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As filed with the Securities and Exchange Commission on
October 28, 2005
Registration No. 333-127375
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Amendment No. 5
to
Form S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
CLEAR CHANNEL OUTDOOR HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
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Delaware |
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7312 |
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86-0812139 |
(State or other jurisdiction of
incorporation or organization) |
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(Primary standard industrial
classification code number) |
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(I.R.S. employer
identification number) |
200 East Basse Road
San Antonio, Texas 78209
(210) 832-3700
(Address, including zip code, and telephone number,
including area code, of registrants principal executive
offices)
Mark P. Mays
Clear Channel Outdoor Holdings, Inc.
200 East Basse Road
San Antonio, Texas 78209
(210) 832-3700
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
Copies to:
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Daryl L. Lansdale, Jr., Esq.
Fulbright & Jaworski L.L.P.
300 Convent Street, Suite 2200
San Antonio, Texas 78205
Telephone: (210) 224-5575
Facsimile: (210) 270-7205 |
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John W. White, Esq.
Cravath, Swaine & Moore LLP
825 Eighth Avenue
New York, New York 10019
Telephone: (212) 474-1000
Facsimile: (212) 474-3700 |
Approximate date of commencement of proposed sale to the
public: As soon as practicable after this registration
statement becomes effective.
If any of the securities being registered on this form are to be
offered on a delayed or continuous basis pursuant to
Rule 415 under the Securities Act, check the following
box. o
If this form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act,
check the following box and list the Securities Act registration
statement number of the earlier effective registration statement
for the same
offering. o
If this form is a post-effective amendment filed pursuant to
Rule 462(c) under the Securities Act, check the following
box and list the Securities Act registration statement number of
the earlier effective registration statement for the same
offering. o
If this form is a post-effective amendment filed pursuant to
Rule 462(d) under the Securities Act, check the following
box and list the Securities Act registration statement number of
the earlier effective registration statement for the same
offering. o
If delivery of the prospectus is expected to be made pursuant to
Rule 434, check the following
box. o
CALCULATION OF REGISTRATION FEE
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Proposed Maximum |
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Proposed Maximum |
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Title of Each Class of |
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Amount to |
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Offering Price |
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Aggregate Offering |
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Amount of |
Securities to be Registered |
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be Registered |
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per Share |
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Price(1)(2) |
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Registration Fee |
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Class A Common Stock, $0.01 par value per share
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40,250,000 shares |
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$22.00 |
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$885,500,000 |
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$104,224(3) |
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(1) |
Includes shares to be sold upon exercise of the
underwriters option to purchase additional shares of
Class A common stock. See Underwriting. |
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(2) |
Estimated solely for the purpose of calculating the registration
fee under Rule 457(a) of the Securities Act of 1933, as
amended. |
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(3) |
Of this amount, $41,195 has been previously paid. |
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The
Registrant hereby amends this Registration Statement on such
date or dates as may be necessary to delay its effective date
until the Registrant shall file a further amendment which
specifically states that this Registration Statement shall
thereafter become effective in accordance with Section 8(a)
of the Securities Act of 1933 or until the Registration
Statement shall become effective on such date as the commission
acting pursuant to said Section 8(a), may determine.
The information in
this preliminary prospectus is not complete and may be changed.
We may not sell these securities until the registration
statement filed with the Securities and Exchange Commission is
effective. This preliminary prospectus is not an offer to sell
these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not
permitted.
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SUBJECT TO COMPLETION. DATED
OCTOBER 28, 2005.
35,000,000 Shares
Class A Common Stock
This is the initial public offering of shares of Class A
common stock of Clear Channel Outdoor Holdings, Inc. All of the
35,000,000 shares are being sold by us. We intend to use
all of the net proceeds from this offering to repay a portion of
the outstanding intercompany indebtedness owed to our parent
company, Clear Channel Communications, Inc. See Use of
Proceeds.
Prior to this offering, there has been no public market for the
shares of Class A common stock. It is currently estimated
that the initial public offering price per share will be between
$20.00 and $22.00. We intend to list the shares of Class A
common stock on the New York Stock Exchange under the symbol
CCO.
We are an indirect, wholly owned subsidiary of Clear Channel
Communications and have two classes of common stock outstanding:
Class A common stock and Class B common stock. After
this offering, Clear Channel Communications will own all of our
outstanding shares of Class B common stock, representing
approximately 90% of the outstanding shares of our common stock
and approximately 99% of the total voting power of our common
stock, or approximately 89% and 99%, respectively, if the
underwriters exercise in full their option to purchase
additional shares of Class A common stock. The rights of
the Class A common stock and the Class B common stock
are substantially similar, except with respect to voting,
conversion and transferability. Our Class A common stock
and Class B common stock vote as a single class on all
matters on which stockholders are entitled to vote, except as
otherwise provided in our amended and restated certificate of
incorporation or as required by law. Each share of Class A
common stock entitles its holder to one vote and each share of
Class B common stock entitles its holder to 20 votes.
See Risk Factors beginning on page 13 to
read about factors you should consider before deciding to invest
in shares of our Class A common stock.
Neither the Securities and Exchange Commission nor any other
regulatory body has approved or disapproved of these securities
or passed upon the accuracy or adequacy of this prospectus. Any
representation to the contrary is a criminal offense.
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Per Share | |
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Total | |
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Initial public offering price
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$ |
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$ |
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Underwriting discount
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$ |
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$ |
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Proceeds, before expenses, to us
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$ |
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$ |
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To the extent that the underwriters sell more than
35,000,000 shares of Class A common stock, the
underwriters have the option to purchase up to an additional
5,250,000 shares of Class A common stock from us at
the initial public offering price, less the underwriting
discount. To the extent the underwriters do not exercise this
option in full, we intend to exchange up to 5,250,000 additional
shares of Class B common stock with Clear Channel
Communications for the portion of the intercompany indebtedness
owed by us to Clear Channel Communications that the proceeds
from the exercise of such option otherwise would have been used
to repay.
The underwriters expect to deliver the shares of Class A
common stock against payment in New York, New York
on ,
2005.
Global Coordinator & Senior Bookrunner
Goldman, Sachs & Co.
Joint Bookrunners
Deutsche Bank
Securities
Co-Managers
Banc of America Securities
LLC
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Credit Suisse First
Boston |
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A.G. Edwards |
Allen & Company LLC |
Barrington Research |
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Harris Nesbitt |
SunTrust Robinson Humphrey |
Wachovia Securities |
Prospectus
dated ,
2005.
See inside back cover for a map of our international markets.
The information contained in this prospectus contains references
to certain trademarks and registered marks. The trademark
Adsheltm
is owned by us.
PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in
this prospectus and provides an overview of the material aspects
of this offering. This summary does not contain all of the
information you should consider before deciding to invest in
shares of our Class A common stock. You should read this
entire prospectus carefully, especially the risks of investing
in shares of our Class A common stock discussed under
Risk Factors beginning on page 13. Except as
otherwise noted, we present all financial and operating data on
fiscal year and fiscal quarter bases. Our fiscal year ends on
December 31 of each year.
Unless the context otherwise requires, references in this
prospectus to Clear Channel Communications shall
mean Clear Channel Communications, Inc. and its combined
subsidiaries (other than us).
Prior to the completion of this offering, Clear Channel
Communications will, and will cause its affiliates to, transfer
to us certain assets related to our business not currently owned
by us. We or our subsidiaries will assume and agree to perform,
discharge and fulfill certain liabilities related to our
business. In this prospectus, the description of our business
includes these assets and liabilities as if such assets and
liabilities were ours for all historical periods described
herein. Our historical financial results as part of Clear
Channel Communications may not reflect our financial results in
the future as an independent publicly traded company or what our
financial results would have been had we operated as an
independent publicly traded company during the periods
presented.
Our Business
Our principal business is to provide our clients with
advertising opportunities through billboards, street furniture
displays, transit displays and other out-of-home advertising
displays, such as wallscapes, spectaculars and mall displays,
that we own or operate in key markets worldwide. As of
September 30, 2005, we owned or operated more than 870,000
advertising displays worldwide. For the year ended
December 31, 2004, we generated revenues of approximately
$2.4 billion, operating income of approximately
$243.3 million and operating income before depreciation,
amortization and non-cash compensation expense, or OIBDAN, of
approximately $631.6 million. Our domestic reporting
segment consists of our operations in the United States, Canada
and Latin America, with approximately 95% of our 2004 revenues
in this segment derived from the United States. Our
international reporting segment consists of our operations in
Europe, Australia, Asia and Africa, with approximately 52% of
our 2004 revenues in this segment derived from France and the
United Kingdom. Approximately 89% of our total 2004
operating income excluding corporate expenses was derived from
our domestic segment and approximately 11% was derived from our
international segment. Approximately 66% of our total 2004
OIBDAN excluding corporate expenses was derived from our
domestic segment and approximately 34% was derived from our
international segment. See Summary Historical
and Pro Forma Combined Financial Data Non-GAAP
Financial Measure for an explanation of OIBDAN and a
reconciliation of OIBDAN to operating income (loss).
Additionally, we own equity interests in various out-of-home
advertising companies worldwide, which we account for under the
equity method of accounting.
Billboard displays are bulletin and poster advertising panels of
various sizes that generally are mounted on structures we own.
We believe that many of our billboards are strategically located
to offer maximum visual impact to audiences. Larger billboards
generally are located along major highways and freeways to
target vehicular traffic. Smaller billboards generally are
located on city streets to target both vehicular and pedestrian
traffic.
Street furniture displays, marketed under our global
Adsheltm
brand, are advertising surfaces on bus shelters, information
kiosks, public toilets, freestanding units and other public
structures. Generally, we own the street furniture structures
and are responsible for their construction and maintenance.
Contracts for the right to place our street furniture structures
in the public domain and sell advertising space on them are
awarded by municipal and transit authorities in competitive
bidding processes. We believe that street furniture is growing
in popularity with municipal and transit authorities, especially
in international and larger U.S. markets.
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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 taxis and within
the common areas of rail stations and airports. Contracts for
the right to place our displays on vehicles or within transit
systems and sell advertising space on them are awarded by public
transit authorities in competitive bidding processes or are
negotiated with private transit operators.
We generate revenues worldwide from local, regional and national
sales. Advertising rates generally are based on the gross
rating points, or total number of impressions delivered
expressed as a percentage of a market population, of a display
or group of displays. The number of impressions
delivered by a display is measured by the number of people
passing the site during a defined period of time and, in some
international markets, is weighted to account for such factors
as illumination, proximity to other displays and the speed and
viewing angle of approaching traffic. While 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 Competitive Strengths
We believe our key competitive strengths are as follows:
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We believe that our presence in key markets gives our clients
the ability to reach a global audience through one advertising
provider. |
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We have long-standing relationships with a diversified group of
local, regional and national advertising brands and agencies in
the United States and worldwide. No single advertiser accounted
for more than 2% of our 2004 domestic or international revenues. |
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Our high levels of cash flow from operations provide us with
strategic and financial flexibility and will position us to
opportunistically pursue attractive acquisitions and investments. |
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We believe that we are well-positioned to take advantage of
significant technological advances and the corresponding
improvements in advertisers abilities to present engaging
campaigns to their target audiences. |
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Our senior management team has extensive experience in the
outdoor advertising industry. |
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We believe that our financial strength and flexibility, our
existing presence in key markets worldwide and our experienced
senior management team position us well to capitalize on
emerging acquisition and investment opportunities in the global
industry. |
See Business Our Competitive Strengths.
Our Strategy
Our fundamental goal is to increase stockholder value by
maximizing our cash flow from operations worldwide.
Accomplishing this goal requires the successful implementation
of the following strategies:
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We seek to capitalize on our global network and diversified
product mix to maximize revenues, increase profits and launch
new products and initiatives. |
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We seek to enhance revenue opportunities by focusing on specific
initiatives that highlight the value of outdoor advertising
relative to other media. |
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We continue to focus on achieving operating efficiencies
throughout our global network. |
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We have made significant commitments to provide innovative
services to and enhance our accountability with our clients. |
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We intend to strengthen our existing market presence and
selectively enter into new markets through acquisitions and
investments worldwide. |
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We offer our clients alternative displays that incorporate new
cost-effective technologies. |
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We maintain an entrepreneurial and customer-oriented culture
that motivates local market managers to maximize our cash flow
from operations. |
See Business Our Strategy.
Our Risks
We face a number of risks associated with our business and
industry and must overcome a variety of challenges in
implementing our operating strategy in order to be successful.
For instance:
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Our past operating results have been negatively affected by,
among other things, a global economic slowdown and a decline in
our clients advertising budgets, resulting in our
incurring net losses in each of 2002, 2003 and 2004 and an
accrued retained deficit. |
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The outdoor advertising industry is highly competitive. Our
properties compete for audiences and advertising revenues with
other outdoor advertising companies, as well as with other media. |
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We are subject to U.S. and foreign government regulation.
Regulations regarding permitting, nonconformance and taxes and
the size, spacing, density and lighting of displays may restrict
our outdoor advertising operations. |
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After this offering, our total indebtedness for borrowed money
will be approximately $2.7 billion, approximately
$2.5 billion of which will be intercompany indebtedness
owed to Clear Channel Communications. If our cash flow and
capital resources are insufficient to service our debt
obligations, a default under any debt instrument could
materially impair our financial condition and liquidity. In
addition, our debt instruments may include restrictive covenants
that limit our ability to refinance debt, sell assets or obtain
additional equity capital. |
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We have not previously operated as an independent publicly
traded company and our historical and pro forma combined
financial information is not necessarily representative of the
results we may achieve and it is difficult to predict our future
success. |
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After this offering and for so long as Clear Channel
Communications continues to own more than 50% of the total
voting power of our common stock, it will have the ability to
direct the election of our board of directors, exercise control
over our business and affairs and significantly influence the
outcome of matters submitted to a vote of our stockholders. |
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We derive benefits from our association with Clear Channel
Communications. If Clear Channel Communications were to
experience financial difficulty or if we were to separate from
Clear Channel Communications in the future, our business could
be materially adversely affected. In addition, conflicts of
interest may arise between Clear Channel Communications and us
relating to our past and ongoing relationships. |
For further discussion of these challenges and other risks that
we face, see Risk Factors.
Our Relationship with Clear Channel Communications
We are an indirect, wholly owned subsidiary of Clear Channel
Communications, Inc. After this offering, Clear Channel
Communications will own all of our outstanding shares of
Class B common stock, representing approximately 90% of the
outstanding shares of our common stock and approximately 99% of
the total voting power of our common stock, or approximately 89%
and 99%, respectively, if the underwriters exercise in full
their option to purchase additional shares of Class A
common stock. For as long as Clear Channel Communications is the
owner of such number of shares representing more than 50% of the
total voting power of our common stock, it will have the ability
to direct the election of all of the members of our board of
directors and to exercise a controlling influence over our
business and affairs, including any determination with respect
to mergers or other business combinations involving us, the
acquisition or disposition of assets by us, the incurrence of
indebtedness by us, the issuance of any additional common stock
or other equity securities by us, the repurchase or redemption
of common stock
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or preferred stock by us and the payment of dividends by us.
Similarly, Clear Channel Communications will have the power to
determine or significantly influence the outcome of matters
submitted to a vote of our stockholders, including the power to
prevent an acquisition or any other change in control of us, and
to take other actions that might be favorable to Clear Channel
Communications. See Description of Capital Stock.
Clear Channel Communications has advised us that its current
intent is to continue to hold all the shares of our Class B
common stock it owns after this offering. However, Clear Channel
Communications is not subject to any contractual obligation that
would prohibit it from selling, spinning off, splitting off or
otherwise disposing of any shares of our common stock, except
that Clear Channel Communications has agreed not to sell, spin
off, split off or otherwise dispose of any shares of our common
stock for a period of 180 days after the date of this
prospectus without the prior written consent of the
underwriters, subject to certain limitations and limited
exceptions. As a result, there can be no assurance concerning
the period of time during which Clear Channel Communications
will maintain its ownership of the shares of our Class B
common stock owned by it after this offering. See
Underwriting.
Prior to the completion of this offering, we will enter into
agreements with Clear Channel Communications that will govern
the relationship between Clear Channel Communications and us
after this offering and will provide for, among other things,
the provision of services by Clear Channel Communications to us
and the allocation of employee benefit, tax and other
liabilities and obligations attributable to our operations.
These agreements will include, among others, a master agreement,
corporate services agreement, registration rights agreement, tax
matters agreement and employee matters agreement. All of the
agreements relating to our ongoing relationship with Clear
Channel Communications will be made in the context of a
parent-subsidiary relationship and the terms of these agreements
may be more or less favorable to us than if they had been
negotiated with unaffiliated third parties. See Risk
Factors Risks Related to Our Relationship with Clear
Channel Communications and Arrangements Between
Clear Channel Communications and Us.
After this offering and the application of all of the net
proceeds from this offering to repay a portion of the
intercompany indebtedness owed to Clear Channel Communications,
we will have outstanding indebtedness of approximately
$2.7 billion, approximately $2.5 billion of which will
be intercompany indebtedness owed to Clear Channel
Communications. See Use of Proceeds and
Description of Indebtedness.
The master agreement between Clear Channel Communications and us
and the note evidencing the $2.5 billion intercompany
indebtedness each contain covenants that restrict our ability to
take certain actions and engage in certain transactions. See
Risk Factors Risks Related to Our
Business. Certain of the restrictive covenants in these
agreements may continue in force later than the time when Clear
Channel Communications owns less than 50% of the total voting
power of our common stock.
After this offering, certain individuals will be officers and
directors of both Clear Channel Communications and us. In
addition, because Clear Channel Communications will continue to
own more than 50% of the total voting power of our common stock
after this offering, we will be a controlled company
under the New York Stock Exchange corporate governance
standards. As a result of this status, we intend to utilize
certain exemptions under the NYSE standards that free us from
the obligation to comply with certain NYSE corporate governance
requirements, which may include the requirements (i) that a
majority of the board of directors consists of independent
directors, (ii) that we have a nominating and governance
committee, and that such committee be composed entirely of
independent directors and governed by a written charter
addressing the committees purpose and responsibilities,
(iii) that we have a compensation committee composed
entirely of independent directors with a written charter
addressing the committees purpose and responsibilities and
(iv) for an annual performance
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evaluation of the compensation committee. See Risk
Factors Risks Related to Our Relationship with Clear
Channel Communications and Arrangements Between
Clear Channel Communications and Us.
For a description of certain provisions of our amended and
restated certificate of incorporation concerning the allocation
of business opportunities that may be suitable for both Clear
Channel Communications and us, see Description of Capital
Stock.
Our Corporate Structure
Our principal executive offices are located at 200 East
Basse Road, San Antonio, Texas 78209, and our telephone
number is (210) 832-3700. We operate through Clear Channel
Outdoor Holdings, Inc. and our combined subsidiaries. Our
Internet website address is www.clearchanneloutdoor.com.
Information contained on our website or that can be accessed
through our website is not incorporated by reference in this
prospectus. You should not consider information contained on our
website or that can be accessed through our website to be part
of this prospectus for any purpose.
5
THE OFFERING
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Class A common stock offered
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35,000,000 shares |
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Common stock to be outstanding after this offering:
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Class A
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35,000,000 shares |
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Class B
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315,000,000 shares |
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Total common stock outstanding
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350,000,000 shares |
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Common stock to be held by Clear Channel Communications after
this offering:
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Class A
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0 shares |
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Class B
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315,000,000 shares |
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Percentage of the outstanding shares of our common stock to be
held by Clear Channel Communications after this offering
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90.0% |
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Percentage of the total voting power of our common stock to be
held by Clear Channel Communications after this offering
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99.4% |
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Voting, conversion and transferability features |
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Our Class A common stock and Class B common stock vote
as a single class on all matters on which stockholders are
entitled to vote, except as otherwise provided in our amended
and restated certificate of incorporation or as required by law.
While the rights of our Class A common stock and
Class B common stock are substantially similar, the
Class A common stock and Class B common stock differ
in certain respects, including the following: |
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Class A |
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entitles holder to one vote per share on all matters
on which stockholders are entitled to vote; and |
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will be listed on the New York Stock Exchange. |
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Class B |
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entitles holder to 20 votes per share on all matters
on which stockholders are entitled to vote; |
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will not be listed on any stock exchange; |
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is convertible, at the option of the holder, at any
time into shares of Class A common stock on a one-for-one
basis, subject to certain limited exceptions; and |
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will convert into shares of Class A common
stock on a one-for-one basis upon any transfer, subject to
certain limited exceptions. |
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Use of proceeds |
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We estimate that our net proceeds from this offering, after
deducting underwriting discounts and estimated offering
expenses, will be approximately $700.1 million, or
approximately $805.9 million if the underwriters
exercise in full their option to purchase additional shares of
Class A common stock, assuming an initial public offering
price of $21.00 per share, which is the midpoint of the
estimated offering price range set forth on the cover page of
this prospectus. |
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We intend to use all of the net proceeds of this offering to
repay approximately $700.1 million (based on the midpoint
of the |
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range of the offering price set forth on the cover page of this
prospectus) of the outstanding balances of the intercompany
notes issued to Clear Channel Communications in the original
principal amounts of approximately $1.4 billion and
$73.0 million. See Use of Proceeds. |
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Dividend policy |
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We do not anticipate paying any dividends on our common stock in
the foreseeable future. If cash dividends were to be paid on our
common stock, holders of Class A common stock and
Class B common stock would share equally, on a per share
basis, in any such cash dividend. |
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Proposed NYSE symbol for the Class A common stock |
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CCO
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Risk factors |
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For a discussion of the risks related to our business, our
relationship with Clear Channel Communications, our Class A
common stock and this offering, see Risk Factors
beginning on page 13. |
Unless otherwise indicated, the number of shares of Class A
common stock to be outstanding after this offering excludes:
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5,250,000 shares issuable upon the exercise of the
underwriters option to purchase additional shares of
Class A common stock; and |
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shares issuable upon the exercise of employee stock options to
be issued by us in connection with the conversion of
equity-based compensation awards of Clear Channel Communications
granted to our employees as well as shares issuable upon the
exercise of options or shares of restricted stock that may be
granted under our Stock Incentive Plan after this offering. See
Management Employee Benefit Plans. |
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Additionally, because 5,250,000 shares of our Class A
common stock issuable upon the exercise of the
underwriters option to purchase additional shares of
Class A common stock are excluded from the number of shares
of Class A common stock to be outstanding after this
offering, the number of shares of Class B common stock to
be outstanding after this offering includes 5,250,000 additional
shares of Class B common stock that are required to be
issued to Clear Channel Communications upon expiration of the
unexercised underwriters option in exchange for the
portion of the intercompany indebtedness owed by us to Clear
Channel Communications that otherwise would have been repaid
with the proceeds from the exercise of such option had it been
exercised in full. See Use of Proceeds.
7
SUMMARY HISTORICAL AND PRO FORMA COMBINED FINANCIAL DATA
The following table sets forth summary historical and pro forma
combined financial data and other information of Clear Channel
Outdoor Holdings, Inc.
We have prepared our combined financial statements as if Clear
Channel Outdoor Holdings, Inc. had been in existence as a
separate company throughout all relevant periods. The summary
results of operations data, segment data and cash flow data for
the years ended December 31, 2004, 2003 and 2002 and the
summary combined balance sheet data as of December 31, 2004
and 2003 presented below were derived from our audited combined
financial statements and the related notes thereto included
elsewhere in this prospectus. The summary combined balance sheet
data as of December 31, 2002 is derived from our audited
financial statements. The summary results of operations data,
segment data and cash flow data for the nine months ended
September 30, 2005 and 2004 and the summary balance sheet
data as of September 30, 2005 presented below were derived
from our unaudited combined financial statements and the related
notes thereto included elsewhere in this prospectus. The
operating results for the nine months ended September 30,
2005 and 2004 include all adjustments (consisting only of normal
recurring adjustments) that we believe are necessary for a fair
statement of the results for such interim periods.
Results for the nine months ended September 30, 2005 are
not necessarily indicative of the results expected for the
fiscal year ending December 31, 2005 or any future period.
Our unaudited pro forma as adjusted results of operations data
present our pro forma as adjusted results of operations for the
year ended December 31, 2004:
|
|
|
|
|
as if this offering had been completed on January 1, 2004,
at an assumed initial public offering price of $21.00 per
share of Class A common stock, which is the midpoint of the
estimated offering price range set forth on the cover of this
prospectus, and assuming: |
|
|
|
|
|
|
the outstanding balances of the approximately $1.4 billion
and $73.0 million intercompany notes issued to Clear
Channel Communications are reduced by approximately
$362.2 million, representing the balance at
September 30, 2005 in the Due from Clear Channel
Communications intercompany account; |
|
|
|
|
|
then, approximately $294.9 million of the remaining
outstanding balances of the $1.4 billion and
$73.0 million intercompany notes is contributed to our
capital by Clear Channel Communications; |
|
|
|
|
|
then, approximately $700.1 million of the remaining
outstanding balances of the $1.4 billion and
$73.0 million intercompany notes is repaid with all of the
net proceeds of this offering; and |
|
|
|
|
|
then, to the extent the underwriters do not exercise in full
their option to purchase up to an additional
5,250,000 shares of our Class A common stock (the
proceeds of which would be used to repay the then-outstanding
balances of the approximately $1.4 billion and
$73.0 million intercompany notes), we exchange up to
5,250,000 additional shares of our Class B common stock
with Clear Channel Communications for the remaining outstanding
balances of the $1.4 billion and $73.0 million
intercompany notes that the proceeds from the exercise of such
option otherwise would have been used to repay, such that the
notes are repaid in full. |
|
|
|
|
|
|
after giving effect to our distribution of an intercompany note
in the original principal amount of $2.5 billion as a
dividend on our common stock, which note was ultimately
distributed to Clear Channel Communications, as if issued to
Clear Channel Communications on January 1, 2004. |
8
Our pro forma as adjusted balance sheet and results of
operations data as of September 30, 2005 and for the nine
months ended September 30, 2005, present, using the same
assumptions and application of estimated net proceeds described
above:
|
|
|
|
|
our as adjusted financial position as of September 30,
2005, as if this offering had been completed on
September 30, 2005; and |
|
|
|
our as adjusted results of operations for the nine months ended
September 30, 2005, as if this offering and the issuance of
the $2.5 billion intercompany note had been completed on
January 1, 2004. |
The unaudited pro forma information set forth below is based
upon available information and assumptions that we believe are
reasonable. The historical financial and other data have been
prepared on a combined basis from Clear Channel
Communications consolidated financial statements using the
historical results of operations and bases of the assets and
liabilities of Clear Channel Communications outdoor
advertising business and give effect to allocations of expenses
from Clear Channel Communications. Our historical financial data
is not indicative of our future performance, nor does such data
reflect what our financial position and results of operations
would have been had we operated as an independent publicly
traded company during the periods shown.
The unaudited pro forma statements of operations do not reflect
the complete impact of one-time and ongoing incremental costs
required for us to operate as a separate company. Clear Channel
Communications allocated to us $16.6 million in 2004,
$19.6 million in 2003 and $17.6 million in 2002 of
expenses incurred by it for providing us accounting, treasury,
tax, legal, public affairs, executive oversight, human resources
and other services. Through September 30, 2005, Clear
Channel Communications allocated to us $11.8 million of
expenses. After this offering, we expect to continue to receive
from Clear Channel Communications substantially all of these
services, the cost of which will be allocated to us.
You should read the information contained in this table in
conjunction with Selected Historical Combined Financial
Data, Unaudited Pro Forma Combined Financial
Data, Capitalization, Managements
Discussion and Analysis of Financial Condition and Results of
Operations, and the historical audited and unaudited
combined financial statements and the accompanying notes thereto
of us and our combined subsidiaries included elsewhere in this
prospectus.
The following table presents a non-GAAP financial measure,
OIBDAN, which we use to evaluate segment and combined
performance of our business. OIBDAN is not calculated or
presented in accordance with U.S. generally accepted
accounting principles, or GAAP. In Note 3 and in
Non-GAAP Financial Measure below, we
explain OIBDAN and reconcile it to operating income (loss), its
most directly comparable financial measure calculated and
presented in accordance with GAAP.
