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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
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Filed by the Registrant þ |
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Filed by a Party other than the Registrant
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Check the appropriate box: |
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o Preliminary Proxy Statement |
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Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2)) |
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þ Definitive Proxy Statement |
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o Definitive Additional Materials |
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Soliciting Material Pursuant to §240.14a-12 |
Clear Channel Outdoor Holdings, Inc.
(Name
of Registrant as Specified In Its Charter)
(Name
of Person(s) Filing Proxy Statement, if other than the
Registrant)
Payment of Filing Fee (Check the appropriate box):
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þ No fee required. |
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Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11. |
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1) Title of each class of securities to which transaction applies: |
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2) Aggregate number of securities to which transaction applies: |
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3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined): |
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4) Proposed maximum aggregate value of transaction: |
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o Fee paid previously with preliminary materials. |
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o Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing. |
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1) Amount Previously Paid: |
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2) Form, Schedule or Registration Statement No.: |
Clear Channel Outdoor Holdings, Inc.
P.O. Box 659512
San Antonio, Texas 78265-9512
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To Be Held April 25, 2007
As a stockholder of Clear Channel Outdoor Holdings, Inc., you are hereby given notice of
and invited to attend, in person or by proxy, the Annual Meeting of stockholders of Clear Channel
Outdoor Holdings, Inc. to be held at The Airport Doubletree Hotel, 37 NE Loop 410, San Antonio,
Texas 78216, on April 25, 2007, at 8:00 a.m. local time, for the following purposes:
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to elect two directors to serve for a three year term; |
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to approve the adoption of the Clear Channel Outdoor Holdings, Inc. 2006 Annual
Incentive Plan. A copy of the 2006 Annual Incentive Plan is attached to this document as
Appendix A; |
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to approve the adoption of the Clear Channel Outdoor Holdings, Inc. 2005 Stock
Incentive Plan, as amended and restated. A copy of the 2005 Stock Incentive Plan, as
amended and restated, is attached to this document as Appendix B; and |
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to transact any other business which may properly come before the meeting or any
adjournment thereof. |
Only stockholders of record at the close of business on March 16, 2007 are entitled to notice
of and to vote at the meeting.
Two cut-out admission tickets are included on the back cover of this document and are required
for admission to the meeting. Please contact Clear Channel Outdoors Secretary at Clear Channel
Outdoors corporate headquarters if you need additional tickets. If you plan to attend the annual
meeting, please note that space limitations make it necessary to limit attendance to stockholders
and one guest. Admission to the annual meeting will be on a first-come, first-served basis.
Registration and seating will begin at 7:30 a.m. Each stockholder may be asked to present valid
picture identification, such as a drivers license or passport. Stockholders holding stock in
brokerage accounts (street name holders) will need to bring a copy of a brokerage statement
reflecting stock ownership as of the record date. Cameras (including cellular telephones with
photographic capabilities), recording devices and other electronic devices will not be permitted at
the annual meeting. The annual meeting will begin promptly at 8:00 a.m. local time.
Your attention is directed to the accompanying proxy statement. In addition, although mere
attendance at the meeting will not revoke your proxy, if you attend the meeting you may revoke your
proxy and vote in person. To assure that your shares are represented at the meeting, please
complete, date, sign and mail the enclosed proxy card in the return envelope provided for that
purpose.
By Order of the Board of Directors
Andrew W. Levin
Executive Vice President, Chief Legal Officer and Secretary
San Antonio, Texas
April 13, 2007
2007 ANNUAL MEETING OF STOCKHOLDERS
NOTICE OF ANNUAL MEETING AND PROXY STATEMENT
TABLE OF CONTENTS
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PROXY STATEMENT
This proxy statement contains information related to the annual meeting of stockholders
of Clear Channel Outdoor Holdings, Inc. (referred to herein as Clear Channel Outdoor, Company,
we, our or us) to be held on Wednesday, April 25, 2007, beginning at 8:00 a.m. local time, at
the Airport Doubletree Hotel, 37 NE Loop 410, San Antonio, Texas, and at any postponements or
adjournments thereof. This proxy statement is being mailed to stockholders on or about April 13,
2007.
QUESTIONS AND ANSWERS ABOUT THE PROXY MATERIALS AND
THE ANNUAL MEETING
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Why am I receiving these materials? |
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Clear Channel Outdoors Board of Directors (the Board) is
providing these proxy materials to you in connection with Clear
Channel Outdoors annual meeting of stockholders (the annual
meeting), which will take place on April 25, 2007. The Board is
soliciting proxies to be used at the annual meeting. You are also
invited to attend the annual meeting and are requested to vote on
the proposals described in this proxy statement. |
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What information is contained in these materials? |
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The information included in this proxy statement relates to the
proposals to be voted on at the annual meeting, the voting
process, the compensation of our directors and our most highly
paid executive officers, and certain other required information.
Following this proxy statement are excerpts from Clear Channel
Outdoors 2006 Annual Report on Form 10-K including Consolidated
Financial Statements, Notes to the Consolidated Financial
Statements, and Managements Discussion and Analysis. A proxy
card and a return envelope are also enclosed. |
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What proposals will be voted on at the annual meeting? |
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There are three proposals scheduled to be voted on at the annual
meeting: the election of directors, the approval of the adoption
of the Clear Channel Outdoor Holdings, Inc. 2006 Annual Incentive
Plan, and the approval of the adoption of the Clear Channel
Outdoor Holdings, Inc. 2005 Stock Incentive Plan, as amended and
restated. |
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Which of my shares may I vote? |
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All shares of Class A common stock owned by you as of the close of
business on March 16, 2007 (the Record Date) may be voted by
you. These shares include shares that are: (1) held directly in
your name as the stockholder of record, and (2) held for you as
the beneficial owner through a stockbroker, bank or other nominee.
Each of your shares is entitled to one vote at the annual
meeting. |
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What is the difference between holding shares as a stockholder of
record and as a beneficial owner? |
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Most stockholders of Clear Channel Outdoor hold their shares
through a stockbroker, bank or other nominee rather than directly
in their own name. As summarized below, there are some
distinctions between shares held of record and those owned
beneficially. |
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STOCKHOLDERS OF RECORD: If your shares are registered directly in your name with Clear
Channel Outdoors transfer agent, The Bank of New York, you are considered, with respect to
those shares, the stockholder of record, and these proxy materials are being sent directly
to you by The Bank of New York on behalf of Clear Channel Outdoor. As the stockholder of
record, you have the right to grant your voting proxy directly to Clear Channel Outdoor or
to vote in person at the annual meeting. Clear Channel Outdoor has enclosed a proxy card for
you to use. |
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BENEFICIAL OWNER: If your shares are held in a stock brokerage account or by a bank or other
nominee, you are considered the beneficial owner of shares held in street name, and these
proxy materials are being forwarded to you by your broker or nominee who is considered, with
respect to those shares, the stockholder of record. As the beneficial owner, you have the
right to direct your broker on how to vote and are also invited to attend the annual
meeting. However, since you are not the stockholder of record, you may not vote these shares
in person at the annual meeting, unless you obtain a signed proxy from the record holder
giving you the right to vote the shares. Your broker or nominee has enclosed a voting
instruction card for you to use in directing the broker or nominee regarding how to vote
your shares. |
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If my shares are held in street name by my broker, will my broker vote my shares for me? |
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Under New York Stock Exchange (NYSE) rules, brokers will have discretion to vote the shares of customers who fail to
provide voting instructions on routine matters, but brokers may not vote such shares on non-routine matters without
voting instructions. The election of directors is a routine matter and the approval of the Clear Channel Outdoor Holdings,
Inc. 2006 Annual Incentive Plan and the Clear Channel Outdoor Holdings, Inc. 2005 Stock Incentive Plan, as amended and
restated, are non-routine matters. Your broker will send you directions on how you can instruct your broker to vote. |
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If you do not provide instructions to your broker on how to vote your shares on the routine
matters, they may either vote your shares on these matters in their discretion or leave your
shares unvoted. |
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How can I vote my shares in person at the annual meeting? |
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Shares held directly in your name as the stockholder of record may be
voted by you in person at the annual meeting. If you choose to do so,
please bring the enclosed proxy card and proof of identification.
Even if you plan to attend the annual meeting, Clear Channel Outdoor
recommends that you also submit your proxy as described below so that
your vote will be counted if you later decide not to attend the annual
meeting. You may request that your previously submitted proxy card
not be used if you desire to vote in person when you attend the annual
meeting. Shares held in street name may be voted in person by you
at the annual meeting only if you obtain a signed proxy from the
record holder giving you the right to vote the shares. Your vote is
important. Accordingly, you are urged to sign and return the
accompanying proxy card whether or not you plan to attend the annual
meeting. |
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If you plan to attend the annual meeting, please note that space limitations make it
necessary to limit attendance to stockholders and one guest. Admission to the annual
meeting will be on a first-come, first-served basis. Registration and seating will begin at
7:30 a.m. local time. Each stockholder may be asked to present valid picture
identification, such as a drivers license or passport. Stockholders holding stock in
brokerage accounts (street name holders) will need to bring a copy of a brokerage
statement reflecting stock ownership as of the record date. Cameras (including cellular
telephones with photographic capabilities), recording devices and other electronic devices
will not be permitted at the annual meeting. |
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How can I vote my shares without attending the annual meeting? |
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Whether you hold shares directly as the stockholder of record or beneficially in street name, when you return your proxy
card or voting instructions accompanying this proxy statement, properly signed, the shares represented will be voted in
accordance with your directions. You can specify your choices by marking the appropriate boxes on the enclosed proxy card. |
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If you are a stockholder of record, you may change your vote or revoke your proxy at any time before your shares are voted
at the annual meeting by sending the Secretary of Clear Channel Outdoor a proxy card dated later than your last submitted
proxy card, notifying the Secretary of Clear Channel Outdoor in writing, or voting at the annual meeting. |
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What if I return my proxy card without specifying my voting choices? |
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If your proxy card is signed and returned without specifying choices, the shares will be voted as recommended by the Board. |
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What does it mean if I receive more than one proxy or voting instruction card? |
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It means your shares are registered differently or are in more than one account. Please provide voting instructions for all
proxy and voting instruction cards you receive. |
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What constitutes a quorum? |
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The holders of a majority of the total voting power of the Companys Class A and Class B common stock entitled to vote and
represented in person or by proxy will constitute a quorum at the annual meeting. Broker non-votes (as further described
below) and abstentions are both counted toward a quorum. |
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Under NYSE rules, the proposal to elect directors is considered a routine matter. This means that brokerage firms may
vote in their discretion on these matters on behalf of clients who have not timely furnished voting instructions. In
contrast, the proposals to approve the Clear Channel Outdoor Holdings, Inc. 2006 Annual Incentive Plan and the Clear
Channel Outdoor Holdings, Inc. 2005 Stock Incentive Plan, as amended and restated, are considered non-routine matters.
This means brokerage firms that have not received voting instructions from their clients on these proposals may not vote on
them (referred to as broker non-votes) and they will not be counted as being present for purposes of determining a quorum
for Proposals 2 and 3. See Proposals 2 and 3 set forth in this proxy statement for the effect of broker non-votes on the
approval of the Clear Channel Outdoor Holdings, Inc. 2006 Annual Incentive Plan and the Clear Channel Outdoor Holdings,
Inc. 2005 Stock Incentive Plan, as amended and restated, respectively. |
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What are Clear Channel Outdoors voting recommendations? |
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The Board recommends that you vote your shares FOR each of the nominees to the Board, FOR the adoption of the Clear
Channel Outdoor Holdings, Inc. 2006 Annual Incentive Plan, and FOR the adoption of the Clear Channel Outdoor Holdings,
Inc. 2005 Stock Incentive Plan, as amended and restated. |
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Where can I find the voting results of the annual meeting? |
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Clear Channel Outdoor will announce preliminary voting results at the annual meeting and publish final results in Clear
Channel Outdoors quarterly report on Form 10-Q for the second quarter of 2007, which will be filed with the Securities and
Exchange Commission (the SEC) by August 9, 2007. |
THE BOARD OF DIRECTORS
The Board is responsible for the management and direction of Clear Channel Outdoor and
for establishing broad corporate policies. However, in accordance with corporate legal principles,
it is not involved in day-to-day operating details. Members of the Board are kept informed of
Clear Channel Outdoors business through discussions with the Chief Executive Officer, Chief
Financial Officer, President and Chief Operating Officer and other executive officers, by reviewing
analyses and reports sent to them, and by participating in board and committee meetings.
COMPOSITION OF THE BOARD OF DIRECTORS
Our directors are divided into three classes serving staggered three-year terms. At each
annual meeting of our stockholders, directors will be elected to succeed the class of directors
whose terms have expired. For so long as Clear Channel Communications, Inc. is the owner of such
number of shares representing more than 50% of the total
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voting power of our common stock, it will have the ability to direct the election of all the
members of our Board of Directors, the composition of our Board Committee and the size of the
Board.
Because more than fifty percent (50%) of the voting power of Clear Channel Outdoor is
controlled by Clear Channel Communications, Inc., Clear Channel Outdoor has elected to be treated
as a controlled company under the Corporate Governance Listing Standards of the New York Stock
Exchange. Accordingly, Clear Channel Outdoor is exempt from the provisions of the Corporate
Governance Listing Standards requiring: (i) that the majority of the Board of Directors consists of
independent directors, (ii) that we have a Nominating and Governance Committee and that it be
composed entirely of independent directors with 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) an annual performance evaluation of the Compensation Committee. However,
notwithstanding this exemption, as described more fully below, a majority of the Board of Directors
consists of independent directors and we have a Compensation Committee composed entirely of
independent directors with a written charter addressing the Committees purpose and
responsibilities.
Set forth below are the names and ages of our directors as of March 15, 2007.
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Term as Director |
L. Lowry Mays
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71 |
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Chairman of the Board and Director
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Expires 2007 |
William D. Parker
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45 |
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Director
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Expires 2009 |
James M. Raines
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67 |
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Director
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Expires 2007 |
Marsha M. Shields
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52 |
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Director
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Expires 2008 |
Dale W. Tremblay
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48 |
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Director
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Expires 2009 |
Mark P. Mays
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Chief Executive Officer and Director
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Expires 2009 |
Randall T. Mays
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Chief Financial Officer and Director
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Expires 2008 |
BOARD MEETINGS
The Board held five meetings during 2006. Each board member attended at least 75% of the
aggregate of the total number of meetings of the Board held during such directors term and at
least 75% of the total number of meetings held by committees of the Board on which that director
served.
STOCKHOLDER MEETING ATTENDANCE
Clear Channel Outdoor encourages, but does not require, directors to attend the annual
meetings of stockholders.
INDEPENDENCE OF DIRECTORS
The Board has adopted a set of Corporate Governance Guidelines, addressing, among other
things, standards for evaluating the independence of Clear Channel Outdoors directors. The full
text of the guidelines can be found on Clear Channel Outdoors Internet website at
www.clearchanneloutdoor.com. A copy may also be obtained upon request from the Secretary of Clear
Channel Outdoor. The Board has adopted the following standards for determining the independence of
its members:
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A director must not be, or have been within the last three years, an employee of Clear
Channel Outdoor. In addition, a directors immediate family member (immediate family
member is defined to include a persons spouse, parents, children, siblings, mother and
father-in-law, sons and daughters-in-law and anyone (other than domestic employees) who
shares such persons home) must not be, or have been within the last three years, an
executive officer of Clear Channel Outdoor. |
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A director or immediate family member must not have received, during any twelve month
period within the last three years, more than $100,000 per year in direct compensation from
Clear Channel Outdoor, other than as director or committee fees and pension or other forms
of deferred compensation for prior service (and no such compensation may be contingent in
any way on continued service). |
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A director must not be a current partner of a firm that is Clear Channel Outdoors
internal or external auditor or a current employee of such a firm. In addition, a director
must not have an immediate family member who is a current employee of such a firm and who
participates in the firms audit, assurance or tax compliance (but not tax planning)
practice. Finally, a director or immediate family member must not have been, within the
last three years, a partner or employee of such a firm and personally worked on Clear
Channel Outdoors audit within that time. |
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A director or an immediate family member must not be, or have been within the last
three years, employed as an executive officer of another company where any of Clear Channel
Outdoors present executive officers at the same time serve or served on that companys
compensation committee. |
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A director must not (a) be a current employee, and no directors immediate family
member may be a current executive officer, of any company that has made payments to, or
received payments from, Clear Channel Outdoor (together with its consolidated subsidiaries)
for property or services in an amount which, in any of the last three fiscal years, exceeds
the greater of $1 million, or 2% of such other companys consolidated gross revenues. |
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A director must not own, together with ownership interests of his or her family, ten
percent (10%) or more of any company that has made payments to, or received payments from,
Clear Channel Outdoor (together with its consolidated subsidiaries) for property or
services in an amount which, in any of the last three fiscal years, exceeds the greater of
$1 million, or 2% of such other companys consolidated gross revenues. |
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A director or immediate family member must not be or have been during the last three
years, a director, trustee or officer of a charitable organization (or hold a similar
position), to which Clear Channel Outdoor (together with its consolidated subsidiaries)
makes contributions in an amount which, in any of the last three fiscal years, exceeds the
greater of $50,000, or 5% of such organizations consolidated gross revenues. |
Pursuant to the Corporate Governance Guidelines, the Board undertook its annual review of
director independence in February 2007. During this review, the Board considered transactions and
relationships during the prior year between each director or any member of his or her immediate
family and Clear Channel Outdoor and its subsidiaries, affiliates and investors, including those
reported under Certain Transactions below. The Board also examined transactions and relationships
between directors or their affiliates and members of the senior management or their affiliates. As
provided in the Corporate Governance Guidelines, the purpose of this review was to determine
whether any such relationships or transactions were inconsistent with a determination that the
director is independent.
Our board currently consists of seven directors, four of whom are independent (as defined by
our Governance Guidelines and NYSE listing standards) and one of whom is our Chief Executive
Officer. Our Governance Guidelines, which include guidelines for determining director
independence, are published in the investor relations section of our website at
www.clearchanneloutdoor.com. For a director to be independent, the board must determine the
director does not have any direct or indirect material relationship with Clear Channel Outdoor.
The board has established guidelines to assist it in determining director independence, which
conform to, or are more exacting than, the independence requirements of the NYSE. The independence
guidelines are set forth in Appendix A of the Governance Guidelines. The board has determined Mr.
Parker, Mr. Raines, Mrs. Shields and Mr. Tremblay satisfy the NYSEs independence requirements and
our boards independence guidelines.
As a result of this review, the Board affirmatively determined that, of the directors
nominated for election at the annual meeting, William D. Parker, James M. Raines, Marsha M. Shields
and Dale W. Tremblay are independent of Clear Channel Outdoor and its management under the listing
standards of the NYSE and the standards set forth in the Corporate Governance Guidelines, including
those standards enumerated in paragraphs 1-7 above. In addition, the Board has determined that
every member of the Audit Committee and the Compensation Committee is independent. While in its
review the Board noted certain longtime business and personal relationships between certain of the
members of the Board that are not required to be described under the heading Compensation
Committee Interlocks And Insider Participation or under the heading Certain Transactions found
on page 21 of this document, it concluded that none of business or personal relationships impaired
any of the above-named Board members independence.
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The rules of the NYSE require that non-management directors of a listed company meet
periodically in executive sessions. Clear Channel Outdoors non-management directors have met
separately in executive sessions without management present.
The Board has created the office of Presiding Director to serve as the lead non-management
director of the Board. The Board has established that the office of the Presiding Director shall
at all times be held by an independent director, as that term is defined from time to time by the
listing standards of the NYSE and as determined by the Board in accordance with the Boards
Corporate Governance Guidelines. The Presiding Director has the power and authority to do the
following:
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to preside at all meetings of non-management directors when they meet in executive
session without management participation; |
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to set agendas, priorities and procedures for meetings of non-management directors
meeting in executive session without management participation; |
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to generally assist the Chairman of the Board; |
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to add agenda items to the established agenda for meetings of the Board; |
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to request access to Clear Channel Outdoors management, employees and its
independent advisers for purposes of discharging his or her duties and responsibilities
as a director; and |
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to retain independent outside financial, legal or other advisors at any time, at the
expense of Clear Channel Outdoor, on behalf of any committee or subcommittee of the
Board. |
The independent directors shall each take turns serving as the Presiding Director on a
rotating basis, each such rotation to take place effective the first day of each calendar quarter.
Currently, Mr. Parker is serving as the Presiding Director. As part of the standard rotation
established by the Board, Mr. Raines will begin his service as the Presiding Director on April 1,
2007.
COMMITTEES OF THE BOARD
The Board has two committees: the Compensation Committee and the Audit Committee. The
Compensation Committee has established an Executive Performance Subcommittee. Each committee has a
written charter which guides its operations. The written charters are all available on Clear
Channel Outdoors Internet website at www.clearchanneloutdoor.com, or a copy may be obtained upon
request from the Secretary of Clear Channel Outdoor. The table below sets forth members of each
committee.
BOARD COMMITTEE MEMBERSHIP
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Executive |
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Compensation |
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Performance |
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Audit |
Name |
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Committee |
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Subcommittee |
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Committee |
William D. Parker
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X
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X |
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James M. Raines
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X* |
Marsha M. Shields
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X |
Dale W. Tremblay
|
|
X*
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X*
|
|
X |
|
X = Committee member; * = Chairperson |
The Compensation Committee
The Compensation Committee administers Clear Channel Outdoors stock option plans and
performance-based compensation plans, determines compensation arrangements for all officers and
makes recommendations to the Board concerning directors of Clear Channel Outdoor and its
subsidiaries. See the Report of the Compensation Committee later in this document, which details
the basis on which the Compensation Committee determines executive compensation. The Compensation
Committee met one time during 2006. All members of the
6
Compensation Committee are independent as defined by the listing standards of the NYSE and
Clear Channel Outdoors independence standards.
The Compensation Committee has the ability, under its charter, to select and retain, at the
expense of the Clear Channel Outdoor, independent legal and financial counsel and other consultants
necessary to assist the Compensation Committee as the Compensation Committee may deem appropriate,
in its sole discretion. The Compensation Committee also has the authority to select and retain any
compensation consultant to be used to survey the compensation practices in Clear Channel Outdoors
industry and to provide advice so that Clear Channel Outdoor can maintain its competitive ability
to recruit and retain highly qualified personnel. The Compensation Committee has the sole authority
to approve related fees and retention terms for any of its counsel and consultants. Hewitt
Associates serves as the Compensation Committees compensation consultant, and works directly for
the Compensation Committee. Hewitt Associates does not perform any other services for Clear Channel
Outdoor.
The Compensation Committees primary responsibilities, which are discussed in detail within
its charter, are to:
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assist the Board in ensuring that a proper system of long-term and short-term
compensation is in place to provide performance-oriented incentives to management, and that
compensation plans are appropriate and competitive and properly reflect the objectives and
performance of management and Clear Channel Outdoor; |
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review and approve corporate goals and objectives relevant to the
compensation of Clear Channel Outdoors Chief Operating Officer and to evaluate the COOs
performance in light of those goals and objectives, and to determine and approve the COOs
compensation level based on this evaluation; and |
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make recommendations to the Board with respect to non-CEO compensation,
incentive-compensation plans and equity-based plans. |
The compensation of our CEO is set by the Compensation Committee of Clear Channel
Communications, Inc. See the discussion of CEO and CFO compensation on page 11 under the heading
Overview and Opjectives of our Compensation Program. The Compensation Committee has the
authority to delegate its responsibilities to subcommittees of the Compensation Committee if the
Compensation Committee determines such delegation would be in the best interest of Clear Channel
Outdoor.
The Audit Committee
The Audit Committee is responsible for reviewing Clear Channels accounting practices and
audit procedures. James M. Raines has been designated by our Board of Directors as the Audit
Committee financial expert (as defined in the applicable regulations of the SEC). See the Audit
Committee Report later in this document, which details the duties and performance of the Committee.
The Audit Committee met eight times during 2006. All members of the Audit Committee are
independent as defined by the listing standards of the NYSE and Clear Channels independence
standards. The Audit Committee operates under a written charter adopted by the Board of Directors
which reflects standards set forth in SEC regulations and NYSE rules. The composition and
responsibilities of the Audit Committee and the attributes of its members, as reflected in the
charter, are intended to be in accordance with applicable requirements for corporate Audit
Committees. The charter is reviewed, and amended if necessary, on an annual basis. The full text
of the Audit Committees charter can be found on our website at www.clearchanneloutdoor.com or may
be obtained upon request from our Secretary.
DIRECTOR NOMINATING PROCEDURES
The Board oversees the identification and consideration of candidates for membership on the
Board, and each member of the Board participates in this process. It is the view of the Board that
this function has been performed effectively by the Board, and that it is appropriate for Clear
Channel Outdoor not to have a separate nominating committee or charter for this purpose.
The Board is responsible for developing and reviewing background information for candidates
for the Board of Directors, including those recommended by stockholders. Our directors play a
critical role in guiding Clear Channel Outdoors strategic direction and oversee the management of
Clear Channel Outdoor. Board candidates are considered based upon various criteria, such as their
broad-based business and professional skills and experiences, global business and social
perspectives, concern for the long-term interests of the stockholders, and
7
personal integrity and judgment. In addition, directors must have time available to devote to
Board activities and to enhance their knowledge of the industries in which Clear Channel Outdoor
operates.
Accordingly, we seek to attract and retain highly qualified directors who have sufficient time
to attend to their substantial duties and responsibilities to Clear Channel Outdoor. Recent
developments in corporate governance and financial reporting have resulted in an increased demand
for such highly qualified and productive public company directors.
The Board will consider director candidates recommended by stockholders. Any stockholder
wishing to propose a nominee should submit a recommendation in writing to the Presiding Director of
Clear Channel Outdoor at least 90 days in advance of the annual meeting, indicating the nominees
qualifications and other relevant biographical information and providing confirmation of the
nominees consent to serve as a director. Stockholders should direct such proposals to: Board of
Directors Presiding Director, P.O. Box 659512 San Antonio, Texas 75265-9512.
STOCKHOLDER COMMUNICATION WITH THE BOARD
Stockholders desiring to communicate with the Board should do so by sending regular mail to
Board of Directors Presiding Director, P.O. Box 659512 San Antonio, Texas 75265-9512.
PROPOSAL 1: ELECTION OF DIRECTORS
The Board intends to nominate, at the annual meeting of stockholders, the two persons
listed as nominees below. Each of the directors elected at the annual meeting will serve a three
year term or until his or her successor shall have been elected and qualified, subject to earlier
resignation and removal. The directors are to be elected by a plurality of the votes cast by the
holders of the shares of Clear Channel Outdoor Class A common stock represented and entitled to be
voted at the annual meeting. Unless authority to vote for directors is withheld in the proxy,
the persons named therein intend to vote FOR the election of the two nominees listed. Each of
the nominees listed below is currently a director and is standing for re-election. Each nominee
has indicated a willingness to serve as director if elected. Should any nominee become unavailable
for election, discretionary authority is conferred to vote for a substitute. Management has no
reason to believe that any of the nominees will be unable or unwilling to serve if elected.
NOMINEES FOR DIRECTOR
The nominees for director are L. Lowry Mays, and James M. Raines.
L. Lowry Mays, age 71, has served as a member of our Board since April 1997 and has been our
Chairman of the Board since October 2005. Mr. Mays is Chairman of the Board of Directors of Clear
Channel Communications, Inc., and prior to October 2004 he was the companys Chief Executive
Officer. Mr. Mays has been a member of the Board of Directors of Clear Channel Communications, Inc.
since its inception and has served on the Board of Directors of Live Nation, Inc. since August
2005. Mr. Mays is the father of Mark P. Mays and Randall T. Mays, both of whom are members of our
Board and executive officers of us.
James M. Raines, age 67, has served as the President of James M. Raines & Co., an investment
banking company, since 1988. Mr. Raines has been a member of the Board since November 2005. Since
1998, Mr. Raines has served on the Board of Directors of Waddell & Reed Financial, Inc., a
financial services corporation.
MANAGEMENT RECOMMENDS THAT YOU VOTE FOR THE DIRECTOR NOMINEES NAMED ABOVE.
8
CODE OF BUSINESS CONDUCT AND ETHICS
Clear Channel Outdoor adopted a Code of Business Conduct and Ethics applicable to all its
directors and employees, including its Chief Executive Officer, Chief Financial Officer, and Chief
Accounting Officer, which is a code of ethics as defined by applicable rules of the SEC. This
code is publicly available on Clear Channel Outdoors Internet website at
www.clearchanneloutdoor.com. A copy may also be obtained upon request from the Secretary of Clear
Channel Outdoor. If Clear Channel Outdoor makes any amendments to this code other than technical,
administrative, or other non-substantive amendments, or grants any waivers, including implicit
waivers, from a provision of this code that applies to Clear Channel Outdoors Chief Executive
Officer, Chief Financial Officer, and Chief Accounting Officer and relates to an element of the
SECs code of ethics definition, Clear Channel Outdoor will disclose the nature of the amendment
or waiver, its effective date and to whom it applies on its website or in a report on Form 8-K
filed with the SEC.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The table below sets forth information concerning the beneficial ownership of Clear
Channel Outdoor common shares as of March 16, 2007, for each director currently serving on the
Board and each of the nominees for director; each of the named executive officers not listed as a
director, the directors and executive officers as a group and each person known to Clear Channel
Outdoor to own beneficially more than 5% of outstanding Class A common stock. At the close of
business on March 16, 2007, there were 39,786,864 shares of Clear Channel Outdoor Class A common
stock outstanding. Except as otherwise noted, each stockholder has sole voting and investment power
with respect to the shares beneficially owned.
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Percent of |
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Class A |
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Amount and Nature of |
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Common |
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Name |
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Beneficial Ownership |
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Stock |
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L. Lowry Mays |
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Mark P. Mays |
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Randall T. Mays |
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William D. Parker |
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6,500 |
(1) |
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* |
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James M. Raines |
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6,500 |
(2) |
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* |
|
Marsha M. Shields |
|
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6,500 |
(3) |
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* |
|
Dale W. Tremblay |
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6,500 |
(4) |
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* |
|
Paul J. Meyer |
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261,365 |
(5) |
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* |
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Franklin G. Sisson, Jr. |
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109,187 |
(6) |
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* |
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Kurt A. Tingey |
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66,221 |
(7) |
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* |
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Clear Channel Communications, Inc. |
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315,000,000 |
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(8) |
T. Rowe Price Associates, Inc. (9) |
|
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5,176,457 |
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13.0 |
% |
Arnhold & S Bleichroeder Advisers. (10) |
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4,000,000 |
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10.1 |
% |
Tracer Capital Management (11) |
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3,958,120 |
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9.9 |
% |
Artisan Partners Limited Partnership (12) |
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3,582,000 |
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9.0 |
% |
All Directors and Executive Officers as a Group (14 persons). |
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578,682 |
(13) |
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1.4 |
% |
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* |
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Percentage of shares beneficially owned by such person does not exceed one percent of the
class so owned. |
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(1) |
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Includes 1,500 shares subject to options held by Mr. Parker. |
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(2) |
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Includes 1,500 shares subject to options held by Mr. Raines. |
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(3) |
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Includes 1,500 shares subject to options held by Mrs. Shields. |
9
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(4) |
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Includes 1,500 shares subject to options held by Mr. Tremblay. |
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(5) |
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Includes 261,365 shares subject to options held by Mr. Meyer. |
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(6) |
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Includes 107,682 shares subject to options held by Mr. Sisson. |
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(7) |
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Includes 58,321 shares subject to options held by Mr. Tingey. |
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(8) |
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Clear Channel Communications, Inc. does not own any of our Class A common stock. The 315.0
million shares owned by Clear Channel Communications, Inc. represent 100% of the shares of our
Class B common stock. Class B common stock are convertible on a one for one basis into shares
of Class A common stock and entitle the holder to twenty votes per share upon all matters on
which stockholders are entitled to vote. |
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(9) |
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Address: 100 R. Pratt Street, Baltimore, MD 21202 |
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(10) |
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Address: 1345 Avenue of the Americas, New York, NY 10105. |
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(11) |
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Address: 540 Madison Avenue, 33rd Floor, New York, NY 10022. |
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(12) |
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Address: 875 East Wisconsin Avenue, Suite 800, Milwaukee, WI 53202 |
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(13) |
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Includes 515,402 shares subject to options held by such persons. |
COMPENSATION COMMITTEE REPORT
The Compensation Committee of the Board has reviewed and discussed the Executive
Compensation Discussion and Analysis included in this document with management. Based on such
review and discussion, the Executive Compensation Committee recommended to the Board that the
Compensation Discussion and Analysis be included in this document.
Respectfully submitted,
THE COMPENSATION COMMITTEE
Dale W. Tremblay Chairman,
William D. Parker
EXECUTIVE COMPENSATION DISCUSSION AND ANALYSIS
OVERVIEW AND OBJECTIVES OF OUR COMPENSATION PROGRAM
Clear Channel Outdoor believes that compensation of its executive and other officers and
senior managers should be directly and materially linked to operating performance. The fundamental
objective of Clear Channel Outdoors compensation program is to attract, retain and motivate top
quality executive and other officers through compensation and incentives which are competitive with
the various labor markets and industries in which we compete for talent and which align the
interests of Clear Channel Outdoors officers and senior management with the interests of Clear
Channel Outdoors stockholders.
Overall, Clear Channel Outdoor has designed its compensation program to:
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support its business strategy and business plan by clearly communicating what is
expected of executives with respect to goals and results and by rewarding
achievement; |
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recruit, motivate and retain executive talent; and |
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create a strong performance alignment with stockholders. |
10
Clear Channel seeks to achieve these objectives through a variety of compensation elements:
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annual base salary; |
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an annual incentive bonus, the amount of which is dependent on the performance
of Clear Channel Outdoor and, for most executives, individual performance during
the prior fiscal year; |
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long-term incentive compensation, delivered in the form of stock options grants
and restricted stock awards that are awarded based on the prior years performance
and other factors described below, and that are designed to align executive
officers interests with those of stockholders by rewarding outstanding performance
and providing long-term incentives; and |
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other executive benefits and perquisites. |
Our Chief Executive Officer, Mr. Mark Mays, simultaneously serves as the Chief Executive
Officer of our parent, Clear Channel Communications, Inc. Our Chief Financial Officer, Mr. Randall
Mays, simultaneously serves as the Chief Financial Officer of our parent, Clear Channel
Communications, Inc. Messrs. Mark and Randall Mays are compensated by Clear Channel
Communications, Inc., and we reimburse Clear Channel Communications, Inc. for their services
pursuant to a Corporate Services Agreement between the Company and Clear Channel Management
Services, L.P. The compensation for Messrs. Mark and Randall Mays is set by the Compensation
Committee of the Board of Directors of Clear Channel Communications, Inc. All references in this
Executive Compensation Discussion and Analysis to compensation policies and practices for the
Companys executive officers should be read to exclude the compensation policies and practices
applicable to our Chief Executive Officer and Chief Financial Officer.
COMPENSATION PRACTICES
The Compensation Committee of the Board of Directors (the Committee) engages a leading
national executive compensation consulting firm to develop and provide market pay data (including
base salary, bonus, long-term incentive compensation and all other compensation) to better evaluate
the appropriateness and competitiveness of overall compensation paid to Clear Channel Outdoors
executive officers. Compensation objectives are developed based on market pay data from proxy
statements and other sources, when available, of leading media companies identified as key
competitors for business and/or executive talent (Media Peers) (including Belo Corp., Dow Jones &
Co. Inc., Interpublic Group, JC Decaux, Lamar Advertising Company, New York Times, Readers Digest,
Scholastic Corp, , Tribune Company, Washington Post and Yahoo! Inc.). In addition, the Committee
reviews Clear Channel Outdoors compensation practices against a group of general industry
companies operating in the United States (General Industry Peers) selected on the basis of
criteria that are deemed to be comparable with Clear Channel Outdoor in terms of market
capitalization, exchange traded, scope of operations, revenue, free cash flow, total assets, total
capital and number of employees.
In making decisions with respect to any element of executive compensation, the Committee
considers the total compensation that may be awarded to the officer, including salary, annual bonus
and long-term incentive compensation. Multiple factors are considered in determining the amount of
total compensation (the sum of base salary, annual incentive bonus and long-term compensation
delivered through stock option grants and restricted stock awards) to award to executive officers
each year. Among these factors are:
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how proposed amounts of total compensation to Clear Channel Outdoors executives
compare to amounts paid to similar executives by Media Peers both for the prior year
and over a multi-year period; |
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the value of stock options awarded in prior years; |
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internal pay equity considerations; and |
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broad trends in executive compensation generally. |
In addition, in reviewing and approving employment agreements for named executive officers,
the Committee considers the other benefits to which the officer is entitled by the agreement,
including compensation payable upon termination of the agreement under a variety of circumstances.
The Committees goal is to award compensation that is reasonable when all elements of potential
compensation are considered.
11
ELEMENTS OF COMPENSATION
The Committee and the Executive Performance Subcommittee of the Committee (the Subcommittee)
believe that a combination of various elements of compensation best serves the interests of Clear
Channel Outdoor and its stockholders. Having a variety of compensation elements enables Clear
Channel Outdoor to meet the requirements of the highly competitive environment in which Clear
Channel Outdoor operates while ensuring that executive officers and senior managers are compensated
in a way that advances the interests of all stockholders. Under this approach, compensation of
these officers and senior managers involves a high proportion of pay that is at risk, namely, the
annual incentive bonus, stock options and restricted stock awards. The annual incentive bonus is
also based entirely on Clear Channel Outdoors financial performance. Stock options and restricted
stock awards constitute a significant portion of long-term remuneration that is tied directly to
stock price appreciation that benefits all of Clear Channel Outdoors stockholders.
Clear Channel Outdoors practices with respect to each of the elements of executive
compensation are set forth below, followed by a discussion of the specific factors considered in
determining the amounts for each of the key elements.
Base Salary
Purpose. The objective of base salary is to reflect job responsibilities, value to
Clear Channel Outdoor and individual performance with respect to market competitiveness.
Administration. Base salaries for executive officers are reviewed on an annual basis
and at the time of promotion or other change in responsibilities. Increases in salary are based on
subjective evaluation of such factors as the level of responsibility, individual performance, level
of pay both of the executive in question and other similarly situated executives, and competitive
pay levels.
Base salaries of executive officers are set at levels comparable to salaries paid by Clear
Channel Outdoors Industry Peers. The salaries of all executive officers are determined through
mutual negotiations between the executive and the Committee. We may enter into employment
agreements with executive officers in which case Clear Channel Outdoor is required to compensate
those executive officers in accordance with their employment agreements. Clear Channel Outdoor
currently has an employment agreement with its President and Chief Operating Officer. Clear
Channel Outdoor believes that employment agreements with key executives are in the best interests
of Clear Channel Outdoor to assure continuity of management.
Considerations. The minimum base salary for one of the five executive officers named
in the Summary Compensation Table is determined by an employment agreement for such officer with
Clear Channel Outdoor. This minimum salary, the amount of any increase over this minimum and base
salaries for the executive officers whose salaries are not specified in an agreement, are
determined by the Committee based on a variety of factors, including:
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the nature and responsibility of the position and, to the extent available, salary
norms for persons in comparable positions at Industry Peers; |
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the expertise of the individual executive; |
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the competitiveness of the market for the executives services; and |
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the recommendations of the Chief Executive Officer (except in the case of his own compensation). |
Where not specified by contract, salaries are generally reviewed annually.
In setting base salaries, the Committee considers the importance of linking a high proportion
of named executive officers compensation to performance in the form of the annual incentive bonus,
which is tied to both Clear Channel Outdoors financial performance measures and individual
performance, as well as long-term stock-based compensation, which is tied to Clear Channel
Outdoors stock price performance and performance compared to Industry Peers.
12
Annual Incentive Bonus
Purpose. Clear Channel Outdoors executive compensation program provides for an
annual incentive bonus that is performance-linked. The objective of the annual incentive bonus
compensation element is to compensate individuals based on the achievement of specific goals that
are intended to correlate closely with growth of long-term stockholder value.
Administration. The President and Chief Operating Officer participates in the Clear
Channel Outdoor 2006 Annual Incentive Plan (the Annual Incentive Plan). The Annual Incentive
Plan is administered by the Subcommittee and provides for performance-based bonuses for executives
who were covered employees pursuant to Section 162(m) of the Internal Revenue Code. Under the
Annual Incentive Plan, the Subcommittee establishes specific company performance-based goals
applicable to each covered executive officer for the ensuing fiscal year performance period. The
performance goals for corporate-level executive officers are based on Clear Channel Outdoors
year-over-year improvements in financial results using a combination of metrics which may include
earnings per share, free cash flow per share, operating income before depreciation, amortization
and non-cash compensation expense, and other financial measures which best reflect the officers
contribution to outstanding corporate performance. Performance goals for each executive officer
are set pursuant to an extensive annual operating plan developed by the Chief Executive Officer in
consultation with the Chief Financial Officer and other senior executive officers. The Chief
Executive Officer makes recommendations as to the compensation levels and performance goals of
Clear Channel Outdoors executive officers to the Subcommittee for its review, consideration and
approval.
