Attached files
file | filename |
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EX-99.1 - EX-99.1 - GLOBAL TRAFFIC NETWORK, INC. | c63488aexv99w1.htm |
EX-32.1 - EX-32.1 - GLOBAL TRAFFIC NETWORK, INC. | c63488aexv32w1.htm |
EX-31.1 - EX-31.1 - GLOBAL TRAFFIC NETWORK, INC. | c63488aexv31w1.htm |
EX-31.2 - EX-31.2 - GLOBAL TRAFFIC NETWORK, INC. | c63488aexv31w2.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 March 31, 2011
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 | Smaller reporting company þ | |||
(Do not check if a smaller reporting company) |
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
May 9, 2011, the registrant had 19,050,172 shares of common stock outstanding.
Global Traffic Network, Inc.
Index
2
Table of Contents
Part 1 Financial Information
Item 1 Financial Statements
GLOBAL TRAFFIC NETWORK, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)
(In thousands)
March 31, | June 30, | |||||||
2011 | 2010 | |||||||
(Unaudited) | (Unaudited) | |||||||
ASSETS: |
||||||||
Current Assets: |
||||||||
Cash and cash equivalents |
$ | 36,972 | $ | 19,564 | ||||
Accounts receivable net of allowance for doubtful
accounts of $140 and $69 at March 31, 2011 and
June 30, 2010 |
22,579 | 18,790 | ||||||
Prepaids and other current assets |
1,518 | 1,989 | ||||||
Deferred tax assets |
354 | 239 | ||||||
Total current assets |
61,423 | 40,582 | ||||||
Property and equipment, net |
6,441 | 6,693 | ||||||
Intangible assets, net |
11,909 | 13,013 | ||||||
Goodwill |
4,565 | 4,257 | ||||||
Deferred tax assets |
182 | 129 | ||||||
Other assets |
332 | 414 | ||||||
Total assets |
$ | 84,852 | $ | 65,088 | ||||
LIABILITIES AND SHAREHOLDERS EQUITY: |
||||||||
Current Liabilities: |
||||||||
Accounts payable and accrued expenses |
$ | 15,555 | $ | 11,709 | ||||
Deferred revenue |
645 | 810 | ||||||
Income taxes payable |
1,800 | 1,306 | ||||||
Total current liabilities |
18,000 | 13,825 | ||||||
Deferred tax liabilities |
3,039 | 2,747 | ||||||
Other liabilities |
464 | 349 | ||||||
Total liabilities |
21,503 | 16,921 | ||||||
Preferred stock, $.001 par value; 10,000,000
authorized; 0 issued and outstanding as of March
31, 2011 and June 30, 2010 |
| | ||||||
Common stock, $.001 par value; 100,000,000 shares
authorized; 19,010,851 shares issued and
outstanding as of March 31, 2011 and 18,409,834
shares issued and outstanding as of June 30, 2010 |
19 | 18 | ||||||
Additional paid in capital |
54,149 | 51,391 | ||||||
Accumulated other comprehensive income |
7,916 | 389 | ||||||
Retained earnings (accumulated deficit) |
1,265 | (3,631 | ) | |||||
Total shareholders equity |
63,349 | 48,167 | ||||||
Total liabilities and shareholders equity |
$ | 84,852 | $ | 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)
(In thousands except share and per share amounts)
Three Months Ended | Nine Months Ended | |||||||||||||||
March 31 | March 31 | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
(Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | |||||||||||||
Revenues |
$ | 26,788 | $ | 24,113 | $ | 83,902 | $ | 70,094 | ||||||||
Operating expenses (exclusive of
depreciation and amortization shown
separately below) |
18,875 | 15,998 | 53,196 | 47,685 | ||||||||||||
Selling, general and administrative expenses |
6,006 | 5,397 | 18,102 | 15,813 | ||||||||||||
Depreciation and amortization expense |
1,509 | 1,353 | 4,422 | 3,910 | ||||||||||||
Net operating income |
398 | 1,365 | 8,182 | 2,686 | ||||||||||||
Interest expense |
| | | 15 | ||||||||||||
Other (income) (including interest income
of $367 and $200 for the three months ended
March 31, 2011 and 2010 and interest income
of $907 and $513 for the nine months ended
March 31, 2011 and 2010) |
(368 | ) | (246 | ) | (916 | ) | (754 | ) | ||||||||
Other expense |
32 | 2 | 39 | 32 | ||||||||||||
Net income before income taxes |
734 | 1,609 | 9,059 | 3,393 | ||||||||||||
Income tax expense |
922 | 1,126 | 4,163 | 3,122 | ||||||||||||
Net (loss) income |
$ | (188 | ) | $ | 483 | $ | 4,896 | $ | 271 | |||||||
(Loss) income per common share: |
||||||||||||||||
Basic |
$ | (0.01 | ) | $ | 0.03 | $ | 0.27 | $ | 0.01 | |||||||
Diluted |
$ | (0.01 | ) | $ | 0.03 | $ | 0.26 | $ | 0.01 | |||||||
Weighted average common shares outstanding: |
||||||||||||||||
Basic |
18,298,051 | 18,118,170 | 18,214,696 | 18,100,262 | ||||||||||||
Diluted |
18,298,051 | 18,139,989 | 18,607,610 | 18,109,126 |
See accompanying notes to the consolidated financial statements
4
Table of Contents
GLOBAL TRAFFIC NETWORK, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(In thousands)
Nine Months | ||||||||
Ended | ||||||||
March 31, | ||||||||
2011 | 2010 | |||||||
(Unaudited) | (Unaudited) | |||||||
Cash flows from operating activities: |
||||||||
Net income |
$ | 4,896 | $ | 271 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: |
||||||||
Depreciation and amortization |
4,422 | 3,910 | ||||||
Allowance for doubtful accounts |
71 | (54 | ) | |||||
Non-cash compensation expense |
1,033 | 949 | ||||||
Change in deferred taxes |
14 | (211 | ) | |||||
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 |
(788 | ) | (1,371 | ) | ||||
Prepaid and other current assets and other assets |
790 | 14 | ||||||
Accounts payable and accrued expenses and other liabilities |
1,872 | 1,031 | ||||||
Deferred revenue |
(298 | ) | (474 | ) | ||||
Income taxes payable |
183 | (782 | ) | |||||
Net cash provided by operating activities |
12,287 | 3,208 | ||||||
Cash flows from investing activities: |
||||||||
Purchase of property and equipment |
(1,723 | ) | (1,204 | ) | ||||
Acquisition of business |
| (3,488 | ) | |||||
Net cash used in investing activities |
(1,723 | ) | (4,692 | ) | ||||
Cash flows from financing activities: |
||||||||
Proceeds from exercise of warrants |
1,791 | | ||||||
Repayment of long term debt |
| (414 | ) | |||||
Net cash provided (used) in financing activities |
1,791 | (414 | ) | |||||
Effect of exchange rate changes on cash and cash equivalents |
5,053 | 1,853 | ||||||
Net increase (decrease) in cash and cash equivalents |
17,408 | (45 | ) | |||||
Cash and cash equivalents at beginning of fiscal period |
19,564 | 21,419 | ||||||
Cash and cash equivalents at end of fiscal period |
$ | 36,972 | $ | 21,374 | ||||
Supplemental disclosures of cash flow information: |
||||||||
Cash paid during fiscal period for: |
||||||||
Interest |
$ | | $ | 15 | ||||
Income taxes |
$ | 3,990 | $ | 4,142 | ||||
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)
(Amounts in thousands except share and per share amounts unless noted)
Information
as of March 31, 2011 and 2010 and for the three and nine months ended March 31,
2011 and 2010 is unaudited
2011 and 2010 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 March 31, 2011 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 operations for the period ended
March 31, 2011 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 March 31, 2011 and
2010, there were common equivalent shares outstanding due to outstanding stock options of 1,111,998
and 1,158,400, respectively, restricted common shares of 307,719 and 248,329, respectively, and
warrants issued to the underwriter of the Companys IPO to purchase common shares of 0 and 380,000,
respectively. The warrants, which had a strike price of $6.00 and an expiration date of March 23, 2011, were
outstanding for part of the three and nine months ended March 31, 2011 and are therefore part of
the common stock equivalents for the period ended March 31, 2011. All 380,000 warrants were
exercised (both for cash and pursuant to the cashless exercise option) and resulted in an
additional 335,879 common shares being issued as well as $1,791 additional net cash proceeds after
costs to the Company.
