UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

 

 

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 AND 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2010

 

¨ 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 or other jurisdiction of
incorporation or organization)
 

(I.R.S. Employer

Identification No.)

 

200 East Basse Road

San Antonio, Texas

  78209
(Address of principal executive offices)   (Zip Code)

(210) 832-3700

(Registrant’s telephone number, including area code)

 

 

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  x    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ¨    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer   ¨    Accelerated filer   x
Non-accelerated filer   ¨    Smaller reporting company   ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

 

Class

 

Outstanding at August 5, 2010

Class A Common Stock, $.01 par value  

40,931,673

Class B Common Stock, $.01 par value   315,000,000

 

 

 


CLEAR CHANNEL OUTDOOR HOLDINGS, INC. AND SUBSIDIARIES

INDEX

 

     Page No.
PART I — FINANCIAL INFORMATION   
  Item 1.    Unaudited Financial Statements   
     Condensed Consolidated Balance Sheets at June 30, 2010 and December 31, 2009    3
     Consolidated Statements of Operations for the three and six months ended June 30, 2010 and 2009    4
     Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2010 and 2009    5
     Notes to Consolidated Financial Statements    6
  Item 2.    Management’s Discussion and Analysis of Financial Condition and Results of Operations    21
  Item 3.    Quantitative and Qualitative Disclosures About Market Risk    32
  Item 4.    Controls and Procedures    32
PART II — OTHER INFORMATION   
  Item 1.    Legal Proceedings    33
  Item 1A.    Risk Factors    33
  Item 2.    Unregistered Sales of Equity Securities and Use of Proceeds    34
  Item 3.    Defaults Upon Senior Securities    34
  Item 4.    (Removed and Reserved)    34
  Item 5.    Other Information    34
  Item 6.    Exhibits    35
  Signatures    36


PART I — FINANCIAL INFORMATION

 

Item 1. UNAUDITED FINANCIAL STATEMENTS

CLEAR CHANNEL OUTDOOR HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands)

 

     June 30,
2010
(Unaudited)
    December 31,
2009
 
CURRENT ASSETS     

Cash and cash equivalents

   $ 616,544      $ 609,436   

Accounts receivable, net

     707,242        730,306   

Other current assets

     255,210        300,803   
                

Total Current Assets

     1,578,996        1,640,545   
PROPERTY, PLANT AND EQUIPMENT     

Structures, net

     2,027,471        2,143,972   

Other property, plant and equipment, net

     278,435        296,666   
INTANGIBLE ASSETS     

Definite-lived intangibles, net

     727,914        799,144   

Indefinite-lived intangibles

     1,122,878        1,132,218   

Goodwill

     831,784        861,592   
OTHER ASSETS     

Due from Clear Channel Communications

     146,985        123,308   

Other assets

     199,594        194,977   
                

Total Assets

   $ 6,914,057      $ 7,192,422   
                
CURRENT LIABILITIES     

Accounts payable and accrued expenses

   $ 552,132      $ 614,442   

Deferred income

     137,386        109,578   

Current portion of long-term debt

     16,213        47,073   
                

Total Current Liabilities

     705,731        771,093   

Long-term debt

     2,546,044        2,561,805   

Deferred tax liability

     806,661        841,911   

Other long-term liabilities

     256,717        256,236   

Commitments and contingent liabilities

    
SHAREHOLDERS’ EQUITY     

Noncontrolling interest

     191,895        193,730   

Class A common stock

     409        407   

Class B common stock

     3,150        3,150   

Additional paid-in capital

     6,674,591        6,669,247   

Retained deficit

     (3,943,735     (3,886,826

Accumulated other comprehensive loss

     (327,122     (218,177

Cost of shares held in treasury

     (284     (154
                

Total Shareholders’ Equity

     2,598,904        2,761,377   
                

Total Liabilities and Shareholders’ Equity

   $ 6,914,057      $ 7,192,422   
                

See notes to consolidated financial statements

 

- 3 -


CLEAR CHANNEL OUTDOOR HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

(In thousands, except per share data)

 

     Three Months Ended
June 30,
    Six Months Ended
June 30,
 
     2010     2009     2010     2009  

Revenue

   $ 701,407      $ 692,117      $ 1,310,175      $ 1,274,333   

Operating expenses:

        

Direct operating expenses (excludes depreciation and amortization)

     385,884        392,309        764,770        771,917   

Selling, general and administrative expenses (excludes depreciation and amortization)

     130,692        121,342        242,049        239,106   

Depreciation and amortization

     105,299        114,808        207,008        216,716   

Corporate expenses (excludes depreciation and amortization)

     23,757        15,653        44,529        29,899   

Impairment charges

     —          812,390        —          812,390   

Other operating income – net

     1,720        4,353        2,738        8,965   
                                

Operating income (loss)

     57,495        (760,032     54,557        (786,730

Interest expense on debt with Clear Channel Communications

     —          36,835        —          73,810   

Interest expense

     60,395        1,362        118,713        3,274   

Interest income on Due from Clear Channel Communications

     3,806        111        7,219        225   

Equity in earnings (loss) of nonconsolidated affiliates

     4        (21,755     (799     (24,048

Other expense – net

     (4,155     (2,612     (4,992     (5,780
                                

Loss before income taxes

     (3,245     (822,485     (62,728     (893,417

Income tax benefit

     741        133,124        11,445        112,701   
                                

Consolidated net loss

     (2,504     (689,361     (51,283     (780,716

Amount attributable to noncontrolling interest

     6,623        (263     5,626        (3,738
                                

Net loss attributable to the Company

   $ (9,127   $ (689,098   $ (56,909   $ (776,978
                                

Other comprehensive (loss) income, net of tax:

        

Foreign currency translation adjustments

     (67,087     114,405        (106,589     68,916   

Foreign currency reclassification adjustment

     (1,365     (513     (1,141     (513

Unrealized (loss) gain on marketable securities

     (2,328     6,581        (4,948     (9,150
                                

Comprehensive loss

     (79,907     (568,625     (169,587     (717,725
                                

Amount attributable to noncontrolling interest

     (3,891     6,471        (3,733     4,021   
                                

Comprehensive loss attributable to the Company

   $ (76,016   $ (575,096   $ (165,854   $ (721,746
                                

Net loss per common share:

        

Basic

   $ (0.03   $ (1.94   $ (0.16   $ (2.19

Weighted average common shares outstanding – Basic

     355,542        355,370        355,502        355,351   

Diluted

   $ (0.03   $ (1.94   $ (0.16   $ (2.19

Weighted average common shares outstanding – Diluted

     355,542        355,370        355,502        355,351   

See notes to consolidated financial statements

 

- 4 -


CLEAR CHANNEL OUTDOOR HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

(In thousands)

 

     Six Months Ended
June 30,
 
     2010     2009  

Cash flows from operating activities:

    

Consolidated net loss

   $ (51,283   $ (780,716

Reconciling items:

    

Impairment charge

     —          812,390   

Depreciation and amortization

     207,008        216,716   

Deferred taxes

     (29,133     (125,851

Provision for doubtful accounts

     2,150        7,679   

Other reconciling items, net

     11,562        21,882   

Changes in operating assets and liabilities:

    

(Increase) decrease in accounts receivable

     (25,948     41,205   

Increase in deferred income

     35,276        35,618   

Increase (decrease) in accounts payable, accrued expenses and other liabilities

     5,202        (64,072

Changes in other operating assets and liabilities, net of effects of acquisitions and dispositions

     18,103        (25,200
                

Net cash provided by operating activities

     172,937        139,651   

Cash flows from investing activities:

    

Purchases of property, plant and equipment

     (86,716     (66,822

Acquisition of operating assets, net of cash acquired

     (425     (5,097

Change in other – net

     1,423        10,807   
                

Net cash used for investing activities

     (85,718     (61,112

Cash flows from financing activities:

    

Draws on credit facilities

     304        444   

Payments on credit facilities

     (43,541     (5,999

Proceeds from long-term debt

     6,844        —     

Payments on long-term debt

     (7,829     (310

Net transfers to Clear Channel Communications

     (23,677     (45,538

Payments for purchase of noncontrolling interest

     —          (12,952

Change in other – net

     (3,571     (36
                

Net cash used for financing activities

     (71,470     (64,391

Effect of exchange rate changes on cash

     (8,641     (4,349
                

Net increase in cash and cash equivalents

     7,108        9,799   

Cash and cash equivalents at beginning of period

     609,436        94,812   
                

Cash and cash equivalents at end of period

   $ 616,544      $ 104,611   
                

See notes to consolidated financial statements

 

- 5 -


CLEAR CHANNEL OUTDOOR HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Note 1: BASIS OF PRESENTATION

Preparation of Interim Financial Statements

The accompanying consolidated financial statements were prepared by Clear Channel Outdoor Holdings, Inc. (the “Company”) pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) and, in the opinion of management, include all adjustments (consisting of normal recurring accruals and adjustments necessary for adoption of new accounting standards) necessary to present fairly the results of the interim periods shown. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles (“GAAP”) in the United States have been condensed or omitted pursuant to such SEC rules and regulations. Management believes that the disclosures made are adequate to make the information presented not misleading. Due to seasonality and other factors, the results for the interim periods are not necessarily indicative of results for the full year. The financial statements contained herein should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s 2009 Annual Report on Form 10-K and Quarterly Report on Form 10-Q for the quarter ended March 31, 2010.

The consolidated financial statements include the accounts of the Company and its subsidiaries and give effect to allocations of expenses from the Company’s indirect parent entity, Clear Channel Communications, Inc. (“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. Investments in companies in which the Company owns 20 percent to 50 percent of the voting common stock or otherwise exercises significant influence over operating and financial policies of the company are accounted for under the equity method. All significant intercompany transactions are eliminated in the consolidation process.

Certain prior-period amounts have been reclassified to conform to the 2010 presentation.

