10-K: Annual report pursuant to Section 13 and 15(d)
Published on March 1, 2007
Table of Contents
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
þ | Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the fiscal year ended December 31, 2006, or
o | Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the transition period from to .
Commission File Number 1-32663
CLEAR CHANNEL OUTDOOR HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
Delaware | 86-0812139 | |
(State of Incorporation) | (I.R.S. Employer Identification No.) |
200 East Basse Road
San Antonio, Texas 78209
Telephone (210) 832-3700
(Address, including zip code, and telephone number, including area code, of registrants principal executive offices)
San Antonio, Texas 78209
Telephone (210) 832-3700
(Address, including zip code, and telephone number, including area code, of registrants principal executive offices)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class | Name of Exchange on Which Registered | |
Class A Common Stock, $.01 par value per share | New York Stock Exchange |
Securities registered pursuant to Section 12(g) of the Act: None.
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of
the Securities Act. YES o NO þ
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or
Section 15(d) of the Act. YES o NO þ
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. YES þ NO o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is
not contained herein, and will not be contained, to the best of registrants knowledge, in
definitive proxy or information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. o
Indicate by checkmark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act). YES o NO þ
As of June 30, 2006, the aggregate market value of the Common Stock beneficially held by
non-affiliates of the registrant was approximately $720.2 million based on the closing sales price
as reported on the New York Stock Exchange. (For purposes hereof, directors, executive officers
and 10% or greater shareholders have been deemed affiliates).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer,
or a non-accelerated filer. See definition of accelerated filer and large accelerated filer in
Rule 12b-2 of the Exchange Act.
Large accelerated filer þ Accelerated filer o Non-accelerated filer o
On February 22, 2007, there were 39,733,071 outstanding shares of Class A Common Stock and
315,000,000 outstanding shares of Class B Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of our Definitive Proxy Statement for the 2007 Annual Meeting, expected to be filed within
120 days of our fiscal year end, are incorporated by reference into Part III
CLEAR CHANNEL OUTDOOR HOLDINGS, INC.
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Statement re: Computation of Per Share Earnings | ||||||||
Subsidiaries | ||||||||
Consent of Ernst & Young LLP | ||||||||
Certification of CEO Pursuant to Section 302 | ||||||||
Certification of CFO Pursuant to Section 302 | ||||||||
Certification of CEO Pursuant to Section 906 | ||||||||
Certification of CFO Pursuant to Section 906 |
Table of Contents
PART I
ITEM 1. Business
The Company
Clear Channel Outdoor Holdings, Inc. provides clients with advertising opportunities through
billboards, street furniture displays, transit displays and other out-of-home advertising displays,
such as wallscapes, spectaculars, neons and mall displays, which we own or operate in key markets
worldwide. Our business consists of two reportable operating segments: Americas and
International. Information relating to the operating segments of our Americas and International
operations for 2006, 2005 and 2004 is included in Note N Segment Data in the Notes to our
Consolidated and Combined Financial Statements in Item 8 included elsewhere in this Annual Report.
As of December 31, 2006, we owned or operated more than 910,000 advertising displays
worldwide. For the year ended December 31, 2006, we generated revenues of approximately $2.9
billion, with $1.3 billion and $1.6 billion from our Americas and International segments,
respectively. Our Americas reporting segment primarily consists of our operations in the United
States, Canada and Latin America, with approximately 94% of our 2006 revenues in this segment
derived from the United States. Our International reporting segment consists of our operations in
Europe, Asia, Africa and Australia with approximately 50% of our 2006 revenues in this segment
derived from France and the United Kingdom. Additionally, we own equity interests in various
out-of-home advertising companies worldwide, which we account for under the equity method of
accounting.
Our History
In 1997, Clear Channel Communications, Inc., or Clear Channel Communications, our parent
company, entered the outdoor advertising industry with its acquisition of Eller Media Company. In
1998, Clear Channel Communications acquired Universal Outdoor, giving Clear Channel Communications
an outdoor presence in 33 major United States markets with over 88,000 displays. Also in 1998,
Clear Channel Communications acquired More Group plc, a European-based company operating in 25
countries. In June 2002, Clear Channel Communications acquired The Ackerley Group, further
increasing the market share.
Effective November 9, 2005 Clear Channel Communications and its subsidiaries contributed and
transferred to us all of the assets and liabilities of the outdoor advertising businesses not
currently held by us. We became a publicly traded company on November 11, 2005 through an initial
public offering, or IPO, in which we sold 10% of our common stock, or 35.0 million shares of our
Class A common stock. Prior to our initial public offering we were an indirect wholly-owned
subsidiary of Clear Channel Communications. Clear Channel Communications currently owns all of our
outstanding shares of Class B common stock representing approximately 89% of the outstanding shares
of our common stock and approximately 99% of the total voting power of our common stock.
On November 16, 2006, Clear Channel Communications agreed to be acquired by a group of equity
funds sponsored by Bain Capital Partners, LLC and Thomas H. Lee Partners, L.P. The closing of the
transaction is subject to Clear Channel Communications shareholder approval, antitrust clearances,
FCC approval and other customary closing conditions.
Clear Channel Communications has advised us that its current intent is to continue to hold all
of our Class B common stock 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.
We entered into agreements with Clear Channel Communications that govern the relationship
between Clear Channel Communications and us and 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 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 were made in the context of a
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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.
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 services by us,
the repurchase or redemption of common stock 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 shareholders, 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.
Our Products Americas (46%, 46% and 45% of our revenue in 2006, 2005 and 2004, respectively)
Our Americas display inventory consists primarily of billboards, street furniture displays and
transit displays, with billboards contributing approximately 70% of our 2006 Americas revenues.
The margins on our billboard contracts also tend to be higher than contracts for other displays.
The following table shows the approximate percentage of revenues derived from each category for our
Americas advertising inventory:
Year Ended December 31, | ||||||||||||
2006 | 2005 | 2004 | ||||||||||
Billboards |
||||||||||||
Bulletins (1) |
52 | % | 54 | % | 56 | % | ||||||
Posters |
18 | % | 19 | % | 19 | % | ||||||
Street furniture displays |
4 | % | 4 | % | 4 | % | ||||||
Transit displays |
14 | % | 11 | % | 11 | % | ||||||
Other displays (2) |
12 | % | 12 | % | 10 | % | ||||||
Total |
100 | % | 100 | % | 100 | % | ||||||
(1) | Includes wallscapes. | |
(2) | Includes spectaculars and mall displays. |
Our displays in the United States are located in all of the top 30 United States designated
market area regions, or DMA® regions (DMA® is a registered trademark of
Nielsen Media Research, Inc.), and in 49 of the top 50 DMA® regions, giving our clients
the ability to reach a significant portion of the United States 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 Americas 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 billboard, street furniture and
transit display contracts. 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 site leases in the Americas generally range from 1 to 50 years.
Billboards
Our Americas billboard inventory primarily includes bulletins and posters.
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Bulletins
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 our 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.
Posters
Posters are available in two sizes, 30-sheet and 8-sheet displays. The 30-sheet posters are
approximately 11 feet high by 23 feet wide, and the 8-sheet posters are approximately 5 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 developed to provide our clients with an alternative for their targeting
marketing 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 Adshel brand, are advertising
surfaces on bus shelters, information kiosks, public toilets, freestanding units and other public
structures, and are primarily 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 revenue derived from the street furniture displays.
Typically, these revenue sharing agreements include payments by us of minimum guaranteed amounts.
Client contracts for street furniture displays typically have terms ranging from four weeks to one
year and, similar to billboards, may be for network packages.
Transit Displays
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 or 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.
Other Inventory
The balance of our Americas display inventory consists of spectaculars, mall displays and
wallscapes. Spectaculars are customized display structures often incorporating 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
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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. 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. 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.
Our Products International (54%, 54% and 55% of our revenue in 2006, 2005 and 2004, respectively)
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 78% of our 2006 International revenues.
The following table shows the approximate percentage of revenues derived from each category of our
International advertising inventory:
Year Ended December 31, | ||||||||||||
2006 | 2005 | 2004 | ||||||||||
Billboards (1) |
41 | % | 44 | % | 46 | % | ||||||
Street furniture displays |
37 | % | 34 | % | 31 | % | ||||||
Transit displays (2) |
9 | % | 9 | % | 10 | % | ||||||
Other displays (3) |
13 | % | 13 | % | 13 | % | ||||||
Total |
100 | % | 100 | % | 100 | % | ||||||
(1) | Includes revenue from spectaculars and neon displays. | |
(2) | Includes small displays. | |
(3) | Includes advertising revenue from mall displays, other small displays, and non-advertising revenue from sales of street furniture equipment, cleaning and maintenance services and production revenue. |
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 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 Americas
operations. Internationally, the terms of our site lease contracts and revenue-sharing or minimum
guaranteed payment arrangements typically range from 3 to 15 years, but may vary between markets.
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 operations in the Americas.
Billboards
The size of our International billboards is not standardized. The billboards vary in both
format and size across our networks, but the majority of our International billboards are similar
in size to our Americas posters (30-sheet and 8-sheet displays). Our International billboards are
typically 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. DEFI, our
International neon subsidiary, is a leading global provider of neon signs with approximately 400
displays in more than 15 countries worldwide. Client contracts for International neon signs
typically have terms of approximately five years.
Street Furniture Displays
Our International street furniture displays are substantially similar to their Americas
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
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advertising on them typically range from 10 to 15 years. The major difference between our
International and Americas 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. Our International street furniture displays are
typically sold to clients as network packages with contract terms ranging from one to two weeks.
Long term client contracts are also available and typically have terms of up to one year.
Transit Displays
Our International transit display contracts are substantially similar to their Americas
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 one week to one year.
Other Inventory and Other Sources of Revenue
The balance of our International display inventory consists primarily of advertising revenue
from mall displays and other small displays. In addition, we have non-advertising revenue from
sales of street furniture equipment, cleaning and maintenance services and production revenue.
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. Several of our International markets sell equipment or
provide cleaning and maintenance services as part of a billboard or street furniture contract with
a municipality. Production revenue relates to the production of advertising posters usually to
small local customers.
Production
Americas
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 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.
International
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 2006, the top five client categories in our Americas segment, based on Americas revenues
derived from these categories, were retail, business services, automotive, banking and financial
services, and media. In 2006, the top five client categories in our International segment, based
on International revenues derived from these categories, were retail, food and food products,
telecommunications, entertainment and automotive.
Competition
The outdoor advertising industry is fragmented, consisting of several larger companies
involved in outdoor advertising such as CBS, JC Decaux S.A. and Lamar Advertising Company as well
as numerous smaller and local companies operating a limited number of display faces in a single or
a few local markets. We also compete with
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other media in our respective markets including broadcast and cable television, radio, print
media, the Internet and direct mail.
Construction and Operation
Americas
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 1 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.
International
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 markets, none of whom represent 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
architectural 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 Markets
The following tables set forth certain information regarding our displays owned or operated in
markets worldwide. As of December 31, 2006, we owned or operated approximately 195,000 Americas
displays and approximately 717,000 International displays. Our Americas markets are listed in
order of their DMA® region ranking and our International markets are listed in
descending order according to revenues contribution for the year ended December 31, 2006.
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Our Americas Displays
DMA® | Street | |||||||||||||||||||
Region | Billboards | Furniture | Transit | Other | Total | |||||||||||||||
Rank | Markets | Bulletins | Posters | Displays | Displays | Displays(1) | Displays | |||||||||||||
United States | ||||||||||||||||||||
1
|
New York, NY | | | | | | 16,715 | |||||||||||||
2
|
Los Angeles, CA | | | | | | 11,715 | |||||||||||||
3
|
Chicago, IL | | | | (2) | | 14,913 | |||||||||||||
4
|
Philadelphia, PA | | | | | | 6,944 | |||||||||||||
5
|
Boston, MA (Manchester, NH) | | | | | 7,300 | ||||||||||||||
6
|
San Francisco-Oakland-San Jose, CA | | | | | | 6,612 | |||||||||||||
7
|
Dallas-Ft. Worth, TX | | | | | | 7,038 | |||||||||||||
8
|
Washington, DC (Hagerstown, MD) | | | | | | 5,238 | |||||||||||||
9
|
Atlanta, GA | | | | | 3,260 | ||||||||||||||
10
|
Houston, TX | | | | (2) | | 4,637 | |||||||||||||
11
|
Detroit, MI | | | 593 | ||||||||||||||||
12
|
Tampa-St. Petersburg (Sarasota), FL | | | | | | 2,178 | |||||||||||||
13
|
Seattle-Tacoma, WA | | | | | 4,193 | ||||||||||||||
14
|
Phoenix, AZ | | | | (2) | 3,074 | ||||||||||||||
15
|
Minneapolis-St. Paul, MN | | | | | 2,678 | ||||||||||||||
16
|
Cleveland-Akron (Canton), OH | | | | | 2,303 | ||||||||||||||
17
|
Miami-Ft. Lauderdale, FL | | | | | | (2) | 4,702 | ||||||||||||
18
|
Denver, CO | | | 794 | ||||||||||||||||
19
|
Sacramento-Stockton-Modesto, CA | | | | | | 1,360 | |||||||||||||
20
|
Orlando-Daytona Beach-Melbourne, FL | | | | | 4,964 | ||||||||||||||
21
|
St. Louis, MO | | | 276 | ||||||||||||||||
22
|
Pittsburgh, PA | | | (2) | | 651 | ||||||||||||||
23
|
Portland, OR | | | | | 1,557 | ||||||||||||||
24
|
Baltimore, MD | | | | | (2) | 615 | |||||||||||||
25
|
Indianapolis, IN | | | | | 1,973 | ||||||||||||||
26
|
San Diego, CA | | | | | (2) | 1,317 | |||||||||||||
27
|
Charlotte, NC | | | 390 | ||||||||||||||||
28
|
Hartford-New Haven, CT | | | 628 | ||||||||||||||||
29
|
Raleigh-Durham (Fayetteville), NC | | | 55 | ||||||||||||||||
30
|
Nashville, TN | | | 361 | ||||||||||||||||
31
|
Kansas City, KS/MO | | | 701 | ||||||||||||||||
32
|
Columbus, OH | | | | | 1,765 | ||||||||||||||
33
|
Milwaukee, WI | | | | | | 3,902 | |||||||||||||
34 |
Cincinnati, OH |
|
| 429 |
||||||||||||||||
35
|
Greenville-Spartanburg, SC- Asheville, NC-Anderson, SC | | 82 | |||||||||||||||||
36
|
Salt Lake City, UT | | | 63 | ||||||||||||||||
37
|
San Antonio, TX | | | | (2) | | (2) | 2,976 | ||||||||||||
38
|
West Palm Beach-Ft. Pierce, FL | | | | 503 | |||||||||||||||
39
|
Grand Rapids-Kalamazoo-Battle Creek, MI | | 55 |
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DMA® | Street | |||||||||||||||||||
Region | Billboards | Furniture | Transit | Other | Total | |||||||||||||||
Rank | Markets | Bulletins | Posters | Displays | Displays | Displays(1) | Displays | |||||||||||||
41
|
Harrisburg-Lancaster-Lebanon-York, PA | | 34 | |||||||||||||||||
42
|
Norfolk-Portsmouth-Newport News, VA | | | 413 | ||||||||||||||||
43
|
New Orleans, LA | | 1,449 | |||||||||||||||||
44
|
Memphis, TN | | | | | | 2,186 | |||||||||||||
45
|
Oklahoma City, OK | | 12 | |||||||||||||||||
46
|
Albuquerque-Santa Fe, NM |
| | | 1,500 | |||||||||||||||
47
|
Greensboro-High Point-Winston Salem, NC | | 360 | |||||||||||||||||
48
|
Las Vegas, NV | | | | | (2) | 12,783 | |||||||||||||
49
|
Buffalo, NY | | 465 | |||||||||||||||||
50
|
Louisville, KY | | | 190 | ||||||||||||||||
51-100
|
Various U.S. Cities | | | | (2) | | (2) | 10,800 | ||||||||||||
101-150
|
Various U.S. Cities | | | | (2) | | (2) | 5,545 | ||||||||||||
151+
|
Various U.S. Cities | | | 2,248 | ||||||||||||||||
Non-U.S. Markets | ||||||||||||||||||||
n/a
|
Aruba | | 1,092 | |||||||||||||||||
n/a
|
Australia | | 1,190 | |||||||||||||||||
n/a
|
Barbados | | 40 | |||||||||||||||||
n/a
|
Brazil | | | | 8,182 | |||||||||||||||
n/a
|
Canada | | | | 4,074 | |||||||||||||||
n/a
|
Chile | | | 1,340 | ||||||||||||||||
n/a
|
Costa Rica | | 228 | |||||||||||||||||
n/a
|
Dominican Republic | | 199 | |||||||||||||||||
n/a
|
Grenada | | 119 | |||||||||||||||||
n/a
|
Guam | | 947 | |||||||||||||||||
n/a
|
Jamaica | | 133 | |||||||||||||||||
n/a
|
Mexico | | | 5,034 | ||||||||||||||||
n/a
|
Netherlands Antilles | | 630 | |||||||||||||||||
n/a
|
New Zealand | | 1,761 | |||||||||||||||||
n/a
|
Peru | | | | | | 2,463 | |||||||||||||
n/a
|
Saint Kitts and Nevis | | 151 | |||||||||||||||||
n/a
|
Saint Lucia | | 223 | |||||||||||||||||
n/a
|
Virgin Islands | | 227 | |||||||||||||||||
Total Americas Displays | 195,528 | |||||||||||||||||||
(1) | Includes wallscapes, spectaculars and mall displays. Our inventory includes other small displays not counted as separate displays in this Annual Report since their contribution to our revenues is not material. | |
(2) | We have access to additional displays through arrangements with local advertising and other companies. |
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Our International Displays
Street | ||||||||||||
Furniture | Transit | Other | Total | |||||||||
International Markets | Billboards(1) | Displays | Displays(2) | Displays(3) | Displays | |||||||
France |
| | | | 167,314 | |||||||
United Kingdom |
| | | | 84,200 | |||||||
Italy |
| | 55,025 | |||||||||
China |
| | | | 59,465 | |||||||
Spain |
| | | | 33,142 | |||||||
Sweden |
| | | | 110,918 | |||||||
Australia/New Zealand |
| | 16,599 | |||||||||
Belgium |
| | | | 23,228 | |||||||
Switzerland |
| | | 17,424 | ||||||||
Norway |
| | | 19,222 | ||||||||
Ireland |
| | 7,483 | |||||||||
Denmark |
| | | | 32,579 | |||||||
Turkey |
| | | | 7,184 | |||||||
Finland |
| | | 44,684 | ||||||||
Holland |
| | 3,198 | |||||||||
Poland |
| | | 12,599 | ||||||||
Baltic States/Russia |
| | 17,045 | |||||||||
Greece |
| | 1,193 | |||||||||
Singapore |
| 3,778 | ||||||||||
India |
| | 747 | |||||||||
Germany |
| 64 | ||||||||||
Hungary |
| 36 | ||||||||||
Austria |
| 12 | ||||||||||
United Arab Emirates |
| 1 | ||||||||||
Czech Republic |
| 6 | ||||||||||
Ukraine |
| 2 | ||||||||||
Total International Displays | 717,148 | |||||||||||
(1) | Includes spectaculars and neon displays. | |
(2) | Includes small displays. | |
(3) | Includes mall displays and other small displays counted as separate displays in this Annual Report since they form a substantial part of our network and International revenues. |
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Equity Investments
In addition to the displays listed above, as of December 31, 2006, we had equity investments
in various out-of-home advertising companies that operate in the following markets:
Street | ||||||||||||
Equity | Furniture | Transit | Other | |||||||||
Market | Company | Investment | Billboards(1) | Displays | Displays | Displays(2) | ||||||
Outdoor Advertising Companies | ||||||||||||
South Africa (3) |
Clear Channel Independent | 50.0% | | | | |||||||
Italy |
Alessi | 34.3% | | | | |||||||
Italy |
AD Moving SpA | 17.5% | | | ||||||||
Hong Kong |
Buspak | 50.0% | | | ||||||||
Thailand |
Master & More | 32.5% | | | ||||||||
Belgium |
MTB | 49.0% | | |||||||||
Belgium |
Streep | 25.0% | | |||||||||
Denmark |
City Reklame | 45.0% | | |||||||||
Other Media Companies | ||||||||||||
Norway |
CAPA | 50.0% | ||||||||||
Holland |
HOA Events | 49.0% |
(1) | Includes spectaculars and neon displays. | |
(2) | Includes 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. |
Company Strategy and Business Strengths
Our fundamental goal is to increase shareholder 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 globally, we can quickly
and effectively replicate our successes throughout the markets in which we operate. We believe 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 and continue to make
significant investments in research tools, enabling 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 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 United States 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
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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.
Promote customer service
We believe customer service is critical, and we have made significant commitments to provide
innovative services to our clients. For example, we provide our United States 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 new markets where the returns and growth potential of such expansion are
consistent with our fundamental goal of increasing shareholder value. In particular, in recent
years we have steadily added to our presence in Europe, Asia, Africa and Latin America. These
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 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 February 22, 2007, we had approximately 2,800 employees in our Americas segment and
approximately 4,900 employees in our International segment, of which approximately 100 were
employed in corporate activities.
Available Information
You can find more information about us at our Internet website located at
www.clearchanneloutdoor.com. Our filings are available free of charge via a link on our Internet
website after we electronically file such material with the SEC.
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ITEM 1A. Risk Factors
Risks Related to Our Business
Government regulation of outdoor advertising may restrict our outdoor advertising operations.
United States federal, state and local regulations have a significant impact on the outdoor
advertising industry and our business. 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, location, lighting and
the use of new technologies for changing displays, such as digital, are regulated by federal, state
and local governments. Some states have enacted bans on billboard advertising altogether. 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.
From time to time, certain state and local governments and third parties have attempted to
force the removal of displays 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 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 materially impacted 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 both the United States and foreign
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 materially impacted 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 taxes and our inability to pass on
the cost of these taxes to our clients could negatively affect our operating income.
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 most European Union countries, among other nations, have banned
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, magazines, newspapers, prime
time television, direct mail, the Internet and telephone
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directories. It is possible 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 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. |
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 most retail advertising on television; | ||
| 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 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
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dollar. 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.
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 and renew contracts
with municipalities and other governmental entities. Many of these contracts require us to
participate in competitive bidding processes, typically have terms ranging from 3 to 20 years and
have revenue share or fixed payment components. Our inability to successfully negotiate, renew 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 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; | ||
| potential difficulties in integrating our operations and systems with those of acquired companies, causing delays in realizing the potential benefits of acquisitions; | ||
| diversion of our management teams attention away from other business concerns; and | ||
| loss of key employees of acquired companies or the inability to recruit additional senior management to supplement or replace senior management of acquired companies. |
Antitrust regulations may limit future acquisitions due to our current inventory of
advertising properties in certain markets.
Additional acquisitions by us may require antitrust review by federal antitrust agencies and
may require review by foreign antitrust agencies under the antitrust laws of foreign jurisdictions.
