As filed with the Securities and Exchange Commission on
November 9, 2005
Registration No. 333-127375
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Amendment No. 6
to
Form S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
CLEAR CHANNEL OUTDOOR HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
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Delaware
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7312
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86-0812139
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(State or other jurisdiction of
incorporation or organization)
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(Primary standard industrial
classification code number)
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(I.R.S. employer
identification number)
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200 East Basse Road
San Antonio, Texas 78209
(210) 832-3700
(Address, including zip code, and telephone number,
including area code, of registrants principal executive
offices)
Mark P. Mays
Clear Channel Outdoor Holdings, Inc.
200 East Basse Road
San Antonio, Texas 78209
(210) 832-3700
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
Copies to:
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Daryl L. Lansdale, Jr., Esq.
Fulbright & Jaworski L.L.P.
300 Convent Street, Suite 2200
San Antonio, Texas 78205
Telephone: (210) 224-5575
Facsimile: (210) 270-7205
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John W. White, Esq.
Cravath, Swaine & Moore LLP
825 Eighth Avenue
New York, New York 10019
Telephone: (212) 474-1000
Facsimile: (212) 474-3700
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Approximate date of commencement of proposed sale to the
public: As soon as practicable after this registration
statement becomes effective.
If any of the securities being registered on this form are to be
offered on a delayed or continuous basis pursuant to
Rule 415 under the Securities Act, check the following
box. o
If this form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act,
check the following box and list the Securities Act registration
statement number of the earlier effective registration statement
for the same
offering. o
If this form is a post-effective amendment filed pursuant to
Rule 462(c) under the Securities Act, check the following
box and list the Securities Act registration statement number of
the earlier effective registration statement for the same
offering. o
If this form is a post-effective amendment filed pursuant to
Rule 462(d) under the Securities Act, check the following
box and list the Securities Act registration statement number of
the earlier effective registration statement for the same
offering. o
If delivery of the prospectus is expected to be made pursuant to
Rule 434, check the following
box. o
CALCULATION OF REGISTRATION FEE
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Proposed Maximum |
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Proposed Maximum |
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Title of Each Class of |
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Amount to |
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Offering Price |
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Aggregate Offering |
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Amount of |
Securities to be Registered |
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be Registered |
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per Share |
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Price(1)(2) |
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Registration Fee |
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Class A Common Stock, $0.01 par value per share
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40,250,000 shares |
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$22.00 |
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$885,500,000 |
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$104,224(3) |
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(1) |
Includes shares to be sold upon exercise of the
underwriters option to purchase additional shares of
Class A common stock. See Underwriting. |
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(2) |
Estimated solely for the purpose of calculating the registration
fee under Rule 457(a) of the Securities Act of 1933, as
amended. |
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(3) |
Previously paid. |
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The
Registrant hereby amends this Registration Statement on such
date or dates as may be necessary to delay its effective date
until the Registrant shall file a further amendment which
specifically states that this Registration Statement shall
thereafter become effective in accordance with Section 8(a)
of the Securities Act of 1933 or until the Registration
Statement shall become effective on such date as the commission
acting pursuant to said Section 8(a), may determine.
The information in
this preliminary prospectus is not complete and may be changed.
We may not sell these securities until the registration
statement filed with the Securities and Exchange Commission is
effective. This preliminary prospectus is not an offer to sell
these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not
permitted.
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SUBJECT TO COMPLETION. DATED
NOVEMBER 9, 2005.
35,000,000 Shares
Class A Common Stock
This is the initial public offering of shares of Class A
common stock of Clear Channel Outdoor Holdings, Inc. All of the
35,000,000 shares are being sold by us. We intend to use
all of the net proceeds from this offering to repay a portion of
the outstanding intercompany indebtedness owed to our parent
company, Clear Channel Communications, Inc. See Use of
Proceeds.
Prior to this offering, there has been no public market for the
shares of Class A common stock. It is currently estimated
that the initial public offering price per share will be between
$20.00 and $22.00. We intend to list the shares of Class A
common stock on the New York Stock Exchange under the symbol
CCO.
We are an indirect, wholly owned subsidiary of Clear Channel
Communications and have two classes of common stock outstanding:
Class A common stock and Class B common stock. After
this offering, Clear Channel Communications will own all of our
outstanding shares of Class B common stock, representing
approximately 90% of the outstanding shares of our common stock
and approximately 99% of the total voting power of our common
stock, or approximately 89% and 99%, respectively, if the
underwriters exercise in full their option to purchase
additional shares of Class A common stock. The rights of
the Class A common stock and the Class B common stock
are substantially similar, except with respect to voting,
conversion and transferability. Our Class A common stock
and Class B common stock vote as a single class on all
matters on which stockholders are entitled to vote, except as
otherwise provided in our amended and restated certificate of
incorporation or as required by law. Each share of Class A
common stock entitles its holder to one vote and each share of
Class B common stock entitles its holder to 20 votes.
See Risk Factors beginning on page 13 to
read about factors you should consider before deciding to invest
in shares of our Class A common stock.
Neither the Securities and Exchange Commission nor any other
regulatory body has approved or disapproved of these securities
or passed upon the accuracy or adequacy of this prospectus. Any
representation to the contrary is a criminal offense.
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Per Share |
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Total |
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Initial public offering price
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$ |
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$ |
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Underwriting discount
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$ |
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$ |
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Proceeds, before expenses, to us
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$ |
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$ |
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To the extent that the underwriters sell more than
35,000,000 shares of Class A common stock, the
underwriters have the option to purchase up to an additional
5,250,000 shares of Class A common stock from us at
the initial public offering price, less the underwriting
discount. To the extent the underwriters do not exercise this
option in full, we intend to exchange up to 5,250,000 additional
shares of Class B common stock with Clear Channel
Communications for the portion of the intercompany indebtedness
owed by us to Clear Channel Communications that the proceeds
from the exercise of such option otherwise would have been used
to repay.
The underwriters expect to deliver the shares of Class A
common stock against payment in New York, New York
on ,
2005.
Goldman, Sachs & Co.
Deutsche Bank Securities
Banc of America
Securities LLC
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Credit Suisse First
Boston
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A.G. Edwards |
Allen & Company LLC |
Barrington Research |
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Harris Nesbitt |
SunTrust Robinson Humphrey |
Wachovia Securities |
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M. R. Beal & Company |
Ramirez & Co., Inc. |
Siebert Capital Markets |
Prospectus
dated ,
2005.
See inside back cover for a map of our international markets.
The information contained in this prospectus contains references
to certain trademarks and registered marks. The trademark
Adsheltm
is owned by us.
PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in
this prospectus and provides an overview of the material aspects
of this offering. This summary does not contain all of the
information you should consider before deciding to invest in
shares of our Class A common stock. You should read this
entire prospectus carefully, especially the risks of investing
in shares of our Class A common stock discussed under
Risk Factors beginning on page 13. Except as
otherwise noted, we present all financial and operating data on
fiscal year and fiscal quarter bases. Our fiscal year ends on
December 31 of each year.
Unless the context otherwise requires, references in this
prospectus to Clear Channel Communications shall
mean Clear Channel Communications, Inc. and its combined
subsidiaries (other than us).
Prior to the completion of this offering, Clear Channel
Communications will, and will cause its affiliates to, transfer
to us certain assets related to our business not currently owned
by us. We or our subsidiaries will assume and agree to perform,
discharge and fulfill certain liabilities related to our
business. In this prospectus, the description of our business
includes these assets and liabilities as if such assets and
liabilities were ours for all historical periods described
herein. Our historical financial results as part of Clear
Channel Communications may not reflect our financial results in
the future as an independent publicly traded company or what our
financial results would have been had we operated as an
independent publicly traded company during the periods
presented.
Our Business
Our principal business is to provide our clients with
advertising opportunities through billboards, street furniture
displays, transit displays and other out-of-home advertising
displays, such as wallscapes, spectaculars and mall displays,
that we own or operate in key markets worldwide. As of
September 30, 2005, we owned or operated more than 870,000
advertising displays worldwide. For the year ended
December 31, 2004, we generated revenues of approximately
$2.4 billion, operating income of approximately
$243.3 million and operating income before depreciation,
amortization and non-cash compensation expense, or OIBDAN, of
approximately $631.6 million. Our domestic reporting
segment consists of our operations in the United States, Canada
and Latin America, with approximately 95% of our 2004 revenues
in this segment derived from the United States. Our
international reporting segment consists of our operations in
Europe, Australia, Asia and Africa, with approximately 52% of
our 2004 revenues in this segment derived from France and the
United Kingdom. Approximately 89% of our total 2004
operating income excluding corporate expenses was derived from
our domestic segment and approximately 11% was derived from our
international segment. Approximately 66% of our total 2004
OIBDAN excluding corporate expenses was derived from our
domestic segment and approximately 34% was derived from our
international segment. See Summary Historical
and Pro Forma Combined Financial Data Non-GAAP
Financial Measure for an explanation of OIBDAN and a
reconciliation of OIBDAN to operating income (loss).
Additionally, we own equity interests in various out-of-home
advertising companies worldwide, which we account for under the
equity method of accounting.
Billboard displays are bulletin and poster advertising panels of
various sizes that generally are mounted on structures we own.
We believe that many of our billboards are strategically located
to offer maximum visual impact to audiences. Larger billboards
generally are located along major highways and freeways to
target vehicular traffic. Smaller billboards generally are
located on city streets to target both vehicular and pedestrian
traffic.
Street furniture displays, marketed under our global
Adsheltm
brand, are advertising surfaces on bus shelters, information
kiosks, public toilets, freestanding units and other public
structures. Generally, we own the street furniture structures
and are responsible for their construction and maintenance.
Contracts for the right to place our street furniture structures
in the public domain and sell advertising space on them are
awarded by municipal and transit authorities in competitive
bidding processes. We believe that street furniture is growing
in popularity with municipal and transit authorities, especially
in international and larger U.S. markets.
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Transit displays are advertising surfaces on various types of
vehicles or within transit systems, including on the interior
and exterior sides of buses, trains, trams and taxis and within
the common areas of rail stations and airports. Contracts for
the right to place our displays on vehicles or within transit
systems and sell advertising space on them are awarded by public
transit authorities in competitive bidding processes or are
negotiated with private transit operators.
We generate revenues worldwide from local, regional and national
sales. Advertising rates generally are based on the gross
rating points, or total number of impressions delivered
expressed as a percentage of a market population, of a display
or group of displays. The number of impressions
delivered by a display is measured by the number of people
passing the site during a defined period of time and, in some
international markets, is weighted to account for such factors
as illumination, proximity to other displays and the speed and
viewing angle of approaching traffic. While price and
availability of displays are important competitive factors, we
believe that providing quality customer service and establishing
strong client relationships are also critical components of
sales.
Our Competitive Strengths
We believe our key competitive strengths are as follows:
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We believe that our presence in key markets gives our clients
the ability to reach a global audience through one advertising
provider. |
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We have long-standing relationships with a diversified group of
local, regional and national advertising brands and agencies in
the United States and worldwide. No single advertiser accounted
for more than 2% of our 2004 domestic or international revenues. |
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Our high levels of cash flow from operations provide us with
strategic and financial flexibility and will position us to
opportunistically pursue attractive acquisitions and investments. |
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We believe that we are well-positioned to take advantage of
significant technological advances and the corresponding
improvements in advertisers abilities to present engaging
campaigns to their target audiences. |
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Our senior management team has extensive experience in the
outdoor advertising industry. |
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We believe that our financial strength and flexibility, our
existing presence in key markets worldwide and our experienced
senior management team position us well to capitalize on
emerging acquisition and investment opportunities in the global
industry. |
See Business Our Competitive Strengths.
Our Strategy
Our fundamental goal is to increase stockholder value by
maximizing our cash flow from operations worldwide.
Accomplishing this goal requires the successful implementation
of the following strategies:
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We seek to capitalize on our global network and diversified
product mix to maximize revenues, increase profits and launch
new products and initiatives. |
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We seek to enhance revenue opportunities by focusing on specific
initiatives that highlight the value of outdoor advertising
relative to other media. |
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We continue to focus on achieving operating efficiencies
throughout our global network. |
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We have made significant commitments to provide innovative
services to and enhance our accountability with our clients. |
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We intend to strengthen our existing market presence and
selectively enter into new markets through acquisitions and
investments worldwide. |
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We offer our clients alternative displays that incorporate new
cost-effective technologies. |
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We maintain an entrepreneurial and customer-oriented culture
that motivates local market managers to maximize our cash flow
from operations. |
See Business Our Strategy.
Our Risks
We face a number of risks associated with our business and
industry and must overcome a variety of challenges in
implementing our operating strategy in order to be successful.
For instance:
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Our past operating results have been negatively affected by,
among other things, a global economic slowdown and a decline in
our clients advertising budgets, resulting in our
incurring net losses in each of 2002, 2003 and 2004 and an
accrued retained deficit. |
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The outdoor advertising industry is highly competitive. Our
properties compete for audiences and advertising revenues with
other outdoor advertising companies, as well as with other media. |
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We are subject to U.S. and foreign government regulation.
Regulations regarding permitting, nonconformance and taxes and
the size, spacing, density and lighting of displays may restrict
our outdoor advertising operations. |
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After this offering, our total indebtedness for borrowed money
will be approximately $2.7 billion, approximately
$2.5 billion of which will be intercompany indebtedness
owed to Clear Channel Communications. If our cash flow and
capital resources are insufficient to service our debt
obligations, a default under any debt instrument could
materially impair our financial condition and liquidity. In
addition, our debt instruments may include restrictive covenants
that limit our ability to refinance debt, sell assets or obtain
additional equity capital. |
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We have not previously operated as an independent publicly
traded company and our historical and pro forma combined
financial information is not necessarily representative of the
results we may achieve and it is difficult to predict our future
success. |
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After this offering and for so long as Clear Channel
Communications continues to own more than 50% of the total
voting power of our common stock, it will have the ability to
direct the election of our board of directors, exercise control
over our business and affairs and significantly influence the
outcome of matters submitted to a vote of our stockholders. |
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We derive benefits from our association with Clear Channel
Communications. If Clear Channel Communications were to
experience financial difficulty or if we were to separate from
Clear Channel Communications in the future, our business could
be materially adversely affected. In addition, conflicts of
interest may arise between Clear Channel Communications and us
relating to our past and ongoing relationships. |
For further discussion of these challenges and other risks that
we face, see Risk Factors.
Our Relationship with Clear Channel Communications
We are an indirect, wholly owned subsidiary of Clear Channel
Communications, Inc. After this offering, Clear Channel
Communications will own all of our outstanding shares of
Class B common stock, representing approximately 90% of the
outstanding shares of our common stock and approximately 99% of
the total voting power of our common stock, or approximately 89%
and 99%, respectively, if the underwriters exercise in full
their option to purchase additional shares of Class A
common stock. For as long as Clear Channel Communications is the
owner of such number of shares representing more than 50% of the
total voting power of our common stock, it will have the ability
to direct the election of all of the members of our board of
directors and to exercise a controlling influence over our
business and affairs, including any determination with respect
to mergers or other business combinations involving us, the
acquisition or disposition of assets by us, the incurrence of
indebtedness by us, the issuance of any additional common stock
or other equity securities by us, the repurchase or redemption
of common stock
3
or preferred stock by us and the payment of dividends by us.
Similarly, Clear Channel Communications will have the power to
determine or significantly influence the outcome of matters
submitted to a vote of our stockholders, including the power to
prevent an acquisition or any other change in control of us, and
to take other actions that might be favorable to Clear Channel
Communications. See Description of Capital Stock.
Clear Channel Communications has advised us that its current
intent is to continue to hold all the shares of our Class B
common stock it owns after this offering. However, Clear Channel
Communications is not subject to any contractual obligation that
would prohibit it from selling, spinning off, splitting off or
otherwise disposing of any shares of our common stock, except
that Clear Channel Communications has agreed not to sell, spin
off, split off or otherwise dispose of any shares of our common
stock for a period of 180 days after the date of this
prospectus without the prior written consent of the
underwriters, subject to certain limitations and limited
exceptions. As a result, there can be no assurance concerning
the period of time during which Clear Channel Communications
will maintain its ownership of the shares of our Class B
common stock owned by it after this offering. See
Underwriting.
Prior to the completion of this offering, we will enter into
agreements with Clear Channel Communications that will govern
the relationship between Clear Channel Communications and us
after this offering and will provide for, among other things,
the provision of services by Clear Channel Communications to us
and the allocation of employee benefit, tax and other
liabilities and obligations attributable to our operations.
These agreements will include, among others, a master agreement,
corporate services agreement, registration rights agreement, tax
matters agreement and employee matters agreement. All of the
agreements relating to our ongoing relationship with Clear
Channel Communications will be made in the context of a
parent-subsidiary relationship and the terms of these agreements
may be more or less favorable to us than if they had been
negotiated with unaffiliated third parties. See Risk
Factors Risks Related to Our Relationship with Clear
Channel Communications and Arrangements Between
Clear Channel Communications and Us.
After this offering and the application of all of the net
proceeds from this offering to repay a portion of the
intercompany indebtedness owed to Clear Channel Communications,
we will have outstanding indebtedness of approximately
$2.7 billion, approximately $2.5 billion of which will
be intercompany indebtedness owed to Clear Channel
Communications. See Use of Proceeds and
Description of Indebtedness.
The master agreement between Clear Channel Communications and us
and the note evidencing the $2.5 billion intercompany
indebtedness each contain covenants that restrict our ability to
take certain actions and engage in certain transactions. See
Risk Factors Risks Related to Our
Business. Certain of the restrictive covenants in these
agreements may continue in force later than the time when Clear
Channel Communications owns less than 50% of the total voting
power of our common stock.
After this offering, certain individuals will be officers and
directors of both Clear Channel Communications and us. In
addition, because Clear Channel Communications will continue to
own more than 50% of the total voting power of our common stock
after this offering, we will be a controlled company
under the New York Stock Exchange corporate governance
standards. As a result of this status, we intend to utilize
certain exemptions under the NYSE standards that free us from
the obligation to comply with certain NYSE corporate governance
requirements, which may include the requirements (i) that a
majority of the board of directors consists of independent
directors, (ii) that we have a nominating and governance
committee, and that such committee be composed entirely of
independent directors and governed by a written charter
addressing the committees purpose and responsibilities,
(iii) that we have a compensation committee composed
entirely of independent directors with a written charter
addressing the committees purpose and responsibilities and
(iv) for an annual performance
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evaluation of the compensation committee. See Risk
Factors Risks Related to Our Relationship with Clear
Channel Communications and Arrangements Between
Clear Channel Communications and Us.
For a description of certain provisions of our amended and
restated certificate of incorporation concerning the allocation
of business opportunities that may be suitable for both Clear
Channel Communications and us, see Description of Capital
Stock.
Our Corporate Structure
Our principal executive offices are located at 200 East
Basse Road, San Antonio, Texas 78209, and our telephone
number is (210) 832-3700. We operate through Clear Channel
Outdoor Holdings, Inc. and our combined subsidiaries. Our
Internet website address is www.clearchanneloutdoor.com.
Information contained on our website or that can be accessed
through our website is not incorporated by reference in this
prospectus. You should not consider information contained on our
website or that can be accessed through our website to be part
of this prospectus for any purpose.
5
THE OFFERING
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Class A common stock offered
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35,000,000 shares |
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Common stock to be outstanding after this offering:
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Class A
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35,000,000 shares |
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Class B
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315,000,000 shares |
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Total common stock outstanding
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350,000,000 shares |
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Common stock to be held by Clear Channel Communications after
this offering:
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Class A
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0 shares |
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Class B
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315,000,000 shares |
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Percentage of the outstanding shares of our common stock to be
held by Clear Channel Communications after this offering
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90.0% |
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Percentage of the total voting power of our common stock to be
held by Clear Channel Communications after this offering
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99.4% |
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Voting, conversion and transferability features |
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Our Class A common stock and Class B common stock vote
as a single class on all matters on which stockholders are
entitled to vote, except as otherwise provided in our amended
and restated certificate of incorporation or as required by law.
While the rights of our Class A common stock and
Class B common stock are substantially similar, the
Class A common stock and Class B common stock differ
in certain respects, including the following: |
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Class A |
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entitles holder to one vote per share on all matters
on which stockholders are entitled to vote; and |
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will be listed on the New York Stock Exchange. |
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Class B |
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entitles holder to 20 votes per share on all matters
on which stockholders are entitled to vote; |
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will not be listed on any stock exchange; |
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is convertible, at the option of the holder, at any
time into shares of Class A common stock on a one-for-one
basis, subject to certain limited exceptions; and |
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will convert into shares of Class A common
stock on a one-for-one basis upon any transfer, subject to
certain limited exceptions. |
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Use of proceeds |
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We estimate that our net proceeds from this offering, after
deducting underwriting discounts and estimated offering
expenses, will be approximately $700.1 million, or
approximately $805.9 million if the underwriters
exercise in full their option to purchase additional shares of
Class A common stock, assuming an initial public offering
price of $21.00 per share, which is the midpoint of the
estimated offering price range set forth on the cover page of
this prospectus. |
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We intend to use all of the net proceeds of this offering to
repay approximately $700.1 million (based on the midpoint
of the |
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range of the offering price set forth on the cover page of this
prospectus) of the outstanding balances of the intercompany
notes issued to Clear Channel Communications in the original
principal amounts of approximately $1.4 billion and
$73.0 million. See Use of Proceeds. |
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Dividend policy |
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We do not anticipate paying any dividends on our common stock in
the foreseeable future. If cash dividends were to be paid on our
common stock, holders of Class A common stock and
Class B common stock would share equally, on a per share
basis, in any such cash dividend. |
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Proposed NYSE symbol for the Class A common stock |
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CCO
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Risk factors |
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For a discussion of the risks related to our business, our
relationship with Clear Channel Communications, our Class A
common stock and this offering, see Risk Factors
beginning on page 13. |
Unless otherwise indicated, the number of shares of Class A
common stock to be outstanding after this offering excludes:
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5,250,000 shares issuable upon the exercise of the
underwriters option to purchase additional shares of
Class A common stock; and |
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shares issuable upon the exercise of employee stock options to
be issued by us in connection with the conversion of
equity-based compensation awards of Clear Channel Communications
granted to our employees as well as shares issuable upon the
exercise of options or shares of restricted stock that may be
granted under our Stock Incentive Plan after this offering. See
Management Employee Benefit Plans. |
Additionally, because 5,250,000 shares of our Class A
common stock issuable upon the exercise of the
underwriters option to purchase additional shares of
Class A common stock are excluded from the number of shares
of Class A common stock to be outstanding after this
offering, the number of shares of Class B common stock to
be outstanding after this offering includes 5,250,000 additional
shares of Class B common stock that are required to be
issued to Clear Channel Communications upon expiration of the
unexercised underwriters option in exchange for the
portion of the intercompany indebtedness owed by us to Clear
Channel Communications that otherwise would have been repaid
with the proceeds from the exercise of such option had it been
exercised in full. See Use of Proceeds.
7
SUMMARY HISTORICAL AND PRO FORMA COMBINED FINANCIAL DATA
The following table sets forth summary historical and pro forma
combined financial data and other information of Clear Channel
Outdoor Holdings, Inc.
We have prepared our combined financial statements as if Clear
Channel Outdoor Holdings, Inc. had been in existence as a
separate company throughout all relevant periods. The summary
results of operations data, segment data and cash flow data for
the years ended December 31, 2004, 2003 and 2002 and the
summary combined balance sheet data as of December 31, 2004
and 2003 presented below were derived from our audited combined
financial statements and the related notes thereto included
elsewhere in this prospectus. The summary combined balance sheet
data as of December 31, 2002 is derived from our audited
financial statements. The summary results of operations data,
segment data and cash flow data for the nine months ended
September 30, 2005 and 2004 and the summary balance sheet
data as of September 30, 2005 presented below were derived
from our unaudited combined financial statements and the related
notes thereto included elsewhere in this prospectus. The
operating results for the nine months ended September 30,
2005 and 2004 include all adjustments (consisting only of normal
recurring adjustments) that we believe are necessary for a fair
statement of the results for such interim periods.
Results for the nine months ended September 30, 2005 are
not necessarily indicative of the results expected for the
fiscal year ending December 31, 2005 or any future period.
Our unaudited pro forma as adjusted results of operations data
present our pro forma as adjusted results of operations for the
year ended December 31, 2004:
|
|
|
|
|
as if this offering had been completed on January 1, 2004,
at an assumed initial public offering price of $21.00 per
share of Class A common stock, which is the midpoint of the
estimated offering price range set forth on the cover of this
prospectus, and assuming: |
|
|
|
|
|
the outstanding balances of the approximately $1.4 billion
and $73.0 million intercompany notes issued to Clear
Channel Communications are reduced by approximately
$362.2 million, representing the balance at
September 30, 2005 in the Due from Clear Channel
Communications intercompany account; |
|
|
|
then, approximately $294.9 million of the remaining
outstanding balances of the $1.4 billion and
$73.0 million intercompany notes is contributed to our
capital by Clear Channel Communications; |
|
|
|
then, approximately $700.1 million of the remaining
outstanding balances of the $1.4 billion and
$73.0 million intercompany notes is repaid with all of the
net proceeds of this offering; and |
|
|
|
then, to the extent the underwriters do not exercise in full
their option to purchase up to an additional
5,250,000 shares of our Class A common stock (the
proceeds of which would be used to repay the then-outstanding
balances of the approximately $1.4 billion and
$73.0 million intercompany notes), we exchange up to
5,250,000 additional shares of our Class B common stock
with Clear Channel Communications for the remaining outstanding
balances of the $1.4 billion and $73.0 million
intercompany notes that the proceeds from the exercise of such
option otherwise would have been used to repay, such that the
notes are repaid in full. |
|
|
|
|
|
after giving effect to our distribution of an intercompany note
in the original principal amount of $2.5 billion as a
dividend on our common stock, which note was ultimately
distributed to Clear Channel Communications, as if issued to
Clear Channel Communications on January 1, 2004. |
8
Our pro forma as adjusted balance sheet and results of
operations data as of September 30, 2005 and for the nine
months ended September 30, 2005, present, using the same
assumptions and application of estimated net proceeds described
above:
|
|
|
|
|
our as adjusted financial position as of September 30,
2005, as if this offering had been completed on
September 30, 2005; and |
|
|
|
our as adjusted results of operations for the nine months ended
September 30, 2005, as if this offering and the issuance of
the $2.5 billion intercompany note had been completed on
January 1, 2004. |
The unaudited pro forma information set forth below is based
upon available information and assumptions that we believe are
reasonable. The historical financial and other data have been
prepared on a combined basis from Clear Channel
Communications consolidated financial statements using the
historical results of operations and bases of the assets and
liabilities of Clear Channel Communications outdoor
advertising business and give effect to allocations of expenses
from Clear Channel Communications. Our historical financial data
is not indicative of our future performance, nor does such data
reflect what our financial position and results of operations
would have been had we operated as an independent publicly
traded company during the periods shown.
The unaudited pro forma statements of operations do not reflect
the complete impact of one-time and ongoing incremental costs
required for us to operate as a separate company. Clear Channel
Communications allocated to us $16.6 million in 2004,
$19.6 million in 2003 and $17.6 million in 2002 of
expenses incurred by it for providing us accounting, treasury,
tax, legal, public affairs, executive oversight, human resources
and other services. Through September 30, 2005, Clear
Channel Communications allocated to us $11.8 million of
expenses. After this offering, we expect to continue to receive
from Clear Channel Communications substantially all of these
services, the cost of which will be allocated to us.
You should read the information contained in this table in
conjunction with Selected Historical Combined Financial
Data, Unaudited Pro Forma Combined Financial
Data, Capitalization, Managements
Discussion and Analysis of Financial Condition and Results of
Operations, and the historical audited and unaudited
combined financial statements and the accompanying notes thereto
of us and our combined subsidiaries included elsewhere in this
prospectus.
The following table presents a non-GAAP financial measure,
OIBDAN, which we use to evaluate segment and combined
performance of our business. OIBDAN is not calculated or
presented in accordance with U.S. generally accepted
accounting principles, or GAAP. In Note 3 and in
Non-GAAP Financial Measure below, we
explain OIBDAN and reconcile it to operating income (loss), its
most directly comparable financial measure calculated and
presented in accordance with GAAP.
9
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended |
|
|
Pro Forma |
|
|
Nine Months Ended |
|
|
Pro Forma |
|
(In thousands, except per share data) |
|
December 31, |
|
|
as Adjusted |
|
|
September 30, |
|
|
as Adjusted |
|
|
|
|
|
|
December 31, |
|
|
|
|
|
September 30, |
|
|
|
2002 |
|
|
2003 |
|
|
2004 |
|
|
2004 |
|
|
2004 |
|
|
2005 |
|
|
2005 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited) |
|
|
(Unaudited) |
|
|
(Unaudited) |
|
|
(Unaudited) |
|
Results of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$ |
1,859,641 |
|
|
$ |
2,174,597 |
|
|
$ |
2,447,040 |
|
|
$ |
2,447,040 |
|
|
$ |
1,761,308 |
|
|
$ |
1,931,471 |
|
|
$ |
1,931,471 |
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct operating expenses (exclusive of depreciation and
amortization)
|
|
|
957,830 |
|
|
|
1,133,386 |
|
|
|
1,262,317 |
|
|
|
1,262,317 |
|
|
|
924,420 |
|
|
|
988,448 |
|
|
|
988,448 |
|
|
Selling, general and administrative expenses (exclusive of
depreciation and amortization)
|
|
|
392,803 |
|
|
|
456,893 |
|
|
|
499,457 |
|
|
|
499,457 |
|
|
|
358,188 |
|
|
|
410,075 |
|
|
|
410,075 |
|
|
Depreciation and amortization
|
|
|
336,895 |
|
|
|
379,640 |
|
|
|
388,217 |
|
|
|
388,217 |
|
|
|
288,810 |
|
|
|
290,233 |
|
|
|
290,233 |
|
|
Corporate expenses (exclusive of depreciation and amortization)
|
|
|
52,218 |
|
|
|
54,233 |
|
|
|
53,770 |
|
|
|
53,770 |
|
|
|
39,451 |
|
|
|
39,397 |
|
|
|
39,397 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
119,895 |
|
|
|
150,445 |
|
|
|
243,279 |
|
|
|
243,279 |
|
|
|
150,439 |
|
|
|
203,318 |
|
|
|
203,318 |
|
Interest expense
|
|
|
11,623 |
|
|
|
14,201 |
|
|
|
14,177 |
|
|
|
14,177 |
|
|
|
11,111 |
|
|
|
9,874 |
|
|
|
9,874 |
|
Intercompany interest expense
|
|
|
227,402 |
|
|
|
145,648 |
|
|
|
145,653 |
|
|
|
143,208 |
|
|
|
109,239 |
|
|
|
133,093 |
|
|
|
107,409 |
|
Equity in earnings (loss) of nonconsolidated affiliates
|
|
|
3,620 |
|
|
|
(5,142 |
) |
|
|
(76 |
) |
|
|
(76 |
) |
|
|
2,270 |
|
|
|
9,908 |
|
|
|
9,908 |
|
Other income (expense) net
|
|
|
9,164 |
|
|
|
(8,595 |
) |
|
|
(13,341 |
) |
|
|
(13,341 |
) |
|
|
(17,210 |
) |
|
|
(17,353 |
) |
|
|
(17,353 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes and cumulative effect of a
change in accounting principle
|
|
|
(106,346 |
) |
|
|
(23,141 |
) |
|
|
70,032 |
|
|
|
72,477 |
|
|
|
15,149 |
|
|
|
52,906 |
|
|
|
78,590 |
|
Income tax benefit (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
72,008 |
|
|
|
12,092 |
|
|
|
(23,422 |
) |
|
|
(24,400 |
) |
|
|
6,481 |
|
|
|
(37,767 |
) |
|
|
(48,041 |
) |
|
Deferred
|
|
|
(21,370 |
) |
|
|
(23,944 |
) |
|
|
(39,132 |
) |
|
|
(39,132 |
) |
|
|
(17,730 |
) |
|
|
6,023 |
|
|
|
6,023 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before cumulative effect of a change in accounting
principle
|
|
|
(55,708 |
) |
|
|
(34,993 |
) |
|
|
7,478 |
|
|
$ |
8,945 |
|
|
|
3,900 |
|
|
|
21,162 |
|
|
$ |
36,572 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative effect of a change in accounting principle, net of
tax of $504,927 in 2002 and $113,173 in 2004(1)
|
|
|
(3,527,198 |
) |
|
|
|
|
|
|
(162,858 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$ |
(3,582,906 |
) |
|
$ |
(34,993 |
) |
|
$ |
(155,380 |
) |
|
|
|
|
|
$ |
3,900 |
|
|
$ |
21,162 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted income (loss) before cumulative effect of a
change in accounting principle per common share(2)
|
|
$ |
(.18 |
) |
|
$ |
(.11 |
) |
|
$ |
.02 |
|
|
$ |
.03 |
|
|
$ |
.01 |
|
|
$ |
.07 |
|
|
$ |
.10 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic
|
|
$ |
911,493 |
|
|
$ |
1,006,376 |
|
|
$ |
1,092,089 |
|
|
$ |
1,092,089 |
|
|
$ |
800,744 |
|
|
$ |
886,649 |
|
|
$ |
886,649 |
|
|
International
|
|
|
948,148 |
|
|
|
1,168,221 |
|
|
|
1,354,951 |
|
|
|
1,354,951 |
|
|
|
960,564 |
|
|
|
1,044,822 |
|
|
|
1,044,822 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
$ |
1,859,641 |
|
|
$ |
2,174,597 |
|
|
$ |
2,447,040 |
|
|
$ |
2,447,040 |
|
|
$ |
1,761,308 |
|
|
$ |
1,931,471 |
|
|
$ |
1,931,471 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic
|
|
$ |
174,381 |
|
|
$ |
215,485 |
|
|
$ |
263,772 |
|
|
$ |
263,772 |
|
|
$ |
184,808 |
|
|
$ |
263,448 |
|
|
$ |
263,448 |
|
|
International
|
|
|
(2,268 |
) |
|
|
(10,807 |
) |
|
|
33,277 |
|
|
|
33,277 |
|
|
|
5,082 |
|
|
|
(20,733 |
) |
|
|
(20,733 |
) |
|
Corporate
|
|
|
(52,218 |
) |
|
|
(54,233 |
) |
|
|
(53,770 |
) |
|
|
(53,770 |
) |
|
|
(39,451 |
) |
|
|
(39,397 |
) |
|
|
(39,397 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating income
|
|
$ |
119,895 |
|
|
$ |
150,445 |
|
|
$ |
243,279 |
|
|
$ |
243,279 |
|
|
$ |
150,439 |
|
|
$ |
203,318 |
|
|
$ |
203,318 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended |
|
|
Pro Forma |
|
|
Nine Months Ended |
|
|
Pro Forma |
|
(In thousands) |
|
December 31, |
|
|
as Adjusted |
|
|
September 30, |
|
|
as Adjusted |
|
|
|
|
|
|
December 31, |
|
|
|
|
|
September 30, |
|
|
|
2002 |
|
|
2003 |
|
|
2004 |
|
|
2004 |
|
|
2004 |
|
|
2005 |
|
|
2005 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited) |
|
|
(Unaudited) |
|
|
(Unaudited) |
|
|
(Unaudited) |
|
Cash Flow Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flow provided by (used in):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities
|
|
$ |
320,235 |
|
|
$ |
433,459 |
|
|
$ |
492,495 |
|
|
|
|
|
|
$ |
329,893 |
|
|
$ |
336,637 |
|
|
|
|
|
|
Investing activities
|
|
$ |
(430,844 |
) |
|
$ |
(230,162 |
) |
|
$ |
(310,658 |
) |
|
|
|
|
|
$ |
(227,386 |
) |
|
$ |
(223,189 |
) |
|
|
|
|
|
Financing activities
|
|
$ |
173,193 |
|
|
$ |
(222,491 |
) |
|
$ |
(182,006 |
) |
|
|
|
|
|
$ |
(95,759 |
) |
|
$ |
(48,154 |
) |
|
|
|
|
Capital expenditures
|
|
$ |
290,187 |
|
|
$ |
205,145 |
|
|
$ |
176,140 |
|
|
|
|
|
|
$ |
117,733 |
|
|
$ |
130,484 |
|
|
|
|
|
Other Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OIBDAN(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic
|
|
$ |
354,328 |
|
|
$ |
409,722 |
|
|
$ |
450,494 |
|
|
$ |
450,494 |
|
|
$ |
326,359 |
|
|
$ |
390,867 |
|
|
$ |
390,867 |
|
|
International
|
|
|
154,680 |
|
|
|
174,596 |
|
|
|
234,888 |
|
|
|
234,888 |
|
|
|
152,423 |
|
|
|
142,593 |
|
|
|
142,593 |
|
|
Corporate
|
|
|
(52,218 |
) |
|
|
(54,233 |
) |
|
|
(53,770 |
) |
|
|
(53,770 |
) |
|
|
(39,451 |
) |
|
|
(39,397 |
) |
|
|
(39,397 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total OIBDAN(3)
|
|
$ |
456,790 |
|
|
$ |
530,085 |
|
|
$ |
631,612 |
|
|
$ |
631,612 |
|
|
$ |
439,331 |
|
|
$ |
494,063 |
|
|
$ |
494,063 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of September 30, 2005 |
|
(In thousands) |
|
As of December 31, |
|
|
|
|
|
|
|
|
|
|
|
Pro Forma |
|
|
|
2002 |
|
|
2003 |
|
|
2004 |
|
|
Historical |
|
|
as Adjusted |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited) |
|
|
(Unaudited) |
|
Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$ |
45,741 |
|
|
$ |
34,105 |
|
|
$ |
37,948 |
|
|
$ |
91,676 |
|
|
$ |
91,676 |
|
Current assets
|
|
|
753,289 |
|
|
|
958,669 |
|
|
|
1,107,240 |
|
|
|
1,243,287 |
|
|
|
881,133 |
|
Property, plant and equipment net
|
|
|
2,213,817 |
|
|
|
2,264,106 |
|
|
|
2,195,985 |
|
|
|
2,172,197 |
|
|
|
2,172,197 |
|
Total assets
|
|
|
4,926,205 |
|
|
|
5,232,820 |
|
|
|
5,240,933 |
|
|
|
5,295,522 |
|
|
|
4,933,368 |
|
Current liabilities
|
|
|
642,330 |
|
|
|
736,202 |
|
|
|
749,055 |
|
|
|
807,900 |
|
|
|
807,900 |
|
Long-term debt, including current maturities
|
|
|
1,713,493 |
|
|
|
1,670,017 |
|
|
|
1,639,380 |
|
|
|
4,212,136 |
|
|
|
2,749,136 |
|
Total liabilities
|
|
|
2,347,262 |
|
|
|
2,472,656 |
|
|
|
2,511,280 |
|
|
|
5,207,173 |
|
|
|
3,744,173 |
|
Owners equity
|
|
|
2,578,943 |
|
|
|
2,760,164 |
|
|
|
2,729,653 |
|
|
|
88,349 |
|
|
|
1,189,195 |
|
Total liabilities and owners equity
|
|
|
4,926,205 |
|
|
|
5,232,820 |
|
|
|
5,240,933 |
|
|
|
5,295,522 |
|
|
|
4,933,368 |
|
|
|
(1) |
Cumulative effect of change in accounting principle for the year
ended December 31, 2002, related to an impairment of
goodwill recognized in accordance with the adoption of Statement
of Financial Accounting Standards No. 142, Goodwill
and Other Intangible Assets. Cumulative effect of change
in accounting principle for the year ended December 31,
2004, related to a non-cash charge recognized in accordance with
the adoption of Topic D-108, Use of Residual Method to Value
Acquired Assets other than Goodwill. See
Managements Discussion and Analysis of Financial
Condition and Results of Operations Critical
Accounting Estimates Indefinite-lived Assets. |
|
(2) |
Basic and diluted income (loss) before cumulative effect of a
change in accounting principle per share is calculated by
dividing income (loss) before cumulative effect of a change in
accounting principle by the weighted average of common shares
outstanding. The historic basic and diluted is based on
315,000,000 shares outstanding and the pro forma basic and
diluted is based on 350,000,000 shares outstanding. |
|
(3) |
We evaluate segment and combined performance based on several
factors, one of the primary measures of which is operating
income (loss) before depreciation, amortization and non-cash
compensation expense, which we refer to as OIBDAN. See
Non-GAAP Financial Measure below,
Unaudited Pro Forma Combined Financial Data and
Managements Discussion and Analysis of Financial
Condition and Results of Operations Use of
OIBDAN. |
11
Non-GAAP Financial Measure
In addition to operating income, we evaluate segment and
combined performance based on other factors, one primary measure
of which is operating income (loss) before depreciation,
amortization and non-cash compensation expense, which we refer
to as OIBDAN. We use OIBDAN as a measure of the operational
strengths and performance of our business and not as a measure
of liquidity. However, a limitation of the use of OIBDAN as a
performance measure is that it does not reflect the periodic
costs of certain capitalized tangible and intangible assets used
in generating revenues in our business. Accordingly, OIBDAN
should be considered in addition to, and not as a substitute
for, operating income (loss), net income (loss) and other
measures of financial performance reported in accordance with
U.S. GAAP. Furthermore, this measure may vary among other
companies; thus, OIBDAN as presented below may not be comparable
to similarly titled measures of other companies.
We believe OIBDAN is useful to investors and other external
users of our financial statements in evaluating our operating
performance because it is widely used in the outdoor advertising
industry to measure a companys operating performance and
it helps investors more meaningfully evaluate and compare the
results of our operations from period to period and with those
of other companies in the outdoor advertising industry (to the
extent the same components of OIBDAN are used), in each case
without regard to items such as non-cash depreciation and
amortization and non-cash compensation expense, which can vary
depending upon the accounting method used and the book value of
assets.
Our management uses OIBDAN (i) as a measure for planning
and forecasting operating and individual expectations and for
evaluating actual results against such expectations,
(ii) as a basis for incentive bonuses paid to our executive
officers and our branch managers and (iii) in presentations
to our board of directors to enable them to have the same
consistent measurement basis of operating performance used by
management.
The following table presents a reconciliation of OIBDAN to
operating income, which is a GAAP measure of our operating
results:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro Forma |
|
|
Nine Months Ended |
|
|
Pro Forma as |
|
|
|
Year Ended December 31, |
|
|
as Adjusted |
|
|
September 30, |
|
|
Adjusted |
|
|
|
|
|
|
December 31, |
|
|
|
|
|
September 30, |
|
(In thousands) |
|
2002 |
|
|
2003 |
|
|
2004 |
|
|
2004 |
|
|
2004 |
|
|
2005 |
|
|
2005 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited) |
|
|
(Unaudited) |
|
|
(Unaudited) |
|
|
(Unaudited) |
|
Reconciliation of OIBDAN to operating income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Combined:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OIBDAN
|
|
$ |
456,790 |
|
|
$ |
530,085 |
|
|
$ |
631,612 |
|
|
$ |
631,612 |
|
|
$ |
439,331 |
|
|
$ |
494,063 |
|
|
$ |
494,063 |
|
|
Depreciation and amortization
|
|
|
336,895 |
|
|
|
379,640 |
|
|
|
388,217 |
|
|
|
388,217 |
|
|
|
288,810 |
|
|
|
290,233 |
|
|
|
290,233 |
|
|
Non-cash compensation
|
|
|
|
|
|
|
|
|
|
|
116 |
|
|
|
116 |
|
|
|
82 |
|
|
|
512 |
|
|
|
512 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
$ |
119,895 |
|
|
$ |
150,445 |
|
|
$ |
243,279 |
|
|
$ |
243,279 |
|
|
$ |
150,439 |
|
|
$ |
203,318 |
|
|
$ |
203,318 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OIBDAN
|
|
$ |
354,328 |
|
|
$ |
409,722 |
|
|
$ |
450,494 |
|
|
$ |
450,494 |
|
|
$ |
326,359 |
|
|
$ |
390,867 |
|
|
$ |
390,867 |
|
|
Depreciation and amortization
|
|
|
179,947 |
|
|
|
194,237 |
|
|
|
186,620 |
|
|
|
186,620 |
|
|
|
141,479 |
|
|
|
127,019 |
|
|
|
127,019 |
|
|
Non-cash compensation
|
|
|
|
|
|
|
|
|
|
|
102 |
|
|
|
102 |
|
|
|
72 |
|
|
|
400 |
|
|
|
400 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
$ |
174,381 |
|
|
$ |
215,485 |
|
|
$ |
263,772 |
|
|
$ |
263,772 |
|
|
$ |
184,808 |
|
|
$ |
263,448 |
|
|
$ |
263,448 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
International:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OIBDAN
|
|
$ |
154,680 |
|
|
$ |
174,596 |
|
|
$ |
234,888 |
|
|
$ |
234,888 |
|
|
$ |
152,423 |
|
|
$ |
142,593 |
|
|
$ |
142,593 |
|
|
Depreciation and amortization
|
|
|
156,948 |
|
|
|
185,403 |
|
|
|
201,597 |
|
|
|
201,597 |
|
|
|
147,331 |
|
|
|
163,214 |
|
|
|
163,214 |
|
|
Non-cash compensation
|
|
|
|
|
|
|
|
|
|
|
14 |
|
|
|
14 |
|
|
|
10 |
|
|
|
112 |
|
|
|
112 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
$ |
(2,268 |
) |
|
$ |
(10,807 |
) |
|
$ |
33,277 |
|
|
$ |
33,277 |
|
|
$ |
5,082 |
|
|
$ |
(20,733 |
) |
|
$ |
(20,733 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12
RISK FACTORS
You should carefully consider the following risks before
investing in our Class A common stock. These risks could
materially adversely affect our business, results of operations
or financial condition. In such an event, the trading price of
our Class A common stock could decline and you could lose
part or all of your investment.
Risks Related to Our Business
|
|
|
We have incurred net losses and may experience future net
losses, which could adversely affect our stock price.
|
In the past, our operating results have been adversely affected
by, among other things, a global economic slowdown and a decline
in our clients advertising budgets. We incurred net losses
in each of 2002, 2003 and 2004 of approximately
$3.6 billion, $35.0 million and $155.4 million,
respectively, and had an accumulated retained deficit of
$4.2 billion at September 30, 2005. Due to market
conditions in the advertising industry generally and slow
economic times and other factors that cause advertisers to cut
back their advertising budgets or change their advertising
strategies, we may face reduced demand for our advertising
products, underutilization of our advertising faces and other
factors that could adversely affect our results of operations in
the near term. We cannot predict whether we will achieve
profitability in future periods.
|
|
|
Government regulation of outdoor advertising may restrict
our outdoor advertising operations.
|
Changes in laws and regulations affecting outdoor advertising at
any level of government, including laws of the foreign
jurisdictions in which we operate, could have a significant
financial impact on us by requiring us to make significant
expenditures or otherwise limiting or restricting some of our
operations.
U.S. federal, state and local regulations have had an
impact on the outdoor advertising industry. One of the seminal
laws was The Highway Beautification Act of 1965 (HBA), which
regulates outdoor advertising on the 306,000 miles of
Federal-Aid Primary, Interstate and National Highway Systems
roads. HBA regulates the locations of billboards, mandates a
state compliance program, requires the development of state
standards, promotes the expeditious removal of illegal signs,
and requires just compensation for takings. Size, spacing and
lighting are regulated by state and local municipalities.
From time to time, certain state and local governments and third
parties have attempted to force the removal of displays not
governed by the HBA under various state and local laws,
including amortization. Amortization permits the display owner
to operate its display which does not meet current code
requirements for a specified period of time, after which it must
remove or otherwise conform its display to the applicable
regulations at its own cost without any compensation. Several
municipalities within our existing markets have adopted
amortization ordinances. Other regulations limit our ability to
rebuild or replace nonconforming displays and require us to
remove or modify displays that are not in strict compliance with
applicable laws. In addition, from time to time third parties or
local governments assert that we own or operate displays that
either are not properly permitted or otherwise are not in strict
compliance with applicable law. Such regulations and allegations
have not had a material impact on our results of operations to
date, but if we are increasingly unable to resolve such
allegations or obtain acceptable arrangements in circumstances
in which our displays are subject to removal, modification or
amortization, or if there occurs an increase in such regulations
or their enforcement, our results could suffer.
Legislation has from time to time been introduced in state and
local jurisdictions attempting to impose taxes on revenues of
outdoor advertising companies. Several jurisdictions have
already imposed such taxes as a percentage of our gross receipts
of outdoor advertising revenues in that jurisdiction. While
these taxes have not had a material impact on our business and
financial results to date, we expect states to continue to try
to impose such taxes as a way of increasing revenues. The
increased imposition of these
13
taxes and our inability to pass on the cost of these taxes to
our clients could negatively affect our operating income.
In addition, we are unable to predict what additional
regulations may be imposed on outdoor advertising in the future.
Legislation that would regulate the content of billboard
advertisements and implement additional billboard restrictions
has been introduced in Congress from time to time in the past.
We recently were fined $30,000 by the City of Los Angeles for
our inadvertent failure to properly disclose our role in
providing billboards to a local political candidate.
International regulation of the outdoor advertising industry
varies by region and country, but generally limits the size,
placement, nature and density of out-of-home displays.
Significant international regulations include the Law of
December 29, 1979 in France, the Town and Country Planning
(Control of Advertisements) Regulations 1992 in the United
Kingdom, and Règlement Régional Urbain de
lagglomération bruxelloise in Belgium. These laws
define issues such as the extent to which advertisements can be
erected in rural areas, the hours during which illuminated signs
may be lit and whether the consent of local authorities is
required to place a sign in certain communities. Other
regulations limit the subject matter and language of out-of-home
displays. For instance, the United States and France, among
other nations, ban outdoor advertisements for tobacco products.
Our failure to comply with these or any future international
regulations could have an adverse impact on the effectiveness of
our displays or their attractiveness to clients as an
advertising medium and may require us to make significant
expenditures to ensure compliance. As a result, we may
experience a significant impact on our operations, revenues,
international client base and overall financial condition.
|
|
|
We face intense competition in the outdoor advertising
industry that may adversely affect the advertising fees we can
charge, and consequently lower our operating margins and
profits.
|
We operate in a highly competitive industry, and we may not be
able to maintain or increase the fees we charge our customers,
which may consequently lower our operating margins and profits.
Our advertising properties compete for audiences and advertising
revenues with other outdoor advertising companies, as well as
with other media, such as radio, newsweekly magazines,
newspapers, prime time television, direct mail, the Internet and
telephone directories. It is possible that new competitors may
emerge and rapidly acquire significant market share. Competitive
factors in our industry could adversely affect our financial
performance by, among other things, leading to decreases in
overall revenues, numbers of advertising clients, advertising
fees or profit margins. These factors include:
|
|
|
|
|
our competitors offering reduced advertising rates, which we may
be unable or unwilling to match; |
|
|
|
our competitors adopting technological changes and innovations
that we are unable to adopt or are delayed in adopting and that
offer more attractive advertising alternatives than those we
currently offer; |
|
|
|
shifts in the general population or specific demographic groups
to markets where we have fewer outdoor advertising displays; |
|
|
|
our competitors securing more effective advertising sites than
those sites where our displays are located; |
|
|
|
our competitors abilities to complete and integrate
acquisitions better than our ability to complete and integrate
acquisitions; |
|
|
|
our inability to secure street furniture contracts on favorable
terms; and |
|
|
|
development, governmental actions and strategic trading or
retirement of displays, which, excluding acquisitions, may
result in a reduction of our existing displays and increased
competition for attractive display locations. |
14
|
|
|
Doing business in foreign countries creates certain risks
not involved in doing business in the United States that
may disrupt our international operations or cause us to realize
lower returns from our international operations.
|
Doing business in foreign countries involves certain risks that
may not exist when doing business in the United States. The
risks involved in foreign operations that could result in
disruptions to our business or financial losses in our
international operations against which we are not insured
include:
|
|
|
|
|
exposure to local economic conditions, foreign exchange
restrictions and restrictions on the withdrawal of foreign
investment and earnings, investment restrictions or
requirements, expropriations of property and changes in foreign
taxation structures, each of which could reduce our profit from
international operations; |
|
|
|
potential adverse changes in the diplomatic relations of foreign
countries with the United States and government policies against
businesses owned by foreigners, each of which could affect our
ability to continue operations in or enter into an otherwise
profitable market; |
|
|
|
changes in foreign regulations, such as the decision in France
to lift the ban on retail advertising on television by 2007; |
|
|
|
hostility from local populations, potential instability of
foreign governments and risks of insurrections, each of which
could disrupt our ability to conduct normal business operations;
and |
|
|
|
risks of renegotiation or modification of existing agreements
with governmental authorities and diminished ability to legally
enforce our contractual rights in foreign countries, each of
which could cause financial losses in otherwise profitable
operations. |
In addition, we may incur substantial tax liabilities if we
repatriate any of the cash generated by our international
operations back to the United States, due to our current
inability to recognize any foreign tax credits that would be
associated with such repatriation. We are not currently in a
position to recognize any tax assets in the United States that
are the result of payments of income or withholding taxes in
foreign jurisdictions.
|
|
|
Exchange rates may cause fluctuations in our results of
operations that are not related to our operations.
|
Because we own assets overseas and derive revenues from our
international operations, we may incur currency translation
losses or gains due to changes in the values of foreign
currencies relative to the United States dollar. For the years
ended December 31, 2004, 2003 and 2002, foreign exchange
rate gains had a significant positive effect on our results of
operations. However, for the nine months ended
September 30, 2005 and 2004, exchange rate fluctuations
negatively affected our results of operations. We cannot predict
the effect of exchange rate fluctuations upon future operating
results. See Managements Discussion and Analysis of
Financial Condition and Results of Operations Market
Risk Management Foreign Currency Risk.
|
|
|
Our results of operations vary from quarter to quarter,
and our financial performance in certain financial quarters may
not be indicative of or comparable to our financial performance
in subsequent financial quarters.
|
Typically, we experience our lowest financial performance in the
first quarter of our calendar year as retailers scale back their
advertising budgets following the year-end holiday season.
Because our results vary widely from quarter to quarter, our
financial results for one quarter cannot necessarily be compared
to another quarter and may not be indicative of our financial
performance in subsequent quarters. These variations in our
financial results could have an effect on our stock price.
15
|
|
|
The success of our street furniture and transit products
is dependent on our obtaining key municipal concessions, which
we may not be able to obtain on favorable terms.
|
Our street furniture and transit products businesses require us
to obtain contracts with municipalities and other governmental
entities. Many of these contracts require us to participate in
competitive bidding processes, have terms typically ranging from
three to 20 years and have revenue share or fixed payment
components. Our inability to successfully negotiate or complete
these contracts due to governmental demands and delay and the
highly competitive bidding processes for these contracts could
affect our ability to offer these products to our clients, or to
offer them to our clients at rates that are competitive to other
forms of advertising, without adversely affecting our net income.
|
|
|
Future acquisitions of businesses or properties could have
adverse consequences on our existing business or assets.
|
We may acquire outdoor advertising assets and other assets or
businesses that we believe will assist our clients in marketing
their products and services. Our acquisition strategy involves
numerous risks, including:
|
|
|
|
|
possible failures of our acquisitions to be profitable or to
generate anticipated cash flows, which could affect our overall
profitability and cash flows; |
|
|
|
entry into markets and geographic areas where our competitors
are operating but where we have limited or no experience; |
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potential difficulties in integrating our operations and systems
with those of acquired companies, causing delays in realizing
the potential benefits of acquisitions; |
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diversion of our management teams attention away from
other business concerns; and |
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loss of key employees of acquired companies or the inability to
recruit additional senior management to supplement or replace
senior management of acquired companies. |
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Antitrust regulations may limit future acquisitions due to
our current inventory of advertising properties in certain
markets.
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Additional acquisitions by us may require antitrust review by
U.S. antitrust agencies and may require review by foreign
antitrust agencies under the antitrust laws of foreign
jurisdictions. We can give no assurances that the Department of
Justice, the Federal Trade Commission or foreign antitrust
agencies will not investigate, possibly challenge or seek
divestitures or other remedies as a condition to not challenging
future acquisitions. If those agencies take any such action, we
may not be able to complete, or realize the desired benefits of,
the proposed acquisition.
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The lack of availability of potential acquisitions at
reasonable prices could harm our growth strategy.
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We face stiff competition from other outdoor advertising
companies for acquisition opportunities. If the prices sought by
sellers of these companies were to rise, we may find fewer
acceptable acquisition opportunities. In addition, the purchase
price of possible acquisitions could require the incurrence of
additional debt or equity financing on our part. Since the terms
and availability of this financing depend to a large degree upon
general economic conditions and third parties over which we have
no control, we can give no assurance that we will obtain the
needed financing or that we will obtain such financing on
attractive terms. In addition, our ability to obtain financing
depends on a number of other factors, many of which are also
beyond our control, such as interest rates and national and
local business conditions. If the cost of obtaining needed
financing is too high or the terms of such financing are
otherwise unacceptable in relation to the acquisition
opportunity we are presented with, we may decide to forgo that
opportunity. Additional indebtedness could increase our leverage
and make us more vulnerable to economic downturns and may limit
our ability to withstand competitive pressures. Additional
equity financing could result in dilution to our stockholders.
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After this offering, we will have substantial debt
obligations that could restrict our operations and impair our
financial condition.
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After this offering, the application of all of the net proceeds
of this offering to repay a portion of the outstanding balances
of the $1.4 billion and $73.0 million intercompany
notes owed to Clear Channel Communications, the reduction of a
portion of the outstanding balances of such notes through offset
to the Due from Clear Channel Communications account
and the contribution of the remaining portion of the outstanding
balances of such notes to our capital, our total indebtedness
for borrowed money will be approximately $2.7 billion,
approximately $2.5 billion of which will be intercompany
indebtedness owed to Clear Channel Communications. As of
December 31, 2004, on a pro forma basis, approximately
$146.3 million of such total indebtedness (excluding
interest) is due in 2005, $4.6 million is due in 2006 and
2007, $24.8 million is due in 2008 and 2009 and
$2.5 billion thereafter. See Contractual and Other
Obligations Firm Commitments. We may also
incur additional substantial indebtedness in the future.
Our substantial indebtedness could have adverse consequences,
including:
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increasing our vulnerability to adverse economic, regulatory and
industry conditions; |
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limiting our ability to compete and our flexibility in planning
for, or reacting to, changes in our business and the industry; |
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limiting our ability to borrow additional funds; and |
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requiring us to dedicate a substantial portion of our cash flow
from operations to payments on our debt, thereby reducing funds
available for working capital, capital expenditures,
acquisitions and other purposes. |
If our cash flow and capital resources are insufficient to
service our debt obligations, we may be forced to sell assets,
seek additional equity or debt capital or restructure our debt.
However, these measures might be unsuccessful or inadequate in
permitting us to meet scheduled debt service obligations. We may
be unable to restructure or refinance our obligations and obtain
additional equity financing or sell assets on satisfactory terms
or at all. As a result, inability to meet our debt obligations
could cause us to default on those obligations. A default under
any debt instrument could, in turn, result in defaults under
other debt instruments. Any such defaults could materially
impair our financial condition and liquidity.
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To service our debt obligations and to fund potential
capital expenditures, we will require a significant amount of
cash to meet our needs, which depends on many factors beyond our
control.
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Our ability to service our debt obligations and to fund
potential capital expenditures for display construction or
renovation will require a significant amount of cash, which
depends on many factors beyond our control. Our ability to make
payments on and to refinance our debt will also depend on our
ability to generate cash in the future. This, to an extent, is
subject to general economic, financial, competitive,
legislative, regulatory and other factors that are beyond our
control.
We cannot assure you that our business will generate sufficient
cash flow or that future borrowings will be available to us in
an amount sufficient to enable us to pay our debt, including our
intercompany notes, or to fund our other liquidity needs. If our
future cash flow from operations and other capital resources are
insufficient to pay our obligations as they mature or to fund
our liquidity needs, we may be forced to reduce or delay our
business activities and capital expenditures, sell assets,
obtain additional equity capital or restructure or refinance all
or a portion of our debt, including the intercompany notes, on
or before maturity. We cannot assure you that we will be able to
refinance any of our debt, including the intercompany notes, on
a timely basis or on satisfactory terms, if at all. In addition,
the terms of our existing debt, including the intercompany
notes, and other future debt may limit our ability to pursue any
of these alternatives.
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The $2.5 billion intercompany note and agreements
with Clear Channel Communications impose restrictions on our
ability to finance operations and capital needs, make
acquisitions or engage in other business activities and requires
prepayment from substantially all proceeds from debt or equity
raised by us.
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The $2.5 billion intercompany note and Master Agreement
with Clear Channel Communications include restrictive covenants
that, among other things, restrict our ability to:
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incur additional debt; |
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pay dividends and make distributions; |
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make certain acquisitions and investments; |
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repurchase our stock; |
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create liens; |
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enter into transactions with affiliates; |
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enter into sale-leaseback transactions; |
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dispose of all or substantially all of our assets; and |
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merge or consolidate. |
The existence of these restrictions could limit our ability to
grow and increase our revenues or respond to competitive changes.
In addition, the intercompany note requires us to prepay it in
full upon a change of control (as defined in the note), and,
upon our issuances of equity and incurrences of debt, subject to
certain exceptions, to prepay the note in the amount of net
proceeds received from such events. Our failure to comply with
the terms and covenants in our indebtedness could lead to a
default under the terms of those documents, which would entitle
Clear Channel Communications or other holders to accelerate the
indebtedness and declare all amounts owed due and payable. See
Arrangements Between Clear Channel Communications and
Us Master Agreement Approval Rights of
Clear Channel Communications on Certain of Our Activities
and Description of Indebtedness.
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Additional restrictions on outdoor advertising of tobacco,
alcohol and other products may further restrict the categories
of clients that can advertise using our products.
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Out-of-court settlements between the major U.S. tobacco
companies and all 50 states, the District of Columbia, the
Commonwealth of Puerto Rico and four other U.S. territories
include a ban on the outdoor advertising of tobacco products.
Our domestic revenues from the outdoor advertising of tobacco
products were approximately $1.2 million, $1.6 million
and $3.1 million in 2002, 2003 and 2004, respectively.
Other products and services may be targeted in the future,
including alcohol products. Our domestic revenues from the
outdoor advertising of alcohol products were approximately
$68.5 million, $74.0 million and $71.0 million in
2002, 2003 and 2004. Legislation regulating tobacco and alcohol
advertising has also been introduced in a number of European
countries in which we conduct business and could have a similar
impact. Any significant reduction in alcohol-related advertising
due to content-related restrictions could cause a reduction in
our direct revenues from such advertisements and an increase in
the available space on the existing inventory of billboards in
the outdoor advertising industry.
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A general deterioration in economic conditions may cause
our clients to reduce their advertising budgets or to choose
advertising plans other than outdoor advertising.
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The risks associated with our businesses become more acute in
periods of a slowing economy or recession, which may be
accompanied by a decrease in advertising and which could have an
adverse effect on our revenues and profit margins or result in
an impairment in the value of our assets. The impact of
slowdowns on our business is difficult to predict, but they may
result in reductions in purchases of
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advertising. In addition, to the extent our street furniture and
transit businesses rely on long-term guaranteed contracts with
government entities, we may suffer losses on those contracts in
times of economic slowdowns.
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Our outdoor advertising properties and revenues may be
adversely affected by the occurrence of extraordinary
events.
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The occurrence of extraordinary events with respect to our
properties or the economy generally, such as terrorist attacks,
severe weather conditions such as hurricanes or similar events
may substantially decrease the use of and demand for advertising
or expose us to substantial liability, which may decrease our
revenues or increase our expenses. The September 11, 2001
terrorist attacks, for example, caused a nationwide disruption
of commercial activities. The occurrence of future terrorist
attacks, military actions, contagious disease outbreaks or
similar events cannot be predicted, and their occurrence can be
expected to further negatively affect the economies of the
United States and other foreign countries where we do business
generally, specifically the market for advertising.
Risks Related to Our Relationship with Clear Channel
Communications
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We have no operating history as an independent company and
our historical and pro forma combined financial information is
not necessarily representative of the results we would have
achieved as an independent publicly traded company and may not
be a reliable indicator of our future results.
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The historical and pro forma combined financial information
included in this prospectus does not reflect the financial
condition, results of operations or cash flows we would have
achieved as an independent publicly traded company during the
periods presented or those results we will achieve in the
future. This is primarily a result of the following factors:
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Our historical and pro forma combined financial results reflect
allocations of corporate expenses from Clear Channel
Communications. Those allocations may be different from the
comparable expenses we would have incurred had we operated as an
independent publicly traded company. |
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Our working capital requirements and capital for our general
corporate purposes, including acquisitions and capital
expenditures, historically have been satisfied as part of the
corporate-wide cash management policies of Clear Channel
Communications. Subsequent to this offering, Clear Channel
Communications will not be required to provide us with funds to
finance our working capital or other cash requirements. Without
the opportunity to obtain financing from Clear Channel
Communications, we may in the future need to obtain additional
financing from banks, or through public offerings or private
placements of debt or equity securities, strategic relationships
or other arrangements. We may have a credit rating that is lower
than Clear Channel Communications credit rating and may
incur debt on terms and at interest rates that will not be as
favorable as those generally enjoyed by Clear Channel
Communications. |
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Significant changes may occur in our cost structure, management,
financing and business operations as a result of our operating
as an independent public subsidiary of Clear Channel
Communications. These changes could result in increased costs
associated with reduced economies of scale, stand-alone costs
for services currently provided by Clear Channel Communications,
the need for additional personnel to perform services currently
provided by Clear Channel Communications and the legal,
accounting, compliance and other costs associated with being a
public company with equity securities listed on a national stock
exchange. We are obligated to continue to use the services of
Clear Channel Communications under the Corporate Services
Agreement until such time as Clear Channel Communications owns
less than 50% of the total voting power of our common stock, or
longer for certain information technology services, and, in the
event our Corporate Services Agreement with Clear Channel
Communications terminates, we may not be able to replace the
services that Clear Channel Communications provides us until
such time or in a timely manner or on comparable terms. |
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Pursuant to a cash management arrangement, substantially all of
our cash generated from our domestic operations will be
transferred daily by Clear Channel Communications into accounts
where funds of ours and of Clear Channel Communications may be
commingled. The amounts so held by Clear Channel Communications
will be evidenced in a cash management note issued by Clear
Channel Communications to us. We do not have a commitment from
Clear Channel Communications to advance funds to us, and we will
have no access to the cash transferred from our concentration
account to the master account of Clear Channel Communications.
If Clear Channel Communications were to become insolvent, we
would be an unsecured creditor like other unsecured creditors of
Clear Channel Communications and could experience a liquidity
shortfall. |
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Because Clear Channel Communications controls
substantially all the voting power of our common stock,
investors will not be able to affect the outcome of any
stockholder vote.
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After this offering, Clear Channel Communications will own all
of our outstanding shares of Class B common stock,
representing approximately 90% of the outstanding shares of our
common stock, or approximately 89% if the underwriters exercise
in full their option to purchase additional shares of
Class A common stock. Each share of our Class B common
stock entitles its holder to 20 votes and each share of our
Class A common stock entitles its holder to one vote on all
matters on which stockholders are entitled to vote. As a result,
after this offering, Clear Channel Communications will control
approximately 99% of the total voting power of our common stock,
or approximately 99% if the underwriters exercise in full their
option to purchase additional shares of Class A common
stock.
For so long as Clear Channel Communications continues to own
shares of our common stock representing more than 50% of the
total voting power of our common stock, it will have the ability
to direct the election of all members of our board of directors
and to exercise a controlling influence over our business and
affairs, including any determinations with respect to mergers or
other business combinations involving us, our acquisition or
disposition of assets, our incurrence of indebtedness, our
issuance of any additional common stock or other equity
securities, our repurchase or redemption of common stock or
preferred stock and our payment of dividends. Similarly, Clear
Channel Communications will have the power to determine or
significantly influence the outcome of matters submitted to a
vote of our stockholders, including the power to prevent an
acquisition or any other change in control of us. Because Clear
Channel Communications interests as our controlling
stockholder may differ from your interests, actions taken by
Clear Channel Communications with respect to us may not be
favorable to you.
