Clear Channel Outdoor Holdings Inc (CCO) 2012 Q2 法說會逐字稿

Ladies and gentlemen, good afternoon, thank you for standing by and welcome to the Clear Channel second-quarter earnings conference call. At this time, all lines are in a listen-only mode. Later there will be an opportunity for your questions. (Operator Instructions)

At this time I'd like to turn the conference over to our host, Senior Vice President and Treasure, Mr. Brian Coleman. Please go ahead.

Good afternoon and thank you for joining our earnings call for the second quarter of 2012. On the call with me today is Tom Casey, Executive Vice President and Chief Financial Officer. During today's call, we will provide an overview of the second-quarter financial operating performances on CC Media Holdings, Clear Channel Communications and Clear Channel Outdoor Holdings.

For purposes of this call, when we describe the financial and operating performances of CC Media Holdings we are also describing the performance of it's subsidiary, Clear Channel Communications. After Tom's comments, we will open up the line for questions.

Before we begin, I would like to remind everyone that this conference call may include forward-looking statements and involve uncertainties and risks. There can be no assurance that Management's expectations, beliefs and projections will result or be achieved or that 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 may be mentioned during this call. For those 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 include all acquisitions and exclude all divestitures in both periods presented for comparative purposes. It also excludes the effects of movements in foreign exchange rates.

During today's call, we will provide certain performance measures that do not conform to Generally Accepting Accounting Principals. We have provided schedules that reconcile these non-GAAP measures with our reported results on GAAP basis as part of our earnings press release which can be found on the investor sections of our websites.

A webcast of this call and earning presses releases issued today can be found on the investor sections of our websites at www.clearchannel.com, www.clearchanneloutdoor.com or www.ccmediaholdings.com. A replay of this conference call will be available for a period of 30 days. And with that, I will turn the call over to Tom Casey.

Thank you, Brian, and good afternoon, everyone. During the second quarter, we continued to make solid progress against our strategy to stretch our business and improve our competitive position. As I discussed with you last quarter, our strategic investments in our Media & Entertainment and Outdoor operations are key to keeping driving our business forward. Building on our size, scale and operating strength, these investments make it possible for us to take full advantage of our opportunity to continue to generate meaningful growth.

Most of all, we've had industry leadership, global diversification and constant innovation we need to leverage the quality and reach of our assets across the Company today and into the future. For instance, earlier this year, Media & Entertainment launched our new strategic partnerships, national sales and integrated marketing and sales groups. Now we can offer a groundbreaking custom marketing solutions only Clear Channel can deliver. That's helping us gain real traction with major national advertisers, a key objective of our strategy.

Our industry-leading digital radio platform, iHeartRadio, recently reached 10 million registered users, faster than any other Internet service. And it has been one of our major beneficiaries of this growing national advertising success. This September's iHeartRadio music festival is another example of our ability to leverage our assets. The fact that it's being sponsored by such national brands as Amazon Kindle Fire, DISH, Macy's, MGM Resorts International, NBC's The Voice and State Farm.

Our Outdoor businesses, the American and International, reached hundreds of millions of people every month, and we will continue to compete for significant advertising contracts that attract new target audiences around the world for our clients. Our investments in our Outdoor business are also continuing to pay off.

In the Americas, over the last 12 months, we have deployed more than 250 digital displays. Our digital installations now total 963. Internationally we recently won several key contract and tenders, including two large advertising contracts with public transportation companies in Norway and Sweden.

Thanks to our investments including our robust sales [in the structure], we are well positioned to continue driving our growth in the future. Clearly given the economic environment, we will still stay focused on keeping our costs under control, we are working to right size our operations and the reasons where economies have continued to deteriorate while investing selectively to capitalize on opportunities where economies continue to see growth. Overall, we are encouraged with our progress and I look forward to keeping you posted on it throughout the year.