We can give no assurances 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.
The lack of availability of potential acquisitions at reasonable prices could harm our
growth strategy.
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 we will obtain the needed
financing or 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 shareholders.
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We have substantial debt obligations that could restrict our operations and impair our
financial condition.
At December 31, 2006, our total indebtedness for borrowed money was $2.7 billion,
approximately $2.5 billion of which is indebtedness owed to Clear Channel Communications. As of
December 31, 2006, approximately $86.3 million of such total indebtedness (excluding interest) is
due in 2007, $30.8 million is due in 2008, $64.0 million is due in 2009, $2.5 billion is due in
2010, $2.3 million is due in 2011 and $0.7 million thereafter. We may also incur additional
substantial indebtedness in the future.
Our substantial indebtedness could have adverse consequences, including:
| increasing our vulnerability to adverse economic, regulatory and industry conditions; | ||
| limiting our ability to compete and our flexibility in planning for, or reacting to, changes in our business and the industry; | ||
| limiting our ability to borrow additional funds; and | ||
| 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.
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.
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 beyond our control.
We cannot assure 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 debt to
Clear Channel Communications, 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 debt with Clear Channel Communications, on or before maturity.
We cannot assure we will be able to refinance any of our debt, including the debt with Clear
Channel Communications, on a timely basis or on satisfactory terms, if at all. In addition, the
terms of our existing debt, including the debt with Clear Channel Communications, and other future
debt may limit our ability to pursue any of these alternatives.
The $2.5 billion 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.
The $2.5 billion note and Master Agreement with Clear Channel Communications include
restrictive covenants that, among other things, restrict our ability to:
| issue any shares of capital stock or securities convertible into capital stock; | ||
| incur additional debt; |
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| pay dividends and make distributions; | ||
| make certain acquisitions and investments; | ||
| repurchase our stock; | ||
| create liens; | ||
| enter into transactions with affiliates; | ||
| enter into sale-leaseback transactions; | ||
| dispose of all or substantially all of our assets; and | ||
| 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 note with Clear Channel Communications 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.
Additional restrictions on outdoor advertising of tobacco, alcohol and other products may
further restrict the categories of clients that can advertise using our products.
Out-of-court settlements between the major United States tobacco companies and all 50 states,
the District of Columbia, the Commonwealth of Puerto Rico and four other United States territories
include a ban on the outdoor advertising of tobacco products. 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.
A general deterioration in economic conditions may cause our clients to reduce their
advertising budgets or to choose advertising plans other than outdoor advertising.
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 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.
Our outdoor advertising properties and revenues may be adversely affected by the occurrence
of extraordinary events.
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.
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Risks Related to Our Relationship with Clear Channel Communications
We have a short operating history as a publicly traded company and our historical financial
information prior to the IPO 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.
The historical combined financial information prior to the IPO included in this Annual Report
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:
| Our historical combined financial results reflect allocations of corporate expenses from Clear Channel Communications. | ||
| 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 the IPO, Clear Channel Communications is not 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 lower credit rating than Clear Channel Communications and may incur debt on terms and at interest rates that will not be as favorable as those generally enjoyed by Clear Channel Communications. | ||
| Significant changes may occur in our cost structure, management, financing and business operations as a result of our operating as a publicly traded 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 Clear Channel Communications provides us until such time or in a timely manner or on comparable terms. | ||
| Pursuant to a cash management arrangement, substantially all of our cash generated from our Americas operations is 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 are 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 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. |
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 shareholder vote.
As of December 31, 2006, Clear Channel Communications owned all of our outstanding shares of
Class B common stock, representing approximately 89% of the outstanding shares of our 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 1 vote on all matters on which shareholders are entitled to
vote. As a result, Clear Channel Communications controlled approximately 99% of the total voting
power of our 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
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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 shareholders, including the power to prevent an acquisition or any other
change in control of us. Because Clear Channel Communications interests as our controlling
shareholder may differ from other shareholders interests, actions taken by Clear Channel
Communications with respect to us may not be favorable to all shareholders.
We have entered 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
shareholder in us. These agreements, along with the $2.5 billion note, govern our relationship
with Clear Channel Communications and 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 shareholders may consider favorable. We are not 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.
Conflicts of interest may arise between Clear Channel Communications and us that could be
resolved in a manner unfavorable to us.
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. Three of our directors
continue to serve as directors of Clear Channel Communications. In addition, four of our executive
officers continue to serve as executive officers of Clear Channel Communications. 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 has 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:
| 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. | ||
| 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 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. | ||
| Intercompany agreements. We have entered into certain agreements with Clear Channel Communications pursuant to which it provides us certain management, administrative, accounting, tax, legal and other services, for which we reimburse Clear Channel Communications on a cost basis. In addition, we entered into a number of intercompany agreements covering matters such as tax sharing and our responsibility for certain liabilities previously undertaken by Clear Channel |
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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. |
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.
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:
| 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. |
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 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 shareholders 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.
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
shareholders of other companies.
Clear Channel Communications owns more than 50% of the total voting power of our common stock,
and we are 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 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. We intend to continue 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
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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 shareholders of
companies that are subject to all of the NYSE corporate governance requirements.
We 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.
Our corporate name is Clear Channel Outdoor Holdings, Inc., and we and our subsidiaries
currently use the Clear Channel brand name and logo in marketing our products and services.
Pursuant to a trademark license agreement, Clear Channel Communications grants us the right to use
the Clear Channel mark and logo in connection with our products and services 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 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.
Any future separation from Clear Channel Communications could adversely affect our business
and profitability due to Clear Channel Communications strong brand and reputation.
As a subsidiary of Clear Channel Communications, our businesses 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:
| a world-class brand associated with trust, integrity and longevity; | ||
| perception of high-quality products and services; | ||
| preferred status among our clients and employees; | ||
| strong capital base and financial strength; and | ||
| 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 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:
| if and when Clear Channel Communications reduces its ownership in our common stock to a level below 50% of the total voting power; and | ||
| 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.
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 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 subsidiaries. In addition, by virtue of its controlling ownership
and the Tax Matters Agreement, Clear Channel Communications effectively controls all of our tax
decisions. The Tax Matters Agreement provides that Clear Channel Communications has the 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 is 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 United States 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.
If Clear Channel Communications spins off our Class B common stock to its shareholders, we
have agreed in the Tax Matters Agreement to indemnify Clear Channel Communications for its
tax-related liabilities in certain circumstances.
If Clear Channel Communications spins off our Class B common stock to its shareholders in a
distribution 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 to each be responsible for 50% of the tax-related liabilities
arising from the failure of such a spin-off to so qualify.
Future sales or distributions of our shares by Clear Channel Communications could depress
the market price for shares of our Class A common stock.
Clear Channel Communications may sell all or part of the shares of our common stock it owns or
distribute those shares to its shareholders, including pursuant to demand registration rights
described in the Registration Rights Agreement. Sales or distributions by Clear Channel
Communications of substantial amounts of our common stock in the public market or to its
shareholders could adversely affect prevailing market prices for our Class A common stock. Clear
Channel Communications has advised us it currently intends to continue to hold all of our common
stock it owns. 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. Consequently, we cannot assure you Clear Channel Communications will
maintain its ownership of our common stock.
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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 entered into a Corporate Services Agreement. Pursuant to
the Corporate Services Agreement, Clear Channel Communications and its affiliates agree to provide
us with corporate services, 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 negotiated these arrangements with Clear Channel Communications in the context of a
parent-subsidiary relationship. Although Clear Channel Communications is contractually obligated
to provide us with services during the term of the Corporate Services Agreement, we cannot assure
you 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 also govern our
relationship with Clear Channel Communications and 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.
The consummation of the merger between Clear Channel Communications and private equity funds
sponsored by Bain Capital, LLC and Thomas H. Lee Partners L.P., or any deterioration in the
financial condition of Clear Channel Communications, could adversely affect our access to
the credit markets and increase our borrowing costs.
The consummation of the merger between Clear Channel Communications and private equity funds,
or, 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. If
the merger is consummated we will no longer be able to access Clear Channel Communications
revolving credit facility, in which event we may enter into a new
credit facility. We expect the interest
rate associated with a new facility would be greater than the rate we currently are charged. In
addition, the interest rate we pay on the $2.5 billion note is based on the weighted average cost
of debt for Clear Channel Communications, which we expect to increase if the proposed merger
transaction is consummated. If that cost increases, whether as a result of the consummation of the
merger or a deterioration in the financial condition of Clear Channel Communications, our borrowing
costs also will increase. 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 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.
Risks Related to Our Class A Common Stock
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 shareholders may consider favorable, which could
decrease the value of your shares of Class A common stock.
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
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of our board of directors. These provisions include restrictions on the ability of our
shareholders to remove directors, supermajority voting requirements for shareholders to amend our
organizational documents, restrictions on a classified board of directors and limitations on action
by our shareholders by written consent. Some of these provisions, such as the limitation on
shareholder 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 shareholder 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 common stock. Although we believe these provisions protect our shareholders
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 shareholders.
If Clear Channel Communications spins off our high vote Class B common stock to its
shareholders 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 shareholders 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. In addition, pursuant to the covenants on
the $2.5 billion note with Clear Channel Communications, our ability to pay dividends is
restricted. Accordingly, if you purchase shares in us, the price of our Class A common stock must
appreciate in order to realize a gain on your investment. This appreciation may not occur.
Caution Concerning Forward Looking Statements
The Private Securities Litigation Reform Act of 1995 provides a safe harbor for
forward-looking statements made by us or on our behalf. Except for the historical information,
this Annual Report contains various forward-looking statements which represent our expectations or
beliefs concerning future events, including the future levels of cash flow from operations.
Management believes all statements expressing expectations and projections with respect to future
matters, including our ability to negotiate contracts having more favorable terms and the
availability of capital resources, are forward-looking statements within the meaning of the Private
Securities Litigation Reform Act. We caution that these forward-looking statements involve a
number of risks and uncertainties and are subject to many variables which could impact our
financial performance. These statements are made on the basis of managements views and
assumptions, as of the time the statements are made, regarding future events and business
performance. There can be no assurance, however, that managements expectations will necessarily
come to pass.
A wide range of factors could materially affect future developments and performance,
including:
| the impact of general economic and political conditions in the United States and in other countries in which we currently do business, including those resulting from recessions, political events and acts or threats of terrorism or military conflicts; | ||
| the impact of the geopolitical environment; |
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| our ability to integrate the operations of recently acquired companies; | ||
| shifts in population and other demographics; | ||
| industry conditions, including competition; | ||
| fluctuations in operating costs; | ||
| technological changes and innovations; | ||
| changes in labor conditions; | ||
| fluctuations in exchange rates and currency values; | ||
| capital expenditure requirements; | ||
| the outcome of pending and future litigation settlements; | ||
| legislative or regulatory requirements; | ||
| interest rates; | ||
| the effect of leverage on our financial position and earnings; | ||
| taxes; | ||
| access to capital markets; and | ||
| certain other factors set forth in our filings with the Securities and Exchange Commission. |
This list of factors that may affect future performance and the accuracy of forward-looking
statements is illustrative, but by no means exhaustive. Accordingly, all forward-looking
statements should be evaluated with the understanding of their inherent uncertainty.
ITEM 1B. Unresolved Staff Comments
Not Applicable.
ITEM 2. Properties
Our worldwide corporate headquarters are in San Antonio, Texas. The headquarters of our
Americas 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.
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 month-to-month to year-to-year and can be for terms of ten years or
longer, and many provide for renewal options.
There is no significant concentration of displays under any one lease or subject to
negotiation with any one landlord. We believe an important part of our management activity is to
negotiate suitable lease renewals and extensions.
ITEM 3. 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
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litigation pending that would have, individually or in the aggregate, a material adverse
effect on our financial position, results of operations or cash flows.
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 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. The Company filed a motion to have the punitive
damages award reduced. The trial judge granted the Companys motion. A final judgment in the
amount of $4.1 million in compensatory damages and $12.3 million in punitive damages was signed on
January 23, 2006. The Company has appealed the underlying judgment and the Plaintiff filed a
cross-appeal. The Plaintiff seeks to reinstate the original award of punitive damages. We have
insurance coverage for up to approximately $50.0 million in damages for this matter.
ITEM 4. Submission of Matters to a Vote of Security Holders
There were no matters submitted to a vote of security holders in the fourth quarter of fiscal
year 2006.
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PART II
ITEM 5. Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities
Our Class A common stock trades on the New York Stock Exchange under the symbol CCO. There
were 113 shareholders of record as of February 22, 2007. This figure does not include an estimate
of the indeterminate number of beneficial holders whose shares may be held of record by brokerage
firms and clearing agencies. The following table sets forth, for the calendar quarters indicated,
the reported high and low sales price of our Class A common stock as reported on the NYSE,
beginning on November 11, 2005, the first day of trading for our common stock:
Common Stock | ||||||||
Market Price | ||||||||
High | Low | |||||||
2005 |
||||||||
Fourth Quarter |
$ | 20.40 | $ | 18.00 | ||||
2006 |
||||||||
First Quarter |
$ | 23.95 | $ | 18.49 | ||||
Second Quarter |
24.20 | 19.31 | ||||||
Third Quarter |
21.26 | 18.66 | ||||||
Fourth Quarter |
28.13 | 19.49 |
See Part III, Item 12 for information regarding securities authorized for issuance under our
equity compensation plans.
Dividend Policy
To date, we have not paid dividends on our common stock and we do not anticipate paying any
dividends on the shares of our common stock in the foreseeable future. Pursuant to the covenants
on the $2.5 billion note with Clear Channel Communications, our ability to pay dividends is
restricted. 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 bases, in any such cash dividend.
ITEM 6. Selected Financial Data
The historical financial and other data prior to the IPO 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 Americas
outdoor and International 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 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 presented below were derived from our audited
consolidated and combined financial statements.
You should read the information contained in this table in conjunction with Managements
Discussion and Analysis of Financial Condition and Results of Operations, and the historical
audited consolidated and combined financial statements and the accompanying notes thereto included
elsewhere in this Annual Report.
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Year Ended December 31, | ||||||||||||||||||||
(In thousands, except per share data) | 2006 | 2005 | 2004 | 2003 | 2002 | |||||||||||||||
Results of Operations Data: |
||||||||||||||||||||
Revenue |
$ | 2,897,721 | $ | 2,666,078 | $ | 2,447,040 | $ | 2,174,597 | $ | 1,859,641 | ||||||||||
Operating expenses (1): |
||||||||||||||||||||
Direct operating expenses |
1,453,100 | 1,342,307 | 1,262,317 | 1,133,386 | 957,830 | |||||||||||||||
Selling, general and administrative
expenses |
548,736 | 541,794 | 499,457 | 456,893 | 392,803 | |||||||||||||||
Depreciation and amortization |
407,730 | 400,639 | 388,217 | 379,640 | 336,895 | |||||||||||||||
Corporate expenses |
65,542 | 61,096 | 53,770 | 54,233 | 52,218 | |||||||||||||||
Gain on disposition of assets net |
22,846 | 3,488 | 10,791 | 16,669 | 8,223 | |||||||||||||||
Operating income |
445,459 | 323,730 | 254,070 | 167,114 | 128,118 | |||||||||||||||
Interest expense on debt with Clear
Channel Communications |
153,500 | 182,667 | 145,653 | 145,648 | 227,402 | |||||||||||||||
Interest expense |
9,083 | 15,687 | 14,177 | 14,201 | 11,623 | |||||||||||||||
Equity in earnings (loss) of
nonconsolidated affiliates |
7,460 | 9,844 | (76 | ) | (5,142 | ) | 3,620 | |||||||||||||
Other income (expense) net |
331 | (12,291 | ) | (16,530 | ) | (21,358 | ) | (837 | ) | |||||||||||
Income (loss) before income taxes,
minority interest and cumulative effect
of a change in accounting principle |
290,667 | 122,929 | 77,634 | (19,235 | ) | (108,124 | ) | |||||||||||||
Income tax (expense) benefit: |
||||||||||||||||||||
Current |
(82,553 | ) | (51,173 | ) | (23,422 | ) | 12,092 | 72,008 | ||||||||||||
Deferred |
(39,527 | ) | 5,689 | (39,132 | ) | (23,944 | ) | (21,370 | ) | |||||||||||
Income tax (expense) benefit |
(122,080 | ) | (45,484 | ) | (62,554 | ) | (11,852 | ) | 50,638 | |||||||||||
Minority interest income (expense) net |
(15,515 | ) | (15,872 | ) | (7,602 | ) | (3,906 | ) | 1,778 | |||||||||||
Income (loss) before cumulative effect of
a change in accounting principle |
153,072 | 61,573 | 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 (2) |
| | (162,858 | ) | | (3,527,198 | ) | |||||||||||||
Net income (loss) |
$ | 153,072 | $ | 61,573 | $ | (155,380 | ) | $ | (34,993 | ) | $ | (3,582,906 | ) | |||||||
Net income (loss) per common share: |
||||||||||||||||||||
Basic: |
||||||||||||||||||||
Income (loss) before cumulative
effect of a change in accounting
principle |
$ | .43 | $ | .19 | $ | .02 | $ | (.11 | ) | $ | (.18 | ) | ||||||||
Cumulative effect of a change in
accounting principle |
| | (.52 | ) | | (11.20 | ) | |||||||||||||
Net income (loss) |
$ | .43 | $ | .19 | $ | (.50 | ) | $ | (.11 | ) | $ | (11.38 | ) | |||||||
Weighted average common shares |
352,155 | 319,890 | 315,000 | 315,000 | 315,000 | |||||||||||||||
Diluted: |
||||||||||||||||||||
Income (loss) before cumulative
effect of a change in accounting
principle |
$ | .43 | $ | .19 | $ | .02 | $ | (.11 | ) | $ | (.18 | ) | ||||||||
Cumulative effect of a change in
accounting principle |
| | (.52 | ) | | (11.20 | ) | |||||||||||||
Net income (loss) |
$ | .43 | $ | .19 | $ | (.50 | ) | $ | (.11 | ) | $ | (11.38 | ) | |||||||
Weighted average common shares |
352,262 | 319,921 | 315,000 | 315,000 | 315,000 |
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Year Ended December 31, | ||||||||||||||||||||
(In thousands) | 2006 | 2005 | 2004 | 2003 | 2002 | |||||||||||||||
Balance Sheet Data: |
||||||||||||||||||||
Current assets |
$ | 1,189,915 | $ | 1,050,180 | $ | 1,107,240 | $ | 958,669 | $ | 753,289 | ||||||||||
Property, plant and equipment net |
2,191,839 | 2,153,428 | 2,195,985 | 2,264,106 | 2,213,817 | |||||||||||||||
Total assets |
5,421,891 | 4,918,345 | 5,240,933 | 5,232,820 | 4,926,205 | |||||||||||||||
Current liabilities |
841,509 | 793,812 | 749,055 | 736,202 | 642,330 | |||||||||||||||
Long-term debt, including current
maturities |
2,684,176 | 2,727,786 | 1,639,380 | 1,670,017 | 1,713,493 | |||||||||||||||
Shareholders/owners equity |
1,586,378 | 1,209,437 | 2,729,653 | 2,760,164 | 2,578,943 |
(1) | Effective January 1, 2006, the Company adopted FASB Statement No. 123(R), Share-Based Payment. In accordance with the provisions of Statement 123(R), the Company elected to adopt the standard using the modified prospective method. See Note K to the Companys 2006 financial statements. | |
(2) | 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. Cumulative effect of a 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. |
The Selected Financial Data should be read in conjunction with Managements Discussion and Analysis.
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ITEM 7. 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 accompanying
notes thereto 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 financial statements. MD&A is organized as follows:
| Overview. This section provides a general description of our business, as well as other matters 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 years ended December 31, 2006, 2005 and 2004. Our discussion is presented on both a consolidated and segment basis. Our reportable operating segments are Americas and International. Approximately 94% of our 2006 Americas revenues were derived from the United States, with the balance derived primarily from Canada and Latin America. Approximately 50% of our 2006 International revenues were derived from France and the United Kingdom. We manage our segments primarily focusing on operating income. Corporate expenses, gain on the disposition of asset net, interest expense, equity in earnings (loss) of nonconsolidated affiliates, other income (expense) net, income taxes, minority interest expense net, and cumulative effect of a change in accounting principle are managed on a total company basis and are, therefore, included only in our discussion of consolidated results. | ||
| Financial condition and liquidity. This section provides a discussion of our financial condition as of December 31, 2006, as well as an analysis of our cash flows for the years ended December 31, 2006, 2005 and 2004. 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 December 31, 2006. | ||
| Seasonality and Market risk management. This section discusses seasonality and how we manage exposure to potential losses arising from adverse changes in foreign currency exchange rates and interest rates. | ||
| Recent accounting pronouncements and 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 consolidated and combined financial statements included elsewhere in this Annual Report. |
OVERVIEW
Description of Business
Our revenues are derived from selling advertising space on approximately 910,000 displays
owned or operated as of December 31, 2006, 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
duration of the advertising campaign and the unit price per display.
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. Management typically monitors our business by reviewing 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
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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 Americas operations. The margins on our
billboard contracts tend to be higher than for our other displays.
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 billboard, 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 or minimum guaranteed amounts payable we may
have with the landlords. The terms of our Americas site leases generally range from 1 to 20 years.
The terms of our International site leases generally range from 1 to 15 years, but vary across our
networks.
Our street furniture and transit display contracts, the terms of which range from 3 to 20
years, generally require us to make upfront investments in property, plant and equipment. These
contracts may also include upfront lease payments or minimum annual guaranteed lease payments. We
can give no assurance that our cash flows from operations over the terms of these contracts will
exceed the upfront and minimum required payments.
Relationship with Clear Channel Communications
Effective November 9, 2005 Clear Channel Communications and its subsidiaries contributed and
transferred to us all of the assets and liabilities of the outdoor advertising businesses not
currently held by us. We became a publicly traded company on November 11, 2005 through an initial
public offering, or IPO, in which we sold 10% of our common stock, or 35.0 million shares of our
Class A common stock. Prior to our initial public offering we were an indirect wholly-owned
subsidiary of Clear Channel Communications. Clear Channel Communications currently owns all of our
outstanding shares of Class B common stock representing approximately 89% of the outstanding shares
of our common stock and approximately 99% of the total voting power of our common stock.
On November 16, 2006, Clear Channel Communications agreed to be acquired by a group of equity
funds sponsored by Bain Capital Partners, LLC and Thomas H. Lee Partners, L.P. The closing of the
transaction is subject to Clear Channel Communications shareholder approval, antitrust clearances,
FCC approval and other customary closing conditions.
Clear Channel Communications has advised us that its current intent is to continue to hold all
of our Class B common stock 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.
In accordance with the Master Agreement, our branch managers follow a corporate policy
allowing Clear Channel Communications to use, without charge, Americas displays they 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 2006, we estimated these discounted revenues would
have been less than 2% of our Americas revenues.