Prior to the completion of this offering, we also will enter
into a master agreement, a corporate services agreement, a
trademark license agreement and a number of other agreements
with Clear Channel Communications setting forth various matters
governing our relationship with Clear Channel Communications
while it remains a significant stockholder in us. These
agreements, along with the $2.5 billion intercompany note,
will govern our relationship with Clear Channel Communications
after this offering and will allow Clear Channel Communications
to retain control over, among other things, the continued use of
the trademark Clear Channel, the provision of
corporate services to us and our ability to make certain
acquisitions or to merge or consolidate or to sell all or
substantially all our assets. The rights of Clear Channel
Communications under these agreements may allow Clear Channel
Communications to delay or prevent an acquisition of us that our
other stockholders may consider favorable. We will not be able
to terminate these agreements or amend them in a manner we deem
more favorable so long as Clear Channel Communications continues
to own shares of our common stock representing more than 50% of
the total voting power of our common stock. See
Description of Capital Stock, Description of
Indebtedness and Arrangements Between Clear Channel
Communications and Us.
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Conflicts of interest may arise between Clear Channel
Communications and us that could be resolved in a manner
unfavorable to us.
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Questions relating to conflicts of interest may arise between
Clear Channel Communications and us in a number of areas
relating to our past and ongoing relationships. After this
offering, three of our directors will continue to serve as
directors of Clear Channel Communications and two of these will
be our
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executive officers. For as long as Clear Channel Communications
continues to own shares of our common stock representing more
than 50% of the total voting power of our common stock, it will
have the ability to direct the election of all the members of
our board of directors and to exercise a controlling influence
over our business and affairs.
Areas in which conflicts of interest between Clear Channel
Communications and us could arise include, but are not limited
to, the following:
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Cross officerships, directorships and stock ownership.
The ownership interests of our directors or executive officers
in the common stock of Clear Channel Communications or service
as a director or officer of both Clear Channel Communications
and us could create, or appear to create, conflicts of interest
when directors and executive officers are faced with decisions
that could have different implications for the two companies.
For example, these decisions could relate to (i) the
nature, quality and cost of services rendered to us by Clear
Channel Communications, (ii) disagreement over the
desirability of a potential acquisition opportunity,
(iii) employee retention or recruiting or (iv) our
dividend policy. |
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Intercompany transactions. From time to time, Clear
Channel Communications or its affiliates may enter into
transactions with us or our subsidiaries or other affiliates.
Although the terms of any such transactions will be established
based upon negotiations between employees of Clear Channel
Communications and us and, when appropriate, subject to the
approval of the independent directors on our board or a
committee of disinterested directors, there can be no assurance
that the terms of any such transactions will be as favorable to
us or our subsidiaries or affiliates as may otherwise be
obtained in arms length negotiations. |
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Intercompany agreements. We have entered into certain
agreements with Clear Channel Communications pursuant to which
it will provide us certain management, administrative,
accounting, tax, legal and other services, for which we will
reimburse Clear Channel Communications on a cost basis. In
addition, we will enter into a number of intercompany agreements
covering matters such as tax sharing and our responsibility for
certain liabilities previously undertaken by Clear Channel
Communications for certain of our businesses. Pursuant to the
corporate services agreement between Clear Channel
Communications and us, we are contractually obligated to utilize
the services of the chief executive officer of Clear Channel
Communications as our Chief Executive Officer and the chief
financial officer of Clear Channel Communications as our Chief
Financial Officer until Clear Channel Communications owns less
than 50% of the voting power of our common stock, or we provide
Clear Channel Communications with six months prior written
notice of termination. The terms of these agreements were
established while we were a wholly owned subsidiary of Clear
Channel Communications and were not the result of arms
length negotiations. In addition, conflicts could arise in the
interpretation or any extension or renegotiation of these
existing agreements after this offering. See Arrangements
Between Clear Channel Communications and Us. |
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If Clear Channel Communications engages in the same type
of business we conduct or takes advantage of business
opportunities that might be attractive to us, our ability to
successfully operate and expand our business may be
hampered.
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Our amended and restated certificate of incorporation provides
that, subject to any contractual provision to the contrary,
Clear Channel Communications will have no obligation to refrain
from:
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engaging in the same or similar business activities or lines of
business as us; or |
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doing business with any of our clients, customers or vendors. |
In addition, the corporate opportunity policy set forth in our
amended and restated certificate of incorporation addresses
potential conflicts of interest between our company, on the one
hand, and Clear Channel Communications and its officers and
directors who are officers or directors of our company, on the
other hand. The policy provides that if Clear Channel
Communications acquires knowledge of a
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potential transaction or matter which may be a corporate
opportunity for both Clear Channel Communications and us, we
will have renounced our interest in the corporate opportunity.
It also provides that if one of our directors or officers who is
also a director or officer of Clear Channel Communications
learns of a potential transaction or matter that may be a
corporate opportunity for both Clear Channel Communications and
us, we will have renounced our interest in the corporate
opportunity, unless that opportunity is expressly offered to
that person in writing solely in his or her capacity as our
director or officer.
If one of our officers or directors, who also serves as a
director or officer of Clear Channel Communications, learns of a
potential transaction or matter that may be a corporate
opportunity for both Clear Channel Communications and us, our
amended and restated certificate of incorporation provides that
the director or officer will have no duty to communicate or
present that corporate opportunity to us and will not be liable
to us or our stockholders for breach of fiduciary duty by reason
of Clear Channel Communications actions with respect to
that corporate opportunity.
This policy could result in Clear Channel Communications having
rights to corporate opportunities in which both we and Clear
Channel Communications have an interest.
By becoming a stockholder in our company, you will be deemed to
have notice of and have consented to these provisions of our
amended and restated certificate of incorporation. The
principles for resolving such potential conflicts of interest
are described under Description of Capital
Stock Provisions of Our Amended and Restated
Certificate of Incorporation Relating to Related-Party
Transactions and Corporate Opportunities.
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We are a controlled company within the meaning
of the New York Stock Exchange rules and, as a result, will
qualify for, and intend to rely on, exemptions from certain
corporate governance requirements that may not provide as many
protections as those afforded to stockholders of other
companies.
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After this offering, Clear Channel Communications will continue
to own more than 50% of the total voting power of our common
stock and we will be a controlled company under the
NYSE corporate governance standards. As a controlled company, we
may elect to utilize certain exemptions under the NYSE standards
that free us from the obligation to comply with certain NYSE
corporate governance requirements, including the requirements
(i) that a majority of the board of directors consists of
independent directors, (ii) that we have a nominating and
governance committee, and that such committee be composed
entirely of independent directors and governed by a written
charter addressing the committees purpose and
responsibilities, (iii) that we have a compensation
committee that is composed entirely of independent directors
with a written charter addressing the committees purpose
and responsibilities and (iv) for an annual performance
evaluation of the compensation committee. After this offering,
we intend to utilize certain of these exemptions and, as a
result, we may not create or maintain a nominating and
governance committee, and the nominating and governance
committee, if created, and the compensation committee may not
consist entirely of independent directors, and our board of
directors may not consist of a majority of independent
directors. Accordingly, you may not have the same protections
afforded to stockholders of companies that are subject to all of
the NYSE corporate governance requirements.
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We will only have the right to use the Clear Channel brand
name, logo and corporate name for so long as Clear Channel
Communications owns at least 50% of the total voting power of
our common stock. If Clear Channel Communications
ownership falls below such 50% threshold and we fail to
establish in a timely manner a new, independently recognized
brand name with a strong reputation, our revenue and
profitability could decline.
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Upon completion of this offering, our corporate name will be
Clear Channel Outdoor Holdings, Inc., and we and our
subsidiaries may use the Clear Channel brand name and logo in
marketing our products and services. Pursuant to a trademark
license agreement, Clear Channel Communications will grant us
the right to use the Clear Channel mark and logo in
connection with our products and services
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and the right to use Clear Channel in our corporate
name and the corporate names of our subsidiaries until
12 months after the date on which Clear Channel
Communications owns less than 50% of the total voting power of
our common stock. In the event our right to use the Clear
Channel brand name and logo and corporate name expires, we will
be required to conduct our business under a new brand name,
which may not be immediately recognized by our clients and
suppliers or by potential employees we are trying to recruit. We
will need to expend significant time, effort and resources to
establish a new brand name in the marketplace. We cannot
guarantee that this effort will ultimately be successful. If our
effort to establish a new brand identity is unsuccessful, our
business, financial condition and results of operations may
suffer.
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Any future separation from Clear Channel Communications
could adversely affect our business and profitability due to
Clear Channel Communications strong brand and
reputation.
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As a subsidiary of Clear Channel Communications, our businesses
have marketed many of their products and services using the
Clear Channel brand name and logo, and we believe
the association with Clear Channel Communications has provided
many benefits, including:
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a world-class brand associated with trust, integrity and
longevity; |
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perception of high-quality products and services; |
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preferred status among our clients and employees; |
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strong capital base and financial strength; and |
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established relationships with U.S. federal and state
regulators and non-U.S. regulators. |
Any future separation from Clear Channel Communications could
adversely affect our ability to attract and retain highly
qualified dedicated sales specialists for our products and
services. We may be required to lower the prices of our products
and services, increase our sales commissions and fees, change
long-term advertising and marketing agreements and take other
action to maintain our relationship with our clients, suppliers
and dedicated sales specialists, all of which could have an
adverse effect on our financial condition and results of
operations. Any future separation from Clear Channel
Communications also could cause some of our existing clients to
choose to stop doing business with us, and could cause other
potential clients to decide not to purchase our products and
services because we are no longer part of Clear Channel
Communications.
We cannot accurately predict the effect that a separation from
Clear Channel Communications would have on our sales, clients or
employees. The risks relating to a separation from Clear Channel
Communications could materialize at various times, including:
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if and when Clear Channel Communications reduces its ownership
in our common stock to a level below 50% of the total voting
power; and |
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if and when we are required to cease using the Clear Channel
name and logo in our sales and marketing materials. |
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We will not have control over our tax decisions and could
be liable for income taxes owed by Clear Channel
Communications.
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For so long as Clear Channel Communications continues to own at
least 80% of the total voting power and value of our common
stock, we and certain of our subsidiaries will be included in
Clear Channel Communications consolidated group for
U.S. federal income tax purposes. In addition, we or one or
more of our subsidiaries may be included in the combined,
consolidated or unitary tax returns of Clear Channel
Communications or one or more of its subsidiaries for foreign,
state and local income tax purposes. Under the Tax Matters
Agreement, we will pay to Clear Channel Communications the
amount of federal, foreign, state and local income taxes which
we would be required to pay to the relevant taxing authorities
if we and our subsidiaries filed combined, consolidated or
unitary tax returns and were not included in the consolidated,
combined or unitary tax returns of Clear Channel Communications
or its
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subsidiaries. In addition, by virtue of its controlling
ownership and the Tax Matters Agreement, Clear Channel
Communications will effectively control all of our tax
decisions. The Tax Matters Agreement provides that Clear Channel
Communications will have sole authority to respond to and
conduct all tax proceedings (including tax audits) relating to
us, to file all income tax returns on our behalf and to
determine the amount of our liability to (or entitlement to
payment from) Clear Channel Communications under the Tax Matters
Agreement. This arrangement may result in conflicts of interest
between Clear Channel Communications and us. For example, under
the Tax Matters Agreement, Clear Channel Communications will be
able to choose to contest, compromise or settle any adjustment
or deficiency proposed by the relevant taxing authority in a
manner that may be beneficial to Clear Channel Communications
and detrimental to us.
Moreover, notwithstanding the Tax Matters Agreement, federal law
provides that each member of a consolidated group is liable for
the groups entire tax obligation. Thus, to the extent
Clear Channel Communications or other members of the group fail
to make any U.S. federal income tax payments required by
law, we would be liable for the shortfall. Similar principles
may apply for foreign, state and local income tax purposes where
we file combined, consolidated or unitary returns with Clear
Channel Communications or its subsidiaries for federal, foreign,
state and local income tax purposes.
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If Clear Channel Communications spins off our Class B
common stock to its stockholders, we have agreed in the Tax
Matters Agreement to indemnify Clear Channel Communications for
its tax-related liabilities in certain circumstances.
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If Clear Channel Communications spins off our Class B
common stock to its stockholders in a distribution that is
intended to be tax-free under Section 355 of the Internal
Revenue Code of 1986, as amended, which we refer to herein as
the Code, we have agreed in the Tax Matters Agreement to
indemnify Clear Channel Communications and its affiliates
against any and all tax-related liabilities if such a spin-off
fails to qualify as a tax-free distribution (including as a
result of Section 355(e) of the Code) due to actions,
events or transactions relating to our stock, assets or
business, or a breach of the relevant representations or
covenants made by us in the Tax Matters Agreement. If neither we
nor Clear Channel Communications is responsible under the Tax
Matters Agreement for any such spin-off not being tax-free under
Section 355 of the Code, we and Clear Channel
Communications have agreed that we will each be responsible for
50% of the tax-related liabilities arising from the failure of
such a spin-off to so qualify. See Arrangements Between
Clear Channel Communications and Us Tax Matters
Agreement.
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Future sales or distributions of our shares by Clear
Channel Communications could depress the market price for shares
of our Class A common stock.
|
After this offering, Clear Channel Communications may sell all
or part of the shares of our common stock that it owns or
distribute those shares to its stockholders, including pursuant
to demand registration rights described herein. Sales or
distributions by Clear Channel Communications of substantial
amounts of our common stock in the public market or to its
stockholders could adversely affect prevailing market prices for
our Class A common stock. Clear Channel Communications has
advised us that it currently intends to continue to hold all of
our common stock that it owns following this offering. However,
Clear Channel Communications is not subject to any contractual
obligation that would prohibit it from selling, spinning off,
splitting off or otherwise disposing of any shares of our common
stock, except that Clear Channel Communications has agreed not
to sell, spin off, split off or otherwise dispose of any of our
shares of common stock for a period of 180 days after the
date of this prospectus without the prior written consent of the
underwriters, subject to certain limitations and limited
exceptions. Consequently, we cannot assure you that Clear
Channel Communications will maintain its ownership of our common
stock after the 180-day period following this offering.
24
|
|
|
The terms of our arrangements with Clear Channel
Communications may be more favorable than we will be able to
obtain from an unaffiliated third party, and we may be unable to
replace the services Clear Channel Communications provides us in
a timely manner or on comparable terms.
|
We and Clear Channel Communications will enter into a Corporate
Services Agreement and other agreements prior to the completion
of this offering. Pursuant to the Corporate Services Agreement,
Clear Channel Communications and its affiliates will agree to
provide us with corporate services after this offering,
including treasury, payroll and other financial services,
executive officer services, human resources and employee benefit
services, legal services, information systems and network
services and procurement and sourcing support.
We are negotiating these arrangements with Clear Channel
Communications in the context of a parent-subsidiary
relationship. Although Clear Channel Communications will be
contractually obligated to provide us with services during the
term of the Corporate Services Agreement, we cannot assure you
that these services will be sustained at the same level after
the expiration of that agreement, or that we will be able to
replace these services in a timely manner or on comparable
terms. In addition, we cannot provide assurance that the amount
we pay Clear Channel Communications for the services will be as
favorable to us as that which may be available for comparable
services provided by unrelated third parties. Other agreements
with Clear Channel Communications will also govern our
relationship with Clear Channel Communications after this
offering and will provide for the allocation of employee
benefit, tax and other liabilities and obligations attributable
to our operations. The agreements also contain terms and
provisions that may be more or less favorable than terms and
provisions we might have obtained in arms length
negotiations with unaffiliated third parties. If Clear Channel
Communications ceases to provide services to us pursuant to
those agreements, our costs of procuring those services from
third parties may increase. See Arrangements Between Clear
Channel Communications and Us Relationship with
Clear Channel Communications.
|
|
|
Any deterioration in the financial condition of Clear
Channel Communications could adversely affect our access to the
credit markets and increase our borrowing costs.
|
For so long as Clear Channel Communications maintains a
significant interest in us, a deterioration in the financial
condition of Clear Channel Communications could have the effect
of increasing our borrowing costs or impairing our access to the
capital markets because of our reliance on Clear Channel
Communications for availability under its revolving credit
facility. In addition, because the interest rate we pay on the
$2.5 billion intercompany note is based on the weighted
average cost of debt for Clear Channel Communications, any such
deterioration would likely result in an increase in Clear
Channel Communications cost of debt and in our interest
rate. To the extent we do not pass on our increased borrowing
costs to our clients, our profitability, and potentially our
ability to raise capital, could be materially affected. Also,
until the first date Clear Channel Communications owns less than
50% of our voting stock, pursuant to the Master Agreement
between us and Clear Channel Communications, as well as pursuant
to the $2.5 billion intercompany note, Clear Channel
Communications will have the ability to limit our ability to
incur debt or issue equity securities, which could adversely
affect our ability to meet our liquidity needs or to grow our
business. See Arrangements Between Clear Channel
Communications and Us and Description of
Indebtedness.
Risks Related to Our Class A Common Stock and This
Offering
|
|
|
There is no existing market for our Class A common
stock, and a trading market that will provide you with adequate
liquidity may not develop, the price of our Class A common
stock may fluctuate significantly, and you could lose all or
part of your investment.
|
Prior to this offering, there has been no public market for our
Class A common stock. We cannot predict the extent to which
investor interest will lead to the development of an active and
liquid trading market in our Class A common stock on the
NYSE or otherwise. If an active trading market does not develop,
you may have difficulty selling any of our Class A common
stock that you buy.
25
The initial public offering price per share for our Class A
common stock will be determined by negotiations between us and
the representatives of the underwriters and may not be
indicative of the market price of our Class A common stock
that will prevail in the trading market. The market price of our
Class A common stock may decline below the initial public
offering price. The market price of our Class A common
stock may also be influenced by many factors, some of which are
beyond our control, including:
|
|
|
|
|
our quarterly or annual earnings, or those of other companies in
our industry; |
|
|
|
our loss of a large client; |
|
|
|
announcements by us or our competitors of significant contracts
or acquisitions; |
|
|
|
changes in accounting standards, policies, guidance,
interpretations or principles; |
|
|
|
general economic conditions; |
|
|
|
the failure of securities analysts to cover our Class A
common stock after this offering or changes in financial
estimates by analysts; |
|
|
|
future sales by us or other stockholders of our Class A
common stock; and |
|
|
|
other factors described in these Risk Factors. |
In recent years, the stock market has experienced extreme price
and volume fluctuations. This volatility has had a significant
impact on the market price of securities issued by many
companies, including companies in our industry. The changes
frequently appear to occur without regard to the operating
performance of these companies. The price of our Class A
common stock could fluctuate based upon factors that have little
or nothing to do with our company, and these fluctuations could
materially reduce our stock price.
In the past, some companies that have had volatile market prices
for their securities have been subject to securities class
action suits filed against them. If a suit were to be filed
against us, regardless of the outcome, it could result in
substantial legal costs and a diversion of our managements
attention and resources. This could have a material adverse
effect on our business, results of operations and financial
condition.
|
|
|
Our stock ownership by Clear Channel Communications,
provisions in our agreements with Clear Channel Communications
and our corporate governance documents and Delaware law may
delay or prevent an acquisition of us that our other
stockholders may consider favorable, which could decrease the
value of your shares of Class A common stock.
|
After this offering, for as long as Clear Channel Communications
continues to own shares of our common stock representing more
than 50% of the total voting power of our common stock, it will
have the ability to control decisions regarding an acquisition
of us by a third party. As a controlled company, we are exempt
from some of the corporate governance requirements of the NYSE,
including the requirement that our board of directors be
comprised of a majority of independent directors. In addition,
our amended and restated certificate of incorporation, bylaws
and Delaware law contain provisions that could make it more
difficult for a third party to acquire us without the consent of
our board of directors. These provisions include restrictions on
the ability of our stockholders to remove directors,
supermajority voting requirements for stockholders to amend our
organizational documents, restrictions on a classified board of
directors and limitations on action by our stockholders by
written consent. Some of these provisions, such as the
limitation on stockholder action by written consent, only become
effective once Clear Channel Communications no longer controls
us. In addition, our board of directors has the right to issue
preferred stock without stockholder approval, which could be
used to dilute the stock ownership of a potential hostile
acquirer. Delaware law also imposes certain restrictions on
mergers and other business combinations between any holder of
15% or more of our outstanding voting stock. These restrictions
under Delaware law do not apply to Clear Channel Communications
while it retains at least 15% or more of our Class B
26
common stock. Although we believe these provisions protect our
stockholders from coercive or otherwise unfair takeover tactics
and thereby provide for an opportunity to receive a higher bid
by requiring potential acquirers to negotiate with our board of
directors, these provisions apply even if the offer may be
considered beneficial by some stockholders. See
Description of Capital Stock.
|
|
|
If Clear Channel Communications spins off our high
vote Class B common stock to its stockholders and such
shares do not convert into Class A common stock upon a sale
or other transfer subsequent to such distribution, the voting
rights of our Class A common stock will continue to be
disproportionately lower than the voting rights of our
Class B common stock.
|
In connection with any distribution of shares of our
Class B common stock to Clear Channel Communications
common stockholders in a spin-off, Clear Channel Communications
may elect in its sole discretion whether our Class B common
stock so distributed will automatically convert into shares of
Class A common stock upon a transfer or sale by the
recipient subsequent to the spin-off or whether the Class B
common stock will continue as high vote Class B common
stock after the distribution. In the event the Class B
common stock does not convert into Class A common stock
upon a sale or transfer subsequent to a spin-off, the voting
rights of Class A common stock will continue to be
disproportionately lower than the voting rights of our
Class B common stock. Therefore, the holders of our
Class B common stock will continue to be able to direct the
election of all the members of our board of directors and
exercise a controlling influence over our business and affairs.
|
|
|
We currently do not intend to pay dividends on our
Class A common stock.
|
We do not expect to pay dividends on our Class A common
stock in the foreseeable future. We are a holding company with
no independent operations and no significant assets other than
the stock of our subsidiaries. We therefore are dependent upon
the receipt of dividends or other distributions from our
subsidiaries to pay dividends. Accordingly, if you purchase
shares in this offering, the price of our Class A common
stock must appreciate in order to realize a gain on your
investment. This appreciation may not occur.
|
|
|
You will suffer an immediate and substantial dilution in
the net tangible book value of the Class A common stock you
purchase.
|
Based on an assumed initial public offering price of
$21.00 per share, which is the midpoint of the estimated
offering price range set forth on the cover page of this
prospectus, purchasers of Class A common stock in this
offering will experience immediate and substantial dilution of
approximately $21.11 per share in net tangible book value
of the Class A common stock.
|
|
|
We will incur increased costs as a result of being a
public company.
|
The Sarbanes-Oxley Act of 2002, as well as new rules
subsequently implemented by the Securities and Exchange
Commission and New York Stock Exchange, have required changes in
corporate governance practices of public companies. We expect
these new rules and regulations to increase our legal and
financial compliance costs and to make some activities more
time-consuming and costly. For example, when we cease to take
advantage of the controlled company exemption
available in the NYSE rules, we will have to add a number of
independent directors in order that our board consist of a
majority of independent directors and create additional board
committees. In addition, we will incur additional costs
associated with our public company reporting requirements. We
also expect these new rules and regulations to make it more
difficult and more expensive for us to obtain director and
officer liability insurance and we may be required to accept
reduced policy limits and coverage or incur substantially higher
costs to obtain the same or similar coverage. As a result, it
may be more difficult for us to attract and retain qualified
persons to serve on our board of directors or as executive
officers. We are currently evaluating and monitoring
developments with respect to these new rules, and we cannot
predict or estimate the amount of additional costs we may incur
or the timing of such costs.
27
|
|
|
If, after this offering, we are unable to satisfy the
requirements of Section 404 of the Sarbanes-Oxley Act, or
our internal controls over financial reporting are not
effective, the reliability of our financial statements may be
questioned and our stock price may suffer.
|
Section 404 of the Sarbanes-Oxley Act requires any company
subject to the reporting requirements of the
U.S. securities laws to do a comprehensive evaluation of
its and its combined subsidiaries internal controls over
financial reporting. To comply with this statute, we will be
required to document and test our internal control procedures;
our management will be required to assess and issue a report
concerning our internal controls over financial reporting; and
our independent auditors will be required to issue an opinion on
managements assessment of those matters. Our compliance
with Section 404 of the Sarbanes-Oxley Act will first be
tested in connection with the filing of our annual report on
Form 10-K for the fiscal year ending December 31,
2006. The rules governing the standards that must be met for
management to assess our internal controls over financial
reporting are new and complex and require significant
documentation, testing and possible remediation to meet the
detailed standards under the rules. During the course of its
testing, our management may identify material weaknesses or
significant deficiencies which may not be remedied in time to
meet the deadline imposed by the Sarbanes-Oxley Act. If our
management cannot favorably assess the effectiveness of our
internal controls over financial reporting or our auditors
identify material weaknesses in our internal controls, investor
confidence in our financial results may weaken, and our stock
price may suffer. In connection with Clear Channel
Communications internal controls testing as of
December 31, 2004, a number of control deficiencies were
identified, some of which relate to our business. If these
control deficiencies exist at the time our compliance with
Section 404 is tested, there can be no assurance that they
will not be material weaknesses.
28
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
All statements other than statements of historical facts
included in this prospectus, including, without limitation,
statements regarding our future financial position, business
strategy, budgets, projected costs, savings and plans and
objectives of management for future operations, are
forward-looking statements. Forward-looking statements generally
can be identified by the use of forward-looking terminology such
as may, will, expect,
intend, estimate,
anticipate, believe or
continue or the negative thereof or variations
thereon or similar terminology. Although we believe that the
expectations reflected in such forward-looking statements are
reasonable, we can give no assurance that such expectations will
prove to have been correct. Important factors that could cause
actual results to differ materially from our expectations
(cautionary statements) are disclosed under
Risk Factors and elsewhere in this prospectus,
including, without limitation, in conjunction with the
forward-looking statements included in this prospectus. All
subsequent written and oral forward-looking statements
attributable to us, or persons acting on our behalf, are
expressly qualified in their entirety by the cautionary
statements included in this prospectus.
All forward-looking statements attributable to us or persons
acting on our behalf apply only as of the date of this
prospectus and are expressly qualified in their entirety by the
cautionary statements included in this prospectus. We undertake
no obligation to publicly update or revise forward-looking
statements to reflect events or circumstances after the date
made or to reflect the occurrence of unanticipated events.
29
USE OF PROCEEDS
We estimate that our net proceeds from this offering, after
deducting underwriting discounts and estimated offering
expenses, will be approximately $700.1 million
(approximately $805.9 million if the underwriters exercise
in full their option to purchase additional shares of
Class A common stock), assuming an initial public offering
price of $21.00 per share of Class A common stock,
which is the midpoint of the estimated offering price range set
forth on the cover page of this prospectus.
In 2003, two intercompany notes were issued to Clear Channel
Communications in the aggregate original principal amount of
approximately $1.5 billion. The first intercompany note in
the original principal amount of approximately
$1.4 billion, the entire principal balance of which remains
outstanding, matures on December 31, 2017, may be prepaid
in whole at any time, or in part from time to time, and accrues
interest at a per annum rate of 10%. The second intercompany
note in the original principal amount of $73.0 million, the
entire principal balance of which remains outstanding, matures
on December 31, 2017, may be prepaid in whole at any time,
or in part from time to time, and accrues interest at a per
annum rate of 9%. See Arrangements Between Clear Channel
Communications and Us.
Assuming an initial public offering price of $21.00, the
midpoint of the range set forth on the cover page of this
prospectus, we intend to use all of the net proceeds of this
offering to repay approximately $700.1 million of the
outstanding balances of the $1.4 billion and
$73.0 million intercompany notes. Prior to such use of
proceeds, the outstanding balances of the $1.4 billion and
$73.0 million intercompany notes will be reduced by
approximately $362.2 million, the balance at
September 30, 2005 in the Due from Clear Channel
Communications intercompany account, and approximately
$294.9 million of the remaining outstanding balances of the
$1.4 billion and $73.0 million intercompany notes will be
contributed to our capital by Clear Channel Communications. Upon
expiration of the underwriters option to purchase
additional shares of our Class A common stock, and to the
extent the underwriters do not exercise the option in full, we
intend to exchange up to 5,250,000 additional shares of our
Class B common stock with Clear Channel Communications for
the remaining outstanding balances of the $1.4 billion and
$73.0 million intercompany notes that the proceeds from the
exercise of such option otherwise would have been used to repay,
such that they are repaid in full. The aggregate number of
shares of our Class B common stock so exchanged will equal
(i) the number of additional shares of Class A common
stock that the underwriters have an option to purchase, less
(ii) the actual number of shares of Class A common
stock that the underwriters purchase from us pursuant to the
option.
Our total indebtedness after this offering and after application
of all of the net proceeds of this offering to repay a portion
of the intercompany indebtedness owed to Clear Channel
Communications will be approximately $2.7 billion,
approximately $2.5 billion of which will be intercompany
indebtedness owed to Clear Channel Communications. See
Description of Indebtedness.
30
DIVIDEND POLICY
We do not anticipate paying any dividends on the shares of our
common stock in the foreseeable future. If cash dividends were
to be paid on our common stock, holders of Class A common
stock and Class B common stock would share equally, on a
per share basis, in any such cash dividend.
31
CAPITALIZATION
The following table sets forth our capitalization as of
September 30, 2005:
(i) on an actual basis; and
(ii) on an as adjusted post-offering basis, after giving
effect to:
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|
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(a) this offering; |
|
|
(b) the reduction of the outstanding balances of the
approximately $1.4 billion and $73.0 million
intercompany notes by approximately $362.2 million,
representing the balance at September 30, 2005 in the
Due from Clear Channel Communications intercompany
account; |
|
|
(c) the contribution of approximately $294.9 million
of the remaining outstanding balances of the $1.4 billion
and $73.0 million intercompany notes to our capital by
Clear Channel Communications; |
|
|
(d) the repayment of approximately $700.1 million of
the remaining outstanding balances of the $1.4 billion and
$73.0 million notes with all of the net proceeds of this
offering assuming an offering price of $21.00 per share, the
midpoint of the range set forth on the cover page of this
prospectus; and |
|
|
(e) to the extent the underwriters do not exercise in full
their option to purchase up to an additional
5,250,000 shares of our Class A common stock (the
proceeds of which would be used to repay the then outstanding
balances of the approximately $1.4 billion and
$73.0 million intercompany notes), the exchange of up to
5,250,000 additional shares of our Class B common stock
with Clear Channel Communications for the remaining outstanding
balances of the $1.4 billion and $73.0 million intercompany
notes that the proceeds from the exercise of such option
otherwise would have been used to repay, such that they are
repaid in full. |
You should read the information in this table in conjunction
with the historical audited and unaudited combined financial
statements and the accompanying notes thereto of us and our
combined subsidiaries included elsewhere in this prospectus and
Use of Proceeds, Dividend Policy,
Selected Historical Combined Financial Data,
Unaudited Pro Forma Combined Financial Data and
Managements Discussion and Analysis of Financial
Condition and Results of Operations.
32
|
|
|
|
|
|
|
|
|
|
|
|
|
As of September 30, 2005 |
|
|
|
|
|
|
|
|
|
As Adjusted |
|
|
|
Actual |
|
|
Post-Offering |
|
|
|
|
|
|
|
|
(In thousands) |
|
(Unaudited) |
|
|
(Unaudited) |
|
Cash and cash equivalents
|
|
$ |
91,676 |
|
|
$ |
91,676 |
|
|
|
|
|
|
|
|
Due from Clear Channel Communications
|
|
$ |
362,154 |
|
|
$ |
|
|
|
|
|
|
|
|
|
Debt:
|
|
|
|
|
|
|
|
|
|
Credit facility
|
|
$ |
49,732 |
|
|
$ |
49,732 |
|
|
Intercompany note in the original principal amount of
approximately $1.4 billion
|
|
|
1,390,000 |
|
|
|
|
|
|
Intercompany note in the original principal amount of
$73.0 million
|
|
|
73,000 |
|
|
|
|
|
|
Intercompany note in the original principal amount of
$2.5 billion(1)
|
|
|
2,500,000 |
|
|
|
2,500,000 |
|
|
Other borrowings
|
|
|
199,404 |
|
|
|
199,404 |
|
|
|
|
|
|
|
|
|
|
Total debt
|
|
|
4,212,136 |
|
|
|
2,749,136 |
|
|
|
|
|
|
|
|
Owners equity:
|
|
|
|
|
|
|
|
|
Actual and as adjusted post-offering: Class A common stock
and Class B common stock, each par value $0.01 per
share; 750,000,000 shares authorized and 35,000,000 shares
issued of Class A common stock and 600,000,000 shares
authorized and 315,000,000 shares issued of Class B common
stock(2)
|
|
|
|
|
|
|
3,500 |
|
|
Additional capital paid-in
|
|
|
|
|
|
|
5,277,010 |
|
|
Owners net investment(1)
|
|
|
4,179,664 |
|
|
|
|
|
|
Retained deficit
|
|
|
(4,229,060 |
) |
|
|
(4,229,060 |
) |
|
Accumulated other comprehensive income
|
|
|
137,745 |
|
|
|
137,745 |
|
|
|
|
|
|
|
|
|
|
Total owners equity
|
|
|
88,349 |
|
|
|
1,189,195 |
|
|
|
|
|
|
|
|
|
Total capitalization
|
|
$ |
4,300,485 |
|
|
$ |
3,938,331 |
|
|
|
|
|
|
|
|
|
|
(1) |
On August 2, 2005, we paid a dividend of $2.5 billion
on our common stock to Clear Channel Communications in the form
of an intercompany note. |
|
(2) |
In connection with this offering, our amended and restated
certificate of incorporation provides that the shares of our
common stock outstanding prior to this offering will be changed
into and reclassified as 315,000,000 shares of Class B
common stock to be outstanding after this offering. After this
offering, Clear Channel Communications will own all of our
outstanding shares of Class B common stock. |
33
DILUTION
Dilution is the amount by which the initial public offering
price paid by the purchasers of shares of Class A common
stock in this offering will exceed the net tangible book value
per share of Class A common stock after this offering. The
net tangible book value per share presented below equals the
amount of our total tangible assets (total assets less
intangible assets), less total liabilities as of
September 30, 2005. As of September 30, 2005, we had a
net tangible book value of $(1,139,641), or $(3.62) per share.
On a pro forma basis, after giving effect to:
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|
|
|
|
the sale by us of 35,000,000 shares of Class A common
stock in this offering, assuming an initial public offering
price of $21.00 per share, which is the midpoint of the
estimated offering price range set forth on the cover page of
this prospectus, and the application of all of the net proceeds
of this offering, after deducting underwriting discounts and
estimated offering expenses, as described under Use of
Proceeds; and |
|
|
|
the repayment or contribution of the remaining outstanding
balances of the approximately $1.4 billion and
$73.0 million intercompany notes; |
our pro forma net tangible book value as of September 30,
2005 would have been $(38,795) or $(.11) per share, which
represents an immediate increase in net tangible book value of
$3.51 per share to Clear Channel Communications, our
current stockholder, and an immediate dilution in net tangible
book value of $21.11 per share to new stockholders
purchasing shares of Class A common stock in this offering.
The following table illustrates this dilution on a per share
basis:
|
|
|
|
|
|
|
|
|
|
Assumed initial public offering price per share
|
|
|
|
|
|
$ |
21.00 |
|
|
Net tangible book value per share as of September 30, 2005
|
|
$ |
(3.62 |
) |
|
|
|
|
|
Increase in net tangible book value per share attributable to
new stockholders
|
|
$ |
3.51 |
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma net tangible book value per share after this offering
|
|
|
|
|
|
$ |
(.11 |
) |
|
|
|
|
|
|
|
Dilution per share to new stockholders
|
|
|
|
|
|
$ |
21.11 |
|
|
|
|
|
|
|
|
The following table summarizes, on the same pro forma basis as
of September 30, 2005, the total number of shares of
Class A common stock purchased from us, the total
consideration paid to us and the average price per share paid by
Clear Channel Communications, our current stockholder, and by
new stockholders purchasing shares of Class A common stock
in this offering:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions, except percentages and per share data) |
|
|
|
Total |
|
|
|
|
|
Shares Purchased |
|
|
Consideration |
|
|
|
|
|
|
|
|
|
|
|
Average Price |
|
|
|
Number |
|
|
Percent |
|
|
Number |
|
|
Percent |
|
|
per Share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current stockholder(1)
|
|
|
315 |
|
|
|
90 |
% |
|
$ |
489 |
|
|
|
40 |
% |
|
$ |
1.55 |
|
New stockholders
|
|
|
35 |
|
|
|
10 |
% |
|
$ |
735 |
|
|
|
60 |
% |
|
$ |
21.00 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
350 |
|
|
|
100 |
% |
|
$ |
1,224 |
|
|
|
100 |
% |
|
$ |
3.50 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
After giving effect to the reclassification, in connection with
this offering, of 1,917.0709 shares of our common stock
into 315,000,000 shares of Class B common stock. |
The tables and calculations above exclude 42,000,000 shares
of Class A common stock reserved for issuance under our
2005 Stock Incentive Plan.
34
UNAUDITED PRO FORMA COMBINED FINANCIAL DATA
The following table sets forth unaudited pro forma combined
financial data and other information of Clear Channel Outdoor
Holdings.
We have prepared our combined financial statements as if Clear
Channel Outdoor Holdings had been in existence as a separate
company throughout all relevant periods. The pro forma combined
statement of operations data for the year ended
December 31, 2004 presented below was derived from our
audited combined financial statements and the accompanying notes
thereto included elsewhere in this prospectus. The pro forma
combined statement of operations data for the nine months ended
September 30, 2005 and the pro forma combined balance sheet
data as of September 30, 2005 presented below were derived
from our unaudited combined financial statements and the
accompanying notes thereto included elsewhere in this
prospectus. The operating results for the nine months ended
September 30, 2005 include all adjustments (consisting only
of normal recurring adjustments) that we believe are necessary
for a fair statement of the results for such interim period.
Results for the nine months ended September 30, 2005 are
not necessarily indicative of the results expected for the
fiscal year ended December 31, 2005 or any future period.
Our unaudited pro forma results of operations data present our
pro forma as adjusted results of operations for the year ended
December 31, 2004 and the nine months ended
September 30, 2005:
|
|
|
|
|
as if this offering had been completed on January 1, 2004,
at an assumed initial public offering price of $21.00 per
share of Class A common stock, which is the midpoint of the
estimated offering price range set forth on the cover page of
this prospectus, and assuming: |
|
|
|
|
|
the outstanding balances of the approximately $1.4 billion
and $73.0 million intercompany notes issued to Clear
Channel Communications are reduced by approximately
$362.2 million, representing the balance at
September 30, 2005 in the Due from Clear Channel
Communications intercompany account; |
|
|
|
then, approximately $294.9 million of the remaining
outstanding balances of the $1.4 billion and
$73.0 million intercompany notes is contributed to our
capital by Clear Channel Communications; |
|
|
|
then, approximately $700.1 million of the remaining
outstanding balances of the $1.4 billion and
$73.0 million intercompany notes is repaid with all of the
net proceeds of this offering; and |
|
|
|
then, to the extent the underwriters do not exercise in full
their option to purchase up to an additional
5,250,000 shares of our Class A common stock (the
proceeds of which would be used to repay the then-outstanding
balances under the approximately $1.4 billion and
$73.0 million of intercompany notes), we exchange up to
5,250,000 additional shares of our Class B common stock
with Clear Channel Communications for the remaining outstanding
balances of the $1.4 billion and $73.0 million
intercompany notes that the proceeds from the exercise of such
option otherwise would have been used to repay, such that the
notes are repaid in full. |
|
|
|
|
|
after giving effect to our distribution of an intercompany note
in the original principal amount of $2.5 billion as a
dividend on our common stock, which note was ultimately
distributed to Clear Channel Communications, as if issued to
Clear Channel Communications on January 1, 2004. |
Our as adjusted balance sheet and statement of operations data
as of September 30, 2005 and for the nine months ended
September 30, 2005, present, using the same assumptions and
application of estimated net proceeds described above, our as
adjusted results of operations for the nine months ended
September 30, 2005, as if this offering and the issuance of
the $2.5 billion intercompany note had been completed on
January 1, 2004.
The unaudited pro forma information set forth below is based
upon available information and assumptions that we believe are
reasonable. The historical financial and other data have been
prepared on a combined basis from Clear Channel
Communications consolidated financial statements using the
historical results of operations and bases of the assets and
liabilities of Clear Channel Communications
35
outdoor advertising business and give effect to allocations of
expenses from Clear Channel Communications. Our historical
financial data will not be indicative of our future performance,
nor will such data reflect what our financial position and
results of operations would have been had we operated as an
independent publicly traded company during the periods shown.
Also, the unaudited pro forma statement of operations does not
reflect estimates of one-time and ongoing incremental costs
required for us to operate as a separate company, which are
described in Note 1 below to the unaudited pro forma
statement of operations.
You should read the information contained in this table in
conjunction with Selected Historical Combined Financial
Data, Capitalization, Managements
Discussion and Analysis of Financial Condition and Results of
Operations, and the historical audited and unaudited
combined financial statements and the accompanying notes thereto
of us and our combined subsidiaries included elsewhere in this
prospectus.
Unaudited Pro Forma Combined Statement of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands, except per share data) |
|
|
|
|
|
|
Year Ended December 31, 2004 |
|
|
Nine Months Ended September 30, 2005 |
|
|
|
|
|
|
|
|
|
|
Historical |
|
|
Adjustments |
|
|
Pro Forma |
|
|
Historical |
|
|
Adjustments |
|
|
Pro Forma |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Statement of Operations:(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$ |
2,447,040 |
|
|
$ |
|
|
|
$ |
2,447,040 |
|
|
$ |
1,931,471 |
|
|
$ |
|
|
|
$ |
1,931,471 |
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct operating expenses (exclusive of depreciation and
amortization)
|
|
|
1,262,317 |
|
|
|
|
|
|
|
1,262,317 |
|
|
|
988,448 |
|
|
|
|
|
|
|
988,448 |
|
|
Selling, general and administrative expenses (exclusive of
depreciation and amortization)
|
|
|
499,457 |
|
|
|
|
|
|
|
499,457 |
|
|
|
410,075 |
|
|
|
|
|
|
|
410,075 |
|
|
Depreciation and amortization
|
|
|
388,217 |
|
|
|
|
|
|
|
388,217 |
|
|
|
290,233 |
|
|
|
|
|
|
|
290,233 |
|
|
Corporate expenses (exclusive of depreciation and amortization)
|
|
|
53,770 |
|
|
|
|
|
|
|
53,770 |
|
|
|
39,397 |
|
|
|
|
|
|
|
39,397 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
243,279 |
|
|
|
|
|
|
|
243,279 |
|
|
|
203,318 |
|
|
|
|
|
|
|
203,318 |
|
Interest expense
|
|
|
14,177 |
|
|
|
|
|
|
|
14,177 |
|
|
|
9,874 |
|
|
|
|
|
|
|
9,874 |
|
Intercompany interest expense
|
|
|
145,653 |
|
|
|
(2,445 |
)(3) |
|
|
143,208 |
|
|
|
133,093 |
|
|
|
(25,684 |
)(3) |
|
|
107,409 |
|
Equity in earnings (loss) of nonconsolidated affiliates
|
|
|
(76 |
) |
|
|
|
|
|
|
(76 |
) |
|
|
9,908 |
|
|
|
|
|
|
|
9,908 |
|
Other income (expense) net
|
|
|
(13,341 |
) |
|
|
|
|
|
|
(13,341 |
) |
|
|
(17,353 |
) |
|
|
|
|
|
|
(17,353 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes and cumulative effect of a change in
accounting principle
|
|
|
70,032 |
|
|
|
2,445 |
|
|
|
72,477 |
|
|
|
52,906 |
|
|
|
25,684 |
|
|
|
78,590 |
|
Income tax benefit (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
(23,422 |
) |
|
|
(978 |
)(4) |
|
|
(24,400 |
) |
|
|
(37,767 |
) |
|
|
(10,274 |
)(4) |
|
|
(48,041 |
) |
|
Deferred
|
|
|
(39,132 |
) |
|
|
|
|
|
|
(39,132 |
) |
|
|
6,023 |
|
|
|
|
|
|
|
6,023 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before cumulative effect of a change in accounting
principle
|
|
$ |
7,478 |
|
|
$ |
1,467 |
|
|
$ |
8,945 |
|
|
$ |
21,162 |
|
|
$ |
15,410 |
|
|
$ |
36,572 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted income (loss) before cumulative effect of a
change in accounting principle per common share(2)
|
|
$ |
.02 |
|
|
|
|
|
|
$ |
.03 |
|
|
$ |
.07 |
|
|
|
|
|
|
$ |
.10 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
36
Notes to Unaudited Pro Forma Combined Statement of
Operations
|
|
|
(1) |
|
The unaudited pro forma statement of operations does not reflect
the complete impact of one-time and ongoing incremental costs
required for us to operate as a separate company. Clear Channel
Communications allocated to us $16.6 million in 2004,
$19.6 million in 2003 and $17.6 million in 2002 of
expenses incurred by it for providing us accounting, treasury,
tax, legal, public affairs, executive oversight, human resources
and other services. Through September 30, 2005, Clear
Channel Communications allocated to us $11.8 million of
expenses. After this offering, we expect to continue to receive
from Clear Channel Communications substantially all of these
services. |
|
(2) |
|
Basic and diluted income (loss) before cumulative effect of a
change in accounting principle per common share is calculated by
dividing income (loss) before cumulative effect of a change in
accounting principle by the weighted average of common shares
outstanding. The historic basic and diluted is based on
315,000,000 shares outstanding and the pro forma basic and
diluted is based on 350,000,000 shares outstanding. |
|
(3) |
|
Includes estimated annual intercompany interest expense of
$143.1 million related to $2.5 billion of intercompany
indebtedness incurred on August 2, 2005, at an estimated
weighted average interest rate of 5.725% for the year ended
December 31, 2004 and 5.725% for the nine months ended
September 30, 2005. The interest rate on this intercompany
indebtedness is based upon the weighted average cost of funds of
Clear Channel Communications, so that a change in the weighted
average cost of funds for Clear Channel Communications could
change the weighted average annual interest rate. A
25 basis point change to the weighted average cost of funds
of Clear Channel Communications would change our annual interest
expense by $6.3 million. Also includes the elimination of
intercompany interest expense incurred pursuant to intercompany
indebtedness between Clear Channel Communications and us of
$145.6 million for the year ended December 31, 2004
and $109.2 million for the nine months ended
September 30, 2005. |
|
(4) |
|
Represents estimated tax (expense) benefit related to the
estimated interest expense adjustment discussed in Note
(3) above at our combined statutory rate of 40% for the
year ended December 31, 2004 and 40% for the nine months
ended September 30, 2005. |
37
Unaudited Pro Forma Combined Balance Sheet
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of September 30, 2005 |
|
|
|
|
|
|
|
Historical |
|
|
Adjustments |
|
|
Pro Forma |
|
(In thousands) |
|
|
|
|
|
|
|
|
|
Assets
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$ |
91,676 |
|
|
$ |
|
|
|
$ |
91,676 |
|
|
Accounts receivable, net
|
|
|
679,469 |
|
|
|
|
|
|
|
679,469 |
|
|
Due from Clear Channel Communications
|
|
|
362,154 |
|
|
|
(362,154 |
)(1) |
|
|
|
|
|
Prepaid expenses
|
|
|
69,060 |
|
|
|
|
|
|
|
69,060 |
|
|
Other current assets
|
|
|
40,928 |
|
|
|
|
|
|
|
40,928 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
1,243,287 |
|
|
|
(362,154 |
) |
|
|
881,133 |
|
Property, plant & equipment, net
|
|
|
2,172,197 |
|
|
|
|
|
|
|
2,172,197 |
|
Intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Definite-lived intangibles, net
|
|
|
255,028 |
|
|
|
|
|
|
|
255,028 |
|
|
Indefinite-lived intangibles permits
|
|
|
212,507 |
|
|
|
|
|
|
|
212,507 |
|
|
Goodwill
|
|
|
760,455 |
|
|
|
|
|
|
|
760,455 |
|
Other assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes receivable
|
|
|
5,821 |
|
|
|
|
|
|
|
5,821 |
|
|
Investments in, and advances to, nonconsolidated affiliates
|
|
|
99,447 |
|
|
|
|
|
|
|
99,447 |
|
|
Deferred tax asset
|
|
|
243,030 |
|
|
|
|
|
|
|
243,030 |
|
|
Other assets
|
|
|
302,915 |
|
|
|
|
|
|
|
302,915 |
|
|
Other investments
|
|
|
835 |
|
|
|
|
|
|
|
835 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$ |
5,295,522 |
|
|
$ |
(362,154 |
) |
|
$ |
4,933,368 |
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Shareholders Equity
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$ |
209,948 |
|
|
$ |
|
|
|
$ |
209,948 |
|
|
Accrued expenses
|
|
|
325,477 |
|
|
|
|
|
|
|
325,477 |
|
|
Accrued interest
|
|
|
2,443 |
|
|
|
|
|
|
|
2,443 |
|
|
Accrued income taxes
|
|
|
19,520 |
|
|
|
|
|
|
|
19,520 |
|
|
Deferred income
|
|
|
98,135 |
|
|
|
|
|
|
|
98,135 |
|
|
Current portion of long-term debt
|
|
|
152,377 |
|
|
|
|
|
|
|
152,377 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
807,900 |
|
|
|
|
|
|
|
807,900 |
|
Long-term debt
|
|
|
96,759 |
|
|
|
|
|
|
|
96,759 |
|
Debt with Clear Channel Communications
|
|
|
3,963,000 |
|
|
|
(1,390,000 |
)(2) |
|
|
2,500,000 |
|
|
|
|
|
|
|
|
(73,000 |
)(2) |
|
|
|
|
Other long-term liabilities
|
|
|
175,965 |
|
|
|
|
|
|
|
175,965 |
|
Minority interest
|
|
|
163,549 |
|
|
|
|
|
|
|
163,549 |
|
Owners equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A common stock
|
|
|
|
|
|
|
350 |
(3) |
|
|
350 |
|
|
Class B common stock
|
|
|
|
|
|
|
3,150 |
(4) |
|
|
3,150 |
|
|
Additional paid-in capital
|
|
|
|
|
|
|
4,179,664 |
(5) |
|
|
5,277,010 |
|
|
|
|
|
|
|
|
294,906 |
(5) |
|
|
|
|
|
|
|
|
|
|
|
696,600 |
(5) |
|
|
|
|
|
|
|
|
|
|
|
105,840 |
(5) |
|
|
|
|
|
Owners net investment
|
|
|
4,179,664 |
|
|
|
(4,179,664 |
)(6) |
|
|
|
|
|
Retained deficit
|
|
|
(4,229,060 |
) |
|
|
|
|
|
|
(4,229,060 |
) |
|
Accumulated other comprehensive income
|
|
|
137,745 |
|
|
|
|
|
|
|
137,745 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total owners equity
|
|
|
88,349 |
|
|
|
1,100,846 |
|
|
|
1,189,195 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and owners equity
|
|
$ |
5,295,522 |
|
|
$ |
(362,154 |
) |
|
$ |
4,933,368 |
|
|
|
|
|
|
|
|
|
|
|
38
Notes to Unaudited Pro Forma Combined Balance Sheet
|
|
|
(1) |
|
From September 30, 2005 through the date we complete this
offering, we are recording intercompany transactions with Clear
Channel Communications in Due from Clear Channel
Communications. The balance in the Due from Clear
Channel Communications intercompany account of
approximately $362.2 million on September 30, 2005
will be settled by reducing the outstanding balances of the
approximately $1.4 billion and $73.0 million
intercompany notes by such amount. |
|
(2) |
|
All of the net proceeds from this offering will be used to repay
approximately $700.1 million, assuming the initial public
offering price of $21.00 per share, the midpoint of the
range set forth on the cover page of this prospectus, of the
outstanding balances of the $1.4 billion and
$73.0 million intercompany notes. The remaining outstanding
balances of the $1.4 billion and $73.0 million intercompany
notes will otherwise be extinguished. |
|
(3) |
|
Represents the par value of 35,000,000 shares of
Class A common stock issued in connection with this
offering. |
|
(4) |
|
Prior to this offering, shares of our common stock held by Clear
Channel Communications will be converted into approximately
315,000,000 shares of Class B common stock. |
|
(5) |
|
Represents (i) the reclassification of Owners
net investment into Additional paid-in
capital, (ii) the impact of the extinguishment of a
portion of the outstanding balance of the approximately
$1.4 billion and $73.0 million intercompany notes,
(iii) the receipt by us of approximately
$700.1 million in this offering net of the par value of our
Class A common stock issued in connection therewith, and
(iv) the exchange of 5,250,000 shares of Class B
common stock with Clear Channel Communications for the remaining
outstanding balance of the approximately $1.4 billion and
$73.0 million intercompany notes. |
|
(6) |
|
Represents a reclassification into Additional paid-in
capital. |
39
SELECTED HISTORICAL COMBINED FINANCIAL DATA
The historical financial and other data have been prepared on a
combined basis from Clear Channel Communications combined
financial statements using the historical results of operations
and bases of the assets and liabilities of Clear Channel
Communications outdoor advertising businesses and give
effect to allocations of expenses from Clear Channel
Communications. Our historical financial data will not be
indicative of our future performance nor will such data reflect
what our financial position and results of operations would have
been had we operated as an independent publicly traded company
during the periods shown.
We have prepared our combined financial statements as if Clear
Channel Outdoor Holdings had been in existence as a separate
company throughout all relevant periods. The results of
operations data, segment data and cash flow data for the years
ended December 2001 and 2000 and for the nine months ended
September 30, 2005 and 2004 and the combined balance sheet
data as of December 31, 2001 and 2000 and as of
September 30, 2005 and 2004 presented below were derived
from our unaudited combined financial statements and the
accompanying notes thereto included elsewhere is this
prospectus. The results of operations data, segment data and
cash flow data for the years ended December 31, 2004, 2003
and 2002 and the balance sheet data as of December 31, 2004
and 2003 presented below were derived from our audited combined
financial statements and the accompanying notes thereto included
elsewhere is this prospectus. The combined balance sheet data as
of December 31, 2002 is derived from our audited financial
statements. The operating results for the nine months ended
September 30, 2005 and 2004 include all adjustments
(consisting only of normal recurring adjustments) that we
believe are necessary for a fair statement of the results for
such interim periods.
Results for the nine months ended September 30, 2005 are
not necessarily indicative of the results expected for the
fiscal year ending December 31, 2005 or any future period.
You should read the information contained in this table in
conjunction with Capitalization, Unaudited Pro
Forma Combined Financial Data, Managements
Discussion and Analysis of Financial Condition and Results of
Operations, and the historical audited and unaudited
combined financial statements and the accompanying notes thereto
of us and our combined subsidiaries included elsewhere in this
prospectus.
The following table presents a non-GAAP financial measure,
OIBDAN, which we use to evaluate segment and combined
performance of our business. OIBDAN is not calculated or
presented in accordance with U.S. generally accepted
accounting principles, or GAAP. In Note 3 and
Non-GAAP Financial Measure below, we
explain OIBDAN and reconcile it to operating income (loss), its
most directly comparable financial measure calculated and
presented in accordance with GAAP.
40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended |
|
|
|
Year Ended December 31, |
|
|
September 30, |
|
|
|
|
|
|
|
|
|
|
2000 |
|
|
2001 |
|
|
2002 |
|
|
2003 |
|
|
2004 |
|
|
2004 |
|
|
2005 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands, except per share data) |
|
(Unaudited) |
|
|
(Unaudited) |
|
|
|
|
|
|
|
|
(Unaudited) |
|
|
(Unaudited) |
|
Results of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$ |
1,729,438 |
|
|
$ |
1,748,030 |
|
|
$ |
1,859,641 |
|
|
$ |
2,174,597 |
|
|
$ |
2,447,040 |
|
|
$ |
1,761,308 |
|
|
$ |
1,931,471 |
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct operating expenses (exclusive of depreciation and
amortization)
|
|
|
761,312 |
|
|
|
861,854 |
|
|
|
957,830 |
|
|
|
1,133,386 |
|
|
|
1,262,317 |
|
|
|
924,420 |
|
|
|
988,448 |
|
|
Selling, general and administrative expenses (exclusive of
depreciation and amortization)
|
|
|
323,871 |
|
|
|
355,370 |
|
|
|
392,803 |
|
|
|
456,893 |
|
|
|
499,457 |
|
|
|
358,188 |
|
|
|
410,075 |
|
|
Depreciation and amortization
|
|
|
437,349 |
|
|
|
559,498 |
|
|
|
336,895 |
|
|
|
379,640 |
|
|
|
388,217 |
|
|
|
288,810 |
|
|
|
290,233 |
|
|
Corporate expenses (exclusive of depreciation and amortization)
|
|
|
52,431 |
|
|
|
62,266 |
|
|
|
52,218 |
|
|
|
54,233 |
|
|
|
53,770 |
|
|
|
39,451 |
|
|
|
39,397 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
154,475 |
|
|
|
(90,958 |
) |
|
|
119,895 |
|
|
|
150,445 |
|
|
|
243,279 |
|
|
|
150,439 |
|
|
|
203,318 |
|
Interest expense
|
|
|
23,037 |
|
|
|
13,331 |
|
|
|
11,623 |
|
|
|
14,201 |
|
|
|
14,177 |
|
|
|
11,111 |
|
|
|
9,874 |
|
Intercompany interest expense
|
|
|
178,253 |
|
|
|
220,798 |
|
|
|
227,402 |
|
|
|
145,648 |
|
|
|
145,653 |
|
|
|
109,239 |
|
|
|
133,093 |
|
Equity in earnings (loss) of nonconsolidated affiliates
|
|
|
5,888 |
|
|
|
(4,422 |
) |
|
|
3,620 |
|
|
|
(5,142 |
) |
|
|
(76 |
) |
|
|
2,270 |
|
|
|
9,908 |
|
Other income (expense) net
|
|
|
(4,593 |
) |
|
|
(13,966 |
) |
|
|
9,164 |
|
|
|
(8,595 |
) |
|
|
(13,341 |
) |
|
|
(17,210 |
) |
|
|
(17,353 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes and cumulative effect of a
change in accounting principle
|
|
|
(45,520 |
) |
|
|
(343,475 |
) |
|
|
(106,346 |
) |
|
|
(23,141 |
) |
|
|
70,032 |
|
|
|
15,149 |
|
|
|
52,906 |
|
Income tax benefit (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
(4,824 |
) |
|
|
68,101 |
|
|
|
72,008 |
|
|
|
12,092 |
|
|
|
(23,422 |
) |
|
|
6,481 |
|
|
|
(37,767 |
) |
|
Deferred
|
|
|
(37,640 |
) |
|
|
(5,199 |
) |
|
|
(21,370 |
) |
|
|
(23,944 |
) |
|
|
(39,132 |
) |
|
|
(17,730 |
) |
|
|
6,023 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before cumulative effect of a change in accounting
principle
|
|
|
(87,984 |
) |
|
|
(280,573 |
) |
|
|
(55,708 |
) |
|
|
(34,993 |
) |
|
|
7,478 |
|
|
|
3,900 |
|
|
|
21,162 |
|
Cumulative effect of a change in accounting principle, net of
tax of $504,927 in 2002 and $113,173 in 2004(1)
|
|
|
|
|
|
|
|
|
|
|
(3,527,198 |
) |
|
|
|
|
|
|
(162,858 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$ |
(87,984 |
) |
|
$ |
(280,573 |
) |
|
$ |
(3,582,906 |
) |
|
$ |
(34,993 |
) |
|
$ |
(155,380 |
) |
|
$ |
3,900 |
|
|
$ |
21,162 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted income (loss) before cumulative effect of a
change in accounting principle per common share(2)
|
|
$ |
(.28 |
) |
|
$ |
(.89 |
) |
|
$ |
(.18 |
) |
|
$ |
(.11 |
) |
|
$ |
.02 |
|
|
$ |
.01 |
|
|
$ |
.07 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
41
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended |
|
|
|
Year Ended December 31, |
|
|
September 30, |
|
|
|
|
|
|
|
|
|
|
2000 |
|
|
2001 |
|
|
2002 |
|
|
2003 |
|
|
2004 |
|
|
2004 |
|
|
2005 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands) |
|
(Unaudited) |
|
|
(Unaudited) |
|
|
|
|
|
|
|
|
(Unaudited) |
|
|
(Unaudited) |
|
Segment Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic
|
|
$ |
885,563 |
|
|
$ |
880,720 |
|
|
$ |
911,493 |
|
|
$ |
1,006,376 |
|
|
$ |
1,092,089 |
|
|
$ |
800,744 |
|
|
$ |
886,649 |
|
|
International
|
|
|
843,875 |
|
|
|
867,310 |
|
|
|
948,148 |
|
|
|
1,168,221 |
|
|
|
1,354,951 |
|
|
|
960,564 |
|
|
|
1,044,822 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
$ |
1,729,438 |
|
|
$ |
1,748,030 |
|
|
$ |
1,859,641 |
|
|
$ |
2,174,597 |
|
|
$ |
2,447,040 |
|
|
$ |
1,761,308 |
|
|
$ |
1,931,471 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic
|
|
$ |
168,872 |
|
|
$ |
30,767 |
|
|
$ |
174,381 |
|
|
$ |
215,485 |
|
|
$ |
263,772 |
|
|
$ |
184,808 |
|
|
$ |
263,448 |
|
|
International
|
|
|
38,034 |
|
|
|
(59,459 |
) |
|
|
(2,268 |
) |
|
|
(10,807 |
) |
|
|
33,277 |
|
|
|
5,082 |
|
|
|
(20,733 |
) |
|
Corporate
|
|
|
(52,431 |
) |
|
|
(62,266 |
) |
|
|
(52,218 |
) |
|
|
(54,233 |
) |
|
|
(53,770 |
) |
|
|
(39,451 |
) |
|
|
(39,397 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating income (loss)
|
|
$ |
154,475 |
|
|
$ |
(90,958 |
) |
|
$ |
119,895 |
|
|
$ |
150,445 |
|
|
$ |
243,279 |
|
|
$ |
150,439 |
|
|
$ |
203,318 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flow Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flow provided by (used in):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities
|
|
|
|
|
|
|
|
|
|
$ |
320,235 |
|
|
$ |
433,459 |
|
|
$ |
492,495 |
|
|
$ |
329,893 |
|
|
$ |
336,637 |
|
|
Investing activities
|
|
|
|
|
|
|
|
|
|
$ |
(430,844 |
) |
|
$ |
(230,162 |
) |
|
$ |
(310,658 |
) |
|
$ |
(227,386 |
) |
|
$ |
(223,189 |
) |
|
Financing activities
|
|
|
|
|
|
|
|
|
|
$ |
173,193 |
|
|
$ |
(222,491 |
) |
|
$ |
(182,006 |
) |
|
$ |
(95,759 |
) |
|
$ |
(48,154 |
) |
Capital expenditures
|
|
|
|
|
|
|
|
|
|
$ |
290,187 |
|
|
$ |
205,145 |
|
|
$ |
176,140 |
|
|
$ |
117,733 |
|
|
$ |
130,484 |
|
Other Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OIBDAN(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic
|
|
$ |
435,299 |
|
|
$ |
362,604 |
|
|
$ |
354,328 |
|
|
$ |
409,722 |
|
|
$ |
450,494 |
|
|
$ |
326,359 |
|
|
$ |
390,867 |
|
|
International
|
|
|
208,956 |
|
|
|
168,202 |
|
|
|
154,680 |
|
|
|
174,596 |
|
|
|
234,888 |
|
|
|
152,423 |
|
|
|
142,593 |
|
|
Corporate
|
|
|
(52,431 |
) |
|
|
(62,266 |
) |
|
|
(52,218 |
) |
|
|
(54,233 |
) |
|
|
(53,770 |
) |
|
|
(39,451 |
) |
|
|
(39,397 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total OIBDAN(3)
|
|
$ |
591,824 |
|
|
$ |
468,540 |
|
|
$ |
456,790 |
|
|
$ |
530,085 |
|
|
$ |
631,612 |
|
|
$ |
439,331 |
|
|
$ |
494,063 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended |
|
|
|
|
|
|
|
March 31 |
|
|
June 30 |
|
|
September 30 |
|
|
|
|
|
|
|
|
|
|
|
(In thousands) |
|
(Unaudited) |
|
|
(Unaudited) |
|
|
(Unaudited) |
|
2005 Quarterly Results of Operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$ |
578,959 |
|
|
$ |
684,509 |
|
|
$ |
668,003 |
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct operating expenses
|
|
|
326,054 |
|
|
|
332,706 |
|
|
|
329,688 |
|
|
Selling, general and administrative expenses
|
|
|
129,597 |
|
|
|
127,316 |
|
|
|
153,162 |
|
|
Depreciation and amortization
|
|
|
98,266 |
|
|
|
96,562 |
|
|
|
95,405 |
|
|
Corporate expenses
|
|
|
12,975 |
|
|
|
13,423 |
|
|
|
12,999 |
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
12,067 |
|
|
|
114,502 |
|
|
|
76,749 |
|
Interest expense
|
|
|
3,244 |
|
|
|
3,223 |
|
|
|
3,407 |
|
Intercompany interest expense
|
|
|
36,414 |
|
|
|
36,414 |
|
|
|
60,265 |
|
Equity in earnings of nonconsolidated affiliates
|
|
|
345 |
|
|
|
5,602 |
|
|
|
3,961 |
|
Other income (expense) net
|
|
|
(2,211 |
) |
|
|
(4,524 |
) |
|
|
(10,618 |
) |
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
(29,457 |
) |
|
|
75,943 |
|
|
|
6,420 |
|
Income tax (expense) benefit
|
|
|
23,565 |
|
|
|
(58,431 |
) |
|
|
3,122 |
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$ |
(5,892 |
) |
|
$ |
17,512 |
|
|
$ |
9,542 |
|
|
|
|
|
|
|
|
|
|
|
42
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, |
|
|
As of September 30, |
|
|
|
|
|
|
|
|
|
|
2000 |
|
|
2001 |
|
|
2002 |
|
|
2003 |
|
|
2004 |
|
|
2004 |
|
|
2005 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands) |
|
(Unaudited) |
|
|
(Unaudited) |
|
|
|
|
|
|
|
|
(Unaudited) |
|
|
(Unaudited) |
|
Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$ |
19,183 |
|
|
$ |
|
|
|
$ |
45,741 |
|
|
$ |
34,105 |
|
|
$ |
37,948 |
|
|
$ |
39,140 |
|
|
$ |
91,676 |
|
Current assets
|
|
|
588,998 |
|
|
|
642,536 |
|
|
|
753,289 |
|
|
|
958,669 |
|
|
|
1,107,240 |
|
|
|
1,010,645 |
|
|
|
1,243,287 |
|
Property, plant and equipment net
|
|
|
2,330,256 |
|
|
|
2,039,002 |
|
|
|
2,213,817 |
|
|
|
2,264,106 |
|
|
|
2,195,985 |
|
|
|
2,122,346 |
|
|
|
2,172,197 |
|
Total assets
|
|
|
7,705,526 |
|
|
|
7,807,624 |
|
|
|
4,926,205 |
|
|
|
5,232,820 |
|
|
|
5,240,933 |
|
|
|
5,200,407 |
|
|
|
5,295,522 |
|
Current liabilities
|
|
|
1,769,959 |
|
|
|
1,825,904 |
|
|
|
642,330 |
|
|
|
736,202 |
|
|
|
749,055 |
|
|
|
726,900 |
|
|
|
807,900 |
|
Long-term debt, including current maturities
|
|
|
1,490,135 |
|
|
|
1,526,427 |
|
|
|
1,713,493 |
|
|
|
1,670,017 |
|
|
|
1,639,380 |
|
|
|
1,660,164 |
|
|
|
4,212,136 |
|
Total liabilities
|
|
|
2,352,752 |
|
|
|
2,394,226 |
|
|
|
2,347,262 |
|
|
|
2,472,656 |
|
|
|
2,511,280 |
|
|
|
2,444,447 |
|
|
|
5,207,173 |
(4) |
Owners equity
|
|
|
5,352,774 |
|
|
|
5,413,398 |
|
|
|
2,578,943 |
|
|
|
2,760,164 |
|
|
|
2,729,653 |
|
|
|
2,755,960 |
|
|
|
88,349 |
(4) |
Total liabilities and owners equity
|
|
$ |
7,705,526 |
|
|
$ |
7,807,624 |
|
|
$ |
4,926,205 |
|
|
$ |
5,232,820 |
|
|
$ |
5,240,933 |
|
|
$ |
5,200,407 |
|
|
$ |
5,295,522 |
|
|
|
(1) |
Cumulative effect of change in accounting principle for the year
ended December 31, 2002, related to an impairment of
goodwill recognized in accordance with the adoption of Statement
of Financial Accounting Standards No. 142, Goodwill
and Other Intangible Assets. Cumulative effect of change
in accounting principle for the year ended December 31,
2004, related to a non-cash charge recognized in accordance with
the adoption of Topic D-108, Use of Residual Method to Value
Acquired Assets other than Goodwill. See
Managements Discussion and Analysis of Financial
Condition and Results of Operations Critical
Accounting Estimates Indefinite-lived Assets. |
|
(2) |
Basic and diluted income (loss) before cumulative effect of a
change in accounting principle per share is calculated by
dividing income (loss) before cumulative effect of a change in
accounting principle by the weighted average common shares
outstanding. The basic and diluted is based on
315,000,000 shares outstanding. |
|
(3) |
We evaluate segment and combined performance based on several
factors, one of the primary measures of which is operating
income (loss) before depreciation, amortization and non-cash
compensation expense, which we refer to as OIBDAN. |
|
|
See Non-GAAP Financial Measure below,
Unaudited Pro Forma Combined Financial Data and
Managements Discussion and Analysis of Financial
Condition and Results of Operations Use of
OIBDAN. |
|
(4) |
Reflects the distribution by us to our parent company of an
intercompany note in the original principal amount of
$2.5 billion issued to us by one of our wholly owned
subsidiaries on August 2, 2005. |
Non-GAAP Financial Measure
In addition to operating income, we evaluate segment and
combined performance based on other factors, one primary measure
of which is operating income (loss) before depreciation,
amortization and non-cash compensation expense, which we refer
to as OIBDAN. We use OIBDAN as a measure of the operational
strengths and performance of our business and not as a measure
of liquidity. However, a limitation of the use of OIBDAN as a
performance measure is that it does not reflect the periodic
costs of certain capitalized tangible and intangible assets used
in generating revenues in our business. Accordingly, OIBDAN
should be considered in addition to, and not as a substitute
for, operating income (loss), net income (loss) and other
measures of financial performance reported in accordance with
U.S. GAAP. Furthermore, this measure may vary among other
companies; thus, OIBDAN as presented below may not be comparable
to similarly titled measures of other companies.
