |
||||||||
Net income (loss) |
$ | 5,084 | $ | (212 | ) | |||
Adjustments to reconcile net income (loss) to net cash provided by operating activities: |
||||||||
Depreciation and amortization |
2,913 | 2,557 | ||||||
Allowance for doubtful accounts |
48 | (3 | ) | |||||
Non-cash compensation expense |
675 | 633 | ||||||
Change in deferred taxes |
12 | (274 | ) | |||||
Foreign currency translation income |
| (101 | ) | |||||
Loss on disposal or write-down of assets |
92 | 26 | ||||||
Changes in assets and liabilities (net of effects from purchase of controlled entity): |
||||||||
Accounts receivable |
(4,581 | ) | (1,576 | ) | ||||
Prepaid and other current assets and other assets |
566 | 151 | ||||||
Accounts payable and accrued expenses and other liabilities |
1,756 | 1,293 | ||||||
Deferred revenue |
(563 | ) | (782 | ) | ||||
Income taxes payable |
599 | (711 | ) | |||||
Net cash provided by operating activities |
6,601 | 1,001 | ||||||
Cash flows from investing activities: |
||||||||
Purchase of property and equipment |
(737 | ) | (1,072 | ) | ||||
Acquisition of business |
| (3,488 | ) | |||||
Net cash used in investing activities |
(737 | ) | (4,560 | ) | ||||
Cash flows from financing activities: |
||||||||
Repayment of long term debt |
| (414 | ) | |||||
Net cash used in financing activities |
| (414 | ) | |||||
Effect of exchange rate changes on cash and cash equivalents |
4,076 | 1,586 | ||||||
Net increase (decrease) in cash and cash equivalents |
9,940 | (2,387 | ) | |||||
Cash and cash equivalents at beginning of fiscal period |
19,564 | 21,419 | ||||||
Cash and cash equivalents at end of fiscal period |
$ | 29,504 | $ | 19,032 | ||||
Supplemental disclosures of cash flow information: |
||||||||
Cash paid during fiscal period for: |
||||||||
Interest |
$ | | $ | 15 | ||||
Income taxes |
$ | 2,625 | $ | 3,010 | ||||
See accompanying notes to the consolidated financial statements
5
Table of Contents
GLOBAL TRAFFIC NETWORK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share and per share amounts unless noted)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share and per share amounts unless noted)
Information as of December 31, 2010 and 2009 and for the six months ended December 31,
2010 and 2009 is unaudited
2010 and 2009 is unaudited
NOTE 1 Description of the Companys Business
Global Traffic Network, Inc. (the Company) provides traffic and news information reports to
radio and television stations in international markets. The Company provides traffic information
reports to radio and television stations in Australia and Canada and traffic information reports to
radio stations in the United Kingdom, provides news and information reports to radio stations in
Canada, entertainment news reports to radio stations in the United Kingdom and has an inventory of
commercial advertising embedded in radio news reports in Australia. The Company derives a
substantial majority of its revenues from the sale of commercial advertising embedded within these
information reports. The Company obtains this advertising inventory from radio and television
stations in exchange for providing stations with information reports and/or cash compensation. The
Company also derives revenues from providing traffic related reporting services to government
agencies in the United Kingdom.
NOTE 2 Basis of Presentation
The consolidated financial statements consist of the Company and its four wholly owned
subsidiaries, The Australia Traffic Network Pty Limited (ATN), Global Traffic Canada, Inc.
(GTC) including its wholly owned subsidiary Canadian Traffic Network ULC (CTN), Global Traffic
Network (UK) Limited (UKTN) including its wholly owned subsidiary Global Traffic Network (UK)
Commercial Limited (UK-Commercial) and Global Alert Network, Inc. (GAN). Effective October 12,
2010, GAN changed its name from Mobile Traffic Network, Inc. (MTN). GTC is a holding company and
had no assets or liabilities other than its ownership of CTN at December 31, 2010 and June 30,
2010. Because the financial statements are presented on a consolidated basis, all material
intercompany transactions and balances have been eliminated in the consolidation. All adjustments
that in the opinion of management are necessary for a fair presentation have been included. All
such adjustments are of a normal and recurring nature. The results of operation for the period
ended December 31, 2010 is not necessarily indicative of the operating results for a full fiscal
year.
Although ATNs functional currency is Australian dollars, CTNs functional currency is
Canadian dollars and UKTN and UK-Commercials functional currency is British pounds, for reporting
purposes the Companys financial statements are presented in United States dollars. The financial
statements have been translated into United States dollars in accordance with FASB Statement No.
52, Foreign Currency Translation (SFAS 52). Effective July 1, 2009, the provisions of SFAS 52
were incorporated in the Codification under FASB ASC 830. Income statement amounts are translated
from Australian dollars, Canadian dollars, or British pounds to United States dollars based on the
average exchange rate for each quarterly period. Assets and liabilities are translated based on the
exchange rate as of the applicable balance sheet date. Equity contributions are translated based on
the exchange rate at the time of the applicable investment. Foreign currency translation
adjustments upon translation of the Companys financial statements to United States dollars are
recognized as other comprehensive income (loss). Realized gains and losses resulting from currency
translation adjustments are recognized in the accompanying statements of income as other expense
(income).
These financial statements should be read in conjunction with the audited financial statements
and footnotes included in the Companys Annual Report on Form 10-K filed on September 15, 2010.
Certain amounts reported in prior years have been reclassified to conform to the current year
presentation.
Subsequent events have been evaluated up to the date on which these financial statements were
filed.
NOTE 3 Earnings per Share
Basic earnings per share is calculated by dividing net income by the weighted average number
of common shares outstanding for the period. Diluted earnings per share is based upon the sum of
the weighted average number of shares of common stock outstanding plus all additional common stock
equivalents outstanding during the period, when dilutive. For the periods ended December 31, 2010
and 2009, there were common equivalent shares outstanding due to outstanding stock options of
1,265,900 and 1,148,400, respectively, restricted common shares of 288,328 and 218,332,
respectively, and warrants issued to the underwriter of the Companys IPO to purchase common shares
of 360,000 and 380,000, respectively, that have a strike price of $6.00 and expire March 23, 2011.
There were common stock equivalents due to stock options of 316,514 and 6,874, respectively,
for the three month periods ended December 31, 2010 and 2009. There were common stock equivalents
due to stock options of 196,458 for the six month period ended December 31, 2010. Due to the net
loss for the six month period ended December 31, 2009, the impact of the stock options on fully
diluted earnings per share would be anti-dilutive and therefore is not included in common stock
equivalents. For the three month period ended December 31, 2009, 783,400 stock options with
exercise prices between and $4.66 and $8.70 were excluded from the calculation of diluted shares
outstanding because they were anti-dilutive. For the six month period
ended December 31, 2010,
260,000 stock options with exercise prices between $6.68 and $7.05 were excluded from the
calculation of diluted shares outstanding because they were anti-dilutive.
For the three month periods ended December 31, 2010 and 2009 there were 162,756 and 22,737, respectively, common stock equivalents due to restricted stock. For the six month period ended December 31, 2010 there were 128,122 common stock equivalents due to restricted stock. Due to the net loss for the six month period ended December 31, 2009, the impact of the restricted stock on fully diluted earnings per share would be anti-dilutive, and therefore is not included in the calculation of fully diluted earnings per share.
For the three month periods ended December 31, 2010 and 2009 there were 162,756 and 22,737, respectively, common stock equivalents due to restricted stock. For the six month period ended December 31, 2010 there were 128,122 common stock equivalents due to restricted stock. Due to the net loss for the six month period ended December 31, 2009, the impact of the restricted stock on fully diluted earnings per share would be anti-dilutive, and therefore is not included in the calculation of fully diluted earnings per share.
6
Table of Contents
There were common stock equivalents due to warrants of 85,134 and 0, respectively, for the
three month periods ended December 31, 2010 and 2009. For the three month period ended December 31,
2009, 380,000 warrants with an exercise price of $6.00 were excluded from the calculation of
diluted shares outstanding because they were anti-dilutive. There were common stock equivalents
due to warrants of 30,252 for the six month period ended December 31, 2010. Due to the net loss
for the six month period ended December 31, 2009, the impact of the warrants on fully diluted
earnings per share would be anti-dilutive and therefore is not included in common stock
equivalents. Since December 31, 2010, 8,443 additional warrants have been exercised (in a cashless
manner) resulting in the issuance of 3,578 additional common shares.
Three Months | Three Months | Six Months | Six Months | |||||||||||||
Ended | Ended | Ended | Ended | |||||||||||||
December 31, 2010 |
December 31, 2009 |
December 31, 2010 |
December 31, 2009 |
|||||||||||||
Basic Shares Outstanding |
18,178,570 | 18,091,502 | 18,173,925 | 18,091,502 | ||||||||||||
Stock Options, Restricted
Stock & Warrants |
564,404 | 29,611 | 354,832 | N/A | ||||||||||||
Diluted Shares Outstanding |
18,742,974 | 18,121,113 | 18,528,757 | 18,091,502 |
NOTE 4 Recent Accounting Pronouncements
In December 2010, the Financial Accounting Standards Board (FASB) issued Accounting
Standards Update No. 2010-28, When to Perform Step 2 of the Goodwill Impairment Test for Reporting
Units with Zero or Negative Carrying Amounts (ASU 2010-28) which amends FASB ASC Topic 350
(Intangibles Goodwill and Other) to modify Step 1 of the goodwill impairment test for reporting
units with zero or negative carrying amounts to require performing Step 2 of the goodwill
impairment test if it is more likely than not that a goodwill impairment exists. ASU 2010-28 is
effective for fiscal years and the interim periods within those years beginning after December 15,
2010. Early adoption is not permitted. The Company intends to adopt the provisions of ASU 2010-28
effective July 1, 2011 and does not expect the adoption to have a material impact on its
consolidated financial position or results of operations.
NOTE 5 Concentration of Credit Risk
The Company maintains cash balances with what management believes to be high credit quality
financial institutions. Balances have exceeded and continue to exceed those amounts insured and the
majority of the Companys cash is maintained in instruments not subject to FDIC or other insurance.
In addition, a substantial majority of the Companys cash balances is held in one financial
institution located in Australia. Furthermore, a majority of the Companys cash is maintained in
foreign currencies, which is also subject to currency exchange rate fluctuation risk.
December 31, | June 30, | |||||||
2010 | 2010 | |||||||
Cash and cash equivalents consist of the following: |
||||||||
Domestic currency |
$ | 714 | $ | 234 | ||||
Foreign currencies |
28,790 | 19,330 | ||||||
Total cash and cash equivalents |
$ | 29,504 | $ | 19,564 |
Money market investments with a fair value of $26 are included in cash and cash equivalents as
of December 31, 2010. Fair value has been determined based on the fair value of identical
investments in active markets. All cash and cash equivalents are classified as level 1 as defined
in FASB ASC 820.
NOTE 6 Major Suppliers
Approximately 18% of the Companys radio commercial airtime inventory in Australia (which,
when sold to advertisers, generates a material amount of the Companys Australian revenues) comes
from a large broadcaster in Australia, which includes inventory received from this broadcaster
under a four year agreement effective July 1, 2008 to provide radio traffic reporting services and
receive radio traffic and news commercial airtime inventory. At December 31, 2010, trade payables
to this supplier comprised approximately 29% of the Companys trade payables balance.
Approximately 17% of the Companys radio commercial airtime inventory in Australia (which,
when sold to advertisers, generates a material amount of the Companys Australian revenues) comes
from a different large broadcaster in Australia. Radio commercial advertising inventory is received
from this broadcaster under a four year agreement effective July 1, 2008 to provide radio traffic
reporting services and receive radio traffic commercial airtime inventory and agreements through
May 31, 2012 to receive radio news commercial airtime inventory. At December 31, 2010, trade
payables to this supplier comprised approximately 9% of the Companys trade payables balance.
