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EX-10.10 - EMPLOYMENT SEPARATION AGREEMENT - HERBERT W. HILL - iHeartCommunications, Inc.dex1010.htm
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, 2009

 

¨ 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

1-9645

 

 

CLEAR CHANNEL COMMUNICATIONS, INC.

(Exact name of registrant as specified in its charter)

 

 

 

Texas   74-1787539

(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) 822-2828

(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 (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ¨    No  ¨

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

Large accelerated filer  ¨    Accelerated filer  ¨    Non-accelerated filer  x    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 November 9, 2009

Common Stock, $.001 par value

   500,000,000

 

 

 


Table of Contents

CLEAR CHANNEL COMMUNICATIONS, INC. AND SUBSIDIARIES

INDEX

 

     Page No.

Part I — Financial Information

  

Item  1. Unaudited Financial Statements of Clear Channel Capital I, LLC (parent company of and guarantor of debt of Clear Channel Communications, Inc.)

   3

Consolidated Balance Sheets at September 30, 2009 and December 31, 2008

   3

Consolidated Statements of Operations for the three and nine months ended September  30, 2009, the post-merger period from July 31 through September 30, 2008, the pre-merger period from July 1 through July 30, 2008, and the pre-merger period from January 1 through July 30, 2008

   5

Condensed Consolidated Statements of Cash Flows for the nine months ended September  30, 2009, the post-merger period from July 31 through September 30, 2008 and the pre-merger period from January 1 through July 30, 2008

   7

Notes to Consolidated Financial Statements

   8

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

   42

Item 3. Quantitative and Qualitative Disclosures about Market Risk

   69

Item 4T. Controls and Procedures

   69

Part II — Other Information

  

Item 1. Legal Proceedings

   70

Item 1A. Risk Factors

   70

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

   70

Item 3. Defaults Upon Senior Securities

   70

Item 4. Submission of Matters to a Vote of Security Holders

   70

Item 5. Other Information

   70

Item 6. Exhibits

   71

Signatures

   76

 

- 2 -


Table of Contents

PART I

Item 1. UNAUDITED FINANCIAL STATEMENTS OF CLEAR CHANNEL CAPITAL I, LLC

CLEAR CHANNEL CAPITAL I, LLC

CONSOLIDATED BALANCE SHEETS

ASSETS

(In thousands)

 

     September 30,
2009
(Unaudited)
   December 31,
2008

(As adjusted)*
CURRENT ASSETS      

Cash and cash equivalents

   $ 1,374,770    $ 239,846

Accounts receivable, net of allowance of $81,107 in 2009 and $97,364 in 2008

     1,312,295      1,431,304

Prepaid expenses

     96,253      133,217

Other current assets

     282,104      262,188
             

Total Current Assets

     3,065,422      2,066,555
PROPERTY, PLANT AND EQUIPMENT      

Land, buildings and improvements

     632,352      614,811

Structures

     2,498,666      2,355,776

Towers, transmitters and studio equipment

     375,272      353,108

Furniture and other equipment

     236,221      242,287

Construction in progress

     98,948      128,739
             
     3,841,459      3,694,721

Less accumulated depreciation

     429,389      146,562
             
     3,412,070      3,548,159
INTANGIBLE ASSETS      

Definite-lived intangibles, net

     2,704,087      2,881,720

Indefinite-lived intangibles – licenses

     2,429,764      3,019,803

Indefinite-lived intangibles – permits

     1,137,201      1,529,068

Goodwill

     4,176,813      7,090,621
OTHER ASSETS      

Notes receivable

     11,686      11,633

Investments in, and advances to, nonconsolidated affiliates

     346,275      384,137

Other assets

     371,918      560,260

Other investments

     40,840      33,507
             

Total Assets

   $ 17,696,076    $ 21,125,463
             

 

* As adjusted for the adoption of ASC 810-10-45, which requires minority interests to be recharacterized as noncontrolling interests and classified as a component of equity in the consolidated balance sheets.

See Notes to Consolidated Financial Statements

 

- 3 -


Table of Contents

CLEAR CHANNEL CAPITAL I, LLC

CONSOLIDATED BALANCE SHEETS

LIABILITIES AND MEMBER’S DEFICIT

(In thousands)

 

     September 30,
2009
(Unaudited)
    December 31,
2008

(As adjusted)*
 
CURRENT LIABILITIES     

Accounts payable

   $ 105,986      $ 155,240   

Accrued expenses

     733,737        793,366   

Accrued interest

     79,529        181,264   

Accrued income taxes

     10,037          

Current portion of long-term debt

     443,615        562,923   

Deferred income

     184,559        153,153   
                

Total Current Liabilities

     1,557,463        1,845,946   

Long-term debt

     19,820,158        18,940,697   

Deferred tax liability

     2,520,389        2,679,312   

Other long-term liabilities

     818,626        575,739   

Commitments and contingent liabilities (Note 5)

    
MEMBER’S DEFICIT     

Noncontrolling interest

     447,356        426,220   

Member’s interest

     2,110,086        2,101,076   

Retained deficit

     (9,223,474     (5,041,998

Accumulated other comprehensive loss

     (354,528     (401,529
                

Total Member’s Deficit

     (7,020,560     (2,916,231
    
                

Total Liabilities and Member’s Deficit

   $ 17,696,076      $ 21,125,463   
                

 

* As adjusted for the adoption of ASC 810-10-45, which requires minority interests to be recharacterized as noncontrolling interests and classified as a component of equity in the consolidated balance sheets.

See Notes to Consolidated Financial Statements

 

- 4 -


Table of Contents

CLEAR CHANNEL CAPITAL I, LLC

CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

(In thousands, except per share data)

 

     Three Months
Ended
September 30,
2009
    Period from July 31
through
September 30,
2008
    Period from July 1
through July 30,
2008
 
     Post-Merger     Post-Merger
(As adjusted)*
    Pre-Merger
(As adjusted)*
 

Revenue

   $ 1,393,973      $ 1,128,136      $ 556,457   

Operating expenses:

      

Direct operating expenses (excludes depreciation and amortization)

     632,778        473,738        256,667   

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

     337,055        291,469        150,344   

Depreciation and amortization

     190,189        108,140        54,323   

Corporate expenses (excludes depreciation and amortization)

     79,723        33,395        31,392   

Merger expenses

                   79,839   

Other operating income (expense) - net

     1,403        842        (4,624
                        

Operating income (loss)

     155,631        222,236        (20,732

Interest expense

     369,314        281,479        31,032   

Loss on marketable securities

     (13,378              

Equity in earnings of nonconsolidated affiliates

     1,226        2,097        2,180   

Other income (expense) – net

     222,282        (10,914     (10,813
                        

Income (loss) before income taxes and discontinued operations

     (3,553     (68,060     (60,397

Income tax benefit (expense):

      

Current

     (12,735     38,217        97,600   

Deferred

     (76,383     (5,008     (78,465
                        

Income tax benefit (expense)

     (89,118     33,209        19,135   
                        

Income (loss) before discontinued operations

     (92,671     (34,851     (41,262

Income (loss) from discontinued operations, net

            (1,013     (3,058
                        

Consolidated net income (loss)

     (92,671     (35,864     (44,320
                        

Amount attributable to noncontrolling interest

     (2,816     8,868        1,135   
                        

Net income (loss) attributable to the Company

   $ (89,855   $ (44,732   $ (45,455
                        

Other comprehensive income (loss), net of tax:

      

Foreign currency translation adjustments

     70,166        (178,594     13,112   

Unrealized gain (loss) on securities and derivatives:

      

Unrealized holding loss on marketable securities

     (9,705     (19,634     (29,742

Unrealized holding loss on cash flow derivatives

     (17,243              

Reclassification adjustment

     11,837               (4,931
                        

Comprehensive income (loss)

     (34,800     (242,960     (67,016
                        

Amount attributable to noncontrolling interest

     9,192        (22,551     (2,371
                        

Comprehensive income (loss) attributable to the Company

   $ (43,992   $ (220,409     (64,645
                        

Net income (loss) per common share:

      

Income (loss) attributable to the Company before discontinued operations – Basic

       $ (.09

Discontinued operations – Basic

           
            

Net income (loss) attributable to the Company – Basic

       $ (.09
            

Weighted average common shares – Basic

         495,465   

Income (loss) attributable to the Company before discontinued operations – Diluted

       $ (.09

Discontinued operations – Diluted

           
            

Net income (loss) attributable to the Company – Diluted

       $ (.09
            

Weighted average common shares – Diluted

         495,465   

Dividends declared per share

       $   

 

* As adjusted for the adoption of ASC 810-10-45, which provides that net income or loss of an entity includes amounts attributable to the noncontrolling interest.

See Notes to Consolidated Financial Statements

 

- 5 -


Table of Contents

CLEAR CHANNEL CAPITAL I, LLC

CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

(In thousands, except per share data)

 

     Nine Months
Ended
September 30,
2009
    Period from July 31
through
September 30,
2008
    Period from
January 1
through July 30,
2008
 
     Post-Merger     Post-Merger
(As adjusted)*
    Pre-Merger
(As adjusted)*
 

Revenue

   $ 4,039,825      $ 1,128,136      $ 3,951,742   

Operating expenses:

      

Direct operating expenses (excludes depreciation and amortization)

     1,888,203        473,738        1,706,099   

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

     1,075,149        291,469        1,022,459   

Depreciation and amortization

     573,994        108,140        348,789   

Corporate expenses (excludes depreciation and amortization)

     177,445        33,395        125,669   

Merger expenses

                   87,684   

Impairment charges

     4,041,252                 

Other operating income (expense) - net

     (33,007     842        14,827   
                        

Operating income (loss)

     (3,749,225     222,236        675,869   

Interest expense

     1,140,992        281,479        213,210   

Gain (loss) on marketable securities

     (13,378            34,262   

Equity in earnings (loss) of nonconsolidated affiliates

     (20,681     2,097        94,215   

Other income (expense) – net

     649,731        (10,914     (5,112
                        

Income (loss) before income taxes and discontinued operations

     (4,274,545     (68,060     586,024   

Income tax benefit (expense):

      

Current

     (42,766     38,217        (27,280

Deferred

     118,608        (5,008     (145,303
                        

Income tax benefit (expense)

     75,842        33,209        (172,583
                        

Income (loss) before discontinued operations

     (4,198,703     (34,851     413,441   

Income (loss) from discontinued operations, net

            (1,013     640,236   
                        

Consolidated net income (loss)

     (4,198,703     (35,864     1,053,677   
                        

Amount attributable to noncontrolling interest

     (17,227     8,868        17,152   
                        

Net income (loss) attributable to the Company

   $ (4,181,476   $ (44,732   $ 1,036,525   
                        

Other comprehensive income (loss), net of tax:

      

Foreign currency translation adjustments

     155,881        (178,594     72,676   

Unrealized gain (loss) on securities and derivatives:

      

Unrealized holding loss on marketable securities

     (11,315     (19,634     (77,320

Unrealized holding loss on cash flow derivatives

     (92,993              

Reclassification adjustment

     14,957               (30,928
                        

Comprehensive income (loss)

     (4,114,946     (242,960     1,000,953   
                        

Amount attributable to noncontrolling interest

     19,529        (22,551     19,210   
                        

Comprehensive income (loss) attributable to the Company

   $ (4,134,475   $ (220,409     981,743   
                        

Net income (loss) per common share:

      

Income (loss) attributable to the Company before discontinued operations – Basic

       $ .80   

Discontinued operations – Basic

         1.29   
            

Net income (loss) attributable to the Company – Basic

       $ 2.09   
            

Weighted average common shares – Basic

         495,044   

Income (loss) attributable to the Company before discontinued operations – Diluted

       $ .80   

Discontinued operations – Diluted

         1.29   
            

Net income (loss) attributable to the Company – Diluted

       $ 2.09   
            

Weighted average common shares – Diluted

         496,519   

Dividends declared per share

       $   

 

* As adjusted for the adoption of ASC 810-10-45, which provides that net income or loss of an entity includes amounts attributable to the noncontrolling interest.

