Table of Contents

 

 

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 SEPTEMBER 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 October 31, 2010

Class A Common Stock, $.01 par value

  40,887,612

Class B Common Stock, $.01 par value

  315,000,000

 

 

 


Table of Contents

 

CLEAR CHANNEL OUTDOOR HOLDINGS, INC. AND SUBSIDIARIES

INDEX

 

     Page No.  

PART I — FINANCIAL INFORMATION

  

Item 1. Unaudited Financial Statements

  

Condensed Consolidated Balance Sheets at September 30, 2010 and December 31, 2009

     3   

Consolidated Statements of Operations for the three and nine months ended September 30, 2010 and 2009

     4   

Condensed Consolidated Statements of Cash Flows for the nine months ended September 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

     23   

Item 3. Quantitative and Qualitative Disclosures About Market Risk

     33   

Item 4. Controls and Procedures

     33   

PART II — OTHER INFORMATION

  

Item 1. Legal Proceedings

     34   

Item 1A. Risk Factors

     34   

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

     35   

Item 3. Defaults Upon Senior Securities

     35   

Item 4. (Removed and Reserved)

     35   

Item 5. Other Information

     35   

Item 6. Exhibits

     36   

Signatures

     37   

 

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Table of Contents

 

PART I — FINANCIAL INFORMATION

Item 1. UNAUDITED FINANCIAL STATEMENTS

CLEAR CHANNEL OUTDOOR HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands)

 

     September 30,
2010
(Unaudited)
    December 31,
2009
 

CURRENT ASSETS

    

Cash and cash equivalents

   $ 664,710      $ 609,436   

Accounts receivable, net

     732,445        730,306   

Other current assets

     209,227        300,803   
                

Total Current Assets

     1,606,382        1,640,545   

PROPERTY, PLANT AND EQUIPMENT

    

Structures, net

     2,035,286        2,143,972   

Other property, plant and equipment, net

     293,764        296,666   

INTANGIBLE ASSETS

    

Definite-lived intangibles, net

     723,025        799,144   

Indefinite-lived intangibles

     1,119,912        1,132,218   

Goodwill

     862,051        861,592   

OTHER ASSETS

    

Due from Clear Channel Communications

     254,178        123,308   

Other assets

     192,052        194,977   
                

Total Assets

   $ 7,086,650      $ 7,192,422   
                

CURRENT LIABILITIES

    

Accounts payable and accrued expenses

   $ 602,462      $ 614,442   

Deferred income

     137,447        109,578   

Current portion of long-term debt

     42,356        47,073   
                

Total Current Liabilities

     782,265        771,093   

Long-term debt

     2,524,980        2,561,805   

Deferred tax liability

     830,369        841,911   

Other long-term liabilities

     271,996        256,236   

Commitments and contingent liabilities

    

SHAREHOLDERS’ EQUITY

    

Noncontrolling interest

     201,010        193,730   

Class A common stock

     409        407   

Class B common stock

     3,150        3,150   

Additional paid-in capital

     6,676,478        6,669,247   

Retained deficit

     (3,978,629     (3,886,826

Accumulated other comprehensive loss

     (225,091     (218,177

Cost of shares held in treasury

     (287     (154
                

Total Shareholders’ Equity

     2,677,040        2,761,377   
                

Total Liabilities and Shareholders’ Equity

   $ 7,086,650      $ 7,192,422   
                

See notes to consolidated financial statements

 

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CLEAR CHANNEL OUTDOOR HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

(In thousands, except per share data)

 

     Three Months Ended
September 30,
    Nine Months Ended
September 30,
 
     2010     2009     2010     2009  

Revenue

   $ 695,086      $ 660,622      $ 2,005,261      $ 1,934,955   

Operating expenses:

        

Direct operating expenses (excludes depreciation and amortization)

     380,619        398,766        1,145,389        1,170,683   

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

     115,224        108,824        357,273        347,930   

Corporate expenses (excludes depreciation and amortization)

     26,197        15,547        70,726        45,446   

Depreciation and amortization

     103,833        111,053        310,841        327,769   

Impairment charges

     —          —          —          812,390   

Other operating income (expense) – net

     (27,672     1,160        (24,934     10,125   
                                

Operating income (loss)

     41,541        27,592        96,098        (759,138

Interest expense

     60,276        37,908        178,989        114,992   

Interest income on Due from Clear Channel Communications

     4,800        133        12,019        358   

Loss on marketable securities

     —          (11,315     —          (11,315

Equity in loss of nonconsolidated affiliates

     (663     (2,046     (1,462     (26,094

Other income (expense) – net

     1,545        492        (3,447     (5,288
                                

Loss before income taxes

     (13,053     (23,052     (75,781     (916,469

Income tax benefit (expense)

     (18,829     (10,999     (7,384     101,702   
                                

Consolidated net loss

     (31,882     (34,051     (83,165     (814,767

Amount attributable to noncontrolling interest

     3,012        325        8,638        (3,413
                                

Net loss attributable to the Company

   $ (34,894   $ (34,376   $ (91,803   $ (811,354
                                

Other comprehensive income (loss), net of tax:

        

Foreign currency translation adjustments

     106,902        47,637        313        116,553   

Foreign currency reclassification adjustment

     2,565        11,836        1,424        11,323   

Unrealized loss on marketable securities

     (394     (2,165     (5,343     (11,315
                                

Comprehensive income (loss)

     74,179        22,932        (95,409     (694,793

Amount attributable to noncontrolling interest

     7,042        2,981        3,308        7,002   
                                

Comprehensive income (loss) attributable to the Company

   $ 67,137      $ 19,951      $ (98,717   $ (701,795
                                

Net loss per common share:

        

Basic

   $ (0.10   $ (0.10   $ (0.27   $ (2.29

Weighted average common shares outstanding

     355,585        355,389        355,530        355,364   

Diluted

   $ (0.10   $ (0.10   $ (0.27   $ (2.29

Weighted average common shares outstanding

     355,585        355,389        355,530        355,364   

See notes to consolidated financial statements

 

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CLEAR CHANNEL OUTDOOR HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

(In thousands)

 

     Nine Months Ended
September 30,
 
     2010     2009  

Cash flows from operating activities:

    

Consolidated net loss

   $ (83,165   $ (814,767

Reconciling items:

    

Impairment charges

     —          812,390   

Depreciation and amortization

     310,841        327,769   

Deferred taxes

     (11,722     (127,877

Provision for doubtful accounts

     4,849        9,059   

(Gain) loss on sale of operating and fixed assets

     24,934        (10,125

Other reconciling items, net

     15,659        48,577   

Changes in operating assets and liabilities:

    

