iHeartMedia, Inc. - Quarter Report: 2008 September (Form 10-Q)

CC MEDIA HOLDINGS, INC. AND SUBSIDIARIES

INDEX

		Page No.
Part I — Financial Information
Item 1. Unaudited Financial Statements			3
Consolidated Balance Sheets at September 30, 2008 and December 31, 2007			3
Consolidated Statements of Operations for the post-merger period from July 31 through September 30, 2008, the pre-merger period from January 1 through July 30, 2008, the pre-merger period from July 1 through July 30, 2008 and the pre-merger nine and three months ended September 30, 2007			5
Consolidated Statements of Shareholders’ Equity for the post-merger period from July 31 through September 30, 2008 and the pre-merger period from January 1 through July 30, 2008			7
Condensed Consolidated Statements of Cash Flows for the post-merger period from July 31 through September 30, 2008, the pre-merger period from January 1 through July 30, 2008, and the pre-merger nine months ended September 30, 2007			8
Notes to Consolidated Financial Statements			9
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			39
Item 3. Quantitative and Qualitative Disclosures about Market Risk			59
Item 4T. Controls and Procedures			59
Part II — Other Information
Item 1. Legal Proceedings			61
Item 1A. Risk Factors			62
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			62
Item 3. Defaults Upon Senior Securities			62
Item 4. Submission of Matters to a Vote of Security Holders			62
Item 5. Other Information			62
Item 6. Exhibits			63
Signatures			69
EX-11
EX-12
EX-31.1
EX-31.2
EX-32.1
EX-32.2

PART I

Item 1. UNAUDITED FINANCIAL STATEMENTS

CC MEDIA HOLDINGS, INC. AND SUBSIDIARIES

		Post-merger				Pre-merger
		September 30,				December 31,
		2008				2007
		(Unaudited)				(Audited)
CURRENT ASSETS
Cash and cash equivalents		$	243,749			$	145,148
Accounts receivable, net of allowance of $63,768 in 2008 and $59,169 in 2007			1,595,649				1,693,218
Prepaid expenses			153,754				116,902
Other current assets			255,921				243,248
Current assets from discontinued operations			—				96,067
Total Current Assets			2,249,073				2,294,583
PROPERTY, PLANT AND EQUIPMENT
Land, buildings and improvements			528,024				840,832
Structures			2,319,904				3,901,941
Towers, transmitters and studio equipment			341,283				600,315
Furniture and other equipment			191,546				527,714
Construction in progress			145,137				119,260
			3,525,894				5,990,062
Less accumulated depreciation			57,927				2,939,698
			3,467,967				3,050,364
Property, plant and equipment from discontinued operations, net			6,233				164,724
INTANGIBLE ASSETS
Definite-lived intangibles, net			1,145,095				485,870
Indefinite-lived intangibles — licenses			6,608,427				4,201,617
Indefinite-lived intangibles — permits			3,194,400				251,988
Goodwill			9,804,827				7,210,116
Intangible assets from discontinued operations, net			9,214				219,722
OTHER ASSETS
Notes receivable			12,062				12,388
Investments in, and advances to, nonconsolidated affiliates			397,721				346,387
Other assets			575,817				303,791
Other investments			91,986				237,598
Other assets from discontinued operations			3,289				26,380
Total Assets		$	27,566,111			$	18,805,528

See Notes to Consolidated Financial Statements

CC MEDIA HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS’ EQUITY
(In thousands)

		Post-merger				Pre-merger
		September 30,				December 31,
		2008				2007
		(Unaudited)				(Audited)
CURRENT LIABILITIES
Accounts payable		$	118,614			$	165,533
Accrued expenses			735,736				912,665
Accrued interest			103,617				98,601
Accrued income taxes			—				79,973
Current portion of long-term debt			567,167				1,360,199
Deferred income			200,908				158,893
Current liabilities from discontinued operations			—				37,413
Total Current Liabilities			1,726,042				2,813,277
Long-term debt			19,035,082				5,214,988
Other long-term obligations			—				127,384
Deferred income taxes			3,995,626				793,850
Other long-term liabilities			477,918				567,848
Long-term liabilities from discontinued operations			—				54,330
Minority interest			472,745				436,360
Commitments and contingent liabilities (Note 6)
SHAREHOLDERS’ EQUITY
Common Stock			82				49,808
Additional paid-in capital			2,094,078				26,858,079
Retained deficit			(44,732	)			(18,489,143	)
Accumulated other comprehensive income (loss)			(190,729	)			383,698
Cost of shares held in treasury			(1	)			(4,951	)
Total Shareholders’ Equity			1,858,698				8,797,491
Total Liabilities and Shareholders’ Equity		$	27,566,111			$	18,805,528

See Notes to Consolidated Financial Statements

CC MEDIA HOLDINGS, INC. AND SUBSIDIARIES

		Post-merger				Pre-merger
						Period from
		Period from July 31				January 1				Nine months ended
		through September 30,				through July 30,				September 30,
		2008				2008				2007
Revenue		$	1,128,136			$	3,951,742			$	5,058,434
Operating expenses:
Direct operating expenses (excludes depreciation and amortization)			473,738				1,706,099				1,993,815
Selling, general and administrative expenses (excludes depreciation and amortization)			291,469				1,022,459				1,294,875
Depreciation and amortization			108,140				348,789				420,644
Corporate expenses (excludes depreciation and amortization)			33,395				125,669				138,234
Merger expenses			—				87,684				6,372
Gain on disposition of assets — net			842				14,827				11,621
Operating income			222,236				675,869				1,216,115
Interest expense			281,479				213,210				347,525
Gain (loss) on marketable securities			—				34,262				661
Equity in earnings of nonconsolidated affiliates			2,097				94,215				23,832
Other income (expense) — net			(10,914	)			(5,112	)			(1,075	)
Income (loss) before income taxes, minority interest and discontinued operations			(68,060	)			586,024				892,008
Income tax benefit (expense):
Current			38,217				(27,280	)			(168,093	)
Deferred			(5,008	)			(145,303	)			(132,284	)
Income tax benefit (expense)			33,209				(172,583	)			(300,377	)
Minority interest expense, net of tax			8,868				17,152				27,207
Income (loss) before discontinued operations			(43,719	)			396,289				564,424
Income (loss) from discontinued operations, net			(1,013	)			640,236				53,524
Net income (loss)		$	(44,732	)		$	1,036,525			$	617,948
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments			(145,100	)			28,866				77,018
Unrealized gain (loss) on securities and derivatives:
Unrealized holding gain (loss) on marketable securities			(45,629	)			(52,460	)			2,086
Reclassification adjustment for gains included in net income			—				(25,997	)			—
Comprehensive income (loss)		$	(235,461	)		$	986,934			$	697,052
Net income (loss) per common share:
Income (loss) before discontinued operations — Basic		$	(.54	)		$	.80			$	1.14
Discontinued operations — Basic			(.01	)			1.29				.11
Net income (loss) — Basic		$	(.55	)		$	2.09			$	1.25
Weighted average common shares — basic			81,242				495,044				494,261
Income (loss) before discontinued operations — Diluted		$	(.54	)		$	.80			$	1.14
Discontinued operations — Diluted			(.01	)			1.29				.11
Net income (loss) — Diluted		$	(.55	)		$	2.09			$	1.25
Weighted average common shares — diluted			81,242				496,519				495,580
Dividends declared per share		$	—			$	—			$	.5625

See Notes to Consolidated Financial Statements

CC MEDIA HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(In thousands, except per share data)