6
Table of Contents
Common Stock Equivalents
Three Months | Three Months | Nine Months | Nine Months | |||||||||||||
Ended | Ended | Ended | Ended | |||||||||||||
March 31, | March 31, | March 31, | March 31, | |||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Stock options |
N/A | 21,819 | 283,761 | 8,864 | ||||||||||||
Restricted stock |
N/A | | 19,268 | | ||||||||||||
Warrants |
N/A | | 89,885 | | ||||||||||||
Total common stock equivalents |
N/A | 21,819 | 392,914 | 8,864 |
For the three month period ended March 31, 2010, 680,000 stock options with exercise prices
between and $5.00 and $8.70 were excluded from the calculation of diluted shares outstanding
because they were anti-dilutive. For the nine month period ended March 31, 2010, 793,400 stock
options with exercise prices between $4.66 and $8.70 were excluded from the calculation of diluted
shares outstanding because they were anti-dilutive. For the three and nine month periods ended
March 31, 2010 there were no common stock equivalents due to restricted stock although restricted
stock was not anti-dilutive for the periods. This is due to the treasury method calculation which
yielded no common stock equivalents because of the level of unrecognized compensation expense as of
March 31, 2010 and the average share prices for the three and nine months ended March 31, 2010.
For the three and nine month period ended March 31, 2010, 380,000 warrants with an exercise price
of $6.00 were excluded from the calculation of diluted shares outstanding because they were
anti-dilutive. Due to the net loss for the three months ended March 31, 2011, all common stock
equivalents were anti-dilutive and were excluded from the calculation of diluted shares
outstanding.
Since March 31, 2011, 78,334 additional stock options have been exercised (both for cash and
in a cashless manner) resulting in $31 of proceeds to the Company and the issuance of 39,321
additional common shares.
Three Months | Three Months | Nine Months | Nine Months | |||||||||||||
Ended | Ended | Ended | Ended | |||||||||||||
March 31, | March 31, | March 31, | March 31, | |||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Basic Shares Outstanding |
18,298,051 | 18,118,170 | 18,214,696 | 18,100,262 | ||||||||||||
Stock Options, Restricted
Stock & Warrants |
N/A | 21,819 | 392,914 | 8,864 | ||||||||||||
Diluted Shares Outstanding |
18,298,051 | 18,139,989 | 18,607,610 | 18,109,126 |
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 two financial
institutions 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.
March 31, | June 30, | |||||||
2011 | 2010 | |||||||
Cash and cash equivalents consist of the following: |
||||||||
Domestic currency |
$ | 2,289 | $ | 234 | ||||
Foreign currencies |
34,683 | 19,330 | ||||||
Total cash and cash equivalents |
$ | 36,972 | $ | 19,564 |
Money market investments with a fair value of $1,726 are included in cash and cash equivalents
as of March 31, 2011. 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
7
Table of Contents
commercial airtime inventory. At March 31, 2011, trade payables to
this supplier comprised approximately 26% of the Companys trade payables balance.
Approximately 16% 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 an agreement through
May 31, 2012 to receive radio news commercial airtime inventory. At March 31, 2011, trade payables
to this supplier comprised approximately 8% of the Companys trade payables balance.
Nineteen of the Companys Canadian radio station affiliates, which represent approximately 27%
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 36% 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 18 of these radio stations is
governed by a four year agreement effective January 1, 2009. At March 31, 2011, trade payables to
this supplier comprised approximately 8% of the Companys trade payables balance.
Approximately 16% 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, this
commercial airtime inventory comprises approximately 27% 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 March 31, 2011,
trade payables to this supplier comprised approximately 5% of the Companys trade payables balance.
Approximately 16% 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 25% 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 a 26 month agreement that commenced
September 1, 2010. This broadcaster also provides a material portion of the Companys radio
entertainment news commercial airtime inventory (also on a variable cost basis) under the terms of
a separate 26 month agreement that commenced September 1, 2010. At March 31, 2011, trade payables
to this supplier comprised approximately 11% of the Companys trade payables balance.
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.
Nine months | Nine months | |||||||
ended | ended | |||||||
March 31, | March 31, | |||||||
2011 | 2010 | |||||||
Net income |
$ | 4,896 | $ | 271 | ||||
Foreign currency translation adjustment |
7,527 | 1,658 | ||||||
Comprehensive income |
$ | 12,423 | $ | 1,929 |
NOTE 8 Income Taxes
Tax expense for the nine months ended March 31, 2011 and 2010 was $4,163 and $3,122,
respectively. The effective tax rate for the nine months ended March 31, 2011 and 2010 was 46.0%
and 92.0%, 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 March 31, 2011 was reduced due to the use of previously valued deferred tax
assets of $1,654 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
$1,469 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 $14,879 for undistributed earnings and
profits of ATN to date which are partially offset by foreign tax credit deferred tax assets of
$11,440.
