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 SEPTEMBER 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 November 4, 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 September 30, 2010 and December 31, 2009

     3   

Consolidated Statements of Operations for the three and nine months ended September 30, 2010 and 2009

     4   

Condensed Consolidated Statements of Cash Flows for the nine months ended September 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

     24   

Item 3. Quantitative and Qualitative Disclosures About Market Risk

     36   

Item 4. Controls and Procedures

     36   

PART II — OTHER INFORMATION

  

Item 1. Legal Proceedings

     38   

Item 1A. Risk Factors

     39   

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

     39   

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

     39   

Item 4. (Removed and Reserved)

     39   

Item 5. Other Information

     39   

Item 6. Exhibits

     40   

Signatures

     41   

 

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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)

 

     September 30,
2010
(Unaudited)
    December 31,
2009
 
CURRENT ASSETS     

Cash and cash equivalents

   $ 1,700,834      $ 1,883,994   

Accounts receivable, net

     1,357,179        1,301,700   

Other current assets

     343,663        473,151   
                

Total Current Assets

     3,401,676        3,658,845   
PROPERTY, PLANT AND EQUIPMENT     

Structures, net

     2,035,286        2,143,972   

Other property, plant and equipment, net

     1,151,228        1,188,421   
INTANGIBLE ASSETS     

Definite-lived intangibles, net

     2,362,992        2,599,244   

Indefinite-lived intangibles

     3,544,703        3,562,057   

Goodwill

     4,120,633        4,125,005   

Other assets

     776,973        769,557   
                

Total Assets

   $ 17,393,491      $ 18,047,101   
                
CURRENT LIABILITIES     

Accounts payable and accrued expenses

   $ 945,292      $ 995,740   

Current portion of long-term debt

     847,496        398,779   

Deferred income

     198,503        149,617   
                

Total Current Liabilities

     1,991,291        1,544,136   

Long-term debt

     19,691,007        20,303,126   

Deferred income taxes

     2,065,548        2,220,023   

Other long-term liabilities

     865,241        824,554   

Commitments and contingent liabilities

    
MEMBER’S DEFICIT     

Noncontrolling interest

     471,914        455,648   

Member’s interest

     2,120,930        2,109,007   

Retained deficit

     (9,492,507     (9,076,084

Accumulated other comprehensive loss

     (319,933     (333,309
                

Total Member’s Deficit

     (7,219,596     (6,844,738
                

Total Liabilities and Member’s Deficit

   $ 17,393,491      $ 18,047,101   
                

See notes to consolidated financial statements.

 

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CLEAR CHANNEL CAPITAL I, LLC

CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

(In thousands, except per share data)

 

     Three Months Ended
September 30,
    Nine Months Ended
September 30,
 
     2010     2009     2010     2009  

Revenue

   $ 1,477,347      $ 1,393,973      $ 4,231,134      $ 4,039,825   

Operating expenses:

        

Direct operating expenses (excludes depreciation and amortization)

     596,540        632,778        1,794,803        1,888,203   

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

     365,555        337,055        1,091,488        1,075,149   

Corporate expenses (excludes depreciation and amortization)

     80,518        79,723        209,123        177,445   

Depreciation and amortization

     184,079        190,189        549,591        573,994   

Impairment charges

     —          —          —          4,041,252   

Other operating (expense) income – net

     (29,559     1,403        (22,523     (33,007
                                

Operating income (loss)

     221,096        155,631        563,606        (3,749,225

Interest expense

     389,197        369,314        1,160,571        1,140,992   

Loss on marketable securities

     —          (13,378     —          (13,378

Equity in earnings (loss) of nonconsolidated affiliates

     2,994        1,226        8,612        (20,681

Other (expense) income – net

     (5,700     222,282        51,548        649,731   
                                

Loss before income taxes

     (170,807     (3,553     (536,805     (4,274,545

Income tax benefit (expense)

     20,415        (89,118     129,579        75,842   
                                

Consolidated net loss

     (150,392     (92,671     (407,226     (4,198,703

Amount attributable to noncontrolling interest

     4,293        (2,816     9,197        (17,227
                                

Net loss attributable to the Company

   $ (154,685   $ (89,855   $ (416,423   $ (4,181,476
                                

Other comprehensive (loss) income, net of tax:

        

Foreign currency translation adjustments

     126,548        70,166        12,876        155,881   

Unrealized gain (loss) on securities and derivatives:

        

Unrealized holding gain (loss) on marketable securities

     5,684        (9,705     9,217        (11,315

Unrealized holding gain (loss) on cash flow derivatives

     529        (17,243     (7,617     (92,993

Reclassification adjustment

     2,565        11,837        1,424        14,957   
                                

Comprehensive loss

     (19,359     (34,800     (400,523     (4,114,946
                                

Amount attributable to noncontrolling interest

     18,764        9,192        2,524        19,529   
                                

Comprehensive loss attributable to the Company

   $ (38,123   $ (43,992   $ (403,047   $ (4,134,475
                                

See notes to consolidated financial statements.