Factors Affecting Results of Operations and Financial Condition
Our operating results are affected by general economic conditions, as well as trends in the
out-of-home advertising industry. Government regulation and geopolitical events also impact the
outdoor advertising industry. In certain markets, the impact of regulation on the advertising
industry may have a negative impact on our revenues. For example, changes in French regulation
allow retail advertisers to place some of their advertising spending on television beginning
January 1, 2007 which previously was not allowed. We anticipate this shift from outdoor
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media to television will impact our advertising revenues derived from France. Total retail
advertising in France accounted for less than 3% of our global revenues in 2006.
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 our key growth
drivers. Outdoor advertising provides advertisers the ability to capture the growing mobile
audience base. Technological advances also provide opportunities in the outdoor advertising
industry. For example, digital display capabilities offer innovative advances in electronic
displays which are 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 Item 1A. Risk Factors for a more comprehensive list of these factors.
Basis of Presentation
Our combined financial statements for the periods prior to our IPO have been derived from the
financial statements and accounting records of Clear Channel Communications, principally from the
statements and records representing Clear Channel Communications Americas and International
Outdoor segments, using the historical results of operations and historical bases of assets and
liabilities of our business. The consolidated and 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.
Under the Corporate Services Agreement, Clear Channel Communications allocates 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, 2006, 2005 and 2004, we recorded approximately $24.3 million,
$16.0 million and $16.6 million, respectively, as a component of corporate expenses for these
services.
We believe the assumptions underlying the combined financial statements prior to the IPO 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.
Share-Based Payments
We adopted FAS 123(R), Share-Based Payment, on January 1, 2006, under the modified-prospective
approach which requires us to recognize employee compensation costs related to our stock option
grants in the same line items as cash compensation in the 2006 financial statements for all options
granted after the date of adoption as well as for any options that were unvested at adoption.
Under the modified-prospective approach, no stock option expense attributable to these options is
reflected in the financial statements for 2005. The amounts recorded as share-based payments in
the financial statements during 2005 relate to the expense associated with restricted stock awards.
We recognized $4.3 million, $1.7 million and $0.1 million of share-based payments in direct
operating, SG&A and corporate expenses, respectively, during the year ended December 31, 2006. As
of December 31, 2006, there was $13.5 million of total unrecognized compensation cost related to
nonvested share-based compensation arrangements. This cost is expected to be recognized over a
weighted average period of approximately three years. However, if Clear Channel Communications
Agreement and Plan of Merger is approved, the expense becomes recognizable at the closing of the
transaction.
The fair value of each option awarded is estimated on the date of grant using a Black-Scholes
option-pricing model. Expected volatilities are based on implied volatilities from traded options
on the Companys stock, historical volatility on the Companys stock, and other factors. The
expected life of options granted represents the period of time that options granted are expected to
be outstanding. The Company uses historical data to estimate option exercise and employee
terminations within the valuation model. The risk free interest rate is based on the U.S. Treasury
yield curve in effect at the time of grant for periods equal to the expected life of the option.
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RESULTS OF OPERATIONS
Consolidated and Combined Results of Operations
The following table summarizes our historical results of operations:
Year Ended December 31, | ||||||||||||
(In thousands) | 2006 | 2005 | 2004 | |||||||||
Revenue |
$ | 2,897,721 | $ | 2,666,078 | $ | 2,447,040 | ||||||
Operating expenses: |
||||||||||||
Direct operating expenses |
1,453,100 | 1,342,307 | 1,262,317 | |||||||||
Selling, general and administrative expenses |
548,736 | 541,794 | 499,457 | |||||||||
Depreciation and amortization |
407,730 | 400,639 | 388,217 | |||||||||
Corporate expenses |
65,542 | 61,096 | 53,770 | |||||||||
Gain on disposition of assets net |
22,846 | 3,488 | 10,791 | |||||||||
Operating income |
445,459 | 323,730 | 254,070 | |||||||||
Interest expense (including interest on debt with
Clear Channel Communications) |
162,583 | 198,354 | 159,830 | |||||||||
Equity in earnings (loss) of nonconsolidated affiliates |
7,460 | 9,844 | (76 | ) | ||||||||
Other income (expense) net |
331 | (12,291 | ) | (16,530 | ) | |||||||
Income before income taxes, minority interest and
cumulative effect of a change in accounting principle |
290,667 | 122,929 | 77,634 | |||||||||
Income tax (expense) benefit: |
||||||||||||
Current |
(82,553 | ) | (51,173 | ) | (23,422 | ) | ||||||
Deferred |
(39,527 | ) | 5,689 | (39,132 | ) | |||||||
Income tax (expense) benefit |
(122,080 | ) | (45,484 | ) | (62,554 | ) | ||||||
Minority interest expense net |
(15,515 | ) | (15,872 | ) | (7,602 | ) | ||||||
Income before cumulative effect of a change in
accounting principle |
153,072 | 61,573 | 7,478 | |||||||||
Cumulative effect of a change in accounting principle,
net of tax of $113,173 in 2004 |
| | (162,858 | ) | ||||||||
Net income (loss) |
$ | 153,072 | $ | 61,573 | $ | (155,380 | ) | |||||
Revenue
Our revenue increased approximately $231.6 million, or 9%, during 2006 as compared to 2005.
Our Americas segments revenue increased $125.0 million from an increase in revenue across our
displays as well as the acquisition of Interspace Airport Advertising, which we acquired in July
2006. Interspace contributed approximately $30.2 million to revenue in 2006. Our International
segment contributed $106.7 million, which includes approximately $44.9 million during the first six
months of 2006 related to our consolidation of Clear Media Limited, a Chinese outdoor advertising
company. In July 2005, we increased our investment in Clear Media to a majority controlling
interest. We previously accounted for this investment as an equity method investment. Increased
street furniture revenues also contributed to our International revenue growth. Our 2006 revenue
increased $17.4 million due to movements in foreign exchange.
Our revenue increased approximately $219.0 million, or 9%, during 2005 as compared to 2004.
Included in these results is approximately $8.6 million from increases in foreign exchange as
compared to 2004. Our Americas operations contributed approximately $124.3 million primarily from
increased rates on our bulletin and poster inventory during 2005. Our International operations
contributed approximately $47.4 million related to our consolidation of Clear Media. In addition,
our International operations also experienced improved yield on our street furniture inventory
during 2005 compared to 2004. Partially offsetting this International revenue growth was a decline
in revenue in our French business in 2005 as compared to 2004.
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Direct Operating Expenses
Direct operating expenses increased $110.8 million for 2006 compared to 2005. Americas direct
operating expenses increased $43.8 million driven by increased site lease expenses associated with
the increase in revenue and the acquisition of Interspace. Interspace contributed $13.0 million to
direct operating expenses in 2006. Our International segment contributed $66.9 million, of which
$18.0 million during the first six months of 2006 related to our consolidation of Clear Media and
the remainder was principally due to an increase in site lease expenses. Included in our direct
operating expense growth is $10.6 million from increases in foreign exchange. Share-based payments
included in direct operating expenses associated with the adoption of FAS 123(R) were $4.3 million
for 2006.
Direct operating expenses increased approximately $80.0 million, or 6%, during 2005 as
compared 2004. Included in these expenses is approximately $4.1 million from increases in foreign
exchange as compared to 2004. Our Americas operations contributed approximately $21.8 million to
the increased expense primarily due to increased site lease expenses from higher revenue sharing
rentals on our transit, mall and wallscape inventory as well as increased direct production
expenses, all associated with the increase in revenues. Our International operations experienced
higher expenses attributable to increases in revenue sharing and minimum annual guarantees
partially from new contracts entered in 2005 and approximately $18.3 million from our consolidation
of Clear Media.
Selling, General and Administrative Expenses (SG&A)
SG&A increased $6.9 million during 2006 compared to 2005. SG&A increased $20.6 million in our
Americas segment principally related to an increase in bonus and commission expenses associated
with the increase in revenues. Our International SG&A expenses declined $13.6 million primarily
attributable to a $9.8 million reduction recorded in 2006 as a result of the favorable settlement
of a legal proceeding, as well as $26.6 million related to restructuring our businesses in France
recorded in the third quarter of 2005. Partially offsetting this decline in our International SG&A
was $9.5 million from our consolidation of Clear Media. Included in our SG&A expense growth in
2006 is $3.9 million from increases in foreign exchange. Share-based payments included in SG&A
associated with the adoption of FAS 123(R) were $1.7 million for 2006.
SG&A increased approximately $42.3 million, or 8%, during 2005 as compared to 2004. Included
in these expenses is approximately $1.7 million from increases in foreign exchange as compared to
2004. Our Americas operations increased approximately $13.7 million primarily from increased
commission expenses associated with the increase in revenues. In addition to foreign exchange
increases, our International operations SG&A increased $26.6 million from restructuring costs from
restructuring our business in France during the third quarter of 2005.
Depreciation and Amortization
Depreciation and amortization increased $7.1 million in 2006 as compared to 2005. The
increase is primarily attributable to the consolidation of Clear Media and the acquisition of
Interspace, partially offset by a decrease in depreciation as a result of fewer display removals in
2006 which resulted in less accelerated depreciation.
Depreciation and amortization increased approximately $12.4 million in 2005 as compared to
2004. The increase is primarily attributable to the consolidation of Clear Media and from
increases in foreign exchange rates, partially offset by a decrease in our Americas segment as a
result of fewer display removals in 2005 which resulted in less accelerated depreciation.
Corporate Expenses
Corporate expenses increased $4.4 million in 2006 as compared to 2005. The increase was a
result of higher performance related bonus expense and additional outside professional services
primarily from costs related to the first full year as a public Company. Corporate expenses
increased approximately $7.3 million in 2005 as compared to 2004. The increase is primarily a
result of higher performance related bonus expenses.
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
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employee benefits services, (iv) legal, public affairs and related services, (v) information
systems, network and related services, (vi) investment services, (vii) procurement and sourcing
support services, and (viii) other general corporate 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 years ended December 31, 2006, 2005, and
2004, we recorded approximately $24.3 million, $16.0 million, and $16.6 million, respectively, as a
component of corporate expenses for these services.
Gain on the Disposition of Assets Net
The gain on disposition of assets net of $22.8 million for the year ended December 31,
2006, primarily related to a $13.2 million gain in our Americas segment from the exchange of assets
in one of our markets for the assets of a third party located in a different market.
Interest Expense (Including Interest on Debt with Clear Channel Communications)
Interest expense decreased $35.8 million during 2006 as compared to 2005, primarily as a
result of a decrease in average debt outstanding. Prior to the IPO, we had two fixed principal and
interest rate notes in place. The first note, in the original principal amount of approximately
$1.4 billion, accrued interest at 10% per annum. The second note, in the original principal amount
of $73.0 million, accrued interest at 9% per annum. We used all of the net proceeds from the IPO,
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 notes. The remaining balance of
$393.7 million was recorded as a capital contribution pursuant to the Master Agreement between us
and Clear Channel Communications.
Interest expense increased $38.5 million during 2005 as compared to 2004 primarily from a $2.5
billion 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 interest rate as of December 31, 2005 was 5.9%.
If the proposed merger transaction between Clear Channel Communications and private equity
funds sponsored by Bain Capital Partners, LLC and Thomas H. Lee Partners L.P. is consummated, we
expect interest expense will increase.
Other Income (Expense) Net
Other expense net of $12.3 million and $16.5 million for the year ended December 31, 2005
and 2004, respectively, relates primarily to royalty fees. During 2005 and 2004 we recorded $14.8
million and $15.8 million, respectively, in royalty fees which represented payments to Clear
Channel Communications for our use of certain trademarks and licenses. The royalty fee was
discontinued as of January 1, 2006.
Income Taxes
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 federal income tax returns with our subsidiaries.
Our effective tax rate for the year ended December 31, 2006 was 42%. The increase in current
tax expense of $31.4 million for the year ended December 31, 2006 over 2005 was due primarily to an
increase in Income before income taxes, minority interest and cumulative effect of a change in
accounting principle of $167.7 million. This increase was partially offset by current tax
benefits of approximately $20.4 million being recorded in 2006 related to tax losses on the
disposition of certain operating assets and the filing of an amended tax return. Deferred tax
expense increased by $45.2 million for the year ended December 31, 2006 over 2005 primarily due to
the tax losses on the disposition of certain operating assets and the filing of the amended tax
return mentioned above. In addition, foreign deferred tax expense increased by $25.9 million for
the year ended December 31, 2006 primarily due to (i) the reversal of deferred tax assets related
to tax losses in certain foreign jurisdictions and the uncertainty of the ability to utilize those
tax losses in the future and (ii) increased deferred tax benefits in 2005 due to a change in the
carrying value of certain deferred tax liabilities as a result of certain local country law and tax
rate changes.
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Our effective tax rate for the year ended December 31, 2005 was 37%. During 2005, the company
recorded a current tax benefit of approximately $8.0 million due to the favorable resolution of
certain tax contingencies in 2005 which resulted in a lower effective tax rate for 2005 as compared
to 2004.
The increase in current tax expense of $27.8 million for the year ended December 31, 2005 over
2004 was due primarily to an increase in Income before income taxes and cumulative effect of a
change in accounting principle of $45.3 million. Deferred tax expense decreased by $44.8 million
for the year ended December 31, 2005 due to less tax depreciation recorded in 2005 as well as
certain tax losses on the disposition of assets recorded in 2004. The decrease in tax depreciation
is primarily the result of the expiration of certain favorable bonus depreciation tax rules in
2004.
Our effective tax rate for the year ended December 31, 2004 was 81%. The effective tax rate
is primarily 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.
In 2004, 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 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.
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 the aggregate carrying
value of our Americas permits exceeding 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 in 2004.
Americas Results of Operations
Year Ended December 31, | ||||||||||||
(In thousands) | 2006 | 2005 | 2004 | |||||||||
Revenue |
$ | 1,341,356 | $ | 1,216,382 | $ | 1,092,089 | ||||||
Direct operating expenses |
534,365 | 490,519 | 468,687 | |||||||||
Selling, general and administrative expenses |
207,326 | 186,749 | 173,010 | |||||||||
Depreciation and amortization |
178,970 | 180,559 | 186,620 | |||||||||
Operating income |
$ | 420,695 | $ | 358,555 | $ | 263,772 | ||||||
Our Americas revenue increased 10% during 2006 as compared to 2005 from revenue growth across
our inventory. We experienced rate increases on most of our inventory while occupancy remained
essentially unchanged during 2006 as compared to 2005. Our airport revenue increased $44.8 million
in 2006 as compared to 2005 primarily related to $30.2 million from our acquisition of Interspace
in July 2006. Revenue growth occurred across both our large and small markets such as Miami, San
Antonio, Sacramento, Albuquerque and Des Moines.
Direct operating expenses increased $43.8 million in 2006 as compared to 2005 primarily from
an increase in site lease expenses of approximately $30.2 million as well as $3.4 million related
to the adoption of FAS 123(R). Interspace contributed $13.0 million to direct operating expenses
in 2006. Our SG&A expenses increased $20.6
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million in 2006 over 2005 primarily from an increase in bonus and commission expenses of $7.6
million related to the increase in revenue, $6.2 million from Interspace and $1.3 million of
share-based payments related to the adoption of FAS 123(R).
During 2005, our revenue grew approximately $124.3 million, or 11%, over the 2004. The
increase was primarily due to an increase in bulletin and poster revenues attributable to increased
rates during 2005. Increased revenues from our airport, street furniture and transit advertising
displays also contributed to the revenue increase. Growth occurred across our markets including
New York, Miami, Houston, Seattle, Cleveland and Las Vegas. Strong advertising client categories
for the year included business and consumer services, entertainment and amusements, retail and
telecommunications.
Direct operating expenses increased approximately $21.8 million, or 5%, during the 2005 as
compared to 2004. The increase is primarily related to increased site lease expenses from higher
revenue sharing rentals on our transit, mall and wallscape inventory as well as increased direct
production expenses, all associated with the increase in revenues. SG&A increased $13.7 million,
or 8%, primarily from increased commission expenses associated with the increase in revenues.
Depreciation and amortization declined $6.1 million in 2005 as compared to 2004 primarily from
fewer display removals during 2005, which resulted in less accelerated depreciation. We suffered
hurricane damage on some of our billboards in Florida and the Gulf Coast which required us to
write-off the remaining book value of these structures as additional depreciation and amortization
expense in 2004.
International Results of Operations
Year Ended December 31, | ||||||||||||
(In thousands) | 2006 | 2005 | 2004 | |||||||||
Revenue |
$ | 1,556,365 | $ | 1,449,696 | $ | 1,354,951 | ||||||
Direct operating expenses |
918,735 | 851,788 | 793,630 | |||||||||
Selling, general and administrative expenses |
341,410 | 355,045 | 326,447 | |||||||||
Depreciation and amortization |
228,760 | 220,080 | 201,597 | |||||||||
Operating income |
$ | 67,460 | $ | 22,783 | $ | 33,277 | ||||||
Revenue in our International segment increased 7% in 2006 as compared to 2005. The increase
includes approximately $44.9 million during the first six months of 2006 related to our
consolidation of Clear Media, which we began consolidating in July 2005. Also contributing to the
increase was approximately $25.9 million from growth in street furniture revenues and $11.9 million
related to movements in foreign exchange, partially offset by a decline in billboard revenues for
2006 as compared to 2005.
Direct operating expenses increased $66.9 million during 2006 as compared to 2005. The
increase was primarily attributable to $18.0 million during the first six months of 2006 related to
our consolidation of Clear Media, as well as an increase in site lease expenses of approximately
$37.7 million and approximately $7.7 million related to movements in foreign exchange. Also
included in the increase was $0.9 million related to the adoption of FAS 123(R). Our SG&A expenses
declined $13.6 million primarily attributable a $9.8 million reduction recorded in 2006 as the
result of a favorable settlement of a legal proceeding as well as $26.6 million related to
restructuring our businesses in France recorded in the third quarter of 2005. Partially offsetting
this decline was $9.5 million from our consolidation of Clear Media and $2.9 from movements in
foreign exchange.
Depreciation and amortization increased $8.7 million in 2006 as compared to 2005. The
increase is primarily attributable to the consolidation of Clear Media.
During 2005, revenue increased approximately $94.7 million, or 7%, as compared to 2004.
Revenue growth was attributable to increases in our street furniture and transit revenues. We also
experienced improved yield on our street furniture inventory during 2005 compared to 2004. Also
included in the year ended December 31, 2005 is approximately $47.4 million from our consolidation
of Clear Media, which until July 2005, we accounted for as an equity method investment. Leading
markets contributing to the Companys International
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revenue growth were China, Italy, the United Kingdom and Australia. The Company faced
challenges in France throughout 2005, with revenues declining from 2004. Strong advertising
categories during 2005 were food and drink, retail, media and entertainment, business and consumer
services and financial services.
Direct operating expenses grew $58.2 million, or 7%, during the year ended December 31, 2005
as compared to 2004. Our direct operating expenses increased as a result of higher site lease
rental expense associated with increases in revenue sharing and minimum annual guarantees partially
from new contracts entered in 2005. Included in the increase is approximately $18.3 million from
our consolidation of Clear Media. Our SG&A grew approximately $28.6 million, or 9%, during 2005 as
compared to 2004 primarily due to a $26.6 million charge associated with our restructuring of our
business in France during the third quarter of 2005.
Depreciation and amortization expense increased approximately $18.5 million in 2005 as
compared to 2004, due primarily to our consolidation of Clear Media and increases in foreign
exchange.
Reconciliation of Segment Operating Income (Loss)
Year Ended December 31, | ||||||||||||
(In thousands) | 2006 | 2005 | 2004 | |||||||||
Americas |
$ | 420,695 | $ | 358,555 | $ | 263,772 | ||||||
International |
67,460 | 22,783 | 33,277 | |||||||||
Corporate |
(65,542 | ) | (61,096 | ) | (53,770 | ) | ||||||
Gain on disposition of assets net |
22,846 | 3,488 | 10,791 | |||||||||
Consolidated and combined operating income |
$ | 445,459 | $ | 323,730 | $ | 254,070 | ||||||
FINANCIAL CONDITION AND LIQUIDITY
Clear Channel Communications Agreement and Plan of Merger
Clear Channel Communications capitalization, liquidity and capital resources will change
substantially if their Agreement and Plan of Merger is approved. Upon the closing of the merger,
Clear Channel Communications will be highly leveraged. 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. If the merger is consummated we will no longer be able to access Clear
Channel Communications revolving credit facility, in which event we may enter into a new credit
facility. We expect the interest rate associated with a new facility
would be greater than the rate we
currently are charged. In addition, 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 which we expect to
increase if the proposed merger transaction is consummated. If that cost increases, whether as a
result of the consummation of the merger or a deterioration in the financial condition of Clear
Channel Communications, our borrowing costs also will increase. 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.
Cash Flows
The following table summarizes our historical cash flows:
Year Ended December 31, | ||||||||||||
(In thousands) | 2006 | 2005 | 2004 | |||||||||
Cash provided by (used in): |
||||||||||||
Operating activities |
$ | 538,541 | $ | 510,088 | $ | 492,495 | ||||||
Investing activities |
$ | (489,010 | ) | $ | (361,371 | ) | $ | (310,658 | ) | |||
Financing activities |
$ | (53,165 | ) | $ | (77,550 | ) | $ | (182,006 | ) |
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Operating Activities
2006
Net cash flow from operating activities of $538.5 million for 2006 principally reflects net
income of $153.1 million and depreciation and amortization of $407.7 million. Net cash flows from
operating activities also reflects an increase of $101.3 million in accounts receivable as a result
of the increase in revenue and an increase of $65.4 million in accounts payable, accrued expenses
and other liabilities.
2005
Net cash flow from operating activities of $510.1 million for the year ended December 31, 2005
principally reflects net income of $61.6 million and depreciation and amortization of $400.6
million. Net cash flows from operating activities also reflects decreases in other current assets,
accounts payable and deferred income. These decreases were partially offset by increases in
accounts receivable, prepaid expenses and accrued income taxes.
2004
Net cash flow from operating activities of $492.5 million for the year ended December 31, 2004
principally reflects a net loss of $155.4 million, adjusted for non-cash charges of $162.9 million
for the adoption of Topic D-108 and depreciation and amortization of $388.2 million. Net cash flows
from operating activities also reflects increases in accounts receivable, accounts payable, accrued
expenses and other liabilities and accrued income taxes.
Investing Activities
2006
Net cash used in investing activities of $489.0 million for 2006 principally reflects capital
expenditures of $233.9 million related to purchases of property, plant and equipment and $242.4
million related to acquisitions of operating assets.
2005
Net cash used in investing activities of $361.4 million for the year ended December 31, 2005
principally reflects capital expenditures of $208.2 million related to purchases of property, plant
and equipment and $99.6 million related to acquisitions of operating assets.
2004
Net cash used in investing activities of $310.7 million for the year ended December 31, 2004
principally reflects capital expenditures of $176.1 million related to purchases of property, plant
and equipment and $94.9 million related to acquisitions of operating assets.
