Form 10-Q
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 JUNE 30, 2011

 

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM              TO             

Commission File Number

1-32663

 

 

CLEAR CHANNEL OUTDOOR HOLDINGS, INC.

(Exact name of registrant as specified in its charter)

 

 

 

Delaware   86-0812139
(State or other jurisdiction of   (I.R.S. Employer Identification No.)
incorporation or organization)  
200 East Basse Road  
San Antonio, Texas   78209
(Address of principal executive offices)   (Zip Code)

(210) 832-3700

(Registrant’s telephone number, including area code)

 

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes  x    No  ¨

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

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

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

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

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

 

Class

  

Outstanding at July 28, 2011

Class A Common Stock, $.01 par value

   40,921,738

Class B Common Stock, $.01 par value

   315,000,000


Table of Contents

CLEAR CHANNEL OUTDOOR HOLDINGS, INC.

INDEX

 

         Page No.  

Part I — Financial Information

  

Item 1.

  Financial Statements      2   
  Condensed Consolidated Balance Sheets at June 30, 2011 and December 31, 2010      2   
  Consolidated Statements of Operations for the three and six months ended June 30, 2011 and 2010      3   
  Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2011 and 2010      4   
  Notes to Consolidated Financial Statements      5   

Item 2.

  Management’s Discussion and Analysis of Financial Condition and Results of Operations      21   

Item 3.

  Quantitative and Qualitative Disclosures About Market Risk      31   

Item 4.

  Controls and Procedures      32   

Part II — Other Information

  

Item 1.

  Legal Proceedings      33   

Item 1A.

  Risk Factors      33   

Item 2.

  Unregistered Sales of Equity Securities and Use of Proceeds      34   

Item 3.

  Defaults Upon Senior Securities      34   

Item 4.

  (Removed and Reserved)      34   

Item 5.

  Other Information      34   

Item 6.

  Exhibits      35   
Signatures        36   

 

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Table of Contents

PART I — FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS

CLEAR CHANNEL OUTDOOR HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands)

 

     June 30,
2011
(Unaudited)
     December 31,
2010
 

CURRENT ASSETS

     

Cash and cash equivalents

     $ 616,512           $ 624,018     

Accounts receivable, net

     761,957           735,115     

Other current assets

     225,921           191,360     
                 

Total Current Assets

     1,604,390           1,550,493     

PROPERTY, PLANT AND EQUIPMENT

     

Structures, net

     1,980,304           2,007,399     

Other property, plant and equipment, net

     303,207           290,325     

INTANGIBLE ASSETS

     

Definite-lived intangibles, net

     673,005           705,218     

Indefinite-lived intangibles

     1,113,889           1,114,413     

Goodwill

     884,652           862,242     

OTHER ASSETS

     

Due from Clear Channel Communications

     483,917           383,778     

Other assets

     162,602           162,697     
                 

Total Assets

     $ 7,205,966           $ 7,076,565     
                 

CURRENT LIABILITIES

     

Accounts payable and accrued expenses

     $ 603,225           $ 623,585     

Deferred income

     153,629           100,675     

Current portion of long-term debt

     58,800           41,676     
                 

Total Current Liabilities

     815,654           765,936     

Long-term debt

     2,500,211           2,522,133     

Deferred tax liability

     814,651           828,568     

Other long-term liabilities

     276,791           251,873     

Commitments and contingent liabilities (Note 6)

     

SHAREHOLDERS’ EQUITY

     

Noncontrolling interest

     219,116           209,794     

Class A common stock

     410           408     

Class B common stock

     3,150           3,150     

Additional paid-in capital

     6,680,481           6,677,146     

Retained deficit

     (3,957,195)          (3,974,349)    

Accumulated other comprehensive loss

     (146,520)          (207,439)    

Cost of shares held in treasury

     (783)          (655)    
                 

Total Shareholders’ Equity

     2,798,659           2,708,055     
                 

Total Liabilities and Shareholders’ Equity

     $ 7,205,966           $ 7,076,565     
                 

See Notes to Consolidated Financial Statements

 

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Table of Contents

CLEAR CHANNEL OUTDOOR HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

(In thousands, except per share data)

 

     Three Months Ended
June 30,
     Six Months Ended
June 30,
 
     2011      2010      2011      2010  

Revenue

     $   789,208          $   701,407           $   1,439,422          $   1,310,175     

Operating expenses:

           

Direct operating expenses (excludes depreciation and amortization)

     415,472          385,884           806,852          764,770     

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

     142,937          130,692           266,117          242,049     

Corporate expenses (excludes depreciation and amortization)

     23,038          23,757           45,021          44,529     

Depreciation and amortization

     105,600          105,299           207,930          207,008     

Other operating income – net

     4,300          1,720           9,102          2,738     
                                   

Operating income

     106,461          57,495           122,604          54,557     

Interest expense

     60,803          60,395           121,786          118,713     

Interest income on Due from Clear Channel Communications

     10,518          3,806           19,571          7,219     

Equity in earnings (loss) of nonconsolidated affiliates

     673          4           602          (799)    

Other income (expense) – net

     (277)         (4,155)          2,834          (4,992)    
                                   

Income (loss) before income taxes

     56,572          (3,245)          23,825          (62,728)    

Income tax benefit (expense)

     (22,360)         741           (5)         11,445     
                                   

Consolidated net income (loss)

     34,212          (2,504)          23,820          (51,283)    

Less amount attributable to noncontrolling interest

     7,517          6,623           6,666          5,626     
                                   

Net income (loss) attributable to the Company

     $ 26,695          $ (9,127)          $ 17,154          $ (56,909)    
                                   

Other comprehensive income (loss), net of tax:

           

Foreign currency translation adjustments

     28,366          (67,087)          66,385          (106,589)    

Foreign currency reclassification adjustment

     59          (1,365)          148          (1,141)    

Unrealized gain (loss) on marketable securities

     (1,949)         (2,328)          520          (4,948)    
                                   

Comprehensive income (loss)

     53,171          (79,907)          84,207          (169,587)    

Less amount attributable to noncontrolling interest

     3,832          (3,891)          6,134          (3,733)    
                                   

Comprehensive income (loss) attributable to the Company

     $ 49,339          $ (76,016)          $ 78,073          $ (165,854)    
                                   

Net income (loss) attributable to the Company:

           

Basic

     $ 0.07          $ (0.03)          $ 0.04          $ (0.16)    

Weighted average common shares outstanding – Basic

     355,883          355,542           355,839          355,502     

Diluted

     $ 0.07          $ (0.03)          $ 0.04          $ (0.16)    

Weighted average common shares outstanding – Diluted

     356,658          355,542           356,624          355,502     

See Notes to Consolidated Financial Statements

 