 

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CLEAR CHANNEL CAPITAL I, LLC

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

(In thousands)

 

     Nine Months Ended
September 30,
 
     2010     2009  

Cash flows from operating activities:

    

Consolidated net loss

   $ (407,226   $ (4,198,703

Reconciling items:

    

Impairment charges

     —          4,041,252   

Depreciation and amortization

     549,591        573,994   

Deferred taxes

     (170,886     (118,608

Loss on disposal of operating assets

     22,523        33,007   

Loss on available-for-sale and trading securities

     —          13,378   

Gain on extinguishment of debt

     (60,289     (669,333

Provision for doubtful accounts

     14,880        20,774   

Share-based compensation

     24,967        28,522   

Equity in (earnings) loss of nonconsolidated affiliates

     (8,612     20,681   

Amortization of deferred financing charges and note discounts, net

     160,040        176,901   

Other reconciling items – net

     9,722        31,654   

Changes in operating assets and liabilities:

    

(Increase) decrease in accounts receivable

     (74,710     118,521   

Decrease in Federal income taxes receivable

     132,309        75,939   

Increase in deferred income

     47,244        27,949   

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

     56,822        (78,628

Increase (decrease) in accrued interest

     34,501        (26,857

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

     (14,334     (60,341
                

Net cash provided by operating activities

     316,542        10,102   

Cash flows from investing activities:

    

Sales of investments – net

     1,200        41,436   

Purchases of property, plant and equipment

     (169,405     (150,799

Acquisition of operating assets

     (11,743     (7,294

Proceeds from disposal of assets

     20,550        40,856   

Change in other – net

     (5,941     8,782   
                

Net cash used for investing activities

     (165,339     (67,019

Cash flows from financing activities:

    

Draws on credit facilities

     160,416        1,661,508   

Payments on credit facilities

     (140,254     (174,661

Proceeds from delayed draw term loan facility

     138,795        500,000   

Proceeds from long-term debt

     6,844        —     

Payments on long-term debt

     (368,585     (468,696

Repurchases of long-term debt

     (125,000     (300,937

Change in other – net

     (6,579     (25,373
                

Net cash (used for) provided by financing activities

     (334,363     1,191,841   

Net (decrease) increase in cash and cash equivalents

     (183,160     1,134,924   

Cash and cash equivalents at beginning of period

     1,883,994        239,846   
                

Cash and cash equivalents at end of period

   $ 1,700,834      $ 1,374,770   
                

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 AND NEW ACCOUNTING STANDARDS

Preparation of Interim Financial Statements

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

The accompanying consolidated financial statements were prepared by 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 2009 Annual Report on Form 10-K and Quarterly Reports on Forms 10-Q for the quarterly periods ended March 31, 2010 and June 30, 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 Partners, LLC and Thomas H. Lee Partners, L.P. (together, the “Sponsors”) for the purpose of acquiring the business of Clear Channel. The acquisition (the “acquisition” or the “merger”) was consummated on July 30, 2008 pursuant to the Agreement and Plan of Merger, dated November 16, 2006, as amended on April 18, 2007, May 17, 2007 and May 13, 2008 (the “Merger Agreement”).

New Accounting Pronouncements

In August 2010, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2010-21, Accounting for Technical Amendments to Various SEC Rules and Schedules. This ASU amends various SEC paragraphs pursuant to the issuance of Release No. 33-9026: Technical Amendments to Rules, Forms, Schedules and Codification of Financial Reporting Policies and became effective upon issuance. The adoption of ASU No. 2010-21 will not have a material impact on the Company’s financial position or results of operations.

In August 2010, the FASB issued ASU No. 2010-22, Accounting for Various Topics—Technical Corrections to SEC Paragraphs. This ASU amends various SEC paragraphs and became effective upon issuance. The adoption of ASU No. 2010-22 will not have a material impact on the Company’s financial position or results of operations.

 

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CLEAR CHANNEL CAPITAL I, LLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

 

 

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

Property, Plant and Equipment

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

 

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

Land, buildings and improvements

   $ 649,001       $ 633,222   

Structures

     2,589,169         2,514,602   

Towers, transmitters and studio equipment

     389,494         381,046   

Furniture and other equipment

     263,554         234,101   

Construction in progress

     80,262         88,391   
                 
     3,971,480         3,851,362   

Less: accumulated depreciation

     784,966         518,969   
                 

Property, plant and equipment, net

   $ 3,186,514       $ 3,332,393   
                 

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 September 30, 2010 and December 31, 2009, respectively:

 

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

Transit, street furniture and other outdoor contractual rights

   $ 791,746       $ 226,163       $ 803,297       $ 166,803   

Customer / advertiser relationships

     1,210,205         259,842         1,210,205         169,897   

Talent contracts

     320,854         89,011         320,854         57,825   

Representation contracts

     229,441         91,895         218,584         54,755   

Other

     549,761         72,104         550,041         54,457   
                                   

Total

   $ 3,102,007       $ 739,015       $ 3,102,981       $ 503,737   
                                   

Total amortization expense related to definite-lived intangible assets was $82.8 million and $85.5 million for the three months ended September 30, 2010 and 2009, respectively, and $251.0 million and $257.8 million for the nine months ended September 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

   $ 308,301   

2012

     292,385   

2013

     275,712   

2014

     254,737   

2015

     232,874   

 

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CLEAR CHANNEL CAPITAL I, LLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

 

 

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)    September 30,      December 31,  
     2010      2009  

FCC broadcast licenses

   $ 2,424,791       $ 2,429,839   

Billboard permits

     1,119,912         1,132,218   
                 

Total indefinite-lived intangible assets

   $ 3,544,703       $ 3,562,057   
                 

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

     (5,088     —          —          —          (5,088

Foreign currency

     —          176        283        —          459   
                                        

Balance as of September 30, 2010

   $ 3,141,781      $ 585,425      $ 276,626      $ 116,801      $ 4,120,633   
                                        

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.