Financing Activities
2006
Cash used in financing activities of $53.2 million for 2006 principally reflects net
reductions in debt of $59.7 million.
2005
Cash used in financing activities was $77.6 million for the year ended December 31, 2005.
Included in cash flow from financing activities are changes in the Due from Clear Channel
Communications account which relates to cash transfers between our Americas operations and Clear
Channel Communications. For the year ended December 31, 2005, we had a net transfer of cash to
Clear Channel Communications of approximately $70.0 million. Also included in cash used in
financing activities is the $600.6 million in proceeds received from the IPO which was used, along
with the balance outstanding in the Due from Clear Channel Communications account, to pay off a
portion of the $1.4 billion and $73.0 million intercompany notes with Clear Channel Communications.
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2004
Cash used in financing activities of $182.0 million for the year ended December 31, 2004,
principally reflects a net reduction in debt of $33.8 million and net payments of $148.2 million to
Clear Channel Communications.
Liquidity
Sources of Capital
As of December 31, 2006 and 2005, we had the following debt outstanding, cash and cash
equivalents and amounts due to and due from Clear Channel Communications:
Year Ended December 31, | ||||||||
(In millions) | 2006 | 2005 | ||||||
Bank credit facility |
$ | 23.5 | $ | 15.0 | ||||
Debt with Clear Channel Communications |
2,500.0 | 2,500.0 | ||||||
Other long-term debt |
160.7 | 212.8 | ||||||
Due to Clear Channel Communications |
4.2 | | ||||||
Total debt |
2,688.4 | 2,727.8 | ||||||
Less: Cash and cash equivalents |
105.4 | 108.6 | ||||||
Less: Due from Clear Channel Communications |
| 0.1 | ||||||
$ | 2,583.0 | $ | 2,619.1 | |||||
Bank Credit Facility
In addition to cash flows from operations, another source of 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 December 31, 2006, the outstanding balance
on the sub-limit was approximately $23.5 million, and approximately $126.5 million was available
for future borrowings, with the entire balance to be paid on July 12, 2009. At December 31, 2006,
the interest rate on borrowings under this credit facility was 5.7%. As of February 22, 2007, the
outstanding balance on the sub-limit was $39.3 million and $110.7 million was available for future
borrowings.
Debt with Clear Channel Communications
As part of the day-to-day cash management services provided by Clear Channel Communications,
we maintain an account that represents net amounts, up to a maximum of $1.0 billion, due to or from
Clear Channel Communications, which is recorded as Due from Clear Channel Communications or Due
to Clear Channel Communications on the consolidated balance sheets. The account represents our
revolving promissory note with Clear Channel Communications. Subsequent to the IPO, the account
accrues interest pursuant to the Master Agreement 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, we maintain collection bank accounts
swept daily by Clear Channel Communications. In return, Clear Channel Communications funds our
controlled disbursement accounts as checks or electronic payments are presented for payment. At
December 31, 2006, the balance of $4.2 million was a liability recorded in Due to Clear Channel
Communications on the consolidated balance sheet. At December 31, 2005, the balance of $0.1
million was an asset recorded in Due from Clear Channel Communications on the consolidated
balance sheet. The increase in the net amount due to Clear Channel Communications during the year
ended December 31, 2006 was a result of Clear Channel Communications funding a portion of our debt
payments and certain acquisitions. The net interest income for the years ended December 31, 2006
and 2005 was $0.4 million and $0.1 million, respectively.
Unlike the management of cash from our U.S. based operations, the amount of cash, if any,
which is transferred from our foreign operations to Clear Channel Communications is determined on a
basis mutually
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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
are evaluated before a cash amount is considered as an excess or surplus amount for transfer to
Clear Channel Communications.
On August 2, 2005, we distributed a note in the original principal amount of $2.5 billion to
Clear Channel Communications as a dividend. This note matures on August 2, 2010 and may be prepaid
in whole or in part at any 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 December 31,
2006, the interest rate on the $2.5 billion note was 6.1%.
Our working capital requirements and capital for general corporate purposes, including
acquisitions and capital expenditures, 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. 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 we could raise the funds if needed given our credit profile. Additionally,
management believes our publicly traded stock could be used as a source to raise capital through
public or private placements of our equity securities.
If the proposed merger transaction between Clear Channel Communications and private equity
funds sponsored by Bain Capital Partners, LLC and Thomas H. Lee Partners L.P. is consummated, we
may no longer be able to access Clear Channel Communications revolving credit facility, in which
event we would enter into a new credit facility. We expect the interest rate associated with a new facility
would be greater than the rate we currently are charged. In addition, 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, which we expect to increase if the proposed merger transaction is consummated. If
that cost increases, our borrowing costs also will increase. Regardless of whether the merger is
consummated, 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 . 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 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.
Other long-term debt
Other long-term debt consists primarily of loans with international banks and other types of
debt. At December 31, 2006, approximately $160.7 million was outstanding as other long-term debt.
Covenant Compliance
The $2.5 billion 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
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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.
The significant covenants contained in the Clear Channel Communications $1.75 billion
revolving 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. At December 31, 2006, Clear Channel Communications leverage and interest coverage ratios
were 3.4x and 4.7x.
There are no significant covenants or events of default contained in the cash management note
issued by Clear Channel Communications to us or the cash management note issued by us to Clear
Channel Communications.
At December 31, 2006, we and Clear Channel Communications were in compliance with all debt
covenants.
Uses of Capital
Acquisitions
We completed the acquisition of Interspace Airport Advertising on July 1, 2006, by issuing 4.2
million shares of our Class A common stock and the payment of approximately $81.3 million, funded
through our revolving promissory note with Clear Channel Communications. The acquisition is valued
at approximately $170.4 million based on the Companys common shares issued at the closing share
price on the date of acquisition of $89.1 million and the cash consideration paid. The terms of
the acquisition provide for additional consideration based on Interspaces financial performance.
As a result, we have accrued $20.9 million of additional purchase consideration as of December 31,
2006, which will be paid out in the next year.
In addition to the Interspace acquisition, during the year ended December 31, 2006, our
Americas segment acquired display faces for $55.4 million in
cash. We exchanged assets in one of our Americas markets for assets
located in a different market and recognized a gain of $13.2 million
in Gain of disposition of assets net. In addition, our
International segment acquired display faces and additional equity interests in outdoor companies
for $105.7 million, including the acquisition of an outdoor advertising business in the United
Kingdom.
Capital Expenditures
Our capital expenditures have consisted of the following:
Year Ended December 31, | ||||||||||||
(In millions) | 2006 | 2005 | 2004 | |||||||||
Non-revenue producing |
$ | 80.0 | $ | 78.1 | $ | 70.1 | ||||||
Revenue producing |
153.9 | 130.1 | 106.0 | |||||||||
Total capital expenditures |
$ | 233.9 | $ | 208.2 | $ | 176.1 | ||||||
We define non-revenue producing capital expenditures as those expenditures required on a
recurring basis. Revenue producing capital expenditures are discretionary capital investments for
new revenue streams, similar to an acquisition. Capital expenditures increased $25.7 million in
2006 as compared to 2005. The consolidation of Clear Media in 2005 contributed $13.7 million to
the increase. Capital expenditures increased $32.1 million in 2005 as compared to 2004. The
consolidation of Clear Media in 2005 contributed $15.4 million to the increase.
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 testing these technologies in certain markets. We believe 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
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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.
Commitments, Contingencies and Guarantees
Our short and long term cash requirements include minimum annual guarantees for our street
furniture contracts and operating leases. 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 2007, we are committed to $400.3 million and $218.1 million for
minimum annual guarantees and operating leases, respectively. Our long-term commitments for
minimum annual guarantees, operating leases and capital expenditure requirements are included in
Contractual and Other Obligations, below.
Certain agreements relating to acquisitions provide for purchase price adjustments and other
future contingent payments based on the financial performance of the acquired company generally
over a one to five year period. 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.
Contractual and Other Obligations
Firm Commitments
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 calculated as the greater of a percentage of
the relevant advertising revenues or a specified guaranteed minimum annual payment.
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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, capital expenditures commitments and other
long-term obligations as of December 31, 2006 are as follows:
Payments Due by Period | ||||||||||||||||||||
2012 and | ||||||||||||||||||||
(In thousands) | Total | 2007 | 2008-2009 | 2010-2011 | Thereafter | |||||||||||||||
Revolving credit facility |
$ | 23,488 | $ | | $ | 23,488 | $ | | $ | | ||||||||||
Debt with Clear Channel Communications |
2,500,000 | | | 2,500,000 | | |||||||||||||||
Other long-term debt |
160,688 | 86,293 | 71,296 | 2,399 | 700 | |||||||||||||||
Minimum annual guarantees |
2,015,994 | 400,296 | 514,482 | 425,524 | 675,692 | |||||||||||||||
Noncancelable operating leases |
1,595,911 | 218,052 | 384,804 | 275,457 | 717,598 | |||||||||||||||
Capital expenditure commitments |
181,469 | 95,032 | 65,242 | 13,465 | 7,730 | |||||||||||||||
Noncancelable contracts |
8,046 | 4,489 | 3,539 | 18 | | |||||||||||||||
Other long-term obligations(1)
|
107,392 | | 9,983 | 1,566 | 95,843 | |||||||||||||||
Total (2)
|
$ | 6,592,988 | $ | 804,162 | $ | 1,072,834 | $ | 3,218,429 | $ | 1,497,563 | ||||||||||
(1) | Other long-term obligations consist of $59.3 million related to asset retirement obligations, recorded pursuant to Financial Accounting Standards No. 143, Accounting for Asset Retirement Obligations, which assumes the underlying assets will be removed at some period over the next 50 years. Also included in the table is $33.8 million related to retirement plans and $14.3 million related to other long-term obligations with a specific maturity. | |
(2) | Excluded from the table is $106.8 million related to various obligations with no specific contractual commitment or maturity. |
SEASONALITY
Typically, both our Americas 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 Americas 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.
MARKET RISK MANAGEMENT
We are exposed to market risks arising from changes in market rates and prices, including
movements in interest rates and foreign currency exchange rates.
Interest Rate Risk
We had approximately $2.7 billion total debt outstanding as of December 31, 2006, of which 99%
was variable rate debt. Based on the amount of our floating-rate debt as of December 31, 2006, each
50 basis point increase or decrease in interest rates would increase or decrease our annual
interest expense and cash outlay by approximately $13.3 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 December 31, 2006 with no
subsequent change in rates for the remainder of the period.
Foreign Currency Risk
We have operations in countries throughout the world. The financial results of our foreign
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 foreign markets in which we
operate. We believe we mitigate a small portion of our exposure to foreign currency fluctuations
with a natural hedge through borrowings in currencies other than the U.S. dollar. Our foreign
operations reported net income of $15.1 million for the year ended December 31, 2006. We estimate a
10%
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change in the value of the U.S. dollar relative to foreign currencies would have changed our
net income for the year ended December 31, 2006 by approximately $1.5 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.
RECENT ACCOUNTING PRONOUNCEMENTS
In February 2006, the Financial Accounting Standards Board (FASB) issued Statement No. 155,
Accounting for Certain Hybrid Financial Instruments (Statement 155). Statement 155 is an
amendment of FASB Statement No. 133, Accounting for Derivative Instruments and Hedging Activities
(Statement 133) and FASB Statement 140, Accounting for Transfers and Servicing of Financial
Assets and Extinguishments of Liabilities (Statement 140) and allows companies to elect to
measure at fair value entire financial instruments containing embedded derivatives that would
otherwise have to be accounted for separately. Statement 155 also requires companies to identify
interest in securitized financial assets that are freestanding derivatives or contain embedded
derivatives that would have to be accounted for separately, clarifies which interest- and
principal-only strips are subject to Statement 133, and amends Statement 140 to revise the
conditions of a qualifying special purpose entity due to the new requirement to identify whether
interests in securitized financial assets are freestanding derivatives or contain embedded
derivatives. Statement 155 is effective for all financial instruments acquired or issued in fiscal
years beginning after September 15, 2006. We adopted Statement 155 on January 1, 2007. The
adoption did not materially impact our financial position or results of operations.
In June 2006, the FASB issued Interpretation No. 48, Accounting for Uncertainty in Income
Taxes an interpretation of FASB Statement 109 (FIN 48). FIN 48 clarifies the accounting for
uncertainty in income taxes by prescribing a recognition threshold for tax positions taken or
expected to be taken in a tax return. FIN 48 requires that entities recognize in their financial
statements the impact of a tax position if that position is more likely than not of being sustained
on audit, based on the technical merits of the position. The cumulative effect of applying the
provisions of FIN 48 will be reported as an adjustment to the opening balance of retained earnings
upon adoption. FIN 48 is effective for fiscal years beginning after December 15, 2006. We adopted
FIN 48 on January 1, 2007. We continue to evaluate the impact of FIN 48 but do not believe that it
will have a material impact on our financial statements.
In September 2006, the FASB issued Statement No. 157, Fair Value Measurements (Statement
157). Statement 157 defines fair value, establishes a framework for measuring fair value and
expands disclosure requirements for fair value measurements. Statement 157 applies whenever other
standards require (or permit) assets or liabilities to be measured at fair value. Statement 157
does not expand the use of fair value in any new circumstances. Statement 157 is effective for
financial statements issued for fiscal years beginning after November 15, 2007. We will adopt
Statement 157 on January 1, 2008 and anticipate that adoption will not materially impact our
financial position or results of operations.
In September 2006, the FASB issued Statement No. 158, Employers Accounting for Defined
Benefit Pension and Other Postretirement Plans, an amendment of FASB Statements No. 87, 88, 106,
and 132(R) (Statement 158). Statement 158 requires an employer to recognize the overfunded or
underfunded status of a defined benefit postretirement plan as an asset or liability in its
statement of financial position and to recognize changes in that funded status in the year in which
the changes occur through comprehensive income. The portions of Statement 158 that apply to us are
effective as of the end of the fiscal year ending after December 15, 2006. We adopted Statement
158 as of December 31, 2006. The adoption 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 based on historical experience and on
various other assumptions believed to be reasonable under the circumstances. The result of these
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evaluations forms the basis for making judgments about the carrying values of assets and
liabilities and the reported amount of expenses 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 consolidated and combined financial statements
included elsewhere in this Annual Report. Management believes 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, we
estimated our bad debt expense for the year ended December 31, 2006 would have changed by
approximately $2.5 million and our net income for the same period would have changed by
approximately $1.5 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 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
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. In
accordance with Statement 142, we performed our annual impairment tests as of October 1, 2004, 2005
and 2006 on goodwill. No impairment charges resulted from these tests. 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 market values decrease and long-term interest rates increase.
47
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Indefinite-lived Assets
Indefinite-lived assets such as our billboard permits are reviewed annually for possible
impairment using the direct method as prescribed in SEC Staff Announcement No. D-108, Use of the
Residual Method to Value Acquired Assets Other Than Goodwill. Under the direct method, it is
assumed that rather than acquiring indefinite-lived intangible assets as 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.
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. If actual results are not consistent with our assumptions and estimates, we may be
exposed to impairment charges in the future.
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 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. If our assumption
of the risk-adjusted credit rate used to discount current year additions to the asset retirement
obligation decreased approximately 1%, our liability as of December 31, 2006 would increase
approximately $1.7 million. Similarly, if our assumption of the risk-adjusted credit rate
increased approximately 1%, our liability would decrease approximately $1.5 million.
Stock Based Compensation
Prior to January 1, 2006, we accounted for our share-based payments under the recognition and
measurement provisions of APB Opinion No. 25, Accounting for Stock Issued to Employees and related
Interpretations, as permitted by Statement of Financial Accounting Standards No. 123, Accounting
for Stock Based Compensation (Statement 123). Under that method, when options were granted with
a strike price equal to or greater than market price on date of issuance, there is no impact on
earnings either on the date of grant or thereafter, absent certain modifications to the options.
Subsequent to January 1, 2006, we account for stock based compensation in accordance with FAS
123(R), Share-Based Payment. Under the fair value recognition provisions of this statement, stock
based compensation cost is measured at the grant date based on the value of the award and is
recognized as expense on a straight-line basis over the vesting period. Determining the fair value
of share-based awards at the grant date requires assumptions and judgments about expected
volatility and forfeiture rates, among other factors. If actual results differ significantly from
these estimates, our results of operations could be materially impacted.
ITEM 7A. Quantitative and Qualitative Disclosures about Market Risk
Required information is within Item 7.
48
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ITEM 8. Financial Statements and Supplementary Data
MANAGEMENTS REPORT ON FINANCIAL STATEMENTS
The consolidated financial statements and notes related thereto were prepared by and are the
responsibility of management. The financial statements and related notes were prepared in
conformity with U.S. generally accepted accounting principles and include amounts based upon
managements best estimates and judgments.
It is managements objective to ensure the integrity and objectivity of its financial data through
systems of internal controls designed to provide reasonable assurance that all transactions are
properly recorded in our books and records, that assets are safeguarded from unauthorized use and
that financial records are reliable to serve as a basis for preparation of financial statements.
The financial statements have been audited by our independent registered public accounting firm,
Ernst & Young LLP, to the extent required by auditing standards of the Public Company Accounting
Oversight Board (United States) and, accordingly, they have expressed their professional opinion on
the financial statements in their report included herein.
The Board of Directors meets with the independent registered public accounting firm and management
periodically to satisfy itself that they are properly discharging their responsibilities. The
independent registered public accounting firm has unrestricted access to the Board, without
management present, to discuss the results of their audit and the quality of financial reporting
and internal accounting controls.
/s/ Mark P. Mays
Chief Executive Officer
Chief Executive Officer
/s/ Randall T. Mays
Chief Financial Officer
Chief Financial Officer
/s/ Herbert W. Hill, Jr.
Senior Vice President/Chief Accounting Officer
Senior Vice President/Chief Accounting Officer
49
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Report of Independent Registered Public Accounting Firm
THE BOARD OF DIRECTORS AND SHAREHOLDERS
CLEAR CHANNEL OUTDOOR HOLDINGS, INC.
CLEAR CHANNEL OUTDOOR HOLDINGS, INC.
We have audited the accompanying consolidated balance sheets of Clear Channel Outdoor Holdings,
Inc. and subsidiaries (the Company) as of December 31, 2006 and 2005, and the related consolidated
and combined statements of operations, changes in shareholders/owners equity, and cash flows for
each of the three years in the period ended December 31, 2006. Our audits also included the
financial statement schedule listed in the index as Item 15(a)2. These financial statements and
schedule are the responsibility of the Companys management. Our responsibility is to express an
opinion on these financial statements and schedule 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. An
audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as 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 consolidated financial position of Clear Channel Outdoor Holdings, Inc. and
subsidiaries at December 31, 2006 and 2005, and the consolidated and combined results of their
operations and their cash flows for each of the three years in the period ended December 31, 2006,
in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the
related financial statement schedule, when considered in relation to the basic financial statements
taken as a whole, presents fairly in all material respects the information set forth therein.
As discussed in Note A to the consolidated and combined financial statements, in 2006 the Company
changed its method of accounting for share-based compensation.
As discussed in Note B to the consolidated and combined financial statements, in 2004 the Company
changed its method of accounting for indefinite lived intangibles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), the effectiveness of the Companys internal control over financial reporting
as of December 31, 2006, based on criteria established in Internal Control-Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report,
dated February 26, 2007 expressed an unqualified opinion thereon.
