UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the fiscal year ended December 31, 2013, or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from ________ to _________.
Commission File Number 000-53354
000-53354
CC MEDIA HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
Delaware | ||
26-0241222 | ||
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |
200 East Basse Road | ||
San Antonio, Texas | 78209 | |
(Address of principal executive offices) | (Zip |
(210) 822-2828
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
|
| |
Securities registered pursuant to Section 12(g) of the Act:
Title of class
Class A common stock, $.001 par value
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities
Act. YES [ ] NO [X]
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange
Act. YES [ ] NO [X]
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES [X] NO [ ]
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). YES.YES [X] NO [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. Large accelerated filer [ ] Accelerated filer [X][ ] Non-accelerated filer [ ][X] Smaller reporting company [ ]
Indicate by check mark whether the registrant is a shell company (as defined in Exchange Act Rule 12b-2). YES [ ] NO [X]
As of June 30, 2011,2013, the aggregate market value of the common stock beneficially held by non-affiliates of the registrant was approximately $137.0$59.4 million based on the closing sales price of the Class A common stock as reported on the Over-the-Counter Bulletin Board.Board.
On January 31, 2012,February 7, 2014, there were 23,575,19528,532,202 outstanding shares of Class A common stock (excluding 530,944(including 111,291 shares owned by a subsidiary and excluding 1,290,936 shares held in treasury), 555,556 outstanding shares of Class B common stock and 58,967,502 outstanding shares of Class C common stock.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of our Definitive Proxy Statement for the 20122014 Annual Meeting, expected to be filed within 120 days of our fiscal year end, are incorporated by reference into Part III.
CC MEDIA HOLDINGS, INC.
Page
Number
PART I
Item 1. BusinessPART I....................................................................................................................................................................................................... 1
Item 1A. Risk Factors............................................................................................................................................................................................... 14
Item 1B. Unresolved Staff Comments................................................................................................................................................................... 24
Item 2. Properties................................................................................................................................................................................................... 24
Item 3. Legal Proceedings.................................................................................................................................................................................... 24
Item 4. Mine Safety Disclosures......................................................................................................................................................................... 26
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases
of Equity Securities.................................................................................................................................................................................. 28
Item 6. Selected Financial Data............................................................................................................................................................................ 29
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations..................................................... 31
Item 7A. Quantitative and Qualitative Disclosures About Market Risk ......................................................................................................... 70
Item 8. Financial Statements and Supplementary Data ................................................................................................................................... 71
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.................................................. 124
Item 9A. Controls and Procedures....................................................................................................................................................................... 124
Item 9B. Other Information................................................................................................................................................................................... 126
PART III
Item 10. Directors, Executive Officers and Corporate Governance ............................................................................................................... 127
Item 11. Executive Compensation ...................................................................................................................................................................... 127
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters .............................................................................................................................................................................. 127
Item 13. Certain Relationships and Related Transactions, and Director Independence ........................................................................... 127
Item 14. Principal Accounting Fees and Services............................................................................................................................................ 128
PART IV
Item 15. Exhibits and Financial Statement Schedules...................................................................................................................................... 129
PART I
The Company
We were incorporated in May 2007 by private equity funds sponsored by Bain Capital Partners, LLC (“Bain Capital”) and Thomas H. Lee Partners, L.P. (“THL,” and together, the “Sponsors”) for the purpose of acquiring the business of Clear Channel Communications, Inc., a Texas corporation (“Clear Channel”). The acquisition was completed on July 30, 2008 pursuant to the Agreement and Plan of Merger, dated November 16, 2006, as amended on April 18, 2007, May 17, 2007 and May 13, 2008 (the “Merger Agreement”). As a result of the merger, each issued and outstanding share of Clear Channel, other than shares held by certain of our principals that were rolled over and exchanged for shares of our Class A common stock, was either exchanged for (i) $36.00 in cash consideration or (ii) one share of our Class A common stock. Prior to the consummation of our acquisition of Clear Channel, we had not conducted any activities, other than activities incident to our formation and in connection with the acquisition, and did not have any assets or liabilities, other than those related to the acquisition.
You can find more information about us at our Internet website located atwww.ccmediaholdings.com. www.clearchannel.com. Our Annual Report on Form 10-K, our Quarterly Reports on Form 10-Q, our Current Reports on Form 8-K and any amendments to those reports are available free of charge through our Internet website as soon as reasonably practicable after we electronically file such material with, or furnish such material to, the Securities and Exchange Commission (“SEC”). The contents of our website are not deemed to be part of this Annual Report on Form 10-K or any of our other filings with the SEC.
Our principalcorporate headquarters are in San Antonio, Texas and we have executive offices in New York, New York. Our headquarters are located at 200 East Basse Road, San Antonio, Texas 78209 (telephone: 210-822-2828).
During the first quarter of 2012, and in connection with the appointment of the new chief executive officer of our indirect subsidiary, Clear Channel Outdoor Holdings, Inc. (“CCOH”), we reevaluated our segment reporting and determined that our Latin American operations were more appropriately aligned within the operations of our International outdoor advertising segment. As a result, the operations of Latin America are no longer reflected within our Americas outdoor advertising segment and are currently included in the results of our International outdoor advertising segment. Accordingly, we have recast the corresponding segment disclosures for prior periods.
Our Business Segments
We are a diversified media and entertainment company with three reportable business segments: Media and Entertainment (“CCME,” formerly known as Radio)CCME”); Americas outdoor advertising (“Americas outdoor”); and International outdoor advertising (“International outdoor”). Our CCME segment provides media and entertainment services via broadcast and digital delivery and also includes our national syndication business. Our Americas outdoor and International outdoor segments provide outdoor advertising services in their respective geographic regions using various digital and traditional display types. Our Americas outdoor segment consists of operations primarily in the United States and Canada. Our International outdoor segment consists of operations primarily in Asia, Australia, Europe and Latin America. Our “Other” segmentcategory includes our full-service media representation business, Katz Media Group (“Katz Media”), as well as other general support services and initiatives, which are ancillary to our other businesses. Approximately half of our revenue is generated from our CCME segment. The remaining half is comprised of our Americas outdoor and our International outdoor advertising segments, as well as Katz Media and other support services and initiatives.
We are a leading global media and entertainment company specializing in radio, digital, out-of-home, mobile and on-demand entertainment and information services for national audiences and local communities andwhile providing premiere opportunities for advertisers. Through our strong capabilities and unique collection of assets, we have the ability to deliver compelling content as well as innovative, effective marketing campaigns for advertisers and marketing, creative and strategic partners in communities across the AmericasUnited States and internationally.internationally.
We are focusedfocus on building the leadership position of our diverse global assets and maximizing our financial performance while serving our local communities. We continue to invest strategically in our digital platforms, including the development of the next generation ofcontinued enhancements to iHeartRadio, our integrated digital radio platform, and the ongoing deployment of digital outdoor displays. We intend to continue to execute our strategies while closely managing expenses and focusing on achieving operating efficiencies across our businesses. We share best practices across our businesses and markets in an attempt to replicate our successes throughout the markets in which we operate.
For more information about our revenue, gross profit and assets by segment and our revenue and long-lived assets by geographic area, see Note 13 to our Consolidated Financial Statements located in Item 8 of Part II of this Annual Report on Form 10-K.
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CCME
Our CCME operations include radio broadcasting, online and mobile services and products, program
syndication, entertainment, traffic data distribution and music research services. Our radio stations and content can be heard on AM/FM stations, HD digital radio stations, satellite radio, the Internet at iHeartRadio.com and our radio stations’ websites, on gaming consoles, via in-home entertainment, in enhanced automotive platforms, through our iHeartRadio mobile application on iPadstablets and smart phones, and via navigation systems.
As of December 31, 2011,2013, we owned 866835 domestic radio stations servicing approximatelymore than 150 U.S. markets, including 45 of the top 50 markets and 8685 of the top 100 markets. CCME includes radio stations for which we are the licensee and one station for which we provide programming and sell air time under a local marketing agreement (“LMA”). We are also the beneficiary of Aloha Station Trust, LLC, which owns and operates 19 radio stations which we were required to divest in order to comply with Federal Communication Commission (“FCC”) media ownership rules, and which are being marketed for sale. Our portfolio of stations offers a broad assortment of programming formats, including adult contemporary, country, contemporary hit radio, rock, news/talk, sports, urban, oldies and oldies, among others.
In addition to our local radio programming, we also operate Premiere Networks (“Premiere”), a national radio network that produces, distributes or represents approximately 90 syndicated radio programs and serves nearly 5,800more than 5,000 radio station affiliates.affiliates, reaching over 190 million listeners weekly. We also deliver real-time traffic information via navigation systems, radio and television broadcast media and wireless and Internet-based services through our traffic business, Total Traffic & Weather Network.
Strategy
Our CCME strategy centers on delivering entertaining and informative content across multiple platforms, including broadcast, mobile and digital.digital as well as promotional events. We strive to serve our listeners by providing the content they desire on the platform they prefer, while supporting advertisers, strategic partners, music labels and artists with a diverse platform of creative marketing opportunities designed to effectively reach and engage target audiences. Our CCME strategy also focuses on continuing to improve the operations of our stations by providing valuable programming and promotions, as well as sharing best practices across our stations in marketing, distribution, sales and cost management.
Promote Broadcast Radio Media Spending. Given the attractive reach and metrics of both the broadcast radio industry in general and CCME in particular, as well as our depth and breadth of relationships with both media agencies and national and local advertisers, we believe we can drive broadcast radio’s share of total media spending by using our dedicated national sales team to highlight the value of broadcast radio relative to other media. We have made and continue to make significant investments in research to enable our clients to better understand how our assets can successfully reach their target audiences and promote their advertising campaigns; broadened our national sales teams and initiatives to better develop, create and promote their advertising campaigns; invested in technology to enhance our platform and capabilities; and continue to seek opportunities to deploy our iHeartRadio digital radio service across both existing and emerging devices and platforms. We are also working closely with advertisers, marketers and agencies to meet their needs through new products, events and services developed through optimization of our current portfolio of assets, as well as to develop tools to determine how effective broadcast radio is in reaching their desired audiences.
Promote Local and National Advertising. We intend to grow our CCME businesses by continuing to develop effective programming, creating new solutions for our advertisers and agencies, fostering key relationships with advertisers and improving our local and national sales team.teams. We intend to leverage our diverse collection of assets, as well as our programming and creative strengths, and our consumer relationships to create special events, such as one-of-a-kind local and national promotions for our listeners, and develop new, innovative technologies and products with which we canto promote our advertisers. We seek to maximize revenue by closely managing our advertising opportunities and pricing to compete effectively in local markets. We operate price and yield information systems, which provide detailed inventory information. These systems enable our station managers and sales directors to adjust commercial inventory and pricing based on local market demand, as well as to manage and monitor different commercial durations (60 second, 30 second, 15 second and five second) in order to provide more effective advertising for our customers at what we believe are optimal prices given market conditions.
Continue to Enhance the Listener Experience. We intend to continue enhancing the listener experience by offering a wide variety of compelling content and methods of delivery. We will continue to provide the content our listeners desire on the platform they prefer.their preferred platforms. Our investments over time have created a collection of leading on-air talent. For example, Premiere offers more than 90 syndicated radio programs and services for nearly 5,800more than 5,000 radio station affiliates across the United States, including popular programs such as Rush Limbaugh, Jim Rome,Sean Hannity, Glenn Beck, Ryan Seacrest, Steve Harvey, Ryan Seacrest, Elvis Duran, Bobby Bones and Delilah. Our distribution
2
capabilities allow us to attract top talent and more effectively utilize programming, sharing our best and most compelling content across many stations.
Deliver Content via Multiple Distribution Technologies. We continue to expand the choices for our listeners. We deliver music, news, talk, sports, traffic and other content using an array of distribution technologies, including:including broadcast radio and HD radio channels;channels, satellite radio; online applicationsradio, digitally via iHeartRadioiHeartRadio.com and our stations’ hundreds of websites;websites, and through our iHeartRadio mobile viaapplication on smart phones iPads and other tablets, on gaming consoles, via in-home entertainment, in enhanced automotive platforms, as well as in-vehicle entertainment and navigation systems. Some examples of our recent initiatives are as follows:
·Streaming. |
|
|
·Websites and Mobile Applications. We have developed mobile and Internet applications such as the iHeartRadio smart phone application and website. These mobile and Internet applications allow listeners to use their smart phones, tablets or other digital devices to interact directly with stations, find titles/artists, request songs and create custom stations while providing an additional method for advertisers to reach consumers. As of December 31, 2013, our iHeartRadio mobile application has been downloaded approximately 300 million times. iHeartRadio provides a unique digital music experience by offering access to more than 1,500 live broadcast and digital-only radio stations, plus user-created custom stations with broad social media integration and our on demand content from our premium talk partnerships and user generated talk shows. Through our digital platforms, we estimate that we had more than 76 million unique digital visitors for the month of December 2013. In addition, through December 2013, iHeartRadio streamed, on average, 143 million total listening hours monthly via our website and mobile application.
Sources of Revenue
Our CCME segment generated 50%, 49%, and 48% of our revenue in each offor the years ended December 31, 2013, 2012 and 2011, 2010 and 2009.respectively. The primary source of revenue in our CCME segment is the sale of commercials on our radio stations for local regional and national advertising. Our iHeartRadio mobile application and website, our station websites and our traffic business (TotalTotal Traffic Network)& Weather Network also provide additional means for our advertisers to reach consumers.
Our advertisers cover a wide range of categories, including consumer services, retailers, entertainment, health and beauty products, telecommunications, automotive, media and media.political. Our contracts with our advertisers generally provide for a term that extends for less than a one-year period. We also generate additional revenues from network compensation, our online services, our traffic business, special events and other miscellaneous transactions. These other sources of revenue supplement our traditional advertising revenue without increasing on-air-commercial time.
Each radio station’s local sales staff solicits advertising directly from local advertisers or indirectly through advertising agencies. Our ability to produce commercials that respond to the specific needs of our advertisers helps to build local direct advertising relationships. Regional advertising sales are also generally realized by our local sales staff. To generate national advertising sales, we leverage national sales teams and engage our Katz Media unit, which specializes in soliciting radio advertising sales on a national level for us and other radio and television companies. National sales representatives such as Katz Media obtain advertising principally from advertising agencies located outside the station’s market and receive commissions based on advertising sold.
Advertising rates are principally based on the length of the spot and how many people in a targeted audience listen to our stations, as measured by independent ratings services. A station’s format can be important in determining the size and characteristics of its listening audience, and advertising rates are influenced by the station’s ability to attract and target audiences that advertisers aim to reach. The size of the market influences rates as well, with larger markets typically receiving higher rates than smaller markets. Rates are generally highest during morning and evening commuting periods.
Radio Stations
As of December 31, 2011,2013, we owned 866835 radio stations, including 249239 AM and 617596 FM domestic radio stations, of which 148151 stations were in the top 25 markets. Therefore, no one property is material to our overall operations. We believe that our properties are in good condition and suitable for our operations.
Radio broadcasting is subject to the jurisdiction of the Federal Communications Commission (“FCC”)FCC under the Communications Act of 1934, as amended (the “Communications Act”). As described in “Regulation of Our Media and Entertainment Business” below, the FCC grants us licenses
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in order to operate our radio stations. The following table provides the number of owned radio stations in the top 25 Arbitron-ranked markets within our CCME segment.
Arbitron Rank(1) | Market | Number of Stations | ||
1 | New York, NY | 5 | ||
2 | Los Angeles, CA | 8 | ||
3 | Chicago, IL | 7 | ||
4 | San Francisco, CA | 7 | ||
5 | Dallas-Ft. Worth, TX | 6 | ||
6 | Houston-Galveston, TX | 6 | ||
7 | Philadelphia, PA | 6 | ||
8 | Washington, DC | 5 | ||
9 | Atlanta, GA | 6 | ||
10 | Boston, MA | 4 | ||
11 | Detroit, MI | 7 | ||
12 | Miami-Ft. Lauderdale-Hollywood, FL | 7 | ||
13 | Seattle-Tacoma, WA | 7 |
Arbitron |
|
|
| Number |
Market |
|
|
| of |
Rank(1) |
| Market |
| Stations |
1 |
| New York, NY |
| 6 |
2 |
| Los Angeles, CA |
| 8 |
3 |
| Chicago, IL |
| 7 |
4 |
| San Francisco, CA |
| 7 |
5 |
| Dallas-Ft. Worth, TX |
| 6 |
6 |
| Houston-Galveston, TX |
| 6 |
7 |
| Washington, DC |
| 5 |
8 |
| Philadelphia, PA |
| 6 |
9 |
| Atlanta, GA |
| 7 |
10 |
| Boston, MA |
| 5 |
11 |
| Miami-Ft. Lauderdale-Hollywood, FL |
| 7 |
12 |
| Detroit, MI |
| 7 |
13 |
| Seattle-Tacoma, WA |
| 7 |
14 |
| Phoenix, AZ |
| 8 |
15 |
| Puerto Rico |
| - |
16 |
| Minneapolis-St. Paul, MN |
| 6 |
17 |
| San Diego, CA |
| 7 |
18 |
| Tampa-St. Petersburg-Clearwater, FL |
| 8 |
19 |
| Denver-Boulder, CO |
| 8 |
20 |
| Nassau-Suffolk (Long Island), NY |
| 2 |
21 |
| Baltimore, MD |
| 4 |
22 |
| St. Louis, MO |
| 6 |
23 |
| Portland, OR |
| 7 |
24 |
| Charlotte-Gastonia-Rock Hill, NC-SC |
| 5 |
25 |
| Pittsburgh, PA |
| 6 |
|
| Total Top 25 Markets(2) |
| 151 |
Arbitron Rank(1) | Market | Number of Stations | ||
14 | Puerto Rico | 0 | ||
15 | Phoenix, AZ | 8 | ||
16 | Minneapolis-St. Paul, MN | 6 | ||
17 | San Diego, CA | 7 | ||
18 | Nassau-Suffolk (Long Island), NY | 2 | ||
19 | Tampa-St. Petersburg-Clearwater, FL | 8 | ||
20 | Denver-Boulder, CO | 8 | ||
21 | Baltimore, MD | 4 | ||
22 | St. Louis, MO | 6 | ||
23 | Portland, OR | 7 | ||
24 | Charlotte-Gastonia-Rock Hill, NC-SC | 5 | ||
25 | Pittsburgh, PA | 6 | ||
| ||||
Total Top 25 Markets(2) | 148 |
(1)Source: Fall 2013 Arbitron Radio Market Rankings.
(2)Included in the total are stations that were placed in a trust in order to bring the merger into compliance with the FCC’s media ownership rules. We have divested certain of these stations in the past and will continue to divest these stations as required.
Premiere Networks
We operate Premiere, a national radio network that produces, distributes or represents more than 90 syndicated radio programs and services for more than 5,8005,000 radio station affiliates.affiliates, reaching over 190 million listeners weekly. Our broad distribution capabilities enable us to attract and retain top programming talent. Some of our more popular syndicated programs include Rush Limbaugh, Jim Rome,Sean Hannity, Glenn Beck, Ryan Seacrest, Steve Harvey, Ryan Seacrest, Elvis Duran, Bobby Bones and Delilah. We believe recruiting and retaining top talent is an important component of the success of our radio networks.
Total Traffic & Weather Network
Our traffic business, Total Traffic & Weather Network delivers real-time local traffic dataflow and incident information along with weather updates to vehicles via in-car and portable navigation systems, broadcast media, wireless and Internet-based services to thousands ofmore than 2,000 radio and approximately 150 television stations across America. Our goal isaffiliates, as well as through Internet and mobile partnerships, reaching nearly 200 million consumers each month. Total Traffic & Weather Network services more than 200 markets in the United States, Canada and Mexico. It operates the largest broadcast traffic navigation network in North America and has expanded its offerings to save time, fuel resourcesinclude news, weather and alleviate roadway stress by providing accurate, relevant, and timely information to help motorists navigate their routes more intelligently.sports content.
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Competition
Our broadcast radio stations, as well as our mobile and digital applications and our traffic business, compete for listeners and advertising revenues directly with other radio stations within their respective markets, as well as with other advertising media, including broadcast and cable television, online, print media, outdoor advertising, satellite radio, direct mail and other forms of advertisement. In addition, the radio broadcasting industry is subject to competition from services that use new media technologies that are being developed or have already been introduced, such as Internet-based media, mobile applications and satellite-based digital radio services. Such services reach national and regionallocal audiences with multi-channel, multi-format, digital radio services.
Our broadcast radio stations compete for listeners primarily on the basis of program content that appeals to a particular demographic group. By building a strong brand identity with aOur targeted listener base consisting of specific demographic groups in each of our markets we are ableallows us to attract advertisers seeking to reach those listeners.
Americas Outdoor Advertising
We are the largest outdoor advertising company in the AmericasNorth America (based on revenues), which includes the United States Canada and Latin America.Canada. Approximately 89%, 89% and 91%95% of our revenue in our Americas outdoor advertising segment was derived from the United States forin each of the years ended December 31, 2011, 20102013, 2012 and 2009, respectively. 2011. We own or operate approximately 125,000105,000 display structures in our Americas outdoor segment with operations in 4847 of the 50 largest markets in the United States, including all of the 20 largest markets.
Our Americas outdoor assets consist of traditional and digital billboards, street furniture and transit displays, airport displays, mall displays, and wallscapes and other spectaculars, which we own or operate under lease management agreements. Our Americas outdoor advertising business is focused on metropolitan areas with dense populations.
Strategy
Strategy
We seek to capitalize on our Americas outdoor network and diversified product mix to maximize revenue. In addition, by sharing best practices among our business segments, we believe we can quickly and effectively replicate our successes in our other markets in which we operate.markets. Our outdoor strategy focuses on leveraging our diversified product mix and long-standing presence in many of our existing markets, which provides us with the ability to launch new products and test new initiatives in a reliable and cost-effective manner.
Promote Outdoor Media Spending. Given the attractive industry fundamentals of outdoor media and our depth and breadth of relationships with both local and national advertisers, we believe we can drive outdoor advertising’sadvertising's share of total media spending by utilizingusing our dedicated national sales team to highlight the value of outdoor advertising relative to other media. Outdoor advertising only represented 4% of total dollars spent on advertising in the United States in 2010.2012. We have made and continue to make significant investments in research tools that enable our clients to better understand how our displays can successfully reach their target audiences and promote their advertising campaigns. Also, we are working closely with clients, advertising agencies and other diversified media companies to develop more sophisticated systems that will provide improved audience metrics for outdoor advertising. For example, we have implemented the EYES ONTAB Out of Home Ratings audience measurement system which: (1) separately reports audiences for each of the nearly 400,000 units of inventory across the industry in the United States,billboards, posters, junior posters, transit shelters and phone kiosks, (2) reports those audiences using the same demographics available and used by other media permittingfor geographically sensitive reach and frequency, measures, (3) provides granular detail, reporting individual out of home units in over 200 designated market areas, (4) provides detailed demographic data comparable to other media, and (5) provides true commercial ratings based on people who see the same audience measures across more than 200 markets, and (4) reports which advertisement is most likely to be seen. We believe that measurement systems such as EYES ON will further enhance the attractiveness of outdoor advertising for both existing clients and new advertisers and further foster outdoor media spending growth.advertising.
Continue to Deploy Digital Displays. Digital outdoor advertising provides significant advantages over traditional outdoor media. Our electronic displays are linked through centralized computer systems to instantaneously and simultaneously change advertising copy on a large number of displays, allowing us to sell more slotsadvertising opportunities to advertisers. The ability to change copy by time of day and quickly change messaging based on advertisers’ needs creates additional flexibility for our customers. Although digital displays require more capital to construct compared to traditional bulletins, the advantages of digital allow us to penetrate new accounts and categories of advertisers, as well as serve a broader set of needs for existing advertisers. Digital displays allow for high-frequency, 24-hour advertising changes in high-traffic locations and allow us to offer our clients optimal flexibility, distribution, circulation and visibility. We expect this trend to continue as we increase our quantity of digital inventory. As of December 31, 2011,2013, we have deployed more than 8501,000 digital billboards in 37 markets in the United States.
Sources of Revenue
Americas outdoor generated 21%, 22%20% and 22%20% of our revenue in 2011, 20102013, 2012 and 2009,2011, respectively. Americas outdoor revenue is derived from the sale of advertising copy placed on our digital displaystraditional and our traditionaldigital displays. Our display inventory consists primarily of billboards, street furniture displays and transit displays. The margins on our billboard contracts, including those related to digital billboards, tend to be higher than those on contracts for other displays, due to their greater size, impact and location along
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major roadways that are highly trafficked. Billboards comprise approximately two-thirds of our display revenues. The following table shows the approximate percentage of revenue derived from each category for our Americas outdoor inventory:
Year Ended December 31, | ||||||||||||
2011 | 2010 | 2009 | ||||||||||
Billboards: | ||||||||||||
Bulletins | 53% | 53% | 51% | |||||||||
Posters | 13% | 14% | 14% | |||||||||
Street furniture displays | 7% | 6% | 5% | |||||||||
Transit displays | 16% | 15% | 17% | |||||||||
Other displays(1) | 11% | 12% | 13% | |||||||||
|
|
|
|
|
| |||||||
Total | 100% | 100% | 100% | |||||||||
|
|
|
|
|
|
|
|
| Year Ended December 31, |
| ||||
|
|
| 2013 |
| 2012 |
| 2011 |
|
| Billboards: |
|
|
|
|
|
| |
|
| Bulletins | 57% |
| 56% |
| 53% |
|
|
| Posters | 13% |
| 13% |
| 13% |
|
| Street furniture displays | 4% |
| 4% |
| 4% |
| |
| Transit displays | 17% |
| 17% |
| 16% |
| |
| Other displays (1) | 9% |
| 10% |
| 14% |
| |
| Total | 100% |
| 100% |
| 100% |
|
(1) Includes spectaculars, mall displays and wallscapes.
Our Americas outdoor segment generates revenues from local regional and national sales. Our advertising rates are based on a number of different factors including location, competition, size of display, illumination, market and gross ratings points. Gross ratings points are the 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. For all of our billboards in the United States, we use independent, third-party auditing companies to verify the number of impressions delivered by a display. “Reach” is the percent of a target audience exposed to an advertising message at least once during a specified period of time, typically during a period of four weeks. “Frequency” is the average number of exposures an individual has to an advertising message during a specified period of time. Out-of-home frequency is typically measured over a four-week period.
While location, price and availability of displays are important competitive factors, we believe that providing quality customer service and establishing strong client relationships are also critical components of sales. In addition, we have long-standing relationships with a diversified group of advertising brands and agencies that allow us to diversify client accounts and establish continuing revenue streams.
Billboards
Our billboard inventory primarily includes bulletins and posters.
Street Furniture Displays
Our street furniture displays include advertising surfaces on bus shelters, information kiosks, freestanding units and other public structures, are available in both traditional and digital formats, and are primarily located in major metropolitan areas and along major commuting routes. Generally, we own the street furniture structures and are responsible for their construction and maintenance. Contracts for the right to place our street furniture displays in the public domain and sell advertising space on them are awarded by municipal and transit authorities in competitive bidding processes governed by local law. Generally, these contracts have terms ranging from 10 to 20 years. As compensation for the right to sell advertising space on our street furniture structures, we pay the municipality or transit authority a fee or revenue share that is either a fixed amount or a percentage of the revenue derived from the street furniture displays. Typically, these revenue sharing arrangements include payments by us of minimum guaranteed amounts. Client contracts for street furniture displays typically have terms ranging from four weeks to one year, and are typically for network packages of multiple street furniture displays.
Transit Displays
Our transit displays are advertising surfaces on various types of vehicles or within transit systems, including on the interior and exterior sides of buses, trains, trams, and within the common areas of rail stations and airports, and are available in both traditional and digital formats. Similar to street furniture, contracts for the right to place our displays on such vehicles or within such transit systems and to sell advertising space on them generally are awarded by public transit authorities in competitive bidding processes or are negotiated with private transit operators. Generally, these contracts have terms ranging up to nine years. Our client contracts for transit displays generally have terms ranging from four weeks to one year.
Other InventoryDisplays
The balance of our display inventory consists of spectaculars, wallscapes and mall displays. Spectaculars are customized display structures that often incorporate video, multidimensional lettering and figures, mechanical devices and moving parts and other embellishments to create special effects. The majority of our spectaculars are located in Times Square in New York City, Dundas Square and the Gardiner Expressway in Toronto, and the Fashion Show Mall in Las Vegas,and Miracle Mile Shops in Las Vegas and across from the Target Center in Minneapolis.Vegas. Client contracts for spectaculars typically have terms of one year or longer. A wallscape is a display that drapes over or is suspended from the sides of buildings or other structures. Generally, wallscapes are located in high-profile areas where other types of outdoor advertising displays are limited or unavailable. Clients typically contract for individual wallscapes for extended terms. We also own displays located within the common areas of malls on which our clients run advertising campaigns for periods ranging from four weeks to one year.
Advertising Inventory and Markets
As of December 31, 2011,2013, we owned or operated approximately 125,000105,000 display structures in our Americas outdoor advertising segment with operations in 4847 of the 50 largest markets in the United States, including all of the 20 largest markets. Therefore, no one property is material to our overall operations. We believe that our properties are in good condition and suitable for our operations. During 2011, we conformed our methodology for counting airport displays to be consistent with the remainder of our domestic inventory.
Our displays are located on owned land, leased land or land for which we have acquired permanent easements. The majority of the advertising structures on which our displays are mounted require permits. Permits are granted for the right to operate an advertising structure as long the structure is used in compliance with the laws and regulations of the applicable jurisdiction.
Competition
The outdoor advertising industry in the Americas is fragmented, consisting of several larger companies involved in outdoor advertising, such as CBS and Lamar Advertising Company, as well as numerous smaller and local companies operating a limited number of displays in a single market or a few local markets. We also compete with other advertising media in our respective markets, including broadcast and cable television, radio, print media, direct mail, the Internet and other forms of advertisement.
Outdoor advertising companies compete primarily based on ability to reach consumers, which is driven by location of the display.
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International Outdoor Advertising
Our International outdoor business segment includes our operations in Asia, Australia, Europe and Europe,Latin America, with approximately 34%, 37% and 39%33% of our revenue in this segment derived from France and the United Kingdom for each of the years ended December 31, 2011, 20102013, 2012 and 2009, respectively.2011. As of December 31, 2011,2013, we owned or operated more than 630,000570,000 displays across 3028 countries.
Our International outdoor assets consist of street furniture and transit displays, billboards, mall displays, Smartbike schemes,programs, wallscapes and other spectaculars, which we own or operate under lease agreements. Our International business is focused on metropolitan areas with dense populations.
Strategy
Similar to our Americas outdoor advertising business, we believe our International outdoor advertising business has attractive industry fundamentals including a broad audience reach and a highly cost effective media for advertisers as measured by cost per thousand persons reached compared to other traditional media. Our International business focuses on the following strategies:
Promote Overall Outdoor Media Spending.Our strategy is to promote growth in outdoor advertising’s share of total media spending by leveraging our international scale and local reach. We are focusing on developing and implementing better and improved outdoor audience delivery measurement systems to provide advertisers with tools to determine how effectively their message is reaching the desired audience.
Capitalize on Product and Geographic Opportunities. We are also focused on growing our business internationally by working closely with our advertising customers and agencies in meeting their needs, and through new product offerings, optimization of our current display portfolio and selective investments targeting promising growth markets. We have continued to innovate and introduce new products in international markets based on local demands. Our core business is our street furniture business and that is where we plan to focus much of our investment. We plan to continue to evaluate municipal contracts that may come up for bid and will make prudent investments where we believe we can receive attractive returns. We will also continue to invest in markets such as China Turkey and Poland,Latin America where we believe there is high growth potential.
Continue to Deploy Digital Display Networks. Internationally, digital out-of-home displays are a dynamic medium which enables our customers to engage in real-time, tactical, topical and flexible advertising. We will continue our focused and dedicated digital strategy as we remain committed to the digital development of out-of-home communication solutions internationally. Through our new international digital brand, Clear Channel Play, we are able to offer networks of digital displays in multiple formats and multiple environments including bus shelters, airports, transit, malls and flagship locations. We seek to achieve greater consumer engagement and flexibility by delivering powerful, flexible and interactive campaigns that open up new possibilities for advertisers to engage with their target audiences. With digital network launches in Sweden, Belgium and the U.K. accelerating our expansion program during 2011, weWe had more than 2,9003,700 digital displays in twelve14 countries across Europe, Asia and AsiaLatin America as of December 31, 2011.2013.
Sources of Revenue
Our International outdoor segment generated 27%, 25%27% and 26%28% of our revenue in 2011, 20102013, 2012 and 2009,2011, respectively. International outdoor advertising revenue is derived from the sale of traditional advertising copy placed on our display inventory and electronic displays which are part of our network of digital displays. Our International outdoor display inventory consists primarily of street furniture displays, billboards, transit displays and other out-of-home advertising displays, such as neon displays. The following table shows the approximate percentage of revenue derived from each inventory category of our International outdoor segment:
Year Ended December 31, | ||||||||||||
2011 | 2010 | 2009 | ||||||||||
Street furniture displays | 43% | 42% | 40% | |||||||||
Billboards(1) | 27% | 30% | 32% | |||||||||
Transit displays | 9% | 8% | 8% | |||||||||
Other(2) | 21% | 20% | 20% | |||||||||
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|
|
|
| |||||||
Total | 100% | 100% | 100% | |||||||||
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|
|
|
|
|
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| Year Ended December 31, |
| ||||
|
| 2013 |
| 2012 |
| 2011 |
|
| Street furniture displays | 48% |
| 46% |
| 43% |
|
| Billboards (1) | 23% |
| 26% |
| 28% |
|
| Transit displays | 9% |
| 8% |
| 9% |
|
| Other (2) | 20% |
| 20% |
| 20% |
|
| Total | 100% |
| 100% |
| 100% |
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(1) Includes revenue from posters and neon displays. We sold our neon business during the third quarter of 2012.
(2) Includes advertising revenue from mall displays, other small displays, and non-advertising revenue from sales of street furniture equipment, cleaning and maintenance services, operation of Smartbike programs and production revenue.
Our International outdoor segment generates revenues worldwide from local, regional and national sales. Similar to our Americas outdoor business, advertising rates generally are based on the gross ratings points of a display or group of displays. The number of impressions delivered by a display, in some countries, is weighted to account for such factors as illumination, proximity to other displays and the speed and viewing angle of approaching traffic.
While location, price and availability of displays are important competitive factors, we believe that providing quality customer service and establishing strong client relationships are also critical components of sales. Our entrepreneurial culture allows local management to operate their markets as separate profit centers, encouraging customer cultivation and service.
Street Furniture Displays
Our International street furniture displays, available in traditional and digital formats, are substantially similar to their Americas street furniture counterparts, and include bus shelters, freestanding units, various types of kiosks, benches and other public structures. Internationally, contracts with municipal and transit authorities for the right to place our street furniture in the public domain and sell advertising on such street furniture typically provide for terms ranging from 10 to 15 years. The major difference between our International and Americas street furniture businesses is in the nature of the municipal contracts. In our International outdoor business, these contracts typically require us to provide the municipality with a broader range of metropolitan amenities such as bus shelters with or without advertising panels, information kiosks and public wastebaskets, as well as space for the municipality to display maps or other public information. In exchange for providing such metropolitan amenities and display space, we are authorized to sell advertising space on certain sections of the structures we erect in the public domain. Our International street furniture is typically sold to clients as network packages of multiple street furniture displays, with contract terms ranging from one to two weeks. Client contracts are also available with terms of up to one year.
Billboards
The sizes of our International billboards are not standardized. The billboards vary in both format and size across our networks, with the majority of our International billboards being similar in size to our posters used in our Americas outdoor business (30-sheet and 8-sheet displays).business. Our International billboards are sold to clients as network packages with contract terms typically ranging from one to two weeks. Long-term client contracts are also available and typically have terms of up to one year. We lease the majority of our billboard sites from private landowners. Billboards include posters and our neon displays, and are available in traditional and digital formats. Defi Group SAS, our International neon subsidiary, is a global provider of neon signs with approximately 296 displays in 16 countries worldwide. Client contracts for International neon displays typically have terms of approximately five years.
Transit Displays
Our International transit display contracts are substantially similar to their Americas transit display counterparts, and typically require us to make only a minimal initial investment and few ongoing maintenance expenditures. Contracts with public transit authorities or private transit operators typically have terms ranging from three to seven years. Our client contracts for transit displays, either traditional or digital, generally have terms ranging from one week to one year, or longer.
Other International InventoryDisplays and Services
The balance of our revenue from our International outdoor segment consists primarily of advertising revenue from mall displays, other small displays and non-advertising revenue from sales of street furniture equipment, cleaning and maintenance services and production revenue. Internationally, our contracts with mall operators generally have terms ranging from five to ten years and client contracts for mall displays generally have terms ranging from one to two weeks, but are available for periods up to six months. Our International inventory includes other small displays that are counted as separate displays since they form a substantial part of our network and International outdoor advertising revenue. We also have a Smartbike bicycle rental program which provides bicycles for rent to the general public in several municipalities. In exchange for providing the bike rental program, we generally derive revenue from advertising rights to the bikes, bike stations, additional street furniture displays, or fees from the local municipalities. In several of our International markets, we sell equipment or provide cleaning and maintenance services as part of a billboard or street furniture contract with a municipality.
Advertising Inventory and Markets
As of December 31, 2011,2013, we owned or operated more than 630,000570,000 displays in our International outdoor segment, with operations across 3028 countries. Our International outdoor display count includes display faces, which may include multiple faces on a single structure.structure, as well as small, individual displays. As a result, our International outdoor display count is not comparable to our
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Americas outdoor display count, which includes only unique displays. No one property is material to our overall operations. We believe that our properties are in good condition and suitable for our operations.
Competition
Competition
The international outdoor advertising industry is fragmented, consisting of several larger companies involved in outdoor advertising, such as JCDecaux and CBS,ExterionMedia, as well as numerous smaller and local companies operating a limited number of displays in a single market or a few local markets. We also compete with other advertising media in our respective markets, including broadcast and cable television, radio, print media, direct mail, the Internet and other forms of advertisement.
Outdoor companies compete primarily based on ability to reach consumers, which is driven by location of the display.
Other
Our Other segmentcategory includes our 100%-owned media representation firm, Katz Media, as well as other general support services and initiatives which are ancillary to our other businesses.
Katz Media, a leading media representation firm in the U.S. for radio and television stations, sells national spot advertising time for clients in the radio and television industries throughout the United States. As of December 31, 2011,2013, Katz Media represents approximately 3,900represented more than 4,000 radio stations, approximately one-fifth of which are owned by us, as well as approximately 950 digital properties.us. Katz Media also represents approximately 700800 television and digital multicast stations.
Katz Media generates revenue primarily through contractual commissions realized from the sale of national spot and online advertising. National spot advertising is commercial airtime sold to advertisers on behalf of radio and television stations. Katz Media represents its media clients pursuant to media representation contracts, which typically have terms of up to ten years in length.