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CLEAR CHANNEL OUTDOOR HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

(In thousands)

 

     Six Months Ended June 30,  
     2011      2010  

Cash flows from operating activities:

     

Consolidated net income (loss)

     $ 23,820           $ (51,283)    

Reconciling items:

     

Depreciation and amortization

     207,930           207,008     

Deferred taxes

     (16,425)          (29,133)    

Provision for doubtful accounts

     3,311           2,150     

Other reconciling items – net

     (3,866)          11,562     

Changes in operating assets and liabilities:

     

Increase in accounts receivable

     (3,535)          (25,948)    

Increase in deferred income

     48,615           35,276     

Increase (decrease) in accrued expenses

     (32,894)          10,080     

Increase (decrease) in accounts payable and other liabilities

     3,400           (4,878)    

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

     (33,924)          18,103     
                 

Net cash provided by operating activities

     196,432          172,937     

Cash flows from investing activities:

     

Purchases of property, plant and equipment

     (105,774)          (86,716)    

Purchases of other operating assets

     (3,834)          (425)    

Proceeds from disposal of assets

     10,178           3,910     

Change in other – net

     794           (2,487)    
                 

Net cash used for investing activities

     (98,636)          (85,718)    

Cash flows from financing activities:

     

Draws on credit facilities

     —           304     

Payments on credit facilities

     (1,893)          (43,541)    

Proceeds from long-term debt

     —           6,844     

Payments on long-term debt

     (5,878)          (7,829)    

Net transfers to Clear Channel Communications

     (100,155)          (23,677)    

Change in other – net

     (4,608)          (3,571)    
                 

Net cash used for financing activities

     (112,534)          (71,470)    

Effect of exchange rate changes on cash

     7,232           (8,641)    
                 

Net (decrease) increase in cash and cash equivalents

     (7,506)          7,108     

Cash and cash equivalents at beginning of period

     624,018           609,436     
                 

Cash and cash equivalents at end of period

     $     616,512           $     616,544     
                 

See Notes to Consolidated Financial Statements

 

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Table of Contents

CLEAR CHANNEL OUTDOOR HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 1 — BASIS OF PRESENTATION AND NEW ACCOUNTING STANDARDS

Preparation of Interim Financial Statements

The accompanying consolidated financial statements were prepared by Clear Channel Outdoor Holdings, Inc. (the “Company”) pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) and, in the opinion of management, include all normal and recurring adjustments necessary to present fairly the results of the interim periods shown. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) have been condensed or omitted pursuant to such SEC rules and regulations. Management believes that the disclosures made are adequate to make the information presented not misleading. Due to seasonality and other factors, the results for the interim periods are not necessarily indicative of results for the full year. The financial statements contained herein should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s 2010 Annual Report on Form 10-K and Quarterly Report on Form 10-Q for the period ended March 31, 2011.

The consolidated financial statements include the accounts of the Company and its subsidiaries and give effect to allocations of expenses from the Company’s indirect parent entity, Clear Channel Communications, Inc. (“Clear Channel Communications”). These allocations were made on a specifically identifiable basis or using relative percentages of headcount or other methods management considered to be a reasonable reflection of the utilization of services provided. Investments in companies in which the Company owns 20 percent to 50 percent of the voting common stock or otherwise exercises significant influence over operating and financial policies of the company are accounted for under the equity method. All significant intercompany transactions are eliminated in the consolidation process.

Certain prior-period amounts have been reclassified to conform to the 2011 presentation.

New Accounting Pronouncements

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

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

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

 

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Table of Contents

CLEAR CHANNEL OUTDOOR HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

 

NOTE 2 — PROPERTY, PLANT AND EQUIPMENT, INTANGIBLE ASSETS AND GOODWILL

Property, Plant and Equipment

The Company’s property, plant and equipment consisted of the following classes of assets at June 30, 2011 and December 31, 2010, respectively:

 

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

Land, buildings and improvements

     $ 209,015           $ 206,355     

Structures

     2,740,631           2,623,561     

Furniture and other equipment

     101,499           86,417     

Construction in progress

     63,302           53,550     
                 
     3,114,447           2,969,883     

Less: accumulated depreciation

     830,936           672,159     
                 

Property, plant and equipment, net

     $   2,283,511           $   2,297,724     
                 

Definite-lived Intangible Assets

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

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

 

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

Transit, street furniture and other contractual rights

     $ 810,930           $ 293,416           $ 789,867           $ 241,461     

Other

     175,685           20,194           173,549           16,737     
                                   

Total

     $     986,615           $     313,610           $ 963,416           $     258,198     
                                   

Total amortization expense related to definite-lived intangible assets for the three months ended June 30, 2011 and 2010 was $23.4 million and $30.2 million, respectively. Total amortization expense related to definite-lived intangible assets for the six months ended June 30, 2011 and 2010 was $46.4 million and $53.8 million, respectively.

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

(In thousands)

2012

   $ 81,077   

2013

     74,830   

2014

     67,990   

2015

     54,207   

2016

     40,397   

Indefinite-lived Intangible Assets

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

 

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Table of Contents

CLEAR CHANNEL OUTDOOR HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

 

Goodwill

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

 

(In thousands)    Americas      International      Total  

Balance as of December 31, 2009

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

Foreign currency

     285           3,299           3,584     

Impairment

     —           (2,142)          (2,142)    

Other

     —           (792)          (792)    
  

 

 

    

 

 

    

 

 

 

Balance as of December 31, 2010

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

Foreign currency

     327           22,083           22,410     
  

 

 

    

 

 

    

 

 

 

Balance as of June 30, 2011

     $ 585,861           $ 298,791           $     884,652     
  

 

 

    

 

 

    

 

 

 

NOTE 3 — DEBT

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

 

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

Clear Channel Worldwide Holdings Senior Notes:

     

9.25% Series A Senior Notes Due 2017

     $     500,000           $ 500,000     

9.25% Series B Senior Notes Due 2017

     2,000,000           2,000,000     

Other debt

     59,011           63,809     
  

 

 

    

 

 

 

Total debt

     2,559,011           2,563,809     

Less: current portion

     58,800           41,676     
  

 

 

    

 

 

 

Total long-term debt

     $ 2,500,211           $     2,522,133     
  

 

 

    

 

 

 

The aggregate market value of the Company’s debt based on market prices for which quotes were available was approximately $2.8 billion at June 30, 2011 and December 31, 2010.