		Post-merger				Pre-merger
		Period from July 31				Period from July 1				Three months ended
		through September 30,				through July 30,				September 30,
		2008				2008				2007
Revenue		$	1,128,136			$	556,457			$	1,751,165
Operating expenses:
Direct operating expenses (excludes depreciation and amortization)			473,738				256,667				689,681
Selling, general and administrative expenses (excludes depreciation and amortization)			291,469				150,344				431,366
Depreciation and amortization			108,140				54,323				139,650
Corporate expenses (excludes depreciation and amortization)			33,395				31,392				47,040
Merger expenses			—				79,839				2,002
Gain (loss) on disposition of assets — net			842				(4,624	)			678
Operating income (loss)			222,236				(20,732	)			442,104
Interest expense			281,479				31,032				113,026
Gain (loss) on marketable securities			—				—				676
Equity in earnings of nonconsolidated affiliates			2,097				2,180				7,133
Other income (expense) — net			(10,914	)			(10,813	)			(1,403	)
Income (loss) before income taxes, minority interest and discontinued operations			(68,060	)			(60,397	)			335,484
Income tax benefit (expense):
Current			38,217				97,600				(13,663	)
Deferred			(5,008	)			(78,465	)			(56,462	)
Income tax benefit (expense)			33,209				19,135				(70,125	)
Minority interest expense, net of tax			8,868				1,135				11,961
Income (loss) before discontinued operations			(43,719	)			(42,397	)			253,398
Income (loss) from discontinued operations, net			(1,013	)			(3,058	)			26,338
Net income (loss)		$	(44,732	)		$	(45,455	)		$	279,736
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments			(145,100	)			(15,681	)			31,129
Unrealized gain (loss) on securities and derivatives:
Unrealized holding gain (loss) on marketable securities			(45,629	)			(4,882	)			13,263
Reclassification adjustment for gains included in net income			—				—				—
Comprehensive income (loss)		$	(235,461	)		$	(66,018	)		$	324,128
Net income (loss) per common share:
Income (loss) before discontinued operations — Basic		$	(.54	)		$	(.09	)		$	.52
Discontinued operations — Basic			(.01	)			—				.05
Net income (loss) — Basic		$	(.55	)		$	(.09	)		$	.57
Weighted average common shares — basic			81,242				495,465				494,568
Income (loss) before discontinued operations — Diluted		$	(.54	)		$	(.09	)		$	.51
Discontinued operations — Diluted			(.01	)			—				.05
Net income (loss) — Diluted		$	(.55	)		$	(.09	)		$	.56
Weighted average common shares — diluted			81,242				495,465				496,168
Dividends declared per share		$	—			$	—			$	.1875

See Notes to Consolidated Financial Statements

CC MEDIA HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(UNAUDITED)

(In thousands, except share data)

																											Accumulated
										Common									Additional								Other
										Shares					Common				Paid-in				Retained				Comprehensive				Treasury
										Issued					Stock				Capital				(Deficit)				Income (Loss)				Stock				Total
Pre-merger
Balances at December 31, 2007											498,075,417				$	49,808			$	26,858,079			$	(18,489,143	)		$	383,698			$	(4,951	)		$	8,797,491
Net income											—					—				—				1,036,525				—				—				1,036,525
Exercise of stock options and other											82,645					30				4,963				—				—				(2,024	)			2,969
Amortization and adjustment of deferred compensation											—					—				57,855				—				—				—				57,855
Currency translation adjustment											—					—				—				—				28,866				—				28,866
Unrealized gains (losses)											—					—				—				—				(52,460	)			—				(52,460	)
Realized (losses) on investments											—					—				—				—				(25,997	)			—				(25,997	)
Balances at July 30, 2008											498,158,062				$	49,838			$	26,920,897			$	(17,452,618	)		$	334,107			$	(6,975	)		$	9,845,249
Elimination of pre-merger equity											(498,158,062	)				(49,838	)			(26,920,897	)			17,452,618				(334,107	)			6,975				(9,845,249	)
		Class C				Class B				Class A
		Shares				Shares				Shares
Post-merger
Balances at July 31, 2008			58,967,502				555,556				21,718,569				$	81			$	2,089,266			$	—			$	—			$	—			$	2,089,347
Net (loss)			—				—				—					—				—				(44,732	)			—				—				(44,732	)
Issuance of restricted stock awards and other			—				—				1,903,585					1				—				—				—				(1	)			—
Amortization and adjustment of deferred compensation			—				—				—					—				4,812				—				—				—				4,812
Currency translation adjustment			—				—				—					—				—				—				(145,100	)			—				(145,100	)
Unrealized gains (losses)			—				—				—					—				—				—				(45,629	)			—				(45,629	)
Balances at September 30, 2008			58,967,502				555,556				23,622,154				$	82			$	2,094,078			$	(44,732	)		$	(190,729	)		$	(1	)		$	1,858,698

See Notes to Consolidated Financial Statements

CC MEDIA HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

(In thousands)

		Post-merger				Pre-merger
		Period from July				Period from				Nine months
		31 through				January 1				ended
		September 30,				through July 30,				September 30,
		2008				2008				2007
Cash flows from operating activities:
Net income (loss)		$	(44,732	)		$	1,036,525			$	617,948
(Income) loss from discontinued operations, net			1,013				(640,236	)			(53,524	)
			(43,719	)			396,289				564,424
Reconciling items:
Depreciation and amortization			108,140				348,789				420,644
Deferred taxes			5,008				145,303				132,284
(Gain) loss on disposal of assets			(842	)			(14,827	)			(11,621	)
(Gain) loss forward exchange contract			—				2,496				11,925
(Gain) loss on trading securities			—				(849	)			(12,586	)
Provision for doubtful accounts			8,902				23,216				26,405
Share-based compensation			6,539				62,723				32,520
Equity in earnings of nonconsolidated affiliates			(2,097	)			(94,215	)			(23,832	)
Other reconciling items — net			66,557				7,409				29,433
Changes in operating assets and liabilities:
Changes in other operating assets and liabilities, net of effects of acquisitions and dispositions			(103,197	)			158,924				(166,220	)
Net cash provided by operating activities			45,291				1,035,258				1,003,376
Cash flows from investing activities:
Decrease (increase) in notes receivable — net			140				336				(198	)
Decrease (increase) in investments in and advances to nonconsolidated affiliates — net			7,665				23,782				26,848
Sales (purchases) of investments — net			(26	)			(25,246	)			(422	)
Purchases of property, plant and equipment			(48,937	)			(240,202	)			(224,209	)
Proceeds from disposal of assets			1,767				72,806				21,214
Acquisition of operating assets, net of cash acquired			(20,247	)			(153,836	)			(71,593	)
Decrease (increase) in other — net			(18,305	)			(93,891	)			(12,547	)
Cash used to purchase equity			(17,430,258	)			—				—
Net cash used in investing activities			(17,508,201	)			(416,251	)			(260,907	)
Cash flows from financing activities:
Draws on credit facilities			488,000				692,614				618,372
Payments on credit facilities			(82,221	)			(872,901	)			(1,026,040	)
Payments on long-term debt			(366,257	)			(1,276,872	)			(262,843	)
Debt proceeds used to finance the merger			15,377,919				—				—
Payments for purchase of common shares			(1	)			(3,781	)			(435	)
Equity contribution used to finance the merger			2,142,831				—				—
Payment on forward exchange contract			—				(110,410	)			—
Proceeds from exercise of stock options and other			—				17,776				77,295
Dividends paid			—				(93,367	)			(279,008	)
Net cash provided by (used in) financing activities			17,560,271				(1,646,941	)			(872,659	)
Cash flows from discontinued operations:
Net cash (used in) provided by operating activities			(1,967	)			(67,751	)			31,449
Net cash provided by investing activities			—				1,098,892				106,824
Net cash provided by (used in) financing activities			—				—				—
Net cash provided by discontinued operations			(1,967	)			1,031,141				138,273
Net (decrease) increase in cash and cash equivalents			95,394				3,207				8,083
Cash and cash equivalents at beginning of period			148,355				145,148				116,000
Cash and cash equivalents at end of period		$	243,749			$	148,355			$	124,083

See Notes to Consolidated Financial Statements

CC MEDIA HOLDINGS, INC. AND SUBSIDIARIES

Note 1: BASIS OF PRESENTATION AND NEW ACCOUNTING STANDARDS

Information Regarding Registrant

CC Media Holdings, Inc. (the “Company”) was formed in May 2007 by private equity funds sponsored by Bain Capital Partners, LLC and Thomas H. Lee Partners, L.P. (the “Sponsors”) for the purpose of acquiring the business of Clear Channel Communications, Inc., a Texas company (“Clear Channel”). The acquisition was completed on July 30, 2008 pursuant to the Agreement and Plan of Merger, dated November 16, 2006, as amended on April 18, 2007, May 17, 2007 and May 13, 2008 (the “Merger Agreement”).

