SecProbe.io

CORRESP
1
filename1.htm

corresp

May 18, 2009

VIA EDGAR

U.S. Securities and Exchange Commission

Division of Corporation Finance

100 F Street, N.E.

Washington, D.C. 20549

Attention: Mr. Kyle Moffatt

    Re:

    Clear Channel Outdoor Holdings, Inc. (the “Company”)

Form 10-K for the fiscal year ended December 31, 2008, filed March 2, 2009

 File No. 001-32663

Dear Mr. Moffat:

          This letter is in response to the Staff’s comments to the Company by its letter dated May 13,
2009 relating to the above-referenced Form 10-K. Our responses are referenced to the applicable
Staff comment and the paragraph numbering used for each response set forth below corresponds to the
paragraph numbering used in the Staff’s comment letter.

Form 10-K for the fiscal year ended December 31, 2008

    1.

    We note your response to prior comment 3 and reissue our comment. Please tell us why you
significantly increased your provision for doubtful accounts from $10.5 million in 2007 to
$32.9 million in 2008, with most of the increase occurring after the merger. Additionally,
tell us the extent of your exposure to bad debt from national agency accounts in the
automotive and retail advertising categories. Revise your disclosures in future filings.

The increase in the bad debt expense (specifically the charges to costs, expenses and other)
increased from $10.5 million in 2007 to $32.9 million in 2008 (an increase of approximately $22.5
million) primarily in the Americas segment during the fourth quarter of 2008 as a result of the
economic downturn. As previously articulated to the Staff, approximately $17 million of the change
was associated with the Americas segment, including approximately $4 million related to
deterioration in the aging of our accounts receivable which occurred in the fourth quarter of 2008.
Approximately $10 million of the $17 million charge in the Americas segment related to national
agency receivables reflecting our best estimate of the collectibility risks in light of the
deteriorating macroeconomic environment. Such national agency accounts were not deemed a
collection risk at either December 31, 2007 or the purchase accounting date of July 30, 2008.
Included in the $10 million additional reserve in the Americas segment, we determined certain
automotive and retail categories were high risk industries with evident liquidity issues and
reserved approximately $4 million for these accounts. Automotive and retail categories represent

Securities and Exchange Commission

May 18, 2009

Page 2 of 11

approximately 11% and approximately 22%, respectively, of our overall accounts receivable and
allowance for doubtful accounts balances at December 31, 2008.

The Company recorded a provision of approximately $3 million related to deterioration in the aging
of our accounts receivable in the International segment. We also recorded a customer specific
provision of approximately $2 million in our International segment.

Critical Accounting Estimates, page 55

Indefinite-lived Assets, pages 56-57

    2.

    We note your response to prior comment 7. Please clarify your proposed disclosure with
respect to the following points:

    •

    Whether your fundamental assumptions on “normalized operating margins,” discount rate,
and growth rate after build-up period were the same in the Americas as in the international
segment and if so, what the basis was for your conclusion.

Our indefinite-lived assets consist of billboard permits in the United States and Canada. Due to
significant differences in the regulatory environment and business practices, there are no such
indefinite-lived assets in other locations. Accordingly, the disclosures in respect to the
impairment test for indefinite-lived assets relate only to the Americas segment. The Company will
add the following additional sentence to its disclosures:

“Due to significant differences in both business practices and regulations, billboards in our
International segment are subject to long-term, finite contracts versus permits in the United
States and Canada which are effectively issued in perpetuity. Accordingly, there are no
indefinite-lived assets in our International segment.”

    •

    What you assumed as the industry-average growth in your discrete build-up and terminal
periods.

The Company has responded to this Staff comment by providing an excerpt of the Form 10-K. Please
see Attachment A.

    •

    If the WACC that reflects a pre-tax rate of return on debt was applied to pre-tax cash
flows.

The Company has responded to this Staff comment by providing an excerpt of the Form 10-K. Please
see Attachment A.

    •

    For your sensitivity analysis, provide the impact on the fair value of each of your
reportable segments of a 100 basis point increase in your discount rate.

Securities and Exchange Commission

May 18, 2009

Page 3 of 11

The Company has responded to this Staff comment by providing an excerpt of the Form 10-K. Please
see Attachment A.

    •

    Whether you recorded an impairment charge for all billboard permits at the market level
in the Americas segment and international segment.