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Table of Contents
The Company realized a tax benefit of $551 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 $3,304 (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 March 31, 2011 and 2010 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 March 31, 2011 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 $5,538 and $5,292 as of March 31, 2011 and June 30, 2010, respectively. As
of March 31, 2011, 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 $265 as of March 31, 2011
and the Company recognized $641 of non-cash income tax expense for the nine months ended March 31,
2011 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.
March 31, | June 30, | |||||||
2011 | 2010 | |||||||
Tax carried forward losses |
$ | 5,538 | $ | 5,292 | ||||
Other deferred tax assets |
5,405 | 4,272 | ||||||
Total deferred tax assets |
10,943 | 9,564 | ||||||
Total deferred tax liabilities |
6,762 | 5,074 | ||||||
Net deferred tax assets before valuation allowance |
4,181 | 4,490 | ||||||
Valuation allowance |
(6,684 | ) | (6,869 | ) | ||||
Net deferred tax (liabilities) |
$ | (2,503 | ) | $ | (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 March 31, 2011:
March 31, | ||||
2011 | ||||
Year 1 |
$ | 959 | ||
Year 2 |
724 | |||
Year 3 |
413 | |||
Year 4 |
212 | |||
Year 5 |
107 | |||
Thereafter |
139 | |||
Total |
$ | 2,554 |
Total rent expense charged to expenses in the accompanying statements of income for the three
and nine months ended March 31, 2011 and 2010 was $329, $296, $940 and $916, 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.
9
Table of Contents
Contractual station commitments by year and in the aggregate are as follows:
As of | ||||
March 31, | ||||
2011 | ||||
Year 1 |
$ | 45,405 | ||
Year 2 |
24,890 | |||
Year 3 |
8,710 | |||
Year 4 |
526 | |||
Year 5 |
| |||
Thereafter |
| |||
Total |
$ | 79,531 |
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 | ||||
March 31, | ||||
2011 | ||||
Year 1 |
$ | 3,216 | ||
Year 2 |
2,344 | |||
Year 3 |
| |||
Year 4 |
| |||
Year 5 |
| |||
Thereafter |
| |||
Total |
$ | 5,560 |
In April 2011, CTN purchased a fixed wing aircraft for its Vancouver operations at a cost of
approximately $95.
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 | ||||
March 31, | ||||
2011 | ||||
Shares authorized under the Plan |
2,400,000 | |||
Stock options outstanding |
(1,111,998 | ) | ||
Stock options exercised |
(184,670 | ) | ||
Restricted shares outstanding |
(307,719 | ) | ||
Restricted shares converted into common shares upon lapse of restrictions |
(225,006 | ) | ||
Shares available for issuance under the Plan |
570,607 | |||
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:
Nine months | ||||
Ended | ||||
March 31, | ||||
2011 | ||||
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 |
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Table of Contents
The following table summarizes the Companys stock option activity for the nine month period
ended March 31, 2011:
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 |
(159,736 | ) | $ | 4.58 | | $ | (408 | ) | $ | 1,114 | ||||||||||
Forfeitures/expirations |
(21,667 | ) | $ | 5.74 | | $ | (75 | ) | $ | | ||||||||||
Balance, March 31, 2011 |
1,111,998 | $ | 5.26 | 6.88 years | $ | 3,334 | $ | 8,021 | ||||||||||||
Exercisable, March 31, 2011 |
738,339 | $ | 5.44 | 6.05 years | $ | 2,165 | $ | 5,189 |
Based on the following assumptions, the fair value with regards to all options issued and
outstanding as of March 31, 2011 is $3,334. As of March 31, 2011, there was $902 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 1.5 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
nine months ended March 31, 2011 and 2010 was $412 and $559, 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 March 31, 2011.
The total fair value of options vesting during the nine months ended March 31, 2011 and 2010
was $446 and $468, respectively. The total intrinsic value of options exercised during the nine
months ended March 31, 2011 and 2010 was $1,114 and $0, respectively.
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 nine month period ended
March 31, 2011:
Nine months | ||||||||
Ended | ||||||||
March 31, | ||||||||
2011 | ||||||||
Weighted | ||||||||
Average Grant | ||||||||
Date Fair | ||||||||
Value | ||||||||
Shares | Per Share | |||||||
Unvested, beginning of period |
248,329 | $ | 5.47 | |||||
Grants |
177,725 | 9.66 | ||||||
Converted to common stock upon lapse of restrictions |
(118,335 | ) | | |||||
Forfeited |
| | ||||||
Unvested, end of period |
307,719 | $ | 7.68 |
As of March 31, 2011, there was $2,189 of unrecognized compensation expense related to
restricted stock grants. The unrecognized compensation expense is expected to be recognized over a
weighted average period of 2.5 years. Total compensation expense with regards to restricted stock
for the nine month periods ended March 31, 2011 and 2010 was $621 and $390, respectively and is
included in selling, general and administrative expenses.
NOTE 11 Segment Reporting
The Company primarily operates in three geographic areas, Australia, Canada and the 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 March 31, 2011 and 2010 and
select balance sheet information as of March 31, 2011 and 2010 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.
