UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

[X]          QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE

                ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2013

 

[   ]          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

001-09645

 

CLEAR CHANNEL COMMUNICATIONS, INC.

(Exact name of registrant as specified in its charter)

 

                                                   Texas                                                                                                             74-1787539

                               (State or other jurisdiction of                                                                   (I.R.S. Employer Identification No.)

                              incorporation or organization)

 

                                      200 East Basse Road

                                       San Antonio, Texas                                                                                                     78209

                     (Address of principal executive offices)                                                                               (Zip Code)

 

(210) 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 [X] No [  ]

 

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

Large accelerated filer [   ]   Accelerated filer [   ]   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 April 25, 2013

                          - - - - - - - - - - - - - - - - - - - - - - - - - -                                                                    - - - - - - - - - - - -  - - - - - - - - - -

                             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).

 

 


 

 

 

CLEAR CHANNEL COMMUNICATIONS, INC.

INDEX

 

 

 

Page No.

Part I – Financial Information

 

Item 1.        Financial Statements

1

                    Condensed Consolidated Balance Sheets as of March 31, 2013 and December 31, 2012

1

                    Consolidated Statements of Comprehensive Loss for the three months ended March 31, 2013 and 2012

2

                    Consolidated Statements of Cash Flows for the three months ended March 31, 2013 and 2012

3

                    Notes to Consolidated Financial Statements

4

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

14

Item 3.        Quantitative and Qualitative Disclosures About Market Risk

26

Item 4.        Controls and Procedures

26

Part II – Other Information

 

Item 1.        Legal Proceedings

28

Item 1A.     Risk Factors

29

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

29

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

29

Item 4.        Mine Safety Disclosures

29

Item 5.        Other Information

29

Item 6.        Exhibits

30

Signatures

31

 

 


 

PART I FINANCIAL INFORMATION

ITEM 1.   FINANCIAL STATEMENTS

CLEAR CHANNEL COMMUNICATIONS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

 

 

 

 

 

 

 

(In thousands)

March 31, 2013

 

 

 

 

(Unaudited)

 

December 31, 2012

CURRENT ASSETS

 

 

 

 

 

Cash and cash equivalents

$

 721,570  

 

$

 1,225,010  

Accounts receivable, net

 

 1,264,529  

 

 

 1,423,999  

Prepaid expenses

 

 210,334  

 

 

 187,639  

Other current assets

 

 172,721  

 

 

 151,105  

 

Total Current Assets

 

 2,369,154  

 

 

 2,987,753  

PROPERTY, PLANT AND EQUIPMENT

 

 

 

 

 

Structures, net

 

 1,850,884  

 

 

 1,890,693  

Other property, plant and equipment, net

 

 1,114,980  

 

 

 1,146,161  

INTANGIBLE ASSETS AND GOODWILL

 

 

 

 

 

Indefinite-lived intangibles - licenses

 

 2,423,659  

 

 

 2,423,979  

Indefinite-lived intangibles - permits

 

 1,070,333  

 

 

 1,070,720  

Other intangibles, net

 

 1,668,361  

 

 

 1,740,792  

Goodwill

 

 4,206,959  

 

 

 4,216,085  

OTHER ASSETS

 

 

 

 

 

Other assets

 

 814,821  

 

 

 816,530  

Total Assets

$

 15,519,151  

 

$

 16,292,713  

 

 

 

 

 

 

 

CURRENT LIABILITIES

 

 

 

 

 

Accounts payable

$

 104,534  

 

$

 133,226  

Accrued expenses

 

 686,163  

 

 

 776,055  

Accrued interest

 

 151,146  

 

 

 180,572  

Deferred income

 

 191,013  

 

 

 172,672  

Other current liabilities

 

 114,485  

 

 

 137,889  

Current portion of long-term debt

 

 68,351  

 

 

 381,728  

 

Total Current Liabilities

 

 1,315,692  

 

 

 1,782,142  

Long-term debt

 

 20,357,790  

 

 

 20,365,369  

Deferred income taxes

 

 1,596,704  

 

 

 1,689,876  

Other long-term liabilities

 

 458,668  

 

 

 450,517  

Commitments and contingent liabilities (Note 6)

 

 

 

 

 

SHAREHOLDER'S DEFICIT

 

 

 

 

 

Noncontrolling interest

 

 293,127  

 

 

 303,997  

Common stock

 

 500  

 

 

 500  

Additional paid-in capital

 

 2,136,632  

 

 

 2,135,342  

Accumulated deficit

 

 (10,484,749) 

 

 

 (10,281,746) 

Accumulated other comprehensive loss

 

 (155,213) 

 

 

 (153,284) 

 

Total Shareholder's Deficit

 

 (8,209,703) 

 

 

 (7,995,191) 

Total Liabilities and Shareholder's Deficit

$

 15,519,151  

 

$

 16,292,713  

 

See Notes to Consolidated Financial Statements

1

 


 

 

 

CLEAR CHANNEL COMMUNICATIONS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(UNAUDITED)

(In thousands)

Three Months Ended March 31,

 

2013

 

2012

Revenue

$

 1,343,058  

 

$

 1,360,723  

Operating expenses:

 

 

 

 

 

 

 

Direct operating expenses (excludes depreciation and amortization)

 

 594,866  

 

 

 614,434  

 

 

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

 

 406,435  

 

 

 424,575  

 

 

Corporate expenses (excludes depreciation and amortization)

 

 80,642  

 

 

 68,251  

 

 

Depreciation and amortization

 

 182,182  

 

 

 175,366  

 

 

Other operating income, net

 

 2,395  

 

 

 3,124  

Operating income

 

 81,328  

 

 

 81,221  

Interest expense

 

 385,525  

 

 

 374,016  

Equity in earnings of nonconsolidated affiliates

 

 3,641  

 

 

 3,555  

Loss on extinguishment of debt

 

 (3,888) 

 

 

 (15,167) 

Other expense, net

 

 (1,000) 

 

 

 (1,106) 

Loss before income taxes

 

 (305,444) 

 

 

 (305,513) 

Income tax benefit

 

 96,325  

 

 

 157,398  

Consolidated net loss

 

 (209,119) 

 

 

 (148,115) 

 

Less amount attributable to noncontrolling interest

 

 (6,116) 

 

 

 (4,486) 

Net loss attributable to the Company

$

 (203,003) 

 

$

 (143,629) 

Other comprehensive income (loss), net of tax:

 

 

 

 

 

 

Foreign currency translation adjustments

 

 (23,413) 

 

 

 37,089  

 

Unrealized gain on securities and derivatives:

 

 

 

 

 

 

 

Unrealized holding gain on marketable securities

 

 4,435  

 

 

 12,048  

 

 

Unrealized holding gain on cash flow derivatives

 

 14,823  

 

 

 8,579  

 

Other adjustments to comprehensive income (loss)

 

 (998) 

 

 

 63  

Other comprehensive income (loss)

 

 (5,153) 

 

 

 57,779  

Comprehensive loss

 

 (208,156) 

 

 

 (85,850) 

 

 Less amount attributable to noncontrolling interest

 

 (3,223) 

 

 

 3,655  

Comprehensive loss attributable to the Company

$

 (204,933) 

 

$

 (89,505) 

 

See Notes to Consolidated Financial Statements

2

 


 

 

 

CLEAR CHANNEL COMMUNICATIONS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

(In thousands)

Three Months Ended March 31,

 

2013

 

2012

Cash flows from operating activities:

 

 

 

 

 

 

Consolidated net loss

$

 (209,119) 

 

$

 (148,115) 

Reconciling items:

 

 

 

 

 

 

Depreciation and amortization

 

 182,182  

 

 

175,366

 

Deferred taxes

 

 (106,991) 

 

 

(98,438)

 

Provision for doubtful accounts

 

 4,576  

 

 

4,704

 

Amortization of deferred financing charges and note discounts, net

 

 31,356  

 

 

45,031

 

Share-based compensation

 

 5,517  

 

 

6,897

 

Gain on disposal of operating and fixed assets

 

 (2,395) 

 

 

(3,124)

 

Equity in earnings of nonconsolidated affiliates

 

 (3,641) 

 

 

(3,555)

 

Loss on extinguishment of debt

 

 3,888  

 

 

15,167

 

Other reconciling items, net

 

 6,469  

 

 

5,819

 

Changes in operating assets and liabilities, net of effects of

      acquisitions and dispositions:

 

 

 

 

 

 

 

Decrease in accounts receivable

 

 143,413  

 

 

152,268

 

 

Increase in deferred income

 

 19,519  

 

 

63,995

 

 

Decrease in accrued expenses

 

 (79,301) 

 

 

(44,888)

 

 

Decrease in accounts payable

 

 (26,422) 

 

 

(13,680)

 

 

Decrease in accrued interest

 

 (29,423) 

 

 

(82,988)

 

 

Changes in other operating assets and liabilities

 

 (26,219) 

 

 

(82,012)

Net cash used for operating activities

 

 (86,591) 

 

 

 (7,553) 

Cash flows from investing activities:

 

 

 

 

 

 

Purchases of property, plant and equipment

 

 (61,620) 

 

 

(72,647)

 

Purchases of other operating assets

 

 (1,344) 

 

 

(2,911)

 

Proceeds from disposal of assets

 

 7,268  

 

 

7,792

 

Change in other, net

 

 (1,515) 

 

 

 (2,879) 

Net cash used for investing activities

 

 (57,211) 

 

 

 (70,645) 

Cash flows from financing activities:

 

 

 

 

 

 

Draws on credit facilities

 

 270,137  

 

 

 603,492  

 

Payments on credit facilities

 

 (22,500) 

 

 

 (1,918,051) 

 

Proceeds from long-term debt

 

 575,000  

 

 

 2,200,000  

 

Payments on long-term debt

 

 (1,163,436) 

 

 

 (433,460) 

 

Dividends paid

 

 -    

 

 

 (244,734) 

 

Deferred financing charges

 

 (9,678) 

 

 

 (39,927) 

 

Change in other, net

 

 (3,805) 

 

 

 4,900  

Net cash provided by (used for) financing activities

 

 (354,282) 

 

 

 172,220  

Effect of exchange rate changes on cash

 

 (5,356) 

 

 

 3,357  

Net increase (decrease) in cash and cash equivalents

 

 (503,440) 

 

 

 97,379  

Cash and cash equivalents at beginning of period

 

 1,225,010  

 

 

 1,228,682  

Cash and cash equivalents at end of period

$

 721,570  

 

$

 1,326,061  

 

See Notes to Consolidated Financial Statements

3

 


 

CLEAR CHANNEL COMMUNICATIONS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

NOTE 1 – BASIS OF PRESENTATION

Preparation of Interim Financial Statements

The accompanying consolidated financial statements were prepared by Clear Channel Communications, Inc. (the “Company”) pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) and, in the opinion of management, include all normal and recurring adjustments necessary to present fairly the results of the interim periods shown. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) have been condensed or omitted pursuant to such SEC rules and regulations. Management believes that the disclosures made are adequate to make the information presented not misleading. Due to seasonality and other factors, the results for the interim periods are not necessarily indicative of results for the full year.  The financial statements contained herein should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s 2012 Annual Report on Form 10-K.