Twenty three of the Companys Canadian radio station affiliates, which represent approximately
34% of the Canadian radio stations (excluding regional suburban stations) with which the Company
has contracted to provide radio traffic reports, are owned by one company. These stations account
for approximately 45% of the Companys radio commercial airtime inventory (excluding regional
suburban stations) in Canada. The sale of such inventory constitutes a substantial portion of the
Companys Canadian revenues. The Companys provision of traffic
reports to 22 of these radio stations is governed by a four year agreement effective January 1,
2009. At December 31, 2010, trade payables to this supplier comprised approximately 9% of the
Companys trade payables balance.
Effective February 1, 2011, four of these stations were sold and are no
longer subject to the agreement.
Approximately 19% of the Companys radio traffic commercial airtime inventory in the United
Kingdom (which, when sold to advertisers, generates a material amount of the Companys United
Kingdom revenues) comes from a large broadcaster in the United Kingdom. In addition,
7
Table of Contents
this commercial airtime inventory comprises approximately 28% of the audience delivery
(impacts) of the Companys United Kingdom radio traffic network. The Company provides radio
traffic reports and receives radio traffic commercial inventory under a three year agreement
effective November 1, 2010. The agreement may be cancelled prior to the end date by either party upon 90
days prior notice during the period commencing August 31, 2012 and ending October 1, 2012.
At December 31, 2010, trade payables to this supplier comprised
approximately 5% of the Companys trade payables balance.
Approximately 15% of the Companys radio traffic commercial airtime inventory in the United
Kingdom (which, when sold to advertisers, generates a material amount of the Companys United
Kingdom revenues) comes from another large broadcaster in the United Kingdom. This commercial
airtime inventory comprises approximately 26% of the impacts of the Companys United Kingdom radio
traffic network. The Company provides radio traffic reports and receives radio traffic commercial
inventory to sell (on a variable cost basis) under the terms of an agreement that expired effective
August 31, 2010. This broadcaster also provides a material portion of the Companys radio
entertainment news commercial airtime inventory under the terms of a separate agreement that
expired effective August 31, 2010. At December 31, 2010, trade payables to this supplier comprised
approximately 5% of the Companys trade payables balance. Pending negotiation and execution of a
renewal of the Companys agreements with this broadcaster, the Company has continued to provide
service to and receive inventory from such broadcaster under the terms of the expired agreements.
NOTE 7 Comprehensive Income (Loss)
Comprehensive income (loss) is comprised of net income and all changes to shareholders equity
except those due to investment by, distributions to and repurchases from shareholders.
Six months | Six months | |||||||
ended | ended | |||||||
December 31, | December 31, | |||||||
2010 | 2009 | |||||||
Net income (loss) |
$ | 5,084 | $ | (212 | ) | |||
Foreign currency translation adjustment |
6,477 | 2,201 | ||||||
Comprehensive income |
$ | 11,561 | $ | 1,989 |
NOTE 8 Income Taxes
Tax expense for the six months ended December 31, 2010 and 2009 was $3,241 and $1,996,
respectively. The effective tax rate for the six months ended December 31, 2010 and 2009 was
38.9% and 111.9%, respectively. The rates differ from the United States federal statutory rate of
approximately 35% primarily due to the Companys Australian operations reporting a taxable profit
and tax expense while the Companys Canadian operations generate a net loss without recording an
income tax benefit.
Although UK-Commercial is profitable on a tax basis, the Companys United Kingdom operations
are unable to utilize the group relief provision of the United Kingdom tax code until
UK-Commercials net operating loss carry forwards have been exhausted. The valuation allowance for
the period ending December 31, 2010 was reduced due to the use of previously valued deferred tax
assets of $1,460 pertaining primarily to ATN net income that was recognized by Global Traffic
Network, Inc. (the unconsolidated parent) (GTN) during the period, which was partially offset by
$964 of additions to the valuation allowance primarily for net operating losses of CTN as well as
certain other deferred tax assets. Prior to July 1, 2009, the Company considered all earnings of
ATN to be indefinitely reinvested abroad and therefore did not recognize a deferred tax liability
with regards to the undistributed earnings of ATN. As a result of the change in permanent
investment status, GTN has recognized deferred tax liabilities of $14,147 for undistributed
earnings and profits of ATN to date which are partially offset by foreign tax credit deferred tax
assets of $10,840.
The Company realized a tax benefit of $365 due to a reduction of the deferred tax liability
that was established due to the acquisition of Unique. The initial amount of this tax liability was
$4,342 and the current carrying value is $3,400 (the balance has decreased less than the cumulative
tax benefit realized due to increases in currency exchange rates). The Company has not recorded any
other tax benefit for the periods ended December 31, 2010 and 2009 because the Company recorded a
valuation allowance against all of the Companys net deferred tax assets for GTN/MTN and CTN, as
well as certain deferred tax assets of UKTN at December 31, 2010 and June 30, 2010 due to the
uncertainty surrounding the realization of the tax deductions in future tax returns. This valuation
allowance will be reduced to the extent the Company determines that the deferred tax assets will
more likely than not be realized. The Company had tax carried forward losses (prior to the
valuation allowance) of $5,424 and $5,292 as of December 31, 2010 and June 30, 2010, respectively.
As of December 31, 2010, all of the tax carried forward losses related to the Companys foreign
operations. The Company recorded a deferred tax asset of $1,252 associated with the net operating
losses of Unique which the Company acquired March 1, 2009. The Company has not recorded a valuation
allowance against this deferred tax asset since it believes it is more likely than not that it will
be able to utilize these net operating losses against future taxable income of UK-Commercial. The
deferred tax asset related to the UK-Commercial net operating losses was $464 as of December 31,
2010 and the Company recognized $430 of non-cash income tax expense for the six months ended
December 31, 2010 due to the utilization of this asset. The Company will continue to assess this
position and, if necessary, establish a valuation allowance in order that the net carrying value of
the deferred tax asset approximates its net realizable value. UK-Commercial has generated taxable
income since its acquisition date.
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Table of Contents
December 31, | June 30, | |||||||
2010 | 2010 | |||||||
Tax carried forward losses |
$ | 5,424 | $ | 5,292 | ||||
Other deferred tax assets |
5,246 | 4,272 | ||||||
Total deferred tax assets |
10,670 | 9,564 | ||||||
Total deferred tax liabilities |
6,726 | 5,074 | ||||||
Net deferred tax assets before valuation allowance |
3,944 | 4,490 | ||||||
Valuation allowance |
(6,373 | ) | (6,869 | ) | ||||
Net deferred tax (liabilities) |
$ | (2,429 | ) | $ | (2,379 | ) |
NOTE 9 Commitments
The Company has various non-cancelable, long-term operating leases for its facilities and
office equipment. The facility leases have escalation clauses and provisions for payment of taxes,
insurance, maintenance and repair expenses. Total rent expense under these leases is recognized
ratably over the lease terms. Future minimum payments, by year and in the aggregate, under such
non-cancelable operating leases with initial or remaining terms of one year or more, consists of
the following as of December 31, 2010:
December 31, | ||||
2010 | ||||
Year 1 |
$ | 911 | ||
Year 2 |
643 | |||
Year 3 |
430 | |||
Year 4 |
164 | |||
Year 5 |
118 | |||
Thereafter |
157 | |||
Total |
$ | 2,423 |
Total rent expense charged to expenses in the accompanying statements of income for the three
and six months ended December 31, 2010 and 2009 was $317, $297, $611 and $620, respectively. Rent
expense on an annualized basis exceeds rental commitments primarily due to many of the Companys
operations and hangar arrangements being short term in nature.
The Company generally enters into multi-year contracts with radio and television stations.
These contracts require the Company to provide various levels of service (including, but not
limited to providing professional broadcasters, gathering information, communications and aviation
services) and, in some cases, cash compensation or reimbursement of expenses. Station compensation
and reimbursement is a component of operating expense and is recognized over the term of the
applicable contracts, which is not materially different than when the services are performed.
Contractual station commitments by year and in the aggregate are as follows:
As of | ||||
December 31, | ||||
2010 | ||||
Year 1 |
$ | 38,444 | ||
Year 2 |
26,012 | |||
Year 3 |
8,616 | |||
Year 4 |
370 | |||
Year 5 |
| |||
Thereafter |
| |||
Total |
$ | 73,442 |
The Companys UK-Commercial subsidiary outsources the majority of its radio traffic and
entertainment news operations pursuant to contracts with unrelated third parties. Expenses
associated with these arrangements are a component of operating expense and are recognized
over the term of the applicable contracts, which is not materially different than when the services
are provided. The minimum future payments under these contracts by year and in the aggregate are as
follows:
As of | ||||
December 31, | ||||
2010 | ||||
Year 1 |
$ | 3,132 | ||
Year 2 |
3,044 | |||
Year 3 |
| |||
Year 4 |
| |||
Year 5 |
| |||
Thereafter |
| |||
Total |
$ | 6,176 |
9
Table of Contents
In January 2011, CTN committed to rebuild the engine of one of its owned helicopters. This is
a normal and recurring expenditure as the helicopter engines need to be regularly rebuilt based on
the number of hours flown. The expected capital expenditure is approximately $300.
NOTE 10 Stock based compensation
The Company maintains an Amended and Restated 2005 Stock Incentive Plan (the Plan) under
which 2,400,000 shares are authorized for issuance. Adoption of the Plan and all amendments thereto
have been approved by the Companys stockholders, including an amendment on December 15, 2010 to
increase the number of shares authorized for issuance under the Plan from 1,800,000 to 2,400,000.
Stock options and restricted stock that are issued, outstanding or available for future issuance
under the Plan are summarized below:
As of | ||||
December 31, | ||||
2010 | ||||
Shares authorized under plan |
2,400,000 | |||
Stock options outstanding |
(1,265,900 | ) | ||
Stock options exercised |
(43,268 | ) | ||
Restricted shares outstanding |
(288,328 | ) | ||
Restricted shares converted into common shares upon lapse of restrictions |
(121,672 | ) | ||
Shares available for issuance under plan |
680,832 | |||
Stock Options
The Company is required to determine the fair value of employee and director stock options
issued under the Plan. The fair value of these options was estimated at the date of grant using the
Black-Scholes option pricing model based on the following assumptions:
Six months | ||||
Ended | ||||
December 31, | ||||
2010 | ||||
Risk-free interest rate |
1.41-2.11 | % | ||
Volatility factor |
70.05-70.55 | % | ||
Weighted volatility |
70.53 | % | ||
Dividend yield |
| |||
Option price |
$ | 5.30-$5.51 | ||
Weighted average expected life of options |
6 years | |||
Weighted average grant date fair value per share |
$ | 3.50 |
The following table summarizes the Companys stock option activity for the six month period
ended December 31, 2010:
Weighted | ||||||||||||||||||||
Weighted | Average | |||||||||||||||||||
Average | Remaining | Aggregate | Aggregate | |||||||||||||||||
Exercise | Contractual | Fair | Intrinsic | |||||||||||||||||
Options | Price | Term | Value | Value | ||||||||||||||||
Balance, June 30, 2010 |
1,148,401 | $ | 5.14 | | $ | 3,309 | $ | | ||||||||||||
Exercisable, June 30, 2010 |
763,737 | $ | 5.38 | | $ | 2,173 | $ | | ||||||||||||
Grants |
145,000 | $ | 5.50 | | $ | 508 | $ | | ||||||||||||
Exercised |
(18,334 | ) | $ | 4.69 | | $ | (53 | ) | $ | 35 | ||||||||||
Forfeitures/expirations |
(9,167 | ) | $ | 7.60 | | $ | (40 | ) | $ | | ||||||||||
Balance, December 31, 2010 |
1,265,900 | $ | 5.17 | 7.04 years | $ | 3,724 | $ | 5,227 | ||||||||||||
Exercisable, December 31, 2010 |
817,909 | $ | 5.21 | 6.19 years | $ | 2,287 | $ | 3,343 |
Based on the following assumptions, the fair value with regards to all options issued and
outstanding as of December 31, 2010 is $3,724. As of December 31, 2010, there was $1,063 of
unrecognized compensation expense related to non-vested share-based compensation under the Plan.
