Form 10-Q
Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

 

FORM 10-Q

 

 

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2010

 

¨ 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

001-9645

 

 

CLEAR CHANNEL COMMUNICATIONS, INC.

(Exact name of registrant as specified in its charter)

 

 

 

Texas   74-1787539
(State or other jurisdiction of
incorporation or organization)
  (I.R.S. Employer Identification No.)
200 East Basse Road
San Antonio, Texas
  78209
(Address of principal executive offices)   (Zip Code)

(210) 822-2828

(Registrant’s telephone number, including area code)

 

 

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

Pursuant to the terms of its bond indentures, the registrant is a voluntary filer of reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934, and has filed all such reports as required by its bond indentures during the preceding 12 months.

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  ¨    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  ¨    Non-accelerated filer  x    Smaller reporting company  ¨

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

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

 

Class

  

Outstanding at August 6, 2010

Common stock, $.001 par value

   500,000,000

The registrant meets the conditions set forth in General Instructions H(1)(a) and (b) of Form 10-Q and is therefore filing this form in a reduced disclosure format permitted by General Instruction H(2).

 

 

 


Table of Contents

CLEAR CHANNEL COMMUNICATIONS, INC. AND SUBSIDIARIES

INDEX

 

     Page No.

PART I — FINANCIAL INFORMATION

  

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

   3

Condensed Consolidated Balance Sheets at June 30, 2010 and December 31, 2009

   3

Consolidated Statements of Operations for the three and six months ended June 30, 2010 and 2009

   4

Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2010 and 2009

   5

Notes to Consolidated Financial Statements

   6

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

   23

Item 3. Quantitative and Qualitative Disclosures About Market Risk

   34

Item 4. Controls and Procedures

   34

PART II — OTHER INFORMATION

  

Item 1. Legal Proceedings

   35

Item 1A. Risk Factors

   35

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds (intentionally omitted pursuant to General Instruction H(2)(b) of Form 10-Q)

   35

Item 3. Defaults Upon Senior Securities (intentionally omitted pursuant to General Instruction H(2)(b) of Form 10-Q)

   35

Item 4. (Removed and Reserved)

   35

Item 5. Other Information

   35

Item 6. Exhibits

   36

Signatures

   37

 

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Table of Contents

PART I FINANCIAL INFORMATION

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

CLEAR CHANNEL CAPITAL I, LLC

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands)

 

     June 30,
2010
(Unaudited)
    December 31,
2009
 

CURRENT ASSETS

    

Cash and cash equivalents

   $ 1,504,730      $ 1,883,994   

Accounts receivable, net

     1,323,697        1,301,700   

Other current assets

     459,264        473,151   
                

Total Current Assets

     3,287,691        3,658,845   

PROPERTY, PLANT AND EQUIPMENT

    

Structures, net

     2,027,471        2,143,972   

Other property, plant and equipment, net

     1,142,005        1,188,421   

INTANGIBLE ASSETS

    

Definite-lived intangibles, net

     2,423,875        2,599,244   

Indefinite-lived intangibles

     3,551,918        3,562,057   

Goodwill

     4,092,443        4,125,005   

Other assets

     761,379        769,557   
                

Total Assets

   $ 17,286,782      $ 18,047,101   
                

CURRENT LIABILITIES

    

Accounts payable and accrued expenses

   $ 943,340      $ 995,740   

Current portion of long-term debt

     916,043        398,779   

Deferred income

     187,470        149,617   
                

Total Current Liabilities

     2,046,853        1,544,136   

Long-term debt

     19,535,311        20,303,126   

Deferred income taxes

     2,079,500        2,220,023   

Other long-term liabilities

     834,416        824,554   

Commitments and contingent liabilities

    

MEMBER’S DEFICIT

    

Noncontrolling interest

     446,716        455,648   

Member’s interest

     2,118,303        2,109,007   

Retained deficit

     (9,337,822     (9,076,084

Accumulated other comprehensive loss

     (436,495     (333,309
                

Total Member’s Deficit

     (7,209,298     (6,844,738
                

Total Liabilities and Member’s Deficit

   $ 17,286,782      $ 18,047,101   
                

See notes to consolidated financial statements.

 

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Table of Contents

CLEAR CHANNEL CAPITAL I, LLC

CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

(In thousands)

 

     Three Months Ended
June 30,
    Six Months Ended
June 30,
 
     2010     2009     2010     2009  

Revenue

   $ 1,490,009      $ 1,437,865      $ 2,753,787      $ 2,645,852   

Operating expenses:

        

Direct operating expenses (excludes depreciation and amortization)

     600,916        637,076        1,198,263        1,255,425   

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

     376,637        360,558        725,933        738,094   

Corporate expenses (excludes depreciation and amortization)

     64,109        50,087        128,605        97,722   

Depreciation and amortization

     184,178        208,246        365,512        383,805   

Impairment charges

     —          4,041,252        —          4,041,252   

Other operating income (expense) – net

     3,264        (31,516     7,036        (34,410
                                

Operating income (loss)

     267,433        (3,890,870     342,510        (3,904,856

Interest expense

     385,579        384,625        771,374        771,678   

Equity in earnings (loss) of nonconsolidated affiliates

     3,747        (17,719     5,618        (21,907

Other (expense) income – net

     (787     430,629        57,248        427,449   
                                

Loss before income taxes

     (115,186     (3,862,585     (365,998     (4,270,992

Income tax benefit

     37,979        184,552        109,164        164,960   
                                

Consolidated net loss

     (77,207     (3,678,033     (256,834     (4,106,032

Amount attributable to noncontrolling interest

     9,117        (4,629     4,904        (14,411
                                

Net loss attributable to the Company

   $ (86,324   $ (3,673,404   $ (261,738   $ (4,091,621
                                

Other comprehensive (loss) income, net of tax:

        

Foreign currency translation adjustments

     (74,223     133,058        (113,672     85,715   

Unrealized (loss) gain on securities and derivatives:

        

Unrealized holding (loss) gain on marketable securities

     (412     8,551        3,533        (1,610

Unrealized holding loss on cash flow derivatives

     (4,992     (47,393     (8,146     (75,750

Reclassification adjustment

     (1,366     (513     (1,141     3,120   
                                

Comprehensive loss

     (167,317     (3,579,701     (381,164     (4,080,146
                                

Amount attributable to noncontrolling interest

     (11,572     19,509        (16,240     10,337   
                                

Comprehensive loss attributable to the Company

   $ (155,745   $ (3,599,210   $ (364,924   $ (4,090,483
                                

See notes to consolidated financial statements.