 

The consolidated financial statements include the accounts of the Company and its subsidiaries.  Also included in the consolidated financial statements are entities for which the Company has a controlling financial interest or is the primary beneficiary.  Investments in companies in which the Company owns 20 percent to 50 percent of the voting common stock or otherwise exercises significant influence over operating and financial policies of the Company are accounted for under the equity method.  All significant intercompany transactions are eliminated in the consolidation process.  Certain prior-period amounts have been reclassified to conform to the 2013 presentation.

 

Information Regarding the Company

The Company is a Texas corporation with all of its common stock held by Clear Channel Capital I, LLC (the “Parent Company”).  All of the Parent Company’s interests are 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 the Company.

 

Omission of Per Share Information

Net loss per share information is not presented as the Parent Company owns 100% of the Company’s common stock. The Company does not have any publicly traded common stock or potential common stock.

 

Adoption of New Accounting Standards

During the first quarter of 2013, the Company adopted the Financial Accounting Standards Board's (“FASB”) ASU No. 2013-02, Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income. The amendments are effective for fiscal years (and interim periods within) beginning after December 15, 2012 and sets requirements for presenting information about amounts reclassified out of accumulated other comprehensive income and their corresponding effect on net income. Substantially all of the information required to be disclosed under this amendment are required to be disclosed elsewhere in the financial statements under U.S. GAAP. The adoption of this guidance did not have a material effect on the Company's consolidated financial statements.

 

During the first quarter of 2013, the FASB issued ASU No. 2013-04, Obligations Resulting from Joint and Several Liability Arrangements for Which the Total Amount of the Obligation Is Fixed at the Reporting Date.  This update provides guidance for the recognition, measurement and disclosure of obligations resulting from joint and several liability arrangements for which the total amount of the obligation within the scope of this guidance is fixed at the reporting date. The amendments are effective for fiscal years (and interim periods within) beginning after December 15, 2013 and are to be applied retrospectively to all prior periods presented for such obligations that exist at the beginning of an entity’s fiscal year of adoption.  Early adoption is permitted however the Company plans to adopt the standard on a retrospective basis for the first quarter of 2014 for any existing obligations within the scope of this update. The Company is currently evaluating the guidance to determine the potential impact, if any, the adoption may have on its financial results and disclosures.

4

 


 

CLEAR CHANNEL COMMUNICATIONS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

 

During the first quarter of 2013, the FASB issued ASU No. 2013-05, Parent’s Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity of an Investment in a Foreign Entity. The amendments are effective prospectively for the fiscal years (and interim periods within) beginning after December 15, 2013 and provide clarification guidance for the release of the cumulative translation adjustment under the current U.S. GAAP. Early adoption is permitted however the Company plans to adopt the standard for the first quarter of 2014. The Company is currently evaluating the guidance to determine the potential impact, if any, the adoption may have on its financial results and disclosures.

 

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 March 31, 2013 and December 31, 2012, respectively.

 

(In thousands)

March 31, 2013

 

December 31, 2012

Land, buildings and improvements

$

 689,692  

 

$

 685,431  

Structures

 

 2,958,467  

 

 

 2,949,458  

Towers, transmitters and studio equipment

 

 427,851  

 

 

 427,679  

Furniture and other equipment

 

 442,473  

 

 

 431,757  

Construction in progress

 

 90,838  

 

 

 105,394  

 

 

 4,609,321  

 

 

 4,599,719  

Less: accumulated depreciation

 

 1,643,457  

 

 

 1,562,865  

Property, plant and equipment, net

$

 2,965,864  

 

$

 3,036,854  

 

Indefinite-lived Intangible Assets

The Company’s indefinite-lived intangible assets consist of Federal Communications Commission (“FCC”) broadcast licenses in its Media and Entertainment (“CCME”) segment and billboard permits in its Americas outdoor advertising segment. Due to significant differences in both business practices and regulations, billboards in the International outdoor advertising segment are subject to long-term, finite contracts unlike the Company’s permits in the United States and Canada. Accordingly, there are no indefinite-lived intangible assets in the International outdoor advertising segment.

 

Other Intangible Assets

Other intangible assets include definite-lived intangible assets and permanent easements.  The Company’s definite-lived intangible assets include primarily transit and street furniture contracts, talent and representation contracts, customer and advertiser relationships, and site-leases, all of which are amortized over 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. Permanent easements are indefinite-lived intangible assets which include certain rights to use real property not owned by the Company.  The Company periodically reviews the appropriateness of the amortization periods related to its definite-lived intangible assets.  These assets are recorded at cost.

 

5

 


 

CLEAR CHANNEL COMMUNICATIONS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

 

 

The following table presents the gross carrying amount and accumulated amortization for each major class of other intangible assets at March 31, 2013 and December 31, 2012, respectively:

 

(In thousands)

March 31, 2013

 

December 31, 2012

 

 

Gross Carrying Amount

 

Accumulated Amortization

 

Gross Carrying Amount

 

Accumulated Amortization

Transit, street furniture and other outdoor

 

 

 

 

 

 

 

 

 

 

 

 

contractual rights

 $  

 771,321  

 

 $  

 (411,850) 

 

 $  

 785,303  

 

 $  

 (403,955) 

Customer / advertiser relationships

 

 1,212,245  

 

 

 (556,200) 

 

 

 1,210,245  

 

 

 (526,197) 

Talent contracts

 

 344,254  

 

 

 (186,810) 

 

 

 344,255  

 

 

 (177,527) 

Representation contracts

 

 245,099  

 

 

 (178,821) 

 

 

 243,970  

 

 

 (171,069) 

Permanent easements

 

 173,383  

 

 

 -    

 

 

 173,374  

 

 

 -    

Other

 

 388,137  

 

 

 (132,397) 

 

 

 387,973  

 

 

 (125,580) 

 

Total

 $  

 3,134,439  

 

 $  

 (1,466,078) 

 

 $  

 3,145,120  

 

 $  

 (1,404,328) 

 

Total amortization expense related to definite-lived intangible assets was $72.1 million and $75.3 million for the three months ended March 31, 2013 and 2012, respectively.

 

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)

 

 

2014

$

 261,982  

2015

 

 242,267  

2016

 

 222,056  

2017

 

 195,143  

2018

 

 125,337  

 

Goodwill

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

 

(In thousands)

CCME

 

Americas Outdoor Advertising

 

International Outdoor Advertising

 

Other

 

Consolidated

Balance as of December 31, 2011

$

 3,212,427  

 

$

 571,932  

 

$

 285,261  

 

$

 117,098  

 

$

 4,186,718  

 

Acquisitions

 

 24,842  

 

 

 -    

 

 

 -    

 

 

 51  

 

 

 24,893  

 

Dispositions

 

 (489) 

 

 

 -    

 

 

 (2,729) 

 

 

 -    

 

 

 (3,218) 

 

Foreign currency

 

 -    

 

 

 -    

 

 

 7,784  

 

 

 -    

 

 

 7,784  

 

Other

 

 (92) 

 

 

 -    

 

 

 -    

 

 

 -    

 

 

 (92) 

Balance as of December 31, 2012

$

 3,236,688  

 

$

 571,932  

 

$

 290,316  

 

$

 117,149  

 

$

 4,216,085  

 

Acquisitions

 

 -    

 

 

 -    

 

 

 -    

 

 

 -    

 

 

 -    

 

Dispositions

 

 -    

 

 

 -    

 

 

 -    

 

 

 -    

 

 

 -    

 

Foreign currency

 

 -    

 

 

 -    

 

 

 (6,485) 

 

 

 -    

 

 

 (6,485) 

 

Other

 

 (2,641) 

 

 

 -    

 

 

 -    

 

 

 -    

 

 

 (2,641) 

Balance as of March 31, 2013

$

 3,234,047  

 

$

 571,932  

 

$

 283,831  

 

$

 117,149  

 

$

 4,206,959  

6

 


 

CLEAR CHANNEL COMMUNICATIONS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

 

NOTE 3 – LONG-TERM DEBT

Long-term debt at March 31, 2013 and December 31, 2012, respectively, consisted of the following:

 

(In thousands)

March 31, 2013

 

December 31, 2012

Senior Secured Credit Facilities (1)

$

 8,228,575  

 

$

 9,075,465  

Receivables Based Facility due 2017

 

 247,000  

 

 

 -    

9.0% Priority Guarantee Notes due 2019

 

 1,999,815  

 

 

 1,999,815  

9.0% Priority Guarantee Notes due 2021

 

 1,750,000  

 

 

 1,750,000  

11.25% Priority Guarantee Notes due 2021

 

 575,000  

 

 

 -    

Other secured subsidiary long-term debt (2)

 

 24,071  

 

 

 25,507  

Total consolidated secured debt

 

 12,824,461  

 

 

 12,850,787  

 

 

 

 

 

 

 

Senior Cash Pay Notes due 2016

 

 796,250  

 

 

 796,250  

Senior Toggle Notes (3)

 

 829,831  

 

 

 829,831  

Senior Notes (4)

 

 1,436,455  

 

 

 1,748,564  

Subsidiary Senior Notes due 2022

 

 2,725,000  

 

 

 2,725,000  

Subsidiary Senior Subordinated Notes due 2020

 

 2,200,000  

 

 

 2,200,000  

Other subsidiary debt due 2013

 

 2,670  

 

 

 5,586  

Purchase accounting adjustments and original issue discount

 

 (388,526) 

 

 

 (408,921) 

 

 

 

 20,426,141  

 

 

 20,747,097  

Less: current portion

 

 68,351  

 

 

 381,728  

Total long-term debt

$

 20,357,790  

 

$

 20,365,369  

 

(1)        Term Loan A would have matured during 2014.  The outstanding balance was prepaid during the first quarter of 2013.  Term Loan B matures 2016.  Term Loan C is subject to an amortization schedule that matures at various dates from 2014 through 2016.

