The FCC’s rules require broadcasters to engage in broad equal employment opportunity recruitment efforts, retain data concerning such efforts and report much of this data to the FCC and to the public via periodic reports filed with the FCC or placed in stations’ public files and websites. Broadcasters couldThe FCC periodically audits for compliance with its equal employment opportunity rules and broadcasters can be sanctioned for noncompliance.
Numerous FCC rules govern the technical operating parameters of radio stations, including permissible operating frequency, power and antenna height and interference protections between stations. Changes to these rules could negatively affect the operation of our stations. For example, in January 2011 a law was enacted that eliminates certain minimum distance separation requirements between full-power and low-power FM radio stations. In March 2011, the FCC adopted policies which, in certain circumstances, could make it more difficult for radio stations to relocate to increase their population coverage. In October 2015, the FCC proposed rules which could reduce the degree of interference protection afforded to certain of our AM radio stations that serve wide areas.
To secure the rights to stream music content over the Internet, we also must obtain performance rights licenses and pay public performance royalties to copyright owners of sound recordings (typically, performing artists and record companies). Under Federal statutory licenses, we are permitted to stream any lawfully released sound recordings and to make ephemeral reproductions of these recordings on our computer servers without having to separately negotiate and obtain direct licenses with each individual
copyright owner as long as we operate in compliance with the rules of those statutory licenses and pay the applicable royalty rates to SoundExchange, the organization designated by the Copyright Royalty Board (“CRB”) to collect and distribute royalties under these statutory licenses. Sound recordings fixed on or after February 15, 1972For music streams that do not qualify for statutory licenses, we must license performance rights directly from sound recording companies. From time to time, SoundExchange notifies us that certain calendar years are protected by federal copyright law. Sound recording copyright owners have asserted that state law provides copyright protectionsubject to routine audits of our royalty payments. The results of such audits could result in higher royalty payments for the recordings fixed before that date (“pre-72 recordings”). Sound recording copyright owners have sued radio broadcasters and digital audio transmission services (including us) for unauthorized public performances and reproductions of pre-72 recordings under various state laws, and courts in two states have issued decisions favorable to the copyright owners. If one or more of these decisions is upheld on appeal and held to apply to radio broadcasting or Internet simulcasting, it could impede our ability to broadcast or stream pre-72 recordings and/or increase our licensing and negotiating costs of doing so.subject years.
You can find more information about us at our Internet website located at www.iheartmedia.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”). The contents of our websitewebsites are not deemed to be part of this Annual Report on Form 10-K or any of our other filings with the SEC.
Our results have been in the past, and could be in the future, adversely affected by economic uncertainty or deteriorationsdeterioration in economic conditions and corresponding reduced spending by advertisers.
We derive revenues from the sale of advertising. As is common in the audio entertainment industry, advertisers do not have long-term advertising commitments with us and can terminate their contracts at any time. 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 be accompanied by a decrease in advertising. For example,Macroeconomic uncertainty, including due to increased inflation, rising interest rates and the global economic downturn that begangeopolitical environment, during the year ended December 31, 2023 contributed to declines in 2008 resulted in a decline inour advertising and marketing by our customers, which resulted in a decline in advertising revenues across our businesses.revenues. This reduction in advertising revenues has had an adverse effect on our revenue, profit margins, cash flow and liquidity. Global economic conditions have been slow to recover and remain uncertain. If economic conditions do not continue to improve, economic uncertainty continues, increases, or if economic conditions deteriorate, again, global economicthese conditions may once againcontinue to adversely impact our revenue, profit margins, cash flow and liquidity. In addition, inflation has the potential to adversely affect our liquidity, business, financial condition and results of operations by increasing our overall cost structure, particularly if we are unable to achieve commensurate increases in the prices we charge our customers. The existence of inflation in the economy has resulted in, and may continue to result in, higher interest rates and capital costs, increased costs of labor and other similar effects. As a result of inflation, we have experienced and may continue to experience, cost increases. 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, and unfavorable regional economic conditions also may adversely impact our results. In addition, even in the absence of a downturn in general economic conditions, an individual business sector or market may experience a downturn, causing it to reduce its advertising expenditures, which also may adversely impact our results.
We operate in a highly competitive industry, and we may not be able to maintain or increase our current audience ratings, listener engagement and advertising revenues. Our iHeartMedia and our outdoor advertising businesses competebusiness competes for audiences and advertising revenues with other radio and outdoor advertising businesses, as well as with other media, entertainment and digital platforms, such as newspapers, magazines, television, direct mail, portable digitalstreaming audio players, mobile devices,services, satellite radio, podcasts, other Internet-based streaming music services, andad tech, television, live entertainment, within their respective markets.large scale online advertising platforms, and social media. Audience ratings and 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 revenues 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. For example, our competitors may develop analytic products for programmatic advertising, and data and research tools that are superior to those that we provide or that achieve greater market acceptance. Additionally, many customers rely on audience measurement data to make advertising decisions. An inability to obtain audience measurement data that is acceptable to customers can lead to a reduction of advertising revenue, and our business, financial condition, and results of operations could be adversely impacted. It also is possible that new competitors may emerge and rapidly acquire significant market share in any of our business segments.or make it more difficult for us to increase our share of advertising partners’ budgets. 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.
have a material adverse effect on our ability to attract local and/or national advertisers and on our revenue and/or ratings,listenership and could
result in increased expenses. Our investments in talent and programming have been and may continue to be significant and involve complex negotiations with numerous third parties. These costs may not be recouped and higher costs may lead to decreased profitability or potential write-downs.
Our business is dependent upon the performance of our management team and other key individuals. Although we have entered into agreements with some members of our senior management team and certain other key individuals, we can give no assurance that any or all or any of our management team and other key individualsthem will remain with us, or that we won’twill not 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 leave 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 roles 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.
Certain 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:
We frequently evaluate strategic opportunities both within and outside our existing lines of business. We expect from time to time to pursue strategic dispositionsacquisitions of certain businesses as well as acquisitions.strategic dispositions. These dispositionsacquisitions or acquisitionsdispositions could be material. Our strategy involvesAcquisitions, dispositions and other strategic initiatives involve numerous risks, including:
Extensive current government regulation, and future regulation, may limit our radio broadcasting and other iHeartMedia operations or adversely affect our business and financial resultsresults.
Increased royalty rates could significantly increase our expenses, which could adversely affect our business. Additionally, there are conditions applicable to the webcasting statutory license. Some, but not all, record companies have agreed to waive or provide limited relief from certainbusiness and results of these conditions under certain circumstances. Some of these conditions may be inconsistent with customary radio broadcasting practices. Finally, variousoperations. Various other regulatory matters relating to our iHeartMedia business are now, or may become, the subject of court litigation, and we cannot predict the outcome of any such litigation or its impact on our business.
Environmental, health, safety and land use laws and regulations may limit or restrict some of our operationsoperations.
None.
Our corporate headquarters are located in San Antonio, Texas, where we lease space in anfor executive office buildingoffices and lease a data and administrative service center. In addition, certain of our executive and other operations are located in New York, New York and London, England.
The types of properties required to support each of our radio stations include offices, studios, transmitter sites and antenna sites. We either own or lease our transmitter and antenna sites. During 2015 and 2016, we sold approximately 382 of our owned broadcast communication tower sites and entered into operating leases for the use of the sites. These leases generally have expiration dates that range from five to 30 years. A radio station’s studios are generally housed with its offices in downtown or business districts. A radio station’s transmitter sites and antenna sites are generally positioned in a manner that provides maximum market coverage.
Not Applicable.
and a director of the Company and iHeartCommunications on October 2, 2011. He was appointed as Chairman of the Company 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 the Company 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.
Richard J. Bressler is the President, Chief Operating Officer, Chief Financial Officer and Director of the Company, iHeartCommunications and iHeartMedia Capital I, LLC and the Chief Financial Officer of CCOH. Mr. Bressler was appointed as the Chief Financial Officer and President of the Company, iHeartCommunications, iHeartMedia Capital I, LLC and CCOH on July 29, 2013 and as Chief Operating Officer of the Company, iHeartCommunications and iHeartMedia Capital I, LLC 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 the Company, 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 Company, iHeartCommunications, iHeartMedia Capital I, LLC and CCOH 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 the Company, iHeartCommunications, iHeartMedia Capital I, LLC and CCOH and was appointed to this position on March 2, 2015. Prior to such time, he served as Chief Executive Officer – Outdoor of the Company, iHeartCommunications and CCOH 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 the Company and iHeartCommunications since February 17, 2011 and as Chief Executive Officer—International of CCOH 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 the Company, iHeartMedia Capital I, LLC, iHeartCommunications and CCOH and the Chief Financial Officer of the Company's iHM segment. Mr. Macri was appointed Senior Vice President-Corporate Finance of the Company, iHeartCommunications, iHeartMedia Capital I, LLC and CCOH on September 9, 2014 and as the Chief Financial Officer of the Company's iHM segment 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 the Company, iHeartCommunications, iHeartMedia Capital I, LLC and CCOH. Mr. Hamilton was appointed Senior Vice President, Chief Accounting Officer and Assistant Secretary of the Company, iHeartCommunications and CCOH 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 the Company, iHeartCommunications, iHeartMedia Capital I, LLC and CCOH. Mr. Walls was appointed the Executive Vice President, General Counsel and Secretary of the Company, iHeartCommunications and CCOH 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 CCOH, 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 CCOH 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
Shares of our Class A common stock are quoted for trading on the Over-The-Counter Pink Sheets (“OTC Pink”Nasdaq Global Select Market ("Nasdaq") Bulletin Board under the symbol “IHRT.” There were 286390 stockholders of record of our Class A common stock as of February 20, 2017.26, 2024. 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 quotations obtained from the OTC Pink reflect the high and low bid prices for our Class A common stock based on inter-dealer prices, without retail mark-up, mark-down or commission and may not represent actual transactions.
|
| | | | | | | | | | | | | |
| Class A Common Stock Market Price | | Class A Common Stock Market Price |
| High | Low | | High | Low |
2016 | | | 2015 | | |
First Quarter................ | $ | 1.25 |
| $ | 0.80 |
| First Quarter.................. | $ | 7.65 |
| $ | 4.20 |
|
Second Quarter........... | 1.30 |
| 0.77 |
| Second Quarter............. | 7.50 |
| 5.15 |
|
Third Quarter.............. | 1.47 |
| 1.08 |
| Third Quarter................ | 7.05 |
| 4.05 |
|
Fourth Quarter............ | 1.53 |
| 1.11 |
| Fourth Quarter.............. | 4.50 |
| 0.85 |
|
There is no established public trading market for our Class B and Class C common stock. There were 555,55621,346,613 shares of our Class B common stock and 58,967,502 shares of our Class C common stock outstanding on February 20, 2017. All outstanding26, 2024. Holders of shares of the Company's Class B common stock are generally entitled to convert shares of Class B common stock into shares of Class A common stock on a one-for-one basis, subject to the Company’s ability to restrict conversion in order to comply with the Communications Act of 1934, as amended (the “Communications Act”) and Federal Communications Commission (“FCC”) regulations. There were 27 stockholders of record of our Class B common stock areas of February 26, 2024. This figure does not include an estimate of the indeterminate number of beneficial holders whose shares may be held of record by Clear Channel Capital IV, LLCbrokerage firms and allclearing agencies.
On November 5, 2020, the FCC issued a declaratory ruling, permitting the Company to be up to 100% foreign-owned, subject to certain conditions (the "2020 Declaratory Ruling"). On January 8, 2021, the Company exchanged a portion of the outstanding Special Warrants into Class A common stock or Class B common stock, in compliance with the 2020 Declaratory Ruling, the Communications Act and FCC rules. Following the Exchange, the Company’s remaining Special Warrants continue to be exercisable for shares of Class A common stock or Class B common stock. Each Special Warrant issued under the special warrant agreement entered into in connection with the Reorganization may be exercised by its holder to purchase one share of the Company's Class A common stock or Class B common stock, unless the Company in its sole discretion believes such exercise would, alone or in combination with any other existing or proposed ownership of common stock, result in, (a) subject to certain exceptions, such exercising holder owning more than 4.99 percent of the Company's outstanding Class A common stock or total equity, or (b) the Company violating any provision of the Communications Act or restrictions on ownership or transfer imposed by the Company's certificate of incorporation or the decisions, rules and policies of the FCC. Any holder exercising Special Warrants must complete and timely deliver to the warrant agent the required exercise forms and certifications required under the special warrant agreement. There were 5,043,336 Special Warrants outstanding on February 26, 2024.
For more information regarding our Class CA common Stock, Class B common stock are held by Clear Channel Capital V, L.P.
Dividend Policyand Special Warrants, refer to Note 9, Stockholders' Equity, to our consolidated financial statements in Part II, Item 8 of this Annual Report on Form 10-K.
We currently do not intend to pay regular quarterly dividends on the shares of our common stock. We have not declared any dividend on our common stock since our incorporation. We are a holding company with no independent operations and no significant assets other than the stock of our subsidiaries. We, therefore, are dependent on the receipt of dividends or other distributions from our subsidiaries to pay dividends. In addition, iHeartCommunications’ debt financing arrangements include restrictions on its abilityintention to pay dividends whichon our Class A common stock at any time in turn affectsthe foreseeable future. Any decision to declare and pay dividends in the future will be made at the discretion of our ability to pay dividends. See “Management’s DiscussionBoard and Analysiswill depend on, among other things, our results of Financial Conditionoperations, financial condition, cash requirements, contractual restrictions and Resultsother factors that our Board may deem relevant.
Stock Performance Graph
The following graph provides a comparison of Operations—Liquiditythe cumulative total returns, adjusted for any stock splits and Capital Resources—Sourcesdividends, for iHeartMedia, Inc., our Radio Index* and the Nasdaq Stock Market Index for the period from July 18, 2019, the day our Class A common stock was listed and began trading on the Nasdaq, through December 31, 2023.
Indexed Stock Price Close
(Price Adjusted for Stock Splits and Dividends)
Source: Yahoo Finance
| | | | | | | | | | | | | | | | | | | | |
| 07/18/19 | 12/31/19 | 12/31/20 | 12/31/21 | 12/31/22 | 12/31/23 |
iHeartMedia, Inc. | 1,000 | | 1,024 | | 787 | | 1,275 | | 372 | | 162 | |
Radio Index* | 1,000 | | 966 | | 489 | | 592 | | 241 | | 218 | |
Nasdaq Stock Market Index | 1,000 | | 1,093 | | 1,570 | | 1,906 | | 1,275 | | 1,829 | |
*We have constructed a peer group index comprised of Capital”other radio companies that includes Cumulus Media, Beasley Broadcast Group, and Note 5 to the Consolidated Financial Statements.Audacy, Inc.
Sales of Unregistered Securities
We did not sell any equity securities during 2016 that were not registered under the Securities Act of 1933.
Purchases of Equity Securities
The following table sets forth the purchases made during the quarter ended December 31, 20162023 by or on behalf of us or an affiliated purchaser of shares of our Class A common stock registered pursuant to Section 12 of the Exchange Act:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
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 | | 623 | | | $ | 3.00 | | | — | | | $ | — | |
November 1 through November 30 | | 1,987 | | | 2.11 | | | — | | | — | |
December 1 through December 31 | | 1,817 | | | 2.99 | | | — | | | — | |
Total | | 4,427 | | | $ | 2.60 | | | — | | | $ | — | |
(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, 2023 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.
|
| | | | | | | | | | | | | | |
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 | | 17,987 |
| | $ | 1.47 |
| | — |
| | $ | — |
|
November 1 through November 30 | | — |
| | — |
| | — |
| | — |
|
December 1 through December 31 | | 6,416 |
| | 1.34 |
| | — |
| | — |
|
Total | | 24,403 |
| | $ | 1.45 |
| | — |
| | — |
|
| |
(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 DATA
The following tables set forth our selected historical consolidated financial and other data as of the dates and for the periods indicated. The selected historical financial data are derived from our audited consolidated financial statements. Certain prior period amounts have been reclassified to conform to the 2016 presentation. Historical results are not necessarily indicative of the results to be expected for future periods. Acquisitions and dispositions impact the comparability of the historical consolidated financial data reflected in this schedule of Selected Financial Data.
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.[Reserved]
|
| | | | | | | | | | | | | | | | | | | |
(In thousands) | For the Years Ended December 31, |
| 2016 | | 2015 | | 2014 | | 2013 | | 2012 |
Results of Operations Data: | | | | | | | | | |
Revenue | $ | 6,273,573 |
| | $ | 6,241,516 |
| | $ | 6,318,533 |
| | $ | 6,243,044 |
| | $ | 6,246,884 |
|
Operating expenses: | | | | | | | | | |
Direct operating expenses (excludes depreciation and amortization) | 2,412,287 |
| | 2,471,113 |
| | 2,540,035 |
| | 2,560,028 |
| | 2,501,313 |
|
Selling, general and administrative expenses (excludes depreciation and amortization) | 1,725,899 |
| | 1,704,352 |
| | 1,680,938 |
| | 1,641,462 |
| | 1,661,604 |
|
Corporate expenses (excludes depreciation and amortization) | 341,025 |
| | 314,999 |
| | 320,931 |
| | 315,972 |
| | 295,108 |
|
Depreciation and amortization | 635,227 |
| | 673,991 |
| | 710,898 |
| | 730,828 |
| | 729,285 |
|
Impairment charges (1) | 8,000 |
| | 21,631 |
| | 24,176 |
| | 16,970 |
| | 37,651 |
|
Other operating income, net | 353,556 |
| | 94,001 |
| | 40,031 |
| | 22,998 |
| | 48,127 |
|
Operating income | 1,504,691 |
| | 1,149,431 |
| | 1,081,586 |
|
| 1,000,782 |
| | 1,070,050 |
|
Interest expense | 1,849,982 |
| | 1,805,496 |
| | 1,741,596 |
| | 1,649,451 |
| | 1,549,023 |
|
Gain (loss) on investments | (12,907 | ) | | (4,421 | ) | | — |
| | 130,879 |
| | (4,580 | ) |
Equity in earnings (loss) of nonconsolidated affiliates | (16,733 | ) | | (902 | ) | | (9,416 | ) | | (77,696 | ) | | 18,557 |
|
Gain (loss) on extinguishment of debt | 157,556 |
| | (2,201 | ) | | (43,347 | ) | | (87,868 | ) | | (254,723 | ) |
Other income (expense), net | (73,102 | ) | | 13,056 |
| | 9,104 |
| | (21,980 | ) | | 250 |
|
Loss before income taxes | (290,477 | ) | | (650,533 | ) | | (703,669 | ) | | (705,334 | ) | | (719,469 | ) |
Income tax benefit (expense) | 50,474 |
| | (86,957 | ) | | (58,489 | ) | | 121,817 |
| | 308,279 |
|
Consolidated net loss | (240,003 | ) | | (737,490 | ) | | (762,158 | ) | | (583,517 | ) | | (411,190 | ) |
Less amount attributable to noncontrolling interest | 56,315 |
| | 17,131 |
| | 31,603 |
| | 23,366 |
| | 13,289 |
|
Net loss attributable to the Company | $ | (296,318 | ) | | $ | (754,621 | ) | | $ | (793,761 | ) | | $ | (606,883 | ) | | $ | (424,479 | ) |
|
| | | | | | | | | | | | | | | | | | | |
| For the Years Ended December 31, |
| 2016 | | 2015 | | 2014 | | 2013 | | 2012 |
Net loss per common share: | | | | | | | | | |
Basic | | | | | | | | | |
Net loss attributable to the Company | $ | (3.50 | ) | | $ | (8.95 | ) | | $ | (9.46 | ) | | $ | (7.31 | ) | | $ | (5.23 | ) |
Diluted: | | | | | | | | | |
Net loss attributable to the Company | $ | (3.50 | ) | | $ | (8.95 | ) | | $ | (9.46 | ) | | $ | (7.31 | ) | | $ | (5.23 | ) |
| |
(1) | We recorded non-cash impairment charges of $8.0 million, $21.6 million, $24.2 million, $17.0 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.
|
|
| | | | | | | | | | | | | | | | | | | |
(In thousands) | As of December 31, |
| 2016 | | 2015 | | 2014 | | 2013 | | 2012 |
Balance Sheet Data: | | | | | | | | | |
Current assets | $ | 2,504,687 |
| | $ | 2,778,115 |
| | $ | 2,109,748 |
| | $ | 2,431,162 |
| | $ | 2,943,307 |
|
Property, plant and equipment, net | 1,948,162 |
| | 2,212,556 |
| | 2,699,064 |
| | 2,897,630 |
| | 3,036,854 |
|
Total assets | 12,862,247 |
| | 13,673,115 |
| | 13,839,579 |
| | 14,871,407 |
| | 16,084,487 |
|
Current liabilities | 1,696,570 |
| | 1,659,228 |
| | 1,364,285 |
| | 1,763,618 |
| | 1,782,142 |
|
Long-term debt, net of current maturities | 20,022,080 |
| | 20,539,099 |
| | 20,159,545 |
| | 19,856,551 |
| | 20,163,197 |
|
Stockholders' deficit | (10,885,475 | ) | | (10,606,681 | ) | | (9,665,208 | ) | | (8,696,635 | ) | | (7,995,191 | ) |
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 consolidated financial statements and related footnotes contained in Item 8 of this Annual Report on Form 10-K. Our discussion is presented10-K of iHeartMedia, Inc. (the "Company," "iHeartMedia," "we," or "us").
We report based on both a consolidated and segment basis. Ourthree reportable segments are iHeartMedia (“iHM”), Americas outdoor advertising (“Americas outdoor” or “Americas outdoor advertising”), and International outdoor advertising (“International outdoor” or “International outdoor advertising”). Our iHM segment provides media and entertainment services via live broadcast and digital delivery, and alsosegments:
▪the Multiplatform Group, which includes our national syndication business. Our Americas outdoorBroadcast radio, Networks and International outdoor segments provide outdoor advertising services in their respective geographic regions using various digitalSponsorships and printed display types. Included in Events businesses;
▪the “Other” category areDigital Audio Group, which includes our Digital businesses, including Podcasting; and
▪the Audio & Media Services Group, which includes Katz Media, our full-service media representation business, Katz Media Group,and RCS, a provider of scheduling and broadcast software and services.
These reporting segments reflect how senior management operates the Company. This structure provides visibility into the underlying performance, results, and margin profiles of our distinct businesses and enables senior management to monitor trends at the operational level and address opportunities or issues as they arise via regular review of segment-level results and forecasts with operational leaders.
Our segment profitability metric is Segment Adjusted EBITDA, which is reported to the Company's Chief Operating Decision Maker 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 operating expenses, excluding Restructuring expenses (as defined below) and share-based compensation expenses.
We have transitioned our business from a single platform radio broadcast operator to a company with multiple platforms including digital, podcasting, networks and events, as well as ad technology capabilities. We have also invested in numerous technologies and businesses to increase the competitiveness of our inventory with our advertisers and our audience. We believe the presentation of our results by segment provides insight into our broadcast radio business and our digital business. We believe that our ability to generate cash flow from operations from our businesses and our current cash on hand will provide sufficient resources to fund and operate our business, fund capital expenditures and other general support servicesobligations and initiatives, which are ancillary tomake interest payments on our other businesses.
We manage our operating segments primarily focusing on their operating income, while Corporate expenses, Depreciation and amortization, Impairment charges, Other operating income (expense), net, Interest expense, Gain (loss) on investments, net, Equity in earnings (loss) of nonconsolidated affiliates, Gain (loss) on extinguishment oflong-term debt Other income (expense), net and Income tax benefit (expense) are managed on a total company basis and are, therefore, included only in our discussion of consolidated results.for at least the next twelve months.
Certain prior period amounts have been reclassified to conform to the 20162023 presentation.
iHM Description of our Business
Our iHM strategy centers on delivering entertaining and informative content where our listeners want to find it across multiple platforms, including broadcast, mobile and digital, as well as events. Ourour various platforms.
Multiplatform Group
The primary source of revenue for our Multiplatform Group is derived from selling local and national advertising time on our radio stations, with contracts typically less than one year in duration. The programming formats of our radio stations are designed to reach audiences with targeted demographic characteristics. We are workingwork closely with our advertising and marketing partners to develop tools and leverage data to enable advertisers to effectively reach their desired audiences. We continue to expand the choices for listeners and we deliver our content and sell advertising across multiple distribution channels, including digitally via our iHeartRadio mobile application and other digital platforms which reach national, regional and local audiences. WeOur Multiplatform Group also generate revenuesgenerates revenue from network syndication, our nationally recognized live events our station websites and other miscellaneous transactions.
iHMManagement looks at our Multiplatform Group's operations’ overall revenue as well as from each revenue stream including Broadcast Spot, Networks, and Sponsorship and Events. We periodically review and refine our selling structures in all regions and markets in an effort to maximize the value of our offering to advertisers and, therefore, our revenue.
Management also looks at Multiplatform Group's revenue by region and market size. Typically, larger markets can reach larger audiences with wider demographics than smaller markets. Additionally, management reviews our share of audio advertising revenues in markets where such information is available, as well as our share of target demographics listening in an average quarter hour. This metric gauges how well our formats are attracting and retaining listeners.
Management also monitors revenue generated through our programmatic ad-buying platform, and our data analytics advertising product, to measure the success of our enhanced marketing optimization tools. We have made significant investments so we can provide the same ad-buying experience that once was only available from digital-only companies and enable our clients to better understand how our assets can successfully reach their target audiences.
Management monitors average advertising rates and cost per minutemille, the cost of every 1,000 advertisement impressions (“CPM”), which are principally based on the length of the spot and how many people in a targeted audience listen to our stations, as measured by an independent ratings service. In addition, our advertising rates are influenced by the time of day the advertisement airs, with morning and evening drive-time hours typically priced the highest. Our price and yield information systems enable our station managers and sales teams to adjust commercial inventory and pricing based on local market demand, as well as to manage and monitor different commercial durations in order to provide more effective advertising for our customers at what we believe are optimal prices given market conditions. Yield is measured by management in a variety of ways, including revenue earned divided by minutes of advertising sold.
Management looks at our iHM operations’ overall revenue as well as the revenue from each type of advertising, including local advertising, which is sold predominately in a station’s local market, and national advertising, which is sold across multiple markets. Local advertising is sold by each radio station’s sales staff while national advertising is sold by our national sales team. Local advertising, which is our largest source of advertising revenue, and national advertising revenues are tracked separately because these revenue streams have different sales teams and respond differently to changes in the economic environment. We periodically review and refine our selling structures in all regions and markets in an effort to maximize the value of our offering to advertisers and, therefore, our revenue.
Management also looks at iHM revenue by region and market size. Typically, larger markets can reach larger audiences with wider demographics than smaller markets. Additionally, management reviews our share of iHM advertising revenues in markets where such information is available, as well as our share of target demographics listening in an average quarter hour. This metric gauges how well our formats are attracting and retaining listeners.
A portion of our iHMMultiplatform Group segment’s expenses vary in connection with changes in revenue. These variable expenses primarily relate to costs in our programming and sales department, such asdepartments, including profit sharing fees and commissions, and bad debt. Our content costs including music royalty and license fees for music delivered via broadcast or digital streaming, vary with the volume and mix of songs played on our stationsstations.
Digital Audio Group
The primary source of revenue in the Digital Audio Group segment is the sale of advertising on our podcast network, iHeartRadio mobile application and website, and station websites. Revenues for digital advertising are recognized over time based on impressions delivered or time elapsed, depending upon the terms of the contract. Digital Audio Group’s contracts with advertisers are typically a year or less in duration and are generally billed monthly upon satisfaction of the performance obligations.
Through our Digital Audio Group, we continue to expand the choices for listeners. We derive revenue in this segment by developing and delivering our content and selling advertising across multiple digital distribution channels, including via our iHeartRadio mobile application, our station websites and other digital platforms that reach national, regional and local audiences.
Our strategy has enabled us to extend our leadership in the growing podcasting sector, and iHeartMedia is the number one podcast publisher in America. Our reach now extends across more than 500+ platforms and thousands of different connected devices, and our digital business is comprised of streaming, subscription, display advertisements, and other content that is disseminated over digital platforms.
A portion of our Digital Audio Group segment’s expenses vary in connection with changes in revenue. These variable expenses primarily relate to our content costs including profit sharing fees and third-party content costs, as well as sales commissions and bad debt. Certain of our content costs, including digital music performance royalties, vary with the volume of listening hours on our digital platforms. Our programming and general and administrative departments incur most of our fixed
Audio & Media Services Group
costs, such as utilities and office salaries. We incur discretionary costs in our advertising, marketing and promotions, which we primarily use in an effort to maintain and/or increase our audience share. Lastly, we have incentive systems in each of our departments which provide for bonus payments based on specific performance metrics, including ratings, revenue and overall profitability.
Outdoor Advertising
Our outdoor advertisingAudio & Media Services Group revenue is derived from selling advertising spacegenerated by services provided to broadcast industry participants through our Katz Media and RCS businesses. As a media representation firm, Katz Media generates revenue via commissions on the displays we own or operate in key markets worldwide, consisting primarily of billboards, street furniture and transit displays. Part of our long-term strategy for our outdoor advertising businesses is to pursue the technology of digital displays, including flat screens, LCDs and LEDs, as additions to traditional methods of displaying our clients’ advertisements. We are currently installing these technologies in certain markets, both domestically and internationally. Management typically monitors our outdoor advertising business by reviewing the average rates, average revenue per display, occupancy and inventory levels of each of our display types by market.
We own the majority of our advertising displays, which typically are locatedmedia sold 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 durationbehalf of the advertising campaignradio and the unit price per display.television stations that it represents, while RCS generates revenue by providing broadcast software and media streaming, along with research services for radio stations, broadcast television stations, cable channels, record labels, ad agencies and Internet stations worldwide.
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 according 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 one to 20 years.
Americas Outdoor Advertising
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 Outdoor Advertising
Similar to our Americas outdoor business, advertising rates generally are based 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 account for such factors as illumination, proximity to other displays and the speed and viewing angle of approaching traffic. In addition, because our International outdoor 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 up 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 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 IndicatorsEconomic Conditions
Our advertising revenue, for allcash flows, and cost of our segments is highly correlated to changes in gross domestic product (“GDP”) as advertising spending has historically trended in line with GDP, both domestically and internationally. According to the U.S. Department of Commerce, estimated U.S. GDP growth for 2016 was 1.6%. Internationally, our resultscapital are impacted by fluctuationschanges in foreign currency exchangeeconomic conditions. Higher interest rates as well asand high inflation have contributed to a challenging macroeconomic environment since 2022. This challenging environment has led to broader market uncertainty which has impacted our revenues and cash flows. The current market
uncertainty and macroeconomic conditions, a recession, or a downturn in the U.S. economy could have a significant impact on our ability to generate revenue and cash flows.
Cost Savings Initiatives
We have implemented key modernization initiatives and operating-expense-saving initiatives to take advantage of the significant investments we have made in new technologies to deliver incremental cost efficiencies, including initiatives to streamline our real estate footprint. We continue to explore opportunities for further efficiencies.
Impairment Charges
Economic uncertainty due to inflation and higher interest rates since 2022 has resulted in, among other things, lower advertising spending by businesses. This challenging environment has led to broader market uncertainty, has delayed our expected recovery, and has had an adverse impact on our revenue and cash flows. This challenging environment could have a significant impact on our financial results. In addition, the economic conditionsuncertainty has had a significant impact on the trading values of our debt and equity securities for a sustained period. As a result, we performed an interim impairment test as of June 30, 2023 on our indefinite-lived Federal Communication Commission ("FCC") licenses and goodwill. The June 30, 2023 testing resulted in non-cash impairment charges of$363.6 million and $595.5 million to reduce the FCC license and goodwill balances, respectively.
We perform our annual impairment test on our goodwill and indefinite-lived intangible assets, including FCC licenses, as of July 1 of each year. No impairment was required as part of the 2023 annual impairment testing. We recognized a non-cash impairment charge of $302.1 million on our FCC licenses as part of our 2022 annual impairment testing performed in the foreign markets in whichthird quarter of 2022. For more information, see Note 4, Property, Plant and Equipment, Intangible Assets and Goodwill for a further description of the impairment charges and annual impairment tests.
While we believe we have made reasonable estimates and utilized reasonable assumptions to calculate the fair values of our long-lived assets, indefinite-lived FCC licenses and reporting units, it is possible a material change could occur to the estimated fair value of these assets as a result of the uncertainty regarding current economic conditions. If our actual results are not consistent with our estimates, we could be exposed to future impairment losses that could be material to our results of operations.
As part of our operating-expense-savings initiatives, we have taken proactive steps to streamline our real estate footprint and reduce related lease and operating expenses incurred by the Company. These strategic actions typically result in impairment charges due to the write-down of the affected right-of-use assets and related fixed assets, including leasehold improvements. For the years ended December 31, 2023 and 2022, we recognized non-cash impairment charges of $6.0 million and $9.4 million, respectively, as a result of these cost-savings initiatives.
Executive Summary
Our revenues for the year ended December 31, 2023 decreased for our Multiplatform Group segment primarily due to lower spending on radio advertising in connection with the uncertain market conditions and a decrease in political revenue as 2022 was a mid-term election year, decreased for our Audio & Media Services Group segment primarily due to a decrease in political revenue, and increased for our Digital Audio Group segment primarily due to increased demand for podcast advertising.
The key developments in our business for the year ended December 31, 20162023 are summarized below:
•Consolidated revenue increased $32.1Revenue of $3,751.0 million decreased $161.3 million, or 4.1%, during 20162023 compared to 2015. Excluding theConsolidated Revenue of $3,912.3 million in 2022.
•Multiplatform Group Revenue decreased $161.8 million, or 6.2%, and Segment Adjusted EBITDA decreased $212.3 million, or 27.7%, compared to 2022.
•Digital Audio Group Revenue increased $47.3 million, or, 4.6% and Segment Adjusted EBITDA increased $39.8 million, or 12.9%, compared to 2022.
•Audio & Media Services Group Revenue decreased $47.6 million, impact from movements in foreign exchange rates, consolidated revenue increased $79.7or 15.6%, and Segment Adjusted EBITDA decreased $41.4 million, during 2016or 36.7%, compared to 2015.2022.
We sold nine non-strategic U.S. outdoor markets in the first quarter•Operating loss of 2016. We sold our outdoor businesses in Turkey and Australia in the second and fourth quarters$797.3 million decreased $854.2 million from Operating income of 2016, respectively. These businesses had total revenues of $123.5$56.9 million in 20162022. 2023 included $965.1 million of non-cash impairment charges, primarily related to our goodwill and $248.9indefinite-lived intangible assets balances; 2022 included $311.5 million of non-cash impairment charges, primarily related to our indefinite-lived intangible asset balance.