Now let's go to the Company's performance in the quarter, I'll start with our overall results for CC Media Holdings and Clear Channel Media & Entertainment, then continue with Clear Channel Outdoor Holdings where I'll provide you with details of our Americas and International businesses. And lastly, I'll wrap up with a review of our capital spending and liquidity before taking your questions.

CC Media Holdings revenues on a constant foreign exchange basis were $1.64 billion, up 2% in the quarter. Contributing to overall revenue increases was growth in both Media & Entertainment and Outdoor businesses, particularly across our digital platforms and street furniture assets. On a reported basis, revenues reached $1.6 billion essentially flat with the prior quarter.

CC Media Holdings OIBDAN for the quarter totaled $532 million, representing a 6% increase compared to the same period in 2011. Operating margin, which is OIBDAN as a percent revenue, was approximately 33%, an improvement of 180 basis points for year over year. We had several items that affected the OIBDAN results, and I will comment on them individually as part of the segments discussion.

One item that affected all segments is our ongoing realignment and improvement of business operations. During the quarter, we incurred approximately $15 million of expenses related to strategic revenue and expense initiatives across the Company to fuel future growth and profitability.

Now let's move to the performance of the Media & Entertainment operations. Our Media & Entertainment revenues grew 3% to $793 million in the quarter, representing growth in national and local advertising sales and digital revenues as the Company continues to expand its digital footprints.

Political revenues for the quarter reached $9 million representing approximately 50 basis points of the quarter's growth. As we look at the second half of the year, we do expect political revenues to increase, however, it is difficult at this time to estimate the total amount of political revenue we will see for the year.

The quarter's operating expenses decreased 5%, or $25 million. There are several items affecting our expenses for the quarter. First, we incurred $9 million in higher cost related to the timing of the Company's traffic acquisition completed in late April 2011. And we also had lower music license fees due to lower royalty rates and a $21 million credit to our future royalty payments to one of the Company's industry performance rights organizations.

Overall, we're happy with our expenses and are seeing the benefits our expense management activities over the last 12 months and reduced cost through lower head count. Media & Entertainment OIBDAN increased 15% to $355 million in the quarter. And even with the credit towards future royalty payments, CCME had strong operating leverage and we were able to convert a meaningful portion of our revenue into cash flow.

The quarter's best performing advertising categories include automotive, telecommunications, political, financial services and entertainment. Reflecting our strategy to expand our presence with national advertisers, our national sales have been growing approximately double the rate of local. And our digital initiatives, despite being a small portion of our overall revenues, are continuing to experience significant growth.

We have continued to make investments to grow our business by leveraging our diverse national and local footprint, unmatched content, innovative digital platforms and our strategic relationships with our marketing and advertising partners.

The trends for the third quarter remain positive though visibility is limited. Today in Media & Entertainment revenues is pacing up about 3% driven by major national advertising buys compared to the prior-year period. The 3% excludes any impact on the traffic acquisition, and political has not had a significant impact on our pacings to date, so our pacings would still be around 3% excluding political.

Moving on to our Outdoor results. Clear Channel Outdoor Holdings revenue grew $10 million at constant foreign exchange rates, or 1%. Reported revenues totaled $761 million in the quarter, a decline of 4% over the year-ago period $789 million. Outdoor OIBDAN decreased 7%, totaling $196 million compared to $210 million in the second quarter of 2011.

Contributing to this decline were unfavorable movements in foreign exchange rates totaling $4 million as well as macroeconomic weaknesses in certain international countries in which we operate, as well as higher cost from strategic initiatives and last year's contracts and investments.

Now let's focus on our Americas segment. Americas Outdoor revenue grew 1%, or $2 million to $321 million in the quarter. Bolt-ins, particularly digital and Air Force drove this growth. Offsetting the revenue growth is in part was decline in poster revenues. Americas operating expenses declined 1% to $187 million, including a $7.8 million benefit from a favorable court ruling. This decrease in expense was partially offset by increased personnel costs and charges associated with strategic revenue initiatives as well as higher site lease expenses related to new digital displays.

