CLEAR CHANNEL OUTDOOR HOLDINGS, INC.
PART I
ITEM 1. BUSINESS
The CompanyOverview
Clear Channel Outdoor Holdings, Inc. (“(the "Company", "we" or "us") is one of the Company”), a Delaware corporation, provides clientsworld’s largest out-of-home advertising companies and the only global out-of-home advertising company with scaled presence in the United States ("U.S.") and Europe. With more than 500,000 print and digital displays in 23 countries as of December 31, 2022, we provide customized advertising opportunities throughsolutions via our asset portfolio of roadside billboards, urban street furniture, displays, transitairport advertising displays and other displays. By leveraging the scale, reach and flexibility of our diverse portfolio of assets, we connect advertisers with millions of consumers every month. We believe we are at the forefront of driving innovation in the out-of-home advertising industry, and our dynamic advertising platform is broadening the pool of advertisers using our medium through the expansion of digital displays such as wallscapes and spectaculars, whichthe integration of data analytics and programmatic capabilities that deliver measurable campaigns that are simpler to buy.
Prior to May 1, 2019, we own or operatewere indirectly owned by iHeartCommunications, Inc. and its parent company, iHeartMedia, Inc. (“iHeartMedia”). On May 1, 2019, we separated from, and ceased to be controlled by, iHeartMedia and its subsidiaries. For a full discussion of our corporate history prior to 2020, please refer to the “Corporate History” section in key markets worldwide. Our business consistsItem 1 of two reportable operating segments: Americas and International. As of December 31, 2016, we owned or operated over 590,000 advertising displays worldwide. Forour Annual Report on Form 10-K for the year ended December 31, 2016,2019, filed with the U.S. Securities and Exchange Commission (“SEC”) on February 27, 2020, which is incorporated herein by reference. Our common stock is listed on the New York Stock Exchange under the symbol “CCO.” Our Industry
We believe out-of-home advertising enjoys a strong and unique position in the media mix. With over 90% of Americans on the road each week, according to data provided by Scarborough Research in 2022, out-of-home offers advertisers a cost-effective advertising medium to reach consumers along their daily journeys in ways that can drive measurable results. Out-of-home’s large, creative canvases and access to distinctive features, including three-dimensional embellishments, lighting effects and more, provide advertisers an impactful way to tell brand stories. Out-of-home can also provide iconic, strategic locations, with some advertisers maintaining long-term positions to protect their access to key locations. Further, out-of-home can be planned and executed as both a hyper-local, targeted medium and as a scaled, mass-reach medium.
The out-of-home industry is in the midst of a technology-driven transformation, in both format and how it is sold. Modern marketers are looking to target and reach the right audiences with flexibility to change messaging quickly, measure and understand its impact, and to do so with speed, simplicity and transparency. With the growth of digital media and use of audience data, advertisers are able to effectively reach their consumers by selecting the out-of-home inventory that is most likely to be seen by their target audiences, while also being able to alter advertising messages based on environmental conditions, including time of day and weather, breaking news, changes to advertising strategies and other factors, making their advertising messaging more relevant and effective to their target audiences.
The out-of-home industry continues to grow as a result of increased urbanization and consumer mobility, while other traditional forms of media, such as print, television and radio, have lost ad spend market share as they face the challenge of online content migration, which has fragmented their audiences and reduced their reach. According to data published by MAGNA Global in December 2022, global out-of-home revenues are expected to grow at a 4.1% compounded annual growth rate from 2023 to 2027, while other traditional mediums are expected to shrink or remain flat. We believe that the proliferation of content and distribution models will continue to lead to the fragmentation of other media audiences, which, along with growing advertising avoidance and ad-blocking technology, may further enhance the attractiveness of out-of-home as an advertising medium. Out-of-home has also proven to be resilient, particularly in the U.S., as was evidenced by the industry’s bounce-back from the adverse effects of COVID-19.
Out-of-home is a defensible ad medium with differentiating factors for a scaled out-of-home business that we generated consolidated revenuebelieve provide stability to our market position. Our industry is anchored on a foundation of approximately $2.7 billion,assets that are hard to replicate because they are highly regulated, subject to proprietary relationships with $1.3 billionexclusivity provisions, and $1.4 billionrequire deep operational expertise. The out-of-home sector in the U.S., particularly billboards, is subject to governmental regulation at the federal, state and local levels, and permits to build new inventory have been limited as a result of restrictive laws. This, along with numerous signage ordinances, can make it challenging for new entrants to build roadside out-of-home assets at scale. In U.S. airports and in international markets, barriers to entry arise due to the complexity of operating major advertising concessions in these environments. Airport, transit and street furniture advertising media are often built on exclusive contracts, and developing these out-of-home assets requires robust relationships with elected officials and regulatory authorities in a vast number of municipalities, as well as specialized expertise in operating complex municipal concessions.
Our Competition
The out-of-home advertising industry is fragmented and highly competitive, consisting of several other large companies such as Outfront Media, Inc. and Lamar Advertising Company in the U.S. and JCDecaux SA in Europe, as well as numerous smaller, local companies operating in a single market or a few local markets. Out-of-home advertising companies compete primarily based on the ability to reach consumers.
We also compete with other advertising media in our respective markets, including mobile, social media, online, broadcast and cable television, radio, print media, direct mail and other forms of advertising. According to data published by MAGNA Global in December 2022, out-of-home advertising accounts for 3% of the advertising market in the U.S. and ranges from 3% to 16% of the advertising market in the European countries in which we operate, with out-of-home’s share of the advertising market varying by country based on a number of factors, including population density, regulation, sociocultural aspects and historic media buying trends.
Our Strategy
We believe the economics of out-of-home are highly attractive at scale, with the finite nature of our inventory allowing us to manage our rates when demand increases. We are focused on driving incremental demand for our out-of-home portfolio by differentiating ourselves from our Americascompetition. This, along with enhanced operational efficiencies, can provide sustainable long-term revenue growth, as well as greater Segment Adjusted EBITDA margin and International segments, respectively.operating cash flows. Our strategy to accomplish these goals is based on three pillars — accelerating our digital transformation, prioritizing customer-centricity and driving executional excellence — which are being implemented together with the optimization of our portfolio, as described below.
Our HistoryAccelerating our Digital Transformation
Technological advances continue to transform the out-of-home advertising sector. Modern marketers expect speed, simplicity and transparency, especially from digital media. To respond to these changing marketplace expectations, we are embracing technology to change the way we do business. We aim to transform into a technology-fueled, visual media leader, making out-of-home advertising as easy to plan, buy and measure as an online campaign, but with increased impact and reduced brand risk. We believe that leveraging our technology investments to innovate and modernize the solutions we offer, and to make our solutions more data-driven, easier to buy and faster to launch, will further improve out-of-home’s value proposition, strengthening our ability to attract more advertisers to our platform and gain share from other media. In order to modernize the solutions we offer our customers, we have continued to invest in our digital transformation and aim to bring a digital mindset to every aspect of our business, from displays to operations.
Growing our Digital Footprint
We were incorporatedan early adopter of digital display technology, a dynamic medium that enhances out-of-home’s core value proposition by making it even more creative, contextually-relevant and flexible. Conversion of our most customer-demanded inventory to digital continues to be a priority for our business. In 2022, we deployed 109 large format digital billboards in August 1995 under the name “Eller Media Company.” In 1997, Clear Channel Communications, Inc., now iHeartCommunications, Inc. (“iHeartCommunications”),U.S. We also added 272 digital displays in U.S. and Caribbean airports and 2,299 digital displays in Europe.
Digital assets provide highly attractive economics, enabling us to sell more advertising opportunities and therefore optimizing yield on a per structure basis. Digitization of the asset base has been a proven driver of growth, but we believe it can also be a revenue multiplier. For example, while digital assets represented less than 5% of our parent company, enteredU.S. billboard inventory at December 31, 2022 and 2021, they drove 36% of our total U.S. billboard revenue in 2022, up from 34% in 2021.
As previously described, the outdoorout-of-home advertising industry is expected to continue to grow faster than other traditional advertising mediums over the long-term, with its acquisitiondigital out-of-home driving that growth. According to data published by MAGNA Global in December 2022, digital out-of-home revenues are expected to grow at a 10.5% compounded annual growth rate from 2023 to 2027. We seek to capture a significant share of Eller Media Company. this growth as we continue to deploy additional digital displays across our business and further invest in our teams and infrastructure to accelerate this process.
Enhancing our RADAR Offering
We changed our namecontinue to develop and improve Clear Channel Outdoor Holdings, Inc.RADAR (“RADAR”), our proprietary and industry-first suite of data-driven solutions for planning, measuring and amplifying the impact of out-of-home advertising. First launched in August 2005.the U.S. in 2016, RADAR utilizes anonymized and/or aggregated mobile location data insights to help brands reach desired audiences, reengage these audiences across other media platforms, and understand how exposure to an out-of-home advertisement influences consumer behavior. The insights RADAR provides enable our clients to deliver highly customized, targeted and measurable out-of-home campaigns, resulting in a more sophisticated approach to delivering messages to the right audiences in the right locations at the right time. We believe this was an especially valuable tool for our customers during the economic downturn resulting from COVID-19 as traffic patterns and consumer behaviors changed over the course of the pandemic.
On November 11, 2005, we became a publicly traded company through an initial public offering, or IPO, in
RADAR consists of several solutions, which we sold 10%, or 35.0 million shares,are built to be interoperable:
•RADARView® is our audience and campaign planning tool. It analyzes historical mobile location data to rank each of our Class A common stock. Priordisplays in terms of its efficiency in reaching various audience segments and provides a map-based interface that combines aggregated demographic data, behavioral insights and location targeting to discover and select the inventory that most efficiently delivers a customer’s desired audience.
•RADARConnect® is our campaign amplification solution. It delivers ads across mobile and other devices to re-target audience groups exposed to an out-of-home advertisement, providing clients with a simple, easy-to-activate advertising solution that extends reach of their out-of-home advertising campaigns and drives further impact.
•RADARProof® is our suite of campaign measurement and attribution solutions, which uses analysis of anonymized and/or aggregated data to understand the behavior of groups of people after they have been exposed to specific campaign ads, enabling us to measure the impact of our advertisers’ campaigns on a variety of business objectives, including brand attributes, store visitation, app downloads, online engagement, TV viewership, specific product purchases, travel and tourism, and more.
•RADARSync® is our data integration platform. It allows us to use customer data across the RADAR tools, enabling customized application of these solutions to customers’ specific audience targets and goals. RADARSync also allows us to send RADAR insights to our IPO, we were an indirect wholly-owned subsidiary of iHeartCommunications. As of December 31, 2016, iHeartCommunications, through its subsidiaries, owned all of our outstanding shares of Class B common stockcustomers’ data and 10,726,917 shares of our Class A common stock, collectively representing approximately 89.9% of the outstanding shares of our common stock and approximately 99% of the total voting power of our common stock.
Prior to or at the time of our IPO, we enteredanalytics platforms in a privacy-compliant manner, giving customers visibility into agreements with iHeartCommunications that govern the relationship between iHeartCommunications and us and provide for, among other things, the provision of services by iHeartCommunications to us and the allocation of employee benefit, tax and other liabilities and obligations attributable to our operations. These agreements include the Master Agreement, Corporate Services Agreement, Employee Matters Agreement, Tax Matters Agreement and Trademark License Agreement. All of the agreements relating to our ongoing relationship with iHeartCommunications were madehow out-of-home performed in the context of a parent-subsidiary relationshiptheir other measured media.
In 2020, we launched our RADARView solution in Europe. RADARView is now available in the United Kingdom (the “U.K.”), Sweden, Spain, Belgium and Italy, with further European expansion in the terms of these agreements may be more or less favorable to us than if they had been negotiated with unaffiliated third parties.
iHeartCommunications haspipeline. This offering, including the right to terminate these agreements in various circumstances. As of the date of the filing of this report, no notice of termination of any of these agreementssupplier selection due diligence processes and data collection methods, has been receivedadapted from iHeartCommunications.our U.S. offering and complies with European Union (“E.U.”) and U.K. data privacy laws, including the European General Data Protection Regulation (“GDPR”) and Privacy and Electronic Communications Regulations.
As long as iHeartCommunications continuesWe continue to own sharesstrengthen our RADAR offering through a range of partnerships that have further elevated our data analytics capabilities and ability to measure the impact of our common stock representing more than 50% ofassets on consumer reach and decision-making, which is helping to demonstrate the total voting powerparticular attributes of our common stock, it will haveplatform and strengthen our relationships with customers. By continuing to improve audience insights and data solutions to make campaigns more relevant, we believe we can drive continued revenue growth.
Building on our Programmatic Presence
We continue to enhance the value proposition of our programmatic solution set, which uses automated technology, data and algorithms to offer a streamlined, flexible buying process and greater audience targeting and ad measurement capabilities through real-time, biddable digital marketplaces. The programmatic offering introduces efficiency to the out-of-home sales process by enabling advertisers to easily buy ads across a range of publishers, giving them the ability to directmanage their campaigns on a self-service basis and empowering them with a level of flexibility similar to online platforms. Demand Side Platforms (“DSPs”) help advertisers buy efficiently through preset buying parameters, which the electionplatform uses to transact in real time, with analysis for optimization of all membersreach, impact, pricing and outcomes. Supply Side Platforms allow publishers like us to connect their inventory to multiple DSPs at once, exposing available inventory to multiple potential buyers while also giving the publisher control over pricing.
Programmatic out-of-home is still an emerging channel, but we believe it, along with other automated trading platforms, will drive significant growth in the digital out-of-home sector as it has across other digital media types, enabling us to tap into demand from digital marketers who prefer to transact programmatically and work with customers who otherwise would not be buying out-of-home. In the U.S., we have been at the forefront of the programmatic out-of-home space since we pioneered the use of the private marketplace buy type in 2016, and with our differentiated inventory, dedicated sales team, robust technology infrastructure, innovative data solutions and deep industry relationships, we believe we are well-positioned to drive growth and build our leadership position in this expanding market. In 2021, we announced a branded programmatic proposition in Europe called Clear Channel LaunchPAD, which is currently live in France, the U.K., Sweden, Switzerland, Spain, Belgium, Italy, Finland and the Netherlands. With approximately 12,000 screens available as of December 31, 2022 to buy programmatically across these markets, we are one of the leading programmatic media owners in Europe. We also have a programmatic offering in Latin America.
Digitalizing our Operations
We are also investing in digital infrastructure to automate processes involved across the campaign cycle, with the purpose of significantly reducing the time involved in pursuing, winning and executing on contracts. We aim to continuously improve the customer experience across each element of our end-to-end workflow and have made significant progress in our U.S. business, as follows:
•Planning. We unified our approach to inventory management by creating a real-time view into inventory availability, purchasing history and pricing, and we introduced a team that supports our entire sales organization with a fast-response service, giving visibility into real-time demand and utilization.
•Buying. We developed a comprehensive system for electronic order processing that captures all relevant data throughout the buying process, and we are further transforming the customer order experience with the exploration of self-service, direct buying opportunities and other direct customer interaction capabilities.
•Activation. We continue to improve and modernize the systems, software and process infrastructure supporting campaign installations. For example, we automated the generation and delivery of creative production specification sheets, use QR codes to efficiently track and manage printed materials, and introduced technology to optimize installation routes.
•Reporting and invoicing. We updated our proof-of-performance tools through the use of mobile devices and high quality digital cameras, providing our customers with the ability to verify, in real-time, that their campaigns have been executed. Our Proof-of-Performance reports are now published real-time through our Clear Channel Outdoor Clear Access application, which is directly integrated into our orders system, allowing for faster invoicing and payments.
Similarly, we continue to invest in digitalizing processes in our European business to improve customer experience, business insights and efficiency, including implementing new or improved technologies in certain of our European markets to better manage marketing, sales, orders, campaigns and operations, with plans to be scaled across our European business.
Prioritizing Customer-Centricity
We seek to further differentiate our products through sales and service and are focused on understanding the needs and desires of various existing and potential customers to make the right investments. We believe we can unlock growth and value by taking a more nuanced approach to our customer segmentation, and accordingly, adding sales channels to better serve the needs of more customer segments is one of our key strategies to access previously unavailable advertising budgets and drive incremental demand. We believe segmenting our customer base by size is an appropriate way to manage and serve customers, as follows:
•Local and regional clients. We believe these advertisers are highly influenced by trust and long-standing relationships and rely upon our sales team’s focused market knowledge and expertise, which requires high-touch, ongoing customer service.
•Large national advertisers. We are focused on opening doors, building relationships and educating decision-makers to further tap into this market. As we navigate an increasingly complex agency model, in the U.S. we have expanded our traditional Account Executive model with an Agency Partnerships team that is charged with building relationships with the influencers and decision-makers who can impact budget allocations on the front-end. National advertisers are often looking for innovations and first-to-market opportunities, which have led to opportunities for collaboration with our Client Solutions Team, which is charged with selling directly to marketers and driving a customer needs assessment.
•Small businesses. We believe these customers, who represent an emerging opportunity for us, are looking for simple, flexible ways to drive their business. We are in the early stages of building a new approach to better serve their needs and believe this opportunity is led by automation, data and simplification of the buying process.
Driving Executional Excellence
To respond to customers’ increasing desire for faster response times and results, we are focused on increasing the speed, quality and repeatability of our key business processes through measurable outcomes, which we have defined as “executional excellence.” We believe that this focus on executional excellence is what enables us to make progress on our other strategic pillars of digital transformation and customer-centricity. Some of our strategic initiatives underlying this pillar include:
•Investing in growth and development opportunities for our real estate asset portfolio by managing our existing pipeline and delivering digital conversions in accordance with a plan designed to match ad capacity within growth markets;
•Driving revenue growth opportunities through an increased focus on key account development and management, sales pipeline visibility and management, training to enhance the negotiation skills of our sales teams, and enabling sales team collaboration across channels;
•Driving “Speed to Market” in our print installation operations by offering better-than-market guarantees to our customers focused on timely execution of campaign delivery (for example, managing the fulfillment process to have all creative in a campaign up within a more narrowly defined window than the typical industry standard);
•Advancing the development of a central digital operations center that provides efficiency in monitoring and managing our large-format digital displays in the U.S. with a focus on digital uptime performance designed to maximize value to our customers; and
•Focusing on talent acquisition and our employee value proposition, which is designed to retain and reward strong performers, as further described in the “Our Human Capital Resources” section below.
Optimizing our Portfolio
Our Board of Directors and, therefore,(the “Board”) has authorized a review of strategic alternatives for our European businesses, including the potential disposal of certain of our lower-margin European assets (and/or other European assets of lower priority to exerciseour European business as a controlling influence overwhole), while retaining, for now, our higher-margin European assets. In December 2022, we announced that we entered into an agreement to sell our business and affairs, including any determinations with respectin Switzerland to mergers or other business combinations,Goldbach Group AG, an affiliate of TX Group AG. Closing is subject to customary closing conditions.
Our reviews of our acquisition or disposition of assets, our incurrence of indebtedness, our issuance ofEuropean businesses remain ongoing. However, there can be no assurance that these reviews will result in any additional common stocktransactions or other equity securities,particular outcomes. We have not set a timetable for completion of these reviews, may suspend the processes at any time and do not intend to make further announcements regarding the processes for our repurchase or redemptionEuropean businesses unless and until our Board approves a specific course of common stock or any preferred stock, if applicable, and our payment of dividends in certain situations. Similarly, iHeartCommunications will have the power to determine the outcome of matters submitted to a vote of our stockholders, including the power to prevent an acquisition or any other change in control, and to take other actions that might be favorable to iHeartCommunications.
On July 30, 2008, iHeartCommunications completed its merger with a subsidiary of CC Media Holdings, Inc., now iHeartMedia, Inc. (“iHeartMedia”), a company formed by a group of private equity funds sponsored by Bain Capital Partners, LLC and Thomas H. Lee Partners, L.P. iHeartCommunicationsaction for which further disclosure is now owned indirectly by iHeartMedia.appropriate.
Our corporate headquarters are in San Antonio, Texas and we have executive offices in New York, New York. Our headquarters are located at 200 East Basse Road, Suite 100, San Antonio, Texas 78209 (telephone: 210-822-2828).
Our Business Segments
We haveHistorically, we had two reportable business segments: Americas, which consisted of operations primarily in the U.S., and Europe, which consisted of operations in Europe and Singapore. Our remaining operating segment of Latin America did not meet the quantitative threshold to qualify as a reportable segment and was disclosed as “Other.”
During the fourth quarter of 2022, we revised our segments Americas outdoor advertising (“Americas”)to reflect changes in the way our business is managed and International outdoor advertising (“International”),the way we allocate resources. Effective December 31, 2022, we have four reportable business segments: America, which represented 47% and 53%consists of our 2016U.S. operations excluding airports; Airports, which includes revenue respectively.
Wefrom U.S. and Caribbean airports; Europe-North, which consists of operations in the U.K., the Nordics and several other countries throughout northern and central Europe; and Europe-South, which consists of operations in France, Switzerland, Spain and Italy. Our remaining operations in Latin America and Singapore are a leading global outdoor advertising company providing clients with advertising opportunities through billboards, street furniture displays, transit displaysdisclosed as “Other.” America, Airports, Europe-North, Europe-South and other out-of-home advertising displays. Through our extensive display inventory, we have the ability to deliver innovative, effective marketing campaigns for advertisersOther represented 45%, 10%, 23%, 19% and marketing, creative and strategic partners in communities across the Americas and internationally.
We focus on building the leadership position3%, respectively, of our diverse global assets2022 revenue.
America and maximizing our financial performance while serving our local communities. We intend to continue to execute upon our long-standing outdoor advertising strategies, while closely managing expenses and focusing on achieving operating efficiencies throughout our businesses. Part of our long-term strategy 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, both domestically and internationally.Airports
For more information about our revenue, gross profit and assets by segment and our revenue and long-lived assets by geographic area, see Note 12 to our Consolidated Financial Statements located in Item 8 of Part II of this Annual Report on Form 10-K.
Americas Outdoor AdvertisingOverview
We are one of the largest outdoorout-of-home advertising companies in North America (based on revenues)the U.S., which includes the United States, Canada and Latin America. Approximately 90% of our revenuewith presence in our Americas segment was derived from the United States in each of the years ended December 31, 2016, 2015 and 2014. As of December 31, 2016, we own or operate approximately 99,000 display structures in our Americas segment with operations in 4340 of the 50 largest markets in the United States,Designated Market Areas (“DMAs”), including alleach of the top 20 largest markets.
In the first quartermarkets as of 2016, Americas outdoor sold nine non-strategic outdoor markets including Cleveland and Columbus, Ohio, Des Moines, Iowa, Ft. Smith, Arkansas, Memphis, Tennessee, Portland, Oregon, Reno, Nevada, Seattle, Washington and Wichita, Kansas for approximately $592.3 million in cash and certain advertising assets in Florida. During the first quarter of 2016, Americas segment also entered into an agreement to sell its Indianapolis, Indiana market in exchange for certain assets in Atlanta, Georgia, plus approximately $41.2 million in cash. The transaction closed in January 2017.December 31, 2022.
Our Americas assets consistAmerica segment inventory footprint of printedmore than 57,500 displays as of December 31, 2022 is concentrated primarily in larger markets, with the majority of our revenue generated from large-format billboards that are generally located along major expressways, primary commuting routes and digital billboards, street furniture and transit displays, airport displays and wallscapes and other spectaculars, which we own or operate under lease management agreements.main intersections. Our Americas businessfootprint is focused on metropolitan areas with dense populations.
Strategy
We seekprotected by certain barriers to capitalize on our Americas network and diversified product mix to maximize revenue. Our strategy focuses on pursuing the technology of digital displays,entry for traditional large-format roadside advertising, as well as leveraging our diversified product mixoperational expertise and long-standing presence in many of our existing markets, which provides usthe strong working relationships required with the ability to launch new productslandlords and test new initiatives in a reliable and cost-effective manner.
Promote Outdoor Media Spending. Given the attractive industry fundamentals of outdoor media and our depth and breadth of relationships with both local and national advertisers, we believe we can drive outdoor advertising's share of total media spending by using our dedicated national sales team to highlight the value of outdoor advertising relative to other media. We have made and continue to make significant investments in research tools that enable our clients to better understand how our displays can successfully reach their target audiences and promote their advertising campaigns. Also, we are working closely with clients, advertising agencies and other diversified media companies to develop more sophisticated systems that will provide improved audience metrics for outdoor advertising, including our new programmatic effort to sell digital billboard advertisements using automated advertisement sales technology to introduce ease and efficiency to the out-of-home ad sales process and enable better targeting of digital billboard advertising.
Continue to Deploy Digital Displays.governments. Our long-term strategy for our outdoor advertising businesses includes pursuing the technology of digital displays, including flat screens, LCDs and LEDs, as additions to traditional methods of displaying our clients’ advertisements. Digital outdoor advertising provides significant advantages over traditional outdoor media. Our electronic displays are linked through centralized computer systems to instantaneously and simultaneously and rapidly change advertising copy on a large number of displays, allowing us to sell more advertising opportunities to advertisers. The ability to change copy by time of day and quickly change messaging based on advertisers’ needs creates additional flexibility for our customers. Although digital displays require more capital to construct compared to printed bulletins, the advantages of digital allow us to penetrate new accounts and categories of advertisers, as well as serve a broader set of needs for existing advertisers. Digital displays allow for high-frequency, 24-hour advertising changes in high-traffic locations and allow us to offer our clients optimal flexibility, distribution, circulation and visibility. We expect this trend to continue as we increase our quantity of digital inventory. As of December 31, 2016, we had deployed more than 1,100 digital billboards in 28 markets in the United States.
Sources of Revenue
AmericasAmerica segment generated 47%45%, 48%45% and 46% of our revenue in 2016, 20152022, 2021 and 2014,2020, respectively. Americas
Our Airports segment had approximately 12,300 displays across nearly 200 commercial and private airports in the U.S. and the Caribbean as of December 31, 2022, making us the largest airport advertising specialist in the U.S. Our airport advertising contracts generally include exclusivity provisions, with the Company having an exclusive right to sell advertising space within a specific airport. Our Airports segment generated 10%, 7% and 7% of our revenue in 2022, 2021 and 2020, respectively.
Sources of Revenue
America
Revenue from our America segment was $1,105.6 million, $1,013.3 million and $853.2 million during 2022, 2021 and 2020, respectively. The following table shows the percentage of total America revenue by product category in each of these years:
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2022 | | 2021 | | 2020 |
| Billboards: | | | | | |
| Bulletins | 73 | % | | 74 | % | | 75 | % |
| Posters | 12 | % | | 12 | % | | 13 | % |
| Spectaculars/wallscapes | 6 | % | | 5 | % | | 4 | % |
| Street furniture displays | 4 | % | | 4 | % | | 3 | % |
| Other | 6 | % | | 5 | % | | 6 | % |
| Total | 100 | % | | 100 | % | | 100 | % |
Note: Due to rounding, totals may not equal the sum of the items in the table above.
Digital displays accounted for 34%, 33% and 29% of our America revenue during 2022, 2021 and 2020, respectively. This percentage has increased over time as we have continued to invest in digital displays, which is derived from the salea key part of advertising copy placed on our strategy.
Billboards. Our America billboard inventory is available in both printed and digital displays.formats and includes the following sub-categories:
•Bulletins, which are most commonly 14 feet high by 48 feet wide, are the largest and among the most impactful standard-sized out-of-home media formats. They are generally located along major expressways, primary commuting routes and main intersections that are highly visible and heavily trafficked. Our customers may contract for individual bulletins or a network of bulletins, meaning their advertisements are rotated within the network to increase the reach of the campaign. The duration of our customer contracts for traditional bulletin displays are typically 12 weeks or longer.
•Posters, which can vary in size but are commonly approximately 11 feet high by 23 feet wide, are often used as a full market coverage medium for reach and frequency, while junior posters, which are approximately 5 feet high by 11 feet wide, are often used for their proximity to retail outlets where they can stimulate sales. Posters are generally located in commercial areas on primary and secondary routes near point-of-purchase locations, and advertising space on these displays is generally purchased in four-week periods. Premiere Panels, which use one or more poster panels but with vinyl advertising stretched over the panels similar to bulletins, are innovative hybrids between bulletins and posters that we developed to provide our customers with an alternative for their targeted marketing campaigns, combining the creative impact of bulletins with the additional reach and frequency of posters.
•Spectaculars are large, elaborate, customized display inventory consists primarilystructures that are designed to gain maximum attention with eye-catching special effects, such as video, multi-dimensional lettering and figures, mechanical devices, moving parts and other embellishments. Customer contracts for these displays, which are located in New York City's Times Square and Las Vegas, typically have terms of billboards,at least one year. A wallscape is a display that drapes over, or is suspended from, the sides of buildings or other structures. Custom-designed for long-term exposure, wallscapes often become landmarks in a city. The majority of our wallscapes are located in Los Angeles and New York City’s Times Square, and advertising space on these displays is generally purchased for extended periods.
Street Furniture Displays. Our America street furniture displays, which are available in both printed and digital formats, include advertising surfaces on bus shelters, information kiosks, newsracks and other public structures and are primarily located in major metropolitan areas and along major commuting routes. We are generally responsible for the construction and maintenance of these structures, and we often sell advertising on these displays as part of a network package that includes multiple displays. Advertising space on street furniture displays is generally purchased in four-week periods.
Other. In the majority of our markets, our local creative and operations staff can perform the full range of activities required to create and/or install advertising copy, including creating the advertising copy design and layout, coordinating its printing and installing the copy on displays. The remainder of the revenue from our America segment consists largely of fees related to these activities, including vinyl or poster orders, production, embellishments and installation services. Other revenue also includes revenue from transit displays, which are advertising surfaces within the common areas of rail stations and on various types of vehicles, including on the interior and exterior sides of buses, trains and trams, as well as other non-advertising revenue.
The following table provides a market-by-market view of America printed, digital and total revenue from our top 15 U.S. markets during 2022:
| | | | | | | | | | | | | | | | | | | | |
| Market | | Printed Revenue | | Digital Revenue | | Total Revenue |
| Los Angeles | | 17 | % | | 7 | % | | 14 | % |
| San Francisco/Bay Area | | 8 | % | | 8 | % | | 8 | % |
| New York | | 6 | % | | 11 | % | | 7 | % |
| Dallas | | 6 | % | | 7 | % | | 6 | % |
| Miami | | 5 | % | | 5 | % | | 5 | % |
| Houston | | 6 | % | | 2 | % | | 5 | % |
| Atlanta | | 3 | % | | 7 | % | | 4 | % |
| Philadelphia | | 5 | % | | 3 | % | | 4 | % |
| Washington, D.C./Baltimore | | 4 | % | | 5 | % | | 4 | % |
| Chicago | | 4 | % | | 3 | % | | 4 | % |
| Boston | | 4 | % | | 4 | % | | 4 | % |
| Orlando | | 3 | % | | 5 | % | | 4 | % |
| Minneapolis | | 3 | % | | 5 | % | | 4 | % |
| Las Vegas | | 2 | % | | 5 | % | | 3 | % |
| Tampa | | 2 | % | | 4 | % | | 3 | % |
| All other markets | | 24 | % | | 19 | % | | 22 | % |
Total America(1) | | 100 | % | | 100 | % | | 100 | % |
(1)Due to rounding, the total may not equal the sum of the percentages in the table above.
The following table quantifies the number of displays in our America segment as of December 31, 2022, disaggregated by our top 15 U.S. markets and product type:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Market | | Printed Billboard Displays | | Other Printed Displays | | Digital Billboard Displays | | Other Digital Displays | | Total Displays | | Percentage of Total Displays(1) |
| Los Angeles | | 3,938 | | 3,727 | | 82 | | — | | 7,747 | | 13 | % |
| San Francisco/Bay Area | | 1,133 | | 4,377 | | 40 | | 294 | | 5,844 | | 10 | % |
| New York | | 787 | | 5 | | 60 | | — | | 852 | | 1 | % |
| Dallas | | 2,426 | | — | | 153 | | — | | 2,579 | | 4 | % |
| Miami | | 1,323 | | 443 | | 83 | | — | | 1,849 | | 3 | % |
| Houston | | 2,115 | | — | | 40 | | — | | 2,155 | | 4 | % |
| Atlanta | | 1,721 | | — | | 199 | | — | | 1,920 | | 3 | % |
| Philadelphia | | 2,605 | | 1,144 | | 60 | | — | | 3,809 | | 7 | % |
| Washington, D.C./Baltimore | | 1,680 | | 1,546 | | 38 | | 146 | | 3,410 | | 6 | % |
| Chicago | | 2,978 | | 6,304 | | 79 | | 19 | | 9,380 | | 16 | % |
| Boston | | 1,304 | | 95 | | 65 | | 2 | | 1,466 | | 3 | % |
| Orlando | | 1,237 | | — | | 86 | | — | | 1,323 | | 2 | % |
| Minneapolis | | 1,135 | | 5 | | 74 | | 4 | | 1,218 | | 2 | % |
| Las Vegas | | 763 | | — | | 83 | | — | | 846 | | 1 | % |
| Tampa | | 930 | | — | | 91 | | — | | 1,021 | | 2 | % |
| All other markets | | 8,845 | | 2,748 | | 440 | | 90 | | 12,123 | | 21 | % |
| Total America | | 34,920 | | 20,394 | | 1,673 | | 555 | | 57,542 | | 100 | % |
(1)Due to rounding, the total may not equal the sum of the percentages in the table above.
Airports
Our Airports segment provides advertising opportunities around and within U.S. and Caribbean airports. Airport advertising displays, which allow advertisers to target travelers with their message at key touchpoints throughout the passenger journey, are available in printed, digital and experiential formats and include a variety of solutions, including custom exhibits and interactive displays. The duration of our customer contracts generally range from four weeks to one year, although some are longer.
Revenue from our Airports segment was $256.4 million, $160.3 million and $123.8 million during 2022, 2021 and 2020, respectively, with digital displays accounting for 57%, 54% and 45% of this revenue during each of these years. Airports revenue was most significantly impacted by lockdowns and mobility restrictions resulting from COVID-19 but returned to 2019 (pre-COVID-19) levels in the fourth quarter of 2021, driven by the rebound in travel as well as our continued investments in our Airports segment. As of December 31, 2022, our Airports segment had approximately 12,300 displays, including more than 2,500 digital displays.
Rates
Our advertising rates are based on a number of different factors, including location, competition, size of display, board occupancy, illumination, market and gross rating points (the total number of impressions delivered by a display or group of displays, expressed as a percentage of market population). The number of impressions delivered by a display is measured by independent organizations that provide audience measurement for the out-of-home industry in the U.S. using a range of dynamic data sources, including anonymous location and trip data from hundreds of millions of smartphones, to understand the number of people passing a display during a defined period of time, along with insights into their demographic characteristics. The margins on our billboard contracts including those related to digital billboards, tend to be higher than those on contracts for other displays due to their greater size, impact and location along major roadways that are highly trafficked. Billboards comprise approximately two-thirds
Operations
We generally outsource the fabrication and manufacturing of our display revenues. The following table shows the approximate percentage of revenue derived from each category for our Americas inventory:
|
| | | | | | | | |
| | Year Ended December 31, |
| | 2016 | | 2015 | | 2014 |
| Billboards: | | | | | |
| Bulletins | 59 | % | | 58 | % | | 58 | % |
| Posters | 10 | % | | 12 | % | | 12 | % |
| Street furniture displays | 7 | % | | 6 | % | | 7 | % |
| Transit displays | 16 | % | | 15 | % | | 16 | % |
| Spectaculars/wallscapes | 4 | % | | 5 | % | | 3 | % |
| Other | 4 | % | | 4 | % | | 4 | % |
| Total | 100 | % | | 100 | % | | 100 | % |
Our Americas segment generates revenues from localadvertising structures to third parties and national sales. Our advertising rates are based onregularly seek competitive bids. We use a number of different factors including location,vetted suppliers located throughout the U.S. with the objective of enhancing competition, sizemeeting demand requirements and minimizing time and cost of display, illumination, marketlogistics, and gross ratings points. Gross ratings points are the totalwe use a mix of internal and external resources for product installation. For digital displays, we use a number of impressions delivered, expressed asvetted domestic suppliers for LED and LCD products. Any digital display product not manufactured domestically is purchased through a percentage of a market population, of a display or group of displays. The number of impressions delivered by a displaydomestic distributors.
Printed advertising copy, which is measuredoftentimes supplied by the numberadvertiser or a third party, is primarily printed with computer-generated graphics on a single sheet of people passingvinyl or polyethylene material. These prints are then transported to the display site and secured to the display surface, either by being wrapped around the face of the site duringor affixed to a defined period of time. For all of our billboards inhardware anchoring system on the United States, we use independent, third-party auditing companies to verify the number of impressions delivered by a display.
While location, price and availability of displays are important competitive factors, we believe that providing quality customer service and establishing strong client relationships are also critical components of sales. In addition, we have long-standing relationships with a diversified group of advertising brands and agencies that allow us to diversify client accounts and establish continuing revenue streams.
Billboards
Our billboard inventory primarily includes bulletins and posters.
Bulletins. Bulletins vary in size, with the most common size being 14 feet high by 48 feet wide.display site. Digital bulletins display static messages that resemble standard printed bulletins when viewed, but also allow advertisers to change messages throughout the course of a day, and may display advertisements for multiple customers. Our electronic displays are linked through centralized computer systems to instantaneouslysimultaneously and simultaneouslyrapidly change advertising copy on a large number of displays as needed. BecauseOur operational process also includes conducting visual inspections of their greater size, impact, high-frequencyour inventory for display defects and 24-hour advertising changes, we typically receive our highest rates for digital bulletins. Almost alltaking necessary corrective action within a reasonable period of time.
America
The majority of the advertising copy displayedstructures on printed bulletins is computer printed on vinyl and transported to the bulletin where it is secured to the display surface. Bulletins generallywhich our billboards are located along major expressways, primary commuting routesrequire various permits, which are granted for the right to build, maintain and main intersectionsoperate an advertising structure as long as the structure is used in compliance with state and local laws and regulations. Permits are typically granted by the state and/or local government and are typically transferable or renewable for a minimal fee or no fee. We typically own the physical structures on which our customers’ advertising copy is displayed. We manage the construction of our structures centrally and erect them on sites we either lease or own or for which we have acquired permanent easements or executed long-term management agreements. The site lease terms generally range from 1 to 20 years, with options to renew in many cases. We believe that our properties are highly visiblein good condition and heavily trafficked.suitable for our operations. No one property is material to our overall operations.
We are also generally responsible for the construction and maintenance of street furniture structures. Our clients may contract for individual bulletins or a network of bulletins, meaningrights to place these structures in the clients’ advertisementspublic domain and to sell advertising on such structures are rotated among bulletins to increase the reach of the campaign. Our clientgoverned by contracts for bulletins, either printed or digital,awarded by municipal and transit authorities in competitive bidding processes governed by local law. These contracts generally have terms ranging from four weeks5 to one year.15 years and may contain renewal options. As compensation for the right to sell advertising space on these structures, we pay the municipality or transit authority a minimum fee and/or a share of the advertising revenue we earn on the related displays, depending upon the terms of the contract.
Airports
Posters. Printed postersOur rights to place displays around and within airports and to sell advertising space on such displays are generally awarded by public transit authorities in competitive bidding processes or may be negotiated with private transit operators. These contracts generally have terms ranging from 5 to 10 years and may contain renewal options. As compensation for the right to sell advertising space on these displays, we pay the transit authority or operator a minimum fee or a share of the advertising revenue we earn on the displays, depending upon the terms of the contract.
Europe-North and Europe-South
Overview
We operate in many countries throughout Europe and have consistently ranked as a top out-of-home provider in these countries. Europe out-of-home advertising is an urban medium: our portfolio is focused on densely populated metropolitan areas, and street furniture displays are our largest source of advertising revenue. Located at the heart of cities and close to the point-of-sale, street furniture displays have a location advantage, which advertisers leverage to drive foot traffic to their retail locations and influence purchasing decisions. The majority of our customers are advertisers targeting national or regional audiences whose business generally is placed with us through media or advertising agencies.
Our Europe-North segment includes 12 countries — the U.K., Sweden, Norway, Belgium, Finland, the Netherlands, Ireland, Poland, Denmark, Estonia, Latvia and Lithuania — and had approximately 11 feet high260,000 displays as of December 31, 2022, including approximately 13,700 digital displays. This segment generated 23%, 23% and 22% of our revenue in 2022, 2021 and 2020, respectively.
Our Europe-South segment consists of operations in France, Switzerland, Spain and Italy and had approximately 170,000 displays as of December 31, 2022, including approximately 5,900 digital displays. This segment generated 19%, 21% and 21% of our revenue in 2022, 2021 and 2020, respectively.
Sources of Revenue
Europe-North
Revenue from our Europe-North segment was $566.1 million, $518.0 million and $406.8 million during 2022, 2021 and 2020, respectively. The following table shows the percentage of total Europe-North revenue by 23 feet wide,product category in each of these years:
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2022 | | 2021 | | 2020 |
| Street furniture displays | 50% | | 53% | | 52% |
| Billboards | 11% | | 11% | | 11% |
| Retail displays | 18% | | 17% | | 16% |
| Transit displays | 14% | | 9% | | 11% |
| Other | 7% | | 10% | | 10% |
| Total | 100% | | 100% | | 100% |
Note: Due to rounding, totals may not equal the sum of the items in the table above.Digital displays accounted for 53%, 48% and 44% of our Europe-North revenue during 2022, 2021 and 2020, respectively.
Europe-South
Revenue from our Europe-South segment was $467.1 million, $472.4 million and $385.3 million during 2022, 2021 and 2020, respectively. The following table shows the printed junior posters are approximately 5 feet highpercentage of total Europe-South revenue by 11 feet wide. product category in each of these years:
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2022 | | 2021 | | 2020 |
| Street furniture displays | 52% | | 49% | | 44% |
| Billboards | 22% | | 24% | | 28% |
| Retail displays | 13% | | 13% | | 13% |
| Transit displays | 7% | | 6% | | 6% |
| Other | 7% | | 8% | | 9% |
| Total | 100% | | 100% | | 100% |
Note: Due to rounding, totals may not equal the sum of the items in the table above.Digital postersdisplays accounted for 23%, 20% and 17% of our Europe-South revenue during 2022, 2021 and 2020, respectively.
Product Descriptions
Street Furniture Displays. Our Europe street furniture displays, which are available in additionboth printed and digital formats, include advertising surfaces on bus shelters, freestanding units, various types of kiosks, telephone boxes and other public structures. Our printed street furniture is sold to customers as either network packages of multiple street furniture displays or by individual unit, with contract terms generally ranging from one to two weeks.
Billboards. Our Europe billboards vary in size across our networks, with the majority being similar in size to the traditional poster-sizeposters used in our America segment. Our Europe billboard inventory is primarily comprised of classic and junior poster-size. Similarpremium billboards and is available in both printed and digital formats. They are primarily sold to digital bulletins, digital posters display static messages that resemble standard printed posters when viewed,clients as network packages with contract terms typically ranging from one to two weeks, although terms of up to one year are also available in certain circumstances.
•Classic billboards are available in a variety of formats across our Europe markets and are linked through centralized computer systems to instantaneously and simultaneously change messages throughout the course of a day. Advertising copy for printed posters is digitally printed on a single piece of polyethylene material that is then transported and secured to the poster surfaces. Advertising copy for printed junior posters is printed using silk screen, lithographic or digital process to transfer the designs onto paper that is then transported and secured to the poster surfaces. Posters generally are located in commercial areas on primary and secondary routes near point-of-purchase locations, facilitating advertising campaigns with greater breadth of demographic targeting than those displayed on bulletins.premium billboards.
•Premium billboards, which are typically larger in format, generally are located along major expressways and motorways, primary commuting routes and main intersections that are highly visible and heavily trafficked, as well as iconic city center locations. Our postercustomers may contract for individual billboards or a network of billboards. Because of their greater size, impact and flexibility, we typically receive our highest rates typically are less than our bulletin rates, and our client
for digital premium billboards.
contracts for posters generally have terms ranging from four weeks to one year. PremiereRetail Displays. Our Europe retail displays, which consist of premiere panels and squares, are innovative hybrids between bulletins and posters that we developed to provide our clients with an alternative for their targeted marketing campaigns. The premiere displays use one or more poster panels, but with vinyl advertising stretched over the panels similar to bulletins. Our intent is to combine the creative impact of bulletins with the additional reach and frequency of posters.
Street Furniture Displays
Our street furniture displays include advertising surfaces on bus shelters, information kiosks, freestanding units and other public structures, are available in both printed and digital formats, are mainly standalone advertising structures in retail outlets such as malls and are primarily located in major metropolitan areas and along major commuting routes. Generally, we are responsible for the construction and maintenancesupermarkets. The terms of street furniture structures. Contracts for the right to place our street furniture displays in the public domain and sell advertising space on them are awarded by municipal and transit authorities in competitive bidding processes governed by local law. Generally, these contracts have terms ranging from 10 to 20 years. As compensation for the right to sell advertising space on our street furniture structures, we pay the municipality or transit authority a fee or revenue share that is either a fixed amount or a percentage of the revenue derived from the street furniture displays. Typically, these revenue sharing arrangements include payments by us of minimum guaranteed amounts. Clientcustomer contracts for street furniturethese displays typically have terms ranginggenerally range from four weeksone to one year, and are typically for network packages of multiple street furniture displays.two weeks.
Transit Displays
Displays. Our Europe transit displays, which are available in both printed and digital formats, consist of advertising surfaces on various types of vehicles or within transit systems, including on the interior and exterior sides of buses, trains, trams and within the common areas of rail stations and airports, and are available in both printed and digital formats. Similar to street furniture,airports. The terms of our customer contracts for the right to place ourthese displays on such vehicles or within such transit systems and to sell advertising space on them generally are awarded by public transit authorities in competitive bidding processes or are negotiated with private transit operators. Generally, these contracts have terms ranging from five to ten years. Our client contracts for transit displays generally have terms ranging from four weeks to one year.
Other Displays
The balance of our display inventory consists of spectaculars and wallscapes. Spectaculars are customized display structures that often incorporate video, multidimensional lettering and figures, mechanical devices and moving parts and other embellishments to create special effects. The majority of our spectaculars are located in Los Angeles, San Francisco, Times Square in New York City and the Gardiner Expressway in Toronto. Client contracts for spectaculars typically have terms of one year or longer. A wallscape is a display that drapes over or is suspended from the sides of buildings or other structures. Generally, wallscapes are located in high-profile areas where other types of outdoor advertising displays are limited or unavailable. Clients typically contract for individual wallscapes for extended terms.
Advertising Inventory and Markets
As of December 31, 2016, we owned or operated approximately 99,000 display structures in our Americas segment with operations in 43 of the 50 largest markets in the United States, including all of the 20 largest markets. Therefore, no one property is material to our overall operations. We believe that our properties are in good condition and suitable for our operations.
Our displays are located on owned land, leased land or land for which we have acquired permanent easements. The majority of the advertising structures on which our displays are mounted require permits. Permits are granted for the right to operate an advertising structure as long as the structure is used in compliance with the laws and regulations of the applicable jurisdiction.
Production
In a majority of our markets, our local production staff performs the full range of activities required to create and install advertising copy. Production work includes creating the advertising copy design and layout, coordinating its printing and installing the copy on displays. We provide creative services to smaller advertisers and to advertisers not represented by advertising agencies. National advertisers often use preprinted designs that require only installation. Our creative and production personnel typically develop new designs or adopt copy from other media for use on our inventory. Our creative staff also can assist in the development of marketing presentations, demonstrations and strategies to attract new clients.
Construction and Operation
We typically own the physical structures on which our clients’ advertising copy is displayed. We manage the construction of our structures centrally and erect them on sites we either lease or own or for which we have acquired permanent easements. The site lease terms generally range from one week to 20 years. In addition toone year, although some are longer.
Other. The remaining revenue from our Europe segments consists primarily of advertising revenue from other small displays, production revenue and non-advertising revenue from the site lease, we must obtain a permit to build the sign. following sources:
Permits are typically issued in perpetuity by the state or local government and typically are transferable or renewable for a minimal, or no, fee. Printed bulletin and poster advertising copy is either printed with computer generated graphics on a single sheet of vinyl or placed on lithographed or silk-screened paper sheets supplied by the advertiser. These advertisements are then transported to the site and in the case of vinyl, wrapped around the face of the site, and in the case of paper, pasted and applied like wallpaper to the site. The operational process also includes conducting visual inspections of the inventory for display defects and taking the necessary corrective action within a reasonable period of time.
Client Categories
In 2016, the top five client categories in our Americas segment were business services, automotive, technology, beverage and travel.
Competition
The outdoor advertising industry in the Americas is fragmented, consisting of several large companies involved in outdoor advertising, such as OUTFRONT Media Inc. and Lamar Advertising Company, as well as numerous smaller and local companies operating a limited number of displays in a single market or a few local markets. We also compete with other advertising media in our respective markets, including broadcast and cable television, radio, print media, direct mail, mobile, social media, online and other forms of advertisement. Outdoor advertising companies compete primarily based on ability to reach consumers, which is driven by location of the display.
International Outdoor Advertising
Our International segment includes our operations in Europe and Asia, with approximately 34%, 34% and 35% of our revenue in this segment derived from France and the United Kingdom for the years ended December 31, 2016, 2015 and 2014. As of December 31, 2016, we owned or operated more than 490,000 displays across 19 countries.
During the second quarter of 2016, International sold its business in Turkey for cash proceeds of $0.5 million.
During the fourth quarter of 2016, International sold its business in Australia for cash proceeds of $195.7 million, net of cash retained by the purchaser and closing costs.
Our International assets consist•Sales of street furniture equipment and transit displays, billboards, mall displays, SmartBike programscleaning and other spectaculars, which we own or operate under lease agreements. Our International business is focused on densely populated metropolitan areas.
Strategy
Similar to our Americas business, we believe our International business has attractive industry fundamentals, including the ability to reach a broad audience and drive foot traffic to the point-of-sale, making outdoor a cost-effective medium for advertisers as measured by cost per thousand persons reached compared to other traditional media. Our International business focuses on the following strategies:
Promote Overall Outdoor Media Spending. Our strategy is to promote growth in outdoor advertising’s share of total media spending by demonstrating the strengthmaintenance services. In several of our medium. AsEuropean markets, we sell equipment or provide cleaning and maintenance services as part of this effort, we are focusing on developing and implementing improved outdoor audience delivery measurement systems to provide advertisers with tools to plan their campaigns and determine how effectively their message is reaching the desired audience.
Differentiate on Sales and Marketing. For over five years, we have spent time and resources building commercial capabilities through a company wide sales force effectiveness program and an upgrade in our sales and marketing talent. These capabilities allow us to build and nurture relationships with our clients and their agencies as well as to offer packages and products that meet our clients’ advertising needs. Going forward, particular areas of focus include pricing, packaging and programmatic selling. Our new proprietary programmatic platform enables marketers to buy digital out of home inventory in audience-based packages, giving them the unique ability to manage their campaigns on a self-service basis.
Capitalize on Product and Geographic Opportunities. We are also focused on growing our relevance to our advertising customers by continuously optimizing our display portfolio and targeting investments in promising market segments. We have continued to innovate and introduce new products in our markets based on local demand. Our street furniture business generates the largest portion of our revenue and that is where we plan to focus much of our investment. We plan to continue to evaluate municipal contracts that may come up for bid and will make prudent investments where we believe we can generate attractive returns.
Continue to Deploy Digital Display Networks. Our digital outdoor displays are a dynamic medium, which enables our customers to engage in real-time, tactical, topical and flexible advertising. We will continue our focused and dedicated digital strategy and remain committed to the development of digital out-of-home communication solutions. Through our digital brand, Clear Channel Play, we are able to offer networks of digital displays in multiple formats and multiple environments including bus shelters, billboards, airports, transit, malls and flagship locations. Part of our long-term strategy is to pursue the diversification of our product offering by introducing novel technologies, such as beacons, small cells, wayfinding stations and provision of wifi in our street furniture network, as additions to traditional methods of displaying our clients’ advertisements. We are currently installing these technologies in a number of our markets. We seek to achieve greater consumer engagement and flexibility by delivering powerful, flexible and interactive campaigns that open up new possibilities for advertisers to engage with their target audiences. We had more than 9,600 digital displays in 15 countries across Europe and Asia as of December 31, 2016.
Sources of Revenue
Our International segment generated 53%, 52% and 54% of our revenue in 2016, 2015 and 2014, respectively. Our International display inventory consists primarily of street furniture displays, billboards, transit displays and other out-of-home advertising displays. The following table showscontracts with municipalities.
•Operation of public bike programs. We also have public bicycle rental programs that provide bicycles for rent to the approximate percentage of revenue derived from each inventory category of our International segment:
|
| | | | | |
| | Year Ended December 31, |
| | 2016 | | 2015 | | 2014 |
| Street furniture displays | 52% | | 52% | | 50% |
| Billboards | 17% | | 19% | | 20% |
| Transit displays | 10% | | 9% | | 10% |
Other (1) | 21% | | 20% | | 20% |
| Total | 100% | | 100% | | 100% |
| |
(1) | Includes advertising revenue from mall displays, other small displays, and non-advertising revenue from sales of street furniture equipment, cleaning and maintenance services, operation of SmartBike programs and production revenue. |
Our International segment generates the majority of itsgeneral public in several municipalities. In exchange for operating these bike rental programs, we generally derive revenue from advertising rights to the sale of advertising space onbikes, bike stations, additional street furniture displays billboards, retail displays and transit displays. Similar to our Americas business, advertisingand/or a share of rental income from the local municipalities.
Rates
Advertising rates generally are based on the gross ratings points (the total number of impressions delivered by a display or group of displays.displays, expressed as a percentage of market population). In some of the countries where we have operations, the number of impressions delivered by a display is weighted to account for such factors as illumination, proximity to other displays, and the speed and viewing angle of approaching traffic.
While location, price and availability of displays are important competitive factors, we believe that providing quality customer service and establishing strong client relationships are also critical components of sales. Our entrepreneurial culture allows local management to operate their markets as separate profit centers, encouraging customer cultivation and service.Operations
Street Furniture Displays
Our International street furniture displays, available in printed and digital formats, are substantially similar to their Americas street furniture counterparts, and include bus shelters, freestanding units, various types of kiosks, benches and other public structures. Internationally, contracts with municipal and transit authorities forWe generally outsource the right to place our street furniture in the public domain and sell advertising on such street furniture typically provide for terms ranging from two to 15 years. The major difference between our International and Americas street furniture businesses is in the nature of the municipal contracts. In our International outdoor business, these contracts typically require us to provide the municipality with a broader range of metropolitan amenities such as bus shelters with or without advertising panels, information kiosks and public wastebaskets, as well as space for the municipality to display maps or other public information. In exchange for providing such metropolitan amenities and display space, we are authorized to sell advertising space on certain sections of the structures we erect in the public domain. Our International street furniture is typically sold to clients as network packages of multiple street furniture displays, with contract terms ranging from one to two weeks. Client contracts are also available for longer terms.
Billboards
The sizes of our International billboards are not standardized. The billboards vary in both format and size across our networks, with the majority of our International billboards being similar in size to our posters used in our Americas business.
Our billboard inventory is primarily comprised of premium billboards and classic billboards and is available in printed and digital formats.
Premium. Digital premium billboards typically display static messages that resemble standard printed billboards when viewed, but also allow advertisers to change messages throughout the course of a day, and may display advertisements for multiple customers. Our electronic displays are linked through centralized computer systems to instantaneously and simultaneously change advertising copy as needed. Because of their greater size, impact, high frequency and 24-hour advertising changes, digital premium billboards typically deliver our highest rates. Almost all of the advertising copy displayed on printed premium billboards is digitally-printed and transported to the billboard where it is secured to the display surface. Premium billboards generally are located along major expressways, primary commuting routes and main intersections that are highly visible and heavily trafficked. Our clients may contract for individual billboards or a network of billboards.
Classic. Digital and printed classic billboards are available in a variety of formats across our markets. Similar to digital premium billboards, classic digital billboards typically display static messages that resemble standard printed posters when viewed, and are linked through centralized computer systems to instantaneously and simultaneously change messages throughout the course of a day. Advertising copy for printed classic billboards is digitally printed then transported and secured to the poster surfaces. Classic billboards generally are located in commercial areas on primary and secondary routes near point-of-purchase locations, facilitating advertising campaigns with greater demographic targeting than those displayed on premium billboards. Classic billboards typically deliver lower rates than our premium billboards. Our intent is to combine the creative impact of premium billboards with the additional reach and frequency of classic billboards.
Our billboards are primarily sold to clients as network packages with contract terms typically ranging from one to two weeks. Long-term client contracts are also available and typically have terms of up to one year. We lease the majority of our billboard sites from private landowners, usually for one to ten years.
Retail Displays
Our retail displays are mainly standalone advertising structures in or in close proximity to retail outlets such as malls and supermarkets. The right to place our displays in these locations and to sell advertising space on them generally is awarded by retail outlet operators such as large retailers or mall operators either through private tenders or bilateral negotiations. Upfront investment and ongoing maintenance costs vary across contracts. Contracts with mall operators and retailers have terms ranging from three to ten years. Our client contracts for retail displays, either printed or digital, generally have terms ranging from one week to two weeks.
Transit Displays
Our International transit display contracts are substantially similar to their Americas transit display counterparts. They are advertising surfaces on various types of vehicles or within transit systems, including on the interior and exterior sides of buses, trains, trams and within the common areas of rail stations and airports, and are available in both printed and digital formats. Similar to street furniture, contracts for the right to place our displays on such vehicles or within such transit systems and to sell advertising space on them generally are awarded by public transit authorities in competitive bidding processes or are negotiated with private transit operators. Our transit display contracts often require us to make only a minimal initial investment and few ongoing maintenance expenditures. Contracts with public transit authorities or private transit operators typically have terms ranging from two to five years. Our client contracts for transit displays, either printed or digital, generally have terms ranging from one week to one year, or longer.
Other International Displays and Services
The balance of our revenue from our International segment consists primarily of advertising revenue from other small displays and non-advertising revenue from sales of street furniture equipment, cleaning and maintenance services, and production and creative services revenue. Our International inventory includes other small displays that are counted as separate displays since they form a substantial part of our network and International outdoor advertising revenue. We also have a SmartBike bicycle rental program which provides bicycles for rent to the general public in several municipalities. In exchange for operating these bike rental programs, we generally derive revenue from advertising rights to the bikes, bike stations, additional street furniture
displays and/or a share of rental income from the local municipalities. In several of our International markets, we sell equipment or provide cleaning and maintenance services as part of street furniture contracts with municipalities.
Advertising Inventory and Markets
As of December 31, 2016, we owned or operated more than 490,000 displays in our International segment, with operations across 19 countries. Our International display count includes display faces, which may include multiple faces on a single structure, as well as small, individual displays. As a result, our International display count is not comparable to our Americas display count, which includes only unique displays. No one property is material to our overall operations. We believe that our properties are in good condition and suitable for our operations.
Production
The majority of our International clients are advertisers targeting national or regional audiences whose business generally is placed with us through media or advertising agencies. These agencies often provide to our International clients creative services to design and produce the advertising copy, which is delivered to us either in digital format or in the traditional format of physical printed advertisements. For digital advertising campaigns, the digital advertisement is received by our content management system and is then distributed to our digital displays. For traditional advertising campaigns, the printed advertisement - whether in paper or vinyl - is shipped to centralized warehouses operated by us. The copy is then sorted and delivered to sites where it is installed on our displays.
Construction and Operation
The International manufacturing process largely consists of two elements: the manufacture and installation of advertising structures and the weekly preparation of advertising posters for distribution throughout our networks. We outsource the manufacturing of advertising structures to third parties and regularly seek competitive bids. We use a wide range of suppliers located in many of our markets, although much of our inventory is manufactured in China and Turkey.the U.K. For digital displays, specialist suppliers are used to supply the LCD or LED technology, and there may be additional factors, such as electrical supply and network connectivity, involved during design and construction. We believe that our properties are in good condition and suitable for our operations. No one property is material to our overall operations.
Media or advertising agencies often provide our customers creative services to design and produce advertising copy, which is delivered to us either in digital format or in the traditional format of physical printed advertisements. Digital advertisements are received by our content management system and then distributed to our digital displays, which are linked through centralized computer systems to simultaneously and rapidly change messages throughout the course of a day. Paper and vinyl printed advertisements are shipped to centralized warehouses operated by us or third parties. The design of street furniture structures (such as bus shelters, bicycle rackscopy is then sorted and kiosks)delivered to sites where it is typically done in conjunction with a third party design or architectural firm and followed by a competitive bidding process to select a manufacturer. Our street furniture sites are postedinstalled on our displays by our own employees or subcontractors who also clean and maintain the sites. The decision to use our own employees or subcontractors is made on a market-by-market basis taking into consideration the mix of products in the market and local labor costs.
Client CategoriesWe generally build our portfolios of advertising locations by entering into medium to long-term contracts with landlords such as municipalities, private individuals and shopping malls. Upfront investment and ongoing maintenance costs vary across contracts.
•Our rights to place street furniture in the public domain and to sell advertising on such street furniture are governed by contracts awarded by municipal and transit authorities, which typically provide for terms ranging up to 15 years. Municipal contracts typically require us to provide the municipality with a broad range of metropolitan amenities such as bus shelters with or without advertising panels, information kiosks, public wastebaskets and space for the municipality to display maps or other public information. In 2016,exchange for providing such metropolitan amenities and display space, we are authorized to sell advertising space on certain sections of the top five client categoriesstructures we erect in our International segment, based on Internationalthe public domain. We pay the municipality or transit authority a fee or revenue share that is either a fixed amount or a percentage of the revenue derived from these categories, werethe displays and are typically required to pay minimum guaranteed amounts.
•We lease the majority of our billboard sites from private landowners, typically for terms ranging up to 15 years.
•Our rights to place displays in retail entertainment, telecommunications, foodlocations and food products, and automotive, accessories and equipment.
Competition
The international outdoorto sell advertising industry is competitive, consisting of several large companies involved in outdoor advertising,space on them generally are awarded by retail outlet operators such as JCDecaux SAlarge retailers or mall operators, either through private tenders or bilateral negotiations. These contracts generally have terms ranging from three to ten years.
•Similar to street furniture, our rights to place transit displays on vehicles or within transit systems and ExterionMedia (UK) Limited, as well as numerous smaller and local companies operating a limited number of displays in a single market or a few local markets. We also compete with otherto sell advertising media in our respective markets, including broadcast and cable television, radio, print media, direct mail, online, mobile and other forms of advertisement. Outdoor companies compete primarily basedspace on ability to reach consumers, which is driventhem generally are awarded by location of the display.
Our business requires us to obtain and renew contracts with municipalities and other governmental entities, which frequently require us to participatepublic transit authorities in competitive bidding processes at each renewal. Many of theseor are negotiated with private transit operators. These contracts typicallygenerally have terms ranging from two to 15 yearsfive years.
Other
We also have operations in Latin America, including in Mexico, Brazil, Chile and Peru, and in Singapore. Most of our revenue from these operations is generated from the sale of advertising space on billboard, street furniture and retail displays, and as of December 31, 2022, this portfolio included approximately 7,600 displays, including more than 1,000 digital displays. Our Latin America and Singapore businesses generated 3%, 3% and 3% of our revenue in 2022, 2021 and 2020, respectively.
On April 28, 2020, following a strategic review of our investment in China, we sold our 50.91% stake in Clear Media Limited (“Clear Media”), a company based in China whose ordinary shares were, at the time, listed on the Hong Kong Stock Exchange. Our stake in Clear Media generated 2% of our revenue in 2020.
Seasonality, COVID-19 and Macroeconomic Trends
We typically experience our weakest financial performance in the first quarter of the calendar year, which is generally offset during the remainder of the year as our business typically experiences its strongest performance in the second and fourth quarters of the calendar year. However, our seasonal results in 2020 and 2021 varied from historical trends as COVID-19 had a significant adverse impact on our results of operations during 2020 and the first quarter of 2021. As restrictions eased and vaccine programs were rolled out, we saw increases in mobility and corresponding positive trends in revenue, with consolidated revenue returning to growth in the second quarter of 2021 as compared to the prior year. However, we did not experience a return to our pre-COVID-19 historical seasonal levels of revenue until the fourth quarter of 2021.
During the COVID-19 pandemic, we implemented various savings initiatives to increase our liquidity and preserve and strengthen our financial flexibility, including negotiating rent abatements with landlords and municipalities, receiving governmental support and subsidies, executing restructuring plans to reduce headcount and related costs, and reducing or deferring capital expenditures. As our operating performance improved, we reduced or ceased many of these temporary operating cost savings initiatives and increased our investment in our business through additional capital expenditures and asset acquisitions. By remaining focused on our strategic plan during the period in which we were adversely affected by COVID-19, we strengthened our presence in the advertising community, and as our markets re-opened, we saw consistent improvements in revenue. We believe this rebound, together with new advertisers discovering our medium, will continue to drive growth in many of our markets in 2023 ahead of pre-COVID-19 revenue levels, demonstrating the resilience of our business.
Advertising revenue for our business is highly correlated to changes in gross domestic product (“GDP”) as advertising spending has historically trended in line with GDP, both domestically and internationally. Additionally, our international results are impacted by the economic conditions in the foreign markets in which we operate and by fluctuations in foreign currency exchange rates. In early 2022, worldwide inflation began to increase. In response to heightened levels of inflation, central banks, including the U.S. Federal Reserve and the European Central Bank, increased interest rates, resulting in an increase in our weighted average cost of debt. Additionally, during 2022, the U.S. dollar strengthened against the Euro and British pound sterling, among other European currencies, resulting in an adverse impact on reported results in our Europe segments. The U.S. dollar may continue to strengthen against these foreign currencies if the U.S. Federal Reserve further raises the federal funds rate, which may result in downstream impacts to global exchange rates and further adverse impacts to our reported results in our Europe segments. Inflation has affected our performance as a result of higher costs for employees, electricity, materials and equipment; however, we believe we have revenue share, capital expenditure requirements and/or fixed payment components. Competitive bidding processes are complexpartially offset these higher costs by increasing the effective advertising rates for most of our products, and sometimes lengthy. Substantial costs may be incurred in connection with preparing bids for such processes. Our competitors, individually or through relationships with third parties, may be able to provide municipalities with different or greater capabilities or prices or benefits than we can provide. In the pastdate, we have not and most likely in the future will not, be awarded all of the contracts on which we bid. There can be no assurance that we will win any particular bid, or that we will be able to replace any revenues lost upon expiration or completion of a contract. Our inability to renew existing contracts can also result in significant expensessuffered material impacts from the removalheightened levels of our displays. Furthermore, if and when we do obtain a contract, we are generally required to incur significant start-up expenses.global inflation. The costs of bidding on contracts and the start-up costs associated with new contracts we may obtain may significantly reduce our cash flow and liquidity. The success ofmarket risks that our business also depends generally on our ability to obtain and renew contracts with private landlords.
Employees
As of December 31, 2016, we had approximately 1,400 domestic employees and approximately 4,400 international employees, of which approximately 5,100 were in direct operations and 700 were in administrative or corporate related activities.
Approximately 100 of our employees areis subject to collective bargaining agreementsare further described in their respective countries. We are a party to numerous collective bargaining agreements, none of which represent a significant number of employees. We believe that our relationship with our employees is good.
Seasonality
We’re continuing to monitor developments impacting the global economy. Out-of-home growth has been fairly resilient over time, and as of early 2023, we have not seen signs of a slowdown in our business. However, as we demonstrated during COVID-19, we believe we have the levers to manage our costs should that need arise, and we remain committed to ensuring we have ample liquidity on our balance sheet.
Regulation of our Business
The outdoor advertising industry in the United States is subject to governmental regulation at the federal, state and local levels. These regulations may include, among others, restrictions on the construction, repair, maintenance, lighting, upgrading, height, size, spacing and location and permitting of and, in some instances, content of advertising copy being displayed on outdoor advertising structures. In addition, international regulationsRegulations have a significant impact on the outdoor advertising industry. International regulation of the outdoorout-of-home advertising industry can vary by municipality, region and country, but generally limitsour business. We are subject to a wide variety of local, state and federal laws and regulations in the size, placement, naturecountries in which we operate, including:
•land use laws and densityzoning restrictions;
•environmental, health and safety laws and regulations applicable to an owner or operator of out-of-home displays. Otherreal estate properties and facilities, and which relate to the use, storage, disposal, emission and release of hazardous and non-hazardous substances;
•laws and regulations may limit the subject matterrelated to consumer protection, information security, data protection, privacy and languageunauthorized access to, or acquisition of, out-of-home displays.personally identifiable information (“PII”);
From time to time, legislation has been introduced in both the United States•laws and foreign jurisdictions attemptingregulations that seek to impose taxes on revenue from outdoorout-of-home advertising or for the right to use outdoor advertising assets. Several jurisdictions have imposed such taxes as a percentage of our outdoor advertising revenue generated in that jurisdiction. In addition, some jurisdictions have taxed ourand on personal property and leasehold interests in advertising locations using various valuation methodologies. We expect U.S.locations; and foreign jurisdictions to continue to try to impose such taxes as a way of increasing revenue. In recent years, outdoor advertising also has become the subject of targeted taxes and fees. These laws may affect prevailing competitive conditions in our markets in a variety of ways. Such laws may reduce our expansion opportunities or may increase or reduce competitive pressure from other members of the outdoor advertising industry. No assurance can be given that existing or future laws or regulations, and the enforcement thereof, will not materially and adversely affect the outdoor advertising industry. However, we contest
•laws and regulations thatrelated to labor and employment, human rights, anti-bribery and competition matters.
For the year ended December 31, 2022, compliance with regulations applicable to us did not have a material effect on our capital expenditures, earnings or competitive position, and at this time, we believe unlawfully restrictdo not expect to incur material capital expenditures related to compliance with regulations during 2023. Additional information about the impact of government regulations on our constitutional or other legal rightsbusiness is provided below and may adversely impact the growthin Item 1A, “Risk Factors—Regulatory Risks” of our outdoor advertising business.this Annual Report on Form 10-K.
Industry Regulation
In the United States, federal law, principallyU.S., the Highway Beautification Act (“HBA”), regulates outdoorout-of-home advertising on Federal-Aid Primary, Interstate and National Highway Systems roads within the United States (“controlled roads”).U.S. The HBA regulates, among other matters, the size and placement of billboards and requires the development of state standards mandates a state’sand compliance program, promotesprograms for the expeditious removaleffective control of illegal signsbillboards. We are not aware of any state that has passed control statutes and requires just compensation for takings.
To satisfyregulations less restrictive than the HBA’s requirements, allprevailing federal requirements. All states have passed billboard control statutes and regulations that regulate, among other things, construction, repair, maintenance, lighting, height, size, spacing, and the placement and permitting of outdoorout-of-home advertising structures. We are not aware of any state that has passed control statutes and regulations less restrictive than the prevailing federal requirements on the federal highway system, including the requirement that an owner remove any non-grandfathered, non-compliant signs along the controlled roads, at the owner’s expense and without compensation. Local governments generally also include billboard control as part of their zoning laws and building codes regulating those items described above and include similar provisions regarding the removal of non-grandfathered structures that do not comply with certaincodes. Each of the local requirements. Some local governments have initiated code enforcementinternational countries in which we operate has its own regulatory regime or, in some cases, more than one regulatory regime. These regulations generally limit the size, placement, nature, density and permit reviewscontent of out-of-home displays. In addition, many of these regulations set specific guidelines for the development of new out-of-home locations and address the construction, repair, maintenance, lighting, upgrading, height, size, spacing, location and permitting of billboards, within their jurisdiction. In some instances we have had to remove billboards as a result of such reviews.
As part of their billboard control laws, state and local governments regulatewell as the constructionuse of new signs.technologies for changing displays, such as digital displays. Some jurisdictions prohibit new construction, some jurisdictions allow new construction only to replace or relocate existing structures and some jurisdictions allow new construction subject to the various restrictions discussed above. In certain jurisdictions, restrictive regulations also limit our ability to relocate, rebuild, repair, maintain, upgrade, modify or replace existing legal non-conforming billboards.
U.S. federal law neither requires nor prohibits the removal of existing lawful billboards, but it does mandate the payment of compensation if a state or political subdivision compels the removal of a lawful billboard along the controlled roads. In the past, state governments have purchased and removed existing lawful billboards for beautification purposes using federal funding for transportation enhancement programs, and these jurisdictions may continue to do so in the future. From time to time, state and local government authorities use the power of eminent domain and amortization to remove billboards. Amortization is the required removal of legal non-conforming billboards (billboards which conformed with applicable laws and regulations when built, but which do not conform to current laws and regulations) or the commercial advertising placed on such billboards after a period of years. Pursuant to this concept, the governmental body asserts that just compensation is earned by continued operation of the billboard over that period of time. Although amortization is prohibited along all controlled roads, amortization has been upheld
along non-controlled roads in limited instances where permitted by state and local law. Thus far, we have been able to obtain satisfactory compensation for, or relocation of, our billboards purchased or removed as a result of these types of governmental action, although there is no assurance that this will continue to be the case in the future.
We have introduced and intend to expand the deployment of digital billboards that display static digital advertising copy from various advertisers that change up to several times per minute. We have encountered some existing regulations in the U.S. and across some international jurisdictions that restrict or prohibit thesedigital billboards.
Privacy and Data Protection
We obtain certain types of information from users of our technology platforms, including our websites, web pages, interactive features, social media pages and mobile applications. We also obtain anonymous and/or aggregated audience behavior insights about consumers from vetted third-party data providers. We use and share this information for a variety of business purposes and may coordinate out-of-home client campaigns with online advertising campaigns run by our business partners, including interstitial ads and push notifications. In addition, we collect PII from our employees, advertising clients, users of our public bike services, individuals who provide such information through our websites, our business partners and consumers who interact with our digital displays. However, since digital technologypanels, including through QR codes and beacon technology. Collecting and processing PII subjects us to a number of federal, state, local and foreign laws and regulations relating to consumer protection, information security, data protection, privacy and risks of unauthorized access to, or acquisition of, PII. U.S. and international information security and data protection laws require companies to implement specific information security controls and legal protections for changing static copy has only recently been developedcertain types of PII. Likewise, every state in the U.S. and introduced intomost other countries have laws in place requiring companies to notify users if there is a security breach that compromises certain categories of their PII. Several states have enacted legislation protecting privacy rights. Internationally, there are a number of regimes across the market onjurisdictions where we operate that govern privacy and the collection and use of personal data. We have implemented a large scale,legal and isinformation security-led approach to address our compliance obligations in line with our legal obligations and risk profile. We are also in the process of being introducedadapting our data transfer mechanisms in accordance with significant E.U. privacy case law.
Our Human Capital Resources
As of December 31, 2022, we had more broadlythan 4,700 employees, including approximately 1,600 employees in the U.S. and more than 2,600 employees in Europe, with the remainder in Latin America and Asia. We believe that attracting, motivating and retaining great people who allow us to continue delivering innovative advertising insights and solutions to our customers while enhancing our communities is a critical component of our continued success and position as an industry leader.
We continually focus on talent acquisition, employee development and employee retention. We have an annual talent identification process and development programs in place to ensure we have sufficient succession planning strategies for critical roles, and we have a robust annual goal-setting and performance management process to ensure all employees have a connection and purpose aligned to our overall company goals. We strive to create strong teams and an inclusive and vibrant culture at every level of our organization through our core values of integrity, innovation, excellence, safety and fairness, as well as our focus on the employee value proposition, which focuses on compensation, benefits, work environment, career development and culture.
We believe people can achieve their full potential when they enjoy their work, so it is our priority to provide a workplace where growth, success and fun go hand in hand. We formally survey our employees on a periodic and ongoing basis to measure engagement and identify areas for improvement. In 2021, we launched employee engagement/fairness surveys in the U.S. and Europe and received response rates of over 85%, with our overall engagement scores up from previous years. In 2022, we conducted another employee engagement survey in the U.S. Our response rate was 83% and overall engagement was up four points from last year, a significant and positive result. Leaders have communicated results, and action planning to sustain and improve engagement is underway.
Compensation and Benefits Programs
Our compensation and benefits programs are designed to attract, retain and motivate talented individuals who possess the skills necessary to support our business objectives, help us achieve our strategic goals and create long-term value for our stockholders. We provide employees with market-competitive compensation packages that include base salary and annual incentive bonuses tied to Company and division financial, operational and strategic objectives and individual performance targets, in line with our pay-for-performance philosophy. Recognition is provided through quarterly newsletters and an annual formal recognition program. Our sales employees are incentivized through sales commission programs, with our highest performing individuals further awarded through formal recognition programs. Our executives and certain other employees receive long-term equity awards that vest based on our relative total shareholder return or over a defined period. We believe that a compensation program with both short-term and long-term awards provides fair and competitive compensation and aligns employee and stockholder interests.
We also provide our employees and their families with access to a variety of affordable and convenient healthcare and insurance benefits, programs to help ensure financial security, enhanced wellness initiatives, retirement savings plans and various other benefits, including paid parental leave, time off to volunteer in our international markets, existingcommunities, and voluntary benefits such as long-term care insurance, discounted auto and home insurance, and several others.
Advancing Diversity and Inclusion
We are an equal opportunity employer and are committed to providing a work environment that is free of discrimination and harassment. We respect and embrace diversity of background, thought and experience and believe that a diverse workforce produces more innovative insights and solutions, resulting in better products and services for our customers. As we bring brands face-to-face with people, we believe our teams need to be as diverse in their composition and outlook as the audiences we reach every day, and we work together to create an inclusive environment where everyone can bring their true selves to work. Based on the latest data collected, as of August 2022, approximately 41% of our total employee population in the U.S. was female and approximately 36% identified as people of color. As of the same date, approximately 36% of our total employee population in Europe and Latin America was female.
We have an ongoing priority to enhance the diversity of our workforce and have implemented diversity and inclusion strategies to amplify our outreach to diverse talent pools across our global business. To further promote a diverse and inclusive environment, we have dedicated Diversity and Inclusion committees in all of our divisions that run engagement programs aimed at improving the experience of diverse groups across our Company. We have also deployed a training curriculum for employees designed to raise diversity and inclusion awareness and surveyed employees globally to identify and prioritize company-wide initiatives.
In the last few years, we led several key diversity and inclusion initiatives, including deepening our involvement with our communities by using our digital out-of-home displays to amplify diversity celebrations and building a sense of inclusion across the workplace through Employee Resource Groups with the mission of providing a safe, welcoming and supportive environment to empower employees to fearlessly address their unique needs and perspectives.
Commitment to Safety and Wellness
Safety is one of our core values, and we are committed to providing our employees with a safe workplace and prioritizing the physical and mental health and well-being of our employees. One of the ways in which we do this is by offering several programs across our regions, including our Mental Health Allies program, an internal network of trained employees who can provide support about mental health in the workplace, and an Employee Assistance Program, which gives employees access to licensed professional counselors and other specialists at no cost for help with balancing work and life issues.
We also seek to comply with safety regulations in our local markets. Our health and safety management systems are subject to regular inspections and independent audits performed by trained health and safety auditors. In connection with the COVID-19 pandemic, we continue to monitor the regulations and local health authority guidance related to COVID-19 and update our robust safety policies and protocols as needed to protect our employees based on evolving local conditions.
Career Development Initiatives
This year, we formalized our U.S. Mentorship Program. Mentor and mentee matches are based on professional and personal interests, and both parties receive coaching and training through a carefully crafted process. Surveys are administered throughout the relationship to recognize achievements and provide guidance to participants.
In Europe, we have our “Bright Sparks” program, which is a talent program designed for our promising future leaders and experts. It enables participants to develop their skills and career through experience-driven workshops, mentoring and coaching sessions, allowing them to reflect on their purpose and career path while also learning about the business.
Community Involvement
One of our guiding principles is making a difference in the communities we serve, and our corporate social responsibility initiatives are an important part of our culture. As a company, we endeavor to use our resources and products to make meaningful contributions to our communities and have collaborated with local and national organizations globally in initiatives to improve health and public safety; to create a sustainable environment; and to promote arts, education and cultural diversity. We also believe that currently dobuilding connections between our employees, their families and our communities creates a more meaningful, fulfilling and enjoyable workplace, and we provide employees the opportunity to give back to their communities. For example, our U.S. employees provided their communities with over 3,400 hours of service in 2022 through our Local Spirit Day of Service program, which offers employees a day of paid volunteer time each year to engage with our local communities. We also have similar community-assistance programs for employees in our European markets.
Business Conduct and Ethics
We are deeply committed to promoting a culture of ethical conduct and compliance. Our Code of Business Conduct and Ethics (the “Code”), which applies to all employees, officers and members of the Board, reinforces our core values and helps drive our workplace culture of compliance with ethical standards, integrity and accountability. Training on the Code is mandatory upon employment and is provided on an annual basis. Highlights from our Code and its underlying policies, standards and guidance include an independent hotline and no-retaliation policy for anyone who, acting in good faith, notifies us of a possible violation of the Code, our policies or the law; a commitment to human rights and labor protections in all of our operations, and the expectation that our business partners uphold the same standards; cybersecurity and privacy controls; sanctions and money laundering controls; and anti-corruption policies that prohibit offering, attempting to offer, authorizing or promising any bribe or kickback for the purpose of obtaining or retaining business or an unfair advantage.
Climate Change and Sustainability
We are spearheading projects and initiatives that aim to drive sustainability and reduce our environmental impact. We have announced a commitment to be Carbon Net Zero before 2050 across our divisions, in alignment with the 2016 Paris Agreement. In 2022, we published our global Environmental Policy and established an environmental program framework based on the ISO 14001 standard, which focuses on continual improvement and the evaluation of environmental risks and impacts of our products and processes. In addition, as we continue our digital transformation, we have continued to focus on the efficiency of our technologies (including, but not applylimited to, digitalconverting a large portion of our illuminated displays to LED lighting, using light sensors and dimming technology that control brightness and exploring alternative energy sources) and on developing innovative products and services with a reduced environmental footprint. Our sustainability efforts are underpinned by their terms could be revisedour various industry commitments, including to impose greater restrictions. These regulations, or actions by third parties, may impose greater restrictions on digital billboards due to alleged concerns over aesthetics or driver safety.Ad Net Zero, the UN Global Compact and the Carbon Disclosure Project.
Available Information
You can find more information about us at our Internet website located at www.clearchanneloutdoor.com. Our Annual Report on Form 10-K, our Quarterly Reports on Form 10-Q, our Current Reports on Form 8-K and any amendments to those reports are available free of charge through our Internet website as soon as reasonably practicable after we electronically file such material with, or furnish such material to, the Securities and Exchange Commission (“SEC”).clearchanneloutdoor.com. The contents of our website are not deemed to be part of this Annual Report on Form 10-K or any of our other filings with the SEC.
TheOur Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and any amendments to those reports are available free of charge through our Investor Relations website at investor.clearchannel.com as soon as reasonably practicable after such material is electronically filed with, or furnished to, the SEC. Our SEC maintains an internet website that contains these reports at www.sec.gov. Any materials we file withfilings are also available to the SEC may also be read or copiedpublic at the SEC’sSEC's website at sec.gov.
INFORMATION ABOUT OUR EXECUTIVE OFFICERS
The following information with respect to our executive officers is presented as of February 28, 2023:
| | | | | | | | | | | | | | |
| Name | | Age | | Title |
| Scott R. Wells | | 54 | | President, Chief Executive Officer |
| Brian D. Coleman | | 57 | | Executive Vice President, Chief Financial Officer |
| Lynn A. Feldman | | 54 | | Executive Vice President, Chief Legal Officer and Corporate Secretary |
| Jason A. Dilger | | 49 | | Senior Vice President, Chief Accounting Officer |
| Justin Cochrane | | 50 | | Chief Executive Officer of Clear Channel UK & Europe |
Scott R. Wells was appointed as our President and Chief Executive Officer effective January 1, 2022. Prior to that time, Mr. Wells served as the Chief Executive Officer of Clear Channel Outdoor Americas, a position he was appointed to on March 3, 2015. Previously, he had served as an Operating Partner at Bain Capital beginning in January 2011, and prior to that, he served as an Executive Vice President at Bain Capital beginning in 2007. Prior to joining Bain Capital, he held several executive roles at Dell, Inc. from 2004 to 2007, most recently as Vice President of Public Reference RoomMarketing and On-Line in the Americas. Prior to joining Dell, Inc., Mr. Wells was a Partner at 100 F Street, NE, Washington, DC 20549. Information concerning the operationBain & Company, where he focused primarily on technology and consumer-oriented companies. He currently serves as Chair of the Public Reference Room may be obtained by callingAchievement Network and is Chair-elect of the SECOutdoor Advertising Association of America. He has an MBA, with distinction, from the Wharton School of the University of Pennsylvania and a B.S./B.A. from Virginia Tech University.
Brian D. Coleman was appointed as our Executive Vice President, Chief Financial Officer on May 1, 2019. Prior to that time, Mr. Coleman served as the Senior Vice President and Treasurer for iHeartMedia and Clear Channel Outdoor Holdings and was appointed to those positions in December 1998. Previously, Mr. Coleman served as a Project Manager in the Corporate Finance department at (800) 732-0330.Central and South West Corporation, a multi-state utility holding company, from 1995 to 1998. Prior to that role, Mr. Coleman held various financial positions at Bank of America, Sumitomo Banking Corporation and National Australia Bank. Mr. Coleman received a BBA in Finance from the University of Texas at Austin.
Lynn A. Feldmanwas appointed as our Executive Vice President, General Counsel and Corporate Secretary on May 1, 2019, and effective November 1, 2022, her title was changed to Executive Vice President, Chief Legal Officer and Corporate Secretary. Prior to May 1, 2019, Ms. Feldman served as the Executive Vice President and General Counsel for Clear Channel Outdoor Americas and was appointed to that position in July 2016. Previously, Ms. Feldman served as the Executive Vice President and General Counsel of Wyndham Hotel Group, a division of Wyndham Worldwide Corporation, from 2009 to 2015. Prior to that role, Ms. Feldman served as the Senior Vice President, Deputy General Counsel and Corporate Secretary of Wyndham Worldwide Corporation. Prior to that role, Ms. Feldman served in various corporate roles within Cendant Corporation and as a Corporate Associate at Lowenstein Sandler LLP. Ms. Feldman received a J.D. from the Georgetown University Law Center and a B.A. from Boston College.
Jason A. Dilger was appointed as our Senior Vice President, Chief Accounting Officer on May 1, 2019. Prior to that time, Mr. Dilger had served as Senior Vice President, Accounting for Clear Channel Outdoor Americas beginning in August 2011. Prior to that role, Mr. Dilger served as Corporate Controller of Sinclair Broadcast Group from 2006 to 2011. Prior to that role, Mr. Dilger served in various accounting and finance roles at Municipal Mortgage & Equity from 2004 to 2006. Mr. Dilger began his career in public accounting with nearly a decade of experience at Arthur Andersen LLP and Ernst & Young LLP. Mr. Dilger earned his B.S. in Accounting from the University of Delaware.
Justin Cochrane was appointed as our Chief Executive Officer of Clear Channel U.K. & Europe on January 1, 2023. Mr. Cochrane joined Clear Channel in November 2001. After various finance and operational roles in both of Clear Channel’s U.K. and International Corporate divisions, including Group Controller of Clear Channel International and Chief Financial Officer and Chief Operating Officer of Clear Channel U.K., Mr. Cochrane became Chief Executive Officer of Clear Channel U.K. in 2015. Subsequently, in 2019, Mr. Cochrane became Chief Executive Officer of both Clear Channel U.K. and Clear Channel’s European markets. Prior to joining Clear Channel in November 2001, Mr. Cochrane had trained as a Chartered Accountant, working in both public accounting and banking for five years. Mr. Cochrane currently serves as the Chairman of Outsmart, the U.K.’s Out-of-Home industry trade body, and sits on the board of the Committee of Advertising Practice in the U.K. Mr. Cochrane received a Master’s Degree in Engineering from the University of Oxford.
ITEM 1A. RISK FACTORS
A wide range of factors could materially adversely affect our business, operating results, financial condition, and/or the value of our common stock and outstanding debt securities. These factors include, but are not limited to, the following risks and uncertainties:
Economic Risks Related to Our Businessand Current Events
Our results have been in the past, and could be in the future be, adversely affected by continued economic uncertainty, an economic slowdown or deteriorations in economic conditionsa recession.
