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Executives

Gregory Lundberg – Senior Vice President of Investor Relations

Thomas W. Casey – Chief Financial Officer and Executive Vice President

Brian Coleman – Senior Vice President and Treasurer

Analysts

Jason Kim – Goldman Sachs

Marci L. Ryvicker – Well Fargo Securities

Avi Steiner – JPMorgan

Doug Arthur – Evercore Partners

Lance W. Vitanza – CRT Capital Group LLC

James Dix – Wedbush

David Miller – Caris & Company

Davis Hebert – Wells Fargo Securities

Andrew Finkelstein – Barclays Capital Inc

CC Media Holdings, Inc. (CCMO.OB) Q1 2013 Earnings Call May 2, 2013 4:30 PM ET

Operator

Ladies and gentlemen, thank you for standing by. Welcome to the Clear Channel First Quarter 2013 Conference Call. At this time all participants are in a listen-only mode. (Operator Instructions) And as a reminder this call is being recorded. I would now like to turn the conference over to Senior Vice President, Investor Relations, Gregory Lundberg. Please go ahead.

Gregory Lundberg

Hey, good afternoon every one. Sorry about that beginning. Thank you for joining our 2013 first quarter earnings call. With us today are Tom Casey, Executive Vice President and Chief Financial Officer and Brian Coleman, Senior Vice President and Treasurer.

Tom will provide an overview of the first quarter 2013 financial and operating performances of CC Media Holdings, Clear Channel Communications and Clear Channel Outdoor Holdings. For purposes of this call, when we described the financial and operating performance of CC Media Holdings that also describes the performance of its subsidiary, Clear Channel Communications. After Tom’s comments we will open up the lines for questions.

Before we begin, I’d like to remind everyone that this conference call may include forward-looking statements that involve uncertainties and risks. There can be no assurance that management’s expectations, beliefs and projections will resolve or be achieved but the actual results will not differ from expectations. Please see our annual reports on Form 10-K and our quarterly reports on Form 10-Q filed with the Securities and Exchange Commission for a discussion of important factors that could affect our actual results.

Pacing data will also be mentioned during this call. For those of you not familiar with pacing data, it reflects revenues booked at a specific date versus the comparable date in the prior period and may or may not reflect the actual revenue growth at the end of the period. The company's revenue pacing information includes an adjustment to prior periods to incorporate all acquisitions and exclude all divestitures in both periods presented for comparative purposes. It also eliminates the effects of movements in foreign exchange rates.

During today’s call we will also provide certain performance measures that do not conform to generally accepted accounting principles. We provided a schedule that reconcile these non-GAAP measures with our reported results on a GAAP basis as part of our earnings press releases, which can be found on the Investor sections of our websites.

A webcast of this call and the earnings press release issued today can also be found on the investor section of our websites at clearchannel.com and clearchanneloutdoor.com. A replay of this conference call will be available for a period of 30 days.

With that, I’ll now turn the call over to Tom Casey.

Thomas W. Casey

Thank you, Greg and good afternoon everyone. When you look at our first quarter results and our second quarter pacings, you can see there are strategic revenue and expense initiatives that are really beginning to bear some fruit.

Before we get to the financial details of the quarter, I want to highlight the one recent example of the opportunity Clear Channel is leveraging to monetize our multi-platform reach and its the launch of the Justin Timberlake new album, The 20/20 Experience. I am using this as an example, because this shows how we are constantly working with major advertisers to adjust their specific marketing challenges by developing innovative new products, services, content and events that bring new advertising dollars into the company.

Two months ago, Clear Channel utilized most of our key assets, radio, online, mobile, outdoor, entertainment, events, contests and talent relationships in an innovative and coordinative partnership with the national retailer, Target to launch Justin Timberlake’s new album.

Clear Channel Media and Entertainment ran a first of its kind two minute live road block across 800 stations in essence a virtual press conference, simulcasted across all the stations at the same time that enabled Justin to both introduce his new album and kick off the exclusive iHeartRadio album release party with Justin Timberlake. The party was streamed on iHeartRadio.com and aired on 175 stations nationwide. We rebroadcasted on CW Network and it was attended by fans chosen through our nationwide Clear Channel contest.

And Clear Channel Outdoor featured a countdown clock to the party across 399 of its nationwide digital billboards which own their own delivered 65 million impressions. In total, the Clear Channel and Target campaign generated more than 124 million social impressions and more than 600 million unpaid media impressions. This partnership is the perfect example of the creativity, collaboration and power that Clear Channel can bring to bear our marketing initiatives, they can help a client like Target achieve its goals. And as some proof points for how well it works, you are going to see some of these results. Justin Timberlake’s album sold 968,000 copies in the first week and that view is number one on the Billboard 200, it was number one on iTunes in 89 countries and one of Target’s top three best-selling albums in the last decade and is even sold out in certain locations.

Now, there are many more outdoor media and entertainment highlights in today’s earnings, but the consistent underlying theme running through of all these is, how Clear Channel and our sales teams are putting an unmatched array of multiplatform assets to work in coordinated campaigns for our advertisers and monetizing these assets in new and powerful ways.

Media and entertainment offers, our advertising partners the largest reach of any media outlet in the U.S. with 243 million people monthly for our broadcast radio stations and our syndication affiliates. This demonstrates that AM/FM Radio was still the most powerful audio platform.

We are also very well positioned in digital, using iHeartRadio to reach our listeners wherever they are and to whatever device they are using. iHeartRadio experienced 31% year-over-year growth and total listening hours in the first quarter with mobile accounting for over 50% of listening hours.

On the Outdoor side, our U.S. reach is 141 million monthly and internationally, we have 650,000 displays in 29 countries and operate airport displays in an additional 21 countries. The outdoor sales teams are making good progress with advertisers who appreciate unlike TV, outdoor is unskippable and very cost effective.