(Increase) decrease in accounts receivable

     (20,274     78,284   

Decrease in Federal incomes taxes receivable

     50,958        —     

Increase in deferred income

     30,020        22,409   

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

     22,339        (43,095

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

     24,695        (32,742
                

Net cash provided by operating activities

     369,134        269,882   

Cash flows from investing activities:

    

Purchases of property, plant and equipment

     (139,274     (113,976

Acquisition of operating assets, net of cash acquired

     (715     (5,125

Change in other – net

     4,762        25,997   
                

Net cash used for investing activities

     (135,227     (93,104

Cash flows from financing activities:

    

Draws on credit facilities

     3,916        6,508   

Payments on credit facilities

     (42,254     (3,784

Proceeds from long-term debt

     6,844        —     

Payments on long-term debt

     (12,425     (2,191

Net transfers to Clear Channel Communications

     (130,870     (86,309

Payments for purchase of noncontrolling interest

     —          (25,190

Change in other – net

     (4,213     —     
                

Net cash used for financing activities

     (179,002     (110,966

Effect of exchange rate changes on cash

     369        4,768   
                

Net increase in cash and cash equivalents

     55,274        70,580   

Cash and cash equivalents at beginning of period

     609,436        94,812   
                

Cash and cash equivalents at end of period

   $ 664,710      $ 165,392   
                

See notes to consolidated financial statements

 

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CLEAR CHANNEL OUTDOOR HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Note 1: BASIS OF PRESENTATION AND NEW ACCOUNTING STANDARDS

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 normal and recurring adjustments 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 U.S. generally accepted accounting principles (“GAAP”) 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 Reports on Forms 10-Q for the quarterly periods ended March 31, 2010 and June 30, 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.

New Accounting Pronouncements

In August 2010, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2010-21, Accounting for Technical Amendments to Various SEC Rules and Schedules. This ASU amends various SEC paragraphs pursuant to the issuance of Release No. 33-9026: Technical Amendments to Rules, Forms, Schedules and Codification of Financial Reporting Policies and became effective upon issuance. The adoption of ASU No. 2010-21 will not have a material impact on the Company’s financial position or results of operations.

In August 2010, the FASB issued ASU No. 2010-22, Accounting for Various Topics—Technical Corrections to SEC Paragraphs. This ASU amends various SEC paragraphs and became effective upon issuance. The adoption of ASU No. 2010-22 will not have a material impact on the Company’s financial position or results of operations.

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 September 30, 2010 and December 31, 2009, respectively:

 

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

Land, buildings and improvements

   $ 206,770       $ 207,939   

Structures

     2,589,169         2,514,602   

Furniture and other equipment

     78,631         71,567   

Construction in progress

     59,234         51,598   
                 
     2,933,804         2,845,706   

Less accumulated depreciation

     604,754         405,068   
                 

Property, plant and equipment, net

   $ 2,329,050       $ 2,440,638   
                 

 

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CLEAR CHANNEL OUTDOOR HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

 

 

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.

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

 

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

Transit, street furniture and other contractual rights

   $ 791,746       $ 226,163       $ 803,297       $ 166,803   

Other

     172,114         14,672         172,394         9,744   
                                   

Total

   $ 963,860       $ 240,835       $ 975,691       $ 176,547   
                                   

Total amortization expense related to definite-lived intangible assets was $26.2 million and $27.5 million for the three months ended September 30, 2010 and 2009, respectively, and $80.0 million and $75.0 million for the nine months ended September 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

   $ 86,993   

2012

     77,282   

2013

     72,977   

2014

     65,878   

2015

     53,193   

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

     176        283        459   
                        

Balance as of September 30, 2010

   $ 585,425      $ 276,626      $ 862,051   
                        

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.

 

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CLEAR CHANNEL OUTDOOR HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

 

 

Note 3: DEBT

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

 

(In thousands)    September 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

     67,336         78,878   
                 

Total debt

     2,567,336         2,608,878   

Less: Current portion

     42,356         47,073   
                 

Total long-term debt

   $ 2,524,980       $ 2,561,805   
                 

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

Note 4: OTHER DEVELOPMENTS

Disposition of Assets

On October 15, 2010, the Company transferred its interest in its Branded Cities operations to its joint venture partner, The Ellman Companies. The long-lived tangible and intangible assets of the Branded Cities operations were transferred for less than their carrying values in connection with this transaction. In connection with this subsequent event, the Company recorded a non-cash charge in the third quarter of 2010 of approximately $23.6 million in “Other operating income (expense) – net” to present these assets at their estimated fair values as of September 30, 2010.

During the three months ended September 30, 2010, the Company’s International segment sold its outdoor advertising business in India, resulting in a loss of $3.7 million included in “Other operating income (expense) – net.”

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 nine months ended September 30, 2010 and 2009, respectively:

 

(In thousands)    Three Months Ended
September  30,
     Nine Months Ended
September  30,
 
     2010      2009      2010      2009  

Direct operating expenses

   $ 2,099       $ 1,694       $ 6,231       $ 5,698   

Selling, general and administrative expenses

     766         618         2,275         2,079   

Corporate expenses

     92         182         273         611   
                                   

Total share-based compensation expense

   $ 2,957       $ 2,494       $ 8,779       $ 8,388   
                                   

As of September 30, 2010, there was $18.4 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 two years.

 

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CLEAR CHANNEL OUTDOOR HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

 

 

Supplemental Disclosures

Cash paid (received) for interest and income taxes for the nine months ended September 30, 2010 and 2009, net of Federal income tax refunds of $51.0 million for the nine months ended September 30, 2010, was as follows:

 

(In thousands)    Nine Months Ended
September  30,
 
     2010     2009  

Interest

   $ 175,919      $ 114,089   

Income taxes

   $ (29,656   $ 18,649   

Income tax benefit (expense)

The Company’s income tax benefit (expense) for the three and nine months ended September 30, 2010 and 2009, respectively, consisted of the following components:

 

(In thousands)    Three Months Ended
September  30,
    Nine Months Ended
September 30,
 
     2010     2009     2010     2009  

Current tax expense

   $ (1,418   $ (13,025   $ (19,106   $ (26,175

Deferred tax benefit (expense)

     (17,411     2,026        11,722        127,877   
                                

Income tax benefit (expense)

   $ (18,829   $ (10,999   $ (7,384   $ 101,702   
                                

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 nine months ended September 30, 2010 was (144.3%) and (9.7%), respectively, compared to an effective rate of (47.7%) and 11.1% for the three and nine months ended September 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. In addition, during the three months ended September 30, 2010, the Company recorded a valuation allowance of $13.4 million against deferred tax assets in foreign jurisdictions due to the uncertainty of the ability to realize those assets in future periods. The change in the effective rate compared to the same period of the prior year was impacted primarily by the impairment charge on goodwill recorded in 2009 and 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.

