Note: Certain statements included in this report or in the financial statements contained herein which are not statements of historical fact, including but not limited to those identified with the words "expect," "should," "will" or "look" are intended to be, and are, by this Note, identified as "forward-looking statements," as defined in the Securities and Exchange Act of 1934, as amended. Such statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of the Company to be materially different from any future result, performance or achievement expressed or implied by such forward-looking statement. Such factors include, among others:
• general economic and business conditions;

• fluctuations in the demand for advertising and demand for different types of advertising media;

• our ability to service our outstanding debt;

• loss of key personnel;

• increased competition in our markets and the broadcasting industry;

• our ability to attract and secure programming, on-air talent, writers and photographers;

• inability to obtain (or to obtain timely) necessary approvals for purchase or sale transactions or to complete the transactions for other reasons generally beyond our control;

• increases in the costs of programming, including on-air talent;

• new or changing regulations of the Federal Communications Commission or other governmental agencies;

• changes in radio audience measurement methodologies;

• competition from new or different technologies;

• war, terrorist acts or political instability; and

• other factors mentioned in other documents filed by the Company with the Securities and Exchange Commission.

For a more detailed discussion of these and other risk factors, see the Risk Factors section of our Annual Report on Form 10-K for the year ended February 28, 2009. Emmis does not undertake any obligation to publicly update or revise any forward-looking statements because of new information, future events or otherwise.
GENERAL
We are a diversified media company. We own and operate radio and publishing properties located primarily in the United States. Our revenues are mostly affected by the advertising rates our entities charge, as advertising sales represent approximately 80% of our consolidated revenues. These rates are in large part based on our entities' ability to attract audiences/subscribers in demographic groups targeted by their advertisers. Arbitron Inc. generally measures radio station ratings either four times a year (for markets measured by diaries) or weekly (for markets measured by the Portable People Meter). Because audience ratings in a station's local market are critical to the station's financial success, our strategy is to use market research and advertising and promotion to attract and retain audiences in each station's chosen demographic target group.
Our revenues vary throughout the year. As is typical in the broadcasting industry, our revenues and operating income are usually lowest in our fourth fiscal quarter.
In addition to the sale of advertising time for cash, stations typically exchange advertising time for goods or services, which can be used by the station in its business operations. These barter transactions are recorded at the estimated fair value of the product or service received. We generally confine the use of such trade transactions to promotional items or services for which we would otherwise have paid cash. In addition, it is our general policy not to pre-empt advertising spots paid for in cash with advertising spots paid for in trade.

The following table summarizes the sources of our revenues for the three-month and six-month periods ended August 31, 2008 and 2009. All revenues generated by our international radio properties are included in the "Local" category. The category "Non Traditional" principally consists of ticket sales and sponsorships of events our stations and magazines conduct in their local markets. The category "Other" includes, among other items, revenues generated by the websites of our entities and barter.

                                         Three Months Ended August 31,                                          Six Months Ended August 31,
                           2008           % of Total           2009         % of Total          2008           % of Total           2009          % of Total
                                           (Dollars in thousands)                                                (Dollars in thousands)
Net revenues:
Local                    $ 58,641                 62.6 %     $ 40,725              59.9 %     $ 114,456                63.9 %     $  81,225              62.3 %
National                   15,286                 16.3 %        7,476              11.0 %        30,110                16.8 %        15,308              11.7 %
Publication Sales           2,903                  3.1 %        2,592               3.8 %         6,720                 3.8 %         6,001               4.6 %
Non Traditional             8,895                  9.5 %        8,305              12.2 %        12,016                 6.7 %        10,681               8.2 %
Other                       7,961                  8.5 %        8,872              13.1 %        15,794                 8.8 %        17,184              13.2 %


Total net revenues       $ 93,686                            $ 67,970                         $ 179,096                           $ 130,399