9
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended | |
|
Pro Forma | |
|
Nine Months Ended | |
|
Pro Forma | |
(In thousands, except per share data) |
|
December 31, | |
|
as Adjusted | |
|
September 30, | |
|
as Adjusted | |
|
|
| |
|
December 31, | |
|
| |
|
September 30, | |
|
|
2002 | |
|
2003 | |
|
2004 | |
|
2004 | |
|
2004 | |
|
2005 | |
|
2005 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
|
|
|
|
|
|
(Unaudited) | |
|
(Unaudited) | |
|
(Unaudited) | |
|
(Unaudited) | |
Results of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$ |
1,859,641 |
|
|
$ |
2,174,597 |
|
|
$ |
2,447,040 |
|
|
$ |
2,447,040 |
|
|
$ |
1,761,308 |
|
|
$ |
1,931,471 |
|
|
$ |
1,931,471 |
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct operating expenses (exclusive of depreciation and
amortization)
|
|
|
957,830 |
|
|
|
1,133,386 |
|
|
|
1,262,317 |
|
|
|
1,262,317 |
|
|
|
924,420 |
|
|
|
988,448 |
|
|
|
988,448 |
|
|
Selling, general and administrative expenses (exclusive of
depreciation and amortization)
|
|
|
392,803 |
|
|
|
456,893 |
|
|
|
499,457 |
|
|
|
499,457 |
|
|
|
358,188 |
|
|
|
410,075 |
|
|
|
410,075 |
|
|
Depreciation and amortization
|
|
|
336,895 |
|
|
|
379,640 |
|
|
|
388,217 |
|
|
|
388,217 |
|
|
|
288,810 |
|
|
|
290,233 |
|
|
|
290,233 |
|
|
Corporate expenses (exclusive of depreciation and amortization)
|
|
|
52,218 |
|
|
|
54,233 |
|
|
|
53,770 |
|
|
|
53,770 |
|
|
|
39,451 |
|
|
|
39,397 |
|
|
|
39,397 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
119,895 |
|
|
|
150,445 |
|
|
|
243,279 |
|
|
|
243,279 |
|
|
|
150,439 |
|
|
|
203,318 |
|
|
|
203,318 |
|
Interest expense
|
|
|
11,623 |
|
|
|
14,201 |
|
|
|
14,177 |
|
|
|
14,177 |
|
|
|
11,111 |
|
|
|
9,874 |
|
|
|
9,874 |
|
Intercompany interest expense
|
|
|
227,402 |
|
|
|
145,648 |
|
|
|
145,653 |
|
|
|
143,208 |
|
|
|
109,239 |
|
|
|
133,093 |
|
|
|
107,409 |
|
Equity in earnings (loss) of nonconsolidated affiliates
|
|
|
3,620 |
|
|
|
(5,142 |
) |
|
|
(76 |
) |
|
|
(76 |
) |
|
|
2,270 |
|
|
|
9,908 |
|
|
|
9,908 |
|
Other income (expense) net
|
|
|
9,164 |
|
|
|
(8,595 |
) |
|
|
(13,341 |
) |
|
|
(13,341 |
) |
|
|
(17,210 |
) |
|
|
(17,353 |
) |
|
|
(17,353 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes and cumulative effect of a
change in accounting principle
|
|
|
(106,346 |
) |
|
|
(23,141 |
) |
|
|
70,032 |
|
|
|
72,477 |
|
|
|
15,149 |
|
|
|
52,906 |
|
|
|
78,590 |
|
Income tax benefit (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
72,008 |
|
|
|
12,092 |
|
|
|
(23,422 |
) |
|
|
(24,400 |
) |
|
|
6,481 |
|
|
|
(37,767 |
) |
|
|
(48,041 |
) |
|
Deferred
|
|
|
(21,370 |
) |
|
|
(23,944 |
) |
|
|
(39,132 |
) |
|
|
(39,132 |
) |
|
|
(17,730 |
) |
|
|
6,023 |
|
|
|
6,023 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before cumulative effect of a change in accounting
principle
|
|
|
(55,708 |
) |
|
|
(34,993 |
) |
|
|
7,478 |
|
|
$ |
8,945 |
|
|
|
3,900 |
|
|
|
21,162 |
|
|
$ |
36,572 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative effect of a change in accounting principle, net of
tax of $504,927 in 2002 and $113,173 in 2004(1)
|
|
|
(3,527,198 |
) |
|
|
|
|
|
|
(162,858 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$ |
(3,582,906 |
) |
|
$ |
(34,993 |
) |
|
$ |
(155,380 |
) |
|
|
|
|
|
$ |
3,900 |
|
|
$ |
21,162 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted income (loss) before cumulative effect of a
change in accounting principle per common share(2)
|
|
$ |
(.18 |
) |
|
$ |
(.11 |
) |
|
$ |
.02 |
|
|
$ |
.03 |
|
|
$ |
.01 |
|
|
$ |
.07 |
|
|
$ |
.10 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic
|
|
$ |
911,493 |
|
|
$ |
1,006,376 |
|
|
$ |
1,092,089 |
|
|
$ |
1,092,089 |
|
|
$ |
800,744 |
|
|
$ |
886,649 |
|
|
$ |
886,649 |
|
|
International
|
|
|
948,148 |
|
|
|
1,168,221 |
|
|
|
1,354,951 |
|
|
|
1,354,951 |
|
|
|
960,564 |
|
|
|
1,044,822 |
|
|
|
1,044,822 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
$ |
1,859,641 |
|
|
$ |
2,174,597 |
|
|
$ |
2,447,040 |
|
|
$ |
2,447,040 |
|
|
$ |
1,761,308 |
|
|
$ |
1,931,471 |
|
|
$ |
1,931,471 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic
|
|
$ |
174,381 |
|
|
$ |
215,485 |
|
|
$ |
263,772 |
|
|
$ |
263,772 |
|
|
$ |
184,808 |
|
|
$ |
263,448 |
|
|
$ |
263,448 |
|
|
International
|
|
|
(2,268 |
) |
|
|
(10,807 |
) |
|
|
33,277 |
|
|
|
33,277 |
|
|
|
5,082 |
|
|
|
(20,733 |
) |
|
|
(20,733 |
) |
|
Corporate
|
|
|
(52,218 |
) |
|
|
(54,233 |
) |
|
|
(53,770 |
) |
|
|
(53,770 |
) |
|
|
(39,451 |
) |
|
|
(39,397 |
) |
|
|
(39,397 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating income
|
|
$ |
119,895 |
|
|
$ |
150,445 |
|
|
$ |
243,279 |
|
|
$ |
243,279 |
|
|
$ |
150,439 |
|
|
$ |
203,318 |
|
|
$ |
203,318 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended | |
|
Pro Forma | |
|
Nine Months Ended | |
|
Pro Forma | |
(In thousands) |
|
December 31, | |
|
as Adjusted | |
|
September 30, | |
|
as Adjusted | |
|
|
| |
|
December 31, | |
|
| |
|
September 30, | |
|
|
2002 | |
|
2003 | |
|
2004 | |
|
2004 | |
|
2004 | |
|
2005 | |
|
2005 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
|
|
|
|
|
|
(Unaudited) | |
|
(Unaudited) | |
|
(Unaudited) | |
|
(Unaudited) | |
Cash Flow Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flow provided by (used in):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities
|
|
$ |
320,235 |
|
|
$ |
433,459 |
|
|
$ |
492,495 |
|
|
|
|
|
|
$ |
329,893 |
|
|
$ |
336,637 |
|
|
|
|
|
|
Investing activities
|
|
$ |
(430,844 |
) |
|
$ |
(230,162 |
) |
|
$ |
(310,658 |
) |
|
|
|
|
|
$ |
(227,386 |
) |
|
$ |
(223,189 |
) |
|
|
|
|
|
Financing activities
|
|
$ |
173,193 |
|
|
$ |
(222,491 |
) |
|
$ |
(182,006 |
) |
|
|
|
|
|
$ |
(95,759 |
) |
|
$ |
(48,154 |
) |
|
|
|
|
Capital expenditures
|
|
$ |
290,187 |
|
|
$ |
205,145 |
|
|
$ |
176,140 |
|
|
|
|
|
|
$ |
117,733 |
|
|
$ |
130,484 |
|
|
|
|
|
Other Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OIBDAN(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic
|
|
$ |
354,328 |
|
|
$ |
409,722 |
|
|
$ |
450,494 |
|
|
$ |
450,494 |
|
|
$ |
326,359 |
|
|
$ |
390,867 |
|
|
$ |
390,867 |
|
|
International
|
|
|
154,680 |
|
|
|
174,596 |
|
|
|
234,888 |
|
|
|
234,888 |
|
|
|
152,423 |
|
|
|
142,593 |
|
|
|
142,593 |
|
|
Corporate
|
|
|
(52,218 |
) |
|
|
(54,233 |
) |
|
|
(53,770 |
) |
|
|
(53,770 |
) |
|
|
(39,451 |
) |
|
|
(39,397 |
) |
|
|
(39,397 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total OIBDAN(3)
|
|
$ |
456,790 |
|
|
$ |
530,085 |
|
|
$ |
631,612 |
|
|
$ |
631,612 |
|
|
$ |
439,331 |
|
|
$ |
494,063 |
|
|
$ |
494,063 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of September 30, 2005 | |
(In thousands) |
|
As of December 31, | |
|
| |
|
|
| |
|
|
|
Pro Forma | |
|
|
2002 | |
|
2003 | |
|
2004 | |
|
Historical | |
|
as Adjusted | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
|
|
|
|
|
|
(Unaudited) | |
|
(Unaudited) | |
Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$ |
45,741 |
|
|
$ |
34,105 |
|
|
$ |
37,948 |
|
|
$ |
91,676 |
|
|
$ |
91,676 |
|
Current assets
|
|
|
753,289 |
|
|
|
958,669 |
|
|
|
1,107,240 |
|
|
|
1,243,287 |
|
|
|
881,133 |
|
Property, plant and equipment net
|
|
|
2,213,817 |
|
|
|
2,264,106 |
|
|
|
2,195,985 |
|
|
|
2,172,197 |
|
|
|
2,172,197 |
|
Total assets
|
|
|
4,926,205 |
|
|
|
5,232,820 |
|
|
|
5,240,933 |
|
|
|
5,295,522 |
|
|
|
4,933,368 |
|
Current liabilities
|
|
|
642,330 |
|
|
|
736,202 |
|
|
|
749,055 |
|
|
|
807,900 |
|
|
|
807,900 |
|
Long-term debt, including current maturities
|
|
|
1,713,493 |
|
|
|
1,670,017 |
|
|
|
1,639,380 |
|
|
|
4,212,136 |
|
|
|
2,749,136 |
|
Total liabilities
|
|
|
2,347,262 |
|
|
|
2,472,656 |
|
|
|
2,511,280 |
|
|
|
5,207,173 |
|
|
|
3,744,173 |
|
Owners equity
|
|
|
2,578,943 |
|
|
|
2,760,164 |
|
|
|
2,729,653 |
|
|
|
88,349 |
|
|
|
1,189,195 |
|
Total liabilities and owners equity
|
|
|
4,926,205 |
|
|
|
5,232,820 |
|
|
|
5,240,933 |
|
|
|
5,295,522 |
|
|
|
4,933,368 |
|
|
|
(1) |
Cumulative effect of change in accounting principle for the year
ended December 31, 2002, related to an impairment of
goodwill recognized in accordance with the adoption of Statement
of Financial Accounting Standards No. 142, Goodwill
and Other Intangible Assets. Cumulative effect of change
in accounting principle for the year ended December 31,
2004, related to a non-cash charge recognized in accordance with
the adoption of Topic D-108, Use of Residual Method to Value
Acquired Assets other than Goodwill. See
Managements Discussion and Analysis of Financial
Condition and Results of Operations Critical
Accounting Estimates Indefinite-lived Assets. |
|
|
(2) |
Basic and diluted income (loss) before cumulative effect of a
change in accounting principle per share is calculated by
dividing income (loss) before cumulative effect of a change in
accounting principle by the weighted average of common shares
outstanding. The historic basic and diluted is based on
315,000,000 shares outstanding and the pro forma basic and
diluted is based on 350,000,000 shares outstanding. |
|
|
(3) |
We evaluate segment and combined performance based on several
factors, one of the primary measures of which is operating
income (loss) before depreciation, amortization and non-cash
compensation expense, which we refer to as OIBDAN. See
Non-GAAP Financial Measure below,
Unaudited Pro Forma Combined Financial Data and
Managements Discussion and Analysis of Financial
Condition and Results of Operations Use of
OIBDAN. |
11
Non-GAAP Financial Measure
In addition to operating income, we evaluate segment and
combined performance based on other factors, one primary measure
of which is operating income (loss) before depreciation,
amortization and non-cash compensation expense, which we refer
to as OIBDAN. We use OIBDAN as a measure of the operational
strengths and performance of our business and not as a measure
of liquidity. However, a limitation of the use of OIBDAN as a
performance measure is that it does not reflect the periodic
costs of certain capitalized tangible and intangible assets used
in generating revenues in our business. Accordingly, OIBDAN
should be considered in addition to, and not as a substitute
for, operating income (loss), net income (loss) and other
measures of financial performance reported in accordance with
U.S. GAAP. Furthermore, this measure may vary among other
companies; thus, OIBDAN as presented below may not be comparable
to similarly titled measures of other companies.
We believe OIBDAN is useful to investors and other external
users of our financial statements in evaluating our operating
performance because it is widely used in the outdoor advertising
industry to measure a companys operating performance and
it helps investors more meaningfully evaluate and compare the
results of our operations from period to period and with those
of other companies in the outdoor advertising industry (to the
extent the same components of OIBDAN are used), in each case
without regard to items such as non-cash depreciation and
amortization and non-cash compensation expense, which can vary
depending upon the accounting method used and the book value of
assets.
Our management uses OIBDAN (i) as a measure for planning
and forecasting operating and individual expectations and for
evaluating actual results against such expectations,
(ii) as a basis for incentive bonuses paid to our executive
officers and our branch managers and (iii) in presentations
to our board of directors to enable them to have the same
consistent measurement basis of operating performance used by
management.
The following table presents a reconciliation of OIBDAN to
operating income, which is a GAAP measure of our operating
results:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro Forma | |
|
Nine Months Ended | |
|
Pro Forma as | |
|
|
Year Ended December 31, | |
|
as Adjusted | |
|
September 30, | |
|
Adjusted | |
|
|
| |
|
December 31, | |
|
| |
|
September 30, | |
(In thousands) |
|
2002 | |
|
2003 | |
|
2004 | |
|
2004 | |
|
2004 | |
|
2005 | |
|
2005 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
|
|
|
|
|
|
(Unaudited) | |
|
(Unaudited) | |
|
(Unaudited) | |
|
(Unaudited) | |
Reconciliation of OIBDAN to operating income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Combined:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OIBDAN
|
|
$ |
456,790 |
|
|
$ |
530,085 |
|
|
$ |
631,612 |
|
|
$ |
631,612 |
|
|
$ |
439,331 |
|
|
$ |
494,063 |
|
|
$ |
494,063 |
|
|
Depreciation and amortization
|
|
|
336,895 |
|
|
|
379,640 |
|
|
|
388,217 |
|
|
|
388,217 |
|
|
|
288,810 |
|
|
|
290,233 |
|
|
|
290,233 |
|
|
Non-cash compensation
|
|
|
|
|
|
|
|
|
|
|
116 |
|
|
|
116 |
|
|
|
82 |
|
|
|
512 |
|
|
|
512 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
$ |
119,895 |
|
|
$ |
150,445 |
|
|
$ |
243,279 |
|
|
$ |
243,279 |
|
|
$ |
150,439 |
|
|
$ |
203,318 |
|
|
$ |
203,318 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OIBDAN
|
|
$ |
354,328 |
|
|
$ |
409,722 |
|
|
$ |
450,494 |
|
|
$ |
450,494 |
|
|
$ |
326,359 |
|
|
$ |
390,867 |
|
|
$ |
390,867 |
|
|
Depreciation and amortization
|
|
|
179,947 |
|
|
|
194,237 |
|
|
|
186,620 |
|
|
|
186,620 |
|
|
|
141,479 |
|
|
|
127,019 |
|
|
|
127,019 |
|
|
Non-cash compensation
|
|
|
|
|
|
|
|
|
|
|
102 |
|
|
|
102 |
|
|
|
72 |
|
|
|
400 |
|
|
|
400 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
$ |
174,381 |
|
|
$ |
215,485 |
|
|
$ |
263,772 |
|
|
$ |
263,772 |
|
|
$ |
184,808 |
|
|
$ |
263,448 |
|
|
$ |
263,448 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
International:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OIBDAN
|
|
$ |
154,680 |
|
|
$ |
174,596 |
|
|
$ |
234,888 |
|
|
$ |
234,888 |
|
|
$ |
152,423 |
|
|
$ |
142,593 |
|
|
$ |
142,593 |
|
|
Depreciation and amortization
|
|
|
156,948 |
|
|
|
185,403 |
|
|
|
201,597 |
|
|
|
201,597 |
|
|
|
147,331 |
|
|
|
163,214 |
|
|
|
163,214 |
|
|
Non-cash compensation
|
|
|
|
|
|
|
|
|
|
|
14 |
|
|
|
14 |
|
|
|
10 |
|
|
|
112 |
|
|
|
112 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
$ |
(2,268 |
) |
|
$ |
(10,807 |
) |
|
$ |
33,277 |
|
|
$ |
33,277 |
|
|
$ |
5,082 |
|
|
$ |
(20,733 |
) |
|
$ |
(20,733 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12
RISK FACTORS
You should carefully consider the following risks before
investing in our Class A common stock. These risks could
materially adversely affect our business, results of operations
or financial condition. In such an event, the trading price of
our Class A common stock could decline and you could lose
part or all of your investment.
Risks Related to Our Business
|
|
|
We have incurred net losses and may experience future net
losses, which could adversely affect our stock price. |
In the past, our operating results have been adversely affected
by, among other things, a global economic slowdown and a decline
in our clients advertising budgets. We incurred net losses
in each of 2002, 2003 and 2004 of approximately
$3.6 billion, $35.0 million and $155.4 million,
respectively, and had an accumulated retained deficit of
$4.2 billion at September 30, 2005. Due to market
conditions in the advertising industry generally and slow
economic times and other factors that cause advertisers to cut
back their advertising budgets or change their advertising
strategies, we may face reduced demand for our advertising
products, underutilization of our advertising faces and other
factors that could adversely affect our results of operations in
the near term. We cannot predict whether we will achieve
profitability in future periods.
|
|
|
Government regulation of outdoor advertising may restrict
our outdoor advertising operations. |
Changes in laws and regulations affecting outdoor advertising 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.
U.S. federal, state and local regulations have had an
impact on the outdoor advertising industry. One of the seminal
laws was The Highway Beautification Act of 1965 (HBA), which
regulates outdoor advertising on the 306,000 miles of
Federal-Aid Primary, Interstate and National Highway Systems
roads. HBA regulates the locations 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. Size, spacing and
lighting are regulated by state and local municipalities.
From time to time, certain state and local governments have
attempted to force the removal of billboards not governed by the
HBA under various amortization theories. Amortization permits
the billboard owner to operate its billboard only as a
nonconforming use for a specified period of time, after which it
must remove or otherwise conform its billboard to the applicable
regulations at its own cost without any compensation. Several
municipalities within our existing markets have adopted
amortization ordinances. Restrictive regulations also limit our
ability to rebuild or replace nonconforming billboards. Such
regulations have not had a material impact on our results of
operations to date, but if we are increasingly unable to
negotiate acceptable arrangements in circumstances in which our
billboards are subject to removal or amortization or if there
occurs an increase in such regulations, our results could suffer.
Legislation has from time to time been introduced in state and
local jurisdictions attempting to impose taxes on revenues of
outdoor advertising companies. Several jurisdictions have
already imposed such taxes as a percentage of our gross receipts
of outdoor advertising revenues in that jurisdiction. While
these taxes have not had a material impact on our business and
financial results to date, we expect states to continue to try
to impose such taxes as a way of increasing revenues. The
increased imposition of these taxes and our inability to pass on
the cost of these taxes to our clients could negatively affect
our operating income.
In addition, we are unable to predict what additional
regulations may be imposed on outdoor advertising in the future.
Legislation that would regulate the content of billboard
advertisements and implement additional billboard restrictions
has been introduced in Congress from time to time in the past.
13
We recently were fined $30,000 by the City of Los Angeles for
our inadvertent failure to properly disclose our role in
providing billboards to a local political candidate.
International regulation of the outdoor advertising industry
varies by region and country, but generally limits the size,
placement, nature and density of out-of-home displays.
Significant international regulations include the Law of
December 29, 1979 in France, the Town and Country Planning
(Control of Advertisements) Regulations 1992 in the United
Kingdom, and Règlement Régional Urbain de
lagglomération bruxelloise in Belgium. These laws
define issues such as the extent to which advertisements can be
erected in rural areas, the hours during which illuminated signs
may be lit and whether the consent of local authorities is
required to place a sign in certain communities. Other
regulations limit the subject matter and language of out-of-home
displays. For instance, the United States and France, among
other nations, ban outdoor advertisements for tobacco products.
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, revenues,
international client base and overall financial condition.
|
|
|
We face intense competition in the outdoor advertising
industry that may adversely affect the advertising fees we can
charge, and consequently lower our operating margins and
profits. |
We operate in a highly competitive industry, and we may not be
able to maintain or increase the fees we charge our customers,
which may consequently lower our operating margins and profits.
Our advertising properties compete for audiences and advertising
revenues with other outdoor advertising companies, as well as
with other media, such as radio, newsweekly magazines,
newspapers, prime time television, direct mail, the Internet and
telephone directories. It is possible that new competitors may
emerge and rapidly acquire significant market share. Competitive
factors in our industry could adversely affect our financial
performance by, among other things, leading to decreases in
overall revenues, numbers of advertising clients, advertising
fees or profit margins. These factors include:
|
|
|
|
|
our competitors offering reduced advertising rates, which we may
be unable or unwilling to match; |
|
|
|
our competitors adopting technological changes and innovations
that we are unable to adopt or are delayed in adopting and that
offer more attractive advertising alternatives than those we
currently offer; |
|
|
|
shifts in the general population or specific demographic groups
to markets where we have fewer outdoor advertising displays; |
|
|
|
our competitors securing more effective advertising sites than
those sites where our displays are located; |
|
|
|
our competitors abilities to complete and integrate
acquisitions better than our ability to complete and integrate
acquisitions; |
|
|
|
our inability to secure street furniture contracts on favorable
terms; and |
|
|
|
development, governmental actions and strategic trading or
retirement of displays, which, excluding acquisitions, may
result in a reduction of our existing displays and increased
competition for attractive display locations. |
14
|
|
|
Doing business in foreign countries creates certain risks
not involved in doing business in the United States that
may disrupt our international operations or cause us to realize
lower returns from our international operations. |
Doing business in foreign countries involves certain risks that
may not exist when doing business in the United States. The
risks involved in foreign operations that could result in
disruptions to our business or financial losses in our
international operations against which we are not insured
include:
|
|
|
|
|
exposure to local economic conditions, foreign exchange
restrictions and restrictions on the withdrawal of foreign
investment and earnings, investment restrictions or
requirements, expropriations of property and changes in foreign
taxation structures, each of which could reduce our profit from
international operations; |
|
|
|
potential adverse changes in the diplomatic relations of foreign
countries with the United States and government policies against
businesses owned by foreigners, each of which could affect our
ability to continue operations in or enter into an otherwise
profitable market; |
|
|
|
changes in foreign regulations, such as the decision in France
to lift the ban on retail advertising on television by 2007; |
|
|
|
hostility from local populations, potential instability of
foreign governments and risks of insurrections, each of which
could disrupt our ability to conduct normal business operations;
and |
|
|
|
risks of renegotiation or modification of existing agreements
with governmental authorities and diminished ability to legally
enforce our contractual rights in foreign countries, each of
which could cause financial losses in otherwise profitable
operations. |
In addition, we may incur substantial tax liabilities if we
repatriate any of the cash generated by our international
operations back to the United States, due to our current
inability to recognize any foreign tax credits that would be
associated with such repatriation. We are not currently in a
position to recognize any tax assets in the United States that
are the result of payments of income or withholding taxes in
foreign jurisdictions.
|
|
|
Exchange rates may cause fluctuations in our results of
operations that are not related to our operations. |
Because we own assets overseas and derive revenues from our
international operations, we may incur currency translation
losses or gains due to changes in the values of foreign
currencies relative to the United States dollar. For the years
ended December 31, 2004, 2003 and 2002, foreign exchange
rate gains had a significant positive effect on our results of
operations. However, for the nine months ended
September 30, 2005 and 2004, exchange rate fluctuations
negatively affected our results of operations. We cannot predict
the effect of exchange rate fluctuations upon future operating
results. See Managements Discussion and Analysis of
Financial Condition and Results of Operations Market
Risk Management Foreign Currency Risk.
|
|
|
Our results of operations vary from quarter to quarter,
and our financial performance in certain financial quarters may
not be indicative of or comparable to our financial performance
in subsequent financial quarters. |
Typically, we experience our lowest financial performance in the
first quarter of our calendar year as retailers scale back their
advertising budgets following the year-end holiday season.
Because our results vary widely from quarter to quarter, our
financial results for one quarter cannot necessarily be compared
to another quarter and may not be indicative of our financial
performance in subsequent quarters. These variations in our
financial results could have an effect on our stock price.
15
|
|
|
The success of our street furniture and transit products
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 contracts with municipalities and other governmental
entities. Many of these contracts require us to participate in
competitive bidding processes, have terms typically ranging from
three to 20 years and have revenue share or fixed payment
components. Our inability to successfully negotiate 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 net income.
|
|
|
Future acquisitions of businesses or properties could have
adverse consequences on our existing business or assets. |
We may acquire outdoor advertising assets and other assets or
businesses that we believe will assist our clients in marketing
their products and services. Our acquisition strategy involves
numerous risks, including:
|
|
|
|
|
possible failures of our acquisitions to be profitable or to
generate anticipated cash flows, which could affect our overall
profitability and cash flows; |
|
|
|
entry into markets and geographic areas where our competitors
are operating but where we have limited or no experience; |
|
|
|
potential difficulties in integrating our operations and systems
with those of acquired companies, causing delays in realizing
the potential benefits of acquisitions; |
|
|
|
diversion of our management teams attention away from
other business concerns; and |
|
|
|
loss of key employees of acquired companies or the inability to
recruit additional senior management to supplement or replace
senior management of acquired companies. |
|
|
|
Antitrust regulations may limit future acquisitions due to
our current inventory of advertising properties in certain
markets. |
Additional acquisitions by us may require antitrust review by
U.S. antitrust agencies and may require review by foreign
antitrust agencies under the antitrust laws of foreign
jurisdictions. We can give no assurances that the Department of
Justice, the Federal Trade Commission or foreign antitrust
agencies will not investigate, possibly challenge or seek
divestitures or other remedies as a condition to not challenging
future acquisitions. If those agencies take any such action, we
may not be able to complete, or realize the desired benefits of,
the proposed acquisition.
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The lack of availability of potential acquisitions at
reasonable prices could harm our growth strategy. |
We face stiff competition from other outdoor advertising
companies for acquisition opportunities. If the prices sought by
sellers of these companies were to rise, we may find fewer
acceptable acquisition opportunities. In addition, the purchase
price of possible acquisitions could require the incurrence of
additional debt or equity financing on our part. Since the terms
and availability of this financing depend to a large degree upon
general economic conditions and third parties over which we have
no control, we can give no assurance that we will obtain the
needed financing or that we will obtain such financing on
attractive terms. In addition, our ability to obtain financing
depends on a number of other factors, many of which are also
beyond our control, such as interest rates and national and
local business conditions. If the cost of obtaining needed
financing is too high or the terms of such financing are
otherwise unacceptable in relation to the acquisition
opportunity we are presented with, we may decide to forgo that
opportunity. Additional indebtedness could increase our leverage
and make us more vulnerable to economic downturns and may limit
our ability to withstand competitive pressures. Additional
equity financing could result in dilution to our stockholders.
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After this offering, we will have substantial debt
obligations that could restrict our operations and impair our
financial condition. |
After this offering, the application of all of the net proceeds
of this offering to repay a portion of the outstanding balances
of the $1.4 billion and $73.0 million intercompany
notes owed to Clear Channel Communications, the reduction of a
portion of the outstanding balances of such notes through offset
to the Due from Clear Channel Communications account
and the contribution of the remaining portion of the outstanding
balances of such notes to our capital, our total indebtedness
for borrowed money will be approximately $2.7 billion,
approximately $2.5 billion of which will be intercompany
indebtedness owed to Clear Channel Communications. As of
December 31, 2004, on a pro forma basis, approximately
$146.3 million of such total indebtedness (excluding
interest) is due in 2005, $4.6 million is due in 2006 and
2007, $24.8 million is due in 2008 and 2009 and
$2.5 billion thereafter. See Contractual and Other
Obligations Firm Commitments. We may also
incur additional substantial indebtedness in the future.
Our substantial indebtedness could have adverse consequences,
including:
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increasing our vulnerability to adverse economic, regulatory and
industry conditions; |
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limiting our ability to compete and our flexibility in planning
for, or reacting to, changes in our business and the industry; |
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limiting our ability to borrow additional funds; and |
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requiring us to dedicate a substantial portion of our cash flow
from operations to payments on our debt, thereby reducing funds
available for working capital, capital expenditures,
acquisitions and other purposes. |
If our cash flow and capital resources are insufficient to
service our debt obligations, we may be forced to sell assets,
seek additional equity or debt capital or restructure our debt.
However, these measures might be unsuccessful or inadequate in
permitting us to meet scheduled debt service obligations. We may
be unable to restructure or refinance our obligations and obtain
additional equity financing or sell assets on satisfactory terms
or at all. As a result, inability to meet our debt obligations
could cause us to default on those obligations. A default under
any debt instrument could, in turn, result in defaults under
other debt instruments. Any such defaults could materially
impair our financial condition and liquidity.
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To service our debt obligations and to fund potential
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
potential capital expenditures for display construction or
renovation will require a significant amount of cash, which
depends on many factors beyond our control. Our ability to make
payments on and to refinance our debt will also depend on our
ability to generate cash in the future. This, to an extent, is
subject to general economic, financial, competitive,
legislative, regulatory and other factors that are beyond our
control.
We cannot assure you that our business will generate sufficient
cash flow or that future borrowings will be available to us in
an amount sufficient to enable us to pay our debt, including our
intercompany notes, or to fund our other liquidity needs. If our
future cash flow from operations and other capital resources are
insufficient to pay our 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 assets,
obtain additional equity capital or restructure or refinance all
or a portion of our debt, including the intercompany notes, on
or before maturity. We cannot assure you that we will be able to
refinance any of our debt, including the intercompany notes, on
a timely basis or on satisfactory terms, if at all. In addition,
the terms of our existing debt, including the intercompany
notes, and other future debt may limit our ability to pursue any
of these alternatives.
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The $2.5 billion intercompany note and agreements
with Clear Channel Communications impose restrictions on our
ability to finance operations and capital needs, make
acquisitions or engage in other business activities and requires
prepayment from substantially all proceeds from debt or equity
raised by us. |
The $2.5 billion intercompany note and Master Agreement
with Clear Channel Communications include restrictive covenants
that, among other things, restrict our ability to:
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incur additional debt; |
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pay dividends and make distributions; |
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make certain acquisitions and investments; |
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repurchase our stock; |
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create liens; |
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enter into transactions with affiliates; |
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enter into sale-leaseback transactions; |
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dispose of all or substantially all of our assets; and |
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merge or consolidate. |
The existence of these restrictions could limit our ability to
grow and increase our revenues or respond to competitive changes.
In addition, the intercompany note requires us to prepay it in
full upon a change of control (as defined in the note), and,
upon our issuances of equity and incurrences of debt, subject to
certain exceptions, to prepay the note in the amount of net
proceeds received from such events. Our failure to comply with
the terms and covenants in our indebtedness could lead to a
default under the terms of those documents, which would entitle
Clear Channel Communications or other holders to accelerate the
indebtedness and declare all amounts owed due and payable. See
Arrangements Between Clear Channel Communications and
Us Master Agreement Approval Rights of
Clear Channel Communications on Certain of Our Activities
and Description of Indebtedness.
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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.
Our domestic revenues from the outdoor advertising of tobacco
products were approximately $1.2 million, $1.6 million
and $3.1 million in 2002, 2003 and 2004, respectively.
Other products and services may be targeted in the future,
including alcohol products. Our domestic revenues from the
outdoor advertising of alcohol products were approximately
$68.5 million, $74.0 million and $71.0 million in
2002, 2003 and 2004. Legislation regulating tobacco and alcohol
advertising has also been introduced in a number of European
countries in which we conduct business and could have a similar
impact. Any significant reduction in alcohol-related advertising
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.
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A general deterioration in economic conditions may cause
our clients to reduce their advertising budgets or to choose
advertising plans other than outdoor advertising. |
The risks associated with our businesses become more acute in
periods of a slowing economy or recession, which may be
accompanied by a decrease in advertising and which could have an
adverse effect on our revenues and profit margins or result in
an impairment in the value of our assets. The impact of
slowdowns on our business is difficult to predict, but they may
result in reductions in purchases of
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advertising. In addition, to the extent our street furniture and
transit businesses rely on long-term guaranteed contracts with
government entities, we may suffer losses on those contracts in
times of economic slowdowns.
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Our outdoor advertising properties and revenues may be
adversely affected by the occurrence of extraordinary
events. |
The occurrence of extraordinary events with respect to our
properties or the economy generally, such as terrorist attacks,
severe weather conditions such as hurricanes or similar events
may substantially decrease the use of and demand for advertising
or expose us to substantial liability, which may decrease our
revenues or increase our expenses. The September 11, 2001
terrorist attacks, for example, caused a nationwide disruption
of commercial activities. The occurrence of future terrorist
attacks, military actions, contagious disease outbreaks or
similar events cannot be predicted, and their occurrence can be
expected to further negatively affect the economies of the
United States and other foreign countries where we do business
generally, specifically the market for advertising.
Risks Related to Our Relationship with Clear Channel
Communications
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We have no operating history as an independent company and
our historical and pro forma combined financial information is
not necessarily representative of the results we would have
achieved as an independent publicly traded company and may not
be a reliable indicator of our future results. |
The historical and pro forma combined financial information
included in this prospectus does not reflect the financial
condition, results of operations or cash flows we would have
achieved as an independent publicly traded company during the
periods presented or those results we will achieve in the
future. This is primarily a result of the following factors:
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Our historical and pro forma combined financial results reflect
allocations of corporate expenses from Clear Channel
Communications. Those allocations may be different from the
comparable expenses we would have incurred had we operated as an
independent publicly traded company. |
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Our working capital requirements and capital for our general
corporate purposes, including acquisitions and capital
expenditures, historically have been satisfied as part of the
corporate-wide cash management policies of Clear Channel
Communications. Subsequent to this offering, Clear Channel
Communications will not be required to provide us with funds to
finance our working capital or other cash requirements. Without
the opportunity to obtain financing from Clear Channel
Communications, we may in the future need to obtain additional
financing from banks, or through public offerings or private
placements of debt or equity securities, strategic relationships
or other arrangements. We may have a credit rating that is lower
than Clear Channel Communications credit rating and may
incur debt on terms and at interest rates that will not be as
favorable as those generally enjoyed by Clear Channel
Communications. |
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Significant changes may occur in our cost structure, management,
financing and business operations as a result of our operating
as an independent public subsidiary of Clear Channel
Communications. These changes could result in increased costs
associated with reduced economies of scale, stand-alone costs
for services currently provided by Clear Channel Communications,
the need for additional personnel to perform services currently
provided by Clear Channel Communications and the legal,
accounting, compliance and other costs associated with being a
public company with equity securities listed on a national stock
exchange. We are obligated to continue to use the services of
Clear Channel Communications under the Corporate Services
Agreement until such time as Clear Channel Communications owns
less than 50% of the total voting power of our common stock, or
longer for certain information technology services, and, in the
event our Corporate Services Agreement with Clear Channel
Communications terminates, we may not be able to replace the
services that Clear Channel Communications provides us until
such time or in a timely manner or on comparable terms. |
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Pursuant to a cash management arrangement, substantially all of
our cash generated from our domestic operations will be
transferred daily by Clear Channel Communications into accounts
where funds of ours and of Clear Channel Communications may be
commingled. The amounts so held by Clear Channel Communications
will be evidenced in a cash management note issued by Clear
Channel Communications to us. We do not have a commitment from
Clear Channel Communications to advance funds to us, and we will
have no access to the cash transferred from our concentration
account to the master account of Clear Channel Communications.