Outdoors digital investments are giving advertisers the immediacy and flexibility of other mediums increasing our competitiveness in the media marketplace.

Both of our outdoor and media and entertainment businesses are well positioned for the trend our consumers spending and increasing share of their time out of their homes as they take advantage of mobile connectivity. So we are continuing to innovate new ways to use our assets to reach these connected mobile consumers more effectively wherever they are.

Now, financially the quarter reflected good growth in areas like radio stations, U.S. outdoor and emerging international outdoor markets. We did see some offset at Western European outdoor business and also by our total traffic business as we continue to integrate that business. We continue to refocus our strategic operational investments into areas that can drive the long-term growth of the business and during the quarter, we were able to fund growth initiatives with savings from prior period investments.

In Q1, approximately one quarter of the investment we used for consulting and other activities to drive organizational change into improved enhancing our sales force structure and effectiveness as well as yield management. The remainder was focused on reducing expenses including severance and lease renegotiations that have short paybacks of under one year.

During the first quarter, CC Media Holdings took another important step to managing its balance sheet by prepaying Term Loan A under its senior secured credit facilities which would have been due in 2014. This transaction falls on the heels of significant capital market activities in 2012 that extended maturities at both CC Media Holdings and Clear Channel Outdoor Holdings. The company also gained meaningful amendments last year that provided us with flexibility to manage debt maturity profiles and future liquidity.

Now, let's review the company's performance in the quarter. I will start with our overall results in CC Media Holdings. Then I will continue with Media and Entertainment business and then discuss the details of our Americas and international businesses at Clear Channel Outdoor Holdings. Lastly, I will wrap up with a review of our capital spending and liquidity before I take your questions.

Please note that our two earnings releases provided a detailed breakdown of all foreign exchange and non-cash compensation expenses as well as segment revenues in all for the quarter and the full year. My discussion today will exclude the effects of movements in foreign exchange basis unless otherwise noted.

Now for CC Media Holdings, revenues totaled $1.3 billion, down just over 0.5%, including an adjustment for divestitures in 2012. Media and Entertainment was down $50 million from the first quarter of 2012 or 2% with solid growth in our radio stations and digital offset primarily by our traffic business which we are continuing to integrate.

In Outdoor, the Americas business which includes U.S. and Canada grew 2% in the quarter and international rose 0.5%, adjusted for last year’s divestiture. Driving these results were the same trends we saw in the fourth quarter. Very strong growth in certain geographies like Latin America and the Asia-Pacific region offset by weaknesses in other markets, particularly Western Europe.

CC Media Holdings OIBDAN for the quarter reached $267 million, up 3% from the first quarter of 2012, adjusting for divestitures, including the OIBDAN these quarter $9 million of expenses associated with our strategic revenue and cost initiatives and that’s down from $16 million in the first quarter of last year.

As you may recall, these investments relates projects across all of our businesses to improve operating efficiencies and drive future profitability. OIBDAN for the quarter of $213 million also reflects a total of $7 million of legal costs related to litigation described in our filings. This is down from $19 million of legal and other costs in the first quarter of 2012, which were primarily related to Brazil.

Now let's move on to our segments in more detail beginning with performance of media and entertainment. Our media and entertainment revenues were down 2% to $657 million in the quarter, as I just mentioned we saw a solid growth in our radio stations and digital offset primarily by our traffic business which we are continuing to integrate. For the quarter, national sales for our stations where up 2% outpacing global excluding the impacts of political advertising, national sales were up 4% and locals were up approximately 1%.

Our fastest growing larger advertising categories were financial services, retail and telecom. We also saw a strong lift in digital revenue with our iHeart radio listening hours growing 31% over the first quarter of 2012. Although today these are listening for the industry represents only 7.6% of all audio listening, we are excited about the growth of iHeart and its new features, content and other innovations. For example during the first quarter we introduced local news, traffic and weather add-in allowing users to insert mobile content into their iHeart radio customer experience to give them greater convenience and control over their online listening.

On a year-over-year basis, operating expenses decreased $14 million or 3%, expenses came down on a BMI and Ascap music license fees and lower costs related to the integration of the total traffic profit business. Partially offsetting these expense reductions were increased digital cost driven by greater usage and higher national advertising group expenses due to the increased sales. We also spend $1 million on strategic revenue and cost initiatives in the quarter compared to $5 million in the first quarter of 2012 and this continues to be funded in part from cost savings on prior initiatives.

Media and Entertainment’s OIBDAN declined less than 1% to $230 million in the quarter. Operating margins which is OIBDAN as a percentage of revenue amounted to 32% and it was unchanged from the first quarter of 2012. As we look at the second quarter as of last week, radio station pacing’s are up approximately 5% compared to the prior year period and total pacing’s for media and entertainment are up 2%. This is a notable improvement from the first quarter results as we are seeing improvements in the advertising marketplace and from our total traffic integration activities.

Now let’s go to our outdoor results, where all the numbers exclude affects of movements and foreign exchange rates, and will adjust for businesses divested in the third quarter of 2012 unless otherwise noted.

Clear Channel Outdoor Holdings revenues were $8 million or 1% in the first quarter with Americas up 2% and international up one half of 1%. On a reported basis which includes foreign exchange and does not adjustment for the impact of divestitures, total outdoor revenues were flat year-over-year. Expenses decreased $11 million or 2% most of the decrease related to a $30 million decrease in legal and other costs offset by higher selling costs and higher revenues and a $1 million increase related to ongoing strategic revenue cost initiatives. Driven primarily by the expense reduction OIBDAN increased 21% to $99 million up $18 million from last year.

