Edgar Filing: Clear Channel Outdoor Holdings, Inc.

Form 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2011

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

Commission File Number

1-32663

CLEAR CHANNEL OUTDOOR HOLDINGS, INC.

(Exact name of registrant as specified in its charter)


Delaware		86-0812139
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

200 East Basse Road San Antonio, Texas		78209
(Address of principal executive offices)		(Zip Code)

(210) 832-3700

(Registrant’s telephone number, including area code)

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

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

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

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

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

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


Class		Outstanding at October 20, 2011
Class A Common Stock, $.01 par value		40,984,143
Class B Common Stock, $.01 par value		315,000,000

CLEAR CHANNEL OUTDOOR HOLDINGS, INC.

INDEX


			Page No.

Part I -- Financial Information

	Item 1.	Financial Statements		2

		Condensed Consolidated Balance Sheets at September 30, 2011 and December 31, 2010		2

		Consolidated Statements of Operations for the three and nine months ended September 30, 2011 and 2010		3

		Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2011 and 2010		4

		Notes to Consolidated Financial Statements		5

	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		21

	Item 3.	Quantitative and Qualitative Disclosures About Market Risk		32

	Item 4.	Controls and Procedures		32

Part II -- Other Information

	Item 1.	Legal Proceedings		33

	Item 1A.	Risk Factors		34

	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		35

	Item 3.	Defaults Upon Senior Securities		35

	Item 4.	(Removed and Reserved)		35

	Item 5.	Other Information		35

	Item 6.	Exhibits		36

Signatures				37

PART I -- FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS

CLEAR CHANNEL OUTDOOR HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands)

		000000000000		000000000000
	September 30, 2011 (Unaudited)		December 31, 2010
CURRENT ASSETS
Cash and cash equivalents	$	631,979	$	624,018
Accounts receivable, net		699,932		735,115
Other current assets		220,979		191,360

Total Current Assets		1,552,890		1,550,493

PROPERTY, PLANT AND EQUIPMENT
Structures, net		1,931,695		2,007,399
Other property, plant and equipment, net		279,482		290,325

INTANGIBLE ASSETS
Definite-lived intangibles, net		635,920		705,218
Indefinite-lived intangibles		1,113,562		1,114,413
Goodwill		859,490		862,242

OTHER ASSETS
Due from Clear Channel Communications		541,356		383,778
Other assets		156,620		162,697

Total Assets	$	7,071,015	$	7,076,565


CURRENT LIABILITIES
Accounts payable and accrued expenses	$	589,588	$	623,585
Deferred income		127,182		100,675
Current portion of long-term debt		47,606		41,676

Total Current Liabilities		764,376		765,936

Long-term debt		2,501,229		2,522,133
Deferred tax liability		811,599		828,568
Other long-term liabilities		277,522		251,873
Commitments and contingent liabilities (Note 6)

SHAREHOLDERS’ EQUITY
Noncontrolling interest		224,191		209,794
Class A common stock		411		408
Class B common stock		3,150		3,150
Additional paid-in capital		6,682,066		6,677,146
Retained deficit		(3,953,982)		(3,974,349)
Accumulated other comprehensive loss		(238,763)		(207,439)
Cost of shares held in treasury		(784)		(655)

Total Shareholders’ Equity		2,716,289		2,708,055

Total Liabilities and Shareholders’ Equity	$	7,071,015	$	7,076,565

See Notes to Consolidated Financial Statements

CLEAR CHANNEL OUTDOOR HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

(In thousands, except per share data)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2011		2010		2011		2010

Revenue	$	748,450	$	695,086	$	2,187,872	$	2,005,261
Operating expenses:
Direct operating expenses (excludes depreciation and amortization)		408,132		380,619		1,214,984		1,145,389
Selling, general and administrative expenses (excludes depreciation and amortization)		131,915		115,224		398,032		357,273
Corporate expenses (excludes depreciation and amortization)		22,303		26,197		67,324		70,726
Depreciation and amortization		114,934		103,833		322,864		310,841
Other operating income (expense) – net		37		(27,672)		9,139		(24,934)

Operating income		71,203		41,541		193,807		96,098
Interest expense		61,809		60,276		183,595		178,989
Interest income on Due from Clear Channel Communications		12,215		4,800		31,786		12,019
Equity in earnings (loss) of nonconsolidated affiliates		1,038		(663)		1,640		(1,462)
Other income (expense) – net		(1,859)		1,545		975		(3,447)

Income (loss) before income taxes		20,788		(13,053)		44,613		(75,781)
Income tax expense		(11,002)		(18,829)		(11,007)		(7,384)

Consolidated net income (loss)		9,786		(31,882)		33,606		(83,165)
Less amount attributable to noncontrolling interest		6,573		3,012		13,239		8,638

Net income (loss) attributable to the Company	$	3,213	$	(34,894)	$	20,367	$	(91,803)


Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments		(88,618)		106,902		(22,233)		313
Foreign currency reclassification adjustment		86		2,565		234		1,424
Unrealized loss on marketable securities		(4,979)		(394)		(4,459)		(5,343)