If Clear Channel Communications were to become insolvent, we
would be an unsecured creditor like other unsecured creditors of
Clear Channel Communications and could experience a liquidity
shortfall. |
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Because Clear Channel Communications controls
substantially all the voting power of our common stock,
investors will not be able to affect the outcome of any
stockholder vote. |
After this offering, Clear Channel Communications will own all
of our outstanding shares of Class B common stock,
representing approximately 90% of the outstanding shares of our
common stock, or approximately 89% if the underwriters exercise
in full their option to purchase additional shares of
Class A common stock. Each share of our Class B common
stock entitles its holder to 20 votes and each share of our
Class A common stock entitles its holder to one vote on all
matters on which stockholders are entitled to vote. As a result,
after this offering, Clear Channel Communications will control
approximately 99% of the total voting power of our common stock,
or approximately 99% if the underwriters exercise in full their
option to purchase additional shares of Class A common
stock.
For so long as Clear Channel Communications continues to own
shares of our common stock representing more than 50% of the
total voting power of our common stock, it will have the ability
to direct the election of all members of our board of directors
and to exercise a controlling influence over our business and
affairs, including any determinations with respect to mergers or
other business combinations involving us, our acquisition or
disposition of assets, our incurrence of indebtedness, our
issuance of any additional common stock or other equity
securities, our repurchase or redemption of common stock or
preferred stock and our payment of dividends. Similarly, Clear
Channel Communications will have the power to determine or
significantly influence the outcome of matters submitted to a
vote of our stockholders, including the power to prevent an
acquisition or any other change in control of us. Because Clear
Channel Communications interests as our controlling
stockholder may differ from your interests, actions taken by
Clear Channel Communications with respect to us may not be
favorable to you.
Prior to the completion of this offering, we also will enter
into a master agreement, a corporate services agreement, a
trademark license agreement and a number of other agreements
with Clear Channel Communications setting forth various matters
governing our relationship with Clear Channel Communications
while it remains a significant stockholder in us. These
agreements, along with the $2.5 billion intercompany note,
will govern our relationship with Clear Channel Communications
after this offering and will allow Clear Channel Communications
to retain control over, among other things, the continued use of
the trademark Clear Channel, the provision of
corporate services to us and our ability to make certain
acquisitions or to merge or consolidate or to sell all or
substantially all our assets. The rights of Clear Channel
Communications under these agreements may allow Clear Channel
Communications to delay or prevent an acquisition of us that our
other stockholders may consider favorable. We will not be able
to terminate these agreements or amend them in a manner we deem
more favorable so long as Clear Channel Communications continues
to own shares of our common stock representing more than 50% of
the total voting power of our common stock. See
Description of Capital Stock, Description of
Indebtedness and Arrangements Between Clear Channel
Communications and Us.
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Conflicts of interest may arise between Clear Channel
Communications and us that could be resolved in a manner
unfavorable to us. |
Questions relating to conflicts of interest may arise between
Clear Channel Communications and us in a number of areas
relating to our past and ongoing relationships. After this
offering, three of our directors will continue to serve as
directors of Clear Channel Communications and two of these will
be our
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executive officers. For as long as Clear Channel Communications
continues to own shares of our common stock representing more
than 50% of the total voting power of our common stock, it will
have the ability to direct the election of all the members of
our board of directors and to exercise a controlling influence
over our business and affairs.
Areas in which conflicts of interest between Clear Channel
Communications and us could arise include, but are not limited
to, the following:
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Cross officerships, directorships and stock ownership.
The ownership interests of our directors or executive officers
in the common stock of Clear Channel Communications or service
as a director or officer of both Clear Channel Communications
and us could create, or appear to create, conflicts of interest
when directors and executive officers are faced with decisions
that could have different implications for the two companies.
For example, these decisions could relate to (i) the
nature, quality and cost of services rendered to us by Clear
Channel Communications, (ii) disagreement over the
desirability of a potential acquisition opportunity,
(iii) employee retention or recruiting or (iv) our
dividend policy. |
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Intercompany transactions. From time to time, Clear
Channel Communications or its affiliates may enter into
transactions with us or our subsidiaries or other affiliates.
Although the terms of any such transactions will be established
based upon negotiations between employees of Clear Channel
Communications and us and, when appropriate, subject to the
approval of the independent directors on our board or a
committee of disinterested directors, there can be no assurance
that the terms of any such transactions will be as favorable to
us or our subsidiaries or affiliates as may otherwise be
obtained in arms length negotiations. |
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Intercompany agreements. We have entered into certain
agreements with Clear Channel Communications pursuant to which
it will provide us certain management, administrative,
accounting, tax, legal and other services, for which we will
reimburse Clear Channel Communications on a cost basis. In
addition, we will enter into a number of intercompany agreements
covering matters such as tax sharing and our responsibility for
certain liabilities previously undertaken by Clear Channel
Communications for certain of our businesses. Pursuant to the
corporate services agreement between Clear Channel
Communications and us, we are contractually obligated to utilize
the services of the chief executive officer of Clear Channel
Communications as our Chief Executive Officer and the chief
financial officer of Clear Channel Communications as our Chief
Financial Officer until Clear Channel Communications owns less
than 50% of the voting power of our common stock, or we provide
Clear Channel Communications with six months prior written
notice of termination. The terms of these agreements were
established while we were a wholly owned subsidiary of Clear
Channel Communications and were not the result of arms
length negotiations. In addition, conflicts could arise in the
interpretation or any extension or renegotiation of these
existing agreements after this offering. See Arrangements
Between Clear Channel Communications and Us. |
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If Clear Channel Communications engages in the same type
of business we conduct or takes advantage of business
opportunities that might be attractive to us, our ability to
successfully operate and expand our business may be
hampered. |
Our amended and restated certificate of incorporation provides
that, subject to any contractual provision to the contrary,
Clear Channel Communications will have no obligation to refrain
from:
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engaging in the same or similar business activities or lines of
business as us; or |
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doing business with any of our clients, customers or vendors. |
In addition, the corporate opportunity policy set forth in our
amended and restated certificate of incorporation addresses
potential conflicts of interest between our company, on the one
hand, and Clear Channel Communications and its officers and
directors who are officers or directors of our company, on the
other hand. The policy provides that if Clear Channel
Communications acquires knowledge of a
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potential transaction or matter which may be a corporate
opportunity for both Clear Channel Communications and us, we
will have renounced our interest in the corporate opportunity.
It also provides that if one of our directors or officers who is
also a director or officer of Clear Channel Communications
learns of a potential transaction or matter that may be a
corporate opportunity for both Clear Channel Communications and
us, we will have renounced our interest in the corporate
opportunity, unless that opportunity is expressly offered to
that person in writing solely in his or her capacity as our
director or officer.
If one of our officers or directors, who also serves as a
director or officer of Clear Channel Communications, learns of a
potential transaction or matter that may be a corporate
opportunity for both Clear Channel Communications and us, our
amended and restated certificate of incorporation provides that
the director or officer will have no duty to communicate or
present that corporate opportunity to us and will not be liable
to us or our stockholders for breach of fiduciary duty by reason
of Clear Channel Communications actions with respect to
that corporate opportunity.
This policy could result in Clear Channel Communications having
rights to corporate opportunities in which both we and Clear
Channel Communications have an interest.
By becoming a stockholder in our company, you will be deemed to
have notice of and have consented to these provisions of our
amended and restated certificate of incorporation. The
principles for resolving such potential conflicts of interest
are described under Description of Capital
Stock Provisions of Our Amended and Restated
Certificate of Incorporation Relating to Related-Party
Transactions and Corporate Opportunities.
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We are a controlled company within the meaning
of the New York Stock Exchange rules and, as a result, will
qualify for, and intend to rely on, exemptions from certain
corporate governance requirements that may not provide as many
protections as those afforded to stockholders of other
companies. |
After this offering, Clear Channel Communications will continue
to own more than 50% of the total voting power of our common
stock and we will be a controlled company under the
NYSE corporate governance standards. As a controlled company, we
may elect to utilize certain exemptions under the NYSE standards
that free us from the obligation to comply with certain NYSE
corporate governance requirements, including the requirements
(i) that a majority of the board of directors consists of
independent directors, (ii) that we have a nominating and
governance committee, and that such committee be composed
entirely of independent directors and governed by a written
charter addressing the committees purpose and
responsibilities, (iii) that we have a compensation
committee that is composed entirely of independent directors
with a written charter addressing the committees purpose
and responsibilities and (iv) for an annual performance
evaluation of the compensation committee. After this offering,
we intend to utilize certain of these exemptions and, as a
result, we may not create or maintain a nominating and
governance committee, and the nominating and governance
committee, if created, and the compensation committee may not
consist entirely of independent directors, and our board of
directors may not consist of a majority of independent
directors. Accordingly, you may not have the same protections
afforded to stockholders of companies that are subject to all of
the NYSE corporate governance requirements.
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We will only have the right to use the Clear Channel brand
name, logo and corporate name for so long as Clear Channel
Communications owns at least 50% of the total voting power of
our common stock. If Clear Channel Communications
ownership falls below such 50% threshold and we fail to
establish in a timely manner a new, independently recognized
brand name with a strong reputation, our revenue and
profitability could decline. |
Upon completion of this offering, our corporate name will be
Clear Channel Outdoor Holdings, Inc., and we and our
subsidiaries may use the Clear Channel brand name and logo in
marketing our products and services. Pursuant to a trademark
license agreement, Clear Channel Communications will grant us
the right to use the Clear Channel mark and logo in
connection with our products and services
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and the right to use Clear Channel in our corporate
name and the corporate names of our subsidiaries until
12 months after the date on which Clear Channel
Communications owns less than 50% of the total voting power of
our common stock. In the event our right to use the Clear
Channel brand name and logo and corporate name expires, we will
be required to conduct our business under a new brand name,
which may not be immediately recognized by our clients and
suppliers or by potential employees we are trying to recruit. We
will need to expend significant time, effort and resources to
establish a new brand name in the marketplace. We cannot
guarantee that this effort will ultimately be successful. If our
effort to establish a new brand identity is unsuccessful, our
business, financial condition and results of operations may
suffer.
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Any future separation from Clear Channel Communications
could adversely affect our business and profitability due to
Clear Channel Communications strong brand and
reputation. |
As a subsidiary of Clear Channel Communications, our businesses
have marketed many of their products and services using the
Clear Channel brand name and logo, and we believe
the association with Clear Channel Communications has provided
many benefits, including:
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a world-class brand associated with trust, integrity and
longevity; |
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perception of high-quality products and services; |
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preferred status among our clients and employees; |
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strong capital base and financial strength; and |
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established relationships with U.S. federal and state
regulators and non-U.S. regulators. |
Any future separation from Clear Channel Communications could
adversely affect our ability to attract and retain highly
qualified dedicated sales specialists for our products and
services. We may be required to lower the prices of our products
and services, increase our sales commissions and fees, change
long-term advertising and marketing agreements and take other
action to maintain our relationship with our clients, suppliers
and dedicated sales specialists, all of which could have an
adverse effect on our financial condition and results of
operations. Any future separation from Clear Channel
Communications also could cause some of our existing clients to
choose to stop doing business with us, and could cause other
potential clients to decide not to purchase our products and
services because we are no longer part of Clear Channel
Communications.
We cannot accurately predict the effect that a separation from
Clear Channel Communications would have on our sales, clients or
employees. The risks relating to a separation from Clear Channel
Communications could materialize at various times, including:
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if and when Clear Channel Communications reduces its ownership
in our common stock to a level below 50% of the total voting
power; and |
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if and when we are required to cease using the Clear Channel
name and logo in our sales and marketing materials. |
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We will not have control over our tax decisions and could
be liable for income taxes owed by Clear Channel
Communications. |
For so long as Clear Channel Communications continues to own at
least 80% of the total voting power and value of our common
stock, we and certain of our subsidiaries will be included in
Clear Channel Communications consolidated group for
U.S. federal income tax purposes. In addition, we or one or
more of our subsidiaries may be included in the combined,
consolidated or unitary tax returns of Clear Channel
Communications or one or more of its subsidiaries for foreign,
state and local income tax purposes. Under the Tax Matters
Agreement, we will pay to Clear Channel Communications the
amount of federal, foreign, state and local income taxes which
we would be required to pay to the relevant taxing authorities
if we and our subsidiaries filed combined, consolidated or
unitary tax returns and were not included in the consolidated,
combined or unitary tax returns of Clear Channel Communications
or its
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subsidiaries. In addition, by virtue of its controlling
ownership and the Tax Matters Agreement, Clear Channel
Communications will effectively control all of our tax
decisions. The Tax Matters Agreement provides that Clear Channel
Communications will have sole authority to respond to and
conduct all tax proceedings (including tax audits) relating to
us, to file all income tax returns on our behalf and to
determine the amount of our liability to (or entitlement to
payment from) Clear Channel Communications under the Tax Matters
Agreement. This arrangement may result in conflicts of interest
between Clear Channel Communications and us. For example, under
the Tax Matters Agreement, Clear Channel Communications will be
able to choose to contest, compromise or settle any adjustment
or deficiency proposed by the relevant taxing authority in a
manner that may be beneficial to Clear Channel Communications
and detrimental to us.
Moreover, notwithstanding the Tax Matters Agreement, federal law
provides that each member of a consolidated group is liable for
the groups entire tax obligation. Thus, to the extent
Clear Channel Communications or other members of the group fail
to make any U.S. federal income tax payments required by
law, we would be liable for the shortfall. Similar principles
may apply for foreign, state and local income tax purposes where
we file combined, consolidated or unitary returns with Clear
Channel Communications or its subsidiaries for federal, foreign,
state and local income tax purposes.
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If Clear Channel Communications spins off our Class B
common stock to its stockholders, we have agreed in the Tax
Matters Agreement to indemnify Clear Channel Communications for
its tax-related liabilities in certain circumstances. |
If Clear Channel Communications spins off our Class B
common stock to its stockholders in a distribution that is
intended to be tax-free under Section 355 of the Internal
Revenue Code of 1986, as amended, which we refer to herein as
the Code, we have agreed in the Tax Matters Agreement to
indemnify Clear Channel Communications and its affiliates
against any and all tax-related liabilities if such a spin-off
fails to qualify as a tax-free distribution (including as a
result of Section 355(e) of the Code) due to actions,
events or transactions relating to our stock, assets or
business, or a breach of the relevant representations or
covenants made by us in the Tax Matters Agreement. If neither we
nor Clear Channel Communications is responsible under the Tax
Matters Agreement for any such spin-off not being tax-free under
Section 355 of the Code, we and Clear Channel
Communications have agreed that we will each be responsible for
50% of the tax-related liabilities arising from the failure of
such a spin-off to so qualify. See Arrangements Between
Clear Channel Communications and Us Tax Matters
Agreement.
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Future sales or distributions of our shares by Clear
Channel Communications could depress the market price for shares
of our Class A common stock. |
After this offering, Clear Channel Communications may sell all
or part of the shares of our common stock that it owns or
distribute those shares to its stockholders, including pursuant
to demand registration rights described herein. Sales or
distributions by Clear Channel Communications of substantial
amounts of our common stock in the public market or to its
stockholders could adversely affect prevailing market prices for
our Class A common stock. Clear Channel Communications has
advised us that it currently intends to continue to hold all of
our common stock that it owns following this offering. However,
Clear Channel Communications is not subject to any contractual
obligation that would prohibit it from selling, spinning off,
splitting off or otherwise disposing of any shares of our common
stock, except that Clear Channel Communications has agreed not
to sell, spin off, split off or otherwise dispose of any of our
shares of common stock for a period of 180 days after the
date of this prospectus without the prior written consent of the
underwriters, subject to certain limitations and limited
exceptions. Consequently, we cannot assure you that Clear
Channel Communications will maintain its ownership of our common
stock after the 180-day period following this offering.
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The terms of our arrangements with Clear Channel
Communications may be more favorable than we will be able to
obtain from an unaffiliated third party, and we may be unable to
replace the services Clear Channel Communications provides us in
a timely manner or on comparable terms. |
We and Clear Channel Communications will enter into a Corporate
Services Agreement and other agreements prior to the completion
of this offering. Pursuant to the Corporate Services Agreement,
Clear Channel Communications and its affiliates will agree to
provide us with corporate services after this offering,
including treasury, payroll and other financial services,
executive officer services, human resources and employee benefit
services, legal services, information systems and network
services and procurement and sourcing support.
We are negotiating these arrangements with Clear Channel
Communications in the context of a parent-subsidiary
relationship. Although Clear Channel Communications will be
contractually obligated to provide us with services during the
term of the Corporate Services Agreement, we cannot assure you
that these services will be sustained at the same level after
the expiration of that agreement, or that we will be able to
replace these services in a timely manner or on comparable
terms. In addition, we cannot provide assurance that the amount
we pay Clear Channel Communications for the services will be as
favorable to us as that which may be available for comparable
services provided by unrelated third parties. Other agreements
with Clear Channel Communications will also govern our
relationship with Clear Channel Communications after this
offering and will provide for the allocation of employee
benefit, tax and other liabilities and obligations attributable
to our operations. The agreements also contain terms and
provisions that may be more or less favorable than terms and
provisions we might have obtained in arms length
negotiations with unaffiliated third parties. If Clear Channel
Communications ceases to provide services to us pursuant to
those agreements, our costs of procuring those services from
third parties may increase. See Arrangements Between Clear
Channel Communications and Us Relationship with
Clear Channel Communications.
|
|
|
Any deterioration in the financial condition of Clear
Channel Communications could adversely affect our access to the
credit markets and increase our borrowing costs. |
For so long as Clear Channel Communications maintains a
significant interest in us, a deterioration in the financial
condition of Clear Channel Communications could have the effect
of increasing our borrowing costs or impairing our access to the
capital markets because of our reliance on Clear Channel
Communications for availability under its revolving credit
facility. In addition, because the interest rate we pay on the
$2.5 billion intercompany note is based on the weighted
average cost of debt for Clear Channel Communications, any such
deterioration would likely result in an increase in Clear
Channel Communications cost of debt and in our interest
rate. To the extent we do not pass on our increased borrowing
costs to our clients, our profitability, and potentially our
ability to raise capital, could be materially affected. Also,
until the first date Clear Channel Communications owns less than
50% of our voting stock, pursuant to the Master Agreement
between us and Clear Channel Communications, as well as pursuant
to the $2.5 billion intercompany note, Clear Channel
Communications will have the ability to limit our ability to
incur debt or issue equity securities, which could adversely
affect our ability to meet our liquidity needs or to grow our
business. See Arrangements Between Clear Channel
Communications and Us and Description of
Indebtedness.
Risks Related to Our Class A Common Stock and This
Offering
|
|
|
There is no existing market for our Class A common
stock, and a trading market that will provide you with adequate
liquidity may not develop, the price of our Class A common
stock may fluctuate significantly, and you could lose all or
part of your investment. |
Prior to this offering, there has been no public market for our
Class A common stock. We cannot predict the extent to which
investor interest will lead to the development of an active and
liquid trading market in our Class A common stock on the
NYSE or otherwise. If an active trading market does not develop,
you may have difficulty selling any of our Class A common
stock that you buy.
25
The initial public offering price per share for our Class A
common stock will be determined by negotiations between us and
the representatives of the underwriters and may not be
indicative of the market price of our Class A common stock
that will prevail in the trading market. The market price of our
Class A common stock may decline below the initial public
offering price. The market price of our Class A common
stock may also be influenced by many factors, some of which are
beyond our control, including:
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|
|
our quarterly or annual earnings, or those of other companies in
our industry; |
|
|
|
our loss of a large client; |
|
|
|
announcements by us or our competitors of significant contracts
or acquisitions; |
|
|
|
changes in accounting standards, policies, guidance,
interpretations or principles; |
|
|
|
general economic conditions; |
|
|
|
the failure of securities analysts to cover our Class A
common stock after this offering or changes in financial
estimates by analysts; |
|
|
|
future sales by us or other stockholders of our Class A
common stock; and |
|
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|
other factors described in these Risk Factors. |
In recent years, the stock market has experienced extreme price
and volume fluctuations. This volatility has had a significant
impact on the market price of securities issued by many
companies, including companies in our industry. The changes
frequently appear to occur without regard to the operating
performance of these companies. The price of our Class A
common stock could fluctuate based upon factors that have little
or nothing to do with our company, and these fluctuations could
materially reduce our stock price.
In the past, some companies that have had volatile market prices
for their securities have been subject to securities class
action suits filed against them. If a suit were to be filed
against us, regardless of the outcome, it could result in
substantial legal costs and a diversion of our managements
attention and resources. This could have a material adverse
effect on our business, results of operations and financial
condition.
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|
Our stock ownership by Clear Channel Communications,
provisions in our agreements with Clear Channel Communications
and our corporate governance documents and Delaware law may
delay or prevent an acquisition of us that our other
stockholders may consider favorable, which could decrease the
value of your shares of Class A common stock. |
After this offering, for as long as Clear Channel Communications
continues to own shares of our common stock representing more
than 50% of the total voting power of our common stock, it will
have the ability to control decisions regarding an acquisition
of us by a third party. As a controlled company, we are exempt
from some of the corporate governance requirements of the NYSE,
including the requirement that our board of directors be
comprised of a majority of independent directors. In addition,
our amended and restated certificate of incorporation, bylaws
and Delaware law contain provisions that could make it more
difficult for a third party to acquire us without the consent of
our board of directors. These provisions include restrictions on
the ability of our stockholders to remove directors,
supermajority voting requirements for stockholders to amend our
organizational documents, restrictions on a classified board of
directors and limitations on action by our stockholders by
written consent. Some of these provisions, such as the
limitation on stockholder action by written consent, only become
effective once Clear Channel Communications no longer controls
us. In addition, our board of directors has the right to issue
preferred stock without stockholder approval, which could be
used to dilute the stock ownership of a potential hostile
acquirer. Delaware law also imposes certain restrictions on
mergers and other business combinations between any holder of
15% or more of our outstanding voting stock. These restrictions
under Delaware law do not apply to Clear Channel Communications
while it retains at least 15% or more of our Class B
26
common stock. Although we believe these provisions protect our
stockholders from coercive or otherwise unfair takeover tactics
and thereby provide for an opportunity to receive a higher bid
by requiring potential acquirers to negotiate with our board of
directors, these provisions apply even if the offer may be
considered beneficial by some stockholders. See
Description of Capital Stock.
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|
|
If Clear Channel Communications spins off our high
vote Class B common stock to its stockholders and such
shares do not convert into Class A common stock upon a sale
or other transfer subsequent to such distribution, the voting
rights of our Class A common stock will continue to be
disproportionately lower than the voting rights of our
Class B common stock. |
In connection with any distribution of shares of our
Class B common stock to Clear Channel Communications
common stockholders in a spin-off, Clear Channel Communications
may elect in its sole discretion whether our Class B common
stock so distributed will automatically convert into shares of
Class A common stock upon a transfer or sale by the
recipient subsequent to the spin-off or whether the Class B
common stock will continue as high vote Class B common
stock after the distribution. In the event the Class B
common stock does not convert into Class A common stock
upon a sale or transfer subsequent to a spin-off, the voting
rights of Class A common stock will continue to be
disproportionately lower than the voting rights of our
Class B common stock. Therefore, the holders of our
Class B common stock will continue to be able to direct the
election of all the members of our board of directors and
exercise a controlling influence over our business and affairs.
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|
|
We currently do not intend to pay dividends on our
Class A common stock. |
We do not expect to pay dividends on our Class A common
stock in the foreseeable future. We are a holding company with
no independent operations and no significant assets other than
the stock of our subsidiaries. We therefore are dependent upon
the receipt of dividends or other distributions from our
subsidiaries to pay dividends. Accordingly, if you purchase
shares in this offering, the price of our Class A common
stock must appreciate in order to realize a gain on your
investment. This appreciation may not occur.
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|
|
You will suffer an immediate and substantial dilution in
the net tangible book value of the Class A common stock you
purchase. |
Based on an assumed initial public offering price of
$21.00 per share, which is the midpoint of the estimated
offering price range set forth on the cover page of this
prospectus, purchasers of Class A common stock in this
offering will experience immediate and substantial dilution of
approximately $21.11 per share in net tangible book value
of the Class A common stock.
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|
We will incur increased costs as a result of being a
public company. |
The Sarbanes-Oxley Act of 2002, as well as new rules
subsequently implemented by the Securities and Exchange
Commission and New York Stock Exchange, have required changes in
corporate governance practices of public companies. We expect
these new rules and regulations to increase our legal and
financial compliance costs and to make some activities more
time-consuming and costly. For example, when we cease to take
advantage of the controlled company exemption
available in the NYSE rules, we will have to add a number of
independent directors in order that our board consist of a
majority of independent directors and create additional board
committees. In addition, we will incur additional costs
associated with our public company reporting requirements. We
also expect these new rules and regulations to make it more
difficult and more expensive for us to obtain director and
officer liability insurance and we may be required to accept
reduced policy limits and coverage or incur substantially higher
costs to obtain the same or similar coverage. As a result, it
may be more difficult for us to attract and retain qualified
persons to serve on our board of directors or as executive
officers. We are currently evaluating and monitoring
developments with respect to these new rules, and we cannot
predict or estimate the amount of additional costs we may incur
or the timing of such costs.
27
|
|
|
If, after this offering, we are unable to satisfy the
requirements of Section 404 of the Sarbanes-Oxley Act, or
our internal controls over financial reporting are not
effective, the reliability of our financial statements may be
questioned and our stock price may suffer. |
Section 404 of the Sarbanes-Oxley Act requires any company
subject to the reporting requirements of the
U.S. securities laws to do a comprehensive evaluation of
its and its combined subsidiaries internal controls over
financial reporting. To comply with this statute, we will be
required to document and test our internal control procedures;
our management will be required to assess and issue a report
concerning our internal controls over financial reporting; and
our independent auditors will be required to issue an opinion on
managements assessment of those matters. Our compliance
with Section 404 of the Sarbanes-Oxley Act will first be
tested in connection with the filing of our annual report on
Form 10-K for the fiscal year ending December 31,
2006. The rules governing the standards that must be met for
management to assess our internal controls over financial
reporting are new and complex and require significant
documentation, testing and possible remediation to meet the
detailed standards under the rules. During the course of its
testing, our management may identify material weaknesses or
significant deficiencies which may not be remedied in time to
meet the deadline imposed by the Sarbanes-Oxley Act. If our
management cannot favorably assess the effectiveness of our
internal controls over financial reporting or our auditors
identify material weaknesses in our internal controls, investor
confidence in our financial results may weaken, and our stock
price may suffer. In connection with Clear Channel
Communications internal controls testing as of
December 31, 2004, a number of control deficiencies were
identified, some of which relate to our business. If these
control deficiencies exist at the time our compliance with
Section 404 is tested, there can be no assurance that they
will not be material weaknesses.
28
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
All statements other than statements of historical facts
included in this prospectus, including, without limitation,
statements regarding our future financial position, business
strategy, budgets, projected costs, savings and plans and
objectives of management for future operations, are
forward-looking statements. Forward-looking statements generally
can be identified by the use of forward-looking terminology such
as may, will, expect,
intend, estimate,
anticipate, believe or
continue or the negative thereof or variations
thereon or similar terminology. Although we believe that the
expectations reflected in such forward-looking statements are
reasonable, we can give no assurance that such expectations will
prove to have been correct. Important factors that could cause
actual results to differ materially from our expectations
(cautionary statements) are disclosed under
Risk Factors and elsewhere in this prospectus,
including, without limitation, in conjunction with the
forward-looking statements included in this prospectus. All
subsequent written and oral forward-looking statements
attributable to us, or persons acting on our behalf, are
expressly qualified in their entirety by the cautionary
statements included in this prospectus.
All forward-looking statements attributable to us or persons
acting on our behalf apply only as of the date of this
prospectus and are expressly qualified in their entirety by the
cautionary statements included in this prospectus. We undertake
no obligation to publicly update or revise forward-looking
statements to reflect events or circumstances after the date
made or to reflect the occurrence of unanticipated events.
29
USE OF PROCEEDS
We estimate that our net proceeds from this offering, after
deducting underwriting discounts and estimated offering
expenses, will be approximately $700.1 million
(approximately $805.9 million if the underwriters exercise
in full their option to purchase additional shares of
Class A common stock), assuming an initial public offering
price of $21.00 per share of Class A common stock,
which is the midpoint of the estimated offering price range set
forth on the cover page of this prospectus.
In 2003, two intercompany notes were issued to Clear Channel
Communications in the aggregate original principal amount of
approximately $1.5 billion. The first intercompany note in
the original principal amount of approximately
$1.4 billion, the entire principal balance of which remains
outstanding, matures on December 31, 2017, may be prepaid
in whole at any time, or in part from time to time, and accrues
interest at a per annum rate of 10%. The second intercompany
note in the original principal amount of $73.0 million, the
entire principal balance of which remains outstanding, matures
on December 31, 2017, may be prepaid in whole at any time,
or in part from time to time, and accrues interest at a per
annum rate of 9%. See Arrangements Between Clear Channel
Communications and Us.
Assuming an initial public offering price of $21.00, the
midpoint of the range set forth on the cover page of this
prospectus, we intend to use all of the net proceeds of this
offering to repay approximately $700.1 million of the
outstanding balances of the $1.4 billion and
$73.0 million intercompany notes. Prior to such use of
proceeds, the outstanding balances of the $1.4 billion and
$73.0 million intercompany notes will be reduced by
approximately $362.2 million, the balance at
September 30, 2005 in the Due from Clear Channel
Communications intercompany account, and approximately
$294.9 million of the remaining outstanding balances of the
$1.4 billion and $73.0 million intercompany notes will be
contributed to our capital by Clear Channel Communications. Upon
expiration of the underwriters option to purchase
additional shares of our Class A common stock, and to the
extent the underwriters do not exercise the option in full, we
intend to exchange up to 5,250,000 additional shares of our
Class B common stock with Clear Channel Communications for
the remaining outstanding balances of the $1.4 billion and
$73.0 million intercompany notes that the proceeds from the
exercise of such option otherwise would have been used to repay,
such that they are repaid in full. The aggregate number of
shares of our Class B common stock so exchanged will equal
(i) the number of additional shares of Class A common
stock that the underwriters have an option to purchase, less
(ii) the actual number of shares of Class A common
stock that the underwriters purchase from us pursuant to the
option.
Our total indebtedness after this offering and after application
of all of the net proceeds of this offering to repay a portion
of the intercompany indebtedness owed to Clear Channel
Communications will be approximately $2.7 billion,
approximately $2.5 billion of which will be intercompany
indebtedness owed to Clear Channel Communications. See
Description of Indebtedness.
30
DIVIDEND POLICY
We do not anticipate paying any dividends on the shares of our
common stock in the foreseeable future. If cash dividends were
to be paid on our common stock, holders of Class A common
stock and Class B common stock would share equally, on a
per share basis, in any such cash dividend.
31
CAPITALIZATION
The following table sets forth our capitalization as of
September 30, 2005:
(i) on an actual basis; and
(ii) on an as adjusted post-offering basis, after giving
effect to:
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|
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(a) this offering; |
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|
|
(b) the reduction of the outstanding balances of the
approximately $1.4 billion and $73.0 million
intercompany notes by approximately $362.2 million,
representing the balance at September 30, 2005 in the
Due from Clear Channel Communications intercompany
account; |
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|
|
(c) the contribution of approximately $294.9 million
of the remaining outstanding balances of the $1.4 billion
and $73.0 million intercompany notes to our capital by
Clear Channel Communications; |
|
|
|
|
(d) the repayment of approximately $700.1 million of
the remaining outstanding balances of the $1.4 billion and
$73.0 million notes with all of the net proceeds of this
offering assuming an offering price of $21.00 per share, the
midpoint of the range set forth on the cover page of this
prospectus; and |
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|
|
(e) to the extent the underwriters do not exercise in full
their option to purchase up to an additional
5,250,000 shares of our Class A common stock (the
proceeds of which would be used to repay the then outstanding
balances of the approximately $1.4 billion and
$73.0 million intercompany notes), the exchange of up to
5,250,000 additional shares of our Class B common stock
with Clear Channel Communications for the remaining outstanding
balances of the $1.4 billion and $73.0 million intercompany
notes that the proceeds from the exercise of such option
otherwise would have been used to repay, such that they are
repaid in full. |
|
You should read the information in this table in conjunction
with the historical audited and unaudited combined financial
statements and the accompanying notes thereto of us and our
combined subsidiaries included elsewhere in this prospectus and
Use of Proceeds, Dividend Policy,
Selected Historical Combined Financial Data,
Unaudited Pro Forma Combined Financial Data and
Managements Discussion and Analysis of Financial
Condition and Results of Operations.
