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 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2011

 

¨ 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  x    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 the 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 20, 2011

Class A Common Stock, $.01 par value

 

40,984,143

Class B Common Stock, $.01 par value

  315,000,000


Table of Contents

CLEAR CHANNEL OUTDOOR HOLDINGS, INC.

INDEX

 

             

Page No.

 

Part I -- Financial Information

  
  Item 1.   

Financial Statements

     2   
    

Condensed Consolidated Balance Sheets at September 30, 2011 and December 31, 2010

     2   
    

Consolidated Statements of Operations for the three and nine months ended September 30, 2011 and 2010

     3   
    

Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2011 and 2010

     4   
    

Notes to Consolidated Financial Statements

     5   
  Item 2.   

Management’s Discussion and Analysis of Financial Condition and Results of Operations

     21   
  Item 3.   

Quantitative and Qualitative Disclosures About Market Risk

     32   
  Item 4.   

Controls and Procedures

     32   

Part II -- Other Information

  
  Item 1.   

Legal Proceedings

     33   
  Item 1A.   

Risk Factors

     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   

 

1


Table of Contents

PART I -- FINANCIAL INFORMATION

Item 1.  FINANCIAL STATEMENTS

CLEAR CHANNEL OUTDOOR HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands)

 

000000000000 000000000000
     September 30,
2011
(Unaudited)
     December 31,
2010
 
CURRENT ASSETS      

Cash and cash equivalents

   $ 631,979          $ 624,018      

Accounts receivable, net

     699,932            735,115      

Other current assets

     220,979            191,360      
  

 

 

    

 

 

 

Total Current Assets

     1,552,890            1,550,493      
PROPERTY, PLANT AND EQUIPMENT      

Structures, net

     1,931,695            2,007,399      

Other property, plant and equipment, net

     279,482            290,325      
INTANGIBLE ASSETS      

Definite-lived intangibles, net

     635,920            705,218      

Indefinite-lived intangibles

     1,113,562            1,114,413      

Goodwill

     859,490            862,242      
OTHER ASSETS      

Due from Clear Channel Communications

     541,356            383,778      

Other assets

    

 

156,620   

 

  

 

    

 

162,697   

 

  

 

  

 

 

    

 

 

 

Total Assets

   $     7,071,015          $     7,076,565      
  

 

 

    

 

 

 
CURRENT LIABILITIES      

Accounts payable and accrued expenses

   $ 589,588          $ 623,585      

Deferred income

     127,182            100,675      

Current portion of long-term debt

     47,606            41,676      
  

 

 

    

 

 

 

Total Current Liabilities

     764,376            765,936      

Long-term debt

     2,501,229            2,522,133      

Deferred tax liability

     811,599            828,568      

Other long-term liabilities

     277,522            251,873      

Commitments and contingent liabilities (Note 6)

     
SHAREHOLDERS’ EQUITY      

Noncontrolling interest

     224,191            209,794      

Class A common stock

     411            408      

Class B common stock

     3,150            3,150      

Additional paid-in capital

     6,682,066            6,677,146      

Retained deficit

     (3,953,982)           (3,974,349)     

Accumulated other comprehensive loss

     (238,763)           (207,439)     

Cost of shares held in treasury

     (784)           (655)     
  

 

 

    

 

 

 

Total Shareholders’ Equity

    

 

2,716,289   

 

  

 

    

 

2,708,055   

 

  

 

  

 

 

    

 

 

 

Total Liabilities and Shareholders’ Equity

   $     7,071,015          $ 7,076,565      
  

 

 

    

 

 

 

See Notes to Consolidated Financial Statements

 

2


Table of Contents

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,
 
         2011              2010              2011              2010      

Revenue

   $ 748,450         $ 695,086          $ 2,187,872         $ 2,005,261      

Operating expenses:

           

Direct operating expenses (excludes depreciation and amortization)

     408,132           380,619            1,214,984           1,145,389      

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

     131,915           115,224            398,032           357,273      

Corporate expenses (excludes depreciation and amortization)

     22,303           26,197            67,324           70,726      

Depreciation and amortization

     114,934           103,833            322,864           310,841      

Other operating income (expense) – net

     37           (27,672)           9,139           (24,934)     
  

 

 

    

 

 

    

 

 

    

 

 

 

Operating income

     71,203           41,541            193,807           96,098      

Interest expense

     61,809           60,276            183,595           178,989      

Interest income on Due from Clear Channel Communications

     12,215           4,800            31,786           12,019      

Equity in earnings (loss) of nonconsolidated affiliates

     1,038           (663)           1,640           (1,462)     

Other income (expense) – net

     (1,859)          1,545            975           (3,447)     
  

 

 

    

 

 

    

 

 

    

 

 

 

Income (loss) before income taxes

     20,788           (13,053)           44,613           (75,781)     

Income tax expense

     (11,002)          (18,829)           (11,007)          (7,384)     
  

 

 

    

 

 

    

 

 

    

 

 

 

Consolidated net income (loss)

     9,786           (31,882)           33,606           (83,165)     

Less amount attributable to noncontrolling interest

     6,573           3,012            13,239           8,638      
  

 

 

    

 

 

    

 

 

    

 

 

 

Net income (loss) attributable to the Company

   $ 3,213         $ (34,894)         $ 20,367         $ (91,803)     
  

 

 

    

 

 

    

 

 

    

 

 

 

Other comprehensive income (loss), net of tax:

           

Foreign currency translation adjustments

     (88,618)          106,902            (22,233)          313      

Foreign currency reclassification adjustment

     86           2,565            234           1,424      

Unrealized loss on marketable securities

     (4,979)          (394)           (4,459)          (5,343)     
  

 

 

    

 

 

    

 

 

    

 

 

 

Comprehensive income (loss)

     (90,298)          74,179            (6,091)          (95,409)     

Less amount attributable to noncontrolling interest

     (1,268)          7,042            4,866           3,308      
  

 

 

    

 

 

    

 

 

    

 

 

 

Comprehensive income (loss) attributable to the Company

   $     (89,030)        $     67,137          $     (10,957)        $     (98,717)     
  

 

 

    

 

 

    

 

 

    

 

 

 

Net income (loss) attributable to the Company:

           

Basic

   $ 0.01         $ (0.10)         $ 0.05         $ (0.27)     

Weighted average common shares outstanding – Basic

     355,940           355,585            355,873           355,530      

Diluted

   $ 0.01         $ (0.10)         $ 0.05         $ (0.27)     

Weighted average common shares outstanding – Diluted

     356,428           355,585            356,556           355,530      

See Notes to Consolidated Financial Statements

 

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Table of Contents

CLEAR CHANNEL OUTDOOR HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

(In thousands)

 

      Nine Months Ended September 30,   
     2011      2010  

Cash flows from operating activities:

     

Consolidated net income (loss)

   $ 33,606          $ (83,165)     

Reconciling items:

     

Depreciation and amortization

     322,864            310,841      

Deferred taxes

     (13,744)           (11,722)     

Provision for doubtful accounts

     4,982            4,849      

(Gain) loss on sale of operating and fixed assets

     (9,139)           24,934      

Other reconciling items – net

     10,085            15,659      

Changes in operating assets and liabilities:

     

(Increase) decrease in accounts receivable

     25,763            (20,274)     

Decrease in Federal incomes taxes receivable

     —            50,958      

Increase in deferred income

     27,020            30,020      

Increase (decrease) in accrued expenses

     (17,201)           28,880      

Increase (decrease) in accounts payable and other liabilities

     11,786            (6,541)      

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

     (44,366)           24,695      
  

 

 

    

 

 

 

Net cash provided by operating activities

     351,656            369,134      

Cash flows from investing activities:

     

Purchases of property, plant and equipment

     (164,400)           (139,274)     

Purchases of other operating assets

     (13,239)           (715)     

Proceeds from disposal of assets

     11,008            6,466      

Change in other – net

     947            (1,704)     
  

 

 

    

 

 

 

Net cash used for investing activities

     (165,684)           (135,227)     

Cash flows from financing activities:

     

Draws on credit facilities

     —            3,916      

Payments on credit facilities

     (3,202)           (42,254)     

Proceeds from long-term debt

     1,560            6,844      

Payments on long-term debt

     (13,243)           (12,425)     

Net transfers to Clear Channel Communications

     (157,595)           (130,870)     

Change in other – net

     (4,350)           (4,213)     
  

 

 

    

 

 

 

Net cash used for financing activities

     (176,830)           (179,002)     

Effect of exchange rate changes on cash

     (1,181)           369      
  

 

 

    

 

 

 

Net increase in cash and cash equivalents

     7,961            55,274      

Cash and cash equivalents at beginning of period

     624,018            609,436      
  

 

 

    

 

 

 

Cash and cash equivalents at end of period

   $ 631,979          $ 664,710      
  

 

 

    

 

 

 

See Notes to Consolidated Financial Statements

 

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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 Company’s 2010 Annual Report on Form 10-K and Quarterly Reports on Form 10-Q for the periods ended March 31, 2011 and June 30, 2011.

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. Also included in the consolidated financial statements are entities for which the Company has a controlling financial interest or is the primary beneficiary. 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 2011 presentation.

New Accounting Pronouncements

In December 2010, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2010-29, Business Combinations (Topic 805): Disclosure of Supplementary Pro Forma Information for Business Combinations. This ASU updates Topic 805 to specify that if a public entity presents comparative financial statements, the entity should disclose revenue and earnings of the combined entity as though the business combination that occurred during the current year had occurred as of the beginning of the comparable prior annual reporting period only. The amendments of this ASU are effective prospectively for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2010. The Company adopted the provisions of ASU 2010-29 on January 1, 2011 without material impact to the Company’s disclosures.

In April 2011, the FASB issued ASU No. 2011-04, Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs. The amendments in this ASU change the wording used to describe many of the requirements in U.S. GAAP for measuring fair value and for disclosing information about fair value measurements. For many of the requirements, the FASB does not intend for the amendments in this ASU to result in a change in the application of the requirements in Topic 820. Some of the amendments clarify the FASB’s intent about the application of existing fair value measurement requirements. Other amendments change a particular principle or requirement for measuring fair value or for disclosing information about fair value measurements. The amendments in this ASU are to be applied prospectively for interim and annual periods beginning after December 15, 2011. The Company does not expect the provisions of ASU 2011-04 to have a material effect on its financial position or results of operations.

In June 2011, the FASB issued ASU No. 2011-05, Comprehensive Income (Topic 220): Presentation of Comprehensive Income. This ASU improves the comparability, consistency, and transparency of financial reporting and increases the prominence of items reported in other comprehensive income by eliminating the option to present components of other comprehensive income as part of the statement of changes in stockholders’ equity. The amendments require that all nonowner changes in stockholders’ equity be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements. The changes apply for interim and annual financial statements and should be applied retrospectively, effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. Early adoption is permitted. The Company currently complies with the provisions of this ASU by presenting the components of comprehensive income in a single continuous financial statement within its consolidated statement of operations for both interim and annual periods.

 

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Table of Contents

CLEAR CHANNEL OUTDOOR HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

 

In September 2011, the FASB issued ASU No. 2011-08, Intangibles-Goodwill and Other (Topic 350): Testing Goodwill for Impairment. Under the revised guidance, entities testing goodwill for impairment have the option of performing a qualitative assessment before calculating the fair value of the reporting unit (i.e., step 1 of the goodwill impairment test). If entities determine, on the basis of qualitative factors, that the fair value of the reporting unit is more likely than not less than the carrying amount, the two-step impairment test would be required. The ASU does not change how goodwill is calculated or assigned to reporting units, nor does it revise the requirement to test goodwill annually for impairment. The amendments are effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. Early adoption is permitted. The Company adopted the provisions of this ASU as of October 1, 2011 and is currently evaluating the impact of adoption.

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, 2011 and December 31, 2010, respectively:

 

    (In thousands)    September 30,
2011
     December 31,
2010
 
 

Land, buildings and improvements

     $     204,919           $     206,355     
 

Structures

     2,726,585           2,623,561     
 

Furniture and other equipment

     99,357           86,417     
 

Construction in progress

     53,125           53,550     
    

 

 

    

 

 

 
       3,083,986           2,969,883     
 

Less: accumulated depreciation

     872,809           672,159     
    

 

 

    

 

 

 
 

Property, plant and equipment, net

     $   2,211,177           $   2,297,724     
    

 

 

    

 

 

 

Definite-lived Intangible Assets

The Company has definite-lived intangible assets which consist primarily of transit and street furniture contracts, site leases and other contractual rights, all of which are amortized over the shorter of either the respective lives of the agreements or over the period of time the assets are expected to contribute directly or indirectly to the Company’s future cash flows. The Company periodically reviews the appropriateness of the amortization periods related to its definite-lived assets. These assets are recorded at cost.

The following table presents the gross carrying amount and accumulated amortization for each major class of definite-lived intangible assets at September 30, 2011 and December 31, 2010, respectively:

 

    (In thousands)    September 30, 2011      December 31, 2010  
         Gross Carrying  
Amount
     Accumulated
  Amortization  
       Gross Carrying  
Amount
     Accumulated
  Amortization  
 
 

Transit, street furniture and other contractual rights

     $ 777,362           $ 296,016           $     789,867           $ 241,461     
 

Other

     176,402           21,828           173,549           16,737     
    

 

 

    

 

 

    

 

 

    

 

 

 
 

Total

     $     953,764           $     317,844           $     963,416           $ 258,198     
    

 

 

    

 

 

    

 

 

    

 

 

 

Total amortization expense related to definite-lived intangible assets for the three months ended September 30, 2011 and 2010 was $30.8 million and $26.2 million, respectively. Total amortization expense related to definite-lived intangible assets for the nine months ended September 30, 2011 and 2010 was $77.3 million and $80.0 million, 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)       
  

2012

     $        79,400   
  

2013

     72,853   
  

2014

     66,757   
  

2015

     49,082   
  

2016

     37,372   

 

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Table of Contents

CLEAR CHANNEL OUTDOOR HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

 

Indefinite-lived Intangible Assets

The Company’s indefinite-lived intangibles consist primarily of billboard permits in its Americas segment. Due to significant differences in both business practices and regulations, billboards in the International segment are subject to long-term, finite contracts unlike the Company’s permits in the United States and Canada. Accordingly, there are no indefinite-lived assets in the International segment.

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, 2009

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

Foreign currency

     285            3,299            3,584      

Impairment

     —            (2,142)           (2,142)     

Other

     —            (792)           (792)     
  

 

 

    

 

 

    

 

 

 

Balance as of December 31, 2010

     $ 585,534            $ 276,708            $ 862,242      

Foreign currency

     (655)           (2,097)           (2,752)     
  

 

 

    

 

 

    

 

 

 

Balance as of September 30, 2011

     $ 584,879             $     274,611             $   859,490      
  

 

 

    

 

 

    

 

 

 

NOTE 3 -- DEBT

Long-term debt at September 30, 2011 and December 31, 2010 consisted of the following:

 

(In thousands)     September 30, 
2011
      December 31, 
2010
 

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      

Other debt

     48,835            63,809      
  

 

 

    

 

 

 

Total debt

     2,548,835            2,563,809      

Less: current portion

     47,606            41,676      
  

 

 

    

 

 

 

Total long-term debt

     $   2,501,229            $   2,522,133      
  

 

 

    

 

 

 

The aggregate market value of the Company’s debt based on market prices for which quotes were available was approximately $2.6 billion at September 30, 2011 and December 31, 2010.