Clear Channel Communications’ Refinancing Transactions

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

 

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CLEAR CHANNEL OUTDOOR HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

 

NOTE 4 — SUPPLEMENTAL DISCLOSURES

Income tax benefit (expense)

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

 

(In thousands)    Three Months Ended
June  30,
     Six Months Ended
June 30,
 
     2011      2010      2011      2010  

Current tax expense

     $     (19,291)          $     (9,538)          $     (16,430)          $     (17,688)    

Deferred tax benefit (expense)

     (3,069)          10,279           16,425           29,133     
                                   

Income tax benefit (expense)

     $ (22,360)          $ 741           $ (5)          $ 11,445     
                                   

The effective tax rate for the three and six months ended June 30, 2011 was 39.5% and 0%, respectively. The effective tax rate for the six months ended June 30, 2011 was primarily impacted by the Company’s settlement of U.S. federal and state tax examinations. Pursuant to the settlements, the Company recorded a reduction to income tax expense of approximately $3.7 million to reflect the net tax benefits of the settlements. In addition, the effective rate for the six months ended June 30, 2011 was impacted by the Company’s ability to benefit from certain tax loss carryforwards in foreign jurisdictions due to increased taxable income during 2011, where the losses previously did not provide a benefit.

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

During the six months ended June 30, 2011 and 2010, cash paid for interest and income taxes, net of income tax refunds of $0.7 million and $1.0 million, respectively, was as follows:

 

(In thousands)    Six Months Ended June 30,  
     2011      2010  

Interest

     $     117,770           $     119,860     

Income taxes

     $ 20,049           $ 14,919     

NOTE 5 — FAIR VALUE MEASUREMENTS

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

The cost, unrealized holding gains or losses, and fair value of the Company’s investments at June 30, 2011 and December 31, 2010 are as follows:

 

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

Gross

Unrealized

    

Gross

Unrealized

     Fair            

Gross

Unrealized

    

Gross

Unrealized

     Fair  

Investments

   Cost      Losses      Gains      Value      Cost      Losses      Gains      Value  

Available-for-sale

   $ 8,016       $ —         $ 611       $ 8,627       $ 8,016       $ —         $ 82       $ 8,098   

 

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

 

NOTE 6 — COMMITMENTS AND CONTINGENCIES

The Company and its subsidiaries are currently involved in certain legal proceedings arising in the ordinary course of business and, as required, the Company has accrued its estimate of the probable costs for resolution of those claims for which the occurrence of loss is probable and the amount can be reasonably estimated. These estimates have been developed in consultation with counsel and are based upon an analysis of potential results, assuming a combination of litigation and settlement strategies. It is possible, however, that future results of operations for any particular period could be materially affected by changes in the Company’s assumptions or the effectiveness of its strategies related to these proceedings.

In 2006, two of the Company’s operating businesses (L&C Outdoor Ltda. (“L&C”) and Publicidad Klimes Sao Paulo Ltda. (“Klimes”), respectively) in the Sao Paulo, Brazil market received notices of infraction from the state taxing authority, seeking to impose a value added tax (“VAT”) on such businesses, retroactively for the period from December 31, 2001 through January 31, 2006. The taxing authority contends that the Company’s businesses fall within the definition of “communication services” and as such are subject to the VAT.

L&C and Klimes have filed separate petitions to challenge the imposition of this tax. L&C’s challenge was unsuccessful at the first administrative level, but successful at the second administrative level. The state taxing authority filed an appeal to the third and final administrative level, which required consideration by a full panel of 16 administrative law judges. On September 27, 2010, L&C received an unfavorable ruling at this final administrative level, which concluded that the VAT applied. L&C intends to appeal this ruling to the judicial level. In addition, L&C has filed a petition to have the case remanded to the second administrative level for consideration of the reasonableness of the amount of the penalty assessed against it. The amounts allegedly owed by L&C are approximately $10.3 million in taxes, approximately $20.5 million in penalties and approximately $34.3 million in interest (as of June 30, 2011 at an exchange rate of 0.64). At June 30, 2011, the range of reasonably possible loss is from zero to approximately $65.1 million. The maximum loss that could ultimately be paid depends on the timing of the final resolution at the judicial level and applicable future interest rates. Based on management’s review of the law, the outcome of similar cases at the judicial level and the advice of counsel, the Company has not accrued any costs related to these claims and believes the occurrence of loss is not probable.

Klimes’ challenge was unsuccessful at the first administrative level, and denied at the second administrative level on or about September 24, 2009. On January 5, 2011, the administrative law judges at the third administrative level published a ruling that the VAT applies but significantly reduced the penalty assessed by the taxing authority. With the penalty reduction, the amounts allegedly owed by Klimes are approximately $11.6 million in taxes, approximately $5.8 million in penalties and approximately $21 million in interest (as of June 30, 2011 at an exchange rate of 0.64). In late February 2011, Klimes filed a writ of mandamus in the 13th lower public treasury court in São Paulo, State of São Paulo, appealing the administrative court’s decision that the VAT applies. On that same day, Klimes filed a motion for an injunction barring the taxing authority from collecting the tax, penalty and interest while the appeal is pending. The court denied the motion in early April 2011. Klimes filed a motion for reconsideration with the court and also appealed that ruling to the São Paulo State Higher Court, which affirmed in late April 2011. On June 20, 2011, the 13th lower public treasury court in São Paulo reconsidered its prior ruling and granted Klimes an injunction suspending any collection effort by the taxing authority until a decision on the merits is obtained at the first judicial level. At June 30, 2011, the range of reasonably possible loss is from zero to approximately $38.4 million. The maximum loss that could ultimately be paid depends on the timing of the final resolution at the judicial level and applicable future interest rates. Based on management’s review of the law, the outcome of similar cases at the judicial level and the advice of counsel, the Company has not accrued any costs related to these claims and believes the occurrence of loss is not probable.

As of June 30, 2011, the Company had $65.8 million in letters of credit outstanding, of which $63.3 million of letters of credit were cash secured. Additionally, as of June 30, 2011, Clear Channel Communications had outstanding commercial standby letters of credit and surety bonds of $16.2 million and $43.4 million, respectively, held on behalf of the Company. These letters of credit and surety bonds relate to various operational matters, including insurance, bid and performance bonds, as well as other items. Letters of credit in the amount of $5.0 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 the Company did not honor its reimbursement obligation to the issuers.

NOTE 7 — RELATED PARTY TRANSACTIONS

The Company records net amounts due to or from Clear Channel Communications as “Due from/to Clear Channel Communications” on the condensed consolidated balance sheets. The accounts represent the revolving promissory note issued by the Company to Clear Channel Communications and the revolving promissory note issued by Clear Channel Communications to the Company, in the face

 

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

 

amount of $1.0 billion, or if more or less than such amount, the aggregate unpaid principal amount of all advances. The accounts accrue interest pursuant to the terms of the promissory notes and are generally payable on demand.