We derive revenues from the sale of advertising. Expenditures by advertisers tend to be cyclical, reflecting economic conditions and budgeting and buying patterns. Periods of a slowing economy or recession, or periods of economic uncertainty, may behave historically been accompanied by a decrease in advertising. For example, the global economic downturn that began in 2008 resulted in a decline in advertising and marketinghave negatively impacted our business. The current macroeconomic environment is characterized by significant inflation, supply chain challenges, labor shortages, high interest rates, foreign currency exchange volatility, volatility in global capital markets and growing risk of recession. In response to heightened levels of inflation in 2022, central banks, including the U.S. Federal Reserve and the European Central Bank, increased interest rates, resulting in an increase in our customers, which resultedweighted average cost of debt. Additionally, the U.S. dollar has strengthened against the Euro and British pound sterling, among other European currencies, resulting in a decline in advertising revenues across our businesses. This reduction in advertising revenues had an adverse effectimpact on reported results in our Europe segments in 2022. In addition, the U.S. dollar may continue to strengthen against these foreign currencies in 2023 as the U.S. Federal Reserve further raises the federal funds rate, which could result in downstream impacts to global exchange rates and further adverse impacts to our reported results in our Europe segments. In 2022, inflation affected our performance as a result of higher costs for employees, electricity, materials and equipment. To date, we believe we have partially offset these higher costs and have not suffered material impacts from the heightened levels of global inflation. However, if economic conditions worsen, there can be no guarantee that we will be able to continue to mitigate the effects of those conditions on our revenue, profit margins, cash flowbusiness. During the height of the COVID-19 pandemic, we were required to take various measures to increase our liquidity and liquidity. Globalpreserve and strengthen our financial flexibility, including implementing restructuring plans to reduce headcount and related costs throughout our business. As our operating performance has improved, we have ceased those temporary operating cost savings initiatives. Nevertheless, if economic conditions have been slowworsen or if a recession occurs, we may be required to recovertake similar or more strict measures than those we took during the height of the COVID-19 pandemic. Those measures, including restructurings and remain uncertain. If economic conditions do not continue to improve, economic uncertainty increases or economic conditions deteriorate again, global economic conditions may once againcost savings, could adversely impactaffect our revenue, profit margins, cash flowbusiness, operations, liquidity and liquidity. financial results.
Furthermore, because a significant portion of our revenue is derived from local advertisers, our ability to generate revenues in specific markets is directly affected by local and regional conditions. Unfavorable regional or local economic or political conditions, such as those resulting from Russia’s invasion of Ukraine, as well as increased social and unfavorable regional economic conditionspolitical turmoil and unrest in some Latin American countries, also may adversely impact our results. In addition, evenA severe or prolonged economic downturn, including a recession or depression, could impact our business, including our revenues and our ability to raise additional capital when needed on favorable terms or at all. We cannot anticipate the impact of the current economic environment on our business, and any of the foregoing could materially harm our business.
The ongoing COVID-19 pandemic severely affected, and may continue to affect, our business, operating results and financial condition.
Our business could be adversely affected by the effects of health pandemics or epidemics, including the ongoing COVID-19 global pandemic, the evolution of which continues to be uncertain. COVID-19 had a significant adverse impact on our results of operations in the absence of a downturn in general economic conditions, an individual business sector or market may2020 and 2021, and we did not experience a downturn, causing itreturn to reduce its advertising expenditures,our pre-COVID-19 historical seasonal levels of revenue until the fourth quarter of 2021. As described above, at the height of the COVID-19 pandemic, we were required to take various measures to increase our liquidity and preserve and strengthen our financial flexibility. Recurring COVID-19 outbreaks around the world, such as those most recently occurring in China following the suspension of China’s zero-COVID policy, have heightened concerns relating to new and potentially more dangerous COVID-19 variants, which, alsoif transmitted around the globe, could lead to the reintroduction of precautionary measures similar to, or more strict than, those imposed at the height of the COVID-19 pandemic. A resurgence of COVID-19 or another health pandemic or epidemic may adversely affect the out-of-home advertising industry, our revenues and our liquidity position. As the COVID-19 pandemic continues to evolve, its ultimate impact on our business is subject to change. A severe outbreak of COVID-19 or another health pandemic or epidemic can disrupt our business and adversely materially impact our financial results.
To service our debt obligations
Liquidity, Financing and to fund our operations and our capital expenditures, weCapital Structure Risks
We require a significant amount of cash to meet our needs, which depends on many factors beyond our control
Our ability to service our debt obligations and to fund our operations and our capital expenditures, for display construction, renovation or maintenancewhich depends on many factors beyond our control, including the recent volatility and uncertainty in capital markets.
Our ability to service our debt obligations requires a significant amount of cash. During 2022, we spent $341.4 million of cash to pay interest on our debt, and we anticipate having approximately $413.0 million of cash interest payment obligations in 2023. Our primary sources ofsignificant principal and interest payment obligations reduce our financial flexibility, make us more vulnerable to changes in operating performance and economic downturns or recessions, could reduce our liquidity over time and could negatively affect our ability to obtain additional financing in the future.
Our other cash requirements are for working capital used to fund site lease costs, including payments for land or space used by our displays, for capital expenditures primarily related to construction and sustaining activities for our out-of-home advertising displays and, as our financial results have improved, to fund asset acquisitions. We primarily finance these requirements with cash on hand, internally-generated cash flow from operations and, if necessary, borrowings under our credit facilities. Our long-term future cash requirements will depend on many factors, including the revolving promissory note with iHeartCommunicationsgrowth of our business, investments in digital conversions and new technologies, such as RADAR and our senior revolving credit facility. Based onprogrammatic solution set, and the pursuit and outcome of strategic transactions, including the outcome of the strategic reviews of our current and anticipated levels of operations and conditions in our markets, we believe that cash on hand, cash flow from operations, borrowing capacity under the senior revolving credit facility and borrowing capacity under or repayment of amounts outstanding under the revolving promissory note with iHeartCommunications will enable usEurope businesses. Our ability to meet our working capital, capital expenditure, debt service and other fundingthese cash requirements for at least the next twelve months. However, our ability to fund our working capital, capital expenditures, debt service and other obligationsthrough cash from operations depends on our future operating performanceresults and cash from operations,financial performance, which are in turn subject to significant uncertainty and may be affected by events beyond our control, including prevailing economic, financial and industry conditions, as well as macroeconomic events such as heightened inflation and higher interest rates. Availability of our credit facilities for working capital and other factors, many ofneeds is limited by certain covenants under our existing indebtedness, and if we are unable to generate sufficient cash through our operations, we could face substantial liquidity problems, which are beyondcould have a material adverse effect on our control. Iffinancial condition, our future operating performance does notability to meet our expectations orobligations and the value of our plans materially change in an adverse manner or prove to be materially inaccurate, we may need additional financing. In addition, thecompany.
The purchase price of possible asset acquisitions, capital expenditures for deployment of digital billboards and/orand other strategic initiatives could require additional indebtedness or equity financing from banks or other lenders, or through public offerings or private placements of debt or equity, strategic relationships or other arrangements, or from a combination of these sources. Additional indebtedness could increase our leverage and make us more vulnerable to economic downturns and may limit our ability to withstand competitive pressures. The terms of our existing or future debt or equity agreements may restrict us from securing financing on our part. Adverse securities and credit market conditions could significantly affect the availability of equity or debt financing. Consequently,terms that are acceptable to us. Furthermore, there can be no assurance that such financing if permitted under the terms of our financing
agreements,alternatives will be available to us in sufficient amounts or on terms acceptable to us in the future due to market conditions, our financial condition, our liquidity constraints or other factors, many of which are beyond our control, and even if financing alternatives are available to us, we may not find them suitable or at all.reasonable interest rates, especially given that current capital markets conditions have increased the cost of capital. The inability to obtain additional financing in such circumstances could have a material adverse effect on our financial condition and on our ability to meet our obligations or pursue strategic initiatives. Additional
We may not be able to generate sufficient cash to service our substantial indebtedness and may be forced to take other actions to satisfy our obligations under our indebtedness, which may not be successful.
As of December 31, 2022, we had approximately $5.6 billion of total indebtedness outstanding, including approximately $1.9 billion of term loans under the Term Loan Facility, which amortizes in equal quarterly installments in an aggregate annual amount of $20.0 million, with the balance being payable in August 2026; $1.25 billion aggregate principal amount of 5.125% Senior Secured Notes due 2027 (the “CCOH Senior Secured Notes”); $1.0 billion aggregate principal amount of 7.75% Senior Notes due 2028 (the “CCOH 7.75% Senior Notes”); $1.05 billion aggregate principal amount of 7.5% Senior Notes due 2029 (the “CCOH 7.5% Senior Notes”); $375.0 million aggregate principal amount of CCIBV 6.625% Senior Secured Notes due 2025 (the “CCIBV Senior Secured Notes”); and approximately $36.8 million of other debt. Our substantial level of indebtedness and other financial obligations increase the possibility that we may be unable to generate cash sufficient to pay, when due, the principal, interest or other amounts due in respect of our indebtedness.
This substantial amount of indebtedness and other obligations could increasehave negative consequences for us, including, without limitation:
•Requiring us to dedicate a substantial portion of our leveragecash flow to the payment of principal and makeinterest on our indebtedness, thereby reducing cash available for other purposes, including to fund operations and capital expenditures, invest in new technology, such as RADAR and our programmatic solution set, and pursue other business opportunities;
•Limiting our liquidity and operational flexibility and limiting our ability to obtain additional financing for working capital, capital expenditures, debt service requirements, acquisitions and general corporate or other purposes;
•Limiting our ability to adjust to changing economic, business and competitive conditions;
•Requiring us to defer planned capital expenditures, reduce discretionary spending, sell assets, restructure existing indebtedness or defer acquisitions or other strategic opportunities, including our ability to enter into new agreements that will require capital expenditures;
•Limiting our ability to refinance any of the indebtedness or increasing the cost of any such refinancing;
•Making us more vulnerable to any increase in interest rates, a downturn in our operating performance, a decline in general economic downturnsor industry conditions, or a disruption in the credit markets; and may limit
•Making us more susceptible to negative changes in credit ratings, which could impact our ability to withstandobtain financing in the future and increase the cost of such financing.
If compliance with debt obligations materially hinders our ability to operate our business and adapt to changing industry conditions, we may lose market share, our revenue may decline, and our operating results may suffer.
Our ability to make scheduled payments on our debt obligations depends on our financial condition and operating performance, which is subject to prevailing economic and competitive pressures.conditions and to certain financial, business, economic and other factors beyond our control.
•We may not be able to maintain a level of cash flows from operating activities sufficient to permit us to pay the principal, premium, if any, and interest on our indebtedness, and if our cash flows and capital resources are insufficient to fund our debt service obligations, we may be forced to reduce or delay capital expenditures, sell assets or operations, seek additional capital or refinance our indebtedness. Additionally, we may not be able to take any of these actions, or these actions may not be successful or permit us to meet our scheduled debt service obligations. Furthermore, these actions may not be permitted under the terms of our existing or future debt agreements.
•Our ability to refinance our debt will depend on the condition of the capital markets and our financial condition at such time. Any refinancing of our debt could be at higher interest rates, increasing our debt service obligations, and may require us to comply with more onerous covenants, which could further restrict our business operations. Additionally, we may not be able to refinance our debt at all, or we may not be successful in utilizing debt refinancings to meet our scheduled debt service obligations. Furthermore, the terms of existing or future debt instruments may restrict us from pursuing this alternative.
Any failure to make payments of interest and principal on our outstanding indebtedness on a timely basis would likely result in a reduction of our credit rating, which could harm our ability to incur additional indebtedness. If we cannot make scheduled payments on our indebtedness, we will be in default under one or more of the agreements governing our indebtedness, and as a result, we could be forced into bankruptcy or liquidation.
Operational Risks
Implementing our strategy may be more difficult, costly and/or time consuming than expected, and we may not realize the anticipated benefits thereof fully or at all.
We are focused on driving incremental demand for out-of-home advertising and on increasing our operational efficiencies. Our strategy is based on three pillars — accelerating our digital transformation, prioritizing customer-centricity and driving executional excellence — which are being implemented together with the optimization of our portfolio. The success of our strategy and the realization of the anticipated benefits thereof, depends, in part, on our ability to execute and demonstrate the value-added capabilities of our digital display platform to our customers; to grow our digital footprint; to enhance our technology offerings; to adopt digital infrastructure to automate processes; to add sales channels to serve our clients; and to increase the speed, quality and repeatability of our key business processes.
Demonstrating the capabilities of our digital display platform and growing our digital footprint depend, in part, on our ability to deliver and install digital displays in a timely manner, including delivery and installation within complex transit infrastructures, including airports. If we fail to satisfy our contractual obligations to our customers and if any such failures cannot be resolved, and/or if the digital display platform and/or the digital advertising displays that we provide to our customers do not meet their expectations or are found to be defective, or if we are unable to realize the anticipated benefits of these products due to reduced market demand for these products or digital advertising generally, including as a result of economic slowdown, our business operations and financial results will suffer.
We continue to develop and improve our technological offerings, including RADAR, our proprietary and industry-first suite of data-driven solutions for planning, measuring and amplifying the impact of out-of-home advertising, as well as our programmatic solution set, which uses automated technology, data and algorithms to offer a streamlined, flexible buying process, audience targeting and ad measurement capabilities through real-time, biddable digital marketplaces. Such offerings require the successful creation, enhancement, use and adoption of innovative technology that includes hardware, software, connectivity, automation and digital solutions. As a result, we make significant investments in research and development, connectivity solutions, data security and employee training. These investments may not result in improvements to RADAR, our programmatic solutions or other technology we may create or adopt in the future and may not provide the desired results for our clients. If we are not able to deliver our solutions with differentiated features and functionality, our clients may not value or adopt these solutions, which could have a material adverse effect on our reputation, business, results of operations or financial condition. In addition, the market for programmatic ad buying is an emerging market, and our current and potential clients may not shift quickly enough to programmatic buying from other buying methods, reducing our growth potential. If the market for programmatic ad buying develops more slowly than we expect, it could reduce demand for our programmatic solution set, which could delay the realization of certain of the benefits of our strategy.
Furthermore, implementing our digital transformation requires significant costs and time, and we may not be able to recover the costs from our customers or otherwise. Any costs currently anticipated may significantly increase if we incur cost overruns due to technical difficulties; the increased costs of data, digital displays, materials and labor; suspensions or delays in installation and/or construction caused by us, our subcontractors, or due to external events beyond anyone’s control or otherwise; insurance, bonding and litigation expenses; the inability to recruit and maintain qualified personnel; and the inability to comply with evolving government regulations relating to the internet, mobile, privacy, marketing and advertising aspects of our business, all of which could have an adverse effect on our business, financial condition and results of operations.
The success of our business is dependent upon our ability to obtain and renew contracts with municipalities, transit authorities and private landlords, which we may not be able to obtain on favorable terms.
Our airport, transit and street furniture products require us to develop and maintain robust relationships with elected officials and regulatory authorities in a vast number of municipalities. Many of these contracts, which require us to participate in competitive bidding processes at each renewal, typically have terms ranging up to 15 years and have revenue-share requirements, capital expenditure requirements and/or fixed payment components. Competitive bidding processes are complex and sometimes lengthy, and substantial costs may be incurred in connection with preparing bids. Our competitors, individually or through relationships with third parties, may be able to provide municipalities with different or greater capabilities, prices or benefits than we can provide. In the past we have not been, and most likely in the future we will not be, awarded all of the contracts on which we bid. The success of our business also depends generally on our ability to obtain and renew contracts with private landlords. There can be no assurance that we will win any particular bid, be able to renew existing contracts (on the same or better terms, or at all) or be able to replace any revenues lost upon expiration or completion of a contract. Our inability to renew existing contracts may also result in significant expenses from the removal of our displays. Furthermore, if and when we do obtain a contract, we are generally required to incur significant start-up expenses. The costs of bidding on contracts and the start-up costs associated with new contracts we may obtain may significantly reduce our cash flow and liquidity.
This competitive bidding process presents a number of risks, including the following:
•We may expend substantial cost and managerial time and effort to prepare bids and proposals for contracts that we may not win;
•We may be unable to comply, or it may require substantial cost to comply, with various regulatory requirements related to environmental, social and governance (“ESG”) standards that are required to win certain contracts with municipalities and transit authorities, particularly within the U.K. and the E.U.;
•We may be unable to estimate accurately the revenue derived from, and the resources and cost structure that will be required to service, any contract we win or anticipate changes in the operating environment on which our financial proposal was based; and
•We may encounter expenses and delays if our competitors challenge awards of contracts to us in competitive bidding, and any such challenge could result in the resubmission of bids on modified specifications or in the termination, reduction or modification of the awarded contract.
Our inability to successfully negotiate, renew or complete these contracts due to third-party or governmental demands and delay, and the highly competitive bidding processes for these contracts, could affect our ability to offer these products to our clients, or to offer them to our clients at rates that are competitive to other forms of advertising, without adversely affecting our financial results.
We face intense competition in the outdoorout-of-home advertising businessbusiness.
We operate in a highly competitive industry, and we may not be able to maintain or increase our current advertising revenues. We compete for advertising revenue with other outdoorout-of-home advertising businesses, as well as with other media, such as mobile, social media, online, broadcast and cable television, radio, newspapers, magazines, television,print media and direct mail, mobile devices, satellite radio and Internet-based services, within their respective markets. Market shares are subject to change for various reasons, including through consolidation of our competitors through processes such as mergers and acquisitions, which could have the effect of reducing our revenue in a specific market. Our competitors may develop technology, services or advertising media that are equal or superior to those we provide or that achieve greater market acceptance and brand recognition than we achieve. It also is possible that new competitors may emerge and rapidly acquire significant market share in any of our business segments.segments, subject to applicable regulations. Many of these competitors possess greater technical, human and other resources than we do, and we may lack sufficient financial or other resources to maintain or improve competitive position.
Moreover, the advertiser/agency ecosystem is diverse and dynamic, with advertiser/agency relationships subject to change. This could have an adverse effect on us if an advertiser client shifts its relationship to an agency with whom we do not have as good a relationship. An increased level of competition for advertising dollars may lead to lower advertising rates as we attempt to retain customers or may cause us to lose customers to our competitors who offer lower rates that we are unable or unwilling to match.
OurTechnology Risks
Regulations and consumer concerns regarding privacy and data protection, or any failure to comply with these regulations, could hinder our operations.
We obtain certain types of information from users of our technology platforms, including, without limitation, our websites, web pages, interactive features, social media pages, mobile applications and programmatic offerings. We also obtain anonymous and/or aggregated audience behavior insights about consumers from vetted third-party data providers. In addition, we collect PII from our employees, users of our public bike services, our business is dependentpartners and consumers who interact with the marketing content on our management teamdigital panels, including through data partner collection from cellular devices, scanning QR codes and other key individuals
Ourbeacon technology. We use and share this information from and about consumers, business is dependent upon the performance of our management teampartners and other key individuals. Although we have entered into agreements with some members of our management team and certain other key individuals, we can give no assurance that all or any of our management team and other key individuals will remain with us, or that we won’t continue to make changes to the composition of, and the roles and responsibilities of, our management team. Competition for these individuals is intense and many of our key employees are at-will employees who are under no legal obligation to remain with us, and may decide to leaveadvertisers for a variety of personal or other reasons beyond our control. If members of our management or key individuals decide to leave us in the future, if we decide to make further changes to the composition of, or the rolesbusiness purposes. Collecting and responsibilities of, these individuals, or if we are not successful in attracting, motivating and retaining other key employees, our business could be adversely affected.
The success of our street furniture and transit products businesses is dependent on our obtaining key municipal concessions, which we may not be able to obtain on favorable terms
Our street furniture and transit products businesses requireprocessing PII subjects us to obtaincertain privacy and renew contracts with municipalitiesdata security laws and transit authorities.regulations, as well as risks of unauthorized access to, or acquisition of, PII by us or third parties.
We are subject to a number of federal, state, local and foreign laws and regulations relating to consumer protection, information security, data protection and privacy, including the California Consumer Privacy Act, the California Privacy Rights Act, the E.U. and U.K. GDPRs, the E.U. Privacy and Electronic Communications Regulation, the U.K. Data Protection Act, the Singapore Personal Data Protection Act and the Brazilian General Data Protection Law, among others. Many of these contracts, which require us to participatelaws and regulations are still evolving and could be interpreted or enforced by the courts or regulators in competitive bidding processes at each renewal, typically have terms ranging from 2 to 15 years and have revenue share, capital expenditure requirements and/or fixed payment components. Competitive bidding processes are complex and sometimes lengthy and substantial costs may be incurred in connection with preparing bids.
Our competitors, individually or through relationships with third parties, may be able to provide different or greater capabilities or prices or benefits than we can provide. In the past we have not been, and most likely in the future will not be, awarded all of the contracts on which we bid. The success of our business also depends generally on our ability to obtain and renew contracts with private landlords. There can be no assuranceways that we will win any particular bid, be able to renew existing contracts or be able to replace any revenue lost upon expiration or completion of a contract. Our inability to renew existing contracts may also result in significant expenses from the removal of our displays. Furthermore, if and when we do obtain a contract, we are generally required to incur significant start-up expenses. The costs of bidding on contracts and the start-up costs associated with new contracts we may obtain may significantly reduce our cash flow and liquidity.
This competitive bidding process presents a number of risks, including the following:
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▪ | we expend substantial cost and managerial time and effort to prepare bids and proposals for contracts that we may not win; |
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▪ | we may be unable to estimate accurately the revenue derived from and the resources and cost structure that will be required to service any contract we win; and |
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▪ | we may encounter expenses and delays if our competitors challenge awards of contracts to us in competitive bidding, and any such challenge could result in the resubmission of bids on modified specifications, or in the termination, reduction or modification of the awarded contract. |
Our inability to successfully negotiate, renew or complete these contracts due to third-party or governmental demands and delay and the highly competitive bidding processes for these contracts could affect our ability to offerprovide audience behavioral insights or monitor our business processes or otherwise harm our business. In the U.S., Colorado, Connecticut, Virginia and Utah have also enacted privacy laws, each of which will become effective at different times in 2023. Privacy laws have also been introduced in all other states. Additionally, new regulatory approaches to privacy in public spaces by the U.S. Federal Trade Commission and other regulators, which may affect the operation of our RADAR products, are being developed. Any efforts required to comply with these productslaws and others that may be enacted may entail substantial expenses, may divert resources from other initiatives and projects and could limit the services we are able to offer. In addition, changes in consumer expectations and demands regarding privacy and data protection could restrict our ability to collect, use, disclose and derive economic value from demographic and other information related to our
clients, or consumers, business partners and advertisers. Such restrictions could limit our ability to offer themtailored advertising opportunities to our clients at ratesbusiness partners and advertisers, and privacy activist interpretation of our activities could damage our reputation.
Any failure or perceived failure by us to comply with our policies or applicable legal and regulatory requirements related to consumer protection, information security, data protection and privacy could result in a loss of confidence in us; damage to our brands; the loss of users of our services, consumers, business partners and advertisers; and proceedings against us by governmental authorities or others, including regulatory fines and private litigation, any of which could hinder our operations and adversely affect our business.
If our security measures are breached, we could lose valuable information, suffer disruptions to our business, and incur expenses and liabilities, including damages to our relationships with customers and business partners.
Although we have implemented physical and electronic security measures designed to protect against the loss, misuse and alteration of our websites, digital assets, proprietary business information and any PII that we collect and share with others, no security measures are competitiveperfect and impenetrable, and we and outside parties we interact with may be unable to anticipate or prevent unauthorized access. Moreover, our systems, servers and platforms may be vulnerable to computer viruses or physical or electronic break-ins and similar disruptions that our security measures may not detect, which could cause interruptions or slowdowns of our digital display systems, delays in communication or loss of data and slowdown or unavailability of our client-facing or internal platforms. A cyber incident may be due to the actions of outside parties, employee error, malfeasance or a combination of these or other actions. The risk of a security breach or disruption, particularly through cyber-attacks or cyber intrusions, including by computer hackers, nation-state affiliated actors and cyber terrorists, has generally increased as the number, intensity and sophistication of attempted attacks and intrusions from around the world have increased as well. We have been, and expect to continue to be, the target of fraudulent calls, emails and other forms of advertising, without adversely affectingfraudulent activities and have experienced security breaches; however, to date, they have not had a material impact on our business, results of operations or financial results.condition.
Our financial performance may be adversely affected by many factors beyondIf an actual or perceived breach of our control
Certain factors that could adversely affectsecurity occurs, our financial performance by, among other things, decreasing overall revenues, the numbers of advertising customers, advertising fees or profit margins include:
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▪ | unfavorable fluctuations in operating costs, which we may be unwilling or unable to pass through to our customers; |
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▪ | our inability to successfully adopt or our being late in adopting technological changes and innovations that offer more attractive advertising alternatives than what we offer, which could result in a loss of advertising customers or lower advertising rates, which could have a material adverse effect on our operating results and financial performance; |
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▪ | unfavorable shifts in population and other demographics, which may cause us to lose advertising customers as people migrate to markets where we have a smaller presence or which may cause advertisers to be willing to pay less in advertising fees if the general population shifts into a less desirable age or geographical demographic from an advertising perspective; |
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▪ | adverse political effects and acts or threats of terrorism or military conflicts; and |
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▪ | unfavorable changes in labor conditions, which may impair our ability to operate or require us to spend more to retain and attract key employees. |
In addition, on June 23, 2016, the United Kingdom (the "U.K.") held a referendum in which voters approved an exit of the U.K. from the European Union (the "E.U."), commonly referred to as "Brexit". International outdoor is currently headquartered in the U.K. and transacts business in many key European markets. As a result of the referendum, it is expected that the British government will begin negotiating the terms of the U.K.'s withdrawal from the E.U. It is unclear how these negotiations will impact the economies of the U.K., the E.U.digital display systems and other countries. This uncertainty may causebusiness assets could suffer disruption, and we could lose competitively sensitive business information or lose control of our customers to closely monitor their costs and reduce the amount they spend on advertising.information processes or internal controls. In addition, the announcementpublic perception of Brexit caused the British pound's currency rate to weaken againsteffectiveness of our security measures or services could be harmed, and we could lose customers, consumers and business partners. In the event of a security breach, we could suffer financial exposure in connection with demands from perpetrators, penalties, remediation efforts, investigations and legal proceedings and changes in our security and system protection measures. Additionally, cybersecurity has become a top priority for regulators around the world, and every state in the U.S. dollar. Anyand most other countries have laws in place requiring companies to notify users if there is a security breach that compromises certain categories of these or similar effectstheir PII. In addition, in the U.S., the SEC has proposed rules for mandatory disclosure of Brexit could adversely impact our business, operating results, cash flows and financial condition.
Future dispositions, acquisitions and other strategic transactions could pose risks
We frequently evaluate strategic opportunities both within and outside our existing lines of business. We expect from time to time to pursue strategic dispositions of certain businesses,cybersecurity incidents suffered by public companies, as well as acquisitions. These dispositionscybersecurity governance and risk management. Any failure or acquisitions could be material. Our strategy involves numerous risks, including:
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▪ | our dispositions may negatively impact revenues from our national, regional and other sales networks; |
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▪ | our dispositions may make it difficult to generate cash flows from operations sufficient to meet our anticipated cash requirements, including our debt service requirements; |
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▪ | our acquisitions may prove unprofitable and fail to generate anticipated cash flows; |
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▪ | to successfully manage our large portfolio of outdoor advertising and other businesses, we may need to: |
recruit additional senior management as we cannot be assured that senior management of acquired businesses will continue to work for us and we cannot be certain that our recruiting efforts will succeed, and
expand corporate infrastructure to facilitate the integration of our operations with those of acquired businesses, becauseperceived failure to do so may causeby us to lose the benefitscomply with these laws may subject us to significant regulatory fines and private litigation, any of any expansion that we decide to undertake by leading to disruptions inwhich could harm our ongoing businesses or by distracting our management;business.
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▪ | we may enter into markets and geographic areas where we have limited or no experience; |
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▪ | we may encounter difficulties in the integration of operations and systems; and |
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▪ | our management’s attention may be diverted from other business concerns. |
Dispositions and acquisitions of outdoor advertising businesses may require antitrust review by U.S. federal antitrust agencies and may require review by foreign antitrust agencies under the antitrust laws of foreign jurisdictions. We can give no assurances that the DOJ, the FTC or foreign antitrust agencies will not seek to bar us from disposing of or acquiring outdoor advertising businesses or impose stringent undertaking on our business as a condition to the completion of an acquisition in any market where we already have a significant position.Regulatory Risks
Government regulation of outdoorout-of-home advertising may restrict our outdoorout-of-home advertising operationsoperations.
U.S. federal, state and local regulations have a significant impact on the outdoorout-of-home advertising industry and our business. One of the seminal laws is the HBA, which regulates outdoorout-of-home advertising on controlled roads in the United States.U.S. The HBA regulates the size and locationplacement of billboards, mandates a state compliance program, requires the development of state standards, mandates state compliance programs, promotes the expeditious removal of illegal signs and requires just compensation for takings.takings on controlled roads. Construction, repair, maintenance,
upgrade, lighting, upgrading, height, size, spacing, the locationplacement and permitting of billboards and the use of new technologies for changing displays, such as digital displays, are also regulated by federal, state and local governments. Fromgovernments, and from time to time, states and municipalities have prohibited or significantly limited the construction of new outdoorout-of-home advertising structures. Changes in laws and regulations affecting outdoor advertising, or changes in the interpretation of those laws and regulations, at any level of government, including the foreign jurisdictions in which we operate, could have a significant financial impact on us by requiring us to make significant expenditures or otherwise limiting or restricting some of our operations. Due to such regulations, it has become increasingly difficult to develop new outdoorout-of-home advertising locations.
International regulation of the out-of-home advertising industry varies by municipality, region and country, but generally limits the size, placement, nature and density of out-of-home displays. Other regulations limit the subject matter, animation and language of out-of-home displays. Our failure or perceived failure to comply with these or any future regulations, including those that may regulate the energy consumption affiliated with the operation of advertising structures, could have an adverse impact on the effectiveness of our displays or their attractiveness to clients as an advertising medium. As a result, we may experience a significant impact on our operations, revenue, international client base and overall financial condition.
We intend to continue to expand the global deployment of digital billboards, which display digital advertising copy from various advertisers that changes up to several times per minute. We have encountered regulations that restrict or prohibit digital displays. Additionally, since digital billboards have been developed and introduced relatively recently into the market on a large scale, existing regulations that currently do not apply to them by their terms could be revised or further interpreted, or new regulations could be enacted, to impose greater restrictions on digital billboards due to alleged concerns over aesthetics or driver safety. Any new restrictions on digital billboards could have a material adverse effect on both our existing inventory of digital billboards and our plans to expand our digital deployment. In addition, although permits in our America segment are typically subject to annual renewals by the state and/or local government and are typically transferable or renewable for a minimal or no fee, if the structure is modified (for example, converted from printed media to digital media), the state and/or local government may require a revised, additional or new permit for the modification. In the majority of these cases, we can surrender the existing permit concurrently with the approval of the requested modification. However, there is no guarantee that we will be granted a new or revised permit for an asset that we desire to modify.
From time to time, certain state and local governments and third parties have attempted to force the removal of our displays under various state and local laws, including zoning ordinances, permit enforcement and condemnation. Similar risks also arise in certain of our international jurisdictions.
•There is a U.S. federal and state requirement that an owner remove any non-grandfathered, non-compliant signs along all controlled roads at the owner’s expense and without compensation, and in some instances, we have had to remove billboards as a result of such reviews.
•Certain zoning ordinances provide for amortization, which is the required removal of legal non-conforming billboards (billboards whichthat conformed with applicable laws and regulations when built, but which do not conform to current laws and regulations) or the commercial advertising placed on such billboards after a period of years. Pursuant to this concept, the governmental body asserts that just compensation is earned by continued operation of the billboard over that period of time. Although amortization is prohibited along all controlled roads, amortization has been upheld along non-controlled roads in limited instances where permitted by state and local law. Other regulations limit our ability
•In the past, state governments have purchased and removed existing lawful billboards for beautification purposes using federal funding for transportation enhancement programs, and these jurisdictions may continue to rebuild, replace, repair, maintain and upgrade non-conforming displays. In addition,do so in the future.
Additionally, from time to time third parties or local governments assert that we own or operate displays that either are not properly permitted or otherwise are not in strict compliance with applicable law. If we are increasingly unable to resolve such allegations or obtain acceptable arrangements in circumstances in which our displays are subject to removal, modification or amortization, or if there occursis an increase in such regulations or their enforcement, our operating results could suffer.
A number of state and local governments have implemented or initiated taxes, fees and registration requirements in an effort to decrease or restrict the number of outdoor signs and/or to raise revenue. From time to time, legislation also has been introduced in international jurisdictions attempting to impose taxes on revenue from outdoorout-of-home advertising or for the right to use outdoorout-of-home advertising assets.assets or for the privilege of engaging in the out-of-home advertising business. Several jurisdictions have imposed such taxes as a percentage of our out-of-home advertising revenue generated in that jurisdiction or based on the size of the billboard and type of display technology. In addition, a number ofsome jurisdictions have implemented legislation or interpreted existing legislationtaxed our personal property and leasehold interests in advertising locations using various valuation methodologies. We expect U.S. and foreign jurisdictions to restrict or prohibit the installationcontinue to attempt to impose such taxes as a way of digital billboards, and we expect these efforts to continue.increasing revenue. The increased imposition of these measures, and our inability to overcome any such measures, could reduceadversely affect our operating income if those outcomes require removal or restrictions on the use of preexisting displays or limit growth of digital displays. In addition, if we are unable to pass on the cost of these items to our clients,customers or absorb them into our operating income could be adversely affected.current operations as a cost of doing business.
International regulation of the outdoorChanges in laws and regulations affecting out-of-home advertising, industry can vary by municipality, region and country, but generally limits the size, placement, nature and density of out-of-home displays. Other regulations limit the subject matter, animation and language of out-of-home displays. Our failure to comply with these or any future international regulationschanges in their interpretation, could have an adversea significant financial impact on the effectiveness of our displays or their attractiveness to clients as an advertising medium and may requireus by requiring us to make significant expenditures to ensure compliance and avoid certain penaltiestherewith or contractual breaches. As a result, we may experience a significant impact on our operations, revenue, international client base and overall financial condition.
Regulations and consumer concerns regarding privacy and data protection,otherwise limiting or any failure to comply with these regulations, could hinder our operations
We collect and utilize demographic and other information, including personally identifiable information, from and about our consumers, business partners and advertisers. We are subject to numerous federal, state and foreign laws and regulations relating to consumer protection, information security, data protection and privacy, among other things. Many of these laws are still evolving, new laws may be enacted and any of these laws could be amended or interpreted in ways that could harm our business. In addition, changes in consumer expectations and demands regarding privacy and data protection could restrict our ability to collect, use, disclose and derive economic value from demographic and other information related to our consumers, business partners and advertisers. Such restrictions could limit our ability to offer targeted advertising opportunities to our business partners and advertisers. Although we have implemented policies and procedures designed to comply with these laws and regulations, any failure or perceived failure by us to comply with our policies or applicable regulatory requirements related to consumer protection, information security, data protection and privacy could result in a loss of confidence in us, damage to our brands, the loss of consumers, business partners and advertisers, as well as proceedings against us by governmental authorities or others, which could hinder our operations and adversely affect our business.
If our security measures are breached, wecould lose valuable information, suffer disruptions to our business, and incur expenses and liabilities including damages to our relationships withbusiness partners and advertisers
Although we have implemented physical and electronic security measures that are designed to protect against the loss, misuse and alterationrestricting some of our websites, digital assets and proprietary business information as well as, consumer, business partner and advertiser personally identifiable information, no security measures are perfect and impenetrable and we may be unable to
anticipate or prevent unauthorized access. A security breach could occur due to the actions of outside parties, employee error, malfeasance or a combination of these or other actions. If an actual or perceived breach of our security occurs, we could lose competitively sensitive business information or suffer disruptions to our business operations, information processes or internal controls. In addition, the public perception of the effectiveness of our security measures or services could be harmed; we could lose consumers, business partners and advertisers. In the event of a security breach, we could suffer financial exposure in connection with penalties, remediation efforts, investigations and legal proceedings and changes in our security and system protection measures. Currently, not all of our systems are fully compliant with PCI-DSS standards and, as a result, we may face additional liability in the event of a security breach involving payment card information.operations.
Restrictions on outdoorout-of-home advertising of certain products may restrict the categories of clients that can advertise using our productsproducts.
Out-of-court settlements betweenRegulations governing categories of products that can be advertised through our advertising assets and platforms vary across the majorcountries in which we conduct business. Certain products and services, such as tobacco, are banned from outdoor advertising in the U.S. tobacco companies and all 50 states, the District of Columbia, the Commonwealth of Puerto Rico, and other U.S. territories include a ban on the outdoor advertising of tobacco products. Other products, and servicessuch as alcohol, may be targeted in the U.S. in the future, including alcohol products.future. Most European UnionE.U. countries, among other nations, also have banned outdoor advertisements for tobacco products and regulate alcohol advertising. Regulations vary acrossIn the countries in which we conduct business.U.K., there are localized restrictions on the location of advertising for High Fat, Salt and Sugar foods. Any significant reduction in advertising of products due to content-related restrictions could cause a reduction in our direct revenues from such advertisements and an increase in the available space on the existing inventory of billboards in the outdoorout-of-home advertising industry.
Environmental, health, safety and land use laws and regulations, as well as various actual and proposed ESG policies and regulations, may limit or restrict some of our operationsoperations.
As the owner or operator of various real estate properties and facilities, we must comply with various foreign, federal, state and local environmental, health, safety and land use laws and regulations. We and our properties are subject to such laws and regulations, including those relating to the use, storage, disposal, emission and release of hazardous and non-hazardous substances andsubstances; employee health and safety as well assafety; and zoning restrictions. In addition, increased scrutiny related to ESG, and actual and proposed ESG policies and regulations, including proposed new or enhanced requirements regarding the standardization of mandatory climate-, human capital- and diversity-related disclosures for investors in the E.U., the U.K. and the U.S., will subject us to new regulatory and compliance costs. Historically, we have not incurred significant expenditures to comply with environmental or ESG laws, policies and regulations. However, given the increase in the number and complexity of these laws. However,policies and regulations, we expect our costs of compliance to increase. In addition, we have announced our commitment to achieving Carbon Net Zero before 2050 across our divisions and have established an environmental program framework. There can be no assurance that we will be successful in reaching our stated goals, that activists and others will not challenge our progress towards those goals, that our environmental framework will operate adequately or, if we are successful, that the cost will not be material. Further, additional laws, whichpolicies and regulations that may be passed in the future, or a finding of a violation of or liability under existing laws, could require us to make significant expenditures and otherwise limit or restrict some of our operations.
Strategic Risks
We are exposed to foreign currency exchange risks because a portionengaged in strategic review processes of our revenue is receivedEuropean businesses. There can be no assurance that we will be successful in foreign currencies and translated to U.S. dollars for reporting purposes
We generate a portion of our revenues in currencies other than U.S. dollars. Changes in economicidentifying or political conditions, including Brexit, incompleting strategic alternatives, that any of the foreign countries in which we operate couldsuch transactions will result in exchange rate movement, new currencyadditional value for our shareholders or exchange controls or other currency restrictions being imposed. Because we receive a portion of our revenues in currencies fromthat the countries in which we operate, exchange rate fluctuations in any such currency couldprocesses will not have an adverse effectimpact on our profitability. A portionbusiness.
Our Board has authorized a review of strategic alternatives for our European businesses, including the potential disposal of certain of our lower-margin European assets (and/or other European assets of lower priority to our European business as a whole), while retaining, for now, our higher-margin European assets. The process of exploring strategic alternatives has required, and may continue to require, significant resources and expenses. In addition, speculation and uncertainty regarding the strategic review processes may cause or result in disruption of our business; distraction of our employees; difficulty in recruiting, hiring, motivating and retaining talented and skilled personnel, especially in Europe; difficulty in maintaining or negotiating and consummating new business or strategic relationships or transactions, especially in Europe; and increased stock price volatility. If we are unable to mitigate these or other potential risks related to the uncertainty caused by the strategic review processes, they could adversely affect our business or adversely impact our net sales, operating results and financial condition.
In addition, even though we have announced the entry into a definitive agreement to sell our business in Switzerland, we may not be able to complete such transaction and/or identify and/or complete any additional transaction(s). Any additional potential transaction(s) will not be conditioned on each other and will depend upon a number of factors, including, but not limited to, market conditions, industry trends, the interest of third parties in our European businesses and the availability of financing to potential buyers. We cannot assure you that any potential transaction(s) or other strategic alternative(s), if identified, evaluated and completed, will provide greater value to our shareholders than that reflected in the current price of our common stock.
As the Board continues its ongoing review, our Board may determine that our most effective strategy is to continue to operate all of our remaining European businesses. The Company has not set a timetable for completion of the reviews, may suspend the processes at any time and does not intend to make further announcements regarding the processes unless and until the Board approves a course of action for which further disclosure is appropriate.
Future dispositions, acquisitions and other strategic transactions could pose risks.
We frequently evaluate strategic opportunities both within and outside our existing lines of business. We expect from time to time to pursue strategic dispositions of certain businesses, such as the recently announced sale of our business in Switzerland, as well as acquisitions. We may also pursue other strategic transactions, including recapitalization or other corporate restructurings, including, for example, a real estate investment trust (“REIT”) conversion in the future. These dispositions, acquisitions or other strategic transactions could be material. Such transactions involve numerous risks, including:
•Our dispositions may negatively impact revenues from our national, regional and other sales networks or make it difficult to generate cash flows are generatedfrom operations sufficient to meet our anticipated cash requirements, including our debt service requirements;
•Our acquisitions may prove unprofitable and fail to generate anticipated cash flows, and we may enter into markets and geographic areas where we have limited or no experience;
•To successfully manage our large portfolio of out-of-home advertising and other businesses, we may need to recruit additional senior management as we cannot be assured that senior management of acquired businesses will continue to work for us, and we cannot be certain that our recruiting efforts will succeed;
•We may need to expand corporate infrastructure to facilitate the integration of our operations with those of acquired businesses as failure to do so may cause us to lose the benefits of any expansion that we decide to undertake by leading to disruptions in foreign currenciesour ongoing businesses or by distracting our management, and translated to U.S. dollars for reporting purposes, and certain of the indebtedness held by our international subsidiaries is denominated in U.S. dollars, and, therefore, significant changeswe may encounter difficulties in the valueintegration of suchoperations and systems; and
•Our management’s attention may be diverted from other business concerns.
Dispositions and acquisitions of out-of-home advertising businesses may require antitrust review by U.S. federal antitrust agencies and may require review by foreign currencies relativeantitrust agencies under the antitrust laws of foreign jurisdictions. For example, the recently announced sale of our business in Switzerland requires review by the Swiss Competition Commission. We can give no assurances that the U.S. Department of Justice, the Federal Trade Commission or foreign antitrust agencies, including the Swiss Competition Commission, will not seek to bar us from disposing of or acquiring out-of-home advertising businesses or impose stringent undertakings on our business as a condition to the U.S. dollarcompletion of an acquisition in any market where we already have a significant position.
Litigation and Liability Risks
Third-party claims of intellectual property infringement, misappropriation or other violation against us could harm our business, operating results and financial condition.
Third parties have asserted, and may in the future assert, that we have infringed, misappropriated or otherwise violated their intellectual property rights. As we face increasing competition, the possibility of intellectual property rights claims against us will grow. Any lawsuits regarding intellectual property rights, regardless of their success, could be expensive to resolve and would divert the time and attention of our management and technical personnel. An adverse outcome of a dispute may damage our reputation, force us to adjust our business practices, require us to pay significant damages and/or take other actions that could have a material adverse effect on our financial condition and our abilitybusiness.
As a result of intellectual property infringement claims, or to meet interest and principal paymentsavoid potential claims, we may choose or be required to seek licenses from third parties. These licenses may not be available on our indebtedness.
Given the volatility of exchange rates,commercially reasonable terms, or at all. Even if we cannot assure you that we will beare able to effectively manageobtain a license, the license would likely obligate us to pay license fees or royalties or both, and the rights granted to us might be nonexclusive, with the potential for our currency transaction and/competitors to gain access to the same intellectual property. In addition, the scope of the licenses granted to us may not include rights covering all of the products, services and technologies provided by us. The occurrence of any of the foregoing could harm our business, operating results and financial condition.
Claims that our suppliers infringe on the intellectual property rights of others could cause disruptions in our supply chain.
Our suppliers have received, and in the future may receive, claims that they have infringed the intellectual property rights of others. Any such claim, with or translation risks. It is possible that volatilitywithout merit, could result in currency exchange rates willdisruptions to our supply chain. If our suppliers are not successful in defending allegations of infringement, they could be required to redesign their product offerings and could be prevented from manufacturing the products supplied to us in a timely or cost-effective manner, if at all. A reduction or interruption in our suppliers’ production, an increase in our supply purchasing costs derived from reduced competition or otherwise or an inability to secure alternative sources of supply on substantially the terms and conditions currently available to us could have a material adverse effect on our business, results of operations, financial condition and cash flows.
In connection with our separation from iHeartMedia in 2019, iHeartMedia agreed to indemnify us, and we agreed to indemnify iHeartMedia, for certain liabilities. There can be no assurance that the indemnities from iHeartMedia will be sufficient to insure us against the full amount of such liabilities.
Pursuant to agreements that we entered into with iHeartMedia in connection with our separation, iHeartMedia agreed to indemnify us for certain liabilities, including certain tax matters, and we agreed to indemnify iHeartMedia and its subsidiaries for certain liabilities, including certain tax matters. For example, we will indemnify iHeartMedia and its subsidiaries for liabilities arising from or resultsaccruing prior to the closing date of operations. We expectthe separation to experience economic lossesthe extent such liabilities related our business, assets and gainsliabilities, as well as liabilities relating to a breach of the Settlement and negativeSeparation Agreement governing the terms of the separation. However, third parties might seek to hold us responsible for liabilities that iHeartMedia agreed to retain, and positive impacts onthere can be no assurance that iHeartMedia will be able to fully satisfy its indemnification obligations under these agreements. In addition, indemnities that we may be required to provide to iHeartMedia and its subsidiaries could be significant and could adversely affect our operating income as a resultbusiness.
International Business Risks
Doing business in foreign countries exposes us to certain risks not expected to occur when doing business in the United StatesU.S.
Doing business in foreign countries carries with it certain risks that are not found when doing business in the United States.U.S. These risks could result in losses against which we are not insured. Examples of these risks include:
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▪ | potential adverse changes in the diplomatic relations of foreign countries with the United States; |
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▪ | hostility from local populations; |
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▪ | the adverse effect of foreign exchange controls |
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▪ | government policies against businesses owned by foreigners; |
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▪ | investment restrictions or requirements; |
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▪ | expropriations of property without adequate compensation; |
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▪ | the potential instability of foreign governments; |
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▪ | the risk of insurrections; |
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▪ | risks of renegotiation or modification of existing agreements with governmental authorities; |
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▪ | difficulties collecting receivables and otherwise enforcing contracts with governmental agencies and others in some foreign legal systems; |
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▪ | withholding and other taxes on remittances and other payments by subsidiaries; |
include the potential instability of foreign governments, potential adverse changes in the diplomatic relations of foreign countries with the U.S., changes in laws or regulations or the interpretation or application of laws or regulations, new or increased tariffs or unfavorable changes in trade policy, government policies against businesses owned by foreigners, risks of renegotiation or modification of existing agreements with governmental authorities, difficulties collecting receivables and otherwise enforcing contracts with governmental agencies and others in some foreign legal systems, investment restrictions or requirements, expropriations of property without adequate compensation, withholding and other taxes on remittances and other payments by subsidiaries, changes in tax structure and level and the adverse effect of foreign exchange controls.
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▪ | changes in tax structure and level; and |
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▪ | changes in laws or regulations or the interpretation or application of laws or regulations. |
Our Internationalinternational operations involve contracts with, and regulation by, foreign governments. We operate in many parts of the world that experience corruption to some degree. Although we have policies and procedures in place that are designed to promote legal and regulatory compliance (including with respect to the U.S. Foreign Corrupt Practices Act and the U.K. Bribery Act), our employees, subcontractors and agents could take actions that violate applicable anticorruptionanti-corruption laws or regulations. Two former employees of Clear Media, a former indirect, non-wholly-owned subsidiary of the Company that was sold in April 2020, have been convicted in China of certain crimes, including the crime of misappropriation of Clear Media funds, and sentenced to imprisonment. For a description of this matter, please refer to Note 8 to our Consolidated Financial Statements located in Item 8 of this Annual Report on Form 10-K. Violations of these laws, or allegations of such violations, could have a material adverse effect on our business, financial position and resultsreputation. We are exposed to foreign currency exchange risks because a large portion of operations.our revenue and cash flows is received in foreign currencies and translated to U.S. dollars for reporting purposes.
Risks RelatedWe generate a large portion of our revenue in currencies other than U.S. dollars. Additionally, a large portion of our cash flows are generated in foreign currencies and translated to Our Relationship with iHeartCommunications
Because iHeartCommunications controls substantially allU.S. dollars for reporting purposes, and certain of the total voting powerindebtedness held by our international subsidiaries is denominated in U.S. dollars. Therefore, exchange rate fluctuations in any currency from a country in which we operate could have an adverse effect on our profitability, and significant changes in the value of such foreign currencies relative to the U.S. dollar could have a material adverse effect on our common stock, investors will not be able to affect the outcome of any stockholder vote
As of December 31, 2016, iHeartCommunications indirectly owned (1) all of our outstanding shares of Class B common stockfinancial condition and (2) 10,726,917 shares of our Class A common stock, collectively representing approximately 89.9% of the outstanding shares of our common stock. Each share of our Class B common stock entitles its holder to 20 votes and each share of our Class A common stock entitles its holder to one vote on all matters on which stockholders are entitled to vote. As a result, as of December 31, 2016, iHeartCommunications controlled approximately 99% of the total voting power of our common stock.
As long as iHeartCommunications continues to own shares of our common stock representing more than 50% of the total voting power of our common stock, it will have the ability to direct the election of all members of our board of directors and, therefore, to exercise a controlling influence over our business and affairs, including any determinations with respect to mergers or other business combinations, our acquisition or disposition of assets, our incurrence of indebtedness, our issuance of any additional common stock or other equity securities, our repurchase or redemption of common stock or preferred stock, if applicable, and our payment of dividends in certain situations. Similarly, iHeartCommunications will have the power to determine the outcome of matters submitted to a vote of our stockholders, including the power to prevent an acquisition or any other change in control. Because iHeartCommunications’ interests as our controlling stockholder may differ from other stockholders’ interests, actions taken by iHeartCommunications with respect to us may not be favorable to all stockholders.
Our agreements with iHeartCommunications impose obligations on, and iHeartCommunications’ financing agreements effectively impose restrictions on, our ability to finance operationsmeet interest and capital needs, make acquisitions and engage in other business activities
We have entered into a Master Agreement, a Corporate Services Agreement, an Employee Matters Agreement, a Tax Matters Agreement, a Trademark License Agreement and a number of other agreements with iHeartCommunications setting forth various matters governingprincipal payments on our relationship with iHeartCommunications while it remains a significant stockholder in us. These agreements allow iHeartCommunications to retain control over many aspects of our operations. We are not able to terminate these agreements or amend them in a manner we deem more favorable so long as iHeartCommunications continues to own shares of our common stock representing more than 50% of the total voting power of our common stock. iHeartCommunications’ financing agreements also impose a number of restrictions on us.
Pursuant to the Corporate Services Agreement, we are obligated to use various corporate services provided by iHeartCommunications and its affiliates, including treasury, payroll and other financial services, certain executive officer services, human resources and employee benefit services, legal services, information systems and network services and procurement and sourcing support. Also pursuant to the Corporate Services Agreement, substantially all of the cash generated from our domestic Americas operations is transferred daily into accounts of iHeartCommunications (after satisfying our controlled disbursement accounts and the funding requirements of the trustee accounts under the senior notes and the senior subordinated notes issued by Clear Channel Worldwide Holdings, Inc., an indirect, wholly-owned subsidiary of ours), where funds of ours and of iHeartCommunications are commingled, and recorded as “Due from/to iHeartCommunications” on the consolidated balance sheet. Net amounts owed between us and iHeartCommunications are evidenced by revolving promissory notes. We do not have any material committed external sources of capital independent from iHeartCommunications, and iHeartCommunications is not required to provide us with funds to finance our working capital or other cash requirements.indebtedness. In addition, we have no access to the cash transferred from us to iHeartCommunications other than our right to demand payment by iHeartCommunications of the amounts owed to us under the revolving promissory note.
The “Due from iHeartCommunications” note previously was the subject of derivative litigation filed by our stockholders in the Delaware Court of Chancery. Pursuant to the terms of the settlement, our board of directors established a committee for the specific purpose of monitoring the Due from iHeartCommunications note. That committee has the non-exclusive authority to demand payments under the Due from iHeartCommunications note under certain specified circumstances tied to
iHeartCommunications’ liquidity or the amount outstanding under the Due from iHeartCommunications note as long as our board of directors declares a simultaneous dividend equal to the amount so demanded. Any future repayments and simultaneous dividends would further reduce the amount of the Due from iHeartCommunications note asset that is available to us2022, as a sourceresult of liquidity for ongoing working capital, capital expenditure, debt service, special dividendheightened inflation and monetary policy, the U.S. dollar strengthened against the Euro and British pound sterling, among other funding requirements.
If iHeartCommunications were to become insolvent, we would beEuropean currencies, resulting in an unsecured creditor of iHeartCommunications. In such event, we would be treated the same as other unsecured creditors of iHeartCommunications and, if we were not repaid or otherwise entitled to the full amounts outstanding under such note, or could not obtain such amountsadverse impact on a timely basis, we could experience a liquidity shortfall. At December 31, 2016 and 2015, the asset recordedour reported results in “Due from iHeartCommunications” on the consolidated balance sheet was $885.7 million and $930.8 million, respectively.
our Europe segments in 2022. In addition, the Master AgreementU.S. dollar may continue to strengthen against these foreign currencies in 2023 as the U.S. Federal Reserve further raises the federal funds rate, which could result in downstream impacts to global exchange rates and further adverse impacts to our reported results in some cases, iHeartCommunications’ financing agreements, include restrictive covenants that, among other things, restrict our ability to:
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▪ | issue any shares of capital stock or securities convertible into capital stock; |
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▪ | incur additional indebtedness; |
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▪ | make certain acquisitions and investments; |
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▪ | dispose of certain assets; and |
The rightsEurope segments. Given the volatility of iHeartCommunications under these agreements may allow iHeartCommunications to delay or prevent an acquisition of us that our other stockholders may consider favorable. In addition, the restrictions contained in these agreements limit our ability to finance operations and capital needs, make acquisitions or engage in other business activities, including our ability to grow and increase our revenue or respond to competitive changes.
The terms of our arrangements with iHeartCommunications mayexchange rates, there can be more or less favorable than we would be able to obtain from an unaffiliated third party, and we may be unable to replace the services iHeartCommunications provides us in a timely manner or on comparable terms
We negotiated our arrangements with iHeartCommunications in the context of a parent-subsidiary relationship prior to the initial public offering of our Class A common stock. Although iHeartCommunications is contractually obligated to provide us with services during the term of the Corporate Services Agreement, we cannot assure you these services will be sustained at an appropriate level, orno assurance that we will be able to replace these services in a timely manner effectively manage our currency transaction and/or on comparable terms. In addition, we cannot provide assurance that the amount we pay iHeartCommunications for the services will be as favorabletranslation risks. We expect to us as that which may be available for comparable services provided by unrelated third parties. Other agreements with iHeartCommunications also govern our relationship with iHeartCommunicationsexperience economic losses and provide for the allocation of employee benefit, taxgains and other liabilitiesnegative and obligations attributable to our operations. The agreements also contain terms and provisions that may be more favorable than terms and provisions we might have obtained in arm’s length negotiations with unaffiliated third parties. If iHeartCommunications ceases to provide services to us pursuant to those agreements, our costs of procuring those services from third parties may increase.
Conflicts of interest may arise between iHeartCommunications and us that could be resolved in a manner unfavorable to us
Questions relating to conflicts of interest may arise between iHeartCommunications and us in a number of areas relating to our past and ongoing relationships. iHeartCommunications is owned indirectly by iHeartMedia. Two of our directors serve as directors of iHeartMedia. Three of our other directors are affiliated with iHeartMedia and its stockholders. In addition, five of our executive officers serve as executive officers of iHeartMedia, including our CEO who also serves as the CEO of iHeartCommunications.
Areas in which conflicts of interest between iHeartCommunications and us could arise include, but are not limited to, the following:
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▪ | Cross officerships, directorships and stock ownership. The ownership interests of our directors or executive officers in the common stock of iHeartMedia or service as a director or officer of both iHeartMedia and us could create, or appear to create, conflicts of interest when directors and executive officers are faced with decisions that could have different implications for the two companies. For example, these decisions could relate to: (1) the nature, quality and cost of services rendered to us by iHeartCommunications; (2) disagreement over the desirability of a potential acquisition opportunity; (3) employee retention or recruiting; or (4) our capital structure, including our level of indebtedness and our dividend policy.
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▪ | Intercompany transactions. From time to time, iHeartCommunications or its affiliates may enter into transactions with us or our subsidiaries or other affiliates. Although the terms of any such transactions will be established based
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upon negotiations between employees of iHeartCommunications and us and, when appropriate, subject to the approval of the independent directorspositive impacts on our board or a committee of disinterested directors, there can be no assurance the terms of any such transactions will be as favorable to us or our subsidiaries or affiliates as may otherwise be obtained in arm’s length negotiations.
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▪ | Intercompany agreements. We have entered into certain agreements with iHeartCommunications pursuant to which it provides us certain management, administrative, accounting, tax, legal and other services, for which we reimburse iHeartCommunications on a cost basis. In addition, we entered into a number of intercompany agreements covering matters such as tax sharing and our responsibility for certain liabilities previously undertaken by iHeartCommunications for certain of our businesses. Pursuant to the Corporate Services Agreement between iHeartCommunications and us, we are contractually obligated to utilize the services of certain executive officers of iHeartCommunications as our executive officers until iHeartCommunications owns shares of our common stock representing less than 50% of the total voting power of our common stock, or we provide iHeartCommunications with six months prior written notice of termination. The terms of these agreements were established while we were a wholly owned subsidiary of iHeartCommunications and were not the result of arm’s length negotiations. In addition, conflicts could arise in the interpretation or any extension or renegotiation of these existing agreements.
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▪ | Intercompany financing. iHeartCommunications may request and may exert pressure on us to engage in transactions for the purpose of supporting its liquidity needs, such as financings or asset sales, which may negatively affect our business operations, cash flows or capital structure. In its Annual Report on Form 10-K filed with the SEC on February 23, 2017, iHeartCommunications stated its forecast of future cash flows indicates that such cash flows would not be sufficient for it to meet its obligations, including payment of the outstanding receivables based credit facility balance at maturity on December 24, 2017, as they become due in the ordinary course of business for a period of at least 12 months following February 23, 2017. While iHeartCommunications stated that it believes that the refinancing or the extension of the maturity date of the receivables based credit facility, combined with current funds and expected future cash flows, will be sufficient to enable it to meet its obligations as they become due in the ordinary course of business for a period of at least 12 months, there is no assurance that the receivables based credit facility will be extended in a timely manner or on acceptable terms, or at all.
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If iHeartCommunications engages in the same type of business we conduct or takes advantage of business opportunities that might be attractive to us, our ability to successfully operate and expand our business may be hampered
Our amended and restated certificate of incorporation provides that, subject to any contractual provision to the contrary, iHeartCommunications will have no obligation to refrain from:
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▪ | engaging in the same or similar business activities or lines of business as us; or |
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▪ | doing business with any of our clients, customers or vendors. |
In addition, the corporate opportunity policy set forth in our amended and restated certificate of incorporation addresses potential conflicts of interest between our company, on the one hand, and iHeartCommunications or iHeartMedia and its officers and directors who are officers or directors of our company, on the other hand. The policy provides that if iHeartCommunications or iHeartMedia acquires knowledge of a potential transaction or matter which may be a corporate opportunity for both iHeartCommunications and us, we will have renounced our interest in the corporate opportunity. It also provides that if one of our directors or officers who is also a director or officer of iHeartCommunications or iHeartMedia learns of a potential transaction or matter that may be a corporate opportunity for both iHeartCommunications and us, (1) we will have renounced our interest in the corporate opportunity, unless that opportunity is expressly offered to that person in writing solely in his or her capacity as our director or officer, and (2) the director or officer will have no duty to communicate or present that corporate opportunity to us and will not be liable to us or our stockholders for breach of fiduciary duty by reason of iHeartCommunications’ actions with respect to that corporate opportunity.
This policy could result in iHeartCommunications having rights to corporate opportunities in which both we and iHeartCommunications have an interest.
We are a “controlled company” within the meaning of the New York Stock Exchange (“NYSE”) rules and,operating income as a result qualifyof foreign currency exchange rate fluctuations.
Risks Related to Ownership of our Common Stock
Our stock price has been highly volatile and may decline regardless of our operating performance.
The market price for and intend to rely on, exemptions from certain corporate governance requirements thatour common stock has been highly volatile. You may not provide as many protections as those affordedbe able to stockholders of other companies
iHeartCommunications ownsresell your shares at or above the price you paid for them due to fluctuations in the market price of our common stock, representing more than 50%which may be caused by a number of factors, many of which we cannot control, including those previously described and the total voting powerfollowing: our quarterly or annual earnings reports or those of other companies in our industry; investors’ perceptions of our prospects; investors’ disagreements with our strategy or capital allocation; changes in financial estimates by any securities analysts who follow our common stock, our failure to meet these estimates or failure of those analysts to initiate or maintain coverage of our common stock; downgrades by any securities analysts who follow our common stock; market conditions or trends in our industry or the economy as a whole (including the current macroeconomic environment) and, in particular, the advertising industry; changes in accounting standards, policies, guidance, interpretations or principles; announcements by us of significant strategic transactions (such as the reviews of our European businesses), contracts, acquisitions, joint ventures or capital commitments; changes in key personnel; and future sales of our common stock by our officers, directors and as a result,significant stockholders.
In addition, the stock markets have experienced extreme price and volume fluctuations that have affected, and continue to affect, the market prices of equity securities of many companies. In the past, stockholders have instituted securities class action litigation or launched activist campaigns following periods of market volatility. If we have elected towere involved in securities litigation or an activist campaign, we could incur substantial costs, and our resources and the attention of management could be treated as a “controlled company” underdiverted from our business.
If securities or industry analysts do not publish research or publish inaccurate or unfavorable research about our business, our stock price and trading volume could decline.
The trading market for our common stock depends in part on the NYSE corporate governance standards. As a controlled company, we are exempt from the provisionsresearch and reports that securities or industry analysts publish about us or our business. If one or more of the NYSE’s corporate governance standards requiring that: (1) a majority ofanalysts who covers us downgrades our board consists of independent directors; (2) we have a nominating and governance committee composed entirely of independent directors and governed by a written charter addressing the nominating and governance committee’s purpose
and responsibilities; and (3) we have a compensation committee composed entirely of independent directors with a written charter addressing the compensation committee’s purpose and responsibilities. Although we currently have a compensation committee composed entirely of independent directors with a written charter addressing the compensation committee’s purpose and responsibilities, we currently do not have a nominating and governance committee and a majority ofcommon stock or publishes inaccurate or unfavorable research about our board of directors currently does not consist of independent directors. We intend to continue using certainbusiness, our stock price may decline. If one or more of these exemptionsanalysts ceases coverage of us or fails to publish reports on us regularly, demand for our common stock could decrease, which could cause our stock price and as a result: (1) we may not create or maintain a nominating and governance committee; (2) the nominating and governance committee (if one is created) and the compensation committee may not consist entirely of independent directors; and (3) our board of directors may not consist of a majority of independent directors. Accordingly, you may not have the same protections affordedtrading volume to stockholders of companies that are subject to all of the NYSE corporate governance requirements.decline.
We do not have control over our tax decisions and could be liable for income taxes owed by iHeartCommunications
As long as iHeartCommunications continues to own sharesFuture sales of our common stock representing at least 80% ofin the total voting powerpublic market, or the perception that such sales may occur, could lower our stock price, and valueany additional capital raised by us through the sale of our common stock we and certain of our subsidiaries will be included in iHeartCommunications’ consolidated group for U.S. federal income tax purposes for all pre-merger periods and iHeartMedia’s consolidated group for post-merger periods. In addition, we or one or more of our subsidiaries may be included in the combined, consolidated or unitary tax returns of iHeartCommunications for pre-merger periods and iHeartMedia for post-merger periods or one or more of its subsidiaries for foreign, state and local income tax purposes. Under the Tax Matters Agreement, we pay to iHeartCommunications the amount of federal, foreign, state and local income taxes that we would be required to pay to the relevant taxing authorities if we and our subsidiaries filed combined, consolidated or unitary tax returns and were not included in the combined, consolidated or unitary tax returns of iHeartCommunications or its subsidiaries. In addition, by virtue of its controlling ownership and the Tax Matters Agreement, iHeartCommunications effectively controls all of our tax decisions. The Tax Matters Agreement provides that iHeartCommunications has the sole authority to respond to and conduct all tax proceedings (including tax audits) relating to us, to file all income tax returns on our behalf and to determine the amount of our liability to (or entitlement to payment from) iHeartCommunications under the Tax Matters Agreement. This arrangement may result in conflicts of interest between iHeartCommunications and us. For example, under the Tax Matters Agreement, iHeartCommunications is able to choose to contest, compromise, or settle any adjustment or deficiency proposed by the relevant taxing authority in a manner that may be beneficial to iHeartCommunications and detrimental to us.
Moreover, notwithstanding the Tax Matters Agreement, federal law provides that each member of a consolidated group is liable for the group’s entire tax obligation. Thus, to the extent iHeartCommunications or other membersequity-linked instruments or the issuance of the group fail to make any United States federal income tax payments required by law, we would be liable for the shortfall. Similar principles may apply for foreign, state and local income tax purposes where we file combined, consolidated or unitary returns with iHeartCommunications or its subsidiaries for federal, foreign, state and local income tax purposes.
If iHeartCommunications spins off our Class B common stock to the iHeartMedia stockholders, we have agreed in the Tax Matters Agreement to indemnify iHeartCommunications for its tax-related liabilities in certain circumstances
If iHeartCommunications spins off our Class B common stock to the iHeartMedia’s stockholders in a distribution intended to be tax-free under Section 355 of the Internal Revenue Code of 1986, as amended, which we refer to herein as the Code, we have agreed in the Tax Matters Agreement to indemnify iHeartCommunications and its affiliates against any and all tax-related liabilities if such a spin-off fails to qualify as a tax-free distribution (including as a result of Section 355(e) of the Code) due to actions, events or transactions relating to our stock, assets or business, or a breach of the relevant representations or covenants madeequity awards by us in the Tax Matters Agreement. If neither we nor iHeartCommunications is responsible under the Tax Matters Agreement for any such spin-off not being tax-free under Section 355 of the Code, we and iHeartCommunications have agreed to each be responsible for 50% of the tax-related liabilities arising from the failure of such a spin-off to so qualify.may dilute your ownership percentage.
Risks Related to Our Class A Common Stock
Our stock ownership by iHeartCommunications, provisions in our agreements with iHeartCommunications and our corporate governance documents and Delaware law may delay or prevent an acquisition of us that our other stockholders may consider favorable, which could decrease the value of your shares of Class A common stock
As long as iHeartCommunications continues to own shares of our common stock representing more than 50% of the total voting power of our common stock, it will have the ability to control decisions regarding an acquisition of us by a third party. As a controlled company, we are exempt from some of the corporate governance requirements of the NYSE, including the requirement that our board of directors consist of a majority of independent directors. In addition, our amended and restated certificate of incorporation, bylaws and Delaware law contain provisions that could make it more difficult for a third party to acquire us without the consent of our board of directors. These provisions include restrictions on the ability of our stockholders to remove directors, supermajority voting requirements for stockholders to amend our organizational documents, restrictions on a classified board of directors and limitations on action by our stockholders by written consent. Some of these provisions, such as the limitation on
stockholder action by written consent, only become effective once iHeartCommunications no longer controls us. In addition, our board of directors has the right to issue preferred stock without stockholder approval, which could be used to dilute the stock ownership of a potential hostile acquirer. Delaware law also imposes certain restrictions on mergers and other business combinations between us and any holder of 15% or more of our outstanding voting stock. These restrictions under Delaware law do not apply to iHeartCommunications while it retains at least 15% or more of our Class B common stock. Although we believe these provisions protect our stockholders from coercive or otherwise unfair takeover tactics and thereby provide for an opportunity to receive a higher bid by requiring potential acquirers to negotiate with our board of directors, these provisions apply even if the offer may be considered beneficial by some stockholders.
If iHeartCommunications spins off our Class B common stock to the iHeartMedia stockholders and such shares do not convert into Class A common stock upon a sale or other transfer subsequent to such distribution, the voting rights of our Class A common stock will continue to be disproportionately lower than the voting rights of our Class B common stock
In connection with any distribution of shares of our Class B common stock to iHeartMedia’s common stockholders in a spin-off, iHeartCommunications may elect in its sole discretion whether our Class B common stock so distributed will automatically convert into shares of Class A common stock upon a transfer or sale by the recipient subsequent to the spin-off or whether the Class B common stock will continue as Class B common stock after the distribution. In the event the Class B common stock does not convert into Class A common stock upon a sale or transfer subsequent to a spin-off, the voting rights of Class A common stock will continue to be disproportionately lower than the voting rights of our Class B common stock. Therefore, the holders of our Class B common stock will continue to be able to direct the election of all the members of our board of directors and exercise a controlling influence over our business and affairs.
An increase in the concentration of our stock ownership by iHeartCommunications could depress the market price for shares of our Class A common stock
As a result of the significant concentration of our stock ownership, we have a relatively small public float compared to the number of our shares outstanding, which may adversely affect the trading price for our Class A common stock because investors may perceive disadvantages in owning stock in companies with controlling stockholders. On August 9, 2010, iHeartCommunications, our indirect parent entity, announced a stock purchase program under which iHeartCommunications or its subsidiaries may purchase up to an aggregate of $100 million of our Class A common stock and/or the Class A common stock of iHeartMedia. During 2011, 2014 and 2015, a subsidiary of iHeartCommunications purchased 10,726,917 shares of our Class A common stock. The stock purchase program concluded in 2015; however, future stock purchases would result in additional concentration of our stock ownership and further reduce our public float. As of December 31, 2016, iHeartCommunications, through its subsidiaries, held approximately 89.9% of our outstanding shares of common stock.
Future sales or distributions of our shares by iHeartCommunications could depress the market price for shares of our Class A common stock
iHeartCommunications is not subject to any contractual obligation that would prohibit it from selling, spinning off, splitting off or otherwise disposing of any shares of our common stock and it has a contractual right, pursuant to demand registration rights described in the Registration Rights Agreement between us and iHeartCommunications, to distribute its shares of our common stock to iHeartMedia stockholders. iHeartCommunications may sell all or part of the shares of our common stock it owns or distribute those shares to the iHeartMedia stockholders. Accordingly, we cannot assure you iHeartCommunications will maintain its ownership of our common stock. Sales or distributions by iHeartCommunications of substantial amounts of our common stock in the public market by our stockholders, or to the iHeartMedia stockholdersperception that these sales could occur, could adversely affect prevailingthe price of our common stock and could impair our ability to raise capital through the sale of additional shares.
Any additional capital raised by us through the sale of our common stock or other equity-linked instruments may also dilute your ownership and influence in us, as a result of governance rights and other rights that may be given to the holders of such instruments. In addition, holders of equity-linked securities could have rights, preferences and privileges that are not held by, and could be preferential to, the rights of holders of our holders of common stock In the future, we may also issue our common stock in connection with acquisitions or investments. We cannot predict the size of any such future issuances, but the amount of shares of our common stock issued in connection with an acquisition or investment could constitute a material portion of the then-outstanding shares of our common stock.
Our failure to meet the continued listing requirements of the New York Stock Exchange (“NYSE”) could result in the delisting our common stock, which would have an adverse impact on the trading, liquidity and market prices forprice of our Class A common stock.
If we fail to satisfy the continued listing requirements of the NYSE, such as the minimum bid price requirement, the NYSE may take steps to delist our common stock. In 2020, as a result of the effects of the COVID-19 pandemic, the price of our common stock fell below $1.00 over a period of 30 consecutive trading days, and as such, we failed to comply with related NYSE continued listing standards. In the fourth quarter of 2022, the lowest closing price of our common stock on the NYSE was $0.96 per share and the highest closing price was $1.72 per share. We cannot assure you that the price of our common stock will continue to remain in compliance with the required listing standard or that we will remain in compliance with any of the other applicable continued listing standards of the NYSE. Any future failure to remain in compliance with the NYSE’s continued listing standards, and any subsequent failure to timely resume compliance with the NYSE’s continued listing standards within the applicable cure period, could have adverse consequences, including, among others, reducing the number of investors willing to hold or acquire our common stock, reducing the liquidity and market price of our common stock, adverse publicity and a reduced interest in us from investors, analysts and other market participants. In addition, a suspension or delisting could impair our ability to raise additional capital through the public markets and our ability to attract and retain employees by means of equity compensation.
We currently do not pay regularly-scheduled dividends on our Class A common stockstock.
We paid a special dividend on March 15, 2012, a special dividend on November 8, 2013 in connection with the settlement of litigation, a special dividend on August 11, 2014, a special dividend on January 7, 2016, a special dividend on February 4, 2016 and a special dividend on February 23, 2017. We do not pay regularly-scheduled dividends on our common stock, and should we seek to do so in the future, we are subject to restrictions on our ability to pay dividends shouldby the instruments governing our outstanding debt. Because we seek to do so in the future. We are a holding company with no independent operations and no significant assets other than the stock of our subsidiaries. We, therefore, are dependent upon the receipt ofnot pay dividends or other distributions from our subsidiaries to pay dividends. In addition, Clear Channel Worldwide Holdings, Inc.’s (“CCWH”) senior notes and CCWH’s senior subordinated notes contain restrictions on our ability to pay dividends. If we elect not to pay dividends in the future or are prevented from doing so,common stock, the price of our Class A common stock must appreciate in order for common stockholders to realize a gain on your investment.their investments. This appreciation may not occur.
Our certificate of incorporation designates the Court of Chancery of the State of Delaware, subject to certain exceptions, as the sole and exclusive forum for certain types of actions and proceedings that may be initiated by our stockholders.
Our certificate of incorporation provides that the Court of Chancery of the State of Delaware, subject to certain exceptions, is the sole and exclusive forum for (i) any derivative action or proceeding brought on our behalf; (ii) any action asserting a claim of breach of a fiduciary duty owed by any of our directors, officers or other employees to us or our stockholders; (iii) any action asserting a claim against us arising pursuant to any provision of the Delaware General Corporate Law, our certificate of incorporation or our By-laws; or (iv) any other action asserting a claim against us that is governed by the internal affairs doctrine. This choice of forum provision may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers or other employees, which may discourage such lawsuits against us and our directors, officers and employees.
Risks Related to Our Indebtedness
We may not be able to generate sufficient cash to service all ofCovenants in our indebtednessdebt indentures and may be forced to take other actions to satisfy our obligations under our indebtedness, which may not be successful
We have a substantial amount of indebtedness. At December 31, 2016, we had $5.1 billion of total indebtedness outstanding, including: (1) $2.7 billion aggregate principal amount of CCWH’s senior notes, net of unamortized discounts of $4.9 million, which mature in November 2022; (2) $2.2 billion aggregate principal amount of CCWH’s senior subordinated notes, which mature in March 2020; (3) $223.2 million aggregate principal amount outstanding of international subsidiary senior notes, net of unamortized discounts of $1.8 million, which mature in December 2020; and (4) $14.8 million of other debt. This large amount of indebtedness could have negative consequences for us, including, without limitation:
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▪ | requiring us to dedicate a substantial portion of our cash flow to the payment of principal and interest on indebtedness, thereby reducing cash available for other purposes, including to fund operations and capital expenditures, invest in new technology and pursue other business opportunities; |
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▪ | limiting our liquidity and operational flexibility and limiting our ability to obtain additional financing for working capital, capital expenditures, debt service requirements, acquisitions and general corporate or other purposes; |
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▪ | limiting our ability to adjust to changing economic, business and competitive conditions; |
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▪ | requiring us to defer planned capital expenditures, reduce discretionary spending, sell assets, restructure existing indebtedness or defer acquisitions or other strategic opportunities; |
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▪ | limiting our ability to refinance any of the indebtedness or increasing the cost of any such financing; |
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▪ | making us more vulnerable to an increase in interest rates, a downturn in our operating performance, a decline in general economic or industry conditions or a disruption in the credit markets; and |
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▪ | making us more susceptible to negative changes in credit ratings, which could impact our ability to obtain financing in the future and increase the cost of such financing. |
If compliance with the debt obligations materially hinderscredit agreements restrict our ability to operatepursue our business and adapt to changing industry conditions, we may lose market share, our revenue may decline and our operating results may suffer.
Our ability to make scheduled payments on our debt obligations depends on our financial condition and operating performance, which is subject to prevailing economic and competitive conditions and to certain financial, business and other factors beyond our control. We may not be able to maintain a level of cash flows from operating activities sufficient to permit us to pay the principal, premium, if any, and interest on our indebtedness.
If our cash flows and capital resources are insufficient to fund our debt service obligations, we may be forced to reduce or delay capital expenditures, sell assets or operations, seek additional capital or refinance our indebtedness. We may not be able to take any of these actions, and these actions may not be successful or permit us to meet our scheduled debt service obligations. Furthermore, these actions may not be permitted under the terms of our existing or future debt agreements.
Our ability to refinance our debt will depend on the condition of the capital markets and our financial condition at such time. Any refinancing of our debt could be at higher interest rates and increase our debt service obligations and may require us to comply with more onerous covenants, which could further restrict our business operations. The terms of existing or future debt instruments may restrict us from adopting some of these alternatives. These alternative measures may not be successful and may not permit us to meet our scheduled debt service obligations. If we cannot make scheduled payments on our indebtedness we will be in default under one or more of our debt agreements and, as a result we could be forced into bankruptcy or liquidation.
Because we derive all of our operating income from our subsidiaries, our ability to repay our debt depends upon the performance of our subsidiaries and their ability to dividend or distribute funds to us
We derive all of our operating income from our subsidiaries. As a result, our cash flow and the ability to service our indebtedness depend on the performance of our subsidiaries and the ability of those entities to distribute funds to us. We cannot assure you that our subsidiaries will be able to, or be permitted to, pay to us the amounts necessary to service our debt.
The documents governing our indebtedness and iHeartCommunications’ indebtedness contain restrictions that limit our flexibility in operating our businessstrategies.
Our material financing agreements contain a number of restrictive covenants that impose significant operating and iHeartCommunications’ material financingfinancial restrictions on us and may limit our ability to engage in acts that may be in our long-term best interests. These agreements contain variousinclude covenants restricting, among other things, our ability and the ability of our restricted subsidiaries to:
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▪ | make acquisitions or investments; |
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▪ | make loans or otherwise extend credit to others; |
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▪ | incur indebtedness or issue shares or guarantees; |
•Incur or guarantee additional debt or issue certain preferred stock;
•Pay dividends, redeem or purchase capital stock or make other restricted payments;
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▪ | redeem, repurchase or retire our subordinated debt; |
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▪ | enter into transactions with affiliates; |
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▪ | sell, lease, transfer or dispose of assets; |
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▪ | merge or consolidate with other companies; and |
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▪ | make a substantial change to the general nature of our business. |
•Redeem, repurchase or retire our subordinated debt;
•Make certain investments;
•Create liens on our assets or on our restricted subsidiaries’ assets to secure debt;
•Create restrictions on the payment of dividends or other amounts to us from our restricted subsidiaries that are not guarantors of the notes;
•Enter into transactions with affiliates;
•Merge or consolidate with another company, or sell or otherwise dispose of all or substantially all of our assets;
•Sell certain assets, including capital stock of our subsidiaries;
•Alter the business that we conduct; and
•Designate our subsidiaries as unrestricted subsidiaries.
These restrictions could affect our ability to operate our business and may limit our ability to react to market conditions or take advantage of potential business opportunities as they arise. For example, suchthese restrictions could adversely affect our ability to finance our operations, make strategic acquisitions, investments or alliances, restructure our organization or finance our capital needs. Additionally,In addition, under our Revolving Credit Facility, as amended, we are required to comply with a first lien net leverage ratio covenant if the balance of the Revolving Credit Facility is greater than $0 and undrawn letters of credit exceed $10 million at that time. Our ability to comply with these covenants and restrictions may be affected by events beyond our control. These include prevailing economic, financial and industry conditions. If we breach any of these covenants or restrictions, we could be in default under the agreements governing our indebtedness, and as a result, we wouldcould be forced into bankruptcybankruptcy.
Despite current indebtedness levels, we and our subsidiaries may still be able to incur more debt, and this could exacerbate the risks associated with our leverage.
As of December 31, 2022, remaining availability under our credit facilities was $214.6 million. Although our debt indentures and credit agreements contain restrictions on the incurrence of additional indebtedness, these restrictions are subject to a number of qualifications and exceptions, and we and our subsidiaries could incur additional indebtedness in the future. For example, if permitted by the documents governing their indebtedness, our subsidiaries that are not guarantors may be able to incur more indebtedness under the indenture than our subsidiaries that are guarantors. Moreover, our debt indentures and credit agreements do not impose any limitation on our incurrence of liabilities that are not considered “indebtedness” and do not impose any limitation on liabilities incurred by our immaterial subsidiaries or liquidation.our subsidiaries that might be designated as “unrestricted subsidiaries.” As of the date of this Annual Report on Form 10-K, we had no “unrestricted subsidiaries.” If we incur additional debt above current levels, the risks associated with our substantial leverage would increase.
Downgrades in our and iHeartCommunications’ credit ratings may adversely affect our borrowing costs, limit our financing options, reduce our flexibility under future financings and adversely affect our liquidity and also may adversely impact ouror business operationsoperations.
Our and iHeartCommunications’ corporate credit ratings are speculative-grade. Our and iHeartCommunications' corporate credit ratings and ratings outlook are subject to review by rating agencies from time to time and, on various occasions, have been downgraded. In the future, our or iHeartCommunications' corporate credit rating and rating outlook could be further downgraded. Any further reductions in our and iHeartCommunications’ credit ratings could increase our borrowing costs, reduce the availability of financing to us or increase the cost of doing business or otherwise negatively impact our business operations.
Cautionary Statement Concerning Forward-Looking Statements
The Private Securities Litigation Reform Actelimination of 1995 providesLIBOR may adversely affect the cost of our borrowings.
Regulatory authorities in the U.K. will cease publication of all USD LIBOR tenors after June 30, 2023. In the U.S., the Alternative Reference Rates Committee formally recommended the Secured Overnight Financing Rate (“SOFR”), plus a safe harborrecommended spread adjustment, as the replacement for forward-looking statements madeUSD LIBOR. We recently entered into an amendment to the Term Loan Facility to replace LIBOR as the reference interest rate with SOFR plus a spread. While we continue to work with the administrative agents under our other credit agreements to finalize replacement rates, negotiations could require us to incur significant expense and may subject us to disputes over the appropriateness or comparability of the relevant replacement reference index. In addition, there can be no assurance that the application of, or transition to, SOFR or any other alternative reference rate to the Term Loan and our other agreements will not increase our interest expense or will not introduce operational risks in our accounting or financial reporting and other aspects of our business.
General Risks
We are dependent upon the performance of our senior management team and other key individuals.
We have experienced changes to our senior management team in critical functions. In early 2022, Mr. Scott R. Wells commenced his role as Chief Executive Officer and member of the Board, and Mr. William Eccleshare transitioned to the role of Executive Vice Chairman of the Board, which terminated at the end of 2022. Changes in management and other key personnel have the potential to disrupt our business, and any such disruption could adversely affect our operations, financial condition and results of operations. In addition, competition for senior management and key individuals remains intense, and many of our key employees are at-will employees who are under no obligation to remain with us and may decide to leave for a variety of personal or other reasons beyond our control. If members of our senior management or key individuals decide to leave in the future, or if we are not successful in attracting, motivating and retaining other key employees, our business could be adversely affected.
Our financial performance may be adversely affected by many factors beyond our control.
Certain additional factors that could adversely affect our financial performance by, among other things, decreasing overall revenues, the numbers of advertising customers, advertising fees or profit margins include, but are not limited to:
•Our inability to successfully adopt, or our being late in adopting, technological changes and innovations that offer more attractive advertising alternatives than what we offer, which could result in a loss of advertising customers or lower advertising rates;
•Unfavorable shifts in population and other demographics, which may cause us to lose advertising customers as people migrate to markets where we have a smaller presence, or which may cause advertisers to be willing to pay less in advertising fees if the general population shifts into a less desirable age or geographical demographic from an advertising perspective;
•Our inability to secure displays, display equipment, physical structures, LCD or LED technology, electrical supply and network connectivity and other materials required to provide our products and services in a timely manner, either as a result of supply chain shortages or other supply chain challenges, such as sanctions imposed on countries where our behalf.inventory is manufactured, specifically China; and
•Unfavorable changes in labor conditions, including labor shortages, which may impair our ability to operate or require us to spend more to retain and attract qualified employees.
Continued scrutiny and changing expectations from investors, lenders, customers, government regulators and other stakeholders may impose additional costs on us and/or expose us to additional risks.
Public companies across all industries are facing increasing scrutiny from investors, lenders, customers, government regulators, activists and other stakeholders with respect to various areas of their operations, including with respect to ESG matters. Investment in funds that specialize in companies that perform well in assessments performed by ESG raters are increasingly popular, and major institutional investors have emphasized the importance of such ESG measures to their investment decisions. Responding to ESG considerations, including diversity and inclusion, environmental stewardship (including, but not limited to, measurement of our carbon emission reduction), support for local communities, labor conditions and human rights, ethics and compliance with law, privacy and information security, compliance initiatives and corporate governance and transparency, and implementing goals and initiatives involve risks and uncertainties and depend in part on third-party performance or data that is outside our control.
From time to time, we have been approached by, and have had discussions with, third-party stakeholders on matters related to our corporate governance policies, our environmental stewardship programs, our corporate strategies, our executive compensation programs and other aspects of our operations. Responding to these third-party stakeholders and their proposals requires significant attention, time and resources from management and our employees and may impact our ability to execute various strategic initiatives. In addition, some stakeholders may disagree with our goals and initiatives. We risk damage to our brand and reputation and may face issues securing government contracts or accessing the capital markets or other sources of liquidity if we fail to adapt to, or comply with, investor, lender, customer or other stakeholder expectations and/or standards and current and potential government regulation with respect to ESG matters.
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
This report contains various forward-looking statements which represent our expectations or beliefs concerning future events, including, without limitation, our future operatingguidance, outlook, long-term forecast, goals or targets; our business plans and financial performance,strategies; our ability to comply with the covenants in the agreements governingexpectations about certain markets and strategic review processes; and our indebtedness and the availability of capital and the terms thereof.liquidity. 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 1995.1995, which provides a safe harbor for forward-looking statements made by us or on our behalf. We caution that these forward-looking statements involve a number of risks and uncertainties and are subject to many variables whichthat 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:
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▪ | risks associated with weak or uncertain global economic conditions and their impact on the capital markets, including the effects of Brexit; |
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▪ | 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; |
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▪ | industry conditions, including competition; |
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▪ | the level of expenditures on advertising; |
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▪ | legislative or regulatory requirements; |
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▪ | fluctuations in operating costs; |
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▪ | technological changes and innovations; |
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▪ | changes in labor conditions and management; |
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▪ | capital expenditure requirements; |
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▪ | risks of doing business in foreign countries; |
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▪ | fluctuations in exchange rates and currency values; |
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▪ | the outcome of pending and future litigation; |
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▪ | changes in interest rates; |
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▪ | shifts in population and other demographics; |
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▪ | access to capital markets and borrowed indebtedness; |
•continued economic uncertainty, an economic slowdown or a recession;
•the continued impact of the COVID-19 pandemic;
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▪ | our ability to implement our business strategies; |
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▪ | the risk that we may not be able to integrate the operations of acquired businesses successfully; |
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▪ | the risk that our cost savings initiatives may not be entirely successful or that any cost savings achieved from those initiatives may not persist; |
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▪ | 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; |
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▪ | the impact of our substantial indebtedness, including the effect of our leverage on our financial position and earnings; |
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▪ | 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; |
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▪ | our relationship with iHeartCommunications, including its ability to elect all of the members of our board of directors and its ability as our controlling stockholder to determine the outcome of matters submitted to our stockholders and certain additional matters governed by intercompany agreements between us; |
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▪ | the impact of the above and similar factors on iHeartCommunications, our primary direct or indirect external source of capital, which could have a significant need for capital in the future; and |
| |
▪ | certain other factors set forth in our other filings with the SEC. |
•our ability to service our debt obligations and to fund our operations, business strategy and capital expenditures;
•the impact of our substantial indebtedness, including the effect of our leverage on our financial position and earnings;
•the difficulty, cost and time required to implement our strategy, and the fact that we may not realize the anticipated benefits therefrom;
•our ability to obtain and renew key contracts with municipalities, transit authorities and private landlords;
•competition;
•technological changes and innovations;
•regulations and consumer concerns regarding privacy and data protection;
•a breach of our information security measures;
•legislative or regulatory requirements;
•restrictions on out-of-home advertising of certain products;
•environmental, health, safety and land use laws and regulations, as well as various actual and proposed ESG policies and regulations;
•the impact of the strategic review processes of our European businesses, including possible sales;
•the impact of future dispositions, acquisitions and other strategic transactions;
•third-party claims of intellectual property infringement, misappropriation or other violation against us or our suppliers;
•the risk that indemnities from iHeartMedia will not be sufficient to insure us against the full amount of certain liabilities;
•risks of doing business in foreign countries;
•fluctuations in exchange rates and currency values;
•volatility of our stock price;
•the impacts of our stock price as a result of future sales of common stock, or the perception thereof, and dilution resulting from additional capital raised through the sale of common stock or other equity-linked instruments;
•the effect of analyst or credit ratings downgrades;
•our ability to continue to comply with the applicable listing standards of the NYSE;
•the restrictions contained in the agreements governing our indebtedness limiting our flexibility in operating our business;
•our dependence on our management team and other key individuals;
•continued scrutiny and changing expectations from investors, lenders, customers, government regulators and other stakeholders; 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 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
Our worldwide corporate headquarters is located in San Antonio, Texas, where iHeartCommunications leaseswe lease space in anfor executive office buildingoffices and a data and administrative servicebusiness services center. The headquarters of our Americas operations isWe also have executive offices in New York New YorkCity and the headquarters of our International operations is in London, England. In addition, certain of our executive and otherLondon.