 

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CLEAR CHANNEL CAPITAL I, LLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

 

 

NOTE 3: DEBT

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

 

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

Senior Secured Credit Facilities:

    

Term Loan Facilities (1)

   $ 10,885,447      $ 10,885,447   

Revolving Credit Facility Due 2014

     1,842,500        1,812,500   

Delayed Draw Facilities Due 2016

     1,013,227        874,432   

Receivables Based Facility Due 2014

     354,232        355,732   

Other secured long-term debt

     5,822        5,225   
                

Total consolidated secured debt

     14,101,228        13,933,336   
                

Senior Cash Pay Notes

     796,250        796,250   

Senior Toggle Notes

     829,831        915,200   

Clear Channel Senior Notes

     2,911,393        3,267,549   

Subsidiary Senior Notes

     2,500,000        2,500,000   

Other long-term debt

     65,514        77,657   

Purchase accounting adjustments and original issue discount

     (665,713     (788,087
                
     20,538,503        20,701,905   

Less: current portion

     847,496        398,779   
                

Total long-term debt

   $ 19,691,007      $ 20,303,126   
                

 

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

The Company’s weighted average interest rate at September 30, 2010 was 6.2%. The aggregate market value of the Company’s debt based on market prices for which quotes were available was approximately $17.1 billion and $17.7 billion at September 30, 2010 and December 31, 2009, respectively.

Debt Repurchases and Maturities

During the first nine 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)    Nine Months Ended
September 30, 2010
 

CC Investments

  

Principal amount of debt repurchased

   $ 185,185   

Deferred loan costs and other

     104   

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

     (60,289
        

Cash paid for repurchases of long-term debt

   $ 125,000   
        

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.

During the first nine months of 2010, Clear Channel repaid its remaining 7.65% senior notes upon maturity for $138.8 million, including $5.1 million of accrued interest, with proceeds from its delayed draw term loan facility that was specifically designated for this purpose. Also during the first nine 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.

 

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CLEAR CHANNEL CAPITAL I, LLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

 

 

Note 4: OTHER DEVELOPMENTS

Disposition of Assets

On October 15, 2010, Clear Channel Outdoor Holdings, Inc., the Company’s subsidiary, transferred its interest in its Branded Cities operations to its joint venture partner, The Ellman Companies. The long-lived tangible and intangible assets of the Branded Cities operations were transferred for less than their carrying values in connection with this transaction. In connection with this subsequent event, the Company recorded a non-cash charge in the third quarter of 2010 of approximately $23.6 million in “Other operating income (expense) – net” to present these assets at their estimated fair values as of September 30, 2010.

During the three months ended September 30, 2010, the Company’s International outdoor segment sold its outdoor advertising business in India, resulting in a loss of $3.7 million included in “Other operating income (expense) – net.” In addition, the Company sold three radio stations and recorded a loss of $0.9 million in “Other operating income (expense) – net” during the nine months ended September 30, 2010.

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 nine months ended September 30, 2010 and 2009, respectively:

 

(In thousands)    Three Months
Ended
September 30,
     Nine Months
Ended
September 30,
 
     2010      2009      2010      2009  

Direct operating expenses

   $ 2,890       $ 2,631       $ 8,610       $ 8,509   

Selling, general and administrative expenses

     1,721         1,750         5,148         5,474   

Corporate expenses

     3,732         4,835         11,209         14,539   
                                   

Total share-based compensation expense

   $ 8,343       $ 9,216       $ 24,967       $ 28,522   
                                   

As of September 30, 2010, there was $67.7 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.

Additionally, CCMH recorded compensation expense of $6.0 million in “Corporate expenses” related to shares tendered by Mark P. Mays to CCMH on August 23, 2010 for purchase at $36.00 per share pursuant to a put option included in his amended employment agreement.

Supplemental Disclosures

Cash paid (received) for interest and income taxes, net of Federal income tax refunds of $132.3 million and $75.9 million for the nine months ended September 30, 2010 and 2009, respectively, was as follows:

 

(In thousands)    Nine Months Ended
September 30,
 
     2010     2009  

Interest

   $ 969,525      $ 975,686   

Income taxes

     (113,840     (57,471

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.

 

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CLEAR CHANNEL CAPITAL I, LLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

 

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 nine months ended September 30, 2010 and 2009, respectively, consisted of the following components:

 

(In thousands)    Three Months Ended
September 30,
    Nine Months Ended
September 30,
 
     2010     2009     2010     2009  

Current tax expense

   $ (14,663   $ (12,735   $ (41,307   $ (42,766

Deferred tax benefit (expense)

     35,078        (76,383     170,886        118,608   
                                

Income tax benefit (expense)

   $ 20,415      $ (89,118   $ 129,579      $ 75,842   
                                

The effective tax rate is the provision for income taxes as a percent of income from continuing operations before income taxes. The effective tax rate for the three and nine months ended September 30, 2010 was 11.9% and 24.1%, respectively, compared to an effective tax rate of (2,508.2%) and 1.8% for the three and nine months ended September 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. 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. The 2009 effective rate was impacted primarily by the impairment charge on goodwill in 2009 and as a result of a deferred tax valuation allowance recorded in 2009 due to the uncertainty of the Company’s ability to utilize Federal and foreign tax losses at that time.