Comprehensive income (loss)		(90,298)		74,179		(6,091)		(95,409)
Less amount attributable to noncontrolling interest		(1,268)		7,042		4,866		3,308

Comprehensive income (loss) attributable to the Company	$	(89,030)	$	67,137	$	(10,957)	$	(98,717)


Net income (loss) attributable to the Company:
Basic	$	0.01	$	(0.10)	$	0.05	$	(0.27)
Weighted average common shares outstanding – Basic		355,940		355,585		355,873		355,530

Diluted	$	0.01	$	(0.10)	$	0.05	$	(0.27)
Weighted average common shares outstanding – Diluted		356,428		355,585		356,556		355,530

See Notes to Consolidated Financial Statements

CLEAR CHANNEL OUTDOOR HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

(In thousands)


	Nine Months Ended September 30,
	2011		2010
Cash flows from operating activities:
Consolidated net income (loss)	$	33,606	$	(83,165)

Reconciling items:
Depreciation and amortization		322,864		310,841
Deferred taxes		(13,744)		(11,722)
Provision for doubtful accounts		4,982		4,849
(Gain) loss on sale of operating and fixed assets		(9,139)		24,934
Other reconciling items – net		10,085		15,659
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable		25,763		(20,274)
Decrease in Federal incomes taxes receivable		—		50,958
Increase in deferred income		27,020		30,020
Increase (decrease) in accrued expenses		(17,201)		28,880
Increase (decrease) in accounts payable and other liabilities		11,786		(6,541)
Changes in other operating assets and liabilities, net of effects of acquisitions and dispositions		(44,366)		24,695

Net cash provided by operating activities		351,656		369,134

Cash flows from investing activities:
Purchases of property, plant and equipment		(164,400)		(139,274)
Purchases of other operating assets		(13,239)		(715)
Proceeds from disposal of assets		11,008		6,466
Change in other – net		947		(1,704)

Net cash used for investing activities		(165,684)		(135,227)

Cash flows from financing activities:
Draws on credit facilities		—		3,916
Payments on credit facilities		(3,202)		(42,254)
Proceeds from long-term debt		1,560		6,844
Payments on long-term debt		(13,243)		(12,425)
Net transfers to Clear Channel Communications		(157,595)		(130,870)
Change in other – net		(4,350)		(4,213)

Net cash used for financing activities		(176,830)		(179,002)

Effect of exchange rate changes on cash		(1,181)		369

Net increase in cash and cash equivalents		7,961		55,274

Cash and cash equivalents at beginning of period		624,018		609,436


Cash and cash equivalents at end of period	$	631,979	$	664,710

See Notes to Consolidated Financial Statements

CLEAR CHANNEL OUTDOOR HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 1 -- BASIS OF PRESENTATION AND NEW ACCOUNTING STANDARDS

Preparation of Interim Financial Statements

The accompanying consolidated financial statements were prepared by Clear Channel Outdoor Holdings, Inc. (the “Company”) pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) and, in the opinion of management, include all normal and recurring adjustments necessary to present fairly the results of the interim periods shown. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) have been condensed or omitted pursuant to such SEC rules and regulations. Management believes that the disclosures made are adequate to make the information presented not misleading. Due to seasonality and other factors, the results for the interim periods are not necessarily indicative of results for the full year. The financial statements contained herein should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s 2010 Annual Report on Form 10-K and Quarterly Reports on Form 10-Q for the periods ended March 31, 2011 and June 30, 2011.

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

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

New Accounting Pronouncements

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

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

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

CLEAR CHANNEL OUTDOOR HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

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

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

Property, Plant and Equipment

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


(In thousands)	September 30, 2011		December 31, 2010
Land, buildings and improvements	$	204,919	$	206,355
Structures		2,726,585		2,623,561
Furniture and other equipment		99,357		86,417
Construction in progress		53,125		53,550

		3,083,986		2,969,883
Less: accumulated depreciation		872,809		672,159

Property, plant and equipment, net	$	2,211,177	$	2,297,724

Definite-lived Intangible Assets

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

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


(In thousands)	September 30, 2011				December 31, 2010
	Gross Carrying Amount		Accumulated Amortization		Gross Carrying Amount		Accumulated Amortization
Transit, street furniture and other contractual rights	$	777,362	$	296,016	$	789,867	$	241,461
Other		176,402		21,828		173,549		16,737

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

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

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


		(In thousands)
		2012			$ 79,400
		2013			72,853
		2014			66,757
		2015			49,082
		2016			37,372

CLEAR CHANNEL OUTDOOR HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

Indefinite-lived Intangible Assets

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

Goodwill

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


(In thousands)	Americas		International		Total
Balance as of December 31, 2009	$	585,249	$	276,343	$	861,592
Foreign currency		285		3,299		3,584
Impairment		—		(2,142)		(2,142)
Other		—		(792)		(792)

Balance as of December 31, 2010	$	585,534	$	276,708	$	862,242
Foreign currency		(655)		(2,097)		(2,752)