Included in the accounts are the net activities resulting from day-to-day cash management services provided by Clear Channel Communications. As a part of these services, the Company maintains collection bank accounts swept daily into accounts of Clear Channel Communications (after satisfying the funding requirements of the Trustee Account). In return, Clear Channel Communications funds the Company’s controlled disbursement accounts as checks or electronic payments are presented for payment. The Company’s claim in relation to cash transferred from its concentration account is on an unsecured basis and is limited to the balance of the “Due from Clear Channel Communications” account. At June 30, 2011 and December 31, 2010, the asset recorded in “Due from Clear Channel Communications” on the condensed consolidated balance sheets was $483.9 million and $383.8 million, respectively. The net interest income for the three months ended June 30, 2011 and 2010 was $10.5 million and $3.8 million, respectively. The net interest income for the six months ended June 30, 2011 and 2010 was $19.6 million and $7.2 million, respectively. At June 30, 2011 and December 31, 2010, the interest rate on the “Due from Clear Channel Communications” account was 9.25%, which represents the fixed interest rate on the Clear Channel Worldwide Holdings senior notes.

Clear Channel Communications has a $1.9 billion multi-currency revolving credit facility with a maturity in July 2014 which includes a $145.0 million sub-limit that certain of the Company’s International subsidiaries may borrow against to the extent Clear Channel Communications has not already borrowed against this capacity and is compliant with its covenants under its revolving credit facility. As of June 30, 2011, the Company had no outstanding borrowings under the $145.0 million sub-limit facility.

The Company provides advertising space on its billboards for radio stations owned by Clear Channel Communications. For the three months ended June 30, 2011 and 2010, the Company recorded $0.7 million and $0.8 million, respectively, in revenue for these advertisements. For the six months ended June 30, 2011 and 2010, the Company recorded $1.7 million and $1.8 million, respectively, in revenue for these advertisements.

Under the Corporate Services Agreement between Clear Channel Communications and the Company, Clear Channel Communications provides management services to the Company, which include, among other things: (i) treasury, payroll and other financial related services; (ii) executive officer services; (iii) human resources and employee benefits services; (iv) legal and related services; (v) information systems, network and related services; (vi) investment services; (vii) procurement and sourcing support services; and (viii) other general corporate services. These services are charged to the Company based on actual direct costs incurred or allocated by Clear Channel Communications based on headcount, revenue or other factors on a pro rata basis. For the three months ended June 30, 2011 and 2010, the Company recorded $6.8 million and $9.8 million, respectively, as a component of corporate expenses for these services. For the six months ended June 30, 2011 and 2010, the Company recorded $12.5 million and $18.6 million, respectively, as a component of corporate expenses for these services.

Pursuant to the Tax Matters Agreement between Clear Channel Communications and the Company, the operations of the Company are included in a consolidated federal income tax return filed by Clear Channel Communications. The Company’s provision for income taxes has been computed on the basis that the Company files separate consolidated federal income tax returns with its subsidiaries. Tax payments are made to Clear Channel Communications on the basis of the Company’s separate taxable income. Tax benefits recognized on the Company’s employee stock option exercises are retained by the Company.

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

Pursuant to the Employee Matters Agreement, the Company’s employees participate in Clear Channel Communications’ employee benefit plans, including employee medical insurance and a 401(k) retirement benefit plan. These costs are recorded as a component of selling, general and administrative expenses and were approximately $3.0 million and $2.5 million for the three months ended June 30, 2011 and 2010, respectively. For the six months ended June 30, 2011 and 2010, the Company recorded approximately $6.0 million and $5.1 million, respectively, as a component of selling, general and administrative expenses for these services.

 

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

 

NOTE 8 — EQUITY AND COMPREHENSIVE INCOME (LOSS)

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

 

(In thousands)    The Company      Noncontrolling
Interests
     Consolidated  

Balances at January 1, 2011

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

Net income

     17,153           6,666            23,819      

Foreign currency translation adjustments

     60,251           6,134            66,385      

Reclassification adjustment

     148           —            148      

Unrealized holding gain on marketable securities

     520           —            520      

Other - net

     3,210           (3,478)           (268)     
                          

Balances at June 30, 2011

     $       2,579,543           $ 219,116            $ 2,798,659      
                          
(In thousands)    The Company      Noncontrolling
Interests
     Consolidated  

Balances at January 1, 2010

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

Net income (loss)

     (56,909)           5,626            (51,283)     

Foreign currency translation adjustments

     (102,856)           (3,733)           (106,589)     

Unrealized holding loss on marketable securities

     (4,948)           —            (4,948)     

Reclassification adjustment

     (1,141)           —            (1,141)     

Other - net

     5,216            (3,728)           1,488      
                          

Balances at June 30, 2010

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

NOTE 9 — SEGMENT DATA

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

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

 

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

 

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

Three months ended June 30, 2011

           

Revenue

     $ 340,775           $ 448,433            $ —            $ 789,208     

Direct operating expenses

     149,493           265,979            —            415,472     

Selling, general and administrative expenses

     55,232           87,705            —            142,937     

Depreciation and amortization

     52,964           52,636            —            105,600     

Corporate expenses

     —           —            23,038            23,038     

Other operating income - net

     —           —            4,300            4,300     
                                   

Operating income (loss)

     $ 83,086           $ 42,113            $ (18,738)           $ 106,461     
                                   

Capital expenditures

     $ 36,297           $ 23,116            $ —            $ 59,413     

Share-based compensation expense

     $ 1,674           $ 701            $ 33            $ 2,408     

Three months ended June 30, 2010

           

Revenue

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

Direct operating expenses

     144,298           241,586            —            385,884     

Selling, general and administrative expenses

     64,075           66,617            —            130,692     

Depreciation and amortization

     55,729           49,570            —            105,299     

Corporate expenses

     —           —            23,757            23,757     

Other operating income - net

     —           —            1,720            1,720     
                                   

Operating income (loss)

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

Capital expenditures

     $ 15,221           $ 22,172            $ —            $ 37,393     

Share-based compensation expense

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

Six months ended June 30, 2011

           

Revenue

     $ 630,089           $ 809,333            $ —            $   1,439,422     

Direct operating expenses

     292,984           513,868            —            806,852     

Selling, general and administrative expenses

     109,599           156,518            —            266,117     

Depreciation and amortization

     104,050           103,880            —            207,930     

Corporate expenses

     —             —            45,021            45,021     

Other operating income - net

     —             —            9,102            9,102     
                                   

Operating income (loss)

     $   123,456           $ 35,067            $   (35,919)           $ 122,604     
                                   

Capital expenditures

     $ 68,698           $ 37,076            $ —            $ 105,774     

Share-based compensation expense

     $ 3,842           $ 1,604            $ 75            $ 5,521     

Six months ended June 30, 2010

           