The total annual incentive bonus award is determined according to the level of achievement of
both the objective performance and individual performance goals. Below a minimum threshold level
of performance, no awards may be granted pursuant to the objective performance goal, and the
Subcommittee may, in its discretion, reduce the awards pursuant to either objective or individual
performance goals. For example, in 2006 the Subcommittee established an objective formula for
calculating the maximum bonus payable to each participating executive officer. These maximum bonus
amounts were set above Clear Channels historical bonus levels for executives, because the Section
162(m) regulations allow only negative discretion in respect of this type of plan, and the
Subcommittee desired flexibility to recognize exceptional individual performance when warranted.
Considerations. The annual bonus process for named executive officers involves four
basic steps pursuant to the Annual Incentive Plan:
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At the outset of the fiscal year: |
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1. |
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Set performance goals for the year for Clear Channel Outdoor
and each participant |
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2. |
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Set a target bonus for each individual |
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After the end of the fiscal year: |
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3. |
|
Measure actual performance (individual and company-wide) against the
predetermined Clear Channel Outdoor and individual performance goals to determine
the preliminary bonus |
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4. |
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Make adjustments to the resulting preliminary bonus calculation to
reflect Clear Channel Outdoors performance relative to the performance of the
Industry Peers. |
These four steps are described below:
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(1) |
|
Setting performance goals. Early in each fiscal year, the Subcommittee,
working with senior management and the Committees compensation consultant, sets
performance goals for Clear Channel Outdoor and each participant. |
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(2) |
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Setting a target bonus. The Subcommittee establishes a target bonus amount for
each participant. |
For each of the performance goals, there is a formula that establishes a payout range around
the target bonus allocation. The formula determines the percentage of the target bonus to be paid,
based on a percentage of goal achievement, with a minimum below which no payment will be made and
an established upper cap.
13
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(3) |
|
Measuring performance. After the end of the fiscal year, the Subcommittee
reviews Clear Channel Outdoors actual performance against each of the performance
goals established at the outset of the year. The Subcommittee then determines the
amount of the preliminary bonus that may be paid based on the level of performance
achieved. |
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(4) |
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Adjustment. The last step in the bonus process is the Subcommittees
determination of whether to make a downward adjustment to the preliminary bonus amount
to take into account the Clear Channel Outdoors performance relative to its Industry
Peers and to take into account each participants individual performance. The
Subcommittee has the discretion to grant a lower bonus or no bonus at all as
circumstances warrant. |
Long-Term Incentive Compensation
Purpose. The long-term incentive compensation element provides a periodic award
(typically annual) that is performance-based. The objective of the program is to align
compensation for executive officers over a multi-year period directly with the interests of
stockholders of Clear Channel Outdoor by motivating and rewarding creation and preservation of
long-term stockholder value. The level of long-term incentive compensation is determined based on
an evaluation of competitive factors in conjunction with total compensation provided to named
executive officers and the overall goals of the compensation program described above.
Clear Channel Outdoors equity compensation plans are broad-based, with over 640 employees at
all levels holding outstanding stock incentive awards as of December 31, 2006. Equity ownership
for all executive officers and the broad-based employee population is important for purposes of
incentive, retention and alignment with stockholders.
Stock Options. The long-term incentive compensation element calls for stock options
to be granted with exercise prices of not less than fair market value of Clear Channel Outdoors
stock on the date of grant and to vest, at the recipients option, either beginning 3 years from
the date of grant and fully vesting 5 years from the date of grant, with a 7-year term, or in the
alternative fully vesting 5 years from the date of grant, with a 10-year term. All vesting is
contingent on continued employment, with rare exceptions made by the Committee. Clear Channel
Outdoor defines fair market value as the closing price on the date of grant. The Committee will not
grant stock options with exercise prices below the market price of Clear Channel Outdoors stock on
the date of grant (determined as described above), and will not reduce the exercise price of stock
options (except in connection with adjustments to reflect recapitalizations, stock or extraordinary
dividends, stock splits, mergers, spin-offs and similar events permitted by the relevant plan)
without stockholder approval.
Stock option grants to executive officers of Clear Channel Outdoor are determined based in
part on the achievement of the performance goals described previously under the heading
"Compensation Elements Annual Incentive Bonus. All decisions to grant stock options are in
the sole discretion of the Committee or the Subcommittee, as applicable.
Restricted Stock Awards. Restricted stock awards to executives of Clear Channel
Outdoor are determined based in part on the achievement of certain performance goals as discussed
previously under the heading Compensation Elements Annual Incentive Bonus. All decisions to
award restricted stock are in the sole discretion of the Committee and the Subcommittee, as
applicable.
Mix of Stock Options and Restricted Stock Awards. Clear Channel Outdoors long-term
incentive compensation generally takes the form of stock option grants and restricted stock awards.
These two vehicles reward stockholder value creation in slightly different ways. Stock options
(which have exercise prices equal to the market price at the date of grant) reward executive
officers only if the stock price increases. Restricted stock awards are impacted by all stock
price changes, so the value to named executive officers is affected by both increases and decreases
in stock price.
Clear Channel Outdoor awards long-term incentive compensation in the form of a stock option
grant. Upon receipt, employees have the choice of electing to accept that award of stock options,
or in the alternative to receive an award of restricted stock, in a number of shares reduced by a
ratio of 4 to 1 (for example, if an employee
14
is awarded 1,000 options, the employee may choose to accept that grant, or elect to instead
receive 250 shares of restricted stock).
Vesting of Restricted Stock Awards. Restricted stock awards granted as long-term
incentive compensation to executive officers generally have scheduled vesting dates over a 3 to 5
year period from the date of grant.
Stock Option and Restricted Stock Grant Timing Practices
Regular Annual Stock Option Grant Dates. The regular annual stock option or restricted stock
award date for employees is typically in February and for non-employee members of the Board is
typically April.
Partner New Hires/Promotions Grant Dates. Grants of stock option or restricted stock awards
to newly-hired or newly-promoted employees are made at the next-following regularly scheduled
meeting of the Board after the hire or promotion.
Initial Stock Option Grant Dates for Newly-Elected Non-Employee Directors. Grants of stock
option or restricted stock awards to newly-elected non-employee members of the Board are made at
the next-following regularly scheduled meeting of the Board after the election. If a non-employee
member of the Board is appointed between regularly scheduled meetings, then grants of stock options
or restricted stock awards are made at the first meeting in attendance after such appointment, and
the first meeting after election thereafter.
Executive Benefits and Perquisites
Clear Channel provides certain personal benefits to executive officers. Clear Channel Outdoor
has a Medical Executive Reimbursement Plan (MERP) in place for Paul Meyer that reimburses Mr. Meyer
for out-of-pocket medical, dental and vision expenses that are not paid by the health plan which is
available to all full time employees. After claims are paid through the general health plan,
co-payments, coinsurance and ineligible expenses are reimbursed to Mr. Meyer through the MERP. In
2006, the Company paid $3,839.87 in claims and administrative expenses.
Change-in-Control and Severance Arrangements
See the discussion of change in control and severance arrangements with respect to Mr. Paul
Meyer on page 19 under the heading Potential Post-Employment Payments. The Committee evaluates
change in control and severance arrangements as one element in its consideration of the overall
compensation for executive officers.
ROLES AND RESPONSIBILITIES
The Committee and the Subcommittee, as applicable, are primarily responsible for conducting
reviews of Clear Channel Outdoors executive compensation policies and strategies and overseeing
and evaluating Clear Channel Outdoors overall compensation structure and programs. Direct
responsibilities include, but are not limited to:
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evaluating and approving goals and objectives relevant to compensation of the
Companys executive officers, and evaluating the performance of the executives in light
of those goals and objectives; |
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determining and approving the compensation level for the executive officers; |
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evaluating and approving all grants of equity-based compensation to executive officers; |
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recommending to the Board compensation policies for outside directors; and |
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reviewing performance-based and equity-based incentive plans for the executive
officers and reviewing other benefit programs presented to the Committee by the Chief
Executive Officer. |
15
The role of Clear Channel Outdoor management is to provide reviews and recommendations for the
Committees consideration, and to manage Clear Channel Outdoors executive compensation programs,
policies and governance. Direct responsibilities include, but are not limited to:
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providing an ongoing review of the effectiveness of the compensation programs,
including competitiveness, and alignment with Clear Channel Outdoors objectives; |
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recommending changes, if necessary to ensure achievement of all program objectives; |
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and recommending pay levels, payout and/or awards for executive officers. |
SUMMARY COMPENSATION
The Summary Compensation table shows certain compensation information for the year ended
December 31, 2006 for the Principal Executive Officer, Principal Financial Officer and each of the
three next most highly compensated executive officers for services rendered in all capacities
(hereinafter referred to as the named executive officers).
2006 SUMMARY COMPENSATION
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Change in |
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Pension |
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Value |
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and |
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Non-Equity |
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Nonqualified |
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Incentive |
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Deferred |
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Stock |
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Option |
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Plan |
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Compensation |
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All Other |
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Name and Principal |
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Salary |
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Bonus |
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Awards (1) |
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Awards (1) |
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Compensation |
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Earnings |
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Compensation |
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Total |
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Position |
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Year |
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($) |
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($) |
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($) |
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($) |
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($) |
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($) |
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($) |
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($) |
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Mark P. Mays
Chief Executive
Officer
(PEO)* |
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2006 |
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313,250 |
(2) |
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2,318,750 |
(2) |
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148,719 |
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2,780,719 |
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Randall T. Mays
Chief Financial
Officer
(PFO)** |
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2006 |
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303,917 |
(3) |
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2,318,750 |
(3) |
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148,719 |
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2,771,386 |
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Paul J. Meyer
President and Chief
Operating Officer |
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2006 |
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622,404 |
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895,000 |
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601,389 |
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9,856 |
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2,128,649 |
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Franklin G. Sisson,
Jr. Global
Director Sales
and Marketing |
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2006 |
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325,000 |
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194,125 |
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230,332 |
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6,259 |
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755,716 |
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Kurt A. Tingey -
Executive Vice
President
Americas Chief
Financial Officer |
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2006 |
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268,673 |
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165,000 |
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24,321 |
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163,818 |
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5,728 |
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627,539 |
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* |
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PEO refers to principal executive officer. |
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** |
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PFO refers to principal financial officer. |
|
(1) |
|
There were no forfeitures of stock or option awards held by the named executive officers
during 2006. See Note K Shareholders Equity of The Companys Annual Report on Form 10-K
for the complete disclosure of the assumptions made in the valuation of our stock and option
awards. |
|
(2) |
|
Mr. M. Mays salary and bonus earned during the year ended December 31, 2006 was $895,000 and
$6,625,000, respectively, of which $313,250 and $2,318,750 was reimbursed by the Company to
Clear Channel Communications, Inc. pursuant to a Corporate Services Agreement between the
Company and Clear Channel Management Services, LP. |
16
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(3) |
|
Mr. R. Mays salary and bonus earned during the year ended December 31, 2006 was $868,333 and
$6,625,000, respectively, of which $303,917 and $2,318,750 was reimbursed by the Company to
Clear Channel Communications, Inc. pursuant to a Corporate Services Agreement between the
Company and Clear Channel Management Services, LP. |
On August 5, 2005, the Company entered into an employment agreement with Paul J. Meyer,
which replaced the existing employment agreement by and between Mr. Meyer and Clear Channel
Communications, Inc., the Companys parent. The initial term of the new agreement ends on the third
anniversary of the date of the agreement; the term automatically extends one day at a time
beginning on the second anniversary of the date of the agreement, unless one party gives the other
one years notice of expiration at or prior to the second anniversary of the date of the agreement.
The contract calls for Mr. Meyer to be the President and Chief Operating Officer of the Company
for a base salary of $600,000 in the first year of the agreement; $625,000 in the second year of
the agreement; and $650,000 in the third year of the agreement, subject to additional annual raises
thereafter in accordance with company policies. Mr. Meyer is also eligible to receive a performance
bonus as decided at the sole discretion of the board of directors and the compensation committee of
the Company.
Mr. Meyer may terminate his employment at any time after the second anniversary of the date of
the agreement upon one years written notice. The Company may terminate Mr. Meyer without Cause
after the second anniversary of the date of the agreement upon one years written notice. Cause
is narrowly defined in the agreement. If Mr. Meyer is terminated without Cause, he is entitled to
receive a lump sum payment of accrued and unpaid base salary and prorated bonus, if any, and any
payments to which he may be entitled under any applicable employee benefit plan. Mr. Meyer is
prohibited by his employment agreement from activities that compete with the Company for one year
after he leaves the Company and he is prohibited from soliciting Company employees for employment
for 12 months after termination regardless of the reason for termination of employment.
GRANTS OF PLAN-BASED AWARDS
The following table sets forth certain information concerning plan-based awards granted to the
named executive officers during the year ended December 31, 2006.
GRANTS OF PLAN-BASED AWARDS DURING 2006
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Estimated Future Payouts |
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All Other |
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Under Non-Equity Incentive |
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Estimated Future Payouts Under |
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All Other |
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Option |
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Plan Awards |
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Equity Incentive Plan Awards |
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Stock |
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Awards: |
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Awards: |
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Number of |
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Exercise |
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Number |
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Securities |
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or Base |
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of Shares |
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Under- |
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Price of |
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Thres- |
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of Stock |
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lying |
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Option |
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Grant |
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hold |
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Target |
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Maximum |
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Threshold |
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Target |
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Maximum |
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or Units |
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Option |
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Awards |
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Name |
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Date |
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($) |
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($) |
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($) |
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(#) |
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(#) |
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(#) |
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(#) |
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(#) |
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($/Sh) |
|
Mark P. Mays (PEO) |
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Randall T. Mays
(PFO) |
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Paul J. Meyer |
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Franklin G. Sisson,
Jr. |
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Kurt A. Tingey |
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17
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR END
The following table sets forth certain information concerning outstanding equity awards at
fiscal year end of the named executive officers for the year ended December 31, 2006.
OUTSTANDING EQUITY AWARDS AT DECEMBER 31, 2006
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Option Awards |
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Stock Awards |
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Equity |
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Incentive Plan |
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Equity |
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Awards: |
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Incentive |
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Market or |
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Number of |
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Number of |
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Plan Awards: |
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Market |
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Equity Incentive |
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Payout Value |
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Securities |
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Securities |
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Number of |
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Number of |
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Value of |
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Plan Awards: |
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of Unearned |
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Underlying |
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Underlying |
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Securities |
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Shares or |
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Shares or |
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Number of Unearned |
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Shares, Units |
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Unexercised |
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Unexercised |
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Underlying |
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Units of Stock |
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Units of |
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Shares, Units or |
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or Other |
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Options |
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Options |
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Unexercised |
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Option |
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Option |
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That Have |
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Stock That |
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Other Rights |
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Rights That |
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(#) |
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(#) |
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Unearned |
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Exercise |
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Expiration |
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Not Vested |
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Have Not |
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That Have Not |
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Have Not |
Name |
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Exercisable |
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Unexercisable |
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Options (#) |
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Price ($) |
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Date |
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(#) |
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Vested ($) |
|
Vested (#) |
|
Vested ($) |
Mark P. Mays (PEO) |
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100,000(1) |
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18.0000 |
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11/11/15 |
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Randall T.
Mays
(PFO) |
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100,000(1) |
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18.0000 |
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11/11/15 |
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Paul J. Meyer |
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61,483 |
(2) |
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37.9269 |
|
2/28/07 |
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61,483 |
(3) |
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33.0228 |
|
2/12/08 |
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70,266 |
(4) |
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26.3454 |
|
12/14/08 |
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17,566 |
(5) |
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52,700(6) |
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20.8463 |
|
2/19/10 |
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114,183 |
(2) |
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25.3491 |
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2/19/09 |
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365,000(7) |
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18.0000 |
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11/11/12 |
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Franklin G. Sisson,
Jr. |
|
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4,918 |
(2) |
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37.9269 |
|
2/28/07 |
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43,916 |
(2) |
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29.6015 |
|
10/25/10 |
|
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4,918 |
(3) |
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33.0228 |
|
2/12/08 |
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21,958 |
(4) |
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26.3454 |
|
12/14/11 |
|
|
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|
5,270 |
(5) |
|
15,810(6) |
|
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|
20.8463 |
|
2/19/10 |
|
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26,350 |
(2) |
|
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25.3491 |
|
2/19/09 |
|
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35,133(8) |
|
|
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|
17.8861 |
|
1/12/15 |
|
|
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110,000(7) |
|
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18.0000 |
|
11/11/12 |
|
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|
|
Kurt A. Tingey |
|
|
13,175 |
(2) |
|
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|
|
|
|
|
37.9269 |
|
2/28/07 |
|
|
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|
|
|
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|
5,270 |
(3) |
|
|
|
|
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|
33.0228 |
|
2/12/08 |
|
|
|
|
|
|
|
|
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|
16,161 |
(4) |
|
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|
26.3454 |
|
12/14/08 |
|
|
|
|
|
|
|
|
|
|
|
5,270 |
(5) |
|
15,810(6) |
|
|
|
|
|
20.8463 |
|
2/19/10 |
|
|
|
|
|
|
|
|
|
|
|
26,350 |
(2) |
|
|
|
|
|
|
|
25.3491 |
|
2/19/09 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
35,133(8) |
|
|
|
|
|
17.8861 |
|
1/12/15 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
68,000(7) |
|
|
|
|
|
18.0000 |
|
11/11/12 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
5,500 |
|
153,505 |
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|
|
|
|
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|
(1) |
|
Option will vest and become exercisable on November 11, 2010. |
|
(2) |
|
Option became exercisable on November 11, 2005. |
|
(3) |
|
Option became exercisable on February 12, 2006. |
|
(4) |
|
Option became exercisable on December 14, 2006. |
|
(5) |
|
Option became exercisable on February 19, 2006. |
|
(6) |
|
One third of the options will vest and become exercisable on February 19, 2007 and remaining
two thirds of the options will vest and become exercisable on February 19, 2008. |
|
(7) |
|
Twenty-five percent of the options will vest and become exercisable on November 11, 2008,
twenty-five percent of the options will vest and become exercisable on November 11, 2009 and
remaining fifty percent of the options will vest and become exercisable on November 11, 2010. |
|
(8) |
|
Option will vest and become exercisable on January 12, 2010. |
18
OPTION EXERCISES AND STOCK VESTED
The following table sets forth certain information concerning option exercises by and stock
vesting for the named executive officers during the year ended December 31, 2006.
OPTION EXERCISES AND STOCK VESTED DURING 2006
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Option Awards |
|
Stock Awards |
|
|
Number of Shares |
|
Value Realized on |
|
Number of Shares |
|
Value Realized |
|
|
Acquired on Exercise |
|
Exercise |
|
Acquired on Vesting |
|
on Vesting |
Name |
|
(#) |
|
($) |
|
(#) |
|
($) |
Mark P. Mays (PEO) |
|
|
|
|
|
|
|
|
Randall T. Mays (PFO) |
|
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|
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|
Paul J. Meyer |
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|
|
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|
|
|
|
Franklin G. Sisson, Jr. |
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|
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|
Kurt A. Tingey |
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|
|
|
DIRECTOR COMPENSATION
The following table sets forth certain information concerning director compensation granted to
the named directors for the year ended December 31, 2006.
2006 DIRECTOR COMPENSATION
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Change in |
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|
Pension Value |
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|
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|
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and |
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Fees |
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|
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Nonqualified |
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|
|
Earned or |
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|
|
Non-Equity |
|
Deferred |
|
|
|
|
|
|
Paid in |
|
Stock |
|
Option |
|
Incentive Plan |
|
Compensation |
|
All Other |
|
|
|
|
Cash |
|
Awards |
|
Awards |
|
Compensation |
|
Earnings |
|
Compensation |
|
Total |
Name |
|
($) |
|
($) |
|
($) |
|
($) |
|
($) |
|
($) |
|
($) |
L. Lowry Mays |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mark P. Mays |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Randall T. Mays |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
William D. Parker |
|
32,000 |
|
38,089 (1) |
|
21,765 (1) |
|
|
|
|
|
|
|
91,854 |
James M. Raines |
|
46,000 |
|
38,089 (1) |
|
21,765 (1) |
|
|
|
|
|
|
|
105,854 |
Marsha M. Shields |
|
36,000 |
|
38,089 (1) |
|
21,765 (1) |
|
|
|
|
|
|
|
95,854 |
Dale W. Tremblay |
|
37,000 |
|
38,089 (1) |
|
21,765 (1) |
|
|
|
|
|
|
|
96,854 |
|
|
|
(1) |
|
See Note K Shareholders Equity of The Companys Annual Report on Form 10-K for the
complete disclosure of the assumptions made in the valuation of our stock and option awards. |
We pay our non-employee directors an annual cash retainer of $25,000, an additional
$1,500 for each board meeting attended and an additional $1,000 for each Committee meeting
attended. We may also grant stock options or other stock-based awards to our non-employee
directors, and non-employee directors may elect to receive their fees in the form of shares of our
Class A common stock. We pay the chairperson of the Audit Committee and the chairperson of the
Compensation Committee an additional annual cash retainer of approximately $10,000 and $5,000,
respectively.
POTENTIAL POST-EMPLOYMENT PAYMENTS
Paul Meyer
If Mr. Paul Meyers employment with the Company, is terminated by us for Cause, Clear Channel
Outdoor will, within 90 days, pay in a lump sum amount to Mr. Meyer his accrued and unpaid base
salary and any payments to which he may be entitled under any applicable employee benefit plan
(according to the terms of such plans and policies). A termination for Cause must be for one or
more of the following reasons: (i) conduct by Mr. Meyer
19
constituting a material act of willful misconduct in connection with the performance of his
duties, including violation of our policy on sexual harassment, misappropriation of funds or
property of Clear Channel Outdoor, or other willful misconduct as determined in the sole discretion
of Clear Channel Outdoor; (ii) continued, willful and deliberate non-performance by Mr. Meyer of
his duties hereunder (other than by reason of Mr. Meyers physical or mental illness, incapacity or
disability) where such non-performance has continued for more than 10 days following written notice
of such non-performance; (iii) Mr. Meyers refusal or failure to follow lawful directives where
such refusal or failure has continued for more than 30 days following written notice of such
refusal or failure; (iv) a criminal or civil conviction of Mr. Meyer, a plea of nolo contendere by
Mr. Meyer, or other conduct by Mr. Meyer that, as determined in the sole discretion of the Board,
has resulted in, or would result in if he were retained in his position with Clear Channel Outdoor,
material injury to the reputation of Clear Channel Outdoor, including conviction of fraud, theft,
embezzlement, or a crime involving moral turpitude; (v) a breach by Mr. Meyer of any of the
provisions of his employment agreement; or (vi) a violation by Mr. Meyer of Clear Channel Outdoors
employment policies.
If Mr. Meyers employment with Clear Channel Outdoor is terminated by us without Cause, Clear
Channel Outdoor will, within 90 days after the effective date of the termination, pay in a lump sum
amount to Mr. Meyer his accrued and unpaid base salary and prorated bonus, if any, and any payments
to which he may be entitled under any applicable employee benefit plan (according to the terms of
such plans and policies). Additionally, Mr. Meyer will receive a total of $600,000, paid pro rata
over a one year period in accordance with our standard payroll schedule and practices, as
consideration for Mr. Meyers post-termination non-compete and non-solicitation obligations.
If Paul Meyers employment with Clear Channel Outdoor terminates by reason of his death, Clear
Channel Outdoor will, within 90 days, pay in a lump sum amount to such person as Mr. Meyer shall
designate in a notice filed with Clear Channel Outdoor or, if no such person is designated, to Mr.
Meyers estate, Mr. Meyers accrued and unpaid base salary and prorated bonus, if any, and any
payments to which Mr. Meyers spouse, beneficiaries, or estate may be entitled under any applicable
employee benefit plan (according to the terms of such plans and policies). If Mr. Meyers
employment with Clear Channel Outdoor terminates by reason of his disability (defined as Mr.
Meyers incapacity due to physical or mental illness such that Mr. Meyer is unable to perform his
duties under this Agreement on a full-time basis for more than 90 days in any 12 month period, as
determined by Clear Channel Outdoor), Clear Channel Outdoor shall, within 90 days, pay in a lump
sum amount to Mr. Meyer his accrued and unpaid base salary and prorated bonus, if any, and any
payments to which he may be entitled under any applicable employee benefit plan (according to the
terms of such plans and policies).
Mr. Meyer is prohibited from activities that compete with Clear Channel Outdoor for one year
after he leaves Clear Channel Outdoor and he is prohibited from soliciting our employees for
employment for 12 months after termination regardless of the reason for termination of employment.
However, after Mr. Meyers employment with Clear Channel Outdoor has terminated, upon receiving
written permission from the board of directors of Clear Channel Outdoor, Mr. Meyer shall be
permitted to engage in competing activities that would otherwise be prohibited by his employment
agreement if such activities are determined in the sole discretion of the board of directors of
Clear Channel Outdoor in good faith to be immaterial to the operations of Clear Channel Outdoor, or
any subsidiary or affiliate thereof, in the location in question. Mr. Meyer is also prohibited
from using our confidential information at any time following the termination of his employment in
competing, directly or indirectly, with Clear Channel Outdoor.
At any time following Mr. Meyers termination of employment, he is entitled to reimbursement
of reasonable attorneys fees and expenses and full indemnification from any losses related to any
proceeding to which he may be made a party by reason of his being or having been an officer of
Clear Channel Outdoor or any of its subsidiaries (other than any dispute, claim or controversy
arising under or relating to his employment agreement).
Paul Meyer
Assuming a change in control of Clear Channel Outdoor occurred on December 31, 2006, Mr. Meyer
would have received the value of the immediate vesting of unvested shares of restricted stock
pursuant to Company incentive plan provisions ($166,274).
20
SECTION 16(A) BENEFICIAL OWNERSHIP
REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires Clear Channel Outdoors
directors, executive officers and beneficial owners of more than 10% of any class of equity
securities of Clear Channel Outdoor to file reports of ownership and changes in ownership with the
SEC and the NYSE. Directors, executive officers and greater than 10% stockholders are required to
furnish Clear Channel Outdoor with copies of all Section 16(a) forms they file.
Based solely on its review of the copies of such forms received by it, or written
representations from certain reporting persons that no such forms were required to be filed by
those persons, Clear Channel Outdoor believes that all such Section 16(a) filing requirements were
satisfied during fiscal year 2006.
COMPENSATION COMMITTEE INTERLOCKS
AND INSIDER PARTICIPATION
The Compensation Committee members are Dale W. Tremblay, who is Chairman of the
Committee, and William D. Parker. The Compensation Committee operates under a written charter
adopted by the Board of Directors. The Committee is primarily responsible for administering Clear
Channel Outdoors stock incentive plans, performance-based compensation plans and other incentive
compensation plans. Also, the Committee determines compensation arrangements for all of our
executive officers and makes recommendations to the Board of Directors concerning compensation
policies for us and our subsidiaries.
During fiscal 2006 and until February, 2007, Mark Mays served as a member of the Compensation
Committee. None of our executive officers serve as a member of the compensation committee or as a
member of the board of directors of any other company of which any member of our Compensation
Committee or Board of Directors is an executive officer.
TRANSACTIONS WITH RELATED PERSONS
Marsha M. Shields
Businesses owned and controlled, in part, by Marsha M. Shields purchased an aggregate of
$121,037 of outdoor advertising for its various automobile dealerships from Clear Channel Outdoor
during 2006. In addition, we have five leases with such business from which we received aggregate
payments of $156,437 during 2006. Clear Channel Outdoor believes the transactions described above
are no less favorable to Clear Channel Outdoor than could be obtained with nonaffiliated parties.
Clear Channel Communications, Inc.
We are an indirect subsidiary of Clear Channel Communications, Inc. (Clear Channel
Communications). Clear Channel Communications, through its wholly owned subsidiary, Clear Channel
Holdings, Inc., owns all of our outstanding shares of Class B common stock, representing
approximately 88.8% of the outstanding shares of our common stock and approximately 99% of the
total voting power of our common stock. Each share of our Class B common stock is convertible
while owned by Clear Channel Communications or any of its affiliates (excluding us and our
subsidiaries) at the option of the holder thereof into one share of Class A common stock. 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 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.
21
Each of Mark P. Mays, Randall T. Mays and L. Lowry Mays, three of our current directors, is a
director and executive officer of Clear Channel Communications.
We have entered into a number of agreements with Clear Channel Communications setting forth
various matters governing our relationship with Clear Channel Communications. These agreements
provide for, among other things, the allocation of employee benefit, tax and other liabilities and
obligations attributable to our operations.
Set forth below are descriptions of certain agreements, relationships and transactions we have
with Clear Channel Communications.
Master Agreement
We have entered into a master agreement with Clear Channel Communications. Among other
things, the Master Agreement sets forth agreements governing our relationship with Clear Channel
Communications.
Auditors and Audits; Annual Financial Statements and Accounting. We have agreed that,
for so long as Clear Channel Communications is required to consolidate our results of operations
and financial position or account for its investment in our company under the equity method of
accounting, we will maintain a fiscal year end and accounting periods the same as Clear Channel
Communications, conform our financial presentation with that of Clear Channel Communications and we
will not change our independent auditors without Clear Channel Communications prior written
consent (which will not be unreasonably withheld), and we will use commercially reasonable efforts
to enable our independent auditors to complete their audit of our financial statements in a timely
manner so as to permit timely filing of Clear Channel Communications financial statements. We have
also agreed to provide to Clear Channel Communications all information required for Clear Channel
Communications to meet its schedule for the filing and distribution of its financial statements and
to make available to Clear Channel Communications and its independent auditors all documents
necessary for the annual audit of our company as well as access to the responsible personnel so
that Clear Channel Communications and its independent auditors may conduct their audits relating to
our financial statements. We provide Clear Channel Communications with financial reports, financial
statements, budgets, projections, press releases and other financial data and information with
respect to our business, properties and financial positions. We have also agreed to adhere to
certain specified disclosure controls and procedures and Clear Channel Communications accounting
policies and to notify and consult with Clear Channel Communications regarding any changes to our
accounting principles and estimates used in the preparation of our financial statements, and any
deficiencies in, or violations of law in connection with, our internal control over financial
reporting and certain fraudulent conduct and other violations of law.
Exchange of Other Information. The Master Agreement also provides for other
arrangements with respect to the mutual sharing of information between Clear Channel Communications
and us in order to comply with reporting, filing, audit or tax requirements, for use in judicial
proceedings, and in order to comply with our respective obligations after the separation. We have
also agreed to provide mutual access to historical records relating to the others businesses that
may be in our possession.
Indemnification. We have agreed to indemnify, hold harmless and defend Clear Channel
Communications, each of its affiliates and each of their respective directors, officers and
employees, on an after-tax basis, from and against all liabilities relating to, arising out of or
resulting from:
|
|
|
the failure by us or any of our affiliates or any other person or entity to pay,
perform or otherwise promptly discharge any liabilities or contractual obligations
associated with our businesses, whether arising before or after the separation; |
|
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|
|
the operations, liabilities and contractual obligations of our business; |
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|
|
any guarantee, indemnification obligation, surety bond or other credit support
arrangement by Clear Channel Communications or any of its affiliates for our benefit; |
|
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|
any breach by us or any of our affiliates of the Master Agreement or our other
agreements with Clear Channel Communications or our amended and restated certificate of
incorporation or bylaws; and |
22
|
|
|
any untrue statement of, or omission to state, a material fact in Clear Channel
Communications public filings to the extent the statement or omission was as a result
of information that we furnished to Clear Channel Communications or that Clear Channel
Communications incorporated by reference from our public filings, if the statement or
omission was made or occurred after November 10, 2005. |
Clear Channel Communications has agreed to indemnify, hold harmless and defend us, each of our
affiliates and each of our and their respective directors, officers and employees, on an after-tax
basis, from and against all liabilities relating to, arising out of or resulting from:
|
|
|
the failure of Clear Channel Communications or any of its affiliates or any other
person or entity to pay, perform or otherwise promptly discharge any liabilities of
Clear Channel Communications or its affiliates, other than liabilities associated with
our businesses; |
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|
the liabilities of Clear Channel Communications and its affiliates businesses,
other than liabilities associated with our businesses; |
|
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|
any breach by Clear Channel Communications or any of its affiliates of the Master
Agreement or its other agreements with us; and |
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|
any untrue statement of, or omission to state, a material fact in our public filings
to the extent the statement or omission was as a result of information that Clear
Channel Communications furnished to us or that we incorporated by reference from Clear
Channel Communications public filings, if the statement or omission was made or
occurred after November 10, 2005. |
The Master Agreement also specifies procedures with respect to claims subject to
indemnification and related matters and provides for contribution in the event that indemnification
is not available to an indemnified party.
Dispute Resolution Procedures. We have agreed with Clear Channel Communications that
neither party will commence any court action to resolve any dispute or claim arising out of or
relating to the Master Agreement, subject to certain exceptions. Instead, any dispute that is not
resolved in the normal course of business will be submitted to senior executives of each business
entity involved in the dispute for resolution. If the dispute is not resolved by negotiation within
45 days after submission to the executives, either party may submit the dispute to mediation. If
the dispute is not resolved by mediation within 30 days after the selection of a mediator, either
party may submit the dispute to binding arbitration before a panel of three arbitrators. The
arbitrators will determine the dispute in accordance with Texas law. Most of the other agreements
between Clear Channel Communications and us have similar dispute resolution provisions.
Other Provisions. The Master Agreement also contains covenants between Clear Channel
Communications and us with respect to other matters, including the following:
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|
our agreement (subject to certain limited exceptions) not to repurchase shares of
our outstanding Class A common stock or any other securities convertible into or
exercisable for our Class A common stock, without first obtaining the prior written
consent or affirmative vote of Clear Channel Communications, for so long as Clear
Channel Communications owns more than 50% of the total voting power of our common
stock; |
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confidentiality of our and Clear Channel Communications information; |
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our right to continue coverage under Clear Channel Communications insurance
policies for so long as Clear Channel Communications owns more than 50% of our
outstanding common stock; |
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|
restrictions on our ability to take any action or enter into any agreement that
would cause Clear Channel Communications to violate any law, organizational document,
agreement or judgment; |
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|
restrictions on our ability to take any action that limits Clear Channel
Communications ability to freely sell, transfer, pledge or otherwise dispose of our
stock; |
23
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|
|
our obligation to comply with Clear Channel Communications policies applicable to
its subsidiaries for so long as Clear Channel Communications owns more than 50% of the
total voting power of our outstanding common stock, except (i) to the extent such
policies conflict with our amended and restated certificate of incorporation or bylaws
or any of the agreements between Clear Channel Communications and us, or (ii) as
otherwise agreed with Clear Channel Communications or superseded by any policies
adopted by our board of directors; and |
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|
restrictions on our ability to enter into any agreement that binds or purports to
bind Clear Channel Communications. |
Approval Rights of Clear Channel Communications on Certain of our Activities. Until
the first date on which Clear Channel Communications owns less than 50% of the total voting power
of our common stock, the prior affirmative vote or written consent of Clear Channel Communications
is required for the following actions (subject in each case to certain agreed exceptions):
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a merger involving us or any of our subsidiaries (other than mergers involving our
subsidiaries or to effect acquisitions permitted under our amended and restated
certificate of incorporation); |
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acquisitions by us or our subsidiaries of the stock or assets of another business
for a price (including assumed debt) in excess of $5 million; |
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dispositions by us or our subsidiaries of assets in a single transaction or a series
of related transactions for a price (including assumed debt) in excess of $5 million; |
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incurrence or guarantee of debt by us or our subsidiaries in excess of $400.0
million outstanding at any one time or that could reasonably be expected to result in a
negative change in any of our credit ratings, excluding our debt with Clear Channel
Communications, intercompany debt (within our company and its subsidiaries), and debt
determined to constitute operating leverage by a nationally recognized statistical
rating organization; |
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issuance by us or our subsidiaries of capital stock or other securities convertible
into capital stock; |
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|
enter into any agreement restricting our ability or the ability of any of our
subsidiaries to pay dividends, borrow money, repay indebtedness, make loans or transfer
assets, in any such case to our company or Clear Channel Communications; |
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dissolution, liquidation or winding up of our company or any of our subsidiaries; |
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adoption of a rights agreement; and |
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|
alteration, amendment, termination or repeal of, or adoption of any provision
inconsistent with, the provisions of our amended and restated certificate of
incorporation or our bylaws relating to our authorized capital stock, the rights
granted to the holders of the Class B common stock, amendments to our bylaws,
stockholder action by written consent, stockholder proposals and meetings, limitation
of liability of and indemnification of our officers and directors, the size or classes
of our board of directors, corporate opportunities and conflicts of interest between
our company and Clear Channel Communications, and Section 203 of the Delaware General
Corporation Law. |
Corporate Services Agreement
We have entered into a corporate services agreement with Clear Channel Communications to
provide us certain administrative and support services and other assistance. Pursuant to the
Corporate Services Agreement, Clear Channel Communications provides us with, among other things,
the following:
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treasury, payroll and other financial related services; |
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executive officer services; |
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human resources and employee benefits; |
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legal and related services; |
24
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|
information systems, network and related services; |
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investment services; |
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corporate services; and |
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procurement and sourcing support. |
The charges for the corporate services generally are intended to allow Clear Channel
Communications to fully recover the allocated direct costs of providing the services, plus all
out-of-pocket costs and expenses, generally without profit. The allocation of cost is based on
various measures depending on the service provided, which measures include relative revenue,
employee headcount or number of users of a service.
Under the Corporate Services Agreement, we and Clear Channel Communications each have the
right to purchase goods or services, use intellectual property licensed from third parties and
realize other benefits and rights under the other partys agreements with third-party vendors to
the extent allowed by such vendor agreements. The agreement also provides for the lease or sublease
of certain facilities used in the operation of our respective businesses and for access to each
others computing and telecommunications systems to the extent necessary to perform or receive the
corporate services.
The Corporate Services Agreement provides that Clear Channel Communications will make
available to us, and we will be obligated to utilize, the services of the chief executive officer
of Clear Channel Communications, currently Mark P. Mays, to serve as our Chief Executive Officer,
and the chief financial officer of Clear Channel Communications, currently Randall T. Mays, to
serve as our Chief Financial Officer. Our obligation to utilize the services of each of the chief
executive officer and chief financial officer of Clear Channel Communications in these capacities
will continue 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. Clear Channel Communications charges an allocable portion of the compensation and
benefits costs of such persons based on a ratio of our financial performance to the financial
performance of Clear Channel Communications. The compensation and benefits costs allocated to us
include such executives salary, bonus and other standard employee benefits, but exclude equity
based compensation.
For the year ended December 31, 2006, charges for the corporate and executive services
provided to us by Clear Channel Communications under the Corporate Services Agreement totaled $22.0
million.
Tax Matters Agreement
We and certain of our corporate subsidiaries continue to be included in the affiliated group
of corporations that files a consolidated return for U.S. federal income tax purposes of which
Clear Channel Communications is the common parent corporation, and in certain cases, we or one or
more of our subsidiaries may be included in a combined, consolidated or unitary group with Clear
Channel Communications or one or more of its subsidiaries for certain state and local income tax
purposes. We and Clear Channel Communications have entered into a tax matters agreement to allocate
the responsibility of Clear Channel Communications and its subsidiaries, on the one hand, and we
and our subsidiaries, on the other, for the payment of taxes resulting from filing tax returns on a
combined, consolidated or unitary basis.
With respect to tax returns in which we or any of our subsidiaries are included in a combined,
consolidated or unitary group with Clear Channel Communications or any of its subsidiaries for
federal, state or local tax purposes, we make payments to Clear Channel Communications pursuant to
the Tax Matters Agreement equal to the amount of taxes that would be paid if we and each of our
subsidiaries included in such group filed a separate tax return. We also reimburse Clear Channel
Communications for the amount of any taxes paid by it on our behalf with respect to tax returns
that include only us or any of our subsidiaries for federal, state or local tax purposes, which tax
returns are prepared and filed by Clear Channel Communications. With respect to certain tax items,
such as foreign tax credits, alternative minimum tax credits, net operating losses and net capital
losses, that are generated by us or our subsidiaries, but are used by Clear Channel Communications
or its subsidiaries when a tax return is filed on a combined, consolidated or unitary basis for
federal, state or local tax purposes, we are reimbursed by Clear Channel Communications as such tax
items are used.
25
Under the Tax Matters Agreement, Clear Channel Communications is appointed the sole and
exclusive agent for us and our subsidiaries in any and all matters relating to federal, state and
local income taxes, and has sole and exclusive responsibility for the preparation and filing of all
tax returns (or amended returns) related to such taxes and has the power, in its sole discretion,
to contest or compromise any asserted tax adjustment or deficiency and to file, litigate or
compromise any claim for refund on behalf of us or any of our subsidiaries with respect to such
taxes. Additionally, Clear Channel Communications determines 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.
For U.S. federal income tax purposes, each member of an affiliated group of corporations that
files a consolidated return is jointly and severally liable for the U.S. federal income tax
liability of the entire group. Similar principles may apply with respect to members of a group that
file a tax return on a combined, consolidated or unitary group basis for state and local tax
purposes. Accordingly, although the Tax Matters Agreement will allocate tax liabilities between
Clear Channel Communications and us during the period in which we or any of our subsidiaries are
included in the consolidated group of Clear Channel Communications or any of its subsidiaries, we
and our subsidiaries included in such consolidated group could be liable for the tax liability of
the entire consolidated group in the event any such tax liability is incurred and not discharged by
Clear Channel Communications. The Tax Matters Agreement provides, however, that Clear Channel
Communications will indemnify us and our subsidiaries to the extent that, as a result of us or any
of our subsidiaries being a member of a consolidated group, we or our subsidiaries becomes liable
for the tax liability of the entire consolidated group (other than the portion of such liability
for which we and our subsidiaries are liable under the Tax Matters Agreement).