See Notes to Consolidated Financial Statements

 

- 6 -


Table of Contents

CLEAR CHANNEL CAPITAL I, LLC

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

(In thousands)

 

     Nine Months
Ended
September 30,
2009
    Period from July 31
through
September 30,
2008
    Period from
January 1
through
July 30,

2008
 
     Post-Merger     Post-Merger
(As adjusted)*
    Pre-Merger
(As
adjusted)*
 

Cash flows from operating activities:

      

Consolidated net income (loss)

   $ (4,198,703   $ (35,864   $ 1,053,677   

(Income) loss from discontinued operations, net

            1,013        (640,236
                        
     (4,198,703     (34,851     413,441   

Reconciling items:

      

Impairment charges

     4,041,252                 

Depreciation and amortization

     573,994        108,140        348,789   

Deferred taxes

     (118,608     5,008        145,303   

(Gain) loss on sale of operating and fixed assets

     33,007        (842     (14,827

(Gain) loss on available-for-sale and trading securities

     13,378               (36,758

Loss on forward exchange contract

                   2,496   

(Gain) loss on extinguishment of debt

     (669,333     16,229        13,484   

Provision for doubtful accounts

     20,774        8,902        23,216   

Share-based compensation

     28,522        6,539        62,723   

Equity in loss (earnings) of nonconsolidated affiliates

     20,681        (2,097     (94,215

Amortization of deferred financing charges, bond premiums and accretion of note discounts, net

     176,901        41,144        3,530   

Other reconciling items - net

     31,654        316        9,133   

Changes in other operating assets and liabilities, net

     56,583        (103,197     158,943   
                        

Net cash provided by operating activities

     10,102        45,291        1,035,258   

Cash flows from investing activities:

      

Change in notes receivable – net

     474        140        336   

Change in investments in and advances to nonconsolidated affiliates

     (4,354     6,349        25,098   

Cross currency settlement of interest

                   (198,615

Sales (purchases) of investments - net

     41,436        (26     173,369   

Purchases of property, plant and equipment

     (150,799     (48,937     (240,202

Proceeds from disposal of assets

     40,856        1,767        72,806   

Acquisition of operating assets, net of cash acquired

     (7,294     (20,247     (153,836

Change in other - net

     12,662        (16,989     (95,207

Cash used to purchase equity

            (17,430,258       
                        

Net cash used in investing activities

     (67,019     (17,508,201     (416,251

Cash flows from financing activities:

      

Draws on credit facilities

     1,661,508        488,000        692,614   

Payments on credit facilities

     (174,661     (82,221     (872,901

Proceeds from long-term debt

     500,000        456        5,476   

Payments on long-term debt

     (468,696     (366,713     (1,282,348

Repurchases of long-term debt

     (300,937     —          —     

Debt proceeds used to finance the merger

     —          15,377,919        —     

Payments on forward exchange contract

     —          —          (110,410

Payments for purchase of common shares

     (220     (1     (3,781

Payments for purchase of noncontrolling interest

     (25,153     —          —     

Equity contribution used to finance the merger

     —          2,142,831        —     

Proceeds from exercise of stock options and other

     —          —          17,776   

Dividends paid

     —          —          (93,367
                        

Net cash provided by (used in) financing activities

     1,191,841        17,560,271        (1,646,941

Cash flows from discontinued operations:

      

Net cash used in operating activities

     —          (1,967     (67,751

Net cash provided by investing activities

     —          —          1,098,892   

Net cash provided by financing activities

     —          —          —     
                        

Net cash provided by (used in) discontinued operations

     —          (1,967     1,031,141   

Net increase in cash and cash equivalents

     1,134,924        95,394        3,207   

Cash and cash equivalents at beginning of period

     239,846        148,355        145,148   
                        

Cash and cash equivalents at end of period

   $ 1,374,770      $ 243,749        148,355   
                        

 

* As adjusted for the adoption of ASC 810-10-45, which provides that net income or loss of an entity includes amounts attributable to the noncontrolling interest.

See Notes to Consolidated Financial Statements

 

- 7 -


Table of Contents

CLEAR CHANNEL CAPITAL I, LLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Note 1: BASIS OF PRESENTATION AND NEW ACCOUNTING STANDARDS

Preparation of Interim Financial Statements

As permitted by the rules and regulations of the Securities and Exchange Commission (the “SEC”), the unaudited financial statements and related footnotes included in Item 1 of Part I of this Quarterly Report on Form 10-Q are those of Clear Channel Capital I, LLC (the “Company” or the “Parent Company”), the direct parent of Clear Channel Communications, Inc., a Texas corporation (“Clear Channel” or the “Subsidiary Issuer”), and contain certain footnote disclosures regarding the financial information of Clear Channel and Clear Channel’s domestic wholly-owned subsidiaries that guarantee certain of Clear Channel’s outstanding indebtedness.

The consolidated financial statements were prepared by the Company pursuant to the rules and regulations of the SEC and, in the opinion of management, include all adjustments (consisting of normal recurring accruals and adjustments necessary for adoption of new accounting standards) necessary to present fairly the results of the interim periods shown. Certain information and footnote disclosures normally included in financial statements prepared in accordance with 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 consolidated financial statements include the accounts of the Company and its subsidiaries. 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.

Information Regarding the Company

The Company is a limited liability company organized under Delaware law, with all of its interests being held by Clear Channel Capital II, LLC, a direct, wholly-owned subsidiary of CC Media Holdings, Inc. (“CCMH”). CCMH was formed in May 2007 by private equity funds sponsored by Bain Capital Partners, LLC and Thomas H. Lee Partners, L.P. (together, the “Sponsors”) for the purpose of acquiring the business of Clear Channel. The acquisition (the “acquisition” or the “merger”) was consummated on July 30, 2008 pursuant to the Agreement and Plan of Merger, dated November 16, 2006, as amended on April 18, 2007, May 17, 2007 and May 13, 2008 (the “Merger Agreement”).

Clear Channel is a wholly-owned subsidiary of the Company. Upon the consummation of the merger, CCMH became a public company and Clear Channel ceased to be a public company. Prior to the acquisition, the Company had not conducted any activities, other than activities incident to its formation and in connection with the acquisition, and did not have any assets or liabilities, other than as related to the acquisition. Subsequent to the acquisition, Clear Channel became a direct, wholly-owned subsidiary of the Company and the business of the Company became that of Clear Channel and its subsidiaries. As a result, all of the operations of the Company are conducted by Clear Channel.

CCMH accounted for its acquisition of Clear Channel as a purchase business combination in conformity with Statement of Financial Accounting Standards No. 141, Business Combinations, and Emerging Issues Task Force Issue 88-16, Basis in Leveraged Buyout Transactions. CCMH allocated a portion of the consideration paid to the assets and liabilities acquired at their respective fair values with the remaining portion recorded at the continuing shareholders’ basis. Excess consideration after this allocation was recorded as goodwill. The purchase price allocation was complete as of July 30, 2009 in accordance with ASC 805-10-25, which requires that the allocation period not exceed one year from the date of acquisition.

The accompanying consolidated statements of operations and statements of cash flows are presented for two periods: post-merger and pre-merger. The merger resulted in a new basis of accounting beginning on July 31, 2008 and the financial reporting periods are presented as follows:

 

   

The three and nine month periods ended September 30, 2009 and the period from July 31 through September 30, 2008 reflect the post-merger period of the Company, including the merger of a wholly-owned subsidiary of CCMH with and into Clear Channel. Subsequent to the acquisition, Clear Channel became a direct, wholly-owned subsidiary of the Company and the business of the Company became that of Clear Channel and its subsidiaries. All references to the Company are for the post-merger period.

 

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The periods from January 1 through July 30, 2008 and July 1 through July 30, 2008 reflect the pre-merger period of Clear Channel. Prior to the acquisition of Clear Channel, the Company had not conducted any activities, other than activities incident to its formation and in connection with the acquisition, and did not have any assets or liabilities, other than as related to the acquisition. The consolidated financial statements for all pre-merger periods were prepared using the historical basis of accounting for Clear Channel. As a result of the merger and the associated purchase accounting, the consolidated financial statements of the post-merger periods are not comparable to periods preceding the merger. All references to Clear Channel, other than those references present in Footnotes 3, 7 and 8, are for the pre-merger period.

The opening balance sheet reflected the preliminary allocation of purchase price, based on available information and certain assumptions management believed were reasonable. During the first seven months of 2009, CCMH decreased the initial fair value estimate of its permits, contracts, site leases and other assets and liabilities primarily in its Americas outdoor segment by $116.1 million based on additional information received, which resulted in an increase to goodwill of $71.7 million and a decrease to deferred taxes of $44.4 million. During the third quarter of 2009, CCMH recorded a $45.0 million increase to goodwill in its International outdoor segment related to the fair value of certain minority interests recorded pursuant to ASC 480-10-S99, which distinguishes liabilities from equity, and which had no related tax effect. In addition, during the third quarter of 2009, CCMH adjusted deferred taxes by $44.3 million to true-up its tax rates in certain jurisdictions that were estimated in the initial purchase price allocation.

The following unaudited supplemental pro forma information reflects the consolidated results of operations of the Company as if the merger had occurred on January 1, 2008. The historical financial information was adjusted to give effect to items that are (i) directly attributed to the merger, (ii) factually supportable, and (iii) expected to have a continuing impact on the consolidated results. Such items include depreciation and amortization expense associated with the valuations of property, plant and equipment and definite-lived intangible assets, corporate expenses associated with equity-based awards granted to certain members of management, expenses associated with the accelerated vesting of employee equity-based awards upon the closing of the merger, interest expense related to debt issued in conjunction with the merger and the fair value adjustment to Clear Channel’s existing debt and the related tax effects of these items. This unaudited pro forma information should not be relied upon as necessarily being indicative of the historical results that would have been obtained if the merger had actually occurred on that date, nor of the results that may be obtained in the future.

 

(In thousands)    Period from January 1
through July 30,

2008
    Period from July 1
through July 30,
2008
 
     Pre-Merger     Pre-Merger  

Revenue

   $ 3,951,742      $ 556,457   

Income (loss) before discontinued operations

   $ (64,952   $ (46,166

Net income (loss) attributable to the Company

   $ 575,284      $ (49,224

Liquidity

The Company’s primary source of liquidity is cash flow from operations, which has been adversely affected by the global economic downturn. The risks associated with the Company’s businesses become more acute in periods of a slowing economy or recession, which may be accompanied by a decrease in advertising. Expenditures by advertisers tend to be cyclical, reflecting overall economic conditions and budgeting and buying patterns. The global economic downturn has resulted in a decline in advertising and marketing services among the Company’s customers, resulting in a decline in advertising revenues across the Company’s businesses. This reduction in advertising revenues has had an adverse effect on the Company’s revenue, profit margins, cash flow and liquidity. The continuation of the global economic downturn may continue to adversely impact the Company’s revenue, profit margins, cash flow and liquidity.

In January 2009, CCMH announced that it commenced a restructuring program targeting a reduction of fixed costs. The Company recognized approximately $23.1 million and $113.3 million of expenses related to CCMH’s restructuring program during the three and nine months ended September 30, 2009, respectively.

Based on the Company’s current and anticipated levels of operations and conditions in its markets, the Company believes that cash flow from operations as well as cash on hand (including amounts drawn or available under Clear Channel’s senior secured credit facilities) will enable the Company to meet its working capital, capital expenditure, debt service and other funding requirements for at least the next 12 months.

 

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The Company expects to be in compliance with the covenants under Clear Channel’s senior secured credit facilities in 2009. However, the Company’s anticipated results are subject to significant uncertainty and there can be no assurance that actual results will be in compliance with the covenants. In addition, the Company’s ability to comply with the covenants in Clear Channel’s financing agreements may be affected by events beyond its control, including prevailing economic, financial and industry conditions. The breach of any covenants set forth in the financing agreements would result in a default thereunder. An event of default would permit the lenders under a defaulted financing agreement to declare all indebtedness thereunder to be due and payable prior to maturity. Moreover, the lenders under Clear Channel’s revolving credit facility under the senior secured credit facilities would have the option to terminate their commitments to make further extensions of revolving credit thereunder. If the Company is unable to repay Clear Channel’s obligations under any senior secured credit facilities or the receivables based credit facility, the lenders under such senior secured credit facilities or receivables based credit facility could proceed against any assets that were pledged to secure such senior secured credit facilities or receivables based credit facility. In addition, a default or acceleration under any of Clear Channel’s financing agreements could cause a default under other obligations that are subject to cross-default and cross-acceleration provisions.

CCMH’s and Clear Channel’s corporate credit and issue-level ratings were downgraded on June 8, 2009 by Standard & Poor’s Ratings Services. CCMH’s and Clear Channel’s corporate credit ratings were lowered from “B-” to “CCC”, where they currently remain. The downgrade had no impact on Clear Channel’s borrowing costs under the credit agreements.

CCMH Purchase Accounting Adjustments

Purchase accounting adjustments, including goodwill, are reflected in the financial statements of the Company and its subsidiaries.

Omission of Per Share Information for the Post-Merger Period

Net loss per share information is not presented for post-merger periods as such information is not meaningful. During the post-merger period, Clear Channel Capital II, LLC is the sole member of the Company and owns 100% of the limited liability company interests of the Company.

Impairment Charges

The Company performed an interim impairment test as of June 30, 2009 on its indefinite-lived assets, including Federal Communications Commission (“FCC”) licenses and billboard permits. The industry cash flow forecasts during the first six months of 2009 were below the forecasts used in the discounted cash flow models used to calculate the impairments at December 31, 2008. The estimated fair value of the Company’s FCC licenses and permits was below their carrying values, which resulted in a non-cash impairment charge of $935.6 million. See Note 2 for further discussion.

The Company also performed an interim goodwill impairment test as of June 30, 2009. The revenue forecasts for 2009 declined 8%, 7% and 9% for Radio, Americas outdoor and International outdoor, respectively, compared to the forecasts used in the 2008 impairment test primarily as a result of the revenues realized during the first six months of 2009. As a result, the estimated fair values of the Company’s reporting units were below their carrying values, which required the Company to compare the implied fair value of each reporting unit’s goodwill with its carrying value. As a result, the Company recognized a non-cash impairment charge of $3.1 billion to reduce goodwill. See Note 2 for further discussion.

Additionally, the Company impaired certain contracts in its Americas outdoor and International outdoor segments by $38.8 million. See Note 2 for further discussion.