Note 2: PROPERTY, PLANT AND EQUIPMENT, INTANGIBLE ASSETS AND GOODWILL

Property, Plant and Equipment

The Company’s property, plant and equipment consisted of the following classes of assets at June 30, 2010 and December 31, 2009, respectively:

 

(In thousands)    June 30,
2010
   December  31,
2009

Land, buildings and improvements

   $ 200,831    $ 207,939

Structures

     2,499,110      2,514,602

Furniture and other equipment

     70,194      71,567

Construction in progress

     49,404      51,598
             
     2,819,539      2,845,706

Less accumulated depreciation

     513,633      405,068
             

Property, plant and equipment, net

   $ 2,305,906    $ 2,440,638
             

Definite-lived Intangible Assets

The Company has definite-lived intangible assets which consist primarily of transit and street furniture contracts, permanent easements that provide the Company access to certain of its outdoor displays and other contractual rights. Definite-lived intangible assets 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 directly or indirectly to the Company’s future cash flows.

 

- 6 -


CLEAR CHANNEL OUTDOOR HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

 

The following table presents the gross carrying amount and accumulated amortization for each major class of definite-lived intangible assets at June 30, 2010 and December 31, 2009, respectively:

 

(In thousands)    June 30, 2010    December 31, 2009
   Gross Carrying
Amount
   Accumulated
Amortization
   Gross Carrying
Amount
   Accumulated
Amortization

Transit, street furniture and other contractual rights

   $ 762,912    $ 194,242    $ 803,297    $ 166,803

Other

     172,178      12,934      172,394      9,744
                           

Total

   $ 935,090    $ 207,176    $ 975,691    $ 176,547
                           

Total amortization expense related to definite-lived intangible assets was $30.2 million and $28.6 million for the three months ended June 30, 2010 and 2009, respectively, and $53.8 million and $47.5 million for the six months ended June 30, 2010 and 2009, respectively.

As acquisitions and dispositions occur in the future, amortization expense may vary. The following table presents the Company’s estimate of amortization expense for each of the five succeeding fiscal years for definite-lived intangible assets:

 

(In thousands)     

2011

   $ 84,412

2012

     76,019

2013

     70,349

2014

     63,187

2015

     48,131

Indefinite-lived Intangible Assets

The Company’s indefinite-lived intangible assets consist of billboard permits. The Company’s billboard permits are effectively issued in perpetuity by state and local governments and are transferable at little or no cost.

Goodwill

The following table presents the changes in the carrying amount of goodwill in each of the Company’s reportable segments.

 

(In thousands)    Americas     International     Total  

Balance as of December 31, 2008

   $ 892,598      $ 287,543      $ 1,180,141   

Acquisitions

     2,250        110        2,360   

Foreign currency translation

     16,293        17,412        33,705   

Purchase accounting adjustments –net

     68,896        45,042        113,938   

Impairment

     (390,374     (73,764     (464,138

Other

     (4,414     —          (4,414
                        

Balance as of December 31, 2009

   $ 585,249      $ 276,343      $ 861,592   
                        

Foreign currency

     19        (29,827     (29,808
                        

Balance as of June 30, 2010

   $ 585,268      $ 246,516      $ 831,784   
                        

The balance at December 31, 2008 is net of cumulative impairments of $2.3 billion and $173.4 million in the Americas and International segments, respectively.

 

- 7 -


CLEAR CHANNEL OUTDOOR HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

 

Note 3: LONG-TERM DEBT

Long-term debt at June 30, 2010 and December 31, 2009 consisted of the following:

 

(In thousands)    June 30,
2010
   December 31,
2009

Clear Channel Worldwide Holdings Senior Notes:

     

9.25% Series A Senior Notes Due 2017

   $ 500,000    $ 500,000

9.25% Series B Senior Notes Due 2017

     2,000,000      2,000,000

Credit facility ($150.0 million sub-limit within Clear Channel Communications’ $2.0 billion revolving credit facility)

     —        30,000

Other debt

     62,257      78,878
             

Total debt

     2,562,257      2,608,878

Less: Current portion

     16,213      47,073
             

Total long-term debt

   $ 2,546,044    $ 2,561,805
             

The aggregate market value of the Company’s debt based on market prices for which quotes were available was approximately $2.6 billion and $2.7 billion at June 30, 2010 and December 31, 2009, respectively.

Note 4: OTHER DEVELOPMENTS

Restructuring Program

In the fourth quarter of 2008, the Company initiated a company-wide strategic review of its costs and organizational structure to identify opportunities to maximize efficiency and realign expenses with the Company’s current and long-term business outlook (the “restructuring program”). As of June 30, 2010, the Company had incurred a total of $104.5 million of costs in conjunction with this restructuring program.

No assurance can be given that the restructuring program will achieve all of the anticipated cost savings in the timeframe expected or at all, or that the cost savings will be sustainable. In addition, the Company may modify or terminate the restructuring program in response to economic conditions or otherwise.

Share-based Compensation Expense

Share-based compensation expense is measured at the grant date based on the fair value of the award and is recognized as expense on a straight-line basis over the vesting period. The following table presents the amount of share-based compensation expense recorded during the three and six months ended June 30, 2010 and 2009, respectively:

 

(In thousands)    Three Months Ended
June  30,
   Six Months Ended
June 30,
     2010    2009    2010    2009

Direct operating expenses

   $ 2,203    $ 1,935    $ 4,132    $ 4,004

Selling, general and administrative expenses

     805      706      1,509      1,461

Corporate expenses

     97      207      181      429
                           

Total share-based compensation expense

   $ 3,105    $ 2,848    $ 5,822    $ 5,894
                           

 

- 8 -


CLEAR CHANNEL OUTDOOR HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

 

As of June 30, 2010, there was $20.3 million of unrecognized compensation cost, net of estimated forfeitures, related to unvested share-based compensation arrangements. This cost is expected to be recognized over a weighted average period of approximately three years.

Supplemental Disclosures

During the six months ended June 30, 2010, cash paid for interest and income taxes, net of income tax refunds of $1.0 million, was as follows:

 

(In thousands)    Six Months Ended
June 30, 2010

Interest

   $ 119,860

Income taxes

   $ 14,919

Income tax benefit

The Company’s income tax benefit for the three and six months ended June 30, 2010 and 2009, respectively, consisted of the following components:

 

(In thousands)    Three Months Ended
June 30,
    Six Months Ended
June 30,
 
   2010     2009     2010     2009  

Current tax expense

   $ (9,538   $ (10,479   $ (17,688   $ (13,150

Deferred tax benefit

     10,279        143,603        29,133        125,851   
                                

Income tax benefit

   $ 741      $ 133,124      $ 11,445      $ 112,701   
                                

The effective tax rate is the provision for income taxes as a percent of income from continuing operations before income taxes. The Company’s effective tax rate for the three and six months ended June 30, 2010 was 22.8% and 18.2%, respectively, compared to an effective rate of 16.2% and 12.6% for the three and six months ended June 30, 2009, respectively. The 2010 effective rate was impacted primarily as a result of the Company’s inability to benefit from tax losses in certain foreign jurisdictions due to the uncertainty of the ability to utilize those losses in future years. The change in the effective rate compared to the same period of the prior year was impacted primarily as a result of a deferred tax valuation allowance recorded in 2009 due to the uncertainty of the Company’s ability to utilize Federal and foreign tax losses at that time and the impairment charge on goodwill recorded in 2009.

Note 5: FAIR VALUE MEASUREMENTS

The Company holds marketable equity securities classified in accordance with the provisions of ASC 320-10. These marketable equity securities are measured at fair value on each reporting date using quoted prices in active markets. Due to the fact that the inputs used to measure the marketable equity securities at fair value are observable, the Company has categorized the fair value measurements of the securities as Level 1. The Company records its investments in these marketable equity securities on the balance sheet as “Other Assets.”

The cost, unrealized holding gains or losses, and fair value of the Company’s marketable equity securities at June 30, 2010 and December 31, 2009, respectively, are as follows:

 

(In thousands)    June 30, 2010    December 31, 2009

Investments

   Cost    Gross
Unrealized
Losses
    Gross
Unrealized
Gains
   Fair
Value
   Cost    Gross
Unrealized
Losses
   Gross
Unrealized
Gains
   Fair
Value

Available-for-sale

   $ 14,506    $ (3,618   $ 64    $ 10,952    $ 14,506    $ —      $ 1,405    $ 15,911

 

- 9 -


CLEAR CHANNEL OUTDOOR HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

 

Note 6: COMMITMENTS AND CONTINGENCIES

The Company and its subsidiaries are currently involved in certain legal proceedings arising in the ordinary course of business and, as required, the Company has accrued its estimate of the probable costs for resolution of those claims for which the occurrence of loss is probable and the amount can be reasonably estimated. 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 Company’s assumptions or the effectiveness of its strategies related to these proceedings.

As of June 30, 2010, Clear Channel Communications had outstanding commercial standby letters of credit and surety bonds of $47.0 million and $42.8 million, respectively, held on behalf of the Company. These letters of credit and surety bonds relate to various operational matters, including insurance, bid and performance bonds, as well as other items.

Note 7: RELATED PARTY TRANSACTIONS

The Company records net amounts due to or from Clear Channel Communications as “Due from/to Clear Channel Communications” on the condensed consolidated balance sheets. The accounts represent the revolving promissory note issued by the Company to Clear Channel Communications and the revolving promissory note issued by Clear Channel Communications to the Company, in the face amounts of $1.0 billion, or if more or less than such amounts, the aggregate unpaid principal amount of all advances. The accounts accrue interest pursuant to the terms of the promissory notes and are generally payable on demand.

Included in the accounts are the net activities 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 into accounts of Clear Channel Communications. In return, Clear Channel Communications funds the Company’s controlled disbursement accounts as checks or electronic payments are presented for payment. The Company’s claim in relation to cash transferred from its concentration account is on an unsecured basis and is limited to the balance of the “Due from Clear Channel Communications” account. At June 30, 2010 and December 31, 2009, the asset recorded in “Due from Clear Channel Communications” on the condensed consolidated balance sheets was $147.0 million and $123.3 million, respectively. As June 30, 2010, we had no borrowings under the cash management note to Clear Channel Communications.

The net interest income for the three and six months ended June 30, 2010 was $3.8 million and $7.2 million, respectively. The net interest income for the three and six months ended June 30, 2009 was $0.1 million and $0.2 million, respectively. At June 30, 2009, the interest rate on the “Due from Clear Channel Communications” account was 0.09%, which represented the average one-month generic treasury bill rate. At June 30, 2010, the interest rate on the “Due from Clear Channel Communications” account was 9.25%.