32
|
|
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|
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|
|
As of September 30, 2005 | |
|
|
| |
|
|
|
|
As Adjusted | |
|
|
Actual | |
|
Post-Offering | |
|
|
| |
|
| |
(In thousands) |
|
(Unaudited) | |
|
(Unaudited) | |
Cash and cash equivalents
|
|
$ |
91,676 |
|
|
$ |
91,676 |
|
|
|
|
|
|
|
|
Due from Clear Channel Communications
|
|
$ |
362,154 |
|
|
$ |
|
|
|
|
|
|
|
|
|
Debt:
|
|
|
|
|
|
|
|
|
|
Credit facility
|
|
$ |
49,732 |
|
|
$ |
49,732 |
|
|
Intercompany note in the original principal amount of
approximately $1.4 billion
|
|
|
1,390,000 |
|
|
|
|
|
|
Intercompany note in the original principal amount of
$73.0 million
|
|
|
73,000 |
|
|
|
|
|
|
Intercompany note in the original principal amount of
$2.5 billion(1)
|
|
|
2,500,000 |
|
|
|
2,500,000 |
|
|
Other borrowings
|
|
|
199,404 |
|
|
|
199,404 |
|
|
|
|
|
|
|
|
|
|
Total debt
|
|
|
4,212,136 |
|
|
|
2,749,136 |
|
|
|
|
|
|
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|
Owners equity:
|
|
|
|
|
|
|
|
|
Actual and as adjusted post-offering: Class A common stock
and Class B common stock, each par value $0.01 per
share; 750,000,000 shares authorized and 35,000,000 shares
issued of Class A common stock and 600,000,000 shares
authorized and 315,000,000 shares issued of Class B common
stock(2)
|
|
|
|
|
|
|
3,500 |
|
|
Additional capital paid-in
|
|
|
|
|
|
|
5,277,010 |
|
|
Owners net investment(1)
|
|
|
4,179,664 |
|
|
|
|
|
|
Retained deficit
|
|
|
(4,229,060 |
) |
|
|
(4,229,060 |
) |
|
Accumulated other comprehensive income
|
|
|
137,745 |
|
|
|
137,745 |
|
|
|
|
|
|
|
|
|
|
Total owners equity
|
|
|
88,349 |
|
|
|
1,189,195 |
|
|
|
|
|
|
|
|
|
Total capitalization
|
|
$ |
4,300,485 |
|
|
$ |
3,938,331 |
|
|
|
|
|
|
|
|
|
|
(1) |
On August 2, 2005, we paid a dividend of $2.5 billion
on our common stock to Clear Channel Communications in the form
of an intercompany note. |
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|
(2) |
In connection with this offering, our amended and restated
certificate of incorporation provides that the shares of our
common stock outstanding prior to this offering will be changed
into and reclassified as 315,000,000 shares of Class B
common stock to be outstanding after this offering. After this
offering, Clear Channel Communications will own all of our
outstanding shares of Class B common stock. |
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33
DILUTION
Dilution is the amount by which the initial public offering
price paid by the purchasers of shares of Class A common
stock in this offering will exceed the net tangible book value
per share of Class A common stock after this offering. The
net tangible book value per share presented below equals the
amount of our total tangible assets (total assets less
intangible assets), less total liabilities as of
September 30, 2005. As of September 30, 2005, we had a
net tangible book value of $(1,139,641), or $(3.62) per share.
On a pro forma basis, after giving effect to:
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|
the sale by us of 35,000,000 shares of Class A common
stock in this offering, assuming an initial public offering
price of $21.00 per share, which is the midpoint of the
estimated offering price range set forth on the cover page of
this prospectus, and the application of all of the net proceeds
of this offering, after deducting underwriting discounts and
estimated offering expenses, as described under Use of
Proceeds; and |
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|
|
|
the repayment or contribution of the remaining outstanding
balances of the approximately $1.4 billion and
$73.0 million intercompany notes; |
our pro forma net tangible book value as of September 30,
2005 would have been $(38,795) or $(.11) per share, which
represents an immediate increase in net tangible book value of
$3.51 per share to Clear Channel Communications, our
current stockholder, and an immediate dilution in net tangible
book value of $21.11 per share to new stockholders
purchasing shares of Class A common stock in this offering.
The following table illustrates this dilution on a per share
basis:
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|
|
|
|
|
|
|
|
Assumed initial public offering price per share
|
|
|
|
|
|
$ |
21.00 |
|
|
Net tangible book value per share as of September 30, 2005
|
|
$ |
(3.62 |
) |
|
|
|
|
|
Increase in net tangible book value per share attributable to
new stockholders
|
|
$ |
3.51 |
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma net tangible book value per share after this offering
|
|
|
|
|
|
$ |
(.11 |
) |
|
|
|
|
|
|
|
Dilution per share to new stockholders
|
|
|
|
|
|
$ |
21.11 |
|
|
|
|
|
|
|
|
The following table summarizes, on the same pro forma basis as
of September 30, 2005, the total number of shares of
Class A common stock purchased from us, the total
consideration paid to us and the average price per share paid by
Clear Channel Communications, our current stockholder, and by
new stockholders purchasing shares of Class A common stock
in this offering:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions, except percentages and per share data) |
|
|
|
Total | |
|
|
|
|
Shares Purchased | |
|
Consideration | |
|
|
|
|
| |
|
| |
|
Average Price | |
|
|
Number | |
|
Percent | |
|
Number | |
|
Percent | |
|
per Share | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
Current stockholder(1)
|
|
|
315 |
|
|
|
90 |
% |
|
$ |
489 |
|
|
|
40 |
% |
|
$ |
1.55 |
|
New stockholders
|
|
|
35 |
|
|
|
10 |
% |
|
$ |
735 |
|
|
|
60 |
% |
|
$ |
21.00 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
350 |
|
|
|
100 |
% |
|
$ |
1,224 |
|
|
|
100 |
% |
|
$ |
3.50 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
After giving effect to the reclassification, in connection with
this offering, of 1,917.0709 shares of our common stock
into 315,000,000 shares of Class B common stock. |
The tables and calculations above exclude 42,000,000 shares
of Class A common stock reserved for issuance under our
2005 Stock Incentive Plan.
34
UNAUDITED PRO FORMA COMBINED FINANCIAL DATA
The following table sets forth unaudited pro forma combined
financial data and other information of Clear Channel Outdoor
Holdings.
We have prepared our combined financial statements as if Clear
Channel Outdoor Holdings had been in existence as a separate
company throughout all relevant periods. The pro forma combined
statement of operations data for the year ended
December 31, 2004 presented below was derived from our
audited combined financial statements and the accompanying notes
thereto included elsewhere in this prospectus. The pro forma
combined statement of operations data for the nine months ended
September 30, 2005 and the pro forma combined balance sheet
data as of September 30, 2005 presented below were derived
from our unaudited combined financial statements and the
accompanying notes thereto included elsewhere in this
prospectus. The operating results for the nine months ended
September 30, 2005 include all adjustments (consisting only
of normal recurring adjustments) that we believe are necessary
for a fair statement of the results for such interim period.
Results for the nine months ended September 30, 2005 are
not necessarily indicative of the results expected for the
fiscal year ended December 31, 2005 or any future period.
Our unaudited pro forma results of operations data present our
pro forma as adjusted results of operations for the year ended
December 31, 2004 and the nine months ended
September 30, 2005:
|
|
|
|
|
as if this offering had been completed on January 1, 2004,
at an assumed initial public offering price of $21.00 per
share of Class A common stock, which is the midpoint of the
estimated offering price range set forth on the cover page of
this prospectus, and assuming: |
|
|
|
|
|
|
the outstanding balances of the approximately $1.4 billion
and $73.0 million intercompany notes issued to Clear
Channel Communications are reduced by approximately
$362.2 million, representing the balance at
September 30, 2005 in the Due from Clear Channel
Communications intercompany account; |
|
|
|
|
|
then, approximately $294.9 million of the remaining
outstanding balances of the $1.4 billion and
$73.0 million intercompany notes is contributed to our
capital by Clear Channel Communications; |
|
|
|
|
|
then, approximately $700.1 million of the remaining
outstanding balances of the $1.4 billion and
$73.0 million intercompany notes is repaid with all of the
net proceeds of this offering; and |
|
|
|
|
|
then, to the extent the underwriters do not exercise in full
their option to purchase up to an additional
5,250,000 shares of our Class A common stock (the
proceeds of which would be used to repay the then-outstanding
balances under the approximately $1.4 billion and
$73.0 million of intercompany notes), we exchange up to
5,250,000 additional shares of our Class B common stock
with Clear Channel Communications for the remaining outstanding
balances of the $1.4 billion and $73.0 million
intercompany notes that the proceeds from the exercise of such
option otherwise would have been used to repay, such that the
notes are repaid in full. |
|
|
|
|
|
|
after giving effect to our distribution of an intercompany note
in the original principal amount of $2.5 billion as a
dividend on our common stock, which note was ultimately
distributed to Clear Channel Communications, as if issued to
Clear Channel Communications on January 1, 2004. |
Our as adjusted balance sheet and statement of operations data
as of September 30, 2005 and for the nine months ended
September 30, 2005, present, using the same assumptions and
application of estimated net proceeds described above, our as
adjusted results of operations for the nine months ended
September 30, 2005, as if this offering and the issuance of
the $2.5 billion intercompany note had been completed on
January 1, 2004.
The unaudited pro forma information set forth below is based
upon available information and assumptions that we believe are
reasonable. The historical financial and other data have been
prepared on a combined basis from Clear Channel
Communications consolidated financial statements using the
historical results of operations and bases of the assets and
liabilities of Clear Channel Communications
35
outdoor advertising business and give effect to allocations of
expenses from Clear Channel Communications. Our historical
financial data will not be indicative of our future performance,
nor will such data reflect what our financial position and
results of operations would have been had we operated as an
independent publicly traded company during the periods shown.
Also, the unaudited pro forma statement of operations does not
reflect estimates of one-time and ongoing incremental costs
required for us to operate as a separate company, which are
described in Note 1 below to the unaudited pro forma
statement of operations.
You should read the information contained in this table in
conjunction with Selected Historical Combined Financial
Data, Capitalization, Managements
Discussion and Analysis of Financial Condition and Results of
Operations, and the historical audited and unaudited
combined financial statements and the accompanying notes thereto
of us and our combined subsidiaries included elsewhere in this
prospectus.
Unaudited Pro Forma Combined Statement of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
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|
(In thousands, except per share data) |
|
|
|
|
|
|
Year Ended December 31, 2004 | |
|
Nine Months Ended September 30, 2005 | |
|
|
| |
|
| |
|
|
Historical | |
|
Adjustments | |
|
Pro Forma | |
|
Historical | |
|
Adjustments | |
|
Pro Forma | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Statement of Operations:(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$ |
2,447,040 |
|
|
$ |
|
|
|
$ |
2,447,040 |
|
|
$ |
1,931,471 |
|
|
$ |
|
|
|
$ |
1,931,471 |
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct operating expenses (exclusive of depreciation and
amortization)
|
|
|
1,262,317 |
|
|
|
|
|
|
|
1,262,317 |
|
|
|
988,448 |
|
|
|
|
|
|
|
988,448 |
|
|
Selling, general and administrative expenses (exclusive of
depreciation and amortization)
|
|
|
499,457 |
|
|
|
|
|
|
|
499,457 |
|
|
|
410,075 |
|
|
|
|
|
|
|
410,075 |
|
|
Depreciation and amortization
|
|
|
388,217 |
|
|
|
|
|
|
|
388,217 |
|
|
|
290,233 |
|
|
|
|
|
|
|
290,233 |
|
|
Corporate expenses (exclusive of depreciation and amortization)
|
|
|
53,770 |
|
|
|
|
|
|
|
53,770 |
|
|
|
39,397 |
|
|
|
|
|
|
|
39,397 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
243,279 |
|
|
|
|
|
|
|
243,279 |
|
|
|
203,318 |
|
|
|
|
|
|
|
203,318 |
|
Interest expense
|
|
|
14,177 |
|
|
|
|
|
|
|
14,177 |
|
|
|
9,874 |
|
|
|
|
|
|
|
9,874 |
|
Intercompany interest expense
|
|
|
145,653 |
|
|
|
(2,445 |
)(3) |
|
|
143,208 |
|
|
|
133,093 |
|
|
|
(25,684 |
)(3) |
|
|
107,409 |
|
Equity in earnings (loss) of nonconsolidated affiliates
|
|
|
(76 |
) |
|
|
|
|
|
|
(76 |
) |
|
|
9,908 |
|
|
|
|
|
|
|
9,908 |
|
Other income (expense) net
|
|
|
(13,341 |
) |
|
|
|
|
|
|
(13,341 |
) |
|
|
(17,353 |
) |
|
|
|
|
|
|
(17,353 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes and cumulative effect of a change in
accounting principle
|
|
|
70,032 |
|
|
|
2,445 |
|
|
|
72,477 |
|
|
|
52,906 |
|
|
|
25,684 |
|
|
|
78,590 |
|
Income tax benefit (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
(23,422 |
) |
|
|
(978 |
)(4) |
|
|
(24,400 |
) |
|
|
(37,767 |
) |
|
|
(10,274 |
)(4) |
|
|
(48,041 |
) |
|
Deferred
|
|
|
(39,132 |
) |
|
|
|
|
|
|
(39,132 |
) |
|
|
6,023 |
|
|
|
|
|
|
|
6,023 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before cumulative effect of a change in accounting
principle
|
|
$ |
7,478 |
|
|
$ |
1,467 |
|
|
$ |
8,945 |
|
|
$ |
21,162 |
|
|
$ |
15,410 |
|
|
$ |
36,572 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted income (loss) before cumulative effect of a
change in accounting principle per common share(2)
|
|
$ |
.02 |
|
|
|
|
|
|
$ |
.03 |
|
|
$ |
.07 |
|
|
|
|
|
|
$ |
.10 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
36
Notes to Unaudited Pro Forma Combined Statement of
Operations
|
|
|
(1) |
|
The unaudited pro forma statement of operations does not reflect
the complete impact of one-time and ongoing incremental costs
required for us to operate as a separate company. Clear Channel
Communications allocated to us $16.6 million in 2004,
$19.6 million in 2003 and $17.6 million in 2002 of
expenses incurred by it for providing us accounting, treasury,
tax, legal, public affairs, executive oversight, human resources
and other services. Through September 30, 2005, Clear
Channel Communications allocated to us $11.8 million of
expenses. After this offering, we expect to continue to receive
from Clear Channel Communications substantially all of these
services. |
|
|
(2) |
|
Basic and diluted income (loss) before cumulative effect of a
change in accounting principle per common share is calculated by
dividing income (loss) before cumulative effect of a change in
accounting principle by the weighted average of common shares
outstanding. The historic basic and diluted is based on
315,000,000 shares outstanding and the pro forma basic and
diluted is based on 350,000,000 shares outstanding. |
|
|
(3) |
|
Includes estimated annual intercompany interest expense of
$143.1 million related to $2.5 billion of intercompany
indebtedness incurred on August 2, 2005, at an estimated
weighted average interest rate of 5.725% for the year ended
December 31, 2004 and 5.725% for the nine months ended
September 30, 2005. The interest rate on this intercompany
indebtedness is based upon the weighted average cost of funds of
Clear Channel Communications, so that a change in the weighted
average cost of funds for Clear Channel Communications could
change the weighted average annual interest rate. A
25 basis point change to the weighted average cost of funds
of Clear Channel Communications would change our annual interest
expense by $6.3 million. Also includes the elimination of
intercompany interest expense incurred pursuant to intercompany
indebtedness between Clear Channel Communications and us of
$145.6 million for the year ended December 31, 2004
and $109.2 million for the nine months ended
September 30, 2005. |
|
(4) |
|
Represents estimated tax (expense) benefit related to the
estimated interest expense adjustment discussed in Note
(3) above at our combined statutory rate of 40% for the
year ended December 31, 2004 and 40% for the nine months
ended September 30, 2005. |
37
Unaudited Pro Forma Combined Balance Sheet
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of September 30, 2005 | |
|
|
| |
|
|
Historical | |
|
Adjustments | |
|
Pro Forma | |
(In thousands) |
|
| |
|
| |
|
| |
Assets |
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$ |
91,676 |
|
|
$ |
|
|
|
$ |
91,676 |
|
|
Accounts receivable, net
|
|
|
679,469 |
|
|
|
|
|
|
|
679,469 |
|
|
Due from Clear Channel Communications
|
|
|
362,154 |
|
|
|
(362,154 |
)(1) |
|
|
|
|
|
Prepaid expenses
|
|
|
69,060 |
|
|
|
|
|
|
|
69,060 |
|
|
Other current assets
|
|
|
40,928 |
|
|
|
|
|
|
|
40,928 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
1,243,287 |
|
|
|
(362,154 |
) |
|
|
881,133 |
|
Property, plant & equipment, net
|
|
|
2,172,197 |
|
|
|
|
|
|
|
2,172,197 |
|
Intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Definite-lived intangibles, net
|
|
|
255,028 |
|
|
|
|
|
|
|
255,028 |
|
|
Indefinite-lived intangibles permits
|
|
|
212,507 |
|
|
|
|
|
|
|
212,507 |
|
|
Goodwill
|
|
|
760,455 |
|
|
|
|
|
|
|
760,455 |
|
Other assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes receivable
|
|
|
5,821 |
|
|
|
|
|
|
|
5,821 |
|
|
Investments in, and advances to, nonconsolidated affiliates
|
|
|
99,447 |
|
|
|
|
|
|
|
99,447 |
|
|
Deferred tax asset
|
|
|
243,030 |
|
|
|
|
|
|
|
243,030 |
|
|
Other assets
|
|
|
302,915 |
|
|
|
|
|
|
|
302,915 |
|
|
Other investments
|
|
|
835 |
|
|
|
|
|
|
|
835 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$ |
5,295,522 |
|
|
$ |
(362,154 |
) |
|
$ |
4,933,368 |
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Shareholders Equity |
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$ |
209,948 |
|
|
$ |
|
|
|
$ |
209,948 |
|
|
Accrued expenses
|
|
|
325,477 |
|
|
|
|
|
|
|
325,477 |
|
|
Accrued interest
|
|
|
2,443 |
|
|
|
|
|
|
|
2,443 |
|
|
Accrued income taxes
|
|
|
19,520 |
|
|
|
|
|
|
|
19,520 |
|
|
Deferred income
|
|
|
98,135 |
|
|
|
|
|
|
|
98,135 |
|
|
Current portion of long-term debt
|
|
|
152,377 |
|
|
|
|
|
|
|
152,377 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
807,900 |
|
|
|
|
|
|
|
807,900 |
|
Long-term debt
|
|
|
96,759 |
|
|
|
|
|
|
|
96,759 |
|
Debt with Clear Channel Communications
|
|
|
3,963,000 |
|
|
|
(1,390,000 |
)(2) |
|
|
2,500,000 |
|
|
|
|
|
|
|
|
(73,000 |
)(2) |
|
|
|
|
Other long-term liabilities
|
|
|
175,965 |
|
|
|
|
|
|
|
175,965 |
|
Minority interest
|
|
|
163,549 |
|
|
|
|
|
|
|
163,549 |
|
Owners equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A common stock
|
|
|
|
|
|
|
350 |
(3) |
|
|
350 |
|
|
Class B common stock
|
|
|
|
|
|
|
3,150 |
(4) |
|
|
3,150 |
|
|
Additional paid-in capital
|
|
|
|
|
|
|
4,179,664 |
(5) |
|
|
5,277,010 |
|
|
|
|
|
|
|
|
294,906 |
(5) |
|
|
|
|
|
|
|
|
|
|
|
696,600 |
(5) |
|
|
|
|
|
|
|
|
|
|
|
105,840 |
(5) |
|
|
|
|
|
Owners net investment
|
|
|
4,179,664 |
|
|
|
(4,179,664 |
)(6) |
|
|
|
|
|
Retained deficit
|
|
|
(4,229,060 |
) |
|
|
|
|
|
|
(4,229,060 |
) |
|
Accumulated other comprehensive income
|
|
|
137,745 |
|
|
|
|
|
|
|
137,745 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total owners equity
|
|
|
88,349 |
|
|
|
1,100,846 |
|
|
|
1,189,195 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and owners equity
|
|
$ |
5,295,522 |
|
|
$ |
(362,154 |
) |
|
$ |
4,933,368 |
|
|
|
|
|
|
|
|
|
|
|
38
Notes to Unaudited Pro Forma Combined Balance Sheet
|
|
|
|
(1) |
|
From September 30, 2005 through the date we complete this
offering, we are recording intercompany transactions with Clear
Channel Communications in Due from Clear Channel
Communications. The balance in the Due from Clear
Channel Communications intercompany account of
approximately $362.2 million on September 30, 2005
will be settled by reducing the outstanding balances of the
approximately $1.4 billion and $73.0 million
intercompany notes by such amount. |
|
|
|
(2) |
|
All of the net proceeds from this offering will be used to repay
approximately $700.1 million, assuming the initial public
offering price of $21.00 per share, the midpoint of the
range set forth on the cover page of this prospectus, of the
outstanding balances of the $1.4 billion and
$73.0 million intercompany notes. The remaining outstanding
balances of the $1.4 billion and $73.0 million intercompany
notes will otherwise be extinguished. |
|
|
|
(3) |
|
Represents the par value of 35,000,000 shares of
Class A common stock issued in connection with this
offering. |
|
|
|
(4) |
|
Prior to this offering, shares of our common stock held by Clear
Channel Communications will be converted into approximately
315,000,000 shares of Class B common stock. |
|
|
|
(5) |
|
Represents (i) the reclassification of Owners
net investment into Additional paid-in
capital, (ii) the impact of the extinguishment of a
portion of the outstanding balance of the approximately
$1.4 billion and $73.0 million intercompany notes,
(iii) the receipt by us of approximately
$700.1 million in this offering net of the par value of our
Class A common stock issued in connection therewith, and
(iv) the exchange of 5,250,000 shares of Class B
common stock with Clear Channel Communications for the remaining
outstanding balance of the approximately $1.4 billion and
$73.0 million intercompany notes. |
|
|
(6) |
|
Represents a reclassification into Additional paid-in
capital. |
39
SELECTED HISTORICAL COMBINED FINANCIAL DATA
The historical financial and other data have been prepared on a
combined basis from Clear Channel Communications combined
financial statements using the historical results of operations
and bases of the assets and liabilities of Clear Channel
Communications outdoor advertising businesses and give
effect to allocations of expenses from Clear Channel
Communications. Our historical financial data will not be
indicative of our future performance nor will such data reflect
what our financial position and results of operations would have
been had we operated as an independent publicly traded company
during the periods shown.
We have prepared our combined financial statements as if Clear
Channel Outdoor Holdings had been in existence as a separate
company throughout all relevant periods. The results of
operations data, segment data and cash flow data for the years
ended December 2001 and 2000 and for the nine months ended
September 30, 2005 and 2004 and the combined balance sheet
data as of December 31, 2001 and 2000 and as of
September 30, 2005 and 2004 presented below were derived
from our unaudited combined financial statements and the
accompanying notes thereto included elsewhere is this
prospectus. The results of operations data, segment data and
cash flow data for the years ended December 31, 2004, 2003
and 2002 and the balance sheet data as of December 31, 2004
and 2003 presented below were derived from our audited combined
financial statements and the accompanying notes thereto included
elsewhere is this prospectus. The combined balance sheet data as
of December 31, 2002 is derived from our audited financial
statements. The operating results for the nine months ended
September 30, 2005 and 2004 include all adjustments
(consisting only of normal recurring adjustments) that we
believe are necessary for a fair statement of the results for
such interim periods.
Results for the nine months ended September 30, 2005 are
not necessarily indicative of the results expected for the
fiscal year ending December 31, 2005 or any future period.
You should read the information contained in this table in
conjunction with Capitalization, Unaudited Pro
Forma Combined Financial Data, Managements
Discussion and Analysis of Financial Condition and Results of
Operations, and the historical audited and unaudited
combined financial statements and the accompanying notes thereto
of us and our combined subsidiaries included elsewhere in this
prospectus.
The following table presents a non-GAAP financial measure,
OIBDAN, which we use to evaluate segment and combined
performance of our business. OIBDAN is not calculated or
presented in accordance with U.S. generally accepted
accounting principles, or GAAP. In Note 3 and
Non-GAAP Financial Measure below, we
explain OIBDAN and reconcile it to operating income (loss), its
most directly comparable financial measure calculated and
presented in accordance with GAAP.