(2)        Other secured subsidiary long-term debt matures at various dates from 2013 through 2028.

(3)        Senior Toggle Notes mature at various dates from 2013 through 2016.

(4)        The Senior Notes mature at various dates from 2014 through 2027.

 

The Company’s weighted average interest rates at March 31, 2013 and December 31, 2012 were 6.9% and 6.7%, respectively.  The aggregate market value of the Company’s debt based on market prices for which quotes were available was approximately $19.2 billion and $18.6 billion at March 31, 2013 and December 31, 2012, respectively.  Under the fair value hierarchy established by ASC 820-10-35, the market value of the Company’s debt is classified as Level 2.

 

11.25% Priority Guarantee Notes Issuance

During the first quarter of 2013, the Company issued $575.0 million aggregate principal amount of 11.25% Priority Guarantee Notes due 2021 (the “11.25% Priority Guarantee Notes”).  The 11.25% Priority Guarantee Notes mature on March 1, 2021 and bear interest at a rate of 11.25% per annum, payable semi-annually on March 1 and September 1 of each year, beginning on September 1, 2013. The 11.25% Priority Guarantee Notes are the Company’s senior obligations and are fully and unconditionally guaranteed, jointly and severally, on a senior basis by the guarantors named in the indenture governing such notes. The 11.25% Priority Guarantee Notes and the guarantors’ obligations under the guarantees are secured by (i) a lien on (a) the capital stock of the Company and (b) certain property and related assets that do not constitute “principal property” (as defined in the indenture governing the legacy notes of the Company), in each case equal in priority to the liens securing the obligations under the Company’s senior secured credit facilities, the Company’s 9.0% priority guarantee notes due 2021 and the Company’s 9.0% priority guarantee notes due 2019, subject to certain exceptions, and (ii) a lien on the accounts receivable and related assets securing the Company’s receivables based credit facility junior in priority to the lien securing the Company’s obligations thereunder, subject to certain exceptions.

 

The Company may redeem the 11.25% Priority Guarantee Notes at its option, in whole or part, at any time prior to March 1, 2016, at a price equal to 100% of the principal amount of the 11.25% Priority Guarantee Notes redeemed, plus accrued and unpaid interest to the redemption date and plus an applicable premium.  The Company may redeem the 11.25% Priority Guarantee Notes, in whole or in

7

 


 

CLEAR CHANNEL COMMUNICATIONS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

 

part, on or after March 1, 2016, at the redemption prices set forth in the indenture plus accrued and unpaid interest to the redemption date.  Prior to March 1, 2016, the Company may elect to redeem up to 40% of the aggregate principal amount of the 11.25% Priority Guarantee Notes at a redemption price equal to 111.25% of the principal amount thereof, plus accrued and unpaid interest to the redemption date, with the net proceeds of one or more equity offerings.

 

The indenture governing the 11.25% Priority Guarantee Notes contains covenants that limit the Company’s ability and the ability of its restricted subsidiaries to, among other things: (i) pay dividends, redeem stock or make other distributions or investments; (ii) incur additional debt or issue certain preferred stock; (iii) transfer or sell assets; (iv) engage in certain transactions with affiliates; (v) create restrictions on dividends or other payments by the restricted subsidiaries; and (vi) merge, consolidate or sell substantially all of the Company’s assets. The indenture contains covenants that limit the Parent Company’s and the Company’s ability and the ability of its restricted subsidiaries to, among other things: (i) create liens on assets and (ii) materially impair the value of the security interests taken with respect to the collateral for the benefit of the notes collateral agent and the holders of the 11.25% Priority Guarantee Notes. The indenture also provides for customary events of default.

 

Debt Repayments, Maturities and Other

During the first quarter of 2013, the Company repaid its 5.75% senior notes at maturity for $312.1 million (net of $187.9 million principal amount repaid to a subsidiary of the Company with respect to notes repurchased and held by such entity), plus accrued interest, using cash on hand.

 

In addition, during the first quarter of 2013, using the proceeds from the issuance of the 11.25% Priority Guarantee Notes along with borrowings under the receivables based credit facility of $269.5 million and cash on hand, the Company prepaid all $846.9 million outstanding under its term loan A under the senior secured credit facilities.  The Company recorded a loss of $3.9 million in “Loss on extinguishment of debt” related to the accelerated expensing of loan fees.

 

NOTE 4 – SUPPLEMENTAL DISCLOSURES

Divestiture Trusts

The Company owns certain radio stations which, under current FCC rules, are not permitted to be owned or transferred to another Clear Channel entity. 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 Parent Company’s acquisition of the Company.  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

The Company’s income tax benefit for the three months ended March 31, 2013 and 2012, respectively, consisted of the following components:

 

(In thousands)

 

 

Three Months Ended March 31,

 

 

 

 

 

2013

 

2012

Current tax benefit (expense)

 

 

 

 

 

 

$

 (10,666) 

 

$

 58,960  

Deferred tax benefit

 

 

 

 

 

 

 

 106,991  

 

 

 98,438  

Income tax benefit

 

 

 

 

 

 

$

 96,325  

 

$

 157,398  

 

The effective tax rate for the three months ended March 31, 2013 was 31.5%.  The 2013 effective tax rate was impacted by the Company’s inability to record tax benefit on tax losses in certain foreign jurisdictions due to the uncertainty of the ability to utilize those losses in future years.

8

 


 

CLEAR CHANNEL COMMUNICATIONS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

 

 

The effective tax rate for the three months ended March 31, 2012 was 51.5%.  The effective tax rate was primarily impacted by the Company’s settlement of U.S. federal and state tax examinations during the period.  Pursuant to the settlements, the Company recorded a reduction to income tax expense of approximately $61.0 million to reflect the net tax benefits of the settlements.

 

Supplemental Cash Flow Information

During the three months ended March 31, 2013 and 2012, cash paid for interest and income taxes, net of income tax refunds of $0.4 million and $0.6 million, respectively, was as follows:

 

(In thousands)

Three Months Ended March 31,

 

2013

 

2012

Interest

$

 385,238  

 

$

 412,460  

Income taxes

 

 13,175  

 

 

 18,935  

 

NOTE 5 – FAIR VALUE MEASUREMENTS

The Company’s marketable equity securities and interest rate swap are measured at fair value on each reporting date.

 

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 in accordance with ASC 820-10-35. The Company records its investments in these marketable equity securities on the balance sheet as “Other assets.”

 

The cost, unrealized holding gains or losses, and fair value of the Company’s investments at March 31, 2013 and December 31, 2012 are as follows:

 

(In thousands)

March 31, 2013

 

December 31, 2012

Cost

$

 5,207  

 

$

 5,207  

Gross unrealized losses

 

 (25) 

 

 

 -  

Gross unrealized gains

 

 113,499  

 

 

 106,220  

Fair value

$

 118,681  

 

$

 111,427  

 

Interest Rate Swap Agreement

The Company’s $2.5 billion notional amount interest rate swap agreement is designated as a cash flow hedge and the effective portion of the gain or loss on the swap is reported as a component of other comprehensive income (loss).  Ineffective portions of a cash flow hedging derivative’s change in fair value are recognized currently in earnings.  In accordance with ASC 815-20-35-9, as the critical terms of the swap 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 for the three months ended March 31, 2013.

 

The Company entered into the swap 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.  The interest rate swap agreement matures September 30, 2013.

 

The Company continually monitors its positions with, and credit quality of, the financial institution which is counterparty to its interest rate swap. The Company may be exposed to credit loss in the event of nonperformance by the counterparty to the interest rate swap. 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 in earnings.

 

The swap agreement is valued using a discounted cash flow model that takes into account the present value of the future cash flows under the terms of the agreement 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 its swap agreement as Level 2 in accordance with ASC 820-10-35.

 

9

 


 

CLEAR CHANNEL COMMUNICATIONS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

 

The fair value of the Company’s $2.5 billion notional amount interest rate swap designated as a hedging instrument and recorded in “Other current liabilities” was $53.3 million and $76.9 million at March 31, 2013 and December 31, 2012, respectively.

 

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

 

(In thousands)

Accumulated other comprehensive loss

Balance at December 31, 2012

$

 48,180  

Other comprehensive income

 

 (14,823) 

Balance at March 31, 2013

$

 33,357  

 

Other Comprehensive Income (Loss)

The following table discloses the amount of income tax (asset) liability allocated to each component of other comprehensive income (loss) for the three months ended March 31, 2013 and 2012, respectively:

 

(In thousands)

 

 

Three Months Ended March 31,

 

 

 

 

 

2013

 

2012

Foreign currency translation adjustments and other

 

 

 

 

 

 

$

 (730) 

 

$

 2,234  

Unrealized holding gain on marketable securities

 

 

 

 

 

 2,820  

 

 

 7,017  

Unrealized holding gain on cash flow derivatives

 

 

 

 

 

 

 

 8,774  

 

 

 5,120  

 

Total income tax benefit

 

 

 

 

 

 

$

 10,864  

 

$

 14,371  

                         

 

NOTE 6 – COMMITMENTS, CONTINGENCIES AND GUARANTEES

The Company and its subsidiaries are involved in certain legal proceedings arising in the ordinary course of business and, as required, have accrued an estimate of the probable costs for the 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 the Company’s strategies related to these proceedings.  Additionally, due to the inherent uncertainty of litigation, there can be no assurance that the resolution of any particular claim or proceeding would not have a material adverse effect on the Company’s financial condition or results of operations.

 

Although the Company is involved in a variety of legal proceedings in the ordinary course of business, a large portion of the Company’s litigation arises in the following contexts: commercial disputes; defamation matters; employment and benefits related claims; governmental fines; intellectual property claims; and tax disputes.