As discussed above, we recorded indefinite-lived assets only in the Americas segment, specifically
the United States and Canada. The company experienced impairment charges on its billboard permits
in all but 5 of its markets. The book value of the indefinite-lived assets in the 5 markets without
impairments amounted to approximately $5 million at July 31
and December 31, 2008.

The Company has responded to this Staff comment by providing an excerpt of the Form 10-K. Please
see Attachment A.

Goodwill, page 57

    3.

    We note your response to prior comment 9. Please expand your proposed disclosures with
respect to the following:

    •

    If you applied the same discount rate to the cash flows of both the Americas and the
international segment over the discrete ten-year forecast period. If so, tell us the basis
of your assumption.

The Company determined discount rates independently for each of the segments, based on
segment-specific factors and attributes. Such analysis resulted in a discount rate of 8.5% and
9.0% for the Americas and International segment, respectively, for purpose of the purchase
accounting. As further discussed in question #4 below, the discount rate independently determined
for each segment for purposes of the impairment test in December 2008 was 12.5% for both Americas
and the International segment.

    •

    Whether you recorded an impairment charge for all reporting units.

The Company has responded to this Staff comment by updating the table on page 8 of the Attachment A
to the initial response letter, dated April 24, 2009.

    •

    For your sensitivity analysis, provide the impact on the fair value of each of your
reportable segments of a 100 basis point increase in your discount rate.

The Company has responded to this Staff comment by updating the table on page 8 of the Attachment A
to the initial response letter, dated April 24, 2009.

    •

    Finally, we believe your disclosure should address your estimates of future cash flows,
as follows:

Securities and Exchange Commission

May 18, 2009

Page 4 of 11

    o

    Provide a discussion of your historical cash
flow growth rates and explain how your historical growth rates were
considered when determining the growth rate to be utilized in your cash
flow projections.

The Company has responded to this Staff comment by providing an excerpt of the Form 10-K. Please
see Attachment A.

    o

    Disclose the growth rate you need to achieve in
your cash flow projections in order to avoid having a goodwill
impairment charge.

The Company agrees with the Staff’s observation that a growth rate necessary to avoid an impairment
charge could be useful information to the reader of the financial statements. However, the Company
believes there are significant inherent deficiencies in the calculation of a single growth rate, so
a disclosure of such rate would actually be misleading to the reader of the financial statements.
A single compounded annual growth rate over the cash flow projection period does not accurately
portray the level of cash flow growth necessary to avoid a potential impairment charge at every
point in time during the projection period.

For example, if the Company achieved compound annual growth rates of 8.1% and 5.3% in the Americas
and International segments, respectively, the growth rate would imply there would be no impairment
charge. However, the Company could be required to record an impairment charge in an early year of
the projection period because of a decline in cash flow or an increase in the discount rate while
still achieving a compound annual growth rate of 8.1% and 5.3%, respectively, over the projection
period.

The Company would refer the Staff to the revised sensitivity disclosures in the excerpt of the Form
10-K. Please see Attachment A.

    o

    In view of the current economic environment,
discuss in greater detail how you considered the uncertainties inherent
in your estimated future growth rates. For example, you should explain
if and when you anticipated a recovery of the economy in your growth
rates used in your cash flows analysis. In this regard, we note your
general statement that “adverse economic and industry conditions on the
demand for advertising negatively impacted the 2009 projected cash
flows.”

The Company has responded to this Staff comment by providing an excerpt of the Form 10-K. Please
see Attachment A.

Securities and Exchange Commission

May 18, 2009

Page 5 of 11

    4.

    Please tell us why you believe it is appropriate to use both a risk-adjusted discount rate
and risk-adjusted cash flows in your discounted cash flows in your discounted cash
flow model. In this regard, we note your statement in the last paragraph on page 6 of
Attachment A of your response that the “impact of adverse economic and industry conditions on
the demand for advertising negatively impacted the 2009 forecasted cash flows in the
discounted cash flow models” and on page 7 that you applied an adjustment to the WACC to
capture the unsystematic risk (the Company/asset specific risk). Further, explain to us in
greater detail the reasons for the significant increase in the WACC from July 2008 to the
interim impairment test performed as of December 31, 2008.