Under Section 482 of the Internal Revenue Code, the Internal Revenue Service has the authority
in certain instances to redistribute, reapportion or reallocate gross income, deductions, credits
or allowances between Clear Channel Communications and us. Other taxing authorities may have
similar authority under comparable provisions of foreign, state and local law. The Tax Matters
Agreement provides that we or Clear Channel Communications will indemnify the other to the extent
that, as a result of the Internal Revenue Service exercising its authority (or any other taxing
authority exercising a similar authority), the tax liability of one group is reduced while the tax
liability of the other group is increased.
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 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.
For the year ended December 31, 2006, the amount of our liability to Clear Channel
Communications under the Tax Matters Agreement was $26.8 million.
Employee Matters Agreement
We have entered into an employee matters agreement with Clear Channel Communications covering
certain compensation and employee benefit issues. In general, with certain exceptions, our
employees participate in the Clear Channel Communications employee plans and arrangements along
with the employees of other Clear Channel Communications subsidiaries. Our payroll is also
administered by Clear Channel Communications.
We and Clear Channel Communications reserve the right to withdraw from or terminate our
participation, as the case may be, in any of the Clear Channel Communications employee plans and
arrangements at any time and
26
for any reason, subject to at least 90 days notice. Unless sooner terminated, it is likely
that our participation in Clear Channel Communications employee plans and arrangements will end if
and at such time as we are no longer a subsidiary of Clear Channel Communications, which, for this
purpose, means Clear Channel Communications owns less than 80% of the total combined voting power
of all classes of our capital stock entitled to vote. We will, however, continue to bear the cost
of and retain responsibility for all employment-related liabilities and obligations associated with
our employees (and their covered dependents and beneficiaries), regardless of when incurred.
Trademarks
We have entered into a trademark license agreement with a subsidiary of Clear Channel
Communications that entitles us to use (i) on a nonexclusive basis, the Clear Channel trademark
and the Clear Channel Communications outdoor trademark logo with respect to day-to-day operations
of our business; and (ii) certain other Clear Channel Communications marks in connection with our
business. Our use of the marks is subject to Clear Channel Communications approval. Clear Channel
Communications may terminate our use of the marks in certain circumstances, including (i) a breach
by us of a term or condition of our various agreements with Clear Channel Communications and (ii)
at any time after Clear Channel Communications ceases to own at least 50% of the total voting power
of our common stock. In 2006, Clear Channel Communications did not charge us a royalty fee for our
use of the trademarks and other marks. We also do not currently anticipate that we will be charged
a royalty fee under the Trademark License Agreement in 2007
Products and Services Provided between Clear Channel Communications and Us
We and Clear Channel Communications engage in transactions in the ordinary course of our
respective businesses. These transactions include our providing billboard and other advertising
space to Clear Channel Communications at rates we believe would be charged to a third party in an
arms length transaction.
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 2006, we estimated that these discounted revenues
would have been less than 1.5% of our domestic revenues.
Intercompany Note and Other Indebtedness
On August 2, 2005, we distributed a note in the original principal amount of $2.5 billion to
Clear Channel Communications as a dividend. 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 and, subject to certain
exceptions, all proceeds from debt or equity raised by us must be used to prepay such note. At
December 31, 2006, the interest rate on the $2.5 billion note was 6.1%. The amount of interest
accrued under the intercompany note during the year ended December 31, 2006, totaled $154.3
million. The principal balance on the intercompany note outstanding as of March 31, 2007, was $2.5
billion.
Until all our obligations evidenced by and provided for in the $2.5 billion intercompany note
are fully paid, we and our subsidiaries are subject to certain negative covenants contained in the
note, including limitations on the following:
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becoming liable for consolidated funded indebtedness (as defined in the note),
excluding certain intercompany indebtedness or guarantees of indebtedness incurred by
Clear Channel Communications or certain of its subsidiaries, in a principal amount in
excess of $400.0 million at any one time outstanding; |
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creating liens; |
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making investments; |
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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 stockholders equity (as defined in the note) as shown on
our most recently reported annual audited consolidated financial statements; |
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disposing of all or substantially all of our assets; |
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mergers and consolidations; |
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declaring or paying dividends or other distributions; |
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repurchasing our equity; and |
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limitations on entering into transactions with our affiliates. |
The note contains customary events that permit its maturity to be accelerated prior to its
stated maturity date including our failure to comply with any of its negative covenants.
As part of the day-to-day cash management services provided by Clear Channel Communications,
we maintain an account that represents net amounts, up to a maximum of $1.0 billion, due to or from
Clear Channel Communications, which is recorded as Due from Clear Channel Communications or Due
to Clear Channel Communications on the consolidated balance sheets. The account represents our
revolving promissory note with Clear Channel Communications. The account accrues interest pursuant
to the Master Agreement and is generally payable on demand. Included in the account is the net
activity resulting from day-to-day cash management services provided by Clear Channel
Communications. As a part of these services, we maintain collection bank accounts swept daily by
Clear Channel Communications. In return, Clear Channel Communications funds our controlled
disbursement accounts as checks or electronic payments are presented for payment. At December 31,
2006, a balance of $4.2 million was a liability recorded in Due to Clear Channel Communications
on the consolidated balance sheet. For the year ended December 31, 2006, we accrued net interest
income on net amounts due to or from Clear Channel Communications of $0.4 million. At December 31,
2006, the interest rate on the intercompany account was 4.957%.
Policy on Review, Approval or Ratification of Transactions with Related Persons
Clear Channel Outdoor has adopted a written policy for approval of transactions between Clear
Channel Outdoor and its directors, director nominees, executive officers, greater-than-5%
beneficial owners and their respective immediate family members. However, the related person
transactions described in this document were not approved under this policy because they occurred
prior to the time the policy was adopted.
The policy provides that the Audit Committee reviews certain transactions subject to the
policy and determines whether or not to approve those transactions. In doing so, the Audit
Committee satisfies itself that it has been fully informed as to the material facts of the related
persons relationship and interest and as to the material facts of the proposed transaction and
determines whether the transaction is fair to Clear Channel Outdoor. In addition, if Clear Channel
Outdoors management, in consultation with Clear Channel Outdoors Chief Executive Officer or
President and Chief Financial Officer determines that it is not practicable to wait until the next
Audit Committee meeting to approve or ratify a particular transaction, then the Board has delegated
authority to the Chairman of the Audit Committee to approve or ratify such transactions. The
Chairman of the Audit Committee shall report to the Audit Committee any transactions reviewed by
him or her pursuant to this delegated authority at the next Audit Committee meeting.
28
PROPOSAL 2: APPROVE THE ADOPTION OF THE CLEAR CHANNEL
OUTDOOR HOLDINGS, INC. 2006 ANNUAL INCENTIVE PLAN
Background
The Board has approved and adopted the Clear Channel Outdoor Holdings, Inc. 2006 Annual
Incentive Plan (the Annual Incentive Plan). Pursuant to its terms the Annual Incentive Plan will
terminate unless it is approved by the Companys stockholders at the annual meeting. The purpose
of the Annual Incentive Plan is to provide performance-based compensation to executive officers and
other selected key employees of the Company and its subsidiaries that will not be subject to the
executive compensation deduction limitations of Section 162(m) of the Internal Revenue Code of
1986, as amended (the Code).
Under the Annual Incentive Plan, the Companys Compensation Committee will designate
performance objectives with respect to a performance period for each plan participant. Utilizing
those performance objectives, the Compensation Committee uses the Annual Incentive Plan to reward
accomplishments achieved during the performance period. The Board of Directors believes that the
Annual Incentive Plan benefits stockholders because it creates a strong incentive for executives to
meet or exceed specified financial goals.
The Board of Directors has determined that it is in the best interests of the Company and its
stockholders to maximize the tax deductibility of amounts payable under the Annual Incentive Plan.
Accordingly, the Company has structured the Annual Incentive Plan in a manner that payments made
under it can satisfy the requirements for performance-based compensation within the meaning of
Section 162(m) of the Code. In general, Section 162(m) places a limit on the deductibility for
federal income tax purposes of the compensation paid to the Chief Executive Officer and the next
four highest compensated officers of the Company (collectively, the Covered Persons) who were
employed by the Company on the last day of its taxable year. Under Section 162(m), compensation
paid to such persons in excess of $1 million in a taxable year is not generally deductible.
However, compensation that qualifies as performance-based does not count against the $1 million
limitation. The Annual Incentive Plan sets forth, among other things, the performance objectives
under which bonuses may be paid under the plan. Pursuant to Section 162(m), if the Companys
stockholders approve the Annual Incentive Plan and the other requirements of Section 162(m) are
satisfied with respect to awards under the plan, amounts paid to the Covered Persons pursuant to
the plan in forthcoming periods will qualify as fully tax-deductible to the Company, potentially
generating substantial after-tax savings.
Vote Required
The approval of the Annual Incentive Plan requires the affirmative vote of the holders of at
least a majority of the total voting power of the Companys Class A and Class B common stock
present in person or represented by proxy and entitled to vote at the annual meeting. For purposes
of this vote, a vote to abstain (or a direction to your broker, bank, or other nominee to abstain)
will be counted as present in person or represented by proxy and entitled to vote at the annual
meeting and, therefore, will have the effect of a negative vote. A broker non-vote is not
considered present in person or represented by proxy and entitled to vote at the annual meeting
and, therefore, will not have an effect on this vote.
Plan Summary
The principal features of the Annual Incentive Plan are summarized below. This summary does
not purport to be complete, and is qualified in its entirety by reference to the full text of the
Annual Incentive Plan attached as Appendix A to this Proxy Statement.
Administration
The Annual Incentive Plan is administered by the Compensation Committee of our Board of
Directors. Subject to the terms of the Annual Incentive Plan, the Compensation Committee has the
authority to (a) select the individuals who may participate in the plan, (b) prescribe the terms
and conditions of each participants award and make amendments thereto, (c) determine whether the
performance objectives have been met, and (d) take all other actions necessary to administer the
plan.
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Eligibility
Executive officers and other key employees of the Company and its subsidiaries selected by the
Compensation Committee will be eligible to participate in the Annual Incentive Plan. Currently,
one individual is eligible to participate in the Annual Incentive Plan.
Performance Awards
Performance objectives may be based upon any one or more of the following criteria:
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Revenue growth; |
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Operating income before depreciation and amortization and non-cash compensation
expense (OIBDAN); |
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OIBDAN growth; |
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Funds from operations; |
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Funds from operations per share and per share growth; |
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Cash available for distribution; |
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Cash available for distribution per share and per share growth; |
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Operating income and operating income growth; |
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Net earnings; |
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Earnings per share and per share growth; |
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Return on equity; |
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Return on assets; |
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Share price performance on an absolute basis and relative to an index; |
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Improvements in attainment of expense levels; |
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Implementing or completion of critical projects; or |
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Improvements in cash-flow (before or after tax). |
The amount of an award, if any, payable to a participant will depend upon whether and the extent to
which the performance objective(s) of the award are achieved during the applicable performance
period. Performance objectives may be established on a periodic, annual, cumulative, or average
basis, and may be established on a corporate-wide basis and/or with respect to operating units,
divisions, subsidiaries, acquired businesses, minority investments, partnerships, or joint
ventures. The Compensation Committee may establish different payout levels based upon the levels
of achievement of the performance objectives specified in the award. Awards may contain more than
one performance objective and performance objectives may be based upon multiple performance
criteria. Multiple performance objectives contained in an award may be aggregated, weighted,
expressed in the alternative or otherwise specified by the Compensation Committee. The level or
levels of performance specified with respect to a performance objective may be expressed in
absolute terms, as objectives relative to performance in prior periods, as an objective compared to
the performance of one or more comparable companies or an index covering multiple companies, or
otherwise as the Compensation Committee may determine.
Maximum Annual Amount Payable to a Participant
No participant may earn more than $15,000,000 in any calendar year pursuant to an award under
the Annual Incentive Plan.
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Plan Operation
Performance objectives will be established by the Compensation Committee and communicated to
the participant by the 90th day of the applicable performance period or, if earlier, before 25% of
the applicable performance period has elapsed. The Compensation Committee will determine the
performance period applicable to an award. Subject to the requirements of the Annual Incentive
Plan and applicable law, each award will contain such other terms and conditions as the
Compensation Committee, acting in its discretion, may prescribe.
Payment of Awards
Upon certification of the achievement of performance objectives by the Compensation Committee
and subject to any deferral arrangements or other conditions that may be permitted or required by
the Compensation Committee, the award will be settled in cash.
The Compensation Committee is authorized to reduce or eliminate the performance award of any
participant, for any reason, including changes in the participants position or duties, whether due
to termination of employment (including death, disability, retirement, voluntary termination, or
termination with or without cause) or otherwise. To the extent necessary to preserve the intended
economic effects of the Annual Incentive Plan or an award under the Annual Incentive Plan, the
Compensation Committee is authorized to adjust pre-established performance objectives and other
terms of performance awards to take into account certain material events, including: (a) a change
in corporate capitalization; (b) a material or extraordinary corporate transaction involving the
Company or a subsidiary, including, without limitation, a merger, consolidation, reorganization,
spin-off, or the sale of a subsidiary or of the assets of a business or division; (c) a partial or
complete liquidation of the Company or any subsidiary; or (d) certain changes in accounting rules;
provided, however, that no such adjustment may cause a performance award to fail to be
non-deductible under Section 162(m) of the Code.
Unless the Compensation Committee determines otherwise, no payment related to an award will be
made to a participant whose employment with the Company and its subsidiaries terminates (for any
reason other than death) before the payment date of the award.
Duration and Amendment
The Annual Incentive Plan was effective as of January 1, 2006 and will terminate on April 25,
2007, the date of the 2007 Annual Meeting of Stockholders, unless the plan is approved by the
Companys stockholders at the annual meeting. The Board of Directors or the Compensation Committee
may, at any time or from time to time, amend the Annual Incentive Plan. Amendment may be made
without stockholder approval, unless such approval is required to maintain the status of the Annual
Incentive Plan under Section 162(m) of the Code. The Board of Directors may terminate the Annual
Incentive Plan at any time.
U.S. Federal Income Tax Consequences
All amounts paid under the Annual Incentive Plan constitute taxable income to the participant
when received. If the Compensation Committee so allows under the terms of the plan, a participant
may be able to elect to defer a portion of the bonus, and as a result may be entitled to defer the
recognition of income. Generally, and subject to Section 162(m) of the Code, the Company will be
entitled to a federal income tax deduction when amounts paid under the Annual Incentive Plan are
included in the employees income.
As stated above, the Annual Incentive Plan is being submitted for stockholder approval so that
cash bonuses paid under the plan qualify for tax deductibility by the Company. However,
stockholder approval is only one of several requirements under Section 162(m), and stockholder
approval of the plan should not be viewed as a guarantee that all amounts paid under the plan will
be deductible by the Company.
THE ABOVE SUMMARY OF THE U.S. FEDERAL INCOME TAX CONSEQUENCES DOES NOT PURPORT TO BE COMPLETE.
THE PRECEDING DISCUSSION IS ONLY A GENERAL SUMMARY OF THE FEDERAL INCOME TAX CONSEQUENCES
CONCERNING THE ANNUAL INCENTIVE PLAN AND DOES NOT ADDRESS THE TAX CONSEQUENCES ARISING IN THE
CONTEXT OF A PARTICIPANTS DEATH OR THE INCOME TAX LAWS OF ANY MUNICIPALITY,
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STATE, OR FOREIGN COUNTRY IN WHICH A PARTICIPANTS INCOME OR GAIN MAY BE TAXABLE.
New Plan Benefits
Future cash awards under the Annual Incentive Plan are based on satisfaction of
pre-established performance objectives during each applicable performance period, and therefore,
are not determinable at this time. The following table sets forth the cash performance awards paid
to the named executive officers and the specified groups of individuals during the 2006 fiscal year
under the Annual Incentive Plan.
Annual Incentive Plan
THE AWARDS IN THIS TABLE FOR THE NAMED EXECUTIVE OFFICERS ARE INCLUDED IN THE 2006 SUMMARY
COMPENSATION TABLE SET FORTH IN THIS PROXY STATEMENT AND ARE NOT ADDITIONAL AWARDS.
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Name and Position |
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2006 Cash Performance Award |
Mark P. Mays
Chief Executive Officer |
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Randall T. Mays
Chief Financial Officer |
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Paul J. Meyer
President and Chief Operating Officer |
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$920,000 |
Franklin G. Sisson, Jr.
Global DirectorSales and Marketing |
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Kurt A. Tingey
Executive Vice President-Americas Chief
Financial Officer |
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All current executive officers as a group
(9 people) |
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$920,000 |
All current non-employee directors as a group |
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All employees except current executive
officers as a group |
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If the Companys stockholders approve the Annual Incentive Plan, the plan will continue
for 2007 and future years as permitted by applicable law. If our stockholders do not approve the
Annual Incentive Plan, the plan will terminate at the annual meeting.
In considering whether to vote for approval of the Annual Incentive Plan, you should be aware
that the Companys executive officers may have received, and in the future may continue to receive,
awards under this plan (if approved by the stockholders). Failure of the stockholders to approve
this proposal will not affect the awards, if any, previously granted under the Annual Incentive
Plan.
THE BOARD RECOMMENDS THAT YOU VOTE FOR THE ADOPTION OF THE CLEAR CHANNEL OUTDOOR HOLDINGS,
INC. 2006 ANNUAL INCENTIVE PLAN.
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PROPOSAL 3: APPROVE THE ADOPTION OF THE CLEAR CHANNEL OUTDOOR HOLDINGS, INC. 2005 STOCK
INCENTIVE PLAN, AS AMENDED AND RESTATED
Background
The Board has approved and adopted the Clear Channel Outdoor Holdings, Inc. 2005 Stock
Incentive Plan, as amended and restated (the Stock Incentive Plan). Pursuant to the terms of the
Stock Incentive Plan, no awards may be made pursuant to the Stock Incentive Plan after the date of
the annual meeting unless the Stock Incentive Plan is approved by the Companys stockholders at the
annual meeting. As of December 31, 2006, the Company has granted stock options and restricted
stock for 7,708,879 and 217,101 shares of our Class A common stock, respectively, under the plan
and there remain 33,975,920 shares of our Class A common stock available for future awards under
the plan. The weighted average exercise price of outstanding stock options under the plan as of
December 31, 2006 was $23.4108.
The Stock Incentive Plan is a broad-based incentive plan that provides for granting stock
options, stock appreciation rights, restricted stock, deferred stock awards, and performance-based
cash and stock awards. The Board believes that the Companys success and long-term progress are
dependent upon attracting and retaining its directors, officers, employees, consultants, and
advisers, and aligning the interests of such individuals with those of its stockholders. The Stock
Incentive Plan gives the Compensation Committee the maximum flexibility to use various forms of
incentive awards as part of the Companys overall compensation program.
The Board of Directors has determined that it is in the best interests of the Company and its
stockholders to maximize the tax deductibility of performance-based cash and stock awards payable
under the Stock Incentive Plan. Accordingly, the Company has structured the Stock Incentive Plan
in a manner that payments made under it can satisfy the requirements for performance-based
compensation within the meaning of Section 162(m) of the Code. In general, Section 162(m) places a
limit on the deductibility for federal income tax purposes of the compensation paid to the Chief
Executive Officer and the next four highest compensated officers of the Company (collectively, the
Covered Persons) who were employed by the Company on the last day of its taxable year. Under
Section 162(m), compensation paid to such persons in excess of $1 million in a taxable year is not
generally deductible. However, compensation that qualifies as performance-based does not count
against the $1 million limitation. The Stock Incentive Plan sets forth, among other things, the
performance objectives under which awards may be paid under the plan.
The closing sale price of the Companys Class A common stock on March 15, 2007 was $26.31.
Vote Required
The approval of the Stock Incentive Plan requires the affirmative vote of the holders of at
least a majority of the total voting power of the Companys Class A and Class B common stock
present in person or represented by proxy and entitled to vote at the annual meeting; provided that
the total votes cast on this proposal represent over 50% of the outstanding shares of our Class A
and Class B common stock. For purposes of this vote, a vote to abstain (or a direction to your
broker, bank, or other nominee to abstain) will be counted as present in person or represented by
proxy and entitled to vote at the annual meeting and, therefore, will have the effect of a negative
vote. A broker non-vote is not counted as a vote cast and, therefore, could prevent the total
votes cast on this proposal from representing over 50% of the outstanding shares of our Class A and
Class B common stock, but will not otherwise have an effect on this vote.
Plan Summary
The principal features of the Stock Incentive Plan are summarized below. This summary does
not purport to be complete, and is qualified in its entirety by reference to the full text of the
Stock Incentive Plan attached as Appendix B to this Proxy Statement.
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Administration
The Stock Incentive Plan is administered by the Compensation Committee of our Board of
Directors; however, the full Board of Directors will have sole responsibility and authority for
making and administering awards to any of our non-employee directors. Subject to the terms of the
Stock Incentive Plan, the Compensation Committee has authority to (a) select the individuals that
may participate in the plan, (b) prescribe the terms and conditions of each participants award and
make amendments thereto, (c) construe, interpret, and apply the provisions of the Stock Incentive
Plan and of any award made under the plan, and (d) take all other actions necessary to administer
the plan. The Compensation Committee may delegate any of its responsibilities and authority to
other persons, subject to applicable law.
Securities Covered by the Plan
Subject to adjustments as required or permitted by the Stock Incentive Plan, the Company may
issue a total of forty-two million (42,000,000) shares of its Class A common stock, $.01 par value
per share, under the Stock Incentive Plan. The following shares are not taken into account in
applying these limitations: (a) shares covered by awards that expire or are canceled, forfeited,
settled in cash, or otherwise terminated, (b) shares delivered to the Company or withheld by the
Company for the payment or satisfaction of purchase price or tax withholding obligations associated
with the exercise or settlement of an award, and (c) shares covered by stock-based awards assumed
by the Company in connection with the acquisition of another company or business.
Individual Award Limitations
In any calendar year, no participant may receive (a) awards covering more than one million
(1,000,000) shares plus the amount of the participants unused annual limit as of the close of the
preceding calendar year, and (b) performance-based cash awards under the Stock Incentive Plan
exceeding more than five million dollars ($5,000,000) plus the amount of the participants unused
annual dollar limit as of the close of the preceding calendar year.
Eligibility
Awards may be made under the Stock Incentive Plan to any of the Companys or its subsidiaries
present or future directors, officers, employees, consultants, or advisers. Currently, there are
approximately 540 individuals eligible to participate in the Stock Incentive Plan. For purposes of
the plan, a subsidiary is any entity in which the Company has a direct or indirect ownership
interest of at least 50%.
Forms of Award
Stock Options and Stock Appreciation Rights. The Company may grant stock options that
qualify as incentive stock options under Section 422 of the Code (ISOs), as well as stock
options that do not qualify as ISOs. However, no ISOs may be granted subsequent to the tenth
anniversary of the date that the Stock Incentive Plan is adopted. The Company may also grant stock
appreciation rights (SARs). In general, an SAR gives the holder the right to receive the
appreciation in value of the shares of our Class A common stock covered by the SAR from the date
the SAR is granted to the date the SAR is exercised. The per share exercise price of a stock
option and the per share base value of an SAR may not be less than the fair market value per share
of Class A common stock on the date the option or SAR is granted. The Company may not reprice
options granted under the Stock Incentive Plan without stockholder approval. Generally, the term
of a stock option is ten years; provided, however, different limitations apply to ISOs granted to
ten-percent stockholders: in such cases, the term may not be greater than five years and the
exercise price may not be less than 110% of the fair market value per share of our Class A common
stock on the date the option is granted.
The Compensation Committee may impose such exercise, forfeiture, and other terms and
conditions as it deems appropriate with respect to stock options and SARs. The exercise price
under a stock option may be paid in cash or in any other form or manner permitted by the
Compensation Committee, including without limitation, payment of previously-owned shares of our
Class A common stock, or payment pursuant to broker-assisted cashless exercise procedures. Methods
of exercise and settlement and other terms of SARs will be determined by the Compensation
Committee.
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The Compensation Committee may establish such exercise and other conditions applicable to an
option following the termination of the optionees employment or other service with the Company and
its subsidiaries as the Compensation Committee deems appropriate on a grant-by-grant basis.
Restricted Stock and Deferred Stock Awards. The Stock Incentive Plan authorizes the
Compensation Committee to make restricted stock awards, pursuant to which shares of the Class A
common stock are issued to designated participants subject to transfer restrictions and vesting
conditions. Subject to such conditions as the Compensation Committee may impose, the recipient of
a restricted stock award may be given the rights to vote and receive dividends on shares covered by
the award pending the vesting or forfeiture of the shares.
Deferred stock awards generally consist of the right to receive shares of Class A common stock
in the future, subject to such conditions as the Compensation Committee may impose including, for
example, continuing employment or service for a specified period of time or satisfaction of
specified performance criteria. Prior to settlement, deferred stock awards do not carry voting,
dividend, or other rights associated with stock ownership; however, dividend equivalents may be
payable or accrue if the Compensation Committee so determines.
Unless the Compensation Committee determines otherwise, shares of restricted stock and
non-vested deferred stock awards will be forfeited upon the recipients termination of employment
or other service with the Company and its subsidiaries.
Other Stock-Based Awards. The Stock Incentive Plan gives the Compensation Committee
broad discretion to grant other types of equity-based awards, including, for example, dividend
equivalent payment rights, phantom shares, and bonus shares, and to provide for settlement in cash
and/or shares. The Stock Incentive Plan also allows non-employee directors to elect to receive all
or part of their annual retainers in the form of shares of the Class A common stock in lieu of
cash.
Performance-Based Awards. The Compensation Committee may also grant performance-based
awards under the Stock Incentive Plan. In general, performance awards provide for the payment of
cash and/or shares of Class A common stock upon the achievement of objective, predetermined
performance objectives established by the Compensation Committee. Performance objectives may be
based upon any one or more of the following business criteria:
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Earnings per share; |
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Share price or total stockholder return; |
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Pre-tax profits; |
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Net earnings; |
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Return on equity or assets; |
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Revenues; |
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Operating income before depreciation, amortization, and non-cash compensation
expense, or OIBDAN; |
|
|
|
|
Market share or market penetration; or |
|
|
|
|
Any combination of the foregoing. |
Performance objectives may be applied to an individual, a subsidiary, a business unit or
division, the Company and any one or more of its subsidiaries, or such other operating units as the
Compensation Committee may designate. Performance objectives may be expressed in absolute or
relative terms and must include an objective formula or standard for computing the amount of
compensation payable to an employee if the goal is attained.
The Compensation Committee must certify in writing prior to payment of the performance award
that the performance objectives and any other material terms of the award were in fact satisfied.
35
Adjustments of Awards
Generally, in the event of a split-up, spin-off, recapitalization, or consolidation of shares
or any similar capital adjustment, or a change in the character or class of shares covered by the
Stock Incentive Plan or any award made pursuant to the plan, the Company will adjust (a) the
maximum number of shares of Class A common stock which may be issued under the Stock Incentive
Plan, (b) the maximum number of shares of Class A common stock which may be covered by awards made
to an individual in any calendar year, (c) the number of shares of Class A common stock subject to
outstanding awards, and (d) where applicable, the exercise price, base price, target market price,
or purchase price under outstanding awards, as required to equitably reflect the effect on the
Class A common stock of such transactions or changes.
Generally, if the Company enters into a merger, consolidation, acquisition or disposition of
property or stock, separation, reorganization, liquidation, or any other similar transaction or
event so designated by the Board of Directors in its sole discretion (collectively, an Exchange
Transaction), all outstanding options and SARs will either (a) become fully vested and exercisable
immediately prior to the Exchange Transaction (and any such outstanding options or SARs which are
not exercised before the Exchange Transaction will thereupon terminate), or (b), at the sole
discretion of the Board of Directors, be assumed by and converted into options or SARs for shares
of the acquiring company. The Board of Directors may make similar adjustments to other outstanding
awards under the Stock Incentive Plan and may direct a cashout of any or all outstanding awards
based upon the value of the consideration paid for our shares in the Exchange Transaction giving
rise to the adjustment of plan awards.
Amendment and Termination of the Plan; Term
Except as may otherwise be required by law or the requirements of any stock exchange or market
upon which the Companys Class A common stock may then be listed, the Board of Directors, acting in
its sole discretion and without further action on the part of our stockholders, may amend the Stock
Incentive Plan at any time and from time to time and may terminate the Stock Incentive Plan at any
time. No such amendment or termination may impair or adversely alter any awards previously granted
under the plan (without the consent of the recipient or holder) or deprive any person of shares
previously acquired under the plan.
Unless sooner terminated , the plan shall terminate on the tenth anniversary of the date of
its adoption by the Companys Board of Directors, or October 17, 2015.
U.S. Federal Income Tax Consequences
The grant of a stock option or SAR under the Stock Incentive Plan is not a taxable event to
the participant for federal income tax purposes. In general, ordinary income is realized upon the
exercise of a stock option (other than an ISO) in an amount equal to the excess of the fair market
value on the exercise date of the shares acquired pursuant to the exercise over the option exercise
price paid for the shares. The amount of ordinary income realized upon the exercise of an SAR is
equal to the excess of the fair market value of the shares covered by the exercise over the SAR
base price. The Company generally will be entitled to a deduction equal to the amount of ordinary
income realized by a participant upon the exercise of an option or SAR. The tax basis of shares
acquired upon the exercise of a stock option (other than an ISO) or SAR is equal to the value of
the shares on the date of exercise. Upon a subsequent sale of the shares, capital gain or loss
(long-term or short-term, depending on the holding period of the shares sold) will be realized in
an amount equal to the difference between the selling price and the basis of the shares. Certain
additional rules apply if the exercise price of an option is paid in shares previously owned by
participant.
No income is realized upon the exercise of an ISO other than for purposes of the alternative
minimum tax. Income or loss is realized upon a disposition of shares acquired pursuant to the
exercise of an ISO. If the disposition occurs more than one year after the ISO exercise date and
more than two years after the ISO grant date, then gain or loss on the disposition, measured by the
difference between the selling price and the option exercise price for the shares, will be
long-term capital gain or loss. If the disposition occurs within one year of the exercise date or
within two years of the grant date, then the gain realized on the disposition will be taxable as
ordinary income to the extent such gain is not more than the difference between the value of the
shares on the date of exercise and the exercise price, and the balance of the gain, if any, will be
capital gain. The Company is not entitled to a deduction with
36
respect to the exercise of an ISO;
however, it is entitled to a deduction corresponding to the ordinary income realized by a
participant upon a disposition of shares acquired pursuant to the exercise of an ISO before the
satisfaction of the applicable one- and two-year holding period requirements described above.
In general, a participant will realize ordinary income with respect to common stock received
pursuant to restricted stock award at the time the shares become vested in accordance with the
terms of the award in an amount equal to the fair market value of the shares at the time they
become vested, and except as discussed below, the Company is generally entitled to a corresponding
deduction. The participants tax basis in the shares will be equal to the ordinary income so
recognized. Upon subsequent disposition of the shares, the participant will realize long-term or
short-term capital gain or loss, depending on the holding period of the shares sold.
A participant may make an early income election within 30 days of the receipt of restricted
shares of common stock, in which case the participant will realize ordinary income on the date the
restricted shares are received equal to the difference between the value of the shares on that date
and the amount, if any, paid for the shares. In such event, any appreciation in the value of the
shares after the date of the award will be taxable as capital gain upon a subsequent disposition of
the shares. The Companys deduction is limited to the amount of ordinary income realized by the
participant as a result of the early income election.
A participant who receives deferred stock awards will be taxed at ordinary income tax rates on
the then fair market value of the shares of common stock distributed at the time of settlement of
the deferred stock awards and, except as discussed below, the Company will generally be entitled to
a tax deduction at that time. The participants tax basis in the shares will equal the amount taxed
as ordinary income, and on subsequent disposition the participant will realize long-term or
short-term capital gain or loss.
Other awards will generally result in ordinary income to the participant at the later of the
time of delivery of cash, shares, or other awards, or the time that either the risk of forfeiture
or restriction on transferability lapses on previously delivered cash, shares, or other awards.
Except as discussed below, the Company generally will be entitled to a tax deduction equal to the
amount recognized as ordinary income by the participant in connection with an award, but will be
entitled to no tax deduction relating to amounts that represent a capital gain to a participant.
Section 162(m) generally allows the Company to obtain tax deductions without limit for
performance-based compensation. The Company intends that options and SARs, and, subject to
stockholder approval of the performance objectives described herein, contingent long-term
performance awards granted under the Stock Incentive Plan will continue to qualify as
performance-based compensation not subject to the $1 million deductibility cap under Section
162(m). A number of requirements must be met in order for particular compensation to so qualify.
However, there can be no assurance that such compensation under the plan will be fully deductible
under all circumstances. In addition, other awards under the Stock Incentive Plan, such as
restricted stock and other stock-based awards, generally may not qualify, so that compensation paid
to executive officers in connection with such awards may not be deductible.
THE ABOVE SUMMARY PERTAINS SOLELY TO CERTAIN U.S. FEDERAL INCOME TAX CONSEQUENCES ASSOCIATED
WITH AWARDS MADE UNDER THE STOCK INCENTIVE PLAN AND DOES NOT PURPORT TO BE COMPLETE. THE SUMMARY
DOES NOT ADDRESS ALL FEDERAL INCOME TAX CONSEQUENCES AND IT DOES NOT ADDRESS STATE, LOCAL, AND
NON-U.S. TAX CONSIDERATIONS.
New Plan Benefits
The Compensation Committee and the Board, as applicable, in their discretion determine awards
granted under the Stock Incentive Plan and, therefore, the Company is unable to determine the
awards that will be granted in the future under the Stock Incentive Plan. The following table sets
forth the type and amount of awards that were granted to the named executive officers and the
specified groups of individuals during the 2006 fiscal year under this plan.
37
Stock Incentive Plan
THE AWARDS IN THIS TABLE FOR THE NAMED EXECUTIVE OFFICERS ARE INCLUDED IN THE 2006 SUMMARY
COMPENSATION TABLE AND IN THE 2006 GRANTS OF PLAN-BASED AWARDS TABLE SET FORTH IN THIS PROXY
STATEMENT AND ARE NOT ADDITIONAL AWARDS. THE AWARDS IN THIS TABLE FOR THE NON-EMPLOYEE DIRECTORS
ARE INCLUDED IN THE 2006 DIRECTOR COMPENSATION TABLE SET FORTH IN THIS PROXY STATEMENT AND ARE NOT
ADDITIONAL AWARDS.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006 Restricted Stock |
|
|
2006 Stock Option Awards |
|
Awards |
Name and Position |
|
(#) (1) |
|
(#) (1) (2) |
Mark P. Mays
Chief Executive Officer |
|
|
|
|
|
|
|
|
Randall T. Mays
Chief Financial Officer |
|
|
|
|
|
|
|
|
Paul J. Meyer
President and Chief Operating Officer |
|
|
|
|
|
|
|
|
Franklin G. Sisson, Jr.
Global DirectorSales and Marketing |
|
|
|
|
|
|
|
|
Kurt A. Tingey
Executive Vice President-Americas Chief
Financial Officer |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All current executive officers as a group |
|
|
12,500 |
|
|
|
3,125 |
|
All current non-employee directors as a group |
|
|
|
|
|
|
|
|
All employees except current executive
officers as a group |
|
|
208,325 |
|
|
|
5,429 |
|
|
|
|
(1) |
|
Stock options and/or restricted stock awards were granted to the named executive
officers on November 11, 2005 in conjunction with the Companys IPO. No additional awards
were granted to the named executive officers during 2006 |
|
(2) |
|
The closing price of the Companys Class A common stock on December 29, 2006 was
$27.91. |
If the Companys stockholders approve the Stock Incentive Plan, the plan will continue
for 2007 and future years as permitted by applicable law. If our stockholders do not approve the
Stock Incentive Plan, the Company may not grant any further awards under this plan.
In considering whether to vote for approval of the Stock Incentive Plan, you should be aware
that the Companys executive officers have received, and in the future may continue to receive,
grants under this plan (if approved by the stockholders). Failure of the stockholders to approve
this proposal will not affect the rights of existing holders or the awards previously granted under
the Stock Incentive Plan.
Equity Compensation Plan Information
Except for the Stock Incentive Plan, the Company does not have any other equity-based
compensation plans. For further information on the number of outstanding awards under the Stock
Incentive Plan, the weighted average exercise price of outstanding stock options, and the number of
shares of Class A common stock remaining available for future issuance under the Stock Incentive
Plan, see the above Background section of this Proposal No. 3.
THE BOARD RECOMMENDS THAT YOU VOTE FOR THE ADOPTION OF THE CLEAR CHANNEL OUTDOOR HOLDINGS,
INC. 2005 STOCK INCENTIVE PLAN, AS AMENDED AND RESTATED.
38
AUDIT COMMITTEE REPORT
The following Report of the Audit Committee concerns the Committees activities regarding
oversight of Clear Channel Outdoor Holdings, Inc.s financial reporting and auditing process and
does not constitute soliciting material and should not be deemed filed or incorporated by reference
into any other Company filing under the Securities Act of 1933 or the Securities Exchange Act of
1934, except to the extent Clear Channel Outdoor specifically incorporates this Report by reference
therein.
The Audit Committee is comprised solely of independent directors and it operates under a
written charter adopted by the Board of Directors. The charter reflects standards set forth in SEC
regulations and NYSE rules. The composition of the Audit Committee, the attributes of its members
and the responsibilities of the Committee, as reflected in its charter, are intended to be in
accordance with applicable requirements for corporate audit committees. The Committee reviews and
assesses the adequacy of its charter on an annual basis. The full text of the Audit Committees
charter can be found on Clear Channel Outdoors Internet website at www.clearchanneloutdoor.com. A
copy may also be obtained upon request from the Secretary of Clear Channel Outdoor.
As set forth in more detail in the charter, the Audit Committees purpose is to assist the
Board of Directors in its general oversight of Clear Channel Outdoors financial reporting,
internal control and audit functions. Management is responsible for the preparation, presentation
and integrity of Clear Channel Outdoors financial statements, accounting and financial reporting
principles and internal controls and procedures designed to ensure compliance with accounting
standards, applicable laws and regulations. Ernst & Young LLP, Clear Channel Outdoors independent
auditing firm, is responsible for performing an independent audit of the consolidated financial
statements and expressing an opinion on the conformity of those financial statements with
accounting principles generally accepted in the United States, as well as expressing an opinion on
(i) managements assessment of the effectiveness of internal control over financial reporting and
(ii) the effectiveness of internal control over financial reporting.
The Audit Committee members are not professional accountants or auditors, and their functions
are not intended to duplicate or to certify the activities of management and the independent
auditor, nor can the Committee certify that the independent auditor is independent under
applicable rules. The Committee serves a board-level oversight role, in which it provides advice,
counsel and direction to management and the auditors on the basis of the information it receives,
discussions with management and the auditors and the experience of the Committees members in
business, financial and accounting matters.
Among other matters, the Audit Committee monitors the activities and performance of Clear
Channel Outdoors internal and external auditors, including the audit scope, external audit fees,
auditor independence matters and the extent to which the independent auditor may be retained to
perform non-audit services. Subject to the consent of our corporate parent, the Audit Committee
has ultimate authority and responsibility to select, evaluate and, when appropriate, replace Clear
Channel Outdoors independent auditor. The Audit Committee also reviews the results of the
internal and external audit work with regard to the adequacy and appropriateness of Clear Channel
Outdoors financial, accounting and internal controls. Management and independent auditor
presentations to and discussions with the Audit Committee also cover various topics and events that
may have significant financial impact or are the subject of discussions between management and the
independent auditor. In addition, the Audit Committee generally oversees Clear Channel Outdoors
internal compliance programs.
The Committee has implemented procedures to ensure that during the course of each fiscal year
it devotes the attention that it deems necessary or appropriate to each of the matters assigned to
it under the Committees charter. To carry out its responsibilities, the Committee met eight times
during the year ended December 31, 2006. The Audit Committee also meets privately with the
internal and external auditors as well as management immediately following four of these meetings.
During the course of 2006, management completed the documentation, testing and evaluation of
Clear Channel Outdoors internal control over financial reporting in response to the requirements
set forth in Section 404
39
of the Sarbanes-Oxley Act of 2002 and related regulations. The Audit
Committee was kept apprised of the progress
of the evaluation and provided oversight and advice to management during the process. In
connection with this oversight, the Audit Committee received periodic updates provided by
management and Ernst & Young LLP at each regularly scheduled Audit Committee meeting. At the
conclusion of the process, management provided the Audit Committee with a report on the
effectiveness of Clear Channel Outdoors internal control over financial reporting. The Audit
Committee also reviewed the report of management contained in Clear Channel Outdoors Annual Report
on Form 10-K for the year ended December 31, 2006 filed with the SEC, as well as Ernst & Young
LLPs Report of Independent Registered Public Accounting Firm included in Clear Channel Outdoors
Annual Report on Form 10-K related to its audit of (i) the consolidated financial statements and
financial statement schedule, (ii) managements assessment of the effectiveness of internal control
over financial reporting, and (iii) the effectiveness of internal control over financial reporting.
