SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)

þ		QUARTERLY REPORT PURSUANT TO SECTION 13 AND 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTER ENDED JUNE 30, 2006

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM                     

CLEAR CHANNEL COMMUNICATIONS, INC.

(Exact name of registrant as specified in its charter)

Texas		74-1787539
(State of Incorporation)		(I.R.S. Employer Identification No.)
200 East Basse Road
San Antonio, Texas		78209
(Address of principal executive offices)		(Zip Code)

(210) 822-2828
(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes þ No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check One):

Large accelerated filer þ Accelerated filer o Non-accelerated filer o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

Indicate the number of shares outstanding of each class of the issuer’s classes of common stock, as of the latest practicable date.

Class		Outstanding at August 8, 2006
Common Stock, $.10 par value		496,296,787

 

 

CLEAR CHANNEL COMMUNICATIONS, INC. AND SUBSIDIARIES

INDEX

		Page No.
Part I — Financial Information
Item 1. Unaudited Financial Statements
Consolidated Balance Sheets at June 30, 2006 and December 31, 2005			3
Consolidated Statements of Operations for the six and three months ended June 30, 2006 and 2005			5
Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2006 and 2005			6
Notes to Consolidated Financial Statements			7
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			19
Item 3. Quantitative and Qualitative Disclosures About Market Risk			31
Item 4. Controls and Procedures			31
Part II — Other Information
Item 1. Legal Proceedings			32
Item 1A. Risk Factors			32
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			32
Item 4. Submission of Matters to a Vote of Security Holders			32
Item 6. Exhibits			33
Signatures			34
Index to Exhibits			35
Statement Re: Computation of Per Share Earnings
Statement Re: Computation of Ratios
Certification of CEO Pursuant to Section 302
Certification of CFO Pursuant to Section 302
Certification of CEO Pursuant to Section 906
Certification of CFO Pursuant to Section 906

PART I

Item 1. UNAUDITED FINANCIAL STATEMENTS

CLEAR CHANNEL COMMUNICATIONS, INC. AND SUBSIDIARIES

		June 30,				December 31,
		2006				2005
		(Unaudited)				(Audited)
CURRENT ASSETS
Cash and cash equivalents		$	104,691			$	82,786
Accounts receivable, net of allowance of $50,598 in 2006 and $47,061 in 2005			1,596,941				1,505,650
Prepaid expenses			103,727				114,452
Other current assets			304,658				278,294
Income taxes receivable			205,761				417,112
Total Current Assets			2,315,778				2,398,294
PROPERTY, PLANT AND EQUIPMENT
Land, buildings and improvements			897,515				863,133
Structures			3,449,016				3,327,326
Towers, transmitters and studio equipment			879,185				881,070
Furniture and other equipment			561,710				599,296
Construction in progress			96,421				91,789
			5,883,847				5,762,614
Less accumulated depreciation			2,649,974				2,506,965
			3,233,873				3,255,649
INTANGIBLE ASSETS
Definite-lived intangibles, net			483,935				480,790
Indefinite-lived intangibles — licenses			4,327,069				4,312,570
Indefinite-lived intangibles — permits			264,117				207,921
Goodwill			7,284,987				7,111,948
OTHER ASSETS
Notes receivable			9,900				8,745
Restricted cash			81,333				—
Investments in, and advances to, nonconsolidated affiliates			310,012				300,223
Other assets			272,429				302,655
Other investments			229,579				324,581
Total Assets		$	18,813,012			$	18,703,376

See Notes to Consolidated Financial Statements

CLEAR CHANNEL COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS’ EQUITY
(In thousands)

		June 30,				December 31,
		2006				2005
		(Unaudited)				(Audited)
CURRENT LIABILITIES
Accounts payable		$	134,927			$	250,563
Accrued expenses			823,227				731,105
Accrued interest			110,664				97,515
Current portion of long-term debt			1,109,466				891,185
Deferred income			172,677				116,670
Other current liabilities			16,712				20,275
Total Current Liabilities			2,367,673				2,107,313
Long-term debt			6,802,245				6,155,363
Other long-term obligations			84,141				119,655
Deferred income taxes			628,622				528,259
Other long-term liabilities			729,234				675,962
Minority interest			311,173				290,362
Commitment and contingent liabilities (Note 7)
SHAREHOLDERS’ EQUITY
Common Stock			50,161				53,829
Additional paid-in capital			26,883,315				27,945,725
Retained deficit			(19,266,610	)			(19,371,411	)
Accumulated other comprehensive income			226,356				201,928
Cost of shares held in treasury			(3,298	)			(3,609	)
Total Shareholders’ Equity			7,889,924				8,826,462
Total Liabilities and Shareholders’ Equity		$	18,813,012			$	18,703,376