We believe OIBDAN is useful to investors and other external
users of our financial statements in evaluating our operating
performance because it is widely used in the outdoor advertising
industry to
43
measure a companys operating performance and it helps
investors more meaningfully evaluate and compare the results of
our operations from period to period and with those of other
companies in the outdoor advertising industry (to the extent the
same components of OIBDAN are used), in each case without regard
to items such as non-cash depreciation and amortization and
non-cash compensation expense, which can vary depending upon the
accounting method used and the book value of assets.
Our management uses OIBDAN (i) as a measure for planning
and forecasting overall and individual expectations and for
evaluating actual results against such expectations,
(ii) as a basis for incentive bonuses paid to our executive
officers and our branch managers and (iii) in presentations
to our board of directors to enable them to have the same
consistent measurement basis of operating performance used by
management.
The following table presents a reconciliation of OIBDAN to
operating income, which is a GAAP measure of our operating
results:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended |
|
|
|
Year Ended December 31, |
|
|
September 30, |
|
|
|
|
|
|
|
|
|
|
2000 |
|
|
2001 |
|
|
2002 |
|
|
2003 |
|
|
2004 |
|
|
2004 |
|
|
2005 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands) |
|
(Unaudited) |
|
|
(Unaudited) |
|
|
|
|
|
|
|
|
(Unaudited) |
|
|
(Unaudited) |
|
Reconciliation of OIBDAN to operating income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Combined:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OIBDAN
|
|
$ |
591,824 |
|
|
$ |
468,540 |
|
|
$ |
456,790 |
|
|
$ |
530,085 |
|
|
$ |
631,612 |
|
|
$ |
439,331 |
|
|
$ |
494,063 |
|
|
Depreciation and amortization
|
|
|
437,349 |
|
|
|
559,498 |
|
|
|
336,895 |
|
|
|
379,640 |
|
|
|
388,217 |
|
|
|
288,810 |
|
|
|
290,233 |
|
|
Non-cash compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
116 |
|
|
|
82 |
|
|
|
512 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
$ |
154,475 |
|
|
$ |
(90,958 |
) |
|
$ |
119,895 |
|
|
$ |
150,445 |
|
|
$ |
243,279 |
|
|
$ |
150,439 |
|
|
$ |
203,318 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OIBDAN
|
|
$ |
435,299 |
|
|
$ |
362,604 |
|
|
$ |
354,328 |
|
|
$ |
409,722 |
|
|
$ |
450,494 |
|
|
$ |
326,359 |
|
|
$ |
390,867 |
|
|
Depreciation and amortization
|
|
|
266,428 |
|
|
|
331,837 |
|
|
|
179,947 |
|
|
|
194,237 |
|
|
|
186,620 |
|
|
|
141,479 |
|
|
|
127,019 |
|
|
Non-cash compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
102 |
|
|
|
72 |
|
|
|
400 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
$ |
168,871 |
|
|
$ |
30,767 |
|
|
$ |
174,381 |
|
|
$ |
215,485 |
|
|
$ |
263,772 |
|
|
$ |
184,808 |
|
|
$ |
263,448 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
International:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OIBDAN
|
|
$ |
208,956 |
|
|
$ |
168,202 |
|
|
$ |
154,680 |
|
|
$ |
174,596 |
|
|
$ |
234,888 |
|
|
$ |
152,423 |
|
|
$ |
142,593 |
|
|
Depreciation and amortization
|
|
|
170,921 |
|
|
|
227,661 |
|
|
|
156,948 |
|
|
|
185,403 |
|
|
|
201,597 |
|
|
|
147,331 |
|
|
|
163,214 |
|
|
Non-cash compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14 |
|
|
|
10 |
|
|
|
112 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
$ |
38,035 |
|
|
$ |
(59,459 |
) |
|
$ |
(2,268 |
) |
|
$ |
(10,807 |
) |
|
$ |
33,277 |
|
|
$ |
5,082 |
|
|
$ |
(20,733 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
44
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
INTRODUCTION
Managements discussion and analysis, or MD&A, of our
financial condition and results of operations is provided as a
supplement to the audited annual financial statements and
unaudited interim financial statements and accompanying notes
thereto included elsewhere in this prospectus to help provide an
understanding of our financial condition, changes in our
financial condition and results of our operations. The
information included in MD&A should be read in conjunction
with the annual and interim financial statements. MD&A is
organized as follows:
|
|
|
|
|
Overview. This section provides a general description of
our business, as well as other matters that we believe are
important in understanding our results of operations and
financial condition and in anticipating future trends. |
|
|
|
Results of operations. This section provides an analysis
of our results of operations for the nine months ended
September 30, 2005 and 2004 and the years ended
December 31, 2004, 2003 and 2002. Our discussion is
presented on both a combined and segment basis. Our reportable
operating segments are domestic and international. Approximately
95% of our 2004 domestic revenues were derived from the United
States, with the balance derived from Canada and Latin America.
Approximately 52% of our 2004 international revenues were
derived from France and the United Kingdom. Our French
operations incurred a restructuring charge in the third quarter
of 2005 and in 2003. One measure we use to manage our segments
is operating income. Corporate expenses, interest expense,
equity in earnings (loss) of nonconsolidated affiliates, other
income (expense) net, income taxes and cumulative
effect of change in accounting principle are managed on a total
company basis and are, therefore, included only in our
discussion of combined results. |
|
|
|
Financial condition and liquidity. This section provides
a discussion of our financial condition as of September 30,
2005 and December 31, 2004, as well as an analysis of our
cash flows for the nine months ended September 30,
2005 and 2004 and the years ended December 31, 2004 and
2003. The discussion of our financial condition and liquidity
includes summaries of (i) our primary sources of liquidity,
(ii) our key debt covenants and (iii) our outstanding
debt and commitments (both firm and contingent) that existed as
of September 30, 2005. |
|
|
|
Seasonality. This section discusses seasonal performance
of our domestic and international segments. |
|
|
|
Market risk management. This section discusses how we
manage exposure to potential losses arising from adverse changes
in foreign currency exchange rates and interest rates. |
|
|
|
Critical accounting estimates. This section discusses
accounting policies considered to be important to our financial
condition and results of operations and which require
significant judgment and estimates on the part of management in
their application. In addition, all of our significant
accounting policies, including our critical accounting policies,
are summarized in Note A to our combined financial
statements included elsewhere in this prospectus. |
OVERVIEW
Our revenues are derived from selling advertising space on the
more than 870,000 displays that we own or operate as of
September 30, 2005 in key markets worldwide, consisting
primarily of billboards, street furniture displays and transit
displays. We own the majority of our advertising displays, which
typically are located on sites that we either lease or own or
for which we have acquired permanent easements. Our advertising
contracts with clients typically outline the number of displays
reserved, the
45
duration of the advertising campaign and the unit price per
display. The margins on our billboard contracts tend to be
higher than those on contracts for our other displays.
Generally, our advertising rates are based on the gross
rating points, or total number of impressions delivered
expressed as a percentage of a market population, of a display
or group of displays. The number of impressions
delivered by a display is measured by the number of people
passing the site during a defined period of time and, in some
international markets, is weighted to account for such factors
as illumination, proximity to other displays and the speed and
viewing angle of approaching traffic. To monitor our business,
management typically reviews the average rates, average revenues
per display, occupancy and inventory levels of each of our
display types by market. In addition, because a significant
portion of our advertising operations are conducted in foreign
markets, principally France and the United Kingdom, management
reviews the operating results from our foreign operations on a
constant dollar basis. A constant dollar basis allows for
comparison of operations independent of foreign exchange
movements. Because revenue-sharing and minimum guaranteed
payment arrangements are more prevalent in our international
operations, the margins in our international operations
typically are less than the margins in our domestic operations.
Foreign currency transaction gains and losses, as well as gains
and losses from translation of financial statements of
subsidiaries and investees in highly inflationary countries, are
included in operations.
The significant expenses associated with our operations include
(i) direct production, maintenance and installation
expenses, (ii) site lease expenses for land under our
displays and (iii) revenue-sharing or minimum guaranteed
amounts payable under our street furniture and transit display
contracts. Our direct production, maintenance and installation
expenses include costs for printing, transporting and changing
the advertising copy on our displays, the related labor costs,
the vinyl and paper costs and the costs for cleaning and
maintaining our displays. Vinyl and paper costs vary according
to the complexity of the advertising copy and the quantity of
displays. Our site lease expenses include lease payments for use
of the land under our displays, as well as any revenue-sharing
arrangements we may have with the landlords. The terms of our
domestic site leases generally range from one to 50 years.
Internationally, the terms of our site leases generally range
from three to ten years, but may vary across our networks.
We have long-standing relationships with a diversified group of
local, regional and national advertising brands and agencies in
the United States and worldwide.
Relationship with Clear Channel Communications
Clear Channel Communications has advised us that its current
intent is to continue to hold all of our Class B common
stock owned by it after this offering and thereby retain its
controlling interest in us. However, Clear Channel
Communications is not subject to any contractual obligation that
would prohibit it from selling, spinning off, splitting off or
otherwise disposing of any shares of our common stock, except
that Clear Channel Communications has agreed not to sell, spin
off, split off or otherwise dispose of any shares of our common
stock for a period of 180 days after the date of this
prospectus without the prior written consent of the
underwriters, subject to certain limitations and limited
exceptions. See Underwriting.
Factors Affecting Results of Operations and Financial
Condition
Our revenues are derived primarily from the sale of advertising
space on displays that we own and operate in key markets
worldwide, and our operating results are therefore affected by
general economic conditions, as well as trends in the
out-of-home advertising industry.
The outdoor advertising industry is significantly influenced by
general local and national economic conditions, as well as the
general advertising environment in individual markets. For
instance, weak national advertising and a difficult competitive
environment in France have led to a decline in our revenues of
approximately $14.5 million for the nine months ended
September 30, 2005, as compared to the same period for the
prior year. In July 2005, we announced a plan to restructure our
French operations to
46
reduce approximately 6% of our French workforce and streamline
our operations, which we anticipate will provide cost savings
over the next three years. In connection with this restructuring
effort, we recorded approximately $26.6 million as a
component of selling, general and administrative expenses.
Government regulation and geopolitical events also impact the
outdoor advertising industry. In certain markets, deregulation
of the advertising industry may have a negative impact on our
revenues. For example, recent changes in French regulation will
allow advertisers to place retail advertisements on television
by January 1, 2007. We anticipate that such changes will
impact our national advertising revenues derived from France as
a portion of French retail advertising dollars shift from
outdoor media to television. National retail advertising in
France is approximately 2% of our consolidated global revenues.
The outdoor advertising industry is also influenced by the
commuting habits of the general population. Population growth
and increasing drive and other commute times are key growth
drivers for us. Outdoor advertising provides advertisers the
ability to capture a growing mobile audience base that spends an
increasing amount of time out-of-home. Technological advances
also provide opportunities in the outdoor advertising industry.
For example, digital display capabilities offer innovative
advances in electronic displays. We recently converted seven
billboards in the Cleveland area from standard to digital
formats and have experienced increases in revenues from those
displays. Technological advances are also expected to allow us
to quickly and frequently change advertisements on displays,
facilitating our transition from selling an advertiser display
space to selling an advertiser time on multiple displays.
There are several additional factors that could materially
impact our results of operations. See Risk Factors
for a more comprehensive list of these factors.
Basis of Presentation
Our combined financial statements have been derived from the
financial statements and accounting records of Clear Channel
Communications, principally from the statements and records
representing Clear Channel Communications Outdoor Segment,
using the historical results of operations and historical bases
of assets and liabilities of our business. The combined
statements of operations include expense allocations for certain
corporate functions historically provided to us by Clear Channel
Communications. These allocations were made on a specifically
identifiable basis or using relative percentages of headcount as
compared to Clear Channel Communications other businesses
or other methods. We and Clear Channel Communications considered
these allocations to be a reflection of the utilization of
services provided. Our expenses as a separate, stand-alone
company may be higher or lower than the amounts reflected in the
combined statements of operations. Additionally, Clear Channel
Communications primarily uses a centralized approach to cash
management and the financing of its operations with all related
acquisition activity between Clear Channel Communications and us
reflected in our owners equity as Owners net
investment while all other cash transactions are recorded
as part of Due from Clear Channel Communications on
our combined balance sheets.
We will incur increased costs as a result of becoming an
independent publicly traded company, primarily from audit fees
paid to our independent public accounting firm, Public Company
Accounting Oversight Board fees, the hiring of additional staff
to fulfill reporting requirements of a public company, NYSE
listing fees and shareholder communications fees. Under the
Corporate Services Agreement, we will bear the costs of certain
services continued to be provided to us by Clear Channel
Communications. We believe cash flow from operations will be
sufficient to fund these additional corporate expenses.
Under the Corporate Services Agreement, Clear Channel
Communications will allocate to us our share of costs for
services provided on our behalf based on actual direct costs
incurred by Clear Channel Communications or an estimate of Clear
Channel Communications expenses incurred on our behalf.
For the years ended December 31, 2004, 2003 and 2002, we
recorded approximately $16.6 million, $19.6 million
and $17.6 million, respectively, and for the nine months
ended September 30, 2005 and 2004, we recorded
approximately $11.8 million and $11.8 million,
respectively, as a component of corporate expenses for these
services. As mentioned above, we will incur additional expenses
associated
47
with being an independent publicly traded company that were not
incurred by Clear Channel Communications in the past. See
Arrangements Between Clear Channel Communications and
Us.
We do not believe that becoming an independent publicly traded
company will have an adverse effect on our growth rates in the
future because we will be comprised of substantially the same
business as the outdoor segment of Clear Channel Communications,
and Clear Channel Communications will retain a significant
financial interest in us immediately after the offering. Our
success will continue to be highly dependent on the overall
health of the local and national economies in which we operate
and the overall health of the advertising environment in each of
our markets. We believe that being a publicly traded company
will provide a stock-based currency that could potentially be
used to raise capital and to more closely align our management
and employee incentives with our business performance.
We believe the assumptions underlying the combined financial
statements are reasonable. However, the combined financial
statements may not necessarily reflect our results of
operations, financial position and cash flows in the future or
what our results of operations, financial position and cash
flows would have been had we been a separate, stand-alone
company during the periods presented.
48
RESULTS OF OPERATIONS
Combined Results of Operations
The following table summarizes our historical results of
operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended |
|
|
|
|
|
September 30, |
|
|
Year Ended December 31, |
|
|
|
|
|
|
|
|
|
|
2005 |
|
|
2004 |
|
|
2004 |
|
|
2003 |
|
|
2002 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands) |
|
(Unaudited) |
|
|
(Unaudited) |
|
|
|
|
|
|
|
Revenues
|
|
$ |
1,931,471 |
|
|
$ |
1,761,308 |
|
|
$ |
2,447,040 |
|
|
$ |
2,174,597 |
|
|
$ |
1,859,641 |
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct operating expenses
|
|
|
988,448 |
|
|
|
924,420 |
|
|
|
1,262,317 |
|
|
|
1,133,386 |
|
|
|
957,830 |
|
|
Selling, general and administrative expenses
|
|
|
410,075 |
|
|
|
358,188 |
|
|
|
499,457 |
|
|
|
456,893 |
|
|
|
392,803 |
|
|
Depreciation and amortization
|
|
|
290,233 |
|
|
|
288,810 |
|
|
|
388,217 |
|
|
|
379,640 |
|
|
|
336,895 |
|
|
Corporate expenses
|
|
|
39,397 |
|
|
|
39,451 |
|
|
|
53,770 |
|
|
|
54,233 |
|
|
|
52,218 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
203,318 |
|
|
|
150,439 |
|
|
|
243,279 |
|
|
|
150,445 |
|
|
|
119,895 |
|
Interest expense (including intercompany)
|
|
|
142,967 |
|
|
|
120,350 |
|
|
|
159,830 |
|
|
|
159,849 |
|
|
|
239,025 |
|
Equity in earnings (loss) of nonconsolidated affiliates
|
|
|
9,908 |
|
|
|
2,270 |
|
|
|
(76 |
) |
|
|
(5,142 |
) |
|
|
3,620 |
|
Other income (expense) net
|
|
|
(17,353 |
) |
|
|
(17,210 |
) |
|
|
(13,341 |
) |
|
|
(8,595 |
) |
|
|
9,164 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes and cumulative effect of a
change in accounting principle
|
|
|
52,906 |
|
|
|
15,149 |
|
|
|
70,032 |
|
|
|
(23,141 |
) |
|
|
(106,346 |
) |
Income tax (expense) benefit:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
(37,767 |
) |
|
|
6,481 |
|
|
|
(23,422 |
) |
|
|
12,092 |
|
|
|
72,008 |
|
|
Deferred
|
|
|
6,023 |
|
|
|
(17,730 |
) |
|
|
(39,132 |
) |
|
|
(23,944 |
) |
|
|
(21,370 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before cumulative effect of a change in accounting
principle
|
|
|
21,162 |
|
|
|
3,900 |
|
|
|
7,478 |
|
|
|
(34,993 |
) |
|
|
(55,708 |
) |
Cumulative effect of a change in accounting principle, net of
tax of $113,173 in 2004 and $504,927 in 2002
|
|
|
|
|
|
|
|
|
|
|
(162,858 |
) |
|
|
|
|
|
|
(3,527,198 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$ |
21,162 |
|
|
$ |
3,900 |
|
|
$ |
(155,380 |
) |
|
$ |
(34,993 |
) |
|
$ |
(3,582,906 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Our revenues increased approximately $170.2 million, or
10%, during the nine months ended September 30, 2005 as
compared to the same period of 2004. Included in these results
is approximately $33.9 million from increases in foreign
exchange as compared to the same period of 2004. Our domestic
operations contributed approximately $85.9 million
primarily from increased bulletin and poster revenues of
approximately $41.4 million. In addition to foreign
exchange increases, our international operations contributed
approximately $50.4 million from approximately
$22.9 million related to our consolidation of Clear Media
Limited, when we increased our investment to a majority
controlling interest during the third quarter of 2005 which we
had previously accounted for as an equity method investment.
Partially offsetting this international revenue growth was a
decline in revenues of approximately $14.5 million from our
media products in France as a result of a difficult economic and
competitive environment.
Our revenues increased approximately $272.4 million, or
13%, during 2004 as compared to 2003. Included in the increase
is approximately $128.6 million from foreign exchange
increases. Our domestic
49
operations contributed approximately $85.7 million to the
increase, primarily from increased rates on our bulletin and
poster inventory. In addition to foreign exchange increases, our
international operations contributed $58.1 million to the
increase, principally from street furniture sales as a result of
an increase in average revenue per display.
Our revenues increased approximately $315.0 million, or
17%, during 2003 as compared to 2002. Included in the increase
is approximately $169.9 million from foreign exchange
increases. Our domestic operations contributed approximately
$94.9 million to the increase, primarily from increased
rates and occupancy on our bulletin inventory and our
acquisition of The Ackerley Group in June 2002, which
contributed approximately $35.4 million for the six months
ended June 30, 2003. In addition to foreign exchange, our
international operations contributed approximately
$50.2 million to the increase, principally from street
furniture sales as a result of an increase in the number of
displays and average revenue per display.
|
|
|
Direct Operating Expenses
|
Direct operating expenses increased approximately
$64.0 million, or 7%, during the nine months ended
September 30, 2005 as compared to the same period of 2004.
Included in these expenses is approximately $20.0 million
from increases in foreign exchange as compared to the same
period of 2004. Our domestic operations contributed
approximately $11.6 million to the increased expense of
which approximately $5.6 million related to direct
production expenses and approximately $6.0 million related
to site lease expenses, both of which were associated with the
increase in revenues. In addition to foreign exchange increases,
our international operations increased approximately
$32.4 million, comprised from an approximately
$21.7 million increase in fixed rent and minimum annual
guarantees and approximately $8.7 million from our
consolidation of Clear Media, partially offset by a decline of
approximately $1.6 million of various other expenses.
Direct operating expenses increased $128.9 million, or 11%,
during 2004 as compared to 2003. Included in the increase is
approximately $76.0 million from foreign exchange
increases. Our domestic operations contributed approximately
$33.6 million primarily from increased site lease rent
expense. In addition to foreign exchange increases, our
international operations contributed approximately
$19.3 million, principally from higher site lease rent
expense and approximately $6.2 million from the
consolidation of a joint venture.
Direct operating expenses increased $175.6 million, or 18%,
during 2003 as compared to 2002. Included in the increase is
approximately $102.0 million from foreign exchange
increases. Our domestic operations contributed approximately
$36.1 million, primarily from our acquisition of The
Ackerley Group, which contributed approximately
$19.3 million in direct operating expenses during the six
months ended June 30, 2003. In addition to foreign exchange
increases, our international operations contributed
approximately $37.5 million to the increase principally
from higher site lease rent expense.
|
|
|
Selling, General and Administrative Expenses
(SG&A)
|
SG&A increased approximately $51.9 million, or 14%,
during the nine months ended September 30, 2005 as compared
to the same period of 2004. Included in these expenses is
approximately $8.7 million from increases in foreign
exchange as compared to the same period of 2004. Our domestic
operations increased approximately $10.1 million
principally from an approximately $2.9 million increase in
commission expenses and an approximately $1.8 million
increase in bad debt expense. In addition to foreign exchange
increases, our international operations increased approximately
$33.1 million, principally from approximately
$26.6 million of costs related to the restructuring of our
business in France and approximately $3.8 million from our
consolidation of Clear Media.
SG&A increased approximately $42.6 million, or 9%,
during 2004 as compared to 2003. Included in the increase is
approximately $31.3 million from foreign exchange
increases. Our domestic operations contributed approximately
$11.4 million primarily from commission expenses associated
with the increase in revenue. In addition to foreign exchange,
our international operations SG&A declined approximately
50
$0.1 million. The decline is primarily due to a
restructuring charge of $13.8 million in France taken
during 2003, partially offset by a restructuring charge of
$4.1 million in Spain taken during 2004, $2.6 million
associated with the consolidation of a joint venture, as well as
increased commission expenses associated with the increase in
revenue during 2004.
SG&A increased approximately $64.1 million, or 16%,
during 2003 as compared to 2002. Included in the increase is
approximately $43.2 million from foreign exchange
increases. Our domestic operations contributed approximately
$3.4 million primarily from increased commission expenses
associated with the increase in revenue. In addition to foreign
exchange, in 2003 our international operations contributed
approximately $17.5 million principally from a
restructuring charge in France of approximately
$13.8 million taken during 2003.
Our branch managers have historically followed a corporate
policy allowing Clear Channel Communications to use, without
charge, domestic displays that they or their staff believe would
otherwise be unsold. Our sales personnel receive partial revenue
credit for that usage for compensation purposes. This partial
revenue credit is not included in our reported revenues. Clear
Channel Communications bears the cost of producing the
advertising and we bear the costs of installing and removing
this advertising. In 2004, we estimated that these discounted
revenues would have been less than 3% of our domestic revenues.
Under the Master Agreement, this policy will continue.
|
|
|
Depreciation and Amortization
|
Depreciation and amortization increased approximately
$8.6 million in 2004 as compared to 2003. The increase is
primarily attributable to approximately $3.0 million
related to damage from the hurricanes that struck Florida and
the Gulf Coast during the third quarter of 2004 and
approximately $18.8 million from fluctuations in foreign
exchange rates that impacted our international segment, largely
offset by accelerated depreciation on display takedowns and
abandonments of approximately $17.1 million recognized
during 2003 that did not reoccur during 2004.
Depreciation and amortization increased approximately
$42.7 million in 2003 as compared to 2002. The increase is
primarily attributable to approximately $25.0 million from
foreign exchange increases, increased display takedowns in 2003
as compared to 2002 of approximately $12.2 million and our
acquisition of The Ackerley Group in June 2002 which contributed
approximately $2.4 million.
Clear Channel Communications provides management services to us,
which include, among other things, (i) treasury, payroll
and other financial related services, (ii) executive
officer services, (iii) human resources and employee
benefits services, (iv) legal, public affairs and related
services, (v) information systems, network and related
services, (vi) investment services, (vii) corporate
services and (viii) procurement and sourcing support
services. These services are allocated to us based on actual
direct costs incurred or on Clear Channel Communications
estimate of expenses relative to a seasonally adjusted
headcount. For the nine months ended September 30, 2005 and
2004 and for the years ended December 31, 2004, 2003, and
2002, we recorded approximately $11.8 million,
$11.8 million, $16.6 million, $19.6 million, and
$17.6 million, respectively, as a component of corporate
expenses for these services.
|
|
|
Interest Expense (Including Intercompany)
|
Interest expense increased $22.6 million for the nine
months ended September 30, 2005 compared to the same period
of 2004 primarily from a $2.5 billion intercompany note
with Clear Channel Communications issued on August 2, 2005.
The note accrues interest at a variable per annum rate based on
the weighted average cost of debt for Clear Channel
Communications, calculated on a monthly basis. The estimated
weighted average interest rate for the period ended
September 30, 2005 was 5.7%.
51
Throughout 2002, we had in place a revolving demand promissory
note with Clear Channel Communications. Effective
December 31, 2002, Clear Channel Communications capitalized
amounts included in the revolving demand promissory note into
two fixed principal and interest rate notes. The first note is
in the original principal amount of approximately
$1.4 billion and accrues interest at a per annum rate of
10%. The second note is in the original principal amount of
$73.0 million and accrues interest at a per annum rate of
9%. This capitalization effectively lowered our interest expense
for the years ended December 31, 2004 and 2003 as compared
to 2002 because the revolving demand promissory note had a
higher average balance than the two fixed rate promissory notes.
|
|
|
Other Income (Expense) Net
|
The principal components of other income (expense)
net were:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
(In millions) |
|
|
|
|
|
2004 |
|
|
2003 |
|
|
2002 |
|
|
|
|
|
|
|
|
|
|
|
Royalty fee
|
|
$ |
(15.8 |
) |
|
$ |
(14.1 |
) |
|
$ |
|
|
Gain on sale of operating and fixed assets
|
|
|
11.7 |
|
|
|
11.1 |
|
|
|
7.1 |
|
Transitional asset retirement obligation
|
|
|
|
|
|
|
(7.0 |
) |
|
|
|
|
Minority interest
|
|
|
(7.6 |
) |
|
|
(3.9 |
) |
|
|
1.8 |
|
Other
|
|
|
(1.6 |
) |
|
|
5.3 |
|
|
|
.3 |
|
|
|
|
|
|
|
|
|
|
|
Total other income (expense) net
|
|
$ |
(13.3 |
) |
|
$ |
(8.6 |
) |
|
$ |
9.2 |
|
|
|
|
|
|
|
|
|
|
|
The royalty fee represents payments to Clear Channel
Communications for our use of certain trademarks and licenses.
Our operations are included in a consolidated income tax return
filed by Clear Channel Communications. However, for our
financial statements, our provision for income taxes was
computed on the basis that we file separate consolidated income
tax returns with our subsidiaries.
Current tax expense for the nine months ended September 30,
2005 increased approximately $44.2 million as compared to
the nine months ended September 30, 2004. This increase is
primarily due to an approximately $37.8 million increase in
Income before income taxes for the nine months ended
September 30, 2005 as compared to the nine months ended
September 30, 2004. In addition, current tax expense from
foreign operations increased approximately $16.5 million
during the current period as compared to the prior period
primarily due to a change in local country tax law that resulted
in the recognition of additional current tax expense and less
deferred tax expense for the nine months ended
September 30, 2005. During the nine months ended
September 30, 2004, current tax expense was reduced by
amounts associated with the disposition of certain assets.
Deferred tax benefit for the nine months ended
September 30, 2005 was approximately $6.0 million as
compared to a tax expense of $17.7 million for the nine
months ended September 30, 2004. The deferred tax benefit
for the nine months ended September 30, 2005 primarily
relates to the reversal of foreign deferred tax liabilities that
were set up at acquisition for certain contract valuations.
During the nine months ended September 30, 2004, deferred
tax expense was increased $7.4 million related to the
disposition of certain assets.
Our effective tax rate for the year ended December 31, 2004
was 89%. The effective tax rate is a result of our mix of
earnings and losses in foreign jurisdictions and certain
deferred tax adjustments necessary to transition from being a
wholly-owned subsidiary and certain other impacting events.
Current and deferred foreign tax expense of $16.6 million
was recorded on certain international subsidiaries generating
net positive taxable income. There were no current and deferred
foreign tax benefits recorded on certain international
subsidiaries generating taxable losses due to the uncertainty of
the ability
52
to utilize such losses within the applicable carryforward
periods. The impact of the foregoing provides for foreign tax
expense of $16.6 million on foreign pre-tax earnings of
$14.8 million, which is an effective tax rate of 112.2% The
foreign tax rate in combination with certain adjustments to our
domestic effective tax rate related to (i) additional state
deferred tax expense necessary to adjust state deferred tax
assets to an amount expected to be recoverable in future years
considering the pending Clear Channel Communications group
structure changes, and (ii) additional current tax expense
of approximately $6.3 million necessary to accrue for tax
and interest on ongoing tax contingencies, contribute to our
overall effective tax rate for the period.
During 2003, we recorded additional current tax expense due to
certain tax contingencies of approximately $10.1 million.
In addition, we did not record a tax benefit on certain tax
losses from our foreign operations due to the uncertainty of the
ability to utilize those tax losses in the future. As a result
of the above items, our effective tax rate of negative 51%
resulted in an income tax expense of approximately
$11.9 million on an approximately $23.1 million loss
before income taxes and cumulative effect of a change in
accounting principle for the year ended December 31, 2003.
During 2002, we recorded a tax benefit from foreign operations
of approximately $17.0 million on foreign income before
income tax of approximately $7.6 million. The tax benefit
was the result of the blending of income taxed in low tax rate
jurisdictions and losses benefited in high tax rate
jurisdictions.
|
|
|
Cumulative Effect of a Change in Accounting
Principle
|
The SEC staff issued Staff Announcement No. D-108, Use
of the Residual Method to Value Acquired Assets Other Than
Goodwill, at the September 2004 meeting of the Emerging
Issues Task Force which we adopted in the fourth quarter of
2004. The Staff Announcement states that the residual method
should no longer be used to value intangible assets other than
goodwill. Rather, a direct method should be used to determine
the fair value of all intangible assets other than goodwill
required to be recognized under Statement of Financial
Accounting Standards No. 141, Business Combinations.
Our adoption of the Staff Announcement resulted in an aggregate
carrying value of our domestic permits that was in excess of
their fair value. The Staff Announcement requires us to report
the excess value of approximately $162.9 million, net of
tax, as a cumulative effect of a change in accounting principle.
The loss recorded as a cumulative effect of a change in
accounting principle during 2002 relates to our adoption of
Statement 142 on January 1, 2002. Statement 142
required that we test goodwill and permits for impairment using
a fair value approach. As a result of the goodwill test, we
recorded a non-cash, net of tax, impairment charge of
approximately $3.5 billion. As required by
Statement 142, a subsequent impairment test was performed
at October 1, 2002, which resulted in no additional
impairment charge. The non-cash impairment of our goodwill was
generally caused by unfavorable economic conditions, which
persisted throughout 2001. This weakness contributed to our
clients reducing the number of advertising dollars spent
on our inventory. These conditions adversely impacted the cash
flow projections used to determine the fair value of each
reporting unit at January 1, 2002 which resulted in the
non-cash impairment charge of a portion of our goodwill.
Domestic Results of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended |
|
|
|
|
|
September 30, |
|
|
Year Ended December 31, |
|
|
|
|
|
|
|
|
|
|
2005 |
|
|
2004 |
|
|
2004 |
|
|
2003 |
|
|
2002 |
|
(In thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$ |
886,649 |
|
|
$ |
800,744 |
|
|
$ |
1,092,089 |
|
|
$ |
1,006,376 |
|
|
$ |
911,493 |
|
Direct operating expenses
|
|
|
359,263 |
|
|
|
347,619 |
|
|
|
468,687 |
|
|
|
435,075 |
|
|
|
399,006 |
|
Selling, general and administrative expenses
|
|
|
136,919 |
|
|
|
126,838 |
|
|
|
173,010 |
|
|
|
161,579 |
|
|
|
158,159 |
|
Depreciation and amortization
|
|
|
127,019 |
|
|
|
141,479 |
|
|
|
186,620 |
|
|
|
194,237 |
|
|
|
179,947 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
$ |
263,448 |
|
|
$ |
184,808 |
|
|
$ |
263,772 |
|
|
$ |
215,485 |
|
|
$ |
174,381 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
53
For the nine months ended September 30, 2005, our revenues
grew approximately $85.9 million, or 11%, over the same
period of the prior year. The increase was primarily due to
approximately $41.4 million attributable to increased rates
on our bulletin and poster inventory during 2005. Growth
occurred across our markets including New York, Miami, Houston,
Seattle, Cleveland and Las Vegas. Revenues from our airport,
street furniture and transit advertising displays contributed
the majority of the remaining $44.5 million increase.
Strong advertising client categories for the nine months ended
September 30, 2005 included automotive, entertainment and
amusements, business and consumer services, retail and
telecommunications.
Direct operating expenses increased approximately
$11.6 million, or 3%, during the nine months ended
September 30, 2005 as compared to the same period in 2004.
The increase is from approximately $5.6 million related to
direct production expenses and approximately $6.0 million
related to site lease expenses, both of which were associated
with the increase in revenues. SG&A increased
$10.1 million, or 8%, principally from an approximately
$2.9 million increase in commission expenses and an
approximately $1.8 million increase in bad debt expense.
Depreciation and amortization expense decreased approximately
$14.5 million during the nine months ended
September 30, 2005 as compared to the same period of 2004,
due to fewer display takedowns during the current period, which
resulted in less accelerated deprecation. During the nine months
ended September 30, 2004, our management team made
strategic decisions to remove certain advertising structures to
enhance overall geographic area profits. As a result of these
decisions, advertising structures were removed and their
remaining book value was written off as additional depreciation
expense.
During 2004, revenues increased approximately
$85.7 million, or 9%, over 2003. Revenue growth occurred
across our inventory, with bulletins and posters leading the
way. Increased rates drove the growth in bulletin revenues,
partially offset by a decrease in occupancy. We also grew rates
on our poster inventory in 2004, with occupancy flat compared to
2003. Revenue growth occurred across the nation, fueled by
growth in Los Angeles, New York, Miami, San Antonio,
Seattle and Cleveland. The client categories leading revenue
growth remained consistent throughout the year, the largest
being entertainment. Business and consumer services was also a
strong client category and was led by advertising spending from
banking and telecommunications clients. Revenues from the
automotive client category increased due to national, regional
and local auto dealer advertisements.
Direct operating expenses increased approximately
$33.6 million, or 8%, during 2004 as compared to 2003
primarily as a result of $21.8 million from site lease rent
expense as a result of an increase in revenue-share payments
associated with the increase in revenues. Our SG&A in 2004
increased approximately $11.4 million, or 7%, primarily
from approximately $5.1 million related to commission and
wage expenses relative to the growth in revenue.
During 2003, revenues increased approximately
$94.9 million, or 10%, over 2002. Included in the increase
is our acquisition of The Ackerley Group, acquired in June 2002,
which contributed approximately $35.4 million in revenues
during the six months ended June 30, 2003. In addition to
the acquisition of The Ackerley Group, our bulletin inventory
fueled the growth. Our bulletin inventory performed well year
over year in the vast majority of our markets, with both rates
and occupancy up. We saw strong growth in both large markets
such as New York, San Francisco, Miami and Tampa and in
smaller markets such as Albuquerque and Chattanooga. Top
domestic advertising categories for us during 2003 were business
and consumer services, media and entertainment and automotive.
Direct operating expenses increased $36.1 million, or 9%,
during 2003 as compared to 2002 primarily as a result of The
Ackerley Group, which contributed approximately
$19.3 million. The remaining $16.8 million of the
increase is attributable to direct production and site lease
rent expenses relative to the growth in revenue. SG&A in
2003 increased $3.4 million, or 2%, primarily from
$2.6 million related to bonus and commission expenses
relative to the growth in revenue.
Depreciation and amortization increased approximately
$14.3 million in 2003 as compared to 2002. The increase is
primarily attributable to increased display takedowns in 2003 as
compared to 2002 of
54
approximately $12.2 million and our acquisition of The
Ackerley Group in June 2002, which contributed approximately
$2.4 million, offset by a decline in depreciation and
amortization of $0.3 million.
International Results of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended |
|
|
|
|
|
September 30, |
|
|
Year Ended December 31, |
|
|
|
|
|
|
|
|
|
|
2005 |
|
|
2004 |
|
|
2004 |
|
|
2003 |
|
|
2002 |
|
(In thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$ |
1,044,822 |
|
|
$ |
960,564 |
|
|
$ |
1,354,951 |
|
|
$ |
1,168,221 |
|
|
$ |
948,148 |
|
Direct operating expenses
|
|
|
629,185 |
|
|
|
576,801 |
|
|
|
793,630 |
|
|
|
698,311 |
|
|
|
558,824 |
|
Selling, general and administrative expenses
|
|
|
273,156 |
|
|
|
231,350 |
|
|
|
326,447 |
|
|
|
295,314 |
|
|
|
234,644 |
|
Depreciation and amortization
|
|
|
163,214 |
|
|
|
147,331 |
|
|
|
201,597 |
|
|
|
185,403 |
|
|
|
156,948 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
$ |
(20,733 |
) |
|
$ |
5,082 |
|
|
$ |
33,277 |
|
|
$ |
(10,807 |
) |
|
$ |
(2,268 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues increased approximately $84.3 million, or 9%,
during the nine months ended September 30, 2005 as compared
to the same period in 2004. The growth includes approximately
$33.9 million from foreign exchange increases. Also
included in the nine months ended September 30, 2005 is
approximately $22.9 million from our consolidation of Clear
Media, which we acquired during the third quarter of 2005 and
had previously accounted for as an equity method investment.
Partially offsetting this increase is an approximately
$14.5 million revenue decline from our media products in
France. Our revenue growth was attributable to our street
furniture and transit revenues.
Direct operating expenses grew $52.4 million, or 9%, during
the nine months ended September 30, 2005 as compared to the
same period of the prior year. Included in these results is
approximately $20.0 million from increases in foreign
exchange as compared to the same period of 2004. In addition to
foreign exchange increases, our direct operating expenses grew
approximately $32.4 million, principally from an
approximately $21.7 million increase in fixed rent and
minimum annual guarantees and approximately $8.7 million
from our consolidation of Clear Media, partially offset by a
decline of approximately $1.6 million of various other
expenses. Our SG&A grew approximately $41.8 million, or
18%, during the nine months ended September 30, 2005 as
compared to the same period of the prior year. Included in these
results is approximately $8.7 million from increases in
foreign exchange as compared to the same period of 2004. In
addition to foreign exchange increases, SG&A grew
approximately $33.1 million, principally from an
approximately $26.6 million of costs related to the
restructuring of our business in France and approximately
$3.8 million from our consolidation of Clear Media.
Depreciation and amortization expense increased approximately
$15.9 million during the first nine months of 2005 as
compared to the same period of the prior year, due primarily to
increases in foreign exchange.
During 2004, revenues increased approximately
$186.7 million, or 16%, over 2003, including approximately
$128.6 million from foreign exchange increases. Street
furniture sales in the United Kingdom, Belgium, Australia,
New Zealand and Denmark were the leading contributors to
our revenue growth. We saw strong demand for our street
furniture inventory, enabling us to realize an increase in the
average revenues per display. Our billboard revenues increased
slightly as a result of an increase in average revenues per
display. Also contributing to the increase was approximately
$10.4 million related to the consolidation of our outdoor
advertising joint venture in Australia during the second quarter
of 2003, which we had previously accounted for under the equity
method of accounting. Tempering our 2004 results were a
difficult competitive environment for billboard sales in the
United Kingdom and challenging market conditions for all of our
products in France.
Direct operating expenses increased $95.3 million, or 14%,
during 2004 as compared to 2003. Included in the increase is
approximately $76.0 million from foreign exchange
increases. In addition to foreign exchange, direct operating
expenses grew approximately $19.3 million during this
period, principally from higher site lease rent expense and
approximately $6.2 million from the consolidation of a
joint venture in
55
Australia, which was previously accounted for under the equity
method. SG&A increased $31.1 million, or 11%, during
2004 as compared to 2003. Included in the increase is
approximately $31.3 million from foreign exchange
increases. After the effect of foreign exchange increases,
SG&A declined approximately $0.2 million. The decline
is primarily due to a restructuring charge of $13.8 million
in France taken during 2003, partially offset by a restructuring
charge of $4.1 million in Spain taken during 2004,
$2.6 million associated with the consolidation of a joint
venture, as well as increased commission expenses associated
with the increase in revenue during 2004.
Depreciation and amortization increased approximately
$16.2 million in 2004 as compared to 2003 primarily
attributable to foreign exchange increases.
During 2003, revenues increased approximately
$220.1 million, or 23%, over 2002, including approximately
$169.9 million from foreign exchange increases. Revenue
growth was spurred by our transit displays and street furniture
inventory. This growth was due to an increase in displays and
average revenues per display primarily from our street furniture
products. Strong markets for our street furniture inventory were
Australia, Norway and the United Kingdom. This revenue increase
was slightly offset by a decline in our billboard revenues.
Direct operating expenses increased $139.5 million, or 25%,
during 2003 as compared to 2002. Included in the increase is
approximately $102.0 million from foreign exchange
increases. In addition to foreign exchange, direct operating
expenses increased approximately $37.5 million during this
period principally from higher site lease rent expense
associated with the increase in revenue. SG&A increased
$60.7 million, or 26%, during 2003 as compared to 2002.
Included in the increase is approximately $43.2 million
from foreign exchange increases. In addition to foreign
exchange, SG&A grew approximately $17.5 million during
this period principally from a restructuring charge in France of
approximately $13.8 million taken during 2003.
Depreciation and amortization increased approximately
$28.5 million in 2003 as compared to 2002 primarily
attributable to approximately $25.0 million from foreign
exchange increases.
|
|
|
Reconciliation of Segment Operating Income (Loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended |
|
|
|
|
|
September 30, |
|
|
Year Ended December 31, |
|
|
|
|
|
|
|
|
|
|
2005 |
|
|
2004 |
|
|
2004 |
|
|
2003 |
|
|
2002 |
|
(In thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic outdoor
|
|
$ |
263,448 |
|
|
$ |
184,808 |
|
|
$ |
263,772 |
|
|
$ |
215,485 |
|
|
$ |
174,381 |
|
International outdoor
|
|
|
(20,733 |
) |
|
|
5,082 |
|
|
|
33,277 |
|
|
|
(10,807 |
) |
|
|
(2,268 |
) |
Corporate
|
|
|
(39,397 |
) |
|
|
(39,451 |
) |
|
|
(53,770 |
) |
|
|
(54,233 |
) |
|
|
(52,218 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Combined operating income
|
|
$ |
203,318 |
|
|
$ |
150,439 |
|
|
$ |
243,279 |
|
|
$ |
150,445 |
|
|
$ |
119,895 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
USE OF OIBDAN
In addition to operating income, we evaluate segment and
combined performance based on other factors, one primary measure
of which is operating income (loss) before depreciation,
amortization and non-cash compensation expense, which we refer
to as OIBDAN. We use OIBDAN as a measure of the operational
strengths and performance of our business and not as a measure
of liquidity. However, a limitation of the use of OIBDAN as a
performance measure is that it does not reflect the periodic
costs of certain capitalized tangible and intangible assets used
in generating revenues in our business. Accordingly, OIBDAN
should be considered in addition to, and not as a substitute
for, operating income (loss), net income (loss) and other
measures of financial performance reported in accordance with
U.S. GAAP. Furthermore, this measure may vary among other
companies; thus, OIBDAN as presented below may not be comparable
to similarly titled measures of other companies.
We believe OIBDAN is useful to investors and other external
users of our financial statements in evaluating our operating
performance because it is widely used in the outdoor advertising
industry to
56
measure a companys operating performance and it helps
investors more meaningfully evaluate and compare the results of
our operations from period to period and with those of other
companies in the outdoor advertising industry (to the extent the
same components of OIBDAN are used), in each case without regard
to items such as non-cash depreciation and amortization and
non-cash compensation expense, which can vary depending upon the
accounting method used and the book value of assets.
Our management uses OIBDAN (i) as a measure for planning
and forecasting overall and individual expectations and for
evaluating actual results against such expectations,
(ii) as a basis for incentive bonuses paid to our executive
officers and our branch managers and (iii) in presentations
to our board of directors to enable them to have the same
consistent measurement basis of operating performance used by
management.
The following table presents a reconciliation of OIBDAN to
operating income, which is a GAAP measure of our operating
results:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended |
|
|
|
|
|
September 30, |
|
|
Year Ended December 31, |
|
|
|
|
|
|
|
|
|
|
2005 |
|
|
2004 |
|
|
2004 |
|
|
2003 |
|
|
2002 |
|
(In thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited) |
|
|
(Unaudited) |
|
|
|
|
|
|
|
Reconciliation of OIBDAN to operating income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Combined:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OIBDAN
|
|
$ |
494,063 |
|
|
$ |
439,331 |
|
|
$ |
631,612 |
|
|
$ |
530,085 |
|
|
$ |
456,790 |
|
Depreciation and amortization
|
|
|
290,233 |
|
|
|
288,810 |
|
|
|
388,217 |
|
|
|
379,640 |
|
|
|
336,895 |
|
Non-cash compensation
|
|
|
512 |
|
|
|
82 |
|
|
|
116 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
$ |
203,318 |
|
|
$ |
150,439 |
|
|
$ |
243,279 |
|
|
$ |
150,445 |
|
|
$ |
119,895 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OIBDAN
|
|
$ |
390,867 |
|
|
$ |
326,359 |
|
|
$ |
450,494 |
|
|
$ |
409,722 |
|
|
$ |
354,328 |
|
Depreciation and amortization
|
|
|
127,019 |
|
|
|
141,479 |
|
|
|
186,620 |
|
|
|
194,237 |
|
|
|
179,947 |
|
Non-cash compensation
|
|
|
400 |
|
|
|
72 |
|
|
|
102 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
$ |
263,448 |
|
|
$ |
184,808 |
|
|
$ |
263,772 |
|
|
$ |
215,485 |
|
|
$ |
174,381 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
International:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OIBDAN
|
|
$ |
142,593 |
|
|
$ |
152,423 |
|
|
$ |
234,888 |
|
|
$ |
174,596 |
|
|
$ |
154,680 |
|
Depreciation and amortization
|
|
|
163,214 |
|
|
|
147,331 |
|
|
|
201,597 |
|
|
|
185,403 |
|
|
|
156,948 |
|
Non-cash compensation
|
|
|
112 |
|
|
|
10 |
|
|
|
14 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
$ |
(20,733 |
) |
|
$ |
5,082 |
|
|
$ |
33,277 |
|
|
$ |
(10,807 |
) |
|
$ |
(2,268 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Our combined OIBDAN increased $54.7 million, or 12%, for
the nine months ended September 30, 2005 as compared to the
same period of 2004 primarily as a result of approximately
$64.5 million from our domestic operations driven by
increased revenues across our domestic inventory. Included in
the increase is approximately $5.2 million from foreign
exchange increases. In addition to the foreign exchange
increase, our international segments OIBDAN declined
approximately $15.0 million primarily from approximately
$26.6 million related to restructuring expenses in France
during the third quarter of 2005, partially offset by an OIBDAN
increase of $10.4 million from our consolidation of Clear
Media.
Our combined OIBDAN increased $101.5 million, or 19%, for
the year ended December 31, 2004 compared to the same
period of 2003. Our domestic segment contributed
$40.8 million and our international segment contributed
$60.3 million, including approximately $21.3 million
from foreign exchange increases, while our corporate expenses
decreased during 2004 by $0.4 million. The domestic OIBDAN
growth was attributable to increased bulletin and poster sales
while international OIBDAN growth was led by increased street
furniture sales. We experienced OIBDAN margin expansion during
57
2004 compared to 2003 primarily related to a $13.8 million
restructuring charge taken in France during the second quarter
of 2003.
Our combined OIBDAN increased $73.3 million, or 16%, for
the year ended December 31, 2003 compared to the same
period of 2002. Our domestic segment contributed
$55.4 million and our international segment contributed
$19.9 million, while our corporate expenses increased
during 2003 by $2.0 million. Our domestic OIBDAN growth was
attributable to bulletin sales and our domestic OIBDAN margin
increased partially as a result of The Ackerley Group. The
Ackerley Group contributed $16.1 million in OIBDAN and had
a higher OIBDAN margin than our overall domestic OIBDAN margin
for the first six months of 2003. Our combined OIBDAN margin
decreased during 2003 compared to 2002 primarily from a
$13.8 million restructuring charge taken in France during
the second quarter of 2003. Included in OIBDAN for the year
ended December 31, 2003 is approximately $24.7 million
from foreign exchange increases over the same period of 2002.
FINANCIAL CONDITION AND LIQUIDITY
Financial Condition as of September 30, 2005
As of September 30, 2005, we had approximately
$4.2 billion of debt, approximately $91.7 million of
cash and cash equivalents and approximately $88.3 million
of owners equity. On August 2, 2005 we distributed an
intercompany note in the original principal amount of
$2.5 billion as a dividend on our common stock, which note
was ultimately distributed to Clear Channel Communications. We
intend to use all of the net proceeds from this offering to
repay a portion of the intercompany indebtedness owed to Clear
Channel Communications.
Financial Condition as of December 31, 2004
As of December 31, 2004, we had approximately
$1.6 billion of debt, approximately $37.9 million of
cash and equivalents and approximately $2.7 billion of
owners equity. This compares to approximately
$1.7 billion of debt, approximately $34.1 million of
cash and equivalents and approximately $2.8 billion of
owners equity as of December 31, 2003.
Cash Flows
The following table summarizes our historical cash flows. The
financial data for the years ended December 31, 2004 and
2003 have been derived from our audited financial statements
included elsewhere in this prospectus. The financial data for
the nine months ended September 30, 2005 and 2004 are
unaudited and are derived from our interim financial statements
included elsewhere in this prospectus.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended |
|
|
|
|
|
September 30, |
|
|
Year Ended December 31, |
|
(In thousands) |
|
|
|
|
|
|
|
|
2005 |
|
|
2004 |
|
|
2004 |
|
|
2003 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash provided by (used in):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities
|
|
$ |
336,637 |
|
|
$ |
329,893 |
|
|
$ |
492,495 |
|
|
$ |
433,459 |
|
|
Investing activities
|
|
$ |
(223,189 |
) |
|
$ |
(227,386 |
) |
|
$ |
(310,658 |
) |
|
$ |
(230,162 |
) |
|
Financing activities
|
|
$ |
(48,154 |
) |
|
$ |
(95,759 |
) |
|
$ |
(182,006 |
) |
|
$ |
(222,491 |
) |
|
|
|
Nine Months Ended September 30, 2005 as Compared to Nine
Months Ended September 30, 2004
|
Cash provided by operations was approximately
$336.6 million for the nine months ended September 30,
2005, compared to cash provided by operations of approximately
$329.9 million for the nine months ended September 30,
2004. The approximately $6.7 million increase relates
primarily to changes in working capital items.
58
|
|
|
Year Ended December 31, 2004 as Compared to Year Ended
December 31, 2003
|
Cash provided by operations was approximately
$492.5 million for the year ended December 31, 2004,
as compared to cash provided by operations of approximately
$433.5 million for the year ended December 31, 2003.
The change in cash provided by operations resulted primarily
from an increase in income before cumulative effect of a change
in accounting principle of approximately $42.5 million.
|
|
|
Nine Months Ended September 30, 2005 as Compared to Nine
Months Ended September 30, 2004
|
Cash used in investing activities was approximately
$223.2 million for the nine months ended September 30,
2005 as compared to approximately $227.4 million for the
nine months ended September 30, 2004. The $4.2 million
change relates primarily to the approximately $7.5 million
used to purchase an additional interest in Clear Channel
Independent, a nonconsolidated affiliate in South Africa, offset
by $12.1 million in cash received on the sale of our
investment in SBS Broadcasting, Inc., both occurring in 2004. We
purchased approximately $12.8 million more of property
plant and equipment in 2005.
|
|
|
Year Ended December 31, 2004 as Compared to Year Ended
December 31, 2003
|
Cash used in investing activities was approximately
$310.7 million for the year ended December 31, 2004,
as compared to approximately $230.2 million for the year
ended December 31, 2003. The increase in cash used in
investing activities primarily related to an increase in
acquisition activity during 2004. In 2004, we acquired Medallion
Taxi Media for $31.6 million and acquired advertising
display faces for $60.8 million.
|
|
|
Nine Months Ended September 30, 2005 as Compared to Nine
Months Ended September 30, 2004
|
Cash used in financing activities was approximately
$48.2 million for the nine months ended September 30,
2005, as compared to cash used in financing activities of
approximately $95.8 million for the nine months ended
September 30, 2004. Included in cash flow from financing
activities is changes in the Due from Clear Channel
Communications account which relates to cash transfers
between our domestic operations and Clear Channel
Communications. For the nine months ended September 30,
2005 we had a net transfer of cash to Clear Channel
Communications of approximately $59.5 million compared to a
net transfer of cash to Clear Channel Communications of
approximately $86.0 million for the nine months ended
September 30, 2004. The net amount transferred is
significantly affected, among other things, by the change in our
domestic operations operating income and cash flow for the
relevant period. The Due from Clear Channel
Communications account has grown during the relevant
periods primarily as a result of increases in our operating
income.
|
|
|
Year Ended December 31, 2004 as Compared to Year Ended
December 31, 2003
|
Cash used in financing activities was approximately
$182.0 million for the year ended December 31, 2004,
as compared to approximately $222.5 million for the year
ended December 31, 2003. The decline is partially the
result of decreased financing needs from our credit facility.
Additionally, for the year ended December 31, 2004 we had a
net transfer of cash to Clear Channel Communications of
approximately $148.2 million compared to a net transfer of
cash to Clear Channel Communications of approximately
$154.4 million for the year ended December 31, 2003.
59
Liquidity
Our primary sources of liquidity and capital resources are cash
flows generated from our operations, availability of up to
$150.0 million under a revolving credit facility sublimit
for use in our international operations through Clear Channel
Communications, funding through a cash management note with
Clear Channel Communications and available cash and cash
equivalents.
Management believes that future funds generated from our
operations and available borrowing capacity of up to
$150.0 million under the sub-limit of the Clear Channel
Communications revolving credit facility discussed below will be
sufficient to fund our debt service requirements, working
capital requirements, capital expenditure requirements and the
remaining one-time costs associated with this offering for a
period of at least 18 months. However, our ability to
continue to fund these items and to reduce debt may be affected
by general economic, financial, competitive, legislative and
regulatory factors, as well as other industry-specific factors.
Our short and long term cash requirements consist of minimum
annual guarantees for our street furniture contracts, operating
leases and capital expenditures. Minimum annual guarantees and
operating lease requirements are included in our direct
operating expenses, which historically have been satisfied by
cash flows from operations. For 2005, we are committed to
$378.3 million and $177.6 million for minimum annual
guarantees and operating leases, respectively. Our capital
expenditures were $176.1 million, $205.1 million and
$290.2 million for 2004, 2003 and 2002, respectively, and
have historically been satisfied by cash flow from operations.
Our long-term commitments for minimum annual guarantees,
operating leases and capital expenditure requirements are
included in Contractual and Other
Obligations, below. Our cash flow from operations was
$492.5 million, $433.5 million, and
$320.2 million for 2004, 2003 and 2002, respectively.
Certain of our international subsidiaries have the ability to
borrow under a $150.0 million sub-limit of the Clear
Channel Communications revolving credit facility discussed below
under Bank Credit Facility, to the
extent Clear Channel Communications has not already borrowed
against this capacity. At September 30, 2005, approximately
$100.3 million was available for future borrowings under
this facility.
As of September 30, 2005 and December 31, 2004 and
2003, we had the following debt outstanding, cash and cash
equivalents and amounts due from Clear Channel Communications:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
|
|
|
|
|
|
September 30, 2005 |
|
|
2004 |
|
|
2003 |
|
(In millions) |
|
|
|
|
|
|
|
|
|
Bank credit facility
|
|
$ |
49.7 |
|
|
$ |
23.9 |
|
|
$ |
50.1 |
|
Debt with Clear Channel Communications
|
|
|
3,963.0 |
|
|
|
1,463.0 |
|
|
|
1,463.0 |
|
Other long-term debt
|
|
|
199.4 |
|
|
|
152.4 |
|
|
|
156.9 |
|
|
|
|
|
|
|
|
|
|
|
Total debt
|
|
|
4,212.1 |
|
|
|
1,639.3 |
|
|
|
1,670.0 |
|
Less: cash and cash equivalents
|
|
|
91.7 |
|
|
|
37.9 |
|
|
|
34.1 |
|
Less: Due from Clear Channel Communications
|
|
|
362.2 |
|
|
|
302.6 |
|
|
|
154.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
3,758.2 |
|
|
$ |
1,298.8 |
|
|
$ |
1,418.5 |
|
|
|
|
|
|
|
|
|
|
|
Bank Credit Facility. In addition to cash flows from
operations, a primary source of our liquidity is through
borrowings under a $150.0 million sub-limit included in
Clear Channel Communications five-year, multicurrency
$1.75 billion revolving credit facility. Certain of our
international subsidiaries may borrow under the sub-limit to the
extent Clear Channel Communications has not already borrowed
against this capacity and is in compliance with its covenants
under the credit facility. The interest rate on outstanding
balances under the credit facility is based upon LIBOR or, for
Euro denominated borrowings, EURIBOR plus, in each case, a
margin. At September 30, 2005, the outstanding balance on
the sub-limit was approximately $49.7 million, and
approximately $100.3 million was available for future
borrowings,
60
with the entire balance to be paid on July 12, 2009. At
September 30, 2005, interest rates on borrowings under this
credit facility ranged from 3.1% to 6.0%.
Debt with Clear Channel Communications. In 2003, two
intercompany notes were issued to Clear Channel Communications
in the total original principal amount of approximately
$1.5 billion. The first intercompany note in the original
principal amount of approximately $1.4 billion matures on
December 31, 2017, may be prepaid in whole at any time, or
in part from time to time, and accrues interest at a per annum
rate of 10%. The second intercompany note in the original
principal amount of $73.0 million matures on
December 31, 2017, may be prepaid in whole at any time, or
in part from time to time, and accrues interest at a per annum
rate of 9%. We intend to use all of the net proceeds of this
offering, along with our balance in the Due from Clear
Channel Communications account, to repay a portion of the
outstanding balances of the $1.4 billion and
$73.0 million intercompany notes. Any remaining balances
will be otherwise capitalized by Clear Channel Communications.
On August 2, 2005, we distributed a third intercompany note
issued by our wholly-owned subsidiary to us in the original
principal amount of $2.5 billion as a dividend on our
common stock, which note was subsequently distributed as a
dividend in a series of transfers to Clear Channel
Communications. This note matures on August 2, 2010, may be
prepaid in whole at any time, or in part from time to time. The
note accrues interest at a variable per annum rate equal to the
weighted average cost of debt for Clear Channel Communications,
calculated on a monthly basis. This note is mandatorily payable
upon a change of control of us and, subject to certain
exceptions, all proceeds from debt or equity raised by us must
be used to prepay such note. At September 30, 2005, the
interest rate on the $2.5 billion intercompany note was
5.7%. See Use of Proceeds, Arrangements
Between Clear Channel Communications and Us and
Description of Indebtedness.
Our working capital requirements and capital for our general
corporate purposes, including acquisitions and capital
expenditures, historically have been satisfied as part of the
corporate-wide cash management policies of Clear Channel
Communications. After this offering, our working capital
requirements and capital for our general corporate purposes may
be provided to us by Clear Channel Communications, in its sole
discretion, pursuant to a cash management note issued by us to
Clear Channel Communications. See Cash and
cash equivalents; cash management policies, below. Without
the opportunity to obtain financing from Clear Channel
Communications, we may need to obtain additional financing from
banks, or through public offerings or private placements of
debt, strategic relationships or other arrangements at some
future date. Management currently believes that we could raise
the funds if needed given our credit profile. Additionally, we
will have publicly traded stock that management believes could
be used as a source to raise capital through public or private
placements of our equity securities. Subject to certain
exceptions, the first $2.5 billion of such debt or equity
proceeds (plus an amount equal to accrued interest thereon)
would be required to be used to prepay the $2.5 billion
intercompany note, unless such requirement is waived by Clear
Channel Communications.
Other long-term debt. Other long-term debt consists
primarily of loans with international banks and other types of
debt. At September 30, 2005, approximately
$199.4 million was outstanding as other long-term debt.
Cash and cash equivalents; cash management policies.
Pursuant to the Corporate Services Agreement to be entered into
between Clear Channel Communications and us, Clear Channel
Communications will be providing us with cash management
services to assist us in managing our excess operating cash.
These services include:
|
|
|
|
|
managing our daily cash position and determining our liquidity
needs; |
|
|
|
administering borrowings and repayments under the revolving
credit facility available to our international operations; |
|
|
|
establishing cash management systems and procedures that help
minimize investment in non-earning cash resources while
providing adequate liquidity; |
61
|
|
|
|
|
initiating all electronic funds transfers; |
|
|
|
providing bank administration for all domestic bank accounts and
for all international accounts established by a domestic
subsidiary; |
|
|
|
administering on-line bank reporting systems; and |
|
|
|
processing requests for cashier checks. |
As part of the cash management services to be provided to us, on
a daily basis, cash from our domestic operations will be
transferred to a concentration account maintained by us. The
cash will consist of money received by, available funds
transferred by wire to, and the collection of good funds on
checks and other orders remitted to, us. Pending receipt of good
funds on checks and other orders remitted to us, such items will
be maintained in lockboxes to be maintained by us.
In addition, on a daily basis, cash will be transferred from our
concentration account to our disbursement account, from which
our then due accounts payable and payroll obligations will be
discharged. If, after cash is transferred to the disbursement
account, there remains a balance in our concentration account,
then that amount will be transferred to a master account
maintained by Clear Channel Communications and either invested
or subsequently disbursed by Clear Channel Communications for
its general corporate purposes. If the cash in our concentration
account is not sufficient to discharge our obligations for the
corresponding day, then Clear Channel Communications may advance
funds to us by transferring cash from its master account to our
concentration account in an amount, which when added to the
amount available in that concentration account, would discharge
those daily obligations. We do not have a commitment from Clear
Channel Communications to advance funds to us, and we will have
no access to the cash transferred from our concentration account
to the master account of Clear Channel Communications. Our claim
in relation to cash transferred from our concentration account
to Clear Channel Communications will be based on the net cash
balances from time to time owed to us.
At the conclusion of each day, the net cash position between
Clear Channel Communications and us will be determined by Clear
Channel Communications. We will have a daily net positive cash
position if cash has been transferred from our concentration
account to the account maintained by Clear Channel
Communications, and a daily net negative cash position will
exist if Clear Channel Communications has had to advance funds
to our concentration account. The records of Clear Channel
Communications will reflect the net cash balance between Clear
Channel Communications and us, which, if owed to us, will be
noted in our financial statements as Due from Clear
Channel Communications or, if owed by us, will be noted in
our financial statements as Due to Clear Channel
Communications. The cash management note from us to Clear
Channel Communications and the cash management note from Clear
Channel Communications to us will evidence those respective
obligations. Each of the notes will be a demand obligation.
Interest on the cash management note owed by us will accrue on
the daily net negative cash position at a per annum rate based
on the average one-month LIBOR rate plus a percentage that
corresponds to the percentage paid by Clear Channel
Communications on LIBOR-based borrowings made by it under its
corporate revolver facility. Interest on the cash management
note owed by Clear Channel Communications will accrue on the
daily net positive cash position at a per annum rate based on
the average one-month generic treasury bill rate for the
applicable period. The average one-month LIBOR rate and the
average one-month generic treasury bill rate will correspond to
the applicable respective rates from time to time published by
Bloomberg financial services. If Clear Channel Communications
were to become insolvent, we would be an unsecured creditor like
other unsecured creditors of Clear Channel Communications and
could experience a liquidity shortfall.
Unlike the management of cash from our domestic operations, the
amount of cash that is transferred from our foreign operations
to Clear Channel Communications will be determined on a basis
mutually agreeable to us and Clear Channel Communications, and
not on a pre-determined basis. In arriving at such mutual
agreement, the reasonably foreseeable cash needs of our foreign
operations will be evaluated before a cash amount is to be
considered as an excess or surplus amount for transfer to Clear
Channel
62
Communications. When an amount of excess cash from our foreign
operations is agreed upon, any proposed transfer of that excess
cash will be further subject to a consideration of the effects
of repatriating all or any portion of that amount. Excess cash
from our foreign operations which is transferred to Clear
Channel Communications will be subject to the record-keeping
procedures and note arrangements utilized for cash transferred
from our domestic operations to Clear Channel Communications.
For so long as Clear Channel Communications maintains a
significant interest in us, a deterioration in the financial
condition of Clear Channel Communications could increase our
borrowing costs or impair our access to the capital markets
because of our reliance on Clear Channel Communications for
availability under its revolving credit facility. In addition,
because the interest rate we pay on our $2.5 billion
promissory note is based on the weighted average cost of debt
for Clear Channel Communications, any such deterioration would
likely result in an increase in Clear Channel
Communications cost of debt and in our interest rate. To
the extent we cannot pass on our increased borrowing costs to
our clients, our profitability, and potentially our ability to
raise capital, could be materially affected. Also, so long as
Clear Channel Communications maintains a significant interest in
us, pursuant to the Master Agreement between Clear Channel
Communications and us, Clear Channel Communications will have
the ability to limit our ability to incur debt or issue equity
securities, which could adversely affect our ability to meet our
liquidity needs. In addition, the $2.5 billion intercompany
note requires us to prepay it in full upon a change of control
(as defined in the note), and, upon our issuances of equity and
incurrence of debt, subject to certain exceptions, to prepay the
note in the amount of net proceeds received from such events.
See Risk Factors Risks Related to Our
Business and Arrangements Between Clear Channel
Communications and Us.
Our primary uses of capital are funding our working capital
liabilities, debt service, acquisitions and capital
expenditures. Our working capital liabilities are funded through
cash flows from operations. Cash paid for interest during the
years ended December 31, 2004, 2003 and 2002 was
approximately $175.4 million, $198.3 million and
$268.0 million, respectively.