Revenue

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

Direct operating expenses

     283,606           481,164            —            764,770     

Selling, general and administrative expenses

     108,552           133,497            —            242,049     

Depreciation and amortization

     105,180           101,828            —            207,008     

Corporate expenses

     —           —            44,529            44,529     

Other operating income - net

     —           —            2,738            2,738     
                                   

Operating income (loss)

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

Capital expenditures

     $ 39,926           $ 46,790            $ —            $ 86,716     

Share-based compensation expense

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

 

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

 

NOTE 10 — GUARANTOR SUBSIDIARIES

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

 

     June 30, 2011  
(In thousands)    Parent
Company
     Subsidiary
Issuer
     Guarantor
Subsidiaries
     Non-Guarantor
Subsidiaries
     Eliminations      Consolidated  

Cash and cash equivalents

    $ 388,191         $ —         $ —         $ 252,966         $ (24,645)         $ 616,512    

Accounts receivable, net

     —          —          235,583          526,374          —           761,957    

Intercompany receivables

     —          138,471          1,318,913          759          (1,458,143)          —    

Other current assets

     1,257           —          81,890          142,774          —           225,921    
                                                     

Total Current Assets

     389,448          138,471          1,636,386          922,873          (1,482,788)          1,604,390    

Property, plant and equipment, net

     —          —          1,478,025          805,486          —           2,283,511    

Definite-lived intangibles, net

     —          —          390,448          282,557          —           673,005    

Indefinite-lived intangibles

     —          —          1,097,874          16,015          —           1,113,889    

Goodwill

     —          —          571,932          312,720          —           884,652    

Due from Clear Channel Communications

     483,917          —          —          —          —           483,917    

Intercompany notes receivable

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

Other assets

     2,850,928          1,102,213          1,567,868          67,640          (5,426,047)          162,602    
                                                     

Total Assets

    $   3,906,319         $   3,811,539         $   6,742,533         $ 2,425,123         $ (9,679,548)         $   7,205,966    
                                                     

Accounts payable and accrued expenses

    $ 147        $ 1,901         $ 133,103         $ 492,719         $ (24,645)         $ 603,225    

Intercompany payable

     1,318,913          —          139,230          —          (1,458,143)          —    

Deferred income

     —          —          54,855          98,774          —           153,629    

Current portion of long-term debt

     —          —          —          58,800          —           58,800    
                                                     

Total Current Liabilities

     1,319,060          1,901          327,188          650,293          (1,482,788)          815,654    

Long-term debt

     —          2,500,000          —          211          —           2,500,211    

Intercompany notes payable

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

Deferred tax liability

     225          22          761,154          53,250          —           814,651    

Other long-term liabilities

     —          1,158          110,896          164,737          —           276,791    

Total shareholders’ equity

     2,579,543          1,308,458          2,850,928          1,485,777          (5,426,047)          2,798,659    
                                                     

Total Liabilities and Shareholders’ Equity

    $ 3,906,319        $ 3,811,539         $ 6,742,533         $ 2,425,123         $ (9,679,548)         $ 7,205,966    
                                                     

 

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

 

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

Cash and cash equivalents

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

Accounts receivable, net

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

Intercompany receivables

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

Other current assets

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

Total Current Assets

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

Property, plant and equipment, net

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

Definite-lived intangibles, net

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

Indefinite-lived intangibles

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

Goodwill

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

Due from Clear Channel Communications

     383,778           —          —          —            —           383,778    

Intercompany notes receivable

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

Other assets

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

Total Assets

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

Accounts payable and accrued expenses

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

Intercompany payable

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

Deferred income

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

Current portion of long-term debt

     —           —          —          41,676          —           41,676    
                                                     

Total Current Liabilities

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

Long-term debt

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

Intercompany notes payable

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

Deferred tax liability

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

Other long-term liabilities

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

Total shareholders’ equity

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

Total Liabilities and Shareholders’ Equity

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

 

14


Table of Contents

CLEAR CHANNEL OUTDOOR HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

 

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

Revenue

   $ —         $ —         $ 295,429         $ 493,779         $ —         $ 789,208     

Operating expenses:

           

Direct operating expenses

    —          —          124,959          290,513          —          415,472     

Selling, general and administrative expenses

    —          —          45,306          97,631          —          142,937     

Corporate expenses

    3,136          —          13,390          6,512          —          23,038     

Depreciation and amortization

    —          —          49,368          56,232          —          105,600     

Other operating income – net

    —          —          3,438          862          —          4,300     
                                               

Operating income (loss)

    (3,136)         —          65,844          43,753          —          106,461     

Interest expense – net

    (170)         57,812          2,029          1,132          —          60,803     

Interest income on debt with Clear Channel Communications

    —          —          10,518          —          —          10,518     

Intercompany interest income

    3,489          57,915          —          254          (61,658)         —     

Intercompany interest expense

    130          —          61,424          104          (61,658)         —     

Equity in earnings (loss) of nonconsolidated affiliates

    26,449          13,945          18,070          673          (58,464)         673     

Other expense – net

    —          (81)         (76)         (120)         —          (277)    
                                               

Income (loss) before income taxes

    26,842          13,967          30,903          43,324          (58,464)         56,572     

Income tax expense

    (147)         (1,010)         (4,454)         (16,749)         —          (22,360)    
                                               

Consolidated net income (loss)

    26,695          12,957          26,449          26,575          (58,464)         34,212     

Less: amount attributable to noncontrolling interest

    —          —          —          7,517          —          7,517     
                                               

Net income (loss) attributable to the Company

   $ 26,695         $ 12,957         $ 26,449         $ 19,058         $ (58,464)        $ 26,695     

Other comprehensive income (loss), net of tax:

           

Foreign currency translation adjustments

    —          —          —          28,366          —          28,366     

Foreign currency reclassification adjustment

    —          —          —          59          —          59     

Unrealized loss on marketable securities

    —          —          —          (1,949)         —          (1,949)    

Equity in subsidiary comprehensive income (loss)

    22,644          19,028          22,644          —          (64,316)         —     
                                               

Comprehensive income (loss)

   $   49,339         $   31,985         $ 49,093         $ 45,534         $ (122,780)        $ 53,171     

Less: amount attributable to noncontrolling interest

    —          —          —          3,832          —          3,832     
                                               

Comprehensive income (loss) attributable to the Company

   $   49,339         $   31,985         $   49,093         $   41,702         $   (122,780)        $   49,339     
                                               

 

15


Table of Contents

CLEAR CHANNEL OUTDOOR HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

 

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

Revenue

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

Operating expenses:

           

Direct operating expenses

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

Selling, general and administrative expenses

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

Corporate expenses

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

Depreciation and amortization

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

Other operating income – net

    —         —         470         1,250         —         1,720    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