In the quarter, Americas OIBDAN increased 3% to $134 million. The quarter's strongest advertising categories included retail, media, business services, amusement and automotive. Underscoring our commitment to continue to expand our digital footprint, we did install 49 new digital displays during the quarter. Right now revenues at Americas segment are pacing up approximately 3% through the third quarter compared to a year-ago period.

Now let's turn to our International results. In the quarter, International revenues rose $7 million, or 1%, excluding the impact of foreign exchange rates. On a reported basis, revenues decreased 6% to $441 million due primarily to $37 million in unfavorable effects of foreign exchange rates. Street furniture contributed to our revenue growth of China, Australia and the UK while Switzerland billboards business also performed well. In addition, contracts signed in 2011 also help drive the quarter's growth.

Macroeconomic conditions continue to drive uneven performance across International markets. But the weakness in Southern Europe, France and the Nordic countries has been offset by continuing growth in Asia and Pacific region and some regions of Europe, especially Switzerland.

Operating expenses were up 4%, or $16 million, excluding the effects of movements in foreign exchange rates. On a reported basis, expenses decreased 5%, or $17 million, including a $34 million decline in foreign exchange rates. The increase in expense results from a higher site lease expenses related primarily to new contracts won in 2011as well as increased legal and other expenses in Latin America.

As a result of a slowing economic recovery and higher expenses in the quarter, OIBDAN decreased 13% to $90 million. Our International segment continues to see healthy development in certain countries; however, revenue declines in other countries are placing pressure on OIBDAN.

With several European countries still facing economic challenges, our International team continues to pursue their strategy and benefit from their diverse footprint across Europe, Asia, Australia and Latin America, as well as pursue various cost reduction efforts to improve overall profitability. Today, International revenues are pacing down about 1% for the third quarter compared to the year-ago period.

Now let's turn to our capital spending and our balance sheet. CC Media Holdings capital spending for the quarter totaled about $102 million compared to $76 million in last year's second quarter. Since June of 2011, our capital spending was approximately $398 million, highlighting our business's increased investments. Our Outdoor operations accounted for approximately $75 million of our second quarter spending adding digital displays domestically and expanding certain street furniture and transit contracts internationally.

On June 30, CC Media Holdings total debt stood at $20.7 million. Clear Channel's leverage as defined under its credit agreement at the end of the second quarter was 6.1 times versus 7.1 times in the year-ago quarter. And cash on the balance sheet was $1.3 billion at the end of the quarter. At the end of the quarter, Clear Channel Outdoor Holdings net debt reached approximately $4.3 billion and leverage under its indentures was 6.05 times on a total consolidated debt basis and 3.24 times on a senior debt basis. Cash on the balance sheet totaled $491 million.

With less than $475 million of Clear Channel debt and no Outdoor debt maturing before 2014, we are pleased with our short-term liquidity profile. We plan to continue to proactively manage our balance sheets while working to generate strong OIBDAN and cash flow across our operations.

To sum it all up, we are encouraged by our progress over the quarter, our investments are working for us, and we will keep investing in high return opportunities to put ourselves in the best position to weather the world economic cycle. At the same time, our teams are working hard to reposition our Outdoor business in Europe where an economic slowdown seems to be taking root.

We are especially excited about our strategic partnerships, national sales and integrated marketing and sales groups and their success so far with national advertisers. We will continue to focus on building on that momentum over the coming quarters. We are confident we have the right strategy and right people to keep us on track. As you know, John Hogan at Media Entertainment and Outdoors' William Eccleshare have been building out the senior teams over the past several months.

In Media & Entertainment sales, for instance, we have new leaders such as Tim Castelli, President of National Sales, Marketing and Partnerships, who came to us from senior positions at AOL and Google, as well as Rick Song, our EVP of Digital Sales, who joined us from Microsoft. And in Outdoor, a long-time advertising veteran, Gene Leehan, was named Senior Regional President to manage the 12 largest US markets, as well as airports, malls and Spectacolor businesses.