We have entered into certain agreements relating to acquisitions
that provide for purchase price adjustments and other future
contingent payments based on the financial performance of the
acquired company. We will continue to accrue additional amounts
related to such contingent payments if and when it is
determinable that the applicable financial performance targets
will be met. The aggregate of these contingent payments, if
performance targets are met, would not significantly impact our
financial position or results of operations. The following is a
summary of our acquisition activity for the years ended
December 31, 2004, 2003 and 2002:
2004 Acquisitions. In September 2004, we acquired
Medallion Taxi Media, Inc. for approximately $31.6 million.
In addition, during 2004 we acquired display faces for
approximately $60.8 million in cash and acquired equity
interests in international outdoor companies for approximately
$2.5 million in cash. We also exchanged advertising assets,
valued at approximately $23.7 million, for other
advertising assets valued at approximately $32.3 million.
2003 Acquisitions. During 2003 we acquired display faces
for approximately $28.3 million in cash. We also acquired
investments in nonconsolidated affiliates for approximately
$10.7 million in cash and acquired an additional 10%
interest in a subsidiary for approximately $5.1 million in
cash.
2002 Acquisitions. In June 2002 we acquired The Ackerley
Group. The transaction was funded by approximately
$26.3 million of our operating cash and a non-cash capital
contribution from Clear Channel Communications of approximately
$612.8 million. In addition, we acquired display faces for
approximately $126.3 million in cash and acquired
investments in nonconsolidated affiliates for approximately
$2.1 million in cash.
63
Capital Expenditures. Our capital expenditures have
consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months |
|
|
|
|
|
|
|
|
|
Ended |
|
|
|
|
|
September 30, |
|
|
Year Ended December 31, |
|
|
|
|
|
|
|
|
|
|
2005 |
|
|
2004 |
|
|
2004 |
|
|
2003 |
|
|
2002 |
|
(In millions) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-revenue producing
|
|
$ |
53.0 |
|
|
$ |
44.5 |
|
|
$ |
70.1 |
|
|
$ |
63.4 |
|
|
$ |
81.0 |
|
Revenue producing
|
|
|
77.5 |
|
|
|
73.2 |
|
|
|
106.0 |
|
|
|
141.7 |
|
|
|
209.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total capital expenditures
|
|
$ |
130.5 |
|
|
$ |
117.7 |
|
|
$ |
176.1 |
|
|
$ |
205.1 |
|
|
$ |
290.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We define non-revenue producing capital expenditures as those
expenditures that are required on a recurring basis. Revenue
producing capital expenditures are discretionary capital
investments for new revenue streams, similar to an acquisition.
Our capital expenditures have been declining since 2002,
primarily as a result of fewer revenue producing capital
expenditures in our international segment. Due to successful
bidding on street furniture contracts in prior years, we needed
to supply the street furniture required under the contracts. We
have not been as actively bidding on international street
furniture contracts since 2002 and therefore have not had the
capital needs associated with these contracts.
Part of our long-term strategy is to pursue the technology of
electronic displays, including flat screens, LCDs and LEDs, as
alternatives to traditional methods of displaying our
clients advertisements. We are currently performing
limited tests of these technologies in certain markets. We
believe that cash flow from operations will be sufficient to
fund these expenditures because we expect enhanced margins
through: (i) lower cost of production as the advertisements
will be digital and controlled by a central computer network,
(ii) decreased down time on displays because the
advertisements will be digitally changed rather than manually
posted paper or vinyl on the face of the display, and
(iii) incremental revenue through more targeted and time
specific advertisements allowing us to sell more advertisements
on a single display.
Covenant Compliance
The newly issued $2.5 billion intercompany note requires us
to comply with various negative covenants, including
restrictions on the following activities: incurring consolidated
funded indebtedness (as defined in the note), excluding
intercompany indebtedness, in a principal amount in excess of
$400.0 million at any one time outstanding; creating liens;
making investments; entering into sale and leaseback
transactions (as defined in the note), which when aggregated
with consolidated funded indebtedness secured by liens, will not
exceed an amount equal to 10% of our total consolidated
shareholders equity (as defined in the note) as shown on
our most recently reported annual audited consolidated financial
statements; disposing of all or substantially all of our assets;
entering into mergers and consolidations; declaring or making
dividends or other distributions; repurchasing our equity; and
entering into transactions with our affiliates. In addition, the
note requires us to prepay it in full upon a change of control.
The note defines a change of control to occur when Clear Channel
Communications ceases to control (i) directly or
indirectly, more than 50% of the aggregate voting equity
interests of us, our operating subsidiary or our respective
successors or assigns, or (ii) the ability to elect a
majority of the board of directors of us, our operating
subsidiary or our respective successors or assigns. Upon our
issuances of equity and incurrences of debt, subject to certain
exceptions, we are also required to prepay the note in the
amount of the net proceeds received by us from such events.
Generally, the following constitute events of default under the
$2.5 billion intercompany note: any principal or accrued
interest on the principal remains unpaid when due on the stated
maturity date (as defined in the note) or upon the occurrence of
a mandatory prepayment event (as defined in the note); any
accrued interest or accrued expenses remain unpaid three days
after the interest payment date (as defined in the note); any
provision in the note or any related security document that
represents a right or remedy ceases to be binding on our
operating subsidiary or available to us; any representation or
warranty made in the note or any related security document is
untrue or inaccurate in any material respect; breaches of
covenants or agreements or the occurrence of an event of default
in the note or any related security document; defaults by us in
the payment of indebtedness in excess of $25.0 million, a
final judgment or order in excess of $25.0 million
64
against us or forfeiture of property by us having a value in
excess of $25.0 million; or the declaration by us or
against us of bankruptcy or insolvency.
Certain of our international subsidiaries that are offshore
borrowers may borrow up to $150.0 million for use in our
international operations under a sub-limit of the approximately
$1.8 billion revolving credit facility of Clear Channel
Communications so long as Clear Channel Communications remains
in compliance with its covenants under the facility and does not
otherwise borrow against such capacity. The significant
covenants contained in the credit facility relate to leverage
and interest coverage (as defined in the credit facility). The
leverage ratio covenant requires Clear Channel Communications to
maintain a ratio of consolidated funded indebtedness to
operating cash flow (as defined by the credit facility) of less
than 5.25x. The interest coverage covenant requires Clear
Channel Communications to maintain a minimum ratio of operating
cash flow to interest expense (as defined by the credit
facility) of 2.50x. Generally, the following constitute events
of default under the $1.8 billion revolving credit
facility: failure to pay borrowings and interest when they
become due; failure to perform or observe covenants contained in
the credit facility; failure to perform or observe any covenant
contained in any other loan document; incorrect or misleading
representations and warranties made in connection with the
credit facility agreement; default on any other indebtedness
greater than $200 million; the declaration by Clear Channel
Communications or against Clear Channel Communications of
bankruptcy or insolvency; failure to pay debts as they become
due; a final judgment for the payment of money exceeding
$250 million; invalidity of loan documents at any time
after their execution and delivery; change of control; and
failure to comply with the Communications Act or any rule or
regulation promulgated by the Federal Communications Commission.
A change of control occurs under the $1.8 billion credit
facility generally when any person or group acquires more than
50% of the voting interest of Clear Channel Communications or
when there has been a turnover of a majority of the board of
directors of Clear Channel Communications during a
24 consecutive month period.
There are no significant covenants or events of default
contained in the $1.4 billion and $73.0 million
intercompany notes, the cash management note issued by Clear
Channel Communications to us or the cash management note issued
by us to Clear Channel Communications.
Contractual and Other Obligations
In addition to the scheduled maturities on our debt, we have
future cash obligations under various types of contracts. We
lease office space, certain equipment and the majority of the
land occupied by our advertising structures under long-term
operating leases. Some of our lease agreements contain renewal
options and annual rental escalation clauses (generally
tied to the consumer price index), as well as provisions for our
payment of utilities and maintenance.
We have minimum franchise payments associated with noncancelable
contracts that enable us to display advertising on such media as
buses, taxis, trains, bus shelters and terminals. The majority
of these contracts contain rent provisions that are calculated
as the greater of a percentage of the relevant advertising
revenues or a specified guaranteed minimum annual payment.
65
The scheduled maturities of our credit facility, other long-term
debt outstanding, future minimum rental commitments under
noncancelable lease agreements, minimum payments under other
noncancelable contracts, minimum annual guarantees and capital
expenditures commitments as of December 31, 2004 are as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period |
|
|
|
|
|
|
|
|
|
2010 and |
|
|
|
Total |
|
|
2005 |
|
|
2006-2007 |
|
|
2008-2009 |
|
|
Thereafter |
|
(In thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revolving credit facility
|
|
$ |
23,938 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
23,938 |
|
|
|
|
|
Debt with Clear Channel Communications
|
|
|
1,463,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1,463,000 |
|
Other long-term debt
|
|
|
152,442 |
|
|
|
146,268 |
|
|
|
4,569 |
|
|
|
832 |
|
|
|
773 |
|
Minimum annual guarantees
|
|
|
1,658,599 |
|
|
|
378,313 |
|
|
|
471,406 |
|
|
|
282,702 |
|
|
|
526,178 |
|
Noncancelable operating leases
|
|
|
1,254,014 |
|
|
|
177,567 |
|
|
|
290,827 |
|
|
|
218,027 |
|
|
|
567,593 |
|
Capital expenditure commitments
|
|
|
223,716 |
|
|
|
119,687 |
|
|
|
63,065 |
|
|
|
25,222 |
|
|
|
15,742 |
|
Noncancelable contracts
|
|
|
8,953 |
|
|
|
4,215 |
|
|
|
1,604 |
|
|
|
883 |
|
|
|
2,251 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total firm commitments and outstanding debt
|
|
$ |
4,784,662 |
|
|
$ |
826,050 |
|
|
$ |
831,471 |
|
|
$ |
551,604 |
|
|
$ |
2,575,537 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
On a pro forma basis, after giving effect to the application of
the proceeds of this offering, at an assumed initial public
offering price of $21.00 per share of Class A common
stock, which is the midpoint of the estimated offering price
range set forth on the cover page of this prospectus, and the
distribution of the $2.5 billion intercompany note, as if
such transactions had occurred at January 1, 2004, our
contractual obligations would have consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period |
|
|
|
|
|
|
|
|
|
2010 and |
|
|
|
Total |
|
|
2005 |
|
|
2006-2007 |
|
|
2008-2009 |
|
|
Thereafter |
|
(In thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revolving credit facility
|
|
$ |
23,938 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
23,938 |
|
|
|
|
|
Debt with Clear Channel Communications
|
|
|
2,500,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
2,500,000 |
|
Other long-term debt
|
|
|
152,442 |
|
|
|
146,268 |
|
|
|
4,569 |
|
|
|
832 |
|
|
|
773 |
|
Minimum annual guarantees
|
|
|
1,658,599 |
|
|
|
378,313 |
|
|
|
471,406 |
|
|
|
282,702 |
|
|
|
526,178 |
|
Noncancelable operating leases
|
|
|
1,254,014 |
|
|
|
177,567 |
|
|
|
290,827 |
|
|
|
218,027 |
|
|
|
567,593 |
|
Capital expenditure commitments
|
|
|
223,716 |
|
|
|
119,687 |
|
|
|
63,065 |
|
|
|
25,222 |
|
|
|
15,742 |
|
Noncancelable contracts
|
|
|
8,953 |
|
|
|
4,215 |
|
|
|
1,604 |
|
|
|
883 |
|
|
|
2,251 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total firm commitments and outstanding debt
|
|
$ |
5,821,662 |
|
|
$ |
826,050 |
|
|
$ |
831,471 |
|
|
$ |
551,604 |
|
|
$ |
3,612,537 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SEASONALITY
Typically, both our domestic and international segments
experience their lowest financial performance in the first
quarter of the calendar year, with international typically
experiencing a loss from operations in this period. Our domestic
segment typically experiences consistent performance in the
remainder of our calendar year. Our international segment
typically experiences its strongest performance in the second
and fourth quarters of our calendar year. We expect this trend
to continue in the future. See Risk Factors We
have incurred net losses and may experience future net losses
which could adversely affect our stock price.
MARKET RISK MANAGEMENT
We are exposed to market risks arising from changes in market
rates and prices, including movements in foreign currency
exchange rates and interest rates.
66
Foreign Currency Risk
We have operations in countries throughout the world. The
financial results of our international operations are measured
in their local currencies, except in the hyperinflationary
countries in which we operate. As a result, our financial
results could be affected by factors such as changes in foreign
currency exchange rates or weak economic conditions in the
international markets in which we operate. We believe we
mitigate a small portion of our exposure to international
currency fluctuations with a natural hedge through borrowings in
currencies other than the U.S. dollar. Our international
operations reported a net loss of approximately
$35.0 million for the nine months ended September 30,
2005. We estimate that a 10% change in the value of the
U.S. dollar relative to foreign currencies would have
changed our net income for the nine months ended
September 30, 2005 by approximately $3.5 million.
This analysis does not consider the implication such currency
fluctuations could have on the overall economic activity that
could exist in such an environment in the United States or the
foreign countries or on the results of operations of these
foreign entities.
Interest Rate Risk
We had approximately $4.2 billion total debt outstanding as
of September 30, 2005, of which $2.5 billion was
variable rate debt.
Based on the amount of our floating-rate debt as of
September 30, 2005, each 50 basis point increase or
decrease in interest rates would increase or decrease our annual
interest expense and cash outlay by approximately
$12.5 million. This potential increase or decrease is based
on the simplified assumption that the level of floating-rate
debt remains constant with an immediate across-the-board
increase or decrease as of September 30, 2005 with no
subsequent change in rates for the remainder of the period.
RECENT ACCOUNTING PRONOUNCEMENTS
In March 2005, the Financial Accounting Standards Board, or
FASB, issued Interpretation No. 47, Accounting for
Conditional Asset Retirement Obligations, or FIN 47.
FIN 47 is an interpretation of FASB Statement 143,
Asset Retirement Obligations, which was issued in June
2001. According to FIN 47, uncertainty about the timing or
method of settlement because they are conditional on a future
event that may or may not be within the control of the entity
should be factored into the measurement of the asset retirement
obligation when sufficient information exists. FIN 47 also
clarifies when an entity would have sufficient information to
reasonably estimate the fair value of an asset retirement
obligation. FIN 47 is effective no later than the end of
fiscal years ending after December 15, 2005. Retrospective
application of interim financial information is permitted, but
is not required. We adopted FIN 47 on January 1, 2005,
which did not materially impact our financial position or
results of operations.
In March 2005, the SEC issued Staff Accounting
Bulletin No. 107 Share-Based Payment, or
SAB 107. SAB 107 expresses the SEC staffs views
regarding the interaction between Statement of Financial
Accounting Standards No. 123(R) Share-Based Payment,
or Statement 123(R), and certain SEC rules and regulations
and provides the staffs views regarding the valuation of
share-based payment arrangements for public companies. In
particular, SAB 107 provides guidance related to
share-based payment transactions with nonemployees, the
transition from nonpublic to public entity status, valuation
methods (including assumptions such as expected volatility and
expected term), the accounting for certain redeemable financial
instruments issued under share-based payment arrangements, the
classification of compensation expense, non-GAAP financial
measures, first time adoption of Statement 123(R) in an
interim period, capitalization of compensation cost related to
share-based payment arrangements, the accounting for income tax
effects of share-based payment arrangements upon adoption of
Statement 123(R) and the modification of employee share
options prior to adoption of Statement 123(R). We are
unable to quantify the impact of adopting SAB 107 and
Statement 123(R) at this time because it will depend on
levels of share-based payments granted in the future.
Additionally, we are still evaluating the assumptions we will
use upon adoption.
67
In April 2005, the SEC issued a press release announcing that it
would provide for phased-in implementation guidance for
Statement 123(R). The SEC would require that registrants
that are not small business issuers adopt
Statement 123(R)s fair value method of accounting for
share-based payments to employees no later than the beginning of
the first fiscal year beginning after June 15, 2005. We
intend to adopt Statement 123(R) on January 1, 2006.
In June 2005, the Emerging Issues Task Force, or EITF, issued
EITF 05-6, Determining the Amortization Period of
Leasehold Improvements, or EITF 05-6. EITF 05-6
requires that assets recognized under capital leases generally
be amortized in a manner consistent with the lessees
normal depreciation policy except that the amortization period
is limited to the lease term (which includes renewal periods
that are reasonably assured). EITF 05-6 also addresses the
determination of the amortization period for leasehold
improvements that are purchased subsequent to the inception of
the lease. Leasehold improvements acquired in a business
combination or purchased subsequent to the inception of the
lease should be amortized over the lesser of the useful life of
the asset or the lease term that includes reasonably assured
lease renewals as determined on the date of the acquisition of
the leasehold improvement. We adopted EITF 05-6 on
July 1, 2005, which did not materially impact our financial
position or results of operations.
CRITICAL ACCOUNTING ESTIMATES
The preparation of our financial statements in conformity with
generally accepted accounting principles requires management to
make estimates, judgments and assumptions that affect the
reported amounts of assets and liabilities, disclosure of
contingent assets and liabilities at the date of the financial
statements and the reported amount of expenses during the
reporting period. On an ongoing basis, we evaluate our estimates
that are based on historical experience and on various other
assumptions that are believed to be reasonable under the
circumstances. The result of these evaluations forms the basis
for making judgments about the carrying values of assets and
liabilities and the reported amount of expenses that are not
readily apparent from other sources. Because future events and
their effects cannot be determined with certainty, actual
results could differ from our assumptions and estimates, and
such difference could be material. Our significant accounting
policies are discussed in Note A to our combined financial
statements included elsewhere in this prospectus. Management
believes that the following accounting estimates are the most
critical to aid in fully understanding and evaluating our
reported financial results, and they require managements
most difficult, subjective or complex judgments, resulting from
the need to make estimates about the effect of matters that are
inherently uncertain. The following narrative describes these
critical accounting estimates, the judgments and assumptions and
the effect if actual results differ from these assumptions.
Allowance for Doubtful Accounts
We evaluate the collectibility of our accounts receivable based
on a combination of factors. In circumstances where we are aware
of a specific clients inability to meet its financial
obligations, we record a specific reserve to reduce the amounts
recorded to what we believe will be collected. For all other
clients, we recognize reserves for bad debt based on historical
experience of bad debts as a percentage of revenues for each
business unit, adjusted for relative improvements or
deteriorations in the agings and changes in current economic
conditions.
If our agings were to improve or deteriorate resulting in a 10%
change in our allowance, it is estimated that our bad debt
expense for the nine months ended September 30, 2005 would
have changed by approximately $2.3 million and our net
income for the same period would have changed by approximately
$0.9 million.
Long-lived Assets
Long-lived assets, such as property, plant and equipment are
reviewed for impairment when events and circumstances indicate
that depreciable and amortizable long-lived assets might be
impaired and the
68
undiscounted cash flows estimated to be generated by those
assets are less than the carrying amount of those assets. When
specific assets are determined to be unrecoverable, the cost
basis of the asset is reduced to reflect the current fair market
value.
We use various assumptions in determining the current fair
market value of these assets, including future expected cash
flows and discount rates, as well as future salvage values. Our
impairment loss calculations require management to apply
judgment in estimating future cash flows, including forecasting
useful lives of the assets and selecting the discount rate that
reflects the risk inherent in future cash flows.
If actual results are not consistent with our assumptions and
judgments used in estimating future cash flows and asset fair
values, we may be exposed to future impairment losses that could
be material to our results of operations.
Goodwill
Goodwill represents the excess of the purchase price over the
fair value of identifiable net assets acquired in business
combinations. We review goodwill for potential impairment
annually using the income approach to determine the fair value
of our reporting units. The fair value of our reporting units is
used to apply value to the net assets of each reporting unit. To
the extent that the carrying amount of net assets would exceed
the fair value, an impairment charge may be required to be
recorded.
The income approach we use for valuing goodwill involves
estimating future cash flows expected to be generated from the
related assets, discounted to their present value using a
risk-adjusted discount rate. Terminal values are also estimated
and discounted to their present value.
As a result of adopting Statement 142 on January 1,
2002, we recorded a non-cash, net of tax, goodwill impairment
charge of approximately $3.5 billion. As required by
Statement 142, a subsequent impairment test was performed
at October 1, 2002, which resulted in no additional
impairment charge. The non-cash impairment of our goodwill was
generally caused by unfavorable economic conditions, which
persisted throughout 2001. This weakness contributed to our
clients reducing the number of advertising dollars spent
on our inventory. These conditions adversely impacted the cash
flow projections used to determine the fair value of each
reporting unit at January 1, 2002 which resulted in the
non-cash impairment charge of a portion of our goodwill. We may
incur impairment charges in future periods under
Statement 142 to the extent we do not achieve our expected
cash flow growth rates, and to the extent that market values
decrease and long-term interest rates increase.
Indefinite-lived Assets
Indefinite-lived assets such as our billboard permits are
reviewed annually for possible impairment using the direct
method. Our key assumptions using the direct method are market
revenue growth rates, market share, profit margin, duration and
profile of the build-up period, estimated start-up capital costs
and losses incurred during the build-up period, the
risk-adjusted discount rate and terminal values. This data is
populated using industry normalized information representing an
average permit within a market.
The SEC staff issued Staff Announcement No. D-108, Use
of the Residual Method to Value Acquired Assets Other Than
Goodwill, at the September 2004 meeting of the Emerging
Issues Task Force. D-108 states that the residual method
should no longer be used to value intangible assets other than
goodwill. Prior to the adoption of Staff Announcement
No. D-108, we recorded our acquisition of permits at fair
value using an industry accepted income approach and
consequently applied the same approach for purposes of
impairment testing. Our adoption of the direct method resulted
in an aggregate fair value of our permits that was less than the
carrying value determined under our prior method. As a result,
we recorded a non-cash charge of $162.9 million, net of
deferred taxes, as a cumulative effect of a change in accounting
principle during the fourth quarter 2004.
If actual results are not consistent with our assumptions and
estimates, we may be exposed to impairment charges in the
future. If our assumption on market revenue growth rate
decreased 10%, our non-cash charge, net of tax, would increase
approximately $25.1 million. Similarly, if our assumption on
69
market revenue growth rate increased 10%, our non-cash charge,
net of tax, would decrease approximately $30.0 million.
Asset Retirement Obligations
Statement of Financial Accounting Standards No. 143,
Accounting for Asset Retirement Obligations,
requires us to estimate our obligation upon the termination or
nonrenewal of a lease, to dismantle and remove our billboard
structures from the leased land and to reclaim the site to its
original condition. We record the present value of obligations
associated with the retirement of tangible long-lived assets in
the period in which they are incurred. The liability is
capitalized as part of the related long-lived assets
carrying amount. Over time, accretion of the liability is
recognized as an operating expense and the capitalized cost is
depreciated over the expected useful life of the related asset.
Due to the high rate of lease renewals over a long period of
time, our calculation assumes that all related assets will be
removed at some period over the next 50 years. An estimate
of third-party cost information is used with respect to the
dismantling of the structures and the reclamation of the site.
The interest rate used to calculate the present value of such
costs over the retirement period is based on an estimated
risk-adjusted credit rate for the same period.
70
INDUSTRY OVERVIEW
This section includes industry data, forecasts and
information that we have prepared based, in part, upon industry
data, forecasts and information obtained from industry
publications and surveys and internal company information. Media
Dynamics Inc., Nielsen Media Research, Inc., Outdoor Advertising
Association of America (OAAA), Zenith Optimedia and other
industry reports and articles were the primary sources for
third-party industry data, forecasts and information. These
third-party industry publications and surveys and forecasts
generally state that they believe the information contained
therein was obtained from sources they believe to be reliable,
but that they can give no assurance as to the accuracy or
completeness of included information. We have not independently
verified any of the data from third-party sources nor have we
ascertained the underlying economic assumptions relied upon
therein. Similarly, while we believe the industry forecasts and
market research are reliable, we have not independently verified
such forecasts and research.
The global outdoor market has emerged as a leading advertising
medium that serves as a core branding and marketing platform for
companies, both domestically and internationally. Similar to
other advertising media, the key competitive factors for outdoor
advertising are pricing, location and availability of displays.
The principal advantages of outdoor advertising include the
following:
|
|
|
|
|
Facilitates broad reach and high frequency. The outdoor
advertising industry is characterized by broad reach and high
frequency, as compared to other forms of advertising media. We
believe that national and regional brands are increasing their
use of outdoor advertising to maximize the coverage and impact
of their advertising campaigns. These advertisers benefit from
the branding effect and broad exposure that results from the
sustained, repetitive viewing provided by outdoor advertising. |
|
|
|
Drives sustained mass advertising. Unlike other
advertising media, such as television, consumers cannot
interrupt or selectively avoid advertisements displayed on
outdoor structures. |
|
|
|
Enables selective targeting. Outdoor advertising enables
advertisers, such as restaurants, entertainment facilities,
hotels and other roadside operations, to target motorists or
pedestrians in close proximity to their businesses. |
|
|
|
Captures increasingly mobile audiences. Population growth
and increasing commute times are key growth drivers for outdoor
advertising due to its ability to capture a growing mobile
audience base that spends an increasing amount of time
out-of-home. |
|
|
|
Offers low cost platform. Outdoor advertising is a
relatively low cost medium, as compared to other forms of
advertising media. As a result, outdoor advertising is often
used as a complementary marketing platform for companies
implementing a multifaceted media plan across various media,
including print, broadcasting, the Internet and direct
marketing. Also, outdoor advertising is used by local businesses
that cannot afford costlier alternatives. |
Industry Metrics
According to OAAA, outdoor advertising grew 10.2% in the second
quarter of 2005. Based on industry data compiled by us in
conjunction with our efforts to highlight for our customers the
value of outdoor advertising relative to other media, we believe
that this rate was higher than overall U.S. advertising
growth in the second quarter of 2005, outpacing television,
radio and publishing. Also, according to a study conducted by
two researchers from the Louisiana State University Manship
School of Mass Communications, the recall rate for outdoor
advertising is greater than that of magazines, network
television and cable television. Recall is determined by the
ability to name an advertiser without prompting.
According to OAAA, the top 10 industries using outdoor
advertising, based on 2004 year-end outdoor expenditures,
were: (1) local services and amusements, (2) media and
advertising, (3) public
71
transportation, hotels and resorts, (4) retail,
(5) insurance and real estate, (6) financial,
(7) automotive dealers and services, (8) restaurants,
(9) automotive, auto access and equipment and
(10) telecommunications. Also according to OAAA, the top 20
outdoor brands, based on 2004 year-end outdoor
expenditures, were: (1) McDonalds, (2) Warner movies,
(3) Miller beers, (4) Verizon long distance,
(5) Anheuser-Busch beers, (6) General Motors,
(7) Verizon Wireless, (8) Cracker Barrel,
(9) Chevrolet, (10) Walt Disney movies,
(11) Nissan, (12) Bank of America, (13) Diageo,
(14) Toyota, (15) Geico, (16) Coca-Cola,
(17) Coors Light, (18) Allstate, (19) Dodge and
(20) Dreamworks movies.
Pricing
Outdoor advertising is a low cost, high impact medium for
advertisers. The average cost per thousand impressions, or CPM,
of outdoor advertising is approximately one fourth that of
newspapers and prime time television and one half that of radio
and newsweekly magazines. The average reach of outdoor
advertising is approximately twice that of radio and newsweekly
magazines, four and a half times that of newspapers and five
times that of prime time television. The following table lists
the average CPM for advertising media (according to calculations
from data in TV Dimensions 2005© Media Dynamics, Inc.) and
the number of persons reached for every $1,000 invested in those
media in the United States:
|
|
|
|
|
|
|
|
|
|
|
|
|
Persons Reached |
|
Advertising Medium |
|
Average CPM |
|
|
per $1,000 Invested |
|
|
|
|
|
|
|
|
Outdoor
|
|
$ |
5.53 |
|
|
|
180,832 |
|
Radio
|
|
|
9.91 |
|
|
|
100,908 |
|
Newsweekly magazines
|
|
|
11.76 |
|
|
|
85,034 |
|
Newspapers
|
|
|
24.92 |
|
|
|
40,128 |
|
Prime time network television
|
|
|
26.44 |
|
|
|
37,821 |
|
Ratings and Measurement
Unlike for other forms of advertising media, including radio,
television and print, no universally recognized methodology has
emerged in the United States or internationally as the industry
standard for audience ratings and measurement. A number of
independent third parties are in the process of implementing new
measurement systems designed to measure the demographics of
people who pass U.S. billboards. Nielsen Outdoor has also
piloted a new audience measurement methodology in Chicago that
is currently being reviewed by the outdoor advertising industry.
The Traffic Audit Bureau announced plans to develop its own
ratings and measurement system from its traffic counts and
demographic data supplied by third-party research companies. One
of the goals of these efforts is to measure outdoor advertising
using traditional advertising metrics used in other media,
including print and broadcasting. Additionally, Arbitron has
established an outdoor group to provide research services
specialized for outdoor advertising.
These next-generation ratings services may improve measurements
within the industry, which may lead to an increase in outdoor
advertisings market share. The introduction of Postar, an
outdoor advertising measurement service launched in the United
Kingdom in the early 1990s, partly contributed to an increase in
market share for outdoor advertising from 4.8% in 1996 to 6.4%
in 2004, according to Zenith Optimedia. Other international
markets in which we operate are at various stages of developing
similar measurement technologies.
Regulation
The outdoor advertising industry is subject to federal, state
and local regulation. For instance, The Highway Beautification
Act of 1965 (HBA) regulates outdoor advertising on the
306,000 miles of Federal-Aid Primary, Interstate and
National Highway Systems roads within the United States. The HBA
regulates the location of billboards, mandates a state
compliance program, requires the development of
72
state standards, promotes the expeditious removal of illegal
signs and requires just compensation for takings. Size, spacing
and lighting of billboards are regulated by state and local
municipalities. Periodically, certain state and local
governments attempt to force the removal of billboards not
governed by the HBA under various amortization theories. When
challenged under such a theory, an outdoor advertising company
is permitted to recoup its investment for a certain
period of time, after which the signs in question must be
removed. Other important advertising regulations include the
Intermodal Surface Transportation Efficiency Act of 1991, the
Bonus Act/ Bonus Program, the 1995 Scenic Byways Amendment and
various increases or implementations of property taxes,
billboard taxes and permit fees. While these regulations set
certain limits on the placement or erection of new outdoor
advertising displays, they have benefited established companies
such as us by creating high barriers to entry and have protected
the outdoor advertising industry against an oversupply of
inventory.
International regulation of the outdoor advertising industry
varies by region and country, but generally limits the size,
placement, nature and density of out-of-home displays. The
significant international regulations include the Law of
December 29, 1979 in France, the Town and Country Planning
(Control of Advertisements) Regulations 1992 in the United
Kingdom and Règlement Régional Urbain de
lagglomération bruxelloise in Belgium. These laws
define issues such as the extent to which advertisements can be
erected in rural areas, the hours during which illuminated signs
may be lit and whether the consent of local authorities is
required to place a sign in certain communities. Other
regulations may limit the subject matter and language of
out-of-home displays. For instance, the United States and
France, among other nations, ban outdoor advertisements for
tobacco products.
Competitive Landscape
The outdoor industry has recently undergone major consolidation,
as multiple acquisitions occurred throughout the 1990s. The top
10 U.S. outdoor advertising companies, based on 2004
U.S. revenues, according to OAAA, were: Clear Channel
Outdoor Holdings, Viacom Outdoor, Lamar, Regency Outdoor
Advertising, Van Wagner, JCDecaux, Adams Outdoor Advertising,
Magic Media, Fairway and Reagan National. We believe that our
main competitors in the international outdoor advertising
industry are JCDecaux, Viacom Outdoor and a number of regional
companies.
Digital
Digital advertising is a small but rapidly growing niche within
the outdoor industry. These units, supported by advanced LED,
LCD and plasma technologies, offer unique benefits to
advertisers. Unlike traditional outdoor advertising, in which
advertisers may buy a display for a week or longer, advertisers
can buy digital time slots for as short as a specified number of
seconds within each minute, with the ability to change their
message dynamically and in real time. While digital displays are
capable of supporting full motion video, currently most state
and local ordinances (excluding specially zoned areas like Times
Square in New York City) allow only static messages, or
advertising copy without motion, to be presented and changed on
the displays.
73
BUSINESS
Our Company
Our principal business is to provide our clients with
advertising opportunities through billboards, street furniture
displays, transit displays and other out-of-home advertising
displays that we own or operate in key markets worldwide. As of
September 30, 2005, we owned or operated more than 870,000
advertising displays worldwide. For the year ended
December 31, 2004, we generated revenues of approximately
$2.4 billion, operating income of approximately
$243.3 million and operating income before depreciation,
amortization and non-cash compensation expense, or OIBDAN, of
approximately $631.6 million. Our domestic reporting
segment consists of our operations in the United States, Canada
and Latin America, with approximately 95% of our 2004 revenues
in this segment derived from the United States. Our
international reporting segment consists of our operations in
Europe, Australia, Asia and Africa, with approximately 52% of
our 2004 revenues in this segment derived from France and the
United Kingdom. Approximately 89% of our total 2004
operating income excluding corporate expenses was derived from
our domestic segment and approximately 11% was derived from our
international segment. Approximately 66% of our total 2004
OIBDAN excluding corporate expenses was derived from our
domestic segment and approximately 34% was derived from our
international segment. See Prospectus Summary
Summary Historical and Pro Forma Combined Financial
Data Non-GAAP Financial Measure for an
explanation of OIBDAN and a reconciliation of OIBDAN to
operating income (loss). Additionally, we own equity interests
in various out-of-home advertising companies worldwide, which we
account for under the equity method of accounting.
Billboard displays are bulletin and poster advertising panels of
various sizes that generally are mounted on structures we own.
These structures typically are located on sites that we either
lease or own or for which we have acquired permanent easements.
Site lease terms generally range from one to 50 years. We
believe that many of our billboards are strategically located to
offer maximum visual impact to audiences. Larger billboards
generally are located along major highways and freeways to
target vehicular traffic. Smaller billboards generally are
located on city streets to target both vehicular and pedestrian
traffic. Our client contracts for billboards generally have
terms ranging from one week to one year.
Street furniture displays, marketed under our global
Adsheltm
brand, are advertising surfaces on bus shelters, information
kiosks, public toilets, freestanding units and other public
structures. Generally, we own the street furniture structures
and are responsible for their construction and maintenance.
Contracts for the right to place our street furniture structures
in the public domain and sell advertising space on them are
awarded by municipal and transit authorities in competitive
bidding processes. Generally, these contracts have terms ranging
from 10 to 20 years and involve revenue-sharing
arrangements with the authorities, including payments by us of
minimum guaranteed amounts. We believe that street furniture is
growing in popularity with municipal and transit authorities,
especially in international and larger U.S. markets. Our
client contracts for street furniture displays typically have
terms ranging from one week to one year.
Transit displays are advertising surfaces on various types of
vehicles or within transit systems, including on the interior
and exterior sides of buses, trains, trams and taxis and within
the common areas of rail stations and airports. Contracts for
the right to place our displays on vehicles or within transit
systems and sell advertising space on them are awarded by public
transit authorities in competitive bidding processes or are
negotiated with private transit operators. These contracts
typically have terms ranging from three to ten years. Our client
contracts for transit displays generally have terms ranging from
two weeks to one year.
We generate revenues worldwide from local, regional and national
sales. Advertising rates generally are based on the gross
rating points, or total number of impressions delivered
expressed as a percentage of a market population, of a display
or group of displays. The number of impressions
delivered by a display is measured by the number of people
passing the site during a defined period of time and, in some
74
international markets, is weighted to account for such factors
as illumination, proximity to other displays and the speed and
viewing angle of approaching traffic. For all of our billboards
in the United States, we use independent, third-party auditing
companies to verify the number of impressions delivered by a
display. While price and availability of displays are important
competitive factors, we believe that providing quality customer
service and establishing strong client relationships are also
critical components of sales. For example, one service we
provide our smaller clients is access to our creative personnel
who can assist the clients in designing advertising copy.
Our History
In 1997, Clear Channel Communications, which was founded in
1974, acquired Eller Media Company. In 1998, Clear Channel
Communications acquired Universal Outdoor, giving Clear Channel
Communications an outdoor presence in 33 major U.S. markets
with over 88,000 displays. Also in 1998, Clear Channel
Communications acquired More Group plc, a European-based company
operating in 25 countries. Other significant outdoor
acquisitions over the last five years include The Ackerley
Group, Spectacolor, Donrey Outdoor, Taxi Tops and France Rail
Publicité.
In addition to this offering, Clear Channel Communications
intends to spin off the entire operations of its entertainment
division into an independent publicly traded company in which
Clear Channel Communications will not hold any ownership
interest. This new public company will consist of Clear Channel
Communications worldwide entertainment operations.
Domestic Products
Our domestic segment consists of our operations in the United
States, Canada and Latin America, with approximately 95% of our
2004 revenues in this segment derived from the United States.
Our domestic display inventory consists primarily of billboards,
street furniture displays and transit displays, with billboards
contributing approximately 75% of our 2004 domestic revenues.
The margins on our billboard contracts also tend to be higher
than those on contracts for other displays.
The following table shows the approximate percentage of revenues
derived from each category of our domestic advertising inventory:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
|
|
|
|
|
2004 |
|
|
2003 |
|
|
2002 |
|
|
|
|
|
|
|
|
|
|
|
Billboards:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bulletins(1)
|
|
|
56% |
|
|
|
56% |
|
|
|
56% |
|
|
Posters
|
|
|
19% |
|
|
|
20% |
|
|
|
21% |
|
Street furniture displays
|
|
|
4% |
|
|
|
3% |
|
|
|
3% |
|
Transit displays
|
|
|
11% |
|
|
|
11% |
|
|
|
10% |
|
Other displays(2)
|
|
|
10% |
|
|
|
10% |
|
|
|
10% |
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
100% |
|
|
|
100% |
|
|
|
100% |
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
For our internal reporting purposes, wallscape revenues are
combined with bulletin revenues. For a description of
wallscapes, see Other Domestic Inventory. |
|
(2) |
Includes spectaculars and mall displays. |
In the United States, our displays are located in all of the top
30 U.S. designated market area regions, or DMA® regions
(DMA® is a registered trademark of Nielsen Media Research,
Inc.), and in 46 of the top 50 DMA® regions, giving
our clients the ability to reach a significant portion of the
U.S. population. A DMA® region, a term developed by
Nielsen Media Research, Inc., is used to designate a geographic
area or media market. The significant expenses associated with
our domestic operations include (i) direct production and
installation expenses, (ii) site lease expenses for land
under our displays and (iii) revenue-sharing or minimum
guaranteed amounts payable under our street furniture and
transit display contracts.
75
Our direct production and installation expenses include costs
for printing, transporting and changing the advertising copy
displayed on our bulletins, and related labor and vinyl or paper
costs. Vinyl and paper costs vary according to the complexity of
the advertising copy and the quantity of displays. Our site
lease expenses include lease payments for use of the land under
our displays, as well as any revenue-sharing arrangements we may
have with the landlords. The terms of our domestic site leases
generally range from one to 50 years.
Our domestic billboard inventory primarily includes bulletins
and posters.
Bulletins vary in size, with the most common size being
14 feet high by 48 feet wide. Almost all of the
advertising copy displayed on bulletins is computer printed on
vinyl and transported to the bulletin where it is secured to the
display surface. Because of their greater size and impact, we
typically receive our highest rates for bulletins. Bulletins
generally are located along major expressways, primary commuting
routes and main intersections that are highly visible and
heavily trafficked. Our clients may contract for individual
bulletins or a network of bulletins, meaning the clients
advertisements are rotated among bulletins to increase the reach
of the campaign. Reach is the percent of a target
audience exposed to an advertising message at least once during
a specified period of time, typically during a period of four
weeks. Our client contracts for bulletins generally have terms
ranging from one month to one year, or longer.
Posters are available in two sizes, 30-sheet and eight-sheet
displays. The 30-sheet posters are approximately 11 feet
high by 23 feet wide, and the eight-sheet posters are
approximately five feet high by 11 feet wide. Advertising
copy for posters is printed using silk-screen or lithographic
processes to transfer the designs onto paper that is then
transported and secured to the poster surfaces. Posters
generally are located in commercial areas on primary and
secondary routes near point-of-purchase locations, facilitating
advertising campaigns with greater demographic targeting than
those displayed on bulletins. Our poster rates typically are
less than our bulletin rates, and our client contracts for
posters generally have terms ranging from four weeks to one
year. Two types of posters are premiere panels and squares.
Premiere displays are innovative hybrids between bulletins and
posters that we developed to provide our clients with an
alternative for their targeted marking campaigns. The premiere
displays utilize one or more poster panels, but with vinyl
advertising stretched over the panels similar to bulletins. Our
intent is to combine the creative impact of bulletins with the
additional reach and frequency of posters. Frequency
is the average number of exposures an individual has to an
advertising message during a specified period of time.
Out-of-home frequency is typically measured over a four-week
period.
|
|
|
Street Furniture Displays
|
Our street furniture displays, marketed under our global
Adsheltm
brand, are advertising surfaces on bus shelters, information
kiosks, public toilets, freestanding units and other public
structures, and primarily are located in major metropolitan
cities and along major commuting routes. Generally, we own the
street furniture structures and are responsible for their
construction and maintenance. Contracts for the right to place
our street furniture in the public domain and sell advertising
space on them are awarded by municipal and transit authorities
in competitive bidding processes governed by local law.
Generally, these contracts have terms ranging from 10 to
20 years. As compensation for the right to sell advertising
space on our street furniture structures, we pay the
municipality or transit authority a fee or revenue share that is
either a fixed amount or a percentage of the revenues derived
from the street furniture displays. Typically, these revenue
sharing arrangements include payments by us of minimum
guaranteed amounts. Client contracts for street furniture
displays typically have terms ranging from four weeks to one
year, or longer, and, similar to billboards, may be for network
packages.
76
Our transit displays are advertising surfaces on various types
of vehicles or within transit systems, including on the interior
and exterior sides of buses, trains, trams and taxis and within
the common areas of rail stations and airports. Similar to
street furniture, contracts for the right to place our displays
on such vehicles or within such transit systems and sell
advertising space on them generally are awarded by public
transit authorities in competitive bidding processes or are
negotiated with private transit operators. These contracts
typically have terms of up to five years. Our client contracts
for transit displays generally have terms ranging from four
weeks to one year, or longer.
The balance of our domestic display inventory consists of
spectaculars, mall displays and wallscapes. Spectaculars are
customized display structures that often incorporate video,
multidimensional lettering and figures, mechanical devices and
moving parts and other embellishments to create special effects.
The majority of our spectaculars are located in Dundas Square in
Toronto, Times Square and Penn Plaza in New York City, Fashion
Show in Las Vegas, Sunset Strip in Los Angeles and across
from the Target Center in Minneapolis. Client contracts for
spectaculars typically have terms of one year or longer. We also
own displays located within the common areas of malls on which
our clients run advertising campaigns for periods ranging from
four weeks to one year. Contracts with mall operators grant us
the exclusive right to place our displays within the common
areas and sell advertising on those displays. Domestically, our
contracts with mall operators generally have terms ranging from
five to ten years. Client contracts for mall displays typically
have terms ranging from six to eight weeks. A wallscape is
a display that drapes over or is suspended from the sides of
buildings or other structures. Generally, wallscapes are located
in high-profile areas where other types of outdoor advertising
displays are limited or unavailable. Clients typically contract
for individual wallscapes for extended terms. Domestically, our
inventory includes other small displays that are not counted as
separate displays in this prospectus since their contribution to
our revenues is not material.
International Products
Our international segment consists of our advertising operations
in Europe, Australia, Asia and Africa, with approximately 52% of
our 2004 revenues in this segment derived from France and the
United Kingdom. Our international display inventory
consists primarily of billboards, street furniture displays and
transit displays in approximately 50 countries worldwide, with
billboards and street furniture displays collectively
contributing approximately 77% of our 2004 international
revenues.
The following table shows the approximate percentage of revenues
derived from each category of our international advertising
inventory:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
|
|
|
|
|
2004 |
|
|
2003 |
|
|
2002 |
|
|
|
|
|
|
|
|
|
|
|
Billboards
|
|
|
46% |
|
|
|
47% |
|
|
|
50% |
|
Street furniture displays
|
|
|
31% |
|
|
|
33% |
|
|
|
30% |
|
Transit displays(1)
|
|
|
10% |
|
|
|
10% |
|
|
|
10% |
|
Other displays(2)
|
|
|
13% |
|
|
|
10% |
|
|
|
10% |
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
100% |
|
|
|
100% |
|
|
|
100% |
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
Includes small displays. |
|
(2) |
Includes spectaculars, mall displays and other small displays. |
The majority of our international clients are advertisers
targeting national audiences whose business is placed with us
through advertising agencies and outdoor buying services. The
significant expenses associated with our international
operations include (i) revenue-sharing or minimum
guaranteed amounts
77
payable under our billboard, street furniture and transit
display contracts, (ii) site lease expenses and
(iii) cleaning and maintenance expenses related to our
street furniture. These expenses consist of costs similar to
those associated with our domestic operations. Internationally,
the terms of our site leases typically range from three to ten
years, but may vary across our networks. Because revenue-sharing
and minimum guaranteed payment arrangements are more prevalent
in our international operations, the margins in our
international operations typically are less than the margins in
our domestic operations.
The size of our international billboards is not standardized.
The billboards vary in both format and size across our networks,
with the majority of our international billboards being similar
in size to our domestic posters (30-sheet and eight-sheet
displays). Our international billboards are sold to clients as
network packages with contract terms typically ranging from one
to two weeks. Long-term client contracts are also available and
typically have terms of up to one year. We lease the majority of
our international billboard sites from private landowners.
|
|
|
Street Furniture Displays
|
Our international street furniture displays are substantially
similar to their domestic counterparts, and include bus
shelters, freestanding units, public toilets, various types of
kiosks and benches. Internationally, contracts with municipal
and transit authorities for the right to place our street
furniture in the public domain and sell advertising on them
typically range from 10 to 15 years. The major difference
between our international and domestic street furniture
businesses is in the nature of the municipal contracts. In the
international segment, these contracts typically require us to
provide the municipality with a broader range of urban amenities
such as public wastebaskets and lampposts, as well as space for
the municipality to display maps or other public information. In
exchange for providing such urban amenities and display space,
we are authorized to sell advertising space on certain sections
of the structures we erect in the public domain. Client
contracts for street furniture displays typically have terms
ranging from one to two weeks, but are available for up to one
year, and may be for network packages.
Our international transit display contracts are substantially
similar to their domestic counterparts, and typically require us
to make only a minimal initial investment and few ongoing
maintenance expenditures. Contracts with public transit
authorities or private transit operators typically have terms
ranging from three to seven years. Our client contracts for
transit displays generally have terms ranging from two weeks to
one year, or longer.
|
|
|
Other International Inventory
|
The balance of our international display inventory consists
primarily of spectaculars and mall displays. DEFI, our
international neon subsidiary, is a leading global provider of
spectaculars with approximately 300 spectacular displays in 30
countries worldwide. Client contracts for international
spectaculars typically have terms ranging from five to ten
years. Internationally, our contracts with mall operators
generally have terms ranging from five to ten years and client
contracts for mall displays generally have terms ranging from
one to two weeks, but are available for up to six months. Our
international inventory includes other small displays that are
counted as separate displays in this prospectus since they form
a substantial part of our network and international revenues.
Marketing Resources
We have several online tools and resources to help us sell our
inventory. Our online rate card is a web-based application that
allows users to view all of our markets and products for rates
and gross rating point allotments. We also have an online
inventory search that is designed to provide users access to
photos and maps of all our U.S. bulletins, wallscapes,
premiere squares and spectaculars. Our internal web-
78
based system,
FastPitchtm,
delivers real-time rate and availability data for each of our
U.S. markets, and our account executives use that data to
create multi- or single-market advertising programs without
having to contact individual markets for this data.
FastPitchtm
also contains maps, product sheets, market information, shipping
information and product specifications. Inventory availability
is updated daily directly from each markets scheduling
system.
Additionally, our account executives use several research
products to help sell our inventory. Our account executives
assist advertisers in structuring advertising campaigns using
computer databases and mapping software to analyze target
audiences and consumer products and services. By examining
demographic profiles, socioeconomic information and consumer
buying power, our research allows us to create smart, effective
purchases for our advertisers.
Production
In a majority of our markets, our local production staff
performs the full range of activities required to create and
install advertising copy. Production work includes creating the
advertising copy design and layout, coordinating its printing
and installing the copy on displays. We provide creative
services to smaller advertisers and to advertisers that are not
represented by advertising agencies. National advertisers often
use preprinted designs that require only installation. Our
creative and production personnel typically develop new designs
or adopt copy from other media for use on our inventory. Our
creative staff also can assist in the development of marketing
presentations, demonstrations and strategies to attract new
clients.
The majority of our international clients are advertisers
targeting national audiences whose business generally is placed
with us through advertising agencies. These agencies often
provide our international clients creative services to design
and produce both the advertising copy and the physical printed
advertisement. Advertising copy, both paper and vinyl, is
shipped to centralized warehouses operated by us. The copy is
then sorted and delivered to sites where it is installed on our
displays.
Client Categories
In 2004, the top five client categories in our domestic segment,
based on domestic revenues derived from these categories, were
entertainment and amusements, business and consumer services,
automotive, retail and insurance and real estate. In 2004, the
top five client categories in our international segment, based
on international revenues derived from those categories, were
automotive, food and drink, media and entertainment, retail and
telecommunications.
Our Markets
Approximately 95% of our 2004 domestic revenues were derived
from the United States and approximately 52% of our 2004
international revenues were derived from France and the United
Kingdom. The following table sets forth certain information
regarding displays that we own or operate in domestic and
international markets worldwide. As of September 30, 2005,
we owned or operated approximately 164,000 domestic displays and
approximately 709,000 international displays. Our domestic
markets are listed in order of their DMA® region ranking
and our international markets are listed in descending order
according to revenues contribution.
79
Our Domestic Displays
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DMA® |
|
|
|
|
Billboards |
|
|
Street |
|
|
|
|
|
|
|
Region |
|
|
|
|
|
|
|
Furniture |
|
|
Transit |
|
|
Other |
|
|
Total |
|
Rank |
|
|
Domestic Markets |
|
Bulletins(1) |
|
|
Posters |
|
|
Displays |
|
|
Displays |
|
|
Displays(2) |
|
|
Displays |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
|
|
New York, NY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18,214 |
|
|
2 |
|
|
Los Angeles, CA |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,789 |
|
|
3 |
|
|
Chicago, IL |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3) |
|
|
|
|
|
|
11,673 |
|
|
4 |
|
|
Philadelphia, PA |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,525 |
|
|
5 |
|
|
San Francisco-Oakland-San Jose, CA |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,722 |
|
|
6 |
|
|
Boston, MA (Manchester, NH) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,926 |
|
|
7 |
|
|
Dallas-Ft. Worth, TX |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,956 |
|
|
8 |
|
|
Washington, DC (Hagerstown, MD) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,708 |
|
|
9 |
|
|
Atlanta, GA |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,313 |
|
|
10 |
|
|
Houston, TX |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3) |
|
|
|
|
|
|
4,742 |
|
|
11 |
|
|
Detroit, MI |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
547 |
|
|
12 |
|
|
Seattle-Tacoma, WA |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,312 |
|
|
13 |
|
|
Minneapolis-St. Paul, MN |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,977 |
|
|
14 |
|
|
Phoenix (Prescott), AZ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3) |
|
|
1,464 |
|
|
15 |
|
|
Miami-Ft. Lauderdale, FL |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3) |
|
|
3,701 |
|
|
16 |
|
|
Tampa-St. Petersburg (Sarasota), FL |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,963 |
|
|
17 |
|
|
Cleveland-Akron (Canton), OH |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,448 |
|
|
18 |
|
|
Sacramento-Stockton-Modesto, CA |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
958 |
|
|
19 |
|
|
Denver, CO |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
685 |
|
|
20 |
|
|
Orlando-Daytona Beach-Melbourne, FL |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,465 |
|
|
21 |
|
|
St. Louis, MO |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
234 |
|
|
22 |
|
|
Pittsburgh, PA |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3) |
|
|
|
|
|
|
528 |
|
|
23 |
|
|
San Diego, CA |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3) |
|
|
1,334 |
|
|
24 |
|
|
Portland, OR |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,294 |
|
|
25 |
|
|
Baltimore, MD |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3) |
|
|
2,025 |
|
|
26 |
|
|
Indianapolis, IN |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,981 |
|
|
27 |
|
|
Hartford-New Haven, CT |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6 |
|
|
28 |
|
|
Charlotte, NC |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12 |
|
|
29 |
|
|
Raleigh-Durham (Fayetteville), NC |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10 |
|
|
30 |
|
|
Nashville, TN |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21 |
|
|
31 |
|
|
Salt Lake City, UT |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
124 |
|
|
32 |
|
|
Kansas City, KS/ MO |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3) |
|
|
|
|
|
|
|
|
|
33 |
|
|
Milwaukee, WI |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,700 |
|
|
34 |
|
|
Cincinnati, OH |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8 |
|
|
35 |
|
|
Columbus, OH |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,401 |
|
|
37 |
|
|
San Antonio, TX |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3) |
|
|
|
(3) |
|
|
3,016 |
|
|
39 |
|
|
Norfolk-Portsmouth-Newport News, VA |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8 |
|
|
40 |
|
|
West Palm Beach-Ft. Pierce, FL |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
372 |
|
|
42 |
|
|
New Orleans, LA |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,775 |
|
|
43 |
|
|
Memphis, TN |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,200 |
|
|
44 |
|
|
Harrisburg-Lancaster-Lebanon-York, PA |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
36 |
|
|
45 |
|
|
Albuquerque-Santa Fe, NM |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,097 |
|
|
47 |
|
|
Oklahoma City, OK |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12 |
|
|
48 |
|
|
Buffalo, NY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
240 |
|
|
49 |
|
|
Fresno-Visalia, CA |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10 |
|
|
50 |
|
|
Las Vegas, NV |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3) |
|
|
11,295 |
|
|
52 |
|
|
Louisville, KY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16 |
|
|
53 |
|
|
Jacksonville, FL |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
866 |
|
|
54 |
|
|
Wilkes Barre-Scranton, PA |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
39 |
|
|
55 |
|
|
Austin, TX |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3) |
|
|
|
|
|
|
16 |
|
|
56 |
|
|
Hudson Valley, NY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
376 |
|
|
57 |
|
|
Richmond-Petersburg, VA |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12 |
|
|
62 |
|
|
Knoxville, TN |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13 |
|
|
63 |
|
|
Charleston-Huntington, WV |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9 |
|
|
67 |
|
|
Wichita-Hutchinson, KS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
673 |
|
|
72 |
|
|
Tucson (Sierra Vista), AZ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,550 |
|
|
73 |
|
|
Des Moines-Ames, IA |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3) |
|
|
672 |
|
|
87 |
|
|
Chattanooga, TN |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,562 |
|
|
89 |
|
|
Northpark, MS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3) |
|
|
6 |
|
|
91 |
|
|
Cedar Rapids-Waterloo-Iowa City-Dubuque, IA |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12 |
|
|
93 |
|
|
El Paso, TX (Las Cruces, NM) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,305 |
|
|
94 |
|
|
Colorado Springs-Pueblo, CO |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7 |
|
|
97 |
|
|
Johnstown-Altoona, PA |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20 |
|
|
101 |
|
|
Youngstown, OH |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8 |
|
|
104 |
|
|
Monterey-Salinas, CA |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
40 |
|
|
107 |
|
|
Ft. Smith-Fayetteville-Springdale-Rogers, AR |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
914 |
|
|
113 |
|
|
Reno, NV |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
574 |
|
|
114 |
|
|
Tallahassee, FL-Thomasville, GA |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9 |
|
80
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DMA® |
|
|
|
|
Billboards |
|
|
Street |
|
|
|
|
|
|
|
Region |
|
|
|
|
|
|
|
Furniture |
|
|
Transit |
|
|
Other |
|
|
Total |
|
Rank |
|
|
Domestic Markets |
|
Bulletins(1) |
|
|
Posters |
|
|
Displays |
|
|
Displays |
|
|
Displays(2) |
|
|
Displays |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
115 |
|
|
Augusta, GA |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3) |
|
|
|
|
|
117 |
|
|
Sioux Falls (Mitchell), SD |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19 |
|
|
142 |
|
|
Sioux City, IA |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8 |
|
|
145 |
|
|
Lubbock, TX |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16 |
|
|
148 |
|
|
Palm Springs, CA |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12 |
|
|
150 |
|
|
Salisbury, MD |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3) |
|
|
|
|
|
|
1,247 |
|
|
163 |
|
|
Ocala-Gainesville, FL |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,317 |
|
|
171 |
|
|
Billings, MT |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8 |
|
|
176 |
|
|
Rapid City, SD |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10 |
|
|
189 |
|
|
Great Falls, MT |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14 |
|
|
190 |
|
|
Grand Junction-Aspen-Montrose, CO |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
51 |
|
|
n/a |
|
|
Newport, RI |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25 |
|
|
n/a |
|
|
Wilmington, DE |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3) |
|
|
|
(3) |
|
|
|
|
|
|
|
|
Domestic Non-U.S.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
n/a |
|
|
Brazil |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,243 |
|
|
n/a |
|
|
Canada |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,669 |
|
|
n/a |
|
|
Chile |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,272 |
|
|
n/a |
|
|
Mexico |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,922 |
|
|
n/a |
|
|
Peru |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,512 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Domestic Displays
|
|
|
163,871 |
|
|
|
(1) |
Includes wallscapes. |
|
(2) |
Includes spectaculars and mall displays. |
|
(3) |
We have access to additional displays through arrangements with
local advertising and other companies. |
Our International Displays
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Street |
|
|
|
|
|
|
|
|
|
|
Furniture |
|
Transit |
|
Other |
|
Total |
International Markets |
|
Billboards |
|
Displays |
|
Displays(1) |
|
Displays(2) |
|
Displays |
|
|
|
|
|
|
|
|
|
|
|
France
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
170,500 |
|
United Kingdom
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
92,344 |
|
Italy
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
50,918 |
|
Spain
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
34,645 |
|
China(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
52,746 |
|
Sweden
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
102,124 |
|
Switzerland
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,892 |
|
Belgium
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22,407 |
|
Australia
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,829 |
|
Norway
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,544 |
|
Denmark
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28,836 |
|
Ireland
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,947 |
|
Russia
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,703 |
|
Greece
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,193 |
|
Finland
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
44,584 |
|
Poland
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,596 |
|
Singapore
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,626 |
|
Holland
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,743 |
|
Turkey
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,628 |
|
New Zealand
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,979 |
|
Baltic States
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,857 |
|
Portugal
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18 |
|
India
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
403 |
|
Germany
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
80 |
|
Hungary
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25 |
|
Czech Republic
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5 |
|
Austria
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4 |
|
Ukraine
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2 |
|
Dubai
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total International Displays
|
|
|
709,179 |
|
|
|
(1) |
Includes small displays. |
|
(2) |
Includes spectaculars, mall displays and other small displays. |
|
(3) |
In July 2005 Clear Media became a consolidated subsidiary when
we increased our investment to a majority controlling interest. |
81
Equity Investments
In addition to the more than 870,000 displays we owned and
operated worldwide as of September 30, 2005, we have made
equity investments in various out-of-home advertising companies
that operate in the following markets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Street |
|
|
|
|
|
|
|
|
Equity |
|
|
|
Furniture |
|
Transit |
|
Other |
Market |
|
Company |
|
Investment(1) |
|
Billboards |
|
Displays |
|
Displays |
|
Displays(2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Outdoor Advertising Companies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
South Africa(3)
|
|
Clear Channel Independent |
|
|
50.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Italy
|
|
Alessi |
|
|
35.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Italy
|
|
AD Moving SpA |
|
|
17.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hong Kong
|
|
Buspak |
|
|
50.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thailand
|
|
Master & More |
|
|
32.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Korea
|
|
Ad Sky Korea |
|
|
30.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Belgium
|
|
MTB |
|
|
49.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Belgium
|
|
Streep |
|
|
25.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denmark
|
|
City Reklame |
|
|
45.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Media Companies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Norway
|
|
CAPA |
|
|
50.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Holland
|
|
Kamasutra |
|
|
49.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
As of September 30, 2005. |
|
(2) |
Includes spectaculars, mall displays and other small displays. |
|
(3) |
Clear Channel Independent is headquartered and has the majority
of its operations in South Africa, but also operates in other
African countries such as Angola, Botswana, Lesotho, Malawi,
Mauritius, Mozambique, Namibia, Swaziland, Tanzania, Uganda and
Zambia. |
Construction and Operation
We typically own the physical structures on which our
clients advertising copy is displayed. We build some of
the structures at our billboard fabrication business in Illinois
and erect them on sites we either lease or own or for which we
have acquired permanent easements. The site lease terms
generally range from one to 50 years. In addition to the
site lease, we must obtain a permit to build the sign. Permits
are typically issued in perpetuity by the state or local
government and typically are transferable or renewable for a
minimal, or no, fee. Bulletin and poster advertising copy is
either printed with computer generated graphics on a single
sheet of vinyl or placed on lithographed or silk-screened paper
sheets supplied by the advertiser. These advertisements are then
transported to the site and in the case of vinyl wrapped around
the face, and in the case of paper pasted and applied like
wallpaper. The operational process also includes conducting
visual inspections of the inventory for display defects and
taking the necessary corrective action within a reasonable
period of time.
The international manufacturing process largely consists of two
elements: the manufacture and installation of advertising
structures and the weekly preparation of advertising posters for
distribution throughout our networks. Generally, we outsource
the manufacturing of advertising structures to third parties and
regularly seek competitive bids. We use a wide range of
suppliers, located in each of our
82
markets, none of whom represents more than 10% of our
manufacturing budget in any one year. The design of street
furniture structures (such as bus shelters, bicycle racks,
kiosks and public toilets) is typically done in conjunction with
a third-party design or architecture firm. These street
furniture designs then form the basis of a competitive bidding
process to select a manufacturer. Our street furniture sites are
posted by our own employees or subcontractors who also clean and
maintain the sites. The decision to use our own employees or
subcontractors is made on a market-by-market basis taking into
consideration the mix of products in the market and local labor
costs.
Our Competitive Strengths
We believe our key competitive strengths are as follows:
|
|
|
Leading positions in key markets
|
We believe that our presence in key markets gives our clients
the ability to reach a global audience through one advertising
provider. As of September 30, 2005, we owned or operated
more than 870,000 advertising displays worldwide. Our displays
are located in all of the top 30 U.S. designated market
area regions, or DMA® regions, and in 46 of the top 50
DMA® regions, giving our clients the ability to reach a
significant portion of the U.S. population. In addition, as
of September 30, 2005, we owned or operated displays in
approximately 50 countries in North and South America, Europe,
Australia, Asia and Africa, providing us with a global market
presence.
|
|
|
Diversified and global client base
|
We have long-standing relationships with a diversified group of
local, regional and national advertising brands and agencies in
the United States and worldwide. In 2004, the top five client
categories in our domestic segment, based on domestic revenues
derived from these categories, were entertainment and
amusements, business and consumer services, automotive, retail,
and insurance and real estate. In 2004, the top five client
categories in our international segment, based on international
revenues derived from those categories, were automotive, food
and drink, media and entertainment, retail and
telecommunications. No single advertiser accounted for more than
2% of our 2004 domestic or international revenues.
|
|
|
Business model with significant financial
flexibility
|
We have historically generated high levels of cash flow from
operations due to consistent revenue growth with disciplined
control of operating expenditures. Our cash flow from operations
was approximately $492.5 million in 2004,
$433.5 million in 2003 and $320.2 million in 2002.
Operating cash flow through the first nine months of 2005 was
$336.6 million and through the first nine months of 2004
was $329.9 million. Total revenue increased at a 9.1%
compounded annual rate from 2000 to 2004. We believe that these
high levels of cash flow from operations provide us with
strategic and financial flexibility and, together with our
ability to use our publicly traded common stock as acquisition
currency, will position us to opportunistically pursue
attractive acquisitions and investments.
|
|
|
Positioned to capitalize on new technologies
|
We believe that we are well-positioned to take advantage of
significant technological advances and the corresponding
improvements in advertisers abilities to present engaging
campaigns to their target audiences. In particular, we believe
that we are prepared to capitalize on the growing trend of
digital outdoor displays. We have a dedicated team tasked with
determining the most effective deployment of networked digital
sign technologies to enhance the revenue-generating capacity of
our assets in existing and new markets worldwide. In July 2005,
we launched our first networked digital trial on select
bulletins in Cleveland, Ohio and plan to launch similar pilots
in other U.S. and international markets. Of the seven billboards
that we converted from a standard to digital format in
Cleveland, we have experienced significant increases in revenues
from those displays. We are evaluating the additional capital
improvement
83
costs relative to the increased revenue and the regulatory
issues surrounding possible future conversions. We anticipate
that these trials will provide us with significant experience in
shaping our long-term digital strategy.
|
|
|
Experienced senior management team
|
Our senior management team is led by Mark P. Mays, Paul J. Meyer
and Randall T. Mays, each of whom has extensive experience in
the outdoor advertising industry. The experience of our senior
management team extends internationally with regionally based
teams that oversee our respective international markets.
|
|
|
Positioned to capitalize on emerging international
opportunities
|
We believe that our financial strength and flexibility, our
existing presence in key markets worldwide and our experienced
senior management team position us well to capitalize on
emerging international opportunities. Accordingly, we have
engaged in acquisitions and investment opportunities in the
global out-of-home advertising industry. For instance, in July
2005, we made an additional equity investment in Clear Media
Limited, one of the largest outdoor advertising companies in
China, that gave us a majority ownership interest in the company.
Our Strategy
Our fundamental goal is to increase stockholder value by
maximizing our cash flow from operations worldwide.
Accomplishing this goal requires the successful implementation
of the following strategies:
|
|
|
Capitalize on global network and diversified product
mix
|
We seek to capitalize on our global network and diversified
product mix to maximize revenues and increase profits. We can
increase our operating margins by spreading our fixed investment
costs over our broad asset base. In addition, by sharing best
practices both domestically and internationally, we can quickly
and effectively replicate our successes throughout the markets
in which we operate. We believe that our diversified product mix
and long-standing presence in many of our existing markets
provide us with the platform necessary to launch new products
and test new initiatives in a reliable and cost-effective manner.
|
|
|
Highlight the value of outdoor advertising relative to
other media
|
We seek to enhance revenue opportunities by focusing on specific
initiatives that highlight the value of outdoor advertising
relative to other media. We have made significant investments in
research tools that enable our clients to better understand how
our displays can successfully reach their target audiences and
promote their advertising campaigns. Also, we are working
closely with clients, advertising agencies and other diversified
media companies to develop more sophisticated systems that will
provide improved demographic measurements of outdoor
advertising. We believe that these measurement systems will
further enhance the attractiveness of outdoor advertising for
both existing clients and new advertisers.
|
|
|
Continue to focus on achieving operating
efficiencies
|
We continue to focus on achieving operating efficiencies
throughout our global network. For example, in most of our
U.S. markets, we have been transitioning our compensation
programs in our operations departments from hourly-wage scales
to productivity-based programs. We have decreased operating
costs and capital needs by introducing energy-saving lighting
systems and innovative processes for changing advertising copy
on our displays. Additionally, in certain heavy storm areas we
continue to convert large format billboards to sectionless
panels that face less wind resistance, reducing our
weather-related losses in such areas.