Clear Channel Communications has a $2.0 billion multi-currency revolving credit facility with a maturity in July 2014 which includes a $150.0 million sub-limit that certain of the Company’s International subsidiaries may borrow against to the extent Clear Channel Communications has not already borrowed against this capacity and is compliant with its covenants under the revolving credit facility.

The Company provides advertising space on its billboards for radio stations owned by Clear Channel Communications. For the three months ended June 30, 2010 and 2009, the Company recorded $0.8 million and $1.2 million, respectively, in revenue for these advertisements. For the six months ended June 30, 2010 and 2009, the Company recorded $1.8 million and $1.3 million, respectively, in revenue for these advertisements.

Under the Corporate Services Agreement between Clear Channel Communications and the Company, 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 three months ended June 30, 2010 and 2009, the Company recorded $9.8 million and $7.9 million, respectively, as a component of corporate expenses for these services. For the six months ended June 30, 2010 and 2009, the Company recorded $18.6 million and $14.2 million, respectively, as a component of corporate expenses for these services.

Pursuant to the Tax Matters Agreement between Clear Channel Communications and the Company, the operations of the Company are included in a consolidated federal income tax return filed by Clear Channel Communications. The Company’s 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 Company’s separate taxable income. Tax benefits recognized on the Company’s employee stock option exercises are retained by the Company.

 

- 10 -


CLEAR CHANNEL OUTDOOR HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

 

The Company computes its deferred income tax provision using the liability method in accordance with the provisions of ASC 740-10, 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.

Pursuant to the Employee Matters Agreement, the Company’s 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 $2.5 million and $2.3 million for the three months ended June 30, 2010 and 2009, respectively. For the six months ended June 30, 2010 and 2009, the Company recorded approximately $5.1 million and $5.0 million, respectively, as a component of selling, general and administrative expenses for these services.

Note 8: EQUITY AND COMPREHENSIVE INCOME (LOSS)

The Company reports its noncontrolling interests in consolidated subsidiaries as a component of equity separate from the Company’s equity. The following table shows the changes in equity attributable to the Company and the noncontrolling interests of subsidiaries in which the Company has a majority, but not total ownership interest:

 

(In thousands)    The
Company
    Noncontrolling
Interests
    Consolidated  

Balances at December 31, 2009

   $ 2,567,647      $ 193,730      $ 2,761,377   

Net income (loss)

     (56,909     5,626        (51,283

Foreign currency translation adjustments

     (102,856     (3,733     (106,589

Unrealized holding loss on marketable securities

     (4,948     —          (4,948

Reclassification adjustment

     (1,141     —          (1,141

Other - net

     5,216        (3,728     1,488   
                        

Balances at June 30, 2010

   $ 2,407,009      $ 191,895      $ 2,598,904   
                        

 

(In thousands)    The
Company
    Noncontrolling
Interests
    Consolidated  

Balances at December 31, 2008

   $ 3,332,010      $ 211,813      $ 3,543,823   

Net loss

     (776,978     (3,738     (780,716

Foreign currency translation adjustments

     64,895        4,021        68,916   

Unrealized holding loss on marketable securities

     (9,150     —          (9,150

Other - net

     (4,365     (2,283     (6,648
                        

Balances at June 30, 2009

   $ 2,606,412      $ 209,813      $ 2,816,225   
                        

 

- 11 -


CLEAR CHANNEL OUTDOOR HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

 

Note 9: SEGMENT DATA

The Company has two reportable segments, which it believes best reflect how the Company is currently managed – Americas and International. The Americas segment primarily includes operations in the United States, Canada and Latin America, and the International segment includes operations primarily in Europe, Asia and Australia. Share-based compensation expense is recorded by each segment in direct operating expenses and selling, general and administrative expenses. The following table presents the Company’s operating segment results for the three and six months ended June 30, 2010 and 2009, respectively:

 

(In thousands)    Americas    International    Corporate,
and other
reconciling
items
    Consolidated

Three months ended June 30, 2010

       

Revenue

   $ 323,769    $ 377,638    $ —        $ 701,407

Direct operating expenses

     144,298      241,586      —          385,884

Selling, general and administrative expenses

     64,075      66,617      —          130,692

Depreciation and amortization

     55,729      49,570      —          105,299

Corporate expenses

     —        —        23,757        23,757

Other operating income - net

     —        —        1,720        1,720
                            

Operating income (loss)

   $ 59,667    $ 19,865    $ (22,037   $ 57,495
                            

Share-based compensation expense

   $ 2,316    $ 692    $ 97      $ 3,105

 

Three months ended June 30, 2009

       

Revenue

   $ 315,553    $ 376,564    $ —        $ 692,117   

Direct operating expenses

     148,755      243,554      —          392,309   

Selling, general and administrative expenses

     51,398      69,944      —          121,342   

Depreciation and amortization

     57,860      56,948      —          114,808   

Corporate expenses

     —        —        15,653        15,653   

Impairment charges

     —        —        812,390        812,390   

Other operating income - net

     —        —        4,353        4,353   
                              

Operating income (loss)

   $ 57,540    $ 6,118    $ (823,690   $ (760,032
                              

Share-based compensation expense

   $ 2,028    $ 613    $ 207      $ 2,848   

 

Six months ended June 30, 2010

      

Revenue

   $ 594,746    $ 715,429      $ —        $ 1,310,175

Direct operating expenses

     283,606      481,164        —          764,770

Selling, general and administrative expenses

     108,552      133,497        —          242,049

Depreciation and amortization

     105,180      101,828        —          207,008

Corporate expenses

     —        —          44,529        44,529

Other operating income - net

     —        —          2,738        2,738
                             

Operating income (loss)

   $ 97,408    $ (1,060   $ (41,791   $ 54,557
                             

Share-based compensation expense

   $ 4,346    $ 1,295      $ 181      $ 5,822

 

Six months ended June 30, 2009

      

Revenue

   $ 585,740    $ 688,593      $ —        $ 1,274,333   

Direct operating expenses

     293,635      478,282        —          771,917   

Selling, general and administrative expenses

     100,237      138,869        —          239,106   

Depreciation and amortization

     104,510      112,206        —          216,716   

Corporate expenses

     —        —          29,899        29,899   

Impairment charge

     —        —          812,390        812,390   

Other operating income - net

     —        —          8,965        8,965   
                               

Operating income (loss)

   $ 87,358    $ (40,764   $ (833,324   $ (786,730
                               

Share-based compensation expense

   $ 4,196    $ 1,269      $ 429      $ 5,894   

 

- 12 -


CLEAR CHANNEL OUTDOOR HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

 

Revenue of $408.9 million and $401.1 million derived from the Company’s non-U.S. operations is included in the data above for the three months ended June 30, 2010 and 2009, respectively. Revenue of $779.2 million and $736.6 million derived from the Company’s non-U.S. operations is included in the data above for the six months ended June 30, 2010 and 2009, respectively.

Note 10: GUARANTOR SUBSIDIARIES

The Company and certain of the Company’s direct and indirect wholly-owned domestic subsidiaries (the “Guarantor Subsidiaries”) fully and unconditionally guarantee on a joint and several basis certain of the outstanding indebtedness of Clear Channel Worldwide Holdings, Inc. (the “Subsidiary Issuer”). The following consolidating schedules present financial information on a combined basis in conformity with the SEC’s Regulation S-X Rule 3-10(d):

 

     June 30, 2010
(In thousands)    Parent
Company
   Subsidiary
Issuer
   Guarantor
Subsidiaries
   Non-Guarantor
Subsidiaries
   Eliminations     Consolidated

Cash and cash equivalents

   $ —      $ —      $ 435,214    $ 181,330    $ —        $ 616,544

Accounts receivable, net

     —        —        264,620      442,622      —          707,242

Intercompany receivables

     —        7,779      612,556      —        (620,335     —  

Other current assets

     1,306      606      111,318      141,980      —          255,210
                                          

Total Current Assets

     1,306      8,385      1,423,708      765,932      (620,335     1,578,996

Property, plant and equipment, net

     —        —        1,524,032      781,874      —          2,305,906

Definite-lived intangibles, net

     —        —        412,198      315,716      —          727,914

Indefinite-lived intangibles

     —        —        1,108,376      14,502      —          1,122,878

Goodwill

     —        —        571,932      259,852      —          831,784

Due from Clear Channel Communications

     146,985      —        —        —        —          146,985

Intercompany notes receivable

     182,026      2,700,000      9,243      18,105      (2,909,374     —  

Other assets

     2,684,251      940,209      1,385,263      87,573      (4,897,702     199,594
                                          

Total Assets

   $ 3,014,568    $ 3,648,594    $ 6,434,752    $ 2,243,554    $ (8,427,411   $ 6,914,057
                                          

Accounts payable and accrued expenses

   $ —      $ 1,349    $ 137,653    $ 413,130    $ —        $ 552,132

Intercompany notes payable

     599,843      —        7,779      12,713      (620,335     —  

Deferred income

     —        —        56,409      80,977      —          137,386

Current portion of long-term debt

     —        —        75      16,138      —          16,213
                                          

Total Current Liabilities

     599,843      1,349      201,916      522,958      (620,335     705,731

Long-term debt

     —        2,500,000      —        46,044      —          2,546,044

Intercompany notes payable

     7,491      —        2,692,640      209,243      (2,909,374     —  

Deferred income taxes

     225      —        758,644      47,792      —          806,661

Other long-term liabilities

     —        1,262      97,301      158,154      —          256,717

Total shareholders’ equity

     2,407,009      1,145,983      2,684,251      1,259,363      (4,897,702     2,598,904
                                          

Total Liabilities and Shareholders’ Equity

   $ 3,014,568    $ 3,648,594    $ 6,434,752    $ 2,243,554    $ (8,427,411   $ 6,914,057
                                          

 

- 13 -


CLEAR CHANNEL OUTDOOR HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

 

     December 31, 2009
(In thousands)    Parent
Company
   Subsidiary
Issuer
    Guarantor
Subsidiaries
   Non-Guarantor
Subsidiaries
   Eliminations     Consolidated