•Net loss of $1,100.3 million in 2015, and we realized a net gain of $349.3 million on the sales.
We spent $30.9 million on strategic revenue and efficiency initiatives during 2016 to realign and improve our on-going business operations—a decrease of $11.92023 increased $837.6 million compared to 2015.Net loss of $262.7 million in 2022. 2023 included $965.1 million of non-cash impairment charges, primarily related to our goodwill and indefinite-lived intangible assets balances; 2022 included $311.5 million of non-cash impairment charges, primarily related to our indefinite-lived intangible asset balance.
On July 15, 2016, Broader Media, LLC, our indirect wholly-owned subsidiary,•Cash flows provided by operating activities of $213.1 million decreased $207.0 million compared to 2022.
•Adjusted EBITDA(1) of $696.6 million was down $253.7 million from $950.3 million in 2022.
•Free cash flow(2) of $110.4 million decreased $148.7 million compared to 2022.
•In addition, we received proceeds of $45.3 million upon the sale of certain broadcast tower sites and related assets; we are leasing back tower site space under long-term operating leases.
•During the years ended December 31, 2023 and 2022, we repurchased approximately $383.0$204.0 million and $329.6 million, respectively, of aggregate principal amount of iHeartCommunications’ 10.0%iHeartCommunications, Inc.'s 8.375% Senior Unsecured Notes due 20182027 for an aggregate purchase price of $222.2$147.3 million and $299.4 million in cash, excluding accrued interest. The repurchased notes were subsequently cancelled and retired, resulting in a gain on extinguishment of debt of $157.6 million. $56.7 million and $30.2 million for the years ended December 31, 2023 and 2022, respectively.
The repurchase effectively reducestable below presents a summary of our consolidated annual cash interest obligations by $38.3 million.historical results of operations for the periods presented:
| | | | | | | | | | | | | |
(In thousands) | Year Ended December 31, | | |
| 2023 | | 2022 | | |
Revenue | $ | 3,751,025 | | | $ | 3,912,283 | | | |
Operating income (loss) | (797,311) | | | 56,860 | | | |
Net loss | (1,100,339) | | | (262,670) | | | |
Cash provided by operating activities | 213,062 | | | 420,075 | | | |
| | | | | |
Adjusted EBITDA(1) | $ | 696,598 | | | $ | 950,289 | | | |
Free cash flow(2) | 110,392 | | | 259,106 | | | |
| | | | | |
Revenues(1) For a definition of Adjusted EBITDA, and expenses “excludinga reconciliation to Operating income (loss), the impactmost closely comparable GAAP measure, and to Net Loss, please see “Reconciliation of foreign exchange movements”Operating Income (Loss) to Adjusted EBITDA” and “Reconciliation of Net Loss to EBITDA and Adjusted EBITDA” in this Management’s Discussion & AnalysisMD&A.
(2) For a definition of Financial ConditionFree cash flow and Resultsa reconciliation to Cash provided by operating activities, the most closely comparable GAAP measure, please see “Reconciliation of Operations is presented because management believes that viewing certain financial results without the impact of fluctuationsCash provided by operating activities to Free cash flow” 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.
this MD&A.
Results of Operations
The comparisonFor a discussion of our historical results of operations for the year ended December 31, 20162021, including a year-to-year comparison between 2022 and 2021, refer to Part II, Item 7, "Management’s Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K for the year ended December 31, 2015 is2022.
The table below presents the comparison of our historical results of operations:
| | | | | | | | | | | | | |
(In thousands) | Year Ended December 31, | | |
| 2023 | | 2022 | | |
Revenue | $ | 3,751,025 | | | $ | 3,912,283 | | | |
Operating expenses: | | | | | |
Direct operating expenses (excludes depreciation and amortization) | 1,494,234 | | | 1,480,326 | | | |
Selling, general and administrative expenses (excludes depreciation and amortization) | 1,656,171 | | | 1,592,946 | | | |
Depreciation and amortization | 428,483 | | | 445,664 | | | |
Impairment charges | 965,087 | | | 311,489 | | | |
Other operating expense, net | 4,361 | | | 24,998 | | | |
Operating income (loss) | (797,311) | | | 56,860 | | | |
Interest expense, net | 389,775 | | | 341,674 | | | |
Loss on investments, net | (28,130) | | | (1,045) | | | |
Equity in loss of nonconsolidated affiliates | (3,530) | | | (11) | | | |
Gain on extinguishment of debt | 56,724 | | | 30,214 | | | |
Other expense, net | (655) | | | (2,295) | | | |
Loss before income taxes | (1,162,677) | | | (257,951) | | | |
Income tax benefit (expense) | 62,338 | | | (4,719) | | | |
Net loss | (1,100,339) | | | (262,670) | | | |
Less amount attributable to noncontrolling interest | 2,321 | | | 1,993 | | | |
Net loss attributable to the Company | $ | (1,102,660) | | | $ | (264,663) | | | |
The table below presents the comparison of our revenue streams:
| | | | | | | | | | | | | | | | | | | | | | | |
(In thousands) | | | | | Year Ended December 31, | | % |
| | | | | | | 2023 | | 2022 | | Change |
Broadcast Radio | | | | | | | $ | 1,752,166 | | | $ | 1,883,324 | | | (7.0) | % |
Networks | | | | | | | 466,404 | | | 503,244 | | | (7.3) | % |
Sponsorship and Events | | | | | | | 191,434 | | | 188,985 | | | 1.3 | % |
Other | | | | | | | 25,364 | | | 21,637 | | | 17.2 | % |
Multiplatform Group | | | | | | | 2,435,368 | | | 2,597,190 | | | (6.2) | % |
Digital, excluding Podcast | | | | | | | 661,319 | | | 663,392 | | | (0.3) | % |
Podcast | | | | | | | 407,848 | | | 358,432 | | | 13.8 | % |
Digital Audio Group | | | | | | | 1,069,167 | | | 1,021,824 | | | 4.6 | % |
Audio & Media Services Group | | | | | | | 256,702 | | | 304,302 | | | (15.6) | % |
Eliminations | | | | | | | (10,212) | | | (11,033) | | | |
Revenue, total | | | | | | | $ | 3,751,025 | | | $ | 3,912,283 | | | (4.1) | % |
Consolidated results for the year ended December 31, 2023 compared to the consolidated results for the year ended December 31, 2022 were as follows:
|
| | | | | | | | | |
(In thousands) | Years Ended December 31, | | % |
| 2016 | | 2015 | | Change |
Revenue | $ | 6,273,573 |
| | $ | 6,241,516 |
| | 0.5% |
Operating expenses: | | | | | |
Direct operating expenses (excludes depreciation and amortization) | 2,412,287 |
| | 2,471,113 |
| | (2.4)% |
Selling, general and administrative expenses (excludes depreciation and amortization) | 1,725,899 |
| | 1,704,352 |
| | 1.3% |
Corporate expenses (excludes depreciation and amortization) | 341,025 |
| | 314,999 |
| | 8.3% |
Depreciation and amortization | 635,227 |
| | 673,991 |
| | (5.8)% |
Impairment charges | 8,000 |
| | 21,631 |
| | (63.0)% |
Other operating income, net | 353,556 |
| | 94,001 |
| | 276.1% |
Operating income | 1,504,691 |
| | 1,149,431 |
| | 30.9% |
Interest expense | 1,849,982 |
| | 1,805,496 |
| | |
Loss on investments, net | (12,907 | ) | | (4,421 | ) | | |
Equity in loss of nonconsolidated affiliates | (16,733 | ) | | (902 | ) | | |
Gain (loss) on extinguishment of debt | 157,556 |
| | (2,201 | ) | | |
Other income (expense), net | (73,102 | ) | | 13,056 |
| | |
Loss before income taxes | (290,477 | ) | | (650,533 | ) | | |
Income tax (expense) benefit | 50,474 |
| | (86,957 | ) | | |
Consolidated net loss | (240,003 | ) | | (737,490 | ) | | |
Less amount attributable to noncontrolling interest | 56,315 |
| | 17,131 |
| | |
Net loss attributable to the Company | $ | (296,318 | ) | | $ | (754,621 | ) | | |
Consolidated Revenue
Consolidated revenue increased $32.1decreased $161.3 million during the year ended December 31, 20162023 compared to 2015. Excluding2022. Multiplatform Group revenue decreased $161.8 million, primarily resulting from a decrease in broadcast advertising due to the challenging macroeconomic environment as discussed above and a decline in political advertising, partially offset by an increase in trade and barter revenues. Digital Audio Group revenue increased $47.3 million, driven primarily by continuing increases in demand for podcast advertising. Audio & Media Services revenue decreased $47.6 million impact from movementsprimarily due to a decrease in foreign exchange rates, consolidated revenuepolitical revenue.
Direct Operating Expenses
Consolidated direct operating expenses increased $79.7$13.9 million during the year ended December 31, 20162023 compared to 2015. Revenue growth from our iHM business2022. The increase in consolidated direct operating expenses was primarily driven by higher variable content costs, including digital profit sharing costs, third-party broadcast costs, and production costs, as well as higher broadcast music license fees. These increases were partially offset by lower revenue generated by our Americas and International outdoor businessesthird-party digital costs in connection with COVID-19 related advertisers, lower employee compensation as a result of the sales of certain U.S. outdoor marketscost savings initiatives and international businesses which generated $248.9 million in revenue in the year ended December 31, 2015 compared to $123.5 million in the year ended December 31, 2016.lower digital performance royalty fees.
Consolidated Direct Operating Expenses
Consolidated direct operating expenses decreased $58.8 million during the year ended December 31, 2016 compared to 2015. Excluding the $29.0 million impact from movements in foreign exchange rates, consolidated direct operating expenses decreased $29.8 million during the year ended December 31, 2016 compared to 2015. Lower direct operating expenses in our iHM business were primarily driven by the impact of contract renegotiations, partially offset by increases primarily related to higher revenue. Lower direct operating expenses in our Americas outdoor business were primarily due to the sale of nine non-strategic U.S. outdoor markets in the first quarter of 2016. Lower direct operating expenses in our International outdoor business related primarily to the loss of the London bus contract and the sale of our businesses in Australia and Turkey, partially offset by increases in expenses related to higher revenues in other countries.
Consolidated Selling, General and Administrative (“SG&A”) Expenses
Consolidated SG&A expenses increased $21.5$63.2 million during the year ended December 31, 20162023 compared to 2015. Excluding the $9.9 million impact from movements2022. The increase in foreign exchange rates, consolidated SG&A expenses increased $31.4 million during the year ended December 31, 2016 compared to 2015. Higher SG&A expenseswas driven primarily by investments in sales capabilities in our iHM businesshigher trade and barter expense, variable bonus expense, and bad debt expense. These increases were partially offset by a decrease in SG&A expenses resulting from the sale of non-strategic U.S. outdoor markets in the first quarter of 2016.
Corporate Expenses
Corporate expenses increased $26.0 million during the year ended December 31, 2016 compared to 2015 primarily resulting from higher professional fees and higher expenses related to variable compensation plans, as well as higher employee health benefit costs. Excluding the $4.1 million impact from movements in foreign exchange rates, corporate expenses increased $30.1 million during the year ended December 31, 2016 compared to 2015.
Revenue and Efficiency Initiatives
Included in the amounts for direct operating expenses, SG&A and corporate expenses discussed above are expenses incurred in connection with our strategic revenue and efficiency initiatives. These costs consist primarily of severance related to workforce initiatives, consolidation of locations and positions, contract cancellation costs, consulting expenses, and other costs incurred in connection with improvingexecuting on our businesses. These costs are expected to provide benefits in future periods as the initiative results are realized.
Strategic revenuecost reduction initiatives and efficiency costs were $30.9 million during the year ended December 31, 2016. Of these expenses, $15.5 million was incurred by our iHM segment, $3.1 million was incurred by our Americas outdoor segment, $7.4 million was incurred by our International outdoor segment, $1.3 million was incurred by our Other category and $3.6 million was incurred by Corporate. $10.9 million of these costs are reported within direct operating expenses, $16.4 million are reported within SG&A and $3.6 million are reported within corporate expenses.
Strategic revenue and efficiency costs were $42.8 million during the year ended December 31, 2015. Of these expenses, $11.8 million was incurred by our iHM segment, $2.4 million was incurred by our Americas outdoor segment, $11.1 million was incurred by our International outdoor segment, $3.7 million was incurred by our Other segment and $13.8 million was incurred by Corporate. $14.0 million of these costs are reported within direct operating expenses, $15.0 million are reported within SG&A and $13.8 million are reported within corporate expenses.lower sales commissions.
Depreciation and Amortization
Depreciation and amortization decreased $38.8$17.2 million during 20162023 compared to 2015,2022, primarily as a result of a lower fixed asset base due to assets becoming fully depreciated or fully amortized,properties sold in 2022 in connection with our real estate optimization initiatives and the saleQ3 2023 tower sale-leaseback transaction described under “Sources of certain outdoor markets,Liquidity and Anticipated Cash Requirements” below, as well as the impact of movements in foreign exchange rates.lower amortization expense due to certain intangible assets being fully amortized.
Impairment Charges
Economic uncertainty due to inflation and higher interest rates since 2022 has resulted in, among other things, lower advertising spending by businesses. In addition, the economic uncertainty has had a significant impact on the trading values of our debt and equity securities for a sustained period. As a result, we performed an interim impairment test as of June 30, 2023 on our indefinite-lived FCC licenses and goodwill. We recorded a non-cash impairment charge of $959.1 million in the second quarter of 2023 to reduce the carrying values of our indefinite-lived FCC licenses and our goodwill to their estimated fair values. See Note 4, Property, Plant and Equipment, Intangible Assets and Goodwill, to the consolidated financial statements for a further description of the impairment charges.
We perform our annual impairment test on our goodwill and FCC licenses billboard permits, and other intangible assets as of July 1 of each year. In addition, we testNo impairment was required for our goodwill and FCC licenses as part of the 2023 annual impairment testing.
We recognized non-cash impairment charges of property, plant and equipment whenever events and circumstances indicate that depreciable assets might be impaired. As$302.1 million on our indefinite-lived FCC licenses during the year ended December 31, 2022 primarily as a result of these impairment tests, during 2016 we recorded impairment charges of $8.0 million related primarilyan increase in the discount rate used in our fair value calculations due to goodwill in one of our International outdoor businesses. During 2015 we recorded impairment charges of $21.6 million related to billboard permits in one Americas outdoor market. Please see Note 2higher market interest rates at that time compared to the Consolidated Financial Statements located inprior year. See above under “Impairment Charges” and Item 8, of this Annual Report on Form 10-KNote 4, Property, Plant and Equipment, Intangible Assets and Goodwill, for a further descriptiondiscussion of the impairment charges. No impairment charges were recorded for our goodwill for the year ended December 31, 2022.
Other Operating Income, Net
OtherIn addition, as part of our operating income was $353.6 millionexpense-savings initiatives, we have taken strategic actions to streamline our real estate footprint and related expenses, resulting in 2016, which primarily relatedimpairment charges due to the net gainwrite-down of $278.3 million on sale of nine non-strategic outdoor markets in the first quarter of 2016right-of-use assets and the net gain of $127.6 million on sale on our outdoor Australia business 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 Turkey business in the second quarter of 2016. In the first quarter of 2016, Americas outdoor sold nine non-strategic outdoor marketsrelated fixed assets, 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 income of $94.0 million in 2015 primarily related to the gain on the sale of radio towers which were subsequently leased back (see Note 2 to our Consolidated Financial Statements located in Item 8 of this Annual Report on Form 10-K).
Interest Expense
Interest expense increased $44.5 million during 2016 compared to 2015 due to higher interest rates on floating rate loans and new debt issuances. Please refer to “Sources of Capital” for additional discussion of debt issuances and exchanges. Our weighted average cost of debt during 2016 and 2015 was 8.5% and 8.5%, respectively.
Loss on Investments, Net
leasehold improvements. During the years ended December 31, 20162023 and 2015,2022, we recognized lossesnon-cash impairment charges of $12.9$6.0 million and $9.4 million, respectively, as a result of these cost-savings initiatives, primarily related to changes in sublease assumptions for certain operating leases previously determined to be subleased as part of strategic actions to streamline our real estate footprint.
Other Operating Expense, Net
Other operating expense, net of $4.4 million respectively, related to cost-method investments. The loss in the year ended December 31, 20162023 and $25.0 million in 2022, related primarily to a $14.5 million non-cash impairment recordednet book losses recognized on asset disposals in connection with our real estate optimization initiatives.
Interest Expense, Net
Interest expense, net increased $48.1 million during 2023 compared to 2022 primarily as a result of an other-than-temporary declineincrease in floating borrowing rates, partially offset by the valuelower outstanding aggregate principal of oneiHeartCommunications, Inc.’s 8.375% Senior Unsecured Notes due 2027 due to the repurchases of our cost investments.$533.6 million of the notes for $446.7 million in cash made during 2023 and 2022.
Equity in
Loss of Nonconsolidated Affiliateson Investments, net
During the years ended December 31, 20162023 and 2015,2022, we recognized lossesa loss on investments, net of $16.7$28.1 millionand $0.9$1.0 million, respectively, related to equity-method investments. The loss in the year ended December 31, 2016 related primarily to a $15.0 million non-cash impairment recorded in connection with an other-than-temporary declinechanges in the value of one of our equity investments.
Gain (loss) on Extinguishment of Debt
During the third quarteryear ended December 31, 2023, we recognized a gain on extinguishment of 2016, Broader Media, LLC, an indirect wholly-owned subsidiarydebt of $56.7 million in connection with the Company, repurchased approximately $383.0repurchase of $204.0 million aggregate principal amount of iHeartCommunications’ 10.0%iHeartCommunications, Inc.’s 8.375% Senior Unsecured Notes due 20182027 for an aggregate purchase price of approximately $222.2 million. In connection with this repurchase,$147.3 million in cash.
During the year ended December 31, 2022, we recognized a gain on extinguishment of $157.6 million.
Indebt of $30.2 million in connection with the first quarter 2015 prepaymentrepurchase of iHeartCommunications' Term Loan B facility and Term Loan C-asset sale facility, we recognized a loss$329.6 million aggregate principal amount of $2.2 million.
Other Income (Expense), Net
Other expense was $73.1iHeartCommunications, Inc.’s 8.375% Senior Unsecured Notes due 2027 for $299.4 million for 2016. Other income was $13.1 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.cash.
Income Tax ExpenseBenefit (Expense)
The effective tax rates for the years ended December 31, 2023 and 2022 were 5.4% and (1.8)%, respectively. The effective tax rate in 2023 was primarily impacted by the impairment charges to non-deductible goodwill as discussed in Note 4, Property, Plant and Equipment, Intangible Assets and Goodwill. The effective tax rate for 2022 was primarily impacted by the forecasted increase in valuation allowances against certain deferred tax assets related primarily to disallowed interest expense carryforwards due to uncertainty regarding the Company’s ability to utilize those assets in future periods.
Net Loss Attributable to the Company
Net loss attributable to the Company increased to $1,102.7 million during the year ended December 31, 2016 was 17.4% as2023 compared to (13.4)% forNet loss attributable to the Company of $264.7 million during the year ended December 31, 2015. The effective tax benefit rate for 20162022, mainly due to the non-cash impairment charges of $965.1 million recorded in 2023, primarily related to our goodwill and indefinite-lived intangible assets balance, an increase in non-cash impairment charges compared to the $311.5 million recorded in 2022, related to our indefinite-lived intangible asset balance.
Multiplatform Group Results
| | | | | | | | | | | | | | | | | |
(In thousands) | Year Ended December 31, | | % |
| 2023 | | 2022 | | Change |
Revenue | $ | 2,435,368 | | | $ | 2,597,190 | | | (6.2) | % |
| | | | | |
| | | | | |
Operating expenses(1) | 1,881,934 | | | 1,831,491 | | | 2.8 | % |
Segment Adjusted EBITDA | $ | 553,434 | | | $ | 765,699 | | | (27.7) | % |
Segment Adjusted EBITDA margin | 22.7 | % | | 29.5 | % | | |
(1) Operating expenses consist of Direct operating expenses and Selling, general and administrative expenses, excluding Restructuring expenses.
Revenue from our Multiplatform Group decreased $161.8 million compared to 2022, primarily as a result of lower broadcast revenue due to the challenging macroeconomic environment and a decline in political advertising as 2022 was impacteda mid-term election year, partially offset by the $43.3increases in trade and barter revenues. Broadcast revenue decreased $131.2 million, deferred tax benefit recordedor 7.0%, year-over-year, while Networks revenue decreased $36.8 million or 7.3% year-over-year. Revenue from Sponsorship and Events increased $2.4 million, or 1.3%, year-over-year.
Operating expenses increased $50.4 million, driven primarily by higher trade and barter expense in connection with the release of valuation allowanceincrease in France, which wastrade and barter revenues, bad debt expense, third-party broadcast costs, and variable bonus expense, partially offset by $54.7lower sales commissions and a decrease in costs as a result of our cost reduction initiatives.
Digital Audio Group Results
| | | | | | | | | | | | | | | | | |
(In thousands) | Year Ended December 31, | | % |
| 2023 | | 2022 | | Change |
Revenue | $ | 1,069,167 | | | $ | 1,021,824 | | | 4.6 | % |
| | | | | |
| | | | | |
Operating expenses(1) | 720,298 | | | 712,786 | | | 1.1 | % |
Segment Adjusted EBITDA | $ | 348,869 | | | $ | 309,038 | | | 12.9 | % |
Segment Adjusted EBITDA margin | 32.6 | % | | 30.2 | % | | |
(1) Operating expenses consist of Direct operating expenses and Selling, general and administrative expenses, excluding Restructuring expenses.
Revenue from our Digital Audio Group increased $47.3 million of tax expense attributablecompared to the sale of our outdoor business in Australia. Additionally, the 2016 effective tax benefit rate was impactedprior year, led by the $31.8Podcast revenue which increased $49.4 million, valuation allowance recorded against a portion of current period federal and state deferred tax assets due to the uncertainty of the ability to realize those assets in future periods.
The effective tax rate for 2015 was impacted by the $305.3 million valuation allowance recorded against our current period federal and state net operating losses due to the uncertainty of the ability to utilize those losses in future periods. The valuation allowance was recorded against the Company’s current period federal and state net operating losses due to the uncertainty of the ability to utilize these losses in future periods.
iHM Results of Operations
Our iHM operating results were as follows:
|
| | | | | | | | | | |
(In thousands) | Years Ended December 31, | | % |
| 2016 | | 2015 | | Change |
Revenue | $ | 3,403,040 |
| | $ | 3,284,320 |
| | 3.6 | % |
Direct operating expenses | 975,463 |
| | 972,937 |
| | 0.3 | % |
SG&A expenses | 1,102,998 |
| | 1,065,066 |
| | 3.6 | % |
Depreciation and amortization | 243,964 |
| | 240,207 |
| | 1.6 | % |
Operating income | $ | 1,080,615 |
| | $ | 1,006,110 |
| | 7.4 | % |
iHM revenue increased $118.7 million during 2016 compared to 2015. Growth in broadcast radio and digital advertising wasor 13.8%, year-over-year, driven primarily by political advertising revenues resultingincreased demand for podcasting from 2016 being a presidential election year. In addition, we had growth in our traffic and weather business, sponsorship and other revenues surrounding our events and trade and barter. Trade and barter includes the impact of marketing partnerships with our advertisers, on events, as well as higher trade and barter revenue. Digital, excluding Podcast revenue, recognizeddecreased $2.1 million year-over-year, primarily driven by a decrease in connection with advertising provided during the period in connection with investments made in certain non-public companies.COVID-19 related advertisers.
iHM direct operatingOperating expenses increased $2.5$7.5 million during 2016 compared to 2015 primarily driven by higher variable content costs, including digital profit sharing costs and programmingproduction costs, as well as higher theatertrade and event production costs. In addition, we incurred higher spending on strategic revenue and efficiency initiatives and lease expense was higher as a result of the sale and subsequent leaseback of broadcast communications tower sites in the second quarter of 2015. These costs were nearly offset by the $33.8 million benefit resulting from contract renegotiations completed in the third quarter. iHM SG&Abarter expenses, increased $37.9 million during 2016 compared to 2015 primarily due to investments in national and digital sales capabilities, higher promotion expense and higher variable compensation related to higher revenue.
Americas Outdoor 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 outdoor revenue decreased $70.6 million during 2016 compared to 2015. Excluding the $7.7 million impact from movements in foreign exchange rates, Americas outdoor 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 fromlower third-party digital billboards from new deployments and higher occupancy on existing digital billboards, as well as new airport contracts, and higher revenuescosts in Latin America.
Americas outdoor 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 outdoor 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 expensesconnection with COVID-19 related to new airport contracts. Americas outdoor 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 outdoor 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 Results of Operations
Our International outdoor 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 outdoor revenue decreased $33.2 million during 2016 compared to 2015. Excluding the $39.9 million impact from movements in foreign exchange rates, International outdoor 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 outdoor 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 outdoor 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 Australiaadvertisers and lower rent expense due to lower revenue in the United Kingdom as a resultdigital performance royalty fees.
Audio & Media Services Group Results
| | | | | | | | | | | | | | | | | |
(In thousands) | Year Ended December 31, | | % |
| 2023 | | 2022 | | Change |
Revenue | $ | 256,702 | | | $ | 304,302 | | | (15.6) | % |
| | | | | |
| | | | | |
Operating expenses(1) | 185,241 | | | 191,407 | | | (3.2) | % |
Segment Adjusted EBITDA | $ | 71,461 | | | $ | 112,895 | | | (36.7) | % |
Segment Adjusted EBITDA margin | 27.8 | % | | 37.1 | % | | |
(1) Operating expenses consist 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 outdoor 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 outdoor 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 directDirect operating expenses and SG&ASelling, general and administrative expenses, are $8.2excluding Restructuring expenses.
Revenue from our Audio & Media Services Group decreased $47.6 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 materialcompared 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 millionperiod 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 | $ | 6,241,516 |
| | $ | 6,318,533 |
| | (1.2)% |
Operating expenses: | | | | | |
Direct operating expenses (excludes depreciation and amortization) | 2,471,113 |
| | 2,540,035 |
| | (2.7)% |
Selling, general and administrative expenses (excludes depreciation and amortization) | 1,704,352 |
| | 1,680,938 |
| | 1.4% |
Corporate expenses (excludes depreciation and amortization) | 314,999 |
| | 320,931 |
| | (1.8)% |
Depreciation and amortization | 673,991 |
| | 710,898 |
| | (5.2)% |
Impairment charges | 21,631 |
| | 24,176 |
| | (10.5)% |
Other operating income, net | 94,001 |
| | 40,031 |
| | 134.8% |
Operating income | 1,149,431 |
| | 1,081,586 |
| | 6.3% |
Interest expense | 1,805,496 |
| | 1,741,596 |
| | |
Loss on investments, net | (4,421 | ) | | — |
| | |
Equity in earnings (loss) of nonconsolidated affiliates | (902 | ) | | (9,416 | ) | | |
Loss on extinguishment of debt | (2,201 | ) | | (43,347 | ) | | |
Other income, net | 13,056 |
| | 9,104 |
| | |
Loss before income taxes | (650,533 | ) | | (703,669 | ) | | |
Income tax expense | (86,957 | ) | | (58,489 | ) | | |
Consolidated net loss | (737,490 | ) | | (762,158 | ) | | |
Less amount attributable to noncontrolling interest | 17,131 |
| | 31,603 |
| | |
Net loss attributable to the Company | $ | (754,621 | ) | | $ | (793,761 | ) | | |
Consolidated Revenue
Consolidated revenue decreased $77.0 million during 2015 compared to 2014. Excluding the $229.0 million impact from movements in foreign exchange rates, consolidated revenue increased $152.0 million during 2015 compared to 2014. iHM revenue increased $122.8 million during 2015 compared to 2014 driven primarily by our core radio business, both broadcast and digital,
including the impact of marketing partnerships with our advertisers for live events and barter and trade revenue, partially offset by a decrease in political advertising revenues. Americas outdoor revenuerevenue.
Operating expenses decreased $1.6$6.2 million during 2015 compared to 2014. Excluding the $23.4 million impact from movements in foreign exchange rates, Americas outdoor revenue increased $21.8 million during 2015 compared to 2014 primarily driven by higher revenues from digital billboards and our Spectacolor business. International outdoor revenue decreased $153.4 million during 2015 compared to 2014. Excluding the $205.6 million impact from movements in foreign exchange rates, International outdoor revenue increased $52.2 million during 2015 compared to 2014 primarily driven by new contracts and the impact of sales initiatives. Other revenues decreased $48.8 million during 2015 compared to 2014 primarily as a result of lower political advertising revenuesvariable bonus expense.
Non-GAAP Financial Measures
Reconciliations of Operating Income to Adjusted EBITDA
| | | | | | | | | | | | | | | | | | | |
(In thousands) | Year Ended December 31, | | | | | | |
| 2023 | | 2022 | | | | | | | | |
Operating income (loss) | $ | (797,311) | | | $ | 56,860 | | | | | | | | | |
Depreciation and amortization | 428,483 | | | 445,664 | | | | | | | | | |
Impairment charges | 965,087 | | | 311,489 | | | | | | | | | |
Other operating expense, net | 4,361 | | | 24,998 | | | | | | | | | |
Share-based compensation expense | 35,625 | | | 35,457 | | | | | | | | | |
Restructuring expenses | 60,353 | | | 75,821 | | | | | | | | | |
| | | | | | | | | | | |
Adjusted EBITDA(1) | $ | 696,598 | | | $ | 950,289 | | | | | | | | | |
Reconciliations of Net Loss to EBITDA and lower contract termination fees earned by our media representation business.Adjusted EBITDA
Consolidated | | | | | | | | | | | | | |
(In thousands) | Year Ended December 31, |
| 2023 | | 2022 | | |
Net loss | $ | (1,100,339) | | | $ | (262,670) | | | |
Income tax (benefit) expense | (62,338) | | | 4,719 | | | |
Interest expense, net | 389,775 | | | 341,674 | | | |
Depreciation and amortization | 428,483 | | | 445,664 | | | |
EBITDA | $ | (344,419) | | | $ | 529,387 | | | |
Loss on investments, net | 28,130 | | | 1,045 | | | |
Gain on extinguishment of debt | (56,724) | | | (30,214) | | | |
Other expense, net | 655 | | | 2,295 | | | |
Equity in loss of nonconsolidated affiliates | 3,530 | | | 11 | | | |
Impairment charges | 965,087 | | | 311,489 | | | |
Other operating expense, net | 4,361 | | | 24,998 | | | |
Share-based compensation expense | 35,625 | | | 35,457 | | | |
Restructuring expenses | 60,353 | | | 75,821 | | | |
| | | | | |
Adjusted EBITDA(1) | $ | 696,598 | | | $ | 950,289 | | | |
(1)We define Adjusted EBITDA as consolidated Operating income (loss) adjusted to exclude restructuring expenses included within Direct Operating Expenses
Consolidated direct operating expenses decreased $68.9 million during 2015 compared to 2014. Excluding the $146.6 million impact from movements in foreign exchange rates, consolidated direct operating expenses increased $77.7 million during 2015 compared to 2014. iHM direct operating expenses increased $40.8 million during 2015 compared to 2014, primarily due to higher music license and performance royalties, higher lease expense as a result of the sale and subsequent leaseback of broadcast communication tower sites and higher compensation related to radio programming. Americas outdoor 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 outdoor 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 outdoor 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 outdoor 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, increased $23.4 million during 2015 compared to 2014. Excluding the $51.1 million impact from movements in foreign exchange rates, consolidatedand share-based compensation expenses included within SG&A expenses, increased $74.5 million during 2015 compared to 2014. iHM SG&A expenses increased $51.7 million during 2015 compared to 2014 primarily due to higher barter and trade expenses, higher sales expense, including commissions related to higher revenue and higher bad debt expense. Americas outdoor SG&A expenses decreased $0.4 million during 2015 compared to 2014. Excluding the $6.0 million impact from movements in foreign exchange rates, Americas outdoor SG&A expenses increased $5.6 million during 2015 compared to 2014 primarily in Latin America. International outdoor 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 outdoor 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.
Corporate Expenses
Corporate expenses decreased $5.9 million during 2015 compared to 2014. Excluding the $3.5 million impact from movements in foreign exchange rates, corporate expenses decreased $2.4 million during 2015 compared to 2014 primarily due to a $20.2 million decrease in spending related to our strategic revenue and efficiency initiatives. This was partially offset by the impact of an $8.5 million insurance recovery related to stockholder litigation recognized in 2014, higher variable compensation expense related to sales growth and higher legal fees related to the negotiation of digital royalty rates before the Copyright Royalty Board.
Revenue and Efficiency Initiatives
Included in the amounts for direct operating expenses, SG&A and corporate expenses discussed above are expenses of $42.8 million incurred in 2015 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 consolidation of locations and positions, severance related to workforce initiatives, 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 the strategic revenue and efficiency costs for 2015, $14.0 million are reported within direct operating expenses, $15.0 million are reported within SG&A and $13.8 million are reported within corporate expense. In 2014, such costs totaled $13.0 million, $23.7 million, and $34.0 million, respectively.
Depreciation and Amortization
Depreciation and amortization decreased $36.9 million during 2015 compared to 2014, primarily due to assets becoming fully depreciated or fully amortized as well as the impactfollowing line items presented in our Statements of movements in foreign exchange rates.
Operations: Depreciation and amortization, Impairment Charges
We performed our annual impairment test on our goodwill, FCC licenses, billboard permits,charges 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 2015 we recorded impairment charges of $21.6 million related to billboard permits in one Americas outdoor market. During 2014, we recognized impairment charges of $24.2 million primarily related to the impairment of FCC licenses in eight markets due to changes in the discount rates and weighted-average cost of capital for those markets. Please see Note 2 to the Consolidated Financial Statements located in Item 8 of this Annual Report on Form 10-K for a further description of the impairment charges.
Other Operating Income, Net
Other operating income of $94.0 million in 2015 primarily relatedexpense, net. Alternatively, Adjusted EBITDA is calculated as Net loss, adjusted to the gain on the sale of radio towers which were subsequently leased back.