As a result of the merger, each issued and outstanding share of Clear Channel, other than shares held by certain principals of the Company that were rolled over and exchanged for Class A common stock of the Company, were either exchanged for (i) $36.00 in cash consideration, without interest, or (ii) one share of Class A common stock of the Company.

The purchase price was approximately $23.0 billion including $134.9 million in capitalized transaction costs. The merger was funded primarily through a $3.0 billion equity contribution, including the rollover of Clear Channel shares, and $20.8 billion in debt financing, including the assumption of $5.1 billion aggregate principal amount of Clear Channel debt, discussed more fully in Note 4.

The transaction was accounted for as a purchase in accordance with Statement of Financial Accounting Standards No. 141, Business Combinations (“Statement 141”), and Emerging Issues Task Force Issue 88-16, Basis in Leveraged Buyout Transactions (“EITF 88-16”). The Company allocated a portion of the consideration paid to the assets and liabilities acquired at their respective fair values with the remaining portion recorded at the continuing shareholders basis. Excess consideration after this allocation was recorded as goodwill.

The Company has estimated the fair value of the acquired assets and liabilities as of the merger date utilizing information available at the time the Company’s financial statements were prepared. These estimates are subject to refinement until all pertinent information is obtained. The Company is currently in the process of obtaining third-party valuations of certain of the acquired assets and liabilities and will complete its purchase price allocation within one year of the closing of the acquisition.  The final allocation of the purchase price may be different than the initial allocation.

The global economic slowdown has adversely affected advertising revenues across the Company’s businesses in recent months.  The Company will perform its annual impairment test in the fourth quarter of 2008 and it is possible that a continued deterioration in advertising revenues could result in the Company recognizing an impairment charge on the acquired assets or goodwill.

The accompanying consolidated balance sheets, statements of operations, statements of cash flows and shareholders’ equity are presented for two periods: post-merger and pre-merger. The Company applied purchase accounting pursuant to the aforementioned standards to the opening balance sheet on July 31, 2008 as the merger occurred at the close of business on July 30, 2008. The merger resulted in a new basis of accounting beginning on July 31, 2008 and the financial reporting periods are presented as follows:

	•		The period from July 31 through September 30, 2008 includes the post-merger period of the Company, reflecting the merger of the Company and Clear Channel. Subsequent to the acquisition, Clear Channel became an indirect, wholly-owned subsidiary of the Company and the business of the Company became that of Clear Channel and its subsidiaries.
	•		The periods from January 1 through July 30, 2008 and July 1 through July 30, 2008 include the pre-merger period of Clear Channel. Prior to the consummation of its acquisition of Clear Channel, the Company had not conducted any activities, other than activities incident to its formation and in connection with the acquisition, and did not have any assets or liabilities, other than as related to the acquisition.
	•		The 2007 periods presented are pre-merger. The consolidated financial statements for all pre-merger periods were prepared using the historical basis of accounting for Clear Channel. As a result of the merger and the associated purchase accounting, the consolidated financial statements of the post-merger periods are not comparable to periods preceding the merger.

The balance sheet presented as of July 31, 2008 reflects the preliminary allocation of purchase price, based on available information and certain assumptions management believed reasonable. Following is a summary of the preliminary purchase price allocations:

(In thousands)		July 31, 2008
Consideration for equity		$	17,720,185
Assumed debt			5,136,929
Transaction costs			134,874
Historical carryover basis			(763,481	)
		$	22,228,507
Total current assets			2,221,285
Net PP&E			3,739,148
Net PP&E — discontinued operations			6,274
Intangible assets — net			20,718,589
Intangible assets — discontinued operations			9,214
Long-term assets			1,160,614
Current liabilities			(1,219,033	)
Long-term liabilities			(4,407,584	)
		$	22,228,507

The following unaudited supplemental pro forma information reflects the consolidated results of operations of the Company as if the merger had occurred on January 1, 2007. The historical financial information was adjusted to give effect to items that are (i) directly attributed to the merger, (ii) factually supportable, and (iii) expected to have a continuing impact on the consolidated results. Such items include depreciation and amortization expense associated with preliminary valuations of property, plant and equipment and definite-lived intangible assets, corporate expenses associated with new equity based awards granted to certain members of management, expenses associated with the accelerated vesting of employee share based awards upon closing of the merger, interest expense related to debt issued in conjunction with the merger and the fair value adjustment to Clear Channel’s existing debt and the related tax effects of these items. This unaudited pro forma information should not be relied upon as necessarily being indicative of the historical results that would have been obtained if the merger had actually occurred on that date, nor of the results that may be obtained in the future.

		Pre-merger				Pre-merger				Pre-merger				Pre-merger
		Period from January 1				Period from July 1				Nine months ended				Three months ended
		through July 30,				through July 30,				September 30,				September 30,
(In thousands)		2008				2008				2007				2007
Revenue		$	3,951,742			$	556,457			$	5,058,434			$	1,751,165
Income (loss) before discontinued operations			(22,744	)			(39,359	)			(9,789	)			54,953
Net income (loss)			617,492				(42,417	)			43,735				81,291
Earnings (loss) per share — basic			7.60				(.52	)			.54				1.00
Earnings (loss) per share — diluted			7.57				(.52	)			.54				1.00

Preparation of Interim Financial Statements

The consolidated financial statements were prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) and, in the opinion of management, include all adjustments (consisting of normal recurring accruals and adjustments necessary for adoption of new accounting standards) necessary to present fairly the results of the interim periods shown. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles in the United States have been condensed or omitted pursuant to such SEC rules and regulations. Management believes that the disclosures made are adequate to make the information presented not misleading. Due to seasonality and other factors, the results for the interim periods are not necessarily indicative of results for the full year. The financial statements contained herein should be read in conjunction with the consolidated financial statements and notes thereto included in Clear Channel’s 2007 Annual Report on Form 10-K and its Current Report on Form 8-K filed May 30, 2008.

The consolidated financial statements include the accounts of the Company and its subsidiaries. Investments in companies in which the Company owns 20 percent to 50 percent of the voting common stock or otherwise exercises significant influence over operating

and financial policies of the company are accounted for under the equity method. All significant intercompany transactions are eliminated in the consolidation process.

Certain Reclassifications

The historical financial statements and footnote disclosures have been revised to exclude amounts related to Clear Channel’s television business and certain of its radio stations as discussed in Note 2.

Recent Accounting Pronouncements

On March 19, 2008, the Financial Accounting Standards Board issued Statement No. 161, Disclosures about Derivative Instruments and Hedging Activities (”Statement 161”). Statement 161 requires additional disclosures about how and why an entity uses derivative instruments, how derivative instruments and related hedged items are accounted for and how derivative instruments and related hedged items effect an entity’s financial position, results of operations and cash flows. It is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008, with early application encouraged. The Company will adopt the disclosure requirements beginning January 1, 2009.

In April 2008, the Financial Accounting Standards Board (“FASB”) issued FASB Staff Position No. FAS 142-3, Determination of the Useful Life of Intangible Assets (“FSP FAS 142-3”).  FSP FAS 142-3 amends the factors an entity should consider in developing renewal or extension assumptions used in determining the useful life of recognized intangible assets under FASB Statement No. 142, Goodwill and Other Intangible Assets (“Statement 142”).  FSP FAS 142-3 removes an entity’s requirement under paragraph 11 of Statement 142 to consider whether an intangible asset can be renewed without substantial cost or material modifications to the existing terms and conditions.  It is effective for financial statements issued for fiscal years and interim periods beginning after December 15, 2008, and early adoption is prohibited.  The Company will adopt FSP FAS 142-3 on January 1, 2009.  FSP FAS 142-3’s impact is dependent upon acquisitions at that time.

New Accounting Standards

The Company adopted Financial Accounting Standards Board Statement No. 159, The Fair Value Option for Financial Assets and Financial Liabilities (“Statement 159”), which permits entities to measure many financial instruments and certain other items at fair value at specified election dates that are not currently required to be measured at fair value.  Unrealized gains and losses on items for which the fair value option has been elected should be reported in earnings at each subsequent reporting date. The provisions of Statement 159 were effective as of January 1, 2008. The Company did not elect the fair value option under this standard upon adoption.