See Notes to Consolidated Financial Statements

CLEAR CHANNEL COMMUNICATIONS, INC. AND SUBSIDIARIES

		Six Months Ended June 30,								Three Months Ended June 30,
		2006				2005				2006				2005
Revenue		$	3,355,029			$	3,170,542			$	1,850,647			$	1,722,732
Operating expenses:
Direct operating expenses (includes share-based payments of $8,698, $212, $4,382 and $0 for the six and three months ended June 30, 2006 and 2005, respectively, and excludes depreciation and amortization)			1,265,556				1,199,500				652,770				611,418
Selling, general and administrative expenses (includes share-based payments of $8,926, $0, $4,476 and $0 for the six and three months ended June 30, 2006 and 2005, respectively, and excludes depreciation and amortization)			985,490				937,956				512,342				481,202
Depreciation and amortization			309,548				308,103				158,258				152,708
Corporate expenses (includes share-based payments of $5,735, $2,706, $2,332 and $1,417 for the six and three months ended June 30, 2006 and 2005, respectively, and excludes depreciation and amortization)			91,015				78,341				49,491				42,374
Gain (loss) on disposition of assets — net			47,085				5,816				(425	)			4,891
Operating income			750,505				652,458				477,361				439,921
Interest expense			237,674				211,707				123,298				105,058
Gain (loss) on marketable securities			(3,324	)			537				(1,000	)			1,610
Equity in earnings of nonconsolidated affiliates			16,486				17,595				9,577				11,962
Other income (expense) — net			(5,216	)			9,145				(4,633	)			7,705
Income before income taxes, minority interest, and discontinued operations			520,777				468,028				358,007				356,140
Income tax benefit (expense):
Current			(114,103	)			(117,968	)			(110,830	)			(107,938	)
Deferred			(99,416	)			(66,904	)			(35,953	)			(32,738	)
Income tax benefit (expense)			(213,519	)			(184,872	)			(146,783	)			(140,676	)
Minority interest income (expense), net of tax			(12,956	)			(2,803	)			(13,736	)			(2,229	)
Income before discontinued operations			294,302				280,353				197,488				213,235
Income (loss) from discontinued operations, net			—				(11,739	)			—				7,497
Net income		$	294,302			$	268,614			$	197,488			$	220,732
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments			26,386				(114,568	)			17,297				(61,339	)
Unrealized gain (loss) on securities and derivatives:
Unrealized holding gain (loss) on marketable securities			(62,959	)			(18,973	)			(38,901	)			12,058
Unrealized holding gain (loss) on cash flow derivatives			61,001				22,157				35,437				(7,591	)
Adjustment for (gain) loss included in net income (loss)			—				—				—				—
Comprehensive income (loss)		$	318,730			$	157,230			$	211,321			$	163,860
Net income per common share:
Income before discontinued operations — Basic		$	.58			$	.51			$	.39			$	.39
Discontinued operations — Basic			—				(.02	)			—				.02
Net income — Basic		$	.58			$	.49			$	.39			$	.41
Income before discontinued operations — Diluted		$	.58			$	.51			$	.39			$	.39
Discontinued operations — Diluted			—				(.02	)			—				.01
Net income — Diluted		$	.58			$	.49			$	.39			$	.40
Dividends declared per share		$	.375			$	.3125			$	.1875			$	.1875

See Notes to Consolidated Financial Statements

CLEAR CHANNEL COMMUNICATIONS, INC. AND SUBSIDIARIES

		Six Months Ended June 30,
		2006				2005
Cash Flows from operating activities:
Net income		$	294,302			$	268,614
Add: Loss from discontinued operations, net			—				11,739
			294,302				280,353
Reconciling Items:
Depreciation and amortization			309,548				308,103
Deferred taxes			99,416				66,904
(Gain) loss on disposal of assets			(47,085	)			(5,816	)
(Gain) loss forward exchange contract			11,406				4,731
(Gain) loss on trading securities			(8,082	)			(5,268	)
Other reconciling items — net			33,035				(17,148	)
Changes in operating assets and liabilities:
Federal income tax refund			133,336				—
Decrease in income taxes receivable			82,010				—
Increase in income taxes payable			—				72,439
Changes in other operating assets and liabilities, net of effects of acquisitions			(79,509	)			(84,215	)
Net cash provided by operating activities			828,377				620,083
Cash flows from investing activities:
Increase in restricted cash			(81,333	)			—
Decrease (increase) in notes receivable — net			(1,155	)			192
Decrease (increase) in investments in and advances to nonconsolidated affiliates — net			2,731				4,859
Purchases of investments			(576	)			(207	)
Proceeds from sale of investments			—				370
Purchases of property, plant and equipment			(155,734	)			(133,276	)
Proceeds from disposal of assets			60,568				13,446
Acquisition of operating assets, net of cash acquired			(168,807	)			(82,919	)
Decrease (increase) in other — net			(66,905	)			15,870
Net cash used in investing activities			(411,211	)			(181,665	)
Cash flows from financing activities:
Draws on credit facilities			1,943,270				993,188
Payments on credit facilities			(1,509,325	)			(436,946	)
Proceeds from long-term debt			506,159				—
Payments on long-term debt			(49,287	)			—
Payments for purchase of common shares			(1,103,737	)			(859,140	)
Proceeds from exercise of stock options, stock purchase plan, common stock warrants, and other			14,036				18,586
Dividends paid			(196,377	)			(139,760	)
Net cash used in financing activities			(395,261	)			(424,072	)
Cash flows from discontinued operations:
Net cash provided by operating activities			—				78,300
Net cash used in investing activities			—				(54,604	)
Net cash provided by (used in) financing activities			—				—
Net cash provided by discontinued operations			—				23,696
Net increase in cash and cash equivalents			21,905				38,042
Cash and cash equivalents at beginning of period			82,786				31,339
Cash and cash equivalents at end of period		$	104,691			$	69,381

See Notes to Consolidated Financial Statements

CLEAR CHANNEL COMMUNICATIONS, INC. AND SUBSIDIARIES

Note 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     Preparation of Interim Financial Statements

The consolidated financial statements were prepared by Clear Channel Communications, Inc. (the “Company”) pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) and, in the opinion of management, include all adjustments (consisting of normal recurring accruals and adjustments necessary for adoption of new accounting standards) necessary to present fairly the results of the interim periods shown. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles in the United States have been condensed or omitted pursuant to such SEC rules and regulations. Management believes that the disclosures made are adequate to make the information presented not misleading. Due to seasonality and other factors, the results for the interim periods are not necessarily indicative of results for the full year. The financial statements contained herein should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s 2005 Annual Report on Form 10-K.

The consolidated financial statements include the accounts of the Company and its subsidiaries. Investments in companies in which the Company owns 20 percent to 50 percent of the voting common stock or otherwise exercises significant influence over operating and financial policies of the company are accounted for under the equity method. All significant intercompany transactions are eliminated in the consolidation process.

Certain Reclassifications

The Company has reclassified prior year operating gains and losses to be included as a component of operating income, reclassified share-based compensation to be included in the same operating expense line items as cash compensation, reclassified minority interest expense below its provision for income taxes and reclassified certain other assets to current assets to conform to current year presentation. The Company completed the spin-off of its live entertainment and sports representation businesses (now operating as Live Nation, Inc.) on December 21, 2005. The historical results of these businesses have been reflected as discontinued operations in the underlying financial statements and related disclosures for all periods presented. As a result, the historical footnote disclosures have been revised to exclude amounts related to these businesses. The following table presents summarized financial results for these businesses during the six and three months ended June 30, 2005:

(In millions)		Six Months				Three Months
Revenue (including sales to other Company segments of $0.5 million and $0.4 million for the six and three months ended June 30, respectively)		$	1,180.2			$	739.4
Income (loss) before income taxes		$	(19.4	)		$	12.4
Income tax benefit (expense)		$	7.7			$	(4.9	)