Balance as of September 30, 2011	$	584,879	$	274,611	$	859,490

NOTE 3 -- DEBT

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


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

Clear Channel Worldwide Holdings Senior Notes:
9.25% Series A Senior Notes Due 2017	$	500,000	$	500,000
9.25% Series B Senior Notes Due 2017		2,000,000		2,000,000
Other debt		48,835		63,809

Total debt		2,548,835		2,563,809
Less: current portion		47,606		41,676

Total long-term debt	$	2,501,229	$	2,522,133

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

Clear Channel Communications’ Refinancing Transactions

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

CLEAR CHANNEL OUTDOOR HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

NOTE 4 -- SUPPLEMENTAL DISCLOSURES

Income tax benefit (expense)

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


(In thousands)	Three Months Ended September 30,				Nine Months Ended September 30,
	2011		2010		2011		2010
Current tax expense	$	(8,321)	$	(1,418)	$	(24,751)	$(19,106)
Deferred tax benefit (expense)		(2,681)		(17,411)		13,744	11,722

Income tax expense	$	(11,002)	$	(18,829)	$	(11,007)	$ (7,384)

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

The Company’s effective tax rate for the three and nine months ended September 30, 2010 was (144.3%) and (9.7%), respectively. The 2010 effective tax rates were impacted primarily as a result of the Company’s inability to benefit from tax losses in certain foreign jurisdictions due to the uncertainty of the ability to utilize those losses in future years. In addition, during the three months ended September 30, 2010, the Company recorded a valuation allowance of $13.4 million against deferred tax assets in foreign jurisdictions due to the uncertainty of the ability to realize those assets in future periods.

During the nine months ended September 30, 2011 and 2010, cash paid for interest and income taxes, net of U. S. Federal income tax refunds of $51.0 million for the nine months ended September 30, 2010, was as follows:


(In thousands)	Nine Months Ended September 30,
	2011		2010
Interest	$	176,070	$	175,919
Income taxes	$	27,050	$	(29,656)

NOTE 5 -- FAIR VALUE MEASUREMENTS

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

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


(In thousands)	September 30, 2011								December 31, 2010
Investments	Cost		Gross Unrealized Losses		Gross Unrealized Gains		Fair Value		Cost		Gross Unrealized Losses		Gross Unrealized Gains		Fair Value
Available-for-sale	$	8,016	$	(4,455)	$	78	$	3,639	$	8,016	$	—	$	82	$	8,098

CLEAR CHANNEL OUTDOOR HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

NOTE 6 -- COMMITMENTS AND CONTINGENCIES

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

On or about July 12, 2006 and April 12, 2007, two of the Company’s operating businesses (L&C Outdoor Ltda. (“L&C”) and Publicidad Klimes Sao Paulo Ltda. (“Klimes”), respectively) in the São Paulo, Brazil market received notices of infraction from the state taxing authority, seeking to impose a value added tax (“VAT”) on such businesses, retroactively for the period from December 31, 2001 through January 31, 2006. The taxing authority contends that these businesses fall within the definition of “communication services” and as such are subject to the VAT.

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

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

CLEAR CHANNEL OUTDOOR HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

As of September 30, 2011, the Company had $70.2 million in letters of credit outstanding, of which $67.7 million of letters of credit were cash secured. Additionally, as of September 30, 2011, Clear Channel Communications had outstanding commercial standby letters of credit and surety bonds of $15.3 million and $44.0 million, respectively, held on behalf of the Company. These letters of credit and surety bonds relate to various operational matters, including insurance, bid and performance bonds, as well as other items. Letters of credit in the amount of $9.1 million are collateral in support of surety bonds and these amounts would only be drawn under the letter of credit in the event the associated surety bonds were funded and the Company did not honor its reimbursement obligation to the issuers.

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

NOTE 7 -- RELATED PARTY TRANSACTIONS

The Company records net amounts due to or from Clear Channel Communications as “Due from/to Clear Channel Communications” on the condensed consolidated balance sheets. The accounts represent the revolving promissory note issued by the Company to Clear Channel Communications and the revolving promissory note issued by Clear Channel Communications to the Company, in the face amount of $1.0 billion, or if more or less than such amount, the aggregate unpaid principal amount of all advances. The accounts accrue interest pursuant to the terms of the promissory notes and are generally payable on demand.

Included in the accounts are the net activities resulting from day-to-day cash management services provided by Clear Channel Communications. As a part of these services, the Company maintains collection bank accounts swept daily into accounts of Clear Channel Communications (after satisfying the funding requirements of the Trustee Account). In return, Clear Channel Communications funds the Company’s controlled disbursement accounts as checks or electronic payments are presented for payment. The Company’s claim in relation to cash transferred from its concentration account is on an unsecured basis and is limited to the balance of the “Due from Clear Channel Communications” account. At September 30, 2011 and December 31, 2010, the asset recorded in “Due from Clear Channel Communications” on the condensed consolidated balance sheets was $541.4 million and $383.8 million, respectively.