The Company adopted Financial Accounting Standards Board Statement No. 157, Fair Value Measurements (“Statement 157”) on January 1, 2008 and began to apply its recognition and disclosure provisions to its financial assets and financial liabilities that are remeasured at fair value at least annually. Statement 157 establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include: Level 1, defined as observable inputs such as quoted prices in active markets; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions.

The Company holds marketable equity securities and interest rate swaps that are measured at fair value on each reporting date.

The marketable equity securities are measured at fair value using quoted prices in active markets. Due to the fact that the inputs used to measure the marketable equity securities at fair value are observable, the Company has categorized the fair value measurements of the securities as Level 1. The fair value of these securities at September 30, 2008 was $85.5 million.

The Company’s $2.5 billion notional amount interest rate swap agreement is designated as a cash flow hedge and the effective portion of the gain or loss on the swap is reported as a component of other comprehensive income. The Company entered into the swap to effectively convert a portion of its floating-rate debt to a fixed basis through September 29, 2013, thus reducing the impact of interest-rate changes on future interest expense. Due to the fact that the inputs are either directly or indirectly observable, the Company classified the fair value measurements of these agreements as Level 2. The fair value of the interest rate swap at September 30, 2008 was a liability of $26.7 million.

Note 2: DISCONTINUED OPERATIONS AND ASSETS HELD FOR SALE

Sale of non-core radio stations

The Company determined that each radio station market in Clear Channel’s previously announced non-core radio station sales represents a disposal group consistent with the provisions of Statement of Financial Accounting Standards No. 144, Accounting for the Impairment or Disposal of Long-lived Assets (“Statement 144”). Consistent with the provisions of Statement 144, the Company classified these assets that are subject to transfer under the definitive asset purchase agreements as discontinued operations for all periods presented. Accordingly, depreciation and amortization associated with these assets was discontinued. Additionally, the Company determined that these assets comprise operations and cash flows that can be clearly distinguished, operationally and for financial reporting purposes, from the rest of the Company. As of September 30, 2008, the Company had definitive asset purchase agreements for 18 radio stations classified as discontinued operations.

Sale of the television business

On March 14, 2008, Clear Channel completed the sale of its television business to Newport Television, LLC for $1.0 billion, adjusted for certain items including proration of expenses and adjustments for working capital. As a result, Clear Channel recorded a gain of $666.7 million as a component of “Income from discontinued operations, net” in its consolidated statement of operations during the first quarter of 2008. Additionally, net income and cash flows from the television business were classified as discontinued operations in the consolidated statements of operations and the consolidated statements of cash flows, respectively, in 2008 through the date of sale and for the nine and three months ended September 30, 2007. The net assets related to the television business were classified as discontinued operations as of December 31, 2007.

Summarized Financial Information of Discontinued Operations

Summarized operating results of discontinued operations are as follows:

		Post-merger				Pre-merger
						Period from								Period from
		Period from July 31				January 1				Nine Months ended				July 1				Three Months ended
		through September 30,				through July 30,				September 30				through July 30,				September 30,
(In thousands)		2008				2008				2007				2008				2007
Revenue		$	251			$	74,783			$	344,190			$	929			$	106,461
Income before income taxes		$	16			$	702,698			$	84,860			$	2,697			$	36,653

Included in income from discontinued operations, net is income tax expense of $1.0 million for the period July 31 through September 30, 2008. Included for the period from January 1 through July 30, 2008 is income tax expense of $62.4 million and a gain of $695.8 million related to the sale of Clear Channel’s television business and certain radio stations. The Company estimates utilization of approximately $585.3 million of capital loss carryforwards to offset a portion of the taxes associated with these gains.  The Company recorded approximately $689.5 million in capital loss carryforwards remaining as of September 30, 2008. 

Included in income from discontinued operations, net is income tax expense of $5.8 million for the period from July 1 through July 30, 2008.

Included in income from discontinued operations, net are income tax expenses of $31.3 million and $10.3 million for the nine and three months ended September 30, 2007, respectively. Included in income from discontinued operations for the nine and three months ended September 30, 2007 is a gain of $35.2 million and $19.9 million related to the sale of certain radio stations.

The following table summarizes the carrying amount at September 30, 2008 and December 31, 2007 of the major classes of assets and liabilities of the businesses classified as discontinued operations. The purchase price allocation to assets classified as discontinued operations as of September 30, 2008 is preliminary and the estimates and assumptions are subject to change.

		Post-merger				Pre-merger
		September 30,				December 31,
(In thousands)		2008				2007
Assets
Accounts receivable, net		$	—			$	76,426
Other current assets			—				19,641
Total current assets		$	—			$	96,067
Land, buildings and improvements		$	3,232			$	73,138
Transmitter and studio equipment			2,747				207,230
Other property, plant and equipment			254				22,781
Less accumulated depreciation			—				138,425
Property, plant and equipment, net		$	6,233			$	164,724
Definite-lived intangibles, net		$	—			$	283
Licenses			9,214				107,910
Goodwill			—				111,529
Total intangible assets		$	9,214			$	219,722
Film rights		$	—			$	18,042
Other long-term assets			3,289				8,338
Total other assets		$	3,289			$	26,380
Liabilities
Accounts payable and accrued expenses		$	—			$	10,565
Film liability			—				18,027
Other current liabilities			—				8,821
Total current liabilities		$	—			$	37,413
Film liability		$	—			$	19,902
Other long-term liabilities			—				34,428
Total long-term liabilities		$	—			$	54,330

Note 3: INTANGIBLE ASSETS AND GOODWILL

Definite-lived intangible assets

The Company has transit and street furniture contracts and other contractual rights in its Americas and International outdoor segments (with an estimated 6 year weighted average useful life at acquisition), talent and program right contracts in its radio segment (with an estimated 8 year weighted average useful life at acquisition), and contracts for non-affiliated radio and television stations in the Company’s media representation operations (with an estimated 6 year weighted average useful life at acquisition). These definite-lived intangible assets are amortized over the shorter of either the respective lives of the agreements or over the period of time the assets are expected to contribute directly or indirectly to the Company’s future cash flows.

The following table presents the gross carrying amount and accumulated amortization for each major class of definite-lived intangible assets at September 30, 2008 and December 31, 2007:

		Post-merger								Pre-merger
		September 30, 2008								December 31, 2007
		Gross Carrying				Accumulated				Gross Carrying				Accumulated
(In thousands)		Amount				Amortization				Amount				Amortization
Transit, street furniture, and other outdoor contractual rights		$	654,937			$	20,482			$	867,283			$	613,897
Talent contracts			74,475				7,197				—				—
Representation contracts			211,213				7,580				400,316				212,403
Other			241,753				2,024				84,004				39,433
Total		$	1,182,378			$	37,283			$	1,351,603			$	865,733

Total amortization expense from continuing operations related to definite-lived intangible assets for the pre-merger period from January 1, 2008 through July 30, 2008 was $58.3 million. Total amortization expense from continuing operations related to definite-lived intangible assets for the pre-merger period from July 1, 2008 through July 30, 2008 was $8.9 million. Total amortization expense from continuing operations for the post-merger period from July 31 through September 30, 2008 was $37.4 million. Total amortization expense from continuing operations related to definite-lived intangible assets for the year ended December 31, 2007 was

$105.0 million. The following table presents the Company’s estimate of amortization expense for each of the five succeeding fiscal years for definite-lived intangible assets:

(In thousands)
2009		$	213,629
2010			164,441
2011			119,348
2012			99,021
2013			76,089

As acquisitions and dispositions occur in the future and as purchase price allocations are finalized, amortization expense may vary.

Indefinite-lived Intangibles

The Company’s indefinite-lived intangible assets consist of Federal Communications Commission (“FCC”) broadcast licenses and billboard permits. FCC broadcast licenses are granted to both radio and television stations for up to eight years under the Telecommunications Act of 1996. The Act requires the FCC to renew a broadcast license if: it finds that the station has served the public interest, convenience and necessity; there have been no serious violations of either the Communications Act of 1934 or the FCC’s rules and regulations by the licensee; and there have been no other serious violations which taken together constitute a pattern of abuse. The licenses may be renewed indefinitely at little or no cost. The Company does not believe that the technology of wireless broadcasting will be replaced in the foreseeable future. The Company’s 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 which allows the Company the right to operate an advertising structure. The Company’s permits are located on either owned or leased land. In cases where the Company’s permits are located on leased land, the leases are typically from 10 to 20 years and renew indefinitely, with rental payments generally escalating at an inflation based index. If the Company loses its lease, the Company will typically obtain permission to relocate the permit or bank it with the municipality for future use.