 

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Summarized Operating Results of Discontinued Operations

During 2008, Clear Channel completed the sale of its television business and certain radio stations. Summarized operating results of these businesses reported in discontinued operations are as follows:

 

(In thousands)    Period from
July 31 through
September 30,
2008
   Period from
July 1 through
July 30,

2008
   Period from
January 1
through July 30,

2008
     Post-Merger    Pre-Merger    Pre-Merger

Revenue

   $ 251    $ 929    $ 74,783

Income before income taxes

   $ 16    $ 2,697    $ 702,698

Included in income from discontinued operations, net is income tax expense of $1.0 million for the period of July 31 through September 30, 2008. Included for the period from July 1 through July 30, 2008 and for the period from January 1 through July 30, 2008 is income tax expense of $5.8 million and $62.4 million, respectively. Also included in income from discontinued operations for the period from January 1 through July 30, 2008 is a gain of $695.8 million related to the sale of Clear Channel’s television business and certain radio stations.

Share-Based Compensation Cost

The Company does not have any equity incentive plans. Employees of subsidiaries of the Company receive equity awards from CCMH’s equity incentive plans. Prior to the merger, Clear Channel granted stock awards to its employees under its equity incentive plans. The following provides information related to CCMH’s and Clear Channel’s equity incentive plans.

The share-based compensation cost is measured at the grant date based on the fair value of the award and is recognized as expense on a straight-line basis over the vesting period. The following table presents the amount of share-based compensation recorded during the three and nine months ended September 30, 2009 and 2008:

 

(In thousands)    Three Months
Ended
September 30,
2009

Post-Merger
   Period from
July 31
through
September 30,
2008

Post-Merger
   Period from
July 1 through
July 30, 2008
Pre-Merger
   Nine Months
Ended
September 30,
2009

Post-Merger
   Period from
January 1 through
July 30, 2008
Pre-Merger

Direct Expense

   $ 2,631    $ 2,003    $ 12,975    $ 8,509    $ 21,162

Selling, General & Administrative Expense

     1,750      912      14,705      5,474      21,213

Corporate Expense

     4,835      3,624      14,661      14,539      20,348
                                  

Total Share-Based Compensation Expense

   $ 9,216    $ 6,539    $ 42,341    $ 28,522    $ 62,723
                                  

As of September 30, 2009, there was $107.4 million of unrecognized compensation cost, net of estimated forfeitures, related to unvested share-based compensation arrangements that will vest based on service conditions. This cost is expected to be recognized over three years. In addition, as of September 30, 2009, there was $80.2 million of unrecognized compensation cost, net of estimated forfeitures, related to unvested share-based compensation arrangements that will vest based on market, performance and service conditions. This cost will be recognized when it becomes probable that the performance condition will be satisfied.

New Accounting Pronouncements

In August 2009, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Codification (“ASC”) Update No. 2009-05, Measuring Liabilities at Fair Value. The update is to ASC Subtopic 820-10, Fair Value Measurements and Disclosures-Overall, for the fair value measurement of liabilities. The purpose of this update is to reduce ambiguity in financial reporting when measuring the fair value of liabilities. The guidance provided in this update is effective for the first reporting period beginning after the date of issuance. The Company will adopt the amendment on October 1, 2009 and does not anticipate the adoption to have a material impact on its financial position or results of operations.

Statement of Financial Accounting Standards No. 168, The FASB Accounting Standards CodificationTM and the Hierarchy of Generally Accepted Accounting Principles, codified in ASC 105-10, was issued in June 2009. ASC 105-10 identifies the sources of accounting principles and the framework for selecting the principles used in the preparation of financial statements of nongovernmental entities that are presented in conformity with GAAP in the United States. ASC 105-10 establishes the ASC as the source of authoritative GAAP recognized by the FASB to be applied by nongovernmental entities. Following this statement, the FASB will issue new standards in the form of Accounting Standards Updates (“ASUs”). ASC 105-10 is effective for financial statements issued for interim and annual periods ending after September 15, 2009. The Company adopted the provisions of ASC 105-10 on July 1, 2009.

 

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Statement of Financial Accounting Standards No. 167, Amendments to FASB Interpretation No. 46(R) (“Statement No. 167”), which is not yet codified, was issued in June 2009. Statement No. 167 shall be effective as of the beginning of each reporting entity’s first annual reporting period that begins after November 15, 2009, for interim periods within that first annual reporting period, and for interim and annual reporting periods thereafter. Earlier application is prohibited. Statement No. 167 amends Financial Accounting Standards Board Interpretation No. 46(R), Consolidation of Variable Interest Entities, codified in ASC 810-10-25, to replace the quantitative-based risks and rewards calculation for determining which enterprise, if any, has a controlling financial interest in a variable interest entity with an approach focused on identifying which enterprise has the power to direct the activities of a variable interest entity that most significantly impact the entity’s economic performance and (1) the obligation to absorb losses of the entity or (2) the right to receive benefits from the entity. An approach that is expected to be primarily qualitative will be more effective for identifying which enterprise has a controlling financial interest in a variable interest entity. Statement No. 167 requires an additional reconsideration event when determining whether an entity is a variable interest entity when any changes in facts and circumstances occur such that the holders of the equity investment at risk, as a group, lose the power from voting rights or similar rights of those investments to direct the activities of the entity that most significantly impact the entity’s economic performance. It also requires ongoing assessments of whether an enterprise is the primary beneficiary of a variable interest entity. These requirements will provide more relevant and timely information to users of financial statements. Statement No. 167 amends ASC 810-10-25 to require additional disclosures about an enterprise’s involvement in variable interest entities, which will enhance the information provided to users of financial statements. The Company will adopt Statement No. 167 on January 1, 2010 and is currently evaluating the impact of adoption.

Statement of Financial Accounting Standards No. 165, Subsequent Events, codified in ASC 855-10, was issued in May 2009. The provisions of ASC 855-10 are effective for interim and annual periods ending after June 15, 2009 and are intended to establish general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. ASC 855-10 requires the disclosure of the date through which an entity has evaluated subsequent events and the basis for that date—that is, whether that date represents the date the financial statements were issued or were available to be issued. This disclosure should alert all users of financial statements that an entity has not evaluated subsequent events after that date in the set of financial statements being presented. In accordance with the provisions of ASC 855-10, the Company currently evaluates subsequent events through the date the financial statements are issued.

Financial Accounting Standards Board Staff Position Emerging Issues Task Force 03-6-1, Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities, codified in ASC 260-10-45, was issued in June 2008. ASC 260-10-45 clarifies that unvested share-based payment awards with a right to receive nonforfeitable dividends are participating securities. Guidance is also provided on how to allocate earnings to participating securities and compute basic earnings per share using the two-class method. All prior-period earnings per share data presented shall be adjusted retrospectively (including interim financial statements, summaries of earnings, and selected financial data) to conform with the provisions of ASC 260-10-45. The Company retrospectively adopted the provisions of ASC 260-10-45 on January 1, 2009. There was no impact of adopting ASC 260-10-45 to previously reported earnings per share for the periods July 31 through September 30, 2008, July 1 through July 30, 2008, and January 1 through July 30, 2008.

Statement of Financial Accounting Standards No. 160, Noncontrolling Interests in Consolidated Financial Statements - an amendment of ARB No. 51, codified in ASC 810-10-45, was issued in December 2007. ASC 810-10-45 clarifies the classification of noncontrolling interests in consolidated statements of financial position and the accounting for and reporting of transactions between the reporting entity and holders of such noncontrolling interests. Under this guidance, noncontrolling interests are considered equity and should be reported as an element of consolidated equity, net income will encompass the total income of all consolidated subsidiaries and there will be separate disclosure on the face of the income statement of the attribution of that income between the controlling and noncontrolling interests, and increases and decreases in the noncontrolling ownership interest amount will be accounted for as equity transactions. The provisions of ASC 810-10-45 are effective for the first annual reporting period beginning on or after December 15, 2008, and earlier application is prohibited. Guidance is required to be adopted prospectively, except for reclassifying noncontrolling interests to equity, separate from the parent’s equity, in the consolidated statement of financial position and recasting consolidated net income (loss) to include net income (loss) attributable to both the controlling and noncontrolling interests, both of which are required to be adopted retrospectively. The Company adopted the provisions of ASC 810-10-45 on January 1, 2009, which resulted in a reclassification of approximately $426.2 million of noncontrolling interests to member’s deficit.

 

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ASC 810-10-50-1A requires a reconciliation at the beginning and the end of the period of the carrying amount of total equity, equity attributable to the Company and equity attributable to the noncontrolling interests. The following table presents the changes in equity attributable to the Company and equity attributable to the noncontrolling interests for the nine months ended September 30, 2009 and 2008.

 

(In thousands)    The Company     Noncontrolling
Interests
    Consolidated  

Balances at January 1, 2009

   $ (3,342,451   $ 426,220      $ (2,916,231

Net loss

     (4,181,476     (17,227     (4,198,703

Foreign currency translation adjustments

     136,350        19,531        155,881   

Unrealized holding loss on marketable securities

     (10,021     (1,294     (11,315

Unrealized holding loss on cash flow derivatives

     (92,993            (92,993

Reclassification adjustment

     13,665        1,292        14,957   

Other - net

     9,010        18,834        27,844   
                        

Balances at September 30, 2009

     (7,467,916     447,356        (7,020,560
                        
(In thousands)    The Company     Noncontrolling
Interests
    Consolidated  

Balances at January 1, 2008

   $ 8,769,299      $ 464,552      $ 9,233,851   

Net income

     991,793        26,020        1,017,813   

Foreign currency translation adjustments

     (102,610     (3,308     (105,918

Unrealized holding loss on marketable securities

     (96,954            (96,954

Reclassification adjustment

     (30,895     (33     (30,928

Other - net

     65,659        3,843        69,502   

Purchase accounting

     (7,755,925            (7,755,925
                        

Balances at September 30, 2008

     1,840,367        491,074        2,331,441   
                        

Statement of Financial Accounting Standards No. 161, Disclosures about Derivative Instruments and Hedging Activities, codified in ASC 815-10-50, was issued in March 2008. ASC 815-10-50 requires additional disclosures about how and why an entity uses derivative instruments, how derivative instruments and related hedged items are accounted for and how derivative instruments and related hedged items effect an entity’s financial position, results of operations and cash flows. The Company adopted the provisions of ASC 815-10-50 on January 1, 2009. Please refer to Note 4 for disclosure required by ASC 815-10-50.

Financial Accounting Standards Board Staff Position No. FAS 157-4, Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly, codified in ASC 820-10-35, was issued in April 2009. ASC 820-10-35 provides additional guidance for estimating fair value when the volume and level of activity for the asset or liability have significantly decreased. ASC 820-10-35 also includes guidance on identifying circumstances that indicate a transaction is not orderly. This guidance is effective for interim and annual reporting periods ending after June 15, 2009, and shall be applied prospectively. Early adoption is permitted for periods ending after March 15, 2009. Earlier adoption for periods ending before March 15, 2009 is not permitted. The Company adopted the provisions of ASC 820-10-35 on April 1, 2009 with no material impact to its financial position or results of operations.

Financial Accounting Standards Board Staff Position No. FAS 115-2 and FAS 124-2, Recognition and Presentation of Other-Than-Temporary Impairments, codified in ASC 320-10, was issued in April 2009. It amends the other-than-temporary impairment guidance in U.S. GAAP for debt securities to make the guidance more operational and to improve the presentation and disclosure of other-than-temporary impairments on debt and equity securities in the financial statements. ASC 320-10 does not amend existing recognition and measurement guidance related to other-than-temporary impairments of equity securities. This guidance is effective for interim and annual reporting periods ending after June 15, 2009, with early adoption permitted for periods ending after March 15, 2009. Earlier adoption for periods ending before March 15, 2009 is not permitted. The Company adopted the provisions of ASC 320-10 on April 1, 2009 with no material impact to its financial position or results of operations.

Financial Accounting Standards Board Staff Position No. FAS 141(R)-1, Accounting for Assets Acquired and Liabilities Assumed in a Business Combination That Arise from Contingencies, codified in ASC 805-20, was issued in April 2009. ASC 805-20 addresses application issues raised by preparers, auditors, and members of the legal profession on initial recognition and measurement, subsequent measurement and accounting, and disclosure of assets and liabilities arising from contingencies in a business combination. This guidance is effective for assets or liabilities arising from contingencies in 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, 2008. The impact of ASC 805-20 on accounting for contingencies in a business combination is dependent upon the nature of future acquisitions.

Financial Accounting Standards Board Staff Position No. FAS 107-1 and APB 28-1, Interim Disclosures about Fair Value of Financial Instruments, codified in ASC 825-10, was issued in April 2009. ASC 825-10 amends prior authoritative guidance to require disclosures about fair value of financial instruments for interim reporting periods of publicly traded companies as well as in annual financial statements. The provisions of ASC 825-10 are effective for interim reporting periods ending after June 15, 2009, with early adoption permitted for periods ending after March 15, 2009. The Company adopted the disclosure requirements of ASC 825-10 on April 1, 2009.

 

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Financial Accounting Standards Board Staff Position Emerging Issues Task Force 08-6, Equity Method Investment Accounting Considerations, codified in ASC 323-10-35, was issued in November 2008. ASC 323-10-35 clarifies the accounting for certain transactions and impairment considerations involving equity method investments. This guidance is effective for fiscal years beginning on or after December 15, 2008, and interim periods within those fiscal years and shall be applied prospectively. The Company adopted the provisions of ASC 323-10-35 on January 1, 2009 with no material impact to its financial position or results of operations.