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.

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 September 30, 2010 and December 31, 2009, respectively, are as follows:

 

(In thousands)    September 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       $ (4,025   $ 41,470       $ 56,549       $ 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. On October 29, 2010, $3.5 billion of the Company’s interest rate swaps matured. The remaining interest rate swap is scheduled to mature in 2013.

 

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CLEAR CHANNEL CAPITAL I, LLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

 

 

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 $249.4 million and $237.2 million at September 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

     7,617   
        

Balance at September 30, 2010

   $ 156,796   
        

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 nine months ended September 30, 2010 and 2009, respectively:

 

(In thousands)    Three Months
Ended
September 30,
    Nine Months
Ended
September 30,
 
      2010     2009     2010     2009  

Foreign currency translation adjustments

   $ (8,193   $ (6,799   $ (4,196   $ (15,388

Unrealized holding gain (loss) on marketable securities

     (3,520     (2,869     (8,431     (7,208

Unrealized holding gain (loss) on cash flow derivatives

     (318     10,082        4,570        54,377   
                                

Income tax benefit (expense)

   $ (12,031   $ 414      $ (8,057   $ 31,781   
                                

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.

In 2006, two of the Company’s operating businesses (L&C Outdoor Ltda. and Publicidad Klimes Sao Paulo Ltda.) in the Sao Paulo, Brazil market received notices of infraction from the state taxing authority, seeking to impose a value added tax (“VAT”) on such businesses, retroactively for the period from December 31, 2001 through January 31, 2006. The taxing authority contends that our businesses fall within the definition of “communication services” and as such are subject to the VAT. The aggregate amount of tax initially claimed to be owed by both businesses equals approximately $69.4 million, comprised of approximately $20.2 million in taxes, approximately $40.2 million in penalty and approximately $9.0 million in interest. In addition, the taxing authorities are seeking to impose an additional aggregate amount of interest on the tax and penalty amounts of approximately $39.3 million until the initial

 

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CLEAR CHANNEL CAPITAL I, LLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

 

tax, penalty and interest are paid. The aggregate amount of additional interest accrues daily at an interest rate promulgated by the Brazilian government, which at September 30, 2010 is equal to approximately $1.85 million per month.

The Company has filed petitions to challenge the imposition of this tax against each of its businesses, which are proceeding separately. The Company’s challenge for L&C Outdoor Ltda. was unsuccessful at the first administrative level, but successful at the second administrative level. The state taxing authority filed an appeal to the next administrative level, which required consideration by a full panel of 16 administrative law judges. On September 27, 2010, the Company received an unfavorable ruling from this final administrative level and intends to appeal this ruling to the judicial level. The Company has filed a petition to have the case remanded to the second administrative level for consideration of the amount of the penalty assessed against it. The Company’s challenge for Publicidad Klimes Sao Paulo Ltda. was unsuccessful at the first administrative level, and denied at the second administrative level on or about September 24, 2009. The case is now pending before the third administrative level. Based on the Company’s review of the law in similar cases in other Brazilian states, the Company has not accrued any costs related to these claims and believes the occurrence of loss is not probable.

At September 30, 2010, Clear Channel guaranteed $39.9 million of credit lines provided to certain of its international subsidiaries by a major international bank. Most of these credit lines related to intraday overdraft facilities covering participants in Clear Channel’s European cash management pool. As of September 30, 2010, no amounts were outstanding under these agreements.

As of September 30, 2010, Clear Channel had outstanding commercial standby letters of credit and surety bonds of $132.0 million and $46.7 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 Bain Capital Partners, LLC and Thomas H. Lee Partners, L.P. (together, 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, plus reimbursable expenses. For the three and nine months ended September 30, 2010, the Company recognized management fees and reimbursable expenses of $4.4 million and $13.0 million, respectively. For the three and nine months ended September 30, 2009, the Company recognized management fees and reimbursable expenses of $6.1 million and $15.6 million, respectively.

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)

     (416,422     9,197        (407,225

Foreign currency translation adjustments

     9,748        3,128        12,876   

Unrealized holding gain (loss) on marketable securities

     9,830        (613     9,217   

Unrealized holding loss on cash flow derivatives

     (7,617     —          (7,617

Reclassification adjustment

     1,414        10        1,424   

Other – net

     11,923        4,544        16,467   
                        

Balances at September 30, 2010

   $ (7,691,510   $ 471,914      $ (7,219,596
                        

 

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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

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

Foreign currency translation adjustments

     136,350        19,531        155,881   

Unrealized holding loss on marketable securities

     (10,021     (1,294     (11,315

Unrealized holding loss on cash flow derivatives

     (92,993     —          (92,993

Reclassification adjustment

     13,665        1,292        14,957   

Other - net

     9,010        18,834        27,844   
                        

Balances at September 30, 2009

   $ (7,467,916   $ 447,356      $ (7,020,560
                        

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 eliminated in consolidation.