The Company does not amortize its FCC broadcast licenses or billboard permits. The Company tests these indefinite-lived intangible assets for impairment at least annually using a direct method. This direct method assumes that rather than acquiring indefinite-lived intangible assets as a part of a going concern business, the buyer hypothetically obtains indefinite-lived intangible assets and builds a new operation with similar attributes from scratch. Thus, the buyer incurs start-up costs during the build-up phase which are normally associated with going concern value. Initial capital costs are deducted from the discounted cash flows model which results in value that is directly attributable to the indefinite-lived intangible assets.

Under the direct method, the Company aggregates its indefinite-lived intangible assets at the market level for purposes of impairment testing. The Company’s 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.

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 Company’s reporting units for radio broadcasting and Americas outdoor advertising are the reportable segments. The Company determined that each country in its International outdoor segment constitutes a reporting unit. Goodwill of approximately $9.8 billion resulted from the merger, $756.9 million of which is expected to be deductible for tax purposes. The preliminary allocation of goodwill by segment is as follows:

						Americas				International
(In thousands)		Radio				Outdoor				Outdoor				Other				Total
Pre-merger
Balance as of December 31, 2007		$	6,045,527			$	688,336			$	474,253			$	2,000			$	7,210,116
Acquisitions			7,051				—				12,341				—				19,392
Dispositions			(20,931	)			—				—				—				(20,931	)
Foreign currency			—				(293	)			28,596				—				28,303
Adjustments			(423	)			(970	)			—				—				(1,393	)
Balance as of July 30, 2008		$	6,031,224			$	687,073			$	515,190			$	2,000			$	7,235,487

						Americas				International
(In thousands)		Radio				Outdoor				Outdoor				Other				Total
Post-merger
Balances at July 31, 2008		$	—			$	—			$	—			$	—			$	—
Preliminary purchase price allocation			6,335,220				2,805,780				603,712				60,115				9,804,827
Balance as of September 30, 2008		$	6,335,220			$	2,805,780			$	603,712			$	60,115			$	9,804,827

The global economic slowdown has adversely affected advertising revenues across the Company’s businesses in recent months.  The Company will perform its annual impairment test in the fourth quarter of 2008 and it is possible that a continued deterioration in advertising revenues could result in the Company recognizing an impairment charge on the acquired assets or goodwill.

NOTE 4: DEBT AND GUARANTEES

Long-term debt at September 30, 2008 and December 31, 2007 consisted of the following:

		Post-merger				Pre-merger
		September 30,				December 31,
(In thousands)		2008				2007
Senior Secured Credit Facilities:
Term loan A		$	1,331,500			$	—
Term loan B			10,700,000				—
Term loan C			695,879				—
Revolving Credit Facility			165,000				—
Delayed Draw Facility			363,000				—
Receivables Based Facility			495,450				—
Other Secured Long-term Debt			6,943				8,297
Total Consolidated Secured Debt			13,757,772				8,297

		Post-merger				Pre-merger
		September 30,				December 31,
(In thousands)		2008				2007
Senior Cash Pay Notes			980,000				—
Senior Toggle Notes			1,330,000				—
Clear Channel Senior Notes:
6.25% Senior Notes Due 2011			750,000				750,000
4.625% Senior Notes Due 2008			—				500,000
6.625% Senior Notes Due 2008			—				125,000
4.25% Senior Notes Due 2009			500,000				500,000
7.65% Senior Notes Due 2010			386,084				750,000
4.5% Senior Notes Due 2010			250,000				250,000
4.4% Senior Notes Due 2011			250,000				250,000
5.0% Senior Notes Due 2012			300,000				300,000
5.75% Senior Notes Due 2013			500,000				500,000
5.5% Senior Notes Due 2014			750,000				750,000
4.9% Senior Notes Due 2015			250,000				250,000
5.5% Senior Notes Due 2016			250,000				250,000
6.875% Senior Debentures Due 2018			175,000				175,000
7.25% Senior Debentures Due 2027			300,000				300,000
Subsidiary level notes			5,662				644,860
Other long-term debt			72,780				97,822
$1.75 billion multi-currency revolving credit facility			—				174,619
Purchase accounting adjustments and original issue (discount) premium			(1,205,049	)			(11,849	)
Fair value adjustments related to interest rate swaps			—				11,438
			19,602,249				6,575,187
Less: current portion			567,167				1,360,199
Total long-term debt		$	19,035,082			$	5,214,988

The Company’s weighted average interest rate at September 30, 2008 was 7.4%.

The following is a summary of the terms of the Company’s debt incurred in connection with the merger:

	•		a $1.33 billion term loan A facility, with a maturity of six years;
	•		a $10.7 billion term loan B facility with a maturity of seven years and six months;
	•		a $695.9 million term loan C — asset sale facility, with a maturity of seven years and six months;
	•		a $750.0 million delayed draw term loan facility with a maturity of seven years and six months which may be drawn to purchase or redeem Clear Channel’s outstanding 7.65% senior notes due 2010, of which $363.0 million was drawn as of September 30, 2008;
	•		a $500.0 million delayed draw term loan facility with a maturity of seven years and six months may be drawn to purchase or redeem Clear Channel’s outstanding 4.25% senior notes due 2009, of which none was drawn as of September 30, 2008;
	•		a $2.0 billion revolving credit facility with a maturity of six years, including a letter of credit sub-facility and a swingline loan sub-facility. At September 30, 2008, the outstanding balance on this facility was $165.0 million and, taking into account letters of credit of $301.2 million, $1.5 billion was available for future borrowings;
	•		a $783.5 million receivables based credit facility providing revolving credit commitments in an amount equal to the initial borrowing of $533.5 million on the merger closing date plus $250 million, subject to a borrowing base, of which $495.5 million was drawn as of September 30, 2008; and
	•		$980.0 million aggregate principal amount of 10.75% senior cash pay notes due 2016 and $1.33 billion aggregate principal amount of 11.00%/11.75% senior toggle notes due 2016.

Each of the proceeding obligations are among Clear Channel Communications, Inc., a wholly owned subsidiary of the Company, and each lender from time to time party to the credit agreements or senior cash pay and senior toggle notes. The following references to

the Company in the discussion of the credit agreements, senior cash pay notes and senior toggle notes are in respect to Clear Channel Communications, Inc.’s obligations under the credit agreements, senior cash pay and senior toggle notes.

Senior Secured Credit Facilities

Borrowings under the senior secured credit facilities bear interest at a rate equal to an applicable margin plus, at the Company’s option, either (i) a base rate determined by reference to the higher of (A) the prime lending rate publicly announced by the administrative agent and (B) the federal funds effective rate from time to time plus 0.50%, or (ii) a Eurocurrency rate determined by reference to the costs of funds for deposits for the interest period relevant to such borrowing adjusted for certain additional costs.

The margin percentages applicable to the term loan facilities and revolving credit facility are the following percentages per annum:

	•		with respect to loans under the term loan A facility and the revolving credit facility, (i) 2.40% in the case of base rate loans and (ii) 3.40% in the case of Eurocurrency rate loans, subject to downward adjustments if the Company’s leverage ratio of total debt to EBITDA decreases below 7 to 1; and
	•		with respect to loans under the term loan B facility, term loan C — asset sale facility and delayed draw term loan facilities, (i) 2.65% in the case of base rate loans and (ii) 3.65% in the case of Eurocurrency rate loans subject to downward adjustments if the Company’s leverage ratio of total debt to EBITDA decreases below 7 to 1.

The Company is required to pay each revolving credit lender a commitment fee in respect of any unused commitments under the revolving credit facility, which is 0.50% per annum. The Company is required to pay each delayed draw term facility lender a commitment fee in respect of any undrawn commitments under the delayed draw term facilities, which initially will be 1.825% per annum until the delayed draw term facilities are fully drawn or commitments thereunder terminated.

