UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

[X]          QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE

                ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2015

 

[   ]          TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE

                 ACT OF 1934 FOR THE TRANSITION PERIOD FROM _________ TO __________

 

Commission File Number

001-09645

 

iHeartCommunications, Inc.

(Exact name of registrant as specified in its charter)

 

                                                   Texas                                                                                                           74-1787539

                               (State or other jurisdiction of                                                                  (I.R.S. Employer Identification No.)

                             incorporation or organization)

 

                           200 East Basse Road, Suite 100

                                      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 [   ] No [X]

 

(Explanatory Note: The registrant is a voluntary filer and is therefore not subject to the filing requirements of the Exchange Act. However, during the preceding 12 months and pursuant to the registrant’s bond indentures, the registrant has filed all reports that it would have been required to file by Section 13 or 15(d) of the Exchange Act if the registrant was subject to the filing requirements of the Exchange Act during such timeframe.)

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).   Yes [X] No [  ]

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer [   ]   Accelerated filer [   ]   Non-accelerated filer [X]  Smaller reporting company [   ]

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes [  ] No [X]

 

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

 

                                                Class                                                                                      Outstanding at July 28, 2015

                    ~~~~~~~~~~~~~~~~~~~~~~~~~                                                  ~~~~~~~~~~~~~~~~~~~~~~~~~

                       Common Stock, $.001 par value                                                                                 500,000,000

 

The registrant meets the conditions set forth in General Instructions H(1)(a) and (b) of Form 10-Q and is therefore filing this form in a reduced disclosure format permitted by General Instruction H(2).

  

 

 


 

IHEARTCOMMUNICATIONS, INC.
INDEX

 

 

 

Page No.

Part I – Financial Information

 

Item 1.       Financial Statements

1

                    Consolidated Balance Sheets as of June 30, 2015 and December 31, 2014

1

                    Consolidated Statements of Comprehensive Loss for the three and six months ended June 30, 2015 and 2014

2

                    Consolidated Statements of Cash Flows for the six months ended June 30, 2015 and 2014

3

                    Notes to Consolidated Financial Statements

4

Item 2.       Management’s Discussion and Analysis of Financial Condition and Results of Operations

15

Item 3.       Quantitative and Qualitative Disclosures About Market Risk

32

Item 4.       Controls and Procedures

32

Part II – Other Information

 

Item 1.       Legal Proceedings

34

Item 1A.    Risk Factors

34

Item 2.       Unregistered Sales of Equity Securities and Use of Proceeds (intentionally omitted pursuant to General Instruction H(2)(b) of Form 10-Q)

34

Item 3.       Defaults Upon Senior Securities (intentionally omitted pursuant to General Instruction H(2)(b) of Form 10-Q)

35

Item 4.       Mine Safety Disclosures

35

Item 5.       Other Information

35

Item 6.       Exhibits

35

Signatures

36

  

 


PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

iHeartCommunications, Inc. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

 

(In thousands, except share data)

June 30,

 

 

 

 

 

2015

 

December 31,

 

(Unaudited)

 

2014

CURRENT ASSETS

 

 

 

 

 

Cash and cash equivalents

$

 387,449  

 

$

 457,024  

Accounts receivable, net of allowance of $32,560 in 2015 and $32,396 in 2014

 

 1,434,232  

 

 

 1,395,248  

Prepaid expenses

 

 223,044  

 

 

 191,572  

Other current assets

 

 141,111  

 

 

 136,299  

 

Total Current Assets

 

 2,185,836  

 

 

 2,180,143  

PROPERTY, PLANT AND EQUIPMENT

 

 

 

 

 

Structures, net

 

 1,542,361  

 

 

 1,614,199  

Other property, plant and equipment, net

 

 862,565  

 

 

 1,084,865  

INTANGIBLE ASSETS AND GOODWILL

 

 

 

 

 

Indefinite-lived intangibles - licenses

 

 2,411,294  

 

 

 2,411,071  

Indefinite-lived intangibles - permits

 

 1,065,978  

 

 

 1,066,748  

Other intangibles, net

 

 1,083,979  

 

 

 1,206,727  

Goodwill

 

 4,177,772  

 

 

 4,187,424  

OTHER ASSETS

 

 

 

 

 

Other assets

 

 297,160  

 

 

 289,065  

Total Assets

$

 13,626,945  

 

$

 14,040,242  

CURRENT LIABILITIES

 

 

 

 

 

Accounts payable

$

 122,424  

 

$

 132,258  

Accrued expenses

 

 730,216  

 

 

 799,475  

Accrued interest

 

 286,892  

 

 

 252,900  

Deferred income

 

 227,042  

 

 

 176,048  

Current portion of long-term debt

 

 2,725  

 

 

 3,604  

 

Total Current Liabilities

 

 1,369,299  

 

 

 1,364,285  

Long-term debt

 

 20,371,803  

 

 

 20,322,414  

Deferred income taxes

 

 1,562,081  

 

 

 1,563,888  

Other long-term liabilities

 

 564,538  

 

 

 454,863  

Commitments and contingent liabilities (Note 4)

 

 

 

 

 

SHAREHOLDER'S DEFICIT

 

 

 

 

 

Noncontrolling interest

 

 197,477  

 

 

 224,140  

Common stock, par value $.001 per share, authorized and issued

 

 

 

 

 

 

500,000,000 shares in 2015 and 2014, respectively

 

 500  

 

 

 500  

Additional paid-in capital

 

 2,065,781  

 

 

 2,101,132  

Accumulated deficit

 

 (12,121,822) 

 

 

 (11,682,390) 

Accumulated other comprehensive loss

 

 (382,712) 

 

 

 (308,590) 

 

Total Shareholder's Deficit

 

 (10,240,776) 

 

 

 (9,665,208) 

Total Liabilities and Shareholder's Deficit

$

 13,626,945  

 

$

 14,040,242  

  

 

See Notes to Consolidated Financial Statements

1


iHeartCommunications, Inc. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(UNAUDITED)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(In thousands)

Three Months Ended June 30,

 

Six Months Ended June 30,

 

2015

 

2014

 

2015

 

2014

Revenue

$

 1,599,859  

 

$

 1,630,154  

 

$

 2,944,423  

 

$

 2,972,702  

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Direct operating expenses (excludes depreciation

   and amortization)

 

 615,265  

 

 

 644,870  

 

 

 1,193,784  

 

 

 1,242,558  

 

Selling, general and administrative expenses (excludes

   depreciation and amortization)

 

 424,163  

 

 

 418,928  

 

 

 840,351  

 

 

 833,564  

 

Corporate expenses (excludes depreciation and amortization)

 

 80,592  

 

 

 82,197  

 

 

 157,880  

 

 

 154,902  

 

Depreciation and amortization

 

 168,394  

 

 

 174,062  

 

 

 338,847  

 

 

 348,933  

 

Impairment charges

 

 -  

 

 

 4,902  

 

 

 -  

 

 

 4,902  

 

Other operating income (expense), net

 

 100,754  

 

 

 (1,628) 

 

 

 91,780  

 

 

 (1,463) 

Operating income

 

 412,199  

 

 

 303,567  

 

 

 505,341  

 

 

 386,380  

Interest expense

 

 452,957  

 

 

 440,605  

 

 

 894,728  

 

 

 871,719  

Gain on marketable securities

 

 -  

 

 

 -  

 

 

 579  

 

 

 -  

Equity in loss of nonconsolidated affiliates

 

 (690) 

 

 

 (16) 

 

 

 (359) 

 

 

 (13,343) 

Loss on extinguishment of debt

 

 -  

 

 

 (47,503) 

 

 

 (2,201) 

 

 

 (51,419) 

Other income, net

 

 16,211  

 

 

 12,157  

 

 

 36,102  

 

 

 13,698  

Loss before income taxes

 

 (25,237) 

 

 

 (172,400) 

 

 

 (355,266) 

 

 

 (536,403) 

Income tax benefit (expense)

 

 (22,077) 

 

 

 621  

 

 

 (78,682) 

 

 

 (67,766) 

Consolidated net loss

 

 (47,314) 

 

 

 (171,779) 

 

 

 (433,948) 

 

 

 (604,169) 

 

Less amount attributable to noncontrolling interest

 

 7,152  

 

 

 14,852  

 

 

 5,484  

 

 

 6,651  

Net loss attributable to the Company

$

 (54,466) 

 

$

 (186,631) 

 

$

 (439,432) 

 

$

 (610,820) 

Other comprehensive income (loss), net of tax:

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustments

 

 2,278  

 

 

 (12,232) 

 

 

 (79,881) 

 

 

 (14,449) 

 

Unrealized gain on securities and derivatives:

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized holding gain (loss) on marketable securities

 

 (133) 

 

 

 (405) 

 

 

 689  

 

 

 679  

 

Other adjustments to comprehensive loss

 

 -  

 

 

 -  

 

 

 (1,154) 

 

 

 -  

 

Reclassification adjustment for realized gains on

   securities included in net loss

 

 -  

 

 

 -  

 

 

 -  

 

 

 3,309  

Other comprehensive income (loss)

 

 2,145  

 

 

 (12,637) 

 

 

 (80,346) 

 

 

 (10,461) 

Comprehensive loss

 

 (52,321) 

 

 

 (199,268) 

 

 

 (519,778) 

 

 

 (621,281) 

 

 Less amount attributable to noncontrolling interest

 

 (4,287) 

 

 

 (1,979) 

 

 

 (10,640) 

 

 

 (4,942) 

Comprehensive loss attributable to the Company

$

 (48,034) 

 

$

 (197,289) 

 

$

 (509,138) 

 

$

 (616,339) 

 

See Notes to Consolidated Financial Statements

2


iHeartCommunications, Inc. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)

 

(In thousands)

 

 

 

Six Months Ended June 30,

 

 

 

2015

 

2014

Cash flows from operating activities:

 

 

 

 

 

 

 

 

 

Consolidated net loss

 

 

 

$

 (433,948) 

 

$

 (604,169) 

Reconciling items:

 

 

 

 

 

 

 

 

 

Impairment charges

 

 

 

 

 -  

 

 

 4,902  

 

Depreciation and amortization

 

 

 

 

 338,847  

 

 

 348,933  

 

Deferred taxes

 

 

 

 

 14,988  

 

 

 32,179  

 

Provision for doubtful accounts

 

 

 

 

 12,848  

 

 

 7,767  

 

Amortization of deferred financing charges and note discounts, net

 

 

 

 

 31,494  

 

 

 57,622  

 

Share-based compensation

 

 

 

 

 4,927  

 

 

 5,818  

 

(Gain) loss on disposal of operating and fixed assets

 

 

 

 

 (101,473) 

 

 

 1,463  

 

Gain on marketable securities

 

 

 

 

 (579) 

 

 

 -  

 

Equity in loss of nonconsolidated affiliates

 

 

 

 

 359  

 

 

 13,343  

 

Loss on extinguishment of debt

 

 

 

 

 2,201  

 

 

 51,419  

 

Other reconciling items, net

 

 

 

 

 (36,546) 

 

 

 (14,037) 

 

Changes in operating assets and liabilities, net of effects of

    acquisitions and dispositions:

 

 

 

 

 

 

 

 

 

 

(Increase) decrease in accounts receivable

 

 

 

 

 (73,764) 

 

 

 9,714  

 

 

Decrease in accrued expenses

 

 

 

 

 (61,342) 

 

 

 (15,820) 

 

 

Decrease in accounts payable

 

 

 

 

 (6,126) 

 

 

 (19,928) 

 

 

Increase in accrued interest

 

 

 

 

 50,620  

 

 

 31,816  

 

 

Increase in deferred income

 

 

 

 

 56,230  

 

 

 67,696  

 

 

Changes in other operating assets and liabilities

 

 

 

 

 (38,342) 

 

 

 (24,922) 

Net cash used in operating activities

 

 

 

 

 (239,606) 

 

 

 (46,204) 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

 

Proceeds from sale of other investments

 

 

 

 

 579  

 

 

 220,830  

 

Purchases of property, plant and equipment

 

 

 

 

 (124,877) 

 

 

 (141,421) 

 

Proceeds from disposal of assets

 

 

 

 

 393,637  

 

 

 5,899  

 

Purchases of other operating assets

 

 

 

 

 (3,970) 

 

 

 (1,733) 

 

Change in other, net

 

 

 

 

 (28,994) 

 

 

 (2,009) 

Net cash provided by investing activities

 

 

 

 

 236,375  

 

 

 81,566  

Cash flows from financing activities:

 

 

 

 

 

 

 

 

 

Draws on credit facilities

 

 

 

 

 120,000  

 

 

 820  

 

Payments on credit facilities

 

 

 

 

 (122,638) 

 

 

 (248,675) 

 

Proceeds from long-term debt

 

 

 

 

 950,000  

 

 

 1,059,975  

 

Payments on long-term debt

 

 

 

 

 (931,324) 

 

 

 (731,254) 

 

Payments to purchase noncontrolling interests

 

 

 

 

 (42,564) 

 

 

 -  

 

Dividends and other payments to noncontrolling interests

 

 

 

 

 (28,099) 

 

 

 (9,673) 

 

Deferred financing charges

 

 

 

 

 (10,021) 

 

 

 (15,526) 

 

Change in other, net

 

 

 

 

 2,602  

 

 

 (165) 

Net cash provided by (used for) financing activities

 

 

 

 

 (62,044) 

 

 

 55,502  

Effect of exchange rate changes on cash

 

 

 

 

 (4,300) 

 

 

 (577) 

Net increase (decrease) in cash and cash equivalents

 

 

 

 

 (69,575) 

 

 

 90,287  

Cash and cash equivalents at beginning of period

 

 

 

 

 457,024  

 

 

 708,151  

Cash and cash equivalents at end of period

 

 

 

$

 387,449  

 

$

 798,438  

SUPPLEMENTAL DISCLOSURES:

 

 

 

 

 

 

 

 

Cash paid for interest

 

 

 

$

 808,354  

 

$

 756,322  

Cash paid for taxes

 

 

 

 

 24,465  

 

 

 19,233  

 

See Notes to Consolidated Financial Statements

3


iHeartCommunications, Inc. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

 

NOTE 1 – BASIS OF PRESENTATION

Preparation of Interim Financial Statements

All references in this Quarterly Report on Form 10-Q to the “Company,” “we,” “us” and “our” refer to iHeartCommunications, Inc. and its consolidated subsidiaries.  The Company’s reportable segments are iHeartMedia (“iHM”), Americas outdoor advertising (“Americas outdoor” or “Americas outdoor advertising”) and International outdoor advertising (“International outdoor” or “International outdoor advertising”). 

