iHeartMedia 2005 Annual Report Download - page 66

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All options granted after February 19, 2004 contain a retirement provision which allows for continued vesting upon
retirement. It is the Company’s policy to recognize the fair value of such grants over the vesting period, and any
remaining unrecognized compensation cost is recognized when an employee actually retires. In accordance with
Statement 123(R), the fair value of such grants is to be recognized over the period through the date that the
employee first becomes eligible to retire and is no longer required to provide service to earn part or all of the award.
If the Company had been accounting for its stock options in accordance with the provisions of Statement 123(R), it
would have reported an additional $1.4 million and $-0- of pro forma stock compensation expense, net of tax, for
the years ended December 31, 2005 and 2004, respectively.
NOTE B - STRATEGIC REALIGNMENT
Initial Public Offering (“IPO”) of Clear Channel Outdoor Holdings, Inc. (“CCO”)
The Company completed the IPO on November 11, 2005, which consisted of the sale of 35.0 million shares, for
$18.00 per share, of Class A common stock of CCO, its indirect, wholly owned subsidiary prior to the IPO. After
completion of the IPO, the Company owns all 315.0 million shares of CCO’s outstanding Class B common stock,
representing approximately 90% of the outstanding shares of CCO’s common stock and approximately 99% of the
total voting power of CCO’s common stock. The net proceeds from the offering, after deducting underwriting
discounts and offering expenses, were approximately $600.6 million. All of the net proceeds of the offering were
used to repay a portion of the outstanding balances of intercompany notes owed to the Company by CCO. Under
the guidance in SEC Staff Accounting Bulletin Topic 5H, Accounting for Sales of Stock by a Subsidiary, the
Company has recorded approximately $120.9 million of minority interest and $479.7 million of additional paid in
capital on its consolidated balance sheet at December 31, 2005 as a result of this transaction.
Spin-off of Live Nation
On December 2, 2005, the Company’s Board of Directors approved the spin-off of Live Nation, made up of the
Company’s former live entertainment segment and sports representation business. The spin-off closed December
21, 2005 by way of a pro rata dividend to the Company’s shareholders, which reduced shareholders’ equity by
$716.7 million. The spin-off consisted of a dividend of .125 share of Live Nation common stock for each share of
the Company’s common stock held on December 21, 2005, the date of the distribution. Additionally, Live Nation
repaid approximately $220.0 million of intercompany notes owed to the Company by Live Nation. The Company
does not own any shares of Live Nation common stock after the spin-off. Operating results of Live Nation are
reported in discontinued operations through December 21, 2005. The spin-off resulted in a $2.4 billion capital loss
for tax purposes, $890.7 million of which was utilized in 2005 or carried back to offset capital gains incurred in
prior years and the remaining $1.5 billion was recorded as a deferred tax asset with an equivalent offsetting
valuation allowance at December 31, 2005. The $890.7 million capital loss resulted in a current 2005 income tax
benefit of $314.1 million, which is included in income from discontinued operations, net.
In connection with the spin-off, the Company entered a transition services agreement and tax matters agreement
with Live Nation. The transition services agreement provides for certain transitional administrative and support
services and other assistance. The charges for the transition services are intended to allow the Company to fully
recover the allocated direct costs and indirect costs of providing the services. The services will terminate at various
times specified in the agreement, generally ranging from three months to one year. The tax matters agreement
governs the respective rights, responsibilities and obligations of the Company and Live Nation with respect to tax
liabilities and benefits, tax attributes, tax contests and other matters regarding income taxes and preparing and filing
combined tax returns for periods ending prior to the spin-off and any additional taxes incurred by the Company
attributable to actions, events or transactions relating to Live Nation.
The Company’s Board of Directors determined that the spin-off was in the best interests of its shareholders because:
(i) it would enhance both the Company’s success and the success of Live Nation by enabling each company to
resolve management and systemic problems that arose by the operation of the businesses within a single affiliated
group; (ii) it would improve the competitiveness of the Company’s business by resolving inherent conflicts and the
appearance of such conflicts with artists and promoters; (iii) it would simplify and reduce the Company’s and Live
Nation’s regulatory burdens and risks; (iv) it would enhance the Company’s ability and the ability of Live Nation to