     Recent Accounting Pronouncements

In February 2006, the Financial Accounting Standards Board (“FASB”) issued Statement No. 155, Accounting for Certain Hybrid Financial Instruments (“Statement 155”). Statement 155 is an amendment of FASB Statement No. 133, Accounting for Derivative Instruments and Hedging Activities (“Statement 133”) and FASB Statement 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities (“Statement 140”) and allows companies to elect to measure at fair value entire financial instruments containing embedded derivatives that would otherwise have to be accounted for separately. Statement 155 also requires companies to identify interest in securitized financial assets that are freestanding derivatives or contain embedded derivatives that would have to be accounted for separately, clarifies which interest- and principal-only strips are subject to Statement 133, and amends Statement 140 to revise the conditions of a qualifying special purpose entity due to the new requirement to identify whether interests in securitized financial assets are freestanding derivatives or contain embedded derivatives. Statement 155 is effective for all financial instruments acquired or issued in fiscal years beginning after September 15, 2006. The Company will adopt Statement 155 on January 1, 2007 and anticipates that adoption will not materially impact its financial position or results of operations.

In June 2006, the FASB issued Interpretation No. 48, Accounting for Uncertainty in Income Taxes — an interpretation of FASB Statement 109 (“FIN 48”). FIN 48 clarifies the accounting for uncertainty in income taxes by prescribing a recognition threshold for tax positions taken or expected to be taken in a tax return. FIN 48 requires that entities recognize in their financial statements the impact of a tax position if that position is more likely than not of being sustained on audit, based on the technical merits of the position. The cumulative effect of applying the provisions of FIN 48 will be reported as an adjustment to the opening balance of

retained earnings upon adoption. FIN 48 is effective for fiscal years beginning after December 15, 2006. The Company will adopt FIN 48 on January 1, 2007 and is currently evaluating the impact FIN 48 will have on its financial position and results of operations.

Note 2: SHARE-BASED PAYMENTS

The Company has granted options to purchase its common stock to employees and directors of the Company and its affiliates under various stock option plans typically at no less than the fair value of the underlying stock on the date of grant. These options are granted for a term not exceeding ten years and are forfeited, except in certain circumstances, in the event the employee or director terminates his or her employment or relationship with the Company or one of its affiliates. These options generally vest over three to five years. All option plans contain anti-dilutive provisions that permit an adjustment of the number of shares of the Company’s common stock represented by each option for any change in capitalization.

The Company adopted the fair value recognition provisions of Statement of Financial Accounting Standards No. 123(R), Share-Based Payment (“Statement 123(R)”), on January 1, 2006, using the modified-prospective-transition method. The fair value of the options is estimated using a Black-Scholes option-pricing model and amortized straight-line to expense over five years. Prior to January 1, 2006, the Company accounted for its share-based payments under the recognition and measurement provisions of APB Opinion No. 25, Accounting for Stock Issued to Employees and related Interpretations, as permitted by Statement of Financial Accounting Standards No. 123, Accounting for Stock Based Compensation (“Statement 123”). Under that method, when options are granted with a strike price equal to or greater than market price on date of issuance, there is no impact on earnings either on the date of grant or thereafter, absent modification to the options. The amounts recorded as share-based payments prior to adopting Statement 123(R) primarily related to the expense associated with restricted stock awards. Under the modified-prospective-transition method, compensation cost recognized beginning in 2006 includes: (a) compensation cost for all share-based payments granted prior to, but not yet vested as of January 1, 2006, based on the grant date fair value estimated in accordance with the original provisions of Statement 123, and (b) compensation cost for all share-based payments granted subsequent to January 1, 2006, based on the grant-date fair value estimated in accordance with the provisions of Statement 123(R). Results for prior periods have not been restated.

As a result of adopting Statement 123(R) on January 1, 2006, the Company’s income before income taxes, minority interest and discontinued operations for the six and three months ended June 30, 2006, was $16.0 million and $7.5 million lower, respectively, and net income for the six and three months ended June 30, 2006, was $9.4 million and $4.4 million lower, respectively, than if it had continued to account for share-based compensation under APB 25. Basic and diluted earnings per share for the six months ended June 30, 2006 were $.02 and $.02 lower, respectively, than if the Company had continued to account for share-based compensation under APB 25. Basic and diluted earnings per share for the three months ended June 30, 2006 were $.01 and $.01 lower, respectively, than if the Company had continued to account for share-based compensation under APB 25.

Prior to the adoption of Statement 123(R), the Company presented all tax benefits of deductions resulting from the exercise of stock options as operating cash flows in the Statement of Cash Flows. Statement 123(R) requires the cash flows resulting from the tax benefits resulting from tax deductions in excess of the compensation cost recognized for those options (excess tax benefits) to be classified as financing cash flows. The excess tax benefit that is required to be classified as a financing cash inflow after adoption of Statement 123(R) is not material.

The following table illustrates the effect on net income and earnings per share for the six and three months ended June 30, 2005 as if the Company had applied the fair value recognition provisions of Statement 123 to options granted under the Company’s stock option plans in all periods presented. For purposes of this pro forma disclosure, the value of the options, excluding restricted stock awards, is estimated using a Black-Scholes option-pricing model and amortized to expense over the options’ vesting periods.

		Six Months				Three Months
		Ended				Ended
(In thousands, except per share data)		June 30, 2005				June 30, 2005
Income before discontinued operations:
Reported		$	280,353			$	213,235
Add: Stock-based employee compensation expense included in reported net income, net of related tax effects			1,765				857
Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects			15,100				6,536
Pro Forma		$	267,018			$	207,556
Income (loss) from discontinued operations, net:
Reported		$	(11,739	)		$	7,497
Add: Stock-based employee compensation expense included in reported net income, net of related tax effects			315				156
Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects			2,639				1,146
Pro Forma		$	(14,063	)		$	6,507
Income before discontinued operations per common share:
Basic:
Reported		$	.51			$	.39
Pro Forma		$	.48			$	.38
Diluted:
Reported		$	.51			$	.39
Pro Forma		$	.48			$	.38
Discontinued operations, net per common share:
Basic:
Reported		$	(.02	)		$	.02
Pro Forma		$	(.03	)		$	.01
Diluted:
Reported		$	(.02	)		$	.01
Pro Forma		$	(.03	)		$	.01