The senior secured credit facilities require the Company to prepay outstanding term loans, subject to certain exceptions, with:

	•		50% (which percentage will be reduced to 25% and to 0% based upon the Company’s leverage ratio) of the Company’s annual excess cash flow (as calculated in accordance with the senior secured credit facilities), less any voluntary prepayments of term loans and revolving credit loans (to the extent accompanied by a permanent reduction of the commitment) and subject to customary credits;
	•		100% (which percentage will be reduced to 75% and 50% based upon the Company’s leverage ratio) of the net cash proceeds of sales or other dispositions by the Company or its wholly-owned restricted subsidiaries (including casualty and condemnation events) of assets subject to reinvestment rights and certain other exceptions; and
	•		100% of the net cash proceeds of any incurrence of certain debt, other than debt permitted under the senior secured credit facilities.

The foregoing prepayments with the net cash proceeds of certain incurrences of debt and annual excess cash flow will be applied (i) first to the term loans other than the term loan C — asset sale facility loans (on a pro rata basis) and (ii) second to the term loan C — asset sale facility loans, in each case to the remaining installments thereof in direct order of maturity. The foregoing prepayments with the net cash proceeds of the sale of assets (including casualty and condemnation events) will be applied (i) first to the term loan C — asset sale facility loans and (ii) second to the other term loans (on a pro rata basis), in each case to the remaining installments thereof in direct order of maturity.

The Company may voluntarily repay outstanding loans under its senior secured credit facilities at any time without premium or penalty, other than customary “breakage” costs with respect to Eurocurrency rate loans.

The Company is required to repay the loans under its term loan facilities as follows:

	•		the term loan A facility will amortize in quarterly installments commencing on the first interest payment date after the second anniversary of the closing date of the merger in annual amounts equal to 5% of the original funded principal amount of such facility in years three and four, 10% thereafter, with the balance being payable on the final maturity date of such term loans; and
	•		the term loan B facility, term loan C — asset sale facility and delayed draw term loan facilities will amortize in quarterly installments on the first interest payment date after the third anniversary of the closing date of the merger, in annual amounts equal to 2.5% of the original funded principal amount of such facilities in years four and five and 1% thereafter, with the balance being payable on the final maturity date of such term loans.

The senior secured credit facilities are guaranteed by each of the Company’s existing and future material wholly-owned domestic restricted subsidiaries, subject to certain exceptions.

All obligations under the senior secured credit facilities, and the guarantees of those obligations, are secured, subject to permitted liens and other exceptions, by:

	•		a first-priority lien on the capital stock of Clear Channel;
	•		100% of the capital stock of any future material wholly-owned domestic license subsidiary that is not a “Restricted Subsidiary” under the indenture governing the Clear Channel senior notes;
	•		certain assets that do not constitute “principal property” (as defined in the indenture governing the Clear Channel senior notes);
	•		certain assets that constitute “principal property” (as defined in the indenture governing the Clear Channel senior notes) securing obligations under the senior secured credit facilities up to the maximum amount permitted to be secured by such assets without requiring equal and ratable security under the indenture governing the Clear Channel senior notes; and
	•		a second-priority lien on the accounts receivable and related assets securing our receivables based credit facility.

The obligations of any foreign subsidiaries that are borrowers under the revolving credit facility will also be guaranteed by certain of their material wholly-owned restricted subsidiaries, and secured by substantially all assets of all such borrowers and guarantors, subject to permitted liens and other exceptions.

The senior secured credit facilities require the Company to comply on a quarterly basis with a maximum consolidated senior secured net debt to adjusted EBITDA (as calculated in accordance with the senior secured credit facilities) ratio. This financial covenant becomes effective on March 31, 2009 and will become more restrictive over time. The Company’s senior secured debt consists of the senior secured facilities, the receivables based facility and certain other secured subsidiary debt. Secured leverage, defined as secured debt, net of cash, divided by the trailing 12-month consolidated EBITDA was 6.0x at September 30, 2008. The Company’s consolidated EBITDA is calculated as its trailing twelve months operating income before depreciation, amortization, non-cash compensation and merger expenses of $2.1 billion adjusted for certain items, including: (i) an increase of $45.8 million for cash received from nonconsolidated affiliates; (ii) an increase of $28.0 million for non-cash items; and (iii) an increase of $44.1 million for certain miscellaneous items.

In addition, the senior secured credit facilities include negative covenants that, subject to significant exceptions, limit the Company’s ability and the ability of its restricted subsidiaries to, among other things:

	•		incur additional indebtedness;
	•		create liens on assets;
	•		engage in mergers, consolidations, liquidations and dissolutions;
	•		sell assets;
	•		pay dividends and distributions or repurchase its capital stock;
	•		make investments, loans, or advances;
	•		prepay certain junior indebtedness;
	•		engage in certain transactions with affiliates;
	•		amend material agreements governing certain junior indebtedness; and
	•		change its lines of business.

The senior secured credit facilities include certain customary representations and warranties, affirmative covenants and events of default, including payment defaults, breach of representations and warranties, covenant defaults, cross-defaults to certain indebtedness, certain events of bankruptcy, certain events under ERISA, material judgments, the invalidity of material provisions of the senior secured credit facilities documentation, the failure of collateral under the security documents for the senior secured credit facilities, the failure of the senior secured credit facilities to be senior debt under the subordination provisions of certain of the Company’s subordinated debt and a change of control. If an event of default occurs, the lenders under the senior secured credit facilities will be entitled to take various actions, including the acceleration of all amounts due under the senior secured credit facilities and all actions permitted to be taken by a secured creditor.

Receivables Based Credit Facility

The receivables based credit facility of $783.5 million provides revolving credit commitments in an amount equal to the initial borrowing of $533.5 million on the closing date plus $250 million, subject to a borrowing base. The borrowing base at any time equals 85% of the eligible accounts receivable for certain subsidiaries of the Company. The receivables based credit facility includes a letter of credit sub-facility and a swingline loan sub-facility. The maturity of the receivables based credit facility is six years. The balance at September 30, 2008 was $495.5 million.

All borrowings under the receivables based credit facility are subject to the absence of any default, the accuracy of representations and warranties and compliance with the borrowing base. If at any time, borrowings, excluding the initial borrowing, under the receivables based credit facility following the closing date will be subject to compliance with a minimum fixed charge coverage ratio of 1.0:1.0 if excess availability under the receivables based credit facility is less than $50 million, or if aggregate excess availability under the receivables based credit facility and revolving credit facility is less than 10% of the borrowing base.

Borrowings under the receivables based credit facility bear interest at a rate equal to an applicable margin plus, at the Company’s option, either (i) a base rate determined by reference to the higher of (A) the prime lending rate publicly announced by the administrative agent and (B) the federal funds effective rate from time to time plus 0.50%, or (ii) a Eurocurrency rate determined by reference to the costs of funds for deposits for the interest period relevant to such borrowing adjusted for certain additional costs.

The margin percentage applicable to the receivables based credit facility is (i) 1.40% in the case of base rate loans and (ii) 2.40% in the case of Eurocurrency rate loans subject to downward adjustments if the Company’s leverage ratio of total debt to EBITDA decreases below 7 to 1.

The Company is required to pay each lender a commitment fee in respect of any unused commitments under the receivables based credit facility, which is 0.375% per annum subject to downward adjustments if the Company’s leverage ratio of total debt to EBITDA decreases below 6 to 1.

If at any time the sum of the outstanding amounts under the receivables based credit facility (including the letter of credit outstanding amounts and swingline loans thereunder) exceeds the lesser of (i) the borrowing base and (ii) the aggregate commitments under the receivables based credit facility, the Company will be required to repay outstanding loans and cash collateralize letters of credit in an aggregate amount equal to such excess.

The Company may voluntarily repay outstanding loans under the receivables based credit facility at any time without premium or penalty, other than customary “breakage” costs with respect to Eurocurrency rate loans.

The receivables based credit facility is guaranteed by, subject to certain exceptions, the guarantors of the senior secured credit facilities. All obligations under the receivables based credit facility, and the guarantees of those obligations, are secured by a perfected first priority security interest in all of the Company’s and all of the guarantors’ accounts receivable and related assets and proceeds thereof, subject to permitted liens and certain exceptions.