In overseeing the preparation of Clear Channel Outdoors financial statements, the Committee
met with both management and Clear Channel Outdoors outside auditors to review and discuss all
financial statements prior to their issuance and to discuss significant accounting issues.
Management advised the Committee that all financial statements were prepared in accordance with
generally accepted accounting principles. The Committees review included discussion with the
outside auditors of matters required to be discussed pursuant to Statement on Auditing Standards
No. 61 (Communication With Audit Committees).
With respect to Clear Channel Outdoors outside auditors, the Committee, among other things,
discussed with Ernst & Young LLP matters relating to its independence, including its letter and the
written disclosures made to the Committee as required by the Independence Standards Board Standard
No. 1 (Independence Discussions with Audit Committees).
Finally, the Committee continued to monitor the scope and adequacy of Clear Channel Outdoors
internal auditing program, including proposals for adequate staffing and to strengthen internal
procedures and controls where appropriate.
On the basis of these reviews and discussions, the Committee recommended to the Board of
Directors that the Board approve the inclusion of Clear Channel Outdoors audited financial
statements in Clear Channel Outdoors Annual Report on Form 10-K for the year ended December 31,
2006 for filing with the Securities and Exchange Commission.
Respectfully submitted,
THE AUDIT COMMITTEE
James M. Raines Chairman,
Marsha M. Shields
and Dale W. Tremblay
40
AUDITOR FEES
Ernst & Young LLP billed Clear Channel Outdoor the following fees for services provided during
the years ended December 31, 2006 and 2005:
|
|
|
|
|
|
|
|
|
|
|
Fees Paid During Year Ended |
|
|
|
December 31, |
|
(In thousands) |
|
2006 |
|
|
2005 |
|
Annual audit fees (1) (2) |
|
$ |
3,782 |
|
|
$ |
556 |
|
Audit-related fees (3) |
|
|
129 |
|
|
|
|
|
Tax fees (4) |
|
|
275 |
|
|
|
|
|
All other fees (5) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fees for services |
|
$ |
4,186 |
|
|
$ |
556 |
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Annual audit fees are for professional services rendered for the audit of our annual
financial statements and reviews of quarterly financial statements. This category also
includes fees for statutory audits required domestically and internationally, comfort letters,
consents, assistance with and review of documents filed with the SEC, attest services, work
done by tax professionals in connection with the audit or quarterly reviews, and accounting
consultations and research work necessary to comply with generally accepted auditing
standards. |
|
(2) |
|
2005 annual audit fees are for incremental professional services rendered for the audit of
our stand-alone annual financial statements and reviews of stand-alone quarterly financial
statements. This category also includes incremental assistance with and review of documents
filed with the SEC, attest services, work done by tax professionals in connection with the
audit or quarterly reviews, and accounting consultations and research work necessary to comply
with generally accepted auditing standards. These fees are in addition to the fees paid by
Clear Channel Communications, Inc. for professional services rendered on behalf of the
consolidated company prior to our initial public offering. During 2005, Clear Channel
Communications, Inc. allocated approximately $6.0 million of its consolidated audit fees to
us. |
|
(3) |
|
Audit-related fees are for due diligence related to mergers and acquisitions, internal
control reviews and attest services not required by statute or regulations. |
|
(4) |
|
Tax fees are for professional services rendered for tax compliance, tax advice and tax
planning, except those provided in connection with the audit or quarterly reviews. Of the
$275,000 tax fees for 2006, $69,000 was related to tax compliance services. |
|
(5) |
|
All other fees are the fees for products and services other than those in the above three
categories. This category includes, among other things, permitted corporate finance
assistance, and certain advisory services such as internal audit assistance and legal services
permitted by SEC rules during the applicable period. |
Clear Channel Outdoors Audit Committee has considered whether Ernst & Young LLPs
provision of non-audit services to Clear Channel Outdoor is compatible with maintaining Ernst &
Young LLPs independence.
The Audit Committee pre-approves all audit and permitted non-audit services (including the
fees and terms thereof) to be performed for Clear Channel Outdoor by its independent auditor. The
chairperson of the Audit Committee may represent the entire committee for the purposes of
pre-approving permissible non-audit services, provided that the decision to pre-approve any service
is disclosed to the Audit Committee no later than its next scheduled meeting.
Representatives of the firm of Ernst & Young LLP are expected to be present at the annual
meeting of shareholders and will have an opportunity to make a statement if they so desire and will
be available to respond to appropriate questions
41
STOCKHOLDER PROPOSALS FOR 2008 ANNUAL MEETING
Stockholders interested in submitting a proposal for inclusion in the proxy materials for
the annual meeting of stockholders in 2008 may do so by following the procedures prescribed in SEC
Rule 14a-8. To be eligible for inclusion, stockholder proposals must be received by the Secretary
of Clear Channel Outdoor no later than December 14, 2007. Proposals should be sent to Secretary,
Clear Channel Outdoor Holdings, Inc., P.O. Box 659512, San Antonio, Texas 78265-9512.
ADVANCE NOTICE PROCEDURES
Under our bylaws, stockholders may not present a proposal for consideration at any
stockholders meeting unless such stockholder submits such proposal in writing to the secretary of
Clear Channel Outdoor not less than 90 days prior to the meeting. These requirements are separate
from and in addition to the SECs requirements that a stockholder must meet in order to have a
stockholder proposal included in Clear Channel Outdoors proxy statement.
OTHER MATTERS
Neither Clear Channel Outdoor management nor the Board knows of any other business to be
brought before the annual meeting other than the matters described above. If any other matters
properly come before the annual meeting, the proxies will be voted on such matters in accordance
with the judgment of the persons named as proxies therein, or their substitutes, present and acting
at the meeting.
NYSE MATTERS
Clear Channel Outdoor filed the CEO and CFO certifications required under Section 302 of
the Sarbanes-Oxley Act with the SEC as exhibits to its most recently filed Form 10-K. Clear
Channel Outdoor also submitted a Section 12(a) CEO Certification to the NYSE last year.
GENERAL
The cost of soliciting proxies will be borne by Clear Channel Outdoor. Following the
original mailing of the proxy soliciting material, regular employees of Clear Channel Outdoor may
solicit proxies by mail, telephone, facsimile, e-mail and personal interview. Clear Channel Outdoor
has also retained Innisfree M&A Incorporated to aid in the solicitation of proxies, at an estimated
cost of $5,000 plus reimbursement of reasonable out-of pocket expenses. Proxy cards and materials
will also be distributed to beneficial owners of stock, through brokers, custodians, nominees and
other like parties. Clear Channel Outdoor expects to reimburse such parties for their charges and
expenses connected therewith.
The SEC has adopted rules that permit companies and intermediaries such as brokers to satisfy
delivery requirements for proxy statements with respect to two or more stockholders sharing the
same address by delivering a single proxy statement addressed to those stockholders. This process,
which is commonly referred to as householding, potentially provides extra convenience for
stockholders and cost savings for companies. Clear Channel Outdoor and some brokers household proxy
materials, delivering a single proxy statement to multiple stockholders sharing an address unless
contrary instructions have been received from the affected stockholders. Once you have received
notice from your broker or us that they or we will be householding materials to your
42
address,
householding will continue until you are notified otherwise or until you revoke your consent. If,
at any time, you no longer wish to participate in householding and would prefer to receive a
separate proxy statement,
please notify your broker if your shares are held in a brokerage account or us if you hold
registered shares. You can notify us by sending a written request to Clear Channel Outdoor
Holdings, Inc., Stockholder Relations, P.O. Box 659512, San Antonio, Texas 78265-9512.
An electronic copy of Clear Channel Outdoors Annual Report on Form 10-K filed with the SEC on
March 1, 2007, is available free of charge at Clear Channel Outdoors Internet website at
www.clearchanneloutdoor.com. A paper copy of the Form 10-K is also available without charge to
stockholders upon written request to Clear Channel Outdoor Holdings, Inc., P.O. Box 659512, San
Antonio, Texas 78265-9512.
This document is dated April 13, 2007 and is first being mailed to stockholders on or about
April 13, 2007.
Andrew W. Levin
Executive Vice President, Chief Legal
Officer and Secretary
43
APPENDIX A
CLEAR CHANNEL OUTDOOR HOLDINGS, INC.
2006 ANNUAL INCENTIVE PLAN
1. Purpose. The purpose of the plan is to provide performance-based incentive
compensation to executive officers and other selected key executives of Clear Channel Outdoor
Holdings, Inc. (the Company) and its subsidiaries, which, as applicable, will not be subject to
the executive compensation deduction limitations of Section 162(m) of the Internal Revenue Code of
1986 (the Code).
2. Administration.
2.1 The Committee. The plan will be administered by the compensation committee of the
Companys board of directors, or a committee of such other persons as the board of directors may
appoint. Unless the board of directors determines otherwise, the members of the committee must be
outside directors for purposes of 162(m) of the Code.
2.2 Responsibility and Authority of the Committee. Subject to the provisions of the
plan, the committee, acting in its discretion, will have responsibility and authority to (a) select
the individuals who may participate in the plan, (b) prescribe the terms and conditions of each
participants award and make amendments thereto, (c) determine whether and the extent to which
performance goals have been met, (d) construe, interpret and apply the provisions of the plan and
of any agreement or other document evidencing an award made under the plan, and (e) make any and
all determinations and take any and all other actions as it deems necessary or desirable in order
to carry out the terms of the plan. In exercising its responsibilities, the committee may obtain at
the Companys expense such advice, guidance and other assistance from outside compensation
consultants and other professional advisers as it deems appropriate. The decision of the committee
regarding any disputed question, including questions of construction, interpretation and
administration, shall be final and conclusive on all persons.
2.3 Manner of Exercise of Committee Authority. The Committee may delegate
responsibilities with respect to the administration of the Plan to one or more officers of the
Company or any of its subsidiaries, to one or more members of the Committee or to one or more
members of the Board; provided, however, that the Committee may not delegate its
responsibility if and to the extent such delegation would cause an award to fail to constitute
qualified performance-based compensation under Section 162(m) of the Code. The committee may also
appoint agents to assist in the day-to-day administration of the Plan and may delegate the
authority to execute documents under the plan to one or more members of the committee or to one or
more officers of the Company.
2.4 Indemnification. The Company shall indemnify and hold harmless each member of the
board of directors and of the committee or any employee of the Company or any of its subsidiaries
and affiliates who provides assistance with the administration of the plan or to whom a
plan-related responsibility is delegated from and against any loss, cost, liability (including any
sum paid in settlement of a claim with the approval of the board of directors), damage and expense
(including reasonable legal fees and other expenses incident thereto and, to the extent permitted
by applicable law, advancement of such fees and expenses) arising out of or incurred in connection
with the plan, unless and except to the extent attributable to such persons fraud or willful
misconduct.
3. Performance-Based Compensation Opportunities.
3.1 General. Each award made under the plan will represent the right to receive
incentive compensation upon the achievement of one or more performance objectives that are
established by the committee and communicated to the recipient of the award by the 90th
day of the applicable performance period or, if earlier, before 25% of the applicable performance
period has elapsed. The committee will determine the performance period applicable to an award.
Subject to the requirements of the plan and applicable law, each award will contain such other
terms and conditions as the committee, acting in its discretion, may prescribe.
3.2 Performance Criteria. Performance objectives may be based upon any one or more of
the following criteria: revenue growth, operating income before depreciation and amortization and
non-cash
A-1
compensation expense (OIBDAN), OIBDAN growth, funds from operations, funds from operations
per share and per share growth, cash available for distribution, cash available for distribution
per share and per share growth, operating income and operating income growth, net earnings,
earnings per share and per share growth, return on equity, return on assets, share price
performance on an absolute basis and relative to an index, improvements in attainment of expense
levels, implementing or completion of critical projects, or improvement in cash-flow (before or
after tax).
3.3 Performance Objectives. The amount, if any, payable to a participant with respect
to an award will depend upon whether and the extent to which the performance objective(s) of the
award are achieved during the applicable performance period. Performance objectives may be
established on a periodic, annual, cumulative or average basis and may be established on a
corporate-wide basis and/or with respect to operating units, divisions, subsidiaries, acquired
businesses, minority investments, partnerships or joint ventures. The committee may establish
different levels of payment under an award to correspond with different levels of achievement of
performance objectives specified in the award. Awards may contain more than one performance
objective; and performance objectives may be based upon multiple performance criteria. Multiple
performance objectives contained in an award may be aggregated, weighted, expressed in the
alternative or otherwise specified by the committee. The level or levels of performance specified
with respect to a performance objective may be expressed in absolute terms, as objectives relative
to performance in prior periods, as an objective compared to the performance of one or more
comparable companies or an index covering multiple companies, or otherwise as the committee may
determine. Notwithstanding anything to the contrary contained in the plan, the performance
objectives under any award must be objective and must otherwise meet the requirements of Section
162(m) of the Code.
3.4 Adjustments. The committee may reduce or eliminate an award made under the plan
for any reason, including, without limitation, changes in the position or duties of a participant
during or after a performance period, whether due to termination of employment (including death,
disability, retirement, voluntary termination or termination with or without cause) or otherwise.
In addition, to the extent necessary to preserve the intended economic effects of the plan and
individual awards, the committee may make appropriate adjustments to the performance objectives and
other terms of an award to properly reflect (a) a change in corporate capitalization; (b) a
material or extraordinary corporate transaction involving the Company or a subsidiary, including,
without limitation, a merger, consolidation, reorganization, spin-off, or the sale of a subsidiary
or of the assets of a business or division (whether or not such transaction constitutes a
reorganization within the meaning of Section 368(a) of the Code); (c) a partial or complete
liquidation of the Company or a subsidiary, or (d) a change in accounting or other relevant rules
or regulations; provided, however, that no adjustment hereunder shall be authorized
or made if and to the extent that the authority to make or the making of such adjustment would
cause an award to fail to satisfy the requirements for qualified performance-based compensation
under Section 162(m) of the Code.
3.5 Certification. Following the completion of the performance period applicable to an
award, the committee shall determine and shall certify in writing whether and the extent to which
the performance objective(s) under the award have been achieved, as well as the amount, if any,
payable to the participant as a result of such achievement(s), which determination(s) and
certification(s) shall be subject to and shall be made in accordance with the requirements of
Section 162(m) of the Code.
3.6 Payment of Amounts Earned. Subject to such deferral and/or other conditions as may
be permitted or required by the committee, amounts earned under an award will be paid or
distributed as soon as practicable following the committees determination and certification of
such amounts.
3.7 Maximum Annual Amount Payable to a Participant. Notwithstanding anything to the
contrary contained herein, no individual may earn more than $15,000,000 in any calendar year
pursuant to an award made to such individual under the plan.
4. Termination of Employment; Death. Unless the committee determines otherwise, no amount
will be payable under an award made to a participant whose employment with the Company and its
subsidiaries terminates (for any reason other than death) before the payment date of such award. If
a participant dies before receiving payment of an amount earned under the plan, such payment will
be made to the deceased participants designated beneficiary, if any, or, if none, to the deceased
participants estate. No beneficiary designation shall be effective
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unless it is in writing and received by the committee prior to the participants death, and any
such designation will supersede and be deemed a revocation of any prior beneficiary designation
made by the participant.
5. Withholding Taxes. All amounts payable pursuant to the settlement of an award made under
the plan are subject to applicable tax withholding. The Company and its subsidiaries shall withhold
funds (or other property) from the payment of any such award and shall be entitled to take such
other action with respect to other amounts that are or may become payable to the participant as may
be necessary or appropriate in order to enable the Company and its subsidiaries to satisfy such tax
withholding requirements.
6. No Implied Rights Afforded to Participants. No award and nothing contained in the plan
or in any document relating to the plan shall confer upon an eligible employee or participant any
right to continue as an employee of the Company or a subsidiary or constitute a contract or
agreement of employment, or interfere in any way with the right of the Company and its subsidiaries
to reduce such persons compensation, to change the position held by such person or to terminate
such persons employment, with or without cause.
7. Non-transferability. No interest in or under an award made or a payment due or to become
due under the plan may be assigned, transferred or otherwise alienated other than by will or the
laws of descent and distribution, and any attempted assignment, alienation, sale, transfer, pledge,
encumbrance, charge or other alienation of any such interest shall be void and unenforceable.
8. Amendment and Termination. The board of directors of the Company or the committee may
amend the plan at any time and from time to time. Any such amendment may be made without approval
of the Companys stockholders unless and except to the extent such approval is required in order to
satisfy the stockholder approval requirements of Section 162(m) of the Code. The Companys board of
directors may terminate the plan.
9. Unfunded Status of Awards. The plan is intended to constitute a bonus plan and not a
pension other employee benefit plan or purposes of ERISA. The right of a participant (or
beneficiary) to receive payment(s) under a plan award will constitute and be equivalent to the
right of a general unsecured creditor of the Company (or the subsidiary by whom the participant is
or was employed, as the case may be), whether or not a trust is created and funded in order to
facilitate the payment of amounts due or to become due under the plan (including, for this purpose,
any deferral arrangement made with respect to any such payment).
10. Miscellaneous.
10.1 Governing Law. The plan and any award made under the plan will be subject to and
construed in accordance with the laws of the State of Delaware, without giving effect to principles
of conflicts of laws, and applicable federal law.
10.2 Section 162(m) of the Code. It is intended that amounts payable pursuant to
awards made under the plan will constitute qualified performance based compensation and thus be
exempt from the annual $1 million limitation on the deductibility of executive compensation. The
plan and each award made under the plan will be interpreted, construed and applied accordingly.
10.3 Effective Date. The plan is effective as of January 1, 2006. The plan will
terminate on the date of the first annual meeting of the Companys stockholders following December
31, 2006, unless the plan is approved by the Companys stockholders at such meeting. The
performance criteria specified in the plan shall be re-submitted for stockholder approval as and
when required by Treasury Department regulations in order to ensure compliance with the stockholder
approval requirements of Section 162(m) of the Code on an ongoing basis.
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APPENDIX B
CLEAR CHANNEL OUTDOOR HOLDINGS, INC.
2005 STOCK INCENTIVE PLAN
1. Purpose. The purpose of the plan is to facilitate the ability of Clear Channel
Outdoor Holdings, Inc. (the Company) and its subsidiaries to attract, motivate and retain
eligible employees, directors and other personnel through the use of equity-based and other
incentive compensation opportunities. Awards made under the plan may take the form of options to
purchase shares of the Companys common stock, $.01 par value (the Common Stock) granted pursuant
to Section 6, director shares issued pursuant to Section 7, stock appreciation rights granted
pursuant to Section 7, restricted stock and deferred stock rights issued or granted pursuant to
Section 9, other types of stock-based awards made pursuant to Section 10, and/or performance-based
awards made pursuant to Section 11.
2. Administration.
2.1 The Committee. The Plan will be administered by the compensation committee of the
Companys board of directors, except the entire board will have sole authority for granting and
administering awards to non-employee directors.
2.2 Responsibility and Authority of the Committee. Subject to the provisions of the
Plan, the committee, acting in its discretion, will have responsibility and the power and authority
to (a) select the persons to whom awards will be made, (b) prescribe the terms and conditions of
each award and make amendments thereto, (c) construe, interpret and apply the provisions of the
Plan and of any agreement or other document evidencing an award made under the Plan, and (d) make
any and all determinations and take any and all other actions as it deems necessary or desirable in
order to carry out the terms of the Plan. The committee may obtain at the Companys expense such
advice, guidance and other assistance from outside compensation consultants and other professional
advisers as the committee deems appropriate in connection with the proper administration of the
plan.
2.3 Delegation of Authority by Committee. Subject to the requirements of applicable
law, the committee may delegate to any person or group or subcommittee of persons (who may, but
need not be members of the committee) such Plan-related functions within the scope of its
responsibility, power and authority as it deems appropriate. If the committee wishes to delegate a
particular function to a subcommittee consisting solely of its own members, it may choose to do so
on a de facto basis by limiting the members entitled to vote on matters relating to that function.
Reference herein to the committee with respect to functions delegated to another person, group or
subcommittee will be deemed to refer to such person, group or subcommittee.
2.4 Committee Actions. A majority of the members of the committee shall constitute a
quorum. The committee may act by the vote of a majority of its members present at a meeting at
which there is a quorum or by unanimous written consent. The decision of the committee as to any
disputed question arising under the plan or an agreement or other document governing an individual
award, including questions of construction, interpretation and administration, shall be final and
conclusive on all persons. The committee shall keep a record of its proceedings and acts and shall
keep or cause to be kept such books and records as may be necessary in connection with the proper
administration of the plan.
2.5 Indemnification. The Company shall indemnify and hold harmless each member of the
board of directors of the committee or of any subcommittee appointed by the board of directors or
the committee and any employee of the Company or any of its subsidiaries and affiliates who
provides assistance with the administration of the plan or to whom a plan-related responsibility is
delegated, from and against any loss, cost, liability (including any sum paid in settlement of a
claim with the approval of the board of directors), damage and expense (including reasonable legal
fees and other expenses incident thereto and, to the extent permitted by applicable law,
advancement of such fees and expenses) arising out of or incurred in connection with the plan,
unless and except to the extent attributable to such persons fraud or willful misconduct.
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3. Limitations on Company Stock Awards Under the Plan.
3.1 Aggregate Share Limitation. Subject to adjustments required or permitted by the
plan, the Company may issue a total of forty-two million (42,000,000) shares of Common Stock under
the plan. For these purposes, the following shares of Common Stock will not be taken into account
and will remain available for issuance under the plan: (a) shares covered by awards that expire or
are canceled, forfeited, settled in cash or otherwise terminated, (b) shares delivered to the
Company and shares withheld by the Company for the payment or satisfaction of purchase price or tax
withholding obligations associated with the exercise or settlement of an award, and (c) shares
covered by stock-based awards assumed by the Company in connection with the acquisition of another
company or business.
3.2 Individual Employee Limitations. In any calendar year, (a) the total number of
shares that may be covered by awards made to an individual may not exceed 1,000,000 plus the
aggregate amount of such individuals unused annual share limit as of the close of the preceding
calendar year, (b) the maximum amount of cash that may be payable to an individual pursuant to
performance-based cash awards made under the plan is $5,000,000 plus the aggregate amount of such
individuals unused annual dollar limit as of the close of the preceding calendar year.
4. Eligibility to Receive Awards. Awards may be granted under the plan to any present
or future director, officer, employee, consultant or adviser of or to the Company or any of its
subsidiaries. For purposes of the plan, a subsidiary is any entity in which the Company has a
direct or indirect ownership interest of at least 50%.
5. Stock Option Awards.
5.1 General. Stock options granted under the Plan will have such vesting and other
terms and conditions as the committee, acting in its discretion in accordance with the Plan, may
determine, either at the time the option is granted or, if the holders rights are not adversely
affected, at any subsequent time.
5.2 Minimum Exercise Price. The exercise price per share of Common Stock covered by an
option granted under the plan may not be less than 100% of the fair market value per share on the
date the option is granted (110% in the case of incentive stock options (within the meaning of
Section 422 of the Code) granted to an employee who is a 10% stockholder within the meaning of
Section 422(b)(6) of the Code). For purposes of the plan, unless determined otherwise by the
committee, the fair market value of a share of Common Stock on any date is the closing sale price
per share in consolidated trading of securities listed on the principal national securities
exchange or market on which shares of Common Stock are then traded, as reported by a recognized
reporting service or, if there is no sale on such date, on the first preceding date on which such
shares are traded. Prior to the time of an initial public offering by the Company of Class A shares
of its common stock, the committee may make option or other awards under the plan that become
effective only if and when the public offering is completed, in which case, unless the committee
determines otherwise, the fair market value per share at the effective time of such award(s) will
be deemed to be equal to the initial public offering price.
5.3 Limitation on Repricing of Options. Except for adjustments made in accordance with
Section 13, the repricing of stock options granted under the plan is prohibited in the absence of
stockholder approval.
5.4 Maximum Duration. Unless sooner terminated in accordance with its terms, an option
granted under the plan will automatically expire on the tenth anniversary of the date it is granted
or, in the case of an incentive stock option granted to an employee who is a 10% stockholder, the
fifth anniversary of the date it is granted.
5.5 Effect of Termination of Employment or Service. The committee may establish such
exercise and other conditions applicable to an option following the termination of the optionees
employment or other service with the Company and its subsidiaries as the committee deems
appropriate on a grant-by-grant basis. For purposes of the plan, an individuals employment or
service with the Company and its subsidiaries will be
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deemed to have terminated if such individual is no longer receiving or entitled to receive
compensation for providing services to the Company and its subsidiaries.
5.6 Method of Exercise. An outstanding and exercisable option may be exercised by
transmitting to the Secretary of the Company (or other person designated for this purpose by the
committee) a written notice identifying the option that is being exercised and specifying the
number of whole shares to be purchased pursuant to that option, together with payment in full of
the exercise price and the withholding taxes due in connection with the exercise, unless and except
to the extent that other arrangements satisfactory to the Company have been made for such
payment(s). The exercise price may be paid in cash or in any other manner the committee, in its
discretion, may permit, including, without limitation, (a) by the delivery of previously-owned
shares, (b) by a combination of a cash payment and delivery of previously-owned shares, or (c)
pursuant to a cashless exercise program established and made available through a registered
broker-dealer in accordance with applicable law. Any shares transferred to the Company (or withheld
upon exercise) in connection with the exercise of an option shall be valued at fair market value
for purposes of determining the extent to which the exercise price and/or tax withholding
obligation is satisfied by such transfer (or withholding) of shares.
5.7 Non-Transferability. No option shall be assignable or transferable except upon the
optionees death to a beneficiary designated by the optionee in a manner prescribed or approved for
this purpose by the committee or, if no designated beneficiary shall survive the optionee, pursuant
to the optionees will or by the laws of descent and distribution. During an optionees lifetime,
options may be exercised only by the optionee or the optionees guardian or legal representative.
Notwithstanding the foregoing, the committee may permit the inter vivos transfer of an option
(other than an incentive stock option) pursuant to a domestic relations order (within the meaning
of Rule 16a-12 promulgated under the Exchange Act) in settlement of marital property rights, or by
gift to any family member (within the meaning of Item A.1.(5) of the General Instructions to Form
S-8 or any successor provision), on such terms and conditions as the committee deems appropriate.
5.8 Rights as a Stockholder. No shares of Common Stock shall be issued in respect of
the exercise of an option until payment of the exercise price and the applicable tax withholding
obligations have been satisfied or provided for to the satisfaction of the Company, and the holder
of an option shall have no rights as a stockholder with respect to any shares covered by the option
until such shares are duly and validly issued by the Company to or on behalf of such holder.
6. Director Shares.
6.1 The committee may permit non-employee directors to elect to receive all or part of their
annual retainers in the form of shares (Director Shares). Unless the committee determines
otherwise, any such elections may be made during the month a director first becomes a director and
during the last month of each calendar quarter thereafter, and shall remain in effect unless and
until the end of the calendar quarter in which a new election is made (or, if later, the calendar
quarter next following the calendar quarter in which the director first becomes a director). Any
such election shall also indicate the percentage of the retainer to be paid in shares and shall
contain such other information as the committee or the Board may require.
6.2 The Company shall issue Director Shares on the first trading day of each calendar quarter
to all directors on that trading day except any Director whose retainer is to be paid entirely in
cash. The number of Director Shares issuable to a director on the relevant trading date shall
equal:
[ % multiplied by (R/4) ] divided by P
WHERE:
% = the percentage of the directors retainer that is payable in shares;
R = the directors retainer for the applicable calendar year; and
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P = the closing price, as quoted on the principal exchange on which shares are traded, on the date of issuance.
Director Shares shall not include any fractional shares. Fractions shall be rounded to the nearest
whole share.
7. Stock Appreciation Rights.
7.1 General. The committee may grant stock appreciation rights (SARs), either alone
or in connection with the grant of an option, upon such vesting and other terms and conditions as
the committee, acting in its discretion in accordance with the Plan, including, as applicable,
Section 7 (relating to options), may determine, either at the time the SARs are granted or, if the
holders rights are not adversely affected, at any subsequent time. Upon exercise, the holder of an
SAR shall be entitled to receive a number of whole shares of Common Stock having a fair market
value equal to the product of X and Y, where
X = the number of whole shares of Common Stock as to which the SAR is being
exercised, and
Y = the excess of the fair market value per share of Common Stock on the date of
exercise over the fair market value per share of Common Stock on the date the SAR is
granted (or such greater base value as the committee may prescribe at the time the
SAR is granted).
7.2 Tandem SARs. An SAR granted in tandem with an option shall cover the same shares
covered by the option (or such lesser number of shares as the committee may determine) and, unless
the committee determines otherwise, shall be subject to the same terms and conditions as the
related option. Upon the exercise of an SAR granted in tandem with an option, the option shall be
canceled to the extent of the number of shares as to which the SAR is exercised, and, upon the
exercise of an option granted in tandem with an SAR, the SAR shall be canceled to the extent of the
number of shares as to which the option is exercised.
7.3 Method of Exercise. An outstanding and exercisable SAR may be exercised by
transmitting to the Secretary of the Company (or other person designated for this purpose by the
committee) a written notice identifying the SAR that is being exercised and specifying the number
of shares as to which the SAR is being exercised, together with payment in full of the withholding
taxes due in connection with the exercise, unless and except to the extent that other arrangements
satisfactory to the Company have been made for such payment. The withholding taxes may be paid in
cash or in any other manner the committee, in its discretion, may permit, including, without
limitation, (a) by the delivery of previously-owned shares of Common Stock, or (b) by a combination
of a cash payment and the delivery of previously-owned shares. The committee may impose such
additional or different conditions for exercise of an SAR as it deems appropriate. No fractional
shares will be issued in connection with the exercise of an SAR.
7.4 Rights as a Stockholder. No shares of Common Stock shall be issued in respect of
the exercise of an SAR until payment of the applicable tax withholding obligations have been
satisfied or provided for to the satisfaction of the Company, and the holder of an SAR shall have
no rights as a stockholder with respect to any shares issuable upon such exercise until such shares
are duly and validly issued by the Company to or on behalf of such holder.
8. Restricted Stock and Deferred Stock Awards.
8.1 General. Under a restricted stock award, shares of Common Stock will be issued by
the Company to the recipient at the time of the award. Under a deferred stock award, the recipient
will be entitled to receive shares of Common Stock in the future. The shares covered by a
restricted stock award and the right to receive shares under a deferred stock award will be subject
to such vesting and other conditions and restrictions as the committee, acting in its discretion in
accordance with the plan, may determine.
8.2 Minimum Purchase Price. Unless the committee, acting in accordance with applicable
law, determines otherwise, the purchase price payable for shares of Common Stock transferred
pursuant to a restricted or deferred stock award must be at least equal to the par value of the
shares.
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8.3 Issuance of Restricted Stock. Shares of Common Stock issued pursuant to a
restricted stock award may be evidenced by book entries on the Companys stock transfer records
pending satisfaction of the applicable vesting conditions. If a stock certificate for restricted
shares is issued, the certificate will bear an appropriate legend to reflect the nature of the
conditions and restrictions applicable to the shares. The Company may require that any or all such
stock certificates be held in custody by the Company until the applicable conditions are satisfied
and other restrictions lapse. The committee may establish such other conditions as it deems
appropriate in connection with the issuance of certificates for restricted shares, including,
without limitation, a requirement that the recipient deliver a duly signed stock power, endorsed in
blank, for the shares covered by the award.
8.4 Stock Certificates for Vested Stock. The recipient of a restricted or deferred
stock award will be entitled to receive a certificate, free and clear of conditions and
restrictions (except as may be imposed in order to comply with applicable law), for shares that
vest in accordance with the award, subject, however, to the payment or satisfaction of applicable
withholding taxes. The delivery of vested shares covered by a deferred stock award may be deferred
if and to the extent provided by the terms of the award, subject, however, to the applicable
deferral requirements of Section 409A of the Code.
8.5 Rights as a Stockholder. Subject to and except as otherwise provided by the terms
of a restricted stock award, the holder of restricted shares of Common Stock will be entitled to
receive dividends paid on, and exercise voting rights associated with, such shares as if the shares
were fully vested. The holder of a deferred stock award shall no rights as a stockholder with
respect to shares covered by a deferred stock award unless and until the award vests and the shares
are issued; provided, however, that the committee, in its discretion, may provide for the payment
of dividend equivalents on shares covered by a deferred stock award.
8.6 Nontransferability. Neither a restricted or deferred stock award nor restricted
shares of Common Stock issued pursuant to any such award may be sold, assigned, transferred,
disposed of, pledged or otherwise hypothecated other than to the Company or its designee in
accordance with the terms of the award or of the plan, and any attempt to do so shall be null and
void and, unless the committee determines otherwise, shall result in the immediate forfeiture of
the award or the restricted shares, as the case may be.
8.7 Termination of Service Before Vesting; Forfeiture. Unless the committee determines
otherwise, shares of restricted stock and non-vested deferred stock awards will be forfeited upon
the recipients termination of employment or other service with the Company and its subsidiaries.
If shares of restricted stock are forfeited, any certificate representing such shares will be
canceled on the books of the Company and the recipient will be entitled to receive from the Company
an amount equal to any cash purchase price previously paid for such shares. If a non-vested
deferred stock award is forfeited, the recipient will have no further right to receive the shares
of Common Stock covered by the non-vested award.
9. Other Equity-Based Awards. The committee may grant dividend equivalent payment
rights, phantom shares, bonus shares and other forms of equity-based awards to eligible persons,
subject to such terms and conditions as it may establish. Awards made pursuant to this section may
entail the transfer of shares of Common Stock to the recipient or the payment in cash or otherwise
of amounts based on the value of shares of Common Stock and may include, without limitation, awards
designed to comply with or take advantage of applicable tax and/or other laws, provided, that the
terms and conditions of any award that is treated as non-qualified deferred compensation must
satisfy the applicable deferral requirements of Section 409A of the Code.
10. Performance Awards.
10.1 General. The committee may condition the grant, exercise, vesting or settlement
of equity-based awards under the Plan (whether settled in shares of Common Stock or cash or other
property) on the achievement of specified performance goals in accordance with this section.
10.2 Objective Performance Goals. A performance goal established in connection with an
award covered by this section must be (a) objective, so that a third party having knowledge of the
relevant facts could determine whether the goal is met; (b) prescribed in writing by the committee
at a time when the outcome is substantially uncertain, but in no event later than the first to
occur of (1) the 90th day of the applicable performance period, or (2) the date on which
25% of the performance period has elapsed; and (c) based on any one or more of the
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following business criteria, applied to an individual, a subsidiary, a business unit or
division, the Company and any one or more of its subsidiaries, or such other operating unit(s) as
the committee may designate (in each case, subject to the conditions of the performance-based
compensation exemption from Section 162(m) of the Code):
|
(i) |
|
earnings per share, |
|
|
(ii) |
|
share price or total shareholder return, |
|
|
(iii) |
|
pre-tax profits, |
|
|
(iv) |
|
net earnings, |
|
|
(v) |
|
return on equity or assets, |
|
|
(vi) |
|
revenues, |
|
|
(vii) |
|
operating income before depreciation,
amortization and non-cash compensation expense, |
|
|
(viii) |
|
market share or market penetration, or |
|
|
(ix) |
|
any combination of the foregoing. |
The applicable performance goals may be expressed in absolute or relative terms, and must include
an objective formula or standard for computing the amount of compensation payable to an employee if
the goal is attained. A formula or standard is objective if a third party having knowledge of the
relevant performance results could calculate the amount to be paid to the employee. The formula or
standard may provide for the payment of a higher or lower amount depending upon whether and the
extent to which a performance goal is attained. The committee may not use its discretion to
increase the amount of compensation payable that would otherwise be due upon attainment of a
performance goal; provided that, subject to the requirements for exemption under Section 162(m) of
the Code, the committee may make appropriate adjustments to an award in order to equitably reflect
changes in accounting rules, corporate transactions (including, without limitation, dispositions
and acquisitions) and other similar types of events or circumstances occurring during the
applicable performance period.
10.3 Determination of Amount Payable. Following the expiration of the performance
period applicable to an award made under this section, the committee shall determine whether and
the extent to which the performance goals have been attained and the amount of compensation, if
any, that is payable as a result. The committee must certify in writing prior to payment of the
compensation that the performance goals and any other material terms of the award were in fact
satisfied. Compensation otherwise payable pursuant to a performance-based award made under this
section will be subject to the individual limitations set forth in section 3.2.
11. Capital Changes, Reorganization or Sale of the Company.
11.1 Adjustments Upon Changes in Capitalization. The aggregate number and class of
shares issuable under the plan, the total number and class of shares with respect to which awards
may be granted to any individual in any calendar year, the number and class of shares and the
exercise price per share covered by each outstanding option, the number and class of shares and the
base price per share covered by each outstanding SAR, and the number and class of shares covered by
each outstanding deferred stock award or other-equity-based award, and any per-share base or
purchase price or target market price included in the terms of any such award, and related terms
shall be subject to adjustment in order to equitably reflect the effect on issued shares of Common
Stock resulting from a split-up, spin-off, recapitalization, consolidation of shares or any similar
capital adjustment, and/or to reflect a change in the character or class of shares covered by the
plan and an award.
11.2 Cash, Stock or Other Property for Stock. Except as otherwise provided in this
Section, in the event of an Exchange Transaction (as defined below), all option holders shall be
permitted to exercise their outstanding options and SARs in whole or in part (whether or not
otherwise exercisable) immediately prior to such Exchange Transaction, and any outstanding options
and SARs which are not exercised before the Exchange Transaction shall thereupon terminate.
Notwithstanding the preceding sentence, if, as part of an Exchange Transaction, the stockholders of
the Company receive capital stock of another corporation (Exchange Stock) in
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exchange for their shares of Common Stock (whether or not such Exchange Stock is the sole
consideration), and if the Companys board of directors, in its sole discretion, so directs, then
all options and SARs for Common Stock that are outstanding at the time of the Exchange Transaction
shall be converted into options or SARs (as the case may be) for shares of Exchange Stock. The
number of shares of Exchange Stock and the exercise price per share under a converted option will
be adjusted such that (a) the ratio of the exercise price per share to the value per share at the
time of the conversion (which value will be equal to the consideration payable for each share of
Common Stock in the Exchange Transaction) is the same as the ratio of the per share exercise price
to the value of per share of Common Stock under the original option; and (b) the aggregate
difference between the value of the shares of Exchange Stock and the exercise price under the
converted option immediately after the Exchange Transaction is the same as the aggregate difference
between the value of the shares of Common Stock and the exercise price under the original option
immediately before the Exchange Transaction. Similar adjustments will be made to the number of
shares of Exchange Stock and the base value per share covered by SARs that are converted. Unless
the Companys board of directors determines otherwise, the vesting and other terms and conditions
of the converted options and SARs shall be substantially the same as the vesting and corresponding
other terms and conditions of the original options and SARs. The Company board of directors,
acting in its discretion, may accelerate vesting of other non-vested awards, and cause cash
settlements and/or other adjustments to be made to any outstanding awards (including, without
limitation, options and SARs) as it deems appropriate in the context of an Exchange Transaction,
taking into account with respect to other awards the manner in which outstanding options and SARs
are being treated.
11.3 Definition of Exchange Transaction. For purposes of the plan, the term Exchange
Transaction means a merger (other than a merger of the Company in which the holders of Common
Stock immediately prior to the merger have the same proportionate ownership of Common Stock in the
surviving corporation immediately after the merger), consolidation, acquisition or disposition of
property or stock, separation, reorganization (other than a mere reincorporation or the creation of
a holding company), liquidation of the Company or any other similar transaction or event so
designated by the Companys board of directors in its sole discretion, as a result of which the
stockholders of the Company receive cash, stock or other property in exchange for or in connection
with their shares of Common Stock.
11.4 Fractional Shares. In the event of any adjustment in the number of shares covered
by any award pursuant to the provisions hereof, any fractional shares resulting from such
adjustment shall be disregarded, and each such award shall cover only the number of full shares
resulting from the adjustment.
11.5 Determination of Board to be Final. All adjustments under this Section shall be
made by the Companys board of directors, and its determination as to what adjustments shall be
made, and the extent thereof, shall be final, binding and conclusive.
12. Termination and Amendment of the Plan. The board of directors of the Company may
terminate the plan at any time or amend the plan at any time and from time to time; provided,
however, that:
(a) no such action shall impair or adversely alter any awards theretofore granted under the
plan, except with the consent of the recipient or holder, nor shall any such action deprive any
such person of any shares which he or she may have acquired through or as a result of the plan; and
(b) to the extent necessary under applicable law or the requirements of any stock exchange or
market upon which the shares of Common Stock may then be listed, no amendment shall be effective
unless approved by the stockholders of the Company in accordance with applicable law.
Notwithstanding the foregoing, no incentive stock options may be granted subsequent to the tenth
anniversary of the date the plan is adopted. The plan does not have a fixed termination date.
(c) Limitation of Rights. Nothing contained in the plan or in any award agreement
shall confer upon any recipient of an award any right with respect to the continuation of his or
her employment or other service with the Company or a subsidiary or other affiliate, or interfere
in any way with the right of the Company and its subsidiaries and other affiliates at any time to
terminate such employment or other service or to
B-7
increase or decrease, or otherwise adjust, the compensation and/or other terms and conditions
of the recipients employment or other service.
