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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
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Filed by the Registrant
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Filed by a Party other than the Registrant
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Check the appropriate box: |
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o Preliminary Proxy Statement |
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Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2)) |
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þ Definitive Proxy Statement |
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o Definitive Additional Materials |
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Soliciting Material Pursuant to §240.14a-12 |
Clear Channel
Communications, Inc.
(Name
of Registrant as Specified In Its Charter)
(Name
of Person(s) Filing Proxy Statement, if other than the
Registrant)
Payment of Filing Fee (Check the appropriate box):
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þ No fee required. |
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Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11. |
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1) Title of each class of securities to which transaction applies: |
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2) Aggregate number of securities to which transaction applies: |
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3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined): |
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4) Proposed maximum aggregate value of transaction: |
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o Fee paid previously with preliminary materials. |
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o Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing. |
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1) Amount Previously Paid: |
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2) Form, Schedule or Registration Statement No.: |
Clear
Channel Communications, Inc.
P.O. Box 659512
San Antonio, Texas 78265-9512
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To Be Held May 22, 2007
As a shareholder of Clear Channel Communications, Inc., you are hereby given notice of
and invited to attend, in person or by proxy, the Annual Meeting of Shareholders of Clear Channel
Communications, Inc. to be held at The Airport Doubletree Hotel, 37 NE Loop 410, San Antonio, Texas
78216, on May 22, 2007, at 8:00 a.m. local time, for the following purposes:
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to elect 11 directors to serve for the coming year; |
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to ratify the selection of Ernst & Young LLP as independent auditors for the year
ending December 31, 2007; |
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to consider four shareholder proposals, if presented at the meeting; and |
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to transact any other business which may properly come before the meeting or any
adjournment thereof. |
Only shareholders of record at the close of business on April 2, 2007 are entitled to notice
of and to vote at the meeting.
Two cut-out admission tickets are included on the back cover of this document and are required
for admission to the meeting. Please contact Clear Channels Secretary at Clear Channels
corporate headquarters if you need additional tickets. If you plan to attend the annual meeting,
please note that space limitations make it necessary to limit attendance to shareholders and one
guest. Admission to the annual meeting will be on a first-come, first-served basis. Registration
and seating will begin at 7:30 a.m. Each shareholder may be asked to present valid picture
identification, such as a drivers license or passport. Shareholders holding stock in brokerage
accounts (street name holders) will need to bring a copy of a brokerage statement reflecting
stock ownership as of the record date. Cameras (including cellular telephones with photographic
capabilities), recording devices and other electronic devices will not be permitted at the annual
meeting. The annual meeting will begin promptly at 8:00 a.m.
Your attention is directed to the accompanying proxy statement. In addition, although mere
attendance at the meeting will not revoke your proxy, if you attend the meeting you may revoke your
proxy and vote in person. To assure that your shares are represented at the meeting, please
complete, date, sign and mail the enclosed proxy card in the return envelope provided for that
purpose.
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By Order of the Board of Directors
Andrew W. Levin
Executive Vice President, Chief Legal Officer and
Secretary
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San Antonio, Texas
April 30, 2007
2007 ANNUAL MEETING OF SHAREHOLDERS NOTICE OF ANNUAL MEETING
AND PROXY STATEMENT TABLE OF CONTENTS
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PROXY STATEMENT
This proxy statement contains information related to the annual meeting of shareholders
of Clear Channel Communications, Inc. to be held on Tuesday, May 22, 2007, beginning at 8:00 a.m.,
at the Airport Doubletree Hotel, 37 NE Loop 410, San Antonio, Texas, and at any postponements or
adjournments thereof. This proxy statement is being mailed to shareholders on or about May 7,
2007.
QUESTIONS AND ANSWERS ABOUT THE PROXY MATERIALS AND THE ANNUAL MEETING
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Why am I receiving these materials? |
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Clear Channels Board of Directors (the Board) is providing
these proxy materials for you in connection with Clear Channels
annual meeting of shareholders (the annual meeting), which will
take place on May 22, 2007. The Board is soliciting proxies to be
used at the annual meeting. You are also invited to attend the
annual meeting and are requested to vote on the proposals
described in this proxy statement. |
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What information is contained in these materials? |
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The information included in this proxy statement relates to the
proposals to be voted on at the annual meeting, the voting
process, the compensation of our directors and our most highly
paid executive officers, and certain other required information.
Following this proxy statement are excerpts from Clear Channels
2006 Annual Report on Form 10-K including Consolidated Financial
Statements, Notes to the Consolidated Financial Statements, and
Managements Discussion and Analysis. A Proxy Card and a return
envelope are also enclosed. |
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What proposals will be voted on at the annual meeting? |
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There may be up to six proposals scheduled to be voted on at the
annual meeting: the election of directors, the ratification of
Ernst & Young LLP as Clear Channels independent accountants for
the year ending December 31, 2007, and, if presented, four
shareholder proposals. |
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Which of my shares may I vote? |
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All shares owned by you as of the close of business on April 2,
2007 (the Record Date) may be voted by you. These shares include shares that are: (1) held directly in your name as the shareholder
of record, and (2) held for you as the beneficial owner through a
stockbroker, bank or other nominee. Each of your shares is
entitled to one vote at the annual meeting. |
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What is the difference between holding shares as a shareholder of
record and as a beneficial owner? |
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Most shareholders of Clear Channel hold their shares through a
stockbroker, bank or other nominee rather than directly in their
own name. As summarized below, there are some distinctions between
shares held of record and those owned beneficially. |
SHAREHOLDER OF RECORD: If your shares are registered directly in your name with Clear
Channels transfer agent, The Bank of New York, you are considered, with respect to those shares, the shareholder of record, and these proxy materials are being sent directly to you
by The Bank of New York on behalf of Clear Channel. As the shareholder of record, you have
the right to grant your voting proxy directly to Clear Channel or to vote in person at the
annual meeting. Clear Channel has enclosed a proxy card for you to use.
BENEFICIAL OWNER: If your shares are held in a stock brokerage account or by a bank or
other nominee, you are considered the beneficial owner of shares held in street name, and
these proxy materials
1
are being forwarded to you by your broker or nominee who is considered, with respect to
those shares, the shareholder of record. As the beneficial owner, you have the right to
direct your broker on how to vote and are also invited to attend the annual meeting.
However, since you are not the shareholder of record, you may not vote these shares in
person at the annual meeting, unless you obtain a signed proxy from the record holder giving
you the right to vote the shares. Your broker or nominee has enclosed a voting instruction
card for you to use in directing the broker or nominee regarding how to vote your shares.
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If my shares are held in street name by my broker, will my broker vote my shares for me? |
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Under New York Stock Exchange (NYSE) rules, brokers will have discretion to vote the shares of customers who fail to
provide voting instructions. Your broker will send you directions on how you can instruct your broker to vote. If you do
not provide instructions to your broker to vote your shares, they may either vote your shares on the matters being
presented at the annual meeting or leave your shares unvoted. |
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How can I vote my shares in person at the annual meeting? |
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Shares held directly in your name as the shareholder of record may be voted by you in person at the annual meeting. If you
choose to do so, please bring the enclosed proxy card and proof of identification. Even if you plan to attend the annual
meeting, Clear Channel recommends that you also submit your proxy as described below so that your vote will be counted if
you later decide not to attend the annual meeting. You may request that your previously submitted proxy card not be used
if you desire to vote in person when you attend the annual meeting. Shares held in street name may be voted in person by
you at the annual meeting only if you obtain a signed proxy from the record holder giving you the right to vote the shares.
Your vote is important. Accordingly, you are urged to sign and return the accompanying proxy card whether or not you plan
to attend the annual meeting. |
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If you plan to attend the annual meeting, please note that space limitations make it
necessary to limit attendance to shareholders and one guest. Admission to the annual
meeting will be on a first-come, first-served basis. Registration and seating will begin at
7:30 a.m. Each shareholder may be asked to present valid picture identification, such as a
drivers license or passport. Shareholders holding stock in brokerage accounts (street
name holders) will need to bring a copy of a brokerage statement reflecting stock ownership
as of the record date. Cameras (including cellular telephones with photographic
capabilities), recording devices and other electronic devices will not be permitted at the
annual meeting. |
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How can I vote my shares without attending the annual meeting? |
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Whether you hold shares directly as the shareholder of record or beneficially in street name, when you return your proxy
card or voting instructions accompanying this proxy statement, properly signed, the shares represented will be voted in
accordance with your directions. You can specify your choices by marking the appropriate boxes on the enclosed proxy card. |
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If you are a shareholder of record, you may change your vote or revoke your proxy at any time before your shares are voted
at the annual meeting by sending the Secretary of Clear Channel a proxy card dated later than your last vote, notifying the
Secretary of Clear Channel in writing, or voting at the annual meeting. |
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What if I return my proxy card without specifying my voting choices? |
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If your proxy card is signed and returned without specifying choices, the shares will be voted as recommended by the Board. |
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What does it mean if I receive more than one proxy or voting instruction card? |
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It means your shares are registered differently or are in more than one account. Please provide voting instructions for all
proxy and voting instruction cards you receive. |
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What constitutes a quorum? |
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The presence, in person or by proxy, of the holders of a majority of the outstanding shares of Clear Channels Common Stock
is necessary to constitute a quorum at the annual meeting. Only votes cast for a matter constitute affirmative votes.
Votes withheld or abstaining from voting are counted for quorum purposes, but since they are not cast for a particular
matter, they will have the same effect as negative votes or a vote against a particular matter. |
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Under New York Stock Exchange Rules, the proposals to elect directors and to ratify the selection of independent auditors
are considered discretionary items. This means that brokerage firms may vote in their discretion on these matters on
behalf of clients who have not furnished voting instructions at least 15 days before the date of the annual meeting. In
contrast, the shareholder proposals are non-discretionary items. This means brokerage firms that have not received
voting instructions from their clients on these proposals may not vote on them. These so-called broker non-votes will be
included in the calculation of the number of votes considered to be present at the annual meeting for purposes of
determining a quorum, but will not be considered in determining the number of votes necessary for approval and will have no
effect on the outcome of the vote for the shareholder proposals. |
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What are Clear Channels voting recommendations? |
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The Board recommends that you vote your shares FOR each of the nominees to the Board, FOR the ratification of Ernst &
Young LLP as Clear Channels independent accountants for the year ending December 31, 2007, and AGAINST the four
shareholder proposals. |
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Where can I find the voting results of the annual meeting? |
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Clear Channel will announce preliminary voting results at the annual meeting and publish final results in Clear Channels
quarterly report on Form 10-Q for the second quarter of 2007, which will be filed with the Securities and Exchange
Commission (the SEC) by August 9, 2007. |
THE BOARD OF DIRECTORS
The Board is responsible for the management and direction of Clear Channel and for
establishing broad corporate policies. However, in accordance with corporate legal principles, it
is not involved in day-to-day operating details. Members of the Board are kept informed of Clear
Channels business through discussions with the Chief Executive Officer, the President and Chief
Financial Officer and other executive officers, by reviewing analyses and reports sent to them, and
by participating in board and committee meetings.
BOARD MEETINGS
During 2006, the Board held thirteen meetings (four regular meetings and nine special
meetings). Each of the nominees named below attended at least 75% of the aggregate of the total
number of meetings of the Board held during such directors term and at least 75% of the total
number of meetings held by committees of the Board on which that director served, except that Mr.
Watts attended all four regular meetings and four of the nine special meetings.
3
SHAREHOLDER MEETING ATTENDANCE
Clear Channel encourages, but does not require, directors to attend the annual meetings of
shareholders. All eleven members of the Board were in attendance at Clear Channels 2006 Annual
Meeting of Shareholders.
INDEPENDENCE OF DIRECTORS
The Board has adopted a set of Corporate Governance Guidelines, addressing, among other
things, standards for evaluating the independence of Clear Channels directors. The full text of
the guidelines can be found on Clear Channels Internet website at www.clearchannel.com. A copy may
also be obtained upon request from the Secretary of Clear Channel. In February 2005, the Board
enhanced its Corporate Governance Guidelines by adopting the following standards for determining
the independence of its members:
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A director must not be, or have been within the last three years, an employee of Clear
Channel. In addition, a directors immediate family member (immediate family member is
defined to include a persons spouse, parents, children, siblings, mother and
father-in-law, sons and daughters-in-law and anyone (other than domestic employees) who
shares such persons home) must not be, or have been within the last three years, an
executive officer of Clear Channel. |
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A director or immediate family member must not have received, during any twelve month
period within the last three years, more than $100,000 per year in direct compensation from
Clear Channel, other than as director or committee fees and pension or other forms of
deferred compensation for prior service (and no such compensation may be contingent in any
way on continued service). |
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A director must not be a current partner of a firm that is Clear Channels internal or
external auditor or a current employee of such a firm. In addition, a director must not
have an immediate family member who is a current employee of such a firm and who
participates in the firms audit, assurance or tax compliance (but not tax planning)
practice. Finally, a director or immediate family member must not have been, within the
last three years, a partner or employee of such a firm and personally worked on Clear
Channels audit within that time. |
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A director or an immediate family member must not be, or have been within the last
three years, employed as an executive officer of another company where any of Clear
Channels present executive officers at the same time serve or served on that companys
compensation committee. |
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A director must not (a) be a current employee, and no directors immediate family
member may be a current executive officer, of any company that has made payments to, or
received payments from, Clear Channel (together with its consolidated subsidiaries) for
property or services in an amount which, in any of the last three fiscal years, exceeds the
greater of $1 million, or 2% of such other companys consolidated gross revenues. |
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A director must not own, together with ownership interests of his or her family, ten
percent (10%) or more of any company that has made payments to, or received payments from,
Clear Channel (together with its consolidated subsidiaries) for property or services in an
amount which, in any of the last three fiscal years, exceeds the greater of $1 million, or
2% of such other companys consolidated gross revenues. |
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A director or immediate family member must not be or have been during the last three
years, a director, trustee or officer of a charitable organization (or hold a similar
position), to which Clear Channel (together with its consolidated subsidiaries) makes
contributions in an amount which, in any of the last three fiscal years, exceeds the
greater of $50,000, or 5% of such organizations consolidated gross revenues. |
Pursuant to the Corporate Governance Guidelines, the Board undertook its annual review of
director independence in March 2007. During this review, the Board considered transactions and
relationships during the prior year between each director or any member of his or her immediate
family and Clear Channel and its subsidiaries, affiliates and investors, including those reported
under Transactions With Related Persons below. The Board also examined transactions and
relationships between directors or their affiliates and members of the senior management or their
affiliates. As provided in the Corporate Governance Guidelines, the purpose of this review was to
determine whether any such relationships or transactions were inconsistent with a determination
that the director is independent.
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As a result of this review, the Board affirmatively determined that, of the directors
nominated for election at the annual meeting, B. J. McCombs, Alan D. Feld, Perry J. Lewis, Phyllis
B. Riggins, Theodore H. Strauss, J. C. Watts, John H. Williams and John B. Zachry are independent
of Clear Channel and its management under the listing standards of the NYSE and the standards set
forth in the Corporate Governance Guidelines, including those standards enumerated in paragraphs
1-7 above. In addition, the Board has determined that every member of the Audit Committee, the
Compensation Committee and the Nominating and Governance Committee is independent. While in its
review the Board noted certain longtime business and personal relationships between certain of the
members of the Board that are not required to be described under the heading Compensation
Committee Interlocks And Insider Participation or under the heading Transactions With Related
Persons found on page 37 of this document, it concluded that none of business or personal
relationships impaired any of the above-named Board members independence.
The rules of the NYSE require that non-management directors of a listed company meet
periodically in executive sessions. Clear Channels non-management directors have met separately
in executive sessions without management present.
The Board has created the office of Presiding Director to serve as the lead non-management
director of the Board. The Board has established that the office of the Presiding Director shall
at all times be held by an independent director, as that term is defined from time to time by the
listing standards of the NYSE and as determined by the Board in accordance with the Boards
Corporate Governance Guidelines. The Presiding Director has the power and authority to do the
following:
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to preside at all meetings of non-management directors when they meet in executive
session without management participation; |
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to set agendas, priorities and procedures for meetings of non-management directors
meeting in executive session without management participation; |
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to generally assist the Chairman of the Board; |
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to add agenda items to the established agenda for meetings of the Board; |
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to request access to Clear Channels management, employees and its independent
advisers for purposes of discharging his or her duties and responsibilities as a
director; and |
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to retain independent outside financial, legal or other advisors at any time, at the
expense of Clear Channel, on behalf of any committee or subcommittee of the Board. |
The directors serving as the chairperson of the Compensation Committee of the Board, the
chairperson of the Audit Committee of the Board and the chairperson of the Nominating and
Governance Committee of the Board shall each take turns serving as the Presiding Director on a
rotating basis, each such rotation to take place effective the first day of each calendar quarter.
Currently, Mr. Lewis, the Chairman of the Audit Committee, is serving as the Presiding
Director. As part of the standard rotation established by the Board, Mr. Feld, the Chairman of the
Nominated and Governance Committee, will begin his service as the Presiding Director on July 1,
2007.
5
COMMITTEES OF THE BOARD
The Board has three standing committees: the Compensation Committee, the Nominating and
Governance Committee and the Audit Committee. The Compensation Committee has established an
Executive Performance Subcommittee. Each committee has a written charter which guides its
operations. The written charters are all available on Clear Channels Internet website at
www.clearchannel.com, or a copy may be obtained upon request from the Secretary of Clear Channel.
The table below sets forth members of each committee.
BOARD COMMITTEE MEMBERSHIP
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Nominating and |
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Compensation |
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Audit |
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Committee |
Alan D. Feld |
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Perry J. Lewis |
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B. J. McCombs |
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X |
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X |
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Phyllis B. Riggins |
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X |
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Theodore H. Strauss |
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X |
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J. C. Watts |
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John H. Williams |
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X |
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John B. Zachry |
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X = Committee member; * = Chairperson |
The Compensation Committee
The Compensation Committee administers Clear Channels stock option plans and
performance-based compensation plans, determines compensation arrangements for all officers and
makes recommendations to the Board concerning the compensation of directors of Clear Channel and
its subsidiaries (except with respect to matters entrusted to the Executive Performance
Subcommittee as described below and matters related to the compensation of the officers and
directors of the Companys publicly traded subsidiary, Clear Channel Outdoor Holdings, Inc.). The
Compensation Committee met 5 times during 2006. All members of the Compensation Committee are
independent as defined by the listing standards of the NYSE and Clear Channels independence
standards.
The Compensation Committee has the ability, under its charter, to select and retain, at the
expense of the Company, independent legal and financial counsel and other consultants necessary to
assist the Compensation Committee as the Compensation Committee may deem appropriate, in its sole
discretion. The Compensation Committee also has the authority to select and retain any
compensation consultant to be used to survey the compensation practices in Clear Channels industry
and to provide advice so that Clear Channel can maintain its competitive ability to recruit and
retain highly qualified personnel. The Compensation Committee has the sole authority to approve
related fees and retention terms for any of its counsel and consultants. Hewitt Associates serves
as the Compensation Committees compensation consultant, and works directly for the Compensation
Committee. Hewitt Associates does not perform any other services for Clear Channel.
The Compensation Committees primary responsibilities, which are discussed in detail within
its charter, are to:
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assist the Board in ensuring that a proper system of long-term and short-term
compensation is in place to provide performance-oriented incentives to management, and that
compensation plans are appropriate and competitive and properly reflect the objectives and
performance of management and Clear Channel; |
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review and approve corporate goals and objectives relevant to the
compensation of Clear Channels Chief Executive Officer and to evaluate the CEOs performance in
light of those goals and objectives, and to determine and approve the CEOs compensation level
based on this evaluation; and |
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make recommendations to the Board with respect to non-CEO compensation,
incentive-compensation plans and equity-based plans. |
6
The Compensation Committee has the authority to delegate its responsibilities to subcommittees
of the Compensation Committee if the Compensation Committee determines such delegation would be in
the best interest of Clear Channel.
The Executive Performance Subcommittee of the Compensation Committee has as its principal
responsibility to review and advise the Board with respect to performance-based compensation of
executive and other corporate officers who are, or who are likely to become, subject to Section
162(m) of the Internal Revenue Code. Section 162(m), which among other things, limits the
deductibility of compensation in excess of $1 million paid to a corporations chief executive
officer and the four other most highly compensated executive officers. The Executive Performance
Subcommittee of the Compensation Committee met one time during 2006.
The Nominating and Governance Committee
The Nominating and Governance Committee is responsible for developing and reviewing background
information for candidates for the Board of Directors, including those recommended by shareholders,
and makes recommendations to the Board of Directors regarding such candidates as well as committee
membership. The Nominating and Governance Committee met three times during 2006. All members of
the Nominating and Governance Committee are independent as defined by the listing standards of the
NYSE and Clear Channels independence standards.
Our directors play a critical role in guiding Clear Channels strategic direction and oversee
the management of Clear Channel. Board candidates are considered based upon various criteria, such
as their broad-based business and professional skills and experiences, global business and social
perspectives, concern for the long-term interests of the shareholders, and personal integrity and
judgment. In addition, directors must have time available to devote to Board activities and to
enhance their knowledge of the industries in which Clear Channel operates.
Accordingly, we seek to attract and retain highly qualified directors who have sufficient time
to attend to their substantial duties and responsibilities to Clear Channel. Recent developments
in corporate governance and financial reporting have resulted in an increased demand for such
highly qualified and productive public company directors.
The Nominating and Governance Committee will consider director candidates recommended by
shareholders. Any shareholder wishing to propose a nominee should submit a recommendation in
writing to the Secretary of Clear Channel not less than 90 days nor more than 120 days prior to the
first anniversary of the date on which Clear Channel first mailed its proxy materials for the
preceding years annual meeting of shareholders. Such a written recommendation must set forth (A)
all information relating to the director candidate that is required to be disclosed in
solicitations of proxies for election of directors in a contested election, or that is otherwise
required, in each case pursuant to Regulation 14A under the Securities Exchange Act of 1934, such
as the director candidates written consent to be named in the proxy statement as a nominee and to
serve as a director if elected and (B) a description of all direct and indirect compensation and
other material monetary agreements, arrangements and understandings during the past three years,
and any other material relationships, between or among the recommending shareholder and beneficial
owner, if any, and their respective affiliates and associates, or others acting in concert with
them, on the one hand, and each proposed director candidate, and his or her respective affiliates
and associates, or others acting in concert with them, on the other hand, including, without
limitation all information that would be required to be disclosed pursuant to Rule 404 promulgated
under Regulation S-K if the shareholder making the recommendation and any beneficial owner on whose
behalf the nomination is made, if any, or any affiliate or associate thereof or person acting in
concert therewith, were the registrant for purposes of such rule and the nominee were a director
or executive officer of such registrant. The requirements for a shareholder to provide the more
detailed information in connection with a nomination of a director candidate described in the
previous sentence were added to Article II Section 5 of Clear Channels bylaws by the Board on July
25, 2006. Shareholders should direct such proposals to: Board of Directors Presiding Director,
P.O. Box 659512 San Antonio, Texas 75265-9512.
7
The Audit Committee
The Audit Committee is responsible for reviewing Clear Channels accounting practices and
audit procedures. Additionally, Audit Committee members Perry J. Lewis and Phyllis B. Riggins have
both been designated as Financial Experts as defined by the SEC. See the Audit Committee Report
later in this document, which details the duties and performance of the Committee. The Audit
Committee met eight times during 2006. All members of the Audit Committee are independent as
defined by the listing standards of the NYSE and Clear Channels independence standards.
SHAREHOLDER COMMUNICATION WITH THE BOARD
Shareholders desiring to communicate with the Board should do so by sending regular mail to
Board of Directors Presiding Director, P.O. Box 659512 San Antonio, Texas 75265-9512.
PROPOSAL 1: ELECTION OF DIRECTORS
The Board intends to nominate at the annual meeting of shareholders the 11 persons listed
as nominees below. Each of the directors elected at the annual meeting will serve until the next
annual meeting of shareholders or until his or her successor shall have been elected and qualified,
subject to earlier resignation and removal. The directors are to be elected by a majority of the
votes cast at the annual meeting by the holders of the shares of Clear Channel common stock
represented and entitled to be voted at the annual meeting. A majority of the votes cast means
that the number of votes cast FOR a director nominee must exceed the number of votes cast
AGAINST that director nominee. Abstentions shall not count as a vote cast in the election of a
director nominee. Each of the nominees listed below is currently a director and is standing for
re-election. Each nominee has indicated a willingness to serve as director if elected. Should any
nominee become unavailable for election, discretionary authority is conferred to vote for a
substitute. Management has no reason to believe that any of the nominees will be unable or
unwilling to serve if elected.
NOMINEES FOR DIRECTOR
The nominees for director are Alan D. Feld, Perry J. Lewis, L. Lowry Mays, Mark P. Mays,
Randall T. Mays, B. J. McCombs, Phyllis B. Riggins, Theodore H. Strauss, J. C. Watts, John H.
Williams and John B. Zachry.
Alan D. Feld, age 70, is the sole shareholder of a professional corporation which is a partner
in the law firm of Akin Gump Strauss Hauer & Feld LLP. He has served as a director of Clear
Channel since 1984. Mr. Feld also serves on the board of trustees of American Beacon Mutual Funds.
Perry J. Lewis, age 69, has been a senior managing director of Heartland Industrial Partners,
a leveraged buyout firm, since February 2006 and from 2000 to 2001. From 2001 to February 2006,
Mr. Lewis was an advisory director of CRT Capital Group LLC, an institutional securities research
and brokerage firm, and was a founder and, from 1980 to 2001, partner Morgan, Lewis, Githens & Ahn,
an investment banking and leveraged buyout firm. He has served as a director of Clear Channel since
August 30, 2000. Mr. Lewis also serves as a director of Superior Essex, Inc.
L. Lowry Mays, age 71, is the founder of Clear Channel and currently serves as Chairman of the
Board. Prior to October of 2004, he served as Chairman and Chief Executive Officer of Clear
Channel and has been a director for the relevant five year period. Mr. Lowry Mays is a director of
our publicly traded subsidiary, Clear Channel Outdoor Holdings, Inc. Mr. Lowry Mays is the father
of Mark P. Mays and Randall T. Mays, who serve as the Chief Executive Officer, and the President
and Chief Financial Officer of Clear Channel, respectively. Mr. Lowry Mays also serves as a
director of Live Nation, Inc.
Mark P. Mays, age 43, was Clear Channels President and Chief Operating Officer from February
1997 until his appointment as our President and Chief Executive Officer in October 2004. He
relinquished his duties as President in February 2006. Mr. Mark Mays has served as a director
since May 1998. Mr. Mark Mays is a director of our publicly traded subsidiary, Clear Channel
Outdoor Holdings, Inc. Mr. Mark Mays is the son of L. Lowry
8
Mays, Clear Channels Chairman and the brother of Randall T. Mays, Clear Channels President
and Chief Financial Officer. Mr. Mark Mays also serves as a director of Live Nation, Inc.
Randall T. Mays, age 41, was appointed Executive Vice President and Chief Financial Officer of
Clear Channel in February 1997 and was appointed Secretary in April 2003. He was appointed
president in February 2006. He has served as a director since April 1999. Mr. Randall Mays is a
director of our publicly traded subsidiary, Clear Channel Outdoor Holdings, Inc. Mr. Randall Mays
is the son of L. Lowry Mays, Clear Channels Chairman and the brother of Mark P. Mays, Clear
Channels Chief Executive Officer. Mr. Randall Mays also serves as a director of Live Nation, Inc.
B. J. McCombs, age 79, is a private investor. He has served as a director of Clear Channel
for the relevant five year period.
Phyllis B. Riggins, age 54, has been a Managing Director of Bluffview Capital, LP since May
2003. Prior thereto, she was a Managing Director and Group Head Media/Telecommunication of Banc
of America Securities (and its predecessors) global corporate and investment banking for the
remainder of the relevant five year period. Ms. Riggins has served as a director of Clear Channel
since December 2002.
Theodore H. Strauss, age 82, is the Chairman of the Advisory Board for the Dallas Region of
the Texas State Bank, a position he has held since 2005. Prior thereto, he was a Senior Managing
Director of Bear, Stearns & Co., Inc., an investment banking firm for the remainder of the relevant
five year period. He has served as a director of Clear Channel since 1984.
J. C. Watts, Jr., age 49, is the Chairman of JC Watts Companies, LLC, a consulting firm. Mr.
Watts is a former member of the United States House of Representatives and represented the
4th District of Oklahoma from 1995 to 2002. He served as the Chairman of the House
Republican Conference. He has served as a director of Clear Channel since February 2003. Mr.
Watts also serves as a director of Terex Corporation, Dillards, Inc. and Burlington Northern Santa
Fe Corp.
John H. Williams, age 73, was a Senior Vice President of First Union Securities, Inc.
(formerly known as Everen Securities, Inc.), an investment banking firm, until his retirement in
July 1999. He has served as a director of Clear Channel since 1984. Mr. Williams also serves as a
director of GAINSCO, Inc.
John B. Zachry, age 45, has been the Chief Executive Officer of Zachry Construction Corp.
since August 2004. Prior to August 2004 he served as President and Chief Operating Officer of
Zachry Construction Corp. for the remainder of the relevant five year period. He has served as a
director of Clear Channel since his appointment in December 2005.
MANAGEMENT RECOMMENDS THAT YOU VOTE FOR THE DIRECTOR NOMINEES NAMED ABOVE.
CODE OF BUSINESS CONDUCT AND ETHICS
Clear Channel adopted a Code of Business Conduct and Ethics applicable to all its
directors and employees, including its chief executive officer, chief financial officer, and chief
accounting officer, which is a code of ethics as defined by applicable rules of the SEC. This
code is publicly available on Clear Channels Internet website at www.clearchannel.com. A copy may
also be obtained upon request from the Secretary of Clear Channel. If Clear Channel makes any
amendments to this code other than technical, administrative, or other non-substantive amendments,
or grants any waivers, including implicit waivers, from a provision of this code that applies to
Clear Channels chief executive officer, chief financial officer or chief accounting officer and
relates to an element of the SECs code of ethics definition, Clear Channel will disclose the
nature of the amendment or waiver, its effective date and to whom it applies on its website or in a
report on Form 8-K filed with the SEC.
9
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The table below sets forth information concerning the beneficial ownership of Clear
Channel common stock and Clear Channel Outdoor Holdings, Inc. Class A common stock as of April 2,
2007, for each director currently serving on the Board and each of the nominees for director; each
of the named executive officers not listed as a director, the directors and executive officers as a
group and each person known to Clear Channel to own beneficially more than 5% of outstanding common
stock. At the close of business on April 2, 2007, there were 496,087,136 shares of Clear Channel
common stock outstanding. Except as otherwise noted, each shareholder has sole voting and
investment power with respect to the shares beneficially owned.
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Title and Class |
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Clear Channel |
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Clear Channel Outdoor |
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Communications, Inc. |
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Holdings, Inc. Class A |
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Common Stock |
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Common Stock |
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Amount and |
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Amount and |
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Nature of |
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Nature of |
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Beneficial |
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Beneficial |
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Percent |
Name |
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Ownership |
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Percent of Class |
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Ownership |
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of Class |
Alan D. Feld |
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77,361 |
(1) |
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* |
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* |
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Perry J. Lewis |
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192,971 |
(2) |
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* |
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* |
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L. Lowry Mays |
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31,563,419 |
(3) |
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6.3 |
% |
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* |
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Mark P. Mays |
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2,366,281 |
(4) |
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* |
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* |
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Randall T. Mays |
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1,976,059 |
(5) |
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* |
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* |
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B. J. McCombs |
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4,816,669 |
(6) |
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1.0 |
% |
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* |
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Phyllis B. Riggins |
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17,241 |
(7) |
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* |
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* |
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Theodore H. Strauss |
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217,307 |
(8) |
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* |
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* |
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J. C. Watts |
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21,224 |
(9) |
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* |
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* |
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John H. Williams |
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64,667 |
(10) |
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* |
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* |
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John B. Zachry |
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4,500 |
(11) |
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* |
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* |
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John Hogan |
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403,440 |
(12) |
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* |
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* |
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Paul J. Meyer |
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21,874 |
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* |
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261,365 |
(13) |
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* |
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FMR Corp. (14) |
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48,216,851 |
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9.7 |
% |
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n/a |
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Highfields Capital Management LP (15) |
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24,854,400 |
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5.0 |
% |
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n/a |
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All Directors and Executive Officers
as a Group (16 persons) |
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41,835,548 |
(16) |
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7.7 |
% |
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261,365 |
(17) |
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* |
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* |
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Percentage of shares beneficially owned by such person does not exceed one percent of the
class so owned. |
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(1) |
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Includes 58,407 shares subject to options held by Mr. Feld. Excludes 9,000 shares owned by
Mr. Felds wife, as to which Mr. Feld disclaims beneficial ownership. |
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(2) |
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Includes 125,314 shares subject to options held by Mr. Lewis, 39,953 of which are held in a
margin account. Excludes 3,000 shares owned by Mr. Lewis wife, as to which Mr. Lewis
disclaims beneficial ownership. |
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(3) |
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Includes 2,890,866 shares subject to options held by Mr. L. Mays, 48,456 shares held by
trusts of which Mr. L. Mays is the trustee, but not a beneficiary, 26,801,698 shares held by
the LLM Partners Ltd of which Mr. L. Mays shares control of the sole general partner,
1,532,120 shares held by the Mays Family Foundation and 100,184 shares held by the Clear
Channel Foundation over which Mr. L. Mays has either sole or shared investment or voting
authority. |
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(4) |
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Includes 757,243 shares subject to options held by Mr. M. Mays, 343,573 shares held by trusts
of which Mr. M. Mays is the trustee, but not a beneficiary, and 1,022,293 shares held by the
MPM Partners, Ltd. Mr. M. Mays controls the sole general partner of MPM Partners, Ltd. Also
includes 6,727 shares and 1,054 shares, which represent shares in LLM Partners. |
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(5) |
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Includes 757,243 shares subject to options held by Mr. R. Mays, 359,517 shares held by trusts
of which Mr. R. Mays is the trustee, but not a beneficiary, and 619,761 shares held by RTM
Partners, Ltd. Mr. R. Mays controls the sole general partner of RTM Partners, Ltd. Also
includes 4,484 shares and 1,054 shares, which represent shares in LLM Partners. |
10
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(6) |
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Includes 53,586 shares subject to options held by Mr. McCombs and 4,763,083 shares held by
the McCombs Family Partners, Ltd. of which Mr. McCombs is the general partner and all of which
are held in a margin account. Excludes 27,500 shares held by Mr. McCombs wife, as to which
Mr. McCombs disclaims beneficial ownership. |
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(7) |
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Includes 6,266 shares subject to options held by Ms. Riggins. |
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(8) |
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Includes 58,407 shares subject to options held by Mr. Strauss and 72,087 shares held by the
THS Associates L.P. of which Mr. Strauss is the general partner. |
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(9) |
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Includes 14,099 shares subject to options held by Mr. Watts. |
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(10) |
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Includes 45,953 shares subject to options held by Mr. Williams. Excludes 9,300 shares held
by Mr. Williams wife, as to which Mr. Williams disclaims beneficial ownership. |
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(11) |
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Includes 4,500 shares subject to options held by Mr. Zachry. |
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(12) |
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Includes 295,062 shares subject to options held by Mr. Hogan. |
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(13) |
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Includes 261,365 shares subject to options held by Mr. Meyer. |
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(14) |
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Address: 82 Devonshire Street, Boston, Massachusetts 02109. |
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(15) |
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Address: John Hancock Tower, 200 Clarendon Street, 51st Floor, Boston, Massachusetts 02116. |
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(16) |
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Includes 5,163,837 shares subject to options held by such persons, 600,576 shares held by
trusts of which such persons are trustees, but not beneficiaries, 26,801,698 shares held by
the LLM Partners Ltd, 1,022,293 shares held by the MPM Partners, Ltd., 619,761 shares held by
the RTM Partners, Ltd, 4,763,083 shares held by the McCombs Family Partners, Ltd, 72,087
shares held by the THS Associates L.P., 1,532,120 shares held by the Mays Family Foundation
and 100,184 shares held by the Clear Channel Foundation. |
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(17) |
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Includes 261,365 shares subject to options held by such persons. |
Proposed Change in Control
On November 16, 2006, Clear Channel entered into an Agreement and Plan of Merger with BT
Triple Crown Merger Co., Inc., B Triple Crown Finco, LLC, and T Triple Crown Finco, LLC. Pursuant
to the terms of the merger agreement, BT Triple Crown will be merged with and into Clear Channel,
and as a result Clear Channel will continue as the surviving corporation and a wholly owned
subsidiary of B Triple Crown and T Triple Crown. B Triple Crown and T Triple Crown are owned by a
consortium of private equity funds affiliated with Thomas H. Lee Partners, L.P. and Bain Capital
Partners, LLC. Consummation of the merger is subject to customary conditions to closing, including
the approval of Clear Channels shareholders, and foreign and domestic regulatory clearance.
COMPENSATION COMMITTEE REPORT
The Compensation Committee of the Board has reviewed and discussed the Compensation
Discussion and Analysis included in this document with management. Based on such review and
discussion, the Compensation Committee recommended to the Board that the Compensation Discussion
and Analysis be included in this document.
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Respectfully submitted,
THE COMPENSATION COMMITTEE
John B. Zachry Chairman,
B. J. McCombs and J. C. Watts
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11
EXECUTIVE COMPENSATION DISCUSSION AND ANALYSIS
The following compensation discussion and analysis contains statements regarding Clear
Channel and individual performance measures and other goals. These goals are disclosed in the
limited context of Clear Channels executive compensation program and should not be understood to
be statements of managements expectations or estimates of results or other guidance. Clear
Channel specifically cautions investors not to apply these statements to other contexts.
Overview and Objectives of Clear Channels Compensation Program
Clear Channel believes that compensation of its executive and other officers and senior
managers should be directly and materially linked to operating performance. The fundamental
objective of Clear Channels compensation program is to attract, retain and motivate top quality
executive and other officers through compensation and incentives which are competitive with the
various labor markets and industries in which Clear Channel competes for talent and which align the
interests of Clear Channels officers and senior management with the interests of Clear Channels
shareholders.
Overall, Clear Channel has designed its compensation program to:
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support its business strategy and business plan by clearly communicating what is
expected of executives with respect to goals and results and by rewarding
achievement; |
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recruit, motivate and retain executive talent; and |
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create a strong performance alignment with shareholders. |
Clear Channel seeks to achieve these objectives through a variety of compensation elements:
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annual base salary; |
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an annual incentive bonus, the amount of which is dependent on Clear Channel
and, for most executives, individual performance during the prior fiscal year; |
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long-term incentive compensation, delivered in the form of stock options grants
and restricted stock awards that are awarded based on the prior years performance
and other factors described below, and that are designed to align executive
officers interests with those of shareholders by rewarding outstanding performance
and providing long-term incentives; and |
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other executive benefits and perquisites. |
Compensation Practices
The Committee annually determines total compensation, as well as the individual components of
such compensation, of Clear Channels named executive officers, except for Paul Meyers, President
and Chief Executive Officer of Clear Channel Outdoor Holdings, Inc. (CCOH), a publicly traded
subsidiary of Clear Channel. Mr. Meyers compensation is determined by CCOHs compensation
committee, and not Clear Channels Compensation Committee (the Committee). Accordingly, any
references contained in this Compensation Discussion and Analysis regarding the Committee and any
subcommittee thereof making compensation decisions with respect to Clear Channels executive
officers, excludes Mr. Meyer. For discussion of Mr. Meyers compensation, please refer to the
Paul Meyers Compensation section of this Compensation Discussion and Analysis.
In 2006, the Committee engaged Hewitt Associates, an independent compensation consultant to
develop and provide market pay data (including base salary, bonus, long-term incentive compensation
and all other compensation) to better evaluate the appropriateness and competitiveness of overall
compensation paid to Clear Channels executive officers. Compensation objectives are developed
based on market pay data from proxy statements and other sources, when available, of leading media
companies identified as key competitors for business and/or executive talent (the Media Peers).
Individual pay components and total compensation were bench marked against the Media Peers. The
Media Peers do not include companies in the Radio Index that is used for comparison purposes in the
Companys stock performance graph due to the fact that these companies comprising the Radio
12
Index are smaller in size and less diversified business operations than the Media Peers, which
the Compensation Committee believes are more comparable to the Company for executive compensation
purposes.
The Media Peers include Belo Corp., CBS Corporation, Comcast Corporation, The Walt Disney
Company, Gannett Company, Inc., IAC/InteractiveCorp, News Corporation, Time Warner, Tribune
Company, Viacom, Inc. and Yahoo! Inc. The Media Peers were selected on the basis of criteria that
are deemed to be comparable with Clear Channel in terms of market capitalization, exchange traded,
scope of operations, revenue, free cash flow, total assets, total capital and number of employees.
Except for Paul Meyer, each of the other named executive officers has entered into an
employment agreement with Clear Channel. Paul Meyer has entered into an employment agreement with
CCOH. The employment agreements generally set forth information regarding base salary, annual
incentive bonus, long-term incentive compensation and other employee benefits. All compensation
decisions with respect to the named executive officers are made within the scope of the employment
agreements. For a further description of the employment agreements, please refer to the
Employment Agreements with the Named Executive Officers section of this proxy statement.
In making decisions with respect to each element of executive compensation, the Committee
considers the total compensation that may be awarded to the officer, including salary, annual bonus
and long-term incentive compensation. Multiple factors are considered in determining the amount of
total compensation (the sum of base salary, annual incentive bonus and long-term incentive
compensation delivered through stock option grants and restricted stock awards) to award the
executive officers each year. Among these factors are:
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how proposed amounts of total compensation to Clear Channels executives compare to
amounts paid to similar executives by Media Peers both for the prior year and over a
multi-year period; |
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the value of stock options and restricted stock awarded in prior years; |
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internal pay equity considerations; and |
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broad trends in executive compensation generally. |
In addition, in reviewing and approving employment agreements for named executive officers,
the Committee considers the other benefits to which the officer is entitled by the agreement,
including compensation payable upon termination of the agreement under a variety of circumstances.
The Committees goal is to award compensation that is reasonable when all elements of potential
compensation are considered.
Elements of Compensation
The Committee and the Executive Performance Subcommittee of the Committee (the Subcommittee)
believe that a combination of various elements of compensation best serves the interests of Clear
Channel and its shareholders. Having a variety of compensation elements enables Clear Channel to
meet the requirements of the highly competitive environment in which Clear Channel operates while
ensuring its executive officers are compensated in a way that advances the interests of all
shareholders. Under this approach, executive compensation involves a significant portion of pay
that is at risk, namely, the annual incentive bonus. The annual incentive bonus is also based
largely on Clear Channels financial performance relative to goals established at the start of the
fiscal year. Stock options and restricted stock awards constitute a significant portion of
long-term remuneration that is tied directly to stock price appreciation that benefits all of Clear
Channels shareholders.
Clear Channels practices with respect to each of the elements of executive compensation are
set forth below, followed by a discussion of the specific factors considered in determining the
amounts for each of the key elements.
Base Salary
Purpose. The objective of base salary is to reflect job responsibilities, value to
Clear Channel and individual performance with respect to market competitiveness.