 

Stockholder Litigation

Two derivative lawsuits were filed in March 2012 in Delaware Chancery Court by stockholders of Clear Channel Outdoor Holdings, Inc. (“CCOH”), an indirect non-wholly owned subsidiary of the Company. The consolidated lawsuits are captioned In re Clear Channel Outdoor Holdings, Inc. Derivative Litigation, Consolidated Case No. 7315-CS. The complaints name as defendants certain of the Company’s and CCOH’s current and former directors and the Company, as well as Bain Capital Partners, LLC and Thomas H. Lee Partners, L.P.  CCOH also is named as a nominal defendant.  The complaints allege, among other things, that in December 2009 the Company breached fiduciary duties to CCOH and its stockholders by allegedly requiring CCOH to agree to amend the terms of a revolving promissory note payable by the Company to CCOH to extend the maturity date of the note and to amend the interest rate payable on the note. According to the complaints, the terms of the amended promissory note were unfair to CCOH because, among other things, the interest rate was below market. The complaints further allege that the Company was unjustly enriched as a result of that transaction.  The complaints also allege that the director defendants breached fiduciary duties to CCOH in connection with that transaction and that the transaction constituted corporate waste.   On April 4, 2012, the board of directors of CCOH formed a special litigation committee consisting of certain independent directors (the “SLC”) to review and investigate plaintiffs’ claims and determine the course of action that serves the best interests of CCOH and its stockholders.  On June 20, 2012, the SLC filed a motion to stay the lawsuits for six months while it completes its review and investigation.  In response, on June 27, 2012, plaintiffs filed a motion for an

10

 


 

CLEAR CHANNEL COMMUNICATIONS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

 

expedited trial, asking the Court to schedule a trial on the merits in October 2012. On July 23, 2012, the Court issued an order granting the motion to stay and denying the motion for an expedited trial. On January 23, 2013, the SLC filed a motion to extend the stay for thirty days, and on January 24, 2013, the Court granted that motion, extending the stay for thirty days from the date of the order. On March 28, 2013, to avoid the costs, disruption and distraction of further litigation, and without admitting the validity of any allegations made in the complaint, legal counsel for the defendants entered into a binding memorandum of understanding (the “MOU”) with legal counsel for the SLC and the plaintiffs to settle the litigation.  The MOU obligates the parties to use their best efforts to prepare a Stipulation of Settlement reflecting the terms of the MOU and present such Stipulation of Settlement to the Delaware Chancery Court for approval.  The Stipulation of Settlement has not yet been finalized and is subject to approval by the Delaware Court of Chancery.  Accordingly, unless and until such approval is received, no assurance can be provided that the outstanding litigation will be resolved as contemplated by the MOU.  CCOH and the Company filed the MOU with the SEC as an exhibit to their respective Current Reports on Form 8-K filed on April 3, 2013.  The financial statements do not reflect any impacts that may result upon the final Stipulation of Settlement being approved.

 

Los Angeles Litigation

In 2008, Summit Media, LLC, one of the Company’s competitors, sued the City of Los Angeles, Clear Channel Outdoor, Inc. and CBS Outdoor in Los Angeles Superior Court (Case No. BS116611) challenging the validity of a settlement agreement that had been entered into in November 2006 among the parties. Pursuant to the settlement agreement, Clear Channel Outdoor, Inc. had taken down existing billboards and converted 83 existing signs from static displays to digital displays pursuant to modernization permits issued through an administrative process of the City. The Los Angeles Superior Court ruled in January 2010 that the settlement agreement constituted an ultra vires act of the City and nullified its existence, but did not invalidate the modernization permits issued to Clear Channel Outdoor, Inc. and CBS. All parties appealed the ruling by the Los Angeles Superior Court to Court of Appeal for the State of California, Second Appellate District, Division 8. On December 10, 2012, the Court of Appeal issued an order upholding the Superior Court’s finding that the settlement agreement was ultra vires and remanding the case to the Superior Court for the purpose of invalidating the modernization permits issued to Clear Channel Outdoor, Inc. and CBS for the digital displays that were the subject of the settlement agreement.  On January 22, 2013, Clear Channel Outdoor, Inc. filed a petition with the California Supreme Court requesting its review of the matter, and the Supreme Court denied that petition on February 27, 2013.  On April 12, 2013, the Los Angeles Superior Court invalidated 82 digital modernization permits issued to Clear Channel Outdoor, Inc. and 13 issued to CBS and ordered that the companies turn off the electrical power to affected digital displays by the close of business on April 15, 2013.  Clear Channel Outdoor, Inc. has complied with the order.  On April 16, 2013, the Court conducted further proceedings during which it held that it was not invalidating two additional digital modernization permits that Clear Channel Outdoor, Inc. had secured through a special zoning plan and confirmed that its April 12 order invalidated only digital modernization permits – not other types of permits the companies may have secured for the signs at issue.

 

Guarantees

As of March 31, 2013, the Company had outstanding surety bonds and commercial standby letters of credit of $51.0 million and $124.2 million, respectively, of which $56.3 million of letters of credit were cash secured.  Letters of credit in the amount of $9.1 million are collateral in support of surety bonds and these amounts would only be drawn under the letter of credit in the event the associated surety bonds were funded and the Company did not honor its reimbursement obligation to the issuers. These letters of credit and surety bonds relate to various operational matters including insurance, bid, and performance bonds as well as other items.

 

As of March 31, 2013, the Company had outstanding bank guarantees of $47.0 million related to international subsidiaries, of which $4.5 million were backed by cash collateral.

 

NOTE 7 – CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

The Company 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, plus reimbursable expenses.  For the three months ended March 31, 2013 and 2012, the Company recognized management fees and reimbursable expenses of $4.1 million and $4.0 million, respectively.

11

 


 

CLEAR CHANNEL COMMUNICATIONS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

 

NOTE 8 – EQUITY AND COMPREHENSIVE INCOME (LOSS)

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

 

(In thousands)

The Company

 

Noncontrolling

Interests

 

Consolidated

Balances at January 1, 2013

$

(8,299,188)

 

$

 303,997  

 

$

(7,995,191)

 

Net loss

 

 (203,003) 

 

 

 (6,116) 

 

 

 (209,119) 

 

Foreign currency translation adjustments

 

 (20,306) 

 

 

 (3,107) 

 

 

 (23,413) 

 

Unrealized holding gain on marketable securities

 

 4,438  

 

 

 (3) 

 

 

 4,435  

 

Unrealized holding gain on cash flow derivatives

 

 14,823  

 

 

 -    

 

 

 14,823  

 

Other adjustments to comprehensive income

 

 (885) 

 

 

 (113) 

 

 

 (998) 

 

Other, net

 

 1,291  

 

 

 (1,531) 

 

 

 (240) 

Balances at March 31, 2013

$

(8,502,830)

 

$

 293,127  

 

$

(8,209,703)

 

 

 

 

 

 

 

 

 

 

Balances at January 1, 2012

$

(7,993,735)

 

$

 521,794  

 

$

(7,471,941)

 

Net loss

 

 (143,629) 

 

 

 (4,486) 

 

 

 (148,115) 

 

Dividends

 

 -    

 

 

 (244,734) 

 

 

 (244,734) 

 

Foreign currency translation adjustments

 

 33,474  

 

 

 3,615  

 

 

 37,089  

 

Unrealized holding gain on marketable securities

 

 12,015  

 

 

 33  

 

 

 12,048  

 

Unrealized holding gain on cash flow derivatives

 

 8,579  

 

 

 -    

 

 

 8,579  

 

Other adjustments to comprehensive income

 

 56  

 

 

 7  

 

 

 63  

 

Other, net

 

 (3,785) 

 

 

 8,240  

 

 

4,455

Balances at March 31, 2012

$

(8,087,025)

 

$

284,469

 

$

(7,802,556)

 

The Company does not have any compensation plans under which it grants awards to employees. CCMH and CCOH have granted options to purchase shares of their Class A common stock to certain key individuals, as well as restricted stock and restricted stock units.

12

 


 

CLEAR CHANNEL COMMUNICATIONS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

 

NOTE 9 – SEGMENT DATA

The Company’s reportable segments, which it believes best reflect how the Company is currently managed, are CCME, Americas outdoor advertising and International outdoor advertising.  Revenue and expenses earned and charged between segments are recorded at estimated fair value and eliminated in consolidation.  The CCME segment provides media and entertainment services via broadcast and digital delivery and also includes the Company’s national syndication business.  The Americas outdoor advertising segment consists of operations primarily in the United States and Canada.  The International outdoor advertising segment primarily includes operations in Europe, Asia, Australia and Latin America.  The Americas outdoor and International outdoor display inventory consists primarily of billboards, street furniture displays and transit displays.  The Other category includes the Company’s media representation business as well as other general support services and initiatives which are ancillary to the Company’s other businesses.  Corporate includes infrastructure and support, including information technology, human resources, legal, finance and administrative functions of each of the Company’s reportable segments, as well as overall executive, administrative and support functions. Share-based payments are recorded by each segment in direct operating and selling, general and administrative expenses.

 

The following table presents the Company’s reportable segment results for the three months ended March 31, 2013 and 2012.