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

  

       

Revenue

   $ 743,034       $ 333,269       $ 361,817      $ 61,849      $ —        $ (22,622   $ 1,477,347   

Direct operating expenses

     202,771         143,940         236,679        24,112        —          (10,962     596,540   

Selling, general and administrative expenses

     240,668         51,750         63,474        21,323        —          (11,660     365,555   

Depreciation and amortization

     64,657         53,139         50,694        13,139        2,450        —          184,079   

Corporate expenses

     —           —           —          —          80,518        —          80,518   

Other operating expense - net

     —           —           —          —          (29,559     —          (29,559
                                                          

Operating income (loss)

   $ 234,938       $ 84,440       $ 10,970      $ 3,275      $ (112,527   $ —        $ 221,096   
                                                          

Intersegment revenues

   $ 7,259       $ 865       $ —        $ 14,498      $ —        $ —        $ 22,622   

Share-based compensation expense

   $ 1,746       $ 2,207       $ 658      $ —        $ 3,732      $ —        $ 8,343   

Capital expenditures

   $ 10,515       $ 30,689       $ 21,869      $ —        $ 2,923      $ —        $ 65,996   

Three Months Ended September 30, 2009

  

       

Revenue

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

Direct operating expenses

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

Selling, general and administrative expenses

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

Depreciation and amortization

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

Corporate expenses

     —           —           —          —          79,723        —          79,723   

Other operating income - net

     —           —           —          —          1,403        —          1,403   
                                                          

Operating income (loss)

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

Intersegment revenues

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

Share-based compensation expense

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

Capital expenditures

   $ 9,933       $ 23,819       $ 23,335      $ 84      $ 1,005      $ —        $ 58,176   

 

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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  

Nine Months Ended September 30, 2010

  

       

Revenue

   $ 2,114,971       $ 928,015       $ 1,077,246      $ 176,668      $ —        $ (65,766   $ 4,231,134   

Direct operating expenses

     605,425         427,546         717,843        76,153        —          (32,164     1,794,803   

Selling, general and administrative expenses

     706,478         160,302         196,971        61,339        —          (33,602     1,091,488   

Depreciation and amortization

     192,401         158,319         152,522        39,660        6,689        —          549,591   

Corporate expenses

     —           —           —          —          209,123        —          209,123   

Other operating expense - net

     —           —           —          —          (22,523     —          (22,523
                                                          

Operating income (loss)

   $ 610,667       $ 181,848       $ 9,910      $ (484   $ (238,335   $ —        $ 563,606   
                                                          

Intersegment revenues

   $ 21,056       $ 2,712       $ —        $ 41,998      $ —        $ —        $ 65,766   

Share-based compensation expense

   $ 5,252       $ 6,553       $ 1,953      $ —        $ 11,209      $ —        $ 24,967   

Capital expenditures

   $ 21,617       $ 70,615       $ 68,659      $ —        $ 8,514      $ —        $ 169,405   

Nine Months Ended September 30, 2009

  

       

Revenue

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

Direct operating expenses

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

Selling, general and administrative expenses

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

Depreciation and amortization

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

Corporate expenses

     —           —           —          —          177,445        —          177,445   

Impairment charges

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

Other operating expense - net

     —           —           —          —          (33,007     —          (33,007
                                                          

Operating income (loss)

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

Intersegment revenues

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

Share-based compensation expense

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

Capital expenditures

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

 

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CLEAR CHANNEL CAPITAL I, LLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(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):

CONDENSED CONSOLIDATING BALANCE SHEETS

(UNAUDITED)

 

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

Cash and cash equivalents

   $ —        $ —        $ 962,056      $ 738,778       $ —        $ 1,700,834   

Accounts receivable, net

     —          —          622,761        734,418         —          1,357,179   

Intercompany receivables

     19,480        6,773,764        44,427        —           (6,837,671     —     

Other current assets

     3,255        (21,982     162,783        212,700         (13,093     343,663   
                                                 

Total Current Assets

     22,735        6,751,782        1,792,027        1,685,896         (6,850,764     3,401,676   

Property, plant and equipment, net

     —          —          856,087        2,330,427         —          3,186,514   

Definite-lived intangibles, net

     —          —          1,629,664        733,328         —          2,362,992   

Indefinite-lived intangibles – licenses

     —          —          2,424,791        —           —          2,424,791   

Indefinite-lived intangibles – permits

     —          —          —          1,119,912         —          1,119,912   

Goodwill

     —          —          3,254,828        865,805         —          4,120,633   

Intercompany notes receivable

     —          212,000        —          —           (212,000     —     

Long-term intercompany receivable

     —          —          (254,178     254,178         —          —     

Investment in subsidiaries

     (8,130,021     4,313,407        2,794,626        —           1,021,988        —     

Other assets

     —          188,091        203,779        929,707         (544,604     776,973   
                                                 

Total Assets

   $ (8,107,286   $ 11,465,280      $ 12,701,624      $ 7,919,253       $ (6,585,380   $ 17,393,491   
                                                 

Accounts payable and accrued expenses

   $ —        $ 80,474      $ 273,205      $ 604,706       $ (13,093   $ 945,292   

Intercompany payable

     —          —          6,793,244        44,427         (6,837,671     —     

Current portion of long-term debt

     —          805,140        —          42,356         —          847,496   

Deferred income

     —          —          58,292        140,211         —          198,503   
                                                 

Total Current Liabilities

     —          885,614        7,124,741        831,700         (6,850,764     1,991,291   