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

Interest expense – net

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

Interest income on debt with Clear Channel Communications

    —         —         3,806         —         —         3,806    

Intercompany interest income

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

Intercompany interest expense

    121         —         61,668         645         (62,434)        —    

Equity in earnings (loss) of nonconsolidated affiliates

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

Other expense – net

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

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before income taxes

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

Income tax benefit (expense)

    80         606         6,014         (5,959)        —         741    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Consolidated net income (loss)

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

Less amount attributable to noncontrolling interest

    —         —         —         6,623         —         6,623    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) attributable to the Company

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

Other comprehensive income (loss), net of tax:

           

Foreign currency translation adjustments

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

Foreign currency reclassification

Adjustment

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

Unrealized loss on marketable securities

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

Equity in subsidiary comprehensive income (loss)

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

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income (loss)

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

Less amount attributable to noncontrolling interest

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

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income (loss) attributable to the Company

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

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

16


Table of Contents

CLEAR CHANNEL OUTDOOR HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

 

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

Revenue

    $ —          $ —          $   544,798          $ 894,624          $ —          $ 1,439,422     

Operating expenses:

           

Direct operating expenses

    —          —          246,546          560,306          —          806,852     

Selling, general and administrative expenses

    —          —          90,517          175,600          —          266,117     

Corporate expenses

    6,088          —          24,907          14,026          —          45,021     

Depreciation and amortization

    —          —          96,294          111,636          —          207,930     

Other operating income– net

    —          —          7,596          1,506          —          9,102     
                                               

Operating income (loss)

    (6,088)         —          94,130          34,562          —          122,604     

Interest expense – net

    (109)         115,625          3,862          2,408          —          121,786     

Interest income on debt with Clear Channel Communications

    —          —          19,571          —          —          19,571     

Intercompany interest income

    6,954          115,857          —          502          (123,313)         —     

Intercompany interest expense

    256          —          122,823          234          (123,313)         —     

Equity in earnings (loss) of nonconsolidated affiliates

    16,704          16,036          23,588          601          (56,327)         602     

Other income (expense) – net

    —          61          (130)         2,903          —          2,834     
                                               

Income (loss) before income taxes

    17,423          16,329          10,474          35,926          (56,327)         23,825     

Income tax benefit (expense)

    (269)         (354)         6,230          (5,612)         —          (5)    
                                               

Consolidated net income (loss)

    17,154          15,975          16,704          30,314          (56,327)         23,820     

Less amount attributable to noncontrolling interest

    —          —          —          6,666          —          6,666     
                                               

Net income (loss) attributable to the Company

    17,154          15,975          16,704          23,648          (56,327)         17,154     

Other comprehensive income (loss), net of tax:

           

Foreign currency translation adjustments

    —          —          —          66,385          —          66,385     

Foreign currency reclassification adjustment

    —          —          —          148          —          148     

Unrealized gain on marketable securities

    —          —          —          520          —          520     

Equity in subsidiary comprehensive income (loss)

    60,919          54,947          60,919          —          (176,785)         —     
                                               

Comprehensive income (loss)

    78,073          70,922          77,623          90,701          (233,112)         84,207     

Less amount attributable to noncontrolling interest

    —          —          —          6,134          —          6,134     
                                               

Comprehensive income (loss) attributable to the Company

    $   78,073          $ 70,922          $ 77,623          $ 84,567          $ (233,112)         $ 78,073     
                                               

 

17


Table of Contents

CLEAR CHANNEL OUTDOOR HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

 

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

Revenue

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

Operating expenses:

           

Direct operating expenses

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

Selling, general and administrative expenses

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

Corporate expenses

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

Depreciation and amortization

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

Other operating income– net

    —         —         1,967         771         —         2,738    
                                               

Operating income (loss)

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

Interest expense – net

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

Interest income on debt with Clear Channel Communications

    —         —         7,219         —         —         7,219    

Intercompany interest income

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

Intercompany interest expense

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

Equity in earnings (loss) of nonconsolidated affiliates

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

Other expense – net

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

Income (loss) before income taxes

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

Income tax benefit (expense)

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

Consolidated net income (loss)

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

Less amount attributable to noncontrolling interest

    —         —         —         5,626         —         5,626    
                                               

Net income (loss) attributable to the Company

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

Other comprehensive income (loss), net of tax:

           

Foreign currency translation adjustments

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

Foreign currency reclassification adjustment

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

Unrealized loss on marketable securities

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

Equity in subsidiary comprehensive income (loss)

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

Comprehensive income (loss)

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

Less amount attributable to noncontrolling interest

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

Comprehensive income (loss) attributable to the Company

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

 

18


Table of Contents

CLEAR CHANNEL OUTDOOR HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

 

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

Cash flows from operating activities:

           

Consolidated net income (loss)

    $     17,154           $ 15,975           $ 16,704        $ 30,314           $ (56,327)          $ 23,820      

Reconciling items:

           

Depreciation and amortization

    —           —           96,294        111,636           —           207,930      

Deferred taxes

    —           22           (1,120)          (15,327)          —           (16,425)     

Provision for doubtful accounts

    —           —           289        3,022        —           3,311      

Other reconciling items – net

    (16,704)          (16,036)          (23,598)          (3,855)          56,327           (3,866)     

Changes in operating assets and liabilities:

           

(Increase) decrease in accounts receivable

    —           —           14,680        (18,215)          —           (3,535)     

Increase in deferred income

    —           —           16,391        32,224        —           48,615   

Decrease in accrued expenses

    —           —           (21,885)          (11,009)          —           (32,894)     

Increase (decrease) in accounts payable and other liabilities

    —           50           27,179        (5,697)          (18,132)          3,400      

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

    458           1,736           (22,274)          (13,844)          —           (33,924)     
                                               

Net cash provided by (used for) operating activities

    908           1,747           102,660        109,249           (18,132)          196,432      

Cash flows from investing activities:

           

Purchases of property, plant and equipment

    —           —           (65,307)          (40,467)          —           (105,774)     

Equity contributions to subsidiaries

    —           —           (97)          —           97        —      

Purchases of other operating assets

    —           —           (3,522)          (312)          —           (3,834)     

Proceeds from disposal of assets

    —           —           6,925        3,253        —           10,178   

Decrease in intercompany notes receivable – net

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

Change in other – net

    —           —           879        619           (704)          794   
                                               

Net cash provided by (used for) investing activities

    —           20,100           (61,122)          (36,907)          (20,707)          (98,636)     

Cash flows from financing activities:

           

Payments on credit facilities

    —           —           —           (1,893)          —           (1,893)     

Payments on long-term debt

    —           —           —           (5,878)          —           (5,878)     