Our operations are located primarily in New York, New Yorkthe U.S., where we are present in 40 out of the top 50 U.S. markets, and London, England.
in Europe, where our portfolio spans 16 countries and is focused on densely populated metropolitan areas in major cities. We also have operations in four countries across Latin America and in Singapore. The types of properties required to support each of our outdoorout-of-home advertising branches include offices production facilities and structure sites. An outdoor branch and production facility isfacilities, generally located in an industrial or warehouse district.district, as well as structure sites.
With respect to eachOur U.S. display inventory consists primarily of billboards, transit displays and street furniture, and our Europe display inventory consists primarily of street furniture, billboards, retail displays and transit displays. As of December 31, 2022, we had approximately 69,800 advertising displays in the AmericasU.S., including more than 4,700 digital displays; approximately 430,000 advertising displays in Europe, including more than 19,600 digital displays; and International segments,approximately 7,600 advertising displays in Latin America and Singapore, including more than 1,000 digital displays. We typically own the physical structures on which our clients’ advertising copy is displayed, and we primarily lease our outdoorout-of-home display sites and own or have acquired permanent easements for relatively few parcels of real property that serve as the sites for our outdoorout-of-home displays. Our leases generallysite lease terms may range from month-to-month to year-to-year and can be for terms of 10ten years or longer, and many provide for renewal options.
There is no significant concentration of displays under any one lease or subject to negotiation with any one landlord. We believe that an important part of our management activity is to negotiate suitable lease renewals and extensions.
No one property is material to our overall operations. We believe that our properties are in good condition and suitable for our operations. For additional information regarding our properties, see “Item 1. Business.”refer to Item 1 of this Annual Report on Form 10-K (“Business”). ITEM 3. LEGAL PROCEEDINGS
We currently are involved in certainFor information regarding our material pending legal proceedings, arisingrefer to Note 8 to our Consolidated Financial Statements located 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; misappropriation of likeness and right of publicity claims; employment and benefits related claims; governmental fines; intellectual property claims; and tax disputes.
International Investigations
On April 21, 2015, inspections were conducted at our premises in Denmark and Sweden as part of an investigation by Danish competition authorities. On the same day, we received a communication from the U.K. competition authorities, also in connection with the investigation by Danish competition authorities. We are cooperating with the national competition authorities. At this time, the outcomeItem 8 of this investigation is uncertain.Annual Report on Form 10-K.Stockholder Litigation
On May 9, 2016, a stockholder of the Company filed a derivative lawsuit in the Court of Chancery of the State of Delaware, captioned GAMCO Asset Management Inc. v. iHeartMedia Inc. et al., C.A. No. 12312-VCS. The complaint names as defendants iHeartCommunications, Inc. (“iHeartCommunications”), the Company’s indirect parent company, iHeartMedia, Inc. (“iHeartMedia”), the parent company of iHeartCommunications, Bain Capital Partners, LLC and Thomas H. Lee Partners, L.P. (together, the “Sponsor Defendants”), iHeartMedia’s private equity sponsors and majority owners, and the members of the Company’s board of directors. The Company also is named as a nominal defendant. The complaint alleges that the Company has been harmed by the intercompany agreements with iHeartCommunications, the Company’s lack of autonomy over its own cash and the actions of the defendants in serving the interests of iHeartMedia, iHeartCommunications and the Sponsor Defendants to the detriment of the Company and its minority stockholders. Specifically, the complaint alleges that the defendants have breached their fiduciary duties by causing the Company to: (i) continue to loan cash to iHeartCommunications under the intercompany note at below-market rates; (ii) abandon its growth and acquisition strategies in favor of transactions that would provide cash to iHeartMedia and iHeartCommunications; (iii) issue new debt in the CCIBV note offering (the “CCIBV Note Offering”) to provide cash to iHeartMedia and iHeartCommunications through a dividend; and (iv) effect the sales of certain outdoor markets in the U.S. (the “Outdoor Asset Sales”) to provide cash to iHeartMedia and iHeartCommunications through a dividend. The complaint also alleges that iHeartMedia, iHeartCommunications and the Sponsor Defendants aided and abetted the directors’ breaches of their fiduciary duties. The complaint further alleges that iHeartMedia, iHeartCommunications and the Sponsor Defendants were unjustly enriched as a result of these transactions and that these transactions constituted a waste of corporate assets for which the defendants are liable to the Company. The plaintiff is seeking, among other things, a ruling that the defendants breached their fiduciary duties to the Company and that iHeartMedia, iHeartCommunications and the Sponsor Defendants aided and abetted the board of directors’ breaches of fiduciary duty, rescission of payments to iHeartCommunications and its affiliates pursuant to dividends declared in connection with the CCIBV Note Offering and Outdoor Asset Sales, and an order requiring iHeartMedia, iHeartCommunications and the Sponsor Defendants to disgorge all profits they have received as a result of the alleged fiduciary misconduct.
On July 20, 2016, the defendants filed a motion to dismiss plaintiff's verified stockholder derivative complaint for failure to state a claim upon which relief can be granted. On November 23, 2016, the Court granted defendants’ motion to dismiss all claims brought by the plaintiff. On December 19, 2016, the plaintiff filed a notice of appeal of the ruling.
ITEM 4. MINE SAFETY DISCLOSURES
Not Applicable.
EXECUTIVE OFFICERS OF THE REGISTRANT
The following information with respect to our executive officers is presented as of February 23, 2017:applicable.
|
| | | | |
Name | | Age | | Position |
Robert W. Pittman | | 63 | | Chairman and Chief Executive Officer |
Richard J. Bressler | | 59 | | Chief Financial Officer |
Scott R. Wells | | 48 | | Chief Executive Officer – Clear Channel Outdoor Americas |
C. William Eccleshare | | 61 | | Chairman and Chief Executive Officer – Clear Channel Outdoor International |
Steven J. Macri | | 48 | | Senior Vice President – Corporate Finance |
Scott D. Hamilton | | 47 | | Senior Vice President, Chief Accounting Officer and Assistant Secretary |
Robert H. Walls, Jr. | | 56 | | Executive Vice President, General Counsel and Secretary |
The officers named above serve until their respective successors are chosen and qualified, in each case unless the officer sooner dies, resigns, is removed or becomes disqualified.
Robert W. Pittman is the Chairman and Chief Executive OfficerTable of iHeartMedia, iHeartCommunications and iHeartMedia Capital I, LLC and the Chairman and Chief Executive Officer of the Company. Mr. Pittman was appointed as the Executive Chairman and a director of iHeartMedia and iHeartCommunications on October 2, 2011. He was appointed as Chairman of iHeartMedia and iHeartCommunications on May 17, 2013. He also was appointed as Chairman and Chief Executive Officer and a member of the board of managers of iHeartMedia Capital I, LLC on April 26, 2013. Prior to October 2, 2011, Mr. Pittman served as the Chairman of Media and Entertainment Platforms for iHeartMedia and iHeartCommunications since November 2010. He has been a member of, and an investor in, Pilot Group, a private equity investment company, since April 2003. Mr. Pittman was formerly Chief Operating Officer of AOL Time Warner, Inc. from May 2002 to July 2002. He also served as Co-Chief Operating Officer of AOL Time Warner, Inc. from January 2001 to May 2002, and earlier, as President and Chief Operating Officer of America Online, Inc. from February 1998 to January 2001. Mr. Pittman serves on the boards of numerous charitable organizations, including the Alliance for Lupus Research, the Rock and Roll Hall of Fame Foundation and the Robin Hood Foundation, where he has served as past Chairman. Mr. Pittman was selected to serve as a member of our Board because of his service as our Chief Executive Officer, as well as his extensive media experience gained through the course of his career.ContentsRichard J. Bressler is the President, Chief Operating Officer, Chief Financial Officer and Director of iHeartMedia, iHeartMedia Capital I, LLC and iHeartCommuncations and the Chief Financial Officer of the Company. Mr. Bressler was appointed as the Chief Financial Officer and President of iHeartMedia, iHeartMedia Capital I, LLC, iHeartCommunications and the Company on July 29, 2013 and as Chief Operating Officer of iHeartMedia, iHeartMedia Capital I, LLC and iHeartCommunications on February 18, 2015. Prior thereto, Mr. Bressler was a Managing Director at THL. Prior to joining THL, Mr. Bressler was the Senior Executive Vice President and Chief Financial Officer of Viacom, Inc. from 2001 through 2005. He also served as Chairman and Chief Executive Officer of Time Warner Digital Media and, from 1995 to 1999, was Executive Vice President and Chief Financial Officer of Time Warner Inc. Prior to joining Time Inc. in 1988, Mr. Bressler was previously a partner with the accounting firm of Ernst & Young LLP. Mr. Bressler also currently is a director of iHeartMedia, iHeartCommunications and Gartner, Inc., a member of the board of managers of iHeartMedia Capital I, LLC and Mr. Bressler previously served as a member of the board of directors of American Media Operations, Inc., Nielsen Holdings B.V. and Warner Music Group Corp. and as a member of the J.P. Morgan Chase National Advisory Board. Mr. Bressler holds a B.B.A. in Accounting from Adelphi University.
Scott R. Wells is the Chief Executive Officer of Clear Channel Outdoor Americas at each of the iHeartMedia, iHeartMedia Capital I, LLC, iHeartCommuncations and the Company and was appointed to this position on March 3, 2015. Previously, Mr. Wells served as an Operating Partner at Bain Capital since January 2011 and prior to that served as an Executive Vice President at Bain Capital since 2007. Mr. Wells also was one of the leaders of the firm’s operationally focused Portfolio Group. Prior to joining Bain Capital, he held several executive roles at Dell, Inc. (“Dell”) from 2004 to 2007, most recently as Vice President of Public Marketing and On-Line in the Americas. Prior to joining Dell, Mr. Wells was a Partner at Bain & Company, where he focused primarily on technology and consumer-oriented companies. Mr. Wells was a member of our Board from August 2008 until March 2015. He currently serves as a director of Ad Council, the Achievement Network (ANet) and the Outdoor Advertising Association of America (OAAA). He has an M.B.A., with distinction, from the Wharton School of the University of Pennsylvania and a B.S. from Virginia Tech.
C. William Eccleshare is the Chairman and Chief Executive Officer- Clear Channel International at each of iHeartMedia, iHeartMedia Capital I, LLC, iHeartCommuncations and the Company and was appointed to this position on March 2, 2015. Prior to such time, he served as Chief Executive Officer – Outdoor of iHeartMedia, iHeartCommuncations and the Company since January 24, 2012 and as Chief Executive Officer—Outdoor of iHeartMedia Capital I, LLC on April 26, 2013. Prior to January 24, 2012, he served as Chief Executive Officer—Clear Channel Outdoor—International of iHeartMedia and iHeartCommunications since February 17, 2011 and as Chief Executive Officer—International of the Company since September 1, 2009. Previously, he was Chairman and CEO of BBDO EMEA from 2005 to 2009. Prior thereto, he was Chairman and CEO of Young & Rubicam EMEA since 2002.
Steven J. Macri is the Senior Vice President-Corporate Finance of iHeartMedia, iHeartMedia Capital I, LLC, iHeartCommunications and the Company and the Chief Financial Officer of iHeartMedia's iHM segment. Mr. Macri was appointed Senior Vice President - Corporate Finance of iHeartMedia, iHeartMedia Capital I, LLC, iHeartCommunications and the Company on September 9, 2014 and as the Chief Financial Officer of iHeartMedia division on October 7, 2013. Prior to joining the company, Mr. Macri served as Chief Financial Officer for LogicSource Inc., from March 2012 to September 2013. Prior to joining LogicSource, Mr. Macri was Executive Vice President and Chief Financial Officer at Warner Music Group Corp. from September 2008 to December 2011 and prior thereto served as Controller and Senior Vice President-Finance from February 2005 to August 2008. He has an MBA from New York University Stern School of Business and a B.S. in Accounting from Syracuse University.
Scott D. Hamilton is the Senior Vice President, Chief Accounting Officer and Assistant Secretary of iHeartMedia, iHeartMedia Capital I, LLC, iHeartCommunications and the Company. Mr. Hamilton was appointed Senior Vice President, Chief Accounting Officer and Assistant Secretary of iHeartMedia, iHeartCommunications and the Company on April 26, 2010 and was appointed as Senior Vice President, Chief Accounting Officer and Assistant Secretary of iHeartMedia Capital I, LLC on April 26, 2013. Prior to April 26, 2010, Mr. Hamilton served as Controller and Chief Accounting Officer of Avaya Inc. (“Avaya”), a multinational telecommunications company, from October 2008 to April 2010. Prior thereto, Mr. Hamilton served in various accounting and finance positions at Avaya, beginning in October 2004. Prior thereto, Mr. Hamilton was employed by PricewaterhouseCoopers from September 1992 until September 2004 in various roles including audit, transaction services and technical accounting consulting.
Robert H. Walls, Jr. is the Executive Vice President, General Counsel and Secretary of iHeartMedia, iHeartMedia Capital I, LLC, iHeartCommunications and the Company. Mr. Walls was appointed the Executive Vice President, General Counsel and Secretary of iHeartMedia, iHeartCommunications and the Company on January 1, 2010 and was appointed as Executive Vice President, General Counsel and Secretary of iHeartMedia Capital I, LLC on April 26, 2013. On March 31, 2011, Mr. Walls was appointed to serve in the newly-created Office of the Chief Executive Officer for iHeartMedia Capital I, LLC, iHeartCommunications and the Company, in addition to his existing offices. Mr. Walls served in the Office of the Chief Executive Officer for iHeartMedia Capital I, LLC and iHeartCommunications until October 2, 2011, and served in the Office of the Chief Executive Officer for the Company until January 24, 2012. Mr. Walls was a founding partner of Post Oak Energy Capital, LP and served as Managing Director through December 31, 2009 and as an advisor to Post Oak Energy Capital, LP through December 31, 2013.
PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Market Information & Stockholders
Shares of our Class A common stock trade on the New York Stock Exchange (“NYSE”)NYSE under the symbol “CCO.” ThereAs of February 23, 2023, there were 73477,438,803 shares of our common stock outstanding (excluding 7,781,852 shares held in treasury) and 164 stockholders of record as of February 20, 2017.record. This figure does not include an estimate of the indeterminate number of beneficial holders whose shares may be held of record by brokerage firms and clearing agencies. The following table sets forth, for the calendar quarters indicated, the reported high and low sales prices of our Class A common stock as reported on the NYSE:
|
| | | | | | | | | | | | | |
| | Class A Common Stock Market Price | | Class A Common Stock Market Price |
| | High | Low | | High | Low |
| 2016 | | | 2015 | | |
| First Quarter................ | $ | 4.71 |
| $ | 3.32 |
| First Quarter................ | $ | 11.00 |
| $ | 9.01 |
|
| Second Quarter........... | 6.65 |
| 4.10 |
| Second Quarter........... | 11.61 |
| 9.63 |
|
| Third Quarter.............. | 7.25 |
| 5.84 |
| Third Quarter.............. | 10.23 |
| 7.09 |
|
| Fourth Quarter............ | 6.25 |
| 4.90 |
| Fourth Quarter............ | 7.65 |
| 4.78 |
|
There isWe currently have no established public trading market for our Class B common stock. There were 315,000,000 shares of our Class B common stock outstanding on February 20, 2017. iHeartCommunications indirectly holds all of the shares of Class B common stock outstanding and 10,726,917 shares of Class A common stock, representing 89.9% of the shares outstanding and approximately 99% of the voting power. The holders of our Class A common stock and Class B common stock have identical rights, except holders of our Class A common stock are entitled to one vote per share while holders of Class B common stock are entitled to 20 votes per share. The shares of Class B common stock are convertible, at the option of the holder at any time or upon any transfer, into shares of Class A common stock on a one-for-one basis, subject to certain limited exceptions.
Dividend Policy
On March 15, 2012, we paid a special dividend in an amount equal to $6.0832 per share to the holders of record of our Class A and Class B common stock at the close of business on March 12, 2012 and, on November 8, 2013, in connection with the settlement of the derivative litigation related to the Due from iHeartCommunications note, we paid a special dividend in an amount equal to $0.5578 per share to the holders of record of our Class A and Class B common stock at the close of business on November 5, 2013. On August 11, 2014, we paid a special dividend in an amount equal to $0.4865 per share to the holders of record of our Class A and Class B common stock at the close of business on August 4, 2014. On January 7, 2016, we paid a special dividend in an amount equal to $0.6026 per share to the holders of record of our Class A and Class B common stock at the close of business on January 4, 2016. On February 4, 2016, we paid a special dividend in an amount equal to $1.4937 per share to the holders of record of our Class A and Class B common stock at the close of business on February 1, 2016. On February 23, 2017 we paid a special dividend in an amount equal to $0.7797 per share to the holders of our Class A and Class B common stock at the close of business on February 20, 2017. We do not pay regularly scheduled dividends, and our abilityintention to pay dividends on our common stock is subject to restrictions should we seek to do soat any time in the foreseeable future.
We are a holding company with no independent operations and no significant assets other than the stock of our subsidiaries and the Due from iHeartCommunications note. We, therefore, are dependent on the receipt of dividends or other distributions from our subsidiaries or repayment by iHeartCommunications of amounts outstanding under the Due from iHeartCommunications note to pay dividends. On October 19, 2013, in accordance with the terms of the derivative litigation settlement, we established a committee of our board of directors for the specific purpose of monitoring the Due from iHeartCommunications note. The committee has the non-exclusive authority pursuant to a committee charter to demand repayment under the Due from iHeartCommunications note under certain circumstances related to iHeartCommunications’ liquidity or the amount outstanding under the Due from iHeartCommunications note as long as our board of directors declares a simultaneous dividend equal to the amount so demanded.
In addition, the agreements governing our indebtedness contain restrictions on our ability to pay dividends. If we were Any decision to declare and pay cash dividends in the future holderswill be made at the discretion of our Class A common stockBoard and Class B common stock would share equally,will depend on, a per share basis, in any suchamong other things, our results of operations, financial condition, cash dividend. See “Item 7. Management’s Discussionrequirements, contractual restrictions and Analysis of Financialother factors that our Board may deem relevant.
Condition and Results of Operations—Liquidity and Capital Resources—Sources of Capital” and Note 5 to the Consolidated Financial Statements in Item 8 of this Annual Report on Form 10-K.
Recent Sales of Unregistered Securities
We did not sell any equity securities during 2016 that were not registered under the Securities Act of 1933.None.
Issuer Purchases of Equity Securities
The following table sets forth theour purchases of shares of our common stock made during the quarter ended December 31, 2016 by or on behalf of us or an affiliated purchaser2022:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Period | | Total Number of Shares Purchased(1) | | Average Price Paid per Share(1) | | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | | Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs |
| October 1 through October 31 | | 4,474 | | | $ | 1.37 | | | — | | | — | |
| November 1 through November 30 | | — | | | | | | — | | | — | |
| December 1 through December 31 | | 208,837 | | | $ | 1.05 | | | — | | | — | |
| Total | | 213,311 | | | $ | 1.06 | | | — | | | — | |
(1)The shares indicated consist of shares of our Class A common stock registered pursuanttendered to Section 12us by employees during the three months ended December 31, 2022 to satisfy the employees’ tax withholding obligations in connection with the vesting and release of restricted shares, which are repurchased by us based on their fair market value on the Exchange Act:date the relevant transaction occurs.
|
| | | | | | | | | | | | | | |
| Period | | Total Number of Shares Purchased(1) | | Average Price Paid per Share(1) | | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | | Maximum Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased Under the Plans or Programs |
| October 1 through October 31 | | 20,678 |
| | $ | 5.75 |
| | — |
| | $ | — |
|
| November 1 through November 30 | | — |
| | — |
| | — |
| | — |
|
| December 1 through December 31 | | 2,046 |
| | 4.17 |
| | — |
| | — |
|
| Total | | 22,724 |
| | $ | 5.61 |
| | — |
| | $ | — |
|
| |
(1) | The shares indicated consist of shares of our Class A common stock tendered by employees to us during the three months ended December 31, 2016 to satisfy the employees’ tax withholding obligation in connection with the vesting and release of restricted shares, which are repurchased by us based on their fair market value on the date the relevant transaction occurs. |
ITEM 6. SELECTED FINANCIAL DATAStock Performance Graph
The following tables set forth our selected historical consolidated financial and other data aschart provides a comparison of the datescumulative total returns, adjusted for any stock splits and dividends, for our common stock (traded on the periods indicated. The selected historical financial data are derivedNYSE under the symbol “CCO”), the S&P 600 Index and the stock of peer issuers (Lamar Advertising Company and Outfront Media, Inc.), in each case from December 31, 2017 through December 31, 2022. In order to calculate the cumulative total returns, the Company assumed $100 was invested on December 31, 2017 in our audited consolidated financial statements. Certain prior period amounts have been reclassified to conform to the 2016 presentation. Historical results are not necessarily indicativecommon stock and each of the results to be expectedaforementioned indices and stock of peer issuers and that any dividends were reinvested.
Indexed Yearly Stock Price Close
(Price Adjusted for future periods. AcquisitionsStock Splits and dispositions impact the comparability of the historical consolidated financial data reflected in this schedule of Selected Financial Data.Dividends)
The selected historical consolidated financial and other data should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and the related notes thereto located within Item 8 of Part II of this Annual Report on Form 10-K.
Source: Bloomberg
ITEM 6. RESERVED
|
| | | | | | | | | | | | | | | | | | | |
| (In thousands) | For the Years Ended December 31, |
| | 2016 | | 2015 | | 2014 | | 2013 | | 2012 |
| Results of Operations Data: | | | | | | | | | |
| Revenue | $ | 2,702,395 |
| | $ | 2,806,204 |
| | $ | 2,961,259 |
| | $ | 2,946,190 |
| | $ | 2,946,944 |
|
| Operating expenses: | | | | | | | | | |
| Direct operating expenses (excludes depreciation and amortization) | 1,435,569 |
| | 1,494,902 |
| | 1,596,888 |
| | 1,594,728 |
| | 1,603,492 |
|
| Selling, general and administrative expenses (excludes depreciation and amortization) | 515,202 |
| | 531,504 |
| | 548,519 |
| | 543,572 |
| | 574,662 |
|
| Corporate expenses (excludes depreciation and amortization) | 117,383 |
| | 116,380 |
| | 130,894 |
| | 124,399 |
| | 115,832 |
|
| Depreciation and amortization | 344,124 |
| | 375,962 |
| | 406,243 |
| | 403,170 |
| | 399,264 |
|
Impairment charges (1) | 7,274 |
| | 21,631 |
| | 3,530 |
| | 13,150 |
| | 37,651 |
|
| Other operating income (expense), net | 354,688 |
| | (4,824 | ) | | 7,259 |
| | 22,979 |
| | 50,943 |
|
| Operating income | 637,531 |
| | 261,001 |
| | 282,444 |
| | 290,150 |
| | 266,986 |
|
| Interest expense, net | 374,892 |
| | 355,669 |
| | 353,265 |
| | 352,783 |
| | 373,876 |
|
| Interest income on Due from iHeartCommunications | 50,309 |
| | 61,439 |
| | 60,179 |
| | 54,210 |
| | 63,761 |
|
| Equity in earnings (loss) of nonconsolidated affiliates | (1,689 | ) | | (289 | ) | | 3,789 |
| | (2,092 | ) | | 843 |
|
| Loss on extinguishment of debt | — |
| | — |
| | — |
| | — |
| | (221,071 | ) |
| Other income (expense), net | (70,151 | ) | | 12,387 |
| | 15,185 |
| | 998 |
| | (2,942 | ) |
| Income (loss) before income taxes | 241,108 |
| | (21,131 | ) | | 8,332 |
| | (9,517 | ) | | (266,299 | ) |
| Income tax benefit (expense) | (76,675 | ) | | (50,177 | ) | | 8,787 |
| | (14,809 | ) | | 107,089 |
|
| Consolidated net income (loss) | 164,433 |
| | (71,308 | ) | | 17,119 |
| | (24,326 | ) | | (159,210 | ) |
| Less amount attributable to noncontrolling interest | 23,002 |
| | 24,764 |
| | 26,709 |
| | 24,134 |
| | 23,902 |
|
| Net income (loss) attributable to the Company | $ | 141,431 |
| | $ | (96,072 | ) | | $ | (9,590 | ) | | $ | (48,460 | ) | | $ | (183,112 | ) |
| |
(1) | We recorded non-cash impairment charges of $7.3 million, $21.6 million, $3.5 million, $13.2 million and $37.7 million during 2016, 2015, 2014, 2013 and 2012, respectively. Our impairment charges are discussed more fully in Item 8 of Part II of this Annual Report on Form 10-K. |
|
| | | | | | | | | | | | | | | | | | | |
| Net income (loss) attributable to the Company per common share: | | | | | | | | | |
| Basic | $ | 0.39 |
| | $ | (0.27 | ) | | $ | (0.03 | ) | | $ | (0.14 | ) | | $ | (0.54 | ) |
| Weighted average common shares | 360,294 |
| | 359,508 |
| | 358,565 |
| | 357,662 |
| | 356,915 |
|
| | | | | | | | | | |
| Diluted | $ | 0.39 |
| | $ | (0.27 | ) | | $ | (0.03 | ) | | $ | (0.14 | ) | | $ | (0.54 | ) |
| Weighted average common shares | 361,612 |
| | 359,508 |
| | 358,565 |
| | 357,662 |
| | 356,915 |
|
|
| | | | | | | | | | | | | | | | | | | |
| (In thousands) | As of December 31, |
| | 2016 | | 2015 | | 2014 | | 2013 | | 2012 |
| Balance Sheet Data: | | | | | | | | | |
| Current assets | $ | 1,341,435 |
| | $ | 1,567,697 |
| | $ | 1,056,030 |
| | $ | 1,214,143 |
| | $ | 1,501,346 |
|
| Property, plant and equipment, net | 1,412,833 |
| | 1,627,986 |
| | 1,905,651 |
| | 2,081,098 |
| | 2,207,744 |
|
| Total assets | 5,718,828 |
| | 6,306,788 |
| | 6,296,629 |
| | 6,685,069 |
| | 7,034,032 |
|
| Current liabilities | 641,718 |
| | 920,613 |
| | 717,829 |
| | 773,590 |
| | 811,405 |
|
| Long-term debt, net of current maturities | 5,110,020 |
| | 5,106,513 |
| | 4,880,526 |
| | 4,861,357 |
| | 4,869,692 |
|
| Stockholders’ equity (deficit) | (932,788 | ) | | (569,667 | ) | | (140,941 | ) | | 160,108 |
| | 446,089 |
|
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
Format of Presentation
Management’s discussion and analysis of our financial condition and results of operations (“MD&A”) should be read in conjunction with the audited consolidated financial statements and related footnotesnotes contained in Item 8 of this Annual Report on Form 10-K. Our discussionAll references in this Annual Report on Form 10-K to “the Company,” “we,” “us” and “our” refer to Clear Channel Outdoor Holdings, Inc. and its consolidated subsidiaries. The MD&A is presented on both aorganized as follows:
•Overview – Discussion of the nature, key developments and trends of our business in order to provide context for the remainder of this MD&A. •Results of Operations – Analysis of our financial results of operations at the consolidated and segment basis. Our reportable operating segmentslevels. •Liquidity and Capital Resources – Analysis of our short- and long-term liquidity and discussion of our material cash requirements and the anticipated source of funds needed to satisfy such requirements. •Critical Accounting Estimates – Discussion of our material accounting estimates that involve a significant level of estimation uncertainty, which we believe are Americas outdoor advertising (“Americas”)most important to understanding the assumptions and International outdoor advertising (“International”). Our Americas and International segments provide outdoor advertising services in their respective geographic regions using various digital and traditional display types. We manage our operating segments primarily focusing on their operating income, while Corporate expenses, Other operating income (expense), net, Interest expense, Interest income on Due from iHeartCommunications, Equity in earnings (loss) of nonconsolidated affiliates, Other income, net and Income tax benefit (expense) are managed on a total company basis and are, therefore, included onlyjudgments incorporated in our consolidated financial statements.
This discussion of consolidated results.contains forward-looking statements that are subject to risks and uncertainties, and actual results may differ materially from those contained in any forward-looking statements. See “Cautionary Statement Concerning Forward-Looking Statements” contained in Item 1A within this Annual Report on Form 10-K. Certain prior period amounts have been reclassified to conform to the 2016 presentation.
OVERVIEW
Description of Our Business and Segments
Our revenue is derived from selling advertising space on the out-of-home displays we own or operate in key markets worldwide consistingusing various digital and traditional display types. Historically, we had two reportable segments: Americas, which consisted of operations primarily in the U.S., and Europe, which consisted of billboards, street furnitureoperations in Europe and transit displays. PartSingapore. Our remaining operating segment of Latin America did not meet the quantitative threshold to qualify as a reportable segment and was disclosed as “Other.”
During the fourth quarter of 2022, we revised our segments to reflect changes in the way our business is managed and the way resources are allocated by our chief operating decision maker (our CEO). Effective December 31, 2022, we have four reportable segments: America, which consists of our long-term strategy isU.S. operations excluding airports; Airports, which includes revenue from U.S. and Caribbean airports; Europe-North, which consists of operations in the U.K., the Nordics and several other countries throughout northern and central Europe; and Europe-South, which consists of operations in France, Switzerland, Spain and Italy. Our remaining operations in Latin America and Singapore are disclosed as “Other.” Prior 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, both domestically and internationally.
Management typically monitors our business by reviewing the average rates, average revenue per display, occupancy, and inventory levels of eachsale of our display types by market.stake in Clear Media on April 28, 2020, “Other” also included China.
We ownhave conformed the majority of our advertising displays, which typically are locatedsegment disclosures for prior periods in this MD&A and throughout this Annual Report on sites that we either lease or own or for which we have acquired permanent easements. Our advertising contracts with clients typically outline the number of displays reserved, the duration of the advertising campaign and the unit price per display.
The significant expenses associated with our operations include direct production, maintenance and installation expenses as well as site lease expenses for land under our displays including revenue-sharing or minimum guaranteed amounts payable under our billboard, street furniture and transit display contracts. Our direct production, maintenance and installation expenses include costs for printing, transporting and changing the advertising copy on our displays, the related labor costs, the vinyl and paper costs, electricity costs and the costs for cleaning and maintaining our displays. Vinyl and paper costs vary accordingForm 10-K to the complexity of the advertising copy and the quantity of displays. Our site lease expenses include lease payments for use of the land under our displays, as well as any revenue-sharing arrangements or minimum guaranteed amounts payable that we may have with the landlords. The terms of our site leases and revenue-sharing or minimum guaranteed contracts generally range from one2022 presentation. Refer to 20 years.
Americas
Our advertising rates are based on a number of different factors including location, competition, type and size of display, illumination, market and gross ratings points. Gross ratings points are the total number of impressions delivered by a display or group of displays, expressed as a percentage of a market population. The number of impressions delivered by a display is measured by the number of people passing the site during a defined period of time. For all of our billboards in the United States, we use independent, third-party auditing companies to verify the number of impressions delivered by a display.
Client contract terms typically range from four weeks to one year for the majority of our display inventory in the United States. Generally, we own the street furniture structures and are responsible for their construction and maintenance. Contracts for the right to place our street furniture and transit displays and sell advertising space on them are awarded by municipal and transit authorities in competitive bidding processes governed by local law or are negotiated with private transit operators. Generally, these contracts have terms ranging from 10 to 20 years.
International
SimilarNote 3 to our
Americas business, advertising rates generally are basedConsolidated Financial Statements included in Item 8 of this Annual Report on the gross ratings points of a display or group of displays. The number of impressions delivered by a display, in some countries, is weighted to accountForm 10-K for such factors asadditional details regarding our segments.
COVID-19
illumination, proximity to other displays and the speed and viewing angle of approaching traffic. In addition, because our International advertising operations are conducted in foreign markets, including Europe and Asia, management reviews the operating results from our foreign operations on a constant dollar basis. A constant dollar basis allows for comparison of operations independent of foreign exchange movements.
Our International display inventory is typically sold to clients through network packages, with client contract terms typically ranging from one to two weeks with terms of up to one year available as well. Internationally, contracts with municipal and transit authorities for the right to place our street furniture and transit displays typically provide for terms ranging from three to 15 years. The major difference between our International and Americas street furniture businesses is in the nature of the municipal contracts. In our International business, these contracts typically require us to provide the municipality with a broader range of metropolitan amenities in exchange for which we are authorized to sell advertising space on certain sections of the structures we erect in the public domain. A different regulatory environment for billboards and competitive bidding for street furniture and transit display contracts, which constitute a larger portion of our business internationally, may result in higher site lease costs in our International business.
Macroeconomic Indicators
Our advertisingAdvertising revenue for our Americas and International segmentsbusiness is highly correlated to changes in gross domestic product (“GDP”)GDP as advertising spending has historically trended in line with GDP, both domestically and internationally. AccordingAs such, COVID-19, which had severe negative impacts on the global economy, also had a significant adverse impact on our results of operations during 2020 and the first quarter of 2021. As restrictions eased and vaccine programs were rolled out, we saw increases in mobility and corresponding positive trends in revenue, with consolidated revenue returning to growth in the second quarter of 2021 as compared to the prior year. However, we did not experience a return to our pre-COVID-19 historical seasonal levels of revenue until the fourth quarter of 2021. To a large extent, we continued to see revenues in line with, or exceeding, pre-COVID-19 levels during 2022, and we believe this rebound, together with new advertisers discovering our medium, will continue to drive growth in many of our markets in 2023 ahead of pre-COVID-19 revenue levels.
During the COVID-19 pandemic, we implemented various savings initiatives to increase our liquidity and preserve and strengthen our financial flexibility, including negotiating rent abatements with landlords and municipalities, receiving governmental support and subsidies, executing restructuring plans to reduce headcount and related costs, and reducing or deferring capital expenditures. As our operating performance improved, we reduced or ceased many of these temporary operating cost savings initiatives and increased our investment in our business through additional capital expenditures and asset acquisitions.
Macroeconomic Trends
In early 2022, worldwide inflation began to increase. While inflation affected our performance in 2022 as a result of higher costs for employees, electricity, materials and equipment, we believe we have partially offset these higher costs by increasing the effective advertising rates for most of our products, and to date, we have not suffered material impacts from the heightened levels of global inflation. In response to these heightened levels of inflation, central banks, including the U.S. DepartmentFederal Reserve and the European Central Bank, raised interest rates significantly in 2022, resulting in an increase in our weighted average cost of Commerce, estimated U.S. GDP growth for 2016 was 1.6%. Internationally,debt. Interest rates are expected to continue to increase in 2023, although at a slower rate.
Additionally, our international results are impacted by fluctuations in foreign currency exchange rates as well as the economic conditions in the foreign markets in which we have operations.operate and by fluctuations in foreign currency exchange rates. During 2022, the U.S. dollar strengthened against the Euro and British pound sterling, among other European currencies, resulting in an adverse impact on reported results in our Europe-North and Europe-South segments. The U.S. dollar may continue to strengthen against these foreign currencies if the U.S. Federal Reserve further raises the federal funds rate, which could result in downstream impacts to global exchange rates and further adverse impacts to our reported results in these segments.
Relationship with iHeartCommunications
ThereThe market risks that our business is subject to, including movements in foreign currency exchange rates, interest rates and inflation, are several agreements which govern our relationship with iHeartCommunications including the Master Agreement, Corporate Services Agreement, Employee Matters Agreement, Tax Matters Agreement and Trademark and License Agreement. iHeartCommunications has the right to terminate these agreementsfurther described in various circumstances. As of the date of the filingItem 7A of this Annual Report on Form 10-K, no notice10-K.Strategic Review
Our Board has authorized a review of terminationstrategic alternatives for our European businesses, including the potential disposal of anycertain of these agreements has been received from iHeartCommunications. Our agreements with iHeartCommunications continued under the same terms and conditions subsequentour lower-margin European assets (and/or other European assets of lower priority to iHeartCommunications’ merger.our European business as a whole), while retaining, for now, our higher-margin European assets.
In accordance with the Master Agreement, our branch managers follow a corporate policy allowing iHeartCommunications to use, without charge, Americas’ displays they believe would otherwise be unsold. iHeartCommunications bears the cost of producing the advertising andDecember 2022, we bear the costs of installing and removing this advertising.
Under the Corporate Services Agreement, iHeartCommunications provides management services to us. These services are charged to us based on actual direct costs incurred or allocated by iHeartCommunications based on headcount, revenue or other factors on a pro rata basis. For the years ended December 31, 2016, 2015 and 2014, we recorded approximately $36.0 million, $30.1 million and $31.2 million, respectively, as a component of corporate expenses for these services.
The Trademark License Agreement entitles us to use (1) on a nonexclusive basis, the "Clear Channel" trademark and the Clear Channel "outdoor" trademark logo with respect to day-to-day operations of our business worldwide and on the Internet, and (2) certain other Clear Channel marks in connection with our business. On February 9, 2017,announced that we entered into an agreement to sell our business in Switzerland to Goldbach Group AG for cash consideration of approximately $92.7 million. The sale is expected to close in the second or third quarter of 2023, depending on the satisfaction of customary closing conditions.
Our reviews of our European businesses remain ongoing. However, there can be no assurance that these reviews will result in any additional transactions or particular outcomes. We have not set a binding option and lettertimetable for completion of intent with iHeartMedia granting us a binding option to purchasethese reviews, may suspend the registered trademarks and domain names owned by iHeartMedia and its subsidiaries that incorporate one or more of the words "Clear" and/or "Channel," and any translations or derivations of any of the foregoing, together with any goodwill associated therewith. This option is exercisable in our sole and absolute discretionprocesses at any time between February 23, 2018 and February 23, 2019.do not intend to make further announcements regarding the processes for our European businesses unless and until our Board approves a specific course of action for which further disclosure is appropriate.
On August 9, 2010, iHeartCommunications announced that its board
Table of directors approved a stock purchase program under which iHeartCommunications or its subsidiaries may purchase up to an aggregate of $100.0 million of our Class A common stock and/or the Class A common stock of iHeartMedia. As of December 31, 2014, an aggregate $34.2 million was available under this program. In January 2015, a subsidiary of iHeartCommunications purchased an additional 2,000,000 shares of the Company's Class A common stock for $20.4 million. On April 2, 2015, a subsidiary of iHeartCommunications purchased an additional 2,172,946 shares of the Company's Class A common stock for $22.2 million. 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 iHeartCommunications' board of directors. As of December 31, 2016, iHeartCommunications' and its subsidiaries held 10,726,917 shares of the Company's Class A common stock and all of the Company's class B common stock, which represented 89.9% of the outstanding shares of the Company's common stock on a fully-diluted basis.Contents
Executive Summary
The key developments in our business for the year ended December 31, 2016 are summarized below:
Consolidated revenue decreased $103.8 million during 2016 compared to 2015. Excluding a $47.6 million impact from movements in foreign exchange rates, consolidated revenue decreased $56.2 million during 2016 compared to 2015.
We sold nine non-strategic U.S. markets in the first quarter of 2016. We sold our businesses in Turkey and Australia in the second and fourth quarters of 2016, respectively. The markets had total revenues of $123.5 million in 2016 and $248.9 million in 2015 and we realized a net gain of $349.3 million on the sales of the markets.
We spent $13.0 million on strategic revenue and efficiency initiatives during 2016 to realign and improve our on-going business operations—a decrease of $7.3 million compared to 2015.
Revenues and expenses “excluding the impact of foreign exchange movements” in this Management’s Discussion & Analysis of Financial Condition and Results of Operations is presented because management believes that viewing certain financial results without the impact of fluctuations in foreign currency rates facilitates period to period comparisons of business performance and provides useful information to investors. Revenues and expenses “excluding the impact of foreign exchange movements” are calculated by converting the current period’s revenues and expenses in local currency to U.S. dollars using average foreign exchange rates for the prior period.
RESULTS OF OPERATIONS
The discussion of our results of operations is presented on both a consolidated and segment basis.
•Our operating segment profit measure is Segment Adjusted EBITDA, which is calculated as revenue less direct operating expenses and selling, general and administrative expenses, excluding restructuring and other costs, which are defined as costs associated with cost-saving initiatives such as severance, consulting and termination costs and other special costs. The material components of Segment Adjusted EBITDA are discussed below on both a consolidated and segment basis. As discussed in this MD&A Overview, we changed our presentation of segment information during the fourth quarter of 2022 to reflect changes in the way the business is managed and resources are allocated. As such, the prior period segment information has been retrospectively revised to conform to the current period presentation. •Corporate expenses, depreciation and amortization, impairment charges, other operating income and expense, all non-operating income and expenses, and income taxes are managed on a consolidated company basis and are, therefore, included only in our discussion of consolidated results.
Revenue and expenses “excluding the impact of movements in foreign exchange rates” in this MD&A are presented because management believes that viewing certain financial results without the impact of fluctuations in foreign currency rates facilitates period-to-period comparisons of business performance and provides useful information to investors. Revenue and expenses “excluding the impact of movements in foreign exchange rates” are calculated by converting the current period’s revenue and expenses in local currency to U.S. dollars using average monthly foreign exchange rates for the same period of the prior year.
Consolidated Results of Operations
The comparison of our historical results of operations for the year ended December 31, 2016 to the year ended December 31, 2015 is as follows: | | | | | | | | | | | | | | | | | | |
| (In thousands) | Year Ended December 31, | |
| | 2022 | | 2021 | | 2020 | |
| Revenue | $ | 2,481,134 | | | $ | 2,241,118 | | | $ | 1,854,608 | | |
| Operating expenses: | | | | | | |
Direct operating expenses(1) | 1,327,979 | | | 1,270,258 | | | 1,201,208 | | |
Selling, general and administrative expenses(1) | 467,960 | | | 459,397 | | | 442,310 | | |
Corporate expenses(1) | 157,915 | | | 156,181 | | | 137,297 | | |
| Depreciation and amortization | 253,809 | | | 253,155 | | | 269,421 | | |
| Impairment charges | 39,546 | | | 118,950 | | | 150,400 | | |
| | | | | | |
| | | | | | |
| Other operating expense (income), net | 2,386 | | | (627) | | | (53,614) | | |
| Operating income (loss) | 231,539 | | | (16,196) | | | (292,414) | | |
| Interest expense, net | (362,680) | | | (350,457) | | | (360,259) | | |
| Loss on extinguishment of debt | — | | | (102,757) | | | (5,389) | | |
| Other income (expense), net | (35,079) | | | 1,762 | | | (170) | | |
| Loss before income taxes | (166,220) | | | (467,648) | | | (658,232) | | |
| Income tax benefit | 71,832 | | | 34,528 | | | 58,006 | | |
| Consolidated net loss | (94,388) | | | (433,120) | | | (600,226) | | |
| Less amount attributable to noncontrolling interest | 2,216 | | | 695 | | | (17,487) | | |
| Net loss attributable to the Company | $ | (96,604) | | | $ | (433,815) | | | $ | (582,739) | | |
|
| | | | | | | | | |
| (In thousands) | Years Ended December 31, | | % |
| | 2016 | | 2015 | | Change |
| Revenue | $ | 2,702,395 |
| | $ | 2,806,204 |
| | (3.7)% |
| Operating expenses: | | | | | |
| Direct operating expenses (excludes depreciation and amortization) | 1,435,569 |
| | 1,494,902 |
| | (4.0)% |
| Selling, general and administrative expenses (excludes depreciation and amortization) | 515,202 |
| | 531,504 |
| | (3.1)% |
| Corporate expenses (excludes depreciation and amortization) | 117,383 |
| | 116,380 |
| | 0.9% |
| Depreciation and amortization | 344,124 |
| | 375,962 |
| | (8.5)% |
| Impairment charges | 7,274 |
| | 21,631 |
| | (66.4)% |
| Other operating income (expense), net | 354,688 |
| | (4,824 | ) | | (7,452.6)% |
| Operating income | 637,531 |
| | 261,001 |
| | 144.3% |
| Interest expense | 374,892 |
| | 355,669 |
| | |
| Interest income on Due from iHeartCommunications | 50,309 |
| | 61,439 |
| | |
| Equity in earnings (loss) of nonconsolidated affiliates | (1,689 | ) | | (289 | ) | | |
| Other income, net | (70,151 | ) | | 12,387 |
| | |
| Income (loss) before income taxes | 241,108 |
| | (21,131 | ) | | |
| Income tax expense | (76,675 | ) | | (50,177 | ) | | |
| Consolidated net income (loss) | 164,433 |
| | (71,308 | ) | | |
| Less amount attributable to noncontrolling interest | 23,002 |
| | 24,764 |
| | |
| Net income (loss) attributable to the Company | $ | 141,431 |
| | $ | (96,072 | ) | | |
Consolidated Revenue
Our revenue is derived from selling advertising space on the out-of-home displays we own or operate, consisting of roadside billboards, urban street furniture, airport advertising displays and other displays. Our asset portfolio consists of both print displays and digital displays.
Consolidated revenue decreased $103.8increased $240.0 million, or 10.7%, during 20162022 compared to 2015.2021. Excluding a $47.6the $129.4 million impact fromof movements in foreign exchange rates, consolidated revenue decreased $56.2increased $369.4 million, or 16.5%. As we have continued to recover from the adverse effects of COVID-19, we have seen increases in revenue across our portfolio. Excluding the impact of movements in foreign exchange rates, 2022 revenue exceeded 2019 revenue (pre-COVID-19 levels) in our America, Airports and Europe-North segments, while our Europe-South segment continues to recover.
Consolidated revenue increased $386.5 million, or 20.8%, during 20162021 compared to 2015. The decrease2020. Excluding the $33.9 million impact of movements in foreign exchange rates, consolidated revenue is primarily dueincreased $352.6 million, or 19.0%. As we continued to recover from the saleadverse effects of certain U.S. markets and International businesses which generated $248.9 millionCOVID-19, we saw increases in revenue across our portfolio. This increase in 2015 and $123.5 million in 2016. This decreaserevenue was partially offset by revenues from new digital assets and new contracts.
the sale of the Clear Media business in China on April 28, 2020.
Consolidated Direct Operating Expenses
Direct operating expenses primarily consist of site lease expenses, which include rent expense on both lease and non-lease contracts, as well as direct production, installation and maintenance expenses.
•Our site lease expenses include payments for land or space used by our advertising displays, including minimum guaranteed payments and revenue-sharing arrangements.
•Our direct production, installation and maintenance expenses include costs for printing, transporting, changing and maintaining the advertising copy on our displays, as well as cleaning and maintaining street furniture.
Consolidated direct operating expenses decreased $59.3increased $57.7 million, or 4.5%, during 20162022 compared to 2015.2021. Excluding the $29.0$86.2 million impact fromof movements in foreign exchange rates, consolidated direct operating expenses decreased $30.3increased $143.9 million, during 2016 comparedor 11.3%, primarily driven by higher site lease expense due to 2015. Lowerhigher revenue and lower rent abatements. We also incurred higher production and installation expenses driven by increased sales activity, partially offset by lower costs for our restructuring plan to reduce headcount in our Europe-South segment.
Consolidated direct operating expenses was primarilyincreased $69.1 million, or 5.7%, during 2021 compared to 2020. Excluding the $31.9 million impact of movements in foreign exchange rates, consolidated direct operating expenses increased $37.1 million, or 3.1%, largely due to higher site lease expense driven by higher revenue, partially offset by higher rent abatements. We also incurred higher production and installation expenses driven by increased sales activity and, to a lesser extent, lower European governmental wage subsidies, as well as higher costs for our restructuring plans to reduce headcount. These increases were partially offset by the sale of the Clear Media business.
The following table provides additional information about certain U.S. marketsdrivers of consolidated direct operating expenses:
| | | | | | | | | | | | | | | | | |
| (In thousands) | Years Ended December 31, |
| 2022 | | 2021 | | 2020 |
| Site lease expense | $ | 927,477 | | | $ | 832,533 | | | $ | 805,303 | |
| Reductions of rent expense on lease and non-lease contracts from rent abatements | 52,259 | | | 98,510 | | | 77,708 | |
Reductions of direct operating expenses from European governmental support and wage subsidies(1) | 687 | | | 2,599 | | | 10,436 | |
Restructuring and other costs(2) | 2,264 | | | 18,694 | | | 7,283 | |
(1)Includes rent subsidies of $0.8 million and International businesses.$4.6 million during 2021 and 2020, respectively.
(2)Includes severance and related costs (reversals) for our restructuring plans to reduce headcount of $(0.5) million, $14.3 million and $4.1 million during 2022, 2021 and 2020, respectively.
Consolidated Selling, General and Administrative (“SG&A”) Expenses
Consolidated SG&A expenses decreased $16.3 million during 2016 compared to 2015. Excluding the $9.9 million impact from movements in foreign exchange rates, consolidated SG&A expenses decreased $6.4 million during 2016 compared to 2015. SG&A expenses were lower primarily due to the saleconsist of nine non-strategic U.S. markets in the first quarter of 2016, and were partially offset by higher variable compensation expenses.
Corporate Expenses
Corporate expenses increased $1.0 million during 2016 compared to 2015. Excluding the $4.1 million impact from movements in foreign exchange rates, corporate expenses increased $5.1 million during 2016 compared to 2015 primarily resulting from higher litigation costs and higher expenses related to non-cash compensation plans.
Revenue and Efficiency Initiatives
Included in the amounts for direct operating expenses, SG&A and corporate expenses discussed above are expenses of $13.0 million and $20.3 million incurred in 2016 and 2015, respectively, in connection with our strategic revenue and efficiency initiatives. The costs were incurred to improve revenue growth, enhance yield, reduce costs, and organize each business to maximize performance and profitability. These costs consist primarily of severance related to workforce initiatives, consolidation of locations and positions, consulting expenses and other costs incurred in connection with streamlining our businesses. These costs are expected to provide benefits in future periods as the initiative results are realized. Of theseemployee-related costs for 2016, $2.7 million are reported within direct operating expenses, $7.8 million are reported within SG&Aour sales, marketing, segment leadership and $2.5 million are reported within corporate expense. In 2015, such costs totaled $9.2 million, $4.3 million, and $6.8 million, respectively.
Depreciation and Amortization
Depreciation and amortization decreased $31.8 million during 2016 compared to 2015 primarily due to assets becoming fully depreciated or fully amortized, the sale of certain U.S. markets and International businesses,support functions, as well as the impact of movements in foreign exchange rates.
Impairment Charges
We perform our annual impairment test on our goodwill, billboard permits,marketing costs, facilities and information technology costs, and other intangible assets as of July 1 of each year. In addition, we test for impairment of property, plant and equipment whenever events and circumstances indicate that depreciable assets might be impaired. As a result of these impairment tests, during 2016, we recorded an impairment charge of $7.3 million during 2016 related to goodwill in one International business. During 2015, we recognized a $21.6 million impairment charge related to billboard permits in one Americas market. Please see Note 2 to the consolidated financial statements included in Item 8 of Part II of this Annual Report on Form 10-K for a further description of the impairment charges.
Other Operating Income (Expense), Net
Other operating income, net of $354.7 million in 2016 primarily related to the net gain of $278.3 million on sale of nine non-strategic markets in the first quarter of 2016 and the net gain of $127.6 million on sale on our business in Australia in the fourth quarter of 2016, partially offset by the $56.6 million loss, which includes $32.2 million in cumulative translation adjustments, on the sale of our business in Turkey in the second quarter of 2016. In the first quarter of 2016, Americas sold nine non-strategic markets including Cleveland and Columbus, Ohio, Des Moines, Iowa, Ft. Smith, Arkansas, Memphis, Tennessee, Portland, Oregon, Reno, Nevada, Seattle, Washington and Wichita, Kansas for net proceeds of $592.3 million in cash and certain advertising assets in Florida.
Other operating expense, net of $4.8 million in 2015 primarily related to acquisition/disposition transactiongeneral costs.
Interest Expense
Interest expense increased $19.2 million in 2016 compared to 2015, primarily due to the issuance by Clear Channel International B.V. of its 8.75% Senior Notes due 2020 during the fourth quarter of 2015.
Interest Income on Due From iHeartCommunications
Interest income decreased $11.1 million during 2016 compared to 2015 due to the decrease in the average outstanding balance on the Due from iHeartCommunications note.
Equity in Loss of Nonconsolidated Affiliates
Equity in loss of nonconsolidated affiliates of $1.7 million and $0.3 million for 2016 and 2015, respectively, included the loss from our equity investments in our Americas and International segments.
Other Income (Expense), Net
Other expense was $70.2 million for 2016. Other income was $12.4 million for 2015. These amounts relate primarily to net foreign exchange gains and losses recognized in connection with intercompany notes denominated in foreign currencies. The decline in value during 2016 of the British pound against the Euro impacted Euro-denominated notes payable by one of our UK subsidiaries, which was the primary driver of the foreign exchange loss in 2016.
Income Tax Benefit (Expense)
Our operations are included in a consolidated income tax return filed by iHeartMedia. However, for our financial statements, our provision for income taxes was computed as if we file separate consolidated federal income tax returns with our subsidiaries.
The effective tax rate for 2016 was 31.8% and was primarily impacted by the deferred tax benefits recorded in the current period for the release of valuation allowances in the U.S. and France. The release of the valuation allowance of $32.9 million in the U.S. was primarily due to the taxable income generated from the sale of nine non-strategic U.S. outdoor markets during the first quarter of 2016 and the release of valuation allowance in France of $43.3 million was due to positive evidence that now exists related to the Company’s ability to utilize certain net operating loss carryforwards in the future. The deferred tax benefits described above were partially offset by $54.7 million in tax expense attributable to the sale of our business in Australia during the period.
The effective tax rate for 2015 was (237.5)% and was primarily impacted by the $32.9 million valuation allowance recorded during the period as additional deferred tax expense. The valuation allowance was recorded against a portion of the U.S. Federal and State net operating losses due to the uncertainty of the ability to utilize those losses in future periods. Additionally, the Company recorded additional taxes due to the inability to benefit from losses in certain foreign jurisdictions.
Americas Outdoor Advertising Results of Operations
Our Americas outdoor operating results were as follows:
|
| | | | | | | | | |
| (In thousands) | Years Ended December 31, | | % |
| | 2016 | | 2015 | | Change |
| Revenue | $ | 1,278,413 |
| | $ | 1,349,021 |
| | (5.2)% |
| Direct operating expenses | 570,310 |
| | 597,382 |
| | (4.5)% |
| SG&A expenses | 225,415 |
| | 233,254 |
| | (3.4)% |
| Depreciation and amortization | 185,654 |
| | 204,514 |
| | (9.2)% |
| Operating income | $ | 297,034 |
| | $ | 313,871 |
| | (5.4)% |
Americas revenue decreased $70.6 million during 2016 compared to 2015. Excluding the $7.7 million impact from movements in foreign exchange rates, Americas revenue decreased $62.9 million during 2016 compared to 2015. The decrease in revenue is due to the $102.7 million impact of the sale of nine non-strategic U.S. markets in the first quarter of 2016. The decrease in revenue resulting from these sales was partially offset by increased revenues from digital billboards from new deployments and higher occupancy on existing digital billboards, as well as new airport contracts, and higher revenues in Latin America.
Americas direct operating expenses decreased $27.1 million during 2016 compared to 2015. Excluding the $3.6 million impact from movements in foreign exchange rates, Americas direct operating expenses decreased $23.5 million during 2016 compared to 2015. The decrease in direct operating expenses was driven by a $35.4 million decrease in direct operating expenses resulting from the sale of the nine non-strategic markets in the first quarter of 2016, partially offset by higher site lease expenses related to new airport contracts. Americas SG&A expenses decreased $7.9 million during 2016 compared to 2015. Excluding the $2.1 million impact from movements in foreign exchange rates, Americas SG&A expenses decreased $5.8 million during 2016 compared to 2015. This decrease was due to a $20.4 million decrease in SG&A expenses resulting from the sale of the nine non-
strategic U.S. markets in the first quarter of 2016, partially offset by higher variable compensation expense related to higher revenues.
Depreciation and amortization decreased $18.9 million. Excluding the $0.8 million impact from movements in foreign exchange rates, depreciation and amortization decreased $18.1 million primarily due to the sale of the nine non-strategic U.S. markets in the first quarter of 2016 and assets becoming fully depreciated or fully amortized.
International Outdoor Advertising Results of Operations
Our International operating results were as follows:
|
| | | | | | | | | |
| (In thousands) | Years Ended December 31, | | % |
| | 2016 | | 2015 | | Change |
| Revenue | $ | 1,423,982 |
| | $ | 1,457,183 |
| | (2.3)% |
| Direct operating expenses | 865,259 |
| | 897,520 |
| | (3.6)% |
| SG&A expenses | 289,787 |
| | 298,250 |
| | (2.8)% |
| Depreciation and amortization | 152,758 |
| | 166,060 |
| | (8.0)% |
| Operating income | $ | 116,178 |
| | $ | 95,353 |
| | 21.8% |
International revenue decreased $33.2 million during 2016 compared to 2015. Excluding the $39.9 million impact from movements in foreign exchange rates, International revenue increased $6.7 million during 2016 compared to 2015. The increase in revenue is due to growth across most of our markets including China, Italy, Spain, Sweden, France and Belgium, primarily from new digital assets and new contracts. This growth was partially offset by a $22.7 million decrease in revenue resulting from the sale of our businesses in Turkey and Australia in the second and fourth quarters of 2016, respectively, as well as lower revenue in the United Kingdom as a result of the London bus shelter contract not being renewed.
International direct operating expenses decreased $32.2 million during 2016 compared to 2015. Excluding the $25.4 million impact from movements in foreign exchange rates, International direct operating expenses decreased $6.8 million during 2016 compared to 2015. The decrease was driven by a $14.6 million decrease in direct operating expenses resulting from the sale of our businesses in Turkey and Australia and lower rent expense due to lower revenue in the United Kingdom as a result of the London bus shelter contract not being renewed. These decreases were partially offset by higher site lease and production expenses in countries experiencing revenue growth. International SG&A expenses decreased $8.5 million during 2016 compared to 2015. Excluding the $7.8 million impact from movements in foreign exchange rates, International SG&A expenses decreased $0.7 million during 2016 compared to 2015. The decrease in SG&A expenses was primarily due to a $3.0 million decrease resulting from the sale of our businesses in Turkey and Australia, partially offset by higher variable compensation expenses.
Included in 2015 International Outdoor direct operating expenses and SG&A expenses are $8.2 million and $3.2 million, respectively, recorded in the fourth quarter of 2015 to correct for accounting errors included in the results of our Netherlands subsidiary reported in prior years. Such corrections are not considered to be material to the prior year financial results.
Depreciation and amortization decreased $13.3 million. Excluding the $5.5 million impact from movements in foreign exchange rates, depreciation and amortization decreased $7.8 million primarily due to assets becoming fully depreciated or fully amortized.
Consolidated Results of Operations
The comparison of our historical results of operations for the year ended December 31, 2015 to the year ended December 31, 2014 is as follows:
|
| | | | | | | | | |
| (In thousands) | Years Ended December 31, | | % |
| | 2015 | | 2014 | | Change |
| Revenue | $ | 2,806,204 |
| | $ | 2,961,259 |
| | (5.2)% |
| Operating expenses: | | | | | |
| Direct operating expenses (excludes depreciation and amortization) | 1,494,902 |
| | 1,596,888 |
| | (6.4)% |
| Selling, general and administrative expenses (excludes depreciation and amortization) | 531,504 |
| | 548,519 |
| | (3.1)% |
| Corporate expenses (excludes depreciation and amortization) | 116,380 |
| | 130,894 |
| | (11.1)% |
| Depreciation and amortization | 375,962 |
| | 406,243 |
| | (7.5)% |
| Impairment charges | 21,631 |
| | 3,530 |
| | 512.8% |
| Other operating (expense) income, net | (4,824 | ) | | 7,259 |
| | (166.5)% |
| Operating income | 261,001 |
| | 282,444 |
| | (7.6)% |
| Interest expense | 355,669 |
| | 353,265 |
| | |
| Interest income on Due from iHeartCommunications | 61,439 |
| | 60,179 |
| | |
| Equity in earnings (loss) of nonconsolidated affiliates | (289 | ) | | 3,789 |
| | |
| Other income, net | 12,387 |
| | 15,185 |
| | |
| Loss before income taxes | (21,131 | ) | | 8,332 |
| | |
| Income tax benefit (expense) | (50,177 | ) | | 8,787 |
| | |
| Consolidated loss | (71,308 | ) | | 17,119 |
| | |
| Less amount attributable to noncontrolling interest | 24,764 |
| | 26,709 |
| | |
| Net loss attributable to the Company | $ | (96,072 | ) | | $ | (9,590 | ) | | |
Consolidated Revenue
Consolidated revenue decreased $155.1 million during 2015 compared to 2014. Excluding a $229.0 million impact from movements in foreign exchange rates, consolidated revenue increased $73.9 million during 2015 compared to 2014. Americas revenue decreased $1.6 million during 2015 compared to 2014. Excluding the $23.4 million impact from movements in foreign exchange rates, Americas revenue increased $21.8 million during 2015 compared to 2014 primarily driven by higher revenues from digital billboards and our Spectacolor business. International revenue decreased $153.4 million during 2015 compared to 2014. Excluding the $205.6 million impact from movements in foreign exchange rates, International revenue increased $52.2 million during 2015 compared to 2014 primarily driven by new contracts and the impact of sales initiatives.
Consolidated Direct Operating Expenses
Consolidated direct operating expenses decreased $102.0 million during 2015 compared to 2014. Excluding an $146.6 million impact from movements in foreign exchange rates, consolidated direct operating expenses increased $44.6 million during 2015 compared to 2014. Americas direct operating expenses decreased $8.4 million during 2015 compared to 2014. Excluding the $13.1 million impact from movements in foreign exchange rates, Americas direct operating expenses increased $4.7 million during 2015 compared to 2014 primarily due to higher variable site lease expenses related to the increase in revenues. International direct operating expenses decreased $93.6 million during 2015 compared to 2014. Excluding the $133.5 million impact from movements in foreign exchange rates, International direct operating expenses increased $39.9 million during 2015 compared to 2014 primarily as a result of higher variable costs associated with higher revenue, as well as higher spending on strategic efficiency initiatives.
Consolidated SG&A Expenses
Consolidated SG&A expenses decreased $17.0increased $8.6 million, or 1.9%, during 20152022 compared to 2014.2021. Excluding a $51.1the $26.1 million impact fromof movements in foreign exchange rates, consolidated SG&A expenses increased $34.1$34.7 million, or 7.5%. Higher employee compensation costs, driven by improvements in operating performance and increased headcount, and higher credit loss expense, driven by an increase in current year revenue and prior year credit loss reductions due to COVID-19 recovery, were partially offset by lower costs for our restructuring plan to reduce headcount in our Europe-South segment.
Consolidated SG&A expenses increased $17.1 million, or 3.9%, during 20152021 compared to 2014. Americas SG&A expenses decreased $0.4 million during 2015 compared to 2014.2020. Excluding the $6.0$9.5 million impact fromof movements in foreign exchange rates, Americasconsolidated SG&A expenses increased $5.6$7.6 million, or 1.7%. Higher employee compensation costs, mainly driven by improvements in operating performance, and higher costs for our restructuring plans to reduce headcount were partially offset by lower credit loss expense related to our continued recovery from COVID-19 and the sale of the Clear Media business.
The following table provides additional information about certain drivers of consolidated SG&A expenses:
| | | | | | | | | | | | | | | | | |
| (In thousands) | Years Ended December 31, |
| 2022 | | 2021 | | 2020 |
| Reductions of SG&A expenses from European governmental wage subsidies | $ | 144 | | | $ | 1,814 | | | $ | 5,053 | |
Restructuring and other costs(1) | 3,980 | | | 19,807 | | | 11,901 | |
(1)Includes severance and related costs for our restructuring plans to reduce headcount of $1.8 million, $16.5 million and $7.9 million during 2015 compared to 2014 primarily in Latin America. International SG&A expenses decreased $16.6 million during 2015 compared to 2014. Excluding the $45.0 million impact from movements in foreign exchange rates, International SG&A expenses increased $28.4 million during 2015 compared to 2014 primarily due to higher compensation expense, including commissions in connection with higher revenues.
2022, 2021 and 2020, respectively.
Corporate Expenses
Corporate expenses decreased $14.5primarily consist of infrastructure and support costs related to our information technology, human resources, legal, finance, business services and administrative functions, as well as overall executive leadership.
Corporate expenses increased $1.7 million, or 1.1%, during 20152022 compared to 2014.2021. Excluding the $3.5$2.6 million impact fromof movements in foreign exchange rates, corporate expenses decreased $11.0increased $4.4 million, during 2015 comparedor 2.8%, primarily due to 2014. Corporate expenses were primarily impacted by lower spending related to our strategic revenuehigher employee compensation and efficiency initiatives,travel costs, partially offset by higher variable compensation expense.lower professional fees.
Revenue and Efficiency Initiatives
IncludedCorporate expenses increased $18.9 million, or 13.8%, during 2021 compared to 2020. Excluding the $3.3 million impact of movements in the amounts for direct operating expenses, SG&A andforeign exchange rates, corporate expenses discussed above are expenses of $20.3increased $15.6 million, incurred in 2015 in connection with our strategic revenue and efficiency initiatives. Theor 11.3%, primarily driven by higher employee compensation costs were incurred to improve revenue growth, enhance yield, reduce costs, and organize each business to maximize performance and profitability. These costs consist primarily of severancemainly related to workforce initiatives, consolidationimprovements in operating performance.
The following table provides additional information about certain drivers of locationscorporate expenses:
| | | | | | | | | | | | | | | | | |
| (In thousands) | Years Ended December 31, |
| 2022 | | 2021 | | 2020 |
| Share-based compensation expense | $ | 21,148 | | | $ | 19,398 | | | $ | 13,235 | |
Restructuring and other costs(1) | 10,000 | | | 9,339 | | | 13,758 | |
(1)Includes severance and positions, consulting expenses and otherrelated costs incurred in connection with streamlining(reversals) for our businesses. These costs are expectedrestructuring plans to provide benefits in future periods as the initiative results are realized. Of these costs for 2015, $9.2reduce headcount of $(0.5) million, are reported within direct operating expenses, $4.3 million are reported within SG&A and $6.8 million are reported within corporate expense. In 2014, such costs totaled $3.5 million, $6.7$1.1 million and $20.0$2.5 million during 2022, 2021 and 2020, respectively.
Depreciation and Amortization
Depreciation and amortization expense includes depreciation of our advertising structures and other property, plant and equipment and amortization of our finite-lived intangible assets.
Depreciation and amortization increased $0.7 million, or 0.3%, during 2022 compared to 2021. Excluding the $8.9 million impact of movements in foreign exchange rates, depreciation and amortization increased $9.6 million, or 3.8%. The increase was driven by a change in the classification of billboard permit intangible assets in our America segment from indefinite-lived to finite-lived in the fourth quarter of 2022, which increased amortization expense by $16.1 million compared to the same period of the prior year. Please refer to the “Critical Accounting Estimates” section of this MD&A and Note 2 in Item 8 of this Annual Report on Form 10-K for additional details regarding this change, which is expected to have a material impact on amortization expense in future years. This was partially offset by the impact of other assets becoming fully depreciated. Depreciation and amortization decreased $30.3$16.3 million, or 6.0%, during 2021 compared to 2020. Excluding the $3.6 million impact of movements in foreign exchange rates, depreciation and amortization decreased $19.9 million, or 7.4%, mainly driven by the sale of the Clear Media business.
Impairment Charges
During 2022, we recognized total impairment charges of $39.5 million, including $21.8 million related to permits in our America segment driven by rising interest rates and inflation, $0.9 million on permanent easements in our America segment as a result of our annual impairment test, and $16.9 million related to the goodwill allocated to our Europe-South segment in conjunction with our change in segments.
During 2021, we recognized an impairment charge of $119.0 million related to permits in our America segment, driven by an increase in the discount rate and reduction in projected cash flows related to the negative impacts of COVID-19.
During 2020, we recognized total impairment charges of $150.4 million, including $140.7 million related to permits in our America segment and $9.7 million related to the goodwill allocated to our Latin America business. These impairment charges were primarily driven by reductions in projected cash flows related to the expected negative impacts of COVID-19.
Other Operating Expense (Income), Net
Other operating expense, net, was $2.4 million during 2015 2022. Costs related to the strategic reviews of our Europe businesses were largely offset by compensation received from local governments for the condemnation and removal of billboards, less a reduction in the underlying value of the condemned assets, in certain markets in our America segment.
Other operating income, net, was $0.6 million and $53.6 million during 2021 and 2020, respectively. The income in 2020 was primarily driven by a gain on the sale of the Clear Media business of $75.2 million, partially offset by legal costs and consulting fees incurred related to the sale.
Interest Expense, Net
Interest expense, net, increased $12.2 million in 2022 compared to 20142021 driven by higher interest rates on our Term Loan Facility. This was partially offset by lower interest rates as a result of refinancing our 9.25% Senior Notes due 2024 (the “CCWH Senior Notes”) in the first half of 2021 and, to a lesser extent, repayment of the $130.0 million draw under our Revolving Credit Facility in the fourth quarter of 2021.
Interest expense, net, decreased $9.8 million in 2021 compared to 2020. This decrease was mainly driven by lower interest on our Term Loan Facility due to a favorable change in the interest rate and the refinancing of the CCWH Senior Notes during the first half of 2021, partially offset by the issuance of the CCIBV Senior Secured Notes in August 2020.
Loss on Extinguishment of Debt
We did not extinguish any debt during 2022. In 2021, we recognized losses on extinguishment of debt of $102.8 million related to the redemption of the CCWH Senior Notes. In 2020, we recognized a loss on extinguishment of debt of $5.4 million related to the repayment of the CCIBV Promissory Note.
Other Income (Expense), Net
Other expense, net, of $35.1 million in 2022 primarily resulted from net foreign exchange losses recognized in connection with intercompany notes denominated in a currency other than the functional currency, driven by the strengthening of the U.S. dollar against foreign currencies, particularly the Euro and British pound sterling.
Other income, net, was $1.8 million in 2021, and other expense, net, was $0.2 million in 2020.
Income Tax Benefit
The effective tax rate for 2022 was 43.2%. This was primarily driven by a reduction in the valuation allowance related to the classification change of permit intangible assets from indefinite-lived to finite-lived for financial reporting purposes, partially offset by deferred tax expense of $7.4 million recorded as a result of entering into a definitive agreement to sell our business in Switzerland.
The effective tax rates for 2021 and 2020 were 7.4% and 8.8%, respectively. In both years, the benefit we received from reporting tax losses was partially offset by valuation allowances recorded against current period deferred tax assets in the U.S. and certain foreign jurisdictions due to uncertainty regarding our ability to realize those assets in future periods. Additionally, we recorded $59.7 million of tax expense in 2020 as a result of selling our 50.91% stake in Clear Media.
For a full reconciliation of our effective tax rate to statutory rates and further explanation of our provision for taxes, please refer to Note 9 to our Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K. America Results of Operations
| | | | | | | | | | | | | | | | | | |
| (In thousands) | Years Ended December 31, | |
| 2022 | | 2021 | | 2020 | |
| Revenue | $ | 1,105,552 | | | $ | 1,013,290 | | | $ | 853,183 | | |
Direct operating expenses(1) | 412,302 | | | 376,898 | | | 377,464 | | |
SG&A expenses(1) | 195,316 | | | 175,526 | | | 167,774 | | |
| Segment Adjusted EBITDA | 499,390 | | | 463,410 | | | 315,001 | | |
(1)Includes restructuring and other costs that are excluded from Segment Adjusted EBITDA.
America Revenue
America revenue increased $92.3 million, or 9.1%, during 2022 compared to 2021. During 2021, America revenue was still adversely affected by COVID-19. However, as our America segment has recovered, we have seen increases in revenue across all of our products, most notably billboards, and in almost all of our markets. More than half of the total increase was driven by digital revenue, which increased 15.2% from 2021.
America revenue increased $160.1 million, or 18.8%, during 2021 compared to 2020. As we continued to recover from the adverse effects of COVID-19, we saw increases in revenue across all of our products, most notably billboards, and in all of our markets. More than half of the total increase was driven by digital revenue, which increased 35.5% from 2020.
The following table provides information about America digital revenue:
| | | | | | | | | | | | | | | | | |
| (In thousands) | Years Ended December 31, |
| 2022 | | 2021 | | 2020 |
| Digital revenue | $ | 380,222 | | | $ | 329,938 | | | $ | 243,549 | |
| Percent of total segment revenue | 34.4 | % | | 32.6 | % | | 28.5 | % |
Revenue generated from national sales comprised 36.2%, 39.1% and 35.1% of America revenue for 2022, 2021, and 2020, respectively, while the remainder of revenue was generated from local sales.
America Direct Operating Expenses
America direct operating expenses increased $35.4 million, or 9.4%, during 2022 compared to 2021 primarily due to assets becoming fully depreciatedhigher site lease expense driven by higher revenue, new contracts and lower rent abatements.
America direct operating expenses decreased $0.6 million, or fully amortized0.1%, during 2021 compared to 2020. Lower site lease expense driven by higher rent abatements was largely offset by the impact of higher revenue on variable rent, as well as higher production and installation expenses driven by increased sales activity.
The following table provides additional information about certain drivers of America direct operating expenses:
| | | | | | | | | | | | | | | | | |
| (In thousands) | Years Ended December 31, |
| 2022 | | 2021 | | 2020 |
| Site lease expense | $ | 322,725 | | | $ | 291,769 | | | $ | 297,152 | |
| Reductions of rent expense on lease and non-lease contracts from rent abatements | 14,847 | | | 20,457 | | | 4,777 | |
America SG&A Expenses
America SG&A expenses increased $19.8 million, or 11.3%, during 2022 compared to 2021 largely due to higher credit loss expense, driven by an increase in current year revenue and prior year credit loss reductions due to COVID-19 recovery, and higher employee compensation costs, driven by increased headcount and sales commissions.
America SG&A expenses increased $7.8 million, or 4.6%, during 2021 compared to 2020 driven by higher employee compensation costs due to improvements in operating performance. This was partially offset by lower credit loss expense related to our continued recovery from COVID-19.
Airports Results of Operations
| | | | | | | | | | | | | | | | | |
| (In thousands) | Years Ended December 31, |
| 2022 | | 2021 | | 2020 |
| Revenue | 256,402 | | | $ | 160,330 | | | $ | 123,789 | |
Direct operating expenses(1) | 163,638 | | | 98,548 | | | 95,369 | |
SG&A expenses(1) | 31,900 | | | 24,898 | | | 23,555 | |
| Segment Adjusted EBITDA | 60,864 | | | 36,894 | | | 4,871 | |
(1)Includes restructuring and other costs that are excluded from Segment Adjusted EBITDA.
Airports Revenue
Airports revenue increased $96.1 million, or 59.9%, during 2022 compared to 2021 driven by additional demand for airport advertising due to increased air passenger volume as the travel industry continues to recover from COVID-19. A large portion of this increase was driven by digital revenue, which increased 71.3% from 2021.
Airports revenue increased $36.5 million, or 29.5%, during 2021 compared to 2020 driven by our new advertising sponsorship contract with the Port Authority of New York and New Jersey. The majority of this increase was driven by digital revenue, which increased 54.3% from 2020.
The following table provides information about Airports digital revenue:
| | | | | | | | | | | | | | | | | |
| (In thousands) | Years Ended December 31, |
| 2022 | | 2021 | | 2020 |
| Digital revenue | $ | 147,361 | | | $ | 86,014 | | | $ | 55,736 | |
| Percent of total segment revenue | 57.5 | % | | 53.6 | % | | 45.0 | % |
Revenue generated from national sales comprised 53.7%, 42.9% and 52.0% of Airports revenue for 2022, 2021 and 2020, respectively, while the remainder of revenue was generated from local sales.
Airports Direct Operating Expenses
Airports direct operating expenses increased $65.1 million, or 66.0%, during 2022 compared to 2021 primarily due to higher site lease expense driven by higher revenue and, to a lesser extent, lower rent abatements.
Airports direct operating expenses increased $3.2 million, or 3.3%, during 2021 compared to 2020 primarily due to higher production and installation expenses driven by increased sales activity. Lower site lease expense driven by higher rent abatements was offset by the impact of higher revenue on variable rent.
The following table provides additional information about certain drivers of Airports direct operating expenses:
| | | | | | | | | | | | | | | | | |
| (In thousands) | Years Ended December 31, |
| 2022 | | 2021 | | 2020 |
| Site lease expense | $ | 145,227 | | | $ | 83,791 | | | $ | 84,553 | |
| Reductions of rent expense on lease and non-lease contracts from rent abatements | 32,092 | | | 49,762 | | | 32,348 | |
Airports SG&A Expenses
Airports SG&A expenses increased $7.0 million, or 28.1%, during 2022 compared to 2021 largely due to higher employee compensation costs driven by higher sales commissions and increased headcount.
Airports SG&A expenses increased $1.3 million, or 5.7%, during 2021 compared to 2020 primarily due to higher employee compensation costs mainly driven by improvements in operating performance.
Europe-North Results of Operations
| | | | | | | | | | | | | | | | | |
| (In thousands) | Years Ended December 31, |
| 2022 | | 2021 | | 2020 |
| Revenue | $ | 566,119 | | | $ | 517,990 | | | $ | 406,783 | |
Direct operating expenses(1) | 358,234 | | | 365,739 | | | 319,266 | |
SG&A expenses(1) | 104,553 | | | 102,891 | | | 88,684 | |
| Segment Adjusted EBITDA | 103,654 | | | 53,981 | | | 2,677 | |
(1)Includes restructuring and other costs that are excluded from Segment Adjusted EBITDA.
Europe-North Revenue
Europe-North revenue increased $48.1 million, or 9.3%, during 2022 compared to 2021. Excluding the $76.1 million impact of movements in foreign exchange rates, Europe-North revenue increased $124.2 million, or 24.0%. While 2021 revenues were still negatively impacted by COVID-19 in most countries, in 2022 we experienced incremental growth compared to 2019 (pre-COVID-19) revenue levels. We have seen year-over-year increases in revenue across our products, most notably transit and street furniture, and in almost all of the countries in which we operate, with the largest increases in Sweden, the U.K. and Norway. A large portion of the total increase was driven by digital revenue, which increased 19.4% from 2021, or 35.0% excluding the impact of movements in foreign exchange rates.
We perform our annual impairment test on our goodwill, billboard permits, and other intangible assets as of July 1 of each year. In addition, we test for impairment of property, plant and equipment whenever events and circumstances indicate that depreciable assets might be impaired. As a result of these impairment tests,Europe-North revenue increased $111.2 million, or 27.3%, during 2015, we recorded impairment charges of $21.6 million during 2015 related to billboard permits in one Americas outdoor market. During 2014, we recognized a $3.5 million other intangible assets impairment charge in our Americas segment primarily related to a decline in the estimated fair value of permanent easements in two markets. Please see Note 2 to the consolidated financial statements included in Item 8 of Part II of this Annual Report on Form 10-K for a further description of the impairment charges.
Other Operating Income, Net
Other operating expense, net of $4.8 million in 2015 primarily related to acquisition/disposition transaction costs.
Other operating income, net of $7.3 million in 2014 primarily related to the gain on the sale of certain outdoor assets in our Americas segment.
Interest Expense
Interest expense increased $2.4 million in 20152021 compared to 2014.
Interest Income on Due From iHeartCommunications
Interest income increased $1.3 million during 2015 compared to 2014 due to the increase in the average outstanding balance on the Due from iHeartCommunications note.
Equity in Earnings (Loss) of Nonconsolidated Affiliates
Equity in loss of nonconsolidated affiliates of $0.3 million for 2015 included the loss from our equity investments in our Americas and International segments.
Equity in earnings of nonconsolidated affiliates of $3.8 million for 2014 included the earnings from our equity investments in our Americas and International segments.
Other Income, Net
Other income of $12.4 million and $15.2 million for 2015 and 2014, respectively, primarily related to foreign exchange gains on short-term intercompany accounts.
Income Tax (Expense) Benefit
Our operations are included in a consolidated income tax return filed by iHeartMedia. However, for our financial statements, our provision for income taxes was computed as if we file separate consolidated federal income tax returns with our subsidiaries.
The effective tax rate for 2015 was (237.5)% and was primarily impacted by the $32.9 million valuation allowance recorded during the period as additional deferred tax expense. The valuation allowance was recorded against a portion of the U.S. Federal and State net operating losses due to the uncertainty of the ability to utilize those losses in future periods. Additionally, the Company recorded additional taxes due to the inability to benefit from losses in certain foreign jurisdictions.
The effective tax rate for 2014 was (105.5)%, primarily impacted by our benefits and charges from tax amounts associated with our foreign earnings that are taxed at rates different from the federal statutory rate and an inability to benefit from losses in certain foreign jurisdictions. In addition, we recorded $20.0 million in net tax benefits associated with a decrease in unrecognized tax benefits resulting from the expiration of statutes of limitations to assess taxes in the United Kingdom and several state jurisdictions.
Americas Results of Operations
Our Americas operating results were as follows:
|
| | | | | | | | | |
| (In thousands) | Years Ended December 31, | | % |
| | 2015 | | 2014 | | Change |
| Revenue | $ | 1,349,021 |
| | $ | 1,350,623 |
| | (0.1)% |
| Direct operating expenses | 597,382 |
| | 605,771 |
| | (1.4)% |
| SG&A expenses | 233,254 |
| | 233,641 |
| | (0.2)% |
| Depreciation and amortization | 204,514 |
| | 203,928 |
| | 0.3% |
| Operating income | $ | 313,871 |
| | $ | 307,283 |
| | 2.1% |
Americas revenue decreased $1.6 million during 2015 compared to 2014.2020. Excluding the $23.4$24.6 million impact fromof movements in foreign exchange rates, AmericasEurope-North revenue increased $21.8$86.6 million, during 2015 comparedor 21.3%. As we continued to 2014 driven primarily by anrecover from the adverse effects of COVID-19, we saw increases in revenue across most of our products, most notably street furniture and retail displays, and in all of the countries in which we operate, with the largest increase in revenuesthe U.K. A large portion of the total increase was driven by digital revenue, which increased 41.2% from 2020, or 34.1% excluding the impact of movements in foreign exchange rates.
The following table provides information about Europe-North digital billboards as a result of new deployments, as well as from our Spectacolor business, partially offset by lower advertising revenues from our static bulletins and posters, and our airports business.revenue:
Americas direct operating expenses decreased $8.4 million during 2015 compared to 2014. Excluding the $13.1 million impact from | | | | | | | | | | | | | | | | | |
| (In thousands) | Years Ended December 31, |
| 2022 | | 2021 | | 2020 |
| Digital revenue | $ | 299,464 | | | $ | 250,901 | | | $ | 177,698 | |
| Percent of total segment revenue | 52.9 | % | | 48.4 | % | | 43.7 | % |
Digital revenue, excluding movements in foreign exchange rates(1): | | | | | |
| 2022 compared to 2021 | 338,631 | | | 250,901 | | | |
| 2021 compared to 2020 | | | 238,310 | | | 177,698 | |
(1)Amounts excluding movements in foreign exchange rates Americashave been calculated by converting the latest period’s results in local currency to U.S. dollars using average monthly foreign exchange rates for the prior year.
Europe-North Direct Operating Expenses
Europe-North direct operating expenses increased $4.7decreased $7.5 million, or 2.1%, during 20152022 compared to 2014 primarily due to higher variable site lease expenses related to the increase in revenues. Americas SG&A expenses decreased $0.4 million during 2015 compared to 2014.2021. Excluding the $6.0$46.7 million impact fromof movements in foreign exchange rates, Americas SG&AEurope-North direct operating expenses increased $5.6$39.2 million, during 2015 compared to 2014 primarilyor 10.7%, due to higher site lease expense largely driven by higher revenue. We also experienced higher production and installation expenses in Latin America.driven by increased sales activity, as well as higher maintenance expense.
International Advertising Results of Operations
Our InternationalEurope-North direct operating results were as follows:
|
| | | | | | | | | |
| (In thousands) | Years Ended December 31, | | % |
| | 2015 | | 2014 | | Change |
| Revenue | $ | 1,457,183 |
| | $ | 1,610,636 |
| | (9.5)% |
| Direct operating expenses | 897,520 |
| | 991,117 |
| | (9.4)% |
| SG&A expenses | 298,250 |
| | 314,878 |
| | (5.3)% |
| Depreciation and amortization | 166,060 |
| | 198,143 |
| | (16.2)% |
| Operating income | $ | 95,353 |
| | $ | 106,498 |
| | (10.5)% |
International revenue decreased $153.4expenses increased $46.5 million, or 14.6%, during 20152021 compared to 2014.2020. Excluding the $205.6$18.4 million impact fromof movements in foreign exchange rates, International revenue increased $52.2 million during 2015 compared to 2014 primarily driven by new contracts along with higher occupancy and higher rates for our transit and street furniture products, particularly
digital, in certain European countries, including Sweden, Norway, Italy and the UK, as well as from new contracts in Australia and China.
InternationalEurope-North direct operating expenses decreased $93.6increased $28.0 million, during 2015 comparedor 8.8%, largely due to 2014. Excluding the $133.5 million impact fromhigher site lease expense driven by higher revenue and lower rent abatements and governmental rent subsidies. We also incurred higher production and installation expenses driven by increased sales activity.
The following table provides additional information about certain drivers of Europe-North direct operating expenses:
| | | | | | | | | | | | | | | | | |
| (In thousands) | Years Ended December 31, |
| 2022 | | 2021 | | 2020 |
| Site lease expense | $ | 221,326 | | | $ | 210,152 | | | $ | 185,574 | |
Site lease expense, excluding movements in foreign exchange rates(1): | | | | | |
| 2022 compared to 2021 | 250,525 | | | 210,152 | | | |
| 2021 compared to 2020 | | | 199,665 | | | 185,574 | |
| | | | | |
| Reductions of rent expense on lease and non-lease contracts from rent abatements | 1,974 | | | 5,728 | | | 10,419 | |
Reductions of direct operating expenses from European governmental support and wage subsidies(2) | 32 | | | 896 | | | 7,473 | |
(1)Amounts excluding movements in foreign exchange rates International direct operatinghave been calculated by converting the latest period’s results in local currency to U.S. dollars using average monthly foreign exchange rates for the prior year.
(2)Includes rent subsidies of $0.8 million and $4.6 million during 2021 and 2020, respectively.
Europe-North SG&A Expenses
Europe-North SG&A expenses increased $39.9$1.7 million, or 1.6%, during 20152022 compared to 2014 primarily as a result of higher variable costs associated with higher revenue, as well as site lease termination fees on lower-margin boards incurred in connection with strategic revenue and efficiency initiatives. International SG&A expenses decreased $16.6 million during 2015 compared to 2014.2021. Excluding the $45.0$13.5 million impact fromof movements in foreign exchange rates, InternationalEurope-North SG&A expenses increased $28.4$15.2 million, during 2015 compared to 2014 primarilyor 14.8%, largely due to higher employee compensation expense, including commissionscosts driven by improvements in connection with higher revenues.operating performance.