Employees
As of JanuaryDecember 31, 2012,2013, we had approximately 15,40015,100 domestic employees and approximately 5,8005,700 international employees, of which approximately 18,00019,100 were in direct operations and 2,7001,700 were in administrative or corporate related activities. Approximately 840900 of our employees in the United States and approximately 265 of our employees outside the United States are subject to collective bargaining agreements in their respective countries. We are a party to numerous collective bargaining agreements, none of which represent a significant number of employees. We believe that our relationship with our employees is good.
Seasonality
Required information is located within Item 7 of Part II of this Annual Report on Form 10-K.
Regulation of our Media and Entertainment Business
General
The following is a brief summary of certain statutes, regulations, policies and proposals affecting our media and entertainment business. For example, radio broadcasting is subject to the jurisdiction of the FCC under the Communications Act. The Communications Act permits the operation of a radio broadcast station only under a license issued by the FCC upon a finding that grant of the license would serve the public interest, convenience and necessity. Among other things, the Communications Act empowers the FCC to: issue, renew, revoke and modify broadcasting licenses; assign frequency bands for broadcasting; determine stations’ frequencies, locations, power and other technical parameters; impose penalties for violation of its regulations, including monetary forfeitures and, in extreme cases, license revocation; impose annual regulatory and application processing fees; and adopt and implement regulations and policies affecting the ownership, program content, employment practices and many other aspects of the operation of broadcast stations.
This summary does not comprehensively cover all current and proposed statutes, regulations and policies affecting our media and entertainment business. Reference should be made to the Communications Act and other relevant statutes, regulations, policies and proceedings for further information concerning the nature and extent of regulation of our media and entertainment business. Finally, several of the following matters are now, or may become, the subject of court litigation, and we cannot predict the outcome of any such litigation or its impact on our media and entertainment business.
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License Assignments
The Communications Act prohibits the assignment of a license or the transfer of control of an FCC licensee without prior FCC approval. Applications for license assignments or transfers involving a substantial change in ownership are subject to a 30-day period for public comment, during which petitions to deny the application may be filed and considered by the FCC.
License Renewal
The FCC grants broadcast licenses for a term of up to eight years. The FCC will renew a license for an additional eight-year term if, after consideration of the renewal application and any objections thereto, it finds that the station has served the public interest, convenience and necessity and that, with respect to the station seeking renewal, there have been no serious violations of either the Communications Act or the FCC’s rules and regulations by the licensee and no other such violations which, taken together, constitute a pattern of abuse. The FCC may grant the license renewal application with or without conditions, including renewal for a term less than eight years. The vast majority of radio licenses are renewed by the FCC for the full eight-year term. While we cannot guarantee the grant of any future renewal application, our stations’ licenses historically have been renewed for the full eight-year term.
Ownership Regulation
FCC rules and policies define the interests of individuals and entities, known as “attributable” interests, which implicate FCC rules governing ownership of broadcast stations and other specified mass media entities. Under these rules, attributable interests generally include: (1) officers and directors of a licensee or of its direct or indirect parent; (2) general partners,partners; (3) limited partners and limited liability company members, unless properly “insulated” from management activities; (3)(4) a 5% or more direct or indirect voting stock interest in a corporate licensee or parent, except that, for a narrowly defined class of passive investors, the attribution threshold is a 20% or more voting stock interest; and (4)(5) combined equity and debt interests in excess of 33% of a licensee’s total asset value, if the interest holder provides over 15% of the licensee station’s total weekly programming, or has an attributable broadcast or newspaper interest in the same market (the “EDP Rule”). An entity that owns one or more radio stations in a market and programs more than 15% of the broadcast time, or sells more than 15% per week of the advertising time, on a radio station in the same market is generally deemed to have an attributable interest in that station.
Debt instruments, non-voting corporate stock, minority voting stock interests in corporations having a single majority stockholder, and properly insulated limited partnership and limited liability company interests generally are not subject to attribution unless such interests implicate the EDP Rule. To the best of our knowledge at present, none of our officers, directors or 5% or greater shareholders holds an interest in another television station, radio station or daily newspaper that is inconsistent with the FCC’s ownership rules.
The FCC is required to conduct periodic reviews of its media ownership rules. In 2003, the FCC, among other actions, modified the radio ownership rules and adopted new cross-media ownership limits. The U.S. Court of Appeals for the Third Circuit initially stayed implementation of the new rules. Later, it lifted the stay as to the radio ownership rules, allowing the modified rules to go into effect. It retained the stay on the cross-media ownership limits and remanded them to the FCC for further justification (leaving in effect separate pre-existing FCC rules governing newspaper-broadcast and radio-television cross-ownership). In 2007, the FCC adopted a decision that revised the newspaper-broadcast cross-ownership rule but made no changes to the radio ownership or radio-television cross-ownership rules. In 2011, the U.S. Court of Appeals for the Third Circuit vacated the FCC’s revisions to the newspaper-broadcast cross-ownership rule and otherwise upheld the FCC’s decision to retain the current radio ownership and radio-television cross-ownership rules. Litigants, including Clear Channel, have sought review by theThe U.S. Supreme Court denied review of the Third Circuit’s decision. The FCC began its next periodic review of its media ownership rules in 2010, and has issued a notice of proposed rulemaking. We cannot predict the outcome of the FCC’s media ownership proceedings or their effects on our business in the future.
Irrespective of the FCC’s radio ownership rules, the Antitrust Division of the U.S. Department of Justice (“DOJ”) and the U.S. Federal Trade Commission (“FTC”) have the authority to determine that a particular transaction presents antitrust concerns. In particular, where the proposed purchaser already owns one or more radio stations in a particular market and seeks to acquire additional radio stations in that market, the DOJ has, in some cases, obtained consent decrees requiring radio station divestitures.
The current FCC ownership rules relevant to our business are summarized below.
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·Newspaper-Broadcast Cross-Ownership Rule. FCC rules generally prohibit an individual or entity from having an attributable interest in either a radio or television station and a daily newspaper located in the same market.
·Radio-Television Cross-Ownership Rule. FCC rules permit the common ownership of one television and up to seven same-market radio stations, or up to two television and six same-market radio stations, depending on the number of independent media voices in the market and on whether the television and radio components of the combination comply with the television and radio ownership limits, respectively.
Alien Ownership Restrictions
The Communications Act restricts foreign entities or individuals from owning or voting more than 20% of the equity of a broadcast licensee directly and more than 25% indirectly (i.e., through a parent company)., unless the FCC has made a finding that greater foreign ownership is in the public interest. Since we serve as a holding company for FCC licensee subsidiaries, we arehave been effectively restricted from having more than one-fourth of our stock owned or voted directly or indirectly by foreign entities or individuals. In November 2013, the FCC clarified that it would entertain and authorize, on a case-by-case basis and upon sufficient public interest showing, proposals to exceed the 25% foreign ownership limit in broadcasting holding companies.
Indecency Regulation
Federal law regulates the broadcast of obscene, indecent or profane material. Legislation enacted by Congress provides the FCC with authority to impose fines of up to $325,000 per utterance with a cap of $3.0 million for any violation arising from a single act. Several judicial appeals of FCC indecency enforcement actions are currently pending. In July 2010, the Second Circuit Court of Appeals issued a ruling in one of those appeals,in which it held the FCC’s indecency standards to be unconstitutionally vague under the First Amendment, and in November 2010 denied a petition for rehearing of that decision. In January 2011, the Second Circuit vacated the agency decision at issue in another appeal, relying on its July 2010 and November 2010 decisions. In JanuaryJune 2012, the U.S. Supreme Court heard oral arguments in itsruled on the appeals of several FCC indecency enforcement actions. While setting aside the particular FCC actions under review on narrow due process grounds, the Supreme Court declined to rule on the constitutionality of the Second Circuit’s actions, settingFCC’s indecency policies, and the stage for a Supreme Court decisionFCC has since solicited public comment on indecency regulation in 2012. The outcome of this proceeding, and of other pending indecency cases, will affect future FCC policies in this area. those policies. We have received, and may receive in the future, letters of inquiry and other notifications from the FCC concerning complaints that programming aired on our stations contains indecent or profane language. FCC action on these complaints will be directly impacted byWe cannot predict the outcome of our outstanding letters of inquiry and notifications from the FCC or the nature or extent of future FCC indecency court proceedings and subsequent FCC action in response thereto.enforcement actions.
Equal Employment Opportunity
The FCC’s rules require broadcasters to engage in broad equal opportunity employment recruitment efforts, retain data concerning such efforts and report much of this data to the FCC and to the public via stations’ public files and websites. Broadcasters could be sanctioned for noncompliance.
Technical Rules
Numerous FCC rules govern the technical operating parameters of radio stations, including permissible operating frequency, power and antenna height and interference protections between stations. Changes to these rules could negatively affect the operation of our stations. For example, in January 2011 a law that eliminates certain minimum distance separation requirements between full-power and low-power FM radio stations was enacted, which could lead to increased interference between our stations and low-power FM stations. In March 2011, the FCC adopted policies which, in certain circumstances, could make it more difficult for radio stations to relocate to increase their population coverage.
Content, Licenses and Royalties
We must pay royalties to copyright owners of musical compositions (typically, songwriters and publishers) whenever we broadcast or stream musical compositions. Copyright owners of musical compositions most often rely on intermediaries known as performance rights organizations to negotiate so-called “blanket” licenses with copyright users, collect royalties under such licenses and distribute them to copyright owners. We have obtained public performance licenses from, and pay license fees to, the three major performance rights organizations in the United States known as the American Society of Composers, Authors and Publishers, or ASCAP, Broadcast Music, Inc., or BMI, and SESAC, Inc., or SESAC.
To secure the rights to stream music content over the Internet, we also must obtain performance rights licenses and pay performance rights royalties to copyright owners of sound recordings (typically, performing artists and recording companies). Under Federal statutory licenses, we are permitted to stream any lawfully released sound recordings and to make reproductions of these recordings on our computer servers without having to separately negotiate and obtain direct licenses with each individual copyright
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owner as long as we operate in compliance with the rules of statutory licenses and pay the applicable royalty rates to SoundExchange, the non-profit organization designated by the Copyright Royalty Board to collect and distribute royalties under these statutory licenses. In addition, we have business arrangements directly with some copyright owners to receive deliveries of their sound recordings for use in our Internet operations.
The rates at which we pay royalties to copyright owners are privately negotiated or set pursuant to a regulatory process. In addition, we have business arrangements directly with some copyright owners to receive deliveries of and, in some cases, to directly license their sound recordings for use in our Internet operations. There is no guarantee that the licenses and associated royalty rates that currently are available to us will be available to us in the future. Congress is considering legislation which may affect such rates, and additionally it may consider and adopt legislation that requires us to pay royalties to owners of copyrighted sound recordings for the broadcast of music on our radio stations. Increased royalty rates could significantly increase our expenses, which could adversely affect our business.
Privacy and Data Protection
We collect certain types of information from users of our technology platforms, including, without limitation, our websites, web pages, interactive features, applications, Twitter and Facebook pages, and mobile application (“Platforms”), in accordance with the privacy policies and terms of use posted on the applicable Platform. We collect personally identifiable information directly from Platform users in several ways, including when a user purchases our products or services, registers to use our services, fills out a listener profile, posts comments, uses our social networking features, participates in polls and contests and signs up to receive email newsletters. We also may obtain information about our listeners from other listeners and third parties. We use the information we collect about and from Platform users for a variety of business purposes.
As a company conducting business on the Internet, we are subject to a number of laws and regulations relating to consumer protection, information security, data protection and privacy, among other things. Many of these laws and regulations are still evolving and could be interpreted in ways that could harm our business. In the area of information security and data protection, the laws in several states require companies to implement specific information security controls to protect certain types of personally identifiable information. Likewise, all but a few states have laws in place requiring companies to notify users if there is a security breach that compromises certain categories of their personally identifiable information. Any failure on our part to comply with these laws may subject us to significant liabilities. Further, any failure by us to adequately protect the privacy or security of our listeners’ information could result in a loss of confidence in us among existing and potential listeners, and ultimately, in a loss of listeners and advertising customers, which could adversely affect our business.
We collect and use certain types of information from our listeners in accordance with the privacy policies posted on our websites. We collect personally identifiable information directly from listeners when they register to use our services, fill out their listener profiles, post comments, use our social networking features, participate in polls and contests and sign up to receive email newsletters. We also may obtain information about our listeners from other listeners and third parties. Our policy is to use the collected information to customize and personalize advertising and content for listeners and to enhance the listener experience.
We have implemented commercially reasonable physical and electronic security measures to protect our proprietary business information and to protect against the loss, misuse, and alteration of our listeners’ personally identifiable information. However, no security measures are perfect or impenetrable, and we may be unable to anticipate or prevent unauthorized access to our listeners’ personally identifiablesuch information. Any failure or perceived failure by us to protect our information or information about our listeners or to comply with our posted privacy policies or privacy-related laws and regulationsapplicable regulatory requirements could result in damage to our business and loss of confidence in us, damage to our brands, the loss of listeners, consumers, business partners and advertisers, as well as proceedings against us by governmental authorities or others, which could harm our business.
Other
Congress, the FCC and other government agencies and regulatory bodies may in the future adopt new laws, regulations and policies that could affect, directly or indirectly, the operation, profitability and ownership of our broadcast stations and Internet-based audio music services. In addition to the regulations and other arrangements noted above, such matters may include, for example: proposals to impose spectrum use or other fees on FCC licensees; legislation that would provide for the payment of sound recording royalties to artists and musicians whose music is played on our broadcast stations; changes to the political broadcasting rules, including the adoption of proposals to provide free air time to candidates; restrictions on the advertising of certain products, such as beer and wine; frequency allocation, spectrum reallocations and changes in technical rules; and the adoption of significant new programming and operational requirements designed to increase local community-responsive programming and enhance public interest reporting requirements.
Regulation of our Americas and International Outdoor Advertising Businesses
The outdoor advertising industry in the United States is subject to governmental regulation at the Federal,federal, state and local levels. These regulations may include, among others, restrictions on the construction, repair, maintenance, lighting, upgrading, height, size, spacing and location and permitting of and, in some instances, content of advertising copy being displayed on outdoor advertising structures. In addition, international regulations have a significant impact on the outdoor advertising industry. International regulation of the outdoor advertising industry can vary by municipality, region and country, but generally limits the size, placement, nature and density of out-of-home displays. Other regulations may limit the subject matter and language of out-of-home displays.
From time to time, legislation has been introduced in both the United States and foreign jurisdictions attempting to impose taxes on revenue from outdoor advertising or for the right to use outdoor advertising assets. Several jurisdictions have already imposed such taxes as a percentage of our outdoor advertising revenue generated in that jurisdiction. In addition, some jurisdictions have taxed our
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personal property and leasehold interests in advertising locations using various valuation methodologies. While these taxes have not had a material impact on our business and financial results to date, weWe expect U.S. and foreign jurisdictions to continue to try to impose such taxes as a way of increasing revenue. In recent years, outdoor advertising also has become the subject of targeted taxes and fees. These laws may affect prevailing competitive conditions in our markets in a variety of ways. Such laws may reduce our expansion opportunities or may increase or reduce competitive pressure from other members of the outdoor advertising industry. No assurance can be given that existing or future laws or regulations, and the enforcement thereof, will not materially and adversely affect the outdoor advertising industry. However, we contest laws and regulations that we believe unlawfully restrict our constitutional or other legal rights and may adversely impact the growth of our outdoor advertising business.
In the United States, Federalfederal law, principally the Highway Beautification Act (“HBA”), regulates outdoor advertising on Federal-Aid Primary, Interstate and National Highway Systems roads within the United States (“controlled roads”). The HBA regulates the size and placement of billboards, requires the development of state standards, mandates a state’s compliance program, promotes the expeditious removal of illegal signs and requires just compensation for takings.
To satisfy the HBA’s requirements, all states have passed billboard control statutes and regulations that regulate, among other things, construction, repair, maintenance, lighting, height, size, spacing and the placement and permitting of outdoor advertising structures. We are not aware of any state that has passed control statutes and regulations less restrictive than the prevailing federal requirements on the federal highway system, including the requirement that an owner remove any non-grandfathered, non-compliant signs along the controlled roads, at the owner’s expense and without compensation. Local governments generally also include billboard control as part of their zoning laws and building codes regulating those items described above and include similar provisions regarding the removal of non-grandfathered structures that do not comply with certain of the local requirements. Some local governments have initiated code enforcement and permit reviews of billboards within their jurisdiction challenging billboards located within their jurisdiction, and injurisdiction. In some instances we have had to remove billboards as a result of such reviews.
As part of their billboard control laws, state and local governments regulate the construction of new signs. Some jurisdictions prohibit new construction, some jurisdictions allow new construction only to replace or relocate existing structures and some jurisdictions allow new construction subject to the various restrictions discussed above. In certain jurisdictions, restrictive regulations also limit our ability to relocate, rebuild, repair, maintain, upgrade, modify or replace existing legal non-conforming billboards.
U.S. Federalfederal law neither requires nor prohibits the removal of existing lawful billboards, but it does mandate the payment of compensation if a state or political subdivision compels the removal of a lawful billboard along the controlled roads. In the past, state governments have purchased and removed existing lawful billboards for beautification purposes using Federalfederal funding for transportation enhancement programs, and these jurisdictions may continue to do so in the future. From time to time, state and local government authorities use the power of eminent domain and amortization to remove billboards. Thus far, we have been able to obtain satisfactory compensation for, or relocation of, our billboards purchased or removed as a result of these types of governmental action, although there is no assurance that this will continue to be the case in the future.
We have introduced and intend to expand the deployment of digital billboards that display static digital advertising copy from various advertisers that change up to several times per minute. We have encountered some existing regulations in the U.S. and across some international jurisdictions that restrict or prohibit these types of digital displays. However, since digital technology for changing static copy has only recently been developed and introduced into the market on a large scale, and is in the process of being introduced more broadly in our international markets, existing regulations that currently do not apply to digital technology by their terms could be revised to impose greater restrictions. These regulations, or actions by third parties, may impose greater restrictions on digital billboards due to alleged concerns over aesthetics or driver safety.
Risks Related to Our Business
Our results have been in the past, and could be in the future, adversely affected by economic uncertainty or deteriorations in economic conditions
We derive revenues from the sale of advertising. Expenditures by advertisers tend to be cyclical, reflecting economic conditions and budgeting and buying patterns. Periods of a slowing economy or recession, or periods of economic uncertainty, may be accompanied by a decrease in advertising. TheFor example, the global economic downturn that began in 2008 resulted in a decline in advertising and marketing by our customers, which resulted in a decline in advertising revenues across our businesses. This reduction in advertising revenues had an adverse effect on our revenue, profit margins, cash flow and liquidity. Although we believe that globalGlobal economic conditions are improving, economic conditionshave been slow to recover and remain uncertain. If economic conditions do not continue to improve, economic uncertainty increases or economic conditions deteriorate again, global economic conditions may once again adversely impact our revenue, profit margins, cash flow and liquidity. Furthermore, because a significant portion of our revenue is derived from local advertisers, our ability to
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generate revenues in specific markets is directly affected by local and regional conditions, and unfavorable regional economic conditions also may adversely impact our results. In addition, even in the absence of a downturn in general economic conditions, an individual business sector or market may experience a downturn, causing it to reduce its advertising expenditures, which also may adversely impact our results.
We performed impairment tests on our goodwill and other intangible assets during the fourth quarter of 20112013, 2012 and 20102011 and recorded non-cash impairment charges of $7.6$17.0 million, $37.7 million and $15.4$7.6 million, respectively. Additionally, we performed impairment tests in 2008 and 2009 on our indefinite-lived assets and goodwill and, as a result of the global economic downturn and the corresponding reduction in our revenues, we recorded non-cash impairment charges of $5.3 billion and $4.1 billion, respectively. Although we believe we have made reasonable estimates and used appropriate assumptions to calculate the fair value of our licenses, billboard permits and reporting units, it is possible a material change could occur. If actual market conditions and operational performance for the respective reporting units underlying the intangible assets were to deteriorate, or if facts and circumstances change that would more likely than not reduce the estimated fair value of the indefinite-lived assets or goodwill for these reporting units below their adjusted carrying amounts, we may also be required to recognize additional impairment charges in future periods, which could have a material impact on our financial condition and results of operations.
To service our debt obligations and to fund capital expenditures, we will require a significant amount of cash to meet our needs, which depends on many factors beyond our control
Our ability to service our debt obligations and to fund capital expenditures will require a significant amount of cash.cash. Our primary source of liquidity is cash on hand, cash flow from operations.operations and borrowing capacity under Clear Channel’s receivables based credit facility, subject to certain limitations contained in Clear Channel’s material financing agreements. Based on our current and anticipated levels of operations and conditions in our markets, we believe that cash on hand, as well as cash flow from operations, borrowing capacity under Clear Channel’s receivables based credit facility and cash flow from other liquidity-generating transactions will enable us to meet our working capital, capital expenditure, debt service and other funding requirements for at least the next twelve months. However, our ability to fund our working capital, needs,capital expenditures, debt service and other obligations, and to comply with the financial covenant under Clear Channel’s financing agreements, depends on our future operating performance and cash flow,from operations and other liquidity-generating transactions, which are in turn subject to prevailing economic conditions and other factors, many of which are beyond our control. If our future operating performance does not meet our expectation or our plans materially change in an adverse manner or prove to be materially inaccurate, we may need additional financing. In addition, the purchase price of possible acquisitions, capital expenditures for deployment of digital billboards and/or other strategic initiatives could require additional indebtedness or equity financing on our part. Adverse securities and credit market conditions such as those experienced during 2008 and 2009, could significantly affect the availability of equity or creditdebt financing. Consequently, thereIn connection with Clear Channel’s financing transactions completed during 2013, the average interest rate on our outstanding debt has increased. We anticipate paying cash interest of approximately $1.6 billion during 2014. Future financing transactions may further increase interest expense, which could in turn reduce our financial flexibility and our ability to fund other activities and make us more vulnerable to changes in operating performance or economic downturns generally. There can be no assurance that suchadditional financing, if permitted under the terms of Clear Channel’s financing agreements, will be available on terms acceptable to us or at all. The inability to generate sufficient cash or obtain additional financing in such circumstances could have a material adverse effect on our financial condition and on our ability to meet Clear Channel’s obligations or pursue strategic initiatives. Additional indebtedness could increase our leverage and make us more vulnerable to economic downturns and may limit our ability to withstand competitive pressures.
Downgrades in our credit ratings may adversely affect our borrowing costs, limit our financing options, reduce our flexibility under future financings and adversely affect our liquidity, and also may adversely impact our business operations
Our and Clear Channel’s corporate credit ratings by Standard & Poor’s Ratings Services and Moody’s Investors Service are speculative-grade and have been downgraded and upgraded at various times during the past several years. Any reductions in our credit ratings could increase our borrowing costs, reduce the availability of financing to us or increase the cost of doing business or otherwise negatively impact our business operations.
Our financial performance may be adversely affected by many factors beyond our control
Certain factors that could adversely affect our financial performance by, among other things, leading to decreases indecreasing overall revenues, the numbers of advertising customers, advertising fees or profit margins include:
·unfavorable economic conditions, which may cause companies to reduce their expenditures on advertising;
·an increased level of competition for advertising dollars, which may lead to lower advertising rates as we attempt to retain customers or which may cause us to lose customers to our competitors who offer lower rates that we are unable or unwilling to match;
·unfavorable fluctuations in operating costs, which we may be unwilling or unable to pass through to our customers;
·technological changes and innovations that we are unable to successfully adopt or are late in adopting that offer more attractive advertising or listening alternatives than what we offer, which may lead to a loss of advertising customers or to lower advertising rates;
·the impact of potential new royalties charged for terrestrial radio broadcasting, which could materially increase our expenses;
·other changes in governmental regulations and policies and actions of regulatory bodies, which could increase our taxes or other costs, reduce our outdoor advertising inventory, restrict the advertising media that we employ or restrict some or all of our customers that operate in regulated areas from using certain advertising media or from advertising at all;
·unfavorable shifts in population and other demographics, which may cause us to lose advertising customers as people migrate to markets where we have a smaller presence or which may cause advertisers to be willing to pay less in
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advertising fees if the general population shifts into a less desirable age or geographical demographic from an advertising perspective; and
·unfavorable changes in labor conditions, which may impair our ability to operate or require us to spend more to retain and attract key employees.
We face intense competition in our media and entertainment and our outdoor advertising businesses
We operate in a highly competitive industry, and we may not be able to maintain or increase our current audience ratings and advertising and sales revenues. Our media and entertainment and our outdoor advertising businesses compete for audiences and advertising revenues with other media and entertainment businesses and outdoor advertising businesses, as well as with other media, such as newspapers, magazines, television, direct mail, iPods, smartportable digital audio players, mobile phones,devices, satellite radio, Internet-based services and Internet-based media,live entertainment, within their respective markets. Audience ratings and market shares are subject to change, which could have the effect of reducing our revenues in that market. Our competitors may develop technology, services or advertising media that are equal or superior to those we provide or that achieve greater market acceptance and brand recognition than we achieve. It also is possible that new competitors may emerge and rapidly acquire significant market share in any of our business segments. An increased level of competition for advertising dollars may lead to lower advertising rates as we attempt to retain customers or may cause us to lose customers to our competitors who offer lower rates that we are unable or unwilling to match.
NewAlternative media platforms and technologies may continue to increase competition with our broadcasting operations
Our terrestrial radio broadcasting operations face increasing competition from newalternative media platforms and technologies, such as broadband wireless, satellite radio, audio broadcasting by cable television systems and Internet-based audio music services, as well as new consumer products, such as portable digital audio players smart mobile phones and other mobile applications.devices. These new technologies and alternative media platforms, including the new technologies and media platformsthose used by us, compete with our radio stations for audience share and advertising revenues. We are unable to predict the effect that such technologies and related services and products will have on our broadcasting operations, but theoperations. The capital expenditures necessary to implement these or other new technologies could be substantial. Wesubstantial and we cannot assure you that we will continue to have the resources to acquire new technologies or to introduce new services to compete with other new technologies or services, or that our investments in new technologies or services will provide the desired returns. Other companies employing such new technologies or services could more successfully implement such new technologies or services or otherwise increase competition with our businesses.
Our Media and Entertainment business is dependent upon the performance of on-air talent and program hosts
We employ or independently contract with many on-air personalities and hosts of syndicated radio programs with significant loyal audiences in their respective markets. Although we have entered into long-term agreements with some of our key on-air talent and program hosts to protect our interests in those relationships, we can give no assurance that all or any of these persons will remain with us or will retain their audiences. Competition for these individuals is intense and many of these individuals are under no legal obligation to remain with us. Our competitors may choose to extend offers to any of these individuals on terms which we may be unwilling to meet. Furthermore, the popularity and audience loyalty of our key on-air talent and program hosts is highly sensitive to rapidly changing public tastes. A loss of such popularity or audience loyalty is beyond our control and could have a material adverse effect on our ability to attract local and/or national advertisers and on our revenue and/or ratings, and could result in increased expenses.
Our business is dependent on our management team and other key individuals
Our business is dependent upon the performance of our management team and other key individuals. A number of key individuals have joined us or assumed increased responsibilities over the past twoseveral years, including Robert W. Pittman, who became our Chief Executive Officer on October 2, 2011.2011, C. William Eccleshare, who was promoted to be our Chief Executive Officer—Outdoor on January 24, 2012, and Richard J. Bressler, who became our President and Chief Financial Officer on July 29, 2013. Effective January 2014, Mr. Pittman and Mr. Bressler assumed direct management responsibility for our Media and Entertainment division in addition to their existing roles. Although we have entered into agreements with some members of our management team and certain other key individuals, we can give no assurance that all or any of our management team and other key individuals will remain with us. Competition for these individuals is intense and many of our key employees are at-will employees who are under no legal obligation to remain with us, and may decide to leave for a variety of personal or other reasons beyond our control. If members of our management or key individuals decide to leave us in the future, or if we are not successful in attracting, motivating and retaining other key employees, our business could be adversely affected.
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Extensive current government regulation, and future regulation, may limit our radio broadcasting and other media and entertainment operations or adversely affect our business and financial results
Congress and several federal agencies, including the FCC, extensively regulate the domestic radio industry. For example, the FCC could impact our profitability by imposing large fines on us if, in response to pending complaints, it finds that we broadcast indecent programming. Additionally, we cannot be sure that the FCC will approve renewal of the licenses we must have in order to operate our stations. Nor can we be assured that our licenses will be renewed without conditions and for a full term. The non-renewal, or conditioned renewal, of a substantial number of our FCC licenses, could have a materially adverse impact on our operations. Furthermore, possible changes in interference protections, spectrum allocations and other technical rules may negatively affect the operation of our stations. For example, in January 2011, a law that eliminates certain minimum distance separation requirements between full-power and low-power FM radio stations was enacted, which could lead to increased interference between our stations and low-power FM stations. In March 2011, the FCC adopted policies which, in certain circumstances, could make it more difficult for radio stations to relocate to increase their population coverage. In addition, Congress, the FCC and other regulatory agencies have considered, and may in the future consider and adopt, new laws, regulations and policies that could, directly or indirectly, have an adverse effect on our business operations and financial performance. In particular, Congress is consideringmay consider and adopt legislation that would impose an obligation upon all U.S. broadcasters to pay performing artists a royalty for usethe on-air broadcast of their sound recordings (this would be in addition to payments already made by broadcasters to owners of musical work rights, such as songwriters, composers and publishers). We cannot predict whether this or other legislation affecting our media and entertainment business will be adopted. Such legislation could have a material impact on our operations and financial results. Finally, various regulatory matters relating to our media and entertainment business are now, or may become, the subject of court litigation, and we cannot predict the outcome of any such litigation or its impact on our business.
Regulations and consumer concerns regarding privacy and data protection, or any failure to comply with these regulations, could hinder our operations
We collect and utilize demographic and other information, including personally identifiable information, from and about our listeners, consumers, business partners and advertisers as they interact with us. For example: (1) our broadcast radio station websites and our iHeartRadio digital platform collect personal information as users register for our services, fill out their listener profiles, post comments, use our social networking features, participate in polls and contests and sign-up to receive email newsletters; (2) we use tracking technologies, such as “cookies,” to manage and track our listeners’ interactions with us so that we can deliver relevant music content and advertising; and (3) we collect credit card or debit card information from consumers, business partners and advertisers who use our services.
We are subject to numerous federal, state and foreign laws and regulations relating to consumer protection, information security, data protection and privacy, among other things. Many of these laws are still evolving, new laws may be enacted and any of these laws could be amended or interpreted in ways that could harm our business. In addition, changes in consumer expectations and demands regarding privacy and data protection could restrict our ability to collect, use, disclose and derive economic value from demographic and other information related to our listeners, consumers, business partners and advertisers. Such restrictions could limit our ability to provide customized music content to our listeners, interact directly with our listeners and consumers and offer targeted advertising opportunities to our business partners and advertisers. Although we have implemented policies and procedures designed to comply with these laws and regulations, any failure or perceived failure by us to comply with our policies or applicable regulatory requirements related to consumer protection, information security, data protection and privacy could result in a loss of confidence in us, damage to our brands, the loss of listeners, consumers, business partners and advertisers, as well as proceedings against us by governmental authorities or others, which could hinder our operations and adversely affect our business.
If our security measures are breached, we may face liability and public perception of our services could be diminished, which would negatively impact our ability to attract listeners, business partners and advertisers
Although we have implemented physical and electronic security measures to protect against the loss, misuse and alteration of our websites, digital assets and proprietary business information as well as listener, consumer, business partner and advertiser personally identifiable information, no security measures are perfect and impenetrable and we may be unable to anticipate or prevent unauthorized access. A security breach could occur due to the actions of outside parties, employee error, malfeasance or a combination of these or other actions. If an actual or perceived breach of our security occurs, we could lose competitively sensitive business information or suffer disruptions to our business operations. In addition, the public perception of the effectiveness of our security measures or services could be harmed, we could lose listeners, consumers, business partners and advertisers and we could suffer financial exposure in connection with remediation efforts, investigations and legal proceedings and changes in our security and system protection measures.
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Government regulation of outdoor advertising may restrict our outdoor advertising operations
U.S. Federal,federal, state and local regulations have a significant impact on the outdoor advertising industry and our business. One of the seminal laws is the HBA, which regulates outdoor advertising on Federal-Aid Primary, Interstate and National Highway Systems’controlled roads in the United States. The HBA regulates the size and location of billboards, mandates a state compliance program, requires the development of state standards, promotes the expeditious removal of illegal signs and requires just compensation for takings. Construction, repair, maintenance, lighting, upgrading, height, size, spacing, the location and permitting of billboards and the use of new technologies for changing displays, such as digital displays, are regulated by federal, state and local governments. From time to time, states and municipalities have prohibited or significantly limited the construction of new outdoor advertising structures. Changes in laws and
regulations affecting outdoor advertising, or changes in the interpretation of those laws and regulations, at any level of government, including laws of the foreign jurisdictions in which we operate, could have a significant financial impact on us by requiring us to make significant expenditures or otherwise limiting or restricting some of our operations. Due to such regulations, it has become increasingly difficult to develop new outdoor advertising locations.
From time to time, certain state and local governments and third parties have attempted to force the removal of our displays under various state and local laws, including zoning ordinances, permit enforcement, condemnation and amortization. Similar risks also arise in certain of our international jurisdictions. Amortization is the attempted forced removal of legal non-conforming billboards (billboards which conformed with applicable laws and regulations when built, but which do not conform to current laws and regulations) or the commercial advertising placed on such billboards after a period of years. Pursuant to this concept, the governmental body asserts that just compensation is earned by continued operation of the billboard over time. AmortizationAlthough amortization is prohibited along all controlled roads and generally prohibited along non-controlled roads. Amortizationroads, amortization has however, been upheld along non-controlled roads in limited instances where provided by state and local law. Other regulations limit our ability to rebuild, replace, repair, maintain and upgrade non-conforming displays. In addition, from time to time third parties or local governments assert that we own or operate displays that either are not properly permitted or otherwise are not in strict compliance with applicable law. For example, court rulings have upheld regulations in the City of New York that have impacted our displays in certain areas within the city. Such regulations and allegations have not had a material impact on our results of operations to date, but ifIf we are increasingly unable to resolve such allegations or obtain acceptable arrangements in circumstances in which our displays are subject to removal, modification or amortization, or if there occurs an increase in such regulations or their enforcement, our operating results could suffer.
A number of state and local governments have implemented or initiated taxes, fees and registration requirements in an effort to decrease or restrict the number of outdoor signs and/or to raise revenue. From time to time, legislation also has been introduced in foreigninternational jurisdictions attempting to impose taxes on revenue from outdoor advertising or for the right to use outdoor advertising assets. In addition, a number of jurisdictions including the City of Los Angeles, have implemented legislation or interpreted existing legislation to restrict or prohibit the installation of new digital billboards. While these measures have not had a material impact on our businessbillboards, and financial results to date, we expect these efforts to continue. The increased imposition of these measures, and our inability to overcome any such measures, could reduce our operating income if those outcomes require removal or restrictions on the use of preexisting displays or limit growth of digital displays. In addition, if we are unable to pass on the cost of these items to our clients, our operating income could be adversely affected.
International regulation of the outdoor advertising industry can vary by municipality, region and country, but generally limits the size, placement, nature and density of out-of-home displays. Other regulations limit the subject matter and language of out-of-home displays. Our failure to comply with these or any future international regulations could have an adverse impact on the effectiveness of our displays or their attractiveness to clients as an advertising medium and may require us to make significant expenditures to ensure compliance. As a result, we may experience a significant impact on our operations, revenue, international client base and overall financial condition.
Additional restrictions on outdoor advertising of tobacco, alcohol and other products may further restrict the categories of clients that can advertise using our products
Out-of-court settlements between the major U.S. tobacco companies and all 50 states, the District of Columbia, the Commonwealth of Puerto Rico and four other U.S. territories include a ban on the outdoor advertising of tobacco products. Other products and services may be targeted in the U.S. in the future, including alcohol products. Most European Union countries, among other nations, also have banned outdoor advertisements for tobacco products and legislation regulatingregulate alcohol advertising has been introduced in a number of Europeanadvertising. Regulations vary across the countries in which we conduct business and could have a similar impact.business. Any significant reduction in alcohol-related advertising or advertising of other products due to content-related restrictions could cause a reduction in our direct revenues from such advertisements and an increase in the available space on the existing inventory of billboards in the outdoor advertising industry.
Environmental, health, safety and land use laws and regulations may limit or restrict some of our operations
As the owner or operator of various real properties and facilities, especially in our outdoor advertising operations, we must comply with various foreign, federal, state and local environmental, health, safety and land use laws and regulations. We and our properties are subject to such laws and regulations relating to the use, storage, disposal, emission and release of hazardous and non-hazardousnon-
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hazardous substances and employee health and safety as well as zoning restrictions. Historically, we have not incurred significant expenditures to comply with these laws. However, additional laws which may be passed in the future, or a finding of a violation of or liability under existing laws, could require us to make significant expenditures and otherwise limit or restrict some of our operations.
Doing business in foreign countries exposes us to certain risks not found when doing business in the United States
Doing business in foreign countries carries with it certain risks that are not found when doing business in the United States. These risks could result in losses against which we are not insured. Examples of these risks include:
·potential adverse changes in the diplomatic relations of foreign countries with the United States;
·hostility from local populations;
·the adverse effect of foreign exchange controls;
·government policies against businesses owned by foreigners;
·investment restrictions or requirements;
·expropriations of property without adequate compensation;
·the potential instability of foreign governments;
·the risk of insurrections;
·risks of renegotiation or modification of existing agreements with governmental authorities;
·difficulties collecting receivables and otherwise enforcing contracts with governmental agencies and others in some foreign legal systems;
·withholding and other taxes on remittances and other payments by subsidiaries;
·changes in tax structure and level; and
·changes in laws or regulations or the interpretation or application of laws or regulations.
In addition, because we own assets in foreign countries and derive revenues from our International operations, we may incur currency translation losses due to changes in the values of foreign currencies and in the value of the U.S. dollar. We cannot predict the effect of exchange rate fluctuations upon future operating results.
Our International operations involve contracts with, and regulation by, foreign governments. We operate in many parts of the world that experience corruption to some degree. Although we have policies and procedures in place that are designed to promote legal and regulatory compliance (including with respect to the U.S. Foreign Corrupt Practices Act and the United Kingdom Bribery Act 2010)Act), our employees, subcontractors and agents could take actions that violate applicable anticorruption laws or regulations. Violations of these laws, or allegations of such violations, could have a material adverse effect on our business, financial position and results of operations.
The success of our street furniture and transit products businesses is dependent on our obtaining key municipal concessions, which we may not be able to obtain on favorable terms
Our street furniture and transit products businesses require us to obtain and renew contracts with municipalities and other governmental entities. Many of these contracts, which require us to participate in competitive bidding processes at each renewal, typically have terms ranging from three to 20 years and have revenue share and/or fixed payment components. Our inability to successfully negotiate, renew or complete these contracts due to governmental demands and delay and the highly competitive bidding processes for these contracts could affect our ability to offer these products to our clients, or to offer them to our clients at rates that are competitive to other forms of advertising, without adversely affecting our financial results.