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

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

The Company provides advertising space on its billboards for radio stations owned by Clear Channel Communications. For the three months ended September 30, 2011 and 2010, the Company recorded $1.1 million and $0.7 million, respectively, in revenue for these advertisements. For the nine months ended September 30, 2011 and 2010, the Company recorded $2.8 million and $2.4 million, respectively, in revenue for these advertisements.

Under the Corporate Services Agreement between Clear Channel Communications and the Company, Clear Channel Communications provides management services to the Company, which include, among other things: (i) treasury, payroll and other financial related services; (ii) executive officer services; (iii) human resources and employee benefits services; (iv) legal and related services; (v) information systems, network and related services; (vi) investment services; (vii) procurement and sourcing support services; and (viii) other general corporate services. These services are charged to the Company based on actual direct costs incurred or allocated by Clear Channel Communications based on headcount, revenue or other factors on a pro rata basis. For the three months ended September 30, 2011 and 2010, the Company recorded $6.2 million and $9.1 million, respectively, as a component of corporate expenses for these services. For the nine months ended September 30, 2011 and 2010, the Company recorded $18.7 million and $27.7 million, respectively, as a component of corporate expenses for these services.

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

CLEAR CHANNEL OUTDOOR HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

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

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

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

NOTE 8 -- EQUITY AND COMPREHENSIVE INCOME (LOSS)

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


(In thousands)	The Company		Noncontrolling Interests		Consolidated
Balances at January 1, 2011	$	2,498,261	$	209,794	$	2,708,055
Net income		20,367		13,239		33,606
Foreign currency translation adjustments		(27,099)		4,866		(22,233)
Reclassification adjustment		234		—		234
Unrealized holding loss on marketable securities		(4,459)		—		(4,459)
Other - net		4,794		(3,708)		1,086

Balances at September 30, 2011	$	2,492,098	$	224,191	$	2,716,289


(In thousands)	The Company		Noncontrolling Interests		Consolidated
Balances at January 1, 2010	$	2,567,647	$	193,730	$	2,761,377
Net income (loss)		(91,803)		8,638		(83,165)
Foreign currency translation adjustments		(3,169)		3,482		313
Unrealized holding loss on marketable securities		(5,343)		—		(5,343)
Reclassification adjustment		1,598		(174)		1,424
Other - net		7,100		(4,666)		2,434

Balances at September 30, 2010	$	2,476,030	$	201,010	$	2,677,040

NOTE 9 -- SEGMENT DATA

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

CLEAR CHANNEL OUTDOOR HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

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


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

Three months ended September 30, 2011
Revenue	$	347,344	$	401,106	$	—	$	748,450
Direct operating expenses		152,631		255,501		—		408,132
Selling, general and administrative expenses		57,780		74,135		—		131,915
Depreciation and amortization		62,809		52,125		—		114,934
Corporate expenses		—		—		22,303		22,303
Other operating income - net		—		—		37		37

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


Capital expenditures	$	19,177	$	41,193	$	—	$	60,370
Share-based compensation expense	$	1,903	$	792	$	36	$	2,731

Three months ended September 30, 2010
Revenue	$	333,269	$	361,817	$	—	$	695,086
Direct operating expenses		143,940		236,679		—		380,619
Selling, general and administrative expenses		51,750		63,474		—		115,224
Depreciation and amortization		53,139		50,694		—		103,833
Corporate expenses		—		—		26,197		26,197
Other operating expense - net		—		—		(27,672)		(27,672)

Operating income (loss)	$	84,440	$	10,970	$	(53,869)	$	41,541


Capital expenditures	$	30,689	$	21,869	$	—	$	52,558
Share-based compensation expense	$	2,207	$	658	$	92	$	2,957

Nine months ended September 30, 2011
Revenue	$	977,433	$	1,210,439	$	—	$	2,187,872
Direct operating expenses		445,615		769,369		—		1,214,984
Selling, general and administrative expenses		167,379		230,653		—		398,032
Depreciation and amortization		166,859		156,005		—		322,864
Corporate expenses		—		—		67,324		67,324
Other operating income - net		—		—		9,139		9,139

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


Capital expenditures	$	87,875	$	78,269	$	—	$	166,144
Share-based compensation expense	$	5,745	$	2,396	$	111	$	8,252

Nine months ended September 30, 2010
Revenue	$	928,015	$	1,077,246	$	—	$	2,005,261
Direct operating expenses		427,546		717,843		—		1,145,389
Selling, general and administrative expenses		160,302		196,971		—		357,273
Depreciation and amortization		158,319		152,522		—		310,841
Corporate expenses		—		—		70,726		70,726
Other operating expense - net		—		—		(24,934)		(24,934)

Operating income (loss)	$	181,848	$	9,910	$	(95,660)	$	96,098


Capital expenditures	$	70,615	$	68,659	$	—	$	139,274
Share-based compensation expense	$	6,553	$	1,953	$	273	$	8,779