Note 2: INTANGIBLE ASSETS AND GOODWILL

Definite-lived Intangibles

The Company has definite-lived intangible assets which consist primarily of transit and street furniture contracts, permanent easements that provide the Company access to certain of its outdoor displays, and other contractual rights in its Americas and International outdoor segments. The Company has talent and program right contracts and advertiser relationships in its radio segment and contracts for non-affiliated radio and television stations in its media representation operations. Definite-lived intangible assets are amortized over the shorter of either the respective lives of the agreements or over the period of time the assets are expected to contribute directly or indirectly to the Company’s future cash flows.

The following table presents the gross carrying amount and accumulated amortization for each major class of definite-lived intangible assets at September 30, 2009 and December 31, 2008:

 

(In thousands)    September 30, 2009    December 31, 2008
     Gross Carrying
Amount
   Accumulated
Amortization
   Gross Carrying
Amount
   Accumulated
Amortization

Transit, street furniture, and other outdoor contractual rights

   $ 831,545    $ 147,414    $ 883,130    $ 49,818

Customer / advertiser relationships

     1,210,205      139,915      1,210,205      49,970

Talent contracts

     320,854      47,381      161,644      7,479

Representation contracts

     217,385      51,875      216,955      21,537

Other

     548,874      38,191      548,180      9,590
                           

Total

   $ 3,128,863    $ 424,776    $ 3,020,114    $ 138,394
                           

For the nine months ended September 30, 2009, total amortization expense from continuing operations related to definite-lived intangible assets was $257.8 million. Included in amortization expense is $25.8 million related to a purchase accounting adjustment of $155.8 million to increase the balance of the Company’s talent contracts.

During the first seven months of 2009, CCMH decreased the initial fair value estimate of its permits, contracts, site leases, and other assets and liabilities primarily in its Americas segment by $116.1 million based on additional information received which resulted in a credit to amortization expense of approximately $6.9 million.

The Company reviews its definite-lived intangibles for impairment when events and circumstances indicate that amortizable long-lived assets might be impaired and the undiscounted cash flows estimated to be generated from those assets are less than the carrying amount of those assets. When specific assets are determined to be unrecoverable, the cost basis of the asset is reduced to reflect the current fair market value.

The Company uses various assumptions in determining the current fair market value of these assets, including future expected cash flows, industry growth rates and discount rates. Impairment loss calculations require management to apply judgment in estimating future cash flows, including forecasting useful lives of the assets and selecting the discount rate that reflects the risk inherent in future cash flows.

During the second quarter of 2009, the Company recorded a $21.3 million impairment to taxi contracts in its Americas segment and a $17.5 million impairment primarily related to street furniture and billboard contracts in its International segment. The Company determined fair values using a discounted cash flow model. The decline in fair value of the contracts was primarily driven by a decline in the revenue projections. The decline in revenue related to taxi contracts and street furniture and billboard contracts was in the range of 10% to 15%. The balance of these taxi contracts and street furniture and billboard contracts after the impairment charges, for the contracts that were impaired, was $3.3 million and $16.0 million, respectively.

 

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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)     

2010

   $ 314,392

2011

     306,543

2012

     291,790

2013

     278,518

2014

     255,583

Indefinite-lived Intangibles

The Company’s indefinite-lived intangible assets consist of FCC broadcast licenses and billboard permits. FCC broadcast licenses are granted to radio stations for up to eight years under the Telecommunications Act of 1996 (the “Act”). The Act requires the FCC to renew a broadcast license if the FCC finds that the station has served the public interest, convenience and necessity, there have been no serious violations of either the Communications Act of 1934 or the FCC’s rules and regulations by the licensee, and there have been no other serious violations which taken together constitute a pattern of abuse. The licenses may be renewed indefinitely at little or no cost. The Company does not believe that the technology of wireless broadcasting will be replaced in the foreseeable future.

The Company’s indefinite-lived intangibles consist of billboard permits. The Company’s billboard permits are effectively issued in perpetuity by state and local governments and are transferable or renewable at little or no cost. Permits typically specify the location which allows the Company the right to operate an advertising structure at the specified location. The Company’s permits are located on owned land, leased land or land for which the Company has acquired permanent easements. In cases where the Company’s permits are located on leased land, the leases typically have initial terms of between 10 to 20 years and renew indefinitely, with rental payments generally escalating at an inflation-based index. If the Company loses its lease, the Company will typically obtain permission to relocate the permit or bank it with the municipality for future use.

The indefinite-lived intangibles and goodwill are not subject to amortization, but are tested for impairment at least annually. The Company tests for possible impairment of indefinite-lived intangible assets whenever events or changes in circumstances, such as a reduction in operating cash flow or a dramatic change in the manner for which the asset is intended to be used, indicate that the carrying amount of the asset may not be recoverable. If indicators exist, the Company compares the undiscounted cash flows related to the asset to the carrying value of the asset. If the carrying value is greater than the undiscounted cash flow amount, an impairment charge is recorded in amortization expense in the statement of operations for amounts necessary to reduce the carrying value of the asset to fair value.

FCC Licenses

The Company performed an interim impairment test on its FCC licenses as of December 31, 2008, which resulted in a non-cash impairment charge of $936.2 million. The industry cash flows forecast by BIA Financial Network, Inc. (“BIA”) during the first six months of 2009 were below the BIA forecast used in the discounted cash flow model used to calculate the impairment at December 31, 2008. As a result, the Company performed an interim impairment test as of June 30, 2009 on its FCC licenses resulting in a non-cash impairment charge of $590.3 million.

The fair value of the FCC licenses was determined using the direct valuation method as prescribed in ASC 805-20-S99. Under the direct valuation method, the fair value of the FCC licenses was calculated at the market level as prescribed by ASC 350-30-35. The Company engaged Mesirow Financial Consulting, LLC (“Mesirow Financial”), a third-party valuation firm, to assist it in the development of the assumptions and the Company’s determination of the fair value of its FCC licenses. The impairment test consisted of a comparison of the fair value of the FCC licenses at the market level with their carrying amount. If the carrying amount of the FCC license exceeded its fair value, an impairment loss was recognized equal to that excess. After an impairment loss is recognized, the adjusted carrying amount of the FCC license is its new accounting basis.

The application of the direct valuation method attempts to isolate the income that is properly attributable to the license alone (that is, apart from tangible and identified intangible assets and goodwill). It is based upon modeling a hypothetical “greenfield” build up to a “normalized” enterprise that, by design, lacks inherent goodwill and whose only other assets have essentially been paid for (or added) as part of the build-up process. The Company forecasted revenue, expenses, and cash flows over a ten-year period for each of its markets in its application of the direct valuation method. The Company also calculated a “normalized” residual year which represents the perpetual cash flows of each market. The residual year cash flow was capitalized to arrive at the terminal value of the licenses in each market.

 

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Under the direct valuation method, it is assumed that rather than acquiring indefinite-lived intangible assets as part of a going concern business, the buyer hypothetically develops indefinite-lived intangible assets and builds a new operation with similar attributes from scratch. Thus, the buyer incurs start-up costs during the build-up phase which are normally associated with going concern value. Initial capital costs are deducted from the discounted cash flows model which results in value that is directly attributable to the indefinite-lived intangible assets.

The key assumptions using the direct valuation method are market revenue growth rates, market share, profit margin, duration and profile of the build-up period, estimated start-up capital costs and losses incurred during the build-up period, the risk-adjusted discount rate and terminal values. This data is populated using industry normalized information representing an average FCC license within a market.

Management uses publicly available information from BIA regarding the future revenue expectations for the radio broadcasting industry.

The build-up period represents the time it takes for the hypothetical start-up operation to reach normalized operations in terms of achieving a mature market share and profit margin. Management believes that a three-year build-up period is required for a start-up operation to obtain the necessary infrastructure and obtain advertisers. It is estimated that a start-up operation would gradually obtain a mature market revenue share in three years. BIA forecasted industry revenue growth of negative 1.8% during the build-up period. The cost structure is expected to reach the normalized level over three years due to the time required to establish operations and recognize the synergies and cost savings associated with the ownership of the FCC licenses within the market.

The estimated operating margin in the first year of operations was assumed to be 12.5% based on observable market data for an independent start-up radio station. The estimated operating margin in the second year of operations was assumed to be the mid-point of the first-year operating margin and the normalized operating margin. The normalized operating margin in the third year was assumed to be the industry average margin of 29% based on an analysis of comparable companies. The first and second-year expenses include the non-operating start-up costs necessary to build the operation (i.e. development of customers, workforce, etc.).

In addition to cash flows during the projection period, a “normalized” residual cash flow was calculated based upon industry-average growth of 2% beyond the discrete build-up projection period. The residual cash flow was then capitalized to arrive at the terminal value.

The present value of the cash flows is calculated using an estimated required rate of return based upon industry-average market conditions. In determining the estimated required rate of return, management calculated a discount rate using both current and historical trends in the industry.

The Company calculated the discount rate as of the valuation date and also one-year, two-year, and three-year historical quarterly averages. The discount rate was calculated by weighting the required returns on interest-bearing debt and common equity capital in proportion to their estimated percentages in an expected capital structure. The capital structure was estimated based on the quarterly average data for publicly traded companies in the radio broadcasting industry.

The calculation of the discount rate required the rate of return on debt, which was based on a review of the credit ratings for comparable companies (i.e. market participants). The Company calculated the average yield on a Standard & Poor’s “B” and “CCC” rated corporate bond which was used for the pre-tax rate of return on debt and tax-effected such yield based on applicable tax rates.

The rate of return on equity capital was estimated using a modified Capital Asset Pricing Model (“CAPM”). Inputs to this model included the yield on long-term U.S. Treasury bonds, forecast betas for comparable companies, calculation of a market risk premium based on research and empirical evidence and calculation of a size premium derived from historical differences in returns between small companies and large companies using data published by Ibbotson Associates.

The concluded discount rate used in the discounted cash flow models to determine the fair value of the licenses was 10% for the 13 largest markets and 10.5% for all other markets. Applying the discount rate, the present value of cash flows during the discrete projection period and terminal value were added to estimate the fair value of the hypothetical start-up operation. The initial capital investment was subtracted to arrive at the value of the licenses. The initial capital investment represents the fixed assets needed to operate the radio station.

The BIA forecast for 2009 declined 8.7% and declined between 13.8% and 15.7% through 2013 compared to the BIA forecasts used in the 2008 impairment test. Additionally, the industry profit margin declined 100 basis points from the 2008 impairment test. These market driven changes were primarily responsible for the decline in fair value of the FCC licenses below their carrying value. As a result, the Company recognized a non-cash impairment charge in approximately one-quarter of its markets, which totaled $590.3 million. The fair value of the Company’s FCC licenses was $2.4 billion at June 30, 2009.

 

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In calculating the fair value of its FCC licenses, the Company primarily relied on the discounted cash flow models. However, the Company relied on the stick method for those markets where the discounted cash flow model resulted in a value less than the stick method indicated.

To estimate the stick values for its markets, the Company obtained historical radio station transaction data from BIA which involved sales of individual radio stations whereby the station format was immediately abandoned after acquisition. These transactions are highly indicative of stick transactions in which the buyer does not assign value to any of the other acquired assets (i.e. tangible or intangible assets) and is only purchasing the FCC license.

In addition, the Company analyzed publicly available FCC license auction data involving radio broadcast licenses. Periodically, the FCC will hold an auction for certain FCC licenses in various markets and these auction prices reflect the purchase of only the FCC radio license.

Based on this analysis, the stick values were estimated to be the minimum value of a radio license within each market. This value was considered to be the fair value of the license for those markets where the present value of the cash flows and terminal value did not exceed the estimated stick value. Approximately 23% of the fair value of the Company’s FCC licenses at June 30, 2009 was determined using the stick method.

Billboard Permits

The Company’s billboard permits are effectively issued in perpetuity by state and local governments as they are transferable or renewable at little or no cost. Permits typically include the location which permits the Company to operate an advertising structure. Due to significant differences in both business practices and regulations, billboards in the International segment are subject to long-term, finite contracts versus permits in the United States and Canada. Accordingly, there are no indefinite-lived assets in the International segment.

The Company performed an interim impairment test on its billboard permits as of December 31, 2008, which resulted in a non-cash impairment charge of $722.6 million. The Company’s cash flows during the first six months of 2009 were below those in the discounted cash flow model used to calculate the impairment at December 31, 2008. As a result, the Company performed an interim impairment test as of June 30, 2009 on its billboard permits resulting in a non-cash impairment charge of $345.4 million.

The fair value of the billboard permits was determined using the direct valuation method as prescribed in ASC 805-20-S99. Under the direct valuation method, the fair value of the billboard permits was calculated at the market level as prescribed by ASC 350-30-35. The Company engaged Mesirow Financial to assist it in the development of the assumptions and the Company’s determination of the fair value of the billboard permits. The impairment test consisted of a comparison of the fair value of the billboard permits at the market level with their carrying amount. If the carrying amount of the billboard permits exceeded their fair value, an impairment loss was recognized equal to that excess. After an impairment loss is recognized, the adjusted carrying amount of the billboard permit is its new accounting basis.

The Company’s application of the direct valuation method utilized the “greenfield” approach as discussed above. The key assumptions using the direct valuation method are market revenue growth rates, market share, profit margin, duration and profile of the build-up period, estimated start-up capital costs and losses incurred during the build-up period, the risk-adjusted discount rate and terminal values. This data is populated using industry normalized information representing an average billboard permit within a market.