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 September 30, 2010 and December 31, 2009, respectively, are as follows:

 

(In thousands)    September 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       $ (4,025   $ 87       $ 10,568       $ 14,506       $ —         $ 1,405       $ 15,911   

 

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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.

In 2006, two of the Company’s operating businesses (L&C Outdoor Ltda. and Publicidad Klimes Sao Paulo Ltda.) 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 our 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 $69.4 million, comprised of approximately $20.2 million in taxes, approximately $40.2 million in penalty and approximately $9.0 million in interest. In addition, the taxing authorities are seeking to impose an additional aggregate amount of interest on the tax and penalty amounts of approximately $39.3 million until the initial tax, penalty and interest are paid. The aggregate amount of additional interest accrues daily at an interest rate promulgated by the Brazilian government, which at September 30, 2010 is equal to approximately $1.85 million per month.

The Company has filed petitions to challenge the imposition of this tax against each of its businesses, which are proceeding separately. The Company’s challenge for L&C Outdoor Ltda. was unsuccessful at the first administrative level, but successful at the second administrative level. The state taxing authority filed an appeal to the next administrative level, which required consideration by a full panel of 16 administrative law judges. On September 27, 2010, the Company received an unfavorable ruling from this final administrative level and intends to appeal this ruling to the judicial level. The Company has filed a petition to have the case remanded to the second administrative level for consideration of the amount of the penalty assessed against it. The Company’s challenge for Publicidad Klimes Sao Paulo Ltda. was unsuccessful at the first administrative level, and denied at the second administrative level on or about September 24, 2009. The case is now pending before the third administrative level. Based on the Company’s review of the law in similar cases in other Brazilian states, the Company has not accrued any costs related to these claims and believes the occurrence of loss is not probable.

As of September 30, 2010, Clear Channel Communications had outstanding commercial standby letters of credit and surety bonds of $47.9 million and $43.2 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 September 30, 2010 and December 31, 2009, the asset recorded in “Due from Clear Channel Communications” on the condensed consolidated balance sheets was $254.2 million and $123.3 million, respectively. As of September 30, 2010, the Company had no borrowings under the cash management note to Clear Channel Communications.

The net interest income for the three and nine months ended September 30, 2010 was $4.8 million and $12.0 million, respectively. The net interest income for the three and nine months ended September 30, 2009 was $0.1 million and $0.4 million, respectively. At September 30, 2009, the interest rate on the “Due from Clear Channel Communications” account was 0.056%, which represented the average one-month generic treasury bill rate. At September 30, 2010, the interest rate on the “Due from Clear Channel Communications” account was 9.25%, which represented the rate as amended in connection with the CCWH Senior Notes issuance in December of 2009.

 

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

 

 

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. As of September 30, 2010, the Company had no borrowings outstanding under this $150.0 million sub-limit facility.

The Company provides advertising space on its billboards for radio stations owned by Clear Channel Communications. For the three months ended September 30, 2010 and 2009, the Company recorded $0.7 million and $0.8 million, respectively, in revenue for these advertisements. For the nine months ended September 30, 2010 and 2009, the Company recorded $2.4 million and $2.0 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 September 30, 2010 and 2009, the Company recorded $9.1 million and $7.8 million, respectively, as a component of corporate expenses for these services. For the nine months ended September 30, 2010 and 2009, the Company recorded $27.7 million and $22.0 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.

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 $2.6 million and $2.2 million for the three months ended September 30, 2010 and 2009, respectively. For the nine months ended September 30, 2010 and 2009, the Company recorded approximately $7.7 million and $7.2 million, respectively, as a component of selling, general and administrative expenses for these services.

 

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

 

 

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)

     (91,803     8,638        (83,165

Foreign currency translation adjustments

     (3,169     3,482        313   

Unrealized holding loss on marketable securities

     (5,343     —          (5,343

Reclassification adjustment

     1,598        (174     1,424   

Other – net

     7,100        (4,666     2,434   
                        

Balances at September 30, 2010

   $ 2,476,030      $ 201,010      $ 2,677,040   
                        
(In thousands)    The
Company
    Noncontrolling
Interests
    Consolidated  

Balances at December 31, 2008

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

Net loss

     (811,354     (3,413     (814,767

Foreign currency translation adjustments

     109,551        7,002        116,553   

Other – net

     (2,583     (22,900     (25,483
                        

Balances at September 30, 2009

   $ 2,627,624      $ 192,502      $ 2,820,126   
                        

 

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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 nine months ended September 30, 2010 and 2009, respectively:

 

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

Three months ended September 30, 2010

  

      

Revenue

   $ 333,269       $ 361,817      $ —        $ 695,086   

Direct operating expenses

     143,940         236,679        —          380,619   

Selling, general and administrative expenses

     51,750         63,474        —          115,224   

Depreciation and amortization

     53,139         50,694        —          103,833   

Corporate expenses

     —           —          26,197        26,197   

Other operating expense – net

     —           —          (27,672     (27,672
                                 

Operating income (loss)

   $ 84,440       $ 10,970      $ (53,869   $ 41,541   
                                 

Share-based compensation expense

   $ 2,207       $ 658      $ 92      $ 2,957   

Capital expenditures

   $ 30,689       $ 21,869      $ —        $ 52,558   

Three months ended September 30, 2009

  

      

Revenue

   $ 312,537       $ 348,085      $ —        $ 660,622   

Direct operating expenses

     147,250         251,516        —          398,766   

Selling, general and administrative expenses

     47,602         61,222        —          108,824   

Depreciation and amortization

     54,102         56,951        —          111,053   

Corporate expenses

     —           —          15,547        15,547   

Other operating income – net

     —           —          1,160        1,160   
                                 

Operating income (loss)

   $ 63,583       $ (21,604   $ (14,387   $ 27,592   
                                 

Share-based compensation expense

   $ 1,775       $ 537      $ 182      $ 2,494   

Capital expenditures

   $ 23,819       $ 23,335      $ —        $ 47,154   

 

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

 

 

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

Nine months ended September 30, 2010

  

      

Revenue

   $ 928,015       $ 1,077,246      $ —        $ 2,005,261   

Direct operating expenses

     427,546         717,843        —          1,145,389   

Selling, general and administrative expenses

     160,302         196,971        —          357,273   

Depreciation and amortization

     158,319         152,522        —          310,841   

Corporate expenses

     —           —          70,726        70,726   

Other operating expense – net

     —           —          (24,934     (24,934
                                 

Operating income (loss)

   $ 181,848       $ 9,910      $ (95,660   $ 96,098   
                                 

Share-based compensation expense

   $ 6,553       $ 1,953      $ 273      $ 8,779   

Capital expenditures

   $ 70,615       $ 68,659      $ —        $ 139,274   

Nine months ended September 30, 2009

  

      