 

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CLEAR CHANNEL CAPITAL I, LLC

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

(In thousands)

 

     Six Months Ended
June 30,
 
     2010     2009  

Cash flows from operating activities:

    

Consolidated net loss

   $ (256,834   $ (4,106,032

Reconciling items:

    

Impairment charges

     —          4,041,252   

Depreciation and amortization

     365,512        383,805   

Deferred taxes

     (135,808     (194,991

(Gain) loss on disposal of operating assets

     (7,036     34,410   

Gain on extinguishment of debt

     (60,289     (440,338

Provision for doubtful accounts

     7,791        24,206   

Share-based compensation

     16,624        19,306   

Equity in (earnings) loss of nonconsolidated affiliates

     (5,618     21,907   

Amortization of deferred financing charges and note discounts, net

     105,596        120,352   

Other reconciling items - net

     3,757        (3,444

Changes in operating assets and liabilities:

    

(Increase) decrease in accounts receivable

     (66,994     79,415   

Increase in deferred income

     42,320        45,507   

Increase (decrease) in accounts payable, accrued expenses and other liabilities

     18,166        (92,683

Increase (decrease) in accrued interest

     45,188        (17,837

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

     (19,583     1,212   
                

Net cash provided by (used for) operating activities

     52,792        (83,953

Cash flows from investing activities:

    

Sales of investments – net

     200        23,689   

Purchases of property, plant and equipment

     (103,409     (92,623

Acquisition of operating assets

     (10,814     (6,930

Proceeds from disposal of assets

     11,107        37,332   

Change in other – net

     (2,637     6,643   
                

Net cash used for investing activities

     (105,553     (31,889

Cash flows from financing activities:

    

Draws on credit facilities

     148,304        1,622,444   

Payments on credit facilities

     (104,541     (149,376

Proceeds from delayed draw term loan facility

     —          500,000   

Proceeds from long-term debt

     6,844        —     

Payments on long-term debt

     (247,807     (466,812

Repurchases of long-term debt

     (125,000     (119,684

Change in other – net

     (4,303     (13,074
                

Net cash (used for) provided by financing activities

     (326,503     1,373,498   

Net (decrease) increase in cash and cash equivalents

     (379,264     1,257,656   

Cash and cash equivalents at beginning of period

     1,883,994        239,846   
                

Cash and cash equivalents at end of period

   $ 1,504,730      $ 1,497,502   
                

See notes to consolidated financial statements.

 

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CLEAR CHANNEL CAPITAL I, LLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Note 1: BASIS OF PRESENTATION

Preparation of Interim Financial Statements

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

The accompanying consolidated financial statements were prepared by the Company pursuant to the rules and regulations of the SEC and, in the opinion of management, include all adjustments (consisting of normal recurring accruals and adjustments necessary for adoption of new accounting standards) necessary to present fairly the results of the interim periods shown. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) have been condensed or omitted pursuant to such SEC rules and regulations. Management believes that the disclosures made are adequate to make the information presented not misleading. Due to seasonality and other factors, the results for the interim periods are not necessarily indicative of results for the full year. The financial statements contained herein should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s 2009 Annual Report on Form 10-K and Quarterly Report on Form 10-Q for the quarter ended March 31, 2010.

The consolidated financial statements include the accounts of the Company and its subsidiaries. Investments in companies in which the Company owns 20 percent to 50 percent of the voting common stock or otherwise exercises significant influence over operating and financial policies of the company are accounted for under the equity method. All significant intercompany transactions are eliminated in the consolidation process.

Certain prior-period amounts have been reclassified to conform to the 2010 presentation.

Information Regarding the Company

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

Note 2: PROPERTY, PLANT AND EQUIPMENT, INTANGIBLE ASSETS AND GOODWILL

Property, Plant and Equipment

The Company’s property, plant and equipment consisted of the following classes of assets at June 30, 2010 and December 31, 2009, respectively.

 

(In thousands)    June 30,    December 31,
     2010    2009

Land, buildings and improvements

   $ 640,306    $ 633,222

Structures

     2,499,110      2,514,602

Towers, transmitters and studio equipment

     383,709      381,046

Furniture and other equipment

     250,037      234,101

Construction in progress

     67,405      88,391
             
     3,840,567      3,851,362

Less: accumulated depreciation

     671,091      518,969
             

Property, plant and equipment, net

   $ 3,169,476    $ 3,332,393
             

 

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CLEAR CHANNEL CAPITAL I, LLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

 

Definite-lived Intangible Assets

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

The following table presents the gross carrying amount and accumulated amortization for each major class of definite-lived intangible assets at June 30, 2010 and December 31, 2009, respectively:

 

(In thousands)    June 30, 2010    December 31, 2009
     Gross Carrying
Amount
   Accumulated
Amortization
   Gross Carrying
Amount
   Accumulated
Amortization

Transit, street furniture and other outdoor contractual rights

   $ 762,912    $ 194,242    $ 803,297    $ 166,803

Customer / advertiser relationships

     1,210,205      229,861      1,210,205      169,897

Talent contracts

     320,854      78,754      320,854      57,825

Representation contracts

     228,802      82,251      218,584      54,755

Other

     549,826      63,616      550,041      54,457
                           

Total

   $ 3,072,599    $ 648,724    $ 3,102,981    $ 503,737
                           

Total amortization expense related to definite-lived intangible assets was $87.1 million and $100.3 million for the three months ended June 30, 2010 and 2009, respectively, and $168.2 million and $172.3 million for the six months ended June 30, 2010 and 2009, 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)

2011

   $ 305,648

2012

     292,386

2013

     276,217

2014

     255,179

2015

     230,998

Indefinite-lived Intangible Assets

The Company’s indefinite-lived intangible assets consist of Federal Communications Commission (“FCC”) broadcast licenses and billboard permits as follows:

 

(In thousands)    June 30,    December 31,
     2010    2009

FCC broadcast licenses

   $ 2,429,040    $ 2,429,839

Billboard permits

     1,122,878      1,132,218
             

Total indefinite-lived intangible assets

   $ 3,551,918    $ 3,562,057
             

 

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CLEAR CHANNEL CAPITAL I, LLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

 

Goodwill

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

 

(In thousands)    Radio
Broadcasting
    Americas
Outdoor

Advertising
    International
Outdoor

Advertising
    Other     Total  

Balance as of December 31, 2008

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

Impairment

     (2,420,897     (390,374     (73,764     (211,988     (3,097,023

Acquisitions

     4,518        2,250        110        —          6,878   

Dispositions

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

Foreign currency

     —          16,293        17,412        —          33,705   

Purchase price adjustments - net

     47,086        68,896        45,042        (482     160,542   

Other

     (618     (4,414     —          —          (5,032
                                        

Balance as of December 31, 2009

     3,146,869        585,249        276,343        116,544        4,125,005   

Acquisitions

     —          —          —          257        257   

Dispositions

     (2,261     —          —          —          (2,261

Foreign currency

     —          19        (29,827     —          (29,808

Other

     (750     —          —          —          (750
                                        

Balance as of June 30, 2010

   $ 3,143,858      $ 585,268      $ 246,516      $ 116,801      $ 4,092,443   
                                        

The balance at December 31, 2008 is net of cumulative impairments of $1.1 billion, $2.3 billion, and $173.4 million in the Radio broadcasting, Americas outdoor and International outdoor segments, respectively.