Other operating income of $40.0 million in 2014 primarily related to a non-cash gain of $43.5 million recognized on the sale of non-core radio stations in exchange for a portfolio of 29 stations in five markets.
Interest Expense
exclude Income tax (benefit) expense, Interest expense, increased $63.9 million during 2015 compared to 2014 primarily due to the weighted average costnet, Depreciation and amortization, Loss on investments, net, Gain on extinguishment of debt, increasing due to debt refinancing transactions that resulted in higher interest rates. Please refer to "Sources of Capital" for additional discussion of debt issuances and exchanges. Our weighted average cost of debt during 2015 and 2014 was 8.5% and 8.1%, respectively.
Loss on Investments, Net
In 2015, we recognized a loss of $5.0 million related to cost method investments.
Equity in Loss of Nonconsolidated Affiliates
Other expense, net, Equity in loss of nonconsolidated affiliates, was $0.9 million for 2015.
Equity in loss of nonconsolidated affiliates of $9.4 million during 2014 primarily related to the $4.5 million gain on the sale of our 50% interest in Buspak, offset by the sale of our 50% interest in ARN, which included a loss on the sale of $2.4 million and $11.5 million of foreign exchange losses that were reclassified from accumulated other comprehensive income at the date of the sale.
Loss on Extinguishment of Debt
In connection with the first quarter 2015 prepayment of iHeartCommunications' Term Loan B facility and Term Loan C-asset sale facility, we recognized a loss of $2.2 million.
During the fourth quarter of 2014, CC Finco, LLC ("CC Finco"), an indirect wholly-owned subsidiary of ours, repurchased $57.1 million aggregate principal amount of iHeartCommunications' 5.5% Senior Notes due 2016 and $120.0 million aggregate principal amount of iHeartCommunications' 10.0% Senior Notes due 2018 for a total of $159.3 million, including accrued interest, through open market purchases. In connection with these transactions, we recognized a net, gain of $12.9 million.
In September 2014, iHeartCommunications prepaid $974.9 million of the loans outstanding under its Term Loan B facility and $16.1 million of the loans outstanding under its Term Loan C-asset sale facility. In connection with these transactions, we recognized a loss of $4.8 million.
During June 2014, iHeartCommunications redeemed $567.1 million aggregate principal amount of its outstanding 5.5% Senior Notes due 2014 and $241.0 million aggregate principal amount of its outstanding 4.9% Senior Notes due 2015. In connection with these transactions, we recognized a loss of $47.5 million.
During the first quarter of 2014, CC Finco repurchased $52.9 million aggregate principal amount of iHeartCommunications' outstanding 5.5% Senior Notes due 2014 and $9.0 million aggregate principal amount of iHeartCommunications' outstanding 4.9% Senior Notes due 2015 for a total of $63.1 million, including accrued interest, through open market purchases. In connection with these transactions, we recognized a loss of $3.9 million.
Impairment charges, Other Income (Expense), Net
Other income of $13.1 million and $9.1 million for 2015 and 2014, respectively, primarily related to gains on foreign exchange transactions.
Income Tax Expense
The effective tax rate for the year ended December 31, 2015 was (13.4%) as compared to (8.3%) for the year ended December 31, 2014. The effective tax rate for 2015 was impacted by the $305.3 million valuation allowance recorded against our current period federal and stateoperating expense, net, operating losses due to the uncertainty of the ability to utilize those losses in future periods. The valuation allowance was recorded against the Company's current period federal and state net operating losses due to the uncertainty of the ability to utilize these losses in future periods.
The effective tax rate for the year ended December 31, 2014 was primarily impacted by the $339.8 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. This expense was partially offset by $28.9 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.
iHM Results of Operations
Our iHM operating results were as follows:
|
| | | | | | | | | |
(In thousands) | Years Ended December 31, | | % |
| 2015 | | 2014 | | Change |
Revenue | $ | 3,284,320 |
| | $ | 3,161,503 |
| | 3.9% |
Direct operating expenses | 972,937 |
| | 932,172 |
| | 4.4% |
SG&A expenses | 1,065,066 |
| | 1,013,407 |
| | 5.1% |
Depreciation and amortization | 240,207 |
| | 240,846 |
| | (0.3)% |
Operating income | $ | 1,006,110 |
| | $ | 975,078 |
| | 3.2% |
iHM revenue increased $122.8 million during 2015 compared to 2014 driven primarily by increases in our core radio business, both broadcast and digital, including the impact of marketing partnerships with our advertisers for live events, such as the iHeartRadio Music Festival, the iHeartRadio Music Awards, the iHeart Country Festival and iHeartRadio Jingle Balls concert tour, and barter and trade revenue. Revenue also increased for our traffic and weather business, as well as growth in our syndication business driven by growth in our news/talk format. Partially offsetting these increases were decreases in political advertising revenues as a result of 2015 not being a congressional election year.
iHM direct operating expenses increased $40.8 million during 2015 compared to 2014, primarily due to higher music license and performance royalties, higher lease expense as a result of the sale and subsequent leaseback of radio tower sites and higher radio programming costs. iHM SG&A expenses increased $51.7 million during 2015 compared to 2014 primarily due to higher barter and trade expenses, higher bad debtShare-based compensation expense, and investments in national and digital sales capabilities, partially offset by lower advertising and promotion expense and lower legal expense. Strategic revenue and efficiency spending included in SG&Arestructuring expenses. Restructuring expenses decreased $3.9 million compared to the same period last year.
Americas Outdoor Results of Operations
Our Americas outdoor 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 outdoor revenue decreased $1.6 million during 2015 compared to 2014. Excluding the $23.4 million impact from movements in foreign exchange rates, Americas outdoor revenue increased $21.8 million during 2015 compared to 2014
driven primarily by an increase in revenues from 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.
Americas outdoor direct operatinginclude expenses decreased $8.4 million during 2015 compared to 2014. Excluding the $13.1 million impact from movements in foreign exchange rates, Americas outdoor 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. Americas outdoor SG&A expenses decreased $0.4 million during 2015 compared to 2014. Excluding the $6.0 million impact from movements in foreign exchange rates, Americas outdoor SG&A expenses increased $5.6 million during 2015 compared to 2014 primarily due to higher expenses in Latin America.
International Outdoor Results of Operations
Our International outdoor 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 outdoor revenue decreased $153.4 million during 2015 compared to 2014. Excluding the $205.6 million impact from movements in foreign exchange rates, International outdoor 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.
International outdoor 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 outdoor 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 site lease termination fees on lower-margin boards incurred in connection with strategic revenuecost-saving initiatives, as well as certain expenses, which, in the view of management, are outside the ordinary course of business or otherwise not representative of the Company's operations during a normal business cycle. We use Adjusted EBITDA, among other measures, to evaluate the Company’s operating performance. This measure is among the primary measures used by management for the planning and efficiency initiatives. International outdoor SG&A expenses decreased $16.6 million during 2015forecasting of future periods, as well as for measuring performance for compensation of executives and other members of management. We believe this measure is an important indicator of our operational strength and performance of our business because it provides a link between operational performance and operating income. It is also a primary measure used by management in evaluating companies as potential acquisition targets. We believe the presentation of this measure is relevant and useful for investors because it allows investors to view performance in a manner similar to the method used by management. We believe it helps improve investors’ ability to understand our operating performance and makes it easier to compare our results with other companies that have different capital structures or tax rates. In addition, we believe this measure is also among the primary measures used externally by our investors, analysts and peers in our industry for purposes of valuation and comparing our operating performance to other companies in our industry. Since Adjusted EBITDA is not a measure calculated in accordance with GAAP, it should not be considered in isolation of, or as a substitute for, operating income (loss) or net loss as an indicator of operating performance and may not be comparable to similarly titled measures employed by other companies. Adjusted EBITDA is not necessarily a measure of our ability to fund our cash
needs. Because it excludes certain financial information compared with operating income and compared with consolidated net loss, the most directly comparable GAAP financial measures, users of this financial information should consider the types of events and transactions which are excluded.
Reconciliations of Cash provided by operating activities to 2014. ExcludingFree cash flow
| | | | | | | | | | | | | |
(In thousands) | Year Ended December 31, |
| 2023 | | 2022 | | |
Cash provided by operating activities | $ | 213,062 | | | $ | 420,075 | | | |
Purchases of property, plant and equipment | (102,670) | | | (160,969) | | | |
Free cash flow(1) | $ | 110,392 | | | $ | 259,106 | | | |
(1)We define Free cash flow as Cash provided by operating activities less capital expenditures, which is disclosed as Purchases of property, plant and equipment in the $45.0 million impactCompany's Consolidated Statements of Cash Flows. We use Free Cash Flow, among other measures, to evaluate the Company’s liquidity and its ability to generate cash flow. We believe that Free Cash Flow is meaningful to investors because we review cash flows generated from movements in foreign exchange rates, International outdoor SG&A expenses increased $28.4 million during 2015 compared to 2014 primarilyoperations after taking into consideration capital expenditures due to higher compensation expense, including commissions in connection with higher revenues.
Depreciation and amortization decreased $32.1 million. Excluding the $19.5 million impact from movements in foreign exchange rates, depreciation and amortization decreased $12.6 million primarily due to assets becoming fully depreciated or fully amortized.
Also included in International Outdoor direct operating expenses and SG&A expensesfact that these expenditures 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 for our Netherlands subsidiary reported in prior years. Such corrections are not considered to be materiala necessary component of ongoing operations. In addition, we believe that Free Cash Flow helps improve investors' ability to the current yearcompare our liquidity with other companies. Since Free Cash Flow is not a measure calculated in accordance with GAAP, it should not be considered in isolation of, or prior year financial results.as a substitute for, Cash provided by operating activities and may not be comparable to similarly titled measures employed by other companies. Free Cash Flow is not necessarily a measure of our ability to fund our cash needs.
Reconciliation of Segment Operating Income to Consolidated Operating Income
|
| | | | | | | | | | | |
(In thousands) | Years Ended December 31, |
| 2016 | | 2015 | | 2014 |
iHM | $ | 1,080,615 |
| | $ | 1,006,110 |
| | $ | 975,078 |
|
Americas outdoor advertising | 297,034 |
| | 313,871 |
| | 307,283 |
|
International outdoor advertising | 116,178 |
| | 95,353 |
| | 106,498 |
|
Other | 43,411 |
| | 19,314 |
| | 36,359 |
|
Impairment charges | (8,000 | ) | | (21,631 | ) | | (24,176 | ) |
Corporate expense (1) | (378,103 | ) | | (357,587 | ) | | (359,487 | ) |
Other operating income, net | 353,556 |
| | 94,001 |
| | 40,031 |
|
Consolidated operating income | $ | 1,504,691 |
| | $ | 1,149,431 |
| | $ | 1,081,586 |
|
| |
(1) | Corporate expenses include expenses related to iHM, Americas outdoor, International outdoor and our Other category, as well as overall executive, administrative and support functions. |
Share-Based Compensation Expense
On April 21, 2021, our 2021 Long-Term Incentive Award Plan (the "2021 Plan") was approved by stockholders and replaced the prior plan. On February 23, 2023, our Board adopted an amendment to the 2021 Plan, which provided for an increase to the shares authorized for issuance under the 2021 Plan. At our 2023 Annual Meeting of Stockholders, the amendment was approved. Pursuant to our 2021 Plan, we may grant restricted stock units covering, and options to purchase, shares of the Company's Class A common stock to certain key individuals.
Share-based compensation expenses are recorded in corporatethe statement of comprehensive loss as Selling, general and administrative expenses and were $13.1 million, $10.9$35.6 million and $10.7$35.5 million for the years ended December 31, 2016, 20152023 and 2014,2022, respectively.
As of December 31, 2016,2023 there was $21.0$50.8 million of unrecognized compensation cost net of estimated forfeitures, related to unvested share-based compensation arrangements that will vest based on service conditions.arrangements. This cost is expected to be recognized over a weighted average period of approximately three1.9 years. In addition, as of December 31, 2016, there was $26.4 million of unrecognized compensation cost, net of estimated forfeitures, 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.See Note 9, Stockholders' Equity, for more information.
LIQUIDITY AND CAPITAL RESOURCES
Cash Flows
The following discussion highlights cash flow activities during the years ended December 31, 2016, 2015periods presented:
| | | | | | | | | | | |
(In thousands) | Year Ended December 31, |
| 2023 | | 2022 |
Cash provided by (used for): | | | |
Operating activities | $ | 213,062 | | | $ | 420,075 | |
Investing activities | (51,334) | | | (129,226) | |
Financing activities | (152,158) | | | (306,108) | |
Free Cash Flow(1) | 110,392 | | | 259,106 | |
(1) For a definition of Free cash flow and 2014:
|
| | | | | | | | | | | |
(In thousands) | Years Ended December 31, |
| 2016 | | 2015 | | 2014 |
Cash provided by (used for): | | | | | |
Operating activities | $ | (13,982 | ) | | $ | (77,304 | ) | | $ | 245,116 |
|
Investing activities | $ | 510,915 |
| | $ | 30,234 |
| | $ | (88,682 | ) |
Financing activities | $ | (418,231 | ) | | $ | 377,410 |
| | $ | (398,001 | ) |
a reconciliation to Cash provided by operating activities, the most closely comparable GAAP measure, please see “Reconciliation of Cash provided by operating activities to Free cash flow” in this MD&A.Operating Activities
2016
Cash used for operating activities was $14.0 million in 2016 compared to $77.3 million of cash used for operating activities in 2015. Our consolidated net loss in 2016 and 2015 included non-cash items of $195.0 million and $700.7 million, respectively. 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, loss on investments, equity in loss of nonconsolidated affiliates, (gain) loss on extinguishment of debt, and other reconciling items, net as presented on the face of the consolidated statement of cash flows. The decrease in cash used for operating activities is primarily attributed to changes in working capital balances, particularly accounts receivable, which were driven primarily by improved collections. Cash paid for interest was $77.8 million higher in 2016 compared to the prior year due to the timing of accrued interest payments and higher interest rates as a result of financing transactions.
2015
Cash used for operating activities was $77.3 million in 2015 compared to $245.1 million of cash provided from operating activities in 2014. Our consolidated net loss in 2015 and 2014 included non-cash items of $700.7 million and $877.5 million, respectively. 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. The increase in cash used for operating activities is primarily attributed to an increase of $146.1 million of cash interest payments in 2015 compared to 2014, as well as changes in working capital balances, particularly accounts receivable, which were driven primarily by an increase in revenues and slower collections, as well as prepaid and other current assets. Cash paid for interest was higher in 2015 compared to the prior year due to the timing of accrued interest payments and higher interest rates as a result of refinancing transactions.
2014
Cash provided by operating activities was $213.1 million in 2014 was $245.1 million2023 compared to $212.9$420.1 million of cash provided by operating activities in 2013. Our consolidated net loss included $877.5 million of non-cash items in 2014. Our consolidated net loss in 2013 included $782.5 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, 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 interest2022. The decrease was $2.6 million lower in 2014 compared to the prior yearprimarily due to thea decrease in broadcast radio revenue due to a more challenging macroeconomic environment and a decrease in political revenue as 2022 was a mid-term election year, as well as higher interest expense due to an increase in borrowing rates, and timing of accrued interest payments from refinancing transactions.
Investing Activities
2016
Cash provided by investing activities of $510.9 million in 2016 primarily reflected 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 of $592.3 million in cash and certain advertising assets in Florida, and the sale of our outdoor business in Australia for $195.7 million, net of cash retained by the purchaser and closing costs. Those sale proceedspayments. These impacts were partially offset by $314.7lower bonus payments in 2023 compared to 2022.
Investing Activities
Cash used for investing activities of $51.3 million in 2023 primarily reflects $102.7 million in cash used for capital expenditures. We spent $73.2$58.0 million for capital expenditures in our iHMMultiplatform Group segment primarily related to leasehold improvementsour real estate optimization initiatives and IT infrastructure, $81.4software purchases, $23.2 million in our Americas outdoorDigital Audio Group segment primarily related to the construction of new advertising structures such as digital displays, $143.8IT infrastructure, $7.4 million in our International outdoorAudio & Media Services Group segment, primarily related to street furniture advertising structures, $2.5software, and $14.1 million in our Other category and $13.8 million by Corporate primarily related to equipment and software.
2015
Cash providedsoftware purchases. These were offset by investing activities of $30.2 million in 2015 primarily reflectedthe proceeds of $369.9 million from the saledisposal of broadcasting towers andassets, which mainly consists of $45.3 million related property and equipment, as well as proceeds of $34.3 million from the sale of our San Antonio office buildings, partially offset by closing costs incurred in relation to the sale of broadcasting towers of $10.0 million.broadcast tower sites and related assets. We are leasing back a portion ofspace on the radiobroadcast towers and related property and equipment, as well as the San Antonio office buildings,assets under long-term operating leases. Those sale proceeds were partially offset by $296.4 millionRefer to Note 3 - Leases and Note 4 - Property, Plant and Equipment, Intangible Assets and Goodwill for more information. Cash used for capital expenditures and $85.8investing activities in 2023 includes $12.7 million used to purchase businesses, investments and other operating assets. We spent $63.8 million for capital expenditures in our iHM segment primarilyof cash paid related to leasehold improvements and IT infrastructure, $82.2 millionassets acquired in our Americas outdoor segment primarily related to the constructionfourth quarter of new advertising structures such as digital displays, $132.6 million in our International outdoor segment primarily related to street furniture advertising and digital billboard structures, $2.0 million in our Other category and $15.8 million by Corporate primarily related to equipment and software. 2022.
2014
Cash used for investing activities of $88.7$129.2 million in 20142022 primarily reflectedreflects $161.0 million in cash used for capital expenditures of $318.2 million, partially offset by proceeds of $236.6 million primarily from the sale of our 50% interest in ARN and the sale of our 50% interest in Buspak.expenditures. We spent $53.9$119.6 million for capital expenditures in our iHMMultiplatform Group segment, primarily related to leasehold improvements and IT infrastructure, $109.7our real estate optimization initiatives, $21.3 million in our Americas outdoorDigital Audio Group segment, primarily related to the construction of new advertising structures such as digital displays, $117.5IT infrastructure, $8.2 million in our International outdoorAudio & Media Services Group segment, primarily related to billboardsoftware and street furniture advertising structures, $2.2$11.9 million in our Other category, and $34.9 million by Corporate primarily related to equipment and software. software purchases. Cash used for investing activities was partially offset by proceeds from the sale of certain properties related to our real estate optimization initiatives.
Financing Activities
2016
Cash used for financing activities totaled $152.2 million in 2023 primarily due to the 2023 repurchases of $204.0 million aggregate principal amount of iHeartCommunications, Inc.'s 8.375% Senior Unsecured Notes due 2027 for $147.3 million in cash.
Cash used for financing activities of $418.2$306.1 million in 20162022 primarily resulted fromrelated to the purchase2022 repurchases of iHeartCommunications' 10.0% Senior Notes due 2018 for an aggregate purchase price of $222.2 million, the payment at maturity of $192.9 million of 5.5% Senior Notes in December 2016, other payments on long-term debt and dividends paid to non-controlling interests, partially offset by net draws under iHeartCommunications' receivables based credit facility of $100.0 million.
2015
Cash provided by financing activities of $377.4 million in 2015 primarily resulted from net draws under iHeartCommunications' receivables based credit facility of $230.0 million, the net effect of the proceeds from the issuance of $950.0 million of 10.625% Priority Guarantee Notes due 2023 and proceeds from the issuance by CCIBV of $225.0 million of 8.75% Senior Notes due 2020, offset by the prepayment at par of $916.1 million of the loans outstanding under our term loan B facility, $15.2 million of the loans outstanding under our term loan C-asset sale facility and cash paid of $42.6 million to purchase CCOH’s Class A common stock.
2014
Cash used for financing activities of $398.0 million in 2014 primarily reflected payments on long-term debt and the payment by CCOH of a dividend to CCOH stockholders, partially offset by proceeds from the issuance of long-term debt. iHeartCommunications received cash proceeds from the issuance by CCU Escrow Corporation of 10% Senior Notes due 2018 ($850.0 million in aggregate principal amount), the sale by a subsidiary of iHeartCommunications of 14% Senior Notes due 2021 to private purchasers ($227.0 million in aggregate principal amount) and the issuance to private purchasers of 9% Priority Guarantee Notes due 2022 ($1,000.0 million in aggregate principal amount). This was partially offset by the redemption of $567.1 million principal amount outstanding of iHeartCommunications' 5.5% Senior Notes due 2014 (including $158.5 million principal amount of the notes held by a subsidiary of the Company) and $241.0 million principal amount outstanding of iHeartCommunications' 4.9% Senior Notes due 2015, the repayment of the full $247.0 million principal amount outstanding under iHeartCommunications' receivables-based credit facility, and the prepayment of $974.9$329.6 million aggregate principal amount of the Term B facilityiHeartCommunications, Inc.'s 8.375% Senior Unsecured Notes due 20162027 for $299.4 million in cash.
Sources of Liquidity and $16.1 million aggregate principal amount of the Term loan C facility due 2016. In addition, during 2014, CC Finco repurchased $239.0 million aggregate principal amount of notes, for a total purchase price of $222.4 million, including accrued interest.
Anticipated Cash Requirements
Our primary sources of liquidity are cash on hand, which consisted of cash flowand cash equivalents of $346.4 million as of December 31, 2023, cash flows from operations and borrowing capacity under iHeartCommunications' domestic receivables basedour $450.0 million senior secured asset-based revolving credit facility subject to certain limitations contained in iHeartCommunications' material financing agreements and cash from liquidity-generating transactions.entered into on May 17, 2022 (the "ABL Facility"). As of December 31, 2016, we2023, iHeartCommunications had $845.0no amounts outstanding under the ABL Facility, a facility size of $450.0 million of cash on our balance sheet, including $542.0and $24.3 million of cash held by our subsidiary, CCOH. Included in the cash held by CCOH is $180.1 million of cash held outside the U.S. It is our policy to permanently reinvest the earnings of our non-U.S. subsidiaries as these earnings are generally redeployed in those jurisdictions for operating needs and continued functioning of their businesses. We have the ability and intent to indefinitely reinvest the undistributed earnings of consolidated subsidiaries based outside of the United States. If any excess cash held by our foreign subsidiaries were needed to fund operations in the United States, we could presently repatriate available funds without a requirement to accrue or pay U.S. taxes. This is a result of significant 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. As of December 31, 2016, we had a borrowing base of $480.4 million under iHeartCommunications' receivables based credit facility, had $330.0 million of outstanding borrowings and had $36.8 million of outstanding letters of credit, resulting in $113.6$425.7 million of excessborrowing base availability. However,Together with our cash balance of $346.4 million as of December 31, 2023 and our borrowing capacity under the ABL Facility, our total available liquidity1 was approximately $772.1 million.
In September 2023, we sold 122 of our broadcast tower sites and related assets for net proceeds of $45.3 million. We simultaneously leased back space on 121 of the broadcast towers and related assets under long-term operating leases. We intend to use the proceeds from this transaction to fund working capital needs and for general corporate purposes.
We regularly evaluate the impact of economic conditions on our business. A challenging macroeconomic environment has led to market uncertainty which negatively impacted our 2023 revenue and cash flows. For the year ended December 31, 2023, our revenues decreased compared to the year ended December 31, 2022 due to the decrease in broadcast radio revenue driven by market uncertainty from the challenging macroeconomic environment, among other factors discussed in the Results of Operations section of the MD&A. Although we cannot predict future economic conditions or the impact of any incrementalpotential contraction of economic growth on our business, we believe that we have sufficient liquidity to continue to fund our operations for at least the next twelve months.
We are a party to many contractual obligations involving commitments to make payments to third parties. These obligations impact our short-term and long-term liquidity and capital resource needs. Certain contractual obligations are reflected on the Consolidated Balance Sheet as of December 31, 2023, while others are considered future commitments. Our contractual obligations primarily consist of long-term debt and related interest payments, commitments under non-cancelable operating lease agreements, and employment and talent contracts. In addition to our contractual obligations, we expect that our primary anticipated uses of liquidity in 2024 will be to fund our working capital, make interest and tax payments, fund capital expenditures, make voluntary debt repayments and pursue other strategic opportunities, and maintain operations.
On June 15, 2023, iHeartCommunications, Inc. entered into an amendment to the credit agreement governing its term loan credit facilities (the "Term Loan Facility"). The amendment replaces the prior Eurocurrency interest rate, based upon LIBOR, with the Secured Overnight Financing Rate (“SOFR”) successor rate plus a SOFR adjustment as specified in the credit agreement. The Term Loan Facility margins remain the same with the Term Loan Facility due 2026 containing margins of 3.00% for Term SOFR Loans (as defined in the credit agreement) and 2.00% for Base Rate Loans (as defined in the credit agreement), and the Incremental Term Loan Facility due 2026 containing margins of 3.25% for Term SOFR Loans with a floor of 0.50% and 2.25% for Base Rate Loans with a floor of 1.50%.
Assuming the level of borrowings under iHeartCommunications' receivables based credit facility may be further limitedand interest rates at December 31, 2023, we anticipate that we will have approximately $391.0 million of cash interest payments in 2024 compared to $392.7 million of cash interest payments in 2023, due to the lower outstanding debt balance related to the note repurchases conducted in 2023, largely offset by the terms containedincrease in iHeartCommunications' material financing agreements.
Since the beginning of 2016, we successfully completed several transactions that hadfloating interest rates during 2023. Future increases in interest rates could have a positivesignificant impact on our liquidity. In the first quarter of 2016, we received $196.3 million ascash interest payments. For a dividend from CCOH funded with the proceedsdescription of the December 2015 issuanceCompany's future maturities of 8.75% Senior Notes due 2020 by Clear Channel International B.V. (“CCIBV”)long-term debt, see Note 6, Long-Term Debt, an indirect subsidiaryand for a description of the CompanyCompany's non-cancelable operating lease agreements, see Note 7, Commitments and of CCOH, and $486.5 million as a dividend from CCOH ($186.5 million net of iHeartCommunications' concurrent repayment of the Revolving Promissory Note) funded with the proceeds of a $300.0 million repayment under the Revolving Promissory note and the sale of CCOH's outdoor business in non-strategic Americas outdoor markets. During the fourth quarter of 2016, CCOH sold its outdoor business in Australia forContingencies.
We believe that our cash proceeds of $195.7 million, net of cash retained by the purchaser and closing costs and we incurred $100.0 million of additional borrowings under our receivables based credit facility. On February 9, 2017, CCOH 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. We received on February 23, 2017 89.9% of the dividend or approximately $254.0
million, with the remaining 10.1% or approximately $28.5 million paid to public stockholders of CCOH. These transactions improved our liquidity position in the short term. We are currently exploring, and expect to continue to explore, a variety of other transactions to provide us with additional liquidity. We cannot assure you that we will enter into or consummate any such liquidity-generating transactions, or that such transactions will provide sufficient cash to satisfy our liquidity needs, and any such transactions, if consummated, could adversely affect us in other ways. Future liquidity-generating transactions could have the effect of further increasing our annual cash interest payment obligations, reducingbalance, our cash flow from operations or reducing cashand availability under our ABL Facility provide us with sufficient liquidity to fund our core operations, maintain key personnel and meet our other material obligations for at least the next twelve months. We acknowledge the challenges posed by the market uncertainty as a result of global economic weakness, the recent slowdown in economic activity, rising interest rates, historically high inflation and other macroeconomic trends, however, we remain confident in our business, our employees and our strategy. Further, we believe our available forliquidity will allow us to fund capital expenditures and other business initiatives.
Our primary usesobligations and make interest payments on our long-term debt for at least the next twelve months. If these sources of liquidity areneed to fund our working capital, debt service, capital expenditures and other obligations. At December 31, 2016, we had debt maturities totaling $343.5 million, $559.1 million and $8,369.0 million in 2017, 2018 and 2019, respectively. On February 7, 2017, we exchanged $234.9 million of our 10.0% Senior Notes due 2018, net of $241.4 million of such notes held by our subsidiaries, for $234.9 million principal amount of newly-issued 11.25% Priority Guarantee Notes due 2021. A substantial amount of ourbe augmented, additional cash requirements are forwould likely be financed through the issuance of debt service obligations.or equity securities; however, there can be no assurances that we will be able to obtain additional debt or equity financing on acceptable terms or at all in the future.
We frequently evaluate strategic opportunities. During the year ended December 31, 2016,2023, we spent $2,081.3 millionconducted repurchases of cash on payments of principal and interest on our debt, net of facility draws and proceeds received, compared to $1,219.5 million in the year ended December 31, 2015. We anticipate having approximately $1.7 billion of cash interest payment obligations in 2017, compared to $1.8 billion of cash interest payments in 2016. Our significant interest payment obligations reduce our financial flexibility, make us more vulnerable to changes in operating performance and economic downturns, reduce our liquidity over time and could negatively affect iHeartCommunications' ability to obtain additional financing in the future.
While we have been successful in accessing the capital markets on terms and in amounts adequate to refinance our indebtedness and meet our liquidity needs in the past, there can be no assurance that refinancing 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. Even if refinancing alternatives are available to us, we may not find them suitable or at comparable interest rates to the indebtedness being refinanced, and our annual cash interest payment obligations could increase further. In addition, the terms of our existing or future debt agreements may restrict us from securing refinancing on terms that are available to us at that time. If we are unable to continue to obtain sources of refinancing or generate sufficient cash through our operations and liquidity-generating transactions, we could face substantial liquidity problems, which could have a material adverse effect on our financial condition and on our ability to meet iHeartCommunications' obligations.
On July 15, 2016, Broader Media, LLC, our indirect wholly-owned subsidiary, repurchased approximately $383.0$204.0 million aggregate principal amount of iHeartCommunications' 10.0%iHeartCommunications, Inc.'s 8.375% Senior Unsecured Notes due 20182027 for an aggregate$147.3 million in cash, reflecting a discounted purchase price from the face value of approximately $222.2 million. The repurchase effectively reduces the principal amount of our debt maturing in 2018 by $383.0 million and our consolidated annual cash interest obligations by $38.3 million, because principal and interest payments made to our wholly-owned subsidiary are eliminated in consolidation. On February 7, 2017, we completed an exchange offer of $476.4 million principal amount of our 10.0% Senior Notes due 2018 for $476.4 million principal amount of newly-issued 11.25% Priority Guarantee Notes due 2021. Of the $476.4 million principal amount of 11.25% Priority Guarantee Notes due 2021 issued in the exchange offer, $241.4 million principal amount was issued to subsidiaries of iHeartCommunications that exchanged 10.0% Senior Notes due 2018 in the exchange offer. We may make additional repurchases of indebtedness of iHeartCommunications in the future. In addition, we frequently evaluate strategic opportunities both within and outside our existing lines of business.notes. We expect from time to time to pursue dispositionsother strategic opportunities such as acquisitions or acquisitions,disposals of certain businesses, which couldmay or may not be material. iHeartCommunications'
1 Total available liquidity defined as cash and iHeartCommunications' subsidiaries’ significant amount of indebtedness may limitcash equivalents plus available borrowings under the ABL Facility. We use total available liquidity to evaluate our abilitycapacity to pursue dispositions or acquisitions. The terms of our existing or future debt agreements may also restrict our abilityaccess cash to engage in these transactions.meet obligations and fund operations.
Subsequent Events
On November 17, 2016, we incurred $100.0 millionFebruary 8, 2024, the sale of additional borrowings under our receivables based credit facility, and asBroadcast Music, Inc. ("BMI") to a shareholder group led by New Mountain Capital, LLC, was completed. Based on the Company's equity interest in BMI, the sale resulted in cash proceeds of December 31, 2016, we had total outstanding borrowings of $330.0 million under this facility. Due$101.4 million. The Company plans to use the seasonal variations in our business, we made aproceeds for general corporate purposes, which may include the repayment of $25.0 million on January 31, 2017, and we expect our borrowing base and excess availability to decrease in the first quarter of 2017. As a result, we may be required to repay an additional portion of our outstanding borrowings under this facility during the first quarter of 2017. The receivables based credit facility has a maturity date of December 24, 2017.debt.
During the second quarter of 2014, the FASB issued ASU No. 2014-15, Presentation of Financial Statements - Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity's Ability 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. We adopted this standard for the year ended December 31, 2016. Under this standard, we are required to evaluate whether there is substantial doubt about our ability to continue as a going concern each reporting period, including interim periods.
In evaluating our ability to continue as a going concern, management considered the conditions and events that could raise substantial doubt about our ability to continue as a going concern within 12 months after our financial statements were issued
(February 23, 2017). Management considered our current financial condition and liquidity sources, including current funds available, forecasted future cash flows and our conditional and unconditional obligations due before February 23, 2018. Our forecast of future cash flows indicates that such cash flows would not be sufficient for us to meet our obligations, including payment of the outstanding receivables based credit facility balance at maturity, as they become due in the ordinary course of business for a period of 12 months following February 23, 2017. We plan to refinance or extend the receivables based credit facility to a date at least 12 months after February 23, 2017 with terms similar to the facility's current terms.
Management believes the refinancing or extension of the maturity of the receivables based credit facility is probable of being executed as we have successfully extended the maturity date of this receivables based credit facility in the past, and the facility has a first-priority lien on the accounts receivable of iHeartCommunications and certain of its subsidiaries. Management's plan to refinance or extend the due date of the receivables based credit facility, combined with current funds and expected future cash flows, are considered to be sufficient to enable us to meet our obligations as they become due in the ordinary course of business for a period of 12 months following the date these financial statements are issued. This belief assumes, among other things, that we will continue to be successful in implementing our business strategy and that there will be no material adverse developments in our business, liquidity or capital requirements, which include promoting spending in our industries and capitalizing on our diverse geographic and product opportunities, including the continued investment in our media and entertainment initiatives and continued deployment of digital displays. There is no assurance we will be able to achieve our forecasted operating cash flows or that the receivables based credit facility will be extended in a timely manner or on terms acceptable to us, or at all. If one or more of these factors do not occur as expected, it could cause a default under one or more of the agreements governing our indebtedness. In addition to the transactions described above, we have from time to time been engaged in discussions with some of the holders of our indebtedness regarding proposed modifications to the terms of that indebtedness and other changes to our capital structure, but those discussions have not resulted in any agreements to date. We have considered and will continue to evaluate potential transactions to improve our capital structure and address our liquidity constraints and we have retained advisers to assist with the assessment of a potential debt restructuring transaction. See "-Potential Restructuring of Our Indebtedness." If our future cash flows from operations, refinancing sources and liquidity-generating transactions are insufficient to service our debt or to fund our other liquidity needs, and if we are unable to refinancing or extend the maturity of the receivables based credit facility or complete a debt restructuring transaction, we may be forced to reduce or delay our business activities and capital expenditures, sell material assets, seek additional capital or be required to file for bankruptcy court protection. We cannot assure you that we would be able to accomplish any of these alternatives on a timely basis or on satisfactory terms, if at all.