Clear Channel Communications’ Refinancing Transactions

During the first six months of 2011 Clear Channel Communications amended its senior secured credit facilities and its receivables based credit facility (the “Amendments”) and issued $1.75 billion aggregate principal amount of 9.0% Priority Guarantee Notes due 2021 (the “9.0% Priority Guarantee Notes”). In February 2011, Clear Channel Communications issued $1.0 billion aggregate principal amount of the 9.0% Priority Guarantee Notes (the “February 2011 Offering”), and in June 2011, Clear Channel Communications issued $750.0 million aggregate principal amount of the 9.0% Priority Guarantee Notes (the “June 2011 Offering”). Clear Channel Communications used a portion of the proceeds from the February 2011 Offering to prepay $500.0 million of the indebtedness outstanding under its senior secured credit facilities. As a result of the prepayment, the revolving credit commitments under Clear Channel Communications’ revolving credit facility were permanently reduced from $2.0 billion to $1.9 billion and the sub-limit under which certain of the Company’s international subsidiaries may borrow (to the extent that Clear Channel Communications has not already borrowed against this capacity) was reduced from $150.0 million to $145.0 million. The Amendments, among other things, provide greater flexibility for the Company and its subsidiaries to incur new debt, provided that the net proceeds distributed to Clear Channel Communications from the issuance of such new debt are used to pay down senior secured credit facility indebtedness.

 

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CLEAR CHANNEL OUTDOOR HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

 

NOTE 4 -- SUPPLEMENTAL DISCLOSURES

Income tax benefit (expense)

The Company’s income tax benefit (expense) for the three and nine months ended September 30, 2011 and 2010, respectively, consisted of the following components:

 

     (In thousands)    Three Months Ended
September 30,
     Nine Months Ended
September 30,
            2011              2010              2011         

    2010    

  

Current tax expense

     $ (8,321)           $ (1,418)           $ (24,751)           $(19,106)  
  

Deferred tax benefit (expense)

     (2,681)           (17,411)           13,744          11,722   
     

 

 

    

 

 

    

 

 

    

 

  

Income tax expense

     $     (11,002)           $     (18,829)           $     (11,007)           $    (7,384)  
     

 

 

    

 

 

    

 

 

    

 

The effective tax rate for the three and nine months ended September 30, 2011 was 52.9% and 24.7%, respectively. The effective tax rate for the three months ended September 30, 2011 was primarily impacted by increases in tax expense attributable to an increase in unrecognized tax benefits and the Company’s inability to record the benefit of losses in certain foreign jurisdictions. The effective tax rate for the nine months ended September 30, 2011 was primarily impacted by the Company’s settlement of U.S. Federal and state tax examinations during the period. Pursuant to the settlements, the Company recorded a reduction to income tax expense of approximately $3.5 million to reflect the net tax benefits of the settlements. In addition, the effective tax rate for the nine months ended September 30, 2011 was impacted by the Company’s ability to benefit from certain tax loss carryforwards in foreign jurisdictions due to increased taxable income during 2011, where the losses previously did not provide a benefit. The effects of these items were partially offset by the items mentioned above related to the three months ended September 30, 2011.

The Company’s effective tax rate for the three and nine months ended September 30, 2010 was (144.3%) and (9.7%), respectively. The 2010 effective tax rates were impacted primarily as a result of the Company’s inability to benefit from tax losses in certain foreign jurisdictions due to the uncertainty of the ability to utilize those losses in future years. 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.

During the nine months ended September 30, 2011 and 2010, cash paid for interest and income taxes, net of U. S. 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,    
            2011              2010      
  

Interest

       $     176,070             $     175,919     
  

Income taxes

       $         27,050             $     (29,656)    

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 investments at September 30, 2011 and December 31, 2010 are as follows:

 

(In thousands)    September 30, 2011      December 31, 2010  
Investments    Cost     

Gross

Unrealized
Losses

    

Gross

Unrealized
Gains

     Fair
Value
     Cost     

Gross

Unrealized
Losses

    

Gross

Unrealized
Gains

     Fair
Value
 

Available-for-sale

   $   8,016       $   (4,455)       $     78       $   3,639       $   8,016       $ —         $ 82       $     8,098   

 

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Table of Contents

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.

On or about July 12, 2006 and April 12, 2007, two of the Company’s operating businesses (L&C Outdoor Ltda. (“L&C”) and Publicidad Klimes Sao Paulo Ltda. (“Klimes”), respectively) in the São 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 these businesses fall within the definition of “communication services” and as such are subject to the VAT.

L&C and Klimes have filed separate petitions to challenge the imposition of this tax. L&C’s challenge was unsuccessful at the first administrative level, but successful at the second administrative level. The state taxing authority filed an appeal to the third and final administrative level, which required consideration by a full panel of 16 administrative law judges. On September 27, 2010, L&C received an unfavorable ruling at this final administrative level, which concluded that the VAT applied. L&C intends to appeal this ruling to the judicial level. In addition, L&C has filed a petition to have the case remanded to the second administrative level for consideration of the reasonableness of the amount of the penalty assessed against it. The amounts allegedly owed by L&C are approximately $8.8 million in taxes, approximately $17.5 million in penalties and approximately $31.6 million in interest (as of September 30, 2011 at an exchange rate of 0.547). On August 8, 2011, Brazil’s National Council of Fiscal Policy (CONFAZ) published a rule authorizing sixteen states, including the State of São Paulo, to reduce the principal amount of VAT allegedly owed for communications services; the rule also authorizes the states to reduce or waive related interest and penalties. The State of São Paulo ratified the amnesty in late August 2011. However, it is not required to reduce the principal amount of VAT or waive the payment of penalties and interest. In late 2011 or early 2012, the Company expects the São Paulo state legislature to pass legislation setting forth the precise terms of the amnesty. Based on the uncertainty of any amnesty terms that may be offered, the Company does not know whether the offered terms will be acceptable. Accordingly, the Company continues to vigorously pursue its case in the administrative courts and, if necessary, in the relevant appellate courts. At September 30, 2011, the range of reasonably possible loss is from zero to approximately $58 million. The maximum loss that could ultimately be paid depends on the timing of the final resolution at the judicial level and applicable future interest rates. Based on the Company’s review of the law, the outcome of similar cases at the judicial level and the advice of counsel, the Company has not accrued any costs related to these claims and believes the occurrence of loss is not probable.