Revenue

   $ 898,277       $ 1,036,678      $ —        $ 1,934,955   

Direct operating expenses

     440,885         729,798        —          1,170,683   

Selling, general and administrative expenses

     147,839         200,091        —          347,930   

Depreciation and amortization

     158,612         169,157        —          327,769   

Corporate expenses

     —           —          45,446        45,446   

Impairment charge

     —           —          812,390        812,390   

Other operating income – net

     —           —          10,125        10,125   
                                 

Operating income (loss)

   $ 150,941       $ (62,368   $ (847,711   $ (759,138
                                 

Share-based compensation expense

   $ 5,971       $ 1,806      $ 611      $ 8,388   

Capital expenditures

   $ 58,116       $ 55,860      $ —        $ 113,976   

 

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

 

 

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):

 

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

Cash and cash equivalents

   $ —         $ —         $ 437,049       $ 227,661       $ —        $ 664,710   

Accounts receivable, net

     —           —           258,609         473,836         —          732,445   

Intercompany receivables

     —           28,131         688,036         —           (716,167     —     

Other current assets

     3,079         —           66,441         139,707         —          209,227   
                                                    

Total Current Assets

     3,079         28,131         1,450,135         841,204         (716,167     1,606,382   

Property, plant and equipment, net

     —           —           1,514,110         814,940         —          2,329,050   

Definite-lived intangibles, net

     —           —           405,842         317,183         —          723,025   

Indefinite-lived intangibles

     —           —           1,104,922         14,990         —          1,119,912   

Goodwill

     —           —           571,932         290,119         —          862,051   

Due from Clear Channel Communications

     254,178         —           —           —           —          254,178   

Intercompany notes receivable

     182,026         2,680,458         9,243         18,105         (2,889,832     —     

Other assets

     2,751,330         1,000,038         1,447,445         88,498         (5,095,259     192,052   
                                                    

Total Assets

   $ 3,190,613       $ 3,708,627       $ 6,503,629       $ 2,385,039       $ (8,701,258   $ 7,086,650   
                                                    

Accounts payable and accrued expenses

   $ 35       $ 274       $ 135,319       $ 466,834       $ —        $ 602,462   

Intercompany notes payable

     706,832         —           —           9,335         (716,167     —     

Deferred income

     —           —           47,116         90,331         —          137,447   

Current portion of long-term debt

     —           —           75         42,281         —          42,356   
                                                    

Total Current Liabilities

     706,867         274         182,510         608,781         (716,167     782,265   

Long-term debt

     —           2,500,000         —           24,980         —          2,524,980   

Intercompany notes payable

     7,491         —           2,692,640         189,701         (2,889,832     —     

Deferred income taxes

     225         —           772,757         57,387         —          830,369   

Other long-term liabilities

     —           2,041         104,392         165,563         —          271,996   

Total shareholders’ equity

     2,476,030         1,206,312         2,751,330         1,338,627         (5,095,259     2,677,040   
                                                    

Total Liabilities and Shareholders’ Equity

   $ 3,190,613       $ 3,708,627       $ 6,503,629       $ 2,385,039       $ (8,701,258   $ 7,086,650   
                                                    

 

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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   
                                                   

 

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

 

 

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

Revenue

   $ —        $ —        $ 294,703      $ 400,383      $ —        $ 695,086   

Operating expenses:

            

Direct operating expenses

     —          —          123,118        257,501        —          380,619   

Selling, general and administrative expenses

     —          —          43,176        72,048        —          115,224   

Corporate expenses

     3,244        (83     15,249        7,787        —          26,197   

Depreciation and amortization

     —          —          49,546        54,287        —          103,833   

Other operating expense – net

     —          —          (5,592     (22,080     —          (27,672
                                                

Operating income (loss)

     (3,244     83        58,022        (13,320     —          41,541   

Interest expense

     79        57,812        1,367        1,018        —          60,276   

Interest income on debt with Clear Channel Communications

     —          —          4,800        —          —          4,800   

Intercompany interest income

     3,535        58,004        —          245        (61,784     —     

Intercompany interest expense

     119        —          61,193        472        (61,784     —     

Equity in earnings (loss) of nonconsolidated affiliates

     (34,952     (23,518     (30,186     (663     88,656        (663

Other income (expense) – net

     —          —          (48     1,593        —          1,545   
                                                

Income (loss) before income taxes

     (34,859     (23,243     (29,972     (13,635     88,656        (13,053

Income tax benefit (expense)

     (35     225        (4,981     (14,038     —          (18,829
                                                

Consolidated net income (loss)

     (34,894     (23,018     (34,953     (27,673     88,656        (31,882

Amount attributable to noncontrolling interest

     —          —          (1     3,013        —          3,012   
                                                

Net income (loss) attributable to the Company

   $ (34,894   $ (23,018   $ (34,952   $ (30,686   $ 88,656      $ (34,894

Other comprehensive income (loss), net of tax:

            

Foreign currency translation adjustments

     —          —          —          106,902        —          106,902   

Foreign currency reclassification adjustment

     —          —          —          2,565        —          2,565   

Unrealized loss on marketable securities

     —          —          —          (394     —          (394

Equity in subsidiary comprehensive income

     102,031        94,506        102,031        —          (298,568     —     
                                                

Comprehensive income (loss)

   $ 67,137      $ 71,488      $ 67,079      $ 78,387      $ (209,912   $ 74,179   

Amount attributable to noncontrolling interest

     —          —          —          7,042        —          7,042   
                                                

Comprehensive income (loss) attributable to the Company

   $ 67,137      $ 71,488      $ 67,079      $ 71,345      $ (209,912   $ 67,137   
                                                

 

17


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CLEAR CHANNEL OUTDOOR HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

 

 

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

Revenue

   $ —        $ —        $ 279,818      $ 380,804      $ —        $ 660,622   

Operating expenses:

            

Direct operating expenses

     —          —          129,076        269,690        —          398,766   

Selling, general and administrative expenses

     —          —          40,770        68,054        —          108,824   

Corporate expenses

     4,242        —          7,971        3,334        —          15,547   

Depreciation and amortization

     —          —          49,988        61,065        —          111,053   

Other operating income (expense) – net

     —          —          1,776        (616     —          1,160   
                                                

Operating income (loss)

     (4,242     —          53,789        (21,955     —          27,592   

Interest expense

     86        —          36,705        1,117        —          37,908   

Interest income on debt with Clear Channel Communications

     —          —          133        —          —          133   

Intercompany interest income

     2,634        422        280        357        (3,693     —     

Intercompany interest expense

     257        —          2,734        702        (3,693     —     

Loss on marketable securities

     —          —          —          (11,315     —          (11,315

Equity in earnings (loss) of nonconsolidated affiliates

     (33,095     (34,428     (29,153     (2,046     96,676        (2,046

Other income (expense) – net

     —          —          (32     524        —          492   
                                                

Income (loss) before income taxes

     (35,046     (34,006     (14,422     (36,254     96,676        (23,052

Income tax benefit (expense)