Now let us talk about the Americas segment. Americas Outdoor revenue continues to rise climbing 2% or $6 million to $287 million in the quarter. This growth was led by higher occupancy and capacity on digital displays, strong growth and posters on new advertisers and gains in airports.

Our revenues from digital displays showed double digit growth. The quarter’s fastest growing larger advertising categories included retail, financial and healthcare.

Americas operating spends fell $4 million or 2% to $191 million, reflecting a favorable product mix as well as the benefits from strategic cost initiatives we made in 2012.

We continue to invest in growth initiatives and operating efficiencies and spend another $1 million during the quarter about the same level as we did last year. Our solid revenue growth and good expense management drove a 12% lift in OIBDAN compared to last year with 33% operating margins compared to 30% in the first quarter of 2012.

In terms of pacing’s the U.S. business is performing very well. As of last week, revenues at our Americas segment are pacing up 3% for the second quarter compared to the year ago period driven by performance in digital, traditional bulletins, posters and airports. Stronger advertising categories include business services, healthcare and restaurants. And I want to point out that this pacing figure reflects the loss of revenue from the digital billboards in Los Angeles that we had to turnoff.

For those of you that are not aware, we turn to 77 digital billboards in Los Angeles to comply with a court order that validates certain digital permits issued to us and CBS for sites located in the city. We are working actively on this issue. However I should point out that this pacing figure does include our extensive coverage of greater Los Angeles market including 3200 displays in LA, Orange County, San Bernardino, Riverside and Ventura counties.

Now let’s turn to our International results; international revenues rose $2 million or about 0.5% and overall performance is similar to last quarter with strengths in emerging markets offset by challenges in certain geographies due to weakened macroeconomic conditions.

For example, our Asia Pacific markets were up high single digits and Latin American climbed double digits. Europe, however was down in the low single digits. But even within Europe we are seeing pockets of growth such as Norway, where we’re seeing good performance as result of our transportation system, contracting as well. So that’s good news in the phase of a challenging economy in the Nordics overall. And on a reported basis, revenue declined 2% which includes an $8 million impact of revenues from the businesses divested in 2012.

Operating expenses decreased $8 million or 2% to $334 million. And I want to point out that the first quarter of 2012 had $18 million of legal and other costs related to Brazil that did not recur in the first quarter of 2013. Offsetting this decrease was the increase of approximately $3 million in investments in strategic revenue and cost savings programs as well as higher cost for new contracts such as our transportation contract in Norway, I mentioned.

International outdoor OIBDAN in the first quarter of 2013 grew 45% to $30 million. Again, while we’re seen good cost control the absence of the legal and other cost in Brazil you mentioned earlier was the significant driver of this performance.

We will continue to invest in our company-wide strategic revenue and cost initiatives. For the quarter, our results reflected $5 million of these investments compared to $3 million in the first quarter of last year. These investments remain important to the success of our international business as we continue to position it for higher profitability in a challenging economy.

Turning to our pacing data, we continue to have a mixed performance across the international markets due to a variety of economic factors. As of last week, international revenues are pacing down 4% for the second quarter compared to the year ago period, which is pro forma for divestitures. If we break this number down, we are seeing similar performance for the first quarter in terms of geographies with Asia-Pacific and Latin America outperforming Europe.

Now, let's move to capital spending in our balance sheet. CC Media Holdings capital spending for the quarter totaled $62 million, including $39 million at outdoor, spending in Americas of $30 million whereas for new advertising structures such as digital displays. We added 11 this quarter for a total 1,046 digital displays across the U.S., including the 77 turned off in Los Angeles.

In addition, 26 million of capital expenditures at International was for new advertising structures, including billboards, street furniture, and the renewal of existing contracts. For CC Media Holdings, we continue to expect total annual 2013 capital expenditures of approximately $350 million.

As of March 31, CC Media Holdings debt totaled $20.4 billion, down $321 million from year-end, reflecting the payment of certain maturities during the quarter. Senior secured leverage has defined under our Clear Channel’s credit agreements at the end of the first quarter was 6.0 times based on consolidated trailing 12-month EBITDA of $2.21 billion as of Q3 2013, which is up about 4% year-over-year.

This calculation of EBITDA is detailed in the press release for you information and make certain adjustments pursuant to the credit agreements. Cash on the balance sheet amounted to $722 million as of March 31, 2013. The decrease from year end reflects our $312 million payments of five and three quarter senior notes which mature during the quarter, as well as $847 million of prepayments of the outstanding amounts of Term Loan A under our senior secured credit facilities, which was scheduled to be repaid in 2014. In addition to cash on hand, we’ve funded these activates with issuance of $575 million of priority guarantee notes due 2021 and $270 million of draws under the ABL facility.

Clear Channel Outdoor Holdings’ debt was unchanged at $4.9 billion and leverage under indentures was 6.3 times on a total consolidated basis and 3.5 times on a senior debt basis. Cash on the balance sheet totaled $547 million.

Looking ahead, CC Media Holdings had $67 million of remaining maturities in 2013. Maturities in 2014 consists primarily of $461 million of 5.5% notes and maturities in 2015 consists primarily of $250 million of 4.9% notes. Clear Channel Outdoor Holdings has no significant maturities until 2020 and we’re comfortable with these maturities schedules in the near-term and we’ll continue to take disciplined, proactive steps to address our capital structures and liquidity.

Now you may have noticed that earlier today we began filing SEC reports for Clear Channel Capital I, LLC. Clear Channel Capital I owns 100% of Clear Channel Communications and guarantees certain of Clear Channel Communications outstanding debt. This additional filing was requested by the SEC to include Clear Channel Capital I who is a guarantor of certain Clear Channel Communications debt.

I’d like to point out for your analysis that the financial statements of Clear Channel Capital are substantially the same as the financial statements of Clear Channel Communications. The primary difference is the name, but not the amount of shareholders’ ownership account on the balance sheet.