Klimes’ challenge was unsuccessful at the first administrative level, and denied at the second administrative level on or about September 24, 2009. On January 5, 2011, the administrative law judges at the third administrative level published a ruling that the VAT applies but significantly reduced the penalty assessed by the taxing authority. With the penalty reduction, the amounts allegedly owed by Klimes are approximately $9.9 million in taxes, approximately $4.9 million in penalties and approximately $19.3 million in interest (as of September 30, 2011 at an exchange rate of 0.547). In late February 2011, Klimes filed a writ of mandamus in the 13th lower public treasury court in São Paulo, State of São Paulo, appealing the administrative court’s decision that the VAT applies. On that same day, Klimes filed a motion for an injunction barring the taxing authority from collecting the tax, penalty and interest while the appeal is pending. The court denied the motion in early April 2011. Klimes filed a motion for reconsideration with the court and also appealed that ruling to the São Paulo State Higher Court, which affirmed in late April 2011. On June 20, 2011, the 13th lower public treasury court in São Paulo reconsidered its prior ruling and granted Klimes an injunction suspending any collection effort by the taxing authority until a decision on the merits is obtained at the first judicial level. On August 8, 2011, Brazil’s National Council of Fiscal Policy (CONFAZ) published a rule authorizing sixteen states, including the State of São Paulo, to reduce the principal amount of VAT allegedly owed for communications services; the rule also authorizes the states to reduce or waive related interest and penalties. The State of São Paulo ratified the amnesty in late August 2011. However, it is not required to reduce the principal amount of VAT or waive the payment of penalties and interest. In late 2011 or early 2012, the Company expects the São Paulo state legislature to pass legislation setting forth the precise terms of the amnesty. Based on the uncertainty of any amnesty terms that may be offered, the Company does not know whether the offered terms will be acceptable. Accordingly, the Company continues to vigorously pursue its appeal in the 13th lower public treasury court. At September 30, 2011, the range of reasonably possible loss is from zero to approximately $34 million. The maximum loss that could ultimately be paid depends on the timing of the final resolution at the judicial level and applicable future interest rates. Based on the Company’s review of the law, the outcome of similar cases at the judicial level and the advice of counsel, the Company has not accrued any costs related to these claims and believes the occurrence of loss is not probable.

 

9


Table of Contents

CLEAR CHANNEL OUTDOOR HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

 

As of September 30, 2011, the Company had $70.2 million in letters of credit outstanding, of which $67.7 million of letters of credit were cash secured. Additionally, as of September 30, 2011, Clear Channel Communications had outstanding commercial standby letters of credit and surety bonds of $15.3 million and $44.0 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. Letters of credit in the amount of $9.1 million are collateral in support of surety bonds and these amounts would only be drawn under the letter of credit in the event the associated surety bonds were funded and the Company did not honor its reimbursement obligation to the issuers.

As of September 30, 2011, the Company had outstanding bank guarantees of $58.3 million. Bank guarantees in the amount of $4.3 million are backed by cash collateral.

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 amount of $1.0 billion, or if more or less than such amount, 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 (after satisfying the funding requirements of the Trustee Account). 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, 2011 and December 31, 2010, the asset recorded in “Due from Clear Channel Communications” on the condensed consolidated balance sheets was $541.4 million and $383.8 million, respectively.

The net interest income recorded in “Interest income on Due from Clear Channel Communications” for the three months ended September 30, 2011 and 2010 was $12.2 million and $4.8 million, respectively. The net interest income recorded in “Interest income on Due from Clear Channel Communications” for the nine months ended September 30, 2011 and 2010 was $31.8 million and $12.0 million, respectively. At September 30, 2011 and December 31, 2010, the interest rate on the “Due from Clear Channel Communications” account was 9.25%.

Clear Channel Communications has a $1.9 billion multi-currency revolving credit facility with a maturity in July 2014 which includes a $145.0 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 its revolving credit facility. As of September 30, 2011, the Company had no outstanding borrowings under the $145.0 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, 2011 and 2010, the Company recorded $1.1 million and $0.7 million, respectively, in revenue for these advertisements. For the nine months ended September 30, 2011 and 2010, the Company recorded $2.8 million and $2.4 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, 2011 and 2010, the Company recorded $6.2 million and $9.1 million, respectively, as a component of corporate expenses for these services. For the nine months ended September 30, 2011 and 2010, the Company recorded $18.7 million and $27.7 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.

 

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CLEAR CHANNEL OUTDOOR HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

 

The Company computes its deferred income tax provision using the liability method in accordance with the provisions of ASC 740-10, as if the Company was a separate taxpayer. Deferred tax assets and liabilities are determined based on differences between financial reporting bases and tax bases of assets and liabilities and are measured using the enacted tax rates expected to apply to taxable income in the periods in which the deferred tax asset or liability is expected to be realized or settled. Deferred tax assets are reduced by valuation allowances if the Company believes it is more likely than not some portion or all of the asset will not be realized.

Pursuant to the Employee Matters Agreement, the Company’s employees participate in Clear Channel Communications’ employee benefit plans, including employee medical insurance and a 401(k) retirement benefit plan. These costs are recorded as a component of selling, general and administrative expenses and were approximately $3.1 million and $2.6 million for the three months ended September 30, 2011 and 2010, respectively. For the nine months ended September 30, 2011 and 2010, the Company recorded approximately $9.1 million and $7.7 million, respectively, as a component of selling, general and administrative expenses for these services.

On August 9, 2010, Clear Channel Communications announced that its board of directors approved a stock purchase program under which Clear Channel Communications or its subsidiaries may purchase up to an aggregate of $100 million of the Class A common stock of the Company and/or the Class A common stock of CC Media Holdings, Inc., the indirect parent entity of Clear Channel Communications. No shares of the Class A common stock of CC Media Holdings, Inc. were purchased under the stock purchase program during the three months ended September 30, 2011. However, during the three months ended September 30, 2011, a subsidiary of Clear Channel Communications purchased $10.6 million of the Class A common stock of the Company (998,250 shares) through open market purchases, leaving an aggregate of $89.4 million available under the stock purchase program to purchase the Class A common stock of CC Media Holdings, Inc. and/or the Class A common stock of the Company. The stock purchase program does not have a fixed expiration date and may be modified, suspended or terminated at any time at Clear Channel Communications’ discretion.

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 January 1, 2011

   $ 2,498,261           $ 209,794           $ 2,708,055     

Net income

     20,367           13,239           33,606     

Foreign currency translation adjustments

     (27,099)          4,866           (22,233)    

Reclassification adjustment

     234           —           234     

Unrealized holding loss on marketable securities

     (4,459)          —           (4,459)    

Other - net

     4,794           (3,708)          1,086     
  

 

 

    

 

 

    

 

 

 

Balances at September 30, 2011

   $       2,492,098           $         224,191           $         2,716,289     
  

 

 

    

 

 

    

 

 

 

 

(In thousands)      The Company          Noncontrolling  
Interests
       Consolidated    

Balances at January 1, 2010

   $ 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     
  

 

 

    

 

 

    

 

 

 

NOTE 9 -- SEGMENT DATA

The Company has two reportable operating 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 primarily includes operations in Europe, Asia and Australia. The Americas and International display inventory consists primarily of billboards, street furniture displays and transit displays. Corporate includes infrastructure and support including information technology, human resources, legal, finance and administrative functions of each of the Company’s operating segments, as well as overall executive, administrative and support functions. Share-based compensation expense is recorded by each segment in direct operating and selling, general and administrative expenses.