13
Administration. Base salaries for executive officers are reviewed on an annual basis
and at the time of promotion or other change in responsibilities. Increases in salary are based on
subjective evaluation of such factors as the level of responsibility, individual performance, level
of pay both of the executive in question and other similarly situated executive officers of the
Media Peers, and competitive pay levels.
Base salaries of executive officers are set at levels comparable to salaries paid by Clear
Channels Media Peers. The named executive officers initial salaries are determined through
mutual negotiations between the executive and the Committee and set forth in their respective
employment agreements. Clear Channel believes that employment agreements with its key executives
are in the best interests of Clear Channel to assure continuity of management.
Considerations. Minimum base salaries for four of the five executive officers named
in the 2006 Summary Compensation Table are determined by employment agreements for those officers
with Clear Channel. These minimum salaries and the amount of any increase over these minimum
salaries are determined by the Committee based on a variety of factors, including:
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the nature and responsibility of the position and, to the extent available, salary
norms for persons in comparable positions at Media Peers; |
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the expertise of the individual executive; |
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the competitiveness of the market for the executives services; and |
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the recommendations of the Chief Executive Officer (except in the case of his own compensation). |
In setting base salaries, the Committee considers the importance of linking a significant
proportion of the executive officers compensation to performance in the form of the annual
incentive bonus, which is tied to both Clear Channels financial performance measures and
individual performance, as well as long-term stock-based compensation, which is tied to Clear
Channels stock price performance and performance compared to Media Peers.
Annual Incentive Bonus
Purpose. Clear Channels executive compensation program provides for an annual
incentive bonus that is performance-linked. The objective of the annual incentive bonus
compensation element is to compensate individuals based on the achievement of specific goals that
are intended to correlate closely with growth of long-term shareholder value.
Administration. The Chairman, the Chief Executive Officer, the President and Chief
Financial Officer, the President and Chief Executive Officer of Radio, the President and Chief
Executive Officer of Television and the President of International Radio participate in the Clear
Channel 2005 Annual Incentive Plan (the Annual Incentive Plan). Mr. Meyer participates in the
CCOH 2005 Stock Incentive Plan, which is administered by CCOHs compensation committee. The Annual
Incentive Plan is administered by the Subcommittee and provides for performance-based bonuses for
executives who were covered employees pursuant to Section 162(m) of the Internal Revenue Code.
Under the Annual Incentive Plan, the Subcommittee establishes specific company performance-based
goals applicable to each covered executive officer for the ensuing fiscal year performance period.
In 2006, the performance goals for corporate-level executive officers were based on Clear
Channels year-over-year improvements in financial results using a combination of metrics including
earnings per share, free cash flow per share, operating income before depreciation, amortization
and non-cash compensation expense, as these measures best reflect the officers contribution to
outstanding corporate performance. For division-level executive officers, such as Mr. Hogan,
President and Chief Executive Officer of Clear Channels Radio division, the performance goals are
based on the respective divisions operating income before depreciation, amortization and non-cash
compensation expense and other financial measures which best reflect the officers contribution to
outstanding divisional performance. Performance goals for each executive officer are set pursuant
to an extensive annual operating plan developed by the Chief Executive Officer in consultation with
the President and Chief Financial Officer and other senior executive officers, including the
principal executive officers of Clear Channels various operating divisions. The Chief Executive
Officer makes recommendations as to the compensation levels and performance goals of Clear
Channels named executive officers, including his own, to the Subcommittee for its review,
consideration and approval.
14
The annual incentive bonus consists of cash, stock options and restricted stock awards. The
total annual incentive bonus award is determined according to the level of achievement of both the
objective performance and individual performance goals. Below a minimum threshold level of
performance, no awards may be granted pursuant to the objective performance goal, and the
Subcommittee may, in its discretion, reduce the awards pursuant to either objective or individual
performance goals.
Considerations. The annual incentive bonus process for each of the named executive
officers, except for Mr. Meyer, involves four basic steps pursuant to the Annual Incentive Plan:
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At the outset of the fiscal year: |
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Set performance goals for the year for Clear Channel and each
participant |
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Set a target bonus for each individual |
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After the end of the fiscal year: |
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Measure actual performance (individual and company-wide) against the
predetermined Clear Channel and individual performance goals to determine the
preliminary bonus |
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Make adjustments to the resulting preliminary bonus calculation to
reflect Clear Channels performance relative to the performance of the Media Peers. |
These four steps are described below:
(1) Setting performance goals. Early in each fiscal year, the Subcommittee, working with
senior management and the Committees compensation consultant, sets performance goals for Clear
Channel and each participant.
(2) Setting a target bonus. The Subcommittee establishes a target bonus amount for
each participant.
For each of the performance goals, there is a formula that establishes a payout range around
the target bonus allocation. The formula determines the percentage of the target bonus to be paid,
based on a percentage of goal achievement, with a minimum below which no payment will be made and
an established upper cap.
(3) Measuring performance. After the end of the fiscal year, the Subcommittee reviews Clear
Channels actual performance against each of the performance goals established at the outset of the
year. The Subcommittee then determines the amount of the preliminary bonus that may be paid based
on the level of performance achieved.
(4) Adjustment. The last step in the bonus process is the Subcommittees determination of
whether to make a downward adjustment to the preliminary bonus amount to take into account the
Clear Channels performance relative to its Media Peers and to take into account each participants
individual performance.
The Subcommittee met in February 2007 and measured Clear Channels performance against the
performance goals established by the Subcommittee for the 2006 fiscal year. Based on those
performance results, the Subcommittee determined the amount of preliminary bonus to which Lowry
Mays, Mark Mays, Randall Mays and John Hogan were entitled. The Subcommittee then considered a
downward adjustment to the preliminary bonus amounts, based on Clear Channels performance relative
to its Media Peers and taking into account each individuals performance. The Subcommittee then
awarded Lowry Mays $3,312,500 in cash incentive bonus, Mark Mays $6,625,000 in cash incentive
bonus, Randall Mays $6,625,000 in cash incentive bonus and John Hogan $987,552 in cash incentive
bonus. In addition, the Subcommittee determined that Lowry Mays was entitled to receive 53,000
stock options and 53,000 shares of restricted stock, Mark Mays was entitled to receive 132,500
stock options and 106,000 shares of restricted stock, Randall Mays was entitled to receive 132,500
stock options and 106,000 shares of restricted stock and John Hogan was entitled to receive 30,000
shares of restricted stock. While those performance awards of stock options and shares of
restricted stock have been determined, they have not yet been awarded. It is anticipated that
these stock options and shares of restricted stock will be awarded within thirty days of the filing
of this proxy statement.
15
Long-Term Incentive Compensation
Purpose. The long-term incentive compensation element provides a periodic award
(typically annual) that is performance-based. The objective of the program is to align
compensation for executive officers over a multi-year period directly with the interests of
shareholders of Clear Channel by motivating and rewarding creation and preservation of long-term
shareholder value. The level of long-term incentive compensation is determined based on an
evaluation of competitive factors in conjunction with total compensation provided to named
executive officers and the overall goals of the compensation program described above. As described
above, annual incentive bonuses are paid in part in stock options and restricted stock.
Additionally, Clear Channel may from time to time grant equity awards to the named executive
officers that are not pursuant to pre-determined performance goals. Messrs. Hogan and Meyer were
the only named executive officers to receive an equity award in 2006 that was not based upon
predetermined performance goals. All of Mr. Meyers equity awards are paid in shares of CCOHs
Class A common stock.
Stock Options. The long-term incentive compensation element calls for stock options
to be granted with exercise prices of not less than fair market value of Clear Channels stock on
the date of grant and to vest, either at the recipients option, beginning 3 years from the date of
grant and fully vesting 5 years from the date of grant, with a 7-year term, or in the alternative
fully vesting fully 5 years from the date of grant, with a 10-year term. All vesting is contingent
on continued employment, with rare exceptions made by the Committee. Clear Channel defines fair
market value as the closing price on the date of grant. The Committee will not grant stock options
with exercise prices below the market price of Clear Channels stock on the date of grant
(determined as described above), and will not reduce the exercise price of stock options (except in
connection with adjustments to reflect recapitalizations, stock or extraordinary dividends, stock
splits, mergers, spin-offs and similar events permitted by the relevant plan) without shareholder
approval.
Stock option grants to executive officers of Clear Channel are determined based in part on the
achievement of the performance goals described previously under the heading Compensation Elements
- Annual Incentive Bonus. All decisions to grant stock options are in the sole discretion of the
Committee or the Subcommittee, as applicable. However, the employment agreements with the
Chairman, the Chief Executive Officer, and the President and Chief Financial Officer contemplate
the award of annual stock option grants to acquire not less than 50,000 shares of Clear Channel
common stock.
Restricted Stock Awards. Restricted stock awards to executives of Clear Channel are
determined based in part on the achievement of certain performance goals as discussed previously
under the heading Compensation Elements Annual Incentive Bonus. All decisions to award
restricted stock are in the sole discretion of the Committee and the Subcommittee, as applicable.
Mix of Stock Options and Restricted Stock Awards. Clear Channels long-term incentive
compensation generally takes the form of a stock option grants and restricted stock awards. These
forms of compensation reward shareholder value creation in slightly different ways. Stock options
(which have exercise prices equal to the market price at the date of grant) reward executive
officers only if the stock price increases. Restricted stock awards are impacted by all stock
price changes, so the value to the executive officers is affected by both increases and decreases
in stock price.
Clear Channel awards long-term incentive compensation in the form of a stock option grant.
Upon receipt, employees have the choice of electing to accept that award of stock options, or in
the alternative to receive an award of restricted stock, in a number of shares reduced by a ratio
of 4 to 1 (for example, if an employee is awarded 1,000 options, the employee may choose to accept
that grant, or elect to instead receive 250 shares of restricted stock).
Vesting of Restricted Stock Awards. Restricted stock awards granted as long-term
incentive compensation to executive officers generally have scheduled vesting dates over a 3 to 5
year period from the date of grant.
Stock Option and Restricted Stock Grant Timing Practices
Regular Annual Stock Option Grant Dates. The regular annual stock option or restricted stock
award date for all employees is typically in February. The Committee does not have a formal policy
on timing equity awards in connection with the release of material non-public information to affect
the value of compensation.
16
Notwithstanding the foregoing, in the event that material non-public information becomes known to
the Committee prior to granting equity awards, the Committee will take such information under
advisement and make an assessment in its business judgment whether to delay the grant of the equity
award in order to avoid any impropriety based on consultation with Clear Channels executives and
counsel.
Partner New Hires/Promotions Grant Dates. Grants of stock option or restricted stock awards
to newly-hired or newly-promoted employees are made at the next-following regularly scheduled
meeting of the Board after the hire or promotion.
Executive Benefits and Perquisites
Clear Channel provides certain personal benefits to executive officers. Based upon the
findings and recommendation of an outside security consultant, the Board directed the Chairman,
Chief Executive Officer and President and Chief Financial Officer to utilize a Clear Channel
airplane for all business and personal air travel. With the approval of the Chief Executive
Officer, other executive officers and members of management are permitted limited personal use of
corporate-owned aircraft. Also under Clear Channels executive security program, the Chairman, the
Chief Executive Officer, and the President and Chief Financial Officer are provided security
services, including home security systems and monitoring and, in the case of the Chairman, personal
security services.
In addition, Clear Channel pays for additional personal benefits for certain named executive
officers in the form of personal club memberships, personnel who provide personal accounting
and tax services, security personnel who provide personal security services and
reimbursement for employee holiday gifts. The Company also makes limited matching
contributions under its 401(k) plan.
The Committee believes that the above benefits provide a more tangible incentive than an
equivalent amount of cash compensation. In determining its executive officers total compensation,
the Committee considers these benefits. For further discussion of these executive benefits and
other perquisites, including the methodology for computing their costs, please refer to the 2006
Summary Compensation Table included in this proxy statement.
Change-in-Control and Severance Arrangements
See the discussion of change in control and severance arrangements with respect to Messrs. L.
Lowry Mays, Mark P. Mays, Randall T. Mays, John Hogan and Paul Meyer under the heading Potential
Post-Employment Payments on page 28. The Committee evaluates change in control and severance
arrangements as one element in its consideration of the overall compensation for executive
officers.
Roles and Responsibilities
The Committee and the Subcommittee, as applicable, are primarily responsible for conducting
reviews of Clear Channels executive compensation policies and strategies and overseeing and
evaluating Clear Channels overall compensation structure and programs. Direct responsibilities
include, but are not limited to:
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evaluating and approving goals and objectives relevant to compensation of the Chief
Executive Officer and other executive officers, and evaluating the performance of the
executives in light of those goals and objectives; |
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determining and approving the compensation level for the Chief Executive Officer; |
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evaluating and approving compensation levels of other key executive officers; |
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evaluating and approving all grants of equity-based compensation to executive officers; |
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recommending to the Board compensation policies for outside directors; and |
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reviewing performance-based and equity-based incentive plans for the Chief Executive
Officer and other executive officers and reviewing other benefit programs presented to
the Committee by the Chief Executive Officer. |
17
The role of Clear Channel management is to provide reviews and recommendations for the
Committees consideration, and to manage Clear Channels executive compensation programs, policies
and governance. Direct responsibilities include, but are not limited to:
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providing an ongoing review of the effectiveness of the compensation programs,
including competitiveness, and alignment with Clear Channels objectives; |
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recommending changes, if necessary to ensure achievement of all program objectives;
and recommending pay levels, payout and/or awards for executive officers other than the
Chief Executive Officer. |
In 2006, the Committee delegated to the Subcommittee its responsibilities in administrating
performance awards under the Annual Incentive Plan in accordance with Section 162(m) of the
Internal Revenue Code. These delegated duties included, among other things, setting the
performance period, setting the performance goals and certifying the achievement of the
predetermined performance goals by each executive officer.
Tax and Accounting Treatment
Deductibility of Executive Compensation
Section 162(m) of the Internal Revenue Code places a limit of $1,000,000 on the amount of
compensation Clear Channel may deduct for federal income tax purposes in any one year with respect
to its Chief Executive Officer and the next four most highly compensated officers, which we
referred to herein as the Covered Employees. However, performance-based compensation that meets
certain requirements is excluded from this $1,000,000 limitation.
In reviewing the effectiveness of the executive compensation program, the Committee considers
the anticipated tax treatment to Clear Channel and to the Covered Employees of various payments and
benefits. However, the deductibility of certain compensation payments depends upon the timing of a
Covered Employees vesting or exercise of previously granted equity awards, as well as
interpretations and changes in the tax laws and other factors beyond the Committees control. For
these and other reasons, including to maintain flexibility in compensating the named executive
officers in a manner designed to promote varying corporate goals, the Committee will not
necessarily, or in all circumstances, limit executive compensation to that which is deductible
under Section 162(m) of the Internal Revenue Code and has not adopted a policy requiring all
compensation to be deductible.
The Committee will consider various alternatives to preserving the deductibility of
compensation payments and benefits to the extent reasonably practicable and to the extent
consistent with its other compensation objectives. To this end, the Committee annually establishes
performance criteria in an effort to ensure deductibility of annual incentive bonuses under the
Annual Incentive Plan. Base salary does not qualify as performance-based compensation under
Section 162(m) of the Internal Revenue Code.
Accounting for Stock-Based Compensation
Beginning on January 1, 2006, Clear Channel began accounting for stock-based payments
including awards under the Annual Incentive Plan in accordance with the requirements of FAS 123R.
Paul Meyers Compensation
Paul Meyer is President and Chief Executive Officer of CCOH. As such, Mr. Meyers total
compensation, as well as the individual elements of such compensation, is determined by CCOHs
compensation committee and not by Clear Channels Compensation Committee or any subcommittee
thereof. The analysis of Mr. Meyers compensation is set forth in CCOHs 2007 proxy statement
filed with the Securities and Exchange Commission. Clear Channel is not hereby incorporating by
reference CCOHs 2007 proxy statement into this proxy statement and the reference to CCOHs 2007
proxy statement is provided for informational purposes only.
18
Corporate Services Agreement
In connection with CCOHs Initial Public Offering, Clear Channel and CCOH entered into a
corporate services agreement. Under the terms of the agreement, Clear Channel provides, among
other things, executive officer services to CCOH. These executive officer services are charged to
CCOH based on actual direct costs incurred or allocated by Clear Channel. For 2006, CCOH
reimbursed Clear Channel $313,250 and $ 303,917 of Mr. Mark Mays and Mr. Randall Mays
salary, respectively, and $2,318,750 and $2,318,750 of Mr. Mark Mays and Mr. Randall Mays
Non-Equity Incentive Plan Compensation, respectively, pursuant to the terms of the corporate
services agreement. For further information on Messrs. M. Mays and R. Mays base salary, please
refer to the 2006 Summary Compensation Table contained in this proxy statement.
Summary Compensation
The Summary Compensation table shows certain compensation information for the year ended
December 31, 2006 for the Principal Executive Officer, Principal Financial Officer and each of the
three next most highly compensated executive officers for services rendered in all capacities
(hereinafter referred to as the named executive officers).
2006 SUMMARY COMPENSATION TABLE
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Change in |
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Pension Value |
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and |
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Non - Equity |
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Incentive |
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Deferred |
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Name and |
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Stock |
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Compensation |
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All Other |
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Principal Position |
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Bonus |
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Awards (1) |
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Awards (1) |
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Compensation |
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Earnings |
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Compensation |
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Total |
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($) |
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($) |
Mark Mays Chief
Executive Officer
(2) (PEO) |
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2006 |
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581,750 |
(3) |
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1,589,869 |
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2,551,243 |
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4,306,250 |
(3) |
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282,884 |
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9,311,996 |
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Randall Mays -
President and Chief
Financial Officer
(2) (PFO) |
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2006 |
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564,417 |
(5) |
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1,589,869 |
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2,551,243 |
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4,306,250 |
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270,603 |
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9,282,382 |
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Lowry Mays -
Chairman |
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2006 |
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695,000 |
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752,812 |
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3,312,500 |
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149,728 |
(4) |
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4,910,040 |
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John Hogan -
President and CEO
of the Company
Radio |
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2006 |
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622,917 |
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584,425 |
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781,596 |
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987,552 |
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62,795 |
(6) |
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3,039,285 |
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Paul Meyer -
President and CEO -
Clear Channel
Outdoor |
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2006 |
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622,404 |
(7) |
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25,000 |
(8) |
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92,652 |
(7) |
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870,000 |
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18,340 |
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1,628,396 |
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(1) |
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Amounts reflect the Companys 2006 compensation expense associated with the restricted stock
awards and stock options made in prior years calculated in accordance with SFAS 123R.
However, in accordance with SEC rules, the amounts shown exclude the impact of estimated
forfeitures related to service-based vesting conditions, which would otherwise be taken into
account under SFAS 123R. There were no forfeitures of stock or option awards held by the
named executive officers during 2006. See Note L Shareholders Equity on page A-55 of
Appendix A for a discussion of the assumptions made in calculating these amounts. The amounts
reflect the Companys accounting expense for such awards and may not correspond to the actual
value recognized by the named executive officers. Dividends are paid on shares of restricted
stock at the same rate as paid on our common stock. These amounts do not reflect any
compensation expense associated with the following restricted stock awards and stock option
awards that have been earned, but not granted to the respective officer as of the date |
19
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of this proxy statement: for Mr. M. Mays- 132,500 stock options and 106,000 restricted stock
awards for Mr. R. Mays- 132,500 stock options and 106,000
restricted stock awards; and for L. Mays- 53,000 stock options and 53,000 restricted
stock awards. It is anticipated that Mr. Hogan and Mr. Meyer will
again receive annual discretionary stock incentive grants in 2007 in
recognition of 2006 performance. For further discussion of these stock options and restricted stock awards, see
the 2006 Grants of Plan-Based Awards table. |
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(2) |
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Mr. M. Mays relinquished his duties as President to Mr. R. Mays in February 2006. |
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(3) |
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Mr. M. Mays Salary and Non-Equity Incentive Plan Compensation earned during the year
ended December 31, 2006 were $895,000 and $6,625,000, respectively, of which $313,250 and
$2,318,750 were reimbursed to the Company from CCOH pursuant to a Corporate Services Agreement
between Clear Channel Management Services, L.P. and CCOH For a further discussion of the
Corporate Services Agreement, please refer to the Compensation Discussion and Analysis
section of this proxy statement. |
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(4) |
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As a result of the Companys high public profile and due in part to threats against the
Company, its operations and management, the Companys Board has engaged an outside security
consultant to assess security risks to the Companys physical plant and operations, as well as
its employees, including executive management. Based upon the findings and recommendation of
this security consultant, management and the Companys Board implemented numerous security
measures for our operations and employees, including a general security program covering
selected senior executives. |
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For security purposes and at the direction of the Board, Messrs. M. Mays, R. Mays and L. Mays
utilize the Companys airplane for all business and personal air travel. Included in All Other
Compensation is $79,615, $71,035 and $34,410 of personal use of the Company airplane by Mr. M.
Mays, Mr. R. Mays and Mr. L. Mays, respectively. |
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Also included in Mr. M. Mays All Other Compensation is $175,500 in dividends paid on his
unvested restricted stock awards and $5,500 in the Companys matching contribution to the 401(k)
Plan. The remainder of Mr. M. Mays All Other Compensation consists of personal club
memberships provided by the Company and wages paid by the Company for personnel who provide
personal accounting and tax services to Mr. M. Mays. |
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Also included in Mr. R. Mays All Other Compensation is $175,500 in dividends paid on his
unvested restricted stock awards and $5,500 in the Companys matching contribution to the 401(k)
Plan. The remainder of Mr. R. Mays All Other Compensation consists of personal club
memberships provided by the Company and wages paid by the Company for personnel who provide
personal accounting and tax services to Mr. R. Mays. |
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Also included in Mr. L. Mays All Other Compensation is $63,000 in dividends paid on his
unvested restricted stock awards, $5,500 in the Companys matching contribution to the 401(k)
Plan. The remainder of Mr. L. Mays All Other Compensation consists of personal club
memberships provided by the Company and wages paid by the Company for personnel who provide
personal accounting and tax services and wages paid by the Company for security personnel who
provide personal security services to Mr. L. Mays. |
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The value of personal airplane usage reported above is based on the Companys direct operating
costs. This methodology calculates our aggregate incremental cost based on the average weighted
variable cost per hour of flight for fuel/oil expenses, mileage, trip-related maintenance, crew
travel expenses, landing fees and other miscellaneous variable costs. Since the Companys
airplane is used primarily for business travel, this methodology excludes fixed costs that do
not change based on usage, such as pilot salaries, the cost of the plane, depreciation and
administrative expenses. On certain occasions, an executives spouse or other family members
may accompany the executive on a flight when such persons are invited to attend an event for
appropriate business purposes. No additional direct operating cost is incurred in such
situations under the foregoing methodology. The value of all other perquisites included in All
Other Compensation is based upon the Companys actual costs. |
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(5) |
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Mr. R. Mays Salary and Non-Equity Incentive Plan Compensation earned during the year
ended December 31, 2006 were $868,333 and $6,625,000, respectively, of which $303,917 and
$2,318,750 were reimbursed to the Company from CCOH pursuant to a Corporate Services Agreement
between Clear Channel Management Services, L.P. and CCOH |
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(6) |
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Amount reflects $56,250 in dividends paid on unvested restricted stock awards and $5,500 in
the Companys matching contributions to the 401(k) Plan. The remainder of Mr. Hogans All
Other Compensation consists of reimbursement for holiday gifts to employees. |
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(7) |
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Mr. Meyer is employed by CCOH. and as such, his Salary and Non-Equity Incentive Plan
Compensation is paid by CCOH. |
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(8) |
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The Executive Performance Subcommittee awarded Mr. Meyer a discretionary bonus of $25,000
based on his success in growing return on capital employed and return on assets significantly
from 2005 to 2006. |
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(9) |
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Amount reflects $9,000 in dividends paid on unvested restricted stock awards and $5,500 in
the Companys matching contributions to the 401(k) Plan. The remainder of Mr. Meyers All
Other Compensation consists of claims and administrative expenses associated with a Medical
Executive Reimbursement Plan. |
20
Employment Agreements with the Named Executive Officers
Certain elements of the compensation of the named executive officers are determined based on
their respective employment agreements.
Messrs. L. Lowry, Mark and Randall Mays
On April 24, 2007, Clear Channel entered into amended and restated employment agreements with
its three senior executives, L. Lowry Mays (Chairman), Mark Mays (Chief Executive Officer) and
Randall Mays (President and Chief Financial Officer). These agreements amended and restated
existing employment agreements originally entered into on October 1, 1999, and subsequently amended
and restated on March 10, 2005 between Clear Channel and the three executives.
On November 16, 2006, Clear Channel entered into an Agreement and Plan of Merger between Clear
Channel, BT Triple Crown Merger Co., B Triple Crown Finco, LLC, and T Triple Crown Finco, LLC. If
the merger contemplated by that agreement or any transaction qualifying as a Superior Proposal as
defined in the merger agreement is consummated, the amended and restated agreements will be void
and the prior agreements (as amended on November 16, 2006 (the November 2006 Amendments) will
continue in effect.
Each agreement, as amended through the date of this proxy statement, has a term of seven years
with automatic daily extensions unless Clear Channel or the executive elects not to extend the
agreement. Each of these employment agreements provides for a minimum base salary, subject to
review and annual increase by the Compensation Committee. In addition, each agreement provides for
an annual bonus pursuant to Clear Channels Annual Incentive Plan or as the Executive Performance
Subcommittee determines. The employment agreements with the Chairman, Chief Executive Officer, and
President and Chief Financial Officer provide for base minimum salaries of $695,000, $895,000 and
$875,000, respectively, and for minimum annual option grants to acquire 50,000 shares of Clear
Channel common stock (or a number of restricted shares of Clear Channel common stock of equivalent
value to such options (or a combination of options and restricted shares)); provided, however, that
the annual option or restricted share grant will not be smaller than the option or restricted share
grant in the preceding year unless waived by the executive. Each option will be exercisable (i) at
a price equal to the last reported sale price of the Clear Channel common stock on the New York
Stock Exchange (or such other principal trading market for the Companys common stock) at the close
of the trading day on the date on which the grant is made and (ii) for a ten-year period even if
the executive is not employed by Clear Channel. The Compensation Committee or the Executive
Performance Subcommittee determine the schedule upon which the options and restricted stock will
vest.
We will indemnify each executive from any losses incurred by the executive because the
executive was made a party to a proceeding as a result of the executive being our officer.
Furthermore, any expenses incurred by the executive in connection with any such action shall be
paid by us in advance upon request of executive that we pay such expenses, but only in the event
that the executive shall have delivered in writing to us (i) an undertaking to reimburse us for
such expenses with respect to which executive is not entitled to indemnification, and (ii) an
affirmation of his good faith belief that the standard of conduct necessary for indemnification by
us has been met.
Each of these executive employment agreements provides for severance and change-in-control
payments as more fully described under the heading Potential Post-Employment Payments on page 28
of this document. The employment agreements also restrict the executives business activities that
compete with the business of Clear Channel for a period of two years following certain events of
termination.
Mr. Paul Meyer
On August 5, 2005, Clear Channel Outdoor Holdings, Inc., a publicly traded subsidiary of Clear
Channel, or CCOH, entered into an employment agreement with Paul J. Meyer, which replaced the
existing employment agreement by and between Mr. Meyer and the Company. The initial term of the new
agreement ends on the third anniversary of the date of the agreement; the term automatically
extends one day at a time beginning on the second anniversary of the date of the agreement, unless
one party gives the other one years notice of expiration at or prior to the second anniversary of
the date of the agreement. The contract calls for Mr. Meyer to be the President and Chief Operating
Officer of CCOH. for a base salary of $600,000 in the first year of the agreement; $625,000 in the
second year of the agreement; and $650,000 in the third year of the agreement, subject to
additional annual raises
21
thereafter in accordance with company policies. Mr. Meyer is also eligible to receive a
performance bonus as decided at the sole discretion of the board of directors and the compensation
committee of Clear Channel Outdoor Holdings, Inc.
Mr. Meyer may terminate his employment at any time after the second anniversary of the date of
the agreement upon one years written notice. CCOH may terminate Mr. Meyer without Cause after
the second anniversary of the date of the agreement upon one years written notice. Cause is
narrowly defined in the agreement. Mr. Meyers employment agreement provides for severance payments
as more fully described under the heading Potential Post-Employment Payments on page 28 of this
document. Mr. Meyer is prohibited by his employment agreement from activities that compete with
CCOH. for one year after he leaves CCOH and he is prohibited from soliciting CCOH employees for
employment for 12 months after termination regardless of the reason for termination of employment.
However, after Mr. Meyers employment with CCOH has terminated, upon receiving written permission
from the board of directors of CCOH, Mr. Meyer shall be permitted to engage in competing activities
that would otherwise be prohibited by his employment agreement if such activities are determined in
the sole discretion of the board of directors of CCOH in good faith to be immaterial to the
operations of CCOH, or any subsidiary or affiliate thereof, in the location in question. Mr. Meyer
is also prohibited from using CCOHs confidential information at any time following the termination
of his employment in competing, directly or indirectly, with CCOH.
At any time following Mr. Meyers termination of employment, he is entitled to reimbursement
of reasonable attorneys fees and expenses and full indemnification from any losses related to any
proceeding to which he may be made a party by reason of his being or having been an officer CCOH or
any of its subsidiaries (other than any dispute, claim or controversy arising under or relating to
his employment agreement).
Mr. John Hogan
Effective February 1, 2004, Clear Channel Broadcasting, Inc. (CCB), a subsidiary of Clear
Channel, entered into an employment agreement with John Hogan as President and Chief Executive
Officer, Clear Channel Radio. The initial term of the agreement ended on January 31, 2006, but now
the agreement continues with a term of one year with automatic daily extensions until terminated by
either party.
The agreement provides that CCB will pay Mr. Hogan an annual base salary of $550,000 for the
period from February 1, 2004 through January 31, 2005; and $600,000 for the period from February 1,
2005 through January 31, 2006. Mr. Hogan will be eligible for additional annual raises after
January 31, 2006 commensurate with company policy. No later than March 31 of each calendar year
during the term, Mr. Hogan will be eligible to receive a performance bonus. The agreement also
provided that Mr. Hogan receive a one-time grant of 50,000 options to purchase Clear Channel stock.
Any future stock option grants will be granted based upon the performance of Mr. Hogan, which will
be assessed in the sole discretion of CCB and the Compensation Committee of the Board. Mr. Hogan
will also be entitled to participate in all pension, profit sharing, and other retirement plans,
all incentive compensation plans, and all group health, hospitalization and disability or other
insurance plans, paid vacation, sick leave and other employee welfare benefit plans in which other
similarly situated employees may participate.
Mr. Hogan is prohibited by the agreement from activities that compete with CCB or its
affiliates for one year after he leaves CCB, and he is prohibited from soliciting CCBs employees
for employment for 12 months after termination regardless of the reason for termination of
employment. However, after Mr. Hogans employment with CCB has terminated, upon receiving written
permission from the board of directors of CCB, Mr. Hogan shall be permitted to engage in competing
activities that would otherwise be prohibited by his employment agreement if such activities are
determined in the sole discretion of the board of directors of CCB in good faith to be immaterial
to the operations of CCB, or any subsidiary or affiliate thereof, in the location in question. Mr.
Hogan is also prohibited from using CCBs confidential information at any time following the
termination of his employment in competing, directly or indirectly, with CCB.
Mr. Hogan is entitled to reimbursement of reasonable attorneys fees and expenses and full
indemnification from any losses related to any proceeding to which he may be made a party by reason
of his being or having been an officer CCB or any of its subsidiaries (other than any dispute,
claim or controversy arising under or relating to his employment agreement).
22
Mr. Hogans employment agreement provides for severance payments as more fully described under
the heading Potential Post-Employment Payments on page 28 of this document.
Grants of Plan-Based Awards
The following table sets forth certain information concerning plan-based awards granted to the
named executive officers during the year ended December 31, 2006.
2006 GRANTS OF PLAN-BASED AWARDS
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All Other |
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Option |
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All Other |
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Awards: |
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Estimated Future Payouts |
|
Stock |
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Number of |
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Grant Date |
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Estimated Possible Payouts Under |
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Under Equity Incentive Plan |
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Awards: |
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Securities |
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Exercise or |
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Fair Value of |
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|
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Non-Equity Incentive Plan Awards |
|
Awards |
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Number of |
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Under- |
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Base Price |
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Stock and |
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|
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Thres- |
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|
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Maxi- |
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Thres- |
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|
Maxi- |
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Shares of |
|
lying |
|
of Option |
|
Option |
Name |
|
Grant Date |
|
hold |
|
Target |
|
mum |
|
hold |
|
Target |
|
mum |
|
Stock or Units |
|
Options |
|
Awards |
|
Awards |
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|
|
|
($) |
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($) |
|
($) |
|
(#) |
|
(#) |
|
(#) |
|
(#) |
|
(#) |
|
($/Sh) (1) |
|
($) (2) |
Mark Mays (6) |
|
|
2/14/06 |
(3) |
|
|
|
|
|
|
N/A |
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|
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2,500,000 |
|
|
|
|
|
|
|
N/A |
|
|
|
90,000 |
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
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(7) |
|
|
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2/14/06 |
(4) |
|
|
|
|
|
|
N/A |
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|
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3,125,000 |
|
|
|
|
|
|
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N/A |
|
|
|
112,500 |
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|
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|
|
|
|
|
|
|
|
|
|
|
|
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(7) |
|
|
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2/14/06 |
(5) |
|
|
|
|
|
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N/A |
|
|
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3,125,000 |
|
|
|
|
|
|
|
N/A |
|
|
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112,500 |
|
|
|
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(7) |
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Randall Mays (11) |
|
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2/14/06 |
(8) |
|
|
|
|
|
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N/A |
|
|
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2,500,000 |
|
|
|
|
|
|
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N/A |
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|
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90,000 |
|
|
|
|
|
|
|
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|
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|
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(7) |
|
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2/14/06 |
(9) |
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|
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|
|
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N/A |
|
|
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3,125,000 |
|
|
|
|
|
|
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N/A |
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|
|
112,500 |
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|
|
|
|
|
|
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(7) |
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2/14/06 |
(10) |
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|
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N/A |
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|
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3,125,000 |
|
|
|
|
|
|
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N/A |
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112,500 |
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(7) |
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|
Lowry Mays (15) |
|
|
2/14/06 |
(12) |
|
|
|
|
|
|
N/A |
|
|
|
1,250,000 |
|
|
|
|
|
|
|
N/A |
|
|
|
40,000 |
|
|
|
|
|
|
|
|
|
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|
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|
|
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(7) |
|
|
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2/14/06 |
(13) |
|
|
|
|
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N/A |
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1,562,500 |
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|
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N/A |
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50,000 |
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(7) |
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2/14/06 |
(14) |
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N/A |
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|
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1,562,500 |
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|
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|
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|
N/A |
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50,000 |
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(7) |
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John Hogan |
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2/14/06 |
(16) |
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N/A |
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1,875,000 |
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2/14/06 |
|
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(17) |
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(17) |
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(18) |
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Paul Meyer (22) |
|
|
2/13/06 |
(19) |
|
|
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|
|
|
150,000 |
|
|
|
345,00 |
|
|
|
|
|
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|
|
|
2/13/06 |
(20) |
|
|
|
|
|
|
150,000 |
|
|
|
345,00 |
|
|
|
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2/13/06 |
(21) |
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|
|
|
|
|
300,000 |
|
|
|
690,00 |
|
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2/13/06 |
|
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(23) |
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(23) |
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(24) |
|
|
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(1) |
|
The exercise price of stock options is equal to the closing price on the grant date of the
Companys common stock. Messrs. M Mays, R. Mays and L. Mays stock option awards have been
earned, but not yet granted. |
|
(2) |
|
All equity and non-equity awards will be granted under the 2001 Stock Incentive Plan; except
Mr. Meyers cash and restricted stock awards were granted under the CCOH 2005 Stock Incentive
Plan. |
|
(3) |
|
On 2/14/06, Mr. M. Mays was granted a performance award based upon the Companys
year-over-year growth in OIBDAN (as defined below) pursuant to which Mr. Mays could earn the
following maximum awards: $2,500,000 in cash; 50,000 in stock option awards; and 40,000 in
restricted stock awards. OIBDAN means operating income as defined by GAAP before
depreciation and amortization and non-cash compensation expense. |
|
(4) |
|
On 2/14/06, Mr. M. Mays was granted a performance award based upon the Companys
year-over-year growth in EPS (as defined below) pursuant to which Mr. Mays could earn the
following maximum awards: $3,125,000 in cash; 62,500 in stock option awards; and 50,000 in
restricted stock awards. EPS means earnings per share as defined by GAAP, excluding
one-time gains and losses and the costs of expensing stock options in 2006. |
|
(5) |
|
On 2/14/06, Mr. M. Mays was granted a performance award based upon the Companys
year-over-year growth in FCF/Share (as defined below) pursuant to which Mr. Mays could earn
the following maximum awards: $3,125,000 in cash; 62,500 in stock option awards; and 50,000 in
restricted stock awards. FCF/Share means, on a per share basis, OIBDAN less interest
expenses, less current taxes, less non-revenue producing capital expenditures and excluding
current taxes on gain (loss) on sale of assets. |
|
(6) |
|
For 2006, Mr. M. Mays earned aggregate performance awards of $6,625,000 in cash; 132,500
stock options; and 106,000 shares of restricted stock. The aggregate earned cash performance
award is reported in the Non-Equity Incentive Plan Compensation column of the 2006 Summary
Compensation Table. As none of Mr. M. Mays performance-based stock option and restricted
stock awards have been granted as of the date of this proxy statement, there is no
compensation expense with respect to these awards reflected in the respective Option Awards
and the Stock Awards columns of the 2006 Summary Compensation Table. |
23
|
|
|
(7) |
|
While the respective performance based stock option and restricted stock awards have been
earned, such awards have not been granted as of the date of this proxy statement.
Accordingly, it is not currently possible to compute the aggregate grant date fair value of
these equity awards in accordance with SFAS 123R. |
|
(8) |
|
On 2/14/06, Mr. R. Mays was granted a performance award based upon the Companys
year-over-year growth in OIBDAN pursuant to which Mr. Mays could earn the following maximum
awards: $2,500,000 in cash; 50,000 in stock option awards; and 40,000 in restricted stock
awards. |
|
(9) |
|
On 2/14/06, Mr. R. Mays was granted a performance award based upon the Companys
year-over-year growth in EPS pursuant to which Mr. Mays could earn the following maximum
awards: $3,125,000 in cash; 62,500 in stock option awards; and 50,000 in restricted stock
awards. |
|
(10) |
|
On 2/14/06, Mr. R. Mays was granted a performance award based upon the Companys
year-over-year growth in FCF/Share pursuant to which Mr. Mays could earn the following
maximum awards: $3,125,000 in cash; 62,500 in stock option awards; and 50,000 in restricted
stock awards. |
|
(11) |
|
For 2006, Mr. R. Mays earned aggregate performance awards of $6,625,000 in cash; 132,500
stock options; and 106,000 shares of restricted stock. The aggregate earned cash performance
award is reported in the Non-Equity Incentive Plan Compensation column of the 2006 Summary
Compensation Table. As none of Mr. R. Mays performance-based stock option and restricted
stock awards have been granted as of the date of this proxy statement, there is no
compensation expense with respect to these equity awards reflected in the respective Option
Awards and the Stock Awards columns of the 2006 Summary Compensation Table. |
|
(12) |
|
On 2/14/06, Mr. L. Mays was granted a performance award based upon the Companys
year-over-year growth in OIBDAN pursuant to which Mr. Mays could earn the following maximum
awards: $1,250,000 in cash; 20,000 in stock option awards; and 20,000 in restricted stock
awards. |
|
(13) |
|
On 2/14/06, Mr. L. Mays was granted a performance award based upon the Companys
year-over-year growth in EPS pursuant to which Mr. Mays could earn the following maximum
awards: $1,562,500 in cash; 25,000 in stock option awards; and 25,000 in restricted stock
awards. |
|
(14) |
|
On 2/14/06, Mr. L. Mays was granted a performance award based upon the Companys
year-over-year growth in FCF/Share pursuant to which Mr. Mays could earn the following
maximum awards: $1,562,500 in cash; 25,000 in stock option awards; and 25,000 in restricted
stock awards. |
|
(15) |
|
For 2006, Mr. L. Mays earned aggregate performance awards of $3,312,500 in cash; 53,000 stock
options; and 53,000 shares of restricted stock. The aggregate earned cash performance award
is reported in the Non-Equity Incentive Plan Compensation column of the 2006 Summary
Compensation Table. As none of Mr. M. Mays performance-based stock option and restricted
stock awards have been granted as of the date of this proxy statement, there is no
compensation expense with respect to these awards reflected in the Option Awards and the
Stock Awards columns of the 2006 Summary Compensation Table. |
|
(16) |
|
On 2/14/06, Mr. Hogan was granted a performance award based upon the Companys year-over-year
growth in OIBDAN pursuant to which Mr. Hogan could earn a maximum cash award of $1,8750,000.
The cash performance award earned by Mr. Hogan is reported in the Non-Equity Incentive Plan
Compensation column of the 2006 Summary Compensation Table. |
|
(17) |
|
It is anticipated that Mr. Hogan will again receive
annual discretionary stock incentive grants in 2007 in recognition of
2006 performance. As this award has not been granted as of the date
of this proxy statement, there is no compensation expense with
respect to this award reflected in the Stock Awards or
the Option Awards columns of the 2006 Summary
Compensation Table. |
|
(18) |
|
While the respective restricted stock award has been earned, such award has not been granted
as of the date of this proxy statement. Accordingly, it is not currently possible to compute
the aggregate grant date fair value of the restricted stock award in accordance with FAS 123R. |
|
(19) |
|
On 2/13/06, Mr. Meyer was granted a performance award based upon CCOHs year-over-year growth
in EPS pursuant to which Mr. Meyer could earn a maximum cash award of $345,000. |
|
(20) |
|
On 2/13/06, Mr. Meyer was granted a performance award based upon CCOHs year-over-year growth
in FCF/Share pursuant to which Mr. Meyer could earn a maximum cash award of $345,000. |
|
(21) |
|
On 2/13/06, Mr. Meyer was granted a performance award based upon CCOHs year-over-year growth
in OIBDAN pursuant to which Mr. Meyer could earn a maximum cash award of $690,000. |
|
(22) |
|
For 2006, Mr. Meyer earned aggregate performance awards of $870,000 in cash, which is
reported in the Non-Equity Incentive Plan Compensation column of the 2006 Summary
Compensation Table. |
|
24
|
|
|
(23) |
|
It is anticipated that Mr. Meyer will again receive annual
discretionary stock incentive grants in 2007 in recognition of 2006
performance. As this award has not been granted as of the date of
this proxy statement, there is no compensation expense with respect
to this award reflected in the Stock Awards or the
Option Awards columns of the 2006 Summary Compensation
Table. |
|
(24) |
|
While the respective Class A restricted stock award has been earned, such award has not been
granted as of the date of this proxy statement. Accordingly, it is not currently possible to
compute the aggregate grant date fair value of the Class A restricted stock award in
accordance with SFAS 123R. |
REMAINDER OF PAGE LEFT INTENTIONALLY BLANK
25
Outstanding Equity Awards at Fiscal Year End
The following table sets forth certain information concerning outstanding equity awards at
fiscal year end of the named executive officers for the year ended December 31, 2006.