All these filings are available on our public websites. I’ll close by saying that we are pleased with the innovation and operating discipline that drove the sales momentum and cost containment, we’re building in both our outdoor and media entertainment businesses.

You will be seeing us make additional strategic investments in growth areas and fund some of these with the benefits, we are already seeing from prior initiatives, and we will continue to refocus our outdoor business in Europe.

Throughout the company, both outdoor and media entertainment, we feel very good about our competitive position and under Bob Pittman’s leadership, we all are very focused on showing our advertising partners the unique ways we can help them achieve their goals. Thank you for your time, and operator, please open the lines for questions.

Question-and-Answer Session

Operator

The first question comes from the line of Jason Kim with Goldman Sachs. Please go ahead.

Jason Kim – Goldman Sachs

Hi good afternoon. Thank you for taking my questions. I will start with the business question first, can you talk about your plans to monetize investing need probably over the past year or so more aggressively and specifically if you can comment on the customer platform and as you continue to see the user base increase a lot like when do you start thinking about on generating the revenues out of the platform?

Thomas W. Casey

Well Jason we are very excited about what we are seeing in the growth of (inaudible) as we mentioned, we saw terrific growth for the quarter about 31% and so we are very excited about that and I think that as we see us continue to bring it into the coordinated effort with our businesses, we see opportunities to continue to grow that revenue stream.

For example, digital revenue this quarter was up strong again, it continues to be one of the fastest growing areas in the company and we see that as an opportunity for us to continue to grow our revenue and take additional share. So we are quite encouraged with that and I think it’s as we continue to see the growth, we see opportunities to take advantage of the growth in digital space.

Jason Kim – Goldman Sachs

And just a clarification question, the pacing up 5% for radio for CC pacing up to the delta is it still the main driver of the different digital mainly the traffic business?

Thomas W. Casey

Can you repeat that?

Jason Kim – Goldman Sachs

Some of the pacing numbers for the CCME in total which is up 2% but the radio station, journaling the pacing was up 5% that the 5 and 2 Delta is that the difference that will be mainly driven by the traffic business?

Thomas W. Casey

Yeah, yeah, sorry. As we talked during the first, back in the year-end earnings, we were definitely seeing challenges in the year-over-year comps, as we talked we had a loss of affiliate out of our traffic business and we are continuing to merge the inventory and the systems and the sales forces together and so we saw a continued improvement in that area for the rest of the quarter. We also talked a little bit about some softness at the start of the year for peer and that is really modulated back and feel good about the business, so the biggest driver really is the traffic business. As you can see in the 2Q pacing, we are continuing to see continued improvement in the underline core business, but also good improvement in the traffic business as well.

Jason Kim – Goldman Sachs

Great. And if I can ask just a one question about the capital structure. So clearly, you made a significant progress with your balance sheet and now 2014 from a maturity standpoint is pretty much a non-event. Now the market is very strong right now and recently at our conference, you’ve also alluded to, you’re having some preliminary discussions with LBO bondholders in terms of how to manage the 2016 maturities. So we just want to see evidently if you can share with us on that front whether it’s on the LBO bonds or on the banker side, how you’re thinking about starting to address 2016 debt maturities?

Thomas W. Casey

Jason, as we’ve talked and I think we’ve been consistent on the phone over the last few years. We see how robust the market is right now and we continue to be very disciplined and proactive in managing through our debt maturities. You saw us proactively prepaid at 2014. Again, that opens up a lot of opportunities for the company. We have a number of amendments in place from our transactions last year and so we’re well-positioned we think to take advantage of market opportunities when we see them. And I think that posture would continue. I think -- I can’t comment on specific transactions and I think you know that we’ve always been proactive in our management or accounting.

Jason Kim – Goldman Sachs

Got it. Just on the clarification part, wanted to have a quick clarification, not just a follow-up question, the bond exchange on the bank debt to the PGM side, I mean is there any reason why the max has to be kept at $5 billion?

Thomas W. Casey

Well, it currently it’s $5 million contractually which we’ve used a couple of billion. I think your question maybe is that something we can go out and seek an amendment and do we think it would be difficult to obtain. If we were to go above that level, we wouldn’t need to see an amendment. Further, I don’t think it would be something that is too difficult to obtain, if the trading was to fly because the folks that we note on the amendment would be those that would participate in the exchange. So contractually it is 125 billion, I don’t think that’s a problem as long as there is a mutually beneficial target opportunity.

Jason Kim – Goldman Sachs

Understood. Thank you.

Operator

All right next we go to the line of Marci Ryvicker with Wells Fargo. Please go ahead. Your line is open.

Marci L. Ryvicker – Well Fargo Securities

Thank you. On the Americas said, I think this is the first time we have actually called out traditional bulletins and posters have been relatively strong and I am referring to the Q3 pacing that you provided. I guess are these products healthier and is this a function of higher average, are we finally seeing a turn in traditional billboards?

Thomas W. Casey

Yeah, we saw a good strength in 1Q as well and both posters and bulletins and obviously that has being a difficult product over the last couple of years. So I would say that we are seeing some good momentum through the quarter and you can see that in the pacings at 3% and that’s with the pulling out of the 77 board. So the traditional business is very healthy and that’s including both our national and (inaudible) both of those were strong.

Marci L. Ryvicker – Well Fargo Securities

Fair. Is it rate or is it occupancy, or is both?

Thomas W. Casey

I think we are seeing really both. Clearly occupancy was a big driver in the first quarter, but we are seeing great improvements throughout.

Marci L. Ryvicker – Well Fargo Securities

Okay. And then moving to radio, the pacing is obviously very strong. Is that both national and local, are they pacing similarly or is one outpacing the other?