NOTE 3: DEBT

Long-term debt at June 30, 2010 and December 31, 2009 consisted of the following:

 

(In thousands)    June 30,
2010
    December 31,
2009
 

Senior Secured Credit Facilities:

    

Term Loan Facilities (1)

   $ 10,885,447      $ 10,885,447   

Revolving Credit Facility Due 2014

     1,862,500        1,812,500   

Delayed Draw Facilities Due 2016

     874,432        874,432   

Receivables Based Facility Due 2014

     362,732        355,732   

Other secured long-term debt

     5,926        5,225   
                

Total consolidated secured debt

     13,991,037        13,933,336   
                

Senior Cash Pay Notes

     796,250        796,250   

Senior Toggle Notes

     783,783        915,200   

Clear Channel Senior Notes

     3,027,574        3,267,549   

Subsidiary Senior Notes

     2,500,000        2,500,000   

Other long-term debt

     60,332        77,657   

Purchase accounting adjustments and original issue discount

     (707,622     (788,087
                
     20,451,354        20,701,905   

Less: current portion

     916,043        398,779   
                

Total long-term debt

   $ 19,535,311      $ 20,303,126   
                

 

(1) The term loan facilities mature at various dates from 2014 through 2016.

The Company’s weighted average interest rate at June 30, 2010 was 6.3%. The aggregate market value of the Company’s debt based on market prices for which quotes were available was approximately $16.6 billion and $17.7 billion at June 30, 2010 and December 31, 2009, respectively.

 

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CLEAR CHANNEL CAPITAL I, LLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

 

Debt Repurchases and Maturities

During the first six months of 2010, Clear Channel Investments, Inc. (“CC Investments”), an indirect wholly-owned subsidiary of the Company, repurchased certain of Clear Channel’s outstanding senior toggle notes through an open market purchase as shown in the table below. Notes repurchased and held by CC Investments are eliminated in consolidation.

 

(In thousands)    Six Months Ended
June 30, 2010
 

CC Investments

  

Principal amount of debt repurchased

   $ 185,185   

Deferred loan costs and other

     104   

Gain recorded in “Other (expense) income – net” (1)

     (60,289
        

Cash paid for repurchases of long-term debt

   $ 125,000   
        

 

(1) CC Investments repurchased certain of Clear Channel’s senior toggle notes at a discount, resulting in a gain on the extinguishment of debt.

During the first six months of 2010, the Company repaid Clear Channel’s remaining 4.50% senior notes upon maturity for $240.0 million with available cash on hand.

Note 4: OTHER DEVELOPMENTS

Restructuring Program

In the fourth quarter of 2008, CCMH initiated a company-wide strategic review of its costs and organizational structure to identify opportunities to maximize efficiency and realign expenses with the Company’s current and long-term business outlook (the “restructuring program”). As of June 30, 2010, the Company had incurred a total of $293.2 million of costs in conjunction with this restructuring program.

No assurance can be given that the restructuring program will achieve all of the anticipated cost savings in the timeframe expected or at all, or that the cost savings will be sustainable. In addition, the Company may modify or terminate the restructuring program in response to economic conditions or otherwise.

Share-based Compensation Expense

The Company does not have any equity incentive plans. Employees of subsidiaries of the Company receive equity awards from CCMH’s equity incentive plans. The following provides information related to CCMH’s and Clear Channel’s equity incentive plans.

Share-based compensation expense is measured at the grant date based on the fair value of the award and is recognized as expense on a straight-line basis over the vesting period. The following table presents the amount of share-based compensation expense recorded during the three and six months ended June 30, 2010 and 2009, respectively:

 

(In thousands)    Three Months Ended
June 30,
   Six Months Ended
June 30,
     2010    2009    2010    2009

Direct operating expenses

   $ 2,999    $ 2,871    $ 5,720    $ 5,878

Selling, general and administrative expenses

     1,766      1,837      3,427      3,725

Corporate expenses

     3,744      4,827      7,477      9,703
                           

Total share-based compensation expense

   $ 8,509    $ 9,535    $ 16,624    $ 19,306
                           

As of June 30, 2010, there was $75.1 million of unrecognized compensation cost, net of estimated forfeitures, related to unvested share-based compensation arrangements that will vest based on service conditions. This cost is expected to be recognized over a weighted average period of approximately three years.

 

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CLEAR CHANNEL CAPITAL I, LLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

 

Supplemental Disclosures

During the six months ended June 30, 2010, cash paid for interest and income taxes, net of income tax refunds of $5.5 million, was as follows:

 

(In thousands)    Six Months Ended
June 30, 2010

Interest

   $ 626,813

Income taxes

     14,457

Divestiture Trusts

The Company owns certain radio stations which, under current FCC rules, are not permitted or transferable. These radio stations were placed in a trust in order to comply with FCC rules at the time of the closing of the merger that resulted in the Company’s acquisition of Clear Channel. The Company is the beneficial owner of the trust, but the radio stations are managed by an independent trustee. The Company will have to divest all of these radio stations unless any stations may be owned by the Company under then-current FCC rules, in which case the trust will be terminated with respect to such stations. The trust agreement stipulates that the Company must fund any operating shortfalls of the trust activities, and any excess cash flow generated by the trust is distributed to the Company. The Company is also the beneficiary of proceeds from the sale of stations held in the trust. The Company consolidates the trust in accordance with ASC 810-10, which requires an enterprise involved with variable interest entities to perform an analysis to determine whether the enterprise’s variable interest or interests give it a controlling financial interest in the variable interest entity, as the trust was determined to be a variable interest entity and the Company is its primary beneficiary.

Income Tax Benefit (Expense)

The Company’s income tax benefit (expense) for the three and six months ended June 30, 2010 and 2009, respectively, consisted of the following components:

 

(In thousands)    Three Months Ended
June  30,
    Six Months Ended
June 30,
 
     2010     2009     2010     2009  

Current tax expense

   $ (13,987   $ (18,936   $ (26,644   $ (30,031

Deferred tax benefit

     51,966        203,488        135,808        194,991   
                                

Income tax benefit

   $ 37,979      $ 184,552      $ 109,164      $ 164,960   
                                

The effective tax rate is the provision for income taxes as a percent of income from continuing operations before income taxes. The effective tax rate for the three and six months ended June 30, 2010 was 33.0% and 29.8%, respectively, compared to an effective tax rate of 4.8% and 3.9% for the three and six months ended June 30, 2009, respectively. The 2010 effective rate was 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. The 2009 effective rate was impacted primarily as a result of a deferred tax valuation allowance recorded in 2009 due to the uncertainty of the Company’s ability to utilize Federal tax losses at that time and the impairment charge on goodwill in 2009.

Note 5: FAIR VALUE MEASUREMENTS

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

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

 

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CLEAR CHANNEL CAPITAL I, LLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

 

Marketable Equity Securities

The marketable equity securities are measured at fair value using quoted prices in active markets. Due to the fact that the inputs used to measure the marketable equity securities at fair value are observable, the Company has categorized the fair value measurements of the securities as Level 1. The cost, unrealized holding gains or losses, and fair value of the Company’s investments at June 30, 2010 and December 31, 2009, respectively, are as follows:

 

(In thousands)    June 30, 2010    December 31, 2009

Investments

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

Available-for-sale

   $ 19,104    $ (3,618   $ 31,848    $ 47,334    $ 19,104    $ (12,237   $ 32,035    $ 38,902

Interest Rate Swap Agreements

The Company’s aggregate $6.0 billion notional amount interest rate swap agreements are designated as a cash flow hedge and the effective portions of the gain or loss on the swaps are reported as a component of other comprehensive income. The Company entered into the swaps to effectively convert a portion of its floating-rate debt to a fixed basis, thus reducing the impact of interest-rate changes on future interest expense. These interest rate swap agreements mature at various times through 2013.