     670        (278     (18,673     7,282        —          (10,999
                                                

Consolidated net income (loss)

     (34,376     (34,284     (33,095     (28,972     96,676        (34,051

Amount attributable to noncontrolling interest

     —          —          —          325        —          325   
                                                

Net income (loss) attributable to the Company

   $ (34,376   $ (34,284   $ (33,095   $ (29,297   $ 96,676      $ (34,376

Other comprehensive income (loss), net of tax:

            

Foreign currency translation adjustments

     —          —          —          47,637        —          47,637   

Foreign currency reclassification

adjustment

     —          —          —          521        —          521   

Unrealized loss on marketable securities

     —          —          —          (2,165     —          (2,165

Reclassification adjustments

     —          —          —          11,315        —          11,315   

Equity in subsidiary comprehensive income

     54,327        53,436        54,327        —          (162,090     —     
                                                

Comprehensive income (loss)

   $ 19,951      $ 19,152      $ 21,232      $ 28,011      $ (65,414   $ 22,932   

Amount attributable to noncontrolling interest

     —          —          —          2,981        —          2,981   
                                                

Comprehensive income (loss) attributable to the Company

   $ 19,951      $ 19,152      $ 21,232      $ 25,030      $ (65,414   $ 19,951   
                                                

 

18


Table of Contents

CLEAR CHANNEL OUTDOOR HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

 

 

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

Revenue

   $ —        $ —        $ 814,146      $ 1,191,115      $ —        $ 2,005,261   

Operating expenses:

            

Direct operating expenses

     —          —          365,214        780,175        —          1,145,389   

Selling, general and administrative expenses

     —          —          135,876        221,397        —          357,273   

Corporate expenses

     10,144        452        41,968        18,162        —          70,726   

Depreciation and amortization

     —          —          147,559        163,282        —          310,841   

Other operating expense – net

     —          —          (3,625     (21,309     —          (24,934
                                                

Operating income (loss)

     (10,144     (452     119,904        (13,210     —          96,098   

Interest expense

     328        172,874        2,653        3,134        —          178,989   

Interest income on debt with Clear Channel Communications

     —          —          12,019        —          —          12,019   

Intercompany interest income

     10,626        173,749        —          738        (185,113     —     

Intercompany interest expense

     361        —          183,047        1,705        (185,113     —     

Equity in earnings (loss) of nonconsolidated affiliates

     (91,674     (49,446     (49,751     (1,279     190,688        (1,462

Other expense – net

     —          —          (139     (3,308     —          (3,447
                                                

Income (loss) before income taxes

     (91,881     (49,023     (103,667     (21,898     190,688        (75,781

Income tax benefit (expense)

     78        526        11,992        (19,980       (7,384
                                                

Consolidated net income (loss)

     (91,803     (48,497     (91,675     (41,878     190,688        (83,165

Amount attributable to noncontrolling interest

     —          —          (1     8,639        —          8,638   
                                                

Net income (loss) attributable to the Company

   $ (91,803   $ (48,497   $ (91,674   $ (50,517   $ 190,688      $ (91,803

Other comprehensive income (loss), net of tax:

            

Foreign currency translation adjustments

     —          3,796        —          (3,483     —          313   

Foreign currency reclassification adjustment

     —          —          —          1,424        —          1,424   

Unrealized loss on marketable securities

     —          —          —          (5,343     —          (5,343

Equity in subsidiary comprehensive income

     (6,914     (15,076     (6,914     —          28,904        —     
                                                

Comprehensive income (loss)

   $ (98,717   $ (59,777   $ (98,588   $ (57,919   $ 219,592      $ (95,409

Amount attributable to noncontrolling interest

     —          —          —          3,308        —          3,308   
                                                

Comprehensive income (loss) attributable to the Company

   $ (98,717   $ (59,777   $ (98,588   $ (61,227   $ 219,592      $ (98,717
                                                

 

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Table of Contents

CLEAR CHANNEL OUTDOOR HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

 

 

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

Revenue

   $ —        $ —        $ 806,512      $ 1,128,443      $ —        $ 1,934,955   

Operating expenses:

            

Direct operating expenses

     —          —          389,734        780,949        —          1,170,683   

Selling, general and administrative expenses

     —          —          127,896        220,034        —          347,930   

Corporate expenses

     10,876        —          24,746        9,824        —          45,446   

Depreciation and amortization

     —          —          147,279        180,490        —          327,769   

Impairment charges

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

Other operating income – net

     —          —          7,045        3,080        —          10,125   
                                                

Operating loss

     (10,876     —          (567,598     (180,664     —          (759,138

Interest expense

     323        —          110,732        3,937        —          114,992   

Interest income on debt with Clear Channel Communications

     —          —          358        —          —          358   

Intercompany interest income

     7,993        1,149        807        906        (10,855     —     

Intercompany interest expense

     649        —          8,250        1,956        (10,855     —     

Loss on marketable securities

     —          —          —          (11,315     —          (11,315

Equity in earnings (loss) of nonconsolidated affiliates

     (808,882     (163,381     (221,534     (25,697     1,193,400        (26,094

Other expense – net

     —          —          (305     (4,983     —          (5,288
                                                

Income (loss) before income taxes

     (812,737     (162,232     (907,254     (227,646     1,193,400        (916,469

Income tax benefit (expense)

     1,383        (807     98,755        2,371        —          101,702   
                                                

Consolidated net income (loss)

     (811,354     (163,039     (808,499     (225,275     1,193,400        (814,767

Amount attributable to noncontrolling interest

     —          —          —          (3,413     —          (3,413
                                                

Net income (loss) attributable to the Company

   $ (811,354   $ (163,039   $ (808,499   $ (221,862   $ 1,193,400      $ (811,354

Other comprehensive income (loss), net of tax:

            

Foreign currency translation adjustments

     —          —          —          116,553        —          116,553   

Foreign currency reclassification adjustment

     —          —          —          8        —          8   

Unrealized loss on marketable securities

     —          —          —          (11,315     —          (11,315

Reclassification adjustments

     —          —          —          11,315        —          11,315   

Equity in subsidiary comprehensive income

     109,559        79,593        109,559        —          (298,711     —     
                                                

Comprehensive income (loss)

   $ (701,795   $ (83,446   $ (698,940   $ (105,301   $ 894,689      $ (694,793

Amount attributable to noncontrolling interest

     —          —          —          7,002        —          7,002   
                                                

Comprehensive income (loss) attributable to the Company

   $ (701,795   $ (83,446   $ (698,940   $ (112,303   $ 894,689      $ (701,795
                                                

 

20


Table of Contents

CLEAR CHANNEL OUTDOOR HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

 