Thomas W. Casey

In the second quarter national continues to be very strong, but there were seeing good growth in local as well. With the efforts we’ve been putting on our national business we continue to see very strong adoptions with some of the larger advertisers with their connections business, really reaching out specifically to advertisers, and they have a very good pipeline, and we are encouraged, they continue to see very, very good strong growth we saw good strong growth in the first quarter, as I mentioned in my prepared remarks, and I think 2Q right now would probably a similar profile.

Marci L. Ryvicker – Well Fargo Securities

And then my last question; on the strategic investment side, I think I got the numbers right. There was $1 million in the Americas, $6 million in International and another $1 million in radio, so $8 million total for the first quarter?

Thomas W. Casey

Yeah, I think there was little bit in corporate as well, so…

Marci L. Ryvicker – Well Fargo Securities

Okay.

Thomas W. Casey

So it was $9 million in total.

Marci L. Ryvicker – Well Fargo Securities

Can you give us a number that you are expecting to spend in 2013?

Thomas W. Casey

I can’t. This is something that we have been trying to explain to you that we see opportunities throughout the year to accelerate certain activities. I didn’t mentioned, I think we have $76 million last year. I don’t think we will be at that level this year, but with the activities that are motivating our teams to accelerate activities don’t have a specific number to share with you. Obviously we forecasted it internally, but these are – timing is always an issue when we do these things, but I would expect it as to be lower than the $76 million we had last year.

Marci L. Ryvicker – Well Fargo Securities

Great, thank you very much.

Operator

All right. And next we go to the line of Avi Steiner with JPMorgan. Please go ahead.

Avi Steiner – JPMorgan

Thanks for taking the questions guys. First of, given how strong pacing is, I wanted to focus on the expense side and really how we think about expense growth or declines going forward. It seems to me, and I don’t want to pick on one quarter, but it seems to me of tough comp in the second quarter royalty rate refund, et cetera, so maybe if you can help us in terms of how to think about expenses for the coming quarter and year. And then I’ll come back for a couple, thank you.

Thomas W. Casey

Well I think when you think about expense management, I can tell you that we have a incredible focus on that across the globe and I’ll break it down into some pieces. But internationally, obviously we are resizing that business. We are very encouraged with them telling out with a half of 1% growth. We are seeing later and later posting there. And so that is a challenging environment, the team has done a very good job. And then on the same side, they are doing it (inaudible) managing their expenses. Really making sure that all discretionary expenses are curved and resizing that business for the slow down we are seeing in certain economies.

So internationally, I would say that the continued focus and again the diversification of that business, we want to continue invest in areas like Latin America and China and Australia areas that are growing. So it’s a bit of a two speed economies that we are dealing with there. And again the team has done a nice job of investing in the high growth areas and really fixed the costs on some of the more challenged ones.

In the U.S. what you are seeing in some of the activities in the Outdoor Business of all the expense management work we did last year, we talked quite a bit about how much money we invested last year, $76 million and some of that was in outdoor business in the Americas and again your are starting to see that reflected in their expense management. The team has done a nice job of managing expenses, getting the organization in line and driving efficiencies.

And you can see the pull through, the operating leverage that business can result in with some additional top line improvement. And then finally when you look at CCME, this has really been an issue of funding the growth.

We are funding significant investments in our national business and in the digital area, and so that is really the view of Bob and John is to – is the final savings across the business in order to fund the highest fastest growth areas in the company. And again, we’re starting to see those benefits come through with our – the accelerated growth we’re seeing in national.

Avi Steiner – JPMorgan

Okay. And then if I could take it to the outdoor side, can you talk briefly about the LA billboard dispute, maybe how we should think about that? And I believe you said it’s big [intercon] already but how we think about the potential revenue and EBITDA impact there? And I want to just to be clear that I interpreted what you said right in terms of giving the LA billboard accounts outside of the 82 that none of those other billboards are impacted by the disputes

Thomas W. Casey

Right. Well, keep in mind., we always have a big business. We’re in 30 countries with 108 in the U.S. alone, we’ve got over 1,000 digital billboards, 650,000 internationally. So, in the grand stream of things, this is a small piece obviously to impact will for the LA business and one that has obviously been significant for them. But we’re going to continue to work with the city to obtain permits. While we’re disappointed, we are complying with the order. And we are now working closely with the city, and we have a number of actions and options that we’re working on. So it’s little preliminary to this specific, but we’re exploring new digital permits around that the LA area and again we have good foot print there with our traditional building and posters and all the surrounding areas over 3,000 site. So, I do encourage that the business is performing very well 3% pacing growth even with that unfortunate development in LA and the business is doing very good as I mentioned the traditional postures and built ins are quite strong. So, I am not going to provide specific details on the impact of LA. We don’t disclose that level of detail, but I would say the business is healthy despite that and we are working through as fast as we can.

Avi Steiner – JPMorgan

Great. And then if you said this earlier, I apologize. But is it fair to think that the delta between your core radio performance, which has been very strong and CCME kind of narrows and becomes the same in the second half keeping all else being equal that when comps get easier on the tasks side?

Thomas W. Casey

Well, I think yes we’ve told you. We bought this business and certain affiliates remain until their renewals in exit. So we have – we do have those comp level will improve throughout the year as those, some of the contracts rolled off and we continue to prove our some of the integration activities or finish those. So I think that’s right, I think as the year progresses, we should see that business moderate.

Avi Steiner – JPMorgan

Okay. And very last question from me and thank you for taking them. Away from the obvious bank debt exchanges that you can still do, just a question on the LBO and specifically the (inaudible) can you make that payment early or can you escrow the $57 million related 11% notes ahead of – and basically deal with those notes ahead of the August payment. And then there is a kind of related question is there anything preventing you from using any cash sitting in unrestricted sub as part of any liability management exercise and I’m done. Thank you very much.