Cash and cash equivalents

   $ —      $ —        $ 431,105    $ 178,331    $ —        $ 609,436

Accounts receivable, net

     —        —          249,325      480,981      —          730,306

Intercompany receivables

     —        4,689        582,554      20,606      (607,849     —  

Other current assets

     2,796      (1,935     122,636      177,306      —          300,803
                                           

Total Current Assets

     2,796      2,754        1,385,620      857,224      (607,849     1,640,545

Property, plant and equipment, net

     —        —          1,562,256      878,382      —          2,440,638

Definite-lived intangibles, net

     —        —          423,935      375,209      —          799,144

Indefinite-lived intangibles

     —        —          1,117,568      14,650      —          1,132,218

Goodwill

     —        —          571,932      289,660      —          861,592

Intercompany notes receivable

     182,026      2,700,000        9,243      18,235      (2,909,504     —  

Due from Clear Channel Communications

     123,308      —          —        —        —          123,308

Other assets

     2,849,918      1,075,719        1,517,111      80,019      (5,327,790     194,977
                                           

Total Assets

   $ 3,158,048    $ 3,778,473      $ 6,587,665    $ 2,513,379    $ (8,845,143   $ 7,192,422
                                           

Accounts payable and accrued expenses

   $ —      $ —        $ 112,492    $ 501,950    $ —        $ 614,442

Intercompany notes payable

     582,554      —          25,295      —        (607,849     —  

Deferred income

     —        —          38,579      70,999      —          109,578

Current portion of long-term debt

     —        —          77      46,996      —          47,073
                                           

Total Current Liabilities

     582,554      —          176,443      619,945      (607,849     771,093

Long-term debt

     —        2,500,000        —        61,805      —          2,561,805

Intercompany notes payable

     7,622      —          2,692,639      209,243      (2,909,504     —  

Deferred tax liability

     225      —          780,846      60,840      —          841,911

Other long-term liabilities

     —        1,225        87,819      167,192      —          256,236

Total shareholders’ equity

     2,567,647      1,277,248        2,849,918      1,394,354      (5,327,790     2,761,377
                                           

Total Liabilities and Shareholders’ Equity

   $ 3,158,048    $ 3,778,473      $ 6,587,665    $ 2,513,379    $ (8,845,143   $ 7,192,422
                                           

 

- 14 -


CLEAR CHANNEL OUTDOOR HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

 

     Three Months Ended June 30, 2010  
(In thousands)    Parent
Company
    Subsidiary
Issuer
    Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
    Eliminations     Consolidated  

Revenue

   $ —        $ —        $ 285,917      $ 415,490      $ —        $ 701,407   

Operating expenses:

            

Direct operating expenses

     —          —          122,478        263,406        —          385,884   

Selling, general and administrative expenses

     —          —          55,598        75,094        —          130,692   

Depreciation and amortization

     —          —          52,171        53,128        —          105,299   

Corporate expenses

     3,530        535        14,250        5,442        —          23,757   

Other operating income – net

     —          —          470        1,250        —          1,720   
                                                

Operating income (loss)

     (3,530     (535     41,890        19,670        —          57,495   

Interest expense

     141        57,813        1,656        785        —          60,395   

Interest income on debt with Clear Channel Communications

     —          —          3,806        —          —          3,806   

Intercompany interest income

     3,579        58,606        —          249        (62,434     —     

Intercompany interest expense

     121        —          61,668        645        (62,434     —     

Equity in earnings (loss) of nonconsolidated affiliates

     (8,994     54        2,623        21        6,300        4   

Other expense – net

     —          —          (3     (4,152     —          (4,155
                                                

Income (loss) before income taxes

     (9,207     312        (15,008     14,358        6,300        (3,245

Income tax benefit (expense)

     80        606        6,014        (5,959     —          741   
                                                

Consolidated net income (loss)

     (9,127     918        (8,994     8,399        6,300        (2,504

Amount attributable to noncontrolling interest

     —          —          —          6,623        —          6,623   
                                                

Net income (loss) attributable to the Company

   $ (9,127   $ 918      $ (8,994   $ 1,776      $ 6,300      $ (9,127

Other comprehensive income (loss), net of tax:

            

Foreign currency translation adjustments

     —          1,805        —          (68,892     —          (67,087

Foreign currency reclassification adjustment

     —          —          —          (1,365     —          (1,365

Unrealized loss on marketable securities

     —          —          —          (2,328     —          (2,328

Equity in subsidiary comprehensive income

     (66,889     (65,481     (66,889     —          199,259        —     
                                                

Comprehensive income (loss)

   $ (76,016   $ (62,758   $ (75,883   $ (70,809   $ 205,559      $ (79,907

Amount attributable to noncontrolling interest

     —          —          —          (3,891     —          (3,891
                                                

Comprehensive income (loss) attributable to the Company

   $ (76,016   $ (62,758   $ (75,883   $ (66,918   $ 205,559      $ (76,016
                                                

 

- 15 -


CLEAR CHANNEL OUTDOOR HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

 

     Three Months Ended June 30, 2009  
(In thousands)    Parent
Company
    Subsidiary
Issuer
    Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
    Eliminations     Consolidated  

Revenue

   $ —        $ —        $ 285,429      $ 406,688      $ —        $ 692,117   

Operating expenses:

            

Direct operating expenses

     —          —          131,989        260,320        —          392,309   

Selling, general and administrative expenses

     —          —          44,335        77,007        —          121,342   

Depreciation and amortization

     —          —          54,212        60,596        —          114,808   

Corporate expenses

     4,091        —          8,257        3,305        —          15,653   

Impairment charges

     —          —          691,500        120,890        —          812,390   

Other operating income – net

     —          —          3,774        579        —          4,353   
                                                

Operating loss

     (4,091     —          (641,090     (114,851     —          (760,032

Interest expense on debt with Clear Channel Communications

     —          —          36,724        —          —          36,724   

Interest expense

     78        —          148        1,136        —          1,362   

Intercompany interest income

     2,667        373        267        355        (3,662     —     

Intercompany interest expense

     256        —          2,766        640        (3,662     —     

Equity in earnings (loss) of nonconsolidated affiliates

     (687,998     (77,276     (142,452     (21,372     907,343        (21,755

Other expense – net

     —          —          (96     (2,516     —          (2,612
                                                

Income (loss) before income taxes

     (689,756     (76,903     (823,009     (140,160     907,343        (822,485

Income tax benefit (expense)

     658        (487     135,394        (2,441     —          133,124   
                                                

Consolidated net income (loss)

     (689,098     (77,390     (687,615     (142,601     907,343        (689,361

Amount attributable to noncontrolling interest

     —          —          —          (263     —          (263
                                                

Net income (loss) attributable to the Company

   $ (689,098   $ (77,390   $ (687,615   $ (142,338   $ 907,343      $ (689,098

Other comprehensive income (loss), net of tax:

            

Foreign currency translation adjustments

     —          —          —          114,405        —          114,405   

Foreign currency reclassification

adjustment

     —          —          —          (513     —          (513

Unrealized gain on marketable securities

     —          —          —          6,581        —          6,581   

Equity in subsidiary comprehensive income

     114,002        83,890        114,002        —          (311,894     —     
                                                

Comprehensive income (loss)

     (575,096     6,500        (573,613     (21,865     595,449        (568,625

Amount attributable to noncontrolling interest

     —          —          —          6,471        —          6,471   
                                                

Comprehensive income (loss) attributable to the Company

   $ (575,096   $ 6,500      $ (573,613   $ (28,336   $ 595,449      $ (575,096
                                                

 

- 16 -


CLEAR CHANNEL OUTDOOR HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

 

     Six Months Ended June 30, 2010  
(In thousands)    Parent
Company
    Subsidiary
Issuer
    Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
    Eliminations     Consolidated  

Revenue

   $ —        $ —        $ 519,443      $ 790,732      $ —        $ 1,310,175   

Operating expenses:

            

Direct operating expenses

     —          —          242,096        522,674        —          764,770   

Selling, general and administrative expenses

     —          —          92,700        149,349        —          242,049   

Depreciation and amortization

     —          —          98,013        108,995        —          207,008   

Corporate expenses

     6,900        535        26,719        10,375        —          44,529   

Other operating income – net

     —          —          1,967        771        —          2,738   
                                                

Operating income (loss)

     (6,900     (535     61,882        110        —          54,557   

Interest expense

     249        115,062        1,286        2,116        —          118,713   

Interest income on debt with Clear Channel Communications

     —          —          7,219        —          —          7,219   

Intercompany interest income

     7,091        115,745        —          493        (123,329     —     

Intercompany interest expense

     242        —          121,854        1,233        (123,329     —     

Equity in earnings (loss) of nonconsolidated affiliates

     (56,722     (25,928     (19,565     (616     102,032        (799

Other expense – net

     —          —          (91     (4,901     —          (4,992
                                                

Income (loss) before income taxes

     (57,022     (25,780     (73,695     (8,263     102,032        (62,728

Income tax benefit (expense)

     113        301        16,973        (5,942     —          11,445   
                                                

Consolidated net income (loss)

     (56,909     (25,479     (56,722     (14,205     102,032        (51,283

Amount attributable to noncontrolling interest

     —          —          —          5,626        —          5,626   
                                                

Net income (loss) attributable to the Company

   $ (56,909   $ (25,479   $ (56,722   $ (19,831   $ 102,032      $ (56,909

Other comprehensive income (loss), net of tax:

            

Foreign currency translation adjustments

     —          3,796        —          (110,385     —          (106,589

Foreign currency reclassification adjustment

     —          —          —          (1,141     —          (1,141

Unrealized loss on marketable securities

     —          —          —          (4,948     —          (4,948

Equity in subsidiary comprehensive income

     (108,945     (109,582     (108,945     —          327,472        —     
                                                

Comprehensive income (loss)

   $ (165,854   $ (131,265   $ (165,667   $ (136,305   $ 429,504      $ (169,587

Amount attributable to noncontrolling interest

     —          —          —          (3,733     —          (3,733
                                                

Comprehensive income (loss) attributable to the Company

   $ (165,854   $ (131,265   $ (165,667   $ (132,572   $ 429,504      $ (165,854
                                                

 