11
Table of Contents
Three months | Three months | Nine months | Nine months | |||||||||||||
Ended | Ended | Ended | Ended | |||||||||||||
March 31, | March 31, | March 31, | March 31, | |||||||||||||
Australia | 2011 | 2010 | 2011 | 2010 | ||||||||||||
Revenues |
$ | 15,199 | $ | 14,210 | $ | 49,717 | $ | 42,227 | ||||||||
Interest expense |
| | | 15 | ||||||||||||
Interest revenue |
364 | 200 | 899 | 511 | ||||||||||||
Depreciation & amortization expense |
266 | 251 | 799 | 750 | ||||||||||||
Intercompany management fee expense |
463 | 405 | 1,316 | 1,196 | ||||||||||||
Income tax expense |
888 | 1,050 | 4,048 | 3,291 | ||||||||||||
Segment profit |
2,035 | 2,458 | 9,395 | 7,637 | ||||||||||||
Expenditure for property and equipment |
291 | 74 | 592 | 335 |
March 31, | March 31, | |||||||
2011 | 2010 | |||||||
Segment assets |
$ | 45,045 | $ | 33,608 | ||||
Current assets |
42,284 | 30,574 | ||||||
Property & equipment, net |
2,319 | 2,466 | ||||||
Deferred tax assets, net |
536 | 400 | ||||||
Intangible assets, net |
40 | 36 | ||||||
Goodwill |
| | ||||||
Segment liabilities |
11,162 | 9,522 | ||||||
Three months | Three months | Nine months | Nine months | |||||||||||||
Ended | Ended | Ended | Ended | |||||||||||||
March 31, | March 31, | March 31, | March 31, | |||||||||||||
Canada | 2011 | 2010 | 2011 | 2010 | ||||||||||||
Revenues |
$ | 3,010 | $ | 2,678 | $ | 10,494 | $ | 6,487 | ||||||||
Interest expense |
| | | | ||||||||||||
Interest revenue |
| | | | ||||||||||||
Depreciation & amortization expense |
515 | 370 | 1,474 | 903 | ||||||||||||
Intercompany management fee expense |
| | | | ||||||||||||
Income tax expense |
| | | | ||||||||||||
Segment (loss) |
(1,157 | ) | (1,001 | ) | (1,726 | ) | (3,545 | ) | ||||||||
Expenditure for property and equipment |
689 | 20 | 1,119 | 754 |
March 31, | March 31, | |||||||
2011 | 2010 | |||||||
Segment assets |
$ | 9,682 | $ | 8,466 | ||||
Current assets |
5,823 | 3,460 | ||||||
Property & equipment, net |
3,744 | 4,832 | ||||||
Deferred tax assets (liabilities), net |
| | ||||||
Intangible assets, net |
70 | 138 | ||||||
Goodwill |
| | ||||||
Segment liabilities |
30,718 | 25,970 |
Three months | Three months | Nine months | Nine months | |||||||||||||
Ended | Ended | Ended | Ended | |||||||||||||
March 31, | March 31, | March 31, | March 31, | |||||||||||||
United Kingdom | 2011 | 2010 | 2011 | 2010 | ||||||||||||
Revenues |
$ | 8,579 | $ | 7,225 | $ | 23,691 | $ | 21,349 | ||||||||
Interest expense |
| | | | ||||||||||||
Interest revenue |
3 | | 8 | 1 | ||||||||||||
Depreciation & amortization expense |
728 | 707 | 2,148 | 2,179 | ||||||||||||
Intercompany management fee expense |
90 | | 90 | | ||||||||||||
Income tax
expense (benefit) |
25 | 61 | 90 | (184 | ) | |||||||||||
Segment
(loss) profit |
(39 | ) | (3 | ) | 176 | (963 | ) | |||||||||
Expenditure for property and equipment |
6 | 38 | 12 | 115 |
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March 31, | March 31, | |||||||
2011 | 2010 | |||||||
Segment assets |
$ | 27,786 | $ | 25,629 | ||||
Current assets |
10,977 | 6,956 | ||||||
Property & equipment, net |
378 | 583 | ||||||
Deferred tax (liabilities), net |
(3,039 | ) | (2,977 | ) | ||||
Intangible assets, net |
11,799 | 13,701 | ||||||
Goodwill |
4,565 | 4,325 | ||||||
Segment liabilities |
10,441 | 30,178 |
Three months | Three months | Nine months | Nine months | |||||||||||||
Ended | Ended | Ended | Ended | |||||||||||||
March 31, | March 31, | March 31, | March 31, | |||||||||||||
All Other | 2011 | 2010 | 2011 | 2010 | ||||||||||||
Revenues |
$ | | $ | | $ | | $ | 31 | ||||||||
Interest expense |
| | | | ||||||||||||
Interest revenue |
| | | 1 | ||||||||||||
Depreciation & amortization expense |
| 25 | 1 | 78 | ||||||||||||
Intercompany management fee revenue |
(553 | ) | (405 | ) | (1,406 | ) | (1,196 | ) | ||||||||
Income tax expense |
9 | 15 | 25 | 15 | ||||||||||||
Segment loss |
(1,027 | ) | (971 | ) | (2,949 | ) | (2,858 | ) | ||||||||
Expenditure for property and equipment |
| | | |
March 31, | March 31, | |||||||
2011 | 2010 | |||||||
Segment assets |
$ | 60,256 | $ | 51,957 | ||||
Current assets |
2,339 | 824 | ||||||
Property & equipment (net) |
| 1 | ||||||
Deferred tax assets (liabilities), net |
| | ||||||
Intangible assets, net |
| 25 | ||||||
Goodwill |
| | ||||||
Segment liabilities |
3,865 | 2,927 |
March 31, | March 31, | |||||||
Intercompany eliminations | 2011 | 2010 | ||||||
Segment assets |
$ | (57,917 | ) | $ | (51,107 | ) | ||
Current assets |
| | ||||||
Property & equipment (net) |
| | ||||||
Deferred tax assets (liabilities), net |
| | ||||||
Intangible assets, net |
| | ||||||
Goodwill |
| | ||||||
Segment liabilities |
(34,683 | ) | (50,226 | ) |
Three months | Three months | Nine months | Nine months | |||||||||||||
Ended | Ended | Ended | Ended | |||||||||||||
March 31, | March 31, | March 31, | March 31, | |||||||||||||
Total | 2011 | 2010 | 2011 | 2010 | ||||||||||||
Revenues |
$ | 26,788 | $ | 24,113 | $ | 83,902 | $ | 70,094 | ||||||||
Interest expense |
| | | 15 | ||||||||||||
Interest revenue |
367 | 200 | 907 | 513 | ||||||||||||
Depreciation & amortization expense |
1,509 | 1,353 | 4,422 | 3,910 | ||||||||||||
Intercompany management fee expense |
| | | | ||||||||||||
Income tax expense |
922 | 1,126 | 4,163 | 3,122 | ||||||||||||
Net (loss) profit |
(188 | ) | 483 | 4,896 | 271 | |||||||||||
Expenditure for property and equipment |
986 | 132 | 1,723 | 1,204 |
March 31, | March 31, | |||||||
2011 | 2010 | |||||||
Total assets |
$ | 84,852 | $ | 68,553 | ||||
Current assets |
61,423 | 41,814 | ||||||
Property & equipment, net |
6,441 | 7,882 | ||||||
Deferred tax (liabilities) assets, net |
(2,503 | ) | (2,577 | ) | ||||
Intangible assets, net |
11,909 | 13,900 | ||||||
Goodwill |
4,565 | 4,325 | ||||||
Total liabilities |
21,503 | 18,371 |
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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 $358, $316,
$1,033 and $949 for the three and nine month periods ended March 31, 2011 and 2010, 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. Effective January 1, 2011, the Company commenced charging a management fee to UKTN.
The amount of the management fee was $90 for the three and nine month period ended March 31, 2011.