The swap agreements are valued using a discounted cash flow model that takes into account the present value of the future cash flows under the terms of the agreements by using market information available as of the reporting date, including prevailing interest rates and credit spread. Due to the fact that the inputs are either directly or indirectly observable, the Company classified the fair value measurements of these agreements as Level 2.

The Company continually monitors its positions with, and credit quality of, the financial institutions which are counterparties to its interest rate swaps. The Company may be exposed to credit loss in the event of nonperformance by the counterparties to the interest rate swaps. However, the Company considers this risk to be low. If a derivative instrument no longer qualifies as a cash flow hedge, hedge accounting is discontinued and the gain or loss that was recorded in other comprehensive income is recognized currently in income.

The Company’s interest rate swaps meet the four criteria in ASC 815-30-35-22, which states that if certain critical terms and matching criteria are met, the change-in-variable-cash-flows method will result in no ineffectiveness being recorded in earnings. In accordance with ASC 815-20-35-9, as the critical terms of the swaps and the floating-rate debt being hedged were the same at inception and remained the same during the current period, no ineffectiveness was recorded in earnings related to these interest rate swaps.

The fair value of the Company’s interest rate swaps designated as hedging instruments and recorded in “Other long-term liabilities” was $250.3 million and $237.2 million at June 30, 2010 and December 31, 2009, respectively.

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

 

(In thousands)    Accumulated other
comprehensive loss

Balance at December 31, 2009

   $ 149,179

Other comprehensive loss

     8,146
      

Balance at June 30, 2010

   $ 157,325
      

Other Comprehensive Income (Loss)

The following table discloses the amount of income tax benefit (expense) allocated to each component of other comprehensive income for the three and six months ended June 30, 2010 and 2009, respectively:

 

(In thousands)    Three Months Ended
June 30,
    Six Months Ended
June 30,
 
     2010    2009     2010     2009  

Unrealized holding gain (loss) on marketable securities

   $ 3,470    $ (10,451   $ (914   $ (12,928

Unrealized holding gain on cash flow derivatives

     2,999      27,787        4,887        44,295   
                               

Income tax benefit

   $ 6,469    $ 17,336      $ 3,973      $ 31,367   
                               

 

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CLEAR CHANNEL CAPITAL I, LLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

 

Note 6: COMMITMENTS, CONTINGENCIES AND GUARANTEES

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.

At June 30, 2010, Clear Channel guaranteed $39.8 million of credit lines provided to certain of its international subsidiaries by a major international bank. Most of these credit lines related to intraday overdraft facilities covering participants in Clear Channel’s European cash management pool. As of June 30, 2010, no amounts were outstanding under these agreements.

As of June 30, 2010, Clear Channel had outstanding commercial standby letters of credit and surety bonds of $128.3 million and $46.6 million, respectively. Letters of credit in the amount of $15.7 million are collateral in support of surety bonds and these amounts would only be drawn under the letter of credit in the event the associated surety bonds were funded and Clear Channel did not honor its reimbursement obligation to the issuers.

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

Note 7: CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

Clear Channel is a party to a management agreement with certain affiliates of the Sponsors and certain other parties pursuant to which such affiliates of the Sponsors will provide management and financial advisory services until 2018. These agreements require management fees to be paid to such affiliates of the Sponsors for such services at a rate not greater than $15.0 million per year. For the three and six months ended June 30, 2010, the Company recognized management fees of $3.8 million and $7.5 million, respectively. For the three and six months ended June 30, 2009, the Company recognized management fees of $3.8 million and $7.5 million, respectively.

In addition, the Company reimbursed the Sponsors for additional expenses in the amount of $0.6 million and $1.0 million for the three and six months ended June 30, 2010, respectively. The Company reimbursed the Sponsors for additional expenses in the amount of $2.0 million for the three and six months ended June 30, 2009.

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 December 31, 2009

   $ (7,300,386   $ 455,648      $ (6,844,738

Net income (loss)

     (261,738     4,904        (256,834

Foreign currency translation adjustments

     (98,131     (15,541     (113,672

Unrealized holding gain (loss) on marketable securities

     4,101        (568     3,533   

Unrealized holding loss on cash flow derivatives

     (8,146     —          (8,146

Reclassification adjustment

     (1,010     (131     (1,141

Other - net

     9,296        2,404        11,700   
                        

Balances at June 30, 2010

   $ (7,656,014   $ 446,716      $ (7,209,298
                        

 

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CLEAR CHANNEL CAPITAL I, LLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

 

(In thousands)    The
Company
    Noncontrolling
Interests
    Consolidated  

Balances at December 31, 2008

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

Net loss

     (4,091,621     (14,411     (4,106,032

Foreign currency translation adjustments

     74,332        11,383        85,715   

Unrealized holding loss on marketable securities

     (564     (1,046     (1,610

Unrealized holding loss on cash flow derivatives

     (75,750     —          (75,750

Reclassification adjustment

     3,120        33,382        36,502   

Other - net

     3,616        3,577        7,193   
                        

Balances at June 30, 2009

   $ (7,429,318   $ 459,105      $ (6,970,213
                        

Note 9: SEGMENT DATA

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

The following table presents the Company’s operating segment results for the three and six months ended June 30, 2010 and 2009:

 

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

Three Months Ended June 30, 2010

        

Revenue

   $ 748,738    $ 323,769    $ 377,638    $ 62,773      $ —        $ (22,909   $ 1,490,009   

Direct operating expenses

     198,894      144,298      241,586      27,213        —          (11,075     600,916   

Selling, general and administrative expenses

     238,713      64,075      66,617      19,066        —          (11,834     376,637   

Depreciation and amortization

     63,812      55,729      49,570      12,925        2,142        —          184,178   

Corporate expenses

     —        —        —        —          64,109        —          64,109   

Other operating income - net

     —        —        —        —          3,264        —          3,264   
                                                     

Operating income (loss)

   $ 247,319    $ 59,667    $ 19,865    $ 3,569      $ (62,987   $ —        $ 267,433   
                                                     

Intersegment revenues

   $ 7,143    $ 790    $ —      $ 14,976      $ —        $ —        $ 22,909   

Share-based compensation expense

   $ 1,757    $ 2,316    $ 692    $ —        $ 3,744      $ —        $ 8,509   

Three Months Ended June 30, 2009

        

Revenue

   $ 717,567    $ 315,553    $ 376,564    $ 49,335      $ —        $ (21,154   $ 1,437,865   

Direct operating expenses

     233,585      148,755      243,554      21,755        —          (10,573     637,076   

Selling, general and administrative expenses

     226,227      51,398      69,944      23,570        —          (10,581     360,558   

Depreciation and amortization

     77,990      57,860      56,948      13,485        1,963        —          208,246   