Future acquisitions and other strategic transactions could pose risks
We frequently evaluate strategic opportunities both within and outside our existing lines of business. We expect from time to time to pursue additional acquisitions and may decide to dispose of certain businesses. These acquisitions or dispositions could be material. Our acquisition strategy involves numerous risks, including:
·our acquisitions may prove unprofitable and fail to generate anticipated cash flows;
·to successfully manage our large portfolio of media and entertainment, outdoor advertising and other businesses, we may need to:
·recruit additional senior management as we cannot be assured that senior management of acquired businesses will continue to work for us and we cannot be certain that any of our recruiting efforts will succeed, and
·expand corporate infrastructure to facilitate the integration of our operations with those of acquired businesses, because failure to do so may cause us to lose the benefits of any expansion that we decide to undertake by leading to disruptions in our ongoing businesses or by distracting our management;
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·we may enter into markets and geographic areas where we have limited or no experience;
·we may encounter difficulties in the integration of operations and systems; and
·our management’s attention may be diverted from other business concerns.
Additional acquisitions by us of media and entertainment businesses and outdoor advertising businesses may require antitrust review by U.S. federal antitrust agencies and may require review by foreign antitrust agencies under the antitrust laws of foreign jurisdictions. We can give no assurances that the DOJ, the FTC or foreign antitrust agencies will not seek to bar us from acquiring additional media and entertainment businesses or outdoor advertising businesses in any market where we already have a significant position. The DOJ actively reviews proposed acquisitions of media and entertainment businesses and outdoor advertising businesses. In addition, the antitrust laws of foreign jurisdictions will apply if we acquire international outdoor or media and entertainment businesses. Further, radio acquisitions by us are subject to FCC approval. Such acquisitions must comply with the Communications Act and FCC regulatory requirements and policies, including with respect to the number of broadcast facilities in which a person or entity may have an ownership or attributable interest in a given local market and the level of interest that may be held by a foreign individual or entity. The FCC’sFCC's media ownership rules remain subject to ongoing agency and court proceedings. Future changes could restrict our ability to acquire new radio assets or businesses.
Risks Related to Ownership of Our Class A Common Stock
The market price and trading volume of our Class A common stock may be volatile
The market price of our Class A common stock could fluctuate significantly for many reasons, including, without limitation:
·as a result of the risk factors listed in this Annual Report on Form 10-K;
·actual or anticipated fluctuations in our operating results;
·reasons unrelated to operating performance, such as reports by industry analysts, investor perceptions, or negative announcements by our customers or competitors regarding their own performance;
·regulatory changes that could impact our business; and
·general economic and industry conditions.
Shares of our Class A common stock are quoted on the Over-the-Counter Bulletin Board. The lack of an active market may impair the ability of holders of our Class A common stock to sell their shares of Class A common stock at the time they wish to sell them or at a price that they consider reasonable. The lack of an active market may also reduce the fair market value of the shares of our Class A common stock.
There is no assurance that holders of our Class A common stock will ever receive cash dividends
We have never paid cash dividends on our Class A common stock, and there is no guarantee that we will ever pay cash dividends on our Class A common stock in the future. The terms of our credit facilities and other debt restrict our ability to pay cash dividends on our Class A common stock. In addition to those restrictions, under Delaware law, we are permitted to pay cash dividends on our capital stock only out of our surplus, which in general terms means the excess of our net assets over the original aggregate par value of our stock. In the event we have no surplus, we are permitted to pay these cash dividends out of our net profits for the year in which the dividend is declared or in the immediately preceding year. Accordingly, there is no guarantee that, if we wish to pay cash dividends, we would be able to do so pursuant to Delaware law. Also, even if we are not prohibited from paying cash dividends by the terms of our debt or by law, other factors such as the need to reinvest cash back into our operations may prompt our Board of Directors to elect not to pay cash dividends.
Significant equity investors control us and may have conflicts of interest with us in the future
Private equity funds sponsored by or co-investors with Bain Capital and THL currently indirectly control us through their ownership of all of our outstanding shares of Class B common stock and Class C common stock, which collectively represent approximately 72%68% of the voting power of all of our outstanding capital stock. As a result, Bain Capital and THL have the power to elect all but two of our directors, (and, in addition, the Company has agreed that each of Mark P. Mays and Randall T. Mays shall serve as directors of the Company pursuant to the terms of their respective amended and restated employment agreements), appoint new management and approve any action requiring the approval of the holders of our capital stock, including adopting any amendments to our third amended and restated certificate of incorporation, and approving mergers or sales of substantially all of our capital stock or assets. The directors elected by Bain Capital and THL will have significant authority to make decisions affecting us, including the issuance of additional capital stock, change in control transactions, the incurrence of additional indebtedness, the implementation of stock repurchase programs and the decision of whether or not to declare dividends.
In addition, affiliates of Bain Capital and THL are lenders under Clear Channel’s term loan credit facilities.facilities and holders of Clear Channel’s priority guarantee notes due 2019. It is possible that their interests in some circumstances may conflict with our interests and the interests of other stockholders.
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Additionally, Bain Capital and THL are in the business of making investments in companies and may acquire and hold interests in businesses that compete directly or indirectly with us. One or more of the entities advised by or affiliated with Bain Capital and/or THL may also pursue acquisition opportunities that may be complementary to our business and, as a result, those acquisition opportunities may not be available to us. So long as entities advised by or affiliated with Bain Capital and THL directly or indirectly own a significant amount of the voting power of our capital stock, even if such amount is less than 50%, Bain Capital and THL will continue to be able to strongly influence or effectively control our decisions.
We may terminate our Exchange Act reporting, if permitted by applicable law
If at any time our Class A common stock is held by fewer than 300 holders of record, we will be permitted to cease to be a reporting company under the Exchange Act to the extent we are not otherwise required to continue to report pursuant to any contractual agreements, including with respect to any of our indebtedness. If we were to cease filing reports under the Exchange Act, the information now available to our stockholders in the annual, quarterly and other reports we currently file with the SEC would not be available to them as a matter of right.
Risks Related to Our Indebtedness
OurThe substantial amount of indebtedness of our subsidiary, Clear Channel, and its subsidiaries, may not be ableadversely affect our cash flows and our ability to generate sufficient cashoperate our business and make us more vulnerable to service all of its indebtedness and may be forced to take other actions to satisfy its obligations under its indebtedness, which may not be successfulchanges in the economy or our industry
We have a substantial amount of indebtedness. At December 31, 2011,2013, we had $20.2$20.5 billion of total indebtedness outstanding, including: (1) $11.5$1.9 billion aggregate principal amount outstanding under Clear Channel’s term loan credit facilities, and delayed draw credit facilities, which obligations mature at various dates from 2014 through 2016; (2)in 2016, $5.0 billion aggregate principal amount outstanding under Clear Channel’s term loan credit facilities, which mature in January 2019; and $1.3 billion aggregate principal amount outstanding under Clear Channel’s revolvingterm loan credit facilities, which mature in July 2019; (2) $247.0 million aggregate principal amount outstanding under Clear Channel’s receivables based facility, which will be available through July 2014,2017, at which time all outstanding principal amounts under the revolvingreceivables based credit facility will be due and payable; (3) $1.7 billion aggregate principal amount outstanding of Clear Channel’s 9.0% priority guarantee notes due 2021, net of $44.6$38.0 million of unamortized discounts, which mature in March 2021; (4) $31.0$575.0 million aggregate principal amount of Clear Channel’s outstanding 11.25% priority guarantee notes due 2021, which mature in March 2021; (5) $2.0 billion aggregate principal amount outstanding of Clear Channel’s 9.0% priority guarantee notes due 2019, which mature in December 2019; (6) $21.1 million aggregate principal amount of other secured debt; (5) $796.3(7) $94.3 million and $829.8$127.9 million outstanding of Clear Channel’s senior cash pay notes and senior togglestoggle notes, respectively, which mature in August 2016; (6) $1.5(8) $1.4 billion aggregate principal amount outstanding of Clear Channel’s senior notes due 2021 (net of $421.9 million held by a subsidiary of Clear Channel), which mature in February 2021; (9) $1.2 billion aggregate principal amount outstanding of Clear Channel’s legacy notes, net of unamortized purchase accounting discounts of $469.8$277.8 million (net of $269.4 million held by a subsidiary of Clear Channel), which mature at various dates from 20122014 through 2027; (7) $2.5(10) $2.7 billion aggregate principal amount outstanding of subsidiary senior notes;notes, net of unamortized discount of $6.8 million, which mature in November 2022; (11) $2.2 billion aggregate principal amount outstanding of subsidiary senior subordinated notes, which mature in March 2020; and (8)(12) other long-term obligations of $19.9less than $1.0 million. This large amount of indebtedness could have negative consequences for us, including, without limitation:
·requiring us to dedicate a substantial portion of our cash flow to the payment of principal and interest on indebtedness, thereby reducing cash available for other purposes, including to fund operations and capital expenditures, invest in new technology and pursue other business opportunities;
·limiting our liquidity and operational flexibility and limiting our ability to obtain additional financing for working capital, capital expenditures, debt service requirements, acquisitions and general corporate or other purposes;
·limiting our ability to adjust to changing economic, business and competitive conditions;
·requiring us to defer planned capital expenditures, reduce discretionary spending, sell assets, restructure existing indebtedness or defer acquisitions or other strategic opportunities;
·limiting our ability to refinance any of the indebtedness or increasing the cost of any such financing in any downturn in our operating performance or decline in general economic conditions;financing;
·making us more vulnerable to an increase in interest rates, a downturn in our operating performance, or a decline in general economic or industry conditions;conditions or a disruption in the credit markets; and
·making us more susceptible to negative changes in credit ratings, which could impact our ability to obtain financing in the future and increase the cost of such financing.
If compliance with Clear Channel’sthe debt obligations materially hinders our ability to operate our business and adapt to changing industry conditions, we may lose market share, our revenue may decline and our operating results may suffer. The terms of Clear Channel’s credit facilities and the other indebtedness allow us, under certain conditions, to incur further indebtedness, including secured indebtedness, which heightens the foregoing risks.
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Clear Channel and its subsidiaries may not be able to generate sufficient cash to service all of their indebtedness, may not be able to refinance all of their indebtedness before it becomes due and may be forced to take other actions to satisfy their obligations under their indebtedness, which may not be successful
Clear Channel’s and its subsidiaries’ ability to make scheduled payments on itstheir respective debt obligations depends on itstheir financial condition and operating performance, which is subject to prevailing economic and competitive conditions and to certain financial, business and other factors beyond its or our control. In addition, because Clear Channel derives a substantial portion of its operating income from its subsidiaries, Clear Channel’s ability to repay its debt depends upon the performance of its subsidiaries, and their ability to dividend or distribute funds to Clear Channel. Channel and Clear Channel’s receipt of funds under its cash management arrangement with its subsidiary, CCOH.
Clear Channel and its subsidiaries may not be able to maintain a level ofgenerate cash flowsflow from operations in an amount sufficient to permit it to pay the principal, premium, if any, andfund our liquidity needs. We anticipate cash interest on its indebtedness.
For the year endedrequirements of approximately $1.6 billion during 2014. At December 31, 2011,2013, we had debt maturities totaling $484.4 million (net of $288.5 million due to a subsidiary of Clear Channel’s earnings were not sufficient to cover fixed charges by $402.4Channel), $256.4 million, and for$2,384.7 million in 2014, 2015, and 2016, respectively. We are currently exploring, and expect to continue to explore, a variety of transactions to provide us with additional liquidity. We cannot assure you that we will enter into or consummate any such liquidity-generating transactions, or that such transactions will provide sufficient cash to satisfy our liquidity needs, and we cannot currently predict the year ended December 31, 2010, Clear Channel’s earnings were not sufficient to cover fixed charges by $617.5 million.impact that any such transaction, if consummated, would have on us.
If Clear Channel’s and its subsidiaries’ cash flows from operations, refinancing sources and capital resourcesother liquidity-generating transactions are insufficient to fund itstheir respective debt service obligations, we may be forced to reduce or delay capital expenditures, sell material assets or operations, or seek additional capital or restructure or refinance the indebtedness.capital. We may not be able to take any of these actions, and these actions may not be successful or permit Clear Channel or its subsidiaries to meet the scheduled debt service obligations. Furthermore, these actions may not be permitted under the terms of existing or future debt agreements.
The ability to restructure or refinance Clear Channel’sthe debt will depend on the condition of the capital markets and our financial condition at such time. Any refinancing of the debt could be at higher interest rates and increase Clear Channel’s debt service obligations and may require us, and Clear Channel and its subsidiaries to comply with more onerous covenants, which could further restrict our business operations. The terms of existing or future debt instruments may restrict us from adopting some of these alternatives. These alternative measures may not be successful and may not permit us, or Clear Channel or its subsidiaries to meet scheduled debt service obligations. If we, or Clear Channel or its subsidiaries cannot make scheduled payments on indebtedness, itClear Channel or its subsidiaries, as applicable, will be in default under one or more of the debt agreements and, as a result we could be forced into bankruptcy or liquidation.
Our substantial debt service obligations have increased as a result of Clear Channel’s financing transactions and may continue to do so, which could adversely affect our liquidity and prevent us from fulfilling our obligations
In 2013, our debt service obligations substantially increased. Assuming constant outstanding balances and interest rates, Clear Channel’s 2013 financing transactions increased our annual interest expense over a 12-month period by $267 million. Future financing transactions are likely to further increase our interest expense.
The increase in our debt service obligations could adversely affect our liquidity and could have important consequences, including the following:
·it may make it more difficult for us to satisfy our obligations under our indebtedness and our contractual and commercial commitments; and
·it may otherwise further limit us in the ways summarized above under “The substantial amount of indebtedness of our subsidiary, Clear Channel, and its subsidiaries, may adversely affect our cash flows and our ability to operate our business and make us more vulnerable to changes in the economy or our industry,” including by reducing our cash available for operations, debt service obligations, future business opportunities, acquisitions and capital expenditures.
Our ability to make payments with respect to Clear Channel’s debt obligations will depend on our future operating performance and Clear Channel’s ability to continue to refinance its indebtedness, which will be affected by prevailing economic and credit market conditions and financial, business and other factors, many of which are beyond our control.
The documents governing Clear Channel’sour indebtedness contain restrictions that limit our flexibility in operating our business
Clear Channel’s material financing agreements, including its credit agreements and indentures, contain various covenants restricting, among other things, our ability to:
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·make acquisitions or investments;
·make loans or otherwise extend credit to others;
·incur indebtedness or issue shares or guarantees;
·create liens;
·enter into transactions with affiliates;
·sell, lease, transfer or dispose of assets;
·merge or consolidate with other companies; and
·make a substantial change to the general nature of our business.
In addition, under Clear Channel’s senior secured credit facilities, Clear Channel is required to comply with certain affirmative covenants and certain specified financial covenants and ratios. For instance, Clear Channel’s senior secured credit facilities require it to comply on a quarterly basis with a financial covenant limiting the ratio of its consolidated secured debt, net of cash and cash equivalents, to its consolidated EBITDA (as defined under the terms of the senior secured credit facilities) for the preceding four quarters. The ratio under this financial covenant for the four quarters ended December 31, 2013 is set at 9.00 to 1 and reduces to 8.75 to 1 for the four quarters ended December 31, 2014.
The restrictions contained in Clear Channel’s credit agreements and indentures could affect our ability to operate our business and may limit our ability to react to market conditions or take advantage of potential business opportunities as they arise. For example, such restrictions could adversely affect our ability to finance our operations, make strategic acquisitions, investments or alliances, restructure our organization or finance our capital needs. Additionally, the ability to comply with these covenants and restrictions may be affected by events beyond Clear Channel’s or our control. These include prevailing economic, financial and industry conditions. If any of these covenants or restrictions areis breached, Clear Channel could be in default under the agreements governing its indebtedness and, as a result, we would be forced into bankruptcy or liquidation.
Downgrades in our credit ratings may adversely affect our borrowing costs, limit our financing options, reduce our flexibility under future financings and adversely affect our liquidity, and also may adversely impact our business operations
The corporate credit ratings for Clear Channel and its indirect subsidiary, Clear Channel Worldwide Holdings, Inc., are speculative-grade. Any reductions in their credit ratings could increase our borrowing costs, reduce the availability of financing to us or increase the cost of doing business or otherwise negatively impact our business operations.
Cautionary Statement Concerning Forward-Looking Statements
The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements made by us or on our behalf. Except for the historical information, this report contains various forward-looking statements which represent our expectations or beliefs concerning future events, including, without limitation, our future operating and financial performance, our ability to comply with the covenants in the agreements governing our
indebtedness and the availability of capital and the terms thereof. Statements expressing expectations and projections with respect to future matters are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. We caution that these forward-looking statements involve a number of risks and uncertainties and are subject to many variables which could impact our future performance. These statements are made on the basis of management’s views and assumptions, as of the time the statements are made, regarding future events and performance. There can be no assurance, however, that management’s expectations will necessarily come to pass. Actual future events and performance may differ materially from the expectations reflected in our forward-looking statements. We do not intend, nor do we undertake any duty, to update any forward-looking statements.
A wide range of factors could materially affect future developments and performance, including:including but not limited to:
·the impact of our substantial indebtedness, including the effect of our leverage on our financial position and earnings;
the·our ability to generate sufficient cash from operations or other liquidity-generating transactions and our need to allocate significant amounts of our cash flow to make payments on our indebtedness, which in turn could reduce our financial flexibility and ability to fund other activities;
·risks associated with aweak or uncertain global economic downturnconditions and itstheir impact on the capital markets;
·other general economic and political conditions in the United States and in other countries in which we currently do business, including those resulting from recessions, political events and acts or threats of terrorism or military conflicts;
·industry conditions, including competition;
·the level of expenditures on advertising;
·legislative or regulatory requirements;
·fluctuations in operating costs;
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·technological changes and innovations;
·changes in labor conditions, including on-air talent, program hosts and management;
·capital expenditure requirements;
·risks of doing business in foreign countries;
·fluctuations in exchange rates and currency values;
·the outcome of pending and future litigation;
·taxes and tax disputes;
·changes in interest rates;
taxes and tax disputes;
·shifts in population and other demographics;
·access to capital markets and borrowed indebtedness;
·our ability to implement our business strategies;
·the risk that we may not be able to integrate the operations of acquired businesses successfully;
·the risk that our cost savings initiatives may not be entirely successful or that any cost savings achieved from those initiatives may not persist; and
·certain other factors set forth in our other filings with the Securities and Exchange Commission.
This list of factors that may affect future performance and the accuracy of forward-looking statements is illustrative and is not intended to be exhaustive. Accordingly, all forward-looking statements should be evaluated with the understanding of their inherent uncertainty.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
Corporate
Our corporate headquarters and executive offices are located in San Antonio, Texas, where we own an approximately 55,000 square foot executive office building and an approximately 123,000 square foot data and administrative service center. In addition, certain of our executive and other operations are located in New York, New York.York, Phoenix, Arizona, and London, England.
CCME
CCME
Our CCME executive operations are located in our corporate headquarters in San Antonio, Texas and in New York, New York. The types of properties required to support each of our radio stations include offices, studios, transmitter sites and antenna sites. We either own or lease our transmitter and antenna sites. These leases generally have expiration dates that range from five to 15 years. A radio station’s studios are generally housed with its offices in downtown or business districts. A radio station’s transmitter sites and antenna sites are generally located in a manner that provides maximum market coverage.
Americas Outdoor and International Outdoor Advertising
The headquarters of our Americas outdoor operations is in Phoenix, Arizona, and the headquarters of our International outdoor operations is in London, England. The types of properties required to support each of our outdoor advertising branches include offices, production facilities and structure sites. An outdoor branch and production facility is generally located in an industrial or warehouse district.
With respect to each of the Americas outdoor and International outdoor segments, we primarily lease our outdoor display sites and own or have acquired permanent easements for relatively few parcels of real property that serve as the sites for our outdoor displays. Our leases generally range from month-to-month to year-to-year and can be for terms of 10 years or longer, and many provide for renewal options.
There is no significant concentration of displays under any one lease or subject to negotiation with any one landlord. We believe that an important part of our management activity is to negotiate suitable lease renewals and extensions.
Consolidated
The studios and offices of our radio stations and outdoor advertising branches are located in leased or owned facilities. These leases generally have expiration dates that range from one to 40 years. We do not anticipate any difficulties in renewing those leases that expire within the next several years or in leasing other space, if required. We own substantially all of the equipment used in our CCME and outdoor advertising businesses. For additional information regarding our CCME and outdoor properties, see “Item 1. Business.”
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We currently are involved in certain legal proceedings arising in the ordinary course of business and, as required, have accrued an estimate of the probable costs for the resolution of those claims for which the occurrence of loss is probable and the amount can be reasonably estimated. These estimates have been developed in consultation with counsel and are based upon an analysis of potential results, assuming a combination of litigation and settlement strategies. It is possible, however, that future results of operations for any particular period could be materially affected by changes in our assumptions or the effectiveness of our strategies related to these proceedings. Additionally, due to the inherent uncertainty of litigation, there can be no assurance that the resolution of any particular claim or proceeding would not have a material adverse effect on our financial condition or results of operations.
Certain
Although we are involved in a variety of legal proceedings in the ordinary course of business, a large portion of our subsidiaries are co-defendants with Live Nation (whichlitigation arises in the following contexts: commercial disputes; defamation matters; employment and benefits related claims; governmental fines; intellectual property claims; and tax disputes.
Stockholder Litigation
Two derivative lawsuits were filed in March 2012 in Delaware Chancery Court by stockholders of CCOH, an indirect non-wholly owned subsidiary of ours. The consolidated lawsuits were captioned In re Clear Channel Outdoor Holdings, Inc. Derivative Litigation, Consolidated Case No. 7315-CS. The complaints named as defendants certain of Clear Channel’s and CCOH’s current and former directors and Clear Channel, as well as Bain Capital and THL. CCOH also was spun offnamed as an independent companya nominal defendant. The complaints alleged, among other things, that in December 2005) in 22 putative class actions filed2009 Clear Channel breached fiduciary duties to CCOH and its stockholders by different named plaintiffs in various district courts throughoutallegedly requiring CCOH to agree to amend the country beginning in May 2006. These actions generally allege thatterms of a revolving promissory note payable by Clear Channel to CCOH (the “Note”) to extend the defendants monopolized or attempted to monopolize the market for “live rock concerts” in violation of Section 2maturity date of the Sherman Act. Plaintiffs claimNote and to amend the interest rate payable on the Note. According to the complaints, the terms of the amended Note were unfair to CCOH because, among other things, the interest rate was below market. The complaints further alleged that they paid higher ticket prices for defendants’ “rock concerts”Clear Channel was unjustly enriched as a result of defendants’ conduct. They seek damagesthat transaction. The complaints also alleged that the director defendants breached fiduciary duties to CCOH in an undetermined amount.connection with that transaction and that the transaction constituted corporate waste. On April 17, 2006,March 28, 2013, to avoid the Judicial Panel for Multidistrict Litigation centralized these class action proceedingscosts, disruption and distraction of further litigation, and without admitting the validity of any allegations made in the Central Districtcomplaint, legal counsel for the defendants entered into a binding memorandum of California. The district court has certified classesunderstanding (the “MOU”) with legal counsel for a special litigation committee consisting of certain independent directors of CCOH and the plaintiffs to settle the litigation. On July 8, 2013, the parties executed a Stipulation of Settlement, on terms consistent with the MOU, and presented the Stipulation of Settlement to the Delaware Chancery Court for approval. We, CCOH and Clear Channel filed the Stipulation of Settlement with the SEC as an exhibit to our respective Current Reports on Form 8-K filed on July 9, 2013. On September 9, 2013, the Delaware Chancery Court approved the settlement and, on October 9, 2013, the right to appeal expired. On October 19, 2013, in five “template” cases involving five regional markets: accordance with the terms of the settlement, CCOH’s board of directors (i) notified Clear Channel of its intent to make a demand for repayment of $200 million outstanding under the Note on November 8, 2013, (ii) declared a dividend of $200 million, which was conditioned upon Clear Channel satisfying such demand, and (iii) established a committee of the board of directors for the specific purpose of monitoring the Note. On October 23, 2013, Clear Channel and CCOH amended the Note in accordance with the terms of the settlement. We, CCOH and Clear Channel announced CCOH’s intent to make a demand for repayment of $200 million outstanding under the Note and CCOH’s declaration of the dividend in our respective Current Reports on Form 8-K filed on October 21, 2013, filed a copy of the amendment to the Note as an exhibit to our respective Current Reports on Form 8-K filed on October 23, 2013 and announced the demand and dividend payment in our respective Current Reports on Form 8-K filed on November 8, 2013.
Los Angeles Boston, New York City, Chicago and Denver. Discovery has closed, and dispositive motions have been filed.Litigation
In the Master Separation and Distribution Agreement between2008, Summit Media, LLC, one of our subsidiariescompetitors, sued the City of Los Angeles (the “City”), Clear Channel Outdoor, Inc. and Live NationCBS Outdoor in Los Angeles Superior Court (Case No. BS116611) challenging the validity of a settlement agreement that washad been entered into in connectionNovember 2006 among the parties. Pursuant to the settlement agreement, Clear Channel Outdoor, Inc. had taken down existing billboards and converted 83 existing signs from static displays to digital displays pursuant to modernization permits issued through an administrative process of the City. The Los Angeles Superior Court ruled in January 2010 that the settlement agreement constituted an ultra vires act of the City and nullified its existence, but did not invalidate the modernization permits issued to Clear Channel Outdoor, Inc. and CBS. All parties appealed the ruling by the Los Angeles Superior Court to Court of Appeal for the State of California, Second Appellate District, Division 8. On December 10, 2012, the Court of Appeal issued an order upholding the Superior Court’s finding that the settlement agreement was ultra vires and remanding the case to the Superior Court for the purpose of invalidating the modernization permits issued to Clear Channel Outdoor, Inc. and CBS for the digital displays that were the subject of the settlement agreement. On January 22, 2013, Clear Channel Outdoor, Inc. filed a petition with the spin-offCalifornia Supreme Court requesting its review of Live Nation in December 2005, Live Nation agreed, among other things,the matter, and the Supreme Court denied that petition on February 27, 2013. On April 12, 2013, the Los Angeles Superior Court invalidated 82 digital modernization permits issued to assume responsibility for legal actions existingClear Channel Outdoor, Inc. (77 of which displays were operating at the time of or initiated after, the spin-off inruling) and 13 issued to CBS and ordered that the companies turn off the electrical power to
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affected digital displays by the close of business on April 15, 2013. Clear Channel Outdoor, Inc. has complied with the order. On April 16, 2013, the Court conducted further proceedings during which we areit held that it was not invalidating two additional digital modernization permits that Clear Channel Outdoor, Inc. had secured through a defendant if such actions relate in any material respect to the business of Live Nation. Pursuant to the Agreement, Live Nation also agreed to indemnify us with respect to all liabilities assumed by Live Nation, including those pertaining to the claims discussed above.
On or about July 12, 2006special zoning plan and confirmed that its April 12 2007, twoorder invalidated only digital modernization permits – no other types of our operating businesses (L&C Outdoor Ltda. (“L&C”) and Publicidad Klimes São Paulo Ltda. (“Klimes”), respectively) inpermits the São Paulo, Brazil market received notices of infraction from the state taxing authority, seeking to impose a value added tax (“VAT”) on such businesses, retroactivelycompanies may have secured for the period from December 31, 2001 through January 31, 2006.signs at issue. Summit Media, LLC filed a further motion requesting that the Court order the demolition of the 82 sign structures on which the now-invalidated digital signs operated, as well as the invalidation of several other permits for traditional signs allegedly issued under the settlement agreement. At a hearing held on November 22, 2013, the Court denied Summit Media, LLC’s demolition motion by allowing the 82 sign structures and their LED faces to remain intact, thus allowing Clear Channel Outdoor, Inc. to seek permits under the existing City sign code to either wrap the LED faces with vinyl or convert the LED faces to traditional static signs. The taxing authority contends that these businesses fall withinCourt further confirmed the definitioninvalidation of “communication services” and as such are subject toall permits issued under the VAT.
L&C and Klimes have filed separate petitions to challenge the impositionsettlement agreement. In anticipation of this tax. L&C’s challenge inorder, Clear Channel Outdoor, Inc. had removed six static billboard facings solely permitted under the administrative courts was unsuccessful atsettlement agreement. At a hearing held on January 21, 2014, the first level, but successful at the second administrative level. The state taxing authority filed an appeal to the third and final administrative level, which required consideration by a full panel of 16 administrative law judges. On September 27, 2010, L&C received an unfavorable ruling at this final administrative level, which concluded that the VAT applied. On December 15, 2011, a Special Chamber of the administrative court considered the reasonableness of the amount of the penalty assessed against L&C and significantly reduced the penalty. With the reduction, the amounts allegedly owed by L&C are approximately $8.6 million in taxes, approximately $4.3 million in penalties and approximately $18.4 million in interest (as of December 31, 2011 at an exchange rate of 0.534). On January 27, 2012, L&C filed a writ of mandamus in the 8th lower public treasury court in São Paulo, State of São Paulo, appealing the administrative court’s decision that the VAT applies. On that same day, L&C filed aCourt denied Summit Media, LLC’s motion for an injunction barring the taxing authority from collecting the tax, penalty and interest while the appeal is pending. The court denied the motion on January 30, 2012. L&C filed a motion for reconsideration, and in early February 2012, the court granted that motion and issued an injunction.
Klimes’ challenge was unsuccessful at the first level of the administrative courts, and denied at the second administrative level on or about September 24, 2009. On January 5, 2011, the administrative law judges at the third administrative level published a ruling that the VAT applies but significantly reduced the penalty assessed by the taxing authority. With the penalty reduction, the amounts allegedly owed by Klimes are approximately $9.7 million in taxes, approximately $4.8 million in penalties and approximately $20.1 million in interest (as of December 31, 2011 at an exchange rate of 0.534). In late February 2011, Klimes filed a writ of mandamus in the 13th lower public treasury court in São Paulo, State of São Paulo, appealing the administrative court’s decision that the VAT applies. On that same day, Klimes filed a motion for an injunction barring the taxing authority from collecting the tax, penalty and interest while the appeal is pending. The court denied the motion in early April 2011. Klimes filed a motion for reconsideration with the court and also appealed that ruling to the São Paulo State Higher Court, which affirmed in late April 2011. On June 20, 2011, the 13th lower public treasury court in São Paulo reconsidered its prior ruling and granted Klimes an injunction suspending any collection effort by the taxing authority until a decisionattorney’s fees on the merits is obtained at the first judicial level.
On August 8, 2011, Brazil’s National Council of Fiscal Policy (CONFAZ) publishedbasis that Summit Media, LLC had a rule authorizing a general amnesty to sixteen states, including the State of São Paulo, to reduce the principal amount of VAT allegedly owed for communications services and reduce or waive relatedsubstantial financial interest and penalties. The State of São Paulo ratified the amnesty in late August 2011. However, in late 2011, the State of São Paulo decided not to pursue the general amnesty, but it has indicated that it would be willing to consider a special amnesty for the out-of-home industry. Klimes and L&C are actively exploring this opportunity but do not know whether the State ultimately will offer a special amnesty or what the terms of any special amnesty might be. Accordingly, the businesses continue to vigorously pursue their appeals in the lower public treasury court.
At December 31, 2011, the range of reasonably possible loss is from zero to approximately $31.2 million in the L&C matter and is from zero to approximately $34.6 million in the Klimes matter. The maximum loss that could ultimately be paid depends on the timing of the final resolution at the judicial level and applicable future interest rates. Based on our review of the law, the outcome of similar cases at the judicial levellitigation and, the advice of counsel, we havetherefore, was not accrued any costs relatedentitled to these claims and believe the occurrence of loss is not probable.fees under California’s private attorney general statute.
ITEM 4. MINE SAFETY DISCLOSURES
Not Applicable
EXECUTIVE OFFICERS OF THE REGISTRANT
The following information with respect to our executive officers is presented as of February 15, 2012:20, 2014:
Name | Age | Position | ||
|
| |||
Robert W. Pittman | 60 | Chairman, Chief Executive Officer and Director | ||
Richard J. Bressler | 56 | President, | ||
C. William Eccleshare | 58 | Chief Executive Officer—Outdoor | ||
Scott D. Hamilton | 44 | Senior Vice President, Chief Accounting Officer and Assistant Secretary | ||
Robert H. Walls, Jr. | 53 | Executive Vice President, General Counsel and Secretary |
The officers named above serve until the next Board of Directors meeting immediately following the Annual Meeting of Stockholders or until their respective successors are chosen and qualified, in each case unless the officer sooner dies, resigns, is removed or becomes disqualified. We expect to retain the individuals named above as our executive officers at such next Board of Directors meeting immediately following the Annual Meeting of Stockholders.
Robert W. Pittmanwas appointed as our Chief Executive OfficerChairman and a director,as Chairman of Clear Channel on May 17, 2013, as Chief Executive Officer and a director of ours and Clear Channel and as Executive Chairman and a director of Clear Channel Outdoor Holdings, Inc.CCOH on October 2, 2011. He also was appointed as Chairman and Chief Executive Officer and a member of the board of managers of our subsidiary, Clear Channel Capital I, LLC, on April 26, 2013. Prior thereto,to October 2, 2011, Mr. Pittman served as Chairman of Media and Entertainment Platforms for us and Clear Channel since November 2010. He has been a member of, and an investor in, Pilot Group, Manager, LLC, Pilot Group GP, LLC, and Pilot Group LP, a private equity partnership,investment company, since April 2003, and Pilot Group II GP, LLC, and Pilot Group II LP, a private equity partnership, since 2006.2003. Mr. Pittman was formerly Chief Operating Officer of AOL Time Warner, Inc. from May 2002 to July 2002. He also served as Co-Chief Operating Officer of AOL Time Warner, Inc. from January 2001 to May 2002, and earlier, as President and Chief Operating Officer of America Online, Inc. from February 1998 to January 2001. Mr. Pittman serves on the boards of numerous charitable organizations, including the Alliance for Lupus Research, the New York City Ballet, Public Theater, the Rock and Roll Hall of Fame Foundation and the Robin Hood Foundation, where he has served as past Chairman.
Thomas W. CaseyRichard J. Bressler was appointed as our Executive Vice President and Chief Financial Officer, and as Executive Vice President and Chief Financial Officer of Clear Channel and Clear Channel Outdoor Holdings, Inc., effectiveCapital I, LLC and as of January 4, 2010. On March 31, 2011, Mr. Casey was appointed to serve in the newly-created Office of the Chief ExecutiveFinancial Officer of CC Media Holdings, Inc., Clear Channel and Clear Channel Outdoor Holdings, Inc., in addition to his existing offices.CCOH on July 29, 2013. Prior thereto, Mr. Casey served in the Office of the Chief Executive Officer of CC Media Holdings, Inc. and Clear Channel until October 2, 2011, and served in the Office of the Chief Executive Officer of Clear Channel Outdoor Holdings, Inc. until January 24, 2012.Bressler was a Managing Director at THL. Prior to January 4, 2010,joining THL, Mr. Casey served asBressler was the Senior Executive Vice President and Chief Financial Officer of Washington Mutual,Viacom, Inc. from November 2002 until October 2008. Washington Mutual, Inc. filed for protection under Chapter 11 of the United States Bankruptcy Code in September 2008. Prior to November 2002, Mr. Casey2001 through 2005. He also served as Vice PresidentChairman and Chief Executive Officer of General Electric CompanyTime Warner Digital Media and, Seniorfrom 1995 to 1999, was Executive Vice President and Chief Financial Officer of GE Financial AssuranceTime Warner Inc. Prior to joining Time Inc. in 1988, Mr. Bressler was a partner with the accounting firm of Ernst & Young LLP since 1999.1979. Mr. Bressler also currently is a director of Clear Channel and Gartner, Inc., a member of the board of managers of Clear Channel Capital I, LLC and a board observer at Univision Communications Inc. Mr. Bressler previously served as a member of the board of directors of American Media Operations, Inc., Nielsen Holdings B.V. and Warner Music Group Corp. and as a member of the J.P. Morgan Chase National Advisory Board. Mr. Bressler holds a B.B.A. in Accounting from Adelphi University. Mr. Bressler has been one of our directors since May 2007.
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C. William Eccleshare was appointed as our Chief Executive Officer – Outdoor, as Chief Executive Officer—Outdoor of CC Media Holdings, Inc. and Clear Channel and as Chief Executive Officer of Clear Channel Outdoor Holdings, Inc.CCOH on January 24, 2012. He also was appointed as Chief Executive Officer—Outdoor of Clear Channel Capital I, LLC on April 26, 2013. Prior thereto,to January 24, 2012, he served as Chief Executive Officer—Clear Channel Outdoor—International of CC Media Holdings, Inc.ours and Clear Channel since February 17, 2011 and served as Chief Executive Officer—International of Clear Channel Outdoor Holdings, Inc.CCOH since September 1, 2009. Previously, he was Chairman and CEO of BBDO EMEA from 2005 to 2009. Prior thereto, he was Chairman and CEO of Young & Rubicam EMEA since 2002.
Scott D. Hamiltonwas appointed as our Senior Vice President, Chief Accounting Officer and Assistant Secretary and as Senior Vice President, Chief Accounting Officer and Assistant Secretary of Clear Channel and Clear Channel Outdoor Holdings, Inc.,CCOH on April 26, 2010. Previously,He also was appointed as Senior Vice President, Chief Accounting Officer and Assistant Secretary of Clear Channel Capital I, LLC on April 26, 2013. Prior to April 26, 2010, Mr. Hamilton served as Controller and Chief Accounting Officer of Avaya Inc. (“Avaya”), a multinational telecommunications company, from October 2008 to April 2010. Prior thereto, Mr. Hamilton served in various accounting and finance positions at Avaya, beginning in October 2004. Prior thereto, Mr. Hamilton was employed by PricewaterhouseCoopers from September 1992 until September 2004.2004 in various roles including audit, transaction services and technical accounting consulting.
John E. Hoganwas appointed as Chairman and Chief Executive Officer – Clear Channel Media and Entertainment of CC Media Holdings, Inc. and Clear Channel on February 16, 2012. Previously, he served as President and Chief Executive Officer—Clear Channel Media and Entertainment (formerly known as Clear Channel Radio) of CC Media Holdings, Inc. and Clear Channel since July 30, 2008. Prior thereto, he served as the Senior Vice President and President and CEO of Radio for Clear Channel since August 2002.