As previously mentioned, we derive approximately 80% of our net revenues from advertising sales. Our radio stations derive a higher percentage of their advertising revenues from local sales than our publishing entities. In the six-month period ended August 31, 2009, local sales, excluding political revenues, represented approximately 87% and 74% of our advertising revenues for our radio and publishing divisions, respectively. In the six-month period ended August 31, 2008, local sales, excluding political revenues, represented approximately 84% and 61% of our advertising revenues for our radio and publishing divisions, respectively. Our net revenues decreased principally as a result of a precipitous decline of advertising spending due to the global economic slowdown. Local sales have been slightly more resilient than national sales. For the six months ended August 31, 2009 as compared to the same period of the prior year, local sales are down approximately 29%, while national sales are down approximately 49%.
No customer represents more than 10% of our consolidated net revenues. Our top ten categories for radio represent approximately 60% of the total advertising net revenues. Although the automotive industry, representing approximately 9% of our radio net revenues, is the largest category for our radio division for the six-month period ended August 31, 2009, our radio net revenues for this category are down 42% versus the same period of the prior year.
The majority of our expenses are fixed in nature, principally consisting of salaries and related employee benefit costs, office and tower rent, utilities, property and casualty insurance and programming-related expenses. However, approximately 20% of our expenses vary in connection with changes in revenues. These variable expenses primarily relate to sales commissions and bad debt reserves. In addition, costs related to our marketing and promotions department are highly discretionary and incurred primarily to maintain and/or increase our audience and market share.
KNOWN TRENDS AND UNCERTAINTIES
Although the slowing global economy has negatively impacted advertising revenues for a wide variety of media businesses, domestic radio revenue growth has been challenged for several years. Management believes this is principally the result of four factors unrelated to the slowing economy: (1) the emergence of new media, such as various media content distributed via the Internet and cable interconnects, which are gaining advertising share against radio and other traditional media, (2) the perception of investors and advertisers that satellite radio and portable media players diminish the effectiveness of radio advertising, (3) advertisers' lack of confidence in the ratings of radio stations due to dated ratings-gathering methods, and (4) a lack of inventory and pricing discipline by radio operators.

The radio industry has begun several initiatives to address these issues, most notable of which is the rollout of HD Radio®. HD Radio® offers listeners advantages over standard analog broadcasts, including improved sound quality and additional digital channels. To make the rollout of HD Radio® more efficient, a consortium of broadcasters representing a majority of the radio stations in nearly all of our markets have agreed to work together in each radio market to ensure the most diverse consumer offering possible and to accelerate the rollout of HD Radio® receivers, particularly in automobiles. In addition to offering secondary channels, the HD Radio® spectrum allows broadcasters to transmit other forms of data. We are participating in a joint venture with other broadcasters to provide the bandwidth that a third party will use to transmit location-based data to hand-held and in-car navigation devices. We currently utilize HD Radio® digital technology on most of our FM stations. It is unclear what impact HD Radio® will have on the markets in which we operate.
Arbitron Inc., the supplier of ratings data for United States radio markets, has developed technology to passively collect data for its ratings service. The Portable People MeterTM (PPMTM) is a small, pager-sized device that does not require any active manipulation by the end user and is capable of automatically measuring radio, television, Internet, satellite radio and satellite television signals that are encoded for the service by the broadcaster. The PPMTM offers a number of advantages over the traditional diary ratings collection system including ease of use, more reliable ratings data and shorter time periods between when advertising runs and when audience listening or viewing habits can be reported. This service began in the New York, Los Angeles and Chicago markets in October 2008, in the St. Louis market in October 2009, and is planned for introduction in the Austin and Indianapolis markets in the fall of 2010. In each market in which the service has begun, there has been a compression in the relative ratings of all stations in the market, enhancing the competitive pressure within the market for advertising dollars. In addition, ratings for certain stations when measured by the PPMTM as opposed to the traditional diary methodology can be materially different. The Company continues to evaluate the impact PPMTM will have on our revenues in these markets.
As discussed below, our radio stations in Los Angeles and New York are trailing the performance of their respective markets. Management believes this relative underperformance is principally due to two factors: (1) our lack of scale in these markets and (2) the introduction of PPMTM to these markets in October 2008. Some of our competitors operate larger station clusters in New York and Los Angeles than we do, enabling them to use their higher market share to extract a greater percentage of available advertising revenue through discounting unit rates. Our stations in New York and Los Angeles principally target demographics that suffer a disproportionate decline in ratings when measured by the PPMTM as compared to the previously used diary methodology. Management expects the impact we have experienced from the adoption of the PPMTM to begin to abate in our fiscal fourth quarter of this year. Our Los Angeles and New York markets collectively account for approximately 50% of our domestic radio revenues.
On April 3, 2009, Emmis entered into an LMA and a Put and Call Agreement for KMVN-FM in Los Angeles with a subsidiary of Grupo Radio Centro, S.A.B. de C.V ("GRC"), a Mexican broadcasting company. The LMA for KMVN-FM commenced on April 15, 2009 and will continue for up to 7 years. The LMA requires an annual payment of $7 million plus reimbursement of certain expenses. GRC paid the first two years of LMA payments in advance at closing. At any time during the LMA, GRC has the right to purchase the station for $110 million. At the end of the term, Emmis has the right to require GRC to purchase the station for the same amount. Under the LMA, Emmis continues to own and operate the station, with GRC providing Emmis with broadcast programming. The performance of Emmis' other Los Angeles radio station, KPWR-FM, trailed the performance of the overall market. For the six-month period ended August 31, 2009, KPWR-FM's gross revenues were down 38.9% whereas the independent accounting firm Miller, Kaplan, Arase & Co. (Miller Kaplan) reported that the Los Angeles market total gross revenues were down 26.0% versus the same period of the prior year.