The cost of the unrecognized compensation is expected to be recognized over a weighted average
period of 1.6 years. This expense assumes that there will be no forfeitures, and this assumption is
based on the positions of the option recipients within the Company and the low number of past
forfeitures. Since the Plan was adopted, the largest previous forfeitures were due to outside
directors becoming employees of the Company. In such instances, the forfeited director stock
options were simultaneously replaced with a like number of employee stock options. Stock option
expense for the six months ended December 31, 2010 and 2009 was $280 and $388, respectively, and is
included in selling, general and administrative expenses. There is no income tax benefit reflected
in the accompanying income statements because a valuation allowance has been created for the net
deferred tax assets of GTN as of December 31, 2010.
The total fair value of options vesting during the six months ended December 31, 2010 and 2009
was $207 and $93, respectively. The total intrinsic value of options exercised during the six
months ended December 31, 2010 and 2009 was $35 and $0, respectively.
10
Table of Contents
Restricted Stock
The Company has awarded restricted shares of its common stock under the Plan to certain
employees and directors. The awards, which are comprised of shares of common stock that are subject
to transfer and forfeiture restrictions, have restriction periods tied solely to continued
employment or service on the Companys board of directors and vest over three years. The value of
these restricted stock awards is calculated at the fair market value of the shares on the date of
grant, net of estimated forfeitures, and is expensed pro rata over the vesting period.
The following table summarizes the restricted stock activity for the six month period ended
December 31, 2010:
Six months | ||||||||
Ended | ||||||||
December 31, | ||||||||
2010 | ||||||||
Weighted | ||||||||
Average Grant | ||||||||
Date Fair | ||||||||
Value | ||||||||
Shares | Per Share | |||||||
Unvested, beginning of period |
248,329 | $ | 5.47 | |||||
Grants |
55,000 | 5.51 | ||||||
Converted to common stock upon lapse of restrictions |
(15,001 | ) | | |||||
Forfeited |
| | ||||||
Unvested, end of period |
288,328 | $ | 5.56 |
As of December 31, 2010, there was $1,003 of unrecognized compensation expense related to
restricted stock grants. The unrecognized compensation expense is expected to be recognized over a
weighted average period of 2.2 years. Total compensation expense with regards to restricted stock
for the six month periods ended December 31, 2010 and 2009 was $395 and $245, respectively and is
included in selling, general and administrative expenses.
On
February 9, 2011, the compensation committee of the Company granted
an additional 72,725 shares of restricted stock. The restriction
period of this restricted stock grant is comparable to those
previously granted by the Company.
NOTE 11 Segment Reporting
The Company primarily operates in three geographic areas, Australia, Canada and United
Kingdom, through its wholly owned subsidiaries ATN, GTC, which operates through its wholly owned
subsidiary CTN, and UKTN, including its wholly owned subsidiary UK-Commercial. Select income
statement information and capital expenditures for the periods ended December 31, 2010 and 2009 and
select balance sheet information as of December 31, 2010 and 2009 is provided below. The All Other
category consists primarily of GAN (previously MTN and renamed effective October 12, 2010) and
corporate overhead and assets of GTN. Management fees charged are treated as a contra-expense and
eliminate on consolidation. All revenue is from external clients and there is no intersegment
revenue. Intercompany advances are treated as non-current assets or liabilities and eliminate on
consolidation.
Three months | Three months | Six months | Six months | |||||||||||||
Ended | Ended | Ended | Ended | |||||||||||||
December 31, | December 31, | December 31, | December 31, | |||||||||||||
Australia | 2010 | 2009 | 2010 | 2009 | ||||||||||||
Revenues |
$ | 19,189 | $ | 15,925 | $ | 34,518 | $ | 28,017 | ||||||||
Interest expense |
| 9 | | 15 | ||||||||||||
Interest revenue |
285 | 161 | 535 | 311 | ||||||||||||
Depreciation & amortization expense |
284 | 260 | 533 | 499 | ||||||||||||
Intercompany management fee expense |
445 | 407 | 853 | 791 | ||||||||||||
Income tax expense |
1,937 | 1,460 | 3,160 | 2,241 | ||||||||||||
Segment profit |
4,518 | 3,363 | 7,360 | 5,179 | ||||||||||||
Expenditure for property and equipment |
55 | 210 | 301 | 261 | ||||||||||||
December 31, | December 31, | |||||||||||||||
2010 | 2009 | |||||||||||||||
Segment assets |
43,639 | 32,180 | ||||||||||||||
Current assets |
40,884 | 28,989 | ||||||||||||||
Property & equipment, net |
2,272 | 2,589 | ||||||||||||||
Deferred tax assets, net |
507 | 390 | ||||||||||||||
Intangible assets, net |
40 | 35 | ||||||||||||||
Goodwill |
| | ||||||||||||||
Segment liabilities |
11,272 | 9,204 | ||||||||||||||
Three months | Three months | Six months | Six months | |||||||||||||
Ended | Ended | Ended | Ended | |||||||||||||
December 31, | December 31, | December 31, | December 31, | |||||||||||||
Canada | 2010 | 2009 | 2010 | 2009 | ||||||||||||
Revenues |
$ | 4,631 | $ | 2,498 | $ | 7,484 | $ | 3,809 | ||||||||
Interest expense |
| | | | ||||||||||||
Interest revenue |
| | | | ||||||||||||
Depreciation & amortization expense |
484 | 291 | 959 | 533 | ||||||||||||
Intercompany management fee expense |
| | | | ||||||||||||
Income tax expense |
| | | | ||||||||||||
Segment profit (loss) |
167 | (971 | ) | (569 | ) | (2,544 | ) | |||||||||
Expenditure for property and equipment |
120 | 306 | 430 | 734 |
11
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December 31, | December 31, | |||||||||||||||
2010 | 2009 | |||||||||||||||
Segment assets |
10,376 | 8,282 | ||||||||||||||
Current assets |
6,458 | 3,128 | ||||||||||||||
Property & equipment, net |
3,787 | 4,988 | ||||||||||||||
Deferred tax assets (liabilities), net |
| | ||||||||||||||
Intangible assets, net |
87 | 150 | ||||||||||||||
Goodwill |
| | ||||||||||||||
Segment liabilities |
29,692 | 24,167 | ||||||||||||||
Three months | Three months | Six months | Six months | |||||||||||||
Ended | Ended | Ended | Ended | |||||||||||||
December 31, | December 31, | December 31, | December 31, | |||||||||||||
United Kingdom | 2010 | 2009 | 2010 | 2009 | ||||||||||||
Revenues |
$ | 7,991 | $ | 7,200 | $ | 15,112 | $ | 14,124 | ||||||||
Interest expense |
| | | | ||||||||||||
Interest revenue |
5 | 1 | 5 | 1 | ||||||||||||
Depreciation & amortization expense |
717 | 734 | 1,420 | 1,472 | ||||||||||||
Intercompany management fee expense |
| | | | ||||||||||||
Income tax (benefit) expense |
(2 | ) | (172 | ) | 65 | (245 | ) | |||||||||
Segment profit (loss) |
41 | (532 | ) | 215 | (960 | ) | ||||||||||
Expenditure for property and equipment |
6 | 34 | 6 | 77 | ||||||||||||
December 31, | December 31, | |||||||||||||||
2010 | 2009 | |||||||||||||||
Segment assets |
26,755 | 27,382 | ||||||||||||||
Current assets |
9,677 | 6,805 | ||||||||||||||
Property & equipment, net |
423 | 640 | ||||||||||||||
Deferred tax (liabilities), net |
(2,936 | ) | (3,108 | ) | ||||||||||||
Intangible assets, net |
12,142 | 15,263 | ||||||||||||||
Goodwill |
4,447 | 4,606 | ||||||||||||||
Segment liabilities |
31,525 | 32,226 | ||||||||||||||
Three months | Three months | Six months | Six months | |||||||||||||
Ended | Ended | Ended | Ended | |||||||||||||
December 31, | December 31, | December 31, | December 31, | |||||||||||||
All Other | 2010 | 2009 | 2010 | 2009 | ||||||||||||
Revenues |
$ | | $ | 1 | $ | | $ | 31 | ||||||||
Interest expense |
| | | | ||||||||||||
Interest revenue |
| | | 1 | ||||||||||||
Depreciation & amortization expense |
1 | 25 | 1 | 53 | ||||||||||||
Intercompany management fee revenue |
(445 | ) | (407 | ) | (853 | ) | (791 | ) | ||||||||
Income tax expense |
1 | | 16 | | ||||||||||||
Segment loss |
(976 | ) | (1,038 | ) | (1,922 | ) | (1,887 | ) | ||||||||
Expenditure for property and equipment |
| | | | ||||||||||||
December 31, | December 31, | |||||||||||||||
2010 | 2009 | |||||||||||||||
Segment assets |
56,419 | 51,221 | ||||||||||||||
Current assets |
766 | 547 | ||||||||||||||
Property & equipment (net) |
| 1 | ||||||||||||||
Deferred tax assets (liabilities), net |
| | ||||||||||||||
Intangible assets, net |
| 50 | ||||||||||||||
Goodwill |
| | ||||||||||||||
Segment liabilities |
3,416 | 2,661 | ||||||||||||||
December 31, | December 31, | |||||||||||||||
Intercompany eliminations | 2010 | 2009 | ||||||||||||||
Segment assets |
$ | (55,653 | ) | $ | (50,623 | ) | ||||||||||
Current assets |
| | ||||||||||||||
Property & equipment (net) |
| | ||||||||||||||
Deferred tax assets (liabilities), net |
| | ||||||||||||||
Intangible assets, net |
| | ||||||||||||||
Goodwill |
| | ||||||||||||||
Segment liabilities |
(54,772 | ) | (49,742 | ) |
12
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Three months | Three months | Six months | Six months | |||||||||||||
Ended | Ended | Ended | Ended | |||||||||||||
December 31, | December 31, | December 31, | December 31, | |||||||||||||
Total | 2010 | 2009 | 2010 | 2009 | ||||||||||||
Revenues |
$ | 31,811 | $ | 25,624 | $ | 57,114 | $ | 45,981 | ||||||||
Interest expense |
| 9 | | 15 | ||||||||||||
Interest revenue |
290 | 162 | 540 | 313 | ||||||||||||
Depreciation & amortization expense |
1,486 | 1,310 | 2,913 | 2,557 | ||||||||||||
Intercompany management fee expense |
| | | | ||||||||||||
Income tax expense |
1,936 | 1,288 | 3,241 | 1,996 | ||||||||||||
Net profit (loss) |
3,750 | 822 | 5,084 | (212 | ) | |||||||||||
Expenditure for property and equipment |
181 | 550 | 737 | 1,072 | ||||||||||||
December 31, | December 31, | |||||||||||||||
2010 | 2009 | |||||||||||||||
Total assets |
81,536 | 68,442 | ||||||||||||||
Current assets |
57,785 | 39,469 | ||||||||||||||
Property & equipment, net |
6,482 | 8,218 | ||||||||||||||
Deferred tax (liabilities) assets, net |
(2,429 | ) | (2,718 | ) | ||||||||||||
Intangible assets, net |
12,269 | 15,498 | ||||||||||||||
Goodwill |
4,447 | 4,606 | ||||||||||||||
Total liabilities |
21,133 | 18,516 |
Non-cash stock based compensation is not allocated to the operating subsidiaries and is a
component of the All Other segment above. Non-cash stock based compensation expense was $350, $315,
$675 and $633 for the three and six month periods ended December 31, 2010 and 2009, respectively.
Effective
February 2011, the Company converted a majority of the intercompany advance to
UKTN to an equity investment, which significantly reduced the UK segment liabilities. There was no
impact on the consolidated balance sheet of the Company as the advance/equity eliminates in
consolidation.
The Company offers four primary products in the markets in which it operates. The products
consist of radio traffic advertising commercials, radio news advertising commercials, television
advertising commercials and government services relating to traffic. Not all products are offered
in all markets or in all periods covered by the financial statements. These products are not
operated as separate segments but are the responsibility of the regional management of the various
segments outlined above. All revenues are generated from external clients.