 

The accompanying consolidated financial statements were prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) and, in the opinion of management, include all normal and recurring adjustments 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 U.S. generally accepted accounting principles (“GAAP”) 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 may not be 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 2014 Annual Report on Form 10-K.

 

We are a holding company and have no significant assets other than the ownership interests in our subsidiaries. All of our operations and all of our operating assets are held by our subsidiaries.  Certain of our outstanding indebtedness is fully and unconditionally guaranteed on a joint and several basis by our parent, iHeartMedia Capital I, LLC (“Capital I”), and certain of our direct and indirect wholly-owned domestic subsidiaries.  Not all of our subsidiaries guarantee our obligations under such outstanding indebtedness.  For a presentation of the allocation of assets, liabilities, equity, revenues and expenses attributable to the guarantors of our indebtedness in conformity with the SEC’s Regulation S-X Rule 3-10(d), please refer to Note 10 to the consolidated financial statements of Parent as of and for the period ending June 30, 2015.

 

The consolidated financial statements include the accounts of the Company and its subsidiaries.  Also included in the consolidated financial statements are entities for which the Company has a controlling financial interest or is the primary beneficiary.  Investments in companies in which the Company owns 20% to 50% 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 prior-period amounts have been reclassified to conform to the 2015 presentation.

 

During the first quarter of 2015, in connection with the appointment of the new chief executive officer for Clear Channel Outdoor Holdings, Inc. (“CCOH”) and a new chief executive officer for the Americas outdoor business, the Company reevaluated its segment reporting and determined that its Latin American operations should be managed by its Americas outdoor leadership team.  As a result, the operations of Latin America are no longer reflected within the Company’s International outdoor segment and are included in the results of its Americas outdoor segment.  In addition, the Company reorganized a portion of its national representation business such that the cost of sales personnel for iHM radio stations are now included in the iHM segment and its national representation business no longer charges iHM for intercompany cost allocations.  Accordingly, the Company has recast the corresponding segment disclosures for prior periods to include Latin America within the Americas outdoor segment and has also recast the corresponding segment disclosures to reflect internal representation services as direct expenses of iHM.

 

The Company is a Texas corporation with all of its common stock being held by Capital I.  All of Capital I’s interests are held by iHeartMedia Capital II, LLC, a direct, wholly-owned subsidiary of iHeartMedia, Inc. (“Parent”). Parent was formed in May 2007 by private equity funds sponsored by Bain Capital Partners, LLC and Thomas H. Lee Partners, L.P. (together, the “Sponsors”) for the purpose of acquiring the business of the Company.

 

Omission of Per Share Information

Net loss per share information is not presented as Capital I owns 100% of the Company’s common stock. The Company does not have any publicly traded common stock.

 

New Accounting Pronouncements

During the first quarter of 2015, the Company adopted the Financial Accounting Standards Board’s (“FASB”) ASU No. 2014-08, Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360), Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity.  This update provides guidance for the recognition,

4


iHeartCommunications, Inc. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

measurement and disclosure of discontinued operations. The update is effective for annual periods beginning on or after 15 December 2014 and interim periods within those years.  The adoption of this guidance did not have a material effect on the Company’s consolidated financial statements.

 

During the first quarter of 2015, the FASB issued ASU No. 2015-02, Consolidation (Topic 810), Amendments to the Consolidation Analysis. This new standard eliminates the deferral of FAS 167, which has allowed entities with interest in certain investment funds to follow the previous consolidation guidance in FIN 46(R) and makes other changes to both the variable interest model and the voting model. The standard is effective for annual periods, and for interim periods within those annual periods, beginning after December 15, 2015.  The Company is currently evaluating the impact of the provisions of this new standard on its financial position and results of operations.

   

 

NOTE 2 – Property, plant and equipment, INTANGIBLE ASSETS AND GOODWILL

Dispositions

During the first quarter of 2015, the Company sold two office buildings located in San Antonio, Texas for $34.3 million.  Concurrently with the sale of these properties, the Company entered into lease agreements for the continued use of the buildings, pursuant to which the Company will have annual lease payments of $2.6 million.  The Company recognized a gain of $8.1 million on the sale of one of the buildings, which is being recognized over the term of the lease. 

 

On December 11, 2014, Parent announced that its subsidiary had entered into an agreement with Vertical Bridge Holdings, LLC (“Vertical Bridge”) for the sale of up to 411 of our broadcast communications tower sites.  On April 3, 2015, an affiliate of Parent and certain of the Company’s subsidiaries completed the first closing for the sale of 367 of the Company’s broadcast communications tower sites and related assets for $369.2 million. Simultaneous with the sale, the Company entered into lease agreements for the continued use of 360 of the towers sold.  The Company incurred $5.1 million in relation to these lease agreements in the three months ended June 30, 2015.  Upon completion of the transaction, the Company realized a net gain of $207.2 million, of which $108.1 million will be deferred and recognized over the lease term.  On July 16, 2015, Parent and certain of the Company’s subsidiaries completed the second closing for the sale of an additional nine of the Company’s broadcast communication tower sites and related assets for approximately $5.9 million. Simultaneous with the sale, the Company entered into lease agreements for the continued use of seven of the towers, pursuant to which the Company will have annual lease payments of $0.3 million.  The leases entered into as a part of these transactions are for a term of fifteen years and include three optional five-year renewal periods    

 

Property, Plant and Equipment

The Company’s property, plant and equipment consisted of the following classes of assets as of June 30, 2015 and December 31, 2014, respectively:

 

 

 

 

 

 

(In thousands)

June 30,

 

December 31,

 

2015

 

2014

Land, buildings and improvements

$

 626,050  

 

$

 731,925  

Structures

 

 3,005,159  

 

 

 2,999,582  

Towers, transmitters and studio equipment

 

 341,815  

 

 

 453,044  

Furniture and other equipment

 

 563,168  

 

 

 536,255  

Construction in progress

 

 70,953  

 

 

 95,671  

 

 

 4,607,145  

 

 

 4,816,477  

Less: accumulated depreciation

 

 2,202,219  

 

 

 2,117,413  

Other property, plant and equipment, net

$

 2,404,926  

 

$

 2,699,064  

 

Indefinite-lived Intangible Assets

The Company’s indefinite-lived intangible assets consist of Federal Communications Commission (“FCC”) broadcast licenses in its iHM segment and billboard permits in its Americas outdoor advertising segment. Due to significant differences in both business practices and regulations, billboards in the International outdoor advertising segment and in Latin America are subject to long-term,

5


iHeartCommunications, Inc. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

finite contracts, unlike the Company’s permits in the United States and Canada. Accordingly, there are no indefinite-lived intangible assets in the International outdoor advertising segment.

 

Other Intangible Assets

Other intangible assets include definite-lived intangible assets and permanent easements.  The Company’s definite-lived intangible assets include primarily transit and street furniture contracts, talent and representation contracts, customer and advertiser relationships, and site-leases, all of which are amortized over the respective lives of the agreements or over the period of time the assets are expected to contribute directly or indirectly to the Company’s future cash flows. Permanent easements are indefinite-lived intangible assets which include certain rights to use real property not owned by the Company.  The Company periodically reviews the appropriateness of the amortization periods related to its definite-lived intangible assets.  These assets are recorded at cost.

 

The following table presents the gross carrying amount and accumulated amortization for each major class of other intangible assets as of June 30, 2015 and December 31, 2014, respectively:

 

 

 

 

 

 

 

 

 

 

 

 

 

(In thousands)

June 30, 2015

 

December 31, 2014

 

 

Gross Carrying Amount

 

Accumulated Amortization

 

Gross Carrying Amount

 

Accumulated Amortization

Transit, street furniture and other outdoor

   contractual rights

$

 675,466  

 

$

 (465,228) 

 

$

 716,723  

 

$

 (476,523) 

Customer / advertiser relationships

 

 1,222,518  

 

 

 (831,137) 

 

 

 1,222,518  

 

 

 (765,596) 

Talent contracts

 

 319,384  

 

 

 (238,231) 

 

 

 319,384  

 

 

 (223,936) 

Representation contracts

 

 241,158  

 

 

 (215,977) 

 

 

 238,313  

 

 

 (206,338) 

Permanent easements

 

 171,641  

 

 

 -    

 

 

 171,271  

 

 

 -    

Other

 

 388,122  

 

 

 (183,737) 

 

 

 388,160  

 

 

 (177,249) 

 

Total

$

 3,018,289  

 

$

 (1,934,310) 

 

$

 3,056,369  

 

$

 (1,849,642) 

 

Total amortization expense related to definite-lived intangible assets for the three months ended June 30, 2015 and 2014 was $60.7 million and $66.3 million, respectively. Total amortization expense related to definite-lived intangible assets for the six months ended June 30, 2015 and 2014 was $123.6 million and $133.2 million, respectively.

 

As acquisitions and dispositions occur in the future, amortization expense may vary.  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)

 

 

 

2016

$

 220,130  

 

2017

 

 197,105  

 

2018

 

 130,993  

 

2019

 

 43,102  

 

2020

 

 36,115  

 

 

6


iHeartCommunications, Inc. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

Goodwill

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The following table presents the changes in the carrying amount of goodwill in each of the Company’s reportable segments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(In thousands)

iHM

 

Americas Outdoor Advertising

 

International Outdoor Advertising

 

Other

 

Consolidated

Balance as of December 31, 2013

$

 3,234,807  

 

$

 585,227  

 

$

 264,907  

 

$

 117,246  

 

$

 4,202,187  

 

Acquisitions

 

 17,900  

 

 

 -  

 

 

 -  

 

 

 299  

 

 

 18,199  

 

Foreign currency

 

 -  

 

 

 (653) 

 

 

 (32,369) 

 

 

 -  

 

 

 (33,022) 

 

Other

 

 60  

 

 

 -  

 

 

 -  

 

 

 -  

 

 

 60  

Balance as of December 31, 2014

$

 3,252,767  

 

$

 584,574  

 

$

 232,538  

 

$

 117,545  

 

$

 4,187,424  

 

Acquisitions

 

 -    

 

 

 -    

 

 

 -    

 

 

 -    

 

 

 -  

 

Foreign currency

 

 -    

 

 

 (312) 

 

 

 (9,340) 

 

 

 -    

 

 

 (9,652) 

 

Other

 

 -    

 

 

 -    

 

 

 -    

 

 

 -    

 

 

 -  

Balance as of June 30, 2015

$

 3,252,767  

 

$

 584,262  

 

$

 223,198  

 

$

 117,545  

 

$

 4,177,772  

 

7


iHeartCommunications, Inc. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

NOTE 3 – LONG-TERM DEBT

Long-term debt outstanding as of June 30, 2015 and December 31, 2014 consisted of the following:

 

 

 

 

 

 

 

(In thousands)

June 30,

 

December 31,

 

 

2015

2014

Senior Secured Credit Facilities(1)

 

 $6,300,000  

 

 

 $7,231,222  

Receivables Based Credit Facility Due 2017(2)

 

 -    

 

 

 -    

9.0% Priority Guarantee Notes Due 2019

 

 1,999,815  

 

 

 1,999,815  

9.0% Priority Guarantee Notes Due 2021

 

 1,750,000  

 

 

 1,750,000  

11.25% Priority Guarantee Notes Due 2021

 

 575,000  

 

 

 575,000  

9.0% Priority Guarantee Notes Due 2022

 

 1,000,000  

 

 

 1,000,000  

10.625% Priority Guarantee Notes Due 2023

 

 950,000  

 

 

 -    

Subsidiary Revolving Credit Facility Due 2018(3)

 

 -    

 

 

 -    

Other Secured Subsidiary Debt(4)

 

 17,404  

 

 

 19,257  

Total Consolidated Secured Debt

 

 12,592,219  

 

 

 12,575,294  

 

 

 

 

 

 

 

14.0% Senior Notes Due 2021(5)

 

 1,678,314  

 

 

 1,661,697  

The Company's Legacy Notes(6)

 

 667,900  

 

 

 667,900  

10.0% Senior Notes Due 2018

 

 730,000  

 

 

 730,000  

Subsidiary Senior Notes due 2022

 

 2,725,000  

 

 

 2,725,000  

Subsidiary Senior Subordinated Notes due 2020

 

 2,200,000  

 

 

 2,200,000  

Other Subsidiary Debt

 

 302  

 

 

 1,024  

Purchase accounting adjustments and original issue discount

 

 (219,207) 

 

 

 (234,897) 

Total debt

 

 20,374,528  

 

 

 20,326,018  

Less: current portion

 

 2,725  

 

 

 3,604  

Total long-term debt

$

 20,371,803  

 

$

 20,322,414  

 

 

 

 

 

 

 

(1)

Term Loan D and Term Loan E mature in 2019.

(2)

The Receivables Based Credit Facility provides for borrowings up to the lesser of $535.0 million (the revolving credit commitment) or the borrowing base, subject to certain limitations contained in the Company's material financing agreements.

(3)

The Subsidiary Revolving Credit Facility provides for borrowings up to $75.0 million (the revolving credit commitment).

(4)

Other secured subsidiary debt matures at various dates from 2015 through 2045.

(5)

The 14.0% Senior Notes due 2021are subject to required payments at various dates from 2018 through 2021.

(6)

The Company's Legacy Notes, all of which were issued prior to the acquisition of the Company by Parent in 2008, consist of Senior Notes maturing at various dates in 2016, 2018 and 2027.

 

The Company’s weighted average interest rates as of June 30, 2015 and December 31, 2014 were 8.4% and 8.1%, respectively.  The aggregate market value of the Company’s debt based on market prices for which quotes were available was approximately $19.2 billion and $19.7 billion as of June 30, 2015 and December 31, 2014, respectively.  Under the fair value hierarchy established by ASC 820-10-35, the market value of the Company’s debt is classified as either Level 1 or Level 2.

