10-Q: Quarterly report pursuant to Section 13 or 15(d)
Published on November 8, 2010
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
(Registrants 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 issuers 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
2
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
3
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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
4
Table of Contents
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
5
Table of Contents
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 Companys 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 Companys 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 Companys financial position or results of operations.
In August 2010, the FASB issued ASU No. 2010-22, Accounting for Various TopicsTechnical 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 Companys financial position or results of operations.
Note 2: PROPERTY, PLANT AND EQUIPMENT, INTANGIBLE ASSETS AND GOODWILL
Property, Plant and Equipment
The Companys 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 Companys future cash flows.
The following table presents the gross carrying amount and accumulated amortization for each major class of definite-lived intangible assets at September 30, 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 Companys 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 Companys indefinite-lived intangible assets consist of billboard permits. The Companys 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 Companys 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 Companys 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 Companys 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 Companys 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 Companys 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 Companys 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 Companys 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 Companys 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 Companys assumptions or the effectiveness of its strategies related to these proceedings.
In 2006, two of the Companys 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 Companys 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 Companys 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 Companys 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 Companys controlled disbursement accounts as checks or electronic payments are presented for payment. The Companys 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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CLEAR CHANNEL OUTDOOR HOLDINGS, INC. AND SUBSIDIARIES
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 Companys 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 Companys provision for income taxes has been computed on the basis that the Company files separate consolidated federal income tax returns with its subsidiaries. Tax payments are made to Clear Channel Communications on the basis of the Companys separate taxable income. Tax benefits recognized on the Companys employee stock 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 Companys employees participate in Clear Channel Communications employee benefit plans, including employee medical insurance and a 401(k) retirement benefit plan. These costs are recorded as a component of selling, general and administrative expenses and were approximately $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.
11
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CLEAR CHANNEL OUTDOOR HOLDINGS, INC. AND SUBSIDIARIES
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 Companys 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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CLEAR CHANNEL OUTDOOR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
Note 9: SEGMENT DATA
The Company has two reportable segments, which it believes best reflect how the Company is currently managed Americas and International. The Americas segment primarily includes operations in the United States, Canada and Latin America, and the International segment includes operations primarily in Europe, Asia and Australia. Share-based compensation expense is recorded by each segment in direct operating expenses and selling, general and administrative expenses. The following table presents the Companys 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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CLEAR CHANNEL OUTDOOR HOLDINGS, INC. AND SUBSIDIARIES
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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CLEAR CHANNEL OUTDOOR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
Note 10: GUARANTOR SUBSIDIARIES
The Company and certain of the Companys 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 SECs 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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CLEAR CHANNEL OUTDOOR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
December 31, 2009 | ||||||||||||||||||||||||
(In thousands) | Parent Company |
Subsidiary Issuer |
Guarantor Subsidiaries |
Non-Guarantor Subsidiaries |
Eliminations | Consolidated | ||||||||||||||||||
Cash and cash equivalents |
$ | | $ | | $ | 431,105 | $ | 178,331 | $ | | $ | 609,436 | ||||||||||||
Accounts receivable, net |
| | 249,325 | 480,981 | | 730,306 | ||||||||||||||||||
Intercompany receivables |
| 4,689 | 582,554 | 20,606 | (607,849 | ) | | |||||||||||||||||
Other current assets |
2,796 | (1,935 | ) | 122,636 | 177,306 | | 300,803 | |||||||||||||||||
Total Current Assets |
2,796 | 2,754 | 1,385,620 | 857,224 | (607,849 | ) | 1,640,545 | |||||||||||||||||
Property, plant and equipment, net |
| | 1,562,256 | 878,382 | | 2,440,638 | ||||||||||||||||||
Definite-lived intangibles, net |
| | 423,935 | 375,209 | | 799,144 | ||||||||||||||||||
Indefinite-lived intangibles |
| | 1,117,568 | 14,650 | | 1,132,218 | ||||||||||||||||||
Goodwill |
| | 571,932 | 289,660 | | 861,592 | ||||||||||||||||||
Intercompany notes receivable |
182,026 | 2,700,000 | 9,243 | 18,235 | (2,909,504 | ) | | |||||||||||||||||
Due from Clear Channel Communications |
123,308 | | | | | 123,308 | ||||||||||||||||||
Other assets |
2,849,918 | 1,075,719 | 1,517,111 | 80,019 | (5,327,790 | ) | 194,977 | |||||||||||||||||
Total Assets |
$ | 3,158,048 | $ | 3,778,473 | $ | 6,587,665 | $ | 2,513,379 | $ | (8,845,143 | ) | $ | 7,192,422 | |||||||||||
Accounts payable and accrued expenses |
$ | | $ | | $ | 112,492 | $ | 501,950 | $ | | $ | 614,442 | ||||||||||||
Intercompany notes payable |
582,554 | | 25,295 | | (607,849 | ) | | |||||||||||||||||
Deferred income |
| | 38,579 | 70,999 | | 109,578 | ||||||||||||||||||
Current portion of long-term debt |
| | 77 | 46,996 | | 47,073 | ||||||||||||||||||
Total Current Liabilities |
582,554 | | 176,443 | 619,945 | (607,849 | ) | 771,093 | |||||||||||||||||
Long-term debt |
| 2,500,000 | | 61,805 | | 2,561,805 | ||||||||||||||||||
Intercompany notes payable |
7,622 | | 2,692,639 | 209,243 | (2,909,504 | ) | | |||||||||||||||||
Deferred tax liability |
225 | | 780,846 | 60,840 | | 841,911 | ||||||||||||||||||
Other long-term liabilities |
| 1,225 | 87,819 | 167,192 | | 256,236 | ||||||||||||||||||
Total shareholders equity |
2,567,647 | 1,277,248 | 2,849,918 | 1,394,354 | (5,327,790 | ) | 2,761,377 | |||||||||||||||||
Total Liabilities and Shareholders Equity |
$ | 3,158,048 | $ | 3,778,473 | $ | 6,587,665 | $ | 2,513,379 | $ | (8,845,143 | ) | $ | 7,192,422 | |||||||||||
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CLEAR CHANNEL OUTDOOR HOLDINGS, INC. AND SUBSIDIARIES
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 | |||||||||||
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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 | ) | |||||||
19
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 | ||||||||||||
21
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 | |||||||||||
22
Table of Contents
Item 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Format of Presentation
Managements 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.
23
Table of Contents
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 |