Corporate expenses

     —        —        —        —          50,087        —          50,087   

Impairment charges

     —        —        —        —          4,041,252        —          4,041,252   

Other operating expense - net

     —        —        —        —          (31,516     —          (31,516
                                                     

Operating income (loss)

   $ 179,765    $ 57,540    $ 6,118    $ (9,475   $ (4,124,818   $ —        $ (3,890,870
                                                     

Intersegment revenues

   $ 8,002    $ 1,145    $ —      $ 12,007      $ —        $ —        $ 21,154   

Share-based compensation expense

   $ 2,139    $ 2,028    $ 613    $ (72   $ 4,827      $ —        $ 9,535   

 

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CLEAR CHANNEL CAPITAL I, LLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

 

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

Six Months Ended June 30, 2010

  

       

Revenue

   $ 1,371,937    $ 594,746    $ 715,429      $ 114,819      $ —        $ (43,144   $ 2,753,787   

Direct operating expenses

     402,654      283,606      481,164        52,041        —          (21,202     1,198,263   

Selling, general and administrative expenses

     465,810      108,552      133,497        40,016        —          (21,942     725,933   

Depreciation and amortization

     127,744      105,180      101,828        26,521        4,239        —          365,512   

Corporate expenses

     —        —        —          —          128,605        —          128,605   

Other operating income - net

     —        —        —          —          7,036        —          7,036   
                                                      

Operating income (loss)

   $ 375,729    $ 97,408    $ (1,060   $ (3,759   $ (125,808   $ —        $ 342,510   
                                                      

Intersegment revenues

   $ 13,797    $ 1,847    $ —        $ 27,500      $ —        $ —        $ 43,144   

Share-based compensation expense

   $ 3,506    $ 4,346    $ 1,295      $ —        $ 7,477      $ —        $ 16,624   

Six Months Ended June 30, 2009

  

       

Revenue

   $ 1,321,189    $ 585,740    $ 688,593      $ 91,133      $ —        $ (40,803   $ 2,645,852   

Direct operating expenses

     461,767      293,635      478,282        44,281        —          (22,540     1,255,425   

Selling, general and administrative expenses

     465,566      100,237      138,869        51,685        —          (18,263     738,094   

Depreciation and amortization

     134,822      104,510      112,206        28,332        3,935        —          383,805   

Corporate expenses

     —        —        —          —          97,722        —          97,722   

Impairment charges

     —        —        —          —          4,041,252        —          4,041,252   

Other operating expense - net

     —        —        —          —          (34,410     —          (34,410
                                                      

Operating income (loss)

   $ 259,034    $ 87,358    $ (40,764   $ (33,165   $ (4,177,319   $ —        $ (3,904,856
                                                      

Intersegment revenues

   $ 17,416    $ 1,270    $ —        $ 22,117      $ —        $ —        $ 40,803   

Share-based compensation expense

   $ 4,138    $ 4,196    $ 1,269      $ —        $ 9,703      $ —        $ 19,306   

Revenue of $413.9 million and $789.5 million derived from non-U.S. operations are included in the data above for the three and six months ended June 30, 2010, respectively. Revenue of $406.1 million and $746.8 million derived from non-U.S. operations is included in the data above for the three and six months ended June 30, 2009, respectively.

Note 10: SUBSEQUENT EVENTS

On July 16, 2010, Clear Channel made the election to pay interest on the senior toggle notes entirely in cash, effective for the interest period commencing August 1, 2010.

 

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CLEAR CHANNEL CAPITAL I, LLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

 

CONDENSED CONSOLIDATING BALANCE SHEETS

(UNAUDITED)

Note 11: GUARANTOR SUBSIDIARIES

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

 

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

Cash and cash equivalents

   $ —        $ —        $ 842,364    $ 662,366    $ —        $ 1,504,730   

Accounts receivable, net

     —          —          614,698      708,999      —          1,323,697   

Intercompany receivables

     19,516        7,132,207        23,845      —        (7,175,568     —     

Other current assets

     3,129        160,305        64,440      263,388      (31,998     459,264   
                                              

Total Current Assets

     22,645        7,292,512        1,545,347      1,634,753      (7,207,566     3,287,691   

Property, plant and equipment, net

     —          —          862,185      2,307,291      —          3,169,476   

Definite-lived intangibles, net

     —          —          1,685,458      738,417      —          2,423,875   

Indefinite-lived intangibles – licenses

     —          —          2,429,040      —        —          2,429,040   

Indefinite-lived intangibles – permits

     —          —          —        1,122,878      —          1,122,878   

Goodwill

     —          —          3,256,905      835,538      —          4,092,443   

Intercompany notes receivable

     —          212,000        —        —        (212,000     —     

Long-term intercompany receivable

     —          —          —        146,985      (146,985     —     

Investment in subsidiaries

     (8,114,225     4,103,370        2,706,440      —        1,304,415        —     

Other assets

     —          198,207        181,949      885,590      (504,367     761,379   
                                              

Total Assets

   $ (8,091,580   $ 11,806,089      $ 12,667,324    $ 7,671,452    $ (6,766,503   $ 17,286,782   
                                              

Accounts payable and accrued expenses

   $ —        $ 155,830      $ 264,172    $ 555,336    $ (31,998   $ 943,340   

Intercompany payable

     —          —          7,151,723      23,845      (7,175,568     —     

Current portion of long-term debt

     —          899,829        1      16,213      —          916,043   

Deferred income

     —          —          47,602      139,868      —          187,470   
                                              

Total Current Liabilities

     —          1,055,659        7,463,498      735,262      (7,207,566     2,046,853   

Long-term debt

     —          17,914,483        4,001      2,546,044      (929,217     19,535,311   

Intercompany long-term debt

     —          —          212,000      —        (212,000     —     

Intercompany payable – long-term

     —          146,985        —        —        (146,985     —     

Deferred income taxes

     (10,716     500,159        754,651      835,406      —          2,079,500   

Other long-term liabilities

     —          303,028        274,522      256,866      —          834,416   

Total member’s interest (deficit)

     (8,080,864     (8,114,225     3,958,652      3,297,874      1,729,265        (7,209,298
                                              

Total Liabilities and Member’s Interest (Deficit)

   $ (8,091,580   $ 11,806,089      $ 12,667,324    $ 7,671,452    $ (6,766,503   $ 17,286,782   
                                              

 

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Table of Contents
     December 31, 2009  
(In thousands)    Parent
Company
    Subsidiary
Issuer
    Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
   Eliminations     Consolidated  

Cash and cash equivalents

   $ —        $ —        $ 1,258,993      $ 625,001    $ —        $ 1,883,994   

Accounts receivable, net

     —          —          569,300        732,400      —          1,301,700   

Intercompany receivables

     9,601        7,132,727        9,624        47,690      (7,199,642     —     

Other current assets

     6,408        441,221        (261,632     309,634      (22,480     473,151   
                                               

Total Current Assets

     16,009        7,573,948        1,576,285        1,714,725      (7,222,122     3,658,845   