 

Debt Issuance

 

On February 26, 2015, the Company issued at par $950.0 million aggregate principal amount of 10.625% Priority Guarantee Notes due 2023.  The notes mature on March 15, 2023 and bear interest at a rate of 10.625% per annum, payable semi-annually in arrears on March 15 and September 15 of each year, beginning on September 15, 2015.  The Company used the net proceeds from the offering primarily to prepay its term loan facilities due 2016.

 

8


iHeartCommunications, Inc. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

During the first quarter of 2015, the Company borrowed $120.0 million principal amount under its receivables based credit facility due 2017. During the second quarter of 2015, all outstanding amounts under the receivables based credit facility were repaid.

 

Debt Repayments, Maturities and Other

 

On February 26, 2015, the Company prepaid at par $916.1 million of loans outstanding under its Term Loan B facility and $15.2 million of loans outstanding under its Term Loan C asset sale facility, using the net proceeds of the Priority Guarantee Notes due 2023 issued on such date.

 

Surety Bonds, Letters of Credit and Guarantees

As of June 30, 2015, the Company had outstanding surety bonds, commercial standby letters of credit and bank guarantees of $57.8 million, $108.6 million and $54.2 million, respectively. Bank guarantees of $13.2 million were cash secured.  These surety bonds, letters of credit and bank guarantees relate to various operational matters including insurance, bid, concession and performance bonds as well as other items.

 

NOTE 4 – COMMITMENTS AND CONTINGENCIES

The Company and its subsidiaries are involved in certain legal proceedings arising in the ordinary course of business and, as required, have accrued an estimate of the probable costs for the resolution of those claims for which the occurrence of loss is probable and the amount can be reasonably estimated.  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 the Company’s assumptions or the effectiveness of the Company’s strategies related to these proceedings.  Additionally, due to the inherent uncertainty of litigation, there can be no assurance that the resolution of any particular claim or proceeding would not have a material adverse effect on the Company’s financial condition or results of operations.

 

Although the Company is involved in a variety of legal proceedings in the ordinary course of business, a large portion of the Company’s litigation arises in the following contexts: commercial disputes; defamation matters; employment and benefits related claims; governmental fines; intellectual property claims; and tax disputes.

 

Los Angeles Litigation

In 2008, Summit Media, LLC, one of the Company’s competitors, sued the City of Los Angeles (the “City”), Clear Channel Outdoor, Inc. (“CCOI”) and OUTFRONT Media Inc. (formerly CBS Outdoor Americas Inc.) in Los Angeles Superior Court (Case No. BS116611) challenging the validity of a settlement agreement that had been entered into in November 2006 among the parties and pursuant to which CCOI had taken down existing billboards and converted 83 existing signs from static displays to digital displays.  In 2009, the Los Angeles Superior Court ruled that the settlement agreement constituted an ultra vires act of the City, and nullified its existence.  After further proceedings, on April 12, 2013, the Los Angeles Superior Court invalidated 82 digital modernization permits issued to CCOI (77 of which displays were operating at the time of the ruling) and CCOI was required to turn off the electrical power to all affected digital displays on April 15, 2013.  The digital display structures remain intact but digital displays are currently prohibited in the City.  CCOI is seeking permits under the existing City sign code to either wrap the LED faces with vinyl or convert the LED faces to traditional static signs and has obtained a number of such permits.  CCOI is also pursuing a new ordinance to permit digital signage in the City.

 

International Outdoor Investigation

 

On April 21, 2015, inspections were conducted at the premises of Clear Channel in Denmark and Sweden as part of an investigation by Danish competition authorities.  Additionally, on the same day, Clear Channel UK received a communication from the UK competition authorities, also in connection with the investigation by Danish competition authorities. Clear Channel and its affiliates are cooperating with the national competition authorities.

 

 

 

 

  

 

9


iHeartCommunications, Inc. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

NOTE 5 – INCOME TAXES

 

 

 

 

 

 

 

 

 

 

 

 

Income Tax Benefit (Expense)

The Company’s income tax benefit (expense) for the three and six months ended June 30, 2015 and 2014, respectively, consisted of the following components:

 

 

 

 

 

 

 

 

 

 

 

 

(In thousands)

Three Months Ended June 30,

 

Six Months Ended June 30,

 

2015

 

2014

 

2015

 

2014

Current tax benefit (expense)

$

 (23,309) 

 

$

 7,492  

 

$

 (63,694) 

 

$

 (35,587) 

Deferred tax benefit (expense)

 

 1,232  

 

 

 (6,871) 

 

 

 (14,988) 

 

 

 (32,179) 

Income tax benefit (expense)

$

 (22,077) 

 

$

 621  

 

$

 (78,682) 

 

$

 (67,766) 

 

The effective tax rates for the three and six months ended June 30, 2015 were (87.5)% and (22.2)%, respectively.  The effective tax rates for the three and six months ended June 30, 2014 were 0.4% and (12.6)%, respectively.  The effective tax rates for the three and six months ended June 30, 2015 and 2014 were primarily impacted by the valuation allowance recorded against deferred tax assets resulting from applicable period net operating losses in U.S. federal, state and certain foreign jurisdictions due to the uncertainty of the ability to utilize those assets in future periods.

 

NOTE 6 – SHAREHOLDER’S DEFICIT

The Company reports its noncontrolling interests in consolidated subsidiaries as a component of equity separate from the Company’s equity.  The following table shows the changes in shareholder’s deficit attributable to the Company and the noncontrolling interests of subsidiaries in which the Company has a majority, but not total, ownership interest:

 

 

 

 

 

 

 

 

 

 

(In thousands)

The Company

 

Noncontrolling

Interests

 

Consolidated

Balances as of January 1, 2015

$

 (9,889,348) 

 

$

 224,140  

 

$

 (9,665,208) 

 

Net income (loss)

 

 (439,432) 

 

 

 5,484  

 

 

 (433,948) 

 

Dividends and other payments to noncontrolling interests

 

 -    

 

 

 (28,099) 

 

 

 (28,099) 

 

Purchase of additional noncontrolling interests

 

 (40,742) 

 

 

 (1,822) 

 

 

 (42,564) 

 

Foreign currency translation adjustments

 

 (69,288) 

 

 

 (10,593) 

 

 

 (79,881) 

 

Unrealized holding gain on marketable securities

 

 618  

 

 

 71  

 

 

 689  

 

Other adjustments to comprehensive loss

 

 (1,036) 

 

 

 (118) 

 

 

 (1,154) 

 

Reclassifications

 

 -    

 

 

 -    

 

 

 -    

 

Other, net

 

 975  

 

 

 8,414  

 

 

 9,389  

Balances as of June 30, 2015

$

(10,438,253)

 

$

197,477

 

$

(10,240,776)

 

(In thousands)

The Company

 

Noncontrolling

Interests

 

Consolidated

Balances as of January 1, 2014

$

(8,942,166)

 

$

 245,531  

 

$

(8,696,635)

 

Net income (loss)

 

 (610,820) 

 

 

 6,651  

 

 

 (604,169) 

 

Dividends and other payments to noncontrolling interests

 

 -    

 

 

 (9,673) 

 

 

 (9,673) 

 

Foreign currency translation adjustments

 

 (9,426) 

 

 

 (5,023) 

 

 

 (14,449) 

 

Unrealized holding gain on marketable securities

 

 598  

 

 

 81  

 

 

 679  

 

Reclassifications

 

 3,309  

 

 

 -    

 

 

 3,309  

 

Other, net

 

 705  

 

 

 4,991  

 

 

 5,696  

Balances as of June 30, 2014

$

 (9,557,800) 

 

$

 242,558  

 

$

 (9,315,242) 

 

10


iHeartCommunications, Inc. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

The Company does not have any compensation plans under which it grants awards to employees. Parent and CCOH have granted restricted stock, restricted stock units and options to purchase shares of their Class A common stock to certain key individuals.

 

NOTE 7 — OTHER INFORMATION

 

Other Comprehensive Income (Loss)

The total (decrease) increase in deferred income tax liabilities of other comprehensive income (loss) related to foreign currency translation adjustments and other for the quarters ended June 30, 2015 and 2014 were $0.0 million and $0.0 million, respectively. The total (decrease) increase in deferred income tax liabilities of other comprehensive income (loss) related to foreign currency translation adjustments and other for the six months ended June 30, 2015 and 2014 were $(0.6) million and $8.2 million, respectively.   

 

Barter and Trade

Barter and trade revenues and expenses from continuing operations are included in consolidated revenue and selling, general and administrative expenses, respectively.  Barter and trade revenues were $22.2 million and $17.9 million for the three months ended June 30, 2015 and 2014, respectively, and $52.2 million and $31.5 million for the six months ended June 30, 2015 and 2014, respectively.  Barter and trade expenses were $23.4 million and $16.4 million for the three months ended June 30, 2015 and 2014, respectively, and $51.5 million and $29.9 million for the six months ended June 30, 2015 and 2014, respectively.  

 

NOTE 8 – SEGMENT DATA

The Company’s reportable segments, which it believes best reflect how the Company is currently managed, are iHM, Americas outdoor advertising and International outdoor advertising.  Revenue and expenses earned and charged between segments are recorded at estimated fair value and eliminated in consolidation.  The iHM segment provides media and entertainment services via broadcast and digital delivery and also includes the Company’s events and national syndication businesses.  The Americas outdoor advertising segment consists of operations primarily in the United States, Canada and Latin America.  The International outdoor advertising segment primarily includes operations in Europe, Asia and Australia.  The Other category includes the Company’s media representation business as well as other general support services and initiatives that are ancillary to the Company’s other businesses.  Corporate includes infrastructure and support, including information technology, human resources, legal, finance and administrative functions for each of the Company’s reportable segments, as well as overall executive, administrative and support functions. Share-based payments are recorded in corporate expense.

 

11


iHeartCommunications, Inc. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

During the first quarter of 2015, the Company revised its segment reporting, as discussed in Note 1.  The following table presents the Company’s reportable segment results for the three and six months ended June 30, 2015 and 2014:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(In thousands)

iHM

 

Americas Outdoor Advertising

 

International Outdoor Advertising

 

Other

 

Corporate and other reconciling items

 

Eliminations

 

Consolidated

Three Months Ended June 30, 2015

Revenue

$

 840,701  

 

$

 341,286  

 

$

 381,533  

 

$

 40,040  

 

$

 -    

 

$

 (3,701) 

 

$

 1,599,859  

Direct operating expenses

 

 241,826  

 

 

 149,712  

 

 

 222,630  

 

 

 3,039  

 

 

 -    

 

 

 (1,942) 

 

 

 615,265  

Selling, general and

   administrative expenses

 

 266,523  

 

 

 57,346  

 

 

 75,176  

 

 

 26,877  

 

 

 -    

 

 

 (1,759) 

 

 

 424,163  

Depreciation and

   amortization

 

 59,571  

 

 

 51,113  

 

 

 40,956  

 

 

 7,611  

 

 

 9,143  

 

 

 -    

 

 

 168,394  

Corporate expenses

 

 -    

 

 

 -    

 

 

 -    

 

 

 -    

 

 

 80,592  

 

 

 -    

 

 

 80,592  

Other operating income, net

 

 -    

 

 

 -    

 

 

 -    

 

 

 -    

 

 

 100,754  

 

 

 -    

 

 

 100,754  

Operating income

$

 272,781  

 

$

 83,115  

 

$

 42,771  

 

$

 2,513  

 

$

 11,019  

 

$

 -    

 

$

 412,199  

Intersegment revenues

$

 -    

 

$

 1,062  

 

$

 -    

 

$

 2,639  

 

$

 -    

 

$

 -    

 

$

 3,701  

Capital expenditures

$

 15,414  

 

$

 15,664  

 

$

 31,752  

 

$

 2,097  

 

$

 3,495  

 

$

 -    

 

$

 68,422  

Share-based compensation

   expense

$

 -    

 

$

 -    

 

$

 -    

 

$

 -    

 

$

 2,403  

 

$

 -    

 

$

 2,403  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended June 30, 2014

Revenue

$

 806,337  

 

$

 344,346  

 

$

 436,859  

 

$

 47,227  

 

$

 -    

 

$

 (4,615) 

 

$

 1,630,154  

Direct operating expenses

 

 227,059  

 

 

 153,875  

 

 

 259,269  

 

 

 6,348  

 

 

 -    

 

 

 (1,681) 

 

 

 644,870  

Selling, general and

   administrative expenses

 

 250,681  

 

 

 58,448  

 

 

 81,823  

 

 

 30,910  

 

 

 -    

 

 

 (2,934) 

 

 

 418,928  

Depreciation and

   amortization

 

 59,230  

 

 

 49,848  

 

 

 47,889  

 

 

 8,655  

 

 

 8,440  

 

 

 -    

 

 

 174,062  

Impairment charges

 

 -    

 

 

 -    

 

 

 -    

 

 

 -    

 

 

 4,902  

 

 

 -    

 

 

 4,902  

Corporate expenses

 

 -    

 

 

 -    

 

 

 -    

 

 

 -    

 

 

 82,197  

 

 

 -    

 

 

 82,197  

Other operating expense, net

 

 -    

 

 

 -    

 

 

 -    

 

 

 -    

 

 

 (1,628) 

 

 

 -    

 

 

 (1,628) 

Operating income (loss)

$

 269,367  

 

$

 82,175  

 

$

 47,878  

 

$

 1,314  

 

$

 (97,167) 

 

$

 -    

 

$

 303,567  

Intersegment revenues

$

 -    

 

$

 1,094  

 

$

 -    

 

$

 3,521  

 

$

 -    

 

$

 -    

 

$

 4,615  

Capital expenditures

$

 10,392  

 

$

 21,683  

 

$

 31,776  

 

$

 1,079  

 

$

 9,083  

 

$

 -    

 

$

 74,013  

Share-based compensation

   expense

$

 -    

 

$

 -    

 

$

 -    

 

$

 -    

 

$

 2,782  

 

$

 -    

 

$

 2,782  

 

12


iHeartCommunications, Inc. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(In thousands)

iHM

 

Americas Outdoor Advertising

 

International Outdoor Advertising

 

Other

 

Corporate and other reconciling items

 

Eliminations

 

Consolidated

Six Months Ended June 30, 2015

Revenue

$

 1,538,502  

 

$

 637,149  

 

$

 700,713  

 

$

 75,502  

 

$

 -    

 

$

 (7,443) 

 

$

 2,944,423  

Direct operating expenses

 

 455,655  

 