2006 OUTSTANDING EQUITY AWARDS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option Awards |
|
Stock Awards |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incentive Plan |
|
|
|
|
|
|
|
|
|
|
Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Awards: |
|
|
|
|
|
|
|
|
|
|
Incentive |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity Incentive |
|
Market or |
|
|
Number of |
|
Number of |
|
Plan Awards: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Market |
|
Plan Awards: |
|
Payout Value |
|
|
Securities |
|
Securities |
|
Number of |
|
|
|
|
|
|
|
|
|
Number of |
|
Value of |
|
Number of |
|
of Unearned |
|
|
Underlying |
|
Underlying |
|
Securities |
|
|
|
|
|
|
|
|
|
Shares or |
|
Shares or |
|
Unearned |
|
Shares, Units |
|
|
Unexercised |
|
Unexercised |
|
Underlying |
|
|
|
|
|
|
|
|
|
Units of |
|
Units of |
|
Shares, Units or |
|
or Other |
|
|
Options |
|
Options |
|
Unexercised |
|
Option |
|
|
|
|
|
Stock That |
|
Stock That |
|
Other Rights |
|
Rights That |
|
|
(#) |
|
(#) |
|
Unearned |
|
Exercise |
|
Option |
|
Have Not |
|
Have Not |
|
That Have Not |
|
Have Not |
Name |
|
Exercisable |
|
Unexercisable |
|
Options (#) |
|
Price ($) |
|
Expiration Date |
|
Vested (#) |
|
Vested ($) |
|
Vested (#) |
|
Vested ($) |
Mark Mays (PEO) |
|
|
156,671 |
(1) |
|
|
|
|
|
|
|
|
|
|
42.63 |
|
|
|
2/19/09 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
78,335 |
(2) |
|
|
|
|
|
|
|
|
|
|
63.79 |
|
|
|
2/28/10 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
261,118 |
(3) |
|
|
|
|
|
|
|
|
|
|
55.54 |
|
|
|
2/12/11 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
261,119 |
(4) |
|
|
|
|
|
|
|
|
|
|
44.31 |
|
|
|
12/14/11 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
235,006 |
(5) |
|
|
|
|
|
|
35.06 |
|
|
|
2/19/13 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
217,684 |
(6) |
|
|
|
|
|
|
30.31 |
|
|
|
1/12/15 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
47,001 |
(7) |
|
|
|
|
|
|
32.88 |
|
|
|
2/16/15 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
234,000 |
|
|
|
8,316,360 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Randall Mays (PFO) |
|
|
156,671 |
(1) |
|
|
|
|
|
|
|
|
|
|
42.63 |
|
|
|
2/19/09 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
78,335 |
(2) |
|
|
|
|
|
|
|
|
|
|
63.79 |
|
|
|
2/28/10 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
261,118 |
(3) |
|
|
|
|
|
|
|
|
|
|
55.54 |
|
|
|
2/12/11 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
261,119 |
(4) |
|
|
|
|
|
|
|
|
|
|
44.31 |
|
|
|
12/14/11 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
235,006 |
(5) |
|
|
|
|
|
|
35.06 |
|
|
|
2/19/13 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
217,684 |
(6) |
|
|
|
|
|
|
30.31 |
|
|
|
1/12/15 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
47,001 |
(7) |
|
|
|
|
|
|
32.88 |
|
|
|
2/16/15 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
234,000 |
|
|
|
8,316,360 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lowry Mays |
|
|
103,659 |
(8) |
|
|
|
|
|
|
|
|
|
|
19.05 |
|
|
|
2/10/07 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
417,790 |
(9) |
|
|
|
|
|
|
|
|
|
|
40.21 |
|
|
|
2/9/08 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
391,678 |
(10) |
|
|
|
|
|
|
|
|
|
|
55.71 |
|
|
|
2/12/09 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
391,678 |
(11) |
|
|
|
|
|
|
|
|
|
|
63.79 |
|
|
|
2/28/10 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
391,678 |
(12) |
|
|
|
|
|
|
|
|
|
|
55.54 |
|
|
|
2/12/11 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
391,678 |
(13) |
|
|
|
|
|
|
|
|
|
|
44.31 |
|
|
|
12/14/11 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
235,007 |
(14) |
|
|
|
|
|
|
|
|
|
|
35.06 |
|
|
|
2/19/13 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
156,671 |
(15) |
|
|
|
|
|
|
|
|
|
|
42.63 |
|
|
|
2/19/14 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
217,685 |
(16) |
|
|
|
|
|
|
|
|
|
|
30.31 |
|
|
|
1/12/15 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
47,001 |
(17) |
|
|
|
|
|
|
|
|
|
|
32.88 |
|
|
|
2/16/15 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
250,000 |
(18) |
|
|
|
|
|
|
|
|
|
|
31.72 |
|
|
|
12/22/15 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
84,000 |
|
|
|
2,985,360 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
John Hogan |
|
|
26,111 |
(2) |
|
|
|
|
|
|
|
|
|
|
63.79 |
|
|
|
2/28/07 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26,111 |
(19) |
|
|
|
|
|
|
|
|
|
|
55.54 |
|
|
|
2/12/08 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
52,223 |
(20) |
|
|
|
|
|
|
|
|
|
|
44.31 |
|
|
|
12/14/08 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
141,004 |
(1) |
|
|
|
|
|
|
|
|
|
|
42.63 |
|
|
|
2/19/09 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22,195 |
(21) |
|
|
66,585 |
(22) |
|
|
|
|
|
|
35.06 |
|
|
|
2/19/10 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31,334 |
(23) |
|
|
|
|
|
|
|
|
|
|
53.62 |
|
|
|
7/25/11 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
103,659 |
(24) |
|
|
|
|
|
|
30.31 |
|
|
|
1/12/12 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
51,829 |
(25) |
|
|
|
|
|
|
26.14 |
|
|
|
7/30/12 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
75,000 |
|
|
|
2,665,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Paul Meyer |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,000 |
|
|
|
426,480 |
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Option became exercisable on December 31, 2004 |
|
(2) |
|
Option became exercisable on February 28, 2005 |
26
|
|
|
(3) |
|
Option became exercisable on February 12, 2006 |
|
(4) |
|
Option became exercisable on December 14, 2006 |
|
(5) |
|
Option will vest and become exercisable on February 19, 2008 |
|
(6) |
|
Option will vest and become exercisable on January 12, 2010 |
|
(7) |
|
Option will vest and become exercisable on February 16, 2010 |
|
(8) |
|
Option became exercisable on February 10, 1997 |
|
(9) |
|
Option became exercisable on February 9, 1998 |
|
(10) |
|
Option became exercisable on February 12, 1999 |
|
(11) |
|
Option became exercisable on February 29, 2000 |
|
(12) |
|
Option became exercisable on February 12, 2001 |
|
(13) |
|
Option became exercisable on December 14, 2001 |
|
(14) |
|
Option became exercisable on February 19, 2003 |
|
(15) |
|
Option became exercisable on February 19, 2004 |
|
(16) |
|
Option became exercisable on January 12, 2005 |
|
(17) |
|
Option became exercisable on February 16, 2005 |
|
(18) |
|
Option became exercisable on December 22, 2005 |
|
(19) |
|
Option became exercisable for 6,527 shares on February 12, 2004; 6,528 shares on February 12,
2005 and the remaining 13,056 shares on February 12, 2006 |
|
(20) |
|
Option became exercisable for 13,055 shares on December 14, 2004; 13,056 shares on December
14, 2005 and the remaining 26,112 shares on December 14, 2006 |
|
(21) |
|
Option became exercisable on February 19, 2006 |
|
(22) |
|
Option will become exercisable for 22,195 shares on February 19, 2007 and the remaining
44,390 shares on February 19, 2008 |
|
(23) |
|
Option became exercisable on July 25, 2006 |
|
(24) |
|
Option will become exercisable for 25,914 shares on January 12, 2008; 25,915 shares on
January 12, 2009 and the remaining 51,830 shares on January 12, 2010 |
|
(25) |
|
Option will vest and become exercisable on July 30, 2007 |
Option Exercises and Stock Vested
The following table sets forth certain information concerning option exercises by and stock
vesting for the named executive officers during the year ended December 31, 2006.
2006 OPTION EXERCISES AND STOCK VESTED
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option Awards |
|
Stock Awards |
|
|
Number of Shares |
|
|
|
|
|
|
|
|
Acquired on |
|
Value Realized |
|
Number of Shares |
|
Value Realized |
Name |
|
Exercise |
|
on Exercise |
|
Acquired on Vesting |
|
on Vesting |
|
|
(#) |
|
($) |
|
(#) |
|
($) |
Mark Mays (PEO) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Randall Mays (PFO) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lowry Mays |
|
|
124,391 |
|
|
|
2,183,709 |
|
|
|
|
|
|
|
|
|
Paul Meyer |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
John Hogan |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonqualified Defined Contribution and Other Nonqualified Deferred Compensation Plans
The following table sets forth certain information concerning nonqualified defined
contribution and other deferred compensation plans for the named executive officers for the year
ended December 31, 2006.
27
2006 NONQUALIFIED DEFERRED COMPENSATION
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Executive |
|
Registrant |
|
Aggregate |
|
Aggregate |
|
Aggregate |
|
|
Contributions in |
|
Contributions in |
|
Earnings (Loss) |
|
Withdrawals/ |
|
Balance at Last |
Name |
|
Last FY |
|
Last FY |
|
in Last FY |
|
Distributions |
|
FYE |
|
|
($) |
|
($) |
|
($) |
|
($) |
|
($) |
Mark Mays (PEO) |
|
|
|
|
|
|
|
|
|
|
23,189 |
|
|
|
|
|
|
|
473,746 |
|
Randall Mays (PFO) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lowry Mays |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
John Hogan |
|
|
44,961 |
|
|
|
|
|
|
|
38,040 |
|
|
|
|
|
|
|
379,719 |
|
Paul Meyer |
|
|
230,000 |
|
|
|
|
|
|
|
18,712 |
|
|
|
|
|
|
|
248,712 |
|
Potential Post-Employment Payments
L. Lowry Mays, Mark Mays and Randall Mays
Each of the executive employment agreements for L. Lowry Mays, Mark Mays and Randall Mays
provides for severance and change-in-control payments in the event that we terminate the
executives employment without Cause or if the executive terminates for Good Reason. The
discussion below summarizes the potential post-employment payments under the executive employment
agreements in effect as of the date of this Proxy Statement, with appropriate notation of any of
the material terms summarized that will change as a result of the November 2006 Amendment once our
merger with BT Triple Crown or a transaction qualifying as a Superior Proposal under the merger
agreement has been consummated
Under each executive agreement, Cause is defined as the executives: (i) final conviction of
a felony involving moral turpitude; or (ii) willful misconduct that is materially and demonstrably
injurious economically to us. However, no act, or failure to act, by executive shall be considered
willful unless committed in bad faith and without a reasonable belief that the act or omission
was in our best interests or the best interests of our affiliates. Furthermore, Cause will not
be found to exist unless and until we have delivered to executive a copy of a resolution duly
adopted by three-quarters of the independent members of our board of directors at a meeting of the
Board called and held for such purpose (after reasonable notice to executive and an opportunity for
executive to be heard before the Board), finding that in the good faith opinion of the Board,
executive was guilty of such misconduct and specifying the particulars of such finding in detail.
The term Good Reason includes, subject to certain exceptions, executives resignation due to
a Change in Control transaction involving us; our election not to automatically extend the term
of the executives employment agreement; a diminution in the executives pay, bonus opportunity,
duties offices or title (including membership on the Clear Channel board of directors);
substantially increased travel or relocation; diminution in our welfare or benefit plans; or, (1)
in the case of Mark Mays, at any time that the office of Chairman of the Board is held by someone
other than L. Lowry Mays, Mark Mays or Randall Mays; or (2) in the case of Randall Mays , at any
time that either of the offices of Chairman of the Board or Chief Executive Officer is held by
someone other than L. Lowry Mays, Mark Mays or Randall Mays. An isolated, insubstantial and
inadvertent action taken in good faith and which is remedied by us within ten days after receipt of
notice thereof given by executive shall not constitute Good Reason. Executives right to
terminate employment for Good Reason shall not be affected by executives incapacity due to mental
or physical illness.
The term Change in Control means the occurrence of one of the following events: (i) subject
to certain exceptions, individuals who constitute the Board as of April 24, 2007 cease for any
reason to constitute at least a majority of the Board; (ii) subject to certain exceptions, any
person or entity is or becomes a beneficial owner (as defined in Rule 13d-3 under the Exchange
Act) of our securities representing 20% or more of our combined voting power eligible to vote for
the election of the Board; (iii) subject to certain exceptions, the approval by our shareholders of
a merger, consolidation, share exchange or similar form of transaction involving us or any of our
subsidiaries, or the sale of all or substantially all of our assets; or (iv) subject to certain
exceptions, Board approval of our liquidation or dissolution. However, the executive employment
agreements expressly provide that the consummation of our merger with BT Triple Crown Merger Co.
pursuant to that certain Agreement and Plan of Merger with BT Triple Crown Merger Co., Inc., B
Triple Crown Finco, LLC, and T Triple Crown Finco, LLC, dated November 16, 2006 or the consummation
of any transaction qualifying as a Superior Proposal as defined in
28
the merger agreement will not be considered a Change of Control pursuant to which the executive
may terminate his employment for Good Reason.
If the executive is terminated by us without Cause or the executive resigns for Good
Reason then the executive will receive (i) a lump-sum cash payment equal to the base salary, a
prorated bonus (determined by reference to the executives bonus opportunity for the year in which
the termination occurs or, if such bonus opportunity has not yet been determined, the prior year)
and accrued vacation pay through the date of termination, and (ii) a lump-sum cash payment equal to
2.99 times the sum of the executives base salary and bonus (using the highest bonus paid to
executive in the five years preceding the termination (but not less than $1,000,000 bonus for Mark
Mays or Randall Mays, and $3,000,000 bonus for L. Lowry Mays) and immediate vesting of unvested
stock options and unvested shares of restricted stock on the date of termination. (The November
2006 Amendments provide that once our merger with BT Triple Crown or a transaction qualifying as a
Superior Proposal has been consummated, L. Lowry Mays will no longer be entitled to the severance
payment described in clause (ii) above; however, he would be entitled to an income tax gross up
payment).In addition, any and all insurance benefits or policies for the benefit of executive shall
become the sole property of executive and, to the extent applicable, all of our rights therein
(including repayment of premiums) shall be forfeited by us and, to the extent not already made, we
shall make all contributions or payments required of such policies for the year of termination.
In addition, in the event that the executives employment is terminated by us without Cause
or by the executive for Good Reason, we shall maintain in full force and effect, for the
continued benefit of the executive, his spouse and his dependents for a period of seven years
following the date of termination, the medical, hospitalization, dental, and life insurance
programs in which the executive, his spouse and his dependents were participating immediately prior
to the date of termination, at the level in effect and upon substantially the same terms and
conditions (including without limitation contributions required by executive for such benefits) as
existed immediately prior to the date of termination. However, if the executive, his spouse or his
dependents cannot continue to participate in our programs providing such benefits, we shall arrange
to provide the executive, his spouse and his dependents with the economic equivalent of such
benefits which they otherwise would have been entitled to receive under such plans and programs.
The executive shall also be paid a lump sum payment equal to the amount of compensation or
contributions (as the case may be) by us that executive would have been entitled to receive
(assuming he would have received the maximum amount payable or contributable under each plan or
arrangement for any year) under any plan or arrangement he was then participating (or entitled to
participate in) for a seven year period following the date of termination. The November 2006
Amendments provide that once our merger with BT Triple Crown or a transaction qualifying as a
Superior Proposal has been consummated, we will be required in such circumstances to maintain in
the case of the executive employment agreements with Mark Mays and Randall Mays, the medical,
hospitalization, dental, and life insurance programs referred to above for a period of three years
(rather than the seven years currently provided. In the case where the executive is terminated by
us without Cause or the executive resigns for Good Reason following a Change in Control, the
payment referred to above will be grossed up for any excise and other taxes imposed under Section
280G and related sections of the Internal Revenue Code.
If the executives employment is terminated by us for Cause or by the executive other than for
Good Reason, we will pay executive his base salary, bonus and his accrued vacation pay through the
date of termination, as soon as practicable following the date of termination; (ii) we will
reimburse executive for reasonable expenses incurred, but not paid prior to such termination of
employment; and (iii) executive shall be entitled to any other rights, compensation and/or benefits
as may be due to executive in accordance with the terms and provisions of any of our agreements,
plans or programs.
During any period that executive fails to perform his duties hereunder as a result of
incapacity due to physical or mental illness, executive shall continue to receive his full base
salary until his employment is terminated. If, as a result of executives incapacity due to
physical or mental illness, executive shall have been substantially unable to perform his duties
hereunder for an entire period of six consecutive months, and within 30 days after written notice
of termination is given after such six month period, executive shall not have returned to the
substantial performance of his duties on a full-time basis, we will have the right to terminate his
employment for disability. In the event executives employment is terminated for disability: (i) we
will pay to executive (A) his base salary, bonus and accrued vacation pay through the date of
termination and (B) continued base salary and continued benefits for seven years (three years with
respect to a termination following the date our merger with BT Triple Crown or a transaction
qualifying as a Superior Proposal has been consummated); (ii) we will reimburse executive for
29
reasonable expenses incurred, but not paid prior to such termination of employment; (iii)
executive shall be entitled to any other rights, compensation and/or benefits as may be due to
executive in accordance with the terms and provisions of any of our agreements, plans or programs;
and (iv) executive shall be paid the amount of compensation or contributions (as the case may be)
by us that executive would have been entitled to receive (assuming he would have received the
maximum amount payable or contributable under each plan or arrangement for any year) under any plan
or arrangement he was then participating (or entitled to participate in) for a seven year period
(three years with respect to a termination following the date our merger with BT Triple Crown or a
transaction qualifying as a Superior Proposal has been consummated) following the date of
termination. In addition, once our merger with BT Triple Crown or a transaction qualifying as a
Superior Proposal has been consummated, payments of continued base salary to L. Lowry Mays under
clause (i)(B) of the preceding sentence will be eliminated, but payments of continued benefits
under clause (i)(B) of the preceding sentence and payments of compensation or contributions under
clause (iv) of the preceding sentence will continue for the full seven year period.
If executives employment is terminated by his death: (i) we will pay in a lump sum to
executives beneficiary, legal representatives or estate, as the case may be, executives base
salary, bonus and accrued vacation pay through the date of his death and $3,750,000, in the case of
L. Lowry Mays, or $1,000,000, in the case of Mark Mays and Randall Mays, (which may be paid through
insurance) and shall provide executives spouse and dependents with continued benefits for seven
years (in the case of Mark Mays and Randall Mays, three years with respect to a termination
following the date our merger with BT Triple Crown or a transaction qualifying as a Superior
Proposal has been consummated); (ii) we will reimburse executives beneficiary, legal
representatives, or estate, as the case may be, for reasonable expenses incurred, but not paid
prior to such termination of employment; executives beneficiary, legal representatives or estate,
as the case may be, shall be entitled to any other rights, compensation and benefits as may be due
to any such persons or estate in accordance with the terms and provisions of any of our agreements,
plans or programs; and (iv) executives beneficiary, legal representatives or estate, as the case
may be shall be paid the amount of compensation or contributions (as the case may be) by us that
executive would have been entitled to receive (assuming he would have received the maximum amount
payable or contributable under each plan or arrangement for any year) under any plan or arrangement
he was then participating in (or entitled to participate in) for a seven year period (in the case
of Mark Mays and Randall Mays, three years with respect to a termination following the date our
merger with BT Triple Crown or a transaction qualifying as a Superior Proposal has been
consummated) following the date of termination.
Set forth below is a summary of the potential payments and benefits due to Messrs. L. Lowry
Mays, Mark P. Mays and Randall T. Mays as if such employment were terminated as of December 31,
2006 by us without Cause (and, if applicable, by the executive for Good Reason, which includes,
among other things, a Change in Control), as a result of disability and upon death under their
respective employment agreements prior to and following the consummation of our merger with BT
Triple Crown or the consummation of a transaction qualifying as a Superior Proposal. Certain
assumptions were made in calculating the amounts shown below. See Assumptions in Calculating
Post-Termination Payments on page 35 of this document.
L. Lowry Mays
Under Terms of Mr. L. Lowry Mays Employment Agreement following the consummation of our
merger or a transaction qualifying as a Superior Proposal
The following is a summary of potential payments that would be due L. Lowry Mays upon a
termination without Cause (and, if applicable, for Good Reason, which includes, among other things,
a Change in Control), a termination as a result of disability and a termination upon death
following the consummation of our merger with BT Triple Crown or the consummation of a transaction
qualifying as a Superior Proposal.
If Mr. Mays employment had been terminated by us without Cause or by him for Good Reason, he
would have been entitled to the following payments and benefits: the intrinsic value of the
immediate vesting of unvested shares of restricted stock ($2,985,360); the value associated with
the continued provision of health benefits for the next seven years to his spouse or dependents
($47,017); the continued company match of 401(k) contributions for seven years ($39,375) and the
value of income tax gross up payments ($1,843,051).
If Mr. Mays employment had been terminated due to his disability, he would have been entitled
to the following payments and benefits: the value associated with the continued provision of health
benefits for the next
30
seven years to his spouse or dependents ($47,017) and the continued company match of 401(k)
contributions for seven years ($39,375).
If Mr. Mays employment had been terminated due to his death, his estate would have been
entitled to the following payments and benefits: a lump sum cash payment ($3,750,000); the value
associated with the continued provision of health benefits for the next seven years to his spouse
or dependents ($47,017) and the continued company match of 401(k) contributions for seven years
($39,375).
Under Terms of Mr. L. Lowry Mays Employment Agreement prior to the consummation of our merger
or a transaction qualifying as a Superior Proposal
The following is a summary of the potential payments due L. Lowry Mays if his employment had
been terminated on December 31, 2006 by us without Cause (and, if applicable, by Mr. Mays for Good
Reason, which includes, among other things, a change in control), as a result of disability and
upon death, prior to the consummation of our merger with BT Triple Crown or the consummation of a
transaction qualifying as a Superior Proposal.
If Mr. Mays employment had been terminated by us without Cause or by him for Good Reason, he
would have been entitled to the following payments and benefits: a lump sum cash payment
representing continuation of base salary for 2.99 years ($2,078,050); a lump sum cash payment
representing continuation of bonus for 2.99 years ($8,970,000); the intrinsic value of the
immediate vesting of unvested shares of restricted stock ($2,985,360); the value associated with
the continued provision of health benefits for the next seven years to his spouse or dependents
($47,017); the continued company match of 401(k) contributions for seven years ($39,375) and the
value of excise tax gross up payments ($4,586,747).
If Mr. Mays employment had been terminated due to his disability, he would have been entitled
to the following payments and benefits: the continued payment of Mr. Mays base salary for seven
years ($4,865,000); the value associated with the continued provision of health benefits for the
next seven years to his spouse or dependents ($47,017) and the continued company match of 401(k)
contributions for seven years ($39,375).
If Mr. Mays employment had been terminated due to his death, his estate would have been
entitled to the following payments and benefits: a lump sum cash payment ($3,750,000); the value
associated with the continued provision of health benefits for the next seven years to his spouse
or dependents ($47,017) and the continued company match of 401(k) contributions for seven years
($39,375).
Mark Mays
Under Terms of Mr. Mark Mays Employment Agreement following the consummation of our merger or
a transaction qualifying as a Superior Proposal
The following is a summary of potential payments that would be due Mark Mays if his employment
had been terminated on December 31, 2006 upon a termination without Cause (and, if applicable, by
Mr. Mays for Good Reason, which includes, among other things, a change in control), a termination
as a result of disability and a termination upon death following the consummation of our merger
with BT Triple Crown or the consummation of a transaction qualifying as a Superior Proposal.
If Mr. Mays employment had been terminated by us without Cause or by him for Good Reason, he
would have been entitled to the following payments and benefits: a lump sum cash payment
representing 2.99 times base salary ($2,676,050); a lump sum cash payment representing 2.99 times
bonus ($16,202,063); the intrinsic value of the immediate vesting of unvested stock options
($1,376,128); the intrinsic value of the immediate vesting of unvested shares of restricted stock
($8,316,360); the value associated with the continued provision of health benefits for the next
three years to his spouse or dependents ($40,961); the continued company match of 401(k)
contributions for three years ($16,875) and the value of excise tax gross up payments
($10,277,633).
If Mr. Mays employment had been terminated due to his disability, he would have been entitled
to the following payments and benefits: a lump sum cash payment representing continuation of Mr.
Mays base salary for
31
three years ($2,685,000); the value associated with the continued provision of health benefits
for the next three years to his spouse or dependents ($40,961) and the continued company match of
401(k) contributions for three years ($16,875).
If Mr. Mays employment had been terminated due to his death, his estate would have been
entitled to the following payments and benefits: a lump sum cash payment ($1,000,000); the value
associated with the continued provision of health benefits for the next three years to his spouse
or dependents ($40,961) and the continued company match of 401(k) contributions for three years
($16,875).
Under Terms of Mr. Mark Mays Employment Agreement prior to the consummation of our merger or
a transaction qualifying as a Superior Proposal
The following is a summary of the potential payments due Mark Mays if his employment had been
terminated on December 31, 2006 by us without Cause (and, if applicable, by Mr. Mays for Good
Reason, which includes, among other things, a change in control), as a result of disability and
upon death, prior to the consummation of our merger with BT Triple Crown or the consummation of a
transaction qualifying as a Superior Proposal.
If Mr. Mays employment had been terminated by us without Cause or by him for Good Reason, he
would have been entitled to the following payments and benefits: a lump sum cash payment
representing continuation of base salary for 2.99 years ($2,676,050); a lump sum cash payment
representing continuation of bonus for 2.99 years ($16,202,063); the intrinsic value of the
immediate vesting of unvested stock options ($1,376,128); the intrinsic value of the immediate
vesting of unvested shares of restricted stock ($8,316,360); the value associated with the
continued provision of health benefits for the next seven years to his spouse or dependents
($95,576); the continued company match of 401(k) contributions for seven years ($39,375) and the
value of excise tax gross up payments ($10,313,922).
If Mr. Mays employment had been terminated due to his disability, he would have been entitled
to the following payments and benefits: a lump sum cash payment representing the continued payment
of Mr. Mays base salary for seven years ($6,265,000); the value associated with the continued
provision of health benefits for the next seven years to his spouse or dependents ($95,576) and the
continued company match of 401(k) contributions for seven years ($39,375).
If Mr. Mays employment had been terminated due to his death, his estate would have been
entitled to the following payments and benefits: a lump sum cash payment (($1,000,000)); the value
associated with the continued provision of health benefits for the next seven years to his spouse
or dependents ($95,576) and the continued company match of 401(k) contributions for seven years
($39,375).
Randall Mays
Under Terms of Mr. Randall Mays Employment Agreement following the consummation of our merger
or a transaction qualifying as a Superior Proposal
The following is a summary of potential payments that would be due Randall Mays if his
employment had been terminated on December 31, 2006 upon a termination without Cause (and, if
applicable, by Mr. Mays for Good Reason, which includes, among other things, a change in control),
a termination as a result of disability and a termination upon death following the consummation of
our merger with BT Triple Crown or the consummation of a transaction qualifying as a Superior
Proposal.
If Mr. Mays employment had been terminated by us without Cause or by him for Good Reason, he
would have been entitled to the following payments and benefits: a lump sum cash payment
representing 2.99 times base salary ($2,586,350); a lump sum cash payment representing 2.99 times
bonus ($16,202,063); the intrinsic value of the immediate vesting of unvested stock options
($1,376,128); the intrinsic value of the immediate vesting of unvested shares of restricted stock
($8,316,360); the value associated with the continued provision of health benefits for the next
three years to his spouse or dependents ($43,553); the continued company match of 401(k)
contributions for three years ($16,875) and the value of excise tax gross up payments
($10,207,127).
32
If Mr. Mays employment had been terminated due to his disability, he would have been entitled
to the following payments and benefits: the continued payment of Mr. Mays base salary for three
years ($2,595,000); the value associated with the continued provision of health benefits for the
next three years to his spouse or dependents ($43,553) and the continued company match of 401(k)
contributions for three years ($16,875).
If Mr. Mays employment had been terminated due to his death, his estate would have been
entitled to the following payments and benefits: a lump sum cash payment ($1,000,000); the value
associated with the continued provision of health benefits for the next three years to his spouse
or dependents ($43,553) and the continued company match of 401(k) contributions for three years
($16,875).
Under Terms of Mr. Randall Mays Employment Agreement prior to the consummation of our merger
or a transaction qualifying as a Superior Proposal
The following is a summary of the potential payments due Randall Mays if his employment had
been terminated on December 31, 2006 by us without Cause (and, if applicable, by Mr. Mays for Good
Reason, which includes, among other things, a change in control), as a result of disability and
upon death, prior to the consummation of our merger with BT Triple Crown or the consummation of a
transaction qualifying as a Superior Proposal.
If Mr. Mays employment had been terminated by us without Cause or by him for Good Reason, he
would have been entitled to the following payments and benefits: a lump sum cash payment
representing continuation of base salary for 2.99 years ($2,586,350); a lump sum cash payment
representing continuation of bonus for 2.99 years ($16,202,063); the intrinsic value of the
immediate vesting of unvested stock options ($1,376,128); the intrinsic value of the immediate
vesting of unvested shares of restricted stock ($8,316,360); the value associated with the
continued provision of health benefits for the next seven years to his spouse or dependents
($101,623); the continued company match of 401(k) contributions for seven years ($39,375) and the
value of excise tax gross up payments ($10,245,042).
If Mr. Mays employment had been terminated due to his disability, he would have been entitled
to the following payments and benefits: a lump sum cash payment representing continuation of base
salary for seven years ($6,055,000); the value associated with the continued provision of health
benefits for the next seven years to his spouse or dependents ($101,623) and the continued company
match of 401(k) contributions for seven years ($39,375).
If Mr. Mays employment had been terminated due to his death, his estate would have been
entitled to the following payments and benefits: a lump sum cash payment ($1,000,000); the value
associated with the continued provision of health benefits for the next seven years to his spouse
or dependents ($101,623) and the continued company match of 401(k) contributions for seven years
($39,375).
Paul Meyer
If Mr. Meyers employment with Clear Channel Outdoor Holdings, Inc., or CCOH, is terminated by
CCOH for Cause, CCOH will, within 90 days, pay in a lump sum amount to Mr. Meyer his accrued and
unpaid base salary and any payments to which he may be entitled under any applicable employee
benefit plan (according to the terms of such plans and policies). A termination for Cause must be
for one or more of the following reasons: (i) conduct by Mr. Meyer constituting a material act of
willful misconduct in connection with the performance of his duties, including violation of CCOHs
policy on sexual harassment, misappropriation of funds or property of CCOH, or other willful
misconduct as determined in the sole discretion of CCOH; (ii) continued, willful and deliberate
non-performance by Mr. Meyer of his duties hereunder (other than by reason of Mr. Meyers physical
or mental illness, incapacity or disability) where such non-performance has continued for more than
10 days following written notice of such non-performance; (iii) Mr. Meyers refusal or failure to
follow lawful directives where such refusal or failure has continued for more than 30 days
following written notice of such refusal or failure; (iv) a criminal or civil conviction of Mr.
Meyer, a plea of nolo contendere by Mr. Meyer, or other conduct by Mr. Meyer that, as determined in
the sole discretion of the Board, has resulted in, or would result in if he were retained in his
position with CCOH, material injury to the reputation of CCOH, including conviction of fraud,
theft, embezzlement, or a
33
crime involving moral turpitude; (v) a breach by Mr. Meyer of any of the provisions of his
employment agreement; or (vi) a violation by Mr. Meyer of CCOHs employment policies.
If Mr. Meyers employment with CCOH is terminated by CCOH without Cause, a one years written
notice is required. Int that event, CCOH will, within 90 days after the effective date of the
termination, pay in a lump sum amount to Mr. Meyer (i) his accrued and unpaid base salary and pro
rated bonus, if any, and (ii) any payments to which he may be entitled under any applicable
employee benefit plan (according to the terms of such plans and policies). Additionally, Mr. Meyer
will receive a total of $600,000, paid pro rata over a one year period in accordance with CCOHs
standard payroll schedule and practices, as consideration for Mr. Meyers post-termination
non-compete and non-solicitation obligations.
If Paul Meyers employment with CCOH terminates by reason of his death, CCOH will, within 90
days, pay in a lump sum amount to such person as Mr. Meyer shall designate in a notice filed with
CCOH or, if no such person is designated, to Mr. Meyers estate, Mr. Meyers accrued and unpaid
base salary and prorated bonus, if any, and any payments to which Mr. Meyers spouse,
beneficiaries, or estate may be entitled under any applicable employee benefit plan (according to
the terms of such plans and policies). If Mr. Meyers employment with CCOH terminates by reason of
his disability (defined as Mr. Meyers incapacity due to physical or mental illness such that Mr.
Meyer is unable to perform his duties under this Agreement on a full-time basis for more than 90
days in any 12 month period, as determined by CCOH), CCOH shall, within 90 days, pay in a lump sum
amount to Mr. Meyer his accrued and unpaid base salary and prorated bonus, if any, and any payments
to which he may be entitled under any applicable employee benefit plan (according to the terms of
such plans and policies).
If Mr. Meyers employment had been terminated on December 31, 2006 by us without Cause, he
would have been entitled to the following payments and benefits: a cash payment representing a
continuation of salary paid pro rata over a one year period ($600,000). Assuming a change in
control of Clear Channel on December 31, 2006, Mr. Meyer would receive the intrinsic value of the
immediate vesting of unvested shares of restricted stock ($426,480). Mr. Meyer is not entitled to
any payments from the Company upon any change in control of Clear Channel Communications, Inc.
Certain assumptions were made in calculating the amounts described above. See Assumptions in
Calculating Post-Termination Payments on page 35 of this document.
John Hogan
If Mr. Hogans employment with Clear Channel Broadcasting, Inc., or CCB, is terminated by CCB
for Cause, CCB will, within 45 days, pay in a lump sum amount to Mr. Hogan his accrued and unpaid
base salary and any payments to which he may be entitled under any applicable employee benefit plan
(according to the terms of such plans and policies). A termination for Cause must be for one or
more of the following reasons: (i) conduct by Mr. Hogan constituting a material act of willful
misconduct in connection with the performance of his duties, including violation of CCBs policy on
sexual harassment, misappropriation of funds or property of CCB, or other willful misconduct as
determined in the sole reasonable discretion of CCB; (ii) continued, willful and deliberate
non-performance by Mr. Hogan of his duties hereunder (other than by reason of Mr. Hogans physical
or mental illness, incapacity or disability) where such non-performance has continued for more than
10 days following written notice of such non-performance; (iii) Mr. Hogans refusal or failure to
follow lawful directives where such refusal or failure has continued for more than 30 days
following written notice of such refusal or failure; (iv) a criminal or civil conviction of Mr.
Hogan, a plea of nolo contendere by Mr. Hogan, or other conduct by Mr. Hogan that, as determined in
the sole reasonable discretion of the Board, has resulted in, or would result in if he were
retained in his position with CCB, material injury to the reputation of CCB, including conviction
of fraud, theft, embezzlement, or a crime involving moral turpitude; (v) a material breach by Mr.
Hogan of any of the provisions of his employment agreement; or (vi) a material violation by Mr.
Hogan of CCBs employment policies.
If Mr. Hogans employment with CCB is terminated by CCB without Cause, CCB will: (1) pay Mr.
Hogan his base salary and pro rated bonus , if any, for the one year notice period; and (2) pay Mr.
Hogan any payments to which he may be entitled under any applicable employee benefit plan; and (3)
pay Mr. Hogan $1,600,000.00 over 3 years commencing on the effective date of the termination and in
accordance with CCBs standard payroll practices as consideration for certain non-compete
obligations. If Mr. Hogans employment with CCB is terminated
34
by Mr. Hogan, CCB will (1) pay Mr. Hogan his base salary and pro rated bonus, if any, for the
one year notice and (2) pay Mr. Hogan his then current base salary for a period of one year in
consideration for certain non-compete obligations
If Mr. Hogans employment with CCB terminates by reason of his death, CCB will, within 45
days, pay in a lump sum amount to such person as Mr. Hogan shall designate in a notice filed with
CCB or, if no such person is designated, to Mr. Hogans estate, Mr. Hogans accrued and unpaid base
salary and prorated bonus, if any, and any payments to which Mr. Hogans spouse, beneficiaries, or
estate may be entitled under any applicable employee benefit plan (according to the terms of such
plans and policies). If Mr. Hogans employment with CCB terminates by reason of his disability
(defined as Mr. Hogans incapacity due to physical or mental illness such that Mr. Hogan is unable
to perform his duties under this Agreement on a full-time basis for more than 90 days in any 12
month period, as determined by CCB), CCB shall, within 45 days, pay in a lump sum amount to Mr.
Hogan his accrued and unpaid base salary and prorated bonus, if any, and any payments to which he
may be entitled under any applicable employee benefit plan (according to the terms of such plans
and policies).
If Mr. Hogans employment had been terminated on December 31, 2006 by us without Cause, he
would have been entitled to the following payments and benefits: (i) a lump sum cash payment
representing a continuation of salary ($622,917), (ii) an amount representing Mr. Hogans bonus for
one year (which, since it is determined and awarded based upon performance, cannot be estimated)
and (iii) a cash payment paid over three years commencing on the effective date of the termination
($1,600,000). If Mr. Hogans employment had been terminated on December 31, 2006 by his notice of
termination to CCB, he would have been entitled to the following payments and benefits: (i) a lump
sum cash payment representing a continuation of salary for two years ($1,245,834) and (ii) an
amount representing two years of bonus (which, since it is determined and awarded based upon
performance, cannot be estimated) . Assuming a change in control of the Company on December 31,
2006, Mr. Hogan would receive the intrinsic value of the immediate vesting of unvested stock
options ($1,061,012) and the intrinsic value of the immediate vesting of unvested shares of
restricted stock ($2,665,500).
Certain assumptions were made in calculating the amounts described above. See Assumptions in
Calculating Post-Termination Payments below.
Assumptions in Calculating Post-Termination Payments
In calculating the amounts shown for each individual, the following assumptions were made:
(i) the value of restricted stock was calculated based on the assumption that all restricted stock
will vest on the deemed change in control date. The amounts listed above represent the intrinsic
value of the restricted shares on the deemed change in control date; (ii) the value of stock
options was calculated based on the assumption that all in the money options are cashed out on the
deemed change in control date. The amounts listed above represent the intrinsic value of the stock
options on the deemed change in control date; (iii) the values associated with the continued
provision of health benefits are based on the total 2007 premiums for medical and life insurance
multiplied by the number of years the executive is entitled to those benefits pursuant to his
employment agreement; (iv) the continued company match of 401(k) contributions is based on the 2007
maximum company match multiplied by the number of years the executive is entitled to those
benefits pursuant to his employment agreement; and (v) the excise tax gross-up amount was
calculated to make the executive whole for the excise tax collected under Internal Revenue Code
Sections 4999 and 280G. The excise tax gross up calculation was based on the assumptions in the
above notes as well as the assumptions that the deemed change in control occurred on December 31,
2006, and a closing stock price of the Companys common stock on December 29, 2006 of $35.54. In
addition, although the non-compete obligations contained in the executives employment agreements
would have value associated with them, no value was assigned to them in determining the amount of
excise tax gross up. The Company assumed that any compensation received after the deemed change in
control was reasonable compensation for services rendered after the change in control.
35
Director Compensation
The following table sets forth certain information concerning director compensation granted to
the named directors for the year ended December 31, 2006.
2006 DIRECTOR COMPENSATION
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Change in Pension |
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Value and |
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Nonqualified |
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Fees Earned |
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Non-Equity |
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Deferred |
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or Paid in |
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Stock |
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Option |
|
Incentive Plan |
|
Compensation |
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All Other |
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Name |
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Cash |
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Awards |
|
Awards |
|
Compensation |
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Earnings |
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Compensation |
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Total |
|
|
($) |
|
($) |
|
($) |
|
($) |
|
($) |
|
($) |
|
($) |
Alan Feld |
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127,500 |
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97,241 |
(1) |
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28,784 |
(1) |
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|
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253,525 |
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Perry Lewis |
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145,000 |
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97,241 |
(1) |
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28,784 |
(1) |
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|
|
|
|
|
|
|
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271,025 |
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B.J. McCombs |
|
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57,000 |
|
|
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|
|
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129,129 |
(1) |
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|
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186,129 |
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Phyllis Riggins |
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87,500 |
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109,475 |
(1) |
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17,049 |
(1) |
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|
|
|
|
|
|
|
|
|
|
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214,024 |
|
Theodore Strauss |
|
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87,500 |
|
|
|
97,241 |
(1) |
|
|
28,784 |
(1) |
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|
|
|
|
|
|
|
|
|
|
|
|
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213,525 |
|
J.C. Watts |
|
|
71,000 |
|
|
|
97,241 |
(1) |
|
|
17,049 |
(1) |
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|
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|
|
|
|
|
|
|
|
|
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185,290 |
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John Williams |
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118,000 |
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|
|
97,241 |
(1) |
|
|
28,784 |
(1) |
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|
|
|
|
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|
|
|
|
|
|
|
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244,025 |
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John B. Zachry |
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108,500 |
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|
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80,828 |
(1) |
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189,328 |
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(1) |
|
Amounts reflect the Companys 2006 compensation expense associated with the restricted
stock awards and stock options made in prior years calculated in accordance with SFAS 123R.
However, in accordance with SEC rules, the amounts shown exclude the impact of estimated
forfeitures related to service-based vesting conditions, which would otherwise be taken into
account under SFAS 123R. There were no forfeitures of stock or option awards held by the
directors during 2006. See Note L Shareholders Equity on page A-55 of Appendix A for a
discussion of the assumptions made in calculating these amounts. The amounts reflect the
Companys accounting expense for such awards and may not correspond to the actual value
recognized by the directors. Dividends are paid on shares of restricted stock at the same
rate as paid on our common stock. |
Each non-employee director is paid a $50,000 annual retainer provided that he or she
attends not less than 75% of the regular meetings of the Board. The chairpersons of each of the
Audit Committee, Compensation Committee and Nominating and Governance Committee are paid an
additional annual retainer of $20,000, $10,000, and $5,000, respectively. All members of the Audit
Committee are paid an additional annual retainer of $7,500 and each member of the Compensation
Committee and Nominating and Governance Committee are paid an additional annual retainer of $3,000.
In addition, Board members are paid additional fees for service on special committees of the
Board.
Each non-employee director is also granted options annually to purchase 7,500 shares of Clear
Channel common stock. The directors are offered the opportunity to accept an award of 1,875 shares
of restricted stock in place of this grant. The options and the restricted stock awards vest 20%
annually over five years.