/s/ ERNST & YOUNG LLP | ||||
San Antonio, Texas
February 26, 2007
February 26, 2007
50
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CONSOLIDATED BALANCE SHEETS
ASSETS
Year Ended December 31, | ||||||||
(In thousands) | 2006 | 2005 | ||||||
CURRENT ASSETS |
||||||||
Cash and cash equivalents |
$ | 105,395 | $ | 108,644 | ||||
Accounts receivable, less allowance of $24,827 in 2006 and $21,699 in 2005 |
798,980 | 689,007 | ||||||
Due from Clear Channel Communications |
| 131 | ||||||
Prepaid expenses |
91,256 | 70,459 | ||||||
Other current assets |
194,284 | 181,939 | ||||||
Total Current Assets |
1,189,915 | 1,050,180 | ||||||
PROPERTY, PLANT AND EQUIPMENT |
||||||||
Land, buildings and improvements |
343,690 | 313,011 | ||||||
Structures |
3,601,653 | 3,327,326 | ||||||
Furniture and other equipment |
238,340 | 231,758 | ||||||
Construction in progress |
60,332 | 43,012 | ||||||
4,244,015 | 3,915,107 | |||||||
Less accumulated depreciation |
2,052,176 | 1,761,679 | ||||||
2,191,839 | 2,153,428 | |||||||
INTANGIBLE ASSETS |
||||||||
Definite-lived intangibles, net |
292,426 | 251,951 | ||||||
Indefinite-lived intangibles permits |
260,949 | 207,921 | ||||||
Goodwill |
1,092,927 | 748,886 | ||||||
OTHER ASSETS |
||||||||
Notes receivable |
3,192 | 5,452 | ||||||
Investments in, and advances to, nonconsolidated affiliates |
97,352 | 98,975 | ||||||
Deferred tax asset |
199,918 | 239,947 | ||||||
Other assets |
93,373 | 161,605 | ||||||
Total Assets |
$ | 5,421,891 | $ | 4,918,345 | ||||
See Notes to Consolidated and Combined Financial Statements
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LIABILITIES AND SHAREHOLDERS EQUITY
Year Ended December 31, | ||||||||
(In thousands, except share data) | 2006 | 2005 | ||||||
CURRENT LIABILITIES |
||||||||
Accounts payable |
$ | 121,578 | $ | 213,021 | ||||
Accrued expenses |
494,744 | 337,441 | ||||||
Due to Clear Channel Communications |
4,190 | | ||||||
Accrued interest |
3,621 | 2,496 | ||||||
Accrued income taxes |
31,259 | 16,812 | ||||||
Deferred income |
96,421 | 83,196 | ||||||
Current portion of long-term debt |
86,293 | 140,846 | ||||||
Deferred tax liabilities |
3,403 | | ||||||
Total Current Liabilities |
841,509 | 793,812 | ||||||
Long-term debt |
97,883 | 86,940 | ||||||
Debt with Clear Channel Communications |
2,500,000 | 2,500,000 | ||||||
Other long-term liabilities |
214,220 | 160,879 | ||||||
Minority interest |
181,901 | 167,277 | ||||||
Commitments and contingent liabilities (Note H) |
||||||||
SHAREHOLDERS EQUITY |
||||||||
Preferred stock, $.01 par value, 150,000,000 shares
authorized, no shares issued and outstanding |
| | ||||||
Class A common stock, $.01 par value, 750,000,000
shares authorized, 39,565,191 and 35,236,819 shares
issued and outstanding in 2006 and 2005, respectively |
396 | 352 | ||||||
Class B common stock, $.01 par value, 600,000,000
shares authorized, 315,000,000 shares issued and
outstanding |
3,150 | 3,150 | ||||||
Additional paid-in capital |
1,279,079 | 1,183,258 | ||||||
Retained earnings |
173,277 | 20,205 | ||||||
Accumulated other comprehensive income |
130,476 | 2,472 | ||||||
Total Shareholders Equity |
1,586,378 | 1,209,437 | ||||||
Total Liabilities and Shareholders Equity |
$ | 5,421,891 | $ | 4,918,345 | ||||
See Notes to Consolidated and Combined Financial Statements
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CONSOLIDATED AND COMBINED STATEMENTS OF OPERATIONS
Year Ended December 31, | ||||||||||||
(In thousands, except per share data) | 2006 | 2005 | 2004 | |||||||||
Revenue |
$ | 2,897,721 | $ | 2,666,078 | $ | 2,447,040 | ||||||
Operating expenses: |
||||||||||||
Direct operating expenses (includes share-based
payments of $4,328, $846 and $116 in 2006, 2005 and
2004, respectively, and excludes depreciation and
amortization) |
1,453,100 | 1,342,307 | 1,262,317 | |||||||||
Selling, general and administrative expenses (includes
share-based payments of $1,683, $0 and $0 in 2006, 2005
and 2004, respectively, and excludes depreciation and
amortization) |
548,736 | 541,794 | 499,457 | |||||||||
Depreciation and amortization |
407,730 | 400,639 | 388,217 | |||||||||
Corporate expenses (includes share-based payments of
$88, $0 and $0 in 2006, 2005 and 2004, respectively,
and excludes depreciation and amortization) |
65,542 | 61,096 | 53,770 | |||||||||
Gain on disposition of assets net |
22,846 | 3,488 | 10,791 | |||||||||
Operating income |
445,459 | 323,730 | 254,070 | |||||||||
Interest expense on debt with Clear Channel Communications |
153,500 | 182,667 | 145,653 | |||||||||
Interest expense |
9,083 | 15,687 | 14,177 | |||||||||
Equity in earnings (loss) of nonconsolidated affiliates |
7,460 | 9,844 | (76 | ) | ||||||||
Other income (expense) net |
331 | (12,291 | ) | (16,530 | ) | |||||||
Income before income taxes, minority interest and
cumulative effect of a change in accounting principle |
290,667 | 122,929 | 77,634 | |||||||||
Income tax (expense) benefit: |
||||||||||||
Current |
(82,553 | ) | (51,173 | ) | (23,422 | ) | ||||||
Deferred |
(39,527 | ) | 5,689 | (39,132 | ) | |||||||
Income tax (expense) benefit |
(122,080 | ) | (45,484 | ) | (62,554 | ) | ||||||
Minority interest expense net |
(15,515 | ) | (15,872 | ) | (7,602 | ) | ||||||
Income before cumulative effect of a change in accounting
principle |
153,072 | 61,573 | 7,478 | |||||||||
Cumulative effect of a change in accounting principle,
net of tax of $113,173 in 2004 |
| | (162,858 | ) | ||||||||
Net income (loss) |
153,072 | 61,573 | (155,380 | ) | ||||||||
Other comprehensive income (loss), net of tax: |
||||||||||||
Foreign currency translation adjustments |
133,383 | (76,315 | ) | 124,869 | ||||||||
Comprehensive income (loss) |
$ | 286,455 | $ | (14,742 | ) | $ | (30,511 | ) | ||||
Net income (loss) per common share: |
||||||||||||
Basic: |
||||||||||||
Income before cumulative effect of a change in
accounting principle |
$ | .43 | $ | .19 | $ | .02 | ||||||
Cumulative effect of a change in accounting principle |
| | (.52 | ) | ||||||||
Net income (loss) |
$ | .43 | $ | .19 | $ | (.50 | ) | |||||
Weighted average common shares outstanding |
352,155 | 319,890 | 315,000 | |||||||||
Diluted: |
||||||||||||
Income before cumulative effect of a change in
accounting principle |
$ | .43 | $ | .19 | $ | .02 | ||||||
Cumulative effect of a change in accounting principle |
| | (.52 | ) | ||||||||
Net income (loss) |
$ | .43 | $ | .19 | $ | (.50 | ) | |||||
Weighted average common shares outstanding |
352,262 | 319,921 | 315,000 |
See Notes to Consolidated and Combined Financial Statements
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CONSOLIDATED AND COMBINED STATEMENTS OF CHANGES IN SHAREHOLDERS/OWNERS EQUITY
Class A | Class B | Accumulated | |||||||||||||||||||||||||||||||
Common | Common | Owners | Additional | Retained | Other | ||||||||||||||||||||||||||||
Shares | Shares | Common | Net | Paid-in | Earnings | Comprehensive | |||||||||||||||||||||||||||
(In thousands, except share data) | Issued | Issued | Stock | Investment | Capital | (Deficit) | Income (loss) | Total | |||||||||||||||||||||||||
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 | ||||||||||||||||||||||||
Net income, pre IPO |
41,368 | 41,368 | |||||||||||||||||||||||||||||||
Currency translation adjustment, pre IPO |
(78,787 | ) | (78,787 | ) | |||||||||||||||||||||||||||||
Dividend to Clear Channel Communications |
(2,500,000 | ) | (2,500,000 | ) | |||||||||||||||||||||||||||||
Contribution |
315,000,000 | 3,150 | (4,179,664 | ) | 189,084 | 4,208,854 | (221,424 | ) | | ||||||||||||||||||||||||
Distribution from Clear Channel Communications |
393,717 | 393,717 | |||||||||||||||||||||||||||||||
IPO proceeds, net of offering costs |
35,000,000 | 350 | 600,292 | 600,642 | |||||||||||||||||||||||||||||
Net income, post IPO |
20,205 | 20,205 | |||||||||||||||||||||||||||||||
Currency translation adjustment, post IPO |
2,472 | 2,472 | |||||||||||||||||||||||||||||||
Exercise of stock options and other |
236,819 | 2 | 12 | 14 | |||||||||||||||||||||||||||||
Share-based payments |
153 | 153 | |||||||||||||||||||||||||||||||
Balances at December 31, 2005 |
35,236,819 | 315,000,000 | 3,502 | | 1,183,258 | 20,205 | 2,472 | 1,209,437 | |||||||||||||||||||||||||
Common stock issued for a business acquisition |
4,249,990 | 43 | 89,037 | 89,080 | |||||||||||||||||||||||||||||
Net income |
153,072 | 153,072 | |||||||||||||||||||||||||||||||
Currency translation adjustment and other |
128,004 | 128,004 | |||||||||||||||||||||||||||||||
Exercise of stock options and other |
78,382 | 1 | 1,488 | 1,489 | |||||||||||||||||||||||||||||
Share-based payments |
5,296 | 5,296 | |||||||||||||||||||||||||||||||
Balances at December 31, 2006 |
39,565,191 | 315,000,000 | $ | 3,546 | $ | | $ | 1,279,079 | $ | 173,277 | $ | 130,476 | $ | 1,586,378 | |||||||||||||||||||
See Notes to Consolidated and Combined Financial Statements
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CONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOWS
Year Ended December 31, | ||||||||||||
(In thousands) | 2006 | 2005 | 2004 | |||||||||
CASH FLOWS FROM OPERATING ACTIVITIES: |
||||||||||||
Net income (loss) |
$ | 153,072 | $ | 61,573 | $ | (155,380 | ) | |||||
Reconciling Items: |
||||||||||||
Cumulative effect of a change in accounting principle, net of tax |
| | 162,858 | |||||||||
Depreciation |
322,208 | 311,376 | 321,071 | |||||||||
Amortization |
85,522 | 89,263 | 67,146 | |||||||||
Deferred taxes |
39,527 | (5,689 | ) | 39,132 | ||||||||
Share-based compensation |
5,296 | 153 | | |||||||||
Provision for doubtful accounts |
8,571 | 11,583 | 8,731 | |||||||||
(Gain) loss on sale of operating and fixed assets |
(22,846 | ) | 5,513 | (11,718 | ) | |||||||
Equity in (earnings) loss of nonconsolidated affiliates |
(7,460 | ) | (9,844 | ) | 76 | |||||||
Minority interest expense net |
15,515 | 15,872 | 7,602 | |||||||||
Increase (decrease) other, net |
(6,137 | ) | (153 | ) | (2,578 | ) | ||||||
Changes in operating assets and liabilities, net of effects of
acquisitions: |
||||||||||||
Decrease (increase) in accounts receivable |
(101,340 | ) | (22,217 | ) | (29,880 | ) | ||||||
Decrease (increase) in prepaid expenses |
(20,797 | ) | (10,859 | ) | (1,468 | ) | ||||||
Decrease (increase) in other current assets |
(9,443 | ) | 59,214 | 4,262 | ||||||||
Increase (decrease) in accounts payable, accrued expenses and
other liabilities |
65,381 | (13,300 | ) | 51,535 | ||||||||
Increase (decrease) in accrued interest |
1,154 | 1,908 | 343 | |||||||||
Increase (decrease) in deferred income |
(2,493 | ) | (12,512 | ) | (2,537 | ) | ||||||
Increase (decrease) in accrued income taxes |
12,811 | 28,207 | 33,300 | |||||||||
Net cash provided by operating activities |
538,541 | 510,088 | 492,495 |
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Year Ended December 31, | ||||||||||||
2006 | 2005 | 2004 | ||||||||||
CASH FLOWS FROM INVESTING ACTIVITIES: |
||||||||||||
Decrease (increase) in notes receivable, net |
2,366 | 420 | 414 | |||||||||
Decrease (increase) in investments in, and advances to
nonconsolidated affiliates net |
7,292 | 951 | (6,986 | ) | ||||||||
Purchase of other investments |
| (99 | ) | (961 | ) | |||||||
Proceeds from sale of other investments |
| | 12,076 | |||||||||
Purchases of property, plant and equipment |
(233,882 | ) | (208,156 | ) | (176,140 | ) | ||||||
Proceeds from disposal of assets |
15,451 | 920 | 8,354 | |||||||||
Acquisition of operating assets, net of cash acquired |
(242,418 | ) | (99,605 | ) | (94,878 | ) | ||||||
Decrease (increase) in other net |
(37,819 | ) | (55,802 | ) | (52,537 | ) | ||||||
Net cash used in investing activities |
(489,010 | ) | (361,371 | ) | (310,658 | ) | ||||||
CASH FLOWS FROM FINANCING ACTIVITIES: |
||||||||||||
Draws on credit facilities |
118,867 | 108,601 | 71,389 | |||||||||
Payments on credit facilities |
(100,076 | ) | (113,193 | ) | (104,945 | ) | ||||||
Proceeds from long-term debt |
37,235 | | | |||||||||
Payments on long-term debt |
(115,694 | ) | (3,118 | ) | (262 | ) | ||||||
Payments on long-term debt with Clear Channel Communications |
| (600,642 | ) | | ||||||||
Net transfers (to) from Clear Channel Communications |
4,327 | (70,006 | ) | (148,188 | ) | |||||||
Proceeds from exercise of stock options |
2,176 | 166 | | |||||||||
Proceeds from initial public offering |
| 600,642 | | |||||||||
Net cash used in financing activities |
(53,165 | ) | (77,550 | ) | (182,006 | ) | ||||||
Effect of exchange rate changes on cash |
385 | (471 | ) | 4,012 | ||||||||
Net increase (decrease) in cash and cash equivalents |
(3,249 | ) | 70,696 | 3,843 | ||||||||
Cash and cash equivalents at beginning of year |
108,644 | 37,948 | 34,105 | |||||||||
Cash and cash equivalents at end of year |
$ | 105,395 | $ | 108,644 | $ | 37,948 | ||||||
SUPPLEMENTAL DISCLOSURE: |
||||||||||||
Cash paid during the year for interest |
$ | 165,764 | $ | 195,350 | $ | 175,395 | ||||||
Cash paid during the year for taxes |
$ | 52,479 | $ | 38,493 | $ | 22,195 |
See Notes to Consolidated and Combined Financial Statements
56
Table of Contents
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
NOTE A SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
Clear Channel Outdoor Holdings, Inc. (the Company) is an outdoor advertising company which owns
or operates advertising display faces domestically and internationally. Prior to November 11,
2005, the Company was a wholly-owned subsidiary of Clear Channel Communications, Inc. (Clear
Channel Communications), a diversified media company with operations in radio broadcasting and
outdoor advertising. In preparation for the initial public offering (IPO) Clear Channel
Communications and its subsidiaries contributed and transferred to the Company all of the assets
and liabilities of the outdoor advertising businesses (the Contribution). The net assets were
transferred at Clear Channel Communications historical cost basis. The Company completed the
Contribution just prior to the IPO, which was effective on November 11, 2005. Pursuant to the IPO
registration statement on Form S-1, the Company sold 35.0 million shares of its Class A common
stock at a price of $18.00 per share, for net proceeds of $600.6 million after deducting
underwriting discounts and offering expenses. Clear Channel Communications holds all of the 315.0
million Class B shares of common stock outstanding, representing approximately 89% of the shares
outstanding and approximately 99% of the voting power. The holders of Class A common stock and
Class B common stock have identical rights, except holders of Class A common stock are entitled to
1 vote per share while holders of Class B common stock are entitled to 20 votes per share. The
Class B shares of common stock are convertible, at the option of the holder at any time or upon any
transfer, into shares of Class A common stock on a one-for-one basis, subject to certain limited
exceptions.
Nature of Business
The Company operates in the outdoor advertising industry by selling advertising on billboards,
street furniture displays, transit displays and other advertising displays. The Company has two
principal business segments: Americas and International. The Americas segment primarily includes
operations in the United States, Canada and Latin America; and the International segment includes
operations in Europe, Asia, Africa and Australia.
Principles of Consolidation and Combination
The combined financial statements include amounts prior to the IPO derived 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 businesses
and give effect to allocations of expenses from Clear Channel Communications. These allocations
were made on a specifically identifiable basis or using relative percentages of headcount or other
methods management considered to be a reasonable reflection of the utilization of services
provided. The Companys historical financial data may not be indicative of its future performance
nor will such data reflect what its financial position and results of operations would have been
had it operated as an independent publicly traded company during the periods shown. 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.
The Company believes the credit risk with respect to trade receivables is limited due to the large
number and the geographic diversification of its customers.
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Land Leases and Other Structure Licenses
Most of the Companys advertising structures are located on leased land. Americas land rents are
typically paid in advance for periods ranging from 1 to 12 months. International land rents are
paid both in advance and in arrears, for periods ranging from 1 to 12 months. Most International
street furniture display faces are operated through contracts with the municipalities for up to 20
years. The street furniture contracts 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.
Purchase Accounting
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. Various acquisition
agreements may include contingent purchase consideration based on performance requirements of the
investee. The Company accrues these payments under the guidance in Emerging Issues Task Force
issue 95-8: Accounting for Contingent Consideration Paid to the Shareholders of an Acquired
Enterprise in a Purchase Business Combination, after the contingencies have been resolved.
Asset Retirement Obligation
Statement of Financial Accounting Standards No. 143, Accounting for Asset Retirement Obligations,
requires the Company to estimate its 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 Companys asset retirement obligation is reported in Other long-term
liabilities. 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
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 the asset is intended to be used indicate 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
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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.
Intangible Assets
The Company classifies intangible assets as definite-lived, indefinite-lived, or goodwill.
Definite-lived intangibles include primarily transit and street furniture contracts, which are
amortized over the respective lives of the agreements, typically 5 to 15 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 the asset is intended to be used indicate 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 performs its 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 buildup period, estimated start-up cost and losses incurred during the build-up period, the
risk adjusted discount rate and terminal values. The Company utilizes Duff and Phelps, L.L.C., a
third party valuation firm, to assist the Company in development of
these assumptions and the Company's determination of the fair value
of its permits.
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 future cash flows, 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
depreciation and 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 investee 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 determined to be
other-than-temporary.
Financial Instruments
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, 2006 and 2005. Additionally, as none of the Companys debt is publicly traded, the carrying
amounts of long-term debt approximated their fair values at December 31, 2006 and 2005.
Income Taxes
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
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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 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 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 federal income tax returns with its subsidiaries.
Revenue Recognition
The Companys advertising contracts typically cover periods of up to three years and 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. Payments received in advance of being earned are recorded as deferred income.
Stock Based Compensation
Prior to January 1, 2006, the Company accounted for share-based payments under the recognition and
measurement provisions of APB Opinion No. 25, Accounting for Stock Issued to Employees (APB 25)
and related Interpretations, as permitted by Statement of Financial Accounting Standards No. 123,
Accounting for Stock Based Compensation (Statement 123). Under that method, when options were
granted with a strike price equal to or greater than market price on date of issuance, there is no
impact on earnings either on the date of grant or thereafter, absent certain modifications to the
options. Subsequent to January 1, 2006, the Company accounts for stock based compensation in
accordance with FAS 123(R), Share-Based Payment (Statement 123(R)). Under the fair value
recognition provisions of this statement, stock based compensation cost is measured at the grant
date based on the value of the award and is recognized as expense on a straight-line basis over the
vesting period. Determining the fair value of share-based awards at the grant date requires
assumptions and judgments about expected volatility and forfeiture rates, among other factors. If
actual results differ significantly from these estimates, our results of operations could be
materially impacted.
Foreign Currency
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 shareholders 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.
Advertising Expense
The Company records advertising expense as it is incurred. Advertising expenses of $10.4 million,
$16.1 million and $18.2 million were recorded during the years ended December 31, 2006, 2005 and
2004, respectively, as a component of selling, general and administrative expenses.
Use of Estimates
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
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bases its estimates on historical experience and on various other assumptions believed to be
reasonable under the circumstances. Actual results could differ from those estimates.
New Accounting Pronouncements
In February 2006, the Financial Accounting Standards Board (FASB) issued Statement No. 155,
Accounting for Certain Hybrid Financial Instruments (Statement 155). Statement 155 is an
amendment of FASB Statement No. 133, Accounting for Derivative Instruments and Hedging Activities
(Statement 133) and FASB Statement 140, Accounting for Transfers and Servicing of Financial
Assets and Extinguishments of Liabilities (Statement 140) and allows companies to elect to
measure at fair value entire financial instruments containing embedded derivatives that would
otherwise have to be accounted for separately. Statement 155 also requires companies to identify
interest in securitized financial assets that are freestanding derivatives or contain embedded
derivatives that would have to be accounted for separately, clarifies which interest- and
principal-only strips are subject to Statement 133, and amends Statement 140 to revise the
conditions of a qualifying special purpose entity due to the new requirement to identify whether
interests in securitized financial assets are freestanding derivatives or contain embedded
derivatives. Statement 155 is effective for all financial instruments acquired or issued in fiscal
years beginning after September 15, 2006. The Company will adopt Statement 155 on January 1, 2007
and anticipates that adoption will not materially impact its financial position or results of
operations.
In June 2006, the FASB issued Interpretation No. 48, Accounting for Uncertainty in Income Taxes
an interpretation of FASB Statement 109 (FIN 48). FIN 48 clarifies the accounting for
uncertainty in income taxes by prescribing a recognition threshold for tax positions taken or
expected to be taken in a tax return. FIN 48 requires that entities recognize in their financial
statements the impact of a tax position if that position is more likely than not of being sustained
on audit, based on the technical merits of the position. The cumulative effect of applying the
provisions of FIN 48 will be reported as an adjustment to the opening balance of retained earnings
upon adoption. FIN 48 is effective for fiscal years beginning after December 15, 2006. The
Company will adopt FIN 48 on January 1, 2007. The Company continues to evaluate the impact of FIN
48 but does not believe that it will have a material impact on its financial statements.
In September 2006, the FASB issued Statement No. 157, Fair Value Measurements (Statement 157).
Statement 157 defines fair value, establishes a framework for measuring fair value and expands
disclosure requirements for fair value measurements. Statement 157 applies whenever other
standards require (or permit) assets or liabilities to be measured at fair value. Statement 157
does not expand the use of fair value in any new circumstances. Statement 157 is effective for
financial statements issued for fiscal years beginning after November 15, 2007. The Company will
adopt Statement 157 on January 1, 2008 and anticipates that adoption will not materially impact its
financial position or results of operations.
In September 2006, the FASB issued Statement No. 158, Employers Accounting for Defined Benefit
Pension and Other Postretirement Plans, an amendment of FASB Statements No. 87, 88, 106, and 132(R)
(Statement 158). Statement 158 requires an employer to recognize the overfunded or underfunded
status of a defined benefit postretirement plan as an asset or liability in its statement of
financial position and to recognize changes in that funded status in the year in which the changes
occur through comprehensive income. The portions of Statement 158 that apply to the Company are
effective as of the end of the fiscal year ending after December 15, 2006. The Company adopted
Statement 158 as of December 31, 2006. The adoption did not materially impact its financial
position or results of operations.
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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 shorter of
either the respective lives of the agreements or over the period of time the assets are expected to
contribute to the Companys future cash flows. 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,
2006 and 2005:
2006 | 2005 | |||||||||||||||
Gross Carrying | Accumulated | Gross Carrying | Accumulated | |||||||||||||
(In thousands) | Amount | Amortization | Amount | Amortization | ||||||||||||
Transit, street
furniture, and
other contractual
rights |
$ | 821,364 | $ | 530,063 | $ | 651,456 | $ | 408,017 | ||||||||
Other |
41,544 | 40,419 | 56,449 | 47,937 | ||||||||||||
Total |
$ | 862,908 | $ | 570,482 | $ | 707,905 | $ | 455,954 | ||||||||
The Company completed the acquisition of Interspace Airport Advertising (Interspace) on July 1,
2006. As a result of the acquisition, the company recorded $39.5 million in definite-lived
intangible assets which consists primarily of airport contracts with a remaining weighted average
life of 5 years. See further discussion of the acquisition at Note C.
Total amortization expense from definite-lived intangible assets for the years ended December 31,
2006, 2005 and 2004 was $85.5 million, $89.3 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)
2007 |
$ | 49,599 | ||
2008 |
46,632 | |||
2009 |
38,933 | |||
2010 |
26,798 | |||
2011 |
21,460 |
As acquisitions and dispositions occur in the future and as purchase price allocations are
finalized, amortization expense may vary.
Indefinite-lived Intangibles
The Companys indefinite-lived intangibles consist of billboard permits acquired primarily in
business combinations. 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 20 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. The carrying amounts for billboard permits at
December 31, 2006 and 2005 were $260.9 million and $207.9 million, respectively.
The SEC staff issued D-108 at the September 2004 meeting of the EITF. D-108 states the residual
method should no longer be used to value intangible assets other than goodwill. Rather, D-108
requires 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
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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 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 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.
The Companys adoption of the direct method resulted in an aggregate fair value of its
indefinite-lived intangible assets that was 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.