Management uses its internal forecasts to estimate industry normalized information as it believes these forecasts are similar to what a market participant would expect to generate. This is due to the pricing structure and demand for outdoor signage in a market being relatively constant regardless of the owner of the operation. Management also relied on its internal forecasts because there is nominal public data available for each of its markets.

The build-up period represents the time it takes for the hypothetical start-up operation to reach normalized operations in terms of achieving a mature market revenue share and profit margin. Management believes that a one-year build-up period is required for a start-up operation to erect the necessary structures and obtain advertisers in order achieve mature market revenue share. It is estimated that a start-up operation would be able to obtain 10% of the potential revenues in the first year of operations and 100% in the second year. Management assumed industry revenue growth of negative 16% during the build-up period. However, the cost structure is expected to reach the normalized level over three years due to the time required to recognize the synergies and cost savings associated with the ownership of the permits within the market.

 

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For the normalized operating margin in the third year, management assumed a hypothetical business would operate at the lower of the operating margin for the specific market or the industry average margin of 45% based on an analysis of comparable companies. For the first and second-year of operations, the operating margin was assumed to be 50% of the “normalized” operating margin. The first and second-year expenses include the non-recurring start-up costs necessary to build the operation (i.e. development of customers, workforce, etc.).

In addition to cash flows during the projection period, a “normalized” residual cash flow was calculated based upon industry-average growth of 3% beyond the discrete build-up projection period. The residual cash flow was then capitalized to arrive at the terminal value.

The present value of the cash flows is calculated using an estimated required rate of return based upon industry-average market conditions. In determining the estimated required rate of return, management calculated a discount rate using both current and historical trends in the industry.

The Company calculated the discount rate as of the valuation date and also one-year, two-year, and three-year historical quarterly averages. The discount rate was calculated by weighting the required returns on interest-bearing debt and common equity capital in proportion to their estimated percentages in an expected capital structure. The capital structure was estimated based on the quarterly average data for publicly traded companies in the outdoor advertising industry.

The calculation of the discount rate required the rate of return on debt, which was based on a review of the credit ratings for comparable companies (i.e. market participants). Management used the yield on a Standard & Poor’s “B” rated corporate bond for the pre-tax rate of return on debt and tax-effected such yield based on applicable tax rates.

The rate of return on equity capital was estimated using a modified CAPM. Inputs to this model included the yield on long-term U.S. Treasury bonds, forecast betas for comparable companies, calculation of a market risk premium based on research and empirical evidence and calculation of a size premium derived from historical differences in returns between small companies and large companies using data published by Ibbotson Associates.

The concluded discount rate used in the discounted cash flow models to determine the fair value of the permits was 10%. Applying the discount rate, the present value of cash flows during the discrete projection period and terminal value were added to estimate the fair value of the hypothetical start-up operation. The initial capital investment was subtracted to arrive at the value of the permits. The initial capital investment represents the fixed assets needed to erect the necessary advertising structures.

The discount rate used in the impairment model increased approximately 50 basis points over the discount rate used to value the permits at December 31, 2008. Industry revenue forecasts declined 8% through 2013 compared to the forecasts used in the 2008 impairment test. These market driven changes were primarily responsible for the decline in fair value of the billboard permits below their carrying value. As a result, the Company recognized a non-cash impairment charge in all but five of its markets in the United States and Canada, which totaled $345.4 million. The fair value of the permits was $1.1 billion at June 30, 2009.

Goodwill

Each of the Company’s reporting units is valued using a discounted cash flow model which requires estimating future cash flows expected to be generated from the reporting unit, discounted to their present value using a risk-adjusted discount rate. Terminal values were also estimated and discounted to their present value. Assessing the recoverability of goodwill requires the Company to make estimates and assumptions about sales, operating margins, growth rates and discount rates based on its budgets, business plans, economic projections, anticipated future cash flows and marketplace data. There are inherent uncertainties related to these factors and management’s judgment in applying these factors. The Company engaged Mesirow Financial to assist the Company in the development of these assumptions and the Company’s determination of the fair value of its reporting units.

 

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

 

(In thousands)    Radio     Americas
Outdoor
    International
Outdoor
    Other     Total  

Pre-Merger

          

Balance as of December 31, 2007

   $ 6,045,527      $ 688,336      $ 474,253      $ 2,000      $ 7,210,116   

Acquisitions

     7,051               12,341               19,392   

Dispositions

     (20,931                          (20,931

Foreign currency

            (293     28,596               28,303   

Adjustments

     (423     (970                   (1,393
                                        

Balance as of July 30, 2008

   $ 6,031,224      $ 687,073      $ 515,190      $ 2,000      $ 7,235,487   
                                        
(In thousands)    Radio     Americas
Outdoor
    International
Outdoor
    Other     Total  

Post-Merger

          

Balance as of July 31, 2008

   $      $      $      $      $   

Preliminary purchase price allocation

     6,335,220        2,805,780        603,712        60,115        9,804,827   

Purchase price adjustments - net

     356,040        438,025        (76,116     271,175        989,124   

Impairment

     (1,115,033     (2,321,602     (173,435            (3,610,070

Acquisitions

     3,486                             3,486   

Foreign exchange

            (29,605     (63,519            (93,124

Other

     (523            (3,099            (3,622
                                        

Balance as of December 31, 2008

     5,579,190        892,598        287,543        331,290        7,090,621   

Impairment

     (2,426,597     (389,828     (29,722     (211,988     (3,058,135

Acquisitions

     10,681        2,250        110               13,041   

Dispositions

     (62,410                   (2,276     (64,686

Foreign currency

            16,073        20,117               36,190   

Purchase price adjustments - net

     47,086        68,896        45,041               161,023   

Other

     (529     (712                   (1,241
                                        

Balance as of September 30, 2009

   $ 3,147,421      $ 589,277      $ 323,089      $ 117,026      $ 4,176,813   
                                        

The Company performed an interim impairment test as of December 31, 2008 which resulted in a non-cash impairment charge of $3.6 billion to reduce its goodwill. The goodwill impairment test is a two-step process. The first step, used to screen for potential impairment, compares the fair value of the reporting unit with its carrying amount, including goodwill. The second step, if applicable and used to measure the amount of the impairment loss, compares the implied fair value of the reporting unit goodwill with the carrying amount of that goodwill.

Each of the Company’s U.S. radio markets and outdoor advertising markets are components. The U.S. radio markets are aggregated into a single reporting unit and the U.S. outdoor advertising markets are aggregated into a single reporting unit for purposes of the goodwill impairment test using the guidance in ASC 350-20-55. The Company also determined that within its Americas outdoor segment, Canada, Mexico, Peru, and Brazil constitute separate reporting units and each country in its International outdoor segment constitutes a separate reporting unit.

The Company tests goodwill at interim dates if events or changes in circumstances indicate that goodwill might be impaired. The Company’s cash flows during the first six months of 2009 were below those used in the discounted cash flow model used to calculate the impairment at December 31, 2008. Additionally, the fair value of the Company’s debt and equity at June 30, 2009 declined from the values at December 31, 2008. As a result of these indicators, the Company performed an interim goodwill impairment test as of June 30, 2009 resulting in a non-cash impairment charge of $3.1 billion.

The discounted cash flow model indicated that the Company failed the first step of the impairment test for certain of its reporting units, which required it to compare the implied fair value of each reporting unit’s goodwill with its carrying value.

The discounted cash flow approach the Company uses for valuing goodwill involves estimating future cash flows expected to be generated from the related assets, discounted to their present value using a risk-adjusted discount rate. Terminal values are also estimated and discounted to their present value.

The Company forecasted revenue, expenses, and cash flows over a ten-year period for each of its reporting units. In projecting future cash flows, the Company considers a variety of factors including its historical growth rates, macroeconomic conditions, advertising sector and industry trends as well as Company-specific information. Historically, revenues in its industries have been highly correlated to economic cycles. Based on these considerations, the assumed 2009 revenue growth rates were negative followed by assumed revenue growth with an anticipated economic recovery in 2010. To arrive at the projected cash flows and resulting growth

 

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rates, the Company evaluated its historical operating results, current management initiatives and both historical and anticipated industry results to assess the reasonableness of the operating margin assumptions. The Company also calculated a “normalized” residual year which represents the perpetual cash flows of each reporting unit. The residual year cash flow was capitalized to arrive at the terminal value of the reporting unit.

The Company calculated the weighted average cost of capital (“WACC”) as of June 30, 2009 and also one-year, two-year, and three-year historical quarterly averages for each of its reporting units. WACC is an overall rate based upon the individual rates of return for invested capital (equity and interest-bearing debt). The WACC is calculated by weighting the required returns on interest-bearing debt and common equity capital in proportion to their estimated percentages in an expected capital structure. The capital structure was estimated based on the quarterly average data for publicly traded companies in the radio and outdoor advertising industry. The calculation of the WACCs considered both current industry WACCs and historical trends in the industry.

The calculation of the WACC requires the rate of return on debt, which was based on a review of the credit ratings for comparable companies (i.e. market participants) and the indicated yield on similarly rated bonds.

The rate of return on equity capital was estimated using a modified CAPM. Inputs to this model included the yield on long-term U.S. Treasury bonds, forecast betas for comparable companies, calculation of a market risk premium based on research and empirical evidence and calculation of a size premium derived from historical differences in returns between small companies and large companies using data published by Ibbotson Associates.

In line with advertising industry trends, the Company’s operations and expected cash flow are subject to significant uncertainties about future developments, including timing and severity of the recessionary trends and customers’ behaviors. To address these risks, the Company included company-specific risk premiums for each of the reporting units in the estimated WACC. Based on this analysis, company-specific risk premiums of 100 basis points, 250 basis points and 350 basis points were included for the Radio, Americas outdoor and International outdoor segments, respectively, resulting in WACCs of 11%, 12.5% and 13.5% for each of the reporting units in the Radio, Americas outdoor and International outdoor segments, respectively. Applying these WACCs, the present value of cash flows during the discrete projection period and terminal value were added to estimate the fair value of the reporting units.

The discount rate utilized in the valuation of the FCC licenses and outdoor permits as of June 30, 2009 excludes the company-specific risk premiums that were added to the industry WACCs used in the valuation of the reporting units. Management believes the exclusion of this premium is appropriate given the difference between the nature of the licenses and billboard permits and reporting unit cash flow projections. The cash flow projections utilized under the direct valuation method for the licenses and permits are derived from utilizing industry “normalized” information for the existing portfolio of licenses and permits. Given that the underlying cash flow projections are based on industry normalized information, application of an industry average discount rate is appropriate. Conversely, the cash flow projections for the overall reporting unit are based on internal forecasts for each business and incorporate future growth and initiatives unrelated to the existing license and permit portfolio. Additionally, the projections for the reporting unit include cash flows related to non-FCC license and non-permit based assets. In the valuation of the reporting unit, the company-specific risk premiums were added to the industry WACCs due to the risks inherent in achieving the projected cash flows of the reporting unit.

The Company also utilized the market approach to provide a test of reasonableness to the results of the discounted cash flow model. The market approach indicates the fair value of the invested capital of a business based on a company’s market capitalization (if publicly traded) and a comparison of the business to comparable publicly traded companies and transactions in its industry. This approach can be estimated through the quoted market price method, the market comparable method, and the market transaction method.

One indication of the fair value of a business is the quoted market price in active markets for the debt and equity of the business. The quoted market price of equity multiplied by the number of shares outstanding yields the fair value of the equity of a business on a marketable, noncontrolling basis. A premium for control is then applied and added to the estimated fair value of interest-bearing debt to indicate the fair value of the invested capital of the business on a marketable, controlling basis.

The market comparable method provides an indication of the fair value of the invested capital of a business by comparing it to publicly traded companies in similar lines of business. The conditions and prospects of companies in similar lines of business depend on common factors such as overall demand for their products and services. An analysis of the market multiples of companies engaged in similar lines of business yields insight into investor perceptions and, therefore, the value of the subject business. These multiples are then applied to the operating results of the subject business to estimate the fair value of the invested capital on a marketable, noncontrolling basis. The Company then applies a premium for control to indicate the fair value of the business on a marketable, controlling basis.

 

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The market transaction method estimates the fair value of the invested capital of a business based on exchange prices in actual transactions and on asking prices for controlling interests in similar companies recently offered for sale. This process involves comparison and correlation of the subject business with other similar companies that have recently been purchased. Considerations such as location, time of sale, physical characteristics, and conditions of sale are analyzed for comparable businesses.

The three variations of the market approach indicated that the fair value determined by the Company’s discounted cash flow model was within a reasonable range of outcomes.

The revenue forecasts for 2009 declined 8%, 7% and 9% for Radio, Americas outdoor and International outdoor, respectively, compared to the forecasts used in the 2008 impairment test primarily as a result of the revenues realized during the first six months of 2009. These market driven changes were primarily responsible for the decline in fair value of the reporting units below their carrying value. As a result, the Company recognized a non-cash impairment charge to reduce its goodwill of $3.1 billion.