Long-term debt

     —          18,109,851        4,000        2,524,980         (947,824     19,691,007   

Intercompany long-term debt

     —          —          212,000        —           (212,000     —     

Deferred income taxes

     (12,556     300,704        911,770        865,630         —          2,065,548   

Other long-term liabilities

     —          299,132        293,947        272,162         —          865,241   

Total member’s interest (deficit)

     (8,094,730     (8,130,021     4,155,166        3,424,781         1,425,208        (7,219,596
                                                 

Total Liabilities and Member’s Interest (Deficit)

   $ (8,107,286   $ 11,465,280      $ 12,701,624      $ 7,919,253       $ (6,585,380   $ 17,393,491   
                                                 

 

16


Table of Contents

CLEAR CHANNEL CAPITAL I, LLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

 

 

     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   
                                                 

 

17


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CLEAR CHANNEL CAPITAL I, LLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

 

 

CONSOLIDATING STATEMENTS OF OPERATIONS

(UNAUDITED)

 

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

Revenue

   $ —        $ —        $ 776,705      $ 701,815      $ (1,173   $ 1,477,347   

Operating expenses:

            

Direct operating expenses

     —          —          214,782        382,066        (308     596,540   

Selling, general and administrative expenses

     —          —          246,922        119,498        (865     365,555   

Corporate expenses

     2,984        9        51,328        26,197        —          80,518   

Depreciation and amortization

     —          —          79,865        104,214        —          184,079   

Other operating expense – net

     —          —          (1,887     (27,672     —          (29,559
                                                

Operating income (loss)

     (2,984     (9     181,921        42,168        —          221,096   

Interest (income) expense – net

     4        361,665        (2,205     8,103        21,630        389,197   

Equity in earnings (loss) of nonconsolidated affiliates

     (131,162     95,200        (35,633     3,021        71,568        2,994   

Other expense – net

     —          —          (1,574     (4,126     —          (5,700
                                                

Income (loss) before income taxes

     (134,150     (266,474     146,919        32,960        49,938        (170,807
                                                

Income tax benefit (expense)

     1,095        135,312        (80,043     (35,949     —          20,415   
                                                

Consolidated net income (loss)

     (133,055     (131,162     66,876        (2,989     49,938        (150,392

Amount attributable to noncontrolling interest

     —          —          1,281        3,012        —          4,293   
                                                

Net income (loss) attributable to the Company

   $ (133,055   $ (131,162   $ 65,595      $ (6,001   $ 49,938      $ (154,685
                                                

Other comprehensive income (loss), net of tax:

            

Foreign currency translation adjustments

     —          —          (232     126,780        —          126,548   

Unrealized gain (loss) on securities and derivatives:

            

Unrealized holding gain (loss) on marketable securities

     —          —          6,079        (395     —          5,684   

Unrealized holding loss on cash flow derivatives

     —          529        —          —          —          529   

Reclassification adjustment

     —          —          —          2,565        —          2,565   

Equity in subsidiary comprehensive income (loss)

     116,562        116,033        121,908        —          (354,503     —     
                                                

Comprehensive income (loss)

     (16,493     (14,600     193,350        122,949        (304,565     (19,359

Amount attributable to noncontrolling interest

     —          —          11,723        7,041        —          18,764   
                                                

Comprehensive income (loss) attributable to the Company

   $ (16,493   $ (14,600   $ 181,627      $ 115,908      $ (304,565   $ (38,123
                                                

 

18


Table of Contents

CLEAR CHANNEL CAPITAL I, LLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

 

 

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

Revenue

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

Operating expenses:

            

Direct operating expenses

     —          —          232,775        400,210        (207     632,778   

Selling, general and administrative expenses

     —          —          224,489        113,326        (760     337,055   

Corporate expenses

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

Depreciation and amortization

     —          —          78,682        111,507        —          190,189   

Other operating income – net

     —          —          243        1,160        —          1,403   
                                                

Operating income (loss)

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

Interest expense – net

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

Loss on marketable securities

     —          —          (281     (13,097     —          (13,378

Equity in earnings (loss) of nonconsolidated affiliates

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

Other income (expense) – net

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

Income (loss) before income taxes

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

Income tax benefit (expense)

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

Consolidated net income (loss)

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

Amount attributable to noncontrolling interest

     —          —          (3,141     325        —          (2,816
                                                

Net income (loss) attributable to the Company

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

Other comprehensive income (loss), net of tax:

            

Foreign currency translation adjustments

     —          —          11,310        58,856        —          70,166   

Unrealized gain (loss) on securities and derivatives:

            

Unrealized holding loss on marketable securities

     —          —          (7,540     (2,165     —          (9,705

Unrealized holding gain (loss) on cash flow derivatives

     —          (17,242     (1     —          —          (17,243

Reclassification adjustment

     —          —          1        11,836        —          11,837   

Equity in subsidiary comprehensive income (loss)

     45,862        63,103        65,546        —          (174,511     —     
                                                

Comprehensive income (loss)

     (264,656     (261,453     23,974        52,394        414,941        (34,800

Amount attributable to noncontrolling interest

     —          —          6,211        2,981        —          9,192   
                                                

Comprehensive income (loss) attributable to the Company

   $ (264,656   $ (261,453   $ 17,763      $ 49,413      $ 414,941      $ (43,992
                                                

 