Our radio cluster in New York trailed the performance of the overall New York radio market during the six-month period ended August 31, 2009. For the six-month period ended August 31, 2009, our New York radio stations' gross revenues were down 28.0%, whereas the independent accounting firm Miller Kaplan reported that New York radio market total gross revenues were down 21.0% versus the same period of the prior year.
As part of our business strategy, we continually evaluate potential acquisitions of international radio stations, publishing properties and other businesses that we believe hold promise for long-term appreciation in value and leverage our strengths. However, the recent amendment to EOC's Credit Agreement substantially limits our ability to make acquisitions prior to September 2011. We also regularly review our portfolio of assets and may opportunistically dispose of assets when we believe it is appropriate to do so.
Our national radio license in Hungary officially expires on November 19, 2009 and the Hungarian National Radio and Television Board is conducting a tender for a new seven year license term, with an additional five year extension. On September 28, 2009 Emmis submitted a formal bid in the license tender and has learned that it is one of four bidders for the same license. Emmis does not expect a formal decision from the Hungarian National Radio and Television Board until November 2009. Emmis is not able to predict the outcome of the process.
ACCOUNTING PRONOUNCEMENTS
In June 2008, the Financial Accounting Standards Board ("FASB") approved the FASB Accounting Standards Codification as a single source of authoritative nongovernmental U.S. GAAP. The Codification does not change current U.S. GAAP, but is intended to simplify user access to all authoritative literature related to a particular topic in one place. The Company's adoption of Statement of Financial Accounting Standards No. 168, which will be effective for our quarter ended November 30, 2009, will not have an impact on the Company's financial position, results of operations or cash flows.
In May 2009, the FASB issued Statement of Financial Accounting Standards No. 165, Subsequent Events (SFAS 165), which sets forth the period, circumstances and disclosure after the balance sheet date during which management shall evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements. The Company's adoption of SFAS No. 165, which was effective for the Company in the period ended August 31, 2009, did not have an effect on the Company's financial position, results of operations or cash flows.
In April 2009, the FASB issued FAS No. 107-1 and APB 28-1, Interim Disclosures about Fair Value Financial Instruments, which requires disclosures about fair value of financial instruments in interim reporting periods that were previously only required in annual financial statements. The Company's adoption of FAS 107-1 and APB 28-1, which was effective for the Company for the period ended August 31, 2009, did not have an effect on the Company's financial position, results of operations or cash flows.
In June 2008, the Financial Accounting Standards Board ("FASB") ratified Emerging Issue Task Force Issue No. 07-5, Determining Whether an Instrument (or an Embedded Feature) Is Indexed to an Entity's Own Stock (EITF 07-5). EITF 07-5 provides that an entity should use a two-step approach to evaluate whether an equity-linked financial instrument (or embedded feature) is indexed to its own stock, including evaluating the instrument's contingent exercise and settlement provisions. EITF 07-5 was adopted by the Company on March 1, 2009 and had no impact on the Company's financial position, results of operations or cash flows.
In June 2008, the FASB issued FASB Staff Position EITF 03-6-1, Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities (FSP EITF 03-6-1). FSP EITF 03-6-1 addresses whether instruments granted in share-based payment transactions are participating securities prior to