Except as set forth below under "-Non-Payment of $57.1 million of iHeartCommunications Legacy Notes Held by an Affiliate," we were in compliance with the covenants contained in iHeartCommunications' material financing agreements as of December 31, 2016, including the maximum consolidated senior secured net debt to consolidated EBITDA limitation contained in iHeartCommunications' senior secured credit facilities. However, our future results are subject to significant uncertainty and there can be no assurance that we will be able to maintain compliance with these covenants. These covenants include a requirement in our senior secured credit facilities that we receive an opinion from our auditors in connection with our year-end audit that is not subject to a "going concern" or like qualification or exception. Our ability to comply with these covenants in the future may be affected by events beyond our control, including the uncertainties described above and prevailing economic, financial and industry conditions. The breach of any covenants set forth in iHeartCommunications' financing agreements would result in a default thereunder. An event of default would permit the lenders under a defaulted financing agreement to declare all indebtedness thereunder to be immediately due and payable. Moreover, the lenders under the receivables based credit facility under iHeartCommunications' senior secured credit facilities would have the option to terminate their commitments to make further extensions of credit thereunder. If we are unable to repay iHeartCommunications' obligations under any secured credit facility, the lenders could proceed against any assets that were pledged to secure such facility. In addition, a default or acceleration under any of iHeartCommunications' material financing agreements could cause a default under other of our obligations that are subject to cross-default and cross-acceleration provisions. The threshold amount for a cross-default under the senior secured credit facilities and the indentures governing our outstanding bonds is $100.0 million. The default resulting from non-payment of the $57.1 million of 5.50% Senior Notes described below is below the $100.0 million cross-default threshold in iHeartCommunications' debt documents.
Non-Payment of $57.1 Million of iHeartCommunications Legacy Notes Held by an Affiliate
Our wholly-owned subsidiary, Clear Channel Holdings, Inc. ("CCH"), owns $57.1 million aggregate principal amount of our 5.50% Senior Notes due 2016 (the "5.50% Senior Notes"). On December 9, 2016, a special committee of our independent directors decided to not repay the $57.1 million principal amount of the 5.50% Senior Notes held by CCH when the notes matured on December 15, 2016. On December 12, 2016, we informed CCH that we did not intend to repay the $57.1 million principal amount of the 5.50% Senior Notes held by CCH when the notes matured on December 15, 2016. CCH informed us that, while it retains its right to exercise remedies under the indenture governing the 5.50% Senior Notes (the "legacy notes indenture") in the future, it does not currently intend to, and it does not currently intend to request that the trustee, seek to collect principal amounts due or exercise or request enforcement of any remedy with respect to the nonpayment of such principal amount under the legacy
notes indenture. As a result, $57.1 million of the 5.50% Senior Notes remain outstanding. We repaid the other $192.9 million of 5.50% Senior Notes held by other holders, and we intend to continue to pay interest on the 5.50% Senior Notes held by CCH for so long as such notes continue to remain outstanding.
For as long as we have at least $500 million of legacy notes outstanding, including the $57.1 million of 5.50% Senior Notes currently held by CCH, we will not have an obligation to grant certain additional security interests in favor of certain of our lenders and holders of our existing priority guarantee notes or the holders of our legacy notes under the "springing lien" described in the agreements governing that indebtedness, and the limitations existing with respect to the existing security interests will remain in place until up to 60 days following the date on which not more than $500 million aggregate principal amount of the legacy notes remain outstanding.
Potential Restructuring of Our Indebtedness
We have been reviewing a number of potential alternatives regarding our outstanding indebtedness. These alternatives include refinancings, exchange offers, consent solicitations, the issuance of new indebtedness, amendments to the terms of our existing indebtedness and/or other transactions. We may enter into discussions with holders of our indebtedness with respect to these alternatives. Among these alternatives is a global restructuring that would, on a consensual basis, seek to modify the terms of substantially all of our outstanding indebtedness. We may offer to exchange the indebtedness under our senior secured credit facilities, all of our priority guarantee notes, our legacy notes and/or our senior notes due 2021 for new debt and/or equity securities of our parent and/or subsidiary companies. In conjunction with any such transactions, we may seek consents to amend the documents governing our indebtedness to amend or eliminate certain covenants or collateral provisions.
Because the terms of any such transactions will be subject to negotiations with the holders of our indebtedness, they may differ materially from those described above and are, to a large extent, outside of our control. There can be no assurance that we will be able to complete any such transactions, and, as no decision with respect to the terms of any such transactions has been made, we may decide not to pursue any such transactions. If we are unable to complete any such transactions, we may be required to file for bankruptcy court protection.
Although we will continue to have a substantial amount of indebtedness outstanding even if we are able to consummate a restructuring of our indebtedness, we believe that such a restructuring would benefit our stakeholders by significantly improving our capital structure and preventing us from having to file for bankruptcy. A bankruptcy filing could be more costly than a restructuring of our indebtedness and could significantly damage our key assets including our relationships with advertisers, consumers, business partners, suppliers, customers and creditors, and significantly harm our brand.
Sources of Capital
As of December 31, 2016 and 2015, we
We had the following debt outstanding, net of cash and cash equivalents:
| | | | | | | | | | | |
(In thousands) | December 31, |
| 2023 | | 2022 |
Term Loan Facility due 2026 | $ | 1,864,032 | | | $ | 1,864,032 | |
Incremental Term Loan Facility due 2026 | 401,220 | | | 401,220 | |
Asset-based Revolving Credit Facility due 2027 | — | | | — | |
6.375% Senior Secured Notes due 2026 | 800,000 | | | 800,000 | |
5.25% Senior Secured Notes due 2027 | 750,000 | | | 750,000 | |
4.75% Senior Secured Notes due 2028 | 500,000 | | | 500,000 | |
Other secured subsidiary debt | 3,367 | | | 4,462 | |
Total consolidated secured debt | $ | 4,318,619 | | | $ | 4,319,714 | |
| | | |
8.375% Senior Unsecured Notes due 20271 | $ | 916,357 | | | $ | 1,120,366 | |
Other Subsidiary Debt | — | | | 52 | |
Original issue discount | (7,558) | | | (10,569) | |
Long-term debt fees | (12,268) | | | (15,396) | |
| | | |
Total Debt | 5,215,150 | | | 5,414,167 | |
Less: Cash and cash equivalents | 346,382 | | | 336,236 | |
Net Debt2 | $ | 4,868,768 | | | $ | 5,077,931 | |
|
| | | | | | | |
| December 31, |
(In millions) | 2016 | | 2015 |
Senior Secured Credit Facilities: | | | |
Term Loan D Facility Due 2019 | $ | 5,000.0 |
| | $ | 5,000.0 |
|
Term Loan E Facility Due 2019 | 1,300.0 |
| | 1,300.0 |
|
Receivables Based Credit Facility Due 2017(1) | 330.0 |
| | 230.0 |
|
9.0% Priority Guarantee Notes Due 2019 | 1,999.8 |
| | 1,999.8 |
|
9.0% Priority Guarantee Notes Due 2021 | 1,750.0 |
| | 1,750.0 |
|
11.25% Priority Guarantee Notes Due 2021(2) | 575.0 |
| | 575.0 |
|
9.0% Priority Guarantee Notes Due 2022 | 1,000.0 |
| | 1,000.0 |
|
10.625% Priority Guarantee Notes Due 2023 | 950.0 |
| | 950.0 |
|
Subsidiary Revolving Credit Facility due 2018(3) | — |
| | — |
|
Other Secured Subsidiary Debt | 21.0 |
| | 25.2 |
|
Total Secured Debt | $ | 12,925.8 |
| | $ | 12,830.0 |
|
| | | |
14.0% Senior Notes Due 2021 | 1,729.2 |
| | 1,695.1 |
|
iHeartCommunications Legacy Notes: | | | |
5.5% Senior Notes Due 2016(4) | — |
| | 192.9 |
|
6.875% Senior Notes Due 2018 | 175.0 |
| | 175.0 |
|
7.25% Senior Notes Due 2027 | 300.0 |
| | 300.0 |
|
10.0% Senior Notes Due 2018(2) | 347.0 |
| | 730.0 |
|
Subsidiary Senior Notes: | | | |
6.5% Series A Senior Notes Due 2022 | 735.8 |
| | 735.8 |
|
6.5% Series B Senior Notes Due 2022 | 1,989.2 |
| | 1,989.2 |
|
Subsidiary Senior Subordinated Notes: | | | |
7.625% Series A Senior Notes Due 2020 | 275.0 |
| | 275.0 |
|
7.625% Series B Senior Notes Due 2020 | 1,925.0 |
| | 1,925.0 |
|
Subsidiary 8.75% Senior Notes due 2020 | 225.0 |
| | 225.0 |
|
Other Subsidiary Debt | 28.0 |
| | 0.2 |
|
Purchase accounting adjustments and original issue discount | (167.0 | ) | | (204.6 | ) |
Long-term debt fees | (123.0 | ) | | (148.0 | ) |
Total Debt | $ | 20,365.0 |
| | $ | 20,720.6 |
|
Less: Cash and cash equivalents | 845.0 |
| | 772.7 |
|
| $ | 19,520.0 |
| | $ | 19,947.9 |
|
| |
(1) | The receivables based credit facility provides for borrowings of up to the lesser of $535.0 million (the revolving credit commitment) or the borrowing base amount, as defined under the receivables based credit facility, subject to certain limitations contained in iHeartCommunications' material financing agreements. As of December 31, 2016, we had $113.6 million of availability under the receivables based credit facility. |
| |
(2) | On July 15, 2016, Broader Media, LLC, our indirect wholly-owned subsidiary, repurchased approximately $383.0 million aggregate principal amount of iHeartCommunications' 10.0% Senior Notes due 2018 for an aggregate purchase price of approximately $222.2 million. On February 7, 2017, we completed an exchange offer of $476.4 million principal amount of our 10.0% Senior Notes due 2018 for $476.4 million principal amount of newly-issued 11.25% Priority Guarantee Notes due 2021, which were issued as “additional notes” under the indenture governing the 11.25% Priority Guarantee Notes due 2021. Of the $476.4 million principal amount of 11.25% Priority Guarantee Notes due 2021 issued in the exchange offer, $241.4 million principal amount was issued to subsidiaries of iHeartCommunications that exchanged 10.0% Senior Notes due 2018 in the exchange offer. |
1 During 2023, we repurchased $204.0 million aggregate principal amount of iHeartCommunications, Inc.’s 8.375% Senior Unsecured Notes due 2027 for $147.3 million in cash, excluding accrued interest. The repurchased notes were subsequently cancelled and retired, resulting in a gain on extinguishment of debt of $56.7 million.
| |
(3) | The subsidiary revolving credit facility provides for borrowings of up to $75.0 million (the revolving credit commitment). |
| |
(4) | In December 2016, iHeartCommunications repaid at maturity $192.9 million of 5.5% Senior Notes due 2016 and did not pay $57.1 million of the notes held by a subsidiary of the Company. The $57.1 million of aggregate principal amount remains outstanding and is eliminated for purposes of consolidation of the Company’s financial statements. |
2Net Debt is a non-GAAP financial metric that is used by management and investors to assess our ability to meet financial obligations.
See above under “Sources of Liquidity and Cash Requirements” for details regarding the amendment to our Term Loan Facility entered into on June 15, 2023.
Our ABL Facility contains a springing fixed charge coverage ratio that is effective if certain triggering events related to borrowing capacity under the ABL Facility occur. As of December 31, 2023, no triggering event had occurred and, as a result, we were not required to comply with any fixed charge coverage ratio as of or for the period ended December 31, 2023. Other than our ABL Facility, none of our long-term debt includes maintenance covenants that could trigger early repayment. As of December 31, 2023, we were in compliance with all covenants related to our debt agreements. For additional information regarding our debt, refer to Note 6, Long-Term Debt.
Our subsidiaries have from time to time repurchased certain debt obligations of iHeartCommunications, and our equity securities and equity securities outstanding of CCOH, and may in the future, as part of various financing and investment strategies, refinance, retire, exchange or purchase additional outstanding indebtedness of iHeartCommunications or its subsidiaries or our outstanding equity securities, or outstanding equity securities of CCOH, in tender offers, open market purchases, privately negotiated transactions or otherwise. Such refinancings, repayments, exchanges or purchases, if any, will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors. The amounts involved may be material. We or our subsidiaries may also sell certain assets, securities, or properties. These purchases or sales, if any, could have a material positive or negative impact on our liquidity available to repay outstanding debt obligations or on our consolidated results of operations. These transactions could also require or result in amendments to the agreements governing outstanding debt obligations or changes in our leverage or other financial ratios, which could have a material positive or negative impact on our ability to comply with the covenants contained in iHeartCommunications'iHeartCommunications’ debt agreements. These transactions, if any, will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors. The amounts involved may be material.
On October 4, 2016, iHeartCommunications announced the successful completion of the solicitation of consents (the “Consent Solicitation”) from holders of its outstanding Senior Notes due 2021 (the “2021 Notes”) to an amendment to the indenture governing the 2021 Notes (the “2021 Notes Indenture”) to increase the aggregate principal amount of indebtedness under Credit Facilities (as defined in the 2021 Notes Indenture) permitted to be incurred under Section 4.09(b)(1) of the 2021 Notes Indenture by $500.0 million to $17.3 billion. iHeartCommunications paid an aggregate consent fee of $8.6 million to holders of the 2021 Notes that consented to the amendment in accordance with
For additional information regarding our debt, including the terms of the Consent Solicitation.governing documents, refer to Note 6, Long-Term Debt,to our consolidated financial statements located in Part II, Item 8 of this Annual Report on Form 10-K.
On December 12, 2016, iHeartCommunications announcedSupplemental Financial Information under Debt Agreements
Pursuant to iHeartCommunications' material debt agreements, iHeartMedia Capital I, LLC ("Capital I"), the resultsparent guarantor and expirationa subsidiary of the six separate consent solicitations (the "Consent Solicitations") with respect to its 2021 Notes and its five series of priority guarantee notes. Holders of 2021 Notes representing approximately 81.5% of the outstanding principal amount of the 2021 Notes (excluding any 2021 Notes held by the Company or its affiliates), consented to the proposed amendment (the "Proposed Amendment") to Section 9.07 of the indenture governing the 2021 Notes Indenture. The Proposed Amendment allows the Company to exclude, in any offer to consent, waive or amend any of the terms or provisions of the 2021 Notes Indenture or the Senior Notes in connection with an exchange offer, any holders of Notes who are not institutional “accredited investors,” who are not non-“U.S. persons”, or those in foreign jurisdictions whose inclusion would require the Company to comply with the registration requirements or other similar requirements under any securities laws of such foreign jurisdiction or would be unlawful. iHeartCommunications paid an aggregate consent fee of $1.7 million to holders of the 2021 Notes that consented to the amendment in accordance with the terms of the Consent Solicitation and will pay a contingent fee of $2.6 million to such holders upon the completion of an exchange offer in which the Company relies on the changes effected by the Proposed Amendment.
iHeartCommunications also announced the expiration of its consent solicitations with respect to its five series of priority guarantee notes. Because iHeartCommunications did not receive consents from holders representing a majority of the aggregate principal amount of each of its five series of priority guarantee notes outstanding, the Proposed Amendment was not effected with respect to the priority guarantee notes and no fixed fee or contingent fee will be paid to holders of such notes.
Senior Secured Credit Facilities
As of December 31, 2016, iHeartCommunications had a total of $6,300.0 million outstanding under its senior secured credit facilities, consisting of:
a $5.0 billion term loan D, which matures on January 30, 2019; and
a $1.3 billion term loan E, which matures on July 30, 2019.
iHeartCommunications may raise incremental term loans of up to (a) $1.5 billion, plus (b) the excess, if any, of (x) 0.65 times pro forma consolidated EBITDA (as calculated in the manner provided in the senior secured credit facilities documentation), over (y) $1.5 billion, plus (c) the aggregate amount of certain principal prepayments made in respect of the term loans under the senior secured credit facilities. Availability of such incremental term loansiHeartMedia, is subject, among other things, to the absence of any default, pro forma compliance with the financial covenant and the receipt of commitments by existing or additional lenders.
iHeartCommunications is the primary borrower under the senior secured credit facilities, and certain of its domestic restricted subsidiaries are co-borrowers under a portion of the term loan facilities.
Interest Rate and Fees
Borrowings under iHeartCommunications' senior secured credit facilities bear interest at a rate equal to an applicable margin plus, at iHeartCommunications' option, either (i) a base rate determined by reference to the higher of (A) the prime lending rate publicly announced by the administrative agent or (B) the Federal funds effective rate from time to time plus 0.50%, or (ii) a Eurocurrency rate determined by reference to the costs of funds for deposits for the interest period relevant to such borrowing adjusted for certain additional costs.
The margin percentages applicable to the term loan facilities are the following percentages per annum:
with respect to loans under the term loan D, (i) 5.75% in the case of base rate loans and (ii) 6.75% in the case of Eurocurrency rate loans; and
with respect to loans under the term loan E, (i) 6.50% in the case of base rate loans and (ii) 7.50% in the case of Eurocurrency rate loans.
The margin percentages are subject to adjustment based upon iHeartCommunications' leverage ratio.
Prepayments
The senior secured credit facilities require iHeartCommunications to prepay outstanding term loans, subject to certain exceptions, with:
50% (which percentage may be reduced to 25% and to 0% based upon iHeartCommunications' leverage ratio) of iHeartCommunications' annual excess cash flow (as calculated in accordance with the senior secured credit facilities), less any voluntary prepayments of term loans and subject to customary credits;
100% of the net cash proceeds of sales or other dispositions of specified assets being marketed for sale (including casualty and condemnation events), subject to certain exceptions;
100% (which percentage may be reduced to 75% and 50% based upon iHeartCommunications' leverage ratio) of the net cash proceeds of sales or other dispositions by iHeartCommunications or its wholly-owned restricted subsidiaries of assets other than specified assets being marketed for sale, subject to reinvestment rights and certain other exceptions;
100% of the net cash proceeds of (i) any incurrence of certain debt, other than debt permitted under iHeartCommunications' senior secured credit facilities, (ii) certain securitization financing, (iii) certain issuances of Permitted Additional Notes (as defined in the senior secured credit facilities) and (iv) certain issuances of Permitted Unsecured Notes and Permitted Senior Secured Notes (as defined in the senior secured credit facilities); and
Net cash proceeds received by iHeartCommunications as dividends or distributions from indebtedness incurred at CCOH provided that the Consolidated Leverage Ratio of CCOH is no greater than 7.00 to 1.00.
The foregoing prepayments will be applied at iHeartCommunications' option to the term loans (on a pro rata basis) in one of the following cases: (i) first to outstanding term loan D and second to outstanding term loan E, (ii) first to outstanding term loan E and second to outstanding term loan D or (iii) ratably to outstanding term loan D and term loan E.
iHeartCommunications may voluntarily repay outstanding loans under the senior secured credit facilities at any time without premium or penalty, other than customary “breakage” costs with respect to Eurocurrency rate loans.
Collateral and Guarantees
The senior secured credit facilities are guaranteed by iHeartCommunications and each of iHeartCommunications' existing and future material wholly-owned domestic restricted subsidiaries, subject to certain exceptions.
All obligations under the senior secured credit facilities, and the guarantees of those obligations, are secured, subject to permitted liens, including prior liens permitted by the indenture governing iHeartCommunications' legacy notes, and other exceptions, by:
a lien on the capital stock of iHeartCommunications;
100% of the capital stock of any future material wholly-owned domestic license subsidiary that is not a “Restricted Subsidiary” under the indenture governing iHeartCommunications' legacy notes;
certain assets that do not constitute “principal property” (as defined in the indenture governing iHeartCommunications' legacy notes);
certain specified assets of iHeartCommunications and the guarantors that constitute “principal property” (as defined in the indenture governing iHeartCommunications' legacy notes) securing obligations under the senior secured credit facilities up to the maximum amount permitted to be secured by such assets without requiring equal and ratable security under the indenture governing iHeartCommunications' legacy notes; and
a lien on the accounts receivable and related assets securing iHeartCommunications' receivables based credit facility that is junior to the lien securing iHeartCommunications'satisfy its reporting obligations under such credit facility.
Certain Covenantsagreements by furnishing iHeartMedia’s consolidated financial information and Events of Default
The senior secured credit facilities require iHeartCommunications to comply on a quarterly basis with a financial covenant limiting the ratio of consolidated secured debt, net of cash and cash equivalents, to consolidated EBITDA (as defined by iHeartCommunications' senior secured credit facilities) for the preceding four quarters. iHeartCommunications' secured debt consistsan explanation of the senior secured credit facilities,material differences between iHeartMedia’s consolidated financial information, on the receivables based credit facility, the priority guarantee notes and certain other secured subsidiary debt. As required by the definition of consolidated EBITDA in iHeartCommunications' senior secured credit facilities, iHeartCommunications' consolidated EBITDA for the preceding four quarters of $1.8 billion is calculated as operating income (loss) before depreciation, amortization, impairment charges and other operating income (expense), net plus share-based compensation and is further adjusted for the following items: (i) costs incurred in connection with the closure and/or consolidation of facilities, retention charges, consulting fees and other permitted activities; (ii) extraordinary, non-recurring or unusual gains or losses or expenses and severance; (iii) non-cash charges; (iv) cash received from nonconsolidated affiliates; and (v) various other items.
The following table reflects a reconciliation of consolidated EBITDA (as defined by iHeartCommunications' senior secured credit facilities) to operating income and net cash provided by operating activities for the four quarters ended December 31, 2016:
|
| | | |
| Four Quarters Ended |
(In Millions) | December 31, 2016 |
Consolidated EBITDA (as defined by iHeartCommunications' senior secured credit facilities) | $1,844.9 |
Less adjustments to consolidated EBITDA (as defined by iHeartCommunications' senior secured credit facilities): |
Costs incurred in connection with the closure and/or consolidation of facilities, retention charges, consulting fees and other permitted activities | (34.6 | ) |
Extraordinary, non-recurring or unusual gains or losses or expenses and severance (as referenced in the definition of consolidated EBITDA in iHeartCommunications' senior secured credit facilities) | (42.9 | ) |
Non-cash charges | (8.2 | ) |
Other items | 45.5 |
|
Less: Depreciation and amortization, Impairment charges, Other operating income (expense), net, and Share-based compensation expense | (300.0 | ) |
Operating income | 1,504.7 |
|
Plus: Depreciation and amortization, Impairment charges, Gain (loss) on disposal of operating and fixed assets, and Share-based compensation expense | 290.6 |
|
Less: Interest expense | (1,850.0 | ) |
Less: Current income tax expense | (47.7 | ) |
Plus: Other income (expense), net | (73.1 | ) |
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) | 130.5 |
|
Change in assets and liabilities, net of assets acquired and liabilities assumed | 31.0 |
|
Net cash used for operating activities | $ | (14.0 | ) |
The maximum ratio permitted under this financial covenant for the four quarters ended December 31, 2016 was 8.75:1. At December 31, 2016, the ratio was 6.6:1.
In addition, the senior secured credit facilities include negative covenants that, subject to significant exceptions, limit iHeartCommunications' abilityone hand, and the abilityfinancial information of Capital I and its consolidated 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 iHeartCommunications' capital stock;
make investments, loans, or advances;
prepay certain junior indebtedness;
engage in certain transactions with affiliates;
amend material agreements governing certain junior indebtedness; and
change lines of business.
The senior secured credit facilities include certain customary representations and warranties, affirmative covenants and events of default, including payment defaults, breach of representations and warranties, covenant defaults, cross-defaults to certain indebtedness, certain events of bankruptcy, certain events under ERISA, material judgments, the invalidity of material provisions of the senior secured credit facilities documentation, the failure of collateral under the security documents for the senior secured credit facilities, the failure of the senior secured credit facilities to be senior debt under the subordination provisions of certain of iHeartCommunications' subordinated debt and a change of control. If an event of default occurs, the lenders under the senior secured credit facilities will be entitled to take various actions, including the acceleration of all amounts due under the senior secured credit facilities and all actions permitted to be taken by a secured creditor.
Receivables Based Credit Facility
On November 17, 2016, we incurred $100.0 million of additional borrowings under our receivables based credit facility. As of December 31, 2016, there was $330.0 million aggregate principal amount outstanding under iHeartCommunications' receivables based credit facility. On January 31, 2017, iHeartCommunications prepaid $25.0 million of the amount borrowed under its receivables based credit facility, bringing its total outstanding borrowings under this facility to $305.0 million.
The receivables based credit facility provides revolving credit commitments of $535.0 million, subject to a borrowing base. The borrowing base at any time equals 90% of the eligible accounts receivable of iHeartCommunications and certain of its subsidiaries. The receivables based credit facility includes a letter of credit sub-facility and a swingline loan sub-facility.
iHeartCommunications and certain subsidiary borrowers are the borrowers under the receivables based credit facility. iHeartCommunications has the ability to designate one or more of its restricted subsidiaries as borrowers under the receivables based credit facility. The receivables based credit facility loans are available in U.S. dollars and letters of credit are available in a variety of currencies including U.S. dollars, Euros, Pounds Sterling, and Canadian dollars.
Interest Rate and Fees
Borrowings under the receivables based credit facility bear interest at a rate per annum equal to an applicable margin plus, at iHeartCommunications' option, either (i) a base rate determined by reference to the highest of (a) the prime rate of Citibank, N.A. and (b) the Federal Funds rate plus 0.50% or (ii) a Eurocurrency rate determined by reference to the rate (adjusted for statutory reserve requirements for Eurocurrency liabilities) for Eurodollar deposits for the interest period relevant to such borrowing. The applicable margin for borrowings under the receivables based credit facility ranges from 1.50% to 2.00% for Eurocurrency borrowings and from 0.50% to 1.00% for base-rate borrowings, depending on average daily excess availability under the receivables based credit facility during the prior fiscal quarter.
In addition to paying interest on outstanding principal under the receivables based credit facility, iHeartCommunications is required to pay a commitment fee to the lenders under the receivables based credit facility in respect of the unutilized commitments thereunder. The commitment fee rate ranges from 0.25% to 0.375% per annum dependent upon average unused commitments during the prior quarter. iHeartCommunications must also pay customary letter of credit fees.
Maturity
Borrowings under the receivables based credit facility will mature, and lending commitments thereunder will terminate, on the fifth anniversaryother hand. Because neither iHeartMedia nor iHeartMedia Capital II, LLC, a wholly-owned direct subsidiary of the effectiveness of the receivables based credit facility, which is December 24, 2017.
Prepayments
If at any time the sum of the outstanding amounts under the receivables based credit facility exceeds the lesser of (i) the borrowing base and (ii) the aggregate commitments under the facility, iHeartCommunications will be required to repay outstanding loans and cash collateralize letters of credit in an aggregate amount equal to such excess. iHeartCommunications may voluntarily repay outstanding loans under the receivables based credit facility at any time without premium or penalty, other than customary “breakage” costs with respect to Eurocurrency rate loans. Any voluntary prepayments iHeartCommunications makes will not reduce its commitments under the receivables based credit facility.
Guarantees and Security
The facility is guaranteed by, subject to certain exceptions, the guarantors of iHeartCommunications' senior secured credit facilities. All obligations under the receivables based credit facility,iHeartMedia and the guaranteesparent of those obligations, are secured by a perfected security interest in all of iHeartCommunications' and all of the guarantors’ accounts receivable and related assets and proceeds thereof that is senior to the security interest of iHeartCommunications' senior secured credit facilities in such accounts receivable and related assets and proceeds thereof, subject to permitted liens, including prior liens permitted by the indenture governing certain of iHeartCommunications' legacy notes, and certain exceptions.
Certain Covenants and Events of Default
If borrowing availability is less than the greater of (a) $50.0 million and (b) 10% of the aggregate commitments under the receivables based credit facility, in each case, for five consecutive business days (a “Liquidity Event”), iHeartCommunications will be required to comply with a minimum fixed charge coverage ratio of at least 1.00 to 1.00 for fiscal quarters ending on or after the occurrence of the Liquidity Event, and will be continued to comply with this minimum fixed charge coverage ratio until borrowing availability exceeds the greater of (x) $50.0 million and (y) 10% of the aggregate commitments under the receivables based credit facility, in each case, for 30 consecutive calendar days, at which time the Liquidity Event shall no longer be deemed to be occurring. In addition, the receivables based credit facility includes negative covenants that, subject to significant exceptions, limit iHeartCommunications' 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;
amend material agreements governing certain junior indebtedness; and
change lines of business.
The receivables based credit facility includes certain customary representations and warranties, affirmative covenants and events of default, including payment defaults, breach of representations and warranties, covenant defaults, cross-defaults to certain indebtedness, certain events of bankruptcy, certain events under ERISA, material judgments and a change of control. If an event of default occurs, the lenders under the receivables based credit facility will be entitled to take various actions, including the acceleration of all amounts due under iHeartCommunications' receivables based credit facility and all actions permitted to be taken by a secured creditor.
9.0% Priority Guarantee Notes due 2019
As of December 31, 2016, iHeartCommunications had outstanding $2.0 billion aggregate principal amount of 9.0% priority guarantee notes due 2019 (the “9.0% Priority Guarantee Notes due 2019”).
The 9.0% Priority Guarantee Notes due 2019 mature on December 15, 2019 and bear interest at a rate of 9.0% per annum, payable semi-annually in arrears on June 15 and December 15 of each year. The 9.0% Priority Guarantee Notes due 2019 are iHeartCommunications' senior obligations and are fully and unconditionally guaranteed, jointly and severally, on a senior basis by the guarantors named in the indenture. The 9.0% Priority Guarantee Notes due 2019 and the guarantors’ obligations under the guarantees are secured by (i) a lien on (a) the capital stock of iHeartCommunications and (b) certain property and related assets that do not constitute “principal property” (as defined in the indenture governing certain Legacy Notes of iHeartCommunications), in each case equal in priority to the liens securing the obligations under iHeartCommunications' senior secured credit facilities, the 9.0% Priority Guarantee Notes due 2021, the 11.25% Priority Guarantee Notes due 2021, 9.0% Priority Guarantee Notes due 2022 and the 10.625% Priority Guarantee Notes due 2023, subject to certain exceptions, and (ii) a lien on the accounts receivable and related assets securing iHeartCommunications' receivables based credit facility junior in priority to the lien securing iHeartCommunications' obligations thereunder, subject to certain exceptions. In addition to the collateral granted to secure the 9.0% Priority Guarantee Notes due 2019, the collateral agent and the trustee for the 9.0% Priority Guarantee Notes due 2019 entered into an agreement with the administrative agent for the lenders under the senior secured credit facilities to turn over to the trustee under the 9.0% Priority Guarantee Notes due 2019, for the benefit of the holders of the 9.0% Priority Guarantee Notes due 2019, a pro rata share of any recovery received on account of the principal properties, subject to certain terms and conditions.
iHeartCommunications may redeem the 9.0% Priority Guarantee Notes due 2019, in whole or in part, at the redemption prices set forth in the indenture plus accrued and unpaid interest to the redemption date.
The indenture governing the 9.0% Priority Guarantee Notes due 2019 contains covenants that limit iHeartCommunications' 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) modify any of iHeartCommunications' existing senior notes; (iv) transfer or sell 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 iHeartCommunications' assets. The indenture contains covenants that limit iHeartMedia Capital I, LLC’s ability, iHeartCommunications’ ability and the ability of their restricted subsidiaries to, among other things: (i) create liens onhave any operations or material assets and (ii) materially impair the value of the security interests taken with respect to the collateralor liabilities, there are no material differences between iHeartMedia’s consolidated financial information for the benefit of the notes collateral agent and the holders of the 9.0% Priority Guarantee Notes due 2019. The indenture also provides for customary events of default.
9.0% Priority Guarantee Notes due 2021
As of December 31, 2016, iHeartCommunications had outstanding $1.75 billion aggregate principal amount of 9.0% priority guarantee notes due 2021 (the “9.0% Priority Guarantee Notes due 2021”).
The 9.0% Priority Guarantee Notes due 2021 mature on March 1, 2021 and bear interest at a rate of 9.0% per annum, payable semi-annually in arrears on March 1 and September 1 of each year. The 9.0% Priority Guarantee Notes due 2021 are iHeartCommunications' senior obligations and are fully and unconditionally guaranteed, jointly and severally, on a senior basis by the guarantors named in the indenture. The 9.0% Priority Guarantee Notes due 2021 and the guarantors’ obligations under the guarantees are secured by (i) a lien on (a) the capital stock of iHeartCommunications and (b) certain property and related assets that do not constitute “principal property” (as defined in the indenture governing certain Legacy Notes of iHeartCommunications), in each case equal in priority to the liens securing the obligations under iHeartCommunications' senior secured credit facilities, the 9.0% Priority Guarantee Notes due 2019, the 11.25% Priority Guarantee Notes due 2021, the 9.0% Priority Guarantee Notes due 2022 and the 10.625% Priority Guarantee Notes due 2023, subject to certain exceptions and (ii) a lien on the accounts receivable and related assets securing iHeartCommunications' receivables based credit facility junior in priority to the lien securing iHeartCommunications' obligations thereunder, subject to certain exceptions.
iHeartCommunications may redeem the 9.0% Priority Guarantee Notes due 2021, in whole or part, at the redemption prices set forth in the indenture plus accrued and unpaid interest to the redemption date.
The indenture governing the 9.0% Priority Guarantee Notes due 2021 contains covenants that limit iHeartCommunications' 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) modify any of iHeartCommunications' existing senior notes; (iv) transfer or sell 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 iHeartCommunications' assets. The indenture contains covenants that limit iHeartMedia Capital I, LLC’s ability, iHeartCommunications’ ability and the ability of their restricted subsidiaries to, among other things: (i) create liens on assets and (ii) materially impair the value of the security interests taken with respect to the collateral for the benefit of the notes collateral agent and the holders of the 9.0% Priority Guarantee Notes due 2021. The indenture also provides for customary events of default.