19


Table of Contents

CLEAR CHANNEL CAPITAL I, LLC

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

   $ —        $ —        $ 2,209,893      $ 2,024,822      $ (3,581   $ 4,231,134   

Operating expenses:

            

Direct operating expenses

     —          —          646,397        1,149,275        (869     1,794,803   

Selling, general and administrative expenses

     —          —          724,077        370,123        (2,712     1,091,488   

Corporate expenses

     9,417        17        128,963        70,726        —          209,123   

Depreciation and amortization

     —          —          237,614        311,977        —          549,591   

Other operating income (expense) – net

     —          —          2,411        (24,934     —          (22,523
                                                

Operating income (loss)

     (9,417     (17     475,253        97,787        —          563,606   

Interest expense – net

     13        1,068,827        2,046        35,702        53,983        1,160,571   

Equity in earnings (loss) of nonconsolidated affiliates

     (416,757     252,220        (86,381     8,651        250,879        8,612   

Other income (expense) – net

     —          —          (2,135     (6,606     60,289        51,548   
                                                

Income (loss) before income taxes

     (426,187     (816,624     384,691        64,130        257,185        (536,805

Income tax benefit (expense)

     3,458        399,867        (213,927     (59,819     —          129,579   
                                                

Consolidated net income (loss)

     (422,729     (416,757     170,764        4,311        257,185        (407,226

Amount attributable to noncontrolling interest

     —          —          559        8,638        —          9,197   
                                                

Net income (loss) attributable to the Company

   $ (422,729   $ (416,757   $ 170,205      $ (4,327   $ 257,185      $ (416,423
                                                

Other comprehensive income (loss), net of tax:

            

Foreign currency translation adjustments

     —          —          (475     13,351        —          12,876   

Unrealized gain (loss) on securities and derivatives:

            

Unrealized holding gain (loss) on marketable securities

     —          —          14,560        (5,343     —          9,217   

Unrealized holding loss on cash flow derivatives

     —          (7,617     —            —          (7,617

Reclassification adjustment

     —          —          —          1,424        —          1,424   

Equity in subsidiary comprehensive income (loss)

     13,376        20,993        6,124        —          (40,493     —     
                                                

Comprehensive income (loss)

     (409,353     (403,381     190,414        5,105        216,692        (400,523

Amount attributable to noncontrolling interest

     —          —          (784     3,308        —          2,524   
                                                

Comprehensive income (loss) attributable to the Company

   $ (409,353   $ (403,381   $ 191,198      $ 1,797      $ 216,692      $ (403,047
                                                

 

20


Table of Contents

CLEAR CHANNEL CAPITAL I, LLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

 

 

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

Revenue

   $ —        $ —        $ 2,088,341      $ 1,954,120      $ (2,636   $ 4,039,825   

Operating expenses:

            

Direct operating expenses

     —          —          714,253        1,174,557        (607     1,888,203   

Selling, general and administrative expenses

     —          —          716,399        360,779        (2,029     1,075,149   

Corporate expenses

     11,155        8        120,836        45,446        —          177,445   

Depreciation and amortization

     —          —          244,977        329,017        —          573,994   

Impairment charges

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

Other operating income (expense) – net

     —          —          (43,132     10,125        —          (33,007
                                                

Operating loss

     (11,155     (8     (2,975,872     (762,190     —          (3,749,225

Interest expense – net

     17        1,029,985        14,867        82,875        13,248        1,140,992   

Loss on marketable securities

     —          —          (281     (13,097     —          (13,378

Equity in earnings (loss) of nonconsolidated affiliates

     (4,453,950     (3,850,509     (818,358     (20,630     9,122,766        (20,681

Other income (expense) – net

     —          437,665        (2,271     (81,221     295,558        649,731   
                                                

Income (loss) before income taxes

     (4,465,122     (4,442,837     (3,811,649     (960,013     9,405,076        (4,274,545

Income tax benefit (expense)

     1,336        (11,113     (23,248     108,867        —          75,842   
                                                

Consolidated net income (loss)

     (4,463,786     (4,453,950     (3,834,897     (851,146     9,405,076        (4,198,703

Amount attributable to noncontrolling interest

     —          —          (13,814     (3,413     —          (17,227
                                                

Net income (loss) attributable to the Company

   $ (4,463,786   $ (4,453,950   $ (3,821,083   $ (847,733   $ 9,405,076      $ (4,181,476
                                                

Other comprehensive income (loss), net of tax:

            

Foreign currency translation adjustments

     —          —          14,612        141,269        —          155,881   

Unrealized gain (loss) on securities and derivatives:

            

Unrealized holding gain (loss) on marketable securities

     —          —          —          (11,315     —          (11,315

Unrealized holding gain (loss) on cash flow derivatives

     —          (92,993     —          —          —          (92,993

Reclassification adjustment

     —          —          (274     15,231        —          14,957   

Equity in subsidiary comprehensive income (loss)

     47,000        139,992        138,183        —          (325,175     —     
                                                

Comprehensive income (loss)

     (4,416,786     (4,406,951     (3,668,562     (702,548     9,079,901        (4,114,946