vesting, and therefore need to be included in the computation of earnings per share under the two-class method as described in FASB Statement of Financial Accounting Standards No. 128, Earnings per Share. FSP EITF 03-6-1 was adopted by the Company on March 1, 2009 and had no impact on the Company's financial position, results of operations or cash flows.
In December 2007, the FASB issued Statement of Financial Accounting Standards No. 160, Noncontrolling Interests in Consolidated Financial Statements, an amendment of ARB No. 51 (SFAS No. 160). SFAS No. 160, which was adopted by the Company on March 1, 2009, changing the accounting and reporting for minority interests, which are now characterized as noncontrolling interests and classified as a component of equity in the accompanying condensed consolidated balance sheets. SFAS No. 160 requires retroactive adoption of the presentation and disclosure requirements for existing minority interests, with all other requirements applied prospectively. The adoption of SFAS No. 160 resulted in the reclassification of $53,001 and $50,139 of noncontrolling interests to a component of equity at February 28, 2009 and August 31, 2009, respectively.
In December 2007, the FASB issued Statement of Financial Accounting Standards No. 141R (as revised), Business Combinations (SFAS No. 141R), that changed how business combinations are accounted for through the use of fair values in financial reporting and impacts financial statements both on the acquisition date and in subsequent periods. In February 2009, the FASB issued SFAS No. 141R-a, "Accounting for Assets Acquired and Liabilities Assumed in a Business Combination That Arise from Contingencies," which allows an exception to the recognition and fair value measurement principles of FAS 141R. This exception requires that acquired contingencies be recognized at fair value on the acquisition date if fair value can be reasonably estimated during the allocation period. FAS No. 141R was effective for the Company as of March 1, 2009 for all business combinations that close on or after March 1, 2009.
CRITICAL ACCOUNTING POLICIES
Critical accounting policies are defined as those that encompass significant judgments and uncertainties, and potentially lead to materially different results under different assumptions and conditions. We believe that our critical accounting policies are those described below.
Impairment of Goodwill and Indefinite-lived Intangibles The annual impairment tests (and interim tests when applicable) for goodwill and indefinite-lived intangibles under SFAS No. 142 require us to make certain assumptions in determining fair value, including assumptions about the cash flow growth rates of our businesses. Additionally, the fair values are significantly impacted by macro-economic factors, including market multiples at the time the impairment tests are performed. Accordingly, we may incur additional impairment charges in future periods under SFAS No. 142 to the extent we do not achieve our expected cash flow growth rates, or to the extent that market values decrease.
Allocations for Purchased Assets
We have made acquisitions in the past for which a significant amount of the purchase price was allocated to broadcasting licenses and goodwill assets. As of August 31, 2009, we have recorded approximately $360.0 million in FCC licenses and goodwill, which represents 70% of our total assets. In assessing the recoverability of these assets, we conduct annual impairment testing required by SFAS No. 142 (and interim testing when applicable) and charge to operations an impairment expense if the recorded value of these assets is more than their fair value. We believe our estimate of the fair value of our radio broadcasting licenses and goodwill assets is a critical accounting estimate as these assets are significant in relation to our total assets, and our estimate of the value uses assumptions that incorporate variables based on past experiences and judgments about future performance of our stations. These variables include but are not limited to: (1) the forecasted growth rate of each radio market, including