 

 295,946  

 

 

 439,367  

 

 

 6,437  

 

 

 -    

 

 

 (3,621) 

 

 

 1,193,784  

Selling, general and

   administrative expenses

 

 527,872  

 

 

 112,983  

 

 

 146,669  

 

 

 56,649  

 

 

 -    

 

 

 (3,822) 

 

 

 840,351  

Depreciation and

   amortization

 

 120,313  

 

 

 101,453  

 

 

 83,397  

 

 

 15,277  

 

 

 18,407  

 

 

 -    

 

 

 338,847  

Corporate expenses

 

 -    

 

 

 -    

 

 

 -    

 

 

 -    

 

 

 157,880  

 

 

 -    

 

 

 157,880  

Other operating expense, net

 

 -    

 

 

 -    

 

 

 -    

 

 

 -    

 

 

 91,780  

 

 

 -    

 

 

 91,780  

Operating income (loss)

$

 434,662  

 

$

 126,767  

 

$

 31,280  

 

$

 (2,861) 

 

$

 (84,507) 

 

$

 -    

 

$

 505,341  

Intersegment revenues

$

 -    

 

$

 2,163  

 

$

 -    

 

$

 5,280  

 

$

 -    

 

$

 -    

 

$

 7,443  

Capital expenditures

$

 27,327  

 

$

 32,359  

 

$

 56,857  

 

$

 3,148  

 

$

 5,186  

 

$

 -    

 

$

 124,877  

Share-based compensation

   expense

$

 -    

 

$

 -    

 

$

 -    

 

$

 -    

 

$

 4,927  

 

$

 -    

 

$

 4,927  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six Months Ended June 30, 2014

Revenue

$

 1,476,684  

 

$

 634,956  

 

$

 781,500  

 

$

 88,722  

 

$

 -    

 

$

 (9,160) 

 

$

 2,972,702  

Direct operating expenses

 

 439,005  

 

 

 297,239  

 

 

 497,418  

 

 

 12,736  

 

 

 -    

 

 

 (3,840) 

 

 

 1,242,558  

Selling, general and

   administrative expenses

 

 504,025  

 

 

 114,817  

 

 

 158,404  

 

 

 61,638  

 

 

 -    

 

 

 (5,320) 

 

 

 833,564  

Depreciation and

   amortization

 

 119,555  

 

 

 99,559  

 

 

 96,220  

 

 

 17,374  

 

 

 16,225  

 

 

 -    

 

 

 348,933  

Impairment charges

 

 -    

 

 

 -    

 

 

 -    

 

 

 -    

 

 

 4,902  

 

 

 -    

 

 

 4,902  

Corporate expenses

 

 -    

 

 

 -    

 

 

 -    

 

 

 -    

 

 

 154,902  

 

 

 -    

 

 

 154,902  

Other operating income, net

 

 -    

 

 

 -    

 

 

 -    

 

 

 -    

 

 

 (1,463) 

 

 

 -    

 

 

 (1,463) 

Operating income (loss)

$

 414,099  

 

$

 123,341  

 

$

 29,458  

 

$

 (3,026) 

 

$

 (177,492) 

 

$

 -    

 

$

 386,380  

Intersegment revenues

$

 -    

 

$

 2,070  

 

$

 -    

 

$

 7,090  

 

$

 -    

 

$

 -    

 

$

 9,160  

Capital expenditures

$

 20,684  

 

$

 38,127  

 

$

 52,638  

 

$

 2,886  

 

$

 27,086  

 

$

 -    

 

$

 141,421  

Share-based compensation

   expense

$

 -    

 

$

 -    

 

$

 -    

 

$

 -    

 

$

 5,818  

 

$

 -    

 

$

 5,818  

 

NOTE 9 – CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

The Company is a party to a management agreement with certain affiliates of the Sponsors and certain other parties pursuant to which such affiliates of the Sponsors will provide management and financial advisory services until 2018.  These agreements require management fees to be paid to such affiliates of the Sponsors for such services at a rate not greater than $15.0 million per year, plus reimbursable expenses.  For the three months ended June 30, 2015 and 2014, the Company recognized management fees and reimbursable expenses of $3.9 million and $3.7 million, respectively.  For the six months ended June 30, 2015 and 2014, the Company recognized management fees and reimbursable expenses of $7.8 million and $7.7 million, respectively.

 

Stock Purchases

On August 9, 2010, we announced that our board of directors approved a stock purchase program under which we or our subsidiaries may purchase up to an aggregate of $100.0 million of the Class A common stock of Parent and/or the Class A common stock of CCOH. The stock purchase program did not have a fixed expiration date and could be modified, suspended or terminated at any time at our discretion.  As of December 31, 2014, an aggregate $34.2 million was available under this program.  In January 2015, CC Finco, LLC (“CC Finco”), an indirect wholly-owned subsidiary of the Company, purchased 2,000,000 shares of CCOH’s Class A

13


iHeartCommunications, Inc. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

common stock for $20.4 million.  On April 2, 2015, CC Finco purchased an additional 2,172,946 shares of CCOH’s Class A common stock for $22.2 million, increasing our collective holdings to represent slightly more than 90% of the outstanding shares of CCOH’s common stock on a fully-diluted basis, assuming the conversion of all of CCOH’s Class B common stock into Class A common stock. As a result of this purchase, the stock purchase program concluded. The purchase of shares in excess of the amount available under the stock purchase program was separately approved by the board of directors.

   

  

 

14


  

 

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

Format of Presentation

Management’s discussion and analysis of our financial condition and results of operations should be read in conjunction with the consolidated financial statements and related footnotes.  Our discussion is presented on both a consolidated and segment basis.  All references in this Quarterly Report on Form 10-Q to “we,” “us” and “our” refer to iHeartCommunications, Inc. and its consolidated subsidiaries.  Our reportable segments are iHeartMedia (“iHM”), Americas outdoor advertising (“Americas outdoor” or “Americas outdoor advertising”) and International outdoor advertising (“International outdoor” or “International outdoor advertising”).  Our iHM segment provides media and entertainment services via broadcast and digital delivery and also includes our events and national syndication businesses.  Our Americas outdoor and International outdoor segments provide outdoor advertising services in their respective geographic regions using various digital and traditional display types. Included in the “Other” category are our media representation business, Katz Media Group, as well as other general support services and initiatives, which are ancillary to our other businesses.  Certain prior-period amounts have been reclassified to conform to the 2015 presentation.

 

Effective during the first quarter of 2015, and in connection with certain changes in senior management at Clear Channel Outdoor Holdings, Inc. (“CCOH”), an indirect wholly owned subsidiary of the Company, we reevaluated our segment reporting and determined that the Latin American operations were more appropriately aligned with the operations of the Americas Outdoor segment. As a result, the operations of Latin America are no longer reflected within the Company’s International Outdoor segment and are currently included in the results of its Americas Outdoor segment. In addition, the Company reorganized a portion of its national representation business such that the cost of sales personnel for iHM radio stations are now included in the iHM segment and the national representation business no longer charges iHM for intercompany cost allocations. These changes have been reflected in the Company’s segment reporting beginning in the first quarter of 2015. Accordingly, the Company has recast the corresponding segment disclosures for prior periods presented.

 

We manage our operating segments primarily focusing on their operating income, while Corporate expenses, Other operating income (expense), net, Interest expense, Gain on marketable securities, Equity in earnings (loss) of nonconsolidated affiliates, Loss on extinguishment of debt, Other income, net and Income tax benefit are managed on a total company basis and are, therefore, included only in our discussion of consolidated results.

 

Our iHM business utilizes several key measurements to analyze performance, including average minute rates and minutes sold. Our iHM revenue is derived primarily from selling advertising time, or spots, on our radio stations, with advertising contracts typically less than one year in duration.  The programming formats of our radio stations are designed to reach audiences with targeted demographic characteristics that appeal to our advertisers.  We also provide streaming content via the Internet, mobile and other digital platforms that reach national, regional and local audiences and derive revenues primarily from selling advertising time with advertising contracts similar to those used by our radio stations. Additionally, we promote, produce and curate special nationally-recognized events for our listeners. 

 

Management typically monitors our Americas outdoor and International outdoor advertising businesses by reviewing the average rates, average revenue per display, occupancy and inventory levels of each of our display types by market.  Our outdoor advertising revenue is derived from selling advertising space on the displays we own or operate in key markets worldwide, consisting primarily of billboards, street furniture and transit displays.  Part of our long-term strategy for our Americas outdoor and International outdoor advertising businesses is to pursue the technology of digital displays, including flat screens, LCDs and LEDs, as additions to traditional methods of displaying our clients’ advertisements. We are currently installing these technologies in certain markets.

 

Our advertising revenue for all of our segments is correlated to changes in gross domestic product (“GDP”) as traditional advertising spending has historically trended in line with GDP, both domestically and internationally.  Internationally, our results are impacted by fluctuations in foreign currency exchange rates and economic conditions in the foreign markets in which we have operations.

 

Executive Summary

The key developments in our business for the three months ended June 30, 2015 are summarized below:

·         Consolidated revenue decreased $30.3 million during the three months ended June 30, 2015 compared to the same period of 2014. Excluding the $69.2 million impact from movements in foreign exchange rates, consolidated revenue increased $38.9 million during the three months ended June 30, 2015 compared to the same period of 2014.

15


  

·         iHM revenue increased $34.4 million during the three months ended June 30, 2015 compared to the same period of 2014 driven primarily by our core local and national broadcast radio business, as well as traffic and weather, events and syndication businesses.

·         Americas outdoor revenue decreased $3.1 million during the three months ended June 30, 2015 compared to the same period of 2014. Excluding the $5.2 million impact from movements in foreign exchange rates, Americas outdoor revenue increased $2.1 million during the three months ended June 30, 2015 compared to the same period of 2014 primarily driven by higher revenues from digital billboards and our Spectacolor business.

·         International outdoor revenue decreased $55.3 million during the three months ended June 30, 2015 compared to the same period of 2014. Excluding the $64.0 million impact from movements in foreign exchange rates, International outdoor revenue increased $8.7 million during the three months ended June 30, 2015 compared to the same period of 2014 primarily driven by growth in Europe and Australia.

·         Other revenues decreased $7.2 million during the three months ended June 30, 2015 compared to the same period of 2014 primarily as a result of lower political advertising revenues in our media representation business.

·         We spent $7.0 million on strategic revenue and efficiency initiatives during the three months ended June 30, 2015 to realign and improve our on-going business operations—a decrease of $13.6 million compared to the same period of 2014.

·         On April 3, 2015, Parent and certain of our subsidiaries completed the first closing of our previously-announced agreement with an affiliate of Vertical Bridge Holdings, LLC, for the sale of 411 of our broadcast communications tower sites and related assets for up to $400 million. In connection with the first closing, we sold 367 tower sites in exchange for $369 million of proceeds.  Simultaneous with the first closing, we entered into lease agreements for the continued use of 360 of the towers sold.

 

16


  

Consolidated Results of Operations 

               The comparison of our historical results of operations for the three and six months ended June 30, 2015 to the three and six months ended June 30, 2014 is as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(In thousands)

Three Months Ended

 

 

 

Six Months Ended

 

 

 

June 30,

 

%

 

June 30,

 

%

 

 

2015

 

2014

 

Change

 

2015

 

2014

 

Change

Revenue

$

 1,599,859  

 

$

 1,630,154  

 

(1.9%)

 

$

 2,944,423  

 

$

 2,972,702  

 

(1.0%)

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Direct operating expenses (excludes

   depreciation and amortization)

 

 615,265  

 

 

 644,870  

 

(4.6%)

 

 

 1,193,784  

 

 

 1,242,558  

 

(3.9%)

 

 Selling, general and administrative expenses

   (excludes depreciation and amortization)

 

 424,163  

 

 

 418,928  

 

1.2%

 

 

 840,351  

 

 

 833,564  

 

0.8%

 

Corporate expenses (excludes depreciation

   and amortization)

 

 80,592  

 

 

 82,197  

 

(2.0%)

 

 

 157,880  

 

 

 154,902  

 

1.9%

 

Depreciation and amortization

 

 168,394  

 

 

 174,062  

 

(3.3%)

 

 

 338,847  

 

 

 348,933  

 

(2.9%)

 

Impairment charges

 

 -    

 

 

 4,902  

 

(100.0%)

 

 

 -    

 

 

 4,902  

 

(100.0%)

 

Other operating income (expense), net

 

 100,754  

 

 

 (1,628) 

 

(6288.8%)

 

 

 91,780  

 

 

 (1,463) 

 

(6373.4%)

Operating income

 

 412,199  

 

 

 303,567  

 

35.8%

 

 

 505,341  

 

 

 386,380  

 

30.8%

Interest expense

 

 452,957  

 

 

 440,605  

 

 

 

 

 894,728  

 

 

 871,719  

 

 

Gain on marketable securities

 

 -    

 

 

 -    

 

 

 

 

 579  

 

 

 -    

 

 

Equity in loss of nonconsolidated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

affiliates

 

 (690) 

 

 

 (16) 

 

 

 

 

 (359) 

 

 

 (13,343) 

 

 

Loss on extinguishment of debt

 

 -    

 

 

 (47,503) 

 

 

 

 

 (2,201) 

 

 

 (51,419) 

 

 

Other income, net

 

 16,211  

 

 

 12,157  

 

 

 

 

 36,102  

 

 

 13,698  

 

 

Loss before income taxes

 

 (25,237) 

 

 

 (172,400) 

 

 

 

 

 (355,266) 

 

 

 (536,403) 

 

 

Income tax benefit (expense)

 

 (22,077) 

 

 

 621  

 

 

 

 

 (78,682) 

 

 

 (67,766) 

 

 

Consolidated net loss

 

 (47,314) 

 

 

 (171,779) 

 

 

 

 

 (433,948) 

 

 

 (604,169) 

 

 

 

Less amount attributable to noncontrolling

   interest

 

 7,152  

 

 

 14,852  

 

 

 

 

 5,484  

 

 

 6,651  

 

 

Net loss attributable to the Company

$

 (54,466) 

 

$

 (186,631) 

 

 

 

$

 (439,432) 

 

$

 (610,820) 

 

 

 

Consolidated Revenue

Consolidated revenue decreased $30.3 million during the three months ended June 30, 2015 compared to the same period of 2014. Excluding the $69.2 million impact from movements in foreign exchange rates, consolidated revenue increased $38.9 million during the three months ended June 30, 2015 compared to the same period of 2014. iHM revenue increased $34.4 million during the three months ended June 30, 2015 compared to the same period of 2014 driven primarily by our core local and national broadcast radio business, as well as our traffic and weather, events and syndication businesses, partially offset by a decrease in political advertising revenues. Americas outdoor revenue decreased $3.1 million during the three months ended June 30, 2015 compared to the same period of 2014. Excluding the $5.2 million impact from movements in foreign exchange rates, Americas outdoor revenue increased $2.1 million during the three months ended June 30, 2015 compared to the same period of 2014 primarily driven by higher revenues from digital billboards and our Spectacolor business. International outdoor revenue decreased $55.3 million during the three months ended June 30, 2015 compared to the same period of 2014. Excluding the $64.0 million impact from movements in foreign exchange rates, International outdoor revenue increased $8.7 million during the three months ended June 30, 2015 compared to the same period of 2014 primarily driven by new contracts and higher occupancy in Europe and growth in Australia.  Other revenues decreased $7.2 million during the three months ended June 30, 2015 compared to the same period of 2014 primarily as a result of lower political advertising revenues in our media representation business.