 

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

Cash flows from operating activities:

            

Consolidated net income (loss)

   $ (91,803   $ (48,497   $ (91,675   $ (41,878   $ 190,688      $ (83,165

Reconciling items:

            

Depreciation and amortization

     —          —          147,559        163,282        —          310,841   

Deferred taxes

     —          —          (7,970     (3,752     —          (11,722

Provision for doubtful accounts

     —          —          481        4,368        —          4,849   

Loss on sale of operating assets

     —          —          3,625        21,309        —          24,934   

Other reconciling items – net

     91,674        53,242        56,381        5,050        (190,688     15,659   

Changes in operating assets and liabilities:

            

Increase in accounts receivable

     —          —          (9,791     (10,483     —          (20,274

(Increase) decrease in Federal income taxes receivable

     774        (1,502     50,136        1,550        —          50,958   

Increase in deferred income

     —          —          9,172        20,848        —          30,020   

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

     —          816        39,649        (18,126     —          22,339   

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

     (1,022     (159     6,960        18,916        —          24,695   
                                                

Net cash provided by (used for) operating activities

     (377     3,900        204,527        161,084        —          369,134   

Cash flows from investing activities:

            

Purchases of property, plant and equipment

     —          —          (65,908     (73,366     —          (139,274

Acquisition of operating assets, net of cash acquired

     —          —          (715     —          —          (715

Equity contributions to subsidiaries

     —          —          (331     —          331        —     

Decrease (increase) in intercompany notes receivable – net

     —          19,542        —          130        (19,672     —     

Dividends from subsidiaries

     —          —          107        —          (107     —     

Change in other – net

     —          —          3,050        1,712        —          4,762   
                                                

Net cash provided by (used for) investing activities

     —          19,542        (63,797     (71,524     (19,448     (135,227

Cash flows from financing activities:

            

Draws on credit facilities

     —          —          —          3,916        —          3,916   

Payments on credit facilities

     —          —          (3     (42,251     —          (42,254

Proceeds from long-term debt

     —          —          —          6,844        —          6,844   

Payments on long-term debt

     —          —          —          (12,425     —          (12,425

Net transfers to Clear Channel Communications

     (130,870     —          —          —          —          (130,870

Intercompany funding

     130,255        (23,442     (134,782     27,969        —          —     

Increase (decrease) in intercompany notes payable – net

     (130     —          —          (19,542     19,672        —     

Dividends declared and paid

     —          —          —          (107     107        —     

Equity contributions from parent

     —          —          —          331        (331     —     

Change in other – net

     1,122        —          (1     (5,334     —          (4,213
                                                

Net cash provided by (used for) financing activities

     377        (23,442     (134,786     (40,599     19,448        (179,002

Effect of exchange rate changes on cash

     —          —          —          369        —          369   
                                                

Net increase in cash and cash equivalents

     —          —          5,944        49,330        —          55,274   

Cash and cash equivalents at beginning of period

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

Cash and cash equivalents at end of period

   $ —        $ —        $ 437,049      $ 227,661      $ —        $ 664,710   
                                                

 

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Table of Contents

CLEAR CHANNEL OUTDOOR HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

 

 

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

Cash flows from operating activities:

            

Consolidated net income (loss)

   $ (811,354   $ (163,039   $ (808,499   $ (225,275   $ 1,193,400      $ (814,767

Reconciling items:

            

Depreciation and amortization

     —          —          147,279        180,490        —          327,769   

Impairment charges

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

Deferred tax expense (benefit)

     60        —          (111,429     (16,508     —          (127,877

Provision for doubtful accounts

     —          —          2,600        6,459        —          9,059   

Gain on sale of operating assets

     —          —          (7,045     (3,080       (10,125

Other reconciling items – net

     808,882        163,381        225,959        43,755        (1,193,400     48,577   

Changes in operating assets and liabilities:

            

Decrease in accounts receivable

     —          —          9,944        68,340        —          78,284   

Increase in deferred income

     —          —          7,487        14,922        —          22,409   

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

     186        48        (3,941     (39,388     —          (43,095

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

     (3,059     (665     11,389        (40,407     —          (32,742
                                                

Net cash provided by (used for) operating activities

     (5,285     (275     165,244        110,198        —          269,882   

Cash flows from investing activities:

            

Purchases of property, plant and equipment

     —          —          (55,006     (58,970     —          (113,976

Acquisition of operating assets, net of cash acquired

     —          —          (5,015     (110     —          (5,125

Equity contributions to subsidiaries

     —          —          (58     —          58        —     

Change in other – net

     (81     —          7,539        20,775        (2,236     25,997   
                                                

Net cash used for investing activities

     (81     —          (52,540     (38,305     (2,178     (93,104

Cash flows from financing activities:

            

Draws on credit facilities

     —          —          —          6,508        —          6,508   

Payments on credit facilities

     —          —          (976     (2,808     —          (3,784

Payments on long-term debt

     —          —          —          (2,191     —          (2,191

Net transfers from Clear Channel Communications

     (86,309     —          —          —          —          (86,309

Intercompany funding

     91,711        275        (101,085     9,099        —          —     

Dividends declared and paid

     —          —          —          (2,236     2,236        —     

Payments for purchase of noncontrolling interest

     —          —          —          (25,154     —          (25,154

Change in other – net

     (36     —          —          58        (58     (36
                                                

Net cash provided by (used for) financing activities

     5,366        275        (102,061     (16,724     2,178        (110,966

Effect of exchange rate changes on cash

     —          —          —          4,768        —          4,768   
                                                

Net increase in cash and cash equivalents

     —          —          10,643        59,937        —          70,580   

Cash and cash equivalents at beginning of period

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

Cash and cash equivalents at end of period

   $ —        $ —        $ (4,157   $ 169,549      $ —        $ 165,392   
                                                

 

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

Format of Presentation

Management’s discussion and analysis of our results of operations and financial condition should be read in conjunction with the consolidated financial statements and related footnotes. Our discussion is presented on both a consolidated and segmented basis. 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 nine months ended September 30, 2010 are summarized below:

 

  •  

Consolidated revenue increased $34.5 million and $70.3 million for the three and nine months ended September 30, 2010, respectively, compared to the same periods of 2009, primarily as a result of improved economic conditions throughout the first nine months of 2010.

 

  •  

Americas revenue increased $20.7 million and $29.7 million for the three and nine months ended September 30, 2010, respectively, compared to the same periods of 2009, driven by increases in revenue across our advertising inventory, particularly digital.

 

  •  

International revenue increased $13.7 million for the three months ended September 30, 2010, compared to the same period of 2009, primarily as a result of revenue growth from all of our advertising inventory categories, particularly street furniture, and across most countries, partially offset by a decrease from movements in foreign exchange of $12.5 million. Revenue increased $40.6 million for the nine months ended September 30, 2010 compared to the same period of 2009, primarily as a result of revenue growth from street furniture across most countries and included a $3.4 million increase from movements in foreign exchange.