Revenues | Traffic | News | Television | Government | Total | |||||||||||||||
Three months ended December 31, 2010 |
$ | 23,946 | $ | 6,046 | $ | 775 | $ | 1,044 | $ | 31,811 | ||||||||||
Three months ended December 31, 2009 |
$ | 19,116 | $ | 5,125 | $ | 729 | $ | 654 | $ | 25,624 | ||||||||||
Six months ended December 31, 2010 |
$ | 43,546 | $ | 9,986 | $ | 1,594 | $ | 1,988 | $ | 57,114 | ||||||||||
Six months ended December 31, 2009 |
$ | 34,830 | $ | 8,047 | $ | 1,494 | $ | 1,610 | $ | 45,981 |
NOTE 12 Change in Accounting Estimate
Effective March 1, 2010, the Company changed its estimate of the useful lives of helicopters
owned by CTN from eight years to six years and the lives of CTN helicopter engine rebuilds from
three years to two years. This change was implemented because the Company determined that the
annual flight hours are more than originally anticipated. The life of a helicopter is based upon a
blend of the life of the engine, which is
approximately 2,200 flight hours, and the life of the airframe. The Company does not anticipate
getting less use from the helicopters due to this change in useful life. Also, ATN helicopters were
unaffected by this change in useful life as their annual flight hours have been in line with
expectations. This change had the effect of increasing depreciation expense $148 and $292, reducing
net operating income and net income $148 and $292 and reducing both basic and diluted earnings per
share $0.01 and $0.02 for the three and six month periods ended December 31, 2010.
NOTE 13 Termination of Agreement
In October 2010, UKTN was informed that the its Traffic Radio services contract with the
United Kingdoms Highways Agency would not be extended beyond its current expiration date of August
31, 2011 due to budgetary constraints of the Highways Agency. For the three and six month periods
ended December 31, 2010, revenue related to this contract was $1,044 and $1,988, operating income
and net income was $260 and $467 and basic and diluted earnings per share was $0.01 and $0.03,
respectively.
13
Table of Contents
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
The following discussion should be read in conjunction with the Companys unaudited
consolidated financial statements and notes thereto included elsewhere in this quarterly report on
Form 10-Q and the annual audited financial statements and notes thereto included in the Companys
annual report on Form 10-K for the fiscal year ended June 30, 2010, as filed with the Securities
and Exchange Commission.
Executive Overview
We provide traffic and news information reports to radio and television stations in
international markets. We are the largest provider of traffic information reports to radio stations
in Australia, Canada and the United Kingdom and we provide traffic information reports to
television stations in Australia and Canada. We also provide news information reports to radio
stations in Canada, entertainment news reports to radio stations in the United Kingdom and we
believe that we maintain the largest inventory of commercial advertising embedded in radio news
reports in Australia. We derive a substantial majority of our revenues from the sale to advertisers
of commercial advertising inventory associated with these information reports. We obtain this
advertising inventory from radio and television stations in exchange for providing stations with
information reports and/or, for certain broadcasters, cash compensation. Although we are a Nevada
corporation with principal executive offices located in New York, New York, we do not provide, nor
do we currently intend to provide traffic or news reports to radio or television stations in the
United States. However, we do offer our mobile traffic products to radio and television stations in
the United States.
Our operations are conducted through the following wholly owned direct and indirect
subsidiaries:
| The Australia Traffic Network Pty Limited (Australia Traffic Network); | ||
| Canadian Traffic Network ULC (Canadian Traffic Network); | ||
| Global Traffic Network (UK) Limited and Global Traffic Network (UK) Commercial Limited (UK Traffic Network and UK Commercial Traffic Network, respectively); and | ||
| Global Alert Network, Inc. (Global Alert Network), formerly named Mobile Traffic Network, Inc. (Mobile Traffic Network). |
Global Traffic Network, Inc. is a holding company and conducts no operations. Unless we
indicate otherwise, the discussions below regarding our financial condition and results of
operations present information on a consolidated basis and all material inter-company transactions
and balances have been eliminated.
The Services We Provide Radio Traffic Reports, Radio News Reports and TV Reports.
The information reports we provide to radio and television stations are divided into three
categories, radio traffic reports, radio news reports and TV reports, based on the content of the
report and the medium in which it is delivered. Collectively, we refer to these reports as our
information reports. In addition, we provide radio traffic reports under a Traffic Radio service
contract with the United Kingdoms Highways Agency, which is an executive agency of the United
Kingdom Department of Transport.
The radio stations that contract to provide us with traffic and news report advertising
inventory become members of our Radio Network. Likewise, the television stations that contract to
receive our TV reports become members of our TV Network. Collectively, we refer to the members of
these networks as our network affiliates. We currently offer radio traffic and television traffic
reports and video footage to our network affiliates in Australia, while obtaining radio news report
advertising inventory by paying cash compensation to our news network affiliates. References to the
provision of news reports in Australia throughout this report refer to our purchase from radio
stations of news advertising inventory embedded in news reports that we then make available to our
advertisers. We provide radio traffic reports and TV reports to our network affiliates in Canada,
as well as news, weather, business and sports reports to radio network affiliates on a limited
basis. In the United Kingdom, we provide radio stations with traffic and entertainment news
information and reports that are primarily provided through third party out-source providers that
we compensate. Our network affiliates by market and product currently are as follows:
Radio News, | ||||||||||||
Sports, | ||||||||||||
Weather, | ||||||||||||
Business | ||||||||||||
and | ||||||||||||
Entertainment | ||||||||||||
Radio Traffic | News | TV Reports | ||||||||||
Australia |
84 | 28 | 14 | |||||||||
Canada |
76 | 22 | 4 | |||||||||
United Kingdom |
275 | 129 | |
Our Sources of Revenue Sale of Commercial Airtime Inventory
In exchange for providing our information reports and/or, for certain broadcasters, cash
compensation, our network affiliates provide us with commercial advertising inventory. We generate
revenues by packaging and selling this commercial advertising inventory for cash to advertisers on
a local, regional or national network basis, except in the United Kingdom where it is sold on a
national basis only. To date, we have
14
Table of Contents
recognized no revenue related to the bartering of goods and services and do not anticipate entering
into barter transactions for the sale of our commercial advertising inventory in the future. The
main factors that determine the amount of revenue we generate from our commercial advertising
inventory include the audience reach of our networks, which is determined by the number of
advertising spots we have to sell as well as the audience of our network affiliates, the percentage
of the available market that our network covers, the advertising rates in the markets in which we
operate networks, the length of time we have been established in the market and the training and
abilities of our sales staffs. Although the number of network affiliates that we maintain in a
market may influence certain of these factors, the number may not be directly correlated to the
amount of revenue that we generate in that market.
The majority of our revenues have been generated from our Australian operations, including
approximately $34.5 million, or 60%, of our revenues for the six month period ended December 31,
2010, of which approximately $24.9 million, or 44% of our total revenues, has been generated from
the sale of commercial advertising inventory related to our Australian radio traffic reports. For
the six month period ended December 31, 2009, approximately $28.0 million, or 61% of our revenues,
was generated by our Australian operations, of which approximately $20.1 million, or 44%, was
generated from the sale of commercial advertising inventory related to our Australian radio traffic
reports. We expect to accumulate increasing amounts of commercial advertising inventory from our
Australian operations as we continue to obtain more news report inventory in Australia. We began
accumulating commercial advertising inventory from our Canadian operations in December 2005 and
began generating limited revenue in Canada in January 2006. Currently, we have operations in eight
Canadian cities: Calgary, Toronto, Hamilton, Vancouver, Montreal, Ottawa, Edmonton and Winnipeg. We
anticipate expanding our radio and television advertising inventory primarily by adding new network
affiliates in our existing markets, as we have not penetrated the Canadian markets to the extent
that we have done so in Australia or United Kingdom. However, we will continue to explore the
expansion of our advertising inventory by both the introduction of new products as well as entering
new Canadian markets. We obtained the majority of our United Kingdom radio advertising inventory as
a result of our acquisition of The Unique Broadcasting Company Limited (Unique) on March 1, 2009,
which we subsequently renamed UK Commercial Traffic Network. We are actively seeking to expand the
amount of our traffic and entertainment news inventory from both new and existing radio affiliates
in the United Kingdom. As commercial advertising inventory generated from our Australian, Canadian
and United Kingdom operations increase, we expect to sell the increased commercial advertising
inventory in the same manner as we have sold commercial advertising inventory generated from our
provision of radio traffic reports in Australia. Our experience indicates, however, that there is
generally a delay between acquiring commercial advertising inventory from new or expanded
operations and the realization of increasing revenues from the sale of such inventory. We
experienced such a delay when we added Austereo as a network affiliate of our Radio Network in
fiscal year 2004. Although the additional commercial advertising inventory we acquired from
Austereo led to increased revenues during fiscal year 2004, the full impact on revenues from the
sale of such inventory was not realized until fiscal year 2005. We also experienced a similar lag
when we began to receive news report inventory from Austereo in July 2006. We expect to experience
similar delays in realizing revenues from the sale of commercial advertising inventory associated
with additional radio news reports in Australia, our provision of radio traffic reports in Canada
and increases in radio advertising inventory in the United Kingdom.
Our Expenses
Our expenses are primarily comprised of three categories: operating expenses, selling expenses
and general and administrative expenses. Operating expenses consist of station compensation and all
expenses related to the gathering, producing, and broadcasting of our information reports,
including aviation costs and expenses, salaries and benefits for our on-air personalities who
deliver the information reports and payments to third parties that provide information and
reporting services. Station compensation consists of the reimbursement of expenses incurred by
stations which we would otherwise incur in providing services to the station, as well as any
additional cash consideration paid to a network affiliate in exchange for commercial advertising
inventory. We may incur increased expenses in the form of station compensation in connection with
adding certain broadcasters to our base of network affiliates. As mentioned above, our experience
indicates that in such instances there is generally a delay between acquiring commercial
advertising inventory from new network affiliates and the realization of increased revenues from
the sale of such inventory. Aviation costs relate to the costs of our airborne surveillance, an
integral part of our information gathering, and consist both of payments to outside vendors to
lease aircraft and the operating costs (including fuel, maintenance, and insurance costs)
associated with the operation of the fleet of aircraft we own. Our fleet of leased and owned
aircraft currently consists of:
Australia | Canada | United Kingdom | ||||||||||||||||||||||
Leased | Owned | Leased | Owned | Leased | Owned | |||||||||||||||||||
Fixed-wing aircraft |
0 | 1 | 2 | 0 | 0 | 2 | ||||||||||||||||||
Helicopters |
0 | 4 | 0 | 7 | 0 | 0 |
Selling expenses include salaries and benefits for our sales personnel and commissions paid on
sales of our commercial advertising inventory. General and administrative expenses consist of
corporate overhead, including administrative salaries, real property lease payments, insurance,
salaries and benefits for our corporate executive officers, compensation expense related to stock
options and restricted stock and legal and accounting fees. Expenses other than selling expenses
are generally expensed evenly over the applicable fiscal year.
Seasonality of Business
We believe that advertising revenues in general vary moderately over the calendar year, with
the three month period ending December 31 generally resulting in the highest revenues and the three
month period ending March 31 generally resulting in the lowest revenues. This
industry trend is mainly attributable to increases in the level of advertiser demand, and resulting
increases in average advertising spot rates and/or number of spots sold, during the months leading
up to the Christmas holiday season and lower advertiser demand following the end of the holiday
season which leads to lower average advertising spot rates and/or number of spots sold during that
time. We believe that this general trend in advertising revenues is applicable to our business.
During certain previous years, the impact of seasonality on our results of operations has been
offset by the rapid revenue growth of our business and, in certain cases, favorable exchange rate
movements. As a result, our revenues for the quarter ending March 31 have frequently exceeded our
revenues for the preceding quarter ended September 30. Our
15
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expenses other than sales costs are
generally spread evenly over the fiscal year. As a result, we generally experience seasonality in
the amount of our net income absent growth due to the addition of new network affiliates.