13. Miscellaneous.
13.1 Governing Law. The plan and the rights of all persons claiming under the plan
shall be governed by the laws of the State of Delaware, without giving effect to conflicts of laws
principles thereof.
13.2 Shares Issued Under Plan. Shares of Common Stock available for issuance under the
plan may be authorized and unissued, held by the Company in its treasury or otherwise acquired for
purposes of the plan. No fractional shares of Common Stock will be issued under the plan.
13.3 Compliance with Law. The Company will not be obligated to issue or deliver shares
of Common Stock pursuant to the plan unless the issuance and delivery of such shares complies with
applicable law, including, without limitation, the Securities Act of 1933, as amended, the Exchange
Act, and the requirements of any stock exchange or market upon which the Common Stock may then be
listed, and shall be further subject to the approval of counsel for the Company with respect to
such compliance.
13.4 Transfer Orders; Placement of Legends. All certificates for shares of Common
Stock delivered under the plan shall be subject to such stock-transfer orders and other
restrictions as the Company may deem advisable under the rules, regulations, and other requirements
of the Securities and Exchange Commission, any stock exchange or market upon which the Common Stock
may then be listed, and any applicable federal or state securities law. The Company may cause a
legend or legends to be placed on any such certificates to make appropriate reference to such
restrictions.
13.5 Decisions and Determinations Final. All decisions and determinations made by the
Companys board of directors pursuant to the provisions hereof and, except to the extent rights or
powers under the Plan are reserved specifically to the discretion of the board of directors, all
decisions and determinations of the committee, shall be final, binding and conclusive on all
persons.
13.6 Withholding of Taxes. As a condition to the exercise and/or settlement of any
award or the lapse of restrictions on any award or shares, or in connection with any other event
that gives rise to a federal or other governmental tax withholding obligation on the part of the
Company or a subsidiary with respect to an award, the Company and/or the subsidiary may (a) deduct
or withhold (or cause to be deducted or withheld) from any payment or distribution otherwise
payable to the award recipient, whether or not such payment or distribution is covered by the plan,
or (b) require the recipient to remit cash (through payroll deduction or otherwise) or make other
arrangements permitted by the Company, in each case in an amount or of a nature sufficient in the
opinion of the Company to satisfy or provide for the satisfaction of such withholding obligation.
If the event giving rise to the withholding obligation involves a transfer of shares of Common
Stock, then, at the sole discretion of the committee, the recipient may satisfy the withholding
obligations associated with such transfer by electing to have the Company withhold shares of Common
Stock or by tendering previously-owned shares of Common Stock, in each case having a fair market
value equal to the amount of tax to be withheld.
13.7 Disqualifying Disposition. If a person acquires shares of Common Stock pursuant
to the exercise of an incentive stock option and the shares so acquired are sold or otherwise
transferred in a disqualifying disposition (within the meaning of Section 424(c) of the Code)
within two-years from the date the option was granted or one year after the option is exercised,
such person shall, within ten days of such disposition, notify the Company thereof, by delivery of
written notice to the Company at its principal executive office.
13.8 Effective Date. The plan shall become effective on the date it is initially
approved and adopted by the Companys board of directors. However, no awards may be made pursuant
to the plan after the date preceding the date of the first annual meeting of the Companys
stockholders occurring after December 31, 2006, unless the Companys stockholders approve the plan
at such meeting.
B-8
APPENDIX C
FINANCIAL STATEMENTS, FOOTNOTES AND OTHER DATA
|
|
|
ITEM 5. |
|
Market for Registrants Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities |
Our Class A common stock trades on the New York Stock Exchange under the symbol CCO. There
were 113 shareholders of record as of February 22, 2007. This figure does not include an estimate
of the indeterminate number of beneficial holders whose shares may be held of record by brokerage
firms and clearing agencies. The following table sets forth, for the calendar quarters indicated,
the reported high and low sales price of our Class A common stock as reported on the NYSE,
beginning on November 11, 2005, the first day of trading for our common stock:
|
|
|
|
|
|
|
|
|
|
|
Common Stock |
|
|
Market Price |
|
|
High |
|
Low |
2005 |
|
|
|
|
|
|
|
|
Fourth Quarter |
|
$ |
20.40 |
|
|
$ |
18.00 |
|
|
|
|
|
|
|
|
|
|
2006 |
|
|
|
|
|
|
|
|
First Quarter |
|
$ |
23.95 |
|
|
$ |
18.49 |
|
Second Quarter |
|
|
24.20 |
|
|
|
19.31 |
|
Third Quarter |
|
|
21.26 |
|
|
|
18.66 |
|
Fourth Quarter |
|
|
28.13 |
|
|
|
19.49 |
|
Dividend Policy
To date, we have not paid dividends on our common stock and we do not anticipate paying any
dividends on the shares of our common stock in the foreseeable future. Pursuant to the covenants
on the $2.5 billion note with Clear Channel Communications, our ability to pay dividends is
restricted. 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.
STOCK PERFORMANCE GRAPH
The following chart demonstrates a comparison of the cumulative total returns for the
Company, Lamar Advertising Company, an outdoor advertising company and the S&P 500 Composite Index
from November 11, 2005 through December 31, 2006.
Indexed yearly Stock Price Close
(Prices adjusted for Stock Splits and Dividends)
INDEXED YEARLY STOCK PRICE CLOSE
(Prices adjusted for Stock Splits and Dividends
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11/11/05 |
|
|
12/31/05 |
|
|
12/31/06 |
|
|
Clear Channel Outdoor |
|
|
|
1,000 |
|
|
|
|
1,081 |
|
|
|
|
1,505 |
|
|
|
Lamar Advertising Company |
|
|
|
1,000 |
|
|
|
|
1,019 |
|
|
|
|
1,445 |
|
|
|
S&P 500 Index |
|
|
|
1,000 |
|
|
|
|
1,014 |
|
|
|
|
1,174 |
|
|
|
C-1
ITEM 6. Selected Financial Data
The historical financial and other data prior to the IPO 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 Americas
outdoor and International 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 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 presented below were derived from our audited
consolidated and combined financial statements.
You should read the information contained in this table in conjunction with Managements
Discussion and Analysis of Financial Condition and Results of Operations, and the historical
audited consolidated and combined financial statements and the accompanying notes thereto included
elsewhere in this Annual Report.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
(In thousands, except per share data) |
|
2006 |
|
|
2005 |
|
|
2004 |
|
|
2003 |
|
|
2002 |
|
Results of Operations Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue |
|
$ |
2,897,721 |
|
|
$ |
2,666,078 |
|
|
$ |
2,447,040 |
|
|
$ |
2,174,597 |
|
|
$ |
1,859,641 |
|
Operating expenses (1): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct operating expenses |
|
|
1,453,100 |
|
|
|
1,342,307 |
|
|
|
1,262,317 |
|
|
|
1,133,386 |
|
|
|
957,830 |
|
Selling, general and administrative
expenses |
|
|
548,736 |
|
|
|
541,794 |
|
|
|
499,457 |
|
|
|
456,893 |
|
|
|
392,803 |
|
Depreciation and amortization |
|
|
407,730 |
|
|
|
400,639 |
|
|
|
388,217 |
|
|
|
379,640 |
|
|
|
336,895 |
|
Corporate expenses |
|
|
65,542 |
|
|
|
61,096 |
|
|
|
53,770 |
|
|
|
54,233 |
|
|
|
52,218 |
|
Gain on disposition of assets net |
|
|
22,846 |
|
|
|
3,488 |
|
|
|
10,791 |
|
|
|
16,669 |
|
|
|
8,223 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
445,459 |
|
|
|
323,730 |
|
|
|
254,070 |
|
|
|
167,114 |
|
|
|
128,118 |
|
Interest expense on debt with Clear
Channel Communications |
|
|
153,500 |
|
|
|
182,667 |
|
|
|
145,653 |
|
|
|
145,648 |
|
|
|
227,402 |
|
Interest expense |
|
|
9,083 |
|
|
|
15,687 |
|
|
|
14,177 |
|
|
|
14,201 |
|
|
|
11,623 |
|
Equity in earnings (loss) of
nonconsolidated affiliates |
|
|
7,460 |
|
|
|
9,844 |
|
|
|
(76 |
) |
|
|
(5,142 |
) |
|
|
3,620 |
|
Other income (expense) net |
|
|
331 |
|
|
|
(12,291 |
) |
|
|
(16,530 |
) |
|
|
(21,358 |
) |
|
|
(837 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes,
minority interest and cumulative effect
of a change in accounting principle |
|
|
290,667 |
|
|
|
122,929 |
|
|
|
77,634 |
|
|
|
(19,235 |
) |
|
|
(108,124 |
) |
Income tax (expense) benefit: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current |
|
|
(82,553 |
) |
|
|
(51,173 |
) |
|
|
(23,422 |
) |
|
|
12,092 |
|
|
|
72,008 |
|
Deferred |
|
|
(39,527 |
) |
|
|
5,689 |
|
|
|
(39,132 |
) |
|
|
(23,944 |
) |
|
|
(21,370 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax (expense) benefit |
|
|
(122,080 |
) |
|
|
(45,484 |
) |
|
|
(62,554 |
) |
|
|
(11,852 |
) |
|
|
50,638 |
|
Minority interest income (expense) net |
|
|
(15,515 |
) |
|
|
(15,872 |
) |
|
|
(7,602 |
) |
|
|
(3,906 |
) |
|
|
1,778 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before cumulative effect
of a change in accounting principle |
|
|
153,072 |
|
|
|
61,573 |
|
|
|
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
(2) |
|
|
|
|
|
|
|
|
|
|
(162,858 |
) |
|
|
|
|
|
|
(3,527,198 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
153,072 |
|
|
$ |
61,573 |
|
|
$ |
(155,380 |
) |
|
$ |
(34,993 |
) |
|
$ |
(3,582,906 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
C-2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
(In thousands, except per share data) |
|
2006 |
|
|
2005 |
|
|
2004 |
|
|
2003 |
|
|
2002 |
|
Net income (loss) per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before cumulative
effect of a change in
accounting principle |
|
$ |
.43 |
|
|
$ |
.19 |
|
|
$ |
.02 |
|
|
$ |
(.11 |
) |
|
$ |
(.18 |
) |
Cumulative effect of a change
in accounting principle |
|
|
|
|
|
|
|
|
|
|
(.52 |
) |
|
|
|
|
|
|
(11.20 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
.43 |
|
|
$ |
.19 |
|
|
$ |
(.50 |
) |
|
$ |
(.11 |
) |
|
$ |
(11.38 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares |
|
|
352,155 |
|
|
|
319,890 |
|
|
|
315,000 |
|
|
|
315,000 |
|
|
|
315,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before cumulative
effect of a change in
accounting principle |
|
$ |
.43 |
|
|
$ |
.19 |
|
|
$ |
.02 |
|
|
$ |
(.11 |
) |
|
$ |
(.18 |
) |
Cumulative effect of a change
in accounting principle |
|
|
|
|
|
|
|
|
|
|
(.52 |
) |
|
|
|
|
|
|
(11.20 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
.43 |
|
|
$ |
.19 |
|
|
$ |
(.50 |
) |
|
$ |
(.11 |
) |
|
$ |
(11.38 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares |
|
|
352,262 |
|
|
|
319,921 |
|
|
|
315,000 |
|
|
|
315,000 |
|
|
|
315,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, |
(In thousands) |
|
2006 |
|
2005 |
|
2004 |
|
2003 |
|
2002 |
Balance Sheet Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets |
|
$ |
1,189,915 |
|
|
$ |
1,050,180 |
|
|
$ |
1,107,240 |
|
|
$ |
958,669 |
|
|
$ |
753,289 |
|
Property, plant and equipment net |
|
|
2,191,839 |
|
|
|
2,153,428 |
|
|
|
2,195,985 |
|
|
|
2,264,106 |
|
|
|
2,213,817 |
|
Total assets |
|
|
5,421,891 |
|
|
|
4,918,345 |
|
|
|
5,240,933 |
|
|
|
5,232,820 |
|
|
|
4,926,205 |
|
Current liabilities |
|
|
841,509 |
|
|
|
793,812 |
|
|
|
749,055 |
|
|
|
736,202 |
|
|
|
642,330 |
|
Long-term debt, including current
maturities |
|
|
2,684,176 |
|
|
|
2,727,786 |
|
|
|
1,639,380 |
|
|
|
1,670,017 |
|
|
|
1,713,493 |
|
Shareholders/owners equity |
|
|
1,586,378 |
|
|
|
1,209,437 |
|
|
|
2,729,653 |
|
|
|
2,760,164 |
|
|
|
2,578,943 |
|
|
|
|
(1) |
|
Effective January 1, 2006, the Company adopted FASB Statement No. 123(R), Share-Based
Payment. In accordance with the provisions of Statement 123(R), the Company elected to adopt
the standard using the modified prospective method. See Note K to the Companys 2006
financial statements. |
|
(2) |
|
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. Cumulative effect of a 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. |
The Selected Financial Data should be read in conjunction with Managements Discussion and Analysis.
C-3
ITEM 7. 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 accompanying
notes thereto 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 financial statements. MD&A is organized as follows:
|
|
|
Overview. This section provides a general description of our business, as well as
other matters 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 years ended December 31, 2006, 2005 and 2004. Our discussion is
presented on both a consolidated and segment basis. Our reportable operating segments
are Americas and International. Approximately 94% of our 2006 Americas revenues were
derived from the United States, with the balance derived primarily from Canada and
Latin America. Approximately 50% of our 2006 International revenues were derived from
France and the United Kingdom. We manage our segments primarily focusing on operating
income. Corporate expenses, gain on the disposition of asset net, interest expense,
equity in earnings (loss) of nonconsolidated affiliates, other income (expense) net,
income taxes, minority interest expense net, and cumulative effect of a change in
accounting principle are managed on a total company basis and are, therefore, included
only in our discussion of consolidated results. |
|
|
|
|
Financial condition and liquidity. This section provides a discussion of our
financial condition as of December 31, 2006, as well as an analysis of our cash flows
for the years ended December 31, 2006, 2005 and 2004. 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 December 31, 2006. |
|
|
|
|
Seasonality and Market risk management. This section discusses seasonality and how
we manage exposure to potential losses arising from adverse changes in foreign currency
exchange rates and interest rates. |
|
|
|
|
Recent accounting pronouncements and 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
consolidated and combined financial statements included elsewhere in this Annual
Report. |
OVERVIEW
Description of Business
Our revenues are derived from selling advertising space on approximately 910,000 displays
owned or operated as of December 31, 2006, consisting primarily of billboards, street furniture
displays and transit displays. We own the majority of our advertising displays, which typically
are located on sites that we either lease or own or for which we have acquired permanent easements.
Our advertising contracts with clients typically outline the number of displays reserved, the
duration of the advertising campaign and the unit price per display.
Our advertising rates are based on the gross rating points, or total number of
impressions delivered, expressed as a percentage of a market population of a display or group of
displays. The number of impressions delivered by a display is measured by the number of people
passing the site during a defined period of time and, in some International markets, is weighted to
account for such factors as illumination, proximity to other displays and the speed and viewing
angle of approaching traffic. Management typically monitors our business by reviewing the
average rates, average revenues per display, occupancy and inventory levels of each of our
display types by market. In addition, because a significant portion of our advertising operations
are conducted in foreign markets, principally
C-4
France and the United Kingdom, management reviews the operating results from our foreign
operations on a constant dollar basis. A constant dollar basis allows for comparison of operations
independent of foreign exchange movements. Because revenue-sharing and minimum guaranteed payment
arrangements are more prevalent in our International operations, the margins in our International
operations typically are less than the margins in our Americas operations. The margins on our
billboard contracts tend to be higher than for our other displays.
The significant expenses associated with our operations include (i) direct production,
maintenance and installation expenses, (ii) site lease expenses for land under our displays and
(iii) revenue-sharing or minimum guaranteed amounts payable under our billboard, street furniture
and transit display contracts. Our direct production, maintenance and installation expenses
include costs for printing, transporting and changing the advertising copy on our displays, the
related labor costs, the vinyl and paper costs and the costs for cleaning and maintaining our
displays. Vinyl and paper costs vary according to the complexity of the advertising copy and the
quantity of displays. Our site lease expenses include lease payments for use of the land under our
displays, as well as any revenue-sharing arrangements or minimum guaranteed amounts payable we may
have with the landlords. The terms of our Americas site leases generally range from 1 to 20 years.
The terms of our International site leases generally range from 1 to 15 years, but vary across our
networks.
Our street furniture and transit display contracts, the terms of which range from 3 to 20
years, generally require us to make upfront investments in property, plant and equipment. These
contracts may also include upfront lease payments or minimum annual guaranteed lease payments. We
can give no assurance that our cash flows from operations over the terms of these contracts will
exceed the upfront and minimum required payments.
Relationship with Clear Channel Communications
Effective November 9, 2005 Clear Channel Communications and its subsidiaries contributed and
transferred to us all of the assets and liabilities of the outdoor advertising businesses not
currently held by us. We became a publicly traded company on November 11, 2005 through an initial
public offering, or IPO, in which we sold 10% of our common stock, or 35.0 million shares of our
Class A common stock. Prior to our initial public offering we were an indirect wholly-owned
subsidiary of Clear Channel Communications. Clear Channel Communications currently owns all of our
outstanding shares of Class B common stock representing approximately 89% of the outstanding shares
of our common stock and approximately 99% of the total voting power of our common stock.
On November 16, 2006, Clear Channel Communications agreed to be acquired by a group of equity
funds sponsored by Bain Capital Partners, LLC and Thomas H. Lee Partners, L.P. The closing of the
transaction is subject to Clear Channel Communications shareholder approval, antitrust clearances,
FCC approval and other customary closing conditions.
Clear Channel Communications has advised us that its current intent is to continue to hold all
of our Class B common stock 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.
In accordance with the Master Agreement, our branch managers follow a corporate policy
allowing Clear Channel Communications to use, without charge, Americas displays they 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 2006, we estimated these discounted revenues would
have been less than 2% of our Americas revenues.
Factors Affecting Results of Operations and Financial Condition
Our operating results are affected by general economic conditions, as well as trends in the
out-of-home advertising industry. Government regulation and geopolitical events also impact the
outdoor advertising industry. In certain markets, the impact of regulation on the advertising
industry may have a negative impact on our revenues. For example, changes in French regulation
allow retail advertisers to place some of their advertising spending on television beginning
January 1, 2007 which previously was not allowed. We anticipate this shift from outdoor
C-5
media to television will impact our advertising revenues derived from France. Total retail
advertising in France accounted for less than 3% of our global revenues in 2006.
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 our key growth
drivers. Outdoor advertising provides advertisers the ability to capture the growing mobile
audience base. Technological advances also provide opportunities in the outdoor advertising
industry. For example, digital display capabilities offer innovative advances in electronic
displays which are 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 Item 1A. Risk Factors for a more comprehensive list of these factors.
Basis of Presentation
Our combined financial statements for the periods prior to our IPO have been derived from the
financial statements and accounting records of Clear Channel Communications, principally from the
statements and records representing Clear Channel Communications Americas and International
Outdoor segments, using the historical results of operations and historical bases of assets and
liabilities of our business. The consolidated and 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.
Under the Corporate Services Agreement, Clear Channel Communications allocates 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, 2006, 2005 and 2004, we recorded approximately $24.3 million,
$16.0 million and $16.6 million, respectively, as a component of corporate expenses for these
services.
We believe the assumptions underlying the combined financial statements prior to the IPO 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.
Share-Based Payments
We adopted FAS 123(R), Share-Based Payment, on January 1, 2006, under the modified-prospective
approach which requires us to recognize employee compensation costs related to our stock option
grants in the same line items as cash compensation in the 2006 financial statements for all options
granted after the date of adoption as well as for any options that were unvested at adoption.
Under the modified-prospective approach, no stock option expense attributable to these options is
reflected in the financial statements for 2005. The amounts recorded as share-based payments in
the financial statements during 2005 relate to the expense associated with restricted stock awards.
We recognized $4.3 million, $1.7 million and $0.1 million of share-based payments in direct
operating, SG&A and corporate expenses, respectively, during the year ended December 31, 2006. As
of December 31, 2006, there was $13.5 million of total unrecognized compensation cost related to
nonvested share-based compensation arrangements. This cost is expected to be recognized over a
weighted average period of approximately three years. However, if Clear Channel Communications
Agreement and Plan of Merger is approved, the expense becomes recognizable at the closing of the
transaction.
The fair value of each option awarded is estimated on the date of grant using a Black-Scholes
option-pricing model. Expected volatilities are based on implied volatilities from traded options
on the Companys stock, historical volatility on the Companys stock, and other factors. The
expected life of options granted represents the period of time that options granted are expected to
be outstanding. The Company uses historical data to estimate option exercise and employee
terminations within the valuation model. The risk free interest rate is based on the U.S. Treasury
yield curve in effect at the time of grant for periods equal to the expected life of the option.
C-6
RESULTS OF OPERATIONS
Consolidated and Combined Results of Operations
The following table summarizes our historical results of operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
(In thousands) |
|
2006 |
|
|
2005 |
|
|
2004 |
|
Revenue |
|
$ |
2,897,721 |
|
|
$ |
2,666,078 |
|
|
$ |
2,447,040 |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
Direct operating expenses |
|
|
1,453,100 |
|
|
|
1,342,307 |
|
|
|
1,262,317 |
|
Selling, general and administrative expenses |
|
|
548,736 |
|
|
|
541,794 |
|
|
|
499,457 |
|
Depreciation and amortization |
|
|
407,730 |
|
|
|
400,639 |
|
|
|
388,217 |
|
Corporate expenses |
|
|
65,542 |
|
|
|
61,096 |
|
|
|
53,770 |
|
Gain on disposition of assets net |
|
|
22,846 |
|
|
|
3,488 |
|
|
|
10,791 |
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
445,459 |
|
|
|
323,730 |
|
|
|
254,070 |
|
Interest expense (including interest on debt with
Clear Channel Communications) |
|
|
162,583 |
|
|
|
198,354 |
|
|
|
159,830 |
|
Equity in earnings (loss) of nonconsolidated affiliates |
|
|
7,460 |
|
|
|
9,844 |
|
|
|
(76 |
) |
Other income (expense) net |
|
|
331 |
|
|
|
(12,291 |
) |
|
|
(16,530 |
) |
|
|
|
|
|
|
|
|
|
|
Income before income taxes, minority interest and
cumulative effect of a change in accounting principle |
|
|
290,667 |
|
|
|
122,929 |
|
|
|
77,634 |
|
Income tax (expense) benefit: |
|
|
|
|
|
|
|
|
|
|
|
|
Current |
|
|
(82,553 |
) |
|
|
(51,173 |
) |
|
|
(23,422 |
) |
Deferred |
|
|
(39,527 |
) |
|
|
5,689 |
|
|
|
(39,132 |
) |
|
|
|
|
|
|
|
|
|
|
Income tax (expense) benefit |
|
|
(122,080 |
) |
|
|
(45,484 |
) |
|
|
(62,554 |
) |
Minority interest expense net |
|
|
(15,515 |
) |
|
|
(15,872 |
) |
|
|
(7,602 |
) |
|
|
|
|
|
|
|
|
|
|
Income before cumulative effect of a change in
accounting principle |
|
|
153,072 |
|
|
|
61,573 |
|
|
|
7,478 |
|
Cumulative effect of a change in accounting principle,
net of tax of $113,173 in 2004 |
|
|
|
|
|
|
|
|
|
|
(162,858 |
) |
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
153,072 |
|
|
$ |
61,573 |
|
|
$ |
(155,380 |
) |
|
|
|
|
|
|
|
|
|
|
Revenue
Our revenue increased approximately $231.6 million, or 9%, during 2006 as compared to 2005.
Our Americas segments revenue increased $125.0 million from an increase in revenue across our
displays as well as the acquisition of Interspace Airport Advertising, which we acquired in July
2006. Interspace contributed approximately $30.2 million to revenue in 2006. Our International
segment contributed $106.7 million, which includes approximately $44.9 million during the first six
months of 2006 related to our consolidation of Clear Media Limited, a Chinese outdoor advertising
company. In July 2005, we increased our investment in Clear Media to a majority controlling
interest. We previously accounted for this investment as an equity method investment. Increased
street furniture revenues also contributed to our International revenue growth. Our 2006 revenue
increased $17.4 million due to movements in foreign exchange.
Our revenue increased approximately $219.0 million, or 9%, during 2005 as compared to 2004.
Included in these results is approximately $8.6 million from increases in foreign exchange as
compared to 2004. Our Americas operations contributed approximately $124.3 million primarily from
increased rates on our bulletin and poster inventory during 2005. Our International operations
contributed approximately $47.4 million related to our consolidation of Clear Media. In addition,
our International operations also experienced improved yield on our street furniture inventory
during 2005 compared to 2004. Partially offsetting this International revenue growth was a decline
in revenue in our French business in 2005 as compared to 2004.
C-7
Direct Operating Expenses
Direct operating expenses increased $110.8 million for 2006 compared to 2005. Americas direct
operating expenses increased $43.8 million driven by increased site lease expenses associated with
the increase in revenue and the acquisition of Interspace. Interspace contributed $13.0 million to
direct operating expenses in 2006. Our International segment contributed $66.9 million, of which
$18.0 million during the first six months of 2006 related to our consolidation of Clear Media and
the remainder was principally due to an increase in site lease expenses. Included in our direct
operating expense growth is $10.6 million from increases in foreign exchange. Share-based payments
included in direct operating expenses associated with the adoption of FAS 123(R) were $4.3 million
for 2006.
Direct operating expenses increased approximately $80.0 million, or 6%, during 2005 as
compared 2004. Included in these expenses is approximately $4.1 million from increases in foreign
exchange as compared to 2004. Our Americas operations contributed approximately $21.8 million to
the increased expense primarily due to increased site lease expenses from higher revenue sharing
rentals on our transit, mall and wallscape inventory as well as increased direct production
expenses, all associated with the increase in revenues. Our International operations experienced
higher expenses attributable to increases in revenue sharing and minimum annual guarantees
partially from new contracts entered in 2005 and approximately $18.3 million from our consolidation
of Clear Media.
Selling, General and Administrative Expenses (SG&A)
SG&A increased $6.9 million during 2006 compared to 2005. SG&A increased $20.6 million in our
Americas segment principally related to an increase in bonus and commission expenses associated
with the increase in revenues. Our International SG&A expenses declined $13.6 million primarily
attributable to a $9.8 million reduction recorded in 2006 as a result of the favorable settlement
of a legal proceeding, as well as $26.6 million related to restructuring our businesses in France
recorded in the third quarter of 2005. Partially offsetting this decline in our International SG&A
was $9.5 million from our consolidation of Clear Media. Included in our SG&A expense growth in
2006 is $3.9 million from increases in foreign exchange. Share-based payments included in SG&A
associated with the adoption of FAS 123(R) were $1.7 million for 2006.
SG&A increased approximately $42.3 million, or 8%, during 2005 as compared to 2004. Included
in these expenses is approximately $1.7 million from increases in foreign exchange as compared to
2004. Our Americas operations increased approximately $13.7 million primarily from increased
commission expenses associated with the increase in revenues. In addition to foreign exchange
increases, our International operations SG&A increased $26.6 million from restructuring costs from
restructuring our business in France during the third quarter of 2005.
Depreciation and Amortization
Depreciation and amortization increased $7.1 million in 2006 as compared to 2005. The
increase is primarily attributable to the consolidation of Clear Media and the acquisition of
Interspace, partially offset by a decrease in depreciation as a result of fewer display removals in
2006 which resulted in less accelerated depreciation.
Depreciation and amortization increased approximately $12.4 million in 2005 as compared to
2004. The increase is primarily attributable to the consolidation of Clear Media and from
increases in foreign exchange rates, partially offset by a decrease in our Americas segment as a
result of fewer display removals in 2005 which resulted in less accelerated depreciation.
Corporate Expenses
Corporate expenses increased $4.4 million in 2006 as compared to 2005. The increase was a
result of higher performance related bonus expense and additional outside professional services
primarily from costs related to the first full year as a public Company. Corporate expenses
increased approximately $7.3 million in 2005 as compared to 2004. The increase is primarily a
result of higher performance related bonus expenses.
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
C-8
employee benefits services, (iv) legal, public affairs and related services, (v) information
systems, network and related services, (vi) investment services, (vii) procurement and sourcing
support services, and (viii) other general corporate 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 years ended December 31, 2006, 2005, and
2004, we recorded approximately $24.3 million, $16.0 million, and $16.6 million, respectively, as a
component of corporate expenses for these services.
Gain on the Disposition of Assets Net
The gain on disposition of assets net of $22.8 million for the year ended December 31, 2006,
primarily related to a $13.2 million gain in our Americas segment from the exchange of assets in
one of our markets for the assets of a third party located in a different market.
Interest Expense (Including Interest on Debt with Clear Channel Communications)
Interest expense decreased $35.8 million during 2006 as compared to 2005, primarily as a
result of a decrease in average debt outstanding. Prior to the IPO, we had two fixed principal and
interest rate notes in place. The first note, in the original principal amount of approximately
$1.4 billion, accrued interest at 10% per annum. The second note, in the original principal amount
of $73.0 million, accrued interest at 9% per annum. We used all of the net proceeds from the IPO,
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 notes. The remaining balance of
$393.7 million was recorded as a capital contribution pursuant to the Master Agreement between us
and Clear Channel Communications.
Interest expense increased $38.5 million during 2005 as compared to 2004 primarily from a $2.5
billion 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 interest rate as of December 31, 2005 was 5.9%.
If the proposed merger transaction between Clear Channel Communications and private equity
funds sponsored by Bain Capital Partners, LLC and Thomas H. Lee Partners L.P. is consummated, we
expect interest expense will increase.
Other Income (Expense) Net
Other expense net of $12.3 million and $16.5 million for the year ended December 31, 2005
and 2004, respectively, relates primarily to royalty fees. During 2005 and 2004 we recorded $14.8
million and $15.8 million, respectively, in royalty fees which represented payments to Clear
Channel Communications for our use of certain trademarks and licenses. The royalty fee was
discontinued as of January 1, 2006.
Income Taxes
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 federal income tax returns with our subsidiaries.
Our effective tax rate for the year ended December 31, 2006 was 42%. The increase in current
tax expense of $31.4 million for the year ended December 31, 2006 over 2005 was due primarily to an
increase in Income before income taxes, minority interest and cumulative effect of a change in
accounting principle of $167.7 million. This increase was partially offset by current tax
benefits of approximately $20.4 million being recorded in 2006 related to tax losses on the
disposition of certain operating assets and the filing of an amended tax return. Deferred tax
expense increased by $45.2 million for the year ended December 31, 2006 over 2005 primarily due to
the tax losses on the disposition of certain operating assets and the filing of the amended tax
return mentioned above. In addition, foreign deferred tax expense increased by $25.9 million for
the year ended December 31, 2006 primarily due to (i) the reversal of deferred tax assets related
to tax losses in certain foreign jurisdictions and the uncertainty of the ability to utilize those
tax losses in the future and (ii) increased deferred tax benefits in 2005 due to a change in the
carrying value of certain deferred tax liabilities as a result of certain local country law and tax
rate changes.
C-9
Our effective tax rate for the year ended December 31, 2005 was 37%. During 2005, the company
recorded a current tax benefit of approximately $8.0 million due to the favorable resolution of
certain tax contingencies in 2005 which resulted in a lower effective tax rate for 2005 as compared
to 2004.
The increase in current tax expense of $27.8 million for the year ended December 31, 2005 over
2004 was due primarily to an increase in Income before income taxes and cumulative effect of a
change in accounting principle of $45.3 million. Deferred tax expense decreased by $44.8 million
for the year ended December 31, 2005 due to less tax depreciation recorded in 2005 as well as
certain tax losses on the disposition of assets recorded in 2004. The decrease in tax depreciation
is primarily the result of the expiration of certain favorable bonus depreciation tax rules in
2004.
Our effective tax rate for the year ended December 31, 2004 was 81%. The effective tax rate
is primarily 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.
In 2004, 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 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.
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 the aggregate carrying
value of our Americas permits exceeding 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 in 2004.
Americas Results of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
(In thousands) |
|
2006 |
|
|
2005 |
|
|
2004 |
|
Revenue |
|
$ |
1,341,356 |
|
|
$ |
1,216,382 |
|
|
$ |
1,092,089 |
|
Direct operating expenses |
|
|
534,365 |
|
|
|
490,519 |
|
|
|
468,687 |
|
Selling, general and administrative expenses |
|
|
207,326 |
|
|
|
186,749 |
|
|
|
173,010 |
|
Depreciation and amortization |
|
|
178,970 |
|
|
|
180,559 |
|
|
|
186,620 |
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
$ |
420,695 |
|
|
$ |
358,555 |
|
|
$ |
263,772 |
|
|
|
|
|
|
|
|
|
|
|
Our Americas revenue increased 10% during 2006 as compared to 2005 from revenue growth across
our inventory. We experienced rate increases on most of our inventory while occupancy remained
essentially unchanged during 2006 as compared to 2005. Our airport revenue increased $44.8 million
in 2006 as compared to 2005 primarily related to $30.2 million from our acquisition of Interspace
in July 2006. Revenue growth occurred across both our large and small markets such as Miami, San
Antonio, Sacramento, Albuquerque and Des Moines.
Direct operating expenses increased $43.8 million in 2006 as compared to 2005 primarily from
an increase in site lease expenses of approximately $30.2 million as well as $3.4 million related
to the adoption of FAS 123(R). Interspace contributed $13.0 million to direct operating expenses
in 2006. Our SG&A expenses increased $20.6
C-10
million in 2006 over 2005 primarily from an increase in bonus and commission expenses of $7.6
million related to the increase in revenue, $6.2 million from Interspace and $1.3 million of
share-based payments related to the adoption of FAS 123(R).
During 2005, our revenue grew approximately $124.3 million, or 11%, over the 2004. The
increase was primarily due to an increase in bulletin and poster revenues attributable to increased
rates during 2005. Increased revenues from our airport, street furniture and transit advertising
displays also contributed to the revenue increase. Growth occurred across our markets including
New York, Miami, Houston, Seattle, Cleveland and Las Vegas. Strong advertising client categories
for the year included business and consumer services, entertainment and amusements, retail and
telecommunications.
Direct operating expenses increased approximately $21.8 million, or 5%, during the 2005 as
compared to 2004. The increase is primarily related to increased site lease expenses from higher
revenue sharing rentals on our transit, mall and wallscape inventory as well as increased direct
production expenses, all associated with the increase in revenues. SG&A increased $13.7 million,
or 8%, primarily from increased commission expenses associated with the increase in revenues.
Depreciation and amortization declined $6.1 million in 2005 as compared to 2004 primarily from
fewer display removals during 2005, which resulted in less accelerated depreciation. We suffered
hurricane damage on some of our billboards in Florida and the Gulf Coast which required us to
write-off the remaining book value of these structures as additional depreciation and amortization
expense in 2004.
International Results of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
(In thousands) |
|
2006 |
|
|
2005 |
|
|
2004 |
|
Revenue |
|
$ |
1,556,365 |
|
|
$ |
1,449,696 |
|
|
$ |
1,354,951 |
|
Direct operating expenses |
|
|
918,735 |
|
|
|
851,788 |
|
|
|
793,630 |
|
Selling, general and administrative expenses |
|
|
341,410 |
|
|
|
355,045 |
|
|
|
326,447 |
|
Depreciation and amortization |
|
|
228,760 |
|
|
|
220,080 |
|
|
|
201,597 |
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
$ |
67,460 |
|
|
$ |
22,783 |
|
|
$ |
33,277 |
|
|
|
|
|
|
|
|
|
|
|
Revenue in our International segment increased 7% in 2006 as compared to 2005. The increase
includes approximately $44.9 million during the first six months of 2006 related to our
consolidation of Clear Media, which we began consolidating in July 2005. Also contributing to the
increase was approximately $25.9 million from growth in street furniture revenues and $11.9 million
related to movements in foreign exchange, partially offset by a decline in billboard revenues for
2006 as compared to 2005.
Direct operating expenses increased $66.9 million during 2006 as compared to 2005. The
increase was primarily attributable to $18.0 million during the first six months of 2006 related to
our consolidation of Clear Media, as well as an increase in site lease expenses of approximately
$37.7 million and approximately $7.7 million related to movements in foreign exchange. Also
included in the increase was $0.9 million related to the adoption of FAS 123(R). Our SG&A expenses
declined $13.6 million primarily attributable a $9.8 million reduction recorded in 2006 as the
result of a favorable settlement of a legal proceeding as well as $26.6 million related to
restructuring our businesses in France recorded in the third quarter of 2005. Partially offsetting
this decline was $9.5 million from our consolidation of Clear Media and $2.9 from movements in
foreign exchange.
Depreciation and amortization increased $8.7 million in 2006 as compared to 2005. The
increase is primarily attributable to the consolidation of Clear Media.
During 2005, revenue increased approximately $94.7 million, or 7%, as compared to 2004.
Revenue growth was attributable to increases in our street furniture and transit revenues. We also
experienced improved yield on our street furniture inventory during 2005 compared to 2004. Also
included in the year ended December 31, 2005 is approximately $47.4 million from our consolidation
of Clear Media, which until July 2005, we accounted for as an equity method investment. Leading
markets contributing to the Companys International
C-11
revenue growth were China, Italy, the United Kingdom and Australia. The Company faced
challenges in France throughout 2005, with revenues declining from 2004. Strong advertising
categories during 2005 were food and drink, retail, media and entertainment, business and consumer
services and financial services.
Direct operating expenses grew $58.2 million, or 7%, during the year ended December 31, 2005
as compared to 2004. Our direct operating expenses increased as a result of higher site lease
rental expense associated with increases in revenue sharing and minimum annual guarantees partially
from new contracts entered in 2005. Included in the increase is approximately $18.3 million from
our consolidation of Clear Media. Our SG&A grew approximately $28.6 million, or 9%, during 2005 as
compared to 2004 primarily due to a $26.6 million charge associated with our restructuring of our
business in France during the third quarter of 2005.
Depreciation and amortization expense increased approximately $18.5 million in 2005 as
compared to 2004, due primarily to our consolidation of Clear Media and increases in foreign
exchange.
Reconciliation of Segment Operating Income (Loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
(In thousands) |
|
2006 |
|
|
2005 |
|
|
2004 |
|
Americas |
|
$ |
420,695 |
|
|
$ |
358,555 |
|
|
$ |
263,772 |
|
International |
|
|
67,460 |
|
|
|
22,783 |
|
|
|
33,277 |
|
Corporate |
|
|
(65,542 |
) |
|
|
(61,096 |
) |
|
|
(53,770 |
) |
Gain on disposition of assets net |
|
|
22,846 |
|
|
|
3,488 |
|
|
|
10,791 |
|
|
|
|
|
|
|
|
|
|
|
Consolidated and combined operating income |
|
$ |
445,459 |
|
|
$ |
323,730 |
|
|
$ |
254,070 |
|
|
|
|
|
|
|
|
|
|
|
FINANCIAL CONDITION AND LIQUIDITY
Clear Channel Communications Agreement and Plan of Merger
Clear Channel Communications capitalization, liquidity and capital resources will change
substantially if their Agreement and Plan of Merger is approved. Upon the closing of the merger,
Clear Channel Communications will be highly leveraged. 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. If the merger is consummated we will no longer be able to access Clear
Channel Communications revolving credit facility, in which event we may enter into a new credit
facility. We expect the interest rate associated with a new facility would be greater than the
rate we currently are charged. In addition, 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
which we expect to increase if the proposed merger transaction is consummated. If that cost
increases, whether as a result of the consummation of the merger or a deterioration in the
financial condition of Clear Channel Communications, our borrowing costs also will increase. 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.
Cash Flows
The following table summarizes our historical cash flows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
(In thousands) |
|
2006 |
|
2005 |
|
2004 |
Cash provided by (used in): |
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities |
|
$ |
538,541 |
|
|
$ |
510,088 |
|
|
$ |
492,495 |
|
Investing activities |
|
$ |
(489,010 |
) |
|
$ |
(361,371 |
) |
|
$ |
(310,658 |
) |
Financing activities |
|
$ |
(53,165 |
) |
|
$ |
(77,550 |
) |
|
$ |
(182,006 |
) |
C-12
Operating Activities
2006
Net cash flow from operating activities of $538.5 million for 2006 principally reflects net
income of $153.1 million and depreciation and amortization of $407.7 million. Net cash flows from
operating activities also reflects an increase of $101.3 million in accounts receivable as a result
of the increase in revenue and an increase of $65.4 million in accounts payable, accrued expenses
and other liabilities.
2005
Net cash flow from operating activities of $510.1 million for the year ended December 31, 2005
principally reflects net income of $61.6 million and depreciation and amortization of $400.6
million. Net cash flows from operating activities also reflects decreases in other current assets,
accounts payable and deferred income. These decreases were partially offset by increases in
accounts receivable, prepaid expenses and accrued income taxes.
2004
Net cash flow from operating activities of $492.5 million for the year ended December 31, 2004
principally reflects a net loss of $155.4 million, adjusted for non-cash charges of $162.9 million
for the adoption of Topic D-108 and depreciation and amortization of $388.2 million. Net cash flows
from operating activities also reflects increases in accounts receivable, accounts payable, accrued
expenses and other liabilities and accrued income taxes.