 

  •  

We received Federal income tax refunds of $51.0 million during the third quarter of 2010.

 

  •  

On October 15, 2010, we transferred our interest in our Branded Cities operations to our joint venture partner, The Ellman Companies. The long-lived tangible and intangible assets of the Branded Cities operations were transferred for less than their carrying values in connection with this transaction and, as a result, we recorded a non-cash charge in the third quarter of 2010 of approximately $23.6 million in “Other operating income (expense) – net” to present these assets at their estimated fair values as of September 30, 2010.

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 restructuring costs of $2.5 million and $18.3 million for the three and nine months ended September 30, 2010. 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 nine months ended September 30, 2010, our adjusted EBITDA calculation included adjustments for an additional $2.1 million and $4.1 million, respectively. See “SOURCES OF CAPITAL” below for a description of the calculation of our adjusted EBITDA pursuant to the indenture.

 

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RESULTS OF OPERATIONS

Consolidated Results of Operations

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

 

(In thousands)    Three Months Ended
September 30,
    %
Change
    Nine Months Ended
September 30,
    %
Change
 
     2010     2009       2010     2009    

Revenue

   $ 695,086      $ 660,622        5   $ 2,005,261      $ 1,934,955        4

Operating expenses:

            

Direct operating expenses

     380,619        398,766        (5 %)      1,145,389        1,170,683        (2 %) 

Selling, general and administrative expenses

     115,224        108,824        6     357,273        347,930        3

Corporate expenses

     26,197        15,547        69     70,726        45,446        56

Depreciation and amortization

     103,833        111,053        (7 %)      310,841        327,769        (5 %) 

Impairment charges

     —          —            —          812,390     

Other operating income (expense) - net

     (27,672     1,160          (24,934     10,125     
                                    

Operating income (loss)

     41,541        27,592          96,098        (759,138  

Interest expense

     60,276        37,908          178,989        114,992     

Interest income on debt with Clear Channel Communications

     4,800        133          12,019        358     

Loss on marketable securities

     —          (11,315       —          (11,315  

Equity in loss of nonconsolidated affiliates

     (663     (2,046       (1,462     (26,094  

Other income (expense) - net

     1,545        492          (3,447     (5,288  
                                    

Loss before income taxes

     (13,053     (23,052       (75,781     (916,469  

Income tax benefit (expense)

     (18,829     (10,999       (7,384     101,702     
                                    

Consolidated net loss

     (31,882     (34,051       (83,165   $ (814,767  

Amount attributable to noncontrolling interest

     3,012        325          8,638        (3,413  
                                    

Net loss attributable to the Company

   $ (34,894   $ (34,376     $ (91,803   $ (811,354  
                                    

Consolidated Revenue

Our consolidated revenue increased $34.5 million during the third quarter of 2010 as compared to the third quarter of 2009. Americas revenue increased $20.7 million, driven by revenue increases across our advertising inventory, particularly digital. Our International revenue increased $13.7 million, primarily due to revenue growth from all of our advertising inventory categories, particularly street furniture, and across most countries, partially offset by decreases of $12.5 million from movements in foreign exchange.

Our consolidated revenue increased $70.3 million during the first nine months of 2010 as compared to the same period of 2009. Americas revenue increased $29.7 million, driven by revenue increases across our advertising inventory, particularly digital. Our International revenue increased $40.6 million, primarily due to revenue growth from street furniture across most countries, and included a $3.4 million increase from movements in foreign exchange.

Consolidated Direct Operating Expenses

Our direct operating expenses decreased $18.1 million during the third quarter of 2010 as compared to the third quarter of 2009. Americas direct operating expenses decreased $3.3 million, primarily as a result of the disposition of our taxi advertising business, partially offset by an increase in site lease expenses associated with the increase in revenue. Direct operating expenses in our International segment decreased $14.8 million, primarily as a result of a $9.4 million decrease from movements in foreign exchange in addition to decreased site lease expenses associated with cost savings from our restructuring program.

 

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Our direct operating expenses decreased $25.3 million during the first nine months of 2010 as compared to the same period of 2009. Americas direct operating expenses decreased $13.3 million, primarily as a result of the disposition of our taxi advertising business, partially offset by an increase in site lease expenses associated with the increase in revenue. Direct operating expenses in our International segment decreased $12.0 million, primarily as a result of decreased site lease expenses associated with cost savings from our restructuring program, partially offset by a $1.2 million increase from movements in foreign exchange.

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

Our SG&A expenses increased $6.4 million during the third quarter of 2010 as compared to the same period of 2009. SG&A expenses increased $4.1 million in our Americas segment, primarily as a result of increased bonus and commission expenses associated with the increase in revenue. SG&A expenses increased $2.3 million in International, primarily from increased selling costs associated with the increase in revenue, partially offset by a $2.5 million decrease from movements in foreign exchange.

Our SG&A expenses increased $9.3 million during the first nine months of 2010 as compared to the same period of 2009. SG&A expenses increased $12.5 million in our Americas segment, primarily as a result of the unfavorable impact of litigation in addition to an increase in selling and marketing costs associated with the increase in revenue. Our International SG&A expenses decreased $3.1 million, primarily as a result of cost savings from our restructuring program as well as a decrease in business tax related to a change in French tax law.

Corporate Expenses

Corporate expenses increased $10.7 million and $25.3 million during the three and nine months ended September 30, 2010, respectively, as compared to the same periods of 2009, primarily due to increases in bonus expense from improved operating performance compared to the prior year and increases related to headcount from centralization efforts and the expansion of corporate capabilities.

Depreciation and Amortization

Depreciation and amortization decreased $7.2 million and $16.9 million during the third quarter and first nine months of 2010, respectively, compared to the same periods of 2009, primarily as a result of decreased amortization in our International segment in 2010 related to assets that became fully amortized during 2009.

Other Operating Income (Expense) - Net

Other operating expenses were $27.7 million and $24.9 million for the three and nine months ended September 30, 2010, respectively, primarily due to a $23.6 million non-cash charge recorded as of September 30, 2010 as a result of the transfer of our interest in our Branded Cities business, and a $3.7 million loss on the sale of our outdoor advertising business in India.

Other operating income for the nine months ended September 30, 2009 was $10.1 million and primarily related to a gain of $4.4 million on the sale of International assets and a gain of $3.7 million on the sale of Americas assets.

Interest Expense

Interest expense increased $22.4 million and $64.0 million during the three and nine months ended September 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. The senior notes were issued at a higher interest rate than the $2.5 billion note to Clear Channel Communications, which was prepaid and retired in December 2009.