- 17 -


CLEAR CHANNEL OUTDOOR HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

 

     Six Months Ended June 30, 2009  
(In thousands)    Parent
Company
    Subsidiary
Issuer
    Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
    Eliminations     Consolidated  

Revenue

   $ —        $ —        $ 526,694      $ 747,639      $ —        $ 1,274,333   

Operating expenses:

            

Direct operating expenses

     —          —          260,658        511,259        —          771,917   

Selling, general and administrative expenses

     —          —          87,126        151,980        —          239,106   

Depreciation and amortization

     —          —          97,291        119,425        —          216,716   

Corporate expenses

     6,634        —          16,775        6,490        —          29,899   

Impairment charges

     —          —          691,500        120,890        —          812,390   

Other operating income – net

     —          —          5,269        3,696        —          8,965   
                                                

Operating loss

     (6,634     —          (621,387     (158,709     —          (786,730

Interest expense on debt with Clear Channel Communications

     —          —          73,585        —          —          73,585   

Interest expense

     237        —          217        2,820        —          3,274   

Intercompany interest income

     5,359        727        527        549        (7,162     —     

Intercompany interest expense

     392        —          5,516        1,254        (7,162     —     

Equity in earnings (loss) of nonconsolidated affiliates

     (775,787     (128,953     (192,381     (23,651     1,096,724        (24,048

Other expense – net

     —          —          (273     (5,507     —          (5,780
                                                

Income (loss) before income taxes

     (777,691     (128,226     (892,832     (191,392     1,096,724        (893,417

Income tax benefit (expense)

     713        (529     117,428        (4,911     —          112,701   
                                                

Consolidated net income (loss)

     (776,978     (128,755     (775,404     (196,303     1,096,724        (780,716

Amount attributable to noncontrolling interest

     —          —          —          (3,738     —          (3,738
                                                

Net income (loss) attributable to the Company

   $ (776,978   $ (128,755   $ (775,404   $ (192,565   $ 1,096,724      $ (776,978

Other comprehensive income (loss), net of tax:

            

Foreign currency translation adjustments

     —          —          —          68,916        —          68,916   

Foreign currency reclassification adjustment

     —          —          —          (513     —          (513

Unrealized loss on marketable securities

     —          —          —          (9,150     —          (9,150

Equity in subsidiary comprehensive income

     55,232        26,157        55,232        —          (136,621     —     
                                                

Comprehensive income (loss)

     (721,746     (102,598     (720,172     (133,312     960,103        (717,725
                        

Amount attributable to noncontrolling interest

     —          —          —          4,021        —          4,021   
                                                

Comprehensive income (loss) attributable to the Company

   $ (721,746   $ (102,598   $ (720,172   $ (137,333   $ 960,103      $ (721,746
                                                

 

- 18 -


CLEAR CHANNEL OUTDOOR HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

 

    Six Months Ended June 30, 2010  
(In thousands)   Parent
Company
    Subsidiary
Issuer
    Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
    Eliminations     Consolidated  

Cash flows from operating activities:

           

Consolidated net income (loss)

  $ (56,909   $ (25,479   $ (56,722   $ (14,205   $ 102,032      $ (51,283

Reconciling items:

           

Depreciation and amortization

    —          —          98,013        108,995        —          207,008   

Deferred tax benefit

    —          —          (20,314     (8,819     —          (29,133

Provision for doubtful accounts

    —          —          280        1,870        —          2,150   

Other reconciling items - net

    56,722        29,724        17,212        9,936        (102,032     11,562   

Changes in operating assets and liabilities:

           

Decrease in accounts receivable

    —          —          (15,602     (10,346     —          (25,948

Increase in deferred income

    —          —          18,475        16,801        —          35,276   

Increase (decrease) in accounts payable, accrued expenses and other liabilities

    —          571        37,734        (33,103     —          5,202   

Changes in other operating assets and liabilities, net of effects of acquisitions and dispositions

    1,647        (1,725     11,292        6,889        —          18,103   
                                               

Net cash provided by operating activities

    1,460        3,091        90,368        78,018        —          172,937   

Cash flows from investing activities:

           

Purchases of property, plant and equipment

    —          —          (36,968     (49,748     —          (86,716

Acquisition of operating assets, net of cash acquired

    —          —          (425     —          —          (425

Equity contributions to subsidiaries

    —          —          (331     —          331        —     

Dividends from subsidiaries

    —          —          107        —          (107     —     

Change in other - net

    —          —          1,862        (309     (130     1,423   
                                               

Net cash provided by (used for) investing activities

    —          —          (35,755     (50,057     94        (85,718

Cash flows from financing activities:

           

Draws on credit facilities

    —          —          —          304        —          304   

Payments on credit facilities

    —          —          (2     (43,539     —          (43,541

Proceeds from long-term debt

    —          —          —          6,844        —          6,844   

Payments on long-term debt

    —          —          —          (7,829     —          (7,829

Net transfers to Clear Channel Communications

    (23,677     —          —          —          —          (23,677

Intercompany funding

    21,577        (3,091     (50,502     32,016        —          —     

Increase (decrease) in intercompany notes payable - net

    (130     —          —          —          130        —     

Dividends declared and paid

    —          —          —          (107     107        —     

Equity contributions from parent

    —          —          —          331        (331     —     

Change in other - net

    770        —          —          (4,341     —          (3,571
                                               

Net cash used for financing activities

    (1,460     (3,091     (50,504     (16,321     (94     (71,470

Effect of exchange rate changes on cash

    —          —          —          (8,641     —          (8,641
                                               

Net increase in cash and cash equivalents

    —          —          4,109        2,999        —          7,108   

Cash and cash equivalents at beginning of period

    —          —          431,105        178,331        —          609,436   
                                               

Cash and cash equivalents at end of period

  $ —        $ —        $ 435,214      $ 181,330      $ —        $ 616,544   
                                               

 

- 19 -


CLEAR CHANNEL OUTDOOR HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

 

    Six Months Ended June 30, 2009  
(In thousands)   Parent
Company
    Subsidiary
Issuer
    Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
    Eliminations     Consolidated  

Cash flows from operating activities:

           

Consolidated net income (loss)

  $ (776,978   $ (128,755   $ (775,404   $ (196,303   $ 1,096,724      $ (780,716

Reconciling items:

           

Depreciation and amortization

    —          —          97,291        119,425        —          216,716   

Impairment charges

    —          —          691,500        120,890        —          812,390   

Deferred tax expense (benefit)

    74        —          (120,406     (5,519     —          (125,851

Provision for doubtful accounts

    —          —          2,908        4,771        —          7,679   

Other reconciling items - net

    775,787        128,953        191,737        22,129        (1,096,724     21,882   

Changes in operating assets and liabilities:

           

Decrease in accounts receivable

    —          —          (865     42,070        —          41,205   

Increase in deferred income

    —          —          14,522        21,096        —          35,618   

Increase (decrease) in accounts payable, accrued expenses and other liabilities

    —          33        (681     (63,424     —          (64,072

Changes in operating assets and liabilities, net of effects of acquisitions and dispositions

    (1,039     (456     (8,995     (14,710     —          (25,200
                                               

Net cash provided by (used for) operating activities

    (2,156     (225     91,607        50,425        —          139,651   

Cash flows from investing activities:

           

Purchases of property, plant and equipment

    —          —          (32,478     (34,344     —          (66,822

Acquisition of operating assets, net of cash acquired

    —          —          (4,987     (110     —          (5,097

Equity contributions to subsidiaries

    —          —          (58     —          58        —     

Change in other - net

    (53     —          5,065        7,974        (2,179     10,807   
                                               

Net cash used for investing activities

    (53     —          (32,458     (26,480     (2,121     (61,112

Cash flows from financing activities:

           

Draws on credit facilities

    —          —          —          444        —          444   

Payments on credit facilities

    —          —          (953     (5,046     —          (5,999

Payments on long-term debt

    —          —          —          (310     —          (310

Net transfers from Clear Channel Communications

    (45,538     —          —          —          —          (45,538

Intercompany funding

    47,783        225        (49,698     1,690        —          —     

Dividends declared and paid

    —          —          —          (2,179     2,179        —     

Payments for purchase of noncontrolling interest

    —          —          —          (12,952     —          (12,952

Change in other - net

    (36     —          —          58        (58     (36
                                               

Net cash provided by (used for) financing activities

    2,209        225        (50,651     (18,295     2,121        (64,391

Effect of exchange rate changes on cash

    —          —          —          (4,349     —          (4,349
                                               

Net increase in cash and cash equivalents

    —          —          8,498        1,301        —          9,799   

Cash and cash equivalents at beginning of period

    —          —          (14,800     109,612        —          94,812   
                                               

Cash and cash equivalents at end of period

  $ —        $ —        $ (6,302   $ 110,913      $ —        $ 104,611   
                                               

 

- 20 -


Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Introduction

Management’s discussion and analysis of our financial condition and results of operations is provided as a supplement to the unaudited interim 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 herein should be read in conjunction with the quarterly and annual financial statements. Our reportable operating segments are Americas outdoor advertising (“Americas”) and International outdoor advertising (“International”).

We manage our operating segments primarily focusing on their operating income, while Corporate expenses, Other operating income (expense) – net, Interest expense, Equity in earnings (loss) of nonconsolidated affiliates, Other income (expense) – net and Income tax benefit (expense) are managed on a total company basis and are, therefore, included only in our discussion of consolidated results.

Executive Summary

The key highlights of our business for the three and six months ended June 30, 2010 are summarized below:

 

  •  

Consolidated revenue increased $9.3 million and $35.8 million for the three and six months ended June 30, 2010, respectively, compared to the same periods of 2009, including decreases of $6.6 million and increases of $20.4 million from movements in foreign exchange, respectively.

 

  •  

Americas revenue increased $8.2 million and $9.0 million for the three and six months ended June 30, 2010, respectively, compared to the same periods of 2009, primarily driven by increases in revenue across our advertising inventory, particularly digital.