 

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CLEAR CHANNEL OUTDOOR HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

 

The following table presents the Company’s operating segment results for the three and nine months ended September 30, 2011 and 2010:

 

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

Three months ended September 30, 2011

       

Revenue

    $ 347,344          $ 401,106          $ —           $ 748,450     

Direct operating expenses

    152,631          255,501          —           408,132     

Selling, general and administrative expenses

    57,780          74,135          —           131,915     

Depreciation and amortization

    62,809          52,125          —           114,934     

Corporate expenses

    —          —          22,303           22,303     

Other operating income - net

    —          —          37           37     
 

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

    $ 74,124           $ 19,345           $ (22,266)          $ 71,203     
 

 

 

   

 

 

   

 

 

   

 

 

 

Capital expenditures

    $ 19,177          $ 41,193          $ —           $ 60,370     

Share-based compensation expense

    $ 1,903          $ 792          $ 36           $ 2,731     

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     
 

 

 

   

 

 

   

 

 

   

 

 

 

Capital expenditures

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

Share-based compensation expense

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

Nine months ended September 30, 2011

       

Revenue

    $ 977,433          $ 1,210,439          $ —           $   2,187,872     

Direct operating expenses

    445,615          769,369          —           1,214,984     

Selling, general and administrative expenses

    167,379          230,653          —           398,032     

Depreciation and amortization

    166,859          156,005          —           322,864     

Corporate expenses

    —          —          67,324           67,324     

Other operating income - net

    —          —          9,139           9,139     
 

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

    $ 197,580           $ 54,412          $ (58,185)          $ 193,807     
 

 

 

   

 

 

   

 

 

   

 

 

 

Capital expenditures

    $ 87,875          $ 78,269          $ —           $ 166,144     

Share-based compensation expense

    $ 5,745          $ 2,396          $ 111           $ 8,252     

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     
 

 

 

   

 

 

   

 

 

   

 

 

 

Capital expenditures

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

Share-based compensation expense

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

 

12


Table of Contents

CLEAR CHANNEL OUTDOOR HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

 

NOTE 10 -- SUBSEQUENT EVENTS

On October 14, 2011, Clear Channel Hillenaar BV, a subsidiary of the Company, acquired Brouwer & Partners, a street furniture business in Holland, for $12.5 million.

NOTE 11 -- 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, 2011  
(In thousands)    Parent
  Company  
     Subsidiary
Issuer
     Guarantor
  Subsidiaries  
     Non-Guarantor
Subsidiaries
       Eliminations          Consolidated    

Cash and cash equivalents

   $ 363,315         $ —          $ —         $ 291,904         $ (23,240)        $ 631,979     

Accounts receivable, net

     —           —            228,042           471,890           —            699,932     

Intercompany receivables

     —           136,940            1,356,223           —           (1,493,163)          —     

Other current assets

     4,021           —            76,004           140,954           —            220,979     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total Current Assets

     367,336           136,940            1,660,269           904,748           (1,516,403)         1,552,890     

Property, plant and equipment, net

     —           —            1,451,058           760,119           —            2,211,177     

Definite-lived intangibles, net

     —           —            384,835           251,085           —            635,920     

Indefinite-lived intangibles

     —           —            1,098,872           14,690           —            1,113,562     

Goodwill

     —           —            571,932           287,558           —            859,490     

Due from Clear Channel Communications

     541,356           —            —           —           —            541,356     

Intercompany notes receivable

     182,026           2,570,855            —           17,832           (2,770,713)          —     

Other assets

     2,761,607           1,029,717            1,471,084           64,838           (5,170,626)          156,620     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total Assets

   $ 3,852,325         $ 3,737,512          $ 6,638,050         $ 2,300,870         $ (9,457,742)        $ 7,071,015     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Accounts payable and accrued expenses

   $ 173         $ 1,083          $ 121,366         $ 490,206         $ (23,240)        $ 589,588     

Intercompany payable

     1,352,338           —            136,940           3,885           (1,493,163)          —     

Deferred income

     —           —            45,591           81,591           —            127,182     

Current portion of long-term debt

     —           —            502           47,104           —            47,606     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total Current Liabilities

     1,352,511           1,083            304,399           622,786           (1,516,403)          764,376     

Long-term debt

     —           2,500,000            1,113           116           —            2,501,229     

Intercompany notes payable

     7,491           —            2,692,367           70,855           (2,770,713)          —     

Deferred tax liability

     225           (72)           762,392           49,054           —            811,599     

Other long-term liabilities

     —           1,181            116,172           160,169           —            277,522     

Total shareholders’ equity

     2,492,098           1,235,320            2,761,607           1,397,890           (5,170,626)          2,716,289     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total Liabilities and Shareholders’ Equity

   $     3,852,325         $     3,737,512          $     6,638,050         $     2,300,870         $     (9,457,742)        $     7,071,015     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

13


Table of Contents

CLEAR CHANNEL OUTDOOR HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

 

    December 31, 2010  
(In thousands)   Parent
    Company    
      Subsidiary  
Issuer
    Guarantor
  Subsidiaries  
      Non-Guarantor  
Subsidiaries
      Eliminations         Consolidated    

Cash and cash equivalents

  $ 426,742        $ —        $ —        $ 203,789        $ (6,513)       $ 624,018     

Accounts receivable, net

    —          —          250,552          484,563          —           735,115     

Intercompany receivables

    —          116,624          1,261,437          5,781          (1,383,842)         —     

Other current assets

    1,537          —          53,321          136,502          —           191,360     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Current Assets

    428,279          116,624          1,565,310          830,635          (1,390,355)         1,550,493     

Property, plant and equipment, net

    —          —          1,493,640          804,084          —           2,297,724     

Definite-lived intangibles, net

    —          —          400,012          305,206          —           705,218     

Indefinite-lived intangibles

    —          —          1,098,958          15,455          —           1,114,413     

Goodwill

    —          —          571,932          290,310          —           862,242     

Due from Clear Channel Communications

    383,778          —          —          —          —           383,778     

Intercompany notes receivable

    182,026          2,590,955          9,243          17,832          (2,800,056)         —     

Other assets

    2,773,305          1,034,182          1,492,337          62,319          (5,199,446)         162,697     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Assets

  $ 3,767,388        $ 3,741,761        $ 6,631,432        $ 2,325,841        $ (9,389,857)       $ 7,076,565     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Accounts payable and accrued expenses

  $ (26)        $ 165        $ 128,773        $ 501,186        $ (6,513)       $ 623,585     

Intercompany payable

    1,261,437          —          122,405          —          (1,383,842)         —     

Deferred income

    —          —          38,264          62,411          —           100,675     

Current portion of long-term debt

    —          —          —          41,676          —           41,676     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Current Liabilities

    1,261,411          165          289,442          605,273          (1,390,355)         765,936     

Long-term debt

    —          2,500,000          —          22,133          —           2,522,133     

Intercompany notes payable

    7,491          —          2,701,610          90,955          (2,800,056)         —     

Deferred tax liability

    225          —          761,593          66,750          —           828,568     

Other long-term liabilities

    —          1,108          105,482          145,283          —           251,873     

Total shareholders’ equity

    2,498,261          1,240,488          2,773,305          1,395,447          (5,199,446)         2,708,055     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Liabilities and Shareholders’ Equity

  $     3,767,388        $     3,741,761        $     6,631,432        $     2,325,841        $     (9,389,857)      $     7,076,565   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

14


Table of Contents

CLEAR CHANNEL OUTDOOR HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

 

    Three Months Ended September 30, 2011  
(In thousands)   Parent
    Company    
      Subsidiary  
Issuer
    Guarantor
  Subsidiaries  
      Non-Guarantor  
Subsidiaries
      Eliminations         Consolidated    

Revenue

  $ —         $ —         $ 304,102         $ 444,348         $ —        $ 748,450      

Operating expenses:

           

Direct operating expenses

    —           —           131,111           277,021           —          408,132      

Selling, general and administrative expenses

    —           —           43,534           88,381           —          131,915      

Corporate expenses

    2,826           —           12,024           7,453           —          22,303      

Depreciation and amortization

    —           —           59,097           55,837           —          114,934      

Other operating income (expense) – net

    —           —           561           (524)         —          37      
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

    (2,826)         —           58,897           15,132           —          71,203      

Interest expense – net

    110           57,812           1,924           1,963           —          61,809      

Interest income on Due from Clear Channel Communications

    —           —           12,215           —           —          12,215      

Intercompany interest income

    3,524           57,874           —           247           (61,645)         —      

Intercompany interest expense

    124           —           61,461           60           (61,645)         —      

Equity in earnings (loss) of nonconsolidated affiliates

    2,922           567           (327)         1,038           (3,162)         1,038      