CLEAR CHANNEL OUTDOOR HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

NOTE 10 -- SUBSEQUENT EVENTS

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

NOTE 11 -- GUARANTOR SUBSIDIARIES

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


	September 30, 2011
(In thousands)	Parent Company		Subsidiary Issuer		Guarantor Subsidiaries		Non-Guarantor Subsidiaries		Eliminations		Consolidated
Cash and cash equivalents	$	363,315	$	—	$	—	$	291,904	$	(23,240)	$	631,979
Accounts receivable, net		—		—		228,042		471,890		—		699,932
Intercompany receivables		—		136,940		1,356,223		—		(1,493,163)		—
Other current assets		4,021		—		76,004		140,954		—		220,979

Total Current Assets		367,336		136,940		1,660,269		904,748		(1,516,403)		1,552,890
Property, plant and equipment, net		—		—		1,451,058		760,119		—		2,211,177
Definite-lived intangibles, net		—		—		384,835		251,085		—		635,920
Indefinite-lived intangibles		—		—		1,098,872		14,690		—		1,113,562
Goodwill		—		—		571,932		287,558		—		859,490
Due from Clear Channel Communications		541,356		—		—		—		—		541,356
Intercompany notes receivable		182,026		2,570,855		—		17,832		(2,770,713)		—
Other assets		2,761,607		1,029,717		1,471,084		64,838		(5,170,626)		156,620

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

Accounts payable and accrued expenses	$	173	$	1,083	$	121,366	$	490,206	$	(23,240)	$	589,588
Intercompany payable		1,352,338		—		136,940		3,885		(1,493,163)		—
Deferred income		—		—		45,591		81,591		—		127,182
Current portion of long-term debt		—		—		502		47,104		—		47,606

Total Current Liabilities		1,352,511		1,083		304,399		622,786		(1,516,403)		764,376
Long-term debt		—		2,500,000		1,113		116		—		2,501,229
Intercompany notes payable		7,491		—		2,692,367		70,855		(2,770,713)		—
Deferred tax liability		225		(72)		762,392		49,054		—		811,599
Other long-term liabilities		—		1,181		116,172		160,169		—		277,522
Total shareholders’ equity		2,492,098		1,235,320		2,761,607		1,397,890		(5,170,626)		2,716,289

Total Liabilities and Shareholders’ Equity	$	3,852,325	$	3,737,512	$	6,638,050	$	2,300,870	$	(9,457,742)	$	7,071,015

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

CLEAR CHANNEL OUTDOOR HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)


	Three Months Ended September 30, 2011
(In thousands)	Parent Company		Subsidiary Issuer		Guarantor Subsidiaries		Non-Guarantor Subsidiaries		Eliminations		Consolidated
Revenue	$	—	$	—	$	304,102	$	444,348	$	—	$	748,450
Operating expenses:
Direct operating expenses		—		—		131,111		277,021		—		408,132
Selling, general and administrative expenses		—		—		43,534		88,381		—		131,915
Corporate expenses		2,826		—		12,024		7,453		—		22,303
Depreciation and amortization		—		—		59,097		55,837		—		114,934
Other operating income (expense) – net		—		—		561		(524)		—		37

Operating income (loss)		(2,826)		—		58,897		15,132		—		71,203
Interest expense – net		110		57,812		1,924		1,963		—		61,809
Interest income on Due from Clear Channel Communications		—		—		12,215		—		—		12,215
Intercompany interest income		3,524		57,874		—		247		(61,645)		—
Intercompany interest expense		124		—		61,461		60		(61,645)		—
Equity in earnings (loss) of nonconsolidated affiliates		2,922		567		(327)		1,038		(3,162)		1,038
Other expense – net		—		(259)		(129)		(1,471)		—		(1,859)

Income (loss) before income taxes		3,386		370		7,271		12,923		(3,162)		20,788
Income tax expense		(173)		(445)		(4,349)		(6,035)		—		(11,002)

Consolidated net income (loss)		3,213		(75)		2,922		6,888		(3,162)		9,786
Less: amount attributable to noncontrolling interest		—		—		—		6,573		—		6,573

Net income (loss) attributable to the Company	$	3,213	$	(75)	$	2,922	$	315	$	(3,162)	$	3,213
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments		—		—		—		(88,618)		—		(88,618)
Foreign currency reclassification adjustment		—		—		—		86		—		86
Unrealized loss on marketable securities		—		—		—		(4,979)		—		(4,979)
Equity in subsidiary comprehensive income (loss)		(92,243)		(71,927)		(92,243)		—		256,413		—

Comprehensive income (loss)	$	(89,030)	$	(72,002)	$	(89,321)	$	(93,196)	$	253,251	$	(90,298)
Less: amount attributable to noncontrolling interest		—		—		—		(1,268)		—		(1,268)

Comprehensive income (loss) attributable to the Company	$	(89,030)	$	(72,002)	$	(89,321)	$	(91,928)	$	253,251	$	(89,030)

CLEAR CHANNEL OUTDOOR HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)