 

Consolidated revenue decreased $28.3 million during the six months ended June 30, 2015 compared to the same period of 2014. Excluding the $122.9 million impact from movements in foreign exchange rates, consolidated revenue increased $94.6 million during the six months ended June 30, 2015 compared to the same period of 2014. iHM revenue increased $61.8 million during the six months ended June 30, 2015 compared to the same period of 2014 driven primarily by our core national broadcast, traffic and weather

17


  

and syndication businesses and events, partially offset by a decrease in political advertising revenues. Americas outdoor revenue increased $2.2 million during the six months ended June 30, 2015 compared to the same period of 2014. Excluding the $8.9 million impact from movements in foreign exchange rates, Americas outdoor revenue increased $11.1 million during the six months ended June 30, 2015 compared to the same period of 2014 primarily driven by higher revenues from digital billboards and our Spectacolor business. International outdoor revenue decreased $80.8 million during the six months ended June 30, 2015 compared to the same period of 2014. Excluding the $114.0 million impact from movements in foreign exchange rates, International outdoor revenue increased $33.2 million during the six months ended June 30, 2015 compared to the same period of 2014 primarily driven by new contracts and growth in Europe, Australia and China.  Other revenues decreased $13.2 million during the six months ended June 30, 2015 compared to the same period of 2014 primarily as a result of lower political advertising revenues from our media representation business.

 

Consolidated Direct Operating Expenses

Consolidated direct operating expenses decreased $29.6 million during the three months ended June 30, 2015 compared to the same period of 2014. Excluding the $42.8 million impact from movements in foreign exchange rates, consolidated direct operating expenses increased $13.2 million during the three months ended June 30, 2015 compared to the same period of 2014. iHM direct operating expenses increased $14.8 million during the three months ended June 30, 2015 compared to the same period of 2014, primarily due to higher lease expense as a result of the sale and subsequent leaseback of radio towers (see Note 2 to the Consolidated Financial Statements located in Item 1 of this Quarterly Report on Form 10-Q), event production costs and music license and performance royalties.  Americas outdoor direct operating expenses decreased $4.2 million during the three months ended June 30, 2015 compared to the same period of 2014. Excluding the $3.0 million impact from movements in foreign exchange rates, Americas outdoor direct operating expenses decreased $1.2 million during the three months ended June 30, 2015 compared to the same period of 2014 primarily due to lower production costs.  International outdoor direct operating expenses decreased $36.6 million during the three months ended June 30, 2015 compared to the same period of 2014. Excluding the $39.7 million impact from movements in foreign exchange rates, International outdoor direct operating expenses increased $3.1 million during the three months ended June 30, 2015 compared to the same period of 2014 primarily as a result of higher variable costs associated with higher revenue.

 

Consolidated direct operating expenses decreased $48.8 million during the six months ended June 30, 2015 compared to the same period of 2014. Excluding the $78.8 million impact from movements in foreign exchange rates, consolidated direct operating expenses increased $30.0 million during the six months ended June 30, 2015 compared to the same period of 2014. iHM direct operating expenses increased $16.7 million during the six months ended June 30, 2015 compared to the same period of 2014, primarily due to higher lease expense as a result of the sale and subsequent leaseback of radio towers and music license and performance royalties.  Americas outdoor direct operating expenses decreased $1.3 million during the six months ended June 30, 2015 compared to the same period of 2014. Excluding the $5.2 million impact from movements in foreign exchange rates, Americas outdoor direct operating expenses increased $3.9 million during the six months ended June 30, 2015 compared to the same period of 2014 primarily due to higher variable site lease expenses related to the increase in revenues. International outdoor direct operating expenses decreased $58.1 million during the six months ended June 30, 2015 compared to the same period of 2014. Excluding the $73.6 million impact from movements in foreign exchange rates, International outdoor direct operating expenses increased $15.5 million during the six months ended June 30, 2015 compared to the same period of 2014 primarily as a result of higher variable costs associated with higher revenue.

 

Consolidated Selling, General and Administrative (“SG&A”) Expenses

Consolidated SG&A expenses increased $5.2 million during the three months ended June 30, 2015 compared to the same period of 2014. Excluding the $14.7 million impact from movements in foreign exchange rates, consolidated SG&A expenses increased $19.9 million during the three months ended June 30, 2015 compared to the same period of 2014. iHM SG&A expenses increased $15.8 million during the three months ended June 30, 2015 compared to the same period of 2014 primarily due to higher advertising and promotion expenses, including barter and trade, and higher sales expense, including commissions, related to higher revenue. Americas outdoor SG&A expenses decreased $1.1 million during the three months ended June 30, 2015 compared to the same period of 2014. Excluding the $1.4 million impact from movements in foreign exchange rates, Americas outdoor SG&A expenses increased $0.3 million during the three months ended June 30, 2015 compared to the same period of 2014. International outdoor SG&A expenses decreased $6.6 million during the three months ended June 30, 2015 compared to the same period of 2014. Excluding the $13.3 million impact from movements in foreign exchange rates, International outdoor SG&A expenses increased $6.7 million during the three months ended June 30, 2015 compared to the same period of 2014 primarily due to higher compensation expense as well as higher litigation expenses.

 

Consolidated SG&A expenses increased $6.8 million during the six months ended June 30, 2015 compared to the same period of 2014. Excluding the $27.2 million impact from movements in foreign exchange rates, consolidated SG&A expenses increased $34.0 million during the six months ended June 30, 2015 compared to the same period of 2014.  iHM SG&A expenses

18


  

increased $23.8 million during the six months ended June 30, 2015 compared to the same period of 2014 primarily due to higher advertising and promotion expenses, including barter and trade. Americas outdoor SG&A expenses decreased $1.8 million during the six months ended June 30, 2015 compared to the same period of 2014. Excluding the $2.3 million impact from movements in foreign exchange rates, Americas outdoor SG&A expenses increased $0.5 million during the six months ended June 30, 2015 compared to the same period of 2014. International outdoor SG&A expenses decreased $11.7 million during the six months ended June 30, 2015 compared to the same period of 2014. Excluding the $24.9 million impact from movements in foreign exchange rates, International outdoor SG&A expenses increased $13.2 million during the six months ended June 30, 2015 compared to the same period of 2014 primarily due to higher compensation expense, including commissions in connection with higher revenues.

 

Corporate Expenses

Corporate expenses decreased $1.6 million during the three months ended June 30, 2015 compared to the same period of 2014. Excluding the $1.1 million impact from movements in foreign exchange rates, corporate expenses decreased $0.5 million during the three months ended June 30, 2015 compared to the same period of 2014.  Corporate expenses were primarily impacted by a $3.4 million increase in expenses related to the negotiation of digital royalties before the Copyright Royalty Board offset by a $4.0 million decrease in costs related to revenue and efficiency initiatives for the three months ended June 30, 2015 as compared to the three months ended June 30, 2014.

 

Corporate expenses increased $3.0 million during the six months ended June 30, 2015 compared to the same period of 2014. Excluding the $2.4 million impact from movements in foreign exchange rates, corporate expenses increased $5.4 million during the six months ended June 30, 2015 compared to the same period of 2014 primarily due to increased property and casualty insurance costs and employee benefits, as well as the impact of an $8.5 million insurance recovery related to shareholder litigation recognized in the first quarter of 2014. These increases were partially offset by lower severance costs, primarily as a result of the $6.3 million incurred in the first quarter 2014 related to the separation of the former iHM segment CEO. In addition, Corporate expenses were impacted by a $5.5 million increase in expenses related to the negotiation of digital royalties before the Copyright Royalty Board for the six months ended June 30, 2015 as compared to the six months ended June 30, 2014. 

 

Revenue and Efficiency Initiatives

Included in the amounts for direct operating expenses, SG&A and corporate expenses discussed above are expenses incurred in connection with our strategic revenue and efficiency initiatives.  These costs consist primarily of severance related to workforce initiatives, consolidation of locations and positions, consulting expenses, and other costs incurred in connection with improving our businesses. These costs are expected to provide benefits in future periods as the initiative results are realized.

 

Strategic revenue and efficiency costs were $7.0 million during the three months ended June 30, 2015. Of these costs, $1.6 million was incurred by our iHM segment, $0.5 million was incurred by our Americas outdoor segment, $1.2 million was incurred by our International outdoor segment, $0.5 million was incurred in our Other category and $3.2 million was incurred by Corporate. Of these expenses, $2.0 million are reported within direct operating expenses, $1.8 million are reported within SG&A and $3.2 million are reported within corporate expense.  In the second quarter of 2014, strategic revenue and efficiency costs of $1.5 million were reported within direct operating expenses, $11.8 million were reported within SG&A and $7.2 million were reported within corporate expenses.

 

Strategic revenue and efficiency costs were $17.1 million during the six months ended June 30, 2015. Of these costs, $3.5 million was incurred by our iHM segment, $1.0 million was incurred by our Americas outdoor segment, $1.9 million was incurred by our International outdoor segment, $3.3 million was incurred by our Other category and $7.4 million was incurred by Corporate. Additionally, $3.1 million are reported within direct operating expenses, $6.6 million are reported within SG&A and $7.4 million are reported within corporate expense.  In the first six months of 2014, strategic revenue and efficiency costs of $2.7 million were reported within direct operating expenses, $13.7 million were reported within SG&A and $17.3 million were reported within corporate expenses.

 

Depreciation and Amortization

Depreciation and amortization decreased $5.7 million and $10.1 million during the three and six months ended June 30, 2015, respectively, compared to the same periods of 2014.  The decreases were primarily due to  the impact from movements in foreign exchange rates.

 

19


  

Other Operating Income (Expense), Net

Other operating income (expense), net was $100.8 million and $91.8 million for the three and six months ended June 30, 2015, respectively, related primarily to the sale and subsequent leaseback of radio towers (see Note 2 to our Consolidated Financial Statements located in Item 1 of this Quarterly Report on Form 10-Q).

 

Other operating income (expense), net was ($1.6) million and ($1.5) million for the three and six months ended June 30, 2014, respectively,  related primarily to the disposal of operating and fixed assets.

                                                                                                                                                            

Interest Expense

Interest expense increased $12.4 million and $23.0 million during the three and six months ended June 30, 2015, respectively, compared to the same period of 2014, due to a higher weighted average cost of debt.

 

Equity in Loss of Nonconsolidated Affiliates

Equity in loss of nonconsolidated affiliates was $0.7 million and $0.4 million for the three and six months ended June 30, 2015, respectively. 

 

Equity in loss of nonconsolidated affiliates was $0.1 million and $13.3 million for the three and six months ended June 30, 2014, respectively,  related primarily to proceeds from the disposal of operating and fixed assets.  The loss of $13.3 million during the six months ended June 30, 2014 primarily related to the loss on the sale of our 50% interest in Australian Radio Network (“ARN”), which included a loss on the sale of $2.4 million and $11.5 million of foreign exchange losses that were reclassified from accumulated other comprehensive income at the date of the sale.

 

Other Income, Net

Other income, net was $16.2 million and $36.1 million for the three and six months ended June 30, 2015, respectively, which primarily related to foreign currency gains recognized in connection with intercompany notes denominated in foreign currencies.

  

 Loss on Extinguishment of Debt

In connection with the first quarter 2015 prepayment of our Term Loan facilities due 2016, we recognized a loss of $2.2 million.

 

During June 2014, we redeemed $567.1 million aggregate principal amount of our outstanding 5.5% Senior Notes due 2014 and $241.0 million aggregate principal amount of our outstanding 4.9% Senior Notes due 2015. In connection with these transactions, we recognized a loss of $47.5 million.

 

During the first quarter of 2014, CC Finco, LLC (“CC Finco”), an indirect wholly-owned subsidiary of ours, repurchased $52.9 million aggregate principal amount of our outstanding 5.5% Senior Notes due 2014 and $9.0 million aggregate principal amount of our outstanding 4.9% Senior Notes due 2015 for a total of $63.1 million, including accrued interest, through open market purchases. In connection with these transactions, we recognized a loss of $3.9 million.

 

Income Tax Benefit (Expense)

The effective tax rates for the three and six months ended June 30, 2015 were (87.5)% and (22.2)%, respectively. The effective tax rates for the three and six months ended June 30, 2014 were 0.4% and (12.6)%, respectively.  The effective tax rates for the three and six months ended June 30, 2015 and 2014 were primarily impacted by the deferred tax valuation allowance recorded against deferred tax assets originating in the period from net operating losses in U.S federal, state and certain foreign jurisdictions.  