84
We believe that customer service is critical, and we have made
significant commitments to provide innovative services to our
clients. For example, we provide our U.S. clients with
online access to information about our inventory, including
pictures, locations and other pertinent display data that is
helpful in their buying decisions. Additionally, in the United
States we recently introduced a service guaranty in which we
have committed to specific monitoring and reporting services to
provide greater accountability and enhance customer
satisfaction. We also introduced a proprietary online
proof-of-performance system that is an additional tool our
clients may use to measure our accountability. This system
provides our clients with information about the dates on which
their advertising copy is installed or removed from any display
in their advertising program.
|
|
|
Pursue attractive acquisitions and other investments
worldwide
|
Through acquisitions and investments, we intend to strengthen
our presence in existing markets and selectively enter into new
markets where the returns and growth potential of such expansion
are consistent with our fundamental goal of increasing
stockholder value. In particular, in recent years we have
steadily added to our presence in Europe, Asia and Latin
America. All three regions continue to offer additional growth
opportunities.
|
|
|
Pursue new cost-effective technologies
|
Advances in electronic displays, including flat screens, LCDs
and LEDs, as well as corresponding reductions in costs, allow us
to provide these technologies as alternatives to traditional
methods of displaying our clients advertisements. These
electronic displays may be linked through centralized computer
systems to instantaneously and simultaneously change static
advertisements on a large number of displays. We believe that
these capabilities will allow us to transition from selling
space on a display to a single advertiser to selling time on
that display to multiple advertisers. We believe this transition
will create new advertising opportunities for our existing
clients and will attract new advertisers, such as certain
retailers that desire to change advertisements frequently and on
short notice. For example, these technologies will allow
retailers to promote weekend sales with the flexibility during
the sales to make multiple changes to the advertised products
and prices.
|
|
|
Maintain an entrepreneurial culture
|
We maintain an entrepreneurial and customer-oriented culture by
empowering local market managers to operate their businesses as
separate profit centers, subject to centralized oversight. A
portion of our managers compensation is dependent upon the
financial success of their individual business units. This
culture motivates local market managers to maximize our cash
flow from operations by providing high-quality service to our
clients and seeking innovative ways to deploy capital to further
grow their businesses. Our managers also have full access to our
extensive centralized resources, including sales training,
research tools, shared best practices, global procurement and
financial and legal support.
Employees
As of September 30, 2005, we had approximately 2,700
domestic employees and approximately 4,900 international
employees, of which approximately 100 were employed in corporate
activities. As of September 30, 2005, 273 of our
U.S. employees and 2,686 of our non-U.S. employees are
subject to collective bargaining agreements in their respective
countries. We believe that our relationship with our employees
is good.
Properties and Facilities
Our worldwide corporate headquarters are in San Antonio,
Texas. The headquarters of our domestic advertising operations
are in Phoenix, Arizona, and the headquarters of our
international operations are in London, England. The types of
properties required to support each of our advertising branches
include offices, production facilities and structure sites. A
branch and production facility is generally located in an
industrial or warehouse district.
85
We own or have acquired permanent easements for relatively few
parcels of real property that serve as the sites for our outdoor
displays. Our remaining outdoor display sites are leased. Our
leases generally range from one to 50 years. There is no
significant concentration of displays under any one lease or
subject to negotiation with any one landlord. We believe that an
important part of our management activity is to negotiate
suitable lease renewals and extensions.
Legal Proceedings
From time to time, we are involved in legal proceedings arising
in the ordinary course of business. Under our agreements with
Clear Channel Communications, we have assumed and will indemnify
Clear Channel Communications for liabilities related to our
business. Other than as described below, we do not believe there
is any litigation pending that would have, individually or in
the aggregate, a material adverse effect on our financial
position, results of operations or cash flow.
We are the defendant in a lawsuit filed October 20, 1998 by
Jorge Luis Cabrera, Sr., and Martha Serrano, as personal
representatives of the Estate of Jorge Luis Cabrera, Jr.,
in the
11th
Judicial Circuit in and for Miami-Dade County, Florida. The
plaintiff alleged that we negligently constructed, installed or
maintained the electrical system in a bus shelter, which
resulted in the death of Jorge Luis Cabrera, Jr. Martha
Serrano settled her claims with us. On June 24, 2005, the
jury rendered a verdict in favor of the plaintiff, and awarded
the plaintiff $4.1 million in actual damages and
$61.0 million in punitive damages. We have filed a motion
to have the punitive damages award reduced. If our motion to
reduce the punitive damages award is unsuccessful, we intend to
vigorously seek to overturn or nullify the adverse verdict and
damage award including, if necessary, pursuing appropriate
appeals. We have insurance coverage for up to approximately
$50 million in damages for this matter.
86
MANAGEMENT
Executive Officers, Directors, and Significant Employees
Set forth below are the names and ages and current positions of
our executive officers, current and proposed directors and
significant employees. Immediately prior to this offering, we
expect to appoint James M. Raines, Marsha McCombs Shields,
Dale W. Tremblay and William D. Parker as additional
directors to our board of directors. See
Composition of the Board of Directors After
This Offering below.
|
|
|
|
|
|
|
|
|
|
|
Name |
|
Age |
|
|
Position |
|
Term as Director |
|
|
|
|
|
|
|
|
|
|
L. Lowry Mays
|
|
|
70 |
|
|
Chairman of the Board and Director |
|
|
Expires 2007 |
|
William D. Parker
|
|
|
43 |
|
|
Director |
|
|
Expires 2009 |
|
James M. Raines
|
|
|
65 |
|
|
Director |
|
|
Expires 2007 |
|
Marsha McCombs Shields
|
|
|
51 |
|
|
Director |
|
|
Expires 2008 |
|
Dale W. Tremblay
|
|
|
47 |
|
|
Director |
|
|
Expires 2009 |
|
Mark P. Mays
|
|
|
42 |
|
|
Chief Executive Officer and Director |
|
|
Expires 2009 |
|
Randall T. Mays
|
|
|
40 |
|
|
Executive Vice President, Chief Financial Officer and Director |
|
|
Expires 2008 |
|
Paul J. Meyer
|
|
|
62 |
|
|
President and Chief Operating Officer |
|
|
|
|
Jonathan D. Bevan
|
|
|
34 |
|
|
Chief Operating Officer International |
|
|
|
|
Augusto Claux
|
|
|
58 |
|
|
Regional President Latin America |
|
|
|
|
Michael R. Deeds
|
|
|
63 |
|
|
Executive Vice President Domestic Operations |
|
|
|
|
Bo Rickard Hedlund
|
|
|
40 |
|
|
Chief Executive Officer Northern Europe |
|
|
|
|
Michael F. Hudes
|
|
|
44 |
|
|
Global Director Digital Media |
|
|
|
|
Eugene P. Leehan
|
|
|
43 |
|
|
Regional President Western United States |
|
|
|
|
Coline L. McConville
|
|
|
41 |
|
|
Chief Executive Officer Europe |
|
|
|
|
Franklin G. Sisson, Jr.
|
|
|
53 |
|
|
Global Director Sales and Marketing |
|
|
|
|
Timothy C. Stauning
|
|
|
49 |
|
|
Regional President Eastern United States |
|
|
|
|
Kurt A. Tingey
|
|
|
40 |
|
|
Executive Vice President Domestic Chief Financial
Officer |
|
|
|
|
Laura C. Toncheff
|
|
|
37 |
|
|
Executive Vice President Domestic Real Estate,
Public Affairs and Legal |
|
|
|
|
L. Lowry Mays has served as a member of our board of
directors since April 1997 and has been our Chairman of the
Board since October 2005. Mr. Mays is Chairman of the board
of directors of Clear Channel Communications, and prior to
October 2004 he was the companys Chief Executive Officer.
Mr. Mays has been a member of Clear Channel
Communications board of directors since its inception and
has served on the board of directors of CCE Spinco, Inc. since
August 2005. Mr. Mays is the father of Mark P. Mays and
Randall T. Mays, both of whom are members of our board of
directors and executive officers of us.
William D. Parker has served as Chairman and Chief
Executive Officer of America West Holdings Corporation and
America West Airlines since September 2001. Since May 2000,
Mr. Parker has served as President of America West
Airlines. He assumed the position of Chief Operating Officer of
America West
87
Airlines in December 2000 in addition to his role as President
of the company. From 1999 to 2000, Mr. Parker served as
Executive Vice President, Corporate Group of America West
Airlines.
James M. Raines has served as the President of James M.
Raines & Co., an investment banking company, since
1988. Since 1998, Mr. Raines has served on the board of
directors of Waddell & Reed Financial, Inc., a
financial services corporation.
Marsha McCombs Shields has served as a director of
Primera Insurance since March 1989. Since June 2002,
Ms. McCombs has served as the President of the McCombs
Foundation and as Dealer Principal for McCombs Automotive. She
has served as Manager of McCombs Family Ltd. since January 2000.
Ms. Shields is the daughter of one of the founders and
board members of Clear Channel Communications.
Dale W. Tremblay has served as President and Chief
Executive Officer of C.H. Guenther & Son, Inc., a food
marketing and manufacturing company, since July 2001. Prior to
that, from May 1998 to July 2001, Mr. Tremblay served as
the Executive Vice President and Chief Operating Officer of C.H.
Guenther & Son, Inc. Mr. Tremblay was a Financial
Analyst for R.R. Donnelley & Sons from June 1980 to May
1982. He currently serves on the Advisory Board for the Michigan
State University Financial Analysis Lab.
Mark P. Mays has served as our Chief Executive Officer
since August 2005 and Director since April 1997.
Mr. Mays has served as Chief Executive Officer and
President of Clear Channel Communications since October 2004.
Prior thereto, he served as the interim Chief Executive Officer
and President and Chief Operating Officer of Clear Channel
Communications from May 2004 to October 2004 and as the
President and Chief Operating Officer of Clear Channel
Communications for the remainder of the relevant five-year
period. Mr. Mays has served on the board of directors of
Clear Channel Communications since May 1998, and has served on
the board of CCE Spinco, Inc. since August 2005. Mr. Mays
is the son of L. Lowry Mays, Clear Channel Communications
Chairman and one of our board members, and is the brother of
Randall T. Mays, our Executive Vice President and Chief
Financial Officer and one of our board members.
Randall T. Mays has served as our Executive Vice
President and Chief Financial Officer since August 2005 and
Director since April 1997. Mr. Mays has served as
Chairman of the board of directors of CCE Spinco, Inc. since
August 2005. He also has served as the Executive Vice President,
Chief Financial Officer and Secretary of Clear Channel
Communications since 1996. He has served on the board of
directors of Clear Channel Communications since April 1999.
Mr. Mays is the son of L. Lowry Mays, Clear Channel
Communications Chairman and one of our board members, and
is the brother of Mark P. Mays, our Chief Executive Officer and
one of our board members.
Paul J. Meyer has served as our President and Chief
Operating Officer since April 2005. Prior thereto, he served as
President and Chief Executive Officer of our domestic segment
from January 2002 to April 2005 and President/Chief Operating
Officer of our domestic segment from March 1999 to December
2001. Mr. Meyer has also served as Vice President of Clear
Channel Communications since March 1999.
Jonathan D. Bevan has served as our Chief Operating
Officer International since December 2004.
Mr. Bevan served as Senior Vice President/ Operations of
our international segment from September 2002 to December 2004
and, prior thereto, as Director of Finance for the remainder of
the relevant five-year period.
Augusto Claux has served as our Regional
President Latin America since 1999.
Michael R. Deeds has served as our Executive Vice
President Domestic Operations since 1999 and has
been employed with us for 38 years.
Bo Rickard Hedlund has served as the Chief Executive
Officer Northern Europe of our international segment
since April 1, 2005. Prior thereto, Mr. Hedlund served
as Executive Vice President Nordic Region from
October 2001 to March 2005 and Regional Director for all of our
88
business units in Sweden, Norway, Denmark and Finland. From
November 1997 to September 2001, Mr. Hedlund served as
General Manager Sweden. From 2003, Mr. Hedlund
was responsible for our Baltics and Russia regions and was also
responsible for our Dutch business unit and Clear Channel
Hillenaar from 2004.
Michael F. Hudes has served as our Global
Director Digital Media (previously Executive Vice
President/ Corporate Development) since August 2005. Prior
thereto, he served as our Executive Vice President/ Corporate
Development since March 2004. From April 2002 to February 2004,
he also served as President, Chief Operating Officer and a
Director of AdSpace Networks, Inc., a digital media network
builder. Prior thereto, Mr. Hudes was President, Chief
Operating Officer and a Director of Organic, Inc., an internet
professional services company from November 1995 to September
2001.
Eugene P. Leehan has served as our Regional
President Western United States since January 2003.
Prior thereto, Mr. Leehan has worked for us or our
predecessor companies in various capacities since February 1986.
Coline L. McConville has served as Chief Executive
Officer Europe of our international segment since
January 2003. Prior thereto, she served as Chief Operating
Officer for our international segment for the remainder of the
relevant five-year period.
Franklin G. Sisson, Jr. has served as our Global
Director Sales and Marketing since August 2005.
Prior thereto, he served as Executive Vice President Sales and
Marketing of the domestic segment since January 2001 and as
President/ General Manager Orlando Division from August 1998 to
December 2000.
Timothy C. Stauning has served as our Regional
President Eastern United States since August 2004.
Prior thereto, Mr. Stauning served as President of our
New York Branch since August 1998.
Kurt A. Tingey has served as our Executive Vice President
and Domestic Chief Financial Officer since January 1, 2000.
From March 1999 to January 2000, Mr. Tingey served as our Senior
Vice President Business Development.
Laura C. Toncheff has served as our Executive Vice
President Domestic Real Estate, Public Affairs and
Legal since January 2003. Prior thereto, Ms. Toncheff
served as the Executive Vice President and General Counsel for
our domestic operations from January 2000, and prior thereto she
served as Senior Vice President.
Composition of the Board of Directors After This Offering
Prior to the completion of this offering, we intend to
restructure our board of directors. Our board of directors
consists of three directors. We intend to appoint four
additional directors, subject to the completion of this
offering, each of whom has consented to so serve. We anticipate
that James M. Raines, William D. Parker, Marsha McCombs Shields
and Dale W. Tremblay will be independent as determined by our
board of directors under the applicable securities law
requirements and listing standards. Ms. Shields is the
daughter of one of the founders and board members of Clear
Channel Communications. For so long as Clear Channel
Communications is the owner of such number of shares
representing more than 50% of the total voting power of our
common stock, it will have the ability to direct the election of
all the members of our board of directors, the composition of
our board committees and the size of the board. See
Description of Capital Stock.
Concurrent with the completion of the offering, our directors
will be divided into three classes serving staggered three-year
terms. At each annual meeting of our stockholders, directors
will be elected to succeed the class of directors whose terms
have expired. Class I directors terms will expire at
the 2007 annual meeting of our stockholders, Class II
directors terms will expire at the 2008 annual meeting of
our stockholders and Class III directors terms will
expire at the 2009 annual meeting of our stockholders. L. Lowry
Mays and James M. Raines initially will be our Class I
directors, Randall T. Mays and Marsha McCombs Shields initially
will be our Class II directors and Mark P. Mays, Dale W.
Tremblay and William D. Parker initially will be our
Class III directors. Our classified board of directors
could have the
89
effect of increasing the length of time necessary to change the
composition of a majority of our board. Generally, at least two
annual meetings of stockholders will be necessary for
stockholders to effect a change in a majority of the members of
the board of directors.
We intend to avail ourselves of certain of the controlled
company exemptions of the New York Stock Exchange
corporate governance standards which free us from the obligation
to comply with certain NYSE corporate governance requirements
that would otherwise require (i) that the majority of the
board of directors consists of independent directors,
(ii) that we have a nominating and governance committee and
that it be composed entirely of independent directors with a
written charter addressing the committees purpose and
responsibilities, (iii) that we have a compensation
committee composed entirely of independent directors with a
written charter addressing the committees purpose and
responsibilities and (iv) an annual performance evaluation
of the compensation committee. See Risk
Factors Risks Related to Our Relationship with Clear
Channel Communications and Arrangements Between
Clear Channel Communications and Us.
Committees of the Board of Directors After This Offering
The standing committees of our board of directors will be an
audit committee and compensation committee, each of which is
described below.
The three independent (as determined by the board of directors
based on the NYSE listing standards) audit committee members
will be James M. Raines, who will serve as the chairman, Marsha
McCombs Shields and Dale W. Tremblay. We anticipate that
James M. Raines will be designated by our board of directors as
the audit committee financial expert (as defined in the
applicable regulations of the SEC). The audit committee will
operate under a written charter adopted by the board of
directors which reflects standards set forth in SEC regulations
and NYSE rules. The composition and responsibilities of the
audit committee and the attributes of its members, as reflected
in the charter, are intended to be in accordance with applicable
requirements for corporate audit committees. The charter will be
reviewed, and amended if necessary, on an annual basis. The full
text of the audit committees charter can be found on our
website at www.clearchanneloutdoor.com or may be obtained
upon request from our Secretary.
As set forth in more detail in the charter, the audit
committees purpose is to assist the board of directors in
its general oversight of Clear Channel Outdoors financial
reporting, internal control and audit functions. Clear Channel
Communications internal audit department will document,
test and evaluate our internal control over financial reporting
in response to the requirements set forth in Section 404 of
the Sarbanes-Oxley Act of 2002 and related regulations. The
responsibilities of the audit committee will include:
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recommending the hiring or termination of independent auditors
and approving any non-audit work performed by such auditor; |
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approving the overall scope of the audit; |
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assisting our board of directors in monitoring the integrity of
our financial statements, the independent accountants
qualifications and independence, the performance of the
independent accountants and our internal audit function, and our
compliance with legal and regulatory requirements; |
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annually reviewing our independent auditors report
describing the auditing firms internal quality control
procedures, any material issues raised by the most recent
internal quality control review, or peer review, of the auditing
firm; |
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discussing the annual audited financial and quarterly statements
with our management and the independent auditor; |
90
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discussing earnings press releases, as well as financial
information and earnings guidance provided to analysts and
rating agencies; |
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discussing policies with respect to risk assessment and risk
management; |
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meeting separately, periodically, with management, internal
auditors and the independent auditor; |
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reviewing with the independent auditor any audit problems or
difficulties and managements response; |
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setting clear hiring policies for employees or former employees
of the independent auditors; |
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annually reviewing the adequacy of the audit committees
written charter; |
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reviewing with management any legal matters that may have a
material impact on us; and |
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reporting regularly to our full board of directors. |
The compensation committee members will be Mark P. Mays,
who will serve as chairman, Dale W. Tremblay and
William D. Parker. The compensation committee will operate
under a written charter adopted by the board of directors. The
committee will be primarily responsible for administering Clear
Channel Outdoors stock incentive plans, performance-based
compensation plans and other incentive compensation plans. Also,
the committee will determine compensation arrangements for all
of our executive officers and will make recommendations to the
board of directors concerning compensation policies for us and
our subsidiaries.
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Compensation Committee Interlocks and Insider
Participation in Compensation Decisions
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Other than Mark P. Mays and Randall T. Mays, who each serve as
an executive officer and member of the board of directors of
Clear Channel Communications, none of our executive officers
serves as a member of the compensation committee or as a member
of the board of directors of any other company of which any
member of our compensation committee or board of directors is an
executive officer.
Code of Business Conduct and Ethics
We adopted a Code of Business Conduct and Ethics applicable to
all of our directors and employees, including our chief
executive officer, chief financial officer and chief operating
officer, which is a code of ethics as defined by
applicable SEC rules. This code is publicly available on our
website at www.clearchanneloutdoor.com or may be obtained
upon request from our Secretary. If we make any amendments to
this code, other than technical, administrative or other
non-substantive amendments, or grant any waivers, including
implicit waivers, from any provisions of this code that apply to
our chief executive officer, chief financial officer or chief
operating officer and relate to an element of the SECs
code of ethics definition, we will disclose the
nature of the amendment or waiver, its effective date and to
whom it applies on our website or in a report on Form 8-K
filed with the SEC.
Director Compensation
We do not currently pay any compensation to any of our
directors. In conjunction with this offering, we will be adding
independent directors to our board of directors and plan to pay
our non-employee directors an annual cash retainer of $25,000,
an additional $1,500 for each board meeting attended and an
additional $1,000 for each committee meeting attended. We may
also grant stock options or other stock-based awards to our
non-employee directors, and non-employee directors may elect to
receive their fees in the form of shares of our Class A
common stock. We plan to pay the chairperson of the audit
committee and the chairperson of the compensation committee an
additional annual cash retainer of approximately $10,000 and
$5,000, respectively.
91
Stock Ownership of Directors and Executive Officers
All of the outstanding shares of our Class A common stock
and Class B common stock are currently owned by Clear
Channel Communications and its affiliates and thus none of our
named executive officers (as defined below) or directors owns
shares of our Class A common stock or Class B common
stock.
The following table sets forth the Clear Channel Communications
common stock and options to purchase shares of Clear Channel
Communications common stock held by our directors, the
named executive officers and all of our directors and executive
officers as a group, as of September 30, 2005. Except as
otherwise noted, the individual director or named executive
officer (including his or her family members) had sole voting
and investment power with respect to the shares of Clear Channel
Communications common stock.
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Amount and Nature of |
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Name |
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Beneficial Ownership |
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L. Lowry Mays
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31,242,193 |
(1) |
Mark P. Mays
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1,751,246 |
(2) |
Randall T. Mays
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1,366,101 |
(3) |
William D. Parker
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James M. Raines
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Marsha McCombs Shields
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4,755,353 |
(4) |
Dale W. Tremblay
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Paul J. Meyer
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169,374 |
(5) |
Franklin G. Sisson, Jr.
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46,774 |
(6) |
All Directors and Executive Officers as a Group (11 persons)
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39,349,949 |
(7) |
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(1) |
Includes 2,750,000 shares subject to options held by
Mr. L. Mays, 48,456 shares held by trusts of which
Mr. L. Mays is the trustee, but not a beneficiary,
26,677,307 shares held by LLM Partners Ltd of which
Mr. L. Mays shares control of the sole general partner,
1,577,120 shares held by the Mays Family Foundation and
102,874 shares held by the Clear Channel Foundation over
which Mr. L. Mays has either sole or shared investment or
voting authority. |
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(2) |
Includes 300,000 shares subject to options held by
Mr. M. Mays, 156,252 shares held by trusts of which
Mr. M. Mays is the trustee, but not a beneficiary, and
1,022,293 shares held by MPM Partners, Ltd. Mr. M.
Mays controls the sole general partner of MPM Partners, Ltd. |
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(3) |
Includes 300,000 shares subject to options held by
Mr. R. Mays, 168,228 shares held by trusts of which
Mr. R. Mays is the trustee, but not a beneficiary, and
622,575 shares held by RTM Partners, Ltd. Mr. R. Mays
controls the sole general partner of RTM Partners, Ltd. |
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(4) |
Includes 2,080,573 shares held by McCombs Family Ltd. and
2,674,780 shares held by a Foundation over each of which
Ms. Shields has either sole or shared investment or voting
authority. |
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(5) |
Includes 147,500 shares subject to options held by
Mr. Meyer. |
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(6) |
Includes 46,200 shares subject to options held by
Mr. Sisson. |
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(7) |
Includes 3,602,800 shares subject to options held by such
persons, 327,936 shares held by trusts of which such
persons are trustees, but not beneficiaries,
26,677,307 shares held by LLM Partners Ltd,
1,022,293 shares held by MPM Partners, Ltd.,
2,080,573 shares held by McCombs Family, Ltd.,
622,575 shares held by RTM Partners, Ltd,
4,354,774 shares held by Foundations over which such person
has either sole or shared investment or voting authority. |
92
Executive Compensation
The following table sets forth compensation information for our
chief executive officer and our other four most highly
compensated individuals, based on employment with Clear Channel
Communications as determined by reference to total annual salary
and bonus for the last completed fiscal year, who will become
our executive officers. All of the information included in this
table reflects compensation earned by the individuals for
services with Clear Channel Communications. We refer to these
individuals as our named executive officers in this
prospectus.
Summary Compensation Table
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Long-Term Compensation |
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Annual Compensation |
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Awards |
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Payouts |
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Other Annual |
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Restricted |
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Name and |
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Compensation |
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Stock |
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LTIP |
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All Other |
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Principal Position |
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Year |
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Salary ($) |
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Bonus ($) |
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($)(1) |
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Award(s) ($) |
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Options (#) |
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Payout ($) |
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Compensation ($) |
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Mark P. Mays(2)
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2004 |
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688,469 |
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1,700,000 |
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1,113,250(3 |
) |
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150,000 |
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5,125(4 |
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Randall T. Mays
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2004 |
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688,293 |
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1,700,000 |
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1,113,250(3 |
) |
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150,000 |
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5,125(4 |
) |
Paul J. Meyer
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2004 |
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465,686 |
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342,000 |
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65,000 |
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5,125(4 |
) |
Roger Parry*(5)
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2004 |
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785,355 |
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598,719 |
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35,000 |
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214,502(6 |
) |
Franklin G. Sisson, Jr.
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2004 |
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249,068 |
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99,250 |
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15,000 |
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4,048(4 |
) |
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* |
Mr. Parry resigned his position as Chief Executive Officer
of Clear Channel International and remains a non-executive level
employee with us. |
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(1) |
Perquisites that are less than $50,000 in the aggregate for any
named executive officer are not disclosed in the table in
accordance with SEC rules. |
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(2) |
Mr. Mays was appointed as the President and Chief Executive
Officer of Clear Channel Communications on October 20,
2004. Prior thereto, Mark Mays served as the interim Chief
Executive Officer and President and Chief Operating Officer of
Clear Channel Communications from May 2004 to October 2004 and
as the President and Chief Operating Officer of Clear Channel
Communications prior to May 2004. |
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(3) |
Grants of 25,000 shares of restricted stock were awarded on
February 19, 2004. The restricted stock had a fair market
value of $837,250 as of December 31, 2004. The restriction
will lapse and the shares will vest on February 19, 2009.
The holder will receive all cash dividends declared and paid
during the vesting period. |
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(4) |
Represents the amount of matching contributions paid by Clear
Channel Communications under its 401(k) Plan. |
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(5) |
Mr. Parry is a citizen of the United Kingdom. The
compensation amounts reported in this table have been converted
from British pounds to U.S. dollars using the average exchange
rate from each applicable year. |
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(6) |
Includes $62,902 in contracted payments to Mr. Parry in
lieu of a company automobile, $9,334 in contracted payments to
Mr. Parry in lieu of medical benefit and $142,266 in
contributions paid by Clear Channel Communications to
Mr. Parrys pension plan. |
93
Stock Options
The following table sets forth certain information regarding
stock options to acquire shares of Clear Channel
Communications common stock granted to our named executive
officers in 2004.
Stock Option Grant Table
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Number of |
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Percent of Total |
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Securities |
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Options Granted to |
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Grant Date |
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Underlying Options |
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Employees in Fiscal |
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Exercise or Base |
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Present |
Name |
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Granted (#) |
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Year |
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Price ($/share) |
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Expiration Date |
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Value ($)(1) |
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Mark P. Mays
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150,000 |
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3.19 |
% |
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44.53 |
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2/19/09 |
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2,265,000 |
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Randall T. Mays
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150,000 |
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3.19 |
% |
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44.53 |
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2/19/09 |
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2,265,000 |
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Paul J. Meyer
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65,000 |
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1.38 |
% |
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44.53 |
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2/19/09 |
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981,500 |
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Roger Parry*
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35,000 |
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0.75 |
% |
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44.53 |
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2/29/09 |
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528,500 |
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Franklin G. Sisson, Jr.
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15,000 |
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0.32 |
% |
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44.53 |
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2/19/09 |
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226,500 |
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* |
Mr. Parry resigned his position as Chief Executive Officer
of Clear Channel International and remains a non-executive level
employee with us. |
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(1) |
Present value for this option was estimated at the date of grant
using the Black-Scholes option pricing model with the following
assumptions: risk-free interest rate of 2.21%, a dividend yield
of .90%, a volatility factor of the expected market price of
Clear Channel Communications common stock of 50.0% and the
expected life of three years. The present value of stock options
granted is based on a theoretical option-pricing model. In
actuality, because Clear Channel Communications employee
stock options are not traded on an exchange, optionees can
receive no value nor derive any benefit from holding stock
options under these plans without an increase in the market
price of Clear Channel Communications stock. Such an increase in
stock price would benefit all shareholders commensurately. |
Exercise of Stock Options
The following table discloses information regarding the exercise
of stock options to acquire shares of Clear Channel
Communications common stock by our named executive
officers in 2004 and the value of unexercised stock options held
by the named executive officers.
Aggregated Option Exercises and Fiscal Year-End Option Value
Table
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Number of Securities |
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Underlying Unexercised |
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Value of Unexercised |
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Options at Fiscal Year |
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In-The-Money Options at |
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Shares Acquired on |
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End (#) |
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Fiscal Year End ($) |
Name |
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Exercise (#) |
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Value Realized ($) |
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Exercisable/Unexercisable |
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Exercisable/Unexercisable |
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Mark P. Mays
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30,000 |
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772,200 |
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266,500/800,000 |
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-0-/-0- |
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Randall T. Mays
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30,000 |
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772,200 |
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266,500/800,000 |
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-0-/-0- |
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Paul J. Meyer
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103,750/131,250 |
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-0-/-0- |
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Roger Parry*
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85,224/147,507 |
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-0-/-0- |
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Franklin G. Sisson, Jr.
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23,112/77,512 |
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17,764/-0- |
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* |
Mr. Parry resigned his position as Chief Executive Officer
of Clear Channel International and remains a non-executive level
employee with us. |
Employee Benefit Plans
Our employees currently participate in various incentive,
retirement savings, group welfare and other employee benefit
plans sponsored by Clear Channel Communications. With certain
exceptions, our
94
employees will continue participating in the Clear Channel
Communications plans after this offering, in accordance with the
terms of the plans and past practice. We will be able to
withdraw our participation in any Clear Channel Communications
plan (subject to 90 days notice). Similarly, Clear Channel
Communications may terminate our participation in its plans
(subject to 90 days notice). Unless sooner terminated, it
is likely that our participation in the Clear Channel
Communications employee benefit plans will end if and at such
time as Clear Channel Communications owns less than 80% of the
total voting power of our common stock. See Arrangements
Between Clear Channel Communications and Us Employee
Matters Agreement. It is anticipated that our stock will
be added to the listing of available investments under the Clear
Channel Communications 401(k) plan, but there is no assurance
that this will occur or continue.
Some of our employees hold stock options and/or shares of Clear
Channel Communications restricted stock under the Clear Channel
Communications, Inc. 2001 Stock Incentive Plan and certain
predecessor stock incentive plans. Some or all of the Clear
Channel Communications stock options held by our employees prior
to the offering may be converted into options for shares of our
Class A common stock. See Clear Channel
Communications Stock Plan Awards below. Absent a plan
amendment, as long as we remain a subsidiary of Clear Channel
Communications, certain of our employees will continue to be
eligible for stock awards under the Clear Channel Communications
stock incentive plans. Prior to the completion of this offering,
we will have in place our own stock incentive and annual
incentive compensation plans for our eligible employees. See
Our New Stock Incentive Plan and
Annual Incentive Plan. We expect to make
awards under our new stock incentive plan shortly after the
completion of this offering. However, the number of shares
covered by the initial awards and details relating to individual
awards have not yet been determined.
We will reimburse Clear Channel Communications for the costs and
expenses incurred by it and its other affiliates in connection
with the continuing coverage of our employees in the Clear
Channel Communications employee benefit plans and in connection
with its or their services relating to payroll administration
and the administration of our own stock incentive and other
plans. See Arrangements Between Clear Channel
Communications and Us Corporate Services
Agreement for information concerning our reimbursement
obligations to Clear Channel Communications. We will continue to
bear the cost of and retain responsibility for
employment-related liabilities and obligations with respect to
our employees, regardless of when incurred.
Clear Channel Communications Stock Plan Awards
Before this offering, some of our employees received Clear
Channel Communications stock options and restricted stock under
the Clear Channel Communications, Inc. Stock Incentive Plans.
It is anticipated that some or all of the outstanding Clear
Channel Communications stock options held by our employees will
be converted into adjusted options to purchase shares of our
Class A common stock. The number of shares and the exercise
price per share under each converted option will be adjusted
such that the ratio of the per share exercise price to the per
share value of our stock and the total intrinsic value of the
option are the same after the conversion as they were prior to
the conversion. Generally, the converted stock options will
continue to be governed by their original vesting and other
terms and conditions. We will be responsible for administering
and honoring the converted Clear Channel Communications stock
options held by our employees, and Clear Channel Communications
will have no further liability with respect to those options.
The restricted shares of Clear Channel Communications stock held
by our employees will continue to be subject to the forfeiture
conditions and transfer restrictions and the other terms and
conditions of the original award relating to those shares and of
the Clear Channel Communications, Inc. 2001 Stock Incentive
Plan. In the event of the completion of the previously-announced
spin-off of the entertainment business of Clear Channel
Communications, our employees who hold restricted shares of
Clear Channel Communications stock under the Clear Channel
Communications, Inc. 2001 Stock Incentive Plan will
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receive fully vested shares of the newly created companys
stock in connection with the spin-off distribution, on the same
basis as other stockholders of Clear Channel Communications
generally.
Annual Incentive Plan
For 2005, our executive officers and other key employees will
generally be entitled to receive incentive compensation in
accordance with the terms of the performance-based awards
previously made to them under the Clear Channel Communications,
Inc. 2005 Annual Incentive Plan. However, at least as to our
named executive officers, we will be responsible for determining
the amounts, if any, that are payable under those awards,
subject to such adjustments as are deemed appropriate in light
of the corporate restructuring by Clear Channel Communications,
including the spin-off of the entertainment business of Clear
Channel Communications and this offering.
For 2006, our executive officers and other designated key
employees will participate in our own 2006 Annual Incentive
Plan, which has been adopted by our board of directors and
approved by Clear Channel Communications, in its capacity as our
sole stockholder. In general, the plan provides for the payment
of annual bonuses tied to the achievement of pre-established
performance objectives fixed by the committee. We intend that
bonuses under our plan will qualify for the
performance-based-compensation exemption from the executive
compensation deduction limitations of section 162(m) of the
Code. Toward that end, in order to satisfy regulations issued
under section 162(m), we expect to submit our plan for approval
at the annual meeting of our stockholders occurring after the
first anniversary of this offering.
Our annual incentive plan will be administered by the
compensation committee of our board of directors. The committee
will have the authority to select the executive officers and
other key employees to whom awards will be made, to prescribe
the performance objectives which must be satisfied pursuant to
such awards, and to make the determinations necessary with
respect to the administration and payment of such awards. The
performance objectives that may be established for awards made
under the plan may be based upon any one or more of the
following business criteria: revenue growth, operating income
before depreciation, amortization and non-cash compensation
expense, or OIBDAN, OIBDAN growth, funds from operations, funds
from operations per share and per share growth, operating income
and operating income growth, net earnings, earnings per share
and per share growth, return on equity, return on assets, share
price performance on an absolute basis and relative to an index,
improvements in attainment of expense levels, implementing or
completion of critical projects, improvement in cash-flow
(before or after tax). Performance objectives may be based upon
the performance of such person or persons, as the committee may
determine, including an individual or group of individuals, our
company on a combined basis, one or more subsidiaries or other
affiliates, and one or more divisions or business units.
Performance objectives may be expressed in fixed or relative
quantitative terms or in other ways, including, for example,
targets relative to past performance, or targets compared to the
performance of other companies, such as a published or special
index or a group of companies selected by the committee for
comparison. The committee may provide that the amount, if any,
of a participants annual bonus will be higher or lower,
depending upon the extent to which the applicable performance
objective is achieved.
Performance objectives applicable to a performance period must
be established by the committee prior to, or reasonably soon
after the beginning of a performance period, but no later than
the 90 days from the beginning of the period or, if
earlier, the date 25% of the period has elapsed.
Upon certification of the achievement of performance objectives
by the committee which entitle a participant to the payment of a
performance award, subject to deferral arrangements that may be
permitted or required by the committee, the award shall be
settled in cash or other property. The maximum performance bonus
that may be earned by any participant in any calendar year is
limited to $15.0 million.
The committee is authorized to reduce or eliminate the
performance award of any participant, for any reason, including
changes in the participants position or duties, whether
due to termination of employment (including death, disability,
retirement, voluntary termination or termination with or without
cause) or otherwise. To the extent necessary to preserve the
intended economic effects of the plan or an award under
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the plan, the committee is authorized to adjust pre-established
performance objectives and/or performance awards to take into
account certain material events, such as a change in corporate
capitalization, a corporate transaction, a partial or complete
liquidation of our company or any subsidiary, or certain changes
in accounting rules; provided that no such adjustment may cause
a performance award to be non-deductible under
Section 162(m) of the Code.
Our board of directors or the committee may, at any time, or
from time to time, amend the plan. Any such amendment may be
made without stockholder approval unless such approval is
required to maintain the status of the plan under
Section 162(m) of the Code. Our board of directors may
terminate the plan at any time.
Our New Stock Incentive Plan
Our board of directors adopted and our sole stockholder approved
the Clear Channel Outdoor Holdings, Inc. 2005 Stock Incentive
Plan. The purpose of the plan is to help us attract, motivate
and retain qualified executives and other key personnel. In
furtherance of this purpose, the plan authorizes us to grant
various forms of incentive awards, including stock options,
stock appreciation rights, restricted stock, deferred stock
awards and performance-based cash and stock awards. See
Forms of Award below.
The plan and certain tax aspects of awards made under the plan
are summarized below.
The plan will be administered by the compensation committee of
our board of directors; however, the full board of directors
will have sole responsibility and authority for making and
administering awards to any of our non-employee directors.
Subject to the terms of the plan, the committee has broad
authority to select the persons to whom awards will be made, fix
the terms and conditions of each award, and construe, interpret
and apply the provisions of the plan and of any award made under
the plan. The committee may delegate any of its responsibilities
and authority, subject to applicable law. Subject to certain
limitations, we will indemnify the members of the committee
against claims made and liabilities and expenses incurred in
connection with their service under the plan.
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Securities Covered by the Plan
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We can issue a total of 42,000,000 shares of our common
stock under the plan. The following shares are not taken into
account in applying these limitations: (i) shares covered
by awards that expire or are forfeited, canceled or settled in
cash, (ii) shares withheld by us for the payment of taxes
associated with an award, (iii) shares withheld by us for
the payment of the exercise price under an award and
(iv) previously owned shares received by us in payment of
the exercise price under an award.
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Individual Award Limitations
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No participant may receive awards in any calendar year covering
more than one million shares plus the amount of the
participants unused annual limit as of the close of the
preceding calendar year. No participant may receive
performance-based cash awards under the plan in any calendar
year covering more than $5.0 million plus the amount of the
participants unused annual limit as of the close of the
preceding calendar year.
Awards may be made under the plan to any of our present or
future directors, officers, employees, consultants or advisers.
In connection with this offering and other related corporate
restructurings, Clear Channel Communications stock options held
by certain of our employees and other personnel will be
converted into options or other awards for shares of our
Class A common stock. The shares of our Class A common
stock covered by such adjusted or converted Clear Channel
Communications awards will not be
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taken into account in applying our plans share
limitations. See Clear Channel Communications
Stock Plan Awards below.
Stock Options and Stock Appreciation Rights. We may grant
stock options that qualify as incentive stock
options under Section 422 of the Code, or ISOs, as
well as stock options that do not qualify as ISOs. ISOs may not
be granted more than 10 years after the date the plan is
adopted. We may also grant stock appreciation rights, or SARs.
In general, an SAR gives the holder the right to receive the
appreciation in value of the shares of company stock covered by
the SAR from the date the SAR is granted to the date the SAR is
exercised. The per share exercise price of a stock option and
the per share base value of an SAR may not be less than the fair
market value per share of common stock on the date the option or
SAR is granted. The maximum term of a stock option is
10 years (different limitations apply to ISOs granted to
10% stockholders: the term may not be greater than five
years and the exercise price may not be less than 110% of the
value of our common stock on the date the option is granted).
The committee may impose such exercise, forfeiture and other
conditions and limitations as it deems appropriate with respect
to stock options and SARs. The exercise price under a stock
option may be paid in cash or in any other form or manner
permitted by the committee, including, without limitation,
payment of previously owned shares of stock, or payment pursuant
to broker-assisted cashless exercise procedures. Methods of
exercise and settlement and other terms of SARs will be
determined by the committee.
Restricted Stock and Deferred Stock Awards. The plan
authorizes the committee to make restricted stock awards,
pursuant to which shares of common stock are issued to
designated participants subject to transfer restrictions and
vesting conditions. In general, if the recipient of a restricted
stock award terminates employment before the end of the
specified vesting period or if the recipient fails to meet
performance or other specified vesting conditions, the
restricted shares will be forfeited by the recipient and will
revert to us. Subject to such conditions as the committee may
impose, the recipient of a restricted stock award may be given
the rights to vote and receive dividends on shares covered by
the award pending the vesting or forfeiture of the shares.
Deferred stock awards generally consist of the right to receive
shares of common stock in the future, subject to such conditions
as the committee may impose, including, for example, continuing
employment or service for a specified period of time or
satisfaction of specified performance criteria. Deferred stock
awards may be made in a number of different forms, including
stock units and restricted stock units.
Prior to settlement, deferred stock awards do not carry voting,
dividend or other rights associated with stock ownership;
however, dividend equivalents may be payable if the committee so
determines.
Other Stock-Based Awards. The plan gives the committee
broad discretion to grant other types of equity-based awards,
including, for example, dividend equivalent rights, phantom
shares, and bonus shares, and to provide for settlement in cash
and/or shares. The plan also allows non-employee directors to
elect to receive their director fees in the form of Class A
common stock, in lieu of cash.
Performance-Based Awards. The committee may also grant
performance awards under the plan. In general, performance
awards would provide for the payment of cash and/or shares of
Class A common stock upon the achievement of performance
objectives established by the committee for a fiscal year or
other designated performance period. Performance objectives may
be based upon any one or more of the following business
criteria: (i) earnings per share, (ii) share price or
total shareholder return, (iii) pretax profits,
(iv) net earnings, (v) return on equity or assets,
(vi) revenues, (vii) operating income before
depreciation, amortization and non-cash compensation expense, or
OIBDAN, (viii) market share or market penetration, or
(ix) any combination of the foregoing. Performance
objectives may be based upon the performance of such person or
persons, as the committee may determine, including an individual
or group of individuals, our company on a combined basis, one or
more subsidiaries or other affiliates, and one or more divisions
or business units. Performance objectives may be expressed in
fixed or relative quantitative terms or in other ways,
including, for example, targets relative to past performance, or
targets
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compared to the performance of other companies, such as a
published or special index or a group of companies selected by
the committee for comparison.
Capital Changes. In the event of material changes to our
capital structure, including, for example, a recapitalization,
stock split or spin-off, appropriate adjustments will be made to
the maximum number of shares and the class of shares or other
securities which may be issued under the plan, the maximum
number and class of shares which may be covered by awards made
to an individual in any calendar year, the number and class of
shares or other securities subject to outstanding awards and,
where applicable, the exercise price, base value or purchase
price under outstanding awards.
Merger and Other Transactions. If we enter into a merger
or other transaction involving the sale of our company,
outstanding options and SARs will either become fully vested and
exercisable, or assumed by and converted into options or SARs
for shares of the acquiring company. Our board of directors may
make similar adjustments to other outstanding awards under the
plan and may direct a cashout of any or all outstanding awards
based upon the value of the consideration paid for our shares in
the merger or other transaction giving rise to the adjustment of
plan awards. Additional or different types of adjustments may be
permitted or required under the terms of individual plan awards,
as the committee may determine.
No Repricing of Stock Options. Subject to the provisions
of the plan regarding adjustments due to a change in capital
structure, the committee will have no authority to reprice
outstanding options, whether through amendment, cancellation or
replacement grants, without approval of our stockholders.
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Amendment and Termination of the Plan; Term
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Except as may otherwise be required by law or the requirements
of any stock exchange or market upon which the common stock may
then be listed, our board of directors, acting in its sole
discretion and without further action on the part of our
stockholders, may amend the plan at any time and from time to
time and may terminate the plan at any time.
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United States Income Tax Considerations
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The grant of a stock option or SAR under the plan is not a
taxable event for federal income tax purposes. In general,
ordinary income is realized upon the exercise of a stock option
(other than an ISO) in an amount equal to the excess of the fair
market value on the exercise date of the shares acquired
pursuant to the exercise over the option exercise price paid for
the shares. The amount of ordinary income realized upon the
exercise of an SAR is equal to the excess of the fair market
value of the shares covered by the exercise over the SAR base
price. We are entitled to a deduction equal to the amount of
ordinary income realized by a plan participant upon the exercise
of an option or SAR. The tax basis of shares acquired upon the
exercise of a stock option (other than an ISO) or SAR is equal
to the value of the shares on the date of exercise. Upon a
subsequent sale of the shares, capital gain or loss will be
realized in an amount equal to the difference between the
selling price and the basis of the shares.
No income is realized upon the exercise of an ISO other than for
purposes of the alternative minimum tax. Income or loss is
realized upon a disposition of shares acquired pursuant to the
exercise of an ISO. If the disposition occurs more than one year
after the ISO exercise date and more than two years after the
ISO grant date, then gain or loss on the disposition, measured
by the difference between the selling price and the option
exercise price for the shares, will be long-term capital gain or
loss. If the disposition occurs within one year of the exercise
date or within two years of the grant date, then the gain
realized on the disposition will be taxable as ordinary income
to the extent such gain is not more than the difference between
the value of the shares on the date of exercise and the exercise
price, and the balance of the gain, if any, will be capital
gain. We are not entitled to a deduction with respect to the
exercise of an ISO; however, we are entitled to a deduction
corresponding to the ordinary income realized by a participant
upon a disposition of shares acquired pursuant to the exercise
of an ISO before the satisfaction of the applicable one- and
two-year holding period requirements described above.
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In general, a participant will realize ordinary income with
respect to common stock received pursuant to restricted stock,
deferred stock and other non-stock option and non-SAR forms of
award at the time the shares become vested in accordance with
the terms of the award in an amount equal to the fair market
value of the shares at the time they become vested, and we are
entitled to a corresponding deduction. A participant may make an
early income election with respect to the receipt of
restricted shares of common stock, in which case the participant
will realize ordinary income on the date the restricted shares
are received equal to the difference between the value of the
shares on that date and the amount, if any, paid for the shares.
In such event, any appreciation in the value of the shares after
the date of the award will be taxable as capital gain upon a
subsequent disposition of the shares. Our deduction is limited
to the amount of ordinary income realized by the participant as
a result of the early income election.
Compensation that qualifies as performance-based is
exempt from the $1.0 million deductibility limitation
imposed by Section 162(m) of the Code. It is contemplated
that stock options and SARs granted under the plan with an
exercise price or base price at least equal to 100% of fair
market value of the underlying stock at the date of grant and
certain other plan awards which are conditioned upon achievement
of performance goals will be able to qualify for the
performance-based compensation exemption, assuming
the applicable requirements are satisfied. It is anticipated
that the plan will be resubmitted for stockholder approval at or
before the annual meeting of our stockholders next following the
first anniversary of the initial public offering. Such approval
would enable us to continue to qualify for an exception to the
annual $1.0 million executive compensation deduction
limitations of Section 162(m) of the Code with respect to
certain awards made under the plan.
The above summary pertains solely to certain U.S. federal
income tax consequences associated with awards made under the
plan. The summary does not address all federal income tax
consequences and it does not address state, local and
non-U.S. tax considerations.
Employment Agreements
Mark P. Mays and Randall T. Mays each have employment agreements
with Clear Channel Communications. Paul J. Meyer has an
employment agreement with us. Set forth below are summaries of
these agreements.
On March 10, 2005, Clear Channel Communications entered
into amended and restated employment agreements with Mark P.
Mays and Randall T. Mays. These agreements amended and restated
existing employment agreements dated October 1, 1999
between Clear Channel Communications and the executives. Each
amended and restated agreement has a term of seven years with
automatic daily extensions unless Clear Channel Communications
or the executive elects not to extend the agreement. Each of
these employment agreements provides for a minimum base salary,
subject to review and annual increase by the compensation
committee of Clear Channel Communications. In addition, each
agreement provides for an annual bonus pursuant to Clear Channel
Communications Annual Incentive Plan or as the executive
performance subcommittee of the compensation committee of Clear
Channel Communications determines. The employment agreements
with Mark Mays and Randall Mays provide for base minimum
salaries of $350,000 and $325,000, respectively, and for minimum
option grants to acquire 50,000 shares of Clear Channel
Communications common stock; provided, however, that the annual
option grant will not be smaller than the option grant in the
preceding year unless waived by the executive. Each option will
be exercisable at fair market value at the date of grant for a
10-year period even if the executive is not employed by Clear
Channel Communications. The compensation committee of Clear
Channel Communications or the executive performance subcommittee
of the compensation committee of Clear Channel Communications
will determine the schedule upon which the options will vest and
become exercisable.
Each of these executive employment agreements provides for
severance and change-in-control payments in the event that Clear
Channel Communications terminates the executives
employment without Cause or if the executive
terminates for Good Reason. Cause is
narrowly defined, and any determination of Cause is
subject to a supermajority vote of Clear Channel
Communications independent directors. Good
Reason includes defined change-in-control transactions
involving Clear Channel Communications, Clear Channel
Communications election not to automatically extend the
term
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of the employment agreement, a diminution in the
executives pay, duties or title or, (i) in the case
of Mark Mays, at any time that the office of Chairman is held by
someone other than himself, L. Lowry Mays or Randall Mays; or
(ii) in the case of Randall Mays, at any time that either
of the offices of Chairman or President and Chief Executive
Officer is held by someone other than himself, L. Lowry Mays or
Mark Mays. If either executive is terminated by Clear Channel
Communications without Cause or the executive
resigns for Good Reason then that executive will
receive a lump-sum cash payment equal to the base salary and
bonus that otherwise would have been paid for the remainder of
the term of the agreement (using the highest bonus paid to the
executive in the three years preceding the termination but not
less than $1,000,000), continuation of benefits, immediate
vesting on the date of termination of all stock options held by
the executive on the date of termination, and either:
(i) an option to acquire 1,000,000 shares of Clear
Channel Communications common stock at fair market value
as of the date of termination that is fully vested and
exercisable for a period of 10 years, or (ii) a grant
of a number of shares of Clear Channel Communications
common stock equal to: (a) 1,000,000, divided by
(b) the number computed by dividing: (x) the last
reported sale price of Clear Channel Communications common
stock on the New York Stock Exchange at the close of the trading
day immediately preceding the date of termination of
executives employment, by (y) the value of the stock
option described in clause (i) above as determined by Clear
Channel Communications in accordance with generally accepted
accounting principles. Certain tax gross up payments would also
be due on such amounts. In the event the executives
employment is terminated without Cause or for
Good Reason, the employment agreements also restrict
the executives business activities that compete with the
business of Clear Channel Communications for a period of two
years following such termination.
On August 5, 2005, we entered into an employment agreement
with Paul J. Meyer. The initial term of the agreement ends on
the third anniversary of the date of the agreement; the term
automatically extends one day at a time beginning on the second
anniversary of the date of the agreement, unless one party gives
the other one years notice of expiration at or prior to
the second anniversary of the date of the agreement. The
contract calls for Mr. Meyer to be our President and Chief
Operating Officer for a base salary of $600,000 in the first
year of the agreement; $625,000 in the second year of the
agreement; and $650,000 in the third year of the agreement,
subject to additional annual raises thereafter in accordance
with company policies. Mr. Meyer is also eligible to
receive a performance bonus as decided at the sole discretion of
our board of directors and the compensation committee.
Mr. Meyer may terminate his employment at any time after
the second anniversary of the date of the agreement upon one
years written notice. We may terminate Mr. Meyer
without Cause after the second anniversary of the
date of the agreement upon one years written notice.
Cause is narrowly defined in the agreement. If
Mr. Meyer is terminated without Cause, he is
entitled to receive a lump sum payment of accrued and unpaid
base salary and prorated bonus, if any, and any payments to
which he may be entitled under any applicable employee benefit
plan. Mr. Meyer is prohibited by his employment agreement
from activities that compete with us for one year after he
leaves us and he is prohibited from soliciting our employees for
employment for 12 months after termination regardless of
the reason for termination of employment.
Certain Relationships and Related Transactions
Each of Mark P. Mays, Randall T. Mays and L. Lowry Mays, our
current directors, is an executive officer of Clear Channel
Communications. We currently have issued three intercompany
notes to Clear Channel Communications in the aggregate principal
amount of approximately $4.0 billion, which represents in
excess of five percent of our total consolidated assets at
December 31, 2004 and September 30, 2005. In
connection with this offering, approximately $1.5 billion
of such indebtedness will be repaid or otherwise extinguished.
Marsha McCombs Shields, one of our prospective directors, is the
daughter of one of the founders and board members of Clear
Channel Communications.
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ARRANGEMENTS BETWEEN CLEAR CHANNEL COMMUNICATIONS AND US
We have provided below a summary description of the Master
Agreement between Clear Channel Communications and us and the
other key agreements that relate to our separation from and
post-separation relationship with Clear Channel Communications.
This description, which summarizes the material terms of these
agreements, is not complete. You should read the full text of
these agreements, which have been included as exhibits to the
registration statement of which this prospectus is a part.
Relationship with Clear Channel Communications
Immediately prior to this offering, Clear Channel Communications
through its wholly owned subsidiary, Clear Channel Holdings,
Inc., is our only stockholder. After this offering, Clear
Channel Communications will own all of our outstanding shares of
Class B common stock, representing approximately 90% of the
outstanding shares of our common stock and approximately 99% of
the total voting power of our common stock, or approximately 89%
and 99%, respectively, if the underwriters exercise in full
their option to purchase additional shares of Class A
common stock. For as long as Clear Channel Communications
continues to own shares of common stock representing more than
50% of the total voting power of our common stock, Clear Channel
Communications will be able to direct the election of all the
members of our board of directors and exercise a controlling
influence over our business and affairs, including any
determinations with respect to mergers or other business
combinations involving us, our acquisition or disposition of
assets, our incurrence of indebtedness, the issuance of any
additional common stock or other equity securities, the
repurchase or redemption of common stock or preferred stock and
the payment of dividends. Similarly, Clear Channel
Communications will have the power to determine or significantly
influence the outcome of matters submitted to a vote of our
stockholders, will have the power to prevent a change in control
of us and could take other actions that might be favorable to
Clear Channel Communications. See Description of Capital
Stock.
Prior to the completion of this offering, we will enter into a
Master Agreement and a number of other agreements with Clear
Channel Communications setting forth various matters governing
our separation from Clear Channel Communications and our
relationship with Clear Channel Communications while it remains
a significant stockholder in us. These agreements will govern
our relationship with Clear Channel Communications after this
offering and will provide for, among other things, the
allocation of employee benefit, tax and other liabilities and
obligations attributable to our operations.
Set forth below are descriptions of certain agreements,
relationships and transactions we will have with Clear Channel
Communications. The following descriptions and summaries of each
of the agreements with Clear Channel Communications are
qualified in their entirety by reference to the complete texts
of the agreements, which are incorporated by reference into this
prospectus and are attached as an exhibit to the registration
statement in which this prospectus is included. We encourage you
to read each of the agreements in its entirety for a more
complete description of the terms and conditions of each
agreement.
Master Agreement
We will enter into a master agreement with Clear Channel
Communications prior to the completion of this offering. In this
prospectus, we refer to this agreement as the Master Agreement.
The Master Agreement will set forth our agreements with Clear
Channel Communications regarding the principal transactions
required to effect the transfer of assets and the assumption of
liabilities necessary to complete the separation of our company
from Clear Channel Communications. It also will set forth other
agreements governing our relationship after the separation.
To effect the separation, Clear Channel Communications will, and
will cause its affiliates to, transfer to us the assets related
to our businesses not currently owned by us, as described in
this prospectus. We or our subsidiaries will assume and agree to
perform, discharge and fulfill the liabilities related to our
businesses for which Clear Channel Communications or its
affiliates are presently obligated (which, in the case of tax
liabilities, will be governed by the Tax Matters Agreement
described below). If any governmental approval or other consent
required to transfer any assets to us or for us to assume any
102
liabilities is not obtained prior to the completion of this
offering, we will agree with Clear Channel Communications that
such transfer or assumption will be deferred until the necessary
approvals or consents are obtained. Clear Channel Communications
will continue to hold the assets and be responsible for the
liabilities for our benefit and at our expense until the
necessary approvals or consents are obtained.
Similarly, we will, and will cause our subsidiaries to, transfer
to Clear Channel Communications the assets related to its
business currently owned by us. Clear Channel Communications
will assume from us and agree to perform, discharge and fulfill
the liabilities related to its business for which we are
presently obligated.
Except as expressly set forth in the Master Agreement or in any
other transaction document, neither we nor Clear Channel
Communications will make any representation or warranty as to:
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the assets, businesses or liabilities contributed, transferred
or assumed as part of the separation; |
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any consents or approvals required in connection with the
transfers; |
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the value, or freedom from any security interests, of, or any
other matter concerning, any assets transferred; |
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the absence of any defenses or right of set-off or freedom from
counterclaim with respect to any claim or other assets of either
us or Clear Channel Communications; or |
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the legal sufficiency of any document or instrument delivered to
convey title to any asset transferred. |
Except as expressly set forth in any transaction document, all
assets will be transferred on an as is, where
is basis, and we and our subsidiaries will agree to bear
the economic and legal risks that any conveyance was
insufficient to vest in us good title, free and clear of any
security interest, and that any necessary consents or approvals
are not obtained or that any requirements of laws or judgments
are not complied with.
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Auditors and Audits; Annual Financial Statements and
Accounting
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We have agreed that, for so long as Clear Channel Communications
is required to consolidate our results of operations and
financial position or account for its investment in our company
under the equity method of accounting, we will maintain a fiscal
year end and accounting periods the same as Clear Channel
Communications, conform our financial presentation with that of
Clear Channel Communications and we will not change our
independent auditors without Clear Channel Communications
prior written consent (which will not be unreasonably withheld),
and we will use commercially reasonable efforts to enable our
independent auditors to complete their audit of our financial
statements in a timely manner so as to permit timely filing of
Clear Channel Communications financial statements. We have
also agreed to provide to Clear Channel Communications all
information required for Clear Channel Communications to meet
its schedule for the filing and distribution of its financial
statements and to make available to Clear Channel Communications
and its independent auditors all documents necessary for the
annual audit of our company as well as access to the responsible
personnel so that Clear Channel Communications and its
independent auditors may conduct their audits relating to our
financial statements. We will provide Clear Channel
Communications with financial reports, financial statements,
budgets, projections, press releases and other financial data
and information with respect to our business, properties and
financial positions. We have also agreed to adhere to certain
specified disclosure controls and procedures and Clear Channel
Communications accounting policies and to notify and consult
with Clear Channel Communications regarding any changes to our
accounting principles and estimates used in the preparation of
our financial statements, and any deficiencies in, or violations
of law in connection with, our internal control over financial
reporting and certain fraudulent conduct and other violations of
law.
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Exchange of Other Information
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The Master Agreement will also provide for other arrangements
with respect to the mutual sharing of information between Clear
Channel Communications and us in order to comply with reporting,
filing, audit or tax requirements, for use in judicial
proceedings, and in order to comply with our respective
obligations
103
after the separation. We will also agree to provide mutual
access to historical records relating to the others
businesses that may be in our possession.
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Releases and Indemnification
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Except for each partys obligations under the Master
Agreement, the other transaction documents and certain other
specified liabilities, we and Clear Channel Communications will
release and discharge each other and each of our affiliates, and
their directors, officers, agents and employees from all
liabilities existing or arising between us on or before the
separation, including in connection with the separation and this
offering. The releases will not extend to obligations or
liabilities under any agreements between Clear Channel
Communications and us that remain in effect following the
separation.
We will indemnify, hold harmless and defend Clear Channel
Communications, each of its affiliates and each of their
respective directors, officers and employees, on an after-tax
basis, from and against all liabilities relating to, arising out
of or resulting from:
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the failure by us or any of our affiliates or any other person
or entity to pay, perform or otherwise promptly discharge any
liabilities or contractual obligations associated with our
businesses, whether arising before or after the separation; |
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the operations, liabilities and contractual obligations of our
business whether arising before or after the separation; |
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any guarantee, indemnification obligation, surety bond or other
credit support arrangement by Clear Channel Communications or
any of its affiliates for our benefit; |
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any breach by us or any of our affiliates of the Master
Agreement, the other transaction documents or our amended and
restated certificate of incorporation or bylaws; |
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any untrue statement of, or omission to state, a material fact
in Clear Channel Communications public filings to the
extent the statement or omission was as a result of information
that we furnished to Clear Channel Communications or that Clear
Channel Communications incorporated by reference from our public
filings, if the statement or omission was made or occurred after
the separation; and |
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any untrue statement of, or omission to state, a material fact
in any registration statement or prospectus related to this
offering, except to the extent the statement was made or omitted
in reliance upon information provided to us by Clear Channel
Communications expressly for use in any such registration
statement or prospectus or information relating to and provided
by any underwriter expressly for use in any such registration
statement or prospectus. |
Clear Channel Communications will indemnify, hold harmless and
defend us, each of our affiliates and each of our and their
respective directors, officers and employees, on an after-tax
basis, from and against all liabilities relating to, arising out
of or resulting from:
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the failure of Clear Channel Communications or any of its
affiliates or any other person or entity to pay, perform or
otherwise promptly discharge any liabilities of Clear Channel
Communications or its affiliates, other than liabilities
associated with our businesses, whether arising before or after
the separation; |
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the liabilities of Clear Channel Communications and its
affiliates businesses, other than liabilities associated
with our businesses; |
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any breach by Clear Channel Communications or any of its
affiliates of the Master Agreement or the other transaction
documents; |
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any untrue statement of, or omission to state, a material fact
in our public filings to the extent the statement or omission
was as a result of information that Clear Channel Communications
furnished to us or that we incorporated by reference from Clear
Channel Communications public filings, if the statement or
omission was made or occurred after the separation; and |
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any untrue statement of, or omission to state, a material fact
contained in any registration statement or prospectus related to
this offering, but only to the extent the statement or omission
was made or omitted in reliance upon information provided by
Clear Channel Communications expressly for use in any such
registration statement or prospectus. |
The Master Agreement will also specify procedures with respect
to claims subject to indemnification and related matters and
will provide for contribution in the event that indemnification
is not available to an indemnified party.
Expenses of the Separation and Our Initial Public
Offering. Clear Channel Communications will pay or reimburse
us for all out-of-pocket fees, costs and expenses (including all
legal, accounting and printing expenses) incurred prior to the
completion of this offering in connection with our separation
from Clear Channel Communications, except that we shall be
responsible for fees and expenses attributable to this offering.
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Dispute Resolution Procedures
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We will agree with Clear Channel Communications that neither
party will commence any court action to resolve any dispute or
claim arising out of or relating to the Master Agreement,
subject to certain exceptions. Instead, any dispute that is not
resolved in the normal course of business will be submitted to
senior executives of each business entity involved in the
dispute for resolution. If the dispute is not resolved by
negotiation within 45 days after submission to the
executives, either party may submit the dispute to mediation. If
the dispute is not resolved by mediation within 30 days
after the selection of a mediator, either party may submit the
dispute to binding arbitration before a panel of three
arbitrators. The arbitrators will determine the dispute in
accordance with Texas law. Most of the other agreements between
Clear Channel Communications and us have similar dispute
resolution provisions.
The Master Agreement also will contain covenants between Clear
Channel Communications and us with respect to other matters,
including the following:
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our agreement (subject to certain limited exceptions) not to
repurchase shares of our outstanding Class A common stock
or any other securities convertible into or exercisable for our
Class A common stock, without first obtaining the prior
written consent or affirmative vote of Clear Channel
Communications, for so long as Clear Channel Communications owns
more than 50% of the total voting power of our common stock; |
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confidentiality of our and Clear Channel Communications
information; |
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our right to continue coverage under Clear Channel
Communications insurance policies for so long as Clear
Channel Communications owns more than 50% of our outstanding
common stock; |
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restrictions on our ability to take any action or enter into any
agreement that would cause Clear Channel Communications to
violate any law, organizational document, agreement or judgment; |
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restrictions on our ability to take any action that limits Clear
Channel Communications ability to freely sell, transfer,
pledge or otherwise dispose of our stock; |
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our obligation to comply with Clear Channel Communications
policies applicable to its subsidiaries for so long as Clear
Channel Communications owns more than 50% of the total voting
power of our outstanding common stock, except (i) to the
extent such policies conflict with our amended and restated
certificate of incorporation or bylaws or any of the agreements
between Clear Channel Communications and us, or (ii) as
otherwise agreed with Clear Channel Communications or superseded
by any policies adopted by our board of directors; and |
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restrictions on our ability to enter into any agreement that
binds or purports to bind Clear Channel Communications. |
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Approval Rights of Clear Channel Communications on Certain
of our Activities
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Until the first date on which Clear Channel Communications owns
less than 50% of the total voting power of our common stock, the
prior affirmative vote or written consent of Clear Channel
Communications is required for the following actions (subject in
each case to certain agreed exceptions):
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a merger involving us or any of our subsidiaries (other than
mergers involving our subsidiaries or to effect acquisitions
permitted under our amended and restated certificate of
incorporation); |
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acquisitions by us or our subsidiaries of the stock or assets of
another business for a price (including assumed debt) in excess
of $5 million; |
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dispositions by us or our subsidiaries of assets in a single
transaction or a series of related transactions for a price
(including assumed debt) in excess of $5 million; |
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incurrence or guarantee of debt by us or our subsidiaries in
excess of $400.0 million outstanding at any one time or
that could reasonably be expected to result in a negative change
in any of our credit ratings, excluding our debt with Clear
Channel Communications described in this prospectus,
intercompany debt (within our company and its subsidiaries), and
debt determined to constitute operating leverage by a nationally
recognized statistical rating organization; |
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issuance by us or our subsidiaries of capital stock or other
securities convertible into capital stock; |
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enter into any agreement restricting our ability or the ability
of any of our subsidiaries to pay dividends, borrow money, repay
indebtedness, make loans or transfer assets, in any such case to
our company or Clear Channel Communications; |
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dissolution, liquidation or winding up of our company or any of
our subsidiaries; |
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adoption of a rights agreement; and |
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alteration, amendment, termination or repeal of, or adoption of
any provision inconsistent with, the provisions of our amended
and restated certificate of incorporation or our bylaws relating
to our authorized capital stock, the rights granted to the
holders of the Class B common stock, amendments to our
bylaws, stockholder action by written consent, stockholder
proposals and meetings, limitation of liability of and
indemnification of our officers and directors, the size or
classes of our board of directors, corporate opportunities and
conflicts of interest between our company and Clear Channel
Communications, and Section 203 of the Delaware General
Corporation Law. |
Corporate Services Agreement
We will enter into a corporate services agreement with Clear
Channel Communications or one of its affiliates prior to the
completion of this offering to provide us certain administrative
and support services and other assistance in the United States
consistent with the services provided to us before the offering.
In this prospectus, we refer to this agreement as the Corporate
Services Agreement. The services Clear Channel Communications
will provide us, as qualified in the agreement, include, without
limitation, the following:
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treasury, payroll and other financial related services; |
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executive officer services; |
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human resources and employee benefits; |
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legal and related services; |
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information systems, network and related services; |
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investment services; |
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corporate services; and |
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procurement and sourcing support. |
106
The charges for the corporate services generally are intended to
allow Clear Channel Communications to fully recover the
allocated direct costs of providing the services, plus all
out-of-pocket costs and expenses, generally without profit. The
allocation of cost will be based on various measures depending
on the service provided, which measures will include relative
revenue, employee headcount or number of users of a service.
Under the Corporate Services Agreement, we and Clear Channel
Communications will each have the right to purchase goods or
services, use intellectual property licensed from third parties
and realize other benefits and rights under the other
partys agreements with third-party vendors to the extent
allowed by such vendor agreements. The agreement also will
provide for the lease or sublease of certain facilities used in
the operation of our respective businesses and for access to
each others computing and telecommunications systems to
the extent necessary to perform or receive the corporate
services.
The Corporate Services Agreement will require Clear Channel
Communications to continue to make available to us the range of
services provided by Clear Channel Communications prior to this
offering, as qualified by such agreement, and will require us to
utilize such services in the conduct of our business until such
time as Clear Channel Communications owns less than 50% of the
total voting power of our common stock. The Corporate Services
Agreement may be terminated by mutual agreement of Clear Channel
Communications and us at any time, or upon no less than six
months prior notice after such time as Clear Channel
Communications owns less than 50% of the total voting power of
our common stock. However, the Corporate Services Agreement will
require Clear Channel Communications to provide, and us to
continue to use, certain specified services, generally related
to information technology, for a period of time specified in the
agreement after the expiration of the six month notice period.