	Three Months Ended September 30, 2010
(In thousands)	Parent Company		Subsidiary Issuer		Guarantor Subsidiaries		Non-Guarantor Subsidiaries		Eliminations		Consolidated
Revenue	$	—	$	—	$	294,703	$	400,383	$	—	$	695,086
Operating expenses:
Direct operating expenses		—		—		123,118		257,501		—		380,619
Selling, general and administrative expenses		—		—		43,176		72,048		—		115,224
Corporate expenses		3,244		(83)		15,249		7,787		—		26,197
Depreciation and amortization		—		—		49,546		54,287		—		103,833
Other operating expense – net		—		—		(5,592)		(22,080)		—		(27,672)

Operating income (loss)		(3,244)		83		58,022		(13,320)		—		41,541
Interest expense – net		79		57,812		1,367		1,018		—		60,276
Interest income on Due from Clear Channel Communications		—		—		4,800		—		—		4,800
Intercompany interest income		3,535		58,004		—		245		(61,784)		—
Intercompany interest expense		119		—		61,193		472		(61,784)		—
Equity in earnings (loss) of nonconsolidated affiliates		(34,952)		(23,518)		(30,186)		(663)		88,656		(663)
Other income (expense) – net		—		—		(48)		1,593		—		1,545

Income (loss) before income taxes		(34,859)		(23,243)		(29,972)		(13,635)		88,656		(13,053)
Income tax benefit (expense)		(35)		225		(4,981)		(14,038)		—		(18,829)

Consolidated net income (loss)		(34,894)		(23,018)		(34,953)		(27,673)		88,656		(31,882)
Less amount attributable to noncontrolling interest		—		—		(1)		3,013		—		3,012

Net income (loss) attributable to the Company	$	(34,894)	$	(23,018)	$	(34,952)	$	(30,686)	$	88,656	$	(34,894)
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments		—		—		—		106,902		—		106,902
Foreign currency reclassification adjustment		—		—		—		2,565		—		2,565
Unrealized loss on marketable securities		—		—		—		(394)		—		(394)
Equity in subsidiary comprehensive income (loss)		102,031		94,506		102,031		—		(298,568)		—

Comprehensive income (loss)	$	67,137	$	71,488	$	67,079	$	78,387	$	(209,912)	$	74,179
Less amount attributable to noncontrolling interest		—		—		—		7,042		—		7,042

Comprehensive income (loss) attributable to the Company	$	67,137	$	71,488	$	67,079	$	71,345	$	(209,912)	$	67,137

CLEAR CHANNEL OUTDOOR HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)


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

Revenue	$	—	$	—	$	848,900	$	1,338,972	$	—	$	2,187,872
Operating expenses:
Direct operating expenses		—		—		377,657		837,327		—		1,214,984
Selling, general and administrative expenses		—		—		134,051		263,981		—		398,032
Corporate expenses		8,914		—		36,931		21,479		—		67,324
Depreciation and amortization		—		—		155,391		167,473		—		322,864
Other operating income– net		—		—		8,157		982		—		9,139

Operating income (loss)		(8,914)		—		153,027		49,694		—		193,807
Interest expense – net		1		173,437		5,786		4,371		—		183,595
Interest income on Due from Clear Channel Communications		—		—		31,786		—		—		31,786
Intercompany interest income		10,478		173,731		—		749		(184,958)		—
Intercompany interest expense		380		—		184,284		294		(184,958)		—
Equity in earnings (loss) of nonconsolidated affiliates		19,626		16,603		23,261		1,639		(59,489)		1,640
Other income (expense) – net		—		(198)		(259)		1,432		—		975

Income (loss) before income taxes		20,809		16,699		17,745		48,849		(59,489)		44,613
Income tax benefit (expense)		(442)		(799)		1,881		(11,647)		—		(11,007)

Consolidated net income (loss)		20,367		15,900		19,626		37,202		(59,489)		33,606
Less amount attributable to noncontrolling interest		—		—		—		13,239		—		13,239

Net income (loss) attributable to the Company	$	20,367	$	15,900	$	19,626	$	23,963	$	(59,489)	$	20,367
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments		—		—		—		(22,233)		—		(22,233)
Foreign currency reclassification adjustment		—		—		—		234		—		234
Unrealized loss on marketable securities		—		—		—		(4,459)		—		(4,459)
Equity in subsidiary comprehensive income (loss)		(31,324)		(16,980)		(31,324)		—		79,628		—

Comprehensive income (loss)		(10,957)		(1,080)		(11,698)		(2,495)		20,139		(6,091)
Less amount attributable to noncontrolling interest		—		—		—		4,866		—		4,866

Comprehensive income (loss) attributable to the Company	$	(10,957)	$	(1,080)	$	(11,698)	$	(7,361)	$	20,139	$	(10,957)

CLEAR CHANNEL OUTDOOR HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)


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

Revenue	$	—	$	—	$	814,146	$	1,191,115	$	—		$2,005,261
Operating expenses:
Direct operating expenses		—		—		365,214		780,175		—		1,145,389
Selling, general and administrative expenses		—		—		135,876		221,397		—		357,273
Corporate expenses		10,144		452		41,968		18,162		—		70,726
Depreciation and amortization		—		—		147,559		163,282		—		310,841
Other operating expense – net		—		—		(3,625)		(21,309)		—		(24,934)