 

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NOTE 3: DEBT

Long-term debt at September 30, 2009 and December 31, 2008 consisted of the following:

 

(In thousands)    September 30,
2009
    December 31,
2008
 

Senior Secured Credit Facilities:

    

Term Loan A Facility

   $ 1,331,500      $ 1,331,500   

Term Loan B Facility

     10,700,000        10,700,000   

Term Loan C - Asset Sale Facility

     695,879        695,879   

Revolving Credit Facility

     1,817,500        220,000   

Delayed Draw Term Loan Facilities

     1,032,500        532,500   

Receivables Based Credit Facility

     332,232        445,609   

Other Secured Long-term Debt

     5,385        6,604   
                

Total Consolidated Secured Debt

     15,914,996        13,932,092   
                

Senior Cash Pay Notes

     796,250        980,000   

Senior Toggle Notes

     1,027,701        1,330,000   

Clear Channel Senior Notes:

    

4.25% Senior Notes Due 2009

            500,000   

7.65% Senior Notes Due 2010

     116,181        133,681   

4.5% Senior Notes Due 2010

     239,975        250,000   

6.25% Senior Notes Due 2011

     692,737        722,941   

4.4% Senior Notes Due 2011

     140,241        223,279   

5.0% Senior Notes Due 2012

     249,851        275,800   

5.75% Senior Notes Due 2013

     312,109        475,739   

5.5% Senior Notes Due 2014

     550,455        750,000   

4.9% Senior Notes Due 2015

     250,000        250,000   

5.5% Senior Notes Due 2016

     250,000        250,000   

6.875% Senior Debentures Due 2018

     175,000        175,000   

7.25% Senior Debentures Due 2027

     300,000        300,000   

Other long-term debt

     79,852        69,260   

Purchase accounting adjustments and original issue (discount) premium

     (831,575     (1,114,172
                
     20,263,773        19,503,620   

Less: current portion

     443,615        562,923   
                

Total long-term debt

   $ 19,820,158      $ 18,940,697   
                

Clear Channel’s weighted average interest rate at September 30, 2009 was 5.7%. The aggregate market value of the Company’s debt based on quoted market prices for which quotes were available was approximately $14.6 billion and $17.2 billion at September 30, 2009 and December 31, 2008, respectively.

The Company and its subsidiaries have repurchased certain debt (described below) and may pursue in the future various financing alternatives, including retiring or purchasing its outstanding indebtedness through cash purchases, prepayments and/or exchanges for newly issued debt or equity securities or obligations, in open market purchases, privately negotiated transactions or otherwise. The Company may also sell certain assets or properties and use the proceeds to reduce its indebtedness or the indebtedness of its subsidiaries. Such repurchases, prepayments, exchanges or sales, if any, could have a material positive or negative impact on the Company’s liquidity available to repay outstanding debt obligations or on the Company’s consolidated results of operations. These transactions could also require or result in amendments to the agreements governing outstanding debt obligations or changes in the Company’s leverage or other financial ratios which could have a material positive or negative impact on the Company’s ability to comply with the covenants contained in Clear Channel’s debt agreements. Such purchases, prepayments, exchanges or sales, if any, will depend on prevailing market conditions, the Company’s liquidity requirements, contractual restrictions and other factors. The amounts involved may be material.

 

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Senior Secured Credit Facilities

Borrowings under the senior secured credit facilities bear interest at a rate equal to an applicable margin plus, at Clear Channel’s option, either (i) a base rate determined by reference to the higher of (A) the prime lending rate publicly announced by the administrative agent and (B) the federal funds effective rate from time to time plus 0.50%, or (ii) a Eurocurrency rate determined by reference to the costs of funds for deposits for the interest period relevant to such borrowing adjusted for certain additional costs.

The margin percentages applicable to the term loan facilities and revolving credit facility are the following percentages per annum:

 

   

with respect to loans under the term loan A facility and the revolving credit facility, (i) 2.40% in the case of base rate loans and (ii) 3.40% in the case of Eurocurrency rate loans, subject to downward adjustments if Clear Channel’s leverage ratio of total debt to EBITDA (as calculated in accordance with the senior secured credit facilities) decreases below 7 to 1; and

 

   

with respect to loans under the term loan B facility, term loan C—asset sale facility and delayed draw term loan facilities, (i) 2.65% in the case of base rate loans and (ii) 3.65% in the case of Eurocurrency rate loans, subject to downward adjustments if Clear Channel’s leverage ratio of total debt to EBITDA decreases below 7 to 1.

Clear Channel is required to pay each revolving credit lender a commitment fee in respect of any unused commitments under the revolving credit facility, which is 0.50% per annum, subject to downward adjustments if Clear Channel’s leverage ratio of total debt to EBITDA decreases below 4 to 1. Clear Channel is required to pay each delayed draw term loan facility lender a commitment fee in respect of any undrawn commitments under the delayed draw term loan facilities, which initially is 1.825% per annum until the delayed draw term loan facilities are fully drawn or commitments thereunder are terminated.

The senior secured credit facilities contain a financial covenant that requires Clear Channel to comply on a quarterly basis with a maximum consolidated senior secured net debt to adjusted EBITDA ratio (maximum of 9.5:1). This financial covenant becomes more restrictive over time beginning in the second quarter of 2013. Clear Channel’s senior secured debt consists of the senior secured credit facilities, the receivables based credit facility and certain other secured subsidiary debt. The Company was in compliance with this covenant as of September 30, 2009.

Receivables Based Credit Facility

The receivables based credit facility of $783.5 million provides revolving credit commitments in an amount equal to the initial borrowing of $533.5 million on the closing date, subject to a borrowing base. The borrowing base at any time equals 85% of the eligible accounts receivable for certain subsidiaries of the Company.

Borrowings, excluding the initial borrowing, under the receivables based credit facility are subject to compliance with a minimum fixed charge coverage ratio of 1.0:1.0 if at any time excess availability under the receivables based credit facility is less than $50 million, or if aggregate excess availability under the receivables based credit facility and revolving credit facility is less than 10% of the borrowing base.

Borrowings under the receivables based credit facility bear interest at a rate equal to an applicable margin plus, at Clear Channel’s option, either (i) a base rate determined by reference to the higher of (A) the prime lending rate publicly announced by the administrative agent and (B) the federal funds effective rate from time to time plus 0.50%, or (ii) a Eurocurrency rate determined by reference to the costs of funds for deposits for the interest period relevant to such borrowing adjusted for certain additional costs.

The margin percentage applicable to the receivables based credit facility is (i) 1.40% in the case of base rate loans and (ii) 2.40% in the case of Eurocurrency rate loans, subject to downward adjustments if Clear Channel’s leverage ratio of total debt to EBITDA decreases below 7 to 1.

Clear Channel is required to pay each lender a commitment fee in respect of any unused commitments under the receivables based credit facility, which is 0.375% per annum, subject to downward adjustments if Clear Channel’s leverage ratio of total debt to EBITDA decreases below 6 to 1.

Senior Cash Pay Notes and Senior Toggle Notes

Clear Channel has outstanding $796.3 million aggregate principal amount of 10.75% senior cash pay notes due 2016 (the “senior cash pay notes”) and $1.0 billion aggregate principal amount of 11.00%/11.75% senior toggle notes due 2016 (the “senior toggle notes”).

Clear Channel may elect on each interest election date to pay all or 50% of such interest on the senior toggle notes in cash or by increasing the principal amount of the senior toggle notes or by issuing new senior toggle notes (such increase or issuance, “PIK Interest”). Interest on the senior toggle notes payable in cash accrues at a rate of 11.00% per annum and PIK Interest accrues at a rate of 11.75% per annum. Interest on the senior cash pay notes accrues at a rate of 10.75% per annum.

 

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On January 15, 2009, Clear Channel made a permitted election under the indenture governing the senior toggle notes to pay PIK Interest with respect to 100% of the senior toggle notes for the semi-annual interest period commencing February 1, 2009. For subsequent interest periods, Clear Channel must make an election regarding whether the applicable interest payment on the senior toggle notes will be made entirely in cash, entirely through PIK Interest or 50% in cash and 50% in PIK Interest. In the absence of such an election for any interest period, interest on the senior toggle notes will be payable according to the election for the immediately preceding interest period. As a result, Clear Channel is deemed to have made the PIK Interest election for future interest periods unless and until it elects otherwise.

Debt Maturities and Other

During 2009, CC Finco, LLC, and CC Finco II, LLC, both indirect wholly-owned subsidiaries of the Company, repurchased certain of Clear Channel’s outstanding senior notes shown in the table below.

 

(In thousands)    Three Months
Ended
September 30,

2009
Post-Merger
    Nine Months
Ended
September 30,

2009
Post-Merger
 

CC Finco, LLC

    

4.25% Senior Notes Due 2009

   $      $ 33,500   

4.5% Senior Notes Due 2010

            10,025   

7.65% Senior Notes Due 2010

            17,500   

6.25% Senior Notes Due 2011

     20,204        30,204   

4.4% Senior Notes Due 2011

     56,038        83,038   

5.0% Senior Notes Due 2012

     19,949        25,949   

5.75% Senior Notes Due 2013

     116,395        163,630   

5.5% Senior Notes Due 2014

     199,545        199,545   

Senior Toggle Notes

     116,411        116,411   
                

Principal amount of debt repurchased

     528,542        679,802   
                

Purchase accounting adjustments (1)

     (118,834     (141,844

Gain recorded in “Other income (expense)” (2)

     (228,994     (295,558
                

Cash paid for repurchases of long-term debt

   $ 180,714      $ 242,400   
                

CC Finco II, LLC

    

Senior Cash Pay Notes

   $      $ 183,750   

Senior Toggle Notes

            249,375   
                

Principal amount of debt repurchased

            433,125   

Deferred loan costs and other

            (813

Gain recorded in “Other income (expense)” (2)

            (373,775
                

Cash paid for repurchases of long-term debt

   $      $ 58,537   
                

 

(1) Represents unamortized fair value purchase accounting discounts recorded as a result of the merger.
(2) CC Finco, LLC, and CC Finco II, LLC, repurchased certain of Clear Channel’s legacy notes, senior cash pay notes and senior toggle notes at a discount, resulting in a gain on the extinguishment of debt.

During the second quarter of 2009, the Company redeemed the remaining principal amount of Clear Channel’s 4.25% senior notes at maturity with a draw under the $500.0 million delayed draw term loan facility that is specifically designated for this purpose.

 

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Note 4: OTHER DEVELOPMENTS

Acquisitions

During the nine months ended September 30, 2009, the Company’s Americas outdoor segment paid $5.0 million primarily for the acquisition of land and buildings. In addition, during the first nine months of 2009, the Company’s Americas outdoor segment purchased the remaining 15% interest in its consolidated subsidiary, Paneles Napsa S.A., for $13.0 million and the Company’s International outdoor segment acquired an additional 5% interest in its consolidated subsidiary, Clear Channel Jolly Pubblicita SPA, for $12.1 million.

During the first nine months of 2008, the Company acquired FCC licenses in its radio segment for $11.7 million in cash. The Company acquired outdoor display faces and additional equity interests in international outdoor companies for $104.8 million in cash during the same period. The Company’s national representation business acquired representation contracts for $57.6 million in cash during the first nine months of 2008.

Also during the first nine months of 2008, the Company exchanged assets in one of its Americas markets for assets located in a different market and recognized a gain of $2.6 million in “Other income (expense) – net.”

Disposition of Assets

During the nine months ended September 30, 2009, the Company sold six radio stations for approximately $12.0 million and recorded a loss of $12.7 million in “Other operating income – net.” In addition, the Company exchanged radio stations in its radio markets for assets located in a different market and recognized a loss of $26.9 million in “Other operating income – net.”

During the first nine months of 2009, the Company sold international assets for $5.5 million resulting in a gain of $4.4 million. In addition, the Company sold assets for $5.2 million in its Americas outdoor segment and recorded a gain of $3.7 million in “Other operating income – net.” The Company also received proceeds of $18.3 million from the sale of corporate assets in the first nine months of 2009 and recorded a loss of $2.2 million in “Other operating income – net.”

The Company sold its remaining interest in Grupo ACIR Comunicaciones (“Grupo ACIR”) for approximately $40.5 million and recorded a loss of approximately $5.8 million during the nine months ended September 30, 2009.

Clear Channel received proceeds of $110.5 million related to the sale of radio stations recorded as investing cash flows from discontinued operations and recorded a gain of $29.1 million as a component of “Income from discontinued operations, net” during the pre-merger period ended July 30, 2008. Clear Channel received proceeds of $1.0 billion related to the sale of its television business recorded as investing cash flows from discontinued operations and recorded a gain of $666.7 million as a component of “Income from discontinued operations, net” during the pre-merger period ended July 30, 2008.

In addition, during the pre-merger period ended July 30, 2008, Clear Channel sold its 50% interest in Clear Channel Independent, a South African outdoor advertising company, and recognized a gain of $75.6 million in “Equity in earnings of nonconsolidated affiliates” based on the fair value of the equity securities received. Clear Channel classified these equity securities as available-for-sale on its consolidated balance sheet in accordance with ASC Topic 320, Investments—Debt and Equity Securities.

Clear Channel sold a portion of its investment in Grupo ACIR for approximately $47.0 million on July 1, 2008 and recorded a gain of $9.2 million in “Equity in earnings of nonconsolidated affiliates” during the pre-merger period ended July 30, 2008.

Divestiture Trusts

The Company holds nontransferable, noncompliant station combinations pursuant to certain FCC rules or, in a few cases, pursuant to temporary waivers. These noncompliant station combinations were placed in a trust in order to bring the merger into compliance with the FCC’s media ownership rules. The Company will have to divest of certain stations in these noncompliant station combinations. The trust will be terminated, with respect to each noncompliant station combination, if at any time the stations may be owned by the Company under the then-current FCC media ownership rules. The trust agreement stipulates that the Company must fund any operating shortfalls of the trust activities, and any excess cash flow generated by the trust is distributed to the Company. The Company is also the beneficiary of proceeds from the sale of stations held in the trust. The Company consolidates the trust in accordance with ASC 810-10, as the trust was determined to be a variable interest entity and the Company is its primary beneficiary.