Thanks to all this new energy and vision, we look forward to delivering on Clear Channel's great potential. Thanks for your time. Operator, please open the lines for questions.

(Operator Instructions)

James Dix, Deutsche Bank

One easy housekeeping one for you, my ears must be going bad. Was Americas for the third quarter pacing up 2% or 3%?

3%.

I'm sorry, 3%, okay. And then in the second quarter with excluding digital, would Americas have had a positive growth on the revenue line?

Well we don't breakout the individual products, as you know we sell digital as part of a broader network. Digital continues to ramp up capacity, so it obviously is going to have a faster growth rate than rest of the traditional business, which is not growing new capacity. In fact it's shrinking capacity as we modify traditional boards into digital boards. So we continue to see great growth in digital, we see season softness in posters as I mentioned. But overall in capacity we're generating in the segment better around digital continues to be a key driver.

Okay, and then just two others. One for corporate, you seem to spike up a little bit year-over-year in the third quarter-- in the second quarter, any color on that and is that good run rate to think about for the rest of the year? And then any outlook on capital expenditures for the rest of the year especially given some of the street furniture and transit contract wins and defenses that you've had. Thanks.

Sure, a couple comments on corporate. We did see about 15%-- $15 million increase in corporate.

We did have some unfavorable benefit reserve on some healthcare issues that came through the quarter. We also are seeing higher bonus calculations than prior years. So that's obviously a recovery from last year where we were-- saw much weaker environment than we had anticipated. Obviously we have Bob on board now and also we continue to ramp up our initiatives into the things I mentioned earlier in Outdoor and CCME.

So I think that with regard to CapEx, I think we've given you kind of an idea of where we're coming in for the year. I don't think that we have made any changes to that right now. But I would say that clearly we're looking at being disciplined about how we deploy capital.

Frankly, a lot of the capital we will deploy between now and the year's already been committed and this is just a roll out of certain tenders that we previously won. So that said, we'll give you an update on the next quarter and as we start again into next year, what we look like next year but I think we're still on track for our Company's position.

Great, thank you.

Marci Ryvicker.

The first question, the weakness in posters in the second quarter. Since posters are shorter term, is this indicative of macro issues, is there a certain category, or could you just talk about what drove the weakness in this segment?

I think nothing particular. I mean I would agree that we're seeing shorter and shorter sales cycle here. So we're getting later and later postings and so the whole turn time is much shorter. No one individual market came out as being a unique driver.

Our local, international business were pretty much in line with each other for the quarter. With the 1% growth in revenue, we didn't see a significant delta, if you will, really year over year as far as national, local or in individual markets.

Okay and then there has been some thought that billboard companies may pursue conversion to a REIT. Is this something that Clear Channel Outdoor would consider or discuss?

We saw the same press that you saw and we have no plans or not contemplating any restructuring of our Company into a REIT. And we'll monitor the developments but at this time we have no plans.

Okay and then my last question is on the Media & Entertainment division. You called out higher expenses related to the traffic acquisition, what about revenue in the second quarter?

Revenue for the quarter was about, if I recall, up about $3 million or about $35 million for the full quarter, excuse me, it was down about $3 million. So we clearly are seeing some improvement in our top line. We are looking at the TV business as a bit of run off piece of our business so that is putting some pressure on the overall metro line, but the total was toss about $3.5 million given the fact that we didn't have full acquisition in last year.

Thank you.

Avi Steiner, JPMorgan.

Just a very quick follow up, did you say $3 million incremental from traffic?

$3.5 million of -- in part because of the-- I think it was acquired in April last year. So we had a little bit of a -- not a full quarter in last year's comparable numbers.