Operating income (loss)		(10,144)		(452)		119,904		(13,210)		—		96,098
Interest expense – net		328		172,874		2,653		3,134		—		178,989
Interest income on Due from Clear Channel Communications		—		—		12,019		—		—		12,019
Intercompany interest income		10,626		173,749		—		738		(185,113)		—
Intercompany interest expense		361		—		183,047		1,705		(185,113)		—
Equity in earnings (loss) of nonconsolidated affiliates		(91,674)		(49,446)		(49,751)		(1,279)		190,688		(1,462)
Other expense – net		—		—		(139)		(3,308)		—		(3,447)

Income (loss) before income taxes		(91,881)		(49,023)		(103,667)		(21,898)		190,688		(75,781)
Income tax benefit (expense)		78		526		11,992		(19,980)				(7,384)

Consolidated net income (loss)		(91,803)		(48,497)		(91,675)		(41,878)		190,688		(83,165)
Less amount attributable to noncontrolling interest		—		—		(1)		8,639		—		8,638

Net income (loss) attributable to the Company	$	(91,803)	$	(48,497)	$	(91,674)	$	(50,517)	$	190,688	$	(91,803)
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments		—		3,796		—		(3,483)		—		313
Foreign currency reclassification adjustment		—		—		—		1,424		—		1,424
Unrealized loss on marketable securities		—		—		—		(5,343)		—		(5,343)
Equity in subsidiary comprehensive income (loss)		(6,914)		(15,076)		(6,914)		—		28,904		—

Comprehensive income (loss)	$	(98,717)	$	(59,777)	$	(98,588)	$	(57,919)	$	219,592	$	(95,409)
Less amount attributable to noncontrolling interest		—		—		—		3,308		—		3,308

Comprehensive income (loss) attributable to the Company	$	(98,717)	$	(59,777)	$	(98,588)	$	(61,227)	$	219,592	$	(98,717)

CLEAR CHANNEL OUTDOOR HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)


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

Cash flows from operating activities:
Consolidated net income (loss)	$	20,367	$	15,900	$	19,626	$	37,202	$	(59,489)	$	33,606

Reconciling items:
Depreciation and amortization		—		—		155,391		167,473		—		322,864
Deferred taxes		—		(72)		3,538		(17,210)		—		(13,744)
Provision for doubtful accounts		—		—		1,426		3,556		—		4,982
Other reconciling items – net		(19,626)		(16,603)		(19,771)		(2,543)		59,489		946
Changes in operating assets and liabilities:
Decrease in accounts receivable		—		—		21,082		4,681		—		25,763
Increase in deferred income		—		—		7,216		19,804		—		27,020
Increase (decrease) in accrued expenses		—		73		(25,332)		8,058		—		(17,201)
Increase (decrease) in accounts payable and other liabilities		—		—		23,105		5,408		(16,727)		11,786
Changes in other operating assets and liabilities, net of effects of acquisitions and dispositions		(2,639)		918		(18,273)		(24,372)		—		(44,366)

Net cash provided by (used for) operating activities		(1,898)		216		168,008		202,057		(16,727)		351,656
Cash flows from investing activities:
Purchases of property, plant and equipment		—		—		(80,896)		(83,504)		—		(164,400)
Equity contributions to subsidiaries		—		—		(199)		—		199		—
Purchases of other operating assets		—		—		(12,908)		(331)		—		(13,239)
Proceeds from disposal of assets		—		—		7,128		3,880		—		11,008
Decrease in intercompany notes receivable – net		—		20,100		—		—		(20,100)		—
Change in other – net		—		—		879		772		(704)		947

Net cash provided by (used for) investing activities		—		20,100		(85,996)		(79,183)		(20,605)		(165,684)
Cash flows from financing activities:
Payments on credit facilities		—		—		(129)		(3,073)		—		(3,202)
Proceeds from long term debt		—		—		—		1,560				1,560
Payments on long-term debt		—		—		—		(13,243)		—		(13,243)
Increase in intercompany notes payable – net		—		—		—		(20,100)		20,100		—
Net transfers to Clear Channel Communications		(157,595)		—		—		—		—		(157,595)
Intercompany funding		94,935		(20,316)		(81,883)		7,264		—		—
Equity contributions from parent		—		—		—		199		(199)		—
Change in other – net		1,131		—		—		(6,185)		704		(4,350)

Net cash provided by (used for) financing activities		(61,529)		(20,316)		(82,012)		(33,578)		20,605		(176,830)

Effect of exchange rate changes on cash		—		—		—		(1,181)		—		(1,181)


Net increase (decrease) in cash and cash equivalents		(63,427)		—		—		88,115		(16,727)		7,961

Cash and cash equivalents at beginning of period		426,742		—		—		203,789		(6,513)		624,018


Cash and cash equivalents at end of period	$	363,315	$	—	$	—	$	291,904	$	(23,240)	$	631,979

CLEAR CHANNEL OUTDOOR HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)


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

Cash flows from operating activities:
Consolidated net income (loss)	$	(91,803)	$	(48,497)	$	(91,675)	$	(41,878)	$	190,688	$	(83,165)