  

 

20


  

iHM Results of Operations

               Our iHM operating results were as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(In thousands)

Three Months Ended

 

 

 

Six Months Ended

 

 

 

June 30,

 

%

 

June 30,

 

%

 

2015

 

2014

 

Change

 

2015

 

2014

 

Change

Revenue

$

 840,701  

 

$

 806,337  

 

 4%  

 

$

 1,538,502  

 

$

 1,476,684  

 

 4%  

Direct operating expenses

 

 241,826  

 

 

 227,059  

 

 7%  

 

 

 455,655  

 

 

 439,005  

 

 4%  

SG&A expenses

 

 266,523  

 

 

 250,681  

 

 6%  

 

 

 527,872  

 

 

 504,025  

 

 5%  

Depreciation and amortization

 

 59,571  

 

 

 59,230  

 

 1%  

 

 

 120,313  

 

 

 119,555  

 

 1%  

Operating income

$

 272,781  

 

$

 269,367  

 

 1%  

 

$

 434,662  

 

$

 414,099  

 

 5%  

21


  

Three Months

 

iHM revenue increased $34.4 million during the three months ended June 30, 2015 compared to the same period of 2014 driven primarily by increases in our core local and national broadcast radio revenue, as well as our traffic and weather business.  The remaining increase resulted from events, such as the iHeartRadio Country Festival and our syndication business driven by growth in our news/talk format, as well as higher barter and trade revenue compared to the second quarter of 2014.  Partially offsetting these increases was a decrease in political advertising revenues. 

 

iHM direct operating expenses increased $14.8 million during the three months ended June 30, 2015 compared to the same period of 2014, primarily due to higher lease expense as a result of the sale and subsequent leaseback of radio towers (see Note 2 to our Consolidated Financial Statements located in Item 1 of this Quarterly Report on Form 10-Q), higher event production costs and higher music license and performance royalties. iHM SG&A expenses increased $15.8 million during the three months ended June 30, 2015 compared to the same period of 2014 primarily due to higher advertising and promotion expenses, including barter and trade, and higher sales expense, including commissions, related to higher revenue. Strategic revenue and efficiency spending included in SG&A expenses decreased $4.5 million compared to the same period last year. 

 

Six Months

 

iHM revenue increased $61.8 million during the six months ended June 30, 2015 compared to the same period of 2014 driven primarily by increases in our core national broadcast radio revenue, as well as our traffic and weather business.  The remaining increase resulted from higher revenue from events, such as the iHeartRadio Music Awards, the iHeartRadio Country Festival and growth in our syndication business driven by growth in our news/talk format, as well as higher barter and trade revenue.  Partially offsetting these increases were decreases in political advertising revenues.

 

iHM direct operating expenses increased $16.7 million during the six months ended June 30, 2015 compared to the same period of 2014, primarily due to higher lease expense as a result of the sale and subsequent leaseback of radio towers (see Note 2 to our Consolidated Financial Statements located in Item 1 of this Quarterly Report on Form 10-Q) and higher music license and performance royalties. iHM SG&A expenses increased $23.8 million during the six months ended June 30, 2015 compared to the same period of 2014 primarily due to higher advertising and promotion expenses, including barter and trade. Strategic revenue and efficiency spending included in SG&A expenses decreased $3.6 million compared to the same period last year.  

 

Americas Outdoor Advertising Results of Operations

             Our Americas outdoor operating results were as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(In thousands)

Three Months Ended

 

 

 

Six Months Ended

 

 

 

June 30,

 

%

 

June 30,

 

%

 

2015

 

2014

 

Change

 

2015

 

2014

 

Change

Revenue

$

 341,286  

 

$

 344,346  

 

 (1%) 

 

$

 637,149  

 

$

 634,956  

 

 0%  

Direct operating expenses

 

 149,712  

 

 

 153,875  

 

 (3%) 

 

 

 295,946  

 

 

 297,239  

 

 (0%) 

SG&A expenses

 

 57,346  

 

 

 58,448  

 

 (2%) 

 

 

 112,983  

 

 

 114,817  

 

 (2%) 

Depreciation and amortization

 

 51,113  

 

 

 49,848  

 

 3%  

 

 

 101,453  

 

 

 99,559  

 

 2%  

Operating income

$

 83,115  

 

$

 82,175  

 

 1%  

 

$

 126,767  

 

$

 123,341  

 

 3%  

 

Three Months

 

Americas outdoor revenue decreased $3.1 million during the three months ended June 30, 2015 compared to the same period of 2014. Excluding the $5.2 million impact from movements in foreign exchange rates, Americas outdoor revenue increased $2.1 million during the three months ended June 30, 2015 compared to the same period of 2014 driven primarily by an increase in revenues from our digital billboards as a result of increased capacity and occupancy, as well as higher revenues from our Spectacolor business.  These increases were partially offset by lower advertising revenues from our static bulletins and posters.

 

Americas outdoor direct operating expenses decreased $4.2 million during the three months ended June 30, 2015 compared to the same period of 2014. Excluding the $3.0 million impact from movements in foreign exchange rates, Americas outdoor direct operating expenses decreased $1.2 million during the three months ended June 30, 2015 compared to the same period of 2014 primarily due to lower production costs.  Americas outdoor SG&A expenses decreased $1.1 million during the three months ended June 30, 2015 compared to the same period of 2014. Excluding the $1.4 million impact from movements in foreign exchange rates,

22


  

Americas outdoor SG&A expenses increased $0.3 million during the three months ended June 30, 2015 compared to the same period of 2014.

 

Six Months

 

Americas outdoor revenue increased $2.2 million during the six months ended June 30, 2015 compared to the same period of 2014. Excluding the $8.9 million impact from movements in foreign exchange rates, Americas outdoor revenue increased $11.1 million during the six months ended June 30, 2015 compared to the same period of 2014 driven primarily by an increase in revenues from our digital billboards as a result of increased capacity and occupancy, as well as higher revenues from our Spectacolor business, partially offset by lower advertising revenues from our static bulletins and posters.

 

Americas outdoor direct operating expenses decreased $1.3 million during the six months ended June 30, 2015 compared to the same period of 2014. Excluding the $5.2 million impact from movements in foreign exchange rates, Americas outdoor direct operating expenses increased $3.9 million during the six months ended June 30, 2015 compared to the same period of 2014 primarily due to higher variable site lease expenses related to the increase in revenues. Americas outdoor SG&A expenses decreased $1.8 million during the six months ended June 30, 2015 compared to the same period of 2014. Excluding the $2.3 million impact from movements in foreign exchange rates, Americas outdoor SG&A expenses increased $0.5 million during the six months ended June 30, 2015 compared to the same period of 2014.

 

International Outdoor Advertising Results of Operations

               Our International outdoor operating results were as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(In thousands)

Three Months Ended

 

 

 

Six Months Ended

 

 

 

June 30,

 

%

 

June 30,

 

%

 

2015

 

2014

 

Change

 

2015

 

2014

 

Change

Revenue

$

 381,533  

 

$

 436,859  

 

 (13%) 

 

$

 700,713  

 

$

 781,500  

 

 (10%) 

Direct operating expenses

 

 222,630  

 

 

 259,269  

 

 (14%) 

 

 

 439,367  

 

 

 497,418  

 

 (12%) 

SG&A expenses

 

 75,176  

 

 

 81,823  

 

 (8%) 

 

 

 146,669  

 

 

 158,404  

 

 (7%) 

Depreciation and amortization

 

 40,956  

 

 

 47,889  

 

 (14%) 

 

 

 83,397  

 

 

 96,220  

 

 (13%) 

Operating income

$

 42,771  

 

$

 47,878  

 

 (11%) 

 

$

 31,280  

 

$

 29,458  

 

 6%  

 

Three Months

 

International outdoor revenue decreased $55.3 million during the three months ended June 30, 2015 compared to the same period of 2014. Excluding the $64.0 million impact from movements in foreign exchange rates, International outdoor revenue increased $8.7 million during the three months ended June 30, 2015 compared to the same period of 2014 primarily driven by new contracts and higher occupancy in certain European countries, including Italy, France, Sweden and Norway, as well as growth in Australia.

 

International outdoor direct operating expenses decreased $36.6 million during the three months ended June 30, 2015 compared to the same period of 2014. Excluding the $39.7 million impact from movements in foreign exchange rates, International outdoor direct operating expenses increased $3.1 million during the three months ended June 30, 2015 compared to the same period of 2014 primarily as a result of higher variable costs associated with higher revenue. International outdoor SG&A expenses decreased $6.6 million during the three months ended June 30, 2015 compared to the same period of 2014. Excluding the $13.3 million impact from movements in foreign exchange rates, International outdoor SG&A expenses increased $6.7 million during the three months ended June 30, 2015 compared to the same period of 2014 primarily due to higher compensation expense as well as higher litigation expenses.

 

Six Months

 

International outdoor revenue decreased $80.8 million during the six months ended June 30, 2015 compared to the same period of 2014. Excluding the $114.0 million impact from movements in foreign exchange rates, International outdoor revenue increased $33.2 million during the six months ended June 30, 2015 compared to the same period of 2014 primarily driven by new contracts and higher occupancy in certain European countries, including Italy, Sweden and Norway, as well as growth in Australia and China.

 

23


  

International outdoor direct operating expenses decreased $58.1 million during the six months ended June 30, 2015 compared to the same period of 2014. Excluding the $73.6 million impact from movements in foreign exchange rates, International outdoor direct operating expenses increased $15.5 million during the six months ended June 30, 2015 compared to the same period of 2014 primarily as a result of higher variable costs associated with higher revenue, partially offset by lower production expenses in certain countries. International outdoor SG&A expenses decreased $11.7 million during the six months ended June 30, 2015 compared to the same period of 2014. Excluding the $24.9 million impact from movements in foreign exchange rates, International outdoor SG&A expenses increased $13.2 million during the six months ended June 30, 2015 compared to the same period of 2014 primarily due to higher compensation expense, including commissions in connection with higher revenues.

  

 

Reconciliation of Segment Operating Income to Consolidated Operating Income

 

 

 

 

 

 

 

 

 

 

 

 

(In thousands)

Three Months Ended

 

Six Months Ended

 

June 30,

 

June 30,

 

2015

 

2014

 

2015

 

2014

iHM

$

 272,781  

 

$

 269,367  

 

$

 434,662  

 

$

 414,099  

Americas outdoor advertising

 

 83,115  

 

 

 82,175  

 

 

 126,767  

 

 

 123,341  

International outdoor advertising

 

 42,771  

 

 

 47,878  

 

 

 31,280  

 

 

 29,458  

Other

 

 2,513  

 

 

 1,314  

 

 

 (2,861) 

 

 

 (3,026) 

Impairment charges

 

 -  

 

 

 (4,902) 

 

 

 -  

 

 

 (4,902) 

Other operating income, net

 

 100,754  

 

 

 (1,628) 

 

 

 91,780  

 

 

 (1,463) 

Corporate expense (1)

 

 (89,735) 

 

 

 (90,637) 

 

 

 (176,287) 

 

 

 (171,127) 

Consolidated operating income

$

 412,199  

 

$

 303,567  

 

$

 505,341  

 

$

 386,380  

 

 

 

 

 

 

 

 

 

 

 

 

(1) Corporate expenses include expenses related to iHM, Americas outdoor, International outdoor and our Other category, as well as overall executive, administrative and support functions.

 

Share-Based Compensation Expense

We do not have any compensation plans under which we grant stock awards to employees. Certain employees receive equity awards from Parent’s and CCOH’s equity incentive plans.

 

Share-based compensation payments are recorded in corporate expenses and were $2.4 million and $2.8 million for the three months ended June 30, 2015 and 2014, respectively, and $4.9 million and $5.8 million for the six months ended June 30, 2015 and 2014, respectively.

 

As of June 30, 2015, there was $26.8 million of unrecognized compensation cost related to unvested share-based compensation arrangements that will vest based on service conditions.  Based on the terms of the award agreements, this cost is expected to be recognized over a weighted average period of approximately three years.  In addition, as of June 30, 2015, there was $22.2 million of unrecognized compensation cost related to unvested share-based compensation arrangements that will vest based on market, performance and service conditions.  This cost will be recognized when it becomes probable that the performance condition will be satisfied.

  

24


  

LIQUIDITY AND CAPITAL RESOURCES

Cash Flows

               The following discussion highlights cash flow activities during the six months ended June 30, 2015 and 2014, respectively:

 

 

 

 

 

 

 

 

 

 

 (In thousands)

 

 

 

Six Months Ended June 30,

 

 

 

 

2015

 

2014

Cash provided by (used for):

 

 

 

 

 

 

 

 

 

Operating activities

 

 

 

$

 (239,606) 

 

$

 (46,204) 

 

Investing activities

 

 

 

$

 236,375  

 

$

 81,566  

 

Financing activities

 

 

 

$

 (62,044) 

 

$

 55,502  

 

Operating Activities

Cash used for operating activities was $239.6 million during the six months ended June 30, 2015 compared to $46.2 million of cash used during the six months ended June 30, 2014.  Our consolidated net loss for the six months ended June 30, 2015 and 2014 included non-cash items of $267.1 million and $509.4 million, respectively. Non-cash items affecting our net loss include depreciation and amortization, deferred taxes, provision for doubtful accounts, amortization of deferred financing charges and note discounts, net, share-based compensation, gain on disposal of operating and fixed assets, gain on marketable securities, equity in (earnings) loss of nonconsolidated affiliates, loss on extinguishment of debt, and other reconciling items, net as presented on the face of the consolidated statement of cash flows. The increase in cash used for operating activities can be partially attributed to changes in working capital balances, particularly accrued expenses and accrued interest resulting from the timing of payments.  Cash paid for interest during the six months ended June 30, 2015 was $808.4 million as compared to $756.3 million paid during the six months ended June 30, 2014.

 

Investing Activities

Cash provided by investing activities of $236.4 million during the six months ended June 30, 2015 primarily reflected proceeds of $369.0 million from the sale of broadcasting towers and related property and equipment, as well as proceeds of $34.3 million from the sale of our San Antonio office buildings, partially offset by closing costs incurred in relation to the sale of broadcasting towers of $10.0 million. We are leasing back a portion of the radio towers and related property and equipment, as well as the San Antonio office buildings, under long-term operating leases. Those sale proceeds were partially offset by $124.9 million used for capital expenditures. We spent $27.3 million for capital expenditures in our iHM segment primarily related to leasehold improvements and IT infrastructure, $32.4 million in our Americas outdoor segment primarily related to the construction of new advertising structures, such as digital displays, $56.9 million in our International outdoor segment primarily related to billboard and street furniture advertising structures, $3.1 million in our Other category and $5.2 million in Corporate primarily related to equipment and software purchases.