11.25% Priority Guarantee Notes due 2021
As of December 31, 2016, iHeartCommunications had outstanding $575.0 million aggregate principal amount of 11.25% Priority Guarantee Notes due 2021 (the “11.25% Priority Guarantee Notes due 2021”). On February 7, 2017, we completed an exchange offer of $476.4 million principal amount of our 10.0% Senior Notes due 2018 for $476.4 million principal amount of newly-issued 11.25% Priority Guarantee Notes due 2021, which were issued as “additional notes” under the indenture governing the 11.25% Priority Guarantee Notes due 2021. Of the $476.4 million principal amount of 11.25% Priority Guarantee Notes due 2021 issued in the exchange offer, $241.4 million principal amount was issued to subsidiaries of iHeartCommunications that exchanged 10.0% Senior Notes due 2018 in the exchange offer.
The 11.25% Priority Guarantee Notes due 2021 mature on March 1, 2021 and bear interest at a rate of 11.25% per annum, payable semi-annually in arrears on March 1 and September 1 of each year. The 11.25% Priority Guarantee Notes due 2021 are iHeartCommunications' senior obligations and are fully and unconditionally guaranteed, jointly and severally, on a senior basis by the guarantors named in the indenture governing such notes. The 11.25% Priority Guarantee Notes due 2021 and the guarantors’ obligations under the guarantees are secured by (i) a lien on (a) the capital stock of iHeartCommunications and (b) certain property and related assets that do not constitute “principal property” (as defined in the indenture governing certain Legacy Notes of iHeartCommunications), in each case equal in priority to the liens securing the obligations under iHeartCommunications' senior secured credit facilities, the 9.0% Priority Guarantee Notes due 2019, the 9.0% Priority Guarantee Notes due 2021, the 9.0% Priority Guarantee Notes due 2022 and the 10.625% Priority Guarantee Notes due 2023, subject to certain exceptions, and (ii) a lien on the accounts receivable and related assets securing iHeartCommunications' receivables based credit facility junior in priority to the lien securing iHeartCommunications' obligations thereunder, subject to certain exceptions.
iHeartCommunications may redeem the 11.25% Priority Guarantee Notes due 2021, in whole or in part, at the redemption prices set forth in the indenture plus accrued and unpaid interest to the redemption date.
The indenture governing the 11.25% Priority Guarantee Notes due 2021 contains covenants that limit iHeartCommunications' 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) modify any of iHeartCommunications' existing senior notes; (iv) transfer or sell 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 iHeartCommunications' assets. The indenture contains covenants that limit iHeartMedia Capital I, LLC’s ability, iHeartCommunications’ ability and the ability of their restricted subsidiaries to, among other things: (i) create liens on assets and (ii) materially impair the value of the security interests taken with respect to the collateral for the benefit of the notes collateral agent and the holders of the 11.25% Priority Guarantee Notes due 2021. The indenture also provides for customary events of default.
9.0% Priority Guarantee Notes due 2022
As of December 31, 2016, iHeartCommunications had outstanding $1.0 billion aggregate principal amount of 9.0% priority guarantee notes due 2022 (the “9.0% Priority Guarantee Notes due 2022”).
The 9.0% Priority Guarantee Notes due 2022 mature on September 15, 2022 and bear interest at a rate of 9.0% per annum, payable semi-annually in arrears on March 15 and September 15 of each year. The 9.0% Priority Guarantee Notes due 2022 are iHeartCommunications senior obligations and are fully and unconditionally guaranteed, jointly and severally, on a senior basis by the guarantors named in the indenture. The 9.0% Priority Guarantee Notes due 2022 and the guarantors’ obligations under the guarantees are secured by (i) a lien on (a) the capital stock of iHeartCommunications and (b) certain property and related assets that do not constitute “principal property” (as defined in the indenture governing certain Legacy Notes of iHeartCommunications), in each case equal in priority to the liens securing the obligations under iHeartCommunications' senior secured credit facilities, the 9.0% Priority Guarantee Notes due 2019, the 9.0% Priority Guarantee Notes due 2021, the 11.25% Priority Guarantee Notes due 2021 and the 10.625% Priority Guarantee Notes due 2023, subject to certain exceptions, and (ii) a lien on the accounts receivable and related assets securing iHeartCommunications' receivables based credit facility junior in priority to the lien securing iHeartCommunications' obligations thereunder, subject to certain exceptions.
iHeartCommunications may redeem the 9.0% Priority Guarantee Notes due 2022 at its option, in whole or part, at any time prior to September 15, 2017, at a price equal to 100% of the principal amount of the 9.0% Priority Guarantee Notes due 2022 redeemed, plus accrued and unpaid interest to the redemption date and plus an applicable premium. iHeartCommunications may redeem the 9.0% Priority Guarantee Notes due 2022, in whole or in part, on or after September 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 September 15, 2017, iHeartCommunications may elect to redeem up to 40% of the aggregate principal amount of the 9.0% Priority Guarantee Notes due 2022 at a redemption price equal to 109.0% 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 9.0% Priority Guarantee Notes due 2022 contains covenants that limit iHeartCommunications' 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) modify any of iHeartCommunications' existing senior notes; (iv) transfer or sell 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 iHeartCommunications' assets. The indenture contains covenants that limit iHeartMedia Capital I, LLC’s ability, iHeartCommunications’ ability and the ability of their restricted subsidiaries to, among other things: (i) create liens on assets and (ii) materially impair the value of the security interests taken with respect to the collateral for the benefit of the notes collateral agent and the holders of the 9.0% Priority Guarantee Notes due 2022. The indenture also provides for customary events of default.
10.625% Priority Guarantee Notes due 2023
As of December 31, 2016, iHeartCommunications had outstanding $950.0 million aggregate principal amount of 10.625% priority guarantee notes due 2023 (the “10.625% Priority Guarantee Notes due 2023”).
The 10.625% Priority Guarantee Notes due 2023 mature on March 15, 2023 and bear interest at a rate of 10.625% per annum, payable semi-annually in arrears on March 15 and September 15 of each year. The 10.625% Priority Guarantee Notes due 2023 are iHeartCommunications' senior obligations and are fully and unconditionally guaranteed, jointly and severally, on a senior basis by the guarantors named in the indenture. The 10.625% Priority Guarantee Notes due 2023 and the guarantors’ obligations under the guarantees are secured by (i) a lien on (a) the capital stock of iHeartCommunications and (b) certain property and related
assets that do not constitute “principal property” (as defined in the indenture governing certain Legacy Notes of iHeartCommunications), in each case equal in priority to the liens securing the obligations under iHeartCommunications' senior secured credit facilities, the 9.0% Priority Guarantee Notes due 2019, the 9.0% Priority Guarantee Notes due 2021, the 11.25% Priority Guarantee Notes due 2021 and the 9.0% Priority Guarantee Notes due 2022, subject to certain exceptions, and (ii) a lien on the accounts receivable and related assets securing iHeartCommunications' receivables based credit facility junior in priority to the lien securing iHeartCommunications' obligations thereunder, subject to certain exceptions.
iHeartCommunications may redeem the 10.625% Priority Guarantee Notes due 2023 at its option, in whole or part, at any time prior to March 15, 2018, at a price equal to 100% of the principal amount of the 10.625% Priority Guarantee Notes due 2023 redeemed, plus accrued and unpaid interest to the redemption date and plus an applicable premium. iHeartCommunications may redeem the 10.625% Priority Guarantee Notes due 2023, in whole or in part, on or after March 15, 2018, at the redemption prices set forth in the indenture plus accrued and unpaid interest to the redemption date. At any time on or before March 15, 2018, iHeartCommunications may elect to redeem up to 40% of the aggregate principal amount of the 10.625% Priority Guarantee Notes due 2023 at a redemption price equal to 110.625% 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 10.625% Priority Guarantee Notes due 2023 contains covenants that limit iHeartCommunications' 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) modify any of iHeartCommunications' existing senior notes; (iv) transfer or sell 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 iHeartCommunications' assets. The indenture contains covenants that limit iHeartMedia Capital I, LLC’s ability, iHeartCommunications’ ability and the ability of their restricted subsidiaries to, among other things: (i) create liens on assets and (ii) materially impair the value of the security interests taken with respect to the collateral for the benefit of the notes collateral agent and the holders of the 10.625% Priority Guarantee Notes due 2023. The indenture also provides for customary events of default.
Subsidiary Senior Revolving Credit Facility due 2018
During the third quarter of 2013, CCOH 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. At 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 CCOH 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 as of the end of the quarter. CCOH was in compliance with the secured leverage ratio covenant as of December 31, 2016.
14.0% Senior Notes due 2021
As of December 31, 2016, iHeartCommunications had outstanding approximately $1.7 billion of aggregate principal amount of 14.0% Senior Notes due 2021 (net of $440.6 million principal amount held by a subsidiary of iHeartCommunications).
On October 4, 2016, iHeartCommunications announced the successful completion of the solicitation of consents (the "Consent Solicitation") from holders of its outstanding Senior Notes due 2021 (the "2021 Notes") to an amendment to the indenture governing the 2021 Notes (the "2021 Notes Indenture") to increase the aggregate principal amount of indebtedness under Credit Facilities (as defined in the 2021 Notes Indenture) permitted to be incurred under Section 4.09(b)(1) of the 2021 Notes Indenture by $500.0 million to $17.3 billion. iHeartCommunications paid an aggregate consent fee of $8.6 million to holders of the 2021 Notes that consented to the amendment in accordance with the terms of the Consent Solicitation.
On December 12, 2016, iHeartCommunications announced the results and expiration of the six separate consent solicitations (the "Consent Solicitations") with respect to its 2021 Notes and its five series of priority guarantee notes. Holders of 2021 Notes representing approximately 81.5% of the outstanding principal amount of the 2021 Notes (excluding any 2021 Notes held by the Company or its affiliates), consented to the proposed amendment (the "Proposed Amendment") to Section 9.07 of the indenture governing the 2021 Notes Indenture. The Proposed Amendment allows the Company to exclude, in any offer to consent, waive or amend any of the terms or provisions of the 2021 Notes Indenture or the Senior Notes in connection with an exchange offer, any holders of Notes who are not institutional "accredited investors," who are not non-"U.S. persons", or those in foreign jurisdictions whose inclusion would require the Company to comply with the registration requirements or other similar requirements under any securities laws of such foreign jurisdiction or would be unlawful. iHeartCommunications paid an aggregate consent fee of $1.7 million to holders of the 2021 Notes that consented to the amendment in accordance with the terms of the Consent Solicitation
and will pay a contingent fee of $2.6 million to such holders upon the completion of an exchange offer in which the Company relies on the changes effected by the Proposed Amendment.
The 14% Senior Notes due 2021 mature on February 1, 2021. Interest on the 14% Senior Notes due 2021 is payable semi-annually on February 1 and August 1 of each year. Interest on the 14% Senior Notes due 2021 will be paid at the rate of (i) 12.0% per annum in cash and (ii) 2.0% per annum through the issuance of payment-in-kind notes (the “PIK Notes”). Any PIK Notes issued in certificated form will be dated as of the applicable interest payment date and will bear interest from and after such date. All PIK Notes issued will mature on February 1, 2021 and have the same rights and benefits as the 14% Senior Notes due 2021. Beginning with the interest payment due August 1, 2018 and continuing on each interest payment date thereafter, redemptions of a portion of the principal amount then outstanding will become due for purposes of applicable high yield discount obligation (“AHYDO”) catch-up payments.
The 14% Senior Notes due 2021 are fully and unconditionally guaranteed on a senior basis by the guarantors named in the indenture governing such notes. The guarantee is structurally subordinated to all existing and future indebtedness and other liabilities of any subsidiary of the applicable subsidiary guarantor that is not also a guarantor of the Senior Notes due 2021. The guarantees are subordinated to the guarantees of iHeartCommunications' senior secured credit facility and certain other permitted debt, but rank equal to all other senior indebtedness of the guarantors.
iHeartCommunications may redeem the 14% Senior Notes due 2021, in whole or in part at the redemption prices set forth in the indenture plus accrued and unpaid interest to the redemption date.
The indenture governing the 14% Senior Notes due 2021 contains covenants that limit iHeartCommunications' ability and the ability of its restricted subsidiaries to, among other things: (i) incur additional indebtedness or issue certain preferred stock; (ii) pay dividends on, or make distributions in respect of, iHeartCommunications' capital stock or repurchase iHeartCommunications' capital stock; (iii) make certain investments or other restricted payments; (iv) sell certain assets; (v) create liens or use assets as security in other transactions; (vi) merge, consolidate or transfer or dispose of substantially all of iHeartCommunications' assets; (vii) engage in transactions with affiliates; and (viii) designate iHeartCommunications' subsidiaries as unrestricted subsidiaries.
iHeartCommunications Legacy Notes
As of December 31, 2016, iHeartCommunications had approximately $475.0 million aggregate principal amount of senior notes outstanding (net of $57.1 million aggregate principal amount held by a subsidiary of iHeartCommunications). In December 2016, iHeartCommunications repaid at maturity $192.9 million of 5.5% Senior Notes due 2016 and did not pay $57.1 million of the notes held by a subsidiary of iHeartCommunications. Although the non-payment of the $57.1 million of 5.50% Senior Notes due 2016 is a default under the indenture governing the 5.50% Senior Notes due 2016 (the “legacy notes indenture”), the subsidiary that holds the notes informed us that, while it retains its right to exercise remedies under the legacy notes indenture in the future, it does not currently intend to, and it does not currently intend to request that the trustee, seek to collect principal amounts due or exercise or request enforcement of any remedy with respect to the nonpayment of such principal amount under the legacy notes indenture. The default resulting from non-payment of the $57.1 million of 5.50% Senior Notes is below the $100.0 million cross-default threshold in iHeartCommunications' debt documents. See “-Non-Payment of $57.1 Million of iHeartCommunications Legacy Notes Held by an Affiliate.” The $57.1 million of aggregate principal amount remains outstanding and is eliminated for purposes of consolidation of in our financial statements.
The senior notes were the obligations of iHeartCommunications prior to the merger in 2008. The senior notes are senior, unsecured obligations that are effectively subordinated to iHeartCommunications' secured indebtedness to the extent of the value of iHeartCommunications' assets securing such indebtedness and are not guaranteed by any of iHeartCommunications' subsidiaries and, as a result, are structurally subordinated to all indebtedness and other liabilities of iHeartCommunications' subsidiaries. The senior notes rank equally in right of payment with all of iHeartCommunications' existing and future senior indebtedness and senior in right of payment to all existing and future subordinated indebtedness.
10.0% Senior Notes due 2018
As of December 31, 2016, iHeartCommunications had outstanding $347.0 million aggregate principal amount of 10.0% Senior Notes due 2018 (net of $503.0 million aggregate principal amount held by certain subsidiaries of iHeartCommunications). On February 7, 2017, we completed an exchange offer of $476.4 million principal amount of our 10.0% Senior Notes due 2018 for $476.4 million principal amount of newly-issued 11.25% Priority Guarantee Notes due 2021, which were issued as “additional notes” under the indenture governing the 11.25% Priority Guarantee Notes due 2021. Of the $476.4 million principal amount of 10.0% Senior Notes due 2018 tendered and accepted for exchange, $241.4 million principal amount was tendered by subsidiaries of iHeartCommunications. After giving effect to the exchange offer, iHeartCommunications had outstanding $112.1 million
aggregate principal amount of 10.0% Senior Notes due 2018 (net of $261.5 million aggregate principal amount held by certain subsidiaries of iHeartCommunications). The 10.0% Senior Notes due 2018 mature on January 15, 2018 and bear interest at a rate of 10.0% per annum, payable semi-annually on January 15 and July 15 of each year.
The 10.0% Senior Notes due 2018 are senior, unsecured obligations that are effectively subordinated to iHeartCommunications' secured indebtedness to the extent of the value of iHeartCommunications' assets securing such indebtedness and are not guaranteed by any of iHeartCommunications' subsidiaries and, as a result, are structurally subordinated to all indebtedness and other liabilities of iHeartCommunications' subsidiaries. The 10.0% Senior Notes due 2018 rank equally in right of payment with all of iHeartCommunications' existing and future senior indebtedness and senior in right of payment to all existing and future subordinated indebtedness.
CCWH Senior Notes
As of December 31, 2016, CCWH senior notes represented $2.7 billion aggregate principal amount of indebtedness outstanding, which consisted of $735.75 million aggregate principal amount of Series A Senior Notes due 2022 (the “Series A CCWH Senior Notes”) and $1,989.25 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 CCOH, Clear Channel Outdoor, Inc. (“CCOI”) and certain of CCOH’s 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 CCOH and its restricted subsidiaries ability to, among other things:
incur or guarantee additional debt to persons other than iHeartCommunications and its subsidiaries (other than CCOH) 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 CCOH from its 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 CCOH and its restricted subsidiaries ability to, among other things:
incur or guarantee additional debt or issue certain preferred stock;
redeem, repurchase or retire CCOH’s 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 CCOH’s ability to incur additional indebtedness but permit CCOH to incur additional indebtedness based on an incurrence test. In order to incur (i) additional indebtedness under this test, CCOH’s 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, CCOH’s 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 CCOH to incur additional indebtedness. The Series B CCWH Senior Notes indenture also permits CCOH 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) 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 CCOH’s 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 CCOH.
CCWH Senior Subordinated Notes
As of December 31, 2016, CCWH Subordinated Notes represented $2.2 billion of aggregate principal 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”) 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 CCOH, CCOI and certain of CCOH’s 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 CCOH nor any of its 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 CCOH and its restricted subsidiaries ability to, among other things:
incur or guarantee additional debt to persons other than iHeartCommunications and its subsidiaries (other than CCOH) or issue certain preferred stock;
create restrictions on the payment of dividends or other amounts to CCOH from its restricted subsidiaries that are not guarantors of the 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 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 CCOH and its 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 CCOH from its restricted subsidiaries that 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 CCOH’s assets;
sell certain assets, including capital stock of CCOH’s subsidiaries;
designate CCOH’s 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 CCOH to incur additional indebtedness based on an incurrence test. In order to incur additional indebtedness under this test, CCOH’s debt to adjusted EBITDA ratio (as defined by the indentures) must be lower than 7.0:1. The indentures contain certain other exceptions that allow CCOH to incur additional indebtedness. The Series B CCWH Subordinated Notes indenture also permits CCOH to pay dividends from the proceeds of indebtedness or the proceeds from asset sales if its debt to adjusted EBITDA ratio (as defined by the indentures) is lower than 7.0:1. The Series A CCWH Senior Subordinated Notes indenture does not limit CCOH’s 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 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 CCOH.
Clear Channel International B.V. 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 CCIBV, 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.
Refinancing and Financing Transactions
2016 Refinancing and Financing Transactions
On July 15, 2016, Broader Media, LLC, our indirect wholly-owned subsidiary, repurchased approximately $383.0 million aggregate principal amount of iHeartCommunications' 10.0% Senior Notes due 2018 for an aggregate purchase price of approximately $222.2 million. Principal and interest payments made to our wholly-owned subsidiary are eliminated in consolidation.
On November 17, 2016, iHeartCommunications incurred $100.0 million of additional borrowings under its receivables based credit facility, bringing its total outstanding borrowings under this facility to $330.0 million. On January 31, 2017, iHeartCommunications prepaid $25.0 million of the amount borrowed under its receivables based credit facility, bringing its total outstanding borrowings under this facility to $305.0 million.
On December 20, 2016, iHeartCommunications commenced an offer to noteholders to exchange its 10.0% Senior Notes due 2018 for newly-issued 11.25% Priority Guarantee Notes which were issued as “additional notes” under the indenture governing iHeartCommunications' existing 11.25% Priority Guarantee Notes due 2021. On February 7, 2017, we completed the exchange offer and issued $476.4 million aggregate principal amount of 11.25% Priority Guarantee Notes due 2021 (including $241.4 million aggregate principal amount to certain subsidiaries of iHeartCommunications) to tendering holders in exchange for their $476.4 million principal amount of our 10.0% Senior Notes due 2018.
2015 Refinancing and Financing Transactions
On February 26, 2015, iHeartCommunications issued at par $950.0 million aggregate principal amount of 10.625% Priority Guarantee Notes due 2023 and used the net proceeds from the offering primarily to prepay its term loan facilities due 2016.
On December 16, 2015, Clear Channel International B.V. (“CCIBV”), an indirect subsidiary of the Company, issued $225.0 million in aggregate principal amount of 8.75% Senior Notes due 2020.
CCIBV used the net proceeds of the notes, together with cash on hand, to make a loan to its direct parent company, which used the proceeds to repay a loan and make a distribution to its parent company, which, in turn, made indirect distributions to CCOH. CCOH used the proceeds of the distribution to fund a special cash dividend paid on January 7, 2016 in an aggregate amount equal to approximately $217.8 million to its stockholders. We received $196.3 million of the dividend through three of our wholly-owned subsidiaries.
2014 Refinancing Transactions
On February 14, 2014, CC Finco, an indirect wholly-owned subsidiary of ours, sold $227.0 million in aggregate principal amount of 14.0% Senior Notes due 2021 issued by iHeartCommunications to private purchasers in a transaction exempt from registration under the Securities Act of 1933, as amended. This $227.0 million in aggregate principal amount of 14.0% Senior Notes due 2021, which was previously eliminated in consolidation because the notes were held by a subsidiary, is now reflected on our consolidated balance sheet. CC Finco contributed the net proceeds from the sale of the 14.0% Senior Notes due 2021 to iHeartCommunications.
On May 1, 2014, CCU Escrow Corporation issued $850.0 million in aggregate principal amount of 10.0% Senior Notes due 2018 in a private offer. On June 6, 2014, CCU Escrow Corporation merged into iHeartCommunications, and iHeartCommunications assumed CCU Escrow Corporation’s obligations under the 10.0% Senior Notes due 2018. Using the proceeds from the issuance of the 10.0% Senior Notes due 2018, iHeartCommunications redeemed $567.1 million aggregate principal amount of iHeartCommunications' 5.5% Senior Notes due 2014 (including $158.5 million principal amount of the notes held by a subsidiary of iHeartCommunications) and $241.0 million aggregate principal amount of iHeartCommunications' 4.9% Senior Notes due 2015.
On August 22, 2014, iHeartCommunications issued and sold $222.2 million in aggregate principal amount of new 14.0% Senior Notes due 2021 to CC Finco in a transaction exempt from registration under the Securities Act of 1933, as amended. The new 14.0% Senior Notes due 2021 were issued as additional notes under the indenture governing iHeartCommunications' existing 14.0% Senior Notes due 2021. On August 22, 2014, iHeartCommunications redeemed all of the outstanding $94.3 million aggregate principal amount of 10.75% Senior Cash Pay Notes due 2016 and $127.9 million aggregate principal amount of 11.00%/11.75% Senior Toggle Notes due 2016 using proceeds of the issuance of the new 14.0% Senior Notes due 2021.
On September 10, 2014, iHeartCommunications issued and sold $750.0 million in aggregate principal amount of 9% Priority Guarantee Notes due 2022 and used the net proceeds of such issuance to prepay at par $729.0 million of the loans outstanding under its term loan B facility and $12.1 million of the loans outstanding under its term loan C-asset sale facility, and to pay accrued and unpaid interest with regard to such loans to, but not including, the date of prepayment.
On September 29, 2014, iHeartCommunications issued an additional $250.0 million in aggregate principal amount of 9% Priority Guarantee Notes due 2022 and used the proceeds of such issuance to prepay at par $245.9 million of loans outstanding under its term loan B facility and $4.1 million of loans outstanding under its term loan C-asset sale facility, and to pay accrued and unpaid interest with regard to such loans to, but not including, the date of repayment.
Dispositions and Other
2016
In the first quarter of 2016, Americas outdoor sold 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 of 2016, International outdoor 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, 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 outdoor business in Australia.
2015
During the first quarter of 2015, the Company sold two office buildings located in San Antonio, Texas for $34.3 million. Concurrently with the sale of these properties, the Company entered into lease agreements for the continued use of the buildings, pursuant to which the Company will have annual lease payments of $2.6 million. The Company recognized a gain of $8.1 million on the sale of one of the buildings, which is being recognized over the term of the lease.
During 2015, we entered into a sale-leaseback arrangement, in which we sold 376 of our broadcast communication tower sites and related assets for $369.9 million. Simultaneous with the sales, we entered into lease agreements for the continued use of space on 367 of the towers sold. Upon completion of the transactions, we realized a net gain of $210.6 million, of which $109.0 million was deferred and will be recognized over the lease term. The Company incurred $13.3 million in operating lease expense in relation to these agreements in the year ended December 31, 2015. On January 15, 2016, we2023, and certain of our subsidiaries completed the final closingCapital I’s and its consolidated restricted subsidiaries’ financial information for the salesame period. Further, as of six of the Company’s broadcast communication tower sites andDecember 31, 2023, we were in compliance with all covenants related assets for approximately $5.5 million. Simultaneous with the sales, we entered into lease agreements for the continued use of tower space. The leases entered into as a part of these transactions are for a term of fifteen years and include three optional five-year renewal periods.
2014
During 2014, the Company sold its 50% interest in Australian Radio Network (“ARN”), an Australian company that owns and operates radio stations in Australia and New Zealand. An impairment charge of $95.4 million was recorded during the fourth quarter of 2013 to write down the investment to its estimated fair value. Upon sale of ARN, the Company recognized a loss of $2.4 million and $11.5 million of foreign exchange losses, which were reclassified from accumulated other comprehensive income.
During 2014, our International outdoor segment sold its 50% interest in Buspak, a bus advertising company in Hong Kong and recognized a gain on sale of $4.5 million.
debt agreements.
Uses of Capital
Debt Repurchases, Maturities and Other
2016
On July 15, 2016, Broader Media, LLC, our indirect wholly-owned subsidiary, repurchased approximately $383.0 million aggregate principal amount of iHeartCommunications' 10.0% Senior Notes due 2018 for an aggregate purchase price of approximately $222.2 million. Principal and interest payments made to our wholly-owned subsidiary are eliminated in consolidation.
On October 4, 2016, iHeartCommunications announced the successful completion of the solicitation of consents (the “Consent Solicitation”) from holders of its outstanding Senior Notes due 2021 (the “2021 Notes”) to an amendment to the indenture governing the 2021 Notes (the “2021 Notes Indenture”) to increase the aggregate principal amount of indebtedness under Credit Facilities (as defined in the 2021 Notes Indenture) permitted to be incurred under Section 4.09(b)(1) of the indenture by $500.0 million to $17.3 billion. iHeartCommunications paid an aggregate consent fee of $8.6 million to holders of the 2021 Notes that consented to the amendment in accordance with the terms of the Consent Solicitation.
On December 12, 2016, iHeartCommunications announced the results and expiration of the six separate consent solicitations (the "Consent Solicitations") with respect to its 2021 Notes and its five series of priority guarantee notes. Holders of 2021 Notes representing approximately 81.5% of the outstanding principal amount of the 2021 Notes (excluding any 2021 Notes held by the Company or its affiliates), consented to the proposed amendment (the "Proposed Amendment") to Section 9.07 of the indenture governing the 2021 Notes Indenture. The Proposed Amendment allows the Company to exclude, in any offer to consent, waive or amend any of the terms or provisions of the 2021 Notes Indenture or the Senior Notes in connection with an exchange offer, any holders of Notes who are not institutional “accredited investors,” who are not non-“U.S. persons”, or those in foreign jurisdictions whose inclusion would require the Company to comply with the registration requirements or other similar requirements under any securities laws of such foreign jurisdiction or would be unlawful. iHeartCommunications paid an aggregate consent fee of $1.7 million to holders of the 2021 Notes that consented to the amendment in accordance with the terms of the Consent Solicitation and will pay a contingent fee of $2.6 million to such holders upon the completion of an exchange offer in which the Company relies on the changes effected by the Proposed Amendment.
iHeartCommunications also announced the expiration of its consent solicitations with respect to its five series of priority guarantee notes. Because iHeartCommunications did not receive consents from holders representing a majority of the aggregate principal amount of each of its five series of priority guarantee notes outstanding, the Proposed Amendment was not effected with respect to the priority guarantee notes and no fixed fee or contingent fee will be paid to holders of such notes.
In December 2016, iHeartCommunications repaid at maturity $192.9 million of 5.5% Senior Notes due 2016 and did not pay $57.1 million of the notes held by a subsidiary of the Company. See "- Non-Payment of $57.1 Million of iHeartCommunications Legacy Notes Held by an Affiliate." The $57.1 million of aggregate principal amount remains outstanding and is eliminated for purposes of consolidation of the Company’s financial statements.
2015
On February 26, 2015, iHeartCommunications prepaid at par $916.1 million of loans outstanding under its term loan B facility and $15.2 million of loans outstanding under its term loan C-asset sale facility, using a portion of the net proceeds of the 10.625% Priority Guarantee Notes due 2023 issued on such date.
2014
During the period of October 1, 2014 through December 31, 2014, CC Finco repurchased via open market transactions a total of $177.1 million aggregate principal amount of notes, comprised of $57.1 million of iHeartCommunications' outstanding 5.5% Senior Notes due 2016 and $120.0 million of iHeartCommunications' outstanding 10.0% Senior Notes due 2018, for a total purchase price of $159.3 million, including accrued interest. The notes repurchased by CC Finco were not cancelled and remain outstanding.
On September 29, 2014, iHeartCommunications prepaid at par $245.9 million of the loans outstanding under its 9% term loan B facility and $4.1million of the loans outstanding under its term loan C-asset sale facility, using the net proceeds of the Priority Guarantee Notes due 2022 issued on such date.
On September 10, 2014, iHeartCommunications prepaid at par $729.0 million of the loans outstanding under its 9% term loan B facility and $12.1 million of the loans outstanding under its term loan C-asset sale facility, using the net proceeds of the Priority Guarantee Notes due 2022 issued on such date.
On August 22, 2014, iHeartCommunications redeemed all of the outstanding $94.3 million aggregate principal amount of 10.75% Senior Cash Pay Notes due 2016 and $127.9 million aggregate principal amount of 11.00%/11.75% Senior Toggle Notes due 2016 using proceeds of the issuance to CC Finco of new 14.0% Senior Notes due 2021.
On June 6, 2014, using the proceeds from the issuance of the 10.0% Senior Notes due 2018, iHeartCommunications redeemed $567.1 million aggregate principal amount of iHeartCommunications' 5.5% Senior Notes due 2014 (including $158.5 million principal amount of the notes held by a subsidiary of iHeartCommunications) and $241.0 million aggregate principal amount of iHeartCommunications' 4.9% Senior Notes due 2015.
During March 2014, CC Finco repurchased, through open market purchases, a total of $61.9 million aggregate principal amount of notes, comprised of $52.9 million of iHeartCommunications' outstanding 5.5% Senior Notes due 2014 and $9.0 million of iHeartCommunications' outstanding 4.9% Senior Notes due 2015, for a total purchase price of $63.1 million, including accrued interest. CC Finco contributed the notes to a subsidiary of ours and iHeartCommunications canceled these notes subsequent to the purchase.
Capital Expenditures
Capital expenditures for the years ended December 31, 2016, 20152023 and 2014 were as follows:2022 are discussed in the Cash Flows section above.
|
| | | | | | | | |
(In millions) | Years Ended December 31, |
| 2016 | | 2015 | | 2014 |
iHM | 73.2 |
| | 63.8 |
| | 53.9 |
|
Americas outdoor advertising | 81.4 |
| | 82.2 |
| | 109.7 |
|
International outdoor advertising | 143.8 |
| | 132.6 |
| | 117.5 |
|
Corporate and Other | 16.3 |
| | 17.8 |
| | 37.1 |
|
Total capital expenditures | 314.7 |
| | 296.4 |
| | 318.2 |
|
See the Contractual Obligations table under “Commitments, Contingencies and Guarantees” and Note 6 to our Consolidated Financial Statements located in Item 8Holders of Part II of this Annual Report on Form 10-K for the Company's future capital expenditure commitments.
Stock Registration
On June 24, 2015, we registered 4,000,000 shares of our Class A common stock par value $0.001are entitled to receive dividends, on a per share for offer or sale underbasis, when and if declared by our 2015 Executive Long-Term Incentive Plan.
On July 27, 2015,Board out of funds legally available therefor and whenever any dividend is made on the board of directors approved the issuance of 1,253,831 restricted shares pursuant to our 2015 Executive Long-term Incentive Plan.
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 outdoor segment as well as new billboard and street furniture contracts and renewals of existing contracts in our International outdoor segment, studio and broadcast equipment at iHM and software at Corporate.
Dividends
We have never paid cash dividends on our Class A common stock. iHeartCommunications’ debt financing arrangements include restrictions on its ability to pay dividends as described in this MD&A, which in turn affects our ability to pay dividends.
Acquisitions
The Company is the beneficiary of Aloha Station Trust, LLC (the “Aloha Trust”), which owns and operates radio stations which the Aloha Trust is required to divest in order to comply with Federal Communication Commission (“FCC”) media ownership rules, and which are being marketed for sale. During 2014, the Aloha Trust completed a transaction in which it exchanged two radio stations for a portfolio of 29 radio stations. In this transaction the Company received 28 radio stations. One radio station was placed into the Brunswick Station Trust, LLC in order to comply with FCC media ownership rules where it is being marketed for sale, and the Company is the beneficiary of this trust. The exchange was accounted for at fair value in accordance with ASC 805, Business Combinations. The disposal of these radio stations resulted in a gain on sale of $43.5 million, which is included in other operating income. This acquisition resulted in an aggregate increase in net assets of $49.2 million, which includes $13.8 million in indefinite-lived intangible assets, $10.2 million in definite-lived intangibles, $8.1 million in property, plant and equipment and $0.8 million of assumed liabilities. In addition, the Company recognized $17.9 million of goodwill.
Stock Purchases
On August 9, 2010, iHeartCommunications announced that its board of directors approved a stock purchase program under which iHeartCommunications or its subsidiaries could purchase up to an aggregate of $100.0 million of our Class A common stock and/or the Class A common stock of CCOH. The stock purchase program did not have a fixed expiration date and could be modified, suspended or terminated at any time at 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 the Company, purchased 2,000,000 shares of CCOH’s Class A common stock for $20.4 million. On April 2, 2015, CC Finco purchased an additional 2,172,946 shares of CCOH's Class A common stock for $22.2 million. As a result of this purchase, the stock purchase program concluded. The purchase of shares in excess of the amount available under the stock purchase program was separately approved by the board of directors. As of December 31, 2016, iHeartCommunications' and its subsidiaries held 10,726,917 shares of CCOH's Class A Common Stock and all of CCOH'sour Class B common stock which collectively represent 89.9% of the outstanding shares of CCOH's common stock on a fully-diluted basis, assuming the conversion of all of CCOH's Class B common stock into Class A common stock.