Reconciling items:
Depreciation and amortization		—		—		147,559		163,282		—		310,841
Deferred taxes		—		—		(7,970)		(3,752)		—		(11,722)
Provision for doubtful accounts		—		—		481		4,368		—		4,849
Loss on sale of operating assets		—		—		3,625		21,309		—		24,934
Other reconciling items – net		91,674		53,242		56,381		5,050		(190,688)		15,659
Changes in operating assets and liabilities:
Increase in accounts receivable		—		—		(9,791)		(10,483)		—		(20,274)
(Increase) decrease in Federal income taxes receivable		774		(1,502)		50,136		1,550		—		50,958
Increase in deferred income		—		—		9,172		20,848		—		30,020
Increase in accrued expenses		—		—		26,196		2,684		—		28,880
Increase (decrease) in accounts payable and other liabilities		—		816		13,453		(20,810)		—		(6,541)
Changes in other operating assets and liabilities, net of effects of acquisitions and dispositions		(1,022)		(159)		6,960		18,916		—		24,695

Net cash provided by (used for) operating activities		(377)		3,900		204,527		161,084		—		369,134
Cash flows from investing activities:
Purchases of property, plant and equipment		—		—		(65,908)		(73,366)		—		(139,274)
Equity contributions to subsidiaries		—		—		(331)		—		331		—
Decrease (increase) in intercompany notes receivable – net		—		19,542		—		130		(19,672)		—
Purchases of other operating assets		—		—		(715)		—		—		(715)
Proceeds from disposal of assets		—		—		3,858		2,608		—		6,466
Change in other – net		—		—		(701)		(896)		(107)		(1,704)

Net cash provided by (used for) investing activities		—		19,542		(63,797)		(71,524)		(19,448)		(135,227)
Cash flows from financing activities:
Draws on credit facilities		—		—		—		3,916		—		3,916
Payments on credit facilities		—		—		(3)		(42,251)		—		(42,254)
Proceeds from long-term debt		—		—		—		6,844		—		6,844
Payments on long-term debt		—		—		—		(12,425)		—		(12,425)
Net transfers to Clear Channel Communications		(130,870)		—		—		—		—		(130,870)
Intercompany funding		130,255		(23,442)		(134,782)		27,969		—		—
Increase (decrease) in intercompany notes payable –net		(130)		—		—		(19,542)		19,672		—
Equity contributions from parent		—		—		—		331		(331)		—
Change in other – net		1,122		—		(1)		(5,441)		107		(4,213)

Net cash provided by (used for) financing activities		377		(23,442)		(134,786)		(40,599)		19,448		(179,002)

Effect of exchange rate changes on cash		—		—		—		369		—		369


Net increase in cash and cash equivalents		—		—		5,944		49,330		—		55,274

Cash and cash equivalents at beginning of period		—		—		431,105		178,331		—		609,436


Cash and cash equivalents at end of period	$	—	$	—	$	437,049	$	227,661	$	—	$	664,710

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

Format of Presentation

Management’s discussion and analysis of our results of operations and financial condition (“MD&A”) should be read in conjunction with the consolidated financial statements and related footnotes. Our discussion is presented on both a consolidated and segment basis. Our reportable operating segments are Americas outdoor advertising (“Americas”) and International outdoor advertising (“International”). Our Americas and International segments provide outdoor advertising services in their respective geographic regions using various digital and traditional display types.

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

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

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

Executive Summary

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

•

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

•

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

•

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

RESULTS OF OPERATIONS

Consolidated Results of Operations

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


(In thousands)	Three Months Ended September 30,				% Change	Nine Months Ended September 30,				% Change
	2011		2010		% Change	2011		2010		% Change
Revenue	$	748,450	$	695,086	8%	$	2,187,872	$	2,005,261	9%
Operating expenses:
Direct operating expenses (excludes depreciation and amortization)		408,132		380,619	7%		1,214,984		1,145,389	6%
Selling, general and administrative expenses (excludes depreciation and amortization)		131,915		115,224	14%		398,032		357,273	11%
Corporate expenses (excludes depreciation and amortization)		22,303		26,197	(15%)		67,324		70,726	(5%)
Depreciation and amortization		114,934		103,833	11%		322,864		310,841	4%
Other operating income (expense) – net		37		(27,672)			9,139		(24,934)

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

Interest expense		61,809		60,276			183,595		178,989
Interest income on Due from Clear Channel Communications		12,215		4,800			31,786		12,019
Equity in earnings (loss) of nonconsolidated affiliates		1,038		(663)			1,640		(1,462)
Other income (expense) – net		(1,859)		1,545			975		(3,447)

Income (loss) before income taxes		20,788		(13,053)			44,613		(75,781)
Income tax expense		(11,002)		(18,829)			(11,007)		(7,384)

Consolidated net income (loss)		9,786		(31,882)			33,606		(83,165)
Less amount attributable to noncontrolling interest		6,573		3,012			13,239		8,638

Net income (loss) attributable to the Company	$	3,213	$	(34,894)		$	20,367	$	(91,803)
	<

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