Amount attributable to noncontrolling interest

     —          —          12,527        7,002        —          19,529   
                                                

Comprehensive income (loss) attributable to the Company

   $ (4,416,786   $ (4,406,951   $ (3,681,089   $ (709,550   $ 9,079,901      $ (4,134,475
                                                

 

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Table of Contents

CLEAR CHANNEL CAPITAL I, LLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

 

 

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

 

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

Cash flows from operating activities:

           

Consolidated net income (loss)

  $ (422,729   $ (416,757   $ 170,764      $ 4,311      $ 257,185      $ (407,226

Reconciling items:

           

Depreciation and amortization

    —          —          237,614        311,977        —          549,591   

Deferred taxes

    (1,336     (205,868     49,103        (12,785     —          (170,886

(Gain) loss on disposal of operating assets

    —          —          (2,411     24,934        —          22,523   

Gain on extinguishment of debt

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

Provision for doubtful accounts

    —          —          10,066        4,814        —          14,880   

Share-based compensation

    —          —          16,400        8,567        —          24,967   

Equity in (earnings) loss of nonconsolidated affiliates

    416,757        (252,220     86,381        (8,651     (250,879     (8,612

Amortization of deferred financing charges and note discounts, net

    —          187,008        3,162        (84,113     53,983        160,040   

Other reconciling items – net

    —          —          (9,005     18,727        —          9,722   

Changes in operating assets and liabilities:

           

Increase in accounts receivable

    —          —          (54,589     (20,121     —          (74,710

Decrease in Federal income taxes receivable

    4,187        382,024        (304,098     50,196        —          132,309   

Increase in deferred income

    —          —          17,318        29,926        —          47,244   

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

    —          (2,545     37,155        22,212        —          56,822   

Increase (decrease) in accrued interest

    —          60,064        (25,916     353        —          34,501   

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

    (1,035     75,716        (103,504     14,489        —          (14,334
                                               

Net cash provided by (used for) operating activities

    (4,156     (172,578     128,440        364,836        —          316,542   

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

    —          —          —          18,700        (17,500     1,200   

Purchases of property, plant and equipment

    —          —          (29,988     (139,417     —          (169,405

Acquisition of operating assets, net of cash acquired

    —          —          (11,028     (715     —          (11,743

Proceeds from disposal of assets

    —          —          14,084        6,466        —          20,550   

Dividends from subsidiaries

    —          —          35,450        —          (35,450     —     

Change in other – net

    —          —          8,242        (14,183     —          (5,941
                                               

Net cash provided by (used for) investing activities

    —          —          (108,240     (119,124     62,025        (165,339

Cash flows from financing activities:

           

Draws on credit facilities

    —          156,500        —          3,916        —          160,416   

Payments on credit facilities

    —          (98,000     —          (42,254     —          (140,254

Intercompany funding

    6,521        358,965        (317,133     (48,353     —          —     

Proceeds from delayed draw term loan facility

    —          138,795        —          —          —          138,795   

Proceeds from long-term debt

    —          —          —          6,844        —          6,844   

Payments on long-term debt

    —          (383,681     (4     (12,425     27,525        (368,585

Repurchases of long-term debt

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

Dividends paid

    —          —          —          (35,450     35,450        —     

Change in other – net

    (2,365     (1     —          (4,213     —          (6,579
                                               

Net cash provided by (used for) financing activities

    4,156        172,578        (317,137     (131,935     (62,025     (334,363

Net increase (decrease) in cash and cash equivalents

    —          —          (296,937     113,777        —          (183,160

Cash and cash equivalents at beginning of period

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

Cash and cash equivalents at end of period

  $ —        $ —        $ 962,056      $ 738,778      $ —        $ 1,700,834   
                                               

 

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Table of Contents

CLEAR CHANNEL CAPITAL I, LLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

 

 

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

Cash flows from operating activities:

           

Consolidated net income (loss)

  $ (4,463,786   $ (4,453,950   $ (3,834,897   $ (851,146   $ 9,405,076      $ (4,198,703

Reconciling items:

           

Impairment charges

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

Depreciation and amortization

    —          —          244,977        329,017        —          573,994   

Deferred taxes

    756        200,650        (184,339     (135,675     —          (118,608

(Gain) loss on disposal of operating assets

    —          —          43,132        (10,125     —          33,007   

(Gain) loss on extinguishment of debt

    —          (440,599     —          66,824        (295,558     (669,333

Loss on marketable securities

    —          —          281        13,097        —          13,378   

Provision for doubtful accounts

    —          —          11,602        9,172        —          20,774   

Share-based compensation

    —          —          20,134        8,388        —          28,522   

Equity in (earnings) loss of nonconsolidated affiliates

    4,453,950        3,850,509        818,358        20,630        (9,122,766     20,681   

Amortization of deferred financing charges and note discounts, net

    —          186,118        —          (22,465     13,248        176,901   

Other reconciling items – net

    —          —          550        31,104        —          31,654   

Changes in operating assets and liabilities:

           

Decrease in accounts receivable

    —          —          40,718        77,803        —          118,521   

Increase in Federal income taxes receivable

    1,960        178,432        (102,673     (1,780     —          75,939   

Increase in deferred income

    —          —          5,539        22,410        —          27,949   

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

    —          1,970        (37,699     (42,899     —          (78,628

Increase (decrease) in accrued interest

    —          (14,405     5,342        122