Legal Proceedings

The Company and its subsidiaries are currently involved in certain legal proceedings arising in the ordinary course of business and, as required, have accrued their estimate of the probable costs for the resolution of these claims. These estimates have been developed in

 

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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. During the nine months ended September 30, 2009, the Company recorded a $23.5 million accrual related to an unfavorable outcome of litigation concerning a breach of contract regarding internet advertising and its radio stations.

Effective Tax Rate

The effective tax rate is the provision for income taxes as a percent of income from continuing operations before income taxes. The effective tax rate for the three and nine months ended September 30, 2009 was (2,508.2%) and 1.8%, respectively. The effective rate was impacted by recording a valuation allowance on current period net losses. Due to the lack of earnings history as a merged company and limitations on net operating loss carryback claims allowed, the Company cannot rely on future earnings and carryback claims as a means to realize deferred tax assets. Pursuant to the provisions of ASC 740-10-30, deferred tax valuation allowances are required on those deferred tax assets. In addition, the effective rate was impacted as a result of the impairment of goodwill that was not deductible for tax purposes. For the three and nine months ended September 30, 2008, the effective tax rate was 40.7% and 26.9%, respectively, driven by the tax-free disposition of Clear Channel Independent, a South African outdoor advertising company.

Marketable Equity Securities and Interest Rate Swap Agreements

The Company holds marketable equity securities and interest rate swaps that are measured at fair value on each reporting date.

ASC 820-10-35 establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include: Level 1, defined as observable inputs such as quoted prices in active markets; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions.

The marketable equity securities are measured at fair value 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. Other cost investments include various investments in companies for which there is no readily determinable market value. The unamortized cost, unrealized holding gains or losses, and fair value of the Company’s investments at September 30, 2009 and December 31, 2008 are as follows:

 

(In thousands)    September 30, 2009    December 31, 2008

Investments

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

Available-for-sale

   $ 35,531    $    $ 19,733    $ 15,798    $ 27,110    $    $    $ 27,110

Other cost investments

     5,309                5,309      6,397                6,397
                                                       

Total

   $ 40,840    $    $ 19,733    $ 21,107    $ 33,507    $    $    $ 33,507
                                                       

The Company’s available-for-sale security, Independent News & Media PLC (“INM”), was in an unrealized loss position for the nine months ended September 30, 2009. As a result, the Company considered the guidance in ASC 320-10-S99 and reviewed the length of the time and the extent to which the market value was less than cost and the financial condition and near-term prospects of the issuer. After this assessment, the Company concluded that the impairment was other than temporary and recorded an $11.3 million impairment in “Gain (loss) on marketable securities.”

The Company’s aggregate $6.0 billion notional amount interest rate swap agreements are designated as a cash flow hedge and the effective portions of the gain or loss on the swaps are reported as a component of other comprehensive income. The Company entered into the swaps to effectively convert a portion of its floating-rate debt to a fixed basis, thus reducing the impact of interest-rate changes on future interest expense. These interest rate swap agreements mature at various times from 2010 through 2013. No ineffectiveness was recorded in earnings related to these interest rate swaps.

Due to the fact that the inputs are either directly or indirectly observable, the Company classified the fair value measurements of these agreements as Level 2.

 

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The table below shows the balance sheet classification and fair value of the Company’s interest rate swaps designated as hedging instruments:

 

(In thousands)               

Classification as of September 30, 2009

   Fair Value   

Classification as of December 31, 2008

   Fair Value

Other long-term liabilities

   $ 266,155    Other long-term liabilities    $ 118,785

The following table details the beginning and ending accumulated other comprehensive loss and the current period activity related to the interest rate swap agreements:

 

(In thousands)    Accumulated other
comprehensive loss

Balance at January 1, 2009

   $ 75,079

Other comprehensive loss

     92,993
      

Balance at September 30, 2009

   $ 168,072

Other Comprehensive Income

The following table discloses the amount of income tax (expense) or benefit allocated to each component of other comprehensive income for nine months ended September 30, 2009 and 2008, respectively:

 

     Nine Months Ended September 30,
(In thousands)    2009
Post-Merger
    2008
Combined

Unrealized holding (gain) loss on investments

   $ (22,596   $ 50,731

Unrealized holding loss on cash flow derivatives

     54,377        37,012
              

Income tax benefit

   $ 31,781        87,743
              

Note 5: COMMITMENTS, CONTINGENCIES AND GUARANTEES

Certain agreements relating to acquisitions provide for purchase price adjustments and other future contingent payments based on the financial performance of the acquired companies. For acquisitions completed prior to the adoption of the provisions of ASC 805-10, the Company will continue to accrue additional amounts related to such contingent payments if and when it is determinable that the applicable financial performance targets will be met. The aggregate of these contingent payments, if performance targets are met, would not significantly impact the financial position or results of operations of the Company. For acquisitions completed following the adoption of the provisions of ASC 805-10, the Company accounts for these payments based on the guidance in ASC 805-20, which clarifies the accounting treatment for assets acquired and liabilities assumed in a business combination that arise from contingencies.

As discussed in Note 4, there are various lawsuits and claims pending against the Company. Based on current assumptions, the Company has accrued its estimate of the probable costs for the resolution of these claims. Future results of operations could be materially affected by changes in these assumptions or the effectiveness of the strategies related to these proceedings.

At September 30, 2009, Clear Channel guaranteed $39.8 million of credit lines provided to certain of its international subsidiaries by a major international bank. Most of these credit lines related to intraday overdraft facilities covering participants in Clear Channel’s European cash management pool. As of September 30, 2009, no amounts were outstanding under these agreements.

As of September 30, 2009, Clear Channel had outstanding commercial standby letters of credit and surety bonds of $172.2 million and $94.3 million, respectively. Letters of credit in the amount of $61.0 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 Clear Channel did not honor its reimbursement obligations to the issuers.

These letters of credit and surety bonds relate to various operational matters including insurance, bid, and performance bonds as well as other items.

 

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Note 6: CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

Clear Channel is a party to a management agreement with certain affiliates of the Sponsors and certain other parties pursuant to which such affiliates of the Sponsors will provide management and financial advisory services until 2018. These agreements require management fees to be paid to such affiliates of the Sponsors for such services at a rate not greater than $15.0 million per year. For the three and nine months ended September 30, 2009, the Company recognized management fees of $3.8 million and $11.3 million, respectively.

In addition, the Company reimbursed the Sponsors for additional expenses in the amount of $2.3 million and $4.4 million for the three and nine months ended September 30, 2009, respectively.

Note 7: SEGMENT DATA

The Company has three reportable segments, which it believes best reflects how the Company is currently managed – radio broadcasting, Americas outdoor advertising and International outdoor advertising. The Americas outdoor advertising segment consists primarily of operations in the United States, Canada and Latin America, and the International outdoor advertising segment includes operations primarily in Europe, Asia and Australia. The category “other” includes media representation and other general support services and initiatives. Revenue and expenses earned and charged between segments are recorded at fair value and eliminated in consolidation.

 

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The following table presents the Company’s post-merger operating segment results for the three and nine months ended September 30, 2009, and for the post-merger period from July 31 through September 30, 2008, and Clear Channel’s operating segment results for the pre-merger period from July 1 through July 30, 2008 and the pre-merger period from January 1 through July 30, 2008, respectively.

 

(In thousands)    Radio
Broadcasting
   Americas
Outdoor
Advertising
   International
Outdoor
Advertising
    Other     Corporate and
other
reconciling
items
    Eliminations     Consolidated  

Three Months Ended September 30, 2009 (Post-Merger)

  

       

Revenue

   $ 703,232    $ 312,537    $ 348,085      $ 50,674      $      $ (20,555   $ 1,393,973   

Direct operating expenses

     214,748      147,250      251,516        29,097               (9,833     632,778   

Selling, general and administrative expenses

     222,927      47,602      61,222        16,026               (10,722     337,055   

Depreciation and amortization

     63,008      54,102      56,951        14,086        2,042               190,189   

Corporate expenses

                             79,723               79,723   

Other operating income - net

                             1,403               1,403   
                                                      

Operating income (loss)

   $ 202,549    $ 63,583    $ (21,604   $ (8,535   $ (80,362   $      $ 155,631   
                                                      

Intersegment revenues

   $ 7,225    $ 760    $      $ 12,570      $      $      $ 20,555   

Share-based payments

   $ 2,070    $ 1,775    $ 537      $      $ 4,834      $      $ 9,216   

Nine Months Ended September 30, 2009 (Post-Merger)

  

       

Revenue

   $ 2,024,421    $ 898,277    $ 1,036,678      $ 141,807      $      $ (61,358   $ 4,039,825   

Direct operating expenses

     676,515      440,885      729,798        73,378               (32,373     1,888,203   

Selling, general and administrative expenses

     688,493      147,839      200,091        67,711               (28,985     1,075,149   

Depreciation and amortization

     197,830      158,612      169,157        42,418        5,977               573,994   

Corporate expenses

                             177,445               177,445   

Impairment charge

                             4,041,252               4,041,252   

Other operating expense - net

                             (33,007            (33,007
                                                      

Operating income (loss)

   $ 461,583    $ 150,941    $ (62,368   $ (41,700   $ (4,257,681   $      $ (3,749,225
                                                      

Intersegment revenues

   $ 24,641    $ 2,029    $      $ 34,688      $      $      $ 61,358   

Identifiable assets

   $ 8,675,629    $ 4,338,689    $ 2,350,806      $ 778,712      $ 1,552,240      $      $ 17,696,076   

Capital expenditures

   $ 33,542    $ 58,116    $ 55,860      $ 104      $ 3,177      $      $ 150,799   

Share-based payments

   $ 6,208    $ 5,971    $ 1,806      $      $ 14,537      $      $ 28,522   

Period from July 1 through July 30, 2008 (Pre-Merger)

  

       

Revenue

   $ 276,886    $ 124,491    $ 147,185      $ 15,156      $      $ (7,261   $ 556,457   

Direct operating expenses

     93,408      53,659      104,695        8,571               (3,666     256,667   

Selling, general and administrative expenses

     96,919      20,197      29,005        7,818               (3,595     150,344   

Depreciation and amortization

     10,154      17,637      20,146        4,661        1,725               54,323   

Corporate expenses

                             31,392               31,392   

Merger expenses

                             79,839               79,839   

Other operating expense - net

                             (4,624            (4,624
                                                      

Operating income (loss)

   $ 76,405    $ 32,998    $ (6,661   $ (5,894   $ (117,580   $      $ (20,732
                                                      

Intersegment revenues

   $ 2,691    $ 322    $      $ 4,248      $      $      $ 7,261   

Share-based payments

   $ 25,071    $ 1,152    $ 291      $ 1,166      $ 14,661      $      $ 42,341   

Period from July 31 through September 30, 2008 (Post-Merger)

  

       

Revenue

   $ 567,057    $ 245,239    $ 296,460      $ 38,590      $      $ (19,210   $ 1,128,136   

Direct operating expenses

     159,355      109,209      195,554        17,909               (8,289     473,738   

Selling, general and administrative expenses

     193,045      39,590      53,585        16,170               (10,921     291,469   

Depreciation and amortization

     16,871      38,230      42,785        8,666        1,588               108,140   

Corporate expenses

                             33,395               33,395   

Merger expenses

                                             

Other operating income - net

                             842               842   
                                                      

Operating income (loss)

   $ 197,786    $ 58,210    $ 4,536      $ (4,155   $ (34,141   $      $ 222,236   
                                                      

Intersegment revenues

   $ 7,132    $ 2,113    $      $ 9,965      $      $      $ 19,210   

Identifiable assets

   $ 14,733,618    $ 8,697,963    $ 2,775,598      $ 739,642      $ 600,554      $      $ 27,547,375   

Capital expenditures

   $ 8,967    $ 23,317    $ 15,504      $ 596      $ 553      $      $ 48,937   

Share-based payments

   $ 1,298    $ 1,236    $ 339      $ 42      $ 3,624      $      $ 6,539   

 

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     Radio
Broadcasting
   Americas
Outdoor
Advertising
   International
Outdoor
Advertising
   Other     Corporate
and other
reconciling
items
    Eliminations     Consolidated

Period from January 1 through July 30, 2008 (Pre-Merger)

        

Revenue

   $ 1,937,980    $ 842,831    $ 1,119,232    $ 111,990      $      $ (60,291   $ 3,951,742

Direct operating expenses

     570,234      370,924      748,508      46,490               (30,057     1,706,099

Selling, general and administrative expenses

     652,162      138,629      206,217      55,685               (30,234     1,022,459

Depreciation and amortization

     62,656      117,009      130,628      28,966        9,530               348,789

Corporate expenses

                           125,669               125,669

Merger expenses

                           87,684               87,684

Other operating income – net

                           14,827               14,827
                                                   

Operating income (loss)

   $ 652,928    $ 216,269    $ 33,879    $ (19,151   $ (208,056   $      $ 675,869
                                                   

Intersegment revenues

   $ 23,551    $ 4,561    $    $ 32,179      $      $      $ 60,291

Capital expenditures

   $ 37,004    $ 82,672    $ 116,450    $ 1,609      $ 2,467      $      $ 240,202

Share-based payments

   $ 34,386    $ 5,453    $ 1,370    $ 1,166      $ 20,348      $      $ 62,723

Revenue of $381.2 million and $1.1 billion derived from foreign operations are included in the data above for the three and nine months ended September 30, 2009. Identifiable assets of $2.6 billion derived from foreign operations are included in the data above as of September 30, 2009.