Grants of stock option or restricted stock awards to newly-elected non employee members of the
Board are made at the next-following regularly scheduled meeting of the Board after the election.
If a non-employee member of the Board is appointed between regularly scheduled meetings, then
grants of stock options or restricted stock awards are made at the first meeting in attendance
after such appointment, and the first meeting after election thereafter.
SECTION 16(A) BENEFICIAL OWNERSHIP
REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires Clear Channels directors,
executive officers and beneficial owners of more than 10% of any class of equity securities of
Clear Channel to file reports of ownership and changes in ownership with the SEC and the NYSE.
Directors, executive officers and greater than 10% shareholders are required to furnish Clear
Channel with copies of all Section 16(a) forms they file.
36
Based solely on its review of the copies of such forms received by it, or written
representations from certain reporting persons that no such forms were required to be filed by
those persons, Clear Channel believes that all such Section 16(a) filing requirements were
satisfied during fiscal year 2006, except that Mr. Strauss was late in filing one transaction which
was an open market sale of shares that were held indirectly by Mr. Strauss through a trust.
COMPENSATION COMMITTEE INTERLOCKS
AND INSIDER PARTICIPATION
None of the members of the Compensation Committee during fiscal 2006 or as of the date of
this proxy statement is or has been an officer or employee of Clear Channel. Mr. B. J. McCombs
serves on Clear Channels Compensation Committee. Clear Channel leases certain office space in San
Antonio, Texas, from the children of L. Lowry Mays and a limited partnership owned and controlled
by the children of B. J. McCombs. This lease had 2006 monthly rentals of $16,908 and expires on
December 31, 2015. Mr. Mays and Mr. McCombs do not serve as a trustee for any of the trusts nor
are either of them beneficiaries of any of the trusts. Mr. Mays and Mr. McCombs have no pecuniary
or other retained interest in any of the trusts. A limited partnership owned and controlled by the
children of B. J. McCombs purchased an aggregate of $872,739 of radio, television and outdoor
advertising for its various automobile dealerships from Clear Channel subsidiaries during 2006. In
addition, our outdoor advertising segment has five leases with the McCombs entities of which the
Company received aggregate payments of $156,437 during 2006. Clear Channel believes the
transactions described above are no less favorable to Clear Channel than could be obtained with
nonaffiliated parties.
TRANSACTIONS WITH RELATED PERSONS
In May 1977, Clear Channel and its then shareholders, including L. Lowry Mays and B.J.
McCombs, entered into a Buy-Sell Agreement restricting the disposition of the outstanding shares of
Clear Channel common stock owned by L. Lowry Mays and B.J. McCombs and their heirs, legal
representatives, successors and assigns. The Buy-Sell Agreement provides that in the event that a
restricted party desires to dispose of his shares, other than by disposition by will or intestacy
or through gifts to such restricted partys spouse or children, such shares must be offered for a
period of 30 days to Clear Channel. Any shares not purchased by Clear Channel must then be offered
for a period of 30 days to the other restricted parties. If all of the offered shares are not
purchased by Clear Channel or the other restricted parties, the restricted party offering his or
her shares may sell them to a third party during a period of 90 days thereafter at a price and on
terms not more favorable than those offered to Clear Channel and the other restricted parties. In
addition, a restricted party may not individually, or in concert with others, sell any shares so as
to deliver voting control to a third party without providing in any such sale that all restricted
parties will be offered the same price and terms for their shares. All shares of Clear Channel
common stock owned by Mr. McCombs have been released from the terms of the Buy-Sell Agreement.
Alan D. Feld, a director of Clear Channel, is the sole shareholder of a professional
corporation which is a partner in the law firm of Akin Gump Strauss Hauer & Feld LLP, or Akin Gump.
Akin Gump represents Clear Channel in a number of ongoing legal matters. During 2006, Clear
Channel incurred legal fees of $4,008,399.80 million to Akin Gump. Mr. Feld has no direct interest
in the amount of legal fees paid to Akin Gump by Clear Channel.
Policy on Review, Approval or Ratification of Transactions with Related Persons
Clear Channel has adopted a written policy for approval of transactions between Clear Channel
and its directors, director nominees, executive officers, greater-than-5% beneficial owners and
their respective immediate family members. However, the related person transactions described in
this document were not approved under this policy because they occurred prior to the time the
policy was adopted.
The policy provides that the Audit Committee reviews certain transactions subject to the
policy and determines whether or not to approve those transactions. In doing so, the Audit
Committee satisfies itself that it has
37
been fully informed as to the material facts of the related persons relationship and interest
and as to the material facts of the proposed transaction and determines whether the transaction is
fair to Clear Channel. In addition, if Clear Channels management, in consultation with Clear
Channels Chief Executive Officer or President and Chief Financial Officer determines that it is
not practicable to wait until the next Audit Committee meeting to approve or ratify a particular
transaction, then the Board has delegated authority to the Chairman of the Audit Committee to
approve or ratify such transactions. The Chairman of the Audit Committee shall report to the Audit
Committee any transactions reviewed by him or her pursuant to this delegated authority at the next
Audit Committee meeting.
AUDIT COMMITTEE REPORT
The following Report of the Audit Committee concerns the Committees activities regarding
oversight of Clear Channels financial reporting and auditing process and does not constitute
soliciting material and should not be deemed filed or incorporated by reference into any other
Company filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, except to
the extent Clear Channel specifically incorporates this Report by reference therein.
The Audit Committee is comprised solely of independent directors and it operates under a
written charter adopted by the Board of Directors. The charter reflects standards set forth in SEC
regulations and NYSE rules. The composition of the Audit Committee, the attributes of its members
and the responsibilities of the Committee, as reflected in its charter, are intended to be in
accordance with applicable requirements for corporate audit committees. The Committee reviews and
assesses the adequacy of its charter on an annual basis. The full text of the Audit Committees
charter can be found on Clear Channels Internet website at www.clearchannel.com. A copy may also
be obtained upon request from the Secretary of Clear Channel.
As set forth in more detail in the charter, the Audit Committees purpose is to assist the
Board of Directors in its general oversight of Clear Channels financial reporting, internal
control and audit functions. Management is responsible for the preparation, presentation and
integrity of Clear Channels financial statements, accounting and financial reporting principles
and internal controls and procedures designed to ensure compliance with accounting standards,
applicable laws and regulations. Ernst & Young LLP, Clear Channels independent auditing firm, is
responsible for performing an independent audit of the consolidated financial statements and
expressing an opinion on the conformity of those financial statements with accounting principles
generally accepted in the United States, as well as expressing an opinion on (i) managements
assessment of the effectiveness of internal control over financial reporting and (ii) the
effectiveness of internal control over financial reporting.
The Audit Committee members are not professional accountants or auditors, and their functions
are not intended to duplicate or to certify the activities of management and the independent
auditor, nor can the Committee certify that the independent auditor is independent under
applicable rules. The Committee serves a board-level oversight role, in which it provides advice,
counsel and direction to management and the auditors on the basis of the information it receives,
discussions with management and the auditors and the experience of the Committees members in
business, financial and accounting matters.
Among other matters, the Audit Committee monitors the activities and performance of Clear
Channels internal and external auditors, including the audit scope, external audit fees, auditor
independence matters and the extent to which the independent auditor may be retained to perform
non-audit services. The Audit Committee has ultimate authority and responsibility to select,
evaluate and, when appropriate, replace Clear Channels independent auditor. The Audit Committee
also reviews the results of the internal and external audit work with regard to the adequacy and
appropriateness of Clear Channels financial, accounting and internal controls. Management and
independent auditor presentations to and discussions with the Audit Committee also cover various
topics and events that may have significant financial impact or are the subject of discussions
between management and the independent auditor. In addition, the Audit Committee generally
oversees Clear Channels internal compliance programs.
The Committee has implemented procedures to ensure that during the course of each fiscal year
it devotes the attention that it deems necessary or appropriate to each of the matters assigned to
it under the Committees
38
charter. To carry out its responsibilities, the Committee met eight times during the year
ended December 31, 2006. The Audit Committee also meets privately with the internal and external
auditors as well as management immediately following four of these meetings.
During the course of 2006, management completed the documentation, testing and evaluation of
Clear Channels internal control over financial reporting in response to the requirements set forth
in Section 404 of the Sarbanes-Oxley Act of 2002 and related regulations. The Audit Committee was
kept apprised of the progress of the evaluation and provided oversight and advice to management
during the process. In connection with this oversight, the Audit Committee received periodic
updates provided by management and Ernst & Young LLP at each regularly scheduled Audit Committee
meeting. At the conclusion of the process, management provided the Audit Committee with a report
on the effectiveness of Clear Channels internal control over financial reporting. The Audit
Committee also reviewed the report of management contained in Clear Channels Annual Report on Form
10-K for the year ended December 31, 2006 filed with the SEC, as well as Ernst & Young LLPs Report
of Independent Registered Public Accounting Firm included in Clear Channels Annual Report on Form
10-K related to its audit of (i) the consolidated financial statements and financial statement
schedule, (ii) managements assessment of the effectiveness of internal control over financial
reporting, and (iii) the effectiveness of internal control over financial reporting.
In overseeing the preparation of Clear Channels financial statements, the Committee met with
both management and Clear Channels outside auditors to review and discuss all financial statements
prior to their issuance and to discuss significant accounting issues. Management advised the
Committee that all financial statements were prepared in accordance with generally accepted
accounting principles. The Committees review included discussion with the outside auditors of
matters required to be discussed pursuant to Statement on Auditing Standards No. 61 (Communication
With Audit Committees).
With respect to Clear Channels outside auditors, the Committee, among other things, discussed
with Ernst & Young LLP matters relating to its independence, including its letter and the written
disclosures made to the Committee as required by the Independence Standards Board Standard No. 1
(Independence Discussions with Audit Committees).
Finally, the Committee continued to monitor the scope and adequacy of Clear Channels internal
auditing program, including proposals for adequate staffing and to strengthen internal procedures
and controls where appropriate.
On the basis of these reviews and discussions, the Committee recommended to the Board of
Directors that the Board approve the inclusion of Clear Channels audited financial statements in
Clear Channels Annual Report on Form 10-K for the year ended December 31, 2006, for filing with
the Securities and Exchange Commission.
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Respectfully submitted,
THE AUDIT COMMITTEE
Perry J. Lewis Chairman,
Phyllis B. Riggins, Theodore H. Strauss
and John H. Williams
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39
AUDITOR FEES
Ernst & Young LLP billed Clear Channel the following fees for services provided during the
years ended December 31, 2005 and 2004:
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|
|
|
|
Fees Paid During Year Ended |
|
|
|
December 31, |
|
(In thousands) |
|
2006 |
|
|
2005 |
|
Annual audit fees (1) (2) |
|
$ |
6,073 |
|
|
$ |
11,797 |
|
Audit-related fees (3) |
|
|
129 |
|
|
|
|
|
Tax fees (4) |
|
|
1,401 |
|
|
|
2,830 |
|
All other fees (5) |
|
|
28 |
|
|
|
|
|
|
|
|
|
|
|
|
Total fees for services |
|
$ |
7,631 |
|
|
$ |
14,627 |
|
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|
|
|
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(1) |
|
Annual audit fees are for professional services rendered for the audit of our annual
financial statements and reviews of quarterly financial statements. This category also
includes fees for statutory audits required domestically and internationally, comfort letters,
consents, assistance with and review of documents filed with the SEC, attest services, work
done by tax professionals in connection with the audit or quarterly reviews, and accounting
consultations and research work necessary to comply with generally accepted auditing
standards. |
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(2) |
|
2005 annual audit fees include $4.0 million of audit fees related to the spin-off of the
Companys entertainment division and the IPO of approximately 10% of the Companys outdoor
advertising division. |
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(3) |
|
Audit-related fees are for due diligence related to mergers and acquisitions, internal
control reviews and attest services not required by statute or regulations. |
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(4) |
|
Tax fees are for professional services rendered for tax compliance, tax advice and tax
planning, except those provided in connection with the audit or quarterly reviews. Of the
$1.4 million of tax fees for 2006 and $2.8 million of tax fees for 2005, respectively, $69,000
and $0.2 million were related to tax compliance services. |
|
(5) |
|
All other fees are the fees for products and services other than those in the above three
categories. This category includes, among other things, permitted corporate finance
assistance, and certain advisory services such as internal audit assistance and legal services
permitted by SEC rules during the applicable period. |
Clear Channels Audit Committee has considered whether Ernst & Young LLPs provision of
non-audit services to Clear Channel is compatible with maintaining Ernst & Young LLPs
independence.
The Audit Committee pre-approves all audit and permitted non-audit services (including the
fees and terms thereof) to be performed for Clear Channel by its independent auditor. The
chairperson of the Audit Committee may represent the entire committee for the purposes of
pre-approving permissible non-audit services, provided that the decision to pre-approve any service
is disclosed to the Audit Committee no later than its next scheduled meeting.
PROPOSAL 2: SELECTION OF INDEPENDENT AUDITORS
Subject to ratification by the shareholders, the Audit Committee has reappointed Ernst &
Young LLP as independent auditors to audit the financial statements of Clear Channel for the year
ending December 31, 2007.
Representatives of the firm of Ernst & Young LLP are expected to be present at the annual
meeting of shareholders and will have an opportunity to make a statement if they so desire and will
be available to respond to appropriate questions. The Audit committee may terminate the
appointment of Ernst & Young as independent auditors without shareholder approval whenever the
Audit Committee deems termination necessary or appropriate.
The affirmative vote of the holders of a majority of Clear Channels outstanding common stock
present or represented by proxy who are entitled to vote at the annual meeting is required to
approve the proposal for the selection of independent auditors. Unless indicated to the contrary,
the enclosed proxy will be voted for the proposal.
THE BOARD RECOMMENDS THAT YOU VOTE FOR THE RATIFICATION OF ERNST & YOUNG LLP AS INDEPENDENT
AUDITORS FOR THE YEAR ENDING DECEMBER 31, 2007.
40
SHAREHOLDER PROPOSALS
The Company has been notified that four shareholders intend to present proposals for
consideration at the annual meeting. The shareholders making these proposals have presented the
proposals and supporting statements below, and we are presenting the proposals as they were
submitted to us. We do not necessarily agree with all the statements contained in the proposals
and the supporting statements, but we have limited our responses to the most important points and
have not attempted to refute all the statements we disagree with. The address and stock ownership
of each of the proponents will be furnished by the Companys Secretary to any person, orally or in
writing as requested, promptly upon receipt of any oral or written request.
The affirmative vote of the holders of a majority of shares represented in person or by proxy
and entitled to vote on these proposals will be required for approval of each of these proposals.
Abstentions will be counted as represented and entitled to vote and will therefore have the effect
of a negative vote. Broker non-votes will not be considered entitled to vote on these proposals
and therefore will not be counted in determining the number of shares necessary for approval.
PROPOSAL 3: SHAREHOLDER PROPOSAL PAY-FOR-SUPERIOR PERFORMANCE
The following proposal has been submitted for a vote by the shareholders at the meeting:
Resolved: That the shareholders of Clear Channel Communications (Company) request that the
Board of Directors Executive Compensation Committee establish a pay-for-superior-performance
standard in the Companys executive compensation plan for senior executives (Plan), by
incorporating the following principles into the Plan:
|
1. |
|
The annual incentive or bonus component of the Plan should utilize
defined financial performance criteria that can be benchmarked against a
disclosed peer group of companies, and provide that an annual bonus is awarded
only when the Companys performance exceeds its peers median or mean
performance on the selected financial criteria; |
|
|
2. |
|
The long-term compensation component of the Plan should utilize
financial and/or stock price performance criteria that can be benchmarked
against a disclosed peer group of companies. Options, restricted shares, or
other equity or non-equity compensation used in the Plan should be structured
so that compensation is received only when the Companys performance exceeds
its peers median or mean performance on the selected financial and stock price
performance criteria; and |
|
|
3. |
|
Plan disclosure should be sufficient to allow shareholders to determine
and monitor the pay and performance correlation established in the Plan. |
Supporting Statement
We feel it is imperative that executive compensation plans for senior executives be designed
and implemented to promote long-term corporate value. A critical design feature of a
well-conceived executive compensation plan is a close correlation between the level of pay and the
level of corporate performance relative to industry peers. We believe the failure to tie executive
compensation to superior corporate performance; that is, performance exceeding peer group
performance, has fueled the escalation of executive compensation and detracted from the goal of
enhancing long-term corporate value.
We believe that common compensation practices have contributed to excessive executive
compensation. Compensation committees typically target senior executive total compensation at the
median level of a selected peer group, then they design any annual and long-term incentive plan
performance criteria and benchmarks to deliver a significant portion of the total compensation
target regardless of the companys performance relative to its peers. High total compensation
targets combined with less than rigorous performance benchmarks yield a pattern of
41
superior-pay-for-average-performance. The problem is exacerbated when companies include annual
bonus payments among earnings used to calculate supplemental executive retirement plan (SERP)
benefit levels, guaranteeing excessive levels of lifetime income through inflated pension payments.
We believe the Companys Plan fails to promote the pay-for-superior-performance principle.
Our Proposal offers a straightforward solution: The Compensation Committee should establish and
disclose financial and stock price performance criteria and set peer group-related performance
benchmarks that permit awards or payouts in its annual and long-term incentive compensation plans
only when the Companys performance exceeds the median of its peer group. A senior executive
compensation plan based on sound pay-for-superior-performance principles will help moderate
excessive executive compensation and create competitive compensation incentives that will focus
senior executives on building sustainable long-term corporate value.
STATEMENT OF CLEAR CHANNELS BOARD OF DIRECTORS AND
MANAGEMENT IN OPPOSITION TO PROPOSAL 3.
Clear Channels Board and management unanimously recommend that you vote AGAINST the
proposal for the following reasons:
After careful consideration, the Board and management believe that this proposal is not in the
best interests of Clear Channel or its shareholders. We believe the proposal fails to consider the
many factors relevant to evaluating Clear Channels performance along with the performance reported
by peer companies. In addition, we believe that implementation of the proposal would severely
limit the Compensation Committees flexibility to establish a compensation program reasonably
designed to attract, motivate and retain executive officers.
The Board and management believe that mere mathematical averages may not be sufficient to
ascertain performance versus a peer group. Each company reports financial information differently,
based on its own experiences during the fiscal year. Extraordinary or non-recurring items incurred
by one company may cause financial performance to appear better or worse than it actually is
compared to that of another company. Since at any point in time peer companies can be in different
circumstances from Clear Channel or seeking to implement different strategies, linking incentives
only to a comparison against peer performance on various measures could have unintended and
unwanted consequences. For example, at a time when one or more peer companies are facing
challenges unique to them, Clear Channel might outperform its peers yet not deliver on its own
targets. The Board would not want to reward senior executives under such circumstances and
believes that the better course is for Clear Channel, under the oversight of the Board, to set the
right business goals for itself, and then to align senior executive compensation with performance
against those goals.
Total compensation must be competitive to attract the best talent to Clear Channel; motivate
employees to perform at their highest levels; reward outstanding achievement; and retain those
individuals with the leadership abilities and skills necessary for building long-term stockholder
value. Senior executives are effectively motivated when their performance-based compensation is
directly tied to Clear Channels performance and not to the performance of peer companies over
which Clear Channels senior executives have no control. Compensation plans that would pay nothing
for outstanding performance that merely matched the performance of Clear Channels peer companies
would not accomplish these purposes. The proposal would apply a one-size-fits-all approach to all
components of incentive compensation and would deprive the Compensation Committee of the
flexibility it needs to determine what are the appropriate metrics to be applied to each of the
various elements of executive compensation.
The Board and management believe strongly in linking executive compensation to Clear Channels
performance. The Board and management believe that Clear Channels current compensation program
works well in motivating, attracting and retaining executive officers. A significant portion of an
executives total compensation is variable and at risk and tied to the financial performance of
Clear Channel. The Board and management believe that it is in the best interests of shareholders
to provide Clear Channel with the flexibility and discretion to use performance-based and other
incentive compensation tools as appropriate based on the circumstances and information available at
the time. For these reasons, the Board and management believe that the adoption of the shareholder
proposal is both unnecessary and detrimental to the long-term interests of Clear Channels
shareholders. Therefore, the Board of Directors and management of Clear Channel unanimously
recommend a vote AGAINST this proposal and your proxy will be so voted unless you specify
otherwise.
42
The Company will furnish the name and contact information for the proponent of this
shareholder proposal upon receipt of written request, directed to the Secretary of the Company.
PROPOSAL 4: SHAREHOLDER PROPOSAL CORPORATE POLITICAL
CONTRIBUTIONS
The following proposal has been submitted for a vote by the shareholders at the meeting:
Resolved, that the shareholders of Clear Channel Communications, Inc. hereby request that the
Company provide a report, updated semi-annually, disclosing the Companys:
|
5. |
|
Policies and procedures for political contributions (both direct and indirect)
made with corporate funds. |
|
|
6. |
|
Monetary and non-monetary contributions and expenditures not deductible under
section 162 (e)(1)(B) of the Internal Revenue Code, including but not limited to
contributions to or expenditures on behalf of political candidates, political parties,
political committees and other political entities organized and operating under 26 USC
Sec. 527 of the Internal Revenue Code and any portion of any dues or similar payments
made to any tax exempt organization that is used for an expenditure or contribution if
made directly by the corporation would not be deductible under section 162 (e)(1)(B) of
the Internal Revenue Code. The report shall include the following: |
|
a. |
|
An accounting of the Companys funds that are used for political
contributions or expenditures as described above; |
|
|
b. |
|
Identification of the person or persons in the Company who participated
in making the decisions to make the political contribution or expenditure; and |
|
|
c. |
|
The internal guidelines or policies, if any, governing the Companys
political contributions and expenditures. |
The report shall be presented to the board of directors audit committee or other relevant
oversight committee, and posted on the companys website to reduce costs to shareholders.
Supporting Statement
As long-term shareholders of Clear Channel Communications, we support policies that apply
transparency and accountability to corporate spending on political activities. Such disclosure is
consistent with public policy and in the best interest of the Companys shareholders.
Company executives exercise wide discretion over the use of corporate resources for political
activities. These decisions involve political contributions called soft money, and payments to
trade associations and related groups that are used for political activities. These activities
include direct and indirect political contributions to candidates, political parties or political
organizations; independent expenditures; or electioneering communications on behalf of federal,
state or local candidates. Payments to trade associations used for political activities are
undisclosed and unknown. The result: shareholders and, in may cases, management do not know how
trade associations use their companys money politically. The proposal asks the Company to
disclose its political contributions and payments to trade associations and other tax exempt
organizations.
Absent a system of accountability, company assets can be used for political objectives that
are not shared by and may be inimical to the interests of the Company and its shareholders.
Relying on publicly available data does not provide a complete picture of the Companys political
expenditures. The Companys Board and its shareholders need complete disclosure to be able to
fully evaluate the political use of corporate assets. Thus, we urge your support for this critical
governance reform.
43
STATEMENT OF CLEAR CHANNELS BOARD OF DIRECTORS AND
MANAGEMENT IN OPPOSITION TO PROPOSAL 4.
Clear Channels Board of Directors and management unanimously recommend that you vote
AGAINST the proposal for the following reasons:
The Board and management of Clear Channel are committed to adhering to the highest standards
of ethics and transparency and compliance with all laws and regulations related to political
contributions. As required by law, Clear Channel reports its political contributions to
appropriate federal and state election commissions. This information is freely available through
these commissions and other publicly accessible means. Clear Channels Code of Business Conduct and
Ethics, which is posted on Clear Channels website at www.clearchannel.com, states Clear Channels
policy regarding political contributions. Corporate political contributions are determined by
management responsible for Clear Channels government affairs. The Board believes that all
political contributions made by Clear Channel help support Clear Channels businesses and are in
the best interest of Clear Channel and its shareholders. Accordingly, the Board and management of
Clear Channel believe that the information required to be disclosed under the proposal is
duplicative of information already available to Clear Channels shareholders and the public and
would cause Clear Channel to incur additional and unnecessary expense. Therefore, the Board of
Directors and management of Clear Channel unanimously recommend a vote AGAINST this proposal and
your proxy will be so voted unless you specify otherwise.
The Company will furnish the name and contact information for the proponent of this
shareholder proposal upon receipt of written request, directed to the Secretary of the Company.
PROPOSAL 5: SHAREHOLDER PROPOSAL CREATION OF AN
INDEPENDENT COMPENSATION COMMITTEE
The following proposal has been submitted for a vote by the shareholders at the meeting:
WHEREAS, we believe the primary role of the Compensation Committee (the Committee) is
structuring executive pay and evaluating executive performance. Critical to performing these
functions is setting compensation policies and evaluating them annually; setting justifiable
performance criteria and challenging performance benchmarks; retaining experts when needed to
assist with the process and substance of the Committees work; and ensuring full and accurate
disclosure of the scope of compensation;
NOW THEREFORE, BE IT RESOLVED, the shareholders request the board to amend the Committee
charter to specify that the Committee be composed solely of independent directors as defined below.
The charter should also specify (a) how to select a new independent Committee member if a current
member ceases to be independent during the time between annual meetings of shareholders; and (b)
that compliance with the policy is excused if no independent director is available and willing to
serve on the Committee.
BE IT FURTHER RESOLVED, for the purpose of this proposal an independent director is someone
whose only nontrivial professional, familial or financial connection to the corporation, its
chairman or its executive officers is his/her directorship, and who also:
(1) is not or has not been, or whose relative is or in the past 5 years has not been, employed by
the corporation or employed by, or a director of, an affiliate; and
(2) complies with Sections (b) (h) of the Council of Institutional Investors Definition of
Director Independence as found on its website at: http://www.cii.org/policies/ind_dir_defn.htm
44
STATEMENT OF CLEAR CHANNELS BOARD OF DIRECTORS AND
MANAGEMENT IN OPPOSITION TO PROPOSAL 5.
Clear Channels Board and management unanimously recommend that you vote AGAINST this
proposal for the following reasons:
The Board and management of Clear Channel recognize the importance of having a compensation
committee composed of members who are free to exercise independent judgment in making executive
compensation decisions. Members of the Compensation Committee already meet the independence
criteria set forth in the rules established by the New York Stock Exchange (NYSE) as well as Clear
Channels own independence standards established by the Board as part of Clear Channels Corporate
Governance Guidelines.
The selection criteria referenced in the proposal would place restrictions on membership in
the Compensation Committee that go beyond the limitations established by the existing NYSE rules
and the independence standards adopted by the Board. The independence criteria established by the
NYSE are the result of extensive research, input and analysis and have been adopted by the vast
majority of NYSE-listed companies. The Board and management believe that the existing independence
requirements adequately foster the exercise of independent judgment by members of the Compensation
Committee in making executive compensation decisions. Since the members of the Compensation
Committee already meet these existing independence requirements, the Board and management believe
that the proposal would only serve to add unnecessary restrictions without providing any
significant additional benefits.
To have an effective Board, Clear Channel must recruit individuals with a variety of talents,
experience, knowledge and professional skills. Once Clear Channel has selected the most suitable
candidates from this limited pool of people, the Board must appoint members to several committees,
including the Compensation Committee. While the members of the Compensation Committee must be free
to exercise independent judgment in making executive compensation decisions, they must also have
the background and business expertise necessary to address compensation issues and analyze
executive performance on an informed basis. By setting standards that are different from those
required by the NYSE, the Board and management believe that the proposal would make it more
difficult to recruit and retain directors to serve as members of the Compensation Committee who
have sufficient knowledge about Clear Channels businesses and the industry in which it operates to
make informed decisions and realistic assessments of the performance of its executives.
In summary, the Board and management believe that the proposal is not necessary in light of
the independence requirements already in place and would significantly impair Clear Channels
ability to recruit and retain directors who are talented and knowledgeable leaders in business and
other walks of life to serve the interests of the shareholders. Therefore, the Board of Directors
and management unanimously recommend a vote AGAINST this proposal and your proxy will be so voted
unless you specify otherwise.
The Company will furnish the name and contact information for the proponent of this
shareholder proposal upon receipt of written request, directed to the Secretary of the Company.
45
PROPOSAL 6: SHAREHOLDER PROPOSAL EXECUTIVE
COMPENSATION
The following proposal has been submitted for a vote by the shareholders at the meeting:
RESOLVED, that shareholders of Clear Channel Communications urge the board of directors to
adopt a policy that Company shareholders be given the opportunity at each annual meeting of
shareholders to vote on an advisory resolution, to be proposed by Clear Channels management, to
ratify the compensation of the named executive officers (NEOs) set forth in the proxy statements
Summary Compensation Table (the SCT) and the accompanying narrative disclosure of material
factors provided to understand the SCT (but not the Compensation Discussion and Analysis). The
proposal submitted to shareholders should make clear that the vote is non-binding and would not
affect any compensation paid or awarded to any NEO.
Supporting Statement
Investors are increasingly concerned about mushrooming executive compensation which sometimes
appears to be insufficiently aligned with the creation of shareholder value. Media and government
focus on back dating of stock options has increased investor concern. The proposed reform can help
rebuild investor confidence.
The SEC has created a new rule, with record support from investors, requiring companies to
disclose additional information about compensation and perquisites for top executives. The rule
goes into effect this year. In establishing the rule the SEC has made it clear that it is the role
of market forces, not the SEC, to provide checks and balances on compensation practices.
We believe that existing U.S. corporate governance arrangements, including the SEC rules and
stock exchange listing standards, do not provide shareholders with enough mechanisms for providing
input to boards on senior executive compensation. In contrast to U.S. practices, in the United
Kingdom, public companies allow shareholders to cast an advisory vote on the directors
remuneration report, which disclosed executive compensation. Such a vote isnt binding, but gives
shareholders a clear voice that could help shape senior executive compensation.
Currently, U.S. stock exchange listing standards require shareholder approval of equity-based
compensation plans; those plans, however, set general parameters and accord the compensation
committee substantial discretion in making awards and establishing performance thresholds for a
particular year. Shareholders do not have any mechanism for providing ongoing feedback on the
application of those general standards to individual pay packages. (See Lucian Bebchuk & Jesse
Fried, Pay Without Performance 49 (2004))
Similarly, performance criteria submitted for shareholder approval to allow a company to
deduct compensation in excess of $1 million are broad and do not constrain compensation committees
in setting performance targets for particular senior executives. Withholding votes from
compensation committee members who are standing for reelection is a blunt and insufficient
instrument for registering dissatisfaction with the way in which the committee has administered
compensation plans and policies in the previous year.
Accordingly, we urge Clear Channels board to allow shareholders to express their opinion
about senior executive compensation at Clear Channel by establishing an annual referendum process.
The results of such a vote would, we think, provide the board and management with useful
information about whether shareholders view the companys senior executive compensation, as
reported each year, are in shareholders best interests.
STATEMENT OF CLEAR CHANNELS BOARD OF DIRECTORS AND
MANAGEMENT IN OPPOSITION TO PROPOSAL 6.
The Companys Board of Directors and management unanimously recommend that you vote
AGAINST the proposal for the following reasons:
46
The process requested by the proposal is not necessary because Clear Channel already has a
much more efficient and meaningful method of communicating with the Board of Directors. As
discussed on page 8 under the heading Shareholder Communication with the Board, shareholders and
other interested parties may communicate with members of Clear Channels Board by writing to the
Board at:
Board of Directors Presiding Director
PO Box 659512
San Antonio, TX 75265-9512
We believe that direct communications between shareholders and the Board is a much more
effective and accurate method of expressing support or criticism of Clear Channels executive
compensation practices. Unlike the vote advocated by the proposal, communicating directly with the
Board will allow you to voice any specific observations or objections to Clear Channels executive
compensation practices directly to the decision makers, as opposed to voting on the disclosure of
executive compensation made by those decision makers. Moreover, communicating directly with the
Board will eliminate the need for the Compensation Committee to speculate as to the meaning of
shareholder approval or disapproval of the compensation set forth in the Summary Compensation Table
and the accompanying narrative disclosure of material factors provided to understand the Summary
Compensation Table that is included in the proxy materials for Clear Channels annual meeting of
shareholders.
In addition, the vote recommended in the proposal would not provide any useful information to
Clear Channel and members of the Compensation Committee. If implemented, the shareholder proposal
would require Clear Channel shareholders to vote on compensation set forth in the Summary
Compensation Table and the accompanying narrative disclosure of material factors provided to
understand the Summary Compensation Table. Contrary to the assertions in the supporting statement
for the proposal, the process advocated by the proposal would not allow shareholders to conduct an
annual referendum on executive compensation, and it would not give Clear Channel shareholders the
right to approve or disapprove of Clear Channels executive compensation practices. Instead, the
proposal would allow Clear Channel shareholders to vote on a very narrow issue the disclosures
contained in the Summary Compensation Table and the accompanying narrative disclosure of material
factors provided to understand the Summary Compensation Table in Clear Channels proxy statement.
For example, if shareholders vote for the compensation set forth in the Summary Compensation
Table and the accompanying narrative disclosure of material factors provided to understand the
Summary Compensation Table, Clear Channel would not be able to determine if the affirmative vote
signifies that shareholders approve of Clear Channels executive compensation, or if the vote
merely signifies that shareholders approve of the format of the disclosure. Conversely, Clear
Channel would not be able to determine if a negative vote indicates that shareholders dont like
the format, presentation or style of the disclosure, or if shareholders disapprove of Clear
Channels underlying compensation practices. The lack of clarity as to the meaning of the vote
requested by the proposal eliminates any benefits it offers.
The vote advocated by the proposal fails to recognize that Clear Channel already has in place
a thoughtful, performance-based executive compensation program. Clear Channels executive
compensation program emphasizes motivating, attracting and retaining executive officers. The
Compensation Committee, which is composed entirely of independent directors, none of whom has an
interest in the compensation decisions the committee makes, oversees Clear Channels executive
compensation program. Clear Channel and the Compensation Committee continually monitor the
executive compensation program and adopt changes to reflect the dynamic, global marketplace in
which Clear Channel competes for talent. Clear Channel will continue to emphasize performance-based
and equity-based incentive programs that reward executives for results that are consistent with
shareholder interests.
The Board and management do not believe the advisory vote called for by the shareholder
proposal will enhance Clear Channels compensation program, its disclosures regarding the
compensation program, or otherwise is in the best interests of Clear Channels shareholders.
Instead of encouraging shareholders to take advantage of Clear Channels current policies and
procedures, the proposal advocates substituting a narrower and less effective mechanism.
Therefore, the Board of Directors and management of Clear Channel unanimously recommend a vote
AGAINST this proposal and your proxy will be so voted unless you specify otherwise.
47
The Company will furnish the name and contact information for the proponent of this
shareholder proposal upon receipt of written request, directed to the Secretary of the Company.
SHAREHOLDER PROPOSALS FOR 2008 ANNUAL MEETING
Shareholders interested in submitting a proposal for inclusion in the proxy materials for
the annual meeting of shareholders in 2008 may do so by following the procedures prescribed in SEC
Rule 14a-8. To be eligible for inclusion, shareholder proposals must be received by the Secretary
of Clear Channel no later than January 7, 2008,. Proposals should be sent to Secretary, Clear
Channel Communications, Inc., P.O. Box 659512, San Antonio, Texas 78265-9512.
ADVANCE NOTICE PROCEDURES
Under our bylaws, shareholders may not present a proposal for consideration at any
shareholders meeting unless such shareholder submits such proposal in writing to the secretary of
Clear Channel not less than 90 days and not more than 120 days prior to the meeting. These
requirements are separate from and in addition to the SECs requirements that a shareholder must
meet in order to have a shareholder proposal included in Clear Channels proxy statement.
OTHER MATTERS
Neither Clear Channel management nor the Board knows of any other business to be brought
before the annual meeting other than the matters described above. If any other matters properly
come before the annual meeting, the proxies will be voted on such matters in accordance with the
judgment of the persons named as proxies therein, or their substitutes, present and acting at the
meeting.
NYSE MATTERS
Clear Channel filed the CEO and CFO certifications required under Section 302 of the
Sarbanes-Oxley Act with the SEC as exhibits to its most recently filed Form 10-K. Clear Channel
also submitted a Section 12(a) CEO Certification to the NYSE last year.
GENERAL
The cost of soliciting proxies will be borne by Clear Channel. Following the original
mailing of the proxy soliciting material, regular employees of Clear Channel may solicit proxies by
mail, telephone, facsimile, e-mail and personal interview. Clear Channel has also retained
Innisfree M&A Incorporated to aid in the solicitation of proxies, at an estimated cost of $10,000
plus reimbursement of reasonable out-of pocket expenses. Proxy cards and materials will also be
distributed to beneficial owners of stock, through brokers, custodians, nominees and other like
parties. Clear Channel expects to reimburse such parties for their charges and expenses connected
therewith.
The SEC has adopted rules that permit companies and intermediaries such as brokers to satisfy
delivery requirements for proxy statements with respect to two or more shareholders sharing the
same address by delivering a single proxy statement addressed to those shareholders. This process,
which is commonly referred to as householding, potentially provides extra convenience for
shareholders and cost savings for companies. Clear
48
Channel and some brokers household proxy materials, delivering a single proxy statement to
multiple shareholders sharing an address unless contrary instructions have been received from the
affected shareholders. Once you have received notice from your broker or us that they or we will
be householding materials to your address, householding will continue until you are notified
otherwise or until you revoke your consent. If, at any time, you no longer wish to participate in
householding and would prefer to receive a separate proxy statement, please notify your broker if
your shares are held in a brokerage account or us if you hold registered shares. You can notify us
by sending a written request to Clear Channel Communications, Inc., Shareholder Relations, P.O. Box
659512, San Antonio, Texas 78265-9512.
An electronic copy of Clear Channels Annual Report on Form 10-K filed with the SEC on March
1, 2007, is available free of charge at Clear Channels Internet website at www.clearchannel.com.
A paper copy of the Form 10-K is also available without charge to shareholders upon written request
to Clear Channel Communications, Inc., P.O. Box 659512, San Antonio, Texas 78265-9512.
This document is dated April 30, 2007 and is first being mailed to shareholders on or about
May 7, 2007.
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Andrew W. Levin
Executive Vice President, Chief Legal Officer and Secretary
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49
APPENDIX A
FINANCIAL STATEMENTS, FOOTNOTES AND OTHER DATA
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ITEM 5. |
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Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities |
Our common stock trades on the New York Stock Exchange under the symbol CCU. There were
3,247 shareholders of record as of February 22, 2007. This figure does not include an estimate of
the indeterminate number of beneficial holders whose shares may be held of record by brokerage
firms and clearing agencies. The following table sets forth, for the calendar quarters indicated,
the reported high and low sales prices of the common stock as reported on the NYSE.
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Common Stock |
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Market Price |
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Dividends |
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High |
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Low |
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Declared |
2005 |
|
|
|
|
|
|
|
|
|
|
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First Quarter |
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|
35.07 |
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|
|
31.14 |
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|
.125 |
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Second Quarter |
|
|
34.81 |
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|
|
28.75 |
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|
|
.1875 |
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Third Quarter |
|
|
34.26 |
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|
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30.31 |
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|
|
.1875 |
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Fourth Quarter |
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33.44 |
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29.60 |
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.1875 |
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2006 |
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|
|
|
|
|
|
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First Quarter |
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32.84 |
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|
|
27.82 |
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|
.1875 |
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Second Quarter |
|
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31.54 |
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|
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27.34 |
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.1875 |
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Third Quarter |
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|
31.64 |
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|
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27.17 |
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.1875 |
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Fourth Quarter |
|
|
35.88 |
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|
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28.83 |
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|
.1875 |
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Dividend Policy
Our Board of Directors declared a quarterly cash dividend of 18.75 cents per share on February
21, 2007. The terms of our current credit facility do not prohibit us from paying cash dividends
unless we are in default under our credit facility either prior to or after giving effect to any
proposed dividend. The terms of the Merger Agreement allow us to continue our policy of paying
quarterly cash dividends of $0.1875 per share of our common stock through the Effective Time.
However, any future decision by our board of directors to pay cash dividends will depend on, among
other factors, our earnings, financial position, capital requirements and regulatory changes.
Purchases of Equity Securities by the Issuer and Affiliated Purchases
The Company did not repurchase any shares during the fourth quarter of 2006. No additional
shares have been repurchased subsequent to December 31, 2006 as the share repurchase program has
been suspended, but may be recommenced at any time without notice subject to the terms of the
Merger Agreement.
A-1
STOCK
PERFORMANCE GRAPH
(Indexed yearly Stock Price Close)
The following chart demonstrates a five- year comparison of the
cumulative total returns, adjusted for stock splits and
dividends, for Clear Channel, a Radio Index, and the
S&P 500 Composite Index.
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12/31/01
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12/31/02
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12/31/03
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12/31/04
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12/31/05
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12/31/06
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Clear Channel
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1,000
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733
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925
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670
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664
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769
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Radio Index*
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1,000
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880
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1,096
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794
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630
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565
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S&P 500 Index
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1,000
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779
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1,002
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1,111
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1,164
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1,348
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* |
The Radio Index is comprised of Cox Radio, Cumulus Media, Emmis
Communications, Entercom Communications, Radio One and Spanish
Broadcasting.