 

(In thousands)

CCME

 

Americas Outdoor Advertising

 

International Outdoor Advertising

 

Other

 

Corporate

and other

reconciling

items

 

Eliminations

 

Consolidated

 

Three Months Ended March 31, 2013

 

Revenue

$

 656,566  

 

$

 286,461  

 

$

 363,749  

 

$

 49,219  

 

$

 -    

 

$

 (12,937) 

 

$

 1,343,058  

 

Direct operating expenses

 

 203,119  

 

 

 137,547  

 

 

 249,842  

 

 

 6,494  

 

 

 -    

 

 

 (2,136) 

 

 

 594,866  

 

Selling, general and administrative

   expenses

 

 241,783  

 

 

 54,610  

 

 

 85,382  

 

 

 35,461  

 

 

 -    

 

 

 (10,801) 

 

 

 406,435  

 

Depreciation and amortization

 

 67,832  

 

 

 48,685  

 

 

 50,993  

 

 

 9,982  

 

 

 4,690  

 

 

 -    

 

 

 182,182  

 

Corporate expenses

 

 -    

 

 

 -    

 

 

 -    

 

 

 -    

 

 

 80,642  

 

 

 -    

 

 

 80,642  

 

Other operating income, net

 

 -    

 

 

 -    

 

 

 -    

 

 

 -    

 

 

 2,395  

 

 

 -    

 

 

 2,395  

 

Operating income (loss)

$

 143,832  

 

$

 45,619  

 

$

 (22,468) 

 

$

 (2,718) 

 

$

 (82,937) 

 

$

 -    

 

$

 81,328  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Intersegment revenues

$

 -    

 

$

 83  

 

$

 -    

 

$

 12,854  

 

$

 -    

 

$

 -    

 

$

 12,937  

 

Capital expenditures

$

 14,244  

 

$

 12,895  

 

$

 25,908  

 

$

 2,103  

 

$

 6,470  

 

$

 -    

 

$

 61,620  

 

Share-based compensation expense

$

 1,492  

 

$

 894  

 

$

 735  

 

$

 -    

 

$

 2,396  

 

$

 -    

 

$

 5,517  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31, 2012

 

Revenue

$

 671,510  

 

$

 280,151  

 

$

 371,132  

 

$

 51,698  

 

$

 -    

 

$

 (13,768) 

 

$

 1,360,723  

 

Direct operating expenses

 

 216,379  

 

 

 144,410  

 

 

 249,643  

 

 

 6,539  

 

 

 -    

 

 

 (2,537) 

 

 

 614,434  

 

Selling, general and administrative

   expenses

 

 241,920  

 

 

 52,579  

 

 

 100,570  

 

 

 40,737  

 

 

 -    

 

 

 (11,231) 

 

 

 424,575  

 

Depreciation and amortization

 

 67,056  

 

 

 42,958  

 

 

 49,035  

 

 

 12,853  

 

 

 3,464  

 

 

 -    

 

 

 175,366  

 

Corporate expenses

 

 -    

 

 

 -    

 

 

 -    

 

 

 -    

 

 

 68,251  

 

 

 -    

 

 

 68,251  

 

Other operating income, net

 

 -    

 

 

 -    

 

 

 -    

 

 

 -    

 

 

 3,124  

 

 

 -    

 

 

 3,124  

 

Operating income (loss)

$

 146,155  

 

$

 40,204  

 

$

 (28,116) 

 

$

 (8,431) 

 

$

 (68,591) 

 

$

 -    

 

$

 81,221  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Intersegment revenues

$

 -    

 

$

 770  

 

$

 -    

 

$

 12,998  

 

$

 -    

 

$

 -    

 

$

 13,768  

 

Capital expenditures

$

 10,152  

 

$

 25,336  

 

$

 27,662  

 

$

 2,388  

 

$

 7,109  

 

$

 -    

 

$

 72,647  

 

Share-based compensation expense

$

 1,214  

 

$

 1,932  

 

$

 1,209  

 

$

 -    

 

$

 2,542  

 

$

 -    

 

$

 6,897  

 
                                           

 

13

 


 

  

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

Format of Presentation

Management’s discussion and analysis of our financial condition and results of operations (“MD&A”) should be read in conjunction with the consolidated financial statements and related footnotes.  Our discussion is presented on both a consolidated and segment basis.  All references in this Quarterly Report on Form 10-Q to “we,” “us” and “our” refer to Clear Channel Communications, Inc. and its consolidated subsidiaries.  Our reportable segments are Media and Entertainment (“CCME”), Americas outdoor advertising (“Americas outdoor” or “Americas outdoor advertising”) and International outdoor advertising (“International outdoor” or “International outdoor advertising”).  Our CCME segment provides media and entertainment services via broadcast and digital delivery and also includes our national syndication business.  Our Americas outdoor and International outdoor segments provide outdoor advertising services in their respective geographic regions using various digital and traditional display types. Included in the “Other” category are our media representation business, Katz Media Group, as well as other general support services and initiatives, which are ancillary to our other businesses.  Certain prior-period amounts have been reclassified to conform to the 2013 presentation.

 

We manage our operating segments primarily focusing on their operating income, while Corporate expenses, Other operating income (expense), net, Interest expense, Loss on marketable securities, Equity in earnings of nonconsolidated affiliates, Other income (expense), net and Income tax benefit are managed on a total company basis and are, therefore, included only in our discussion of consolidated results.

 

Our CCME business utilizes several key measurements to analyze performance, including average minute rates and minutes sold. Our CCME revenue is derived primarily from selling advertising time, or spots, on our radio stations, with advertising contracts typically less than one year in duration.  The programming formats of our radio stations are designed to reach audiences with targeted demographic characteristics that appeal to our advertisers.  We also provide streaming content via the Internet, mobile and other digital platforms which reach national, regional and local audiences and derive revenues primarily from selling advertising time with advertising contracts similar to those used by our radio stations.

 

Management typically monitors our Americas outdoor and International outdoor advertising businesses by reviewing the average rates, average revenue per display, or yield, occupancy and inventory levels of each of our display types by market.  Our outdoor advertising revenue is derived from selling advertising space on the displays we own or operate in key markets worldwide, consisting primarily of billboards, street furniture and transit displays.  Part of our long-term strategy for our Americas outdoor and International outdoor advertising businesses is to pursue the technology of digital displays, including flat screens, LCDs and LEDs, as additions to traditional methods of displaying our clients’ advertisements. We are currently installing these technologies in certain markets.

 

Our advertising revenue for all of our segments is highly correlated to changes in gross domestic product (“GDP”) as advertising spending has historically trended in line with GDP, both domestically and internationally. According to the U.S. Department of Commerce, estimated U.S. GDP growth for the first quarter of 2013 was 2.5%. Internationally, our results are impacted by fluctuations in foreign currency exchange rates and economic conditions in the foreign markets in which we have operations.

 

Executive Summary

The key developments in our business for the three months ended March 31, 2013 are summarized below:

 

·         Consolidated revenue decreased $17.7 million including negative foreign exchange movements of $0.9 million during the three months ended March 31, 2013 compared to the same period of 2012. Excluding foreign exchange impacts and the $8.3 million impact of our divestiture of our international neon business in the prior year, consolidated revenue decreased $8.5 million over the comparable three-month period in the prior year.

·         CCME revenue decreased $14.9 million during the three months ended March 31, 2013 compared to the same period of 2012 driven by declining sales of our traffic business due to the loss of certain contracts and lower sales resulting from integration activities.

·         Americas outdoor revenue increased $6.3 million during the three months ended March 31, 2013 compared to the same period of 2012 due primarily to increased sales volumes from our digital and traditional product lines.

·         International outdoor revenue decreased $7.4 million including negative foreign exchange movements of $0.8 million during the three months ended March 31, 2013 compared to the same period of 2012.  Excluding foreign exchange impacts and the $8.3 million impact of our divestiture of our international neon business in the prior year, revenue

14

 


 

  

increased $1.7 million over the comparable three-month period in the prior year. Continued weakened macro-economic conditions in Europe were offset by growth in countries located in other markets and new contracts.

·         Revenues in our Other category declined $2.5 million during the three months ended March 31, 2013 primarily due to reduced political advertising.

·         During the first quarter of 2013, we spent $8.8 million on strategic revenue and cost-saving initiatives to realign and improve our on-going business operations—a decrease of $6.7 million compared to the first quarter of 2012.

·         During the first quarter of 2013, we issued $575.0 million aggregate principal amount of 11.25% priority guarantee notes due 2021 (the “11.25% Priority Guarantee Notes”).  Using the proceeds from the 11.25% Priority Guarantee Notes issuance along with borrowings under our receivables based credit facility of $269.5 million and cash on hand, we prepaid all $846.9 million outstanding under our term loan A under our senior secured credit facility.

·         During the first quarter of 2013, we repaid our 5.75% senior notes at maturity for $312.1 million (net of $187.9 million principal amount repaid to one of our subsidiaries with respect to notes repurchased and held by such entity), plus accrued interest, using cash on hand.

 

RESULTS OF OPERATIONS

Consolidated Results of Operations

The comparison of our results of operations for the three months ended March 31, 2013 to the three months ended March 31, 2012 is as follows:

 

(In thousands)

 

 

 

 

 

Three Months Ended March 31,

 

%

 

 

 

 

 

 

 

 

 

 

2013

 

2012

 

Change

Revenue

 

 

 

 

 

 

 

 

$

 1,343,058  

 

$

 1,360,723  

 

(1.3%)

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Direct operating expenses (excludes

   depreciation and amortization)

 

 

 

 

 

 

 

 

 

 594,866  

 

 

 614,434  

 

(3.2%)

 

 Selling, general and administrative expenses

   (excludes depreciation and amortization)

 

 

 

 

 

 

 

 

 

 406,435  

 

 

 424,575  

 

(4.3%)

 

Corporate expenses (excludes depreciation

   and amortization)

 

 

 

 

 

 

 

 

 

 80,642  

 

 

 68,251  

 

18.2%

 

Depreciation and amortization

 

 

 

 

 

 

 

 

 

 182,182  

 

 

 175,366  

 

3.9%

 

Other operating income, net

 

 

 

 

 

 

 

 

 

 2,395  

 

 

 3,124  

 

(23.3%)

Operating income

 

 

 

 

 

 

 

 

 

 81,328  

 

 

 81,221  

 

0.1%

Interest expense

 

 

 

 

 

 

 

 

 

 385,525  

 

 

 374,016  

 

 

Equity in earnings of nonconsolidated affiliates

 

 

 

 

 

 

 

 

 

 3,641  

 

 

 3,555  

 

 

Loss on extinguishment of debt

 

 

 

 

 

 

 

 

 

 (3,888) 

 

 

 (15,167) 

 

 

Other expense, net

 

 

 

 

 

 

 

 

 

 (1,000) 

 

 

 (1,106) 

 

 

Loss before income taxes

 

 

 

 

 

 

 

 

 

 (305,444) 

 

 

 (305,513) 

 

 

Income tax benefit

 

 

 

 

 

 

 

 

 

 96,325  

 

 

 157,398  

 

 

Consolidated net loss

 

 

 

 

 

 

 

 

 

 (209,119) 

 

 

 (148,115) 

 

 

 

Less amount attributable to noncontrolling

   interest

 

 

 

 

 

 

 

 

 

 (6,116) 

 

 

 (4,486) 

 

 

Net loss attributable to the Company

 

 

 

 

 

 

 

 

$

 (203,003) 

 

$

 (143,629) 

 

 

 

Consolidated Revenue

Our consolidated revenue during the first quarter of 2013 decreased $17.7 million including negative movements in foreign exchange of $0.9 million compared to the same period of 2012. Excluding the impact of foreign exchange movements and excluding the $8.3 million impact of our divestiture of our international neon business in the prior year, consolidated revenue decreased $8.5 million.  Our CCME revenue decreased $14.9 million, primarily due to the loss of certain contracts and lower sales resulting from integration activities of our traffic business.  Americas outdoor revenue increased $6.3 million driven primarily by increased occupancy of our digital and traditional displays. Our International outdoor revenue decreased $7.4 million including negative movements in foreign exchange of $0.8 million compared to the same period of 2012. Excluding the impact of foreign exchange movements and the $8.3 million impact of our divestiture of our international neon business during the third quarter of 2012,

15

 


 

  

International outdoor revenue increased $1.7 million.  Other revenues declined by $2.5 million primarily as a result of reduced political advertising through our media representation business.