Investing Activities
2006
Net cash used in investing activities of $489.0 million for 2006 principally reflects capital
expenditures of $233.9 million related to purchases of property, plant and equipment and $242.4
million related to acquisitions of operating assets.
2005
Net cash used in investing activities of $361.4 million for the year ended December 31, 2005
principally reflects capital expenditures of $208.2 million related to purchases of property, plant
and equipment and $99.6 million related to acquisitions of operating assets.
2004
Net cash used in investing activities of $310.7 million for the year ended December 31, 2004
principally reflects capital expenditures of $176.1 million related to purchases of property, plant
and equipment and $94.9 million related to acquisitions of operating assets.
Financing Activities
2006
Cash used in financing activities of $53.2 million for 2006 principally reflects net
reductions in debt of $59.7 million.
2005
Cash used in financing activities was $77.6 million for the year ended December 31, 2005.
Included in cash flow from financing activities are changes in the Due from Clear Channel
Communications account which relates to cash transfers between our Americas operations and Clear
Channel Communications. For the year ended December 31, 2005, we had a net transfer of cash to
Clear Channel Communications of approximately $70.0 million. Also included in cash used in
financing activities is the $600.6 million in proceeds received from the IPO which was used, along
with the balance outstanding in the Due from Clear Channel Communications account, to pay off a
portion of the $1.4 billion and $73.0 million intercompany notes with Clear Channel Communications.
C-13
2004
Cash used in financing activities of $182.0 million for the year ended December 31, 2004,
principally reflects a net reduction in debt of $33.8 million and net payments of $148.2 million to
Clear Channel Communications.
Liquidity
Sources of Capital
As of December 31, 2006 and 2005, we had the following debt outstanding, cash and cash
equivalents and amounts due to and due from Clear Channel Communications:
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
(In millions) |
|
2006 |
|
|
2005 |
|
Bank credit facility |
|
$ |
23.5 |
|
|
$ |
15.0 |
|
Debt with Clear Channel Communications |
|
|
2,500.0 |
|
|
|
2,500.0 |
|
Other long-term debt |
|
|
160.7 |
|
|
|
212.8 |
|
Due to Clear Channel Communications |
|
|
4.2 |
|
|
|
|
|
|
|
|
|
|
|
|
Total debt |
|
|
2,688.4 |
|
|
|
2,727.8 |
|
Less: Cash and cash equivalents |
|
|
105.4 |
|
|
|
108.6 |
|
Less: Due from Clear Channel Communications |
|
|
|
|
|
|
0.1 |
|
|
|
|
|
|
|
|
|
|
$ |
2,583.0 |
|
|
$ |
2,619.1 |
|
|
|
|
|
|
|
|
Bank Credit Facility
In addition to cash flows from operations, another source of 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 December 31, 2006, the outstanding balance
on the sub-limit was approximately $23.5 million, and approximately $126.5 million was available
for future borrowings, with the entire balance to be paid on July 12, 2009. At December 31, 2006,
the interest rate on borrowings under this credit facility was 5.7%. As of February 22, 2007, the
outstanding balance on the sub-limit was $39.3 million and $110.7 million was available for future
borrowings.
Debt with Clear Channel Communications
As part of the day-to-day cash management services provided by Clear Channel Communications,
we maintain an account that represents net amounts, up to a maximum of $1.0 billion, due to or from
Clear Channel Communications, which is recorded as Due from Clear Channel Communications or Due
to Clear Channel Communications on the consolidated balance sheets. The account represents our
revolving promissory note with Clear Channel Communications. Subsequent to the IPO, the account
accrues interest pursuant to the Master Agreement and is generally payable on demand. Included in
the account is the net activity resulting from day-to-day cash management services provided by
Clear Channel Communications. As a part of these services, we maintain collection bank accounts
swept daily by Clear Channel Communications. In return, Clear Channel Communications funds our
controlled disbursement accounts as checks or electronic payments are presented for payment. At
December 31, 2006, the balance of $4.2 million was a liability recorded in Due to Clear Channel
Communications on the consolidated balance sheet. At December 31, 2005, the balance of $0.1
million was an asset recorded in Due from Clear Channel Communications on the consolidated
balance sheet. The increase in the net amount due to Clear Channel Communications during the year
ended December 31, 2006 was a result of Clear Channel Communications funding a portion of our debt
payments and certain acquisitions. The net interest income for the years ended December 31, 2006
and 2005 was $0.4 million and $0.1 million, respectively.
Unlike the management of cash from our U.S. based operations, the amount of cash, if any,
which is transferred from our foreign operations to Clear Channel Communications is determined on a
basis mutually
C-14
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
are evaluated before a cash amount is considered as an excess or surplus amount for transfer to
Clear Channel Communications.
On August 2, 2005, we distributed a note in the original principal amount of $2.5 billion to
Clear Channel Communications as a dividend. This note matures on August 2, 2010 and may be prepaid
in whole or in part at any 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 December 31,
2006, the interest rate on the $2.5 billion note was 6.1%.
Our working capital requirements and capital for general corporate purposes, including
acquisitions and capital expenditures, 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. 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 we could raise the funds if needed given our credit profile. Additionally,
management believes our publicly traded stock could be used as a source to raise capital through
public or private placements of our equity securities.
If the proposed merger transaction between Clear Channel Communications and private equity
funds sponsored by Bain Capital Partners, LLC and Thomas H. Lee Partners L.P. is consummated, we
may no longer be able to access Clear Channel Communications revolving credit facility, in which
event we would enter into a new credit facility. We expect the interest rate associated with a new
facility would be greater than the rate we currently are charged. In addition, 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, which we expect to increase if the proposed merger transaction is
consummated. If that cost increases, our borrowing costs also will increase. Regardless of
whether the merger is consummated, 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 . 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 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.
Other long-term debt
Other long-term debt consists primarily of loans with international banks and other types of
debt. At December 31, 2006, approximately $160.7 million was outstanding as other long-term debt.
Covenant Compliance
The $2.5 billion 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
C-15
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.
The significant covenants contained in the Clear Channel Communications $1.75 billion
revolving 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. At December 31, 2006, Clear Channel Communications leverage and interest coverage ratios
were 3.4x and 4.7x.
There are no significant covenants or events of default contained in the cash management note
issued by Clear Channel Communications to us or the cash management note issued by us to Clear
Channel Communications.
At December 31, 2006, we and Clear Channel Communications were in compliance with all debt
covenants.
Uses of Capital
Acquisitions
We completed the acquisition of Interspace Airport Advertising on July 1, 2006, by issuing 4.2
million shares of our Class A common stock and the payment of approximately $81.3 million, funded
through our revolving promissory note with Clear Channel Communications. The acquisition is valued
at approximately $170.4 million based on the Companys common shares issued at the closing share
price on the date of acquisition of $89.1 million and the cash consideration paid. The terms of
the acquisition provide for additional consideration based on Interspaces financial performance.
As a result, we have accrued $20.9 million of additional purchase consideration as of December 31,
2006, which will be paid out in the next year.
In addition to the Interspace acquisition, during the year ended December 31, 2006, our
Americas segment acquired display faces for $55.4 million in cash. We exchanged assets in one of
our Americas markets for assets located in a different market and recognized a gain of $13.2
million in Gain on disposition of assets net. In addition, our International segment acquired
display faces and additional equity interests in outdoor companies for $105.7 million, including
the acquisition of an outdoor advertising business in the United Kingdom.
Capital Expenditures
Our capital expenditures have consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
(In millions) |
|
2006 |
|
|
2005 |
|
|
2004 |
|
Non-revenue producing |
|
$ |
80.0 |
|
|
$ |
78.1 |
|
|
$ |
70.1 |
|
Revenue producing |
|
|
153.9 |
|
|
|
130.1 |
|
|
|
106.0 |
|
|
|
|
|
|
|
|
|
|
|
Total capital expenditures |
|
$ |
233.9 |
|
|
$ |
208.2 |
|
|
$ |
176.1 |
|
|
|
|
|
|
|
|
|
|
|
We define non-revenue producing capital expenditures as those expenditures required on a
recurring basis. Revenue producing capital expenditures are discretionary capital investments for
new revenue streams, similar to an acquisition. Capital expenditures increased $25.7 million in
2006 as compared to 2005. The consolidation of Clear Media in 2005 contributed $13.7 million to
the increase. Capital expenditures increased $32.1 million in 2005 as compared to 2004. The
consolidation of Clear Media in 2005 contributed $15.4 million to the increase.
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 testing these technologies in certain markets. We believe 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
C-16
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.
Commitments, Contingencies and Guarantees
Our short and long term cash requirements include minimum annual guarantees for our street
furniture contracts and operating leases. 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 2007, we are committed to $400.3 million and $218.1 million for
minimum annual guarantees and operating leases, respectively. Our long-term commitments for
minimum annual guarantees, operating leases and capital expenditure requirements are included in
Contractual and Other Obligations, below.
Certain agreements relating to acquisitions provide for purchase price adjustments and other
future contingent payments based on the financial performance of the acquired company generally
over a one to five year period. We will continue to accrue additional amounts related to such
contingent payments if and when it is determinable that the applicable financial performance
targets will be met. The aggregate of these contingent payments, if performance targets are met,
would not significantly impact our financial position or results of operations.
Contractual and Other Obligations
Firm Commitments
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 calculated as the greater of a percentage of
the relevant advertising revenues or a specified guaranteed minimum annual payment.
C-17
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, capital expenditures commitments and other
long-term obligations as of December 31, 2006 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2012 and |
|
(In thousands) |
|
Total |
|
|
2007 |
|
|
2008-2009 |
|
|
2010-2011 |
|
|
Thereafter |
|
Revolving credit facility |
|
$ |
23,488 |
|
|
$ |
|
|
|
$ |
23,488 |
|
|
$ |
|
|
|
$ |
|
|
Debt with Clear Channel Communications |
|
|
2,500,000 |
|
|
|
|
|
|
|
|
|
|
|
2,500,000 |
|
|
|
|
|
Other long-term debt |
|
|
160,688 |
|
|
|
86,293 |
|
|
|
71,296 |
|
|
|
2,399 |
|
|
|
700 |
|
Minimum annual guarantees |
|
|
2,015,994 |
|
|
|
400,296 |
|
|
|
514,482 |
|
|
|
425,524 |
|
|
|
675,692 |
|
Noncancelable operating leases |
|
|
1,595,911 |
|
|
|
218,052 |
|
|
|
384,804 |
|
|
|
275,457 |
|
|
|
717,598 |
|
Capital expenditure commitments |
|
|
181,469 |
|
|
|
95,032 |
|
|
|
65,242 |
|
|
|
13,465 |
|
|
|
7,730 |
|
Noncancelable contracts |
|
|
8,046 |
|
|
|
4,489 |
|
|
|
3,539 |
|
|
|
18 |
|
|
|
|
|
Other long-term obligations (1) |
|
|
107,392 |
|
|
|
|
|
|
|
9,983 |
|
|
|
1,566 |
|
|
|
95,843 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total (2) |
|
$ |
6,592,988 |
|
|
$ |
804,162 |
|
|
$ |
1,072,834 |
|
|
$ |
3,218,429 |
|
|
$ |
1,497,563 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Other long-term obligations consist of $59.3 million related to asset retirement obligations,
recorded pursuant to Financial Accounting Standards No. 143, Accounting for Asset Retirement
Obligations, which assumes the underlying assets will be removed at some period over the next
50 years. Also included in the table is $33.8 million related to retirement plans and $14.3
million related to other long-term obligations with a specific maturity. |
|
(2) |
|
Excluded from the table is $106.8 million related to various obligations with no specific
contractual commitment or maturity. |
SEASONALITY
Typically, both our Americas 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 Americas 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.
MARKET RISK MANAGEMENT
We are exposed to market risks arising from changes in market rates and prices, including
movements in interest rates and foreign currency exchange rates.
Interest Rate Risk
We had approximately $2.7 billion total debt outstanding as of December 31, 2006, of which 99%
was variable rate debt. Based on the amount of our floating-rate debt as of December 31, 2006, each
50 basis point increase or decrease in interest rates would increase or decrease our annual
interest expense and cash outlay by approximately $13.3 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 December 31, 2006 with no
subsequent change in rates for the remainder of the period.
Foreign Currency Risk
We have operations in countries throughout the world. The financial results of our foreign
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 foreign markets in which we
operate. We believe we mitigate a small portion of our exposure to foreign currency fluctuations
with a natural hedge through borrowings in currencies other than the U.S. dollar. Our foreign
operations reported net income of $15.1 million for the year ended December 31, 2006. We estimate a
10%
C-18
change in the value of the U.S. dollar relative to foreign currencies would have changed our
net income for the year ended December 31, 2006 by approximately $1.5 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.
RECENT ACCOUNTING PRONOUNCEMENTS
In February 2006, the Financial Accounting Standards Board (FASB) issued Statement No. 155,
Accounting for Certain Hybrid Financial Instruments (Statement 155). Statement 155 is an
amendment of FASB Statement No. 133, Accounting for Derivative Instruments and Hedging Activities
(Statement 133) and FASB Statement 140, Accounting for Transfers and Servicing of Financial
Assets and Extinguishments of Liabilities (Statement 140) and allows companies to elect to
measure at fair value entire financial instruments containing embedded derivatives that would
otherwise have to be accounted for separately. Statement 155 also requires companies to identify
interest in securitized financial assets that are freestanding derivatives or contain embedded
derivatives that would have to be accounted for separately, clarifies which interest- and
principal-only strips are subject to Statement 133, and amends Statement 140 to revise the
conditions of a qualifying special purpose entity due to the new requirement to identify whether
interests in securitized financial assets are freestanding derivatives or contain embedded
derivatives. Statement 155 is effective for all financial instruments acquired or issued in fiscal
years beginning after September 15, 2006. We adopted Statement 155 on January 1, 2007. The
adoption did not materially impact our financial position or results of operations.
In June 2006, the FASB issued Interpretation No. 48, Accounting for Uncertainty in Income
Taxes an interpretation of FASB Statement 109 (FIN 48). FIN 48 clarifies the accounting for
uncertainty in income taxes by prescribing a recognition threshold for tax positions taken or
expected to be taken in a tax return. FIN 48 requires that entities recognize in their financial
statements the impact of a tax position if that position is more likely than not of being sustained
on audit, based on the technical merits of the position. The cumulative effect of applying the
provisions of FIN 48 will be reported as an adjustment to the opening balance of retained earnings
upon adoption. FIN 48 is effective for fiscal years beginning after December 15, 2006. We adopted
FIN 48 on January 1, 2007. We continue to evaluate the impact of FIN 48 but do not believe that it
will have a material impact on our financial statements.
In September 2006, the FASB issued Statement No. 157, Fair Value Measurements (Statement
157). Statement 157 defines fair value, establishes a framework for measuring fair value and
expands disclosure requirements for fair value measurements. Statement 157 applies whenever other
standards require (or permit) assets or liabilities to be measured at fair value. Statement 157
does not expand the use of fair value in any new circumstances. Statement 157 is effective for
financial statements issued for fiscal years beginning after November 15, 2007. We will adopt
Statement 157 on January 1, 2008 and anticipate that adoption will not materially impact our
financial position or results of operations.
In September 2006, the FASB issued Statement No. 158, Employers Accounting for Defined
Benefit Pension and Other Postretirement Plans, an amendment of FASB Statements No. 87, 88, 106,
and 132(R) (Statement 158). Statement 158 requires an employer to recognize the overfunded or
underfunded status of a defined benefit postretirement plan as an asset or liability in its
statement of financial position and to recognize changes in that funded status in the year in which
the changes occur through comprehensive income. The portions of Statement 158 that apply to us are
effective as of the end of the fiscal year ending after December 15, 2006. We adopted Statement
158 as of December 31, 2006. The adoption did not materially impact our financial position or
results of operations.
CRITICAL ACCOUNTING ESTIMATES
The preparation of our financial statements in conformity with generally accepted accounting
principles requires management to make estimates, judgments and assumptions that affect the
reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amount of expenses during the reporting period.
On an ongoing basis, we evaluate our estimates based on historical experience and on various other
assumptions believed to be reasonable under the circumstances. The result of these
C-19
evaluations forms the basis for making judgments about the carrying values of assets and
liabilities and the reported amount of expenses 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 consolidated and combined financial statements
included elsewhere in this Annual Report. Management believes 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, we
estimated our bad debt expense for the year ended December 31, 2006 would have changed by
approximately $2.5 million and our net income for the same period would have changed by
approximately $1.5 million.
Long-lived Assets
Long-lived assets, such as property, plant and equipment are reviewed for impairment when
events and circumstances indicate that depreciable and amortizable long-lived assets might be
impaired and the undiscounted cash flows estimated to be generated by those assets are less than
the carrying amount of those assets. When specific assets are determined to be unrecoverable, the
cost basis of the asset is reduced to reflect the current fair market value.
We use various assumptions in determining the current fair market value of these assets,
including future expected cash flows and discount rates, as well as future salvage values. Our
impairment loss calculations require management to apply judgment in estimating future cash flows,
including forecasting useful lives of the assets and selecting the discount rate that reflects the
risk inherent in future cash flows.
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
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. In
accordance with Statement 142, we performed our annual impairment tests as of October 1, 2004, 2005
and 2006 on goodwill. No impairment charges resulted from these tests. We may incur 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 market values decrease and long-term interest rates increase.
C-20
Indefinite-lived Assets
Indefinite-lived assets such as our billboard permits are reviewed annually for possible
impairment using the direct method as prescribed in SEC Staff Announcement No. D-108, Use of the
Residual Method to Value Acquired Assets Other Than Goodwill. Under the direct method, it is
assumed that rather than acquiring indefinite-lived intangible assets as part of a going concern
business, the buyer hypothetically obtains indefinite-lived intangible assets and builds a new
operation with similar attributes from scratch. Thus, the buyer incurs start-up costs during the
build-up phase which are normally associated with going concern value. Initial capital costs are
deducted from the discounted cash flows model which results in value that is directly attributable
to the indefinite-lived intangible assets.
Our key assumptions using the direct method are market revenue growth rates, market share,
profit margin, duration and profile of the build-up period, estimated start-up capital costs and
losses incurred during the build-up period, the risk-adjusted discount rate and terminal values.
This data is populated using industry normalized information representing an average permit within
a market. If actual results are not consistent with our assumptions and estimates, we may be
exposed to impairment charges in the future.
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 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. If our assumption
of the risk-adjusted credit rate used to discount current year additions to the asset retirement
obligation decreased approximately 1%, our liability as of December 31, 2006 would increase
approximately $1.7 million. Similarly, if our assumption of the risk-adjusted credit rate
increased approximately 1%, our liability would decrease approximately $1.5 million.
Stock Based Compensation
Prior to January 1, 2006, we accounted for our share-based payments under the recognition and
measurement provisions of APB Opinion No. 25, Accounting for Stock Issued to Employees and related
Interpretations, as permitted by Statement of Financial Accounting Standards No. 123, Accounting
for Stock Based Compensation (Statement 123). Under that method, when options were granted with
a strike price equal to or greater than market price on date of issuance, there is no impact on
earnings either on the date of grant or thereafter, absent certain modifications to the options.
Subsequent to January 1, 2006, we account for stock based compensation in accordance with FAS
123(R), Share-Based Payment. Under the fair value recognition provisions of this statement, stock
based compensation cost is measured at the grant date based on the value of the award and is
recognized as expense on a straight-line basis over the vesting period. Determining the fair value
of share-based awards at the grant date requires assumptions and judgments about expected
volatility and forfeiture rates, among other factors. If actual results differ significantly from
these estimates, our results of operations could be materially impacted.
ITEM 7A. Quantitative and Qualitative Disclosures about Market Risk
Required information is within Item 7.
C-21
ITEM 8. Financial Statements and Supplementary Data
Managements Report On Financial Statements
The consolidated financial statements and notes related thereto were prepared by and are the
responsibility of management. The financial statements and related notes were prepared in
conformity with U.S. generally accepted accounting principles and include amounts based upon
managements best estimates and judgments.
It is managements objective to ensure the integrity and objectivity of its financial data through
systems of internal controls designed to provide reasonable assurance that all transactions are
properly recorded in our books and records, that assets are safeguarded from unauthorized use and
that financial records are reliable to serve as a basis for preparation of financial statements.
The financial statements have been audited by our independent registered public accounting firm,
Ernst & Young LLP, to the extent required by auditing standards of the Public Company Accounting
Oversight Board (United States) and, accordingly, they have expressed their professional opinion on
the financial statements in their report included herein.
The Board of Directors meets with the independent registered public accounting firm and management
periodically to satisfy itself that they are properly discharging their responsibilities. The
independent registered public accounting firm has unrestricted access to the Board, without
management present, to discuss the results of their audit and the quality of financial reporting
and internal accounting controls.
/s/ Mark P. Mays
Chief Executive Officer
/s/ Randall T. Mays
Chief Financial Officer
/s/ Herbert W. Hill, Jr.
Senior Vice President/Chief Accounting Officer
C-22
Report of Independent Registered Public Accounting Firm
THE BOARD OF DIRECTORS AND SHAREHOLDERS
CLEAR CHANNEL OUTDOOR HOLDINGS, INC.
We have audited the accompanying consolidated balance sheets of Clear Channel Outdoor Holdings,
Inc. and subsidiaries (the Company) as of December 31, 2006 and 2005, and the related consolidated
and combined statements of operations, changes in shareholders/owners equity, and cash flows for
each of the three years in the period ended December 31, 2006. Our audits also included the
financial statement schedule listed in the index as Item 15(a)2. These financial statements and
schedule are the responsibility of the Companys management. Our responsibility is to express an
opinion on these financial statements and schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material
respects, the consolidated financial position of Clear Channel Outdoor Holdings, Inc. and
subsidiaries at December 31, 2006 and 2005, and the consolidated and combined results of their
operations and their cash flows for each of the three years in the period ended December 31, 2006,
in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the
related financial statement schedule, when considered in relation to the basic financial statements
taken as a whole, presents fairly in all material respects the information set forth therein.
As discussed in Note A to the consolidated and combined financial statements, in 2006 the Company
changed its method of accounting for share-based compensation.
As discussed in Note B to the consolidated and combined financial statements, in 2004 the Company
changed its method of accounting for indefinite lived intangibles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), the effectiveness of the Companys internal control over financial reporting
as of December 31, 2006, based on criteria established in Internal Control-Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report,
dated February 26, 2007 expressed an unqualified opinion thereon.
/s/ ERNST & YOUNG LLP
San Antonio, Texas
February 26, 2007
C-23
CONSOLIDATED BALANCE SHEETS
ASSETS
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
(In thousands) |
|
2006 |
|
|
2005 |
|
CURRENT ASSETS |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
105,395 |
|
|
$ |
108,644 |
|
Accounts receivable, less allowance of $24,827 in 2006 and $21,699 in 2005 |
|
|
798,980 |
|
|
|
689,007 |
|
Due from Clear Channel Communications |
|
|
|
|
|
|
131 |
|
Prepaid expenses |
|
|
91,256 |
|
|
|
70,459 |
|
Other current assets |
|
|
194,284 |
|
|
|
181,939 |
|
|
|
|
|
|
|
|
Total Current Assets |
|
|
1,189,915 |
|
|
|
1,050,180 |
|
|
|
|
|
|
|
|
|
|
PROPERTY, PLANT AND EQUIPMENT |
|
|
|
|
|
|
|
|
Land, buildings and improvements |
|
|
343,690 |
|
|
|
313,011 |
|
Structures |
|
|
3,601,653 |
|
|
|
3,327,326 |
|
Furniture and other equipment |
|
|
238,340 |
|
|
|
231,758 |
|
Construction in progress |
|
|
60,332 |
|
|
|
43,012 |
|
|
|
|
|
|
|
|
|
|
|
4,244,015 |
|
|
|
3,915,107 |
|
Less accumulated depreciation |
|
|
2,052,176 |
|
|
|
1,761,679 |
|
|
|
|
|
|
|
|
|
|
|
2,191,839 |
|
|
|
2,153,428 |
|
|
|
|
|
|
|
|
|
|
INTANGIBLE ASSETS |
|
|
|
|
|
|
|
|
Definite-lived intangibles, net |
|
|
292,426 |
|
|
|
251,951 |
|
Indefinite-lived intangibles permits |
|
|
260,949 |
|
|
|
207,921 |
|
Goodwill |
|
|
1,092,927 |
|
|
|
748,886 |
|
|
|
|
|
|
|
|
|
|
OTHER ASSETS |
|
|
|
|
|
|
|
|
Notes receivable |
|
|
3,192 |
|
|
|
5,452 |
|
Investments in, and advances to, nonconsolidated affiliates |
|
|
97,352 |
|
|
|
98,975 |
|
Deferred tax asset |
|
|
199,918 |
|
|
|
239,947 |
|
Other assets |
|
|
93,373 |
|
|
|
161,605 |
|
|
|
|
|
|
|
|
Total Assets |
|
$ |
5,421,891 |
|
|
$ |
4,918,345 |
|
|
|
|
|
|
|
|
See Notes to Consolidated and Combined Financial Statements
C-24
LIABILITIES AND SHAREHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
(In thousands, except share data) |
|
2006 |
|
|
2005 |
|
CURRENT LIABILITIES |
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
121,578 |
|
|
$ |
213,021 |
|
Accrued expenses |
|
|
494,744 |
|
|
|
337,441 |
|
Due to Clear Channel Communications |
|
|
4,190 |
|
|
|
|
|
Accrued interest |
|
|
3,621 |
|
|
|
2,496 |
|
Accrued income taxes |
|
|
31,259 |
|
|
|
16,812 |
|
Deferred income |
|
|
96,421 |
|
|
|
83,196 |
|
Current portion of long-term debt |
|
|
86,293 |
|
|
|
140,846 |
|
Deferred tax liabilities |
|
|
3,403 |
|
|
|
|
|
|
|
|
|
|
|
|
Total Current Liabilities |
|
|
841,509 |
|
|
|
793,812 |
|
|
|
|
|
|
|
|
|
|
Long-term debt |
|
|
97,883 |
|
|
|
86,940 |
|
Debt with Clear Channel Communications |
|
|
2,500,000 |
|
|
|
2,500,000 |
|
Other long-term liabilities |
|
|
214,220 |
|
|
|
160,879 |
|
|
|
|
|
|
|
|
|
|
Minority interest |
|
|
181,901 |
|
|
|
167,277 |
|
Commitments and contingent liabilities (Note H) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SHAREHOLDERS EQUITY |
|
|
|
|
|
|
|
|
Preferred stock, $.01 par value, 150,000,000 shares
authorized, no shares issued and outstanding |
|
|
|
|
|
|
|
|
Class A common stock, $.01 par value, 750,000,000
shares authorized, 39,565,191 and 35,236,819 shares
issued and outstanding in 2006 and 2005, respectively |
|
|
396 |
|
|
|
352 |
|
Class B common stock, $.01 par value, 600,000,000
shares authorized, 315,000,000 shares issued and
outstanding |
|
|
3,150 |
|
|
|
3,150 |
|
Additional paid-in capital |
|
|
1,279,079 |
|
|
|
1,183,258 |
|
Retained earnings |
|
|
173,277 |
|
|
|
20,205 |
|
Accumulated other comprehensive income |
|
|
130,476 |
|
|
|
2,472 |
|
|
|
|
|
|
|
|
Total Shareholders Equity |
|
|
1,586,378 |
|
|
|
1,209,437 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Shareholders Equity |
|
$ |
5,421,891 |
|
|
$ |
4,918,345 |
|
|
|
|
|
|
|
|
See Notes to Consolidated and Combined Financial Statements
C-25
CONSOLIDATED AND COMBINED STATEMENTS OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
(In thousands, except per share data) |
|
2006 |
|
|
2005 |
|
|
2004 |
|
Revenue |
|
$ |
2,897,721 |
|
|
$ |
2,666,078 |
|
|
$ |
2,447,040 |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
Direct operating expenses (includes share-based
payments of $4,328, $846 and $116 in 2006, 2005 and
2004, respectively, and excludes depreciation and
amortization) |
|
|
1,453,100 |
|
|
|
1,342,307 |
|
|
|
1,262,317 |
|
Selling, general and administrative expenses (includes
share-based payments of $1,683, $0 and $0 in 2006, 2005
and 2004, respectively, and excludes depreciation and
amortization) |
|
|
548,736 |
|
|
|
541,794 |
|
|
|
499,457 |
|
Depreciation and amortization |
|
|
407,730 |
|
|
|
400,639 |
|
|
|
388,217 |
|
Corporate expenses (includes share-based payments of
$88, $0 and $0 in 2006, 2005 and 2004, respectively,
and excludes depreciation and amortization) |
|
|
65,542 |
|
|
|
61,096 |
|
|
|
53,770 |
|
Gain on disposition of assets net |
|
|
22,846 |
|
|
|
3,488 |
|
|
|
10,791 |
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
445,459 |
|
|
|
323,730 |
|
|
|
254,070 |
|
Interest expense on debt with Clear Channel Communications |
|
|
153,500 |
|
|
|
182,667 |
|
|
|
145,653 |
|
Interest expense |
|
|
9,083 |
|
|
|
15,687 |
|
|
|
14,177 |
|
Equity in earnings (loss) of nonconsolidated affiliates |
|
|
7,460 |
|
|
|
9,844 |
|
|
|
(76 |
) |
Other income (expense) net |
|
|
331 |
|
|
|
(12,291 |
) |
|
|
(16,530 |
) |
|
|
|
|
|
|
|
|
|
|
Income before income taxes, minority interest and
cumulative effect of a change in accounting principle |
|
|
290,667 |
|
|
|
122,929 |
|
|
|
77,634 |
|
Income tax (expense) benefit: |
|
|
|
|
|
|
|
|
|
|
|
|
Current |
|
|
(82,553 |
) |
|
|
(51,173 |
) |
|
|
(23,422 |
) |
Deferred |
|
|
(39,527 |
) |
|
|
5,689 |
|
|
|
(39,132 |
) |
|
|
|
|
|
|
|
|
|
|
Income tax (expense) benefit |
|
|
(122,080 |
) |
|
|
(45,484 |
) |
|
|
(62,554 |
) |
Minority interest expense net |
|
|
(15,515 |
) |
|
|
(15,872 |
) |
|
|
(7,602 |
) |
|
|
|
|
|
|
|
|
|
|
Income before cumulative effect of a change in accounting
principle |
|
|
153,072 |
|
|
|
61,573 |
|
|
|
7,478 |
|
Cumulative effect of a change in accounting principle,
net of tax of $113,173 in 2004 |
|
|
|
|
|
|
|
|
|
|
(162,858 |
) |
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
|
153,072 |
|
|
|
61,573 |
|
|
|
(155,380 |
) |
Other comprehensive income (loss), net of tax: |
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments |
|
|
133,383 |
|
|
|
(76,315 |
) |
|
|
124,869 |
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss) |
|
$ |
286,455 |
|
|
$ |
(14,742 |
) |
|
$ |
(30,511 |
) |
|
|
|
|
|
|
|
|
|
|
Net income (loss) per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
Basic: |
|
|
|
|
|
|
|
|
|
|
|
|
Income before cumulative effect of a change in
accounting principle |
|
$ |
.43 |
|
|
$ |
.19 |
|
|
$ |
.02 |
|
Cumulative effect of a change in accounting principle |
|
|
|
|
|
|
|
|
|
|
(.52 |
) |
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
.43 |
|
|
$ |
.19 |
|
|
$ |
(.50 |
) |
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding |
|
|
352,155 |
|
|
|
319,890 |
|
|
|
315,000 |
|
Diluted: |
|
|
|
|
|
|
|
|
|
|
|
|
Income before cumulative effect of a change in
accounting principle |
|
$ |
.43 |
|
|
$ |
.19 |
|
|
$ |
.02 |
|
Cumulative effect of a change in accounting principle |
|
|
|
|
|
|
|
|
|
|
(.52 |
) |
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
.43 |
|
|
$ |
.19 |
|
|
$ |
(.50 |
) |
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding |
|
|
352,262 |
|
|
|
319,921 |
|
|
|
315,000 |
|
See Notes to Consolidated and Combined Financial Statements
C-26
CONSOLIDATED AND COMBINED STATEMENTS OF CHANGES IN SHAREHOLDERS/OWNERS EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A |
|
|
Class B |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
Common |
|
|
Common |
|
|
|
|
|
|
|
Owners |
|
|
Additional |
|
|
Retained |
|
|
Other |
|
|
|
|
|
|
Shares |
|
|
Shares |
|
|
|
Common |
|
|
Net |
|
|
Paid-in |
|
|
Earnings |
|
|
Comprehensive |
|
|
|
|
(In thousands, except share data) |
|
Issued |
|
|
Issued |
|
|
|
Stock |
|
|
Investment |
|
|
Capital |
|
|
(Deficit) |
|
|
Income (loss) |
|
|
Total |
|
Balances at December 31, 2003 |
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
$ |
6,679,664 |
|
|
$ |
|
|
|
$ |
(4,094,842 |
) |
|
$ |
175,342 |
|
|
$ |
2,760,164 |
|
Net loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(155,380 |
) |
|
|
|
|
|
|
(155,380 |
) |
Currency translation adjustment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
124,869 |
|
|
|
124,869 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at December 31, 2004 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,679,664 |
|
|
|
|
|
|
|
(4,250,222 |
) |
|
|
300,211 |
|
|
|
2,729,653 |
|
Net income, pre IPO |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
41,368 |
|
|
|
|
|
|
|
41,368 |
|
Currency translation adjustment, pre IPO |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(78,787 |
) |
|
|
(78,787 |
) |
Dividend to Clear Channel Communications |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,500,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,500,000 |
) |
Contribution |
|
|
|
|
|
|
315,000,000 |
|
|
|
|
3,150 |
|
|
|
(4,179,664 |
) |
|
|
189,084 |
|
|
|
4,208,854 |
|
|
|
(221,424 |
) |
|
|
|
|
Distribution from Clear Channel Communications |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
393,717 |
|
|
|
|
|
|
|
|
|
|
|
393,717 |
|
IPO proceeds, net of offering costs |
|
|
35,000,000 |
|
|
|
|
|
|
|
|
350 |
|
|
|
|
|
|
|
600,292 |
|
|
|
|
|
|
|
|
|
|
|
600,642 |
|
Net income, post IPO |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,205 |
|
|
|
|
|
|
|
20,205 |
|
Currency translation adjustment, post IPO |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,472 |
|
|
|
2,472 |
|
Exercise of stock options and other |
|
|
236,819 |
|
|
|
|
|
|
|
|
2 |
|
|
|
|
|
|
|
12 |
|
|
|
|
|
|
|
|
|
|
|
14 |
|
Share-based payments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
153 |
|
|
|
|
|
|
|
|
|
|
|
153 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at December 31, 2005 |
|
|
35,236,819 |
|
|
|
315,000,000 |
|
|
|
|
3,502 |
|
|
|
|
|
|
|
1,183,258 |
|
|
|
20,205 |
|
|
|
2,472 |
|
|
|
1,209,437 |
|
Common stock issued for a business acquisition |
|
|
4,249,990 |
|
|
|
|
|
|
|
|
43 |
|
|
|
|
|
|
|
89,037 |
|
|
|
|
|
|
|
|
|
|
|
89,080 |
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
153,072 |
|
|
|
|
|
|
|
153,072 |
|
Currency translation adjustment and other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
128,004 |
|
|
|
128,004 |
|
Exercise of stock options and other |
|
|
78,382 |
|
|
|
|
|
|
|
|
1 |
|
|
|
|
|
|
|
1,488 |
|
|
|
|
|
|
|
|
|
|
|
1,489 |
|
Share-based payments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,296 |
|
|
|
|
|
|
|
|
|
|
|
5,296 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at December 31, 2006 |
|
|
39,565,191 |
|
|
|
315,000,000 |
|
|
|
$ |
3,546 |
|
|
$ |
|
|
|
$ |
1,279,079 |
|
|
$ |
173,277 |
|
|
$ |
130,476 |
|
|
$ |
1,586,378 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Notes to Consolidated and Combined Financial Statements
C-27
CONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
(In thousands) |
|
2006 |
|
2005 |
|
2004 |
CASH FLOWS FROM
OPERATING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
153,072 |
|
|
$ |
61,573 |
|
|
$ |
(155,380 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciling Items: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative effect of a change in accounting principle, net of tax |
|
|
|
|
|
|
|
|
|
|
162,858 |
|
Depreciation |
|
|
322,208 |
|
|
|
311,376 |
|
|
|
321,071 |
|
Amortization |
|
|
85,522 |
|
|
|
89,263 |
|
|
|
67,146 |
|
Deferred taxes |
|
|
39,527 |
|
|
|
(5,689 |
) |
|
|
39,132 |
|
Share-based compensation |
|
|
5,296 |
|
|
|
153 |
|
|
|
|
|
Provision for doubtful accounts |
|
|
8,571 |
|
|
|
11,583 |
|
|
|
8,731 |
|
(Gain) loss on sale of operating and fixed assets |
|
|
(22,846 |
) |
|
|
5,513 |
|
|
|
(11,718 |
) |
Equity in (earnings) loss of nonconsolidated affiliates |
|
|
(7,460 |
) |
|
|
(9,844 |
) |
|
|
76 |
|
Minority interest expense net |
|
|
15,515 |
|
|
|
15,872 |
|
|
|
7,602 |
|
Increase (decrease) other, net |
|
|
(6,137 |
) |
|
|
(153 |
) |
|
|
(2,578 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in operating assets and liabilities, net of effects of
acquisitions: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Decrease (increase) in accounts receivable |
|
|
(101,340 |
) |
|
|
(22,217 |
) |
|
|
(29,880 |
) |
Decrease (increase) in prepaid expenses |
|
|
(20,797 |
) |
|
|
(10,859 |
) |
|
|
(1,468 |
) |
Decrease (increase) in other current assets |
|
|
(9,443 |
) |
|
|
59,214 |
|
|
|
4,262 |
|
Increase (decrease) in accounts payable, accrued expenses and
other liabilities |
|
|
65,381 |
|
|
|
(13,300 |
) |
|
|
51,535 |
|
Increase (decrease) in accrued interest |
|
|
1,154 |
|
|
|
1,908 |
|
|
|
343 |
|
Increase (decrease) in deferred income |
|
|
(2,493 |
) |
|
|
(12,512 |
) |
|
|
(2,537 |
) |
Increase (decrease) in accrued income taxes |
|
|
12,811 |
|
|
|
28,207 |
|
|
|
33,300 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
538,541 |
|
|
|
510,088 |
|
|
|
492,495 |
|
C-28
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
|
2006 |
|
|
2005 |
|
|
2004 |
|
CASH FLOWS FROM
INVESTING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
Decrease (increase) in notes receivable, net |
|
|
2,366 |
|
|
|
420 |
|
|
|
414 |
|
Decrease (increase) in investments in, and advances to
nonconsolidated affiliates net |
|
|
7,292 |
|
|
|
951 |
|
|
|
(6,986 |
) |
Purchase of other investments |
|
|
|
|
|
|
(99 |
) |
|
|
(961 |
) |
Proceeds from sale of other investments |
|
|
|
|
|
|
|
|
|
|
12,076 |
|
Purchases of property, plant and equipment |
|
|
(233,882 |
) |
|
|
(208,156 |
) |
|
|
(176,140 |
) |
Proceeds from disposal of assets |
|
|
15,451 |
|
|
|
920 |
|
|
|
8,354 |
|
Acquisition of operating assets, net of cash acquired |
|
|
(242,418 |
) |
|
|
(99,605 |
) |
|
|
(94,878 |
) |
Decrease (increase) in other net |
|
|
(37,819 |
) |
|
|
(55,802 |
) |
|
|
(52,537 |
) |
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(489,010 |
) |
|
|
(361,371 |
) |
|
|
(310,658 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM
FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
Draws on credit facilities |
|
|
118,867 |
|
|
|
108,601 |
|
|
|
71,389 |
|
Payments on credit facilities |
|
|
(100,076 |
) |
|
|
(113,193 |
) |
|
|
(104,945 |
) |
Proceeds from long-term debt |
|
|
37,235 |
|
|
|
|
|
|
|
|
|
Payments on long-term debt |
|
|
(115,694 |
) |
|
|
(3,118 |
) |
|
|
(262 |
) |
Payments on long-term debt with Clear Channel Communications |
|
|
|
|
|
|
(600,642 |
) |
|
|
|
|
Net transfers (to) from Clear Channel Communications |
|
|
4,327 |
|
|
|
(70,006 |
) |
|
|
(148,188 |
) |
Proceeds from exercise of stock options |
|
|
2,176 |
|
|
|
166 |
|
|
|
|
|
Proceeds from initial public offering |
|
|
|
|
|
|
600,642 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities |
|
|
(53,165 |
) |
|
|
(77,550 |
) |
|
|
(182,006 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash |
|
|
385 |
|
|
|
(471 |
) |
|
|
4,012 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents |
|
|
(3,249 |
) |
|
|
70,696 |
|
|
|
3,843 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at beginning of year |
|
|
108,644 |
|
|
|
37,948 |
|
|
|
34,105 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year |
|
$ |
105,395 |
|
|
$ |
108,644 |
|
|
$ |
37,948 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURE: |
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid during the year for interest |
|
$ |
165,764 |
|
|
$ |
195,350 |
|
|
$ |
175,395 |
|
Cash paid during the year for taxes |
|
$ |
52,479 |
|
|
$ |
38,493 |
|
|
$ |
22,195 |
|
See Notes to Consolidated and Combined Financial Statements
C-29
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
NOTE A SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
Clear Channel Outdoor Holdings, Inc. (the Company) is an outdoor advertising company which owns
or operates advertising display faces domestically and internationally. Prior to November 11,
2005, the Company was a wholly-owned subsidiary of Clear Channel Communications, Inc. (Clear
Channel Communications), a diversified media company with operations in radio broadcasting and
outdoor advertising. In preparation for the initial public offering (IPO) Clear Channel
Communications and its subsidiaries contributed and transferred to the Company all of the assets
and liabilities of the outdoor advertising businesses (the Contribution). The net assets were
transferred at Clear Channel Communications historical cost basis. The Company completed the
Contribution just prior to the IPO, which was effective on November 11, 2005. Pursuant to the IPO
registration statement on Form S-1, the Company sold 35.0 million shares of its Class A common
stock at a price of $18.00 per share, for net proceeds of $600.6 million after deducting
underwriting discounts and offering expenses. Clear Channel Communications holds all of the 315.0
million Class B shares of common stock outstanding, representing approximately 89% of the shares
outstanding and approximately 99% of the voting power. The holders of Class A common stock and
Class B common stock have identical rights, except holders of Class A common stock are entitled to
1 vote per share while holders of Class B common stock are entitled to 20 votes per share. The
Class B shares of common stock are convertible, at the option of the holder at any time or upon any
transfer, into shares of Class A common stock on a one-for-one basis, subject to certain limited
exceptions.