40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended | |
|
|
Year Ended December 31, | |
|
September 30, | |
|
|
| |
|
| |
|
|
2000 | |
|
2001 | |
|
2002 | |
|
2003 | |
|
2004 | |
|
2004 | |
|
2005 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
(In thousands, except per share data) |
|
(Unaudited) | |
|
(Unaudited) | |
|
|
|
|
|
|
|
(Unaudited) | |
|
(Unaudited) | |
Results of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$ |
1,729,438 |
|
|
$ |
1,748,030 |
|
|
$ |
1,859,641 |
|
|
$ |
2,174,597 |
|
|
$ |
2,447,040 |
|
|
$ |
1,761,308 |
|
|
$ |
1,931,471 |
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct operating expenses (exclusive of depreciation and
amortization)
|
|
|
761,312 |
|
|
|
861,854 |
|
|
|
957,830 |
|
|
|
1,133,386 |
|
|
|
1,262,317 |
|
|
|
924,420 |
|
|
|
988,448 |
|
|
Selling, general and administrative expenses (exclusive of
depreciation and amortization)
|
|
|
323,871 |
|
|
|
355,370 |
|
|
|
392,803 |
|
|
|
456,893 |
|
|
|
499,457 |
|
|
|
358,188 |
|
|
|
410,075 |
|
|
Depreciation and amortization
|
|
|
437,349 |
|
|
|
559,498 |
|
|
|
336,895 |
|
|
|
379,640 |
|
|
|
388,217 |
|
|
|
288,810 |
|
|
|
290,233 |
|
|
Corporate expenses (exclusive of depreciation and amortization)
|
|
|
52,431 |
|
|
|
62,266 |
|
|
|
52,218 |
|
|
|
54,233 |
|
|
|
53,770 |
|
|
|
39,451 |
|
|
|
39,397 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
154,475 |
|
|
|
(90,958 |
) |
|
|
119,895 |
|
|
|
150,445 |
|
|
|
243,279 |
|
|
|
150,439 |
|
|
|
203,318 |
|
Interest expense
|
|
|
23,037 |
|
|
|
13,331 |
|
|
|
11,623 |
|
|
|
14,201 |
|
|
|
14,177 |
|
|
|
11,111 |
|
|
|
9,874 |
|
Intercompany interest expense
|
|
|
178,253 |
|
|
|
220,798 |
|
|
|
227,402 |
|
|
|
145,648 |
|
|
|
145,653 |
|
|
|
109,239 |
|
|
|
133,093 |
|
Equity in earnings (loss) of nonconsolidated affiliates
|
|
|
5,888 |
|
|
|
(4,422 |
) |
|
|
3,620 |
|
|
|
(5,142 |
) |
|
|
(76 |
) |
|
|
2,270 |
|
|
|
9,908 |
|
Other income (expense) net
|
|
|
(4,593 |
) |
|
|
(13,966 |
) |
|
|
9,164 |
|
|
|
(8,595 |
) |
|
|
(13,341 |
) |
|
|
(17,210 |
) |
|
|
(17,353 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes and cumulative effect of a
change in accounting principle
|
|
|
(45,520 |
) |
|
|
(343,475 |
) |
|
|
(106,346 |
) |
|
|
(23,141 |
) |
|
|
70,032 |
|
|
|
15,149 |
|
|
|
52,906 |
|
Income tax benefit (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
(4,824 |
) |
|
|
68,101 |
|
|
|
72,008 |
|
|
|
12,092 |
|
|
|
(23,422 |
) |
|
|
6,481 |
|
|
|
(37,767 |
) |
|
Deferred
|
|
|
(37,640 |
) |
|
|
(5,199 |
) |
|
|
(21,370 |
) |
|
|
(23,944 |
) |
|
|
(39,132 |
) |
|
|
(17,730 |
) |
|
|
6,023 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before cumulative effect of a change in accounting
principle
|
|
|
(87,984 |
) |
|
|
(280,573 |
) |
|
|
(55,708 |
) |
|
|
(34,993 |
) |
|
|
7,478 |
|
|
|
3,900 |
|
|
|
21,162 |
|
Cumulative effect of a change in accounting principle, net of
tax of $504,927 in 2002 and $113,173 in 2004(1)
|
|
|
|
|
|
|
|
|
|
|
(3,527,198 |
) |
|
|
|
|
|
|
(162,858 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$ |
(87,984 |
) |
|
$ |
(280,573 |
) |
|
$ |
(3,582,906 |
) |
|
$ |
(34,993 |
) |
|
$ |
(155,380 |
) |
|
$ |
3,900 |
|
|
$ |
21,162 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted income (loss) before cumulative effect of a
change in accounting principle per common share(2)
|
|
$ |
(.28 |
) |
|
$ |
(.89 |
) |
|
$ |
(.18 |
) |
|
$ |
(.11 |
) |
|
$ |
.02 |
|
|
$ |
.01 |
|
|
$ |
.07 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
41
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended | |
|
|
Year Ended December 31, | |
|
September 30, | |
|
|
| |
|
| |
|
|
2000 | |
|
2001 | |
|
2002 | |
|
2003 | |
|
2004 | |
|
2004 | |
|
2005 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
(In thousands) |
|
(Unaudited) | |
|
(Unaudited) | |
|
|
|
|
|
|
|
(Unaudited) | |
|
(Unaudited) | |
Segment Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic
|
|
$ |
885,563 |
|
|
$ |
880,720 |
|
|
$ |
911,493 |
|
|
$ |
1,006,376 |
|
|
$ |
1,092,089 |
|
|
$ |
800,744 |
|
|
$ |
886,649 |
|
|
International
|
|
|
843,875 |
|
|
|
867,310 |
|
|
|
948,148 |
|
|
|
1,168,221 |
|
|
|
1,354,951 |
|
|
|
960,564 |
|
|
|
1,044,822 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
$ |
1,729,438 |
|
|
$ |
1,748,030 |
|
|
$ |
1,859,641 |
|
|
$ |
2,174,597 |
|
|
$ |
2,447,040 |
|
|
$ |
1,761,308 |
|
|
$ |
1,931,471 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic
|
|
$ |
168,872 |
|
|
$ |
30,767 |
|
|
$ |
174,381 |
|
|
$ |
215,485 |
|
|
$ |
263,772 |
|
|
$ |
184,808 |
|
|
$ |
263,448 |
|
|
International
|
|
|
38,034 |
|
|
|
(59,459 |
) |
|
|
(2,268 |
) |
|
|
(10,807 |
) |
|
|
33,277 |
|
|
|
5,082 |
|
|
|
(20,733 |
) |
|
Corporate
|
|
|
(52,431 |
) |
|
|
(62,266 |
) |
|
|
(52,218 |
) |
|
|
(54,233 |
) |
|
|
(53,770 |
) |
|
|
(39,451 |
) |
|
|
(39,397 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating income (loss)
|
|
$ |
154,475 |
|
|
$ |
(90,958 |
) |
|
$ |
119,895 |
|
|
$ |
150,445 |
|
|
$ |
243,279 |
|
|
$ |
150,439 |
|
|
$ |
203,318 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flow Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flow provided by (used in):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities
|
|
|
|
|
|
|
|
|
|
$ |
320,235 |
|
|
$ |
433,459 |
|
|
$ |
492,495 |
|
|
$ |
329,893 |
|
|
$ |
336,637 |
|
|
Investing activities
|
|
|
|
|
|
|
|
|
|
$ |
(430,844 |
) |
|
$ |
(230,162 |
) |
|
$ |
(310,658 |
) |
|
$ |
(227,386 |
) |
|
$ |
(223,189 |
) |
|
Financing activities
|
|
|
|
|
|
|
|
|
|
$ |
173,193 |
|
|
$ |
(222,491 |
) |
|
$ |
(182,006 |
) |
|
$ |
(95,759 |
) |
|
$ |
(48,154 |
) |
Capital expenditures
|
|
|
|
|
|
|
|
|
|
$ |
290,187 |
|
|
$ |
205,145 |
|
|
$ |
176,140 |
|
|
$ |
117,733 |
|
|
$ |
130,484 |
|
Other Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OIBDAN(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic
|
|
$ |
435,299 |
|
|
$ |
362,604 |
|
|
$ |
354,328 |
|
|
$ |
409,722 |
|
|
$ |
450,494 |
|
|
$ |
326,359 |
|
|
$ |
390,867 |
|
|
International
|
|
|
208,956 |
|
|
|
168,202 |
|
|
|
154,680 |
|
|
|
174,596 |
|
|
|
234,888 |
|
|
|
152,423 |
|
|
|
142,593 |
|
|
Corporate
|
|
|
(52,431 |
) |
|
|
(62,266 |
) |
|
|
(52,218 |
) |
|
|
(54,233 |
) |
|
|
(53,770 |
) |
|
|
(39,451 |
) |
|
|
(39,397 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total OIBDAN(3)
|
|
$ |
591,824 |
|
|
$ |
468,540 |
|
|
$ |
456,790 |
|
|
$ |
530,085 |
|
|
$ |
631,612 |
|
|
$ |
439,331 |
|
|
$ |
494,063 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended | |
|
|
| |
|
|
March 31 | |
|
June 30 | |
|
September 30 | |
|
|
| |
|
| |
|
| |
(In thousands) |
|
(Unaudited) | |
|
(Unaudited) | |
|
(Unaudited) | |
2005 Quarterly Results of Operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$ |
578,959 |
|
|
$ |
684,509 |
|
|
$ |
668,003 |
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct operating expenses
|
|
|
326,054 |
|
|
|
332,706 |
|
|
|
329,688 |
|
|
Selling, general and administrative expenses
|
|
|
129,597 |
|
|
|
127,316 |
|
|
|
153,162 |
|
|
Depreciation and amortization
|
|
|
98,266 |
|
|
|
96,562 |
|
|
|
95,405 |
|
|
Corporate expenses
|
|
|
12,975 |
|
|
|
13,423 |
|
|
|
12,999 |
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
12,067 |
|
|
|
114,502 |
|
|
|
76,749 |
|
Interest expense
|
|
|
3,244 |
|
|
|
3,223 |
|
|
|
3,407 |
|
Intercompany interest expense
|
|
|
36,414 |
|
|
|
36,414 |
|
|
|
60,265 |
|
Equity in earnings of nonconsolidated affiliates
|
|
|
345 |
|
|
|
5,602 |
|
|
|
3,961 |
|
Other income (expense) net
|
|
|
(2,211 |
) |
|
|
(4,524 |
) |
|
|
(10,618 |
) |
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
(29,457 |
) |
|
|
75,943 |
|
|
|
6,420 |
|
Income tax (expense) benefit
|
|
|
23,565 |
|
|
|
(58,431 |
) |
|
|
3,122 |
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$ |
(5,892 |
) |
|
$ |
17,512 |
|
|
$ |
9,542 |
|
|
|
|
|
|
|
|
|
|
|
42
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, | |
|
As of September 30, | |
|
|
| |
|
| |
|
|
2000 | |
|
2001 | |
|
2002 | |
|
2003 | |
|
2004 | |
|
2004 | |
|
2005 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
(In thousands) |
|
(Unaudited) | |
|
(Unaudited) | |
|
|
|
|
|
|
|
(Unaudited) | |
|
(Unaudited) | |
Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$ |
19,183 |
|
|
$ |
|
|
|
$ |
45,741 |
|
|
$ |
34,105 |
|
|
$ |
37,948 |
|
|
$ |
39,140 |
|
|
$ |
91,676 |
|
Current assets
|
|
|
588,998 |
|
|
|
642,536 |
|
|
|
753,289 |
|
|
|
958,669 |
|
|
|
1,107,240 |
|
|
|
1,010,645 |
|
|
|
1,243,287 |
|
Property, plant and equipment net
|
|
|
2,330,256 |
|
|
|
2,039,002 |
|
|
|
2,213,817 |
|
|
|
2,264,106 |
|
|
|
2,195,985 |
|
|
|
2,122,346 |
|
|
|
2,172,197 |
|
Total assets
|
|
|
7,705,526 |
|
|
|
7,807,624 |
|
|
|
4,926,205 |
|
|
|
5,232,820 |
|
|
|
5,240,933 |
|
|
|
5,200,407 |
|
|
|
5,295,522 |
|
Current liabilities
|
|
|
1,769,959 |
|
|
|
1,825,904 |
|
|
|
642,330 |
|
|
|
736,202 |
|
|
|
749,055 |
|
|
|
726,900 |
|
|
|
807,900 |
|
Long-term debt, including current maturities
|
|
|
1,490,135 |
|
|
|
1,526,427 |
|
|
|
1,713,493 |
|
|
|
1,670,017 |
|
|
|
1,639,380 |
|
|
|
1,660,164 |
|
|
|
4,212,136 |
|
Total liabilities
|
|
|
2,352,752 |
|
|
|
2,394,226 |
|
|
|
2,347,262 |
|
|
|
2,472,656 |
|
|
|
2,511,280 |
|
|
|
2,444,447 |
|
|
|
5,207,173 |
(4) |
Owners equity
|
|
|
5,352,774 |
|
|
|
5,413,398 |
|
|
|
2,578,943 |
|
|
|
2,760,164 |
|
|
|
2,729,653 |
|
|
|
2,755,960 |
|
|
|
88,349 |
(4) |
Total liabilities and owners equity
|
|
$ |
7,705,526 |
|
|
$ |
7,807,624 |
|
|
$ |
4,926,205 |
|
|
$ |
5,232,820 |
|
|
$ |
5,240,933 |
|
|
$ |
5,200,407 |
|
|
$ |
5,295,522 |
|
|
|
(1) |
Cumulative effect of change in accounting principle for the year
ended December 31, 2002, related to an impairment of
goodwill recognized in accordance with the adoption of Statement
of Financial Accounting Standards No. 142, Goodwill
and Other Intangible Assets. Cumulative effect of change
in accounting principle for the year ended December 31,
2004, related to a non-cash charge recognized in accordance with
the adoption of Topic D-108, Use of Residual Method to Value
Acquired Assets other than Goodwill. See
Managements Discussion and Analysis of Financial
Condition and Results of Operations Critical
Accounting Estimates Indefinite-lived Assets. |
|
|
(2) |
Basic and diluted income (loss) before cumulative effect of a
change in accounting principle per share is calculated by
dividing income (loss) before cumulative effect of a change in
accounting principle by the weighted average common shares
outstanding. The basic and diluted is based on
315,000,000 shares outstanding. |
|
|
(3) |
We evaluate segment and combined performance based on several
factors, one of the primary measures of which is operating
income (loss) before depreciation, amortization and non-cash
compensation expense, which we refer to as OIBDAN. |
|
|
See Non-GAAP Financial Measure below,
Unaudited Pro Forma Combined Financial Data and
Managements Discussion and Analysis of Financial
Condition and Results of Operations Use of
OIBDAN. |
|
(4) |
Reflects the distribution by us to our parent company of an
intercompany note in the original principal amount of
$2.5 billion issued to us by one of our wholly owned
subsidiaries on August 2, 2005. |
Non-GAAP Financial Measure
In addition to operating income, we evaluate segment and
combined performance based on other factors, one primary measure
of which is operating income (loss) before depreciation,
amortization and non-cash compensation expense, which we refer
to as OIBDAN. We use OIBDAN as a measure of the operational
strengths and performance of our business and not as a measure
of liquidity. However, a limitation of the use of OIBDAN as a
performance measure is that it does not reflect the periodic
costs of certain capitalized tangible and intangible assets used
in generating revenues in our business. Accordingly, OIBDAN
should be considered in addition to, and not as a substitute
for, operating income (loss), net income (loss) and other
measures of financial performance reported in accordance with
U.S. GAAP. Furthermore, this measure may vary among other
companies; thus, OIBDAN as presented below may not be comparable
to similarly titled measures of other companies.
We believe OIBDAN is useful to investors and other external
users of our financial statements in evaluating our operating
performance because it is widely used in the outdoor advertising
industry to
43
measure a companys operating performance and it helps
investors more meaningfully evaluate and compare the results of
our operations from period to period and with those of other
companies in the outdoor advertising industry (to the extent the
same components of OIBDAN are used), in each case without regard
to items such as non-cash depreciation and amortization and
non-cash compensation expense, which can vary depending upon the
accounting method used and the book value of assets.
Our management uses OIBDAN (i) as a measure for planning
and forecasting overall and individual expectations and for
evaluating actual results against such expectations,
(ii) as a basis for incentive bonuses paid to our executive
officers and our branch managers and (iii) in presentations
to our board of directors to enable them to have the same
consistent measurement basis of operating performance used by
management.
The following table presents a reconciliation of OIBDAN to
operating income, which is a GAAP measure of our operating
results:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended | |
|
|
Year Ended December 31, | |
|
September 30, | |
|
|
| |
|
| |
|
|
2000 | |
|
2001 | |
|
2002 | |
|
2003 | |
|
2004 | |
|
2004 | |
|
2005 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
(In thousands) |
|
(Unaudited) | |
|
(Unaudited) | |
|
|
|
|
|
|
|
(Unaudited) | |
|
(Unaudited) | |
Reconciliation of OIBDAN to operating income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Combined:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OIBDAN
|
|
$ |
591,824 |
|
|
$ |
468,540 |
|
|
$ |
456,790 |
|
|
$ |
530,085 |
|
|
$ |
631,612 |
|
|
$ |
439,331 |
|
|
$ |
494,063 |
|
|
Depreciation and amortization
|
|
|
437,349 |
|
|
|
559,498 |
|
|
|
336,895 |
|
|
|
379,640 |
|
|
|
388,217 |
|
|
|
288,810 |
|
|
|
290,233 |
|
|
Non-cash compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
116 |
|
|
|
82 |
|
|
|
512 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
$ |
154,475 |
|
|
$ |
(90,958 |
) |
|
$ |
119,895 |
|
|
$ |
150,445 |
|
|
$ |
243,279 |
|
|
$ |
150,439 |
|
|
$ |
203,318 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OIBDAN
|
|
$ |
435,299 |
|
|
$ |
362,604 |
|
|
$ |
354,328 |
|
|
$ |
409,722 |
|
|
$ |
450,494 |
|
|
$ |
326,359 |
|
|
$ |
390,867 |
|
|
Depreciation and amortization
|
|
|
266,428 |
|
|
|
331,837 |
|
|
|
179,947 |
|
|
|
194,237 |
|
|
|
186,620 |
|
|
|
141,479 |
|
|
|
127,019 |
|
|
Non-cash compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
102 |
|
|
|
72 |
|
|
|
400 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
$ |
168,871 |
|
|
$ |
30,767 |
|
|
$ |
174,381 |
|
|
$ |
215,485 |
|
|
$ |
263,772 |
|
|
$ |
184,808 |
|
|
$ |
263,448 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
International:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OIBDAN
|
|
$ |
208,956 |
|
|
$ |
168,202 |
|
|
$ |
154,680 |
|
|
$ |
174,596 |
|
|
$ |
234,888 |
|
|
$ |
152,423 |
|
|
$ |
142,593 |
|
|
Depreciation and amortization
|
|
|
170,921 |
|
|
|
227,661 |
|
|
|
156,948 |
|
|
|
185,403 |
|
|
|
201,597 |
|
|
|
147,331 |
|
|
|
163,214 |
|
|
Non-cash compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14 |
|
|
|
10 |
|
|
|
112 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
$ |
38,035 |
|
|
$ |
(59,459 |
) |
|
$ |
(2,268 |
) |
|
$ |
(10,807 |
) |
|
$ |
33,277 |
|
|
$ |
5,082 |
|
|
$ |
(20,733 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
44
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
INTRODUCTION
Managements discussion and analysis, or MD&A, of our
financial condition and results of operations is provided as a
supplement to the audited annual financial statements and
unaudited interim financial statements and accompanying notes
thereto included elsewhere in this prospectus to help provide an
understanding of our financial condition, changes in our
financial condition and results of our operations. The
information included in MD&A should be read in conjunction
with the annual and interim financial statements. MD&A is
organized as follows:
|
|
|
|
|
Overview. This section provides a general description of
our business, as well as other matters that we believe are
important in understanding our results of operations and
financial condition and in anticipating future trends. |
|
|
|
Results of operations. This section provides an analysis
of our results of operations for the nine months ended
September 30, 2005 and 2004 and the years ended
December 31, 2004, 2003 and 2002. Our discussion is
presented on both a combined and segment basis. Our reportable
operating segments are domestic and international. Approximately
95% of our 2004 domestic revenues were derived from the United
States, with the balance derived from Canada and Latin America.
Approximately 52% of our 2004 international revenues were
derived from France and the United Kingdom. Our French
operations incurred a restructuring charge in the third quarter
of 2005 and in 2003. One measure we use to manage our segments
is operating income. Corporate expenses, interest expense,
equity in earnings (loss) of nonconsolidated affiliates, other
income (expense) net, income taxes and cumulative
effect of change in accounting principle are managed on a total
company basis and are, therefore, included only in our
discussion of combined results. |
|
|
|
Financial condition and liquidity. This section provides
a discussion of our financial condition as of September 30,
2005 and December 31, 2004, as well as an analysis of our
cash flows for the nine months ended September 30,
2005 and 2004 and the years ended December 31, 2004 and
2003. The discussion of our financial condition and liquidity
includes summaries of (i) our primary sources of liquidity,
(ii) our key debt covenants and (iii) our outstanding
debt and commitments (both firm and contingent) that existed as
of September 30, 2005. |
|
|
|
Seasonality. This section discusses seasonal performance
of our domestic and international segments. |
|
|
|
Market risk management. This section discusses how we
manage exposure to potential losses arising from adverse changes
in foreign currency exchange rates and interest rates. |
|
|
|
Critical accounting estimates. This section discusses
accounting policies considered to be important to our financial
condition and results of operations and which require
significant judgment and estimates on the part of management in
their application. In addition, all of our significant
accounting policies, including our critical accounting policies,
are summarized in Note A to our combined financial
statements included elsewhere in this prospectus. |
OVERVIEW
Our revenues are derived from selling advertising space on the
more than 870,000 displays that we own or operate as of
September 30, 2005 in key markets worldwide, consisting
primarily of billboards, street furniture displays and transit
displays. We own the majority of our advertising displays, which
typically are located on sites that we either lease or own or
for which we have acquired permanent easements. Our advertising
contracts with clients typically outline the number of displays
reserved, the
45
duration of the advertising campaign and the unit price per
display. The margins on our billboard contracts tend to be
higher than those on contracts for our other displays.
Generally, our advertising rates are based on the gross
rating points, or total number of impressions delivered
expressed as a percentage of a market population, of a display
or group of displays. The number of impressions
delivered by a display is measured by the number of people
passing the site during a defined period of time and, in some
international markets, is weighted to account for such factors
as illumination, proximity to other displays and the speed and
viewing angle of approaching traffic. To monitor our business,
management typically reviews the average rates, average revenues
per display, occupancy and inventory levels of each of our
display types by market. In addition, because a significant
portion of our advertising operations are conducted in foreign
markets, principally France and the United Kingdom, management
reviews the operating results from our foreign operations on a
constant dollar basis. A constant dollar basis allows for
comparison of operations independent of foreign exchange
movements. Because revenue-sharing and minimum guaranteed
payment arrangements are more prevalent in our international
operations, the margins in our international operations
typically are less than the margins in our domestic operations.
Foreign currency transaction gains and losses, as well as gains
and losses from translation of financial statements of
subsidiaries and investees in highly inflationary countries, are
included in operations.
The significant expenses associated with our operations include
(i) direct production, maintenance and installation
expenses, (ii) site lease expenses for land under our
displays and (iii) revenue-sharing or minimum guaranteed
amounts payable under our street furniture and transit display
contracts. Our direct production, maintenance and installation
expenses include costs for printing, transporting and changing
the advertising copy on our displays, the related labor costs,
the vinyl and paper costs and the costs for cleaning and
maintaining our displays. Vinyl and paper costs vary according
to the complexity of the advertising copy and the quantity of
displays. Our site lease expenses include lease payments for use
of the land under our displays, as well as any revenue-sharing
arrangements we may have with the landlords. The terms of our
domestic site leases typically range from one month to over
50 years, and typically provide for renewal options.
Internationally, the terms of our site leases typically range
from three to ten years, but may vary across our networks.
We have long-standing relationships with a diversified group of
local, regional and national advertising brands and agencies in
the United States and worldwide.
Relationship with Clear Channel Communications
Clear Channel Communications has advised us that its current
intent is to continue to hold all of our Class B common
stock owned by it after this offering and thereby retain its
controlling interest in us. However, Clear Channel
Communications is not subject to any contractual obligation that
would prohibit it from selling, spinning off, splitting off or
otherwise disposing of any shares of our common stock, except
that Clear Channel Communications has agreed not to sell, spin
off, split off or otherwise dispose of any shares of our common
stock for a period of 180 days after the date of this
prospectus without the prior written consent of the
underwriters, subject to certain limitations and limited
exceptions. See Underwriting.
Factors Affecting Results of Operations and Financial
Condition
Our revenues are derived primarily from the sale of advertising
space on displays that we own and operate in key markets
worldwide, and our operating results are therefore affected by
general economic conditions, as well as trends in the
out-of-home advertising industry.
The outdoor advertising industry is significantly influenced by
general local and national economic conditions, as well as the
general advertising environment in individual markets. For
instance, weak national advertising and a difficult competitive
environment in France have led to a decline in our revenues of
approximately $14.5 million for the nine months ended
September 30, 2005, as compared to the same period for the
prior year. In July 2005, we announced a plan to restructure our
French operations to
46
reduce approximately 6% of our French workforce and streamline
our operations, which we anticipate will provide cost savings
over the next three years. In connection with this restructuring
effort, we recorded approximately $26.6 million as a
component of selling, general and administrative expenses.
Government regulation and geopolitical events also impact the
outdoor advertising industry. In certain markets, deregulation
of the advertising industry may have a negative impact on our
revenues. For example, recent changes in French regulation will
allow advertisers to place retail advertisements on television
by January 1, 2007. We anticipate that such changes will
impact our national advertising revenues derived from France as
a portion of French retail advertising dollars shift from
outdoor media to television. National retail advertising in
France is approximately 2% of our consolidated global revenues.
The outdoor advertising industry is also influenced by the
commuting habits of the general population. Population growth
and increasing drive and other commute times are key growth
drivers for us. Outdoor advertising provides advertisers the
ability to capture a growing mobile audience base that spends an
increasing amount of time out-of-home. Technological advances
also provide opportunities in the outdoor advertising industry.
For example, digital display capabilities offer innovative
advances in electronic displays. We recently converted seven
billboards in the Cleveland area from standard to digital
formats and have experienced increases in revenues from those
displays. Technological advances are also expected to allow us
to quickly and frequently change advertisements on displays,
facilitating our transition from selling an advertiser display
space to selling an advertiser time on multiple displays.
There are several additional factors that could materially
impact our results of operations. See Risk Factors
for a more comprehensive list of these factors.
Basis of Presentation
Our combined financial statements have been derived from the
financial statements and accounting records of Clear Channel
Communications, principally from the statements and records
representing Clear Channel Communications Outdoor Segment,
using the historical results of operations and historical bases
of assets and liabilities of our business. The combined
statements of operations include expense allocations for certain
corporate functions historically provided to us by Clear Channel
Communications. These allocations were made on a specifically
identifiable basis or using relative percentages of headcount as
compared to Clear Channel Communications other businesses
or other methods. We and Clear Channel Communications considered
these allocations to be a reflection of the utilization of
services provided. Our expenses as a separate, stand-alone
company may be higher or lower than the amounts reflected in the
combined statements of operations. Additionally, Clear Channel
Communications primarily uses a centralized approach to cash
management and the financing of its operations with all related
acquisition activity between Clear Channel Communications and us
reflected in our owners equity as Owners net
investment while all other cash transactions are recorded
as part of Due from Clear Channel Communications on
our combined balance sheets.
We will incur increased costs as a result of becoming an
independent publicly traded company, primarily from audit fees
paid to our independent public accounting firm, Public Company
Accounting Oversight Board fees, the hiring of additional staff
to fulfill reporting requirements of a public company, NYSE
listing fees and shareholder communications fees. Under the
Corporate Services Agreement, we will bear the costs of certain
services continued to be provided to us by Clear Channel
Communications. We believe cash flow from operations will be
sufficient to fund these additional corporate expenses.
Under the Corporate Services Agreement, Clear Channel
Communications will allocate to us our share of costs for
services provided on our behalf based on actual direct costs
incurred by Clear Channel Communications or an estimate of Clear
Channel Communications expenses incurred on our behalf.
For the years ended December 31, 2004, 2003 and 2002, we
recorded approximately $16.6 million, $19.6 million
and $17.6 million, respectively, and for the nine months
ended September 30, 2005 and 2004, we recorded
approximately $11.8 million and $11.8 million,
respectively, as a component of corporate expenses for these
services. As mentioned above, we will incur additional expenses
associated
47
with being an independent publicly traded company that were not
incurred by Clear Channel Communications in the past. See
Arrangements Between Clear Channel Communications and
Us.
We do not believe that becoming an independent publicly traded
company will have an adverse effect on our growth rates in the
future because we will be comprised of substantially the same
business as the outdoor segment of Clear Channel Communications,
and Clear Channel Communications will retain a significant
financial interest in us immediately after the offering. Our
success will continue to be highly dependent on the overall
health of the local and national economies in which we operate
and the overall health of the advertising environment in each of
our markets. We believe that being a publicly traded company
will provide a stock-based currency that could potentially be
used to raise capital and to more closely align our management
and employee incentives with our business performance.
We believe the assumptions underlying the combined financial
statements are reasonable. However, the combined financial
statements may not necessarily reflect our results of
operations, financial position and cash flows in the future or
what our results of operations, financial position and cash
flows would have been had we been a separate, stand-alone
company during the periods presented.
48
RESULTS OF OPERATIONS
Combined Results of Operations
The following table summarizes our historical results of
operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended | |
|
|
|
|
September 30, | |
|
Year Ended December 31, | |
|
|
| |
|
| |
|
|
2005 | |
|
2004 | |
|
2004 | |
|
2003 | |
|
2002 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
(In thousands) |
|
(Unaudited) | |
|
(Unaudited) | |
|
|
|
|
|
|
Revenues
|
|
$ |
1,931,471 |
|
|
$ |
1,761,308 |
|
|
$ |
2,447,040 |
|
|
$ |
2,174,597 |
|
|
$ |
1,859,641 |
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct operating expenses
|
|
|
988,448 |
|
|
|
924,420 |
|
|
|
1,262,317 |
|
|
|
1,133,386 |
|
|
|
957,830 |
|
|
Selling, general and administrative expenses
|
|
|
410,075 |
|
|
|
358,188 |
|
|
|
499,457 |
|
|
|
456,893 |
|
|
|
392,803 |
|
|
Depreciation and amortization
|
|
|
290,233 |
|
|
|
288,810 |
|
|
|
388,217 |
|
|
|
379,640 |
|
|
|
336,895 |
|
|
Corporate expenses
|
|
|
39,397 |
|
|
|
39,451 |
|
|
|
53,770 |
|
|
|
54,233 |
|
|
|
52,218 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
203,318 |
|
|
|
150,439 |
|
|
|
243,279 |
|
|
|
150,445 |
|
|
|
119,895 |
|
Interest expense (including intercompany)
|
|
|
142,967 |
|
|
|
120,350 |
|
|
|
159,830 |
|
|
|
159,849 |
|
|
|
239,025 |
|
Equity in earnings (loss) of nonconsolidated affiliates
|
|
|
9,908 |
|
|
|
2,270 |
|
|
|
(76 |
) |
|
|
(5,142 |
) |
|
|
3,620 |
|
Other income (expense) net
|
|
|
(17,353 |
) |
|
|
(17,210 |
) |
|
|
(13,341 |
) |
|
|
(8,595 |
) |
|
|
9,164 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes and cumulative effect of a
change in accounting principle
|
|
|
52,906 |
|
|
|
15,149 |
|
|
|
70,032 |
|
|
|
(23,141 |
) |
|
|
(106,346 |
) |
Income tax (expense) benefit:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
(37,767 |
) |
|
|
6,481 |
|
|
|
(23,422 |
) |
|
|
12,092 |
|
|
|
72,008 |
|
|
Deferred
|
|
|
6,023 |
|
|
|
(17,730 |
) |
|
|
(39,132 |
) |
|
|
(23,944 |
) |
|
|
(21,370 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before cumulative effect of a change in accounting
principle
|
|
|
21,162 |
|
|
|
3,900 |
|
|
|
7,478 |
|
|
|
(34,993 |
) |
|
|
(55,708 |
) |
Cumulative effect of a change in accounting principle, net of
tax of $113,173 in 2004 and $504,927 in 2002
|
|
|
|
|
|
|
|
|
|
|
(162,858 |
) |
|
|
|
|
|
|
(3,527,198 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$ |
21,162 |
|
|
$ |
3,900 |
|
|
$ |
(155,380 |
) |
|
$ |
(34,993 |
) |
|
$ |
(3,582,906 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Our revenues increased approximately $170.2 million, or
10%, during the nine months ended September 30, 2005 as
compared to the same period of 2004. Included in these results
is approximately $33.9 million from increases in foreign
exchange as compared to the same period of 2004. Our domestic
operations contributed approximately $85.9 million
primarily from increased bulletin and poster revenues of
approximately $41.4 million. In addition to foreign
exchange increases, our international operations contributed
approximately $50.4 million from approximately
$22.9 million related to our consolidation of Clear Media
Limited, when we increased our investment to a majority
controlling interest during the third quarter of 2005 which we
had previously accounted for as an equity method investment.
Partially offsetting this international revenue growth was a
decline in revenues of approximately $14.5 million from our
media products in France as a result of a difficult economic and
competitive environment.
Our revenues increased approximately $272.4 million, or
13%, during 2004 as compared to 2003. Included in the increase
is approximately $128.6 million from foreign exchange
increases. Our domestic
49
operations contributed approximately $85.7 million to the
increase, primarily from increased rates on our bulletin and
poster inventory. In addition to foreign exchange increases, our
international operations contributed $58.1 million to the
increase, principally from street furniture sales as a result of
an increase in average revenue per display.
Our revenues increased approximately $315.0 million, or
17%, during 2003 as compared to 2002. Included in the increase
is approximately $169.9 million from foreign exchange
increases. Our domestic operations contributed approximately
$94.9 million to the increase, primarily from increased
rates and occupancy on our bulletin inventory and our
acquisition of The Ackerley Group in June 2002, which
contributed approximately $35.4 million for the six months
ended June 30, 2003. In addition to foreign exchange, our
international operations contributed approximately
$50.2 million to the increase, principally from street
furniture sales as a result of an increase in the number of
displays and average revenue per display.
|
|
|
Direct Operating Expenses |
Direct operating expenses increased approximately
$64.0 million, or 7%, during the nine months ended
September 30, 2005 as compared to the same period of 2004.
Included in these expenses is approximately $20.0 million
from increases in foreign exchange as compared to the same
period of 2004. Our domestic operations contributed
approximately $11.6 million to the increased expense of
which approximately $5.6 million related to direct
production expenses and approximately $6.0 million related
to site lease expenses, both of which were associated with the
increase in revenues. In addition to foreign exchange increases,
our international operations increased approximately
$32.4 million, comprised from an approximately
$21.7 million increase in fixed rent and minimum annual
guarantees and approximately $8.7 million from our
consolidation of Clear Media, partially offset by a decline of
approximately $1.6 million of various other expenses.
Direct operating expenses increased $128.9 million, or 11%,
during 2004 as compared to 2003. Included in the increase is
approximately $76.0 million from foreign exchange
increases. Our domestic operations contributed approximately
$33.6 million primarily from increased site lease rent
expense. In addition to foreign exchange increases, our
international operations contributed approximately
$19.3 million, principally from higher site lease rent
expense and approximately $6.2 million from the
consolidation of a joint venture.
Direct operating expenses increased $175.6 million, or 18%,
during 2003 as compared to 2002. Included in the increase is
approximately $102.0 million from foreign exchange
increases. Our domestic operations contributed approximately
$36.1 million, primarily from our acquisition of The
Ackerley Group, which contributed approximately
$19.3 million in direct operating expenses during the six
months ended June 30, 2003. In addition to foreign exchange
increases, our international operations contributed
approximately $37.5 million to the increase principally
from higher site lease rent expense.
|
|
|
Selling, General and Administrative Expenses
(SG&A) |
SG&A increased approximately $51.9 million, or 14%,
during the nine months ended September 30, 2005 as compared
to the same period of 2004. Included in these expenses is
approximately $8.7 million from increases in foreign
exchange as compared to the same period of 2004. Our domestic
operations increased approximately $10.1 million
principally from an approximately $2.9 million increase in
commission expenses and an approximately $1.8 million
increase in bad debt expense. In addition to foreign exchange
increases, our international operations increased approximately
$33.1 million, principally from approximately
$26.6 million of costs related to the restructuring of our
business in France and approximately $3.8 million from our
consolidation of Clear Media.
SG&A increased approximately $42.6 million, or 9%,
during 2004 as compared to 2003. Included in the increase is
approximately $31.3 million from foreign exchange
increases. Our domestic operations contributed approximately
$11.4 million primarily from commission expenses associated
with the increase in revenue. In addition to foreign exchange,
our international operations SG&A declined approximately
50
$0.1 million. The decline is primarily due to a
restructuring charge of $13.8 million in France taken
during 2003, partially offset by a restructuring charge of
$4.1 million in Spain taken during 2004, $2.6 million
associated with the consolidation of a joint venture, as well as
increased commission expenses associated with the increase in
revenue during 2004.
SG&A increased approximately $64.1 million, or 16%,
during 2003 as compared to 2002. Included in the increase is
approximately $43.2 million from foreign exchange
increases. Our domestic operations contributed approximately
$3.4 million primarily from increased commission expenses
associated with the increase in revenue. In addition to foreign
exchange, in 2003 our international operations contributed
approximately $17.5 million principally from a
restructuring charge in France of approximately
$13.8 million taken during 2003.
Our branch managers have historically followed a corporate
policy allowing Clear Channel Communications to use, without
charge, domestic displays that they or their staff believe would
otherwise be unsold. Our sales personnel receive partial revenue
credit for that usage for compensation purposes. This partial
revenue credit is not included in our reported revenues. Clear
Channel Communications bears the cost of producing the
advertising and we bear the costs of installing and removing
this advertising. In 2004, we estimated that these discounted
revenues would have been less than 3% of our domestic revenues.
Under the Master Agreement, this policy will continue.
|
|
|
Depreciation and Amortization |
Depreciation and amortization increased approximately
$8.6 million in 2004 as compared to 2003. The increase is
primarily attributable to approximately $3.0 million
related to damage from the hurricanes that struck Florida and
the Gulf Coast during the third quarter of 2004 and
approximately $18.8 million from fluctuations in foreign
exchange rates that impacted our international segment, largely
offset by accelerated depreciation on display takedowns and
abandonments of approximately $17.1 million recognized
during 2003 that did not reoccur during 2004.
Depreciation and amortization increased approximately
$42.7 million in 2003 as compared to 2002. The increase is
primarily attributable to approximately $25.0 million from
foreign exchange increases, increased display takedowns in 2003
as compared to 2002 of approximately $12.2 million and our
acquisition of The Ackerley Group in June 2002 which contributed
approximately $2.4 million.