Increase in intercompany notes payable – net

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

Net transfers to Clear Channel Communications

    (100,155)          —           —           —           —           (100,155)     

Intercompany funding

    59,967           (21,847)          (41,538)          3,418           —           —      

Equity contributions from parent

    —           —           —           97           (97)          —      

Change in other – net

    729           —           —           (6,041)          704        (4,608)     
                                               

Net cash provided by (used for) financing activities

    (39,459)          (21,847)          (41,538)          (30,397)          20,707           (112,534)     

Effect of exchange rate changes on cash

    —           —           —           7,232           —           7,232      
                                               

Net increase (decrease) in cash and cash equivalents

    (38,551)          —           —           49,177           (18,132)          (7,506)     

Cash and cash equivalents at beginning of period

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

Cash and cash equivalents at end of period

    $     388,191           $ —           $ —           $ 252,966           $ (24,645)          $ 616,512      
                                               

 

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CLEAR CHANNEL OUTDOOR HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

 

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

Cash flows from operating activities:

           

Consolidated net income (loss)

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

Reconciling items:

           

Depreciation and amortization

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

Deferred taxes

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

Provision for doubtful accounts

    —           —           280           1,870           —           2,150      

Other reconciling items – net

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

Changes in operating assets and liabilities:

           

Decrease in accounts receivable

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

Increase in deferred income

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

Increase (decrease) in accrued expenses

    —           534           30,657           (21,111)          —           10,080      

Increase (decrease) in accounts payable and other liabilities

    —           37           357           (11,992)          6,720           (4,878)     

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

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

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by operating activities

    1,460           3,091           83,648           78,018           6,720           172,937      

Cash flows from investing activities:

           

Purchases of property, plant and equipment

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

Equity contributions to subsidiaries

    —           —           (331)          —           331           —      

Purchases of other operating assets

    —           —           (425)          —           —           (425)     

Proceeds from disposal of assets

    —           —           2,626          1,284           —           3,910      

Change in other – net

    —           —           (657)          (1,593)          (237)          (2,487)     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by (used for) investing activities

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

Cash flows from financing activities:

           

Draws on credit facilities

    —           —           —           304           —           304      

Payments on credit facilities

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

Proceeds from long-term debt

    —           —           —           6,844           —           6,844      

Payments on long-term debt

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

Net transfers to Clear Channel Communications

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

Intercompany funding

    18,966           (3,091)          (47,891)          32,016           —           —      

Equity contributions from parent

    —           —           —           331           (331)        —      

Change in other – net

    640           —           —           (4,448)          237           (3,571)     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash used for financing activities

    (4,071)          (3,091)          (47,893)          (16,321)          (94)          (71,470)     

Effect of exchange rate changes on cash

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

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net increase (decrease) in cash and cash equivalents

    (2,611)          —           —           2,999           6,720           7,108      

Cash and cash equivalents at beginning of period

    446,118           —           —           178,331           (15,013)          609,436      
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cash and cash equivalents at end of period

    $ 443,507           $ —           $ —           $ 181,330           $ (8,293)          $ 616,544      
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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

Format of Presentation

Management’s discussion and analysis of our results of operations and financial condition (“MD&A”) should be read in conjunction with the consolidated financial statements and related footnotes. Our discussion is presented on both a consolidated and segment basis. Our reportable operating segments are Americas outdoor advertising (“Americas”) and International outdoor advertising (“International”).

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

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

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

Executive Summary

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

 

   

Consolidated revenue increased $87.8 million and $129.2 million during the three and six months ended June 30, 2011, respectively, compared to the same periods of 2010.

   

Americas revenue increased $17.0 million and $35.3 million during the three and six months ended June 30, 2011, respectively, compared to the same periods of 2010, driven by revenue growth across our bulletin, airport and shelter displays, particularly digital displays. During the six months ended June 30, 2011, we deployed 96 digital displays in the United States, compared to 65 in the six months ended June 30, 2010. We continue to see opportunities to invest in digital displays and expect our digital display deployments will continue throughout 2011.

   

International revenue increased $70.8 million and $93.9 million during the three and six months ended June 30, 2011, respectively, compared to the same periods of 2010, primarily as a result of increased street furniture revenues and the effects of movements in foreign exchange. The weakening of the U.S. Dollar throughout the first half of 2011 has significantly contributed to revenue growth in our International advertising business. The revenue increase attributable to movements in foreign exchange was $46.3 million and $54.3 million for the three and six months ended June 30, 2011, respectively.

 

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RESULTS OF OPERATIONS

Consolidated Results of Operations

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

 

(In thousands)    Three Months Ended June 30,      %   Six Months Ended June 30,      %
     2011      2010      Change   2011      2010      Change

Revenue

     $   789,208          $   701,407        13%     $   1,439,422        $ 1,310,175        10%

Operating expenses:

                

Direct operating expenses (excludes depreciation and amortization)

     415,472          385,884        8%     806,852          764,770        6%

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

     142,937          130,692        9%     266,117          242,049        10%

Corporate expenses (excludes depreciation and amortization)

     23,038          23,757        (3%)     45,021          44,529        1%

Depreciation and amortization

     105,600          105,299        0%     207,930          207,008        0%

Other operating income – net

     4,300          1,720            9,102          2,738       
                                        

Operating income

     106,461          57,495            122,604          54,557       

Interest expense

     60,803          60,395            121,786          118,713       

Interest income on debt with Clear Channel Communications

     10,518          3,806            19,571          7,219       

Equity in earnings (loss) of nonconsolidated affiliates

     673                    602          (799)      

Other income (expense) – net

     (277)         (4,155)           2,834          (4,992)      
                                        

Income (loss) before income taxes

     56,572          (3,245)           23,825          (62,728)      

Income tax benefit (expense)

     (22,360)         741            (5)         11,445       
                                        

Consolidated net income (loss)

     $ 34,212          $ (2,504)           $ 23,820        $ (51,283)      

Less amount attributable to noncontrolling interest

     7,517          6,623            6,666          5,626       
                                        

Net income (loss) attributable to the Company

     $ 26,695          $ (9,127)           $ 17,154        $ (56,909)      
                                        

Consolidated Revenue

Our consolidated revenue increased $87.8 million during the second quarter of 2011 compared to the same period of 2010. Americas revenue increased $17.0 million, driven by increases in revenue across bulletin, airport and shelter displays, particularly digital displays, as a result of our continued deployment of new digital displays and increased rates. Our International revenue increased $70.8 million, primarily from increased street furniture revenue across our markets and a $46.3 million increase from the impact of movements in foreign exchange.