Thomas W. Casey

So I’ll take those in reverse order. We can use cash under it itself pretty liberally. And so it can certainly return it to a restructured subsidiary and user defined liability management activities, you maybe asking something different, we will do something however we restricted self and I probably need a little help understanding what the question is, is that correction. But certainly we can and half move the money out of our unrestricted self to restrictive to the initiatives.

Brian Coleman

The first question is worldwide (inaudible) can we do something with the payment, presumably this is a situation where notes would exchange. So you know, we would do something, but the ideal thing and to answer that accelerating and are paying in advance. Well, I don’t know, I don’t see iHeart, but we haven’t had legal discussions about how to handle that. So I would softly say yes, without kind of that background and support.

Avi Steiner – JPMorgan

Thanks for the questions guys.

Operator

All right. Next we go to line of Doug Arthur with Tracy Young Evercore. Please go ahead.

Doug Arthur – Evercore Partners

Figure on CapEx for the entire company, it looks like CapEx in the outdoor business was down pretty significantly year-over-year in Q1. So, any guidance you can give out, or kind of what that might look like for the year. And then I mean somebody is really getting beaten round a little bit on this call, but there are a lot of link parts, the cost structure in the Americas and international. And I am just to and obviously you make do some more restructuring as you see that. But I’m trying to get sense of the kind of underlying cost trends in both Americas and international for the balance of the year, thanks?

Thomas W. Casey

Okay. On the CapEx, I gave an update that we’re sill probably inline with 350 for the year it’s kind of our target, that will be all in. The big users of capital tend to be Outdoor businesses and from a year ago, I mean they are down slightly a couple of million bucks, but they typically is not a significant cap rate late in the first quarter. So not much of story other than, we continue to invest in the business, we are still thinking that’s about 350 or so.

As far as the operating expenses, as I commented earlier, we continue to see opportunities as we drive through higher margins in our international business. I think the difficulty is obviously these markets are challenged in Europe, we have been fortunate to see the offset in some of our developing markets, seeing very strong growth in Latin America and China and Australia. And so it’s hard to pinpoint what that operating expense profile look like other than to say, as we’re seeing slowdown in Europe, we are aggressively going after those expenses.

At the same time, we are investing in some of the higher growth areas, so it is a balancing act to try to manage that portfolio and we’ve been fortunate to see the developing markets perform strong enough to offset some of the slowdown, we are seeing in some of our larger markets in Europe.

Thomas W. Casey

Okay, great. Thank you.

Operator

All right. And next we go to the line of Lance Vitanza with CRT. Please go ahead.

Lance W. Vitanza – CRT Capital Group LLC

Thanks guys. A couple of questions; first, it looks from our perspective, like you are doing a very good job on the top line, but I want to talk about margin. EBITDA was lighter than we at least were looking for and I’m wondering, is the business just becoming less profitable as you focus more on new stock spots and streaming and so forth in order to stay ahead of those [cost]?

Thomas W. Casey

No, I wouldn’t say so, I think keep in mind that first quarter is always our lowest revenue quarter. And so you always are going to see some margin compression in the first quarter, because we obviously have a big fixed cost base. But we feel very good about our top line growth and I want to see that momentum continue throughout the year.

But I would say our expense focus has been pretty intense over the last couple of years. I don’t think we’ve lost that intensity and I would say that our margin expansion has always been a goal. We’ve talked a little bit in the past that we’ve seen some margin compression due to the mix of business in the outdoor business because of the growth in airports. But even that that’s mostly a mix issue, not an expense issue. So I would say we feel pretty good about it, but I would say it’s mostly due to some of the just the shallowness of the first quarter revenue number.

Lance W. Vitanza – CRT Capital Group LLC

And then with respect to traffic, is it possible to quantify the impact of the ongoing integration versus cumulous essentially in-sourcing it’s business?

Thomas W. Casey

We don’t get into that level of detail. I think it’s just one cumulous of that, there was other affiliates as well that that also were terminated or left. And so again, as part of the acquisition, we also anticipate these things. So it’s not a value issue, but it is a year-over-year comparable issue. And we’re actively managing this. The teams are focused. We understand that the pressure is putting on the top line. But underlying, we like the business and we continue to see opportunities to grow the top line.

Lance W. Vitanza – CRT Capital Group LLC

Great. And then the shareholder litigation, could you walk us through the settlement and as much as little detail as you think is necessary?

Thomas W. Casey

Well, yeah, I think first of all, we are excited that both companies have come together and kind of the dealing with this issue. We are pleased that the parties had made progress towards it. And I would say that the details specifically we laid out the memorandum of understanding in our 8-K file on April 3. I really encourage you to read through that because there is lot of details and new answers of the memorandum. That obviously has to be approved and by the Delaware Chancery Court, we expect that to happen sometime in the third quarter or so. But I encourage you to pull that down and take a read through of the details.

Lance W. Vitanza – CRT Capital Group LLC

We did that and I guess just from my read was that if you look at where your bond are trading, it didn’t look like there is going to be much of an impact to your liquidity, is that the right take away?

Thomas W. Casey

Yeah, right now, definitive the memorandum of understanding would indicate that $200 million dividend keep in mind that the net impact to the parent company is only the minority share that which is only about $22 million, given that CCMH owns 89% of CCOH, so pretty nominal liquidity impact for the parent due to the small public shareholders percentage.

Lance W. Vitanza – CRT Capital Group LLC

Thanks very much.

Operator

All right and next we’ll go to the line of James Dix with Wedbush. Please go ahead, your line is open.