Perfect, and before I go down to some of the expense items you called out, just in radio anecdotally we had been hearing the quarter was down and I'm curious what's going on there with respect to you guys? And I know you called up some national things but I don't know if that's more of a back half event. But are you taking share in the radio division, I mean, this looks like good number relative to what we were expecting?

We think we continue to position ourselves to take share. We saw strong national growth, about double what we saw in local. We're seeing strong verticals in auto, political, telecommunications and so on, financial services as well.

But I think more importantly, we are starting to see the efforts we put in place with our strategic partnerships international programs to really start to leverage the relationships we're starting to build. So we feel optimistic about the traction we're getting. And we think that we will differentiate ourselves across the radio business. So we have historically outperformed the radio business and I would expect with these additional efforts and energy we're putting behind this, we're encouraged with our numbers for the quarter.

Okay and then if I can go to the-- sticking to the radio, but going to the royalty comments you made. You called out in the press release leave at $26 million royalty benefit. And then in this-- in your open comments you talked about a $21 million credit on future royalty payments. Do we think about that as $47 million of one-time benefits in the quarter and on some of the lower royalty payments, is that same magnitude going forward in the upcoming quarters?

Yes, the big one this quarter was BMI. And so we try to break out for you because there's really two things happening there. We did get a credit for about $21 million that we'll reduce our go forward rate. And we also got a quarterly run rate reduction as well.

So it's really two pieces to the puzzle. And the quarterly run rate reduction was about $3 million or so going forward.

So the $21 million is a subset of the $26 million, correct?

Yes, it is.

$21 million is a subset of that, okay.

Absolutely, yes.

Okay, that is very helpful. And then maybe if I can turn it over to the balance sheet and then I'll let other people chime in. Really two questions, one, do you have the ability to buy back any bonds in the open market? And then have you done anything subsequent to your quarter close? Thank you.

We have not repurchased any bonds in the open market. We have a variety of baskets available under the credit agreement that permit us to repurchase debt securities, but we have not during the quarter.

How about -- I'm sorry I hate to nitpick but the question was subsequent, if you don't answer, that's great and I'll turn it over. Thank you.

We have not purchased anything subsequent to the quarter, sorry.

Thank you very much, guys.

Bishop Sheen, Wells Fargo.

Let me go back to something that Avi was talking about. CCME certainly has the entertainment component in it now but that hasn't been broken out really I guess because it's too new with all the digital initiatives. So I'm just trying to get a sense, since you have been by perception the leader in the digital revolution, how much of a lift has the digital component of CCME added to your in OIBDAN in Q2?

Well as I -- first of all Bishop, I want to wish you well on your recent announcement of retirement, so I don't want to forget that, so congratulations to you.

Thank you.

With regard to when you retire, you listen to IHeartRadio no doubt. We are seeing very good growth in our digital business, it's one of our fastest growing areas. But keep in mind that we're not monetizing the custom radio streams rather in our iHeartRadio today. However, we are leveraging the platform for us to for example our iHeartRadio festival that we've got coming up in Las Vegas in September, is another example of where we leverage our assets to drive additional sponsorships and national advertisers to the medium.

So we're excited about what we can do. We haven't broken it out, it's part of our-- the way we're running our business and I think we're getting some good traction where we can really differentiate our asset base and our reach across the country for large and national advertisers. So we're quite encouraged, still early days, but the early indications are we're getting good traction.

Did that answer your question, sir? Jason Kim, Goldman Sachs.

I'll just take a couple of the boring balance questions and a housekeeping at the end. So on the-- any update you can provide in terms of the potential to extend your ABL facility which you briefly alluded to during last quarter's call? And second, as we get close to the December call that on the Outdoor senior notes, I was curious where your appetite was to refinance the piece of paper at a better rate than you're currently paying?

Yes, hi Jason, this is Brian.