The fair value of each option awarded is estimated on the date of grant using a Black-Scholes option-pricing model. Expected volatilities are based on implied volatilities from traded options on the Company’s stock, historical volatility on the Company’s stock, and other factors. The expected life of options granted represents the period of time that options granted are expected to be outstanding. The Company uses historical data to estimate option exercises and employee terminations within the valuation model. The risk free rate for periods equal to the life of the option is based on the U.S. Treasury yield curve in effect at the time of grant. The following assumptions were used to calculate the fair value of the Company’s options on the date of grant during the six months ended June 30, 2006 and 2005:

		2006				2005
Expected volatility			25%				25%
Expected life in years			5.0 — 7.5				5.0 - 7.5
Risk-free interest rate			4.61% - 5.1	%			3.76% - 4.15	%
Dividend yield			2.61% - 2.65	%			1.46% - 2.30	%

The following table presents a summary of the Company’s stock options outstanding at and stock option activity during the six months ended June 30, 2006 (“Price” reflects the weighted average exercise price per share):

										Weighted Average				Aggregate
										Remaining				Intrinsic
(In thousands, except per share data)		Options				Price				Contractual Term				Value
Outstanding, beginning of year			42,696			$	41.34
Granted			16				28.68
Exercised (a)			(787	)			17.89
Forfeited			(707	)			36.21
Expired			(2,244	)			51.87
Outstanding, June 30			38,974				41.30				3.6			$	40,268
Exercisable, June 30			28,614								2.7			$	38,135
Weighted average fair value per option granted		$	7.18

The weighted average grant date fair value of options granted during the six months ended June 30, 2006 and 2005 was $7.18 and $8.53, respectively. The total intrinsic value of options exercised during the six months ended June 30, 2006 and 2005 was $9.1 million and $7.3 million, respectively.

A summary of the Company’s nonvested options at December 31, 2005, and changes during the six months ended June 30, 2006, is presented below:

						Weighted Average
						Grant Date
(In thousands, except per share data)		Options				Fair Value
Nonvested, beginning of year			13,086			$	15.03
Granted			16				7.18
Vested			(2,035	)			25.86
Forfeited			(707	)			14.51
Nonvested, June 30			10,360				12.93

There were 35.7 million shares available for future grants under the various option plans at June 30, 2006. Vesting dates range from February 1997 to April 2011, and expiration dates range from July 2006 to April 2016 at exercise prices and average contractual lives as follows:

(In thousands of shares)

																		Weighted
																		Average				Weighted								Weighted
														Outstanding				Remaining				Average				Exercisable				Average
														as of				Contractual				Exercise				as of				Exercise
Range of Exercise Prices														6/30/06				Life				Price				6/30/06				Price
$			.01				—			$	10.00				690				3.2			$	5.90				690			$	5.90
			10.01				—				20.00				294				0.6				16.43				294				16.43
			20.01				—				30.00				3,252				2.0				25.76				3,111				25.71
			30.01				—				40.00				10,531				6.0				32.54				2,369				33.13
			40.01				—				50.00				18,450				2.8				44.96				16,437				45.06
			50.01				—				60.00				3,661				3.5				55.34				3,617				55.37
			60.01				—				70.00				1,516				2.3				64.10				1,516				64.10
			70.01				—				80.00				529				3.8				76.57				529				76.57
			80.01				—				91.35				51				0.7				85.99				51				85.99
															38,974				3.6				41.30				28,614				43.69

Restricted Stock Awards

The Company began granting restricted stock awards to employees and directors of the Company and its affiliates in 2003. These common shares hold a legend which restricts their transferability for a term of from three to five years and are forfeited, except in certain circumstances, in the event the employee or director terminates his or her employment or relationship with the Company prior to the lapse of the restriction. The restricted stock awards were granted out of the Company’s stock option plans. Recipients of the restricted stock awards are entitled to all cash dividends as of the date the award was granted.

The following table presents a summary of the Company’s restricted stock outstanding at and restricted stock activity during the six months ended June 30, 2006 (“Price” reflects the weighted average share price at the date of grant):

(In thousands, except per share data)

		2006
		Awards				Price
Outstanding, beginning of year			2,452			$	32.62
Granted			7				28.49
Vested (restriction lapsed)			(2	)			28.37
Forfeited			(66	)			22.03
Outstanding, June 30			2,391				32.91

Subsidiary Share-Based Awards

Clear Channel Outdoor Holdings, Inc. (“CCO”), a subsidiary of the Company, grants options to purchase shares of its Class A common stock to its employees and directors and its affiliates under its incentive stock plan typically at no less than the fair market value of the underlying stock on the date of grant. These options are granted for a term not exceeding ten years and are forfeited, except in certain circumstances, in the event the employee or director terminates his or her employment or relationship with CCO or one of its affiliates. These options generally vest over three to five years. The incentive stock plan contains anti-dilutive provisions that permit an adjustment of the number of shares of CCO’s common stock represented by each option for any change in capitalization.

Prior to CCO’s Initial Public Offering (“IPO”), CCO did not have any compensation plans under which it granted stock awards to employees. However, the Company had granted certain of CCO’s officers and other key employees stock options to purchase shares of the Company’s common stock. All outstanding options to purchase shares of the Company’s common stock held by CCO employees were converted using an intrinsic value method into options to purchase shares of CCO Class A common shares concurrent with the closing of CCO’s IPO.

The fair value of each option awarded is estimated on the date of grant using a Black-Scholes option-pricing model. Expected volatilities are based on implied volatilities from traded options on CCO’s stock, historical volatility on CCO’s stock, and other

factors. The expected life is based on historical data of options granted and represents the period of time that options granted are expected to be outstanding. CCO uses historical data to estimate option exercises and employee terminations within the valuation model. Prior to the adoption of Statement 123(R), the Company recognized forfeitures as they occurred in its Statement 123 pro forma disclosures. Beginning January 1, 2006, the Company includes estimated forfeitures in its compensation cost and updates the estimated forfeiture rate through the final vesting date of awards. The risk free rate for periods within the life of the option is based on the U.S. Treasury yield curve in effect at the time of grant. The following assumptions were used to calculate the fair value of the CCO’s options on the date of grant during the six months ended June 30, 2006:

Expected volatility factors			27	%
Expected life in years			5.0 – 7.5
Risk-free interest rate			4.58% - 5.08	%
Dividend yield			0	%