 

Consolidated Direct Operating Expenses

Direct operating expenses decreased $19.6 million including a $0.2 million positive impact due to the effects of movements in foreign exchange during the first quarter of 2013 compared to the same period of 2012.  Our CCME direct operating expenses decreased $13.3 million, primarily due to declining expenses at our traffic business resulting from the impact of lower sales and our strategic cost initiatives, as well as reduced music license fees incurred by our stations. These decreases were partially offset by increases in digital expenses related to our iHeartRadio digital platform including higher digital streaming fees.  Americas outdoor direct operating expenses decreased $6.9 million, primarily due to the benefits resulting from our previous strategic cost initiatives and higher margin product lines having increased sales while lower margin product lines remained steady.  Direct operating expenses in our International outdoor segment were relatively flat.

 

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

SG&A expenses decreased $18.1 million including a decline of $0.2 million due to the effects of movements in foreign exchange during the first quarter of 2013 compared to the same period of 2012.  Our CCME SG&A expenses were relatively flat compared to the prior year period.  SG&A expenses increased $2.0 million in our Americas outdoor segment primarily due to legal costs related to the Los Angeles litigation discussed further in Item 1 of Part II of this Quarterly Report on Form 10-Q, partially offset by a reduction in amounts spent on strategic cost initiatives.  Our International outdoor SG&A expenses decreased $15.2 million including a $0.2 million decrease due to the effects of movements in foreign exchange, primarily due to certain expenses during the prior year related to legal and other costs in Brazil that did not recur in the first quarter of 2013.

 

Corporate Expenses

Corporate expenses increased $12.4 million during the three months ended March 31, 2013 compared to the same period of 2012, driven by higher personnel costs resulting from amounts recorded under our variable compensation plans, legal costs resulting from copyright and patent matters, and legal costs related to the stockholder litigation discussed further in Item 1 of Part II of this Quarterly Report on Form 10-Q.

 

Revenue and Cost Initiatives

Included in the amounts for direct operating expenses, SG&A and corporate expenses discussed above are expenses of $8.8 million incurred in connection with our strategic revenue and cost initiatives. The costs were incurred to improve revenue growth, enhance yield, reduce costs, and organize each business to maximize performance and profitability.  These costs consist primarily of consulting expenses, consolidation of locations and positions, severance related to workforce initiatives and other costs incurred in connection with streamlining our businesses. These costs are expected to provide benefits in future periods as the initiative results are realized.  Of these costs, $2.5 million are reported within direct operating expenses, $5.2 million are reported within SG&A and $1.1 million are reported within corporate expense for 2013.  In 2012, such costs totaled $3.6 million, $9.2 million, and $2.7 million, respectively.

 

Depreciation and Amortization

Depreciation and amortization increased $6.8 million during the three months ended March 31, 2013 compared to the same period of 2012.  The increase is primarily as a result of increased depreciation in our Americas outdoor segment related to depreciation of digital bulletins partially offset by a decline in amortization related to long-term contracts at our media representation business.

 

Other Operating Income, Net

Other operating income of $2.4 million for the first quarter of 2013 primarily related to proceeds from the disposal of operating and fixed assets.

 

Other operating income of $3.1 million for the first quarter of 2012 primarily related to proceeds received from condemnations of bulletins and buildings.

 

Interest Expense

Interest expense increased $11.5 million during the three months ended March 31, 2013 compared to the same period of 2012, primarily due to the issuance of $2,200.0 million aggregate principal amount of 7.625% Senior Subordinated Notes due 2020 (the “Subordinated Notes”) by Clear Channel Worldwide Holdings (“CCWH”), our indirect subsidiary, during March 2012.

16

 


 

  

 

Loss on Extinguishment of Debt

In connection with the prepayment of term loan A of our senior secured credit facilities during the three months ended March 31, 2013, we recognized a loss of $3.9 million due to the write-off of deferred loan costs.

 

For the three months ended March 31, 2012 we recognized a loss related to the accelerated expensing of $15.2 million of loan fees upon the prepayment of $2,096.2 million of our senior secured credit facilities in connection with CCWH’s issuance of the Subordinated Notes.

 

Income Tax Benefit

Our effective tax rate for the first quarter of 2013 was 31.5%.  Our effective tax rate was primarily impacted by tax losses in certain foreign jurisdictions for which benefits could not be recorded due to the uncertainty of the ability to utilize those losses in future years.

 

Our effective tax rate for the first quarter of 2012 was 51.5%. Our effective tax rate was primarily impacted by the completion of income tax examinations in various jurisdictions during the quarter, resulting in a reduction to income tax expense of approximately $61.0 million.

 

CCME Results of Operations

Our CCME operating results were as follows:

 

(In thousands)

 

 

 

 

Three Months Ended March 31,

 

%

 

 

 

 

 

 

 

2013

 

2012

 

Change

Revenue

 

 

 

 

 

 

 

 

$

 656,566  

 

$

 671,510  

 

(2%)

Direct operating expenses

 

 

 

 

 

 

 

 

 

 203,119  

 

 

 216,379  

 

(6%)

SG&A expenses

 

 

 

 

 

 

 

 

 

 241,783  

 

 

 241,920  

 

(0%)

Depreciation and amortization

 

 

 

 

 

 

 

 

 

 67,832  

 

 

 67,056  

 

1%

Operating income

 

 

 

 

 

 

 

 

$

 143,832  

 

$

 146,155  

 

(2%)

 

CCME revenue decreased $14.9 million during the first quarter of 2013 compared to the same period of 2012, primarily due to declines in our traffic business as a result of certain contract losses and lower sales resulting from integration activities.  Partially offsetting those declines were increases at our stations driven by growth in digital advertising revenue as a result of increased listenership on our iHeartRadio platform with total listening hours increasing 31%, as well as national advertising revenue increases across various markets and advertising categories, including retail, telecommunications, and financial services.

 

Direct operating expenses decreased $13.3 million during the first quarter of 2013, primarily due to reductions in costs related to our traffic business as a result of lower revenues and the benefit of our previous strategic cost initiatives, reductions in spending on strategic revenue and cost initiatives, and decreases in direct expenses driven by reduced music licensing fees resulting from lower rates negotiated during the second quarter of 2012 partially offset by higher streaming expenses due to increased listenership.  SG&A expenses were relatively flat compared to the same period in the prior year.

17

 


 

  

 

Americas Outdoor Advertising Results of Operations

Our Americas outdoor advertising operating results were as follows:

 

(In thousands)

 

 

 

 

Three Months Ended March 31,

 

%

 

 

 

 

 

 

 

2013

 

2012

 

Change

Revenue

 

 

 

 

 

 

 

 

$

 286,461  

 

$

 280,151  

 

2%

Direct operating expenses

 

 

 

 

 

 

 

 

 

 137,547  

 

 

 144,410  

 

(5%)

SG&A expenses

 

 

 

 

 

 

 

 

 

 54,610  

 

 

 52,579  

 

4%

Depreciation and amortization

 

 

 

 

 

 

 

 

 

 48,685  

 

 

 42,958  

 

13%

Operating income

 

 

 

 

 

 

 

 

$

 45,619  

 

$

 40,204  

 

13%

 

Our Americas outdoor revenue increased $6.3 million during the first quarter of 2013 compared to the same period of 2012, driven primarily by bulletins, and particularly by increased occupancy and capacity of our digital displays.  Increases in poster revenues were driven by new contracts and advertising campaigns utilizing our traditional product lines.  Partially offsetting these increases were declines in specialty business revenues due primarily to a significant contract during the prior year.

 

Direct operating expenses decreased $6.9 million, primarily due to the benefits resulting from our previous strategic cost initiatives as well as variable costs associated with the favorable product mix of our sales with increased sales in our product lines with greater margins. SG&A expenses increased $2.0 million primarily due to legal costs related to the Los Angeles litigation discussed further in Item 1 of Part II of this Quarterly Report on Form 10-Q, partially offset by a reduction in amounts spent on strategic cost initiatives.

 

Depreciation and amortization increased $5.7 million, primarily as a result of our deployment of digital bulletins in recent years.

 

International Outdoor Advertising Results of Operations

During the third quarter of 2012, our subsidiary Clear Channel Outdoor, Inc. divested its international neon business.  For the three months ended March 31, 2012, our international neon business contributed $8.3 million in revenue, $5.1 million in direct operating expenses and $1.8 million in SG&A expenses.

 

Our International outdoor advertising operating results were as follows:

 

(In thousands)

 

 

 

 

Three Months Ended March 31,

 

%

 

 

 

 

 

 

 

2013

 

2012

 

Change

Revenue

 

 

 

 

 

 

 

 

$

 363,749  

 

$

 371,132  

 

 (2%) 

Direct operating expenses

 

 

 

 

 

 

 

 

 

 249,842  

 

 

 249,643  

 

 0%  

SG&A expenses

 

 

 

 

 

 

 

 

 

 85,382  

 

 

 100,570  

 

 (15%) 

Depreciation and amortization

 

 

 

 

 

 

 

 

 

 50,993  

 

 

 49,035  

 

 4%  

Operating loss

 

 

 

 

 

 

 

 

$

 (22,468) 

 

$

 (28,116) 

 

 (20%) 

 

International outdoor revenue decreased $7.4 million during the first quarter of 2013 compared to the same period of 2012, including $0.8 million of negative movements in foreign exchange and the divestiture of our international neon business during the third quarter of 2012 which had $8.3 million in revenues in the three months ended March 31, 2012.  Excluding the impact of foreign exchange and the divestiture, revenues increased $1.7 million.  The increase in revenue resulted from revenue growth in Australia, China, and Latin America as well as higher sales resulting from new contracts in Norway.  This growth was partially offset by lower revenues in certain countries in Europe as a result of weakened macroeconomic conditions.