The receivables based credit facility includes negative covenants, representations, warranties, events of default, conditions precedent and termination provisions substantially similar to those governing our senior secured credit facilities.

Senior Notes

The Company has outstanding $980.0 million aggregate principal amount of 10.75% senior cash pay notes due 2016 (the “senior cash pay notes”) and $1.3 billion aggregate principal amount of 11.00%/11.75% senior toggle notes due 2016 (the “senior toggle notes” and, together with the senior cash pay notes, the “notes”).

The senior toggle notes mature on August 1, 2016 and may require a special redemption on August 1, 2015. Following the first interest payment date, the Company may elect to pay all or 50% of such interest on the senior toggle notes in cash or by increasing the principal amount of the senior toggle notes or by issuing new senior toggle notes (such increase or issuance, “PIK Interest”). Interest on the senior toggle notes payable in cash will accrue at a rate of 11.00% per annum and PIK Interest will accrue at a rate of 11.75% per annum.

The Company may redeem some or all of the notes at any time prior to August 1, 2012, at a price equal to 100% of the principal amount of such notes plus accrued and unpaid interest thereon to the redemption date and a “make-whole premium,” as described in the notes. The Company may redeem some or all of the notes at any time on or after August 1, 2012 at the redemption prices set forth in notes. In addition, the Company may redeem up to 40% of any series of the outstanding notes at any time on or prior to August 1, 2011 with the net cash proceeds raised in one or more equity offerings. If the Company undergoes a change of control, sells certain of its assets, or issues certain debt offerings, it may be required to offer to purchase notes from holders.

The notes are senior unsecured debt and rank equal in right of payment with all of the Company’s existing and future senior debt. Guarantors of obligations under the senior secured credit facilities and the receivables based credit facility guarantee the notes with unconditional guarantees that are unsecured and equal in right of payment to all existing and future senior debt of such guarantors, except that the guarantees are subordinated in right of payment only to the guarantees of obligations under the senior secured credit facilities and the receivables based credit facility. In addition, the notes and the guarantees are structurally senior to Clear Channel’s

senior notes and existing and future debt to the extent that such debt is not guaranteed by the guarantors of the notes. The notes and the guarantees are effectively subordinated to the existing and future secured debt and that of the guarantors to the extent of the value of the assets securing such indebtedness and are structurally subordinated to all obligations of subsidiaries that do not guarantee the notes.

Subsidiary Level Notes

AMFM Operating Inc. (“AMFM”), a wholly-owned subsidiary of the Company, had outstanding 8% senior notes due 2008. An aggregate principal amount of $639.2 million of the 8% senior notes was repurchased pursuant to a tender offer and consent solicitation in connection with the merger and a loss of $8.0 million was recorded in other expense in the pre-merger consolidated income statement. The 8% senior notes were redeemed at maturity on November 1, 2008.

Debt Maturities and Tender Offer

On January 15, 2008, Clear Channel redeemed its 4.625% senior notes at their maturity for $500.0 million plus accrued interest with proceeds from its bank credit facility.

On June 15, 2008, Clear Channel redeemed its 6.625% Senior Notes at their maturity for $125.0 million with available cash on hand.

Clear Channel’s $1.75 billion multi-currency revolving credit facility was terminated in connection with the closing of the merger. There was no outstanding balance on the facility on the date it was terminated.

On August 7, 2008, the Company announced that it commenced a cash tender offer and consent solicitation for its outstanding $750.0 million principal amount of 7.65% senior notes due 2010. The tender offer and consent payment expired on September 9, 2008. The aggregate principal amount of 7.65% senior notes repurchased was $363.9 million. The Company recorded a loss of $16.2 million in other expense in the post-merger consolidated income statement related to the tender.

Guarantees, Letters of Credit and Surety Bonds

At September 30, 2008, the Company guaranteed $39.8 million of credit lines provided to certain of its international subsidiaries by a major international bank. Most of these credit lines related to intraday overdraft facilities covering participants in the Company’s European cash management pool. As of September 30, 2008, no amounts were outstanding under these agreements.

As of September 30, 2008, the Company had outstanding commercial standby letters of credit and surety bonds of $429.1 million and $209.9 million, respectively. Letters of credit in the amount of $154.8 million are collateral in support of surety bonds and these amounts would only be drawn under the letters of credit in the event the associated surety bonds were funded and the Company did not honor its reimbursement obligation to the issuers.

These letters of credit and surety bonds relate to various operational matters including insurance, bid, and performance bonds as well as other items.

Other

All purchase accounting fair value adjustments to debt, fees and initial offering discounts are being amortized as interest expense over the life of the respective notes. The aggregate market value of the Company’s debt was approximately $18.3 billion and $5.9 billion at September 30, 2008 and December 31, 2007, respectively.

Future maturities of long-term debt at September 30, 2008 are as follows:

(In thousands)
2008 (1)		$	65,974
2009			513,272
2010			669,821
2011			1,214,008
2012			694,236
Thereafter			17,649,987
Total (2)		$	20,807,298

Note 5: OTHER DEVELOPMENTS

Acquisitions

The Company acquired FCC licenses in its radio segment for $11.7 million in cash during 2008. The Company acquired outdoor display faces and additional equity interests in international outdoor companies for $104.8 million in cash during 2008. The Company’s national representation business acquired representation contracts for $57.6 million in cash during 2008.

During 2008, the Company exchanged assets in one of its Americas markets for assets located in a different market and recognized a gain of $2.6 million in “Gain on disposition of assets – net.” 

Disposition of Asset

Clear Channel received proceeds of $110.5 million related to the sale of radio stations recorded as investing cash flows from discontinued operations and recorded a gain of $29.1 million as a component of “income from discontinued operations, net” during the pre-merger period ended July 30, 2008. Clear Channel received proceeds of $1.0 billion related to the sale of its television business recorded as investing cash flows from discontinued operations and recorded a gain of $666.7 million as a component of “income from discontinued operations, net” during the pre-merger period ended July 30, 2008.

In addition, Clear Channel sold its 50% interest in Clear Channel Independent, a South African outdoor advertising company, and recognized a gain of $75.6 million in “Equity in earnings of nonconsolidated affiliates” based on the fair value of the equity securities received in the pre-merger period ended July 30, 2008.

Clear Channel sold a portion of its investment in Grupo ACIR Comunicaciones for approximately $47.0 million on July 1, 2008 and recorded a gain of $9.2 million in “equity in earnings of nonconsolidated affiliates” during the pre-merger period ended July 30, 2008.

Disposition of Derivatives and American Tower Corporation Shares (AMT)

Clear Channel was party to two U.S. dollar — Euro cross currency swap contracts designated as a hedge of its net investment in Euros and $1.1 billion of interest rate swap contracts designated as fair value hedges of the underlying fixed-rate debt obligations. Clear Channel terminated its cross currency swap contracts on July 30, 2008 by paying the counterparty $196.2 million from available cash on hand. The contracts were recorded on the balance sheet at fair value, which was equivalent to the cash paid to terminate them. The related fair value adjustments in other comprehensive income were deleted when the merger took place.

Clear Channel terminated its interest rate swaps effective July 10, 2008 and received proceeds of approximately $15.4 million. The interest rate swaps were recorded on the balance sheet at fair value, which was equivalent to the proceeds received.

Clear Channel held options under two secured forward exchange contracts, which it terminated effective June 13, 2008, receiving net proceeds of $15.2 million. A net gain of $27.0 million was recorded in the pre-merger period in “Gain on marketable securities” related to terminating the contracts and selling the underlying AMT shares.

Divestiture Trusts

The Company holds nontransferable, noncompliant station combinations pursuant to certain FCC rules or, in a few cases, pursuant to temporary waivers. These noncompliant station combinations were placed in a trust in order to bring the merger into compliance with the FCC’s media ownership rules. The Company will have to divest of certain stations in these noncompliant station combinations. The trust is terminated, with respect to each noncompliant station combination, if at any time the stations may be owned by the Company under the then current FCC media ownership rules. The trust agreement stipulates that the Company must fund any operating shortfalls of the trust activities and any excess cash flow generated by the trust is distributed to the Company. The Company is also the beneficiary of proceeds from the sale of stations held in the trust. The Company consolidates the trust in accordance with Financial Accounting Standards Board Interpretation No. 46(R), Consolidation of Variable Interest Entities (“FIN 46R”), as the trust was determined to be a variable interest entity and the Company is its primary beneficiary.