The following table presents a summary of CCO’s stock options outstanding at and stock option activity during the six months ended June 30, 2006 (“Price” reflects the weighted average exercise price per share):

(In thousands, except per share data)

										Weighted Average				Aggregate
										Remaining				Intrinsic
		Options				Price				Contractual Term				Value
Outstanding, beginning of year			8,509			$	24.05
Granted			177				19.85
Exercised			(1	)			20.85
Forfeited			(170	)			21.66
Expired			(371	)			32.29
Outstanding, June 30			8,144				23.61				4.7			$	21,531
Exercisable, June 30			3,150								2.5			$	217
Weighted average fair value per option granted		$	6.55

A summary of CCO’s nonvested options at December 31, 2005, and changes during the six months ended June 30, 2006, is presented below:

(In thousands, except per share data)

						Weighted Average
						Grant Date
		Options				Fair Value
Nonvested, beginning of year			5,634			$	4.56
Granted			177				6.55
Vested			(647	)			.87
Forfeited			(170	)			4.06
Nonvested, June 30			4,994				5.15

There were 33.6 million shares available for future grants under CCO’s option plan at June 30, 2006. Vesting dates range from April 2004 to April 2011, and expiration dates range from July 2006 to April 2016 at exercise prices and average contractual lives as follows:

(In thousands of shares)

																		Weighted
																		Average				Weighted								Weighted
														Outstanding				Remaining				Average				Exercisable				Average
														as of				Contractual				Exercise				as of				Exercise
Range of Exercise Prices														6/30/06				Life				Price				6/30/06				Price
$			15.01				—			$	20.00				3,435				6.8			$	17.97				56			$	17.46
			20.01				—				25.00				1,121				4.5				21.07				233				21.52
			25.01				—				30.00				2,213				3.1				26.12				1,573				26.02
			30.01				—				35.00				759				2.7				32.74				672				32.90
			35.01				—				40.00				476				.7				37.87				476				37.87
			40.01				—				45.00				101				4.1				42.80				101				42.80
			45.01				—				50.00				39				.5				49.52				39				49.52
															8,144				4.7				23.61				3,150				29.62

CCO also grants restricted stock awards to employees and directors of CCO and its affiliates. These common shares hold a legend which restricts their transferability for a term of from three to five years and are forfeited, except in certain circumstances, in the event the employee terminates his or her employment or relationship with CCO prior to the lapse of the restriction. The restricted stock awards were granted out of the CCO’s stock option plan.

The following table presents a summary of CCO’s restricted stock outstanding at and restricted stock activity during the six months ended June 30, 2006 (“Price” reflects the weighted average share price at the date of grant):

(In thousands, except per share data)

		2006
		Awards				Price
Outstanding, beginning of year			236			$	18.00
Granted			6				19.87
Vested (restriction lapsed)			—				—
Forfeited			(9	)			18.02
Outstanding, June 30			233				18.04

Unrecognized share-based compensation cost

As of June 30, 2006, there was $57.1 million of unrecognized compensation cost related to nonvested share-based compensation arrangements. The cost is expected to be recognized over a weighted average period of approximately three years.

Note 3: INTANGIBLE ASSETS AND GOODWILL

The Company has definite-lived intangible assets which consist primarily of transit and street furniture contracts and other contractual rights in its Americas and international outdoor segments, talent and program right contracts in its radio segment, and contracts for non-affiliated radio and television stations in the Company’s media representation operations, all of which are amortized over the respective lives of the agreements. Other definite-lived intangible assets are amortized over the period of time the assets are expected to contribute directly or indirectly to the Company’s future cash flows.

The following table presents the gross carrying amount and accumulated amortization for each major class of definite-lived intangible assets at June 30, 2006 and December 31, 2005:

(In thousands)

		June 30, 2006								December 31, 2005
		Gross								Gross
		Carrying				Accumulated				Carrying				Accumulated
		Amount				Amortization				Amount				Amortization
Transit, street furniture, and other outdoor contractual rights		$	712,796			$	470,752			$	651,455			$	408,018
Talent contracts			125,270				107,194				202,161				175,553
Representation contracts			320,176				153,475				313,004				133,987
Other			130,328				73,214				135,782				104,054
Total		$	1,288,570			$	804,635			$	1,302,402			$	821,612

     Total amortization expense from definite-lived intangible assets for the six and three months ended June 30, 2006 and for the year ended December 31, 2005 was $73.5 million, $38.2 million and $154.2 million, respectively. The following table presents the Company’s estimate of amortization expense for each of the five succeeding fiscal years for definite-lived intangible assets:

(In thousands)

2007		$	91,717
2008			53,094
2009			46,264
2010			36,510
2011			28,701

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

The Company’s indefinite-lived intangible assets consist of FCC broadcast licenses and billboard permits. FCC broadcast licenses are granted to both radio and television stations for up to eight years under the Telecommunications Act of 1996. The Act requires the

FCC to renew a broadcast license if: it finds that the station has served the public interest, convenience and necessity; there have been no serious violations of either the Communications Act of 1934 or the FCC’s rules and regulations by the licensee; and there have been no other serious violations which taken together constitute a pattern of abuse. The licenses may be renewed indefinitely at little or no cost. The Company does not believe that the technology of wireless broadcasting will be replaced in the foreseeable future. The Company’s billboard permits are issued in perpetuity by state and local governments and are transferable or renewable at little or no cost. Permits typically include the location for which the permit allows the Company the right to operate an advertising structure. The Company’s permits are located on either owned or leased land. In cases where the Company’s permits are located on leased land, the leases are typically from 1 to 20 years and renew indefinitely, with rental payments generally escalating at an inflation based index. If the Company loses its lease, the Company will typically obtain permission to relocate the permit or bank it with the municipality for future use.

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

Under the direct method, the Company continues to aggregate its indefinite-lived intangible assets at the market level for purposes of impairment testing. The Company’s key assumptions using the direct method are market revenue growth rates, market share, profit margin, duration and profile of the build-up period, estimated start-up capital costs and losses incurred during the build-up period, the risk-adjusted discount rate and terminal values. This data is populated using industry normalized information.