Depreciation and amortization decreased $32.1 million.Europe-North SG&A expenses increased $14.2 million, or 16.0%, during 2021 compared to 2020. Excluding the $19.5$5.3 million impact fromof movements in foreign exchange rates, depreciation and amortization decreased $12.6Europe-North SG&A expenses increased $9.0 million, or 10.1%, primarily due to assets becoming fully depreciatedhigher employee compensation costs driven by improvements in operating performance.
Europe-South Results of Operations
| | | | | | | | | | | | | | | | | | |
| (In thousands) | Years Ended December 31, | |
| 2022 | | 2021 | | 2020 | |
| Revenue | $ | 467,106 | | | $ | 472,360 | | | $ | 385,326 | | |
Direct operating expenses(1) | 346,000 | | | 383,224 | | | 328,548 | | |
SG&A expenses(1) | 110,371 | | | 129,768 | | | 123,686 | | |
| Segment Adjusted EBITDA | 15,201 | | | (9,205) | | | (60,040) | | |
(1)Includes restructuring and other costs that are excluded from Segment Adjusted EBITDA.
Europe-South Revenue
Europe-South revenue decreased $5.3 million, or fully amortized.1.1%, during 2022 compared to 2021. Excluding the $52.5 million impact of movements in foreign exchange rates, Europe-South revenue increased $47.2 million, or 10.0%. As this segment continues to recover from the adverse effects of COVID-19, we have seen increases in revenue across most of our products, most notably street furniture. Higher revenue in France, Spain and Italy was partially offset by lower revenue in Switzerland driven by the loss of certain contracts. Europe-South digital revenue increased 13.2% from 2021, or 25.4% excluding the impact of movements in foreign exchange rates.
Also includedEurope-South revenue increased $87.0 million, or 22.6%, during 2021 compared to 2020. Excluding the $9.0 million impact of movements in International Outdoorforeign exchange rates, Europe-South revenue increased $78.1 million, or 20.3%. As we continued to recover from the adverse effects of COVID-19, we saw increases in revenue across all of our products, most notably street furniture, and in all of the countries in which we operate, with the largest increase in France. Europe-South digital revenue increased 45.1% from 2020, or 44.1% excluding the impact of movements in foreign exchange rates.
The following table provides information about Europe-South digital revenue:
| | | | | | | | | | | | | | | | | |
| (In thousands) | Years Ended December 31, |
| 2022 | | 2021 | | 2020 |
| Digital revenue | $ | 108,468 | | | $ | 95,832 | | | $ | 66,039 | |
| Percent of total segment revenue | 23.2 | % | | 20.3 | % | | 17.1 | % |
Digital revenue, excluding movements in foreign exchange rates(1): | | | | | |
| 2022 compared to 2021 | 120,142 | | | 95,832 | | | |
| 2021 compared to 2020 | | | 95,184 | | | 66,039 | |
(1)Amounts excluding movements in foreign exchange rates have been calculated by converting the latest period’s results in local currency to U.S. dollars using average monthly foreign exchange rates for the prior year.
Europe-South Direct Operating Expenses
Europe-South direct operating expenses decreased $37.2 million, or 9.7%, during 2022 compared to 2021. Excluding the $38.6 million impact of movements in foreign exchange rates, Europe-South direct operating expenses increased $1.4 million, or 0.4%. Higher site lease expense and other costs were offset by lower costs for our restructuring plan to reduce headcount. The increase in site lease expense was driven by a reduction in negotiated rent abatements, partially offset by the loss of certain contracts in Switzerland.
Europe-South direct operating expenses increased $54.7 million, or 16.6%, during 2021 compared to 2020. Excluding the $13.3 million impact of movements in foreign exchange rates, Europe-South direct operating expenses increased $41.3 million, or 12.6%, largely due to higher site lease expense driven by lower negotiated rent abatements and higher revenue. We also incurred higher costs for our restructuring plan to reduce headcount, as well as higher production and installation expenses driven by increased sales activity.
The following table provides additional information about certain drivers of Europe-South direct operating expenses:
| | | | | | | | | | | | | | | | | |
| (In thousands) | Years Ended December 31, |
| 2022 | | 2021 | | 2020 |
| Site lease expense | $ | 206,999 | | | $ | 217,249 | | | $ | 188,089 | |
Site lease expense, excluding movements in foreign exchange rates(1): | | | | | |
| 2022 compared to 2021 | 229,525 | | | 217,249 | | | |
| 2021 compared to 2020 | | | 210,322 | | | 188,089 | |
| | | | | |
| Reductions of rent expense on lease and non-lease contracts from rent abatements | 915 | | | 21,471 | | | 27,385 | |
| Reductions of direct operating expenses from European governmental wage subsidies | 641 | | | 1,709 | | | 2,520 | |
(1)Amounts excluding movements in foreign exchange rates have been calculated by converting the latest period’s results in local currency to U.S. dollars using average monthly foreign exchange rates for the prior year.
Europe-South SG&A Expenses
Europe-South SG&A expenses are $8.2decreased $19.4 million, and $3.2or 14.9%, during 2022 compared to 2021. Excluding the $12.4 million respectively, recordedimpact of movements in the fourth quarter of 2015 to correct for accounting errors included in the resultsforeign exchange rates, Europe-South SG&A expenses decreased $7.0 million, or 5.4%, driven by lower costs for our Netherlands subsidiary reportedrestructuring plan to reduce headcount. This was partially offset by higher employee compensation costs driven by improvements in prior years. Such correctionsoperating performance, as well as increases in professional fees and other costs.
Europe-South SG&A expenses increased $6.1 million, or 4.9%, during 2021 compared to 2020. Excluding the $4.3 million impact of movements in foreign exchange rates, Europe-South SG&A expenses increased $1.7 million, or 1.4%, driven by higher costs for our restructuring plan to reduce headcount. This was partially offset by lower professional fees and facilities costs.
Other Results of Operations
| | | | | | | | | | | | | | | | | | |
| (In thousands) | Years Ended December 31, | |
| 2022 | | 2021 | | 2020 | |
| Revenue | $ | 85,955 | | | $ | 77,148 | | | $ | 85,527 | | |
Direct operating expenses(1) | 47,805 | | | 45,849 | | | 80,561 | | |
SG&A expenses(1) | 25,820 | | | 26,314 | | | 38,611 | | |
Segment Adjusted EBITDA(2) | 12,330 | | | 4,884 | | | (32,235) | | |
(1)Includes restructuring and other costs that are not considered to be material to the current year or prior year financial results.excluded from Segment Adjusted EBITDA.
Reconciliation of Segment Operating Income to Consolidated Operating Income
|
| | | | | | | | | | | |
| (In thousands) | Years Ended December 31, |
| | 2016 | | 2015 | | 2014 |
| Americas Outdoor Advertising | $ | 297,034 |
| | 313,871 |
| | 307,283 |
|
| International Outdoor Advertising | 116,178 |
| | 95,353 |
| | 106,498 |
|
| Impairment charges | (7,274 | ) | | (21,631 | ) | | (3,530 | ) |
Corporate and other (1) | (123,095 | ) | | (121,768 | ) | | (135,066 | ) |
| Other operating income, net | 354,688 |
| | (4,824 | ) | | 7,259 |
|
| Consolidated operating income | $ | 637,531 |
| | $ | 261,001 |
| | $ | 282,444 |
|
| |
(1) | Corporate and other includes expenses related to Americas and International and as well as overall executive, administrative and support functions. |
Share-Based Compensation Expense
As of December 31, 2016, there was $14.8(2)Our Latin America and Singapore businesses represented ($5.6) 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 December 31, 2016, there was $0.7 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.
Share-based compensation expenses are recorded in corporate expenses and were $10.2 million, $8.4 million and $7.7 millionOther Segment Adjusted EBITDA for the yearsyear ended December 31, 2016, 20152020.
Other Revenue
Other revenue increased $8.8 million, or 11.4%, during 2022 compared to 2021. Excluding the $0.8 million impact of movements in foreign exchange rates, Other revenue increased $9.6 million, or 12.5%, driven by our continued recovery from COVID-19.
Other revenue decreased $8.4 million, or 9.8%, during 2021 compared to 2020, driven by the sale of the Clear Media business. Revenues from our Latin America and 2014, respectively.
Singapore businesses were $77.1 million and $56.2 million during 2021 and 2020, respectively, with the increase related to our continued recovery from COVID-19. Excluding the $0.3 million impact of movements in foreign exchange rates, Other revenue decreased $8.7 million, or 10.2%.
Other Direct Operating Expenses
Other direct operating expenses increased $2.0 million, or 4.3%, during 2022 compared to 2021. Excluding the $0.9 million impact of movements in foreign exchange rates, Other direct operating expenses increased $2.8 million, or 6.2%, driven by higher site lease expense related to higher revenue.
Other direct operating expenses decreased $34.7 million, or 43.1%, during 2021 compared to 2020, driven by the sale of the Clear Media business. Direct operating expenses from our Latin America and Singapore businesses were $45.8 million and $40.1 million during 2021 and 2020, respectively, with the increase primarily driven by higher site lease expense related to higher revenue. Excluding the $0.1 million impact of movements in foreign exchange rates, Other direct operating expenses decreased $34.8 million, or 43.2%.
Other SG&A Expenses
Other SG&A expenses decreased $0.5 million, or 1.9%, during 2022 compared to 2021. Excluding the $0.2 million impact of movements in foreign exchange rates, Other SG&A expenses decreased $0.3 million, or 1.1%.
Other SG&A expenses decreased $12.3 million, or 31.8%, during 2021 compared to 2020, driven by the sale of the Clear Media business. SG&A expenses from our Latin America and Singapore businesses were $26.3 million and $23.0 million during 2021 and 2020, respectively, with the increase driven by higher employee compensation costs mainly due to improvements in operating performance. Excluding the $0.1 million impact of movements in foreign exchange rates, Other SG&A expenses decreased $12.2 million, or 31.6%.
LIQUIDITY AND CAPITAL RESOURCES
Cash FlowsLiquidity Analysis
The following discussion highlightsShort-Term Liquidity
Our main cash requirements are for working capital used to fund the operations of the business, capital expenditures and debt service. We typically meet these requirements with cash on hand, internally-generated cash flow activities duringfrom operations and, if necessary, borrowings under our credit facilities. We believe that our current sources of funds will be sufficient to meet our cash requirements for at least the years ended December 31, 2016, 2015next 12 months.
Long-Term Liquidity
Our long-term future cash requirements will depend on many factors, including the growth of our business, investments in new technologies and 2014.
|
| | | | | | | | | | | |
| (In thousands) | Years Ended December 31, |
| | 2016 | | 2015 | | 2014 |
| Cash provided by (used for): | | | | | |
| Operating activities | $ | 310,293 |
| | $ | 298,933 |
| | $ | 348,423 |
|
| Investing activities | $ | 551,499 |
| | $ | (257,725 | ) | | $ | (206,431 | ) |
| Financing activities | $ | (726,499 | ) | | $ | 199,054 |
| | $ | (261,309 | ) |
Operating Activities
2016
Cash provided by operating activities was $310.3 million in 2016 compared to $298.9 millionthe pursuit and outcome of cash provided in 2015. Our consolidated net loss included $121.3 million of non-cash items in 2016. Our consolidated net income in 2015 included $413.0 million of non-cash items. Non-cash items affecting our net loss include impairment charges, 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, equity in (earnings) loss of nonconsolidated affiliates and other reconciling items, net as presented onstrategic opportunities, including the faceoutcome of the consolidated statementstrategic reviews of our European businesses. In addition, we have long-term cash flows. The increaserequirements related to the repayment of our outstanding debt, which is scheduled to mature over the next seven years. We believe that our sources of funds will be adequate to meet our cash requirements in the long-term.
However, our ability to meet these cash providedrequirements through cash from operations will depend on our future operating results and financial performance, which are subject to significant uncertainty and may be affected by operating activities is primarily attributedevents beyond our control, including macro-economic events such as heightened inflation, higher interest rates, currency fluctuations, slower economic growth or recession, financial and industry conditions, and geopolitical events such as the war in Ukraine. Other than higher interest rates and currency fluctuations, these events have not had a material effect on our results to date. Please refer to Item 7A of this Annual Report on Form 10-K for additional details about our market risks. Additionally, our significant interest payment obligations reduce our financial flexibility, make us more vulnerable to changes in operating performance and economic downturns generally, and reduce our liquidity over time. We regularly consider, and enter into discussions with our lenders and other parties related to, potential financing alternatives. In the future, we may need to obtain supplemental liquidity through additional financing from banks or other lenders, public offerings or private placements of debt, equity or equity-linked securities, strategic relationships or other arrangements, or from a combination of these sources. However, there can be no assurance that financing alternatives will be available in sufficient amounts or on terms acceptable to us in the future due to market conditions, our financial condition, our liquidity constraints or other factors, many of which are beyond our control, and even if financing alternatives are available to us, we may not find them suitable or at reasonable interest rates. In addition, the terms of our existing or future debt agreements may restrict us from securing financing on terms that are available to us at that time or at all.
If we are unable to generate sufficient cash through our operations or obtain sources of supplemental liquidity as needed, 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.
Cash Requirements
Working Capital Needs
We utilize working capital balances, particularly accounts receivable, which was driven primarily by lower revenues and improved collections, partially offset by an increase in cash paid for interest.
2015
Cash provided by operating activities was $298.9 million in 2015 compared to $348.4 million of cash provided in 2014. Our consolidated net loss included $413.0 million of net non-cash items in 2015. Our consolidated net loss in 2014 included $373.7 million of net non-cash items. Non-cash items affecting our net loss include impairment charges, 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 onfund the face of the consolidated statement of cash flows. The decrease in cash provided by operating activities is primarily attributed to a decrease in net income as well as changes in working capital balances, particularly accounts receivable.
2014
Cash provided by operating activities in 2014 was $348.4 million compared to $414.6 million in 2013. Our consolidated net loss included $373.7 million of net non-cash items in 2014. Our consolidated net loss in 2013 included $385.7 million of net non-cash items. Non-cash items affecting our net loss include impairment charges, 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. Cash paid for interest was $1.0 million higher in 2014 compared to the prior year due to the timing of accrued interest payments from refinancing transactions.
Investing Activities
2016
Cash provided by investing activities of $551.5 million during 2016 primarily reflected $592.3 million of net cash proceeds from the sale of nine non-strategic outdoor markets including Cleveland and Columbus, Ohio, Des Moines, Iowa, Ft. Smith, Arkansas, Memphis, Tennessee, Portland, Oregon, Reno, Nevada, Seattle, Washington and Wichita, Kansas, and the saleoperations of our business and have certain related contractual obligations, including commitments under site leases and other non-cancelable contracts.
Site Lease Expense
One of our largest cash requirements is for site lease costs, which includes payments for land or space used by our advertising displays for both lease and non-lease contracts, including minimum guaranteed payments and revenue-sharing arrangements. We lease the majority of the land occupied by our billboard structures under long-term site leases that typically have initial terms of up to 20 years. Additionally, most of our street furniture, airport and other displays are operated through long-term contracts, many of which contain rent provisions that are calculated as the greater of a percentage of the relevant advertising revenue or a specified guaranteed minimum annual payment. Many of our lease agreements contain renewal options and annual rent escalation clauses.
In 2022, 2021 and 2020, we incurred site lease expense of $927.5 million, $832.5 million and $805.3 million, respectively, which are included within direct operating expenses on our Consolidated Statements of Loss. In order to better align fixed site lease expenses with the reductions in Australiarevenue we experienced due to COVID-19, we successfully renegotiated contracts with landlords and municipalities throughout our business. In 2022, 2021 and 2020, we reduced our site lease expense by rent abatements of $52.3 million, $98.5 million and $77.7 million, respectively. As our business continues to recover from the effects of the COVID-19 pandemic, we are receiving fewer rent abatements.
As of December 31, 2022, we had short-term future cash obligations related to site lease expense under non-cancelable operating leases and other non-cancelable contracts of $631.0 million (excluding obligations related to our business in Switzerland, which is held for $195.7sale) to be paid in the next 12 months. Please refer to Notes 7 and 8 to our Consolidated Financial Statements located in Item 8 of this Annual Report on Form 10-K for our total future cash obligations under these contracts, including schedules of future minimum payments. Restructuring Plans
In 2020 we committed to restructuring plans to reduce headcount throughout our business, primarily in response to the impact of COVID-19, which we completed in 2021. During 2022, 2021 and 2020, we made cash expenditures for these restructuring plans of $16.5 million, net$13.4 million and $8.8 million, respectively, and as of December 31, 2022, we had $7.2 million of future cash retainedobligations related to our Europe restructuring plan. We expect to pay most of this balance by the purchaserend of the second quarter of 2023, and closing costs. Those sale proceeds were partially offset by $229.8 million usedremaining costs are not expected to be significant. Please refer to Note 4 to our Consolidated Financial Statements located in Item 8 of this Annual Report on Form 10-K for additional details. Capital Expenditures and Asset Acquisitions
Our capital expenditures. We spent $81.4 million inexpenditures primarily relate to construction and sustaining activities for our Americas segment primarily related toout-of-home advertising displays. The primary driver of our capital expenditure requirements is the construction of new advertising structures, such asincluding the continued deployment of digital displays $143.8 million in accordance with our International segment primarily relatedlong-term strategy to street furniture advertising structures, and $4.6 million by Corporate primarily related to equipment and software.
2015
Cash used for investing activities of $257.7 million during 2015 reflecteddigitize our capital expenditures of $218.3 million.network. We spent $82.2 million inbelieve our Americas segment primarily related to the construction of new advertising structures such as digital displays, $132.6 million in our International segment primarily related to street furniture advertising and digital billboard structures, and $3.5 million by Corporate primarily related to equipment and software. Other cash provided by investing activities were $11.3 million of proceeds from sales of other operating and fixed assets.
2014
Cash used for investing activities of $206.4 million during 2014 reflected our capital expenditures of $231.2 million. We spent $109.7 million in our Americas segment primarily related to the construction of new advertising structures such as digital displays, $117.5 million in our International segment primarily related to new advertising structures such as billboards and street furniture and renewals of existing contracts, and $4.0 million by Corporate primarily related to equipment and software. Other cash provided by investing activities were $12.9 million of proceeds from sales of other operating and fixed assets.
Financing Activities
2016
Cash used for financing activities of $726.5 million during 2016 primarily reflected two cash dividends paid in the aggregate amount of $755.5 million, partially offset by net transfers of $45.1 million in cash from iHeartCommunications, which represents the activity in the “Due from iHeartCommunications” account.
2015
Cash provided by financing activities of $199.1 million during 2015 primarily reflected the proceeds from the issuance of $225.0 million of senior notes by our subsidiary Clear Channel International B.V. We also received $17.0 million in cash from iHeartCommunications, which represents the activity in the “Due from/to iHeartCommunications” account.
On December 20, 2015, our board of directors declared a special cash dividend of $217.8 million that was paid on January 7, 2016 and was reflected as cash used for financing activities in the first quarter of 2016.
2014
Cash used for financing activities of $261.3 million during 2014 primarily reflected the $175.0 million dividend paid as well as net transfers of $68.8 million in cash to iHeartCommunications, which represents the activity in the “Due from/to iHeartCommunications” account. Other cash used for financing activities included net payments to noncontrolling interests of $19.0 million.
Anticipated Cash Requirements
Our primary sources of liquidity are cash on hand, cash flow from operations will generally be sufficient to fund these expenditures.
Beginning in 2020, we reduced or deferred capital expenditures as part of our strategy to increase our liquidity and preserve and strengthen our financial flexibility given the revolving promissory note with iHeartCommunicationsadverse financial impacts and economic uncertainty resulting from COVID-19. As our senior revolving credit facility. operating performance has improved, we have increased our investment in our business through capital expenditures and asset acquisitions.
We made the following capital expenditures in 2022, 2021 and 2020:
| | | | | | | | | | | | | | | | | |
| (In thousands) | Years Ended December 31, |
| 2022 | | 2021 | | 2020 |
| America | $ | 79,529 | | | $ | 56,898 | | | $ | 50,665 | |
| Airports | 25,298 | | | 11,600 | | | 5,647 | |
| Europe-North | 34,025 | | | 36,914 | | | 16,424 | |
| Europe-South | 29,011 | | | 25,362 | | | 26,599 | |
Other(1) | 4,571 | | | 4,884 | | | 12,121 | |
| Corporate | 12,245 | | | 12,348 | | | 12,706 | |
Total capital expenditures(2) | $ | 184,679 | | | $ | 148,006 | | | $ | 124,162 | |
(1)Other capital expenditures during 2020 included expenditures of $5.0 million related to our Latin America and Singapore businesses.
(2)Excludes asset acquisitions
During 2022 and 2021, we completed several acquisitions of out-of-home advertising assets in our America segment for total cash consideration of $62.0 million and $18.5 million, respectively. These asset acquisitions included permits, land, permanent easements and digital billboard structures. During 2020, cash paid for asset acquisitions was $1.3 million.
As of December 31, 2016,2022, we had $542.0short-term future capital expenditure commitments of $89.6 million to be paid in the next 12 months related to certain transit and street furniture contracts that require minimum purchases of property, plant and equipment, as well as certain contracts that contain penalties for not fulfilling our commitments related to our obligations to build bus stops, kiosks and other public amenities or advertising structures. Please refer to Note 8 to our Consolidated Financial Statements located in Item 8 of this Annual Report on Form 10-K for our total future capital expenditure commitments, including a schedule of future minimum payments. Debt Service Obligations
A substantial amount of our cash requirements is for debt service obligations. In 2022, 2021 and 2020, we paid interest of $341.4 million, $387.6 million and $323.8 million, respectively.
•In the first half of 2021, we refinanced the CCWH Senior Notes with the CCOH 7.75% Senior Notes and CCOH 7.5% Senior Notes. Differences in timing of the semi-annual interest payment dates between the new and refinanced debt resulted in a temporary increase in cash paid for interest in 2021. Additionally, the first interest payments on the CCIBV Senior Secured Notes were made in 2021.
•In 2022, we realized the full benefit of the lower interest rates on the refinanced debt, but these savings were offset by the effect of higher variable interest rates on the Term Loan Facility.
We anticipate having cash interest payments of $413.0 million in 2023 and $398.5 million in 2024, assuming that we do not refinance or incur additional debt. The expected increase from cash interest paid in 2022 is driven by the effect of higher variable interest rates on our Term Loan Facility.
Additionally, during each of 2022, 2021 and 2020, we made $20.0 million of principal payments on the Term Loan Facility in accordance with the terms of the Senior Secured Credit Agreement, and we will continue to make principal payments of $5.0 million per quarter until the remaining balance matures. Our next material debt maturity is in 2025 when the CCIBV Senior Secured Notes are due. At our option, we may redeem a portion of our outstanding debt prior to maturity in accordance with the terms of our debt agreements. Please refer to Note 6 to our Consolidated Financial Statements located in Item 8 of this Annual Report on Form 10-K for additional details on our outstanding long-term debt, including a schedule of future maturities. Sources of Capital and Liquidity
Cash On Hand
As of December 31, 2022, we had $286.8 million of cash on our balance sheet, including $180.1$102.8 million of cash 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. We disclose in Item 8 of our Form 10-K within Note 1, Summary of Significant Accounting Policies, that our policy is 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(excludes cash held by our business in Switzerland, which is held for sale). Excess cash from our foreign subsidiaries wereoperations may be transferred to our operations in the U.S. if needed to fund operations in the United States, weU.S., subject to the foreseeable cash needs of our foreign operations and restrictions in the indenture governing the CCIBV Senior Secured Notes. We could presently repatriate available funds without a requirement to accrue or payexcess cash with minimal U.S. taxes. This is a result of significant deficits,tax consequences, as calculated for tax law purposes, inand dividend distributions from our foreign earningsinternational subsidiaries may be exempt from U.S. federal income tax.
Cash Flow from Operations
Net cash provided by operating activities primarily results from cash collected from customers for use of our out-of-home advertising space, offset by cash payments made for site leases; production, maintenance and profits, which gives us flexibility to make future cash distributions as non-taxable returns of capital.
Our primary uses of liquidity are forinstallation costs; employee compensation; marketing, facility and information technology costs; interest on our working capital, capital expenditure, debt service, special dividenddebt; taxes; and other funding requirements. Based on our currentgeneral corporate expenditures.
We have historically generated positive net cash flow from operations. However, we used net cash for operating activities during the periods in which we were negatively impacted by COVID-19, specifically 2020 and anticipated levels of operations and conditions2021, as cash paid for interest in our markets, we believe thatthese periods exceeded other net cash on hand,inflows from operations. We returned to positive operating cash flows in 2022 as stronger cash collections from operations, repayment of amounts outstanding under the revolving promissory note with iHeartCommunicationscustomers, driven by improvements in revenue and borrowing capacity under our senior revolving credit facility will enable uscontinued recovery from COVID-19, exceeded aggregate cash payments to meet our working capital, capital expenditure, debt service, special dividendvendors, lessors, employees and lenders.
•In 2022, net cash provided by operating activities was $140.0 million. Higher cash collections from customers more than offset increased cash payments driven by higher site lease, employee compensation and other funding requirements, includingcosts. Additionally, cash paid for interest of $341.4 million was lower than interest paid during the debt service onprior year primarily due to the refinancing of the CCWH Senior Notes, as previously described.
•In 2021, net cash used for operating activities was $133.5 million. Cash paid for interest was $387.6 million. Cash collections from customers exceeded cash payments to vendors (including site lease costs) and our employees; however, collections earlier in the CCWH Subordinated Notesperiod lagged primarily due to COVID-19’s impact on fourth quarter 2020 and first quarter 2021 sales. Additionally, cash payments during the period included the payment of site lease costs that were deferred from 2020.
•In 2020, net cash used for operating activities was $137.8 million. Cash paid for interest was $323.8 million. Cash collections from customers exceeded cash payments to vendors (including site lease costs) and our employees; however, cash collections primarily later in the period lagged due to COVID-19’s impact on sales and our collection cycle. This adverse impact was partially mitigated by initiatives that we implemented to reduce our expenditures, including the deferral of rent payments and temporary reductions in compensation costs.
Credit Facilities
We have access to a Revolving Credit Facility and Receivables-Based Credit Facility, both of which include sub-facilities for letters of credit and short-term borrowings and are scheduled to mature on August 23, 2024. During 2020, we made a cautionary draw of $150.0 million under our Revolving Credit Facility to enhance liquidity and preserve financial flexibility during the economic downturn resulting from COVID-19. We have since repaid the entire balance, including $20.0 million in 2020 and the CCIBV Senior Notes forremaining $130.0 million in 2021.
The table below presents our borrowings and excess availability under these credit facilities as of December 31, 2022. We may request incremental credit commitments under each facility at leastany time, subject to customary conditions; however, the next 12 months. We believe our long-term plans,lenders under such facilities do not have an obligation to provide incremental commitments.
| | | | | | | | | | | | | | | | | |
| (in millions) | Revolving Credit Facility | | Receivables-Based Credit Facility | | Total Credit Facilities |
Borrowing limit(1) | $ | 175.0 | | | $ | 125.0 | | | $ | 300.0 | |
| Borrowings outstanding | — | | | — | | | — | |
| Letters of credit outstanding | 43.2 | | | 42.2 | | | 85.4 | |
| Excess availability | $ | 131.8 | | | $ | 82.8 | | | $ | 214.6 | |
(1)The borrowing limit of the Receivables-Based Credit Facility is equal to the lesser of $125.0 million and the borrowing base, which include promoting outdoor media spending, capitalizingis calculated based on our diverse geographic and product opportunities and the continued deploymentaccounts receivable balance each period in accordance with our Receivables-Based Credit Agreement.
Please refer to Note 6 to our Consolidated Financial Statements located in Item 8 of digital displays, 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.this Annual Report on Form 10-K for more details on each of these credit facilities.
Our ability to fund our working capital, capital expenditures, debt service, special dividend and other obligations depends on our future operating performance and cash from operations. 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 need additional financing. We may not be able to secure any such additional financing on terms favorable to us or at all.Dispositions
In the first quarter of 2016,2022, we paid $757.8 million in specialreceived cash dividends to our stockholders. As described under “Uses of Capital-Special Dividends” below, in the first quarter of 2016, we paid a $217.8 million dividendproceeds from the disposal of assets of $27.1 million, including compensation received from local governments for the condemnation and removal of billboards in certain markets in our America segment. In 2021, cash proceeds from the disposal of the issuanceassets were $13.2 million, and in 2020, we received $216.0 million of 8.75% Senior Notes due 2020 by Clear Channel International B.V. ("CCIBV"), one of our indirect subsidiaries, and a $540.0 million dividend with thenet proceeds of a $300 million repayment under the Due from iHeartCommunications note and the sale of our outdoorClear Media business, in nine non-strategic markets. During the fourth quarter of 2016, we sold our business in Australia for cash proceeds of $195.7 million,which is net of cash retained by Clear Media.
We expect to receive cash proceeds of CHF 86.0 million (approximately $92.7 million based on exchange rates on the purchaser and closing costs. On February 9, 2017, we declared a special cash dividend to our stockholdersdate of $282.5 million, to be paid using proceedsthe agreement) from the sales of certain non-strategic U.S. markets andsale of our business in Australia.Switzerland, which is expected to close in the second or third quarter of 2023 depending on satisfaction of conditions to closing. We paid the dividend on February 23, 2017, of which 89.9% or approximately $254.0 million was paidhave entered into a hedge arrangement to iHeartCommunications,mitigate exchange-rate risk related to these proceeds and estimate cash taxes due in connection with the remaining 10.1% or approximately $28.5 million paid to our public stockholders. The payment of these special dividends reduces the amount of cash available to us for future working capital, capital expenditure, debt service and other funding requirements. Similarly, the repayment of the $300.0 million under the Due from iHeartCommunications note reduced the amount of the Due from iHeartCommunications note asset that is available to us as a source of liquidity. Future special cash dividendssale will be dependent upon, among other things,less than $5 million. We intend to use the anticipated net proceeds from the sale to improve our having sufficient available cash.
In additionliquidity position and increase financial flexibility, subject to any special dividends thatlimitations set forth in our boarddebt agreements.
Debt Activity
As our controlling stockholder, iHeartCommunications may request and may exert pressure on us to engage in transactions for the purpose of supporting its liquidity needs, such as financings or asset sales, which may negatively affect our business operations or our capital structure. In its Annual Report on Form 10-K
for the year ended December 31, 2021, filed with the SEC on February 23, 2017, iHeartCommunications stated that its forecast24, 2022.In February 2021, we issued $1.0 billion aggregate principal amount of future cash flows indicates that such cash flows would not be sufficient for itCCOH 7.75% Senior Notes and, in March 2021, used the net proceeds to meet its obligations, including paymentredeem $940.0 million of the CCWH Senior Notes at 104.625% of their principal amount. In June 2021, we issued $1.05 billion aggregate principal amount of CCOH 7.5% Senior Notes and used the net proceeds to redeem the remaining outstanding receivables based credit facility balance$961.5 million of CCWH Senior Notes, also at maturity on December 24, 2017,104.625% of their principal amount.
In June 2021, a non-guarantor European subsidiary borrowed €30.0 million through a state-guaranteed loan program established in response to COVID-19. In April 2022, as they become due inpermitted under the ordinary courseterms of business for a period of at least 12 months following February 23, 2017. While iHeartCommunications stated that it believes that the refinancing or the extension ofloan agreement, we elected to extend the maturity date of this loan to June 29, 2027, with quarterly principal repayments of €1.875 million due beginning in September 2023. The annual interest rate on this loan for periods after June 2022 is 0.7% (with no interest due prior thereto), and the receivables based credit facility, combined with current funds and expected future cash flows, will be sufficient to enable it to meet its obligations as they become due in the ordinary course of business for a period of at least 12 months following February 23, 2017, there is no assurance that the receivables based credit facility will be extended in a timely manner or on acceptable terms, or at all.
iHeartCommunications provides the day-to-day cash management services for our cash activities and balances in the U.S. We do not have any material committed external sources of capital other than iHeartCommunications, and iHeartCommunications is not required to provide us with funds to finance our working capital or other cash requirements. We have no access to the cash transferred from us to iHeartCommunications under the cash management arrangement other than our right to demand payment by iHeartCommunicationsannual cost of the amounts owedstate guarantee is 1.0% of the outstanding loan amount through June 29, 2024 and 2.0% of the outstanding loan amount for the remainder of the loan term.
We did not enter into any significant debt transactions during 2022.
Debt Covenants
Our debt agreements contain certain debt covenants, as described in Note 6 to us under the Due from iHeartCommunications note.our Consolidated Financial Statements located in Item 8 of this Annual Report on Form 10-K. As of December 31, 2016, iHeartCommunications had $845.0 million recorded as “Cash and cash equivalents” on its consolidated balance sheets, of which $542.0 million was held by us and our subsidiaries, and2022, we had $885.7 million due to us from iHeartCommunications under the Due from iHeartCommunications note. Further deterioration in the financial condition or liquidity of iHeartCommunications could result in its inability to repay amounts due to us under the Due from iHeartCommunications note when demanded or at maturity, and could also have the effect of increasing our borrowing costs or impairing our access to capital markets. If iHeartCommunications were to become insolvent or file for bankruptcy, we would be an unsecured creditor of iHeartCommunications. In that event, we would be treated the same as other unsecured creditors of iHeartCommunications and, if we were not repaid or otherwise entitled to amounts outstanding or previously paid under the revolving promissory note, or could not obtain cash previously transferred to iHeartCommunications on a timely basis or retain cash previously received from iHeartCommunications, we could experience a liquidity shortfall. We were in compliance with all of the covenants contained in our material financing agreements as of December 31, 2016. Our ability to comply with the maintenance covenant indebt agreements. Further information regarding our senior secured credit facility may be affected by events beyond our control, including prevailing economic, financial and industry conditions.
In its Annual Report on Form 10-K filed with the SEC on February 23, 2017, iHeartCommunications stated that it was in compliance with the covenants contained in its material financing agreements as of December 31, 2016, other thanspringing financial covenant required by the Senior Secured Credit Agreement is provided below.
Senior Secured Credit Agreement Financial Covenant
The Senior Secured Credit Agreement contains a payment default on notes held by a subsidiary of iHeartCommunications that has informed iHeartCommunications it does not intend to collect the principal amount due or exercise or request enforcement of any remedy with respectspringing financial covenant, applicable solely to the payment default underRevolving Credit Facility if the applicable indenture. iHeartCommunications statedbalance of the Revolving Credit Facility is greater than $0 and undrawn letters of credit exceed $10 million, that this payment default is below the $100.0 million cross-default threshold in iHeartCommunications' debt documents. iHeartCommunications similarly stated in its Annual Report that its future results are subject to significant uncertainty and there can be no assurance it will be able to maintainrequires compliance with these covenants. iHeartCommunications stated in its Annual Report that these covenants include a requirement in its senior secured credit facilities that it receive an opinion from its auditors in connection with its year-end audit that is not subjectfirst lien net leverage ratio of 7.10 to a "going concern" or like qualification or exception. Moreover, iHeartCommunications stated in its Annual Report that its ability to comply with the covenants in its material financing agreements may be affected by events beyond its control, including the uncertainties described under "Management's Discussion and Analysis of Financial Condition and Results of Operations-Liquidity and Capital Resources-Anticipated Cash Requirements" in its Annual Report and prevailing economic, financial and industry conditions. As discussed therein, the breach of any covenants set forth in iHeartCommunications’ financing agreements would result in a default thereunder, and an event of default would permit the lenders under a defaulted financing agreement to declare all indebtedness thereunder to be immediately due and payable. In addition, iHeartCommunications stated in its Annual Report that if iHeartCommunications is unable to repay its obligations under any secured credit facility, the lenders could proceed against any assets that were pledged to secure such facility. Finally, iHeartCommunications stated in its Annual Report that a default or acceleration under any of its material financing agreements could cause a default under other obligations that are subject to cross-default and cross-acceleration provisions.
We frequently evaluate strategic opportunities both within and outside our existing lines of business. We expect from time to time to dispose of certain businesses and may pursue acquisitions. These dispositions or acquisitions could be material.
Sources of Capital
As of December 31, 2016 and 2015, we had the following debt outstanding, cash and cash equivalents and amounts due from iHeartCommunications:
|
| | | | | | | |
| | December 31, |
| (In millions) | 2016 | | 2015 |
| Clear Channel Worldwide Holdings Senior Notes due 2022 | $ | 2,725.0 |
| | $ | 2,725.0 |
|
| Clear Channel Worldwide Holdings Senior Subordinated Notes due 2020 | 2,200.0 |
| | 2,200.0 |
|
| Senior Revolving Credit Facility due 2018 | — |
| | — |
|
| Clear Channel International B.V. Senior Notes due 2020 | 225.0 |
| | 225.0 |
|
| Other debt | 14.8 |
| | 19.0 |
|
| Original issue discount | (6.7 | ) | | (7.8 | ) |
| Long-term debt fees | (41.1 | ) | | (50.4 | ) |
| Total debt | 5,117.0 |
| | 5,110.8 |
|
| Less: Cash and cash equivalents | 542.0 |
| | 412.7 |
|
| Less: Due from iHeartCommunications | 885.7 |
| | 930.8 |
|
| | $ | 3,689.3 |
| | $ | 3,767.3 |
|
We may from time to time repay our outstanding debt or seek to purchase our outstanding equity securities. Such transactions, if any, will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors.
Promissory Notes with iHeartCommunications
We maintain accounts that represent net amounts due to or from iHeartCommunications, which are recorded as “Due from/to iHeartCommunications” on our consolidated balance sheets. The accounts represent our revolving promissory note issued by us to iHeartCommunications and the Due from iHeartCommunications note, in each case in the face amount of $1.0 billion, or if more or less than such amount, the aggregate unpaid principal amount of all advances. The accounts accrue interest pursuant to the terms of the promissory notes and are generally payable on demand or when they mature on December 15, 2017. Included in the accounts are the net activities resulting from day-to-day cash management services provided by iHeartCommunications. Such day-to-day cash management services relate only to our cash activities and balances in the U.S. and exclude any cash activities and balances of our non-U.S. subsidiaries. As of December 31, 2016 and December 31, 2015, the asset recorded in “Due from
iHeartCommunications” on our consolidated balance sheet was $885.7 million and $930.8 million, respectively. As of December 31, 2016, we had no borrowings under the cash management note to iHeartCommunications.
In accordance with the terms of the settlement for the derivative litigation filed by our stockholders regarding the Due from iHeartCommunications note, as previously disclosed, we established a committee of our board of directors, consisting of our independent and disinterested directors, for the specific purpose of monitoring the Due from iHeartCommunications note. This committee has the non-exclusive authority to demand payments under the Due from iHeartCommunications note under certain specified circumstances tied to iHeartCommunications’ liquidity or the amount outstanding under the Due from iHeartCommunications note, as long as our board of directors declares a simultaneous dividend equal to the amount so demanded. The committee last made a demand under the Due from iHeartCommunications note on August 11, 2014. If future demands are made in accordance with the terms of the committee charter, we will declare a simultaneous dividend equal to the amount so demanded, which would further reduce the amount of the “Due from iHeartCommunications” asset that is available to us as a source of liquidity for ongoing working capital, capital expenditure, debt service and other funding requirements.
The net interest income for the years ended December 31, 2016, 2015 and 2014 was $50.3 million, $61.4 million and $60.2 million, respectively. At December 31, 2016, the fixed interest rate on the “Due from iHeartCommunications” account was 6.5%,1.00. Our first lien leverage ratio, which is equal to the fixed interest rate on the CCWH senior notes. On October 23, 2013, in accordance with the terms of the settlement, the interest rate on the Due from iHeartCommunications note was amended such that if the outstanding balance on the Due from iHeartCommunications note exceeds $1.0 billion and under certain other circumstances tied to iHeartCommunications’ liquidity, the rate will be variable but will in no event be less than 6.5% nor greater than 20%.
Our working capital requirements and capital for general corporate purposes, including acquisitions and capital expenditures, may be provided to uscalculated by iHeartCommunications, in its sole discretion, pursuant to a revolving promissory note issued by us to iHeartCommunications or pursuant to repayment of the Due from iHeartCommunications note. If we are unable to obtain financing from iHeartCommunications, we may need to obtain additional financing from banks or other lenders, or through public offerings or private placements ofdividing first lien debt or equity, strategic relationships or other arrangements at some future date. As stated above, we may be unable to successfully obtain additional debt or equity financing on satisfactory terms or at all.
As long as iHeartCommunications maintains a significant interest in us, pursuant to the Master Agreement between iHeartCommunications and us, iHeartCommunications will have the option to limit our ability to incur debt or issue equity securities, among other limitations, which could adversely affect our ability to meet our liquidity needs. Under the Master Agreement with iHeartCommunications, we are limited in our borrowings from third parties to no more than $400.0 million at any one time outstanding, without the prior written consent of iHeartCommunications.
CCWH Senior Notes
As of December 31, 2016, CCWH senior notes represented $2.7 billion aggregate principal amount of indebtedness outstanding, which consisted of $735.8 million aggregate principal amount of Series A Senior Notes due 2022 (the “Series A CCWH Senior Notes”) and $1,989.2 million aggregate principal amount of Series B CCWH Senior Notes due 2022 (the “Series B CCWH Senior Notes”). The CCWH Senior Notes are guaranteed by us, Clear Channel Outdoor, Inc. (“CCOI”) and certain of our direct and indirect subsidiaries.
The CCWH Senior Notes are senior obligations that rank pari passu in right of payment to all unsubordinated indebtedness of CCWH and the guarantees of the CCWH Senior Notes rank pari passu in right of payment to all unsubordinated indebtedness of the guarantors. Interest on the CCWH Senior Notes is payable to the trustee weekly in arrears and to the noteholders on May 15 and November 15 of each year.
At any time prior to November 15, 2017, CCWH may redeem the CCWH Senior Notes, in whole or in part, at a price equal to 100% of the principal amount of the CCWH Senior Notes plus a “make-whole” premium, together with accrued and unpaid interest, if any, to the redemption date. CCWH may redeem the CCWH Senior Notes, in whole or in part, on or after November 15, 2017, at the redemption prices set forth in the applicable indenture governing the CCWH Senior Notes plus accrued and unpaid interest to the redemption date. Notwithstanding the foregoing, neither CCOH nor any of its subsidiaries is permitted to make any purchase of, or otherwise effectively cancel or retire any Series A CCWH Senior Notes or Series B CCWH Senior Notes if, after giving effect thereto and, if applicable, any concurrent purchase of or other addition with respect to any Series B CCWH Senior Notes or Series A CCWH Senior Notes, as applicable, the ratio of (a) the outstanding aggregate principal amount of the Series A CCWH Senior Notes to (b) the outstanding aggregate principal amount of the Series B CCWH Senior Notes shall be greater than 0.25, subject to certain exceptions.
The indenture governing the Series A CCWH Senior Notes contains covenants that limit us and our restricted subsidiaries ability to, among other things:
incur or guarantee additional debt to persons other than iHeartCommunications and its subsidiaries (other than us) or issue certain preferred stock;
create liens on its restricted subsidiaries’ assets to secure such debt;
create restrictions on the payment of dividends or other amounts to us from our restricted subsidiaries that are not guarantors of the CCWH Senior Notes;
enter into certain transactions with affiliates; and
merge or consolidate with another person, or sell or otherwise dispose of all or substantially all of its assets.
In addition, the indenture governing the Series A CCWH Senior Notes provides that if CCWH (i) makes an optional redemption of the Series B CCWH Senior Notes or purchases or makes an offer to purchase the Series B CCWH Senior Notes at or above 100% of the principal amount thereof, then CCWH shall apply a pro rata amount to make an optional redemption or purchase a pro rata amount of the Series A CCWH Senior Notes or (ii) makes an asset sale offer under the indenture governing the Series B CCWH Senior Notes, then CCWH shall apply a pro rata amount to make an offer to purchase a pro rata amount of Series A CCWH Senior Notes.
The indenture governing the Series A CCWH Senior Notes does not include limitations on dividends, distributions, investments or asset sales.
The indenture governing the Series B CCWH Senior Notes contains covenants that limit us and our restricted subsidiaries ability to, among other things:
incur or guarantee additional debt or issue certain preferred stock;
redeem, repurchase or retire our subordinated debt;
make certain investments;
create liens on its or its restricted subsidiaries’ assets to secure debt;
create restrictions on the payment of dividends or other amounts to it from its restricted subsidiaries that are not guarantors of the CCWH Senior Notes;
enter into certain transactions with affiliates;
merge or consolidate with another person, or sell or otherwise dispose of all or substantially all of its assets;
sell certain assets, including capital stock of its subsidiaries;
designate its subsidiaries as unrestricted subsidiaries; and
pay dividends, redeem or repurchase capital stock or make other restricted payments.
The Series A CCWH Senior Notes indenture and Series B CCWH Senior Notes indenture restrict our ability to incur additional indebtedness but permit us to incur additional indebtedness based on an incurrence test. In order to incur (i) additional indebtedness under this test, our debt to adjusted EBITDA ratios (as defined by the indentures) must be lower than 7.0:1 and 5.0:1 for total debt and senior debt, respectively, and (ii) additional indebtedness that is subordinated to the CCWH Senior Notes under this test, our debt to adjusted EBITDA ratios (as defined by the indentures) must be lower than 7.0:1 for total debt. The indentures contain certain other exceptions that allow us to incur additional indebtedness. The Series B CCWH Senior Notes indenture also permits us to pay dividends from the proceeds of indebtedness or the proceeds from asset sales if our debt to adjusted EBITDA ratios (as defined by the indentures) are lower than 7.0:1 and 5.0:1 for total debt and senior debt, respectively. The Series A CCWH Senior Notes indenture does not limit our ability to pay dividends. Because our consolidated leverage ratio exceeded the limit in the incurrence tests described above, we are not currently permitted to incur additional indebtedness using the incurrence test in the Series A CCWH Senior Notes indenture and the Series B CCWH Senior Notes indenture, and we are not currently permitted to pay dividends from the proceeds of indebtedness or the excess proceeds from asset sales under the Series B CCWH Senior Notes indenture. There are other exceptions in these indentures that allow us to incur additional indebtedness and pay dividends. The exceptions in the Series B CCWH Senior Notes indenture that allow us to pay dividends include (i) $525.0 million of dividends made pursuant to general restricted payment baskets and (ii) dividends made using proceeds received upon a demand by us of amounts outstanding under the revolving promissory note issued by iHeartCommunications to us.
Consolidated leverage ratio, defined as total debt divided by EBITDA (as defined by the CCWH Senior Notes indentures)Secured Credit Agreement) for the preceding four quarters, was 7.8:15.18 to 1.00 as of December 31, 2022. First lien debt and EBITDA are presented herein because they are material components of the calculation of the first lien leverage ratio.
First Lien Debt
The following table presents a calculation of our first lien debt as of December 31, 2022:
| | | | | |
| (In millions) | December 31,
2022 |
| Term Loan Facility | $ | 1,935.0 | |
| Revolving Credit Facility | — | |
| Receivables-Based Credit Facility | — | |
| Clear Channel Outdoor Holdings 5.125% Senior Secured Notes Due 2027 | 1,250.0 | |
| Other debt | 4.7 | |
Less: Cash and cash equivalents(1) | (287.4) | |
First lien debt(2) | $ | 2,902.3 | |
(1)Includes cash and cash equivalents of our business in Switzerland, which is held for sale on the Consolidated Balance Sheet at December 31, 2016, and senior leverage ratio, defined as senior debt divided by EBITDA (as defined by2022. Please refer to Note 16 in Item 8 of this Annual Report on Form 10-K for additional details. (2)Due to rounding, the CCWH Senior Notes indentures) fortotal may not equal the preceding four quarters was 4.2:1 at December 31, 2016. sum of the line items in the table above.
EBITDA
As required by the definition of EBITDA“EBITDA” in the CCWH Senior Notes indentures,Secured Credit Agreement, our EBITDA for the preceding four quarters of $661.2$559.9 million is calculated as operating income (loss) before depreciation and amortization, impairment charges and other operating income (expense), net, plus share-based compensation, and is further adjusted for the following: (i) costs incurredcharges, expenses or reserves in connection withrespect of any restructuring, relocation, redundancy or severance the closure and/expense or consolidation of facilities, retentionone-time compensation charges consulting fees and other permitted activities; (ii) extraordinary, non-recurring or unusual gains or losses or expenses; (iii) non-cash charges; and (iv) various other items.
The following table reflects a reconciliation ofreconciles EBITDA (as defined by the CCWH Senior Notes indentures) to operating income and net cash provided by operating activities for the four quarters ended December 31, 2016:2022:
| | | | | |
| Four Quarters Ended |
| (In millions) | December 31,
2022 |
EBITDA (as defined by the Senior Secured Credit Agreement) | $ | 559.9 | |
| Depreciation and amortization, impairment charges and share-based compensation | (314.5) | |
| Charges, expenses or reserves in respect of any restructuring, relocation, redundancy or severance expense or one-time compensation charges | (9.1) | |
| Other items | (4.8) | |
Operating income(1) | 231.5 | |
| Interest expense, net; other expense, net and income tax benefit | (325.9) | |
| Adjustments to reconcile consolidated net loss to net cash provided by operating activities: | |
Reconciling items for non-cash and non-operating activity(2) | 610.2 | |
| Changes in operating assets and liabilities | (375.8) | |
Net cash provided by operating activities(1) | $ | 140.0 | |
(1)Due to rounding, the total may not equal the sum of the line items in the table above.
(2)Includes depreciation, amortization and impairment charges; non-cash operating lease expense; deferred taxes; share-based compensation; amortization of deferred financing charges and note discounts; credit loss expense; gain on disposal of operating and other assets, net; foreign exchange transaction loss and other reconciling items.
CRITICAL ACCOUNTING ESTIMATES
|
| | | |
| | Four Quarters Ended |
| (In millions) | December 31, 2016 |
EBITDA (as defined by the CCWH Senior Notes indentures) | $ | 661.2 |
|
| Less adjustments to EBITDA (as defined by the CCWH Senior Notes indentures): | |
| Costs incurred in connection with severance, the closure and/or consolidation of facilities, retention charges, consulting fees and other permitted activities | (15.3 | ) |
| Extraordinary, non-recurring or unusual gains or losses or expenses (as referenced in the definition of EBITDA in the CCWH Senior Notes indentures) | (9.8 | ) |
| Non-cash charges | (10.5 | ) |
| Other items | 18.4 |
|
| Less: Depreciation and amortization, Impairment charges, Other operating income, net and Share-based compensation expense | (6.5 | ) |
| Operating income | 637.5 |
|
| Plus: Depreciation and amortization, Impairment charges, Gain (loss) on disposal of operating and fixed assets and Share-based compensation expense | (1.8 | ) |
| Less: Interest expense | (374.9 | ) |
| Plus: Interest income on Due from iHeartCommunications | 50.3 |
|
| Less: Current income tax expense | (45.3 | ) |
| Plus: Other income, net | (70.7 | ) |
| 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) | 90.7 |
|
| Change in assets and liabilities, net of assets acquired and liabilities assumed | 24.5 |
|
| Net cash provided by operating activities | $ | 310.3 |
|
CCWH Senior Subordinated Notes
AsThe preparation of December 31, 2016, CCWH Subordinated Notes represented $2.2 billionour financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates, judgments and assumptions that affect the reported amounts of aggregate principalassets and liabilities, and disclosure of contingent assets and liabilities, at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. On an ongoing basis, we evaluate our estimates that are based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. The results of these evaluations form the basis for making judgments about the carrying values of assets and liabilities and the reported amount of indebtedness outstanding, which consist of $275.0 million aggregate principal amount of 7.625% Series A Senior Subordinated Notes due 2020 (the “Series A CCWH Subordinated Notes”)revenue and $1,925.0 million aggregate principal amount of 7.625% Series B Senior Subordinated Notes due 2020 (the “Series B CCWH Subordinated Notes”). Interest on the CCWH Subordinated Notes is payable to the trustee weekly in arrears and to the noteholders on March 15 and September 15 of each year.
The CCWH Subordinated Notes are CCWH’s senior subordinated obligations and are fully and unconditionally guaranteed, jointly and severally, on a senior subordinated basis by us, CCOI and certain of our other domestic subsidiaries. The CCWH Subordinated Notes are unsecured senior subordinated obligations that rank junior to all of CCWH’s existing and future senior debt, including the CCWH Senior Notes, equally with any of CCWH’s existing and future senior subordinated debt and ahead of all of CCWH’s existing and future debt that expressly provides that it is subordinated to the CCWH Subordinated Notes. The guarantees of the CCWH Subordinated Notes rank junior to each guarantor’s existing and future senior debt, including the CCWH Senior Notes, equally with each guarantor’s existing and future senior subordinated debt and ahead of each guarantor’s existing and future debt that expressly provides that it is subordinated to the guarantees of the CCWH Subordinated Notes.
CCWH may redeem the CCWH Subordinated Notes, in whole or in part, at the redemption prices set forth in the applicable indenture governing the CCWH Subordinated Notes plus accrued and unpaid interest to the redemption date. Neither us nor any of our subsidiaries is permitted to make any purchase of, or otherwise effectively cancel or retire any Series A CCWH Subordinated Notes or Series B CCWH Subordinated Notes if, after giving effect thereto and, if applicable, any concurrent purchase of or other addition with respect to any Series B CCWH Subordinated Notes or Series A CCWH Subordinated Notes, as applicable, the ratio of (a) the outstanding aggregate principal amount of the Series A CCWH Subordinated Notes to (b) the outstanding aggregate principal amount of the Series B CCWH Subordinated Notes shall be greater than 0.25, subject to certain exceptions.
The indenture governing the Series A CCWH Subordinated Notes contains covenants that limit us and our restricted subsidiaries ability to, among other things:
incur or guarantee additional debt to persons other than iHeartCommunications and its subsidiaries (other than us) or issue certain preferred stock;
create restrictions on the payment of dividends or other amounts to us from our restricted subsidiariesexpenses that are not guarantors of the notes;
enter into certain transactionsreadily apparent from other sources. Because future events and their effects cannot be determined with affiliates; and
merge or consolidate with another person, or sell or otherwise dispose of all or substantially all of CCOH’s assets.
In addition, the indenture governing the Series A CCWH Subordinated Notes provides that if CCWH (i) makes an optional redemption of the Series B CCWH Subordinated Notes or purchases or makes an offer to purchase the Series B CCWH Subordinated Notes at or above 100% of the principal amount thereof, then CCWH shall apply a pro rata amount to make an optional redemption or purchase a pro rata amount of the Series A CCWH Subordinated Notes or (ii) makes an asset sale offer under the indenture governing the Series B CCWH Subordinated Notes, then CCWH shall apply a pro rata amount to make an offer to purchase a pro rata amount of Series A CCWH Subordinated Notes.
The indenture governing the Series A CCWH Subordinated Notes does not include limitations on dividends, distributions, investments or asset sales.
The indenture governing the Series B CCWH Subordinated Notes contains covenants that limit us and our restricted subsidiaries ability to, among other things:
incur or guarantee additional debt or issue certain preferred stock;
make certain investments;
create restrictions on the payment of dividends or other amounts to uscertainty, actual results could differ from our restricted subsidiaries thatassumptions and estimates, and such difference could be material.
Our significant accounting policies are not guarantors of the notes;
enter into certain transactions with affiliates;
merge or consolidate with another person, or sell or otherwise dispose of all or substantially all of our assets;
sell certain assets, including capital stock of our subsidiaries;
designate our subsidiaries as unrestricted subsidiaries; and
pay dividends, redeem or repurchase capital stock or make other restricted payments.
The Series A CCWH Subordinated Notes indenture and Series B CCWH Subordinated Notes indenture restrict CCOH’s ability to incur additional indebtedness but permit us to incur additional indebtedness based on an incurrence test. In order to incur additional indebtedness under this test, our debt to adjusted EBITDA ratios (as defined by the indentures) must be lower than 7.0:1. The indentures contain certain other exceptions that allow us to incur additional indebtedness. The Series B CCWH Subordinated Notes indenture also permits us to pay dividends from the proceeds of indebtedness or the proceeds from asset sales if its debt to adjusted EBITDA ratios (as defined by the indentures) is lower than 7.0:1. The Series A CCWH Senior Subordinated Notes indenture does not limit our ability to pay dividends. Because our consolidated leverage ratio exceeded the limitdiscussed in the incurrence tests described above, we are not currently permitted to incur additional indebtedness using the incurrence test in the Series A CCWH Subordinated Notes indenture and the Series B CCWH Subordinated Notes indenture, and we are not currently permitted to pay dividends from the proceeds of indebtedness or the excess proceeds from asset sales under the Series B CCWH Subordinated Notes indenture. There are other exceptions in these indentures that allow us to incur additional indebtedness and pay dividends. The exceptions in the Series B CCWH Subordinated Notes indenture that allow us to pay dividends include (i) $525.0 million of dividends made pursuant to general restricted payment baskets and (ii) dividends made using proceeds received upon a demand by us of amounts outstanding under the revolving promissory note issued by iHeartCommunications to us.
CCIBV Senior Notes
As of December 31, 2016, Clear Channel International B.V., an international subsidiary of ours, had $225.0 million aggregate principal amount outstanding of its 8.75% Senior Notes due 2020 (“CCIBV Senior Notes”).
The CCIBV Senior Notes mature on December 15, 2020 and bear interest at a rate of 8.75% per annum, payable semi-annually in arrears on June 15 and December 15 of each year. The CCIBV Senior Notes are guaranteed by certain of our International outdoor business’s existing and future subsidiaries. The Company does not guarantee or otherwise assume any liability for the CCIBV Senior Notes. The notes are senior unsecured obligations that rank pari passu in right of payment to all unsubordinated indebtedness of Clear Channel International B.V., and the guarantees of the notes are senior unsecured obligations that rank pari passu in right of payment to all unsubordinated indebtedness of the guarantors of the notes.
Clear Channel International B.V. may redeem the notes at its option, in whole or part, at any time prior to December 15, 2017, at a price equal to 100% of the principal amount of the notes redeemed, plus a make-whole premium, plus accrued and unpaid interest to the redemption date. Clear Channel International B.V. may redeem the notes, in whole or in part, on or after
December 15, 2017, at the redemption prices set forth in the indenture plus accrued and unpaid interest to the redemption date. At any time on or before December 15, 2017, Clear Channel International B.V. may elect to redeem up to 40% of the aggregate principal amount of the notes at a redemption price equal to 108.75% of the principal amount thereof, plus accrued and unpaid interest to the redemption date, with the net proceeds of one or more equity offerings.
The indenture governing the CCIBV Senior Notes contains covenants that limit Clear Channel International B.V.’s ability and the ability of its restricted subsidiaries to, among other things: (i) pay dividends, redeem stock or make other distributions or investments; (ii) incur additional debt or issue certain preferred stock; (iii) transfer or sell assets; (iv) create liens on assets; (v) engage in certain transactions with affiliates; (vi) create restrictions on dividends or other payments by the restricted subsidiaries; and (vii) merge, consolidate or sell substantially all of Clear Channel International B.V.’s assets.
Senior Revolving Credit Facility Due 2018
During the third quarter of 2013, we entered into a five-year senior secured revolving credit facility with an aggregate principal amount of $75.0 million. The revolving credit facility may be used for working capital needs, to issue letters of credit and for other general corporate purposes. As of December 31, 2016, there were no amounts outstanding under the revolving credit facility, and $65.4 million of letters of credit under the revolving credit facility which reduce availability under the facility. The revolving credit facility contains a springing covenant that requires us to maintain a secured leverage ratio (as defined in the revolving credit facility) of not more than 1.5:1 that is tested at the end of a quarter if availability under the facility is less than 75% of the aggregate commitments under the facility. We were in compliance with the secured leverage ratio covenant as of December 31, 2016.
Other Debt
Other debt consists primarily of loans with international banks. As of December 31, 2016, approximately $14.8 million was outstanding as other debt.
iHeartCommunications’ Debt Covenants
The iHeartCommunications’ senior secured credit facility contains a significant financial covenant which requires iHeartCommunications to comply on a quarterly basis with a financial covenant limiting the ratio of its consolidated secured debt, net of cash and cash equivalents, to consolidated EBITDA for the preceding four quarters (maximum of 8.75:1). In its Annual Report on Form 10-K filed with the SEC on February 23, 2017, iHeartCommunications stated that it was in compliance with this covenant as of December 31, 2016.
Dispositions and Other
In the first quarter of 2016, Americas outdoor sold nine non-strategic outdoor markets including Cleveland and Columbus, Ohio, Des Moines, Iowa, Ft. Smith, Arkansas, Memphis, Tennessee, Portland, Oregon, Reno, Nevada, Seattle, Washington and Wichita, Kansas for net proceeds of $592.3 million in cash and certain advertising assets in Florida. We recognized a net gain of $278.3 million related to the sale, which is included within Other operating income (expense), net.
In the second quarter of 2016, International outdoor sold its business in Turkey. As a result, we recognized a net loss of $56.6 million, which includes $32.2 million in cumulative translation adjustments that were recognized upon sale of the subsidiaries in Turkey.
In the fourth quarter 2016, International outdoor sold its business in Australia for cash proceeds of $195.7 million. As a result, we recognized a net gain of $127.6 million, which is net of $14.6 million in cumulative translation adjustments that were recognized upon the sale of our business in Australia.
During 2014, we sold our 50% interest in Buspak, recognizing a gain on the sale of $4.5 million.
Uses of Capital
Capital Expenditures
Our capital expenditures for the years ended December 31, 2016, 2015 and 2014 were as follows:
|
| | | | | | | | | | | |
| (In millions) | Years Ended December 31, |
| | 2016 | | 2015 | | 2014 |
| Americas advertising | $ | 81.4 |
| | $ | 82.2 |
| | $ | 109.7 |
|
| International advertising | 143.8 |
| | 132.6 |
| | 117.5 |
|
| Corporate | 4.6 |
| | 3.5 |
| | 4.0 |
|
| Total capital expenditures | $ | 229.8 |
| | $ | 218.3 |
| | $ | 231.2 |
|
Our capital expenditures are not of significant size individually and primarily relate to the ongoing deployment of digital displays and improvements to traditional displays in our Americas segment as well as new billboard and street furniture contracts and renewals of existing contracts in our International segment.
See the Contractual Obligations table under “Commitments and Contingencies” and Note 5 to our Consolidated Financial Statements
locatedincluded in
Item 8 of Part II of this Annual Report on Form 10-K10-K. Management believes that the following accounting estimates are the most critical to aid in fully understanding and evaluating our reported financial results, and they require management’s most difficult, subjective or complex judgments, resulting from the need to make estimates about the effect of matters that are inherently uncertain. The following narrative describes these critical accounting estimates, management's judgments and assumptions, and the effect if actual results differed from these assumptions.Long-lived Assets
We estimate the useful lives for our long-lived assets, including structures, other property, plant and equipment and finite-lived intangibles, based on our historical experience and our plans regarding how we intend to use those assets. Advertising structures have different lives depending on their nature, with large format bulletins generally having longer depreciable lives and posters and other displays having shorter depreciable lives. Transit, street furniture and other contractual rights are depreciated over their estimated useful lives or appropriate contractual periods, whichever is shorter.
During the fourth quarter of 2022, we concluded that due to changes in facts and circumstances, our billboard permits, which were previously classified as indefinite-lived, should start being amortized over an estimate of their remaining useful life. Specifically, as we plan to accelerate the digitization of our network of billboard assets as a key component of our business strategy, the estimated useful lives of the original permits applicable to the static assets are no longer indefinite. As such, beginning in the fourth quarter of 2022, we began to amortize our permits on a straight-line basis over their estimated useful lives.
Our experience indicates that the estimated useful lives applied to our portfolio of assets have been reasonable, and we do not expect significant changes to the estimated useful lives of our long-lived assets in the future. When we determine that a long-lived asset will be disposed of prior to the end of its useful life, we estimate the revised useful life and depreciate the remaining net book value of the asset over the revised period.
We review long-lived assets for impairment when events and circumstances indicate that depreciable and amortizable long-lived assets might be impaired and the undiscounted cash flows estimated to be generated by those assets are less than their carrying amounts. When specific assets are determined to be unrecoverable, we reduce the cost basis of the asset to reflect the current fair market value. We did not recognize any impairments on our long-lived assets in 2022, 2021 or 2020.
We use various assumptions in determining the remaining useful lives of assets to be disposed of prior to the end of their useful lives and in determining the current fair market value of long-lived assets that are determined to be unrecoverable. Estimated useful lives and fair values are sensitive to factors including contractual commitments, regulatory requirements, future expected cash flows, industry growth rates, discount rates and future salvage values. Our impairment loss calculations require management to apply judgment in estimating future cash flows, including forecasting useful lives of the assets and selecting the discount rate that reflects the risk inherent in future cash flows. If actual results are not consistent with our assumptions and judgments used in estimating future cash flows and asset fair values, we may be exposed to future impairment losses that could be material to our results of operations.
Annual Impairment Tests
We perform impairment tests on indefinite-lived intangible assets and goodwill at least annually, as of July 1 of each year, and more frequently as events or changes in circumstances warrant. During the second quarter of 2022, we performed an impairment test on certain of our then-indefinite-lived billboard permits due to rising interest rates and inflation, resulting in an impairment charge of $21.8 million. Additionally, we performed our annual impairment tests on indefinite-lived intangible assets and goodwill as of July 1, 2022, which resulted in an impairment charge of $0.9 million on our permanent easements.
As previously described, we revised our segments as of December 31, 2022 to reflect changes in the way the business is managed and resources are allocated by our CEO. We tested goodwill for impairment immediately before and after the change and recorded an impairment charge of $16.9 million on the goodwill allocated to our Europe-South reporting unit as its fair value based on the projected cash flows was lower than its carrying value.
Management’s judgements and assumptions used in our impairment tests are detailed below. The assumptions used to perform our impairment tests are not indicative of future results. While we believe we have made reasonable estimates and utilized appropriate assumptions to calculate the fair value of our indefinite-lived intangible assets and reporting units, it is possible that a material change could occur. If future results are not consistent with our assumptions and estimates, or if the current macroeconomic situation worsens, we may be exposed to additional impairment charges in the future.
Indefinite-lived Intangible Assets
We review our indefinite-lived intangible assets for possible impairment using the direct valuation method as prescribed in ASC Section 805-20-S99. Our key assumptions using the direct valuation method are market revenue growth rates, market share, profit margin, duration and profile of the build-up period, estimated start-up capital costs and losses incurred during the build-up period, the risk-adjusted discount rate and terminal values. This data is populated using industry-normalized information representing an average asset within a market, and we engage a third-party valuation firm to assist with the development of our assumptions used to determine the fair value of our indefinite-lived intangible assets.
In determining the fair value of our then-indefinite-lived billboard permits as of July 1, 2022, we used the following key assumptions:
•Industry revenue growth forecasts used for the Company's future capital expenditure commitments.initial four-year period, which varied by market, started with the trailing twelve month forecast period ending July 1, 2022, and annual revenue growth on average of 6.1% was assumed from year two to year four;
Part•Revenue growth beyond the initial four-year period was assumed to be 3.0%;
•Revenue grew over a build-up period, reaching maturity by the second year;
•The operating industry average margin was assumed to be 39%; and
•The assumed discount rate was 11.5%
In conjunction with the change in classification of our long-term strategy isbillboard permits from indefinite-lived to pursuefinite-lived in the technologyfourth quarter of digital displays, including flat screens, LCDs2022, we tested our permits for impairment as of October 1, 2022, immediately prior to the change in useful life, which did not result in any additional impairment charges. In determining the fair value of our then-indefinite-lived billboard permits as of October 1, 2022, we used the following key assumptions:
•Industry revenue growth forecasts used for the initial four-year period, which varied by market, started with the trailing twelve month forecast period ending October 1, 2022, and LEDs,annual revenue growth on average of 5.4% was assumed from year two to year four;
•Revenue growth beyond the initial four-year period was assumed to be 3.0%;
•Revenue grew over a build-up period, reaching maturity by the second year;
•The operating industry average margin was assumed to be 39%; and
•The assumed discount rate was 11.0%
The following table shows the decrease in the fair value of our billboard permits that would have resulted from decreases of 100 basis points in our discrete and terminal period revenue growth rate and profit margin assumptions and an increase of 100 basis points in our discount rate assumption as alternativesof each of the impairment testing dates:
| | | | | | | | | | | | | | | | | | | | |
| (In thousands) | | Revenue growth rate | | Profit margin | | Discount rate |
| Decrease in fair value of billboard permits: | | (100 basis point decrease) | | (100 basis point decrease) | | (100 basis point increase) |
As of July 1, 2022(1) | | $ | (375,000) | | $ | (101,500) | | $ | (383,200) |
As of October 1, 2022(2) | | (430,700) | | (113,600) | | (439,600) |
(1)The change in each assumption as of July 1, 2022 would have resulted in impairment charges of $48.4 million, $29.5 million and $48.9 million, respectively.
(2)The change in each assumption as of October 1, 2022 would have resulted in impairment charges of $14.8 million, $1.5 million and $15.3 million, respectively.
As previously described, during the fourth quarter of 2022 we concluded that due to traditional methodschanges in facts and circumstances, the estimated useful lives of displaying our clients’ advertisements. Webillboard permits are currently installing these technologiesno longer indefinite. As such, they are now subject to impairment tests for long-lived assets. In accordance with ASC Paragraph 350-30-35-17, we tested our permits for impairment immediately prior to the change in certain markets. We believeuseful life, which did not result in any additional impairment charges.
Goodwill
The discounted cash flow approach that we use for valuing goodwill as part of our impairment testing approach involves estimating future cash flows expected to be generated from operationsthe related assets, discounted to their present value using a risk-adjusted discount rate. Terminal values are also estimated and discounted to their present value. Assessing the recoverability of goodwill requires us to make estimates and assumptions about sales, operating margins, growth rates and discount rates based on our budgets, business plans, economic projections, anticipated future cash flows and marketplace data.
We performed our annual impairment test as of July 1, 2022 in accordance with ASC Section 350-30-35, which did not result in any goodwill impairment. In determining the fair value of our reporting units, we used the following assumptions:
•Expected cash flows underlying our business plans for the initial five-year period were based on detailed, multi-year forecasts performed by each of our operating segments and reflected the advertising outlook across our businesses;
•Cash flows were projected to grow at a perpetual growth rate, which we estimated at 3.0%; and
•In order to risk-adjust the cash flow projections in determining fair value, we utilized a discount rate for each of our reporting units ranging from 11.0% to 12.0%.
Based on our assessment using the assumptions described above, a hypothetical 10% reduction in the estimated fair value of each of our reporting units with goodwill would not have resulted in an impairment.
The following table shows the decrease in the fair value of each of our reporting units with goodwill that would have resulted from decreases of 100 basis points in our discrete and terminal period revenue growth rate and profit margin assumptions and an increase of 100 basis points in our discount rate assumption as of July 1, 2022:
| | | | | | | | | | | | | | | | | | | | |
| (In thousands) | | | | | | |
| Decrease in fair value of reporting unit | | Revenue growth rate (100 basis point decrease)(1) | | Profit margin (100 basis point decrease)(1) | | Discount rate (100 basis point increase)(1) |
| Americas | | $ | (610,000) | | $ | (160,000) | | $ | (510,000) |
| Europe | | (120,000) | | (110,000) | | (80,000) |
(1)Changes to our assumptions by these amounts would not have resulted in goodwill impairment as the fair value of goodwill for each reporting unit would still be greater than its carrying value.
As previously described, we revised our segments as of December 31, 2022, resulting in a change to our operating segments and certain reporting units. Corresponding with the change in our reporting units, we tested goodwill for impairment immediately before and after the change. The testing performed immediately before the change did not identify impairment; however, the testing performed immediately after the change resulted in an impairment charge of $16.9 million, representing the entire goodwill balance allocated to our Europe-South reporting unit (excluding assets held for sale).
In determining the fair value of our reporting units as of December 31, 2022, we used the following assumptions:
•Expected cash flows underlying our business plans for the initial four-year period were based on detailed, multi-year forecasts performed by each of our operating segments and reflected the advertising outlook across our businesses;
•Cash flows were projected to grow at a perpetual growth rate, which we estimated at 3.0%; and
•In order to risk-adjust the cash flow projections in determining fair value, we utilized a discount rate for each of our reporting units ranging from 11.0% to 15.0%.
Based on our assessment using the assumptions described above, a hypothetical 10% reduction in the estimated fair value of each of our reporting units with remaining goodwill would not have resulted in an impairment.
The following table shows the decrease in the fair value of each of our reporting units with remaining goodwill that would have resulted from decreases of 100 basis points in our discrete and terminal period revenue growth rate and profit margin assumptions and an increase of 100 basis points in our discount rate assumption as of December 31, 2022:
| | | | | | | | | | | | | | | | | | | | |
| (In thousands) | | | | | | |
| Decrease in fair value of reporting unit | | Revenue growth rate (100 basis point decrease)(1) | | Profit margin (100 basis point decrease)(1) | | Discount rate (100 basis point increase)(1) |
| America | | $ | (550,000) | | $ | (130,000) | | $ | (480,000) |
| Airports | | (31,000) | | (33,000) | | (29,000) |
| Europe-North | | (100,000) | | (70,000) | | (80,000) |
(1)Changes to our assumptions by these amounts would not have resulted in goodwill impairment as the fair value of goodwill for each reporting unit would still be greater than its carrying value.
Leases
The most significant estimates used by management in accounting for leases are the lease term, the incremental borrowing rate (“IBR”), and the fair market value of the leased property as each of these estimates are used to determine whether the lease is accounted for as an operating lease or a finance lease. The majority of our leases are classified as operating.
When determining the lease term for contracts in which we are the lessee, we generally exclude renewal periods at the Company’s option as we do not consider exercise of such options to be reasonably certain for most of our leases; therefore, the optional terms and payments are not generally included within our lease liability. An increase in the expected lease term would increase our lease liability and the probability that a lease may be considered a finance lease.
We use the IBR to determine the present value of lease payments at the commencement of a lease. In our U.S. business, the IBRs used are based upon the trading levels of our CCOH Senior Secured Notes and are extrapolated over a time horizon using the composite credit rating yield curve to adjust for the lease term. Internationally, the Company uses a portfolio approach using the U.S. business IBR to apply an interest rate parity theory, in which the resulting calculation determines the equivalent interest rate to borrow in the foreign locations based on the expected appreciation/depreciation of the currencies. An increase in the IBR would decrease the net present value of the minimum lease payments and, therefore, the value of the lease right-of-use asset and liability on the balance sheet, reducing the probability that a lease would be considered a finance lease.
We generally estimate the fair market value of leased property based on comparable market data as provided by third-party sources. A higher fair market value reduces the likelihood that a lease will be sufficientconsidered a finance lease.
Tax Provisions
Our estimates of income taxes and the significant items giving rise to funddeferred tax assets and liabilities reflect our assessment of actual future taxes to be paid on items reflected in the financial statements, giving consideration to both timing and probability of these expenditures because we expect enhanced margins through: (i) lower costestimates. Actual income taxes could vary from these estimates due to future changes in income tax law or results from the final review of production as the advertisementsour tax returns by federal, state or foreign tax authorities.
We use our best and most informed judgment to determine whether it is more likely than not that our deferred tax assets will be digitalrealized. Deferred tax assets are reduced by valuation allowances if we believe it is more likely than not that some portion or the entire asset will not be realized.
We also use our best and controlled by a central computer network, (ii) decreased down timemost informed judgment to determine whether it is more likely than not that we will sustain positions that we have taken on displays becausetax returns and, if so, the advertisements will be digitally changed rather than manually posted paper or vinyl on the faceamount of the display,benefit to initially recognize within our financial statements. We regularly review our uncertain tax positions and (iii) incremental revenue through more targetedadjust our unrecognized tax benefits (“UTBs”) in light of changes in facts and time specific advertisements.circumstances, such as changes in tax law, interactions with taxing authorities and developments in case law. These adjustments to our UTBs may affect our income tax expense, and settlement of uncertain tax positions may require use of our cash.
Commitments, Contingencies and GuaranteesLitigation Accruals
We are currently involved in certain legal proceedings arising in the ordinary course of business and, as required,proceedings. Based on current assumptions, we have accrued ouran 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 futureFuture results of operations for any particular period could be materially affected by changes in ourthese assumptions or the effectiveness of our strategies related to these proceedings. Please see Item 3. Legal Proceedings within Part I of this Annual Report
Pension Benefits
We estimate pension benefit obligations and costs based on Form 10-K.
Our short and long term cash requirements include minimumactuarial valuations. The annual guaranteesmeasurement date for our street furniture contractspension benefit plan is December 31. The actuarial valuations require the use of certain assumptions including discount rates, expected long-term rates of return on plan assets and operating leases. Noncancelable contracts and operating lease requirements are includedexpected rates of compensation increase. We determine the discount rate based on a range of factors, including a yield curve composed of rates of return on high-quality corporate bonds that have a comparable cash flow pattern to the expected payments to be made under our plans. The expected long-term rate of return on plan assets is based upon the weighted averages of the expected long-term rates of return for the broad categories of investments held in our direct operating expenses, which historically have been satisfiedplans, and the expected rate of compensation increase represents average long-term salary increases.
Changes in these assumptions are primarily influenced by cash flows from operations. For 2017, we are committed to $137.4 millionfactors outside our control and $335.6 million for minimum annual guarantees and operating leases, respectively. Our long-term commitments for minimum annual guarantees, operating leases and capital expenditure requirements are includedcould affect the amounts reported in our consolidated financial statements. A 0.25% change in the table below.
Certain agreements relating to acquisitions provide for purchase price adjustmentsdiscount rate and other future contingent payments based on the financial performancecompensation rate assumptions would have resulted in increases of the acquired companies generally over a one to five year period. The aggregate of these contingent payments, if performance targets are met, would not significantly impact our financial position or results of operations.
In addition to the scheduled maturities on debt issued by CCWH and CCIBV, we have future cash obligations under various types of contracts. We lease office space, certain equipment and the majority of the land occupied by our advertising structures under long-term operating leases. Some of our lease agreements contain renewal options and annual rental escalation clauses (generally tied to the consumer price index), as well as provisions for our payment of utilities and maintenance.
We have minimum franchise payments associated with non-cancelable contracts that enable us to display advertising on such media as buses, trains, bus shelters and terminals. The majority of these contracts contain rent provisions that are calculated as the greater of a percentage of the relevant advertising revenue or a specified guaranteed minimum annual payment.
The scheduled maturities of the CCWH Senior Notes, CCWH Subordinated Notes, CCIBV Senior Notes and other debt outstanding, and our future minimum rental commitments under non-cancelable lease agreements, minimum payments under other non-cancelable contracts, capital expenditure commitments and other long-term obligationsprojected benefit obligation as of December 31, 2016, are as follows:2022 of $4.3 million and $0.7 million, respectively.
|
| | | | | | | | | | | | | | | | | | | |
| (In thousands) | Payments due by Period |
| Contractual Obligations | Total | | 2017 | | 2018-2019 | | 2020-2021 | | Thereafter |
| Long-term Debt: | | | | | | | | | |
| CCWH Senior Notes | $ | 2,725,000 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 2,725,000 |
|
| CCWH Senior Subordinated Notes | 2,200,000 |
| | — |
| | — |
| | 2,200,000 |
| | — |
|
| CCIBV Senior Notes | 225,000 |
| | — |
| | — |
| | 225,000 |
| | — |
|
| Other Long-term Debt | 14,798 |
| | 6,972 |
| | 928 |
| | 644 |
| | 6,254 |
|
Interest payments on long-term debt (1) | 1,658 |
| | 368 |
| | 732 |
| | 460 |
| | 98 |
|
| Non-cancelable operating leases | 2,556,307 |
| | 335,574 |
| | 554,757 |
| | 454,936 |
| | 1,211,040 |
|
| Non-cancelable contracts | 1,745,506 |
| | 363,137 |
| | 555,692 |
| | 415,443 |
| | 411,234 |
|
| Employment contracts | — |
| | — |
| | — |
| | — |
| | — |
|
| Capital expenditures | 77,716 |
| | 49,618 |
| | 11,797 |
| | 4,059 |
| | 12,242 |
|
Unrecognized tax benefits (2) | 23,772 |
| | — |
| | — |
| | — |
| | 23,772 |
|
Other long-term obligations (3) | 235,539 |
| | (1,109 | ) | | 10,864 |
| | 19,880 |
| | 205,904 |
|
| Total | $ | 11,172,278 |
| | $ | 1,084,723 |
| | $ | 1,737,431 |
| | $ | 3,742,285 |
| | $ | 4,607,839 |
|
| |
(1) | Interest payments on long-term debt consist primarily of interest on the CCWH Senior Notes, the CCWH Senior Subordinated Notes and the CCIBV Senior Notes. |
| |
(2) | The non-current portion of the unrecognized tax benefits is included in the “Thereafter” column as we cannot reasonably estimate the timing or amounts of additional cash payments, if any, at this time. For additional information, see Note 7 included in Item 8 of Part II of this Annual Report on Form 10-K. |
| |
(3) | Other long-term obligations consist of $39.5 million related to asset retirement obligations recorded pursuant to ASC 410-20, which assumes the underlying assets will be removed at some period over the next 55 years. Also included in the table is $55.5 million related to retirement plans and $140.7 million related to other long-term obligations with a specific maturity. |
SEASONALITY
Typically, both our Americas and International segments experience their lowest financial performance in the first quarter of the calendar year, with International historically experiencing a loss from operations in that period. Our International 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.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to market risks arising from changes in market rates and prices, including movements in equity security prices, foreign currency exchange rates, interest rates and inflation.inflation, which are generally interrelated.
In early 2022, worldwide inflation began to increase. In response to heightened levels of inflation, central banks, including the U.S. Federal Reserve and the European Central Bank, raised interest rates significantly. Governments likely will continue to increase interest rates to combat inflation in 2023. Additionally, during 2022, the U.S. dollar strengthened against certain foreign currencies. The U.S. dollar could be further impacted depending on the extent of additional U.S. Federal Reserve changes to the federal funds rate, resulting in downstream impacts to global exchange rates.
During 2022, rising interest rates and inflation resulted in impairment charges in our America segment of $21.8 million on certain of our billboard permits and $0.9 million on permanent easements. Additionally, we impaired $16.9 million of goodwill allocated to our Europe-South reporting unit. Although there were no indicators of impairment as of December 31, 2022, continued increases in interest rates, continued elevated inflation or other macroeconomic issues, such as a recession, may result in additional impairment charges or have other adverse effects on our results of operations, as further described below.
Foreign Currency Exchange Rate RiskLong-lived Assets
We estimate the useful lives for our long-lived assets, including structures, other property, plant and equipment and finite-lived intangibles, based on our historical experience and our plans regarding how we intend to use those assets. Advertising structures have operations in countries throughoutdifferent lives depending on their nature, with large format bulletins generally having longer depreciable lives and posters and other displays having shorter depreciable lives. Transit, street furniture and other contractual rights are depreciated over their estimated useful lives or appropriate contractual periods, whichever is shorter.
During the world. Foreign operations are measured in their local currencies. As a result, our financial results could be affected by factors such asfourth quarter of 2022, we concluded that due to changes in foreign currency exchange rates or weak economic conditionsfacts and circumstances, our billboard permits, which were previously classified as indefinite-lived, should start being amortized over an estimate of their remaining useful life. Specifically, as we plan to accelerate the digitization of our network of billboard assets as a key component of our business strategy, the estimated useful lives of the original permits applicable to the static assets are no longer indefinite. As such, beginning in the foreign markets in whichfourth quarter of 2022, we began to amortize our permits on a straight-line basis over their estimated useful lives.
Our experience indicates that the estimated useful lives applied to our portfolio of assets have operations. We believebeen reasonable, and we mitigate a small portiondo not expect significant changes to the estimated useful lives 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 $121.1 million for year ended December 31, 2016. We estimate a 10% increaselong-lived assets in the value offuture. When we determine that a long-lived asset will be disposed of prior to the U.S. dollar relative to foreign currencies would have decreased ourend of its useful life, we estimate the revised useful life and depreciate the remaining net income for the year ended December 31, 2016 by $12.1 million. A 10% decrease in thebook value of the U.S. dollar relativeasset over the revised period.
We review long-lived assets for impairment when events and circumstances indicate that depreciable and amortizable long-lived assets might be impaired and the undiscounted cash flows estimated to foreign currencies would have increasedbe generated by those assets are less than their carrying amounts. When specific assets are determined to be unrecoverable, we reduce the cost basis of the asset to reflect the current fair market value. We did not recognize any impairments on our net income forlong-lived assets in 2022, 2021 or 2020.
We use various assumptions in determining the year ended December 31, 2016 by a corresponding amount.
This analysis doesremaining useful lives of assets to be disposed of prior to the end of their useful lives and in determining the current fair market value of long-lived assets that are determined to be unrecoverable. Estimated useful lives and fair values are sensitive to factors including contractual commitments, regulatory requirements, future expected cash flows, industry growth rates, discount rates and future salvage values. Our impairment loss calculations require management to apply judgment in estimating future cash flows, including forecasting useful lives of the assets and selecting the discount rate that reflects the risk inherent in future cash flows. If actual results are not consider the implications that such currency fluctuations could have on the overall economic activityconsistent with our assumptions and judgments used in estimating future cash flows and asset fair values, we may be exposed to future impairment losses that could exist in such an environment in the U.S. or the foreign countries or on thebe material to our results of operationsoperations.
Annual Impairment Tests
We perform impairment tests on indefinite-lived intangible assets and goodwill at least annually, as of these foreign entities.
Inflation
Inflation is a factorJuly 1 of each year, and more frequently as events or changes 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 outdoor display faces.
NEW ACCOUNTING PRONOUNCEMENTS
circumstances warrant. During the second quarter of 2014, the FASB issued ASU No. 2014-15, Presentation2022, we performed an impairment test on certain of Financial Statements - Going Concern (Subtopic 205-40): Disclosureour then-indefinite-lived billboard permits due to rising interest rates and inflation, resulting in an impairment charge of Uncertainties about$21.8 million. Additionally, we performed our annual impairment tests on indefinite-lived intangible assets and goodwill as of July 1, 2022, which resulted in an Entity's Abilityimpairment charge of $0.9 million on our permanent easements.
As previously described, we revised our segments as of December 31, 2022 to Continue as a Going Concern. This update provides U.S. GAAP guidance on management’s responsibility in evaluating whether there is substantial doubt about a company’s ability to continue as a going concern and about related footnote disclosures. For each reporting period, the Company will be required to evaluate whether there are conditions or events that raise substantial doubt about a company’s ability to continue as a going concern within one year from the date the financial statements are issued. The amendments in this update are effective for annual periods ending after December 15, 2016, and for interim periods thereafter. Early application is permitted. The adoption of this guidance did not have a material effect on the Company’s consolidated financial statements.
During the third quarter of 2015, the FASB issued ASU 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date. This update provides a one-year deferral of the effective date for ASU No. 2014-09, Revenue from Contracts with Customers. ASU No. 2014-09 provides guidance for the recognition, measurement and disclosure of revenue resulting from contracts with customers and will supersede virtually all of the current revenue recognition guidance under U.S. GAAP. The standard is effective for the first interim period within annual reporting periods beginning after December 15, 2017. The two permitted transition methods under the new standard are the full retrospective method, in which case the standard would be applied to each prior reporting period presented and the cumulative effect of applying the standard would be recognized at the earliest period shown, or the modified retrospective method, in which case the cumulative effect of applying the standard would be recognized at the date of initial application. The Company expects to utilize the full retrospective method. The Company has substantially completed its evaluation of the potential changes from adopting the new standard on its future financial reporting and disclosures which included reviews of contractual terms for all of the Company’s significant revenue streams and the development of an implementation plan. The Company continues to execute on its implementation plan, including detailed policy drafting and training of segment personnel. Based on its evaluation, the Company does not expect material changes to its 2016 or 2017 consolidated revenues, operating income or balance sheets as a result of the implementation of this standard.
During the first quarter of 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). The new leasing standard presents significant changes to the balance sheets of lessees. Lessor accounting is updated to align with certainreflect changes in the lessee modelway the business is managed and resources are allocated by our CEO. We tested goodwill for impairment immediately before and after the new revenue recognition standard which was issued inchange and recorded an impairment charge of $16.9 million on the third quarter of 2015. The standard is effective for annual periods, and for interim periods within those annual periods, beginning after December 15, 2018. The Company is currently evaluating the impact of the provisions of this new standard ongoodwill allocated to our Europe-South reporting unit as its consolidated financial statements.