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 March 31, 2011 |
$ | 20,821 | $ | 4,090 | $ | 852 | $ | 1,025 | $ | 26,788 | ||||||||||
Three months ended March 31, 2010 |
$ | 18,118 | $ | 3,859 | $ | 901 | $ | 1,235 | $ | 24,113 | ||||||||||
Nine months ended March 31, 2011 |
$ | 64,367 | $ | 14,076 | $ | 2,446 | $ | 3,013 | $ | 83,902 | ||||||||||
Nine months ended March 31, 2010 |
$ | 52,948 | $ | 11,906 | $ | 2,395 | $ | 2,845 | $ | 70,094 |
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 $152 and $444, reducing net operating income and net income $152 and $444 and
reducing both basic and diluted earnings per share $0.01 and $0.02 for the three and nine month
periods ended March 31, 2011. For the three and nine month period ended March 31, 2010, this
change had the effect of increasing depreciation expense $48, reducing net operating income and net
income $48, and had no impact on basic or diluted earnings per share.
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 nine month periods
ended March 31, 2011, revenue related to this contract was $1,010 and $2,998, operating income and
net income was $199 and $666 and basic and diluted earnings per share was $0.01 and $0.04,
respectively.
14
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 phone 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 currently 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 | 32 | 14 | |||||||||
Canada |
80 | 22 | 4 | |||||||||
United Kingdom |
247 | 125 | |
15
Table of Contents
The number of our traffic network affiliates in the UK has decreased from the prior period
primarily due to a decision by Global Radio Services to consolidate a number of their Heart branded
radio stations by simulcasting their programming over multiple stations that had previously been
programmed on a standalone basis. This had the effect of us having fewer network affiliates each
with a larger audience. The overall audience delivery was not significantly impacted therefore the
consolidation of radio stations had no impact on our revenue potential in the United Kingdom
market.
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 not recognized any 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 $49.7 million, or 59%, of our revenues for the nine month period ended March 31,
2011, of which approximately $36.0 million, or 43% of our total revenues, has been generated from
the sale of commercial advertising inventory related to our Australian radio traffic reports. For
the nine month period ended March 31, 2010, approximately $42.2 million, or 60% of our revenues,
was generated by our Australian operations, of which approximately $32.1 million, or 46%, 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 expect to
experience such 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 | 1 | 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.
16
Table of Contents
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 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 March 31,
2011 and 2010 and applicable to our balance sheet data as of March 31, 2011 and June 30, 2010 are
set forth below:
Australia
Balance | ||||||||||||
Income Statement Period | Exchange Rate | Sheet Date | Exchange Rate | |||||||||
Three month period ended March 31, 2011 |
1.0056 | March 31, 2011 | 1.0329 | |||||||||
Three month period ended December 31, 2010 |
0.9887 | |||||||||||
Three month period ended September 30, 2010 |
0.9057 | |||||||||||
Three month period ended March 31, 2010 |
0.9039 | |||||||||||
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 March 31, 2011 |
1.0141 | March 31, 2011 | 1.0303 | |||||||||
Three month period ended December 31, 2010 |
0.9873 | |||||||||||
Three month period ended September 30, 2010 |
0.9623 | |||||||||||
Three month period ended March 31, 2010 |
0.9606 | |||||||||||
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 March 31, 2011 |
1.6028 | March 31, 2011 | 1.6028 | |||||||||
Three month period ended December 31, 2010 |
1.5803 | |||||||||||
Three month period ended September 30, 2010 |
1.5510 | |||||||||||
Three month period ended March 31, 2010 |
1.5614 | |||||||||||
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
nine month periods ended March 31, 2011 compared to the three and nine month periods ended March
31, 2010 has been to increase (decrease) income statement amounts as follows:
17
Table of Contents
Three months | Nine months | |||||||
Ended | Ended | |||||||
March 31, | March 31, | |||||||
2011 | 2011 | |||||||
(in thousands) | (in thousands) | |||||||
Australia |
||||||||
Revenues |
$ | 1,537 | $ | 4,290 | ||||
Operating expenses (exclusive of depreciation and amortization) |
924 | 2,287 | ||||||
Sales, general & administrative expenses |
327 | 876 | ||||||
Canada |
||||||||
Revenues |
159 | 499 | ||||||
Operating expenses (exclusive of depreciation and amortization) |
141 | 375 | ||||||
Sales, general & administrative expenses |
50 | 143 | ||||||
United Kingdom |
||||||||
Revenues |
222 | (466 | ) | |||||
Operating expenses (exclusive of depreciation and amortization) |
175 | (360 | ) | |||||
Sales, general & administrative expenses |
28 | (43 | ) | |||||
Australia, Canada and United Kingdom combined |
||||||||
Revenues |
1,918 | 4,323 | ||||||
Operating expenses (exclusive of depreciation and amortization) |
1,240 | 2,302 | ||||||
Sales, general & administrative expenses |
405 | 976 |
When discussing changes in income statement accounts from the three and nine month periods
ended March 31, 2010, 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 three months
ended March 31, 2009, when revenue increased by approximately 11.7% when measured in Australian
dollars but our reported Australia revenue in U.S. dollars decreased by approximately 18.1%, in
each case when compared to 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. This
was the case in Australia during the three-month period ended March 31, 2011, when revenue
decreased by approximately 3.8% when measured in Australian dollars but our reported Australia
revenue in U.S. dollars increased by approximately 7.0%, in each case when compared to the three
months ended March 31, 2010.
For our third fiscal quarter ended March 31, 2011, the Australian dollar was stronger than
during the quarter ended December 31, 2010. This trend has continued to date during the fourth
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
fourth fiscal quarter ended June 30, 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 nine months ended March 31,
2011, revenue related to this contract was $1,010 and $2,998, operating income and net income was
$199 and $666 and basic and diluted earnings per share was $0.01 and $0.04. Assuming stable
exchange rates, we expect that the contracts quarterly contribution to our results throughout its
remaining term will be consistent with results seen during the third 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 March 31, 2011 Compared With Three Months Ended March 31, 2010
Revenues. Revenues increased from approximately $24.1 million for the three months ended March
31, 2010 to approximately $26.8 million for the three months ended March 31, 2011, an increase of
approximately 11.2%. Australian revenues increased approximately $1.0 million, or approximately
7.0%, compared to the quarter ended March 31, 2010. The increase in Australian revenues pertained
primarily to our radio network. All of the increase in Australian revenues was due to the
Australian dollar being stronger in the third fiscal quarter 2011 compared to the third fiscal
quarter 2010. As reflected in Changes in Key Operating Statistics in Local Currencies, Australian
revenues decreased approximately 3.8% when measured in local currency compared to the three month
period ended March 31, 2010. The Australian revenue decrease in local currency was driven primarily
by a decrease in the number of spots sold compared to the previous year quarter. The decrease in
spots sold was due to a decrease in the percentage of available spots being sold compared to the
previous year period. The percentage of spots sold in Australia decreased from approximately 85%
for the three months ended March 31, 2010 to approximately 76% for the three months ended March
31, 2011. We believe that the reduced demand for our inventory was due to weaker than expected
retail market during the quarter, as we have significant retail clients that reduced their expected
expenditures. Revenues from our United Kingdom operations increased approximately $1.4 million
(approximately 19.4%) which related primarily to our traffic and entertainment news network
advertising sales. As reflected in Changes in Key Operating Statistics in Local Currencies, United
Kingdom revenues increased approximately
18
Table of Contents
15.7% when measured in British pounds. Revenues from the
sale of inventory related to our Canadian operations increased approximately $0.3 million, or
approximately 11.1%, from the previous year quarter. The revenue increase in local currency was
driven mainly by an increase in rate, which increased approximately 40% compared to the three
months ended March 31, 2010. 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. The curtailment of these low yield spots also contributed to a lower sell-out
in the current quarter compared to the three months ended
March 31, 2010. As reflected in Changes
in Key Operating Statistics in Local Currencies, Canadian revenues increased approximately 6.5%
when measured in Canadian dollars.