Basis of Presentation
We have derived substantially all of our revenues to date from our Australian, Canadian and
United Kingdom operations. However, the financial information contained in this report, including
the financial statements, report our financial condition and results of operation in United States
dollars and, unless stated otherwise, all references to dollar amounts refer to United States
dollars. Income statement amounts are converted from Australian dollars, Canadian dollars or
British pounds to United States dollars based on the average exchange rate for the period covered.
Assets and liabilities are converted based on the exchange rate as of the applicable balance sheet
date. Equity is converted based on the prevailing exchange rate at the time of the applicable
investment. Foreign currency translation adjustments occur when the income statement and balance
sheet are converted at different exchange rates and are recognized as other comprehensive income or
loss in the financial statements. For reference, the exchange rates to United States dollars from
Australian dollars, Canadian dollars and British pounds applicable to our income statement data for
each of the three months periods ended September 30 and December 31, 2010 and 2009 and applicable
to our balance sheet data as of December 31, 2010 and June 30, 2010 are set forth below:
Australia
Balance | ||||||||||||
Income Statement Period | Exchange Rate | Sheet Date | Exchange Rate | |||||||||
Three month period ended December 31, 2010 |
0.9887 | December 31, 2010 | 1.0233 | |||||||||
Three month period ended September 30, 2010 |
0.9057 | |||||||||||
Three month period ended December 31, 2009 |
0.9094 | |||||||||||
Three month period ended September 30, 2009 |
0.8340 | |||||||||||
June 30, 2010 | 0.8408 |
Canada
Balance | ||||||||||
Income Statement Period | Exchange Rate | Sheet Date | Exchange Rate | |||||||
Three month period ended December 31, 2010
|
0.9873 | December 31, 2010 | 1.0020 | |||||||
Three month period ended September 30, 2010
|
0.9623 | |||||||||
Three month period ended December 31, 2009
|
0.9469 | |||||||||
Three month period ended September 30, 2009
|
0.9115 | |||||||||
June 30, 2010 | 0.9399 |
United Kingdom
Balance | ||||||||||
Income Statement Period | Exchange Rate | Sheet Date | Exchange Rate | |||||||
Three month period ended December 31, 2010
|
1.5803 | December 31, 2010 | 1.5612 | |||||||
Three month period ended September 30, 2010
|
1.5510 | |||||||||
Three month period ended December 31, 2009
|
1.6344 | |||||||||
Three month period ended September 30, 2009
|
1.6411 | |||||||||
June 30, 2010 | 1.4945 |
We estimate that the impact from currency changes on our operating results for the three and
six month periods ended December 31, 2010 compared to the three and six month periods ended
December 31, 2009 has been to increase (decrease) income statement amounts as follows:
Three months | Six months | |||||||
Ended | Ended | |||||||
December 31, | December 31, | |||||||
2010 | 2010 | |||||||
(in thousands) | (in thousands) | |||||||
Australia |
||||||||
Revenues |
$ | 1,539 | $ | 2,753 | ||||
Operating expenses (exclusive of depreciation and amortization) |
720 | 1,363 | ||||||
Sales, general & administrative expenses |
301 | 549 | ||||||
Canada |
||||||||
Revenues |
189 | 340 | ||||||
Operating expenses (exclusive of depreciation and amortization) |
110 | 234 | ||||||
Sales, general & administrative expenses |
53 | 93 |
16
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Three months | Six months | |||||||
Ended | Ended | |||||||
December 31, | December 31, | |||||||
2010 | 2010 | |||||||
(in thousands) | (in thousands) | |||||||
United Kingdom |
||||||||
Revenues |
(274 | ) | (688 | ) | ||||
Operating expenses (exclusive of depreciation and amortization) |
(217 | ) | (535 | ) | ||||
Sales, general & administrative expenses |
(31 | ) | (71 | ) | ||||
Australia, Canada and United Kingdom combined |
||||||||
Revenues |
1,454 | 2,405 | ||||||
Operating expenses (exclusive of depreciation and amortization) |
613 | 1,062 | ||||||
Sales, general & administrative expenses |
323 | 571 |
When discussing changes in income statement accounts from the three and six month periods
ended December 31, 2009, the analysis under Results of Operations below includes both the impact
of currency changes and changes in revenues and expenditures in the local currency.
Foreign currency exchange rates in the markets in which we operate have been subject to
substantial fluctuation. Any fluctuation between the U.S. dollar and the currencies of the
countries in which we operate will impact the amount of our revenues and expenses. To the extent
foreign currencies depreciate relative to the U.S. dollar, there will be a negative impact on the
revenues we report due to such fluctuation. It is possible that the impact of currency fluctuations
will result in a decrease in reported sales even though we have experienced an increase in sales
when reported in the applicable foreign currency. This occurred in Australia for the fiscal year
ended June 30, 2009. For example, for the three months ended March 31, 2009, although revenue
increased approximately 11.7% when measured in Australian dollars, our reported Australia revenue
in U.S. dollars decreased approximately 18.1% from the three months ended March 31, 2008.
Conversely, a weak U.S. dollar may mask lower performance in local currencies as it is possible for
us to report higher revenues in U.S. dollars despite revenue declines in local currency in the
markets in which we operate.
For our second fiscal quarter ended December 31, 2010, the Australian dollar was stronger than
during the quarter ended December 31, 2009. This trend has continued to date during the third
fiscal quarter of 2011. Should the exchange rate between the U.S. and Australian dollar remain at
current levels, this will have the effect of increasing revenues and expenses reported in U.S.
dollars from our Australian operations (which constitute the majority of our business) for our
third fiscal quarter ended March 31, 2011 absent any change in performance in local currency.
In October 2010, UKTN was informed that its Traffic Radio services contract with the United
Kingdoms Highways Agency would not be extended beyond its current expiration date of August 31,
2011 due to budgetary constraints of the Highways Agency. We expect the contract will continue
under its current terms until the expiration date and thus will have no impact on our financial
results for the remainder of the current fiscal year. For the three and six months ended December
31, 2010, revenue related to this contract was $1,044 and $1,988, operating income and net income
was $260 and $467 and basic and diluted earnings per share was $0.01 and $0.03. Assuming stable
exchange rates, we expect that the contracts quarterly contribution to our results throughout its
remaining term will be consistent with that results seen during the second fiscal quarter of 2011,
as the revenue and expenses related to the contract are fairly consistent on a quarter to quarter
basis.
Results of Operations
Three Months Ended December 31, 2010 Compared With Three Months Ended December 31, 2009
Revenues. Revenues increased from approximately $25.6 million for the three months ended
December 31, 2009 to approximately $31.8 million for the three months ended December 31, 2010, an
increase of approximately 24.2%. Australian revenues increased approximately $3.3 million, or
approximately 20.8%, compared to the quarter ended December 31, 2009. The increase in Australian
revenues pertained primarily to our radio network. Approximately $1.5 million of the overall
increase in Australian revenues was due to the Australian dollar being stronger in the second
fiscal quarter 2011 compared to the second fiscal quarter 2010, while the remaining approximately
$1.8 million increase was due to increased sales in local currency. As reflected in Changes in Key
Operating Statistics in Local Currencies, Australian revenues increased approximately 10.8% when
measured in local currency compared to the three month period ended December 31, 2009. The
Australian revenue increase in local currency was driven primarily by an increase in the number of
spots sold compared to the previous year quarter. The increase in spots sold was due both to an
increase in the amount of advertising inventory as well as a higher percentage of available spots
being sold compared to the previous year period. The percentage of spots sold in Australia
increased from approximately 89% for the three months ended December 31, 2009 to approximately 93%
for the three months ended December 31, 2010. Revenues from our United Kingdom operations
increased approximately $0.8 million (approximately 11.1%) which related primarily to our traffic
and entertainment news network advertising sales. Unlike the Australian and Canadian dollar, the
British pound was actually weaker in the second fiscal quarter of this year compared to the second
fiscal quarter of last year. As reflected in Changes in Key Operating Statistics in Local
Currencies , United Kingdom revenues increased approximately 14.8% when measured in British pounds.
Revenues from the sale of inventory related to our Canadian operations increased approximately $2.1
million, or approximately 84.0%, from the previous year quarter. The revenue increase in local
currency was
driven mainly by an increase in rate, which increased almost 70% compared to the three months ended
December 31, 2009. The rate in the previous period had been impacted by per inquiry and
guaranteed bonus spots, which became less prevalent in the current quarter due to increased
advertiser demand. As reflected in Changes in Key Operating Statistics in Local Currencies,
Canadian revenues increased approximately 77.8% when measured in Canadian dollars.
Operating expenses (exclusive of depreciation and amortization discussed below). Operating
expenses increased from approximately $16.7 million for the three months ended December 31, 2009 to
approximately $18.2 million for the three months ended December 31, 2010, an increase of
approximately 9.0%. Australian operating expenses increased approximately $1.1 million primarily
due to an increase in station compensation of approximately $1.0 million and an increase in
employee costs of approximately $0.2 million. Approximately $0.7 million of the approximately $1.1
million overall increase in Australian operating expenses discussed above was related to currency
movements as the Australian dollar was stronger in the current fiscal quarter when compared to the
quarter ended December 31, 2009. As reflected in Changes in Key Operating Statistics in Local
Currencies, Australian operating expenses increased by approximately 4.7% when measured in local
17
Table of Contents
currency. Operating costs related to our United Kingdom operations increased approximately $0.1
million compared to the quarter ended December 31, 2009. Employee costs were reduced approximately
$0.1 million, third party traffic out source provider costs were reduced approximately $0.2 million
and station compensation was approximately $0.5 million higher than during the previous year
period. The increase in station compensation was due to increases in fixed compensation related to
certain contract renewals as well as higher variable compensation resulting from the increased
revenue during the quarter. As reflected in Changes in Key Operating Statistics in Local
Currencies, United Kingdom operating expenses increased by approximately 5.6% in local currency.
Operating expenses related to our Canadian operations increased approximately $0.3 million due to
an increase in station compensation and approximately $0.1 million loss on the write-off of a blown
helicopter engine. As reflected in Changes in Key Operating Statistics in Local Currencies,
Canadian operating expenses increased by approximately 6.3% in local currency.
Selling, general and administrative expenses. Selling, general and administrative expenses
increased from approximately $5.7 million for the three months ended December 31, 2009 to
approximately $6.7 million for the three months ended December 31, 2010, an increase of
approximately 17.5%. Australia Traffic Network selling, general and administrative expenses
increased approximately $0.7 million dollars compared to the quarter ended December 31, 2009, of
which approximately $0.3 million related to currency translation differences as the Australia
dollar was stronger relative to the U.S. dollar compared to the year ago period. The majority of
the increase in Australian selling, general and administrative in local currency pertained to
higher sales employee compensation mainly resulting from the higher revenues for the period. Sales
expense as a percentage of revenue in Australia decreased from approximately 13.7% for the three
months ended December 31, 2009 to approximately 13.5% for the three months ended December 31, 2010.
Canada Traffic Network selling, general and administrative expenses increased approximately $0.5
million primarily due to a $0.4 million increase in costs related to our sales staff due to
commissions on increased sales as well as the hiring of additional sales representatives and sales
managers. Selling, general and administrative expenses decreased approximately $0.1 million in the
United Kingdom primarily due to lower employee sales compensation. Non-cash compensation expense
resulting from grants of employee and director stock options and restricted stock was approximately
$0.35 million for the three month period ended December 31, 2010 compared to approximately $0.3
million for the three months ended December 31, 2009.
Depreciation and amortization expense. Depreciation and amortization expense increased from
approximately $1.3 million for the three months ended December 31, 2009 to approximately $1.5
million for the three months ended December 31, 2010. Approximately $0.1 million of the increase
related to shortening the useful lives of the Canadian Traffic Network helicopters from eight years
to six years and reducing the Canadian Traffic Network helicopter engine rebuild useful lives from
three years to two years in March 2010. This change in estimate was made due to our flying more
hours per year in Canada than originally anticipated.
Interest expense. Interest expense was $0 for the three months ended December 31, 2010 as the
Company has no outstanding debt.