Goodwill
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, 2006 and 2005:
(In thousands) | Americas | International | Total | |||||||||
Balance as of December 31, 2004 |
$ | 397,377 | $ | 389,629 | $ | 787,006 | ||||||
Acquisitions |
1,896 | 4,407 | 6,303 | |||||||||
Foreign currency translation |
| (50,232 | ) | (50,232 | ) | |||||||
Adjustments |
6,002 | (193 | ) | 5,809 | ||||||||
Balance as of December 31, 2005 |
405,275 | 343,611 | 748,886 | |||||||||
Acquisitions |
249,527 | 42,222 | 291,749 | |||||||||
Dispositions |
(1,913 | ) | | (1,913 | ) | |||||||
Foreign currency translation |
14,085 | 40,109 | 54,194 | |||||||||
Adjustments |
323 | (312 | ) | 11 | ||||||||
Balance as of December 31, 2006 |
$ | 667,297 | $ | 425,630 | $ | 1,092,927 | ||||||
Included in the Americas acquisitions amount above in 2006 is $148.6 million related to the
acquisition of Interspace, all of which is expected to be deductible for tax purposes.
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NOTE C BUSINESS ACQUISITIONS
2006 Acquisitions:
The Company completed the acquisition of Interspace on July 1, 2006, by issuing 4.2 million shares
of the Companys Class A common stock and the payment of approximately $81.3 million. The
acquisition was valued at approximately $170.4 million based on the Companys common shares issued
at the closing share price on the date of acquisition of $89.1 million and the cash consideration
paid. The terms of the acquisition provide for additional consideration based on Interspaces
financial performance. As a result, the Company has accrued $20.9 million of additional purchase
consideration as of December 31, 2006.
In addition to the Interspace acquisition, during 2006 the Companys Americas segment acquired
display faces for $55.4 million in cash. The Company exchanged assets in one of its Americas
markets for assets located in a different market and recognized a gain of $13.2 million in Gain on
disposition of assets net. In addition, the Companys International segment acquired display
faces and additional equity interests in outdoor companies for $105.7 million, including the
acquisition of an outdoor advertising business in the United Kingdom.
2005 Acquisitions:
During 2005 the Company acquired Americas display faces for $113.3 million in cash. The Companys
International segment acquired display faces for $17.1 million and increased its investment to a
controlling majority interest in Clear Media Limited for $8.9 million. Clear Media is a Chinese
outdoor advertising company and as a result of consolidating its operations during the third
quarter of 2005, the acquisition resulted in an increase in the Companys cash of $39.7 million.
2004 Acquisitions:
Medallion Merger
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 Gain on disposition of assets net.
Acquisition Summary
The following is a summary of the assets and liabilities acquired and the consideration given for
all acquisitions made during 2006 and 2005. Due to the timing of certain acquisitions, the
purchase price allocation is preliminary pending completion of third-party appraisals and other
fair value analysis of assets and liabilities.
(In thousands) | 2006 | 2005 | ||||||
Cash |
$ | 5,591 | $ | 39,656 | ||||
Accounts receivable |
13,665 | 30,301 | ||||||
Property, plant and equipment |
46,401 | 156,386 | ||||||
Permits |
20,963 | 2,228 | ||||||
Definite-lived intangibles |
105,909 | 22,453 | ||||||
Goodwill |
210,077 | 6,303 | ||||||
Investments |
| 805 | ||||||
Other assets |
4,147 | 49,682 | ||||||
406,753 | 307,814 |
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(In thousands) | 2006 | 2005 | ||||||
Other liabilities |
(39,286 | ) | (63,594 | ) | ||||
Minority interests |
5,224 | (101,133 | ) | |||||
Deferred tax |
(7,571 | ) | (3,826 | ) | ||||
Common stock issued |
(89,037 | ) | | |||||
(130,670 | ) | (168,553 | ) | |||||
Less fair value of assets exchanged |
28,074 | | ||||||
Total cash consideration |
248,009 | 139,261 | ||||||
Less cash received |
5,591 | 39,656 | ||||||
Net cash paid for acquisitions |
$ | 242,418 | $ | 99,605 | ||||
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 aggregate of these contingent payments, if performance targets were met,
would not significantly impact the Companys financial position or results of operations.
NOTE D RESTRUCTURING
The following table summarizes the activities related to the Companys restructuring accruals:
(In thousands) | 2006 | 2005 | 2004 | |||||||||
Balance at January 1 |
$ | 23,221 | $ | 6,867 | $ | 7,469 | ||||||
Estimated costs charged to restructuring accrual |
| 26,576 | 4,131 | |||||||||
Adjustments to restructuring accrual |
1,826 | (1,281 | ) | (377 | ) | |||||||
Payments charged against restructuring accrual |
(12,510 | ) | (8,941 | ) | (4,356 | ) | ||||||
Balance at December 31 |
$ | 12,537 | $ | 23,221 | $ | 6,867 | ||||||
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. During the year ended December 31, 2006, $11.8
million of costs have been incurred and applied against the reserve. As of December 31, 2006, the
portion of the accrual associated with the France restructuring was $11.0 million, related
primarily to severance. It is expected that these accruals will be paid in the next three years.
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. The remainder of the accrual
was utilized in 2005. This restructuring resulted in the termination of 44 employees.
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 and other costs. The
remainder of the accrual was utilized in 2005. The France restructurings resulted in the
termination of 134 employees.
In addition to the above, the Company has a restructuring liability related to Clear Channel
Communications merger with Ackerley in June 2002. At December 31, 2006, the accrual balance for
this restructuring was $1.5
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million. The remaining restructuring accrual is comprised solely of lease termination, which will
be paid over the next four years.
NOTE E INVESTMENTS
The Companys most significant investments in nonconsolidated affiliates are listed below:
Clear Channel Independent
The Company owns a 50% interest in Clear Channel Independent (CCI), formerly known as Corp Comm,
a South African outdoor advertising company.
Alessi
The Company owns a 34.3% interest in Alessi, an Italian outdoor advertising company.
Summarized Financial Information
The following table summarizes the Companys investments in these nonconsolidated affiliates:
All | ||||||||||||||||
(In thousands) | CCI | Alessi | Others | Total | ||||||||||||
Balance as of December 31, 2005 |
$ | 52,688 | $ | 23,146 | $ | 23,141 | $ | 98,975 | ||||||||
Acquisition (disposition) of investments |
| | 211 | 211 | ||||||||||||
Additional
investment (distribution) |
(6,134 | ) | 1,452 | (2,610 | ) | (7,292 | ) | |||||||||
Equity in net earnings (loss) |
6,054 | (154 | ) | 1,560 | 7,460 | |||||||||||
Reclassifications |
| | 478 | 478 | ||||||||||||
Foreign currency translation adjustments |
(6,458 | ) | 2,790 | 1,188 | (2,480 | ) | ||||||||||
Balance as of December 31, 2006 |
$ | 46,150 | $ | 27,234 | $ | 23,968 | $ | 97,352 | ||||||||
The investments in the table above 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. The accumulated undistributed earnings included in retained earnings
for these investments were $7.3 million and $2.7 million as of December 31, 2006 and 2005,
respectively. Accumulated undistributed losses included in retained deficit for these investments
were $3.4 million as of December 31, 2004.
NOTE F ASSET RETIREMENT OBLIGATION
The Company has an asset retirement obligation of $59.3 million and $49.8 million as of December
31, 2006 and 2005, respectively, 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 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.
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The following table presents the activity related to the Companys asset retirement obligation:
(In thousands) | 2006 | 2005 | ||||||
Balance at January 1 |
$ | 49,807 | $ | 49,216 | ||||
Adjustment due to change in estimate of related costs |
7,581 | (1,344 | ) | |||||
Accretion of liability |
3,539 | 3,616 | ||||||
Liabilities settled |
(1,647 | ) | (1,681 | ) | ||||
Balance at December 31 |
$ | 59,280 | $ | 49,807 | ||||
NOTE G LONG-TERM DEBT
Long-term debt at December 31, 2006 and 2005 consisted of the following:
December 31, | ||||||||
(In thousands) | 2006 | 2005 | ||||||
Debt with Clear Channel Communications |
$ | 2,500,000 | $ | 2,500,000 | ||||
Bank credit facilities |
23,488 | 15,035 | ||||||
Other long-term debt |
160,688 | 212,751 | ||||||
2,684,176 | 2,727,786 | |||||||
Less: current portion |
86,293 | 140,846 | ||||||
Total long-term debt |
$ | 2,597,883 | $ | 2,586,940 | ||||
Debt with Clear Channel Communications
On August 2, 2005, the Company distributed a note in the original principal amount of $2.5 billion
to Clear Channel Communications as a dividend. 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 and, subject to
certain exceptions, all proceeds from debt or equity raised by the Company must be used to prepay
such note. At December 31, 2006, the interest rate on the $2.5 billion note was 6.1%.
Bank Credit Facility
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 Communications. The interest rate
is based upon LIBOR or, in the case of Euro denominated borrowings, EURIBOR, plus a margin. At
December 31, 2006, the interest rate on this bank credit facility was 5.7%. At December 31, 2006,
the outstanding balance on the $150.0 million sub-limit was $23.5 million and $126.5 million was
available for future borrowings, with the entire balance to be repaid on July 12, 2009.
Debt Covenants
The $2.5 billion note requires the Company 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 the Companys total consolidated
shareholders equity (as defined in the note) as shown on its most recently reported annual audited
consolidated financial statements; disposing of all or substantially all of its assets; entering
into mergers and
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consolidations; declaring or making dividends or other distributions; repurchasing its equity; and
entering into transactions with its affiliates.
In addition, the note requires the Company 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 the Company, its
operating subsidiary or its respective successors or assigns, or (ii) the ability to elect a
majority of the Board of Directors of the Company, its operating subsidiary or its respective
successors or assigns. Upon the Companys issuances of equity and incurrences of debt, subject to
certain exceptions, it is also required to prepay the note in the amount of the net proceeds
received by it from such events.
Clear Channel Communications significant covenants on its $1.75 billion five-year, multi-currency
revolving credit facility relate to leverage and interest coverage contained (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 (as defined by the credit facility) to interest
expense of 2.50x. In the event 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 2006, Clear Channel Communications leverage and interest coverage
ratios were 3.4x and 4.7x, respectively.
At December 31, 2006, the Company and Clear Channel Communications were in compliance with all debt
covenants.
Other Debt
Other debt includes various borrowings and capital leases utilized for general operating purposes.
Included in the $160.7 million balance at December 31, 2006 is $86.3 million that matures in less
than one year.
Debt Maturities
Future maturities of long-term debt at December 31, 2006 are as follows:
(In thousands)
2007 |
$ | 86,293 | ||
2008 |
30,826 | |||
2009 |
63,958 | |||
2010 |
2,500,149 | |||
2011 |
2,250 | |||
Thereafter |
700 | |||
Total |
$ | 2,684,176 | ||
NOTE H 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 similar type surfaces. The majority of these contracts contain rent provisions calculated
as either 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.
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As of December 31, 2006, 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 | ||||||||||
(In thousands) | Operating Leases | Contracts | Expenditures | |||||||||
2007 |
$ | 218,052 | $ | 400,296 | $ | 95,032 | ||||||
2008 |
203,142 | 270,561 | 49,990 | |||||||||
2009 |
181,662 | 243,921 | 15,252 | |||||||||
2010 |
152,913 | 226,519 | 8,853 | |||||||||
2011 |
122,544 | 199,005 | 4,612 | |||||||||
Thereafter |
717,598 | 675,692 | 7,730 | |||||||||
Total |
$ | 1,595,911 | $ | 2,015,994 | $ | 181,469 | ||||||
Rent expense charged to operations for 2006, 2005 and 2004 was $961.3 million, $876.5 million and
$822.8 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.
The Company is 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 the Company
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 the
Company. 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. The Company filed
a motion to have the punitive damages award reduced. The trial judge granted the Companys motion.
A final judgment in the amount of $4.1 million in compensatory damages and $12.3 million in
punitive damages was signed on January 23, 2006. The Company has appealed the underlying judgment
and the Plaintiff filed a cross-appeal. The Plaintiff seeks to reinstate the original award of
punitive damages. The Company has insurance coverage for up to approximately $50.0 million in
damages for this matter.
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.
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, 2006, the Company believes its maximum aggregate contingency, which is subject to
performance requirements by the seller, is approximately $35.0 million. As the contingencies have
not been met or resolved as of December 31, 2006, 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 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 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.
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NOTE I RELATED PARTY TRANSACTIONS
The Company records net amounts, up to a maximum of $1.0 billion, due to or from Clear Channel
Communications as Due from Clear Channel Communications or Due to Clear Channel Communications
on the consolidated balance sheets. The account represents the Companys revolving promissory note
with Clear Channel Communications. Subsequent to the IPO, the account accrues interest pursuant to
the Master Agreement 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 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, 2006, the balance of $4.2 million was a liability recorded in Due to Clear Channel
Communications on the consolidated balance sheet. At December 31, 2005, the balance of $0.1
million was an asset recorded in Due from Clear Channel Communications on the consolidated
balance sheet. The increase in the net amount due to Clear Channel Communications during the year
ended December 31, 2006 was a result of Clear Channel Communications funding a portion of the
Companys debt payments and certain acquisitions. The net interest income for the years ended
December 31, 2006 and 2005 was $0.4 million and $0.1 million, respectively.
On August 2, 2005, the Company distributed a note in the original principal amount of $2.5 billion
to Clear Channel Communications as a dividend. This note is further disclosed in Note G. This
note matures on August 2, 2010 and may be prepaid in whole at any time, or in part from time to
time. 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. 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 December 31, 2006, the interest rate
on the $2.5 billion note was 6.1%.
Clear Channel Communications has a five-year, multi-currency revolving credit facility in the
amount of $1.75 billion. This note is further disclosed in Note G. Certain of the Companys
International subsidiaries may borrow under a $150.0 million sub-limit within this credit facility
to the extent Clear Channel Communications has not already borrowed against this capacity. This
sub-limit allows for borrowings in various foreign currencies, which are used to hedge net assets
in those currencies and provides 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 Communications. The interest rate is based upon LIBOR or,
for Euro denominated borrowings, EURIBOR, plus a margin. At December 31, 2006, the interest rate
on this bank credit facility was 5.7%. At December 31, 2006, the outstanding balance on the $150.0
million sub-limit was $23.5 million and $126.5 million was available for future borrowings, with
the entire balance to be paid on July 12, 2009.
The Company provides advertising space on its billboards for radio stations owned by Clear Channel
Communications. For the years ended December 31, 2006, 2005 and 2004, the Company recorded $10.6
million, $10.0 million, and $12.4 million, respectively, in revenue for these advertisements.
Under the corporate services agreement entered into between Clear Channel Communications and the
Company at the IPO, Clear Channel Communications provides management services to the Company, 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 and
related services; (v) information systems, network and related services; (vi) investment services;
(vii) procurement and sourcing support services; and (viii) other general corporate services.
These services are charged to the Company based on actual direct costs incurred or allocated by
Clear Channel Communications based on headcount, revenue or other factors on a pro rata basis. For
the years ended December 31, 2006, 2005 and 2004, the Company recorded $24.3 million, $16.0
million, and $16.6 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 began charging the Company a royalty fee based on
annual revenue for use of the Clear Channel trademark name. Clear Channel Communications used a
third party valuation firm to assist in the calculation of the royalty fee. For the years ended
December 31, 2005 and 2004, the Company recorded $14.8
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million and $15.8 million, respectively, of royalty fees in Other income (expense) net. The
royalty fee was discontinued as of January 1, 2006.
Pursuant to the tax matters agreement entered into between Clear Channel Communications and the
Company at the IPO, 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 federal 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 the Companys employee stock options
exercises are retained by the Company.
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. Deferred tax assets are
reduced by valuation allowances if the Company believes it is more likely than not some portion or
all of the asset will not be realized. The Companys provision for income taxes is further
disclosed in Note J.
Pursuant to the employee matters agreement, 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 component of selling, general and
administrative expenses and were approximately $9.3 million, $9.1 million, and $8.2 million for the
years ended December 31, 2006, 2005 and 2004, respectively.
NOTE J 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 federal income tax returns with its subsidiaries.
Significant components of the provision for income tax expense (benefit) are as follows:
(In thousands) | 2006 | 2005 | 2004 | |||||||||
Current federal |
$ | 34,255 | $ | 2,280 | $ | (10,291 | ) | |||||
Current foreign |
40,056 | 48,037 | 34,894 | |||||||||
Current state |
8,242 | 856 | (1,181 | ) | ||||||||
Total current |
82,553 | 51,173 | 23,422 | |||||||||
Deferred federal |
43,117 | 26,007 | 40,048 | |||||||||
Deferred foreign |
(9,134 | ) | (35,040 | ) | (18,339 | ) | ||||||
Deferred state |
5,544 | 3,344 | 17,423 | |||||||||
Total deferred |
39,527 | (5,689 | ) | 39,132 | ||||||||
Income tax expense (benefit) |
$ | 122,080 | $ | 45,484 | $ | 62,554 | ||||||
The increase in current tax expense of $31.4 million for the year ended December 31, 2006 over 2005
was due primarily to an increase in Income before income taxes, minority interest and cumulative
effect of a change in accounting principle of $167.7 million. This increase was partially offset
by current tax benefits of approximately $20.4 million being recorded in 2006 related to tax losses
on the disposition of certain operating assets and the filing of an amended tax return. Deferred
tax expense increased by $45.2 million for the year ended December 31, 2006 over 2005 primarily due
to the tax losses on the disposition of certain operating assets and the filing of the amended tax
return mentioned above. In addition, foreign deferred tax expense increased by $25.9 million for
the year ended December 31, 2006 over 2005 primarily due to (i) the reversal of deferred tax assets
related to tax losses in certain foreign jurisdictions and the uncertainty of the ability to utilize those tax losses in the future
and (ii) increased
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deferred tax benefits in 2005 due to a change in the carrying value of certain
deferred tax liabilities as a result of certain local country law and tax rate changes.
The increase in current tax expense of $27.8 million for the year ended December 31, 2005 was due
primarily to an increase in Income before income taxes, minority interest and cumulative effect of
a change in accounting principle of $45.3 million. Deferred tax expense decreased by $44.8
million for the year ended December 31, 2005 due to less tax depreciation recorded in 2005 as well
as certain tax losses on the disposition of assets recorded in 2004. The decrease in tax
depreciation is primarily due to a change in the tax laws resulting in the expiration of the
favorable bonus depreciation tax rules in 2004. In addition foreign deferred tax benefits
increased $16.7 million for the year ended December 31, 2005 primarily due to a change in the
carrying value of certain deferred tax liabilities as a result of certain local country law and tax
rate changes.
Significant components of the Companys deferred tax liabilities and assets as of December 31, 2006
and 2005 are as follows:
(In thousands) | 2006 | 2005 | ||||||
Deferred tax liabilities: |
||||||||
Foreign |
$ | | $ | 3,917 | ||||
Accrued expenses |
130 | | ||||||
Deferred income |
5,181 | | ||||||
Other |
1,337 | 1,450 | ||||||
Total deferred tax liabilities |
6,648 | 5,367 | ||||||
Deferred tax assets: |
||||||||
Intangibles and fixed assets |
192,958 | 241,016 | ||||||
Accrued expenses |
| 24 | ||||||
Equity in earnings |
2,145 | 2,138 | ||||||
Net operating loss carryforwards |
449 | 338 | ||||||
Bad debt reserves |
2,922 | 2,799 | ||||||
Deferred income |
| 4,801 | ||||||
Foreign |
2,111 | | ||||||
Other |
2,578 | 417 | ||||||
Total deferred tax assets |
203,163 | 251,533 | ||||||
Net deferred tax assets |
196,515 | 246,166 | ||||||
Less: current portion |
(3,403 | ) | 6,219 | |||||
Long-term net deferred tax assets |
$ | 199,918 | $ | 239,947 | ||||
At December 31, 2006, net deferred tax assets include a deferred tax asset of $2.1 million relating
to stock-based compensation expense under FAS 123(R). Full realization of this deferred tax asset
requires stock options to be exercised at a price equaling or exceeding the sum of the grant price
plus the fair value of the option at the grant date and restricted stock to vest at a price
equaling or exceeding the fair market value at the grant date. The provisions of FAS 123(R),
however, do not allow a valuation allowance to be recorded unless the companys future taxable
income is expected to be insufficient to recover the asset. Accordingly, there can be no assurance
that the stock price of our Common Stock will rise to levels sufficient to realize the entire tax
benefit currently reflected in our balance sheet. See Note K for additional discussion of FAS
123(R).
The deferred tax asset associated with 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 its book basis in permits. As the Company
continues to amortize its tax basis in its permits and tax deductible goodwill, the deferred tax
asset will decrease over time.
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The reconciliation of income tax computed at the U.S. federal statutory tax rates to income tax
expense is:
(In thousands) | 2006 | 2005 | 2004 | |||||||||
Income tax expense (benefit) at statutory rates |
$ | 101,733 | $ | 43,025 | $ | 24,511 | ||||||
State income taxes, net of federal tax benefit |
13,786 | 4,200 | 16,242 | |||||||||
Foreign taxes |
6,390 | 4,816 | 11,379 | |||||||||
Nondeductible items |
709 | 597 | 607 | |||||||||
Additional deferred tax expense |
| | 4,804 | |||||||||
Tax contingencies |
(891 | ) | (7,074 | ) | 4,626 | |||||||
Subpart F income |
| | 441 | |||||||||
Other, net |
353 | (80 | ) | (56 | ) | |||||||
Income tax expense (benefit) |
$ | 122,080 | $ | 45,484 | $ | 62,554 | ||||||
During 2006, the Company recorded tax expense of approximately $122.1 million on income before
income taxes, minority interest and cumulative effect of a change in accounting principle of $290.7
million. Foreign income before income taxes was approximately $70.1 million for 2006. 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 2005, the Company recorded tax expense of approximately $45.5 million on income before
income taxes, minority interest and cumulative effect of a change in accounting principle of $122.9
million. Foreign income before income taxes was approximately $23.4 million for 2005. The Company
recorded a current tax benefit of approximately $8.0 million due to the favorable resolution of
certain tax contingencies in 2005. These tax contingencies primarily associated with tax planning
related to the Companys foreign operations that was reviewed and not adjusted by the taxing
authorities during 2005. The tax contingencies were originally recorded through the income
statement by increasing current tax expense in earlier years when the planning was implemented and
therefore, when the contingencies were settled favorably the amounts were reversed in the income
statement as a current tax benefit in the current year. 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 2004, the Company recorded tax expense of approximately $62.6 million on income before
income taxes, minority interest and cumulative effect of a change in accounting principle of $77.6
million. Foreign income 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.
All tax liabilities owed by the Company are paid by the Company or on behalf of the Company by
Clear Channel Communications through an operating account that represents net amounts due to or
from Clear Channel Communications.
NOTE K SHAREHOLDERS EQUITY
Stock Options
The Company has granted options to purchase shares of its Class A common stock to employees and
directors of the Company and its affiliates under its incentive stock plan typically at no less
than the fair value of the underlying stock on the date of grant. These options are granted for a
term not exceeding ten years and are forfeited, except in certain circumstances, in the event the
employee or director terminates his or her employment or relationship with the Company or one of
its affiliates. These options generally vest over five years. The option plan contains
anti-dilutive provisions that permit an adjustment of the number of shares of the Companys common
stock represented by each option for any change in capitalization.