James Dix – Wedbush

Thanks a lot. Good afternoon, gentlemen. A couple of things, just in terms of your pacing data for the second quarter, does that pull out the L.A. signs from the 2012 base as well as obviously the second quarter of this year or are those included in the 2012 base?

Thomas W. Casey

Yeah, it’s a great question, James. I did not exclude them from last year. If I did, the basis will be even out much stronger.

James Dix – Wedbush

Okay.

Thomas W. Casey

So just to give you an idea of what we’re seeing, the 3% is comparative with signs in for this year and the signs out for this year.

James Dix – Wedbush

Okay. I suppose I could be tricky and ask what roughly about difference, but would it be much a material difference do you think in the phasing number, I mean, or kind of a rounding error?

Thomas W. Casey

Well, it’s – look, I think we look at this business as a portfolio and we said it’s significant for the DLA market, but in total that’s on a very large revenue base and it’s not material to the company, and maybe material to a specific phasing number, but then again, that’s not what. We’re trying to give you a sense of where the business is going.

James Dix – Wedbush

Okay. Okay. Great. And then, in terms of your growth in the first quarter, was there any material difference in the Americas between, like your top 10 markets and then your smaller markets in terms of the growth maybe you’re seeing?

Thomas W. Casey

No, as I mentioned, actually we’re seeing both national and local up pretty strong and so I’m not seeing any differentiation by size of market.

James Dix – Wedbush

Okay, great. And then, in international, I mean, when did you start seeing the difference in the phasing, is that something which was kind of deteriorating over the quarter due the weakness in Europe, because it is a little bit lower phasing that the phasing what you gave for the first quarter a quarter ago?

Thomas W. Casey

I would say I didn’t mention earlier. I think that what we’re seeing is later and later pacings, later postings rather and so the visibility is challenging. We gave a negative outpacing number back in February at our earnings call, it’s slightly larger this quarter, but again we are just dealing with later and later pacings and postings and so, we have been encouraged with the business being able to manage its way right to the end. I will point out that, all the things we did last year and prior year before that of all the sales force effectiveness work, all the pricing work and yield management work we did, that’s really what’s helping us manage through a very, very difficult environment. So all of the investments that were done in the previous couple of years has got the team focused and is really helping manage through that challenging environment.

James Dix – Wedbush

Okay. And just two other quick one hopefully. The outlook for the – the current balance of the due from Clear Channel Communications alone was 7.6 as of quarter and then pro forma for the settlement is just $200 million less.

Thomas W. Casey

Yeah, that’s right. So the settlement goes according the MOU that would be a $200 million demand. So it will reduce by $200 million and then there will be a contemporaneous $200 million dividend which would not have any impact on the inter company note.

James Dix – Wedbush

Okay. And then is the outlook for the growth of that note, just how fits into the overall relationship between the parent and clear channel outdoor, really any different after the settlement is closed before or should we be thinking about it, fairly similarly.

Thomas W. Casey

Well, I think it’s pretty similarly. Our excess cash flow would continue to be slow.

James Dix – Wedbush

Okay. And then last thing, just on – do you have updated thoughts on the potential for weak conversion now that at least CBS has stated it’s made a filing with the IRS regarding getting a ruling on a potential conversion for its Americas business?

Thomas W. Casey

Yeah, as I’ve said on some of the other calls and some of the conferences, we will continue evaluating the conversion. We don’t see any immediately given our tax position, but it’s something that we are looking at. Obviously, we have a different capital structure than they have a different objective with this spin-off of their business.

So I think it’s something we’ll continue to evaluate and as the letters come in and we get better clarity, we’ll give you some additional insight as we go, but right now we don’t feel disadvantage given that we are not paying a taxpayer given our NOL position. And so we have the ability to wait and see how this all plays out.

James Dix – Wedbush

Okay, great. Thanks very much, guys.

Operator

Next, we’ll go to the line of David Miller with Caris. Please go ahead.

David Miller – Caris & Company

Well, hey after all that, I think most of my questions have been answered, but I just have one on expenses. It looks like you guys blocked a tag on expenses much better than you usually do when America is down 2%, International down 4%. I know you guys mentioned in your prepared remarks, a lot of that was due to essentially what’s become a tough comparison if you will due to the litigation last year. But are there other factors, I mean if you could just detail it for us if technology, less people, and more efficiencies and if you can just profile the expense decline therapy, that would be great. Thanks very much.

Thomas W. Casey

We talked well, I think at year end we try to pull that together and I think it was about $76 million again on restructuring activities. About 50% of that if I recall was in areas of course accelerated productivity on the sale side, so sales force effectiveness or yield management activities and about half of that was in expense takeouts.

And if you recall, I’d mentioned that on the expense side, we pay back on that typically comes pretty quick. These are severance related activities or takedown related activities, things that lease re-negotiations, those types of things. And so that’s what you are seeing is, some of that benefit coming through the financials and that’s something that’s why we continue to make those investments, because the pay back is so quick.

Similarly, in this quarter, with the – that the $9 million of I will call the strategic initiatives are caused, a good chunk of that again, about half of it again is in that consulting type of expenses to drive those initiatives across more and more countries in CCI, and again those typically have pay backs on the top line, again that’s some of the areas that are helping us manage to do this difficult environment where our sales force are really focused and have the pricing tools. And then about half of it relates to severance, lease re-negotiations, takedowns, those types of things and those again have a pretty quick pay back.

So it’s been and we were running about 50-50 and what you are seeing is the benefits those start to come through.

David Miller – Caris & Company

Thank you very much.

Operator

Okay. And next we go to the line of (inaudible). Please go ahead.

Unidentified Analyst

Hi. As someone else said, most questions have been answered, but just one quick administrative one, can you just give us any further insight as to why you now need to file for Clear Channel Capital One. Obviously it hasn’t been a change recently, but I understand in the shareholdings but you now have to file. Is there a reason, or transaction that might be driving that or anything in particular?