I guess first with regard to the ABL, I know I mentioned it on the last quarter's call and I actually got a couple of calls from some of the banks that are in that facility asking what's going on. And I guess what I would say today is that that's an attractive market. We feel that that is a target piece of paper, or target facility that we can extend. We would like to extend that, it expires on 2014, it's undrawn. By extending it we have -- we extend out liquidity.

But I say all of that in the context of we don't feel like there's any pressure to extend today. And so it's something as with other initiatives that we look at, it's something that we'll continue to take a look at and when we feel it is opportune to do so, we'll like to extend. So I do think it's one of those things that's in the tool kit, it's something we're looking at, but we don't feel under a great deal of pressure to move forward on it But don't be surprised if you see some action at some point in the future.

Your second question with regard to the senior Outdoor notes that have a fixed priced call in December of this year. Yes that's a balance, to balance between the economics of issuing new notes to replace those at a lower market rate versus the cost of the call. And then I think you throw into the mix the likely set of terms and conditions we can get on our new notes are improved versus the current indenture.

I don't have an answer for you whether or not we'll take action in December or subsequent to the fixed price call kicking in. But it is one of the things that we also take a look at. So we're looking at these things as well as other initiatives, we'll be opportunistic the market present an opportunity. We may avail ourselves of those, but no real guidance at this point.

And then just to follow up, when you look at a potential refi transaction on the seniors, I mean do you look at that as an opportunity as a way to reduce your interest cost principally? Or is it more about getting additional proceeds to AAA your bank and maturities on a pro rata basis?

I think it can be a combination of both. I think we would have to look at all of the potential impacts of a refinancing event and what our goals are. So I think it's a little bit of both when we would take a look at whether or not to exercise the call.

Okay and just lastly a housekeeping question and I apologize because I probably should know this already. But next year I think you have about $57 million worth of idle payment on your four-year deed toggle notes due August of 2013. Is that payment owed to the toggles that are outstanding to third party such as on the $830 million outstanding or does it actually include the toggle notes that you had bought back a while ago but have not retired? So it's owed to $1.3 billion which I believe is the original amount of bonds at issuance.

I believe it's an offer that's made to the notes that are outstanding, it doesn't include the ones that have been repurchased -- retired.

So that would also include the bonds that you currently hold that are repurchased but have not yet been retired?

That is correct, if that's the essence of your question. The ones that have been repurchased by the unrestricted sub and have not been retired, that's correct.

Got it. Thank you.

Lance Vitanza.

I wanted to ask on the Outdoor side, Decaux talked earlier in the week about an expected 5 to 6 point increase in the UK market thanks to the Olympics. And I wanted to ask you, is that consistent with what you're seeing?

Say again.

JCDecaux talked about seeing a 5 to 6 point increase in the UK market thanks to the Olympics, is that consistent with what you're seeing?

Yes, I think we clearly -- clearly are seeing a lift in the Olympics for the quarter, hard to determine exactly what the Olympic lift will be, so I'm not going to give you a specific number. But we would say that we are definitely seeing the lift and I'll have better information for you how it all plays through in the third quarter.

But right now it is included in our pacings for CCI. They're still at a negative one pacing right now and we'll have to wait and see how this plays out. We had a similar pacing number for you last quarter, I'll give you an update next earnings call. But we're well positioned in the UK with regard to the Olympics and are absorbing as much revenue as we can to take advantage of the market there.

Okay. And then aside from the Olympics, do you think that the Northern European markets have bottomed out? And what kind of recovery do you suspect, is it going to be a U shaped or perhaps something more positive?

Well clearly the Northern Europe is definitely starting to feel-- the last few quarters definitely starting to feel some of the challenges that Southern Europe has had. So we're clearly experiencing that in our numbers, you've seen that. As I've said in the past, we continue to see good growth in Australia and China and actually even in Switzerland. But the Northern European countries are clearly starting to feel the pressure -- significantly feel the pressure.