Operating expenses (exclusive of depreciation and amortization discussed below). Operating
expenses increased from approximately $16.0 million for the three months ended March 31, 2010 to
approximately $18.9 million for the three months ended March 31, 2011, an increase of approximately
18.1%. Australian operating expenses increased approximately $1.4 million primarily due to an
increase in station compensation of approximately $1.2 million and an increase in employee costs of
approximately $0.2 million. Approximately $0.9 million of the approximately $1.4 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
March 31, 2010. As reflected in Changes in Key Operating Statistics in Local Currencies, Australian
operating expenses increased by approximately 6.4% when measured in local currency. Operating costs
related to our United Kingdom operations increased approximately $1.1 million compared to the
quarter ended March 31, 2010, primarily due to an increase in station compensation. 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 15.0% 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 an increase in employee costs of approximately $0.1
million. As reflected in Changes in Key Operating Statistics in Local Currencies, Canadian
operating expenses increased by approximately 4.1% in local currency. Global Alert Network
operating expenses increased approximately $0.2 million as spending increased in an effort to
commercialize our alerting product for mobile phones.
Selling, general and administrative expenses. Selling, general and administrative expenses
increased from approximately $5.4 million for the three months ended March 31, 2010 to
approximately $6.0 million for the three months ended March 31, 2011, an increase of approximately
11.1%. Australia Traffic Network selling, general and administrative expenses increased
approximately $0.3 million dollars compared to the quarter ended March 31, 2010, 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. As reflected in Changes in
Key Operating Statistics in Local Currencies, Australian selling, general and administrative
expenses decreased by approximately 0.7% when measured in local currency. Sales expense as a
percentage of revenue in Australia decreased from approximately 13.8% for the three months ended
March 31, 2010 to approximately 13.4% for the three months ended March 31, 2011. Canada Traffic
Network selling, general and administrative expenses increased approximately $0.1 million primarily
due to an increase in costs related to our sales staff due to commissions on increased sales, the
hiring of additional sales representatives and sales managers and severance for terminated
employees. Selling, general and administrative expenses increased approximately $0.3 million in the
United Kingdom primarily due to approximately $0.2 million in commissions and bonuses associated
with the higher revenue as well as approximately $0.1 million in management fees charged by Global
Traffic Network which eliminates in consolidation. Selling, general and administrative expenses for
Global Traffic Network (the unconsolidated parent) were reduced approximately $0.1 million due to
the increased management fees discussed above. Management fee revenue is treated as a
contra-expense and eliminates in consolidation. Non-cash compensation expense resulting from
grants of employee and director stock options and restricted stock was approximately $0.4 million
for the three month period ended March 31, 2011 compared to approximately $0.3 million for the
three months ended March 31, 2010.
Depreciation and amortization expense. Depreciation and amortization expense increased from
approximately $1.4 million for the three months ended March 31, 2010 to approximately $1.5 million
for the three months ended March 31, 2011. The increase mainly 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 March 31, 2011 as the
Company has no outstanding debt.
Other
(income) expense. Other (income) (net) was approximately $0.3 million for the three months ended March 31,
2011, compared to approximately $0.2 million for the three months ended March 31, 2010. Other
(income) consists primarily of interest income on our cash balances.
Income tax expense. Income tax expense decreased from approximately $1.1 million for the three
months ended March 31, 2010 to approximately $0.9 million for the three months ended March 31,
2011. The decrease resulted primarily from lower tax expense in Australia due to the lower income
before taxes for the three months ended March 31, 2011 compared to the three month period ended
March 31, 2010. The effective tax rate in Australia was 30.4% for the three month period ended
March 31, 2011 and 29.9% for the three month period ended March 31, 2010, 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. 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 tax expense are both non-cash items.
19
Table of Contents
Net income (loss). Net income decreased from approximately $0.5 million for the three months ended
March 31, 2010 to a net loss of approximately $0.2 million for the three months ended March 31,
2011. The decrease in net income is primarily attributable to $0.5 million decrease in Australia
Traffic Network net income due to lower sales and higher expenses. In addition, Global Alert
Networks loss increased approximately $0.2 million due to increased expenses related to our mobile
phone alerting product.
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 March 31,
2011 and 2010 were 1.0056 and 0.9039, respectively.
Three Months | Three Months | |||||||||||
Ended | Ended | Percentage | ||||||||||
March 31, | March 31, | Increase | ||||||||||
Key operating statistic | 2011 | 2010 | (Decrease) | |||||||||
(In thousands) | (In thousands) | |||||||||||
Revenues |
$ | 15,116 | $ | 15,721 | (3.8 | )% | ||||||
Operating expenses |
9,087 | 8,542 | 6.4 | % | ||||||||
Selling, general and administrative expenses |
3,219 | 3,241 | (0.7 | )% | ||||||||
Depreciation and amortization expense |
265 | 278 | (4.7 | )% | ||||||||
Interest expense |
| | | |||||||||
Other (income) |
(362 | ) | (221 | ) | 63.8 | % | ||||||
Income tax expense |
883 | 1,162 | (24.0 | )% | ||||||||
Net income |
2,024 | 2,719 | (25.6 | )% |
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 March 31, 2011 and 2010 were
1.0141 and 0.9606, respectively.