Clear Channel Communications provides management services to us,
which include, among other things, (i) treasury, payroll
and other financial related services, (ii) executive
officer services, (iii) human resources and employee
benefits services, (iv) legal, public affairs and related
services, (v) information systems, network and related
services, (vi) investment services, (vii) corporate
services and (viii) procurement and sourcing support
services. These services are allocated to us based on actual
direct costs incurred or on Clear Channel Communications
estimate of expenses relative to a seasonally adjusted
headcount. For the nine months ended September 30, 2005 and
2004 and for the years ended December 31, 2004, 2003, and
2002, we recorded approximately $11.8 million,
$11.8 million, $16.6 million, $19.6 million, and
$17.6 million, respectively, as a component of corporate
expenses for these services.
|
|
|
Interest Expense (Including Intercompany) |
Interest expense increased $22.6 million for the nine
months ended September 30, 2005 compared to the same period
of 2004 primarily from a $2.5 billion intercompany note
with Clear Channel Communications issued on August 2, 2005.
The note accrues interest at a variable per annum rate based on
the weighted average cost of debt for Clear Channel
Communications, calculated on a monthly basis. The estimated
weighted average interest rate for the period ended
September 30, 2005 was 5.7%.
51
Throughout 2002, we had in place a revolving demand promissory
note with Clear Channel Communications. Effective
December 31, 2002, Clear Channel Communications capitalized
amounts included in the revolving demand promissory note into
two fixed principal and interest rate notes. The first note is
in the original principal amount of approximately
$1.4 billion and accrues interest at a per annum rate of
10%. The second note is in the original principal amount of
$73.0 million and accrues interest at a per annum rate of
9%. This capitalization effectively lowered our interest expense
for the years ended December 31, 2004 and 2003 as compared
to 2002 because the revolving demand promissory note had a
higher average balance than the two fixed rate promissory notes.
|
|
|
Other Income (Expense) Net |
The principal components of other income (expense)
net were:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, | |
(In millions) |
|
| |
|
|
2004 | |
|
2003 | |
|
2002 | |
|
|
| |
|
| |
|
| |
Royalty fee
|
|
$ |
(15.8 |
) |
|
$ |
(14.1 |
) |
|
$ |
|
|
Gain on sale of operating and fixed assets
|
|
|
11.7 |
|
|
|
11.1 |
|
|
|
7.1 |
|
Transitional asset retirement obligation
|
|
|
|
|
|
|
(7.0 |
) |
|
|
|
|
Minority interest
|
|
|
(7.6 |
) |
|
|
(3.9 |
) |
|
|
1.8 |
|
Other
|
|
|
(1.6 |
) |
|
|
5.3 |
|
|
|
.3 |
|
|
|
|
|
|
|
|
|
|
|
Total other income (expense) net
|
|
$ |
(13.3 |
) |
|
$ |
(8.6 |
) |
|
$ |
9.2 |
|
|
|
|
|
|
|
|
|
|
|
The royalty fee represents payments to Clear Channel
Communications for our use of certain trademarks and licenses.
Our operations are included in a consolidated income tax return
filed by Clear Channel Communications. However, for our
financial statements, our provision for income taxes was
computed on the basis that we file separate consolidated income
tax returns with our subsidiaries.
Current tax expense for the nine months ended September 30,
2005 increased approximately $44.2 million as compared to
the nine months ended September 30, 2004. This increase is
primarily due to an approximately $37.8 million increase in
Income before income taxes for the nine months ended
September 30, 2005 as compared to the nine months ended
September 30, 2004. In addition, current tax expense from
foreign operations increased approximately $16.5 million
during the current period as compared to the prior period
primarily due to a change in local country tax law that resulted
in the recognition of additional current tax expense and less
deferred tax expense for the nine months ended
September 30, 2005. During the nine months ended
September 30, 2004, current tax expense was reduced by
amounts associated with the disposition of certain assets.
Deferred tax benefit for the nine months ended
September 30, 2005 was approximately $6.0 million as
compared to a tax expense of $17.7 million for the nine
months ended September 30, 2004. The deferred tax benefit
for the nine months ended September 30, 2005 primarily
relates to the reversal of foreign deferred tax liabilities that
were set up at acquisition for certain contract valuations.
During the nine months ended September 30, 2004, deferred
tax expense was increased $7.4 million related to the
disposition of certain assets.
Our effective tax rate for the year ended December 31, 2004
was 89%. The effective tax rate is a result of our mix of
earnings and losses in foreign jurisdictions and certain
deferred tax adjustments necessary to transition from being a
wholly-owned subsidiary and certain other impacting events.
Current and deferred foreign tax expense of $16.6 million
was recorded on certain international subsidiaries generating
net positive taxable income. There were no current and deferred
foreign tax benefits recorded on certain international
subsidiaries generating taxable losses due to the uncertainty of
the ability
52
to utilize such losses within the applicable carryforward
periods. The impact of the foregoing provides for foreign tax
expense of $16.6 million on foreign pre-tax earnings of
$14.8 million, which is an effective tax rate of 112.2% The
foreign tax rate in combination with certain adjustments to our
domestic effective tax rate related to (i) additional state
deferred tax expense necessary to adjust state deferred tax
assets to an amount expected to be recoverable in future years
considering the pending Clear Channel Communications group
structure changes, and (ii) additional current tax expense
of approximately $6.3 million necessary to accrue for tax
and interest on ongoing tax contingencies, contribute to our
overall effective tax rate for the period.
During 2003, we recorded additional current tax expense due to
certain tax contingencies of approximately $10.1 million.
In addition, we did not record a tax benefit on certain tax
losses from our foreign operations due to the uncertainty of the
ability to utilize those tax losses in the future. As a result
of the above items, our effective tax rate of negative 51%
resulted in an income tax expense of approximately
$11.9 million on an approximately $23.1 million loss
before income taxes and cumulative effect of a change in
accounting principle for the year ended December 31, 2003.
During 2002, we recorded a tax benefit from foreign operations
of approximately $17.0 million on foreign income before
income tax of approximately $7.6 million. The tax benefit
was the result of the blending of income taxed in low tax rate
jurisdictions and losses benefited in high tax rate
jurisdictions.
|
|
|
Cumulative Effect of a Change in Accounting
Principle |
The SEC staff issued Staff Announcement No. D-108, Use
of the Residual Method to Value Acquired Assets Other Than
Goodwill, at the September 2004 meeting of the Emerging
Issues Task Force which we adopted in the fourth quarter of
2004. The Staff Announcement states that the residual method
should no longer be used to value intangible assets other than
goodwill. Rather, a direct method should be used to determine
the fair value of all intangible assets other than goodwill
required to be recognized under Statement of Financial
Accounting Standards No. 141, Business Combinations.
Our adoption of the Staff Announcement resulted in an aggregate
carrying value of our domestic permits that was in excess of
their fair value. The Staff Announcement requires us to report
the excess value of approximately $162.9 million, net of
tax, as a cumulative effect of a change in accounting principle.
The loss recorded as a cumulative effect of a change in
accounting principle during 2002 relates to our adoption of
Statement 142 on January 1, 2002. Statement 142
required that we test goodwill and permits for impairment using
a fair value approach. As a result of the goodwill test, we
recorded a non-cash, net of tax, impairment charge of
approximately $3.5 billion. As required by
Statement 142, a subsequent impairment test was performed
at October 1, 2002, which resulted in no additional
impairment charge. The non-cash impairment of our goodwill was
generally caused by unfavorable economic conditions, which
persisted throughout 2001. This weakness contributed to our
clients reducing the number of advertising dollars spent
on our inventory. These conditions adversely impacted the cash
flow projections used to determine the fair value of each
reporting unit at January 1, 2002 which resulted in the
non-cash impairment charge of a portion of our goodwill.
Domestic Results of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended | |
|
|
|
|
September 30, | |
|
Year Ended December 31, | |
|
|
| |
|
| |
|
|
2005 | |
|
2004 | |
|
2004 | |
|
2003 | |
|
2002 | |
(In thousands) |
|
| |
|
| |
|
| |
|
| |
|
| |
Revenues
|
|
$ |
886,649 |
|
|
$ |
800,744 |
|
|
$ |
1,092,089 |
|
|
$ |
1,006,376 |
|
|
$ |
911,493 |
|
Direct operating expenses
|
|
|
359,263 |
|
|
|
347,619 |
|
|
|
468,687 |
|
|
|
435,075 |
|
|
|
399,006 |
|
Selling, general and administrative expenses
|
|
|
136,919 |
|
|
|
126,838 |
|
|
|
173,010 |
|
|
|
161,579 |
|
|
|
158,159 |
|
Depreciation and amortization
|
|
|
127,019 |
|
|
|
141,479 |
|
|
|
186,620 |
|
|
|
194,237 |
|
|
|
179,947 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
$ |
263,448 |
|
|
$ |
184,808 |
|
|
$ |
263,772 |
|
|
$ |
215,485 |
|
|
$ |
174,381 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
53
For the nine months ended September 30, 2005, our revenues
grew approximately $85.9 million, or 11%, over the same
period of the prior year. The increase was primarily due to
approximately $41.4 million attributable to increased rates
on our bulletin and poster inventory during 2005. Growth
occurred across our markets including New York, Miami, Houston,
Seattle, Cleveland and Las Vegas. Revenues from our airport,
street furniture and transit advertising displays contributed
the majority of the remaining $44.5 million increase.
Strong advertising client categories for the nine months ended
September 30, 2005 included automotive, entertainment and
amusements, business and consumer services, retail and
telecommunications.
Direct operating expenses increased approximately
$11.6 million, or 3%, during the nine months ended
September 30, 2005 as compared to the same period in 2004.
The increase is from approximately $5.6 million related to
direct production expenses and approximately $6.0 million
related to site lease expenses, both of which were associated
with the increase in revenues. SG&A increased
$10.1 million, or 8%, principally from an approximately
$2.9 million increase in commission expenses and an
approximately $1.8 million increase in bad debt expense.
Depreciation and amortization expense decreased approximately
$14.5 million during the nine months ended
September 30, 2005 as compared to the same period of 2004,
due to fewer display takedowns during the current period, which
resulted in less accelerated deprecation. During the nine months
ended September 30, 2004, our management team made
strategic decisions to remove certain advertising structures to
enhance overall geographic area profits. As a result of these
decisions, advertising structures were removed and their
remaining book value was written off as additional depreciation
expense.
During 2004, revenues increased approximately
$85.7 million, or 9%, over 2003. Revenue growth occurred
across our inventory, with bulletins and posters leading the
way. Increased rates drove the growth in bulletin revenues,
partially offset by a decrease in occupancy. We also grew rates
on our poster inventory in 2004, with occupancy flat compared to
2003. Revenue growth occurred across the nation, fueled by
growth in Los Angeles, New York, Miami, San Antonio,
Seattle and Cleveland. The client categories leading revenue
growth remained consistent throughout the year, the largest
being entertainment. Business and consumer services was also a
strong client category and was led by advertising spending from
banking and telecommunications clients. Revenues from the
automotive client category increased due to national, regional
and local auto dealer advertisements.
Direct operating expenses increased approximately
$33.6 million, or 8%, during 2004 as compared to 2003
primarily as a result of $21.8 million from site lease rent
expense as a result of an increase in revenue-share payments
associated with the increase in revenues. Our SG&A in 2004
increased approximately $11.4 million, or 7%, primarily
from approximately $5.1 million related to commission and
wage expenses relative to the growth in revenue.
During 2003, revenues increased approximately
$94.9 million, or 10%, over 2002. Included in the increase
is our acquisition of The Ackerley Group, acquired in June 2002,
which contributed approximately $35.4 million in revenues
during the six months ended June 30, 2003. In addition to
the acquisition of The Ackerley Group, our bulletin inventory
fueled the growth. Our bulletin inventory performed well year
over year in the vast majority of our markets, with both rates
and occupancy up. We saw strong growth in both large markets
such as New York, San Francisco, Miami and Tampa and in
smaller markets such as Albuquerque and Chattanooga. Top
domestic advertising categories for us during 2003 were business
and consumer services, media and entertainment and automotive.
Direct operating expenses increased $36.1 million, or 9%,
during 2003 as compared to 2002 primarily as a result of The
Ackerley Group, which contributed approximately
$19.3 million. The remaining $16.8 million of the
increase is attributable to direct production and site lease
rent expenses relative to the growth in revenue. SG&A in
2003 increased $3.4 million, or 2%, primarily from
$2.6 million related to bonus and commission expenses
relative to the growth in revenue.
Depreciation and amortization increased approximately
$14.3 million in 2003 as compared to 2002. The increase is
primarily attributable to increased display takedowns in 2003 as
compared to 2002 of
54
approximately $12.2 million and our acquisition of The
Ackerley Group in June 2002, which contributed approximately
$2.4 million, offset by a decline in depreciation and
amortization of $0.3 million.
International Results of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended | |
|
|
|
|
September 30, | |
|
Year Ended December 31, | |
|
|
| |
|
| |
|
|
2005 | |
|
2004 | |
|
2004 | |
|
2003 | |
|
2002 | |
(In thousands) |
|
| |
|
| |
|
| |
|
| |
|
| |
Revenues
|
|
$ |
1,044,822 |
|
|
$ |
960,564 |
|
|
$ |
1,354,951 |
|
|
$ |
1,168,221 |
|
|
$ |
948,148 |
|
Direct operating expenses
|
|
|
629,185 |
|
|
|
576,801 |
|
|
|
793,630 |
|
|
|
698,311 |
|
|
|
558,824 |
|
Selling, general and administrative expenses
|
|
|
273,156 |
|
|
|
231,350 |
|
|
|
326,447 |
|
|
|
295,314 |
|
|
|
234,644 |
|
Depreciation and amortization
|
|
|
163,214 |
|
|
|
147,331 |
|
|
|
201,597 |
|
|
|
185,403 |
|
|
|
156,948 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
$ |
(20,733 |
) |
|
$ |
5,082 |
|
|
$ |
33,277 |
|
|
$ |
(10,807 |
) |
|
$ |
(2,268 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues increased approximately $84.3 million, or 9%,
during the nine months ended September 30, 2005 as compared
to the same period in 2004. The growth includes approximately
$33.9 million from foreign exchange increases. Also
included in the nine months ended September 30, 2005 is
approximately $22.9 million from our consolidation of Clear
Media, which we acquired during the third quarter of 2005 and
had previously accounted for as an equity method investment.
Partially offsetting this increase is an approximately
$14.5 million revenue decline from our media products in
France. Our revenue growth was attributable to our street
furniture and transit revenues.
Direct operating expenses grew $52.4 million, or 9%, during
the nine months ended September 30, 2005 as compared to the
same period of the prior year. Included in these results is
approximately $20.0 million from increases in foreign
exchange as compared to the same period of 2004. In addition to
foreign exchange increases, our direct operating expenses grew
approximately $32.4 million, principally from an
approximately $21.7 million increase in fixed rent and
minimum annual guarantees and approximately $8.7 million
from our consolidation of Clear Media, partially offset by a
decline of approximately $1.6 million of various other
expenses. Our SG&A grew approximately $41.8 million, or
18%, during the nine months ended September 30, 2005 as
compared to the same period of the prior year. Included in these
results is approximately $8.7 million from increases in
foreign exchange as compared to the same period of 2004. In
addition to foreign exchange increases, SG&A grew
approximately $33.1 million, principally from an
approximately $26.6 million of costs related to the
restructuring of our business in France and approximately
$3.8 million from our consolidation of Clear Media.
Depreciation and amortization expense increased approximately
$15.9 million during the first nine months of 2005 as
compared to the same period of the prior year, due primarily to
increases in foreign exchange.
During 2004, revenues increased approximately
$186.7 million, or 16%, over 2003, including approximately
$128.6 million from foreign exchange increases. Street
furniture sales in the United Kingdom, Belgium, Australia,
New Zealand and Denmark were the leading contributors to
our revenue growth. We saw strong demand for our street
furniture inventory, enabling us to realize an increase in the
average revenues per display. Our billboard revenues increased
slightly as a result of an increase in average revenues per
display. Also contributing to the increase was approximately
$10.4 million related to the consolidation of our outdoor
advertising joint venture in Australia during the second quarter
of 2003, which we had previously accounted for under the equity
method of accounting. Tempering our 2004 results were a
difficult competitive environment for billboard sales in the
United Kingdom and challenging market conditions for all of our
products in France.
Direct operating expenses increased $95.3 million, or 14%,
during 2004 as compared to 2003. Included in the increase is
approximately $76.0 million from foreign exchange
increases. In addition to foreign exchange, direct operating
expenses grew approximately $19.3 million during this
period, principally from higher site lease rent expense and
approximately $6.2 million from the consolidation of a
joint venture in
55
Australia, which was previously accounted for under the equity
method. SG&A increased $31.1 million, or 11%, during
2004 as compared to 2003. Included in the increase is
approximately $31.3 million from foreign exchange
increases. After the effect of foreign exchange increases,
SG&A declined approximately $0.2 million. The decline
is primarily due to a restructuring charge of $13.8 million
in France taken during 2003, partially offset by a restructuring
charge of $4.1 million in Spain taken during 2004,
$2.6 million associated with the consolidation of a joint
venture, as well as increased commission expenses associated
with the increase in revenue during 2004.
Depreciation and amortization increased approximately
$16.2 million in 2004 as compared to 2003 primarily
attributable to foreign exchange increases.
During 2003, revenues increased approximately
$220.1 million, or 23%, over 2002, including approximately
$169.9 million from foreign exchange increases. Revenue
growth was spurred by our transit displays and street furniture
inventory. This growth was due to an increase in displays and
average revenues per display primarily from our street furniture
products. Strong markets for our street furniture inventory were
Australia, Norway and the United Kingdom. This revenue increase
was slightly offset by a decline in our billboard revenues.
Direct operating expenses increased $139.5 million, or 25%,
during 2003 as compared to 2002. Included in the increase is
approximately $102.0 million from foreign exchange
increases. In addition to foreign exchange, direct operating
expenses increased approximately $37.5 million during this
period principally from higher site lease rent expense
associated with the increase in revenue. SG&A increased
$60.7 million, or 26%, during 2003 as compared to 2002.
Included in the increase is approximately $43.2 million
from foreign exchange increases. In addition to foreign
exchange, SG&A grew approximately $17.5 million during
this period principally from a restructuring charge in France of
approximately $13.8 million taken during 2003.
Depreciation and amortization increased approximately
$28.5 million in 2003 as compared to 2002 primarily
attributable to approximately $25.0 million from foreign
exchange increases.
|
|
|
Reconciliation of Segment Operating Income (Loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended | |
|
|
|
|
September 30, | |
|
Year Ended December 31, | |
|
|
| |
|
| |
|
|
2005 | |
|
2004 | |
|
2004 | |
|
2003 | |
|
2002 | |
(In thousands) |
|
| |
|
| |
|
| |
|
| |
|
| |
Domestic outdoor
|
|
$ |
263,448 |
|
|
$ |
184,808 |
|
|
$ |
263,772 |
|
|
$ |
215,485 |
|
|
$ |
174,381 |
|
International outdoor
|
|
|
(20,733 |
) |
|
|
5,082 |
|
|
|
33,277 |
|
|
|
(10,807 |
) |
|
|
(2,268 |
) |
Corporate
|
|
|
(39,397 |
) |
|
|
(39,451 |
) |
|
|
(53,770 |
) |
|
|
(54,233 |
) |
|
|
(52,218 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Combined operating income
|
|
$ |
203,318 |
|
|
$ |
150,439 |
|
|
$ |
243,279 |
|
|
$ |
150,445 |
|
|
$ |
119,895 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
USE OF OIBDAN
In addition to operating income, we evaluate segment and
combined performance based on other factors, one primary measure
of which is operating income (loss) before depreciation,
amortization and non-cash compensation expense, which we refer
to as OIBDAN. We use OIBDAN as a measure of the operational
strengths and performance of our business and not as a measure
of liquidity. However, a limitation of the use of OIBDAN as a
performance measure is that it does not reflect the periodic
costs of certain capitalized tangible and intangible assets used
in generating revenues in our business. Accordingly, OIBDAN
should be considered in addition to, and not as a substitute
for, operating income (loss), net income (loss) and other
measures of financial performance reported in accordance with
U.S. GAAP. Furthermore, this measure may vary among other
companies; thus, OIBDAN as presented below may not be comparable
to similarly titled measures of other companies.
We believe OIBDAN is useful to investors and other external
users of our financial statements in evaluating our operating
performance because it is widely used in the outdoor advertising
industry to
56
measure a companys operating performance and it helps
investors more meaningfully evaluate and compare the results of
our operations from period to period and with those of other
companies in the outdoor advertising industry (to the extent the
same components of OIBDAN are used), in each case without regard
to items such as non-cash depreciation and amortization and
non-cash compensation expense, which can vary depending upon the
accounting method used and the book value of assets.
Our management uses OIBDAN (i) as a measure for planning
and forecasting overall and individual expectations and for
evaluating actual results against such expectations,
(ii) as a basis for incentive bonuses paid to our executive
officers and our branch managers and (iii) in presentations
to our board of directors to enable them to have the same
consistent measurement basis of operating performance used by
management.
The following table presents a reconciliation of OIBDAN to
operating income, which is a GAAP measure of our operating
results:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended | |
|
|
|
|
September 30, | |
|
Year Ended December 31, | |
|
|
| |
|
| |
|
|
2005 | |
|
2004 | |
|
2004 | |
|
2003 | |
|
2002 | |
(In thousands) |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(Unaudited) | |
|
(Unaudited) | |
|
|
|
|
|
|
Reconciliation of OIBDAN to operating income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Combined:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OIBDAN
|
|
$ |
494,063 |
|
|
$ |
439,331 |
|
|
$ |
631,612 |
|
|
$ |
530,085 |
|
|
$ |
456,790 |
|
Depreciation and amortization
|
|
|
290,233 |
|
|
|
288,810 |
|
|
|
388,217 |
|
|
|
379,640 |
|
|
|
336,895 |
|
Non-cash compensation
|
|
|
512 |
|
|
|
82 |
|
|
|
116 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
$ |
203,318 |
|
|
$ |
150,439 |
|
|
$ |
243,279 |
|
|
$ |
150,445 |
|
|
$ |
119,895 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OIBDAN
|
|
$ |
390,867 |
|
|
$ |
326,359 |
|
|
$ |
450,494 |
|
|
$ |
409,722 |
|
|
$ |
354,328 |
|
Depreciation and amortization
|
|
|
127,019 |
|
|
|
141,479 |
|
|
|
186,620 |
|
|
|
194,237 |
|
|
|
179,947 |
|
Non-cash compensation
|
|
|
400 |
|
|
|
72 |
|
|
|
102 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
$ |
263,448 |
|
|
$ |
184,808 |
|
|
$ |
263,772 |
|
|
$ |
215,485 |
|
|
$ |
174,381 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
International:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OIBDAN
|
|
$ |
142,593 |
|
|
$ |
152,423 |
|
|
$ |
234,888 |
|
|
$ |
174,596 |
|
|
$ |
154,680 |
|
Depreciation and amortization
|
|
|
163,214 |
|
|
|
147,331 |
|
|
|
201,597 |
|
|
|
185,403 |
|
|
|
156,948 |
|
Non-cash compensation
|
|
|
112 |
|
|
|
10 |
|
|
|
14 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
$ |
(20,733 |
) |
|
$ |
5,082 |
|
|
$ |
33,277 |
|
|
$ |
(10,807 |
) |
|
$ |
(2,268 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Our combined OIBDAN increased $54.7 million, or 12%, for
the nine months ended September 30, 2005 as compared to the
same period of 2004 primarily as a result of approximately
$64.5 million from our domestic operations driven by
increased revenues across our domestic inventory. Included in
the increase is approximately $5.2 million from foreign
exchange increases. In addition to the foreign exchange
increase, our international segments OIBDAN declined
approximately $15.0 million primarily from approximately
$26.6 million related to restructuring expenses in France
during the third quarter of 2005, partially offset by an OIBDAN
increase of $10.4 million from our consolidation of Clear
Media.
Our combined OIBDAN increased $101.5 million, or 19%, for
the year ended December 31, 2004 compared to the same
period of 2003. Our domestic segment contributed
$40.8 million and our international segment contributed
$60.3 million, including approximately $21.3 million
from foreign exchange increases, while our corporate expenses
decreased during 2004 by $0.4 million. The domestic OIBDAN
growth was attributable to increased bulletin and poster sales
while international OIBDAN growth was led by increased street
furniture sales. We experienced OIBDAN margin expansion during
57
2004 compared to 2003 primarily related to a $13.8 million
restructuring charge taken in France during the second quarter
of 2003.
Our combined OIBDAN increased $73.3 million, or 16%, for
the year ended December 31, 2003 compared to the same
period of 2002. Our domestic segment contributed
$55.4 million and our international segment contributed
$19.9 million, while our corporate expenses increased
during 2003 by $2.0 million. Our domestic OIBDAN growth was
attributable to bulletin sales and our domestic OIBDAN margin
increased partially as a result of The Ackerley Group. The
Ackerley Group contributed $16.1 million in OIBDAN and had
a higher OIBDAN margin than our overall domestic OIBDAN margin
for the first six months of 2003. Our combined OIBDAN margin
decreased during 2003 compared to 2002 primarily from a
$13.8 million restructuring charge taken in France during
the second quarter of 2003. Included in OIBDAN for the year
ended December 31, 2003 is approximately $24.7 million
from foreign exchange increases over the same period of 2002.
FINANCIAL CONDITION AND LIQUIDITY
Financial Condition as of September 30, 2005
As of September 30, 2005, we had approximately
$4.2 billion of debt, approximately $91.7 million of
cash and cash equivalents and approximately $88.3 million
of owners equity. On August 2, 2005 we distributed an
intercompany note in the original principal amount of
$2.5 billion as a dividend on our common stock, which note
was ultimately distributed to Clear Channel Communications. We
intend to use all of the net proceeds from this offering to
repay a portion of the intercompany indebtedness owed to Clear
Channel Communications.
Financial Condition as of December 31, 2004
As of December 31, 2004, we had approximately
$1.6 billion of debt, approximately $37.9 million of
cash and equivalents and approximately $2.7 billion of
owners equity. This compares to approximately
$1.7 billion of debt, approximately $34.1 million of
cash and equivalents and approximately $2.8 billion of
owners equity as of December 31, 2003.
Cash Flows
The following table summarizes our historical cash flows. The
financial data for the years ended December 31, 2004 and
2003 have been derived from our audited financial statements
included elsewhere in this prospectus. The financial data for
the nine months ended September 30, 2005 and 2004 are
unaudited and are derived from our interim financial statements
included elsewhere in this prospectus.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended | |
|
|
|
|
September 30, | |
|
Year Ended December 31, | |
(In thousands) |
|
| |
|
| |
|
|
2005 | |
|
2004 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
| |
Cash provided by (used in):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities
|
|
$ |
336,637 |
|
|
$ |
329,893 |
|
|
$ |
492,495 |
|
|
$ |
433,459 |
|
|
Investing activities
|
|
$ |
(223,189 |
) |
|
$ |
(227,386 |
) |
|
$ |
(310,658 |
) |
|
$ |
(230,162 |
) |
|
Financing activities
|
|
$ |
(48,154 |
) |
|
$ |
(95,759 |
) |
|
$ |
(182,006 |
) |
|
$ |
(222,491 |
) |
|
|
|
Nine Months Ended September 30, 2005 as Compared to Nine
Months Ended September 30, 2004 |
Cash provided by operations was approximately
$336.6 million for the nine months ended September 30,
2005, compared to cash provided by operations of approximately
$329.9 million for the nine months ended September 30,
2004. The approximately $6.7 million increase relates
primarily to changes in working capital items.
58
|
|
|
Year Ended December 31, 2004 as Compared to Year Ended
December 31, 2003 |
Cash provided by operations was approximately
$492.5 million for the year ended December 31, 2004,
as compared to cash provided by operations of approximately
$433.5 million for the year ended December 31, 2003.
The change in cash provided by operations resulted primarily
from an increase in income before cumulative effect of a change
in accounting principle of approximately $42.5 million.
|
|
|
Nine Months Ended September 30, 2005 as Compared to Nine
Months Ended September 30, 2004 |
Cash used in investing activities was approximately
$223.2 million for the nine months ended September 30,
2005 as compared to approximately $227.4 million for the
nine months ended September 30, 2004. The $4.2 million
change relates primarily to the approximately $7.5 million
used to purchase an additional interest in Clear Channel
Independent, a nonconsolidated affiliate in South Africa, offset
by $12.1 million in cash received on the sale of our
investment in SBS Broadcasting, Inc., both occurring in 2004. We
purchased approximately $12.8 million more of property
plant and equipment in 2005.
|
|
|
Year Ended December 31, 2004 as Compared to Year Ended
December 31, 2003 |
Cash used in investing activities was approximately
$310.7 million for the year ended December 31, 2004,
as compared to approximately $230.2 million for the year
ended December 31, 2003. The increase in cash used in
investing activities primarily related to an increase in
acquisition activity during 2004. In 2004, we acquired Medallion
Taxi Media for $31.6 million and acquired advertising
display faces for $60.8 million.
|
|
|
Nine Months Ended September 30, 2005 as Compared to Nine
Months Ended September 30, 2004 |
Cash used in financing activities was approximately
$48.2 million for the nine months ended September 30,
2005, as compared to cash used in financing activities of
approximately $95.8 million for the nine months ended
September 30, 2004. Included in cash flow from financing
activities is changes in the Due from Clear Channel
Communications account which relates to cash transfers
between our domestic operations and Clear Channel
Communications. For the nine months ended September 30,
2005 we had a net transfer of cash to Clear Channel
Communications of approximately $59.5 million compared to a
net transfer of cash to Clear Channel Communications of
approximately $86.0 million for the nine months ended
September 30, 2004. The net amount transferred is
significantly affected, among other things, by the change in our
domestic operations operating income and cash flow for the
relevant period. The Due from Clear Channel
Communications account has grown during the relevant
periods primarily as a result of increases in our operating
income.
|
|
|
Year Ended December 31, 2004 as Compared to Year Ended
December 31, 2003 |
Cash used in financing activities was approximately
$182.0 million for the year ended December 31, 2004,
as compared to approximately $222.5 million for the year
ended December 31, 2003. The decline is partially the
result of decreased financing needs from our credit facility.
Additionally, for the year ended December 31, 2004 we had a
net transfer of cash to Clear Channel Communications of
approximately $148.2 million compared to a net transfer of
cash to Clear Channel Communications of approximately
$154.4 million for the year ended December 31, 2003.
59
Liquidity
Our primary sources of liquidity and capital resources are cash
flows generated from our operations, availability of up to
$150.0 million under a revolving credit facility sublimit
for use in our international operations through Clear Channel
Communications, funding through a cash management note with
Clear Channel Communications and available cash and cash
equivalents.
Management believes that future funds generated from our
operations and available borrowing capacity of up to
$150.0 million under the sub-limit of the Clear Channel
Communications revolving credit facility discussed below will be
sufficient to fund our debt service requirements, working
capital requirements, capital expenditure requirements and the
remaining one-time costs associated with this offering for a
period of at least 18 months. However, our ability to
continue to fund these items and to reduce debt may be affected
by general economic, financial, competitive, legislative and
regulatory factors, as well as other industry-specific factors.
Our short and long term cash requirements consist of minimum
annual guarantees for our street furniture contracts, operating
leases and capital expenditures. Minimum annual guarantees and
operating lease requirements are included in our direct
operating expenses, which historically have been satisfied by
cash flows from operations. For 2005, we are committed to
$378.3 million and $177.6 million for minimum annual
guarantees and operating leases, respectively. Our capital
expenditures were $176.1 million, $205.1 million and
$290.2 million for 2004, 2003 and 2002, respectively, and
have historically been satisfied by cash flow from operations.
Our long-term commitments for minimum annual guarantees,
operating leases and capital expenditure requirements are
included in Contractual and Other
Obligations, below. Our cash flow from operations was
$492.5 million, $433.5 million, and
$320.2 million for 2004, 2003 and 2002, respectively.
Certain of our international subsidiaries have the ability to
borrow under a $150.0 million sub-limit of the Clear
Channel Communications revolving credit facility discussed below
under Bank Credit Facility, to the
extent Clear Channel Communications has not already borrowed
against this capacity. At September 30, 2005, approximately
$100.3 million was available for future borrowings under
this facility.