On December 3, 2015, Clear Channel Holdings, Inc. contributed 100,000,000 shares of CCOH’s Class B Common Stocksubject to Broader Media, LLC, an indirect wholly-owned subsidiary of the Company, as a capital contribution,certain exceptions set forth in our certificate. See Note 9, Stockholders' Equity, to provide greater flexibility in support of future financing transactions, share dispositions and other similar transactions.
Certain Relationships with the Sponsors
iHeartCommunications is party to a management agreement with certain affiliates of Bain Capital Partners, LLC and Thomas H. Lee Partners, L.P. (together, the “Sponsors”) and certain other parties pursuant to which such affiliates of the Sponsors will provide management and financial advisory services until 2018. These arrangements require management fees to be paid to such affiliates of the Sponsors for such services at a rate not greater than $15.0 million per year, plus reimbursable expenses. During the years ended December 31, 2016, 2015 and 2014, we recognized management fees and reimbursable expenses of $15.3 million, $15.4 million and $15.2 million, respectively.
CCOH Dividends
In connection with the cash management arrangements for CCOH, iHeartCommunications maintains an intercompany revolving promissory note payable by iHeartCommunications to CCOH (the “Note”), which consists of the net activities resulting from day-to-day cash management services provided by iHeartCommunications to CCOH. As of December 31, 2016, the balance of the Note was $885.7 million all of which is payable on demand. The Note is eliminated in consolidation in our consolidated financial statements.
The Note previously was the subject of litigation. Pursuant to the terms of the settlement of that litigation, CCOH’s board of directors established a committee for the specific purpose of monitoring the Note. That committee has the non-exclusive authority, pursuant to the terms of its charter, to demand payments under the Note under certain specified circumstances tied to the Company’s liquidity or the amount outstanding under the Note as long as CCOH makes a simultaneous dividend equal to the amount so demanded.
On August 11, 2014,statements located in accordance with the terms of its charter, (i) that committee demanded repayment of $175 million outstanding under the Note on such date and (ii) CCOH paid a special cash dividend in aggregate amount equal to $175 million to CCOH’s stockholders of record as of August 4, 2014. As the indirect parent of CCOH, we were entitled to approximately 88% of the proceeds from such dividend through our wholly-owned subsidiaries. The remaining approximately 12% of the proceeds from the dividend, or approximately $21 million, was paid to the public stockholders of CCOH and is included in Dividends and other payments to noncontrolling interests in our consolidated statement of cash flows. We funded the net paymentPart II, Item 8 of this $21
million with cashAnnual Report on hand, which reduced the amount of cash available to fund our working capital needs, debt service obligations and other obligations. Following satisfaction of the demand, the balance outstanding under the Note was reduced by $175 million.
On December 16, 2015, CCIBV, an indirect subsidiary of the Company and of CCOH, issued $225.0 million in aggregate principal amount of 8.75% Senior Notes due 2020, the proceeds of which were used to fund a dividend by CCOH, which was paid on January 7, 2016. We received approximately $196.3 million of the dividend through three of our wholly-owned subsidiaries, and approximately $21.5 million was paid to the public stockholders of CCOH.
In the first quarter of 2016, CCOH sold non-strategic Americas outdoor markets for an aggregate purchase price of approximately $592.3 million in cash and certain advertising assets in Florida (the “Transactions”). Following the completion of the Transactions, the board of directors of CCOH made a demand for the repayment of $300.0 million outstanding on the Note and declared special cash dividends in an aggregate amount of $540.0 million, which were paid on February 4, 2016. A portion of the proceeds of the Transactions, together with the proceeds from the concurrent $300.0 million repayment of the Note, were used to fund the dividends. We received approximately $486.5 million of the dividend proceeds ($186.5 million net of iHeartCommunications' repayment of the Note) through three of our wholly-owned subsidiaries, and approximately $53.5 million was paid to the public stockholders of CCOH.
During the fourth quarter of 2016, CCOH sold its outdoor business in Australia for cash proceeds of $195.7 million, net of cash retained by the purchaser and closing costs. On February 9, 2017, CCOH declared a special dividend of $282.5 million using a portion of the cash proceeds from the sales of certain non-strategic U.S. outdoor markets and of our Australia outdoor business. On February 23, 2017, we received 89.9% of the dividend or approximately $254.0 million, with the remaining 10.1% or approximately $28.5 million paid to public stockholders of CCOH.Form 10-K.
Commitments, Contingencies and Guarantees
We are currently involved in certain legal proceedings arising in the ordinary course of business and, as required, have accrued our estimate of the probable costs for resolution of those claims for which the occurrence of loss is probable and the amount can be reasonably estimated. These estimates have been developed in consultation with counsel and are based upon an analysis of potential results, assuming a combination of litigation and settlement strategies. It is possible, however, that future results of operations for any particular period could be materially affected by changes in our assumptions or the effectiveness of our strategies related to these proceedings. Please refer to Item 3. “Legal Proceedings”Legal Proceedings within Part I of this Annual Report on Form 10-K.
Certain agreements relating to acquisitions provide for purchase price adjustments and other future contingent payments based on the financial performance 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 our scheduled maturities on our debt, weWe have future cash obligations under various types of contracts. We lease office space, certain broadcast facilities equipment and the majority of the land occupied by our outdoor advertising structures under long-term operating leases.equipment. 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 also 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. Also, we have non-cancelablenon-cancellable contracts in our radio broadcasting operations related to program rights and music license fees.
In the normal course of business, our broadcasting operations have minimum future payments associated with employee and talent contracts. These contracts typically contain cancellation provisions that allow us to cancel the contract with good cause.
The scheduled maturities of iHeartCommunications' senior secured credit facilities, receivables based credit facility, priority guarantee notes, other long-term debt outstanding, and our future minimum rental commitments under non-cancelable lease agreements, minimum payments under other non-cancelable contracts, payments under employment/talent contracts, capital expenditure commitments and other long-term obligations as of December 31, 2016 are as follows:
|
| | | | | | | | | | | | | | | | | | | |
(In thousands) | Payments due by Period |
Contractual Obligations | Total | | 2017 | | 2018-2019 | | 2020-2021 | | Thereafter |
Long-term Debt: | | | | | | | | | |
Secured Debt (1) | $ | 12,925,802 |
| | $ | 337,080 |
| | $ | 8,304,999 |
| | $ | 2,325,943 |
| | $ | 1,957,780 |
|
Senior Notes due 2021 (2) | 1,886,585 |
| | — |
| | 89,541 |
| | 1,797,044 |
| | — |
|
iHeartCommunications Legacy Notes: | 475,000 |
| | — |
| | 175,000 |
| | — |
| | 300,000 |
|
Senior Notes due 2018 (1) | 347,028 |
| | — |
| | 347,028 |
| | — |
| | — |
|
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 | 27,954 |
| | 6,370 |
| | 11,557 |
| | 10,027 |
| | — |
|
Interest payments on long-term debt (3) | 6,809,024 |
| | 1,727,652 |
| | 3,040,297 |
| | 1,571,531 |
| | 469,544 |
|
Non-cancelable operating leases | 4,086,598 |
| | 464,877 |
| | 799,047 |
| | 674,732 |
| | 2,147,942 |
|
Non-cancelable contracts | 1,884,913 |
| | 435,186 |
| | 618,085 |
| | 420,301 |
| | 411,341 |
|
Employment/talent contracts | 216,199 |
| | 64,222 |
| | 100,227 |
| | 51,750 |
| | — |
|
Capital expenditures | 77,716 |
| | 49,618 |
| | 11,797 |
| | 4,059 |
| | 12,242 |
|
Unrecognized tax benefits (4) | 115,078 |
| | — |
| | — |
| | — |
| | 115,078 |
|
Other long-term obligations (5) | 334,646 |
| | (1,346 | ) | | 43,479 |
| | 31,200 |
| | 261,313 |
|
Total | $ | 34,336,543 |
| | $ | 3,083,659 |
| | $ | 13,541,057 |
| | $ | 9,311,587 |
| | $ | 8,400,240 |
|
| |
(1) | As of December 31, 2016, iHeartCommunications had outstanding $347.0 million aggregate principal amount of 10.0% Senior Notes due 2018. On February 7, 2017, we completed an exchange offer of $476.4 million principal amount of our 10.0% Senior Notes due 2018 for $476.4 million principal amount of newly-issued 11.25% Priority Guarantee Notes due 2021, which were issued as “additional notes” under the indenture governing the 11.25% Priority Guarantee Notes due 2021. Of the $476.4 million principal amount of 10.0% Senior Notes due 2018 tendered and accepted for exchange, $241.4 million principal amount was tendered by subsidiaries of iHeartCommunications. After giving effect to the exchange offer, iHeartCommunications had outstanding $112.1 million aggregate principal amount of 10.0% Senior Notes due 2018.
|
| |
(2) | Beginning on August 1, 2018 and continuing with each interest payment thereafter, we are required to make certain applicable high yield discount obligation (“AHYDO”) catch-up payments on the principal amount outstanding of Senior Notes due 2021. Contractual obligations due in the years 2018-2019 and 2020-2021 include $89.5 million and $68.4 million, respectively, related to the AHYDO payments. The table includes the current principal amount of Senior Notes due 2021 and reflects the assumption of additional PIK notes to be issued at each successive interest payment date in the future until maturity. |
| |
(3) | Interest payments on the senior secured credit facilities assume the interest rate is held constant over the remaining term. |
| |
(4) | 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. |
| |
(5) | Other long-term obligations includes $42.1 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 are $0.1 million of contract payments in our syndicated radio and media representation businesses and $292.4 million of various other long-term obligations. |
SEASONALITY
Typically, the iHM, Americas outdoor and International outdoor segmentsour businesses experience their lowest financial performance in the first quarter of the calendar year, with International outdoor historically experiencing a loss from operations in that period. Our International outdoor segment typically experiences its strongest performance in the second and fourth quarters of the calendar year. We expect this trend to continue in the future. Due to this seasonality and certain other factors, the results for the interim periods may not be indicative of results for the full year. In addition, the majoritywe are impacted by political cycles and generally experience higher revenues in congressional election years, and particularly in presidential election years. This may affect comparability of interest payments made in relation to long-term debt are paid in the first and third quarters of each calendar year.
results between years.
MARKET RISK
We are exposed to market risks arising from changes in market rates and prices, including movements in interest rates, foreign currency exchange rates and inflation.
Interest Rate Risk
On June 15, 2023, iHeartCommunications entered into an amendment to the Term Loan Facility. The amendment replaces the prior Eurocurrency interest rate, based upon LIBOR, with the SOFR successor rate plus a SOFR adjustment as specified in the credit agreement.
A significant amount of our long-term debt bears interest at variable rates. Additionally, certain assumptions used within management's estimates are impacted by changes in interest rates. Accordingly, our earnings will be affected by changes in interest rates. As of December 31, 2016,2023, approximately 32%43% of our aggregate principal amount of long-term debt bearsbore interest at floating rates. Assuming the current level of borrowings and assuming a 100%100 bps change in LIBOR,floating interest rates, it is estimated that our interest expense for the year ended December 31, 20162023 would have changed by $35.4$23.0 million.
In the event of an adverse change in interest rates, management may take actions to mitigate our exposure. However, due to the uncertainty of the actions that would be taken and their possible effects, the preceding interest rate sensitivity analysis assumes no such actions. Further, the analysis does not consider the effects of the change in the level of overall economic activity that could exist in such an environment.
Foreign Currency Exchange Rate Risk
We have operations in countries throughout the world. Foreign operations are measured in their local currencies. As a result, our financial results could be affected by factors such as changes in foreign currency exchange rates or weak economic conditions in the foreign markets in which we have operations. We believe we mitigate a small portion of our exposure to foreign currency fluctuations with a natural hedge through borrowings in currencies other than the U.S. dollar. Our foreign operations reported net income of $122.6 million for year ended December 31, 2016. We estimate a 10% increase in the value of the U.S. dollar relative to foreign currencies would have decreased our net income for the year ended December 31, 2016 by $12.3 million. A 10% decrease in the value of the U.S. dollar relative to foreign currencies during the year ended December 31, 2016 would have increased our net income by a corresponding amount.
This analysis does not consider the implications that such currency fluctuations could have on the overall economic activity that could exist in such an environment in the U.S. or the foreign countries or on the results of operations of these foreign entities.
Inflation
Inflation is a factor in the economies in which we doour business and we continue to seek ways to mitigate its effect. Inflation has affected our performance in terms of higher costs for wages, salariesemployee compensation, equipment, and equipment.third party services. Although we are unable to determine the exact impact of inflation, is indeterminable, we believe the impact will continue to be immaterial considering the actions we have offsetmay take in response to these higher costs by increasing the effective advertising ratesthat may arise as a result of most of our broadcasting stations and outdoor display faces in our iHM, Americas outdoor and International outdoor operations.inflation.
NEW ACCOUNTING PRONOUNCEMENTS
During the third quarterFor information regarding new accounting pronouncements, refer to Note 1, Summary of 2015, the FASB issued ASU 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective DateSignificant Accounting Policies. 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 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 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 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.
CRITICAL ACCOUNTING ESTIMATES
The preparation of our financial statements in conformity with U.S. GAAP requires management to make estimates, judgments and assumptions that affect the reported amounts of 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 estimates 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 that are not readily apparent from other sources. Because future events and their effects cannot be determined with certainty, actual results could differ from our assumptions and estimates, and such difference could be material. Our significant accounting policies are discussed in the notes to our consolidated financial statements included in Part II, Item 8 of Part II of this Annual Report on Form 10-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, the judgments and assumptions and the effect if actual results differ from these assumptions.
Allowance for Doubtful Accounts
We evaluate the collectability 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 experience for each business unit, adjusted for relative improvements or deteriorations in the agings and changes in current economic conditions.
If our agings were to improve or deteriorate resulting in a 10% change in our allowance, we estimated that our bad debt expense for the year ended December 31, 2016 would have changed by approximately $3.4 million.
Leases
The most significant estimates used by management in accounting for leases and the impact of these estimates are as follows:
Expected lease term Our expected lease term includes both contractual lease periods and cancelable option periods where failure to exercise such options would result in an economic penalty. The expected lease term 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 lease term exceeds 75%
of the leased asset's useful life. The expected lease term is also used in determining the depreciable life of the asset. An increase in the expected lease term will increase 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.
Incremental borrowing rate The incremental borrowing rate is primarily 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 is greater than 90% of the fair market value of the property. An increase in the incremental borrowing rate decreases the net present value of the minimum lease payments and reduces the probability that a lease will be considered a capital lease.
Fair market value of leased asset 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 capital lease.
Long-lived Assets
Long-lived assets, including structures and other property, plant and equipment and definite-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. Street furniture and transit displays are depreciated over their estimated useful lives or appropriate contractual periods, whichever is shorter. 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 other long-lived assets will be disposed of prior to the end of their useful lives, we estimate the revised useful lives and depreciate the assets 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 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.
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 as 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.
Indefinite-lived Intangible Assets
In connection with the Merger Agreement pursuant to which we acquired iHeartCommunications in 2008, we allocated the purchase price to all of our assets and liabilities at estimated fair values, including our FCC licenses and our billboard permits.
Indefinite-lived intangible assets, such as our FCC licenses, and our billboard permits, are reviewed annually for possible impairment using the direct valuation method as prescribed in ASC 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.Under350-30-35. 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, profit margin, and the risk-adjusted discount rate as well as other assumptions including market share, profit margin, duration and profile of the build-up period, and estimated start-up capital costs and losses incurred during the build-up period, the risk-adjusted discount rate and terminal values.costs. This data is populated using industry normalized information representing an average asset within a market.
On July 1, 2016,June 30, 2023, we performed our annualan interim impairment test in accordance with ASC 350-30-35 and recognized anwe concluded that a $363.6 million impairment of $0.7 million related to FCC Licenses in one market and did not recognize any aggregate impairment charges related to billboard permits.
the indefinite-lived intangible assets was required. In determining the fair value of our FCC licenses, the following key assumptions were used:
•Revenue growth sales forecasts and published by BIA Financial Network, Inc. (“BIA”), varying by market, and revenue growth projections made by industry analysts were used for the initial four-yearfive-year period;
•2.0% over-the-air revenue growth and 3.0% digital revenue growth was assumed beyond the initial four-yearfive-year period and 2.0% revenue growth was assumed in the terminal period;
•Revenue was grown proportionally over a build-up period, reaching market revenue forecast by year 3;
•Operating margins of 12.5%8.0% in the first year gradually climb to the industry average margin in year 3 of up to 26.5%18.2%, depending on market size; and
•Assumed discount rates of 8.5% for the 13 largest markets and 9.0%10.0% for all other markets.
In determining the fair value of our billboard permits, the following key assumptions were used:
Industry revenue growth forecast at 3.0% was used for the initial four-year period;
3.0% revenue growth was assumed beyond the initial four-year period;
Revenue was grown over a build-up period, reaching maturity by year 2;
Operating margins gradually climb to the industry average margin of up to 56.1%, depending on market size, by year 3; and
Assumed discount rate of 7.5%.
While we believe we have made reasonable estimates and utilized appropriate assumptions to calculate the fair value of our indefinite-lived intangible assets, 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 changedecrease in the fair value of our indefinite-lived intangible assets that would result from a 100 basis point decline in our discrete and terminal period revenue growth rate and profit margin assumptions and a 100 basis point increase in our discount rate assumption:
| | | | | | | | | | | | | | |
Impact on the Fair Value of our FCC Licenses due to 100 bps Change in: |
Revenue Growth Rate | | Profit Margin | | Discount Rate |
(in thousands) |
$ | 201,609 | | | $ | 155,590 | | | $ | 222,563 | |
|
| | | | | | | | | | | | |
(In thousands) | | Revenue | | Profit | | Discount |
Description | | Growth Rate | | Margin | | Rates |
FCC license | | $ | 465,102 |
| | $ | 158,468 |
| | $ | 495,326 |
|
Billboard permits | | $ | 1,138,600 |
| | $ | 162,800 |
| | $ | 1,162,700 |
|
The estimatedAt June 30, 2023, both the carrying value and fair value of our FCC licenses and billboard permits atafter the impairment of $363.6 million was $1.1 billion. Consequently, an increase in discount rates, a decrease in revenue growth rates or profit margins, or a decrease in BIA revenue forecasts could result in additional impairment to our FCC licenses.
Goodwill
We perform our annual impairment test on our goodwill as of July 1 2016 was $7.1 billion ($3.1 billion for FCC licenses and $4.0 billion for billboard permits), while the carrying value was $3.4 billion. The estimated fair value of our FCC licenses and billboard permits at July 1, 2015 was $6.1 billion ($3.0 billion for FCC licenses and $3.1 billion for billboard permits), while the carrying value was $3.5 billion.
Goodwill
Goodwill represents the excess of the purchase price over the fair value of identifiable net assets acquired in business combinations.each year. We also 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 value to the net assets of each reporting unit. To the extent that the carrying amount of net assets would exceed the fair value, an impairment charge may be required to be recorded. The impairment testing performed as of June 30, 2023 has resulted in a decrease in the fair values of our reporting units. The carrying values of our Multiplatform, Digital, and RCS reporting units exceeded their fair values. The fair value of our Katz Media reporting unit exceeded its carrying value.
The discounted cash flow approachvaluation methodology we use for valuing goodwill as partinvolves considering the implied fair values of our reporting units based on market factors including the two-step impairment testing approach involvestrading prices of our debt and equity securities, and 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.
On July 1, 2016,June 30, 2023, we performed our annualan interim impairment test in accordance with ASC 350-30-35, resulting in a goodwill$595.5 million impairment charge of $7.3 million relating to one outdoor market.goodwill. In determining the fair value of our reporting units, we considered industry and market factors including trading multiples of similar businesses and the trading prices of our debt and equity securities. For purposes of assessing the discounted future cash flows of our reporting units, we used the following assumptions:
•Expected cash flows underlying our business plans for the periods 20162023 through 2020.2027. Our cash flow assumptions are based on detailed, multi-year forecasts performed by each of our operating segments,reporting units, and reflect the current advertising outlook across our businesses.
Cash flows•Revenues beyond 20202027 are projected to grow at a perpetual growth rate, which we estimated at 2.0% for our iHM segment,Multiplatform and RCS reporting units, 3.0% for our Americas outdoor and International outdoor segments,Digital Audio reporting unit (beyond 2031), and 2.0% for our Other segment.Katz Media reporting unit (beyond 2032).
•In order to risk adjust the cash flow projections in determining fair value, we utilized a discount rate of approximately 8.0% to 11.5%discounts rates between 15% and 18% for each of our reporting units.
Based onThere were no significant changes to assumptions used for the 2023 annual impairment test. No impairment was identified related to our goodwill balance as a result of the 2023 annual assessment usingimpairment test performed during the assumptions described above, a hypothetical 10.0% reduction in the estimated fair value in each of our reporting units would not result in a material impairment condition.third quarter.
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 decline in the fair value of each of our reportable segmentsreporting units that would result from a 100 basis point decline in our discrete and terminal period revenue growth rate and profit margin assumptions and a 100 basis point increase in our discount rate assumption:
| | | | | | | | | | | | | | | | | | | | |
(In thousands) | | Impact on the Fair Value of our Goodwill due to 100bps Change in: |
Reporting Unit | | Revenue Growth Rate | | Profit Margin | | Discount Rate |
Multiplatform | | $ | 241,000 | | | $ | 137,000 | | | $ | 220,000 | |
Digital | | 62,000 | | | 66,000 | | | 63,000 | |
Katz Media | | 19,000 | | | 11,000 | | | 18,000 | |
RCS | | 10,000 | | | 5,000 | | | 8,000 | |
|
| | | | | | | | | | | | |
(In thousands) | | Revenue | | Profit | | Discount |
Description | | Growth Rate | | Margin | | Rates |
iHM | | $ | 1,080,000 |
| | $ | 280,000 |
| | $ | 1,050,000 |
|
Americas Outdoor | | $ | 860,000 |
| | $ | 180,000 |
| | $ | 820,000 |
|
International Outdoor | | $ | 330,000 |
| | $ | 210,000 |
| | $ | 260,000 |
|
An increase in discount rates or a decrease in revenue growth rates or profit margins could result in impairment charges being required to be recorded for one or more of our reporting units.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 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 believes it is more than likely than not that some portion or the entire asset will not be realized.
We use our 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. 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’s 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.
Insurance Accruals
We are currently self-insured beyond certain retention amounts for various insurance coverages, including general liability and property and casualty. Accruals are recorded based on estimates of actual claims filed, historical payouts, existing insurance coverage and projected future development of costs related to existing claims. Our self-insured liabilities contain uncertainties because management must make assumptions and apply judgment to estimate the ultimate cost to settle reported claims and claims incurred but not reported as of December 31, 2016.
If actual results are not consistent with our assumptions and judgments, we may be exposed to gains or losses that could be material. A 10% change in our self-insurance liabilities at December 31, 2016 would have affected our net loss by approximately $1.8 million for the year ended December 31, 2016.
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 results of operations could be materially impacted.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Required information is located within Part II, Item 7 of Part II of this Annual Report on Form 10-K.
10-K, under the heading Market Risk.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Report of Independent Registered Public Accounting Firm
TheTo the Stockholders and the Board of Directors and Stockholders
of iHeartMedia, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of iHeartMedia, Inc. and subsidiaries (the Company) as of December 31, 20162023 and 2015, and2022, the related consolidated statements of comprehensive loss, changes in stockholders' deficitequity (deficit) and cash flows for each of the three years in the period ended December 31, 2016. Our audits also included2023, the related notes and the financial statement scheduleschedules 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, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2023, 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, 2023, 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 29, 2024 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 Matter
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 iHeartMedia, 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 of the Public Company Accounting Oversight Board (United States), the Company’s internal control over financial reporting as of December 31, 2016, 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 23, 2017 expressed an unqualified opinion thereon.
| | | | | | | | |
| | Valuation of Goodwill and Indefinite-Lived Intangibles |
| | |
Description of the Matter | | As described in Note 1 and Note 4 to the consolidated financial statements, at December 31, 2023 the Company’s goodwill was $1.7 billion and FCC licenses with indefinite lives were $1.1 billion. Management conducts impairment tests for goodwill and indefinite-lived intangibles annually, or more frequently, if events or circumstances indicate the carrying value of goodwill or indefinite-lived intangibles may be impaired. In the second quarter, the Company performed an interim impairment test which resulted in a goodwill impairment charge of $595.5 million related to the Multiplatform, Digital Audio, and RCS reporting units, and FCC license impairment charges of $363.6 million.
Auditing management’s impairment tests for goodwill and intangible assets with indefinite lives 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 reporting units and FCC licenses. For goodwill and FCC licenses, the fair value estimates in the discounted cash flow models are sensitive to assumptions such as changes in projected revenue growth rates, earnings before interest, taxes, depreciation, and amortization (“EBITDA”) margins, and discount rates. All of these assumptions are sensitive to and affected by expected future market or economic conditions. |
| | |
How We Addressed the Matter in Our Audit
| | We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the Company’s goodwill and FCC licenses impairment review process, including controls over management’s review of the significant assumptions described above. This included evaluating controls over the Company’s forecasting process used to develop the estimated future cash flows. We also tested controls over management’s review of the data used in their valuation models and review of the significant assumptions.
To test the estimated fair values of the Company’s reporting units and FCC licenses, 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 mentioned above and estimates. We compared the projected cash flows to the Company’s historical cash flows and other available 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 testing the discount rates. We assessed the historical accuracy of management’s estimates and performed sensitivity analyses of significant assumptions to evaluate the changes in the fair value of the reporting units and FCC licenses that would result from changes in the assumptions. In addition, for goodwill we also tested management’s reconciliation of the fair value of the reporting units to the market capitalization of the Company. |
/s/ Ernst & Young LLP
We have served as the Company’s auditor since at least 1986, but we are unable to determine the specific year.