During the second quarter of 2016, the FASB issued ASU No. 2016-09, Compensation - Stock Compensation (Topic 718). This update changes the accounting for certain aspects of share-based payments to employees. Income tax effects of share-based payment awards will be recognized in the income statement with the vesting or settlement of the awards and the record keeping for additional paid-in capital pools will no longer be necessary. Additionally, companies can make a policy election to either estimate forfeitures or recognize them as they occur. The standard is effective for annual periods, and for interim periods within those annual periods, beginning after December 15, 2016. The Company does not expect the provisions of this new standard to have a material impact on its consolidated financial statements.
During the second quarter of 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326). The new standard changes the impairment model for most financial assets and certain other instruments. Entities will be required to use a model that will result in the earlier recognition of allowances for losses for trade and other receivables, held-to-maturity debt securities, loans and other instruments. For available-for-sale debt securities with unrealized losses, the losses will be recognized as allowances rather than as reductions in the amortized cost of the securities. For an SEC filer, the standard is effective for annual periods, and for interim periods within those annual periods, beginning after December 15, 2019. The Company is currently evaluating the impact of the provisions of this new standard on its consolidated financial statements.
During the third quarter of 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230). The new standard addresses the classification of cash flows related to certain cash receipts and cash payments. Additionally, the standard clarifies how the predominance principle should be used when cash receipts and cash payments have aspects of more than one class of cash flows. First, an entity will apply the guidance in Topic 230 and other applicable topics. If there is no guidance for those cash receipts and cash payments, an entity will determine each separately identifiable source or use and classify the receipt or paymentfair value based on the nature of the cash flow. If a receipt or payment has aspects of more than one class ofprojected cash flows andwas lower than its carrying value.
cannot be separated,Management’s judgements and assumptions used in our impairment tests are detailed below. The assumptions used to perform our impairment tests are not indicative of future results. While we believe we have made reasonable estimates and utilized appropriate assumptions to calculate the classification will depend on the predominant source or use. The standard is effective for annual periods, and for interim periods within those annual periods, beginning after December 15, 2017. The Company is currently evaluating the impact of the provisions of this new standard on its consolidated financial statements.
CRITICAL ACCOUNTING ESTIMATES
The preparationfair value of our financial statements in conformity with U.S. GAAP requires management to make estimates, judgments and assumptions that affect the reported amounts ofindefinite-lived intangible assets and liabilities, and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of expenses during the reporting period. On an ongoing basis, we evaluate our estimatesunits, it is possible that are based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. The result of these evaluations forms the basis for making judgments about the carrying values of assets and liabilities and the reported amount of expenses thata material change could occur. If future results are not readily apparent from other sources. Because future events and their effects cannot be determinedconsistent with certainty, actual results could differ from our assumptions and estimates, and such difference couldor if the current macroeconomic situation worsens, we may be material. Our significant accounting policies are discussedexposed to additional impairment charges in the notesfuture.
Indefinite-lived Intangible Assets
We review our indefinite-lived intangible assets for possible impairment using the direct valuation method as prescribed in ASC Section 805-20-S99. Our key assumptions using the direct valuation method are market revenue growth rates, market share, profit margin, duration and profile of the build-up period, estimated start-up capital costs and losses incurred during the build-up period, the risk-adjusted discount rate and terminal values. This data is populated using industry-normalized information representing an average asset within a market, and we engage a third-party valuation firm to assist with the development of our consolidated financial statements included in Item 8assumptions used to determine the fair value of Part IIour indefinite-lived intangible assets.
In determining the fair value of this Annual Report on Form 10-K. Management believes thatour then-indefinite-lived billboard permits as of July 1, 2022, we used the following accounting estimateskey assumptions:
•Industry revenue growth forecasts used for the initial four-year period, which varied by market, started with the trailing twelve month forecast period ending July 1, 2022, and annual revenue growth on average of 6.1% was assumed from year two to year four;
•Revenue growth beyond the initial four-year period was assumed to be 3.0%;
•Revenue grew over a build-up period, reaching maturity by the second year;
•The operating industry average margin was assumed to be 39%; and
•The assumed discount rate was 11.5%
In conjunction with the change in classification of our billboard permits from indefinite-lived to finite-lived in the fourth quarter of 2022, we tested our permits for impairment as of October 1, 2022, immediately prior to the change in useful life, which did not result in any additional impairment charges. In determining the fair value of our then-indefinite-lived billboard permits as of October 1, 2022, we used the following key assumptions:
•Industry revenue growth forecasts used for the initial four-year period, which varied by market, started with the trailing twelve month forecast period ending October 1, 2022, and annual revenue growth on average of 5.4% was assumed from year two to year four;
•Revenue growth beyond the initial four-year period was assumed to be 3.0%;
•Revenue grew over a build-up period, reaching maturity by the second year;
•The operating industry average margin was assumed to be 39%; and
•The assumed discount rate was 11.0%
The following table shows the decrease in the fair value of our billboard permits that would have resulted from decreases of 100 basis points in our discrete and terminal period revenue growth rate and profit margin assumptions and an increase of 100 basis points in our discount rate assumption as of each of the impairment testing dates:
| | | | | | | | | | | | | | | | | | | | |
| (In thousands) | | Revenue growth rate | | Profit margin | | Discount rate |
| Decrease in fair value of billboard permits: | | (100 basis point decrease) | | (100 basis point decrease) | | (100 basis point increase) |
As of July 1, 2022(1) | | $ | (375,000) | | $ | (101,500) | | $ | (383,200) |
As of October 1, 2022(2) | | (430,700) | | (113,600) | | (439,600) |
(1)The change in each assumption as of July 1, 2022 would have resulted in impairment charges of $48.4 million, $29.5 million and $48.9 million, respectively.
(2)The change in each assumption as of October 1, 2022 would have resulted in impairment charges of $14.8 million, $1.5 million and $15.3 million, respectively.
As previously described, during the fourth quarter of 2022 we concluded that due to changes in facts and circumstances, the estimated useful lives of our billboard permits are no longer indefinite. As such, they are now subject to impairment tests for long-lived assets. In accordance with ASC Paragraph 350-30-35-17, we tested our permits for impairment immediately prior to the most criticalchange in useful life, which did not result in any additional impairment charges.
Goodwill
The discounted cash flow approach that we use for valuing goodwill as part of our impairment testing approach involves estimating future cash flows expected to aid in fully understanding and evaluating our reported financial results, and they require management’s most difficult, subjective or complex judgments, resultingbe generated from the needrelated assets, discounted to their present value using a risk-adjusted discount rate. Terminal values are also estimated and discounted to their present value. Assessing the recoverability of goodwill requires us to make estimates and assumptions about sales, operating margins, growth rates and discount rates based on our budgets, business plans, economic projections, anticipated future cash flows and marketplace data.
We performed our annual impairment test as of July 1, 2022 in accordance with ASC Section 350-30-35, which did not result in any goodwill impairment. In determining the effectfair value of matters that are inherently uncertain. our reporting units, we used the following assumptions:
•Expected cash flows underlying our business plans for the initial five-year period were based on detailed, multi-year forecasts performed by each of our operating segments and reflected the advertising outlook across our businesses;
•Cash flows were projected to grow at a perpetual growth rate, which we estimated at 3.0%; and
•In order to risk-adjust the cash flow projections in determining fair value, we utilized a discount rate for each of our reporting units ranging from 11.0% to 12.0%.
Based on our assessment using the assumptions described above, a hypothetical 10% reduction in the estimated fair value of each of our reporting units with goodwill would not have resulted in an impairment.
The following narrative describes these critical accounting estimates,table shows the judgmentsdecrease in the fair value of each of our reporting units with goodwill that would have resulted from decreases of 100 basis points in our discrete and terminal period revenue growth rate and profit margin assumptions and an increase of 100 basis points in our discount rate assumption as of July 1, 2022:
| | | | | | | | | | | | | | | | | | | | |
| (In thousands) | | | | | | |
| Decrease in fair value of reporting unit | | Revenue growth rate (100 basis point decrease)(1) | | Profit margin (100 basis point decrease)(1) | | Discount rate (100 basis point increase)(1) |
| Americas | | $ | (610,000) | | $ | (160,000) | | $ | (510,000) |
| Europe | | (120,000) | | (110,000) | | (80,000) |
(1)Changes to our assumptions by these amounts would not have resulted in goodwill impairment as the effect if actual results differ from these assumptions.
Allowance for Doubtful Accounts
We evaluate the collectabilityfair value of our accounts receivable based on a combination of factors. In circumstances where we are aware of a specific customer’s inability to meet its financial obligations, we record a specific reserve to reduce the amounts recorded to what we believe will be collected. For all other customers, we recognize reserves for bad debt based on historical experiencegoodwill for each businessreporting unit adjusted for relative improvements or deteriorations in the agings and changes in current economic conditions.would still be greater than its carrying value.
As previously described, we revised our agings were to improve or deterioratesegments as of December 31, 2022, resulting in a 10%change to our operating segments and certain reporting units. Corresponding with the change in our allowance,reporting units, we tested goodwill for impairment immediately before and after the change. The testing performed immediately before the change did not identify impairment; however, the testing performed immediately after the change resulted in an impairment charge of $16.9 million, representing the entire goodwill balance allocated to our Europe-South reporting unit (excluding assets held for sale).
In determining the fair value of our reporting units as of December 31, 2022, we used the following assumptions:
•Expected cash flows underlying our business plans for the initial four-year period were based on detailed, multi-year forecasts performed by each of our operating segments and reflected the advertising outlook across our businesses;
•Cash flows were projected to grow at a perpetual growth rate, which we estimated at 3.0%; and
•In order to risk-adjust the cash flow projections in determining fair value, we utilized a discount rate for each of our reporting units ranging from 11.0% to 15.0%.
Based on our assessment using the assumptions described above, a hypothetical 10% reduction in the estimated fair value of each of our reporting units with remaining goodwill would not have resulted in an impairment.
The following table shows the decrease in the fair value of each of our reporting units with remaining goodwill that would have resulted from decreases of 100 basis points in our bad debt expense for the year endeddiscrete and terminal period revenue growth rate and profit margin assumptions and an increase of 100 basis points in our discount rate assumption as of December 31, 20162022:
| | | | | | | | | | | | | | | | | | | | |
| (In thousands) | | | | | | |
| Decrease in fair value of reporting unit | | Revenue growth rate (100 basis point decrease)(1) | | Profit margin (100 basis point decrease)(1) | | Discount rate (100 basis point increase)(1) |
| America | | $ | (550,000) | | $ | (130,000) | | $ | (480,000) |
| Airports | | (31,000) | | (33,000) | | (29,000) |
| Europe-North | | (100,000) | | (70,000) | | (80,000) |
(1)Changes to our assumptions by these amounts would not have changed by approximately $2.2 million.resulted in goodwill impairment as the fair value of goodwill for each reporting unit would still be greater than its carrying value.
Leases
The most significant estimates used by management in accounting for leases are the lease term, the incremental borrowing rate (“IBR”), and the impactfair market value of the leased property as each of these estimates are as follows:
Expected lease term Our expected lease term includes both contractual lease periods and cancelable option periods where failureused to exercise such options would result in an economic penalty. The expected lease term is used in determiningdetermine whether the lease is accounted for as an operating lease or a capitalfinance lease. A lease is considered a capital lease ifThe majority of our leases are classified as operating.
When determining the lease term exceeds 75%for contracts in which we are the lessee, we generally exclude renewal periods at the Company’s option as we do not consider exercise of such options to be reasonably certain for most of our leases; therefore, the leased asset's useful life. The expectedoptional terms and payments are not generally included within our lease term is also used in determining the depreciable life of the asset.liability. An increase in the expected lease term willwould increase our lease liability and the probability that a lease may be considered a capital lease and will generally result in higher interest and depreciation expense for a leased property recorded on our balance sheet.finance lease.
Incremental borrowing rate The incremental borrowing rate is primarily used in determining whetherWe use the lease is accounted for as an operating lease or a capital lease. A lease is considered a capital lease ifIBR to determine the net present value of the minimum lease payments is greater than 90%at the commencement of a lease. In our U.S. business, the IBRs used are based upon the trading levels of our CCOH Senior Secured Notes and are extrapolated over a time horizon using the composite credit rating yield curve to adjust for the lease term. Internationally, the Company uses a portfolio approach using the U.S. business IBR to apply an interest rate parity theory, in which the resulting calculation determines the equivalent interest rate to borrow in the foreign locations based on the expected appreciation/depreciation of the fair market value of the property.currencies. An increase in the incremental borrowing rate decreasesIBR would decrease the net present value of the minimum lease payments and, reducestherefore, the value of the lease right-of-use asset and liability on the balance sheet, reducing the probability that a lease willwould be considered a capitalfinance lease.
Fair market value of leased asset TheWe generally estimate the fair market value of leased property is generally estimated based on comparable market data as provided by third-party sources. Fair market value is used in determining whether the lease is accounted for as an operating lease or a capital lease. A lease is considered a capital lease if the net present value of the minimum lease payments equals or exceeds 90% of the fair market value of the leased property. A higher fair market value reduces the likelihood that a lease will be considered a capitalfinance lease.
Tax Provisions
Our estimates of income taxes and the significant items giving rise to deferred tax assets and liabilities reflect our assessment of actual future taxes to be paid on items reflected in the financial statements, giving consideration to both timing and probability of these estimates. Actual income taxes could vary from these estimates due to future changes in income tax law or results from the final review of our tax returns by federal, state or foreign tax authorities.
We use our best and most informed judgment to determine whether it is more likely than not that our deferred tax assets will be realized. Deferred tax assets are reduced by valuation allowances if we believe it is more likely than not that some portion or the entire asset will not be realized.
We also use our best and most informed judgment to determine whether it is more likely than not that we will sustain positions that we have taken on tax returns and, if so, the amount of benefit to initially recognize within our financial statements. We regularly review our uncertain tax positions and adjust our unrecognized tax benefits (“UTBs”) in light of changes in facts and circumstances, such as changes in tax law, interactions with taxing authorities and developments in case law. These adjustments to our UTBs may affect our income tax expense, and settlement of uncertain tax positions may require use of our cash.
Litigation Accruals
We are currently involved in certain legal proceedings. Based on current assumptions, we 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. Future results of operations could be materially affected by changes in these assumptions or the effectiveness of our strategies related to these proceedings.
Pension Benefits
We estimate pension benefit obligations and costs based on actuarial valuations. The annual measurement date for our pension benefit plan is December 31. The actuarial valuations require the use of certain assumptions including discount rates, expected long-term rates of return on plan assets and expected rates of compensation increase. We determine the discount rate based on a range of factors, including a yield curve composed of rates of return on high-quality corporate bonds that have a comparable cash flow pattern to the expected payments to be made under our plans. The expected long-term rate of return on plan assets is based upon the weighted averages of the expected long-term rates of return for the broad categories of investments held in our plans, and the expected rate of compensation increase represents average long-term salary increases.
Changes in these assumptions are primarily influenced by factors outside our control and could affect the amounts reported in our consolidated financial statements. A 0.25% change in the discount rate and compensation rate assumptions would have resulted in increases of the projected benefit obligation as of December 31, 2022 of $4.3 million and $0.7 million, respectively.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to market risks arising from changes in market rates and prices, including movements in foreign currency exchange rates, interest rates and inflation, which are generally interrelated.
In early 2022, worldwide inflation began to increase. In response to heightened levels of inflation, central banks, including the U.S. Federal Reserve and the European Central Bank, raised interest rates significantly. Governments likely will continue to increase interest rates to combat inflation in 2023. Additionally, during 2022, the U.S. dollar strengthened against certain foreign currencies. The U.S. dollar could be further impacted depending on the extent of additional U.S. Federal Reserve changes to the federal funds rate, resulting in downstream impacts to global exchange rates.
During 2022, rising interest rates and inflation resulted in impairment charges in our America segment of $21.8 million on certain of our billboard permits and $0.9 million on permanent easements. Additionally, we impaired $16.9 million of goodwill allocated to our Europe-South reporting unit. Although there were no indicators of impairment as of December 31, 2022, continued increases in interest rates, continued elevated inflation or other macroeconomic issues, such as a recession, may result in additional impairment charges or have other adverse effects on our results of operations, as further described below.
Long-lived Assets
Long-livedWe estimate the useful lives for our long-lived assets, including structures, and other property, plant and equipment and definite-livedfinite-lived intangibles, are reported at historical cost less accumulated depreciation and amortization. We estimate the useful lives for various types of advertising structures and other long-lived assets based on our historical experience and our plans regarding how we intend to use those assets. Advertising structures have different lives depending on their nature, with large format bulletins generally having longer depreciable lives and posters and other displays having shorter depreciable lives. StreetTransit, street furniture and transit displaysother contractual rights are depreciated over their estimated useful lives or appropriate contractual periods, whichever is shorter.
During the fourth quarter of 2022, we concluded that due to changes in facts and circumstances, our billboard permits, which were previously classified as indefinite-lived, should start being amortized over an estimate of their remaining useful life. Specifically, as we plan to accelerate the digitization of our network of billboard assets as a key component of our business strategy, the estimated useful lives of the original permits applicable to the static assets are no longer indefinite. As such, beginning in the fourth quarter of 2022, we began to amortize our permits on a straight-line basis over their estimated useful lives.
Our experience indicates that the estimated useful
lives applied to our portfolio of assets have been reasonable, and we do not expect significant changes to the estimated useful lives of our long-lived assets in the future. When we determine that structures or othera long-lived assetsasset will be disposed of prior to the end of theirits useful lives,life, we estimate the revised useful liveslife and depreciate the assetsremaining net book value of the asset over the revised period.
We also review long-lived assets for impairment when events and circumstances indicate that depreciable and amortizable long-lived assets might be impaired and the undiscounted cash flows estimated to be generated by those assets are less than thetheir carrying amounts of those assets.amounts. When specific assets are determined to be unrecoverable, we reduce the cost basis of the asset is reduced to reflect the current fair market value. We did not recognize any impairments on our long-lived assets in 2022, 2021 or 2020.
We use various assumptions in determining the remaining useful lives of assets to be disposed of prior to the end of their useful lives and in determining the current fair market value of long-lived assets that are determined to be unrecoverable. Estimated useful lives and fair values are sensitive to factors including contractual commitments, regulatory requirements, future expected cash flows, industry growth rates, and discount rates as well asand future salvage values. Our impairment loss calculations require management to apply judgment in estimating future cash flows, including forecasting useful lives of the assets and selecting the discount rate that reflects the risk inherent in future cash flows.
If actual results are not consistent with our assumptions and judgments used in estimating future cash flows and asset fair values, we may be exposed to future impairment losses that could be material to our results of operations.
Annual Impairment TestTests
The Company performs itsWe perform impairment tests on indefinite-lived intangible assets and goodwill at least annually, as of July 1 of each year, and more frequently as events or changes in circumstances warrant. During the second quarter of 2022, we performed an impairment test on certain of our then-indefinite-lived billboard permits due to rising interest rates and inflation, resulting in an impairment charge of $21.8 million. Additionally, we performed our annual impairment testtests on indefinite-lived intangible assets and goodwill as of July 1, 2022, which resulted in an impairment charge of each year.$0.9 million on our permanent easements.
As previously described, we revised our segments as of December 31, 2022 to reflect changes in the way the business is managed and resources are allocated by our CEO. We tested goodwill for impairment immediately before and after the change and recorded an impairment charge of $16.9 million on the goodwill allocated to our Europe-South reporting unit as its fair value based on the projected cash flows was lower than its carrying value.
Management’s judgements and assumptions used in our impairment tests are detailed below. The assumptions used to perform our impairment tests are not indicative of future results. While we believe we have made reasonable estimates and utilized appropriate assumptions to calculate the fair value of our indefinite-lived intangible assets and reporting units, it is possible that a material change could occur. If future results are not consistent with our assumptions and estimates, or if the current macroeconomic situation worsens, we may be exposed to additional impairment charges in the future.
Indefinite-lived Intangible Assets
Indefinite-livedWe review our indefinite-lived intangible assets such as our billboard permits, are reviewed annually for possible impairment using the direct valuation method as prescribed in ASC Section 805-20-S99. Under the direct valuation method, the estimated fair value of the indefinite-lived intangible assets was calculated at the market level as prescribed by ASC 350-30-35. Under the direct valuation method, it is assumed that rather than acquiring indefinite-lived intangible assets as a part of a going concern business, the buyer hypothetically obtains indefinite-lived intangible assets and builds a new operation with similar attributes from scratch. Thus, the buyer incurs start-up costs during the build-up phase which are normally associated with going concern value. Initial capital costs are deducted from the discounted cash flows model which results in value that is directly attributable to the indefinite-lived intangible assets.
Our key assumptions using the direct valuation method are market revenue growth rates, market share, profit margin, duration and profile of the build-up period, estimated start-up capital costs and losses incurred during the build-up period, the risk-adjusted discount rate and terminal values. This data is populated using industry normalizedindustry-normalized information representing an average asset within a market.
On July 1, 2016,market, and we performedengage a third-party valuation firm to assist with the development of our annual impairment test in accordance with ASC 350-30-35, resulting in no impairment chargeassumptions used to determine the fair value of our indefinite-lived intangible assets.
In determining the fair value of our then-indefinite-lived billboard permits as of July 1, 2022, we used the following key assumptions were used:assumptions:
•Industry revenue growth forecast at 3.0% wasforecasts used for the initial four-year period;
•3.0%period, which varied by market, started with the trailing twelve month forecast period ending July 1, 2022, and annual revenue growth on average of 6.1% was assumed from year two to year four;
•Revenue growth beyond the initial four-year period;period was assumed to be 3.0%;
•Revenue was growngrew over a build-up period, reaching maturity by year 2;the second year;
•Operating margins gradually climb to theThe operating industry average margin of upwas assumed to 56.1%, depending on market size, by year 3;be 39%; and
•AssumedThe assumed discount rate was 11.5%
In conjunction with the change in classification of 7.5%.
Whileour billboard permits from indefinite-lived to finite-lived in the fourth quarter of 2022, we believe we have made reasonable estimates and utilized appropriate assumptionstested our permits for impairment as of October 1, 2022, immediately prior to calculatethe change in useful life, which did not result in any additional impairment charges. In determining the fair value of our indefinite-lived intangible assets, it is possiblethen-indefinite-lived billboard permits as of October 1, 2022, we used the following key assumptions:
•Industry revenue growth forecasts used for the initial four-year period, which varied by market, started with the trailing twelve month forecast period ending October 1, 2022, and annual revenue growth on average of 5.4% was assumed from year two to year four;
•Revenue growth beyond the initial four-year period was assumed to be 3.0%;
•Revenue grew over a material change could occur. If future results are not consistent with our assumptionsbuild-up period, reaching maturity by the second year;
•The operating industry average margin was assumed to be 39%; and estimates, we may be exposed to impairment charges in the future.
•The assumed discount rate was 11.0%
The following table shows the declinedecrease in the fair value of our indefinite-lived intangible assetsbillboard permits that would resulthave resulted from adecreases of 100 basis point declinepoints in our discrete and terminal period revenue growth rate and profit margin assumptions and aan increase of 100 basis point increasepoints in our discount rate assumption:assumption as of each of the impairment testing dates:
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| (In thousands) | | Revenue growth rate | | Profit margin | | Discount rate |
| Decrease in fair value of billboard permits: | | (100 basis point decrease) | | (100 basis point decrease) | | (100 basis point increase) |
As of July 1, 2022(1) | | $ | (375,000) | | $ | (101,500) | | $ | (383,200) |
As of October 1, 2022(2) | | (430,700) | | (113,600) | | (439,600) |
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| (In thousands) | | | | | | |
| Description | | Revenue growth rate | | Profit margin | | Discount rate |
| Billboard permits | | $ | 1,138,600 |
| | $ | 162,800 |
| | $ | 1,162,700 |
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(2)The change in each assumption as of October 1, 2022 would have resulted in impairment charges of $14.8 million, $1.5 million and $15.3 million, respectively.
TheAs previously described, during the fourth quarter of 2022 we concluded that due to changes in facts and circumstances, the estimated fair valueuseful lives of our billboard permits at July 1, 2016 was $4.0 billion while the carrying value was $1.0 billion. The estimated fair value ofare no longer indefinite. As such, they are now subject to impairment tests for long-lived assets. In accordance with ASC Paragraph 350-30-35-17, we tested our billboard permits at July 1, 2015 was $3.1 billion while the carrying value was $1.1 billion.
Goodwill
Goodwill represents the excess of the purchase price over the fair value of identifiable net assets acquired in business combinations. We test goodwill at interim dates if events or changes in circumstances indicate that goodwill might be impaired. The fair value of our reporting units is used to apply valuefor impairment immediately prior to the net assets of each reporting unit. To the extent that the carrying amount of net assets would exceed the fair value, anchange in useful life, which did not result in any additional impairment charge may be required to be recorded.charges.
Goodwill
The discounted cash flow approach that we use for valuing goodwill as part of the two-stepour impairment testing approach involves estimating future cash flows expected to be generated from the related assets, discounted to their present value using a risk-adjusted discount rate. Terminal values are also estimated and discounted to their present value. Assessing the recoverability of goodwill requires us to make estimates and assumptions about sales, operating margins, growth rates and discount rates based on our budgets, business plans, economic projections, anticipated future cash flows and marketplace data.
On July 1, 2016, weWe performed our annual impairment test as of July 1, 2022 in accordance with ASC Section 350-30-35, resultingwhich did not result in aany goodwill impairment charge of $7.3 million related to one of our International outdoor markets.impairment. In determining the fair value of our reporting units, we used the following assumptions:
•Expected cash flows underlying our business plans for the periods 2016 through 2020. Our cash flow assumptions areinitial five-year period were based on detailed, multi-year forecasts performed by each of our operating segments and reflectreflected the advertising outlook across our businesses.businesses;
•Cash flows beyond 2020 arewere projected to grow at a perpetual growth rate, which we estimated at 3.0%.; and
•In order to risk adjustrisk-adjust the cash flow projections in determining fair value;value, we utilized a discount rate of approximately 8.0% to 11.5% for each of our reporting units.
units ranging from 11.0% to 12.0%.
Based on our annual assessment using the assumptions described above, a hypothetical 10% reduction in the estimated fair value inof each of our reporting units with goodwill would not resulthave resulted in a material impairment condition.an impairment.
While we believe we have made reasonable estimates and utilized appropriate assumptions to calculate the estimated fair value of our reporting units, it is possible a material change could occur. If future results are not consistent with our assumptions and estimates, we may be exposed to impairment charges in the future. The following table shows the declinedecrease in the fair value of each of our reportable segmentsreporting units with goodwill that would resulthave resulted from adecreases of 100 basis point declinepoints in our discrete and terminal period revenue growth rate and profit margin assumptions and aan increase of 100 basis point increasepoints in our discount rate assumption:assumption as of July 1, 2022:
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| (In thousands) | | | | | | |
| Decrease in fair value of reporting unit | | Revenue growth rate (100 basis point decrease)(1) | | Profit margin (100 basis point decrease)(1) | | Discount rate (100 basis point increase)(1) |
| Americas | | $ | (610,000) | | $ | (160,000) | | $ | (510,000) |
| Europe | | (120,000) | | (110,000) | | (80,000) |
(1)Changes to our assumptions by these amounts would not have resulted in goodwill impairment as the fair value of goodwill for each reporting unit would still be greater than its carrying value.
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| (In thousands) | | | | | | |
| Description | | Revenue growth rate | | Profit margin | | Discount rates |
| Americas | | $ | 860,000 |
| | $ | 180,000 |
| | $ | 820,000 |
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| International | | $ | 330,000 |
| | $ | 210,000 |
| | $ | 260,000 |
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In determining the fair value of our reporting units as of December 31, 2022, we used the following assumptions:
•Expected cash flows underlying our business plans for the initial four-year period were based on detailed, multi-year forecasts performed by each of our operating segments and reflected the advertising outlook across our businesses;
•Cash flows were projected to grow at a perpetual growth rate, which we estimated at 3.0%; and
•In order to risk-adjust the cash flow projections in determining fair value, we utilized a discount rate for each of our reporting units ranging from 11.0% to 15.0%.
Based on our assessment using the assumptions described above, a hypothetical 10% reduction in the estimated fair value of each of our reporting units with remaining goodwill would not have resulted in an impairment.
The following table shows the decrease in the fair value of each of our reporting units with remaining goodwill that would have resulted from decreases of 100 basis points in our discrete and terminal period revenue growth rate and profit margin assumptions and an increase of 100 basis points in our discount rate assumption as of December 31, 2022:
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| (In thousands) | | | | | | |
| Decrease in fair value of reporting unit | | Revenue growth rate (100 basis point decrease)(1) | | Profit margin (100 basis point decrease)(1) | | Discount rate (100 basis point increase)(1) |
| America | | $ | (550,000) | | $ | (130,000) | | $ | (480,000) |
| Airports | | (31,000) | | (33,000) | | (29,000) |
| Europe-North | | (100,000) | | (70,000) | | (80,000) |
(1)Changes to our assumptions by these amounts would not have resulted in goodwill impairment as the fair value of goodwill for each reporting unit would still be greater than its carrying value.
Leases
The most significant estimates used by management in accounting for leases are the lease term, the incremental borrowing rate (“IBR”), and the fair market value of the leased property as each of these estimates are used to determine whether the lease is accounted for as an operating lease or a finance lease. The majority of our leases are classified as operating.
When determining the lease term for contracts in which we are the lessee, we generally exclude renewal periods at the Company’s option as we do not consider exercise of such options to be reasonably certain for most of our leases; therefore, the optional terms and payments are not generally included within our lease liability. An increase in the expected lease term would increase our lease liability and the probability that a lease may be considered a finance lease.
We use the IBR to determine the present value of lease payments at the commencement of a lease. In our U.S. business, the IBRs used are based upon the trading levels of our CCOH Senior Secured Notes and are extrapolated over a time horizon using the composite credit rating yield curve to adjust for the lease term. Internationally, the Company uses a portfolio approach using the U.S. business IBR to apply an interest rate parity theory, in which the resulting calculation determines the equivalent interest rate to borrow in the foreign locations based on the expected appreciation/depreciation of the currencies. An increase in the IBR would decrease the net present value of the minimum lease payments and, therefore, the value of the lease right-of-use asset and liability on the balance sheet, reducing the probability that a lease would be considered a finance lease.
We generally estimate the fair market value of leased property based on comparable market data as provided by third-party sources. A higher fair market value reduces the likelihood that a lease will be considered a finance lease.
Tax Provisions
Our estimates of income taxes and the significant items giving rise to the deferred tax assets and liabilities are shown in the notes to our consolidated financial statements and reflect our assessment of actual future taxes to be paid on items reflected in the financial statements, giving consideration to both timing and probability of these estimates. Actual income taxes could vary from these estimates due to future changes in income tax law or results from the final review of our tax returns by federal, state or foreign tax authorities.
We use our best and most informed judgment to determine whether it is more likely than not that our deferred tax assets will be realized. Deferred tax assets are reduced by valuation allowances if the Company believeswe believe it is more than likely than not that some portion or the entire asset will not be realized.
We also use our best and most informed judgment to determine whether it is more likely than not that we will sustain positions that we have taken on tax returns and, if so, the amount of benefit to initially recognize within our financial statements. We regularly review our uncertain tax positions and adjust our unrecognized tax benefits (UTBs)(“UTBs”) in light of changes in facts and circumstances, such as changes in tax law, interactions with taxing authorities and developments in case law. These adjustments to our UTBs may affect our income tax expense. Settlementexpense, and settlement of uncertain tax positions may require use of our cash.
Litigation Accruals
We are currently involved in certain legal proceedings. Based on current assumptions, we 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. Future results of operations could be materially affected by changes in these assumptions or the effectiveness of our strategies related to these proceedings.
Management’sThese 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.
Asset Retirement Obligations
ASC 410-20 requires us to estimate our obligation upon the termination or nonrenewal of a lease, to dismantle and remove our billboard structures from the leased land and to reclaim the site to its original condition.
Due to the high rate of lease renewals over a long period of time, our calculation assumes all related assets will be removed at some period over the next 55 years. An estimate of third-party cost information is used with respect to the dismantling of the structures and the reclamation of the site. The interest rate used to calculate the present value of such costs over the retirement period is based on an estimated risk-adjusted credit rate for the same period. If our assumption of the risk-adjusted credit rate used to discount current year additions to the asset retirement obligation decreased approximately 1%, our liability as of December 31, 2016 would not be materially impacted. Similarly, if our assumption of the risk-adjusted credit rate increased approximately 1%, our liability would not be materially impacted.
Share-Based Compensation
Under the fair value recognition provisions of ASC 718-10, share-based compensation cost is measured at the grant date based on the fair value of the award. Determining the fair value of share-based awards at the grant date requires assumptions and judgments about expected volatility and forfeiture rates, among other factors. If actual results differ significantly from these estimates, our Future results of operations could be materially impacted.
affected by changes in these assumptions or the effectiveness of our strategies related to these proceedings.
Pension Benefits
We estimate pension benefit obligations and costs based on actuarial valuations. The annual measurement date for our pension benefit plan is December 31. The actuarial valuations require the use of certain assumptions including discount rates, expected long-term rates of return on plan assets and expected rates of compensation increase. We determine the discount rate based on a range of factors, including a yield curve composed of rates of return on high-quality corporate bonds that have a comparable cash flow pattern to the expected payments to be made under our plans. The expected long-term rate of return on plan assets is based upon the weighted averages of the expected long-term rates of return for the broad categories of investments held in our plans, and the expected rate of compensation increase represents average long-term salary increases.
Changes in these assumptions are primarily influenced by factors outside our control and could affect the amounts reported in our consolidated financial statements. A 0.25% change in the discount rate and compensation rate assumptions would have resulted in increases of the projected benefit obligation as of December 31, 2022 of $4.3 million and $0.7 million, respectively.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
RequiredWe are exposed to market risks arising from changes in market rates and prices, including movements in foreign currency exchange rates, interest rates and inflation, which are generally interrelated.
In early 2022, worldwide inflation began to increase. In response to heightened levels of inflation, central banks, including the U.S. Federal Reserve and the European Central Bank, raised interest rates significantly. Governments likely will continue to increase interest rates to combat inflation in 2023. Additionally, during 2022, the U.S. dollar strengthened against certain foreign currencies. The U.S. dollar could be further impacted depending on the extent of additional U.S. Federal Reserve changes to the federal funds rate, resulting in downstream impacts to global exchange rates.
During 2022, rising interest rates and inflation resulted in impairment charges in our America segment of $21.8 million on certain of our billboard permits and $0.9 million on permanent easements. Additionally, we impaired $16.9 million of goodwill allocated to our Europe-South reporting unit. Although there were no indicators of impairment as of December 31, 2022, continued increases in interest rates, continued elevated inflation or other macroeconomic issues, such as a recession, may result in additional impairment charges or have other adverse effects on our results of operations, as further described below.
Foreign Currency Exchange Rate Risk
We have operations in America, Europe, Singapore and Latin America. Foreign operations are measured in their local currencies, and, as a result, our financial results are affected by factors such as changes in foreign currency exchange rates or weak economic conditions in the foreign markets in which we have operations. During 2022, the strengthening of the U.S. dollar against the local currencies of many of our foreign operations, most notably the British pound sterling and Euro, negatively impacted our reported Segment Adjusted EBITDA for our Europe-North and Europe-South segments by $15.8 million and $2.0 million, respectively.
In 2022, our Europe-North and Europe-South segments reported Segment Adjusted EBITDA of $103.7 million and $15.2 million, respectively. We estimate that an additional 10% increase in the value of the U.S. dollar relative to foreign currencies would have decreased Segment Adjusted EBITDA for our Europe-North and Europe-South segments by $10.4 million and $1.5 million, respectively, and a 10% decrease in the value of the U.S. dollar relative to foreign currencies would have increased our Segment Adjusted EBITDA for our Europe-North and Europe-South segments 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 such foreign countries or on the results of operations of these foreign entities.
Changes in economic or political conditions in any of the foreign countries in which we operate could result in exchange rate movement, new currency or exchange controls or other currency restrictions being imposed. For more information, please refer to the risk factor entitled, “We are exposed to foreign currency exchange risks because a large portion of our revenue and cash flows is located within received in foreign currencies and translated to U.S. dollars for reporting purposes” in Item 7 of Part II1A of this Annual Report on Form 10-K. In December 2022, we purchased a 12-month foreign currency exchange option to sell Swiss Francs and purchase U.S. Dollars to hedge the anticipated proceeds from the sale of our business in Switzerland.
Interest Rate Risk
A portion of our long-term debt bears interest at variable rates, and as a result, our financial results are affected by changes in interest rates. As interest rates have continued to rise this year, we have seen an increase in our weighted average cost of debt from 5.6% at December 31, 2021 to 7.1% at December 31, 2022.
As of December 31, 2022, approximately 34% of our aggregate principal amount of long-term debt bore interest at floating rates. Assuming the current level of borrowings and a 100 basis point increase in LIBOR, it is estimated that our interest expense for 2022 would have increased by $19.7 million. If further increases in interest rates materially affect interest expense, Company 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.
In connection with the phasing-out of LIBOR, which will no longer be published after June 2023, we amended our Term Loan Facility in February 2023 to replace the LIBOR reference rate with SOFR plus a credit spread adjustment. We are continuing to work with the administrative agents of our Revolving Credit Facility and Receivables-Based Credit Facility to agree on replacement rates for those agreements. At this time, we do not expect the replacement of LIBOR to result in a material impact to our financial results.
Inflation Risk
Inflation is a factor in the economies in which we do business, and we continue to seek ways to mitigate its effect. Current heightened levels of global inflation may result in higher costs and decreased margins and earnings. Inflation has affected our performance in 2022, resulting in higher costs for employees, electricity, materials and equipment. Although the exact impact of inflation is indeterminable, we believe we have partially offset these higher costs by increasing the effective advertising rates for most of our out-of-home displays, and to date, we have not suffered material impacts from the heightened levels of global inflation. In addition, our site leases, which are long-term in nature, are less impacted by short-term swings in inflation.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CLEAR CHANNEL OUTDOOR HOLDINGS, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
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Report of Independent Registered Public Accounting Firm
TheTo the Stockholders and the Board of Directors and Stockholders
of Clear Channel Outdoor Holdings, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Clear Channel Outdoor Holdings, Inc. and subsidiaries (the Company) as of December 31, 20162022 and 2015, and2021, the related consolidated statements of loss, comprehensive income (loss),loss, changes in stockholders’ equity (deficit)stockholders' deficit and cash flows for each of the three years in the period ended December 31, 2016. Our audits also included2022, and the related notes and the financial statement schedule listed in the Index at Item 15(a)2. 2 (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2022, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated February 28, 2023 expressed an unqualified opinion thereon.
Basis for Opinion
These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on thesethe Company’s financial statements and schedule based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includesmisstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence supportingregarding the amounts and disclosures in the financial statements. An auditOur audits also includes assessingincluded evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statement presentation.statements. We believe that our audits provide a reasonable basis for our opinion.
In our opinion,Critical Audit Matters
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements referredthat was communicated or required to above present fairly, in allbe communicated to the audit committee and that: (1) relates to accounts or disclosures that are material respects,to the consolidated financial position of Clear Channel Outdoor Holdings, Inc.statements and subsidiaries at December 31, 2016 and 2015, and the consolidated results of their operations and their cash flows for each(2) involved our especially challenging, subjective or complex judgments. The communication of the three yearscritical audit matter does not alter in the period ended December 31, 2016, in conformity with U.S. generally accepted accounting principles. Also, inany way our opinion on the related financial statement schedule, when considered in relation to the basicconsolidated financial statements, taken as a whole, presents fairly in all material respectsand we are not, by communicating the information set forth therein.critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
We also have audited, in accordance with the standards
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| | Valuation of Indefinite-Lived Intangible Assets - Permits |
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| Description of the Matter | | As described in Notes 2 and 11 to the consolidated financial statements, prior to the fourth quarter the Company accounted for its permits as indefinite lived. Management conducted its annual impairment test for indefinite-lived permits at the market level as of July 1, 2022, but also performed an interim test during the second quarter of 2022 due to events and circumstances present at that time that indicated that the carrying value of the indefinite-lived permits at certain markets may have been impaired. During the fourth quarter of 2022, the Company concluded that the permits should no longer have an indefinite useful life and the Company tested its permits for impairment immediately prior to the change in useful life. As a result of the interim impairment test, the Company recognized an impairment charge of $21.8 million during the second quarter of 2022. No impairments were recognized as a result of the annual impairment test or the test performed during the fourth quarter of 2022. |
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| | Auditing management’s impairment tests for indefinite-lived permits was complex and highly judgmental and required the involvement of a valuation specialist due to the significant estimation required to determine the fair value of the indefinite-lived permits. In estimating the fair value of these assets, management made certain key assumptions that were applied to the valuation model, including the discount rate, revenue growth rates and profit margin expectations. These assumptions are sensitive to and affected by expected future market, industry or economic conditions, including the impact of COVID-19. |
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| How We Addressed the Matter in Our Audit | | We obtained an understanding of, evaluated the design of and tested the operating effectiveness of internal controls that address the risk of material misstatement related to the valuation of the indefinite-lived permits. This included testing internal controls over management’s development and review of key assumptions applied to the valuation model, such as testing the internal controls related to the Company’s forecasting process used to develop the estimated future cash flows. We also tested internal controls over management’s review of the data inputs underlying the assumptions used in the valuation model. |
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| | To test the estimated fair value of the Company’s indefinite-lived permits, our audit procedures included, among others, evaluating the Company's selection of the valuation methodology, evaluating the methods and significant assumptions used by management, and evaluating the completeness and accuracy of the underlying data supporting the significant assumptions and estimates. We compared the projected cash flows to the Company’s historical cash flows and other available industry and market forecast information, including third-party industry projections for the advertising industry. We involved our valuation specialists to assist in reviewing the valuation methodology and the discount rate. We also performed sensitivity analyses of certain significant assumptions to evaluate the changes to the fair value of the indefinite-lived permits. |
/s/ Ernst & Young LLP
We have served as the Company's auditor since 2005.
San Antonio, Texas
February 23, 2017
28, 2023
CONSOLIDATED BALANCE SHEETS
CLEAR CHANNEL OUTDOOR HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS | | | (In thousands) | December 31, | | December 31, | |
| (In thousands, except share and per share data) | | (In thousands, except share and per share data) | December 31, | | December 31, |
| | 2016 | | 2015 | | 2022 | | 2021 |
| CURRENT ASSETS | | | | CURRENT ASSETS | | | |
| Cash and cash equivalents | $ | 541,995 |
| | $ | 412,743 |
| Cash and cash equivalents | $ | 286,781 | | | $ | 410,767 | |
| Accounts receivable, net of allowance of $22,398 in 2016 and $25,348 in 2015 | 593,070 |
| | 697,583 |
| |
| | Accounts receivable, net | | Accounts receivable, net | 619,829 | | | 643,116 | |
| Prepaid expenses | 111,569 |
| | 127,730 |
| Prepaid expenses | 55,371 | | | 54,180 | |
| Other current assets | | Other current assets | 27,395 | | | 26,458 | |
| Assets held for sale | 55,602 |
| | 295,075 |
| Assets held for sale | 131,540 | | | — | |
| Other current assets | 39,199 |
| | 34,566 |
| |
| Total Current Assets | 1,341,435 |
| | 1,567,697 |
| Total Current Assets | 1,120,916 | | | 1,134,521 | |
| PROPERTY, PLANT AND EQUIPMENT | | | | PROPERTY, PLANT AND EQUIPMENT | |
| Structures, net | 1,196,676 |
| | 1,391,880 |
| Structures, net | 556,312 | | | 622,738 | |
| Other property, plant and equipment, net | 216,157 |
| | 236,106 |
| Other property, plant and equipment, net | 231,236 | | | 204,508 | |
| INTANGIBLE ASSETS AND GOODWILL | | | | INTANGIBLE ASSETS AND GOODWILL | |
| Indefinite-lived intangibles | 960,966 |
| | 971,327 |
| |
| Other intangibles, net | 299,617 |
| | 342,864 |
| |
| Permits | | Permits | 723,061 | | | 717,666 | |
| Other intangible assets, net | | Other intangible assets, net | 251,121 | | | 271,448 | |
| Goodwill | 696,263 |
| | 758,575 |
| Goodwill | 650,643 | | | 698,704 | |
| OTHER ASSETS | | | | OTHER ASSETS | |
| Due from iHeartCommunications | 885,701 |
| | 930,799 |
| |
| Operating lease right-of-use assets | | Operating lease right-of-use assets | 1,479,634 | | | 1,567,468 | |
| Other assets | 122,013 |
| | 107,540 |
| Other assets | 73,088 | | | 82,302 | |
| Total Assets | $ | 5,718,828 |
| | $ | 6,306,788 |
| Total Assets | $ | 5,086,011 | | | $ | 5,299,355 | |
| CURRENT LIABILITIES | | | | CURRENT LIABILITIES | | | |
| Accounts payable | $ | 86,870 |
| | $ | 100,210 |
| Accounts payable | $ | 101,621 | | | $ | 108,567 | |
| Accrued expenses | 480,872 |
| | 507,665 |
| Accrued expenses | 488,782 | | | 523,364 | |
| Dividends payable | — |
| | 217,017 |
| |
| Deferred income | 67,005 |
| | 91,411 |
| |
| Current operating lease liabilities | | Current operating lease liabilities | 254,217 | | | 316,692 | |
| Accrued interest | | Accrued interest | 80,133 | | | 66,444 | |
| Deferred revenue | | Deferred revenue | 60,408 | | | 76,712 | |
| Current portion of long-term debt | 6,971 |
| | 4,310 |
| Current portion of long-term debt | 25,218 | | | 21,165 | |
| Liabilities held for sale | | Liabilities held for sale | 111,161 | | | — | |
| Total Current Liabilities | 641,718 |
| | 920,613 |
| Total Current Liabilities | 1,121,540 | | | 1,112,944 | |
| NON-CURRENT LIABILITIES | | NON-CURRENT LIABILITIES | |
| Long-term debt | 5,110,020 |
| | 5,106,513 |
| Long-term debt | 5,568,799 | | | 5,583,788 | |
| Deferred tax liability | 640,567 |
| | 608,910 |
| |
| Non-current operating lease liabilities | | Non-current operating lease liabilities | 1,277,854 | | | 1,310,917 | |
| Deferred tax liabilities, net | | Deferred tax liabilities, net | 243,668 | | | 324,579 | |
| Other long-term liabilities | 259,311 |
| | 240,419 |
| Other long-term liabilities | 136,956 | | | 161,097 | |
| Total Liabilities | | Total Liabilities | 8,348,817 | | | 8,493,325 | |
| Commitments and Contingencies (Note 8) | | Commitments and Contingencies (Note 8) | |
| | STOCKHOLDERS’ DEFICIT | | | | STOCKHOLDERS’ DEFICIT | |
| Noncontrolling interest | 149,886 |
| | 187,775 |
| Noncontrolling interest | 12,864 | | | 11,060 | |
| Preferred stock, $.01 par value, 150,000,000 shares authorized, no shares issued and outstanding | — |
| | — |
| |
| Class A common stock, par value $.01 per share, authorized 750,000,000 shares, issued 47,947,123 and 46,661,114 shares in 2016 and 2015, respectively | 479 |
| | 467 |
| |
| Class B common stock, $.01 par value, 600,000,000 shares authorized, 315,000,000 shares issued and outstanding | 3,150 |
| | 3,150 |
| |
| | Common stock, par value $0.01 per share: 2,350,000,000 shares authorized (483,639,206 and 474,480,862 shares issued as of December 31, 2022 and 2021, respectively) | | Common stock, par value $0.01 per share: 2,350,000,000 shares authorized (483,639,206 and 474,480,862 shares issued as of December 31, 2022 and 2021, respectively) | 4,836 | | | 4,745 | |
| Additional paid-in capital | 3,431,667 |
| | 3,961,515 |
| Additional paid-in capital | 3,543,424 | | | 3,522,367 | |
| Accumulated deficit | (4,127,206 | ) | | (4,268,637 | ) | Accumulated deficit | (6,469,953) | | | (6,373,349) | |
| Accumulated other comprehensive loss | (386,658 | ) | | (451,833 | ) | Accumulated other comprehensive loss | (335,189) | | | (350,950) | |
| Cost of shares (633,851 in 2016 and 233,868 in 2015) held in treasury | (4,106 | ) | | (2,104 | ) | |
| Treasury stock (7,325,251 and 3,671,788 shares held as of December 31, 2022 and 2021, respectively) | | Treasury stock (7,325,251 and 3,671,788 shares held as of December 31, 2022 and 2021, respectively) | (18,788) | | | (7,843) | |
| Total Stockholders’ Deficit | (932,788 | ) | | (569,667 | ) | Total Stockholders’ Deficit | (3,262,806) | | | (3,193,970) | |
| Total Liabilities and Stockholders’ Deficit | $ | 5,718,828 |
| | $ | 6,306,788 |
| Total Liabilities and Stockholders’ Deficit | $ | 5,086,011 | | | $ | 5,299,355 | |
See Notes to Consolidated Financial Statements
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)CLEAR CHANNEL OUTDOOR HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF LOSS |
| | | | | | | | | | | |
| (In thousands, except per share data) | Years Ended December 31, |
| | 2016 | | 2015 | | 2014 |
| Revenue | $ | 2,702,395 |
| | $ | 2,806,204 |
| | $ | 2,961,259 |
|
| Operating expenses: | | | | | |
| Direct operating expenses (excludes depreciation and amortization) | 1,435,569 |
| | 1,494,902 |
| | 1,596,888 |
|
| Selling, general and administrative expenses (excludes depreciation and amortization) | 515,202 |
| | 531,504 |
| | 548,519 |
|
| Corporate expenses (excludes depreciation and amortization) | 117,383 |
| | 116,380 |
| | 130,894 |
|
| Depreciation and amortization | 344,124 |
| | 375,962 |
| | 406,243 |
|
| Impairment charges | 7,274 |
| | 21,631 |
| | 3,530 |
|
| Other operating income (expense), net | 354,688 |
| | (4,824 | ) | | 7,259 |
|
| Operating income | 637,531 |
| | 261,001 |
| | 282,444 |
|
| Interest expense | 374,892 |
| | 355,669 |
| | 353,265 |
|
| Interest income on Due from iHeartCommunications | 50,309 |
| | 61,439 |
| | 60,179 |
|
| Equity in earnings (loss) of nonconsolidated affiliates | (1,689 | ) | | (289 | ) | | 3,789 |
|
| Other income (expense), net | (70,151 | ) | | 12,387 |
| | 15,185 |
|
| Income (loss) before income taxes | 241,108 |
| | (21,131 | ) | | 8,332 |
|
| Income tax benefit (expense) | (76,675 | ) | | (50,177 | ) | | 8,787 |
|
| Consolidated net income (loss) | 164,433 |
| | (71,308 | ) | | 17,119 |
|
| Less amount attributable to noncontrolling interest | 23,002 |
| | 24,764 |
| | 26,709 |
|
| Net income (loss) attributable to the Company | $ | 141,431 |
| | $ | (96,072 | ) | | $ | (9,590 | ) |
| Other comprehensive income (loss), net of tax: | | | | | |
| Foreign currency translation adjustments | 22,408 |
| | (112,729 | ) | | (123,104 | ) |
| Unrealized holding gain (loss) on marketable securities | (576 | ) | | 553 |
| | 327 |
|
| Other adjustments to comprehensive income (loss) | (11,814 | ) | | (10,266 | ) | | (11,438 | ) |
| Reclassification adjustments | 46,730 |
| | 808 |
| | 8 |
|
| Other comprehensive income (loss) | 56,748 |
| | (121,634 | ) | | (134,207 | ) |
| Comprehensive income (loss) | 198,179 |
| | (217,706 | ) | | (143,797 | ) |
| Less amount attributable to noncontrolling interest | (8,427 | ) | | (11,154 | ) | | (6,426 | ) |
| Comprehensive income (loss) attributable to the Company | $ | 206,606 |
| | $ | (206,552 | ) | | $ | (137,371 | ) |
| Net income (loss) attributable to the Company per common share: | | | | | |
| Basic | $ | 0.39 |
| | $ | (0.27 | ) | | $ | (0.03 | ) |
| Weighted average common shares outstanding – Basic | 360,294 |
| | 359,508 |
| | 358,565 |
|
| Diluted | $ | 0.39 |
| | $ | (0.27 | ) | | $ | (0.03 | ) |
| Weighted average common shares outstanding – Diluted | 361,612 |
| | 359,508 |
| | 358,565 |
|
| | | | | | | | | | | | | | | | | |
| (In thousands, except per share data) | Years Ended December 31, |
| 2022 | | 2021 | | 2020 |
| Revenue | $ | 2,481,134 | | | $ | 2,241,118 | | | $ | 1,854,608 | |
| Operating expenses: | | | | | |
Direct operating expenses(1) | 1,327,979 | | | 1,270,258 | | | 1,201,208 | |
Selling, general and administrative expenses(1) | 467,960 | | | 459,397 | | | 442,310 | |
Corporate expenses(1) | 157,915 | | | 156,181 | | | 137,297 | |
| Depreciation and amortization | 253,809 | | | 253,155 | | | 269,421 | |
| Impairment charges | 39,546 | | | 118,950 | | | 150,400 | |
| Other operating expense (income), net | 2,386 | | | (627) | | | (53,614) | |
| Operating income (loss) | 231,539 | | | (16,196) | | | (292,414) | |
| Interest expense, net | (362,680) | | | (350,457) | | | (360,259) | |
| Loss on extinguishment of debt | — | | | (102,757) | | | (5,389) | |
| | | | | |
| | | | | |
| | | | | |
| Other income (expense), net | (35,079) | | | 1,762 | | | (170) | |
| Loss before income taxes | (166,220) | | | (467,648) | | | (658,232) | |
| Income tax benefit | 71,832 | | | 34,528 | | | 58,006 | |
| Consolidated net loss | (94,388) | | | (433,120) | | | (600,226) | |
| Less amount attributable to noncontrolling interest | 2,216 | | | 695 | | | (17,487) | |
| Net loss attributable to the Company | $ | (96,604) | | | $ | (433,815) | | | $ | (582,739) | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| Net loss attributable to the Company per share of common stock — basic and diluted | $ | (0.20) | | | $ | (0.93) | | | $ | (1.25) | |
| | | | | |
| | | | | |
| | | | | |
(1)Excludes depreciation and amortization
See Notes to Consolidated Financial Statements
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’EQUITY (DEFICIT) OF
CLEAR CHANNEL OUTDOOR HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (In thousands, except share data) | | | | | | Controlling Interest | | |
| | Class A Common Shares Issued | | Class B Common Shares Issued | | Non-controlling Interest | | Common Stock | | Additional Paid-in Capital | | Accumulated Deficit | | Accumulated Other Comprehensive Loss | | Treasury Stock | | Total |
Balances at
December 31, 2013 | 44,117,843 |
| | 315,000,000 |
| | $ | 202,046 |
| | $ | 3,591 |
| | $ | 4,332,045 |
| | $ | (4,162,975 | ) | | $ | (213,572 | ) | | $ | (1,027 | ) | | $ | 160,108 |
|
| Net income (loss) | — |
| | — |
| | 26,709 |
| | — |
| | — |
| | (9,590 | ) | | — |
| | — |
| | 17,119 |
|
| Exercise of stock options and other | 1,113,439 |
| | — |
| | — |
| | 11 |
| | 2,390 |
| | — |
| | — |
| | (165 | ) | | 2,236 |
|
| Share-based payments | — |
| | — |
| | — |
| | — |
| | 7,743 |
| | — |
| | — |
| | — |
| | 7,743 |
|
| Dividends and other payments to noncontrolling interests | — |
| | — |
| | (18,995 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | (18,995 | ) |
| Dividends declared and paid ($0.4865/share) | — |
| | — |
| | — |
| | — |
| | (175,022 | ) | | — |
| | — |
| | — |
| | (175,022 | ) |
| Other | — |
| | — |
| | — |
| | — |
| | 77 |
| | — |
| | — |
| | — |
| | 77 |
|
| Other comprehensive loss | — |
| | — |
| | (6,426 | ) | | — |
| | — |
| | — |
| | (127,781 | ) | | — |
| | (134,207 | ) |
Balances at
December 31, 2014 | 45,231,282 |
| | 315,000,000 |
| | $ | 203,334 |
| | $ | 3,602 |
| | $ | 4,167,233 |
| | $ | (4,172,565 | ) | | $ | (341,353 | ) | | $ | (1,192 | ) | | $ | (140,941 | ) |
| Net income (loss) | — |
| | — |
| | 24,764 |
| | — |
| | — |
| | (96,072 | ) | | — |
| | — |
| | (71,308 | ) |
| Exercise of stock options and other | 1,429,832 |
| | — |
| | — |
| | 15 |
| | 3,783 |
| | — |
| | — |
| | (912 | ) | | 2,886 |
|
| Share-based payments | — |
| | — |
| | — |
| | — |
| | 8,359 |
| | — |
| | — |
| | — |
| | 8,359 |
|
| Dividends and other payments to noncontrolling interests | — |
| | — |
| | (30,870 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | (30,870 | ) |
| Dividends declared ($0.6026/share) | — |
| | — |
| | — |
| | — |
| | (217,796 | ) | | — |
| | — |
| | — |
| | (217,796 | ) |
| Other | — |
| | — |
| | 1,701 |
| | — |
| | (64 | ) | | — |
| | — |
| | — |
| | 1,637 |
|
| Other comprehensive loss | — |
| | — |
| | (11,154 | ) | | — |
| | — |
| | — |
| | (110,480 | ) | | — |
| | (121,634 | ) |
Balances at
December 31, 2015 | 46,661,114 |
| | 315,000,000 |
| | $ | 187,775 |
| | $ | 3,617 |
| | $ | 3,961,515 |
| | $ | (4,268,637 | ) | | $ | (451,833 | ) | | $ | (2,104 | ) | | $ | (569,667 | ) |
| Net income (loss) | — |
| | — |
| | 23,002 |
| | — |
| | — |
| | 141,431 |
| | — |
| | — |
| | 164,433 |
|
| Exercise of stock options and other | 1,286,009 |
| | — |
| | — |
| | 12 |
| | 624 |
| | — |
| | — |
| | (2,002 | ) | | (1,366 | ) |
| Share-based payments | — |
| | — |
| | — |
| | — |
| | 10,238 |
| | — |
| | — |
| | — |
| | 10,238 |
|
| Disposal of noncontrolling interest | — |
| | — |
| | (36,846 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | (36,846 | ) |
| Dividends and other payments to noncontrolling interests | — |
| | — |
| | (16,917 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | (16,917 | ) |
| Dividends declared and paid ($1.4937/share) | — |
| | — |
| | — |
| | — |
| | (540,034 | ) | | — |
| | — |
| | — |
| | (540,034 | ) |
| Other | — |
| | — |
| | 1,299 |
| | — |
| | (676 | ) | | — |
| | — |
| | — |
| | 623 |
|
| Other comprehensive loss | — |
| | — |
| | (8,427 | ) | | — |
| | — |
| | — |
| | 65,175 |
| | — |
| | 56,748 |
|
Balances at
December 31, 2016 | 47,947,123 |
| | 315,000,000 |
| | $ | 149,886 |
| | $ | 3,629 |
| | $ | 3,431,667 |
| | $ | (4,127,206 | ) | | $ | (386,658 | ) | | $ | (4,106 | ) | | $ | (932,788 | ) |
| | | | | | | | | | | | | | | | | |
| (In thousands) | Years Ended December 31, |
| 2022 | | 2021 | | 2020 |
| Net loss attributable to the Company | $ | (96,604) | | | $ | (433,815) | | | $ | (582,739) | |
| Other comprehensive income (loss): | | | | | |
| Foreign currency translation adjustments | 17,799 | | | (18,031) | | | 3,265 | |
| Reclassification adjustments | (5,193) | | | (11,292) | | | (5,817) | |
| Other adjustments to comprehensive income (loss), net of tax | 3,139 | | | 36,876 | | | (15,538) | |
| Other comprehensive income (loss) | 15,745 | | | 7,553 | | | (18,090) | |
| Comprehensive loss | (80,859) | | | (426,262) | | | (600,829) | |
| Less amount attributable to noncontrolling interest | (16) | | | (17) | | | (1,875) | |
| Comprehensive loss attributable to the Company | $ | (80,843) | | | $ | (426,245) | | | $ | (598,954) | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
See Notes to Consolidated Financial Statements
CONSOLIDATED STATEMENTS OF CASH FLOWS OFCLEAR CHANNEL OUTDOOR HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT |
| | | | | | | | | | | |
| (In thousands) | Years Ended December 31, |
| | 2016 | | 2015 | | 2014 |
| Cash flows from operating activities: | | | | | |
| Consolidated net income (loss) | $ | 164,433 |
| | $ | (71,308 | ) | | $ | 17,119 |
|
| Reconciling items: | | | | | |
| Impairment charges | 7,274 |
| | 21,631 |
| | 3,530 |
|
| Depreciation and amortization | 344,124 |
| | 375,962 |
| | 406,243 |
|
| Deferred taxes | 31,333 |
| | 3,539 |
| | (33,569 | ) |
| Provision for doubtful accounts | 10,659 |
| | 13,384 |
| | 7,150 |
|
| Amortization of deferred financing charges and note discounts, net | 10,572 |
| | 8,770 |
| | 8,660 |
|
| Share-based compensation | 10,238 |
| | 8,359 |
| | 7,743 |
|
| Gain on disposal of operating and other assets | (363,485 | ) | | (5,468 | ) | | (7,801 | ) |
| Equity in (earnings) loss of nonconsolidated affiliates | 1,689 |
| | 289 |
| | (3,789 | ) |
| Other reconciling items, net | 68,933 |
| | (13,440 | ) | | (14,461 | ) |
| Changes in operating assets and liabilities, net of effects of acquisitions and dispositions: | | | | | |
| (Increase) decrease in accounts receivable | 30,308 |
| | (56,580 | ) | | (38,618 | ) |
| (Increase) decrease in prepaid expenses and other current assets | (15,578 | ) | | (1,728 | ) | | 5,982 |
|
| Increase in accrued expenses | 25,518 |
| | 4,565 |
| | 18,312 |
|
| Increase (decrease) in accounts payable | (3,797 | ) | | 30,642 |
| | (4,460 | ) |
| Increase (decrease) in accrued interest | 194 |
| | (4,072 | ) | | 811 |
|
| Increase (decrease) in deferred income | (18,119 | ) | | 2,549 |
| | (5,370 | ) |
| Changes in other operating assets and liabilities | 5,997 |
| | (18,161 | ) | | (19,059 | ) |
| Net cash provided by operating activities | 310,293 |
| | 298,933 |
| | 348,423 |
|
| Cash flows from investing activities: | | | | | |
| Purchases of property, plant and equipment | (229,772 | ) | | (218,332 | ) | | (231,169 | ) |
| Proceeds from disposal of assets | 808,194 |
| | 11,264 |
| | 12,861 |
|
| Purchases of other operating assets | (2,244 | ) | | (23,640 | ) | | (912 | ) |
| Proceeds from sale of investment securities | 781 |
| | — |
| | 15,834 |
|
| Purchases of businesses | — |
| | (24,701 | ) | | 339 |
|
| Change in other, net | (25,460 | ) | | (2,316 | ) | | (3,384 | ) |
| Net cash provided by (used for) investing activities | 551,499 |
| | (257,725 | ) | | (206,431 | ) |
| Cash flows from financing activities: | | | | | |
| Draws on credit facilities | — |
| | — |
| | 3,010 |
|
| Payments on credit facilities | (2,100 | ) | | (3,849 | ) | | (3,682 | ) |
| Proceeds from long-term debt | 6,856 |
| | 222,777 |
| | — |
|
| Payments on long-term debt | (2,334 | ) | | (56 | ) | | (48 | ) |
| Net transfers from (to) iHeartCommunications | 45,099 |
| | 17,007 |
| | (68,804 | ) |
| Dividends and other payments to noncontrolling interests | (16,917 | ) | | (30,870 | ) | | (18,995 | ) |
| Dividends paid | (755,538 | ) | | — |
| | (175,022 | ) |
| Deferred financing charges | (199 | ) | | (8,606 | ) | | (4 | ) |
| Change in other, net | (1,366 | ) | | 2,651 |
| | 2,236 |
|
| Net cash provided by (used for) financing activities | (726,499 | ) | | 199,054 |
| | (261,309 | ) |
| Effect of exchange rate changes on cash | (6,041 | ) | | (13,723 | ) | | (9,024 | ) |
| Net increase (decrease) in cash and cash equivalents | 129,252 |
| | 226,539 |
| | (128,341 | ) |
| Cash and cash equivalents at beginning of year | 412,743 |
| | 186,204 |
| | 314,545 |
|
| Cash and cash equivalents at end of year | $ | 541,995 |
| | $ | 412,743 |
| | $ | 186,204 |
|
| SUPPLEMENTAL DISCLOSURES: | | | | | |
| Cash paid during the year for interest | $ | 368,051 |
| | $ | 356,021 |
| | $ | 347,786 |
|
| Cash paid during the year for income taxes | 40,185 |
| | 43,781 |
| | 43,275 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (In thousands, except share data) |
| | | Non-controlling
Interest | | Controlling Interest | | Total |
| Common Shares Issued | | | Common
Stock | | Additional Paid-in
Capital | | Accumulated
Deficit | | Accumulated Other Comprehensive Loss | | Treasury Stock | |
| Balances at December 31, 2019 | 466,744,939 | | | $ | 152,814 | | | $ | 4,667 | | | $ | 3,489,593 | | | $ | (5,349,611) | | | $ | (349,552) | | | $ | (2,617) | | | $ | (2,054,706) | |
Adoption of ASU 2016-13, Credit Losses | | | — | | | — | | | — | | | (7,181) | | | — | | | — | | | (7,181) | |
| Net loss | | | (17,487) | | | — | | | — | | | (582,739) | | | — | | | — | | | (600,226) | |
| Release of stock awards and exercise of stock options | 1,958,225 | | | — | | | 20 | | | 21 | | | — | | | — | | | (464) | | | (423) | |
| Share-based compensation | | | 51 | | | — | | | 13,184 | | | — | | | — | | | — | | | 13,235 | |
| Payments to noncontrolling interests | | | (444) | | | — | | | — | | | — | | | — | | | — | | | (444) | |
| Clear Media disposition | | | (122,204) | | | — | | | 183 | | | — | | | 7,249 | | | — | | | (114,772) | |
| Other comprehensive loss | | | (1,875) | | | — | | | — | | | — | | | (16,215) | | | — | | | (18,090) | |
| Other | | | — | | | — | | | 10 | | | (3) | | | (2) | | | — | | | 5 | |
| Balances at December 31, 2020 | 468,703,164 | | | $ | 10,855 | | | $ | 4,687 | | | $ | 3,502,991 | | | $ | (5,939,534) | | | $ | (358,520) | | | $ | (3,081) | | | $ | (2,782,602) | |
| Net income (loss) | | | 695 | | | — | | | — | | | (433,815) | | | — | | | — | | | (433,120) | |
| Release of stock awards and exercise of stock options | 5,777,698 | | | — | | | 58 | | | (22) | | | — | | | — | | | (4,762) | | | (4,726) | |
| Share-based compensation | | | — | | | — | | | 19,398 | | | — | | | — | | | — | | | 19,398 | |
| Payments to noncontrolling interests | | | (473) | | | — | | | — | | | — | | | — | | | — | | | (473) | |
| Other comprehensive income (loss) | | | (17) | | | — | | | — | | | — | | | 7,570 | | | — | | | 7,553 | |
| Balances at December 31, 2021 | 474,480,862 | | | $ | 11,060 | | | $ | 4,745 | | | $ | 3,522,367 | | | $ | (6,373,349) | | | $ | (350,950) | | | $ | (7,843) | | | $ | (3,193,970) | |
| | | | | | | | | | | | | | | |
| Net income (loss) | | | 2,216 | | | — | | | — | | | (96,604) | | | — | | | — | | | (94,388) | |
| Release of stock awards and exercise of stock options | 9,158,344 | | | — | | | 91 | | | (91) | | | — | | | — | | | (10,945) | | | (10,945) | |
| Share-based compensation | | | — | | | — | | | 21,148 | | | — | | | — | | | — | | | 21,148 | |
| Payments to noncontrolling interests | | | (396) | | | — | | | — | | | — | | | — | | | — | | | (396) | |
| | | | | | | | | | | | | | | |
| Other comprehensive income (loss) | | | (16) | | | — | | | — | | | — | | | 15,761 | | | — | | | 15,745 | |
| | | | | | | | | | | | | | | |
| Balances at December 31, 2022 | 483,639,206 | | | $ | 12,864 | | | $ | 4,836 | | | $ | 3,543,424 | | | $ | (6,469,953) | | | $ | (335,189) | | | $ | (18,788) | | | $ | (3,262,806) | |
See Notes to Consolidated Financial Statements
CLEAR CHANNEL OUTDOOR HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
| | | | | | | | | | | | | | | | | |
| (In thousands) | Years Ended December 31, |
| 2022 | | 2021 | | 2020 |
| Cash flows from operating activities: | | | | | |
| Consolidated net loss | $ | (94,388) | | | $ | (433,120) | | | $ | (600,226) | |
| Reconciling items: | | | | | |
| Depreciation, amortization and impairment charges | 293,355 | | | 372,105 | | | 419,821 | |
| Non-cash operating lease expense | 334,827 | | | 361,672 | | | 347,593 | |
| Loss on extinguishment of debt | — | | | 102,757 | | | 5,389 | |
| Deferred taxes | (81,840) | | | (31,582) | | | (80,336) | |
| Share-based compensation | 21,148 | | | 19,398 | | | 13,235 | |
| Amortization of deferred financing charges and note discounts | 11,236 | | | 11,538 | | | 11,842 | |
| Credit loss expense (reversal) | 6,479 | | | (2,727) | | | 19,390 | |
| Gain on disposal of operating and other assets, net | (12,035) | | | (1,722) | | | (65,401) | |
| Foreign exchange transaction loss (gain) | 39,141 | | | 3,981 | | | (502) | |
| Other reconciling items, net | (2,143) | | | 1,389 | | | (3,134) | |
| Changes in operating assets and liabilities, net of effects of Clear Media disposition: | | | | | |
| Decrease (increase) in accounts receivable | (20,532) | | | (177,069) | | | 109,014 | |
| Decrease (increase) in prepaid expenses and other operating assets | (15,294) | | | (8,839) | | | 4,116 | |
| Increase in accounts payable and accrued expenses | 638 | | | 94,689 | | | 2,946 | |
| Decrease in operating lease liabilities | (349,204) | | | (389,335) | | | (334,017) | |
| Increase (decrease) in accrued interest | 14,005 | | | (48,032) | | | 28,236 | |
| Increase (decrease) in deferred revenue | (2,780) | | | 1,162 | | | 4,956 | |
| Decrease in other operating liabilities | (2,621) | | | (9,760) | | | (20,730) | |
| Net cash provided by (used for) operating activities | 139,992 | | | (133,495) | | | (137,808) | |
| Cash flows from investing activities: | | | | | |
| Capital expenditures | (184,679) | | | (148,006) | | | (124,162) | |
| Asset acquisitions | (61,984) | | | (18,523) | | | (1,319) | |
| Net proceeds from disposal of assets | 27,082 | | | 13,208 | | | 218,874 | |
| Other investing activities, net | (2,115) | | | 618 | | | 1,128 | |
| Net cash provided by (used for) investing activities | (221,696) | | | (152,703) | | | 94,521 | |
| Cash flows from financing activities: | | | | | |
| Draws on credit facilities | — | | | — | | | 150,000 | |
| Payments on credit facilities | — | | | (130,000) | | | (20,000) | |
| Proceeds from long-term debt | — | | | 2,085,570 | | | 375,000 | |
| Payments on long-term debt | (21,377) | | | (2,011,042) | | | (74,971) | |
| Debt issuance costs | — | | | (24,438) | | | (10,476) | |
| | | | | |
| | | | | |
| Taxes paid related to net share settlement of equity awards | (10,945) | | | (4,762) | | | (464) | |
| Other financing activities, net | (396) | | | (565) | | | (810) | |
| Net cash provided by (used for) financing activities | (32,718) | | | (85,237) | | | 418,279 | |
| Effect of exchange rate changes on cash, cash equivalents and restricted cash | (6,867) | | | (3,655) | | | 2,994 | |
| Net increase (decrease) in cash, cash equivalents and restricted cash | (121,289) | | | (375,090) | | | 377,986 | |
| Cash, cash equivalents and restricted cash at beginning of year | 419,971 | | | 795,061 | | | 417,075 | |
| Cash, cash equivalents and restricted cash at end of year | $ | 298,682 | | | $ | 419,971 | | | $ | 795,061 | |
| Supplemental Disclosures: | | | | | |
| Cash paid for interest | $ | 341,444 | | | $ | 387,582 | | | $ | 323,804 | |
| Cash paid for income taxes, net of refunds | $ | 4,956 | | | $ | 4,770 | | | $ | 35,234 | |
See Notes to Consolidated Financial Statements
CLEAR CHANNEL OUTDOOR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 — SUMMARY– DESCRIPTION OF SIGNIFICANT ACCOUNTING POLICIESBUSINESS
NatureDescription of Business
Clear Channel Outdoor Holdings, Inc. (the “Company”(“CCOH”) is an outdoor advertising company which owns or operates advertising display faces domestically and internationally. On November 11, 2005, the Company became a publicly traded company through an initial public offering (“IPO”),that sells out-of-home advertising space on billboards, street furniture, airport advertising displays and other displays that it owns or operates in which 10%, or 35.0 million shares, of thekey markets worldwide. The Company’s Class A common stock was sold. Prior to the IPO, the Company was an indirect wholly-owned subsidiary of iHeartCommunications, Inc. (“iHeartCommunications”), a diversified media and entertainment company. As of December 31, 2016, iHeartCommunications indirectly holds all of the 315.0 million shares of Class B common stock outstanding and 10,726,917 shares of Class A common stock, collectively representing 89.9% of the shares outstanding and approximately 99% of the voting power. The holders of Class A common stock and Class B common stock have identical rights, except holders of Class A common stock are entitled to one vote per share while holders of Class B common stock are entitled to 20 votes per share. The Class B shares of common stock are convertible, attrade on the optionNew York Stock Exchange under the symbol “CCO.” All references in these financial statements to the “Company,” “we,” “us” and “our” refer to Clear Channel Outdoor Holdings, Inc. and its consolidated subsidiaries.
Reportable Segments
Historically, the Company had two reportable segments: Americas, which consisted of operations primarily in the holder at any time or upon any transfer, into sharesUnited States (“U.S.”), and Europe, which consisted of Class A common stockoperations in Europe and Singapore. The Company’s remaining operating segments of Latin America and China (prior to its sale on a one-for-one basis, subjectApril 28, 2020) did not meet the quantitative thresholds to certain limited exceptions.qualify as reportable segments and were disclosed as “Other.”
The Company operateschanged segments during the fourth quarter of 2022 to reflect changes in the outdoor advertising industryway the business is managed and resources are allocated by selling advertising on billboards, street furniture displays, transit displays and other advertising displays. Thethe Company’s chief operating decision maker (“CODM”). Effective December 31, 2022, the Company has twofour reportable business segments: AmericasAmerica, which consists of operations in the U.S. excluding airports; Airports, which includes revenue from U.S. and International. The Americas segment primarily includesCaribbean airports; Europe-North, which consists of operations in the United States, CanadaKingdom (“U.K.”), the Nordics and Latin America; the International segment primarily includesseveral other countries throughout northern and central Europe; and Europe-South, which consists of operations in EuropeFrance, Switzerland, Spain and Asia.Italy. The Company’s remaining operations in Latin America and Singapore are disclosed as “Other.” Refer to Note3 for additional details.
AgreementsRecent Developments
COVID-19
In March 2020, the World Health Organization categorized coronavirus disease 2019 (“COVID-19”) as a pandemic. In response, the Company took certain actions to strengthen its financial position and support the continuity of its platform and operations, as follows:
•The Company renegotiated contracts with iHeartCommunicationslandlords and municipalities to better align fixed site lease expenses with reductions in revenue and also received COVID-19-related rent assistance from certain government entities. Where applicable, the Company has applied the April 2020 supplemental Financial Accounting Standards Board (“FASB”) staff guidance regarding accounting for rent concessions resulting from COVID-19. The Company recognized reductions of fixed rent payments on lease and non-lease contracts due to rent abatements of $52.3 million, $98.5 million and $77.7 million during 2022, 2021 and 2020, respectively, which was partially offset by variable rent expense. Negotiated deferrals of rent payments did not result in a reduction of rent expense.
There are several agreements◦In 2022, government assistance for COVID-19 relief comprised $16.2 million of the total rent abatements recognized, including $13.3 million provided to our U.S. airports and $2.9 million provided by various government entities in Europe.
•The Company received European governmental support and wage subsidies in response to COVID-19 of $0.8 million, $4.4 million and $15.6 million during 2022, 2021 and 2020, respectively. These subsidies have been recorded as reductions in compensation and rent costs within direct operating expenses and selling, general and administrative expenses as appropriate. Additionally, in 2022, the Company received $3.9 million of property tax reliefs from the U.K. government, which governhave been recorded as a reduction in direct operating expenses.
•The Company implemented restructuring plans to reduce headcount and incurred costs pursuant to these plans of $0.8 million, $31.9 million and $14.6 million during 2022, 2021 and 2020, respectively. Refer to Note 4 for additional details.
•In June 2021, one of the Company’s relationship with iHeartCommunications includingsubsidiaries in Europe borrowed €30.0 million, or approximately $32.1 millionat current exchange rates, through a state-guaranteed loan program established in response to COVID-19. Refer to Note 6 for additional details.
CLEAR CHANNEL OUTDOOR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Dispositions
In December 2022, the Master Agreement, Corporate Services Agreement, Employee Matters Agreement, Tax Matters Agreement and Trademark and License Agreement. iHeartCommunications has the right to terminate these agreements in various circumstances. AsCompany announced that Clear Channel International Limited, a wholly-owned subsidiary of the dateCompany, had entered into a definitive agreement to sell its business in Switzerland to Goldbach Group AG, an affiliate of TX Group AG, for cash consideration of approximately $92.7 million based on exchange rates at the time of the filingagreement. The transaction is subject to regulatory approval, receipt of this report, no notice of termination of any of these agreements has been received from iHeartCommunications.
Going Concern
Duringa customary tax ruling with respect to a transaction-related reorganization and other customary closing conditions and is expected to close in the second or third quarter of 2014,2023, depending on satisfaction of the FASB issued ASU No. 2014-15, Presentationconditions to closing. Assets and liabilities of the Company’s business in Switzerland are presented as held for sale on the Company’s Consolidated Balance Sheet as of December 31, 2022. Refer to Note 16 for additional details.
On April 28, 2020, the Company tendered its 50.91% stake in Clear Media Limited (“Clear Media”), a former indirect, non-wholly owned subsidiary of the Company based in China, pursuant to a voluntary conditional cash offer made by and on behalf of Ever Harmonic Global Limited (“Ever Harmonic”), and on May 14, 2020, the Company received $253.1 million in cash proceeds from the sale of its shares in Clear Media. The Company recognized a gain on the sale of Clear Media of $75.2 million, which is recorded within “Other operating expense (income), net” on the Company’s Consolidated Statement of Loss for the year ended December 31, 2020.
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Preparation of Financial Statements - Going Concern (Subtopic 205-40): Disclosure
Principles of Uncertainties about an Entity's Ability to ContinueConsolidation
The consolidated financial statements include the accounts of the Company and its subsidiaries, as well as entities for which the Company has a controlling financial interest or is the primary beneficiary. The Company reports noncontrolling interests in consolidated subsidiaries as a Going Concern. This update provides U.S. GAAP guidance on management’s responsibility in evaluating whether there is substantial doubt about a company’s ability to continue as a going concern and about related footnote disclosures. For each reporting period, the Company will be required to evaluate whether there are conditions or events that raise substantial doubt about a company’s ability to continue as a going concern within one yearcomponent of equity separate from the dateCompany’s equity. Intercompany transactions have been eliminated in consolidation.
Foreign Currency
Results of operations for foreign subsidiaries are translated into U.S. dollars using average exchange rates, and the financial statementsassets and liabilities of foreign subsidiaries are issued.translated into U.S. dollars using the exchange rates at the balance sheet date. The amendments in this updaterelated translation adjustments are effective for annual periods ending after December 15, 2016,recorded within “Accumulated other comprehensive loss” within Stockholders’ Deficit on the Company’s Consolidated Balance Sheets. Foreign currency transaction gains and for interim periods thereafter. The Company adopted this standard forlosses are recorded within “Other income (expense), net” on the year-ended December 31, 2016. See Note 6 - Related Party Transactions.Company’s Consolidated Statements of Loss.
Use of Estimates
The preparation of theCompany’s consolidated financial statements have been prepared in conformityaccordance with U.S. generally accepted accounting principles (“GAAP”) requires management to makeand reflect estimates judgments, and assumptions made by management that affect the amounts reported in the consolidated financial statements and accompanying notes including, but not limited to, legal,notes. Such estimates and assumptions affect, among other things, the Company’s goodwill, long-lived assets and indefinite-lived intangible assets; operating lease right-of-use assets and operating lease liabilities; assessment of the annual effective tax rate; valuation of deferred income taxes and insuranceincome tax contingencies; defined-benefit plan obligations; the allowance for credit losses; assessment of lease and non-lease contract expenses; measurement of compensation cost for bonus and other compensation plans; and litigation accruals. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. Actual results could differ from those estimates.
Principles of ConsolidationPresentation Changes
The consolidated financial statements includeIn accordance with the accounts of the Company and its subsidiaries. Also includedsegment change described in the consolidated financial statements are entities for whichNote 1, the Company has a controlling financial interest or isrevised its segment disclosures for prior periods to conform to the primary beneficiary. Investments in companies in which the Company owns 20 percent to 50 percent of the voting common stock or otherwise exercises significant influence over operating and financial policies of the Company are accounted for using the equity method of accounting. All significant intercompany accounts have been eliminated in consolidation.
Certaincurrent period presentation. Additionally, certain prior period amounts in the Consolidated Statements of Cash Flows have been reclassified to conform to the 20162022 presentation. Included
Assets and Liabilities Held for Sale
The Company classifies assets and liabilities of a business as held for sale when the criteria prescribed by Accounting Standards Codification (“ASC”) Paragraph 205-20-45-1E are met, most notably when sale of the business is probable within the next year and it is unlikely there will be significant changes to the plan of sale. As described in International Outdoor Direct operating expensesNote 1, assets and Selling, generalliabilities of the Company’s business in Switzerland are presented as held for sale on the Company’s Consolidated Balance Sheet as of December 31, 2022. As such, these assets and administrative expenses are $8.2 millionliabilities have been excluded from relevant disclosures within these Notes to the Consolidated Financial Statements. Refer to Note 16 for disclosures about the Company's assets and $3.2 million, respectively, recorded in the fourth quarter of 2015 to correctliabilities held for accounting errors included in the results for our Netherlands subsidiary reported in prior years. Such corrections are not considered to be material to current year or prior year financial results.sale.
CLEAR CHANNEL OUTDOOR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Cash and Cash Equivalents and Restricted Cash
Cash and cash equivalents include all highly liquid investments with an original maturity of three months or less.
Accounts Receivable
Accounts receivable are Restricted cash is recorded at the invoiced amount, net of reserves for sales returnsin “Other current assets” and allowances, and allowances for doubtful accounts. The Company evaluates the collectability of its accounts receivable based on a combination of factors. In circumstances where it is aware of a specific customer’s inability to meet its financial obligations, it records a specific reserve to reduce the amounts recorded to what it believes will be collected. For all other customers, it recognizes reserves for bad debt based on historical experience of bad debts as a percent of revenue for each business unit, adjusted for relative improvements or deteriorations“Other assets” in the agingsCompany’s Consolidated Balance Sheets. Refer to Note 15 for a reconciliation of cash and changes in current economic conditions. The Company believes its concentration of credit risk is limited due to the large number and the geographic diversification of its customers.
Business Combinations
The Company accounts for its business combinations under the acquisition method of accounting. The total cost of an acquisition is allocated to the underlying identifiable net assets, based on their respective estimated fair values. The excess of the purchase price over the estimated fair values of the net assets acquired is recorded as goodwill. Determining the fair value of assets acquired and liabilities assumed requires management's judgment and often involves the use of significant estimates and assumptions, including assumptions with respect to future cash inflows and outflows, discount rates, asset lives and market multiples, among other items. Various acquisition agreements may include contingent purchase consideration based on performance requirements of the investee. The Company accounts for these payments in conformity with the provisions of ASC 805-20-30, which establish the requirements related to recognition of certain assets and liabilities arising from contingencies.
Property, Plant and Equipment
Property, plant and equipment are stated at cost. Depreciation is computed using the straight-line method at rates that,equivalents reported in the opinion of management, are adequateConsolidated Balance Sheets to allocate the cost of such assets over their estimated useful lives, which are as follows:
Buildingscash, cash equivalents and improvements — 10 to 39 years
Structures — 3 to 20 years
Furniture and other equipment — 2 to 20 years
Leasehold improvements — shorter of economic life or lease term assuming renewal periods, if appropriate
For assets associated with a lease or contract, the assets are depreciated at the shorter of the economic life or the lease or contract term, assuming renewal periods, if appropriate. Expenditures for maintenance and repairs are charged to operations as incurred, whereas expenditures for renewal and betterments are capitalized.
The Company tests for possible impairment of property, plant and equipment whenever events and circumstances indicate that depreciable assets might be impaired and the undiscountedrestricted cash flows estimated to be generated by those assets are less than the carrying amounts of those assets. When specific assets are determined to be unrecoverable, the cost basis of the asset is reduced to reflect the current fair market value.
Assets and businesses are classified as held for sale if their carrying amount will be recovered or settled principally through a sale transaction rather than through continuing use. The asset or business must be available for immediate sale and the sale must be highly probable within one year.
Land Leases and Other Structure Leases
Most of the Company’s advertising structures are located on leased land. Americas land leases are typically paid in advance for periods ranging from one to 12 months. International land leases are paid both in advance and in arrears, for periods ranging up to 12 months. Most international street furniture display faces are operated through contracts with municipalities for up to 15 years. The leased land and street furniture contracts often include a percent of revenue to be paid along with a base rent payment. Prepaid land leases are recorded as an asset and expensed ratably over the related rental term and rent payments in arrears are recorded as an accrued liability.
CLEAR CHANNEL OUTDOOR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Intangible Assets
The Company’s indefinite-lived intangible assets include billboard permits in its Americas segment. The Company’s indefinite-lived intangible assets are not subject to amortization, but are tested for impairment at least annually. The Company tests for possible impairment of indefinite-lived intangible assets whenever events or changes in circumstances, such as a significant reduction in operating cash flow or a dramatic changereported in the manner for which the asset is intended to be used indicate that the carrying amountConsolidated Statements of the asset may not be recoverable.Cash Flows.
The Company performs its annual impairment test for its permits using a direct valuation technique as prescribed in ASC 805-20-S99. The Company engages a third party valuation firm, to assist the Company in the development of these assumptions and the Company’s determination of the fair value of its permits.
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, site leases and other contractual rights, all of which are amortized over the shorter of either 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. The Company periodically reviews the appropriateness of the amortization periods related to its definite-lived intangible assets. These assets are recorded at cost. Permanent easements are indefinite-lived intangible assets which include certain rights to use real property not owned by the Company.
The Company tests for possible impairment of other intangible assets whenever events and circumstances indicate that they might be impaired and the undiscounted cash flows estimated to be generated by those assets are less than the carrying amounts of those assets. When specific assets are determined to be unrecoverable, the cost basis of the asset is reduced to reflect the current fair market value.
Goodwill
The Company performs its annual impairment test on July 1 of each year. The Company uses a discounted cash flow model to determine if the carrying value of the reporting unit, including goodwill, is less than the fair value of the reporting unit. The Company identified its reporting units in accordance with ASC 350-20-55. The Company’s U.S. outdoor advertising markets are aggregated into a single reporting unit for purposes of the goodwill impairment test. The Company also determined that within its Americas segment, Canada constitutes a separate reporting unit and each country in its International outdoor segment constitutes a separate reporting unit. The Company had impairment of goodwill of $7.3 million for 2016 and no impairment of goodwill for 2015 and 2014.