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The Company adopted the fair value recognition provisions of Statement 123(R) on January 1, 2006,
using the modified-prospective-transition method. The fair value of the options is estimated using
a Black-Scholes option-pricing model and amortized straight-line to expense over five years. Prior
to January 1, 2006, the Company accounted for its share-based payments under the recognition and
measurement provisions of APB 25 and related Interpretations, as permitted by Statement 123. Under
that method, when options are granted with a strike price equal to or greater than the market price
on the date of issuance, there is no impact on earnings either on the date of grant or thereafter,
absent certain modifications to the options. The amounts recorded as share-based payments prior to
adopting Statement 123(R) primarily related to the expense associated with restricted stock awards.
Under the modified-prospective-transition method, compensation cost recognized beginning in 2006
includes: (a) compensation cost for all share-based payments granted prior to, but not yet vested
as of January 1, 2006, based on the grant date fair value estimated in accordance with the original
provisions of Statement 123, and (b) compensation cost for all share-based payments granted
subsequent to January 1, 2006, based on the grant-date fair value estimated in accordance with the
provisions of Statement 123(R). Results for prior periods have not been restated.
As a result of adopting Statement 123(R) on January 1, 2006, the Companys income before income
taxes and minority interest for the year ended December 31, 2006, was $4.5 million lower and net
income for the year ended December 31, 2006, was $2.6 million lower than if it had continued to
account for share-based compensation under APB 25. Basic and diluted earnings per share for the
year ended December 31, 2006 were $.01 and $.01 lower, respectively, than if the Company had
continued to account for share-based compensation under APB 25.
Prior to the adoption of Statement 123(R), the Company presented all tax benefits of deductions
resulting from the exercise of stock options as operating cash flows in the statement of cash
flows. Statement 123(R) requires the cash flows resulting from the tax benefits resulting from tax
deductions in excess of the compensation cost recognized for those options (excess tax benefits) to
be classified as financing cash flows. The excess tax benefit that is required to be classified as
a financing cash inflow after adoption of Statement 123(R) is not material.
Prior to the IPO, the Company did not have any compensation plans under which it granted stock
awards to employees. However, Clear Channel Communications granted certain of the Companys
officers and other key employees stock options to purchase shares of Clear Channel Communications
common stock. All outstanding options to purchase shares of Clear Channel Communications common
stock held by the Companys employees were converted using an intrinsic value method into options
to purchase shares of the Companys Class A common stock concurrent with the closing of the IPO.
As did the Company, Clear Channel Communications accounted for its stock-based award plans in
accordance with APB 25, and related interpretations. Clear Channel Communications calculated the
pro forma share-based payments as if the share-based awards had been accounted for using the
provisions of Statement 123. The share-based payments were then allocated to the Company based on
the percentage of options outstanding to employees of the Company.
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Pro forma net income and earnings per share, assuming the Company and Clear Channel Communications
accounted for all employee stock options using the fair value method and amortized such to expense
over the options vesting period is as follows:
(In thousands, except per share data) | 2005 | 2004 | ||||||
Income before cumulative effect of a change in
accounting principle, net of tax: |
||||||||
Reported |
$ | 61,573 | $ | 7,478 | ||||
Add: Share based payments included in reported
net income, net of related tax effects |
437 | 23 | ||||||
Deduct: Total share-based payments determined
under fair value based method for all awards,
net of related tax effects |
(3,439 | ) | (6,497 | ) | ||||
Pro Forma |
$ | 58,571 | $ | 1,004 | ||||
Income before cumulative effect of a change in
accounting principle per common share: |
||||||||
Basic: |
||||||||
Reported |
$ | .19 | $ | .02 | ||||
Pro Forma |
$ | .18 | $ | .00 | ||||
Diluted: |
||||||||
Reported |
$ | .19 | $ | .02 | ||||
Pro Forma |
$ | .18 | $ | .00 | ||||
The following assumptions were used to calculate the fair value of the Companys options on the
date of grant:
2006 | 2005 | |||
Expected volatility |
27% | 25% 27% | ||
Expected life in years |
5.0 7.5 | 1.3 7.5 | ||
Risk-free interest rate |
4.58% 5.08% | 4.42% 4.58% | ||
Dividend yield |
0% | 0% |
The following table presents a summary of the Companys stock options outstanding at and stock
option activity during the year ended December 31, 2006 (Price reflects the weighted average
exercise price per share):
Weighted | ||||||||||||||||
Average | Aggregate | |||||||||||||||
Remaining | Intrinsic | |||||||||||||||
(In thousands, except per share data) | Options | Price | Contractual Term | Value | ||||||||||||
Outstanding, January 1, 2006 |
8,509 | $ | 24.05 | |||||||||||||
Granted |
221 | 19.10 | ||||||||||||||
Exercised (a) |
(93 | ) | 26.56 | |||||||||||||
Forfeited |
(387 | ) | 21.78 | |||||||||||||
Expired |
(543 | ) | 30.96 | |||||||||||||
Outstanding, December 31, 2006 |
7,707 | $ | 23.41 | 4.2 years | $ | 44,463 | ||||||||||
Exercisable, December 31, 2006 |
3,556 | 2.2 years | $ | 5,913 |
(a) | Cash received from option exercises was $2.2 million for the year ended December 31, 2006. The total intrinsic value of options exercised during the year ended December 31, 2006, was $0.3 million. |
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The weighted average grant date fair value of options granted during the years ended December 31,
2006 and 2005 was $6.76 and $6.51, respectively.
A summary of the Companys nonvested options at December 31, 2005, and changes during the year
ended December 31, 2006, is presented below:
Weighted | ||||||||
Average | ||||||||
Grant Date | ||||||||
(In thousands, except per share data) | Options | Fair Value | ||||||
Nonvested, January 1, 2006 |
5,634 | $ | 4.56 | |||||
Granted |
221 | 6.76 | ||||||
Vested |
(1,317 | ) | 1.18 | |||||
Forfeited |
(387 | ) | 4.17 | |||||
Nonvested, December 31, 2006 |
4,151 | $ | 5.78 |
There were 34.0 million shares available for future grants under the Companys incentive stock plan
at December 31, 2006. Vesting dates range from April 2004 to October 2011, and expiration dates
range from January 2007 to October 2016 at exercise prices and average contractual lives as
follows:
(In thousands of shares) | Weighted | |||||||||||||||||||||||||||||||
Average | Weighted | Weighted | ||||||||||||||||||||||||||||||
Outstanding | Remaining | Average | Exercisable | Average | ||||||||||||||||||||||||||||
as of | Contractual | Exercise | as of | Exercise | ||||||||||||||||||||||||||||
Range of Exercise Prices | 12/31/06 | Life | Price | 12/31/06 | Price | |||||||||||||||||||||||||||
$ | 15.01 | | $ | 20.00 | 3,338 | 6.2 | $ | 17.98 | 62 | $ | 17.44 | |||||||||||||||||||||
20.01 | | 25.00 | 1,078 | 4.1 | 21.10 | 211 | 21.71 | |||||||||||||||||||||||||
25.01 | | 30.00 | 2,068 | 2.6 | 26.13 | 2,060 | 26.13 | |||||||||||||||||||||||||
30.01 | | 35.00 | 687 | 2.1 | 32.78 | 687 | 32.78 | |||||||||||||||||||||||||
35.01 | | 40.00 | 412 | 0.3 | 37.86 | 412 | 37.86 | |||||||||||||||||||||||||
40.01 | | 45.00 | 98 | 2.0 | 42.80 | 98 | 42.80 | |||||||||||||||||||||||||
45.01 | | 50.00 | 26 | 0.0 | 49.95 | 26 | 49.95 | |||||||||||||||||||||||||
7,707 | 4.2 | $ | 23.41 | 3,556 | $ | 29.00 | ||||||||||||||||||||||||||
Restricted Stock Awards
The Company also grants restricted stock awards to employees and directors of the Company and its
affiliates. These common shares hold a legend which restricts their transferability for a term of
up to five years and are forfeited, except in certain circumstances, 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 Companys incentive stock plan.
The following table presents a summary of the Companys restricted stock outstanding at and
restricted stock activity during the year ended December 31, 2006 (Price reflects the weighted
average share price at the date of grant):
(In thousands, except per share data) | Options | Price | ||||||
Outstanding, January 1, 2006 |
236 | $ | 18.00 | |||||
Granted |
8 | 20.39 | ||||||
Vested (restriction lapsed) |
(4 | ) | 18.00 | |||||
Forfeited |
(23 | ) | 14.16 | |||||
Outstanding, December 31, 2006 |
217 | $ | 18.84 | |||||
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Unrecognized share-based compensation cost
As of December 31, 2006, there was $13.5 million of unrecognized compensation cost related to
nonvested share-based compensation arrangements. The cost is expected to be recognized over a
weighted average period of approximately three years. However, if Clear Channel Communications
Agreement and Plan of Merger is approved, the expense becomes recognizable at the closing of the
transaction.
Reconciliation of Earnings per Share
In connection with the IPO, all of Clear Channel Communications shares of the Companys common
stock outstanding were converted into 315.0 million shares of Class B common stock. This conversion
is reflected as a recapitalization for earnings per share purposes which requires retroactive
statement in accordance with FAS 128, Earnings Per Share. As a result, shares outstanding prior to
the IPO are 315.0 million.
(In thousands, except per share data) | 2006 | 2005 | 2004 | |||||||||
NUMERATOR: |
||||||||||||
Income before cumulative effect of a change
in accounting principle |
$ | 153,072 | $ | 61,573 | $ | 7,478 | ||||||
Cumulative effect of a change in accounting
principle |
| | (162,858 | ) | ||||||||
Net income (loss) |
153,072 | 61,573 | (155,380 | ) | ||||||||
Effect of dilutive securities: |
||||||||||||
None |
| | | |||||||||
Numerator for net income (loss) per common
share diluted |
$ | 153,072 | $ | 61,573 | $ | (155,380 | ) | |||||
DENOMINATOR: |
||||||||||||
Weighted average common shares |
352,155 | 319,890 | 315,000 | |||||||||
Effect of dilutive securities: |
||||||||||||
Stock options and restricted stock awards |
107 | 31 | | |||||||||
Denominator for net income (loss) per
common share diluted |
352,262 | 319,921 | 315,000 | |||||||||
Net income (loss) per common share: |
||||||||||||
Income before cumulative effect of a change
in accounting principle Basic |
$ | .43 | $ | .19 | $ | .02 | ||||||
Cumulative effect of a change in accounting
principle Basic |
| | (.52 | ) | ||||||||
Net income (loss) Basic |
$ | .43 | $ | .19 | $ | (.50 | ) | |||||
Income before cumulative effect of a change
in accounting principle Diluted |
$ | .43 | $ | .19 | $ | .02 | ||||||
Cumulative effect of a change in accounting
principle Diluted |
| | (.52 | ) | ||||||||
Net income (loss) Diluted |
$ | .43 | $ | .19 | $ | (.50 | ) | |||||
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NOTE L EMPLOYEE STOCK AND SAVINGS PLANS
The Companys U.S. 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 $2.1 million, $2.1 million and $1.9 million were recorded
as a component of operating expenses for 2006, 2005 and 2004, respectively.
In addition, employees in the Companys International segment participate in retirement plans
administered by the Company which are not part of the 401(k) savings and other plans provided by
Clear Channel Communications. Contributions to these plans of $17.6 million, $16.2 million and
$15.0 million were recorded as a component of operating expenses for 2006, 2005 and 2004,
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 95% of the market value on the day of purchase.
Clear Channel Communications changed its discount from market value offered to participants under
the plan from 15% to 5% in July 2005. Employees may purchase shares having a value not exceeding
10% of their annual gross compensation or $25,000, whichever is lower. During 2006, 2005 and 2004,
all Clear Channel Communications employees purchased 144,444, 222,789 and 262,163 shares at
weighted average share prices of $28.56, $28.79 and $32.05, respectively. The Companys employees
represent approximately 15% of the total participation in this plan. As a condition of its merger,
Clear Channel Communications no longer accepts contributions to this plan, beginning January 1,
2007.
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. Clear Channel Communications
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 M OTHER INFORMATION
The following details the components of Other income (expense) net:
For the Year Ended December 31, | ||||||||||||
(In thousands) | 2006 | 2005 | 2004 | |||||||||
Royalty fee to Clear Channel Communications |
$ | | $ | (14,825 | ) | $ | (15,809 | ) | ||||
Other |
331 | 2,534 | (721 | ) | ||||||||
Total other income (expense) net |
$ | 331 | $ | (12,291 | ) | $ | (16,530 | ) | ||||
The following details the components of Other current assets:
As of December 31, | ||||||||
(In thousands) | 2006 | 2005 | ||||||
Inventory |
$ | 21,811 | $ | 17,470 | ||||
Deposits |
20,625 | 23,996 | ||||||
Other prepayments |
55,795 | 47,366 | ||||||
Current deferred tax assets |
| 6,219 | ||||||
Other |
96,053 | 86,888 | ||||||
Total other current assets |
$ | 194,284 | $ | 181,939 | ||||
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NOTE N SEGMENT DATA
The Company has two reportable operating segments Americas and International. The Americas
segment primarily includes operations in the United States, Canada and Latin America, and the
International segment includes operations in Europe, Asia, Africa and Australia. Share-based
payments are recorded by each segment in direct operating and selling, general and administrative
expenses.
Corporate | ||||||||||||||||
expenses and | ||||||||||||||||
gain on | ||||||||||||||||
disposition of | Consolidated/ | |||||||||||||||
(In thousands) | Americas | International | assets net | Combined | ||||||||||||
2006 |
||||||||||||||||
Revenue |
$ | 1,341,356 | $ | 1,556,365 | $ | | $ | 2,897,721 | ||||||||
Direct operating expenses |
534,365 | 918,735 | | 1,453,100 | ||||||||||||
Selling, general and
administrative expenses |
207,326 | 341,410 | | 548,736 | ||||||||||||
Depreciation and amortization |
178,970 | 228,760 | | 407,730 | ||||||||||||
Corporate expenses |
| | 65,542 | 65,542 | ||||||||||||
Gain on disposition of assets net |
| | 22,846 | 22,846 | ||||||||||||
Operating income (loss) |
$ | 420,695 | $ | 67,460 | $ | (42,696 | ) | $ | 445,459 | |||||||
Identifiable assets |
$ | 2,820,737 | $ | 2,401,924 | $ | 199,230 | $ | 5,421,891 | ||||||||
Capital expenditures |
$ | 90,495 | $ | 143,387 | $ | | $ | 233,882 | ||||||||
Share-based payments |
$ | 4,699 | $ | 1,312 | $ | 88 | $ | 6,099 | ||||||||
2005 |
||||||||||||||||
Revenue |
$ | 1,216,382 | $ | 1,449,696 | $ | | $ | 2,666,078 | ||||||||
Direct operating expenses |
490,519 | 851,788 | | 1,342,307 | ||||||||||||
Selling, general and
administrative expenses |
186,749 | 355,045 | | 541,794 | ||||||||||||
Depreciation and amortization |
180,559 | 220,080 | | 400,639 | ||||||||||||
Corporate expenses |
| | 61,096 | 61,096 | ||||||||||||
Gain on disposition of assets net |
| | 3,488 | 3,488 | ||||||||||||
Operating income (loss) |
$ | 358,555 | $ | 22,783 | $ | (57,608 | ) | $ | 323,730 | |||||||
Identifiable assets |
$ | 2,531,641 | $ | 2,140,407 | $ | 246,297 | $ | 4,918,345 | ||||||||
Capital expenditures |
$ | 73,084 | $ | 135,072 | $ | | $ | 208,156 | ||||||||
Share-based payments |
$ | 693 | $ | 153 | $ | | $ | 846 | ||||||||
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 | ||||||||||||
Gain on disposition of assets net |
| | 10,791 | 10,791 | ||||||||||||
Operating income (loss) |
$ | 263,772 | $ | 33,277 | $ | (42,979 | ) | $ | 254,070 | |||||||
Identifiable assets |
$ | 2,460,011 | $ | 2,223,918 | $ | 557,004 | $ | 5,240,933 | ||||||||
Capital expenditures |
$ | 60,506 | $ | 115,634 | $ | | $ | 176,140 | ||||||||
Share-based payments |
$ | 116 | $ | | $ | | $ | 116 |
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Revenue of $1.6 billion, $1.5 billion and $1.4 billion and identifiable assets of $2.7 billion,
$2.2 billion and $2.3 billion derived from the Companys foreign operations are included in the
data above for the years ended December 31, 2006, 2005 and 2004, respectively.
NOTE O QUARTERLY RESULTS OF OPERATIONS (Unaudited)
March 31, | June 30, | September 30, | December 31, | |||||||||||||||||||||||||||||
(In thousands, except per share data) | 2006 | 2005 | 2006 | 2005 | 2006 | 2005 | 2006 | 2005 | ||||||||||||||||||||||||
Revenue |
$ | 598,369 | $ | 578,959 | $ | 748,403 | $ | 684,509 | $ | 720,254 | $ | 668,003 | $ | 830,695 | $ | 734,607 | ||||||||||||||||
Operating expenses: |
||||||||||||||||||||||||||||||||
Direct operating expenses |
328,626 | 326,054 | 357,597 | 332,706 | 367,620 | 329,688 | 399,257 | 353,859 | ||||||||||||||||||||||||
Selling, general and administrative
expenses |
130,805 | 129,597 | 136,161 | 127,316 | 134,637 | 153,162 | 147,133 | 131,719 | ||||||||||||||||||||||||
Depreciation and amortization |
96,320 | 98,266 | 100,827 | 96,562 | 102,123 | 95,405 | 108,460 | 110,406 | ||||||||||||||||||||||||
Corporate expenses |
14,585 | 12,975 | 14,120 | 13,423 | 15,125 | 12,999 | 21,712 | 21,699 | ||||||||||||||||||||||||
Gain on disposition of assets net |
22,756 | 1,581 | (315 | ) | 290 | (834 | ) | 1,043 | 1,239 | 574 | ||||||||||||||||||||||
Operating income |
50,789 | 13,648 | 139,383 | 114,792 | 99,915 | 77,792 | 155,372 | 117,498 | ||||||||||||||||||||||||
Interest expense on debt with Clear
Channel Communications |
36,797 | 36,414 | 37,766 | 36,414 | 39,538 | 60,265 | 39,399 | 49,574 | ||||||||||||||||||||||||
Interest expense |
3,257 | 3,244 | 3,926 | 3,223 | 4,061 | 3,407 | (2,161 | ) | 5,813 | |||||||||||||||||||||||
Equity in earnings (loss) of
nonconsolidated affiliates |
1,378 | 345 | 2,421 | 5,602 | 1,823 | 3,961 | 1,838 | (64 | ) | |||||||||||||||||||||||
Other income (expense) net |
(434 | ) | (2,842 | ) | 1,634 | (1,129 | ) | 467 | (5,748 | ) | (1,336 | ) | (2,572 | ) | ||||||||||||||||||
Income (loss) before income taxes and
minority interest |
11,679 | (28,507 | ) | 101,746 | 79,628 | 58,606 | 12,333 | 118,636 | 59,475 | |||||||||||||||||||||||
Income tax (expense) benefit |
(5,139 | ) | 23,565 | (44,768 | ) | (58,431 | ) | (26,646 | ) | 3,122 | (45,527 | ) | (13,740 | ) | ||||||||||||||||||
Minority interest income (expense) net |
1,593 | (950 | ) | (8,931 | ) | (3,685 | ) | (127 | ) | (5,913 | ) | (8,050 | ) | (5,324 | ) | |||||||||||||||||
Net income (loss) |
$ | 8,133 | $ | (5,892 | ) | $ | 48,047 | $ | 17,512 | $ | 31,833 | $ | 9,542 | $ | 65,059 | $ | 40,411 | |||||||||||||||
Net income (loss) per common share: |
||||||||||||||||||||||||||||||||
Basic |
$ | .02 | $ | (.02 | ) | $ | .14 | $ | .06 | $ | .09 | $ | .03 | $ | .18 | $ | .12 | |||||||||||||||
Diluted |
$ | .02 | $ | (.02 | ) | $ | .14 | $ | .06 | $ | .09 | $ | .03 | $ | .18 | $ | .12 | |||||||||||||||
Stock price: |
||||||||||||||||||||||||||||||||
High |
$ | 23.95 | $ | | $ | 24.20 | $ | | $ | 21.26 | $ | | $ | 28.13 | $ | 20.40 | ||||||||||||||||
Low |
$ | 18.49 | $ | | $ | 19.31 | $ | | $ | 18.66 | $ | | $ | 19.49 | $ | 18.00 |
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Table of Contents
ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Not applicable
ITEM 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We have established disclosure controls and procedures to ensure that material information
relating to Clear Channel Outdoor Holdings, Inc. (the Company) including its consolidated
subsidiaries is made known to the officers who certify the Companys financial reports and to other
members of senior management and the Board of Directors.
Our principal executive and financial officers have concluded, based on their evaluation as of
the end of the period covered by this Form 10-K, that our disclosure controls and procedures, as
defined under Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, are effective
to ensure that information we are required to disclose in the reports we file or submit under the
Exchange Act is recorded, processed, summarized and reported within the time periods specified in
the SECs rules and forms, and include controls and procedures designed to ensure that information
we are required to disclose in such reports is accumulated and communicated to management,
including our principal executive and financial officers, as appropriate to allow timely decisions
regarding required disclosure.
Evaluation of Disclosure Controls and Procedures
The management of the Company is responsible for establishing and maintaining adequate
internal control over financial reporting. The Companys internal control over financial reporting
is a process designed under the supervision of the Companys Chief Executive Officer and Chief
Financial Officer to provide reasonable assurance regarding the reliability of financial reporting
and preparation of the Companys financial statements for external purposes in accordance with
generally accepted accounting principles.
As of December 31, 2006, management assessed the effectiveness of the Companys internal
control over financial reporting based on the criteria for effective internal control over
financial reporting established in Internal Control Integrated Framework issued by the Committee
of Sponsoring Organizations of the Treadway Commission. Based on the assessment, management
determined that the Company maintained effective internal control over financial reporting as of
December 31, 2006, based on those criteria.
Ernst & Young LLP, the independent registered public accounting firm that audited the
consolidated financial statements of the Company included in this Annual Report on Form 10-K, has
issued an attestation report on managements assessment of the effectiveness of the Companys
internal control over financial reporting as of December 31, 2006. The report, which expresses
unqualified opinions on managements assessment and on the effectiveness of the Companys internal
control over financial reporting as of December 31, 2006, is included in this Item under the
heading Report of Independent Registered Public Accounting Firm.
There were no changes in our internal control over financial reporting that occurred during
the most recent fiscal quarter that have materially affected, or are reasonably likely to
materially affect, our internal control over financial reporting.
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Report of Independent Registered Public Accounting Firm
THE BOARD
OF DIRECTORS AND SHAREHOLDERS
CLEAR CHANNEL OUTDOOR HOLDINGS, INC.
CLEAR CHANNEL OUTDOOR HOLDINGS, INC.