 

Cash provided by investing activities of $81.6 million during the six months ended June 30, 2014 primarily reflected proceeds of $221.0 million from the sale of our 50% interest in ARN, partially offset by capital expenditures of $141.4 million.  We spent $20.7 million for capital expenditures in our iHM segment primarily related to leasehold improvements and equipment, $38.1 million in our Americas outdoor segment primarily related to the construction of new advertising structures such as digital displays, $52.6 million in our International outdoor segment primarily related to billboard and street furniture advertising structures, $2.9 million in our Other category, and $27.1 million in Corporate primarily related to equipment and software purchases.

 

Financing Activities

Cash used for financing activities of $62.0 million during the six months ended June 30, 2015 primarily resulted from the $42.6 million purchase of CCOH’s Class A common stock and the net effect of the proceeds from the issuance of $950 million of 10.625% Priority Guarantee Notes due 2023 and the use of the net proceeds primarily to prepay at par $916.1 million of the loans outstanding under our Term Loan B facility and $15.2 million of the loans outstanding under our Term Loan C asset sale facility.

 

Cash provided by financing activities of $55.5 million during the six months ended June 30, 2014 primarily reflected proceeds from the issuance of long-term debt, partially offset by payments on credit facilities and long-term debt.  We received cash proceeds from the issuance by CCU Escrow Corporation of 10% Senior Notes due 2018 ($850.0 million in aggregate principal amount) and the sale by a subsidiary of our of 14% Senior Notes due 2021 to private purchasers ($227.0 million in aggregate principal amount).  This was partially offset by the redemption of the full $567.1 million principal amount outstanding of our 5.5% Senior

25


  

Notes due 2014 and the full $241.0 million principal amount outstanding of our 4.9% Senior Notes due 2015, as well as repayment of the full $247.0 million principal amount outstanding under our receivables-based credit facility. 

 

Anticipated Cash Requirements

Our primary source of liquidity is cash on hand, cash flows from operations and borrowing capacity under our domestic receivables based credit facility, subject to certain limitations contained in our material financing agreements. A significant amount of our cash requirements are for debt service obligations.  We anticipate cash interest requirements of approximately $862.4 million for the remainder of 2015.  As of June 30, 2015, we had debt maturities totaling $1.4 million, $195.5 million, $6.8 million and $934.1 million in the remaining six months of 2015, and in 2016, 2017 and 2018, respectively.  As of June 30, 2015, we had $387.4 million of cash on our balance sheet, with $148.3 million in consolidated cash balances held outside the U.S. by our subsidiaries, a portion of which is held by non-wholly owned subsidiaries or is otherwise subject to certain restrictions and not readily accessible to us.  It is our policy to permanently reinvest the earnings of our non-U.S. subsidiaries as these earnings are generally redeployed in those jurisdictions for operating needs and continued functioning of their businesses.  We have the ability and intent to indefinitely reinvest the undistributed earnings of consolidated subsidiaries based outside of the United States.  If any excess cash held by our foreign subsidiaries were needed to fund operations in the United States, we could presently repatriate available funds without a requirement to accrue or pay U.S. taxes.  This is a result of significant current and historic deficits in our foreign earnings and profits, which gives us flexibility to make future cash distributions as non-taxable returns of capital.

 

Our ability to fund our working capital, capital expenditures, debt service and other obligations, and to comply with the financial covenants under our financing agreements, depends on our future operating performance and cash from operations and our ability to generate cash from other liquidity-generating transactions, which are in turn subject to prevailing economic conditions and other factors, many of which are beyond our control.  We are currently exploring, and expect to continue to explore, a variety of transactions to provide us with additional liquidity.  We cannot assure you that we will enter into or consummate any such liquidity-generating transactions, or that such transactions will provide sufficient cash to satisfy our liquidity needs, and we cannot currently predict the impact that any such transaction, if consummated, would have on us. If our future operating performance does not meet our expectations or our plans materially change in an adverse manner or prove to be materially inaccurate, we may not be able to refinance our debt as currently contemplated.  Our ability to refinance the debt will depend on the condition of the capital markets and our financial condition at the time.  There can be no assurance that refinancing alternatives will be available on terms acceptable to us or at all. Even if refinancing alternatives are available to us, we may not find them suitable or at comparable interest rates to the indebtedness being refinanced.  In addition, the terms of our existing or future debt agreements may restrict us from securing a refinancing on terms that are available to us at that time.  If we are unable to obtain sources of refinancing or generate sufficient cash through liquidity-generating transactions, we could face substantial liquidity problems, which could have a material adverse effect on our financial condition and on our ability to meet our obligations.

 

Our financing transactions during 2014 and the six months ended June 30, 2015 increased our annual interest expense.  Our increased interest payment obligations will reduce our liquidity over time, which could in turn reduce our financial flexibility and make us more vulnerable to changes in operating performance and economic downturns generally and could negatively affect our ability to obtain additional financing in the future.

 

We frequently evaluate strategic opportunities both within and outside our existing lines of business. We expect from time to time to pursue acquisitions or dispositions, which could be material.  Our and our subsidiaries’ significant amount of indebtedness may limit our ability to pursue acquisitions.  The terms of our existing or future debt agreements may also restrict our ability to engage in these transactions.

 

Based on our current and anticipated levels of operations and conditions in our markets, we believe that cash on hand, cash flow from operations and borrowing capacity under our receivables based credit facility will enable us to meet our working capital, capital expenditure, debt service and other funding requirements for at least the next 12 months.  Significant assumptions underlie this belief, including, among other things, that we will continue to be successful in implementing our business strategy and that there will be no material adverse developments in our business, liquidity or capital requirements and that we will be able to consummate liquidity-generating transactions in a timely manner and on terms acceptable to us.  We cannot assure you that this will be the case.  If our future cash flows from operations, financing sources and other liquidity-generating transactions are insufficient to pay our debt obligations as they mature or to fund our liquidity needs, we may be forced to reduce or delay our business activities and capital expenditures, sell material assets, seek additional capital or refinance our and our subsidiaries’ debt.  We cannot assure you that we would be able to accomplish any of these alternatives on a timely basis or on satisfactory terms, if at all.

 

We were in compliance with the covenants contained in our material financing agreements as of June 30, 2015, including the maximum consolidated senior secured net debt to consolidated EBITDA limitation contained in our senior secured credit facilities.

26


  

We believe our long-term plans, which include promoting spending by advertisers in our industries and capitalizing on our diverse geographic and product opportunities, including the continued investment in our media and entertainment initiatives and continued deployment of digital billboards, will enable us to continue generating cash flows from operations sufficient to meet our liquidity and funding requirements long-term.  However, our anticipated results are subject to significant uncertainty and there can be no assurance that we will be able to maintain compliance with these covenants.  In addition, our ability to comply with these covenants may be affected by events beyond our control, including prevailing economic, financial and industry conditions. The breach of any covenants set forth in our financing agreements would result in a default thereunder. An event of default would permit the lenders under a defaulted financing agreement to declare all indebtedness thereunder to be due and payable prior to maturity. Moreover, the lenders under the receivables based credit facility under our senior secured credit facilities would have the option to terminate their commitments to make further extensions of credit thereunder. If we are unable to repay our obligations under any secured credit facility, the lenders could proceed against any assets that were pledged to secure such facility. In addition, a default or acceleration under any of our material financing agreements could cause a default under other of our obligations that are subject to cross-default and cross-acceleration provisions. The threshold amount for a cross-default under the senior secured credit facilities is $100.0 million.

  

 

27


  

Sources of Capital

               As of June 30, 2015 and December 31, 2014, we had the following debt outstanding, net of cash and cash equivalents:

 

 

 

 

 

 

 

(In millions)

June 30, 2015

 

December 31, 2014

Senior Secured Credit Facilities:

 

 

 

 

 

 

Term Loan B Facility Due 2016

 

 -    

 

 

 916.1  

 

Term Loan C - Asset Sale Facility Due 2016

 

 -    

 

 

 15.2  

 

Term Loan D Facility Due 2019

 

 5,000.0  

 

 

 5,000.0  

 

Term Loan E Facility Due 2019

 

 1,300.0  

 

 

 1,300.0  

Receivables Based Credit Facility Due 2017 (1)

 

 -    

 

 

 -    

9.0% Priority Guarantee Notes Due 2019

 

 1,999.8  

 

 

 1,999.8  

9.0% Priority Guarantee Notes Due 2021

 

 1,750.0  

 

 

 1,750.0  

11.25% Priority Guarantee Notes Due 2021

 

 575.0  

 

 

 575.0  

9.0% Priority Guarantee Notes Due 2022

 

 1,000.0  

 

 

 1,000.0  

10.625% Priority Guarantee Notes Due 2023

 

 950.0  

 

 

 -    

Subsidiary Revolving Credit Facility due 2018

 

 -    

 

 

 -    

Other Secured Subsidiary Debt (2)

 

 17.4  

 

 

 19.2  

Total Secured Debt

 

 12,592.2  

 

 

 12,575.3  

 

 

 

 

 

 

 

14.0% Senior Notes Due 2021

 

 1,678.3  

 

 

 1,661.7  

Legacy Notes:

 

 

 

 

 

 

5.5% Senior Notes Due 2016

 

 192.9  

 

 

 192.9  

 

6.875% Senior Notes Due 2018

 

 175.0  

 

 

 175.0  

 

7.25% Senior Notes Due 2027

 

 300.0  

 

 

 300.0  

10.0% Senior Notes Due 2018

 

 730.0  

 

 

 730.0  

Subsidiary Senior Notes:

 

 

 

 

 

 

6.5% Series A Senior Notes Due 2022

 

 735.8  

 

 

 735.8  

 

6.5% Series B Senior Notes Due 2022

 

 1,989.2  

 

 

 1,989.2  

Subsidiary Senior Subordinated Notes:

 

 

 

 

 

 

7.625% Series A Senior Notes Due 2020

 

 275.0  

 

 

 275.0  

 

7.625% Series B Senior Notes Due 2020

 

 1,925.0  

 

 

 1,925.0  

Other Subsidiary Debt

 

 0.3  

 

 

 1.0  

Purchase accounting adjustments and original issue discount

 

 (219.2) 

 

 

 (234.9) 

Total Debt

 

 20,374.5  

 

 

 20,326.0  

Less:  Cash and cash equivalents

 

 387.4  

 

 

 457.0  

 

 

$

 19,987.1  

 

$

 19,869.0  

 

 

 

 

 

 

 

(1)

The receivables based credit facility provides for borrowings of up to the lesser of $535.0 million (the revolving credit commitment) or the borrowing base amount, as defined under the receivables based credit facility, subject to certain limitations contained in our material financing agreements.

(2)

The subsidiary revolving credit facility provides for borrowings of up to $75.0 million (the revolving credit commitment).

 

Our subsidiaries have from time to time repurchased certain debt obligations of ours and outstanding equity securities of Parent and CCOH, and may in the future, as part of various financing and investment strategies, purchase additional outstanding indebtedness of ours or our subsidiaries or outstanding equity securities of Parent or CCOH, in tender offers, open market purchases, privately negotiated transactions or otherwise. We or our subsidiaries may also sell certain assets, securities or properties. These purchases or sales, if any, could have a material positive or negative impact on our cash available to repay outstanding debt obligations or on our consolidated results of operations. These transactions could also require or result in amendments to the agreements governing outstanding debt obligations or changes in our leverage or other financial ratios, which could have a material positive or negative impact on our ability to comply with the covenants contained in our debt agreements. These transactions, if any, will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors. The amounts involved may be material.

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Senior Secured Credit Facilities

The senior secured credit facilities require us to comply on a quarterly basis with a financial covenant limiting the ratio of consolidated secured debt, net of cash and cash equivalents, to consolidated EBITDA (as defined by our senior secured credit facilities) for the preceding four quarters.  our secured debt consists of the senior secured credit facilities, the receivables based credit facility, the priority guarantee notes and certain other secured subsidiary debt.  As required by the definition of consolidated EBITDA in our senior secured credit facilities, our consolidated EBITDA for the preceding four quarters of $1.9 billion is calculated as operating income (loss) before depreciation, amortization, impairment charges and other operating income (expense), net plus share-based compensation and is further adjusted for the following items: (i) costs incurred in connection with the closure and/or consolidation of facilities, retention charges, consulting fees and other permitted activities; (ii) extraordinary, non-recurring or unusual gains or losses or expenses and severance; (iii) non-cash charges; (iv) cash received from nonconsolidated affiliates; and (v) various other items.

 

               The following table reflects a reconciliation of consolidated EBITDA (as defined by our senior secured credit facilities) to operating income and net cash provided by operating activities for the four quarters ended June 30, 2015:

 

 

 

 

 

 

Four Quarters Ended

(In Millions)

June 30, 2015

Consolidated EBITDA (as defined by our senior secured credit facilities)

$

 1,926.1  

Less adjustments to consolidated EBITDA (as defined by our senior secured credit facilities):

 

Costs incurred in connection with the closure and/or consolidation of facilities, retention charges,

   consulting fees and other permitted activities

 

 (59.3) 

 

Extraordinary, non-recurring or unusual gains or losses or expenses and severance (as referenced in the definition of consolidated EBITDA in our senior secured credit facilities)

 

 (35.1) 

 

Non-cash charges

 

 (25.5) 

 

Cash received from nonconsolidated affiliates

 

 -   

 

Other items

 

 (11.0) 

Less: Depreciation and amortization, Impairment charges, Other operating income (expense), net,

   and Share-based compensation expense

 

 (594.7) 

Operating income

 

 1,200.5  

Plus: Depreciation and amortization, Impairment charges, Gain (loss) on disposal of operating and fixed assets,

    and Share-based compensation expense

 

 582.5  

Less: Interest expense

 

 (1,764.6) 

Less: Current income tax expense

 

 (52.7) 

Plus: Other income (expense), net

 

 31.5  

Adjustments to reconcile consolidated net loss to net cash provided by operating activities (including

   Provision for doubtful accounts, Amortization of deferred financing charges and note discounts, net

   and Other reconciling items, net)

 

 46.0  

Change in assets and liabilities, net of assets acquired and liabilities assumed

 

 8.5  

Net cash provided by operating activities

$

 51.7  

 

The maximum ratio permitted under this financial covenant was 8.75:1 for the four quarters ended June 30, 2015.  As of June 30, 2015, our ratio was 6.4:1.