Revenue of $322.1 million and identifiable assets of $3.0 billion derived from foreign operations are included in the data above for the post-merger period from July 31, 2008 through September 30, 2008. Revenue of $158.7 million and identifiable assets of $2.9 billion derived from foreign operations are included in the data above for the pre-merger period from July 1, 2008 through July 30, 2008. Revenue of $1.2 billion and identifiable assets of $2.9 billion derived from foreign operations are included in the data above for the pre-merger period from January 1, 2008 through July 30, 2008.

Note 8: SUBSEQUENT EVENTS

The Company has evaluated subsequent events through November 9, 2009, the date that these financial statements were issued.

During October of 2009, CC Finco, LLC, repurchased certain of Clear Channel’s outstanding 5.5% senior notes due 2014 (“5.5% Notes”) and Clear Channel’s outstanding senior toggle notes for $42.5 million. The aggregate principal amounts of the 5.5% Notes and senior toggle notes repurchased were $9.0 million and $112.5 million, respectively.

 

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Note 9: GUARANTOR SUBSIDIARIES

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

 

Post-Merger    September 30, 2009  
(In thousands)    Parent
Company
    Subsidiary
Issuer
    Guarantor
Subsidiaries
   Non-Guarantor
Subsidiaries
    Eliminations     Consolidated  

Cash and cash equivalents

   $      $      $ 1,191,803    $ 182,967      $      $ 1,374,770   

Accounts receivable, net of allowance

                   571,789      740,506               1,312,295   

Intercompany receivables

     2,250        6,726,118             653,317        (7,381,685       

Intercompany note receivable (a)

            2,500,000                    (2,500,000       

Prepaid expenses

     4,133               17,261      74,859               96,253   

Other current assets

            48,615        52,466      188,226        (7,203     282,104   
                                               

Total Current Assets

     6,383        9,274,733        1,833,319      1,839,875        (9,888,888     3,065,422   

Property, plant and equipment, net

                   912,089      2,499,981               3,412,070   

Definite-lived intangibles, net

                   1,845,386      858,701               2,704,087   

Indefinite-lived intangibles – licenses

                   2,429,764                    2,429,764   

Indefinite-lived intangibles – permits

                        1,137,201               1,137,201   

Goodwill

                   3,260,693      916,120               4,176,813   

Notes receivable

                   8,906      2,780               11,686   

Intercompany notes receivable

            212,000                    (212,000       

Intercompany receivable – long-term

                                        

Investments in, and advances to, nonconsolidated affiliates and subsidiaries

                   1,233      345,042               346,275   

Investment in subsidiaries

     (7,823,334     3,929,923        3,048,044             845,367          

Other assets

            256,553        12,823      357,108        (254,566     371,918   

Other investments

            1        28,564      12,275               40,840   
                                               

Total Assets

   $ (7,816,951   $ 13,673,210      $ 13,380,821    $ 7,969,083      $ (9,510,087   $ 17,696,076   
                                               

Accounts payable

   $      $      $ 20,611    $ 85,375      $      $ 105,986   

Accrued expenses

            25        248,387      485,325               733,737   

Accrued interest

            86,318             414        (7,203     79,529   

Accrued income taxes

     (1,308     (129,951     151,677      (10,381            10,037   

Intercompany payable

                   7,381,685             (7,381,685       

Current portion of long-term debt (b)

            363,715        5      2,579,895        (2,500,000     443,615   

Deferred income

                   46,444      138,115               184,559   
                                               

Total Current Liabilities

     (1,308     320,107        7,848,809      3,278,743        (9,888,888     1,557,463   

Long-term debt

            20,375,644        3,999      31,336        (590,821     19,820,158   

Intercompany long-term debt

                   212,000             (212,000       

Deferred tax liability

     (11,472     485,462        1,157,877      888,522               2,520,389   

Other long-term liabilities

            315,331        249,902      253,393               818,626   

Total member’s interest (deficit)

     (7,804,171     (7,823,334     3,908,234      3,517,089        1,181,622        (7,020,560
                                               

Total Liabilities and Member’s Interest (Deficit)

   $ (7,816,951   $ 13,673,210      $ 13,380,821    $ 7,969,083      $ (9,510,087   $ 17,696,076   
                                               

(a) Clear Channel has a note receivable in the original principal amount of $2.5 billion from Clear Channel Outdoor, Inc. which matures on August 2, 2010 and may be prepaid in whole at any time, or in part from time to time. The note accrues interest at a variable per annum rate equal to the weighted average cost of debt for Clear Channel, calculated on a monthly basis. This note is mandatorily payable upon a change of control of Clear Channel Outdoor, Inc. (as defined in the note) and, subject to certain exceptions, all net proceeds from debt or equity raised by Clear Channel Outdoor, Inc. must be used to prepay such note. At September 30, 2009, the interest rate on the $2.5 billion note was 5.7%.

(b) Clear Channel has incurred substantially all of the Company’s indebtedness.

 

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Table of Contents
Post-Merger    December 31, 2008  
(In thousands)    Parent
Company
    Subsidiary
Issuer
    Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
   Eliminations     Consolidated  

Cash and cash equivalents

   $      $      $ 139,433      $ 100,413    $      $ 239,846   

Accounts receivable, net of allowance

                   622,255        809,049             1,431,304   

Intercompany receivables

            6,609,523               431,641      (7,041,164       

Prepaid expenses

     1,472        14,677        46,603        70,465             133,217   

Other current assets

     1,960        178,985        (62,689     145,565      (1,633     262,188   
                                               

Total Current Assets

     3,432        6,803,185        745,602        1,557,133      (7,042,797     2,066,555   

Property, plant and equipment, net

                   959,555        2,588,604             3,548,159   

Definite-lived intangibles, net

                   1,869,528        1,012,192             2,881,720   

Indefinite-lived intangibles – licenses

                   3,019,803                    3,019,803   

Indefinite-lived intangibles – permits

                          1,529,068             1,529,068   

Goodwill

                   5,809,000        1,281,621             7,090,621   

Notes receivable

                   8,493        3,140             11,633   

Intercompany notes receivable (a)

            2,712,000                    (2,712,000       

Investments in, and advances to, nonconsolidated affiliates and subsidiaries

                          384,137             384,137   

Investment in subsidiaries

     (3,443,136     7,333,787        3,730,759             (7,621,410       

Other assets

            297,694        141,215        145,806      (24,455     560,260   

Other investments

                   10,089        23,418             33,507   
                                               

Total Assets

   $ (3,439,704   $ 17,146,666      $ 16,294,044      $ 8,525,119    $ (17,400,662   $ 21,125,463   
                                               

Accounts payable

   $      $      $ 36,732      $ 118,508    $      $ 155,240   

Accrued expenses

                   295,402        497,964             793,366   

Accrued interest

            182,605               292      (1,633     181,264   

Intercompany payables

     6,616        431,641        6,589,023        13,884      (7,041,164       

Current portion of long-term debt (b)

            493,395        6        69,522             562,923   

Deferred income

                   40,268        112,885             153,153   
                                               

Total Current Liabilities

     6,616        1,107,641        6,961,431        813,055      (7,042,797     1,845,946   

Long-term debt (b)

            18,982,760        4,004        32,332      (78,399     18,940,697   

Intercompany long-term debt

                   212,000        2,500,000      (2,712,000       

Deferred tax liability

     (12,229     339,189        1,320,322        1,032,030             2,679,312   

Other long-term liabilities

            160,213        236,467        179,059             575,739   

Total member’s interest (deficit)

     (3,434,091     (3,443,137     7,559,820        3,968,643      (7,567,466     (2,916,231
                                               

Total Liabilities and Member’s Interest (Deficit)

   $ (3,439,704   $ 17,146,666      $ 16,294,044      $ 8,525,119    $ (17,400,662   $ 21,125,463   
                                               

(a) Clear Channel has a note receivable in the original principal amount of $2.5 billion from Clear Channel Outdoor, Inc. which matures on August 2, 2010 and may be prepaid in whole at any time, or in part from time to time. The note accrues interest at a variable per annum rate equal to the weighted average cost of debt for Clear Channel, calculated on a monthly basis. This note is mandatorily payable upon a change of control of Clear Channel Outdoor, Inc. (as defined in the note) and, subject to certain exceptions, all net proceeds from debt or equity raised by Clear Channel Outdoor, Inc. must be used to prepay such note. At December 31, 2008, the interest rate on the $2.5 billion note was 6.0%.

(b) Clear Channel has incurred substantially all of the Company’s indebtedness.

 

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

Revenue

   $      $      $ 727,195      $ 667,745      $ (967   $ 1,393,973   

Operating expenses:

            

Direct operating expenses

                   232,775        400,210        (207     632,778   

Selling, general and administrative expenses

                   224,489        113,326        (760     337,055   

Depreciation and amortization

                   78,682        111,507               190,189   

Corporate expenses

     4,254        4        59,918        15,547               79,723   

Other operating income (expense) – net

                   243        1,160               1,403   
                                                

Operating income (loss)

     (4,254     (4     131,574        28,315               155,631   

Interest expense – net

     6        336,727        5,206        19,043        8,332        369,314   

Loss on marketable securities

                   (281     (13,097            (13,378

Equity in earnings (loss) of nonconsolidated affiliates and subsidiaries

     (307,314     (26,205     (35,321     1,277        368,789        1,226   

Other income (expense) – net

            (2,837     (533     (3,343     228,995        222,282   
                                                

Income (loss) before income taxes and discontinued operations

     (311,574     (365,773     90,233        (5,891     589,452        (3,553

Income tax benefit (expense):

            

Current

     1,308        129,951        (129,698     (14,296            (12,735

Deferred

     (252     (71,492     (9,018     4,379               (76,383
                                                

Income tax benefit (expense)

     1,056        58,459        (138,716     (9,917            (89,118
                                                

Income (loss) before discontinued operations

     (310,518     (307,314     (48,483     (15,808     589,452        (92,671

Income from discontinued operations, net

                                          
                                                

Consolidated net income (loss)

     (310,518     (307,314     (48,483     (15,808     589,452        (92,671
                                                

Amount attributable to noncontrolling interest

                   (3,141     325               (2,816
                                                

Net income (loss) attributable to the Company

   $ (310,518   $ (307,314   $ (45,342   $ (16,133   $ 589,452      $ (89,855
                                                

 

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Table of Contents
Post-Merger    Period from July 31 through September 30, 2008  
(In thousands)    Parent
Company
    Subsidiary
Issuer
    Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
    Eliminations     Consolidated  

Revenue

   $      $      $ 584,112      $ 546,304      $ (2,280   $ 1,128,136   

Operating expenses:

            

Direct operating expenses

                   173,118        300,783        (163     473,738   

Selling, general and administrative expenses

                   192,371        101,215        (2,117     291,469   

Depreciation and amortization

                   26,988        81,152               108,140   

Corporate expenses

     215        26        21,923        11,231               33,395   

Other operating income (expense) – net

                   (686     1,528               842   
                                                

Operating loss

     (215     (26     169,026        53,451               222,236   

Interest expense – net

     4        248,347        3,518        29,610               281,479   

Gain on marketable securities

                                          

Equity in earnings (loss) of nonconsolidated affiliates and subsidiaries

     (44,488     113,014        16,252        2,097        (84,778     2,097   

Other income (expense) – net

     (1     (16,230     746        4,571               (10,914
                                                

Income (loss) before income taxes and discontinued operations

     (44,708     (151,589     182,506        30,509        (84,778     (68,060

Income tax benefit (expense):

            

Current

            85,053        (36,696     (10,140            38,217   

Deferred

     (24     22,048        (28,466     1,434               (5,008
                                                

Income tax benefit (expense)

     (24     107,101        (65,162     (8,706            33,209   
                                                

Income (loss) before discontinued operations

     (44,732     (44,488     117,344        21,803        (84,778     (34,851

Loss from discontinued operations, net

                   (1,013                   (1,013
                                                

Consolidated net income (loss)

     (44,732     (44,488     116,331        21,803        (84,778     (35,864
                                                

Amount attributable to noncontrolling interest

                   3,317        5,551               8,868   
                                                

Net income (loss) attributable to the Company

   $ (44,732   $ (44,488   $ 113,014      $ 16,252      $ (84,778   $ (44,732
                                                

 

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Table of Contents
Pre-Merger    Period from July 1 through July 30, 2008  
(In thousands)    Parent
Company
   Subsidiary
Issuer
    Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
    Eliminations     Consolidated  

Revenue

   $    $      $ 282,788      $ 273,991      $ (322   $ 556,457   

Operating expenses:

             

Direct operating expenses

                 92,957        163,710               256,667   

Selling, general and administrative expenses

                 104,779        45,887        (322     150,344   

Depreciation and amortization

                 16,469        37,854               54,323   

Corporate expenses

          26        26,055        5,311               31,392   

Merger expenses

          79,839                             79,839   

Other operating income (expense) – net

                 (7,130     2,506