 

  •  

International revenue was relatively flat for the second quarter of 2010 compared to the same period of 2009, with growth across multiple markets being offset by decreases from movements in foreign exchange. Revenue increased $26.8 million for the six months ended June 30, 2010 compared to the same period of 2009, primarily as a result of an increase from movements in foreign exchange.

Restructuring Program and Certain Indenture EBITDA Adjustments

The indenture governing the Series B Senior Notes issued by our subsidiary, Clear Channel Worldwide Holdings, Inc., allows us to adjust the calculation of our adjusted EBITDA (as calculated in accordance with the indenture) for certain charges. These charges include the restructuring costs discussed below. In addition, certain other charges, including costs related to the closure and/or consolidation of facilities, retention charges, systems establishment costs and consulting fees incurred in connection with any of the foregoing, among other items, are also adjustments to the calculation of our adjusted EBITDA. For the three and six months ended June 30, 2010, our adjusted EBITDA calculation included adjustments for an additional $1.1 million and $2.0 million, respectively. See “SOURCES OF CAPITAL” below for a description of the calculation of our adjusted EBITDA pursuant to the indenture.

In the fourth quarter of 2008, we initiated a company-wide strategic review of our costs and organizational structure to identify opportunities to maximize efficiency and realign expenses with our current and long-term business outlook (the “restructuring program”). As of June 30, 2010, we had incurred a total of $104.5 million of costs in conjunction with this restructuring program.

The following table shows the expenses related to our restructuring program, which are also adjustments to our adjusted EBITDA calculation, recognized as components of direct operating expenses, selling, general and administrative (“SG&A”) expenses and corporate expenses for the three and six months ended June 30, 2010 and 2009, respectively:

 

(In thousands)    Three Months Ended
June 30,
   Six Months Ended
June 30,
     2010    2009    2010    2009

Direct operating expenses

   $ 7,706    $ 8,122    $ 9,490    $ 12,976

SG&A expenses

     5,006      62      5,045      1,038

Corporate expenses

     —        1,856      1,261      3,000
                           

Total

   $ 12,712    $ 10,040    $ 15,796    $ 17,014
                           

No assurance can be given that the restructuring program will achieve all of the anticipated cost savings in the timeframe expected or at all, or that the cost savings will be sustainable. In addition, we may modify or terminate the restructuring program in response to economic conditions or otherwise.

 

- 21 -


RESULTS OF OPERATIONS

Consolidated Results of Operations

The comparison of the three and six months ended June 30, 2010 to the three and six months ended June 30, 2009, respectively, is as follows:

 

(In thousands)    Three Months Ended June 30,     %
Change
    Six Months Ended June 30,     %
Change
 
     2010     2009       2010     2009    

Revenue

   $ 701,407      $ 692,117      1   $ 1,310,175      $ 1,274,333      3

Operating expenses:

            

Direct operating expenses

     385,884        392,309      (2 %)      764,770        771,917      (1 %) 

Selling, general and administrative expenses

     130,692        121,342      8     242,049        239,106      1

Depreciation and amortization

     105,299        114,808      (8 %)      207,008        216,716      (4 %) 

Corporate expenses

     23,757        15,653      52     44,529        29,899      49

Impairment charges

     —          812,390          —          812,390     

Other operating income – net

     1,720        4,353          2,738        8,965     
                                    

Operating income (loss)

     57,495        (760,032       54,557        (786,730  

Interest expense on debt with Clear Channel Communications

     —          36,835          —          73,810     

Interest expense

     60,395        1,362          118,713        3,274     

Interest income on debt with Clear Channel Communications

     3,806        111          7,219        225     

Gain on marketable securities

     17        —            17        —       

Equity in earnings (loss) of nonconsolidated affiliates

     4        (21,755       (799     (24,048  

Other expense – net

     (4,172     (2,612       (5,009     (5,780  
                                    

Loss before income taxes

     (3,245     (822,485       (62,728     (893,417  

Income tax benefit

     741        133,124          11,445        112,701     
                                    

Consolidated net loss

   $ (2,504   $ (689,361     $ (51,283   $ (780,716  

Amount attributable to noncontrolling interest

     6,623        (263       5,626        (3,738  
                                    

Net loss attributable to the Company

   $ (9,127   $ (689,098     $ (56,909   $ (776,978  
                                    

Consolidated Revenue

Our consolidated revenue increased $9.3 million during the second quarter of 2010 as compared to the second quarter of 2009. Americas revenue increased $8.2 million, primarily from revenue increases across our advertising inventory, particularly digital. Our International revenue increased $1.1 million, primarily from a strong billboard performance in the U.K. and street furniture performance across most countries, partially offset by decreases from movements in foreign exchange.

Our consolidated revenue increased $35.8 million during the first six months of 2010 as compared to the same period of 2009. Americas revenue increased $9.0 million, primarily from revenue increases across our advertising inventory, particularly digital. Our International revenue increased $26.8 million, primarily from a strong billboard performance in the U.K. and street furniture performance across most countries and included $15.9 million from movements in foreign exchange.

Consolidated Direct Operating Expenses

Our direct operating expenses decreased $6.4 million during the second quarter of 2010 as compared to the second quarter of 2009. Americas direct operating expenses decreased $4.5 million primarily as a result of the disposition of our taxi advertising business. Direct operating expenses in our International segment decreased $2.0 million and included a $7.1 million decrease from movements in foreign exchange.

 

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Our direct operating expenses decreased $7.1 million during the first six months of 2010 as compared to the same period of 2009. Americas direct operating expenses decreased $10.0 million primarily as a result of the disposition of our taxi advertising business. Direct operating expenses in our International segment increased $2.9 million and included a $10.5 million increase from movements in foreign exchange.

Selling, General and Administrative Expenses (“SG&A”)

Our SG&A expenses increased $9.4 million during the second quarter of 2010 as compared to the same period of 2009. SG&A expenses increased $12.7 million in our Americas segment primarily as a result of the unfavorable impact of litigation. Our SG&A expenses decreased $3.3 million in our International segment and included a $2.0 million decrease from movements in foreign exchange.

Our SG&A expenses increased $2.9 million during the first six months of 2010 as compared to the same period of 2009. SG&A expenses increased $8.3 million in our Americas segment, primarily as a result of the unfavorable impact of litigation, partially offset by the disposition of our taxi advertising business. Our International SG&A expenses decreased $5.4 million, including a $2.9 million increase from movements in foreign exchange, offset by a decrease in bad debt expense and business tax.

Corporate Expenses

Corporate expenses increased $8.1 million and $14.6 million during the three and six months ended June 30, 2010, respectively, as compared to the same periods of 2009, primarily due to increases in bonus expense from improved operating performance. Also contributing to the increase were costs associated with centralizing corporate activities.

Depreciation and Amortization

Depreciation and amortization decreased $9.5 million during the second quarter of 2010 compared to the same period of 2009, primarily as a result of a decrease of $7.4 million in depreciation and amortization in our International segment in 2010 primarily related to assets that became fully amortized during 2009.

Depreciation and amortization decreased $9.7 million during the first six months of 2010 compared to the same period of 2009, primarily as a result of a decrease of $10.4 million in depreciation and amortization in our International segment in 2010 primarily related to assets that became fully amortized during 2009.

Interest on Debt with Clear Channel Communications

Interest on debt with our indirect parent entity, Clear Channel Communications, Inc. (“Clear Channel Communications”), decreased $36.8 million and $73.8 million during the three and six months ended June 30, 2010, respectively, as compared to the same periods of 2009. The decrease was attributable to the retirement of the $2.5 billion note to Clear Channel Communications in December 2009.

Interest Expense

Interest expense increased $59.0 million and $115.4 million during the three and six months ended June 30, 2010, respectively, as compared to the same periods of 2009. The increase was primarily attributable to the issuance by our subsidiary, Clear Channel Worldwide Holdings, Inc., of $2.5 billion aggregate principal amount of senior notes in December 2009, which bear interest at a fixed rate of 9.25% per annum.

Income Tax Benefit

Our operations are included in a consolidated income tax return filed by CC Media Holdings, Inc. (“CC Media Holdings”). 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.

Income tax benefits of $0.7 million and $11.4 million were recorded for the three months and six months ended June 30, 2010, respectively, resulting in effective tax rates of 22.8% and 18.2% for those periods, respectively. The 2010 effective rates were impacted primarily as a result of the Company’s inability to benefit from tax losses in certain foreign jurisdictions due to the uncertainty of the ability to utilize those losses in future years.

 

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Income tax benefits of $133.1 million and $112.7 million were recorded for the three months and six months ended June 30, 2009, respectively, resulting in effective tax rates of 16.2% and 12.6% for those periods, respectively. The 2009 effective tax rates were primarily impacted by the impairment charge on goodwill. In addition, the Company recorded deferred tax valuation allowances due the uncertainty of the Company’s ability to utilize Federal and foreign tax losses at that time.

Americas Results of Operations

Disposition of Taxi Business

On December 31, 2009, Clear Channel Outdoor, Inc. disposed of Clear Channel Taxi Media, LLC (“Taxis”), our taxi advertising business. For the three months ended June 30, 2009, Taxis contributed $10.8 million in revenue, $10.3 million in direct operating expenses and $2.7 million in SG&A expenses. For the six months ended June 30, 2009, Taxis contributed $19.7 million in revenue, $19.9 million in direct operating expenses and $5.3 million in SG&A expenses.

Our Americas operating results were as follows:

 

(In thousands)    Three Months Ended
June 30,
   %
Change
    Six Months Ended
June 30,
   %
Change
 
     2010    2009      2010    2009   

Revenue

   $ 323,769    $ 315,553    3   $ 594,746    $ 585,740    2

Direct operating expenses

     144,298      148,755    (3 %)      283,606      293,635    (3 %) 

SG&A expenses

     64,075      51,398    25     108,552      100,237    8

Depreciation and amortization

     55,729      57,860    (4 %)      105,180      104,510    1
                                

Operating income

   $ 59,667    $ 57,540    4   $ 97,408    $ 87,358    12
                                

Three Months

Americas revenue increased $8.2 million during the second quarter of 2010 compared to the same period of 2009 as a result of increased revenue across our advertising inventory, particularly digital. The increase was driven by an increase in both occupancy and rate. Partially offsetting the revenue increase was the decrease in revenue related to Taxis.