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A-2
ITEM 6. Selected Financial Data
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For the Years ended December 31, |
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(In thousands) |
|
2006 |
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2005 |
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2004 |
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2003 |
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2002 |
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Results of Operations Information: (1) |
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Revenue |
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$ |
7,066,957 |
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$ |
6,578,805 |
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$ |
6,600,954 |
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$ |
6,217,858 |
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$ |
5,907,095 |
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Operating expenses: |
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Direct operating expenses (excludes
depreciation and amortization) |
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2,650,093 |
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2,457,044 |
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2,321,459 |
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|
|
2,133,224 |
|
|
|
1,933,239 |
|
Selling, general and administrative expenses
(excludes depreciation and amortization) |
|
|
1,968,869 |
|
|
|
1,902,837 |
|
|
|
1,894,550 |
|
|
|
1,853,193 |
|
|
|
1,786,843 |
|
Depreciation and amortization |
|
|
633,823 |
|
|
|
628,010 |
|
|
|
627,924 |
|
|
|
606,318 |
|
|
|
554,645 |
|
Corporate expenses (excludes depreciation and
amortization) |
|
|
201,752 |
|
|
|
171,076 |
|
|
|
167,388 |
|
|
|
152,514 |
|
|
|
160,216 |
|
Merger expenses |
|
|
7,633 |
|
|
|
¾ |
|
|
|
¾ |
|
|
|
¾ |
|
|
|
¾ |
|
Gain on disposition of assets net |
|
|
69,330 |
|
|
|
51,355 |
|
|
|
39,576 |
|
|
|
6,688 |
|
|
|
35,557 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) |
|
|
1,674,117 |
|
|
|
1,471,193 |
|
|
|
1,629,209 |
|
|
|
1,479,297 |
|
|
|
1,507,709 |
|
Interest expense |
|
|
483,974 |
|
|
|
443,245 |
|
|
|
367,503 |
|
|
|
392,215 |
|
|
|
430,890 |
|
Gain (loss) on sale of assets related to mergers |
|
|
¾ |
|
|
|
¾ |
|
|
|
¾ |
|
|
|
¾ |
|
|
|
3,991 |
|
Gain (loss) on marketable securities |
|
|
2,306 |
|
|
|
(702 |
) |
|
|
46,271 |
|
|
|
678,846 |
|
|
|
(3,096 |
) |
Equity in earnings of nonconsolidated affiliates |
|
|
37,478 |
|
|
|
38,338 |
|
|
|
22,285 |
|
|
|
20,669 |
|
|
|
27,140 |
|
Other income (expense) net |
|
|
(8,421 |
) |
|
|
11,267 |
|
|
|
(30,293 |
) |
|
|
20,783 |
|
|
|
5,625 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes, minority
interest, discontinued operations and cumulative
effect of a change in accounting principle |
|
|
1,221,506 |
|
|
|
1,076,851 |
|
|
|
1,299,969 |
|
|
|
1,807,380 |
|
|
|
1,110,479 |
|
Income tax benefit (expense) |
|
|
(500,817 |
) |
|
|
(425,356 |
) |
|
|
(497,913 |
) |
|
|
(775,058 |
) |
|
|
(438,737 |
) |
Minority interest income (expense), net of tax |
|
|
(31,927 |
) |
|
|
(17,847 |
) |
|
|
(7,602 |
) |
|
|
(3,906 |
) |
|
|
1,778 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before discontinued operations and
cumulative effect of a change in accounting
principle |
|
|
688,762 |
|
|
|
633,648 |
|
|
|
794,454 |
|
|
|
1,028,416 |
|
|
|
673,520 |
|
Income (loss) from discontinued operations, net |
|
|
2,755 |
|
|
|
302,014 |
|
|
|
51,345 |
|
|
|
117,175 |
|
|
|
51,303 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before cumulative effect of a
change in accounting principle |
|
|
691,517 |
|
|
|
935,662 |
|
|
|
845,799 |
|
|
|
1,145,591 |
|
|
|
724,823 |
|
Cumulative effect of a change in accounting
principle, net of tax of, $2,959,003 in 2004 and
$4,324,446 in 2002 (2) |
|
|
|
|
|
|
|
|
|
|
(4,883,968 |
) |
|
|
|
|
|
|
(16,778,526 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
691,517 |
|
|
$ |
935,662 |
|
|
$ |
(4,038,169 |
) |
|
$ |
1,145,591 |
|
|
$ |
(16,053,703 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A-3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years ended December 31, |
|
|
|
2006 |
|
|
2005 |
|
|
2004 |
|
|
2003 |
|
|
2002 |
|
Net income (loss) per common share: (1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before discontinued
operations and cumulative effect of a
change in accounting principle |
|
$ |
1.37 |
|
|
$ |
1.16 |
|
|
$ |
1.33 |
|
|
$ |
1.67 |
|
|
$ |
1.11 |
|
Discontinued operations |
|
|
.01 |
|
|
|
.55 |
|
|
|
.09 |
|
|
|
.19 |
|
|
|
.09 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before cumulative effect of a
change in accounting principle |
|
|
1.38 |
|
|
|
1.71 |
|
|
|
1.42 |
|
|
|
1.86 |
|
|
|
1.20 |
|
Cumulative effect of a change in accounting
principle |
|
|
|
|
|
|
|
|
|
|
(8.19 |
) |
|
|
|
|
|
|
(27.65 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
1.38 |
|
|
$ |
1.71 |
|
|
$ |
(6.77 |
) |
|
$ |
1.86 |
|
|
$ |
(26.45 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before discontinued
operations and cumulative effect of a
change in accounting principle |
|
$ |
1.37 |
|
|
$ |
1.16 |
|
|
$ |
1.33 |
|
|
$ |
1.66 |
|
|
$ |
1.10 |
|
Discontinued operations |
|
|
.01 |
|
|
|
.55 |
|
|
|
.08 |
|
|
|
.19 |
|
|
|
.08 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before cumulative effect of a
change in accounting principle |
|
|
1.38 |
|
|
|
1.71 |
|
|
|
1.41 |
|
|
|
1.85 |
|
|
|
1.18 |
|
Cumulative effect of a change in accounting
principle |
|
|
|
|
|
|
|
|
|
|
(8.16 |
) |
|
|
|
|
|
|
(26.74 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
1.38 |
|
|
$ |
1.71 |
|
|
$ |
(6.75 |
) |
|
$ |
1.85 |
|
|
$ |
(25.56 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends declared per share |
|
$ |
.75 |
|
|
$ |
.69 |
|
|
$ |
.45 |
|
|
$ |
.20 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, |
(In thousands) |
|
2006 |
|
2005 |
|
2004 |
|
2003 |
|
2002 |
Balance Sheet Data: (1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets |
|
$ |
2,205,730 |
|
|
$ |
2,398,294 |
|
|
$ |
2,269,922 |
|
|
$ |
2,185,682 |
|
|
$ |
2,123,495 |
|
Property, plant and equipment net |
|
|
3,220,956 |
|
|
|
3,237,936 |
|
|
|
3,310,132 |
|
|
|
3,457,353 |
|
|
|
3,473,930 |
|
Total assets |
|
|
18,890,179 |
|
|
|
18,703,376 |
|
|
|
19,927,949 |
|
|
|
28,352,693 |
|
|
|
27,672,153 |
|
Current liabilities |
|
|
1,663,846 |
|
|
|
2,107,313 |
|
|
|
2,184,552 |
|
|
|
1,892,719 |
|
|
|
3,010,639 |
|
Long-term debt, net of current maturities |
|
|
7,326,700 |
|
|
|
6,155,363 |
|
|
|
6,941,996 |
|
|
|
6,898,722 |
|
|
|
7,357,769 |
|
Shareholders equity |
|
|
8,042,341 |
|
|
|
8,826,462 |
|
|
|
9,488,078 |
|
|
|
15,553,939 |
|
|
|
14,210,092 |
|
|
|
|
(1) |
|
Acquisitions and dispositions impact the comparability of the historical consolidated
financial data reflected in this schedule of Selected Financial Data. |
|
(2) |
|
We recorded a non-cash charge of $4.9 billion, net of deferred taxes of $3.0 billion, as a
cumulative effect of a change in accounting principle during the fourth quarter of 2004 as a
result of the adoption of EITF Topic D-108, Use of the Residual Method to Value Acquired
Assets other than Goodwill. We recorded a non-cash charge of $16.8 billion, net of deferred
taxes of $4.3 billion, in 2002 as a result of the adoption of Financial Accounting Standards
Statement 142, Goodwill and Other Intangible Assets. |
The Selected Financial Data should be read in conjunction with Managements Discussion and Analysis.
A-4
ITEM 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
We have agreed to be acquired by a group led by Thomas H. Lee Partners, L.P. and Bain Capital
Partners LLC
On November 16, 2006, we agreed to be acquired by a group of private equity funds sponsored by
Bain Capital Partners, LLC and Thomas H. Lee Partners, L.P. The transaction is subject to
shareholder approval, antitrust clearances, FCC approval and other customary closing conditions.
For a discussion of this transaction, see Item 1 above.
We plan to sell 448 small market radio stations and all of our television stations
On November 16, 2006 we announced plans to sell 448 radio stations located outside the top 100
U.S. media markets and all of our television stations. The sale of these assets is not contingent
on the closing of the merger with the private equity funds sponsored by Bain Capital Partners, LLC
and Thomas H. Lee Partners, L.P. Definitive asset purchase agreements were signed for 39 radio
stations as of December 31, 2006. These stations, along with 5 stations which were sold in the
fourth quarter of 2006, were classified as assets held for sale in our consolidated balance sheet
and as discontinued operations in our consolidated statements of operations. Through February 22,
2007, we had definitive asset purchase agreements for the sale of 77 radio stations. The closing
of these radio station sales is subject to antitrust clearances, FCC approval and other customary
closing conditions.
Format of Presentation
Managements discussion and analysis of our results of operations and financial condition
should be read in conjunction with the consolidated financial statements and related footnotes.
Our discussion is presented on both a consolidated and segment basis. Our reportable operating
segments are Radio Broadcasting, which includes our national syndication business, Americas Outdoor
Advertising and International Outdoor Advertising. Included in the other segment are television
broadcasting and our media representation business, Katz Media, as well as other general support
services and initiatives.
We manage our operating segments primarily focusing on their operating income, while Corporate
expenses, Merger expenses, Gain on disposition of assets net, Interest expense, Gain (loss) on
marketable securities, Equity in earnings of nonconsolidated affiliates, Other income (expense)
net, Income tax benefit (expense), Minority interest net of tax, Discontinued operations and
Cumulative effect of a change in accounting principle are managed on a total company basis and are,
therefore, included only in our discussion of consolidated results.
Radio Broadcasting
Our local radio markets are run predominantly by local management teams who control the
formats selected for their programming. The formats are designed to reach audiences with targeted
demographic characteristics that appeal to our advertisers. Our advertising rates are principally
based on how many people in a targeted audience listen to our stations, as measured by an
independent ratings service. The size of the market influences rates as well, with larger markets
typically receiving higher rates than smaller markets. Also, our advertising rates are influenced
by the time of day the advertisement airs, with morning and evening drive-time hours typically the
highest. Radio advertising contracts are typically less than one year.
Management monitors macro level indicators to assess our radio operations performance. Due
to the geographic diversity and autonomy of our markets, we have a multitude of market specific
advertising rates and audience demographics. Therefore, our discussion of the results of
operations of our radio broadcasting segment focuses on the macro level indicators that management
monitors to assess our radio segments financial condition and results of operations.
Management looks at our radio operations overall revenues as well as local advertising, which
is sold predominately in a stations local market, and national advertising, which is sold across
multiple markets. Local advertising is sold by our local radio stations sales staffs while
national advertising is sold, for the most part, through our national representation firm.
Local advertising, which is our largest source of advertising revenue, and national
advertising revenues are
tracked separately, because these revenue streams have different sales forces and respond
differently to changes in the economic environment. Management also looks at radio revenue by
market size, as defined by Arbitron. Typically, larger markets can reach larger audiences with
wider demographics than smaller markets. Over half of our radio revenue and divisional operating
expenses comes from our 50 largest markets. Additionally, management reviews our share of target
demographics listening to the radio in an average quarter hour. This metric gauges how well our
formats are attracting and keeping listeners.
A-5
A significant portion of our radio segments expenses vary in connection with changes in
revenue. These variable expenses primarily relate to costs in our sales department, such as
salaries, commissions and bad debt. Our programming and general and administrative departments
incur most of our fixed costs, such as talent costs, rights fees, utilities and office salaries.
Lastly, our highly discretionary costs are in our marketing and promotions department, which we
primarily incur to maintain and/or increase our audience share.
Outdoor Advertising
Our revenues are derived from selling advertising space on the displays that we own or operate
in key markets worldwide, consisting primarily of billboards, street furniture displays and transit
displays. We own the majority of our advertising displays, which typically are located on sites
that we either lease or own or for which we have acquired permanent easements. Our advertising
contracts with clients typically outline the number of displays reserved, the duration of the
advertising campaign and the unit price per display.
Our advertising rates are based on the gross rating points, or total number of impressions
delivered, expressed as a percentage of a market population of a display or group of displays. The
number of impressions delivered by a display is measured by the number of people passing the site
during a defined period of time and, in some international markets, is weighted to account for such
factors as illumination, proximity to other displays and the speed and viewing angle of approaching
traffic. Management typically monitors our business by reviewing the average rates, average
revenues per display, occupancy, and inventory levels of each of our display types by market. In
addition, because a significant portion of our advertising operations are conducted in foreign
markets, principally France and the United Kingdom, management reviews the operating results from
our foreign operations on a constant dollar basis. A constant dollar basis allows for comparison
of operations independent of foreign exchange movements. Because revenue-sharing and minimum
guaranteed payment arrangements are more prevalent in our international operations, the margins in
our international operations typically are less than the margins in our Americas operations. Also,
the margins on our billboard contracts tend to be higher than for our other displays.
The significant expenses associated with our operations include (i) direct production,
maintenance and installation expenses, (ii) site lease expenses for land under our displays and
(iii) revenue-sharing or minimum guaranteed amounts payable under our street furniture and transit
display contracts. Our direct production, maintenance and installation expenses include costs for
printing, transporting and changing the advertising copy on our displays, the related labor costs,
the vinyl and paper costs and the costs for cleaning and maintaining our displays. Vinyl and paper
costs vary according to the complexity of the advertising copy and the quantity of displays. Our
site lease expenses include lease payments for use of the land under our displays, as well as any
revenue-sharing arrangements or minimum guaranteed amounts payable we may have with the landlords.
The terms of our Americas site leases generally range from 1 to 50 years. Internationally, the
terms of our site lease and revenue share/ minimum guarantee contracts generally range from 3 to 15
years, but may vary across our networks.
Our street furniture and transit display contracts, the terms of which range from 3 to 20
years, generally require us to make upfront investments in property, plant and equipment. These
contracts may also include upfront lease payments and/or minimum annual guaranteed lease payments.
We can give no assurance that our cash flows from operations over the terms of these contracts will
exceed the upfront and minimum required payments.
FAS 123(R), Share-Based Payment
We adopted FAS 123(R), Share-Based Payment, on January 1, 2006 under the modified-prospective
approach which requires us to recognize employee compensation cost related to our stock option
grants in the same line items as cash compensation in the 2006 financial statements for all options
granted after the date of adoption as well as for any options that were unvested at adoption.
Under the modified-prospective approach, no stock option expense attributable to these options is
reflected in the financial statements for 2005. The amounts recorded as share-based payments in
the financial statements during 2005 relate to the expense associated with restricted stock awards.
As of December 31, 2006, there was $82.7 million of total unrecognized compensation cost related
to nonvested share-based compensation arrangements. This cost is expected to be recognized over a
weighted average period of approximately three years, unless the Merger Agreement is approved, then
the expense becomes recognizable at the closing of the transaction.
The fair value of each option awarded is estimated on the date of grant using a Black-Scholes
option-pricing model. Expected volatilities are based on implied volatilities from traded options
on our stock, historical volatility on our stock, and other factors. The expected life of options
granted represents the period of time that options granted are expected to be outstanding.
Management uses historical data to estimate option exercises and employee terminations within the
valuation model. The risk free interest rate is based on the U.S. Treasury yield curve in effect
at the time of
A-6
grant for periods equal to the expected life of the option. The following table
details compensation costs related to share-based payments for the year ended December 31, 2006:
|
|
|
|
|
(In millions) |
|
|
|
|
Radio Broadcasting |
|
|
|
|
Direct Operating Expenses |
|
$ |
11.1 |
|
SG&A |
|
|
14.1 |
|
Americas Outdoor Advertising |
|
|
|
|
Direct Operating Expenses |
|
$ |
3.4 |
|
SG&A |
|
|
1.3 |
|
International Outdoor Advertising |
|
|
|
|
Direct Operating Expenses |
|
$ |
0.9 |
|
SG&A |
|
|
0.4 |
|
Other |
|
|
|
|
Direct Operating Expenses |
|
$ |
1.9 |
|
SG&A |
|
|
2.0 |
|
Corporate |
|
$ |
9.1 |
|
THE COMPARISON OF YEAR ENDED DECEMBER 31, 2006 TO YEAR ENDED DECEMBER 31, 2005 IS AS FOLLOWS:
Consolidated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31, |
|
|
% Change |
|
(In thousands) |
|
2006 |
|
|
2005 |
|
|
2006 v. 2005 |
|
Revenue |
|
$ |
7,066,957 |
|
|
$ |
6,578,805 |
|
|
|
7 |
% |
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
Direct operating expenses (excludes depreciation and amortization) |
|
|
2,650,093 |
|
|
|
2,457,044 |
|
|
|
8 |
% |
Selling, general and administrative expenses (excludes
depreciation and amortization) |
|
|
1,968,869 |
|
|
|
1,902,837 |
|
|
|
3 |
% |
Depreciation and amortization |
|
|
633,823 |
|
|
|
628,010 |
|
|
|
1 |
% |
Corporate expenses (excludes depreciation and amortization) |
|
|
201,752 |
|
|
|
171,076 |
|
|
|
18 |
% |
Merger expenses |
|
|
7,633 |
|
|
|
|
|
|
|
|
|
Gain on disposition of assets net |
|
|
69,330 |
|
|
|
51,355 |
|
|
|
35 |
% |
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
1,674,117 |
|
|
|
1,471,193 |
|
|
|
14 |
% |
Interest expense |
|
|
483,974 |
|
|
|
443,245 |
|
|
|
|
|
Gain (loss) on marketable securities |
|
|
2,306 |
|
|
|
(702 |
) |
|
|
|
|
Equity in earnings of nonconsolidated affiliates |
|
|
37,478 |
|
|
|
38,338 |
|
|
|
|
|
Other income (expense) net |
|
|
(8,421 |
) |
|
|
11,267 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes, minority interest expense and
discontinued operations |
|
|
1,221,506 |
|
|
|
1,076,851 |
|
|
|
|
|
Income tax benefit (expense): |
|
|
|
|
|
|
|
|
|
|
|
|
Current |
|
|
(298,962 |
) |
|
|
(43,616 |
) |
|
|
|
|
Deferred |
|
|
(201,855 |
) |
|
|
(381,740 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax benefit (expense) |
|
|
(500,817 |
) |
|
|
(425,356 |
) |
|
|
|
|
Minority interest expense, net of tax |
|
|
31,927 |
|
|
|
17,847 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before discontinued operations |
|
|
688,762 |
|
|
|
633,648 |
|
|
|
|
|
Income from discontinued operations, net |
|
|
2,755 |
|
|
|
302,014 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
691,517 |
|
|
$ |
935,662 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A-7
Revenue
Consolidated revenue increased $488.2 million during 2006 compared to 2005. Radio contributed
$194.7 million attributable to increased average rates on local and national sales. Our Americas
outdoor segments revenue increased $125.0 million from an increase in revenue across our displays
as well as the acquisition of Interspace Outdoor Advertising, or Interspace, in July 2006.
Interspace contributed approximately $30.2 million to revenue in 2006. Our international outdoor
segment contributed $106.7 million, of which approximately $44.9 million during the first six
months of 2006 related to Clear Media Limited, or Clear Media, a Chinese outdoor advertising
company. We began consolidating Clear Media in the third quarter of 2005. Increased street
furniture revenues also contributed to our international revenue growth. Our 2006 revenue
increased $17.4 million due to movements in foreign exchange. Also contributing to the increase
was approximately $39.5 million from our television business driven by increased political
advertising in 2006 compared to 2005.
Direct Operating Expenses
Direct operating expenses increased $193.0 million for 2006 compared to 2005. Our radio
broadcasting segment contributed $70.4 million primarily from increased programming expenses.
Americas outdoor direct operating expenses increased $44.5 million driven by increased site lease
expenses associated with the increase in revenue and the acquisition of Interspace. Interspace
contributed $13.0 million to direct operating expenses in 2006. Our international outdoor segment
contributed $67.1 million, of which $18.0 million during the first six months of 2006 related to
our consolidation of Clear Media and the remainder was principally due to an increase in site lease
expenses. Included in our direct operating expense growth in 2006 is $10.6 million from increases
in foreign exchange. Share-based payments included in direct operating expenses associated with
the adoption of FAS 123(R) were $17.3 million for 2006.
Selling, General and Administrative Expenses (SG&A)
SG&A increased $66.0 million during 2006 compared 2005. Our radio broadcasting SG&A increased
$44.8 million primarily as a result of an increase in salary, bonus and commission expenses in our
sales department associated with the increase in revenue. SG&A increased $20.6 million in our
Americas outdoor segment principally related to an increase in bonus and commission expenses
associated with the increase in revenues as well as $6.2 million from our acquisition of
Interspace. Our international outdoor SG&A expenses declined $13.6 million primarily attributable
to a $9.8 million reduction recorded in 2006 as a result of the favorable settlement of a legal
proceeding as well as $26.6 million related to restructuring our businesses in France recorded in
the third quarter of 2005. Partially offsetting this decline in our international SG&A was $9.5
million from our consolidation of Clear Media. Included in our SG&A expense growth in 2006 is $3.9
million from increases in foreign exchange. Share-based payments included in SG&A associated with
the adoption of FAS 123(R) were $17.8 million for 2006.
Corporate Expenses
Corporate expenses increased $30.7 million during 2006 compared to 2005 primarily related to
increases in bonus expense and share-based payments.
Merger Expenses
In the fourth quarter of 2006, we entered into the Merger Agreement. Expenses associated with
the merger were $7.6 million for the year ended December 31, 2006 and include accounting,
investment banking, legal and other costs.
Gain on Disposition of Assets net
Gain on disposition of assets net of $69.3 million for the year ended December 31, 2006
mostly related to $41.5 million in our radio segment primarily from the sale of stations and
programming rights and $13.2 million in our Americas outdoor segment from the exchange of assets in
one of our markets for the assets of a third party located in a different market.
Interest Expense
Interest expense increased $40.7 million for the year ended December 31, 2006 over 2005
primarily due to increased interest rates. Interest on our floating rate debt, which includes our
credit facility and fixed-rate debt on which we have entered into interest rate swap agreements, is
influenced by changes in LIBOR. Average LIBOR for 2006 and 2005 was 5.2% and 3.6%, respectively.
A-8
Gain (Loss) on Marketable Securities
The gain of $2.3 million for the year ended December 31, 2006 related to a $3.8 million gain
from terminating our secured forward exchange contract associated with our investment in XM
Satellite Radio Holdings, Inc. partially offset by a loss of $1.5 million from the change in fair
value of AMT securities that are classified as trading and a related secured forward exchange
contract associated with those securities. The loss of $0.7 million recorded in 2005 related to
the change in fair value of AMT securities that were classified as trading and a related secured
forward exchange contract associated with those securities.
Other Income (Expense) Net
Other expense of $8.4 million recorded in 2006 primarily relates to foreign exchange losses
while the income of $11.3 million recorded in 2005 was comprised of various miscellaneous amounts.
Income Taxes
Current tax expense increased $255.3 million in 2006 as compared to 2005. In addition to
higher earnings before tax in 2006, we received approximately $204.7 million in current tax
benefits in 2005 from ordinary losses for tax purposes resulting from restructuring our
international businesses consistent with our strategic realignment, the July 2005 maturity of our
Euro denominated bonds, and a 2005 current tax benefit related to an amendment on a previously
filed return. Deferred tax expense decreased $179.9 million primarily related to the tax losses
mentioned above that increased deferred tax expense in 2005.
Minority Interest, net of tax
Minority interest expense increased $14.1 million during 2006 as compared to 2005 as a result
of the initial public offering of 10% of our subsidiary Clear Channel Outdoor Holdings, Inc., which
we completed on November 11, 2005.
Discontinued Operations
We completed the spin-off of our live entertainment and sports representation businesses on
December 21, 2005. Therefore, we reported the results of operations for these businesses through
December 21, 2005 in discontinued operations.
We had definitive asset purchase agreements for the sale of 39 of our radio stations as of
December 31, 2006. The results of operations for these stations, along with 5 stations which were
sold in the fourth quarter of 2006, are reported as discontinued operations.
Radio Broadcasting Results of Operations
Our radio broadcasting operating results were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31, |
|
|
% Change |
|
(In thousands) |
|
2006 |
|
|
2005 |
|
|
2006 v. 2005 |
|
Revenue |
|
$ |
3,697,190 |
|
|
$ |
3,502,508 |
|
|
|
6 |
% |
Direct operating expenses |
|
|
1,028,439 |
|
|
|
958,071 |
|
|
|
7 |
% |
Selling, general and administrative expense |
|
|
1,252,556 |
|
|
|
1,207,800 |
|
|
|
4 |
% |
Depreciation and amortization |
|
|
135,980 |
|
|
|
139,276 |
|
|
|
(2 |
%) |
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
$ |
1,280,215 |
|
|
$ |
1,197,361 |
|
|
|
7 |
% |
|
|
|
|
|
|
|
|
|
|
|
Our radio broadcasting revenue increased 6% during 2006 as compared to 2005 primarily from an
increase in both local and national advertising revenues. This growth was driven by an increase in
yield and average unit rates. The number of 30 second and 15 second commercials broadcast as a
percent of total minutes sold increased during 2006 as compared to 2005. The overall revenue
growth was primarily focused in our top 100 media markets. Significant advertising categories
contributing to the revenue growth for the year were political, services, automotive, retail and
entertainment.
Our radio broadcasting direct operating expenses increased $70.4 million during 2006 as
compared to 2005. Included in direct operating expenses for 2006 were share-based payments of
$11.1 million as a result of adopting FAS 123(R). Also contributing to the increase were added
costs of approximately $45.2 million from programming expenses primarily related to an increase in
talent expenses, music license fees, new shows and affiliations in our syndicated radio business
and new distribution initiatives. Our SG&A expenses increased $44.8 million primarily as a result
of
A-9
approximately $12.3 million in salary, bonus and commission expenses in our sales department
associated with the increase in revenue as well as $14.1 million from the adoption of FAS 123(R).
Americas Outdoor Advertising Results of Operations
Our Americas outdoor advertising operating results were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31, |
|
|
% Change |
|
(In thousands) |
|
2006 |
|
|
2005 |
|
|
2006 v. 2005 |
|
Revenue |
|
$ |
1,341,356 |
|
|
$ |
1,216,382 |
|
|
|
10 |
% |
Direct operating expenses |
|
|
534,365 |
|
|
|
489,826 |
|
|
|
9 |
% |
Selling, general and administrative expenses |
|
|
207,326 |
|
|
|
186,749 |
|
|
|
11 |
% |
Depreciation and amortization |
|
|
178,970 |
|
|
|
180,559 |
|
|
|
(1 |
%) |
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
$ |
420,695 |
|
|
$ |
359,248 |
|
|
|
17 |
% |
|
|
|
|
|
|
|
|
|
|
|
Our Americas revenue increased 10% during 2006 as compared to 2005 from revenue growth across
our displays. We experienced rate increases on most of our inventory, with occupancy essentially
unchanged during 2006 as compared to 2005. Our airport revenue increased $44.8 million primarily
related to $30.2 million from our acquisition of Interspace. Revenue growth occurred across both
our large and small markets including Miami, San Antonio, Sacramento, Albuquerque and Des Moines.
Direct operating expenses increased $44.5 million in 2006 as compared to 2005 primarily from
an increase in site lease expenses of approximately $30.2 million as well as $3.4 million related
to the adoption of FAS 123(R). Interspace contributed $13.0 million to direct operating expenses
in 2006. Our SG&A expenses increased $20.6 million in 2006 over 2005 primarily from an increase in
bonus and commission expenses of $7.6 million related to the increase in revenue, $6.2 million from
Interspace and $1.3 million of share-based payments related to the adoption of FAS 123(R).
International Outdoor Results of Operations
Our international operating results were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31, |
|
|
% Change |
|
(In thousands) |
|
2006 |
|
|
2005 |
|
|
2006 v. 2005 |
|
Revenue |
|
$ |
1,556,365 |
|
|
$ |
1,449,696 |
|
|
|
7 |
% |
Direct operating expenses |
|
|
918,735 |
|
|
|
851,635 |
|
|
|
8 |
% |
Selling, general and administrative expenses |
|
|
341,410 |
|
|
|
355,045 |
|
|
|
(4 |
%) |
Depreciation and amortization |
|
|
228,760 |
|
|
|
220,080 |
|
|
|
4 |
% |
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
$ |
67,460 |
|
|
$ |
22,936 |
|
|
|
194 |
% |
|
|
|
|
|
|
|
|
|
|
|
Revenue in our international outdoor segment increased 7% in 2006 as compared to 2005. The
increase includes approximately $44.9 million during the first six months of 2006 related to our
consolidation of Clear Media which we began consolidating in the third quarter of 2005. Also
contributing to the increase was approximately $25.9 million from growth in street furniture
revenues and $11.9 million related to movements in foreign exchange, partially offset by a decline
in billboard revenues for 2006 as compared to 2005.
Direct operating expenses increased $67.1 million during 2006 as compared to 2005. The
increase was primarily attributable to $18.0 million during the first six months of 2006 related to
our consolidation of Clear Media as well as an increase of approximately $37.7 million in site
lease expenses and approximately $7.7 million related to movements in foreign exchange. Also
included in the increase was $0.9 million related to the adoption of FAS 123(R). Our SG&A expenses
declined $13.6 million primarily attributable to a $9.8 million reduction recorded in 2006 as a
result of the favorable settlement of a legal proceeding as well as $26.6 million related to
restructuring our businesses in France recorded in the third quarter of 2005. Partially
offsetting this decline was $9.5 million from our consolidation of Clear Media and $2.9 million
from movements in foreign exchange.
A-10
Reconciliation of Segment Operating Income (Loss)
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31, |
|
(In thousands) |
|
2006 |
|
|
2005 |
|
Radio Broadcasting |
|
$ |
1,280,215 |
|
|
$ |
1,197,361 |
|
Americas Outdoor Advertising |
|
|
420,695 |
|
|
|
359,248 |
|
International Outdoor Advertising |
|
|
67,460 |
|
|
|
22,936 |
|
Other |
|
|
65,389 |
|
|
|
30,694 |
|
Gain on disposition of assets net |
|
|
69,330 |
|
|
|
51,355 |
|
Merger expenses |
|
|
(7,633 |
) |
|
|
|
|
Corporate |
|
|
(221,339 |
) |
|
|
(190,401 |
) |
|
|
|
|
|
|
|
Consolidated operating income |
|
$ |
1,674,117 |
|
|
$ |
1,471,193 |
|
|
|
|
|
|
|
|
Fiscal Year 2005 Compared to Fiscal Year 2004
Consolidated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31, |
|
|
% Change |
|
(In thousands) |
|
2005 |
|
|
2004 |
|
|
2005 v. 2004 |
|
Revenue |
|
$ |
6,578,805 |
|
|
$ |
6,600,954 |
|
|
|
0 |
% |
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
Direct operating expenses (excludes depreciation and amortization) |
|
|
2,457,044 |
|
|
|
2,321,459 |
|
|
|
6 |
% |
Selling, general and administrative expenses (excludes
depreciation and amortization) |
|
|
1,902,837 |
|
|
|
1,894,550 |
|
|
|
0 |
% |
Depreciation and amortization |
|
|
628,010 |
|
|
|
627,924 |
|
|
|
0 |
% |
Corporate expenses (excludes depreciation and amortization) |
|
|
171,076 |
|
|
|
167,388 |
|
|
|
2 |
% |
Gain on disposition of assets net |
|
|
51,355 |
|
|
|
39,576 |
|
|
|
30 |
% |
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
1,471,193 |
|
|
|
1,629,209 |
|
|
|
(10 |
%) |
Interest expense |
|
|
443,245 |
|
|
|
367,503 |
|
|
|
|
|
Gain (loss) on marketable securities |
|
|
(702 |
) |
|
|
46,271 |
|
|
|
|
|
Equity in earnings of nonconsolidated affiliates |
|
|
38,338 |
|
|
|
22,285 |
|
|
|
|
|
Other income (expense) net |
|
|
11,267 |
|
|
|
(30,293 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes, minority interest expense, discontinued
operations and cumulative effect of a change in accounting
principle |
|
|
1,076,851 |
|
|
|
1,299,969 |
|
|
|
|
|
Income tax benefit (expense): |
|
|
|
|
|
|
|
|
|
|
|
|
Current |
|
|
(43,616 |
) |
|
|
(367,599 |
) |
|
|
|
|
Deferred |
|
|
(381,740 |
) |
|
|
(130,314 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax benefit (expense) |
|
|
(425,356 |
) |
|
|
(497,913 |
) |
|
|
|
|
Minority interest expense, net of tax |
|
|
17,847 |
|
|
|
7,602 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before discontinued operations and cumulative effect of a
change in accounting principle |
|
|
633,648 |
|
|
|
794,454 |
|
|
|
|
|
Income from discontinued operations, net |
|
|
302,014 |
|
|
|
51,345 |
|
|
|
|
|
Cumulative effect of a change in accounting principle, net of tax
of $2,959,003 |
|
|
|
|
|
|
(4,883,968 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
935,662 |
|
|
$ |
(4,038,169 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
Consolidated revenues decreased $22.1 million in 2005 as compared to 2004. Our radio
broadcasting segment declined approximately $217.9 million primarily from a decline in the number
of commercial minutes broadcast on our radio stations as part of our Less Is More initiative. Our
television revenues declined approximately $14.7 million primarily as a result of local and
national political advertising revenues in 2004 that did not recur in 2005. Partially offsetting
this decline was an increase of $124.3 million and
$94.7 million from our Americas and international outdoor advertising segments, respectively. Americas outdoor
revenue growth was driven primarily from rate increases on our bulletin and poster inventory while
international outdoor revenue growth occurred from improved yield on our street furniture
inventory. Foreign exchange fluctuations did not have a material impact to our revenue decline for
2005 compared to 2004.
A-11
Direct Operating Expenses
Our consolidated direct operating expenses increased $135.6 million. Our radio broadcasting
segments direct operating expenses increased approximately $66.8 million primarily from
programming and content expenses and new initiatives. Our Americas outdoor direct operating
expenses increased $21.3 million primarily from increases in direct production and site lease
expenses related to revenue sharing agreements associated with the increase in revenues. Our
international outdoor contributed $58.0 million to the consolidated direct operating expense growth
primarily from minimum annual guarantees and revenue sharing agreements associated with the
increase in revenues. Foreign exchange fluctuations did not have a material impact to our direct
operating expenses increase for 2005 compared to 2004.
Selling, General and Administrative Expenses (SG&A)
Consolidated SG&A increased $8.3 million primarily from increases of $13.7 million and $28.6
million from our Americas and international outdoor segments, respectively, partially offset by a
decline of $36.8 million from our radio broadcasting segment. The increase from Americas outdoor
was attributable to increased commission expenses associated with the increase in revenues while
the increase in international outdoor was primarily the result of a $26.6 million restructuring
charge related to our operations in France. The decline from our radio broadcasting segment was
primarily from decreased commission and bad debt expenses associated with the decline in radio
revenues. Foreign exchange fluctuations did not have a material impact to our SG&A increase for
2005 compared to 2004.
Gain on Disposition of assets net
The gain on the disposition of assets net in 2005 was $51.4 million related primarily to a
$36.7 million gain on the sale of radio operating assets in our San Diego market. The gain on
disposition of assets net in 2004 was $39.6 million and relates primarily to radio operating
assets divested in our Salt Lake City market as well as a gain recognized on the swap of outdoor
assets.
Interest Expense
Interest expense increased $75.7 million as a result of higher average debt balances and a
higher weighted average cost of debt throughout 2005 as compared to 2004. Our debt balance at the
end of 2005 was lower than the end of 2004 as a result of paying down debt with funds generated
from our strategic realignment. However, as this did not occur until late in the fourth quarter of
2005 it had a marginal impact on our interest expense for 2005. Our weighted average cost of debt
was 5.9% and 5.5% at December 31, 2005 and 2004, respectively.
Gain (Loss) on Marketable Securities
Gain (loss) on marketable securities declined $47.0 million during 2005 compared to 2004. The
loss in 2005 relates entirely to the net change in fair value of certain investment securities that
are classified as trading and a related secured forward exchange contract associated with those
securities. The gain on marketable securities for 2004 related primarily to a $47.0 million gain
recorded on the sale of our remaining investment in the common stock of Univision Communications
Inc., partially offset by the net changes in fair value of certain investment securities that are
classified as trading and a related secured forward exchange contract associated with those
securities.
Other Income (Expense) Net
Other income (expense) net for the year ended December 31, 2005 increased $41.6 million
from expense of $30.3 million in 2004 to income of $11.3 million in 2005. During 2004, we
experienced a loss of $31.6 million on the early extinguishment of debt. The income in 2005 was
comprised of various miscellaneous amounts.
Income Taxes
Current income tax expense declined $324.0 million during 2005 as compared to 2004. In
addition to lower earnings before tax in the current year, we received approximately $204.7 million
in current tax benefits from ordinary losses for tax purposes resulting from restructuring our
international businesses consistent with our strategic realignment, the July 2005 maturity of our
Euro denominated bonds, and a current tax benefit related to an amendment on a previously filed tax
return. Deferred tax expense increased $251.4 million primarily related to the tax losses
discussed above.
A-12
Minority Interest, net of tax
Minority interest expense includes the operating results for the portion of consolidated
subsidiaries not owned by us. The major components of our minority interest relate to minority
holdings in our Australian street furniture business, Clear Media Limited and CCO, as well as other
smaller minority interests. We acquired a controlling majority interest in Clear Media Limited in
the third quarter of 2005 and therefore began consolidating its results. We also completed the IPO
of 10% of CCO in the fourth quarter of 2005. The increase in minority interest in 2005 as compared
to 2004 is the result of these two transactions.
Discontinued Operations
We completed the spin-off of our live entertainment and sports representation businesses on
December 21, 2005. In accordance with Statement of Financial Accounting Standards No. 144,
Accounting for the Impairment or Disposal of Long-Lived Assets, we reported the results of
operations for these businesses through December 21, 2005 in discontinued operations. The spin-off
generated a capital loss for tax purposes of approximately $2.4 billion. We utilized approximately
$925.5 million of this capital loss to offset taxable capital gains realized in 2005 and previous
years, which resulted in a $314.1 million tax benefit which is included in income from discontinued
operations in the fourth quarter of 2005. The remaining $1.5 billion of the $2.4 billion capital
loss was recorded as a deferred tax asset with an offsetting valuation allowance on our balance
sheet at December 31, 2005.
We had definitive asset purchase agreements signed for the sale of 39 of our radio stations as
of December 31, 2006. The results of operations for these stations, along with 5 stations which
were sold in the fourth quarter of 2006, are reclassified as discontinued operations.
Cumulative Effect of a Change in Accounting Principle
The Security and Exchange Commission issued Staff Announcement No. D-108, Use of the Residual
Method to Value Acquired Assets Other Than Goodwill, at the September 2004 meeting of the Emerging
Issues Task Force. The Staff Announcement stated that the residual method should no longer be used
to value intangible assets other than goodwill. Rather, a direct method should be used to
determine the fair value of all intangible assets other than goodwill required to be recognized
under Statement of Financial Accounting Standards No. 141, Business Combinations. Registrants who
have applied a method other than a direct method to the valuation of intangible assets other than
goodwill for purposes of impairment testing under Statement of Financial Accounting Standards No
142, Goodwill and Other Intangible Assets, shall perform an impairment test using a direct value
method on all intangible assets other than goodwill that were previously valued using another
method by no later than the beginning of their first fiscal year beginning after December 15, 2004.
Our adoption of the Staff Announcement in the fourth quarter of 2004 resulted in an aggregate
carrying value of our FCC licenses and outdoor permits that was in excess of their fair value. The
Staff Announcement required us to report the excess value of $4.9 billion, net of tax, as a
cumulative effect of a change in accounting principle.
Radio Broadcasting Results of Operations
Our radio broadcasting operating results were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31, |
|
|
% Change |
|
(In thousands) |
|
2005 |
|
|
2004 |
|
|
2005 v. 2004 |
|
Revenue |
|
$ |
3,502,508 |
|
|
$ |
3,720,445 |
|
|
|
(6 |
%) |
Direct operating expenses |
|
|
958,071 |
|
|
|
891,275 |
|
|
|
7 |
% |
Selling, general and administrative expense |
|
|
1,207,800 |
|
|
|
1,244,617 |
|
|
|
(3 |
%) |
Depreciation and amortization |
|
|
139,276 |
|
|
|
156,485 |
|
|
|
(11 |
%) |
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
$ |
1,197,361 |
|
|
$ |
1,428,068 |
|
|
|
(16 |
%) |
|
|
|
|
|
|
|
|
|
|
|
Our radio revenues declined 6% to $3.5 billion during the year compared to 2004. We
implemented the Less is More initiative during 2005, which included a reduction of the overall
commercial minutes on our radio stations. Also, as part of this initiative, we are reshaping our
radio business model with a shift from primarily
offering the traditional 60-second commercial to also offering shorter length commercials.
Both local and national revenues were down for the year, primarily from the reduction in commercial
minutes made available for sale on our radio stations. As a result, the majority of our larger
advertising categories declined during the year, including automotive and retail. The decline also
includes a reduction of approximately $21.9 million from non-cash trade revenues. However, yield,
or revenue divided by total minutes of available inventory, improved throughout the year. Our 30
and 15-second commercials as a percent
A-13
of total commercial minutes available experienced a
consistent increase throughout the year. Average unit rates also increased as the year progressed.
Direct operating expenses increased $66.8 million during 2005 as compared to 2004. The
increase was driven by approximately $28.4 million in programming and content expenses. Sports
broadcasting rights increased approximately $9.5 million primarily related to signing a new sports
broadcasting agreement in 2005. Our SG&A declined $36.8 million during the year compared to 2004
primarily from a decline in commission and bad debt expenses associated with the decline in
revenue. We also incurred expenses in 2005 related to the development of digital radio and new
Internet initiatives.
Depreciation and amortization declined $17.2 million primarily from accelerated depreciation
from asset write-offs during 2004 that did not reoccur during 2005.
Americas Outdoor Advertising Results of Operations
Our Americas outdoor advertising operating results were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31, |
|
|
% Change |
|
(In thousands) |
|
2005 |
|
|
2004 |
|
|
2005 v. 2004 |
|
Revenue |
|
$ |
1,216,382 |
|
|
$ |
1,092,089 |
|
|
|
11 |
% |
Direct operating expenses |
|
|
489,826 |
|
|
|
468,571 |
|
|
|
5 |
% |
Selling, general and administrative expenses |
|
|
186,749 |
|
|
|
173,010 |
|
|
|
8 |
% |
Depreciation and amortization |
|
|
180,559 |
|
|
|
186,620 |
|
|
|
(3 |
%) |
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
$ |
359,248 |
|
|
$ |
263,888 |
|
|
|
36 |
% |
|
|
|
|
|
|
|
|
|
|
|
Our Americas outdoor advertising revenue increased $124.3 million, or 11%, during 2005 as
compared to 2004. The increase was mainly due to an increase in bulletin and poster revenues
attributable to increased rates during 2005. Increased revenues from our airport, street furniture
and transit advertising displays also contributed to the revenue increase. Growth occurred across
our markets including strong growth in New York, Miami, Houston, Seattle, Cleveland and Las Vegas.
Strong advertising client categories for 2005 included business and consumer services,
entertainment and amusements, retail and telecommunications.
Direct operating expenses increased $21.3 million, or 5%, during 2005 compared to 2004. The
increase is primarily related to increased site lease expenses from higher revenue sharing rentals
on our transit, mall and wallscape inventory as well as increase in direct production expenses, all
associated with the increase in revenues. SG&A increased $13.7 million primarily from increased
commission expenses associated with the increase in revenues.
Depreciation and amortization declined $6.1 million in 2005 as compared to 2004 primarily from
fewer display removals during the current period, which resulted in less accelerated depreciation.
During 2004, we suffered hurricane damage on some of our billboards in Florida and the Gulf Coast
which required us to write-off the remaining book value of these structures as additional
depreciation and amortization expense in 2004.