The Company agrees with the Staff’s observation that it would not be appropriate to reflect its
operations’ risk in both the forecasted cash flows as well as the thereon applied discount factor.
The Company submits respectfully that it reflects the risk inherent in its forecasted cash flows
solely in the appropriate discount rate and not in any “haircuts” or “worst case” scenarios of such
cash flows. Management determines its forecasted cash flows based on all relevant available
information and does not include a risk adjustment to such information. Management’s approach in
determining its best estimate was consistent in methodology between July 31, and December 31, 2008.
The Company’s forecasted cash flows decreased between its initial determination of fair values for
purpose of purchase accounting and the goodwill impairment test pursuant to FAS 142 due to
observable changes in the economic environment, as further described in Item 1A in our Form 10-K
for 2008.

As discussed in question #3 above, the Company applied a WACC of 8.5% and 9.0 % to the Americas and
International segments, respectively, in the determination of fair values for purpose of purchase
accounting as of July 31, 2008. For purpose of the impairment test, the Company calculated a WACC
independently for each of the Americas and International segments and determined a WACC for each of
12.5%. The primary reason for the significant increase in such WACC was the observable risk
premium required by the public markets due to the decline in the macroeconomic environment. In
line with the outdoor advertising industry trends, the Company’s
operations and expected cash flow
are subject to significant uncertainties about future developments, including timing and severity
of the recessionary trends and customers’ behaviors as discussed in Item 1A of the Company’s Form
10-K for 2008. Management performed an analysis with the assistance of its third party valuation
services provider resulting in an increased implicit risk premium for the outdoor advertising
industry in the public markets of approximately 3%-points. This analysis considered the increase in
the required rate on debt for an applicable portfolio from 9.7% in the third quarter to 12.6% in
the fourth quarter of 2008 and a significant increase in the industry beta for the same time
period.

In addition, the Company compared the aggregated fair values of all reporting units to the
Company’s market capitalization to test our results for reasonableness. The fair values derived
with such increased discount rates resulted in a reasonable implied control premium in light of

Securities and Exchange Commission

May 18, 2009

Page 6 of 11

the discussion in SFAS 142, Goodwill and Other Intangible Assets, paragraph 23 and B154, and EBITDA
multiples compared with relevant competitors.

The discount rate utilized in the valuation of the outdoor permits as of December 31, 2008 excludes
the 300 basis point risk premium that was added to the industry WACC used in the valuation of the
reporting unit. Management believes the exclusion of this premium is appropriate given the
difference between the nature of the permit and reporting unit cash flow projections. The cash
flow projections utilized under the direct valuation method for the permits are derived from
utilizing industry “normalized” information for the existing portfolio of permits. Given that the
underlying cash flow projections are based on industry normalized information, application of an
industry average discount rate is appropriate. Conversely, our cash flow projections for the
overall reporting unit are based on our internal forecast for the business and incorporate future
growth and initiatives unrelated to the existing permit portfolio. Additionally, the projections
for the reporting unit include cash flows related to non-permit based assets. In the valuation of
the reporting unit, a risk premium was added to the industry WACC due to the risks inherent in
achieving the projected cash flows of the reporting unit.

    5.

    We note your response to prior comment 10. While EITD D-101 states that the assessment of
economic similarities should be more qualitative than quantitative, it does not provide for a
total exclusion of quantitative factors. Accordingly, please tell us your consideration of
quantitative factors, particularly, long-term financial performance analogizing to paragraph
17 of SFAS 31, which support your conclusion that the components in the U.S. markets,
including Canada, Mexico, Peru and Brazil, are economically similar. It appears from your
response that you only considered qualitative factors.

In responding to the Staff, the Company would like to clarify that only the United States markets
(i.e., United States components) are aggregated in the United States reporting unit. The Canada,
Mexico, Peru and Brazil reporting units are not aggregated in the United States reporting unit,
they are a part of the Americas reporting segment (see response #6 below for further discussion).

The Company monitors various operating metrics (including operating income before depreciation and
amortization and non-cash compensation (“OIBDAN”)) for each of its United States markets. The
Company monitors these metrics to ensure that there are consistent trends in their movements,
between all markets based on industry trends and overall macroeconomic conditions.

The basic economic characteristics of each of the United States markets are very similar. Revenues
and related revenue trends are highly correlated to