Other expense – net

    —           (259)         (129)         (1,471)         —          (1,859)    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before income taxes

    3,386           370           7,271           12,923           (3,162)         20,788      

Income tax expense

    (173)         (445)         (4,349)         (6,035)         —          (11,002)    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Consolidated net income (loss)

    3,213           (75)         2,922           6,888           (3,162)         9,786      

Less: amount attributable to noncontrolling interest

    —           —           —           6,573           —          6,573      
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) attributable to the Company

  $ 3,213         $ (75)       $ 2,922         $ 315         $ (3,162)       $ 3,213      

Other comprehensive income (loss), net of tax:

           

Foreign currency translation adjustments

    —           —           —           (88,618)         —          (88,618)    

Foreign currency reclassification adjustment

    —           —           —           86           —          86      

Unrealized loss on marketable securities

    —           —           —           (4,979)         —          (4,979)    

Equity in subsidiary comprehensive income (loss)

    (92,243)         (71,927)         (92,243)         —           256,413          —      
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income (loss)

  $ (89,030)       $ (72,002)       $ (89,321)       $ (93,196)       $ 253,251        $ (90,298)    

Less: amount attributable to noncontrolling interest

    —           —           —           (1,268)         —          (1,268)    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income (loss) attributable to the Company

  $     (89,030)       $     (72,002)       $     (89,321)       $     (91,928)       $     253,251        $     (89,030)    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

15


Table of Contents

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 – net

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

Interest income on Due from 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)    

Less 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 (loss)

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

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income (loss)

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

Less 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     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

16


Table of Contents

CLEAR CHANNEL OUTDOOR HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

 

    Nine Months Ended September 30, 2011  
(In thousands)   Parent
    Company    
        Subsidiary    
Issuer
    Guarantor
  Subsidiaries  
     Non-Guarantor 
Subsidiaries
     Eliminations       Consolidated   

Revenue

    $ —           $ —           $ 848,900           $ 1,338,972           $ —           $  2,187,872      

Operating expenses:

           

Direct operating expenses

    —           —           377,657           837,327           —           1,214,984      

Selling, general and administrative expenses

    —           —           134,051           263,981           —           398,032      

Corporate expenses

    8,914           —           36,931           21,479           —           67,324      

Depreciation and amortization

    —           —           155,391           167,473           —           322,864      

Other operating income– net

    —           —           8,157           982           —           9,139      
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

    (8,914)          —           153,027           49,694           —           193,807      

Interest expense – net

    1           173,437           5,786           4,371           —           183,595      

Interest income on Due from Clear Channel Communications

    —           —           31,786           —           —           31,786      

Intercompany interest income

    10,478           173,731           —           749           (184,958)          —      

Intercompany interest expense

    380           —           184,284           294           (184,958)          —      

Equity in earnings (loss) of nonconsolidated affiliates

    19,626           16,603         23,261           1,639           (59,489)          1,640      

Other income (expense) – net

    —           (198)          (259)          1,432           —           975      
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before income taxes

    20,809           16,699           17,745           48,849           (59,489)          44,613      

Income tax benefit (expense)

    (442)          (799)          1,881           (11,647)          —           (11,007)     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Consolidated net income (loss)

    20,367           15,900           19,626           37,202           (59,489)          33,606      

Less amount attributable to noncontrolling interest

    —           —           —           13,239           —           13,239      
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) attributable to the Company

    $ 20,367           $ 15,900           $ 19,626           $ 23,963           $ (59,489)          $ 20,367      

Other comprehensive income (loss), net of tax:

           

Foreign currency translation adjustments

    —           —           —           (22,233)          —           (22,233)     

Foreign currency reclassification adjustment

    —           —           —           234           —           234      

Unrealized loss on marketable securities

    —           —           —           (4,459)          —           (4,459)     

Equity in subsidiary comprehensive income (loss)

    (31,324)          (16,980)           (31,324)          —           79,628           —      
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income (loss)

    (10,957)          (1,080)          (11,698)          (2,495)          20,139           (6,091)     

Less amount attributable to noncontrolling interest

    —           —           —           4,866           —           4,866      
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income (loss) attributable to the Company

    $ (10,957)          $ (1,080)          $ (11,698)          $ (7,361)          $ 20,139           $ (10,957)     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

 

17


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 – net

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

Interest income on Due from 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)     

Less 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 (loss)

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

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income (loss)

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

Less 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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CLEAR CHANNEL OUTDOOR HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

 

    Nine Months Ended September 30, 2011  
(In thousands)   Parent         Subsidiary         Guarantor       Non-Guarantor                
        Company         Issuer       Subsidiaries       Subsidiaries       Eliminations         Consolidated    

Cash flows from operating activities:

           

Consolidated net income (loss)

    $ 20,367            $ 15,900            $ 19,626            $ 37,202            $ (59,489)           $ 33,606       

Reconciling items:

           

Depreciation and amortization

    —            —            155,391            167,473            —            322,864       

Deferred taxes

    —            (72)           3,538            (17,210)           —            (13,744)      

Provision for doubtful accounts

    —            —            1,426            3,556            —            4,982       

Other reconciling items – net

    (19,626)           (16,603)           (19,771)           (2,543)           59,489          946       

Changes in operating assets and liabilities:

           

Decrease in accounts receivable

    —            —            21,082            4,681            —            25,763       

Increase in deferred income

    —            —            7,216            19,804            —            27,020       

Increase (decrease) in accrued expenses

    —            73            (25,332)           8,058            —            (17,201)      

Increase (decrease) in accounts payable and other liabilities

    —            —            23,105            5,408            (16,727)           11,786       

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

    (2,639)           918            (18,273)           (24,372)           —            (44,366)      
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by (used for) operating activities

    (1,898)           216            168,008            202,057            (16,727)           351,656       

Cash flows from investing activities:

           

Purchases of property, plant and equipment

    —            —            (80,896)           (83,504)           —            (164,400)      

Equity contributions to subsidiaries

    —            —            (199)           —            199            —       

Purchases of other operating assets

    —            —            (12,908)           (331)           —            (13,239)      

Proceeds from disposal of assets

    —            —            7,128            3,880            —            11,008       

Decrease in intercompany notes receivable – net

    —            20,100            —            —            (20,100)           —       

Change in other – net

    —            —            879            772            (704)           947       
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by (used for) investing activities

    —            20,100            (85,996)           (79,183)           (20,605)            (165,684)      

Cash flows from financing activities:

           

Payments on credit facilities

    —            —            (129)           (3,073)           —            (3,202)      

Proceeds from long term debt

    —            —            —            1,560              1,560       

Payments on long-term debt

    —            —            —            (13,243)           —            (13,243)      

Increase in intercompany notes payable – net

    —            —            —            (20,100)           20,100            —       

Net transfers to Clear Channel Communications

    (157,595)           —            —            —            —            (157,595)      

Intercompany funding

    94,935            (20,316)           (81,883)           7,264            —            —       

Equity contributions from parent

    —            —            —            199            (199)            —       

Change in other – net

    1,131            —            —            (6,185)           704            (4,350)      
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by (used for) financing activities

    (61,529)           (20,316)           (82,012)           (33,578)           20,605            (176,830)      

Effect of exchange rate changes on cash

    —            —            —            (1,181)           —            (1,181)      
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net increase (decrease) in cash and cash equivalents

    (63,427)           —            —            88,115            (16,727)           7,961       

Cash and cash equivalents at beginning of period

    426,742            —            —            203,789            (6,513)           624,018       
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cash and cash equivalents at end of period

    $ 363,315            $ —            $ —            $ 291,904            $ (23,240)           $ 631,979       
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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CLEAR CHANNEL OUTDOOR HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