Nonconsolidated Affiliates
In general, investments in which the Company owns 20 percent to 50 percent of the common stock or otherwise exercises significant influence over the investee are accounted for under the equity method. The Company does not recognize gains or losses upon the issuance of securities by any of its equity method investees. The Company reviews the value of equity method investments and records impairment charges in the statement of operations as a component of “Equity in earnings (loss) of nonconsolidated affiliates” for any decline in value that is determined to be other-than-temporary.
Other Investments
Other investments are composed primarily of equity securities. Securities for which fair value is determinable are classified as available-for-sale or trading and are carried at fair value based on quoted market prices. Securities are carried at historical cost when quoted market prices are unavailable. The net unrealized gains or losses on the available-for-sale securities, net of tax, are reported in accumulated other comprehensive loss as a component of stockholders’ equity (deficit).
The Company periodically assesses the value of available-for-sale and non-marketable securities and records impairment charges in the statement of comprehensive loss for any decline in value that is determined to be other-than-temporary. The average cost method is used to compute the realized gains and losses on sales of equity securities. Based on these assessments, no impairments existed at December 31, 2016, 2015 and 2014.
Financial Instruments
The Company recognizes accounts receivable, accounts payable and debt in its Consolidated Balance Sheets at their carrying amounts. Due to their short maturity,maturities, the carrying amounts of accounts receivable and notes receivable, accounts payable accrued liabilities and short-term borrowings approximatedapproximate their fair valuesvalues. Refer to Note 6 for the Company’s fair value measurement of debt.
Accounts Receivable
Adoption of ASU 2016-13
As of January 1, 2020, the Company adopted Accounting Standards Update (“ASU”) 2016-13, Measurement of Credit Losses on Financial Instruments, and all subsequently issued related amendments, which changed the methodology used to recognize impairment of the Company’s accounts receivable. Under the ASU, financial assets are presented at December 31, 2016the net amount expected to be collected, requiring immediate recognition of estimated credit losses expected to occur over the asset’s remaining life. This is in contrast to previous GAAP, under which credit losses were not recognized until it was probable that a loss had been incurred. The Company adopted the ASU on a modified-retrospective basis through a cumulative-effect adjustment to retained earnings as of January 1, 2020, resulting in a decrease to equity of $7.2 million, including $5.4 million related to Clear Media. The Company performed its expected credit loss calculation separately by segment based on historical accounts receivable write-offs, including consideration of then-existing economic conditions and 2015.COVID-19.
Accounts Receivable Policies
Accounts receivable are recorded when the Company has an unconditional right to payment, either because it has satisfied a performance obligation prior to receiving payment from the customer or has a non-cancelable contract that has been billed in advance in accordance with the Company’s normal billing terms.
Accounts receivable are recorded at the invoiced amount, net of allowances for credit losses. The Company evaluates the collectability of its accounts receivable based on a combination of factors. In circumstances where it is aware of a specific customer’s inability to meet its financial obligations, it records a specific reserve to reduce the amounts recorded to what it believes will be collected. For all other customers, the Company applies historical write-off rates, net of recoveries, to outstanding accounts receivable balances by aging bucket to determine the expected credit loss. Credit loss expense (reversal) related to accounts receivable was $6.5 million, $(2.7) million, and $19.4 million during 2022, 2021, and 2020, respectively. The increase in credit loss expense in 2020 was primarily due to COVID-19, and we experienced a net credit loss reversal in 2021 related to our recovery from COVID-19.
The Company believes its concentration of credit risk is limited due to the large number and the geographic diversification of its customers.
Property, Plant and Equipment
Property, plant and equipment are stated at cost. Expenditures for maintenance and repairs are charged to operations as incurred, whereas expenditures for renewals and betterments are capitalized.
Depreciation is computed using the straight-line method at rates that, in the opinion of management, are adequate to allocate the cost of such assets over their estimated useful lives, which are as follows:
Structures — 3 to 20 years
Furniture and other equipment — 2 to 20 years
Buildings and improvements — 10 to 39 years
Leasehold improvements — shorter of economic life or lease term assuming renewal periods, if appropriate
CLEAR CHANNEL OUTDOOR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Asset Retirement Obligation
ASC 410-20 requires the Company to estimate its obligation upon the termination or non-renewal of a lease to dismantle and remove its advertising structures from the leased land and to reclaim the site to its original condition. The Company’s asset retirement obligation is reported in “Other long-term liabilities.” The Company recordstests for possible impairment of property, plant and equipment whenever events and circumstances indicate that depreciable assets might be impaired and the present valueundiscounted cash flows estimated to be generated by those assets are less than the carrying amounts of obligations associated with the retirement of its advertising structures in the period in which the obligation is incurred.those assets. When the liability is recorded,specific assets are determined to be unrecoverable, the cost is capitalized as partbasis of the related advertising structures carrying amount. Over time, accretion ofasset is reduced to reflect the liability is recognized as an operating expense and the capitalized cost is depreciated over the expected useful life of the related asset.
Income Taxes
current fair market value. The Company accounts for income taxes using the liability method. Under this method, deferred tax assetsdid not recognize any impairments on property, plant and liabilities are determined based on differences between financial reporting bases and tax bases of assets and liabilities and are measured using the enacted tax rates expected to apply to taxable income in the periods in which the deferred tax asset or liability is expected to be realized or settled. Deferred tax assets are reduced by valuation allowances if the Company believes it is more likely than not that some portion or the entire asset will not be realized. Generally, all earnings from the Company’s foreign operations are permanently reinvested and not distributed. The Company has not provided U.S. federal income taxes for temporary differences with respect to investments in foreign subsidiaries, which at December 31, 2016, currently result in tax basis amounts greater than the financial reporting basis. It is not apparent that these unrecognized deferred tax assets will reverse in the foreseeable future. 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 deficits, as calculated for tax law purposes, in our foreign earnings and profits, which gives us flexibility to make future cash distributions as non-taxable returns of capital. We regularly review our tax liabilities on amounts that may be distributed in future periods and provide for foreign withholding and other current and deferred taxes on any such amounts. The determination of the amount of federal income taxes, if any, that might become due in the event that our foreign earnings are distributed is not practicable.
The operations of the Company are included in a consolidated U.S. Federal income tax return filed by iHeartMedia. However, for financial reporting purposes, the Company’s provision for income taxes has been computed on the basis that the Company files separate consolidated U.S. federal income tax returns with its subsidiaries.
Revenue Recognition
The Company’s advertising contracts cover periods of a few weeks up to one year, and are generally billed monthly. Revenue for advertising space rental is recognized ratably over the term of the contract. Advertising revenue is reported net of agency commissions. Agency commissions are calculated based on a stated percentage applied to gross billing revenue for the Company’s operations. Payments received in advance of being earned are recorded as deferred income. Revenue arrangements typically contain multiple products and services and revenues are allocated based on the relative fair value of each delivered item and recognized in accordance with the applicable revenue recognition criteria for the specific unit of accounting.
Advertising Expense
The Company records advertising expense as it is incurred. Advertising expenses were $19.3 million, $21.1 million and $20.1 million forequipment during the years ended December 31, 2016, 2015 and 2014,2022, 2021 or 2020, respectively.
Share-Based Compensation
Under the fair value recognition provisions of ASC 718-10, share-based compensation cost is measured at the grant date based on the fair value of the award. For awards that vest based on service conditions, this cost is recognized as expense on a straight-line basis over the vesting period. For awards that will vest based on market or performance conditions, this cost will be recognized when it becomes probable that the performance conditions will be satisfied. Determining the fair value of share-based awards at the grant date requires assumptions and judgments about expected volatility and forfeiture rates, among other factors.
Foreign Currency
Results of operations for foreign subsidiaries and foreign equity investees are translated into U.S. dollars using the average exchange rates during the year. The assets and liabilities of those subsidiaries and investees are translated into U.S. dollars using the exchange rates at the balance sheet date. The related translation adjustments are recorded in a separate component of stockholders’ equity (deficit), “Accumulated other comprehensive loss”. Foreign currency transaction gains and losses are included in operations.
CLEAR CHANNEL OUTDOOR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
New Accounting Pronouncements
During the third quarter of 2015, the FASB issued ASU 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date. This update provides a one-year deferral of the effective date for ASU No. 2014-09, Revenue from Contracts with Customers. ASU No. 2014-09 provides guidance for the recognition, measurement and disclosure of revenue resulting from contracts with customers and will supersede virtually all of the current revenue recognition guidance under U.S. GAAP. The standard is effective for the first interim period within annual reporting periods beginning after December 15, 2017. The two permitted transition methods under the new standard are the full retrospective method, in which case the standard would be appliedRefer to each prior reporting period presented and the cumulative effect of applying the standard would be recognized at the earliest period shown, or the modified retrospective method, in which case the cumulative effect of applying the standard would be recognized at the date of initial application. The Company expects to utilize the full retrospective method. The Company has substantially completed its evaluation of the potential changes from adopting the new standard on its future financial reporting and disclosures which included reviews of contractual terms for all of the Company’s significant revenue streams and the development of an implementation plan. The Company continues to execute on its implementation plan, including detailed policy drafting and training of segment personnel. Based on its evaluation, the Company does not expect material changes to its 2016 or 2017 consolidated revenues, operating income or balance sheets as a result of the implementation of this standard.
During the second quarter of 2015, the FASB issued ASU No. 2015-03, Interest-Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs. This update simplifies the presentation of debt issuance costs as a deduction from the carrying value of the outstanding debt balance rather than showing the debt issuance costs as an asset. The standard is effective for annual periods, and for interim periods within those annual periods, beginning after December 15, 2015. The retrospective adoption of this guidance resulted in the reclassification of debt issuance costs of $50.4 million as of December 31, 2015, which are now reflected as “Long-term debt fees” in Note 4.
During the first quarter of 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). The new leasing standard presents significant changes to the balance sheets of lessees. Lessor accounting is updated to align with certain changes in the lessee model and the new revenue recognition standard which was issued in the third quarter of 2015. The standard is effective for annual periods, and for interim periods within those annual periods, beginning after December 15, 2018. The Company is currently evaluating the impact of the provisions of this new standard on its consolidated financial statements.
During the second quarter of 2016, the FASB issued ASU No. 2016-09, Compensation - Stock Compensation (Topic 718). This update changes the accounting for certain aspects of share-based payments to employees. Income tax effects of share-based payment awards will be recognized in the income statement with the vesting or settlement of the awards and the record keeping10 for additional paid-in capital pools will no longer be necessary. Additionally, companies can make a policy election to either estimate forfeitures or recognize them as they occur. The standard is effective for annual periods, and for interim periods within those annual periods, beginning after December 15, 2016. The Company does not expect the provisions of this new standard to have a material impact on its consolidated financial statements.
During the second quarter of 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326). The new standard changes the impairment model for most financial assets and certain other instruments. Entities will be required to use a model that will result in the earlier recognition of allowances for losses for trade and other receivables, held-to-maturity debt securities, loans and other instruments. For available-for-sale debt securities with unrealized losses, the losses will be recognized as allowances rather than as reductions in the amortized cost of the securities. For an SEC filer, the standard is effective for annual periods, and for interim periods within those annual periods, beginning after December 15, 2019. The Company is currently evaluating the impact of the provisions of this new standard on its consolidated financial statements.
During the third quarter of 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230). The new standard addresses the classification of cash flows related to certain cash receipts and cash payments. Additionally, the standard clarifies how the predominance principle should be used when cash receipts and cash payments have aspects of more than one class of cash flows. First, an entity will apply the guidance in Topic 230 and other applicable topics. If there is no guidance for those cash receipts and cash payments, an entity will determine each separately identifiable source or use and classify the receipt or payment based on the nature of the cash flow. If a receipt or payment has aspects of more than one class of cash flows and cannot be separated, the classification will depend on the predominant source or use. The standard is effective for annual periods, and for interim periods within those annual periods, beginning after December 15, 2017. The Company is currently evaluating the impact of the provisions of this new standard on its consolidated financial statements.
NOTE 2 – PROPERTY, PLANT AND EQUIPMENT, INTANGIBLE ASSETS AND GOODWILL
CLEAR CHANNEL OUTDOOR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Dispositions
During the first quarter of 2016, Americas sold nine non-strategic outdoor markets including Cleveland and Columbus, Ohio, Des Moines, Iowa, Ft. Smith, Arkansas, Memphis, Tennessee, Portland, Oregon, Reno, Nevada, Seattle, Washington and Wichita, Kansas for net proceeds, which included cash and certain advertising assets in Florida, totaling $592.3 million. The Company recognized a net gain of $278.3 million related to the sale, which is included within Other operating income (expense), net.
During the first quarter of 2016, Americas also entered into an agreement to sell its Indianapolis, Indiana market in exchange for certain assets in Atlanta, Georgia, plus approximately $41.2 million in cash. The transaction closed in January 2017 and was classified as held-for-sale and the related assets are separately presented on the face of the Consolidated Balance Sheet.
During the second quarter of 2016, International sold its business in Turkey. As a result, the Company recognized a net loss of $56.6 million, which includes $32.2 million in cumulative translation adjustments that were recognized upon the sale ofdisclosures about the Company's subsidiaries in Turkey.property, plant and equipment.
During the fourth quarter of 2016, International sold its business in Australia for cash proceeds of $195.7 million, net of cash retained by the purchaser and closing costs. As a result, the Company recognized a net gain of $127.6 million, which is net of $14.6 million in cumulative translation adjustments that were recognized upon the sale of the Company's business in Australia.
Property, Plant and EquipmentPermits
The Company’s property, plant and equipment consisted of the following classes of assets as of December 31, 2016 and 2015, respectively.
|
| | | | | | | |
| (In thousands) | December 31, | | December 31, |
| | 2016 | | 2015 |
| Land, buildings and improvements | $ | 152,775 |
| | $ | 167,739 |
|
| Structures | 2,684,673 |
| | 2,824,794 |
|
| Furniture and other equipment | 148,516 |
| | 156,046 |
|
| Construction in progress | 58,585 |
| | 54,701 |
|
| | 3,044,549 |
| | 3,203,280 |
|
| Less: accumulated depreciation | 1,631,716 |
| | 1,575,294 |
|
| Property, plant and equipment, net | $ | 1,412,833 |
| | $ | 1,627,986 |
|
Indefinite-lived Intangible Assets
The Company’s indefinite-lived intangible assets consist primarily of billboard permits. The Company’s billboardAmerica segment has permits that are granted for the right to operate and maintain an advertising structure at thea specified location as long as the structure is in compliance with the laws and regulations of each jurisdiction. The Company’s permits arerelate to land use approvals for billboards located on owned land leased landthe Company owns, leases, manages or land for which we haveit has acquired permanent easements. Permits are typically subject to annual renewals by the state and/or local government and are typically transferable or renewable for a minimal or no fee. However, if a structure is modified for any reason (for example, change in height or conversion of an advertising display from printed media to digital media), the state and/or local government may require a revised, additional or new permit for the modification. In such cases, where the Company’s permits are located on leased land, the leases typically have initial terms of between 10 and 20 years and renew indefinitely, with rental payments generally escalating at an inflation-based index. If the Company loses its lease,typically surrenders the Company will typically obtain permission to relocate theexisting permit or bank itconcurrently with the municipalityapproval of the requested modification.
Historical Treatment as Indefinite-Lived Assets
Historically, these permits primarily related to static assets and were accounted for future use. Due to significant differences in both business practices and regulations, billboards in the International segment areas indefinite-lived intangible assets. As such, they were not subject to long-term, finite contracts unlike the Company’s permits in the United States and Canada. Accordingly, there are no indefinite-lived intangible assets in the International segment.
Annual Impairment Test to Billboard Permits
The Company performs its annualamortization but were tested for impairment test onat least annually, as of July 1 of each year.year, or whenever events or changes in circumstances indicated that it was more likely than not that the carrying amount of the asset exceeded its fair value. The impairment tests for indefinite-lived intangible assets consisttest consisted of a comparison betweenof the fair value of the indefinite-lived intangible assetassets at the market level with itstheir carrying amount.amounts. If the carrying amount ofamounts exceeded the indefinite-lived intangible asset exceeds its fair value, an impairment loss iswas recognized equal to that excess. After an impairment loss is recognized,excess, and the adjusted carrying amount of the indefinite-lived asset isbecame its new accounting basis. The
In accordance with ASC Section 805-20-S99, the fair valuevalues of the indefinite-lived asset isassets were determined using the direct valuation method, as prescribed in ASC 805-20-S99. Under the direct valuation method, the fair value of the indefinite-lived assets is calculated at the market level as prescribed by ASC 350-30-35. The Company engaged a third-party valuation firm, to assist it in the development of the assumptions and the Company’s determination of the fair value of its indefinite-lived intangible assets.
CLEAR CHANNEL OUTDOOR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The application of the direct valuation method attempts to isolate the income that is properly attributable to the indefinite-lived intangible asset alone (that is, apart from tangible and identified intangible assets and goodwill). It is based upon modeling a hypothetical “greenfield” build-up to a “normalized” enterprise that, by design, lacks inherent goodwill and whose only other assets have essentially been paid for (or added) as part of the build-up process. The Company forecasts revenue, expenses and cash flows over a ten-year period for each of its markets in its application of the direct valuation method. The Company also calculates a “normalized” residual year which represents the perpetual cash flows of each market. The residual year cash flow was capitalized to arrive at the terminal value of the permits in each market.
Under the direct valuation method, it is assumedassumes that rather than acquiring indefinite-lived intangible assets as part of a going concern business, the buyer hypothetically develops indefinite-lived intangiblethese assets and builds a new operation with similar attributes from scratch. Thus, the buyer incurs start-up costs during the build-up phase whichthat are normally associated with going concern value. Initial capital costs are deducted from the discounted cash flow model which results into calculate the value that is directly attributable to the indefinite-lived intangible assets. In its application of the direct valuation method, the Company forecasted revenue, expenses and cash flows over a ten-year period for each of its markets and also calculated a “normalized” residual year, which represented the perpetual cash flows of each market. The residual year cash flow was then capitalized to arrive at the terminal value of the permits in each market.
The key assumptions usingused by the Company in its direct valuation method areof indefinite-lived permits were market revenue growth rates, market share, profit margin, duration and profile of the build-up period, estimated start-up capital costs and losses incurred during the build-up period, the risk-adjusted discount rate and terminal values. This data iswas populated using industry normalizedindustry-normalized information representing an average billboard permit within a market.market, and the Company engaged a third-party valuation firm to assist with the development of its assumptions used to determine of the fair value of the permits.
During 2016,As a result of these impairment tests, the Company recognized no impairment charges on its indefinite-lived permits of $21.8 million, $119.0 million, and $140.7 million during 2022, 2021 and 2020, respectively, driven by a combination of rising interest rates, inflation and reductions in projected cash flows related to billboard permits. the negative impacts of COVID-19.
Change in Accounting Estimate
During 2015,the fourth quarter of 2022, the Company recognizedconcluded that due to changes in facts and circumstances, these permits should no longer have an indefinite useful life and should start being amortized. Specifically, as the Company plans to accelerate the digitization of its network of billboard assets as a key component of its business strategy, the estimated useful lives of the original permits (applicable to the static assets) are no longer indefinite.
As such, beginning in the fourth quarter of 2022, the Company began to amortize its permits on a straight-line basis over their estimated useful lives, which range from 8 to 17 years depending upon the market. This change in accounting estimate resulted in $16.1 million of amortization expense during the fourth quarter of 2022, resulting in a reduction of the same amount to consolidated net loss and a reduction of $0.03 to net loss per share of common stock. The Company expects a similar impact in future quarters, assuming no material permit acquisitions or dispositions.
CLEAR CHANNEL OUTDOOR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In accordance with ASC Paragraph 350-30-35-17, the Company tested its permits for impairment charge of $21.6 million relatedimmediately prior to billboard permitsthe change in one market.useful life, which did not result in any additional impairment charges.
Refer to Note 11 for additional disclosures about the Company’s permits.
Other Intangible Assets
Other intangible assets include definite-livedtransit, street furniture and other outdoor contractual rights; permanent easements; trademarks; and other miscellaneous intangible assets and permanent easements. assets.
•The Company’s definite-lived intangible assets consist primarily of transit, and street furniture contracts, site-leases and other contractual rights all of which are finite-lived intangible assets that are recorded at cost and amortized over the shorter of either 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-livedthese finite-lived intangible assets. These
•Permanent easements are indefinite-lived intangible assets that include certain rights to use real property not owned by the Company and are recordedtested for impairment at cost.least annually, as of July 1.
•The Company’s trademarks were received as part of the Company’s separation from iHeartCommunications, Inc. on May 1, 2019 and have a useful life of ten years.
The following table presents the gross carrying amount and accumulated amortizationCompany tests for each major classpossible impairment of other intangible assets aswhenever events and circumstances indicate that they might be impaired and the undiscounted cash flows estimated to be generated by those assets are less than their carrying amounts. When a specific asset is determined to be unrecoverable, the cost basis of December 31, 2016 and 2015, respectively:
|
| | | | | | | | | | | | | | | |
| (In thousands) | December 31, 2016 | | December 31, 2015 |
| | Gross Carrying Amount | | Accumulated Amortization | | Gross Carrying Amount | | Accumulated Amortization |
Transit, street furniture and other outdoor contractual rights | $ | 563,863 |
| | $ | (426,752 | ) | | $ | 635,772 |
| | $ | (457,060 | ) |
| Permanent easements | 159,782 |
| | — |
| | 156,349 |
| | — |
|
| Other | 4,536 |
| | (1,812 | ) | | 9,687 |
| | (1,884 | ) |
| Total | $ | 728,181 |
| | $ | (428,564 | ) | | $ | 801,808 |
| | $ | (458,944 | ) |
Total amortization expense relatedthe asset is reduced to definite-livedreflect the current fair market value. As a result of its impairment tests, the Company recorded $0.9 million of impairment charges on its permanent easements during 2022. The Company did not recognize impairments on any other intangible assets during 2021 or 2020.
Refer to Note 11 for additional disclosures about the years ended December 31, 2016, 2015Company's other intangible assets.
Asset Acquisitions
The Company accounts for transactions that meet the definition of asset group purchases as asset acquisitions and 2014 was $37.8 million, $49.2allocates the acquisition purchase price to the assets acquired at their estimated relative fair values at the date of acquisition, which is typically determined by using either discounted cash flow valuation methods or estimates of replacement costs.
During 2022 and 2021, the Company completed several acquisitions of out-of-home advertising assets for total cash consideration of $62.0 million and $66.8$18.5 million, respectively. These asset acquisitions included a combination of billboard structures, land, permits and permanent easements. Refer to Notes 10 and 11 for additional disclosures about these acquisitions.
CLEAR CHANNEL OUTDOOR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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) | |
| 2017 | $ | 26,934 |
|
| 2018 | 19,907 |
|
| 2019 | 15,468 |
|
| 2020 | 13,204 |
|
| 2021 | 13,721 |
|
Annual Impairment Test to Goodwill
The Company has previously recorded goodwill in conjunction with business combinations, and it performs itsan annual impairment test of its goodwill balance on July 1 of each year. EachIn accordance with ASC Subtopic 350-20, the carrying amount of the Company’s advertising markets are components. The U.S. advertising markets are aggregated into a singleeach reporting unit for purposes of the(including goodwill) is compared to its fair value, and any excess is recorded as a goodwill impairment test usingcharge, limited to the guidance in ASC 350-20-55. The Company also determined that within its Americas segment, Canada constitutes a separate reporting unit and each country in its International segment constitutes a separatetotal amount of goodwill allocated to the reporting unit.
The goodwill impairment test is a two-step process. The first step, used to screen for potential impairment, compares the fair value of the reporting unit withCompany identifies its carrying amount, including goodwill. If applicable, the second step, used to measure the amount of the impairment loss, compares the implied fair value of the reporting unit goodwill with the carrying amount of that goodwill.
Each of the Company’s reporting units is valued usingin accordance with ASC Subtopic 350-20 and uses a discounted cash flow model to determine the fair value of each reporting unit, which requires estimatingthe Company to estimate future cash flows expected to be generated from the reporting unit, discounted to their present value using a risk-adjusted discount rate. Terminal values wereare also estimated and discounted to their present value. Assessing the recoverability of goodwill requires the Company to make estimates and assumptions about sales, operating margins, growth rates and discount rates based on its budgets, business plans, economic projections, anticipated future cash flows and marketplace data. There are inherent uncertainties related to these factors and management’s judgment in applying these factors.
The Company recognized goodwill impairment of $7.3 million for the year ended December 31, 2016 based on declining future cash flows expected in one country in the International segment and no goodwill impairment for the year ended December 31, 2015.Before Segment Change
The following table presents the changes in the carrying amount of goodwill inHistorically, each of the Company’s reportable segments:advertising markets was considered a component of the Company. For purposes of the goodwill test, the U.S. advertising markets within the Company’s Americas segment were aggregated into a single reporting unit, Americas; the countries within the Company’s Europe segment were aggregated into a single reporting unit, Europe; and the countries within our Latin America operating segment were aggregated into a single reporting unit, Latin America. Prior to the sale of Clear Media, the Company also had a China reporting unit.
|
| | | | | | | | | | | |
| (In thousands) | Americas | | International | | Consolidated |
| Balance as of December 31, 2014 | $ | 584,574 |
| | $ | 232,538 |
| | $ | 817,112 |
|
| Acquisitions | — |
| | 10,998 |
| | 10,998 |
|
| Foreign currency | (709 | ) | | (19,644 | ) | | (20,353 | ) |
| Assets held for sale | (49,182 | ) | | — |
| | (49,182 | ) |
| Balance as of December 31, 2015 | $ | 534,683 |
| | $ | 223,892 |
| | $ | 758,575 |
|
| Impairment | — |
| | (7,274 | ) | | (7,274 | ) |
| Dispositions | (6,934 | ) | | (30,718 | ) | | (37,652 | ) |
| Foreign currency | (1,998 | ) | | (5,051 | ) | | (7,049 | ) |
| Assets held for sale | (10,337 | ) | | — |
| | (10,337 | ) |
| Balance as of December 31, 2016 | $ | 515,414 |
| | $ | 180,849 |
| | $ | 696,263 |
|
TheAs a result of its impairment tests, the Company recognized an impairment charge of $9.7 million during 2020, representing the entire goodwill balance at December 31, 2014 is net of cumulative impairments of $2.6 billion and $326.6 million in the Company’s Americas and International segments, respectively.Latin America reporting unit. No goodwill impairment was recorded in 2022 or 2021.
CLEAR CHANNEL OUTDOOR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 – ASSET RETIREMENT OBLIGATION
TheRelated to the planned disposal of the Company’s asset retirement obligationbusiness in Switzerland, as described in Note 1, the Company allocated a portion of Europe’s goodwill balance to its Switzerland component based on the relative fair values of this component and the portion of the Europe reporting unit that will be retained, in accordance with ASC Section 350-20-40. This goodwill is reported in “Other long-term liabilities”the “Assets held for sale” line of the Consolidated Balance Sheet at December 31, 2022. Refer to Note 16 for additional details.
After Segment Change
In conjunction with the current portion recordedCompany’s change to its reportable segments effective December 31, 2022, as described in “AccruedNote 1, the Company revised its reporting units to be as follows: America, Airports, Europe-North, Europe-South, Latin America and Singapore.
In accordance with ASC Paragraph 350-20-35-45, the Company applied the relative fair value approach to allocate its existing goodwill (excluding the goodwill allocated to Switzerland, which is classified as held for sale) to these new reporting units as of December 31, 2022. Based on the fair value of each new reporting unit, which the Company determined with assistance from a valuation specialist, goodwill previously allocated to the historical Americas reporting unit was allocated to the new America and Airports reporting units, and goodwill previously allocated to the historical Europe reporting unit was allocated to the new Europe-North and Europe-South reporting units. Our Latin America reporting unit was not impacted by the reorganization and does not have any associated goodwill.
The Company tested its goodwill for impairment immediately before and after the segment change and reallocation. The testing performed on the Company’s historical reporting units prior to the reallocation did not identify impairment; however, the testing performed on the new reporting units subsequent to the reallocation resulted in an impairment charge of $16.9 million, representing the entire goodwill balance allocated to the Europe-South reporting unit, excluding assets held for sale.
Refer to Note 11 for additional disclosures about the Company's goodwill.
Leased Assets
The Company enters into contracts to use land, buildings and office space, structures, and other equipment such as automobiles and copiers. Some of these contracts enable the Company to display advertising on buses, bus shelters, trains and other private or municipal assets. Additionally, most of the Company’s advertising structures are located on leased land.
Arrangements involving the use of property, plant and equipment are evaluated at inception to determine whether they contain a lease under ASC Topic 842. The majority of the Company’s transit contracts do not meet the definition of a lease under ASC Topic 842 due to substantive substitution rights within those contracts.
The Company's leases are primarily operating leases, including land lease contracts and lease contracts for the use of space on floors, walls and exterior locations on buildings. The land leases typically have initial terms ranging up to 20 years with options to renew, and rental payments generally escalate at a defined rate. Land leases are typically paid in advance for periods ranging up to 12 months, although some of our international land leases are paid in advance for longer periods or in arrears. Certain of the Company's street furniture contracts also meet the definition of an operating lease. Most international street furniture display faces are operated through contracts with municipalities, which typically have terms ranging up to 15 years.
Operating leases are reflected on the Company’s Consolidated Balance Sheets as “Operating lease right-of-use assets,” and the related short-term and long-term liabilities are included within “Current operating lease liabilities” and relates“Non-current operating lease liabilities,” respectively. Right-of-use (“ROU”) assets represent the right to use an underlying asset for the lease term, and lease liabilities represent the obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at lease commencement based on the present value of lease payments over the lease term, and lease expense is recognized on a straight-line basis over the lease term. The Company’s finance leases are included within “Property, plant and equipment” on the Consolidated Balance Sheets, and the related short-term and long-term liabilities are included within “Current portion of long-term debt” and “Long-term debt,” respectively. Expenditures for maintenance are charged to operations as incurred.
Certain of the Company’s operating lease agreements include rental payments that are based on a percentage of revenue, and others include rental payments that are adjusted periodically for inflationary changes. Percentage rent contracts, in which lease expense is calculated as a percentage of advertising revenue, and payments due to changes in inflationary adjustments are included within variable rent expense, which is accounted for separately from periodic straight-line lease expense. Amounts related to insurance and property taxes in lease arrangements when billed on a pass-through basis are allocated to the lease and non-lease components of the lease based on their relative standalone selling prices. The Company is commonly assessed VAT on its international contracts, which is treated as a non-lease component.
CLEAR CHANNEL OUTDOOR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Many of the Company’s operating lease contracts permit the Company to continue operating the leased assets after the rights and obligations of the lease agreements have expired. Such contracts are not considered to be leases after they expire, and future expected payments are not included in operating lease liabilities or ROU assets. Additionally, many of the Company's leases entered into in connection with advertising structures provide options to extend the terms of the agreements. Renewal periods are generally excluded from minimum lease payments when calculating lease liabilities as the Company does not consider exercise of such options to be reasonably certain for most leases. Therefore, unless exercise of a renewal option is considered reasonably certain, the optional terms and payments are not included within the lease liability. The Company’s lease agreements do not contain material residual value guarantees or material restrictive covenants.
The implicit rate within the Company’s lease agreements is generally not determinable. As such, the Company uses the incremental borrowing rate (“IBR”) to determine the present value of lease payments at the commencement of the lease. The IBR, as defined in ASC Topic 842, is the rate of interest that a lessee would have to pay to borrow on a collateralized basis over a similar term at an amount equal to the lease payments in a similar economic environment.
Refer to Note 7for additional disclosures about the Company’s operating leases.
Asset Retirement Obligations
ASC Subtopic 410-20 requires the Company to estimate its obligation to dismantle and remove outdoorits advertising displaysstructures from leased land and to reclaim the site to its original condition upon the termination or non-renewal of a lease or contract. WhenThe Company’s asset retirement obligation is reported in “Other long-term liabilities” on the liabilityCompany’s Consolidated Balance Sheets.
The Company records the present value of obligations associated with the retirement of its advertising structures in the period in which the obligation is recorded, the cost is capitalized as part of the related long-lived assets’ carrying value. Due to the high rate of lease renewals over a long period of time, the calculation assumes that all related assets will be removed at some period over the next 55 years.incurred. An estimate of third-party cost information is used with respect to the dismantling of the structures and the reclamation of the site. The calculation assumes that the related assets will be removed at some period over the next 50 years, and the interest rate used to calculate the present value of such costs over the retirement period is based on an estimated risk adjustedrisk-adjusted credit rate for the same period.
When the liability is recorded, the cost is capitalized as part of the related advertising structure’s carrying value. Over time, accretion of the liability is recognized as an operating expense, and the capitalized cost is depreciated over the expected useful life of the related asset.
Refer to Note 12 for additional disclosures about the Company’s asset retirement obligations.
Revenue Recognition
The Company generates revenue primarily from the sale of advertising space on printed and digital out-of-home advertising displays, which may be sold as individual units or as a network package. These contracts typically cover periods of a few weeks to one year, although there are some with longer terms. Revenue contracts in our America and Airports segments are generally cancelable after a specified notice period, and revenue contracts in our international businesses are generally non-cancelable or require the customer to pay a fee to terminate the contract.
Certain of these revenue transactions are considered leases for accounting purposes as the contracts convey to customers the right to control the use of the Company’s advertising displays for a period of time. To qualify as a lease, fulfillment of the contract must be dependent upon the use of a specified advertising structure, the customer must have almost exclusive use of the advertising display throughout the contract term, and the customer must also have the right to change the advertisement that is displayed throughout the contract term. The Company accounts for revenue from leases, which are all classified as operating leases, in accordance with ASC Topic 842, while the Company’s remaining revenue transactions are accounted for as revenue from contracts with customers in accordance with ASC Topic 606.
Revenue from Leases
Under ASC Topic 842, the Company elected a practical expedient to not separate non-lease components from associated lease components if certain criteria are met. As such, each right to control the use of an advertising display that meets the lease criteria is combined with the related installation and maintenance services provided under the contract into a single lease component. Production services, which do not meet the criteria to be combined, and each advertising display that does not meet the lease criteria (along with any related installation and maintenance services) are non-lease components. Consideration in out-of-home advertising contracts is allocated between lease and non-lease components in proportion to their relative standalone selling prices, which are generally approximated by the contractual prices for each promised service.
CLEAR CHANNEL OUTDOOR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Revenue from Contracts with Customers
The Company recognizes revenue when or as it satisfies a performance obligation by transferring a promised good or service to a customer. Revenue from the sale of advertising space on displays is generally recognized ratably over the term of the contract as the advertisement is displayed. The Company also generates revenue from production and creative services, which are distinct from the advertising display services, and related revenue is recognized at the point in time the Company installs the advertising copy at the display site.
The Company recognizes revenue in amounts that reflect the consideration it expects to receive in exchange for transferring goods or services to customers, excluding sales taxes and other similar taxes collected on behalf of governmental authorities (the “transaction price”). When this consideration includes a variable amount, the Company estimates the amount of consideration it expects to receive and only recognizes revenue to the extent that it is probable it will not be reversed in a future reporting period. Because the transfer of promised goods and services to the customer is generally within a year of scheduled payment from the customer, the Company is not typically required to consider the effects of the time value of money when determining the transaction price. Advertising revenue is reported net of agency commissions.
In order to appropriately identify the unit of accounting for revenue recognition, the Company determines which promised goods and services in a contract with a customer are distinct and are therefore separate performance obligations. If a promised good or service does not meet the criteria to be considered distinct, it is combined with other promised goods or services until a distinct bundle of goods or services exists.
For revenue arrangements that contain multiple distinct goods or services, the Company allocates the transaction price to these performance obligations in proportion to their relative standalone selling prices. The Company has concluded that the contractual prices for the promised goods and services in its standard contracts generally approximate management’s best estimate of standalone selling price as the rates reflect various factors such as the size and characteristics of the target audience, market location and size, and recent market selling prices. However, where the Company provides customers with free or discounted services as part of contract negotiations, management uses judgment to determine how much of the transaction price to allocate to these performance obligations.
The Company receives payments from customers based on billing schedules that are established in its contracts, and deferred revenue is recorded when payment is received from a customer before the Company has satisfied the performance obligation or a non-cancelable contract has been billed in advance in accordance with the Company’s normal billing terms. America and Airports contracts are generally billed monthly in advance, and contracts related to our international businesses include a combination of advance billings and billings upon completion of service.
Refer to Note 5 for additional disclosures about the Company’s revenue.
Contract Costs
Incremental costs of obtaining a contract primarily relate to sales commissions, which are included in “Selling, general and administrative expenses” on the Company’s Consolidated Statements of Loss and are generally commensurate with sales. These costs are generally expensed when incurred because the period of benefit is one year or less.
Share-Based Compensation
Under the fair value recognition provisions of ASC Subtopic 718-10, share-based compensation cost is measured at the grant date based on the fair value of the award. For awards that vest based on service conditions, this cost is recognized as expense on a straight-line basis over the requisite service period. For awards that vest based on performance conditions, this cost is recognized over the requisite service period if it is probable that the performance conditions will be satisfied. For awards that vest based on market conditions, this cost is recognized over the requisite service period regardless of whether the market condition is met. Determining the fair value of share-based awards at the grant date requires assumptions and judgments, such as expected volatility, among other factors. Refer to Note 13 for additional disclosures about the Company’s share-based compensation cost.
CLEAR CHANNEL OUTDOOR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Income Taxes
The Company accounts for income taxes using the liability method. Under this method, deferred tax assets and liabilities are determined based on differences between the financial reporting basis and tax basis of assets and liabilities and are measured using the enacted tax rates expected to apply to taxable income in the periods in which the deferred tax asset or liability is expected to be realized or settled. Deferred tax assets are reduced by valuation allowances if the Company believes it is more likely than not that some portion or the entire asset will not be realized. With the exception of the U.S deferred tax liability recorded on the outside basis difference in our Swiss subsidiary, the Company has not provided U.S. federal income taxes for temporary differences with respect to investments in foreign subsidiaries, which in most jurisdictions resulted in tax basis amounts greater than the financial reporting basis at December 31, 2022.
If any excess cash held by our foreign subsidiaries were needed to fund operations in the U.S., the Company could presently repatriate available funds with minimal U.S. tax consequences, as calculated for tax law purposes. The Company regularly reviews its tax liabilities on amounts that may be distributed in future periods and provides for foreign withholding and other current and deferred taxes on any such amounts, where applicable.
Refer to Note 9 for additional disclosures about the Company’s income taxes.
New Accounting Pronouncements Recently Adopted
Government Assistance
In November 2021, the FASB issued ASU 2021-10, Disclosures by Business Entities about Government Assistance, which requires certain annual disclosures about government assistance received by a business entity. The Company adopted this ASU prospectively as of January 1, 2022. Refer to Note 1 for related disclosures.
Reference Rate Reform
For the last several years, there has been an ongoing effort amongst regulators, standard setters, financial institutions and other market participants to replace interbank offered rates, including the London Interbank Offered Rate (“LIBOR”), with alternative reference rates. In the U.S., the Alternative Reference Rates Committee has formally recommended forward-looking Secured Overnight Financing Rate (“SOFR”) term rates as the replacement for USD LIBOR, while various other risk-free rates have been selected to replace LIBOR for other currencies. After December 31, 2021, the ICE Benchmark Administration, LIBOR’s administrator, ceased publication of certain LIBOR rates, and the remaining USD LIBOR rates will be published through June 30, 2023.
In connection with the phasing-out of LIBOR, at the end of 2021 the Company agreed with the lenders under its Senior Secured Credit Agreement to no longer request borrowings in Sterling Pounds or Euros. In February 2023, the Company amended its Term Loan Facility to replace the LIBOR reference rate with SOFR plus a credit spread adjustment. The Company does not expect this amendment to have a material impact on its consolidated financial statements. The Company continues to work with the administrative agents of its Revolving Credit Facility and Receivables-Based Credit Facility to agree on replacement rates for those agreements.
In March 2020, the FASB issued ASU 2020-04, Facilitation of the Effects of Reference Rate Reform on Financial Reporting, in order to ease the potential burden of accounting for reference rate reform initiatives. The update provides temporary optional expedients and exceptions for applying GAAP contract modification accounting to contracts and other transactions affected by reference rate reform if certain criteria are met. In December 2022, the FASB issued ASU 2022-06, Deferral of the Sunset Date of Topic 848, which extends the ability to apply this relief through December 31, 2024. We have elected to use the optional expedients for modifications to replace reference rates in contracts that are within scope of ASC Topic 470, Debt. As such, the amendments to our debt agreements will be accounted for as a continuation of the original contract rather than an extinguishment of the original contract and issuance of a new contract.
NOTE 3 – SEGMENT DATA
As described in Note 1, the Company changed its presentation of segment information during the fourth quarter of 2022 to reflect changes in the way the business is managed and resources are allocated by the Company’s CODM. Effective December 31, 2022, the Company has four reportable segments: America, Airports, Europe-North and Europe-South. The Company's remaining operations in Latin America and Singapore are disclosed as “Other.” While each segment provides out-of-home advertising to customers using various digital and traditional display types, they vary based on geographic area of operations and, in some cases, the form of display:
CLEAR CHANNEL OUTDOOR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
•The America segment serves markets throughout the U.S., with over 90% of its revenue generated from billboard displays.
•The Airports segment provides out-of-home advertising around and within airports in the U.S. and Caribbean.
•The Europe-North segment serves markets in 12 countries throughout northern and central Europe, including the U.K., Sweden, Norway, Belgium, Finland, the Netherlands, Ireland, Poland, Denmark, Estonia, Latvia and Lithuania. Approximately half of this segment’s revenue is generated from street furniture displays, while the remainder comes from retail displays, transit displays and billboards.
•The Europe-South segment serves markets in France, Switzerland, Spain and Italy. Approximately half of this segment’s revenue is generated from street furniture displays, while the remainder comes from billboards, retail displays and transit displays.
Segment Adjusted EBITDA is the profitability metric reported to the Company’s CODM for purposes of making decisions about allocation of resources to, and assessing performance of, each reportable segment. Segment Adjusted EBITDA is calculated as revenue less direct operating expenses and selling, general and administrative expenses, excluding restructuring and other costs, which are defined as costs associated with cost-saving initiatives such as severance, consulting and termination costs and other special costs. Segment information for total assets is not presented as this information is not used by the Company’s CODM in measuring segment performance or allocating resources between segments.
The following tables present the Company’s reportable segment results for the years ended December 31, 2022, 2021 and 2020. The Company has revised its segment disclosures for prior periods to conform to the current period presentation.
| | | | | | | | | | | | | | | | | |
| (In thousands) | Year Ended December 31, |
| | 2022 | | 2021 | | 2020 |
| Revenue | | | | | |
| America | $ | 1,105,552 | | | $ | 1,013,290 | | | $ | 853,183 | |
| Airports | 256,402 | | | 160,330 | | | 123,789 | |
| Europe-North | 566,119 | | | 517,990 | | | 406,783 | |
| Europe-South | 467,106 | | | 472,360 | | | 385,326 | |
Other(1) | 85,955 | | | 77,148 | | | 85,527 | |
| Total | $ | 2,481,134 | | | $ | 2,241,118 | | | $ | 1,854,608 | |
| | | | | |
| Capital Expenditures | | | | | |
| America | $ | 79,529 | | | $ | 56,898 | | | $ | 50,665 | |
| Airports | 25,298 | | | 11,600 | | | 5,647 | |
| Europe-North | 34,025 | | | 36,914 | | | 16,424 | |
| Europe-South | 29,011 | | | 25,362 | | | 26,599 | |
Other(1) | 4,571 | | | 4,884 | | | 12,121 | |
| Corporate | 12,245 | | | 12,348 | | | 12,706 | |
| Total | $ | 184,679 | | | $ | 148,006 | | | $ | 124,162 | |
| | | | | |
| Segment Adjusted EBITDA | | | | | |
| America | $ | 499,390 | | | $ | 463,410 | | | $ | 315,001 | |
| Airports | 60,864 | | | 36,894 | | | 4,871 | |
| Europe-North | 103,654 | | | 53,981 | | | 2,677 | |
| Europe-South | 15,201 | | | (9,205) | | | (60,040) | |
Other(1) | 12,330 | | | 4,884 | | | (32,235) | |
| Total | $ | 691,439 | | | $ | 549,964 | | | $ | 230,274 | |
| | | | | |
CLEAR CHANNEL OUTDOOR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
| | | | | | | | | | | | | | | | | |
| (In thousands) | Year Ended December 31, |
| | 2022 | | 2021 | | 2020 |
| Reconciliation of Segment Adjusted EBITDA to Consolidated Net Loss Before Income Taxes | | | | | |
| Segment Adjusted EBITDA | $ | 691,439 | | | $ | 549,964 | | | $ | 230,274 | |
| Less reconciling items: | | | | | |
Corporate expenses(2) | 157,915 | | | 156,181 | | | 137,297 | |
| Depreciation and amortization | 253,809 | | | 253,155 | | | 269,421 | |
| Impairment charges | 39,546 | | | 118,950 | | | 150,400 | |
Restructuring and other costs(3) | 6,244 | | | 38,501 | | | 19,184 | |
| Other operating expense (income), net | 2,386 | | | (627) | | | (53,614) | |
| Interest expense, net | 362,680 | | | 350,457 | | | 360,259 | |
| | | | | |
| | | | | |
Other reconciling items(4) | 35,079 | | | 100,995 | | | 5,559 | |
| Consolidated net loss before income taxes | $ | (166,220) | | | $ | (467,648) | | | $ | (658,232) | |
(1)Other includes the Company's operations in Latin America, Singapore and, for periods prior to the disposition of the Company's stake in Clear Media on April 28, 2020, China. Refer to Note 1 for additional details related to this disposition.
(2)Corporate expenses include expenses related to infrastructure and support, including information technology, human resources, legal, finance and administrative functions of each of the Company’s reportable segments, as well as overall executive, administrative and support functions. Share-based payments and certain restructuring and other costs are recorded in corporate expenses.
(3)The restructuring and other costs line item in this reconciliation excludes those restructuring and other costs related to corporate functions, which are included with the Corporate expenses line item.
(4)Other reconciling items includes Loss on extinguishment of debt and Other expense (income), net.
NOTE 4 – COST-SAVINGS INITIATIVES
The Company engages in various cost-savings initiatives in order to realize its long-term cost-savings goals. The Company recognizes a liability for restructuring and other related costs at fair value in the period in which it incurs a present obligation. In the case of one-time employment termination benefits, the Company recognizes a liability when the plan of termination meets certain criteria, as defined by GAAP, and has been communicated to employees. For other benefits, the Company recognizes a liability when it is probable that employees will be entitled to benefits and the amount can be reasonably estimated.
Restructuring Plans to Reduce Headcount
During 2020, the Company committed to restructuring plans to reduce headcount throughout its business, primarily in response to the impact of COVID-19. The U.S. plan and the Latin America portion of the international plan were completed in 2020.
The Company continued to execute on the Europe portion of the international plan through the fourth quarter of 2021 when the impacted employees were terminated. In 2022, it was determined that certain costs would be less than previously estimated due to former employees no longer being eligible for severance upon finding alternative employment in accordance with the terms of the restructuring plan, resulting in a net reversal of these costs during the period. Remaining costs associated with this restructuring plan are not expected to be significant.
CLEAR CHANNEL OUTDOOR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table presents net costs incurred (reversed) in the activityCompany’s Europe-North and Europe-South segments in connection with the Europe portion of the restructuring plan during the years ended December 31, 2022, 2021 and 2020 and since the plan was initiated:
| | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, | | Total to date |
| (In thousands) | 2022 | | 2021 | | 2020 | | December 31,
2022 |
| Costs incurred (reversed) in Europe-North segment, net: | | | | | | | |
| Direct operating expenses | $ | — | | | $ | 31 | | | $ | 1,318 | | | $ | 1,349 | |
| Selling, general and administrative expenses | — | | | 2 | | | 1,875 | | | 1,877 | |
| Total charges, net | $ | — | | | $ | 33 | | | $ | 3,193 | | | $ | 3,226 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| | | |
| | | | | | | |
| | | | | | | |
| Costs incurred (reversed) in Europe-South segment, net: | | | | | | | |
| Direct operating expenses | $ | (522) | | | $ | 14,284 | | | $ | 1,064 | | | $ | 14,826 | |
| Selling, general and administrative expenses | 1,788 | | | 16,483 | | | 4,102 | | | 22,373 | |
| Total charges, net | $ | 1,266 | | | $ | 30,767 | | | $ | 5,166 | | | $ | 37,199 | |
As of December 31, 2022, the remaining liability related to these restructuring plans was $7.2 million. The Company expects to pay most of this balance by the end of the second quarter of 2023. The following table presents changes in the liability balance during the years ended December 31, 2022, 2021 and 2020:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (In thousands) | America | | Airports | | Europe-North | | Europe-South | | Other | | Corporate | | Total |
| Liability balance as of December 31, 2019 | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
Costs incurred(1) | 2,816 | | | 392 | | | 3,193 | | | 5,166 | | | 495 | | | 2,529 | | | 14,591 | |
| Costs paid or otherwise settled | (523) | | | (152) | | | (1,786) | | | (4,118) | | | (495) | | | (1,711) | | | (8,785) | |
| | | | | | | | | | | | | |
| Liability balance as of December 31, 2020 | 2,293 | | | 240 | | | 1,407 | | | 1,048 | | | — | | | 818 | | | 5,806 | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Costs incurred(1) | — | | | — | | | 33 | | | 30,767 | | | — | | | 1,077 | | | 31,877 | |
| Costs paid or otherwise settled | (2,293) | | | (240) | | | (1,440) | | | (7,955) | | | — | | | (1,439) | | | (13,367) | |
| | | | | | | | | | | | | |
| Liability balance as of December 31, 2021 | — | | | — | | | — | | | 23,860 | | | — | | | 456 | | | 24,316 | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Costs incurred (reversed), net(1) | — | | | — | | | — | | | 1,266 | | | — | | | (456) | | | 810 | |
| Costs paid or otherwise settled | — | | | — | | | — | | | (16,523) | | | — | | | — | | | (16,523) | |
| | | | | | | | | | | | | |
| Foreign currency impact | — | | | — | | | — | | | (1,400) | | | — | | | — | | | (1,400) | |
| Liability balance as of December 31, 2022 | $ | — | | | $ | — | | | $ | — | | | $ | 7,203 | | | $ | — | | | $ | — | | | $ | 7,203 | |
(1)Substantially all costs related to these restructuring plans were severance benefits and related costs. Costs, which have been recorded in direct operating expenses and selling, general and administrative expenses on the Consolidated Statements of Loss, are categorized as Restructuring and other costs and are therefore excluded from Segment Adjusted EBITDA.
Other Restructuring Costs
In addition, the Company has incurred restructuring costs associated with various other cost-savings initiatives outside of the aforementioned plans, primarily related to one-time termination benefits. In 2022, the Company recognized additional restructuring costs of $0.3 million and $3.9 million in Europe-North and Corporate, respectively; in 2021, the Company recognized additional restructuring costs of $4.3 million and $1.9 million in Europe-North and Corporate, respectively; and in 2020, the Company recognized additional restructuring costs of $0.3 million, $0.5 million and $1.6 million in Europe-North, Other and Corporate, respectively. As of December 31, 2022, the total remaining liability related to these cost-savings initiatives was approximately $3.6 million and is expected to be paid through the first half of 2023.
CLEAR CHANNEL OUTDOOR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 – REVENUE
Disaggregation of Revenue
The Company’s advertising structures, which may be owned or leased, are used to generate revenue, and such revenue may be classified as revenue from contracts with customers or revenue from leases depending on the terms of the contract, as described in Note 2.
The following table shows revenue from contracts with customers, revenue from leases and total revenue, disaggregated by geography, for the years ended December 31, 2022, 2021 and 2020:
| | | | | | | | | | | | | | | | | |
| (In thousands) | Revenue from contracts with customers | | Revenue from
leases | | Total Revenue |
| Year Ended December 31, 2022 | | | | | |
U.S.(1) | $ | 698,250 | | | $ | 663,704 | | | $ | 1,361,954 | |
| | | | | |
| | | | | |
| | | | | |
Europe(2) | 953,914 | | | 79,311 | | | 1,033,225 | |
| | | | | |
| | | | | |
| | | | | |
Other(3) | 64,864 | | | 21,091 | | | 85,955 | |
| Total | $ | 1,717,028 | | | $ | 764,106 | | | $ | 2,481,134 | |
| | | | | |
| Year Ended December 31, 2021 | | | | | |
U.S.(1) | $ | 568,231 | | | $ | 605,389 | | | $ | 1,173,620 | |
| | | | | |
| | | | | |
| | | | | |
Europe(2) | 896,329 | | | 94,021 | | | 990,350 | |
| | | | | |
| | | | | |
| | | | | |
Other(3) | 56,634 | | | 20,514 | | | 77,148 | |
| Total | $ | 1,521,194 | | | $ | 719,924 | | | $ | 2,241,118 | |
| | | | | |
| Year Ended December 31, 2020 | | | | | |
U.S.(1) | $ | 488,682 | | | $ | 488,290 | | | $ | 976,972 | |
| | | | | |
| | | | | |
| | | | | |
Europe(2) | 702,796 | | | 89,313 | | | 792,109 | |
| | | | | |
| | | | | |
| | | | | |
Other(3) | 69,234 | | | 16,293 | | | 85,527 | |
| Total | $ | 1,260,712 | | | $ | 593,896 | | | $ | 1,854,608 | |
(1)U.S. revenue, which also includes revenue derived from airport displays in the Caribbean, is comprised of revenue from the Company’s asset retirement obligation:America and Airports segments.
(2)Europe revenue is comprised of revenue from the Company’s Europe-North and Europe-South segments. Europe total revenue for the years ended December 31, 2022, 2021 and 2020 includes revenue from France of $256.6 million, $264.9 million and $215.0 million, respectively.
(3)Other includes the Company’s businesses in Latin America, Singapore and, for periods prior to the disposition of the Company’s stake in Clear Media on April 28, 2020, China. Other total revenue for the year ended December 31, 2020 includes revenue from Latin America and Singapore of $56.2 million.
CLEAR CHANNEL OUTDOOR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
| | | | | | | |
| (In thousands) | Years Ended December 31, |
| | 2016 | | 2015 |
| Beginning balance | $ | 45,125 |
| | $ | 48,161 |
|
| Adjustment due to changes in estimates | (5,431 | ) | | 2,024 |
|
| Accretion of liability | 4,863 |
| | 546 |
|
| Liabilities settled | (4,104 | ) | | (2,720 | ) |
| Foreign Currency | (1,002 | ) | | (2,886 | ) |
| Ending balance | $ | 39,451 |
| | $ | 45,125 |
|
The following tables show the Company’s beginning and ending accounts receivable and deferred revenue balances from contracts with customers:
| | | | | | | | | | | | | | | | | |
| (In thousands) | Year Ended December 31, |
| 2022(1) | | 2021(2) | | 2020(3) |
| Accounts receivable, net of allowance, from contracts with customers | | | | | |
| Beginning balance | $ | 492,706 | | | $ | 349,799 | | | $ | 581,555 | |
| Ending balance | 480,016 | | | 492,706 | | | 349,799 | |
| | | | | |
| Deferred revenue from contracts with customers | | | | | |
| Beginning balance | $ | 42,016 | | | $ | 37,712 | | | $ | 52,589 | |
| Ending balance | 32,369 | | | 42,016 | | | 37,712 | |
(1)The ending balances as of December 31, 2022 exclude accounts receivable and deferred revenue from contracts with customers that are held for sale.
(2)The increases in the accounts receivable and deferred revenue balances from contracts with customers in 2021 were driven by higher sales and billings related to our continued recovery from COVID-19.
(3)The decreases in the accounts receivable and deferred revenue balances from contracts with customers in 2020 were driven by the sale of Clear Media and lower sales and billings related to COVID-19.
During the years ended December 31, 2022, 2021 and 2020, respectively, the Company recognized $40.4 million, $36.8 million and $48.0 million of revenue that was included in the deferred revenue from contracts with customers balance at the beginning of the respective year.
The Company’s contracts with customers generally have terms of one year or less; however, as of December 31, 2022, the Company expected to recognize $90.8 million of revenue in future periods for remaining performance obligations from current contracts with customers that have an original expected duration greater than one year, with the majority of this amount to be recognized over the next five years.
Revenue from Leases
As of December 31, 2022, future lease payments to be received by the Company were as follows:
| | | | | |
| (In thousands) |
Future lease payments to be received(1): | |
| 2023 | $ | 371,854 | |
| 2024 | 40,155 | |
| 2025 | 14,167 | |
| 2026 | 6,670 | |
| 2027 | 1,308 | |
| Thereafter | 2,452 | |
| Total | $ | 436,606 | |
(1)Excludes future lease payments to be received by the Company’s business in Switzerland, which is held for sale at December 31, 2022.
Note that the future lease payments disclosed are limited to the non-cancelable period of the lease and, for contracts that require the customer to pay a significant fee to terminate the contract such that the customer is considered reasonably certain not to exercise this option, periods beyond the termination option. Payments scheduled for periods beyond a termination option are not included for contracts that allow cancellation by the customer without a significant fee.
CLEAR CHANNEL OUTDOOR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 46 – LONG-TERM DEBT
Long-term debt outstanding at December 31, 20162022 and 20152021 consisted of the following:
| | | | | | | | | | | |
| (In thousands) | December 31,
2022 | | December 31,
2021 |
Term Loan Facility(1) | $ | 1,935,000 | | | $ | 1,955,000 | |
| Revolving Credit Facility | — | | | — | |
| Receivables-Based Credit Facility | — | | | — | |
| Clear Channel Outdoor Holdings 5.125% Senior Secured Notes Due 2027 | 1,250,000 | | | 1,250,000 | |
Clear Channel Outdoor Holdings 7.75% Senior Notes Due 2028(2) | 1,000,000 | | | 1,000,000 | |
Clear Channel Outdoor Holdings 7.5% Senior Notes Due 2029(3) | 1,050,000 | | | 1,050,000 | |
| Clear Channel International B.V. 6.625% Senior Secured Notes Due 2025 | 375,000 | | | 375,000 | |
Other debt(4) | 36,798 | | | 39,006 | |
| Original issue discount | (5,596) | | | (6,976) | |
| Long-term debt fees | (47,185) | | | (57,077) | |
| Total debt | 5,594,017 | | | 5,604,953 | |
| Less: Current portion | 25,218 | | | 21,165 | |
| Total long-term debt | $ | 5,568,799 | | | $ | 5,583,788 | |
|
| | | | | | | |
| (In thousands) | December 31, | | December 31, |
| | 2016 | | 2015 |
| Clear Channel Worldwide Holdings Notes | $ | 4,925,000 |
| | $ | 4,925,000 |
|
| Clear Channel International B.V. Senior Notes | 225,000 |
| | 225,000 |
|
| Senior revolving credit facility due 2018 | — |
| | — |
|
| Other debt | 14,798 |
| | 19,003 |
|
| Original issue discount | (6,738 | ) | | (7,769 | ) |
| Long-term debt fees | (41,069 | ) | | (50,411 | ) |
| Total debt | $ | 5,116,991 |
| | $ | 5,110,823 |
|
| Less: current portion | 6,971 |
| | 4,310 |
|
| Total long-term debt | $ | 5,110,020 |
| | $ | 5,106,513 |
|
(2)On February 17, 2021, the Company issued $1.0 billion aggregate principal amount of 7.75% Senior Notes due 2028. On March 4, 2021, the Company used the net proceeds from this issuance to cause Clear Channel Worldwide Holdings, Inc. (“CCWH”), a subsidiary of the Company, to redeem $940.0 million aggregate principal amount of its 9.25% Senior Notes due 2024 (“CCWH Senior Notes”) at a redemption price equal to 104.625% of the principal amount thereof, plus accrued and unpaid interest to the redemption date.
(3)On June 1, 2021, the Company issued $1.05 billion aggregate principal amount of 7.5% Senior Notes due 2029. On June 16, 2021, the Company used the net proceeds from this issuance to cause CCWH to redeem all of the outstanding $961.5 million aggregate principal amount of its CCWH Senior Notes at a redemption price equal to 104.625% of the principal amount thereof, plus accrued and unpaid interest to the redemption date.
(4)Other debt includes finance leases and various borrowings utilized for general operating purposes, including a state-guaranteed loan with a third-party lender of €30.0 million, or approximately $32.1 million at current exchange rates. In April 2022, as permitted under the terms of the loan agreement, the Company elected to extend the loan’s maturity date to June 29, 2027, with quarterly principal repayments of €1.875 million due beginning in September 2023. This loan did not originally bear interest, but effective June 29, 2022, the annual interest rate is 0.7%. Additionally, in June 2022, the Company paid a fee relating to the state guarantee equal to 0.5% of the outstanding amount of the loan. Effective June 29, 2022, the annual cost of the state guarantee is 1.0% of the outstanding loan amount through June 29, 2024 and 2.0% of the outstanding loan amount for the remainder of the loan term.
As a result of the CCWH Senior Notes redemptions described in the footnotes to the above table, the Company recognized debt extinguishment losses of $102.8 million during 2021.
The aggregate market value of the Company’s debt based on market prices for which quotes were available was approximately $5.2$4.7 billion and $4.9$5.9 billion at December 31, 20162022 and December 31, 2015,2021, respectively. Under the fair value hierarchy established by ASC Section 820-10-35, the inputs used to determine the market value of the Company’s debt isare classified as Level 1.
Senior Secured Credit Facilities
On August 23, 2019, the Company and the guarantors thereof entered into a credit agreement (the “Senior Secured Credit Agreement”) with Deutsche Bank AG New York Branch, as administrative agent and collateral agent, the syndication agent party thereto, the co-documentation agents party thereto, the lenders party thereto, and the joint lead arrangers and joint bookrunners party thereto. The Senior Secured Credit Agreement governs the Company’s Term Loan Facility and Revolving Credit Facility.
CLEAR CHANNEL OUTDOOR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
On February 20, 2023, the Senior Secured Credit Agreement was amended to establish Adjusted Term SOFR (as defined therein) as the alternate rate of interest applicable to the Company’s Term Loan Facility in connection with the cessation of LIBOR, as described in Note 2. This amendment is reflected in the information below.
Size and Availability
The Senior NotesSecured Credit Agreement provides for the Term Loan Facility in an aggregate principal amount of $2,000.0 million and the Revolving Credit Facility in an aggregate principal amount of $175.0 million.
AsThe Company is the borrower under the Senior Secured Credit Facilities. The Revolving Credit Facility includes sub-facilities for letters of December 31, 2016credit and 2015,for short-term borrowings referred to as the swing line borrowings. In addition, the Senior Secured Credit Agreement provides that the Company hadmay request at any time, subject to customary and other conditions, incremental term loans or incremental revolving credit commitments. The lenders under the Senior Notes consistingSecured Credit Facilities are not under any obligation to provide any such incremental loans or commitments, and any such addition of or increase in loans will be subject to certain customary conditions precedent and other provisions.
Interest Rate and Fees
Prior to February 20, 2023, existing borrowings under the Senior Secured Credit Agreement bore interest at a rate per annum equal to the Applicable Rate (as defined therein) plus, at the Company’s option, either (a) a base rate equal to the highest of: (1) the Federal Funds Rate plus 0.50%, (2) the rate of interest in effect for such date as publicly announced from time to time by the administrative agent as its “prime rate,” and (3) the Eurocurrency rate that would be calculated as of such day in respect of a proposed Eurocurrency rate loan with a one-month interest period plus 1.00%; or (b) a Eurocurrency rate that is equal to the LIBOR rate as published by Bloomberg two business days prior to the commencement of the interest period until the end of the current interest period.
Effective February 20, 2023, new borrowings or the continuation of existing borrowings under the Senior Secured Credit Agreement bear interest at a rate per annum equal to the Applicable Rate (as defined therein) plus, at the Company’s option, either (a) a base rate equal to the highest of: (1) the Federal Funds Rate plus 0.50%, (2) the rate of interest in effect for such date as publicly announced from time to time by the administrative agent as its “prime rate,” and (3)(i) for borrowings under the Term Loan Facility, Term SOFR plus an adjustment (as defined in the Senior Secured Credit Agreement) for a one-month tenor in effect on such day plus 1.00%, or (ii) for borrowings under the Revolving Credit Facility, the Eurocurrency rate that would be calculated as of such day in respect of a proposed Eurocurrency rate loan with a one-month interest period plus 1.00%; (b) a Eurocurrency rate that is equal to the LIBOR rate as published by Bloomberg two business days prior to the commencement of the interest period; or (c) Term SOFR plus the relevant Term SOFR Adjustment (as defined in the Senior Secured Credit Agreement). |
| | | | | | | | | | | | | |
| (In thousands) | Maturity Date | | Interest Rate | | Interest Payment Terms | | 12/31/2016 | | 12/31/2015 |
| CCWH Senior Notes: | | | | | | | | | |
| 6.5% Series A Senior Notes Due 2022 | 11/15/2022 | | 6.5% | | Payable to the trustee weekly in arrears and to noteholders on May 15 and November 15 of each year | | $ | 735,750 |
| | $ | 735,750 |
|
| 6.5% Series B Senior Notes Due 2022 | 11/15/2022 | | 6.5% | | Payable to the trustee weekly in arrears and to noteholders on May 15 and November 15 of each year | | 1,989,250 |
| | 1,989,250 |
|
| CCWH Senior Subordinated Notes: | | | | | | | | |
| 7.625% Series A Senior Notes Due 2020 | 3/15/2020 | | 7.625% | | Payable to the trustee weekly in arrears and to noteholders on March 15 and September 15 of each year | | 275,000 |
| | 275,000 |
|
| 7.625% Series B Senior Notes Due 2020 | 3/15/2020 | | 7.625% | | Payable to the trustee weekly in arrears and to noteholders on March 15 and September 15 of each year | | 1,925,000 |
| | 1,925,000 |
|
| Total CCWH Notes | | | | | | | $ | 4,925,000 |
| | $ | 4,925,000 |
|
| Clear Channel International B.V. Senior Notes: | | | | | | |
| 8.75% Senior Notes Due 2020 | 12/15/2020 | | 8.750% | | Payable semi-annually in arrears on June 15 and December 15 of each year | | 225,000 |
| | 225,000 |
|
| Total Senior Notes | | | | | | | $ | 5,150,000 |
| | $ | 5,150,000 |
|
The term loans under the Term Loan Facility amortize in equal quarterly installments in an aggregate annual amount equal to 1.00% of the original principal amount of such term loans, with the balance being payable on August 23, 2026. The Revolving Credit Facility matures on August 23, 2024.
Prepayments
The Senior Secured Credit Facilities contain customary mandatory prepayments, including with respect to excess cash flow, asset sale proceeds and proceeds from certain incurrences of indebtedness. The Company may voluntarily repay outstanding loans under the Senior Secured Credit Facilities at any time after the six-month anniversary of the closing of the Senior Secured Credit Facilities without premium or penalty, other than customary breakage costs with respect to LIBOR loans.
Guarantees and Security
The CCWH Senior NotesSecured Credit Facilities are guaranteed by CCOH, Clear Channel Outdoor, Inc. (“CCOI”)certain existing and certain of CCOH’s direct and indirect subsidiaries. The CCWH Senior Subordinated Notes are fully and unconditionally guaranteed, jointly and severally, on a senior subordinated basis by CCOH, CCOI and certain of CCOH’s otherwholly-owned domestic subsidiaries and rank junior to each guarantor’s existing and future senior debt, including the CCWH Senior Notes, equally with each guarantor’s existing and future senior subordinated debt and ahead of each guarantor’s existing and future debt that expressly provides that it is subordinated to the guarantees of the CCWHCompany. All obligations under the Senior Subordinated Notes.
The CCWH Senior Notes are senior obligations that rank pari passu in right of payment to all unsubordinated indebtedness of CCWHSecured Credit Facilities and the guarantees of those obligations are secured by a perfected first priority security interest in all of the CCWHCompany’s and the guarantors’ assets securing the Senior Notes rankSecured Credit Facilities on a pari passu basis with the liens on such assets (other than the assets securing the Company’s Receivables-Based Credit Facility) (such assets, other than accounts receivable and certain other assets, the “CCOH Senior Secured Notes Priority Collateral”) and a perfected second priority security interest in right of payment to all unsubordinated indebtedness of the guarantors. The CCWHCompany’s and the guarantors’ assets securing the Receivables-Based Credit Facility on a first-priority basis (the “ABL Priority Collateral” and, together with the CCOH Senior SubordinatedSecured Notes are unsecured senior subordinated obligations that rank junior to allPriority Collateral, the “CCOH Senior Secured Notes Collateral”).
Contents
CLEAR CHANNEL OUTDOOR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Certain Covenants
RedemptionsThe Senior Secured Credit Agreement contains a springing financial covenant which is applicable solely to the Revolving Credit Facility. The springing financial covenant generally requires compliance with a first lien net leverage ratio of 7.10 to 1.00 if the balance of the Revolving Credit Facility is greater than $0 and undrawn letters of credit exceed $10 million.
CCWHThe Senior Secured Credit Agreement also includes negative covenants that, subject to significant exceptions, limit the Company’s ability and the ability of its restricted subsidiaries to, among other things: incur additional indebtedness; create liens on assets; engage in mergers, consolidations, liquidations and dissolutions; sell assets; pay dividends and distributions or repurchase capital stock; make investments, loans, or advances; prepay certain junior indebtedness; engage in certain transactions with affiliates; enter into agreements that restrict its restricted subsidiaries’ ability to make distributions; and amend or waive organizational documents.
As of December 31, 2022, the Company was in compliance with all covenants contained in the Senior Secured Credit Agreement.
Receivables-Based Credit Facility
On August 23, 2019, concurrently with the entry into the Senior Secured Credit Agreement, the Company entered into a receivables-based credit agreement (the “Receivables-Based Credit Agreement”) with Deutsche Bank AG New York Branch, as administrative agent, collateral agent, swing line lender and L/C issuer, the other lenders and L/C issuers party thereto, the joint lead arrangers and bookrunners party thereto and the co-documentation agents party thereto. The Receivables-Based Credit Agreement governs the Company’s Receivables-Based Credit Facility.
The Company and certain of its subsidiaries are borrowers under the Receivables-Based Credit Facility. The Receivables-Based Credit Facility includes sub-facilities for letters of credit and for short-term borrowings referred to as the swing line borrowings. In addition, the Receivables-Based Credit Agreement provides that the Company has the right at any time, subject to customary conditions, to request incremental commitments on terms set forth in the Receivables-Based Credit Agreement.
Size and Availability
The Receivables-Based Credit Agreement provides for an asset-based revolving credit facility, with amounts available from time to time (including in respect of letters of credit) equal to the lesser of (i) the borrowing base, which equals 85.0% of the eligible accounts receivable of the borrower and the subsidiary borrowers, subject to customary eligibility criteria minus any reserves, and (ii) the aggregate revolving credit commitments. The aggregate revolving credit commitments are $125.0 million.
Interest Rate and Fees
Borrowings under the Receivables-Based Credit Agreement bear interest at a rate per annum equal to the Applicable Rate (as defined therein) plus, at the Company’s option, either (1) a base rate determined by reference to the highest of (a) the Federal Funds Rate plus 0.50%, (b) the rate of interest in effect for such date as publicly announced from time to time by the administrative agent as its “prime rate,” (c) the Eurocurrency rate that would be calculated as of such day in respect of a proposed Eurocurrency rate loan with a one-month interest period plus 1.00% and (d) 0.00%, or (2) a Eurocurrency rate equal to the LIBOR rate as published by Bloomberg two business days prior to the commencement of the interest period.
In addition to paying interest on outstanding principal under the Receivables-Based Credit Agreement, the Company is required to pay a commitment fee to the lenders under the Receivables-Based Credit Agreement in respect of the unutilized revolving commitments thereunder. The Company is also required to pay a customary letter of credit fee for each issued letter of credit.
Maturity
Borrowings under the Receivables-Based Credit Agreement mature, and lending commitments thereunder terminate, on August 23, 2024.
Prepayments
If at any time, the outstanding amount under the Receivables-Based Credit Agreement exceeds the lesser of (i) the aggregate amount committed by the revolving credit lenders and (ii) the borrowing base, the Company will be required to prepay first, any protective advances, and second, any outstanding revolving loans and swing line loans and/or cash collateralize letters of credit in an aggregate amount equal to such excess, as applicable.
CLEAR CHANNEL OUTDOOR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Subject to customary exceptions and restrictions, the Company may redeemvoluntarily repay outstanding amounts under the Receivables-Based Credit Agreement at any time without premium or penalty. Any voluntary prepayments made will not reduce commitments under the Receivables-Based Credit Agreement.
Guarantees and Security
The Receivables-Based Credit Facility is guaranteed by certain subsidiaries of the Company that guarantee the Senior Secured Credit Agreement. All obligations under the Receivables-Based Credit Agreement and the guarantees of those obligations are secured by a perfected first priority security interest in the ABL Priority Collateral and a perfected second priority security interest in the CCOH Senior Secured Notes Priority Collateral.
Certain Covenants
The Receivables-Based Credit Agreement contemplates that if borrowing availability is less than an amount set forth therein, the Company will be required to comply with a fixed charge coverage ratio of no less than 1.00 to 1.00 for the most recent period of four consecutive fiscal quarters ended prior to the occurrence of the Covenant Trigger Period (as defined in the Receivables-Based Credit Agreement), and will be required to continue to comply with this minimum fixed charge coverage ratio for a certain period of time until borrowing availability recovers. The fixed charge coverage ratio did not apply for the four quarters ended December 31, 2022 because a Covenant Trigger Period was not in effect.
The Receivables-Based Credit Agreement also includes negative covenants that, subject to significant exceptions, limit the Company’s ability and the ability of its restricted subsidiaries to, among other things: incur additional indebtedness; create liens on assets; engage in mergers, consolidations, liquidations and dissolutions; sell assets; pay dividends and distributions or repurchase capital stock; make investments, loans, or advances; prepay certain junior indebtedness; engage in certain transactions with affiliates; enter into agreements that restrict its restricted subsidiaries’ ability to make distributions; and amend or waive organizational documents.
As of December 31, 2022, the Company was in compliance with all covenants contained in the Receivables-Based Credit Agreement.
CCOH 5.125% Senior Secured Notes Due 2027
On August 23, 2019, concurrently with the entry into the Senior Secured Credit Agreement and Receivables-Based Credit Facility, the Company completed the sale of $1,250.0 million in aggregate principal amount of CCOH Senior Secured Notes (the “CCOH Senior Secured Notes”). The CCOH Senior Secured Notes were issued pursuant to an indenture, dated as of August 23, 2019 (the “CCOH Senior Secured Notes Indenture”), among the Company, the subsidiaries of the Company acting as guarantors party thereto, and U.S. Bank National Association, as trustee and as collateral agent.
The CCOH Senior Secured Notes mature on August 15, 2027 and bear interest at a rate of 5.125% per annum. Interest on the CCOH Senior Secured Notes is payable to the holders thereof semi-annually on February 15 and August 15 of each year.
Guarantees and Security
The CCOH Senior Secured Notes are guaranteed fully and unconditionally on a senior secured basis by the Company’s existing and future wholly-owned domestic subsidiaries that guarantee the Company’s obligations under the Term Loan Facility and the Revolving Credit Facility.
The CCOH Senior Secured Notes and the guarantees thereof are secured on a first-priority basis by security interests in the CCOH Senior Secured Notes Priority Collateral and on a second-priority basis by security interests in the ABL Priority Collateral, in each case, other than any excluded assets and subject to intercreditor agreements.
The CCOH Senior Secured Notes and the guarantees are general senior secured obligations of the Company and the guarantors thereof and rank pari passu in right of payment with the Company’s and the guarantors’ existing and future senior indebtedness, including the Senior Secured Credit Facilities, the Receivables-Based Credit Facility, the CCOH 7.75% Senior Notes and the CCOH 7.5% Senior SubordinatedNotes.
Redemptions
The Company may redeem all or a portion of the CCOH Senior Secured Notes at its option, in whole or part, atthe redemption prices set forth in the indentures plus accrued and unpaid interest to the redemption date and plus an applicable premium.CCOH Senior Secured Notes Indenture.
CLEAR CHANNEL OUTDOOR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Certain Covenants
The indentures governing theCCOH Senior Secured Notes and Senior Subordinated Notes containIndenture contains covenants that limit CCOHthe Company’s ability and the ability of its restricted subsidiaries ability to, among other things:
incur or guarantee additional debt or issue certain preferred stock;
redeem, purchase or retire subordinated debt; make certain investments;
in case of the Senior Notes, create liens on its restricted subsidiaries’ assets to secure such debt;
create restrictions on the payment of dividends or other amounts to it from itsthe Company’s restricted subsidiaries that are not guarantors of the notes;
Guarantors; enter into certain transactions with affiliates;
merge or consolidate with another person, or sell or otherwise dispose of all or substantially all of itsthe Company’s assets;
sell certain assets, including capital stock of itsthe Company’s subsidiaries; and
indesignate the case of the Series B CCWH Senior Notes and the Series B CCWH Senior Subordinated Notes,Company’s subsidiaries as unrestricted subsidiaries; pay dividends, redeem or repurchase capital stock or make other restricted payments.payments; and incur certain liens. As of December 31, 2022, the Company was in compliance with all covenants contained in the CCOH Senior Secured Notes Indenture.
Clear Channel International B.V.CCOH 7.75% Senior Notes Due 2028
On February 17, 2021, the Company completed the sale of $1.0 billion aggregate principal amount of 7.75% Senior Notes due 2028 (the “CCOH 7.75% Senior Notes”) in a private placement to qualified institutional buyers under Rule 144A under the Securities Act of 1933, as amended (the “Securities Act”), and to persons outside the U.S. pursuant to Regulation S under the Securities Act. On the same date, the Company entered into an indenture, dated as of February 17, 2021 (the “CCOH 7.75% Senior Notes Indenture”), by and among the Company, the subsidiaries of the Company acting as guarantors party thereto (collectively, the “Guarantors”), and U.S. Bank National Association, as trustee.
The CCIBVCCOH 7.75% Senior Notes mature on April 15, 2028 and bear interest at a rate of 7.75% per annum. Interest on the CCOH 7.75% Senior Notes is payable to the holders thereof semi-annually on April 15 and October 15 of each year.
Guarantees and Security
The CCOH 7.75% Senior Notes are guaranteed on a senior unsecured basis by certain of the International outdoor business’sCompany’s wholly-owned existing and future domestic subsidiaries. The Company does not guarantee or otherwise assume any liability for the CCIBVCCOH 7.75% Senior Notes. The notes are senior unsecured obligations thatNotes (i) rank pari passu in right of payment with all existing and future senior indebtedness of the Company; (ii) are senior in right of payment to all unsubordinatedof the future subordinated indebtedness of Clear Channel International B.V.,the Company and the guaranteesGuarantors; (iii) are effectively subordinated to all of the notesCompany’s and the Guarantors’ existing and future indebtedness secured by a lien, to the extent of the value of such collateral; and (iv) are structurally subordinated to any existing and future obligations of any existing or future subsidiaries of the Company that do not guarantee the CCOH 7.75% Senior Notes, including all of the Company’s foreign subsidiaries.
Redemptions
The Company may redeem all or a portion of the CCOH 7.75% Senior Notes beginning on April 15, 2024 at the redemption prices set forth in the CCOH 7.75% Senior Notes Indenture.
Certain Covenants
The CCOH 7.75% Senior Notes Indenture contains covenants that limit the Company’s ability and the ability of its restricted subsidiaries to, among other things: (i) incur or guarantee additional debt or issue certain preferred stock; (ii) redeem, purchase or retire subordinated debt; (iii) make certain investments; (iv) create restrictions on the payment of dividends or other amounts from the Company’s restricted subsidiaries that are not Guarantors; (v) enter into certain transactions with affiliates; (vi) merge or consolidate with another person, or sell or otherwise dispose of all or substantially all of the Company’s assets; (vii) sell certain assets, including capital stock of the Company’s subsidiaries; (viii) designate the Company’s subsidiaries as unrestricted subsidiaries; (ix) pay dividends, redeem or repurchase capital stock or make other restricted payments; and (x) incur certain liens. As of December 31, 2022, the Company was in compliance with all covenants contained in the CCOH 7.75% Senior Notes Indenture.
CCOH 7.5% Senior Notes Due 2029
On June 1, 2021, the Company completed the sale of $1.05 billion aggregate principal amount of 7.5% Senior Notes due 2029 (the “CCOH 7.5% Senior Notes”) in a private placement to qualified institutional buyers under Rule 144A under the Securities Act and to persons outside the U.S. pursuant to Regulation S under the Securities Act. On the same date, the Company entered into an indenture, dated as of June 1, 2021 (the “CCOH 7.5% Senior Notes Indenture”), by and among the Company, the Guarantors, and U.S. Bank National Association, as trustee.
The CCOH 7.5% Senior Notes mature on June 1, 2029 and bear interest at a rate of 7.5% per annum. Interest on the CCOH 7.5% Senior Notes is payable to the holders thereof semi-annually on June 1 and December 1 of each year.
CLEAR CHANNEL OUTDOOR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Guarantees and Security
The CCOH 7.5% Senior Notes are guaranteed on a senior unsecured obligations thatbasis by certain of the Company’s wholly-owned existing and future domestic subsidiaries. The CCOH 7.5% Senior Notes (i) rank pari passu in right of payment towith all unsubordinatedexisting and future senior indebtedness of the guarantorsCompany; (ii) are senior in right of payment to all of the notes.future subordinated indebtedness of the Company and the Guarantors; (iii) are effectively subordinated to all of the Company’s and the Guarantors’ existing and future indebtedness secured by a lien, to the extent of the value of the collateral securing such debt; and (iv) are structurally subordinated to any existing and future obligations of any existing or future subsidiaries of the Company that do not guarantee the CCOH 7.5% Senior Notes, including all of the Company’s foreign subsidiaries.
Redemptions
The Company may redeem all or a portion of the CCOH 7.5% Senior Notes at the redemption prices set forth in the CCOH 7.5% Senior Notes Indenture.
Certain Covenants
The CCOH 7.5% Senior Notes Indenture contains covenants that limit the Company’s ability and the ability of its restricted subsidiaries to, among other things: (i) incur or guarantee additional debt or issue certain preferred stock; (ii) redeem, purchase or retire subordinated debt; (iii) make certain investments; (iv) create restrictions on the payment of dividends or other amounts from the Company’s restricted subsidiaries that are not Guarantors; (v) enter into certain transactions with affiliates; (vi) merge or consolidate with another person, or sell or otherwise dispose of all or substantially all of the Company’s assets; (vii) sell certain assets, including capital stock of the Company’s subsidiaries; (viii) designate the Company’s subsidiaries as unrestricted subsidiaries; (ix) pay dividends, redeem or repurchase capital stock or make other restricted payments; and (x) incur certain liens. As of December 31, 2022, the Company was in compliance with all covenants contained in the CCOH 7.5% Senior Notes Indenture.
CCIBV 6.625% Senior Secured Notes Due 2025
On August 4, 2020, Clear Channel International B.V. (“CCIBV”), an indirect wholly-owned subsidiary of the Company, issued $375.0 million aggregate principal amount of 6.625% Senior Secured Notes due 2025 (the “CCIBV Senior Secured Notes”). The CCIBV Senior Secured Notes were issued under an indenture, dated as of August 4, 2020 (the “CCIBV Senior Secured Notes Indenture”), among CCIBV, the CCIBV Guarantors (as defined below), U.S. Bank National Association as trustee, paying agent, registrar, authentication agent and transfer agent, and U.S. Bank Trustees Limited as security agent.
The CCIBV Senior Secured Notes mature on August 1, 2025 and bear interest at a rate of 6.625% per annum, payable semi-annually in arrears on April 1 and October 1 of each year.
Guarantees and Security
The CCIBV Senior Secured Notes are guaranteed by certain of CCIBV's existing and future subsidiaries (collectively, the “CCIBV Guarantors”). The Company does not guarantee the CCIBV Senior Secured Notes.
The CCIBV Senior Secured Notes and certain of the guarantees (the “secured guarantees”) are secured by pledges over (i) the capital stock and material bank accounts of CCIBV and certain of its indirect subsidiaries and (ii) the net intercompany balance by and between the parent holding company of CCIBV and CCIBV subject to certain conditions as set forth in the CCIBV Senior Secured Notes Indenture. The CCIBV Senior Secured Notes and secured guarantees rank, in right of payment, pari passu to unsubordinated indebtedness and senior to subordinated indebtedness of CCIBV and the Guarantors, as applicable, and rank, in right of security, senior to unsecured and junior lien indebtedness of CCIBV and the Guarantors, as applicable, to the extent of the value of the assets that constitute collateral.
Redemptions
CCIBV may redeem the notesCCIBV Senior Secured Notes at its option, in whole or part, at the redemption prices set forth in the indenture plus accrued and unpaid interest to the redemption date.CCIBV Senior Secured Notes Indenture.
Certain Covenants
The indenture governing the CCIBV Senior Secured Notes Indenture contains covenants that limit Clear Channel International B.V.’sCCIBV's ability and the ability of its restricted subsidiaries to, among other things:
(i) pay dividends, redeem stock or make other distributions or investments;
(ii) incur additional debt or issue certain preferred stock;
(iii) transfer or sell assets;
(iv) create liens on assets;
(v) engage in certain transactions with affiliates;
(vi) create restrictions on dividends or other payments by the restricted subsidiaries; and
(vii) merge, consolidate or sell all or substantially all of Clear Channel International B.V.’sCCIBV's assets.
Senior Revolving Credit Facility Due 2018
Contents
CLEAR CHANNEL OUTDOOR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
75% of the aggregate commitments under the facility. The Company was in compliance with the secured leverage ratio covenant as of December 31, 2016.
Other Debt
Other debt includes various borrowings and capital leases utilized for general operating purposes. Included in the $14.8 million balance at December 31, 2016 is $7.0 million that matures in less than one year.
Future Maturities of Long-term Debt
Future maturities of long-term debt as of December 31, 20162022 are as follows:
| | | | | |
| (in thousands) | |
| 2023 | $ | 25,218 | |
| 2024 | 28,577 | |
| 2025 | 403,499 | |
| 2026 | 1,883,468 | |
| 2027 | 1,254,462 | |
| Thereafter | 2,051,574 | |
Total(1) | $ | 5,646,798 | |
|
| | | |
| (in thousands) | |
| 2017 | $ | 6,972 |
|
| 2018 | 618 |
|
| 2019 | 310 |
|
| 2020 | 2,425,303 |
|
| 2021 | 341 |
|
| Thereafter | 2,731,254 |
|
Total (1) | $ | 5,164,798 |
|
| |
(1) | (1)Excludes original issue discount and long-term debt fees of $5.6 million and $47.2 million, respectively, which are amortized through interest expense over the life of the underlying debt obligations Letters of Credit, Surety Bonds and long-term debt fees of $6.7 million and $41.1 million, respectively, which are amortized through interest expense over the life of the underlying debt obligations. |
Guarantees
As of December 31, 2016,2022, the Company had $66.6$43.2 million inof letters of credit outstanding under its Revolving Credit Facility, resulting in $131.8 million of which noremaining excess availability, and $42.2 million of letters of credit were cash secured.outstanding under its Receivables-Based Credit Facility, resulting in $82.8 million of excess availability. Additionally, as of December 31, 2016, iHeartCommunications2022, the Company had outstanding commercial standby letters$85.9 million and $32.4 million of credit and surety bonds and bank guarantees outstanding, respectively, a portion of $1.4which was supported by $8.8 million and $52.7 million, respectively, held on behalf of the Company.cash collateral. These letters of credit, and surety bonds and bank guarantees relate to various operational matters, including insurance, bid, concession and performance bonds, as well as other items.
In addition,
NOTE 7 – LEASES
The following table provides the components of ASC Topic 842 lease expense included within the Consolidated Statements of Loss for the years ended December 31, 2022, 2021 and 2020, respectively:
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| (In thousands) | 2022 | | 2021 | | 2020 |
| Operating lease expense | $ | 435,417 | | | $ | 462,452 | | | $ | 455,832 | |
| Variable lease expense | 147,136 | | | 120,515 | | | 95,156 | |
The following table provides the weighted-average remaining lease term and the weighted-average discount rate for the Company's operating leases as of December 31, 2016, the Company had outstanding bank guarantees2022 and 2021, respectively:
| | | | | | | | | | | | | |
| December 31, 2022(1) | | December 31,
2021 | | |
| Operating lease weighted-average remaining lease term (in years) | 10.6 | | 10.2 | | |
| Operating lease weighted-average discount rate | 7.23 | % | | 6.48% | | |
(1)Excludes operating leases of $35.7 million related to international subsidiaries, of which $18.8 million were backed by cash collateral.