Thomas W. Casey

No there is no transaction that is driving this. This is just the result of ongoing reduced by the SEC. They requested us to make this adjustment we are, their guarantor of the jet. And so we’re complying with the request and will start to continue. We have and we will continue to disclose those, but really nothing to speak off Clear Channel Capital One guarantees, the credit facility, CCUPGNs and the (inaudible) notes. So basically everything other than the legacy notes. So they just asked us to make that separate filing.

Operator

Okay, thank you. Alright and next we go to the line of Davis Hebert with Wells Fargo. Please go ahead.

Davis Hebert – Wells Fargo Securities

Hi, thanks for taking these questions. I’ll try and squeeze these in pretty quick here. So, in the context of your radio and media and entertainment pacings where does the network fall whether it’s toward the plus two plus five given I think that you started off a little bit fast?

Thomas W. Casey

Yeah I think that specific question. I would say it’s definitely more than on the plus side than on the minus side. So I would say that we will continue to see the recovery of the network business. We really saw that throughout the first quarter. If you remember we acknowledged that, it really was a slow start for the year. And that business is going to perform as it normally would as we’ve seen some better momentum in the market.

Davis Hebert – Wells Fargo Securities

Okay. And then touching on M&A broadcast TV has been very active, radio relatively quite, so just wanted to ask, how you feel about your station make out and the M&A environment picks up, would you look to divest anything or maybe acquire something?

Thomas W. Casey

Well, we have acquired couple of AM stations last year, WOR in New York and also one up in Boston as well. So we have been acquiring certain tuck-in acquisitions. We have not changed this time to exit any of our stations, clearly there is a competitive advantage for us to have the number of stations we have and being able to deliver local content and local advertisers and leverage our overall scale. So we are not planned at this time in the divest area.

Davis Hebert – Wells Fargo Securities

Okay, great. Thanks again for the questions. Appreciate it.

Operator

The final question comes from the line of Andrew Finkelstein with Barclays. Please go ahead.

Andrew Finkelstein – Barclays Capital Inc

Thanks. A couple of questions; one, maybe you could talk about how the company feels right now about their liquidity position and specifically on thinking about the ability to take on more interest expense., should there be anymore slops of any kind going forward?

Thomas W. Casey

Brian, you want to take that again and I will have some thoughts.

Brian Coleman

Sure. Well, we are obviously focused on liquidity and the ability to continue to generate liquidity in the business. Our balance sheet cash is lowered to some payments during the quarter and then obviously it’s coming of the weakest operating quarter. That being said, we don’t have any significant debt maturities until late I think September 24, it was a higher thing August, but it was a knack that their runway is clear. We look to continue to grow free cash flow.

We have availability under our ABL facilities. And continue over time to improve the business free cash flow with additional levers from distributions of excess cash from subsidiaries, working capital initiatives, a lot of activities that we can kind of look to. We’ve cleared the runway, continue to operate the business, feel that we have enough free cash and liquidity to meet all our operating needs moving forward. But it is a balance, we would always take a balanced an sequenced approach to refinancing any near or that could be supported of our liquidity, and I think we’ll continue to do that. Balancing that with refinancing risk and take being opportunistic in attractive markets. So we feel pretty good about our liquidity position, we continue to focus on it, and every capital structure move we make reprises some fairly attractive price, as well we’ve been sequestering and delivered it in the past and we will continue take that vehicle forward.

Andrew Finkelstein – Barclays Capital Inc

Thanks, fine. One follow up from an earlier question. How many cash right now is in the unrestricted subs, if it could be used with regards to higher modes?

Thomas W. Casey

Well, I don’t feel we separately disclose it, but it’s calculable, and so I can go ahead in March 31, it was right around $100 million.

Andrew Finkelstein – Barclays Capital Inc

Okay. Thanks. And then just one small question, the sale of the neon group in international, should we assume that it’s roughly the same amount of revenues and expenses that come out every quarter going forward for modeling purposes.

Thomas W. Casey

Yeah, approximately that’s right. And we will be giving you that each quarter to see how the true run rate.

Andrew Finkelstein – Barclays Capital Inc

Okay. And then not to be diverse Tom but I think the Westwood One revenues that you are giving us were in the $28 million per quarter, the 3% move in the pacings for the second quarter on the entertainment business is roughly $25 million. So I am hard pressed to think that Westwood One is in sort of whipped out there, is it a larger traffic business that is being impacted, that is doing the dragging down there and why not thinking about the right sort of scale of the stations versus traffic has been a question that we have done a lot over the last quarter?

Thomas W. Casey

Yeah. Keep in mind what we did is as we bought the traffic business and integrated with our existing business. And so there has been quite a bit of activity to re-size that business and get the sale forces together, consolidate the inventory and so there has been just a lot of work to position that business properly.

So I think yeah, we’re working hard at it and we will continue to make sure you understand how the broadcasters have gone, because that’s really performing quite well as we work through the traffic integration issue. So I feel, we will continue to break that for year until we don’t need to anymore, but that is a drag on the current core broadcast, but one that again we committed again with the strength we are seeing in national, recovery in PRN and digital. And again a lot of excess comp year-over-year where you just don’t have the same affiliate levels.

Andrew Finkelstein – Barclays Capital Inc

Okay. But it’s a bigger traffic than just the Westwood One?

Thomas W. Casey

Yes, it is.

Andrew Finkelstein – Barclays Capital Inc

Okay. All right, thanks guys.

Thomas W. Casey

Okay, everyone. Thank you very much, I really appreciate, we appreciate your questions and we look forward to talking to you again.

Operator

That does conclude our conference for today. Thank you for your participation and for using AT&T Executive Teleconference. You may now disconnect.

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