Other income. Other income was approximately $0.3 million for the three months ended December
31, 2010, compared to approximately $0.2 million for the three months ended December 31, 2009.
Other income consists primarily of interest income on our cash balances.
Income tax expense. Income tax expense increased from approximately $1.3 million for the three
months ended December 31, 2009 to approximately $1.9 million for the three months ended December
31, 2010. The increase was primarily due to higher net profit in Australia when measured in U.S.
dollars for the three months ended December 31, 2010 compared to the three month period ended
December 31, 2009. The effective tax rate in Australia was 30.0% for the three month period ended
December 31, 2010 and 30.3% for the three month period ended December 31, 2009 compared to the
statutory federal rate of 30.0%. There was no income tax benefit for the United States or Canada as
a valuation allowance has been created for 100% of the Companys net deferred tax assets in those
countries. In addition, tax benefit related to our United Kingdom operations decreased
approximately $0.2 million due to increased performance from UK Commercial Traffic Network. The UK
Traffic Network realized approximately $0.2 million tax benefit due primarily to the utilization of
the deferred tax liability created by the Unique acquisition. The UK Traffic Network tax benefit
was offset by approximately $0.2 million of tax expense related to the utilization of UK Commercial
Traffic Networks net operating loss carry-forwards. UK Commercial Traffic Networks tax benefit
and expense are both non-cash items.
Net income. Net income increased from approximately $0.8 million for the three months ended
December 31, 2009 to approximately $3.75 million for the three months ended December 31, 2010. The
increase is primarily attributable to Canadian Traffic Network being profitable for the first time
due in large part to significantly higher sales in that market, increased Australia Traffic Network
net income resulting from higher sales and favorable currency movements and the financial
performance of UK Traffic Network improving from a net loss to net income, primarily based upon the
performance of UK Commercial Traffic Network.
Changes in Key Operating Statistics in Local Currencies
The table below sets forth changes in certain of our key operating statistics for our
Australian operations for the comparable periods presented without taking into account foreign
currency exchange rates. Amounts are expressed in Australian dollars. The exchange rates from
Australian dollars to United States dollars applicable to the three month periods ended December
31, 2010 and 2009 were 0.9887 and 0.9094, respectively.
Three Months | Three Months | |||||||||||
Ended | Ended | Percentage | ||||||||||
December 31, | December 31, | Increase | ||||||||||
Key operating statistic | 2010 | 2009 | (Decrease) | |||||||||
(In thousands) | (In thousands) | |||||||||||
Revenues |
$ | 19,406 | $ | 17,511 | 10.8 | % | ||||||
Operating expenses |
9,079 | 8,673 | 4.7 | % | ||||||||
Selling, general and administrative expenses |
3,802 | 3,418 | 11.2 | % | ||||||||
Depreciation and amortization expense |
287 | 286 | 0.3 | % | ||||||||
Interest expense |
| 9 | (100.0 | )% | ||||||||
Other (income) |
(291 | ) | (179 | ) | 62.6 | % | ||||||
Income tax expense |
1,960 | 1,605 | 22.1 | % | ||||||||
Net income |
4,569 | 3,699 | 23.5 | % |
18
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The table below sets forth changes in certain of our key operating statistics for our Canadian
operations for the comparable periods presented without taking into account foreign currency
exchange rates. Amounts are expressed in Canadian dollars. The exchange rates from Canadian dollars
to United States dollars applicable to the three month periods ended December 31, 2010 and 2009
were 0.9873 and 0.9469, respectively.
Three Months | Three Months | |||||||||||
Ended | Ended | Percentage | ||||||||||
December 31, | December 31, | Increase | ||||||||||
Key operating statistic | 2010 | 2009 | (Decrease) | |||||||||
(In thousands) | (In thousands) | |||||||||||
Revenues |
$ | 4,690 | $ | 2,638 | 77.8 | % | ||||||
Operating expenses |
2,719 | 2,558 | 6.3 | % | ||||||||
Selling, general and administrative expenses |
1,312 | 797 | 64.6 | % | ||||||||
Depreciation and amortization expense |
490 | 308 | 59.1 | % | ||||||||
Interest expense |
| | | |||||||||
Other expense |
| 1 | (100.0 | )% | ||||||||
Income tax expense |
| | | |||||||||
Net income (loss) |
169 | (1,026 | ) | NM |
The table below sets forth changes in certain of our key operating statistics for our United
Kingdom operations for the comparable periods presented without taking into account foreign
currency exchange rates. Amounts are expressed in British pounds. The exchange rates from British
pounds to United States dollars applicable to the three month periods ended December 31, 2010 and
2009 were 1.5803 and 1.6344, respectively.
Three Months | Three Months | |||||||||||
Ended | Ended | Percentage | ||||||||||
December 31, | December 31, | Increase | ||||||||||
Key operating statistic | 2010 | 2009 | (Decrease) | |||||||||
(In thousands) | (In thousands) | |||||||||||
Revenues |
£ | 5,057 | £ | 4,405 | 14.8 | % | ||||||
Operating expenses |
4,011 | 3,800 | 5.6 | % | ||||||||
Selling, general and administrative expenses |
570 | 610 | (6.6 | )% | ||||||||
Depreciation and amortization expense |
454 | 450 | 0.9 | % | ||||||||
Interest expense |
| | | |||||||||
Other (income) |
(4 | ) | (23 | ) | (82.6 | )% | ||||||
Income tax (benefit) |
(1 | ) | (105 | ) | (99.0 | )% | ||||||
Net income (loss) |
27 | (327 | ) | NM |
Six Months Ended December 31, 2010 Compared With Six Months Ended December 31, 2009
Revenues.
Revenues increased from approximately $46.0 million for the
six months ended
December 31, 2009 to approximately $57.1 million for the six months ended December 31, 2010, an
increase of approximately 24.1%. Australian revenues increased approximately $6.5 million, or
approximately 23.2%, compared to the six months ended December 31, 2009. The increase in Australian
revenues pertained primarily to our radio network. Approximately $2.8 million of the overall
increase in Australian revenues was due to the Australian dollar being stronger in the first two
fiscal quarters 2011 compared to fiscal 2010, while the remaining approximately $3.7 million was
due to increased sales in local currency. As reflected in Changes in Key Operating Statistics in
Local Currencies, Australian revenues increased approximately 13.5% when measured in local currency
compared to the six month period ended December 31, 2009. Revenues from our United Kingdom
operations increased approximately $1.0 million (approximately 7.1%) which primarily related to our
traffic and entertainment news network advertising sales. Unlike the Australian and Canadian
dollar, the British pound was actually weaker in the first two fiscal quarters of this year
compared to the same period of last year. As reflected in Changes in Key Operating Statistics in
Local Currencies , United Kingdom revenues increased approximately 11.9% when measured in British
pounds. Revenues from the sale of inventory related to our Canadian operations increased
approximately $3.7 million, or approximately 97.4%, from the previous year period. As reflected in
Changes in Key Operating Statistics in Local Currencies, Canadian revenues increased approximately
87.8% when measured in Canadian dollars.
Operating expenses (exclusive of depreciation and amortization discussed below). Operating
expenses increased from approximately $31.7 million for the six months ended December 31, 2009 to
approximately $34.3 million for the six months ended December 31, 2010, an increase of
approximately 8.2%. Australian operating expenses increased approximately $2.5 million primarily
due to an increase in station compensation of approximately $2.1 million and an increase in
employee costs of approximately $0.4 million. Approximately $1.4 million of the approximately $2.5
million overall increase in Australian operating expenses discussed above was related to currency
movements as the Australian dollar was stronger in the current fiscal year to date period when
compared to the period ended December 31, 2009. As reflected in Changes in Key Operating Statistics
in Local Currencies, Australian operating expenses increased by approximately 7.9% when measured
in local currency. Operating costs related to our United Kingdom operations decreased approximately
$0.3 million compared to the period ended December 31, 2009. Employee costs were reduced
approximately $0.2 million, third party traffic out source provider costs were reduced
19
Table of Contents
approximately $0.3 million while station compensation was approximately $0.3 million higher
than during the previous year period. The overall decrease in UK operating expenses was due to the
weakening of the British pound during the current period. As reflected in Changes in Key Operating
Statistics in Local Currencies, United Kingdom operating expenses increased by approximately 2.2%
in local currency. Operating expenses related to our Canadian operations increased approximately
$0.3 million due to an increase in station compensation of approximately $0.2 million and
approximately $0.1 million loss on write-off of a blown helicopter engine. As reflected in Changes
in Key Operating Statistics in Local Currencies, Canadian operating expenses increased by
approximately 2.6% in local currency.
Selling, general and administrative expenses. Selling, general and administrative expenses
increased from approximately $10.4 million for the six months ended December 31, 2009 to
approximately $12.1 million for the six months ended December 31, 2010, an increase of
approximately 16.3%. Australian selling, general and administrative expenses increased
approximately $1.1 million compared to the period ended December 31, 2009, of which approximately
$0.5 million related to currency translation differences as the Australia dollar was stronger
relative to the U.S. dollar compared to the year ago period. The majority of the increase in
Australian selling, general and administrative in local currency pertained to higher sales employee
compensation mainly resulting from the higher revenues for the period. Sales expense as a
percentage of revenue in Australia decreased from approximately 14.0% for the six months ended
December 31, 2009 to approximately 13.5% for the six months ended December 31, 2010. Canada Traffic
Network selling, general and administrative expenses increased approximately $1.0 million primarily
due to a $0.7 million increase in costs related to our sales staff due to commissions on increased
sales as well as the hiring of additional sales representatives and sales managers. Selling,
general and administrative expenses decreased approximately $0.2 million in the United Kingdom
primarily due to lower employee sales compensation. Non-cash compensation expense resulting from
grants of employee and director stock options and restricted stock was approximately $0.7 million
for the six months ended December 31, 2010 and approximately $0.6 million for the six months ended
December 31, 2009.
Depreciation and amortization expense. Depreciation and amortization expense increased from
approximately $2.6 million for the six months ended December 31, 2009 to approximately $2.9 million
for the six months ended December 31, 2010. Approximately $0.2 million of the increase related to
shortening the useful lives of the Canadian Traffic Network helicopters from eight years to six
years and reducing the Canadian Traffic Network helicopter engine rebuild useful lives from three
years to two years in March 2010. This change in estimate was made due to our flying more hours per
year in Canada than originally anticipated.
Interest expense. Interest expense was $0 for the six months ended December 31, 2010 as the
Company has no outstanding debt.
Other income. Other income was approximately $0.5 million for the six months ended December
31, 2010 and 2009. Other income consists primarily of interest income on our cash balances. For the
six month period ended December 31, 2009, there was approximately $0.1 million of foreign
translation income. This income resulted from the repayment of balances due the Company by
Australia Traffic Network during the prior year period. Intercompany balances between the Company
and its subsidiaries are translated from the local currencies to U.S. dollars at each balance sheet
date. To the extent these balances are intended to be ongoing, that is, settlement is neither
planned nor anticipated, the translation adjustments to balance intercompany are reflected as a
component of other comprehensive income. The repayment of the Australia Traffic Network
intercompany balance triggered a realized foreign exchange income during the period ended December
31, 2009.
Income tax expense. Income tax expense increased from approximately $2.0 million for the six
months ended December 31, 2009 to approximately $3.2 million for the six months ended December 31,
2010. The increase was primarily due to higher net profit in Australia when measured in U.S.
dollars for the six months ended December 31, 2010 compared to the six month period ended December
31, 2009. The effective tax rate in Australia was 30.0% for the six month period ended December 31,
2010 and 30.2% for the six month period ended December 31, 2009 compared to the statutory federal
rate of 30.0%. There was no income tax benefit for the United States or Canada as a valuation
allowance has been created for 100% of the Companys net deferred tax assets in those countries. In
addition, tax expense related to our United Kingdom operations increased approximately $0.3 million
due to increased profits from UK Commercial Traffic Network. The UK Traffic Network realized
approximately $0.4 million tax benefit due primarily to the utilization of the deferred tax
liability created by the Unique acquisition. The UK Traffic Network tax benefit was offset by
approximately $0.4 million of tax expense related to the utilization of UK Commercial Traffic
Networks net operating loss carry-forwards. UK Commercial Traffic Networks tax benefit and
expense are both non-cash items.