As of September 30, 2005 and December 31, 2004 and
2003, we had the following debt outstanding, cash and cash
equivalents and amounts due from Clear Channel Communications:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, | |
|
|
|
|
| |
|
|
September 30, 2005 | |
|
2004 | |
|
2003 | |
(In millions) |
|
| |
|
| |
|
| |
Bank credit facility
|
|
$ |
49.7 |
|
|
$ |
23.9 |
|
|
$ |
50.1 |
|
Debt with Clear Channel Communications
|
|
|
3,963.0 |
|
|
|
1,463.0 |
|
|
|
1,463.0 |
|
Other long-term debt
|
|
|
199.4 |
|
|
|
152.4 |
|
|
|
156.9 |
|
|
|
|
|
|
|
|
|
|
|
Total debt
|
|
|
4,212.1 |
|
|
|
1,639.3 |
|
|
|
1,670.0 |
|
Less: cash and cash equivalents
|
|
|
91.7 |
|
|
|
37.9 |
|
|
|
34.1 |
|
Less: Due from Clear Channel Communications
|
|
|
362.2 |
|
|
|
302.6 |
|
|
|
154.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
3,758.2 |
|
|
$ |
1,298.8 |
|
|
$ |
1,418.5 |
|
|
|
|
|
|
|
|
|
|
|
Bank Credit Facility. In addition to cash flows from
operations, a primary source of our liquidity is through
borrowings under a $150.0 million sub-limit included in
Clear Channel Communications five-year, multicurrency
$1.75 billion revolving credit facility. Certain of our
international subsidiaries may borrow under the sub-limit to the
extent Clear Channel Communications has not already borrowed
against this capacity and is in compliance with its covenants
under the credit facility. The interest rate on outstanding
balances under the credit facility is based upon LIBOR or, for
Euro denominated borrowings, EURIBOR plus, in each case, a
margin. At September 30, 2005, the outstanding balance on
the sub-limit was approximately $49.7 million, and
approximately $100.3 million was available for future
borrowings,
60
with the entire balance to be paid on July 12, 2009. At
September 30, 2005, interest rates on borrowings under this
credit facility ranged from 3.1% to 6.0%.
Debt with Clear Channel Communications. In 2003, two
intercompany notes were issued to Clear Channel Communications
in the total original principal amount of approximately
$1.5 billion. The first intercompany note in the original
principal amount of approximately $1.4 billion matures on
December 31, 2017, may be prepaid in whole at any time, or
in part from time to time, and accrues interest at a per annum
rate of 10%. The second intercompany note in the original
principal amount of $73.0 million matures on
December 31, 2017, may be prepaid in whole at any time, or
in part from time to time, and accrues interest at a per annum
rate of 9%. We intend to use all of the net proceeds of this
offering, along with our balance in the Due from Clear
Channel Communications account, to repay a portion of the
outstanding balances of the $1.4 billion and
$73.0 million intercompany notes. Any remaining balances
will be otherwise capitalized by Clear Channel Communications.
On August 2, 2005, we distributed a third intercompany note
issued by our wholly-owned subsidiary to us in the original
principal amount of $2.5 billion as a dividend on our
common stock, which note was subsequently distributed as a
dividend in a series of transfers to Clear Channel
Communications. This note matures on August 2, 2010, may be
prepaid in whole at any time, or in part from time to time. The
note accrues interest at a variable per annum rate equal to the
weighted average cost of debt for Clear Channel Communications,
calculated on a monthly basis. This note is mandatorily payable
upon a change of control of us and, subject to certain
exceptions, all proceeds from debt or equity raised by us must
be used to prepay such note. At September 30, 2005, the
interest rate on the $2.5 billion intercompany note was
5.7%. See Use of Proceeds, Arrangements
Between Clear Channel Communications and Us and
Description of Indebtedness.
Our working capital requirements and capital for our general
corporate purposes, including acquisitions and capital
expenditures, historically have been satisfied as part of the
corporate-wide cash management policies of Clear Channel
Communications. After this offering, our working capital
requirements and capital for our general corporate purposes may
be provided to us by Clear Channel Communications, in its sole
discretion, pursuant to a cash management note issued by us to
Clear Channel Communications. See Cash and
cash equivalents; cash management policies, below. Without
the opportunity to obtain financing from Clear Channel
Communications, we may need to obtain additional financing from
banks, or through public offerings or private placements of
debt, strategic relationships or other arrangements at some
future date. Management currently believes that we could raise
the funds if needed given our credit profile. Additionally, we
will have publicly traded stock that management believes could
be used as a source to raise capital through public or private
placements of our equity securities. Subject to certain
exceptions, the first $2.5 billion of such debt or equity
proceeds (plus an amount equal to accrued interest thereon)
would be required to be used to prepay the $2.5 billion
intercompany note, unless such requirement is waived by Clear
Channel Communications.
Other long-term debt. Other long-term debt consists
primarily of loans with international banks and other types of
debt. At September 30, 2005, approximately
$199.4 million was outstanding as other long-term debt.
Cash and cash equivalents; cash management policies.
Pursuant to the Corporate Services Agreement to be entered into
between Clear Channel Communications and us, Clear Channel
Communications will be providing us with cash management
services to assist us in managing our excess operating cash.
These services include:
|
|
|
|
|
managing our daily cash position and determining our liquidity
needs; |
|
|
|
administering borrowings and repayments under the revolving
credit facility available to our international operations; |
|
|
|
establishing cash management systems and procedures that help
minimize investment in non-earning cash resources while
providing adequate liquidity; |
61
|
|
|
|
|
initiating all electronic funds transfers; |
|
|
|
providing bank administration for all domestic bank accounts and
for all international accounts established by a domestic
subsidiary; |
|
|
|
administering on-line bank reporting systems; and |
|
|
|
processing requests for cashier checks. |
As part of the cash management services to be provided to us, on
a daily basis, cash from our domestic operations will be
transferred to a concentration account maintained by us. The
cash will consist of money received by, available funds
transferred by wire to, and the collection of good funds on
checks and other orders remitted to, us. Pending receipt of good
funds on checks and other orders remitted to us, such items will
be maintained in lockboxes to be maintained by us.
In addition, on a daily basis, cash will be transferred from our
concentration account to our disbursement account, from which
our then due accounts payable and payroll obligations will be
discharged. If, after cash is transferred to the disbursement
account, there remains a balance in our concentration account,
then that amount will be transferred to a master account
maintained by Clear Channel Communications and either invested
or subsequently disbursed by Clear Channel Communications for
its general corporate purposes. If the cash in our concentration
account is not sufficient to discharge our obligations for the
corresponding day, then Clear Channel Communications may advance
funds to us by transferring cash from its master account to our
concentration account in an amount, which when added to the
amount available in that concentration account, would discharge
those daily obligations. We do not have a commitment from Clear
Channel Communications to advance funds to us, and we will have
no access to the cash transferred from our concentration account
to the master account of Clear Channel Communications. Our claim
in relation to cash transferred from our concentration account
to Clear Channel Communications will be based on the net cash
balances from time to time owed to us.
At the conclusion of each day, the net cash position between
Clear Channel Communications and us will be determined by Clear
Channel Communications. We will have a daily net positive cash
position if cash has been transferred from our concentration
account to the account maintained by Clear Channel
Communications, and a daily net negative cash position will
exist if Clear Channel Communications has had to advance funds
to our concentration account. The records of Clear Channel
Communications will reflect the net cash balance between Clear
Channel Communications and us, which, if owed to us, will be
noted in our financial statements as Due from Clear
Channel Communications or, if owed by us, will be noted in
our financial statements as Due to Clear Channel
Communications. The cash management note from us to Clear
Channel Communications and the cash management note from Clear
Channel Communications to us will evidence those respective
obligations. Each of the notes will be a demand obligation.
Interest on the cash management note owed by us will accrue on
the daily net negative cash position at a per annum rate based
on the average one-month LIBOR rate plus a percentage that
corresponds to the percentage paid by Clear Channel
Communications on LIBOR-based borrowings made by it under its
corporate revolver facility. Interest on the cash management
note owed by Clear Channel Communications will accrue on the
daily net positive cash position at a per annum rate based on
the average one-month generic treasury bill rate for the
applicable period. The average one-month LIBOR rate and the
average one-month generic treasury bill rate will correspond to
the applicable respective rates from time to time published by
Bloomberg financial services. If Clear Channel Communications
were to become insolvent, we would be an unsecured creditor like
other unsecured creditors of Clear Channel Communications and
could experience a liquidity shortfall.
Unlike the management of cash from our domestic operations, the
amount of cash that is transferred from our foreign operations
to Clear Channel Communications will be determined on a basis
mutually agreeable to us and Clear Channel Communications, and
not on a pre-determined basis. In arriving at such mutual
agreement, the reasonably foreseeable cash needs of our foreign
operations will be evaluated before a cash amount is to be
considered as an excess or surplus amount for transfer to Clear
Channel
62
Communications. When an amount of excess cash from our foreign
operations is agreed upon, any proposed transfer of that excess
cash will be further subject to a consideration of the effects
of repatriating all or any portion of that amount. Excess cash
from our foreign operations which is transferred to Clear
Channel Communications will be subject to the record-keeping
procedures and note arrangements utilized for cash transferred
from our domestic operations to Clear Channel Communications.
For so long as Clear Channel Communications maintains a
significant interest in us, a deterioration in the financial
condition of Clear Channel Communications could increase our
borrowing costs or impair our access to the capital markets
because of our reliance on Clear Channel Communications for
availability under its revolving credit facility. In addition,
because the interest rate we pay on our $2.5 billion
promissory note is based on the weighted average cost of debt
for Clear Channel Communications, any such deterioration would
likely result in an increase in Clear Channel
Communications cost of debt and in our interest rate. To
the extent we cannot pass on our increased borrowing costs to
our clients, our profitability, and potentially our ability to
raise capital, could be materially affected. Also, so long as
Clear Channel Communications maintains a significant interest in
us, pursuant to the Master Agreement between Clear Channel
Communications and us, Clear Channel Communications will have
the ability to limit our ability to incur debt or issue equity
securities, which could adversely affect our ability to meet our
liquidity needs. In addition, the $2.5 billion intercompany
note requires us to prepay it in full upon a change of control
(as defined in the note), and, upon our issuances of equity and
incurrence of debt, subject to certain exceptions, to prepay the
note in the amount of net proceeds received from such events.
See Risk Factors Risks Related to Our
Business and Arrangements Between Clear Channel
Communications and Us.
Our primary uses of capital are funding our working capital
liabilities, debt service, acquisitions and capital
expenditures. Our working capital liabilities are funded through
cash flows from operations. Cash paid for interest during the
years ended December 31, 2004, 2003 and 2002 was
approximately $175.4 million, $198.3 million and
$268.0 million, respectively.
We have entered into certain agreements relating to acquisitions
that provide for purchase price adjustments and other future
contingent payments based on the financial performance of the
acquired company. We will continue to accrue additional amounts
related to such contingent payments if and when it is
determinable that the applicable financial performance targets
will be met. The aggregate of these contingent payments, if
performance targets are met, would not significantly impact our
financial position or results of operations. The following is a
summary of our acquisition activity for the years ended
December 31, 2004, 2003 and 2002:
2004 Acquisitions. In September 2004, we acquired
Medallion Taxi Media, Inc. for approximately $31.6 million.
In addition, during 2004 we acquired display faces for
approximately $60.8 million in cash and acquired equity
interests in international outdoor companies for approximately
$2.5 million in cash. We also exchanged advertising assets,
valued at approximately $23.7 million, for other
advertising assets valued at approximately $32.3 million.
2003 Acquisitions. During 2003 we acquired display faces
for approximately $28.3 million in cash. We also acquired
investments in nonconsolidated affiliates for approximately
$10.7 million in cash and acquired an additional 10%
interest in a subsidiary for approximately $5.1 million in
cash.
2002 Acquisitions. In June 2002 we acquired The Ackerley
Group. The transaction was funded by approximately
$26.3 million of our operating cash and a non-cash capital
contribution from Clear Channel Communications of approximately
$612.8 million. In addition, we acquired display faces for
approximately $126.3 million in cash and acquired
investments in nonconsolidated affiliates for approximately
$2.1 million in cash.
63
Capital Expenditures. Our capital expenditures have
consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months | |
|
|
|
|
|
|
|
|
Ended | |
|
|
|
|
September 30, | |
|
Year Ended December 31, | |
|
|
| |
|
| |
|
|
2005 | |
|
2004 | |
|
2004 | |
|
2003 | |
|
2002 | |
(In millions) |
|
| |
|
| |
|
| |
|
| |
|
| |
Non-revenue producing
|
|
$ |
53.0 |
|
|
$ |
44.5 |
|
|
$ |
70.1 |
|
|
$ |
63.4 |
|
|
$ |
81.0 |
|
Revenue producing
|
|
|
77.5 |
|
|
|
73.2 |
|
|
|
106.0 |
|
|
|
141.7 |
|
|
|
209.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total capital expenditures
|
|
$ |
130.5 |
|
|
$ |
117.7 |
|
|
$ |
176.1 |
|
|
$ |
205.1 |
|
|
$ |
290.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We define non-revenue producing capital expenditures as those
expenditures that are required on a recurring basis. Revenue
producing capital expenditures are discretionary capital
investments for new revenue streams, similar to an acquisition.
Our capital expenditures have been declining since 2002,
primarily as a result of fewer revenue producing capital
expenditures in our international segment. Due to successful
bidding on street furniture contracts in prior years, we needed
to supply the street furniture required under the contracts. We
have not been as actively bidding on international street
furniture contracts since 2002 and therefore have not had the
capital needs associated with these contracts.
Part of our long-term strategy is to pursue the technology of
electronic displays, including flat screens, LCDs and LEDs, as
alternatives to traditional methods of displaying our
clients advertisements. We are currently performing
limited tests of these technologies in certain markets. We
believe that cash flow from operations will be sufficient to
fund these expenditures because we expect enhanced margins
through: (i) lower cost of production as the advertisements
will be digital and controlled by a central computer network,
(ii) decreased down time on displays because the
advertisements will be digitally changed rather than manually
posted paper or vinyl on the face of the display, and
(iii) incremental revenue through more targeted and time
specific advertisements allowing us to sell more advertisements
on a single display.
Covenant Compliance
The newly issued $2.5 billion intercompany note requires us
to comply with various negative covenants, including
restrictions on the following activities: incurring consolidated
funded indebtedness (as defined in the note), excluding
intercompany indebtedness, in a principal amount in excess of
$400.0 million at any one time outstanding; creating liens;
making investments; entering into sale and leaseback
transactions (as defined in the note), which when aggregated
with consolidated funded indebtedness secured by liens, will not
exceed an amount equal to 10% of our total consolidated
shareholders equity (as defined in the note) as shown on
our most recently reported annual audited consolidated financial
statements; disposing of all or substantially all of our assets;
entering into mergers and consolidations; declaring or making
dividends or other distributions; repurchasing our equity; and
entering into transactions with our affiliates. In addition, the
note requires us to prepay it in full upon a change of control.
The note defines a change of control to occur when Clear Channel
Communications ceases to control (i) directly or
indirectly, more than 50% of the aggregate voting equity
interests of us, our operating subsidiary or our respective
successors or assigns, or (ii) the ability to elect a
majority of the board of directors of us, our operating
subsidiary or our respective successors or assigns. Upon our
issuances of equity and incurrences of debt, subject to certain
exceptions, we are also required to prepay the note in the
amount of the net proceeds received by us from such events.
Generally, the following constitute events of default under the
$2.5 billion intercompany note: any principal or accrued
interest on the principal remains unpaid when due on the stated
maturity date (as defined in the note) or upon the occurrence of
a mandatory prepayment event (as defined in the note); any
accrued interest or accrued expenses remain unpaid three days
after the interest payment date (as defined in the note); any
provision in the note or any related security document that
represents a right or remedy ceases to be binding on our
operating subsidiary or available to us; any representation or
warranty made in the note or any related security document is
untrue or inaccurate in any material respect; breaches of
covenants or agreements or the occurrence of an event of default
in the note or any related security document; defaults by us in
the payment of indebtedness in excess of $25.0 million, a
final judgment or order in excess of $25.0 million
64
against us or forfeiture of property by us having a value in
excess of $25.0 million; or the declaration by us or
against us of bankruptcy or insolvency.
Certain of our international subsidiaries that are offshore
borrowers may borrow up to $150.0 million for use in our
international operations under a sub-limit of the approximately
$1.8 billion revolving credit facility of Clear Channel
Communications so long as Clear Channel Communications remains
in compliance with its covenants under the facility and does not
otherwise borrow against such capacity. The significant
covenants contained in the credit facility relate to leverage
and interest coverage (as defined in the credit facility). The
leverage ratio covenant requires Clear Channel Communications to
maintain a ratio of consolidated funded indebtedness to
operating cash flow (as defined by the credit facility) of less
than 5.25x. The interest coverage covenant requires Clear
Channel Communications to maintain a minimum ratio of operating
cash flow to interest expense (as defined by the credit
facility) of 2.50x. Generally, the following constitute events
of default under the $1.8 billion revolving credit
facility: failure to pay borrowings and interest when they
become due; failure to perform or observe covenants contained in
the credit facility; failure to perform or observe any covenant
contained in any other loan document; incorrect or misleading
representations and warranties made in connection with the
credit facility agreement; default on any other indebtedness
greater than $200 million; the declaration by Clear Channel
Communications or against Clear Channel Communications of
bankruptcy or insolvency; failure to pay debts as they become
due; a final judgment for the payment of money exceeding
$250 million; invalidity of loan documents at any time
after their execution and delivery; change of control; and
failure to comply with the Communications Act or any rule or
regulation promulgated by the Federal Communications Commission.
A change of control occurs under the $1.8 billion credit
facility generally when any person or group acquires more than
50% of the voting interest of Clear Channel Communications or
when there has been a turnover of a majority of the board of
directors of Clear Channel Communications during a
24 consecutive month period.
There are no significant covenants or events of default
contained in the $1.4 billion and $73.0 million
intercompany notes, the cash management note issued by Clear
Channel Communications to us or the cash management note issued
by us to Clear Channel Communications.
Contractual and Other Obligations
In addition to the scheduled maturities on our debt, we have
future cash obligations under various types of contracts. We
lease office space, certain equipment and the majority of the
land occupied by our advertising structures under long-term
operating leases. Some of our lease agreements contain renewal
options and annual rental escalation clauses (generally
tied to the consumer price index), as well as provisions for our
payment of utilities and maintenance.
We have minimum franchise payments associated with noncancelable
contracts that enable us to display advertising on such media as
buses, taxis, trains, bus shelters and terminals. The majority
of these contracts contain rent provisions that are calculated
as the greater of a percentage of the relevant advertising
revenues or a specified guaranteed minimum annual payment.
65
The scheduled maturities of our credit facility, other long-term
debt outstanding, future minimum rental commitments under
noncancelable lease agreements, minimum payments under other
noncancelable contracts, minimum annual guarantees and capital
expenditures commitments as of December 31, 2004 are as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period | |
|
|
| |
|
|
|
|
2010 and | |
|
|
Total | |
|
2005 | |
|
2006-2007 | |
|
2008-2009 | |
|
Thereafter | |
(In thousands) |
|
| |
|
| |
|
| |
|
| |
|
| |
Revolving credit facility
|
|
$ |
23,938 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
23,938 |
|
|
|
|
|
Debt with Clear Channel Communications
|
|
|
1,463,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1,463,000 |
|
Other long-term debt
|
|
|
152,442 |
|
|
|
146,268 |
|
|
|
4,569 |
|
|
|
832 |
|
|
|
773 |
|
Minimum annual guarantees
|
|
|
1,658,599 |
|
|
|
378,313 |
|
|
|
471,406 |
|
|
|
282,702 |
|
|
|
526,178 |
|
Noncancelable operating leases
|
|
|
1,254,014 |
|
|
|
177,567 |
|
|
|
290,827 |
|
|
|
218,027 |
|
|
|
567,593 |
|
Capital expenditure commitments
|
|
|
223,716 |
|
|
|
119,687 |
|
|
|
63,065 |
|
|
|
25,222 |
|
|
|
15,742 |
|
Noncancelable contracts
|
|
|
8,953 |
|
|
|
4,215 |
|
|
|
1,604 |
|
|
|
883 |
|
|
|
2,251 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total firm commitments and outstanding debt
|
|
$ |
4,784,662 |
|
|
$ |
826,050 |
|
|
$ |
831,471 |
|
|
$ |
551,604 |
|
|
$ |
2,575,537 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
On a pro forma basis, after giving effect to the application of
the proceeds of this offering, at an assumed initial public
offering price of $21.00 per share of Class A common
stock, which is the midpoint of the estimated offering price
range set forth on the cover page of this prospectus, and the
distribution of the $2.5 billion intercompany note, as if
such transactions had occurred at January 1, 2004, our
contractual obligations would have consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period | |
|
|
| |
|
|
|
|
2010 and | |
|
|
Total | |
|
2005 | |
|
2006-2007 | |
|
2008-2009 | |
|
Thereafter | |
(In thousands) |
|
| |
|
| |
|
| |
|
| |
|
| |
Revolving credit facility
|
|
$ |
23,938 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
23,938 |
|
|
|
|
|
Debt with Clear Channel Communications
|
|
|
2,500,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
2,500,000 |
|
Other long-term debt
|
|
|
152,442 |
|
|
|
146,268 |
|
|
|
4,569 |
|
|
|
832 |
|
|
|
773 |
|
Minimum annual guarantees
|
|
|
1,658,599 |
|
|
|
378,313 |
|
|
|
471,406 |
|
|
|
282,702 |
|
|
|
526,178 |
|
Noncancelable operating leases
|
|
|
1,254,014 |
|
|
|
177,567 |
|
|
|
290,827 |
|
|
|
218,027 |
|
|
|
567,593 |
|
Capital expenditure commitments
|
|
|
223,716 |
|
|
|
119,687 |
|
|
|
63,065 |
|
|
|
25,222 |
|
|
|
15,742 |
|
Noncancelable contracts
|
|
|
8,953 |
|
|
|
4,215 |
|
|
|
1,604 |
|
|
|
883 |
|
|
|
2,251 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total firm commitments and outstanding debt
|
|
$ |
5,821,662 |
|
|
$ |
826,050 |
|
|
$ |
831,471 |
|
|
$ |
551,604 |
|
|
$ |
3,612,537 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SEASONALITY
Typically, both our domestic and international segments
experience their lowest financial performance in the first
quarter of the calendar year, with international typically
experiencing a loss from operations in this period. Our domestic
segment typically experiences consistent performance in the
remainder of our calendar year. Our international segment
typically experiences its strongest performance in the second
and fourth quarters of our calendar year. We expect this trend
to continue in the future. See Risk Factors We
have incurred net losses and may experience future net losses
which could adversely affect our stock price.
MARKET RISK MANAGEMENT
We are exposed to market risks arising from changes in market
rates and prices, including movements in foreign currency
exchange rates and interest rates.
66
Foreign Currency Risk
We have operations in countries throughout the world. The
financial results of our international operations are measured
in their local currencies, except in the hyperinflationary
countries in which we operate. As a result, our financial
results could be affected by factors such as changes in foreign
currency exchange rates or weak economic conditions in the
international markets in which we operate. We believe we
mitigate a small portion of our exposure to international
currency fluctuations with a natural hedge through borrowings in
currencies other than the U.S. dollar. Our international
operations reported a net loss of approximately
$35.0 million for the nine months ended September 30,
2005. We estimate that a 10% change in the value of the
U.S. dollar relative to foreign currencies would have
changed our net income for the nine months ended
September 30, 2005 by approximately $3.5 million.
This analysis does not consider the implication such currency
fluctuations could have on the overall economic activity that
could exist in such an environment in the United States or the
foreign countries or on the results of operations of these
foreign entities.
Interest Rate Risk
We had approximately $4.2 billion total debt outstanding as
of September 30, 2005, of which $2.5 billion was
variable rate debt.
Based on the amount of our floating-rate debt as of
September 30, 2005, each 50 basis point increase or
decrease in interest rates would increase or decrease our annual
interest expense and cash outlay by approximately
$12.5 million. This potential increase or decrease is based
on the simplified assumption that the level of floating-rate
debt remains constant with an immediate across-the-board
increase or decrease as of September 30, 2005 with no
subsequent change in rates for the remainder of the period.
RECENT ACCOUNTING PRONOUNCEMENTS
In March 2005, the Financial Accounting Standards Board, or
FASB, issued Interpretation No. 47, Accounting for
Conditional Asset Retirement Obligations, or FIN 47.
FIN 47 is an interpretation of FASB Statement 143,
Asset Retirement Obligations, which was issued in June
2001. According to FIN 47, uncertainty about the timing or
method of settlement because they are conditional on a future
event that may or may not be within the control of the entity
should be factored into the measurement of the asset retirement
obligation when sufficient information exists. FIN 47 also
clarifies when an entity would have sufficient information to
reasonably estimate the fair value of an asset retirement
obligation. FIN 47 is effective no later than the end of
fiscal years ending after December 15, 2005. Retrospective
application of interim financial information is permitted, but
is not required. We adopted FIN 47 on January 1, 2005,
which did not materially impact our financial position or
results of operations.
In March 2005, the SEC issued Staff Accounting
Bulletin No. 107 Share-Based Payment, or
SAB 107. SAB 107 expresses the SEC staffs views
regarding the interaction between Statement of Financial
Accounting Standards No. 123(R) Share-Based Payment,
or Statement 123(R), and certain SEC rules and regulations
and provides the staffs views regarding the valuation of
share-based payment arrangements for public companies. In
particular, SAB 107 provides guidance related to
share-based payment transactions with nonemployees, the
transition from nonpublic to public entity status, valuation
methods (including assumptions such as expected volatility and
expected term), the accounting for certain redeemable financial
instruments issued under share-based payment arrangements, the
classification of compensation expense, non-GAAP financial
measures, first time adoption of Statement 123(R) in an
interim period, capitalization of compensation cost related to
share-based payment arrangements, the accounting for income tax
effects of share-based payment arrangements upon adoption of
Statement 123(R) and the modification of employee share
options prior to adoption of Statement 123(R). We are
unable to quantify the impact of adopting SAB 107 and
Statement 123(R) at this time because it will depend on
levels of share-based payments granted in the future.
Additionally, we are still evaluating the assumptions we will
use upon adoption.
67
In April 2005, the SEC issued a press release announcing that it
would provide for phased-in implementation guidance for
Statement 123(R). The SEC would require that registrants
that are not small business issuers adopt
Statement 123(R)s fair value method of accounting for
share-based payments to employees no later than the beginning of
the first fiscal year beginning after June 15, 2005. We
intend to adopt Statement 123(R) on January 1, 2006.
In June 2005, the Emerging Issues Task Force, or EITF, issued
EITF 05-6, Determining the Amortization Period of
Leasehold Improvements, or EITF 05-6. EITF 05-6
requires that assets recognized under capital leases generally
be amortized in a manner consistent with the lessees
normal depreciation policy except that the amortization period
is limited to the lease term (which includes renewal periods
that are reasonably assured). EITF 05-6 also addresses the
determination of the amortization period for leasehold
improvements that are purchased subsequent to the inception of
the lease. Leasehold improvements acquired in a business
combination or purchased subsequent to the inception of the
lease should be amortized over the lesser of the useful life of
the asset or the lease term that includes reasonably assured
lease renewals as determined on the date of the acquisition of
the leasehold improvement. We adopted EITF 05-6 on
July 1, 2005, which did not materially impact our financial
position or results of operations.
CRITICAL ACCOUNTING ESTIMATES
The preparation of our financial statements in conformity with
generally accepted accounting principles requires management to
make estimates, judgments and assumptions that affect the
reported amounts of assets and liabilities, disclosure of
contingent assets and liabilities at the date of the financial
statements and the reported amount of expenses during the
reporting period. On an ongoing basis, we evaluate our estimates
that are based on historical experience and on various other
assumptions that are believed to be reasonable under the
circumstances. The result of these evaluations forms the basis
for making judgments about the carrying values of assets and
liabilities and the reported amount of expenses that are not
readily apparent from other sources. Because future events and
their effects cannot be determined with certainty, actual
results could differ from our assumptions and estimates, and
such difference could be material. Our significant accounting
policies are discussed in Note A to our combined financial
statements included elsewhere in this prospectus. Management
believes that the following accounting estimates are the most
critical to aid in fully understanding and evaluating our
reported financial results, and they require managements
most difficult, subjective or complex judgments, resulting from
the need to make estimates about the effect of matters that are
inherently uncertain. The following narrative describes these
critical accounting estimates, the judgments and assumptions and
the effect if actual results differ from these assumptions.
Allowance for Doubtful Accounts
We evaluate the collectibility of our accounts receivable based
on a combination of factors. In circumstances where we are aware
of a specific clients inability to meet its financial
obligations, we record a specific reserve to reduce the amounts
recorded to what we believe will be collected. For all other
clients, we recognize reserves for bad debt based on historical
experience of bad debts as a percentage of revenues for each
business unit, adjusted for relative improvements or
deteriorations in the agings and changes in current economic
conditions.
If our agings were to improve or deteriorate resulting in a 10%
change in our allowance, it is estimated that our bad debt
expense for the nine months ended September 30, 2005 would
have changed by approximately $2.3 million and our net
income for the same period would have changed by approximately
$0.9 million.
Long-lived Assets
Long-lived assets, such as property, plant and equipment are
reviewed for impairment when events and circumstances indicate
that depreciable and amortizable long-lived assets might be
impaired and the
68
undiscounted cash flows estimated to be generated by those
assets are less than the carrying amount of those assets. When
specific assets are determined to be unrecoverable, the cost
basis of the asset is reduced to reflect the current fair market
value.
We use various assumptions in determining the current fair
market value of these assets, including future expected cash
flows and discount rates, as well as future salvage values. Our
impairment loss calculations require management to apply
judgment in estimating future cash flows, including forecasting
useful lives of the assets and selecting the discount rate that
reflects the risk inherent in future cash flows.
If actual results are not consistent with our assumptions and
judgments used in estimating future cash flows and asset fair
values, we may be exposed to future impairment losses that could
be material to our results of operations.
Goodwill
Goodwill represents the excess of the purchase price over the
fair value of identifiable net assets acquired in business
combinations. We review goodwill for potential impairment
annually using the income approach to determine the fair value
of our reporting units. The fair value of our reporting units is
used to apply value to the net assets of each reporting unit. To
the extent that the carrying amount of net assets would exceed
the fair value, an impairment charge may be required to be
recorded.
The income approach we use for valuing goodwill involves
estimating future cash flows expected to be generated from the
related assets, discounted to their present value using a
risk-adjusted discount rate. Terminal values are also estimated
and discounted to their present value.
As a result of adopting Statement 142 on January 1,
2002, we recorded a non-cash, net of tax, goodwill impairment
charge of approximately $3.5 billion. As required by
Statement 142, a subsequent impairment test was performed
at October 1, 2002, which resulted in no additional
impairment charge. The non-cash impairment of our goodwill was
generally caused by unfavorable economic conditions, which
persisted throughout 2001. This weakness contributed to our
clients reducing the number of advertising dollars spent
on our inventory. These conditions adversely impacted the cash
flow projections used to determine the fair value of each
reporting unit at January 1, 2002 which resulted in the
non-cash impairment charge of a portion of our goodwill. We may
incur impairment charges in future periods under
Statement 142 to the extent we do not achieve our expected
cash flow growth rates, and to the extent that market values
decrease and long-term interest rates increase.
Indefinite-lived Assets
Indefinite-lived assets such as our billboard permits are
reviewed annually for possible impairment using the direct
method. Our key assumptions using the direct method are market
revenue growth rates, market share, profit margin, duration and
profile of the build-up period, estimated start-up capital costs
and losses incurred during the build-up period, the
risk-adjusted discount rate and terminal values. This data is
populated using industry normalized information representing an
average permit within a market.
The SEC staff issued Staff Announcement No. D-108, Use
of the Residual Method to Value Acquired Assets Other Than
Goodwill, at the September 2004 meeting of the Emerging
Issues Task Force. D-108 states that the residual method
should no longer be used to value intangible assets other than
goodwill. Prior to the adoption of Staff Announcement
No. D-108, we recorded our acquisition of permits at fair
value using an industry accepted income approach and
consequently applied the same approach for purposes of
impairment testing. Our adoption of the direct method resulted
in an aggregate fair value of our permits that was less than the
carrying value determined under our prior method. As a result,
we recorded a non-cash charge of $162.9 million, net of
deferred taxes, as a cumulative effect of a change in accounting
principle during the fourth quarter 2004.