Our participation in the Clear Channel Communications employee
benefit plans may be terminated by us or by Clear Channel
Communications on 90 days notice and, unless
otherwise agreed, will terminate if and when Clear Channel
Communications owns less than 80% of the total combined voting
power of our common stock. See Employee
Matters Agreement below. Under the terms of the Corporate
Services Agreement, Clear Channel Communications will not be
liable to us for or in connection with any services rendered
pursuant to the agreement or for any actions or inactions taken
by Clear Channel Communications in connection with the provision
of services. However, Clear Channel Communications will be
liable for, and will indemnify a receiving party for,
liabilities resulting from its gross negligence, willful
misconduct, improper use or disclosure of client information or
violations of law, subject to a cap on Clear Channel
Communications liability of the amount received by Clear
Channel Communications under the Corporate Services Agreement
during the immediately preceding 12-month period. Additionally,
we will indemnify Clear Channel Communications for any losses
arising from the provision of services, except to the extent the
liabilities are caused by Clear Channel Communications
gross negligence or material breach of the Corporate Services
Agreement.
The Corporate Services Agreement provides that, with respect to
executive services, after this offering Clear Channel
Communications will make available to us, and we will be
obligated to utilize, the services of the chief executive
officer of Clear Channel Communications, currently Mark P.
Mays, to serve as our Chief Executive Officer, and the chief
financial officer of Clear Channel Communications, currently
Randall T. Mays, to serve as our Chief Financial Officer.
Our obligation to utilize the services of each of the chief
executive officer and chief financial officer of Clear Channel
Communications in these capacities will continue until Clear
Channel Communications owns less than 50% of the voting power of
our common stock or we provide Clear Channel Communications with
six months prior written notice of termination. Clear Channel
Communications will charge an allocable portion of the
compensation and benefits costs of such persons based on the
ratio of our OIBDAN to the total Clear Channel Communications
OIBDAN using the previous years fiscal results. The
compensation and benefits costs allocated to us will include
such executives salary, bonus and other standard employee
benefits, but will exclude equity based compensation. Because
bonus is a major component of the allocable part of such
executives compensation and increase in OIBDAN is a major
element in calculating such bonus, OIBDAN was used as the basis
for making the allocation of overall compensation expense
between Clear Channel Communications and us.
107
Each of Mark and Randall Mays will be employed by Clear Channel
Communications, and will spend a substantial part of his
professional time and effort on behalf of Clear Channel
Communications. In addition, both Mark and Randall Mays will
serve as directors of the entertainment business of Clear
Channel Communications, which is being spun off by Clear Channel
Communications to its stockholders. We have not established any
minimum time requirements for such officers. In addition, Mark
and Randall Mays will continue to participate in Clear Channel
Communications stock incentive and other benefits plans
and will continue to hold a substantial number of shares of
and/or options to purchase shares of common stock of Clear
Channel Communications. These substantial interests in Clear
Channel Communications equity present these officers with
incentives different from those of our stockholders, and may
create conflicts of interest described under Risk
Factors Risks Related to Our Relationship with Clear
Channel Communications.
Registration Rights Agreement
We will enter into a registration rights agreement with Clear
Channel Communications prior to the completion of this offering
to provide Clear Channel Communications with registration rights
relating to shares of our outstanding common stock held by Clear
Channel Communications after this offering. In this prospectus,
we refer to this agreement as the Registration Rights Agreement.
Clear Channel Communications may assign its rights under the
Registration Rights Agreement to any person that acquires shares
of our outstanding common stock subject to the agreement and
agrees to be bound by the terms of the agreement. Subject to
certain limitations, Clear Channel Communications and its
permitted transferees may require us to register under the
Securities Act of 1933, as amended, all or any portion of these
shares, a so-called demand request. We are not
obligated to effect the following:
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a demand registration within 60 days after the effective
date of a previous demand registration, other than a shelf
registration pursuant to Rule 415 under the Securities Act; |
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a demand registration within 180 days after the effective
date of the registration statement of which this prospectus is a
part; |
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a demand registration, unless the demand request is for a number
of shares of common stock with a market value that is equal to
at least $150.0 million; and |
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more than two demand registrations during the first
12 months after this offering or more than three demand
registrations during any 12-month period thereafter. |
We may defer the filing of a registration statement for a period
of up to 90 days after a demand request has been made if
(i) at the time of such request we are engaged in
confidential business activities, which would be required to be
disclosed in the registration statement, and our board of
directors determines that such disclosure would be materially
detrimental to us and our stockholders, or (ii) prior to
receiving such request, our board of directors had determined to
effect a registered underwritten public offering of our
securities for our account and we have taken substantial steps
to effect such offering. However, with respect to two demand
requests only, if Clear Channel Communications or any of its
affiliates makes a demand request during the two-year period
after this offering, we will not have the right to defer such
demand registration or to not file such registration statement
during that period.
Additionally, Clear Channel Communications and its permitted
transferees have so-called piggyback registration
rights, which means that Clear Channel Communications and its
permitted transferees may include their respective shares in any
future registrations of our equity securities, whether or not
that registration relates to a primary offering by us or a
secondary offering by or on behalf of any of our stockholders.
The demand registration rights and piggyback registrations are
each subject to market cutback exceptions.
We will pay all costs and expenses in connection with any
demand registration and any piggyback
registration, except in each case underwriting discounts,
commissions or fees attributable to the shares of common stock
sold by Clear Channel Communications. The Registration Rights
Agreement will set forth customary registration procedures,
including an agreement by us to make our management available
for road show presentations in connection with any underwritten
offerings. We will also agree to indemnify
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Clear Channel Communications and its permitted transferees with
respect to liabilities resulting from untrue statements or
omissions in any registration statement used in any such
registration, other than untrue statements or omissions
resulting from information furnished to us for use in the
registration statement by Clear Channel Communications or any
permitted transferee.
The rights of Clear Channel Communications and its permitted
transferees under the Registration Rights Agreement will remain
in effect with respect to the shares of common stock covered by
the agreement until those shares:
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have been sold pursuant to an effective registration statement
under the Securities Act; |
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have been sold to the public pursuant to Rule 144 under the
Securities Act; |
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have been transferred in a transaction where subsequent public
distribution of the shares would not require registration under
the Securities Act; or |
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are no longer outstanding. |
Additionally, the registration rights under the agreement will
cease to apply to a holder other than Clear Channel
Communications or its affiliates when such holder holds less
than 3% of economic value of the then-outstanding shares of
common stock covered by the agreement and such shares are
eligible for sale pursuant to Rule 144(k) under the
Securities Act.
Tax Matters Agreement
After this offering, we and certain of our eligible corporate
subsidiaries will continue to be included in the affiliated
group of corporations that files a consolidated return for
U.S. federal income tax purposes of which Clear Channel
Communications is the common parent corporation, and in certain
cases, we or one or more of our subsidiaries may be included in
the combined, consolidated or unitary group of Clear Channel
Communications or one or more of its subsidiaries for certain
foreign, state and local income tax purposes. Prior to the
completion of this offering, we and Clear Channel Communications
will enter into a tax matters agreement to allocate the
responsibility of Clear Channel Communications and its
subsidiaries, on the one hand, and we and our subsidiaries, on
the other, for the payment of taxes resulting from filing tax
returns on a combined, consolidated or unitary basis. In this
prospectus, we refer to this agreement as the Tax Matters
Agreement.
With respect to tax returns for any taxable period in which we
or any of our subsidiaries is included in the federal
consolidated group or a state consolidated group of Clear
Channel Communications or any of its subsidiaries, we will make
payments to Clear Channel Communications pursuant to the Tax
Matters Agreement equal to the amount of taxes that would be
paid if we and each of our subsidiaries included in the
consolidated group filed a separate tax return. We will also pay
Clear Channel Communications the amount of any taxes with
respect to tax returns that include only us or any of our
subsidiaries, which returns, as described below, will be
prepared and filed by Clear Channel Communications.
With respect to certain tax items, such as foreign tax credits,
alternative minimum tax credits, net operating losses and net
capital losses, that are generated by us or our subsidiaries,
but are used by Clear Channel Communications or its subsidiaries
when the tax return for the consolidated group is filed, we will
be reimbursed by Clear Channel Communications as such tax items
are used.
Under the Tax Matters Agreement, Clear Channel Communications is
appointed the sole and exclusive agent for us and our
subsidiaries in any and all matters relating to taxes, will have
sole and exclusive responsibility for the preparation and filing
of all tax returns (or amended returns) and will have the power,
in its sole discretion, to contest or compromise any asserted
tax adjustment or deficiency and to file, litigate or compromise
any claim for refund on behalf of us or any of our subsidiaries.
Additionally, Clear Channel Communications will determine the
amount of our liability to (or entitlement to payment from)
Clear Channel Communications under the Tax Matters Agreement.
This arrangement may result in conflicts of interest between
Clear Channel Communications and us. For example, under the Tax
Matters Agreement, Clear Channel Communications will be able to
choose to contest, compromise or settle any adjustment or
deficiency proposed by the relevant taxing authority in a manner
that may be beneficial to Clear Channel Communications and
detrimental to us.
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For U.S. federal income tax purposes, each member of an
affiliated group of corporations that files a consolidated
return is jointly and severally liable for the U.S. federal
income tax liability of the entire group. Similar principles may
apply with respect to members of a group that file a tax return
on a combined, consolidated or unitary group basis for foreign,
state and local tax purposes. Accordingly, although the Tax
Matters Agreement will allocate tax liabilities between Clear
Channel Communications and us during the period in which we or
any of our subsidiaries is included in the consolidated group of
Clear Channel Communications or any of its subsidiaries, we and
our subsidiaries included in such consolidated group could be
liable for the tax liability of the entire consolidated group in
the event any such tax liability is incurred and not discharged
by Clear Channel Communications. The Tax Matters Agreement will
provide, however, that Clear Channel Communications will
indemnify us and our subsidiaries to the extent that, as a
result of us or any of our subsidiaries being a member of a
consolidated group, we or our subsidiaries becomes liable for
the tax liability of the entire consolidated group (other than
the portion of such liability for which we and our subsidiaries
are liable under the Tax Matters Agreement).
Under Section 482 of the Code, the Internal Revenue Service
has the authority in certain instances to redistribute,
reapportion or reallocate gross income, deductions, credits or
allowances between Clear Channel Communications and us. Other
taxing authorities may have similar authority under comparable
provisions of foreign, state and local law. The Tax Matters
Agreement provides that we or Clear Channel Communications will
indemnify the other to the extent that, as a result of the
Internal Revenue Service exercising its authority (or any other
taxing authority exercising a similar authority), the tax
liability of one group is reduced while the tax liability of the
other group is increased.
If Clear Channel Communications spins off our Class B
common stock to its stockholders in a distribution that is
intended to be tax-free under Section 355 of the Code, we
have agreed in the Tax Matters Agreement to indemnify Clear
Channel Communications and its affiliates against any and all
tax-related liabilities if such a spin-off fails to qualify as a
tax-free distribution (including as a result of
Section 355(e) of the Code) due to actions, events or
transactions relating to our stock, assets or business, or a
breach of the relevant representations or covenants made by us
in the Tax Matters Agreement. If neither we nor Clear Channel
Communications is responsible under the Tax Matters Agreement
for any such spin-off not being tax-free under Section 355
of the Code, we and Clear Channel Communications have agreed
that we will each be responsible for 50% of the tax related
liabilities arising from the failure of such a spin-off to so
qualify.
Employee Matters Agreement
We have entered into an employee matters agreement with Clear
Channel Communications covering certain compensation and
employee benefit issues. In this prospectus, we refer to this
agreement as the Employee Matters Agreement. In general, with
certain exceptions, our employees will continue to participate
in the Clear Channel Communications employee plans and
arrangements along with the employees of other Clear Channel
Communications subsidiaries, on terms and conditions consistent
with past practice. We will also continue to have our payroll
administered by Clear Channel Communications, also on terms and
conditions consistent with past practice.
We and Clear Channel Communications reserve the right to
withdraw from or terminate our participation, as the case may
be, in any of the Clear Channel Communications employee plans
and arrangements at any time and for any reason, subject to at
least 90 days notice. Unless sooner terminated, it is
likely that our participation in Clear Channel Communications
employee plans and arrangements will end if and at such time as
we are no longer a subsidiary of Clear Channel Communications,
which, for this purpose, means Clear Channel Communications owns
less than 80% of the total combined voting power of all classes
of our capital stock entitled to vote. We will, however,
continue to bear the cost of and retain responsibility for all
employment-related liabilities and obligations associated with
our employees (and their covered dependents and beneficiaries),
regardless of when incurred.
We will have our own stock incentive and annual incentive plans
in place for our employees. These plans are described in
Management Employee Benefits Plans. Our
employees who participate in the
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Clear Channel Communications Annual Incentive Compensation Plan
will continue their participation for the balance of 2005,
pursuant to the performance-based awards previously made to
them. We will make the performance-related evaluations and
determinations of 2005 bonus amounts earned by our executive
officers under the Clear Channel Communications plan. For 2006,
our executive officers and other designated key employees will
be covered by our plan.
Some or all of the Clear Channel Communications stock options
granted to our employees before this offering may be converted
into options to purchase shares of our Class A common
stock, subject generally to the same vesting and other terms and
conditions applicable to the original Clear Channel
Communications options. See Management Clear
Channel Communications Stock Plan Awards.
Trademarks
Prior to the completion of this offering, we will amend and
restate a trademark license agreement that entitles us to use
(i) on a nonexclusive basis, the Clear Channel
trademark and the Clear Channel Communications
outdoor trademark logo with respect to day-to-day
operations of our business; and (ii) certain other Clear
Channel Communications marks in connection with our business. In
this prospectus, we refer to this agreement as the Trademark
License Agreement. Our use of the marks will be subject to Clear
Channel Communications approval. Clear Channel
Communications may terminate our use of the marks in certain
circumstances, including (i) a breach by us of a term or
condition of the Master Agreement, the Corporate Services
Agreement, the Tax Matters Agreement or the Employee Matters
Agreement and (ii) at any time after Clear Channel
Communications ceases to own at least 50% of the total voting
power of our common stock. For our use of these trademarks and
other marks, we pay Clear Channel Communications a royalty fee
which is approximately 1.5% of gross receipts (or outdoor
advertising revenues earned by users of the marks) less an
annual management fee of $21,600. For the years ended
December 31, 2004 and 2003, we recorded $15.8 million
and $14.1 million of royalty fees, respectively.
Clear Channel Communications Agreements with Third Parties
Historically, we have received services provided by third
parties pursuant to various agreements that Clear Channel
Communications has entered into for the benefit of its
affiliates. We pay the third parties directly for the services
they provide to us or reimburse Clear Channel Communications for
our share of the actual costs incurred under the agreements.
After this offering, we intend to continue to procure certain of
these third-party services, including services related to
insurance, vehicle leases, information technology and software,
through contracts entered into by Clear Channel Communications,
to the extent we are permitted (and elect to) or required to do
so.
Products and Services Provided between Clear Channel
Communications and Us
We and Clear Channel Communications engage in transactions in
the ordinary course of our respective businesses. These
transactions include our providing billboard and other
advertising space to Clear Channel Communications at rates we
believe would be charged to a third party in an arms
length transaction.
Our branch managers have historically followed a corporate
policy allowing Clear Channel Communications to use, without
charge, domestic displays that they or their staff believe would
otherwise be unsold. Our sales personnel receive partial revenue
credit for that usage for compensation purposes. This partial
revenue credit is not included in our reported revenues. Clear
Channel Communications bears the cost of producing the
advertising and we bear the costs of installing and removing
this advertising. In 2004, we estimated that these discounted
revenues would have been less than 3% of our domestic revenues.
Under the Master Agreement, this policy will continue.
Intercompany Notes
We currently have issued three intercompany notes to Clear
Channel Communications in the total original principal amount of
approximately $4.0 billion. See Use of Proceeds
and Description of Indebtedness.
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PRINCIPAL STOCKHOLDER
We are an indirect, wholly owned subsidiary of Clear Channel
Communications. All of our common stock is held by Clear Channel
Holdings, Inc., another wholly owned subsidiary of Clear Channel
Communications. After this offering, Clear Channel
Communications will own all of our outstanding shares of
Class B common stock, representing approximately 90% of the
outstanding shares of our common stock and approximately 99% of
the total voting power of our common stock, or approximately 89%
and 99%, respectively, if the underwriters exercise in full
their option to purchase additional shares of Class A
common stock. Clear Channel Communications will not own any of
our outstanding shares of Class A common stock. Each share
of our Class B common stock is convertible while owned by
Clear Channel Communications or any of its affiliates (excluding
us and our subsidiaries) at the option of the holder thereof
into one share of Class A common stock. Clear Channel
Communications has advised us that its current intent is to
continue to hold all of our Class B common stock owned by
it after this offering and thereby retain its controlling
interest in us. However, Clear Channel Communications is not
subject to any contractual obligation that would prohibit it
from selling, spinning off, splitting off or otherwise disposing
of any shares of our common stock, except that Clear Channel
Communications has agreed not to sell, spin off, split off or
otherwise dispose of any shares of our common stock for a period
of 180 days after the date of this prospectus without the
prior written consent of the underwriters, subject to certain
limitations and limited exceptions. See Underwriting.
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DESCRIPTION OF CAPITAL STOCK
Below we have provided a summary description of our capital
stock. This description is not complete. You should read the
full text of our amended and restated certificate of
incorporation and bylaws, which will be included as exhibits to
the registration statement of which this prospectus is a part,
as well as the provisions of applicable Delaware law.
General
After this offering, we will be authorized to issue
750,000,000 shares of our Class A common stock, $0.01
par value per share, 600,000,000 shares or our Class B
common stock, $0.01 par value per share, and
150,000,000 shares of preferred stock, $0.01 par value per
share.
Common Stock
The rights of the Class A common stock and Class B
common stock are substantially similar, except with respect to
voting, conversion and transferability.
Each share of Class A common stock entitles its holder to
one vote and each share of Class B common stock entitles
its holder to 20 votes. Our Class A common stock and
Class B common stock vote as a single class on all matters
on which stockholders are entitled to vote, except as otherwise
provided in our amended and restated certificate of
incorporation or as required by law. Generally, all matters to
be voted on by stockholders must be approved by a majority of
the votes entitled to be cast by the holders of Class A
common stock and Class B common stock present in person or
represented by proxy, voting as a single class, subject to any
voting rights granted to holders of any preferred stock. Except
as otherwise provided by law or in our amended and restated
certificate of incorporation or in our bylaws, and subject to
any voting rights granted to holders of any outstanding
preferred stock and the powers of our board of directors to
amend our bylaws, amendments to our amended and restated
certificate of incorporation and bylaws must be approved by a
majority of the votes entitled to be cast by the holders of our
common stock, voting as a single class. Our Class A common
stock and Class B common stock are not entitled to cumulate
their votes in the election of directors.
Holders of Class A common stock and Class B common
stock will share equally, on a per share basis, in any cash
dividend declared by our board of directors, subject to any
preferential rights of any outstanding shares of preferred
stock. Dividends payable in shares of common stock may be paid
only as follows: (i) shares of Class A common stock
may be paid only to holders of Class A common stock, and
shares of Class B common stock may be paid only to holders
of Class B common stock, and (ii) the number of shares
so paid will be equal, on a per share basis, with respect to
each outstanding share of Class A common stock and
Class B common stock.
We may not reclassify, subdivide or combine shares of either
class of common stock without at the same time proportionally
reclassifying, subdividing or combining shares of the other
class.
While owned by Clear Channel Communications or any of its
affiliates (excluding us), each share of our Class B common
stock is convertible at the option of the holder thereof into
one share of Class A common stock. In addition, any shares
of Class B common stock transferred to a person other than
Clear Channel Communications will convert into shares of
Class A common stock on a one-for-one basis upon any such
transfer, except for transfers to any of Clear Channel
Communications affiliates (excluding us) or its
stockholders pursuant to a tax-free transaction under
Section 355 of the Code, or any corresponding provision of
any successor statute, which we refer to as a tax-free spin-off.
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Conversion After a Tax-Free Spin-Off
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Following any distribution of Class B common stock to Clear
Channel Communications common stockholders in a
transaction (including any distribution in exchange for Clear
Channel Communications shares or securities) intended to qualify
as a tax-free spin-off, each share of our Class B common
stock will be convertible at the option of the holder thereof
into one share of Class A common stock. In addition, each
share of our Class B common stock will convert into one
share of our Class A common stock upon any transfer thereof
subsequent to such tax-free spin-off.
Clear Channel Communications may determine, in its sole
discretion, in accordance with our amended and restated
certificate of incorporation that our Class B common stock
will not be convertible into shares of our Class A common
stock after a tax-free spin-off and, in such case, we would seek
to list the Class B common stock on the NYSE. Such
Class B common stock would be transferable after the
tax-free spin-off, subject to applicable laws.
Although Clear Channel Communications has no current plans with
respect to a tax-free spin-off of us, it will have the
flexibility to effect a tax-free spin-off of us in the future.
Unless approved by a majority of the votes entitled to be cast
by the holders of each class of common stock, voting separately
as a class, in the event of any reorganization or consolidation
of our company with one or more corporations or a merger of our
company with another corporation in which shares of common stock
are converted into or exchangeable for shares of stock, other
securities or property (including cash), all holders of common
stock, regardless of class, will be entitled to receive the same
kind and amount of shares of stock and other securities and
property (including cash).
On liquidation, dissolution or winding up of our company, after
payment in full of the amounts required to be paid to holders of
preferred stock, if any, all holders of common stock, regardless
of class, are entitled to receive the same amount per share with
respect to any distribution of assets to holders of shares of
common stock.
No shares of either class of common stock are subject to
redemption or have preemptive rights to purchase additional
shares of common stock or other securities of our company.
Upon completion of this offering, all the outstanding shares of
Class A common stock and Class B common stock will be
validly issued, fully paid and nonassessable.
Preferred Stock
Our board of directors has the authority, without action by our
stockholders, to designate and issue our preferred stock in one
or more series and to designate the rights, preferences and
privileges of each series, which may be greater than the rights
of our common stock. It is not possible to state the actual
effect of the issuance of any shares of our preferred stock upon
the rights of holders of our common stock until our board of
directors determines the specific rights of the holders of our
preferred stock. However, the effects might include, among other
things:
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restricting dividends on our common stock; |
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diluting the voting power of our common stock; |
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impairing the liquidation rights of our common stock; or |
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delaying or preventing a change in control of our company
without further action by our stockholders. |
At the completion of this offering, no shares of our preferred
stock will be outstanding and we have no present plans to issue
any shares of our preferred stock.
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Provisions of Our Amended and Restated Certificate of
Incorporation Relating to Related-Party Transactions and
Corporate Opportunities
In order to address potential conflicts of interest between
Clear Channel Communications and us, our amended and restated
certificate of incorporation contains provisions regulating and
defining the conduct of our affairs as they may involve Clear
Channel Communications and its officers and directors, and our
powers, rights, duties and liabilities and those of our
officers, directors and stockholders in connection with our
relationship with Clear Channel Communications. In general,
these provisions recognize that we and Clear Channel
Communications may engage in the same or similar business
activities and lines of business, have an interest in the same
areas of corporate opportunities and will continue to have
contractual and business relations with each other, including
officers and directors or both of Clear Channel Communications
serving as our officers or directors or both.
Our amended and restated certificate of incorporation provides
that, subject to any written agreement to the contrary, Clear
Channel Communications will have no duty to refrain from
engaging in the same or similar business activities or lines of
business as us or doing business with any of our clients,
customers or vendors or employing or otherwise engaging or
soliciting any of our officers, directors or employees.
Our amended and restated certificate of incorporation provides
that if Clear Channel Communications acquires knowledge of a
potential transaction or matter which may be a corporate
opportunity for both Clear Channel Communications and us, we
will have renounced our interest in such corporate opportunity.
Clear Channel Communications will, to the fullest extent
permitted by law, have satisfied its fiduciary duty with respect
to such a corporate opportunity and will not be liable to us or
our stockholders for breach of any fiduciary duty as our
stockholder by reason of the fact that it acquires or seeks the
corporate opportunity for itself, directs that corporate
opportunity to another person or does not present that corporate
opportunity to us.
If one of our directors or officers who is also a director or
officer of Clear Channel Communications learns of a potential
transaction or matter that may be a corporate opportunity for
both Clear Channel Communications and us, our amended and
restated certificate of incorporation provides that we will have
renounced our interest in the corporate opportunity unless that
opportunity is expressly offered to that person in writing
solely in his or her capacity as our director or officer.
If one of our officers or directors, who also serves as a
director or officer of Clear Channel Communications, learns of a
potential transaction or matter that may be a corporate
opportunity for both Clear Channel Communications and us, our
amended and restated certificate of incorporation provides that
the director or officer will have no duty to communicate or
present that corporate opportunity to us and will not be liable
to us or our stockholders for breach of fiduciary duty by reason
of Clear Channel Communications actions with respect to
that corporate opportunity.
For purposes of our amended and restated certificate of
incorporation, corporate opportunities include, but
are not limited to, business opportunities that (i) we are
financially able to undertake, (ii) are, from their nature,
in our line of business, (iii) are of practical advantage
to us and (iv) are ones in which we would have an interest
or a reasonable expectancy.
The corporate opportunity provisions in the restated certificate
will expire on the date that Clear Channel Communications ceases
to own shares of our common stock representing at least 20% of
the total voting power and no person who is a director or
officer of us is also a director or officer of Clear Channel
Communications.
By becoming a stockholder in our company, you will be deemed to
have notice of and have consented to the provisions of our
amended and restated certificate of incorporation related to
corporate opportunities that are described above.
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Anti-Takeover Effects of Our Amended and Restated Certificate
of Incorporation and Bylaws and Delaware Law
Some provisions of Delaware law and our amended and restated
certificate of incorporation and bylaws could make the following
more difficult, although they have little significance while we
are controlled by Clear Channel Communications:
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acquisition of us by means of a tender offer or merger; |
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acquisition of us by means of a proxy contest or
otherwise; or |
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removal of our incumbent officers and directors. |
These provisions, summarized below, are expected to discourage
coercive takeover practices and inadequate takeover bids. These
provisions also are designed to encourage persons seeking to
acquire control of us to first negotiate with our board of
directors. We believe that the benefits of the potential ability
to negotiate with the proponent of an unfriendly or unsolicited
proposal to acquire or restructure our company outweigh the
disadvantages of discouraging those proposals because
negotiation of them could result in an improvement of their
terms.
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Election and Removal of Directors
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Our amended and restated certificate of incorporation provides
that our board of directors is divided into three classes. The
term of the first class of directors expires at our 2007 annual
meeting of stockholders, the term of the second class of
directors expires at our 2008 annual meeting of stockholders and
the term of the third class of directors expires at our 2009
annual meeting of stockholders. At each of our annual meetings
of stockholders, the successors of the class of directors whose
term expires at that meeting of stockholders will be elected for
a three-year term, one class being elected each year by our
stockholders. This system of electing and removing directors may
discourage a third party from making a tender offer or otherwise
attempting to obtain control of us if Clear Channel
Communications no longer controls us because it generally makes
it more difficult for stockholders to replace a majority of our
directors.
Directors may be removed, with or without cause, by the
affirmative vote of shares representing a majority of the votes
entitled to be cast by the outstanding capital stock in the
election of our board of directors as long as Clear Channel
Communications and its subsidiaries (excluding our company and
our subsidiaries) owns shares representing at least a majority
of the votes entitled to be cast by the outstanding capital
stock in the election of our board of directors. Once Clear
Channel Communications and its subsidiaries (excluding our
company and our subsidiaries) cease to own shares representing
at least a majority of the votes entitled to be cast by the
outstanding capital stock in the election of our board of
directors, our amended and restated certificate of incorporation
requires that directors may only be removed for cause and only
by the affirmative vote of not less than 80% of votes entitled
to be cast by the outstanding capital stock in the election of
our board of directors.
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Size of Board and Vacancies
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Our amended and restated certificate of incorporation provides
that the number of directors on our board of directors will be
fixed exclusively by our board of directors. Newly created
directorships resulting from any increase in our authorized
number of directors will be filled solely by the vote of our
remaining directors in office. Any vacancies in our board of
directors resulting from death, resignation, retirement,
disqualification, removal from office or other cause will be
filled solely by the vote of our remaining directors in office;
provided, however, that as long as Clear Channel Communications
and its subsidiaries (excluding our company and our
subsidiaries) continue to beneficially own shares representing
at least a majority of the votes entitled to be cast by the
outstanding capital stock in the election of our board of
directors and such vacancy was caused by the action of
stockholders, then such vacancy may only be filled by the
affirmative vote of shares representing at least a majority of
the votes entitled to be cast by the outstanding common stock in
the election of our board of directors.
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Stockholder Action by Written Consent
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Our amended and restated certificate of incorporation permits
our stockholders to act by written consent without a meeting as
long as Clear Channel Communications and its subsidiaries
(excluding our company and our subsidiaries) continue to
beneficially own shares representing at least a majority of the
votes entitled to be cast by the outstanding capital stock in
the election of our board of directors. Once Clear Channel
Communications and its subsidiaries (excluding our company and
our subsidiaries) cease to beneficially own at least a majority
of the votes entitled to be cast by the outstanding capital
stock in the election of our board of directors, our amended and
restated certificate of incorporation eliminates the right of
our stockholders to act by written consent.
Our amended and restated certificate of incorporation and bylaws
provide that the provisions of our bylaws relating to the
calling of meetings of stockholders, notice of meetings of
stockholders, required quorum at meetings of stockholders,
conduct of meetings of stockholders, stockholder action by
written consent, advance notice of stockholder business or
director nominations, the authorized number of directors, the
classified board structure, the filling of director vacancies or
the removal of directors and indemnification of officers and
directors (and any provision relating to the amendment of any of
these provisions) may only be amended by the vote of a majority
of our entire board of directors or, as long as Clear Channel
Communications and its subsidiaries (excluding our company and
our subsidiaries) owns shares representing at least a majority
of the votes entitled to be cast by the outstanding capital
stock in the election of our board of directors, by the vote of
holders of a majority of the votes entitled to be cast by
outstanding capital stock in the election of our board of
directors. Once Clear Channel Communications and its
subsidiaries (excluding our company and our subsidiaries) cease
to own shares representing at least a majority of the votes
entitled to be cast by the outstanding capital stock in the
election of our board of directors, our amended and restated
certificate of incorporation and bylaws provide that these
provisions may only be amended by the vote of a majority of our
entire board of directors or by the vote of holders of at least
80% of the votes entitled to be cast by the outstanding capital
stock in the election of our board of directors.
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Amendment of Certain Provisions of Our Amended and
Restated Certificate of Incorporation
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The amendment of any of the above provisions in our amended and
restated certificate of incorporation requires approval by
holders of shares representing at least a majority of the votes
entitled to be cast by the outstanding capital stock in the
election of our board of directors, as long as Clear Channel
Communications and its subsidiaries (excluding our company and
our subsidiaries) owns shares representing at least a majority
of the votes entitled to be cast by the outstanding capital
stock in the election of our board of directors. Once Clear
Channel Communications and its subsidiaries (excluding our
company and our subsidiaries) cease to own shares representing
at least a majority of the votes entitled to be cast by the
outstanding capital stock in the election of our board of
directors, our amended and restated certificate of incorporation
and applicable provisions of Delaware law provide that these
provisions may only be amended by the vote of a majority of our
entire board of directors followed by the vote of holders of at
least 80% of the votes entitled to be cast by the outstanding
capital stock in the election of our board of directors.
Our amended and restated certificate of incorporation and bylaws
provide that a special meeting of our stockholders may be called
only by (i) Clear Channel Communications, so long as Clear
Channel Communications and its subsidiaries (excluding our
company and our subsidiaries) beneficially own at least a
majority of the votes entitled to be cast by the outstanding
capital stock in the election of our board of directors or
(ii) the Chairman of our board of directors or our board of
directors.
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Requirements for Advance Notification of Stockholder
Nominations and Proposals
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Our bylaws establish advance notice procedures with respect to
stockholder proposals and nomination of candidates for election
as directors other than nominations made by or at the direction
of our board of directors or a committee of our board of
directors.
In general, for nominations or other business to be properly
brought before an annual meeting by a stockholder, the
stockholder must give notice in writing to our secretary 90 to
120 days before the first anniversary of the preceding
years annual meeting, and the business must be a proper
matter for stockholder action. The stockholders notice
must include for each proposed nominee and business, as
applicable, (i) all required information under the
Securities Exchange Act of 1934, as amended, (ii) the
proposed nominees written consent to serve as a director
if elected, (iii) a brief description of the proposed
business, (iv) the reasons for conducting the business at
the meeting, (v) the stockholders material interest
in the business, (vi) the stockholders name and
address and (vii) the class and number of our shares which
the stockholder owns.
In general, only such business shall be conducted at a special
meeting of stockholders as shall have been brought before the
meeting pursuant to our notice of meeting. At a special meeting
of stockholders at which directors are to be elected pursuant to
our notice of meeting, a stockholder who is a stockholder of
record at the time of giving notice, who is entitled to vote at
the meeting and who complies with the notice procedures, may
nominate proposed nominees. In the event we call a special
meeting of stockholders to elect one or more directors, a
stockholder may nominate a person or persons if the
stockholders notice is delivered to our secretary 90 to
120 days before the such special meeting.
Only such persons who are nominated in accordance with the
procedures set forth in our bylaws shall be eligible to serve as
directors and only such business shall be conducted at a meeting
of stockholders as shall have been brought before the meeting in
accordance with the procedures set forth in our bylaws. The
chairman of the meeting shall have the power and duty to
determine whether a nomination or any business proposed to be
brought before the meeting was made or proposed in accordance
with the procedures set forth in or bylaws and, if any proposed
nomination or business is not in compliance with our bylaws, to
declare that such defective proposal or nomination shall be
disregarded.
Clear Channel Communications shall be entitled to nominate
persons for election to the board of directors and propose
business to be considered by stockholders at any meeting of
stockholders without compliance with the foregoing advance
notice requirements, so long as Clear Channel Communications
owns at least 50% of the votes entitled to be cast by the
outstanding capital stock in the election of our board of
directors.
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Delaware Anti-Takeover Law
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Our amended and restated certificate of incorporation provides
that Section 203 of the Delaware General Corporation Law,
an anti-takeover law, does not apply to us until Clear Channel
Communications owns less than 15% of the total voting power of
our common stock, at which date Section 203 shall apply
prospectively.
In general, Section 203 prohibits a publicly held Delaware
corporation from engaging in a business combination with an
interested stockholder for a period of three years following the
date the person became an interested stockholder, unless the
business combination or the transaction in which the person
became an interested stockholder is approved in a prescribed
manner. Generally, a business combination includes a
merger, asset or stock sale, or other transaction resulting in a
financial benefit to the interested stockholder. Generally, an
interested stockholder is a person that, together
with affiliates and associates, owns, or within three years
prior to the determination of interested stockholder status, did
own 15% or more of a corporations voting stock. This may
have an anti-takeover effect with respect to transactions not
approved in advance by our board of directors, including
discouraging attempts that might result in a premium over the
market price for the shares of our common stock.
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Our amended and restated certificate of incorporation and bylaws
do not provide for cumulative voting in the election of our
board of directors.
Pre-Offering Transactions with Clear Channel
Communications
Our amended and restated certificate of incorporation provides
that neither any agreement nor any transaction entered into
between us or any of our affiliated companies and Clear Channel
Communications and any of its affiliated companies prior to this
offering nor the subsequent performance of any such agreement
will be considered void or voidable or unfair to us because
Clear Channel Communications or any of its affiliated companies
is a party or because directors or officers of Clear Channel
Communications were on our board of directors when those
agreements or transactions were approved. In addition, those
agreements and transactions and their performance will not be
contrary to any fiduciary duty of any directors or officers of
our company or any affiliated company.
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Transfer Agent and Registrar
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The transfer agent and registrar for our Class A common
stock is Bank of New York.
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New York Stock Exchange Listing
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The shares of our Class A common stock have been authorized
for listing on the NYSE under the symbol CCO.
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SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no public market for our
Class A common stock. The sale of a substantial amount of
our common stock in the public market after this offering, or
the perception that such sales may occur, could adversely affect
the prevailing market price of our Class A common stock.
Furthermore, because some of our shares will not be available
for sale shortly after this offering due to the contractual and
legal restrictions on resale described below, the sale of a
substantial amount of common stock in the public market after
these restrictions lapse could adversely affect the prevailing
market price of our Class A common stock and our ability to
raise equity capital in the future.
Upon the completion of this offering, we will have
350,000,000 shares of common stock outstanding (assuming
the underwriters option to purchase additional shares of
Class A common stock is not exercised in full), which
includes the 35,000,000 shares of Class A common stock
sold by us in this offering and 315,000,000 shares of
Class B common stock outstanding (including
5,250,000 shares of Class B common stock issued by us
in exchange for a portion of the balance of the intercompany
notes because the underwriters option to purchase
additional shares is not exercised in full).
Of those shares, all of the shares of our Class A common
stock sold in this offering will be freely tradable without
restriction or further registration under the Securities Act,
unless the shares are purchased by affiliates as
that term is defined in Rule 144 under the Securities Act.
Any shares purchased by an affiliate may not be resold except in
compliance with Rule 144 volume limitations, manner of sale
and notice requirements, pursuant to another applicable
exemption from registration or pursuant to an effective
registration statement. The shares of our Class B common
stock held by Clear Channel Communications are restricted
securities as that term is defined in Rule 144 under
the Securities Act. These restricted securities may be sold in
the public market by Clear Channel Communications only if they
are registered or if they qualify for an exemption from
registration under Rule 144 or Rule 144(k) under the
Securities Act. These rules are summarized below.
Rule 144
In general, under Rule 144 as currently in effect,
beginning 90 days after the date of this prospectus, a
person or persons whose shares are aggregated, who have
beneficially owned restricted shares for at least one year,
including persons who may be deemed to be our
affiliates, would be entitled to sell within any
three-month period a number of shares that does not exceed the
greater of (i) 1% of the number of shares of common stock
then outstanding, which will equal approximately
3,500,000 shares immediately after this offering, or
(ii) the average weekly trading volume of our Class A
common stock on the New York Stock Exchange during the four
calendar weeks before a notice of the sale on SEC Form 144
is filed.
Sales under Rule 144 are also subject to certain manner of
sale provisions and notice requirements and to the availability
of certain public information about us.
Rule 144(k)
Under Rule 144(k), a person who is not deemed to have been
one of our affiliates at any time during the
90 days preceding a sale, and who has beneficially owned
the shares proposed to be sold for at least two years, including
the holding period of any prior owner other than an
affiliate, is entitled to sell these shares without
complying with the manner of sale, public information, volume
limitation or notice provisions of Rule 144.
Stock Issued Under Employee Plans
We intend to file registration statements on Form S-8 under
the Securities Act to register approximately
42,000,000 shares of Class A common stock issuable
with respect to options and restricted stock units to be granted
under our employee plans. Currently, there are no outstanding
options to purchase shares of our Class A common stock or
restricted stock units. These registration statements are
expected to be filed following the effective date of the
registration statement of which this prospectus is a
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part and will be effective upon filing. Shares issued upon the
exercise of stock options or restricted stock units after the
effective date of the Form S-8 registration statements will
be eligible for resale in the public market without restriction,
subject to Rule 144 limitations applicable to affiliates.
Lock-up Agreements
Notwithstanding the foregoing, our company, our directors and
officers and Clear Channel Communications have agreed with the
underwriters not to dispose of or hedge any of our common stock
or securities convertible into or exchangeable for shares of
common stock owned by them during the period from the date of
this prospectus continuing through the date 180 days after
the date of this prospectus, except with the prior written
consent of the underwriters, subject to certain limitations and
limited exceptions. See Underwriting.
Registration Rights
As described in Arrangements Between Clear Channel
Communications and Us Registration Rights
Agreement, we will enter into a registration rights
agreement with Clear Channel Communications. We do not have any
other contractual obligations to register our stock.
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DESCRIPTION OF INDEBTEDNESS
On August 2, 2005, one of our wholly owned subsidiaries
issued to us an intercompany note in the original principal
amount of $2.5 billion, which we subsequently distributed
to our parent, Clear Channel Holdings, Inc., as a dividend on
our common stock and in turn Clear Channel Holdings, Inc.
distributed the note to its and our ultimate parent, Clear
Channel Communications, as a dividend on its common stock. This
note matures on August 2, 2010, may be prepaid in whole at
any time, or in part from time to time, and accrues interest at
a variable per annum rate equal to the weighted average cost of
debt for Clear Channel Communications, as determined by Clear
Channel Communications from time to time. At September 30,
2005, the interest rate on the $2.5 billion intercompany
note was 5.7%.
Upon a change of control of us, the entire outstanding principal
amount of, and all accrued interest on, this note, and all
accrued related costs and expenses are mandatorily payable.
Until all our obligations evidenced by and provided for in the
$2.5 billion intercompany note are fully paid, we and our
subsidiaries are subject to certain negative covenants contained
in the note, including limitations on the following:
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becoming liable for consolidated funded indebtedness (as defined
in the note), excluding certain intercompany indebtedness or
guarantees of indebtedness incurred by Clear Channel
Communications or certain of its subsidiaries, in a principal
amount in excess of $400.0 million at any one time
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creating liens; |
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making investments; |
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sale and leaseback transactions (as defined in the note), which
when aggregated with consolidated funded indebtedness secured by
liens, will not exceed an amount equal to 10% of our total
consolidated shareholders equity (as defined in the note)
as shown on our most recently reported annual audited
consolidated financial statements; |
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disposing of all or substantially all of our assets; |
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mergers and consolidations; |
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declaring or paying dividends or other distributions; |
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repurchasing our equity; and |
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limitations on entering into transactions with our affiliates. |
In addition, upon our issuances of equity and incurrences of
debt, subject to certain exceptions, we are required to prepay
the note in the amount of net proceeds received from such
events. The note contains customary events that permit its
maturity to be accelerated prior to its stated maturity date
including our failure to comply with any of its negative
covenants. See Arrangements Between Clear Channel
Communications and Us.
We believe that the size of the $2.5 billion intercompany
note, combined with our additional existing third party
indebtedness, sets a leverage level for us that is appropriate
for a company with our asset mix and is generally in line with
our peer companies. Furthermore, we believe that future cash
flow from operations will be sufficient to fund the interest on
our indebtedness obligations for a period of at least 18 months.
For additional information regarding our other indebtedness, see
Risk Factors Risks Related to Our
Business, Managements Discussion and Analysis
of Financial Condition and Results of Operations
Financial Condition and Liquidity Liquidity,
Use of Proceeds and Note F to the notes to our
combined financial statements included elsewhere in this
prospectus.
122
MATERIAL U.S. FEDERAL TAX CONSIDERATIONS FOR
NON-U.S. HOLDERS
OF COMMON STOCK
The following discussion summarizes the material
U.S. federal income and estate tax consequences of the
purchase, ownership and disposition of our Class A common
stock by certain non-U.S. holders (as defined below). This
discussion only applies to non-U.S. holders who purchase
and hold our Class A common stock as a capital asset for
U.S. federal income tax purposes (generally property held
for investment). This discussion does not describe all of the
tax consequences that may be relevant to a non-U.S. holder
in light of its particular circumstances.
A non-U.S. holder, for the purposes of this
discussion, means a person (other than a partnership) that is
not for U.S. federal income tax purposes any of the
following:
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an individual citizen or resident of the United States
(including certain former citizens and former long-term
residents); |
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a corporation (or any other entity treated as a corporation for
U.S. federal income tax purposes) created or organized in
or under the laws of the United States, any state thereof or the
District of Columbia; |
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an estate the income of which is subject to U.S. federal
income taxation regardless of its source; or |
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a trust if it (a) is subject to the primary supervision of
a court within the United States and one or more United States
persons have the authority to control all substantial decisions
of the trust or (b) has a valid election in effect under
applicable United States Treasury regulations to be treated as a
United States person. |
This discussion is based upon provisions of the Code and
regulations, rulings and judicial decisions as of the date
hereof. These authorities may be changed, perhaps retroactively,
so as to result in U.S. federal income and estate tax
consequences different from those summarized below. This
discussion does not address all aspects of U.S. federal
income and estate taxes and does not describe any foreign,
state, local or other tax considerations that may be relevant to
non-U.S. holders in light of their particular
circumstances. In addition, this discussion does not describe
the U.S. federal income and estate tax consequences
applicable to you if you are subject to special treatment under
the U.S. federal income tax laws (including if you are a
United States expatriate, controlled foreign
corporation, passive foreign investment
company, corporation that accumulates earnings to avoid
U.S. federal income tax, pass-through entity or an investor
in a pass-through entity). We cannot assure you that a change in
law will not alter significantly the tax considerations that we
describe in this discussion.
If a partnership (or any other entity treated as a partnership
for U.S. federal income tax purposes) holds our
Class A common stock, the U.S. federal income tax
treatment of a partner of that partnership will generally depend
upon the status of the partner and the activities of the
partnership. If you are a partner of a partnership holding our
Class A common stock, you should consult your tax advisors.
This discussion is provided for general information only and
does not constitute legal advice to any prospective purchaser of
our Class A common stock. Additionally, this discussion
cannot be used by any holder for the purpose of avoiding tax
penalties that may be imposed on such holder. If you are
considering the purchase of our Class A common stock, you
should consult your own tax advisors concerning the
U.S. federal income and estate tax consequences of
purchasing, owning and disposing of our Class A common
stock in light of your particular circumstances and any
consequences arising under the laws of applicable state, local
or foreign taxing jurisdictions. You should also consult with
your tax advisors concerning any possible enactment of
legislation that would affect your investment in our
Class A common stock in your particular circumstances.
Dividends
Dividends paid to a non-U.S. holder of our Class A
common stock generally will be subject to withholding of
U.S. federal income tax at a 30% rate or such lower rate as
may be specified by an
123
applicable income tax treaty. However, dividends that are
effectively connected with the conduct of a trade or business by
the non-U.S. holder within the United States (and, where a
tax treaty applies, are attributable to a U.S. permanent
establishment of the non-U.S. holder) are not subject to
the withholding tax, provided certain certification and
disclosure requirements are satisfied. Instead, such dividends
are subject to U.S. federal income tax on a net income
basis in the same manner as if the non-U.S. holder were a
United States person as defined under the Code, unless an
applicable income tax treaty provides otherwise. Any such
effectively connected dividends received by a foreign
corporation may be subject to an additional branch profits
tax at a 30% rate or such lower rate as may be specified
by an applicable income tax treaty.
A non-U.S. holder of our Class A common stock who
wishes to claim the benefit of an applicable treaty rate and
avoid backup withholding, as discussed below, for dividends will
be required to either:
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complete Internal Revenue Service Form W-8BEN (or other
applicable form) and certify under penalty of perjury that such
holder is not a United States person as defined under the Code
and is eligible for treaty benefits; or |
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if our Class A common stock is held through certain foreign
intermediaries, satisfy the relevant certification requirements
of applicable United States Treasury regulations. |
Special certification and other requirements apply to certain
non-U.S. holders that are pass-through entities rather than
corporations or individuals.
A non-U.S. holder of our Class A common stock eligible
for a reduced rate of U.S. withholding tax pursuant to an
income tax treaty may obtain a refund of any excess amounts
withheld by filing an appropriate claim for refund with the
Internal Revenue Service.
Gain on Disposition of Class A Common Stock
Any gain realized by a non-U.S. holder on the disposition
of our Class A common stock generally will not be subject
to U.S. federal income or withholding tax unless:
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the gain is effectively connected with a trade or business of
the non-U.S. holder in the United States (and, if
required by an applicable income tax treaty, is attributable to
a U.S. permanent establishment of the non-U.S. holder); |
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the non-U.S. holder is an individual who is present in the
United States for 183 days or more in the taxable year of
that disposition, and certain other conditions are met; or |
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we are or have been a United States real property holding
corporation for U.S. federal income tax purposes. |
An individual non-U.S. holder described in the first bullet
point immediately above will be subject to tax on the net gain
derived from the sale under regular graduated U.S. federal
income tax rates. An individual non-U.S. holder described
in the second bullet point immediately above will be subject to
a flat 30% tax on the gain derived from the sale, which may be
offset by U.S. source capital losses, even though the
individual is not considered a resident of the United States. If
a non-U.S. holder that is a foreign corporation falls under
the first bullet point immediately above, it will be subject to
tax on its net gain in the same manner as if it were a United
States person as defined under the Code and, in addition, may be
subject to the branch profits tax equal to 30% of its
effectively connected earnings and profits or at such lower rate
as may be specified by an applicable income tax treaty.
We believe we are not and do not anticipate becoming a
United States real property holding corporation for
U.S. federal income tax purposes.
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Federal Estate Tax
Class A common stock held by an individual
non-U.S. holder at the time of death will be included in
such non-U.S. holders gross estate for
U.S. federal estate tax purposes, unless an applicable
estate tax treaty provides otherwise.
Information Reporting and Backup Withholding
We must report annually to the Internal Revenue Service and to
each non-U.S. holder the amount of dividends paid to such
non-U.S. holder and the tax withheld with respect to such
dividends, regardless of whether withholding was required.
Copies of the information returns reporting such dividends and
withholding may also be made available to the tax authorities in
the country in which the non-U.S. holder resides under the
provisions of an applicable income tax treaty.
A non-U.S. holder will be subject to backup withholding for
dividends paid to such non-U.S. holder unless such
non-U.S. holder certifies under penalty of perjury that it
is a non-U.S. holder (and the payor does not have actual
knowledge or reason to know that such non-U.S. holder is a
United States person as defined under the Code), and such
non-U.S. holder otherwise establishes an exemption.
Information reporting and, depending on the circumstances,
backup withholding will apply to the proceeds of a sale of our
Class A common stock within the United States or conducted
through certain United States-related financial intermediaries,
unless the beneficial owner certifies under penalty of perjury
that it is a non-U.S. holder (and the payor does not have
actual knowledge or reason to know that the beneficial owner is
a United States person as defined under the Code), and such
owner otherwise establishes an exemption.
Any amounts withheld under the backup withholding rules may be
allowed as a refund or a credit against a
non-U.S. holders U.S. federal income tax
liability provided the required information is furnished to the
Internal Revenue Service.
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UNDERWRITING
We and the underwriters named below have entered into an
underwriting agreement with respect to the shares being offered.
Subject to certain conditions, each underwriter has severally
agreed to purchase the number of shares indicated in the
following table. Goldman, Sachs & Co. will act as
global coordinator and senior book-running manager for the
offering. Deutsche Bank Securities Inc., J.P. Morgan Securities
Inc., Merrill Lynch, Pierce, Fenner & Smith
Incorporated and UBS Securities LLC will act as the joint
book-running managers of the underwriters listed below:
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Underwriters |
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Number of Shares |
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Goldman, Sachs & Co.
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Deutsche Bank Securities Inc.
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J.P. Morgan Securities Inc.
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Merrill Lynch, Pierce, Fenner & Smith
Incorporated
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UBS Securities LLC
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Banc of America Securities LLC
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Bear, Stearns & Co. Inc.
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Credit Suisse First Boston LLC
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A.G. Edwards & Sons, Inc.
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Allen & Company LLC
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Barrington Research Associates, Inc.
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Harris Nesbitt Corp.
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SunTrust Capital Markets, Inc.
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Wachovia Capital Markets, LLC
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M. R. Beal & Company, A Limited Partnership
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Muriel Siebert & Co., Inc.
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Samuel A. Ramirez & Company, Inc.
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Total
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The underwriters are committed to take and pay for all of the
shares being offered, if any are taken, other than the shares
covered by the option described below unless and until this
option is exercised.
If the underwriters sell more shares than the total number set
forth in the table above, the underwriters have an option to buy
up to an additional 5,250,000 shares to cover such sales.
They may exercise that option for 30 days. If any shares
are purchased pursuant to this option, the underwriters will
severally purchase shares in approximately the same proportion
as set forth in the table above.
The following tables show the per share and total underwriting
discounts and commissions to be paid to the underwriters by us.
Such amounts are shown assuming both no exercise and full
exercise of the underwriters option to purchase additional
shares.
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Paid by the Company |
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No Exercise |
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Full Exercise |
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Per Share
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Total
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Any shares sold by the underwriters to securities dealers may be
sold at a discount of up to
$ per
share from the initial public offering price. Any such
securities dealers may resell any shares purchased from the
underwriters to certain other brokers or dealers at a discount
of up to
$ per
share from the initial public offering price. If all the shares
are not sold at the initial public offering price, the
representatives may change the offering price and the other
selling terms.
126
We and Clear Channel Communications have agreed that neither we,
nor our directors and executive officers, nor Clear Channel
Holdings, Inc., will offer, sell, contract to sell or otherwise
dispose of or hedge any shares of our Class A common stock,
any shares of our Class B common stock, or any of our
securities that are substantially similar to the Class A
common stock, or Class B common stock, including but not
limited to any securities that are convertible into or
exchangeable or exercisable for any shares of our Class A
common stock or our Class B common stock, for a period of
180 days after the date of this prospectus, without the
prior written consent of Goldman, Sachs & Co., as global
coordinator and senior book-running manager, subject to the
following exceptions:
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the issuance by us of shares of our Class A common stock or
our Class B common stock in connection with the
transactions described in this prospectus; |
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the grant by us of employee stock options or stock appreciation
rights with respect to shares of our Class A common stock,
or shares of Class A common stock pursuant to the terms of
an employee benefit plan or other plan described in this
prospectus or as otherwise described in this prospectus; |
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the issuance by us of shares of our Class A common stock
upon the conversion of shares of our Class B common stock
(other than automatic conversions of shares of our Class B
common stock into shares of our Class A common stock,
pursuant to the terms of our amended and restated certificate of
incorporation, resulting from a transfer of shares of our Class
B common stock); |
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the issuance by us of shares of our Class A common stock
pursuant to the exercise of any employee stock options granted
pursuant to the terms of a plan described in this prospectus or
as otherwise described in this prospectus, or upon the
conversion, exchange or exercise of convertible, exchangeable or
exercisable securities outstanding as of the date of this
prospectus; |
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the issuance by us of shares of our Class A common stock in
connection with the merger or joint venture with, or acquisition
of, another company, or the acquisition of the assets or
property of another company, and the related entry into a merger
or acquisition agreement, so long as (i) the recipients of
shares of our Class A common stock in such transaction
agree to be bound by the lock-up restrictions described in this
prospectus, or (ii) the aggregate number of shares of our
Class A common stock issued in such transactions, taken
together, does not exceed 10% of the aggregate number of shares
of our Class A common stock issued in this offering; |
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transfers by our directors and executive officers of shares of
our Class A common stock (i) to a spouse, child or
other dependent or member of immediate family or pursuant to a
domestic relations order of a court of competent jurisdiction,
provided that such recipient agrees to be bound by the lock-up
restrictions described in this prospectus, (ii) to any
trust, family partnership or similar entity for the direct or
indirect benefit of the director or executive officer, provided
that the trust, partnership or similar entity agrees to be bound
by the lock-up restrictions described in this prospectus or
(iii) in connection with the exchange or surrender of
shares of our Class A common stock to us in satisfaction or
payment of the exercise price of stock options or to satisfy any
tax withholding obligations in respect of such option exercise;
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transfers by Clear Channel Communications, Inc. or any other
person of shares of our Class B common stock provided that
such transfers do not result in the automatic conversion of
shares of our Class B common stock into shares of our
Class A common stock pursuant to the terms of our amended
and restated certificate of incorporation. |
In addition, if: (i) during the last 17 days of the
180-day restricted period, we issue an earnings release or
announce material news or a material event or (ii) prior to
the expiration of the 180-day restricted period, we announce
that we will release earnings results during the 15-day period
following the last day of the 180-day restricted period, the
180-day restricted period described above will be automatically
extended until the expiration of the 18-day period beginning on
the issuance of the earnings release or the announcement of the
material news or material event, unless Goldman, Sachs & Co.
waives, in writing, such extension.
127
We have been advised by the underwriters that they may at their
discretion waive the lock-up agreements; however, they have no
current intention of releasing any shares subject to a lock-up
agreement. The release of any lock-up would be considered on a
case-by-case basis. In considering any request to release shares
covered by a lock-up agreement, the representatives would
consider, among other factors, the particular circumstances
surrounding the request, including but not limited to the number
of shares requested to be released, market conditions, the
possible impact on the market for our Class A common stock,
the trading price of our Class A common stock, historical
trading volumes of our Class A common stock, the reasons
for the request and whether the person seeking the release is
one of our officers or directors. No agreement has been made
between the representatives and us or any of our stockholders
pursuant to which the representatives will waive the lock-up
restrictions.
Prior to this offering, there has been no public market for the
shares of Class A common stock. The initial public offering
price will be negotiated among us and the representatives. Among
the factors to be considered in determining the initial public
offering price of the shares of Class A common stock, in
addition to prevailing market conditions, will be our historical
performance, estimates of our business potential and earnings
prospects, an assessment of our management and the consideration
of the above factors in relation to market valuation of
companies in related businesses.
We intend to have the Class A common stock listed on the
New York Stock Exchange under the symbol CCO. In
order to meet one of the requirements for listing on the NYSE,
the underwriters have undertaken to sell lots of 100 or more
shares of Class A common stock to a minimum of 2,000
beneficial holders.
At our request, the underwriters have reserved for sale, at the
initial public offering price, up to 1,750,000 of the shares
offered hereby to be sold to certain employees and friends. The
number of shares of Class A common stock available for sale
to the public will be reduced to the extent such persons
purchase such reserved shares. Any reserved shares which are not
orally confirmed for purchase within one day of the pricing of
the offering will be offered by the underwriters to the general
public on the same terms as the other shares offered hereby.
In connection with the offering, the underwriters may purchase
and sell shares of common stock in the open market. These
transactions may include short sales, stabilizing transactions
and purchases to cover positions created by short sales. Short
sales involve the sale by the underwriters of a greater number
of shares than they are required to purchase in the offering.
Covered short sales are sales made in an amount not
greater than the underwriters option to purchase
additional shares from us in the offering. The underwriters may
close out any covered short position by either exercising their
option to purchase additional shares or purchasing shares in the
open market. In determining the source of shares to close out
the covered short position, the underwriters will consider,
among other things, the price of shares available for purchase
in the open market as compared to the price at which they may
purchase additional shares pursuant to the option granted to
them. Naked short sales are any sales in excess of
such option. The underwriters must close out any naked short
position by purchasing shares in the open market. A naked short
position is more likely to be created if the underwriters are
concerned that there may be downward pressure on the price of
the common stock in the open market after pricing that could
adversely affect investors who purchase in the offering.
Stabilizing transactions consist of various bids for or
purchases of common stock made by the underwriters in the open
market prior to the completion of the offering.
The underwriters may also impose a penalty bid. This occurs when
a particular underwriter repays to the underwriters a portion of
the underwriting discount received by it because the
representatives have repurchased shares sold by or for the
account of such underwriter in stabilizing or short covering
transactions.
Purchases to cover a short position and stabilizing transactions
may have the effect of preventing or retarding a decline in the
market price of our stock, and together with the imposition of
the penalty bid, may stabilize, maintain or otherwise affect the
market price of the common stock. As a result, the price of the
common stock may be higher than the price that otherwise might
exist in the open market. If these
128
activities are commenced, they may be discontinued at any time.
These transactions may be effected on the NYSE, the Nasdaq Stock
Market, in the over-the-counter market or otherwise.
Each of the underwriters has represented and agreed that:
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(a) it has not made or will not make an offer of shares to
the public in the United Kingdom within the meaning of section
102B of the Financial Services and Markets Act 2000 (as amended)
(FSMA) except to legal entities which are authorised or
regulated to operate in the financial markets or, if not so
authorised or regulated, whose corporate purpose is solely to
invest in securities or otherwise in circumstances which do not
require the publication by the company of a prospectus pursuant
to the Prospectus Rules of the Financial Services Authority
(FSA); |
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(b) it has only communicated or caused to be communicated
and will only communicate or cause to be communicated an
invitation or inducement to engage in investment activity
(within the meaning of section 21 of FSMA) to persons who
have professional experience in matters relating to investments
falling within Article 19(5) of the Financial Services and
Markets Act 2000 (Financial Promotion) Order 2005 or in
circumstances in which section 21 of FSMA would not, if the
company were not an authorised person, apply to the company; and |
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(c) it has complied with, and will comply with all
applicable provisions of FSMA with respect to anything done by
it in relation to the shares in, from or otherwise involving the
United Kingdom. |
In relation to each Member State of the European Economic Area
which has implemented the Prospectus Directive (each, a Relevant
Member State), each Underwriter has represented and agreed that
with effect from and including the date on which the Prospectus
Directive is implemented in that Relevant Member State (the
Relevant Implementation Date) it has not made and will not make
an offer of Shares to the public in that Relevant Member State
prior to the publication of a prospectus in relation to the
Shares which has been approved by the competent authority in
that Relevant Member State or, where appropriate, approved in
another Relevant Member State and notified to the competent
authority in that Relevant Member State, all in accordance with
the Prospectus Directive, except that it may, with effect from
and including the Relevant Implementation Date, make an offer of
Shares to the public in that Relevant Member State at any time:
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(a) to legal entities which are authorised or regulated to
operate in the financial markets or, if not so authorised or
regulated, whose corporate purpose is solely to invest in
securities; |
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(b) to any legal entity which has two or more of
(1) an average of at least 250 employees during the last
financial year; (2) a total balance sheet of more
than 43,000,000
and (3) an annual net turnover of more
than 50,000,000,
as shown in its last annual or consolidated accounts; or |
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(c) in any other circumstances which do not require the
publication by the Issuer of a prospectus pursuant to
Article 3 of the Prospectus Directive. |
For the purposes of this provision, the expression an
offer of Shares to the public in relation to any
Shares in any Relevant Member State means the communication in
any form and by any means of sufficient information on the terms
of the offer and the Shares to be offered so as to enable an
investor to decide to purchase or subscribe the Shares, as the
same may be varied in that Relevant Member State by any measure
implementing the Prospectus Directive in that Relevant Member
State and the expression Prospectus Directive means Directive
2003/71/EC and includes any relevant implementing measure in
each Relevant Member State.
The shares may not be offered or sold by means of any document
other than to persons whose ordinary business is to buy or sell
shares or debentures, whether as principal or agent, or in
circumstances which do not constitute an offer to the public
within the meaning of the Companies Ordinance
(Cap. 32) of Hong Kong, and no advertisement,
invitation or document relating to the shares may be issued,
whether in Hong Kong or elsewhere, which is directed at, or the
contents of which are likely to be accessed or read by, the
public in Hong Kong (except if permitted to do so under the
securities laws of Hong Kong) other than with respect to shares
which are or are intended to be disposed of only to persons
129
outside Hong Kong or only to professional investors
within the meaning of the Securities and Futures Ordinance (Cap.
571) of Hong Kong and any rules made thereunder.
This prospectus has not been registered as a prospectus with the
Monetary Authority of Singapore. Accordingly, this prospectus
and any other document or material in connection with the offer
or sale, or invitation or subscription or purchase, of the
securities may not be circulated or distributed, nor may the
securities be offered or sold, or be made the subject of an
invitation for subscription or purchase, whether directly or
indirectly, to persons in Singapore other than under
circumstances in which such offer, sale or invitation does not
constitute an offer or sale, or invitation for subscription or
purchase, of the securities to the public in Singapore.
The securities have not been and will not be registered under
the Securities and Exchange Law of Japan (the Securities and
Exchange Law) and each underwriter has agreed that it will not
offer or sell any securities, directly or indirectly, in Japan
or to, or for the benefit of, any resident of Japan (which term
as used herein means any person resident in Japan, including any
corporation or other entity organized under the laws of Japan),
or to others for re-offering or resale, directly or indirectly,
in Japan or to a resident of Japan, except pursuant to an
exemption from the registration requirements of, and otherwise
in compliance with, the Securities and Exchange Law and any
other applicable laws, regulations and ministerial guidelines of
Japan.
We estimate that our share of the total expenses of the
offering, excluding underwriting discounts and commissions, will
be approximately $5.5 million. The underwriters have agreed
to reimburse us for certain of our expenses.
We have agreed to indemnify the several underwriters against
certain liabilities, including liabilities under the Securities
Act.
Certain of the underwriters and their respective affiliates
have, from time to time, performed, and may in the future
perform, various financial advisory and investment banking
services for us or our affiliates, for which they have received
or will receive customary fees and expenses. In July 2005,
Goldman, Sachs & Co., the global coordinator and senior
bookrunner, entered into an engagement letter with Clear Channel
Communications to assist Clear Channel Communications as
financial advisor in the exploration of certain strategic and
financial alternatives. In addition, on October 25, 2005,
Goldman, Sachs & Co. owned approximately 2.4% of Clear
Channel Communications capital stock. In July 2004, Clear
Channel Communications and certain of our international
subsidiaries entered into a credit agreement with Bank of
America, N.A. and J.P. Morgan Chase Bank. Under this
agreement, Bank of America, N.A., J.P. Morgan Chase Bank,
Barclays Bank Plc, Citibank, N.A., Credit Suisse First Boston,
Deutsche Bank Securities Inc., Deutsche Sumitomo Mitsui Banking
Corp., UBS Loan Finance LLC, Wachovia Bank, National
Association, Harris Nesbitt Financing, Inc., BNP Paribas,
Societe Generale, UFJ Bank Limited, Union Bank of California,
N.A. and US Bank National Association, some of which are
affiliates of the underwriters, may extend loans to Clear
Channel Communications in an aggregate amount of up to
$1.75 billion.
130
LEGAL MATTERS
The validity of the issuance of the shares of Class A
common stock to be sold in this offering will be passed upon for
us by Fulbright & Jaworski L.L.P., San Antonio,
Texas. Cravath, Swaine & Moore LLP, New York, New York
will act as counsel to the underwriters.
EXPERTS
The combined financial statements of Clear Channel Outdoor
Holdings, Inc. as of December 31, 2004 and 2003 and for
each of the three years in the period ended December 31,
2004 appearing in this prospectus and registration statement
have been audited by Ernst & Young LLP, independent
registered public accounting firm, as set forth in their report
thereon appearing elsewhere herein, and are included in reliance
upon such reports given on the authority of such firm as experts
in accounting and auditing.
With respect to the unaudited combined interim financial
information of Clear Channel Outdoor Holdings, Inc. for the
nine-month periods ended September 30, 2004 and 2005,
included in this prospectus, Ernst & Young LLP reported
that they have applied limited procedures in accordance with
professional standards for a review of such information.
However, their separate report dated October 20, 2005,
except for the third paragraph of Note 1 and Note 7,
as to which date is November 9, 2005, included herein,
states that they did not audit and they do not express an
opinion on that interim financial information. Accordingly, the
degree of reliance on their report on such information should be
restricted in light of the limited nature of the review
procedures applied. Ernst & Young LLP is not subject to
the liability provisions of Section 11 of the Securities
Act of 1933 for their report on the unaudited interim financial
information because that report is not a report or a
part of the registration statement prepared or
certified by Ernst & Young LLP within the meaning of
Sections 7 and 11 of the Securities Act of 1933.
AVAILABLE INFORMATION
We have filed with the SEC a registration statement on
Form S-1 under the Securities Act with respect to the
issuance of shares of our common stock being offered hereby.
This prospectus, which forms a part of the registration
statement, does not contain all of the information set forth in
the registration statement. For further information with respect
to us and the shares of our common stock, reference is made to
the registration statement. Statements contained in this
prospectus as to the contents of any contract or other document
are not necessarily complete. We are not currently subject to
the informational requirements of the Securities Exchange Act of
1934, or Exchange Act. As a result of the offering of the shares
of our common stock, we will become subject to the informational
requirements of the Exchange Act and, in accordance therewith,
will file reports and other information with the SEC. The
registration statement, such reports and other information can
be inspected and copied at the Public Reference Room of the SEC
located at 100 F Street, N.E., Washington D.C. 20549.
Copies of such materials, including copies of all or any portion
of the registration statement, can be obtained from the Public
Reference Room of the SEC at prescribed rates. You can call the
SEC at 1-800-SEC-0330 to obtain information on the operation of
the Public Reference Room. Such materials may also be accessed
electronically by means of the SECs home page on the
Internet (http://www.sec.gov).
131
INDEX TO FINANCIAL STATEMENTS
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
BOARD OF DIRECTORS
CLEAR CHANNEL OUTDOOR HOLDINGS, INC.
We have audited the accompanying combined balance sheets of
Clear Channel Outdoor Holdings, Inc. and subsidiaries (the
Company) as of December 31, 2004 and 2003, and the related
combined statements of operations, changes in owners
equity, and cash flows for each of the three years in the period
ended December 31, 2004. These financial statements are the
responsibility of the Companys management. Our
responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. We were not engaged to perform an
audit of the Companys internal control over financial
reporting. Our audits included consideration of internal control
over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not
for the purpose of expressing an opinion on the effectiveness of
the Companys internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by
management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable
basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the combined financial
position of Clear Channel Outdoor Holdings, Inc. and
subsidiaries at December 31, 2004 and 2003, and the
combined results of their operations and their cash flows for
each of the three years in the period ended December 31,
2004, in conformity with U.S. generally accepted accounting
principles.