We have audited managements assessment, included in the accompanying Managements Report on
Internal Control Over Financial Reporting, that Clear Channel Outdoor Holdings, Inc. (the Company)
maintained effective internal control over financial reporting as of December 31, 2006, based on
criteria established in Internal ControlIntegrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (the COSO criteria). The Companys management is
responsible for maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting. Our responsibility is
to express an opinion on managements assessment and an opinion on the effectiveness of the
Companys internal control over financial reporting based on our audit.
We conducted our audit 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 effective internal control over financial reporting was
maintained in all material respects. Our audit included obtaining an understanding of internal
control over financial reporting, evaluating managements assessment, testing and evaluating the
design and operating effectiveness of internal control, and performing such other procedures as we
considered necessary in the circumstances. We believe that our audit provides a reasonable basis
for our opinion.
A companys internal control over financial reporting is a process designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles. A
companys internal control over financial reporting includes those policies and procedures that (1)
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company; (2) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of management and directors of the company;
and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or
detect misstatements. Also, projections of any evaluation of effectiveness to future periods are
subject to the risk that controls may become inadequate because of changes in conditions, or that
the degree of compliance with the policies or procedures may deteriorate.
In our opinion, managements assessment that Clear Channel Outdoor Holdings, Inc. maintained
effective internal control over financial reporting as of December 31, 2006, is fairly stated, in
all material respects, based on the COSO criteria. Also, in our opinion, Clear Channel Outdoor
Holdings, Inc. maintained, in all material respects, effective internal control over financial
reporting as of December 31, 2006, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), the consolidated balance sheets of Clear Channel Outdoor Holdings, Inc. as
of December 31, 2006 and 2005 and the related consolidated and
combined statements of operations, changes in
shareholders/owners equity, and cash flows for each of the three years in the period ended
December 31, 2006 of Clear Channel Outdoor Holdings, Inc. and subsidiaries and our report dated
February 26, 2007 expressed an unqualified opinion thereon.
/s/ ERNST & YOUNG LLP | ||||
San Antonio, Texas
February 26, 2007
February 26, 2007
ITEM 9B. Other Information
Not applicable
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PART III
ITEM 10. Directors, Executive Officers and Corporate Governance
The information required by this item with respect to our code of ethics and the directors and
nominees for election to our Board of Directors is incorporated by reference to the information set
forth under the captions Code of Business Conduct and Ethics, Election of Directors or
Compliance With Section 16(A) of the Exchange Act, in our Definitive Proxy Statement, which will
be filed with the Securities and Exchange Commission within 120 days of our fiscal year end.
Set forth below are the names and ages and current positions of our executive officers and
directors as of February 19, 2007:
Term as | ||||||
Name | Age | Position | Director | |||
L. Lowry Mays |
71 | Chairman of the Board and Director | Expires 2007 | |||
William D. Parker |
45 | Director | Expires 2009 | |||
James M. Raines |
67 | Director | Expires 2007 | |||
Marsha McCombs Shields |
52 | Director | Expires 2008 | |||
Dale W. Tremblay |
48 | Director | Expires 2009 | |||
Mark P. Mays |
43 | Chief Executive Officer and Director | Expires 2009 | |||
Randall T. Mays |
41 | Chief Financial Officer and Director | Expires 2008 | |||
Paul J. Meyer |
64 | Global President and Chief Operating Officer | ||||
Jonathan Bevan |
35 | Chief Financial Officer - International and Director of Corporate Development | ||||
Herbert W. Hill, Jr. |
48 | Senior Vice President and Chief Accounting Officer | ||||
Andrew Levin |
44 | Executive Vice President / Chief Legal Officer and Secretary | ||||
Franklin G. Sisson, Jr. |
54 | Global Director Sales and Marketing | ||||
Kurt Tingey |
42 | Executive Vice President - Americas Chief Financial Officer | ||||
Laura C. Toncheff |
39 | Executive Vice President - Americas General Counsel |
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 Live Nation, 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.
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 Board members of Clear Channel Communications.
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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. 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 was President and Chief Operating Officer of Clear Channel Communications
from February 1997 until his appointment as President and Chief Executive Officer in October 2004.
He relinquished his duties as President of Clear Channel Communications in February 2006. Mr. Mays
has served on the Board of Directors of Clear Channel Communications since May 1998, and has served
on the Board of Live Nation, 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 Chief Financial Officer since August 2005 and Director since
April 1997. Mr. Mays has served as Chairman of the Board of Directors of Live Nation, Inc. since
August 2005. He also was appointed Executive Vice President and Chief Financial Officer of Clear
Channel Communications in February 1997 and was appointed Secretary in April 2003. He was
appointed President of Clear Channel Communications in February 2006. 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 Global President and Chief Operating Officer since April 2005.
Prior thereto, he served as President and Chief Executive Officer of our Americas segment from
January 2002 to April 2005 and President/Chief Operating Officer of our Americas 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 Financial Officer International and Director of
Corporate Development since November 2006. Prior thereto, he served as our Chief Financial Officer
International from January 2006 to November 2006. Prior thereto, he served as 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.
Herbert W. Hill, Jr. was appointed Senior Vice President and Chief Accounting Officer of the
Company in April 2006 and has served as Senior Vice President and Chief Accounting Officer of Clear
Channel Communications since 1997.
Andrew Levin has served as Executive Vice President, Chief Legal Officer and Secretary of the
Company since April 2006 and as Executive Vice President and Chief Legal Officer of Clear Channel
Communications since February 2004. Prior thereto he served as Senior Vice President for
Government Affairs of Clear Channel Communications since he joined Clear Channel Communications in
2002. He was Minority Counsel to the United States House of Representatives Energy and Commerce
Committee 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 Americas
segment since January 2001.
Kurt A. Tingey has served as our Executive Vice President and Americas Chief Financial Officer
since January 1, 2000.
Laura C. Toncheff has served as our Executive Vice President Americas General Counsel since
October 2006. Prior thereto, she served as Executive Vice President Americas Real Estate, Public
Affairs and Legal since January 2003. Prior thereto, Ms. Toncheff served as the Executive Vice
President Americas General Counsel since January 2000.
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ITEM 11. Executive Compensation
The information required by this item is incorporated by reference to the information set
forth under the caption Executive Compensation in our Definitive Proxy Statement, expected to be
filed within 120 days of our fiscal year end.
ITEM 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
The information required by this item is incorporated by reference to the information set
forth under the caption Security Ownership of Certain Beneficial Owners and Management in our
Definitive Proxy Statement, expected to be filed within 120 days of our fiscal year end.
ITEM 13. Certain Relationship and Related Transactions, and Director Independence
The information required by this item is incorporated by reference to the information set
forth under the caption Certain Transactions in our Definitive Proxy Statement, expected to be
filed within 120 days of our fiscal year end.
ITEM 14. Principal Accountant Fees and Services
The information required by this item is incorporated by reference to the information set
forth under the caption Auditor Fees in our Definitive Proxy Statement, expected to be filed
within 120 days of our fiscal year end.
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PART IV
ITEM 15. Exhibits and Financial Statement Schedules
(a)1. Financial Statements.
The following consolidated and combined financial statements are included in Item 8.
Consolidated Balance Sheets as of December 31, 2006 and 2005.
Consolidated and Combined Statements of Operations for the Years Ended December 31, 2006, 2005 and
2004.
Consolidated and Combined Statements of Changes in Shareholders Equity for the Years Ended
December 31, 2006, 2005 and 2004.
Consolidated and Combined Statements of Cash Flows for the Years Ended December 31, 2006, 2005 and
2004.
Notes to Consolidated and Combined Financial Statements.
(a)2. Financial Statement Schedule.
The following financial statement schedule for the years ended December 31, 2006, 2005 and 2004 and
related report of independent auditors is filed as part of this report and should be read in
conjunction with the consolidated financial statements.
Schedule II Valuation and Qualifying Accounts
All other schedules for which provision is made in the applicable accounting regulation of the
Securities and Exchange Commission are not required under the related instructions or are in
applicable, and therefore have been omitted.
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SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
VALUATION AND QUALIFYING ACCOUNTS
Allowance for Doubtful Accounts
(In thousands) | Charges to | |||||||||||||||||||
Balance at | Costs, | Write-off of | ||||||||||||||||||
Beginning of | Expenses and | Accounts | Balance at | |||||||||||||||||
Description |
Period | Other | Receivable | Other (1) | End of Period | |||||||||||||||
Year ended
December 31, 2004 |
$ | 15,713 | $ | 8,731 | $ | 6,112 | $ | 1,155 | $ | 19,487 | ||||||||||
Year ended
December 31, 2005 |
$ | 19,487 | $ | 11,583 | $ | 7,505 | $ | (1,866 | ) | $ | 21,699 | |||||||||
Year ended
December 31, 2006 |
$ | 21,699 | $ | 8,571 | $ | 7,096 | $ | 1,653 | $ | 24,827 |
(1) | Primarily foreign currency adjustments. |
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Table of Contents
(a)3. Exhibits
Exhibit | ||
Number | Description | |
3.1
|
Amended and Restated Certificate of Incorporation of Clear Channel Outdoor Holdings, Inc. (incorporated herein by reference to the exhibits of the Companys Annual Report on Form 10-K filed March 31, 2006). | |
3.2
|
Amended and Restated Bylaws of Clear Channel Outdoor Holdings, Inc. (incorporated herein by reference to the exhibits of the Companys Annual Report on Form 10-K filed March 31, 2006). | |
4.1
|
Form of Specimen Class A Common Stock certificate of Clear Channel Outdoor Holdings, Inc. (incorporated herein by reference to Exhibit 4.1 to the Registration Statement on Form S-1 (File No. 333-127375 (the Registration Statement)). | |
4.2
|
Form of Specimen Class B Common Stock certificate of Clear Channel Outdoor Holdings, Inc. (incorporated herein by reference to Exhibit 4.2 to the Registration Statement). | |
10.1
|
Master Agreement dated November 16, 2005 between Clear Channel Outdoor Holdings, Inc. and Clear Channel Communications, Inc. (incorporated herein by reference to the exhibits of the Companys Annual Report on Form 10-K filed March 31, 2006). | |
10.2
|
Registration Rights Agreement dated November 16, 2005 between Clear Channel Outdoor Holdings, Inc. and Clear Channel Communications, Inc. (incorporated herein by reference to the exhibits of the Companys Annual Report on Form 10-K filed March 31, 2006). | |
10.3
|
Corporate Services Agreement dated November 16, 2005 between Clear Channel Outdoor Holdings, Inc. and Clear Channel Management Services, L.P. (incorporated herein by reference to the exhibits of the Companys Annual Report on Form 10-K filed March 31, 2006). | |
10.4
|
Tax Matters Agreement dated November 10, 2005 between Clear Channel Outdoor Holdings, Inc. and Clear Channel Communications, Inc. (incorporated herein by reference to the exhibits of the Companys Annual Report on Form 10-K filed March 31, 2006). | |
10.5
|
Employee Matters Agreement dated November 10, 2005 between Clear Channel Outdoor Holdings, Inc. and Clear Channel Communications, Inc. (incorporated herein by reference to the exhibits of the Companys Annual Report on Form 10-K filed March 31, 2006). | |
10.6
|
Amended and Restated License Agreement dated November 10, 2005 between Clear Channel Identity, L.P. and Outdoor Management Services, Inc. (incorporated herein by reference to the exhibits of the Companys Annual Report on Form 10-K filed March 31, 2006). | |
10.7
|
Revolving Promissory Note dated November 10, 2005 payable by Clear Channel Outdoor Holdings, Inc. to Clear Channel Communications, Inc. in the original principal amount of $1,000,000,000 (incorporated herein by reference to the exhibits of the Companys Annual Report on Form 10-K filed March 31, 2006). | |
10.8
|
Revolving Promissory Note dated November 10, 2005 payable by Clear Channel Communications, Inc. to Clear Channel Outdoor Holdings, Inc. in the original principal amount of $1,000,000,000 (incorporated herein by reference to the exhibits of the Companys Annual Report on Form 10-K filed March 31, 2006). | |
10.9
|
Senior Unsecured Term Promissory Note dated August 2, 2005 in the original principal amount of $2.5 billion (incorporated herein by reference to Exhibit 10.9 to the Registration Statement). |
88
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Exhibit | ||
Number | Description | |
10.10
|
First Amendment to Senior Unsecured Term Promissory Note dated October 7, 2005 (incorporated herein by reference to Exhibit 10.10 to the Registration Statement). | |
10.11§
|
Clear Channel Outdoor Holdings, Inc. 2005 Stock Incentive Plan (incorporated herein by reference to Exhibit 10.1 to the Registration Statement on Form S-8 filed December 9, 2005 (File No. 333-130229)). | |
10.12§
|
Form of Option Agreement under the Clear Channel Outdoor Holdings, Inc. 2005 Stock Incentive Plan (incorporated herein by reference to Exhibit 10.2 to the Registration Statement on Form S-8 filed December 9, 2005 (File No. 333-130229)). | |
10.13§
|
Form of Restricted Stock Award Agreement under the Clear Channel Outdoor Holdings, Inc. 2005 Stock Incentive Plan (incorporated herein by reference to Exhibit 10.3 to the Registration Statement on Form S-8 filed December 9, 2005 (File No. 333-130229)). | |
10.14§
|
2006 Annual Incentive Plan of Clear Channel Outdoor Holdings, Inc. (incorporated herein by reference to Exhibit 10.12 to the Registration Statement). | |
10.15§
|
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 (File No. 1-9645) filed March 11, 2005). | |
10.16§
|
Second Amendment to Employment Agreement, dated November 16, 2006, by and between Mark P. Mays and Clear Channel Communications, Inc. (incorporated herein by reference to the exhibits of the Clear Channel Communications, Inc. Form 8-K (File No. 1-9645) filed November 16, 2006. | |
10.17§
|
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 (File No. 1-9645) filed March 11, 2005). | |
10.18§
|
Second Amendment to Employment Agreement, dated November 16, 2006, by and between Randall T. Mays and Clear Channel Communications, Inc. (incorporated herein by reference to the exhibits of the Clear Channel Communications, Inc. Form 8-K (File No. 1-9645) filed November 16, 2006. | |
10.19§
|
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 (File No. 1-9645) filed August 10, 2005). | |
11*
|
Statement re: Computation of Per Share Earnings. | |
21*
|
Subsidiaries of Clear Channel Outdoor Holdings, Inc. | |
23.1*
|
Consent of Ernst & Young LLP. | |
24*
|
Power of Attorney (included on signature page). | |
31.1*
|
Certification of Chief Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
31.2*
|
Certification of Chief Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
32.1*
|
Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
89
Table of Contents
Exhibit | ||
Number | Description | |
32.2*
|
Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
* | Filed herewith | |
§ | Management contract or compensatory plan or arrangement |
The Company has not filed long-term debt instruments of its subsidiaries where the total amount
under such instruments is less than ten percent of the total assets of the Company and its
subsidiaries on a consolidated basis. However, the Company will furnish a copy of such instruments
to the Commission upon request.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1034,
the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized, on February 28, 2007.
CLEAR CHANNEL OUTDOOR HOLDINGS, INC. |
||||
By: | /s/ Mark P. Mays | |||
Mark P. Mays | ||||
Chief Executive Officer | ||||
Power of Attorney
Each person whose signature appears below authorizes Mark P. Mays, Randall T. Mays and Herbert
W. Hill, Jr., or any one of them, each of whom may act without joinder of the others, to execute in
the name of each such person who is then an officer or director of the Registrant and to file any
amendments to this annual report on Form 10-K necessary or advisable to enable the Registrant to
comply with the Securities Exchange Act of 1934, as amended, and any rules, regulations and
requirements of the Securities and Exchange Commission in respect thereof, which amendments may
make such changes in such report as such attorney-in-fact may deem appropriate.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been
signed by the following persons on behalf of the Registrant and in the capacities and on the dates
indicated.
Name | Title | Date | ||
/s/ L. Lowry Mays
|
Chairman of the Board and Director | February 28, 2007 | ||
L. Lowry Mays |
||||
/s/ Mark P. Mays
|
Chief Executive Officer and Director | February 28, 2007 | ||
Mark P. Mays
|
(Principal Executive Officer) | |||
/s/ Randall T. Mays
|
Chief Financial Officer and Director | February 28, 2007 | ||
Randall T. Mays
|
(Principal Financial Officer) | |||
/s/ Herbert W. Hill, Jr.
|
Senior Vice President and Chief Accounting | February 28, 2007 | ||
Herbert W. Hill, Jr.
|
Officer (Principal Accounting Officer) | |||
/s/ William D. Parker
|
Director | February 28, 2007 | ||
William D. Parker |
||||
/s/ James M. Raines
|
Director | February 28, 2007 | ||
James M. Raines |
||||
/s/ Marsha McCombs Shields
|
Director | February 28, 2007 | ||
Marsha McCombs Shields |
||||
/s/ Dale W. Tremblay
|
Director | February 28, 2007 | ||
Dale W. Tremblay |
Table of Contents
Exhibit Index
Exhibit | ||
Number | Description | |
3.1
|
Amended and Restated Certificate of Incorporation of Clear Channel Outdoor Holdings, Inc. (incorporated herein by reference to the exhibits of the Companys Annual Report on Form 10-K filed March 31, 2006). | |
3.2
|
Amended and Restated Bylaws of Clear Channel Outdoor Holdings, Inc. (incorporated herein by reference to the exhibits of the Companys Annual Report on Form 10-K filed March 31, 2006). | |
4.1
|
Form of Specimen Class A Common Stock certificate of Clear Channel Outdoor Holdings, Inc. (incorporated herein by reference to Exhibit 4.1 to the Registration Statement on Form S-1 (File No. 333-127375 (the Registration Statement)). | |
4.2
|
Form of Specimen Class B Common Stock certificate of Clear Channel Outdoor Holdings, Inc. (incorporated herein by reference to Exhibit 4.2 to the Registration Statement). | |
10.1
|
Master Agreement dated November 16, 2005 between Clear Channel Outdoor Holdings, Inc. and Clear Channel Communications, Inc. (incorporated herein by reference to the exhibits of the Companys Annual Report on Form 10-K filed March 31, 2006). | |
10.2
|
Registration Rights Agreement dated November 16, 2005 between Clear Channel Outdoor Holdings, Inc. and Clear Channel Communications, Inc. (incorporated herein by reference to the exhibits of the Companys Annual Report on Form 10-K filed March 31, 2006). | |
10.3
|
Corporate Services Agreement dated November 16, 2005 between Clear Channel Outdoor Holdings, Inc. and Clear Channel Management Services, L.P. (incorporated herein by reference to the exhibits of the Companys Annual Report on Form 10-K filed March 31, 2006). | |
10.4
|
Tax Matters Agreement dated November 10, 2005 between Clear Channel Outdoor Holdings, Inc. and Clear Channel Communications, Inc. (incorporated herein by reference to the exhibits of the Companys Annual Report on Form 10-K filed March 31, 2006). | |
10.5
|
Employee Matters Agreement dated November 10, 2005 between Clear Channel Outdoor Holdings, Inc. and Clear Channel Communications, Inc. (incorporated herein by reference to the exhibits of the Companys Annual Report on Form 10-K filed March 31, 2006). | |
10.6
|
Amended and Restated License Agreement dated November 10, 2005 between Clear Channel Identity, L.P. and Outdoor Management Services, Inc. (incorporated herein by reference to the exhibits of the Companys Annual Report on Form 10-K filed March 31, 2006). | |
10.7
|
Revolving Promissory Note dated November 10, 2005 payable by Clear Channel Outdoor Holdings, Inc. to Clear Channel Communications, Inc. in the original principal amount of $1,000,000,000 (incorporated herein by reference to the exhibits of the Companys Annual Report on Form 10-K filed March 31, 2006). | |
10.8
|
Revolving Promissory Note dated November 10, 2005 payable by Clear Channel Communications, Inc. to Clear Channel Outdoor Holdings, Inc. in the original principal amount of $1,000,000,000 (incorporated herein by reference to the exhibits of the Companys Annual Report on Form 10-K filed March 31, 2006). | |
10.9
|
Senior Unsecured Term Promissory Note dated August 2, 2005 in the original principal amount of $2.5 billion (incorporated herein by reference to Exhibit 10.9 to the Registration Statement). |
Table of Contents
Exhibit | ||
Number | Description | |
10.10
|
First Amendment to Senior Unsecured Term Promissory Note dated October 7, 2005 (incorporated herein by reference to Exhibit 10.10 to the Registration Statement). | |
10.11§
|
Clear Channel Outdoor Holdings, Inc. 2005 Stock Incentive Plan (incorporated herein by reference to Exhibit 10.1 to the Registration Statement on Form S-8 filed December 9, 2005 (File No. 333-130229)). | |
10.12§
|
Form of Option Agreement under the Clear Channel Outdoor Holdings, Inc. 2005 Stock Incentive Plan (incorporated herein by reference to Exhibit 10.2 to the Registration Statement on Form S-8 filed December 9, 2005 (File No. 333-130229)). | |
10.13§
|
Form of Restricted Stock Award Agreement under the Clear Channel Outdoor Holdings, Inc. 2005 Stock Incentive Plan (incorporated herein by reference to Exhibit 10.3 to the Registration Statement on Form S-8 filed December 9, 2005 (File No. 333-130229)). | |
10.14§
|
2006 Annual Incentive Plan of Clear Channel Outdoor Holdings, Inc. (incorporated herein by reference to Exhibit 10.12 to the Registration Statement). | |
10.15§
|
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 (File No. 1-9645) filed March 11, 2005). | |
10.16§
|
Second Amendment to Employment Agreement, dated November 16, 2006, by and between Mark P. Mays and Clear Channel Communications, Inc. (incorporated herein by reference to the exhibits of the Clear Channel Communications, Inc. Form 8-K (File No. 1-9645) filed November 16, 2006. | |
10.17§
|
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 (File No. 1-9645) filed March 11, 2005). | |
10.18§
|
Second Amendment to Employment Agreement, dated November 16, 2006, by and between Randall T. Mays and Clear Channel Communications, Inc. (incorporated herein by reference to the exhibits of the Clear Channel Communications, Inc. Form 8-K (File No. 1-9645) filed November 16, 2006. | |
10.19§
|
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 (File No. 1-9645) filed August 10, 2005). | |
11*
|
Statement re: Computation of Per Share Earnings. | |
21*
|
Subsidiaries of Clear Channel Outdoor Holdings, Inc. | |
23.1*
|
Consent of Ernst & Young LLP. | |
24*
|
Power of Attorney (included on signature page). | |
31.1*
|
Certification of Chief Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
31.2*
|
Certification of Chief Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
32.1*
|
Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
Table of Contents
Exhibit | ||
Number | Description | |
32.2*
|
Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
* | Filed herewith | |
§ | Management contract or compensatory plan or arrangement |
The Company has not filed long-term debt instruments of its subsidiaries where the total amount
under such instruments is less than ten percent of the total assets of the Company and its
subsidiaries on a consolidated basis. However, the Company will furnish a copy of such instruments
to the Commission upon request.