As far as where we are in that cycle, difficult to determine. Southern Europe, while it continues to be slow, we're not seeing the same level of declines year over year that we're seeing in Northern Europe.

Okay and then I think someone asked about this earlier, but Decaux had also come through on their earnings call with enhanced disclosure surrounding digital revenue as a percent of total revenue and the pace at which their digital revenues are increasing. Can you do the same, is that something that you guys have thought about and would be prepared to disclose in perhaps in subsequent quarters?

Well I mean I haven't looked at their specific disclosure and what their objective was. Our digital business in the US is significantly different than theirs. We are different formats as well as the way we sell them in broader networks.

We are continuing to grow our digital footprint in our international business which tends to be more transit and malls. So it is becoming a different format when you look at different mediums including airports, malls, street furniture and our big format business in the US. So a little hard to get really apples-to-apples comparisons. So we sell them as a network and haven't been breaking them out because it's a combination of both digital and traditional that we really think is important for our clients to be purchasing. Do just breaking one is a little bit-- half the story.

Okay and then lastly for Brian, I was just wondering if you could give me some additional disclosures around cash flows in the quarter? I was looking for cash interest, cash taxes and working capital as a use of cash in the quarter if you can provide that, please?

Give us just a second on what we may have disclosed.

For CCMH, operating cash flow was about-- from operations was about $120 million, $121 million and CapEx as we told you was about $102 million.

And can you help with the cash, interest in cash taxes? Basically I'm trying to reconcile from the EBITDA numbers down to that cash flow of -- the CFO number.

Yes, the cash taxes--

I believe they're disclosed in the financial statements of both the 10-Qs and looks like it's up about $16 million -- $16 million of cash benefit this quarter.

And the Qs have been filed?

Yes, they have.

Okay great, I'll just -- I'll look for the data there. Thank you.

Aaron Watts.

On the radio side, I thought the deal you guys announced with big machine was pretty interesting, obviously something new for the industry. Can you maybe just talk a little bit more about that? And how much does a deal like that impact your expenses? And to the extent that it makes the digital platform much more viable to the bottom line going forward, should we expect to see more of those deals or are the costs of doing this kind prohibitive right now to keep you from striking a lot more of those deals? Thanks.

Well as you know this was really the first agreement that we've entered into where RS will now participate in the [threshold] broadcast revenues as well as digital and share in the growth of digital radio which we believe this partnership will help drive growth. The agreement does shift away the way we pay big machine. And we think it also matches the way we make money. So we think it's a great transaction to do that.

This is a very small percentage of the music we play. We do believe it is a bit ground breaking because it does change the fundamental structure that we work under. But we think that it's a-- it puts us on the same side of the fence as far as how we grow our business and it's a start. But it's an early-- we're in early days here and we're working hard to get our arms around this [type of] opportunities to align ourselves with the new labels.

And then just one other one for me on political. During big talk out of the television guys and what political is going to look like this year, any reason to believe that political shouldn't be a record type number for you guys this year as well as compared to what you've done in the past?

We've been hearing the same thing. We gave you the numbers, we're not in a position to tell you exactly what that's going to be as you can imagine this business gets placed pretty late in the cycle. And it's where the-- typically going to be where the key states are. We think we're well positioned, we think we'll get our-- more than our fair share. But we just have not projected out of what we think political is going to be in any of the quarters.

I did indicate that in our pacing number for 3%, we don't really see a very significant impact in the current pacing. So as we get close to the elections, maybe we'll start to see more significant. But I'm not prepared to talk about record setting at this point.

All right. Thank you.

Jaime Morris, UBS.

I was just hoping to get a better understanding of what's driving the improvement in the US for the pacing number versus where the quarter ended up? I mean is there anything you can give me any color, is it billboards or street furniture or any categories that are particularly driving the improvement?

Again the -- we're not seeing anything in particular. Our-- we are seeing additional capacity growth in our digital as we talked about continue to put up a number of signs 250 year-over-year. But our national local business has been pretty consistent.

