Clear Channel Outdoor Q4: Signs of the Apocalypse

(MoneyWatch)  The starkest picture yet of the effect of the recession on the advertising business emerged in Clear Channel Outdoor's Q4 2008 earnings statement.

CCO is one of those companies that gives a really detailed, easy-to-understand statement of its business -- and they should be praised for their transparency. Unfortunately, once you look through the windows all you can see is the blood on the walls:

• Q4 revenue saw a 16 percent decrease to $785 million
• Operating expenses increased 1 percent to $626 million
• The company made a net loss of $3 billion.

That net loss was thanks largely to $3.2 billion in "impairment" charges, featuring a write-down of goodwill and the value of "indefinite-lived permits."

Optimists might say, "OK, aside from the impairment charge, here's a business that still makes $100 million-plus per quarter more than its operating expenses, it's a going concern, right?"

That's true, assuming CCO has its operating expenses under control. But does it? Check out this detail:

Included in the Company's fourth quarter 2008 expenses is a $47.6 million decrease due to movements in foreign exchange; excluding the effects of these movements in foreign exchange, growth in expenses would have been 8%.

... The Company's operating expenses increased 9% to $2.5 billion during the year compared to 2007.

In other words, foreign currency differences actually reduced the impact of CCO's rising expenses. All things being equal, operating expenses are even more out of control than you think they are. In fact, CCO only embarked on a cost-cutting program in January 2009 -- about six months later than it should have started.

OK, but CCO has cash on hand to cover this in the short term, right?

• Net debt is $2 billion
• Cash on hand is $95 million

Yikes. True, there's $432 million due from private Clear Channel Communications, a private parent company. That might help ... if CCC can actually pay CCO what it owes. But there's even a question over that. Here's a scary story in the WSJ, about how CCC tapped out its $2 billion credit facility:

Drawing down the remaining $1.6 billion in its $2 billion credit facility injects more cash into the struggling company's balance sheet, but the move has analysts wondering whether Clear Channel may be choosing to access those funds now for fear it won't be able to later.

As a result, S&P downgraded the company's debt and Moody's looks set to do the same.