NOTE 5 – COMMITMENTS AND CONTINGENCIES
Commitments and Contingencies
The Company accounts for its rentals that include renewal options, annual rent escalation clauses, minimum franchise payments and maintenance related to displays under the guidance in ASC 840.
The Company considers its non-cancelable contracts that enable it to display advertising on buses, bus shelters, trains, etc. to be leases in accordance with the guidance in ASC 840-10. These contracts may contain minimum annual franchise payments which generally escalate each year. The Company accounts for these minimum franchise payments on a straight-line basis. If the rental increases are not scheduled in the lease, such as an increase based on subsequent changes in the index or rate, those rents are considered contingent rentals and are recorded as expense when accruable. Other contracts may contain a variable rent component based on revenue. The Company accounts for these variable components as contingent rentals and records these payments as expense when accruable. No single contract or lease is material to the Company’s operations.
The Company accountsbusiness in Switzerland, which is held for annual rent escalation clauses included in the lease term on a straight-line basis under the guidance in ASC 840-20-25. The Company considers renewal periods in determining its lease terms ifsale at inception of the lease there is reasonable assurance the lease will be renewed. Expenditures for maintenance are charged to operations as incurred, whereas expenditures for renewal and betterments are capitalized.
The Company leases office space, equipment and the majority of the land occupied by its advertising structures under long-term operating leases. The Company accounts for these leases in accordance with the policies described above.December 31, 2022.
CLEAR CHANNEL OUTDOOR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table provides the Company’s future maturities of operating leases as of December 31, 2022:
| | | | | |
| (In thousands) |
Future maturities of operating leases liabilities(1): | |
| 2023 | $ | 356,042 | |
| 2024 | 268,104 | |
| 2025 | 227,576 | |
| 2026 | 198,874 | |
| 2027 | 173,261 | |
| Thereafter | 1,064,071 | |
| Total lease payments | $ | 2,287,928 | |
| Less: Effect of discounting | (755,857) | |
| Total operating lease liability | $ | 1,532,071 | |
(1)Excludes future maturities of operating leases of the Company’s business in Switzerland, which is held for sale at December 31, 2022.
The Company’s contracts with municipal bodies or private companies relatingfollowing table provides supplemental cash flow information related to street furniture, billboards, transit and malls generally require the Company to build bus stops, kiosks and other public amenities or advertising structures during the term of the contract. leases:
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| (In thousands) | 2022 | | 2021 | | 2020 |
| Cash paid for amounts included in measurement of operating lease liabilities | $ | 449,795 | | | $ | 490,115 | | | $ | 442,256 | |
Lease liabilities arising from obtaining right-of-use assets(1) | 408,121 | | | 374,546 | | | 106,324 | |
(1)Includes new leases entered into in each respective year presented.
NOTE 8 – COMMITMENTS AND CONTINGENCIES
Commitments
The Company owns these structureshas various commitments under non-cancelable contracts, including contracts that meet the definition of a lease under ASC Topic 842, as previously described. Non-cancelable contracts that provide the supplier with a substantive substitution right regarding the property, plant and is generally allowedequipment used to advertise on themfulfill the contract do not meet the definition of a lease for accounting purposes and have been included within non-lease non-cancelable contracts in the remaining term of the contract. Oncetable below.
Additionally, the Company has built the structure, the cost is capitalized and expensed over the shorter of the economic life of the asset or the remaining life of the contract.
In addition, the Company hascapital expenditure commitments relating to required purchases of property, plant, and equipment under certain transit and street furniture contracts. Certaincontracts, and certain of the Company’s contracts contain penalties for not fulfilling its commitments related to its obligations to build bus stops, kiosks and other public amenities or advertising structures. Historically, any such penalties have not materially impacted the Company’s financial position or results of operations.
CLEAR CHANNEL OUTDOOR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2016,2022, the Company’s future minimum rental commitmentspayments under non-cancelable operating lease agreements with terms in excess of one year, minimum payments undernon-lease non-cancelable contracts in excess of one year and capital expenditure commitments and employment contracts consistconsisted of the following:
| | | | | | | | | | | | | |
| (In thousands) | Non-Lease | | Capital | | |
| Non-Cancelable | | Expenditure | | |
| Contracts | | Commitments | | |
Future minimum payments(1): | | | | | |
| 2023 | $ | 274,966 | | | $ | 89,625 | | | |
| 2024 | 238,512 | | | 26,458 | | | |
| 2025 | 200,814 | | | 15,965 | | | |
| 2026 | 129,991 | | | 5,741 | | | |
| 2027 | 105,357 | | | 5,698 | | | |
| Thereafter | 271,100 | | | 31,142 | | | |
| Total | $ | 1,220,740 | | | $ | 174,629 | | | |
|
| | | | | | | | | | | |
| (In thousands) | | | | | Capital |
| | Non-Cancelable | | Non-Cancelable | | Expenditure |
| | Operating Lease | | Contracts | | Commitments |
| 2017 | $ | 335,574 |
| | $ | 363,137 |
| | $ | 49,618 |
|
| 2018 | 289,525 |
| | 293,279 |
| | 7,348 |
|
| 2019 | 265,232 |
| | 262,413 |
| | 4,449 |
|
| 2020 | 239,517 |
| | 224,343 |
| | 1,962 |
|
| 2021 | 215,419 |
| | 191,100 |
| | 2,097 |
|
| Thereafter | 1,211,040 |
| | 411,234 |
| | 12,242 |
|
| Total | $ | 2,556,307 |
| | $ | 1,745,506 |
| | $ | 77,716 |
|
Rent expense chargedRefer to operationsNote 7 for the years endedCompany’s future maturities of operating lease liabilities as of December 31, 2016, 2015 and 2014 was $947.4 million, $978.6 million and $1,025.3 million, respectively.2022.
In various areas in which the Company operates, outdoor advertising is the object of restrictive and, in some cases, prohibitive zoning and other regulatory provisions, either enacted or proposed. The impact to the Company of loss of displays due to governmental action has been somewhat mitigated by Federal and state laws mandating compensation for such loss and constitutional restraints.Legal Proceedings
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 its 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 itsthe Company’s litigation arises in the following contexts: commercial disputes; misappropriation of likeness and right of publicity claims;disputes, employment and benefits related claims;claims, land use and zoning, governmental fines;fines, intellectual property claims;claims and tax disputes.
International OutdoorChina Investigation
On April 21, 2015, inspections were conducted at the premisesTwo former employees of Clear ChannelMedia Limited, a former indirect, non-wholly-owned subsidiary of the Company, have been convicted in DenmarkChina of certain crimes, including the crime of misappropriation of Clear Media funds, and Sweden as partsentenced to imprisonment. The Company is not aware of anany litigation, claim or assessment pending against the Company in relation to this proceeding.
The Company advised both the SEC and the U.S. Department of Justice (the "DOJ") of the investigation by Danish competition authorities. Additionally, onof Clear Media and continues to cooperate with these agencies. Subsequent to the same day,announcement that the Company was considering a strategic review of its stake in Clear Media, in March 2020, Clear Channel UKOutdoor Holdings received a communicationsubpoena from the UK competition authorities, alsostaff of the SEC and a Grand Jury subpoena from the U.S. Attorney's Office for the Eastern District of New York, both in connection with the investigationpreviously disclosed investigations. On April 28, 2020, the Company tendered the shares representing its 50.91% stake in Clear Media to Ever Harmonic Global Limited, a special-purpose vehicle wholly owned by Danish competition authorities.a consortium of investors, which includes the chief executive officer and an executive director of Clear ChannelMedia, and its affiliates are cooperatingon May 14, 2020, the Company received the final proceeds of the sale. In connection with the national competition authorities.sale of its shares in Clear Media, the Company entered into an Investigation and Litigation Support Agreement with Clear Media and Ever Harmonic that required Clear Media, if requested by the SEC and/or the DOJ, to use reasonable efforts to timely provide relevant factual information to the SEC and/or the DOJ, among other obligations. The Investigation and Litigation Support Agreement expired in March 2022.
CLEAR CHANNEL OUTDOOR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 — RELATED PARTY TRANSACTIONS
The SEC and DOJ investigation could implicate the books and records, internal controls and anti-bribery provisions of the U.S. Foreign Corrupt Practices Act, which statute and regulations provide for potential monetary penalties as well as criminal and civil sanctions. As previously disclosed, the Company records net amounts due from oris meeting with these agencies to iHeartCommunications as “Due from/to iHeartCommunications”engage in discussions about potential resolution of these matters, including potential settlement. Based on the consolidated balance sheets. The accounts represent the revolving promissory note issued bydiscussions to date, the Company recorded an estimated liability during the first quarter of 2022 to iHeartCommunications andaccount for a potential resolution of these matters. However, at this time, the revolving promissory note issued by iHeartCommunicationsCompany cannot predict the eventual scope, duration or outcome of these discussions, including whether a settlement will be reached, the amount of any potential monetary payments or the scope of injunctive or other relief, the results of which may be materially adverse to the Company, its financial condition and its results of operations. At this time, the Company is unable to reasonably estimate, or provide any assurance regarding, the amount of any potential loss in excess of the amount accrued relating to this investigation.
Other Contingencies
In various areas in which the Company operates, out-of-home advertising is the object of restrictive and, in some cases, prohibitive zoning and other regulatory provisions, either enacted or proposed. The impact to the Company of loss of displays due to governmental action has been somewhat mitigated by Federal and state laws mandating compensation for such loss and constitutional restraints.
NOTE 9 – INCOME TAXES
Income Tax Benefit (Expense)
Significant components of the provision for income tax benefit (expense) are as follows:
| | | | | | | | | | | | | | | | | |
| (In thousands) | Year Ended December 31, |
| 2022 | | 2021 | | 2020 |
| Current - federal | $ | (719) | | | $ | — | | | $ | — | |
| Current - state | (2,146) | | | (1,293) | | | 337 | |
| Current - foreign | (7,143) | | | 4,239 | | | (22,667) | |
| Total current benefit (expense) | (10,008) | | | 2,946 | | | (22,330) | |
| Deferred - federal | 61,095 | | | 25,830 | | | 62,167 | |
| Deferred - state | 22,041 | | | 5,678 | | | 14,233 | |
| Deferred - foreign | (1,296) | | | 74 | | | 3,936 | |
| Total deferred benefit | 81,840 | | | 31,582 | | | 80,336 | |
| Income tax benefit | $ | 71,832 | | | $ | 34,528 | | | $ | 58,006 | |
In 2022, the Company recognized a current tax expense of $10.0 million, compared to current tax benefit of $2.9 million in 2021 and current tax expense of $22.3 million in 2020. The current tax expense for 2022 was primarily related to increased taxable income in various foreign tax jurisdictions compared to 2021. Current taxes in 2020 were primarily attributed to the $23.3 million of current tax expense related to the sale of the Company’s stake in Clear Media.
In 2022, the Company recognized a deferred tax benefit of $81.8 million, compared to $31.6 million and $80.3 million in 2021 and 2020, respectively.
The deferred tax benefit for 2022 was primarily driven by a partial release of the U.S valuation allowance due to the Company’s assessment of its deferred tax liabilities associated with billboard permits that will reverse in the face amountfuture, thereby generating future taxable income for realization of $1.0 billion, or ifU.S deferred tax assets. Prior to 2022, permits were treated as indefinite-lived intangible assets and were not amortized for financial reporting purposes. Refer to Note 2 for more or less than such amount,information on the aggregate unpaid principal amount of all advances. The accounts accrue interest pursuantchange in accounting estimate related to the termsamortization of the promissory notes and are generally payable on demand or when they mature on December 15, 2017.
Included in the accounts are the net activities resultingCompany’s permits. The foregoing deferred tax benefit was partially offset by $7.4 million of deferred tax expense arising from day-to-day cash management services provided by iHeartCommunications. As a part of these services, the Company maintains collection bank accounts swept daily into accounts of iHeartCommunications (after satisfying the funding requirements of the Trustee Accounts under the CCWH Senior Notes and the CCWH Subordinated Notes). In return, iHeartCommunications funds the Company’s controlled disbursement accounts as checks or electronic payments are presented for payment. The Company’s claimexecution of a definitive agreement to sell its business in relation to cash transferred from its concentration account is on an unsecured basis and is limited to the balance of the “Due from iHeartCommunications” account.
As of December 31, 2016 and December 31, 2015, the asset recorded in “Due from iHeartCommunications” on the consolidated balance sheet was $885.7 million and $930.8 million, respectively. As of December 31, 2016, the fixed interest rate on the “Due from iHeartCommunications” account was 6.5%, which is equal to the fixed interest rate on the CCWH Senior Notes. The net interest income for the years ended December 31, 2016, 2015 and 2014 was $50.3 million, $61.4 million, and $60.2 million, respectively.
Switzerland. In its Annual Report on Form 10-K filedconnection with the SEC on February 23, 2017, iHeartCommunications stated thatanticipated sale of its forecast of future cash flows indicates that such cash flows would not be sufficient for it to meet its obligations, including payment of the outstanding receivables based credit facility balance at maturity on December 24, 2017, as they become due in the ordinary course of business for a period of 12 months following February 23, 2017. While iHeartCommunications stated that it believes that the refinancing or the extension of the maturity date of the receivables based credit facility, combined with current funds and expected future cash flows, will be sufficient to enable it to meet its obligations as they become due in the ordinary course of business for a period of 12 months, there is no assurance that the receivables based credit facility will be extended in a timely manner or on acceptable terms, or at all.
If iHeartCommunications were to become insolvent, the Company would be an unsecured creditor of iHeartCommunications. In such event, the Company would be treated the same as other unsecured creditors of iHeartCommunications and, if the Company were not entitled to amounts outstanding under the receivable from iHeartCommunications, or could not obtain such cash on a timely basis, the Company could experience a liquidity shortfall.
The Company provides advertising space on its billboards for radio stations owned by iHeartCommunications. For the years ended December 31, 2016, 2015 and 2014,Swiss subsidiary, the Company recorded $3.5 million, $2.7a U.S deferred tax liability of $12.5 million and $3.4a corresponding reduction in valuation allowance of $5.1 million.
The deferred tax benefits for 2021 and 2020 were primarily driven by impairment charges on the Company’s then-indefinite-lived permits, which resulted in a reduction in the associated deferred tax liability without a corresponding change in valuation allowance. In 2020, this was partially offset by $23.6 million respectively, in revenue for these advertisements.
Under the Corporate Services Agreement between iHeartCommunications and the Company, iHeartCommunications provides management servicesof deferred tax expense related to the Company, which include, among other things: (i) treasury, payroll and other financial related services; (ii) certain executive officer services; (iii) human resources and employee benefits services; (iv) legal and related services; (v) information systems, network and related services; (vi) investment services; (vii) procurement and sourcing support services; and (viii) other general corporate services. These services are charged to the Company based on actual direct costs incurred or allocated by iHeartCommunications based on headcount, revenue or other factors on a pro rata basis. For the years ended December 31, 2016, 2015 and 2014, the Company recorded $36.0 million, $30.1 million, and $31.2 million, respectively, as a component of corporate expenses for these services.
Pursuant to the Tax Matters Agreement between iHeartCommunications and the Company, the operations of the Company are included in a consolidated federal income tax return filed by iHeartCommunications. The Company’s provision for income taxes has been computed on the basis that the Company files separate consolidated federal income tax returns with its subsidiaries. Tax payments are made to iHeartCommunications on the basissale of the Company’s separate taxable income. Tax benefits recognized on the Company’s employee stock option exercises are retained by the Company.
The Company computes its deferred income tax provision using the liability methodstake in accordance with the provisions of ASC 740-10, as if the Company was a separate taxpayer. Deferred tax assets and liabilities are determined based on differencesClear Media.
CLEAR CHANNEL OUTDOOR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Deferred Taxes
between financial reporting basis and tax basis of assets and liabilities and are measured using the enacted tax rates expected to apply to taxable income in the periods in which the deferred tax asset or liability is expected to be realized or settled. Deferred tax assets are reduced by valuation allowances if the Company believes it is more likely than not some portion or all of the asset will not be realized.
Pursuant to the Employee Matters Agreement, the Company’s employees participate in iHeartCommunications’ employee benefit plans, including employee medical insurance and a 401(k) retirement benefit plan. For the years ended December 31, 2016, 2015 and 2014, the Company recorded $9.4 million, $10.7 million and $10.7 million, respectively, as a component of selling, general and administrative expenses for these services.
Stock Purchases
On August 9, 2010, iHeartCommunications announced that its board of directors approved a stock purchase program under which iHeartCommunications or its subsidiaries may purchase up to an aggregate of $100 million of the Company’s Class A common stock and/or the Class A common stock of iHeartMedia, Inc. (“iHeartMedia”). The stock purchase program did not have a fixed expiration date and could be modified, suspended or terminated at any time at iHeartCommunications’ 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 iHeartCommunications, purchased an additional 2,000,000 shares of the Company’s Class A common stock for $20.4 million. On April 2, 2015, CC Finco purchased an additional 2,172,946 shares of the Company’s Class A common stock for $22.2 million, increasing iHeartCommunications’ collective holdings to represent approximately 90% of the outstanding shares of the Company’s common stock on a fully-diluted basis, assuming the conversion of all of the Company’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 iHeartCommunications’ board of directors.
Dividends
On February 9, 2017, the Company declared a special dividend of $282.5 million using a portion of the proceeds from the sales of certain non-strategic U.S. outdoor markets and of our Australia outdoor business. On February 23, 2017, we paid approximately 89.9% of the dividend or $254.0 million to iHeartCommunications, with the remaining 10.1% or $28.5 million paid to public stockholders of the Company.
NOTE 7 — INCOME TAXES
The operations of the Company are included in a consolidated U.S. federal income tax return filed by iHeartMedia. However, for financial reporting purposes, the Company’s provision for income taxes has been computed on the basis that the Company files separate consolidated U.S. federal income tax returns with its subsidiaries.
Significant components of the provision for income tax benefit (expense) are as follows:
|
| | | | | | | | | | | |
| (In thousands) | Years Ended December 31, |
| | 2016 | | 2015 | | 2014 |
| Current - federal | $ | — |
| | $ | (270 | ) | | $ | 2,001 |
|
| Current - foreign | (43,611 | ) | | (45,322 | ) | | (26,281 | ) |
| Current - state | (1,731 | ) | | (1,046 | ) | | (502 | ) |
| Total current expense | (45,342 | ) | | (46,638 | ) | | (24,782 | ) |
| | | | | | |
| Deferred - federal | (89,068 | ) | | (8,259 | ) | | 26,744 |
|
| Deferred - foreign | 56,759 |
| | 5,282 |
| | 4,307 |
|
| Deferred - state | 976 |
| | (562 | ) | | 2,518 |
|
| Total deferred benefit (expense) | (31,333 | ) | | (3,539 | ) | | 33,569 |
|
| Income tax benefit (expense) | $ | (76,675 | ) | | $ | (50,177 | ) | | $ | 8,787 |
|
CLEAR CHANNEL OUTDOOR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the year ended December 31, 2016 the Company recorded current tax expense of $45.3 million as compared to $46.6 million for the 2015 year. The current tax expense for 2016 was primarily related to foreign income taxes on operating profits generated in certain jurisdictions during the period.
For the year ended December 31, 2015 the Company recorded current tax expense of $46.6 million compared to $24.8 million for the 2014 year. The change in current tax was due primarily to a reduction in unrecognized tax benefits during 2015, which resulted from the expiration of statutes of limitations to assess taxes in the United Kingdom and several state jurisdictions. This decrease in unrecognized tax benefits resulted in a reduction to current tax expense of $21.8 million during 2014.
Deferred tax expense of $31.3 million was recorded for 2016 compared with a deferred tax expense of $3.5 million for 2015. The change in deferred tax expense is primarily due to the current year utilization of net operating loss carryforwards in the U.S. which offset taxable income from the gains on the sales of nine non-strategic U.S. outdoor markets during the first quarter of 2016 and the sale of the Company's Australia business during the fourth quarter of 2016. The current year federal deferred tax expenses was partially offset by foreign deferred tax benefit attributable to the release of $43.3 million of valuation allowance against certain net operating losses in France. Due to positive evidence that now exists, the Company expects to realize the benefit of these net operating loss carryforwards in the future.
Deferred tax expense of $3.5 million was recorded for 2015 compared with a deferred tax benefit of $33.6 million for 2014. The change in deferred tax is primarily due to the valuation allowance of $32.9 million recorded against the Company's federal and state net operating losses during 2015
Significant components of the Company’s deferred tax liabilities and assets as of December 31, 20162022 and 20152021 are as follows:
| | | | | | | | | | | |
| (In thousands) | December 31, | | December 31, |
| 2022 | | 2021 |
| Deferred tax liabilities: | | | |
| Operating lease right-of-use asset | $ | 368,627 | | | $ | 369,676 | |
Intangibles assets(1) | 334,935 | | | 320,469 | |
| Fixed assets | 16,448 | | | 29,455 | |
| | | |
| Investment in foreign subsidiaries | 12,509 | | | — | |
| Other | 12,262 | | | 7,792 | |
| Total deferred tax liabilities | 744,781 | | | 727,392 | |
| Deferred tax assets: | | | |
| Operating lease liabilities | 381,353 | | | 376,424 | |
Net operating loss carryforwards(2) | 267,460 | | | 262,190 | |
Interest expense carryforwards(3) | 119,336 | | | 105,808 | |
| Accrued expenses | 17,464 | | | 19,437 | |
Stock-based compensation expense(4) | 4,778 | | | 4,717 | |
| Credit loss provision | 4,397 | | | 4,512 | |
| Pension plans | 3,106 | | | 5,184 | |
| Other | 21,169 | | | 21,020 | |
| Total deferred tax assets | 819,063 | | | 799,292 | |
Less: Valuation allowance(5) | 317,950 | | | 396,479 | |
Net deferred tax assets(6) | 501,113 | | | 402,813 | |
| Net deferred tax liabilities | $ | 243,668 | | | $ | 324,579 | |
|
| | | | | | | |
| (In thousands) | December 31, | | December 31, |
| | 2016 | | 2015 |
| Deferred tax liabilities: | | | |
| Intangibles and fixed assets | $ | 800,144 |
| | $ | 927,779 |
|
| Equity in earnings | 2,816 |
| | 2,374 |
|
| Other | 16,971 |
| | 16,036 |
|
| Total deferred tax liabilities | 819,931 |
| | 946,189 |
|
| Deferred tax assets: | | | |
| Accrued expenses | 19,458 |
| | 17,121 |
|
| Net operating loss carryforwards | 257,613 |
| | 472,975 |
|
| Bad debt reserves | 3,364 |
| | 3,256 |
|
| Other | 36,266 |
| | 29,006 |
|
| Total deferred tax assets | 316,701 |
| | 522,358 |
|
| Less: Valuation allowance | 137,337 |
| | 185,079 |
|
| Net deferred tax assets | 179,364 |
| | 337,279 |
|
| Net deferred tax liabilities | $ | 640,567 |
| | $ | 608,910 |
|
During the fourth quarter of 2015, the Company elected early adoption of ASU No. 2015-17, Income Taxes (Topic 740), Balance Sheet Classification of Deferred Taxes. This update requires companies to classify all deferred tax assets and liabilities as noncurrent on the balance sheet instead of separating deferred taxes into current and noncurrent amounts.
(1)The deferred tax liabilities associated with intangibles and fixedintangible assets primarily relatesrelate to the differencedifferences in bookthe financial reporting and tax basis of acquired billboard permits, permanent easements and tax deductibletax-deductible goodwill. The Company categorizes permanent easements and goodwill created from the Company’s various stock acquisitions. In accordance with ASC 350-10, Intangibles—Goodwillas indefinite-lived intangible assets and Other, the Companytherefore does not amortize its bookfinancial reporting basis in permits.these assets. As a result, thisthe deferred tax liability associated with these indefinite-lived intangible assets will not reverse over time unless the Company recognizes future impairment charges related to its permits and tax deductible goodwill or sells its permits. As the Company continues to amortize its tax basis in its permits and tax deductible goodwill, the deferred tax liability will increase over time. The Company’s net foreign deferred tax assets for the period ending December 31, 2016 were $50.0 million and its foreign deferred tax liabilities for the period ended December 31, 2015 were $6.4 million.these intangible assets.
CLEAR CHANNEL OUTDOOR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(2)At December 31, 2016,2022, the Company had recorded deferred tax assets for net operating loss carryforwards (tax effected)(tax-effected) for federal and state income tax purposes of $105.2 million, which$84.3 million. The Company’s federal and certain state net operating losses carry forward indefinitely without expiration, while the remaining state net operating loss carryforwards expire in various amounts through 2035. The Company expects to realize the benefits of its deferred tax assets attributable to federal and state net operating losses based upon expected future taxable income from deferred tax liabilities that reverse in the relevant federal and state jurisdictions and carryforward periods. During 2016, the Company released the valuation allowance of $32.9 million that was previously recorded against these deferred tax assets attributable to federal and state net operating losses. The release of valuation allowance was due to the taxable gains that were recognized from the sale of various outdoor markets during the period. In addition, the Company recorded a net decrease of $14.8 million in valuation allowances against its foreign deferred tax assets during the year ended December 31, 2016.2042. At December 31, 2016,2022, the Company had recorded $152.5$183.2 million (tax-effected) of deferred tax assets for foreign net operating losses,loss carryforwards, the majority of which are offset in part bymay be carried forward without expiration.
(3)Section 163(j) of the Internal Revenue Code generally limits the deduction for business interest expense to 30% of adjusted taxable income and provides that any disallowed interest expense may be carried forward indefinitely. In applying the rules under Section 163(j), the Company made the election to be considered an associated valuation allowanceoperator of $103.3 million. The remaininga “real property trade or business” and recorded a carryforward deferred tax valuation allowanceasset for federal and state purposes related to interest expense limitations on its non-real property assets.
(4)Full realization of $34.0 million offsets other foreignthe deferred tax assets that are not expected to be realized. Realization of these foreign deferred tax assets is dependent upon the Company’s ability to generate future taxable income in appropriate tax jurisdictions to obtain benefits. Due to the Company’s evaluation of all available evidence, including significant negative evidence of cumulative losses in these jurisdictions, the Company continues to record valuation allowances on the foreign deferred tax assets that are not expected to be realized. The Company expects to realize its remaining gross deferred tax assets based upon its assessment of deferred tax liabilities that will reverse in the same carryforward period and jurisdiction and are of the same character as the net operating loss carryforwards and temporary differences that give rise to the deferred tax assets. Any deferred tax liabilities associated with billboard permits and tax deductible goodwill intangible assets are not relied upon as a source of future taxable income, as these intangible assets have an indefinite life.
At December 31, 2016 and 2015, net deferred tax assets include a deferred tax asset of $14.9 million and $16.4 million, respectively, relatingrelated to stock-based compensation expense under ASC Subtopic 718-10Compensation—Stock Compensation. Full realization of this deferred tax asset requires stock options to be exercised at a price equaling or exceeding the sum of the grant price plus the fair value of the option at the grant date and restricted stock to vest at a price equaling or exceeding the fair market value at the grant date. Accordingly, there can be no assurance that the stock price of the Company’s Common Stockcommon stock will rise to levels sufficient to realize the entire deferred tax benefit currently reflected in our balance sheet.the Company’s Consolidated Balance Sheet. See Note 813 for additional discussion of ASC Subtopic 718-10.
Income (loss)(5)Due to the Company’s evaluation of all available evidence, including significant negative evidence of cumulative losses in the related jurisdictions, the Company continues to record valuation allowances on deferred tax assets that are not expected to be realized. As of December 31, 2022, the Company had valuation allowances of $69.1 million recorded against a portion of its federal and state deferred tax assets and $248.8 million recorded against its deferred tax assets in foreign jurisdictions.
CLEAR CHANNEL OUTDOOR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(6)The Company expects to realize the benefits of this portion of its deferred tax assets based upon its assessment of deferred tax liabilities that will reverse in the same carryforward period and jurisdiction and are of the appropriate character, as well as the Company's ability to generate future taxable income in certain tax jurisdictions. Any deferred tax liabilities associated with permanent easements and tax-deductible goodwill intangible assets are not relied upon as a source of future taxable income as these intangible assets have an indefinite life.
Effective Tax Rate
Loss before income taxes:taxes was as follows:
| | | (In thousands) | Years Ended December 31, | (In thousands) | Year Ended December 31, |
| | 2016 | | 2015 | | 2014 | | 2022 | | 2021 | | 2020 |
| US | $ | 182,311 |
| | $ | (69,676 | ) | | $ | (87,120 | ) | |
| U.S. | | U.S. | $ | (77,153) | | | $ | (321,194) | | | $ | (481,300) | |
| Foreign | 58,797 |
| | 48,545 |
| | 95,452 |
| Foreign | (89,067) | | | (146,454) | | | (176,932) | |
| Total income (loss) before income taxes | $ | 241,108 |
| | $ | (21,131 | ) | | $ | 8,332 |
| |
| Total loss before income taxes | | Total loss before income taxes | $ | (166,220) | | | $ | (467,648) | | | $ | (658,232) | |
The reconciliation of income tax computed at the U.S. federal statutory rates to income tax benefit is:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (In thousands) | Year Ended December 31, |
| 2022 | | 2021 | | 2020 |
| Amount | | Percent | | Amount | | Percent | | Amount | | Percent |
| Income tax benefit at statutory rates | $ | 34,906 | | | 21.0 | % | | $ | 98,206 | | | 21.0 | % | | $ | 138,229 | | | 21.0 | % |
| State income taxes, net of federal tax effect | 3,683 | | | 2.2 | % | | 10,088 | | | 2.2 | % | | 13,812 | | | 2.1 | % |
| Foreign income taxes | (27,141) | | | (16.3) | % | | (31,012) | | | (6.6) | % | | (56,865) | | | (8.6) | % |
| Nondeductible items | (6,004) | | | (3.6) | % | | (229) | | | 0.0 | % | | (1,047) | | | (0.2) | % |
| Changes in valuation allowance and other estimates | 79,352 | | | 47.7 | % | | (45,710) | | | (9.8) | % | | (39,726) | | | (6.0) | % |
| Investment in foreign subsidiaries | (12,509) | | | (7.5) | % | | — | | | — | % | | — | | | — | % |
| Other, net | (455) | | | (0.3) | % | | 3,185 | | | 0.7 | % | | 3,603 | | | 0.5 | % |
| Income tax benefit | $ | 71,832 | | | 43.2 | % | | $ | 34,528 | | | 7.4 | % | | $ | 58,006 | | | 8.8 | % |
|
| | | | | | | | | | | | | | | | | |
| (In thousands) | Years Ended December 31, |
| | 2016 | | 2015 | | 2014 |
| | Amount | | Percent | | Amount | | Percent | | Amount | | Percent |
| Income tax benefit (expense) at statutory rates | $ | (84,388 | ) | | 35.0% | | $ | 7,396 |
| | 35.0% | | $ | (2,916 | ) | | 35.0% |
| State income taxes, net of federal tax effect | (4,602 | ) | | 1.9% | | 2,238 |
| | 10.6% | | 2,016 |
| | (24.2)% |
| Foreign income taxes | (20,725 | ) | | 8.6% | | (23,062 | ) | | (109.1)% | | 11,434 |
| | (137.3)% |
| Nondeductible items | (687 | ) | | 0.3% | | (754 | ) | | (3.6)% | | (722 | ) | | 8.7% |
| Changes in valuation allowance and other estimates | 34,597 |
| | (14.4)% | | (33,684 | ) | | (159.4)% | | 2,941 |
| | (35.3)% |
| Other, net | (870 | ) | | 0.4% | | (2,311 | ) | | (11.0)% | | (3,966 | ) | | 47.6% |
| Income tax benefit (expense) | $ | (76,675 | ) | | 31.8% | | $ | (50,177 | ) | | (237.5)% | | $ | 8,787 |
| | (105.5)% |
During 2016,The effective tax rate of 43.2% in 2022 was primarily driven by a reduction in the valuation allowance due to the classification change of permit intangible assets from indefinite-lived to finite-lived for financial reporting purposes, partially offset by deferred tax expense recorded as a result of entering into a definitive agreement to sell the Company’s business in Switzerland, as previously described.
The effective tax rates of 7.4% and 8.8% in 2021 and 2020, respectively, were largely impacted by the valuation allowance recorded against deferred tax assets resulting from losses and interest expense carryforwards in the U.S. and certain foreign jurisdictions due to uncertainty regarding the Company's ability to realize those assets in future periods. Additionally, during 2020, the Company recorded tax expense of approximately $76.7 million. The 2016 income tax expense and 31.8% effective tax rate were impacted primarily by$59.7 million as a result of the $32.9sale of the Company’s stake in Clear Media, with a net impact of $46.9 million and $43.3 million deferred tax benefits recorded in connection withafter offset of the valuation allowance.
CLEAR CHANNEL OUTDOOR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
release of valuation allowances in the U.S. and France, respectively. These deferred tax benefits were partially offset by $54.7 million in tax expense attributable to the sale of our Australia outdoor business.
During 2015, the Company recorded tax expense of approximately $50.2 million. The 2015 income tax expense and (237.5)% effective tax rate were impacted primarily by a $32.9 million valuation allowance recorded against the Company’s federal and state net operating losses during 2015. Additionally, the Company recorded additional taxes due to the inability to benefit from losses in certain foreign jurisdictions.
During 2014, the Company recorded tax benefit of approximately $8.8 million. The 2014 income tax benefit and (105.5)% effective tax rate were impacted primarily by the Company's benefits and charges from tax amounts associated with its foreign earnings that are taxed at rates different from the federal statutory rate and an inability to benefit from losses in certain foreign jurisdictions. Additionally, the Company recorded $20.0 million in net tax benefits associated with a decrease in unrecognized tax benefits resulting from the expiration of statutes of limitations to assess taxes in the United Kingdom and several state jurisdictions.
The Company provides for any related tax liability on undistributed earnings that the Company does not intend to be indefinitely reinvested outside the United States or would otherwise become taxable upon remittance within our foreign structure. Substantially all of the Company’s undistributed international earnings are intended to be indefinitely reinvested in home country operations outside the United States. If any excess cash held by our foreign subsidiaries were needed to fund operations in the U.S., we could presently repatriate available funds without a requirement to accrue or pay U.S. taxes. This is a result of significant deficits, as calculated for tax law purposes, in our foreign earnings and profits, which give us flexibility to make future cash distributions as non-taxable returns of capital. All tax liabilities owed by the Company are paid either by the Company or on behalf of the Company by iHeartCommunications through an operating account that represents net amounts due to or from iHeartCommunications.
The Company continues to record interest and penalties related to unrecognized tax benefits in current income tax expense. The total amount of interest accrued at December 31, 2016 and 2015, was $3.4 million and $3.6 million, respectively. The total amount of unrecognized tax benefits including accrued interest and penalties at December 31, 2016 and 2015, was $39.7 million and $43.5 million, respectively, of which $23.8 million and $23.8 million is included in “Other long-term liabilities.” In addition, $15.9 million and $19.7 million of unrecognized tax benefits are recorded net with the Company’s deferred tax assets for its net operating losses as opposed to being recorded in “Other long-term liabilities” at December 31, 2016 and 2015, respectively. The total amount of unrecognized tax benefits at December 31, 2016 and 2015 that, if recognized, would impact the effective income tax rate is $18.6 million and $18.2 million, respectively.Unrecognized Tax Benefits
A reconciliation of the beginning and ending amountamounts of unrecognized tax benefits is as follows:
| | | | | | | | | | | | | | |
| (In thousands) | | Year Ended December 31, |
| Unrecognized Tax Benefits | | 2022 | | 2021 |
| Balance at beginning of period | | $ | 24,581 | | | $ | 33,743 | |
| Increases for tax position taken in the current year | | 2,455 | | | 2,145 | |
| Increases for tax positions taken in previous years | | 231 | | | 432 | |
| Decreases for tax position taken in previous years | | (683) | | | (5,595) | |
| Decreases due to settlements with tax authorities | | (605) | | | (5,166) | |
Decreases due to lapse of statute of limitations(1) | | (417) | | | (978) | |
Liabilities held for sale(2) | | (658) | | | — | |
| Balance at end of period | | $ | 24,904 | | | $ | 24,581 | |
|
| | | | | | | | |
| (In thousands) | | Years Ended December 31, |
| Unrecognized Tax Benefits | | 2016 | | 2015 |
| Balance at beginning of period | | $ | 39,908 |
| | $ | 39,143 |
|
| Increases for tax position taken in the current year | | 6,996 |
| | 6,311 |
|
| Increases for tax positions taken in previous years | | 2,199 |
| | 1,025 |
|
| Decreases for tax position taken in previous years | | (6,148 | ) | | (2,009 | ) |
| Decreases due to settlements with tax authorities | | (717 | ) | | (689 | ) |
| Decreases due to lapse of statute of limitations | | (5,906 | ) | | (3,873 | ) |
| Balance at end of period | | $ | 36,332 |
| | $ | 39,908 |
|
Pursuant to the Tax Matters Agreement between iHeartCommunications and the Company, the operations of the Company are included in a consolidated U.S. federal income tax return filed by iHeartMedia. In addition, the Company and its subsidiaries file income tax returns in various state and foreign jurisdictions. During 2016 and 2015, the Company reversed $6.2 and $3.9 million in unrecognized tax benefits, inclusive of interest, as a result of the expiration of statutes of limitations to assess taxes in certain state and foreign jurisdictions. During 2016, the Company settled certain tax examinations that resulted in the reduction of uncertain tax positions of $6.8 million, inclusive of interest.(1) All federal income tax matters through 20102018 are closed. The Company is currently in appeals with the IRS for its tax returns for the 2011 and 2012 periods. Substantially all material state, local, and foreign income tax matters have been concluded for years through 2008.2007.
(2) Unrecognized tax benefits related to the Company’s business in Switzerland have been reclassified as held for sale on the Consolidated Balance Sheet as of December 31, 2022. Refer to Note 16 for additional information.
The Company records interest and penalties related to unrecognized tax benefits in current income tax expense. At December 31, 2022 and 2021, the total amount of interest accrued was $5.1 million and $4.6 million, respectively, resulting in total unrecognized tax benefits, including accrued interest and penalties, of $30.0 million and $29.2 million, respectively.
The unrecognized tax benefits, net of deposits on account with taxing authorities, are reflected on the Company’s Consolidated Balance Sheets as follows: $15.9 million and $16.0 million is included in “Other long-term liabilities” at December 31, 2022 and 2021, respectively. In addition, $14.1 million and $12.7 million of unrecognized tax benefits are netted with the Company’s deferred tax assets for its net operating loss carryforwards at December 31, 2022 and 2021, respectively.
The total amount of unrecognized tax benefits at December 31, 2022 and 2021 that, if recognized, would impact the effective income tax rate was $13.4 million and $12.1 million, respectively.
NOTE 10 – PROPERTY, PLANT AND EQUIPMENT
The Company’s property, plant and equipment consisted of the following classes of assets as of December 31, 2022 and 2021:
| | | | | | | | | | | |
| (In thousands) | December 31,
2022 | | December 31,
2021 |
| Structures | $ | 2,317,552 | | | $ | 2,356,245 | |
| Furniture and other equipment | 244,154 | | | 251,084 | |
| Land, buildings and improvements | 154,439 | | | 146,064 | |
| Construction in progress | 80,567 | | | 54,361 | |
| Property, plant and equipment, gross | 2,796,712 | | | 2,807,754 | |
| Less: Accumulated depreciation | (2,009,164) | | | (1,980,508) | |
| Property, plant and equipment, net | $ | 787,548 | | | $ | 827,246 | |
Asset Acquisitions
During 2022, the Company acquired billboard structures and land of $2.9 million and $8.2 million, respectively, as part of asset acquisitions. During 2021, the Company acquired billboard structures and land of $1.8 million and $2.2 million, respectively, as part of asset acquisitions.
Depreciation
Total depreciation expense related to property, plant and equipment for the years ended December 31, 2022, 2021 and 2020 was $218.1 million, $230.7 million, and $247.5 million, respectively.
CLEAR CHANNEL OUTDOOR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11 – INTANGIBLE ASSETS AND GOODWILL
Intangible Assets
The following table presents the gross carrying amount and accumulated amortization for each major class of intangible assets as of December 31, 2022 and 2021:
| | | | | | | | | | | | | | | | | | | | | | | |
| (In thousands) | December 31, 2022 | | December 31, 2021 |
| | Gross Carrying Amount | | Accumulated Amortization | | Gross Carrying Amount | | Accumulated Amortization |
Permits(1) | $ | 739,119 | | | $ | (16,058) | | | $ | 717,666 | | | $ | — | |
Transit, street furniture and other outdoor
contractual rights | 420,838 | | | (383,184) | | | 446,976 | | | (397,778) | |
| Permanent easements | 160,688 | | | — | | | 161,079 | | | — | |
| Trademarks | 83,569 | | | (30,889) | | | 83,569 | | | (22,560) | |
| Other | 1,302 | | | (1,203) | | | 1,307 | | | (1,145) | |
| Total intangible assets | $ | 1,405,516 | | | $ | (431,334) | | | $ | 1,410,597 | | | $ | (421,483) | |
(1)During the fourth quarter of 2022, the Company concluded that due to changes in facts and circumstances, billboard permits, which were previously classified as indefinite-lived, are finite-lived and began to amortize permits on a straight-line basis over their estimated useful lives.
Asset Acquisitions
During 2022, the Company acquired permits and permanent easements of $48.4 million and $3.8 million, respectively, as part of asset acquisitions. During 2021, the Company acquired permits, permanent easements and contractual rights of $10.1 million, $2.3 million and $1.5 million, respectively, as part of asset acquisitions.
Impairment Charges
As described in Note 2, the Company performs its annual impairment test for indefinite-lived intangible assets as of July 1 of each year and more frequently as events or changes in circumstances warrant. As a result of these tests, the Company recognized total impairment charges on its then-indefinite-lived permits of $21.8 million, $119.0 million and $140.7 million during 2022, 2021 and 2020, respectively. The impairment charge in 2022 was due to rising interest rates and inflation, and the impairment charges in 2021 and 2020 were due to increases in the discount rate and expected negative financial statement impacts from COVID-19, respectively. Additionally, the Company’s annual impairment test as of July 1, 2022 resulted in an impairment charge of $0.9 million related to its permanent easements. The Company did not recognize impairments on any other intangible assets during 2021 or 2020.
Amortization
Total amortization expense related to finite-lived intangible assets for the years ended December 31, 2022, 2021 and 2020 was $35.7 million, $22.5 million, and $22.0 million, respectively.
The following table presents the Company’s estimate of future amortization expense; however, in the event that acquisitions and dispositions occur in the future, amortization expense may vary.
| | | | | |
| (In thousands) | |
| 2023 | $ | 78,434 | |
| 2024 | 78,430 | |
| 2025 | 78,149 | |
| 2026 | 77,422 | |
| 2027 | 76,270 | |
| Thereafter | 424,789 | |
| Total | $ | 813,494 | |
CLEAR CHANNEL OUTDOOR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Goodwill
The following table presents changes in the goodwill balance for the Company’s segments:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (In thousands) | America | | Airports | | Europe-North | | Europe-South | | Other | | Consolidated |
Balance as of December 31, 2020(1) | $ | 482,937 | | | $ | 24,882 | | | $ | 160,399 | | | $ | 41,419 | | | $ | — | | | $ | 709,637 | |
| Foreign currency | — | | | — | | | (8,689) | | | (2,244) | | | — | | | (10,933) | |
| Balance as of December 31, 2021 | 482,937 | | | 24,882 | | | 151,710 | | | 39,175 | | | — | | | 698,704 | |
| Held for sale | — | | | — | | | — | | | (19,825) | | | — | | | (19,825) | |
| Impairment | — | | | — | | | — | | | (16,870) | | | — | | | (16,870) | |
| Foreign currency | — | | | — | | | (8,886) | | | (2,480) | | | — | | | (11,366) | |
Balance as of December 31, 2022(1) | $ | 482,937 | | | $ | 24,882 | | | $ | 142,824 | | | $ | — | | | $ | — | | | $ | 650,643 | |
(1) The balance at December 31, 2020 is net of cumulative impairments of $2.6 billion for America, $79.4 million for Europe-North, $112.0 million for Europe-South and $90.4 million for Other.
Impairment Charges
As described in Note 2, the Company performed its annual impairment test for goodwill as of July 1, 2022, which did not result in any goodwill impairment.
Related to the planned disposal of the Company’s business in Switzerland, the Company allocated a portion of Europe’s goodwill balance to its Switzerland component based on the relative fair values of this component and the portion of the Europe reporting unit that will be retained.
Additionally, in conjunction with the Company’s change to its reportable segments effective December 31, 2022, as described in Note 1, the Company tested its goodwill for impairment immediately before and after the segment change. The testing performed on the Company’s historical reporting units prior to the reallocation of goodwill did not identify impairment; however, the testing performed on the new reporting units subsequent to the reallocation resulted in an impairment charge of $16.9 million, representing the entire goodwill balance allocated to the Europe-South reporting unit, excluding assets held for sale.
Due to the negative financial statement impacts of COVID-19, the Company recorded an impairment charge of $9.7 million during 2020, representing the entire goodwill balance in the Company's Latin America business. The Company concluded no goodwill impairment was required in 2021.
NOTE 812 – ASSET RETIREMENT OBLIGATIONS
The following table presents the activity related to the Company’s asset retirement obligations:
| | | | | | | | | | | |
| (In thousands) | Years Ended December 31, |
| 2022 | | 2021 |
| Beginning balance | $ | 50,381 | | | $ | 46,152 | |
| Additions and adjustments due to changes in estimates | 2,675 | | | 4,815 | |
| Accretion of liability | 3,537 | | | 4,253 | |
| Liabilities settled | (3,951) | | | (3,037) | |
| Foreign currency | (1,801) | | | (1,802) | |
Liabilities held for sale(1) | (733) | | | — | |
| Ending balance | $ | 50,108 | | | $ | 50,381 | |
(1)The asset retirement obligation related to the Company’s business in Switzerland has been reclassified as held for sale on the Consolidated Balance Sheet as of December 31, 2022. Refer to Note 16 for additional information.
CLEAR CHANNEL OUTDOOR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 13 – STOCKHOLDERS’ EQUITY (DEFICIT)DEFICIT
Share-Based Compensation
Share-Based Compensation Plans
The Company reports its noncontrolling interests in consolidated subsidiaries as a component ofhas historically granted equity separate fromincentive awards to executive officers and other eligible participants under the 2012 Amended and Restated Stock Incentive Plan (the “2012 Stock Incentive Plan”). On May 5, 2021, the Company’s equity. stockholders approved the adoption of the 2012 Second Amended and Restated Equity Incentive Plan (the “2021 Stock Incentive Plan”), which amends and restates the 2012 Stock Incentive Plan.
The 2021 Stock Incentive Plan is a broad-based incentive plan that provides for granting stock options, stock appreciation rights, restricted stock, restricted stock units, and performance-based cash and stock awards to any of the Company’s or its subsidiaries’ present or future directors, officers, employees, consultants or advisors. As of December 31, 2022, the Company had 30,877,483 shares available for issuance under the 2021 Stock Incentive Plan, assuming a 100% payout of the Company’s outstanding performance stock units.
Share-Based Compensation Expense
Share-based compensation cost is measured at the grant date based on the fair value of the award and is recognized as expense on a straight-line basis over the vesting period. Share-based compensation expense, which is recognized within “Corporate expenses” on the Consolidated Statements of Loss, was as follows:
| | | | | | | | | | | | | | | | | |
| (In thousands) | Year Ended December 31, |
| 2022 | | 2021 | | 2020 |
| Restricted stock units and awards | $ | 15,934 | | | $ | 15,364 | | | $ | 10,819 | |
| Performance stock units | 5,083 | | | 4,007 | | | 1,897 | |
| Stock options and other | 131 | | | 27 | | | 519 | |
| Total share-based compensation expense | $ | 21,148 | | | $ | 19,398 | | | $ | 13,235 | |
The tax benefit related to the share-based compensation expense for the years ended December 31, 2022, 2021 and 2020 was $5.4 million, $4.8 million and $3.3 million, respectively. As of December 31, 2022, there was $16.4 million of unrecognized compensation cost related to unvested share-based compensation arrangements that will vest based on service conditions. This cost is expected to be recognized over a weighted average period of approximately two years.
Restricted Stock Units and Awards
The Company grants both restricted stock units (“RSUs”) and restricted stock awards (“RSAs”) under its equity incentive plan. RSUs generally represent the right to receive shares upon vesting or, in some instances, may be settled in cash equal to the fair market value of the number of vested shares at the election of the compensation committee of the Board of Directors, and generally vest ratably in annual increments over a three-year period. RSAs represent shares of common stock that contain a legend which restricts their transferability for a term of up to five years. Both RSUs and RSAs are forfeited, except in certain circumstances, in the event the employee terminates his or her employment or relationship with the Company prior to the lapse of the restriction or prior to vesting.
The following table showspresents a summary of the changes in stockholders’Company’s RSUs and RSAs outstanding at December 31, 2022 and related activity during the year:
| | | | | | | | | | | |
| (Shares in thousands) | Number of
RSUs and RSAs | | Weighted-Average Grant-Date Fair Value |
| Outstanding, January 1, 2022 | 15,823 | | | $ | 1.95 | |
Granted(1) | 6,209 | | | $ | 2.58 | |
| Vested | (8,340) | | | $ | 2.11 | |
| Forfeited | (469) | | | $ | 2.00 | |
| Outstanding, December 31, 2022 | 13,223 | | | $ | 2.08 | |
(1)The weighted-average grant-date fair value of the Company’s RSUs and RSAs granted during the years ended December 31, 2022, 2021 and 2020 was $2.58, $2.27 and $1.04 per share, respectively.
CLEAR CHANNEL OUTDOOR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Performance Stock Units
The Company grants performance stock units (“PSUs”) under its equity attributableincentive plan. PSUs represent the right to receive shares of the Company’s common stock, which vest and become earned based on the achievement of the Company’s total shareholder return relative to the Company and the noncontrolling interests of subsidiaries in whichCompany’s peer group (the “Relative TSR”) over a three-year performance period. If the Company hasachieves Relative TSR at the 90th percentile or higher, the PSUs will be earned at 150% of the target number of shares; if the Company achieves Relative TSR at the 60th percentile, the PSUs will be earned at 100% of the target number of shares; and if the Company achieves Relative TSR at the 30th percentile, the PSUs will be earned at 50% of the target number of shares. To the extent Relative TSR is between achievement levels, the portion of the PSUs that is earned will be determined using straight-line interpolation. PSUs, which are considered market-condition awards pursuant to ASC Topic 260, are measured at the grant-date fair value based on a majority, but not total, ownership interest:Monte Carlo simulation model as of the grant date.
The following assumptions were used to calculate the fair value of the Company’s PSUs on the date of grant: |
| | | | | | | | | | | |
| (In thousands) | The Company | | Noncontrolling Interests | | Consolidated |
| Balances as of January 1, 2016 | $ | (757,442 | ) | | $ | 187,775 |
| | $ | (569,667 | ) |
| Net income | 141,431 |
| | 23,002 |
| | 164,433 |
|
| Dividends declared | (540,034 | ) | | — |
| | (540,034 | ) |
| Dividends and other payments to noncontrolling interests | — |
| | (16,917 | ) | | (16,917 | ) |
| Disposal of noncontrolling interests | — |
| | (36,846 | ) | | (36,846 | ) |
| Share-based compensation | 10,238 |
| | — |
| | 10,238 |
|
| Foreign currency translation adjustments | 30,835 |
| | (8,427 | ) | | 22,408 |
|
| Unrealized holding loss on marketable securities | (576 | ) | | — |
| | (576 | ) |
| Other adjustments to comprehensive loss | (11,814 | ) | | — |
| | (11,814 | ) |
| Reclassifications | 46,730 |
| | — |
| | 46,730 |
|
| Other, net | (2,042 | ) | | 1,299 |
| | (743 | ) |
| Balances as of December 31, 2016 | $ | (1,082,674 | ) | | $ | 149,886 |
| | $ | (932,788 | ) |
| | | | | | |
| Balance as of January 1, 2015 | $ | (344,275 | ) | | $ | 203,334 |
| | $ | (140,941 | ) |
| Net income (loss) | (96,072 | ) | | 24,764 |
| | (71,308 | ) |
| Dividends declared | (217,796 | ) | | — |
| | (217,796 | ) |
| Dividends and other payments to noncontrolling interests | — |
| | (30,870 | ) | | (30,870 | ) |
| Share-based compensation | 8,359 |
| | — |
| | 8,359 |
|
| Foreign currency translation adjustments | (101,575 | ) | | (11,154 | ) | | (112,729 | ) |
| Unrealized holding gain on marketable securities | 553 |
| | — |
| | 553 |
|
| Other adjustments to comprehensive loss | (10,266 | ) | | — |
| | (10,266 | ) |
| Reclassifications | 808 |
| | — |
| | 808 |
|
| Other, net | 2,822 |
| | 1,701 |
| | 4,523 |
|
| Balances as of December 31, 2015 | $ | (757,442 | ) | | $ | 187,775 |
| | $ | (569,667 | ) |
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| 2022 | | 2021 | | 2020 |
| Expected volatility | 68.6% | | 65.8% | | 60.9% |
| Risk-free interest rate | 2.8% | | 0.3% | | 0.2% |
| Expected dividend yield | —% | | —% | | —% |
Share-Based AwardsThe following table presents a summary of the Company’s PSUs outstanding, assuming a 100% payout, at December 31, 2022 and related activity during the year:
| | | | | | | | | | | |
| (Shares in thousands) | Number of PSUs | | Weighted-Average Grant-Date Fair Value |
| Outstanding, January 1, 2022 | 7,307 | | | $ | 1.71 | |
Granted(1) | 1,891 | | | $ | 2.69 | |
| Vested | (1,524) | | | $ | 2.38 | |
| Forfeited | (110) | | | $ | 1.50 | |
| Outstanding, December 31, 2022 | 7,564 | | | $ | 1.83 | |
(1)The weighted-average grant-date fair value of the Company’s PSUs granted during the years ended December 31, 2022, 2021 and 2020 was $2.69, $2.55 and $1.00 per share, respectively.
Stock Options
The Company has historically granted options to purchase shares of its Class A common stock to certain employees and directors of the Company and its affiliates under its equity incentive plan at no less than the fair value of the underlying stock on the date of grant. These options arewere granted for a term not exceeding ten years, and are generally forfeited except in certain circumstances, in the event the employee or directorrecipient terminates his or her employment or relationship with the Company or one of its affiliates. These optionsaffiliates, and vest solely on continued service over a period of up to five years. The equity incentive plan contains anti-dilutive provisions that permit an adjustment for any change in capitalization.
The Company accounts for its share-based payments using the fair value recognition provisions of ASC Subtopic 718-10. The fair value of each option awarded was estimated on the options is estimateddate of grant using a Black-Scholes option-pricing model and amortized straight-line to expense over the vesting period. ASC 718-10 requires the cash flows from the tax benefits resulting from tax deductions in excessThe Company does not estimate forfeitures at grant date, but rather elected to account for forfeitures when they occur.
The fair value of each option awarded is estimated on the date of grant using a Black-Scholes option-pricing model. Expected volatilities are based on historical volatility of the Company’s stock over the expected life of the options. The expected life of
Contents
CLEAR CHANNEL OUTDOOR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
options granted represents the period of time that options granted are expected to be outstanding. The Company uses historical data to estimate option exercise and employee terminations within the valuation model. The Company includes estimated forfeitures in its compensation cost and updates the estimated forfeiture rate through the final vesting date of awards. The risk free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant for periods equal to the expected life of the option. The following assumptions were used to calculate the fair value of the Company’s options on the date of grant:
|
| | | | | |
| | Years Ended December 31, |
| | 2016 | | 2015 | | 2014 |
| Expected volatility | 42% - 44% | | 37% – 56% | | 54% – 56% |
| Expected life in years | 6.3 | | 6.3 | | 6.3 |
| Risk-free interest rate | 1.12% - 1.41% | | 1.70% – 2.07% | | 1.73% – 2.08% |
| Dividend yield | —% | | —% | | —% |
The following table presents a summary of the Company'sCompany’s stock options outstanding at December 31, 2022 and stock optionrelated activity during the yearyear:
| | | | | | | | | | | | | | | | | | | | | | | |
| (In thousands, except per share data) | Options | | Weighted-Average Exercise Price | | Weighted-Average
Remaining
Contractual
Term | | Aggregate
Intrinsic
Value |
| Outstanding, January 1, 2022 | 4,050 | | | $ | 5.45 | | | 5.0 years | | $ | 37 | |
| | | | | | | |
| | | | | | | |
| Forfeited | (6) | | | $ | 6.13 | | | | | |
| Expired | (605) | | | $ | 4.83 | | | | | |
| | | | | | | |
| Outstanding, December 31, 2022 | 3,439 | | | $ | 5.56 | | | 3.9 years | | $ | — | |
| Exercisable | 3,354 | | | $ | 5.53 | | | 3.9 years | | $ | — | |
Expected to vest(1) | 85 | | | $ | 6.85 | | | 4.4 years | | $ | — | |
(1)The weighted-average grant date fair value of these unvested shares is $4.75 per share.
Computation of Net Loss per Share
The following table presents the computation of net loss per share for the years ended December 31, 2016:2022, 2021 and 2020:
| | | | | | | | | | | | | | | | | |
| (In thousands, except per share data) | Year Ended December 31, |
| 2022 | | 2021 | | 2020 |
| Numerator: | | | | | |
| Net loss attributable to the Company – common shares | $ | (96,604) | | | $ | (433,815) | | | $ | (582,739) | |
| | | | | |
| Denominator: | | | | | |
| Weighted average common shares outstanding – basic | 474,362 | | | 468,491 | | | 464,522 | |
| | | | | |
| Weighted average common shares outstanding – diluted | 474,362 | | | 468,491 | | | 464,522 | |
| | | | | |
| Net loss attributable to the Company per share of common stock: | | | | | |
| Basic | $ | (0.20) | | | $ | (0.93) | | | $ | (1.25) | |
| Diluted | $ | (0.20) | | | $ | (0.93) | | | $ | (1.25) | |
|
| | | | | | | | | | | | |
| (In thousands, except per share data) | Options | | Price(3) | | Weighted Average Remaining Contractual Term | | Aggregate Intrinsic Value |
| Outstanding, January 1, 2016 | 5,348 |
| | $ | 7.86 |
| | | | |
Granted (1) | 290 |
| | 6.43 |
| | | | |
Exercised (2) | (173 | ) | | 3.66 |
| | | | |
| Forfeited | (159 | ) | | 7.25 |
| | | | |
| Expired | (273 | ) | | 12.15 |
| | | | |
| Outstanding, December 31, 2016 | 5,033 |
| | 7.71 |
| | 4.9 years | | $ | 2,539 |
|
| Exercisable | 3,868 |
| | 7.86 |
| | 3.8 years | | $ | 2,526 |
|
| Expected to vest | 1,042 |
| | 7.18 |
| | 8.4 years | | $ | 12 |
|
| |
(1) | The weighted average grant date fair value of the Company’s options granted duringOutstanding equity awards of 24.7 million, 26.1 million and 16.4 million for the years ended December 31, 2016, 2015 and 2014 was $2.82, $4.25 and $4.69 per share, respectively. |
| |
(2) | Cash received from option exercises during the years ended December 31, 2016, 2015 and 2014 was $0.6 million, $3.8 million and $2.4 million, respectively. The total intrinsic value of the options exercised during the years ended December 31, 2016, 2015 and 2014 was $0.4 million, $2.8 million and $1.5 million, respectively. |
| |
(3) | Reflects the weighted average exercise price per share. |
A summary of the Company’s unvested options at and changes during the year ended December 31, 2016 is presented below:2022, 2021 and 2020, respectively, were not included in the computation of diluted earnings per share because to do so would have been anti-dilutive.
|
| | | | | | |
| (In thousands, except per share data) | Options | | Weighted Average Grant Date Fair Value |
| Unvested, January 1, 2016 | 1,690 |
| | $ | 4.27 |
|
| Granted | 290 |
| | 2.82 |
|
Vested (1) | (657 | ) | | 4.18 |
|
| Forfeited | (159 | ) | | 4.22 |
|
| Unvested, December 31, 2016 | 1,164 |
| | $ | 3.97 |
|
| |
(1) | The total fair value of the Company’s options vested during the years ended December 31, 2016, 2015 and 2014 was $2.7 million, $4.2 million and $6.1 million, respectively. |
CLEAR CHANNEL OUTDOOR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Restricted Stock Awards
The Company has also granted both restricted stock and restricted stock unit awards to its employees and affiliates under its equity incentive plan. The restricted stock awards represent shares of Class A common stock that contain a legend which restricts their transferability for a term of up to five years. The restricted stock units represent the right to receive shares upon vesting, which is generally over a period of up to five years. Both restricted stock awards and restricted stock units are forfeited, except in certain circumstances, in the event the employee terminates his or her employment or relationship with the Company prior to the lapse of the restriction.
The following table presents a summary of the Company's restricted stock and restricted stock units outstanding at and activity during the year ended December 31, 2016 (“Price” reflects the weighted average share price at the date of grant):
|
| | | | | | |
| (In thousands, except per share data) | Awards | | Price |
| Outstanding, January 1, 2016 | 2,762 |
| | $ | 8.43 |
|
| Granted | 1,510 |
| | 5.67 |
|
| Vested (restriction lapsed) | (1,198 | ) | | 6.85 |
|
| Forfeited | (331 | ) | | 8.19 |
|
| Outstanding, December 31, 2016 | 2,743 |
| | 7.63 |
|
Share-Based Compensation Cost
The share-based compensation cost is measured at the grant date based on the fair value of the award and is recognized as expense on a straight-line basis over the vesting period. Share-based compensation payments are recorded in corporate expenses and were $10.2 million, $8.4 million and $7.7 million, during the years ended December 31, 2016, 2015 and 2014, respectively.
The tax benefit related to the share-based compensation expense for the years ended December 31, 2016, 2015 and 2014 was $3.9 million, $3.2 million and $3.0 million, respectively.
As of December 31, 2016, there was $14.8 million of unrecognized compensation cost related to unvested share-based compensation arrangements that will vest based on service conditions. This cost is expected to be recognized over a weighted average period of approximately three years. In addition, as of December 31, 2016, there was $0.7 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.
Net Income (Loss) per Share
The following table presents the computation of earnings (loss) per share for the years ended December 31, 2016, 2015 and 2014:
|
| | | | | | | | | | | |
| (In thousands, except per share data) | Years Ended December 31, |
| | 2016 | | 2015 | | 2014 |
| NUMERATOR: | | | | | |
| Net income (loss) attributable to the Company – common shares | $ | 141,431 |
| | $ | (96,072 | ) | | $ | (9,590 | ) |
| | | | | | |
| DENOMINATOR: | |
| | |
| | |
|
| Weighted average common shares outstanding – basic | 360,294 |
| | 359,508 |
| | 358,565 |
|
Stock options and restricted stock(1): | 1,318 |
| |
|
| |
|
|
| Weighted average common shares outstanding – diluted | 361,612 |
| | 359,508 |
| | 358,565 |
|
| | | | | | |
| Net income (loss) attributable to the Company per common share: | |
| | |
| | |
|
| Basic | $ | 0.39 |
| | $ | (0.27 | ) | | $ | (0.03 | ) |
| Diluted | $ | 0.39 |
| | $ | (0.27 | ) | | $ | (0.03 | ) |
CLEAR CHANNEL OUTDOOR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
| |
(1) | 5.6 million, 8.1 million and 8.5 million stock options and restricted shares were outstanding at December 31, 2016, 2015 and 2014, respectively, that were not included in the computation of diluted earnings per share because to do so would have been anti-dilutive. |
NOTE 914 – EMPLOYEE STOCK AND SAVINGSBENEFIT PLANS
Defined-Contribution Plans
The Company’s U.S. employees are eligible to participate in variousa 401(k) savings and other plans provided by iHeartCommunications for the purpose of providing retirement benefits for substantially all employees.plan. Under these plans, a Companythis plan, an employee can make pre-tax and post-tax contributions, subject to IRS limitations for Highly Compensated Employees, and the Company will match 50% of the employee’s first 5% of pay contributed to the plan.plan, up to a maximum match of $5,000 per year. Employees vest in these Company matching contributions based upon their years of service to the Company. ContributionsThe Company recorded contributions to these plansthis plan of $2.3$2.9 million, $2.4 million and $2.7$2.5 million for the years ended December 31, 2016, 20152022, 2021 and 2014,2020, respectively, were recorded as a component of operating expenses.
In addition,The Company’s international employees in the Company’s International markets participate in retirement plans administered as a service by thethird-party administrators. The Company which are not part of the 401(k) savings and other plans sponsored by iHeartCommunications. Contributionsrecorded contributions to these plans of $15.1$13.8 million, $13.6$10.1 million and $15.6$14.2 million for the years ended December 31, 2016, 20152022, 2021 and 2014,2020, respectively, were recorded as a component of operating expenses.
Certain highly compensated executivesDefined-Benefit Pension Plans
The Company also maintains defined-benefit pension plans for employees in certain of the Company are eligible to participate in a non-qualified deferred compensation plan sponsored by iHeartCommunications, under which such executives were able to make an annual election to defer up to 50% of their annual salary and up to 80% of their bonus before taxes. The Company suspended all salary and bonus deferral and company matching contributions to the deferred compensation plan on January 1, 2010. Matching credits on amounts deferred may be made in the sole discretion of iHeartCommunications and iHeartCommunications retains ownership of all assets until distributed. Participants in the plan have the opportunity to allocate their deferrals and any matching credits among different investment options, the performance of which is used to determine the amounts paid to participantsCompany’s international markets. Benefits under the plan. There is no liability recorded bydefined-benefit pension plans are typically based either on years of service and the Company under this deferredemployee’s compensation plan as(generally during a fixed number of years immediately before retirement) or on annual credits. The range of assumptions used for the liability of this plan is that of iHeartCommunications.defined-benefit pension plans reflects the different economic environments within the various countries.
NOTE 10 — OTHER INFORMATIONNet Periodic Pension Cost (Benefit)
The following table disclosesbelow presents the components of “Other income (expense)” fornet periodic pension cost (benefit) recognized in the years ended December 31, 2016, 2015 and 2014, respectively:Consolidated Statements of Loss:
| | | | | | | | | | | | | | | | | |
| (In thousands) | Year Ended December 31, |
| | 2022 | | 2021 | | 2020 |
| Service cost | $ | 2,627 | | | $ | 2,135 | | | $ | 3,628 | |
| Interest cost | 2,316 | | | 2,101 | | | 2,641 | |
| Expected return on plan assets | (5,225) | | | (5,039) | | | (5,153) | |
| Amortization of actuarial losses | 320 | | | 923 | | | 870 | |
| Amortization of prior service costs | (289) | | | (4,911) | | | (301) | |
| Settlement loss | — | | | — | | | 876 | |
Curtailment/forfeiture gain(1) | (969) | | | (4,049) | | | — | |
| Total net periodic pension cost (benefit) | $ | (1,220) | | | $ | (8,840) | | | $ | 2,561 | |
|
| | | | | | | | | | | |
| (In thousands) | Years Ended December 31, |
| | 2016 | | 2015 | | 2014 |
| Foreign exchange loss | $ | (69,599 | ) | | $ | 14,790 |
| | $ | 15,460 |
|
| Other | (552 | ) | | (2,403 | ) | | (275 | ) |
| Total other income (expense) — net | $ | (70,151 | ) | | $ | 12,387 |
| | $ | 15,185 |
|
For(1)In 2021, some of the years ended December 31, 2016, 2015 and 2014 the total increase (decrease) in other comprehensive income (loss)Company’s defined-benefit pension plans were curtailed related to the impactCompany’s restructuring plan to reduce headcount in its Europe segment, resulting in a curtailment gain.
The service cost component of pensionsnet periodic pension cost (benefit) is reported in “Direct operating expenses” and “Selling, general and administrative expenses” on deferred income tax liabilities were $(1.0) million, $1.6 millionthe Consolidated Statements of Loss, and $(5.6) million, respectively.
The following table discloses the remaining components of “Other current assets” asnet periodic pension cost (benefit) are reported in “Other income (expense), net,” unless otherwise noted.
|
| | | | | | | |
| (In thousands) | As of December 31, |
| | 2016 | | 2015 |
| Inventory | $ | 21,190 |
| | $ | 23,514 |
|
| Deposits | 1,445 |
| | 1,954 |
|
| Other receivables | 9,302 |
| | 2,278 |
|
| Other | 7,262 |
| | 6,820 |
|
| Total other current assets | $ | 39,199 |
| | $ | 34,566 |
|
Contents
CLEAR CHANNEL OUTDOOR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Projected Benefit Obligation and Fair Value of Plan Assets
The following table disclosespresents the componentschanges in the Company’s projected benefit obligation and the fair value of “Other assets”plan assets:
| | | | | | | | | | | |
| (In thousands) | Year Ended December 31, |
| | 2022 | | 2021 |
| Projected benefit obligation: | | | |
| Beginning balance, projected benefit obligation | $ | 193,802 | | | $ | 217,436 | |
| Service cost | 2,627 | | | 2,135 | |
| Interest cost | 2,316 | | | 2,101 | |
| Contributions by plan participants | 900 | | | 896 | |
Actuarial gain(1) | (48,015) | | | (9,184) | |
| Foreign exchange impact | (14,914) | | | (4,924) | |
| Benefits paid | (7,039) | | | (4,086) | |
Plan amendments(2) | — | | | (4,604) | |
| | | |
Plan curtailment/forfeitures(3) | (969) | | | (5,968) | |
Liabilities held for sale(4) | (34,339) | | | — | |
| Ending balance, projected benefit obligation | $ | 94,369 | | | $ | 193,802 | |
| Fair value of plan assets: | | | |
| Beginning balance, fair value of plan assets | $ | 169,906 | | | $ | 152,857 | |
| Actual return (loss) on plan assets | (44,104) | | | 17,787 | |
| Foreign exchange impact | (14,293) | | | (2,793) | |
| Contributions by Company | 3,022 | | | 5,245 | |
| Contributions by plan participants | 900 | | | 896 | |
| Benefits paid | (7,039) | | | (4,086) | |
Assets held for sale(4) | (30,791) | | | — | |
| Ending balance, fair value of plan assets | $ | 77,601 | | | $ | 169,906 | |
Under-funded status, net(5) | $ | (16,768) | | | $ | (23,896) | |
(1)The actuarial gains in 2022 and 2021 represent the decrease to the projected benefit obligation resulting from changes in the actuarial assumptions used, primarily an increased discount rate.
(2)In 2021, the Company amended one of its defined-benefit pension plans, resulting in a decrease to the projected benefit obligation.
(3)In 2021, some of the Company’s defined-benefit pension plans were curtailed related to the Company’s restructuring plan to reduce headcount in Europe, resulting in a decrease to the projected benefit obligation.
(4)The projected benefit obligation and plan assets related to the Company’s business in Switzerland have been reclassified as held for sale on the Consolidated Balance Sheet as of December 31, 2016 and 2015, respectively:2022. Refer to Note 16 for additional information.
|
| | | | | | | |
| (In thousands) | As of December 31, |
| | 2016 | | 2015 |
| Investments | $ | 10,183 |
| | $ | 8,432 |
|
| Deposits | 19,318 |
| | 24,672 |
|
| Prepaid expenses | 61,814 |
| | 69,807 |
|
| Other | 30,698 |
| | 4,629 |
|
| Total other assets | $ | 122,013 |
| | $ | 107,540 |
|
(5)Represents the net under-funded status of the Company’s defined-benefit pension plans. The following table discloses the components ofrelated liability or asset for each plan, dependent upon whether it is under-funded or fully funded, is recorded within “Other long-term liabilities” or “Other assets,” respectively, on the Company’s Consolidated Balance Sheet. As of December 31, 2022 and 2021, the Company had $3.7 million and $10.0 million, respectively, reported in “Other assets.”
The accumulated benefit obligation is the present value of benefits earned to date, assuming no future salary increases. The aggregate accumulated benefit obligation for the Company’s defined-benefit pension plans as of December 31, 20162022 and 2015, respectively:
|
| | | | | | | |
| (In thousands) | As of December 31, |
| | 2016 | | 2015 |
| Unrecognized tax benefits | $ | 23,772 |
| | $ | 23,802 |
|
| Asset retirement obligation | 39,451 |
| | 45,125 |
|
| Deferred rent | 101,673 |
| | 98,282 |
|
| Employee related liabilities | 55,460 |
| | 47,491 |
|
| Other | 38,955 |
| | 25,719 |
|
| Total other long-term liabilities | $ | 259,311 |
| | $ | 240,419 |
|
The following table discloses the components of “Accumulated other comprehensive loss,” net of tax, as2021 was $90.2 million and $184.9 million, respectively. As of December 31, 20162022 and 2015, respectively:2021, the aggregate accumulated benefit obligation for the defined-benefit pension plans exceeded plan assets.
|
| | | | | | | |
| (In thousands) | As of December 31, |
| | 2016 | | 2015 |
| Cumulative currency translation adjustments and other | $ | (388,246 | ) | | $ | (453,995 | ) |
| Cumulative unrealized gain on securities | 1,588 |
| | 2,162 |
|
| Total accumulated other comprehensive loss | $ | (386,658 | ) | | $ | (451,833 | ) |
NOTE 11 – SEGMENT DATA
The Company has two reportable segments, which it believes best reflect how the Company is currently managed – Americas and International. The Americas segment consistsTable of operations primarily in the United States, Canada and Latin America and the International segment primarily includes operations in Europe and Asia. The Americas and International display inventory consists primarily of billboards, street furniture displays and transit displays. Corporate includes infrastructure and support including information technology, human resources, legal, finance and administrative functions of each of the Company’s reportable segments, as well as overall executive, administrative and support functions. Share-based payments are recorded in corporate expenses.
Contents
CLEAR CHANNEL OUTDOOR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Other Comprehensive Income (Loss)
The following table presents the Company’s reportable segment results forpre-tax net loss (gain) and the amortization of pre-tax net loss and prior service costs recognized in accumulated other comprehensive loss:
| | | | | | | | | | | | | | | | | |
| (In thousands) | Year Ended December 31, |
| | 2022 | | 2021 | | 2020 |
| Beginning balance, accumulated other comprehensive loss | $ | 24,926 | | | $ | 50,985 | | | $ | 40,360 | |
| Net actuarial loss (gain) arising during the period | 1,314 | | | (21,932) | | | 15,690 | |
| Amortization of net actuarial loss | (320) | | | (923) | | | (870) | |
| Amortization of prior service costs | 289 | | | 4,911 | | | 301 | |
| Plan amendments during the period | — | | | (4,604) | | | — | |
| Other adjustments | 509 | | | (3,511) | | | (4,496) | |
| Ending balance, accumulated other comprehensive loss | $ | 26,718 | | | $ | 24,926 | | | $ | 50,985 | |
For the years ended December 31, 2016, 20152022, 2021 and 2014:2020, the total change in “Other comprehensive income (loss)” related to the impact of pensions on deferred income tax liabilities was $(0.4) million, $0.2 million and $(0.7) million, respectively.
The following table presents the amounts in accumulated other comprehensive loss that have not yet been recognized as components of net periodic pension cost (benefit): |
| | | | | | | | | | | | | | | |
| (In thousands) | Americas Outdoor Advertising | | International Outdoor Advertising | | Corporate and other reconciling items | | Consolidated |
| Year Ended December 31, 2016 | | | | | | | |
| Revenue | $ | 1,278,413 |
| | $ | 1,423,982 |
| | $ | — |
| | $ | 2,702,395 |
|
| Direct operating expenses | 570,310 |
| | 865,259 |
| | — |
| | 1,435,569 |
|
| Selling, general and administrative expenses | 225,415 |
| | 289,787 |
| | — |
| | 515,202 |
|
| Corporate expenses | — |
| | — |
| | 117,383 |
| | 117,383 |
|
| Depreciation and amortization | 185,654 |
| | 152,758 |
| | 5,712 |
| | 344,124 |
|
| Impairment charges | — |
| | — |
| | 7,274 |
| | 7,274 |
|
| Other operating income, net | — |
| | — |
| | 354,688 |
| | 354,688 |
|
| Operating income | $ | 297,034 |
| | $ | 116,178 |
| | $ | 224,319 |
| | $ | 637,531 |
|
| Segment assets | $ | 3,175,355 |
| | $ | 1,342,356 |
| | $ | 1,201,117 |
| | $ | 5,718,828 |
|
| Capital expenditures | $ | 81,401 |
| | $ | 143,788 |
| | $ | 4,583 |
| | $ | 229,772 |
|
| Share-based compensation expense | $ | — |
| | $ | — |
| | $ | 10,238 |
| | $ | 10,238 |
|
| | | | | | | | |
| Year Ended December 31, 2015 | | | | | | | |
| Revenue | $ | 1,349,021 |
| | $ | 1,457,183 |
| | $ | — |
| | $ | 2,806,204 |
|
| Direct operating expenses | 597,382 |
| | 897,520 |
| | — |
| | 1,494,902 |
|
| Selling, general and administrative expenses | 233,254 |
| | 298,250 |
| | — |
| | 531,504 |
|
| Corporate expenses | — |
| | — |
| | 116,380 |
| | 116,380 |
|
| Depreciation and amortization | 204,514 |
| | 166,060 |
| | 5,388 |
| | 375,962 |
|
| Impairment charges | — |
| | — |
| | 21,631 |
| | 21,631 |
|
| Other operating expense, net | — |
| | — |
| | (4,824 | ) | | (4,824 | ) |
| Operating income (loss) | $ | 313,871 |
| | $ | 95,353 |
| | $ | (148,223 | ) | | $ | 261,001 |
|
| Segment assets | $ | 3,567,764 |
| | $ | 1,573,161 |
| | $ | 1,165,863 |
| | $ | 6,306,788 |
|
| Capital expenditures | $ | 82,165 |
| | $ | 132,554 |
| | $ | 3,613 |
| | $ | 218,332 |
|
| Share-based compensation expense | $ | — |
| | $ | — |
| | $ | 8,359 |
| | $ | 8,359 |
|
| | | | | | | | |
| Year Ended December 31, 2014 | | | | | | | |
| Revenue | $ | 1,350,623 |
| | $ | 1,610,636 |
| | $ | — |
| | $ | 2,961,259 |
|
| Direct operating expenses | 605,771 |
| | 991,117 |
| | — |
| | 1,596,888 |
|
| Selling, general and administrative expenses | 233,641 |
| | 314,878 |
| | — |
| | 548,519 |
|
| Corporate expenses | — |
| | — |
| | 130,894 |
| | 130,894 |
|
| Depreciation and amortization | 203,928 |
| | 198,143 |
| | 4,172 |
| | 406,243 |
|
| Impairment charges | — |
| | — |
| | 3,530 |
| | 3,530 |
|
| Other operating income, net | — |
| | — |
| | 7,259 |
| | 7,259 |
|
| Operating income (loss) | $ | 307,283 |
| | $ | 106,498 |
| | $ | (131,337 | ) | | $ | 282,444 |
|
| | | | | | | | |
| Segment assets | $ | 3,648,735 |
| | $ | 1,680,598 |
| | $ | 967,296 |
| | $ | 6,296,629 |
|
| Capital expenditures | $ | 109,727 |
| | $ | 117,480 |
| | $ | 3,962 |
| | $ | 231,169 |
|
| Share-based compensation expense | — |
| | — |
| | $ | 7,743 |
| | $ | 7,743 |
|
| | | | | | | | | | | | | | | | | |
| (In thousands) | Year Ended December 31, |
| | 2022 | | 2021 | | 2020 |
| Unrecognized net actuarial loss | $ | 27,822 | | | $ | 26,729 | | | $ | 53,163 | |
| Unrecognized prior service cost | (1,104) | | | (1,803) | | | (2,178) | |
| Total | $ | 26,718 | | | $ | 24,926 | | | $ | 50,985 | |
RevenueAssumptions Used
The following table presents the assumptions used to measure the net periodic pension cost (benefit) and the year-end projected benefit obligation:
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| | 2022 | | 2021 | | 2020 |
| Weighted-average assumptions used to measure net periodic pension cost (benefit): | | | | | |
| Discount rates | 0.20% - 1.80% | | 0.00% - 1.30% | | 0.30% - 2.00% |
| Expected long-term rates of return on plan assets | 1.50% - 4.00% | | 1.50% - 3.90% | | 1.50% - 4.40% |
| Rates of compensation increase | 0.50% - 2.60% | | 0.50% - 2.30% | | 0.50% - 2.30% |
| | | | | |
| Weighted-average assumptions used to measure projected benefit obligation: | | | | | |
| Discount rates | 0.30% - 4.65% | | 0.20% - 1.80% | | 0.00% - 1.30% |
| Expected long-term rates of return on plan assets | 2.00% - 6.80% | | 1.50% - 4.00% | | 1.50% - 3.90% |
| Rates of compensation increase | 1.00% - 3.75% | | 0.50% - 2.60% | | 0.50% - 2.30% |
Discount Rates
The discount rate assumptions for jurisdictions for which rates are not determined by the government reflect the yields available on high-quality, fixed income debt instruments at the measurement date. A portfolio of $1.6 billion, $1.6 billion and $1.8 billion derivedhigh-quality corporate bonds is used to construct a yield curve. The cash flows from the Company’s foreign operationsexpected benefit obligation payments are includedthen matched to the yield curve to derive the discount rates. In certain countries, where the markets for high-quality long-term bonds are not generally as well developed, a portfolio of long-term government bonds is used as a base, to which a credit spread is added to simulate corporate bond yields at these maturities in the data abovejurisdiction of each plan, as the benchmark for developing the years ended December 31, 2016, 2015 and 2014, respectively. Revenue of $1.1 billion, $1.2 billion and $1.2 billion derived from the Company’s U.S. operations are included in the data above for the years ended December 31, 2016, 2015 and 2014.respective discount rates.
CLEAR CHANNEL OUTDOOR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Expected Long-Term Rates of Return on Plan Assets
Identifiable long-livedExpected long-term rates of return on plan assets, a component of $539.9 million, $628.8 millionnet periodic pension cost (benefit), are based on the calculated market-related value of plan assets and $682.7 million derived fromtake into account long-term expectations for future returns and the investment policies and strategies of the respective plans. These rates of return are developed by the Company and are tested for reasonableness against historical returns. The use of expected long-term rates of return on plan assets may result in recognized pension income that is greater or less than the actual returns of those plan assets in any given year. Over time, however, the expected long-term rates of return are designed to approximate the actual long-term returns and therefore result in a pattern of income and cost recognition that more closely matches the pattern of the services provided by the employees. Differences between actual and expected returns are recognized as a component of net loss or gain in accumulated other comprehensive income (loss), which is amortized as a component of net periodic pension cost (benefit) over the service lives or life expectancy of the plan participants, depending on the plan, provided such amounts exceed certain thresholds provided by accounting standards.
Rates of Compensation Increase and Mortality Rate
The rates of compensation increase is determined by the Company, based upon its long-term plans for such increases. Mortality rate assumptions are based on life expectancy and death rates for different types of participants. Mortality rates are periodically updated based on actual experience.
Defined-Benefit Pension Plan Assets
The following tables present the fair value of each class of plan assets held by the Company’s foreign operationsdefined-benefit pension plans, categorized by level of the fair value hierarchy, at December 31, 2022 and 2021:
| | | | | | | | | | | | | | | | | |
| (In thousands) | December 31, 2022 |
| | Level 1(1) | | Level 2(2) | | Level 3 |
| Cash and short-term investments | $ | — | | | $ | 2,174 | | | $ | — | |
| Credit instruments | — | | | 10,493 | | | — | |
| Equity securities | — | | | 45,864 | | | — | |
| Real estate | — | | | 962 | | | — | |
| Fixed income: | | | | | |
| Corporate bonds | — | | | 14,886 | | | — | |
| | | | | |
| Insurance contracts | — | | | 3,222 | | | — | |
| Fair value of plan assets | $ | — | | | $ | 77,601 | | | $ | — | |
| | | | | |
| (In thousands) | December 31, 2021 |
| Level 1(1) | | Level 2(2) | | Level 3 |
| Cash and short-term investments | $ | 1,517 | | | $ | 17,620 | | | $ | — | |
| Credit instruments | — | | | 16,069 | | | — | |
| Equity securities | — | | | 89,167 | | | — | |
| Real estate | — | | | 8,908 | | | — | |
| Fixed income: | | | | | |
| Corporate bonds | — | | | 32,718 | | | — | |
| | | | | |
| Insurance contracts | — | | | 3,907 | | | — | |
| Fair value of plan assets | $ | 1,517 | | | $ | 168,389 | | | $ | — | |
(1) Assets categorized as Level 1 are includedmeasured at fair value using unadjusted quoted prices in the data aboveactive markets for identical assets.
(2) Assets categorized as Level 2 are measured at fair value using inputs other than quoted prices in active markets that are observable for the years ended December 31, 2016, 2015 and 2014, respectively. Identifiable long-lived assets, either directly or indirectly.
Contents
CLEAR CHANNEL OUTDOOR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Expected Benefit Payments
The following table presents the expected benefit payments to defined-benefit pension plan participants over the next ten years. These payments have been estimated based on the same assumptions used to measure the plans’ pension benefit obligation at December 31, 2022 and include benefits attributable to estimated future compensation increases, where applicable:
| | | | | |
| (In thousands) |
Expected benefit payments(1): | |
| 2023 | $ | 4,043 | |
| 2024 | 4,040 | |
| 2025 | 5,304 | |
| 2026 | 4,910 | |
| 2027 | 4,990 | |
| 2028 - 2032 | 30,031 | |
(1)Excludes expected benefit payments related to the Company’s business in Switzerland, which is held for sale at December 31, 2022.
Plan Contributions
It is the Company’s general practice to fund amounts for pensions sufficient to meet the minimum requirements set forth in applicable employee benefits laws and local tax laws. From time to time, the Company contributes additional amounts as it deems appropriate. The Company contributed $3.0 million, $5.2 million and $3.2 million to its defined-benefit pension plans during the years ended December 31, 2022, 2021 and 2020, respectively.