San Antonio, Texas
February 23, 2017
29, 2024
CONSOLIDATED BALANCE SHEETS OF
IHEARTMEDIA, INC. AND SUBSIDIARIES
| | | | | | | | | | | |
(In thousands, except share and per share data) | December 31, 2023 | | December 31, 2022 |
Cash and cash equivalents | $ | 346,382 | | | $ | 336,236 | |
Accounts receivable, net of allowance of $38,055 in 2023 and $29,171 in 2022 | 1,041,214 | | | 1,037,827 | |
Prepaid expenses | 93,131 | | | 79,098 | |
| | | |
Other current assets | 26,189 | | | 19,618 | |
| | | |
Total Current Assets | 1,506,916 | | | 1,472,779 | |
PROPERTY, PLANT AND EQUIPMENT | | | |
| | | |
Property, plant and equipment, net | 558,865 | | | 694,842 | |
INTANGIBLE ASSETS AND GOODWILL | | | |
Indefinite-lived intangibles - licenses | 1,113,979 | | | 1,476,319 | |
Other intangibles, net | 1,173,210 | | | 1,419,670 | |
Goodwill | 1,721,483 | | | 2,313,403 | |
OTHER ASSETS | | | |
Operating lease right-of-use assets | 704,992 | | | 788,280 | |
Other assets | 173,166 | | | 170,594 | |
Total Assets | $ | 6,952,611 | | | $ | 8,335,887 | |
CURRENT LIABILITIES | | | |
Accounts payable | $ | 236,162 | | | $ | 240,454 | |
Current operating lease liabilities | 73,832 | | | 70,024 | |
Accrued expenses | 317,575 | | | 325,427 | |
Accrued interest | 61,987 | | | 64,165 | |
Deferred revenue | 158,540 | | | 131,084 | |
Current portion of long-term debt | 340 | | | 664 | |
Total Current Liabilities | 848,436 | | | 831,818 | |
Long-term debt | 5,214,810 | | | 5,413,503 | |
Noncurrent operating lease liabilities | 762,820 | | | 848,918 | |
Deferred income taxes | 339,768 | | | 483,810 | |
Other long-term liabilities | 171,535 | | | 73,332 | |
Commitments and contingent liabilities (Note 7) | | | |
STOCKHOLDERS’ EQUITY (DEFICIT) | | | |
Noncontrolling interest | 9,397 | | | 9,609 | |
Preferred stock, par value $.001 per share, 100,000,000 shares authorized, no shares issued and outstanding | — | | | — | |
Class A Common Stock, par value $.001 per share, authorized 1,000,000,000 shares, issued and outstanding 124,299,288 and 122,370,425 shares in 2023 and 2022, respectively | 125 | | | 123 | |
Class B Common Stock, par value $.001 per share, authorized 1,000,000,000 shares, issued and outstanding 21,347,363 and 21,477,181 shares in 2023 and 2022, respectively | 21 | | | 21 | |
Special Warrants, 5,101,870 and 5,111,312 issued and outstanding in 2023 and 2022, respectively | — | | | — | |
Additional paid-in capital | 2,947,096 | | | 2,912,500 | |
Accumulated deficit | (3,330,142) | | | (2,227,482) | |
Accumulated other comprehensive loss | (1,128) | | | (1,331) | |
Cost of shares (983,589 in 2023 and 597,482 in 2022) held in treasury | (10,127) | | | (8,934) | |
Total Stockholders' Equity (Deficit) | (384,758) | | | 684,506 | |
Total Liabilities and Stockholders' Equity (Deficit) | $ | 6,952,611 | | | $ | 8,335,887 | |
|
| | | | | | | |
(In thousands) | December 31, | | December 31, |
| 2016 | | 2015 |
CURRENT ASSETS | | | |
Cash and cash equivalents | $ | 845,030 |
| | $ | 772,678 |
|
Accounts receivable, net of allowance of $33,882 in 2016 and $34,889 in 2015 | 1,364,404 |
| | 1,442,038 |
|
Prepaid expenses | 184,586 |
| | 189,055 |
|
Assets held for sale | 55,602 |
| | 295,075 |
|
Other current assets | 55,065 |
| | 79,269 |
|
Total Current Assets | 2,504,687 |
| | 2,778,115 |
|
PROPERTY, PLANT AND EQUIPMENT | | | |
Structures, net | 1,196,676 |
| | 1,391,880 |
|
Other property, plant and equipment, net | 751,486 |
| | 820,676 |
|
INTANGIBLE ASSETS AND GOODWILL | | | |
Indefinite-lived intangibles - licenses | 2,413,899 |
| | 2,413,483 |
|
Indefinite-lived intangibles - permits | 960,966 |
| | 971,327 |
|
Other intangibles, net | 740,508 |
| | 953,660 |
|
Goodwill | 4,066,575 |
| | 4,128,887 |
|
OTHER ASSETS | | | |
Other assets | 227,450 |
| | 215,087 |
|
Total Assets | $ | 12,862,247 |
| | $ | 13,673,115 |
|
CURRENT LIABILITIES | | | |
Accounts payable | $ | 146,772 |
| | $ | 153,276 |
|
Accrued expenses | 742,617 |
| | 834,416 |
|
Accrued interest | 264,170 |
| | 279,100 |
|
Deferred income | 200,103 |
| | 210,924 |
|
Current portion of long-term debt | 342,908 |
| | 181,512 |
|
Total Current Liabilities | 1,696,570 |
| | 1,659,228 |
|
Long-term debt | 20,022,080 |
| | 20,539,099 |
|
Deferred income taxes | 1,457,095 |
| | 1,554,898 |
|
Other long-term liabilities | 571,977 |
| | 526,571 |
|
Commitments and contingent liabilities (Note 6) |
|
| |
|
|
STOCKHOLDERS’ DEFICIT | | | |
Noncontrolling interest | 135,183 |
| | 177,615 |
|
Class A Common Stock, par value $.001 per share, authorized 400,000,000 shares, issued 31,502,448 and 30,295,457 shares in 2016 and 2015, respectively | 31 |
| | 30 |
|
Class B Common Stock, par value $.001 per share, authorized 150,000,000 shares, issued 555,556 shares in 2016 and 2015 | 1 |
| | 1 |
|
Class C Common Stock, par value $.001 per share, authorized 100,000,000 shares, issued 58,967,502 shares in 2016 and 2015 | 59 |
| | 59 |
|
Additional paid-in capital | 2,070,575 |
| | 2,068,949 |
|
Accumulated deficit | (12,733,329 | ) | | (12,437,011 | ) |
Accumulated other comprehensive loss | (355,876 | ) | | (414,407 | ) |
Cost of shares (389,920 in 2016 and 229,824 in 2015) held in treasury | (2,119 | ) | | (1,917 | ) |
Total Stockholders' Deficit | (10,885,475 | ) | | (10,606,681 | ) |
Total Liabilities and Stockholders' Deficit | $ | 12,862,247 |
| | $ | 13,673,115 |
|
See Notes to Consolidated Financial Statements
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS OF
IHEARTMEDIA, INC.AND SUBSIDIARIES
| | (In thousands) | Years Ended December 31, |
| 2016 | | 2015 | | 2014 |
(In thousands, except per share data) | | (In thousands, except per share data) | Year Ended December 31, |
| 2023 | | | 2023 | | 2022 | | 2021 |
Revenue | $ | 6,273,573 |
| | $ | 6,241,516 |
| | $ | 6,318,533 |
|
Operating expenses: | | | | | |
Direct operating expenses (excludes depreciation and amortization) | 2,412,287 |
| | 2,471,113 |
| | 2,540,035 |
|
Direct operating expenses (excludes depreciation and amortization) | |
Direct operating expenses (excludes depreciation and amortization) | |
Selling, general and administrative expenses (excludes depreciation and amortization) | 1,725,899 |
| | 1,704,352 |
| | 1,680,938 |
|
Corporate expenses (excludes depreciation and amortization) | 341,025 |
| | 314,999 |
| | 320,931 |
|
| Depreciation and amortization | |
Depreciation and amortization | |
Depreciation and amortization | 635,227 |
| | 673,991 |
| | 710,898 |
|
Impairment charges | 8,000 |
| | 21,631 |
| | 24,176 |
|
Other operating income, net | 353,556 |
| | 94,001 |
| | 40,031 |
|
Operating income | 1,504,691 |
| | 1,149,431 |
| | 1,081,586 |
|
Interest expense | 1,849,982 |
| | 1,805,496 |
| | 1,741,596 |
|
Loss on investments, net | (12,907 | ) | | (4,421 | ) | | — |
|
Other operating expense, net | |
Operating income (loss) | |
Interest expense, net | |
Gain (loss) on investments, net | |
Equity in loss of nonconsolidated affiliates | (16,733 | ) | | (902 | ) | | (9,416 | ) |
Gain (loss) on extinguishment of debt | 157,556 |
| | (2,201 | ) | | (43,347 | ) |
Other income (expense), net | (73,102 | ) | | 13,056 |
| | 9,104 |
|
Other expense, net | |
| Loss before income taxes | |
Loss before income taxes | |
Loss before income taxes | (290,477 | ) | | (650,533 | ) | | (703,669 | ) |
Income tax benefit (expense) | 50,474 |
| | (86,957 | ) | | (58,489 | ) |
Consolidated net loss | (240,003 | ) | | (737,490 | ) | | (762,158 | ) |
Net loss | |
Less amount attributable to noncontrolling interest | 56,315 |
| | 17,131 |
| | 31,603 |
|
Net loss attributable to the Company | $ | (296,318 | ) | | $ | (754,621 | ) | | $ | (793,761 | ) |
Other comprehensive income (loss), net of tax: | | | | | |
Other comprehensive income (loss) net of tax: | |
Foreign currency translation adjustments | 21,983 |
| | (114,906 | ) | | (121,878 | ) |
Unrealized gain on securities and derivatives: | | | | | |
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 |
| | 3,317 |
|
Other comprehensive income (loss) | 56,323 |
| | (123,811 | ) | | (129,672 | ) |
Foreign currency translation adjustments | |
Foreign currency translation adjustments | |
| Other Comprehensive income (loss) | |
| Other Comprehensive income (loss) | |
| Other Comprehensive income (loss) | |
Comprehensive loss | (239,995 | ) | | (878,432 | ) | | (923,433 | ) |
Less amount attributable to noncontrolling interest | (2,208 | ) | | (22,410 | ) | | (21,080 | ) |
Comprehensive loss attributable to the Company | $ | (237,787 | ) | | $ | (856,022 | ) | | $ | (902,353 | ) |
| | | | | |
Net loss attributable to the Company per common share: | | | | | |
Net loss attributable to the Company per common share: | |
Net loss attributable to the Company per common share: | |
Basic | |
Basic | |
Basic | $ | (3.50 | ) | | $ | (8.95 | ) | | $ | (9.46 | ) |
Weighted average common shares outstanding - Basic | 84,569 |
| | 84,278 |
| | 83,941 |
|
Diluted | $ | (3.50 | ) | | $ | (8.95 | ) | | $ | (9.46 | ) |
Weighted average common shares outstanding - Diluted | 84,569 |
| | 84,278 |
| | 83,941 |
|
See Notes to Consolidated Financial Statements
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICITEQUITY (DEFICIT) OF
IHEARTMEDIA, INC. AND SUBSIDIARIES
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(In thousands, except share data) | | | | Controlling Interest | | |
| Common Shares | | Non- controlling Interest | | Common Stock | | Additional Paid-in Capital | | Accumulated Deficit | | Accumulated Other Comprehensive Income (Loss) | | Treasury Stock | | |
| Class C Shares | | Class B Shares | | Class A Shares | | | | | | | | Total |
Balances at December 31, 2013 | 58,967,502 |
| | 555,556 |
| | 29,504,379 |
| | $ | 245,531 |
| | $ | 89 |
| | $ | 2,148,303 |
| | $ | (10,888,629 | ) | | $ | (196,073 | ) | | $ | (5,856 | ) | | $ | (8,696,635 | ) |
Net income (loss) | | | | | | | 31,603 |
| | — |
| | — |
| | (793,761 | ) | | — |
| | — |
| | (762,158 | ) |
Issuance (forfeiture) of restricted stock | | | | | (196,796 | ) | | 2,237 |
| | — |
| | — |
| | — |
| | — |
| | (993 | ) | | 1,244 |
|
Amortization of share-based compensation | | | | | | | 7,743 |
| | — |
| | 2,970 |
| | — |
| | — |
| | — |
| | 10,713 |
|
Purchases of additional noncontrolling interest | | | | | | | (1,944 | ) | | — |
| | (42,881 | ) | | — |
| | (3,925 | ) | | — |
| | (48,750 | ) |
Dividend declared and paid to noncontrolling interests | | | | | | | (40,027 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | (40,027 | ) |
Other | | | | | | | 77 |
| | — |
| | (5,603 | ) | | — |
| | — |
| | 5,603 |
| | 77 |
|
Other comprehensive loss | | | | | | | (21,080 | ) | | — |
| | — |
| | — |
| | (108,592 | ) | | — |
| | (129,672 | ) |
Balances at December 31, 2014 | 58,967,502 |
| | 555,556 |
| | 29,307,583 |
| | $ | 224,140 |
| | $ | 89 |
| | $ | 2,102,789 |
| | $ | (11,682,390 | ) | | $ | (308,590 | ) | | $ | (1,246 | ) | | $ | (9,665,208 | ) |
Net income (loss) | | | | | | | 17,131 |
| | — |
| | — |
| | (754,621 | ) | | — |
| | — |
| | (737,490 | ) |
Issuance (forfeiture) of restricted stock | | | | | 987,874 |
| | 2,886 |
| | 1 |
| | (1 | ) | | — |
| | — |
| | (671 | ) | | 2,215 |
|
Amortization of share-based compensation | | | | | | | 8,359 |
| | — |
| | 2,564 |
| | — |
| | — |
| | — |
| | 10,923 |
|
Purchases of additional noncontrolling interest | | | | | | | (1,978 | ) | | — |
| | (36,403 | ) | | — |
| | (4,416 | ) | | — |
| | (42,797 | ) |
Dividend declared and paid to noncontrolling interests | | | | | | | (52,384 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | (52,384 | ) |
Other | | | | | | | 1,871 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 1,871 |
|
Other comprehensive loss | | | | | | | (22,410 | ) | | — |
| | — |
| | — |
| | (101,401 | ) | | — |
| | (123,811 | ) |
Balances at December 31, 2015 | 58,967,502 |
| | 555,556 |
| | 30,295,457 |
| | $ | 177,615 |
| | $ | 90 |
| | $ | 2,068,949 |
| | $ | (12,437,011 | ) | | $ | (414,407 | ) | | $ | (1,917 | ) | | $ | (10,606,681 | ) |
Net income (loss) | | | | | | | 56,315 |
| | — |
| | — |
| | (296,318 | ) | | — |
| | — |
| | (240,003 | ) |
Issuance (forfeiture) of restricted stock | | | | | 1,206,991 |
| | (1,366 | ) | | 1 |
| | (1 | ) | | — |
| | — |
| | (199 | ) | | (1,565 | ) |
Amortization of share-based compensation | | | | | | | 10,238 |
| | — |
| | 2,848 |
| | — |
| | — |
| | — |
| | 13,086 |
|
Purchases of additional noncontrolling interest | | | | | | | 1,224 |
| | — |
| | (1,224 | ) | | — |
| | — |
| | — |
| | — |
|
Disposal of noncontrolling interest | | | | | | | (36,846 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | (36,846 | ) |
Dividend declared and paid to noncontrolling interests | | | | | | | (70,412 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | (70,412 | ) |
Other | | | | | | | 623 |
| | — |
| | 3 |
| | — |
| | — |
| | (3 | ) | | 623 |
|
Other comprehensive income | | | | | | | (2,208 | ) | | — |
| | — |
| | — |
| | 58,531 |
| | — |
| | 56,323 |
|
Balances at December 31, 2016 | 58,967,502 |
| | 555,556 |
| | 31,502,448 |
| | $ | 135,183 |
| | $ | 91 |
| | $ | 2,070,575 |
| | $ | (12,733,329 | ) | | $ | (355,876 | ) | | $ | (2,119 | ) | | $ | (10,885,475 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(In thousands, except share data) | | | | | | | | | Controlling Interest | | |
| Common Shares(1) | | Non- controlling Interest | | Common Stock | | Additional Paid-in Capital | | Accumulated Deficit | | Accumulated Other Comprehensive Income (Loss) | | Treasury Stock | | |
| Class A Shares | | Class B Shares | | Special Warrants | | | | | | | | Total |
Balances at December 31, 2020 | 64,726,864 | | | 6,886,925 | | | 74,835,899 | | | $ | 8,350 | | | $ | 72 | | | $ | 2,849,020 | | | $ | (1,803,620) | | | $ | 194 | | | $ | (3,199) | | | $ | 1,050,817 | |
Net income (loss) | | | | | | | 810 | | | — | | | — | | | (159,199) | | | — | | | — | | | (158,389) | |
Vesting of restricted stock and other | 1,075,889 | | | | | | | — | | | — | | | 4,078 | | | — | | | — | | | (3,083) | | | 995 | |
Share-based compensation | | | | | | | — | | | — | | | 23,543 | | | — | | | — | | | — | | | 23,543 | |
Conversion of Special Warrants to Class A and B Shares | 47,197,139 | | | 22,337,312 | | | (69,534,451) | | | — | | | 70 | | | (70) | | | — | | | — | | | — | | | — | |
Conversion of Class B Shares to Class A Shares | 7,634,045 | | | (7,634,045) | | | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Other | | | | | 2,982 | | | (750) | | | — | | | — | | | — | | | — | | | — | | | (750) | |
Other comprehensive loss | | | | | | | — | | | — | | | — | | | — | | | (451) | | | — | | | (451) | |
Balances at December 31, 2021 | 120,633,937 | | | 21,590,192 | | | 5,304,430 | | | $ | 8,410 | | | $ | 142 | | | $ | 2,876,571 | | | $ | (1,962,819) | | | $ | (257) | | | $ | (6,282) | | | $ | 915,765 | |
Net income (loss) | | | | | | | 1,993 | | | — | | | — | | | (264,663) | | | — | | | — | | | (262,670) | |
Vesting of restricted stock and other | 1,430,359 | | | | | | | — | | | 2 | | | 472 | | | — | | | — | | | (2,652) | | | (2,178) | |
Share-based compensation | | | | | | | — | | | — | | | 35,457 | | | — | | | — | | | — | | | 35,457 | |
Conversion of Special Warrants to Class A and B Shares | 96,516 | | | 96,602 | | | (193,118) | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Conversion of Class B Shares to Class A Shares | 209,613 | | | (209,613) | | | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Other | | | | | | | (794) | | | — | | | — | | | — | | | — | | | — | | | (794) | |
Other comprehensive loss | | | | | | | — | | | — | | | — | | | — | | | (1,074) | | | — | | | (1,074) | |
Balances at December 31, 2022 | 122,370,425 | | | 21,477,181 | | | 5,111,312 | | | $ | 9,609 | | | $ | 144 | | | $ | 2,912,500 | | | $ | (2,227,482) | | | $ | (1,331) | | | $ | (8,934) | | | $ | 684,506 | |
Net income (loss) | | | | | | | 2,321 | | | — | | | — | | | (1,102,660) | | | — | | | — | | | (1,100,339) | |
Vesting of restricted stock and other | 1,789,603 | | | | | | | — | | | 2 | | | (2) | | | — | | | — | | | (1,193) | | | (1,193) | |
| | | | | | | | | | | | | | | | | | | |
Share-based compensation | | | | | | | — | | | — | | | 34,598 | | | — | | | — | | | — | | | 34,598 | |
Conversion of Special Warrants to Class A and B Shares | 9,383 | | | 59 | | | (9,442) | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Conversion of Class B Shares to Class A Shares | 129,877 | | | (129,877) | | | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Other | | | | | | | (2,533) | | | — | | | — | | | — | | | — | | | — | | | (2,533) | |
Other comprehensive income | | | | | | | — | | | — | | | — | | | — | | | 203 | | | — | | | 203 | |
Balances at December 31, 2023 | 124,299,288 | | | 21,347,363 | | | 5,101,870 | | | $ | 9,397 | | | $ | 146 | | | $ | 2,947,096 | | | $ | (3,330,142) | | | $ | (1,128) | | | $ | (10,127) | | | $ | (384,758) | |
(1) The Company's Preferred Stock is not presented in the data above as there were no shares issued and outstanding in 2023, 2022, 2021, or 2020, respectively.
See Notes to Consolidated Financial Statements
CONSOLIDATED STATEMENTS OF CASH FLOWS OF
IHEARTMEDIA, INC. AND SUBSIDIARIES
|
| | | | | | | | | | | |
(In thousands) | Years Ended December 31, |
| 2016 | | 2015 | | 2014 |
Cash flows from operating activities: | | | | | |
Consolidated net loss | $ | (240,003 | ) | | $ | (737,490 | ) | | $ | (762,158 | ) |
Reconciling items: | | | | | |
Impairment charges | 8,000 |
| | 21,631 |
| | 24,176 |
|
Depreciation and amortization | 635,227 |
| | 673,991 |
| | 710,898 |
|
Deferred taxes | (98,127 | ) | | 27,848 |
| | 33,923 |
|
Provision for doubtful accounts | 27,390 |
| | 30,579 |
| | 14,167 |
|
Amortization of deferred financing charges and note discounts, net | 69,951 |
| | 63,838 |
| | 89,701 |
|
Share-based compensation | 13,086 |
| | 10,923 |
| | 10,713 |
|
Gain on disposal of operating and other assets | (365,710 | ) | | (107,186 | ) | | (44,512 | ) |
Loss on investments | 12,907 |
| | 4,421 |
| | — |
|
Equity in loss of nonconsolidated affiliates | 16,733 |
| | 902 |
| | 9,416 |
|
(Gain) loss on extinguishment of debt | (157,556 | ) | | 2,201 |
| | 43,347 |
|
Other reconciling items, net | 33,120 |
| | (28,490 | ) | | (14,325 | ) |
Changes in operating assets and liabilities, net of effects of acquisitions and dispositions: | | | | | |
Increase in accounts receivable | (14,469 | ) | | (121,574 | ) | | (13,898 | ) |
(Increase) decrease in prepaid expenses and other current assets | (2,753 | ) | | (20,631 | ) | | 15,216 |
|
Increase (decrease) in accrued expenses | (2,862 | ) | | (15,841 | ) | | 31,049 |
|
Increase in accounts payable | 3,065 |
| | 27,385 |
| | 6,404 |
|
Increase in accrued interest | 20,809 |
| | 59,608 |
| | 88,560 |
|
Increase in deferred income | 23,661 |
| | 23,516 |
| | 11,288 |
|
Changes in other operating assets and liabilities | 3,549 |
| | 7,065 |
| | (8,849 | ) |
Net cash provided by (used for) operating activities | (13,982 | ) | | (77,304 | ) | | 245,116 |
|
Cash flows from investing activities: | | | | | |
Proceeds from sale of other investments | 5,367 |
| | 579 |
| | 236,618 |
|
Purchases of businesses | (500 | ) | | (27,588 | ) | | 841 |
|
Purchases of property, plant and equipment | (314,717 | ) | | (296,380 | ) | | (318,164 | ) |
Proceeds from disposal of assets | 856,981 |
| | 414,278 |
| | 10,273 |
|
Purchases of other operating assets | (4,414 | ) | | (29,159 | ) | | (4,541 | ) |
Purchases of investments | (29,031 | ) | | (29,006 | ) | | (8,520 | ) |
Change in other, net | (2,771 | ) | | (2,490 | ) | | (5,189 | ) |
Net cash provided by (used for) investing activities | 510,915 |
| | 30,234 |
| | (88,682 | ) |
Cash flows from financing activities: | | | | | |
Draws on credit facilities | 100,000 |
| | 350,000 |
| | 68,010 |
|
Payments on credit facilities | (2,100 | ) | | (123,849 | ) | | (315,682 | ) |
Proceeds from long-term debt | 6,856 |
| | 1,172,777 |
| | 2,062,475 |
|
Payments on long-term debt | (421,263 | ) | | (931,420 | ) | | (2,099,101 | ) |
Payments to repurchase noncontrolling interests | — |
| | (42,797 | ) | | (48,750 | ) |
Dividends and other payments to noncontrolling interests | (89,631 | ) | | (30,871 | ) | | (40,027 | ) |
Deferred financing charges | (10,529 | ) | | (18,644 | ) | | (26,169 | ) |
Change in other, net | (1,564 | ) | | 2,214 |
| | 1,243 |
|
Net cash provided by (used for) financing activities | (418,231 | ) | | 377,410 |
| | (398,001 | ) |
Effect of exchange rate changes on cash | (6,350 | ) | | (14,686 | ) | | (9,560 | ) |
Net increase (decrease) in cash and cash equivalents | 72,352 |
| | 315,654 |
| | (251,127 | ) |
Cash and cash equivalents at beginning of period | 772,678 |
| | 457,024 |
| | 708,151 |
|
Cash and cash equivalents at end of period | $ | 845,030 |
| | $ | 772,678 |
| | $ | 457,024 |
|
SUPPLEMENTAL DISCLOSURES: | | | | | |
Cash paid during the year for interest | $ | 1,764,776 |
| | $ | 1,686,988 |
| | $ | 1,540,860 |
|
Cash paid during the year for taxes | 44,844 |
| | 52,169 |
| | 53,074 |
|
| | | | | | | | | | | | | | | | | |
(In thousands) | Year Ended December 31, |
| 2023 | | 2022 | | 2021 |
Cash flows from operating activities: | | | | | |
Net loss | $ | (1,100,339) | | | $ | (262,670) | | | $ | (158,389) | |
| | | | | |
Reconciling items: | | | | | |
Impairment charges | 965,087 | | | 311,489 | | | 57,734 | |
Depreciation and amortization | 428,483 | | | 445,664 | | | 469,417 | |
Deferred taxes | (144,588) | | | (74,418) | | | (10,874) | |
Provision for doubtful accounts | 29,488 | | | 14,236 | | | 4,144 | |
Amortization of deferred financing charges and note discounts, net | 6,739 | | | 6,234 | | | 5,930 | |
Share-based compensation | 34,598 | | | 35,457 | | | 23,543 | |
Loss on disposal of operating and other assets | 2,290 | | | 23,306 | | | 26,841 | |
(Gain) loss on investments | 28,130 | | | 1,045 | | | (43,643) | |
(Gain) loss on extinguishment of debt | (56,724) | | | (30,214) | | | 11,600 | |
Barter and trade income | (33,315) | | | (40,652) | | | (16,276) | |
Equity in loss of nonconsolidated affiliates | 3,530 | | | 11 | | | 1,138 | |
Other reconciling items, net | 347 | | | 692 | | | 890 | |
Changes in operating assets and liabilities, net of effects of acquisitions and dispositions: | | | | | |
Increase in accounts receivable | (31,091) | | | (20,867) | | | (205,200) | |
(Increase) decrease in prepaid expenses and other current assets | (26,485) | | | (13,362) | | | 4,746 | |
(Increase) decrease in other long-term assets | 7,269 | | | (4,776) | | | (5,505) | |
Increase in accounts payable and accrued expenses | 28,217 | | | 22,671 | | | 153,938 | |
Decrease in accrued interest | (2,177) | | | (3,818) | | | (72) | |
Increase in deferred revenue | 18,495 | | | 2,707 | | | 8,229 | |
Increase in other long-term liabilities | 55,108 | | | 7,340 | | | 2,382 | |
Net cash provided by operating activities | 213,062 | | | 420,075 | | | 330,573 | |
Cash flows from investing activities: | | | | | |
Business combinations | (4,939) | | | — | | | (245,462) | |
Proceeds from sale of investments | 3,864 | | | 902 | | | 50,757 | |
Proceeds from disposal of assets | 56,956 | | | 36,830 | | | 37,463 | |
Purchases of property, plant and equipment | (102,670) | | | (160,969) | | | (183,372) | |
| | | | | |
| | | | | |
Change in other, net | (4,545) | | | (5,989) | | | (6,176) | |
Net cash used for investing activities | (51,334) | | | (129,226) | | | (346,790) | |
Cash flows from financing activities: | | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
Payments on long-term debt and credit facilities | (148,433) | | | (300,135) | | | (352,383) | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
Change in other, net | (3,725) | | | (5,973) | | | 259 | |
Net cash used for financing activities | (152,158) | | | (306,108) | | | (352,124) | |
Effect of exchange rate changes on cash | 151 | | | (634) | | | (292) | |
Net increase (decrease) in cash, cash equivalents and restricted cash | 9,721 | | | (15,893) | | | (368,633) | |
Cash, cash equivalents and restricted cash at beginning of period | 336,661 | | | 352,554 | | | 721,187 | |
Cash, cash equivalents and restricted cash at end of period | $ | 346,382 | | | $ | 336,661 | | | $ | 352,554 | |
SUPPLEMENTAL DISCLOSURES: | | | | | |
Cash paid during the year for interest | $ | 392,687 | | | $ | 342,393 | | | $ | 328,101 | |
Cash paid during the year for income taxes | 14,006 | | | 35,417 | | | 11,130 | |
See Notes to Consolidated Financial Statements
IHEARTMEDIA, INC.AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1–SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business
iHeartMedia, Inc. (the “Company”“Company,” "iHeartMedia," "we" or "us") was formed in May 2007 by private equity funds sponsored by Bain Capital Partners, LLC and Thomas H. Lee Partners, L.P. (together, the “Sponsors”) for the purpose of acquiring the business of iHeartCommunications, Inc., a Texas company (“iHeartCommunications”). The acquisition was completed, which occurred on July 30, 2008 pursuant2008. Prior to the Agreementconsummation of the acquisition of iHeartCommunications, iHeartMedia had not conducted any activities, other than activities incident to its formation in connection with the acquisition, and Plandid not have any assets or liabilities, other than those related to the acquisition. In 2018, the Company filed voluntary petitions for relief under Chapter 11 of Merger, dated November 16, 2006, as amended on April 18, 2007, May 17, 2007the United States Bankruptcy Code, and May 13, 2008 (the “Merger Agreement”in 2019, the Company emerged from Chapter 11 through a series of transactions that resulted in a decrease in the Company's debt ("Emergence").
The Company’sCompany reports based on three reportable segments are iHeartMedia (“iHM”), Americas outdoor advertising (“Americas outdoor”),segments:
•the Multiplatform Group, which includes the Company's Broadcast radio, Networks and International outdoor advertising (“International outdoor”). The iHM segment provides mediaSponsorships and entertainment services via broadcastEvents businesses;
•the Digital Audio Group, which includes all of the Company's Digital businesses, including Podcasting; and digital delivery. The Americas outdoor and International outdoor segments provide outdoor advertising services in their respective geographic regions using various digital and traditional display types. Included in
•the “Other” category are the Company’sAudio & Media Services Group, which includes Katz Media, a full-service media representation business, Katz Media Group,and RCS, a provider of scheduling and broadcast software and services.
These reporting segments reflect how senior management operates the Company. This structure provides visibility into the underlying performances, results, and margin profiles of our distinct businesses and enables senior management to monitor trends at the operational level and address opportunities or issues as they arise via regular review of segment-level results and forecasts with operational leaders.
The Company's segment profitability metric is Segment Adjusted EBITDA which is reported to the Company's Chief Operating Decision Maker 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 operating expenses, excluding restructuring expenses and share-based compensation expenses. Restructuring expenses include severance and other expenses incurred in connection with cost saving initiatives, as well as certain expenses, which, in the view of management, are outside the ordinary course of business or otherwise not representative of the Company's operations during a normal business cycle.
Economic Conditions
The Company's advertising revenue, cash flows, and cost of capital are impacted by changes in economic conditions. Higher interest rates and high inflation have contributed to a challenging macroeconomic environment since 2022. This challenging environment has led to broader market uncertainty which has impacted the Company's revenues and cash flows. The current market uncertainty and macroeconomic conditions, a recession, or a downturn in the U.S. economy could have a significant impact on the Company's ability to generate revenue and cash flows.
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security (“CARES Act”) was signed into law. The CARES Act, among other general support servicesthings, includes provisions relating to refundable payroll tax credits, deferment of employer side social security payments, net operating loss carryback periods, alternative minimum tax credit refunds, modifications to the net interest deduction limitations and initiatives,technical corrections to tax depreciation methods for qualified improvement property. The Company was able to defer the payment of $29.3 million in certain employment taxes during 2020, half of which are ancillarywas due and paid on January 3, 2022 and the other half was due and paid on January 3, 2023. In addition, the Company claimed $12.4 million in refundable payroll tax credits related to the CARES Act provisions, of which $0.7 million was received in 2020, $3.8 million was received in 2021 and $7.9 million was received in 2022.
IHEARTMEDIA, INC.AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Economic uncertainty due to inflation and higher interest rates since 2022 has resulted in, among other things, lower advertising spending by businesses. This challenging economic environment has led to broader market uncertainty, has delayed our expected recovery, and has had an adverse impact on the Company's revenues, cash flows, and trading values of the Company's debt and equity securities which indicated a need for the Company to perform an interim impairment test as of June 30, 2023 on the goodwill recorded in its other businesses.reporting units, as well as its indefinite-lived Federal Communication Commission ("FCC") licenses. The June 30, 2023 testing resulted in non-cash impairment charges of $595.5 million and $363.6 million to reduce the goodwill and FCC license balances, respectively. No impairment was required as a result of the 2023 annual impairment testing.
As of December 31, 2023, the Company had $346.4 million in cash and cash equivalents, and the $450.0 million senior secured asset-based revolving credit facility entered into on May 17, 2022 (the "ABL Facility") had a facility size of $450.0 million, no outstanding borrowings and $24.3 million of outstanding letters of credit, resulting in $425.7 million of borrowing base availability. The Company's total available liquidity as of December 31, 2023 was approximately $772.1 million. Based on current available liquidity, the Company expects to be able to meet its obligations as they become due over the coming year.
Use of Estimates
The preparation of the consolidated financial statements in conformity with U.S. generally accepted accounting principles (“GAAP”) requires management to make estimates, judgments, and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes including, but not limited to, legal, tax and insurance 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 Consolidation
The consolidated financial statements include the accounts of the Company and its subsidiaries. Also included in the consolidated financial statements are entities for which the Company has a controlling financial interest or is the primary beneficiary. Investments in companies in which the Company owns 20% to 50% of the voting common stock or otherwise exercises significant influence over operating and financial policies of the Company are accounted for using the equity method of accounting. All significant intercompany accounts have been eliminated in consolidation.
Certain prior period amounts have been reclassified to conform to the 2016 presentation. Included in International Outdoor Direct operating expenses and Selling, general and administrative 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 for our Netherlands subsidiary reported in prior years. Such corrections are not considered to be material to current year or prior year financial results.
The Company is the beneficiary of two trusts created to comply with Federal Communications Commission (“FCC”) ownership rules. The radio stations owned by the trusts are managed by independent trustees. The trustees are marketing these stations for sale, and the stations will have to be sold unless any stations may be owned by the Company under then-current FCC rules, in which case the trusts will be terminated with respect to such stations. The trust agreements stipulate that the Company must fund any operating shortfalls of the trust activities, and any excess cash flow generated by the trusts is distributed to the Company. The Company is also the beneficiary of proceeds from the sale of stations held in the trusts. The Company consolidates the trusts in accordance with ASC 810-10, which requires an enterprise involved with variable interest entities to perform an analysis to determine whether the enterprise’s variable interest or interests give it a controlling financial interest in the variable interest entity, as the trusts were determined to be a variable interest entity and the Company is the primary beneficiary under the trusts.
Going Concern Considerations
During the second quarter of 2014, the FASB issued ASU No. 2014-15, Presentation of Financial Statements - Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity's Ability 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. The Company adopted this standard for the year ended December 31, 2016. Under this standard, the Company is required to evaluate whether there is substantial doubt about its ability to continue as a going concern each reporting period, including interim periods.
In evaluating the Company’s ability to continue as a going concern, management considered the conditions and events that could raise substantial doubt about the Company’s ability to continue as a going concern within 12 months after the Company’s financial
IHEARTMEDIA, INC.AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
statements were issued (February 23, 2017). Management considered the Company’s current financial condition and liquidity sources, including current funds available, forecasted future cash flows and the Company’s conditional and unconditional obligations due before February 23, 2018.
As of December 31, 2016, the Company had $845.0 million of cash on its balance sheet, including $542.0 million of cash held by the Company's subsidiary, Clear Channel Outdoor Holdings, Inc. ("CCOH"). As of December 31, 2016, the Company had $113.6 million of excess availability under its receivables based credit facility. A substantial amount of the Company's cash requirements are for debt service obligations. The Company incurred net losses for the years ended December 31, 2016, 2015 and 2014 and had negative cash flows from operating activities for the years ended December 31, 2016 and 2015. The Company's current operating plan indicates it will continue to incur net losses and generate negative cash flows from operating activities given the Company's indebtedness and related interest expense. During the year ended December 31, 2016, the Company spent $2,081.3 million of cash on payments of principal and interest on its debt, net of facility draws and proceeds received, and anticipates having approximately $1.7 billion of cash interest payment obligations in 2017. At December 31, 2016, the Company had debt maturities totaling $343.5 million, $559.1 million (net of $503.0 million due to certain subsidiaries of iHeartCommunications) and $8,369.0 million in 2017, 2018 and 2019, respectively. The Company's debt maturities at December 31, 2016 include $330.0 million outstanding under a receivables based credit facility, which matures on December 24, 2017. These factors coupled with the Company's forecast of future cash flows indicates that such cash flows would not be sufficient for the Company to meet its obligations, including payment of the outstanding receivables based credit facility balance at maturity, as they become due in the ordinary course of business for a period of12 months following February 23, 2017.
The Company plans to refinance or extend the receivables based credit facility to a date at least 12 months after February 23, 2017 with terms similar to the facility’s current terms.
Management believes the refinancing or extension of the maturity of the receivables based credit facility is probable of being executed as the Company has successfully extended the maturity date of this receivables based credit facility in the past, and the facility has a first-priority lien on the accounts receivable of iHeartCommunications and certain of its subsidiaries (see Footnote 5). Management’s plan to refinance or extend the due date of the receivables based credit facility, combined with current funds and expected future cash flows, are considered to be sufficient to enable the Company to meet its obligations as they become due in the ordinary course of business for a period of 12 months following the date these financial statements are issued.
While management plans to refinance or extend the maturity of the receivables based credit facility and has begun discussing such extension with its receivables based credit facility lenders, there is no assurance that the receivables based credit facility will be refinanced or extended in a timely manner, in amounts that are sufficient to meet the Company's obligations as they become due, or on terms acceptable to the Company, or at all. The Company’s ability to meet its obligations as they become due in the ordinary course of business for the next 12 months will depend on its ability to achieve forecasted results and its ability to refinance or extend the maturity of its receivables based credit facility. Management's belief that the receivables based credit facility will be refinanced or extended and that such refinancing or extension, together with forecasted operating cash flow, will be sufficient to enable the Company to meet its obligations as they become due in the ordinary course of business for 12 months following the date these financial statements are issued assumes, among other things, that the Company will continue to be successful in implementing its business strategy and that there will be no material adverse developments in its business, liquidity or capital requirements. If one or more of these factors do not occur as expected, it could cause a default under one or more of the agreements governing the Company’s indebtedness.
The Company has been reviewing a number or potential alternatives regarding its outstanding indebtedness. These alternatives include refinancings, exchange offers, consent solicitations, the issuance of new indebtedness, amendments to the terms of the Company’s existing indebtedness and/or other transactions. The Company has considered and will continue to evaluate potential transactions to improve its capital structure and address its liquidity constraints.
Cash and Cash Equivalents
Cash and cash equivalents include all highly liquid investments with an original maturity of three months or less.
Accounts Receivable
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 reserves for sales returns and allowances and allowances for doubtful accounts.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
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 revenueaccounts receivable for each business unit, adjusted for relative improvementsimprovement or deteriorationsdeterioration in the agings 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.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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, in the opinion of management, are adequate to allocate the cost of such assets over their estimated useful lives, which are as follows:
Buildings and improvements – 10 to 39 years
Structures – 3 to 20 years
Towers, transmitters and studio equipment – 5 to 2040 years
Computer equipment and software - 3 years
Furniture and other equipment – 25 to 207 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 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.
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.
Leases
MostThe Company enters into operating lease contracts for land, buildings, structures and other equipment. Arrangements are evaluated at inception to determine whether such arrangements contain a lease. Operating leases primarily include land and building lease contracts and leases of radio towers. Arrangements to lease building space consist primarily of the Company’s outdoor advertising structures are located on leased land. Americas outdoor landrental of office space, but may also include leases of other equipment, including automobiles and copiers. Operating leases are typically paid in advance for periods ranging from one to 12 months. International outdoor landreflected on the Company's balance sheet within Operating lease right-of-use ("ROU") assets and the related short-term and long-term liabilities are included within Current and Noncurrent operating lease liabilities, respectively. The Company's finance leases are paid bothincluded within Property, plant and equipment with the related liabilities included within Long-term debt.
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 commencement date based on the present value of lease payments over the respective lease term. Lease expense is recognized on a straight-line basis over the lease term.
Certain of the Company's operating lease agreements include rental payments that are adjusted periodically for inflationary changes. Payments due to changes in advanceinflationary 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 arrears,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.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Certain of the Company's leases provide options to extend the terms of the agreements. The Company considers renewal periods in determining its lease terms if at inception of the lease there is reasonable assurance the lease will be renewed. Generally, renewal periods are excluded from minimum lease payments when calculating the lease liabilities as, 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 percentmost leases, the Company does not consider exercise of revenuesuch options to be paid along withreasonably certain. As a base rent payment. Prepaid landresult, unless a renewal option is considered reasonably certain, the optional terms and related payments are not included within the lease liability. For those leases for which renewal periods are recordedincluded in calculating minimum lease liabilities, any adjustments resulting from changes in circumstances which result in the renewal options no longer being reasonably certain are accounted for as changes in estimates. The Company's lease agreements do not contain any residual value guarantees or 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 842, is "the rate of interest that a lessee would have to pay to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment." The Company elected to use the practical expedient to not separate non-lease components from the associated lease component for all classes of the Company's assets.
When the Company decides to abandon a leased property before the expiration of the lease term, management assesses whether such property will be subleased. If it is determined that subleasing the property for the remaining lease term is reasonable, management estimates the fair value of the sublease payments to be received and compares the estimated fair value to the ROU asset. To the extent the estimated fair value is less than the net book value of the ROU asset, the Company records a non-cash impairment charge for the difference, and expensedthe remaining ROU asset is recorded ratably over the related rentalremaining lease term. If it is determined that subleasing the property for the remaining lease term is not reasonable (e.g. the remaining lease term is too short to reasonably expect the property to be subleased), amortization of the net book value of the ROU asset is accelerated and rent payments in arrears are recordedrecognized as an accrued liability.expense ratably from the decision date to the date the Company ceases use of the property.