Property, plant and equipment, net

     —          —          890,068        2,442,325      —          3,332,393   

Definite-lived intangibles, net

     —          —          1,789,195        810,049      —          2,599,244   

Indefinite-lived intangibles – licenses

     —          —          2,429,839        —        —          2,429,839   

Indefinite-lived intangibles – permits

     —          —          —          1,132,218      —          1,132,218   

Goodwill

     —          —          3,259,659        865,346      —          4,125,005   

Intercompany notes receivable

     —          212,000        —          —        (212,000     —     

Long-term intercompany receivable

     —          —          —          123,308      (123,308     —     

Investment in subsidiaries

     (7,724,529     4,042,305        2,903,194        —        779,030        —     

Other assets

     —          214,688        42,430        835,346      (322,907     769,557   
                                               

Total Assets

   $ (7,708,520   $ 12,042,941      $ 12,890,670      $ 7,923,317    $ (7,101,307   $ 18,047,101   
                                               

Accounts payable and accrued expenses

   $ —        $ 158,817      $ 241,519      $ 617,884    $ (22,480   $ 995,740   

Intercompany payable

     —          —          7,313,326        9,624      (7,322,950     —     

Current portion of long-term debt

     —          351,702        4        47,073      —          398,779   

Deferred income

     —          —          37,189        112,428      —          149,617   
                                               

Total Current Liabilities

     —          510,519        7,592,038        787,009      (7,345,430     1,544,136   

Long-term debt

     —          18,457,142        4,000        2,561,805      (719,821     20,303,126   

Intercompany long-term debt

     —          —          212,000        —        (212,000     —     

Deferred income taxes

     (11,220     511,142        846,062        874,039      —          2,220,023   

Other long-term liabilities

     —          288,667        279,477        256,410      —          824,554   

Total member’s interest (deficit)

     (7,697,300     (7,724,529     3,957,093        3,444,054      1,175,944        (6,844,738
                                               

Total Liabilities and Member’s Interest (Deficit)

   $ (7,708,520   $ 12,042,941      $ 12,890,670      $ 7,923,317    $ (7,101,307   $ 18,047,101   
                                               

 

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Table of Contents

CONSOLIDATING STATEMENTS OF OPERATIONS

(UNAUDITED)

 

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

Revenue

   $ —        $ —        $ 783,377      $ 707,723      $ (1,091   $ 1,490,009   

Operating expenses:

            

Direct operating expenses

     —          —          214,094        387,123        (301     600,916   

Selling, general and administrative expenses

     —          —          242,507        134,920        (790     376,637   

Corporate expenses

     3,425        5        36,922        23,757        —          64,109   

Depreciation and amortization

     —          —          78,501        105,677        —          184,178   

Other operating income– net

     —          —          1,544        1,720        —          3,264   
                                                

Operating income (loss)

     (3,425     (5     212,897        57,966        —          267,433   

Interest (income) expense – net

     5        355,544        (1,073     12,946        18,157        385,579   

Equity in earnings (loss) of nonconsolidated affiliates

     (65,995     156,539        (4,463     3,750        (86,084     3,747   

Other income (expense) – net

     —          —          37        (824     —          (787
                                                

Income (loss) before income taxes

     (69,425     (199,010     209,544        47,946        (104,241     (115,186

Income tax benefit (expense)

     1,258        133,015        (77,778     (18,516     —          37,979   
                                                

Consolidated net income (loss)

     (68,167     (65,995     131,766        29,430        (104,241     (77,207

Amount attributable to noncontrolling interest

     —          —          2,494        6,623        —          9,117   
                                                

Net income (loss) attributable to the Company

   $ (68,167   $ (65,995   $ 129,272      $ 22,807      $ (104,241   $ (86,324
                                                

Other comprehensive income (loss), net of tax:

            

Foreign currency translation adjustments

     —          —          280        (74,503     —          (74,223

Unrealized gain (loss) on securities and derivatives:

            

Unrealized holding gain (loss) on marketable securities

     —          —          1,916        (2,328     —          (412

Unrealized holding loss on cash flow derivatives

     —          (4,992     —          —          —          (4,992

Reclassification adjustment

     —          —          —          (1,366     —          (1,366

Equity in subsidiary comprehensive income (loss)

     (69,421     (64,430     (74,306     —          208,157        —     
                                                

Comprehensive income (loss)

     (137,588     (135,417     57,162        (55,390     103,916        (167,317

Amount attributable to noncontrolling interest

     —          —          (7,681     (3,891     —          (11,572
                                                

Comprehensive income (loss) attributable to the Company

   $ (137,588   $ (135,417   $ 64,843      $ (51,499   $ 103,916      $ (155,745
                                                

 

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

Revenue

   $ —        $ —        $ 741,144      $ 698,064      $ (1,343   $ 1,437,865   

Operating expenses:

            

Direct operating expenses

     —          —          243,860        393,415        (199     637,076   

Selling, general and administrative expenses

     —          —          236,126        125,576        (1,144     360,558   

Depreciation and amortization

     —          —          93,085        115,161        —          208,246   

Corporate expenses

     4,239        3        30,192        15,653        —          50,087   

Impairment charges

     —          —          3,224,616        816,636        —          4,041,252   

Other operating income (expense) – net

     —          —          (35,869     4,353        —          (31,516
                                                

Operating loss

     (4,239     (3     (3,122,604     (764,024     —          (3,890,870

Interest expense – net

     6        344,973        6,655        29,293        3,698        384,625   

Equity in earnings (loss) of nonconsolidated affiliates

     (3,732,368     (3,737,189     (694,179     (17,719     8,163,736        (17,719

Other income (expense) – net

     —          440,616        (1,547     (75,003     66,563        430,629   
                                                

Income (loss) before income taxes

     (3,736,613     (3,641,549     (3,824,985     (886,039     8,226,601        (3,862,585

Income tax benefit (expense)

     344        (90,819     134,645        140,382        —          184,552   
                                                

Consolidated net income (loss)

     (3,736,269     (3,732,368     (3,690,340     (745,657     8,226,601        (3,678,033

Amount attributable to noncontrolling interest

     —          —          (4,366     (263     —          (4,629
                                                

Net income (loss) attributable to the Company

   $ (3,736,269   $ (3,732,368   $ (3,685,974   $ (745,394   $ 8,226,601      $ (3,673,404
                                                

Other comprehensive income (loss), net of tax:

            

Foreign currency translation adjustments

     —          —          3,703        129,355        —          133,058   

Unrealized gain (loss) on securities and derivatives:

            

Unrealized holding gain on marketable securities

     —          —          1,970        6,581        —          8,551   

Unrealized holding gain (loss) on cash flow derivatives

     —          (47,393     —          —          —          (47,393

Reclassification adjustment

     —          —          149        (662     —          (513

Equity in subsidiary comprehensive income (loss)

     74,195        121,588        128,803        —          (324,586     —     
                                                

Comprehensive income (loss)

     (3,662,074     (3,658,173     (3,551,349     (610,120     7,902,015        (3,579,701

Amount attributable to noncontrolling interest

     —          —          13,038        6,471        —          19,509   
                                                

Comprehensive income (loss) attributable to the Company

   $ (3,662,074   $ (3,658,173   $ (3,564,387   $ (616,591   $ 7,902,015      $ (3,599,210
                                                

 

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

Revenue

   $ —        $ —        $ 1,433,188      $ 1,323,007      $ (2,408   $ 2,753,787   

Operating expenses:

            

Direct operating expenses

     —          —          431,615        767,209        (561     1,198,263   

Selling, general and administrative expenses

     —          —          477,155        250,625        (1,847     725,933   

Corporate expenses

     6,433        8        77,635        44,529        —          128,605   

Depreciation and amortization

     —          —          157,749        207,763        —          365,512   

Other operating income – net

     —          —          4,298        2,738        —          7,036   
                                                

Operating income (loss)

     (6,433     (8     293,332        55,619        —          342,510   

Interest expense – net

     9        707,162        4,251        27,599        32,353        771,374   

Equity in earnings (loss) of nonconsolidated affiliates

     (285,595     157,020        (50,748     5,630        179,311        5,618   

Other income (expense) – net

     —          —          (561     (2,480     60,289        57,248   
                                                

Income (loss) before income taxes

     (292,037     (550,150     237,772        31,170        207,247        (365,998

Income tax benefit (expense)

     2,363        264,555        (133,884     (23,870     —          109,164   
                                                

Consolidated net income (loss)

     (289,674     (285,595     103,888        7,300        207,247        (256,834

Amount attributable to noncontrolling interest

     —          —          (722     5,626        —          4,904   
                                                

Net income (loss) attributable to the Company

   $ (289,674   $ (285,595   $ 104,610      $ 1,674      $ 207,247      $ (261,738
                                                

Other comprehensive income (loss), net of tax:

            

Foreign currency translation adjustments

     —          —          (243     (113,429     —          (113,672

Unrealized gain (loss) on securities and derivatives:

            

Unrealized holding gain (loss) on marketable securities

     —          —          8,481        (4,948     —          3,533   

Unrealized holding loss on cash flow derivatives

     —          (8,146     —          —          —          (8,146

Reclassification adjustment

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

Equity in subsidiary comprehensive income (loss)

     (103,186     (95,040     (115,784     —          314,010        —     
                                                

Comprehensive income (loss)

     (392,860     (388,781     (2,936     (117,844     521,257        (381,164

Amount attributable to noncontrolling interest

     —          —          (12,507     (3,733     —          (16,240
                                                

Comprehensive income (loss) attributable to the Company

   $ (392,860   $ (388,781   $ 9,571      $ (114,111   $ 521,257      $ (364,924
                                                

 

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Table of Contents
     Six Months Ended June 30, 2009  
(In thousands)    Parent
Company
    Subsidiary
Issuer
    Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
    Eliminations     Consolidated  

Revenue

   $ —        $ —        $ 1,361,146      $ 1,286,375      $ (1,669   $ 2,645,852   

Operating expenses:

            

Direct operating expenses

     —          —          481,478        774,347        (400     1,255,425   

Selling, general and administrative expenses

     —          —          491,910        247,453        (1,269     738,094   

Depreciation and amortization

     —          —          166,295        217,510        —          383,805   

Corporate expenses

     6,901        4        60,918        29,899        —          97,722   

Impairment charges

     —          —          3,224,616        816,636        —          4,041,252   

Other operating income (expense) – net

     —          —          (43,375     8,965        —          (34,410
                                                

Operating loss

     (6,901     (4     (3,107,446     (790,505     —          (3,904,856

Interest expense – net

     11        693,258        9,661        63,832        4,916        771,678   

Equity in earnings (loss) of nonconsolidated affiliates

     (4,146,636     (3,824,304     (783,037     (21,907     8,753,977        (21,907

Other income (expense) – net

     —          440,502        (1,738     (77,878     66,563        427,449   
                                                

Income (loss) before income taxes

     (4,153,548     (4,077,064     (3,901,882     (954,122     8,815,624        (4,270,992

Income tax benefit (expense)

     280        (69,572     115,468        118,784        —          164,960   
                                                

Consolidated net income (loss)

     (4,153,268     (4,146,636     (3,786,414     (835,338     8,815,624        (4,106,032

Amount attributable to noncontrolling interest

     —          —          (10,673     (3,738     —          (14,411
                                                

Net income (loss) attributable to the Company

   $ (4,153,268   $ (4,146,636   $ (3,775,741   $ (831,600   $ 8,815,624      $ (4,091,621
                                                

Other comprehensive income (loss), net of tax:

            

Foreign currency translation adjustments

     —          —          3,302        82,413        —          85,715   

Unrealized gain (loss) on securities and derivatives:

            

Unrealized holding gain (loss) on marketable securities

     —          —          7,540        (9,150     —          (1,610

Unrealized holding gain (loss) on cash flow derivatives

     —          (75,750     —          —          —          (75,750

Reclassification adjustment

     —          —          (275     3,395        —          3,120   

Equity in subsidiary comprehensive income (loss)

     1,138        76,888        72,638        —          (150,664     —     
                                                

Comprehensive income (loss)

     (4,152,130     (4,145,498     (3,692,536     (754,942     8,664,960        (4,080,146

Amount attributable to noncontrolling interest

     —          —          6,316        4,021        —          10,337   
                                                

Comprehensive income (loss) attributable to the Company

   $ (4,152,130   $ (4,145,498   $ (3,698,852   $ (758,963   $ 8,664,960      $ (4,090,483
                                                

 

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Table of Contents

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(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)

  $ (289,674   $ (285,595   $ 103,888      $ 7,300      $ 207,247      $ (256,834

Reconciling items:

           

Depreciation and amortization

    —          —          157,749        207,763        —          365,512   

Deferred taxes

    504        (6,095     (101,698     (28,519     —          (135,808

(Gain) loss on disposal of operating assets

    —          —          (4,298     (2,738     —          (7,036

Gain on extinguishment of debt

    —          —          —          —          (60,289     (60,289

Provision for doubtful accounts

    —          —          5,696        2,095        —          7,791   

Share-based compensation

    —          —          10,943        5,681        —          16,624   

Equity in (earnings) loss of nonconsolidated affiliates

    285,595        (157,020     50,748        (5,630     (179,311     (5,618

Amortization of deferred financing charges and note discounts, net

    —          123,156        2,527        (52,440     32,353        105,596   

Other reconciling items – net

    —          —          (447     4,204        —          3,757   

Changes in operating assets and liabilities:

           

Increase in accounts receivable

    —          —          (41,427     (25,567     —          (66,994

Increase in deferred income

    —          —          7,438        34,882        —          42,320   

Increase in accounts payable, accrued expenses and other liabilities

    —          1,341        11,861        4,964        —          18,166   

Increase (decrease) in accrued interest

    —          64,254        (19,703     637        —          45,188   

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

    3,279        275,454        (303,801     5,485        —          (19,583
                                               

Net cash provided by (used for) operating activities

    (296     15,495        (120,524     158,117        —          52,792   

Cash flows from investing activities:

           