International Outdoor Results of Operations
Our international operating results were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31, |
|
|
% Change |
|
(In thousands) |
|
2005 |
|
|
2004 |
|
|
2005 v. 2004 |
|
Revenue |
|
$ |
1,449,696 |
|
|
$ |
1,354,951 |
|
|
|
7 |
% |
Direct operating expenses |
|
|
851,635 |
|
|
|
793,630 |
|
|
|
7 |
% |
Selling, general and administrative expenses |
|
|
355,045 |
|
|
|
326,447 |
|
|
|
9 |
% |
Depreciation and amortization |
|
|
220,080 |
|
|
|
201,597 |
|
|
|
9 |
% |
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
$ |
22,936 |
|
|
$ |
33,277 |
|
|
|
(31 |
%) |
|
|
|
|
|
|
|
|
|
|
|
International revenues increased $94.7 million, or 7%, during 2005 compared to 2004. Revenue
growth was attributable to increases in our street furniture and transit revenues. We also
experienced improved yield on our street furniture inventory during 2005 compared to 2004. We
acquired a controlling majority interest in Clear Media Limited, a Chinese outdoor advertising
company, during the third quarter of 2005, which we had previously accounted for as an equity
method investment. Clear Media contributed approximately $47.4 million to the revenue increase.
Leading markets contributing to the Companys international revenue growth were China, Italy, the
United Kingdom and
A-14
Australia. The Company faced challenges in France throughout 2005, with
revenues declining from 2004. Strong advertising categories during 2005 were food and drink,
retail, media and entertainment, business and consumer services and financial services.
Direct operating expenses grew $58.0 million, or 7%, during 2005 compared to 2004.
Included in the increase is approximately $18.3 million from our consolidation of Clear Media.
Approximately $33.2 million of the increase was attributable to increases in revenue sharing and
minimum annual guarantees partially from consolidating Clear Media and new contracts entered in
2005. SG&A expenses increased $28.6 million primarily from $26.6 million in restructuring costs
from restructuring our business in France during the third quarter of 2005.
Depreciation and amortization increased $18.5 million during 2005 as compared to 2004
primarily from our consolidation of Clear Media.
Reconciliation of Segment Operating Income (Loss)
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31, |
|
(In thousands) |
|
2005 |
|
|
2004 |
|
Radio Broadcasting |
|
$ |
1,197,361 |
|
|
$ |
1,428,068 |
|
Americas Outdoor Advertising |
|
|
359,248 |
|
|
|
263,888 |
|
International Outdoor Advertising |
|
|
22,936 |
|
|
|
33,277 |
|
Other |
|
|
30,694 |
|
|
|
52,496 |
|
Gain on disposition of assets net |
|
|
51,355 |
|
|
|
39,576 |
|
Corporate |
|
|
(190,401 |
) |
|
|
(188,096 |
) |
|
|
|
|
|
|
|
Consolidated operating income |
|
$ |
1,471,193 |
|
|
$ |
1,629,209 |
|
|
|
|
|
|
|
|
LIQUIDITY AND CAPITAL RESOURCES
Agreement and Plan of Merger
On November 16, 2006, we entered into the Merger Agreement with BT Triple Crown Merger Co.,
Inc. (Merger Sub), B Triple Crown Finco, LLC and T Triple Crown Finco, LLC (together with B
Triple Crown Finco, LLC, the Fincos), which provides for our recapitalization by the merger of
Merger Sub with and into us. The Fincos are owned by a consortium of equity funds sponsored by
Bain Capital Partners, LLC and Thomas H. Lee Partners, L.P.
It is anticipated that the funds necessary to consummate the merger and related transactions
will be funded by new credit facilities, private and/or public offerings of debt securities and
equity financing. Under the Merger
Agreement, we have agreed to commence, and to cause AMFM Operating Inc. to commence, debt tender
offers to purchase our existing 7.65% Senior Notes Due 2010 and AMFM Operating Inc.s existing 8%
Senior Notes due 2008 (the Repurchased Existing Notes). As part of the debt tender offers, we
and AMFM Operating Inc. will solicit the consent of the holders to amend, eliminate or waive
certain sections (as specified by the Fincos) of the applicable indenture governing the Repurchased
Existing Notes. The closing of the debt tender offers will be conditioned on the occurrence of the
closing of the merger, but the closing of the merger and the debt financing are not conditioned
upon the closing of the debt tender offers. The debt commitments are not conditioned on nor do
they require or contemplate the acquisition of the outstanding public shares of Clear Channel
Outdoor Holdings. The debt commitments do not require or contemplate any changes to the existing
cash management and intercompany arrangements between us and Clear Channel Outdoor Holdings. The
consummation of the merger will not permit Clear Channel Outdoor Holdings to terminate these
arrangements and we may continue to use the cash flows of Clear Channel Outdoor Holdings for our
own general corporate purposes pursuant to the terms of the existing cash management and
intercompany arrangements between us and Clear Channel Outdoor Holdings, which may include making
payments on the new debt.
Our capitalization, liquidity and capital resources will change substantially if the merger is
approved by our shareholders. Upon the closing of the merger, we will be
highly leveraged. Our
liquidity requirements will be
A-15
significant, primarily due to debt service requirements and
financing costs relating to the indebtedness expected to be incurred in connection with the closing
of the refinancing transactions.
Under the Merger Agreement, we have agreed among other things that, subject to certain
exceptions, until completion of the merger, we will not take any of the following actions unless
the private equity funds give their prior written consent:
|
|
|
Issue, sell, pledge, dispose, encumber or grant any equity securities or convertible
securities of ours, except in limited circumstances with respect to certain shares and
stock options pursuant to employee benefit plans; |
|
|
|
|
Acquire any business organization or any division thereof or any material amount of
assets with a purchase price in excess of $150.0 million in the aggregate; |
|
|
|
|
Adjust, recapitalize, reclassify, combine, split, subdivide, redeem, purchase or
otherwise acquire any equity securities or convertible securities of ours; |
|
|
|
|
Create, incur, guarantee or assume any indebtedness except for indebtedness: (i)
incurred under our existing $1.75 billion credit facility, (ii) for borrowed money incurred
pursuant to agreements in effect prior to the execution of the Merger Agreement, (iii) as
otherwise required in the ordinary course of our business consistent with past practice, or
(iv) in an aggregate principal amount not to exceed $250.0 million; |
|
|
|
|
Sell, lease, license, transfer, exchange or swap, mortgage or otherwise encumber, or
subject to any lien or otherwise dispose of any asset or any portion of our properties or
assets with a sale price in excess of $50.0 million except for the announced plan to sell
448 of our radio stations and all of our television stations; |
|
|
|
|
Make any capital expenditure in excess of $50.0 million individually, or $100.0 million
in the aggregate, except for any capital expenditures in aggregate amounts consistent with
past practice or as required pursuant to new contracts entered into in the ordinary course
of business. |
Cash Flows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31, |
(In thousands) |
|
2006 |
|
|
2005 |
|
|
2004 |
|
Cash provided by (used in): |
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities |
|
$ |
1,841,579 |
|
|
$ |
1,400,261 |
|
|
$ |
1,541,555 |
|
Investing activities |
|
$ |
(641,413 |
) |
|
$ |
(387,186 |
) |
|
$ |
159,476 |
|
Financing activities |
|
$ |
(1,178,610 |
) |
|
$ |
(1,061,392 |
) |
|
$ |
(1,800,995 |
) |
Discontinued operations |
|
$ |
9,662 |
|
|
$ |
99,764 |
|
|
$ |
124,329 |
|
Operating Activities
2006
Net cash flow from operating activities of $1.8 billion for the year ended December 31, 2006
principally reflects net income from continuing operations of $688.8 million and depreciation and
amortization of $633.8 million. Net cash flows from operating activities also reflects an increase
of $202.3 million in accounts receivable as a result of the increase in revenue and a $390.4
million federal income tax refund related to restructuring our international businesses consistent
with our strategic realignment and the utilization of a portion of the capital loss generated on
the spin-off of Live Nation, Inc.
2005
Net cash flow from operating activities of $1.4 billion for the year ended December 31, 2005
principally reflects net income from continuing operations of $633.6 million and depreciation and
amortization of $628.0 million Net cash flows from operating activities also reflects decreases in
accounts payable, other accrued expenses and income taxes payable. Taxes payable decreased
principally as result of the carryback of capital tax losses generated on the spin-off of Live
Nation which were used to offset taxes paid on previously recognized taxable capital gains as well
as approximately $210.5 million in current tax benefits from ordinary losses for tax purposes
resulting from restructuring our international businesses consistent with our strategic
realignment, the July 2005 maturity of our Euro denominated bonds, and a current tax benefit
related to an amendment on a previously filed tax return.
2004
Net cash flow from operating activities of $1.5 billion for the year ended December 31, 2004
principally reflects a net loss of $4.0 billion, adjusted for non-cash charges of $4.9 billion for
the adoption of Topic D-108 and depreciation and amortization of $627.9 million. Net cash flow
from operating activities was negatively impacted during the year
A-16
ended December 31, 2004 by $150.0
million, primarily related to the taxes paid on the gain from the sale of our remaining shares of
Univision, which was partially offset by the tax loss related to the partial redemption of our Euro
denominated debt. Net cash flow from operating activities also reflects increases in prepaid
expenses, accounts payable and accrued interest, income taxes and other expenses, partially offset
by decreases in accounts receivables and other current assets.
Investing Activities
2006
Net cash used in investing activities of $641.4 million for the year ended December 31, 2006
principally reflects capital expenditures of $350.5 million related to purchases of property, plant
and equipment and $362.2 million primarily related to acquisitions of operating assets, partially
offset by proceeds from the sale other assets of $100.3 million.
2005
Net cash used in investing activities of $387.2 million for the year ended December 31, 2005
principally reflects capital expenditures of $325.7 million related to purchases of property, plant
and equipment and $165.2 million primarily related to acquisitions of operating assets, partially
offset by proceeds from the sale other assets of $102.0 million.
2004
Net cash provided by investing activities of $159.5 million for the year ended December 31,
2004 principally includes proceeds of $627.5 million related to the sale of investments, primarily
the sale of our Univision shares. These proceeds were partially offset by capital expenditures of
$283.2 million related to purchases of property, plant and equipment and $212.7 million related to
acquisitions of operating assets.
Financing Activities
2006
Financing activities for the year ended December 31, 2006 principally reflects $1.4 billion in
share repurchases, $382.8 million in dividend payments, partially offset by the net increase in
debt of $601.3 million and proceeds from the exercise of stock options of $57.4 million.
2005
Financing activities for the year ended December 31, 2005 principally reflect the net
reduction in debt of $288.7 million, $343.3 million in dividend payments, $1.1 billion in share
repurchases, all partially offset by the proceeds from the initial public offering of CCO of $600.6
million, and proceeds of $40.2 million related to the exercise of stock options.
2004
Financing activities for the year ended December 31, 2004 principally reflect payments for
share repurchases of $1.8 billion and dividends paid of $255.9 million, partially offset by the net
increase in debt of $264.9 million and proceeds from the exercise of employee stock options of
$31.5 million.
Discontinued Operations
We had definitive asset purchase agreements signed for the sale of 39 of our radio stations as
of December 31, 2006. The cash flows from these stations, along with 5 stations which were sold in
the fourth quarter of 2006, are reported during 2006, 2005 and 2004 as cash flows from discontinued
operations. Additionally, we completed the spin-off of Live Nation on December 21, 2005.
Therefore, we reported cash flows from Live Nation as discontinued operations on our consolidated
statements of cash flows for 2005 and 2004.
Anticipated Cash Requirements
We expect to fund anticipated cash requirements (including payments of principal and
interest on outstanding indebtedness and commitments, acquisitions, anticipated capital
expenditures, share repurchases and dividends) for the foreseeable future with cash flows from
operations and various externally generated funds.
A-17
Sources of Capital
As of December 31, 2006 and 2005, we had the following debt outstanding and cash and cash
equivalents:
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
(In millions) |
|
2006 |
|
|
2005 |
|
Credit facilities |
|
$ |
966.5 |
|
|
$ |
292.4 |
|
Long-term bonds (a) |
|
|
6,531.6 |
|
|
|
6,537.0 |
|
Other borrowings |
|
|
164.9 |
|
|
|
217.1 |
|
|
|
|
|
|
|
|
Total Debt |
|
|
7,663.0 |
|
|
|
7,046.5 |
|
Less: Cash and cash equivalents |
|
|
114.0 |
|
|
|
82.8 |
|
|
|
|
|
|
|
|
|
|
$ |
7,549.0 |
|
|
$ |
6,963.7 |
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Includes $7.1 million and $10.5 million in unamortized fair value purchase accounting
adjustment premiums related to the merger with AMFM at December 31, 2006 and 2005,
respectively. Also includes negative $29.8 million and $29.0 million related to fair value
adjustments for interest rate swap agreements at December 31, 2006 and 2005, respectively. |
Credit Facility
We have a multi-currency revolving credit facility in the amount of $1.75 billion, which can
be used for general working capital purposes including commercial paper support as well as to fund
capital expenditures, share repurchases, acquisitions and the refinancing of public debt
securities. At December 31, 2006, the outstanding balance on this facility was $966.5 million and,
taking into account letters of credit of $75.3 million, $708.2 million was available for future
borrowings, with the entire balance to be repaid on July 12, 2009.
During the year ended December 31, 2006, we made principal payments totaling $2.7 billion and
drew down $3.4 billion on the credit facility. As of February 22, 2007, the credit facilitys
outstanding balance was $1.1 billion and, taking into account outstanding letters of credit, $571.8
million was available for future borrowings.
Debt Offering
On March 21, 2006, we completed a debt offering of $500.0 million 6.25% Senior Notes due 2011.
Interest is payable on March 15 and September 15 of each year. The net proceeds of approximately
$497.5 million were used to repay borrowings under our bank credit facility. On August 15, 2006 we
completed an additional $250.0 million issuance of our 6.25% Senior Notes due 2011 originally
issued March 21, 2006. The net proceeds of approximately $253.4 million, including accrued
interest, were used to repay borrowings under the Companys bank credit facility.
Other Borrowings
Other debt includes various borrowings and capital leases utilized for general operating
purposes. Included in the $164.9 million balance at December 31, 2006 is $86.4 million that
matures in less than one year, which we have historically refinanced with new twelve month notes
and anticipate these refinancings to continue.
Guarantees of Third Party Obligations
As of December 31, 2006 and 2005, we guaranteed the debt of third parties of approximately
$0.4 million and $12.1 million, respectively, primarily related to long-term operating
contracts. The third parties associated operating assets secure a substantial portion of these
obligations.
Disposal of Assets
During 2006, we received $100.3 million of proceeds related primarily to the sale of various
broadcasting operating assets.
Shelf Registration
On August 30, 2006, we filed a Registration Statement on Form S-3 covering the issuance of
debt securities, junior subordinated debt securities, preferred stock, common stock, warrants,
stock purchase contracts and stock purchase units. The shelf registration statement also covers
preferred securities that may be issued from time to time by our three Delaware statutory business
trusts and guarantees of such preferred securities by us. This shelf registration statement was
automatically effective on August 31, 2006 for a period of three years.
A-18
Debt Covenants
The significant covenants on our $1.75 billion five-year, multi-currency revolving credit
facility relate to leverage and interest coverage contained and defined in the credit agreement.
The leverage ratio covenant requires us to maintain a ratio of consolidated funded indebtedness to
operating cash flow (as defined by the credit agreement) of less than 5.25x. The interest coverage
covenant requires us to maintain a minimum ratio of operating cash flow (as defined by the credit
agreement) to interest expense of 2.50x. In the event that we do not meet these covenants, we are
considered to be in default on the credit facility at which time the credit facility may become
immediately due. At December 31, 2006, our leverage and interest coverage ratios were 3.4x and
4.7x, respectively. This credit facility contains a cross default provision that would be
triggered if we were to default on any other indebtedness greater than $200.0 million.
Our other indebtedness does not contain provisions that would make it a default if we were to
default on our credit facility.
The fees we pay on our $1.75 billion, five-year multi-currency revolving credit facility
depend on our long-term debt ratings. Based on our current ratings level of BBB-/Baa3, our fees on
borrowings are a 45.0 basis point spread to LIBOR and are 17.5 basis points on the total $1.75
billion facility. In the event our ratings improve, the fee on borrowings and facility fee decline
gradually to 20.0 basis points and 9.0 basis points, respectively, at ratings of A/A3 or better.
In the event that our ratings decline, the fee on borrowings and facility fee increase gradually to
120.0 basis points and 30.0 basis points, respectively, at ratings of BB/Ba2 or lower.
We believe there are no other agreements that contain provisions that trigger an event of
default upon a change in long-term debt ratings that would have a material impact to our financial
statements.
Additionally, our 8% senior notes due 2008, which were originally issued by AMFM Operating
Inc., a wholly-owned subsidiary of Clear Channel, contain certain restrictive covenants that limit
the ability of AMFM Operating Inc. to incur additional indebtedness, enter into certain
transactions with affiliates, pay dividends, consolidate, or effect certain asset sales.
At December 31, 2006, we were in compliance with all debt covenants.
Uses of Capital
Dividends
Our Board of Directors declared quarterly cash dividends as follows:
(In millions, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount per |
|
|
|
|
|
|
Declaration |
|
Common |
|
|
|
|
|
Total |
Date |
|
Share |
|
Record Date |
|
Payment Date |
|
Payment |
October 26, 2005 |
|
|
0.1875 |
|
|
December 31, 2005 |
|
January 15, 2006 |
|
$ |
100.9 |
|
February 14, 2006 |
|
|
0.1875 |
|
|
March 31, 2006 |
|
April 15, 2006 |
|
|
95.5 |
|
April 26, 2006 |
|
|
0.1875 |
|
|
June 30, 2006 |
|
July 15, 2006 |
|
|
94.0 |
|
July 25, 2006 |
|
|
0.1875 |
|
|
September 30, 2006 |
|
October 15, 2006 |
|
|
92.4 |
|
October 25, 2006 |
|
|
0.1875 |
|
|
December 31, 2006 |
|
January 15, 2007 |
|
|
92.6 |
|
Additionally, our Board of Directors declared a quarterly cash dividend of 18.75 cents per
share of our Common Stock on February, 21 2007 to be paid April 15, 2007 to shareholders of
record on March 31, 2007.
Derivative Instruments
Our wholly owned subsidiary, Clear Channel Investments, Inc., terminated its secured forward
exchange contract with respect to 8.3 million shares of its investment in XM Satellite Radio
Holdings, Inc. on August 2, 2006 by paying the counterparty approximately $83.1 million. The
accreted value of the debt was $92.9 million and the fair value of the collar was an asset of $6.0
million resulting in a net gain of approximately $3.8 million.
A-19
Debt Maturity
On November 1, 2006, we redeemed our 6% Senior Notes at their maturity for $750.0 million plus
accrued interest with proceeds from our bank credit facility.
On February 1, 2007, we redeemed our 3.125% Senior Notes at their maturity for $250.0 million
plus accrued interest with proceeds from our bank credit facility.
Acquisitions
Our subsidiary, Clear Channel Outdoor Holdings, Inc., or CCO, completed the acquisition of
Interspace on July 1, 2006, by issuing 4.2 million shares of CCOs Class A Common Stock and
approximately $81.3 million in cash. The acquisition was valued at approximately $170.4 million
based on CCOs common shares issued at the closing price on the date of acquisition and the cash
consideration paid. The terms of the acquisition provide for additional consideration based on
Interspaces financial performance. As a result, we have accrued $20.9 million of additional
purchase consideration as of December 31, 2006.
We acquired radio stations for $16.4 million and a music scheduling company for $44.3 million
in cash and $10.0 million of deferred purchase consideration during the year ended December 31,
2006. We also acquired Americas and international outdoor display faces and additional equity
interests in international outdoor companies for $242.4 million in cash, which includes cash paid
for Interspace. We also exchanged assets in one of our Americas outdoor markets for assets located
in a different market. In addition, our national representation firm acquired representation
contracts for $38.1 million in cash and our television business acquired a station for $21.0
million in cash.
Capital Expenditures
(In millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2006 Capital Expenditures |
|
|
|
|
|
|
|
Americas |
|
|
International |
|
|
Corporate and |
|
|
|
|
|
|
Radio |
|
|
Outdoor |
|
|
Outdoor |
|
|
Other |
|
|
Total |
|
Non-revenue producing |
|
$ |
99.7 |
|
|
$ |
33.7 |
|
|
$ |
46.3 |
|
|
$ |
16.9 |
|
|
$ |
196.6 |
|
Revenue producing |
|
|
¾ |
|
|
|
56.8 |
|
|
|
97.1 |
|
|
|
¾ |
|
|
|
153.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
99.7 |
|
|
$ |
90.5 |
|
|
$ |
143.4 |
|
|
$ |
16.9 |
|
|
$ |
350.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We define non-revenue producing capital expenditures as those expenditures that are required
on a recurring basis. Revenue producing capital expenditures are discretionary capital investments
for new revenue streams, similar to an acquisition.
Treasury Stock Transactions
Our Board of Directors approved two separate share repurchase programs during 2004, each for
$1.0 billion. On February 1, 2005, our Board of Directors approved a third $1.0 billion share
repurchase program. On August 9, 2005, our Board of Directors authorized an increase in and
extension of the February 2005 program, which had $307.4 million remaining, by $692.6 million, for
a total of $1.0 billion. On March 9, 2006, our Board of Directors authorized an additional share
repurchase program, permitting us to repurchase $600.0 million of our common stock. On September
6, 2006, our Board of Directors authorized an additional share repurchase program, permitting us to
repurchase an additional $1.0 billion of our common stock. This increase expires on September 6,
2007, although the program may be discontinued or suspended at anytime prior to its expiration. As
of December 31, 2006, 130.9 million shares had been repurchased for an aggregate purchase price of
$4.3 billion, including commissions and fees, under the share repurchase programs. We did not
repurchase any shares during the fourth quarter of 2006. No additional shares have been
repurchased subsequent to December 31, 2006 as the share repurchase program has been suspended, but
may be recommenced at any time without notice subject to the terms of the Merger Agreement.
Commitments, Contingencies and Future Obligations
Commitments and Contingencies
There are various lawsuits and claims pending against us. We believe that any ultimate
liability resulting from those actions or claims will not have a material adverse effect on our
results of operations, financial position or liquidity. Although we have recorded accruals based
on our current assumptions of the future liability for these lawsuits, it is possible that future
results of operations could be materially affected by changes in our assumptions or the
effectiveness of our strategies related to these proceedings. See also Item 3. Legal
Proceedings and Note I Commitments and Contingencies in the Notes to Consolidated Financial
Statements in Item 8 included elsewhere in this Report.
A-20
Certain agreements relating to acquisitions provide for purchase price adjustments and other
future contingent payments based on the financial performance of the acquired companies generally
over a one to five year period. We will continue to accrue additional amounts related to such
contingent payments if and when it is determinable that the applicable financial performance
targets will be met. The aggregate of these contingent payments, if performance targets are met,
would not significantly impact our financial position or results of operations.
Future Obligations
In addition to our scheduled maturities on our debt, we have future cash obligations under
various types of contracts. We lease office space, certain broadcast facilities, equipment and the
majority of the land occupied by our outdoor advertising structures under long-term operating
leases. Some of our lease agreements contain renewal options and annual rental escalation clauses
(generally tied to the consumer price index), as well as provisions for our payment of utilities
and maintenance.
We have minimum franchise payments associated with non-cancelable contracts that enable us to
display advertising on such media as buses, taxis, trains, bus shelters and terminals. The
majority of these contracts contain rent provisions that are calculated as the greater of a
percentage of the relevant advertising revenue or a specified guaranteed minimum annual payment.
Also, we have non-cancelable contracts in our radio broadcasting operations related to program
rights and music license fees.
In the normal course of business, our broadcasting operations have minimum future payments
associated with employee and talent contracts. These contracts typically contain cancellation
provisions that allow us to cancel the contract with good cause.
The scheduled maturities of our credit facility, other long-term debt outstanding, future
minimum rental commitments under non-cancelable lease agreements, minimum payments under other
non-cancelable contracts, payments under employment/talent contracts, capital expenditure
commitments, and other long-term obligations as of December 31, 2006 are as follows:
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payment due by Period |
|
|
|
|
|
|
|
Less than |
|
|
|
|
|
|
|
|
|
|
More than |
|
Contractual Obligations |
|
Total |
|
|
1 year |
|
|
1 to 3 Years |
|
|
3 to 5 Years |
|
|
5 Years |
|
Long-term Debt |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit Facility |
|
$ |
966,488 |
|
|
|
|
|
|
|
966,488 |
|
|
|
|
|
|
|
|
|
Other Long-term Debt |
|
|
6,736,250 |
|
|
|
336,380 |
|
|
|
1,867,601 |
|
|
|
2,002,415 |
|
|
|
2,529,854 |
|
Interest payments on long-term debt |
|
|
2,079,141 |
|
|
|
378,863 |
|
|
|
620,233 |
|
|
|
401,986 |
|
|
|
678,059 |
|
Non-Cancelable Operating Leases |
|
|
2,228,976 |
|
|
|
318,652 |
|
|
|
559,015 |
|
|
|
402,436 |
|
|
|
948,873 |
|
Non-Cancelable Contracts |
|
|
2,814,093 |
|
|
|
673,672 |
|
|
|
978,709 |
|
|
|
471,469 |
|
|
|
690,243 |
|
Employment/Talent Contracts |
|
|
399,156 |
|
|
|
170,072 |
|
|
|
180,540 |
|
|
|
37,977 |
|
|
|
10,567 |
|
Capital Expenditures |
|
|
181,469 |
|
|
|
95,032 |
|
|
|
65,242 |
|
|
|
13,465 |
|
|
|
7,730 |
|
Other long-term obligations(1) |
|
|
290,601 |
|
|
|
|
|
|
|
47,148 |
|
|
|
113,094 |
|
|
|
130,359 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total(2) |
|
$ |
15,696,174 |
|
|
$ |
1,972,671 |
|
|
$ |
5,284,976 |
|
|
$ |
3,442,842 |
|
|
$ |
4,995,685 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Other long-term obligations consist of $59.3 million related to asset retirement obligations
recorded pursuant to Financial Accounting Standards No. 143, Accounting for Asset Retirement
Obligations, which assumes the underlying assets will be removed at some period over the next
50 years. Also included is $103.0 million related to the maturity value of loans secured by
forward exchange contracts that we accrete to maturity using the effective interest method and
can be settled in cash or the underlying shares. These contracts had an accreted value of
$81.8 million and the underlying shares had a fair value of $108.9 million recorded on our
consolidated balance sheets at December 31, 2006. Also included in the table is $66.3 million
related to deferred compensation and retirement plans. |
|
(2) |
|
Excluded from the table is $98.3 million related to the fair value of interest rate swap
agreements, cross-currency swap agreements, and secured forward exchange contracts. Also
excluded is $399.4 million related to various obligations with no specific contractual
commitment or maturity. |
A-21
Market Risk
Interest Rate Risk
At December 31, 2006, approximately 31% of our long-term debt, including fixed-rate debt on
which we have entered into interest rate swap agreements, bears interest at variable rates.
Accordingly, our earnings are affected by changes in interest rates. Assuming the current level of
borrowings at variable rates and assuming a two percentage point change in the years average
interest rate under these borrowings, it is estimated that our 2006 interest expense would have
changed by $48.0 million and that our 2006 net income would have changed by $28.3 million. In the
event of an adverse change in interest rates, management may take actions to further mitigate its
exposure. However, due to the uncertainty of the actions that would be taken and their possible
effects, this interest rate analysis assumes no such actions. Further, the analysis does not
consider the effects of the change in the level of overall economic activity that could exist in
such an environment.
At December 31, 2006, we had entered into interest rate swap agreements with a $1.3 billion
aggregate notional amount that effectively float interest at rates based upon LIBOR. These
agreements expire from February 2007 to March 2012. The fair value of these agreements at
December 31, 2006 was a liability of $29.8 million.
On February 1, 2007, our 3.125% Senior Notes and the related interest rate swap agreement
matured.
Equity Price Risk
The carrying value of our available-for-sale and trading equity securities is affected by
changes in their quoted market prices. It is estimated that a 20% change in the market prices of
these securities would change their carrying value at December 31, 2006 by $45.9 million and would
change accumulated comprehensive income (loss) and net income by $18.2 million and $8.8 million,
respectively. At December 31, 2006, we also held $16.5 million of investments that do not have a
quoted market price, but are subject to fluctuations in their value.
We maintain derivative instruments on certain of our available-for-sale and trading equity
securities to limit our exposure to and benefit from price fluctuations on those securities.
Foreign Currency
We have operations in countries throughout the world. Foreign operations are measured in
their local currencies except in hyper-inflationary countries in which we operate. As a result,
our financial results could be affected by factors such as changes in foreign currency exchange
rates or weak economic conditions in the foreign markets in which we have operations. To mitigate
a portion of the exposure of international currency fluctuations, we maintain a natural hedge
through borrowings in currencies other than the U.S. dollar. In addition, we have U.S. dollar
Euro cross currency swaps which are also designated as a hedge of our net investment in Euro
denominated assets. These hedge positions are reviewed monthly. Our foreign operations reported
net income of $20.8 million for the year ended December 31, 2006. It is estimated that a 10%
change in the value of the U.S. dollar to foreign currencies would change net income for the year
ended December 31, 2006 by $2.1 million.
Our earnings are also affected by fluctuations in the value of the U.S. dollar as compared to
foreign currencies as a result of our investments in various countries, all of which are accounted
for under the equity method. It is estimated that the result of a 10% fluctuation in the value of
the dollar relative to these foreign currencies at December 31, 2006 would change our 2006 equity
in earnings of nonconsolidated affiliates by $3.8 million and would change our net income for the
same period by approximately $2.2 million.
This analysis does not consider the implications that such fluctuations could have on the
overall economic activity that could exist in such an environment in the U.S. or the foreign
countries or on the results of operations of these foreign entities.
Recent Accounting Pronouncements
In February 2006, the Financial Accounting Standards Board (FASB) issued Statement No. 155,
Accounting for Certain Hybrid Financial Instruments (Statement 155). Statement 155 is an
amendment of FASB Statement No. 133, Accounting for Derivative Instruments and Hedging Activities
(Statement 133) and FASB Statement 140, Accounting for Transfers and Servicing of Financial
Assets and Extinguishments of Liabilities (Statement 140) and allows companies to elect to
measure at fair value entire financial instruments containing embedded derivatives that
would otherwise have to be
accounted for separately. Statement 155 also requires companies to
identify interest in securitized financial assets that are freestanding derivatives or contain
embedded derivatives that would have to be
A-22
accounted for separately, clarifies which interest- and
principal-only strips are subject to Statement 133, and amends Statement 140 to revise the
conditions of a qualifying special purpose entity due to the new requirement to identify whether
interests in securitized financial assets are freestanding derivatives or contain embedded
derivatives. Statement 155 is effective for all financial instruments acquired or issued in fiscal
years beginning after September 15, 2006. We adopted Statement 155 on January 1, 2007. The
adoption did not materially impact our financial position or results of operations.
In June 2006, the FASB issued Interpretation No. 48, Accounting for Uncertainty in Income
Taxes an interpretation of FASB Statement 109 (FIN 48). FIN 48 clarifies the accounting for
uncertainty in income taxes by prescribing a recognition threshold for tax positions taken or
expected to be taken in a tax return. FIN 48 requires that entities recognize in their financial
statements the impact of a tax position if that position is more likely than not of being sustained
on audit, based on the technical merits of the position. FIN 48 is effective for fiscal years
beginning after December 31, 2006. We continue to evaluate the impact of FIN 48 but do not believe
that it will have a material impact on our financial statements.
In September 2006, the FASB issued Statement No. 157, Fair Value Measurements (Statement
157). Statement 157 defines fair value, establishes a framework for measuring fair value and
expands disclosure requirements for fair value measurements. Statement 157 applies whenever other
standards require (or permit) assets or liabilities to be measured at fair value. Statement 157
does not expand the use of fair value in any new circumstances. Statement 157 is effective for
financial statements issued for fiscal years beginning after November 15, 2007. We will adopt
Statement 157 on January 1, 2008 and anticipate that adoption will not materially impact our
financial position or results of operations.
In September 2006, the FASB issued Statement No. 158, Employers Accounting for Defined
Benefit Pension and Other Postretirement Plans, an amendment of FASB Statements No. 87, 88, 106,
and 132(R) (Statement 158). Statement 158 requires an employer to recognize the overfunded or
underfunded status of a defined benefit postretirement plan as an asset or liability in its
statement of financial position and to recognize changes in that funded status in the year in which
the changes occur through comprehensive income. The portions of Statement 158 that apply to us are
effective as of the end of the fiscal year ending after December 15, 2006. We adopted Statement
158 as of December 31, 2006 and adoption did not materially impact our financial position or
results of operations.
Critical Accounting Estimates
The preparation of our financial statements in conformity with Generally Accepted Accounting
Principles requires management to make estimates, judgments and assumptions that affect the
reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amount of expenses during the reporting period.
On an ongoing basis, we evaluate our estimates that are based on historical experience and on
various other assumptions that are believed to be reasonable under the circumstances. The result
of these evaluations forms the basis for making judgments about the carrying values of assets and
liabilities and the reported amount of expenses that are not readily apparent from other sources.
Because future events and their effects cannot be determined with certainty, actual results could
differ from our assumptions and estimates, and such difference could be material. Our significant
accounting policies are discussed in Note A, Summary of Significant Accounting Policies, of the
Notes to Consolidated Financial Statements, included in Item 8 of this Annual Report on Form 10-K.
Management believes that the following accounting estimates are the most critical to aid in fully
understanding and evaluating our reported financial results, and they require managements most
difficult, subjective or complex judgments, resulting from the need to make estimates about the
effect of matters that are inherently uncertain. Management has reviewed these critical accounting
policies and related disclosures with our independent auditor and the Audit Committee of our Board
of Directors. The following narrative describes these critical accounting estimates, the judgments
and assumptions and the effect if actual results differ from these assumptions.
Stock Based Compensation
Prior to January 1, 2006, we accounted for our share-based payments under the recognition and
measurement provisions of APB Opinion No. 25, Accounting for Stock Issued to Employees and related
Interpretations, as permitted by Statement of Financial Accounting Standards No. 123, Accounting
for Stock Based Compensation (Statement 123). Under that method, when options were granted with
a strike price equal to or greater than market price on date of issuance, there is no impact on
earnings either on the date of grant or thereafter, absent certain modifications to the
options. Subsequent to January 1, 2006, we account for stock based compensation in accordance
with FAS 123(R), Share-Based Payment. Under the fair value recognition provisions of this
statement, stock based compensation cost is measured at the grant date based on the value of the
award and is recognized as expense on a straight-line basis over the
A-23
vesting period. Determining
the fair value of share-based awards at the grant date requires assumptions and judgments about
expected volatility and forfeiture rates, among other factors. If actual results differ
significantly from these estimates, our results of operations could be materially impacted.
Allowance for Doubtful Accounts
We evaluate the collectibility of our accounts receivable based on a combination of factors.
In circumstances where we are aware of a specific customers inability to meet its financial
obligations, we record a specific reserve to reduce the amounts recorded to what we believe will be
collected. For all other customers, we recognize reserves for bad debt based on historical
experience of bad debts as a percent of revenues for each business unit, adjusted for relative
improvements or deteriorations in the agings and changes in current economic conditions.
If our agings were to improve or deteriorate resulting in a 10% change in our allowance, it is
estimated that our 2006 bad debt expense would have changed by $5.8 million and our 2006 net income
would have changed by $3.4 million.
Long-Lived Assets
Long-lived assets, such as property, plant and equipment are reviewed for impairment when
events and circumstances indicate that depreciable and amortizable long-lived assets might be
impaired and the undiscounted cash flows estimated to be generated by those assets are less than
the carrying amount of those assets. When specific assets are determined to be unrecoverable, the
cost basis of the asset is reduced to reflect the current fair market value.
We use various assumptions in determining the current fair market value of these assets,
including future expected cash flows and discount rates, as well as future salvage values. Our
impairment loss calculations require management to apply judgment in estimating future cash flows,
including forecasting useful lives of the assets and selecting the discount rate that reflects the
risk inherent in future cash flows.
Using the impairment review described, we found no impairment charge required for the year
ended December 31, 2006. If actual results are not consistent with our assumptions and judgments
used in estimating future cash flows and asset fair values, we may be exposed to future impairment
losses that could be material to our results of operations.
Goodwill
Goodwill represents the excess of the purchase price over the fair value of identifiable net
assets acquired in business combinations. We review goodwill for potential impairment annually
using the income approach to determine the fair value of our reporting units. The fair value of
our reporting units is used to apply value to the net assets of each reporting unit. To the extent
that the carrying amount of net assets would exceed the fair value, an impairment charge may be
required to be recorded.
The income approach we use for valuing goodwill involves estimating future cash flows expected
to be generated from the related assets, discounted to their present value using a risk-adjusted
discount rate. Terminal values were also estimated and discounted to their present value. In
accordance with Statement 142, we performed our annual impairment tests as of October 1, 2004, 2005
and 2006 on goodwill. No impairment charges resulted from these tests. We may incur additional
impairment charges in future periods under Statement 142 to the extent we do not achieve our
expected cash flow growth rates, and to the extent that market values and long-term interest rates
in general decrease and increase, respectively.
Indefinite-lived Assets
Indefinite-lived assets are reviewed annually for possible impairment using the direct method
as prescribed in SEC Staff Announcement No. D-108, Use of the Residual Method to Value Acquired
Assets Other Than Goodwill. Under the direct method, it is assumed that rather than acquiring
indefinite-lived intangible assets as a part of a going concern business, the buyer hypothetically
obtains indefinite-lived intangible assets and builds a new operation with similar attributes from
scratch. Thus, the buyer incurs start-up costs during the build-up phase which are normally
associated with going concern value. Initial capital costs are deducted from the discounted cash
flows model which results in value that is directly attributable to the indefinite-lived intangible
assets.
Our key assumptions using the direct method are market revenue growth rates, market share,
profit margin, duration and profile of the build-up period, estimated start-up capital costs and
losses incurred during the build-up period, the risk-adjusted discount rate and terminal values.
This data is populated using industry normalized information representing an average station within
a market.
A-24
If actual results are not consistent with our assumptions and estimates, we may be exposed to
impairment charges in the future. Our annual impairment test was performed as of October 1, 2006,
which resulted in no impairment.
Tax Accruals
The Internal Revenue Service and other taxing authorities routinely examine our tax returns.
From time to time, the IRS challenges certain of our tax positions. We believe our tax positions
comply with applicable tax law and we would vigorously defend these positions if challenged. The
final disposition of any positions challenged by the IRS could require us to make additional tax
payments. We believe that we have adequately accrued for any foreseeable payments resulting from
tax examinations and consequently do not anticipate any material impact upon their ultimate
resolution.
The estimate of our tax accruals contains uncertainty because management uses judgment to
estimate the exposure associated with our various filing positions.
Although management believes that our estimates and judgments are reasonable, actual results
could differ, and we may be exposed to gains or losses that could be material. To the extent there
are changes in the expected outcome of tax examinations, our effective tax rate in a given
financial statement period could be materially affected.
Litigation Accruals
We are currently involved in certain legal proceedings and, as required, have accrued our
estimate of the probable costs for the resolution of these claims.
Managements estimates used 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 our assumptions or the effectiveness of our strategies related to
these proceedings.
Insurance Accruals
We are currently self-insured beyond certain retention amounts for various insurance
coverages, including general liability and property and casualty. Accruals are recorded based on
estimates of actual claims filed, historical payouts, existing insurance coverage and projections
of future development of costs related to existing claims.
Our self-insured liabilities contain uncertainties because management must make assumptions
and apply judgment to estimate the ultimate cost to settle reported claims and claims incurred but
not reported as of December 31, 2006.
If actual results are not consistent with our assumptions and judgments, we may be exposed to
gains or losses that could be material. A 10% change in our self-insurance liabilities at December
31, 2006, would have affected net earnings by approximately $3.2 million for the year ended
December 31, 2006.
Inflation
Inflation has affected our performance in terms of higher costs for wages, salaries and
equipment. Although the exact impact of inflation is indeterminable, we believe we have offset
these higher costs by increasing the effective advertising rates of most of our broadcasting
stations and outdoor display faces.
Ratio of Earnings to Fixed Charges
The ratio of earnings to fixed charges is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
2006 |
|
2005 |
|
2004 |
|
2003 |
|
2002 |
2.35 |
|
|
2.31 |
|
|
|
2.86 |
|
|
|
3.64 |
|
|
|
2.58 |
|
The ratio of earnings to fixed charges was computed on a total enterprise basis. Earnings
represent income from continuing operations before income taxes less equity in undistributed net
income (loss) of unconsolidated affiliates plus fixed charges. Fixed charges represent interest,
amortization of debt discount and expense, and the estimated interest portion of rental charges.
We had no preferred stock outstanding for any period presented.
A-25
ITEM 7A. Quantitative and Qualitative Disclosures about Market Risk
Required information is within Item 7
A-26
ITEM 8. Financial Statements and Supplementary Data
|
|
|
Managements Report On Financial Statements
The consolidated financial statements and notes
related thereto were prepared by and are the
responsibility of management. The financial
statements and related notes were prepared in
conformity with U.S. generally accepted
accounting principles and include amounts based
upon managements best estimates and judgments.
It is managements objective to ensure the
integrity and objectivity of its financial data
through systems of internal controls designed to
provide reasonable assurance that all
transactions are properly recorded in our books
and records, that assets are safeguarded from
unauthorized use and that financial records are
reliable to serve as a basis for preparation of
financial statements.
The financial statements have been audited by
our independent registered public accounting
firm, Ernst & Young LLP, to the extent required
by auditing standards of the Public Company
Accounting Oversight Board (United States) and,
accordingly, they have expressed their
professional opinion on the financial statements
in their report included herein.
The Board of Directors meets with the
independent registered public accounting firm
and management periodically to satisfy itself
that they are properly discharging their
responsibilities. The independent registered
public accounting firm has unrestricted access
to the Board, without management present, to
discuss the results of their audit and the
quality of financial reporting and internal
accounting controls.
/s/Mark P. Mays
Chief Executive Officer
/s/Randall T. Mays
President and Chief Financial Officer
/s/Herbert W. Hill, Jr.
Senior Vice President/Chief Accounting Officer
|
|
Report of Independent Registered Public Accounting Firm
THE BOARD OF DIRECTORS AND SHAREHOLDERS
CLEAR CHANNEL COMMUNICATIONS, INC.
We have audited the accompanying consolidated balance
sheets of Clear Channel Communications, Inc. and
subsidiaries (the Company) as of December 31, 2006 and
2005, and the related consolidated statements of
operations, changes in shareholders equity, and cash flows
for each of the three years in the period ended December
31, 2006. Our audits also included the financial statement
schedule listed in the index as Item 15(a)2. These
financial statements and schedule are the responsibility of
the Companys management. Our responsibility is to express
an opinion on these financial statements and schedule based
on our audits.
We conducted our audits in accordance with the standards of
the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting
principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide
a reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of Clear Channel Communications, Inc.
and subsidiaries at December 31, 2006 and 2005, and the
consolidated results of their operations and their cash
flows for each of the three years in the period ended
December 31, 2006, in conformity with U.S. generally
accepted accounting principles. Also, in our opinion, the
related financial statement schedule, when considered in
relation to the basic financial statements taken as a
whole, presents fairly in all material respects the
information set forth therein.