     Goodwill

The Company tests goodwill for impairment using a two-step process. The first step, used to screen for potential impairment, compares the fair value of the reporting unit with its carrying amount, including goodwill. The second step, used to measure the amount of the impairment loss, compares the implied fair value of the reporting unit goodwill with the carrying amount of that goodwill. The following table presents the changes in the carrying amount of goodwill in each of the Company’s reportable segments for the six month period ended June 30, 2006:

(In thousands)

						Americas				International
		Radio				Outdoor				Outdoor				Other				Total
Balance as of December 31, 2005		$	6,321,394			$	405,964			$	343,611			$	40,979			$	7,111,948
Acquisitions			31,096				63,136				51,904				7,187				153,323
Dispositions			(9,008	)			(57	)			—				—				(9,065	)
Foreign currency			—				401				28,862				—				29,263
Adjustments			(914	)			109				317				6				(482	)
Balance as of June 30, 2006		$	6,342,568			$	469,553			$	424,694			$	48,172			$	7,284,987

Note 4: DERIVATIVE INSTRUMENTS

The Company holds a net purchased option (the “collar”) under a secured forward exchange contract that limits its exposure to and benefit from price fluctuations in XM Satellite Radio Holding, Inc. (“XMSR”) over the term of the contract. The collar is accounted for as a hedge of the forecasted sale of the underlying shares. At June 30, 2006 and December 31, 2005, the fair value of the collar was a liability recorded in “Other long-term obligations” of $18.4 million and $116.8 million, respectively, and the amount recorded in other comprehensive income (loss), net of tax, related to the change in fair value of the collar for the six months ended June 30, 2006 and the year ended December 31, 2005 was income of $61.0 million and $56.6 million, respectively.

The Company also holds options under two secured forward exchange contracts that limit its exposure to and benefit from price fluctuations in American Tower Corporation (“AMT”) over the terms of the contracts (the “AMT contracts”). These options are not designated as hedges of the underlying shares of AMT. The AMT contracts had a value of $0.3 million and $11.7 million at June 30, 2006 and December 31, 2005, respectively, recorded in “Other assets”. For the six months ended June 30, 2006 and year ended December 31, 2005, the Company recognized losses of $11.4 million and $18.2 million, respectively, in “Gain (loss) on marketable securities” related to the change in fair value of the options. To offset the change in the fair value of these contracts, the Company has recorded AMT shares as trading securities. During the six months ended June 30, 2006 and year ended December 31, 2005, the

Company recognized gains of $8.1 million and $17.5 million, respectively, in “Gain (loss) on marketable securities” related to the change in the fair value of the shares.

The Company is exposed to foreign currency exchange risks related to its investment in net assets in foreign countries. To manage this risk, the Company entered into two United States dollar — Euro cross currency swaps with an aggregate Euro notional amount of €706.0 million and a corresponding aggregate U.S. dollar notional amount of $877.7 million. These cross currency swaps had a value of $65.7 million at June 30, 2006 and $2.9 million at December 31, 2005, which was recorded in “Other long-term obligations”. These cross currency swaps require the Company to make fixed cash payments on the Euro notional amount while it receives fixed cash payments on the equivalent U.S. dollar notional amount, all on a semiannual basis. The Company has designated these cross currency swaps as a hedge of its net investment in Euro denominated assets. The Company selected the forward method under the guidance of the Derivatives Implementation Group Statement 133 Implementation Issue H8, Foreign Currency Hedges: Measuring the Amount of Ineffectiveness in a Net Investment Hedge. The forward method requires all changes in the fair value of the cross currency swaps and the semiannual cash payments to be reported as a cumulative translation adjustment in other comprehensive income (loss) in the same manner as the underlying hedged net assets. As of June 30, 2006, a $34.3 million loss, net of tax, was recorded as a cumulative translation adjustment to other comprehensive income (loss) related to the cross currency swap.

Note 5: RECENT DEVELOPMENTS

     Company Share Repurchase Program

On February 1, 2005 (“February 2005 Program”), the Company’s Board of Directors authorized its third share repurchase program of up to $1.0 billion effective immediately. On August 9, 2005, the Company’s Board of Directors authorized a $692.6 million increase to the existing balance of the February 2005 Program, bringing the authorized amount to an aggregate of $1.0 billion. On March 9, 2006, the Company’s Board of Directors authorized an additional share repurchase program, permitting it to repurchase an additional $600.0 million of its common stock. As of June 30, 2006, the Company had purchased 121.7 million shares for an aggregate purchase price of $4.0 billion, including commission and fees, leaving $285.2 million available under its repurchase programs.

     Debt Offering

On March 21, 2006 the Company completed a debt offering of $500.0 million 6.25% Senior Notes due 2011. Interest is payable on March 15 and September 15 of each year. The net proceeds of approximately $497.5 million were used to repay borrowings under the Company’s bank credit facility.

     Acquisitions

The Company acquired a music scheduling company for $44.3 million in cash and $10.0 million of deferred purchase consideration during the six months ended June 30, 2006. The Company also acquired outdoor display faces for $97.5 million in cash, including assets acquired in the exchange of one of its Americas outdoor markets for assets located in a different market. In addition, the Company’s national representation firm acquired representation contracts for $8.1 million in cash and its television business acquired a station for $18.9 million in cash. Total assets acquired were $228.0 million, of which approximately $90.0 million was assigned to goodwill, approximately two thirds of which is not expected to be deductible for tax purposes.

     Disposition of Assets

The Company disposed of programming rights in its radio broadcasting segment and recognized a gain of $22.5 million and exchanged assets in one of its Americas outdoor markets for assets located in a different market and recognized a gain of $15.1 million. Both of these gains were recorded in “Gain (loss) on disposition of assets — net” during the first quarter of 2006.

     Recent Legal Proceedings

On September 9, 2003, the Assistant United States Attorney for the Eastern District of Missouri caused a Subpoena to Testify before Grand Jury to be issued to us. The Subpoena requires us to produce certain information regarding commercial advertising run by us on behalf of offshore and/or online (Internet) gambling businesses, including sports bookmaking and casino-style gambling. We are cooperating with such requirements.

On February 7, 2005, the Company received a subpoena from the State of New York Attorney General’s office, requesting information on policies and practices regarding record promotion on radio stations in the state of New York. We are cooperating with this subpoena.

On April 19, 2006, the Company received a letter of inquiry from the Federal Communications Commission (the “FCC”) requesting information about whether consideration was provided by record labels to the Company in exchange for the broadcast of music without disclosure of such consideration to the public. The Company is cooperating with the FCC in responding to this request for information.