Direct operating expenses decreased $4.5 million during the second quarter of 2010 compared to the same period of 2009, primarily as a result of the disposition of Taxis. Partially offsetting the decrease was a $6.4 million increase in site-lease expenses associated with the increase in revenue. SG&A expenses increased $12.7 million during the second quarter of 2010 compared to the same period of 2009 primarily as a result of a $9.5 million increase related to the unfavorable impact of litigation, in addition to a $5.7 million increase primarily related to selling and marketing costs associated with the increase in revenue, partially offset by the disposition of Taxis.

Six Months

Americas revenue increased $9.0 million during the first six months of 2010 compared to the same period of 2009 as a result of increased revenue across our advertising inventory, particularly digital. The increase was driven by an increase in both occupancy and rate. Partially offsetting the revenue increase was the decrease in revenue related to Taxis.

Direct operating expenses decreased $10.0 million during the first six months of 2010 compared to the same period of 2009. The decline in direct operating expenses was primarily as a result of the disposition of Taxis, partially offset by an $11.1 million increase in site-lease expenses associated with the increase in revenue. SG&A expenses increased $8.3 million during the first six months of 2010 compared to the same period of 2009 primarily as a result of a $5.7 million increase related to the unfavorable impact of litigation, in addition to a $3.5 million increase in selling and marketing costs associated with the increase in revenue, partially offset by the disposition of Taxis.

 

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International Results of Operations

Our International operating results were as follows:

 

(In thousands)

   Three Months Ended
June 30,
   %
Change
    Six Months Ended
June 30,
    %
Change
 
     2010    2009      2010     2009    

Revenue

   $ 377,638    $ 376,564    0   $ 715,429      $ 688,593      4

Direct operating expenses

     241,586      243,554    (1 %)      481,164        478,282      1

SG&A expenses

     66,617      69,944    (5 %)      133,497        138,869      (4 %) 

Depreciation and amortization

     49,570      56,948    (13 %)      101,828        112,206      (9 %) 
                                  

Operating income (loss)

   $ 19,865    $ 6,118    225   $ (1,060   $ (40,764   97
                                  

Three Months

International revenue increased $1.1 million during the second quarter of 2010 compared to the same period of 2009. Strong revenue performance from billboards in the U.K. as well as street furniture across most countries was partially offset by the exit from transit contracts in Spain and from businesses in Greece and India, as well as a $9.1 million decrease from movements in foreign exchange.

Direct operating expenses decreased $2.0 million during the second quarter of 2010 compared to the same period of 2009, primarily from a $7.1 million decrease from movements in foreign exchange and a $4.0 million decline in site-lease expenses as a result of cost savings from our restructuring program. Partially offsetting the decrease was an increase of $7.2 million primarily related to severance costs associated with our restructuring program. SG&A expenses decreased $3.3 million during the second quarter of 2010 compared to the same period of 2009 primarily from a $2.0 million decrease from movements in foreign exchange.

Depreciation and amortization decreased $7.4 million during the second quarter of 2010 compared to the same period of 2009 primarily as a result of assets that became fully amortized during 2009.

Six Months

International revenue increased $26.8 million during the first six months of 2010 compared to the same period of 2009, primarily as a result of a $15.9 million increase in foreign exchange. Strong revenue performance from billboards in the U.K. as well as street furniture across most countries was partially offset by the exit from transit contracts in Spain and from businesses in Greece, India and the U.K. taxi business.

Direct operating expenses increased $2.9 million during the first six months of 2010 compared to the same period of 2009. A $10.5 million increase from movements in foreign exchange along with a $3.5 million increase primarily related to severance costs associated with our restructuring program were partially offset by an $11.9 million decline in site-lease expenses associated with cost savings from our restructuring program. SG&A expenses decreased $5.4 million during the first six months of 2010 compared to the same period of 2009. A $2.4 million decline in bad debt expense and a $3.2 million decrease in business tax were partially offset by a $2.9 million increase from movements in foreign exchange.

Depreciation and amortization decreased $10.4 million during the first six months of 2010 compared to the same period of 2009 primarily as a result of assets that became fully amortized during 2009.

 

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Reconciliation of Segment Operating Income (Loss) to Consolidated Operating Income (Loss)

 

(In thousands)

   Three Months Ended
June 30,
    Six Months Ended
June 30,
 
     2010     2009     2010     2009  

Americas

   $ 59,667      $ 57,540      $ 97,408      $ 87,358   

International

     19,865        6,118        (1,060     (40,764

Corporate expenses

     (23,757     (15,653     (44,529     (29,899

Impairment charges

     —          (812,390     —          (812,390

Other operating income - net

     1,720        4,353        2,738        8,965   
                                

Consolidated operating income (loss)

   $ 57,495      $ (760,032   $ 54,557      $ (786,730
                                

Share-Based Compensation Expense

The following table details amounts related to share-based compensation expense for the three and six months ended June 30, 2010 and 2009, respectively:

 

(In thousands)

   Three Months Ended
June  30,
   Six Months Ended
June 30,
     2010    2009    2010    2009

Americas

   $ 2,316    $ 2,028    $ 4,346    $ 4,196

International

     692      613      1,295      1,269

Corporate

     97      207      181      429
                           

Total share-based compensation expense

   $ 3,105    $ 2,848    $ 5,822    $ 5,894
                           

 

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LIQUIDITY AND CAPITAL RESOURCES

Clear Channel Communications’ Merger

Clear Channel Communications’ capitalization, liquidity and capital resources substantially changed due to the consummation of its merger on July 30, 2008 with entities formed by private equity funds sponsored by Bain Capital, LLC and Thomas H. Lee Partners, L.P. Upon the closing of the merger, Clear Channel Communications incurred additional debt and became highly leveraged.

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 option to limit our ability to incur debt or issue equity securities, among other limitations, which could adversely affect our ability to meet our liquidity needs.

The following discussion highlights our cash flow activities during the six months ended June 30, 2010 and 2009 respectively.

Cash Flows

 

(In thousands)

   Six Months Ended June 30,  
     2010     2009  

Cash provided by (used for):

    

Operating activities

   $ 172,937      $ 139,651   

Investing activities

   $ (85,718   $ (61,112

Financing activities

   $ (71,470   $ (64,391

Operating Activities

The increase in cash flow from operations for the six months ended June 30, 2010 compared to the same period of the prior year was primarily driven by improved profitability, including a 3% increase in revenues. Cash flows from operations increased as a result of a $35.3 million increase in deferred revenue and an $18.5 million increase in accrued income taxes, partially offset by a $25.9 million increase in accounts receivable.

Investing Activities

Net cash used for investing activities of $85.7 million for the six months ended June 30, 2010 primarily reflects capital expenditures of $86.7 million. We spent $39.9 million in our Americas segment primarily related to the construction of new billboards and $46.8 million in our International segment primarily related to new billboard and street furniture contracts and renewals of existing contracts.

Net cash used for investing activities of $61.1 million for the six months ended June 30, 2009 primarily reflects capital expenditures of $34.3 million related to the construction of new billboards in our Americas segment and $32.5 million related to new billboard and street furniture contracts and renewals of existing contracts in our International segment.

Financing Activities

Net cash used for financing activities of $71.5 million for the six months ended June 30, 2010 reflects payments on credit facilities and long-term debt of $43.5 million and $7.8 million, respectively, and net transfers to Clear Channel Communications of $23.7 million.

Net cash used for financing activities of $64.4 million for the six months ended June 30, 2009 primarily reflects payments on credit facilities of $5.9 million and net transfers of cash to Clear Channel Communications of $45.5 million. In addition, we purchased the remaining 15% interest in our fully consolidated subsidiary, Paneles Napsa S.A., for $13.0 million.

Anticipated Cash Requirements

Our primary source of liquidity is cash flow from operations. Based on our current and anticipated levels of operations and conditions in our markets, we believe that cash on hand, cash flows from operations and borrowings under the revolving promissory note with Clear Channel Communications will enable us to meet our working capital, capital expenditure, debt service and other funding requirements for at least the next 12 months.

 

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We expect to be in compliance with the covenants governing our indebtedness in 2010. However, our anticipated results are subject to significant uncertainty and there can be no assurance that we will be able to maintain compliance with these covenants. In addition, our ability to comply with these covenants may be affected by events beyond our control, including prevailing economic, financial and industry conditions.

Furthermore, in its Quarterly Report on Form 10-Q filed with the SEC on August 9, 2010, CC Media Holdings, our indirect parent, stated that it expects to be in compliance with the covenants under Clear Channel Communications’ material financing agreements in 2010, including the financial covenant contained in its senior credit facilities that limits the ratio of its consolidated senior secured debt, net of cash and cash equivalents, to its consolidated adjusted EBITDA for the preceding four quarters. CC Media Holdings similarly stated in its Quarterly Report that its anticipated results are also subject to significant uncertainty and there can be no assurance that actual results will be in compliance with the covenants. Moreover, CC Media Holdings stated in its Quarterly Report that its ability to comply with the covenants in Clear Channel Communications’ material financing agreements may be affected by events beyond CC Media Holdings’ control, including prevailing economic, financial and industry conditions. As discussed therein, the breach of any covenants set forth in Clear Channel Communications’ financing agreements would result in a default thereunder, and an event of default would permit the lenders under a defaulted financing agreement to declare all indebtedness thereunder to be due and payable prior to maturity. Moreover, as discussed therein, the lenders under the revolving credit facility under Clear Channel Communications’ senior secured credit facilities would have the option to terminate their commitments to make further extensions of revolving credit thereunder. In addition, CC Media Holdings stated in its Quarterly Report that if CC Media Holdings is unable to repay Clear Channel Communications’ obligations under any secured credit facility, the lenders under such secured credit facility could proceed against any assets that were pledged to secure such facility. Finally, CC Media Holdings stated in its Quarterly Report that a default or acceleration under any of Clear Channel Communications’ material financing agreements, including the Notes, could cause a default under other obligations that are subject to cross-default and cross-acceleration provisions.

For so long as Clear Channel Communications maintains significant control over 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 capital markets. As of June 30, 2010, Clear Channel Communications had $1.5 billion recorded as “Cash and cash equivalents” on its condensed consolidated balance sheets.