Robert H. Walls, Jr.was appointed as our Executive Vice President, General Counsel and Secretary and as Executive Vice President, General Counsel and Secretary of Clear Channel and Clear Channel Outdoor Holdings, Inc.,CCOH on January 1, 2010. He also was appointed as Executive Vice President, General Counsel and Secretary of Clear Channel Capital I, LLC on April 26, 2013. On March 31, 2011, Mr. Walls was appointed to serve in the newly-created Office of the Chief Executive Officer of CC Media Holdings, Inc.,for us, Clear Channel and Clear Channel Outdoor Holdings, Inc.,CCOH, in addition to his existing offices. Mr. Walls served in the Office of the Chief Executive Officer of CC Media Holdings, Inc.for us and Clear Channel until October 2, 2011, and served in the Office of the Chief Executive Officer of Clear Channel Outdoor Holdings, Inc.for CCOH until January 24, 2012. Prior to January 1, 2010, Mr. Walls was a founding partner of Post Oak Energy Capital, LP and served as Managing Director through December 31, 2009 and remainsas an advisor to and a partner of Post Oak Energy Capital, LP. Prior thereto, Mr. Walls was Executive Vice President and General Counsel of Enron Corp., and a member of its Chief Executive Office since 2002. Prior thereto, he was Executive Vice President and General Counsel of Enron Global Assets and Services, Inc. and Deputy General Counsel of Enron Corp.LP through December 31, 2013.
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PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIESMarket for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Market Information
OurShares of our Class A common sharesstock are quoted for trading on the Over-The-Counter (“OTC”) Bulletin Board under the symbol “CCMO”.“CCMO.” There were 343 shareholders441 stockholders of record as of January 31, 2012.February 7, 2014. 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 quotations obtained from the OTC Bulletin Board reflect the high and low bid prices for our Class A common stock based on inter-dealer prices, without retail mark-up, mark-down or commission and may not represent actual transactions.
Class A Common Stock Market Price | Class A Common Stock Market Price | |||||||||||||||||||
High | Low | High | Low | |||||||||||||||||
2011 | 2010 | |||||||||||||||||||
First Quarter | $ | 9.00 | $ | 7.25 | First Quarter | $ | 4.95 | $ | 2.60 | |||||||||||
Second Quarter | 9.83 | 6.00 | Second Quarter | 16.00 | 4.20 | |||||||||||||||
Third Quarter | 8.50 | 5.00 | Third Quarter | 8.00 | 5.00 | |||||||||||||||
Fourth Quarter | 6.50 | 4.00 | Fourth Quarter | 11.00 | 6.00 |
| Class A Common Stock Market Price |
|
| Class A Common Stock Market Price | ||
| High | Low |
|
| High | Low |
2013 |
|
|
| 2012 |
|
|
First Quarter................ | $3.74 | $2.20 |
| First Quarter.................. | $6.50 | $4.39 |
Second Quarter........... | 6.98 | 2.40 |
| Second Quarter............. | 6.50 | 2.02 |
Third Quarter............... | 5.50 | 3.70 |
| Third Quarter................. | 6.00 | 1.20 |
Fourth Quarter............ | 7.10 | 4.80 |
| Fourth Quarter.............. | 4.00 | 1.95 |
There is no established public trading market for our Class B and Class C common stock. There were 555,556 shares of our Class B common sharesstock and 58,967,502 shares of our Class C common sharesstock outstanding on January 31, 2012.February 14, 2014. All of our outstanding shares of our Class B common stock are held by Clear Channel Capital IV, LLC and all of our outstanding shares of our Class C common stock are held by Clear Channel Capital V, L.P.
Dividend Policy
We currently do not intend to pay regular quarterly cash dividends on the shares of our common stock. We have not declared any dividend on our common stock since our incorporation. We are a holding company with no independent operations and no significant assets other than the stock of our subsidiaries. We, therefore, are dependent on the receipt of dividends or other distributions from our subsidiaries to pay dividends. In addition, Clear Channel’s debt financing arrangements include restrictions on its ability to pay dividends, which in turn affects our ability to pay dividends. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations- Operations—Liquidity and Capital Resources- Resources—Sources of Capital” and Note 5 to the Consolidated Financial Statements.
Sales of Unregistered Securities
We did not sell any equity securities during 20112013 that were not registered under the Securities Act of 1933.1933, other than as previously reported in our Quarterly Report on Form 10-Q for the quarter ended September 30, 2013.
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Purchases of Equity Securities
The following table sets forth the purchases made during the quarter ended December 31, 2011 by us or on our behalf or2013 by or on behalf of us or an affiliated purchaser of shares of our Class A common stock registered pursuant to Section 12 of the Exchange Act:
Period |
| Total Number of Shares Purchased | Average Price Paid per Share | Total Number of Shares Purchased as | Maximum Number | |||||||||||||||
October 1 through October 31 | - | - | ||||||||||||||||||
- |
|
| (1) | |||||||||||||||||
November 1 through November 30 | - | - | - |
|
| (1) | ||||||||||||||
December 1 through December 31 | - | - | - |
|
| (1) | ||||||||||||||
Total |
| - | ||||||||||||||||||
| - | $ 82,934,423 | (1) |
indirect subsidiary(1)On August 9, 2010, Clear Channel announced that its board of directors approved a stock purchase program under which Clear Channel.Channel or its subsidiaries may purchase up to an aggregate of $100 million of our Class A common stock and/or the Class A common stock of CCOH. No shares of our Class A common stock or CCOH’s Class A common stock were purchased under the stock purchase program during the three monthsquarter ended December 31, 2011. However, during the three months ended December 31,2013. During 2011, a subsidiary of Clear Channel purchased $5,749,343$16,372,690 of the Class A common stock of CCOH (1,553,971 shares) in open market purchases. During 2012, a subsidiary of Clear Channel Outdoor Holdings, Inc. (555,721purchased $692,887 of our Class A common stock (111,291 shares) through open market purchases, which, together with previous purchases under the program, leavesstock purchase program. As a result of these purchases of shares of our Class A common stock and CCOH’s Class A common stock, an aggregate of $83,627,310$82,934,423 remains available under the stock purchase program to purchase our Class A common stock and/or the Class A common stock of Clear Channel Outdoor Holdings, Inc.CCOH. The stock purchase program does not have a fixed expiration date and may be modified, suspended or terminated at any time at Clear Channel’s discretion.
ITEM 6. SELECTED FINANCIAL DATASelected Financial Data
The following tables set forth our summary historical consolidated financial and other data as of the dates and for the periods indicated. The summary historical financial data are derived from our audited consolidated financial statements. Certain prior period amounts have been reclassified to conform to the 20112013 presentation. Historical results are not necessarily indicative of the results to be expected for future periods. Acquisitions and dispositions impact the comparability of the historical consolidated financial data reflected in this schedule of Selected Financial Data.
The summary historical consolidated financial and other data should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and the related notes thereto located within Item 8 of Part II of this Annual Report on Form 10-K. The statement of operations for the year ended December 31, 2008 is comprised of two periods: post-merger and pre-merger. We applied purchase accounting adjustments to the opening balance sheet on July 31, 2008 as the merger occurred at the close of business on July 30, 2008. The merger resulted in a new basis of accounting beginning on July 31, 2008.
29
(In thousands) | For the Years Ended December 31, | |||||||||||||||||||
2011 Post-Merger | 2010 Post-Merger | 2009 Post-Merger | 2008 Combined | 2007(1) Pre-Merger | ||||||||||||||||
Results of Operations Data: | ||||||||||||||||||||
Revenue | $ | 6,161,352 | $ | 5,865,685 | $ | 5,551,909 | $ | 6,688,683 | $ | 6,921,202 | ||||||||||
Operating expenses: | ||||||||||||||||||||
Direct operating expenses (excludes depreciation and amortization) | 2,504,036 | 2,381,647 | 2,529,454 | 2,836,082 | 2,672,852 | |||||||||||||||
Selling, general and administrative expenses (excludes depreciation and amortization) | 1,617,258 | 1,570,212 | 1,520,402 | 1,897,608 | 1,822,091 | |||||||||||||||
Corporate expenses (excludes depreciation and amortization) | 227,096 | 284,042 | 253,964 | 227,945 | 181,504 | |||||||||||||||
Depreciation and amortization | 763,306 | 732,869 | 765,474 | 696,830 | 566,627 | |||||||||||||||
Merger expenses | — | — | — | 155,769 | 6,762 | |||||||||||||||
Impairment charges(2) | 7,614 | 15,364 | 4,118,924 | 5,268,858 | — | |||||||||||||||
Other operating income (expense) – net | 12,682 | (16,710 | ) | (50,837 | ) | 28,032 | 14,113 | |||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Operating income (loss) | 1,054,724 | 864,841 | (3,687,146 | ) | (4,366,377 | ) | 1,685,479 | |||||||||||||
Interest expense | 1,466,246 | 1,533,341 | 1,500,866 | 928,978 | 451,870 | |||||||||||||||
Gain (loss) on marketable securities | (4,827 | ) | (6,490 | ) | (13,371 | ) | (82,290 | ) | 6,742 | |||||||||||
Equity in earnings (loss) of nonconsolidated affiliates | 26,958 | 5,702 | (20,689 | ) | 100,019 | 35,176 | ||||||||||||||
Other income (expense) – net | (4,616 | ) | 46,455 | 679,716 | 126,393 | 5,326 | ||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Income (loss) before income taxes and discontinued operations | (394,007 | ) | (622,833 | ) | (4,542,356 | ) | (5,151,233 | ) | 1,280,853 | |||||||||||
Income tax benefit (expense) | 125,978 | 159,980 | 493,320 | 524,040 | (441,148 | ) | ||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Income (loss) before discontinued operations | (268,029 | ) | (462,853 | ) | (4,049,036 | ) | (4,627,193 | ) | 839,705 | |||||||||||
Income from discontinued operations, net(3) | — | — | — | 638,391 | 145,833 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Consolidated net income (loss) | (268,029 | ) | (462,853 | ) | (4,049,036 | ) | (3,988,802 | ) | 985,538 | |||||||||||
Less amount attributable to noncontrolling interest | 34,065 | 16,236 | (14,950 | ) | 16,671 | 47,031 | ||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net income (loss) attributable to the Company | $ | (302,094 | ) | $ | (479,089 | ) | $ | (4,034,086 | ) | $ | (4,005,473 | ) | $ | 938,507 | ||||||
|
|
|
|
|
|
|
|
|
|
Net income (loss) per common share: Basic: Income (loss) attributable to the Company before discontinued operations Discontinued operations Net income (loss) attributable to the Company Diluted: Income (loss) attributable to the Company before discontinued operations Discontinued operations Net income (loss) attributable to the Company Dividends declared per share$ 000,000 $ 000,000 $ 000,000 $ 000,000 $ 000,000 $ 000,000 Post-Merger Pre-Merger For the Years Ended
December 31, For the Five
Months
Ended
December
31, For the
Seven
Months
Ended
July 30, For the Year
Ended
December
31, 2011 2010 2009 2008 2008 2007 (1) $ (3.70 ) $ (5.94 ) $ (49.71 ) $ (62.04 ) $ 0.80 $ 1.59 — — — (0.02 ) 1.29 0.30 $ (3.70 ) $ (5.94 ) $ (49.71 ) $ (62.06 ) $ 2.09 $ 1.89 $ (3.70 ) $ (5.94 ) $ (49.71 ) $ (62.04 ) $ 0.80 $ 1.59 — — — (0.02 ) 1.29 0.29 $ (3.70 ) $ (5.94 ) $ (49.71 ) $ (62.06 ) $ 2.09 $ 1.88 $ — $ — $ — $ — $ — $ 0.75
(In thousands) | As of December 31, | |||||||||||||||||||
Balance Sheet Data: | 2011 Post-Merger | 2010 Post-Merger | 2009 Post-Merger | 2008 Post-Merger | 2007(1) Pre-Merger | |||||||||||||||
Current assets | $ | 2,985,285 | $ | 3,603,173 | $ | 3,658,845 | $ | 2,066,555 | $ | 2,294,583 | ||||||||||
Property, plant and equipment – net, including discontinued operations | 3,063,327 | 3,145,554 | 3,332,393 | 3,548,159 | 3,215,088 | |||||||||||||||
Total assets | 16,542,039 | 17,460,382 | 18,047,101 | 21,125,463 | 18,805,528 | |||||||||||||||
Current liabilities | 1,428,962 | 2,098,579 | 1,544,136 | 1,845,946 | 2,813,277 | |||||||||||||||
Long-term debt, net of current maturities | 19,938,531 | 19,739,617 | 20,303,126 | 18,940,697 | 5,214,988 | |||||||||||||||
Shareholders’ equity (deficit) | (7,471,941 | ) | (7,204,686 | ) | (6,844,738 | ) | (2,916,231 | ) | 9,233,851 |
(In thousands) | For the Years Ended December 31, | ||||||||||||||
|
| 2013 |
| 2012 |
| 2011 |
| 2010 |
| 2009 | |||||
Results of Operations Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Revenue | $ | 6,243,044 |
| $ | 6,246,884 |
| $ | 6,161,352 |
| $ | 5,865,685 |
| $ | 5,551,909 | |
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| Direct operating expenses (excludes depreciation and amortization) |
| 2,543,419 |
|
| 2,494,241 |
|
| 2,504,467 |
|
| 2,368,943 |
|
| 2,515,001 |
| Selling, general and administrative expenses (excludes depreciation and amortization) |
| 1,649,861 |
|
| 1,666,418 |
|
| 1,604,524 |
|
| 1,566,580 |
|
| 1,516,190 |
| Corporate expenses (excludes depreciation and amortization) |
| 324,182 |
|
| 297,366 |
|
| 239,399 |
|
| 300,378 |
|
| 272,629 |
| Depreciation and amortization |
| 730,828 |
|
| 729,285 |
|
| 763,306 |
|
| 732,869 |
|
| 765,474 |
| Impairment charges (1) |
| 16,970 |
|
| 37,651 |
|
| 7,614 |
|
| 15,364 |
|
| 4,118,924 |
| Other operating income (expense), net |
| 22,998 |
|
| 48,127 |
|
| 12,682 |
|
| (16,710) |
|
| (50,837) |
Operating income (loss) |
| 1,000,782 |
|
| 1,070,050 |
|
| 1,054,724 |
|
| 864,841 |
|
| (3,687,146) | |
Interest expense |
| 1,649,451 |
|
| 1,549,023 |
|
| 1,466,246 |
|
| 1,533,341 |
|
| 1,500,866 | |
Gain (loss) on marketable securities |
| 130,879 |
|
| (4,580) |
|
| (4,827) |
|
| (6,490) |
|
| (13,371) | |
Equity in earnings (loss) of nonconsolidated affiliates |
| (77,696) |
|
| 18,557 |
|
| 26,958 |
|
| 5,702 |
|
| (20,689) | |
Gain (loss) on extinguishment of debt |
| (87,868) |
|
| (254,723) |
|
| (1,447) |
|
| 60,289 |
|
| 713,034 | |
Other income (expense), net |
| (21,980) |
|
| 250 |
|
| (3,169) |
|
| (13,834) |
|
| (33,318) | |
Loss before income taxes |
| (705,334) |
|
| (719,469) |
|
| (394,007) |
|
| (622,833) |
|
| (4,542,356) | |
Income tax benefit |
| 121,817 |
|
| 308,279 |
|
| 125,978 |
|
| 159,980 |
|
| 493,320 | |
Consolidated net loss |
| (583,517) |
|
| (411,190) |
|
| (268,029) |
|
| (462,853) |
|
| (4,049,036) | |
| Less amount attributable to noncontrolling interest |
| 23,366 |
|
| 13,289 |
|
| 34,065 |
|
| 16,236 |
|
| (14,950) |
Net loss attributable to the Company | $ | (606,883) |
| $ | (424,479) |
| $ | (302,094) |
| $ | (479,089) |
| $ | (4,034,086) |
|
|
|
| For the Years Ended | |||||||||||||
|
|
|
| December 31, | |||||||||||||
|
|
|
| 2013 |
| 2012 |
| 2011 |
| 2010 |
| 2009 | |||||
Net loss per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
| Basic: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
|
|
| Net loss attributable to the Company | $ | (7.31) |
| $ | (5.23) |
| $ | (3.70) |
| $ | (5.94) |
| $ | (49.71) |
| Diluted: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
|
|
| Net loss attributable to the Company | $ | (7.31) |
| $ | (5.23) |
| $ | (3.70) |
| $ | (5.94) |
| $ | (49.71) |
Dividends declared per share | $ | - |
| $ | - |
| $ | - |
| $ | - |
| $ | - |
(In thousands) | As of December 31, | |||||||||||||
| 2013 |
| 2012 |
| 2011 |
| 2010 |
| 2009 | |||||
Balance Sheet Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets | $ | 2,513,294 |
| $ | 2,987,753 |
| $ | 2,985,285 |
| $ | 3,603,173 |
| $ | 3,685,845 |
Property, plant and equipment, net |
| 2,897,630 |
|
| 3,036,854 |
|
| 3,063,327 |
|
| 3,145,554 |
|
| 3,332,393 |
Total assets |
| 15,097,302 |
|
| 16,292,713 |
|
| 16,452,039 |
|
| 17,460,382 |
|
| 18,047,101 |
Current liabilities |
| 1,759,592 |
|
| 1,782,142 |
|
| 1,428,962 |
|
| 2,098,579 |
|
| 1,544,136 |
Long-term debt, net of current maturities |
| 20,030,479 |
|
| 20,365,369 |
|
| 19,938,531 |
|
| 19,739,617 |
|
| 20,303,126 |
Shareholders' deficit |
| (8,696,635) |
|
| (7,995,191) |
|
| (7,471,941) |
|
| (7,204,686) |
|
| (6,844,738) |
OVERVIEW
Format of Presentation
Management’s discussion and analysis of our financial condition and results of operations and financial condition (“MD&A”) should be read in conjunction with the consolidated financial statements and related footnotes. Our discussion is presented on both a consolidated and segment basis. Our reportable operating segments are Media and Entertainment (“CCME”, formerly known as our Radio segment)), Americas outdoor advertising (“Americas outdoor” or “Americas outdoor advertising”), and International outdoor advertising (“International outdoor” or “International outdoor advertising”). Our CCME segment provides media and entertainment services via broadcast and digital delivery and also includes our national syndication business. Our Americas outdoor and International outdoor segments provide outdoor advertising services in their respective geographic regions using various digital and traditional display types. Included in the “Other” segment are our media representation business, Katz Media Group, as well as other general support services and initiatives, which are ancillary to our other businesses.
We manage our operating segments primarily focusing on their operating income, while Corporate expenses, Impairment charges, Other operating income, (expense) — net, Interest expense, LossGain (loss) on marketable securities, Equity in earnings (loss) of nonconsolidated affiliates, Loss on extinguishment of debt, Other income (expense) —, net and Income tax benefit are managed on a total company basis and are, therefore, included only in our discussion of consolidated results.
Certain prior period amounts have been reclassified to conform to the 20112013 presentation.
During the first quarter of 2012, and in connection with the appointment of the new chief executive officer of our indirect subsidiary, Clear Channel Outdoor Holdings, Inc. (“CCOH”), we reevaluated our segment reporting and determined that our Latin American operations were more appropriately aligned within the operations of our International outdoor advertising segment. As a result, the operations of Latin America are no longer reflected within our Americas outdoor advertising segment and are currently included in the results of our International outdoor advertising segment. Accordingly, we have recast the corresponding segment disclosures for prior periods.
CCME
Our revenue is derived primarily from selling advertising time, or spots, on our radio stations, with advertising contracts typically less than one year in duration. The programming formats of our radio stations are designed to reach audiences with targeted demographic characteristics that appeal to our advertisers. We also provide streaming content via the Internet, mobile and other digital platforms which reach national, regional and local audiences and derive revenues primarily from selling advertising time with advertising contracts similar to those used by our radio stations.
CCME management monitors average advertising rates, which are principally based on the length of the spot and how many people in a targeted audience listen to our stations, as measured by an independent ratings service. Also, our advertising rates are influenced by the time of day the advertisement airs, with morning and evening drive-time hours typically priced the highest. Management monitors yield per available minute in addition to average rates because yield allows management to track revenue performance across our inventory. Yield is measured by management in a variety of ways, including revenue earned divided by minutes of advertising sold.
Management monitors macro-level indicators to assess our CCME 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, management reviews average unit rates across each of our stations.
Management looks at our CCME operations’ overall revenue as well as the revenue from each type of advertising, including local advertising, which is sold predominately in a station’s local market, and national advertising, which is sold across multiple markets. Local advertising is sold by each radio station’s sales staff while national advertising is sold for the most part,by our national sales team and 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. We periodically review and refine our selling structures in all markets in an effort to maximize the value of our offering to advertisers and, therefore, our revenue.
31
Management also looks at CCME revenue by market size. Typically, larger markets can reach larger audiences with wider demographics than smaller markets. Additionally, management reviews our share of CCME advertising revenues in markets where such information is available, as well as our share of target demographics listening to the radio in an average quarter hour. This metric gauges how well our formats are attracting and retaining listeners.
A portion of our CCME segment’s expenses vary in connection with changes in revenue. These variable expenses primarily relate to costs in our sales department, such as 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. We incur discretionary costs in our marketing and promotions, which we primarily use in an effort to maintain and/or increase our audience share. Lastly, we have incentive systems in each of our departments which provide for bonus payments based on specific performance metrics, including ratings, sales levels, pricing and overall profitability.
Outdoor Advertising
Our outdoor advertising revenue is derived from selling advertising space on the displays we own or operate in key markets worldwide, consisting primarily of billboards, street furniture and transit displays. Part of our long-term strategy for our outdoor advertising businesses is to pursue the technology of digital displays, including flat screens, LCDs and LEDs, as alternativesadditions to traditional methods of displaying our clients’ advertisements. We are currently installing these technologies in certain markets, both domestically and internationally.
Management typically monitors our outdoor advertising business by reviewing the average rates, average revenue per display, or yield, occupancy, and inventory levels of each of our display types by market.
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.
The significant expenses associated with our operations include (i) direct production, maintenance and installation expenses (ii)as well as site lease expenses for land under our displays and (iii)including revenue-sharing or minimum guaranteed amounts payable under our billboard, 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, electricity 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 that we may have with the landlords. The terms of our site leases and revenue-sharing or minimum guaranteed contracts generally range from one to 20 years.
Americas Outdoor Advertising
Our advertising rates are based on a number of different factors including location, competition, type and size of display, illumination, market and gross ratings points. Gross ratings points are the total number of impressions delivered by a display or group of displays, expressed as a percentage of a market population. The number of impressions delivered by a display is measured by the number of people passing the site during a defined period of time. For all of our billboards in the United States, we use independent, third-party auditing companies to verify the number of impressions delivered by a display.
Client contract terms typically range from four weeks to one year for the majority of our display inventory in the United States. Generally, we own the street furniture structures and are responsible for their construction and maintenance. Contracts for the right to place our street furniture and transit displays and sell advertising space on them are awarded by municipal and transit authorities in competitive bidding processes governed by local law or are negotiated with private transit operators. Generally, these contracts have terms ranging from 10 to 20 years.
International Outdoor Advertising
Similar to our Americas outdoor business, advertising rates generally are based on the gross ratings points of a display or group of displays. The number of impressions delivered by a display, in some countries, is weighted to account for such factors as illumination, proximity to other displays and the speed and viewing angle of approaching traffic. In addition, because our International outdoor advertising operations are conducted in foreign markets, primarilyincluding Europe, Asia, Australia and Asia,Latin America, 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.
32
Our International display inventory is typically sold to clients through network packages, with client contract terms typically ranging from one to two weeks with terms of up to one year available as well. Internationally, contracts with municipal and transit authorities for the right to place our street furniture and transit displays typically provide for terms ranging from three to 15 years. The major difference between our International and Americas street furniture businesses is in the nature of the municipal contracts. In our International outdoor business, these contracts typically require us to provide the municipality with a broader range of metropolitan amenities in exchange for which we are authorized to sell advertising space on certain sections of the structures we erect in the public domain. A different regulatory environment for billboards and competitive bidding for street furniture and transit display contracts, which constitute a larger portion of our business internationally, may result in higher site lease costs in our International business. As a result, our margins are typically lower in our International business than in the Americas.
Macroeconomic Indicators
Our advertising revenue for all of our segments is highly correlated to changes in gross domestic product (“GDP”) as advertising spending has historically trended in line with GDP, both domestically and internationally. According to the U.S. Department of Commerce, estimated U.S. GDP growth for 20112013 was 1.7%1.9%. Internationally, our results are impacted by fluctuations in foreign currency exchange rates as well as the economic conditions in the foreign markets in which we have operations.
Executive Summary
The key highlights ofdevelopments in our business for the year ended December 31, 20112013 are summarized below:
·Consolidated revenue increased $295.7for 2013 decreased $3.8 million during 2011 compared to 2010.
CCME revenue increased $117.6including an increase of $3.5 million during 2011 compared to 2010, due primarily to increased revenue resulting from our April 2011 addition of a complementary traffic operation to our existing traffic business, Total Traffic Network, through our acquisition of the traffic business of Westwood One, Inc. (the “Traffic acquisition”). We also purchased a cloud-based music technology business in the first quarter of 2011 that has enabled us to accelerate the development and growth of the next generation of our iHeartRadio digital products.
Americas outdoor revenue increased $46.6 million during 2011 compared to 2010, driven by revenue growth across our bulletin, airport and shelter displays, particularly digital displays. During 2011, we deployed 242 digital billboards in the United States, compared to 158 for 2010. We continue to see opportunities to invest in digital displays and expect our digital display deployments will continue throughout 2012.
International outdoor revenue increased $159.3 million during 2011 compared to 2010, primarily as a result of increased street furniture revenues and the effects of movements in foreign exchange. The weakening of the U.S. Dollar throughout 2011 has significantly contributed to revenue growth in our International outdoor advertising business. The revenue increase attributable to movements in foreign exchange was $82.0compared to 2012. Excluding foreign exchange impacts and $20.4 million impact of our divestiture of our international neon business during 2012, consolidated revenue increased $13.1 million over the prior year.
·CCME revenue for 2011.2013 increased $46.8 million compared to 2012 driven by increased digital and national sales partially offset by lower political revenues. Our iHeartRadio platform continues to drive higher digital revenues with listening hours increasing by 29%.
·Americas outdoor revenue for 2013 increased $11.2 million compared to 2012 primarily due to increases in occupancy, capacity and rates in |
During 2011, CC Finco, LLC (“CC Finco”), our indirecttraditional and digital product lines.
·International outdoor revenue for 2013 decreased $11.9 million including the impact of favorable foreign exchange movements of $5.2 million compared to 2012. Excluding foreign exchange impacts and the $20.4 million impact of our divestiture of our international neon business during 2012, revenue increased $3.3 million compared to 2012. Continued weakened macro-economic conditions in Europe were partially offset by growth in other markets.
·Revenues in our Other category for 2013 declined $54.0 million primarily due to decreased political advertising through our media representation business.
·We spent $57.9 million on strategic revenue and cost-saving initiatives during 2013 to realign and improve our on-going business operations—a decrease of $18.3 million compared to 2012.
·Our subsidiary repurchased $80.0Clear Channel Communications, Inc. (“Clear Channel”) issued $575.0 million aggregate principal amount of Clear Channel’s outstanding 5.5% senior11.25% priority guarantee notes due 2014 for $57.12021 (the “11.25% Priority Guarantee Notes”). Using the proceeds from the 11.25% Priority Guarantee Notes issuance along with borrowings under its receivables based credit facility of $269.5 million including accrued interest, through open market purchases.
During 2011, CC Finco purchased 1,553,971 shares of our indirect subsidiary,and cash on hand, Clear Channel Outdoor Holdings, Inc.’s (“CCOH”), Classprepaid all $846.9 million outstanding under its Term Loan A common stock through open market purchases for approximately $16.4 million.under its senior secured credit facility.
During 2011, ·Clear Channel repaid its 4.4%5.75% senior notes at maturity for $140.2$312.1 million (net of $109.8$187.9 million principal amount held by and repaid to a subsidiary of Clear Channel)Channel with respect to notes repurchased and held by such entity), plus accrued interest.
The key highlights of our business for the year ended December 31, 2010 are summarized below:interest, using cash on hand.
Consolidated revenue increased $313.8 million during 2010 compared to 2009, primarily as a result of improved economic conditions.
CCME revenue increased $163.9 million during 2010 compared to 2009, primarily as a result of increased average rates per minute driven by increased demand for both national and local advertising.
Americas outdoor revenue increased $51.9 million during 2010 compared to 2009, driven by revenue growth across our advertising inventory, particularly digital.
International outdoor revenue increased $48.1 million during 2010 compared to 2009, primarily as a result of increased revenue from street furniture across most countries, partially offset by a decrease from movements in foreign exchange of $10.3 million.
Our subsidiary, ·Clear Channel Investments, Inc. (“CC Investments”amended its senior secured credit facility by extending $5.0 billion aggregate principal amount of Term Loan B loans and Term Loan C loans under Clear Channel’s senior secured credit facility through the creation of a new Term Loan D due January 30, 2019. Clear Channel further amended its senior secured credit facility by extending $1.3 billion aggregate principal amount of Term Loan B loans and Term Loan C loans under Clear Channel’s senior secured credit facility through the creation of a new Term Loan E due July 30, 2019.
·Clear Channel completed an exchange offer with certain holders of its 10.75% Senior Cash Pay Notes due 2016 (the “Outstanding Cash Pay Notes”), repurchased $185.2 and 11.00%/11.75% Senior Toggle Notes due 2016 (the “Outstanding Toggle Notes” and collectively with the Outstanding Cash Pay Notes, the “Outstanding Notes”) pursuant to which $348.1 million aggregate principal amount of Outstanding Cash Pay Notes was exchanged for $348.0 million aggregate principal amount of 14.00% Senior Notes due 2021 (the “Senior Notes due 2021”), and $917.2 million aggregate principal amount of Outstanding Toggle Notes (including $452.7 million aggregate principal amount held by a subsidiary of Clear Channel’s senior toggle notesChannel) was exchanged for $125.0$853.0 million during 2010.aggregate principal amount of Senior Notes due 2021 (including $421.0 million aggregate principal amount issued to the subsidiary of Clear Channel) and $64.2 million of cash
33
(including $31.7 million of cash paid to the subsidiary of Clear Channel), plus, in each case, cash in an amount equal to accrued and unpaid interest from the last interest payment date applicable on the Outstanding Notes to, but not including, the closing date of the exchange offer.
·Clear Channel repaid $240.0 million upon the maturitycompleted a supplemental exchange offer with certain holders of its 4.5% senior notes during 2010.
During 2010, Clear Channel repaid its remaining 7.65% senior notes upon maturityOutstanding Notes pursuant to which $353.8 million aggregate principal amount of Outstanding Cash Pay Notes was exchanged for $138.8$389.2 million with proceeds from its delayed draw term loan facility that was specifically designated for this purpose.
During 2010, we received $132.3aggregate principal amount of Senior Notes due 2021 and $14.2 million in Federal income tax refunds.
On October 15, 2010, CCOH transferred itscash and $212.1 million aggregate principal amount of Outstanding Toggle Notes was exchanged for $233.3 million aggregate principal amount of Senior Notes due 2021 and $8.5 million of cash, plus, in each case, cash in an amount equal to accrued and unpaid interest from the last interest payment date applicable on the Outstanding Notes to, but not including, the closing date of the exchange offer less cash in its Branded Cities operationsan amount equal to its joint venture partner, The Ellman Companies. We recorded a loss of $25.3 million in “Other operating income (expense) – net” related toaccrued and unpaid interest from the transfer.
RESULTS OF OPERATIONSlast interest payment date applicable on the Senior Notes due 2021.
·We sold our shares of Sirius XM Radio, Inc. for $135.5 million, recognizing a gain on the sale of securities of $130.9 million.
Consolidated Results of Operations
The comparison of our historical results of operations for the year ended December 31, 20112013 to the year ended December 31, 20102012 is as follows:
$0,000,000,000 | $0,000,000,000 | $0,000,000,000 | ||||||||
(In thousands) | Years Ended December 31, | % Change | ||||||||
2011 | 2010 | |||||||||
Revenue | $ | 6,161,352 | $ | 5,865,685 | 5% | |||||
Operating expenses: | ||||||||||
Direct operating expenses (excludes depreciation and amortization) | 2,504,036 | 2,381,647 | 5% | |||||||
Selling, general and administrative expenses (excludes depreciation and amortization) | 1,617,258 | 1,570,212 | 3% | |||||||
Corporate expenses (excludes depreciation and amortization) | 227,096 | 284,042 | (20%) | |||||||
Depreciation and amortization | 763,306 | 732,869 | 4% | |||||||
Impairment charges | 7,614 | 15,364 | ||||||||
Other operating income (expense) – net | 12,682 | (16,710) | ||||||||
|
|
|
| |||||||
Operating income | 1,054,724 | 864,841 | ||||||||
Interest expense | 1,466,246 | 1,533,341 | ||||||||
Loss on marketable securities | (4,827) | (6,490) | ||||||||
Equity in earnings of nonconsolidated affiliates | 26,958 | 5,702 | ||||||||
Other income (expense) – net | (4,616) | 46,455 | ||||||||
|
|
|
| |||||||
Loss before income taxes | (394,007) | (622,833) | ||||||||
Income tax benefit | 125,978 | 159,980 | ||||||||
|
|
|
| |||||||
Consolidated net loss | (268,029) | (462,853) | ||||||||
Less amount attributable to noncontrolling interest | 34,065 | 16,236 | ||||||||
|
|
|
| |||||||
Net loss attributable to the Company | $ | (302,094) | $ | (479,089) | ||||||
|
|
|
|
(In thousands) | Years Ended December 31, |
| % | |||||
|
| 2013 |
| 2012 |
| Change | ||
Revenue | $ | 6,243,044 |
| $ | 6,246,884 |
| (0%) | |
Operating expenses: |
|
|
|
|
|
|
| |
| Direct operating expenses (excludes depreciation and amortization) |
| 2,543,419 |
|
| 2,494,241 |
| 2% |
| Selling, general and administrative expenses (excludes depreciation and amortization) |
| 1,649,861 |
|
| 1,666,418 |
| (1%) |
| Corporate expenses (excludes depreciation and amortization) |
| 324,182 |
|
| 297,366 |
| 9% |
| Depreciation and amortization |
| 730,828 |
|
| 729,285 |
| 0% |
| Impairment charges |
| 16,970 |
|
| 37,651 |
| (55%) |
| Other operating income, net |
| 22,998 |
|
| 48,127 |
| (52%) |
Operating income |
| 1,000,782 |
|
| 1,070,050 |
| (6%) | |
Interest expense |
| 1,649,451 |
|
| 1,549,023 |
| 6% | |
Gain (loss) on marketable securities |
| 130,879 |
|
| (4,580) |
|
| |
Equity in earnings (loss) of nonconsolidated affiliates |
| (77,696) |
|
| 18,557 |
|
| |
Loss on extinguishment of debt |
| (87,868) |
|
| (254,723) |
|
| |
Other income (expense), net |
| (21,980) |
|
| 250 |
|
| |
Loss before income taxes |
| (705,334) |
|
| (719,469) |
|
| |
Income tax benefit |
| 121,817 |
|
| 308,279 |
|
| |
Consolidated net loss |
| (583,517) |
|
| (411,190) |
|
| |
| Less amount attributable to noncontrolling interest |
| 23,366 |
|
| 13,289 |
|
|
Net loss attributable to the Company | $ | (606,883) |
| $ | (424,479) |
|
|
Consolidated Revenue
Our consolidated revenue increased $295.7decreased $3.8 million during 2011including the increase of $3.5 million from the impact of movements in foreign exchange compared to 2010. Our2012. Excluding the impact of foreign exchange movements and $20.4 million impact of our divestiture of our international neon business during 2012, revenue increased $13.1 million. CCME revenue increased $117.6$46.8 million, driven primarily by a $107.1 million increase due to our Traffic acquisitiongrowth from national advertising including telecommunications, retail, and entertainment, and higher advertising revenues from our digital radio services primarily as a result of improved rates and increased volume.demand as listening hours have increased. Americas outdoor revenue increased $46.6$11.2 million, driven primarily by increases inbulletin revenue across bulletin, airport and shelter displays, particularly digital displays,growth as a result of increases in occupancy, capacity and rates in our continued deploymenttraditional and digital product lines. International outdoor revenue decreased $11.9 million including the impact of new digital displaysfavorable movements in foreign exchange of $5.2 million compared to 2012. Excluding the impact of foreign exchange movements and increased rates. Ourthe $20.4 million impact of our divestiture of our international neon business during 2012, International outdoor revenue increased $159.3 million, primarily from increased$3.3 million. Declines in certain countries as a result of weakened macroeconomic conditions were partially offset by growth in street furniture and billboard revenue acrossin other countries. Revenue in our markets and an $82.0Other category declined $54.0 million increase from the impactas a result of movements in foreign exchange.decreased political advertising through our media representation business.
34
Consolidated Direct Operating Expenses
Direct operating expenses increased $122.4$49.2 million including an increase of $3.6 million due to the effects of movements in foreign exchange compared to 2012 and the impact of our divestiture of our international neon business of $13.0 million during 2011 compared to 2010. Our2012. CCME direct operating expenses increased $40.7$53.4 million, primarily due to higher promotional and sponsorship costs for special events such as the iHeartRadio Music Festival and Jingle Balls and an increase of $56.6 millionin digital expenses related to our Traffic acquisitioniHeartRadio digital platform including higher digital streaming fees due to increased listening hours, as well as music licensing fees, partially offset by a decline in music license fees related to a settlement of prior year license fees.traffic expenses. Americas outdoor direct operating expenses increased $18.6decreased $15.7 million, primarily due to increaseddecreased site lease expense associated with higher airport and bulletin revenue, particularly digital displays, and the increased deploymentdeclining revenues of digital displays.some of our lower-margin product lines. Direct operating expenses in our International outdoor segment increased $60.2$6.9 million, primarily fromincluding a $52.0$4.8 million increase fromdue to the effects of movements in foreign exchange.
Consolidated Selling, General and Administrative (“SG&A”) Expenses
SG&A expenses increased $47.0decreased $16.6 million during 2011including an increase of $1.7 million due to the effects of movements in foreign exchange compared to 2010. Our2012. CCME SG&A expenses increased $17.1$27.0 million primarily due to an increase of $41.0 millioncompensation expenses and amounts related to our Traffic acquisition, partially offset by declinesvariable compensation plans including commissions, which were higher for the 2013 period in compensation expense.connection with increasing national and digital revenues. SG&A expenses increased $6.4 million in our Americas outdoor segment which was primarily asincreased $9.5 million including a result of increased commission expense associated with the increase$7.8 million decrease in revenue. Our International outdoor SG&A expenses increased $39.8 million primarily duerelated to a $15.9 million increase from movementsfavorable court ruling in foreign exchange, a $6.5 million increase related to the unfavorable impact of litigation2012, with other 2013 increases being driven by higher compensation expenses including commissions and increased selling and marketing expenses associated with the increase in revenue.