Net income (loss). Net income increased from a net loss of approximately $0.2 million for the
six months ended December 31, 2009 to net income of approximately $5.1 million for the six months
ended December 31, 2010. The increase is primarily attributable to a smaller Canadian Traffic
Network net loss due in large part to significantly higher sales in that market, increased
Australia Traffic Network net income resulting from higher sales and favorable currency movements
and the financial performance of UK Traffic Network improving from a net loss to net income,
primarily based upon the performance of UK Commercial Traffic Network.
Changes in Key Operating Statistics in Local Currencies
The table below sets forth changes in certain of our key operating statistics for our
Australian operations for the comparable periods presented without taking into account foreign
currency exchange rates. Amounts are expressed in Australian dollars. The exchange rates from
Australian dollars to United States dollars for each of the applicable periods is set forth in the
Executive Overview section of Management Discussion and Analysis of Financial Condition and Results
of Operations under the heading Basis of Presentation.
20
Table of Contents
Six Months | Six Months | |||||||||||
Ended | Ended | Percentage | ||||||||||
December 31, | December 31, | Increase | ||||||||||
Key operating statistic | 2010 | 2009 | (Decrease) | |||||||||
(In thousands) | (In thousands) | |||||||||||
Revenues |
$ | 36,331 | $ | 32,006 | 13.5 | % | ||||||
Operating expenses |
18,053 | 16,737 | 7.9 | % | ||||||||
Selling, general and administrative expenses |
7,266 | 6,622 | 9.7 | % | ||||||||
Depreciation and amortization expense |
562 | 573 | (1.9 | )% | ||||||||
Interest expense |
| 17 | (100.0 | )% | ||||||||
Other (income) |
(567 | ) | (359 | ) | 57.9 | % | ||||||
Income tax expense |
3,310 | 2,541 | 30.3 | % | ||||||||
Net income |
7,707 | 5,875 | 31.2 | % |
The table below sets forth changes in certain of our key operating statistics for our Canadian
operations for the comparable periods presented without taking into account foreign currency
exchange rates. Amounts are expressed in Canadian dollars. The exchange rates from Canadian dollars
to United States dollars for each of the applicable periods is set forth in the Executive Overview
section of Management Discussion and Analysis of Financial Condition and Results of Operations
under the heading Basis of Presentation.
Six Months | Six Months | |||||||||||
Ended | Ended | Percentage | ||||||||||
December 31, | December 31, | Increase | ||||||||||
Key operating statistic | 2010 | 2009 | (Decrease) | |||||||||
(In thousands) | (In thousands) | |||||||||||
Revenues |
$ | 7,655 | $ | 4,076 | 87.8 | % | ||||||
Operating expenses |
5,165 | 5,032 | 2.6 | % | ||||||||
Selling, general and administrative expenses |
2,099 | 1,228 | 70.9 | % | ||||||||
Depreciation and amortization expense |
984 | 573 | 71.7 | % | ||||||||
Interest expense |
| | | |||||||||
Other expense (income) |
2 | (6 | ) | NM | ||||||||
Income tax expense |
| | | |||||||||
Net loss |
(595 | ) | (2,751 | ) | (78.4 | )% |
The table below sets forth changes in certain of our key operating statistics for our United
Kingdom operations for the comparable periods presented without taking into account foreign
currency exchange rates. Amounts are expressed in British pounds. The exchange rates from British
pounds to United States dollars for each of the applicable periods is set forth in the Executive
Overview section of Management Discussion and Analysis of Financial Condition and Results of
Operations under the heading Basis of Presentation.
Six Months | Six Months | |||||||||||
Ended | Ended | Percentage | ||||||||||
December 31, | December 31, | Increase | ||||||||||
Key operating statistic | 2010 | 2009 | (Decrease) | |||||||||
(In thousands) | (In thousands) | |||||||||||
Revenues |
£ | 9,648 | £ | 8,624 | 11.9 | % | ||||||
Operating expenses |
7,545 | 7,385 | 2.2 | % | ||||||||
Selling, general and administrative expenses |
1,019 | 1,128 | (9.7 | )% | ||||||||
Depreciation and amortization expense |
907 | 899 | 0.9 | % | ||||||||
Interest expense |
| | | |||||||||
Other (income) |
(4 | ) | (51 | ) | (92.2 | )% | ||||||
Income tax expense (benefit) |
42 | (150 | ) | NM | ||||||||
Net income (loss) |
139 | (587 | ) | NM |
Liquidity and Capital Resources
At December 31, 2010, the Companys primary source of liquidity was cash and cash equivalents
of approximately $29.5 million. At December 31, 2010, the Company also had approximately $2.0
million available under its overdraft credit line. The overdraft credit line is denominated in
Australian dollars and has been translated into U.S. dollars for purposes of this report. The
Companys excess cash has been
mainly invested in short term bonds, short term agencies, short term commercial paper and money
market accounts, all of which have maturities of 90 days or less. None of the Companys cash and
cash equivalents consisted of auction rate securities at December 31, 2010.
Operating activities. Cash provided by operating activities was approximately $6.6 million for
the six months ended December 31, 2010, due mainly to positive cash generation from operations
(after the net income was adjusted for non-cash expenses) which was partially offset by negative
changes in working capital. The largest use of working capital was $4.6 million due to an increase
in accounts receivable associated with the higher revenue in the period.
Investing activities. Cash used in investing activities was approximately $0.7 million for the
six month period ended December 31, 2010. The cash used for investing activities consisted of
capital expenditures, the majority of which was for the periodic rebuilding of helicopter engines
in Canada and Australia.
Financing activities. Cash used in financing activities was $0 for the six months ended
December 31, 2010. The Company currently has no long term debt or amounts outstanding under its
bank overdraft line of credit.
Effect of exchange rate changes. Cash and cash equivalents were increased approximately $4.1
million for the six months ended December 31, 2010 due primarily to the significant strengthening
of the Australian dollar, as a significant majority of our cash and cash equivalents are
denominated in Australian dollars.
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We believe our cash and cash equivalents on hand and our overdraft line of credit of
approximately $2.0 million provides adequate resources to fund ongoing operations, including any
net losses generated by certain of our subsidiaries. However, our capital requirements depend on
many factors, including, without limitation, the amount, if any, of cash provided by our operating
activities, cash requirements of our expansion in the United Kingdom, the occurrence and timing of
any expansion efforts in new geographic markets, the cost associated with development and
commercialization of Global Alert Networks mobile telephone technology and the introduction of
products in our existing and/or new markets. Our capital requirements will also depend on the
factors identified in the Risk Factors section of our annual report on Form 10-K for the fiscal
year ended June 30, 2010, as filed with the Securities and Exchange Commission.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements.
Cautionary Statement Concerning Forward-Looking Statements and Factors Affecting Forward-Looking
Statements
Some of the statements made in this report are forward-looking statements. These
forward-looking statements are based upon our current expectations and projections about future
events. When used in this report, the words believe, anticipate, intend, estimate, expect
and similar expressions, or the negative of such words and expressions, are intended to identify
forward-looking statements, although not all forward-looking statements contain such words or
expressions. The forward-looking statements in this report are primarily located in the material
set forth under the headings Managements Discussion and Analysis of Financial Condition and
Results of Operations, but are found in other locations as well. These forward-looking statements
generally relate to our plans, objectives and expectations for future operations and are based upon
managements current estimates and projections of future results or trends. Although we believe
that our plans and objectives reflected in or suggested by these forward-looking statements are
reasonable, we may not achieve these plans or objectives. You should read this report completely
and with the understanding that actual future results may be materially different from what we
expect. We will not update forward-looking statements even though our situation may change in the
future.
Specific factors that might cause actual results to differ from our expectations or may affect
the value of the common stock, include, but are not limited to:
| our inability to compete successfully with current or future competitors within our industry; | ||
| our inability to retain members of our executive management or other key employees; | ||
| the termination or impairment of our relationships with key network affiliates; | ||
| the termination or impairment of our advertiser relationships; | ||
| our inability to manage our growth effectively; | ||
| our ability to expand successfully into additional international markets; | ||
| the effect on our financial performance of fluctuations in foreign currency exchange rates and results of any hedging transactions; | ||
| the availability to us of additional financing, if required; | ||
| the occurrence of unforeseen litigation; and | ||
| our inability to integrate our recent acquisition of The Unique Broadcasting Company Limited or to manage future acquisitions. |
Other factors that could cause actual results to differ from those implied by the
forward-looking statements in this report are more fully described in the Risk Factors section of
our annual report on Form 10-K for the year ended June 30, 2010, as filed with the Securities and
Exchange Commission.
Item 3. Qualitative and Quantitative Disclosures about Market Risk
We are exposed to market risks. Market risk is the potential loss arising from adverse changes
in interest rates and foreign currency exchange rates. We do not enter into derivative or other
financial instruments for speculative purposes.
Interest Rate Risk
We are subject to market risk exposure related to changes in interest rates. Our financial
instruments include cash and cash equivalents. We consider all highly liquid instruments purchased
with a maturity of less than 90 days to be cash equivalents. Our cash and cash equivalents are not
subject to significant interest rate risk due to the short maturities of these instruments.
However, due to the large cash and cash equivalents balances, a one percentage point decrease in
the interest rates we earn on these balances would reduce interest income approximately $0.3
million on an annual basis based on the balances at December 31, 2010. We have no derivative
financial instruments or auction rate securities in our cash and cash equivalents. We had no
outstanding long-term debt as December 31, 2010 nor did we have any balance outstanding under our
bank overdraft line of credit that bears interest at a variable rate. We do not see variable
interest rate long-term debt as a significant interest rate risk.
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Table of Contents
Foreign Currency Exchange Risk
We have significant foreign subsidiaries located in Australia, Canada and the United Kingdom.
The assets and liabilities of these subsidiaries are denominated in Australian dollars, Canadian
dollars and British pounds, respectively, and as such are translated into United States dollars.
Income statement amounts are translated from Australian dollars, Canadian dollars or British pounds
to United States dollars based on the average exchange rate for the period covered. Assets and
liabilities are converted based on the exchange rate as of the applicable balance sheet date.
Equity investments are converted based on the exchange rate at the time of the applicable
investment. Foreign currency translation adjustments occur when the income statement and balance
sheet are converted at different exchange rates and are recognized as other comprehensive income or
loss in the financial statements. We do not currently hedge for currency fluctuations with our
foreign subsidiaries. Since July 1, 2008, the U.S. dollar has fluctuated significantly in relation
to the Australian dollar, Canadian dollar and British pound. These fluctuations have caused our
quarterly reported revenues and expenses to be both significantly higher and lower than would have
been reported had we experienced constant foreign currency exchange rates.
Accounts Receivable
The Companys accounts receivable do not represent a significant concentration of credit risk
due to the large number of customers and the fact that no one customer represents more than 6% of
our annual revenue. However, one advertising agency that represents a number of our advertising
clients in Australia, Canada and the United Kingdom constituted approximately 27% of our revenues
for the six months ended December 31, 2010 and approximately 27% of our net accounts receivable as
of December 31, 2010. Another advertising agency representing a number of our advertising clients
in Australia constituted approximately 13% of our revenues for the six months ended December 31,
2010 and approximately 11% of our net account receivable as of December 31, 2010. Two other
advertising agencies that represent a number of our advertising clients in Australia, Canada and
United Kingdom each constituted approximately 11% of our revenues for the six months ended December
31, 2010 and approximately 10% and 13%, respectively of our net accounts receivable as of December
31, 2010. In addition to the aforementioned agencies, it is likely other advertising agencies may
exceed 10% of our revenues and/or 10% of our net accounts receivable in the future based on the
current or past billing levels of certain agencies. In the United Kingdom, substantially all our
advertising related revenues come from five agency groups (including one agency group placing
approximately 44% of our UK advertising revenues for the six months ending December 31, 2010);
therefore our concentration of revenue by agency is greater in the UK market than for our Company
as a whole.