Our ability to fund our working capital needs, debt service and other obligations depends on our future operating performance and cash flow. If our future operating performance does not meet our expectations or our plans materially change in an adverse manner or prove to be materially inaccurate, we may need additional financing. We may not be able to secure any such additional financing on terms favorable to us or at all.

 

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SOURCES OF CAPITAL

As of June 30, 2010 and December 31, 2009, we had the following debt outstanding, net of cash and cash equivalents and amounts due from Clear Channel Communications:

 

(In thousands)

   June 30,
2010
   December 31,
2009

CCWH Senior Notes

   $ 2,500,000    $ 2,500,000

Credit facility ($150.0 million sub-limit within Clear Channel Communications’ $2.0 billion revolving credit facility)

     —        30,000

Other debt

     62,257      78,878
             

Total debt

     2,562,257      2,608,878

Less: Cash and cash equivalents

     616,544      609,436

Less: Due from Clear Channel Communications

     146,985      123,308
             
   $ 1,798,728    $ 1,876,134
             

We may from time to time repay our outstanding debt or seek to purchase our outstanding equity securities. Such transactions, if any, will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors.

Promissory Notes with Clear Channel Communications

We maintain accounts that represent net amounts due to or from Clear Channel Communications, which is recorded as “Due from/to Clear Channel Communications” on our condensed consolidated balance sheets. The accounts represent our revolving promissory note issued by us to Clear Channel Communications and the revolving promissory note issued by Clear Channel Communications to us in the face amount of $1.0 billion, or if more or less than such amount, the aggregate unpaid principal amount of all advances. Included in the accounts are the net activities resulting from day-to-day cash management services provided by Clear Channel Communications. At June 30, 2010 and December 31, 2009, the asset recorded in “Due from Clear Channel Communications” on our condensed consolidated balance sheet was $147.0 million and $123.3 million, respectively. At June 30, 2010, we had no borrowings under the cash management note to Clear Channel Communications.

The net interest income for the three and six months ended June 30, 2010 was $3.8 million and $7.2 million, respectively. The net interest income for the three and six months ended June 30, 2009 was $0.1 million and $0.2 million, respectively. At June 30, 2010 and 2009, the interest rate on the “Due from Clear Channel Communications” account was 9.25% and 0.09%, respectively, the first of which represented the interest rate on the Notes and the second of which represented the average one-month generic treasury bill rate.

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 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.

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 revolving promissory 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 other lenders, or through public offerings or private placements of debt or equity, strategic relationships or other arrangements at some future date. As stated above, we may be unable to successfully obtain additional debt or equity financing on satisfactory terms or at all.

As 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 option to limit our ability to incur debt or issue equity securities, among other limitations, which could adversely affect our ability to meet our liquidity needs. Under the Master Agreement with Clear Channel Communications, we are limited in our borrowing from third parties to no more than $400.0 million (including borrowings under the $150.0 million sub-limit of Clear Channel Communications’ $2.0 billion revolving credit facility).

 

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Clear Channel Worldwide Holdings Senior Notes

The Series B Notes indenture restricts, among other things, our ability to incur additional indebtedness and to pay dividends and make other restricted payments. In order to incur additional indebtedness, our consolidated leverage ratio (as defined by the indenture) must generally be no greater than 6.5:1 and, in order to incur additional senior indebtedness, our senior leverage ratio (as defined by the indenture) must be no greater than 3.25:1, in each case after giving pro forma effect to such incurrence. The Company’s adjusted EBITDA of $690.5 million is calculated as the trailing twelve months operating income before depreciation and amortization and other operating income – net, plus impairment charges and non-cash compensation, and is further adjusted for certain items, including: (i) an increase for expected cost savings (limited to $58.8 million in any twelve month period) of $23.7 million; (ii) an increase of $39.8 million for non-cash items; (iii) an increase of $54.0 million related to restructuring charges and other costs/expenses; and (iv) an increase of $12.3 million for various other items. Our consolidated leverage ratio was 3.7:1 at June 30, 2010, and our senior leverage ratio was also 3.7:1 at June 30, 2010. If these ratios are not met, we have various exceptions that allow us to incur additional indebtedness, such as a $150 million basket for credit facilities indebtedness and a $65 million general indebtedness basket. The restrictions on our ability to pay dividends and make other restricted payments are subject to various exceptions, including a $500 million exception for the payment of dividends and a $25 million general exception for the making of other restricted payments.

Other Debt

Other debt consists primarily of loans with international banks. At June 30, 2010, approximately $62.3 million was outstanding as other debt.

Clear Channel Communications’ Debt Covenants

Clear Channel Communications’ senior credit facilities require Clear Channel Communications to comply on a quarterly basis with a financial covenant limiting the ratio of its consolidated senior secured debt, net of cash and cash equivalents, to its consolidated adjusted EBITDA for the preceding four quarters. The maximum ratio under this financial covenant is currently set at 9.5:1 and becomes more restrictive over time beginning in the second quarter of 2013. In its Quarterly Report on Form 10-Q filed with the SEC on August 9, 2010, CC Media Holdings stated that it was in compliance with this covenant as of June 30, 2010.

USES OF CAPITAL

Commitments, Contingencies and Guarantees

We are currently involved in certain legal proceedings. Based on current assumptions, we have accrued an estimate of the probable costs for the resolution of those claims for which the occurrence of loss is probable and the amount can be reasonably estimated. Future results of operations could be materially affected by changes in the Company’s assumptions or the effectiveness of its strategies related to these proceedings.

Seasonality

Typically, both our Americas and International segments experience their lowest financial performance in the first quarter of the calendar year, with International historically experiencing a loss from operations in that period. Our Americas segment historically 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.

 

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MARKET RISK

Equity Price Risk

The carrying value of our available-for-sale equity securities is affected by changes in their quoted market prices. It is estimated that a 20% change in the market prices of these securities would change their carrying value and comprehensive loss at June 30, 2010 by $2.2 million.

Foreign Currency Exchange Rate Risk

We have operations in countries throughout the world. The financial results of our foreign operations are measured in their local currencies. 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. We estimate a 10% increase in the value of the U.S. dollar relative to foreign currencies would have decreased our net loss for the three months ended June 30, 2010 by approximately $1.0 million and increased our net loss for the six months ended June 30, 2010 by approximately $1.1 million, and that a 10% decrease in the value of the U.S. dollar relative to foreign currencies would have adjusted our net loss by a corresponding amount.

This analysis does not consider the implications 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.

Inflation

Inflation is a factor in the economies in which we do business and we continue to seek ways to mitigate its effect. Inflation has affected our performance in terms of higher costs for wages, salaries and equipment. Although the exact impact of inflation is indeterminable, we believe we have offset these higher costs by increasing the effective advertising rates of most of our outdoor display faces.

Cautionary Statement 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 report contains various forward-looking statements which represent our expectations or beliefs concerning future events, including without limitation, our future operating and financial performance and availability of capital and the terms thereof. Statements expressing expectations and projections with respect to future matters are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. We caution that these forward-looking statements involve a number of risks and uncertainties and are subject to many variables which could impact our future performance. These statements are made on the basis of management’s views and assumptions, as of the time the statements are made, regarding future events and performance. There can be no assurance, however, that management’s expectations will necessarily come to pass. We do not intend, nor do we undertake any duty, to update any forward-looking statements.

 

- 31 -


A wide range of factors could materially affect future developments and performance, including:

 

  •  

risks associated with a global economic downturn and its impact on capital markets;

 

  •  

other 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 risk that our restructuring program may not be entirely successful;

 

  •  

the impact of the geopolitical environment;

 

  •  

industry conditions, including competition;

 

  •  

fluctuations in operating costs;

 

  •  

technological changes and innovations;

 

  •  

changes in labor conditions;

 

  •  

legislative or regulatory requirements;

 

  •  

capital expenditure requirements;

 

  •  

fluctuations in exchange rates and currency values;

 

  •  

the outcome of pending and future litigation;

 

  •  

changes in interest rates;

 

  •  

taxes;

 

  •  

shifts in population and other demographics;

 

  •  

access to capital markets and borrowed indebtedness;

 

  •  

the risk that we may not be able to integrate the operations of recently acquired companies successfully;

 

  •  

the impact of the above and similar factors on Clear Channel Communications, our primary direct or indirect external source of capital; and

 

  •  

certain other factors set forth in our filings with the SEC, including our Annual Report on Form 10-K for the year ended December 31, 2009.

This list of factors that may affect future performance and the accuracy of forward-looking statements is illustrative and is not intended to be exhaustive. Accordingly, all forward-looking statements should be evaluated with the understanding of their inherent uncertainty.

 

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Required information is presented under “MARKET RISK” within Item 2 of this Part I.

 

Item 4. CONTROLS AND PROCEDURES

Under the supervision and with the participation of management, including our Chief Executive Officer and our Chief Financial Officer, we have carried out an evaluation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act). Based on that evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that our disclosure controls and procedures were effective as of June 30, 2010 to ensure that information we are required to disclose in reports that are filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified by the SEC and is accumulated and communicated to our management, including our Chief Executive Officer and our Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

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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Part II — OTHER INFORMATION

 

Item 1. Legal Proceedings

On or about July 12, 2006, two of the Company’s operating businesses in the Sao Paulo, Brazil market received notices of infraction from the state taxing authority, seeking to impose a value added tax (“VAT”) on such businesses, retroactively for the period from December 31, 2001 through January 31, 2006. The taxing authority contends that the Company’s businesses fall within the definition of “communication services” and as such are subject to the VAT. The aggregate amount of tax initially claimed to be owed by both businesses equals approximately $67 million, comprised of approximately $19.4 million in taxes, approximately $38.9 million in penalty and approximately $8.7 million in interest (as of June 30, 2010 at an exchange rate of 0.57). In addition, the taxing authority is seeking to impose an additional aggregate amount of interest on the tax and penalty amounts until the initial tax, penalty and interest are paid of approximately $32.6 million (as of June 30, 2010 at an exchange rate of 0.57). The aggregate amount of additional interest accrues daily at an interest rate promulgated by the Brazilian government, which at June 30, 2010 is equal to