Loss on Marketable Securities

The loss on marketable securities of $11.3 million during the three and nine months ended September 30, 2009 relates to an impairment of certain available-for-sale securities.

Income Tax Benefit (Expense)

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.

 

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Income tax expense of $18.8 million and $7.4 million was recorded for the three months and nine months ended September 30, 2010, respectively, resulting in effective tax rates of (144.3%) and (9.7%) for those periods, respectively. The 2010 effective rates were impacted primarily as a result of our inability to benefit from tax losses in certain foreign jurisdictions due to the uncertainty of the ability to utilize those losses in future years. In addition, during the three months ended September 30, 2010, we recorded a valuation allowance of $13.4 million against deferred tax assets in foreign jurisdictions due to the uncertainty of the ability to realize those assets in future periods.

Income tax expense of $11.0 million and income tax benefits of $101.7 million were recorded for the three months and nine months ended September 30, 2009, respectively, resulting in effective tax rates of (47.7%) and 11.1% for those periods, respectively. The 2009 effective tax rates were primarily impacted by the impairment charge on goodwill. In addition, we recorded deferred tax valuation allowances due the uncertainty of our ability to utilize Federal and foreign tax losses at that time.

Americas Results of Operations

Disposition of Taxi Business

On December 31, 2009, our subsidiary Clear Channel Outdoor, Inc. disposed of Clear Channel Taxi Media, LLC (“Taxis”), our taxi advertising business. For the three months ended September 30, 2009, Taxis contributed $9.8 million in revenue, $9.6 million in direct operating expenses and $2.4 million in SG&A expenses. For the nine months ended September 30, 2009, Taxis contributed $29.5 million in revenue, $29.5 million in direct operating expenses and $7.7 million in SG&A expenses.

Our Americas operating results were as follows:

 

(In thousands)    Three Months Ended
September 30,
     %
Change
    Nine Months Ended
September 30,
     %
Change
 
     2010      2009        2010      2009     

Revenue

   $ 333,269       $ 312,537         7   $ 928,015       $ 898,277         3

Direct operating expenses

     143,940         147,250         (2 %)      427,546         440,885         (3 %) 

SG&A expenses

     51,750         47,602         9     160,302         147,839         8

Depreciation and amortization

     53,139         54,102         (2 %)      158,319         158,612         (0 %) 
                                        

Operating income

   $ 84,440       $ 63,583         33   $ 181,848       $ 150,941         20
                                        

Three Months

Americas revenue increased $20.7 million during the third 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 increases in both occupancy and rate. Partially offsetting the revenue increase was the decrease in revenue related to the sale of Taxis.

Direct operating expenses decreased $3.3 million during the third quarter of 2010 compared to the same period of 2009, due to the disposition of Taxis. Offsetting the decrease was a $5.6 million increase in site-lease expenses associated with the increase in revenue. SG&A expenses increased $4.1 million during the third quarter of 2010 compared to the same period of 2009 primarily as a result of increased bonus and commission expenses associated with the increase in revenue, partially offset by the disposition of Taxis.

Nine Months

Americas revenue increased $29.7 million during the first nine 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 increases in both occupancy and rate. Partially offsetting the revenue increase was the decrease in revenue related to the sale of Taxis.

Direct operating expenses decreased $13.3 million during the first nine months of 2010 compared to the same period of 2009. The decline in direct operating expenses was due to the disposition of Taxis, partially offset by a $16.9 million increase in site-lease expenses associated with the increase in revenue. SG&A expenses increased $12.5 million during the first nine months of 2010 compared to the same period of 2009 as a result of a $5.3 million increase primarily related to the unfavorable impact of litigation, a $4.4 million increase in consulting costs and a $6.0 million increase primarily due to bonus and commission expenses 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
September 30,
    %
Change
    Nine Months Ended
September 30,
    %
Change
 
     2010      2009       2010      2009    

Revenue

   $ 361,817       $ 348,085        4   $ 1,077,246       $ 1,036,678        4

Direct operating expenses

     236,679         251,516        (6 %)      717,843         729,798        (2 %) 

SG&A expenses

     63,474         61,222        4     196,971         200,091        (2 %) 

Depreciation and amortization

     50,694         56,951        (11 %)      152,522         169,157        (10 %) 
                                      

Operating income (loss)

   $ 10,970       $ (21,604     151   $ 9,910       $ (62,368     116
                                      

Three Months

International revenue increased $13.7 million during the third quarter of 2010 compared to the same period of 2009. Revenue growth from all of our advertising inventory categories, particularly street furniture, and across most countries was partially offset by the exit from the business in Greece. Foreign exchange movements negatively impacted revenues by $12.5 million.

Direct operating expenses decreased $14.8 million during the third quarter of 2010 compared to the same period of 2009, primarily from a $9.4 million decrease from movements in foreign exchange and a $4.7 million decline in site-lease expenses as a result of cost savings from our restructuring program and the exit from the business in Greece. SG&A expenses increased $2.3 million during the third quarter of 2010 compared to the same period of 2009 primarily from increased selling costs associated with the increase in revenue, partially offset by a $2.5 million decrease from movements in foreign exchange.

Depreciation and amortization decreased $6.3 million during the third quarter of 2010 compared to the same period of 2009 primarily as a result of assets that became fully amortized during 2009.

Nine Months

International revenue increased $40.6 million during the first nine months of 2010 compared to the same period of 2009, primarily as a result of revenue growth from street furniture across most countries and included a $3.4 million increase from movements in foreign exchange. Partially offsetting the increase was the exit from businesses in Greece and India.

Direct operating expenses decreased $12.0 million during the first nine months of 2010 compared to the same period of 2009, primarily as a result of a $16.6 million decline in site-lease expenses associated with cost savings from our restructuring program and the exit from the business in Greece, partially offset by a $1.2 million increase from movements in foreign exchange. SG&A expenses decreased $3.1 million during the first nine months of 2010 compared to the same period of 2009, primarily as a result of a $4.5 million decrease in business tax related to a change in French tax law, partially offset by higher compensation expense associated with the increase in revenue.

Depreciation and amortization decreased $16.6 million during the first nine 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
September 30,
    Nine Months Ended
September 30,
 
     2010     2009     2010     2009  

Americas

   $ 84,440      $ 63,583      $ 181,848      $ 150,941   

International

     10,970        (21,604     9,910        (62,368

Corporate expenses

     (26,197     (15,547     (70,726     (45,446

Impairment charges

     —          —          —          (812,390

Other operating income (expense) - net

     (27,672     1,160        (24,934     10,125   
                                

Consolidated operating income (loss)

   $ 41,541      $ 27,592      $ 96,098      $ (759,138
                                

Share-Based Compensation Expense

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

 

(In thousands)    Three Months Ended
September  30,
     Nine Months Ended
September  30,
 
     2010      2009