We are currently involved in certain legal proceedings and, as required, have accrued our estimate of the probable costs for the resolution of these claims. These estimates have been developed in consultation with counsel and are based upon an analysis of potential results, assuming a combination of litigation and settlement strategies. It is possible, however, that future results of operations for any particular period could be materially affected by changes in our assumptions or the effectiveness of our strategies related to these proceedings.

Note 6: RESTRUCTURING

The Company has restructuring liabilities related to its 2000 acquisition of AMFM Inc. (“AMFM”), and the 2002 acquisition of The Ackerley Group, Inc. (“Ackerley”). The balance at June 30, 2006 of $5.7 million was comprised of $0.4 million of severance costs and $5.3 million of lease termination costs. $0.4 million was paid and charged to severance during the six months ended June 30, 2006.

In addition to the AMFM and Ackerley restructurings, the Company restructured its outdoor operations in France in the third quarter of 2005. As a result, the Company recorded $26.6 million in restructuring costs as a component of selling, general and administrative expenses. Of the $26.6 million, $22.5 million was related to severance costs and $4.1 million was related to other costs. During 2006, $0.7 million of related costs were paid and charged to the restructuring accrual. As of June 30, 2006, the accrual balance was $22.0 million.

Note 7: COMMITMENTS AND CONTINGENCIES

Certain agreements relating to acquisitions provide for purchase price adjustments and other future contingent payments based on the financial performance of the acquired companies. The Company will continue to accrue additional amounts related to such contingent payments if and when it is determinable that the applicable financial performance targets will be met. The aggregate of these contingent payments, if performance targets are met, would not significantly impact the financial position or results of operations of the Company.

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

Note 8: GUARANTEES

Within the Company’s $1.75 billion credit facility, there exists a $150.0 million sub-limit available to certain of the Company’s international subsidiaries. This $150.0 million sub-limit allows for borrowings in various foreign currencies, which are used to hedge net assets in those currencies and provides funds to the Company’s international operations for certain working capital needs. Subsidiary borrowings under this sub-limit are guaranteed by the Company. At June 30, 2006, this portion of the $1.75 billion credit facility’s outstanding balance was $78.7 million, which is recorded in “Long-term debt” on the Company’s financial statements.

Within the Company’s bank credit facility agreement is a provision that requires the Company to reimburse lenders for any increased costs that they may incur in an event of a change in law, rule or regulation resulting in their reduced returns from any change in capital requirements. In addition to not being able to estimate the potential amount of any future payment under this provision, the Company is not able to predict if such event will ever occur.

The Company currently has guarantees that provide protection to its international subsidiary’s banking institutions related to overdraft lines up to approximately $39.9 million. As of June 30, 2006, no amounts were outstanding under these agreements.

As of June 30, 2006, the Company has outstanding commercial standby letters of credit and surety bonds of $140.9 million and $41.5 million, respectively. These letters of credit and surety bonds relate to various operational matters including insurance, bid, and performance bonds as well as other items. These letters of credit reduce the borrowing availability on the Company’s bank credit

facilities, and are included in the Company’s calculation of its leverage ratio covenant under the bank credit facilities. The surety bonds are not considered as borrowings under the Company’s bank credit facilities.

Note 9: SEGMENT DATA

The Company has three reportable segments, which it believes best reflects how the Company is currently managed – radio broadcasting, Americas outdoor advertising and international outdoor advertising. The Americas outdoor advertising segment consists of our operations in the United States, Canada and Latin America, and the international outdoor segment includes operations in Europe, Asia, Africa and Australia. The category “other” includes television broadcasting, media representation and other general support services and initiatives. Revenue and expenses earned and charged between segments are recorded at fair value and eliminated in consolidation.

(In thousands)

																		Corporate
																		expenses and
						Americas				International								gain (loss) on
		Radio				Outdoor				Outdoor								disposition of
		Broadcasting				Advertising				Advertising				Other				assets - net				Eliminations				Consolidated
Six Months Ended June 30, 2006
Revenue		$	1,792,419			$	609,349			$	737,423			$	279,588			$	—			$	(63,750	)		$	3,355,029
Direct operating expenses			502,896				248,933				437,290				109,371				—				(32,934	)			1,265,556
Selling, general and administrative expenses			631,626				98,817				168,149				117,714				—				(30,816	)			985,490
Depreciation and amortization			69,416				83,485				113,662				33,604				9,381				—				309,548
Corporate expenses			—				—				—				—				91,015				—				91,015
Gain (loss) on disposition of assets — net			—				—				—				—				47,085				—				47,085
Operating income (loss)		$	588,481			$	178,114			$	18,322			$	18,899			$	(53,311	)		$	—			$	750,505
Intersegment revenues		$	20,589			$	4,982			$	—			$	38,179			$	—			$	—			$	63,750
Identifiable assets		$	12,254,624			$	2,629,819			$	2,337,087			$	1,062,886			$	528,596			$	—			$	18,813,012
Capital expenditures		$	45,002			$	31,536			$	73,808			$	4,430			$	958			$	—			$	155,734
Three Months Ended June 30, 2006
Revenue		$	983,523			$	335,247			$	413,156			$	150,235			$	—			$	(31,514	)		$	1,850,647
Direct operating expenses			254,939				128,922				228,675				55,134				—				(14,900	)			652,770
Selling, general and administrative expenses			333,371				50,623				85,538				59,424				—				(16,614	)			512,342
Depreciation and amortization			35,539				41,253				59,574				16,883				5,009				—				158,258
Corporate expenses			—				—				—				—				49,491				—				49,491
Gain (loss) on disposition of assets — net			—				—				—				—				(425	)			—				(425	)
Operating income (loss)		$	359,674			$	114,449			$	39,369			$	18,794			$	(54,925	)		$	—			$	477,361
Intersegment revenues		$	9,646			$	3,161			$	—			$	18,707			$	—			$	—			$	31,514
Six Months Ended June 30, 2005
Revenue		$	1,705,491			$	568,944			$	694,524			$	258,233			$	—			$	(56,650	)		$	3,170,542
Direct operating expenses			462,888				237,045				421,537				104,481				—				(26,451	)			1,199,500
Selling, general and administrative expenses			602,748				91,151				165,762				108,494				—				(30,199	)			937,956
Depreciation and amortization			70,124				86,091				108,737				33,680				9,471				—				308,103
Corporate expenses			—				—				—				—				78,341				—				78,341
Gain (loss) on disposition of assets — net			—				—				—				—				5,816				—				5,816
Operating income (loss)		$	569,731			$	154,657			$	(1,512	)		$	11,578			$	(81,996	)		$	—			$	652,458
Intersegment revenues		$	18,156			$	4,471			$	—			$	34,023			$	—			$	—			$	56,650
Identifiable assets		$	12,296,650			$	2,506,253			$	2,012,448			$	1,189,501			$	295,664			$	—			$	18,300,516
Capital expenditures		$	46,566			$	33,281			$	42,927			$	7,067			$	3,435			$	—			$	133,276