As discussed in Note A to the consolidated financial
statements, in 2006 the Company
changed its method of
accounting for share-based compensation.
As discussed in Note C to the consolidated financial
statements, in 2004 the Company changed its method of
accounting for indefinite lived intangibles.
We also have audited, in accordance with the standards of
the Public Company Accounting Oversight Board (United
States), the effectiveness of the Companys internal
control over financial reporting as of December 31, 2006,
based on criteria established in Internal
Control-Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission and our
report, dated February 26, 2007 expressed an unqualified
opinion thereon.
/s/ ERNST & YOUNG LLP
San Antonio, Texas
February 26, 2007 |
A-27
CONSOLIDATED BALANCE SHEETS
ASSETS
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
2006 |
|
|
2005 |
|
CURRENT ASSETS |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
114,004 |
|
|
$ |
82,786 |
|
Accounts receivable, net of allowance of $57,799 in 2006
and $47,061 in 2005 |
|
|
1,695,348 |
|
|
|
1,505,650 |
|
Prepaid expenses |
|
|
122,845 |
|
|
|
114,452 |
|
Other current assets |
|
|
266,141 |
|
|
|
278,294 |
|
Income taxes receivable |
|
|
7,392 |
|
|
|
417,112 |
|
|
|
|
|
|
|
|
Total Current Assets |
|
|
2,205,730 |
|
|
|
2,398,294 |
|
|
|
|
|
|
|
|
|
|
PROPERTY, PLANT
AND EQUIPMENT |
|
|
|
|
|
|
|
|
Land, buildings and improvements |
|
|
896,515 |
|
|
|
853,249 |
|
Structures |
|
|
3,601,653 |
|
|
|
3,327,326 |
|
Towers, transmitters and studio equipment |
|
|
872,400 |
|
|
|
866,060 |
|
Furniture and other equipment |
|
|
557,096 |
|
|
|
596,560 |
|
Construction in progress |
|
|
92,647 |
|
|
|
90,611 |
|
|
|
|
|
|
|
|
|
|
|
6,020,311 |
|
|
|
5,733,806 |
|
Less accumulated depreciation |
|
|
2,799,355 |
|
|
|
2,495,870 |
|
|
|
|
|
|
|
|
|
|
|
3,220,956 |
|
|
|
3,237,936 |
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment from discontinued
operations, net |
|
|
15,254 |
|
|
|
17,713 |
|
|
|
|
|
|
|
|
|
|
INTANGIBLE ASSETS |
|
|
|
|
|
|
|
|
Definite-lived intangibles, net |
|
|
522,817 |
|
|
|
480,790 |
|
Indefinite-lived intangibles licenses |
|
|
4,326,592 |
|
|
|
4,307,289 |
|
Indefinite-lived intangibles permits |
|
|
260,950 |
|
|
|
207,921 |
|
Goodwill |
|
|
7,449,851 |
|
|
|
7,068,364 |
|
Intangible assets from discontinued operations, net |
|
|
49,842 |
|
|
|
48,865 |
|
|
|
|
|
|
|
|
|
|
OTHER ASSETS |
|
|
|
|
|
|
|
|
Notes receivable |
|
|
7,587 |
|
|
|
8,745 |
|
Investments in, and advances to, nonconsolidated affiliates |
|
|
314,647 |
|
|
|
300,223 |
|
Other assets |
|
|
270,204 |
|
|
|
302,655 |
|
Other investments |
|
|
245,749 |
|
|
|
324,581 |
|
|
|
|
|
|
|
|
Total Assets |
|
$ |
18,890,179 |
|
|
$ |
18,703,376 |
|
|
|
|
|
|
|
|
See Notes to Consolidated Financial Statements
A-28
LIABILITIES AND SHAREHOLDERS EQUITY
(In thousands, except share data)
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
2006 |
|
|
2005 |
|
CURRENT LIABILITIES |
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
156,921 |
|
|
$ |
250,563 |
|
Accrued expenses |
|
|
893,045 |
|
|
|
731,105 |
|
Accrued interest |
|
|
112,049 |
|
|
|
97,515 |
|
Current portion of long-term debt |
|
|
336,375 |
|
|
|
891,185 |
|
Deferred income |
|
|
143,691 |
|
|
|
116,670 |
|
Other current liabilities |
|
|
21,765 |
|
|
|
20,275 |
|
|
|
|
|
|
|
|
Total Current Liabilities |
|
|
1,663,846 |
|
|
|
2,107,313 |
|
|
|
|
|
|
|
|
|
|
Long-term debt |
|
|
7,326,700 |
|
|
|
6,155,363 |
|
Other long-term obligations |
|
|
68,509 |
|
|
|
119,655 |
|
Deferred income taxes |
|
|
740,818 |
|
|
|
533,631 |
|
Other long-term liabilities |
|
|
698,574 |
|
|
|
670,590 |
|
|
|
|
|
|
|
|
|
|
Minority interest |
|
|
349,391 |
|
|
|
290,362 |
|
Commitments and contingent liabilities (Note I) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SHAREHOLDERS EQUITY |
|
|
|
|
|
|
|
|
Preferred Stock Class A, par value $1.00 per share,
authorized 2,000,000 shares, no shares issued and
outstanding |
|
|
¾ |
|
|
|
¾ |
|
Preferred Stock Class B, par value $1.00 per share,
authorized 8,000,000 shares, no shares issued and
outstanding |
|
|
¾ |
|
|
|
¾ |
|
Common Stock, par value $.10 per share, authorized
1,500,000,000 shares, issued 493,982,851 and
538,287,763 shares in 2006 and 2005, respectively |
|
|
49,399 |
|
|
|
53,829 |
|
Additional paid-in capital |
|
|
26,745,687 |
|
|
|
27,945,725 |
|
Retained deficit |
|
|
(19,054,365 |
) |
|
|
(19,371,411 |
) |
Accumulated other comprehensive income |
|
|
304,975 |
|
|
|
201,928 |
|
Cost of shares (114,449 in 2006 and 113,890 in 2005)
held in treasury |
|
|
(3,355 |
) |
|
|
(3,609 |
) |
|
|
|
|
|
|
|
Total Shareholders Equity |
|
|
8,042,341 |
|
|
|
8,826,462 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Shareholders Equity |
|
$ |
18,890,179 |
|
|
$ |
18,703,376 |
|
|
|
|
|
|
|
|
See Notes to Consolidated Financial Statements
A-29
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
|
2006 |
|
|
2005 |
|
|
2004 |
|
Revenue |
|
$ |
7,066,957 |
|
|
$ |
6,578,805 |
|
|
$ |
6,600,954 |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
Direct operating expenses (includes share-based payments of
$17,327, $212 and $930 in 2006, 2005 and 2004, respectively and
excludes depreciation and amortization) |
|
|
2,650,093 |
|
|
|
2,457,044 |
|
|
|
2,321,459 |
|
Selling, general and administrative expenses (includes
share-based payments of $17,825 in 2006 and excludes
depreciation and amortization) |
|
|
1,968,869 |
|
|
|
1,902,837 |
|
|
|
1,894,550 |
|
Depreciation and amortization |
|
|
633,823 |
|
|
|
628,010 |
|
|
|
627,924 |
|
Corporate expenses (includes share-based payments of $9,126,
$5,869 and $2,666 in 2006, 2005 and 2004, respectively and
excludes depreciation and amortization) |
|
|
201,752 |
|
|
|
171,076 |
|
|
|
167,388 |
|
Merger expenses |
|
|
7,633 |
|
|
|
|
|
|
|
|
|
Gain on disposition of assets net |
|
|
69,330 |
|
|
|
51,355 |
|
|
|
39,576 |
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
1,674,117 |
|
|
|
1,471,193 |
|
|
|
1,629,209 |
|
Interest expense |
|
|
483,974 |
|
|
|
443,245 |
|
|
|
367,503 |
|
Gain (loss) on marketable securities |
|
|
2,306 |
|
|
|
(702 |
) |
|
|
46,271 |
|
Equity in earnings of nonconsolidated affiliates |
|
|
37,478 |
|
|
|
38,338 |
|
|
|
22,285 |
|
Other income (expense) net |
|
|
(8,421 |
) |
|
|
11,267 |
|
|
|
(30,293 |
) |
|
|
|
|
|
|
|
|
|
|
Income before income taxes, minority interest, discontinued
operations and cumulative effect of a change in accounting
principle |
|
|
1,221,506 |
|
|
|
1,076,851 |
|
|
|
1,299,969 |
|
Income tax benefit (expense): |
|
|
|
|
|
|
|
|
|
|
|
|
Current |
|
|
(298,962 |
) |
|
|
(43,616 |
) |
|
|
(367,599 |
) |
Deferred |
|
|
(201,855 |
) |
|
|
(381,740 |
) |
|
|
(130,314 |
) |
|
|
|
|
|
|
|
|
|
|
Income tax benefit (expense) |
|
|
(500,817 |
) |
|
|
(425,356 |
) |
|
|
(497,913 |
) |
Minority interest expense, net of tax |
|
|
31,927 |
|
|
|
17,847 |
|
|
|
7,602 |
|
|
|
|
|
|
|
|
|
|
|
Income before discontinued operations and cumulative effect of a
change in accounting principle |
|
|
688,762 |
|
|
|
633,648 |
|
|
|
794,454 |
|
Income from discontinued operations, net |
|
|
2,755 |
|
|
|
302,014 |
|
|
|
51,345 |
|
|
|
|
|
|
|
|
|
|
|
Income before cumulative effect of a change in accounting principle |
|
|
691,517 |
|
|
|
935,662 |
|
|
|
845,799 |
|
Cumulative effect of a change in accounting principle, net of tax
of $2,959,003 |
|
|
|
|
|
|
|
|
|
|
(4,883,968 |
) |
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
691,517 |
|
|
$ |
935,662 |
|
|
$ |
(4,038,169 |
) |
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss), net of tax: |
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments |
|
|
92,810 |
|
|
|
28,643 |
|
|
|
50,722 |
|
Unrealized gain (loss) on securities and derivatives: |
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized holding gain (loss) on marketable securities |
|
|
(60,516 |
) |
|
|
(48,492 |
) |
|
|
47,802 |
|
Unrealized holding gain (loss) on cash flow derivatives |
|
|
76,132 |
|
|
|
56,634 |
|
|
|
(65,827 |
) |
Adjustment for (gain) included in net (loss) |
|
|
|
|
|
|
|
|
|
|
(32,513 |
) |
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss) |
|
$ |
799,943 |
|
|
$ |
972,447 |
|
|
$ |
(4,037,985 |
) |
|
|
|
|
|
|
|
|
|
|
Net income (loss) per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
Income before discontinued operations and cumulative effect
of a change in accounting principle Basic |
|
$ |
1.37 |
|
|
$ |
1.16 |
|
|
$ |
1.33 |
|
Discontinued operations Basic |
|
|
.01 |
|
|
|
.55 |
|
|
|
.09 |
|
Cumulative effect of a change in accounting principle Basic |
|
|
¾ |
|
|
|
¾ |
|
|
|
(8.19 |
) |
|
|
|
|
|
|
|
|
|
|
Net income (loss) Basic |
|
$ |
1.38 |
|
|
$ |
1.71 |
|
|
$ |
(6.77 |
) |
|
|
|
|
|
|
|
|
|
|
Income before discontinued operations and cumulative effect of a
change in accounting principle Diluted |
|
$ |
1.37 |
|
|
$ |
1.16 |
|
|
$ |
1.33 |
|
Discontinued operations Diluted |
|
|
.01 |
|
|
|
.55 |
|
|
|
.08 |
|
Cumulative effect of a change in accounting principle Diluted |
|
|
¾ |
|
|
|
¾ |
|
|
|
(8.16 |
) |
|
|
|
|
|
|
|
|
|
|
Net income (loss) Diluted |
|
$ |
1.38 |
|
|
$ |
1.71 |
|
|
$ |
(6.75 |
) |
|
|
|
|
|
|
|
|
|
|
Dividends declared per share |
|
$ |
.75 |
|
|
$ |
.69 |
|
|
$ |
.45 |
|
See Notes to Consolidated Financial Statements
A-30
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY
(In thousands, except share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
|
|
|
|
Common |
|
|
|
|
|
|
|
Additional |
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares |
|
|
|
|
|
|
|
Paid-in |
|
|
Retained |
|
|
Comprehensive |
|
|
|
|
|
|
Treasury |
|
|
|
|
|
|
Issued |
|
|
|
Common Stock |
|
|
Capital |
|
|
(Deficit) |
|
|
Income (Loss) |
|
|
Other |
|
|
Stock |
|
|
Total |
|
Balances at December 31, 2003 |
|
|
616,321,231 |
|
|
|
$ |
61,632 |
|
|
$ |
30,950,820 |
|
|
$ |
(15,630,387 |
) |
|
$ |
194,406 |
|
|
$ |
(1,293 |
) |
|
$ |
(21,239 |
) |
|
$ |
15,553,939 |
|
Net loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,038,169 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,038,169 |
) |
Dividends declared |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(265,221 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(265,221 |
) |
Common Stock issued for business acquisitions |
|
|
933,521 |
|
|
|
|
93 |
|
|
|
31,405 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31,498 |
|
Purchase of common shares |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,841,482 |
) |
|
|
(1,841,482 |
) |
Treasury shares retired and cancelled |
|
|
(51,553,602 |
) |
|
|
|
(5,155 |
) |
|
|
(1,838,115 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,843,270 |
|
|
|
¾ |
|
Exercise of stock options and other |
|
|
1,871,586 |
|
|
|
|
187 |
|
|
|
36,711 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,747 |
|
|
|
43,645 |
|
Amortization and adjustment of deferred compensation |
|
|
|
|
|
|
|
|
|
|
|
2,774 |
|
|
|
|
|
|
|
|
|
|
|
1,080 |
|
|
|
(170 |
) |
|
|
3,684 |
|
Currency translation adjustment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
50,722 |
|
|
|
|
|
|
|
|
|
|
|
50,722 |
|
Unrealized gains (losses) on cash flow derivatives |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(65,827 |
) |
|
|
|
|
|
|
|
|
|
|
(65,827 |
) |
Unrealized gains (losses) on investments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,289 |
|
|
|
|
|
|
|
|
|
|
|
15,289 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at December 31, 2004 |
|
|
567,572,736 |
|
|
|
|
56,757 |
|
|
|
29,183,595 |
|
|
|
(19,933,777 |
) |
|
|
194,590 |
|
|
|
(213 |
) |
|
|
(12,874 |
) |
|
|
9,488,078 |
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
935,662 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
935,662 |
|
Dividends declared |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(373,296 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(373,296 |
) |
Spin-off of Live Nation |
|
|
|
|
|
|
|
|
|
|
|
(687,206 |
) |
|
|
|
|
|
|
(29,447 |
) |
|
|
|
|
|
|
|
|
|
|
(716,653 |
) |
Gain on sale of subsidiary common stock |
|
|
|
|
|
|
|
|
|
|
|
479,699 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
479,699 |
|
Purchase of common shares |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,070,204 |
) |
|
|
(1,070,204 |
) |
Treasury shares retired and cancelled |
|
|
(32,800,471 |
) |
|
|
|
(3,280 |
) |
|
|
(1,067,175 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,070,455 |
|
|
|
|
|
Exercise of stock options and other |
|
|
3,515,498 |
|
|
|
|
352 |
|
|
|
31,012 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,558 |
|
|
|
39,922 |
|
Amortization and adjustment of deferred compensation |
|
|
|
|
|
|
|
|
|
|
|
5,800 |
|
|
|
|
|
|
|
|
|
|
|
213 |
|
|
|
456 |
|
|
|
6,469 |
|
Currency translation adjustment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28,643 |
|
|
|
|
|
|
|
|
|
|
|
28,643 |
|
Unrealized gains (losses) on cash flow derivatives |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
56,634 |
|
|
|
|
|
|
|
|
|
|
|
56,634 |
|
Unrealized gains (losses) on investments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(48,492 |
) |
|
|
|
|
|
|
|
|
|
|
(48,492 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at December 31, 2005 |
|
|
538,287,763 |
|
|
|
|
53,829 |
|
|
|
27,945,725 |
|
|
|
(19,371,411 |
) |
|
|
201,928 |
|
|
|
|
|
|
|
(3,609 |
) |
|
|
8,826,462 |
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
691,517 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
691,517 |
|
Dividends declared |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(374,471 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(374,471 |
) |
Subsidiary common stock issued for a business acquisition |
|
|
|
|
|
|
|
|
|
|
|
67,873 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
67,873 |
|
Purchase of common shares |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,371,462 |
) |
|
|
(1,371,462 |
) |
Treasury shares retired and cancelled |
|
|
(46,729,900 |
) |
|
|
|
(4,673 |
) |
|
|
(1,367,032 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,371,705 |
|
|
|
|
|
Exercise of stock options and other |
|
|
2,424,988 |
|
|
|
|
243 |
|
|
|
60,139 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11 |
|
|
|
60,393 |
|
Amortization and adjustment of deferred compensation |
|
|
|
|
|
|
|
|
|
|
|
38,982 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
38,982 |
|
Currency translation adjustment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
87,431 |
|
|
|
|
|
|
|
|
|
|
|
87,431 |
|
Unrealized gains (losses) on cash flow derivatives |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
76,132 |
|
|
|
|
|
|
|
|
|
|
|
76,132 |
|
Unrealized gains (losses) on investments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(60,516 |
) |
|
|
|
|
|
|
|
|
|
|
(60,516 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at December 31, 2006 |
|
|
493,982,851 |
|
|
|
$ |
49,399 |
|
|
$ |
26,745,687 |
|
|
$ |
(19,054,365 |
) |
|
$ |
304,975 |
|
|
$ |
|
|
|
$ |
(3,355 |
) |
|
$ |
8,042,341 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Notes to Consolidated Financial Statements
A-31
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
|
2006 |
|
|
2005 |
|
|
2004 |
|
CASH FLOWS FROM OPERATING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
691,517 |
|
|
$ |
935,662 |
|
|
$ |
(4,038,169 |
) |
Less: Income from discontinued operations, net |
|
|
2,755 |
|
|
|
302,014 |
|
|
|
51,345 |
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) from continuing operations |
|
|
688,762 |
|
|
|
633,648 |
|
|
|
(4,089,514 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciling Items: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative effect of a change in accounting principle, net of tax |
|
|
¾ |
|
|
|
¾ |
|
|
|
4,883,968 |
|
Depreciation |
|
|
483,067 |
|
|
|
473,816 |
|
|
|
494,544 |
|
Amortization of intangibles |
|
|
150,756 |
|
|
|
154,194 |
|
|
|
133,380 |
|
Deferred taxes |
|
|
201,855 |
|
|
|
381,740 |
|
|
|
130,314 |
|
Provision for doubtful accounts |
|
|
35,939 |
|
|
|
35,289 |
|
|
|
38,146 |
|
Amortization of deferred financing charges, bond premiums and
accretion of note discounts, net |
|
|
3,462 |
|
|
|
2,042 |
|
|
|
5,558 |
|
Share-based compensation |
|
|
44,278 |
|
|
|
6,081 |
|
|
|
3,596 |
|
(Gain) loss on sale of operating and fixed assets |
|
|
(69,330 |
) |
|
|
(47,883 |
) |
|
|
(29,276 |
) |
(Gain) loss on sale of available-for-sale securities |
|
|
|
|
|
|
|
|
|
|
(48,429 |
) |
(Gain) loss on forward exchange contract |
|
|
18,161 |
|
|
|
18,194 |
|
|
|
17,398 |
|
(Gain) loss on trading securities |
|
|
(20,467 |
) |
|
|
(17,492 |
) |
|
|
(15,240 |
) |
Equity in earnings of nonconsolidated affiliates |
|
|
(37,478 |
) |
|
|
(38,338 |
) |
|
|
(22,285 |
) |
Minority interest, net of tax |
|
|
31,927 |
|
|
|
17,847 |
|
|
|
7,602 |
|
Increase (decrease) other, net |
|
|
8,835 |
|
|
|
(10,816 |
) |
|
|
(12,765 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in operating assets and liabilities, net of effects of
acquisitions and dispositions: |
|
|
|
|
|
|
|
|
|
|
|
|
Decrease (increase) in accounts receivable |
|
|
(202,347 |
) |
|
|
(25,319 |
) |
|
|
481 |
|
Decrease (increase) in prepaid expenses |
|
|
(23,980 |
) |
|
|
15,389 |
|
|
|
(21,304 |
) |
Decrease (increase) in other current assets |
|
|
2,474 |
|
|
|
43,049 |
|
|
|
29,019 |
|
Increase (decrease) in accounts payable, accrued expenses and
other liabilities |
|
|
83,363 |
|
|
|
(34,700 |
) |
|
|
22,545 |
|
Federal income tax refund |
|
|
390,438 |
|
|
|
|
|
|
|
|
|
Increase (decrease) in accrued interest |
|
|
14,567 |
|
|
|
3,411 |
|
|
|
1,611 |
|
Increase (decrease) in deferred income |
|
|
11,656 |
|
|
|
(18,385 |
) |
|
|
(15,841 |
) |
Increase (decrease) in accrued income taxes |
|
|
25,641 |
|
|
|
(191,506 |
) |
|
|
28,047 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
1,841,579 |
|
|
|
1,400,261 |
|
|
|
1,541,555 |
|
See Notes to Consolidated Financial Statements
A-32
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
|
2006 |
|
|
2005 |
|
|
2004 |
|
CASH FLOWS FROM INVESTING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
Liquidation of restricted cash |
|
|
|
|
|
|
|
|
|
|
299 |
|
Decrease (increase) in notes receivable, net |
|
|
1,418 |
|
|
|
946 |
|
|
|
(51 |
) |
Decrease (increase) in investments in, and advances to
nonconsolidated affiliates net |
|
|
20,541 |
|
|
|
15,239 |
|
|
|
6,804 |
|
Proceeds from cross currency settlement of interest due |
|
|
1,607 |
|
|
|
734 |
|
|
|
(566 |
) |
Purchase of other investments |
|
|
(788 |
) |
|
|
(891 |
) |
|
|
(1,841 |
) |
Proceeds from sale of available-for-sale-securities |
|
|
|
|
|
|
370 |
|
|
|
627,505 |
|
Purchases of property, plant and equipment |
|
|
(350,493 |
) |
|
|
(325,725 |
) |
|
|
(283,160 |
) |
Proceeds from disposal of assets |
|
|
100,329 |
|
|
|
102,001 |
|
|
|
30,710 |
|
Proceeds from divestitures placed in restricted cash |
|
|
|
|
|
|
|
|
|
|
47,838 |
|
Acquisition of operating assets |
|
|
(362,164 |
) |
|
|
(165,235 |
) |
|
|
(165,159 |
) |
Acquisition of operating assets with restricted cash |
|
|
|
|
|
|
|
|
|
|
(47,564 |
) |
Decrease (increase) in other net |
|
|
(51,863 |
) |
|
|
(14,625 |
) |
|
|
(55,339 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities |
|
|
(641,413 |
) |
|
|
(387,186 |
) |
|
|
159,476 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
Draws on credit facilities |
|
|
3,383,667 |
|
|
|
1,934,000 |
|
|
|
5,087,334 |
|
Payments on credit facilities |
|
|
(2,700,004 |
) |
|
|
(1,986,045 |
) |
|
|
(5,457,033 |
) |
Proceeds from long-term debt |
|
|
783,997 |
|
|
|
|
|
|
|
1,244,018 |
|
Payments on long-term debt |
|
|
(866,352 |
) |
|
|
(236,703 |
) |
|
|
(609,455 |
) |
Payment to terminate forward exchange contract |
|
|
(83,132 |
) |
|
|
|
|
|
|
¯ |
|
Proceeds from exercise of stock options, stock
purchase plan and common stock warrants |
|
|
57,452 |
|
|
|
40,239 |
|
|
|
31,535 |
|
Dividends paid |
|
|
(382,776 |
) |
|
|
(343,321 |
) |
|
|
(255,912 |
) |
Proceeds from initial public offering |
|
|
|
|
|
|
600,642 |
|
|
|
|
|
Payments for purchase of common shares |
|
|
(1,371,462 |
) |
|
|
(1,070,204 |
) |
|
|
(1,841,482 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities |
|
|
(1,178,610 |
) |
|
|
(1,061,392 |
) |
|
|
(1,800,995 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM DISCONTINUED OPERATIONS: |
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities |
|
|
5,804 |
|
|
|
20,522 |
|
|
|
211,039 |
|
Net cash provided by (used in) investing activities |
|
|
3,858 |
|
|
|
(160,758 |
) |
|
|
(84,112 |
) |
Net cash provided by (used in) financing activities |
|
|
|
|
|
|
240,000 |
|
|
|
(2,598 |
) |
|
|
|
|
|
|
|
|
|
|
Net cash provided by discontinued operations |
|
|
9,662 |
|
|
|
99,764 |
|
|
|
124,329 |
|
Net increase (decrease) in cash and cash equivalents |
|
|
31,218 |
|
|
|
51,447 |
|
|
|
24,365 |
|
Cash and cash equivalents at beginning of year |
|
|
82,786 |
|
|
|
31,339 |
|
|
|
6,974 |
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year |
|
$ |
114,004 |
|
|
$ |
82,786 |
|
|
$ |
31,339 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURE: |
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid during the year for: |
|
|
|
|
|
|
|
|
|
|
|
|
Interest |
|
$ |
461,398 |
|
|
$ |
430,382 |
|
|
$ |
368,578 |
|
Income taxes |
|
|
|
|
|
|
193,723 |
|
|
|
263,525 |
|
See Notes to Consolidated Financial Statements
A-33
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES
Nature of Business
Clear Channel Communications, Inc., (the Company) incorporated in Texas in 1974, is a
diversified media company with three principal business segments: radio broadcasting, Americas
outdoor advertising and international outdoor advertising. The Companys radio broadcasting
segment owns, programs and sells airtime generating revenue from the sale of national and local
advertising. The Companys Americas and international outdoor advertising segments own or operate
advertising display faces domestically and internationally.
The Company entered into an Agreement and Plan of Merger (the Merger Agreement), dated as of
November 16, 2006, among the Company, BT Triple Crown Merger Co., Inc., a Delaware corporation
(Merger Sub), B Triple Crown Finco, LLC, a Delaware limited liability company and T Triple Crown
Finco, LLC, a Delaware limited liability company (together with B Triple Crown Finco, LLC, the
Fincos), which provides for the Companys recapitalization by the merger of Merger Sub with and
into the Company. The Fincos were formed by private equity funds sponsored by Bain Capital
Partners, LLC and Thomas H. Lee Partners, L.P. solely for the purpose of entering into the Merger
and consummating the transactions contemplated by the Merger. Pursuant to the Merger each share of
the Companys common stock, other than those shares (i) held in Company treasury stock or owned by
Merger Sub immediately prior to the effective time of the merger, (ii) held by shareholders who
properly exercise their appraisal rights under Texas law, if any, and (iii) shares held by certain
employees of the Company who have agreed with the Fincos to convert equity securities of the
Company held by them into equity securities of the surviving corporation will be converted into the
right to receive $37.60 in cash, without interest, and less any applicable withholding tax. The
transaction is subject to shareholder approval, antitrust clearances, FCC approval and other
customary closing conditions. The Company filed its definitive proxy statement with the Securities
and Exchange Commission (SEC) on January 29, 2007 and the shareholder meeting will be held March
21, 2007.
Under the Merger, the Company has agreed among other things that, subject to certain exceptions,
until completion of the merger, the Company will not take any of the following actions unless the
private equity funds give their prior written consent:
|
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|
Issue, sell, pledge, dispose, encumber or grant any equity securities or convertible
securities of the Company, except in limited circumstances with respect to certain shares
and stock options pursuant to employee benefit plans; |
|
|
|
|
Acquire any business organization or any division thereof or any material amount of
assets with a purchase price in excess of $150.0 million in the aggregate; |
|
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|
|
Adjust, recapitalize, reclassify, combine, split, subdivide, redeem, purchase or
otherwise acquire any equity securities or convertible securities of the Company; |
|
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|
|
Create, incur, guarantee or assume any indebtedness except for indebtedness: (i)
incurred under the Companys existing $1.75 billion credit facility, (ii) for borrowed
money incurred pursuant to agreements in effect prior to the execution of the Merger, (iii)
as otherwise required in the ordinary course of the Companys business consistent with past
practice, or (iv) in an aggregate principal amount not to exceed $250.0 million; |
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|
Sell, lease, license, transfer, exchange or swap, mortgage or otherwise encumber, or
subject to any lien or otherwise dispose of any asset or any portion of the Companys
properties or assets with a sale price in excess of $50.0 million except for the announced
plan to sell 448 of the Companys radio stations and all of its television stations; |
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Make any capital expenditure in excess of $50.0 million individually, or $100 million in
the aggregate, except for any capital expenditures in aggregate amounts consistent with
past practice or as required pursuant to new contracts entered into in the ordinary course
of business. |
A-34
On November 16, 2006, the Company announced plans to sell 448 of its radio stations, all located
outside the top 100 U.S. media markets, as well as all of its television stations. The sale of
these assets is not contingent on the closing of the Merger. Definitive asset purchase agreements
were signed for the sale of 39 radio stations as of December 31, 2006. These stations, along with
5 stations which were sold in the fourth quarter of 2006, were classified as assets held for sale
in our consolidated balance sheet and as discontinued operations in our consolidated statements of
operations in accordance with Financial Accounting Standards No. 144, Accounting for the Impairment
or Disposal of Long-Lived Assets (Statement 144). As a result, the historical footnote
disclosures have been revised to exclude amounts related to these stations.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and its
subsidiaries. Significant intercompany accounts have been eliminated in consolidation.
Investments in nonconsolidated affiliates are accounted for using the equity method of accounting.
Cash and Cash Equivalents
Cash and cash equivalents include all highly liquid investments with an original maturity of
three months or less.
Allowance for Doubtful Accounts
The Company evaluates the collectibility of its accounts receivable based on a combination of
factors. In circumstances where it is aware of a specific customers inability to meet its
financial obligations, it records a specific reserve to reduce the amounts recorded to what it
believes will be collected. For all other customers, it recognizes reserves for bad debt based on
historical experience of bad debts as a percent of revenues for each business unit, adjusted for
relative improvements or deteriorations in the agings and changes in current economic conditions.
The Company believes is concentration of credit risk is limited due to the large number and the
geographic diversification of its customers.
Land Leases and Other Structure Licenses
Most of the Companys outdoor advertising structures are located on leased land. Americas
outdoor land rents are typically paid in advance for periods ranging from one to twelve months.
International outdoor land rents are paid both in advance and in arrears, for periods ranging from
one to twelve months. Most international street furniture display faces are operated through
contracts with the municipalities for up to 20 years. The street furniture contracts often include
a percent of revenue to be paid along with a base rent payment. Prepaid land leases are recorded
as an asset and expensed ratably over the related rental term and license and rent payments in
arrears are recorded as an accrued liability.
Purchase Accounting
The Company accounts for its business acquisitions under the purchase method of accounting.
The total cost of acquisitions is allocated to the underlying identifiable net assets, based on
their respective estimated fair values. The excess of the purchase price over the estimated fair
values of the net assets acquired is recorded as goodwill. Determining the fair value of assets
acquired and liabilities assumed requires managements judgment and often involves the use of
significant estimates and assumptions, including assumptions with respect to future cash inflows
and outflows, discount rates, asset lives and market multiples, among other items. In addition,
reserves have been established on the Companys balance sheet related to acquired liabilities and
qualifying restructuring costs and contingencies based on assumptions made at the time of
acquisition. The Company evaluates these reserves on a regular basis to determine the adequacies
of the amounts. Various acquisition agreements may include contingent purchase consideration based
on performance requirements of the investee. The Company accrues these payments under the guidance
in Emerging Issues Task Force issue 95-8: Accounting for Contingent Consideration Paid to the
Shareholders of an Acquired Enterprise in a Purchase Business Combination, after the contingencies
have been resolved.
A-35
Property, Plant and Equipment
Property, plant and equipment are stated at cost. Depreciation is computed using the
straight-line method at rates that, in the opinion of management, are adequate to allocate the cost
of such assets over their estimated useful lives, which are as follows:
Buildings and improvements 10 to 39 years
Structures 5 to 40 years
Towers, transmitters and studio equipment 7 to 20 years
Furniture and other equipment 3 to 20 years
Leasehold improvements shorter of economic life or lease term
Expenditures for maintenance and repairs are charged to operations as incurred, whereas
expenditures for renewal and betterments are capitalized.
The Company tests for possible impairment of property, plant, and equipment whenever events or
changes in circumstances, such as a reduction in operating cash flow or a dramatic change in the
manner that the asset is intended to be used indicate that the carrying amount of the asset may not
be recoverable. If indicators exist, the Company compares the undiscounted cash flows related to
the asset to the carrying value of the asset. The impairment loss calculations require management
to apply judgment in estimating future cash flows and the discount rates that reflects the risk
inherent in future cash flows. If the carrying value is greater than the undiscounted cash flow
amount, an impairment charge is recorded in depreciation expense in the statement of operations for
amounts necessary to reduce the carrying value of the asset to fair value.
Intangible Assets
The Company classifies intangible assets as definite-lived, indefinite-lived or goodwill.
Definite-lived intangibles include primarily transit and street furniture contracts, talent, and
representation contracts, all of which are amortized over the respective lives of the agreements,
typically four to fifteen years. The Company periodically reviews the appropriateness of the
amortization periods related to its definite-lived assets. These assets are stated at cost.
Indefinite-lived intangibles include broadcast FCC licenses and billboard permits. The excess cost
over fair value of net assets acquired is classified as goodwill. The indefinite-lived intangibles
and goodwill are not subject to amortization, but are tested for impairment at least annually.
The Company tests for possible impairment of definite-lived intangible assets whenever events or
changes in circumstances, such as a reduction in operating cash flow or a dramatic change in the
manner that the asset is intended to be used indicate that the carrying amount of the asset may not
be recoverable. If indicators exist, the Company compares the undiscounted cash flows related to
the asset to the carrying value of the asset. If the carrying value is greater than the
undiscounted cash flow amount, an impairment charge is recorded in amortization expense in the
statement of operations for amounts necessary to reduce the carrying value of the asset to fair
value.
The Company performs its annual impairment test for its FCC licenses and permits using a direct
valuation technique as prescribed by the Emerging Issues Task Force (EITF) Topic D-108, Use of
the Residual Method to Value Acquired Assets Other Than Goodwill (D-108), which the Company
adopted in the fourth quarter of 2004. Certain assumptions are used under the Companys direct
valuation technique, including market penetration leading to revenue potential, profit margin,
duration and profile of the build-up period, estimated start-up cost and losses incurred during the
build-up period, the risk adjusted discount rate and terminal values. The Company utilizes Duff
and Phelps, L.L.C., a third party valuation firm, to assist the Company in the development of these
assumptions and the Companys determination of the fair value of its FCC licenses and permits.
Impairment charges, other than the charge taken under the transitional rules of Financial
Accounting Standards No. 142, Goodwill and Other Intangible Assets (Statement 142) and D-108, are
recorded in amortization expense in the statement of operations.
At least annually, the Company performs its impairment test for each reporting units goodwill
using a discounted
cash flow model to determine if the carrying value of the reporting unit, including goodwill, is
less than the fair value of the reporting unit. Certain assumptions are used in determining the
fair value, including assumptions about future cash flows, discount rates, and terminal values. If
the fair value of the Companys reporting unit is less than the carrying value of the reporting
unit, the Company reduces the carrying amount of goodwill. Impairment
charges,
A-36
other than the
charge taken under the transitional rules of Statement 142 are recorded in amortization expense on
the statement of operations.
Other Investments
Other investments are composed primarily of equity securities. These securities are
classified as available-for-sale or trading and are carried at fair value based on quoted market
prices. Securities are carried at historical value when quoted market prices are unavailable. The
net unrealized gains or losses on the available-for-sale securities, net of tax, are reported as a
separate component of shareholders equity. The net unrealized gains or losses on the trading
securities are reported in the statement of operations. In addition, the Company holds investments
that do not have quoted market prices. The Company periodically reviews the value of
available-for-sale, trading and non-marketable securities and records impairment charges in the
statement of operations for any decline in value that is determined to be other-than-temporary.
The average cost method is used to compute the realized gains and losses on sales of equity
securities.
Nonconsolidated Affiliates
In general, investments in which the Company owns 20 percent to 50 percent of the common stock
or otherwise exercises significant influence over the investee are accounted for under the equity
method. The Company does not recognize gains or losses upon the issuance of securities by any of
its equity method investees. The Company reviews the value of equity method investments and
records impairment charges in the statement of operations for any decline in value that is
determined to be other-than-temporary.
Financial Instruments
Due to their short maturity, the carrying amounts of accounts and notes receivable, accounts
payable, accrued liabilities, and short-term borrowings approximated their fair values at December
31, 2006 and 2005.
Income Taxes
The Company accounts for income taxes using the liability method. Under this method, deferred
tax assets and liabilities are determined based on differences between financial reporting bases
and tax bases of assets and liabilities and are measured using the enacted tax rates expected to
apply to taxable income in the periods in which the deferred tax asset or liability is expected to
be realized or settled. Deferred tax assets are reduced by valuation allowances if the Company
believes it is more likely than not that some portion or all of the asset will not be realized. As
all earnings from the Companys foreign operations are permanently reinvested and not distributed,
the Companys income tax provision does not include additional U.S. taxes on foreign operations.
It is not practical to determine the amount of federal income taxes, if any, that might become due
in the event that the earnings were distributed.
Revenue Recognition
Radio broadcasting revenue is recognized as advertisements or programs are broadcast and is
generally billed monthly. Outdoor advertising contracts typically cover periods of up to three
years and are generally billed monthly. Revenue for outdoor advertising space rental is recognized
ratably over the term of the contract. Advertising revenue is reported net of agency commissions.
Agency commissions are calculated based on a stated percentage applied to gross billing revenue for
the Companys broadcasting and outdoor operations. Payments received in advance of being earned
are recorded as deferred income.
Barter transactions represent the exchange of airtime or display space for merchandise or services.
These transactions are generally recorded at the fair market value of the airtime or display space
or the fair value of the merchandise or services received. Revenue is recognized on barter and
trade transactions when the advertisements
are broadcasted or displayed. Expenses are recorded ratably over a period that estimates when the
merchandise or service received is utilized or the event occurs. Barter and trade revenues from
continuing operations for the years ended December 31, 2006, 2005 and 2004, were approximately
$104.0 million, $102.0 million and $124.7 million, respectively, and are included in total
revenues. Barter and trade expenses from continuing operations for the years ended December 31,
2006, 2005 and 2004, were approximately $101.6 million, $95.9 million and $132.5 million,
respectively, and are included in selling, general and administrative expenses.
A-37
Share-Based Payments
The Company adopted Financial Accounting Standard No. 123 (R), Share-Based Payment (Statement
123(R)), on January 1, 2006 using the modified-prospective-transition method. Under the fair
value recognition provisions of this statement, stock based compensation cost is measured at the
grant date based on the fair value of the award and is recognized as expense on a straight-line
basis over the vesting period. Determining the fair value of share-based awards at the grant date
requires assumptions and judgments about expected volatility and forfeiture rates, among other
factors. If actual results differ significantly from these estimates, the Companys results of
operations could be materially impacted.
Derivative Instruments and Hedging Activities
Financial Accounting Standard No. 133, Accounting for Derivative Instruments and Hedging
Activities, (Statement 133), requires the Company to recognize all of its derivative instruments
as either assets or liabilities in the consolidated balance sheet at fair value. The accounting
for changes in the fair value of a derivative instrument depends on whether it has been designated
and qualifies as part of a hedging relationship, and further, on the type of hedging relationship.
For derivative instruments that are designated and qualify as hedging instruments, the Company must
designate the hedging instrument, based upon the exposure being hedged, as a fair value hedge, cash
flow hedge or a hedge of a net investment in a foreign operation. The Company formally documents
all relationships between hedging instruments and hedged items, as well as its risk management
objectives and strategies for undertaking various hedge transactions. The Company formally
assesses, both at inception and at least quarterly thereafter, whether the derivatives that are
used in hedging transactions are highly effective in offsetting changes in either the fair value or
cash flows of the hedged item. If a derivative ceases to be a highly effective hedge, the Company
discontinues hedge accounting. The Company accounts for its derivative instruments that are not
designated as hedges at fair value, with changes in fair value recorded in earnings. The Company
does not enter into derivative instruments for speculation or trading purposes.
Foreign Currency
Results of operations for foreign subsidiaries and foreign equity investees are translated
into U.S. dollars using the average exchange rates during the year. The assets and liabilities of
those subsidiaries and investees, other than those of operations in highly inflationary countries,
are translated into U.S. dollars using the exchange rates at the balance sheet date. The related
translation adjustments are recorded in a separate component of shareholders equity, Accumulated
other comprehensive income. Foreign currency transaction gains and losses, as well as gains and
losses from translation of financial statements of subsidiaries and investees in highly
inflationary countries, are included in operations.
Advertising Expense
The Company records advertising expense as it is incurred. Advertising expenses from
continuing operations of $140.2 million, $168.6 million and $174.9 million were recorded during the
years ended December 31, 2006, 2005 and 2004, respectively as a component of selling, general and
administrative expenses.
Use of Estimates
The preparation of the consolidated financial statements in conformity with generally accepted
accounting principles requires management to make estimates, judgments, and assumptions that affect
the amounts reported in the consolidated financial statements and accompanying notes including, but
not limited to, legal, tax and
insurance accruals. The Company bases its estimates on historical experience and on various other
assumptions that are believed to be reasonable under the circumstances. Actual results could
differ from those estimates.
New Accounting Pronouncements
In February 2006, the Financial Accounting Standards Board (FASB) issued Statement No. 155,
Accounting for Certain Hybrid Financial Instruments (Statement 155). Statement 155 is an
amendment of FASB Statement No.
A-38
133, Accounting for Derivative Instruments and Hedging Activities
(Statement 133) and FASB Statement 140, Accounting for Transfers and Servicing of Financial
Assets and Extinguishments of Liabilities (Statement 140) and allows companies to elect to
measure at fair value entire financial instruments containing embedded derivatives that would
otherwise have to be accounted for separately. Statement 155 also requires companies to identify
interest in securitized financial assets that are freestanding derivatives or contain embedded
derivatives that would have to be accounted for separately, clarifies which interest- and
principal-only strips are subject to Statement 133, and amends Statement 140 to revise the
conditions of a qualifying special purpose entity due to the new requirement to identify whether
interests in securitized financial assets are freestanding derivatives or contain embedded
derivatives. Statement 155 is effective for all financial instruments acquired or issued in fiscal
years beginning after September 15, 2006. The Company will adopt Statement 155 on January 1, 2007
and does not anticipate adoption to materially impact its financial position or results of
operations.
In June 2006, the FASB issued Interpretation No. 48, Accounting for Uncertainty in Income Taxes
an interpretation of FASB Statement 109 (FIN 48). FIN 48 clarifies the accounting for
uncertainty in income taxes by prescribing a recognition threshold for tax positions taken or
expected to be taken in a tax return. FIN 48 requires that entities recognize in their financial
statements the impact of a tax position if that position is more likely than not of being sustained
on audit, based on the technical merits of the position. FIN 48 is effective for fiscal years
beginning after December 31, 2006. The Company continues to evaluate the impact of FIN 48 but does
not believe that it will have a material impact on the Companys financial statements.