Three Months | Three Months | |||||||||||
Ended | Ended | Percentage | ||||||||||
March 31, | March 31, | Increase | ||||||||||
Key operating statistic | 2011 | 2010 | (Decrease) | |||||||||
(In thousands) | (In thousands) | |||||||||||
Revenues |
$ | 2,968 | $ | 2,788 | 6.5 | % | ||||||
Operating expenses |
2,643 | 2,538 | 4.1 | % | ||||||||
Selling, general and administrative expenses |
937 | 906 | 3.4 | % | ||||||||
Depreciation and amortization expense |
508 | 385 | 31.9 | % | ||||||||
Interest expense |
| | | |||||||||
Other expense |
21 | 2 | 950.0 | % | ||||||||
Income tax expense |
| | | |||||||||
Net loss |
(1,141 | ) | (1,043 | ) | 9.4 | % |
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 applicable to the three month periods ended March 31, 2011
and 2010 were 1.6028 and 1.5614, respectively.
Three Months | Three Months | |||||||||||
Ended | Ended | Percentage | ||||||||||
March 31, | March 31, | Increase | ||||||||||
Key operating statistic | 2011 | 2010 | (Decrease) | |||||||||
(In thousands) | (In thousands) | |||||||||||
Revenues |
£ | 5,353 | £ | 4,628 | 15.7 | % | ||||||
Operating expenses |
4,230 | 3,677 | 15.0 | % | ||||||||
Selling, general and administrative expenses |
680 | 491 | 38.5 | % | ||||||||
Depreciation and amortization expense |
454 | 453 | 0.2 | % | ||||||||
Interest expense |
| | | |||||||||
Other (income) |
(2 | ) | (30 | ) | (93.3 | )% | ||||||
Income tax expense |
16 | 39 | (59.0 | )% | ||||||||
Net loss |
(25 | ) | (2 | ) | 1,150.0 | % |
20
Table of Contents
Nine Months Ended March 31, 2011 Compared With Nine Months Ended March 31, 2010
Revenues. Revenues increased from approximately $70.1 million for the nine months ended March
31, 2010 to approximately $83.9 million for the nine months ended March 31, 2011, an increase of
approximately 19.7%. Australian revenues increased approximately $7.5 million, or approximately
17.8%, compared to the nine months ended March 31, 2010. The increase in Australian revenues
pertained primarily to our radio network. Approximately $4.3 million of the overall approximately
$7.5 million increase in Australian revenues was due to the Australian dollar being stronger in the
first three fiscal quarters 2011 compared to fiscal 2010, while the remaining approximately $3.2
million was due to increased sales in local currency. As reflected in Changes in Key Operating
Statistics in Local Currencies, Australian revenues increased approximately 7.8% when measured in
local currency compared to the nine month period ended March 31, 2010. Revenues from our United
Kingdom operations increased approximately $2.4 million (approximately 11.3%) which primarily
related to our traffic and entertainment news network advertising sales. Unlike the Australian and
Canadian dollar, the British pound was actually weaker over the first three fiscal quarters of this
year (although not the current quarter) compared to the same period of last year. As reflected in
Changes in Key Operating Statistics in Local Currencies, United Kingdom revenues increased
approximately 13.2% when measured in British pounds. Revenues from the sale of inventory related to
our Canadian operations increased approximately $4.0 million, or approximately 61.5%, from the
previous year period. As reflected in Changes in Key Operating Statistics in Local Currencies,
Canadian revenues increased approximately 54.8% when measured in Canadian dollars.
Operating expenses (exclusive of depreciation and amortization discussed below). Operating
expenses increased from approximately $47.7 million for the nine months ended March 31, 2010 to
approximately $53.2 million for the nine months ended March 31, 2011, an increase of approximately
11.5%. Australian operating expenses increased approximately $3.9 million primarily due to an
increase in station compensation of approximately $3.4 million and an increase in employee costs of
approximately $0.6 million. Approximately $2.3 million of the approximately $3.9 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 nine
month period ended March 31, 2010. As reflected in Changes in Key Operating Statistics in Local
Currencies, Australian operating expenses increased by approximately 7.4% when measured in local
currency. Operating costs related to our United Kingdom operations increased approximately $0.8
million compared to the period ended March 31, 2010. Employee costs were reduced approximately $0.2
million, third party traffic out source provider costs were reduced approximately $0.3 million
while station compensation increased approximately $1.3 million compared to the previous year
period. As reflected in Changes in Key Operating Statistics in Local Currencies, United Kingdom
operating expenses increased by approximately 6.4% in local currency. Operating expenses related to
our Canadian operations increased approximately $0.6 million due to an increase in station
compensation of approximately $0.4 million, approximately $0.1 million loss on write-off of a blown
helicopter engine, an increase of approximately $0.2 million in employee costs and a decrease of
approximately $0.1 million in aviation costs. As reflected in Changes in Key Operating Statistics
in Local Currencies, Canadian operating expenses increased by approximately 3.1% in local currency.
Global Alert Network operating expenses increased approximately $0.2 million as spending increased in the current
quarter in an effort to commercialize our alerting product for mobile phones.
Selling, general and administrative expenses. Selling, general and administrative expenses
increased from approximately $15.8 million for the nine months ended March 31, 2010 to
approximately $18.1 million for the nine months ended March 31, 2011, an increase of approximately
14.6%. Australian selling, general and administrative expenses increased approximately $1.4 million
compared to the period ended March 31, 2010, of which approximately $0.9 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 and to a lesser extent increases in administrative
salaries. Sales expense as a percentage of revenue in Australia decreased from approximately 13.9%
for the nine months ended March 31, 2010 to approximately 13.4% for the nine months ended March 31,
2011. 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, the hiring of additional sales representatives and sales managers
as well as severance for terminated
employees. Selling, general and administrative expenses increased approximately $0.1 million in the
United Kingdom primarily due to the management fee from Global Traffic Network that was implemented
in the quarter. Non-cash compensation expense resulting from grants of employee and director stock
options and restricted stock was approximately $1.0 million for the nine months ended March 31,
2011 and approximately $0.9 million for the nine months ended March 31, 2010.
Depreciation and amortization expense. Depreciation and amortization expense increased from
approximately $3.9 million for the nine months ended March 31, 2010 to approximately $4.4 million
for the nine months ended March 31, 2011. Approximately $0.4 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 nine months ended March 31, 2011 as the
Company has no outstanding debt.
Other
(income) expense. Other (income) (net) increased from approximately $0.7 million for the nine months ended
March 31, 2010 to $0.9 million for the nine months ended
March 31, 2011. Other (income) consists
primarily of interest income on our cash balances. For the nine month period ended March 31, 2010,
there was approximately $0.1 million of foreign translation income. This income resulted from the
repayment of balances due to 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 March 31, 2010.
21
Table of Contents
Income tax expense. Income tax expense increased from approximately $3.1 million for the nine
months ended March 31, 2010 to approximately $4.2 million for the nine months ended March 31, 2011.