 

    Nine Months Ended September 30, 2010  
(In thousands)   Parent         Subsidiary         Guarantor       Non-Guarantor                
        Company         Issuer       Subsidiaries       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 in accrued expenses

    —            —            26,196            2,684            —            28,880       

Increase (decrease) in accounts payable and other liabilities

    —            816            13,453            (20,810)           —            (6,541)      

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)      

Equity contributions to subsidiaries

    —            —            (331)           —            331            —       

Decrease (increase) in intercompany notes receivable – net

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

Purchases of other operating assets

    —            —            (715)           —            —            (715)      

Proceeds from disposal of assets

    —            —            3,858            2,608            —            6,466       

Change in other – net

    —            —            (701)           (896)           (107)           (1,704)      
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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            —       

Equity contributions from parent

    —            —            —            331            (331)           —       

Change in other – net

    1,122            —            (1)           (5,441)           107            (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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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 (“MD&A”) should be read in conjunction with the consolidated financial statements and related footnotes. Our discussion is presented on both a consolidated and segment basis. Our reportable operating segments are Americas outdoor advertising (“Americas”) and International outdoor advertising (“International”). Our Americas and International segments provide outdoor advertising services in their respective geographic regions using various digital and traditional display types.

We manage our operating segments primarily focusing on their operating income, while Corporate expenses, Other operating income (expense) –net, Interest expense, Interest income on Due from Clear Channel Communications, Equity in earnings (loss) of nonconsolidated affiliates, Other income (expense) – net and Income tax expense are managed on a total company basis and are, therefore, included only in our discussion of consolidated results. Management typically monitors our businesses by reviewing the average rates, average revenue per display, occupancy, and inventory levels of each of our display types by market.

Part of our long-term strategy for our Americas and International businesses is to pursue the technology of digital displays, including flat screens, LCDs and LEDs, as alternatives to traditional methods of displaying our clients’ advertisements. We are currently installing these technologies in certain markets.

Advertising revenue for our segments is highly correlated to changes in gross domestic product (“GDP”) as advertising spending has historically trended in line with GDP, both domestically and internationally. According to the U.S. Department of Commerce, revised U.S. GDP growth for the first and second quarters of 2011 was 0.4% and 1.3%, respectively, and estimated U.S. GDP growth for the third quarter of 2011 was 2.5%. Internationally, our results are impacted by fluctuations in foreign currency exchange rates as well as the economic conditions in the foreign markets in which we have operations.

Executive Summary

The key developments in our business for the three and nine months ended September 30, 2011 are summarized below:

 

  •  

Consolidated revenue increased $53.4 million and $182.6 million during the three and nine months ended September 30, 2011, respectively, compared to the same periods of 2010.

  •  

Americas revenue increased $14.1 million and $49.4 million during the three and nine months ended September 30, 2011, respectively, compared to the same periods of 2010, driven by revenue growth across our bulletin, airport and shelter displays, particularly digital displays. During the nine months ended September 30, 2011, we deployed 153 digital displays in the United States, compared to 99 in the nine months ended September 30, 2010. We continue to see opportunities to invest in digital displays and expect our digital display deployments will continue throughout 2011.

  •  

International revenue increased $39.3 million and $133.2 million during the three and nine months ended September 30, 2011, respectively, compared to the same periods of 2010, primarily as a result of increased street furniture revenues and the effects of movements in foreign exchange. The weakening of the U.S. Dollar throughout the first nine months of 2011 has significantly contributed to revenue growth in our International advertising business. The revenue increase attributable to movements in foreign exchange was $22.6 million and $76.9 million for the three and nine months ended September 30, 2011, respectively.

 

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RESULTS OF OPERATIONS

Consolidated Results of Operations

The comparison of the three and nine months ended September 30, 2011 to the three and nine months ended September 30, 2010 is as follows:

 

(In thousands)   Three Months Ended
September 30,
    %
Change
      Nine Months Ended
September 30,
    %
Change
    2011     2010         2011     2010    

Revenue

    $     748,450        $     695,086           8%       $  2,187,872        $   2,005,261           9%  

 

Operating expenses:

             

 

Direct operating expenses (excludes depreciation and amortization)

    408,132          380,619           7%         1,214,984          1,145,389           6%  

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

    131,915          115,224         14%        398,032          357,273         11% 

Corporate expenses (excludes depreciation and amortization)

    22,303          26,197         (15%)        67,324          70,726          (5%)

Depreciation and amortization

    114,934          103,833         11%       322,864          310,841           4%  

Other operating income (expense) – net

    37          (27,672)              9,139          (24,934)       
 

 

 

   

 

 

       

 

 

   

 

 

   

Operating income

    71,203          41,541               193,807          96,098        

Interest expense

    61,809          60,276               183,595          178,989        

Interest income on Due from Clear Channel Communications

    12,215          4,800               31,786          12,019        

Equity in earnings (loss) of nonconsolidated affiliates

    1,038          (663)              1,640          (1,462)       

Other income (expense) – net

    (1,859)        1,545               975          (3,447)       
 

 

 

   

 

 

       

 

 

   

 

 

   

Income (loss) before income taxes

    20,788          (13,053)              44,613          (75,781)       

Income tax expense

    (11,002)        (18,829)              (11,007)         (7,384)       
 

 

 

   

 

 

       

 

 

   

 

 

   

Consolidated net income (loss)

    9,786          (31,882)              33,606          (83,165)       

Less amount attributable to noncontrolling interest

    6,573          3,012               13,239          8,638        
 

 

 

   

 

 

       

 

 

   

 

 

   

Net income (loss) attributable to the Company

    $ 3,213        $ (34,894)              $ 20,367        $ (91,803)       
 

 

 

   

 

 

       

 

 

   

 

 

   

Consolidated Revenue

Our consolidated revenue increased $53.4 million during the third quarter of 2011 compared to the same period of 2010. Americas revenue increased $14.1 million, driven by increases in revenue across bulletin, airport, poster and shelter displays, particularly digital displays, as a result of our continued deployment of new digital displays and increased rates. Our International revenue increased $39.3 million, primarily from increased street furniture revenue across our markets and a $22.6 million increase from the impact of movements in foreign exchange.

Our consolidated revenue increased $182.6 million during the first nine months of 2011 compared to the same period of 2010. Americas revenue increased $49.4 million, driven by increases in revenue across bulletin, airport and shelter displays, particularly digital displays, as a result of our continued deployment of new digital displays and increased rates. Our International revenue increased $133.2 million, primarily from increased street furniture revenue across our markets and a $76.9 million increase from the impact of movements in foreign exchange.

Consolidated Direct Operating Expenses

Direct operating expenses increased $27.5 million during the third quarter of 2011 compared to the same period of 2010. Americas direct operating expenses increased $8.7 million, primarily due to increased site lease expense associated with higher

 

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airport and bulletin revenue, particularly digital, and the increased deployment of digital displays. Direct operating expenses in our International segment increased $18.8 million, primarily from a $14.9 million increase from movements in foreign exchange.

Direct operating expenses increased $69.6 million during the first nine months of 2011 compared to the same period of 2010. Americas direct operating expenses increased $18.1 million, primarily due to increased site lease expense associated with higher and bulletin airport revenue, particularly digital, and the increased deployment of digital displays. Direct operating expenses in our International segment increased $51.5 million, primarily from a $50.0 million increase from movements in foreign exchange.

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

SG&A expenses increased $16.7 million during the third quarter of 2011 compared to the same period of 2010. SG&A expenses increased $6.0 million in our Americas segment, primarily as a result of increased commission expense associated with the increase in revenue. Our International SG&A expenses increased $10.7 million primarily due to increased selling and marketing expenses associated with the increase in revenue in addition to a $4.3 million increase from movements in foreign exchange.