Corporate Expenses
Corporate expenses decreased $56.9 million during 2011 compared to 2010, primarily as a result of a decrease in bonus expenseamounts related to our variable compensation plans and legal costs. Our International outdoor SG&A expenses decreased expense$40.6 million including a $1.9 million increase due to the effects of movements in foreign exchange compared to the same period of 2012. Excluding the impact of foreign exchange movements and excluding the $4.2 million impact of our divestiture of our international neon business during 2012, SG&A expenses decreased $38.3 million primarily due to certain expenses during the 2012 period related to employee benefits. Also contributinglegal and other costs in Brazil that did not recur during 2013, as well as lower expenses as a result of cost saving initiatives.
Corporate Expenses
Corporate expenses increased $26.8 million during 2013 compared to the decline2012. This increase was a decreaseprimarily driven by increases in share-based compensation expenses including amounts related to our variable compensation plans and strategic initiatives as well as $7.8 million in executive transition costs and legal costs related to the shares tendered by Mark P. Mays to usstockholder litigation discussed further in Item 3 of Part I of this Annual Report on Form 10-K.
Revenue and Efficiency Initiatives
Included in the third quarteramounts for direct operating expenses, SG&A and corporate expenses discussed above are expenses of 2010 pursuant$57.9 million incurred in connection with our strategic revenue and efficiency initiatives. The costs were incurred to a put option includedimprove revenue growth, enhance yield, reduce costs, and organize each business to maximize performance and profitability. These costs consist primarily of consulting expenses, consolidation of locations and positions, severance related to workforce initiatives and other costs incurred in his amended employment agreementconnection with streamlining our businesses. These costs are expected to provide benefits in future periods as the initiative results are realized. Of these costs, $15.1 million are reported within direct operating expenses, $22.3 million are reported within SG&A and the cancellation of certain of his options during 2011,$20.5 million are reported within corporate expense. In 2012, such costs totaled $13.8 million, $47.2 million, and a decrease in restructuring expenses. Partially offsetting the decreases was an increase in general corporate infrastructure support services and initiatives.$15.2 million, respectively.
Depreciation and Amortization
Depreciation and amortization increased $30.4$1.5 million during 20112013 compared to 2010,2012, primarily due to increases in accelerated depreciation and amortization related to the removal of various structures, including the removal of traditional billboards in connection with the continued deploymentfixed asset additions primarily consisting of digital billboards. Increasesassets and software, which are depreciated over shorter useful lives partially offset by various assets becoming fully depreciated in depreciation and amortization related to our Traffic acquisition of $7.5 million also contributed to the increase. In addition, movements in foreign exchange contributed an increase of $7.4 million during 2011.2013.
Impairment Charges
We performed our annual impairment tests onas of October 1, 20112013 and 20102012 on our goodwill, FCC licenses, billboard permits, and other intangible assets and recorded impairment charges of $7.6$17.0 million and $15.4$37.7 million, respectively. During 2013, we recognized a $10.7 million goodwill impairment charge in our International outdoor segment related to a decline in the estimated fair value of one market. Please see Note 2 to the consolidated financial statements included in Item 8 of Part II of this Annual Report on Form 10-K for a further description of the impairment charges.
35
Other Operating Income, (Expense) — Net
Other operating income of $23.0 million in 2013 primarily related to the gain on the sale of certain outdoor assets in our Americas outdoor segment.
Other operating income of $48.1 million in 2012 primarily related to the gain on the sale of our international neon business in the third quarter of 2012.
Interest Expense
Interest expense increased $100.4 million during 2013 compared to 2012 primarily as a result of interest expense associated with the impact of refinancing transactions resulting in higher interest rates. Please refer to “Sources of Capital” for additional discussion of debt issuances and exchanges. Our weighted average cost of debt during 2013 and 2012 was 7.6% and 6.7%, respectively.
Gain (Loss) on Marketable Securities
The gain on marketable securities of $130.9 million during 2013 resulted from the sale of the shares we held in Sirius XM Radio, Inc.
The loss on marketable securities of $4.6 million during 2012 primarily related to the impairment of our investment in Independent News & Media PLC (“INM”) during 2012 and the impairment of a cost-basis investment during 2012. The fair value of INM was below cost for an extended period of time and recovery of the value was not probable. As a result, we considered the guidance in ASC 320-10-S99 and reviewed the length of the time and the extent to which the market value was less than cost, the financial condition and the near-term prospects of the issuer. After this assessment, we concluded that the impairment at each date was other than temporary and recorded non-cash impairment charges to our investment in INM, as noted above. We obtained the financial information for our cost-basis investment and noted continued doubt of the investment’s ability to continue as a going concern. After evaluating the financial condition of the investment, we concluded that the investment was other than temporarily impaired and recorded a non-cash impairment charge to that investment.
Equity in Earnings (Loss) of Nonconsolidated Affiliates
Equity in loss of nonconsolidated affiliates of $77.7 million for 2013 primarily included the loss from our investments in Australia Radio Network and New Zealand Radio Network. On February 18, 2014, a subsidiary of ours sold its 50% interest in Australian Radio Network Pty Ltd (“ARN”). As of December 31, 2013 the book value of our investment in ARN exceeded the estimated selling price. Accordingly, we recorded an impairment charge of $95.4 million during the fourth quarter of 2013 to write down the investment to its estimated fair value.
Equity in earnings of nonconsolidated affiliates of $18.6 million for 2012 primarily included earnings from our investments in Australia Radio Network and New Zealand Radio Network.
Loss on Extinguishment of Debt
We recognized a loss of $84.0 million due to a debt exchange during the fourth quarter of 2013 related to Clear Channel’s Outstanding Notes as discussed elsewhere in this MD&A. In addition, we recognized a loss of $3.9 million due to the write-off of deferred loan costs in connection with the prepayment of Term Loan A of Clear Channel’s senior secured credit facilities.
In connection with the refinancing of Clear Channel Worldwide Holdings, Inc. (“CCWH”) Series A Senior Notes and Series B Senior Notes due 2017 with an interest rate of 9.25% (the “Existing CCWH Senior Notes”) with the CCWH Series A Senior Notes and Series B Senior Notes due 2022 with a stated interest rate of 6.5% (the “CCWH Senior Notes”) during the fourth quarter of 2012, CCWH paid existing note holders a tender premium of 7.4% of face value on the $1,724.7 million of Existing CCWH Senior Notes that were tendered in the tender offer and a call premium of 6.9% on the $775.3 million of Existing CCWH Senior Notes that were redeemed following the tender offer. The tender premium of $128.3 million and the call premium of $53.8 million are included in the loss on extinguishment of debt. In addition, we recognized a loss of $39.0 million due to the write-off of deferred loan costs in connection with the call of the Existing CCWH Senior Notes, and recognized losses of $33.7 million in connection with a prepayment during the first quarter of 2012 and a debt exchange during the fourth quarter of 2012 related to Clear Channel’s senior secured credit facilities as discussed elsewhere in this MD&A.
36
Other Income (Expense), Net
In connection with the June 2013 exchange offer of a portion of the Outstanding Notes for newly-issued Senior Notes due 2021 and in connection with the senior secured credit facility amendments discussed elsewhere in the MD&A, all of which were accounted for as modifications of existing debt, we incurred expenses of $23.6 million partially offset by $1.8 million in foreign exchange gains on short-term intercompany accounts.
Other income of $0.3 million for 2012 primarily related to miscellaneous dividend and other income of $3.2 million offset by $3.0 million in foreign exchange losses on short-term intercompany accounts.
Income Tax Benefit
The effective tax rate for the year ended December 31, 2013 was 17.3% as compared to 42.8% for the year ended December 31, 2012. The effective tax rate for 2013 was primarily impacted by the $143.5 million valuation allowance recorded during the period as additional deferred tax expense. The valuation allowance was recorded against a portion of the U.S. Federal and State net operating losses due to the uncertainty of the ability to utilize those losses in future periods. This expense was partially offset by tax benefits recorded during the period due to the settlement of our U.S. Federal and certain State tax examinations during the year. Pursuant to the settlements, we recorded a reduction to income tax expense of approximately $20.2 million to reflect the net tax benefits of the settlements.
The effective tax rate for the year ended December 31, 2012 was 42.8% as compared to 32.0% for the year ended December 31, 2011. The effective tax rate for 2012 was favorably impacted by our settlement of U.S. Federal and foreign tax examinations during the year. Pursuant to the settlements, we recorded a reduction to income tax expense of approximately $60.6 million to reflect the net tax benefits of the settlements. This benefit was partially offset by additional tax recorded during 2012 related to the write-off of deferred tax assets associated with the vesting of certain equity awards.
CCME Results of Operations
Our CCME operating results were as follows:
(In thousands) | Years Ended December 31, |
| % | ||||
| 2013 |
| 2012 |
| Change | ||
Revenue | $ | 3,131,595 |
| $ | 3,084,780 |
| 2% |
Direct operating expenses |
| 931,976 |
|
| 878,626 |
| 6% |
SG&A expenses |
| 1,020,097 |
|
| 993,116 |
| 3% |
Depreciation and amortization |
| 271,126 |
|
| 271,399 |
| (0%) |
Operating income | $ | 908,396 |
| $ | 941,639 |
| (4%) |
CCME revenue increased $46.8 million during 2013 compared to 2012, primarily due to an increase in national advertising revenue across various markets and advertising categories, including telecommunications, retail, and entertainment, as well as growth in digital advertising revenue as a result of increased listenership on our iHeartRadio platform, with total listening hours increasing 29%. Promotional and sponsorship revenues were also higher driven by special events, such as the iHeart Radio Music Festival, Jingle Balls, iHeartRadio Ultimate Pool Party, and album release events. These increases were partially offset by lower political revenues compared to 2012, as well as a decline in our traffic business as a result of integration activities and certain contract losses.
Direct operating expenses increased $53.4 million during 2013 primarily from special events, promotional cost, compensation, and higher streaming and performance royalty expenses during 2013 due to increased listenership on our iHeartRadio platform. In addition, we incurred higher music license fees after receiving a one-time $20.7 million credit in 2012 from one of our performance rights organizations. These increases were partially offset by lower costs in our traffic business as a result of lower revenues and reduced spending on strategic revenue and cost initiatives. SG&A expenses increased $27.0 million primarily on our variable compensation plans, including commissions, as a result of an increase in national and digital revenue. In addition, we also incurred higher legal fees and research expenses related to sales and programming activities in 2013.
37
Americas Outdoor Advertising Results of Operations
Our Americas outdoor operating results were as follows:
(In thousands) | Years Ended December 31, |
| % | ||||
| 2013 |
| 2012 |
| Change | ||
Revenue | $ | 1,290,452 |
| $ | 1,279,257 |
| 1% |
Direct operating expenses |
| 566,669 |
|
| 582,340 |
| (3%) |
SG&A expenses |
| 220,732 |
|
| 211,245 |
| 4% |
Depreciation and amortization |
| 196,597 |
|
| 192,023 |
| 2% |
Operating income | $ | 306,454 |
| $ | 293,649 |
| 4% |
Our Americas outdoor revenue increased $11.2 million during 2013 compared to 2012, driven primarily by increases in revenues from bulletins and posters. Traditional bulletins and posters had increases in occupancy and rates in connection with new contracts, while the increase for digital displays was driven by higher occupancy and capacity. The increase for digital displays was negatively impacted by lower revenues in our Los Angeles market as a result of the impact of litigiation as discussed further in Item 3 of Part I of this Annual Report on Form 10-K. Partially offsetting these increases were declines in specialty business revenues due primarily to a significant contract during 2012 that did not recur during 2013, and declines in our airport business driven primarily by the loss of certain of our U.S. airport contracts and other airport revenue.
Direct operating expenses decreased $15.7 million, primarily due to the benefits resulting from our previous strategic cost initiatives as well as reduced variable costs associated with site lease expenses due to reduced revenues on lower margin products. SG&A expenses increased $9.5 million primarily due to the 2012 period being impacted by a favorable court ruling that resulted in a $7.8 million decrease in expenses, with other 2013 increases being driven by legal costs related to the Los Angeles litigation discussed further in Item 3 of Part I of this Annual Report on Form 10-K, as well as compensation expenses including commissions and amounts related to our variable compensation plans, which were higher for the 2013 period in connection with increasing our revenues, partially offset by a decrease in costs during 2013 associated with our strategic revenue and cost initiatives compared to 2012.
Depreciation and amortization increased $4.6 million, primarily due to our continued deployment of digital billboards partially offset by assets becoming fully depreciated during 2013.
International Outdoor Advertising Results of Operations
Our International outdoor operating results were as follows:
(In thousands) | Years Ended December 31, |
| % | ||||
| 2013 |
| 2012 |
| Change | ||
Revenue | $ | 1,655,738 |
| $ | 1,667,687 |
| (1%) |
Direct operating expenses |
| 1,028,059 |
|
| 1,021,152 |
| 1% |
SG&A expenses |
| 322,840 |
|
| 363,417 |
| (11%) |
Depreciation and amortization |
| 203,927 |
|
| 205,258 |
| (1%) |
Operating income | $ | 100,912 |
| $ | 77,860 |
| 30% |
International outdoor revenue decreased $11.9 million during 2013 compared to 2012, including an increase of $5.2 million from movements in foreign exchange, and the divestiture of our international neon business which had $20.4 million in revenues during 2012. Excluding the impact of foreign exchange and the divestiture, revenues increased $3.3 million. Revenue growth in certain markets including China, Latin America, and the UK primarily in street furniture advertising revenue, as well as higher transit advertising sales resulting from new contracts in Norway, was partially offset by lower revenues in other countries in Europe as a result of weakened macroeconomic conditions.
Direct operating expenses increased $6.9 million including an increase of $4.8 million from movements in foreign exchange, and the divestiture of our international neon business during 2012 which had $13.0 million in direct operating expenses during 2012. Excluding the impact of movements in foreign exchange and the divestiture, direct operating expenses increased $15.1 million driven primarily by increases in variable costs in certain markets such as China, Norway and Latin America resulting from increased revenues partially offset by declines in expenses in response to declining revenues in other countries in Europe. SG&A expenses decreased $40.6 million including an increase of $1.9 million from movements in foreign exchange and the divestiture of our
38
international neon business during 2012, which had $4.2 million in SG&A expenses during 2012. Excluding the impact of movements in foreign exchange and the divestiture, SG&A expenses decreased $38.3 million primarily due to the absence in 2013 of $22.7 million in expenses incurred during 2012 in connection with legal and other costs in Brazil as well as decreases in 2013 in strategic revenue and cost initiative expenses.
Consolidated Results of Operations
The comparison of our historical results of operations for the year ended December 31, 2012 to the year ended December 31, 2011 is as follows:
(In thousands) | Years Ended December 31, |
| % | |||||
|
| 2012 |
| 2011 |
| Change | ||
Revenue | $ | 6,246,884 |
| $ | 6,161,352 |
| 1% | |
Operating expenses: |
|
|
|
|
|
|
| |
| Direct operating expenses (excludes depreciation and amortization) |
| 2,494,241 |
|
| 2,504,467 |
| (0%) |
| Selling, general and administrative expenses (excludes depreciation and amortization) |
| 1,666,418 |
|
| 1,604,524 |
| 4% |
| Corporate expenses (excludes depreciation and amortization) |
| 297,366 |
|
| 239,399 |
| 24% |
| Depreciation and amortization |
| 729,285 |
|
| 763,306 |
| (4%) |
| Impairment charges |
| 37,651 |
|
| 7,614 |
| 394% |
| Other operating income, net |
| 48,127 |
|
| 12,682 |
| 279% |
Operating income |
| 1,070,050 |
|
| 1,054,724 |
| 1% | |
Interest expense |
| 1,549,023 |
|
| 1,466,246 |
|
| |
Loss on marketable securities |
| (4,580) |
|
| (4,827) |
|
| |
Equity in earnings of nonconsolidated affiliates |
| 18,557 |
|
| 26,958 |
|
| |
Loss on extinguishment of debt |
| (254,723) |
|
| (1,447) |
|
| |
Other income (expense), net |
| 250 |
|
| (3,169) |
|
| |
Loss before income taxes |
| (719,469) |
|
| (394,007) |
|
| |
Income tax benefit |
| 308,279 |
|
| 125,978 |
|
| |
Consolidated net loss |
| (411,190) |
|
| (268,029) |
|
| |
| Less amount attributable to noncontrolling interest |
| 13,289 |
|
| 34,065 |
|
|
Net loss attributable to the Company | $ | (424,479) |
| $ | (302,094) |
|
|
Consolidated Revenue
Our consolidated revenue increased $85.5 million including the impact of negative movements in foreign exchange of $79.3 million compared to 2011. Excluding the impact of foreign exchange movements, revenue increased $164.8 million. CCME revenue increased $98.0 million, driven by growth from national and local advertising including political, telecommunications and auto, and higher advertising revenues from our digital services primarily as a result of higher listening hours and event sponsorship. Americas outdoor revenue increased $26.5 million, driven primarily by bulletin revenue growth as a result of our continued deployment of new digital displays during 2012 and 2011 and revenue growth from our airports business. International outdoor revenue decreased $83.5 million including the impact of negative movements in foreign exchange of $78.9 million compared to 2011. Excluding the impact of foreign exchange movements, International outdoor revenue decreased $4.6 million. Declines in certain countries as a result of weakened macroeconomic conditions and our divestiture of our international neon business during the third quarter of 2012 were partially offset by growth in street furniture and billboard revenue in other countries. Our Other category revenue grew by $47.3 million as a result of increased political advertising through our media representation business during the election year in the United States.
Consolidated Direct Operating Expenses
Direct operating expenses decreased $10.2 million including a $49.7 million decline due to the effects of movements in foreign exchange compared to 2011. CCME direct operating expenses increased $21.0 million, primarily due to an increase in digital expenses related to our iHeartRadio digital platform including higher digital streaming fees due to increased listening hours and rates and personnel costs. In addition, increased expenses related to our traffic acquisition completed in the second quarter of 2011 were partially offset by a decline in music license fees. Americas outdoor direct operating expenses increased $16.0 million, primarily due to increased site lease expense associated with our continued development of digital displays and growth from our airports business.
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Direct operating expenses in our International outdoor segment decreased $43.4 million including a $49.4 million decline due to the effects of movements in foreign exchange. The increase in expense excluding the impact of movements in foreign exchange was primarily driven by higher site lease and other expenses as a result of new contracts. These increases were partially offset by lower variable costs in countries where revenues have declined and the impact of the divestiture of our international neon business.
Consolidated SG&A Expenses
SG&A expenses increased $61.9 million including a decline of $21.7 million due to the effects of movements in foreign exchange compared to 2011. CCME SG&A expenses increased $22.1 million, primarily due to expenses incurred in connection with strategic revenue and cost initiatives. SG&A expenses in our Americas outdoor segment increased $12.3 million primarily due to increased personnel costs resulting from increased revenue in addition to increases in costs associated with strategic revenue and cost initiatives. International outdoor SG&A expenses increased $24.4 million including a $21.6 million decline due to the effects of movements in foreign exchange. The increase was primarily due to $22.7 million of expense related to the negative impact of litigation in Brazil.
Corporate Expenses
Corporate expenses increased $58.0 million during 2012 compared to 2011. This increase was driven by higher personnel costs resulting from amounts recorded under our variable compensation plans, higher expenses under our benefit plans, and increases in corporate infrastructure. In addition, we incurred $14.2 million more in corporate strategic revenue and cost initiatives compared to the prior year as well as expenses related to the stockholder litigation discussed further in Item 3 of Part I of this Annual Report on Form 10-K. Also impacting the increase during 2012 compared to 2011 is the reversal of $6.6 million of share-based compensation expense included in 2011 related to the cancellation of a portion of an executive’s stock options.
Revenue and Efficiency Initiatives
Included in the amounts for direct operating expenses, SG&A and corporate expenses discussed above are expenses of $76.2 million incurred in connection with our strategic revenue and efficiency initiatives. The costs were incurred to improve revenue growth, enhance yield, reduce costs, and organize each business to maximize performance and profitability. These costs consist primarily of consulting expenses, consolidation of locations and positions, severance related to workforce initiatives and other costs incurred in connection with streamlining our businesses. These costs are expected to provide benefits in future periods as the initiative results are realized. Of these costs, $13.8 million are reported within direct operating expenses, $47.2 million are reported within SG&A and $15.2 million are reported within corporate expense. In 2011, such costs totaled $8.8 million, $26.6 million, and $1.0 million, respectively.
Depreciation and Amortization
Depreciation and amortization decreased $34.0 million during 2012 compared to 2011, primarily due to various assets becoming fully depreciated in 2011. In addition, movements in foreign exchange contributed a decrease of $9.3 million during 2012.
Impairment Charges
We performed our annual impairment tests as of October 1, 2012 and 2011 on our goodwill, FCC licenses, billboard permits, and other intangible assets and recorded impairment charges of $37.7 million and $7.6 million, respectively. During 2012, we recognized a $35.9 million impairment charge in our Americas outdoor segment related to declines in estimated fair values of certain markets’ billboard permits. Please see Note 2 to the consolidated financial statements included in Item 8 of Part II of this Annual Report on Form 10-K for a further description of the impairment charges.
Other Operating Income, Net
Other operating income of $48.1 million in 2012 primarily related to the gain on the sale of our international neon business in the third quarter of 2012.
Other operating income of $12.7 million in 2011 primarily related to a gain on the sale of a tower and proceeds received from condemnations of bulletins.
Other operating
Interest Expense
Interest expense of $16.7increased $82.7 million for 2010during 2012 compared to 2011 primarily related to a $25.3 million loss recorded as a result of the transfer of our subsidiary’s interest in its Branded Cities business, partially offset by a $6.2 million gain on the sale of representation contracts.
Interest Expense
Interest expense decreased $67.1 million during 2011 compared to 2010. Higher interest expense associated with CCWH’s issuance of $275.0 million aggregate principal amount of 7.625% Series A Senior Subordinated Notes due 2020 and $1,925.0 million aggregate principal amount of 7.625% Series B Senior Subordinated Notes due 2020 (collectively, “the CCWH Subordinated Notes”) during the 2011 issuancesfirst quarter of Clear Channel’s 9.0% Priority Guarantee Notes was2012, partially offset by decreased expense on term loan facilities due to the prepaymentimpact of $500.0 million of Clear Channel’s senior secured credit facilities made in connection with the February 2011 Offering and the paydown of Clear Channel’s receivables-based credit facility made prior to, and in connection with, the June 2011 Offering. Also contributing to the decline in interest expense was the timing of repurchasesother refinancing actions and repayments at maturity of certain of Clear Channel’s
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senior notes. Please refer to “Sources of Capital” for additional discussion of debt issuances and exchanges. Clear Channel’s weighted average cost of debt during both2012 and 2011 was 6.7% and 2010 was 6.1%.6.2%, respectively.
Loss on Marketable Securities
The loss on marketable securities of $4.6 million and $4.8 million during 2012 and $6.5 million during 2011, and 2010, respectively, primarily related to the impairment of Independent News & Media PLC (“INM”).our investment in INM during 2012 and 2011 and the impairment of a cost-basis investment during 2012. The fair value of INM was below cost for an extended period of time. As a result, we considered the guidance in ASC 320-10-S99 and reviewed the length of the time and the extent to which the market value was less than cost, the financial condition and the near-term prospects of the issuer. After this assessment, we concluded that the impairment at each date was other than temporary and recorded non-cash impairment charges to our investment in INM, as noted above.
Equity in Earnings of Nonconsolidated Affiliates
Equity in earnings of nonconsolidated affiliates of $5.7$18.6 million for 20102012 included earnings from our investments in Australia Radio Network and New Zealand Radio Network.
Equity in earnings of nonconsolidated affiliates of $27.0 million for 2011 included earnings from our investments primarily in Australia Radio Network and New Zealand Radio Network.
Loss on Extinguishment of Debt
In connection with the refinancing of the Existing CCWH Senior Notes with an $8.3interest rate of 9.25% with the CCWH Senior Notes with a stated interest rate of 6.5% during the fourth quarter of 2012, CCWH paid existing note holders a tender premium of 7.4% of face value on the $1,724.7 million impairmentof Existing CCWH Senior Notes that were tendered in the tender offer and a call premium of 6.9% on the $775.3 million of Existing CCWH Senior Notes that were redeemed following the tender offer. The tender premium of $128.3 million and the call premium of $53.8 million are included in the loss on extinguishment of debt. In addition, we recognized a loss of $39.0 million due to the write-off of deferred loan costs in connection with the call of the Existing CCWH Senior Notes, and recognized losses of $33.7 million in connection with a prepayment during the first quarter of 2012 and a debt exchange during the fourth quarter of 2012 related to an equity investmentClear Channel’s senior secured credit facilities as discussed elsewhere in our International outdoor segment.this MD&A.
Other Income (Expense) — Net
Other expenseLoss on extinguishment of $4.6debt of $1.4 million for 2011 primarily related to the accelerated expensing of $5.7 million of loan fees upon the prepayment of $500.0 million of Clear Channel’s senior secured credit facilities in connection with theClear Channel’s issuance of $1.0 billion of 9.0% Priority Guarantee Notes due 2021 during February 2011 Offering described elsewhere in this MD&A,(the “February 2011 Offering”), partially offset by an aggregate gain of $4.3 million on the repurchase of Clear Channel’s 5.5% senior notes due 2014.
Other Income (Expense), Net
Other income of $46.5$0.3 million in 2010for 2012 primarily related to an aggregate gainmiscellaneous dividend and other income of $60.3$3.2 million on the repurchase of Clear Channel’s senior toggle notes partially offset by $12.8$3.0 million in foreign exchange transaction losses on short-term intercompany accounts. Please refer
Other expense of $3.2 million for 2011 primarily related to miscellaneous bank fees and foreign exchange losses on short-term intercompany accounts.
Income Tax Benefit
The effective tax rate for the year ended December 31, 2012 was 42.8% as compared to 32.0% for the year ended December 31, 2011. The effective tax rate for 2012 was favorably impacted by our settlement of U.S. Federal and foreign tax examinations during the year. Pursuant to the “Debt Repurchases, Maturities and Other” section within this MD&A for additional discussionsettlements, we recorded a reduction to income tax expense of approximately $60.6 million to reflect the net tax benefits of the 2011 and 2010 repurchases.settlements. This benefit was partially offset by additional tax recorded during 2012 related to the write-off of deferred tax assets associated with the vesting of certain equity awards.
Income Tax Benefit
The effective tax rate for the year ended December 31, 2011 was 32.0% as compared to 25.7% for the year ended December 31, 2011.2010. The effective tax rate for 2011 was favorably impacted by our settlement of U.S. Federal and state tax examinations during the year. Pursuant to the settlements, we recorded a reduction to income tax expense of approximately $16.3 million to reflect the net tax benefits of the settlements. This benefit was partially offset by additional tax recorded during 2011 related to the write-off of deferred tax assets associated with the vesting of certain equity awards and our inability to benefit from certain tax loss carryforwards in foreign jurisdictions.
The effective tax rate for the year ended December 31, 2010 was 25.7% as compared to 10.9% for the year ended December 31, 2009. The effective tax rate for 2010 was impacted by our inability to benefit from tax losses in certain foreign jurisdictions due to the uncertainty of the ability to utilize those losses in future years. In addition, we recorded a valuation allowance of $13.6 million in 2010 against deferred tax assets related to capital allowances in foreign jurisdictions due to the uncertainty of the ability to realize those assets in future periods.41
CCME Results of Operations
Our CCME operating results were as follows:
(In thousands) | Years Ended December 31, | Years Ended December 31, |
| % | |||||||||||||
2011 | 2010 | % Change | 2012 |
| 2011 |
| Change | ||||||||||
Revenue | $ | 2,986,828 | $ | 2,869,224 | 4% | $ | 3,084,780 |
| $ | 2,986,828 |
| 3% | |||||
Direct operating expenses | 849,265 | 808,592 | 5% |
| 878,626 |
|
| 857,622 |
| 2% | |||||||
SG&A expenses | 980,960 | 963,853 | 2% |
| 993,116 |
|
| 971,066 |
| 2% | |||||||
Depreciation and amortization | 268,245 | 256,673 | 5% |
| 271,399 |
|
| 268,245 |
| 1% | |||||||
|
| ||||||||||||||||
Operating income | $ | 888,358 | $ | 840,106 | 6% | $ | 941,639 |
| $ | 889,895 |
| 6% | |||||
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CCME revenue increased $117.6$98.0 million during 20112012 compared to 2010, primarily2011, driven by a $107.1 million increase duegrowth from national and local advertising across political, automotive and telecommunication categories. We continued to our Traffic acquisition. We experiencedexperience increases in our digital radio services revenue as a result of improved rates, increased volume and revenues relatedlistening hours through our iHeartRadio platform as well as higher event sponsorship revenue. Revenue in our traffic business increased due to our iHeartRadio Music Festival. Offsettingtraffic acquisition completed in the increases were slightsecond quarter of 2011. This revenue growth was partially offset by declines in local and national advertising across various markets and advertising categories including telecommunication, travel and tourism and, most notably, political.syndicated programming sales.
Direct operating expenses increased $40.7$21.0 million during 20112012 compared to 2010,2011, primarily due to an increase of $56.6 million from our Traffic acquisition and an increase in digital expenses related to our iHeartRadio digital initiatives,platform including higher digital streaming fees due to increased listening hours and rates and personnel costs as well as an increase from our iHeartRadio Player and iHeartRadio Music Festival. These increases weretraffic acquisition, partially offset by a $19.0 million decline in music license fees related toresulting from receiving a settlementone-time $20.7 million credit from one of 2011our performance rights organizations in 2012 and 2010 license fees. In addition, included in our 2011 results are restructuring expenses of $8.9 million, which represents a decline of $4.8 million compared to 2010.from lower negotiated royalty rates. SG&A expenses increased $17.1$22.1 million, primarily due to an increase of $41.0 million related to our Traffic acquisition, which was partially offset by a decline of $21.9 million in compensation expense primarily related to reduced salarieshigher spending on strategic revenue and commission.cost initiatives.
Depreciation and amortization increased $11.6$3.2 million, primarily due to our Traffictraffic acquisition.
Americas Outdoor Advertising Results of Operations
Our Americas outdoor operating results were as follows:
$0,000,000,00 | $0,000,000,00 | $0,000,000,00 | |||||||||||||||
(In thousands) | Years Ended December 31, | Years Ended December 31, |
| % | |||||||||||||
2011 | 2010 | % Change | 2012 |
| 2011 |
| Change | ||||||||||
Revenue | $ | 1,336,592 | $ | 1,290,014 | 4% | $ | 1,279,257 |
| $ | 1,252,725 |
| 2% | |||||
Direct operating expenses | 607,210 | 588,592 | 3% |
| 582,340 |
| 566,313 |
| 3% | ||||||||
SG&A expenses | 225,217 | 218,776 | 3% |
| 211,245 |
| 198,989 |
| 6% | ||||||||
Depreciation and amortization | 222,554 | 209,127 | 6% |
| 192,023 |
|
| 211,009 |
| (9%) | |||||||
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Operating income | $ | 281,611 | $ | 273,519 | 3% | $ | 293,649 |
| $ | 276,414 |
| 6% | |||||
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Our
Americas outdoor revenue increased $46.6$26.5 million during 20112012 compared to 2010,2011, primarily driven primarily by revenue increasesgrowth from our digital bulletins and from our airports business. We deployed an additional 178 digital bulletins during 2012 bringing our total to more than 1,000 digital bulletins in service. The revenue growth resulting from our increased digital bulletin capacity was partially offset by declines in our traditional bulletin and poster revenues. Our airport and shelter displays, and particularly digital displays. Bulletin revenues increasedgrew primarily due to digital growth driven by the increased numberas a result of digital displays, in addition to increased rates. Airport and shelter revenues increased primarily on higher average rates.rates and increased occupancy by customers of our largest U.S. airports.
Direct operating expenses increased $18.6$16.0 million primarily due to increased site lease expense associated with higher airport and bulletin revenue, particularlyas a result of our continued deployment of digital displays and the increased deploymentgrowth of digital displays.our airport revenue. SG&A expenses increased $6.4$12.3 million, primarily as a result of increased commission expensehigher personnel costs associated with the increase in revenue.revenue generating headcount and commissions and bonuses related to increased revenue, as well as legal and other expenses related to billboard permitting issues. In addition, included in our 2012 SG&A expenses are revenue and cost initiatives. These increases were partially offset by a favorable court ruling resulting in a $7.8 million decrease in expenses.
Depreciation and amortization increased $13.4decreased $19.0 million, primarily due to increases in 2011 for accelerated depreciation and amortization related to the removal of various structures, including the removal of traditional billboards in connection with the continued deployment of digital billboards.
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International Outdoor Advertising Results of Operations
Our International outdoor operating results were as follows:
$0,000,000,00 | $0,000,000,00 | $0,000,000,00 | |||||||||||||||
(In thousands) | Years Ended December 31, | Years Ended December 31, |
| % | |||||||||||||
2011 | 2010 | % Change | 2012 |
| 2011 |
| Change | ||||||||||
Revenue | $ | 1,667,282 | $ | 1,507,980 | 11% | $ | 1,667,687 |
| $ | 1,751,149 |
| (5%) | |||||
Direct operating expenses | 1,031,591 | 971,380 | 6% |
| 1,021,152 |
|
| 1,064,562 |
| (4%) | |||||||
SG&A expenses | 315,655 | 275,880 | 14% |
| 363,417 |
|
| 339,043 |
| 7% | |||||||
Depreciation and amortization | 208,410 | 204,461 | 2% |
| 205,258 |
|
| 219,955 |
| (7%) | |||||||
|
| ||||||||||||||||
Operating income | $ | 111,626 | $ | 56,259 | 98% | $ | 77,860 |
| $ | 127,589 |
| (39%) | |||||
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International outdoor revenue increased $159.3decreased $83.5 million during 20112012 compared to 2010, primarily2011, including $78.9 million of negative movements in foreign exchange. Excluding the impact of movements in foreign exchange, revenues declined in certain geographies as a result of increased street furniture revenue across mostweakened macroeconomic conditions, particularly in France, southern Europe and the Nordic countries, as well as the impact of $15.1 million due to the divestiture of our markets. Improved yields and additional displays contributed tointernational neon business during the revenue increase in China, and improved yields in combination with a new contract drove the revenue increase in Sweden. The increases from street furniturethird quarter of 2012. These decreases were partially offset by declinescountries including Australia, China and Mexico where economic conditions were stronger, and in the United Kingdom which benefited from the 2012 Summer Olympics in London. These and other countries experienced increased revenues, primarily related to our shelters, street furniture, equipment sales and billboard businesses. New contracts won during 2011 helped drive revenue across several of our markets, primarily Italy and the U.K. Foreign exchange movements resulted in an $82.0 million increase in revenue.growth.
Direct operating expenses increased $60.2decreased $43.4 million, attributable to a $52.0 million increase from movements in foreign exchange. In addition, increased site lease expense of $10.7 million associated with the increase in revenue was partially offset by an $8.8 million decline in restructuring expenses. SG&A expenses increased $39.8 million primarily due to a $15.9 million increase from movements in foreign exchange, a $6.5 million increase related to the unfavorable impact of litigation and higher selling expenses associated with the increase in revenue.
Consolidated Results of Operations
The comparison of our historical results of operations for the year ended December 31, 2010 to the year ended December 31, 2009 is as follows:
$0,000,000,00 | $0,000,000,00 | $0,000,000,00 | ||||||||
(In thousands) | Years Ended December 31, | % Change | ||||||||
2010 | 2009 | |||||||||
Revenue | $ | 5,865,685 | $ | 5,551,909 | 6% | |||||
Operating expenses: | ||||||||||
Direct operating expenses (excludes depreciation and amortization) | 2,381,647 | 2,529,454 | (6%) | |||||||
Selling, general and administrative expenses (excludes depreciation and amortization) | 1,570,212 | 1,520,402 | 3% | |||||||
Corporate expenses (excludes depreciation and amortization) | 284,042 | 253,964 | 12% | |||||||
Depreciation and amortization | 732,869 | 765,474 | (4%) | |||||||
Impairment charges | 15,364 | 4,118,924 | ||||||||
Other operating expense – net | (16,710) | (50,837) | ||||||||
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| |||||||
Operating income (loss) | 864,841 | (3,687,146) | ||||||||
Interest expense | 1,533,341 | 1,500,866 | ||||||||
Loss on marketable securities | (6,490) | (13,371) | ||||||||
Equity in earnings (loss) of nonconsolidated affiliates | 5,702 | (20,689) | ||||||||
Other income– net | 46,455 | 679,716 | ||||||||
Loss before income taxes | (622,833) | (4,542,356) | ||||||||
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| |||||||
Income tax benefit | 159,980 | 493,320 | ||||||||
Consolidated net loss | (462,853) | (4,049,036) | ||||||||
Less amount attributable to noncontrolling interest | 16,236 | (14,950) | ||||||||
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Net loss attributable to the Company | $ | (479,089) | $ | (4,034,086) | ||||||
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Consolidated Revenue
Consolidated revenue increased $313.8 million during 2010 compared to 2009. Our CCME revenue increased $163.9 million driven by increases in both national and local advertising from average rates per minute. Americas outdoor revenue increased $51.9 million, driven by revenue increases across most of our advertising inventory, particularly digital. Our International outdoor revenue increased $48.1 million, primarily due to revenue growth from street furniture across most countries, partially offset by a $10.3 million decrease from the effects of movements in foreign exchange. Other revenue increased $61.0 million, primarily from stronger national advertising in our media representation business.
Consolidated Direct Operating Expenses
Direct operating expenses decreased $147.8 million during 2010 compared to 2009. Our CCME direct operating expenses decreased $77.3 million, primarily from a $29.9 million decline in expenses incurred in connection with our restructuring program from which cost savings resulted in declines of $26.7 million and $11.0 million in programming expenses and compensation expenses, respectively. Americas outdoor direct operating expenses decreased $19.5 million, primarily as a result of the disposition of our taxi advertising business (as described in the “Disposition of Taxi Business” section within this MD&A), partially offset by an increase in site lease expenses associated with the increase in revenue. Direct operating expenses in our International outdoor segment decreased $45.6 million, primarily as a result of a $20.4 million decline in expenses incurred in connection with our restructuring program in addition to decreased site lease expenses associated with cost savings from our restructuring program, and included an $8.2$49.4 million decrease from movements in foreign exchange.
Consolidated SG&A Expenses
SG&A The increase in expenses increased $49.8 million during 2010 comparedexcluding the impact of foreign exchange was primarily due to 2009. Our CCME SG&Ahigher site lease expense associated with new contracts, partially offset by lower site lease expenses increased $45.5 million, primarilyin those markets where revenue declined as a result of increased bonus and commission expense associated with the increaseweakened macroeconomic conditions. The divestiture of our international neon business resulted in revenue.a $9.0 million decline in direct operating expenses. SG&A expenses increased $16.6$24.4 million in our Americas outdoor segment, primarily asincluding a result of increased selling and marketing costs associated with the increase in revenue in addition to the unfavorable impact of litigation. Our International outdoor SG&A expenses decreased $6.3 million, primarily as a result of a decrease in business tax related to a change in French tax law, and included a $2.3$21.6 million decrease from movements in foreign exchange.