Our consolidated revenue increased $129.2 million during the first six months of 2011 compared to the same period of 2010. Americas revenue increased $35.3 million, driven by increases in revenue across bulletin, airport and shelter displays, particularly digital displays, as a result of our continued deployment of new digital displays and increased rates. Our International revenue increased $93.9 million, primarily from increased street furniture revenue across our markets and a $54.3 million increase from the impact of movements in foreign exchange.

Consolidated Direct Operating Expenses

Direct operating expenses increased $29.6 million during the second quarter of 2011 compared to the same period of 2010. Americas direct operating expenses increased $5.2 million, primarily due to increased site lease expense associated with the increase in revenue and the deployment of digital displays. Direct operating expenses in our International segment increased $24.4 million, primarily from a $29.0 million increase from movements in foreign exchange. In addition, increased site lease expense in our International segment associated with the increased revenue was offset by a $7.1 million decline in restructuring expenses in the current year.

 

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Direct operating expenses increased $42.1 million during the first six months of 2011 compared to the same period of 2010. Americas direct operating expenses increased $9.4 million, primarily due to increased site lease expense associated with the increase in revenue and the deployment of digital displays. Direct operating expenses in our International segment increased $32.7 million, primarily from a $35.1 million increase from movements in foreign exchange. Higher direct production costs in our International segment and site lease expense partially offset a $7.8 million decline in restructuring expenses in the current year.

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

SG&A expenses increased $12.2 million during the second quarter of 2011 compared to the same period of 2010. SG&A expenses decreased $8.8 million in our Americas segment, primarily as a result of the $9.5 million prior year impact related to unfavorable litigation recorded in the second quarter of 2010 in addition to a $2.9 million decrease in restructuring expenses in the current year. Our International SG&A expenses increased $21.1 million primarily due to a $9.6 million increase from movements in foreign exchange and a $6.3 million increase related to the unfavorable impact of litigation.

SG&A expenses increased $24.1 million during the first six months of 2011 compared to the same period of 2010. A decline in legal and restructuring expenses was offset by an increase in commission expense, resulting in relatively flat SG&A expenses in our Americas segment. Our International SG&A expenses increased $23.0 million primarily due to a $10.7 million increase from movements in foreign exchange and a $6.3 million increase related to the unfavorable impact of litigation.

Corporate Expenses

Corporate expenses were relatively flat during the second quarter and first six months of 2011 compared to the same periods of 2010, primarily due to a decrease in bonus expense due to the timing and amounts recorded under our variable compensation plans and general corporate infrastructure support services being offset by an increase in divisional corporate expenses.

Other Operating Income - Net

Other operating income of $4.3 million and $9.1 million in the second quarter and first six months of 2011, respectively, primarily related to proceeds received from condemnations of bulletins.

Other Income (Expense) - Net

Other income of $2.8 million for the first six months of 2011 primarily related to a $3.4 million foreign exchange translation gain on short term intercompany accounts.

Income Tax Benefit (Expense)

Our operations are included in a consolidated income tax return filed by CC Media Holdings, Inc. (“CC Media Holdings”). However, for our financial statements, our provision for income taxes was computed as if we file separate consolidated federal income tax returns with our subsidiaries.

Our effective tax rate for the second quarter and first six months of 2011 was 39.5% and 0%, respectively. Our effective rate for the six months ended June 30, 2011 was primarily impacted by our settlement of U.S. federal and state tax examinations during the quarter. Pursuant to the settlements, we recorded a reduction to income tax expense of approximately $3.7 million to reflect the net tax benefits of the settlements. In addition, the effective rate for the six months ended June 30, 2011 was impacted by our ability to benefit from certain tax loss carryforwards in foreign jurisdictions as a result of increased taxable income during 2011, where the losses previously did not provide a benefit.

Our effective tax rate for the second quarter and first six months of 2010 was 22.8% and 18.2%, respectively. The 2010 effective rates were impacted primarily as a result of our inability to benefit from tax losses in certain foreign jurisdictions due to the uncertainty of the ability to utilize those losses in future years.

 

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Americas Results of Operations

Our Americas operating results were as follows:

 

(In thousands)    Three Months Ended
June 30,
     %    Six Months Ended
June 30,
     %
           2011                2010           Change         2011              2010           Change 

Revenue

    $ 340,775          $ 323,769         5%     $ 630,089          $ 594,746         6%

Direct operating expenses

     149,493           144,298         4%      292,984           283,606         3%

SG&A expenses

     55,232           64,075         (14%)      109,599           108,552         1%

Depreciation and amortization

     52,964           55,729         (5%)      104,050           105,180         (1%)
                                         

Operating income

    $     83,086          $     59,667             $     123,456          $     97,408        
                                         

Three Months

Our Americas revenue increased $17.0 million during the second quarter of 2011 compared to the same period of 2010, driven by revenue increases across our bulletin, airport and shelter displays, and particularly digital displays. Bulletin revenues increased due to digital growth driven by the increased number of digital displays, in addition to increased rates. Airport and shelter revenues increased on higher average rates.

Direct operating expenses increased $5.2 million, primarily due to increased site lease expense associated with the increase in revenue and the increased deployment of digital displays. SG&A expenses decreased $8.8 million, primarily as a result of the $9.5 million prior year impact related to unfavorable litigation recorded in the second quarter of 2010 in addition to a $2.9 million decrease in restructuring expenses in the current year. The decreases were partially offset by increased commission associated with the revenue increase.

Six Months

Our Americas revenue increased $35.3 million during the first six months of 2011 compared to the same period of 2010, driven by revenue increases across our bulletin, airport and shelter displays, and particularly digital displays. Bulletin revenues increased primarily due to digital growth driven by the increased number of digital displays, in addition to increased rates. Airport and shelter revenues increased on higher average rates.

Direct operating expenses increased $9.4 million, primarily due to increased site lease expense associated with the increase in revenue and the increased deployment of digital displays. We also experienced an increase related to structure maintenance and electricity for new digital bulletins as well as existing displays. A decline in legal and restructuring expenses offset by an increase in commission expense resulted in SG&A expenses being relatively flat compared to the same period of 2010.

International Results of Operations

Our International operating results were as follows:

 

(In thousands)    Three Months Ended
June 30,
     %    Six Months Ended
June 30,
     %
           2011                  2010             Change           2011                  2010             Change 

Revenue

    $ 448,433          $     377,638         19%     $     809,333          $     715,429         13%

Direct operating expenses

     265,979           241,586         10%      513,868           481,164         7%

SG&A expenses

     87,705           66,617         32%      156,518           133,497         17%

Depreciation and amortization

     52,636           49,570         6%      103,880           101,828         2%
                                         

Operating income (loss)

    $     42,113          $ 19,865             $ 35,067          $ (1,060)       
                                         

Three Months

International revenue increased $70.8 million during the second quarter of 2011 compared to the same period of 2010, partially as