SG&A expenses increased $40.8 million during the first nine months of 2011 compared to the same period of 2010. SG&A expenses increased $7.1 million in our Americas segment, primarily as a result of increased commission expense associated with the increase in revenue. Our International SG&A expenses increased $33.7 million primarily due to a $15.0 million increase from movements in foreign exchange, a $6.5 million increase related to the unfavorable impact of litigation and increased selling and marketing expenses associated with the increase in revenue.

Corporate Expenses

Corporate expenses decreased by $3.9 million and $3.4 million during the third quarter and first nine months of 2011, respectively, compared to the same periods of 2010, primarily due to a decrease in bonus expense due to the timing and amounts recorded under our variable compensation plans and general corporate infrastructure support services being offset by an increase in divisional corporate expenses.

Depreciation and Amortization

Depreciation and amortization increased $11.1 million and $12.0 million during the third quarter and first nine months of 2011, respectively, compared to the same period of 2010, primarily due to increases in accelerated depreciation and amortization related to the removal of various structures and loss of associated permits, including the removal of traditional billboards in connection with the continued deployment of digital billboards. In addition, movements in foreign exchange contributed increases of $2.1 million and $7.8 million for the third quarter and first nine months of 2011, respectively.

Other Operating Income (Expense) - Net

Other operating income of $9.1 million in the first nine months of 2011 primarily related to proceeds received from condemnations of bulletins.

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 operations to our joint venture partner, and a $3.7 million loss on the sale of our outdoor advertising business in India.

Income Tax 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 as if we file separate consolidated federal income tax returns with our subsidiaries.

Our effective tax rate for the third quarter and first nine months of 2011 was 52.9% and 24.7%, respectively. Our effective tax rate for the three months ended September 30, 2011 was primarily impacted by increases in tax expense attributable to an increase in unrecognized tax benefits, and our inability to record the benefit of losses in certain foreign jurisdictions. Our effective tax rate for the nine months ended September 30, 2011 was primarily impacted by the settlement of U.S. Federal and state tax examinations during the period. Pursuant to the settlements, we recorded a reduction to income tax expense of approximately $3.5 million to reflect the net tax benefits of the settlements. In addition, the effective tax rate for the nine months ended September 30, 2011 was impacted by our ability to benefit from certain tax loss carryforwards in foreign jurisdictions due to increased taxable income during 2011, where the losses previously

 

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did not provide a benefit. The effects of these items were partially offset by the items mentioned above related to the three months ended September 30, 2011.

Our effective tax rate for the third quarter and first nine months of 2010 was (144.3%) and (9.7%), 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.

Americas Results of Operations

Our Americas operating results were as follows:

 

(In thousands)   Three Months Ended
September 30,
    %
Change
      Nine Months Ended
September 30,
    %
Change
    2011     2010         2011     2010    

Revenue

   $     347,344          $     333,269          4%     $ 977,433        $     928,015        5%

Direct operating expenses

    152,631            143,940          6%       445,615          427,546        4%

SG&A expenses

    57,780            51,750          12%       167,379          160,302        4%

Depreciation and amortization

    62,809            53,139          18%       166,859          158,319        5%
 

 

 

   

 

 

       

 

 

   

 

 

   

Operating income

   $ 74,124          $ 84,440              $     197,580        $ 181,848       
 

 

 

   

 

 

       

 

 

   

 

 

   

Three Months

Our Americas revenue increased $14.1 million during the third quarter of 2011 compared to the same period of 2010, driven by revenue increases across our bulletin, airport, poster and shelter displays, and particularly digital displays. Bulletin revenues increased due to digital growth driven by the increased number of digital displays, in addition to increased rates. Airport, poster and shelter revenues increased primarily on higher average rates.

Direct operating expenses increased $8.7 million, primarily due to increased site lease expense associated with higher airport and bulletin revenue, particularly digital, and the increased deployment of digital displays. SG&A expenses increased $6.0 million, primarily as a result of increased commission expense associated with the increase in revenue.

Depreciation and amortization increased $9.7 million, primarily due to increases in accelerated amortization and depreciation related to the removal of various structures and loss of associated permits, including the removal of traditional billboards in connection with the continued deployment of digital billboards.

Nine Months

Our Americas revenue increased $49.4 million during the first nine months of 2011 compared to the same period of 2010, driven by revenue increases across our bulletin, airport and shelter displays, and particularly digital displays. Bulletin revenues increased primarily due to digital growth driven by the increased number of digital displays, in addition to increased rates. Airport and shelter revenues increased on higher average rates.

Direct operating expenses increased $18.1 million, primarily due to increased site lease expense associated with higher airport and bulletin revenue, particularly digital, and the increased deployment of digital displays. We also experienced an increase in expenses related to structure maintenance and electricity for new digital bulletins as well as existing displays. SG&A expenses increased $7.1 million, primarily as a result of increased commission expense associated with the increase in revenue.

Depreciation and amortization increased $8.5 million, primarily due to increases in accelerated depreciation related to the removal of various structures, including the removal of traditional billboards in connection with the continued deployment of digital billboards.

 

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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
    2011     2010         2011     2010    

Revenue

   $     401,106         $     361,817         11%     $  1,210,439        $  1,077,246        12%

Direct operating expenses

    255,501           236,679         8%       769,369          717,843        7%

SG&A expenses

    74,135           63,474         17%       230,653          196,971        17%

Depreciation and amortization

    52,125           50,694         3%       156,005          152,522        2%
 

 

 

   

 

 

       

 

 

   

 

 

   

Operating income

   $ 19,345         $ 10,970             $ 54,412        $ 9,910       
 

 

 

   

 

 

       

 

 

   

 

 

   

Three Months

International revenue increased $39.3 million during the third quarter of 2011 compared to the same period of 2010, primarily as a result of increased street furniture revenue across most of our markets, particularly China, attributable to improved yields and additional displays. Billboard and street furniture revenues increased in France, primarily due to increased national and local sales, while Switzerland billboard revenues increased primarily due to improved rates. In addition, foreign exchange movements resulted in a $22.6 million increase in revenue.

Direct operating expenses increased $18.8 million, primarily attributable to a $14.9 million increase from movements in foreign exchange and increased site lease expense associated with the increase in revenue. SG&A expenses increased $10.7 million primarily due to increased selling and marketing expenses associated with the increase in revenue and a $4.3 million increase from movements in foreign exchange.

Nine Months

International revenue increased $133.2 million during the first nine months of 2011 compared to the first nine months of 2010, partially as a result of increased street furniture revenue across most of our markets. Improved yields and additional displays contributed to the revenue increase in China while a new contract drove the revenue increase in Sweden. Foreign exchange movements resulted in a $76.9 million increase in revenue.

Direct operating expenses increased $51.5 million, attributable to a $50.0 million increase from movements in foreign exchange. In addition, a $7.2 million increase in site lease expense associated with the increase in revenue was partially offset by a decline in restructuring expenses. SG&A expenses increased $33.7 million primarily due to a $15.0 million increase from movements in foreign exchange, a $6.5 million increase related to the unfavorable impact of litigation and higher selling expenses associated with the increase in revenue.

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

 

(In thousands)   Three Months Ended
September  30,
        Nine Months Ended
September 30,
 
    2011     2010         2011     2010  

Americas

    $     74,124           $ 84,440               $ 197,580           $   181,848      

International

    19,345           10,970               54,412           9,910      

Corporate expenses

    (22,303)          (26,197)              (67,324)          (70,726)     

Other operating income (expense) – net

    37           (27,672)              9,139