The increase was primarily due to higher net profit in Australia which led to an approximately $0.7
million increase in income tax expense for the nine months ended March 31, 2011 compared to the
nine month period ended March 31, 2010. The effective tax rate in Australia was 30.1% for the nine
month periods ended March 31, 2011 and 2010 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 $0.5
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 $0.6 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 tax expense are both non-cash
items.
Net income. Net income increased from approximately $0.3 million for the nine months
ended March 31, 2010 to approximately $4.9 million for the nine months ended March 31, 2011. 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.
Nine Months | Nine Months | |||||||||||
Ended | Ended | Percentage | ||||||||||
March 31, | March 31, | Increase | ||||||||||
Key operating statistic | 2011 | 2010 | (Decrease) | |||||||||
(In thousands) | (In thousands) | |||||||||||
Revenues |
$ | 51,447 | $ | 47,727 | 7.8 | % | ||||||
Operating expenses |
27,140 | 25,279 | 7.4 | % | ||||||||
Selling, general and administrative expenses |
10,485 | 9,863 | 6.3 | % | ||||||||
Depreciation and amortization expense |
827 | 851 | (2.8 | )% | ||||||||
Interest expense |
| 17 | (100.0 | )% | ||||||||
Other (income) |
(929 | ) | (580 | ) | 60.2 | % | ||||||
Income tax expense |
4,193 | 3,703 | 13.2 | % | ||||||||
Net income |
9,731 | 8,594 | 13.2 | % |
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.
Nine Months | Nine Months | |||||||||||
Ended | Ended | Percentage | ||||||||||
March 31, | March 31, | Increase | ||||||||||
Key operating statistic | 2011 | 2010 | (Decrease) | |||||||||
(In thousands) | (In thousands) | |||||||||||
Revenues |
$ | 10,623 | $ | 6,864 | 54.8 | % | ||||||
Operating expenses |
7,808 | 7,570 | 3.1 | % | ||||||||
Selling, general and administrative expenses |
3,036 | 2,134 | 42.3 | % | ||||||||
Depreciation and amortization expense |
1,492 | 958 | 55.7 | % | ||||||||
Interest expense |
| | | |||||||||
Other expense (income) |
23 | (4 | ) | NM | ||||||||
Income tax expense |
| | | |||||||||
Net loss |
(1,736 | ) | (3,794 | ) | (54.2 | )% |
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.
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Nine Months | Nine Months | |||||||||||
Ended | Ended | Percentage | ||||||||||
March 31, | March 31, | Increase | ||||||||||
Key operating statistic | 2011 | 2010 | (Decrease) | |||||||||
(In thousands) | (In thousands) | |||||||||||
Revenues |
£ | 15,001 | £ | 13,252 | 13.2 | % | ||||||
Operating expenses |
11,775 | 11,062 | 6.4 | % | ||||||||
Selling, general and administrative expenses |
1,699 | 1,619 | 4.9 | % | ||||||||
Depreciation and amortization expense |
1,361 | 1,352 | 0.7 | % | ||||||||
Interest expense |
| | | |||||||||
Other (income) |
(6 | ) | (81 | ) | (92.6 | )% | ||||||
Income tax expense (benefit) |
58 | (111 | ) | NM | ||||||||
Net income (loss) |
114 | (589 | ) | NM |
Liquidity and Capital Resources
At March 31, 2011, the Companys primary source of liquidity was cash and cash equivalents of
approximately $37.0 million. At March 31, 2011, the Company also had approximately $2.1 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 March 31, 2011.
Operating activities. Cash provided by operating activities was approximately $12.3 million
for the nine months ended March 31, 2011, due mainly to positive cash generation from operations
(after the net income was adjusted for non-cash expenses) which was further increased by positive
changes in working capital. The largest source of working capital was $1.9 million due to an
increase in accounts payable, accrued expenses and other liabilities. The majority of the increase
in accounts payable is a timing difference and is expected to reverse in the future.
Investing activities. Cash used in investing activities was approximately $1.7 million for the
nine month period ended March 31, 2011. 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 provided by financing activities was $1.8 million for the nine
months ended March 31, 2011, due to proceeds received from the exercise of warrants issued to the
underwriter of our initial public offering. 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 $5.1
million for the nine months ended March 31, 2011 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.
We believe our cash and cash equivalents on hand and our overdraft line of credit of
approximately $2.1 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; |
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| 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 $0.4
million on an annual basis based on the balances at March 31, 2011. We have no derivative financial
instruments or auction rate securities in our cash and cash equivalents. We had no outstanding
long-term debt as March 31, 2011 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.
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
Although 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, payments from customers may be received through advertising agencies
depending on the customer and the relevant geographic market. Therefore, we may experience credit
risk based on the concentration of accounts receivable attributable to advertising agencies. One
advertising agency that represents a number of our advertising clients in Australia, Canada and the
United Kingdom constituted approximately 28% of our revenues for the nine months ended March 31,
2011 and approximately 33% of our net accounts receivable as of March 31, 2011. Another advertising
agency representing a number of our advertising clients in Australia constituted approximately 11%
of our revenues for the nine months ended March 31, 2011 and approximately 7% of our net account
receivable as of March 31, 2011. Two other advertising agencies that represent a number of our
advertising clients in Australia, Canada and United Kingdom each constituted approximately 14% and
10% of our revenues, respectively for the nine months ended March 31, 2011 and approximately 17%
and 8%, respectively of our net accounts receivable as of March 31, 2011. 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
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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 52% of our UK advertising
revenues for the nine months ending March 31, 2011); 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.
Results of Operations and Financial Condition.
The information in this Item 5 is furnished to, but not filed with, the Securities and
Exchange Commission in lieu of furnishing such information pursuant to a separate Form 8-K, Item
2.02 Results of Operations and Financial Condition.
On May 13, 2011, Global Traffic Network, Inc. issued a press release reporting the financial
results for its third fiscal quarter ended March 31, 2011. A copy of the press release is furnished
as Exhibit 99.1 to this report and is incorporated herein by reference.
Item 6. Exhibits
(a) Exhibits
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 May 13, 2011. |
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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: May 13, 2011 | By: | /s/ William L. Yde III | ||
Name: | William L. Yde III | |||
Title: | Chairman, Chief Executive Officer and President (Principal Executive Officer) |
|||
Dated: May 13, 2011 | By: | /s/ Scott E. Cody | ||
Name: | Scott E. Cody | |||
Title: | Chief Financial Officer,
Chief Operating Officer and Treasurer (Principal Financial and Accounting Officer) |
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Exhibit Index
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 May 13, 2011 |
27