Nature of Business
The Company operates in the outdoor advertising industry by selling advertising on billboards,
street furniture displays, transit displays and other advertising displays. The Company has two
principal business segments: Americas and International. The Americas segment primarily includes
operations in the United States, Canada and Latin America; and the International segment includes
operations in Europe, Asia, Africa and Australia.
Principles of Consolidation and Combination
The combined financial statements include amounts prior to the IPO derived 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 businesses
and give effect to allocations of expenses from Clear Channel Communications. These allocations
were made on a specifically identifiable basis or using relative percentages of headcount or other
methods management considered to be a reasonable reflection of the utilization of services
provided. The Companys historical financial data may not be indicative of its future performance
nor will such data reflect what its financial position and results of operations would have been
had it operated as an independent publicly traded company during the periods shown. Significant
intercompany accounts among the combined businesses have been eliminated in consolidation.
Investments in nonconsolidated affiliates are accounted for using the equity method of accounting.
Cash and Cash Equivalents
Cash and cash equivalents include all highly liquid investments with an original maturity of three
months or less.
Allowance for Doubtful Accounts
The Company evaluates the collectibility of its accounts receivable based on a combination of
factors. In circumstances where it is aware of a specific customers inability to meet its
financial obligations, it records a specific reserve to reduce the amounts recorded to what it
believes will be collected. For all other customers, it recognizes reserves for bad debt based on
historical experience of bad debts as a percent of revenues for each business unit, adjusted for
relative improvements or deteriorations in the agings and changes in current economic conditions.
The Company believes the credit risk with respect to trade receivables is limited due to the large
number and the geographic diversification of its customers.
C-30
Land Leases and Other Structure Licenses
Most of the Companys advertising structures are located on leased land. Americas land rents are
typically paid in advance for periods ranging from 1 to 12 months. International land rents are
paid both in advance and in arrears, for periods ranging from 1 to 12 months. Most International
street furniture display faces are operated through contracts with the municipalities for up to 20
years. The street furniture contracts often include a percent of revenue to be paid along with a
base rent payment. Prepaid land leases are recorded as an asset and expensed ratably over the
related rental term and license and rent payments in arrears are recorded as an accrued liability.
Purchase Accounting
The Company accounts for its business acquisitions under the purchase method of accounting. The
total cost of acquisitions is allocated to the underlying identifiable net assets, including any
related indefinite-lived permit intangible assets, based on their respective estimated fair values.
The excess of the purchase price over the estimated fair values of the net assets acquired is
recorded as goodwill. Determining the fair value of assets acquired and liabilities assumed
requires managements judgment and often involves the use of significant estimates and assumptions,
including assumptions with respect to future cash inflows and outflows, discount rates, asset lives
and market multiples, among other items. In addition, reserves have been established on the
Companys balance sheet related to acquired liabilities and qualifying restructuring costs and
contingencies based on assumptions made at the time of acquisition. The Company evaluates these
reserves on a regular basis to determine the adequacies of the amounts. Various acquisition
agreements may include contingent purchase consideration based on performance requirements of the
investee. The Company accrues these payments under the guidance in Emerging Issues Task Force
issue 95-8: Accounting for Contingent Consideration Paid to the Shareholders of an Acquired
Enterprise in a Purchase Business Combination, after the contingencies have been resolved.
Asset Retirement Obligation
Statement of Financial Accounting Standards No. 143, Accounting for Asset Retirement Obligations,
requires the Company to estimate its obligation upon the termination or non-renewal of a lease to
dismantle and remove its advertising structures from the leased land and to reclaim the site to its
original condition. The Companys asset retirement obligation is reported in Other long-term
liabilities. The Company records the present value of obligations associated with the retirement
of its advertising structures in the period in which the obligation is incurred. The liability is
capitalized as part of the related advertising structures 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.
Property, Plant and Equipment
Property, plant and equipment are stated at cost. Depreciation is computed using the straight-line
method at rates that, in the opinion of management, are adequate to allocate the cost of such
assets over their estimated useful lives, which are as follows:
Buildings and improvements 10 to 39 years
Structures 5 to 40 years
Furniture and other equipment 3 to 20 years
Leasehold improvements shorter of economic life or lease term assuming renewal periods, if appropriate
For assets associated with a lease or contract, the assets are depreciated at the shorter of the
economic life or the lease or contract term, assuming renewal periods, if appropriate.
Expenditures for maintenance and repairs are charged to operations as incurred, whereas
expenditures for renewal and betterments are capitalized.
The Company tests for possible impairment of property, plant, and equipment whenever events or
changes in circumstances, such as a reduction in operating cash flow or a dramatic change in the
manner the asset is intended to be used indicate the carrying amount of the asset may not be
recoverable. If indicators exist, the Company compares the estimated undiscounted future cash
flows related to the asset to the carrying value of the asset. If the carrying value is greater
than the estimated undiscounted future cash flow amount, an impairment charge is recorded in
depreciation and amortization expense in the statement of operations for amounts necessary to
reduce the carrying
C-31
value of the asset to fair value. The impairment loss calculations require management to apply
judgment in estimating future cash flows and the discount rates that reflects the risk inherent in
future cash flows.
Intangible Assets
The Company classifies intangible assets as definite-lived, indefinite-lived, or goodwill.
Definite-lived intangibles include primarily transit and street furniture contracts, which are
amortized over the respective lives of the agreements, typically 5 to 15 years. The Company
periodically reviews the appropriateness of the amortization periods related to its definite-lived
assets. These assets are stated at cost. Indefinite-lived intangibles include billboard permits.
The excess cost over fair value of net assets acquired is classified as goodwill. The
indefinite-lived intangibles and goodwill are not subject to amortization, but are tested for
impairment at least annually.
The Company tests for possible impairment of definite-lived intangible assets whenever events or
changes in circumstances, such as a reduction in operating cash flow or a dramatic change in the
manner the asset is intended to be used indicate the carrying amount of the asset may not be
recoverable. If indicators exist, the Company compares the estimated undiscounted future cash
flows related to the asset to the carrying value of the asset. If the carrying value is greater
than the estimated undiscounted future cash flow amount, an impairment charge is recorded in
depreciation and amortization expense in the statement of operations for amounts necessary to
reduce the carrying value of the asset to fair value.
The Company performs its annual impairment test for its permits using a direct valuation technique
as prescribed by the Emerging Issues Task Force (EITF) Topic D-108, Use of the Residual Method to
Value Acquired Assets Other Than Goodwill (D-108), which the Company adopted in the fourth
quarter of 2004. Certain assumptions are used under the Companys direct valuation technique,
including market penetration leading to revenue potential, profit margin, duration and profile of
the buildup period, estimated start-up cost and losses incurred during the build-up period, the
risk adjusted discount rate and terminal values. The Company utilizes Duff and Phelps, L.L.C., a
third party valuation firm, to assist the Company in the development of these assumptions and the
Companys determination of the fair value of its permits. Impairment charges, other than the
charge taken under the transitional rules of Financial Accounting Standards No. 142, Goodwill and
Other Intangible Assets (Statement 142) and D-108, are recorded in depreciation and amortization
expense on the statement of operations.
At least annually, the Company performs its impairment test for each reporting units goodwill
using a discounted cash flow model to determine if the carrying value of the reporting unit,
including goodwill, is less than the fair value of the reporting unit. Certain assumptions are
used in determining the fair value, including assumptions about future cash flows, discount rates,
and terminal values. If the fair value of the Companys reporting unit is less than the carrying
value of the reporting unit, the Company reduces the carrying amount of goodwill. Impairment
charges, other than the charge taken under the transitional rules of Statement 142, are recorded in
depreciation and amortization expense on the statement of operations.
Nonconsolidated Affiliates
In general, investments in which the Company owns 20 percent to 50 percent of the common stock or
otherwise exercises significant influence over the investee are accounted for under the equity
method. The Company does not recognize gains or losses upon the issuance of securities by any of
its equity method investees. The Company reviews the value of equity method investments and
records impairment charges in the statement of operations for any decline in value determined to be
other-than-temporary.
Financial Instruments
Due to their short maturity, the carrying amounts of accounts and notes receivable, accounts
payable, accrued liabilities and short-term borrowings approximated their fair values at December
31, 2006 and 2005. Additionally, as none of the Companys debt is publicly traded, the carrying
amounts of long-term debt approximated their fair values at December 31, 2006 and 2005.
Income Taxes
The Company accounts for income taxes using the liability method. Under this method, deferred tax
assets and liabilities are determined based on differences between financial reporting bases and
tax bases of assets and
C-32
liabilities and are measured using the enacted tax rates expected to apply to taxable income in the
periods in which the deferred tax asset or liability is expected to be realized or settled.
Deferred tax assets are reduced by valuation allowances if the Company believes it is more likely
than not some portion or all of the asset will not be realized. As all earnings from the Companys
foreign operations are permanently reinvested and not distributed, the Companys income tax
provision does not include additional U.S. taxes on foreign operations. It is not practical to
determine the amount of federal income taxes, if any, that might become due in the event the
earnings were distributed.
The operations of the Company are included in a consolidated federal income tax return filed by
Clear Channel Communications, Inc. However, for financial reporting purposes, the Companys
provision for income taxes has been computed on the basis that the Company files separate
consolidated federal income tax returns with its subsidiaries.
Revenue Recognition
The Companys advertising contracts typically cover periods of up to three years and are generally
billed monthly. Revenue for advertising space rental is recognized ratably over the term of the
contract. Advertising revenue is reported net of agency commissions. Agency commissions are
calculated based on a stated percentage applied to gross billing revenue for the Companys
operations. Payments received in advance of being earned are recorded as deferred income.
Stock Based Compensation
Prior to January 1, 2006, the Company accounted for share-based payments under the recognition and
measurement provisions of APB Opinion No. 25, Accounting for Stock Issued to Employees (APB 25)
and related Interpretations, as permitted by Statement of Financial Accounting Standards No. 123,
Accounting for Stock Based Compensation (Statement 123). Under that method, when options were
granted with a strike price equal to or greater than market price on date of issuance, there is no
impact on earnings either on the date of grant or thereafter, absent certain modifications to the
options. Subsequent to January 1, 2006, the Company accounts for stock based compensation in
accordance with FAS 123(R), Share-Based Payment (Statement 123(R)). Under the fair value
recognition provisions of this statement, stock based compensation cost is measured at the grant
date based on the value of the award and is recognized as expense on a straight-line basis over the
vesting period. Determining the fair value of share-based awards at the grant date requires
assumptions and judgments about expected volatility and forfeiture rates, among other factors. If
actual results differ significantly from these estimates, our results of operations could be
materially impacted.
Foreign Currency
Results of operations for foreign subsidiaries and foreign equity investees are translated into
U.S. dollars using the average exchange rates during the year. The assets and liabilities of those
subsidiaries and investees, other than those of operations in highly inflationary countries, are
translated into U.S. dollars using the exchange rates at the balance sheet date. The related
translation adjustments are recorded in a separate component of shareholders equity, Accumulated
other comprehensive income. Foreign currency transaction gains and losses, as well as gains and
losses from translation of financial statements of subsidiaries and investees in highly
inflationary countries, are included in operations.
Advertising Expense
The Company records advertising expense as it is incurred. Advertising expenses of $10.4 million,
$16.1 million and $18.2 million were recorded during the years ended December 31, 2006, 2005 and
2004, respectively, as a component of selling, general and administrative expenses.
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles
requires management to make estimates, judgments, and assumptions that affect the amounts reported
in the financial statements and accompanying notes including, but not limited to, legal, tax and
insurance accruals. The Company
C-33
bases its estimates on historical experience and on various other assumptions believed to be
reasonable under the circumstances. Actual results could differ from those estimates.
New Accounting Pronouncements
In February 2006, the Financial Accounting Standards Board (FASB) issued Statement No. 155,
Accounting for Certain Hybrid Financial Instruments (Statement 155). Statement 155 is an
amendment of FASB Statement No. 133, Accounting for Derivative Instruments and Hedging Activities
(Statement 133) and FASB Statement 140, Accounting for Transfers and Servicing of Financial
Assets and Extinguishments of Liabilities (Statement 140) and allows companies to elect to
measure at fair value entire financial instruments containing embedded derivatives that would
otherwise have to be accounted for separately. Statement 155 also requires companies to identify
interest in securitized financial assets that are freestanding derivatives or contain embedded
derivatives that would have to be accounted for separately, clarifies which interest- and
principal-only strips are subject to Statement 133, and amends Statement 140 to revise the
conditions of a qualifying special purpose entity due to the new requirement to identify whether
interests in securitized financial assets are freestanding derivatives or contain embedded
derivatives. Statement 155 is effective for all financial instruments acquired or issued in fiscal
years beginning after September 15, 2006. The Company will adopt Statement 155 on January 1, 2007
and anticipates that adoption will not materially impact its financial position or results of
operations.
In June 2006, the FASB issued Interpretation No. 48, Accounting for Uncertainty in Income Taxes
an interpretation of FASB Statement 109 (FIN 48). FIN 48 clarifies the accounting for
uncertainty in income taxes by prescribing a recognition threshold for tax positions taken or
expected to be taken in a tax return. FIN 48 requires that entities recognize in their financial
statements the impact of a tax position if that position is more likely than not of being sustained
on audit, based on the technical merits of the position. The cumulative effect of applying the
provisions of FIN 48 will be reported as an adjustment to the opening balance of retained earnings
upon adoption. FIN 48 is effective for fiscal years beginning after December 15, 2006. The
Company will adopt FIN 48 on January 1, 2007. The Company continues to evaluate the impact of FIN
48 but does not believe that it will have a material impact on its financial statements.
In September 2006, the FASB issued Statement No. 157, Fair Value Measurements (Statement 157).
Statement 157 defines fair value, establishes a framework for measuring fair value and expands
disclosure requirements for fair value measurements. Statement 157 applies whenever other
standards require (or permit) assets or liabilities to be measured at fair value. Statement 157
does not expand the use of fair value in any new circumstances. Statement 157 is effective for
financial statements issued for fiscal years beginning after November 15, 2007. The Company will
adopt Statement 157 on January 1, 2008 and anticipates that adoption will not materially impact its
financial position or results of operations.
In September 2006, the FASB issued Statement No. 158, Employers Accounting for Defined Benefit
Pension and Other Postretirement Plans, an amendment of FASB Statements No. 87, 88, 106, and 132(R)
(Statement 158). Statement 158 requires an employer to recognize the overfunded or underfunded
status of a defined benefit postretirement plan as an asset or liability in its statement of
financial position and to recognize changes in that funded status in the year in which the changes
occur through comprehensive income. The portions of Statement 158 that apply to the Company are
effective as of the end of the fiscal year ending after December 15, 2006. The Company adopted
Statement 158 as of December 31, 2006. The adoption did not materially impact its financial
position or results of operations.
C-34
NOTE B INTANGIBLE ASSETS AND GOODWILL
Definite-lived Intangibles
The Company has definite-lived intangible assets which consist primarily of transit and street
furniture contracts and other contractual rights, all of which are amortized over the shorter of
either the respective lives of the agreements or over the period of time the assets are expected to
contribute to the Companys future cash flows. Other definite-lived intangible assets are
amortized over the period of time the assets are expected to contribute directly or indirectly to
the Companys future cash flows. The following table presents the gross carrying amount and
accumulated amortization for each major class of definite-lived intangible assets at December 31,
2006 and 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006 |
|
|
2005 |
|
|
|
Gross Carrying |
|
|
Accumulated |
|
|
Gross Carrying |
|
|
Accumulated |
|
(in thousands) |
|
Amount |
|
|
Amortization |
|
|
Amount |
|
|
Amortization |
|
Transit, street
furniture, and
other contractual
rights |
|
$ |
821,364 |
|
|
$ |
530,063 |
|
|
$ |
651,456 |
|
|
$ |
408,017 |
|
Other |
|
|
41,544 |
|
|
|
40,419 |
|
|
|
56,449 |
|
|
|
47,937 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
862,908 |
|
|
$ |
570,482 |
|
|
$ |
707,905 |
|
|
$ |
455,954 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company completed the acquisition of Interspace Airport Advertising (Interspace) on July 1,
2006. As a result of the acquisition, the company recorded $39.5 million in definite-lived
intangible assets which consists primarily of airport contracts with a remaining weighted average
life of 5 years. See further discussion of the acquisition at Note C.
Total amortization expense from definite-lived intangible assets for the years ended December 31,
2006, 2005 and 2004 was $85.5 million, $89.3 million and $67.1 million, respectively. The
following table presents the Companys estimate of amortization expense for each of the five
succeeding fiscal years for definite-lived intangible assets:
|
|
|
|
|
(In thousands) |
2007 |
|
$ |
49,599 |
|
2008 |
|
|
46,632 |
|
2009 |
|
|
38,933 |
|
2010 |
|
|
26,798 |
|
2011 |
|
|
21,460 |
|
As acquisitions and dispositions occur in the future and as purchase price allocations are
finalized, amortization expense may vary.
Indefinite-lived Intangibles
The Companys indefinite-lived intangibles consist of billboard permits acquired primarily in
business combinations. The Companys billboard permits are issued in perpetuity by state and local
governments and are transferable or renewable at little or no cost. Permits typically include the
location for which the permit allows the Company the right to operate an advertising structure.
The Companys permits are located on either owned or leased land. In cases where the Companys
permits are located on leased land, the leases are typically from 10 to 20 years and renew
indefinitely, with rental payments generally escalating at an inflation based index. If the
Company loses its lease, the Company will typically obtain permission to relocate the permit or
bank it with the municipality for future use.
The Company does not amortize its billboard permits. The Company tests these indefinite-lived
intangible assets for impairment at least annually. The carrying amounts for billboard permits at
December 31, 2006 and 2005 were $260.9 million and $207.9 million, respectively.
The SEC staff issued D-108 at the September 2004 meeting of the EITF. D-108 states the
residual method should no longer be used to value intangible assets other than goodwill. Rather,
D-108 requires a direct method be used to value intangible assets other than goodwill. Prior to
adoption of D-108, the Company recorded its acquisition at fair
C-35
value using an industry accepted income approach. The value calculated using the income
approach was allocated to the indefinite-lived intangibles after deducting the value of tangible
and intangible assets, as well as estimated costs of establishing a business at the market level.
The Company used a similar approach in its annual impairment test prior to its adoption of D-108.
D-108 requires an impairment test be performed upon adoption using a direct method for valuing
intangible assets other than goodwill. Under the direct method, it is assumed that rather than
acquiring indefinite-lived intangible assets as a part of a going concern business, the buyer
hypothetically obtains indefinite-lived intangible assets and builds a new operation with similar
attributes from scratch. Thus, the buyer incurs start-up costs during the build-up phase which are
normally associated with going concern value. Initial capital costs are deducted from the
discounted cash flows model, which results in value directly attributable to the indefinite-lived
intangible assets.
Under the direct method, the Company continues to aggregate its indefinite-lived intangible assets
at the market level for purposes of impairment testing as prescribed by EITF 02-07, Unit of
Accounting for Testing Impairment of Indefinite-Lived Intangible Assets. The Companys key
assumptions using the direct method are market revenue growth rates, market share, profit margin,
duration and profile of the build-up period, estimated start-up capital costs and losses incurred
during the build-up period, the risk-adjusted discount rate and terminal values. This data is
populated using industry normalized information.
The Companys adoption of the direct method resulted in an aggregate fair value of its
indefinite-lived intangible assets that was less than the carrying value determined under its prior
method. As a result of the adoption of D-108, the Company recorded a non-cash charge of $162.9
million, net of deferred taxes of $113.2 million as a cumulative effect of a change in accounting
principle during the fourth quarter of 2004.
Goodwill
The Company tests goodwill for impairment using a two-step process. The first step, used to screen
for potential impairment, compares the fair value of the reporting unit with its carrying amount,
including goodwill. The second step, used to measure the amount of the impairment loss, compares
the implied fair value of the reporting unit goodwill with the carrying amount of that goodwill.
The following table presents the changes in the carrying amount of goodwill in each of the
Companys reportable segments for the years ended December 31, 2006 and 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands) |
|
Americas |
|
|
International |
|
|
Total |
|
Balance as of December 31, 2004 |
|
$ |
397,377 |
|
|
$ |
389,629 |
|
|
$ |
787,006 |
|
Acquisitions |
|
|
1,896 |
|
|
|
4,407 |
|
|
|
6,303 |
|
Foreign currency translation |
|
|
|
|
|
|
(50,232 |
) |
|
|
(50,232 |
) |
Adjustments |
|
|
6,002 |
|
|
|
(193 |
) |
|
|
5,809 |
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2005 |
|
|
405,275 |
|
|
|
343,611 |
|
|
|
748,886 |
|
Acquisitions |
|
|
249,527 |
|
|
|
42,222 |
|
|
|
291,749 |
|
Dispositions |
|
|
(1,913 |
) |
|
|
|
|
|
|
(1,913 |
) |
Foreign currency translation |
|
|
14,085 |
|
|
|
40,109 |
|
|
|
54,194 |
|
Adjustments |
|
|
323 |
|
|
|
(312 |
) |
|
|
11 |
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2006 |
|
$ |
667,297 |
|
|
$ |
425,630 |
|
|
$ |
1,092,927 |
|
|
|
|
|
|
|
|
|
|
|
Included in the Americas acquisitions amount above in 2006 is $148.6 million related to the
acquisition of Interspace, all of which is expected to be deductible for tax purposes.
C-36
NOTE C BUSINESS ACQUISITIONS
2006 Acquisitions:
The Company completed the acquisition of Interspace on July 1, 2006, by issuing 4.2 million shares
of the Companys Class A common stock and the payment of approximately $81.3 million. The
acquisition was valued at approximately $170.4 million based on the Companys common shares issued
at the closing share price on the date of acquisition of $89.1 million and the cash consideration
paid. The terms of the acquisition provide for additional consideration based on Interspaces
financial performance. As a result, the Company has accrued $20.9 million of additional purchase
consideration as of December 31, 2006.
In addition to the Interspace acquisition, during 2006 the Companys Americas segment acquired
display faces for $55.4 million in cash. The Company exchanged assets in one of its Americas
markets for assets located in a different market and recognized a gain of $13.2 million in Gain on
disposition of assets net. In addition, the Companys International segment acquired display
faces and additional equity interests in outdoor companies for $105.7 million, including the
acquisition of an outdoor advertising business in the United Kingdom.
2005 Acquisitions:
During 2005 the Company acquired Americas display faces for $113.3 million in cash. The Companys
International segment acquired display faces for $17.1 million and increased its investment to a
controlling majority interest in Clear Media Limited for $8.9 million. Clear Media is a Chinese
outdoor advertising company and as a result of consolidating its operations during the third
quarter of 2005, the acquisition resulted in an increase in the Companys cash of $39.7 million.
2004 Acquisitions:
Medallion Merger
In September 2004, the Company acquired Medallion Taxi Media, Inc. (Medallion) for $31.6 million.
Medallions operations include advertising displays placed on the top of taxi cabs. The Company
began consolidating the results of operations in September 2004.
In addition to the above, during 2004 the Company acquired display faces for $60.8 million in cash
and acquired equity interests in International outdoor companies for $2.5 million in cash. Also,
the Company exchanged advertising assets, valued at $23.7 million for other advertising assets
valued at $32.3 million. As a result of this exchange, the Company recorded a gain of $8.6 million
in Gain on disposition of assets net.
Acquisition Summary
The following is a summary of the assets and liabilities acquired and the consideration given for
all acquisitions made during 2006 and 2005. Due to the timing of certain acquisitions, the
purchase price allocation is preliminary pending completion of third-party appraisals and other
fair value analysis of assets and liabilities.
|
|
|
|
|
|
|
|
|
(In thousands) |
|
2006 |
|
|
2005 |
|
Cash |
|
$ |
5,591 |
|
|
$ |
39,656 |
|
Accounts receivable |
|
|
13,665 |
|
|
|
30,301 |
|
Property, plant and equipment |
|
|
46,401 |
|
|
|
156,386 |
|
Permits |
|
|
20,963 |
|
|
|
2,228 |
|
Definite-lived intangibles |
|
|
105,909 |
|
|
|
22,453 |
|
Goodwill |
|
|
210,077 |
|
|
|
6,303 |
|
Investments |
|
|
|
|
|
|
805 |
|
Other assets |
|
|
4,147 |
|
|
|
49,682 |
|
|
|
|
|
|
|
|
|
|
|
406,753 |
|
|
|
307,814 |
|
C-37
|
|
|
|
|
|
|
|
|
(In thousands) |
|
2006 |
|
|
2005 |
|
Other liabilities |
|
|
(39,286 |
) |
|
|
(63,594 |
) |
Minority interests |
|
|
5,224 |
|
|
|
(101,133 |
) |
Deferred tax |
|
|
(7,571 |
) |
|
|
(3,826 |
) |
Common stock issued |
|
|
(89,037 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(130,670 |
) |
|
|
(168,553 |
) |
Less fair value of assets exchanged |
|
|
28,074 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cash consideration |
|
|
248,009 |
|
|
|
139,261 |
|
Less cash received |
|
|
5,591 |
|
|
|
39,656 |
|
|
|
|
|
|
|
|
Net cash paid for acquisitions |
|
$ |
242,418 |
|
|
$ |
99,605 |
|
|
|
|
|
|
|
|
The Company has entered into certain agreements relating to acquisitions that provide for purchase
price adjustments and other future contingent payments based on the financial performance of the
acquired company. The Company will continue to accrue additional amounts related to such
contingent payments if and when it is determinable that the applicable financial performance
targets will be met. The aggregate of these contingent payments, if performance targets were met,
would not significantly impact the Companys financial position or results of operations.
NOTE D RESTRUCTURING
The following table summarizes the activities related to the Companys restructuring accruals:
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands) |
|
2006 |
|
|
2005 |
|
|
2004 |
|
Balance at January 1 |
|
$ |
23,221 |
|
|
$ |
6,867 |
|
|
$ |
7,469 |
|
Estimated costs charged to restructuring accrual |
|
|
|
|
|
|
26,576 |
|
|
|
4,131 |
|
Adjustments to restructuring accrual |
|
|
1,826 |
|
|
|
(1,281 |
) |
|
|
(377 |
) |
Payments charged against restructuring accrual |
|
|
(12,510 |
) |
|
|
(8,941 |
) |
|
|
(4,356 |
) |
|
|
|
|
|
|
|
|
|
|
Balance at December 31 |
|
$ |
12,537 |
|
|
$ |
23,221 |
|
|
$ |
6,867 |
|
|
|
|
|
|
|
|
|
|
|
In the third quarter of 2005, the Company restructured its operations in France. As a result, the
Company recorded $26.6 million in restructuring costs as a component of selling, general and
administrative expenses during the third quarter of 2005; $22.5 million was related to severance
costs and $4.1 million was related to other costs. During the year ended December 31, 2006, $11.8
million of costs have been incurred and applied against the reserve. As of December 31, 2006, the
portion of the accrual associated with the France restructuring was $11.0 million, related
primarily to severance. It is expected that these accruals will be paid in the next three years.
The Company restructured its operations in Spain during 2004. As a result, the Company recorded a
$4.1 million accrual in selling, general and administrative expenses; $2.2 million was related to
severance and $1.9 million was related to consulting and other costs. The remainder of the accrual
was utilized in 2005. This restructuring resulted in the termination of 44 employees.
The Company restructured its operations in France during 2003. As a result, the Company recorded a
$13.8 million accrual in selling, general and administrative expenses; $12.5 million was related to
severance and $1.3 million was related to lease terminations and consulting and other costs. The
remainder of the accrual was utilized in 2005. The France restructurings resulted in the
termination of 134 employees.
In addition to the above, the Company has a restructuring liability related to Clear Channel
Communications merger with Ackerley in June 2002. At December 31, 2006, the accrual balance for
this restructuring was $1.5
C-38
million. The remaining restructuring accrual is comprised solely of lease termination, which will
be paid over the next four years.
NOTE E INVESTMENTS
The Companys most significant investments in nonconsolidated affiliates are listed below:
Clear Channel Independent
The Company owns a 50% interest in Clear Channel Independent (CCI), formerly known as Corp Comm,
a South African outdoor advertising company.
Alessi
The Company owns a 34.3% interest in Alessi, an Italian outdoor advertising company.
Summarized Financial Information
The following table summarizes the Companys investments in these nonconsolidated affiliates:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All |
|
|
|
|
(In thousands) |
|
CCI |
|
|
Alessi |
|
|
Others |
|
|
Total |
|
Balance as of December 31, 2005 |
|
$ |
52,688 |
|
|
$ |
23,146 |
|
|
$ |
23,141 |
|
|
$ |
98,975 |
|
Acquisition (disposition) of investments |
|
|
|
|
|
|
|
|
|
|
211 |
|
|
|
211 |
|
Additional investment (distribution) |
|
|
(6,134 |
) |
|
|
1,452 |
|
|
|
(2,610 |
) |
|
|
(7,292 |
) |
Equity in net earnings (loss) |
|
|
6,054 |
|
|
|
(154 |
) |
|
|
1,560 |
|
|
|
7,460 |
|
Reclassifications |
|
|
|
|
|
|
|
|
|
|
478 |
|
|
|
478 |
|
Foreign currency translation adjustments |
|
|
(6,458 |
) |
|
|
2,790 |
|
|
|
1,188 |
|
|
|
(2,480 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2006 |
|
$ |
46,150 |
|
|
$ |
27,234 |
|
|
$ |
23,968 |
|
|
$ |
97,352 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The investments in the table above are not consolidated, but are accounted for under the equity
method of accounting, whereby the Company records its investments in these entities in the balance
sheet as Investments in, and advances to, nonconsolidated affiliates. The Companys interests in
their operations are recorded in the statement of operations as Equity in earnings (loss) of
nonconsolidated affiliates. The accumulated undistributed earnings included in retained earnings
for these investments were $7.3 million and $2.7 million as of December 31, 2006 and 2005,
respectively. Accumulated undistributed losses included in retained deficit for these investments
were $3.4 million as of December 31, 2004.
NOTE F ASSET RETIREMENT OBLIGATION
The Company has an asset retirement obligation of $59.3 million and $49.8 million as of December
31, 2006 and 2005, respectively, which is reported in Other long-term liabilities. The liability
relates to the Companys obligation to dismantle and remove its advertising displays from leased
land and to reclaim the site to its original condition upon the termination or non-renewal of a
lease. The liability is capitalized as part of the related long-lived assets carrying value. Due
to the high rate of lease renewals over a long period of time, the calculation assumes 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.
C-39
The following table presents the activity related to the Companys asset retirement obligation:
|
|
|
|
|
|
|
|
|
(In thousands) |
|
2006 |
|
|
2005 |
|
Balance at January 1 |
|
$ |
49,807 |
|
|
$ |
49,216 |
|
Adjustment due to change in estimate of related costs |
|
|
7,581 |
|
|
|
(1,344 |
) |
Accretion of liability |
|
|
3,539 |
|
|
|
3,616 |
|
Liabilities settled |
|
|
(1,647 |
) |
|
|
(1,681 |
) |
|
|
|
|
|
|
|
Balance at December 31 |
|
$ |
59,280 |
|
|
$ |
49,807 |
|
|
|
|
|
|
|
|
NOTE G LONG-TERM DEBT
Long-term debt at December 31, 2006 and 2005 consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
(In thousands) |
|
2006 |
|
|
2005 |
|
Debt with Clear Channel Communications |
|
$ |
2,500,000 |
|
|
$ |
2,500,000 |
|
Bank credit facilities |
|
|
23,488 |
|
|
|
15,035 |
|
Other long-term debt |
|
|
160,688 |
|
|
|
212,751 |
|
|
|
|
|
|
|
|
|
|
|
2,684,176 |
|
|
|
2,727,786 |
|
Less: current portion |
|
|
86,293 |
|
|
|
140,846 |
|
|
|
|
|
|
|
|
Total long-term debt |
|
$ |
2,597,883 |
|
|
$ |
2,586,940 |
|
|
|
|
|
|
|
|
Debt with Clear Channel Communications
On August 2, 2005, the Company distributed a note in the original principal amount of $2.5 billion
to Clear Channel Communications as a dividend. 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 and, subject to
certain exceptions, all proceeds from debt or equity raised by the Company must be used to prepay
such note. At December 31, 2006, the interest rate on the $2.5 billion note was 6.1%.
Bank Credit Facility
On July 13, 2004, Clear Channel Communications, entered into a five-year, multi-currency revolving
credit facility in the amount of $1.75 billion. Certain of the Companys International
subsidiaries are offshore borrowers under a $150.0 million sub-limit within this $1.75 billion
credit facility. This sub-limit allows for borrowings in various foreign currencies, which are
used to hedge net assets in those currencies and provide funds to the Companys International
operations for certain working capital needs. Certain of the Companys International subsidiary
borrowings under this sub-limit are guaranteed by Clear Channel Communications. The interest rate
is based upon LIBOR or, in the case of Euro denominated borrowings, EURIBOR, plus a margin. At
December 31, 2006, the interest rate on this bank credit facility was 5.7%. At December 31, 2006,
the outstanding balance on the $150.0 million sub-limit was $23.5 million and $126.5 million was
available for future borrowings, with the entire balance to be repaid on July 12, 2009.
Debt Covenants
The $2.5 billion note requires the Company 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 the Companys total consolidated
shareholders equity (as defined in the note) as shown on its most recently reported annual audited
consolidated financial statements; disposing of all or substantially all of its assets; entering
into mergers and
C-40
consolidations; declaring or making dividends or other distributions; repurchasing its equity; and
entering into transactions with its affiliates.
In addition, the note requires the Company 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 the Company, its
operating subsidiary or its respective successors or assigns, or (ii) the ability to elect a
majority of the Board of Directors of the Company, its operating subsidiary or its respective
successors or assigns. Upon the Companys issuances of equity and incurrences of debt, subject to
certain exceptions, it is also required to prepay the note in the amount of the net proceeds
received by it from such events.
Clear Channel Communications significant covenants on its $1.75 billion five-year, multi-currency
revolving credit facility relate to leverage and interest coverage contained (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 (as defined by the credit facility) to interest
expense of 2.50x. In the event Clear Channel Communications does not meet these covenants, it is
considered to be in default on the credit facility at which time the credit facility, including the
$150.0 sub-limit utilized by certain of the Companys International subsidiaries, may become
immediately due. At December 31 2006, Clear Channel Communications leverage and interest coverage
ratios were 3.4x and 4.7x, respectively.
At December 31, 2006, the Company and Clear Channel Communications were in compliance with all debt
covenants.
Other Debt
Other debt includes various borrowings and capital leases utilized for general operating purposes.
Included in the $160.7 million balance at December 31, 2006 is $86.3 million that matures in less
than one year.
Debt Maturities
Future maturities of long-term debt at December 31, 2006 are as follows:
|
|
|
|
|
(In thousands) |
|
|
|
|
2007 |
|
$ |
86,293 |
|
2008 |
|
|
30,826 |
|
2009 |
|
|
63,958 |
|
2010 |
|
|
2,500,149 |
|
2011 |
|
|
2,250 |
|
Thereafter |
|
|
700 |
|
|
|
|
|
Total |
|
$ |
2,684,176 |
|
|
|
|
|
NOTE H COMMITMENTS AND CONTINGENCIES
The Company leases office space, equipment and the majority of the land occupied by its advertising
structures under long-term operating leases. Some of the lease agreements contain renewal options
and annual rental escalation clauses (generally tied to the consumer price index), as well as
provisions for the payment of utilities and maintenance by the Company.
The Company has minimum franchise payments associated with non-cancelable contracts that enable it
to display advertising on such media as buses, taxis, trains, bus shelters and terminals, as well
as other similar type surfaces. The majority of these contracts contain rent provisions calculated
as either the greater of a percentage of the relevant advertising revenue or a specified guaranteed
minimum annual payment. In addition, the Company has commitments relating to required purchases of
property, plant, and equipment under certain street furniture contracts.
C-41
As of December 31, 2006, the Companys future minimum rental commitments under non-cancelable
operating lease agreements with terms in excess of one year, minimum payments under non-cancelable
contracts in excess of one year, and capital expenditure commitments consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Cancelable |
|
|
Non-Cancelable |
|
|
Capital |
|
(In thousands) |
|
Operating Leases |
|
|
Contracts |
|
|
Expenditures |
|
2007 |
|
$ |
218,052 |
|
|
$ |
400,296 |
|
|
$ |
95,032 |
|
2008 |
|
|
203,142 |
|
|
|
270,561 |
|
|
|
49,990 |
|
2009 |
|
|
181,662 |
|
|
|
243,921 |
|
|
|
15,252 |
|
2010 |
|
|
152,913 |
|
|
|
226,519 |
|
|
|
8,853 |
|
2011 |
|
|
122,544 |
|
|
|
199,005 |
|
|
|
4,612 |
|
Thereafter |
|
|
717,598 |
|
|
|
675,692 |
|
|
|
7,730 |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
1,595,911 |
|
|
$ |
2,015,994 |
|
|
$ |
181,469 |
|
|
|
|
|
|
|
|
|
|
|
Rent expense charged to operations for 2006, 2005 and 2004 was $961.3 million, $876.5 million and
$822.8 million, respectively.
The Company is currently involved in certain legal proceedings and, as required, has accrued its
estimate of the probable costs for the resolution of these claims. These estimates have been
developed in consultation with counsel and are based upon an analysis of potential results,
assuming a combination of litigation and settlement strategies. It is possible, however, that
future results of operations for any particular period could be materially affected by changes in
the Companys assumptions or the effectiveness of its strategies related to these proceedings.
The Company is the defendant in a lawsuit filed October 20, 1998 by Jorge Luis Cabrera, Sr., and
Martha Serrano, as personal representatives of the Estate of Jorge Luis Cabrera, Jr., in the 11th
Judicial Circuit in and for Miami-Dade County, Florida. The plaintiff alleged the Company
negligently constructed, installed or maintained the electrical system in a bus shelter, which
resulted in the death of Jorge Luis Cabrera, Jr. Martha Serrano settled her claims with the
Company. On June 24, 2005, the jury rendered a verdict in favor of the plaintiff, and awarded the
plaintiff $4.1 million in actual damages and $61.0 million in punitive damages. The Company filed
a motion to have the punitive damages award reduced. The trial judge granted the Companys motion.
A final judgment in the amount of $4.1 million in compensatory damages and $12.3 million in
punitive damages was signed on January 23, 2006. The Company has appealed the underlying judgment
and the Plaintiff filed a cross-appeal. The Plaintiff seeks to reinstate the original award of
punitive damages. The Company has insurance coverage for up to approximately $50.0 million in
damages for this matter.
In various areas in which the Company operates, outdoor advertising is the object of restrictive
and, in some cases, prohibitive zoning and other regulatory provisions, either enacted or proposed.
The impact to the Company of loss of displays due to governmental action has been somewhat
mitigated by federal and state laws mandating compensation for such loss and constitutional
restraints.
Certain acquisition agreements include deferred consideration payments based on performance
requirements by the seller, generally over a one to five year period. Contingent payments based on
performance requirements by the seller typically involve the completion of a development or
obtaining appropriate permits that enable the Company to construct additional advertising displays.
At December 31, 2006, the Company believes its maximum aggregate contingency, which is subject to
performance requirements by the seller, is approximately $35.0 million. As the contingencies have
not been met or resolved as of December 31, 2006, these amounts are not recorded. If future
payments are made, amounts will be recorded as additional purchase price.
The Company has various investments in nonconsolidated affiliates subject to agreements that
contain provisions that may result in future additional investments to be made by the Company. The
put values are contingent upon financial performance of the investee and are typically based on the
investee meeting certain EBITDA targets, as defined in the agreement. The Company will continue to
accrue additional amounts related to such contingent payments if and when it is determinable that
the applicable financial performance targets will be met. The aggregate of these contingent
payments, if performance targets are met, would not significantly impact the financial position or
results of operations of the Company.
