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
(Registrants telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes 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 issuers 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 |
CLEAR CHANNEL OUTDOOR HOLDINGS, INC.
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. |
Managements 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 |
1
PART I FINANCIAL INFORMATION
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
2
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
3
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
4
CLEAR CHANNEL OUTDOOR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 BASIS OF PRESENTATION AND NEW ACCOUNTING STANDARDS
Preparation of Interim Financial Statements
The accompanying consolidated financial statements were prepared by Clear Channel Outdoor Holdings, Inc. (the Company) pursuant to the rules and regulations of the Securities and Exchange Commission (SEC) and, in the opinion of management, include all normal and recurring adjustments necessary to present fairly the results of the interim periods shown. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles (GAAP) have been condensed or omitted pursuant to such SEC rules and regulations. Management believes that the disclosures made are adequate to make the information presented not misleading. Due to seasonality and other factors, the results for the interim periods are not necessarily indicative of results for the full year. The financial statements contained herein should be read in conjunction with the consolidated financial statements and notes thereto included in the Companys 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 Companys indirect parent entity, Clear Channel Communications, Inc. (Clear Channel Communications). These allocations were made on a specifically identifiable basis or using relative percentages of headcount or other methods management considered to be a reasonable reflection of the utilization of services provided. Investments in companies in which the Company owns 20 percent to 50 percent of the voting common stock or otherwise exercises significant influence over operating and financial policies of the company are accounted for under the equity method. All significant intercompany transactions are eliminated in the consolidation process.
Certain prior-period amounts have been reclassified to conform to the 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 Companys 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 FASBs 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.
5
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 Companys 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 Companys 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 Companys 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 Companys 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 Companys permits in the United States and Canada. Accordingly, there are no indefinite-lived assets in the International segment.
6
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 Companys 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 Companys 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 Companys 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.
7
CLEAR CHANNEL OUTDOOR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOTE 4 SUPPLEMENTAL DISCLOSURES
Income tax benefit (expense)
The Companys 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 Companys 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 Companys 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 Companys 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 Companys inability to benefit from tax losses in certain foreign jurisdictions due to the uncertainty of the ability to utilize those losses in future years.
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 Companys 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 |
8
CLEAR CHANNEL OUTDOOR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOTE 6 COMMITMENTS AND CONTINGENCIES
The Company and its subsidiaries are currently involved in certain legal proceedings arising in the ordinary course of business and, as required, the Company has accrued its estimate of the probable costs for resolution of those claims for which the occurrence of loss is probable and the amount can be reasonably estimated. These estimates have been developed in consultation with counsel and are based upon an analysis of potential results, assuming a combination of litigation and settlement strategies. It is possible, however, that future results of operations for any particular period could be materially affected by changes in the Companys assumptions or the effectiveness of its strategies related to these proceedings.
In 2006, two of the Companys operating businesses (L&C Outdoor Ltda. (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 Companys 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&Cs 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 managements 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 courts 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 managements 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
9
CLEAR CHANNEL OUTDOOR HOLDINGS, INC. AND SUBSIDIARIES
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 Companys controlled disbursement accounts as checks or electronic payments are presented for payment. The Companys claim in relation to cash transferred from its concentration account is on an unsecured basis and is limited to the balance of the Due from Clear Channel Communications account. At 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 Companys International subsidiaries may borrow against to the extent Clear Channel Communications has not already borrowed against this capacity and is compliant with its covenants under 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 Companys provision for income taxes has been computed on the basis that the Company files separate consolidated federal income tax returns with its subsidiaries. Tax payments are made to Clear Channel Communications on the basis of the Companys separate taxable income. Tax benefits recognized on the Companys employee stock option exercises are retained by the Company.
The Company computes its deferred income tax provision using the liability method in accordance with the provisions of ASC 740-10, as if the Company was a separate taxpayer. Deferred tax assets and liabilities are determined based on differences between financial reporting bases and tax bases of assets and liabilities and are measured using the enacted tax rates expected to apply to taxable income in the periods in which the deferred tax asset or liability is expected to be realized or settled. Deferred tax assets are reduced by valuation allowances if the Company believes it is more likely than not some portion or all of the asset will not be realized.
Pursuant to the Employee Matters Agreement, the Companys employees participate in Clear Channel Communications employee benefit plans, including employee medical insurance and a 401(k) retirement benefit plan. These costs are recorded as a component of selling, general and administrative expenses and were approximately $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.