Corporate Expenses
Corporate expenses increased $30.1 million during 2010 compared to 2009, The increase was primarily due to a $49.9$22.7 million increase in bonusof expense from improved operating performance and a $53.8 million increase primarily related to headcount from centralization efforts and the expansion of corporate capabilities. Partially offsetting the 2010 increase was $23.5 million related to an unfavorable outcomenegative impact of litigation recorded in 2009,Latin America. Also contributing to the increase were revenue and cost initiatives and increased shelter maintenance in Latin America, partially offset by a $22.6$3.2 million decrease in expenses during 2010 associated withimpact from the divestiture of our restructuring program and an $18.6 million decrease related to various corporate accruals.international neon business.
Depreciation and Amortization
Depreciation and amortization decreased $32.6declined $14.7 million, during 2010 compared to 2009, primarily as a result of assets in our International outdoor segment that became fully amortized during 2009. Additionally, 2009 included $8.0including $9.3 million of additional amortization expense associated with the finalization of purchase price allocations to the acquired intangible assets in our CCME segment.
Impairment Charges
We performed our annual impairment test on October 1, 2010 on our goodwill, FCC licenses, billboard permits, and other intangible assets and recorded impairment charges of $15.4 million. We also performed impairment tests on our goodwill, FCC licenses, billboard permits, and other intangible assets in 2009 and recorded impairment charges of $4.1 billion. Please see the notes to the consolidated financial statements included in Item 8 of Part II of this Annual Report on Form 10-K for a further description of the impairment charges.
A rollforward of our goodwill balance from December 31, 2008 through December 31, 2009 by reporting unit is as follows:
$ 000,00000 | $ 000,00000 | $ 000,00000 | $ 000,00000 | $ 000,00000 | $ 000,00000 | $ 000,00000 | ||||||||||||||||||||||
(In thousands) | Balances as of December 31, 2008 | Acquisitions | Dispositions | Foreign Currency | Impairment | Adjustments | Balances as of December 31, 2009 | |||||||||||||||||||||
United States Radio Markets | $ | 5,579,190 | $ | 4,518 | $ | (62,410) | $ | — | $ | (2,420,897) | $ | 46,468 | $ | 3,146,869 | ||||||||||||||
United States Outdoor Markets | 824,730 | 2,250 | — | — | (324,892) | 69,844 | 571,932 | |||||||||||||||||||||
Switzerland | 56,885 | — | — | 1,276 | (7,827) | — | 50,334 | |||||||||||||||||||||
Ireland | 14,285 | — | — | 223 | (12,591) | — | 1,917 | |||||||||||||||||||||
Baltics | 10,629 | — | — | — | (10,629) | — | — | |||||||||||||||||||||
Americas Outdoor – Mexico | 8,729 | — | — | 7,440 | (10,085) | (442) | 5,642 | |||||||||||||||||||||
Americas Outdoor – Chile | 3,964 | — | — | 4,417 | (8,381) | — | — | |||||||||||||||||||||
Americas Outdoor – Peru | 45,284 | — | — | — | (37,609) | — | 7,675 | |||||||||||||||||||||
Americas Outdoor – Brazil | 4,971 | — | — | 4,436 | (9,407) | — | — | |||||||||||||||||||||
Americas Outdoor – Canada | 4,920 | — | — | — | — | (4,920) | — | |||||||||||||||||||||
All Others – International Outdoor | 205,744 | 110 | — | 15,913 | (42,717) | 45,042 | 224,092 | |||||||||||||||||||||
Other | 331,290 | — | (2,276) | — | (211,988) | (482) | 116,544 | |||||||||||||||||||||
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$ | 7,090,621 | $ | 6,878 | $ | (64,686) | $ | 33,705 | $ | (3,097,023) | $ | 155,510 | $ | 4,125,005 | |||||||||||||||
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Other Operating Expense - Net
Other operating expense of $16.7 million for 2010 primarily related to a $25.3 million loss recorded as a result of the transfer of our subsidiary’s interest in its Branded Cities business, partially offset by a $6.2 million gain on the sale of representation contracts.
Other operating expense of $50.8 million for 2009 primarily related to a $42.0 million loss on the sale and exchange of radio stations and a $20.9 million loss on the sale of our taxi advertising business. The losses were partially offset by a $10.1 million gain on the sale of Americas and International outdoor assets.
Interest Expense
Interest expense increased $32.5 million during 2010 compared to 2009, primarily as a result of the issuance of $2.5 billion in subsidiary senior notes in December 2009. This increase was partially offset by decreased interest expense due to maturities of Clear Channel’s 4.5% senior notes due January 2010, repurchases of Clear Channel’s senior toggle notes during the first quarter of 2010, repurchases of Clear Channel’s senior notes during the fourth quarter of 2009 and prepayment of $2.0 billion of term loans in December 2009. Clear Channel’s weighted average cost of debt for 2010 and 2009 was 6.1% and 5.8%, respectively.
Loss on Marketable Securities
The loss on marketable securities of $6.5 million and $13.4 million in 2010 and 2009, respectively, related primarily to the impairment of INM. The fair value of INM was below cost for an extended period of time. As a result, we considered the guidance in ASC 320-10-S99 and reviewed the length of the time and the extent to which the market was less than cost and the financial condition and near-term prospects of the issuer. After this assessment, we concluded that the impairment at each date was other than temporary and recorded non-cash impairment charges to our investment in INM as noted above.
Equity in Earnings (Loss) of Nonconsolidated Affiliates
Equity in earnings of nonconsolidated affiliates in 2010 included an $8.3 million impairment of an equity investment in our International outdoor segment.
Equity in loss of nonconsolidated affiliates for 2009 included a $22.9 million impairment of equity investments in our International outdoor segment in addition to a $4.0 million loss on the sale of a portion of our investment in Grupo ACIR Communicaciones (“Grupo ACIR”).
Other Income – Net
Other income of $46.5 million in 2010 primarily related to an aggregate gain of $60.3 million on the repurchase of Clear Channel’s senior toggle notes partially offset by a $12.8 million foreign exchange loss on the translation of short-term intercompany notes. Please refer to the “Debt Repurchases, Maturities and Other” section within this MD&A for additional discussion of the repurchase.
Other income of $679.7 million in 2009 relates to an aggregate gain of $368.6 million on the repurchases of certain of Clear Channel’s senior notes and an aggregate gain of $373.7 million on the repurchases of certain of Clear Channel’s senior toggle notes and senior cash pay notes. The gains on extinguishment of debt were partially offset by a $29.3 million loss related to loan costs associated with the $2.0 billion retirement of certain of Clear Channel’s outstanding senior secured debt. Please refer to the “Debt Repurchases, Maturities and Other” section within this MD&A for additional discussion of the repurchases and debt retirement.
Income Tax Benefit
The effective tax rate for the year ended December 31, 2010 was 25.7% as compared to 10.9% for the year ended December 31, 2009. The effective tax rate for 2010 was impacted by our inability to benefit from tax losses in certain foreign jurisdictions due to the uncertainty of the ability to utilize those losses in future years. In addition, we recorded a valuation allowance of $13.6 million in 2010 against deferred tax assets related to capital allowances in foreign jurisdictions due to the uncertainty of the ability to realize those assets in future periods.
The effective tax rate for 2009 was impacted by the goodwill impairment charges, which are not deductible for tax purposes, along with our inability to benefit from tax losses in certain foreign jurisdictions as discussed above.
CCME Results of Operations
Our CCME operating results were as follows:
(In thousands) | Years Ended December 31, | |||||||||
2010 | 2009 | % Change | ||||||||
Revenue | $ | 2,869,224 | $ | 2,705,367 | 6% | |||||
Direct operating expenses | 808,592 | 885,870 | (9%) | |||||||
SG&A expenses | 963,853 | 918,397 | 5% | |||||||
Depreciation and amortization | 256,673 | 261,246 | (2%) | |||||||
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Operating income | $ | 840,106 | $ | 639,854 | 31% | |||||
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CCME revenue increased $163.9 million during 2010 compared to 2009, driven primarily by a $79.5 million increase in national advertising and a $51.0 million increase in local advertising. Average rates per minute increased during 2010 compared to 2009 as a result of improved economic conditions. Increases occurred across various advertising categories including automotive, political, food and beverage and healthcare.
Direct operating expenses decreased $77.3 million during 2010 compared to 2009, primarily from a $29.9 million decline in expenses incurred in connection with our restructuring program. Cost savings from our restructuring program resulted in declines of $26.7 million and $11.0 million in programming expenses and compensation expenses, respectively. Direct operating expenses declined further from the non-renewals of sports contracts, offset by the impact of $8.0 million associated with the finalization of purchase accounting during 2009. SG&A expenses increased $45.5 million, primarily as a result of a $26.6 million increase in bonus and commission expense associated with the increase in revenue in addition to a $24.1 million increase in selling and marketing expenses.
Depreciation and amortization decreased $4.6 million during 2010 compared to 2009. The 2009 results included $8.0 million of additional amortization expense associated with the finalization of purchase price allocations to the acquired intangible assets.
Americas Outdoor Advertising Results of Operations
Disposition of Taxi Business
On December 31, 2009, our subsidiary, Clear Channel Outdoor, Inc. (“CCOI”), disposed of Clear Channel Taxi Media, LLC (“Taxis”), our taxi advertising business. For the year ended December 31, 2009, Taxis contributed $41.5 million in revenue, $39.8 million in direct operating expenses and $10.5 million in SG&A expenses.
Our Americas outdoor operating results were as follows:
(In thousands) | Years Ended December 31, | |||||||||
2010 | 2009 | % Change | ||||||||
Revenue | $ | 1,290,014 | $ | 1,238,171 | 4% | |||||
Direct operating expenses | 588,592 | 608,078 | (3%) | |||||||
SG&A expenses | 218,776 | 202,196 | 8% | |||||||
Depreciation and amortization | 209,127 | 210,280 | (1%) | |||||||
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Operating income | $ | 273,519 | $ | 217,617 | 26% | |||||
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Americas outdoor revenue increased $51.9 million during 2010 compared to 2009 as a result of revenue growth across most of our advertising inventory, particularly digital. The increase was driven by increases in both occupancy and rate. Partially offsetting the revenue increase was the decrease in revenue related to the sale of Taxis.
Direct operating expenses decreased $19.5 million during 2010 compared to 2009. The decline in direct operating expenses was due to the disposition of Taxis, partially offset by a $20.2 million increase in site-lease expenses associated with the increase in revenue. SG&A expenses increased $16.6 million as a result of a $6.3 million increase primarily related to the unfavorable impact of litigation, a $4.7 million increase in consulting costs and a $6.2 million increase primarily due to bonus and commission expenses associated with the increase in revenue, partially offset by the disposition of Taxis.
International Outdoor Advertising Results of Operations
Our International outdoor operating results were as follows:
(In thousands) | Years Ended December 31, | |||||||||
2010 | 2009 | % Change | ||||||||
Revenue | $ | 1,507,980 | $ | 1,459,853 | 3% | |||||
Direct operating expenses | 971,380 | 1,017,005 | (4%) | |||||||
SG&A expenses | 275,880 | 282,208 | (2%) | |||||||
Depreciation and amortization | 204,461 | 229,367 | (11%) | |||||||
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Operating income (loss) | $ | 56,259 | $ | (68,727) | 182% | |||||
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International outdoor revenue increased $48.1 million during 2010 compared to 2009, primarily as a result of revenue growth from street furniture across most countries, partially offset by the exit from the businesses in Greece and India. Foreign exchange movements negatively impacted revenue by $10.3 million.
Direct operating expenses decreased $45.6 million during 2010 compared to 2009, primarily as a result of a $20.4 million decrease in expenses incurred in connection with our restructuring program and a $15.6 million decline in site-lease expenses associated with cost savings from our restructuring program. Also contributing to the decreased expenses was the exit from the businesses in Greece and India and an $8.2 million decrease fromnegative movements in foreign exchange. SG&A expenses decreased $6.3 million during 2010 compared to 2009, primarily as a result of a $5.4 million decrease in business tax related to a change in French tax law and a $2.3 million decrease from movements in foreign exchange.
Depreciation and amortization decreased $24.9 million during 2010 compared to 2009exchange, primarily as a result of assets that became fully depreciated or amortized during 2009.2011.
Reconciliation of Segment Operating Income (Loss) to Consolidated Operating Income (Loss)
(In thousands) | Years Ended December 31, | |||||||
| 2013 |
| 2012 |
| 2011 | |||
CCME | $ | 908,396 |
| $ | 941,639 |
| $ | 889,895 |
Americas outdoor advertising |
| 306,454 |
|
| 293,649 |
|
| 276,414 |
International outdoor advertising |
| 100,912 |
|
| 77,860 |
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| 127,589 |
Other |
| 23,061 |
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| 58,829 |
|
| 9,427 |
Impairment charges |
| (16,970) |
|
| (37,651) |
|
| (7,614) |
Other operating income, net |
| 22,998 |
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| 48,127 |
|
| 12,682 |
Corporate expense (1) |
| (344,069) |
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| (312,403) |
|
| (253,669) |
Consolidated operating income | $ | 1,000,782 |
| $ | 1,070,050 |
| $ | 1,054,724 |
(1)Corporate expenses include expenses related to CCME, Americas outdoor, International outdoor and our Other category, as well as overall executive, administrative and support functions.
(In thousands) | Years Ended December 31, | |||||||||||
2011 | 2010 | 2009 | ||||||||||
CCME | $ | 888,358 | $ | 840,106 | $ | 639,854 | ||||||
Americas outdoor advertising | 281,611 | 273,519 | 217,617 | |||||||||
International outdoor advertising | 111,626 | 56,259 | (68,727) | |||||||||
Other | 9,427 | 20,716 | (43,963) | |||||||||
Impairment charges | (7,614) | (15,364) | (4,118,924) | |||||||||
Other operating income (expense) - net | 12,682 | (16,710) | (50,837) | |||||||||
Corporate expenses(1) | (241,366) | (293,685) | (262,166) | |||||||||
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Consolidated operating income (loss) | $ | 1,054,724 | $ | 864,841 | $ | (3,687,146) | ||||||
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Share-Based Compensation Expense
As of December 31, 2011,2013, there was $42.8$22.9 million of unrecognized compensation cost, net of estimated forfeitures, related to unvested share-based compensation arrangements that will vest based on service conditions. This cost is expected to be recognized over a weighted average period of approximately twothree years. In addition, as of December 31, 2011,2013, there was $15.2$19.6 million of unrecognized compensation cost, net of estimated forfeitures, related to unvested share-based compensation arrangements that will
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vest based on market, performance and service conditions. This cost will be recognized when it becomes probable that the performance condition will be satisfied.
The following table indicates non-cashShare-based compensation costs related to share-based payments are recorded in corporate expenses and were $16.7 million, $28.5 million, and $20.7 million for the years ended December 31, 2013, 2012, and 2011, 2010 and 2009, respectively:respectively. Included in share-based compensation for year ended December 31, 2011 is a $6.6 million reversal of expense related to the cancellation of a portion of an executive’s stock options.
$00,00000 | $00,00000 | $00,00000 | ||||||||||
(In thousands) | Years Ended December 31, | |||||||||||
2011 | 2010 | 2009 | ||||||||||
CCME | $ | 4,606 | $ | 7,152 | $ | 8,276 | ||||||
Americas outdoor advertising | 7,601 | 9,207 | 7,977 | |||||||||
International outdoor advertising | 3,165 | 2,746 | 2,412 | |||||||||
Corporate 1 | 5,295 | 15,141 | 21,121 | |||||||||
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Total share-based compensation expense | $ | 20,667 | $ | 34,246 | $ | 39,786 | ||||||
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On October 22, 2012, we granted 1.8 million restricted shares of our Class A common stock (the “Replacement Shares”) in exchange for 2.0 million stock options granted under the Clear Channel 2008 Executive Incentive Plan pursuant to an option exchange program (the “Program”) that expired on November 19, 2012. In addition, on October 22, 2012, we granted 1.5 million fully-vested shares of our Class A common stock (the “Additional Shares”) pursuant to a tax assistance program offered in connection with the Program. Upon the expiration of the Program on November 19, 2012, we repurchased 0.9 million of the Additional Shares from the employees who elected to participate in the Program and timely delivered to us a properly completed election form under Internal Revenue Code Section 83(b) to fund tax withholdings in connection with the Program. Employees who ceased to be eligible, declined to participate in the Program or, in the case of the Additional Shares, declined to participate in the tax assistance program, forfeited their Replacement Shares and Additional Shares on November 19, 2012 and retained their stock options with no changes to the terms. We accounted for the exchange program as a modification of the existing awards under ASC 718 and will recognize incremental compensation expense of approximately $1.7 million over the service period of the new awards. We recognized $2.6 million of expense related to the Additional Shares granted in connection with the tax assistance program.
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We also completed a voluntary stock option exchange program on March 21, 2011 and exchanged 2.5 million stock options granted under the Clear Channel 2008 Executive Incentive Plan for 1.3 million replacement stock options with a lower exercise price and different service and performance conditions. We accounted for the exchange program as a modification of the existing awards under ASC 718 and will recognize incremental compensation expense of approximately $1.0 million over the service period of the new awards.
Additionally, we recorded compensation expense of $6.0 million in “Corporate expenses” related to shares tendered by Mark P. Mays to us on August 23, 2010 for purchase at $36.00 per share pursuant to a put option included in his amended employment agreement.
LIQUIDITY AND CAPITAL RESOURCESLiquidity and Capital Resources
Cash Flows
The following discussion highlights cash flow activities during the years ended December 31, 2011, 20102013, 2012 and 2009.2011.
(In thousands) | Years Ended December 31, | ||||||||
|
| 2013 |
| 2012 |
| 2011 | |||
Cash provided by (used for): |
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| Operating activities | $ | 212,872 |
| $ | 485,132 |
| $ | 374,861 |
| Investing activities | $ | (133,365) |
| $ | (397,021) |
| $ | (368,086) |
| Financing activities | $ | (595,882) |
| $ | (95,349) |
| $ | (698,116) |
Operating Activities
2013
Our consolidated net loss, adjusted for $782.5 million of non-cash items resulted in positive cash flows of $199.0 million in 2013. Our consolidated net loss, adjusted for $873.5 million of non-cash items, provided positive cash flows of $462.3 million in 2012. Cash provided by operating activities in 2013 was $212.9 million compared to $485.1 million in 2012. Cash paid for interest was $162.0 million higher in 2013 compared to the prior year due to the timing of accrued interest with the issuance of CCWH’s Subordinated Notes during the first quarter of 2012 and Clear Channel’s 9.0% Priority Guarantee Notes due 2019 during the fourth quarter of 2012.
Non-cash items affecting our net loss include impairment charges, depreciation and amortization, deferred taxes, provision for doubtful accounts, amortization of deferred financing charges and note discounts, net, share-based compensation, gain on disposal of operating and fixed assets, gain on marketable securities, equity in loss of nonconsolidated affiliates, loss on extinguishment of debt, and other reconciling items, net as presented on the face of the consolidated statement of cash flows.
2012
Cash FlowsThe $110.2 million increase in cash flows from operations to $485.1 million in 2012 compared to $374.9 million in 2011 was primarily driven by changes in working capital. Our consolidated net loss, adjusted for $873.5 million of non-cash items, provided
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$000,0000 | $000,0000 | $000,0000 | ||||||||||
(In thousands) | Year ended December 31, | |||||||||||
2011 | 2010 | 2009 | ||||||||||
Cash provided by (used for): | ||||||||||||
Operating activities | $ | 373,958 | $ | 582,373 | $ | 181,175 | ||||||
Investing activities | $ | (368,086) | $ | (240,197) | $ | (141,749) | ||||||
Financing activities | $ | (698,116) | $ | (305,244) | $ | 1,604,722 |
Operating Activitiespositive cash flows of $462.3 million in 2012. Cash paid for interest was $120.6 million higher during 2012 compared to the prior year. Cash provided by operations in 2012 compared to 2011 also reflected lower variable compensation payments in 2012 associated with our employee incentive programs based on 2011 operating performance compared to such payments made in 2011 based on 2010 performance.
Non-cash items affecting our net loss include impairment charges, depreciation and amortization, deferred taxes, provision for doubtful accounts, amortization of deferred financing charges and note discounts, net, share-based compensation, gain on disposal of operating and fixed assets, loss on marketable securities, equity in earnings of nonconsolidated affiliates, loss on extinguishment of debt, and other reconciling items, net as presented on the face of the consolidated statement of cash flows.
2011
The decrease in cash flows from operations in 2011 compared to 2010 was primarily driven by declineschanges in working capital partially offset by improved profitability, including a 5% increase in revenue. Our consolidated net loss of $268.0 million, adjusted for $832.2$833.1 million of non-cash items, provided positive cash flows of $564.1$565.0 million in 2011. Cash generated by higher operating income in 2011 compared to 2010 was offset by the decrease in accrued expenses in 2011 as a result of higher variable compensation payments in 2011 associated with our employee incentive programs based on 2010 operating performance. In addition, in 2010 we received $132.3 million in U.S. Federal income tax refunds that increased cash flow from operations in 2010.
Non-cash items affecting our net loss include impairment charges, depreciation and amortization, deferred taxes, (gain) loss on disposal of operating assets, (gain) loss on extinguishment of debt, provision for doubtful accounts, share-based compensation, equity in earnings of nonconsolidated affiliates, amortization of deferred financing charges and note discounts, – net, share-based compensation, gain on disposal of operating and fixed assets, loss on marketable securities, equity in earnings of nonconsolidated affiliates, loss on extinguishment of debt, and other reconciling items, – net as presented on the face of the consolidated statement of cash flows.
2010
The increaseInvesting Activities
2013
Cash used for investing activities of $133.4 million during 2013 reflected our capital expenditures of $324.5 million as well as proceeds from the sale of our shares of Sirius XM Radio, Inc. of $135.6 million. We spent $75.7 million for capital expenditures in our CCME segment primarily related to leasehold improvements, $89.0 million in our Americas outdoor segment primarily related to the construction of new advertising structures such as digital displays, $108.6 million in our International outdoor segment primarily related to new advertising structures such as billboards and street furniture and renewals of existing contracts, $9.9 million in our Other category related to our national representation business, and $41.3 million by Corporate primarily related to equipment and software. Other cash flowsprovided by investing activities were $81.6 million of proceeds from operations in 2010 compared to 2009 was primarily driven by improved profitability, including a 6% increase in revenue and a 2% decrease in directsales of other operating and SG&A expenses. Our net loss, adjustedfixed assets.
2012
Cash used for $792.7investing activities of $397.0 million during 2012 reflected capital expenditures of $390.3 million. We spent $65.8 million for capital expenditures in our CCME segment, $117.7 million in our Americas outdoor segment primarily related to the installation of new digital displays, $150.1 million in our International outdoor segment primarily related to new billboard, street furniture and mall contracts and renewals of existing contracts, $17.4 million in our Other category related to our national representation business, and $39.3 million by Corporate. Partially offsetting cash used for investing activities were $59.7 million of non-cash items, provided positive cash flowsproceeds from the divestiture of $329.8 million in 2010. We received $132.3 million in Federal income tax refunds duringour international neon business and the third quartersales of 2010. Working capital, excluding taxes, provided $120.3 million to cash flows from operations in the current year.
2009
The decline in cash flow from operations in 2009 compared to 2008 was primarily driven by a 17% decline in consolidated revenues associated with the weak economy and challenging advertising markets and a 62% increase in interest expense to service our debt obligations. Our net loss, adjusted for non-cash items of $4.2 billion, provided positive cash flows of $157.9 million. Changes in working capital provided an additional $23.2 million in operating cash flows for 2009.
Investing Activities2011
2011
Cash used for investing activities during 2011 primarily reflected capital expenditures of $362.3 million. We spent $61.4$50.2 million for capital expenditures in our CCME segment, $131.1$120.8 million in our Americas outdoor segment primarily related to the construction of new digital billboards, and $160.0displays, $166.0 million in our International outdoor segment primarily related to new billboard and street furniture contracts and renewals of existing contracts.contracts, $5.7 million in our Other category related to our national representation business, and $19.5 million by Corporate. Cash paid for purchases of businesses primarily related to our Traffictraffic acquisition and the cloud-based music technology business we purchased during 2011. In addition, we received proceeds of $54.3 million primarily related to the sale of radio stations, a tower and other assets in our CCME, Americas outdoor, and International outdoor segments.
Financing Activities
20102013
Cash used for financing activities of $595.9 million in 2013 primarily reflected payments on long-term debt. Clear Channel repaid its 5.75% senior notes at maturity for $312.1 million (net of $187.9 million principal amount held by and repaid to a subsidiary
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of Clear Channel) using cash on hand. Clear Channel prepaid $846.9 million outstanding under its Term Loan A under its senior secured credit facilities using the proceeds from the issuance of Clear Channel’s 11.25% Priority Guarantee Notes, borrowings under its receivables based credit facility, and cash on hand. Other cash used for financing activities included payments to holders of the Outstanding Notes in connection with exchange offers in June 2013 of $32.5 million and in December 2013 of $22.7 million, payment of an applicable high yield discount obligation to holders of Outstanding Notes in August 2013 of $25.3 million, payments to repurchase noncontrolling interests of $61.1 million and $91.9 million in payments for dividends and other payments to noncontrolling interests.
2012
Cash used for investingfinancing activities of $95.3 million during 20102012 primarily reflected capital expenditures(i) the issuance of $241.5 million. We spent $35.5$2.2 billion of the CCWH Subordinated Notes by CCWH and the use of proceeds distributed to us in connection with a dividend declared by CCOH during 2012, in addition to cash on hand, to repay $2.1 billion of indebtedness under Clear Channel’s senior secured credit facilities, (ii) the issuance by CCWH of $2.7 billion aggregate principal amount of the CCWH Senior Notes and the use of the proceeds to fund the tender offer for and redemption of the Existing CCWH Senior Notes, (iii) the repayment of Clear Channel’s 5.0% senior notes at maturity for $249.9 million (net of $50.1 million principal amount held by and repaid to a subsidiary of Clear Channel with respect to notes repurchased and held by such entity), using a portion of the proceeds from Clear Channel’s June 2011 issuance of $750.0 million aggregate principal amount of 9.0% priority guarantee notes due 2021 (the “Additional Priority Guarantee Notes due 2021”), along with available cash on hand and (iv) the exchange of $2.0 billion aggregate principal amount of term loans under Clear Channel’s senior secured credit facilities for capital expenditures$2.0 billion aggregate principal amount of newly issued 9.0% priority guarantee notes due 2019. Our financing activities also reflect a $244.7 million reduction in our CCME segment, $96.7 millionnoncontrolling interest as a result of the dividend paid by CCOH in our Americas outdoor segment primarily relatedconnection with the CCWH Subordinated Notes issuance, which represents the portion paid to the construction of new digital billboards, and $98.6 million in our International outdoor segment primarily related to new billboard and street furniture contracts and renewals of existing contracts. In addition, we acquired representation contracts for $14.1 million and received proceeds of $28.6 million primarily related to the sale of radio stations, assets in our Americas outdoor and International outdoor segments and representation contracts.parties other than Clear Channel’s subsidiaries that own CCOH common stock.
2009
Cash used for investing activities during 2009 primarily reflected capital expenditures of $223.8 million. We spent $41.9 million for capital expenditures in our CCME segment, $84.4 million in our Americas outdoor segment for the purchase of property, plant and equipment mostly related to the construction of new billboards and $91.5 million in our International outdoor segment for the purchase of property, plant and equipment related to new billboard and street furniture contracts and renewals of existing contracts. We received proceeds of $41.6 million primarily related to the sale of our remaining investment in Grupo ACIR. In addition, we received proceeds of $48.8 million primarily related to the disposition of radio stations and corporate assets.2011
Financing Activities
2011
Cash used for financing activities during 2011 primarily reflected debt issuancesClear Channel’s issuance in the February 2011 Offeringof $1.0 billion aggregate principal amount of 9.0% priority guarantee notes due 2021 (the “Initial Priority Guarantee Notes due 2021”) and the June 2011 Offering,issuance of Additional Priority Guarantee Notes due 2021, and the use of proceeds from the February 2011 Offering,Initial Priority Guarantee Notes due 2021 offering, as well as cash on hand, to prepay $500.0 million of Clear Channel’s senior secured credit facilities and repay at maturity Clear Channel’s 6.25% senior notes that matured in 2011 as discussed in the “Refinancing Transactions”“Refinancing Transactions” section within this MD&A. Clear Channel also repaid all outstanding amounts under its receivables based facility prior to, and in connection with, the June 2011 Offering.Additional Priority Guarantee Notes due 2021 offering. Cash used for financing activities also included the $95.0 million of pre-existing, intercompany debt owed by acquired Westwood One subsidiaries repaid immediately after the closing of the Traffictraffic acquisition. Additionally, Clear Channel repaid its 4.4% senior notes at maturity in May 2011 for $140.2 million, plus accrued interest, with available cash on hand, and repaid $500.0 million of its revolving credit facility on June 27, 2011. Additionally, CC Finco repurchased $80.0 million aggregate principal amount of Clear Channel’s 5.5% senior notes for $57.1 million, including accrued interest, as discussed in the “Debt“Debt Repurchases, Maturities and Other”Other” section within this MD&A.
2010
During 2010, CC Investments repurchased $185.2 million aggregate principal amount of Clear Channel’s senior toggle notes for $125.0 million as discussed in the “Debt Repurchases, Maturities and Other” section within this MD&A. Clear Channel repaid its remaining 7.65% senior notes upon maturity for $138.8 million with proceeds from its delayed draw term loan facility that was specifically designated for this purpose. In addition, Clear Channel repaid its remaining 4.5% senior notes upon maturity for $240.0 million with available cash on hand.
2009
Cash provided by financing activities during 2009 primarily reflected a draw of remaining availability of $1.6 billion under Clear Channel’s revolving credit facility and $2.5 billion of proceeds from the issuance of subsidiary senior notes, offset by the $2.0 billion paydown of Clear Channel’s senior secured credit facilities. Clear Channel also repaid the remaining principal amount of its 4.25% senior notes at maturity with a draw under the $500.0 million delayed draw term loan facility that was specifically designated for this purpose as discussed in the “Debt Repurchases, Maturities and Other”section within this MD&A. Our wholly-owned subsidiaries, CC Finco and Clear Channel Acquisition, LLC (formerly CC Finco II, LLC), together repurchased certain of Clear Channel’s outstanding senior notes for $343.5 million as discussed in the “Debt Repurchases, Maturities and Other” section within this MD&A. In addition, during 2009, our Americas outdoor segment purchased the remaining 15% interest in our fully consolidated subsidiary, Paneles Napsa S.A., for $13.0 million and our International outdoor segment acquired an additional 5% interest in our fully consolidated subsidiary, Clear Channel Jolly Pubblicita SPA, for $12.1 million.
Anticipated Cash Requirements
Our primary source of liquidity is cash on hand, and cash flow from operations and borrowingsborrowing capacity under Clear Channel’s revolving credit facility anddomestic receivables based credit facility. We have a largefacility, subject to certain limitations contained in Clear Channel’s material financing agreements. A significant amount of indebtedness, and a substantial portion of our cash flowsrequirements are used tofor debt service debt.obligations. We anticipate cash interest requirements of approximately $1.6 billion during 2014. At December 31, 2011,2013, we had $1.2 billiondebt maturities totaling $484.4 million, $256.4 million, and $2,384.7 million in 2014, 2015, and 2016, respectively. At December 31, 2013, we had $708.2 million of cash on our balance sheet with $542.7including $234.5 million in consolidated cash balances held outside the U.S. by our subsidiaries, all of which is readily convertible into other foreign currencies including the U.S. dollar. It is our policy to permanently reinvest the earnings of our non-U.S. subsidiaries as these earnings are generally redeployed in those jurisdictions for operating needs and continued functioning of their businesses. We have the ability and intent to indefinitely reinvest the undistributed earnings of consolidated subsidiaries based outside of the United States. If any excess cash held by our subsidiary, CCOH,foreign subsidiaries were needed to fund operations in the United States, we could presently repatriate available funds without a requirement to accrue or pay U.S. taxes. This is a result of significant current and its subsidiaries. We have debt maturities totaling $275.6 millionhistoric deficits in our foreign earnings and $420.5 million in 2012 and 2013, respectively.profits, which gives us flexibility to make future cash distributions as non-taxable returns of capital.
Our ability to fund our working capital, needs,capital expenditures, debt service and other obligations, and to comply with the financial covenantcovenants under ourClear Channel’s financing agreements, depends on our future operating performance and cash flow,from operations and our ability to generate cash from other liquidity-generating transactions, which are in turn subject to prevailing economic conditions and other factors, many of which are beyond our control. We are currently exploring, and expect to continue
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to explore, a variety of transactions to provide us with additional liquidity. We cannot assure you that we will enter into or consummate any such liquidity-generating transactions, or that such transactions will provide sufficient cash to satisfy our liquidity needs, and we cannot currently predict the impact that any such transaction, if consummated, would have on us. If our future operating performance does not meet our expectations or our plans materially change in an adverse manner or prove to be materially inaccurate, we may need additional financing. Consequently, therenot be able to refinance the debt as currently contemplated. Our ability to refinance the debt will depend on the condition of the capital markets and our financial condition at the time. There can be no assurance that such financing, if permitted under the terms of Clear Channel’s financing agreements,refinancing alternatives will be available on terms acceptable to us or at all. The inabilityEven if refinancing alternatives are available to us, we may not find them suitable or at comparable interest rates to the indebtedness being refinanced. In addition, the terms of our existing or future debt agreements may restrict us from securing a refinancing on terms that are available to us at that time. If we are unable to obtain additional financing in such circumstancessources of refinancing or generate sufficient cash through liquidity-generating transactions, we could face substantial liquidity problems, which could have a material adverse effect on our financial condition and on our ability to meet Clear Channel’s obligations.
Clear Channel’s financing transactions during 2013 increased our annual interest expense by $267 million. Our increased interest payment obligations will reduce our liquidity over time, which could in turn reduce our financial flexibility and make us more vulnerable to changes in operating performance and economic downturns generally, and could negatively affect Clear Channel’s ability to obtain additional financing in the future.
We frequently evaluate strategic opportunities both within and outside our existing lines of business. We expect from time to time to pursue additional acquisitions and may decide to dispose of certain businesses. These acquisitions or dispositions, which could be material. Clear Channel’s and its subsidiaries’ significant amount of indebtedness may limit our ability to pursue acquisitions. The terms of our existing or future debt agreements may also restrict our ability to engage in these transactions.
Our currently available sources of cash include cash on hand, cash flow from operations and borrowing capacity under Clear Chanel’s receivables based credit facility. We are also exploring various liquidity-generating transactions, and expect to continue to do so. Based on our current and anticipated levels of operations and conditions in our markets, we believe that cash on hand, availabilitycash flow from operations, borrowing capacity under Clear Channel’s revolvingreceivables based credit facility and receivables based facility, as well as cash flow from operationsother liquidity-generating transactions will enable us to meet our working capital, capital expenditure, debt service and other funding requirements for at least the next 12 months. Significant assumptions underlie this belief, including, among other things, that we will continue to be successful in implementing our business strategy and that there will be no material adverse developments in our business, liquidity or capital requirements, and that we will be able to consummate liquidity-generating transactions in a timely manner and on terms acceptable to us. We cannot assure you that this will be the case. If our future cash flows from operations, financing sources and other liquidity-generating transactions are insufficient to pay our debt obligations as they mature or to fund our liquidity needs, we may be forced to reduce or delay our business activities and capital expenditures, sell material assets, seek additional capital or refinance Clear Channel’s and its subsidiaries’ debt. We cannot assure you that we would be able to accomplish any of these alternatives on a timely basis or on satisfactory terms, if at all.
We expect to bewere in compliance with the covenants contained in Clear Channel’s material financing agreements in 2012,as of December 31, 2013, including the maximum consolidated senior secured net debt to consolidated EBITDA limitation contained in Clear Channel’s senior secured credit facilities. We believe our long-term plans, which include promoting spending in our industries and capitalizing on our diverse geographic and product opportunities, including the continued investment in our media and entertainment initiatives and continued deployment of digital displays, will enable us to continue generating cash flows from operations sufficient to meet our liquidity and funding requirements long term. However, our anticipated results are subject to significant uncertainty and there can be no assurance that we will be able to maintain compliance with these covenants. In addition, our ability to comply with this limitationthese covenants may be affected by events beyond our control, including prevailing economic, financial and industry conditions. The breach of any covenants set forth in Clear Channel’s financing agreements would result in a default thereunder. An event of default would permit the lenders under a defaulted financing agreement to declare all indebtedness thereunder to be due and payable prior to maturity. Moreover, the lenders under the revolving creditreceivables based facility under Clear Channel’s senior secured credit facilities would have the option to terminate their commitments to make further extensions of revolving credit thereunder. If we are unable to repay Clear Channel’s obligations under any secured credit facility, the lenders could proceed against any assets that were pledged to secure such facility. In addition, a default or acceleration under any of Clear Channel’s material financing agreements could cause a default under other of our obligations that are subject to cross-default and cross-acceleration provisions. The threshold amount for a cross-default under the senior secured credit facilities and receivables based facility is $100.0 million.