In September 2006, the FASB issued Statement No. 157, Fair Value Measurements (Statement 157).
Statement 157 defines fair value, establishes a framework for measuring fair value and expands
disclosure requirements for fair value measurements. Statement 157 applies whenever other
standards require (or permit) assets or liabilities to be measured at fair value. Statement 157
does not expand the use of fair value in any new circumstances. Statement 157 is effective for
financial statements issued for fiscal years beginning after November 15, 2007. The Company will
adopt Statement 157 on January 1, 2008 and anticipates that adoption will not materially impact its
financial position or results of operations.
In September 2006, the FASB issued Statement No. 158, Employers Accounting for Defined Benefit
Pension and Other Postretirement Plans, an amendment of FASB Statements No. 87, 88, 106, and 132(R)
(Statement 158). Statement 158 requires an employer to recognize the overfunded or underfunded
status of a defined benefit postretirement plan as an asset or liability in its statement of
financial position and to recognize changes in that funded status in the year in which the changes
occur through comprehensive income. The portions of Statement 158 that apply to the Company are
effective as of the end of the fiscal year ending after December 15, 2006. The Company adopted
Statement 158 as of December 31, 2006 and adoption did not materially impact its financial position
or results of operations.
NOTE B STRATEGIC REALIGNMENT
Initial Public Offering (IPO) of Clear Channel Outdoor Holdings, Inc. (CCO)
The Company completed the IPO on November 11, 2005, which consisted of the sale of 35.0 million
shares, for $18.00 per share, of Class A common stock of CCO, its indirect, wholly owned subsidiary
prior to the IPO. After completion of the IPO, the Company owns all 315.0 million shares of CCOs
outstanding Class B common stock, representing approximately 90% of the outstanding shares of CCOs
common stock and approximately 99% of the total voting power of CCOs common stock. The net
proceeds from the offering, after deducting underwriting discounts and offering expenses, were
approximately $600.6 million. All of the net proceeds of the offering were
used to repay a portion of the outstanding balances of intercompany notes owed to the Company by
CCO. Under the guidance in SEC Staff Accounting Bulletin Topic 5H, Accounting for Sales of Stock
by a Subsidiary, the Company has recorded approximately $120.9 million of minority interest and
$479.7 million of additional paid in capital on its consolidated balance sheet at December 31, 2005
as a result of this transaction.
A-39
Spin-off of Live Nation
On December 2, 2005, the Companys Board of Directors approved the spin-off of Live Nation, made up
of the Companys former live entertainment segment and sports representation business. The
spin-off closed December 21, 2005 by way of a pro rata dividend to the Companys shareholders,
which reduced shareholders equity by $716.7 million. The spin-off consisted of a dividend of .125
share of Live Nation common stock for each share of the Companys common stock held on December 21,
2005, the date of the distribution. Additionally, Live Nation repaid approximately $220.0 million
of intercompany notes owed to the Company by Live Nation. The Company does not own any shares of
Live Nation common stock after the spin-off. Operating results of Live Nation are reported in
discontinued operations through December 21, 2005. The spin-off resulted in a $2.4 billion capital
loss for tax purposes, $890.7 million of which was utilized in 2005 or carried back to offset
capital gains incurred in prior years and the remaining $1.5 billion was recorded as a deferred tax
asset with an equivalent offsetting valuation allowance at December 31, 2005. The $890.7 million
capital loss resulted in a current income tax benefit of $314.1 million in 2005, which is included
in income from discontinued operations, net.
The Companys consolidated statements of operations have been restated to reflect Live Nations
results of operations in discontinued operations for the years ended December 31, 2005 and 2004.
The following table displays financial information for Live Nations discontinued operations for
the years ended December 31, 2005 and 2004:
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|
|
|
|
|
|
|
|
(In thousands) |
|
2005(1) |
|
2004 |
Revenue (including sales to other
Company segments of $0.7 million, $0.8
million for the years ended December
31, 2005 and 2004, respectively.) |
|
$ |
2,858,481 |
|
|
$ |
2,804,347 |
|
Income before income taxes and
cumulative effect of a change in
accounting principle |
|
$ |
(16,215 |
) |
|
$ |
68,037 |
|
|
|
|
(1) |
|
Includes the results of operations for Live Nation through December 21, 2005. |
Included in income from discontinued operations, net is an income tax benefit of $316.7 million,
primarily related to the portion of the capital loss discussed above, which was realized in 2005,
and income tax expense of $19.0 million for the year ended December 31, 2004.
Transactions with Live Nation
The Company agreed to provide transitional services to Live Nation after the spin-off. The
services terminated at various times, generally ranging from two months to one year after the
completion of the spin-off. The Company provided certain transitional administrative and support
services such as treasury, payroll and other financial related services; human resources and
employee benefits; legal and related services; information systems, network and related services;
investment services; corporate services and tax services. The charges for the transition services
were intended to allow the Company to fully recover the allocated direct costs of providing the
services, plus all out-of-pocket expenses, generally without profit. The allocation of costs was
based on various measures depending on the service provided, including relative revenue, employee
headcount or number of users of a service. The Company received $4.8 million for these services
during 2006.
The Company sells advertising and other services to Live Nation. For the year ended December 31,
2006 the Company recorded $4.3 million of revenue for these advertisements. It is the Companys
opinion that these transactions were recorded at fair value.
Discontinued Operations and Assets Held for Sale
On November 16, 2006, the Company announced plans to sell certain radio markets, comprising 448 of
its radio stations. These markets are located outside the top 100 U.S. media markets. As of
December 31, 2006, the Company had sold 5 radio stations and signed definitive asset purchase
agreements to sell 39 radio stations for an aggregate of approximately $80.8 million in cash in
these markets. The closing of the transactions under definitive asset purchase agreements will be
subject to antitrust clearances, FCC approval and other customary closing
conditions. The Company determined that each of these markets represents a disposal group.
Consistent with the
A-40
provisions of Statement 144, the Company classified these markets assets and
liabilities that are subject to transfer under the definitive asset purchase agreements as held
for sale at December 31, 2006 and 2005. Accordingly, depreciation and amortization associated with
these assets was discontinued. Additionally, the Company determined that these markets comprise
operations and cash flows that can be clearly distinguished, operationally and for financial
reporting purposes, from the rest of the Company. Therefore, the results of operations for these
markets were presented as discontinued operations, net of tax, for all periods presented. As of
December 31, 2006, the Company determined that the estimated fair value less costs to sell
attributable to these markets was in excess of the carrying value of their related net assets held
for sale.
Summarized operating results from these markets are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands) |
|
2006 |
|
2005 |
|
2004 |
Revenue |
|
$ |
32,455 |
|
|
$ |
31,613 |
|
|
$ |
33,936 |
|
Income before income taxes and
cumulative effect of a change in
accounting principle |
|
$ |
4,669 |
|
|
$ |
2,477 |
|
|
$ |
3,789 |
|
Included in income from discontinued operations, net is income tax expense of $1.9 million, $1.0
million and $1.5 million for the years ended December 31, 2006, 2005 and 2004, respectively.
NOTE C INTANGIBLE ASSETS AND GOODWILL
Definite-lived Intangibles
The Company has definite-lived intangible assets which consist primarily of transit and street
furniture contracts and other contractual rights in the outdoor segments, talent and program right
contracts in the radio segment, and in the Companys other segment, representation contracts for
non-affiliated radio and television stations, all of which are amortized over the respective lives
of the agreements. Other definite-lived intangible assets are amortized over the shorter of either
the respective lives of the agreements or over the period of time the assets are expected to
contribute directly or indirectly to the Companys future cash flows. The following table presents
the gross carrying amount and accumulated amortization for each major class of definite-lived
intangible assets at December 31, 2006 and 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006 |
|
|
2005 |
|
|
|
Gross Carrying |
|
|
Accumulated |
|
|
Gross Carrying |
|
|
Accumulated |
|
(In thousands) |
|
Amount |
|
|
Amortization |
|
|
Amount |
|
|
Amortization |
|
Transit, street
furniture, and other
outdoor contractual
rights |
|
$ |
821,364 |
|
|
$ |
530,063 |
|
|
$ |
651,455 |
|
|
$ |
408,018 |
|
Talent contracts |
|
|
125,270 |
|
|
|
115,537 |
|
|
|
202,161 |
|
|
|
175,553 |
|
Representation contracts |
|
|
349,493 |
|
|
|
175,658 |
|
|
|
313,004 |
|
|
|
133,987 |
|
Other |
|
|
124,881 |
|
|
|
76,933 |
|
|
|
135,782 |
|
|
|
104,054 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
1,421,008 |
|
|
$ |
898,191 |
|
|
$ |
1,302,402 |
|
|
$ |
821,612 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total amortization expense from continuing operations related to definite-lived intangible assets
for the years ended December 31, 2006, 2005 and 2004 was $150.8 million, $154.2 million and $133.4
million, respectively. The following table presents the Companys estimate of amortization expense
for each of the five succeeding fiscal years for definite-lived intangible assets that exist at
December 31, 2006:
(In thousands)
|
|
|
|
|
2007 |
|
$ |
96,877 |
|
2008 |
|
|
79,059 |
|
2009 |
|
|
66,727 |
|
2010 |
|
|
50,303 |
|
2011 |
|
|
42,420 |
|
As acquisitions and dispositions occur in the future and as purchase price allocations are
finalized, amortization expense may vary.
A-41
Indefinite-lived Intangibles
The Companys indefinite-lived intangible assets consist of FCC broadcast licenses and billboard
permits. FCC broadcast licenses are granted to both radio and television stations for up to eight
years under the Telecommunications Act of 1996. The Act requires the FCC to renew a broadcast
license if: it finds that the station has served the public interest, convenience and necessity;
there have been no serious violations of either the Communications Act of 1934 or the FCCs rules
and regulations by the licensee; and there have been no other serious violations which taken
together constitute a pattern of abuse. The licenses may be renewed indefinitely at little or no
cost. The Company does not believe that the technology of wireless broadcasting will be replaced
in the foreseeable future. The Companys billboard permits are issued in perpetuity by state and
local governments and are transferable or renewable at little or no cost. Permits typically
include the location for which the permit allows the Company the right to operate an advertising
structure. The Companys permits are located on either owned or leased land. In cases where the
Companys permits are located on leased land, the leases are typically from 10 to 20 years and
renew indefinitely, with rental payments generally escalating at an inflation based index. If the
Company loses its lease, the Company will typically obtain permission to relocate the permit or
bank it with the municipality for future use. The Company does not amortize its FCC broadcast
licenses or billboard permits. The Company tests these indefinite-lived intangible assets for
impairment at least annually.
The SEC staff issued D-108 at the September 2004 meeting of the EITF. D-108 states that the
residual method should no longer be used to value intangible assets other than goodwill. Rather,
D-108 requires that a direct method be used to value intangible assets other than goodwill. Prior
to adoption of D-108, the Company recorded its acquisition at fair value using an industry accepted
income approach. The value calculated using the income approach was allocated to the
indefinite-lived intangibles after deducting the value of tangible and intangible assets, as well
as estimated costs of establishing a business at the market level. The Company used a similar
approach in its annual impairment test prior to its adoption of D-108.
D-108 requires that an impairment test be performed upon adoption using a direct method for valuing
intangible assets other than goodwill. Under the direct method, it is assumed that rather than
acquiring indefinite-lived intangible assets as a part of a going concern business, the buyer
hypothetically obtains indefinite-lived intangible assets and builds a new operation with similar
attributes from scratch. Thus, the buyer incurs start-up costs during the build-up phase which are
normally associated with going concern value. Initial capital costs are deducted from the
discounted cash flows model which results in value that is directly attributable to the
indefinite-lived intangible assets.
Under the direct method, the Company continues to aggregate its indefinite-lived intangible assets
at the market level for purposes of impairment testing as prescribed by EITF 02-07, Unit of
Accounting for Testing Impairment of Indefinite-Lived Intangible Assets. The Companys key
assumptions using the direct method are market revenue growth rates, market share, profit margin,
duration and profile of the build-up period, estimated start-up capital costs and losses incurred
during the build-up period, the risk-adjusted discount rate and terminal values. This data is
populated using industry normalized information representing an average station within a market.
The Companys adoption of the direct method resulted in an aggregate fair value of its
indefinite-lived intangible assets that was less than the carrying value determined under its prior
method. As a result of the adoption of D-108, the Company recorded a non-cash charge of $4.9
billion, net of deferred taxes of $3.0 billion as a cumulative effect of a change in accounting
principle during the fourth quarter of 2004. The non-cash charge of $4.9 billion, net of tax is
comprised of a non-cash charge of $4.7 billion and $.2 billion within our broadcasting FCC licenses
and our outdoor permits, respectively.
A-42
Goodwill
The Company tests goodwill for impairment using a two-step process. The first step, used to screen
for potential impairment, compares the fair value of the reporting unit with its carrying amount,
including goodwill. The second step, used to measure the amount of the impairment loss, compares
the implied fair value of the reporting unit goodwill with the carrying amount of that goodwill.
The following table presents the changes in the carrying amount of goodwill in each of the
Companys reportable segments for the years ended December 31, 2005 and 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas |
|
|
International |
|
|
|
|
|
|
|
(In thousands) |
|
Radio |
|
|
Outdoor |
|
|
Outdoor |
|
|
Other |
|
|
Total |
|
Balance as of December 31, 2004 |
|
$ |
6,325,598 |
|
|
$ |
398,065 |
|
|
$ |
389,629 |
|
|
$ |
29,139 |
|
|
$ |
7,142,431 |
|
Acquisitions |
|
|
7,497 |
|
|
|
1,896 |
|
|
|
4,407 |
|
|
|
2,957 |
|
|
|
16,757 |
|
Foreign currency |
|
|
|
|
|
|
|
|
|
|
(50,232 |
) |
|
|
|
|
|
|
(50,232 |
) |
Adjustments |
|
|
(55,285 |
) |
|
|
6,003 |
|
|
|
(193 |
) |
|
|
8,883 |
|
|
|
(40,592 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2005 |
|
|
6,277,810 |
|
|
|
405,964 |
|
|
|
343,611 |
|
|
|
40,979 |
|
|
|
7,068,364 |
|
Acquisitions |
|
|
42,761 |
|
|
|
249,527 |
|
|
|
42,222 |
|
|
|
8,084 |
|
|
|
342,594 |
|
Dispositions |
|
|
(10,532 |
) |
|
|
(1,913 |
) |
|
|
|
|
|
|
|
|
|
|
(12,445 |
) |
Foreign currency |
|
|
|
|
|
|
14,085 |
|
|
|
40,109 |
|
|
|
|
|
|
|
54,194 |
|
Adjustments |
|
|
(2,872 |
) |
|
|
323 |
|
|
|
(312 |
) |
|
|
5 |
|
|
|
(2,856 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2006 |
|
$ |
6,307,167 |
|
|
$ |
667,986 |
|
|
$ |
425,630 |
|
|
$ |
49,068 |
|
|
$ |
7,449,851 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Included in the Americas acquisitions amount above is $148.6 million related to the acquisition of
Interspace, all of which is expected to be deductible for tax purposes.
NOTE D BUSINESS ACQUISITIONS
2006 Acquisitions
CCO completed the acquisition of Interspace on July 1, 2006, by issuing 4.2 million shares of CCOs
Class A common stock and the payment of approximately $81.3 million. The acquisition was valued at
approximately $170.4 million based on CCOs common shares issued at the closing share price on the
date of acquisition and the cash consideration paid. The terms of the acquisition provide for
additional consideration based on Interspaces financial performance. As a result, the Company has
accrued $20.9 million of additional purchase consideration as of December 31, 2006. Interspaces
2005 revenues and operating expenses (excluding depreciation and amortization) were approximately
$45.8 million and $32.5 million, respectively.
The Company acquired radio stations for $16.4 million and a music scheduling company for $44.3
million in cash plus $10.0 million of deferred purchase consideration during the year ended
December 31, 2006. The Company also acquired Americas and international outdoor display faces and
additional equity interests in international outdoor companies for $242.4 million in cash, which
includes cash paid for Interspace. The Company exchanged assets in one of its Americas outdoor
markets for assets located in a different market and recognized a gain of $13.2 million in Gain on
disposition of assets net. In addition, the Companys national representation firm acquired
representation contracts for $38.1 million in cash and its television business acquired a station
for $21.0 million in cash.
2005 Acquisitions
During 2005 the Company acquired radio stations for $12.5 million in cash. The Company also
acquired Americas outdoor display faces for $113.2 million in cash. The Companys international
outdoor segment acquired display faces for $17.1 million and increased its investment to a
controlling majority interest in Clear Media Limited for $8.9 million. Clear Media is a Chinese
outdoor advertising company and as a result of consolidating its operations during the third
quarter of 2005, the acquisition resulted in an increase in the
Companys cash of $39.7 million. Also, the Companys national representation business acquired new
contracts for a total of $47.7 million and the Companys television business acquired a television
station for $5.5 million.
A-43
2004 Acquisitions
Medallion Merger
On September 3, 2004, the Company closed its merger with Medallion Taxi Media, Inc., (Medallion).
Pursuant to the terms of the agreement, the Company exchanged approximately .9 million shares of
its common stock for 100% of the outstanding stock of Medallion, valuing this merger at
approximately $33.6 million. Medallions operations include advertising displays placed on the top
of taxi cabs. The Company began consolidating the results of operations on September 3, 2004.
In addition to the above, during 2004 the Company acquired radio stations for $59.4 million in cash
and $38.9 million in restricted cash. The Company also acquired outdoor display faces for $60.9
million in cash and acquired equity interest in international outdoor companies for $2.5 million in
cash. Also, the Company acquired two television stations for $10.0 million in cash and $8.7
million in restricted cash and our national representation business acquired new contracts for a
total of $32.4 million in cash during the year ended December 31, 2004. Finally, the Company
exchanged outdoor advertising assets, valued at $23.7 million for other outdoor advertising assets
valued at $32.3 million. As a result of this exchange, the Company recorded a gain of $8.6 million
in Gain on disposition of assets net.
Acquisition Summary
The following is a summary of the assets and liabilities acquired and the consideration given for
all acquisitions made during 2006 and 2005:
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
2006 |
|
|
2005 |
|
Property, plant and equipment |
|
$ |
51,275 |
|
|
$ |
157,082 |
|
Accounts receivable |
|
|
18,785 |
|
|
|
30,301 |
|
Definite lived intangibles |
|
|
177,554 |
|
|
|
70,182 |
|
Indefinite-lived intangible assets |
|
|
43,612 |
|
|
|
9,402 |
|
Goodwill |
|
|
260,922 |
|
|
|
16,365 |
|
Investments |
|
|
2,409 |
|
|
|
805 |
|
Other assets |
|
|
19,528 |
|
|
|
49,651 |
|
|
|
|
|
|
|
|
|
|
|
574,085 |
|
|
|
333,788 |
|
Other liabilities |
|
|
(79,320 |
) |
|
|
(63,594 |
) |
Minority interests |
|
|
(15,293 |
) |
|
|
(101,133 |
) |
Deferred tax |
|
|
(21,361 |
) |
|
|
(3,826 |
) |
Subsidiary common stock issued, net of minority interests |
|
|
(67,873 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(183,847 |
) |
|
|
(168,553 |
) |
|
|
|
|
|
|
|
Less: fair value of net assets exchanged in swap |
|
|
(28,074 |
) |
|
|
|
|
|
|
|
|
|
|
|
Cash paid for acquisitions |
|
$ |
362,164 |
|
|
$ |
165,235 |
|
|
|
|
|
|
|
|
The Company has entered into certain agreements relating to acquisitions that provide for purchase
price adjustments and other future contingent payments based on the financial performance of the
acquired company. The Company will continue to accrue additional amounts related to such
contingent payments if and when it is determinable that the applicable financial performance
targets will be met. The aggregate of these contingent payments, if performance targets were met,
would not significantly impact the Companys financial position or results of operations.
Restructuring
The Company has restructuring liabilities related to its 2000 acquisition of AMFM Inc. (AMFM),
and the 2002 acquisition of The Ackerley Group, Inc. (Ackerley). The balance at December 31,
2006 of $4.9 million was
comprised of $0.4 million of severance costs and $4.5 million of lease termination costs. During
the year ended December 31, 2006, $0.4 million was paid and charged to severance.
A-44
In addition to the AMFM and Ackerley restructurings, the Company restructured its outdoor
operations in France in the third quarter of 2005. As a result, the Company recorded $26.6 million
in restructuring costs as a component of selling, general and administrative expenses. Of the
$26.6 million, $22.5 million was related to severance costs and $4.1 million was related to other
costs. During 2006, $11.8 million of related costs were paid and charged to the restructuring
accrual. As of December 31, 2006, the accrual balance was $11.0 million.
NOTE E INVESTMENTS
The Companys most significant investments in nonconsolidated affiliates are listed below:
Australian Radio Network
The Company owns a fifty-percent (50%) interest in Australian Radio Network (ARN), an Australian
company that owns and operates radio stations in Australia and New Zealand.
Grupo ACIR Comunicaciones
The Company owns a forty-percent (40%) interest in Grupo ACIR Comunicaciones (ACIR), a Mexican
radio broadcasting company. ACIR owns and operates radio stations throughout Mexico.
Summarized Financial Information
The following table summarizes the Companys investments in these nonconsolidated affiliates:
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All |
|
|
|
|
|
|
ARN |
|
|
ACIR |
|
|
Others |
|
|
Total |
|
At December 31, 2005 |
|
$ |
138,256 |
|
|
$ |
62,675 |
|
|
$ |
99,292 |
|
|
$ |
300,223 |
|
Acquisition (disposition) of
investments |
|
|
|
|
|
|
|
|
|
|
2,408 |
|
|
|
2,408 |
|
Other, net |
|
|
(14,878 |
) |
|
|
|
|
|
|
(5,477 |
) |
|
|
(20,355 |
) |
Equity in net earnings (loss) |
|
|
24,520 |
|
|
|
5,865 |
|
|
|
7,093 |
|
|
|
37,478 |
|
Foreign currency transaction
adjustment |
|
|
(1,170 |
) |
|
|
|
|
|
|
|
|
|
|
(1,170 |
) |
Foreign currency translation
adjustment |
|
|
(1,082 |
) |
|
|
(280 |
) |
|
|
(2,575 |
) |
|
|
(3,937 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2006 |
|
$ |
145,646 |
|
|
$ |
68,260 |
|
|
$ |
100,741 |
|
|
$ |
314,647 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The investments in the table above are not consolidated, but are accounted for under the equity
method of accounting, whereby the Company records its investments in these entities in the balance
sheet as Investments in, and advances to, nonconsolidated affiliates. The Companys interests in
their operations are recorded in the statement of operations as Equity in earnings of
nonconsolidated affiliates. There was interest income derived from transactions with
nonconsolidated affiliates of $3.4 million in 2004 recorded in the statement of operations as
Equity in earnings of nonconsolidated affiliates. Accumulated undistributed earnings included in
retained deficit for these investments were $112.6 million, $90.1 million and $67.4 million for
December 31, 2006, 2005 and 2004, respectively.
A-45
Other Investments
Other investments of $245.7 million and $324.6 million at December 31, 2006 and 2005, respectively,
include marketable equity securities and other investments classified as follows:
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair |
|
|
Unrealized |
|
|
|
|
Investments |
|
Value |
|
|
Gains |
|
|
(Losses) |
|
|
Net |
|
|
Cost |
|
2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for sale |
|
$ |
154,297 |
|
|
$ |
118,563 |
|
|
$ |
|
|
|
$ |
118,563 |
|
|
$ |
35,734 |
|
Trading |
|
|
74,953 |
|
|
|
67,695 |
|
|
|
|
|
|
|
67,695 |
|
|
|
7,258 |
|
Other cost investments |
|
|
16,499 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,499 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
245,749 |
|
|
$ |
186,258 |
|
|
$ |
|
|
|
$ |
186,258 |
|
|
$ |
59,491 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair |
|
|
Unrealized |
|
|
|
|
Investments |
|
Value |
|
|
Gains |
|
|
(Losses) |
|
|
Net |
|
|
Cost |
|
2005 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for sale |
|
$ |
251,904 |
|
|
$ |
216,170 |
|
|
$ |
|
|
|
$ |
216,170 |
|
|
$ |
35,734 |
|
Trading |
|
|
54,486 |
|
|
|
47,228 |
|
|
|
|
|
|
|
47,228 |
|
|
|
7,258 |
|
Other cost investments |
|
|
18,191 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18,191 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
324,581 |
|
|
$ |
263,398 |
|
|
$ |
|
|
|
$ |
263,398 |
|
|
$ |
61,183 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A certain amount of the Companys trading securities secure its obligations under forward exchange
contracts discussed in Note H.
Accumulated net unrealized gain (loss) on available-for-sale securities, net of tax, of $76.1
million and $136.6 million were recorded in shareholders equity in Accumulated other
comprehensive income at December 31, 2006 and 2005, respectively. The net unrealized gain (loss)
on trading securities of $20.5 million and $17.5 million for the years ended December 31, 2006 and
2005, respectively, is recorded on the statement of operations in Gain (loss) on marketable
securities. Other cost investments include various investments in companies for which there is no
readily determinable market value.
During 2004, the Company sold its remaining investment in Univision Corporation for $599.4 million
in net proceeds. As a result, it recorded a gain of $47.0 million in Gain (loss) on marketable
securities.
NOTE F ASSET RETIREMENT OBLIGATION
The Company has an asset retirement obligation of $59.3 million as of December 31, 2006 which
is reported in Other long-term liabilities. The liability relates to the Companys obligation to
dismantle and remove its outdoor advertising displays from leased land and to reclaim the site to
its original condition upon the termination or non-renewal of a lease. The liability is
capitalized as part of the related long-lived assets carrying value. Due to the high rate of
lease renewals over a long period of time, the calculation assumes that all related assets will be
removed at some period over the next 50 years. An estimate of third-party cost information is used
with respect to the dismantling of the structures and the reclamation of the site. The interest
rate used to calculate the present value of such costs over the retirement period is based on an
estimated risk adjusted credit rate for the same period.
The following table presents the activity related to the Companys asset retirement obligation:
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
2006 |
|
|
2005 |
|
Balance at January 1 |
|
$ |
49,807 |
|
|
$ |
49,216 |
|
Adjustment due to change in estimate of related costs |
|
|
7,581 |
|
|
|
(1,344 |
) |
Accretion of liability |
|
|
3,539 |
|
|
|
3,616 |
|
Liabilities settled |
|
|
(1,647 |
) |
|
|
(1,681 |
) |
|
|
|
|
|
|
|
Balance at December 31 |
|
$ |
59,280 |
|
|
$ |
49,807 |
|
|
|
|
|
|
|
|
A-46
NOTE G LONG-TERM DEBT
Long-term debt at December 31, 2006 and 2005 consisted of the following:
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
2006 |
|
|
2005 |
|
Bank credit facilities |
|
$ |
966,488 |
|
|
$ |
292,410 |
|
Senior Notes: |
|
|
|
|
|
|
|
|
6.25% Senior Notes Due 2011 |
|
|
750,000 |
|
|
|
|
|
6.0% Senior Notes Due 2006 |
|
|
|
|
|
|
750,000 |
|
3.125% Senior Notes Due 2007 |
|
|
250,000 |
|
|
|
250,000 |
|
4.625% Senior Notes Due 2008 |
|
|
500,000 |
|
|
|
500,000 |
|
6.625% Senior Notes Due 2008 |
|
|
125,000 |
|
|
|
125,000 |
|
4.25% Senior Notes Due 2009 |
|
|
500,000 |
|
|
|
500,000 |
|
7.65% Senior Notes Due 2010 |
|
|
750,000 |
|
|
|
750,000 |
|
4.5% Senior Notes Due 2010 |
|
|
250,000 |
|
|
|
250,000 |
|
4.4% Senior Notes Due 2011 |
|
|
250,000 |
|
|
|
250,000 |
|
5.0% Senior Notes Due 2012 |
|
|
300,000 |
|
|
|
300,000 |
|
5.75% Senior Notes Due 2013 |
|
|
500,000 |
|
|
|
500,000 |
|
5.5% Senior Notes Due 2014 |
|
|
750,000 |
|
|
|
750,000 |
|
4.9% Senior Notes Due 2015 |
|
|
250,000 |
|
|
|
250,000 |
|
5.5% Senior Notes Due 2016 |
|
|
250,000 |
|
|
|
250,000 |
|
6.875% Senior Debentures Due 2018 |
|
|
175,000 |
|
|
|
175,000 |
|
7.25% Debentures Due 2027 |
|
|
300,000 |
|
|
|
300,000 |
|
Original issue (discount) premium |
|
|
(16,890 |
) |
|
|
(15,767 |
) |
Fair value adjustments related to interest rate swaps |
|
|
(29,834 |
) |
|
|
(29,049 |
) |
Subsidiary level notes |
|
|
678,372 |
|
|
|
681,843 |
|
Other long-term debt |
|
|
164,939 |
|
|
|
217,111 |
|
|
|
|
|
|
|
|
|
|
|
7,663,075 |
|
|
|
7,046,548 |
|
Less: current portion |
|
|
336,375 |
|
|
|
891,185 |
|
|
|
|
|
|
|
|
Total long-term debt |
|
$ |
7,326,700 |
|
|
$ |
6,155,363 |
|
|
|
|
|
|
|
|
Bank Credit Facility
The Company has a five-year, multi-currency revolving credit facility in the amount of $1.75
billion. The interest rate is based upon a prime, LIBOR, or Federal Funds rate selected at the
Companys discretion, plus a margin. The multi-currency revolving credit facility can be used for
general working capital purposes including commercial paper support as well as to fund capital
expenditures, share repurchases, acquisitions and the refinancing of public debt securities.
At December 31, 2006, the outstanding balance on the $1.75 billion credit facility was $966.5
million and, taking into account letters of credit of $75.3 million, $708.2 million was available
for future borrowings, with the entire balance to be repaid on July 12, 2009. At December 31,
2006, interest rates on this bank credit facility varied from 5.7% to 5.8%.
Senior Notes
On March 21, 2006 the Company completed a debt offering of $500.0 million 6.25% Senior Notes due
2011. Interest is payable on March 15 and September 15 of each year. The net proceeds of
approximately $497.5 million were used to repay borrowings under the Companys bank credit
facility.
A-47
On August 15, 2006 the Company completed an additional $250.0 million issuance of its 6.25% Senior
Notes due 2011 originally issued March 21, 2006. The net proceeds of approximately $253.4 million,
including accrued interest, were used to repay borrowings under the Companys bank credit facility.
On November 1, 2006, the Company redeemed its 6% Senior Notes at their maturity for $750.0 million
plus accrued interest with proceeds from its bank credit facility.
All fees and initial offering discounts are being amortized as interest expense over the life of
the respective notes. The aggregate face value and market value of the senior notes was
approximately $5.9 billion and $5.5 billion, respectively, at December 31, 2006. The aggregate
face value and market value of the senior notes was approximately $5.9 billion and $5.8 billion,
respectively, at December 31, 2005.
Interest Rate Swaps: The Company entered into interest rate swap agreements on the 3.125% senior
notes due 2007, the 4.25% senior notes due 2009, the 4.4% senior notes due 2011 and the 5.0% senior
notes due 2012 whereby the Company pays interest at a floating rate and receives the fixed rate
coupon. The fair value of the Companys swaps was a liability of $29.8 million and $29.0 million
at December 31, 2006 and 2005, respectively.
Subsidiary Level Notes
AMFM Operating Inc., a wholly-owned subsidiary of the Company, has outstanding long-term bonds, of
which are all 8% senior notes due 2008. The senior notes include a purchase accounting premium of
$7.1 million and $10.5 million at December 31, 2006 and 2005, respectively. The fair value of the
senior notes was $701.0 million and $715.2 million at December 31, 2006 and 2005, respectively.
Other Borrowings
Other debt includes various borrowings and capital leases utilized for general operating purposes.
Included in the $164.9 million balance at December 31, 2006, is $86.4 million that matures in less
than one year.
Debt Covenants
The significant covenants on the Companys $1.75 billion five-year, multi-currency revolving credit
facility relate to leverage and interest coverage contained and defined in the credit agreement.
The leverage ratio covenant requires the Company to maintain a ratio of consolidated funded
indebtedness to operating cash flow (as defined by the credit agreement) of less than 5.25x. The
interest coverage covenant requires the Company to maintain a minimum ratio of operating cash flow
(as defined by the credit agreement) to interest expense of 2.50x. In the event that the Company
does not meet these covenants, it is considered to be in default on the credit facility at which
time the credit facility may become immediately due. At December 31, 2006, the Companys leverage
and interest coverage ratios were 3.4x and 4.7x, respectively. This credit facility contains a
cross default provision that would be triggered if we were to default on any other indebtedness
greater than $200.0 million.
The Companys other indebtedness does not contain provisions that would make it a default if the
Company were to default on our credit facility.
The fees the Company pays on its $1.75 billion, five-year multi-currency revolving credit facility
depend on its long-term debt ratings. Based on its current ratings level of BBB-/Baa3, its fees on
borrowings are a 45.0 basis point spread to LIBOR and are 17.5 basis points on the total $1.75
billion facility. In the event its ratings improve, the fee on borrowings and facility fee decline
gradually to 20.0 basis points and 9.0 basis points, respectively, at ratings of A/A3 or better.
In the event that its ratings decline, the fee on borrowings and facility fee increase gradually to
120.0 basis points and 30.0 basis points, respectively, at ratings of BB/Ba2 or lower.
The Company believes there are no other agreements that contain provisions that trigger an event of
default upon a change in long-term debt ratings that would have a material impact to its financial
statements.
Additionally, the Companys 8% senior notes due 2008, which were originally issued by AMFM
Operating Inc., a wholly-owned subsidiary of the Company, contain certain restrictive covenants
that limit the ability of AMFM
A-48
Operating Inc. to incur additional indebtedness, enter into certain
transactions with affiliates, pay dividends, consolidate, or effect certain asset sales.
At December 31, 2006, the Company was in compliance with all debt covenants.
Future maturities of long-term debt at December 31, 2006 are as follows:
(In thousands)
|
|
|
|
|
2007 |
|
$ |
336,375 |
|
2008 |
|
|
1,327,131 |
|
2009 |
|
|
1,506,958 |
|
2010 |
|
|
1,000,165 |
|
2011 |
|
|
1,002,250 |
|
Thereafter |
|
|
2,529,854 |
|
|
|
|
|
Total |
|
$ |
7,702,733 |
|
|
|
|
|
NOTE H FINANCIAL INSTRUMENTS
The Company has entered into financial instruments, such as interest rate swaps, secured
forward exchange contracts and foreign currency rate management agreements, with various financial
institutions. The Company continually monitors its positions with, and credit quality of, the
financial institutions which are counterparties to its financial instruments. The Company is
exposed to credit loss in the event of nonperformance by the counterparties to the agreements.
However, the Company considers this risk to be low.
Interest Rate Swaps
The Company has $1.3 billion of interest rate swaps that are designated as fair value hedges of the
underlying fixed-rate debt obligations. The terms of the underlying debt and the interest rate
swap agreements coincide; therefore the hedge qualifies for the short-cut method defined in
Statement 133. Accordingly, no net gains or losses were recorded on the statement of operations
related to the Companys underlying debt and interest rate swap agreements. On December 31, 2006,
the fair value of the interest rate swap agreements was recorded on the balance sheet as Other
long-term liabilities with the offset recorded in Long-term debt of approximately $29.8 million.
On December 31, 2005, the fair value of the interest rate swap agreements was recorded on the
balance sheet as Other long-term liabilities with the offset recorded in Long-term debt of
approximately $29.0 million. Accordingly, an adjustment was made to the swaps and carrying value
of the underlying debt on December 31, 2006 and 2005 to reflect the increase in fair value.
Secured Forward Exchange Contracts
On June 5, 2003, Clear Channel Investments, Inc. (CCI, Inc.), a wholly owned subsidiary of the
Company, entered into a five-year secured forward exchange contract (the contract) with respect
to 8.3 million shares of its investment in XM Satellite Radio Holdings, Inc. (XMSR). Under the
terms of the contract, the counterparty paid $83.5 million at inception of the contract, which the
Company classified in Other long-term liabilities. The contract had a maturity value of $98.8
million, with an effective interest rate of 3.4%, which the Company accreted over the life of the
contract using the effective interest method. The Company accounted for the collar under the
requirements of Statement 133 Implementation Issue G20, Assessing and Measuring the Effectiveness
of a Purchased Option Used in a Cash Flow Hedge. CCI, Inc. terminated the contract on August 2,
2006 by paying the counterparty approximately $83.1 million. The accreted value of the debt was
$92.9 million and the fair value of the collar was an asset of $6.0 million resulting in a net gain
of approximately $3.8 million recorded in Gain (loss) on marketable securities on the Companys
consolidated statement of operations.
In 2001, CCI, Inc. entered into two ten-year secured forward exchange contracts that monetized 2.9
million shares
of its investment in American Tower Corporation (AMT). The AMT contracts had a value of $10.3
million recorded in Other long term liabilities and $11.7 million recorded in Other assets at
December 31, 2006 and December 31, 2005, respectively. These contracts are not designated as a
hedge of the Companys cash flow exposure of the forecasted sale of the AMT shares. During the
years ended December 31, 2006, 2005 and 2004, the Company
A-49
recognized losses of $22.0 million and
$18.2 million and $17.4 million, respectively, in Gain (loss) on marketable securities related to
the change in the fair value of these contracts. To offset the change in the fair value of these
contracts, the Company has recorded AMT shares as trading securities. During the years ended
December 31, 2006, 2005 and 2004, the Company recognized income of $20.5 million, $17.5 million and
$15.2 million, respectively, in Gain (loss) on marketable securities related to the change in the
fair value of the shares.
Foreign Currency Rate Management
As a result of the Companys foreign operations, the Company is exposed to foreign currency
exchange risks related to its investment in net assets in foreign countries. To manage this risk,
the Company holds two United States dollar Euro cross currency swaps with an aggregate Euro
notional amount of 706.0 million and a corresponding aggregate U.S. dollar notional amount of
$877.7 million. These cross currency swaps had a value of $68.5 million at December 31, 2006,
which was recorded in Other long-term obligations.
The cross currency swaps require the Company to make fixed cash payments on the Euro notional
amount while it receives fixed cash payments on the equivalent U.S. dollar notional amount, all on
a semiannual basis. The Company has designated the cross currency swaps as a hedge of its net
investment in Euro denominated assets. The Company selected the forward method under the guidance
of the Derivatives Implementation Group Statement 133 Implementation Issue H8, Foreign Currency
Hedges: Measuring the Amount of Ineffectiveness in a Net Investment Hedge. The forward method
requires all changes in the fair value of the cross currency swaps and the semiannual cash payments
to be reported as a cumulative translation adjustment in other comprehensive income (loss) in the
same manner as the underlying hedged net assets. As of December 31, 2006, a $35.7 million loss,
net of tax, was recorded as a cumulative translation adjustment to Other comprehensive income
(loss) related to the cross currency swaps.
Prior to the Company entering into the cross currency swaps, it held 6.5% Eurobonds to hedge a
portion of the effect of movements in currency exchange rate on its net assets in foreign
countries. On February 25, 2004, the Company redeemed the majority of its Eurobonds. The
remaining amount of foreign denominated debt matured on July 7, 2005.
NOTE I COMMITMENTS AND CONTINGENCIES
The Company leases office space, certain broadcasting facilities, equipment and the majority
of the land occupied by its outdoor advertising structures under long-term operating leases. Some
of the lease agreements contain renewal options and annual rental escalation clauses (generally
tied to the consumer price index), as well as provisions for the payment of utilities and
maintenance by the Company.
The Company has minimum franchise payments associated with non-cancelable contracts that enable it
to display advertising on such media as buses, taxis, trains, bus shelters and terminals, as well
as other similar type surfaces. The majority of these contracts contain rent provisions that are
calculated as either the greater of a percentage of the relevant advertising revenue or a specified
guaranteed minimum annual payment. The Company has various contracts in its radio broadcasting
operations related to program rights and music license fees. In addition, the Company has
commitments relating to required purchases of property, plant, and equipment under certain street
furniture contracts, as well as construction commitments for facilities.
A-50
As of December 31, 2006, the Companys future minimum rental commitments under non-cancelable
operating lease agreements with terms in excess of one year, minimum payments under non-cancelable
contracts in excess of one year, and capital expenditure commitments consist of the following:
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Cancelable |
|
|
Non-Cancelable |
|
|
Capital |
|
|
|
Operating Leases |
|
|
Contracts |
|
|
Expenditures |
|
2007 |
|
$ |
318,652 |
|
|
$ |
673,672 |
|
|
$ |
95,032 |
|
2008 |
|
|
296,239 |
|
|
|
544,580 |
|
|
|
49,990 |
|
2009 |
|
|
262,776 |
|
|
|
434,129 |
|
|
|
15,252 |
|
2010 |
|
|
220,667 |
|
|
|
260,566 |
|
|
|
8,853 |
|
2011 |
|
|
181,769 |
|
|
|
210,903 |
|
|
|
4,612 |
|
Thereafter |
|
|
948,873 |
|
|
|
690,243 |
|
|
|
7,730 |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
2,228,976 |
|
|
$ |
2,814,093 |
|
|
$ |
181,469 |
|
|
|
|
|
|
|
|
|
|
|
Rent expense charged to continuing operations for 2006, 2005 and 2004 was $1.1 billion, $985.6
million and $924.7 million, respectively.
The Company is currently involved in certain legal proceedings and, as required, has accrued its
estimate of the probable costs for the resolution of these claims. These estimates have been
developed in consultation with counsel and are based upon an analysis of potential results,
assuming a combination of litigation and settlement strategies. It is possible, however, that
future results of operations for any particular period could be materially affected by changes in
the Companys assumptions or the effectiveness of its strategies related to these proceedings.
In various areas in which the Company operates, outdoor advertising is the object of restrictive
and, in some cases, prohibitive zoning and other regulatory provisions, either enacted or proposed.
The impact to the Company of loss of displays due to governmental action has been somewhat
mitigated by federal and state laws mandating compensation for such loss and constitutional
restraints.
Various acquisition agreements include deferred consideration payments based on performance
requirements by the seller typically involving the completion of a development or obtaining
appropriate permits that enable the Company to construct additional advertising displays. At
December 31, 2006, the Company believes its maximum aggregate contingency, which is subject to
performance requirements by the seller, is approximately $35.0 million. As the contingencies have
not been met or resolved as of December 31, 2006, these amounts are not recorded. If future
payments are made, amounts will be recorded as additional purchase price.
The Company has various investments in nonconsolidated affiliates that are subject to agreements
that contain provisions that may result in future additional investments to be made by the Company.
The put values are contingent upon financial performance of the investee and typically based on
the investee meeting certain EBITDA targets, as defined in the agreement. The Company will
continue to accrue additional amounts related to such contingent payments if and when it is
determinable that the applicable financial performance targets will be met. The aggregate of these
contingent payments, if performance targets are met, would not significantly impact the