population, household income, retail sales and other expenditures that would influence advertising expenditures; (2) market share and profit margin of an average station within a market; (3) estimated capital start-up costs and losses incurred during the early years; (4) risk-adjusted discount rate; (5) the likely media competition within the market area; and (6) terminal values. Changes in our estimates of the fair value of these assets could result in material future period write-downs in the carrying value of our broadcasting licenses and goodwill assets.
Estimate of Effective Tax Rates
We estimate the effective tax rates and associated liabilities or assets for each legal entity within Emmis in accordance with SFAS No. 109, Accounting for Income Taxes and FIN 48, Accounting for Uncertainty in Income Taxes. These estimates are based upon our interpretation of United States and local tax laws as they apply to our legal entities and our overall tax structure. Audits by local tax jurisdictions, including the United States Government, could yield different interpretations from our own and cause the Company to owe more taxes than originally recorded. We utilize advisors in the various tax jurisdictions to evaluate our position and to assist in our calculation of our tax expense and related assets and liabilities.
Deferred Taxes
The Company accounts for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequence of events that have been recognized in the Company's financial statements or income tax returns. Income taxes are recognized during the year in which the underlying transactions are reflected in the consolidated statements of operations. Deferred taxes are provided for temporary differences between amounts of assets and liabilities as recorded for financial reporting purposes and amounts recorded for income tax purposes. After determining the total amount of deferred tax assets, the Company determines whether it is more likely than not that some portion of the deferred tax assets will not be realized. If the Company determines that a deferred tax asset is not likely to be realized, a valuation allowance will be established against that asset to record it at its expected realizable value. After determining the total amount of deferred tax assets, the Company determines whether it is more likely than not that some portion of the deferred tax assets will not be realized. If the Company determines that a deferred tax asset is not likely to be realized, a valuation allowance will be established against that asset to record it at its expected realizable value.
Insurance Claims and Loss Reserves
The Company is self-insured for most healthcare claims, subject to stop-loss limits. Claims incurred but not reported are recorded based on historical experience and industry trends, and accruals are adjusted when warranted by changes in facts and circumstances. The Company had $0.9 million and $1.0 million accrued for employee healthcare claims as of February 28, 2009, and August 31, 2009, respectively. The Company also maintains large deductible programs (ranging from $100 thousand to $250 thousand per occurrence) for property and media liability claims.
Valuation of Stock Options
The Company determines the fair value of its employee stock options at the date of grant using a Black-Scholes option-pricing model. The Black-Scholes option pricing model was developed for use in estimating the value of exchange-traded options that have no vesting restrictions and are fully transferable. The Company's employee stock options have characteristics significantly different than these traded options. In addition, option pricing models require the input of highly subjective assumptions, including the expected stock price volatility and expected term of the options granted. The Company relies heavily upon historical data of its stock price when determining expected volatility, but each year the Company reassesses whether or not historical data is representative of expected results.

Results of Operations for the Three-month and Six-month Periods Ended August 31, 2009, Compared to August 31, 2008

Net revenues:

                                Three Months Ended August 31,                                                 Six Months Ended August 31,
                                  2008                  2009            $ Change         % Change              2008                  2009            $ Change         % Change
                                     (As reported, amounts in thousands)                                          (As reported, amounts in thousands)
Net revenues:
Radio                        $       72,743        $       53,432       $ (19,311 )          (26.5 )%     $      136,320        $       99,610       $ (36,710 )          (26.9 )%
Publishing                           20,943                14,538          (6,405 )          (30.6 )%             42,776                30,789         (11,987 )          (28.0 )%


Total net revenues           $       93,686        $       67,970       $ (25,716 )          (27.4 )%     $      179,096        $      130,399       $ (48,697 )          (27.2 )%

Radio net revenues decreased in both the three-month and six-month periods ended August 31, 2009 principally as a result of a precipitous decline of advertising spending in our domestic and international radio markets due to the global economic slowdown. We typically monitor the performance of our domestic stations against the aggregate performance of the markets in which we operate based on reports for the periods prepared by the independent accounting firm Miller Kaplan. Miller Kaplan reports are generally prepared on a gross revenues basis and exclude revenues from barter arrangements. For the six-month period ended August 31, 2009, revenues of our domestic radio stations excluding KMVN, which is operating under an LMA as discussed earlier, were down 25.8%, whereas . . .