Sources of Capital
As of December 31, 20112013 and 2010,2012, we had the following debt outstanding, net of cash and cash equivalents:
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$00,000000 | $00,000000 | |||||||
(In millions) | As of December 31, | |||||||
2011 | 2010 | |||||||
Senior Secured Credit Facilities: | ||||||||
Term Loan A Facility | $ | 1,087.1 | $ | 1,127.7 | ||||
Term Loan B Facility | 8,735.9 | 9,061.9 | ||||||
Term Loan C – Asset Sale Facility | 670.8 | 695.9 | ||||||
Revolving Credit Facility(1) | 1,325.6 | 1,842.5 | ||||||
Delayed Draw Term Loan Facilities | 976.8 | 1,013.2 | ||||||
Receivables Based Facility(2) | — | 384.2 | ||||||
Priority Guarantee Notes | 1,750.0 | — | ||||||
Other Secured Subsidiary Debt | 30.9 | 4.7 | ||||||
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|
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| |||||
Total Secured Debt | 14,577.1 | 14,130.1 | ||||||
Senior Cash Pay Notes | 796.3 | 796.3 | ||||||
Senior Toggle Notes | 829.8 | 829.8 | ||||||
Clear Channel Senior Notes | 1,998.4 | 2,911.4 | ||||||
Subsidiary Senior Notes | 2,500.0 | 2,500.0 | ||||||
Other Clear Channel Subsidiary Debt | 19.9 | 63.1 | ||||||
Purchase accounting adjustments and original issue discount | (514.3) | (623.3) | ||||||
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|
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| |||||
Total Debt | 20,207.2 | 20,607.4 | ||||||
Less: Cash and cash equivalents | 1,228.7 | 1,920.9 | ||||||
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|
|
| |||||
$ | 18,978.5 | $ | 18,686.5 | |||||
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|
We and our
|
| December 31, | ||||
(In millions) | 2013 |
| 2012 | |||
Senior Secured Credit Facilities: |
|
|
|
|
| |
| Term Loan A Facility | $ | - |
| $ | 846.9 |
| Term Loan B Facility |
| 1,891.0 |
|
| 7,714.9 |
| Term Loan C - Asset Sale Facility |
| 34.8 |
|
| 513.7 |
| Term Loan D Facility |
| 5,000.0 |
|
| - |
| Term Loan E Facility |
| 1,300.0 |
|
| - |
Receivables Based Facility (1) |
| 247.0 |
|
| - | |
9% Priority Guarantee Notes due 2019 |
| 1,999.8 |
|
| 1,999.8 | |
9% Priority Guarantee Notes due 2021 |
| 1,750.0 |
|
| 1,750.0 | |
11.25% Priority Guarantee Notes due 2021 |
| 575.0 |
|
| - | |
Subsidiary Senior Revolving Credit Facility |
| - |
|
| - | |
Other Secured Subsidiary Debt |
| 21.1 |
|
| 25.5 | |
Total Secured Debt |
| 12,818.7 |
|
| 12,850.8 | |
|
|
|
|
|
|
|
Senior Cash Pay Notes |
| 94.3 |
|
| 796.3 | |
Senior Toggle Notes |
| 127.9 |
|
| 829.8 | |
Senior Notes due 2021 |
| 1,404.2 |
|
| - | |
Clear Channel Senior Notes |
| 1,436.5 |
|
| 1,748.6 | |
Subsidiary Senior Notes due 2022 |
| 2,725.0 |
|
| 2,725.0 | |
Subsidiary Senior Subordinated Notes due 2020 |
| 2,200.0 |
|
| 2,200.0 | |
Other Subsidiary Debt |
| - |
|
| 5.6 | |
Purchase accounting adjustments and original issue discount |
| (322.4) |
|
| (409.0) | |
Total Debt |
| 20,484.2 |
|
| 20,747.1 | |
Less: Cash and cash equivalents |
| 708.2 |
|
| 1,225.0 | |
|
| $ | 19,776.0 |
| $ | 19,522.1 |
(1)The receivables based credit facility provides for borrowings of up to the lesser of $535 million (the revolving credit commitment) or the borrowing base amount, as defined under the receivables based facility, subject to certain limitations contained in Clear Channel’s material financing agreements.
Our subsidiaries have from time to time repurchased certain debt obligations of Clear Channel and outstandingour equity securities and equity securities of CCOH, and we may in the future, as part of various financing and investment strategies, purchase additional outstanding indebtedness of Clear Channel or its subsidiaries or our outstanding equity securities or outstanding equity securities of CCOH, in tender offers, open market purchases, privately negotiated transactions or otherwise. We or our subsidiaries may also sell certain assets, securities, or properties and use the proceeds to reduce our indebtedness. These purchases or sales, if any, could have a material positive or negative impact on our liquidity available to repay outstanding debt obligations or on our consolidated results of operations. These transactions could also require or result in amendments to the agreements governing outstanding debt obligations or changes in our leverage or other financial ratios, which could have a material positive or negative impact on our ability to comply with the covenants contained in Clear Channel’s debt agreements. These transactions, if any, will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors. The amounts involved may be material.
Senior Secured Credit Facilities
As of December 31, 2011,2013, Clear Channel had a total of $12,796$8,225.8 million outstanding under its senior secured credit facilities, consisting of:
·a $1,087$1,891.0 million term loan A facilityTerm Loan B, which matures in July 2014;on January 29, 2016; and
an $8,736·a $34.8 million term loan B facilityTerm Loan C, which matures in Julyon January 29, 2016; and
·a $670.8 million term loan C—asset sale facility, subject to reduction as described below,$5.0 billion Term Loan D, which matures inon January 2016;30, 2019; and
two delayed draw term loan facilities, of which $568.6 million and $408.2 million was drawn as of December 31, 2011, respectively, and which mature in January 2016; and
·a $1,928 million revolving credit facility, including a letter of credit sub-facility and a swingline loan sub-facility, of which $1,326 million was drawn as of December 31, 2011,$1.3 billion Term Loan E, which matures inon July 2014.30, 2019.
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Clear Channel may raise incremental term loans or incremental commitments under the revolving credit facility of up to (a) $1.5 billion, plus (b) the excess, if any, of (x) 0.65 times pro forma consolidated EBITDA (as calculated in the manner provided in the senior secured credit facilities documentation), over (y) $1.5 billion, plus (c) the aggregate
amount of certain principal prepayments made in respect of the term loans under the senior secured credit facilities. Availability of such incremental term loans or revolving credit commitments is subject, among other things, to the absence of any default, pro forma compliance with the financial covenant and the receipt of commitments by existing or additional financial institutions.
Clear Channel is the primary borrower under the senior secured credit facilities, except that certain of its domestic restricted subsidiaries are co-borrowers under a portion of the term loan facilities. Clear Channel also has the ability to designate one or more of its foreign restricted subsidiaries in certain jurisdictions as borrowers under the revolving credit facility, subject to certain conditions and sublimits and have so designated certain subsidiaries in the Netherlands and the United Kingdom.
Interest Rate and Fees
Borrowings under Clear Channel’s senior secured credit facilities bear interest at a rate equal to an applicable margin plus, at Clear Channel’s option, either (i) a base rate determined by reference to the higher of (A) the prime lending rate publicly announced by the administrative agent or (B) the Federal funds effective rate from time to time plus 0.50%, or (ii) a Eurocurrency rate determined by reference to the costs of funds for deposits for the interest period relevant to such borrowing adjusted for certain additional costs.
The margin percentages applicable to the term loan facilities and revolving credit facility are the following percentages per annum:
·with respect to loans under the term loanTerm Loan A, facility and the revolving credit facility, (i) 2.40% in the case of base rate loans and (ii) 3.40% in the case of Eurocurrency rate loans; and
·with respect to loans under the term loanTerm Loan B facility, term loanand Term Loan C -– asset sale facility, and delayed draw term loan facilities, (i) 2.65%, in the case of base rate loans and (ii) 3.65%, in the case of Eurocurrency rate loans; and
·with respect to loans under the Term Loan D, (i) 5.75% in the case of base rate loans and (ii) 6.75% in the case of Eurocurrency rate loans; and
·with respect to loans under the Term Loan E, (i) 6.50% in the case of base rate loans and (ii) 7.50% in the case of Eurocurrency rate loans.
The margin percentages are subject to adjustment based upon Clear Channel’s leverage ratio.
Clear Channel is required to pay each revolving credit lender a commitment fee in respect of any unused commitments under the revolving credit facility, which is currently 0.50% per annum, but subject to adjustment based on Clear Channel’s leverage ratio. The delayed draw term facilities are fully drawn, therefore there are currently no commitment fees associated with any unused commitments thereunder.
Prepayments
The senior secured credit facilities require Clear Channel to prepay outstanding term loans, subject to certain exceptions, with:
•50% (which percentage may be reduced to 25% and to 0% based upon Clear Channel’s leverage ratio) of ourClear Channel’s annual excess cash flow (as calculated in accordance with the senior secured credit facilities), less any voluntary prepayments of term loans and revolving credit loans (to the extent accompanied by a permanent reduction of the commitment) and subject to customary credits;
•100% of the net cash proceeds of sales or other dispositions of specified assets being marketed for sale (including casualty and condemnation events), subject to certain exceptions;
•100% (which percentage may be reduced to 75% and 50% based upon Clear Channel’s leverage ratio) of the net cash proceeds of sales or other dispositions by Clear Channel or its wholly-owned restricted subsidiaries of assets other than specified assets being marketed for sale, subject to reinvestment rights and certain other exceptions; and
•100% of the net cash proceeds of (i) any incurrence of certain debt, other than debt permitted under Clear Channel’s senior secured credit facilities,facilities. (ii) certain securitization financing and (iii) certain issuances of Permitted Additional Notes (as defined in the senior secured credit facilities). and (iv) certain issuances of Permitted Unsecured Notes and Permitted Senior Secured Notes (as defined in the senior secured credit facilities); and
•Net Cash Proceeds received by Clear Channel as dividends or distributions from indebtedness incurred at CCOH provided that the Consolidated Leverage Ratio of CCOH is no greater than 7.00 to 1.00.
The foregoing prepayments with the net cash proceeds of any incurrence of certain incurrencesdebt, other than debt permitted under Clear Channel’s senior secured credit facilities, certain securitization financing, issuances of debtPermitted Additional Notes and annual excess cash flow will be applied, at Clear Channel’s option, to the term loans (on a pro rata basis, other than that non-extended classes of term loans may be prepaid prior to any corresponding extended class), in each case (i) first to the term loans other than the term loan C - outstanding under Term Loan B and (ii) one of (w) second, to outstanding Term Loan C—asset sale facility loans (on a pro rata basis)loans; third, to outstanding Term Loan D; and (ii)fourth, to outstanding Term Loan E, or (x) second, to the term loan C - outstanding Term Loan C—asset sale facility loans; third, to outstanding Term Loan E; and fourth, to outstanding Term Loan D, or (y) second, to outstanding Term Loan C—asset sale facility loans; and third, ratably to outstanding Term Loan D and Term Loan E, or (z) second, ratably to outstanding Term Loan C—asset sale facility
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loans, inTerm Loan D and Term Loan E. In each case to the remaining installments thereof in direct order of maturity. maturity for the Term Loan C—asset sale facility loans.
The foregoing prepayments with the net cash proceeds of the salesales or other dispositions by Clear Channel or its wholly-owned restricted subsidiaries of assets (including casualtyother than specified assets being marketed for sale, subject to reinvestment rights and condemnation events)certain other exceptions, will be applied (i) first to the term loan C - Term Loan C—asset sale facility loans and (ii) second to the other term loans (on a pro rata basis), in each case to the remaining installments thereof in direct order of maturity.maturity, and (ii) one of (w) second, to outstanding Term Loan B; third, to outstanding Term Loan D; and fourth, to outstanding Term Loan E, or (x) second, to outstanding Term Loan B; third, to outstanding Term Loan E; and fourth, to outstanding Term Loan D, or (y) second, to outstanding Term Loan B; and third, ratably to outstanding Term Loan D and Term Loan E, or (z) second, ratably to outstanding Term Loan B, Term Loan D and Term Loan E.
The foregoing prepayments with net cash proceeds of issuances of Permitted Unsecured Notes and Permitted Senior Secured Notes and Net Cash Proceeds received by Clear Channel as a distribution from indebtedness incurred by CCOH will be applied (i) first, ratably to outstanding Term Loan B and Term Loan C in direct order of maturity, second, to the outstanding Term Loan D and, third, to outstanding Term Loan E, (ii) first, ratably to outstanding Term Loan B and Term Loan C in direct order of maturity, second, to the outstanding Term Loan E and, third, to outstanding Term Loan D, (iii) first, ratably to outstanding Term Loan B and Term Loan C in direct order of maturity and, second, ratably to outstanding Term Loan D and Term Loan E or (iv) ratably to outstanding Term Loan B, Term Loan C, Term Loan D and Term Loan E.
Clear Channel may voluntarily repay outstanding loans under the senior secured credit facilities at any time without premium or penalty, other than customary “breakage” costs with respect to Eurocurrency rate loans.
Amortization of Term LoansAmendments
On October 25, 2012, Clear Channel is requiredamended the terms of its senior secured credit facilities (the “Amendments”). The Amendments, among other things: (i) permit exchange offers of term loans for new debt securities in an aggregate principal amount of up to repay$5.0 billion (including the loans under the term loan facilities, after giving effect to (1) the December 2009 prepayment of $2.0 billion of 9.0% priority guarantee notes due 2019 issued in December 2012 as described under “Refinancing Transactions” below); (ii) provide Clear Channel with greater flexibility to prepay tranche A term loans; (iii) following the repayment or extension of all tranche A term loans, permit below par non-pro rata purchases of term loans pursuant to customary Dutch auction procedures whereby all lenders of the class of term loans offered to be purchased will be offered an opportunity to participate; (iv) following the repayment or extension of all tranche A term loans, permit the repurchase of junior debt maturing before January 2016 with proceeds fromcash on hand in an amount not to exceed $200.0 million; (v) combine the issuance of subsidiaryTerm Loan B, the delayed draw term loan 1 and the delayed draw term loan 2 under the senior notes discussed elsewhere in this MD&A and, (2) the February 2011 prepayment of $500.0 million ofsecured credit facilities; (vi) preserve revolving credit facility capacity in the event Clear Channel repays all amounts outstanding under the revolving credit facility; and term(vii) eliminate certain restrictions on the ability of CCOH and its subsidiaries to incur debt. On October 31, 2012, Clear Channel repaid and permanently cancelled the commitments under its revolving credit facility, which was set to mature July 2014.
On February 28, 2013, Clear Channel repaid all $846.9 million of loans outstanding under its Term Loan A facility.
On May 31, 2013, Clear Channel further amended the terms of its senior secured credit facilities by extending a portion of Term Loan B and Term Loan C loans due 2016 through the creation of a new $5.0 billion Term Loan D due January 30, 2019. The amendment also permitted Clear Channel to make applicable high yield discount obligation catch-up payments beginning after May 2018 with respect to the new Term Loan D and in June 2018 with respect to the outstanding notes, which were issued in connection with the proceedsexchange of a portion of the February 2011 Offering discussed elsewhere in this MD&A as follows:Senior Cash Pay Notes and Senior Toggle Notes.
(In millions) | ||||||||||||||||||||
Year | Tranche A Term Loan Amortization* | Tranche B Term Loan Amortization** | Tranche C Term Loan Amortization** | Delayed Draw 1 Term Loan Amortization** | Delayed Draw 2 Term Loan Amortization** | |||||||||||||||
2012 | – | – | $ | 1.0 | – | – | ||||||||||||||
2013 | $ | 88.5 | – | $ | 12.2 | – | – | |||||||||||||
2014 | $ | 998.6 | – | $ | 7.0 | – | – | |||||||||||||
2015 | – | – | $ | 3.4 | – | – | ||||||||||||||
2016 | – | $ | 8,735.9 | $ | 647.2 | $ | 568.6 | $ | 408.2 | |||||||||||
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| |||||||||||
Total | $ | 1,087.1 | $ | 8,735.9 | $ | 670.8 | $ | 568.6 | $ | 408.2 |
*BalanceIn connection with the December 2013 refinancing discussed later, Clear Channel further amended the terms of Tranche Aits senior secured credit facilities on December 18, 2013, to extend a portion of the Term Loan isB and Term Loan C due 2016 through the creation of a new $1.3 billion Term Loan E due July 30, 20142019.
**Balance of Tranche B Term Loan, Tranche C Term Loan, Delayed Draw 1 Term Loan and Delayed Draw 2 Term Loan are due January 29, 2016
Collateral and Guarantees
The senior secured credit facilities are guaranteed by Clear Channel and each of Clear Channel’s existing and future material wholly-owned domestic restricted subsidiaries, subject to certain exceptions.
All obligations under the senior secured credit facilities, and the guarantees of those obligations, are secured, subject to permitted liens, including prior liens permitted by the indenture governing the Clear Channel senior notes, and other exceptions, by:
·a lien on the capital stock of Clear Channel;
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·100% of the capital stock of any future material wholly-owned domestic license subsidiary that is not a “Restricted Subsidiary” under the indenture governing the Clear Channel senior notes;
·certain assets that do not constitute “principal property” (as defined in the indenture governing the Clear Channel senior notes);
·certain specified assets of Clear Channel and the guarantors that constitute “principal property” (as defined in the indenture governing the Clear Channel senior notes) securing obligations under the senior secured credit facilities up to the maximum amount permitted to be secured by such assets without requiring equal and ratable security under the indenture governing the Clear Channel senior notes; and
·a lien on the accounts receivable and related assets securing Clear Channel’s receivables based credit facility that is junior to the lien securing Clear Channel’s obligations under such credit facility.
The obligations of any foreign subsidiaries that are borrowers under the revolving credit facility are also guaranteed by certain of their material wholly-owned restricted subsidiaries, and secured by substantially all assets of all such borrowers and guarantors, subject to permitted liens and other exceptions.
Certain Covenants and Events of Default
The senior secured credit facilities require Clear Channel to comply on a quarterly basis with a financial covenant limiting the ratio of consolidated secured debt, net of cash and cash equivalents, to consolidated EBITDA (as defined by Clear Channel’s senior secured credit facilities) for the preceding four quarters. Clear Channel’s secured debt consists of the senior secured credit facilities, the receivables-based credit facility, the priority guarantee notes and certain other secured subsidiary debt. As required by the definition of consolidated EBITDA in Clear Channel’s senior secured credit facilities, Clear Channel’s consolidated EBITDA for the preceding four quarters of $2.0$1.9 billion is calculated as operating income (loss) before depreciation, amortization, impairment charges and other operating income (expense) –, net plus non-cashshare-based compensation and is further adjusted for the following items: (i) an increase of $18.5 million for cash received from nonconsolidated affiliates; (ii) an increase of $31.5 million for non-cash items; (iii) an increase of $40.1 million related to costs incurred in connection with the closure and/or consolidation of facilities, retention charges, consulting fees and other permitted activities; (ii) extraordinary, non-recurring or unusual gains or losses or expenses and severance; (iii) non-cash charges; (iv) an increase of $31.6 million forcash received from nonconsolidated affiliates; and (v) various other items.
The following table reflects a reconciliation of consolidated EBITDA (as defined by Clear Channel’s senior secured credit facilities) to operating income and net cash provided by operating activities for the year ended December 31, 2013:
Year Ended | |||
(In Millions) | December 31, 2013 | ||
Consolidated EBITDA (as defined by Clear Channel’s senior secured credit facilities) | $ | 1,939.7 | |
Less adjustments to consolidated EBITDA (as defined by Clear Channel’s senior secured credit facilities): | |||
Cost incurred in connection with the closure and/or consolidation of facilities, retention charges, consulting fees, and other permitted activities | (77.5) | ||
Extraordinary, non-recurring or unusual gains or losses or expenses and severance (as referenced in the definition of consolidated EBITDA in Clear Channel’s senior secured credit facilities) | (39.3) | ||
Non-cash charges | (41.3) | ||
Cash received from nonconsolidated affiliates | (20.0) | ||
Other items | (19.3) | ||
Less: Depreciation and amortization, Impairment charges, Other operating income (expense), net, and Share-based compensation expense | (741.5) | ||
Operating income | 1,000.8 | ||
Plus: Depreciation and amortization, Impairment charges, Other operating income (expense), net, and Share-based compensation expense | 741.5 | ||
Less: Interest expense | (1,649.5) | ||
Less: Current income tax expense | (36.4) | ||
Plus: Other income (expense), net | (21.9) | ||
Adjustments to reconcile consolidated net loss to net cash provided by operating activities (including Provision for doubtful accounts, Amortization of deferred financing charges and note discounts, net and Other reconciling items, net) | 164.5 | ||
Change in assets and liabilities, net of assets acquired and liabilities assumed | 13.9 | ||
Net cash provided by operating activities | $ | 212.9 |
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The maximum ratio under this financial covenant is currently set at 9.5:9:1 and becomes more restrictive over time beginning inreduces to 8.75:1 for the second quarter of 2013.year ended December 31, 2014. At December 31, 2011, our2013, the ratio was 6.9:6.3:1.
In addition, the senior secured credit facilities include negative covenants that, subject to significant exceptions, limit ourClear Channel’s ability and the ability of theits restricted subsidiaries to, among other things:
·incur additional indebtedness;
·create liens on assets;
·engage in mergers, consolidations, liquidations and dissolutions;
·sell assets;
·pay dividends and distributions or repurchase Clear Channel’s capital stock;
·make investments, loans, or advances;
·prepay certain junior indebtedness;
·engage in certain transactions with affiliates;
·amend material agreements governing certain junior indebtedness; and
·change lines of business.
The senior secured credit facilities include certain customary representations and warranties, affirmative covenants and events of default, including payment defaults, breach of representations and warranties, covenant defaults, cross-defaults to certain indebtedness, certain events of bankruptcy, certain events under ERISA, material judgments, the invalidity of material provisions of the senior secured credit facilities documentation, the failure of collateral under the security documents for the senior secured credit facilities, the failure of the senior secured credit facilities to be senior debt under the subordination provisions of certain of Clear Channel’s subordinated debt and a change of control. If an event of default occurs, the lenders under the senior secured credit facilities will be entitled to take various actions, including the acceleration of all amounts due under the senior secured credit facilities and all actions permitted to be taken by a secured creditor.
Receivables Based Credit Facility
As of December 31, 2011,2013, Clear Channel had no$247.0 million of borrowings outstanding under Clear Channel’sits receivables based credit facility. On June 8, 2011, Clear Channel made a voluntary paydown of all amounts outstanding under this facility using cash on hand. Clear Channel’s voluntary paydown did not reduce its commitments under this facility and Clear Channel may reborrow under this facility at any time.
The receivables based credit facility provides revolving credit commitments of $625.0$535.0 million, subject to a borrowing base. The borrowing base at any time equals 85%90% of the eligible accounts receivable of Clear Channel’sChannel and certain of Clear Channel’s subsidiaries’ eligible accounts receivable.its subsidiaries. The receivables based credit facility includes a letter of credit sub-facility and a swingline loan sub-facility. The maturity of the receivables based credit facility is July 2014.
All borrowings under the receivables based credit facility are subject to the absence of any default, the accuracy of representations and warranties and compliance with the borrowing base. In addition, borrowings under the receivables based credit facility, excluding the initial borrowing, are subject to compliance with a minimum fixed charge coverage ratio of 1.0:1.0 if at any time excess availability under the receivables based credit facility is less than $50 million, or if aggregate excess availability under the receivables based credit facility and revolving credit facility is less than 10% of the borrowing base.
Clear Channel and certain subsidiary borrowers are the borrowers under the receivables based credit facility. Clear Channel has the ability to designate one or more of its restricted subsidiaries as borrowers under the receivables based credit facility. The receivables based credit facility loans and letters of credit are available in a variety of currencies including U.S. dollars, Euros, Pound, Sterling, and Canadian dollars.
Interest Rate and Fees
Borrowings under the receivables based credit facility bear interest at a rate per annum equal to an applicable margin plus, at Clear Channel’s option, either (i) a base rate determined by reference to the higherhighest of (A)(a) the prime lending rate publicly announced by the administrative agent or (B)of Citibank, N.A. and (b) the Federal funds effectiveFunds rate from time to time plus 0.50%, or (ii) a Eurocurrency rate determined by reference to the costs of fundsrate (adjusted for statutory reserve requirements for Eurocurrency liabilities) for Eurodollar deposits for the interest period relevant to such borrowing adjustedborrowing. The applicable margin for certain additional costs.
The margin percentage applicable toborrowings under the receivables based credit facility is (i) 1.40%, inranges from 1.50% to 2.00% for Eurocurrency borrowings and from 0.50% to 1.00% for base-rate borrowings, depending on average excess availability under the case of base rate loans and (ii) 2.40% inreceivables based credit facility during the case of Eurocurrency rate loans subjectprior fiscal quarter.
In addition to adjustment if Clear Channel’s leverage ratio of total debt to EBITDA decreases below 7 to 1.
paying interest on outstanding principal under the receivables based credit facility, Clear Channel is required to pay each lender a commitment fee in respect of any unused commitmentsto the lenders under the receivables based credit facility which is currentlyin respect of the unutilized commitments thereunder. The commitment fee rate ranges from 0.25% to 0.375% per annum subject to adjustmentdependent upon average unused commitments during the prior quarter. Clear Channel must also pay customary letter of credit fees.
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Maturity
Borrowings under the receivables based credit facility will mature, and lending commitments thereunder will terminate, on the fifth anniversary of the effectiveness of the receivables based credit facility (December 24, 2017), provided that, (a) the maturity date will be October 31, 2015 if on October 30, 2015, greater than $500.0 million in aggregate principal amount is owing under certain of Clear Channel’s leverage ratio.term loan credit facilities, (b) the maturity date will be May 3, 2016 if on May 2, 2016 greater than $500.0 million aggregate principal amount of Clear Channel’s 10.75% senior cash pay notes due 2016 and 11.00%/11.75% senior toggle notes due 2016 are outstanding and (c) in the case of any debt under clauses (a) and (b) that is amended or refinanced in any manner that extends the maturity date of such debt to a date that is on or before the date that is five years after the effectiveness of the receivables based credit facility, the maturity date will be one day prior to the maturity date of such debt after giving effect to such amendment or refinancing if greater than $500,000,000 in aggregate principal amount of such debt is outstanding.
Prepayments
If at any time the sum of the outstanding amounts under the receivables based credit facility (including the letter of credit outstanding amounts and swingline loans thereunder) exceeds the lesser of (i) the borrowing base and (ii) the aggregate commitments under the receivables based credit facility, Clear Channel will be required to repay outstanding loans and cash collateralize letters of credit in an aggregate amount equal to such excess.
Clear Channel may voluntarily repay outstanding loans under the receivables based credit facility at any time without premium or penalty, other than customary “breakage” costs with respect to Eurocurrency rate loans. Any voluntary prepayments Clear Channel makes will not reduce its commitments under this facility.
Collateral and Guarantees
Thethe receivables based credit facility.
Guarantees and Security
The facility is guaranteed by, subject to certain exceptions, the guarantors of theClear Channel’s senior secured credit facilities. All obligations under the receivables based credit facility, and the guarantees of those obligations, are secured by a perfected security interest in all of Clear Channel’s and all of the guarantors’ accounts receivable and related assets and proceeds thereof that is senior to the security interest of theClear Channel’s senior secured credit facilities in such accounts receivable and related assets and proceeds thereof, subject to permitted liens, including prior liens permitted by the indenture governing certain of Clear Channel’s senior notes (the “legacy notes”), and certain exceptions.
Certain Covenants and Events of Default
If borrowing availability is less than the greater of (a) $50.0 million and (b) 10% of the aggregate commitments under the receivables based credit facility, in each case, for five consecutive business days (a “Liquidity Event”), Clear Channel senior notes,will be required to comply with a minimum fixed charge coverage ratio of at least 1.00 to 1.00 for fiscal quarters ending on or after the occurrence of the Liquidity Event, and will be continued to comply with this minimum fixed charge coverage ratio until borrowing availability exceeds the greater of (x) $50.0 million and (y) 10% of the aggregate commitments under the receivables based credit facility, in each case, for 30 consecutive calendar days, at which time the Liquidity Event shall no longer be deemed to be occurring. In addition, the receivables based credit facility includes negative covenants that, subject to significant exceptions, limit Clear Channel’s ability and the ability of its restricted subsidiaries to, among other things:
·incur additional indebtedness;
·create liens on assets;
·engage in mergers, consolidations, liquidations and dissolutions;
·sell assets;
·pay dividends and distributions or repurchase capital stock;
·make investments, loans, or advances;
·prepay certain exceptions.junior indebtedness;
·engage in certain transactions with affiliates;
·amend material agreements governing certain junior indebtedness; and
·change lines of business.
The receivables based credit facility includes negativecertain customary representations and warranties, affirmative covenants representations, warranties,and events of default, including payment defaults, breach of representations and termination provisions substantially similarwarranties, covenant defaults, cross-defaults to those governing our seniorcertain indebtedness, certain events of bankruptcy, certain events under ERISA, material judgments and a change of control. If an event of default occurs, the lenders under the receivables based credit facility will be entitled to take various actions, including the acceleration of all amounts due under Clear Channel’s receivables based credit facility and all actions permitted to be taken by a secured credit facilities.creditor.
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9% Priority Guarantee Notes Due 2019
As of December 31, 2011,2013, Clear Channel had outstanding $1.75$2.0 billion aggregate principal amount of 9.0% Prioritypriority guarantee notes due 2019 (the “Priority Guarantee Notes due 2021.2019”).
The Priority Guarantee Notes due 2019 mature on March 1, 2021December 15, 2019 and bear interest at a rate of 9.0% per annum, payable semi-annually in arrears on March 1June 15 and September 1December 15 of each year, beginningwhich began on September 1, 2011.June 15, 2013. The Priority Guarantee Notes due 2019 are Clear Channel’s senior obligations and are fully and unconditionally guaranteed, jointly and severally, on a senior basis by the guarantors named in the indenture. The Priority Guarantee Notes due 2019 and the guarantors’ obligations under the guarantees are secured by (i) a lien on (a) the capital stock of Clear Channel and (b) certain property and related assets that do not constitute “principal property” (as defined in the indenture governing thecertain legacy notes of Clear Channel senior notes)Channel), in each case equal in priority to the liens securing the obligations under Clear Channel’s senior secured credit facilities and Clear Channel’s priority guarantee notes due 2021, subject to certain exceptions, and (ii) a lien on the accounts receivable and related assets securing Clear Channel’s receivables based credit facility junior in priority to the lien securing Clear Channel’s obligations thereunder, subject to certain exceptions. In addition to the collateral granted to secure the Priority Guarantee Notes due 2019, the collateral agent and the trustee for the Priority Guarantee Notes due 2019 entered into an agreement with the administrative agent for the lenders under the senior secured credit facilities to turn over to the trustee under the Priority Guarantee Notes due 2019, for the benefit of the holders of the Priority Guarantee Notes due 2019, a pro rata share of any recovery received on account of the principal properties, subject to certain terms and conditions.
Clear Channel may redeem the Priority Guarantee Notes due 2019 at its option, in whole or part, at any time prior to March 1, 2016,July 15, 2015, at a price equal to 100% of the principal amount of the Priority Guarantee Notes due 2019 redeemed, plus accrued and unpaid interest to the redemption date and plus an applicable premium. Clear Channel may redeem the Priority Guarantee Notes due 2019, in whole or in part, on or after March 1, 2016,July 15, 2015, at the redemption prices set forth in the indenture plus accrued and unpaid interest to the redemption date. At any time on or before March 1, 2014,Prior to July 15, 2015, Clear Channel may elect to redeem up to 40% of the aggregate principal amount of the Priority Guarantee Notes due 2019 at a redemption price equal to 109.0% of the principal amount thereof, plus accrued and unpaid interest to the redemption date, with the net proceeds of one or more equity offerings.
The indenture governing the Priority Guarantee Notes due 2019 contains covenants that limit Clear Channel’s ability and the ability of its restricted subsidiaries to, among other things: (i) pay dividends, redeem stock or make other distributions or investments; (ii) incur additional debt or issue certain preferred stock; (iii) modify any of Clear Channel’s existing senior notes; (iv) transfer or sell assets; (v) engage in certain transactions with affiliates; (vi) create restrictions on dividends or other payments by the restricted subsidiaries; and (vii) merge, consolidate or sell substantially all of Clear Channel’s assets. The indenture contains covenants that limit Clear Channel Capital I, LLC’s and Clear Channel’s ability and the ability of its restricted subsidiaries to, among other things: (i) create liens on assets and (ii) materially impair the value of the security interests taken with respect to the collateral for the benefit of the notes collateral agent and the holders of the Priority Guarantee Notes due 2019. The indenture also provides for customary events of default.
9% Priority Guarantee Notes Due 2021
As of December 31, 2013, Clear Channel had outstanding $1.75 billion aggregate principal amount of 9.0% priority guarantee notes due 2021 (the “Priority Guarantee Notes due 2021”).
The Priority Guarantee Notes due 2021 mature on March 1, 2021 and bear interest at a rate of 9.0% per annum, payable semi-annually in arrears on March 1 and September 1 of each year, which began on September 1, 2011. The Priority Guarantee Notes due 2021 are Clear Channel’s senior obligations and are fully and unconditionally guaranteed, jointly and severally, on a senior basis by the guarantors named in the indenture. The Priority Guarantee Notes due 2021 and the guarantors’ obligations under the guarantees are secured by (i) a lien on (a) the capital stock of Clear Channel and (b) certain property and related assets that do not constitute “principal property” (as defined in the indenture governing certain legacy notes of Clear Channel), in each case equal in priority to the liens securing the obligations under Clear Channel’s senior secured credit facilities and the Priority Guarantee Notes due 2019, subject to certain exceptions, and (ii) a lien on the accounts receivable and related assets securing Clear Channel’s receivables based credit facility junior in priority to the lien securing Clear Channel’s obligations thereunder, subject to certain exceptions.
Clear Channel may redeem the Priority Guarantee Notes due 2021 at its option, in whole or part, at any time prior to March 1, 2016, at a price equal to 100% of the principal amount of the Priority Guarantee Notes due 2021 redeemed, plus accrued and unpaid interest to the redemption date and plus an applicable premium. Clear Channel may redeem the Priority Guarantee Notes due 2021, in whole or in part, on or after March 1, 2016, at the redemption prices set forth in the indenture plus accrued and unpaid interest to the redemption date. At any time on or before March 1, 2014, Clear Channel may elect to redeem up to 40% of the
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aggregate principal amount of the Priority Guarantee Notes due 2021 at a redemption price equal to 109.0% of the principal amount thereof, plus accrued and unpaid interest to the redemption date, with the net proceeds of one or more equity offerings.
The indenture governing the Priority Guarantee Notes due 2021 contains covenants that limit Clear Channel’s ability and the ability of its restricted subsidiaries to, among other things: (i) pay dividends, redeem stock or make other distributions or investments; (ii) incur additional debt or issue certain preferred stock; (iii) modify any of Clear Channel’s existing senior notes; (iv) transfer or sell assets; (v) engage in certain transactions with affiliates; (vi) create restrictions on dividends or other payments by the restricted subsidiaries; and (vii) merge, consolidate or sell substantially all of Clear Channel’s assets. The indenture contains covenants that limit Clear Channel Capital I, LLC’s and Clear Channel’s ability and the ability of its restricted subsidiaries to, among other things: (i) create liens on assets and (ii) materially impair the value of the security interests taken with respect to the collateral for the benefit of the notes collateral agent and the holders of the Priority Guarantee Notes due 2021. The indenture also provides for customary events of default.
11.25% Priority Guarantee Notes Due 2021
As of December 31, 2013, Clear Channel had outstanding $575.0 million aggregate principal amount of 11.25% Priority Guarantee Notes due 2021 (the “11.25% Priority Guarantee Notes”).
The 11.25% Priority Guarantee Notes mature on March 1, 2021 and bear interest at a rate of 11.25% per annum, payable semi-annually on March 1 and September 1 of each year, which began on September 1, 2013. The 11.25% Priority Guarantee Notes are Clear Channel’s senior obligations and are fully and unconditionally guaranteed, jointly and severally, on a senior basis by the guarantors named in the indenture governing such notes. The 11.25% Priority Guarantee Notes and the guarantors’ obligations under the guarantees are secured by (i) a lien on (a) the capital stock of Clear Channel and (b) certain property and related assets that do not constitute “principal property” (as defined in the indenture governing the legacy notes of Clear Channel), in each case equal in priority to the liens securing the obligations under Clear Channel’s senior secured credit facilities, Clear Channel’s Priority Guarantee Notes due 2021 and Clear Channel’s Priority Guarantee Notes due 2019, subject to certain exceptions, and (ii) a lien on the accounts receivable and related assets securing Clear Channel’s receivables based credit facility junior in priority to the lien securing Clear Channel’s obligations thereunder, subject to certain exceptions.
Clear Channel may redeem the 11.25% Priority Guarantee Notes at its option, in whole or part, at any time prior to March 1, 2016, at a price equal to 100% of the principal amount of the 11.25% Priority Guarantee Notes redeemed, plus accrued and unpaid interest to the redemption date and plus an applicable premium. In addition, until March 1, 2016, Clear Channel may elect to redeem up to 40% of the aggregate principal amount of the 11.25% Priority Guarantee Notes at a redemption price equal to 111.25% of the principal amount thereof, plus accrued and unpaid interest to the redemption date, with the net proceeds of one or more equity offerings. Clear Channel may redeem the 11.25% Priority Guarantee Notes, in whole or in part, on or after March 1, 2016, at the redemption prices set forth in the indenture plus accrued and unpaid interest to the redemption date.
The indenture governing the 11.25% Priority Guarantee Notes contains covenants that limit Clear Channel’s ability and the ability of its restricted subsidiaries to, among other things: (i) pay dividends, redeem stock or make other distributions or investments; (ii) incur additional debt or issue certain preferred stock; (iii) transfer or sell assets; (iv) engage in certain transactions with affiliates; (v) create restrictions on dividends or other payments by the restricted subsidiaries; and (vi) merge, consolidate or sell substantially all of Clear Channel’s assets. The indenture contains covenants that limit Clear Channel Capital I, LLC’s and Clear Channel’s ability and the ability of its restricted subsidiaries to, among other things: (i) create liens on assets and (ii) materially impair the value of the security interests taken with respect to the collateral for the benefit of the notes collateral agent and the holders of the 11.25% Priority Guarantee Notes. The indenture also provides for customary events of default.
Subsidiary Senior Revolving Credit Facility Due 2018
During the third quarter of 2013, CCOH entered into a five-year senior secured revolving credit facility with an aggregate principal amount of $75.0 million. The revolving credit facility may be used for working capital, to issue letters of credit and for other general corporate purposes. At December 31, 2013, there were no amounts outstanding under the revolving credit facility, and $34.1 million of letters of credit under the revolving credit facility, which reduce availability under the facility.
Senior Cash Pay Notes and Senior Toggle Notes
As of December 31, 2011,2013, Clear Channel had outstanding $796.3$94.3 million aggregate principal amount of 10.75% senior cash pay notes due 2016 and $829.8$127.9 million aggregate principal amount of 11.00%/11.75% senior toggle notes due 2016.
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The senior cash pay notes and senior toggle notes are unsecured and are guaranteed by Clear Channel Capital I, LLCus and alleach of Clear Channel’s existing and future material wholly-owned domestic restricted subsidiaries, subject to certain exceptions. The senior cash pay notes and senior toggle notes mature on August 1, 2016 and the senior toggle notes may require a special redemption of up to $30.0 million on August 1, 2015. Clear Channel may elect on each interest election date to pay all or 50% of such interest on the senior toggle notes in cash or by increasing the principal amount of the senior toggle notes or by issuing new senior toggle notes (such increase or issuance, “PIK Interest”). Interest on the senior toggle notes payable in cash will accrue at a rate of 11.00% per annum and PIK Interest will accrue at a rate of 11.75% per annum.
Prior to August 1, 2012, Clear Channel maywas able to redeem some or all of the senior cash pay notes and senior toggle notes at any time prior to August 1, 2012, at a price equal to 100% of the principal amount of such notes plus accrued and unpaid interest thereon to the redemption date and an “applicableapplicable premium,” as described in the indenture governing such notes. Since August 1, 2012, Clear Channel may redeem some or all of the senior cash pay notes and senior toggle notes at any time on or after August 1, 2012 at the redemption prices set forth in the indenture governing such notes. If Clear Channel undergoes a change of control, sells certain of its assets, or issues certain debt, it may be required to offer to purchase the senior cash pay notes and senior toggle notes from holders.