Proceeds from maturity of Clear Channel notes

    —          —          —          10,025        (10,025     —     

Investment in Clear Channel notes

    —          —          (125,000     —          125,000        —     

Sales of investments – net

    —          —          —          200        —          200   

Purchases of property, plant and equipment

    —          —          (16,619     (86,790     —          (103,409

Acquisition of operating assets, net of cash acquired

    —          —          (10,389     (425     —          (10,814

Proceeds from disposal of assets

    —          —          7,197        3,910        —          11,107   

Dividends from subsidiaries

    —          —          35,450        —          (35,450     —     

Change in other - net

    —          —          50        (2,687     —          (2,637
                                               

Net cash provided by (used for) investing activities

    —          —          (109,311     (75,767     79,525        (105,553

Cash flows from financing activities:

           

Draws on credit facilities

    —          148,000        —          304        —          148,304   

Payments on credit facilities

    —          (61,000     —          (43,541     —          (104,541

Intercompany funding

    1,028        147,505        (186,791     38,258        —          —     

Proceeds from long-term debt

          6,844          6,844   

Payments on long-term debt

    —          (250,000     (3     (7,829     10,025        (247,807

Repurchases of long-term debt

    —          —          —          —          (125,000     (125,000

Dividends paid

    —          —          —          (35,450     35,450        —     

Change in other - net

    (732     —          —          (3,571     —          (4,303
                                               

Net cash provided by (used for) financing activities

    296        (15,495     (186,794     (44,985     (79,525     (326,503

Net increase (decrease) in cash and cash equivalents

    —          —          (416,629     37,365        —          (379,264

Cash and cash equivalents at beginning of period

    —          —          1,258,993        625,001        —          1,883,994   
                                               

Cash and cash equivalents at end of period

  $ —        $ —        $ 842,364      $ 662,366      $ —        $ 1,504,730   
                                               

 

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    Six Months Ended June 30, 2009  
(In thousands)   Parent
Company
    Subsidiary
Issuer
    Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
    Eliminations     Consolidated  

Cash flows from operating activities:

           

Consolidated net income (loss)

  $ (4,153,268   $ (4,146,636   $ (3,786,414   $ (835,338   $ 8,815,624      $ (4,106,032

Reconciling items:

           

Impairment charges

    —          —          3,224,616        816,636        —          4,041,252   

Depreciation and amortization

    —          —          166,295        217,510        —          383,805   

Deferred taxes

    504        129,158        (193,357     (131,296     —          (194,991

(Gain) loss on disposal of operating assets

    —          —          43,375        (8,965     —          34,410   

(Gain) loss on extinguishment of debt

    —          (440,599     —          66,824        (66,563     (440,338

Provision for doubtful accounts

    —          —          16,295        7,911        —          24,206   

Share-based compensation

    —          —          13,412        5,894        —          19,306   

Equity in (earnings) loss of nonconsolidated affiliates

    4,146,636        3,824,304        783,037        21,907        (8,753,977     21,907   

Amortization of deferred financing charges and note discounts, net

    —          124,813        —          (9,377     4,916        120,352   

Other reconciling items - net

    —          —          —          (3,444     —          (3,444

Changes in operating assets and liabilities:

            —       

Decrease in accounts receivable

    —          —          38,240        41,175        —          79,415   

Increase in deferred income

    —          —          9,760        35,747        —          45,507   

Increase (decrease) in accounts payable, accrued expenses and other liabilities

    —          1,339        (29,579     (64,443     —          (92,683

Increase (decrease) in accrued interest

    —          (6,537     (406     64        (10,958     (17,837

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

    1,275        106,052        (73,656     (32,459     —          1,212   
                                               

Net cash provided by (used for) operating activities

    (4,853     (408,106     211,618        128,346        (10,958     (83,953

Cash flows from investing activities:

           

Proceeds from maturity of Clear Channel notes

    —          —          —          33,500        (33,500     —     

Investment in Clear Channel notes

    —          —          —          (130,642     130,642        —     

Investment in subsidiaries

    —          (109,825     —          —          109,825        —     

Sales of investments - net

    —          —          —          23,689        —          23,689   

Purchases of property, plant and equipment

    —          —          (25,686     (66,937     —          (92,623

Proceeds from disposal of assets

    —          —          28,877        8,455        —          37,332   

Acquisition of operating assets, net of cash acquired

    —          —          (1,833     (5,097     —          (6,930

Change in other - net

    —          (3,199     (2,428     12,270        —          6,643   
                                               

Net cash provided by (used for) investing activities

    —          (113,024     (1,070     (124,762     206,967        (31,889

Cash flows from financing activities:

           

Draws on credit facilities

    —          1,622,000        —          444        —          1,622,444   

Payments on credit facilities

    —          (143,377     —          (5,999     —          (149,376

Intercompany funding

    4,940        (957,493     1,017,540        (64,987     —          —     

Payments on long-term debt

    —          (500,000     (2     (310     33,500        (466,812

Proceeds from delayed draw term loan facility

    —          500,000        —          —          —          500,000   

Proceeds from parent investment in subsidiaries

    —          —          —          109,825        (109,825     —     

Repurchases of long-term debt

    —          —          —          —          (119,684     (119,684

Change in other - net

    (87     —          —          (12,987     —          (13,074
                                               

Net cash provided by (used for) financing activities

    4,853        521,130        1,017,538        25,986        (196,009     1,373,498   

Net increase in cash and cash equivalents

    —          —          1,228,086        29,570        —          1,257,656   

Cash and cash equivalents at beginning of period

    —          —          139,433        100,413        —          239,846   
                                               

Cash and cash equivalents at end of period

  $ —        $ —        $ 1,367,519      $ 129,983      $ —        $ 1,497,502   
                                               

 

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Introduction

As permitted by the rules and regulations of the SEC, the unaudited financial statements and related footnotes included in Item 1 of Part I of this Quarterly Report on Form 10-Q are those of Clear Channel Capital I, LLC, the direct parent of Clear Channel Communications, Inc., a Texas corporation (“Clear Channel” or “Subsidiary Issuer”), and contain certain footnote disclosures regarding the financial information of Clear Channel and Clear Channel’s domestic wholly-owned subsidiaries that guarantee certain of Clear Channel’s outstanding indebtedness. All other financial information and other data and information contained in this Quarterly Report on Form 10-Q is that of Clear Channel, unless otherwise indicated. Accordingly, all references in Item 2 through Item 4 in Part I and all references in Part II of this Quarterly Report on Form 10-Q to “we,” “us” and “our” refer to Clear Channel and its consolidated subsidiaries.

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 should be read in conjunction with the consolidated financial statements and related footnotes. Our discussion is presented on both a consolidated and segmented basis. Our reportable operating segments are radio broadcasting (“radio” or “radio broadcasting”), which also includes our national syndication business, Americas outdoor advertising (“Americas outdoor” or Americas outdoor advertising”) and International outdoor advertising (“International outdoor” or “International outdoor advertising”). Included in the “other” segment are our media representation business, Katz Media, as well as other general support services and initiatives.

We manage our operating segments primarily focusing on their operating income, while Corporate expenses, Other operating income (expense) - net, Interest expense, Equity in earnings (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.

Executive Summary

The key highlights of our business for the three and six months ended June 30, 2010 are summarized below:

 

   

Consolidated revenue increased $52.1 million and $107.9 million for the three and six months ended June 30, 2010, respectively, compared to the same periods of 2009, including decreases of $6.6 million and increases of $20.4 million from movements in foreign exchange, respectively.