 

Direct operating expenses increased $0.2 million including a $0.3 million positive impact due to the effects of movements in foreign exchange.  Excluding the impact of movements in foreign exchange, the decrease was primarily driven by declines in expenses in response to declining revenues in certain countries in Europe as well as the $5.1 million impact of our divestiture of our international neon business.  Offsetting these declines were increases in variable costs in other markets such as China, Turkey and in

18

 


 

  

Latin America resulting from increased revenues.  SG&A expenses decreased $15.2 million including a $0.2 million decrease due to the effects of movements in foreign exchange. The SG&A expense declines in 2013 resulted from $18.5 million in expenses incurred during the first quarter of 2012 in connection with legal and other costs in Brazil, partially offset by increases in strategic revenue and cost initiatives.

 

Reconciliation of Segment Operating Income (Loss) to Consolidated Operating Income

 

 

 

 

 

 

 

 

 

 

 

 

(In thousands)

 

 

Three Months Ended March 31,

 

 

 

 

 

2013

 

2012

CCME

 

 

 

 

 

 

$

 143,832  

 

$

 146,155  

Americas outdoor advertising

 

 

 

 

 

 

 

 45,619  

 

 

 40,204  

International outdoor advertising

 

 

 

 

 

 

 

 (22,468) 

 

 

 (28,116) 

Other

 

 

 

 

 

 

 

 (2,718) 

 

 

 (8,431) 

Other operating income, net

 

 

 

 

 

 

 

 2,395  

 

 

 3,124  

Corporate expenses (1)

 

 

 

 

 

 

 

 (85,332) 

 

 

 (71,715) 

Consolidated operating income

 

 

 

 

 

 

$

 81,328  

 

$

 81,221  

 

(1)        Corporate expenses include infrastructure support expenses related to CCME, Americas outdoor, International outdoor and our Other category, as well as overall executive, administrative and support functions.

 

Share-Based Compensation Expense

We do not have any compensation plans under which we grant stock awards to employees. Our employees receive equity awards from CC Media Holdings, Inc.’s (“CCMH”) and Clear Channel Outdoor Holdings, Inc.’s (“CCOH”) equity incentive plans.

 

The following table presents amounts related to share-based compensation expense for the three months ended March 31, 2013 and 2012, respectively:

 

(In thousands)

 

 

Three Months Ended March 31,

 

 

 

 

 

2013

 

2012

CCME

 

 

 

 

 

 

$

 1,492  

 

$

 1,214  

Americas outdoor advertising

 

 

 

 

 

 

 

 894  

 

 

 1,932  

International outdoor advertising

 

 

 

 

 

 

 

 735  

 

 

 1,209  

Corporate

 

 

 

 

 

 

 

 2,396  

 

 

 2,542  

Total share-based compensation expense

 

 

 

 

 

 

$

 5,517  

 

$

 6,897  

 

As of March 31, 2013, there was $25.7 million of unrecognized compensation cost, net of estimated forfeitures, related to unvested share-based compensation arrangements that will vest based on service conditions.  Based on the terms of the award agreements, this cost is expected to be recognized over a weighted average period of approximately two years.  In addition, as of March 31, 2013, there was $15.7 million of unrecognized compensation cost, net of estimated forfeitures, related to unvested share-based compensation arrangements that will vest based on market, performance and service conditions.  This cost will be recognized when it becomes probable that the performance condition will be satisfied.

19

 


 

  

 

LIQUIDITY AND CAPITAL RESOURCES

Cash Flows

The following discussion highlights our cash flow activities during the three months ended March 31, 2013 and 2012.

 

(In thousands)

Three Months Ended March 31,

 

 

2013

 

2012

Cash provided by (used for):

 

 

 

 

 

 

Operating activities

$

 (86,591) 

 

$

 (7,553) 

 

Investing activities

$

 (57,211) 

 

$

 (70,645) 

 

Financing activities

$

 (354,282) 

 

$

 172,220  

 

Operating Activities

Our consolidated net loss, adjusted for $121.0 million of non-cash items, resulted in negative cash flows of $88.2 million during the three months ended March 31, 2013.  Our consolidated net loss, adjusted for $147.9 million of non-cash items, resulted in negative cash flows of $0.2 million during the three months ended March 31, 2012.  Cash used for operating activities during the three months ended March 31, 2013 was $86.6 million compared to $7.6 million during the three months ended March 31, 2012.  Cash paid for interest was $27.2 million lower in the three months ended March 31, 2013 compared to the prior year due to the timing of accrued interest with the issuance of CCWH’s Subordinated Notes during the first quarter of 2012 and Clear Channel’s 9.0% Priority Guarantee Notes due 2019 during the fourth quarter of 2012.

 

Non-cash items affecting our net loss include depreciation and amortization, deferred taxes, gain on disposal of operating and fixed assets, loss on extinguishment of debt, provision for doubtful accounts, share-based compensation, equity in earnings of nonconsolidated affiliates, amortization of deferred financing charges and note discounts, net and other reconciling items, net as presented on the face of the consolidated statement of cash flows.

 

Investing Activities

Cash used for investing activities of $57.2 million during the three months ended March 31, 2013 reflected capital expenditures of $61.6 million.  We spent $14.2 million for capital expenditures in our CCME segment primarily related to leasehold improvements, $12.9 million in our Americas outdoor segment primarily related to the construction of new advertising structures such as digital displays, $25.9 million in our International outdoor segment primarily related to new advertising structures such as billboards and street furniture and renewals of existing contracts, $2.1 million in our Other category related to our national representation business, and $6.5 million by Corporate primarily related to equipment and software.  Partially offsetting cash used for investing activities were $7.3 million of proceeds from sales of other operating and fixed assets.

 

Cash used for investing activities during the first quarter of 2012 primarily reflected capital expenditures of $72.6 million.  We spent $10.2 million for capital expenditures in our CCME segment primarily related to studio and other equipment, $25.3 million in our Americas outdoor segment primarily related to the construction of new billboards, $27.7 million in our International outdoor segment primarily related to new billboard and street furniture contracts and renewals of existing contracts, $2.4 million in our Other category related to our national representation business, and $7.1 million by Corporate primarily related to building and leasehold improvements as well as other equipment.

 

Financing Activities

Cash used for financing activities of $354.3 million during the three months ended March 31, 2013 primarily reflected payments on long-term debt with payments of our 5.75% senior notes at maturity for $312.1 million (net of $187.9 million principal amount held by and repaid to one of our subsidiaries) using cash on hand and our prepayment of $846.9 million outstanding under our term loan A under the senior secured credit facilities using the proceeds from the issuance of the 11.25% Priority Guarantee Notes, borrowings under our receivables based credit facility, and using cash on hand.

 

Cash provided by financing activities during the first quarter of 2012 primarily reflected the issuance of Subordinated Notes by CCWH, and the use of proceeds distributed to us, in addition to cash on hand, to repay $2,096.2 million of indebtedness under our senior secured credit facilities.  Our financing activities also reflect a $244.7 million reduction in noncontrolling interest as a result of the special cash dividend from CCOH paid in connection with the Subordinated Notes issuance, which represents the portion paid to parties other than our subsidiaries that own CCOH common stock. In addition, we repaid our 5.0% senior notes at maturity for $249.9 million (net of $50.1 million principal amount held by and repaid to one of our subsidiaries), plus accrued interest, using a

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portion of the proceeds from our February 2011 issuance of $1.0 billion of 9.0% Priority Guarantee Notes along with available cash on hand.

 

Anticipated Cash Requirements

Our primary source of liquidity is cash on hand, cash flow from operations and borrowing capacity under our domestic receivables based credit facility, subject to certain limitations contained in our material financing agreements. At March 31, 2013, we had debt maturities totaling $66.6 million, $483.6 million, and $271.0 million in 2013, 2014, and 2015, respectively.  At March 31, 2013, we had $721.6 million of cash on our balance sheet including $343.0 million in consolidated cash balances held outside the U.S. by our subsidiaries, all of which is readily convertible into other foreign currencies including the U.S. dollar.  We disclose in Item 8 of our Form 10-K within Note 1, Summary of Significant Accounting Policies, that our policy is to permanently reinvest the earnings of our non-U.S. subsidiaries as these earnings are generally redeployed in those jurisdictions for operating needs and continued functioning of their businesses.  We have the ability and intent to indefinitely reinvest the undistributed earnings of consolidated subsidiaries based outside of the United States.  If any excess cash held by our foreign subsidiaries were needed to fund operations in the United States, we could presently repatriate available funds without a requirement to accrue or pay U.S. taxes.  This is a result of significant current and historic deficits in our foreign earnings and profits, which gives us flexibility to make future cash distributions as non-taxable returns of capital.

 

Our ability to fund our working capital needs, debt service and other obligations, and to comply with the financial covenants under our financing agreements depends on our future operating performance and cash flow, which are in turn subject to prevailing economic conditions and other factors, many of which are beyond our control. If our future operating performance does not meet our expectations or our plans materially change in an adverse manner or prove to be materially inaccurate, we may need additional financing. Consequently, there can be no assurance that such financing, if permitted under the terms of our financing agreements, will be available on terms acceptable to us or at all. The inability to obtain additional financing in such circumstances could have a material adverse effect on our financial condition and on our ability to meet our obligations.

 

We frequently evaluate strategic opportunities both within and outside our existing lines of business. We expect from time to time to pursue additional acquisitions and may decide to dispose of certain businesses. These acquisitions or dispositions could be material.

 

Based on our current and anticipated levels of operations and conditions in our markets, we believe that cash on hand, cash flow from operations and borrowing capacity under our receivables based credit facility will enable us to meet our working capital, capital expenditure, debt service and other funding requirements for at least the next 12 months.  No assurance can be given, however, that this will be the case.