Legal Proceedings

Plaintiff Grantley Patent Holdings, Ltd. (“Grantley”) sued Clear Channel and nine of its subsidiaries for patent infringement in the United States District Court for the Eastern District of Texas in November 2006.  The four patents at issue claim methods and systems for electronically combining a traffic and billing system and a software yield management system to create an inventory management system for the broadcast media industry.  Clear Channel contended that the patents are invalid and alternatively, that its systems did not infringe the patents.  The case was tried before a jury beginning April 14, 2008.   On April 22, 2008, the jury found that the patents

at issue were valid and that Clear Channel infringed the patents and awarded damages to Grantley.  A final judgment of $89.8 million was entered by the court on June 10, 2008, which includes damages, plus pre-judgment and post-judgment interest and a post-judgment royalty.  The Company plans to vigorously contest the judgment through an appeal to the U.S. Court of Appeals for the Federal Circuit.  The Company’s potential loss for this proceeding is within a range of outcomes. The Company has accrued the minimum amount within the range because no amount within the range represents a better estimate of the potential loss. Ultimate resolution of the case could result in material additional expense. 

The Company is currently involved in certain legal proceedings arising in the ordinary course of business 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 management’s assumptions or the effectiveness of its strategies related to these proceedings.

Effective Tax Rate

The effective tax rate is the provision for income taxes as a percent of income from continuing operations before income taxes. A tax benefit was recorded for the three months ended September 30, 2008 of 40.7% and reflects the Company’s ability to recover a limited amount of the Company’s prior period tax liabilities through certain net operating loss carrybacks. The effective tax rate was impacted as a result of the tax effect of the disposition of certain radio broadcasting assets and investments and tax benefits realized which resulted from the reversal of FIN 48 liabilities due to the favorable settlement of certain ongoing tax examinations. Due to the lack of earnings history as a merged company and limitations on net operating loss carryback claims allowed; the Company cannot rely on future earnings and carryback claims as a means to realize deferred tax assets which may arise as a result of future period net operating losses. Pursuant to the provision of SFAS No. 109 “Accounting For Income Taxes,” deferred tax valuation allowances would be required on those deferred tax assets. For the three months ended September 30, 2007, the tax expense recorded was 20.9%, and was favorably impacted by the reduction in the valuation allowance on capital loss carryforwards and the reversal of FIN 48 liabilities due to settlement of certain ongoing tax examinations.

The effective tax rate for the nine months ended September 30, 2008 decreased to 26.9% as compared to 33.7% for the nine months ended September 30, 2007, primarily due to the release of the valuation allowance on the capital loss carryforwards that were used to offset the taxable gain from the disposition of Clear Channel’s investment in AMT and Grupo ACIR Comunicaciones. Additionally, Clear Channel sold its 50% interest in Clear Channel Independent in 2008, which was structured as a tax free disposition. The sale resulted in a gain of $75.6 million with no current tax expense.

Note 6: COMMITMENTS AND CONTINGENCIES

Certain agreements relating to acquisitions provide for purchase price adjustments and other future contingent payments based on the financial performance of the acquired companies. 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.

As discussed in Note 5, there are various lawsuits and claims pending against the Company. Based on current assumptions, the Company has accrued its estimate of the probable costs for the resolution of these claims. Future results of operations could be materially affected by changes in these assumptions.

Note 7: SHAREHOLDERS’ EQUITY

In connection with the merger, the Company issued approximately 23.6 million shares of Class A common stock, approximately 0.6 million shares of Class B common stock and approximately 59.0 million shares of Class C common stock. Every holder of shares of Class A common stock is entitled to one vote for each share of Class A common stock. Every holder of shares of Class B common stock is entitled to a number of votes per share equal to the number obtained by dividing (a) the sum of the total number of shares of Class B common stock outstanding as of the record date for such vote and the number of shares of Class C common stock outstanding as of the record date for such vote by (b) the number of shares of Class B common stock outstanding as of the record date for such vote. Except as otherwise required by law, the holders of outstanding shares of Class C common stock are not entitled to any votes upon any matters presented to our stockholders.

Except with respect to voting as described above, and as otherwise required by law, all shares of Class A common stock, Class B common stock and Class C common stock have the same powers, privileges, preferences and relative participating, optional or other special rights, and the qualifications, limitations or restrictions thereof, and will be identical to each other in all respects.

Vesting of certain Clear Channel stock options and restricted stock awards was accelerated upon closing of the merger. As a result, holders of stock options received cash equal to the intrinsic value of the awards based on a market price of $36.00 per share while holders of restricted stock awards received $36.00 per share in cash, without interest. Approximately $39.2 million of share-based compensation was recognized in the pre-merger period as a result the accelerated vesting of the stock options and restricted stock awards.

Share-Based Payments

Prior to the merger, Clear Channel granted options to purchase its common stock to its employees and directors and its affiliates under various stock option plans typically at no less than the fair value of the underlying stock on the date of grant. These options were granted for a term not exceeding ten years and were forfeited, except in certain circumstances, in the event the employee or director terminated his or her employment or relationship with Clear Channel or one of its affiliates. The original terms of these options were to vest over a period of up to five years. All option plans contained anti-dilutive provisions that permitted an adjustment of the number of shares of Clear Channel’s common stock represented by each option for any change in capitalization.

At July 30, 2008, there were 23,433,092 outstanding Clear Channel stock options held by Clear Channel’s employees and directors under Clear Channel’s stock option plans. Of these Clear Channel stock options, 7,407,103 had an exercise price below $36.00, and were considered “in the money.” Each Clear Channel stock option that was outstanding and unexercised as of the date of the merger, whether vested or unvested or which was subject to a valid irrevocable stock election, automatically became fully vested and converted into the right to receive a cash payment or equity in the Company equal to the value of the product of the excess, if any, of the $36.00 over the exercise price per share of the Clear Channel stock option. Following the merger, Clear Channel stock options are no longer outstanding and automatically ceased to exist, and the holders thereof no longer have any rights with respect to Clear Channel stock options, except the right to receive the cash payment or equity, if any, described in the preceding sentence.

Certain executive officers were permitted to elect that some of their outstanding shares of “in the money” Clear Channel stock options were not purchased at their intrinsic value on the date of the merger, but rather converted into options to purchase shares of the Company following the merger. Such conversions were based on the fair market value on the merger date and also preserved the aggregate spread value of the rolled options. Through this program, 1,749,075 shares of Clear Channel stock options with a weighted average exercise price of $32.63 per share were converted into stock options to purchase 235,393 shares of the Company’s Class A common stock with a weighted average exercise price of $10.99 per share. Additionally, unvested options to acquire 170,329 shares of Clear Channel common stock at a weighted average exercise price of $57.28 on the date of the merger could not, by their terms, be cancelled prior to their stated expiration date. These stock options were converted, on a one-for-one basis, into stock options to acquire shares of the Company’s Class A common stock.

The following table presents a summary of Clear Channel’s stock options outstanding at and stock option activity during the pre-merger period from January 1 through July 30, 2008 (“Price” reflects the weighted average exercise price per share):

(In thousands, except per share data)		Options				Price
Outstanding, January 1, 2008			30,643			$	43.56
Granted			0				n/a
Exercised (a)			(438	)			30.85
Forfeited			(298	)			31.47
Expired			(22,330	)			47.61
Settled at merger (b)			(5,658	)			32.16
Converted into options in the Company			(1,919	)			34.82
Outstanding, July 30, 2008			0				n/a

A summary of Clear Channel’s unvested options at December 31, 2007, and changes during the pre-merger period from January 1 through July 30, 2008, is presented below:

						Weighted Average
						Grant Date
(In thousands, except per share data)		Options				Fair Value
Unvested, January 1, 2008			6,817			$	10.80
Granted			0				n/a
Vested (a)			(6,519	)			10.81
Forfeited			(298	)			8.33
Unvested, July 30, 2008			0				n/a