If actual results are not consistent with our assumptions and
estimates, we may be exposed to impairment charges in the
future. If our assumption on market revenue growth rate
decreased 10%, our non-cash charge, net of tax, would increase
approximately $25.1 million. Similarly, if our assumption on
69
market revenue growth rate increased 10%, our non-cash charge,
net of tax, would decrease approximately $30.0 million.
Asset Retirement Obligations
Statement of Financial Accounting Standards No. 143,
Accounting for Asset Retirement Obligations,
requires us to estimate our obligation upon the termination or
nonrenewal of a lease, to dismantle and remove our billboard
structures from the leased land and to reclaim the site to its
original condition. We record the present value of obligations
associated with the retirement of tangible long-lived assets in
the period in which they are incurred. The liability is
capitalized as part of the related long-lived assets
carrying amount. Over time, accretion of the liability is
recognized as an operating expense and the capitalized cost is
depreciated over the expected useful life of the related asset.
Due to the high rate of lease renewals over a long period of
time, our calculation assumes that all related assets will be
removed at some period over the next 50 years. An estimate
of third-party cost information is used with respect to the
dismantling of the structures and the reclamation of the site.
The interest rate used to calculate the present value of such
costs over the retirement period is based on an estimated
risk-adjusted credit rate for the same period.
70
INDUSTRY OVERVIEW
This section includes industry data, forecasts and
information that we have prepared based, in part, upon industry
data, forecasts and information obtained from industry
publications and surveys and internal company information. Media
Dynamics Inc., Nielsen Media Research, Inc., Outdoor Advertising
Association of America (OAAA), Zenith Optimedia and other
industry reports and articles were the primary sources for
third-party industry data, forecasts and information. These
third-party industry publications and surveys and forecasts
generally state that they believe the information contained
therein was obtained from sources they believe to be reliable,
but that they can give no assurance as to the accuracy or
completeness of included information. We have not independently
verified any of the data from third-party sources nor have we
ascertained the underlying economic assumptions relied upon
therein. Similarly, while we believe the industry forecasts and
market research are reliable, we have not independently verified
such forecasts and research.
The global outdoor market has emerged as a leading advertising
medium that serves as a core branding and marketing platform for
companies, both domestically and internationally. Similar to
other advertising media, the key competitive factors for outdoor
advertising are pricing, location and availability of displays.
The principal advantages of outdoor advertising include the
following:
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Facilitates broad reach and high frequency. The outdoor
advertising industry is characterized by broad reach and high
frequency, as compared to other forms of advertising media. We
believe that national and regional brands are increasing their
use of outdoor advertising to maximize the coverage and impact
of their advertising campaigns. These advertisers benefit from
the branding effect and broad exposure that results from the
sustained, repetitive viewing provided by outdoor advertising. |
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Drives sustained mass advertising. Unlike other
advertising media, such as television, consumers cannot
interrupt or selectively avoid advertisements displayed on
outdoor structures. |
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Enables selective targeting. Outdoor advertising enables
advertisers, such as restaurants, entertainment facilities,
hotels and other roadside operations, to target motorists or
pedestrians in close proximity to their businesses. |
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Captures increasingly mobile audiences. Population growth
and increasing commute times are key growth drivers for outdoor
advertising due to its ability to capture a growing mobile
audience base that spends an increasing amount of time
out-of-home. |
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Offers low cost platform. Outdoor advertising is a
relatively low cost medium, as compared to other forms of
advertising media. As a result, outdoor advertising is often
used as a complementary marketing platform for companies
implementing a multifaceted media plan across various media,
including print, broadcasting, the Internet and direct
marketing. Also, outdoor advertising is used by local businesses
that cannot afford costlier alternatives. |
Industry Metrics
According to OAAA, outdoor advertising grew 10.2% in the second
quarter of 2005. Based on industry data compiled by us in
conjunction with our efforts to highlight for our customers the
value of outdoor advertising relative to other media, we believe
that this rate was higher than overall U.S. advertising
growth in the second quarter of 2005, outpacing television,
radio and publishing. Also, according to a study conducted by
two researchers from the Louisiana State University Manship
School of Mass Communications, the recall rate for outdoor
advertising is greater than that of magazines, network
television and cable television. Recall is determined by the
ability to name an advertiser without prompting.
According to OAAA, the top 10 industries using outdoor
advertising, based on 2004 year-end outdoor expenditures,
were: (1) local services and amusements, (2) media and
advertising, (3) public
71
transportation, hotels and resorts, (4) retail,
(5) insurance and real estate, (6) financial,
(7) automotive dealers and services, (8) restaurants,
(9) automotive, auto access and equipment and
(10) telecommunications. Also according to OAAA, the top 20
outdoor brands, based on 2004 year-end outdoor
expenditures, were: (1) McDonalds, (2) Warner movies,
(3) Miller beers, (4) Verizon long distance,
(5) Anheuser-Busch beers, (6) General Motors,
(7) Verizon Wireless, (8) Cracker Barrel,
(9) Chevrolet, (10) Walt Disney movies,
(11) Nissan, (12) Bank of America, (13) Diageo,
(14) Toyota, (15) Geico, (16) Coca-Cola,
(17) Coors Light, (18) Allstate, (19) Dodge and
(20) Dreamworks movies.
Pricing
Outdoor advertising is a low cost, high impact medium for
advertisers. The average cost per thousand impressions, or CPM,
of outdoor advertising is approximately one fourth that of
newspapers and prime time television and one half that of radio
and newsweekly magazines. The average reach of outdoor
advertising is approximately twice that of radio and newsweekly
magazines, four and a half times that of newspapers and five
times that of prime time television. The following table lists
the average CPM for advertising media (according to calculations
from data in TV Dimensions 2005© Media Dynamics, Inc.) and
the number of persons reached for every $1,000 invested in those
media in the United States:
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Persons Reached | |
Advertising Medium |
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Average CPM | |
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per $1,000 Invested | |
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Outdoor
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$ |
5.53 |
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180,832 |
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Radio
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9.91 |
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100,908 |
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Newsweekly magazines
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11.76 |
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85,034 |
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Newspapers
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24.92 |
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40,128 |
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Prime time network television
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26.44 |
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37,821 |
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Ratings and Measurement
Unlike for other forms of advertising media, including radio,
television and print, no universally recognized methodology has
emerged in the United States or internationally as the industry
standard for audience ratings and measurement. A number of
independent third parties are in the process of implementing new
measurement systems designed to measure the demographics of
people who pass U.S. billboards. Nielsen Outdoor has also
piloted a new audience measurement methodology in Chicago that
is currently being reviewed by the outdoor advertising industry.
The Traffic Audit Bureau announced plans to develop its own
ratings and measurement system from its traffic counts and
demographic data supplied by third-party research companies. One
of the goals of these efforts is to measure outdoor advertising
using traditional advertising metrics used in other media,
including print and broadcasting. Additionally, Arbitron has
established an outdoor group to provide research services
specialized for outdoor advertising.
These next-generation ratings services may improve measurements
within the industry, which may lead to an increase in outdoor
advertisings market share. The introduction of Postar, an
outdoor advertising measurement service launched in the United
Kingdom in the early 1990s, partly contributed to an increase in
market share for outdoor advertising from 4.8% in 1996 to 6.4%
in 2004, according to Zenith Optimedia. Other international
markets in which we operate are at various stages of developing
similar measurement technologies.
Regulation
The outdoor advertising industry is subject to federal, state
and local regulation. For instance, The Highway Beautification
Act of 1965 (HBA) regulates outdoor advertising on the
306,000 miles of Federal-Aid Primary, Interstate and
National Highway Systems roads within the United States. The HBA
regulates the location of billboards, mandates a state
compliance program, requires the development of
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state standards, promotes the expeditious removal of illegal
signs and requires just compensation for takings. Size, spacing
and lighting of billboards are regulated by state and local
municipalities. Periodically, certain state and local
governments attempt to force the removal of billboards not
governed by the HBA under various amortization theories. When
challenged under such a theory, an outdoor advertising company
is permitted to recoup its investment for a certain
period of time, after which the signs in question must be
removed. Other important advertising regulations include the
Intermodal Surface Transportation Efficiency Act of 1991, the
Bonus Act/ Bonus Program, the 1995 Scenic Byways Amendment and
various increases or implementations of property taxes,
billboard taxes and permit fees. While these regulations set
certain limits on the placement or erection of new outdoor
advertising displays, they have benefited established companies
such as us by creating high barriers to entry and have protected
the outdoor advertising industry against an oversupply of
inventory.
International regulation of the outdoor advertising industry
varies by region and country, but generally limits the size,
placement, nature and density of out-of-home displays. The
significant international regulations include the Law of
December 29, 1979 in France, the Town and Country Planning
(Control of Advertisements) Regulations 1992 in the United
Kingdom and Règlement Régional Urbain de
lagglomération bruxelloise in Belgium. These laws
define issues such as the extent to which advertisements can be
erected in rural areas, the hours during which illuminated signs
may be lit and whether the consent of local authorities is
required to place a sign in certain communities. Other
regulations may limit the subject matter and language of
out-of-home displays. For instance, the United States and
France, among other nations, ban outdoor advertisements for
tobacco products.
Competitive Landscape
The outdoor industry has recently undergone major consolidation,
as multiple acquisitions occurred throughout the 1990s. The top
10 U.S. outdoor advertising companies, based on 2004
U.S. revenues, according to OAAA, were: Clear Channel
Outdoor Holdings, Viacom Outdoor, Lamar, Regency Outdoor
Advertising, Van Wagner, JCDecaux, Adams Outdoor Advertising,
Magic Media, Fairway and Reagan National. We believe that our
main competitors in the international outdoor advertising
industry are JCDecaux, Viacom Outdoor and a number of regional
companies.
Digital
Digital advertising is a small but rapidly growing niche within
the outdoor industry. These units, supported by advanced LED,
LCD and plasma technologies, offer unique benefits to
advertisers. Unlike traditional outdoor advertising, in which
advertisers may buy a display for a week or longer, advertisers
can buy digital time slots for as short as a specified number of
seconds within each minute, with the ability to change their
message dynamically and in real time. While digital displays are
capable of supporting full motion video, currently most state
and local ordinances (excluding specially zoned areas like Times
Square in New York City) allow only static messages, or
advertising copy without motion, to be presented and changed on
the displays.
73
BUSINESS
Our Company
Our principal business is to provide our clients with
advertising opportunities through billboards, street furniture
displays, transit displays and other out-of-home advertising
displays that we own or operate in key markets worldwide. As of
September 30, 2005, we owned or operated more than 870,000
advertising displays worldwide. For the year ended
December 31, 2004, we generated revenues of approximately
$2.4 billion, operating income of approximately
$243.3 million and operating income before depreciation,
amortization and non-cash compensation expense, or OIBDAN, of
approximately $631.6 million. Our domestic reporting
segment consists of our operations in the United States, Canada
and Latin America, with approximately 95% of our 2004 revenues
in this segment derived from the United States. Our
international reporting segment consists of our operations in
Europe, Australia, Asia and Africa, with approximately 52% of
our 2004 revenues in this segment derived from France and the
United Kingdom. Approximately 89% of our total 2004
operating income excluding corporate expenses was derived from
our domestic segment and approximately 11% was derived from our
international segment. Approximately 66% of our total 2004
OIBDAN excluding corporate expenses was derived from our
domestic segment and approximately 34% was derived from our
international segment. See Prospectus Summary
Summary Historical and Pro Forma Combined Financial
Data Non-GAAP Financial Measure for an
explanation of OIBDAN and a reconciliation of OIBDAN to
operating income (loss). Additionally, we own equity interests
in various out-of-home advertising companies worldwide, which we
account for under the equity method of accounting.
Billboard displays are bulletin and poster advertising panels of
various sizes that generally are mounted on structures we own.
These structures typically are located on sites that we either
lease or own or for which we have acquired permanent easements.
Site lease terms generally range from one month to over
50 years. We believe that many of our billboards are
strategically located to offer maximum visual impact to
audiences. Larger billboards generally are located along major
highways and freeways to target vehicular traffic. Smaller
billboards generally are located on city streets to target both
vehicular and pedestrian traffic. Our client contracts for
billboards generally have terms ranging from one week to one
year.
Street furniture displays, marketed under our global
Adsheltm
brand, are advertising surfaces on bus shelters, information
kiosks, public toilets, freestanding units and other public
structures. Generally, we own the street furniture structures
and are responsible for their construction and maintenance.
Contracts for the right to place our street furniture structures
in the public domain and sell advertising space on them are
awarded by municipal and transit authorities in competitive
bidding processes. Generally, these contracts have terms ranging
from 10 to 20 years and involve revenue-sharing
arrangements with the authorities, including payments by us of
minimum guaranteed amounts. We believe that street furniture is
growing in popularity with municipal and transit authorities,
especially in international and larger U.S. markets. Our
client contracts for street furniture displays typically have
terms ranging from one week to one year.
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 taxis and within
the common areas of rail stations and airports. Contracts for
the right to place our displays on vehicles or within transit
systems and sell advertising space on them are awarded by public
transit authorities in competitive bidding processes or are
negotiated with private transit operators. These contracts
typically have terms ranging from three to ten years. Our client
contracts for transit displays generally have terms ranging from
two weeks to one year.
We generate revenues worldwide from local, regional and national
sales. Advertising rates generally are based on the gross
rating points, or total number of impressions delivered
expressed as a percentage of a market population, of a display
or group of displays. The number of impressions
delivered by a display is measured by the number of people
passing the site during a defined period of time and, in some
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international markets, is weighted to account for such factors
as illumination, proximity to other displays and the speed and
viewing angle of approaching traffic. 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. While 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. For example, one service we
provide our smaller clients is access to our creative personnel
who can assist the clients in designing advertising copy.
Our History
In 1997, Clear Channel Communications, which was founded in
1974, acquired Eller Media Company. In 1998, Clear Channel
Communications acquired Universal Outdoor, giving Clear Channel
Communications an outdoor presence in 33 major U.S. markets
with over 88,000 displays. Also in 1998, Clear Channel
Communications acquired More Group plc, a European-based company
operating in 25 countries. Other significant outdoor
acquisitions over the last five years include The Ackerley
Group, Spectacolor, Donrey Outdoor, Taxi Tops and France Rail
Publicité.
In addition to this offering, Clear Channel Communications
intends to spin off the entire operations of its entertainment
division into an independent publicly traded company in which
Clear Channel Communications will not hold any ownership
interest. This new public company will consist of Clear Channel
Communications worldwide entertainment operations.
Domestic Products
Our domestic segment consists of our operations in the United
States, Canada and Latin America, with approximately 95% of our
2004 revenues in this segment derived from the United States.
Our domestic display inventory consists primarily of billboards,
street furniture displays and transit displays, with billboards
contributing approximately 75% of our 2004 domestic revenues.
The margins on our billboard contracts also tend to be higher
than those on contracts for other displays.
The following table shows the approximate percentage of revenues
derived from each category of our domestic advertising inventory:
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Year Ended December 31, | |
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2004 | |
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2003 | |
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2002 | |
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Billboards:
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Bulletins(1)
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56% |
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56% |
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56% |
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Posters
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19% |
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20% |
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21% |
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Street furniture displays
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4% |
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3% |
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3% |
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Transit displays
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11% |
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11% |
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10% |
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Other displays(2)
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10% |
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10% |
|
|
|
10% |
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
100% |
|
|
|
100% |
|
|
|
100% |
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
For our internal reporting purposes, wallscape revenues are
combined with bulletin revenues. For a description of
wallscapes, see Other Domestic Inventory. |
|
(2) |
Includes spectaculars and mall displays. |
In the United States, our displays are located in all of the top
30 U.S. designated market area regions, or DMA® regions
(DMA® is a registered trademark of Nielsen Media Research,
Inc.), and in 46 of the top 50 DMA® regions, giving
our clients the ability to reach a significant portion of the
U.S. population. A DMA® region, a term developed by
Nielsen Media Research, Inc., is used to designate a geographic
area or media market. The significant expenses associated with
our domestic operations include (i) direct production and
installation expenses, (ii) site lease expenses for land
under our displays and (iii) revenue-sharing or minimum
guaranteed amounts payable under our street furniture and
transit display contracts.
75
Our direct production and installation expenses include costs
for printing, transporting and changing the advertising copy
displayed on our bulletins, and related labor and vinyl or paper
costs. 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 we may
have with the landlords. The terms of our domestic site leases
typically range from one month to over 50 years, and
typically provide for renewal options.
Our domestic billboard inventory primarily includes bulletins
and posters.
Bulletins vary in size, with the most common size being
14 feet high by 48 feet wide. Almost all of the
advertising copy displayed on bulletins is computer printed on
vinyl and transported to the bulletin where it is secured to the
display surface. Because of their greater size and impact, we
typically receive our highest rates for bulletins. Bulletins
generally are located along major expressways, primary commuting
routes and main intersections that are highly visible and
heavily trafficked. Our clients may contract for individual
bulletins or a network of bulletins, meaning the clients
advertisements are rotated among bulletins to increase the reach
of the campaign. 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. Our client contracts for bulletins generally have terms
ranging from one month to one year, or longer.
Posters are available in two sizes, 30-sheet and eight-sheet
displays. The 30-sheet posters are approximately 11 feet
high by 23 feet wide, and the eight-sheet posters are
approximately five feet high by 11 feet wide. Advertising
copy for posters is printed using silk-screen or lithographic
processes to transfer the designs onto paper that is then
transported and secured to the poster surfaces. Posters
generally are located in commercial areas on primary and
secondary routes near point-of-purchase locations, facilitating
advertising campaigns with greater demographic targeting than
those displayed on bulletins. Our poster rates typically are
less than our bulletin rates, and our client contracts for
posters generally have terms ranging from four weeks to one
year. Two types of posters are premiere panels and squares.
Premiere displays are innovative hybrids between bulletins and
posters that we developed to provide our clients with an
alternative for their targeted marking campaigns. The premiere
displays utilize one or more poster panels, but with vinyl
advertising stretched over the panels similar to bulletins. Our
intent is to combine the creative impact of bulletins with the
additional reach and frequency of posters. 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.
|
|
|
Street Furniture Displays |
Our street furniture displays, marketed under our global
Adsheltm
brand, are advertising surfaces on bus shelters, information
kiosks, public toilets, freestanding units and other public
structures, and primarily are located in major metropolitan
cities 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 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 revenues 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, or longer, and, similar to billboards, may be for network
packages.
76
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 taxis and within
the common areas of rail stations and airports. Similar to
street furniture, contracts for the right to place our displays
on such vehicles or within such transit systems and sell
advertising space on them generally are awarded by public
transit authorities in competitive bidding processes or are
negotiated with private transit operators. These contracts
typically have terms of up to five years. Our client contracts
for transit displays generally have terms ranging from four
weeks to one year, or longer.
The balance of our domestic display inventory consists of
spectaculars, mall displays and wallscapes. 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 Dundas Square in
Toronto, Times Square and Penn Plaza in New York City, Fashion
Show in Las Vegas, Sunset Strip in Los Angeles and across
from the Target Center in Minneapolis. Client contracts for
spectaculars typically have terms of one year or longer. 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. Contracts with mall operators grant us
the exclusive right to place our displays within the common
areas and sell advertising on those displays. Domestically, our
contracts with mall operators generally have terms ranging from
five to ten years. Client contracts for mall displays typically
have terms ranging from six to eight weeks. 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. Domestically, our
inventory includes other small displays that are not counted as
separate displays in this prospectus since their contribution to
our revenues is not material.
International Products
Our international segment consists of our advertising operations
in Europe, Australia, Asia and Africa, with approximately 52% of
our 2004 revenues in this segment derived from France and the
United Kingdom. Our international display inventory
consists primarily of billboards, street furniture displays and
transit displays in approximately 50 countries worldwide, with
billboards and street furniture displays collectively
contributing approximately 77% of our 2004 international
revenues.
The following table shows the approximate percentage of revenues
derived from each category of our international advertising
inventory:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, | |
|
|
| |
|
|
2004 | |
|
2003 | |
|
2002 | |
|
|
| |
|
| |
|
| |
Billboards
|
|
|
46% |
|
|
|
47% |
|
|
|
50% |
|
Street furniture displays
|
|
|
31% |
|
|
|
33% |
|
|
|
30% |
|
Transit displays(1)
|
|
|
10% |
|
|
|
10% |
|
|
|
10% |
|
Other displays(2)
|
|
|
13% |
|
|
|
10% |
|
|
|
10% |
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
100% |
|
|
|
100% |
|
|
|
100% |
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
Includes small displays. |
|
(2) |
Includes spectaculars, mall displays and other small displays. |
The majority of our international clients are advertisers
targeting national audiences whose business is placed with us
through advertising agencies and outdoor buying services. The
significant expenses associated with our international
operations include (i) revenue-sharing or minimum
guaranteed amounts
77
payable under our billboard, street furniture and transit
display contracts, (ii) site lease expenses and
(iii) cleaning and maintenance expenses related to our
street furniture. These expenses consist of costs similar to
those associated with our domestic operations. Internationally,
the terms of our site leases typically range from three to ten
years, but may vary across our networks. Because revenue-sharing
and minimum guaranteed payment arrangements are more prevalent
in our international operations, the margins in our
international operations typically are less than the margins in
our domestic operations.
The size of our international billboards is 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 domestic posters (30-sheet and eight-sheet
displays). 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 international billboard sites from private landowners.
|
|
|
Street Furniture Displays |
Our international street furniture displays are substantially
similar to their domestic counterparts, and include bus
shelters, freestanding units, public toilets, various types of
kiosks and benches. Internationally, contracts with municipal
and transit authorities for the right to place our street
furniture in the public domain and sell advertising on them
typically range from 10 to 15 years. The major difference
between our international and domestic street furniture
businesses is in the nature of the municipal contracts. In the
international segment, these contracts typically require us to
provide the municipality with a broader range of urban amenities
such as public wastebaskets and lampposts, as well as space for
the municipality to display maps or other public information. In
exchange for providing such urban amenities and display space,
we are authorized to sell advertising space on certain sections
of the structures we erect in the public domain. Client
contracts for street furniture displays typically have terms
ranging from one to two weeks, but are available for up to one
year, and may be for network packages.
Our international transit display contracts are substantially
similar to their domestic 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 generally have terms ranging from two weeks to
one year, or longer.
|
|
|
Other International Inventory |
The balance of our international display inventory consists
primarily of spectaculars and mall displays. DEFI, our
international neon subsidiary, is a leading global provider of
spectaculars with approximately 300 spectacular displays in 30
countries worldwide. Client contracts for international
spectaculars typically have terms ranging from five to ten
years. 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 up to six months. Our
international inventory includes other small displays that are
counted as separate displays in this prospectus since they form
a substantial part of our network and international revenues.
Marketing Resources
We have several online tools and resources to help us sell our
inventory. Our online rate card is a web-based application that
allows users to view all of our markets and products for rates
and gross rating point allotments. We also have an online
inventory search that is designed to provide users access to
photos and maps of all our U.S. bulletins, wallscapes,
premiere squares and spectaculars. Our internal web-
78
based system,
FastPitchtm,
delivers real-time rate and availability data for each of our
U.S. markets, and our account executives use that data to
create multi- or single-market advertising programs without
having to contact individual markets for this data.
FastPitchtm
also contains maps, product sheets, market information, shipping
information and product specifications. Inventory availability
is updated daily directly from each markets scheduling
system.
Additionally, our account executives use several research
products to help sell our inventory. Our account executives
assist advertisers in structuring advertising campaigns using
computer databases and mapping software to analyze target
audiences and consumer products and services. By examining
demographic profiles, socioeconomic information and consumer
buying power, our research allows us to create smart, effective
purchases for our advertisers.
Production
In a majority of our markets, our local production staff
performs the full range of activities required to create and
install advertising copy. Production work includes creating the
advertising copy design and layout, coordinating its printing
and installing the copy on displays. We provide creative
services to smaller advertisers and to advertisers that are not
represented by advertising agencies. National advertisers often
use preprinted designs that require only installation. Our
creative and production personnel typically develop new designs
or adopt copy from other media for use on our inventory. Our
creative staff also can assist in the development of marketing
presentations, demonstrations and strategies to attract new
clients.
The majority of our international clients are advertisers
targeting national audiences whose business generally is placed
with us through advertising agencies. These agencies often
provide our international clients creative services to design
and produce both the advertising copy and the physical printed
advertisement. Advertising copy, both paper and vinyl, is
shipped to centralized warehouses operated by us. The copy is
then sorted and delivered to sites where it is installed on our
displays.
Client Categories
In 2004, the top five client categories in our domestic segment,
based on domestic revenues derived from these categories, were
entertainment and amusements, business and consumer services,
automotive, retail and insurance and real estate. In 2004, the
top five client categories in our international segment, based
on international revenues derived from those categories, were
automotive, food and drink, media and entertainment, retail and
telecommunications.
Our Markets
Approximately 95% of our 2004 domestic revenues were derived
from the United States and approximately 52% of our 2004
international revenues were derived from France and the United
Kingdom. The following table sets forth certain information
regarding displays that we own or operate in domestic and
international markets worldwide. As of September 30, 2005,
we owned or operated approximately 164,000 domestic displays and
approximately 709,000 international displays. Our domestic
markets are listed in order of their DMA® region ranking
and our international markets are listed in descending order
according to revenues contribution.
79
Our Domestic Displays
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DMA® | |
|
|
|
Billboards | |
|
Street | |
|
|
|
|
|
|
Region | |
|
|
|
| |
|
Furniture | |
|
Transit | |
|
Other | |
|
Total | |
Rank | |
|
Domestic Markets |
|
Bulletins(1) | |
|
Posters | |
|
Displays | |
|
Displays | |
|
Displays(2) | |
|
Displays | |
| |
|
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
|
|
United States |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
|
|
New York, NY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18,214 |
|
|
2 |
|
|
Los Angeles, CA |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,789 |
|
|
3 |
|
|
Chicago, IL |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3) |
|
|
|
|
|
|
11,673 |
|
|
4 |
|
|
Philadelphia, PA |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,525 |
|
|
5 |
|
|
San Francisco-Oakland-San Jose, CA |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,722 |
|
|
6 |
|
|
Boston, MA (Manchester, NH) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,926 |
|
|
7 |
|
|
Dallas-Ft. Worth, TX |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,956 |
|
|
8 |
|
|
Washington, DC (Hagerstown, MD) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,708 |
|
|
9 |
|
|
Atlanta, GA |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,313 |
|
|
10 |
|
|
Houston, TX |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3) |
|
|
|
|
|
|
4,742 |
|
|
11 |
|
|
Detroit, MI |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
547 |
|
|
12 |
|
|
Seattle-Tacoma, WA |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,312 |
|
|
13 |
|
|
Minneapolis-St. Paul, MN |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,977 |
|
|
14 |
|
|
Phoenix (Prescott), AZ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3) |
|
|
1,464 |
|
|
15 |
|
|
Miami-Ft. Lauderdale, FL |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3) |
|
|
3,701 |
|
|
16 |
|
|
Tampa-St. Petersburg (Sarasota), FL |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,963 |
|
|
17 |
|
|
Cleveland-Akron (Canton), OH |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,448 |
|
|
18 |
|
|
Sacramento-Stockton-Modesto, CA |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
958 |
|
|
19 |
|
|
Denver, CO |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
685 |
|
|
20 |
|
|
Orlando-Daytona Beach-Melbourne, FL |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,465 |
|
|
21 |
|
|
St. Louis, MO |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
234 |
|
|
22 |
|
|
Pittsburgh, PA |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3) |
|
|
|
|
|
|
528 |
|
|
23 |
|
|
San Diego, CA |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3) |
|
|
1,334 |
|
|
24 |
|
|
Portland, OR |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,294 |
|
|
25 |
|
|
Baltimore, MD |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3) |
|
|
2,025 |
|
|
26 |
|
|
Indianapolis, IN |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,981 |
|
|
27 |
|
|
Hartford-New Haven, CT |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6 |
|
|
28 |
|
|
Charlotte, NC |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12 |
|
|
29 |
|
|
Raleigh-Durham (Fayetteville), NC |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10 |
|
|
30 |
|
|
Nashville, TN |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21 |
|
|
31 |
|
|
Salt Lake City, UT |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
124 |
|
|
32 |
|
|
Kansas City, KS/ MO |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3) |
|
|
|
|
|
|
|
|
|
33 |
|
|
Milwaukee, WI |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,700 |
|
|
34 |
|
|
Cincinnati, OH |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8 |
|
|
35 |
|
|
Columbus, OH |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,401 |
|
|
37 |
|
|
San Antonio, TX |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3) |
|
|
|
(3) |
|
|
3,016 |
|
|
39 |
|
|
Norfolk-Portsmouth-Newport News, VA |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8 |
|
|
40 |
|
|
West Palm Beach-Ft. Pierce, FL |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
372 |
|
|
42 |
|
|
New Orleans, LA |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,775 |
|
|
43 |
|
|
Memphis, TN |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,200 |
|
|
44 |
|
|
Harrisburg-Lancaster-Lebanon-York, PA |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
36 |
|
|
45 |
|
|
Albuquerque-Santa Fe, NM |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,097 |
|
|
47 |
|
|
Oklahoma City, OK |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12 |
|
|
48 |
|
|
Buffalo, NY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
240 |
|
|
49 |
|
|
Fresno-Visalia, CA |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10 |
|
|
50 |
|
|
Las Vegas, NV |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3) |
|
|
11,295 |
|
|
52 |
|
|
Louisville, KY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16 |
|
|
53 |
|
|
Jacksonville, FL |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
866 |
|
|
54 |
|
|
Wilkes Barre-Scranton, PA |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
39 |
|
|
55 |
|
|
Austin, TX |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3) |
|
|
|
|
|
|
16 |
|
|
56 |
|
|
Hudson Valley, NY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
376 |
|
|
57 |
|
|
Richmond-Petersburg, VA |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12 |
|
|
62 |
|
|
Knoxville, TN |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13 |
|
|
63 |
|
|
Charleston-Huntington, WV |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9 |
|
|
67 |
|
|
Wichita-Hutchinson, KS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
673 |
|
|
72 |
|
|
Tucson (Sierra Vista), AZ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,550 |
|
|
73 |
|
|
Des Moines-Ames, IA |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3) |
|
|
672 |
|
|
87 |
|
|
Chattanooga, TN |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,562 |
|
|
89 |
|
|
Northpark, MS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3) |
|
|
6 |
|
|
91 |
|
|
Cedar Rapids-Waterloo-Iowa City-Dubuque, IA |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12 |
|
|
93 |
|
|
El Paso, TX (Las Cruces, NM) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,305 |
|
|
94 |
|
|
Colorado Springs-Pueblo, CO |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7 |
|
|
97 |
|
|
Johnstown-Altoona, PA |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20 |
|
|
101 |
|
|
Youngstown, OH |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8 |
|
|
104 |
|
|
Monterey-Salinas, CA |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
40 |
|
|
107 |
|
|
Ft. Smith-Fayetteville-Springdale-Rogers, AR |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
914 |
|
|
113 |
|
|
Reno, NV |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
574 |
|
|
114 |
|
|
Tallahassee, FL-Thomasville, GA |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9 |
|
80
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DMA® | |
|
|
|
Billboards | |
|
Street | |
|
|
|
|
|
|
Region | |
|
|
|
| |
|
Furniture | |
|
Transit | |
|
Other | |
|
Total | |
Rank | |
|
Domestic Markets |
|
Bulletins(1) | |
|
Posters | |
|
Displays | |
|
Displays | |
|
Displays(2) | |
|
Displays | |
| |
|
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
115 |
|
|
Augusta, GA |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3) |
|
|
|
|
|
117 |
|
|
Sioux Falls (Mitchell), SD |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19 |
|
|
142 |
|
|
Sioux City, IA |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8 |
|
|
145 |
|
|
Lubbock, TX |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16 |
|
|
148 |
|
|
Palm Springs, CA |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12 |
|
|
150 |
|
|
Salisbury, MD |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3) |
|
|
|
|
|
|
1,247 |
|
|
163 |
|
|
Ocala-Gainesville, FL |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,317 |
|
|
171 |
|
|
Billings, MT |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8 |
|
|
176 |
|
|
Rapid City, SD |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10 |
|
|
189 |
|
|
Great Falls, MT |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14 |
|
|
190 |
|
|
Grand Junction-Aspen-Montrose, |