 

We were in compliance with the covenants contained in our material financing agreements as of March 31, 2013, including the maximum consolidated senior secured net debt to consolidated EBITDA limitation contained in our senior secured credit facilities. We believe our long-term plans, which include promoting spending in our industries and capitalizing on our diverse geographic and product opportunities, including the continued investment in our media and entertainment initiatives and continued deployment of digital displays, will enable us to continue generating cash flows from operations sufficient to meet our liquidity and funding requirements long term.  However, our anticipated results are subject to significant uncertainty and there can be no assurance that we will be able to maintain compliance with these covenants.  In addition, our ability to comply with these covenants may be affected by events beyond our control, including prevailing economic, financial and industry conditions. The breach of any covenants set forth in our financing agreements would result in a default thereunder. An event of default would permit the lenders under a defaulted financing agreement to declare all indebtedness thereunder to be due and payable prior to maturity. Moreover, the lenders under the receivables based facility under our senior secured credit facilities would have the option to terminate their commitments to make further extensions of credit thereunder. If we are unable to repay our obligations under any secured credit facility, the lenders could proceed against any assets that were pledged to secure such facility. In addition, a default or acceleration under any of our material financing agreements could cause a default under other of our obligations that are subject to cross-default and cross-acceleration provisions. The threshold amount for a cross-default under the senior secured credit facilities is $100.0 million.

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Sources of Capital

As of March 31, 2013 and December 31, 2012, we had the following debt outstanding, net of cash and cash equivalents:

 

(In millions)

March 31, 2013

 

December 31, 2012

Senior Secured Credit Facilities

$

 8,228.6  

 

$

 9,075.5  

Receivables Based Facility (1)

 

 247.0  

 

 

 -    

Priority Guarantee Notes

 

 4,324.8  

 

 

 3,749.8  

Other Secured Subsidiary Debt

 

 24.1  

 

 

 25.5  

Total Secured Debt

 

 12,824.5  

 

 

 12,850.8  

 

 

 

 

 

 

 

Senior Cash Pay Notes

 

 796.3  

 

 

 796.3  

Senior Toggle Notes

 

 829.8  

 

 

 829.8  

Senior Notes

 

 1,436.4  

 

 

 1,748.6  

Subsidiary Senior Notes

 

 2,725.0  

 

 

 2,725.0  

Subsidiary Senior Subordinated Notes

 

 2,200.0  

 

 

 2,200.0  

Other Subsidiary Debt

 

 2.7  

 

 

 5.6  

Purchase accounting adjustments and original issue discount

 

 (388.6) 

 

 

 (409.0) 

Total Debt

 

 20,426.1  

 

 

 20,747.1  

Less:  Cash and cash equivalents

 

 721.6  

 

 

 1,225.0  

 

 

$

 19,704.5  

 

$

 19,522.1  

 

(1)        The receivables based credit facility provides for borrowings of up to the lesser of $535 million (the revolving credit commitment) or the borrowing base amount, as defined under the receivables based facility, subject to certain limitations contained in Clear Channel’s material financing agreements.

 

We and our subsidiaries have from time to time repurchased certain of our debt obligations and equity securities of CCOH and CCMH, and we may in the future, as part of various financing and investment strategies, purchase additional outstanding indebtedness of ours or our subsidiaries or outstanding equity securities of CCOH or CCMH, in tender offers, open market purchases, privately negotiated transactions or otherwise.  We may also sell certain assets or properties and use the proceeds to reduce our indebtedness.  These purchases or sales, if any, could have a material positive or negative impact on our liquidity available to repay outstanding debt obligations or on our consolidated results of operations.  These transactions could also require or result in amendments to the agreements governing outstanding debt obligations or changes in our leverage or other financial ratios, which could have a material positive or negative impact on our ability to comply with the covenants contained in our debt agreements.  These transactions, if any, will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors.  The amounts involved may be material.

 

Senior Secured Credit Facilities

The senior secured credit facilities require us to comply on a quarterly basis with a financial covenant limiting the ratio of consolidated secured debt, net of cash and cash equivalents, to consolidated EBITDA (as defined by our senior secured credit facilities) for the preceding four quarters.  Our secured debt consists of the senior secured credit facilities, the receivables-based credit facility, the priority guarantee notes and certain other secured subsidiary debt.  As required by the definition of consolidated EBITDA in our senior secured credit facilities, our consolidated EBITDA for the preceding four quarters of $2.0 billion is calculated as operating income (loss) before depreciation, amortization, impairment charges and other operating income (expense), net plus share-based compensation and is further adjusted for the following items: (i) costs incurred in connection with the closure and/or consolidation of facilities, retention charges, consulting fees and other permitted activities; (ii) extraordinary, non-recurring or unusual gains or losses or expenses and severance; (iii) non-cash charges; (iv) cash received from nonconsolidated affiliates; and (v) various other items.

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The following table reflects a reconciliation of consolidated EBITDA (as defined by our senior secured credit facilities) to operating income and net cash provided by operating activities for the four quarters ended March 31, 2013:

 

 

 

 

Four Quarters Ended

 

 

(In Millions)

March 31, 2013

 

 

Consolidated EBITDA (as defined by our senior secured credit facilities)

$

 2,021.2  

 

 

Less adjustments to consolidated EBITDA (as defined by our senior

   secured credit facilities):

 

 

 

 

 

Cost incurred in connection with the closure and/or consolidation of

   facilities, retention charges, consulting fees, and other permitted activities

 

 (73.5) 

 

 

 

Extraordinary, non-recurring or unusual gains or losses or expenses and

   severance (as referenced in the definition of consolidated EBITDA in our

   senior secured credit facilities)

 

 (59.1) 

 

 

 

Non-cash charges

 

 (23.4) 

 

 

 

Cash received from nonconsolidated affiliates

 

 (20.7) 

 

 

 

Other items

 

 (20.8) 

 

 

Less: Depreciation and amortization, Impairment charges, Other operating

   income (expense), net, and Share-based compensation expense

 

 (753.5) 

 

 

Operating income

 

 1,070.2  

 

 

Plus: Depreciation and amortization, Impairment charges, Other operating

   income (expense), net, and Share-based compensation expense

 

 753.5  

 

 

Less: Interest expense

 

 (1,560.5) 

 

 

Less: Current income tax benefit

 

 (66.0) 

 

 

Plus: Other income (expense), net

 

 0.3  

 

 

Adjustments to reconcile consolidated net loss to net cash provided by

   operating activities (including Provision for doubtful accounts,

   Amortization of deferred financing charges and note discounts, net and

   Other reconciling items, net)

 

 177.1  

 

 

Change in assets and liabilities, net of assets acquired and liabilities assumed

 

 31.7  

 

 

Net cash provided by operating activities

$

 406.3  

 

 

The maximum ratio under this financial covenant is currently set at 9.5:1 and reduces to 9.25:1, 9:1 and 8.75:1 for the four quarters ended June 30, 2013, December 31, 2013 and December 31, 2014, respectively.  At March 31, 2013, our ratio was 6.0:1.

 

11.25% Priority Guarantee Notes Issuance

During the first quarter of 2013, we issued $575.0 million aggregate principal amount of 11.25% Priority Guarantee Notes due 2021.  The 11.25% Priority Guarantee Notes mature on March 1, 2021 and bear interest at a rate of 11.25% per annum, payable semi-annually on March 1 and September 1 of each year, beginning on September 1, 2013. The 11.25% Priority Guarantee Notes are our senior obligations and are fully and unconditionally guaranteed, jointly and severally, on a senior basis by the guarantors named in the indenture governing such notes. The 11.25% Priority Guarantee Notes and the guarantors’ obligations under the guarantees are secured by (i) a lien on (a) our capital stock and (b) certain property and related assets that do not constitute “principal property” (as defined in the indenture governing our legacy notes), in each case equal in priority to the liens securing the obligations under our senior secured credit facilities, our 9.0% priority guarantee notes due 2021 and our 9.0% priority guarantee notes due 2019, subject to certain exceptions, and (ii) a lien on the accounts receivable and related assets securing our receivables based credit facility junior in priority to the lien securing our obligations thereunder, subject to certain exceptions.

 

We may redeem the 11.25% Priority Guarantee Notes at our option, in whole or part, at any time prior to March 1, 2016, at a price equal to 100% of the principal amount of the 11.25% Priority Guarantee Notes redeemed, plus accrued and unpaid interest to the redemption date and plus an applicable premium. We may redeem the 11.25% Priority Guarantee Notes, in whole or in part, on or after March 1, 2016, at the redemption prices set forth in the indenture plus accrued and unpaid interest to the redemption date.  Prior to March 1, 2016, we may elect to redeem up to 40% of the aggregate principal amount of the 11.25% Priority Guarantee Notes at a redemption price equal to 111.25% of the principal amount thereof, plus accrued and unpaid interest to the redemption date, with the net proceeds of one or more equity offerings.

 

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The indenture governing the 11.25% Priority Guarantee Notes contains covenants that limit our ability and the ability of our restricted subsidiaries to, among other things: (i) pay dividends, redeem stock or make other distributions or investments; (ii) incur additional debt or issue certain preferred stock; (iii) transfer or sell assets; (iv) engage in certain transactions with affiliates; (v) create restrictions on dividends or other payments by the restricted subsidiaries; and (vi) merge, consolidate or sell substantially all of our assets. The indenture contains covenants that limit Clear Channel Capital I, LLC’s ability, our ability and the ability of our restricted subsidiaries to, among other things: (i) create liens on assets and (ii) materially impair the value of the security interests taken with respect to the collateral for the benefit of the notes collateral agent and the holders of the 11.25% Priority Guarantee Notes. The indenture also provides for customary events of default.

 

Uses of Capital

Debt Repayments, Maturities and Other

During the first quarter of 2013, we repaid our 5.75% senior notes at maturity for $312.1 million (net of $187.9 million principal amount repaid to our subsidiary with respect to notes repurchased and held by such entity), plus accrued interest, using cash on hand.

 

In addition, during the first quarter of 2013, using the proceeds from the issuance of the 11.25% Priority Guarantee Notes along with borrowings under the receivables based credit facility of $269.5 million and cash on hand, we prepaid all $846.9 million outstanding under our term loan A under the senior secured credit facilities.  We recorded a loss of $3.9 million in “Loss on extinguishment of debt” related to the accelerated expensing of loan fees.

 

Certain Relationships with the Sponsors

We are 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 months ended March 31, 2013 and 2012, we recognized management fees and reimbursable expenses of $4.1 million and $4.0 million, respectively.

 

Proposed Settlement of CCOH Stockholder Litigation