 

Debt Issuance

 

On February 26, 2015, we issued at par $950.0 million aggregate principal amount of 10.625% Priority Guarantee Notes due 2023.  The notes mature on March 15, 2023 and bear interest at a rate of 10.625% per annum, payable semi-annually in arrears on March 15 and September 15 of each year, beginning on September 15, 2015.  We used the net proceeds from the offering primarily to prepay our term loan facilities due 2016. 

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During the first quarter of 2015, we borrowed $120.0 million principal amount under its receivables based credit facility due 2017.  During the second quarter of 2015, all outstanding amounts under the receivables-based credit facility were repaid.

 

Sale Leasebacks

 

During the first quarter of 2015, Parent sold two office buildings located in San Antonio, TX in exchange for proceeds of $34.3 million.  Concurrently with the sale of these properties, Parent entered into lease agreements for the continued use of the buildings, pursuant to which the Company will have annual lease payments of $2.6 million.  The Company recognized a gain of $8.1 million on the sale of one of the buildings, which is being recognized over the term of the lease. 

 

On December 11, 2014, Parent announced that its subsidiary had entered into an agreement with Vertical Bridge Holdings, LLC (“Vertical Bridge”) for the sale of up to 411 of our broadcast communications tower sites.  On April 3, 2015, an affiliate of Parent and certain of the Company’s subsidiaries completed the first closing for the sale of 367 of the Company’s broadcast communications tower sites and related assets for $369.2 million. Simultaneous with the sale, the Company entered into lease agreements for the continued use of 360 of the towers sold.  The Company incurred $5.1 million in relation to these lease agreements in the three months ended June 30, 2015.  Upon completion of the transaction, the Company realized a net gain of $207.2 million, of which $108.1 million will be deferred and recognized over the lease term.  On July 16, 2015, Parent and certain of the Company’s subsidiaries completed the second closing for the sale of an additional nine of the Company’s broadcast communication tower sites and related assets for approximately $5.9 million. Simultaneous with the sale, the Company entered into lease agreements for the continued use of seven of the towers, pursuant to which the Company will have annual lease payments of $0.3 million.  The leases entered into as a part of these transactions are for a term of fifteen years and include three optional five-year renewal periods.   

 

Uses of Capital

Debt Repayments, Maturities and Other

On February 26, 2015, we prepaid at par $916.1 million of loans outstanding under its Term Loan B facility and $15.2 million of loans outstanding under our Term Loan C asset sale facility, using a portion of the net proceeds of the Priority Guarantee Notes due 2023 issued on such date.

 

Stock Purchases

On August 9, 2010, we announced that our board of directors approved a stock purchase program under which we or our subsidiaries may purchase up to an aggregate of $100.0 million of the Class A common stock of Parent and/or the Class A common stock of CCOH. The stock purchase program did not have a fixed expiration date and could be modified, suspended or terminated at any time at our discretion.  As of December 31, 2014, an aggregate $34.1 million was available under this program.  In January 2015, CC Finco purchased 2,000,000 shares of CCOH’s Class A common stock for $20.4 million.  On April 2, 2015, CC Finco purchased an additional 2,172,946 shares of CCOH’s Class A common stock for $22.2 million, increasing our collective holdings to represent slightly more than 90% of the outstanding shares of CCOH’s common stock on a fully-diluted basis, assuming the conversion of all of CCOH’s Class B common stock into Class A common stock. As a result of this purchase, the stock purchase program concluded. The purchase of shares in excess of the amount available under the stock purchase program was separately approved by the board of directors.

 

Certain Relationships with the Sponsors

We are party to a management agreement with certain affiliates of the Sponsors and certain other parties pursuant to which such affiliates of the Sponsors will provide management and financial advisory services until 2018.  These arrangements require management fees to be paid to such affiliates of the Sponsors for such services at a rate not greater than $15.0 million per year, plus reimbursable expenses.  For the three months ended June 30, 2015 and 2014, we recognized management fees and reimbursable expenses of $3.9 million and $3.7 million, respectively.  For the six months ended June 30, 2015 and 2014, we recognized management fees and reimbursable expenses of $7.8 million and $7.7 million, respectively.

 

CCOH Note

In connection with the cash management arrangements for CCOH, we maintain an intercompany revolving promissory note payable by us to CCOH (the “Note”), which consists of the net activities resulting from day-to-day cash management services provided by us to CCOH.  As of June 30, 2015, the balance of the Note was $936.9 million, all of which is payable on demand.  The Note is eliminated in consolidation in our consolidated financial statements.

30


  

The Note previously was the subject of litigation. Pursuant to the terms of the settlement of that litigation, CCOH’s board of directors established a committee for the specific purpose of monitoring the Note. That committee has the non-exclusive authority, pursuant to the terms of its charter, to demand payments under the Note under certain specified circumstances tied to the Company’s liquidity or the amount outstanding under the Note as long as CCOH makes a simultaneous dividend equal to the amount so demanded.

Commitments, Contingencies and Guarantees

We are currently involved in certain legal proceedings arising in the ordinary course of business and, as required, have accrued our estimate of the probable costs for resolution of those claims for which the occurrence of loss is probable and the amount can be reasonably estimated.  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.  Please refer to “Legal Proceedings” in Part II, Item 1 of this Quarterly Report on Form 10-Q.

 

Seasonality

Typically, the iHM, Americas outdoor and International outdoor segments experience their lowest financial performance in the first quarter of the calendar year, with International outdoor historically experiencing a loss from operations in that period. Our International outdoor segment typically experiences its strongest performance in the second and fourth quarters of the calendar year. We expect this trend to continue in the future. Due to this seasonality and certain other factors, the results for the interim periods may not be indicative of results for the full year.

 

Market Risk

We are exposed to market risks arising from changes in market rates and prices, including movements in interest rates, foreign currency exchange rates and inflation.

 

Interest Rate Risk

A significant amount of our long-term debt bears interest at variable rates. Accordingly, our earnings will be affected by changes in interest rates. As of June 30, 2015, approximately 31% of our aggregate principal amount of long-term debt bears interest at floating rates. Assuming the current level of borrowings and assuming a 100% change in LIBOR, it is estimated that our interest expense for the six months ended June 30, 2015 would have changed by $2.9 million.

 

In the event of an adverse change in interest rates, management may take actions to mitigate our exposure.  However, due to the uncertainty of the actions that would be taken and their possible effects, the preceding interest rate sensitivity analysis assumes no such actions.  Further, the analysis does not consider the effects of the change in the level of overall economic activity that could exist in such an environment.

 

Foreign Currency Exchange Rate Risk

We have operations in countries throughout the world.  Foreign operations are measured in their local currencies.  As a result, our financial results could be affected by factors such as changes in foreign currency exchange rates or weak economic conditions in the foreign markets in which we have operations.  We believe we mitigate a small portion of our exposure to foreign currency fluctuations with a natural hedge through borrowings in currencies other than the U.S. dollar. Our foreign operations reported net income of $29.6 million and $27.2 million for the three and six months ended June 30, 2015, respectively.  We estimate a 10% increase in the value of the U.S. dollar relative to foreign currencies would have decreased our net income for the three months ended June 30, 2015 by $3.0 million and we estimate that our net income for the six months ended June 30, 2015 would have decreased by $2.7 million.  A 10% decrease in the value of the U.S. dollar relative to foreign currencies during the three and six months ended June 30, 2015 would have increased our net income for the three and six months ended June 30, 2015 by corresponding amounts.

 

This analysis does not consider the implications that such currency fluctuations could have on the overall economic activity that could exist in such an environment in the U.S. or the foreign countries or on the results of operations of these foreign entities.

 

Inflation

Inflation is a factor in the economies in which we do business and we continue to seek ways to mitigate its effect.  Inflation has affected our performance in terms of higher costs for wages, salaries and equipment.  Although the exact impact of inflation is indeterminable, we believe we have offset these higher costs by increasing the effective advertising rates of most of our broadcasting stations and outdoor display faces in our iHM, Americas outdoor and International outdoor operations.

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CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS

The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements made by us or on our behalf.  Except for the historical information, this report contains various forward-looking statements which represent our expectations or beliefs concerning future events, including, without limitation, our future operating and financial performance, our ability to comply with the covenants in the agreements governing our indebtedness and the availability of capital and the terms thereof.  Statements expressing expectations and projections with respect to future matters are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.  We caution that these forward-looking statements involve a number of risks and uncertainties and are subject to many variables which could impact our future performance.  These statements are made on the basis of management’s views and assumptions, as of the time the statements are made, regarding future events and performance.  There can be no assurance, however, that management’s expectations will necessarily come to pass.  Actual future events and performance may differ materially from the expectations reflected in our forward-looking statements.  We do not intend, nor do we undertake any duty, to update any forward-looking statements.

 

A wide range of factors could materially affect future developments and performance, including but not limited to:

 

·         the impact of our substantial indebtedness, including the effect of our leverage on our financial position and earnings;

·         our ability to generate sufficient cash from operations or other liquidity-generating transactions and our need to allocate significant amounts of our cash to make payments on our indebtedness, which in turn could reduce our financial flexibility and ability to fund other activities;

·         risks associated with weak or uncertain global economic conditions and their impact on the capital markets;

·         other general economic and political conditions in the United States and in other countries in which we currently do business, including those resulting from recessions, political events and acts or threats of terrorism or military conflicts;

·         industry conditions, including competition;

·         the level of expenditures on advertising;

·         legislative or regulatory requirements;

·         fluctuations in operating costs;

·         technological changes and innovations;

·         changes in labor conditions, including on-air talent, program hosts and management;

·         capital expenditure requirements;

·         risks of doing business in foreign countries;

·         fluctuations in exchange rates and currency values;

·         the outcome of pending and future litigation;

·         taxes and tax disputes;

·         changes in interest rates;

·         shifts in population and other demographics;

·         access to capital markets and borrowed indebtedness;

·         our ability to implement our business strategies;

·         the risk that we may not be able to integrate the operations of acquired businesses successfully;

·         the risk that our strategic revenue and efficiency initiatives may not be entirely successful or that any cost savings achieved from such strategic revenue and efficiency initiatives may not persist; and

·         certain other factors set forth in our other filings with the SEC.

This list of factors that may affect future performance and the accuracy of forward-looking statements is illustrative and is not intended to be exhaustive.  Accordingly, all forward-looking statements should be evaluated with the understanding of their inherent uncertainty.

 

 

ITEM 3.  Quantitative and Qualitative Disclosures about Market Risk

Required information is presented under “Market Risk” within Item 2 of this Part I.

 

ITEM 4.  Controls and Procedures

As required by Rule 13a-15(b) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), under the supervision and with the participation of management, including our Chief Executive Officer and our Chief Financial Officer, we have

32


  

carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) as of the end of the period covered by this report.  Our disclosure controls and procedures are designed to provide reasonable assurance that information we are required to disclose in reports that are filed or submitted under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and our Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure and is recorded, processed, summarized and reported within the time periods specified by the SEC.  Based on that evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that our disclosure controls and procedures were effective as of June 30, 2015 at the reasonable assurance level.

 

There were no changes in our internal control over financial reporting that occurred during the quarter ended June 30, 2015 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

  

33


  

PART II -- OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

We currently are involved in certain legal proceedings arising in the ordinary course of business and, as required, have accrued an estimate of the probable costs for the resolution of those claims for which the occurrence of loss is probable and the amount can be reasonably estimated.  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.  Additionally, due to the inherent uncertainty of litigation, there can be no assurance that the resolution of any particular claim or proceeding would not have a material adverse effect on our financial condition or results of operations.

 

Although we are involved in a variety of legal proceedings in the ordinary course of business, a large portion of our litigation arises in the following contexts: commercial disputes; defamation matters; employment and benefits related claims; governmental fines; intellectual property claims; and tax disputes.

 

Los Angeles Litigation

 

In 2008, Summit Media, LLC, one of the Company’s competitors, sued the City of Los Angeles (the “City”), Clear Channel Outdoor, Inc. (“CCOI”) and OUTFRONT Media Inc. (formerly CBS Outdoor Americas Inc.) in Los Angeles Superior Court (Case No. BS116611) challenging the validity of a settlement agreement that had been entered into in November 2006 among the parties and pursuant to which CCOI had taken down existing billboards and converted 83 existing signs from static displays to digital displays.  In 2009, the Los Angeles Superior Court ruled that the settlement agreement constituted an ultra vires act of the City, and nullified its existence.  After further proceedings, on April 12, 2013, the Los Angeles Superior Court invalidated 82 digital modernization permits issued to CCOI (77 of which displays were operating at the time of the ruling) and CCOI was required to turn off the electrical power to all affected digital displays on April 15, 2013.  The digital display structures remain intact but digital displays are currently prohibited in the City.  CCOI is seeking permits under the existing City sign code to either wrap the LED faces with vinyl or convert the LED faces to traditional static signs and has obtained a number of such permits.  CCOI is also pursuing a new ordinance to permit digital signage in the City.

 

International Outdoor Investigation

 

On April 21, 2015, inspections were conducted at the premises of Clear Channel in Denmark and Sweden as part of an investigation by Danish competition authorities.  Additionally, on the same day, Clear Channel UK received a communication from the UK competition authorities, also in connection with the investigation by Danish competition authorities. Clear Channel and its affiliates are cooperating with the national competition authorities.

 

 

ITEM 1A.  RISK FACTORS

For information regarding our risk factors, please refer to Item 1A in our Annual Report on Form 10-K for the year ended December 31, 2014.  There have not been any material changes in the risk factors disclosed in the Form 10-K.

 

ITEM 2.  UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Intentionally omitted in accordance with General Instruction H(2)(b) of Form 10-Q.

34


  

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES

Intentionally omitted in accordance with General Instruction H(2)(b) of Form 10-Q.

ITEM 4.  MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5.  OTHER INFORMATION

None.

 

ITEM 6. EXHIBITS

 

 

 

 

 

Exhibit Number

 

Description

 

31.1*

 

Certification Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

31.2*

 

Certification Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

32.1**

 

Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

32.2**

 

Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

101*

 

Interactive Data Files.

 

*

Filed herewith.

 

**

Furnished herewith.

 

35


  

 

 

Signatures

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

IHEARTCOMMUNICATIONS, INC.

 

 

 

July 30, 2015

/s/ SCOTT D. HAMILTON

Scott D. Hamilton

Senior Vice President, Chief Accounting Officer and Assistant Secretary

36