As discussed in Note B to the combined financial
statements, in 2004 the Company changed its method of accounting
for indefinite lived intangibles and in 2002 the Company changed
its method for accounting for goodwill.
San Antonio, Texas
August 4, 2005, except for the first paragraph of
Note A and the fourth paragraph of Note O, as to which
date is November 9, 2005.
F-2
COMBINED BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
|
|
|
|
2004 |
|
|
2003 |
|
|
|
|
|
|
|
|
|
|
(In thousands) |
|
ASSETS
|
CURRENT ASSETS
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$ |
37,948 |
|
|
$ |
34,105 |
|
Accounts receivable, less allowance of $19,487 in 2004 and
$15,713 in 2003
|
|
|
661,244 |
|
|
|
630,758 |
|
Due from Clear Channel Communications
|
|
|
302,634 |
|
|
|
154,446 |
|
Prepaid expenses
|
|
|
59,601 |
|
|
|
58,133 |
|
Other current assets
|
|
|
45,813 |
|
|
|
81,227 |
|
|
|
|
|
|
|
|
|
Total Current Assets
|
|
|
1,107,240 |
|
|
|
958,669 |
|
PROPERTY, PLANT AND EQUIPMENT
|
|
|
|
|
|
|
|
|
Land, buildings and improvements
|
|
|
318,478 |
|
|
|
304,492 |
|
Structures
|
|
|
3,110,233 |
|
|
|
2,888,834 |
|
Furniture and other equipment
|
|
|
238,973 |
|
|
|
203,998 |
|
Construction in progress
|
|
|
54,021 |
|
|
|
68,481 |
|
|
|
|
|
|
|
|
|
|
|
3,721,705 |
|
|
|
3,465,805 |
|
Less accumulated depreciation
|
|
|
1,525,720 |
|
|
|
1,201,699 |
|
|
|
|
|
|
|
|
|
|
|
2,195,985 |
|
|
|
2,264,106 |
|
INTANGIBLE ASSETS
|
|
|
|
|
|
|
|
|
Definite-lived intangibles, net
|
|
|
334,284 |
|
|
|
384,567 |
|
Indefinite-lived intangibles permits
|
|
|
211,690 |
|
|
|
424,640 |
|
Goodwill
|
|
|
787,006 |
|
|
|
700,797 |
|
OTHER ASSETS
|
|
|
|
|
|
|
|
|
Notes receivable
|
|
|
5,872 |
|
|
|
6,286 |
|
Investments in, and advances to, nonconsolidated affiliates
|
|
|
175,057 |
|
|
|
155,646 |
|
Deferred tax asset
|
|
|
231,056 |
|
|
|
155,193 |
|
Other assets
|
|
|
189,513 |
|
|
|
166,435 |
|
Other investments
|
|
|
3,230 |
|
|
|
16,481 |
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$ |
5,240,933 |
|
|
$ |
5,232,820 |
|
|
|
|
|
|
|
|
LIABILITIES AND OWNERS EQUITY
|
CURRENT LIABILITIES
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$ |
243,542 |
|
|
$ |
274,951 |
|
Accrued expenses
|
|
|
264,567 |
|
|
|
226,497 |
|
Accrued interest
|
|
|
558 |
|
|
|
220 |
|
Deferred income
|
|
|
94,120 |
|
|
|
97,771 |
|
Current portion of long-term debt
|
|
|
146,268 |
|
|
|
136,763 |
|
|
|
|
|
|
|
|
|
Total Current Liabilities
|
|
|
749,055 |
|
|
|
736,202 |
|
Long-term debt
|
|
|
30,112 |
|
|
|
70,254 |
|
Debt with Clear Channel Communications
|
|
|
1,463,000 |
|
|
|
1,463,000 |
|
Other long-term liabilities
|
|
|
205,811 |
|
|
|
148,560 |
|
Minority interest
|
|
|
63,302 |
|
|
|
54,640 |
|
Commitment and contingent liabilities (Note G)
|
|
|
|
|
|
|
|
|
OWNERS EQUITY
|
|
|
|
|
|
|
|
|
Owners net investment
|
|
|
6,679,664 |
|
|
|
6,679,664 |
|
Retained deficit
|
|
|
(4,250,222 |
) |
|
|
(4,094,842 |
) |
Accumulated other comprehensive income
|
|
|
300,211 |
|
|
|
175,342 |
|
|
|
|
|
|
|
|
|
Total Owners Equity
|
|
|
2,729,653 |
|
|
|
2,760,164 |
|
|
|
|
|
|
|
|
|
Total Liabilities and Owners Equity
|
|
$ |
5,240,933 |
|
|
$ |
5,232,820 |
|
|
|
|
|
|
|
|
See Notes to Combined Financial Statements
F-3
COMBINED STATEMENTS OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
|
|
|
|
|
2004 |
|
|
2003 |
|
|
2002 |
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands) |
|
Revenue
|
|
$ |
2,447,040 |
|
|
$ |
2,174,597 |
|
|
$ |
1,859,641 |
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct operating expenses (exclusive of depreciation and
amortization)
|
|
|
1,262,317 |
|
|
|
1,133,386 |
|
|
|
957,830 |
|
|
Selling, general and administrative expenses (exclusive of
depreciation and amortization)
|
|
|
499,457 |
|
|
|
456,893 |
|
|
|
392,803 |
|
|
Depreciation and amortization
|
|
|
388,217 |
|
|
|
379,640 |
|
|
|
336,895 |
|
|
Corporate expenses (exclusive of depreciation and amortization)
|
|
|
53,770 |
|
|
|
54,233 |
|
|
|
52,218 |
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
243,279 |
|
|
|
150,445 |
|
|
|
119,895 |
|
Interest expense
|
|
|
14,177 |
|
|
|
14,201 |
|
|
|
11,623 |
|
Intercompany interest expense
|
|
|
145,653 |
|
|
|
145,648 |
|
|
|
227,402 |
|
Equity in earnings (loss) of nonconsolidated affiliates
|
|
|
(76 |
) |
|
|
(5,142 |
) |
|
|
3,620 |
|
Other income (expense) net
|
|
|
(13,341 |
) |
|
|
(8,595 |
) |
|
|
9,164 |
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes and cumulative effect of a
change in accounting principle
|
|
|
70,032 |
|
|
|
(23,141 |
) |
|
|
(106,346 |
) |
Income tax (expense) benefit:
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
(23,422 |
) |
|
|
12,092 |
|
|
|
72,008 |
|
Deferred
|
|
|
(39,132 |
) |
|
|
(23,944 |
) |
|
|
(21,370 |
) |
|
|
|
|
|
|
|
|
|
|
Income (loss) before cumulative effect of change in accounting
principle
|
|
|
7,478 |
|
|
|
(34,993 |
) |
|
|
(55,708 |
) |
Cumulative effect of change in accounting principle, net of tax
of, $113,173 in 2004 and $504,927 in 2002
|
|
|
(162,858 |
) |
|
|
|
|
|
|
(3,527,198 |
) |
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
(155,380 |
) |
|
|
(34,993 |
) |
|
|
(3,582,906 |
) |
Other comprehensive income (loss), net of tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments
|
|
|
124,869 |
|
|
|
216,214 |
|
|
|
135,612 |
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss)
|
|
$ |
(30,511 |
) |
|
$ |
181,221 |
|
|
$ |
(3,447,294 |
) |
|
|
|
|
|
|
|
|
|
|
See Notes to Combined Financial Statements
F-4
COMBINED STATEMENTS OF CHANGES IN OWNERS EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated Other |
|
|
|
|
|
Owners Net |
|
|
Retained |
|
|
Comprehensive |
|
|
|
|
|
Investment |
|
|
Deficit |
|
|
Income |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands) |
|
Balances at December 31, 2001
|
|
$ |
6,066,825 |
|
|
$ |
(476,943 |
) |
|
$ |
(176,484 |
) |
|
$ |
5,413,398 |
|
Net loss
|
|
|
|
|
|
|
(3,582,906 |
) |
|
|
|
|
|
|
(3,582,906 |
) |
Net transfers from Clear Channel Communications
|
|
|
612,839 |
|
|
|
|
|
|
|
|
|
|
|
612,839 |
|
Currency translation adjustment
|
|
|
|
|
|
|
|
|
|
|
135,612 |
|
|
|
135,612 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at December 31, 2002
|
|
|
6,679,664 |
|
|
|
(4,059,849 |
) |
|
|
(40,872 |
) |
|
|
2,578,943 |
|
Net loss
|
|
|
|
|
|
|
(34,993 |
) |
|
|
|
|
|
|
(34,993 |
) |
Currency translation adjustment
|
|
|
|
|
|
|
|
|
|
|
216,214 |
|
|
|
216,214 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at December 31, 2003
|
|
|
6,679,664 |
|
|
|
(4,094,842 |
) |
|
|
175,342 |
|
|
|
2,760,164 |
|
Net loss
|
|
|
|
|
|
|
(155,380 |
) |
|
|
|
|
|
|
(155,380 |
) |
Currency translation adjustment
|
|
|
|
|
|
|
|
|
|
|
124,869 |
|
|
|
124,869 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at December 31, 2004
|
|
$ |
6,679,664 |
|
|
$ |
(4,250,222 |
) |
|
$ |
300,211 |
|
|
$ |
2,729,653 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Notes to Combined Financial Statements
F-5
COMBINED STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
|
|
|
|
|
2004 |
|
|
2003 |
|
|
2002 |
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands) |
|
CASH FLOWS FROM OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$ |
(155,380 |
) |
|
$ |
(34,993 |
) |
|
$ |
(3,582,906 |
) |
Reconciling items:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative effect of a change in accounting principle, net of tax
|
|
|
162,858 |
|
|
|
|
|
|
|
3,527,198 |
|
|
Depreciation
|
|
|
321,071 |
|
|
|
312,692 |
|
|
|
271,683 |
|
|
Amortization of intangibles
|
|
|
67,146 |
|
|
|
66,948 |
|
|
|
65,212 |
|
|
Deferred taxes
|
|
|
39,132 |
|
|
|
23,944 |
|
|
|
21,370 |
|
|
(Gain) loss on sale of operating and fixed assets
|
|
|
(11,718 |
) |
|
|
(11,047 |
) |
|
|
(7,118 |
) |
|
(Gain) loss on sale of other investments
|
|
|
|
|
|
|
(81 |
) |
|
|
|
|
|
Equity in earnings (loss) of nonconsolidated affiliates
|
|
|
76 |
|
|
|
5,142 |
|
|
|
(3,620 |
) |
|
Increase (decrease) other, net
|
|
|
5,024 |
|
|
|
2,888 |
|
|
|
(16,603 |
) |
Changes in operating assets and liabilities, net of effects of
acquisitions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Decrease (increase) in accounts receivable
|
|
|
(21,149 |
) |
|
|
(84,197 |
) |
|
|
(28,870 |
) |
|
Decrease (increase) in prepaid expenses
|
|
|
(1,468 |
) |
|
|
(5,478 |
) |
|
|
4,598 |
|
|
Decrease (increase) in other current assets
|
|
|
4,262 |
|
|
|
2,589 |
|
|
|
11,377 |
|
|
Increase (decrease) in accounts payable, accrued expenses and
other liabilities
|
|
|
51,535 |
|
|
|
99,583 |
|
|
|
57,821 |
|
|
Increase (decrease) in accrued interest
|
|
|
343 |
|
|
|
(692 |
) |
|
|
41 |
|
|
Increase (decrease) in deferred income
|
|
|
(2,537 |
) |
|
|
10,587 |
|
|
|
17,220 |
|
|
Increase (decrease) in accrued income taxes
|
|
|
33,300 |
|
|
|
45,574 |
|
|
|
(17,168 |
) |
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
492,495 |
|
|
|
433,459 |
|
|
|
320,235 |
|
CASH FLOWS FROM INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
Decrease (increase) in notes receivable, net
|
|
|
414 |
|
|
|
(202 |
) |
|
|
98 |
|
Decrease (increase) in investments in, and advances to
nonconsolidated affiliates net
|
|
|
(6,986 |
) |
|
|
(619 |
) |
|
|
(6,068 |
) |
Purchase of other investments
|
|
|
(961 |
) |
|
|
|
|
|
|
|
|
Proceeds from sale of other investment
|
|
|
12,076 |
|
|
|
|
|
|
|
|
|
Purchases of property, plant and equipment
|
|
|
(176,140 |
) |
|
|
(205,145 |
) |
|
|
(290,187 |
) |
Proceeds from disposal of assets
|
|
|
8,354 |
|
|
|
48,806 |
|
|
|
45,991 |
|
Acquisition of operating assets
|
|
|
(94,878 |
) |
|
|
(44,137 |
) |
|
|
(154,685 |
) |
Decrease (increase) in other net
|
|
|
(52,537 |
) |
|
|
(28,865 |
) |
|
|
(25,993 |
) |
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(310,658 |
) |
|
|
(230,162 |
) |
|
|
(430,844 |
) |
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Draws on credit facilities
|
|
|
71,389 |
|
|
|
122,032 |
|
|
|
192,418 |
|
Payments on credit facilities
|
|
|
(104,945 |
) |
|
|
(190,077 |
) |
|
|
(175,646 |
) |
Proceeds from issuance of debt with Clear Channel Communications
|
|
|
|
|
|
|
|
|
|
|
154,685 |
|
Net transfers (to) from Clear Channel Communications
|
|
|
(148,188 |
) |
|
|
(154,446 |
) |
|
|
1,736 |
|
Payments on long-term debt
|
|
|
(262 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
(182,006 |
) |
|
|
(222,491 |
) |
|
|
173,193 |
|
Effect of exchange rate changes on cash
|
|
|
4,012 |
|
|
|
7,558 |
|
|
|
(16,843 |
) |
Net increase (decrease) in cash and cash equivalents
|
|
|
3,843 |
|
|
|
(11,636 |
) |
|
|
45,741 |
|
Cash and cash equivalents at beginning of year
|
|
|
34,105 |
|
|
|
45,741 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year
|
|
$ |
37,948 |
|
|
$ |
34,105 |
|
|
$ |
45,741 |
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid during the year for interest
|
|
$ |
175,395 |
|
|
$ |
198,296 |
|
|
$ |
267,972 |
|
|
Cash paid during the year for taxes
|
|
$ |
22,195 |
|
|
$ |
18,043 |
|
|
$ |
12,996 |
|
See Notes to Combined Financial Statements
F-6
NOTES TO COMBINED FINANCIAL STATEMENTS
NOTE A SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Clear Channel Outdoor Holdings, Inc. (the Company)
is currently a wholly-owned subsidiary of Clear Channel
Communications Inc. (Clear Channel Communications),
a diversified media company with operations in radio
broadcasting, outdoor advertising, and live entertainment. On
April 29, 2005, Clear Channel Communications announced a
plan to separate its outdoor advertising business into a
separate company. As part of the plan, Clear Channel
Communications intends on completing an initial public offering
(IPO) of 10% of the Companys common stock.
Effective November 9, 2005 Clear Channel Communications and
its subsidiaries contributed and transfered to the Company all
of the assets and liabilities of the outdoor advertising
businesses not currently held by the Company prior to the
completion of the IPO.
The Company operates in the outdoor advertising industry by
selling advertising on billboards, street furniture and other
transit advertising displays. The Company has two principal
business segments: domestic and international. The domestic
segment includes operations in North and South America; and the
international segment includes operations in Europe, Asia,
Africa and Australia.
|
|
|
Principles of Combination
|
The combined financial statements include assets and liabilities
of Clear Channel Communications not currently owned by the
Company that will be transferred prior to or concurrent with the
IPO transaction. The combined financial statements are comprised
of businesses included in the consolidated financial statements
and accounting records of Clear Channel Communications using the
historical results of operations, and historical basis of assets
and liabilities of the outdoor business. Significant
intercompany accounts among the combined businesses have been
eliminated in consolidation. Investments in nonconsolidated
affiliates are accounted for using the equity method of
accounting.
|
|
|
Cash and Cash Equivalents
|
Cash and cash equivalents include all highly liquid investments
with an original maturity of three months or less.
|
|
|
Allowance for Doubtful Accounts
|
The Company evaluates the collectibility of its accounts
receivable based on a combination of factors. In circumstances
where it is aware of a specific customers inability to
meet its financial obligations, it records a specific reserve to
reduce the amounts recorded to what it believes will be
collected. For all other customers, it recognizes reserves for
bad debt based on historical experience of bad debts as a
percent of revenues for each business unit, adjusted for
relative improvements or deteriorations in the agings and
changes in current economic conditions.
Most of the Companys prepaid expenses relate to lease
payments on advertising structures that are located on leased
land. Domestic land rents are typically paid in advance for
periods ranging from one to twelve months. International land
rents are paid both in advance and in arrears, for periods
ranging from one to twelve months. Most international street
furniture advertising display faces are licensed through
municipalities for up to 20 years. The street furniture
licenses often include a percent of revenue to be paid along
with a base rent payment. Prepaid land leases are recorded as an
asset and expensed ratably over the related rental term and
license and rent payments in arrears are recorded as an accrued
liability.
F-7
NOTES TO COMBINED FINANCIAL STATEMENTS
(Continued)
The Company accounts for its business acquisitions under the
purchase method of accounting. The total cost of acquisitions is
allocated to the underlying identifiable net assets, including
any related indefinite-lived permit intangible assets, based on
their respective estimated fair values. The excess of the
purchase price over the estimated fair values of the net assets
acquired is recorded as goodwill. Determining the fair value of
assets acquired and liabilities assumed requires
managements judgment and often involves the use of
significant estimates and assumptions, including assumptions
with respect to future cash inflows and outflows, discount
rates, asset lives and market multiples, among other items. In
addition, reserves have been established on the Companys
balance sheet related to acquired liabilities and qualifying
restructuring costs and contingencies based on assumptions made
at the time of acquisition. The Company evaluates these reserves
on a regular basis to determine the adequacies of the amounts.
|
|
|
Asset Retirement Obligation
|
On January 1, 2003, the Company adopted Statement of
Financial Accounting Standards No. 143, Accounting for
Asset Retirement Obligations. The Companys asset
retirement obligation is reported in Other long-term
liabilities and relates primarily to the Companys
obligation upon the termination or non-renewal of a lease to
dismantle and remove its advertising structures from the leased
land and to reclaim the site to its original condition. The
Company records the present value of obligations associated with
the retirement of its advertising structures in the period in
which the obligation is incurred. The liability is capitalized
as part of the related advertising structures carrying amount.
Over time, accretion of the liability is recognized as an
operating expense and the capitalized cost is depreciated over
the expected useful life of the related asset.
|
|
|
Property, Plant and Equipment
|
Property, plant and equipment are stated at cost. Depreciation
is computed using the straight-line method at rates that, in the
opinion of management, are adequate to allocate the cost of such
assets over their estimated useful lives, which are as follows:
|
|
|
Buildings and improvements 10 to 39 years |
|
Structures 5 to 40 years |
|
Furniture and other equipment 3 to 20 years |
|
Leasehold improvements shorter of economic life or
lease term assuming renewal periods, if appropriate |
For assets associated with a lease or contract, the assets are
depreciated at the shorter of the economic life or the lease or
contract term, assuming renewal periods, if appropriate.
Expenditures for maintenance and repairs are charged to
operations as incurred, whereas expenditures for renewal and
betterments are capitalized.
The Company tests for possible impairment of property, plant,
and equipment whenever events or changes in circumstances, such
as a reduction in operating cash flow or a dramatic change in
the manner that the asset is intended to be used indicate that
the carrying amount of the asset may not be recoverable. If
indicators exist, the Company compares the estimated
undiscounted future cash flows related to the asset to the
carrying value of the asset. If the carrying value is greater
than the estimated undiscounted future cash flow amount, an
impairment charge is recorded in depreciation and amortization
expense in the statement of operations for amounts necessary to
reduce the carrying value of the asset to fair value. The
impairment loss calculations require management to apply
judgment in estimating future cash flows and the discount rates
that reflects the risk inherent in future cash flows.
F-8
NOTES TO COMBINED FINANCIAL STATEMENTS
(Continued)
The Company classifies intangible assets as definite-lived or
indefinite-lived intangible assets, as well as goodwill.
Definite-lived intangibles include primarily transit and street
furniture contracts, which are amortized over the respective
lives of the agreements, typically five to fifteen years. The
Company periodically reviews the appropriateness of the
amortization periods related to its definite-lived assets. These
assets are stated at cost. Indefinite-lived intangibles include
billboard permits. The excess cost over fair value of net assets
acquired is classified as goodwill. The indefinite-lived
intangibles and goodwill are not subject to amortization, but
are tested for impairment at least annually.
The Company tests for possible impairment of definite-lived
intangible assets whenever events or changes in circumstances,
such as a reduction in operating cash flow or a dramatic change
in the manner that the asset is intended to be used indicate
that the carrying amount of the asset may not be recoverable. If
indicators exist, the Company compares the estimated
undiscounted future cash flows related to the asset to the
carrying value of the asset. If the carrying value is greater
than the estimated undiscounted future cash flow amount, an
impairment charge is recorded in depreciation and amortization
expense in the statement of operations for amounts necessary to
reduce the carrying value of the asset to fair value.
The Company performed its 2004 annual impairment test for its
permits using a direct valuation technique as prescribed by the
Emerging Issues Task Force (EITF) Topic D-108,
Use of the Residual Method to Value Acquired Assets Other
Than Goodwill (D-108), which the Company adopted
in the fourth quarter of 2004. Certain assumptions are used
under the Companys direct valuation technique, including
market penetration leading to revenue potential, profit margin,
duration and profile of the build-up period, estimated start-up
cost and losses incurred during the build-up period, the risk
adjusted discount rate and terminal values. The Company
considered fair values derived by a third-party valuation firm
to assist it in performing its impairment test. Impairment
charges, other than the charge taken under the transitional
rules of Financial Accounting Standards No. 142,
Goodwill and Other Intangible Assets
(Statement 142) and D-108, are recorded in
depreciation and amortization expense on the statement of
operations.
At least annually, the Company performs its impairment test for
each reporting units goodwill using a discounted cash flow
model to determine if the carrying value of the reporting unit,
including goodwill, is less than the fair value of the reporting
unit. Certain assumptions are used in determining the fair
value, including assumptions about cash flow rates, discount
rates, and terminal values. If the fair value of the
Companys reporting unit is less than the carrying value of
the reporting unit, the Company reduces the carrying amount of
goodwill. Impairment charges, other than the charge taken under
the transitional rules of Statement 142 are recorded in
amortization expense on the statement of operations.
|
|
|
Nonconsolidated Affiliates
|
In general, investments in which the Company owns
20 percent to 50 percent of the common stock or
otherwise exercises significant influence over the company are
accounted for under the equity method. The Company does not
recognize gains or losses upon the issuance of securities by any
of its equity method investees. The Company reviews the value of
equity method investments and records impairment charges in the
statement of operations for any decline in value that is
determined to be other-than-temporary.
Due to their short maturity, the carrying amounts of accounts
and notes receivable, accounts payable, accrued liabilities and
short-term borrowings approximated their fair values at
December 31, 2004 and 2003. Additionally, as none of the
Companys debt is publicly traded, the carrying amounts of
long-term debt approximated their fair value at
December 31, 2004 and 2003.
F-9
NOTES TO COMBINED FINANCIAL STATEMENTS
(Continued)
The Company accounts for income taxes using the liability
method. Under this method, deferred tax assets and liabilities
are determined based on differences between financial reporting
bases and tax bases of assets and liabilities and are measured
using the enacted tax rates expected to apply to taxable income
in the periods in which the deferred tax asset or liability is
expected to be realized or settled. Deferred tax assets are
reduced by valuation allowances if the Company believes it is
more likely than not that some portion or all of the asset will
not be realized. As all earnings from the Companys foreign
operations are permanently reinvested and not distributed, the
Companys income tax provision does not include additional
U.S. taxes on foreign operations. It is not practical to
determine the amount of federal income taxes, if any, that might
become due in the event that the earnings were distributed.
The operations of the Company are included in a consolidated
federal income tax return filed by Clear Channel Communications,
Inc. However, for financial reporting purposes, the
Companys provision for income taxes has been computed on
the basis that the Company files separate consolidated income
tax returns with its subsidiaries.
The Company provides services under the terms of contracts
covering periods up to three years, which are generally billed
monthly. Revenue for advertising space rental is recognized
ratably over the term of the contract. Advertising revenue is
reported net of agency commissions. Agency commissions are
calculated based on a stated percentage applied to gross billing
revenue for the Companys operations. Clients remit the
gross billing amount to the agency and the agency remits gross
billings less their commission to the Company. Payments received
in advance of being earned are recorded as deferred income.
The Company believes that the credit risk with respect to trade
receivables is limited due to the large number and the
geographic diversification of its customers.
Results of operations for foreign subsidiaries and foreign
equity investees are translated into U.S. dollars using the
average exchange rates during the year. The assets and
liabilities of those subsidiaries and investees, other than
those of operations in highly inflationary countries, are
translated into U.S. dollars using the exchange rates at
the balance sheet date. The related translation adjustments are
recorded in a separate component of owners equity,
Accumulated other comprehensive income. Foreign
currency transaction gains and losses, as well as gains and
losses from translation of financial statements of subsidiaries
and investees in highly inflationary countries, are included in
operations.
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates, judgments, and assumptions that affect the
amounts reported in the financial statements and accompanying
notes including, but not limited to, legal, tax and insurance
accruals. The Company bases its estimates on historical
experience and on various other assumptions that are believed to
be reasonable under the circumstances. Actual results could
differ from those estimates.
|
|
|
New Accounting Pronouncements
|
The Securities and Exchange Commission (SEC) staff
issued D-108 at the September 2004 meeting of the EITF.
D-108 states that the residual method should no longer be
used to value intangible assets other than goodwill. Rather, a
direct method should be used to determine the fair value of all
intangible assets required to be recognized under Statement of
Financial Accounting Standards No. 141,
F-10
NOTES TO COMBINED FINANCIAL STATEMENTS
(Continued)
Business Combinations. Registrants who have applied the
residual method to the valuation of intangible assets for
purposes of impairment testing under Statement 142 shall
perform an impairment test using a direct value method on all
intangible assets that were previously valued using the residual
method by no later than the beginning of their first fiscal year
beginning after December 15, 2004. The Company adopted
D-108 for its fiscal year ended December 31, 2004. As a
result of adoption, the Company recorded a non-cash charge of
$162.9 million, net of deferred taxes of
$113.2 million, as a cumulative effect of a change in
accounting principle during the fourth quarter of 2004. See
Note B for more disclosure.
In December 2004, the Financial Accounting Standards Board
(FASB) issued Financial Accounting Standard
No. 153, Exchanges of Nonmonetary Assets, an amendment
of APB Opinion No. 29 (Statement 153).
Statement 153 eliminates the APB 29 exception for
nonmonetary exchanges of similar productive assets and replaces
it with an exception for exchanges of nonmonetary assets that do
not have commercial substance. Statement 153 is effective
for financial statements for fiscal years beginning after
June 15, 2005. Earlier application is permitted for
nonmonetary asset exchanges occurring in fiscal periods
beginning after the date of issuance. The provisions of
Statement 153 should be applied prospectively. The Company
expects to adopt Statement 153 for its fiscal year
beginning January 1, 2006 and management does not believe
that adoption will materially impact the Companys
financial position or results of operations.
In December 2004, the FASB issued Staff Position 109-2,
Accounting and Disclosure Guidance for the Foreign Repatriation
Provision within the American Jobs Creation Act of 2004
(FSP 109-2). FSP 109-2 allows an
enterprise additional time beyond the financial reporting period
in which the Act was enacted to evaluate the effects of the Act
on its plans for repatriation of unremitted earnings for
purposes of applying Financial Accounting Standard No. 109,
Accounting for Income Taxes,
(Statement 109). FSP 109-2 clarifies
that an enterprise is required to apply the provisions of
Statement 109 in the period, or periods, it decides on its
plan(s) for reinvestment or repatriation of its unremitted
foreign earnings. FSP 109-2 requires disclosure if an
enterprise is unable to reasonably estimate, at the time of
issuance of its financial statements, the related range of
income tax effects for the potential range of foreign earnings
that it may repatriate and requires an enterprise to recognize
income tax expense (benefit) if an enterprise decides to
repatriate a portion of unremitted earnings under the
repatriation provision while it is continuing to evaluate the
effects of the repatriation provision for the remaining portion
of the unremitted foreign earnings. FSP 109-2 is effective
upon issuance. The Company currently has the ability and intent
to reinvest any undistributed earnings of its foreign
subsidiaries. Any impact from this legislation has not been
reflected in the amounts shown since the Company is reinvested
for the foreseeable future.
On December 16, 2004, the FASB issued Statement of
Financial Accounting Standards No. 123 (revised 2004),
Share-Based Payment, (Statement 123(R))
which is a revision of Statement of Financial Accounting
Standards No. 123, Accounting for Stock-Based
Compensation (Statement 123).
Statement 123(R) supersedes Accounting Principles Board
Opinion No. 25, Accounting for Stock Issued to
Employees (APB 25), and amends Statement
No. 95, Statement of Cash Flows. Generally, the
approach in Statement 123(R) is similar to the approach
described in Statement 123. However, Statement 123(R)
requires all share-based payments to employees, including grants
of employee stock options, to be recognized in the income
statement based on their fair values. Pro forma disclosure is no
longer an alternative. Statement 123(R) is effective for
financial statements for the first interim or annual period
beginning after June 15, 2005. Early adoption is permitted
in periods in which financial statements have not yet been
issued. In April 2005, the SEC issued a press release announcing
that it would provide for phased-in implementation guidance for
Statement 123(R). The SEC would require that registrants
that are not small business issuers adopt
Statement 123(R)s fair value method of accounting for
share-based payments to employees no later than the beginning of
the first fiscal year beginning after June 15, 2005. The
Company intends to adopt Statement 123(R) on
January 1, 2006.
F-11
NOTES TO COMBINED FINANCIAL STATEMENTS
(Continued)
As permitted by Statement 123, the Company currently
accounts for share-based payments to employees using the
APB 25 intrinsic value method and, as such, generally
recognizes no compensation cost for employee stock options.
Accordingly, the adoption of Statement 123(R)s fair
value method could have a significant impact on the
Companys result of operations, although it will have no
impact on its overall financial position. The Company is unable
to quantify the impact of adoption of Statement 123(R) at
this time because it will depend on levels of share-based
payments granted in the future. However, had the Company adopted
Statement 123(R) in prior periods, the impact of that
standard would have approximated the impact of
Statement 123 as described in the disclosure of pro forma
net income and earnings per share below. Statement 123(R)
also requires the benefits of tax deductions in excess of
recognized compensation cost to be reported as a financing cash
flow. This requirement will increase net financing cash flows in
periods after adoption. The Company cannot estimate what those
amounts will be in the future because they depend on, among
other things, when employees exercise stock options.
The Company does not have any compensation plans under which it
grants stock awards to employees. On behalf of the Company,
Clear Channel Communications grants the Companys officers
and other key employees stock options to purchase shares of
Clear Channel Communications common stock. Clear Channel
Communications accounts for its stock-based award plans in
accordance with APB 25, and related interpretations, under
which compensation expense is recorded to the extent that the
current market price of the underlying stock exceeds the
exercise price. Clear Channel Communications calculates the pro
forma stock compensation expense as if the stock-based awards
had been accounted for using the provisions of
Statement 123. The stock compensation expense is then
allocated to the Company based on the percentage of options
outstanding to employees of the Company. The required pro forma
disclosures, based on this allocated expense are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 |
|
|
2003 |
|
|
2002 |
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands) |
|
Income (loss) before cumulative effect of a change in accounting
principle:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reported
|
|
$ |
7,478 |
|
|
$ |
(34,993 |
) |
|
$ |
(55,708 |
) |
|
Pro forma stock compensation expense, net of tax
|
|
|
(6,474 |
) |
|
|
(3,701 |
) |
|
|
(4,447 |
) |
|
|
|
|
|
|
|
|
|
|
|
Pro Forma
|
|
$ |
1,004 |
|
|
$ |
(38,694 |
) |
|
$ |
(60,155 |
) |
|
|
|
|
|
|
|
|
|
|
F-12
NOTES TO COMBINED FINANCIAL STATEMENTS
(Continued)
NOTE B INTANGIBLE ASSETS AND GOODWILL
|
|
|
Definite-lived Intangibles
|
The Company has definite-lived intangible assets which consist
primarily of transit and street furniture contracts and other
contractual rights, all of which are amortized over the
respective lives of the agreements. Other definite-lived
intangible assets are amortized over the period of time the
assets are expected to contribute directly or indirectly to the
Companys future cash flows. The following table presents
the gross carrying amount and accumulated amortization for each
major class of definite-lived intangible assets at
December 31, 2004 and 2003:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 |
|
|
2003 |
|
|
|
|
|
|
|
|
|
|
Gross Carrying |
|
|
Accumulated |
|
|
Gross Carrying |
|
|
Accumulated |
|
|
|
Amount |
|
|
Amortization |
|
|
Amount |
|
|
Amortization |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands) |
|
Transit, street furniture, and other contractual rights
|
|
$ |
688,373 |
|
|
$ |
364,939 |
|
|
$ |
655,775 |
|
|
$ |
289,821 |
|
Other
|
|
|
57,093 |
|
|
|
46,243 |
|
|
|
56,301 |
|
|
|
37,688 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
745,466 |
|
|
$ |
411,182 |
|
|
$ |
712,076 |
|
|
$ |
327,509 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total amortization expense from definite-lived intangible assets
for the years ended December 31, 2004, 2003 and 2002 was
$67.1 million, $66.9 million and $65.2 million,
respectively. The following table presents the Companys
estimate of amortization expense for each of the five succeeding
fiscal years for definite-lived intangible assets that exist at
December 31, 2004:
|
|
|
|
|
|
|
(In thousands) |
|
2005
|
|
$ |
83,251 |
|
2006
|
|
|
73,072 |
|
2007
|
|
|
47,875 |
|
2008
|
|
|
20,049 |
|
2009
|
|
|
17,502 |
|
As acquisitions and dispositions occur in the future and as
purchase price allocations are finalized, amortization expense
may vary.
|
|
|
Indefinite-lived Intangibles
|
On January 1, 2002, the Company adopted Statement 142,
which addresses financial accounting and reporting for acquired
goodwill and other intangible assets and supersedes APB Opinion
No. 17, Intangible Assets. Statement 142
established new accounting for goodwill and other intangible
assets recorded in business combinations. The Company performed
the initial impairment test of its billboard permits at
January 1, 2002 and subsequent impairment tests were
performed at October 1, 2002, 2003 and 2004, all of which
resulted in no impairment charge.
Upon the adoption of Statement 142 on January 1, 2002,
the Company began to separately identify billboard permits as an
indefinite-lived intangible asset. The Companys billboard
permits are issued in perpetuity by state and local governments
and are transferable or renewable at little or no cost. Permits
typically include the location for which the permit allows the
Company the right to operate an advertising structure. The
Companys permits are located on either owned or leased
land. In cases where the Companys permits are located on
leased land, the leases are typically from 10 to 30 years
and renew indefinitely, with rental payments generally
escalating at an inflation based index. If the Company loses its
lease, the Company will typically obtain permission to relocate
the permit or bank it with the municipality for future use.
F-13
NOTES TO COMBINED FINANCIAL STATEMENTS
(Continued)
The Company does not amortize its billboard permits. The Company
tests these indefinite-lived intangible assets for impairment at
least annually. The carrying amount for billboard permits at
December 31, 2004 and 2003 were $211.7 million and
$424.6 million, respectively.
The SEC staff issued D-108 at the September 2004 meeting of the
EITF. D-108 states that the residual method should no
longer be used to value intangible assets other than goodwill.
Rather, D-108 requires that a direct method be used to value
intangible assets other than goodwill. Prior to adoption of
D-108, the Company recorded its acquisition at fair value using
an industry accepted income approach. The value calculated using
the income approach was allocated to the indefinite-lived
intangibles after deducting the value of tangible and intangible
assets, as well as estimated costs of establishing a business at
the market level. The Company used a similar approach in its
annual impairment test prior to its adoption of D-108.
D-108 requires that an impairment test be performed upon
adoption using a direct method for valuing intangible assets
other than goodwill. Under the direct method, it is assumed that
rather than acquiring indefinite-lived intangible assets as a
part of a going concern business, the buyer hypothetically
obtains indefinite-lived intangible assets and builds a new
operation with similar attributes from scratch. Thus, the buyer
incurs start-up costs during the build-up phase which are
normally associated with going concern value. Initial capital
costs are deducted from the discounted cash flows model, which
results in value that is directly attributable to the
indefinite-lived intangible assets.
Under the direct method, the Company continues to aggregate its
indefinite-lived intangible assets at the market level for
purposes of impairment testing as prescribed by EITF 02-07
Unit of Accounting for Testing Impairment of Indefinite-Lived
Intangible Assets. The Companys key assumptions using
the direct method are market revenue growth rates, market share,
profit margin, duration and profile of the build-up period,
estimated start-up capital costs and losses incurred during the
build-up period, the risk-adjusted discount rate and terminal
values. This data is populated using industry normalized
information representing an average station within a market.
The Companys adoption of the direct method resulted in an
aggregate fair value of its indefinite-lived intangible assets
that were less than the carrying value determined under its
prior method. As a result of the adoption of D-108, the Company
recorded a non-cash charge of $162.9 million, net of
deferred taxes of $113.2 million as a cumulative effect of
a change in accounting principle during the fourth quarter
of 2004.
F-14
NOTES TO COMBINED FINANCIAL STATEMENTS
(Continued)
The Company tests goodwill for impairment using a two-step
process. The first step, used to screen for potential
impairment, compares the fair value of the reporting unit with
its carrying amount, including goodwill. The second step, used
to measure the amount of the impairment loss, compares the
implied fair value of the reporting unit goodwill with the
carrying amount of that goodwill. The following table presents
the changes in the carrying amount of goodwill in each of the
Companys reportable segments for the years ended
December 31, 2004 and 2003:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic |
|
|
International |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands) |
|
Balance as of December 31, 2002
|
|
$ |
346,837 |
|
|
$ |
294,129 |
|
|
$ |
640,966 |
|
|
Acquisitions
|
|
|
2,371 |
|
|
|
13,611 |
|
|
|
15,982 |
|
|
Dispositions
|
|
|
(894 |
) |
|
|
|
|
|
|
(894 |
) |
|
Foreign currency translation
|
|
|
|
|
|
|
48,392 |
|
|
|
48,392 |
|
|
Adjustments
|
|
|
(2,978 |
) |
|
|
(671 |
) |
|
|
(3,649 |
) |
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2003
|
|
|
345,336 |
|
|
|
355,461 |
|
|
|
700,797 |
|
|
Acquisitions
|
|
|
53,719 |
|
|
|
3,066 |
|
|
|
56,785 |
|
|
Foreign currency translation
|
|
|
|
|
|
|
29,401 |
|
|
|
29,401 |
|
|
Adjustments
|
|
|
(1,678 |
) |
|
|
1,701 |
|
|
|
23 |
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2004
|
|
$ |
397,377 |
|
|
$ |
389,629 |
|
|
$ |
787,006 |
|
|
|
|
|
|
|
|
|
|
|
Upon adopting Statement 142, the Company completed the
two-step impairment test during the first quarter of 2002. As a
result of this test, the Company recognized impairment of
approximately $3.5 billion, net of deferred taxes of
$504.9 million related to tax deductible goodwill, as a
component of the cumulative effect of a change in accounting
principle during the first quarter of 2002.
NOTE C BUSINESS ACQUISITIONS
In September 2004, the Company acquired Medallion Taxi Media,
Inc. (Medallion) for $31.6 million.
Medallions operations include advertising displays placed
on the top of taxi cabs. The Company began consolidating the
results of operations in September 2004.
In addition to the above, during 2004 the Company acquired
display faces for $60.8 million in cash and acquired equity
interests in international outdoor companies for
$2.5 million in cash. Also, the Company exchanged
advertising assets, valued at $23.7 million for other
advertising assets valued at $32.3 million. As a result of
this exchange, the Company recorded a gain of $8.6 million
in Other income (expense) net.
During 2003 the Company acquired domestic display faces for
$28.3 million in cash. The Company also acquired
investments in nonconsolidated affiliates for $10.7 million
in cash and acquired an additional 10% interest in a subsidiary
for $5.1 million in cash.
F-15
NOTES TO COMBINED FINANCIAL STATEMENTS
(Continued)
In June 2002 the Company acquired The Ackerley Group, Inc.
(Ackerley). Ackerley operated approximately 6,000
outdoor displays in the Boston, Seattle and Portland, Oregon
metropolitan markets, which are now operated by the Company. The
transaction was funded by $26.3 million of the
Companys operating cash and a non-cash capital
contribution from Clear Channel Communications of
$612.8 million. This transaction resulted in the
recognition of approximately $358.8 million of goodwill,
$42.8 million of which was tax deductible.
The results of operations for the year ended December 31,
2002 include the operations of Ackerley from June 2002.
Unaudited pro forma combined results of operations, assuming the
Ackerley acquisition had occurred on January 1, 2002 would
have been as follows:
|
|
|
|
|
|
|
(In thousands) |
|
Revenue
|
|
$ |
1,887,051 |
|
Income (loss) before cumulative effect of a change in accounting
principle
|
|
$ |
(38,871 |
) |
Net loss
|
|
$ |
(3,566,069 |
) |
The pro forma information above is presented in response to
applicable accounting rules relating to business acquisitions
and is not necessarily indicative of the actual results that
would have been achieved had the merger occurred at the
beginning of 2002, nor is it indicative of future results of
operations.
In addition to the acquisition discussed above, during 2002 the
Company acquired domestic display faces for $126.3 million
in cash and acquired investments in nonconsolidated affiliates
for $2.1 million in cash.
The following is a summary of the assets and liabilities
acquired and the consideration given for all acquisitions made
during 2004 and 2003:
|
|
|
|
|
|
|
|
|
|
|
2004 |
|
|
2003 |
|
|
|
|
|
|
|
|
|
|
(In thousands) |
|
Accounts receivable
|
|
$ |
|
|
|
$ |
210 |
|
Property, plant and equipment
|
|
|
15,061 |
|
|
|
10,945 |
|
Permits
|
|
|
36,956 |
|
|
|
19,499 |
|
Goodwill
|
|
|
45,762 |
|
|
|
7,795 |
|
Investments
|
|
|
2,512 |
|
|
|
11,993 |
|
|
|
|
|
|
|
|
|
|
|
100,291 |
|
|
|
50,442 |
|
Other liabilities
|
|
|
(3,058 |
) |
|
|
(6,354 |
) |
Deferred tax
|
|
|
(2,355 |
) |
|
|
49 |
|
|
|
|
|
|
|
|
|
|
|
(5,413 |
) |
|
|
(6,305 |
) |
|
|
|
|
|
|
|
Cash paid for acquisitions
|
|
$ |
94,878 |
|
|
$ |
44,137 |
|
|
|
|
|
|
|
|
The Company has entered into certain agreements relating to
acquisitions that provide for purchase price adjustments and
other future contingent payments based on the financial
performance of the acquired company. The Company will continue
to accrue additional amounts related to such contingent payments
if and when it is determinable that the applicable financial
performance targets will be met. The
F-16
NOTES TO COMBINED FINANCIAL STATEMENTS
(Continued)
aggregate of these contingent payments, if performance targets
were met, would not significantly impact the Companys
financial position or results of operations.
As a result of the Companys acquisition of Ackerley in
June 2002, the Company recorded a $9.4 million accrual
related to the restructuring of Ackerleys operations. Of
the $9.4 million, $5.3 million is related to severance
and $4.1 million is related to lease terminations. The
Ackerley corporate office closed in July 2002. At
December 31, 2004, the accrual balance for this
restructuring was $1.9 million. This restructuring has
resulted in the actual termination of 19 employees. The Company
recorded a liability in purchase accounting for Ackerley
primarily related to severance for terminated employees and
lease terminations as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 |
|
|
2003 |
|
|
2002 |
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands) |
|
Severance and lease termination costs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrual at January 1
|
|
$ |
2,661 |
|
|
$ |
8,940 |
|
|
$ |
|
|
|
Estimated costs charged to restructuring accrual in purchase
accounting
|
|
|
|
|
|
|
|
|
|
|
9,375 |
|
|
Adjustments to restructuring accrual
|
|
|
(377 |
) |
|
|
(5,265 |
) |
|
|
|
|
|
Payments charged against restructuring accrual
|
|
|
(357 |
) |
|
|
(1,014 |
) |
|
|
(435 |
) |
|
|
|
|
|
|
|
|
|
|
Remaining severance and lease termination accrual at
December 31
|
|
$ |
1,927 |
|
|
$ |
2,661 |
|
|
$ |
8,940 |
|
|
|
|
|
|
|
|
|
|
|
The remaining restructuring accrual is comprised solely of lease
termination, which will be paid over the next five years. During
2004, there were no payments charged to the restructuring
reserve related to severance. The Company made adjustments to
finalize the purchase price allocation for the Ackerley merger
in 2003.
In addition to the restructuring described above, the Company
restructured its operations in Spain during the fourth quarter
of 2004. As a result, the Company has recorded a
$4.1 million accrual in selling, general and administrative
expenses. Of the $4.1 million, $2.2 million was
related to severance and $1.9 million was related to
consulting and other costs. As of December 31, 2004, this
accrual balance remained $4.1 million. It is expected that
this accrual will be paid over the next year. This restructuring
will result in the termination of 44 employees.
During 2003, the Company restructured its operations in France
resulting in a $13.8 million restructuring accrual being
recorded in selling, general and administrative expenses. Of the
$13.8 million, $12.5 million was related to severance
and $1.3 million was related to lease terminations and
consulting costs. As of December 31, 2004, this accrual
balance was $.8 million. It is expected that this accrual
will be paid during 2005. This restructuring resulted in the
termination of 134 employees.
NOTE D INVESTMENTS
The Companys most significant investments in
nonconsolidated affiliates are listed below:
At December 31, 2004, the Company owned 48.1% of the total
number of shares of Hainan White Horse Advertising Media
Investment Co. Ltd. (Clear Media), formerly known as
White Horse, a Chinese company that operates street furniture
displays throughout China. At December 31, 2004, the fair
market value of the Companys shares of Clear Media was
$231.3 million.
F-17
NOTES TO COMBINED FINANCIAL STATEMENTS
(Continued)
|
|
|
Clear Channel Independent
|
The Company owns a 50% interest in Clear Channel Independent
(CCI), formerly known as Corp Comm, a South African
company involved in outdoor advertising.
The Company owns a 35% interest in Alessi, an Italian company
involved in outdoor advertising.
|
|
|
Summarized Financial Information
|
The following table summarizes the Companys investments in
these nonconsolidated affiliates:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Clear |
|
|
|
|
|
|
All |
|
|
|
|
|
Media |
|
|
CCI |
|
|
Alessi |
|
|
Others |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands) |
|
At December 31, 2003
|
|
$ |
77,257 |
|
|
$ |
29,557 |
|
|
$ |
22,977 |
|
|
$ |
25,855 |
|
|
$ |
155,646 |
|
Acquisition (disposition) of investments
|
|
|
|
|
|
|
1,456 |
|
|
|
520 |
|
|
|
(298 |
) |
|
|
1,678 |
|
Transfers from cost investments and other reclasses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
852 |
|
|
|
852 |
|
Additional investment, net
|
|
|
|
|
|
|
7,508 |
|
|
|
|
|
|
|
(522 |
) |
|
|
6,986 |
|
Equity in net earnings (loss)
|
|
|
(3,990 |
) |
|
|
5,475 |
|
|
|
707 |
|
|
|
(2,268 |
) |
|
|
(76 |
) |
Foreign currency translation adjustment
|
|
|
(33 |
) |
|
|
7,372 |
|
|
|
1,894 |
|
|
|
738 |
|
|
|
9,971 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2004
|
|
$ |
73,234 |
|
|
$ |
51,368 |
|
|
$ |
26,098 |
|
|
$ |
24,357 |
|
|
$ |
175,057 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The above investments are not consolidated, but are accounted
for under the equity method of accounting, whereby the Company
records its investments in these entities in the balance sheet
as Investments in, and advances to, nonconsolidated
affiliates. The Companys interests in their
operations are recorded in the statement of operations as
Equity in earnings (loss) of nonconsolidated
affiliates. Accumulated undistributed earnings included in
retained deficit for these investments were $5.5 million,
$5.4 million and $.3 million for December 31,
2004, 2003 and 2002, respectively.
Cost and fair value of other investments at December 31,
2004 and 2003 was $3.2 million and $16.5 million,
respectively. At December 31, 2004, these marketable
securities were all classified as other cost investments. At
December 31, 2003, $11.9 million of these marketable
securities were classified as trading and the remaining
$4.6 million was classified as other cost investments.
NOTE E ASSET RETIREMENT OBLIGATION
The Company has an asset retirement obligation of
$49.2 million as of December 31, 2004, which is
reported in Other long-term liabilities. The
liability relates to the Companys obligation to dismantle
and remove its advertising displays from leased land and to
reclaim the site to its original condition upon the termination
or non-renewal of a lease. The liability is capitalized as part
of the related long-lived assets carrying value. Due to
the high rate of lease renewals over a long period of time, the
calculation assumes that all related assets will be removed at
some period over the next 50 years. An estimate of
third-party cost information is used with respect to the
dismantling of the structures and the reclamation of the site.
The interest rate used to calculate the present value of such
costs over the retirement period is based on an estimated risk
adjusted credit rate for the same period. During 2004, the
Company increased its liability due to a change in estimate
associated with the remediation costs used in the calculation.
This change was recorded as an addition to the liability and
related assets carrying values.
F-18
NOTES TO COMBINED FINANCIAL STATEMENTS
(Continued)
The following table presents the activity related to the
Companys asset retirement obligation:
|
|
|
|
|
|
|
|
(In thousands) |
|
Balance at December 31, 2003
|
|
$ |
24,000 |
|
|
Adjustment due to change in estimate of related costs
|
|
|
26,850 |
|
|
Accretion of liability
|
|
|
1,800 |
|
|
Liabilities settled
|
|
|
(3,434 |
) |
|
|
|
|
Balance at December 31, 2004
|
|
$ |
49,216 |
|
|
|
|
|
NOTE F LONG-TERM DEBT
Long-term debt at December 31, 2004 and 2003 consisted of
the following:
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
|
|
|
|
2004 |
|
|
2003 |
|
|
|
|
|
|
|
|
|
|
(In thousands) |
|
Debt with Clear Channel Communications
|
|
$ |
1,463,000 |
|
|
$ |
1,463,000 |
|
Bank credit facilities
|
|
|
23,938 |
|
|
|
50,119 |
|
Other long-term debt
|
|
|
152,442 |
|
|
|
156,898 |
|
|
|
|
|
|
|
|
|
|
|
1,639,380 |
|
|
|
1,670,017 |
|
Less: current portion
|
|
|
146,268 |
|
|
|
136,763 |
|
|
|
|
|
|
|
|
Total long-term debt
|
|
$ |
1,493,112 |
|
|
$ |
1,533,254 |
|
|
|
|
|
|
|
|
|
|
|
Debt with Clear Channel Communications
|
In 2002, the Company converted its $1.3 billion line of
credit with Clear Channel Communications and issued two
intercompany notes to Clear Channel Communications in the
aggregate original principal amount of approximately
$1.5 billion. The Company received $.2 million in
excess proceeds that were used to acquire operating assets. The
first intercompany note in the original principal amount of
approximately $1.4 billion matures on December 31,
2017 and may be prepaid in whole at any time, or in part from
time to time, and accrues interest at a per annum rate of 10%.
The second intercompany note in the original principal amount of
approximately $73.0 million matures on December 31,
2017 and may be prepaid in whole at any time, or in part from
time to time, and accrues interest at a per annum rate of 9%.
Prior to the issuance of the two intercompany notes, the Company
recorded interest at a per annum rate of 6% on all net
borrowings from Clear Channel Communications.
An international subsidiary of the Company had a
$150.0 million five-year revolving credit facility with a
group of international banks. This facility allowed for
borrowings in various foreign currencies, which were used to
hedge net assets in those currencies and provide funds to the
Companys international operations for certain working
capital needs. At December 31, 2003, $50.1 million was
outstanding. On July 30, 2004, the Company paid in full
this $150.0 million five-year revolving credit facility.
The $150.0 million five-year revolving credit facility was
then terminated on August 6, 2004.
On July 13, 2004, Clear Channel Communications, entered
into a five-year, multi-currency revolving credit facility in
the amount of $1.75 billion. Certain of the Companys
international subsidiaries are offshore borrowers under a
$150.0 million sub-limit within this $1.75 billion
credit facility. This sub-limit allows for borrowings in various
foreign currencies, which are used to hedge net assets in those
currencies and provide funds to the Companys international
operations for certain working capital needs. Certain of the
Companys international subsidiary borrowings under this
sub-limit are guaranteed by Clear Channel
F-19
NOTES TO COMBINED FINANCIAL STATEMENTS
(Continued)
Communications. The interest rate is based upon, LIBOR, or, in
the case of Euro, EURIBOR, plus a margin. At December 31,
2004, interest rates on this bank credit facility varied from
1.9% to 5.76%. At December 31, 2004, the outstanding
balance on the $150.0 million sub-limit was
$23.9 million and $126.1 million was available for
future borrowings, with the entire balance to be repaid on
July 12, 2009.
Clear Channel Communications significant covenants on its
$1.75 billion five-year, multi-currency revolving credit
facility relate to leverage and interest coverage contained and
defined in the credit facility. The leverage ratio covenant
requires Clear Channel Communications to maintain a ratio of
consolidated funded indebtedness to operating cash flow (as
defined by the credit facility) of less than 5.25x. The interest
coverage covenant requires Clear Channel Communications to
maintain a minimum ratio of operating cash flow (as defined by
the credit facility) to interest expense of 2.50x. In the event
that Clear Channel Communications does not meet these covenants,
it is considered to be in default on the credit facility at
which time the credit facility, including the $150.0 sub-limit
utilized by certain of the Companys international
subsidiaries, may become immediately due. At December 31
2004, Clear Channel Communications leverage and interest
coverage ratios were 3.1x and 6.4x, respectively. This credit
facility contains a cross default provision that would be
triggered if Clear Channel Communications were to default on any
other indebtedness greater than $200.0 million. At
December 31, 2004, Clear Channel Communications was in
compliance with all debt covenants.
Other debt includes various borrowings and capital leases
utilized for general operating purposes. Included in the
$152.4 million and $156.9 million balances at
December 31, 2004 and 2003, is $146.3 million and
$136.8 million, respectively, that mature in less than one
year.
Future maturities of long-term debt at December 31, 2004
are as follows:
|
|
|
|
|
|
|
(In thousands) |
|
2005
|
|
$ |
146,268 |
|
2006
|
|
|
3,728 |
|
2007
|
|
|
841 |
|
2008
|
|
|
660 |
|
2009
|
|
|
24,110 |
|
Thereafter
|
|
|
1,463,773 |
|
|
|
|
|
Total
|
|
$ |
1,639,380 |
|
|
|
|
|
NOTE G COMMITMENTS AND CONTINGENCIES
The Company leases office space, equipment and the majority of
the land occupied by its advertising structures under long-term
operating leases. Some of the lease agreements contain renewal
options and annual rental escalation clauses (generally
tied to the consumer price index), as well as provisions for the
payment of utilities and maintenance by the Company.
The Company has minimum franchise payments associated with
non-cancelable contracts that enable it to display advertising
on such media as buses, taxis, trains, bus shelters and
terminals, as well as other type contacts. The majority of these
contracts contain rent provisions that are calculated as the
greater of a percentage of the relevant advertising revenue or a
specified guaranteed minimum annual payment. In addition, the
Company has commitments relating to required purchases of
property, plant, and equipment under certain street furniture
contracts.
F-20
NOTES TO COMBINED FINANCIAL STATEMENTS
(Continued)
As of December 31, 2004, the Companys future minimum
rental commitments under non-cancelable operating lease
agreements with terms in excess of one year, minimum payments
under non-cancelable contracts in excess of one year, and
capital expenditure commitments consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Cancelable |
|
|
Non-Cancelable |
|
|
Capital |
|
|
|
Operating Leases |
|
|
Contracts |
|
|
Expenditures |
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands) |
|
2005
|
|
$ |
177,567 |
|
|
$ |
382,528 |
|
|
$ |
119,687 |
|
2006
|
|
|
157,150 |
|
|
|
281,051 |
|
|
|
44,186 |
|
2007
|
|
|
133,677 |
|
|
|
191,959 |
|
|
|
18,879 |
|
2008
|
|
|
117,503 |
|
|
|
149,640 |
|
|
|
18,876 |
|
2009
|
|
|
100,524 |
|
|
|
133,945 |
|
|
|
6,346 |
|
Thereafter
|
|
|
567,593 |
|
|
|
528,429 |
|
|
|
15,742 |
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
1,254,014 |
|
|
$ |
1,667,552 |
|
|
$ |
223,716 |
|
|
|
|
|
|
|
|
|
|
|
Rent expense charged to operations for 2004, 2003 and 2002 was
$822.8 million, $721.5 million and
$610.4 million, respectively.
The Company is currently involved in certain legal proceedings
and, as required, has accrued its estimate of the probable costs
for the resolution of these claims. These estimates have been
developed in consultation with counsel and are based upon an
analysis of potential results, assuming a combination of
litigation and settlement strategies. It is possible, however,
that future results of operations for any particular period
could be materially affected by changes in the Companys
assumptions or the effectiveness of its strategies related to
these proceedings.
In various areas in which the Company operates, outdoor
advertising is the object of restrictive and, in some cases,
prohibitive zoning and other regulatory provisions, either
enacted or proposed. The impact to the Company of loss of
displays due to governmental action has been somewhat mitigated
by federal and state laws mandating compensation for such loss
and constitutional restraints.
Various acquisition agreements include deferred consideration
payments including future contingent payments based on the
financial performance of the acquired companies, generally over
a one to five year period. Contingent payments involving the
financial performance of the acquired companies are typically
based on the acquired company meeting certain EBITDA targets as
defined in the agreement. The contingent payment amounts are
generally calculated based on predetermined multiples of the
achieved EBITDA not to exceed a predetermined maximum payment.
At December 31, 2004, the Company believes its maximum
aggregate contingency, which is subject to the financial
performance of the acquired companies, is approximately
$36.5 million. In addition, certain acquisition agreements
include deferred consideration payments based on performance
requirements by the seller, generally over a one to five year
period. Contingent payments based on performance requirements by
the seller typically involve the completion of a development or
obtaining appropriate permits that enable the Company to
construct additional advertising displays. At December 31,
2004, the Company believes its maximum aggregate contingency,
which is subject to performance requirements by the seller, is
approximately $36.7 million. As the contingencies have not
been met or resolved as of December 31, 2004, these amounts
are not recorded. If future payments are made, amounts will be
recorded as additional purchase price.
The Company has various investments in nonconsolidated
affiliates that are subject to agreements that contain
provisions that may result in future additional investments to
be made by the Company. The put values are contingent upon
financial performance of the investee and are typically based on
the investee meeting certain EBITDA targets, as defined in the
agreement. The contingent payment amounts are generally
calculated based on predetermined multiples of the achieved
EBITDA not to exceed a predetermined maximum amount.
F-21
NOTES TO COMBINED FINANCIAL STATEMENTS
(Continued)
NOTE H RELATED PARTY TRANSACTIONS
The Company has an account that represents net amounts due to or
from Clear Channel Communications, which is recorded as
Due from Clear Channel Communications on the
combined balance sheets. The account does not accrue interest
and is generally payable on demand. Included in the account is
the net activity resulting from day-to-day cash management
services provided by Clear Channel Communications. As a part of
these services, the Company maintains collection bank accounts
that are swept daily by Clear Channel Communications. In return,
Clear Channel Communications funds the Companys controlled
disbursement accounts as checks or electronic payments are
presented for payment. At December 31, 2004 and 2003, the
balance in Due from Clear Channel Communications was
$302.6 million and $154.4 million, respectively.
The Company has issued two intercompany notes to Clear Channel
Communications in the aggregate original principal amount of
approximately $1.5 billion. These notes are further
disclosed in Note F.
Clear Channel Communications has provided funding for certain of
the Companys acquisitions of outdoor advertising net
assets. The amounts funded by Clear Channel Communications for
these acquisitions are recorded in Owners net
investment, a component of owners equity.
The Company provides advertising space on its billboards for
radio stations owned by Clear Channel Communications. For the
years ended December 31, 2004, 2003 and 2002, the Company
recorded $12.4 million, $17.5 million, and
$12.5 million, respectively, in revenue for these
advertisements.
Clear Channel Communications provides management services to the
Company, which include, among other things: (i) treasury,
payroll and other financial related services; (ii) human
resources and employee benefits services; (iii) legal and
related services; (iv) information systems, network and
related services; (v) investment services;
(vi) corporate services; and (vii) procurement and
sourcing support services. These services are charged to the
Company based on actual direct costs incurred or allocated by
Clear Channel Communications based on a seasonally adjusted
headcount calculation. For the years ended December 31,
2004, 2003 and 2002, the Company recorded $16.6 million,
$19.6 million, and $17.6 million, respectively, as a
component of corporate expenses for these services.
Clear Channel Communications owns the trademark and trade names
used by the Company. Beginning January 1, 2003, Clear
Channel Communications charges the Company a royalty fee based
upon a percentage of annual revenue. Clear Channel
Communications used a third party valuation firm to assist in
the calculation of the royalty fee. For the years ended
December 31, 2004 and 2003, the Company recorded
$15.8 million and $14.1 million, respectively, of
royalty fees in Other income (expense)
net.
The operations of the Company are included in a consolidated
federal income tax return filed by Clear Channel Communications.
The Companys provision for income taxes has been computed
on the basis that the Company files separate consolidated income
tax returns with its subsidiaries. Tax payments are made to
Clear Channel Communications on the basis of the Companys
separate taxable income. Tax benefits recognized on employee
stock options exercises are retained by Clear Channel
Communications.
The Company computes its deferred income tax provision using the
liability method in accordance with Statement 109, as if
the Company was a separate taxpayer. Deferred tax assets and
liabilities are determined based on differences between
financial reporting bases and tax bases of assets and
liabilities and are measured using the enacted tax rates
expected to apply to taxable income in the periods in which the
deferred tax asset or liability is expected to be realized or
settled. Deferred tax assets are reduced by valuation allowances
if the Company believes it is more likely than not that some
portion or all of the asset will not be realized. The
Companys provision for income taxes is further disclosed
in Note I.
The Companys employees participate in Clear Channel
Communications employee benefit plans, including employee
medical insurance and a 401(k) retirement benefit plan. These
costs are recorded as a
F-22
NOTES TO COMBINED FINANCIAL STATEMENTS
(Continued)
component of selling, general and administrative expenses and
were approximately $8.2 million, $7.1 million, and
$6.6 million for the years ended December 31, 2004,
2003 and 2002, respectively.
NOTE I INCOME TAXES
The operations of the Company are included in a consolidated
federal income tax return filed by Clear Channel Communications,
Inc. However, for financial reporting purposes, the
Companys provision for income taxes has been computed on
the basis that the Company files separate consolidated income
tax returns with its subsidiaries.
Significant components of the provision for income tax expense
(benefit) are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 |
|
|
2003 |
|
|
2002 |
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands) |
|
Current federal
|
|
$ |
(10,291 |
) |
|
$ |
(27,813 |
) |
|
$ |
(85,352 |
) |
Current foreign
|
|
|
34,894 |
|
|
|
22,734 |
|
|
|
20,796 |
|
Current state
|
|
|
(1,181 |
) |
|
|
(7,013 |
) |
|
|
(7,452 |
) |
|
|
|
|
|
|
|
|
|
|
|
Total current
|
|
|
23,422 |
|
|
|
(12,092 |
) |
|
|
(72,008 |
) |
Deferred federal
|
|
|
40,048 |
|
|
|
44,098 |
|
|
|
50,476 |
|
Deferred foreign
|
|
|
(18,339 |
) |
|
|
(27,714 |
) |
|
|
(37,759 |
) |
Deferred state
|
|
|
17,423 |
|
|
|
7,560 |
|
|
|
8,653 |
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred
|
|
|
39,132 |
|
|
|
23,944 |
|
|
|
21,370 |
|
|
|
|
|
|
|
|
|
|
|
Income tax expense (benefit)
|
|
$ |
62,554 |
|
|
$ |
11,852 |
|
|
$ |
(50,638 |
) |
|
|
|
|
|
|
|
|
|
|
The increases in current and deferred expense of
$35.5 million and $15.2 million, respectively, for the
year ended December 31, 2004 were due to an increase in
Income (loss) before income taxes and cumulative effect of
a change in accounting principle of $93.2 million and
additional deferred tax expense of approximately
$16.0 million being recorded in order to adjust the
deferred tax asset balance to an amount determined to be
realizable by the Company.
The decrease in current tax benefit recorded of
$59.9 million for the year ended December 31, 2003 was
due primarily to an increase in income before income taxes of
approximately $83.2 million.
F-23
NOTES TO COMBINED FINANCIAL STATEMENTS
(Continued)
Significant components of the Companys deferred tax
liabilities and assets as of December 31, 2004 and 2003 are
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
2004 |
|
|
2003 |
|
|
|
|
|
|
|
|
|
|
(In thousands) |
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
|
Foreign
|
|
$ |
37,185 |
|
|
$ |
55,524 |
|
|
Other
|
|
|
1,816 |
|
|
|
2,605 |
|
|
|
|
|
|
|
|
Total deferred tax liabilities
|
|
|
39,001 |
|
|
|
58,129 |
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
|
Intangibles and fixed assets
|
|
|
266,053 |
|
|
|
209,214 |
|
|
Accrued expenses
|
|
|
1,163 |
|
|
|
1,273 |
|
|
Equity in earnings
|
|
|
2,138 |
|
|
|
776 |
|
|
Net operating loss carryforwards
|
|
|
|
|
|
|
753 |
|
|
Bad debt reserves
|
|
|
1,624 |
|
|
|
1,396 |
|
|
Deferred income
|
|
|
8,762 |
|
|
|
11,463 |
|
|
Other
|
|
|
95 |
|
|
|
47 |
|
|
|
|
|
|
|
|
Total gross deferred tax assets
|
|
|
279,835 |
|
|
|
224,922 |
|
|
|
|
|
|
|
|
Net deferred tax assets
|
|
|
240,834 |
|
|
|
166,793 |
|
Less current portion
|
|
|
9,778 |
|
|
|
11,600 |
|
|
|
|
|
|
|
|
Long term deferred tax asset
|
|
$ |
231,056 |
|
|
$ |
155,193 |
|
|
|
|
|
|
|
|
The deferred tax asset related to intangibles and fixed assets
primarily relates to the difference in book and tax basis of
acquired permits and tax deductible goodwill created from the
Companys various stock acquisitions. As discussed in
Note B, in 2004 the Company adopted D-108, which resulted
in the Company recording a non-cash charge of approximately
$162.9 million, net of deferred tax of $113.2 million,
related to its permits. In accordance with Statement
No. 142, the Company no longer amortizes permits. Thus, a
deferred tax benefit for the difference between book and tax
amortization for the Companys permits and tax-deductible
goodwill is no longer recognized, as these assets are no longer
amortized for book purposes. As the Company continues to
amortize its tax basis in its permits and tax deductible
goodwill, the deferred tax asset will decrease over time.
Deferred tax assets and liabilities are computed by applying the
U.S. federal and state income tax rate in effect to the
gross amounts of temporary differences.