NOTE 12 — QUARTERLY RESULTS OF OPERATIONS (Unaudited)15 – OTHER INFORMATION
(In thousands, except per share data)Reconciliation of Cash, Cash Equivalents and Restricted Cash
The following table reconciles cash and cash equivalents reported in the Consolidated Balance Sheets to cash, cash equivalents and restricted cash reported in the Consolidated Statements of Cash Flows:
| | | | | | | | | | | |
| (In thousands) | December 31, 2022 | | December 31, 2021 |
| Cash and cash equivalents in the Balance Sheets | $ | 286,781 | | | $ | 410,767 | |
| Cash and cash equivalents included in Assets held for sale | 569 | | | — | |
| Restricted cash included in: | | | |
| Other current assets | 2,763 | | | 1,685 | |
| Assets held for sale | 512 | | | — | |
| Other assets | 8,057 | | | 7,519 | |
| Total cash, cash equivalents and restricted cash in the Statements of Cash Flows | $ | 298,682 | | | $ | 419,971 | |
Accounts Receivable
The following table discloses the components of “Accounts receivable, net” as reported in the Consolidated Balance Sheets:
| | | | | | | | | | | |
| (In thousands) | December 31, 2022 | | December 31, 2021 |
| Accounts receivable | $ | 642,390 | | | $ | 666,888 | |
| Less: Allowance for credit losses | (22,561) | | | (23,772) | |
| Accounts receivable, net | $ | 619,829 | | | $ | 643,116 | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended March 31, | | Three Months Ended June 30, | | Three Months Ended September 30, | | Three Months Ended December 31, |
| | 2016 | | 2015 | | 2016 | | 2015 | | 2016 | | 2015 | | 2016 | | 2015 |
| Revenue | $ | 590,721 |
| | $ | 615,043 |
| | $ | 712,146 |
| | $ | 722,819 |
| | $ | 673,057 |
| | $ | 696,277 |
| | $ | 726,471 |
| | $ | 772,065 |
|
| Operating expenses: | | | | | | | | | | | | | | | |
| Direct operating expenses | 343,694 |
| | 362,971 |
| | 366,061 |
| | 372,342 |
| | 366,086 |
| | 372,716 |
| | 359,728 |
| | 386,873 |
|
| Selling, general and administrative expenses | 126,801 |
| | 127,130 |
| | 135,567 |
| | 132,522 |
| | 126,164 |
| | 132,559 |
| | 126,670 |
| | 139,293 |
|
| Corporate expenses | 28,239 |
| | 28,753 |
| | 29,652 |
| | 30,154 |
| | 28,058 |
| | 28,347 |
| | 31,434 |
| | 29,126 |
|
| Depreciation and amortization | 85,395 |
| | 94,094 |
| | 86,974 |
| | 93,405 |
| | 85,780 |
| | 93,040 |
| | 85,975 |
| | 95,423 |
|
| Impairment charges | — |
| | — |
| | — |
| | — |
| | 7,274 |
| | 21,631 |
| | — |
| | — |
|
| Other operating income (expense), net | 284,774 |
| | (5,444 | ) | | (59,384 | ) | | 659 |
| | 1,095 |
| | 5,029 |
| | 128,203 |
| | (5,068 | ) |
| Operating income (loss) | 291,366 |
| | (3,349 | ) | | 34,508 |
| | 95,055 |
| | 60,790 |
| | 53,013 |
| | 250,867 |
| | 116,282 |
|
| Interest expense | 93,873 |
| | 89,416 |
| | 94,650 |
| | 88,556 |
| | 93,313 |
| | 88,088 |
| | 93,056 |
| | 89,609 |
|
| Interest income on Due from iHeartCommunications | 12,713 |
| | 15,253 |
| | 11,291 |
| | 15,049 |
| | 12,429 |
| | 15,630 |
| | 13,876 |
| | 15,507 |
|
| Equity in earnings (loss) of nonconsolidated affiliates | (415 | ) | | 522 |
| | (232 | ) | | (351 | ) | | (727 | ) | | (812 | ) | | (315 | ) | | 352 |
|
| Other income (expense), net | (5,803 | ) | | 19,938 |
| | (33,871 | ) | | 15,276 |
| | (6,524 | ) | | (17,742 | ) | | (23,953 | ) | | (5,085 | ) |
| Income (loss) before income taxes | 203,988 |
| | (57,052 | ) | | (82,954 | ) | | 36,473 |
| | (27,345 | ) | | (37,999 | ) | | 147,419 |
| | 37,447 |
|
| Income tax benefit (expense) | (62,912 | ) | | 24,099 |
| | 21,712 |
| | (27,187 | ) | | 3,603 |
| | 22,797 |
| | (39,078 | ) | | (69,886 | ) |
| Consolidated net income (loss) | 141,076 |
| | (32,953 | ) | | (61,242 | ) | | 9,286 |
| | (23,742 | ) | | (15,202 | ) | | 108,341 |
| | (32,439 | ) |
| Less amount attributable to noncontrolling interest | 976 |
| | 565 |
| | 7,857 |
| | 7,876 |
| | 7,329 |
| | 7,379 |
| | 6,840 |
| | 8,944 |
|
| Net income (loss) attributable to the Company | $ | 140,100 |
| | $ | (33,518 | ) | | $ | (69,099 | ) | | $ | 1,410 |
| | $ | (31,071 | ) | | $ | (22,581 | ) | | $ | 101,501 |
| | $ | (41,383 | ) |
| Net income (loss) per common share: | | | | | | | | | | | | | | |
| Basic | $ | 0.39 |
| | $ | (0.09 | ) | | $ | (0.19 | ) | | $ | — |
| | $ | (0.09 | ) | | $ | (0.06 | ) | | $ | 0.28 |
| | $ | (0.12 | ) |
| Diluted | $ | 0.39 |
| | $ | (0.09 | ) | | $ | (0.19 | ) | | $ | — |
| | $ | (0.09 | ) | | $ | (0.06 | ) | | $ | 0.28 |
| | $ | (0.12 | ) |
CLEAR CHANNEL OUTDOOR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Accrued Expenses
NOTE 13 – GUARANTOR SUBSIDIARIES
The Company and certain of the Company’s direct and indirect wholly-owned domestic subsidiaries (the “Guarantor Subsidiaries”) fully and unconditionally guarantee on a joint and several basis certain of the outstanding indebtedness of Clear Channel Worldwide Holdings, Inc. ("CCWH" or the “Subsidiary Issuer”). The following consolidating schedules present financial information on a combined basistable discloses the components of “Accrued expenses” as of December 31, 2022 and 2021, respectively:
| | | | | | | | | | | |
| (In thousands) | As of December 31, |
| 2022 | | 2021 |
| Accrued rent | $ | 159,591 | | | $ | 160,074 | |
| Accrued employee compensation and benefits | 109,594 | | | 144,802 | |
| Accrued taxes | 52,587 | | | 57,764 | |
| Accrued other | 167,010 | | | 160,724 | |
| Total accrued expenses | $ | 488,782 | | | $ | 523,364 | |
Consolidated Statements of Loss
The following table discloses the components of “Other income (expense), net” for the years ended December 31, 2022, 2021 and 2020, respectively:
| | | | | | | | | | | | | | | | | |
| (In thousands) | Years Ended December 31, |
| 2022 | | 2021 | | 2020 |
| Foreign exchange gain (loss) | $ | (39,141) | | | $ | (3,981) | | | $ | 502 | |
| Equity in earnings of nonconsolidated affiliates | 2,003 | | | 176 | | | 697 | |
Other(1) | 2,059 | | | 5,567 | | | (1,369) | |
| Total other income (expense), net | $ | (35,079) | | | $ | 1,762 | | | $ | (170) | |
(1)In 2021, other income was primarily comprised of gains related to our defined-benefit pension plans for employees, described further in conformity with the SEC’s Regulation S-X Rule 3-10(d):Note 14.
|
| | | | | | | | | | | | | | | | | | | | | | | |
| (In thousands) | December 31, 2016 |
| | Parent | | Subsidiary | | Guarantor | | Non-Guarantor | | | | |
| | Company | | Issuer | | Subsidiaries | | Subsidiaries | | Eliminations | | Consolidated |
| Cash and cash equivalents | 300,285 |
| | — |
| | 61,542 |
| | 180,168 |
| | — |
| | $ | 541,995 |
|
| Accounts receivable, net of allowance | — |
| | — |
| | 193,474 |
| | 399,596 |
| | — |
| | 593,070 |
|
| Intercompany receivables | — |
| | 687,043 |
| | 2,694,094 |
| | 99,431 |
| | (3,480,568 | ) | | — |
|
| Prepaid expenses | 1,363 |
| | 3,433 |
| | 51,751 |
| | 55,022 |
| | — |
| | 111,569 |
|
| Assets held for sale | — |
| | — |
| | 55,602 |
| | — |
| | — |
| | 55,602 |
|
| Other current assets | — |
| | — |
| | 6,873 |
| | 32,326 |
| | — |
| | 39,199 |
|
| Total Current Assets | 301,648 |
| | 690,476 |
| | 3,063,336 |
| | 766,543 |
| | (3,480,568 | ) | | 1,341,435 |
|
| Structures, net | — |
| | — |
| | 746,877 |
| | 449,799 |
| | — |
| | 1,196,676 |
|
| Other property, plant and equipment, net | — |
| | — |
| | 124,138 |
| | 92,019 |
| | — |
| | 216,157 |
|
| Indefinite-lived intangibles | — |
| | — |
| | 951,439 |
| | 9,527 |
| | — |
| | 960,966 |
|
| Other intangibles, net | — |
| | — |
| | 259,915 |
| | 39,702 |
| | — |
| | 299,617 |
|
| Goodwill | — |
| | — |
| | 505,478 |
| | 190,785 |
| | — |
| | 696,263 |
|
| Due from iHeartCommunications | 885,701 |
| | — |
| | — |
| | — |
| | — |
| | 885,701 |
|
| Intercompany notes receivable | 182,026 |
| | 4,887,354 |
| | — |
| | — |
| | (5,069,380 | ) | | — |
|
| Other assets | 280,435 |
| | 418,658 |
| | 1,320,838 |
| | 65,589 |
| | (1,963,507 | ) | | 122,013 |
|
| Total Assets | $ | 1,649,810 |
| | $ | 5,996,488 |
| | $ | 6,972,021 |
| | $ | 1,613,964 |
| | $ | (10,513,455 | ) | | $ | 5,718,828 |
|
| | | | | | | | | | | |
|
|
| Accounts payable | $ | — |
| | $ | — |
| | $ | 14,897 |
| | $ | 71,973 |
| | $ | — |
| | $ | 86,870 |
|
| Intercompany payable | 2,694,094 |
| | — |
| | 786,474 |
| | — |
| | (3,480,568 | ) | | — |
|
| Accrued expenses | 2,223 |
| | 58,652 |
| | 35,509 |
| | 384,488 |
| | — |
| | 480,872 |
|
| Dividends payable | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Deferred income | — |
| | — |
| | 33,471 |
| | 33,534 |
| | — |
| | 67,005 |
|
| Current portion of long-term debt | — |
| | — |
| | 89 |
| | 6,882 |
| | — |
| | 6,971 |
|
| Total Current Liabilities | 2,696,317 |
| | 58,652 |
| | 870,440 |
| | 496,877 |
| | (3,480,568 | ) | | 641,718 |
|
| Long-term debt | — |
| | 4,886,318 |
| | 1,711 |
| | 221,991 |
| | — |
| | 5,110,020 |
|
| Intercompany notes payable | — |
| | 5,000 |
| | 5,027,681 |
| | 36,699 |
| | (5,069,380 | ) | | — |
|
| Deferred tax liability | 772 |
| | 1,367 |
| | 687,642 |
| | (49,214 | ) | | — |
| | 640,567 |
|
| Other long-term liabilities | 1,055 |
| | — |
| | 135,094 |
| | 123,162 |
| | — |
| | 259,311 |
|
| Total stockholders' equity (deficit) | (1,048,334 | ) | | 1,045,151 |
| | 249,453 |
| | 784,449 |
| | (1,963,507 | ) | | (932,788 | ) |
| Total Liabilities and Stockholders' Equity | $ | 1,649,810 |
| | $ | 5,996,488 |
| | $ | 6,972,021 |
| | $ | 1,613,964 |
| | $ | (10,513,455 | ) | | $ | 5,718,828 |
|
CLEAR CHANNEL OUTDOOR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 16 - HELD FOR SALE
On December 22, 2022, the Company announced the agreement to sell its business in Switzerland to Goldbach Group AG, an affiliate of TX Group AG, for CHF 86.0 million, or $92.7 million. The transaction is subject to regulatory approval, receipt of a customary tax ruling with respect to a transaction-related reorganization and other customary closing conditions and is expected to close in the second or third quarter of 2023, depending on satisfaction of the conditions to closing.
The net assets of the Company’s Switzerland business are presented as held for sale on the Company's Balance Sheet as of December 31, 2022 and are recorded at the lower of their carrying value or fair value less cost to sell. The major categories of assets and liabilities held for sale were:
| | | | | |
| (In thousands) | December 31,
2022 |
| Assets classified as held for sale: | |
| Cash and cash equivalents | $ | 569 | |
| Accounts receivable, net | 11,938 | |
| Prepaid expenses | 440 | |
| Other current assets | 650 | |
| Structures, net | 9,115 | |
| Other property, plant and equipment, net | 2,328 | |
| Goodwill | 19,825 | |
| Operating lease right-of-use assets | 85,476 | |
| Other assets | 1,199 | |
| Assets held for sale | $ | 131,540 | |
| |
| Liabilities classified as held for sale: | |
| Accounts payable | $ | 636 | |
| Accrued expenses | 14,301 | |
| Current operating lease liabilities | 29,581 | |
| Other current liabilities | 4,424 | |
| Non-current operating lease liabilities | 57,059 | |
| |
| Other long-term liabilities | 5,160 | |
| Liabilities held for sale | $ | 111,161 | |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| (In thousands) | December 31, 2015 |
| | Parent | | Subsidiary | | Guarantor | | Non-Guarantor | | | | |
| | Company | | Issuer | | Subsidiaries | | Subsidiaries | | Eliminations | | Consolidated |
| Cash and cash equivalents | $ | 218,701 |
| | $ | — |
| | $ | 18,455 |
| | $ | 175,587 |
| | $ | — |
| | $ | 412,743 |
|
| Accounts receivable, net of allowance | — |
| | — |
| | 210,252 |
| | 487,331 |
| | — |
| | 697,583 |
|
| Intercompany receivables | — |
| | 461,549 |
| | 1,921,025 |
| | 8,003 |
| | (2,390,577 | ) | | — |
|
| Prepaid expenses | 1,423 |
| | 3,433 |
| | 62,039 |
| | 60,835 |
| | — |
| | 127,730 |
|
| Assets held for sale | — |
| | — |
| | 295,075 |
| | — |
| | — |
| | 295,075 |
|
| Other current assets | — |
| | — |
| | 1,823 |
| | 32,743 |
| | — |
| | 34,566 |
|
| Total Current Assets | 220,124 |
| | 464,982 |
| | 2,508,669 |
| | 764,499 |
| | (2,390,577 | ) | | 1,567,697 |
|
| Structures, net | — |
| | — |
| | 868,586 |
| | 523,294 |
| | — |
| | 1,391,880 |
|
| Other property, plant and equipment, net | — |
| | — |
| | 129,339 |
| | 106,767 |
| | — |
| | 236,106 |
|
| Indefinite-lived intangibles | — |
| | — |
| | 962,074 |
| | 9,253 |
| | — |
| | 971,327 |
|
| Other intangibles, net | — |
| | — |
| | 272,307 |
| | 70,557 |
| | — |
| | 342,864 |
|
| Goodwill | — |
| | — |
| | 522,750 |
| | 235,825 |
| | — |
| | 758,575 |
|
| Due from iHeartCommunications | 930,799 |
| | — |
| | — |
| | — |
| | — |
| | 930,799 |
|
| Intercompany notes receivable | 182,026 |
| | 5,107,392 |
| | — |
| | — |
| | (5,289,418 | ) | | — |
|
| Other assets | 78,341 |
| | 307,054 |
| | 1,214,311 |
| | 45,393 |
| | (1,537,559 | ) | | 107,540 |
|
| Total Assets | $ | 1,411,290 |
| | $ | 5,879,428 |
| | $ | 6,478,036 |
| | $ | 1,755,588 |
| | $ | (9,217,554 | ) | | $ | 6,306,788 |
|
| | | | | | | | | | | | |
| Accounts payable | $ | — |
| | $ | — |
| | $ | 12,124 |
| | $ | 88,086 |
| | $ | — |
| | $ | 100,210 |
|
| Intercompany payable | 1,915,287 |
| | — |
| | 475,290 |
| | — |
| | (2,390,577 | ) | | — |
|
| Accrued expenses | 953 |
| | (707 | ) | | 108,480 |
| | 398,939 |
| | — |
| | 507,665 |
|
| Dividends payable | 217,017 |
| | — |
| | — |
| | — |
| | — |
| | 217,017 |
|
| Deferred income | — |
| | — |
| | 37,471 |
| | 53,940 |
| | — |
| | 91,411 |
|
| Current portion of long-term debt | — |
| | — |
| | 65 |
| | 4,245 |
| | — |
| | 4,310 |
|
| Total Current Liabilities | 2,133,257 |
| | (707 | ) | | 633,430 |
| | 545,210 |
| | (2,390,577 | ) | | 920,613 |
|
| Long-term debt | — |
| | 4,877,578 |
| | 1,014 |
| | 227,921 |
| | — |
| | 5,106,513 |
|
| Intercompany notes payable | — |
| | — |
| | 5,032,499 |
| | 256,919 |
| | (5,289,418 | ) | | — |
|
| Deferred tax liability | 772 |
| | 1,367 |
| | 599,541 |
| | 7,230 |
| | — |
| | 608,910 |
|
| Other long-term liabilities | 1,587 |
| | — |
| | 133,227 |
| | 105,605 |
| | — |
| | 240,419 |
|
| Total stockholders' equity (deficit) | (724,326 | ) | | 1,001,190 |
| | 78,325 |
| | 612,703 |
| | (1,537,559 | ) | | (569,667 | ) |
| Total Liabilities and Stockholders' Equity | $ | 1,411,290 |
| | $ | 5,879,428 |
| | $ | 6,478,036 |
| | $ | 1,755,588 |
| | $ | (9,217,554 | ) | | $ | 6,306,788 |
|
CLEAR CHANNEL OUTDOOR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
| | | | | | | | | | | | | | | | | | | | | | | |
| (In thousands) | Year Ended December 31, 2016 |
| | Parent | | Subsidiary | | Guarantor | | Non-Guarantor | | | | |
| | Company | | Issuer | | Subsidiaries | | Subsidiaries | | Eliminations | | Consolidated |
| Revenue | $ | — |
| | $ | — |
| | $ | 1,144,445 |
| | $ | 1,557,950 |
| | $ | — |
| | $ | 2,702,395 |
|
| Operating expenses: | | | | | | | | | | | |
| Direct operating expenses | — |
| | — |
| | 497,634 |
| | 937,935 |
| | — |
| | 1,435,569 |
|
| Selling, general and administrative expenses | — |
| | — |
| | 196,006 |
| | 319,196 |
| | — |
| | 515,202 |
|
| Corporate expenses | 13,157 |
| | — |
| | 61,873 |
| | 42,353 |
| | — |
| | 117,383 |
|
| Depreciation and amortization | — |
| | — |
| | 177,918 |
| | 166,206 |
| | — |
| | 344,124 |
|
| Impairment charges | — |
| | — |
| | — |
| | 7,274 |
| | — |
| | 7,274 |
|
| Other operating income (expense), net | (427 | ) | | — |
| | 291,717 |
| | 63,398 |
| | — |
| | 354,688 |
|
| Operating income (loss) | (13,584 | ) | | — |
| | 502,731 |
| | 148,384 |
| | — |
| | 637,531 |
|
| Interest expense | (1,195 | ) | | 353,447 |
| | 721 |
| | 21,919 |
| | — |
| | 374,892 |
|
| Interest income on Due from iHeartCommunications | 50,309 |
| | — |
| | — |
| | — |
| | — |
| | 50,309 |
|
| Intercompany interest income | 16,142 |
| | 341,472 |
| | 52,103 |
| | — |
| | (409,717 | ) | | — |
|
| Intercompany interest expense | 50,309 |
| | 15 |
| | 357,614 |
| | 1,779 |
| | (409,717 | ) | | — |
|
| Gain on investments, net | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Equity in loss of nonconsolidated affiliates | 136,919 |
| | 44,767 |
| | (19,575 | ) | | (2,837 | ) | | (160,963 | ) | | (1,689 | ) |
| Gain on extinguishment of debt | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Other income (expense), net | 3,429 |
| | — |
| | (6,626 | ) | | (66,954 | ) | | — |
| | (70,151 | ) |
| Loss before income taxes | 144,101 |
| | 32,777 |
| | 170,298 |
| | 54,895 |
| | (160,963 | ) | | 241,108 |
|
| Income tax benefit (expense) | (2,670 | ) | | (55,574 | ) | | (33,379 | ) | | 14,948 |
| | — |
| | (76,675 | ) |
| Consolidated net loss | 141,431 |
| | (22,797 | ) | | 136,919 |
| | 69,843 |
| | (160,963 | ) | | 164,433 |
|
| Less amount attributable to noncontrolling interest | — |
| | — |
| | — |
| | 23,002 |
| | — |
| | 23,002 |
|
| Net loss attributable to the Company | $ | 141,431 |
| | $ | (22,797 | ) | | $ | 136,919 |
| | $ | 46,841 |
| | $ | (160,963 | ) | | $ | 141,431 |
|
| Other comprehensive (loss), net of tax: | | | | | | | | | | | |
| Foreign currency translation adjustments | — |
| | — |
| | (8,000 | ) | | 30,408 |
| | — |
| | 22,408 |
|
| Unrealized holding loss on marketable securities | — |
| | — |
| | — |
| | (576 | ) | | — |
| | (576 | ) |
| Other adjustments to comprehensive loss | — |
| | — |
| | — |
| | (11,814 | ) | | — |
| | (11,814 | ) |
| Reclassification adjustments | — |
| | — |
| | — |
| | 46,730 |
| | — |
| | 46,730 |
|
| Equity in subsidiary comprehensive loss | 65,175 |
| | 66,758 |
| | 73,175 |
| | — |
| | (205,108 | ) | | — |
|
| Comprehensive loss | 206,606 |
| | 43,961 |
| | 202,094 |
| | 111,589 |
| | (366,071 | ) | | 198,179 |
|
| Less amount attributable to noncontrolling interest | — |
| | — |
| | — |
| | (8,427 | ) | | — |
| | (8,427 | ) |
| Comprehensive loss attributable to the Company | $ | 206,606 |
| | $ | 43,961 |
| | $ | 202,094 |
| | $ | 120,016 |
| | $ | (366,071 | ) | | $ | 206,606 |
|
CLEAR CHANNEL OUTDOOR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
| | | | | | | | | | | | | | | | | | | | | | | |
| (In thousands) | Year Ended December 31, 2015 |
| | Parent | | Subsidiary | | Guarantor | | Non-Guarantor | | | | |
| | Company | | Issuer | | Subsidiaries | | Subsidiaries | | Eliminations | | Consolidated |
| Revenue | $ | — |
| | $ | — |
| | $ | 1,193,320 |
| | $ | 1,612,884 |
| | $ | — |
| | $ | 2,806,204 |
|
| Operating expenses: | | | | | | | | | | | |
| Direct operating expenses | — |
| | — |
| | 507,729 |
| | 987,173 |
| | — |
| | 1,494,902 |
|
| Selling, general and administrative expenses | — |
| | — |
| | 199,769 |
| | 331,735 |
| | — |
| | 531,504 |
|
| Corporate expenses | 13,049 |
| | — |
| | 58,576 |
| | 44,755 |
| | — |
| | 116,380 |
|
| Depreciation and amortization | — |
| | — |
| | 194,891 |
| | 181,071 |
| | — |
| | 375,962 |
|
| Impairment charges | — |
| | — |
| | 21,631 |
| | — |
| | — |
| | 21,631 |
|
| Other operating income (expense), net | (458 | ) | | — |
| | (7,732 | ) | | 3,366 |
| | — |
| | (4,824 | ) |
| Operating income (loss) | (13,507 | ) | | — |
| | 202,992 |
| | 71,516 |
| | — |
| | 261,001 |
|
| Interest (income) expense, net | 2 |
| | 352,329 |
| | 1,630 |
| | 1,708 |
| | — |
| | 355,669 |
|
| Interest income on Due from iHeartCommunications | 61,439 |
| | — |
| | — |
| | — |
| | — |
| | 61,439 |
|
| Intercompany interest income | 16,068 |
| | 340,457 |
| | 62,002 |
| | — |
| | (418,527 | ) | | — |
|
| Intercompany interest expense | 61,439 |
| | — |
| | 356,525 |
| | 563 |
| | (418,527 | ) | | — |
|
| Gain on investments, net | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Equity in earnings (loss) of nonconsolidated affiliates | (76,018 | ) | | 10,383 |
| | 5,609 |
| | (1,935 | ) | | 61,672 |
| | (289 | ) |
| Gain on extinguishment of debt | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Other income, net | 2,915 |
| | 3,440 |
| | 20,318 |
| | 10,289 |
| | (24,575 | ) | | 12,387 |
|
| Income (loss) before income taxes | (70,544 | ) | | 1,951 |
| | (67,234 | ) | | 77,599 |
| | 37,097 |
| | (21,131 | ) |
| Income tax expense | (953 | ) | | (575 | ) | | (8,784 | ) | | (39,865 | ) | | — |
| | (50,177 | ) |
| Consolidated net income (loss) | (71,497 | ) | | 1,376 |
| | (76,018 | ) | | 37,734 |
| | 37,097 |
| | (71,308 | ) |
| Less amount attributable to noncontrolling interest | — |
| | — |
| | — |
| | 24,764 |
| | — |
| | 24,764 |
|
| Net income (loss) attributable to the Company | $ | (71,497 | ) | | $ | 1,376 |
| | $ | (76,018 | ) | | $ | 12,970 |
| | $ | 37,097 |
| | $ | (96,072 | ) |
| Other comprehensive loss, net of tax: | | | | | | | | | | | |
| Foreign currency translation adjustments | — |
| | (3,440 | ) | | (16,605 | ) | | (92,684 | ) | | — |
| | (112,729 | ) |
| Unrealized holding gain on marketable securities | 0 |
| | 0 |
| | 0 |
| | 553 |
| | 0 |
| | 553 |
|
| Other adjustments to comprehensive loss | — |
| | — |
| | — |
| | (10,266 | ) | | — |
| | (10,266 | ) |
| Reclassification adjustments | — |
| | — |
| | — |
| | 808 |
| | — |
| | 808 |
|
| Equity in subsidiary comprehensive loss | (110,480 | ) | | (61,867 | ) | | (93,875 | ) | | — |
| | 266,222 |
| | — |
|
| Comprehensive loss | (181,977 | ) | | (63,931 | ) | | (186,498 | ) | | (88,619 | ) | | 303,319 |
| | (217,706 | ) |
| Less amount attributable to noncontrolling interest | — |
| | — |
| | — |
| | (11,154 | ) | | — |
| | (11,154 | ) |
| Comprehensive loss attributable to the Company | $ | (181,977 | ) | | $ | (63,931 | ) | | $ | (186,498 | ) | | $ | (77,465 | ) | | $ | 303,319 |
| | $ | (206,552 | ) |
CLEAR CHANNEL OUTDOOR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
| | | | | | | | | | | | | | | | | | | | | | | |
| (In thousands) | Year Ended December 31, 2014 |
| | Parent | | Subsidiary | | Guarantor | | Non-Guarantor | | | | |
| | Company | | Issuer | | Subsidiaries | | Subsidiaries | | Eliminations | | Consolidated |
| Revenue | $ | — |
| | $ | — |
| | $ | 1,162,842 |
| | $ | 1,798,417 |
| | $ | — |
| | $ | 2,961,259 |
|
| Operating expenses: | | | | | | | | | | | |
| Direct operating expenses | — |
| | — |
| | 495,651 |
| | 1,101,237 |
| | — |
| | 1,596,888 |
|
| Selling, general and administrative expenses | — |
| | — |
| | 196,653 |
| | 351,866 |
| | — |
| | 548,519 |
|
| Corporate expenses | 12,274 |
| | — |
| | 67,989 |
| | 50,631 |
| | — |
| | 130,894 |
|
| Depreciation and amortization | — |
| | — |
| | 194,396 |
| | 211,847 |
| | — |
| | 406,243 |
|
| Impairment charges | — |
| | — |
| | 3,530 |
| | — |
| | — |
| | 3,530 |
|
| Other operating income (expense), net | (541 | ) | | — |
| | 3,235 |
| | 4,565 |
| | — |
| | 7,259 |
|
| Operating income (loss) | (12,815 | ) | | — |
| | 207,858 |
| | 87,401 |
| | — |
| | 282,444 |
|
| Interest (income) expense, net | (6 | ) | | 352,280 |
| | 1,555 |
| | (564 | ) | | — |
| | 353,265 |
|
| Interest income on Due from iHeartCommunications | 60,179 |
| | — |
| | — |
| | — |
| | — |
| | 60,179 |
|
| Intercompany interest income | 15,624 |
| | 340,824 |
| | 61,073 |
| | — |
| | (417,521 | ) | | — |
|
| Intercompany interest expense | 60,179 |
| | — |
| | 356,448 |
| | 894 |
| | (417,521 | ) | | — |
|
| Gain on investments, net | 0 |
| | 0 |
| | 0 |
| |
|
| | 0 |
| | — |
|
| Equity in earnings (loss) of nonconsolidated affiliates | (15,463 | ) | | 46,938 |
| | 42,382 |
| | 2,038 |
| | (72,106 | ) | | 3,789 |
|
| Gain on extinguishment of debt | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Other income (expense), net | 4,122 |
| | — |
| | (2,691 | ) | | 13,754 |
| | — |
| | 15,185 |
|
| Income (loss) before income taxes | (8,526 | ) | | 35,482 |
| | (49,381 | ) | | 102,863 |
| | (72,106 | ) | | 8,332 |
|
| Income tax benefit (expense) | (1,064 | ) | | (276 | ) | | 33,918 |
| | (23,791 | ) | | — |
| | 8,787 |
|
| Consolidated net income (loss) | (9,590 | ) | | 35,206 |
| | (15,463 | ) | | 79,072 |
| | (72,106 | ) | | 17,119 |
|
| Less amount attributable to noncontrolling interest |
|
| |
|
| |
|
| | 26,709 |
| |
|
| | 26,709 |
|
| Net income (loss) attributable to the Company | $ | (9,590 | ) | | $ | 35,206 |
| | $ | (15,463 | ) | | $ | 52,363 |
| | $ | (72,106 | ) | | $ | (9,590 | ) |
| Other comprehensive loss, net of tax: | | | | | | | | | | | |
| Foreign currency translation adjustments | — |
| | 21 |
| | (8,471 | ) | | (114,654 | ) | | — |
| | (123,104 | ) |
| Unrealized holding gain on marketable securities | — |
| | — |
| | — |
| | 327 |
| | — |
| | 327 |
|
| Other adjustments to comprehensive loss |
|
| | — |
| | — |
| | (11,438 | ) | | — |
| | (11,438 | ) |
| Reclassification adjustments | — |
| | — |
| | — |
| | 8 |
| | — |
| | 8 |
|
| Equity in subsidiary comprehensive loss | (127,781 | ) | | (117,825 | ) | | (119,310 | ) | | — |
| | 364,916 |
| | — |
|
| Comprehensive loss | (137,371 | ) | | (82,598 | ) | | (143,244 | ) | | (73,394 | ) | | 292,810 |
| | (143,797 | ) |
| Less amount attributable to noncontrolling interest |
|
| |
|
| |
|
| | (6,426 | ) | |
|
| | (6,426 | ) |
| Comprehensive loss attributable to the Company | $ | (137,371 | ) | | $ | (82,598 | ) | | $ | (143,244 | ) | | $ | (66,968 | ) | | $ | 292,810 |
| | $ | (137,371 | ) |
CLEAR CHANNEL OUTDOOR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
| | | | | | | | | | | | | | | | | | | | | | | |
| (In thousands) | Year Ended December 31, 2016 |
| | Parent | | Subsidiary | | Guarantor | | Non-Guarantor | | | | |
| | Company | | Issuer | | Subsidiaries | | Subsidiaries | | Eliminations | | Consolidated |
| Cash flows from operating activities: | | | | | | | | | | | |
| Consolidated net income (loss) | $ | 141,431 |
| | $ | (22,797 | ) | | $ | 136,919 |
| | $ | 69,843 |
| | $ | (160,963 | ) | | $ | 164,433 |
|
| Reconciling items: | | | | | | | | | | | |
| Impairment charges | — |
| | — |
| | — |
| | 7,274 |
| | — |
| | 7,274 |
|
| Depreciation and amortization | — |
| | — |
| | 177,918 |
| | 166,206 |
| | — |
| | 344,124 |
|
| Deferred taxes | — |
| | — |
| | 88,102 |
| | (56,769 | ) | | — |
| | 31,333 |
|
| Provision for doubtful accounts | — |
| | — |
| | 5,565 |
| | 5,094 |
| | — |
| | 10,659 |
|
| Amortization of deferred financing charges and note discounts, net | — |
| | 8,741 |
| | — |
| | 1,831 |
| | — |
| | 10,572 |
|
| Share-based compensation | — |
| | — |
| | 5,605 |
| | 4,633 |
| | — |
| | 10,238 |
|
| Gain on disposal of operating assets, net | — |
| | — |
| | (293,802 | ) | | (69,683 | ) | | — |
| | (363,485 | ) |
| Equity in (earnings) loss of nonconsolidated affiliates | (136,919 | ) | | (44,767 | ) | | 19,575 |
| | 2,837 |
| | 160,963 |
| | 1,689 |
|
| Other reconciling items, net | — |
| | — |
| | 24,380 |
| | 44,553 |
| | — |
| | 68,933 |
|
| Changes in operating assets and liabilities, net of effects of acquisitions and dispositions: | | | | | | | | | | | |
| Decrease in accounts receivable | — |
| | — |
| | 13,660 |
| | 16,648 |
| | — |
| | 30,308 |
|
| (Increase) decrease in prepaids and other current assets | 60 |
| | — |
| | 5,662 |
| | (21,300 | ) | | — |
| | (15,578 | ) |
| Increase (decrease) in accrued expenses | (228 | ) | | 59,359 |
| | (70,833 | ) | | 37,220 |
| | — |
| | 25,518 |
|
| Increase (decrease) in accounts payable | — |
| | — |
| | 2,764 |
| | (6,561 | ) | | — |
| | (3,797 | ) |
| Increase (decrease) in accrued interest | — |
| | — |
| | (571 | ) | | 765 |
| | — |
| | 194 |
|
| Decrease in deferred income | — |
| | — |
| | (5,265 | ) | | (12,854 | ) | | — |
| | (18,119 | ) |
| Changes in other operating assets and liabilities | — |
| | — |
| | 9,846 |
| | (3,849 | ) | | — |
| | 5,997 |
|
| Net cash provided by operating activities | $ | 4,344 |
| | $ | 536 |
| | $ | 119,525 |
| | $ | 185,888 |
| | $ | — |
| | $ | 310,293 |
|
| Cash flows from investing activities: | | | | | | | | | | | |
| Purchases of property, plant and equipment | — |
| | — |
| | (77,034 | ) | | (152,738 | ) | | — |
| | (229,772 | ) |
| Proceeds from disposal of assets | — |
| | — |
| | 358,906 |
| | 449,288 |
| | — |
| | 808,194 |
|
| Purchases of other operating assets | — |
| | — |
| | (1,689 | ) | | (555 | ) | | — |
| | (2,244 | ) |
| Proceeds from sale of investment securities | — |
| | — |
| | — |
| | 781 |
| | — |
| | 781 |
|
| Decrease in intercompany notes receivable, net | — |
| | 220,038 |
| | — |
| | — |
| | (220,038 | ) | | — |
|
| Dividends from subsidiaries | — |
| | — |
| | 235,467 |
| | — |
| | (235,467 | ) | | — |
|
| Change in other, net | — |
| | (79 | ) | | — |
| | (25,460 | ) | | 79 |
| | (25,460 | ) |
| Net cash provided by (used for) investing activities | $ | — |
| | $ | 219,959 |
| | $ | 515,650 |
| | $ | 271,316 |
| | $ | (455,426 | ) | | $ | 551,499 |
|
| Cash flows from financing activities: | | | | | | | | | | | |
| Payments on credit facilities | — |
| | — |
| | — |
| | (2,100 | ) | | — |
| | (2,100 | ) |
| Proceeds from long-term debt | — |
| | — |
| | 800 |
| | 6,056 |
| | — |
| | 6,856 |
|
| Payments on long-term debt | — |
| | — |
| | (79 | ) | | (2,255 | ) | | — |
| | (2,334 | ) |
| Net transfers to iHeartCommunications | 45,099 |
| | — |
| | — |
| | — |
| | — |
| | 45,099 |
|
| Dividends and other payments to noncontrolling interests | — |
| | — |
| | — |
| | (16,917 | ) | | — |
| | (16,917 | ) |
| Dividends paid | (755,537 | ) | | — |
| | (914 | ) | | (234,554 | ) | | 235,467 |
| | (755,538 | ) |
| Increase (decrease) in intercompany notes payable, net | — |
| | 5,000 |
| | (3,604 | ) | | (221,434 | ) | | 220,038 |
| | — |
|
| Intercompany funding | 789,044 |
| | (225,495 | ) | | (588,291 | ) | | 24,742 |
| | — |
| | — |
|
| Deferred financing charges | — |
| | — |
| | — |
| | (199 | ) | | — |
| | (199 | ) |
| Change in other, net | (1,366 | ) | | — |
| | — |
| | 79 |
| | (79 | ) | | (1,366 | ) |
| Net cash provided by (used for) financing activities | 77,240 |
| | (220,495 | ) | | (592,088 | ) | | (446,582 | ) | | 455,426 |
| | (726,499 | ) |
| Effect of exchange rate changes on cash | — |
| | — |
| | — |
| | (6,041 | ) | | — |
| | (6,041 | ) |
| Net increase in cash and cash equivalents | 81,584 |
| | — |
| | 43,087 |
| | 4,581 |
| | — |
| | 129,252 |
|
| Cash and cash equivalents at beginning of year | 218,701 |
| | — |
| | 18,455 |
| | 175,587 |
| | — |
| | 412,743 |
|
| Cash and cash equivalents at end of year | $ | 300,285 |
| | $ | — |
| | $ | 61,542 |
| | $ | 180,168 |
| | $ | — |
| | $ | 541,995 |
|
CLEAR CHANNEL OUTDOOR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
| | | | | | | | | | | | | | | | | | | | | | | |
| (In thousands) | Year Ended December 31, 2015 |
| | Parent | | Subsidiary | | Guarantor | | Non-Guarantor | | | | |
| | Company | | Issuer | | Subsidiaries | | Subsidiaries | | Eliminations | | Consolidated |
| Cash flows from operating activities: | | | | | | | | | | | |
| Consolidated net income (loss) | $ | (71,497 | ) | | $ | 1,376 |
| | $ | (76,018 | ) | | $ | 37,734 |
| | $ | 37,097 |
| | $ | (71,308 | ) |
| Reconciling items: | | | | | | | | | | | |
| Impairment charges | — |
| | — |
| | 21,631 |
| | — |
| | — |
| | 21,631 |
|
| Depreciation and amortization | — |
| | — |
| | 194,891 |
| | 181,071 |
| | — |
| | 375,962 |
|
| Deferred taxes | — |
| | 1,282 |
| | 7,539 |
| | (5,282 | ) | | — |
| | 3,539 |
|
| Provision for doubtful accounts | — |
| | — |
| | 5,398 |
| | 7,986 |
| | — |
| | 13,384 |
|
| Amortization of deferred financing charges and note discounts, net | — |
| | 7,468 |
| | 1,230 |
| | 72 |
| | — |
| | 8,770 |
|
| Share-based compensation | — |
| | — |
| | 5,712 |
| | 2,647 |
| | — |
| | 8,359 |
|
| Gain on sale of operating and fixed assets | — |
| | — |
| | (1,235 | ) | | (4,233 | ) | | — |
| | (5,468 | ) |
| Equity in (earnings) loss of nonconsolidated affiliates | 76,018 |
| | (10,383 | ) | | (5,609 | ) | | 1,935 |
| | (61,672 | ) | | 289 |
|
| Other reconciling items, net | — |
| | (3,440 | ) | | 1,339 |
| | (11,339 | ) | | — |
| | (13,440 | ) |
| Changes in operating assets and liabilities, net of effects of acquisitions and dispositions: | | | | | | | | | | | |
| Increase in accounts receivable | — |
| | — |
| | (12,878 | ) | | (43,702 | ) | | — |
| | (56,580 | ) |
| (Increase) decrease in prepaids and other current assets | (124 | ) | | (3,433 | ) | | 4,664 |
| | (2,835 | ) | |
|
| | (1,728 | ) |
| Increase (decrease) in accrued expenses | 486 |
| | (983 | ) | | 5,476 |
| | (414 | ) | | — |
| | 4,565 |
|
| Increase (decrease) in accounts payable | — |
| | — |
| | (15,742 | ) | | 26,424 |
| | 19,960 |
| | 30,642 |
|
| Increase (decrease) in accrued interest | — |
| | (3,199 | ) | | 15 |
| | (888 | ) | | — |
| | (4,072 | ) |
| Increase (decrease) in deferred income | — |
| | — |
| | (6,879 | ) | | 9,428 |
| | — |
| | 2,549 |
|
| Changes in other operating assets and liabilities | — |
| | — |
| | (17,114 | ) | | (1,047 | ) | | — |
| | (18,161 | ) |
| Net cash provided by (used for) operating activities | $ | 4,883 |
| | $ | (11,312 | ) | | $ | 112,420 |
| | $ | 197,557 |
| | $ | (4,615 | ) | | $ | 298,933 |
|
| Cash flows from investing activities: | | | | | | | | | | | |
| Purchases of property, plant and equipment | — |
| | — |
| | (72,374 | ) | | (145,958 | ) | | — |
| | (218,332 | ) |
| Proceeds from disposal of assets | — |
| | — |
| | 4,626 |
| | 6,638 |
| | — |
| | 11,264 |
|
| Purchases of other operating assets | — |
| | — |
| | (23,042 | ) | | (598 | ) | | — |
| | (23,640 | ) |
| Proceeds from sale of investment securities | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Purchases of businesses | — |
| | — |
| | — |
| | (24,701 | ) | | — |
| | (24,701 | ) |
| Decrease in intercompany notes receivable, net | — |
| | 70,125 |
| | — |
| | — |
| | (70,125 | ) | | — |
|
| Dividends from subsidiaries | — |
| | 157,570 |
| | — |
| | — |
| | (157,570 | ) | | — |
|
| Change in other, net | — |
| | (8,606 | ) | | (909 | ) | | (2,314 | ) | | 9,513 |
| | (2,316 | ) |
| Net cash provided by (used for) investing activities | $ | — |
| | $ | 219,089 |
| | $ | (91,699 | ) | | $ | (166,933 | ) | | $ | (218,182 | ) | | $ | (257,725 | ) |
| Cash flows from financing activities: | | | | | | | | | | | |
| Draws on credit facilities | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Payments on credit facilities | — |
| | — |
| | — |
| | (3,849 | ) | | — |
| | (3,849 | ) |
| Proceeds from long-term debt | — |
| | — |
| | — |
| | 222,777 |
| | — |
| | 222,777 |
|
| Payments on long-term debt | — |
| | — |
| | (56 | ) | | — |
| | — |
| | (56 | ) |
| Net transfers to iHeartCommunications | 17,007 |
| | — |
| | — |
| | — |
| | — |
| | 17,007 |
|
| Dividends and other payments to noncontrolling interests | — |
| | — |
| | — |
| | (30,870 | ) | | — |
| | (30,870 | ) |
| Dividends paid | — |
| | — |
| | — |
| | (182,145 | ) | | 182,145 |
| | — |
|
| Decrease in intercompany notes payable, net | — |
| | — |
| | (4,625 | ) | | (65,500 | ) | | 70,125 |
| | — |
|
| Intercompany funding | 193,021 |
| | (207,777 | ) | | 2,415 |
| | 12,341 |
| | — |
| | — |
|
| Deferred financing charges | — |
| | — |
| | — |
| | (8,606 | ) | | — |
| | (8,606 | ) |
| Change in other, net | 2,885 |
| | — |
| | — |
| | 9,279 |
| | (9,513 | ) | | 2,651 |
|
| Net cash provided by (used for) financing activities | 212,913 |
| | (207,777 | ) | | (2,266 | ) | | (46,573 | ) | | 242,757 |
| | 199,054 |
|
| Effect of exchange rate changes on cash | — |
| | — |
| | — |
| | (13,723 | ) | | — |
| | (13,723 | ) |
| Net increase (decrease) in cash and cash equivalents | 217,796 |
| | — |
| | 18,455 |
| | (29,672 | ) | | 19,960 |
| | 226,539 |
|
| Cash and cash equivalents at beginning of year | 905 |
| | — |
| | — |
| | 205,259 |
| | (19,960 | ) | | 186,204 |
|
| Cash and cash equivalents at end of year | $ | 218,701 |
| | $ | — |
| | $ | 18,455 |
| | $ | 175,587 |
| | $ | — |
| | $ | 412,743 |
|
CLEAR CHANNEL OUTDOOR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
| | | | | | | | | | | | | | | | | | | | | | | |
| (In thousands) | Year Ended December 31, 2014 |
| | Parent | | Subsidiary | | Guarantor | | Non-Guarantor | | | | |
| | Company | | Issuer | | Subsidiaries | | Subsidiaries | | Eliminations | | Consolidated |
| Cash flows from operating activities: | | | | | | | | | | | |
| Consolidated net income (loss) | $ | (9,590 | ) | | $ | 35,206 |
| | $ | (15,463 | ) | | $ | 79,072 |
| | $ | (72,106 | ) | | $ | 17,119 |
|
| Reconciling items: | | | | | | | | | | | |
| Impairment charges | — |
| | — |
| | 3,530 |
| | — |
| | — |
| | 3,530 |
|
| Depreciation and amortization | — |
| | — |
| | 194,396 |
| | 211,847 |
| | — |
| | 406,243 |
|
| Deferred taxes | 597 |
| | — |
| | (29,835 | ) | | (4,331 | ) | | — |
| | (33,569 | ) |
| Provision for doubtful accounts | — |
| | — |
| | 3,247 |
| | 3,903 |
| | — |
| | 7,150 |
|
| Amortization of deferred financing charges and note discounts, net | — |
| | 7,428 |
| | 1,232 |
| | — |
| | — |
| | 8,660 |
|
| Share-based compensation | — |
| | — |
| | 5,006 |
| | 2,737 |
| | — |
| | 7,743 |
|
| Gain on sale of operating and fixed assets | — |
| | — |
| | (3,236 | ) | | (4,565 | ) | | — |
| | (7,801 | ) |
| Equity in (earnings) loss of nonconsolidated affiliates | 15,463 |
| | (46,938 | ) | | (42,382 | ) | | (2,038 | ) | | 72,106 |
| | (3,789 | ) |
| Other reconciling items, net | — |
| | — |
| | 984 |
| | (15,445 | ) | | — |
| | (14,461 | ) |
| Changes in operating assets and liabilities, net of effects of acquisitions and dispositions: | | | | | | | | | | | |
| (Increase) decrease in accounts receivable | — |
| | — |
| | 404 |
| | (39,022 | ) | | — |
| | (38,618 | ) |
| (Increase) decrease in prepaids and other current assets | 94 |
| |
|
| | 6,368 |
| | (480 | ) | |
|
| | 5,982 |
|
| Increase (decrease) in accrued expenses | (258 | ) | | 1,315 |
| | (2,487 | ) | | 19,742 |
| | — |
| | 18,312 |
|
| Increase (decrease) in accounts payable | — |
| | — |
| | 16,126 |
| | (626 | ) | | (19,960 | ) | | (4,460 | ) |
| Increase (decrease) in accrued interest | — |
| | 818 |
| | (179 | ) | | 172 |
| | — |
| | 811 |
|
| Increase (decrease) in deferred income | — |
| | — |
| | 1,735 |
| | (7,105 | ) | | — |
| | (5,370 | ) |
| Changes in other operating assets and liabilities | — |
| | — |
| | 1,143 |
| | (20,202 | ) | | — |
| | (19,059 | ) |
| Net cash provided by (used by) operating activities | 6,306 |
| | (2,171 | ) | | 140,589 |
| | 223,659 |
| | (19,960 | ) | | 348,423 |
|
| Cash flows from investing activities: | | | | | | | | | | | |
| Purchases of property, plant and equipment | — |
| | — |
| | (96,695 | ) | | (134,474 | ) | | — |
| | (231,169 | ) |
| Proceeds from disposal of assets | — |
| | — |
| | 6,216 |
| | 6,645 |
| | — |
| | 12,861 |
|
| Purchases of other operating assets | — |
| | — |
| | (252 | ) | | (660 | ) | | — |
| | (912 | ) |
| Proceeds from sale of investment securities | — |
| | — |
| | — |
| | 15,834 |
| | — |
| | 15,834 |
|
| Purchases of businesses | — |
| | — |
| | — |
| | 339 |
| | — |
| | 339 |
|
| Decrease in intercompany notes receivable, net | — |
| | 84,264 |
| | — |
| | — |
| | (84,264 | ) | | — |
|
| Dividends from subsidiaries | — |
| | — |
| | 3,182 |
| | — |
| | (3,182 | ) | | — |
|
| Change in other, net | — |
| |
|
| | (11 | ) | | (3,373 | ) | | — |
| | (3,384 | ) |
| Net cash provided by (used by) investing activities | — |
| | 84,264 |
| | (87,560 | ) | | (115,689 | ) | | (87,446 | ) | | (206,431 | ) |
| Cash flows from financing activities: | | | | | | | | | | | |
| Draws on credit facilities | — |
| | — |
| | — |
| | 3,010 |
| | — |
| | 3,010 |
|
| Payments on credit facilities | — |
| | — |
| | — |
| | (3,682 | ) | | — |
| | (3,682 | ) |
| Payments on long-term debt | — |
| | — |
| | (48 | ) | | — |
| | — |
| | (48 | ) |
| Net transfer from iHeartCommunications | (68,804 | ) | | — |
| | — |
| | — |
| | — |
| | (68,804 | ) |
| Payments to repurchase noncontrolling interests | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Dividends and other payments to noncontrolling interests | — |
| | — |
| | — |
| | (18,995 | ) | | — |
| | (18,995 | ) |
| Dividends paid | (175,022 | ) | | — |
| | — |
| | (3,182 | ) | | 3,182 |
| | (175,022 | ) |
| Decrease in intercompany notes payable, net | — |
| | — |
| | — |
| | (84,264 | ) | | 84,264 |
| | — |
|
| Deferred financing charges | — |
| | — |
| | (4 | ) | | — |
| | — |
| | (4 | ) |
| Intercompany funding | 153,004 |
| | (82,093 | ) | | (58,862 | ) | | (12,049 | ) | | — |
| | — |
|
| Change in other, net | 2,236 |
| | — |
| | — |
| | — |
| | — |
| | 2,236 |
|
| Net cash used by financing activities | (88,586 | ) | | (82,093 | ) | | (58,914 | ) | | (119,162 | ) | | 87,446 |
| | (261,309 | ) |
| Effect of exchange rate changes on cash |
|
| |
|
| |
|
| | (9,024 | ) | |
|
| | (9,024 | ) |
| Net decrease in cash and cash equivalents | (82,280 | ) | | — |
| | (5,885 | ) | | (20,216 | ) | | (19,960 | ) | | (128,341 | ) |
| Cash and cash equivalents at beginning of year | 83,185 |
| | — |
| | 5,885 |
| | 225,475 |
| | — |
| | 314,545 |
|
| Cash and cash equivalents at end of year | $ | 905 |
| | $ | — |
| | $ | — |
| | $ | 205,259 |
| | $ | (19,960 | ) | | $ | 186,204 |
|
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not Applicable
ITEM 9A. CONTROLS AND PROCEDURES
Disclosure 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 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, ourOur Chief Executive Officer and our Chief Financial Officer concluded that our disclosure controls and procedures were effective as of December 31, 2016 at the reasonable assurance level.2022.
Management’s Annual Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Our internal control over financial reporting is a process designed under the supervision of our Chief Executive Officer and Chief Financial Officer to provide reasonable assurance regarding the preparation and reliability of financial reporting and preparation of our financial statements for external purposes in accordance with generally accepted accounting principles.
There are inherent limitations to the effectiveness of any control system, however well designed, including the possibility of human error and the possible circumvention or overriding of controls. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Management must make judgments with respect to the relative cost and expected benefits of any specific control measure. The design of a control system also is based in part upon assumptions and judgments made by management about the likelihood of future events, and there can be no assurance that a control will be effective under all potential future conditions. As a result, even an effective system of internal control over financial reporting can provide no more than reasonable assurance with respect to the fair presentation of financial statements and the processes under which they were prepared.
As of December 31, 2016,2022, management assessed the effectiveness of our internal control over financial reporting based on the criteria for effective internal control over financial reporting established in Internal Control –- Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 Framework). Based on the assessment, management determined that we maintained effective internal control over financial reporting as of December 31, 2016,2022, based on those criteria.
Ernst & Young LLP, the independent registered public accounting firm that audited our consolidated financial statements included in this Annual Report on Form 10-K, has issued an attestation report on theThe effectiveness of ourthe Company’s internal control over financial reporting as of December 31, 2016. The2022 has been audited by Ernst & Young LLP, an independent registered public accounting firm, as stated in their report which expresses an unqualified opinion on the effectiveness of our internal control over financial reporting as of December 31, 2016, is includedappears in this Item under the heading “Report of Independent Registered Public Accounting Firm.”
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting that occurred during the most recent fiscal quarter ended December 31, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Report of Independent Registered Public Accounting Firm
TheTo the Stockholders and the Board of Directors and Stockholders
of Clear Channel Outdoor Holdings, Inc.
Opinion on Internal Control over Financial Reporting
We have audited Clear Channel Outdoor Holdings, Inc. and subsidiaries’subsidiaries' (the Company) internal control over financial reporting as of December 31, 2016,2022, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework)Framework) (the COSO criteria). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2022, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2022 and 2021, the related consolidated statements of loss, comprehensive loss, changes in stockholders’ deficit and cash flows for each of the three years in the period ended December 31, 2022, and the related notes and the financial statement schedule listed in the Index at Item 15(a)2 (collectively referred to as the “consolidated financial statements”) and our report dated February 28, 2023 expressed an unqualified opinion thereon.
Basis for Opinion
The Company’sCompany's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’sManagement's Annual Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’sCompany's internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States).PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations on Internal Control Over Financial Reporting
A company’scompany's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’scompany's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’scompany's assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2016, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of the Company as of December 31, 2016 and 2015, and the related consolidated statements of comprehensive income (loss), changes in stockholders' equity (deficit) and cash flows for each of the three years in the period ended December 31, 2016 and our report dated February 23, 2017 expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
San Antonio, Texas
February 23, 2017
28, 2023
ITEM 9B. OTHER INFORMATION
Not Applicable
ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
Not Applicable
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information required by this item with respect to our executive officers is set forth atcan be found under the end ofcaption “Information About Our Executive Officers” in Part I of this Annual Report on Form 10-K. Our Code of Business Conduct and Ethics (the “Code of Conduct”) applies to all of our officers, directors and employees, including our principal executive officer, principal financial officer and principal accounting officer. The Code of Conduct is publicly available on our internet website at www.clearchanneloutdoor.com. We intend to satisfy the disclosure requirements of Item 5.05 of Form 8-K regarding any amendment to, or waiver from, a provision of the Code of Conduct that applies to our principal executive officer, principal financial officer or principal accounting officer and relates to any element of the definition of code of ethics set forth in Item 406(b) of Regulation S-K by posting such information on our website, www.clearchanneloutdoor.com.
All other information required by this item is incorporated by reference to the information set forth in our Definitive Proxy Statement for our 2017the 2023 Annual Meeting of Stockholders, (the “Definitive Proxy Statement”), which we expectexpected to file with the SECbe filed within 120 days afterof our fiscal year end.ended December 31, 2022.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated by reference to our Definitive Proxy Statement which we expectfor the 2023 Annual Meeting of Stockholders, expected to file with the SECbe filed within 120 days afterof our fiscal year end.ended December 31, 2022.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The following table summarizes information as of December 31, 20162022 relating to our equity compensation plans pursuant to which grants of options, restricted stock, restricted stock units or other rights to acquire shares may be granted from time to time.
| | | | | | | | | | | | | | | | | | | | |
| Plan Category | | Number of Securities to be issued upon exercise of outstanding options, warrants and rights Column (A)(1) | | Weighted-Average exercise price of outstanding options, warrants and rights(2) | | Number of Securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (A))(1) |
Equity Compensation Plans approved by security holders(3) | | 27,933,495(4) | | $ | 5.56 | | | 27,095,736 | |
| Equity Compensation Plans not approved by security holders | | — | | | — | | | — | |
| Total | | 27,933,495 | | | $ | 5.56 | | | 27,095,736 | |
|
| | | | | | | | | | |
| Plan Category | | Number of Securities to be issued upon exercise of outstanding options, warrants and rights | | Weighted-Average exercise price of outstanding options, warrants and rights (1) | | Number of Securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (A)) |
| Equity Compensation Plans approved by security holders(2) | | 7,776,016(3) |
| | $ | 7.71 |
| | 27,883,798 |
|
| Equity Compensation Plans not approved by security holders | | — |
| | — |
| | — |
|
| Total | | 7,776,016 |
| | $ | 7.71 |
| | 27,883,798 |
|
| |
(1) | The weighted-average exercise price is calculated based solely on the exercise prices of the outstanding options and does not reflect the shares that will be issued upon the vesting of outstanding awards of restricted stock or RSUs, which have no exercise price. |
| |
(2) | Represents the 2005 Stock Incentive Plan and the 2012 Stock Incentive Plan. The 2005 Stock Incentive Plan automatically terminated (other than with respect to outstanding awards) upon stockholder approval of the 2012 Stock Incentive Plan at our Annual Stockholder Meeting on May 18, 2012 and, as a result, there are no shares available for grant under the 2005 Stock Incentive Plan. |
| |
(3) | This number includes shares subject to outstanding awards granted, of which 5,032,680 shares are subject to outstanding options, 1,629,901 shares are subject to outstanding restricted shares and 1,113,435 shares are subject to outstanding RSUs. |
(2)The weighted-average exercise price is calculated based solely on the exercise prices of the outstanding options and does not reflect the shares that will be issued upon the vesting of outstanding awards of RSUs or PSUs, which have no exercise price.
(3)Represents the 2005 Stock Incentive Plan and the 2012 Second Amended and Restated Equity Incentive Plan. The 2005 Stock Incentive Plan automatically terminated (other than with respect to outstanding awards) upon stockholder approval of the 2012 Stock Incentive Plan at our Annual Meeting of Stockholders on May 18, 2012, and, as a result, there are no shares available for grant under the 2005 Stock Incentive Plan.
(4)This number includes shares subject to outstanding awards granted, of which 3,438,943 shares are subject to outstanding options, 13,149,312 shares are subject to outstanding time-based RSUs and 11,345,240 shares are subject to outstanding PSUs, assuming a maximum level of performance is achieved. This number does not include 73,222 shares subject to outstanding restricted share awards.
All other information required by this item is incorporated by reference to our Definitive Proxy Statement which we expectfor the 2023 Annual Meeting of Stockholders, expected to file with the SECbe filed within 120 days afterof our fiscal year end.
ended December 31, 2022.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The information required by this item is incorporated by reference to our Definitive Proxy Statement which we expectfor the 2023 Annual Meeting of Stockholders, expected to file with the SECbe filed within 120 days afterof our fiscal year end.ended December 31, 2022.
ITEM 14. PRINCIPAL ACCOUNTINGACCOUNTANT FEES AND SERVICES
The information required by this item is incorporated by reference to our Definitive Proxy Statement which we expectfor the 2023 Annual Meeting of Stockholders, expected to file with the SECbe filed within 120 days afterof our fiscal year end.ended December 31, 2022.
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a)1. Financial Statements.
The following consolidated financial statements are included in Item 8:
•Consolidated Balance Sheets as of December 31, 20162022 and 2015.2021
•Consolidated Statements of Comprehensive Income (Loss)Loss for the Years Ended December 31, 2016, 20152022, 2021 and 2014.2020
•Consolidated Statements of Comprehensive Loss for the Years Ended December 31, 2022, 2021 and 2020
•Consolidated Statements of Changes in Stockholders’ Equity (Deficit)Deficit for the Years Ended December 31, 2016, 20152022, 2021 and 2014.2020
•Consolidated Statements of Cash Flows for the Years Ended December 31, 2016, 20152022, 2021 and 2014.2020
•Notes to Consolidated Financial Statements
(a)2. Financial Statement Schedule.
The following financial statement schedule for the years ended December 31, 2016, 20152022, 2021 and 20142020 and related report of independent auditors is filed as part of this report and should be read in conjunction with the consolidated financial statements.
•Schedule II Valuation and Qualifying Accounts
All other schedules for which provision is made in the applicable accounting regulation of the Securities and Exchange Commission are not required under the related instructions or are inapplicable, and therefore have been omitted.
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
Allowance for Doubtful AccountsCredit Losses
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (In thousands) | | | | | | Charges | | | | | | |
| | Balance at | | Adoption of | | to Costs, | | Write-off | | | | Balance |
| | Beginning | | ASU | | Expenses | | of Accounts | | | | at End of |
| Description | | of period | | 2016-13(1) | | and other | | Receivable | | Other(2) | | Period |
| Year Ended December 31, 2020 | | $ | 23,786 | | | $ | 7,181 | | | $ | 19,390 | | | $ | (4,911) | | | $ | (13,403) | | | $ | 32,043 | |
| Year Ended December 31, 2021 | | $ | 32,043 | | | $ | — | | | $ | (2,727) | | | $ | (4,502) | | | $ | (1,042) | | | $ | 23,772 | |
| Year Ended December 31, 2022 | | $ | 23,772 | | | $ | — | | | $ | 6,479 | | | $ | (6,926) | | | $ | (764) | | | $ | 22,561 | |
|
| | | | | | | | | | | | | | | | | | | | |
| (In thousands) | | | | Charges | | | | | | |
| | | Balance at | | to Costs, | | Write-off | | | | Balance |
| | | Beginning | | Expenses | | of Accounts | | | | at End of |
| Description | | of period | | and other | | Receivable | | Other (1) | | Period |
| Year ended December 31, 2014 | | $ | 33,127 |
| | $ | 7,150 |
| | $ | 13,469 |
| | $ | (2,500 | ) | | $ | 24,308 |
|
| Year ended December 31, 2015 | | $ | 24,308 |
| | $ | 13,384 |
| | $ | 10,585 |
| | $ | (1,759 | ) | | $ | 25,348 |
|
| Year ended December 31, 2016 | | $ | 25,348 |
| | $ | 10,659 |
| | $ | 13,069 |
| | $ | (540 | ) | | $ | 22,398 |
|
| |
(1) | Primarily foreign currency adjustments and acquisition and/or divestiture activity. |
SCHEDULE II(1)The Company adopted ASU 2016-13, Measurement of Credit Losses on Financial Instruments, as of January 1, 2020, which resulted in an increase in the allowance for credit losses balance, recorded as a cumulative-effect adjustment to retained earnings.
VALUATION AND QUALIFYING ACCOUNTS(2)Other primarily includes foreign currency adjustments and divestiture activity related to the sale of the Company’s stake in Clear Media in 2020 and the Company’s definitive agreement to sell its business in Switzerland in 2022.
Deferred Tax Asset Valuation Allowance
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (In thousands) | | | | Charges | | | | | | |
| | Balance at | | to Costs, | | | | | | Balance |
| | Beginning | | Expenses | | | | | | at end of |
| Description | | of Period | | and other(1) | | Reversal(2) | | Adjustments(3) | | Period |
| Year Ended December 31, 2020 | | $ | 292,939 | | | $ | 96,422 | | | $ | (2,091) | | | $ | (36,379) | | | $ | 350,891 | |
| Year Ended December 31, 2021 | | $ | 350,891 | | | $ | 74,837 | | | $ | (11,966) | | | $ | (17,283) | | | $ | 396,479 | |
| Year Ended December 31, 2022 | | $ | 396,479 | | | $ | 33,125 | | | $ | (92,894) | | | $ | (18,760) | | | $ | 317,950 | |
(1)The Company has recorded valuation allowances on deferred tax assets attributable to net operating losses in certain jurisdictions due to uncertainty of its ability to utilize these assets in future periods. During 2022, the Company recorded a valuation allowance of $33.1 million related to foreign deferred tax assets.
(2)The Company reverses valuation allowances on deferred tax assets in the period in which, based on the weight of available evidence, it is more-likely-than-not that the deferred tax asset will be realized. In 2022, this was primarily driven by the classification change of permit intangible assets from indefinite-lived to finite-lived for financial reporting purposes.
(3)The Company has adjusted certain valuation allowances as a result of changes in tax rates in certain jurisdictions, the expiration of carryforward periods for net operating loss carryforwards, and foreign exchange rate movements.
|
| | | | | | | | | | | | | | | | | | | | |
| (In thousands) | | | | Charges | | | | | | |
| | | Balance at | | to Costs, | | | | | | Balance |
| | | Beginning | | Expenses | | | | | | at end of |
| Description | | of Period | | and other (1) | | Reversal (2) | | Adjustments (3) | | Period |
| Year ended December 31, 2014 | | $ | 180,284 |
| | $ | 16,819 |
| | $ | (230 | ) | | $ | (28,318 | ) | | $ | 168,555 |
|
| Year ended December 31, 2015 | | $ | 168,555 |
| | $ | 41,704 |
| | $ | (457 | ) | | $ | (24,723 | ) | | $ | 185,079 |
|
| Year ended December 31, 2016 | | $ | 185,079 |
| | $ | 47,795 |
| | $ | (82,475 | ) | | $ | (13,062 | ) | | $ | 137,337 |
|
| |
(1) | During 2014, 2015 and 2016, the Company recorded valuation allowances on deferred tax assets attributable to net operating losses in certain foreign jurisdictions due to the uncertainty of the ability to utilize those losses in future periods. During 2016, the Company recorded $47.8 million in valuation allowance on foreign deferred tax assets due to the uncertainty of the ability to utilize these assets in future periods. |
| |
(2) | During 2014, 2015 and 2016, the Company realized the tax benefits associated with certain foreign deferred tax assets, primarily related to foreign loss carryforwards, on which a valuation allowance was previously recorded. The associated valuation allowance was reversed in the period in which, based on the weight of available evidence, it is more-likely-than-not that the deferred tax asset will be realized. During 2016, the Company released valuation allowances in the U.S. of $32.9 million and in France of $43.3 million. |
| |
(3) | During 2014, 2015 and 2016, the Company adjusted certain valuation allowances as a result of changes in tax rates in certain jurisdictions and as a result of the expiration of carryforward periods for net operating loss carryforwards. |
(a)3. Exhibits
|
| | | | | | | |
| Exhibit Number | | Description |
| 3.1 | | |
| 3.2 | | |
4.1 | | Form of Specimen Class A Common Stock certificate of Clear Channel Outdoor Holdings, Inc. (Incorporated by reference to Exhibit 4.1 to Amendment No. 4 to the Clear Channel Outdoor Holdings, Inc. Registration Statement on Form S-1 (File No. 333-127375) filed on October 25, 2005).
|
4.2 | | Indenture with respect to 7.625% Series A Senior Subordinated Notes due 2020, dated as of March 15, 2012, by and among Clear Channel Worldwide Holdings, Inc., Clear Channel Outdoor Holdings, Inc., Clear Channel Outdoor, Inc., the other guarantors party thereto and U.S. Bank National Association, as trustee (Incorporated by reference to Exhibit 4.1 to the Clear Channel Outdoor Holdings, Inc.’s Current Report on Form 8-K filed on March 16, 2012)May 2, 2019).
|
4.33.3 | | Indenture with respectCertificate of Designation of Series A Perpetual Preferred Stock (incorporated by reference to 7.625% Series B Senior Subordinated Notes due 2020, dated as of March 15, 2012, by and among Clear Channel Worldwide Holdings, Inc.,Exhibit 4.1 to Clear Channel Outdoor Holdings, Inc., Clear Channel Outdoor, Inc., the other guarantors party thereto and U.S. Bank National Association, as trustee (Incorporated by reference to Exhibit 4.2 to the Clear Channel Outdoor Holdings, Inc.’s Current Report on Form 8-K filed on March 16, 2012)May 2, 2019). |
4.43.4 | | Indenture with respect to 6.50%Certificate of Designations of Series A Senior Notes due 2022, dated asB Preferred Stock of November 19, 2012, by and among Clear Channel Worldwide Holdings, Inc., Clear Channel Outdoor Holdings, Inc., Clear Channel Outdoor, Inc.,as filed with the other guarantors party thereto and U.S. Bank National Association, as trustee (IncorporatedSecretary of State of the State of Delaware on May 19, 2020 (incorporated by reference to Exhibit 4.1 to the3.1 of Clear Channel Outdoor Holdings, Inc.’s Current Report on Form 8-K filed on NovemberMay 19, 2012)2020). |
4.54.1 | | |
| 4.2 | | Indenture with respect to 6.50% Series B5.125% Senior Secured Notes due 2022,2027, dated as of November 19, 2012,August 23, 2019, by and among Clear Channel Worldwide Holdings, Inc., Clear Channel Outdoor Holdings, Inc., Clear Channel Outdoor, Inc., the other guarantors party thereto and U.S. Bank National Association, as trustee (Incorporated by reference to Exhibit 4.2 to the Clear Channel Outdoor Holdings, Inc. Current Report on Form 8-K filed on November 19, 2012). |
4.6 | | Indenture, dated as of December 16, 2015, among Clear Channel International B.V., the guarantors party thereto and U.S. Bank National Association, as trustee paying agent, registrar, authentication agent and transferas collateral agent, (incorporated by reference to Exhibit 4.1 to Clear Channel Outdoor Holdings, Inc.’s Current Report on Form 8-K filed on December 16, 2015)August 23, 2019).
|
10.14.3 | | |
| 4.4 | | Indenture with respect to 6.625% Senior Secured Notes due 2025, dated as of August 4, 2020, by and Restated among Clear Channel International B.V., the guarantors party thereto, U.S. Bank National Association, as trustee, paying agent, registrar, authentication agent and transfer agent, and U.S. Bank Trustees Limited, as security agent (incorporated by reference to Exhibit 4.1 to Clear Channel Outdoor Holdings, Inc.'s Current Report on Form 8-K filed on August 4, 2020). |
| 4.5 | | |
| 4.6 | | |
| 4.7 | | |
| 4.8 | | |
| 4.9 | | |
| 10.1 | | Credit Agreement, dated as of FebruaryAugust 23, 2011,2019, by and among iHeartCommunications,Clear Channel Outdoor Holdings, Inc., as the borrower, Deutsche Bank AG New York Branch, as administrative agent and collateral agent, the syndication agent party thereto, the co-documentation agents party thereto, the lenders party thereto, and the joint lead arrangers and joint bookrunners for the Term B Facility and Revolving Credit Facility party thereto (incorporated by reference to Exhibit 10.1 to Clear Channel Outdoor Holdings, Inc.’s Current Report on Form 8-K filed on August 23, 2019). |
| 10.2 | | |
| 10.3 | | Second Amendment to Credit Agreement, dated as of May 5, 2021, among Clear Channel Outdoor Holdings, Inc., the other loan parties thereto iHeartMedia Capital I, LLC, Citibank, N.A.,and Deutsche Bank AG New York Branch, as Administrative Agent,administrative agent (incorporated by reference to Exhibit 10.1 to Clear Channel Outdoor Holdings, Inc.’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2021). |
| 10.4 | | |
| 10.5* | | |
| | | | | | | | |
| Exhibit Number | | Description |
| 10.6 | | First Lien Intercreditor Agreement, dated as of August 23, 2019, by and among Clear Channel Outdoor Holdings, Inc., as borrower, the subsidiaries of the borrower from time to time party thereto, Deutsche Bank AG New York Branch, as administrative agent and collateral agent for the Credit Agreement Secured Parties, U.S. Bank National Association, as Notes Collateral Agent, as the Additional Collateral Agent and as Notes Trustee, and each additional authorized representative from time to time party thereto (incorporated by reference to Exhibit 10.2 to Clear Channel Outdoor Holdings, Inc.’s Current Report on Form 8-K filed on February 24, 2011)August 23, 2019). |
10.210.7 | | Amendment No. 1 to Amended and RestatedABL Credit Agreement, dated as of October 25, 2012,August 23, 2019, by and among iHeartCommunications,Clear Channel Outdoor Holdings, Inc., iHeartMedia Capital I, LLC,as the subsidiary co-borrowersparent borrower, the subsidiaries listed therein, as borrowers, Deutsche Bank AG New York Branch, as administrative agent, collateral agent, swingline lender and L/C issuer, the other lenders and L/C issuers party thereto, the foreign subsidiary revolving borrowers thereto, Citibank, N.A. as Administrative Agent, the lenders from time to timejoint lead arrangers and bookrunners party thereto and the otherco-documentation agents party thereto (Incorporated(incorporated by reference to Exhibit 10.110.3 to the iHeartCommunications,Clear Channel Outdoor Holdings, Inc.’s Current Report on Form 8-K filed on October 25, 2012)August 23, 2019). |
10.310.8 | | Collateral SharingABL Intercreditor Agreement, dated as of October 25, 2012,August 23, 2019, by and among Citibank N.A.Clear Channel Outdoor Holdings, Inc., as Administrativeparent borrower, the grantors from time to time party thereto, Deutsche Bank AG New York Branch, as ABL Agent and as Cash Flow Agent, U.S. Bank National Association, as trustee,Notes Collateral Agent, and Deutsche Bank Trust Company Americas, as collateraleach additional fixed assets debt agent (Incorporatedfrom time to time party thereto (incorporated by reference to Exhibit 10.210.4 to the iHeartCommunications,Clear Channel Outdoor Holdings, Inc.’s Current Report on Form 8-K filed on October 25, 2012)August 23, 2019). |
|
| | |
10.4 | | Amendment No. 2 to Amended and Restated Credit Agreement, dated as of May 31, 2013, by and among iHeartCommunications, Inc., iHeartMedia Capital I, LLC, the subsidiary co-borrowers party thereto, the foreign subsidiary revolving borrowers thereto, Citibank, N.A. as Administrative Agent, the lenders from time to time party thereto and the other agents party thereto (Incorporated by reference to Exhibit 10.1 to the iHeartCommunications, Inc. Current Report on Form 8-K filed on June 4, 2013).
|
10.510.9§ | | Amendment No. 3 to Amended and Restated Credit Agreement, dated as of December 18, 2013, by and among iHeartCommunications, Inc., iHeartMedia Capital I, LLC, the subsidiary co-borrowers party thereto, the foreign subsidiary revolving borrowers thereto, Citibank, N.A., as Administrative Agent, the lenders from time to time party thereto and the other agents party thereto (Incorporated by reference to Exhibit 10.1 to the iHeartCommunications, Inc. Current Report on Form 8-K filed on December 18, 2013).
|
10.6 | | |
10.710.10§ | | First Amendment, dated as of December 23, 2009, to the Revolving Promissory Note, dated as of November 10, 2005, by Clear Channel Outdoor Holdings, Inc., as Maker, to iHeartCommunications, Inc. (Incorporated 2015 Supplemental Incentive Plan (incorporated by reference to Exhibit 10.25Appendix B to the Clear Channel Outdoor Holdings, Inc. definitive proxy statement on Schedule 14A for its 2015 Annual Report on Form 10-K for the year ended DecemberMeeting of Stockholders filed March 31, 2009)2015). |
10.8 | | Revolving Promissory Note dated November 10, 2005 payable by iHeartCommunications, Inc. to Clear Channel Outdoor Holdings, Inc. in the original principal amount of $1,000,000,000 (Incorporated by reference to Exhibit 10.8 to the Clear Channel Outdoor Holdings, Inc. Annual Report on Form 10-K for the year ended December 31, 2005).
|
10.9 | | First Amendment, dated as of December 23, 2009, to the Revolving Promissory Note, dated as of November 10, 2005, by iHeartCommunications, Inc., as Maker, to Clear Channel Outdoor Holdings, Inc. (Incorporated by reference to Exhibit 10.24 to the Clear Channel Outdoor Holdings, Inc. Annual Report on Form 10-K for the year ended December 31, 2009).
|
10.10 | | Second Amendment, dated as of October 23, 2013, to the Revolving Promissory Note, dated as of November 10, 2005, by iHeartCommunications, Inc., as Maker, to Clear Channel Outdoor Holdings, Inc. (Incorporated by reference to Exhibit 10.1 to the iHeartCommunications, Inc. Current Report on Form 8-K filed on October 23, 2013).
|
10.11 | | Master Agreement dated November 16, 2005 between Clear Channel Outdoor Holdings, Inc. and iHeartCommunications, Inc. (Incorporated by reference to Exhibit 10.1 to the Clear Channel Outdoor Holdings, Inc. Annual Report on Form 10-K for the year ended December 31, 2005).
|
10.12 | | Registration Rights Agreement dated November 16, 2005 between Clear Channel Outdoor Holdings, Inc. and iHeartCommunications, Inc. (Incorporated by reference to Exhibit 10.2 to the Clear Channel Outdoor Holdings, Inc. Annual Report on Form 10-K for the year ended December 31, 2005).
|
10.13 | | Corporate Services Agreement dated November 16, 2005 between Clear Channel Outdoor Holdings, Inc. and iHeartMedia Management Services, Inc. (Incorporated by reference to Exhibit 10.3 to the Clear Channel Outdoor Holdings, Inc. Annual Report on Form 10-K for the year ended December 31, 2005).
|
10.14 | | Tax Matters Agreement dated November 10, 2005 between Clear Channel Outdoor Holdings, Inc. and iHeartCommunications, Inc. (Incorporated by reference to Exhibit 10.4 to the Clear Channel Outdoor Holdings, Inc. Annual Report on Form 10-K for the year ended December 31, 2005).
|
10.15 | | Employee Matters Agreement dated November 10, 2005 between Clear Channel Outdoor Holdings, Inc. and iHeartCommunications, Inc. (Incorporated by reference to Exhibit 10.5 to the Clear Channel Outdoor Holdings, Inc. Annual Report on Form 10-K for the year ended December 31, 2005).
|
10.16 | | Amended and Restated License Agreement dated November 10, 2005 between iHM Identity, Inc. and Outdoor Management Services, Inc. (Incorporated by reference to Exhibit 10.6 to the Clear Channel Outdoor Holdings, Inc. Annual Report on Form 10-K for the year ended December 31, 2005).
|
|
| | |
10.17 | | First Amendment to Amended and Restated License Agreement dated January 14, 2014 between iHM Identity, Inc. and Outdoor Management Services, Inc. (Incorporated by reference to Exhibit 10.17 to the Clear Channel Outdoor Holdings, Inc. Form 10-K for the year ended December 31, 2014).
|
10.18§ | | Summary Description of 2012 Supplemental Incentive Plan (Incorporated by reference to Exhibit 10.1 to the iHeartMedia, Inc. Current Report on Form 8-K filed on February 23, 2012).
|
10.19§ | | Clear Channel Outdoor Holdings, Inc. 2005 Stock Incentive Plan, as amended and restated (the “CCOH Stock Incentive Plan”) (Incorporated by reference to Exhibit 10.2 to the Clear Channel Outdoor Holdings, Inc. Current Report on Form 8-K filed on April 30, 2007).
|
10.20§10.11§ | | First Form of Option Agreement under the CCOH Stock Incentive Plan (Incorporated by reference to Exhibit 10.2 to the Clear Channel Outdoor Holdings, Inc. Registration Statement on Form S-8 (File No. 333-130229) filed on December 9, 2005).
|
10.21§ | | Form of Option Agreement under the CCOH Stock Incentive Plan (approved February 21, 2011) (Incorporated by reference to Exhibit 10.33 to the iHeartMedia, Inc. Annual Report on Form 10-K for the year ended December 31, 2011).
|
10.22§ | | Form of Restricted Stock Award Agreement under the CCOH Stock Incentive Plan (Incorporated by reference to Exhibit 10.3 to the Clear Channel Outdoor Holdings, Inc. Registration Statement on Form S-8 (File No. 333-130229) filed on December 9, 2005).
|
10.23§ | | Form of Restricted Stock Unit Award Agreement under the CCOH Stock Incentive Plan (Incorporated by reference to Exhibit 10.16 to the Clear Channel Outdoor Holdings, Inc. Annual Report on Form 10-K for the year ended December 31, 2010).
|
10.24§ | | |
10.25§10.12§ | | |
10.26§10.13§ | | |
10.27§10.14§ | | |
10.28§10.15§ | | |
10.29§ | | Relocation Policy - Chief Executive Officer and Direct Reports (Guaranteed Purchase Offer) (Incorporated by reference to Exhibit 10.1 to the Clear Channel Outdoor Holdings, Inc. Current Report on Form 8-K filed on October 21, 2010).
|
10.30§ | | Relocation Policy - Chief Executive Officer and Direct Reports (Buyer Value Option) (Incorporated by reference to Exhibit 10.2 to the Clear Channel Outdoor Holdings, Inc. Current Report on Form 8-K filed on October 21, 2010).
|
10.31§ | | Relocation Policy - Function Head Direct Reports (Incorporated by reference to Exhibit 10.3 to the Clear Channel Outdoor Holdings, Inc. Current Report on Form 8-K filed on October 21, 2010).
|
10.32§ | | Form of Independent Director Indemnification Agreement (Incorporated by reference to Exhibit 10.1 to the Clear Channel Outdoor Holdings, Inc. Current Report on Form 8-K filed on June 3, 2009).
|
|
| 10.16§ | | |
10.33§ | | Form of Affiliate Director Indemnification Agreement (Incorporated by reference to Exhibit 10.2 to the Clear Channel Outdoor Holdings, Inc. Current Report on Form 8-K filed on June 3, 2009).
|
10.34§ | | Indemnification Agreement by and among Clear Channel Outdoor Holdings, Inc. and Robert W. Pittman dated September 18, 2012 (Incorporated by reference to Exhibit 10.4 to the iHeartMedia, Inc. Quarterly Report on Form 10-Q for the quarter ended September 30, 2012).
|
10.35§ | | Indemnification Agreement by and among Clear Channel Outdoor Holdings, Inc. and Robert H. Walls, Jr. dated September 5, 2012 (Incorporated by reference to Exhibit 10.6 to the iHeartMedia, Inc. Quarterly Report on Form 10-Q for the quarter ended September 30, 2012).
|
10.36§ | | Employment Agreement, effective as of January 24, 2012, between C. William Eccleshare and Clear Channel Outdoor Holdings, Inc. (Incorporated by reference to Exhibit 10.1 to the Clear Channel Outdoor Holdings, Inc. Current Report on Form 8-K/A filed on July 27, 2012).
|
10.37§ | | Amendment No. 1 to Employment Agreement, effective as of March 2, 2015, between C. William Eccleshare and Clear Channel Outdoor Holdings, Inc. (incorporated by reference to Exhibit 10.1 to the Clear Channel Outdoor Holdings, Inc. Quarterly Report on Form 10-Q for the quarter ended March 31, 2015).
|
10.38§ | | Amendment No. 2 to Employment Agreement, effective as of December 17, 2015, between C. William Eccleshare and Clear Channel Outdoor Holdings, Inc.
|
10.39§ | | Amended and Restated Employment Agreement, dated as of January 13, 2014 between Robert Pittman and iHeartMedia, Inc. (Incorporated by reference to Exhibit 10.1 to the iHeartMedia, Inc. Current Report on Form 8-K filed on January 13, 2014).
|
10.40§ | | Employment Agreement by and between iHeartMedia, Inc. and Richard J. Bressler, dated July 29, 2013 (Incorporated by reference to Exhibit 10.1 to the iHeartMedia, Inc. Current Report on Form 8-K/A filed on August 2, 2013).
|
10.41§ | | Employment Agreement, dated as of January 1, 2010, between Robert H. Walls, Jr., and iHeartMedia Management Services, Inc. (Incorporated by reference to Exhibit 10.1 to the Clear Channel Outdoor Holdings, Inc. Current Report on Form 8-K filed on January 5, 2010).
|
10.42§ | | |
10.43§10.17§ | |
|
10.44§10.18§ | | |
10.45§10.19§ | | |
10.46§ | | Form of Restricted Stock Unit Agreement under the CCOH Stock Incentive Plan, dated March 26, 2012, between Robert H. Walls, Jr. and Clear Channel Outdoor Holdings, Inc. (Incorporated by reference to Exhibit 10.3 to the iHeartMedia, Inc. Quarterly Report on Form 10-Q for the quarter ended March 31, 2012).
|
|
| 10.20§ | | |
10.47§ | | |
10.48§10.21§ | | |
10.49 | | Stipulation of Settlement, dated as of July 8, 2013, among legal counsel for iHeartCommunications, Inc. and the other named defendants, the special litigation committee of the board of directors of Clear Channel Outdoor Holdings, Inc. definitive proxy statement on Schedule 14A for its 2017 Annual Meeting of Stockholders filed on April 19, 2017).
|
| | | | | | | | |
| Exhibit Number | | Description |
| 10.22§ | | |
10.50§10.23§ | | |
10.51§ | | Employment Agreement by and between iHeartMedia Management Services, Inc. and Steven J. Macri dated October 7, 2013 (Incorporated by reference to Exhibit 10.81 to the iHeartMedia, Inc. Annual Report on Form 10-K filed on February 25, 2016)..
|
10.52§ | | Employment Agreement, effective as of March 3, 2015, between Scott Wells and Clear Channel Outdoor Holdings, Inc. (Incorporated2012 Amended and Restated Stock Incentive Plan (incorporated by reference to Exhibit 10.2 to the Clear Channel Outdoor Holdings, Inc. QuarterlyCurrent Report on Form 10-Q for the quarter ended March 31, 2015)8-K filed on July 5, 2017).
|
10.5310.24§ | | |
| 10.25 | | Tax Matters Agreement, dated as of December 16, 2015,May 1, 2019, by and among iHeartMedia, Inc., iHeartCommunications, Inc., iHeart Operations, Inc., Clear Channel International B.V.Holdings, Inc., the guarantors party thereto, U.S. Bank National Association,Clear Channel Outdoor Holdings, Inc., and Clear Channel Outdoor, LLC (incorporated by reference to Exhibit 10.2 to Clear Channel Outdoor Holdings, Inc.’s Current Report on Form 8-K filed on May 2, 2019). |
| 10.26§ | | |
21*10.27§ | | Subsidiaries.
|
23*10.28§ | | |
| 10.29§ | | |
| 10.30§ | | |
| 10.31 | | |
| 10.32§ | | |
| 10.33§ | | |
| 10.34§ | | |
| 10.35§ | | |
| 10.36§ | | |
| 21* | | |
| 23* | | |
24*31.1* | | Power of Attorney (included on signature page).
|
31.1* | | |
| 31.2* | | |
| 32.1** | | |
| | | | | | | | |
| Exhibit Number | | Description |
| 32.2** | | |
| 101.INS* | | XBRL Instance Document. |
| 101.SCH* | | XBRL Taxonomy Extension Schema Document. |
| 101.CAL* | | XBRL Taxonomy Extension Calculation Linkbase Document. |
| 101.DEF* | | XBRL Taxonomy Extension Definition Linkbase Document. |
| 101.LAB* | | XBRL Taxonomy Extension Label Linkbase Document. |
|
| 101.PRE* | | |
101.PRE* | | XBRL Taxonomy Extension Presentation Linkbase Document. |
| 104 | | Cover Page Interactive Data File (formatted as Inline XBRL). |
_________________
* Filed herewith.
** This exhibit is furnished herewith and shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, or otherwise subject to the liability of that section, and shall not be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934.
§ A management contract or compensatory plan or arrangement required to be filed as an exhibit pursuant to Item 601 of Regulation S-K.
ITEM 16. FormFORM 10-K SummarySUMMARY
None
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, on February 23, 2017.authorized.
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| Date: | February 28, 2023 | | CLEAR CHANNEL OUTDOOR HOLDINGS, INC. |
| | | By: /s/ Scott R. Wells |
| | | Scott R. Wells |
| | | President and Chief Executive Officer |
By: /s/ Robert W. Pittman
Robert W. Pittman
Chairman & Chief Executive Officer
Power of Attorney
Each person whose signature appears below authorizes Robert W. Pittman, Richard J. Bressler and Scott D. Hamilton, or any one of them, each of whom may act without joinder of the others, to execute in the name of each such person who is then an officer or director of the Registrant and to file any amendments to this Annual Report on Form 10-K necessary or advisable to enable the Registrant to comply with the Securities Exchange Act of 1934, as amended, and any rules, regulations and requirements of the Securities and Exchange Commission in respect thereof, which amendments may make such changes in such report as such attorney-in-fact may deem appropriate.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the Registrant and in the capacities and on the datesdate indicated.
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| Name | Title | Date |
/s/ Robert W. Pittman
Robert W. Pittman
| Chairman, Chief Executive Officer (Principal Executive Officer) and Director | February 23, 2017 |
/s/ Richard J. Bressler
Richard J. Bressler
| Chief Financial Officer (Principal Financial Officer)
| February 23, 2017 |
/s/ Scott D. HamiltonR. Wells Scott D. HamiltonR. Wells | Senior Vice President and Chief AccountingExecutive Officer (Principal Accountingand Director
(Principal Executive Officer) and Assistant Secretary | February 23, 201728, 2023 |
/s/ Blair E. HendrixBrian D. Coleman Blair E. HendrixBrian D. Coleman
| Director
Executive Vice President and Chief Financial Officer
(Principal Financial Officer) | February 23, 201728, 2023 |
/s/ Douglas L. JacobsJason A. Dilger Douglas L. JacobsJason A. Dilger
| Director
Senior Vice President and Chief Accounting Officer
(Principal Accounting Officer) | February 23, 201728, 2023 |
/s/ Daniel G. JonesJohn Dionne Daniel G. JonesJohn Dionne
| Director | February 23, 201728, 2023 |
/s/ Vicente PiedrahitaLisa Hammitt Vicente PiedrahitaLisa Hammitt
| Director | February 23, 201728, 2023 |
/s/ Olivia C. SabineAndrew Hobson Olivia C. SabineAndrew Hobson
| Director | February 23, 201728, 2023 |
/s/ Christopher M. TempleThomas C. King Christopher M. TempleThomas C. King
| Director | February 23, 201728, 2023 |
/s/ DaleJoe Marchese Joe Marchese | Director | February 28, 2023 |
/s/ W. TremblayBenjamin Moreland Dale W. TremblayBenjamin Moreland
| Director | February 28, 2023 |
Director/s/ Mary Teresa Rainey
Mary Teresa Rainey | Director | February 23, 201728, 2023 |
/s/ Jinhy Yoon Jinhy Yoon | Director | February 28, 2023 |