(In thousands)

																		Corporate
																		expenses and
						Americas				International								gain (loss) on
		Radio				Outdoor				Outdoor								disposition of
		Broadcasting				Advertising				Advertising				Other				assets - net				Eliminations				Consolidated
Three Months Ended June 30, 2005
Revenue		$	931,929			$	315,094			$	369,415			$	135,792			$	—			$	(29,498	)		$	1,722,732
Direct operating expenses			237,492				120,374				212,310				53,897				—				(12,655	)			611,418
Selling, general and administrative expenses			316,725				46,226				81,090				54,004				—				(16,843	)			481,202
Depreciation and amortization			34,430				42,988				53,574				16,930				4,786				—				152,708
Corporate expenses			—				—				—				—				42,374				—				42,374
Gain (loss) on disposition of assets — net			—				—				—				—				4,891				—				4,891
Operating income (loss)		$	343,282			$	105,506			$	22,441			$	10,961			$	(42,269	)		$	—			$	439,921
Intersegment revenues		$	9,750			$	2,791			$	—			$	16,957			$	—			$	—			$	29,498

Revenue of $39.8 million and $29.3 million derived from foreign operations are included in Americas Outdoor Advertising above for the six months ended June 30, 2006 and 2005, respectively. Revenue of $22.1 million and $16.6 million derived from foreign operations are included in Americas Outdoor Advertising above for the three months ended June 30, 2006 and 2005, respectively. Identifiable assets of $213.9 million and $187.7 million derived from foreign operations are included in Americas Outdoor Advertising above for the six months ended June 30, 2006 and 2005, respectively.

Note 10: SUBSEQUENT EVENTS

The Company’s subsidiary, Clear Channel Outdoor Holdings, Inc. (“CCO”), completed the acquisition of Interspace Airport Advertising on July 1, 2006, by issuing 4,250,000 shares of CCO’s Class A Common Stock and the payment of approximately $81.3 million. The Company placed the $81.3 million in an escrow account as a condition precedent to the closing of the transaction and has recorded it as restricted cash on its consolidated balance sheets at June 30, 2006. Interspace’s 2005 revenues and operating expenses (excluding depreciation and amortization) were approximately $45.8 million and $32.5 million, respectively.

On July 25, 2006, the Company’s Board of Directors declared a quarterly cash dividend of $0.1875 per share on the Company’s Common Stock. The dividend is payable on October 15, 2006 to shareholders of record at the close of business on September 30, 2006.

The Company’s wholly owned subsidiary, Clear Channel Investments, Inc., terminated its secured forward exchange contract with respect to 8.3 million shares of its investment in XM Satellite Radio Holdings, Inc. on August 2, 2006 by paying the counterparty approximately $83.1 million. The accreted value of the debt was $92.9 million and the fair value of the collar was an asset of $6.0 million resulting in a net gain of approximately $3.8 million.

From July 1, 2006 through August 8, 2006, 5.2 million shares were repurchased for an aggregate purchase price of $154.8 million, including commissions and fees, under the Company’s share repurchase program. At August 8, 2006 $130.4 million remained available for repurchase through the Company’s repurchase program authorized on March 9, 2006.

Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Executive Summary

     Consolidated revenue increased $184.5 million for the first six months 2006 compared to the same period of 2005. This increase was led by our radio segment which grew revenue $86.9 million attributable to an increase in both local and national sales as a result of an increase in average rates. Our international outdoor segment grew revenues $42.9 million driven by increased street furniture revenues and $44.9 million from our consolidation of Clear Media, a Chinese outdoor advertising company in which we acquired a controlling majority interest in the third quarter of 2005. These increases were partially offset by a revenue decline of $31.8 million from foreign exchange fluctuations. Our Americas outdoor segment’s revenue increased $40.4 million primarily from an increase in bulletin revenues driven by rate growth and airport revenues driven by increased national advertising.

     We adopted FAS 123(R), Share-Based Payment, on January 1, 2006 under the modified-prospective approach which requires us to recognize employee compensation cost related to our stock option grants in the same line items as cash compensation in the 2006 financial statements for all options granted after the date of adoption as well as for any options that were unvested at adoption. Under the modified-prospective approach, no stock option expense attributable to these options is reflected in the financial statements for 2005. The amounts recorded as share-based payments in the financial statements during 2005 relate to the expense associated with restricted stock awards. As of June 30, 2006, there was $57.1 million of total unrecognized compensation cost related to nonvested share-based compensation arrangements. This cost is expected to be recognized over a weighted average period of approximately three years.

     The fair value of each option awarded is estimated on the date of grant using a Black-Scholes option-pricing model. Expected volatilities are based on implied volatilities from traded options on the Company’s stock, historical volatility on the Company’s stock, and other factors. The expected life of options granted represents the period of time that options granted are expected to be outstanding. The Company uses historical data to estimate option exercises and employee terminations within the valuation model. The risk free rate for periods equal to the life of the option is based on the U.S. Treasury yield curve in effect at the time of grant. The following table details share-based payments for the three and six months ended June 30, 2006:

(In millions)

		Three Months				Six Months
Radio Broadcasting
Direct Operating Expenses		$	2.8			$	5.6
SG&A			3.5				7.0
Americas Outdoor Advertising
Direct Operating Expenses		$	0.9			$	1.7
SG&A			0.3				0.6
International Outdoor Advertising
Direct Operating Expenses		$	0.2			$	0.4
SG&A			0.1				0.2
Other
Direct Operating Expenses		$	0.5			$	1.0
SG&A			0.5				1.1
Corporate		$	2.3			$	5.7