F-24
NOTES TO COMBINED FINANCIAL STATEMENTS
(Continued)
The reconciliation of income tax computed at the
U.S. federal statutory tax rates to income tax expense
(benefit) is:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 |
|
|
2003 |
|
|
2002 |
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands) |
|
Income tax expense (benefit) at statutory rates
|
|
$ |
24,511 |
|
|
$ |
(8,100 |
) |
|
$ |
(37,221 |
) |
State income taxes, net of federal tax benefit
|
|
|
16,242 |
|
|
|
547 |
|
|
|
1,201 |
|
Foreign taxes
|
|
|
11,379 |
|
|
|
5,974 |
|
|
|
(19,620 |
) |
Nondeductible items
|
|
|
607 |
|
|
|
560 |
|
|
|
476 |
|
Additional deferred tax expense
|
|
|
4,804 |
|
|
|
|
|
|
|
|
|
Tax contingencies
|
|
|
4,626 |
|
|
|
10,116 |
|
|
|
3,892 |
|
Subpart F income
|
|
|
441 |
|
|
|
2,542 |
|
|
|
871 |
|
Other, net
|
|
|
(56 |
) |
|
|
213 |
|
|
|
(237 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
$ |
62,554 |
|
|
$ |
11,852 |
|
|
$ |
(50,638 |
) |
|
|
|
|
|
|
|
|
|
|
During 2004, the Company recorded tax expense of approximately
$62.6 million on income (loss) before income taxes of
$70.0 million. Foreign income (loss) before income taxes
was approximately $14.8 million for 2004. The Company
recorded additional deferred tax expense of approximately
$16.0 million in 2004 in order to adjust the deferred tax
asset balance to an amount determined to be realizable by the
Company. In addition, the Company did not record a tax benefit
on certain tax losses in its foreign operations due to the
uncertainty of the ability to utilize those tax losses in the
future.
During 2003, the Company recorded tax expense of approximately
$11.9 million on income (loss) before income taxes of
($23.1) million. Foreign income (loss) before income taxes
was approximately ($31.3) million. The Company recorded
additional current tax expense due to certain tax contingencies
of approximately $10.1 million in 2003. In addition, the
Company did not record a tax benefit on certain tax losses in
its foreign operations due to the uncertainty of the ability to
utilize those tax losses in the future.
During 2002, the Company recorded tax benefit of approximately
$50.6 million on income (loss) before income taxes of
($106.3) million. The Company recorded a tax benefit from
foreign operations of approximately $17.0 million on
foreign income (loss) before income taxes of approximately
$7.6 million. The tax benefit was the result of the
blending of income taxed in low tax rate jurisdictions and
losses benefited in high tax rate jurisdictions.
All tax liabilities owed by the Company are paid by Clear
Channel Communications through an operating account that
represents net amounts due to or from Clear Channel
Communications.
Clear Channel Communications has granted options to purchase
Clear Channel Communications common stock to employees of the
Company and its affiliates under various stock option plans at
no less than the fair market value of the underlying stock on
the date of grant. These options are granted for a term not
exceeding ten years and are forfeited in the event the employee
or director terminates his or her employment or relationship
with the Company or one of its affiliates. All option plans
contain anti-dilutive provisions that require the adjustment of
the number of shares of the Company common stock represented by
each option for any stock splits or dividends.
On behalf of the Company, Clear Channel Communications began
granting restricted stock awards to the Companys employees
in 2004. These Clear Channel Communications common shares bear a
legend
F-25
NOTES TO COMBINED FINANCIAL STATEMENTS
(Continued)
which restricts their transferability for a term of from three
to five years and are forfeited in the event the employee
terminates his or her employment or relationship with the
Company prior to the lapse of the restriction. The restricted
stock awards were granted out of the Clear Channel
Communications stock option plans. All option plans
contain anti-dilutive provisions that require the adjustment of
the number of shares of the Clear Channel Communications common
stock represented by each option for any stock splits or
dividends. Additionally, recipients of the restricted stock
awards are entitled to all cash dividends as of the date the
award was granted. The Company had 12,345 restricted stock
awards outstanding at December 31, 2004 at a weighted
average share price at the date of grant of $44.48.
NOTE K EMPLOYEE STOCK AND SAVINGS PLANS
The Companys employees are eligible to participate in
various 401(K) savings and other plans provided by Clear Channel
Communications for the purpose of providing retirement benefits
for substantially all employees. Both the employees and the
Company make contributions to the plan. The Company matches a
portion of an employees contribution. Beginning
January 1, 2003, the Company match was increased from 35%
to 50% of the employees first 5% of pay contributed to the
plan. Company matched contributions vest to the employees based
upon their years of service to the Company. Contributions to
these plans of $1.9 million, $1.6 million and
$1.2 million were charged to expense for 2004, 2003 and
2002, respectively.
The Companys employees are also eligible to participate in
a non-qualified employee stock purchase plan provided by Clear
Channel Communications. Under the plan, shares of Clear Channel
Communications common stock may be purchased at 85% of the
market value on the day of purchase. Employees may purchase
shares having a value not exceeding 10% of their annual gross
compensation or $25,000, whichever is lower. During 2004, 2003
and 2002, all Clear Channel Communications employees purchased
262,163, 266,978 and 319,817 shares at weighted average
share prices of $32.05, $34.01 and $33.85, respectively. The
Companys employees represent approximately 12% of the
total participation in this plan.
Certain highly compensated executives of the Company are
eligible to participate in a non-qualified deferred compensation
plan provided by Clear Channel Communications, which allows
deferrals up to 50% of their annual salary and up to 80% of
their bonus before taxes. The Company does not match any
deferral amounts and retains ownership of all assets until
distributed. There is no liability recorded by the Company under
this deferred compensation plan as the liability of this plan is
Clear Channel Communications.
NOTE L OTHER INFORMATION
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31, |
|
|
|
|
|
|
|
2004 |
|
|
2003 |
|
|
2002 |
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands) |
|
The following details the components of Other income
(expense) net:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Royalty fee to Clear Channel Communications
|
|
$ |
(15,809 |
) |
|
$ |
(14,063 |
) |
|
$ |
|
|
|
Gain on sale of operating and fixed assets
|
|
|
11,718 |
|
|
|
11,047 |
|
|
|
7,118 |
|
|
Asset retirement obligation
|
|
|
|
|
|
|
(7,000 |
) |
|
|
|
|
|
Minority interest
|
|
|
(7,602 |
) |
|
|
(3,906 |
) |
|
|
1,778 |
|
|
Other
|
|
|
(1,648 |
) |
|
|
5,327 |
|
|
|
268 |
|
|
|
|
|
|
|
|
|
|
|
Total other income (expense) net
|
|
$ |
(13,341 |
) |
|
$ |
(8,595 |
) |
|
$ |
9,164 |
|
|
|
|
|
|
|
|
|
|
|
F-26
NOTES TO COMBINED FINANCIAL STATEMENTS
(Continued)
NOTE M SEGMENT DATA
The Company has two reportable operating segments
domestic and international. The domestic segment includes
operations in North and South America, and the international
segment includes operations in Europe, Asia, Africa and
Australia.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic |
|
|
International |
|
|
Corporate |
|
|
Combined |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands) |
|
2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$ |
1,092,089 |
|
|
$ |
1,354,951 |
|
|
$ |
|
|
|
$ |
2,447,040 |
|
Direct operating expenses
|
|
|
468,687 |
|
|
|
793,630 |
|
|
|
|
|
|
|
1,262,317 |
|
Selling, general and administrative expenses
|
|
|
173,010 |
|
|
|
326,447 |
|
|
|
|
|
|
|
499,457 |
|
Depreciation and amortization
|
|
|
186,620 |
|
|
|
201,597 |
|
|
|
|
|
|
|
388,217 |
|
Corporate expenses
|
|
|
|
|
|
|
|
|
|
|
53,770 |
|
|
|
53,770 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
$ |
263,772 |
|
|
$ |
33,277 |
|
|
$ |
(53,770 |
) |
|
$ |
243,279 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Identifiable assets
|
|
$ |
3,378,761 |
|
|
$ |
1,862,172 |
|
|
$ |
|
|
|
$ |
5,240,933 |
|
Capital expenditures
|
|
$ |
60,506 |
|
|
$ |
115,634 |
|
|
$ |
|
|
|
$ |
176,140 |
|
2003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$ |
1,006,376 |
|
|
$ |
1,168,221 |
|
|
$ |
|
|
|
$ |
2,174,597 |
|
Direct operating expenses
|
|
|
435,075 |
|
|
|
698,311 |
|
|
|
|
|
|
|
1,133,386 |
|
Selling, general and administrative expenses
|
|
|
161,579 |
|
|
|
295,314 |
|
|
|
|
|
|
|
456,893 |
|
Depreciation and amortization
|
|
|
194,237 |
|
|
|
185,403 |
|
|
|
|
|
|
|
379,640 |
|
Corporate expenses
|
|
|
|
|
|
|
|
|
|
|
54,233 |
|
|
|
54,233 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
$ |
215,485 |
|
|
$ |
(10,807 |
) |
|
$ |
(54,233 |
) |
|
$ |
150,445 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Identifiable assets
|
|
$ |
3,507,019 |
|
|
$ |
1,725,801 |
|
|
$ |
|
|
|
$ |
5,232,820 |
|
Capital expenditures
|
|
$ |
60,685 |
|
|
$ |
144,460 |
|
|
$ |
|
|
|
$ |
205,145 |
|
2002
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$ |
911,493 |
|
|
$ |
948,148 |
|
|
$ |
|
|
|
$ |
1,859,641 |
|
Direct operating expenses
|
|
|
399,006 |
|
|
|
558,824 |
|
|
|
|
|
|
|
957,830 |
|
Selling, general and administrative expenses
|
|
|
158,159 |
|
|
|
234,644 |
|
|
|
|
|
|
|
392,803 |
|
Depreciation and amortization
|
|
|
179,947 |
|
|
|
156,948 |
|
|
|
|
|
|
|
336,895 |
|
Corporate expenses
|
|
|
|
|
|
|
|
|
|
|
52,218 |
|
|
|
52,218 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
$ |
174,381 |
|
|
$ |
(2,268 |
) |
|
$ |
(52,218 |
) |
|
$ |
119,895 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Identifiable assets
|
|
$ |
3,494,697 |
|
|
$ |
1,431,508 |
|
|
$ |
|
|
|
$ |
4,926,205 |
|
Capital expenditures
|
|
$ |
83,563 |
|
|
$ |
206,624 |
|
|
$ |
|
|
|
$ |
290,187 |
|
Revenue of $57.5 million, $46.6 million and
$42.7 million and identifiable assets of
$35.7 million, $28.9 million and $14.9 million
derived from the Companys foreign operations are included
in the Domestic data above for the years ended December 31,
2004, 2003 and 2002, respectively.
F-27
NOTES TO COMBINED FINANCIAL STATEMENTS
(Continued)
|
|
NOTE N |
2004 QUARTERLY RESULTS OF OPERATIONS (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended |
|
|
|
|
|
|
|
March 31 |
|
|
June 30 |
|
|
September 30 |
|
|
December 31 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands) |
|
Revenue
|
|
$ |
521,593 |
|
|
$ |
639,549 |
|
|
$ |
600,166 |
|
|
$ |
685,732 |
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct operating expenses
|
|
|
293,833 |
|
|
|
312,815 |
|
|
|
317,754 |
|
|
|
337,897 |
|
|
Selling, general and administrative expenses
|
|
|
118,040 |
|
|
|
119,310 |
|
|
|
120,856 |
|
|
|
141,269 |
|
|
Depreciation and amortization
|
|
|
99,750 |
|
|
|
92,806 |
|
|
|
96,254 |
|
|
|
99,407 |
|
|
Corporate expenses
|
|
|
11,856 |
|
|
|
14,681 |
|
|
|
12,914 |
|
|
|
14,319 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
(1,886 |
) |
|
|
99,937 |
|
|
|
52,388 |
|
|
|
92,840 |
|
Interest expense
|
|
|
3,675 |
|
|
|
3,600 |
|
|
|
3,836 |
|
|
|
3,066 |
|
Intercompany interest expense
|
|
|
36,413 |
|
|
|
36,413 |
|
|
|
36,413 |
|
|
|
36,414 |
|
Equity in earnings of nonconsolidated affiliates
|
|
|
319 |
|
|
|
4,468 |
|
|
|
(2,517 |
) |
|
|
(2,346 |
) |
Other income (expense) net
|
|
|
(6,435 |
) |
|
|
(5,203 |
) |
|
|
(5,572 |
) |
|
|
3,869 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes and cumulative effect of a
change in accounting principle
|
|
|
(48,090 |
) |
|
|
59,189 |
|
|
|
4,050 |
|
|
|
54,883 |
|
Income tax (expense) benefit
|
|
|
35,706 |
|
|
|
(43,946 |
) |
|
|
(3,009 |
) |
|
|
(51,305 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before cumulative effect of a change in accounting
principle
|
|
|
(12,384 |
) |
|
|
15,243 |
|
|
|
1,041 |
|
|
|
3,578 |
|
Cumulative effect of a change in accounting principle, net of
tax of $113,173
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(162,858 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$ |
(12,384 |
) |
|
$ |
15,243 |
|
|
$ |
1,041 |
|
|
$ |
(159,280 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTE O |
SUBSEQUENT EVENTS
|
In July, 2005, the Company increased its investment in Clear
Media Limited, a Chinese outdoor advertising company, to over
50%. As a result, the Company will no longer account for this
investment under the equity method, but rather will begin
consolidating the results of Clear Media Limited beginning in
the third quarter of 2005.
On July 27, 2005, the Company announced to the trade union
representatives and to employees a draft plan to restructure its
operations in France. In connection with the restructuring, the
Company expects to record approximately $25.0 million in
restructuring costs, including employee termination and other
costs, as a component of selling, general and administrative
expenses during the third quarter of 2005.
On August 2, 2005, a wholly-owned subsidiary of the Company
entered into a $2.5 billion intercompany note payable to
the Company which was subsequently distributed as a dividend to
Clear Channel Communications. This note accrues interest at a
variable per annum rate equal to the weighted average cost of
debt for Clear Channel Communications, calculated on a monthly
basis. The estimated weighted average interest rate for the
period ended September 30, 2005 is 5.7%. This note will
mature on August 2, 2010.
Effective November 9, 2005, Clear Channel Communications
completed the contribution and transfer to the Company all of
the assets and liabilities of its outdoor advertising business
not currently held by the Company. The Company and Clear Channel
Communications entered into the Master Separation Agreement
detailing the provisions of the contribution and the separation
of the Company from Clear Channel Communications.
F-28
Report of Independent Registered Public Accounting Firm
The Board of Directors
Clear Channel Outdoor Holdings, Inc.
We have reviewed the accompanying combined balance sheet of
Clear Channel Outdoor Holdings, Inc. and subsidiaries (the
Company) as of September 30, 2005, and the related combined
statements of operations for the nine-month periods ended
September 30, 2005 and 2004, and the combined statements of
cash flows for the nine-month periods ended September 30,
2005 and 2004. These financial statements are the responsibility
of the Companys management.
We conducted our review in accordance with the standards of the
Public Company Accounting Oversight Board (United States). A
review of interim financial information consists principally of
applying analytical procedures and making inquiries of persons
responsible for financial and accounting matters. It is
substantially less in scope than an audit conducted in
accordance with the standards of the Public Company Accounting
Oversight Board, the objective of which is the expression of an
opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material
modifications that should be made to the combined financial
statements referred to above for them to be in conformity with
U.S. generally accepted accounting principles.
We have previously audited, in accordance with the standards of
the Public Company Accounting Oversight Board (United States),
the combined balance sheet of Clear Channel Outdoor Holdings,
Inc. and subsidiaries as of December 31, 2004, and the
related combined statements of operations, owners equity,
and cash flows for the year then ended and in our report dated
August 4, 2005, except for the first paragraph of
Note A and the fourth paragraph of Note O, as to which
date is November 9, 2005 we expressed an unqualified
opinion on those combined financial statements and included an
explanatory paragraph indicating in 2004 the Company changed its
method of accounting for indefinite lived intangibles and in
2002 the Company changed its method for goodwill. In our
opinion, the information set forth in the accompanying combined
balance sheet as of December 31, 2004, is fairly stated, in
all material respects, in relation to the combined balance sheet
from which it has been derived.
San Antonio, Texas
October 20, 2005, except for the third paragraph of
Note 1 and Note 7,
as to which date is November 9, 2005
F-29
COMBINED BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
December 31, |
|
|
|
2005 |
|
|
2004 |
|
|
|
|
|
|
|
|
|
|
(In thousands) |
|
|
|
(Unaudited) |
|
|
|
ASSETS
|
CURRENT ASSETS
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$ |
91,676 |
|
|
$ |
37,948 |
|
Accounts receivable, less allowance of $22,930 at
September 30, 2005 and $19,487 at December 31, 2004
|
|
|
679,469 |
|
|
|
661,244 |
|
Due from Clear Channel Communications
|
|
|
362,154 |
|
|
|
302,634 |
|
Prepaid expenses
|
|
|
69,060 |
|
|
|
59,601 |
|
Other current assets
|
|
|
40,928 |
|
|
|
45,813 |
|
|
|
|
|
|
|
|
|
Total Current Assets
|
|
|
1,243,287 |
|
|
|
1,107,240 |
|
PROPERTY, PLANT AND EQUIPMENT
|
|
|
|
|
|
|
|
|
Land, buildings and improvements
|
|
|
310,156 |
|
|
|
318,478 |
|
Structures
|
|
|
3,287,778 |
|
|
|
3,110,233 |
|
Furniture and other equipment
|
|
|
237,304 |
|
|
|
238,973 |
|
Construction in progress
|
|
|
54,977 |
|
|
|
54,021 |
|
|
|
|
|
|
|
|
|
|
|
3,890,215 |
|
|
|
3,721,705 |
|
Less accumulated depreciation
|
|
|
1,718,018 |
|
|
|
1,525,720 |
|
|
|
|
|
|
|
|
|
|
|
2,172,197 |
|
|
|
2,195,985 |
|
INTANGIBLE ASSETS
|
|
|
|
|
|
|
|
|
Definite-lived intangibles, net
|
|
|
255,028 |
|
|
|
334,284 |
|
Indefinite-lived intangibles permits
|
|
|
212,507 |
|
|
|
211,690 |
|
Goodwill
|
|
|
760,455 |
|
|
|
787,006 |
|
OTHER ASSETS
|
|
|
|
|
|
|
|
|
Notes receivable
|
|
|
5,821 |
|
|
|
5,872 |
|
Investments in, and advances to, nonconsolidated affiliates
|
|
|
99,447 |
|
|
|
175,057 |
|
Deferred tax asset
|
|
|
243,030 |
|
|
|
231,056 |
|
Other assets
|
|
|
302,915 |
|
|
|
189,513 |
|
Other investments
|
|
|
835 |
|
|
|
3,230 |
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$ |
5,295,522 |
|
|
$ |
5,240,933 |
|
|
|
|
|
|
|
|
LIABILITIES AND OWNERS EQUITY
|
CURRENT LIABILITIES
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$ |
209,948 |
|
|
$ |
243,542 |
|
Accrued expenses
|
|
|
325,477 |
|
|
|
264,567 |
|
Accrued interest
|
|
|
2,443 |
|
|
|
558 |
|
Accrued income tax
|
|
|
19,520 |
|
|
|
|
|
Deferred income
|
|
|
98,135 |
|
|
|
94,120 |
|
Current portion of long-term debt
|
|
|
152,377 |
|
|
|
146,268 |
|
|
|
|
|
|
|
|
|
Total Current Liabilities
|
|
|
807,900 |
|
|
|
749,055 |
|
Long-term debt
|
|
|
96,759 |
|
|
|
30,112 |
|
Debt with Clear Channel Communications
|
|
|
3,963,000 |
|
|
|
1,463,000 |
|
Other long-term liabilities
|
|
|
175,965 |
|
|
|
205,811 |
|
Minority interest
|
|
|
163,549 |
|
|
|
63,302 |
|
Commitment and contingent liabilities (Note 4)
|
|
|
|
|
|
|
|
|
OWNERS EQUITY
|
|
|
|
|
|
|
|
|
Owners net investment
|
|
|
4,179,664 |
|
|
|
6,679,664 |
|
Retained deficit
|
|
|
(4,229,060 |
) |
|
|
(4,250,222 |
) |
Accumulated other comprehensive income
|
|
|
137,745 |
|
|
|
300,211 |
|
|
|
|
|
|
|
|
|
Total Owners Equity
|
|
|
88,349 |
|
|
|
2,729,653 |
|
|
|
|
|
|
|
|
|
Total Liabilities and Owners Equity
|
|
$ |
5,295,522 |
|
|
$ |
5,240,933 |
|
|
|
|
|
|
|
|
See Notes to Combined Financial Statements
F-30
UNAUDITED INTERIM COMBINED STATEMENTS OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, |
|
|
|
|
|
|
|
2005 |
|
|
2004 |
|
|
|
|
|
|
|
|
|
|
(In thousands) |
|
Revenue
|
|
$ |
1,931,471 |
|
|
$ |
1,761,308 |
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
Direct operating expenses (exclusive of depreciation and
amortization)
|
|
|
988,448 |
|
|
|
924,420 |
|
|
Selling, general and administrative expenses (exclusive of
depreciation and amortization)
|
|
|
410,075 |
|
|
|
358,188 |
|
|
Depreciation and amortization
|
|
|
290,233 |
|
|
|
288,810 |
|
|
Corporate expenses (exclusive of depreciation and amortization)
|
|
|
39,397 |
|
|
|
39,451 |
|
|
|
|
|
|
|
|
Operating income
|
|
|
203,318 |
|
|
|
150,439 |
|
Interest expense
|
|
|
9,874 |
|
|
|
11,111 |
|
Intercompany interest expense
|
|
|
133,093 |
|
|
|
109,239 |
|
Equity in earnings of nonconsolidated affiliates
|
|
|
9,908 |
|
|
|
2,270 |
|
Other income (expense) net
|
|
|
(17,353 |
) |
|
|
(17,210 |
) |
|
|
|
|
|
|
|
Income before income taxes
|
|
|
52,906 |
|
|
|
15,149 |
|
Income tax (expense) benefit:
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
(37,767 |
) |
|
|
6,481 |
|
|
Deferred
|
|
|
6,023 |
|
|
|
(17,730 |
) |
|
|
|
|
|
|
|
Net income
|
|
|
21,162 |
|
|
|
3,900 |
|
|
|
|
|
|
|
|
Other comprehensive loss, net of tax:
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments
|
|
|
(162,466 |
) |
|
|
(8,103 |
) |
|
|
|
|
|
|
|
Comprehensive loss
|
|
$ |
(141,304 |
) |
|
$ |
(4,203 |
) |
|
|
|
|
|
|
|
See Notes to Combined Financial Statements
F-31
UNAUDITED COMBINED STATEMENTS OF CHANGES IN OWNERS
EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owners Net |
|
|
|
|
Accumulated Other |
|
|
|
|
|
Investment |
|
|
Retained Deficit |
|
|
Comprehensive Income |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands) |
|
Balances at December 31, 2004
|
|
$ |
6,679,664 |
|
|
$ |
(4,250,222 |
) |
|
$ |
300,211 |
|
|
$ |
2,729,653 |
|
Net income
|
|
|
|
|
|
|
21,162 |
|
|
|
|
|
|
|
21,162 |
|
Dividend payable to Clear Channel Communications
|
|
|
(2,500,000 |
) |
|
|
|
|
|
|
|
|
|
|
(2,500,000 |
) |
Currency translation adjustment
|
|
|
|
|
|
|
|
|
|
|
(162,466 |
) |
|
|
(162,466 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at September 30, 2005
|
|
$ |
4,179,664 |
|
|
$ |
(4,229,060 |
) |
|
$ |
137,745 |
|
|
$ |
88,349 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Notes to Combined Financial Statements
F-32
UNAUDITED INTERIM COMBINED STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended |
|
|
|
September 30, |
|
|
|
|
|
|
|
2005 |
|
|
2004 |
|
|
|
|
|
|
|
|
|
|
(In thousands) |
|
CASH FLOWS FROM OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
|
Net income
|
|
$ |
21,162 |
|
|
$ |
3,900 |
|
Reconciling Items:
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
290,233 |
|
|
|
288,810 |
|
|
Deferred taxes
|
|
|
(6,023 |
) |
|
|
17,730 |
|
|
(Gain) loss on sale of operating and fixed assets
|
|
|
(2,762 |
) |
|
|
(1,530 |
) |
|
Equity in earnings of nonconsolidated affiliates
|
|
|
(9,908 |
) |
|
|
(2,270 |
) |
|
Increase (decrease) other, net
|
|
|
8,870 |
|
|
|
4,007 |
|
Changes in operating assets and liabilities, net of effects of
acquisitions:
|
|
|
|
|
|
|
|
|
|
Decrease (increase) in accounts receivable
|
|
|
275 |
|
|
|
22,303 |
|
|
Decrease (increase) in prepaid expenses
|
|
|
(9,459 |
) |
|
|
(3,959 |
) |
|
Decrease (increase) in other current assets
|
|
|
33,038 |
|
|
|
(4,854 |
) |
|
Increase (decrease) in accounts payable, accrued expenses and
other liabilities
|
|
|
(24,183 |
) |
|
|
(36,036 |
) |
|
Increase (decrease) in accrued interest
|
|
|
1,860 |
|
|
|
797 |
|
|
Increase (decrease) in deferred income
|
|
|
2,547 |
|
|
|
13,334 |
|
|
Increase (decrease) in accrued income taxes
|
|
|
30,987 |
|
|
|
27,661 |
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
336,637 |
|
|
|
329,893 |
|
|
CASH FLOWS FROM INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
Decrease (increase) in notes receivable, net
|
|
|
51 |
|
|
|
506 |
|
Decrease (increase) in investments in, and advances to,
nonconsolidated affiliates net
|
|
|
1,114 |
|
|
|
(7,219 |
) |
Purchases of investments
|
|
|
|
|
|
|
(407 |
) |
Proceeds from sale of investments
|
|
|
|
|
|
|
12,076 |
|
Purchases of property, plant and equipment
|
|
|
(130,484 |
) |
|
|
(117,733 |
) |
Proceeds from disposal of assets
|
|
|
9,593 |
|
|
|
5,672 |
|
Acquisition of operating assets, net of cash acquired
|
|
|
(43,737 |
) |
|
|
(86,861 |
) |
Decrease (increase) in other net
|
|
|
(59,726 |
) |
|
|
(33,420 |
) |
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(223,189 |
) |
|
|
(227,386 |
) |
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Draws on credit facilities
|
|
|
58,206 |
|
|
|
65,948 |
|
Payments on credit facilities
|
|
|
(46,840 |
) |
|
|
(75,749 |
) |
Net transfers to Clear Channel Communications
|
|
|
(59,520 |
) |
|
|
(85,958 |
) |
|
|
|
|
|
|
|
Net cash used in financing activities
|
|
|
(48,154 |
) |
|
|
(95,759 |
) |
Effect of exchange rate changes on cash
|
|
|
(11,566 |
) |
|
|
(1,713 |
) |
Net increase in cash and cash equivalents
|
|
|
53,728 |
|
|
|
5,035 |
|
Cash and cash equivalents at beginning of period
|
|
|
37,948 |
|
|
|
34,105 |
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$ |
91,676 |
|
|
$ |
39,140 |
|
|
|
|
|
|
|
|
See Notes to Combined Financial Statements
F-33
NOTES TO UNAUDITED INTERIM COMBINED FINANCIAL STATEMENTS
|
|
Note 1: |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
|
|
|
|
Preparation of Interim Financial Statements
|
Clear Channel Outdoor Holdings, Inc. (the Company)
includes the entities principally comprising the outdoor segment
of Clear Channel Communications, Inc. (Clear Channel
Communications), a diversified media company with
operations in radio broadcasting, outdoor advertising and live
entertainment. The Company has two principal business segments:
domestic and international. The domestic segment includes
operations in North and South America; and the international
segment includes operations in Europe, Asia, Africa and
Australia.
The combined financial statements have been prepared by the
Company pursuant to the rules and regulations of the Securities
and Exchange Commission (SEC) and, in the opinion of
management, include all adjustments (consisting of normal
recurring accruals and adjustments necessary for adoption of new
accounting standards) necessary to present fairly the results of
the interim periods shown. Certain information and footnote
disclosures normally included in financial statements prepared
in accordance with generally accepted accounting principles in
the United States have been condensed or omitted pursuant to
such SEC rules and regulations. Management believes that the
disclosures made are adequate to make the information presented
not misleading. Due to seasonality and other factors, the
results for the interim periods are not necessarily indicative
of results for the full year.
The combined financial statements include assets and liabilities
of Clear Channel Communications that were transferred to the
Company effective November 9, 2005. The combined financial
statements are comprised of businesses included in the
consolidated financial statements and accounting records of
Clear Channel Communications, using the historical results of
operations, and historical basis of assets and liabilities of
the outdoor business. Investments in companies in which the
Company owns 20 percent to 50 percent of the voting
common stock or otherwise exercises significant influence over
operating and financial policies of the company are accounted
for under the equity method. Significant intercompany accounts
among the combined businesses have been eliminated in
consolidation.
In July 2005, the Company increased its investment in Clear
Media Limited (Clear Media), a Chinese company that
operates street furniture displays throughout China, to a
controlling majority ownership interest. As a result, the
Company began consolidating the results of Clear Media in the
third quarter of 2005. The Company had been accounting for Clear
Media as an equity investment prior to July 2005. Included in
the consolidated balance sheet as of September 30, 2005,
are total assets of $266.1 million and total liabilities of
$164.4 million related to Clear Media.
F-34
NOTES TO UNAUDITED INTERIM COMBINED FINANCIAL
STATEMENTS (Continued)
The Company does not have any compensation plans under which it
grants stock awards to employees. Clear Channel Communications
grants stock options to the Companys officers and other
key employees on behalf of the Company. Clear Channel
Communications accounts for its stock-based award plans in
accordance with APB 25, and related interpretations, under
which compensation expense is recorded to the extent that the
current market price of the underlying stock exceeds the
exercise price. Clear Channel Communications calculates the pro
forma stock compensation expense as if the stock-based awards
had been accounted for using the provisions of
Statement 123, Accounting for Stock-Based
Compensation. The stock compensation expense is then
allocated to the Company based on the percentage of options
outstanding to employees of the Company. The required pro forma
disclosures, based on this allocated expense are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
The Nine Months |
|
|
|
Ended September 30, |
|
|
|
|
|
|
|
2005 |
|
|
2004 |
|
|
|
|
|
|
|
|
|
|
(In thousands) |
|
Income (loss):
|
|
|
|
|
|
|
|
|
|
Reported
|
|
$ |
21,162 |
|
|
$ |
3,900 |
|
|
Pro forma stock compensation expense, net of tax
|
|
|
(1,595 |
) |
|
|
(4,921 |
) |
|
|
|
|
|
|
|
|
Pro Forma
|
|
$ |
19,567 |
|
|
$ |
(1,021 |
) |
|
|
|
|
|
|
|
|
|
|
Recent Accounting Pronouncements
|
In March 2005, the Financial Accounting Standards Board
(FASB) issued Interpretation No. 47,
Accounting for Conditional Asset Retirement Obligations
(FIN 47). FIN 47 is an interpretation of
FASB Statement 143, Asset Retirement Obligations,
which was issued in June 2001. According to FIN 47,
uncertainty about the timing and (or) method of settlement
because they are conditional on a future event that may or may
not be within the control of the entity should be factored into
the measurement of the asset retirement obligation when
sufficient information exists. FIN 47 also clarifies when
an entity would have sufficient information to reasonably
estimate the fair value of an asset retirement obligation.
FIN 47 is effective no later than the end of fiscal years
ending after December 15, 2005. Retrospective application
of interim financial information is permitted, but is not
required. The Company adopted FIN 47 on January 1,
2005, which did not materially impact the Companys
financial position or results of operations.
In March 2005, the SEC issued Staff Accounting
Bulletin No. 107 Share-Based Payment
(SAB 107). SAB 107 expresses the SEC
staffs views regarding the interaction between Statement
of Financial Accounting Standards No. 123(R) Share-Based
Payment (Statement 123(R)) and certain SEC
rules and regulations and provides the staffs views
regarding the valuation of share-based payment arrangements for
public companies. In particular, SAB 107 provides guidance
related to share-based payment transactions with nonemployees,
the transition from nonpublic to public entity status, valuation
methods (including assumptions such as expected volatility and
expected term), the accounting for certain redeemable financial
instruments issued under share-based payment arrangements, the
classification of compensation expense, non-GAAP financial
measures, first time adoption of Statement 123(R) in an
interim period, capitalization of compensation cost related to
share-based payment arrangements, the accounting for income tax
effects of share-based payment arrangements upon adoption of
Statement 123(R) and the modification of employee share
options prior to adoption of Statement 123(R). The Company
is unable to quantify the impact of adopting SAB 107 and
Statement 123(R) at this time because it will depend on
levels of share-based payments granted in the future.
Additionally, the Company is still evaluating the assumptions it
will use upon adoption.
In April 2005, the SEC issued a press release announcing that it
would provide for phased-in implementation guidance for
Statement 123(R). The SEC would require that registrants
that are not
F-35
NOTES TO UNAUDITED INTERIM COMBINED FINANCIAL
STATEMENTS (Continued)
small business issuers adopt Statement 123(R)s fair
value method of accounting for share-based payments to employees
no later than the beginning of the first fiscal year beginning
after June 15, 2005. The Company intends to adopt
Statement 123(R) on January 1, 2006.
In June 2005, the Emerging Issues Task Force (EITF)
issued EITF 05-6, Determining the Amortization Period of
Leasehold Improvements (EITF 05-6).
EITF 05-6 requires that assets recognized under capital
leases generally be amortized in a manner consistent with the
lessees normal depreciation policy except that the
amortization period is limited to the lease term (which includes
renewal periods that are reasonably assured). EITF 05-6
also addresses the determination of the amortization period for
leasehold improvements that are purchased subsequent to the
inception of the lease. Leasehold improvements acquired in a
business combination or purchased subsequent to the inception of
the lease should be amortized over the lesser of the useful life
of the asset or the lease term that includes reasonably assured
lease renewals as determined on the date of the acquisition of
the leasehold improvement. The Company adopted EITF 05-6 on
July 1, 2005, which did not materially impact the
Companys financial position or results of operations.
|
|
Note 2: |
INTANGIBLE ASSETS AND GOODWILL
|
|
|
|
Definite-lived Intangibles
|
The Company has definite-lived intangible assets which consist
primarily of transit and street furniture contracts and other
contractual rights, all of which are amortized over the
respective lives of the agreements. Other definite-lived
intangible assets are amortized over the period of time the
assets are expected to contribute directly or indirectly to the
Companys future cash flows. The following table presents
the gross carrying amount and accumulated amortization for each
major class of definite-lived intangible assets at
September 30, 2005 and December 31, 2004:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2005 |
|
|
December 31, 2004 |
|
|
|
|
|
|
|
|
|
|
Gross |
|
|
|
|
Gross |
|
|
|
|
|
Carrying |
|
|
Accumulated |
|
|
Carrying |
|
|
Accumulated |
|
|
|
Amount |
|
|
Amortization |
|
|
Amount |
|
|
Amortization |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands) |
|
Transit, street furniture, and other contractual rights
|
|
$ |
641,316 |
|
|
$ |
396,720 |
|
|
$ |
688,373 |
|
|
$ |
364,939 |
|
Other
|
|
|
56,652 |
|
|
|
46,220 |
|
|
|
57,093 |
|
|
|
46,243 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
697,968 |
|
|
$ |
442,940 |
|
|
$ |
745,466 |
|
|
$ |
411,182 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total amortization expense from definite-lived intangible assets
for the nine months ended September 30, 2005 and for the
year ended December 31, 2004 was $64.2 million and
$67.1 million, respectively. The following table presents
the Companys estimate of amortization expense for each of
the five succeeding fiscal years for definite-lived intangible
assets:
|
|
|
|
|
|
|
(In thousands) |
|
2006
|
|
$ |
71,309 |
|
2007
|
|
|
40,458 |
|
2008
|
|
|
20,319 |
|
2009
|
|
|
16,759 |
|
2010
|
|
|
10,632 |
|
As acquisitions and dispositions occur in the future and as
purchase price allocations are finalized, amortization expense
may vary.
F-36
NOTES TO UNAUDITED INTERIM COMBINED FINANCIAL
STATEMENTS (Continued)
|
|
|
Indefinite-lived Intangibles
|
The Companys indefinite-lived intangible assets consist of
billboard permits. Billboard permits are issued in perpetuity by
state and local governments and are transferable or renewable at
little or no cost. Permits typically include the location for
which the permit allows the Company the right to operate an
advertising structure. The Companys permits are located on
either owned or leased land. In cases where the Companys
permits are located on leased land, the leases are typically
from 10 to 30 years and renew indefinitely, with rental
payments generally escalating at an inflation based index. If
the Company loses its lease, the Company will typically obtain
permission to relocate the permit or bank it with the
municipality for future use.
The Company does not amortize its billboard permits. The Company
tests these indefinite-lived intangible assets for impairment at
least annually using the direct method. Under the direct method,
it is assumed that rather than acquiring indefinite-lived
intangible assets as a part of a going concern business, the
buyer hypothetically obtains indefinite-lived intangible assets
and builds a new operation with similar attributes from scratch.
Thus, the buyer incurs start-up costs during the build-up phase
which are normally associated with going concern value. Initial
capital costs are deducted from the discounted cash flows model
which results in value that is directly attributable to the
indefinite-lived intangible assets.
Under the direct method, the Company continues to aggregate its
indefinite-lived intangible assets at the market level for
purposes of impairment testing. The Companys key
assumptions using the direct method are market revenue growth
rates, market share, profit margin, duration and profile of the
build-up period, estimated start-up capital costs and losses
incurred during the build-up period, the risk-adjusted discount
rate and terminal values. This data is populated using industry
normalized information representing an average station within a
market.
The Company tests goodwill for impairment using a two-step
process. The first step, used to screen for potential
impairment, compares the fair value of the reporting unit with
its carrying amount, including goodwill. The second step, used
to measure the amount of the impairment loss, compares the
implied fair value of the reporting unit goodwill with the
carrying amount of that goodwill. The following table presents
the changes in the carrying amount of goodwill in each of the
Companys reportable segments for the nine-month period
ended September 30, 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic |
|
|
International |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands) |
|
Balance as of December 31, 2004
|
|
$ |
397,377 |
|
|
$ |
389,629 |
|
|
$ |
787,006 |
|
Acquisitions
|
|
|
1,403 |
|
|
|
15,884 |
|
|
|
17,287 |
|
Foreign currency
|
|
|
462 |
|
|
|
(42,512 |
) |
|
|
(42,050 |
) |
Adjustments
|
|
|
(1,612 |
) |
|
|
(176 |
) |
|
|
(1,788 |
) |
|
|
|
|
|
|
|
|
|
|
Balance as of September 30, 2005
|
|
$ |
397,630 |
|
|
$ |
362,825 |
|
|
$ |
760,455 |
|
|
|
|
|
|
|
|
|
|
|
F-37
NOTES TO UNAUDITED INTERIM COMBINED FINANCIAL
STATEMENTS (Continued)
The following represents the ongoing restructuring activities of
the Company, including the 2002 Ackerley restructuring, the 2003
restructuring of the France operations, the 2004 restructuring
of the Spain operations, and the additional restructuring of the
France operations in 2005:
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months |
|
|
|
|
|
Ended |
|
|
Year Ended |
|
|
|
September 30, 2005 |
|
|
December 31, 2004 |
|
|
|
|
|
|
|
|
|
|
(In thousands) |
|
Accrual at January 1
|
|
$ |
6,867 |
|
|
$ |
7,469 |
|
|
Estimated costs charged to restructuring accrual
|
|
|
26,576 |
|
|
|
4,131 |
|
|
Adjustments to restructuring accrual
|
|
|
|
|
|
|
(377 |
) |
|
Payments charged against restructuring accrual
|
|
|
(5,460 |
) |
|
|
(4,356 |
) |
|
|
|
|
|
|
|
Ending balance of accrual
|
|
$ |
27,983 |
|
|
$ |
6,867 |
|
|
|
|
|
|
|
|
As a result of Clear Channel Communications merger with
Ackerley in June 2002, the Company recorded a $9.4 million
accrual related to the restructuring of Ackerleys outdoor
advertising operations. Of the $9.4 million,
$5.3 million was related to severance and $4.1 million
was related to lease terminations. The Ackerley corporate office
closed in July 2002. This restructuring resulted in the
termination of 19 employees. There were no payments charged to
the restructuring reserve related to severance during the nine
months ended September 30, 2005 or during the year ended
December 31, 2004. At September 30, 2005, the accrual
balance for this restructuring was $1.6 million. The
remaining restructuring accrual is comprised solely of lease
termination, which will be paid over the next five years.
The Company restructured its operations in France during 2003.
As a result, the Company recorded a $13.8 million accrual
in selling, general and administrative expenses;
$12.5 million was related to severance and
$1.3 million was related to lease terminations and
consulting costs. As of September 30, 2005, the accrual
balance relating to the France restructuring was
$0.7 million, which is related to severance. It is expected
that these accruals will be paid in the current year. This
restructuring has resulted in the termination of 134 employees.
The Company restructured its operations in Spain during 2004. As
a result, the Company recorded a $4.1 million accrual in
selling, general and administrative expenses; $2.2 million
was related to severance and $1.9 million was related to
consulting and other costs. As of September 30, 2005, the
accrual balance for this restructuring was $1.8 million,
which consists of $0.4 million related to severance and
$1.4 million related to lease termination and other costs.
It is expected that these accruals will be paid in the current
year. This restructuring has resulted in the termination of 44
employees.
In the third quarter of 2005, the Company restructured its
operations in France. As a result, the Company recorded
$26.6 million in restructuring costs as a component of
selling, general and administrative expenses during the third
quarter of 2005; $22.5 million was related to severance
costs and $4.1 million was related to other costs. It has
been announced that the restructuring will result in the
termination of 101 employees. In addition, $2.7 million of
related other costs were incurred during the quarter and applied
against the reserve. As of September 30, 2005, the accrual
balance was $23.9 million.
F-38
NOTES TO UNAUDITED INTERIM COMBINED FINANCIAL
STATEMENTS (Continued)
|
|
Note 4: |
COMMITMENTS AND CONTINGENCIES
|
Certain agreements relating to acquisitions provide for purchase
price adjustments and other future contingent payments based on
the financial performance of the acquired companies. The Company
will continue to accrue additional amounts related to such
contingent payments if and when it is determinable that the
applicable financial performance targets will be met. The
aggregate of these contingent payments, if performance targets
are met, would not significantly impact the financial position
or results of operations of the Company.
The Company is currently involved in certain other legal
proceedings and, as required, has accrued an estimate of the
probable costs for the resolution of these claims, inclusive of
those discussed above. These estimates have been developed in
consultation with counsel and are based upon an analysis of
potential results, assuming a combination of litigation and
settlement strategies. It is possible, however, that future
results of operations for any particular period could be
materially affected by changes in the Companys assumptions
or the effectiveness of its strategies related to these
proceedings.
|
|
Note 5: |
RELATED PARTY TRANSACTIONS
|
The Company has an account that represents net amounts due to or
from Clear Channel Communications, which is recorded as
Due from Clear Channel Communications on the
combined balance sheets. The account did not accrue interest
during the nine months ended September 30, 2005 and the
year ended December 31, 2004 and is generally payable on
demand. Included in the account is the net activity resulting
from day-to-day cash management services provided by Clear
Channel Communications. As a part of these services, the Company
maintains collection bank accounts that are swept daily by Clear
Channel Communications. In return, Clear Channel Communications
funds the Companys controlled disbursement accounts as
checks or electronic payments are presented for payment. At
September 30, 2005 and December 31, 2004, the balance
in Due from Clear Channel Communications was
$362.2 million and $302.6 million, respectively.
The Company has issued two intercompany notes to Clear Channel
Communications in the aggregate original principal amount of
approximately $1.5 billion. The first intercompany note in
the original principal amount of approximately $1.4 billion
matures on December 31, 2017 and may be prepaid in whole at
any time, or in part from time to time, and accrues interest at
a per annum rate of 10%. The second intercompany note in the
original principal amount of approximately $73.0 million
matures on December 31, 2017 and may be prepaid in whole at
any time, or in part from time to time, and accrues interest at
a per annum rate of 9%.
On August 2, 2005, a wholly-owned subsidiary of the Company
entered into a $2.5 billion intercompany note payable to
the Company which was subsequently distributed as a dividend to
Clear Channel Communications. This note accrues interest at a
variable per annum rate equal to the weighted average cost of
debt for Clear Channel Communications, calculated on a monthly
basis. The estimated weighted average interest rate for the
period ended September 30, 2005 is 5.7%. This note will
mature on August 2, 2010.
Clear Channel Communications has provided funding for certain of
the Companys acquisitions of outdoor advertising net
assets. The amounts funded by Clear Channel Communications for
these acquisitions are recorded in Owners net
investment, a component of owners equity.
The Company provides advertising space on its billboards for
radio stations owned by Clear Channel Communications. For the
nine months ended September 30, 2005 and 2004 the Company
recorded $7.0 million and $9.7 million, respectively,
in revenue for these advertisements.
Clear Channel Communications provides management services to the
Company, which include, among other things: (i) treasury,
payroll and other financial related services; (ii) human
resources and employee benefits services; (iii) legal and
related services; (iv) information systems, network and
related
F-39
NOTES TO UNAUDITED INTERIM COMBINED FINANCIAL
STATEMENTS (Continued)
services; (v) investment services; (vi) corporate
services; and (vii) procurement and sourcing support
services. These services are charged to the Company based on
actual direct costs incurred or allocated by Clear Channel
Communications based on a seasonally adjusted headcount
calculation. For the nine months ended September 30, 2005
and 2004, the Company recorded $11.8 million and
$11.8 million, respectively, as a component of corporate
expenses for these services.
Clear Channel Communications owns the trademark and trade names
used by the Company. Clear Channel Communications charges the
Company a royalty fee based upon a percentage of annual revenue.
Clear Channel Communications used a third party valuation firm
to assist in the calculation of the royalty fee. For the nine
months ended September 30, 2005 and 2004, the Company
recorded $11.0 million and $12.2 million, respectively
of royalty fees in Other income (expense)
net.
The operations of the Company are included in a consolidated
federal income tax return filed by Clear Channel Communications.
The Companys provision for income taxes has been computed
on the basis that the Company files separate consolidated income
tax returns with its subsidiaries. Tax payments are made to
Clear Channel Communications on the basis of the Companys
separate taxable income. Tax benefits recognized on employee
stock options exercises are retained by Clear Channel
Communications.
The Company computes its deferred income tax provision using the
liability method in accordance with Statement of Financial
Accounting Standards No. 109, Accounting for Income
Taxes, as if the Company was a separate taxpayer. Deferred
tax assets and liabilities are determined based on differences
between financial reporting bases and tax bases of assets and
liabilities and are measured using the enacted tax rates
expected to apply to taxable income in the periods in which the
deferred tax asset or liability is expected to be realized or
settled. If the Company believes it is more likely than not that
some portion or all of a deferred tax asset will not be
realized, it will reduce the asset by a valuation allowance.
F-40
NOTES TO UNAUDITED INTERIM COMBINED FINANCIAL
STATEMENTS (Continued)
The Company has two reportable segments domestic and
international. The domestic segment includes operations in North
and South America, and the international segment includes
operations in Europe, Asia, Africa, and Australia.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic |
|
|
International |
|
|
Corporate |
|
|
Combined |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands) |
|
Nine months ended September 30, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$ |
886,649 |
|
|
$ |
1,044,822 |
|
|
$ |
|
|
|
|
1,931,471 |
|
Direct operating expenses
|
|
|
359,263 |
|
|
|
629,185 |
|
|
|
|
|
|
|
988,448 |
|
Selling, general and administrative expenses
|
|
|
136,919 |
|
|
|
273,156 |
|
|
|
|
|
|
|
410,075 |
|
Depreciation and amortization
|
|
|
127,019 |
|
|
|
163,214 |
|
|
|
|
|
|
|
290,233 |
|
Corporate expenses
|
|
|
|
|
|
|
|
|
|
|
39,397 |
|
|
|
39,397 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
$ |
263,448 |
|
|
$ |
(20,733 |
) |
|
$ |
(39,397 |
) |
|
|
203,318 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Identifiable assets
|
|
$ |
3,428,948 |
|
|
$ |
1,866,574 |
|
|
$ |
|
|
|
$ |
5,295,522 |
|
Capital expenditures
|
|
$ |
50,012 |
|
|
$ |
80,472 |
|
|
$ |
|
|
|
$ |
130,484 |
|
Nine months ended September 30, 2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$ |
800,744 |
|
|
$ |
960,564 |
|
|
|
|
|
|
$ |
1,761,308 |
|
Direct operating expenses
|
|
|
347,619 |
|
|
|
576,801 |
|
|
|
|
|
|
|
924,420 |
|
Selling, general and administrative expenses
|
|
|
126,838 |
|
|
|
231,350 |
|
|
|
|
|
|
|
358,188 |
|
Depreciation and amortization
|
|
|
141,479 |
|
|
|
147,331 |
|
|
|
|
|
|
|
288,810 |
|
Corporate expenses
|
|
|
|
|
|
|
|
|
|
|
39,451 |
|
|
|
39,451 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
$ |
184,808 |
|
|
$ |
5,082 |
|
|
$ |
(39,451 |
) |
|
|
150,439 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Identifiable assets
|
|
$ |
3,529,756 |
|
|
$ |
1,670,651 |
|
|
$ |
|
|
|
$ |
5,200,407 |
|
Capital expenditures
|
|
$ |
38,190 |
|
|
$ |
79,543 |
|
|
$ |
|
|
|
$ |
117,733 |
|
Revenue of $46.3 million and $39.2 million and
identifiable assets of $50.0 million and $30.1 million
derived from the Companys foreign operations are included
in the Domestic data above for the nine months ended
September 30, 2005 and 2004, respectively.
|
|
Note 7: |
SUBSEQUENT EVENTS
|
Effective November 9, 2005, Clear Channel Communications
completed the contribution and transfer to the Company all of
the assets and liabilities of its outdoor advertising business
not currently held by the Company. The Company and Clear Channel
Communications entered into the Master Separation Agreement
detailing the provisions of the contribution and the separation
of the Company from Clear Channel Communications.
F-41
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON
FINANCIAL STATEMENT SCHEDULE
We have audited the combined balance sheets of Clear Channel
Outdoor Holdings, Inc. and subsidiaries as of December 31,
2004 and 2003, and the related combined statements of
operations, changes in owners equity, and cash flows for
each of the three years in the period ended December 31,
2004, and have issued our report thereon dated August 4,
2005, except for the first paragraph of Note A and the
fourth paragraph of Note O, as to which date is
November 9, 2005 (included elsewhere in this Registration
Statement). Our audits also included the financial statement
Schedule II in this Registration Statement. This schedule
is the responsibility of the Companys management. Our
responsibility is to express an opinion based on our audits.
In our opinion, the financial statement schedule referred to
above, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material
respects the information set forth therein.
San Antonio, Texas
August 4, 2005
F-42
Schedule II Valuation and Qualifying
Accounts
Allowance for Doubtful Accounts
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charges |
|
|
|
|
|
|
|
|
|
Balance at |
|
|
to Costs, |
|
|
Write-off of |
|
|
|
|
Balance |
|
|
|
Beginning of |
|
|
Expenses |
|
|
Accounts |
|
|
|
|
at end of |
|
Description |
|
period |
|
|
and other |
|
|
Receivable |
|
|
Other(1) |
|
|
Period |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2002
|
|
$ |
13,751 |
|
|
$ |
17,588 |
|
|
$ |
13,296 |
|
|
$ |
776 |
|
|
$ |
18,819 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2003
|
|
$ |
18,819 |
|
|
$ |
6,996 |
|
|
$ |
12,311 |
|
|
$ |
2,209 |
|
|
$ |
15,713 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2004
|
|
$ |
15,713 |
|
|
$ |
8,731 |
|
|
$ |
6,112 |
|
|
$ |
1,155 |
|
|
$ |
19,487 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
Foreign currency adjustments. |
F-43
See inside front cover
for a map of our domestic markets.
No
dealer, salesperson, or other person is authorized to give any
information or to represent anything not contained in the
prospectus. You must not rely on any unauthorized information or
representations. This prospectus is an offer to sell only the
shares offered hereby, but only under circumstances and in
jurisdictions where it is lawful to do so. The information
contained in this prospectus is current only as of its date.
TABLE OF CONTENTS
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1 |
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13 |
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29 |
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30 |
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31 |
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32 |
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34 |
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35 |
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40 |
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45 |
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71 |
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74 |
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87 |
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102 |
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112 |
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113 |
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120 |
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122 |
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123 |
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126 |
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131 |
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131 |
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131 |
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F-1 |
|
Through
and
including ,
2005 (the 25th day after the date of this prospectus), all
dealers effecting transactions in these securities, whether or
not participating in this offering, may be required to deliver a
prospectus. This is in addition to a dealers obligation to
deliver a prospectus when acting as an underwriter and with
respect to an unsold allotment or subscription.
35,000,000 Shares
Class A Common Stock
PROSPECTUS
Goldman, Sachs & Co.
Deutsche Bank Securities
JPMorgan
Merrill Lynch & Co.
UBS Investment Bank
Banc of America Securities LLC
Bear, Stearns & Co. Inc.
Credit Suisse First Boston
A.G. Edwards
Allen & Company LLC
Barrington Research
Harris Nesbitt
SunTrust Robinson Humphrey
Wachovia Securities
M. R. Beal & Company
Ramirez & Co., Inc.
Siebert Capital Markets
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
|
|
Item 13. |
Other Expenses of Issuance and Distribution.
|
The estimated expenses paid by Clear Channel Outdoor Holdings,
Inc. (the Company) in connection with the issuance
and distribution of the Class A common stock being
registered on this Form S-1, other than underwriting
discounts and commission, are as follows:
|
|
|
|
|
|
Securities and Exchange Commission registration fee
|
|
$ |
104,224 |
|
New York Stock Exchange fees
|
|
|
250,000 |
|
Printing and engraving fees
|
|
|
400,000 |
|
Accounting fees and expenses
|
|
|
2,600,000 |
|
Legal fees and expenses
|
|
|
1,500,000 |
|
Transfer agent and registrar fees
|
|
|
25,000 |
|
NASD filing fees
|
|
|
75,500 |
|
Miscellaneous fees and expenses
|
|
|
545,276 |
|
|
|
|
|
|
Total
|
|
$ |
5,500,000 |
|
|
|
|
|
|
|
* |
To be filed by amendment |
|
|
Item 14. |
Indemnification of Directors and Officers.
|
Section 145 of the General Corporation Law of the State of
Delaware provides as follows:
(a) A corporation shall have power to indemnify any person
who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative (other
than an action by or in the right of the corporation) by reason
of the fact that the person is or was a director, officer,
employee or agent of the corporation, or is or was serving at
the request of the corporation as a director, officer, employee
or agent of another corporation, partnership, joint venture,
trust or other enterprise, against expenses (including
attorneys fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by the person in
connection with such action, suit or proceeding if the person
acted in good faith and in a manner the person reasonably
believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe the persons
conduct was unlawful. The termination of any action, suit or
proceeding by judgment, order, settlement, conviction, or upon a
plea of nolo contendere or its equivalent, shall not, of itself,
create a presumption that the person did not act in good faith
and in a manner which the person reasonably believed to be in or
not opposed to the best interests of the corporation, and, with
respect to any criminal action or proceeding, had reasonable
cause to believe that the persons conduct was unlawful.
(b) A corporation shall have power to indemnify any person
who was or is a party or is threatened to be made a party to any
threatened, pending or completed action or suit by or in the
right of the corporation to procure a judgment in its favor by
reason of the fact that the person is or was a director,
officer, employee or agent of the corporation, or is or was
serving at the request of the corporation as a director,
officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise against expenses
(including attorneys fees) actually and reasonably
incurred by the person in connection with the defense or
settlement of such action or suit if the person acted in good
faith and in a manner the person reasonably believed to be in or
not opposed to the best interests of the corporation and except
that no indemnification shall be made in respect of any claim,
issue or matter as to which such person shall have been adjudged
to be liable to the corporation unless and only to the extent
that the Court of Chancery or the court in which such action or
suit was brought shall determine upon application
II-1
that, despite the adjudication of liability but in view of all
the circumstances of the case, such person is fairly and
reasonably entitled to indemnity for such expenses which the
Court of Chancery or such other court shall deem proper.
As permitted by the Delaware General Corporation Law, we have
included in our amended and restated certificate of
incorporation a provision to eliminate the personal liability of
our directors for monetary damages for breach of their fiduciary
duties as directors, subject to certain exceptions. In addition,
our amended and restated certificate of incorporation and bylaws
provide that we are required to indemnify our officers and
directors under certain circumstances, including those
circumstances in which indemnification would otherwise be
discretionary, and we are required to advance expenses to our
officers and directors as incurred in connection with
proceedings against them for which they may be indemnified.
The underwriting agreement provides that the underwriters are
obligated, under certain circumstances, to indemnify our
directors, officers and controlling persons against certain
liabilities, including liabilities under the Securities Act.
Reference is made to the form of underwriting agreement filed as
Exhibit 1.1 hereto.
The Master Agreement by and between the company and Clear
Channel Communications provides for indemnification by the
company of Clear Channel Communications and its directors,
officers and employees for certain liabilities, including
liabilities under the Securities Act.
We maintain directors and officers liability insurance for the
benefit of our directors and officers.
|
|
Item 15. |
Recent Sales of Unregistered Securities.
|
Not applicable.
|
|
Item 16. |
Exhibits and Financial Statement Schedules.
|
(a) Exhibits
|
|
|
|
|
Exhibit |
|
|
Number |
|
Exhibit Title |
|
|
|
|
1 |
.1** |
|
Form of Underwriting Agreement. |
|
|
3 |
.1** |
|
Form of Amended and Restated Certificate of Incorporation of
Clear Channel Outdoor Holdings, Inc. |
|
|
3 |
.2** |
|
Form of Amended and Restated Bylaws of Clear Channel Outdoor
Holdings, Inc. |
|
|
4 |
.1** |
|
Form of Specimen Class A Common Stock certificate of Clear
Channel Outdoor Holdings, Inc. |
|
|
4 |
.2** |
|
Form of Specimen Class B Common Stock certificate of Clear
Channel Outdoor Holdings, Inc. |
|
|
5 |
.1*** |
|
Opinion of Fulbright & Jaworski L.L.P. |
|
|
10 |
.1** |
|
Form of Master Agreement between Clear Channel Outdoor Holdings,
Inc. and Clear Channel Communications, Inc. |
|
|
10 |
.2** |
|
Form of Registration Rights Agreement between Clear Channel
Outdoor Holdings, Inc. and Clear Channel Communications, Inc. |
|
|
10 |
.3** |
|
Form of Corporate Services Agreement between Clear Channel
Outdoor Holdings, Inc. and Clear Channel Management Services,
L.P. |
|
|
10 |
.4** |
|
Form of Tax Matters Agreement by and between Clear Channel
Outdoor Holdings, Inc. and Clear Channel Communications, Inc. |
|
|
10 |
.5** |
|
Form of Employee Matters Agreement between Clear Channel Outdoor
Holdings, Inc. and Clear Channel Communications, Inc. |
|
|
10 |
.6** |
|
Form of Amended and Restated License Agreement between Clear
Channel Identity, L.P. and Outdoor Management Services, Inc. |
|
|
10 |
.7** |
|
Subordinated Promissory Note effective January 1, 2003, in
the original principal amount of $1.39 billion. |
|
|
10 |
.8** |
|
Subordinated Promissory Note effective January 1, 2003, in
the original principal amount of $73.0 million. |
II-2
|
|
|
|
|
Exhibit |
|
|
Number |
|
Exhibit Title |
|
|
|
|
10 |
.9** |
|
Senior Unsecured Term Promissory Note dated August 2, 2005
in the original principal amount of $2.5 billion. |
|
|
10 |
.10** |
|
First Amendment to Senior Unsecured Term Promissory Note dated
October 7, 2005. |
|
10 |
.11** |
|
Form of 2005 Stock Incentive Plan of Clear Channel Outdoor
Holdings, Inc. |
|
|
10 |
.12** |
|
Form of 2006 Annual Incentive Plan of Clear Channel Outdoor
Holdings, Inc. |
|
|
10 |
.13** |
|
Amended and Restated Employment Agreement by and between Clear
Channel Communications, Inc. and Mark P. Mays dated
March 10, 2005 (incorporated herein by reference to
Exhibit 10.15 to the Clear Channel Communications, Inc.
Form 10-K (Commission File No. 1-9645) filed
March 11, 2005). |
|
10 |
.14** |
|
Amended and Restated Employment Agreement by and between Clear
Channel Communications, Inc. and Randall T. Mays dated
March 10, 2005 (incorporated herein by reference to
Exhibit 10.16 to the Clear Channel Communications, Inc.
Form 10-K (Commission File No. 1-9645) filed
March 11, 2005). |
|
10 |
.15** |
|
Employment Agreement by and between Clear Channel Outdoor
Holdings, Inc. and Paul J. Meyer dated August 5, 2005
(incorporated herein by reference to Exhibit 10.1 to the
Clear Channel Communications, Inc. Form 8-K (Commission
File No. 1-9645) filed August 10, 2005). |
|
15 |
.1*** |
|
Letter regarding unaudited interim financial information. |
|
21 |
.1** |
|
Subsidiaries of Clear Channel Outdoor Holdings, Inc. |
|
|
23 |
.1*** |
|
Form of Consent of Auditor. |
|
23 |
.2** |
|
Consent of Fulbright & Jaworski L.L.P. (included in
Exhibit 5.1). |
|
24 |
.1** |
|
Powers of Attorney. |
|
|
99 |
.1** |
|
Consent of Prospective Director of James M. Raines dated
October 21, 2005. |
|
99 |
.2** |
|
Consent of Prospective Director of Marsha M. Shields dated
September 21, 2005. |
|
99 |
.3** |
|
Consent of Prospective Director of Dale W. Tremblay dated
September 22, 2005. |
|
99 |
.4** |
|
Consent of Prospective Director of William D. Parker dated
September 22, 2005. |
|
|
|
|
* |
To be filed by amendment |
|
|
|
|
(b) |
Financial Statement Schedules
|
Schedule II
Valuation and Qualifying Accounts
The undersigned Registrant hereby undertakes:
(1) That for purposes of determining any liability under
the Securities Act of 1933, the information omitted from the
form of prospectus filed as part of this registration statement
in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant pursuant to
Rule 424(b)(1) or (4) or 497(h) under the Securities
Act of 1933 shall be deemed to be part of this registration
statement as of the time it was declared effective.
(2) That for the purpose of determining any liability under
the Securities Act of 1933, each post-effective amendment that
contains a form of prospectus shall be deemed to be a new
registration statement relating to the securities offered
therein, and the offering of such securities at that time shall
be deemed to be the initial bona fide offering thereof.
II-3
(3) To provide to the underwriters at the closing specified
in the underwriting agreement certificates in such denominations
and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.
(4) Insofar as indemnification for liabilities arising
under the Securities Act of 1933 may be permitted to directors,
officers and controlling persons of the Registrant pursuant to
the foregoing provisions, or otherwise, the Registrant has been
advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as
expressed in the Securities Act of 1933 and is, therefore,
unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer
or controlling person of the Registrant in the successful
defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the
securities being registered, the Registrant will, unless in the
opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act of 1933
and will be governed by the final adjudication of such issue.
II-4
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this Amendment No. 6 to the
Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of
San Antonio and State of Texas on November 9, 2005.
|
|
|
CLEAR CHANNEL OUTDOOR HOLDINGS, INC.
|
|
(Registrant)
|
|
|
|
|
|
Randall T. Mays |
|
Executive Vice President and |
|
Chief Financial Officer |
Pursuant to the requirements of the Securities Act of 1933, this
Amendment No. 6 to the Registration Statement has been
signed by the following persons in the capacities and on the
dates indicated.
|
|
|
|
|
|
|
Signature |
|
Title |
|
Date |
|
|
|
|
|
|
*
Mark
P. Mays |
|
Chief Executive Officer and Director
(Principal Executive Officer) |
|
November 9, 2005 |
|
/s/ Randall T. Mays
Randall
T. Mays |
|
Executive Vice President, Chief Financial Officer and
Director
(Principal Financial
and Accounting Officer) |
|
November 9, 2005 |
|
*
L.
Lowry Mays |
|
Director |
|
November 9, 2005 |
|
|
*By: |
|
/s/ Randall T. Mays
Randall
T. Mays
As Attorney-in-Fact |
|
|
|
|
II-5
EXHIBIT LIST
Exhibits and Financial Statements Schedules.
|
|
|
|
|
Exhibit |
|
|
Number |
|
Exhibit Title |
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1 |
.1** |
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Form of Underwriting Agreement. |
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3 |
.1** |
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Form of Amended and Restated Certificate of Incorporation of
Clear Channel Outdoor Holdings, Inc. |
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3 |
.2** |
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Form of Amended and Restated Bylaws of Clear Channel Outdoor
Holdings, Inc. |
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4 |
.1** |
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Form of Specimen Class A Common Stock certificate of Clear
Channel Outdoor Holdings, Inc. |
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4 |
.2** |
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Form of Specimen Class B Common Stock certificate of Clear
Channel Outdoor Holdings, Inc. |
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5 |
.1*** |
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Opinion of Fulbright & Jaworski L.L.P. |
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10 |
.1** |
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Form of Master Agreement between Clear Channel Outdoor Holdings,
Inc. and Clear Channel Communications, Inc. |
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10 |
.2** |
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Form of Registration Rights Agreement between Clear Channel
Outdoor Holdings, Inc. and Clear Channel Communications, Inc. |
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10 |
.3** |
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Form of Corporate Services Agreement between Clear Channel
Outdoor Holdings, Inc. and Clear Channel Management Services,
L.P. |
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10 |
.4** |
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Form of Tax Matters Agreement by and between Clear Channel
Outdoor Holdings, Inc. and Clear Channel Communications, Inc. |
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10 |
.5** |
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Form of Employee Matters Agreement between Clear Channel Outdoor
Holdings, Inc. and Clear Channel Communications, Inc. |
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10 |
.6** |
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Form of Amended and Restated License Agreement between Clear
Channel Identity, L.P. and Outdoor Management Services, Inc. |
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10 |
.7** |
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Subordinated Promissory Note effective January 1, 2003, in
the original principal amount of $1.39 billion. |
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10 |
.8** |
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Subordinated Promissory Note effective January 1, 2003, in
the original principal amount of $73.0 million. |
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10 |
.9** |
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Senior Unsecured Term Promissory Note dated August 2, 2005
in the original principal amount of $2.5 billion. |
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10 |
.10** |
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First Amendment to Senior Unsecured Term Promissory Note dated
October 7, 2005. |
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10 |
.11** |
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Form of 2005 Stock Incentive Plan of Clear Channel Outdoor
Holdings, Inc. |
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10 |
.12** |
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Form of 2006 Annual Incentive Plan of Clear Channel Outdoor
Holdings, Inc. |
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10 |
.13** |
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Amended and Restated Employment Agreement by and between Clear
Channel Communications, Inc. and Mark P. Mays dated
March 10, 2005 (incorporated herein by reference to
Exhibit 10.15 to the Clear Channel Communications, Inc.
Form 10-K (Commission File No. 1-9645) filed
March 11, 2005). |
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10 |
.14** |
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Amended and Restated Employment Agreement by and between Clear
Channel Communications, Inc. and Randall T. Mays dated
March 10, 2005 (incorporated herein by reference to
Exhibit 10.16 to the Clear Channel Communications, Inc.
Form 10-K (Commission File No. 1-9645) filed
March 11, 2005). |
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10 |
.15** |
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Employment Agreement by and between Clear Channel Outdoor
Holdings, Inc. and Paul J. Meyer dated August 5, 2005
(incorporated herein by reference to Exhibit 10.1 to the
Clear Channel Communications, Inc. Form 8-K (Commission
File No. 1-9645) filed August 10, 2005). |
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15 |
.1*** |
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Letter regarding unaudited interim financial information. |
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21 |
.1** |
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Subsidiaries of Clear Channel Outdoor Holdings, Inc. |
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23 |
.1*** |
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Form of Consent of Auditor. |
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23 |
.2** |
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Consent of Fulbright & Jaworski L.L.P. (included in
Exhibit 5.1). |
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24 |
.1** |
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Powers of Attorney. |
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99 |
.1** |
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Consent of Prospective Director of James M. Raines dated
October 21, 2005. |
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99 |
.2** |
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Consent of Prospective Director of Marsha M. Shields dated
September 21, 2005. |
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99 |
.3** |
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Consent of Prospective Director of Dale W. Tremblay dated
September 22, 2005. |
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99 |
.4** |
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Consent of Prospective Director of William D. Parker dated
September 22, 2005. |
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* |
To be filed by amendment |