C-42
NOTE I RELATED PARTY TRANSACTIONS
The Company records net amounts, up to a maximum of $1.0 billion, due to or from Clear Channel
Communications as Due from Clear Channel Communications or Due to Clear Channel Communications
on the consolidated balance sheets. The account represents the Companys revolving promissory note
with Clear Channel Communications. Subsequent to the IPO, the account accrues interest pursuant to
the Master Agreement and is generally payable on demand. Included in the account is the net
activity resulting from day-to-day cash management services provided by Clear Channel
Communications. As a part of these services, the Company maintains collection bank accounts swept
daily by Clear Channel Communications. In return, Clear Channel Communications funds the Companys
controlled disbursement accounts as checks or electronic payments are presented for payment. At
December 31, 2006, the balance of $4.2 million was a liability recorded in Due to Clear Channel
Communications on the consolidated balance sheet. At December 31, 2005, the balance of $0.1
million was an asset recorded in Due from Clear Channel Communications on the consolidated
balance sheet. The increase in the net amount due to Clear Channel Communications during the year
ended December 31, 2006 was a result of Clear Channel Communications funding a portion of the
Companys debt payments and certain acquisitions. The net interest income for the years ended
December 31, 2006 and 2005 was $0.4 million and $0.1 million, respectively.
On August 2, 2005, the Company distributed a note in the original principal amount of $2.5 billion
to Clear Channel Communications as a dividend. This note is further disclosed in Note G. This
note matures on August 2, 2010 and may be prepaid in whole at any time, or in part from time to
time. This 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 December 31, 2006, the interest rate
on the $2.5 billion note was 6.1%.
Clear Channel Communications has a five-year, multi-currency revolving credit facility in the
amount of $1.75 billion. This note is further disclosed in Note G. Certain of the Companys
International subsidiaries may borrow under a $150.0 million sub-limit within this credit facility
to the extent Clear Channel Communications has not already borrowed against this capacity. This
sub-limit allows for borrowings in various foreign currencies, which are used to hedge net assets
in those currencies and provides funds to the Companys International operations for certain
working capital needs. Certain of the Companys International subsidiary borrowings under this
sub-limit are guaranteed by Clear Channel Communications. The interest rate is based upon LIBOR or,
for Euro denominated borrowings, EURIBOR, plus a margin. At December 31, 2006, the interest rate
on this bank credit facility was 5.7%. At December 31, 2006, the outstanding balance on the $150.0
million sub-limit was $23.5 million and $126.5 million was available for future borrowings, with
the entire balance to be paid on July 12, 2009.
The Company provides advertising space on its billboards for radio stations owned by Clear Channel
Communications. For the years ended December 31, 2006, 2005 and 2004, the Company recorded $10.6
million, $10.0 million, and $12.4 million, respectively, in revenue for these advertisements.
Under the corporate services agreement entered into between Clear Channel Communications and the
Company at the IPO, Clear Channel Communications provides management services to the Company, 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 and
related services; (v) information systems, network and related services; (vi) investment services;
(vii) procurement and sourcing support services; and (viii) other general corporate services.
These services are charged to the Company based on actual direct costs incurred or allocated by
Clear Channel Communications based on headcount, revenue or other factors on a pro rata basis. For
the years ended December 31, 2006, 2005 and 2004, the Company recorded $24.3 million, $16.0
million, and $16.6 million, respectively, as a component of corporate expenses for these services.
Clear Channel Communications owns the trademark and trade names used by the Company. Beginning
January 1, 2003, Clear Channel Communications began charging the Company a royalty fee based on
annual revenue for use of the Clear Channel trademark name. Clear Channel Communications used a
third party valuation firm to assist in the calculation of the royalty fee. For the years ended
December 31, 2005 and 2004, the Company recorded $14.8
C-43
million and $15.8 million, respectively, of royalty fees in Other income (expense) net. The
royalty fee was discontinued as of January 1, 2006.
Pursuant to the tax matters agreement entered into between Clear Channel Communications and the
Company at the IPO, the operations of the Company are included in a consolidated federal income tax
return filed by Clear Channel Communications. The Companys provision for income taxes has been
computed on the basis that the Company files separate consolidated federal income tax returns with
its subsidiaries. Tax payments are made to Clear Channel Communications on the basis of the
Companys separate taxable income. Tax benefits recognized on the Companys employee stock options
exercises are retained by the Company.
The Company computes its deferred income tax provision using the liability method in accordance
with Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes, as if the
Company was a separate taxpayer. Deferred tax assets and liabilities are determined based on
differences between financial reporting bases and tax bases of assets and liabilities and are
measured using the enacted tax rates expected to apply to taxable income in the periods in which
the deferred tax asset or liability is expected to be realized or settled. Deferred tax assets are
reduced by valuation allowances if the Company believes it is more likely than not some portion or
all of the asset will not be realized. The Companys provision for income taxes is further
disclosed in Note J.
Pursuant to the employee matters agreement, the Companys employees participate in Clear Channel
Communications employee benefit plans, including employee medical insurance and a 401(k)
retirement benefit plan. These costs are recorded as a component of selling, general and
administrative expenses and were approximately $9.3 million, $9.1 million, and $8.2 million for the
years ended December 31, 2006, 2005 and 2004, respectively.
NOTE J INCOME TAXES
The operations of the Company are included in a consolidated federal income tax return filed by
Clear Channel Communications, Inc. However, for financial reporting purposes, the Companys
provision for income taxes has been computed on the basis that the Company files separate
consolidated federal income tax returns with its subsidiaries.
Significant components of the provision for income tax expense (benefit) are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands) |
|
2006 |
|
|
2005 |
|
|
2004 |
|
Current federal |
|
$ |
34,255 |
|
|
$ |
2,280 |
|
|
$ |
(10,291 |
) |
Current foreign |
|
|
40,056 |
|
|
|
48,037 |
|
|
|
34,894 |
|
Current state |
|
|
8,242 |
|
|
|
856 |
|
|
|
(1,181 |
) |
|
|
|
|
|
|
|
|
|
|
Total current |
|
|
82,553 |
|
|
|
51,173 |
|
|
|
23,422 |
|
Deferred federal |
|
|
43,117 |
|
|
|
26,007 |
|
|
|
40,048 |
|
Deferred foreign |
|
|
(9,134 |
) |
|
|
(35,040 |
) |
|
|
(18,339 |
) |
Deferred state |
|
|
5,544 |
|
|
|
3,344 |
|
|
|
17,423 |
|
|
|
|
|
|
|
|
|
|
|
Total deferred |
|
|
39,527 |
|
|
|
(5,689 |
) |
|
|
39,132 |
|
|
|
|
|
|
|
|
|
|
|
Income tax expense (benefit) |
|
$ |
122,080 |
|
|
$ |
45,484 |
|
|
$ |
62,554 |
|
|
|
|
|
|
|
|
|
|
|
The increase in current tax expense of $31.4 million for the year ended December 31, 2006 over 2005
was due primarily to an increase in Income before income taxes, minority interest and cumulative
effect of a change in accounting principle of $167.7 million. This increase was partially offset
by current tax benefits of approximately $20.4 million being recorded in 2006 related to tax losses
on the disposition of certain operating assets and the filing of an amended tax return. Deferred
tax expense increased by $45.2 million for the year ended December 31, 2006 over 2005 primarily due
to the tax losses on the disposition of certain operating assets and the filing of the amended tax
return mentioned above. In addition, foreign deferred tax expense increased by $25.9 million for
the year ended December 31, 2006 over 2005 primarily due to (i) the reversal of deferred tax assets
related to tax losses in certain foreign jurisdictions and the uncertainty of the ability to
utilize those tax losses in the future and (ii) increased
C-44
deferred tax benefits in 2005 due to a change in the carrying value of certain deferred tax
liabilities as a result of certain local country law and tax rate changes.
The increase in current tax expense of $27.8 million for the year ended December 31, 2005 was due
primarily to an increase in Income before income taxes, minority interest and cumulative effect of
a change in accounting principle of $45.3 million. Deferred tax expense decreased by $44.8
million for the year ended December 31, 2005 due to less tax depreciation recorded in 2005 as well
as certain tax losses on the disposition of assets recorded in 2004. The decrease in tax
depreciation is primarily due to a change in the tax laws resulting in the expiration of the
favorable bonus depreciation tax rules in 2004. In addition foreign deferred tax benefits
increased $16.7 million for the year ended December 31, 2005 primarily due to a change in the
carrying value of certain deferred tax liabilities as a result of certain local country law and tax
rate changes.
Significant components of the Companys deferred tax liabilities and assets as of December 31, 2006
and 2005 are as follows:
|
|
|
|
|
|
|
|
|
(In thousands) |
|
2006 |
|
|
2005 |
|
Deferred tax liabilities: |
|
|
|
|
|
|
|
|
Foreign |
|
$ |
|
|
|
$ |
3,917 |
|
Accrued expenses |
|
|
130 |
|
|
|
|
|
Deferred income |
|
|
5,181 |
|
|
|
|
|
Other |
|
|
1,337 |
|
|
|
1,450 |
|
|
|
|
|
|
|
|
Total deferred tax liabilities |
|
|
6,648 |
|
|
|
5,367 |
|
|
Deferred tax assets: |
|
|
|
|
|
|
|
|
Intangibles and fixed assets |
|
|
192,958 |
|
|
|
241,016 |
|
Accrued expenses |
|
|
|
|
|
|
24 |
|
Equity in earnings |
|
|
2,145 |
|
|
|
2,138 |
|
Net operating loss carryforwards |
|
|
449 |
|
|
|
338 |
|
Bad debt reserves |
|
|
2,922 |
|
|
|
2,799 |
|
Deferred income |
|
|
|
|
|
|
4,801 |
|
Foreign |
|
|
2,111 |
|
|
|
|
|
Other |
|
|
2,578 |
|
|
|
417 |
|
|
|
|
|
|
|
|
Total deferred tax assets |
|
|
203,163 |
|
|
|
251,533 |
|
|
|
|
|
|
|
|
|
Net deferred tax assets |
|
|
196,515 |
|
|
|
246,166 |
|
Less: current portion |
|
|
(3,403 |
) |
|
|
6,219 |
|
|
|
|
|
|
|
|
Long-term net deferred tax assets |
|
$ |
199,918 |
|
|
$ |
239,947 |
|
|
|
|
|
|
|
|
At December 31, 2006, net deferred tax assets include a deferred tax asset of $2.1 million relating
to stock-based compensation expense under FAS 123(R). Full realization of this deferred tax asset
requires stock options to be exercised at a price equaling or exceeding the sum of the grant price
plus the fair value of the option at the grant date and restricted stock to vest at a price
equaling or exceeding the fair market value at the grant date. The provisions of FAS 123(R),
however, do not allow a valuation allowance to be recorded unless the companys future taxable
income is expected to be insufficient to recover the asset. Accordingly, there can be no assurance
that the stock price of our Common Stock will rise to levels sufficient to realize the entire tax
benefit currently reflected in our balance sheet. See Note K for additional discussion of FAS
123(R).
The deferred tax asset associated with intangibles and fixed assets primarily relates to the
difference in book and tax basis of acquired permits and tax deductible goodwill created from the
Companys various stock acquisitions. As discussed in Note B, in 2004 the Company adopted D-108,
which resulted in the Company recording a non-cash charge of approximately $162.9 million, net of
deferred tax of $113.2 million, related to its permits. In accordance with Statement No. 142, the
Company no longer amortizes its book basis in permits. As the Company continues to amortize its
tax basis in its permits and tax deductible goodwill, the deferred tax asset will decrease over
time.
C-45
The reconciliation of income tax computed at the U.S. federal statutory tax rates to income tax
expense is:
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands) |
|
2006 |
|
|
2005 |
|
|
2004 |
|
Income tax expense (benefit) at statutory rates |
|
$ |
101,733 |
|
|
$ |
43,025 |
|
|
$ |
24,511 |
|
State income taxes, net of federal tax benefit |
|
|
13,786 |
|
|
|
4,200 |
|
|
|
16,242 |
|
Foreign taxes |
|
|
6,390 |
|
|
|
4,816 |
|
|
|
11,379 |
|
Nondeductible items |
|
|
709 |
|
|
|
597 |
|
|
|
607 |
|
Additional deferred tax expense |
|
|
|
|
|
|
|
|
|
|
4,804 |
|
Tax contingencies |
|
|
(891 |
) |
|
|
(7,074 |
) |
|
|
4,626 |
|
Subpart F income |
|
|
|
|
|
|
|
|
|
|
441 |
|
Other, net |
|
|
353 |
|
|
|
(80 |
) |
|
|
(56 |
) |
|
|
|
|
|
|
|
|
|
|
Income tax expense (benefit) |
|
$ |
122,080 |
|
|
$ |
45,484 |
|
|
$ |
62,554 |
|
|
|
|
|
|
|
|
|
|
|
During 2006, the Company recorded tax expense of approximately $122.1 million on income before
income taxes, minority interest and cumulative effect of a change in accounting principle of $290.7
million. Foreign income before income taxes was approximately $70.1 million for 2006. The Company
did not record a tax benefit on certain tax losses in its foreign operations due to the uncertainty
of the ability to utilize those tax losses in the future.
During 2005, the Company recorded tax expense of approximately $45.5 million on income before
income taxes, minority interest and cumulative effect of a change in accounting principle of $122.9
million. Foreign income before income taxes was approximately $23.4 million for 2005. The Company
recorded a current tax benefit of approximately $8.0 million due to the favorable resolution of
certain tax contingencies in 2005. These tax contingencies primarily associated with tax planning
related to the Companys foreign operations that was reviewed and not adjusted by the taxing
authorities during 2005. The tax contingencies were originally recorded through the income
statement by increasing current tax expense in earlier years when the planning was implemented and
therefore, when the contingencies were settled favorably the amounts were reversed in the income
statement as a current tax benefit in the current year. In addition, the Company did not record a
tax benefit on certain tax losses in its foreign operations due to the uncertainty of the ability
to utilize those tax losses in the future.
During 2004, the Company recorded tax expense of approximately $62.6 million on income before
income taxes, minority interest and cumulative effect of a change in accounting principle of $77.6
million. Foreign income before income taxes was approximately $14.8 million for 2004. The Company
recorded additional deferred tax expense of approximately $16.0 million in 2004 in order to adjust
the deferred tax asset balance to an amount determined to be realizable by the Company. In
addition, the Company did not record a tax benefit on certain tax losses in its foreign operations
due to the uncertainty of the ability to utilize those tax losses in the future.
All tax liabilities owed by the Company are paid by the Company or on behalf of the Company by
Clear Channel Communications through an operating account that represents net amounts due to or
from Clear Channel Communications.
NOTE K SHAREHOLDERS EQUITY
Stock Options
The Company has granted options to purchase shares of its Class A common stock to employees and
directors of the Company and its affiliates under its incentive stock plan typically at no less
than the fair value of the underlying stock on the date of grant. These options are granted for a
term not exceeding ten years and are forfeited, except in certain circumstances, in the event the
employee or director terminates his or her employment or relationship with the Company or one of
its affiliates. These options generally vest over five years. The option plan contains
anti-dilutive provisions that permit an adjustment of the number of shares of the Companys common
stock represented by each option for any change in capitalization.
C-46
The Company adopted the fair value recognition provisions of Statement 123(R) on January 1, 2006,
using the modified-prospective-transition method. The fair value of the options is estimated using
a Black-Scholes option-pricing model and amortized straight-line to expense over five years. Prior
to January 1, 2006, the Company accounted for its share-based payments under the recognition and
measurement provisions of APB 25 and related Interpretations, as permitted by Statement 123. Under
that method, when options are granted with a strike price equal to or greater than the market price
on the date of issuance, there is no impact on earnings either on the date of grant or thereafter,
absent certain modifications to the options. The amounts recorded as share-based payments prior to
adopting Statement 123(R) primarily related to the expense associated with restricted stock awards.
Under the modified-prospective-transition method, compensation cost recognized beginning in 2006
includes: (a) compensation cost for all share-based payments granted prior to, but not yet vested
as of January 1, 2006, based on the grant date fair value estimated in accordance with the original
provisions of Statement 123, and (b) compensation cost for all share-based payments granted
subsequent to January 1, 2006, based on the grant-date fair value estimated in accordance with the
provisions of Statement 123(R). Results for prior periods have not been restated.
As a result of adopting Statement 123(R) on January 1, 2006, the Companys income before income
taxes and minority interest for the year ended December 31, 2006, was $4.5 million lower and net
income for the year ended December 31, 2006, was $2.6 million lower than if it had continued to
account for share-based compensation under APB 25. Basic and diluted earnings per share for the
year ended December 31, 2006 were $.01 and $.01 lower, respectively, than if the Company had
continued to account for share-based compensation under APB 25.
Prior to the adoption of Statement 123(R), the Company presented all tax benefits of deductions
resulting from the exercise of stock options as operating cash flows in the statement of cash
flows. Statement 123(R) requires the cash flows resulting from the tax benefits resulting from tax
deductions in excess of the compensation cost recognized for those options (excess tax benefits) to
be classified as financing cash flows. The excess tax benefit that is required to be classified as
a financing cash inflow after adoption of Statement 123(R) is not material.
Prior to the IPO, the Company did not have any compensation plans under which it granted stock
awards to employees. However, Clear Channel Communications granted certain of the Companys
officers and other key employees stock options to purchase shares of Clear Channel Communications
common stock. All outstanding options to purchase shares of Clear Channel Communications common
stock held by the Companys employees were converted using an intrinsic value method into options
to purchase shares of the Companys Class A common stock concurrent with the closing of the IPO.
As did the Company, Clear Channel Communications accounted for its stock-based award plans in
accordance with APB 25, and related interpretations. Clear Channel Communications calculated the
pro forma share-based payments as if the share-based awards had been accounted for using the
provisions of Statement 123. The share-based payments were then allocated to the Company based on
the percentage of options outstanding to employees of the Company.
C-47
Pro forma net income and earnings per share, assuming the Company and Clear Channel Communications
accounted for all employee stock options using the fair value method and amortized such to expense
over the options vesting period is as follows:
|
|
|
|
|
|
|
|
|
(In thousands, except per share data) |
|
2005 |
|
|
2004 |
|
Income before cumulative effect of a change in
accounting principle, net of tax: |
|
|
|
|
|
|
|
|
Reported |
|
$ |
61,573 |
|
|
$ |
7,478 |
|
Add: Share based payments included in reported
net income, net of related tax effects |
|
|
437 |
|
|
|
23 |
|
Deduct: Total share-based payments determined
under fair value based method for all awards,
net of related tax effects |
|
|
(3,439 |
) |
|
|
(6,497 |
) |
|
|
|
|
|
|
|
Pro Forma |
|
$ |
58,571 |
|
|
$ |
1,004 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before cumulative effect of a change in
accounting principle per common share: |
|
|
|
|
|
|
|
|
Basic: |
|
|
|
|
|
|
|
|
Reported |
|
$ |
.19 |
|
|
$ |
.02 |
|
|
|
|
|
|
|
|
Pro Forma |
|
$ |
.18 |
|
|
$ |
.00 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted: |
|
|
|
|
|
|
|
|
Reported |
|
$ |
.19 |
|
|
$ |
.02 |
|
|
|
|
|
|
|
|
Pro Forma |
|
$ |
.18 |
|
|
$ |
.00 |
|
|
|
|
|
|
|
|
The following assumptions were used to calculate the fair value of the Companys options on the
date of grant:
|
|
|
|
|
|
|
2006 |
|
2005 |
Expected volatility |
|
27% |
|
25% 27% |
Expected life in years |
|
5.0 7.5 |
|
1.3 7.5 |
Risk-free interest rate |
|
4.58% 5.08% |
|
4.42% 4.58% |
Dividend yield |
|
0% |
|
0% |
The following table presents a summary of the Companys stock options outstanding at and stock
option activity during the year ended December 31, 2006 (Price reflects the weighted average
exercise price per share):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average |
|
|
Aggregate |
|
|
|
|
|
|
|
|
|
|
|
Remaining |
|
|
Intrinsic |
|
(In thousands, except per share data) |
|
Options |
|
|
Price |
|
|
Contractual Term |
|
|
Value |
|
Outstanding, January 1, 2006 |
|
|
8,509 |
|
|
$ |
24.05 |
|
|
|
|
|
|
|
|
|
Granted |
|
|
221 |
|
|
|
19.10 |
|
|
|
|
|
|
|
|
|
Exercised (a) |
|
|
(93 |
) |
|
|
26.56 |
|
|
|
|
|
|
|
|
|
Forfeited |
|
|
(387 |
) |
|
|
21.78 |
|
|
|
|
|
|
|
|
|
Expired |
|
|
(543 |
) |
|
|
30.96 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, December 31, 2006 |
|
|
7,707 |
|
|
$ |
23.41 |
|
|
4.2 years |
|
$ |
44,463 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable, December 31, 2006 |
|
|
3,556 |
|
|
|
|
|
|
2.2 years |
|
$ |
5,913 |
|
|
|
|
(a) |
|
Cash received from option exercises was $2.2 million for the year ended December 31, 2006.
The total intrinsic value of options exercised during the year ended December 31, 2006, was
$0.3 million. |
C-48
The weighted average grant date fair value of options granted during the years ended December 31,
2006 and 2005 was $6.76 and $6.51, respectively.
A summary of the Companys nonvested options at December 31, 2005, and changes during the year
ended December 31, 2006, is presented below:
(In thousands, except per share data) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
Average |
|
|
|
|
|
|
|
Grant Date |
|
|
|
Options |
|
|
Fair Value |
|
Nonvested, January 1, 2006 |
|
|
5,634 |
|
|
$ |
4.56 |
|
Granted |
|
|
221 |
|
|
|
6.76 |
|
Vested |
|
|
(1,317 |
) |
|
|
1.18 |
|
Forfeited |
|
|
(387 |
) |
|
|
4.17 |
|
|
|
|
|
|
|
|
|
Nonvested, December 31, 2006 |
|
|
4,151 |
|
|
$ |
5.78 |
|
|
|
|
|
|
|
|
|
There were 34.0 million shares available for future grants under the Companys incentive stock plan
at December 31, 2006. Vesting dates range from April 2004 to October 2011, and expiration dates
range from January 2007 to October 2016 at exercise prices and average contractual lives as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands of
shares) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average |
|
|
Weighted |
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding |
|
|
Remaining |
|
|
Average |
|
|
Exercisable |
|
|
Average |
|
|
|
|
as of |
|
|
Contractual |
|
|
Exercise |
|
|
as of |
|
|
Exercise |
|
Range of Exercise Prices |
|
|
12/31/06 |
|
|
Life |
|
|
Price |
|
|
12/31/06 |
|
|
Price |
|
|
$ |
15.01 |
|
|
|
|
|
|
$ |
20.00 |
|
|
|
3,338 |
|
|
|
6.2 |
|
|
$ |
17.98 |
|
|
|
62 |
|
|
$ |
17.44 |
|
|
|
|
20.01 |
|
|
|
|
|
|
|
25.00 |
|
|
|
1,078 |
|
|
|
4.1 |
|
|
|
21.10 |
|
|
|
211 |
|
|
|
21.71 |
|
|
|
|
25.01 |
|
|
|
|
|
|
|
30.00 |
|
|
|
2,068 |
|
|
|
2.6 |
|
|
|
26.13 |
|
|
|
2,060 |
|
|
|
26.13 |
|
|
|
|
30.01 |
|
|
|
|
|
|
|
35.00 |
|
|
|
687 |
|
|
|
2.1 |
|
|
|
32.78 |
|
|
|
687 |
|
|
|
32.78 |
|
|
|
|
35.01 |
|
|
|
|
|
|
|
40.00 |
|
|
|
412 |
|
|
|
0.3 |
|
|
|
37.86 |
|
|
|
412 |
|
|
|
37.86 |
|
|
|
|
40.01 |
|
|
|
|
|
|
|
45.00 |
|
|
|
98 |
|
|
|
2.0 |
|
|
|
42.80 |
|
|
|
98 |
|
|
|
42.80 |
|
|
|
|
45.01 |
|
|
|
|
|
|
|
50.00 |
|
|
|
26 |
|
|
|
0.0 |
|
|
|
49.95 |
|
|
|
26 |
|
|
|
49.95 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,707 |
|
|
|
4.2 |
|
|
$ |
23.41 |
|
|
|
3,556 |
|
|
$ |
29.00 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted Stock Awards
The Company also grants restricted stock awards to employees and directors of the Company and its
affiliates. These common shares hold a legend which restricts their transferability for a term of
up to five years and are forfeited, except in certain circumstances, in the event the employee
terminates his or her employment or relationship with the Company prior to the lapse of the
restriction. The restricted stock awards were granted out of the Companys incentive stock plan.
The following table presents a summary of the Companys restricted stock outstanding at and
restricted stock activity during the year ended December 31, 2006 (Price reflects the weighted
average share price at the date of grant):
|
|
|
|
|
|
|
|
|
(In thousands, except per share data) |
|
Options |
|
|
Price |
|
Outstanding, January 1, 2006 |
|
|
236 |
|
|
$ |
18.00 |
|
Granted |
|
|
8 |
|
|
|
20.39 |
|
Vested (restriction lapsed) |
|
|
(4 |
) |
|
|
18.00 |
|
Forfeited |
|
|
(23 |
) |
|
|
14.16 |
|
|
|
|
|
|
|
|
|
Outstanding, December 31, 2006 |
|
|
217 |
|
|
$ |
18.84 |
|
|
|
|
|
|
|
|
|
C-49
Unrecognized share-based compensation cost
As of December 31, 2006, there was $13.5 million of unrecognized compensation cost related to
nonvested share-based compensation arrangements. The cost is expected to be recognized over a
weighted average period of approximately three years. However, if Clear Channel Communications
Agreement and Plan of Merger is approved, the expense becomes recognizable at the closing of the
transaction.
Reconciliation of Earnings per Share
In connection with the IPO, all of Clear Channel Communications shares of the Companys common
stock outstanding were converted into 315.0 million shares of Class B common stock. This conversion
is reflected as a recapitalization for earnings per share purposes which requires retroactive
statement in accordance with FAS 128, Earnings Per Share. As a result, shares outstanding prior to
the IPO are 315.0 million.
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands, except per share data) |
|
2006 |
|
|
2005 |
|
|
2004 |
|
NUMERATOR: |
|
|
|
|
|
|
|
|
|
|
|
|
Income before cumulative effect of a change
in accounting principle |
|
$ |
153,072 |
|
|
$ |
61,573 |
|
|
$ |
7,478 |
|
Cumulative effect of a change in accounting
principle |
|
|
|
|
|
|
|
|
|
|
(162,858 |
) |
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
|
153,072 |
|
|
|
61,573 |
|
|
|
(155,380 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of dilutive securities: |
|
|
|
|
|
|
|
|
|
|
|
|
None |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Numerator for net income (loss) per common
share diluted |
|
$ |
153,072 |
|
|
$ |
61,573 |
|
|
$ |
(155,380 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DENOMINATOR: |
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares |
|
|
352,155 |
|
|
|
319,890 |
|
|
|
315,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of dilutive securities: |
|
|
|
|
|
|
|
|
|
|
|
|
Stock options and restricted stock awards |
|
|
107 |
|
|
|
31 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for net income (loss) per
common share diluted |
|
|
352,262 |
|
|
|
319,921 |
|
|
|
315,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
Income before cumulative effect of a change
in accounting principle Basic |
|
$ |
.43 |
|
|
$ |
.19 |
|
|
$ |
.02 |
|
Cumulative effect of a change in accounting
principle Basic |
|
|
|
|
|
|
|
|
|
|
(.52 |
) |
|
|
|
|
|
|
|
|
|
|
Net income (loss) Basic |
|
$ |
.43 |
|
|
$ |
.19 |
|
|
$ |
(.50 |
) |
|
|
|
|
|
|
|
|
|
|
Income before cumulative effect of a change
in accounting principle Diluted |
|
$ |
.43 |
|
|
$ |
.19 |
|
|
$ |
.02 |
|
Cumulative effect of a change in accounting
principle Diluted |
|
|
|
|
|
|
|
|
|
|
(.52 |
) |
|
|
|
|
|
|
|
|
|
|
Net income (loss) Diluted |
|
$ |
.43 |
|
|
$ |
.19 |
|
|
$ |
(.50 |
) |
|
|
|
|
|
|
|
|
|
|
C-50
NOTE L EMPLOYEE STOCK AND SAVINGS PLANS
The Companys U.S. employees are eligible to participate in various 401(k) savings and other plans
provided by Clear Channel Communications for the purpose of providing retirement benefits for
substantially all employees. Both the employees and the Company make contributions to the plan.
The Company matches a portion of an employees contribution. Beginning January 1, 2003, the
Company match was increased from 35% to 50% of the employees first 5% of pay contributed to the
plan. Company matched contributions vest to the employees based upon their years of service to the
Company. Contributions to these plans of $2.1 million, $2.1 million and $1.9 million were recorded
as a component of operating expenses for 2006, 2005 and 2004, respectively.
In addition, employees in the Companys International segment participate in retirement plans
administered by the Company which are not part of the 401(k) savings and other plans provided by
Clear Channel Communications. Contributions to these plans of $17.6 million, $16.2 million and
$15.0 million were recorded as a component of operating expenses for 2006, 2005 and 2004,
respectively.
The Companys employees are also eligible to participate in a non-qualified employee stock purchase
plan provided by Clear Channel Communications. Under the plan, shares of Clear Channel
Communications common stock may be purchased at 95% of the market value on the day of purchase.
Clear Channel Communications changed its discount from market value offered to participants under
the plan from 15% to 5% in July 2005. Employees may purchase shares having a value not exceeding
10% of their annual gross compensation or $25,000, whichever is lower. During 2006, 2005 and 2004,
all Clear Channel Communications employees purchased 144,444, 222,789 and 262,163 shares at
weighted average share prices of $28.56, $28.79 and $32.05, respectively. The Companys employees
represent approximately 15% of the total participation in this plan. As a condition of its merger,
Clear Channel Communications no longer accepts contributions to this plan, beginning January 1,
2007.
Certain highly compensated executives of the Company are eligible to participate in a non-qualified
deferred compensation plan provided by Clear Channel Communications, which allows deferrals up to
50% of their annual salary and up to 80% of their bonus before taxes. Clear Channel Communications
does not match any deferral amounts and retains ownership of all assets until distributed. There
is no liability recorded by the Company under this deferred compensation plan as the liability of
this plan is Clear Channel Communications.
NOTE M OTHER INFORMATION
The following details the components of Other income (expense) net:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31, |
|
(In thousands) |
|
2006 |
|
|
2005 |
|
|
2004 |
|
Royalty fee to Clear Channel Communications |
|
$ |
|
|
|
$ |
(14,825 |
) |
|
$ |
(15,809 |
) |
Other |
|
|
331 |
|
|
|
2,534 |
|
|
|
(721 |
) |
|
|
|
|
|
|
|
|
|
|
Total other income (expense) net |
|
$ |
331 |
|
|
$ |
(12,291 |
) |
|
$ |
(16,530 |
) |
|
|
|
|
|
|
|
|
|
|
The following details the components of Other current assets:
|
|
|
|
|
|
|
|
|
|
|
As of December 31, |
|
(In thousands) |
|
2006 |
|
|
2005 |
|
Inventory |
|
$ |
21,811 |
|
|
$ |
17,470 |
|
Deposits |
|
|
20,625 |
|
|
|
23,996 |
|
Other prepayments |
|
|
55,795 |
|
|
|
47,366 |
|
Current deferred tax assets |
|
|
|
|
|
|
6,219 |
|
Other |
|
|
96,053 |
|
|
|
86,888 |
|
|
|
|
|
|
|
|
Total other current assets |
|
$ |
194,284 |
|
|
$ |
181,939 |
|
|
|
|
|
|
|
|
C-51
NOTE N SEGMENT DATA
The Company has two reportable operating segments Americas and International. The Americas
segment primarily includes operations in the United States, Canada and Latin America, and the
International segment includes operations in Europe, Asia, Africa and Australia. Share-based
payments are recorded by each segment in direct operating and selling, general and administrative
expenses.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
expenses and |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
gain on |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
disposition of |
|
|
Consolidated/ |
|
(in thousands) |
|
Americas |
|
|
International |
|
|
assets net |
|
|
Combined |
|
2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue |
|
$ |
1,341,356 |
|
|
$ |
1,556,365 |
|
|
$ |
|
|
|
$ |
2,897,721 |
|
Direct operating expenses |
|
|
534,365 |
|
|
|
918,735 |
|
|
|
|
|
|
|
1,453,100 |
|
Selling, general and
administrative expenses |
|
|
207,326 |
|
|
|
341,410 |
|
|
|
|
|
|
|
548,736 |
|
Depreciation and amortization |
|
|
178,970 |
|
|
|
228,760 |
|
|
|
|
|
|
|
407,730 |
|
Corporate expenses |
|
|
|
|
|
|
|
|
|
|
65,542 |
|
|
|
65,542 |
|
Gain on disposition of assets net |
|
|
|
|
|
|
|
|
|
|
22,846 |
|
|
|
22,846 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) |
|
$ |
420,695 |
|
|
$ |
67,460 |
|
|
$ |
(42,696 |
) |
|
$ |
445,459 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Identifiable assets |
|
$ |
2,820,737 |
|
|
$ |
2,401,924 |
|
|
$ |
199,230 |
|
|
$ |
5,421,891 |
|
Capital expenditures |
|
$ |
90,495 |
|
|
$ |
143,387 |
|
|
$ |
|
|
|
$ |
233,882 |
|
Share-based payments |
|
$ |
4,699 |
|
|
$ |
1,312 |
|
|
$ |
88 |
|
|
$ |
6,099 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue |
|
$ |
1,216,382 |
|
|
$ |
1,449,696 |
|
|
$ |
|
|
|
$ |
2,666,078 |
|
Direct operating expenses |
|
|
490,519 |
|
|
|
851,788 |
|
|
|
|
|
|
|
1,342,307 |
|
Selling, general and
administrative expenses |
|
|
186,749 |
|
|
|
355,045 |
|
|
|
|
|
|
|
541,794 |
|
Depreciation and amortization |
|
|
180,559 |
|
|
|
220,080 |
|
|
|
|
|
|
|
400,639 |
|
Corporate expenses |
|
|
|
|
|
|
|
|
|
|
61,096 |
|
|
|
61,096 |
|
Gain on disposition of assets net |
|
|
|
|
|
|
|
|
|
|
3,488 |
|
|
|
3,488 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) |
|
$ |
358,555 |
|
|
$ |
22,783 |
|
|
$ |
(57,608 |
) |
|
$ |
323,730 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Identifiable assets |
|
$ |
2,531,641 |
|
|
$ |
2,140,407 |
|
|
$ |
246,297 |
|
|
$ |
4,918,345 |
|
Capital expenditures |
|
$ |
73,084 |
|
|
$ |
135,072 |
|
|
$ |
|
|
|
$ |
208,156 |
|
Share-based payments |
|
$ |
693 |
|
|
$ |
153 |
|
|
$ |
|
|
|
$ |
846 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue |
|
$ |
1,092,089 |
|
|
$ |
1,354,951 |
|
|
$ |
|
|
|
$ |
2,447,040 |
|
Direct operating expenses |
|
|
468,687 |
|
|
|
793,630 |
|
|
|
|
|
|
|
1,262,317 |
|
Selling, general and
administrative expenses |
|
|
173,010 |
|
|
|
326,447 |
|
|
|
|
|
|
|
499,457 |
|
Depreciation and amortization |
|
|
186,620 |
|
|
|
201,597 |
|
|
|
|
|
|
|
388,217 |
|
Corporate expenses |
|
|
|
|
|
|
|
|
|
|
53,770 |
|
|
|
53,770 |
|
Gain on disposition of assets net |
|
|
|
|
|
|
|
|
|
|
10,791 |
|
|
|
10,791 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) |
|
$ |
263,772 |
|
|
$ |
33,277 |
|
|
$ |
(42,979 |
) |
|
$ |
254,070 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Identifiable assets |
|
$ |
2,460,011 |
|
|
$ |
2,223,918 |
|
|
$ |
557,004 |
|
|
$ |
5,240,933 |
|
Capital expenditures |
|
$ |
60,506 |
|
|
$ |
115,634 |
|
|
$ |
|
|
|
$ |
176,140 |
|
Share-based payments |
|
$ |
116 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
116 |
|
C-52
Revenue of $1.6 billion, $1.5 billion and $1.4 billion and identifiable assets of $2.7 billion,
$2.2 billion and $2.3 billion derived from the Companys foreign operations are included in the
data above for the years ended December 31, 2006, 2005 and 2004, respectively.
NOTE O QUARTERLY RESULTS OF OPERATIONS (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
June 30, |
|
|
September 30, |
|
|
December 31, |
|
(In thousands, except per share data) |
|
2006 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
Revenue |
|
$ |
598,369 |
|
|
$ |
578,959 |
|
|
$ |
748,403 |
|
|
$ |
684,509 |
|
|
$ |
720,254 |
|
|
$ |
668,003 |
|
|
$ |
830,695 |
|
|
$ |
734,607 |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct operating expenses |
|
|
328,626 |
|
|
|
326,054 |
|
|
|
357,597 |
|
|
|
332,706 |
|
|
|
367,620 |
|
|
|
329,688 |
|
|
|
399,257 |
|
|
|
353,859 |
|
Selling, general and
administrative expenses |
|
|
130,805 |
|
|
|
129,597 |
|
|
|
136,161 |
|
|
|
127,316 |
|
|
|
134,637 |
|
|
|
153,162 |
|
|
|
147,133 |
|
|
|
131,719 |
|
Depreciation and
amortization |
|
|
96,320 |
|
|
|
98,266 |
|
|
|
100,827 |
|
|
|
96,562 |
|
|
|
102,123 |
|
|
|
95,405 |
|
|
|
108,460 |
|
|
|
110,406 |
|
Corporate expenses |
|
|
14,585 |
|
|
|
12,975 |
|
|
|
14,120 |
|
|
|
13,423 |
|
|
|
15,125 |
|
|
|
12,999 |
|
|
|
21,712 |
|
|
|
21,699 |
|
Gain on
disposition of
assets net |
|
|
22,756 |
|
|
|
1,581 |
|
|
|
(315 |
) |
|
|
290 |
|
|
|
(834 |
) |
|
|
1,043 |
|
|
|
1,239 |
|
|
|
574 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
50,789 |
|
|
|
13,648 |
|
|
|
139,383 |
|
|
|
114,792 |
|
|
|
99,915 |
|
|
|
77,792 |
|
|
|
155,372 |
|
|
|
117,498 |
|
Interest expense on debt
with Clear Channel
Communications |
|
|
36,797 |
|
|
|
36,414 |
|
|
|
37,766 |
|
|
|
36,414 |
|
|
|
39,538 |
|
|
|
60,265 |
|
|
|
39,399 |
|
|
|
49,574 |
|
Interest expense |
|
|
3,257 |
|
|
|
3,244 |
|
|
|
3,926 |
|
|
|
3,223 |
|
|
|
4,061 |
|
|
|
3,407 |
|
|
|
(2,161 |
) |
|
|
5,813 |
|
Equity in earnings (loss)
of nonconsolidated
affiliates |
|
|
1,378 |
|
|
|
345 |
|
|
|
2,421 |
|
|
|
5,602 |
|
|
|
1,823 |
|
|
|
3,961 |
|
|
|
1,838 |
|
|
|
(64 |
) |
Other income (expense) net |
|
|
(434 |
) |
|
|
(2,842 |
) |
|
|
1,634 |
|
|
|
(1,129 |
) |
|
|
467 |
|
|
|
(5,748 |
) |
|
|
(1,336 |
) |
|
|
(2,572 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income
taxes and minority interest |
|
|
11,679 |
|
|
|
(28,507 |
) |
|
|
101,746 |
|
|
|
79,628 |
|
|
|
58,606 |
|
|
|
12,333 |
|
|
|
118,636 |
|
|
|
59,475 |
|
Income tax (expense) benefit |
|
|
(5,139 |
) |
|
|
23,565 |
|
|
|
(44,768 |
) |
|
|
(58,431 |
) |
|
|
(26,646 |
) |
|
|
3,122 |
|
|
|
(45,527 |
) |
|
|
(13,740 |
) |
Minority interest income
(expense) net |
|
|
1,593 |
|
|
|
(950 |
) |
|
|
(8,931 |
) |
|
|
(3,685 |
) |
|
|
(127 |
) |
|
|
(5,913 |
) |
|
|
(8,050 |
) |
|
|
(5,324 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
8,133 |
|
|
$ |
(5,892 |
) |
|
$ |
48,047 |
|
|
$ |
17,512 |
|
|
$ |
31,833 |
|
|
$ |
9,542 |
|
|
$ |
65,059 |
|
|
$ |
40,411 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per common
share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
.02 |
|
|
$ |
(.02 |
) |
|
$ |
.14 |
|
|
$ |
.06 |
|
|
$ |
.09 |
|
|
$ |
.03 |
|
|
$ |
.18 |
|
|
$ |
.12 |
|
Diluted |
|
$ |
.02 |
|
|
$ |
(.02 |
) |
|
$ |
.14 |
|
|
$ |
.06 |
|
|
$ |
.09 |
|
|
$ |
.03 |
|
|
$ |
.18 |
|
|
$ |
.12 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock price: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
High |
|
$ |
23.95 |
|
|
$ |
|