The senior cash pay notes and senior toggle notes are senior unsecured debt and rank equal in right of payment with all of Clear Channel’s existing and future senior debt. Guarantors of obligations under the senior secured credit facilities, the receivables based credit facility, the Priority Guarantee Notes due 2021, the Priority Guarantee Notes due 2019, and the priority guarantee notes11.25% Priority Guarantee Notes guarantee the senior cash pay notes and senior toggle notes with unconditional guarantees that are unsecured and equal in right of payment to all existing and future senior debt of such guarantors, except that the guarantees are subordinated in right of payment only to the guarantees of obligations under the senior secured credit facilities, the receivables based credit facility, the Priority Guarantee Notes due 2021, the Priority Guarantee Notes due 2019, and the priority guarantee notes11.25% Priority Guarantee Notes to the extent of the value of the assets securing such indebtedness. In addition, the senior cash pay notes and senior toggle notes and the guarantees are structurally senior to the Clear Channel senior notes and existing and future debt to the extent that such debt is not guaranteed by the guarantors of the senior cash pay notes and senior toggle notes. The senior cash pay notes and senior toggle notes and the guarantees are effectively subordinated to Clear Channel’s existing and future secured debt and that of the guarantors to the extent of the value of the assets securing such indebtedness and are structurally subordinated to all obligations of subsidiaries that do not guarantee the senior cash pay notes and senior toggle notes.
On July 16, 2010, Clear Channel made the election to pay interest on the senior toggle notes entirely in cash, effective for the interest period commencing August 1, 2010. Assuming the2010, and has continued to pay interest in cash for each subsequent interest election remains in effect for the remaining termperiod.
As discussed under “Senior Notes due 2021” below, during 2013, Clear Channel exchanged a portion of the senior cash pay notes Clear Channel will be contractually obligated to make a payment to bondholders of $57.4 million on August 1, 2013. This amount is included in “Interest payments on long-term debt” in the “Contractual Obligations” table of this MD&A.
Clear Channeland senior toggle notes for Senior Notes due 2021.
Senior Notes due 2021
As of December 31, 2011,2013, Clear Channel’s senior notes (the “senior notes”) representedChannel had outstanding approximately $2.0$1.4 billion of aggregate principal amount of Senior Notes due 2021 (net of $421.9 million principal amount issued to, and held by, a subsidiary of Clear Channel).
During the second quarter of 2013, Clear Channel completed an exchange offer with certain holders of its senior cash pay notes and senior toggle notes pursuant to which Clear Channel issued $1.2 billion aggregate principal amount (including $421.0 million principal amount issued to, and held by, a subsidiary of Clear Channel) of Senior Notes due 2021. In the exchange offer, $348.1 million aggregate principal amount of senior cash pay notes was exchanged for $348.0 million aggregate principal amount of the Senior Notes due 2021, and $917.2 million aggregate principal amount of senior toggle notes was exchanged for $853.0 million aggregate principal amount of Senior Notes due 2021 and $64.2 million of cash, plus, in each case, cash in an amount equal to accrued and unpaid interest from the last interest payment date applicable on the senior cash pay notes and senior toggle notes to, but not including, the closing date of the exchange offer. The Senior Notes due 2021 mature on February 1, 2021. Interest on the Senior Notes due 2021 is payable semi-annually on February 1 and August 1 of each year, which began on August 1, 2013. Interest on the Senior Notes due 2021 will be paid at the rate of (i) 12.0% per annum in cash and (ii) 2.0% per annum through the issuance of payment-in-kind notes (the “PIK Notes”). Any PIK Notes issued in certificated form will be dated as of the applicable interest payment date and will bear interest from and after such date. All PIK Notes issued will mature on February 1, 2021 and have the same rights and benefits as the Senior Notes due 2021. The Senior Notes due 2021 are fully and unconditionally guaranteed on a senior basis by the guarantors named in the indenture governing such notes. The guarantee is structurally subordinated to all existing and future indebtedness outstanding.and other liabilities of any subsidiary of the applicable subsidiary guarantor that is not also a guarantor of the Senior Notes due 2021. The guarantees are subordinated to the guarantees of Clear Channel’s senior secured credit facility and certain other permitted debt, but rank equal to all other senior indebtedness of the guarantors.
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During the fourth quarter of 2013, Clear Channel completed an additional exchange offer with certain remaining holders of the senior cash pay notes and senior toggle notes pursuant to which Clear Channel issued $622.5 million aggregate principal amount of Senior Notes due 2021. In the exchange offer, $353.8 million aggregate principal amount of senior cash pay notes was exchanged for $389.2 million aggregate principal amount of Senior Notes due 2021 and $14.2 million in cash, and $212.1 million aggregate principal amount of senior toggle notes was exchanged for $233.3 million aggregate principal amount of Senior Notes due 2021 and $8.5 million in cash, plus, in each case, cash in an amount equal to accrued and unpaid interest on the senior cash pay notes and senior toggle notes was netted against cash due for accrued interest on the Senior Notes due 2021 since the previous interest payment date.
Clear Channel may redeem or purchase the Senior Notes due 2021 at its option, in whole or in part, at any time prior to August 1, 2015, at a redemption price equal to 100% of the principal amount of Senior Notes due 2021 redeemed plus an applicable premium. In addition, until August 1, 2015, Clear Channel may, at its option, on one or more occasions, redeem up to 60% of the then outstanding aggregate principal amount of Senior Notes due 2021 at a redemption price equal to (x) with respect to the first 30% of the then outstanding aggregate principal amount of the Senior Notes due 2021, 109.0% of the aggregate principal amount thereof and (y) with respect to the next 30% of the then outstanding aggregate principal amount of the Senior Notes due 2021, 112.0% of the aggregate principal amount thereof, in each case plus accrued and unpaid interest thereon to the applicable redemption date. Clear Channel may redeem the Senior Notes due 2021, in whole or in part, on or after August 1, 2015, at the redemption prices set forth in the indenture plus accrued and unpaid interest to the redemption date.
The indenture governing the Senior Notes due 2021 contains covenants that limit Clear Channel’s ability and the ability of its restricted subsidiaries to, among other things: (i) incur additional indebtedness or issue certain preferred stock; (ii) pay dividends on, or make distributions in respect of, their capital stock or repurchase their capital stock; (iii) make certain investments or other restricted payments; (iv) sell certain assets; (v) create liens or use assets as security in other transactions; (vi) merge, consolidate or transfer or dispose of substantially all of their assets; (vii) engage in transactions with affiliates; and (viii) designate their subsidiaries as unrestricted subsidiaries.
Clear Channel Senior Notes
As of December 31, 2013, Clear Channel had outstanding approximately $1.4 billion aggregate principal amount of senior notes outstanding (net of $288.5 million aggregate principal amount held by a subsidiary of Clear Channel).
The senior notes were the obligations of Clear Channel prior to the merger. The senior notes are senior, unsecured obligations that are effectively subordinated to Clear Channel’s secured indebtedness to the extent of the value of Clear Channel’s assets securing such indebtedness and are not guaranteed by any of Clear Channel’s subsidiaries and, as a result, are structurally subordinated to all indebtedness and other liabilities of Clear Channel’s subsidiaries. The senior notes rank equally in right of payment with all of Clear Channel’s existing and future senior indebtedness and senior in right of payment to all existing and future subordinated indebtedness. The senior notes are not guaranteed by Clear Channel’s subsidiaries.
SubsidiaryCCWH Senior Notes
As of December 31, 2011, we had outstanding $2.52013, CCWH senior notes represented $2.7 billion aggregate principal amount of subsidiary senior notes,indebtedness outstanding, which consisted of $500.0$735.75 million aggregate principal amount of Series A Senior Notes due 20172022 (the “Series A CCWH Senior Notes”) and $2.0 billion$1,989.25 million aggregate principal amount of Series B CCWH Senior Notes due 20172022 (the “Series B CCWH Senior Notes” and, collectively with the Series A Notes, the “subsidiary senior notes”). The subsidiary senior notes were issued by Clear Channel Worldwide Holdings, Inc. (“CCWH”) andCCWH Senior Notes are guaranteed by CCOH, CCOIClear Channel Outdoor, Inc. (“CCOI”) and certain of CCOH’s direct and indirect subsidiaries. The subsidiary senior notes bearproceeds from the issuance of the CCWH Senior Notes were used to fund the repurchase of the Existing CCWH Senior Notes.
We capitalized $30.0 million in fees and expenses associated with the CCWH Senior Notes offering and an original issue discount of $7.4 million. We are amortizing the capitalized fees and discount through interest on a daily basis and contain customary provisions, including covenants requiringexpense over the life of the CCWH to maintain certain levels of credit availability and limitations on incurring additional debt.Senior Notes.
The subsidiary senior notesCCWH Senior Notes are senior obligations that rank pari passu in right of payment to all unsubordinated indebtedness of CCWH and the guarantees of the subsidiary senior notesCCWH Senior Notes rank pari passu in right of payment to all unsubordinated indebtedness of the guarantors. Interest on the CCWH Senior Notes is payable to the trustee weekly in arrears and to the noteholders on May 15 and November 15 of each year, which began on May 15, 2013.
The indentures
At any time prior to November 15, 2017, CCWH may redeem the CCWH Senior Notes, in whole or in part, at a price equal to 100% of the principal amount of the CCWH Senior Notes plus a “make-whole” premium, together with accrued and unpaid interest, if any, to the redemption date. CCWH may redeem the CCWH Senior Notes, in whole or in part, on or after November 15, 2017, at the redemption prices set forth in the applicable indenture governing the subsidiary senior notes require CCWH Senior Notes plus accrued and unpaid
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interest to maintain at least $100 million in cashthe redemption date. At any time on or other liquid assets or have cash availablebefore November 15, 2015, CCWH may elect to be borrowed under committed credit facilities consisting of (i) $50.0 million at the issuer and guarantor entities (principally the Americas outdoor segment) and (ii) $50.0 million at the non-guarantor subsidiaries (principally the International outdoor segment) (together the “Liquidity Amount”), in each case under the sole controlredeem up to 40% of the relevant entity. In the event of a bankruptcy, liquidation, dissolution, reorganization, or similar proceeding of Clear Channel, for the period thereafter that is the shorter of such proceeding and 60 days, the Liquidity Amount shall be reduced to $50.0 million, with a $25.0 million requirement at the issuer and guarantor entities and a $25.0 million requirement at the non-guarantor subsidiaries.
In addition, interest on the subsidiary senior notes accrues daily and is payable into an account established by the trustee for the benefitthen outstanding aggregate principal amount of the bondholders (the “Trustee Account”). FailureCCWH Senior Notes at a redemption price equal to make daily payment on any day does not constitute an event106.500% of default so long as (a) no paymentthe principal amount thereof, plus accrued and unpaid interest to the redemption date, with the net proceeds of one or other transfer bymore equity offerings, subject to certain restrictions. Notwithstanding the foregoing, neither CCOH ornor any of its subsidiaries shall have been made on such day underis permitted to make any purchase of, or otherwise effectively cancel or retire any Series A CCWH Senior Notes or Series B CCWH Senior Notes if, after giving effect thereto and, if applicable, any concurrent purchase of or other addition with respect to any Series B CCWH Senior Notes or Series A CCWH Senior Notes, as applicable, the cash management sweep with Clear Channel and (b) on each semiannual interest payment dateratio of (a) the outstanding aggregate principal amount of funds in the Trustee Account is equalSeries A CCWH Senior Notes to at least(b) the outstanding aggregate principal amount of accrued and unpaid interest on the subsidiary senior notes.Series B CCWH Senior Notes shall be greater than 0.25, subject to certain exceptions.
The indenture governing the Series A CCWH Senior Notes contains covenants that limit CCOH and its restricted subsidiaries ability to, among other things:
·incur or guarantee additional debt to persons other than Clear Channel and its subsidiaries (other than CCOH) or issue certain preferred stock;
·create liens on its restricted subsidiariessubsidiaries’ assets to secure such debt;
·create restrictions on the payment of dividends or other amounts to CCOH from its restricted subsidiaries that are not guarantors of the notes;CCWH Senior Notes;
·enter into certain transactions with affiliates;
·merge or consolidate with another person, or sell or otherwise dispose of all or substantially all of its assets; and
·sell certain assets, including capital stock of its subsidiaries, to persons other than Clear Channel and its subsidiaries (other than CCOH); and.
purchase or otherwise effectively cancel or retire any of the Series A Notes if after doing so the ratio of (a) the outstanding aggregate principal amount of the Series A Notes to (b) the outstanding aggregate principal amount of the Series B Notes shall be greater than 0.250.
In addition, the indenture governing the Series A CCWH Senior Notes provides that if CCWH (i) makes an optional redemption of the Series B CCWH Senior Notes or purchases or makes an offer to purchase the Series B CCWH Senior Notes at or above 100% of the principal amount thereof, then CCWH shall apply a pro rata amount to make an optional redemption or purchase a pro rata amount of the Series A CCWH Senior Notes or (ii) makes an asset sale offer under the indenture governing the Series B CCWH Senior Notes, then CCWH shall apply a pro rata amount to make an offer to purchase a pro rata amount of Series A CCWH Senior Notes.
The indenture governing the Series A CCWH Senior Notes does not include limitations on dividends, distributions, investments or asset sales.
The indenture governing the Series B CCWH Senior Notes contains covenants that limit CCOH and its restricted subsidiaries ability to, among other things:
·incur or guarantee additional debt or issue certain preferred stock;
·redeem, repurchase or retire CCOH’s subordinated debt;
·make certain investments;
·create liens on its or its restricted subsidiaries’ assets to secure debt;
·create restrictions on the payment of dividends or other amounts to it from its restricted subsidiaries that are not guarantors of the subsidiary senior notes;CCWH Senior Notes;
·enter into certain transactions with affiliates;
·merge or consolidate with another person, or sell or otherwise dispose of all or substantially all of its assets;
·sell certain assets, including capital stock of its subsidiaries;
·designate its subsidiaries as unrestricted subsidiaries; and
·pay dividends, redeem or repurchase capital stock or make other restricted payments;payments.
The Series A CCWH Senior Notes indenture and Series B CCWH Senior Notes indenture restrict CCOH’s ability to incur additional indebtedness but permit CCOH to incur additional indebtedness based on an incurrence test. In order to incur (i) additional indebtedness under this test, CCOH’s debt to adjusted EBITDA ratios (as defined by the indentures) must be lower than 7.0:1 and 5.0:1 for total debt and senior debt, respectively, and (ii) additional indebtedness that is subordinated to the CCWH Senior Notes under this test, CCOH’s debt to adjusted EBITDA ratios (as defined by the indentures) must not be lower than 7.0:1 for total debt. The indentures contain certain other exceptions that allow CCOH to incur additional indebtedness. The Series B CCWH Senior Notes indenture also permits CCOH to pay dividends from the proceeds of indebtedness or the proceeds from asset sales if its debt to adjusted EBITDA ratios (as defined by the indentures) are lower than 7.0:1 and 5.0:1 for total debt and senior debt, respectively. The Series A CCWH Senior Notes indenture does not limit CCOH’s ability to pay dividends. The Series B CCWH Senior Notes indenture contains certain exceptions that allow CCOH to pay dividends, including (i) $525.0 million of dividends made pursuant to general
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restricted payment baskets and (ii) dividends made using proceeds received upon a demand by CCOH of amounts outstanding under the revolving promissory note issued by Clear Channel to CCOH.
CCWH Senior Subordinated Notes
As of December 31, 2013, CCWH Subordinated Notes represented $2.2 billion of aggregate principal amount of indebtedness outstanding, which consist of $275.0 million aggregate principal amount of 7.625% Series A Senior Subordinated Notes due 2020 (the “Series A CCWH Subordinated Notes”) and $1,925.0 million aggregate principal amount of 7.625% Series B Senior Subordinated Notes due 2020 (the “Series B CCWH Subordinated Notes”). Interest on the CCWH Subordinated Notes is payable to the trustee weekly in arrears and to the noteholders on March 15 and September 15 of each year, which began on September 15, 2012.
The CCWH Subordinated Notes are CCWH’s senior subordinated obligations and are fully and unconditionally guaranteed, jointly and severally, on a senior subordinated basis by CCOH, CCOI and certain of CCOH’s other domestic subsidiaries. The CCWH Subordinated Notes are unsecured senior subordinated obligations that rank junior to all of CCWH’s existing and future senior debt, including the CCWH Senior Notes, equally with any of CCWH’s existing and future senior subordinated debt and ahead of all of CCWH’s existing and future debt that expressly provides that it is subordinated to the CCWH Subordinated Notes. The guarantees of the CCWH Subordinated Notes rank junior to each guarantor’s existing and future senior debt, including the CCWH Senior Notes, equally with each guarantor’s existing and future senior subordinated debt and ahead of each guarantor’s existing and future debt that expressly provides that it is subordinated to the guarantees of the CCWH Subordinated Notes.
At any time prior to March 15, 2015, CCWH may redeem the CCWH Subordinated Notes, in whole or in part, at a price equal to 100% of the principal amount of the CCWH Subordinated Notes plus a “make-whole” premium, together with accrued and unpaid interest, if any, to the redemption date. CCWH may redeem the CCWH Subordinated Notes, in whole or in part, on or after March 15, 2015, at the redemption prices set forth in the applicable indenture governing the CCWH Subordinated Notes plus accrued and unpaid interest to the redemption date. At any time on or before March 15, 2015, CCWH may elect to redeem up to 40% of the then outstanding aggregate principal amount of the CCWH Subordinated Notes at a redemption price equal to 107.625% of the principal amount thereof, plus accrued and unpaid interest to the redemption date, with the net proceeds of one or more equity offerings, subject to certain restrictions. Notwithstanding the foregoing, neither CCOH nor any of its subsidiaries is permitted to make any purchase of, or otherwise effectively cancel or retire any of theSeries A CCWH Subordinated Notes or Series B CCWH Subordinated Notes if, after doing sogiving effect thereto and, if applicable, any concurrent purchase of or other addition with respect to any Series B CCWH Subordinated Notes or Series A CCWH Subordinated Notes, as applicable, the ratio of (a) the outstanding aggregate principal amount of the Series A CCWH Subordinated Notes to (b) the outstanding aggregate principal amount of the Series B CCWH Subordinated Notes shall be greater than 0.250. This stipulation ensures, among other things, that as long as0.25, subject to certain exceptions.
We capitalized $40.0 million in fees and expenses associated with the CCWH Subordinated Notes offering and are amortizing them through interest expense over the life of the CCWH Subordinated Notes.
The indenture governing the Series A CCWH Subordinated Notes contains covenants that limit CCOH and its restricted subsidiaries ability to, among other things:
·incur or guarantee additional debt to persons other than Clear Channel and its subsidiaries (other than CCOH) or issue certain preferred stock;
·create restrictions on the payment of dividends or other amounts to CCOH from its restricted subsidiaries that are outstanding,not guarantors of the notes;
·enter into certain transactions with affiliates;
·merge or consolidate with another person, or sell or otherwise dispose of all or substantially all of CCOH’s assets; and
·sell certain assets, including capital stock of CCOH’s subsidiaries, to persons other than Clear Channel and its subsidiaries (other than CCOH).
In addition, the indenture governing the Series A CCWH Subordinated Notes provides that if CCWH (i) makes an optional redemption of the Series B CCWH Subordinated Notes or purchases or makes an offer to purchase the Series B CCWH Subordinated Notes at or above 100% of the principal amount thereof, then CCWH shall apply a pro rata amount to make an optional redemption or purchase a pro rata amount of the Series A CCWH Subordinated Notes or (ii) makes an asset sale offer under the indenture governing the Series B CCWH Subordinated Notes, then CCWH shall apply a pro rata amount to make an offer to purchase a pro rata amount of Series A CCWH Subordinated Notes.
The indenture governing the Series A CCWH Subordinated Notes does not include limitations on dividends, distributions, investments or asset sales.
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The indenture governing the Series B CCWH Subordinated Notes contains covenants that limit CCOH and its restricted subsidiaries ability to, among other things:
·incur or guarantee additional debt or issue certain preferred stock;
·make certain investments;
·create restrictions on the payment of dividends or other amounts to CCOH from its restricted subsidiaries that are outstanding.not guarantors of the notes;
·enter into certain transactions with affiliates;
·merge or consolidate with another person, or sell or otherwise dispose of all or substantially all of CCOH’s assets;
·sell certain assets, including capital stock of CCOH’s subsidiaries;
·designate CCOH’s subsidiaries as unrestricted subsidiaries; and
·pay dividends, redeem or repurchase capital stock or make other restricted payments.
The Series A CCWH Subordinated Notes indenture and Series B CCWH Subordinated Notes indenture restrict CCOH’s ability to incur additional indebtedness but permit CCOH to incur additional indebtedness based on an incurrence test. In order to incur additional indebtedness under this test, CCOH’s debt to adjusted EBITDA ratios (as defined by the indentures) must be lower than 6.5:1 and 3.25:1 for total debt and senior debt, respectively.7.0:1. The indentures contain certain other exceptions that allow CCOH to incur additional indebtedness. The Series B CCWH Subordinated Notes indenture also permits CCOH to pay dividends from the proceeds of indebtedness or the proceeds from asset sales if its debt to adjusted EBITDA ratios (as defined by the indentures) areis lower than 6.0:1 and 3.0:1 for total debt and senior debt, respectively.7.0:1. The Series A CCWH Senior Subordinated Notes indenture does not limit CCOH’s ability to pay dividends. The Series B CCWH Subordinated Notes indenture contains certain exceptions that allow CCOH to incur additional indebtedness and pay dividends, including (i) $525.0 million of dividends made pursuant to general restricted payment baskets and (ii) dividends made using proceeds received upon a $500.0 million exception fordemand by CCOH of amounts outstanding under the payment of dividends. CCOH was in compliance with these covenants as of December 31, 2011.revolving promissory note issued by Clear Channel to CCOH.
A portion of
With the proceeds of the subsidiary senior notes offering were usedCCWH Subordinated Notes (net of the initial purchasers’ discount of $33.0 million), CCWH loaned an aggregate amount equal to (i) pay the$2,167.0 million to CCOI. CCOI paid all other fees and expenses of the offering (ii) fund $50.0 millionusing cash on hand and, with the proceeds of the Liquidity Amount (the $50.0 million liquidityloans, made a special cash dividend to CCOH, which in turn made a special cash dividend on March 15, 2012 in an amount of the non-guarantor subsidiaries was satisfied) and (iii) apply $2.0 billion of the cash proceeds (which amount is equal to $6.0832 per share to its Class A and Class B stockholders of record at the close of business on March 12, 2012, including Clear Channel Holdings, Inc. (“CC Holdings”) and CC Finco, LLC (“CC Finco”), both wholly-owned subsidiaries of ours. Of the $2,170.4 million special cash dividend paid by CCOH, an aggregate principal amount of the Series B Notes)$1,925.7 million was distributed to repay an equal amount of indebtedness under Clear Channel’s senior secured credit facilities. In accordanceCC Holdings and CC Finco, with the senior secured credit facilities,remaining $244.7 million distributed to other stockholders. As a result, we recorded a reduction of $244.7 million in “Noncontrolling interest” on the $2.0 billion cash proceeds were applied ratably to the term loan A, term loan B, and both delayed draw term loan facilities, and within each such class, such prepayment was applied to remaining scheduled installments of principal.consolidated balance sheet.
The balance of the proceeds is available to CCOI for general corporate purposes. In this regard, all of the remaining proceeds could be used to pay dividends from CCOI to CCOH. In turn, CCOH could declare a dividend to its shareholders, of which Clear Channel would receive its proportionate share. Payment of such dividends would not be prohibited by the terms of the subsidiary senior notes or any of the loan agreements or credit facilities of CCOI or CCOH.
Refinancing Transactions
During the first quarter of2011 Refinancing Transactions
In February 2011, Clear Channel amended its senior secured credit facilities and its receivables based credit facility and issued $1.0 billion aggregate principal amount of 9.0%the Initial Priority Guarantee Notes due 2021. In June 2011, Clear Channel issued the Additional Priority Guarantee Notes due 2021 (the “Initial Notes”). at an issue price of 93.845% of the principal amount. The Initial Priority Guarantee Notes due 2021 and the Additional Priority Guarantee Notes due 2021 have identical terms and are treated as a single class.
We capitalized $39.5 million in fees and expenses associated with the Initial Priority Guarantee Notes due 2021 offering and are amortizing them through interest expense over the life of the Initial Notes.Priority Guarantee Notes due 2021. We capitalized an additional $7.1 million in fees and expenses associated with the offering of the Additional Priority Guarantee Notes due 2021 and are amortizing them through interest expense over the life of the Additional Priority Guarantee Notes due 2021.
Clear Channel used the proceeds of the Initial Priority Guarantee Notes due 2021 offering to prepay $500.0 million of the indebtedness outstanding under its senior secured credit facilities. The $500.0 million prepayment was allocated on a ratable basis between outstanding term loans and revolving credit commitments under Clear Channel’s revolving credit facility, thus permanently reducing the revolving credit commitments under Clear Channel’s revolving credit facility to $1.9 billion. The prepayment resulted in the accelerated expensing of $5.7 million of loan fees recorded in “Other income (expense) – net”.facility.
The proceeds from the offering of the Initial Notes, along with available cash on hand, were also used to repay at maturity $692.7 million in aggregate principal amount of Clear Channel’s 6.25% senior notes, which matured during the first quarter of 2011.
Clear Channel obtained, concurrent with the offering of the Initial Priority Guarantee Notes due 2021, amendments to its credit agreements with respect to its senior secured credit facilities and its receivables based credit facility (revolving credit commitments under the receivables based facility were reduced from $783.5 million to $625.0 million), which were required as a
condition to complete the offering. The amendments, among other things, permit Clear Channel to request future extensions of the maturities of its senior secured credit facilities, provide Clear Channelit with greater flexibility in the use of its accordion capacity, provide Clear Channelit with greater flexibility to incur new debt, provided that the proceeds from such new debt are used to pay down senior secured credit facility indebtedness, and provide greater flexibility for CCOH and its subsidiaries to incur new debt, provided that the net proceeds distributed to Clear Channel from the issuance of such new debt are used to pay down senior secured credit facility indebtedness.
In June 2011, Clear Channel issued an additional $750.0 million in aggregate principal amount of 9.0% Priority Guarantee Notes due 2021 (the “Additional Notes”) at an issue price of 93.845% of the principal amount of the Additional Notes. Interest on the Additional Notes accrued from February 23, 2011 and accrued interest was paid by the purchaser at the time of delivery of the Additional Notes on June 14, 2011. 60
Of the $703.8 million of proceeds from the issuance of the Additional Priority Guarantee Notes due 2021 ($750.0 million aggregate principal amount net of $46.2 million of discount), Clear Channel used $500$500.0 million for general corporate purposes (to replenish cash on hand that Clear Channelwas previously used to pay senior notes at maturity on March 15, 2011 and May 15, 2011) and intends to useused the remaining $203.8 million to repay at maturity a portion of Clear Channel’s 5% senior notes which maturethat matured in March 2012.
2012 Refinancing Transactions
In March 2012, CCWH issued $275.0 million aggregate principal amount of the Series A CCWH Subordinated Notes and $1,925.0 million aggregate principal amount of the Series B CCWH Subordinated Notes and in connection therewith, CCOH distributed a dividend of $6.0832 per share to its stockholders of record. Using the CCOH dividend proceeds distributed to our wholly-owned subsidiaries, together with cash on hand, Clear Channel repaid $2,096.2 million of indebtedness under its senior secured credit facilities.
In November 2012, CCWH issued $735.75 million aggregate principal amount of the Series A CCWH Senior Notes, which were issued at an issue price of 99.0% of par, and $1,989.25 million aggregate principal amount of the Series B CCWH Senior Notes, which were issued at par. CCWH used the net proceeds from the offering of the CCWH Senior Notes, together with cash on hand, to fund the tender offer for and redemption of the Existing CCWH Senior Notes.
During December 2012, Clear Channel exchanged $2.0 billion aggregate principal amount of term loans under its senior secured credit facilities for a like principal amount of newly issued Clear Channel Priority Guarantee Notes due 2019. The exchange offer, which was offered to eligible existing lenders under Clear Channel’s senior secured credit facilities, was exempt from registration under the Securities Act of 1933, as amended. We capitalized an additional $7.1$11.9 million in fees and expenses associated with the offering of the Additional Notes and are amortizing them through interest expense over the life of the Additional Notes.notes.
The Additional Notes were issued as additional notes under the indenture, dated as of
2013 Refinancing Transactions
In February 23, 2011 (the “Indenture”), among2013, Clear Channel issued $575.0 million aggregate principal amount of the guarantors named therein, Wilmington Trust FSB, as trustee (the “Trustee”)outstanding 11.25% Priority Guarantee Notes and used the net proceeds of such notes, together with the proceeds of borrowings under its receivables based credit facility and cash on hand, to prepay all $846.9 million of loans outstanding under its Term Loan A and to pay related fees and expenses.
During June 2013, Clear Channel amended its senior secured credit facility by extending a portion of Term Loan B and Term Loan C loans due 2016 through the creation of a new $5.0 billion Term Loan D due January 30, 2019. The amendment also permitted Clear Channel to make applicable high yield discount obligation catch-up payments beginning in May 2018 with respect to the new Term Loan D and any notes issued in connection with Clear Channel’s exchange of its outstanding 10.75% senior cash pay notes due 2016 and 11.00%/11.75% senior toggle notes due 2016.
During June 2013, Clear Channel exchanged $348.1 million aggregate principal amount of senior cash pay notes for $348.0 million aggregate principal amount of the Senior Notes due 2021 and $917.2 million aggregate principal amount of senior toggle notes (including $452.7 million aggregate principal amount held by a subsidiary of Clear Channel) for $853.0 million aggregate principal amount of Senior Notes due 2021 (including $421.0 million aggregate principal amount issued to the subsidiary of Clear Channel) and $64.2 million of cash (including $31.7 million of cash paid to the subsidiary of Clear Channel), pursuant to the exchange offer. In connection with the exchange offer and the other agents named therein, undersenior secured credit facility amendment, both of which were accounted for as modifications of existing debt in accordance with ASC 470-50, we incurred expenses of $17.9 million which are included in “Other income (expenses), net”.
Further, in December 2013, Clear Channel previously issuedexchanged an additional $353.8 million aggregate principal amount of senior cash pay notes for $389.2 million aggregate principal amount of the Initial Notes. The AdditionalSenior Notes were issueddue 2021 and $14.2 million of cash as well as an additional $212.1 million aggregate principal amount of senior toggle notes for $233.3 million aggregate principal amount of Senior Notes due 2021 and $8.5 million of cash, pursuant to a supplemental indenture to the Indenture, datedexchange offer. In connection with the exchange offer, which was accounted for as extinguishment of June 14, 2011, betweenexisting debt in accordance with ASC 470-50, we incurred expenses of $84.0 million, which are included in “Loss on extinguishment of debt”.
In addition, during December 2013, Clear Channel amended its senior secured credit facility by extending a portion of Term Loan B and Term Loan C loans due 2016 through the Trustee. The Initial Notes andcreation of a new $1.3 billion Term Loan E due July 30, 2019. In connection with the Additional Notes have identical terms andsenior secured credit facility amendment, which was accounted for as modifications of existing debt, we incurred expenses of $5.5 million which are treated as a single class.included in “Other income (expenses), net”.
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Dispositions and Other
2013
During 2013, our Americas outdoor segment divested certain outdoor advertising assets in Times Square for approximately $18.7 million resulting in a gain of $12.2 million. In addition, our CCME segment exercised a put option that sold five radio stations in the Green Bay market for approximately $17.6 million and recorded a gain of $0.5 million. These net gains are included in “Other operating income, net.”
We sold our shares of Sirius XM Radio, Inc. for $135.5 million and recognized a gain on the sale of securities of $130.9 million. This net gain is included in “Gain on sale of marketable securities.”
2012
During 2012, our International outdoor segment sold its international neon business and its outdoor advertising business in Romania, resulting in an aggregate gain of $39.7 million included in “Other operating income, net.”
2011
During 2011, we divested and exchanged 27 radio stations for approximately $22.7 million and recorded a loss of $0.5 million in “Other operating income, (expense) – net.”
On October 15, 2010, CCOH transferred its interest in its Branded Cities operations to its joint venture partner, The Ellman Companies. We recognized
Uses of Capital
Debt Repurchases, Maturities and Other
2013
During August 2013, Clear Channel made a loss of $25.3 million in “Other operating income (expense) – net” relatedscheduled applicable high-yield discount obligation payment to this transfer.the holders of the senior toggle notes.
During 2010, our International outdoor segment soldFebruary 2013, using the proceeds from the issuance of the 11.25% Priority Guarantee Notes along with borrowings under the receivables based credit facility of $269.5 million and cash on hand, Clear Channel prepaid all $846.9 million outstanding under its outdoor advertising business in India, resulting in a loss of $3.7 million included in “Other operating income (expense) – net.” In addition, we sold three radio stations, donated one station, and recorded a gain of $1.3 million in “Other operating income (expense) – net.”Term Loan A under its senior secured credit facilities. We also sold representation contracts and recorded a gain of $6.2 million in “Other operating income (expense) – net.”
During 2009, we sold six radio stations for approximately $12.0 million and recorded a loss of $12.8$3.9 million in “Other operating income (expense) – net.” “Loss on extinguishment of debt” related to the accelerated expensing of loan fees.
During January 2013, Clear Channel repaid its 5.75% senior notes at maturity for $312.1 million (net of $187.9 million principal amount repaid to a subsidiary of Clear Channel with respect to notes repurchased and held by such entity), plus accrued interest, using cash on hand.
2012
During November 2012, CCWH repurchased $1,724.7 million aggregate principal amount of the Existing CCWH Senior Notes in a tender offer for the Existing CCWH Senior Notes. Simultaneously with the early settlement of the tender offer, CCWH called for redemption all of the remaining $775.3 million aggregate principal amount of Existing CCWH Senior Notes that were not purchased on the early settlement date of the tender offer. In connection with the redemption, CCWH satisfied and discharged its obligations under the Existing CCWH Senior Notes indentures by depositing with the trustee sufficient funds to pay the redemption price, plus accrued and unpaid interest on the remaining outstanding Existing CCWH Senior Notes to, but not including, the December 19, 2012 redemption date.
During October 2012, Clear Channel consummated a private exchange offer of $2.0 billion aggregate principal amount of term loans under its senior secured credit facilities for a like principal amount of newly issued Priority Guarantee Notes due 2019. The exchange offer was available only to eligible lenders under the senior secured credit facilities, and the Priority Guarantee Notes due 2019 were offered only in reliance on exemptions from registration under the Securities Act of 1933, as amended.
In connection with the issuance of the CCWH Subordinated Notes, CCOH paid the $2,170.4 million CCOH dividend on March 15, 2012 to its Class A and Class B stockholders, consisting of $1,925.7 million distributed to CC Holdings and CC Finco and $244.7 million distributed to other stockholders. In connection with the Subordinated Notes issuance and CCOH dividend, Clear Channel repaid indebtedness under its senior secured credit facilities in an amount equal to the aggregate amount of dividend proceeds distributed to CC Holdings and CC Finco, or $1,925.7 million. Of this amount, a prepayment of $1,918.1 million was applied to indebtedness outstanding under Clear Channel’s revolving credit facility, thus permanently reducing the revolving credit commitments
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under Clear Channel’s revolving credit facility to $10.0 million. During the fourth quarter of 2012, the revolving credit facility was permanently paid off and terminated using available cash on hand. The remaining $7.6 million prepayment was allocated on a pro rata basis to Clear Channel’s term loan facilities.
In addition, we exchanged radio stationson March 15, 2012, using cash on hand, Clear Channel made voluntary prepayments under its senior secured credit facilities in our radio markets for assets located in a different marketan aggregate amount equal to $170.5 million, as follows: (i) $16.2 million under its Term Loan A due 2014, (ii) $129.8 million under its Term Loan B due 2016, (iii) $10.0 million under its Term Loan C due 2016 and recognized a loss of $28.0(iv) $14.5 million in “Other operating income (expense) – net.”
During 2009,under its delayed draw term loans due 2016. In connection with the prepayments on Clear Channel’s senior secured credit facilities, we sold international assets for $11.3 million resulting in a gain of $4.4 million in “Other operating income (expense) – net.” In addition, we sold assets for $6.8 million in our Americas outdoor segment and recorded a gain of $4.9 million in “Other operating income (expense) – net.” We sold our taxi advertising business and recorded a loss of $20.9$15.2 million in our Americas outdoor segment included in “Other operating income (expense) –net.” We also received“Loss on extinguishment of debt” related to the accelerated expensing of loan fees.
During March 2012, Clear Channel repaid its 5.0% senior notes at maturity for $249.9 million (net of $50.1 million principal amount repaid to a subsidiary of Clear Channel with respect to notes repurchased and held by such entity), plus accrued interest, using a portion of the proceeds of $18.3 million from the saleJune 2011 offering of corporate assets during 2009 and recorded a loss of $0.7 million in “Other operating income (expense) – net.”the Additional Notes, along with cash on hand.
In addition, we sold our remaining interest in Grupo ACIR for approximately $40.5 million and recorded a loss of approximately $5.8 million during 2009.
Uses of Capital2011
Debt Repurchases, Maturities and Other
Between 2009 andDuring 2011, our indirect wholly-owned subsidiaries, CC Investments, CC Finco and Clear Channel Acquisition, LLC (“CC Acquisition”), repurchased certain of Clear Channel’s outstanding senior notes senior cash pay and senior toggle notes through open market repurchases privately negotiated transactions and tenders as shown in the table below. Notes repurchased and held by CC Investments, CC Finco and CC Acquisition are eliminated in consolidation.
(In thousands) | Years Ended December 31, | |||||||||||
2011 | 2010 | 2009 | ||||||||||
CC Investments | ||||||||||||
Principal amount of debt repurchased | $ | — | $ | 185,185 | $ | — | ||||||
Deferred loan costs and other | — | 104 | — | |||||||||
Gain recorded in “Other income (expense) – net”(2) | — | (60,289) | — | |||||||||
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Cash paid for repurchases of long-term debt | $ | — | $ | 125,000 | $ | — | ||||||
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CC Finco | ||||||||||||
Principal amount of debt repurchased | $ | 80,000 | $ | — | $ | 801,302 | ||||||
Purchase accounting adjustments(1) | (20,476) | — | (146,314) | |||||||||
Deferred loan costs and other | — | — | (1,468) | |||||||||
Gain recorded in “Other income (expense) – net”(2) | (4,274) | — | (368,591) | |||||||||
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Cash paid for repurchases of long-term debt | $ | 55,250 | $ | — | $ | 284,929 | ||||||
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CC Acquisition | ||||||||||||
Principal amount of debt repurchased(3) | $ | — | $ | — | $ | 433,125 | ||||||
Deferred loan costs and other | — | — | (813) | |||||||||
Gain recorded in “Other income (expense) – net”(2) | — | — | (373,775) | |||||||||
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Cash paid for repurchases of long-term debt | $ | — | $ | — | $ | 58,537 | ||||||
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