10
CLEAR CHANNEL OUTDOOR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOTE 8 EQUITY AND COMPREHENSIVE INCOME (LOSS)
The Company reports its noncontrolling interests in consolidated subsidiaries as a component of equity separate from the Companys equity. The following table shows the changes in equity attributable to the Company and the noncontrolling interests of subsidiaries in which the Company has a majority, but not total ownership interest:
(In thousands) | The Company | Noncontrolling Interests |
Consolidated | |||||||||
Balances at 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 Companys 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 Companys operating segment results for the three and six months ended June 30, 2011 and 2010:
11
CLEAR CHANNEL OUTDOOR HOLDINGS, INC. AND SUBSIDIARIES
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 |
12
CLEAR CHANNEL OUTDOOR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOTE 10 GUARANTOR SUBSIDIARIES
The Company and certain of the Companys direct and indirect wholly-owned domestic subsidiaries (the Guarantor Subsidiaries) fully and unconditionally guarantee on a joint and several basis certain of the outstanding indebtedness of Clear Channel Worldwide Holdings, Inc. (the Subsidiary Issuer). The following consolidating schedules present financial information on a combined basis in conformity with the SECs Regulation S-X Rule 3-10(d):
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 | ||||||||||||
13
CLEAR CHANNEL OUTDOOR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
December 31, 2010 | ||||||||||||||||||||||||
(In thousands) | Parent Company |
Subsidiary Issuer |
Guarantor Subsidiaries |
Non-Guarantor Subsidiaries |
Eliminations | Consolidated | ||||||||||||||||||
Cash and cash equivalents |
$ | 426,742 | $ | | $ | | $ | 203,789 | $ | (6,513) | $ | 624,018 | ||||||||||||
Accounts receivable, net |
| | 250,552 | 484,563 | | 735,115 | ||||||||||||||||||
Intercompany receivables |
| 116,624 | 1,261,437 | 5,781 | (1,383,842) | | ||||||||||||||||||
Other current assets |
1,537 | | 53,321 | 136,502 | | 191,360 | ||||||||||||||||||
Total Current Assets |
428,279 | 116,624 | 1,565,310 | 830,635 | (1,390,355) | 1,550,493 | ||||||||||||||||||
Property, plant and equipment, net |
| | 1,493,640 | 804,084 | | 2,297,724 | ||||||||||||||||||
Definite-lived intangibles, net |
| | 400,012 | 305,206 | | 705,218 | ||||||||||||||||||
Indefinite-lived intangibles |
| | 1,098,958 | 15,455 | | 1,114,413 | ||||||||||||||||||
Goodwill |
| | 571,932 | 290,310 | | 862,242 | ||||||||||||||||||
Due from Clear Channel Communications |
383,778 | | | | | 383,778 | ||||||||||||||||||
Intercompany notes receivable |
182,026 | 2,590,955 | 9,243 | 17,832 | (2,800,056) | | ||||||||||||||||||
Other assets |
2,773,305 | 1,034,182 | 1,492,337 | 62,319 | (5,199,446) | 162,697 | ||||||||||||||||||
Total Assets |
$ | 3,767,388 | $ | 3,741,761 | $ | 6,631,432 | $ | 2,325,841 | $ | (9,389,857) | $ | 7,076,565 | ||||||||||||
Accounts payable and accrued expenses |
$ | (26) | $ | 165 | $ | 128,773 | $ | 501,186 | $ | (6,513) | $ | 623,585 | ||||||||||||
Intercompany payable |
1,261,437 | | 122,405 | | (1,383,842) | | ||||||||||||||||||
Deferred income |
| | 38,264 | 62,411 | | 100,675 | ||||||||||||||||||
Current portion of long-term debt |
| | | 41,676 | | 41,676 | ||||||||||||||||||
Total Current Liabilities |
1,261,411 | 165 | 289,442 | 605,273 | (1,390,355) | 765,936 | ||||||||||||||||||
Long-term debt |
| 2,500,000 | | 22,133 | | 2,522,133 | ||||||||||||||||||
Intercompany notes payable |
7,491 | | 2,701,610 | 90,955 | (2,800,056) | | ||||||||||||||||||
Deferred tax liability |
225 | | 761,593 | 66,750 | | 828,568 | ||||||||||||||||||
Other long-term liabilities |
| 1,108 | 105,482 | 145,283 | | 251,873 | ||||||||||||||||||
Total shareholders equity |
2,498,261 | 1,240,488 | 2,773,305 | 1,395,447 | (5,199,446) | 2,708,055 | ||||||||||||||||||
Total Liabilities and Shareholders Equity |
$ | 3,767,388 | $ | 3,741,761 | $ | 6,631,432 | $ | 2,325,841 | $ | (9,389,857) | $ | 7,076,565 | ||||||||||||
14
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
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 | 4 | ||||||||||||||||||
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
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
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
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 | ||||||||||||
19
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 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
20
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Format of Presentation
Managements discussion and analysis of our results of operations and financial condition (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 incomenet, 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. |
21
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 | 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) | ||||||||||||
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.
22
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.
23
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