We're not seeing any particular markets that are driving it. But again, we think we're well positioned and the teams are doing an excellent job to take advantage of the environment that we're in and we're encouraged. It's a point in time, but both national and local are up and we'll have to see how the rest of the quarter plays out.

Okay, and can you just comment in the quarter how pricing was relative to occupancy within the US growth?

Yes again, I should have mentioned that, we're not seeing anything there either. Occupancy in pricing we're pretty consistent. So not -- I can't-- unfortunately I don't have the drivers for you because national, local were pretty consistent, occupancy and rate were pretty consistent. So not a lot of-- obviously varies by market, but in total really not very big distinguishing factors.

Okay, thank you very much.

Doug Arthur, Morgan Stanley.

I think I'm covered, thank you.

All right, Operator, we'll take one more call.

Andrew Finkelstein, Susquehanna.

Just one follow up on that Outdoor -- US Outdoor revenue, not to beat a dead horse. But I think last quarter you talked about maybe the slower economy having an impact, obviously we haven't seen much better economic numbers yet. But is that-- I mean, are you hearing back from the sales force, is it a better-- is there a better tone out there?

It think and you're still talking about Americas, right? So we continue to see some strength in the third quarter for retail and auto and those obviously are important, amusements has been good and healthcare, medical have been strong. I would say everyone is feeling kind of the slow recovery.

And there seems to be some pockets where we're able to see a little bit stronger growth than others. But again it's a point in time, I'm not forecasting where we'll be for the third quarter. This is-- obviously we're encouraged with the early start and the strong level of pacings, but again, we'll have to wait and see how full quarter plays out into the third quarter.

Right, and is there national, is that any better than local?

Again they're both-- they've been pretty consistent. I'm not seeing a big difference between local and national. We think there's, just like we talked in the radio side we think there's opportunity in the national to continue to differentiate with what we're doing on the CCME side to leverage both parts of our business. We already have seen some terrific partnering between the two businesses with some large national buys. I think that's helped the early days of Outdoor's pacings.

But as we do more and more national business, we'll have more and more swings in our international year-over-year numbers that maybe not have seen in the past. So I'll try to keep you up to speed on that. But we're very encouraged by the early progress we're making and we're encouraged that it can really affect both businesses.

Okay and then one last one for me. Just on the international expenses, obviously business has been struggling a little bit, but the expenses were up I think 9% or 10% in the first quarter and I think it's 4% this quarter excluding FX. Is there any developments there or is it just built in contracts that you've got to work through?

Well I think it's a couple of things. I think it's clearly some of the economies are not getting resized fast enough with the reduction or slow down we're seeing in revenue, so that's first. So that's putting some pressure on the bottom line. And as I mentioned we're committed to resizing where we can for those new environments.

We continue to invest as you mentioned so we do have ongoing operating cost related to some of the tenders that we did. So-- that we're still digesting some of the large amounts of capital expenditures we put in place last year.

And then finally for the quarter, we also did have some of the revenue and expense issues I mentioned. So things like severance and some consulting costs and take down expenses that are affecting the quarter as well. And just for CCI alone it's probably in the $6 million range. So clearly we're working yet hard, but it is something that it's country by country, really re-evaluating what we need to do to reposition some of these businesses.

Okay, thanks.

All right, well thank you, that completes today's conference call. I would like to make one comment that a question that Jason Kim asked earlier about the idle payment. The $57 million that we disclosed in our financial statements would be payable to third-party holders, so it would not include any notes held by our unrestricted subsidiary. I believe that it said it would also include that. So I apologize for that error.

That does complete today's conference call. We appreciate each of you joining us today. And if you have any follow-up questions, please feel free to contact us. Thank you.

Thanks, everyone.

Ladies and gentlemen, that does conclude our conference for today. We thank you for our participation and using the AT&T Executive Teleconference. You may now disconnect.