Item 4. Controls and Procedures
Evaluation of disclosure controls and procedures
Under the supervision and with the participation of our management, including our Chief
Executive Officer and Chief Financial Officer, we conducted an evaluation of our disclosure
controls and procedures, as such term is defined under Rule 13a-15(e) or 15d-15(e) promulgated
under the Securities Exchange Act of 1934, as amended (the Exchange Act), as of the end of the
period covered by this report. Based on this evaluation, our Chief Executive Officer and Chief
Financial Officer concluded that our disclosure controls and procedures are effective.
Changes in internal control over financial reporting
There have been no changes in our internal control over financial reporting identified in
connection with the evaluation required by paragraph (d) of Rule 13a-15 or 15d-15 promulgated under
the Exchange Act that occurred during the last fiscal quarter that has materially affected, or is
reasonably likely to materially affect, our internal control over financial reporting.
Part II. OTHER INFORMATION
Item 5. Other Information.
Employment Agreement with William L. Yde III
Effective February 9, 2011, the Company entered into an employment agreement with William L.
Yde III that governs Mr. Ydes employment with the Company as its President and Chief Executive
Officer through June 30, 2014. The employment agreement superseded Mr. Ydes prior employment
agreement with Company in its entirety.
Pursuant to the employment agreement, Mr. Yde will receive an annual base salary of $595,000
and is eligible for $25,000 increases in his base salary on July 1 of each year, commencing June
30, 2012, provided that the Company achieves certain operating profit goals to be determined by the
Companys board of directors or the compensation committee thereof. Mr. Yde is also eligible to
receive an annual performance-based bonus of up to 50% of his annual base salary for each of fiscal
year 2011, 2012, 2013, and 2014. The amount of each years bonus, if any, will be determined and
paid based upon satisfaction of certain operating profit goals to be determined by the Companys
board of directors or the compensation committee thereof for the applicable fiscal year and is
contingent upon Mr. Yde remaining an active employee of the Company through the end of the
applicable fiscal year. The employment agreement provides that unless and until the Company elects
to provide its United States based employees with medical insurance, the Company will pay Mr. Yde
$1,000 per month in lieu providing him with medical insurance. Also pursuant to the employment
agreement, the Companys board of directors, in its sole discretion, may grant Mr. Yde up to
500,000 shares of common stock if the Companys stock has traded at an average closing sales price
of $30.00 per share for 20 consecutive trading days, as reported on the NASDAQ (or such other
market or exchange if the Companys common stock is then quoted or listed on a market or exchange
other than the NASDAQ).
Upon entry in the employment agreement and pursuant thereto, the Company granted Mr. Yde
50,000 shares of restricted common stock under the Companys Amended and Restated 2005 Stock
Incentive Plan. The restricted stock grant is subject to transfer and forfeiture restrictions that
lapse with respect to 16,666 shares on each of February 9, 2012 and 2013, and with respect to
16,668 shares on February 9, 2014. The employment agreement provides that all unvested stock
options, shares of restricted stock, or other equity-based incentives awarded to Mr. Yde will
immediately vest upon the closing of an acquisition of the Company through the sale of
substantially all of its assets or through a merger, exchange, reorganization or liquidation or a
similar event as determined by the Companys board of directors or the compensation committee
thereof.
If the employment agreement terminated voluntarily by Mr. Yde or upon his death or disability,
or if the Company terminates the employment agreement for cause, Mr. Yde will only be entitled to
compensation and benefits accrued through the effective
date of termination. If the Company terminates the employment agreement without cause or if
Mr. Yde terminates the employment agreement as a result of a material breach by the Company or his
being required to report directly to anyone other than the Companys board of directors (or a
committee thereof), Mr. Yde will also be entitled to severance in the form of continuation of his
base salary for 18 months following the effective date of termination in accordance with the
Companys normal payroll business practices but subject to compliance with the requirements of
Section 409A of the Internal Revenue Code of 1986, as amended. In the event that severance payments
and/or accelerated vesting of equity awards would result in Mr. Yde receiving excess parachute
payments within the meaning of Section 280G of the Internal Revenue Code of 1986, as amended, the
severance payments will be reduced to the extent that the reduction would result in Mr. Yde
receiving a greater net-after-tax amount. The term cause under the employment agreement includes
the following events: (i) Mr. Ydes conviction of a felony; (ii) Mr. Ydes material breach of the
employment agreement; (iii) Mr. Ydes material violation of a Company policy that has a materially
adverse effect on the Company; (iv) Mr. Ydes failure to perform his duties as the Companys
President and Chief Executive Officer as required by the employment agreement, which failure has
not been cured following ten days after written notice is given; or (v) Mr. Ydes habitual
intoxication, drug use or chemical substance abuse by any intoxicating or chemical substance.
The employment agreement contains standard provisions regarding protection of the Companys
confidential information (as defined in the employment agreement) and, subject to certain
exceptions, prohibits Mr. Yde from directly or indirectly engaging in the following actions during
the period he is employed by the Company and continuing for one year following the termination of
the employment agreement, without the Companys prior express written consent:
render services, advice or assistance to any corporation, person, organization or other
entity which engages in the provision of traffic and/or news information to radio or television
stations anywhere outside of the United States, or engage in any such activities in any capacity
whatsoever, including without limitation as an employee, independent contractor, officer, director,
manager, beneficial owner, partner, member or shareholder of any provider of traffic and/or news
information;
soliciting or attempting to induce any of the Companys customers, suppliers, licensees,
licensors or other business relations to cease doing business with the Company or in any way
interfering with the Companys relationship with any such customer, vendor, licensee, licensor or
other business relation; or
soliciting or attempting to induce any of the Companys employees to leave the employ of
the Company, or to work for, render services or provide advice to or supply our confidential
business information or trade secrets to any third person or entity.
Employment Agreement with Scott E. Cody
Effective February 9, 2011, the Company entered into an employment agreement with Scott E.
Cody that governs Mr. Codys employment with the Company as its Chief Financial Officer and Chief
Operating Officer. The employment agreement, which is for an indefinite term, superseded Mr. Codys
prior employment agreement with Company in its entirety.
Pursuant to the employment agreement, Mr. Cody will initially receive an annual base salary of
$347,287.50 through June 30, 2011, which annual base salary will be increased to $395,000
commencing July 1, 2011. Mr. Cody is also eligible to receive an annual performance-based bonus of
$100,000 for the fiscal year ending June 30, 2011, and thereafter will be eligible to receive an
annual performance-based bonus of up to 40% of his annual base salary commencing with fiscal year
2012. The amount of each years bonus, if any, will be determined and paid based upon satisfaction
of certain operating profit goals to be determined by the Companys board of directors or the
compensation committee thereof for the applicable fiscal year and is contingent upon Mr. Cody
remaining an active employee of the Company through the end of the applicable fiscal year. The
employment agreement provides that unless and until the Company elects to provide its United States
based employees with medical insurance, the Company will pay Mr. Cody $1,000 per month in lieu
providing him with medical insurance.
Upon entry in the employment agreement and pursuant thereto, the Company granted Mr. Cody
22,725 shares of restricted common stock under the Companys Amended and Restated 2005 Stock
Incentive Plan. The restricted stock grant is subject to transfer and forfeiture restrictions that
lapse with respect to 7,575 shares on each of February 9, 2012, 2013 and 2014. The employment
agreement provides that all unvested stock options, shares of restricted stock, or other
equity-based incentives awarded to Mr. Cody will immediately vest upon the closing of an
acquisition of the Company through the sale of substantially all of its assets or through a merger,
exchange, reorganization or liquidation or a similar event as determined by the Companys board of
directors or the compensation committee thereof.
If the employment agreement terminated voluntarily by Mr. Cody or upon his death or
disability, or if the Company terminates the employment agreement for cause, Mr. Cody will only
be entitled to compensation and benefits accrued through the effective date of termination. If the
Company terminates the employment agreement without cause or if Mr. Cody terminates the
employment agreement as a result of a material breach by the Company or his being required to
report directly to anyone other than the Companys Chief Executive Officer, President or board of
directors (or a committee thereof), Mr. Cody will also be entitled to severance in the form of
continuation of his base salary for 12 months following the effective date of termination in
accordance with the Companys normal payroll business practices but subject to compliance with the
requirements of Section 409A of the Internal Revenue Code of 1986, as amended. In the event that
severance payments and/or accelerated vesting of equity awards would result in Mr. Cody receiving
excess parachute payments within the meaning of Section 280G of the Internal Revenue Code of
1986, as amended, the severance payments will be reduced to the extent that the reduction would
result in Mr.
Cody receiving a greater net-after-tax amount. The term cause under the employment
agreement includes the following events: (i) Mr. Codys conviction of a felony; (ii) Mr. Codys
material breach of the employment agreement; (iii) Mr. Codys material violation of a Company
policy that has a materially adverse effect on the Company; (iv) Mr. Codys failure to perform his
duties as the Companys Chief Financial Officer and Chief Operating Officer as required by the
employment agreement, which failure has not been cured following ten days after written notice is
given; or (v) Mr. Codys habitual intoxication, drug use or chemical substance abuse by any
intoxicating or chemical substance.
The employment agreement contains standard provisions regarding protection of the Companys
confidential information (as defined in the employment agreement) and, subject to certain
exceptions, prohibits Mr. Cody from directly or indirectly engaging in the following actions during
the period he is employed by the Company and continuing for one year following the termination of
the employment agreement, without the Companys prior express written consent:
render services, advice or assistance to any corporation, person, organization or other
entity which engages in the provision of traffic and/or news information to radio or television
stations anywhere outside of the United States, or engage in any such activities in any capacity
whatsoever, including without limitation as an employee, independent contractor, officer, director,
manager, beneficial owner, partner, member or shareholder of any provider of traffic and/or news
information;
soliciting or attempting to induce any of the Companys customers, suppliers, licensees,
licensors or other business relations to cease doing business with the Company or in any way
interfering with the Companys relationship with any such customer, vendor, licensee, licensor or
other business relation; or
soliciting or attempting to induce any of the Companys employees to leave the employ of
the Company, or to work for, render services or provide advice to or supply our confidential
business information or trade secrets to any third person or entity.
Item 6. Exhibits
(a) Exhibits
10.1 | Employment Agreement dated February 9, 2011 by and between Global Traffic Network, Inc. and William L. Yde III. | |
10.2 | Employment Agreement dated February 9, 2011 by and between Global Traffic Network, Inc. and Scott E. Cody. | |
31.1 | Certification of Chief Executive Officer pursuant to Securities Exchange Act Rule 13a-15(e)/15d-15(e) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
31.2 | Certification of Chief Financial Officer pursuant to Securities Exchange Act Rule 13a-15(e)/15d-15(e) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
32.1 | Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
99.1 | Press release of Global Traffic Network, Inc. dated February 10, 2011. |
23
Table of Contents
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Dated: February 10, 2011 | By: | /s/ William L. Yde III | ||
Name: | William L. Yde III | |||
Title: | Chairman, Chief Executive
Officer and President (Principal Executive Officer) |
|||
Dated: February 10, 2011 | By: | /s/ Scott E. Cody | ||
Name: | Scott E. Cody | |||
Title: | Chief Financial Officer, Chief Operating Officer and
Treasurer (Principal Financial and Accounting Officer) |
24
Table of Contents
Exhibit Index
10.1
|
Employment Agreement dated February 9, 2011 by and between Global Traffic Network, Inc. and William L. Yde III. | |
10.2
|
Employment Agreement dated February 9, 2011 by and between Global Traffic Network, Inc. and Scott E. Cody. | |
31.1
|
Certification of Chief Executive Officer pursuant to Securities Exchange Act Rule 13a-15(e)/15d-15(e) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
31.2
|
Certification of Chief Financial Officer pursuant to Securities Exchange Act Rule 13a-15(e)/15d-15(e) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
32.1
|
Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
99.1
|
Press release of Global Traffic Network, Inc. dated February 10, 2011 |
25