The Company has entered into leases for tower sites for most of its broadcasting locations. Tower site leases are typically paid monthly in advance, and have 30-year lease terms including annual rent escalations. Most tower site leases are operating leases, and operating lease expense is recognized straight-line based on the minimum lease payments for each lease.
Indefinite-lived Intangible Assets
The Company’s indefinite-lived intangible assets includeconsist of FCC broadcast licenses in its iHM segment and billboard permits in its Americas outdoor advertisingMultiplatform Group 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
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
events or changes in circumstances, such as a significant reduction in operating cash flow or a dramatic change in the manner for which the asset is intended to be used indicate that the carrying amount of the asset may not be recoverable.
The Company performs its annual impairment test for its FCC licenses and permits using a direct valuation technique as prescribed in ASC 805-20-S99. The Company engages a third partythird-party valuation firm to assist the Company in the development of these assumptions and the Company’s determination of the fair value of its FCC licenses. The Company performs its annual impairment test on its FCC licenses on July 1 of each year, and permits.performs interim impairment tests whenever events and circumstances indicate that the FCC licenses might be impaired.
The impairment tests for indefinite-lived intangible assets consist of a comparison between the fair value of the indefinite-lived intangible asset at the market level with its carrying amount. If the carrying amount of the indefinite-lived intangible asset exceeds its fair value, an impairment loss is recognized equal to that excess. After an impairment loss is recognized, the adjusted carrying amount of the indefinite-lived asset is its new accounting basis. The fair value of the indefinite-lived asset is 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.
The application of the direct valuation method attempts to isolate the income that is 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 licenses in each market.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Under the direct valuation method, it is assumed that rather than acquiring indefinite-lived intangible assets as part of a going concern business, the buyer hypothetically develops 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 flow model which results in value that is directly attributable to the indefinite-lived intangible assets.
The Company's key assumptions using the direct valuation method are market revenue growth rates, profit margin, and the risk-adjusted discount rate as well as other assumptions including market share, duration and profile of the build-up period, estimated start-up costs and capital expenditures. This data is populated using industry normalized information representing an average asset within a market. The Company obtained recent broadcast radio industry revenue projections which it considered along with various other sources of data in developing the assumptions used for purposes of performing impairment testing on our FCC licenses.
Other Intangible Assets
Other intangible assets include definite-lived intangible assets and permanent easements.assets. The Company’s definite-lived intangible assets primarily include primarily transitcustomer and street furniture contracts,advertiser relationships, talent and representation contracts, customertrademarks and advertiser relationships,tradenames and site-leases,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 amortized cost. Permanent easements are indefinite-lived intangible assets which include certain rights to use real property not owned by
In accordance with ASC 360, we assess the Company.
The Company tests for possible impairmentrecoverability of otherdefinite-lived 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
At least annually, the Company performs its impairment test for each reporting unit’s goodwill. The Company uses a discounted cash flow model to determinealso tests goodwill at interim dates if the carrying value of the reporting unit, includingevents or changes in circumstances indicate that goodwill is less than the fair value of the reporting unit. might be impaired.
The Company identified its reporting units in accordance with ASC 350-20-55. The U.S. radio markets are aggregated into a singlegoodwill impairment test requires measurement of the fair value of the Company's reporting units, which is compared to the carrying value of the reporting units, including goodwill. Each reporting unit andis valued using a discounted cash flow model which requires estimating future cash flows expected to be generated from the Company’s U.S. outdoor advertising markets are aggregated into a single reporting unit, for purposesdiscounted 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 the goodwill impairment test. requires estimates and assumptions about sales, operating margins, growth rates and discount rates based on budgets, business plans, economic projections, anticipated future cash flows and marketplace data.
The Company also determined that withinperforms its Americas outdoor segment, Canada constitutesannual impairment test on its goodwill on July 1 of each year. For a separate reporting unit and each country in its International outdoor segment constitutes a separate reporting unit. The Company recognized goodwill impairment of $7.3 million in 2016 related to onecomplete discussion of our International outdoor marketsannual impairment tests and had no impairment of goodwillinterim tests performed, see Note 4, Property, Plant and Equipment, Intangible Assets and Goodwill.
Other Investments
We apply ASC 321, Investments - Equity Securities, which requires us to measure all equity investments that do not result in 2015consolidation and 2014.
Nonconsolidated Affiliates
In general, investments in which the Company owns 20% to 50% of the common stock or otherwise exercises significant influence over the investee are not 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. The Company recognized other-than-temporary impairment of $15.0 million on an equity investment for the year ended December 31, 2016, which was recorded in "Equity in loss of nonconsolidated affiliates."
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 basedand recognize any changes in earnings. For equity securities without readily determinable fair values, we have elected the measurement alternative under which we measure these investments at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer.
Investments in notes receivable are evaluated for credit losses in accordance with ASC 326, Financial Instruments-Credit Losses, on quoted market prices. Securities are carried at historical costa quarterly basis or when quoted market prices are unavailable. The net unrealized gains or losses on the available-for-sale securities, netindicators of tax, are reported in accumulated other comprehensivecredit loss as a component of stockholders' 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, the Company concluded that other-than-temporary impairments existed at December 31, 2016 and December 31, 2015 and recorded noncash impairment charges of $14.8 million and $5.0 million during 2016 and 2015, respectively. Such charge is recorded on the statement of comprehensive loss in “Loss on investments, net”. There were no impairment charges during the year ended December 31, 2014.exist.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Financial Instruments
Due to their short maturity, the carrying amounts of accounts and notes receivable, accounts payable, accrued liabilities, and short-term borrowings approximated their fair values at December 31, 20162023 and 2015.2022.
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 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.subsidiaries. It is not apparent that these unrecognized deferred tax assetstemporary differences will reverse in the foreseeable future. If any excess cash held by our foreign subsidiaries were needed to fund operations in the United States, weU.S., the Company 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. WeThe Company regularly review ourreviews its tax liabilities on amounts that may be distributed in future periods and provideprovides 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.amounts, where applicable.
Revenue Recognition
iHMThe Company recognizes revenue when or as it satisfies a performance obligation by transferring a promised good or service to a customer. Where third-parties are involved in the provision of goods and services to a customer, revenue is recognized as advertisementsat the gross amount of consideration the Company expects to receive if the Company controls the promised good or programsservice before it is transferred to the customer; otherwise, revenue is recognized at the net amount the Company retains. 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.
The primary source of revenue in the Multiplatform Group segment is the sale of advertising on the Company’s broadcast radio stations and national and local live and virtual events. Revenues for advertising spots are recognized at the point in time when the advertisement is generally billed monthly. Outdoor advertisingbroadcast. Revenues for event sponsorships are recognized over the period of the event. Multiplatform Group also generates revenues from programming talent, network syndication, traffic and weather data, and other miscellaneous transactions, which are recognized when the services are transferred to the customer. Multiplatform Group's contracts with advertisers are typically cover periods of a few weeks up to one year or less in duration and are generally billed monthly. Revenuemonthly upon satisfaction of the performance obligations.
The primary source of revenue in the Digital Audio Group segment is the sale of advertising on the Company’s podcast network, iHeartRadio mobile application and website, and station websites. Revenues for outdoordigital advertising space rental isare recognized ratably over time based on impressions delivered or time elapsed, depending upon the termterms of the contract. AdvertisingDigital Audio Group’s contracts with advertisers are typically a year or less in duration and are generally billed monthly upon satisfaction of the performance obligations.
The Company also generates revenue through contractual commissions realized from the sale of national spot and online advertising on behalf of clients of its full-service media representation business, Katz Media, which is reported netpart of agency commissions. Agency commissionsthe Audio and Media Services Group segment. Revenues from these contracts are calculated based on a stated percentage applied to gross billing revenue for the Company’s media and entertainment and outdoor operations. Payments received in advance of being earned are recorded as deferred income. Revenue arrangements may 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.
Barter transactions represent the exchange of advertising spots or display space for merchandise, services or other assets. These transactions are recorded at the estimated fair market value of the advertising spots or display space or the fair value of the merchandise or services or other assets received, whichever is most readily determinable. Revenue is recognized on barter and trade transactionspoint in time when the advertisements are broadcastedbroadcast. Because the Company is a representative of its media clients and does not control the advertising inventory before it is transferred to the advertiser, the Company recognizes revenue at the net amount of contractual commissions retained for its representation services. The Company’s media representation contracts typically have terms up to ten years in duration and are generally billed monthly upon satisfaction of the performance obligations.
The Company recognizes revenue in amounts that reflect the consideration it expects to receive in exchange for transferring goods or displayed. Expensesservices 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.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 recorded ratably overdistinct and are therefore separate performance obligations. If a periodpromised 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 estimates whencontain multiple distinct goods or services, the merchandise, serviceCompany allocates the transaction price to these performance obligations in proportion to their relative standalone selling prices or other assets received is utilized,the best estimate of their fair values. However, where the Company provides customers with free or whendiscounted services as part of contract negotiations, management uses judgment to determine how much of the event occurs. Barter and trade revenues and expenses from continuing operationstransaction price to allocate to these performance obligations. These free or discounted services are typically provided in the same performance period.
Contract Costs
Incremental costs of obtaining a contract primarily relate to sales commissions, which are included in consolidated revenue and selling, general and administrative expenses respectively. Barter and trade revenues and expenses from continuing operations were as follows:
|
| | | | | | | | | | | |
(In millions) | Years Ended December 31, |
| 2016 | | 2015 | | 2014 |
Barter and trade revenues | $ | 165.8 |
| | $ | 133.5 |
| | $ | 78.3 |
|
Barter and trade expenses | 112.2 |
| | 112.1 |
| | 75.1 |
|
are generally commensurate with sales. These costs are generally expensed when incurred because the period of benefit is one year or less.Advertising Expense
The Company records advertising expense as it is incurred. Advertising expenses were $132.7$233.9 million, $129.1$166.1 million, and $103.0$166.1 million for the years ended December 31, 2016, 20152023, 2022, and 2014,2021, respectively, which include $210.2 million, $138.3 million, and $130.1 million in barter advertising, respectively.
Share-Based Compensation
Under the fair value recognition provisions of ASC 718-10,718, share-based compensation cost is measured at the grant date based on the fair value of the award. For awards that vest based on market or 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 beis 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, aboutsuch as expected volatility, and forfeiture rates, among other factors.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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' deficit, “Accumulatedequity, Accumulated other comprehensive loss”.loss. Foreign currency transaction gains and losses are included in operations.
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 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 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 resultedOther expense, net in the reclassificationstatement of debt issuance costs of $148.0 million as of December 31, 2015, which are now reflected as “Long-term debt fees” in Note 5.comprehensive loss.
During the first quarter of 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). The new leasing standard presents significant changesReclassifications
Certain prior period amounts have been reclassified to conform 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.2023 presentation.
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
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Restricted Cash
receipts
The following table provides a reconciliation of cash, cash equivalents and restricted cash payments, an entity will determine each separately identifiable source or use and classifyreported in the receipt or payment basedConsolidated Balance Sheets to the total of the amounts reported in the Consolidated Statements of Cash Flows:
| | | | | | | | | | | |
(In thousands) | December 31, 2023 | | December 31, 2022 |
Cash and cash equivalents | $ | 346,382 | | | $ | 336,236 | |
Restricted cash included in: | | | |
Other current assets | — | | | 425 | |
| | | |
Total cash, cash equivalents and restricted cash in the Statement of Cash Flows | $ | 346,382 | | | $ | 336,661 | |
Subsequent Events
On February 8, 2024, the sale of Broadcast Music, Inc. ("BMI") to a shareholder group led by New Mountain Capital, LLC, was completed. Based on the natureCompany's equity interest in BMI, the sale resulted in cash proceeds of $101.4 million. The Company plans to use the proceeds for general corporate purposes, which may include the repayment of debt.
New Accounting Pronouncements Recently Adopted
In October 2021, the FASB issued ASU No. 2021-08, Business Combinations (Topic 805) - Accounting for Contract Assets and Contract Liabilities from Contracts with Customers which requires an acquirer in a business combination to recognize and measure contract assets and contract liabilities in accordance with Accounting Standards Codification 606. The Company adopted this guidance during the first quarter of 2023. The adoption did not have a material impact on the Company’s financial position, results of operations or cash flows.
New Accounting Pronouncements Not Yet Adopted
In November 2023, the FASB issued Update 2023-07—Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures which requires disclosure of the cash flow. If a receipttitle and position of the Chief Operating Decision Maker ("CODM"), an explanation of how the CODM uses the reported measure of segment profit or payment has aspectsloss in assessing segment performance and deciding how to allocate resources, and disclosure of more than one classsignificant expenses regularly provided to the CODM that are included within the reported measure of cash flows and cannot be separated, the classification will depend on the predominant sourcesegment profit or use.loss. The standard isamendments of ASU 2023-07 are effective for annual periods,fiscal years beginning after December 15, 2023, and for interim periods within thosefiscal years beginning after December 15, 2024. Early adoption is permitted, and should be applied retrospectively to all periods presented. We are currently evaluating the impact of this standard, including timing of adoption.
In December 2023, the FASB issued Update 2023-09—Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which enhances the disclosure requirements for income tax rate reconciliation, domestic and foreign income taxes paid, and unrecognized tax benefits. The amendments of ASU 2023-09 are effective for annual periods beginning after December 15, 2017. The Company2024. Early adoption is permitted, and should be applied prospectively. We are currently evaluating the impact of this standard, including timing of adoption.
IHEARTMEDIA, INC.AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 – REVENUE
The Company generates revenue from several sources:
•The primary source of revenue in the provisionsMultiplatform Group segment is the sale of advertising on the Company’s radio stations. This segment also generates revenues from programming talent, network syndication, traffic and weather data, live and virtual events and other miscellaneous transactions.
•The primary source of revenue in the Digital Audio Group segment is the sale of advertising on the Company’s podcast network, iHeartRadio mobile application and website, and station websites.
•The Company also generates revenue through contractual commissions realized from the sale of national spot and online advertising on behalf of clients of its full-service media representation business, Katz Media, which is reported in the Company’s Audio and Media Services Group segment.
IHEARTMEDIA, INC.AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Disaggregation of Revenue
The following table shows revenue streams for the Company:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(In thousands) | Multiplatform Group | | Digital Audio Group | | Audio and Media Services Group | | Eliminations | | Consolidated |
Year Ended December 31, 2023 |
Revenue from contracts with customers: | | | | | | | | | |
Broadcast Radio(1) | $ | 1,752,166 | | | $ | — | | | $ | — | | | $ | — | | | $ | 1,752,166 | |
Networks(2) | 466,404 | | | — | | | — | | | — | | | 466,404 | |
Sponsorship and Events(3) | 191,434 | | | — | | | — | | | — | | | 191,434 | |
Digital, excluding Podcast(4) | — | | | 661,319 | | | — | | | (4,800) | | | 656,519 | |
Podcast(5) | — | | | 407,848 | | | — | | | — | | | 407,848 | |
Audio & Media Services(6) | — | | | — | | | 256,702 | | | (5,412) | | | 251,290 | |
Other(7) | 23,351 | | | — | | | — | | | — | | | 23,351 | |
Total | 2,433,355 | | | 1,069,167 | | | 256,702 | | | (10,212) | | | 3,749,012 | |
Revenue from leases(8) | 2,013 | | | — | | | — | | | — | | | 2,013 | |
Revenue, total | $ | 2,435,368 | | | $ | 1,069,167 | | | $ | 256,702 | | | $ | (10,212) | | | $ | 3,751,025 | |
| | | | | | | | | |
Year Ended December 31, 2022 |
Revenue from contracts with customers: | | | | | | | | | |
Broadcast Radio(1) | $ | 1,883,324 | | | $ | — | | | $ | — | | | $ | — | | | $ | 1,883,324 | |
Networks(2) | 503,244 | | | — | | | — | | | — | | | 503,244 | |
Sponsorship and Events(3) | 188,985 | | | — | | | — | | | — | | | 188,985 | |
Digital, excluding Podcast(4) | — | | | 663,392 | | | — | | | (5,238) | | | 658,154 | |
Podcast(5) | — | | | 358,432 | | | — | | | — | | | 358,432 | |
Audio & Media Services(6) | — | | | — | | | 304,302 | | | (5,348) | | | 298,954 | |
Other(7) | 20,249 | | | — | | | — | | | (447) | | | 19,802 | |
Total | 2,595,802 | | | 1,021,824 | | | 304,302 | | | (11,033) | | | 3,910,895 | |
Revenue from leases(8) | 1,388 | | | — | | | — | | | — | | | 1,388 | |
Revenue, total | $ | 2,597,190 | | | $ | 1,021,824 | | | $ | 304,302 | | | $ | (11,033) | | | $ | 3,912,283 | |
| | | | | | | | | |
Year Ended December 31, 2021 |
Revenue from contracts with customers: |
Broadcast Radio(1) | $ | 1,807,985 | | | $ | — | | | $ | — | | | $ | — | | | $ | 1,807,985 | |
Networks(2) | 503,052 | | | — | | | — | | | — | | | 503,052 | |
Sponsorship and Events(3) | 160,322 | | | — | | | — | | | — | | | 160,322 | |
Digital, excluding Podcast(4) | — | | | 581,918 | | | — | | | (5,845) | | | 576,073 | |
Podcast(5) | — | | | 252,564 | | | — | | | — | | | 252,564 | |
Audio & Media Services(6) | — | | | — | | | 247,957 | | | (6,602) | | | 241,355 | |
Other(7) | 16,225 | | | — | | | — | | | (670) | | | 15,555 | |
Total | 2,487,584 | | | 834,482 | | | 247,957 | | | (13,117) | | | 3,556,906 | |
Revenue from leases(8) | 1,434 | | | — | | | — | | | — | | | 1,434 | |
Revenue, total | $ | 2,489,018 | | | $ | 834,482 | | | $ | 247,957 | | | $ | (13,117) | | | $ | 3,558,340 | |
(1)Broadcast Radio revenue is generated through the sale of advertising time on the Company’s domestic radio stations.
(2)Networks revenue is generated through the sale of advertising on the Company’s Premiere and Total Traffic & Weather network programs and through the syndication of network programming to other media companies.
(3)Sponsorship and events revenue is generated through local events and major nationally-recognized tent pole events and include sponsorship and other advertising revenue, ticket sales, and licensing, as well as endorsement and appearance fees generated by on-air talent.
IHEARTMEDIA, INC.AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(4)Digital, excluding Podcast revenue is generated through the sale of streaming and display advertisements on digital platforms and through subscriptions to iHeartRadio streaming services.
(5)Podcast revenue is generated through the sale of advertising on the Company's podcast network.
(6)Audio and media services revenue is generated by services provided to broadcast industry participants through the Company’s Katz Media and RCS businesses. As a media representation firm, Katz Media generates revenue via commissions on media sold on behalf of the radio and television stations that it represents, while RCS generates revenue by providing broadcast software and media streaming, along with research services for radio stations, broadcast television stations, cable channels, record labels, ad agencies and Internet stations worldwide.
(7)Other revenue represents fees earned for miscellaneous services, including on-site promotions, activations, and local marketing agreements.
(8)Revenue from leases is primarily generated by the lease of towers to other media companies, which are all categorized as operating leases.
Trade and Barter
Trade and barter transactions represent the exchange of advertising spots for merchandise, services, other advertising or other assets in the ordinary course of business. The transaction price for these contracts is measured at the estimated fair value of the non-cash consideration received unless this is not reasonably estimable, in which case the consideration is measured based on the standalone selling price of the advertising spots promised or delivered to the customer. Trade and barter revenues and expenses, which are included in consolidated revenue and selling, general and administrative expenses, respectively, were as follows:
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
(In thousands) | 2023 | | 2022 | | 2021 |
Consolidated: | | | | | |
Trade and barter revenues | $ | 255,603 | | | $ | 188,357 | | | $ | 159,243 | |
Trade and barter expenses | 234,984 | | | 188,161 | | | 149,846 | |
In addition to the trade and barter revenue in the table above, the Company recognized barter revenue of $33.3 million, $40.7 million, and $16.3 million for the years ended December 31, 2023, 2022, and 2021, respectively, in connection with investments made in companies in exchange for advertising services.
Deferred Revenue
The following tables show the Company’s deferred revenue balance from contracts with customers:
| | | | | | | | | | | | | | | | | | | | | |
| | | Year Ended December 31, |
(In thousands) | | | | | 2023 | | 2022 | | 2021 |
| | | | | | | | | |
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Deferred revenue from contracts with customers: | | | | | | | | | |
Beginning balance(1) | | | | | $ | 157,910 | | | $ | 161,114 | | | $ | 145,493 | |
Revenue recognized, included in beginning balance | | | | | (112,224) | | | (117,947) | | (93,195) |
Additions, net of revenue recognized during period, and other | | | | | 136,213 | | 114,743 | | 108,816 |
Ending balance | | | | | $ | 181,899 | | | $ | 157,910 | | | $ | 161,114 | |
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(1)Deferred revenue from contracts with customers, which excludes other sources of deferred revenue that are not related to contracts with customers, is included within deferred revenue and other long-term liabilities on the Consolidated Balance Sheets, depending upon when revenue is expected to be recognized.
The Company’s contracts with customers generally have a term of one year or less. However, as of December 31, 2023, the Company expects to recognize $296.1 million of revenue in future periods for remaining performance obligations from current contracts with customers that have an original expected duration of greater than one year, with substantially all of this amount to be recognized over the next five years. Commissions related to the Company’s media representation business have been excluded from this amount as they are contingent upon future sales.
IHEARTMEDIA, INC.AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Revenue from Leases
As of December 31, 2023, the future lease payments to be received by the Company are as follows:
| | | | | |
(In thousands) |
|
2024 | $ | 232 | |
2025 | 132 | |
2026 | 72 | |
2027 | 30 | |
2028 | 15 | |
Thereafter | — | |
Total minimum future rentals | $ | 481 | |
NOTE 3 – LEASES
In September 2023, the Company completed the sale of 122 of our broadcast tower sites and related assets for $45.3 million and entered into operating leases for the use of space on 121 of the broadcast tower sites and related assets sold. The Company realized a net loss of $3.2 million on the sale, which was recorded in Other operating expense, net in the statement of comprehensive loss. The leases are for an initial term of ten years and include four optional five-year renewal periods. In connection with the transaction, the Company recorded ROU assets and lease liabilities with aggregate values of $26.3 million related to these leases.
The following tables provide the components of lease expense included within the consolidated statement of comprehensive loss for the years ended December 31, 2023, 2022, and 2021:
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
(In thousands) | 2023 | | 2022 | | 2021 |
Operating lease expense | $ | 132,059 | | | $ | 144,592 | | | $ | 153,042 | |
Variable lease expense | 25,114 | | | 32,398 | | | 31,516 | |
Non-cash impairment of ROU assets(1) | 6,058 | | | 8,683 | | | 44,311 | |
(1)In addition to non-cash impairment of ROU assets, the Company recorded an additional $0.7 million, and $13.4 million of non-cash impairments related to leasehold improvements in 2022 and 2021, respectively. In 2023 there were no non-cash impairment charges related to leasehold improvements.
The following table provides the weighted average remaining lease term and the weighted average discount rate for the Company's leases as of December 31, 2023:
| | | | | | | | | | | |
| Year Ended December 31, |
(In thousands) | 2023 | | 2022 |
Operating lease weighted average remaining lease term (in years) | 12.8 | | 13.3 |
Operating lease weighted average discount rate | 9.1 | % | | 6.7 | % |
IHEARTMEDIA, INC.AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2023, the Company’s future maturities of operating lease liabilities were as follows:
| | | | | |
(In thousands) |
2024 | $ | 140,152 | |
2025 | 134,855 | |
2026 | 123,780 | |
2027 | 111,633 | |
2028 | 104,551 | |
Thereafter | 902,308 | |
Total lease payments | $ | 1,517,279 | |
Less: Effect of discounting | 680,626 | |
Total operating lease liability | $ | 836,653 | |
The following table provides supplemental cash flow information related to leases:
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
(In thousands) | 2023 | | 2022 | | 2021 |
Cash paid for amounts included in measurement of operating lease liabilities | $ | 141,869 | | | $ | 141,340 | | | $ | 136,780 | |
Lease liabilities arising from obtaining right-of-use assets(1) | 47,430 | | 173,235 | | | 74,745 | |
(1) Lease liabilities from obtaining right-of-use assets includes new standardleases entered into during the years ended December 31, 2023, 2022, and 2021.
The Company reflects changes in the lease liability and changes in the ROU asset on its consolidated financial statements.a net basis in the Statements of Cash Flows. The non-cash operating lease expense was $67.1 million, $87.2 million, and $114.5 million for the years ended December 31, 2023, 2022, and 2021, respectively.
NOTE 24 –PROPERTY, PLANT AND EQUIPMENT, INTANGIBLEASSETSINTANGIBLE ASSETS AND GOODWILL
Dispositions
During the first quarter of 2016, the Company and certain of its subsidiaries completed the final closing for the sale of six of the Company’s broadcast communication tower sites and related assets for approximately $5.5 million. Simultaneous with the sale, the Company entered into lease agreements for the continued use of space on all six of the towers sold. The Company realized a net gain of $2.7 million, of which $1.9 million was deferred and will be recognized over the lease term.
During 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, 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 outdoor 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. The related net assets are separately presented and classified as held-for-sale on the face of the Consolidated Balance Sheet as of December 31, 2016.
During the second quarter of 2016, International outdoor 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 of the Company's subsidiaries in Turkey.
During the fourth quarter of 2016, International outdoor sold its outdoor 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 outdoor business in Australia.
Property, Plant and Equipment
The Company’s property, plant and equipment consisted of the following classes of assets as of December 31, 2016 and 2015, respectively:assets:
| | | | | | | | | | | |
(In thousands) | December 31, 2023 | | December 31, 2022 |
Land, buildings and improvements | $ | 316,655 | | | $ | 340,692 | |
Towers, transmitters and studio equipment | 195,609 | | | 215,655 | |
Computer equipment and software | 685,417 | | | 617,794 | |
Furniture and other equipment | 47,684 | | | 41,924 | |
Construction in progress | 16,473 | | | 29,091 | |
| 1,261,838 | | | 1,245,156 | |
Less: accumulated depreciation | 702,973 | | | 550,314 | |
Property, plant and equipment, net | $ | 558,865 | | | $ | 694,842 | |
IHEARTMEDIA, INC.AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
| | | | | | | |
(In thousands) | December 31, | | December 31, |
| 2016 | | 2015 |
Land, buildings and improvements | $ | 570,566 |
| | $ | 603,234 |
|
Structures | 2,684,673 |
| | 2,824,794 |
|
Towers, transmitters and studio equipment | 350,760 |
| | 347,877 |
|
Furniture and other equipment | 622,848 |
| | 591,149 |
|
Construction in progress | 91,655 |
| | 69,042 |
|
| 4,320,502 |
| | 4,436,096 |
|
Less: accumulated depreciation | 2,372,340 |
| | 2,223,540 |
|
Property, plant and equipment, net | $ | 1,948,162 |
| | $ | 2,212,556 |
|
In September 2023, the Company completed a sale-leaseback of 122 of our broadcast tower sites and related assets for $45.3 million, and entered into operating leases for the use of space on 121 of the broadcast tower sites and related assets sold. The Company realized a net loss of $3.2 million on the sale, which was recorded in Other operating expense, net in the statement of comprehensive loss.Indefinite-lived Intangible Assets
The Company’s indefinite-lived intangible assets consist of FCC broadcast licenses in its Multiplatform Group segment and billboard permits.were $1.1 billion and $1.5 billion at December 31, 2023 and 2022, respectively. FCC broadcast licenses are granted to radio stations for up to eight years under the Telecommunications Act of 1996 (the “Act”). The Act requires the FCC to renew a broadcast license if the FCC finds that the station has served the public interest, convenience and necessity, there
IHEARTMEDIA, INC.AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
have been no serious violations of either the Communications Act of 1934 or the FCC’s rules and regulations by the licensee, and there have been no other serious violations which taken together constitute a pattern of abuse. The licenses may be renewed indefinitely at little or no cost. The Company does not believe that the technology of wireless broadcasting will be replaced in the foreseeable future.
The Company’s billboard permits are granted for the right to operate an advertising structure at the specified location as long as the structure is in compliance with the laws and regulations of each jurisdiction. The Company’s permits are located on owned land, leased land or land for which we have acquired permanent easements. In 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, the Company will typically obtain permission to relocate the permit or bank it with the municipality for future use. Due to significant differences in both business practices and regulations, billboards in the International outdoor segment are 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 outdoor segment.
Annual Impairment Test to Indefinite-lived Intangible Assets Impairment
The Company performs its annual impairment test on indefinite-lived intangible assets, including FCC licenses, as of July 1 of each year.
The In addition, the Company tests for impairment tests forof indefinite-lived intangible assets consistwhenever events and circumstances indicate that such assets might be impaired.
As discussed in Note 1, Basis of Presentation, economic uncertainty due to inflation and higher interest rates since 2022 has resulted in, among other things, lower advertising spending by businesses. This economic uncertainty has had an adverse impact on the Company's revenues and cash flows. In addition, the economic uncertainty has had a comparison betweensignificant impact on the fair valuetrading values of the indefinite-lived intangible asset atCompany's debt and equity securities for a sustained period. As a result, the market level withCompany performed an interim impairment test as of June 30, 2023 on its carrying amount. IfFCC licenses, which resulted in a non-cash impairment charge of$363.6 million to the carrying amount of the indefinite-lived intangible asset exceeds its fair value, an impairment loss is recognized equal to that excess. After an impairment loss is recognized, the adjusted carrying amount of the indefinite-lived asset is its new accounting basis. The fair value of the indefinite-lived asset is 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 itFCC licenses balance in the developmentsecond quarter of the assumptions and the Company’s determination of the fair value of its indefinite-lived intangible assets.
The application of the direct valuation method attempts2023.No impairment was identified related 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)our FCC licenses as part of the build-up process. 2023 annual impairment test performed during the third quarter.
The Company forecasts revenue, expenses, and cash flows overrecognized a ten-year period for eachnon-cash impairment charge of $302.1 million on 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 theFCC licenses in each market.
Under the direct valuation method, it is assumed that rather than acquiring indefinite-lived intangible assets as part of a going concern business, the buyer hypothetically develops 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 flow model which results in value that is directly attributable to the indefinite-lived intangible assets.
The key assumptions using the direct valuation method are market revenue growth rates, market share, profit margin, duration and profile2022 annual impairment testing. No impairment was required as part 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 average2021 annual impairment testing.
Since our emergence from Fresh Start in 2019, we have recorded $1.2 billion of cumulative impairment charges to our FCC license or billboard permit within a market.licenses.
During 2016, the Company recognized an impairment charge of $0.7 million related to FCC licenses in one market. During 2015, the Company recognized an impairment charge of $21.6 million related to billboard permits in one market. During 2014, the Company recognized a $15.7 million impairment charge related to FCC licenses in eleven markets due to changes in the revenue growth forecasts and margins for those markets.
Other Intangible Assets
Other intangible assets include definite-lived intangible assets and permanent easements. The Company’s definite-lived intangible assets primarily include transit and street furniture contracts, talent and representation contracts, customer and advertiser relationships, and 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
IHEARTMEDIA, INC.AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
cash flows. Permanent easements are indefinite-lived intangible assets which include certain rights to use real property not owned by the Company. The Company periodically reviews the appropriateness of the amortization periods related to its definite-lived intangible assets. These assets are recorded at cost.
The following table presents the gross carrying amount and accumulated amortization for each major class of other intangible assets as of December 31, 2016 and 2015, respectively:assets:
| | (In thousands) | December 31, 2016 | | December 31, 2015 | (In thousands) | December 31, 2023 | | December 31, 2022 |
| Gross Carrying Amount | | | Gross Carrying Amount | | Accumulated Amortization | | Gross Carrying Amount | | Accumulated Amortization |
Customer / advertiser relationships | |
Talent and other contracts | |
Trademarks and tradenames | |
| 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 | ) |
Customer / advertiser relationships | 1,222,519 |
| | (1,012,380 | ) | | 1,222,518 |
| | (891,488 | ) |
Talent contracts | 319,384 |
| | (281,060 | ) | | 319,384 |
| | (252,526 | ) |
Representation contracts | 253,511 |
| | (229,413 | ) | | 239,142 |
| | (217,770 | ) |
Permanent easements | 159,782 |
| | — |
| | 156,349 |
| | — |
|
Other | |
Other | |
Other | 390,171 |
| | (219,117 | ) | | 394,983 |
| | (195,644 | ) |
Total | $ | 2,909,230 |
| | $ | (2,168,722 | ) | | $ | 2,968,148 |
| | $ | (2,014,488 | ) |
Total amortization expense related to definite-lived intangible assets for the years ended December 31, 2016, 20152023, 2022, and 20142021 was $222.6$246.7 million, $237.5$253.6 million and $263.4$280.6 million, respectively.
As acquisitions and dispositions occur in the future, amortization expense may vary. The following table presents the Company’s estimate of amortization expense for each of the five succeeding fiscal years for definite-lived intangible assets:
IHEARTMEDIA, INC.AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
| | | |
(In thousands) | |
2017 | $ | 195,966 |
|
2018 | 128,279 |
|
2019 | 44,820 |
|
2020 | 38,199 |
|
2021 | 35,471 |
|
| | | | | |
(In thousands) | |
2024 | $ | 245,032 | |
2025 | 213,758 | |
2026 | 201,512 | |
2027 | 176,171 | |
2028 | 160,395 | |
Annual
Goodwill
The following tables present the changes in the carrying amount of goodwill:
| | | | | | | | | | | | | | | | | | | | | | | |
(In thousands) | Multiplatform Group | | Digital Audio Group | | Audio & Media Services Group | | Consolidated |
Balance as of December 31, 20211 | $ | 1,462,038 | | | $ | 747,350 | | | $ | 104,193 | | | $ | 2,313,581 | |
| | | | | | | |
| | | | | | | |
Dispositions | (16) | | | — | | | — | | | (16) | |
Foreign currency | — | | | — | | | (162) | | | (162) | |
| | | | | | | |
| | | | | | | |
Balance as of December 31, 2022 | $ | 1,462,022 | | | $ | 747,350 | | | $ | 104,031 | | | $ | 2,313,403 | |
Impairment | (121,563) | | | (439,383) | | | (34,515) | | | (595,461) | |
Acquisitions | — | | | 3,375 | | | — | | | 3,375 | |
| | | | | | | |
Foreign currency | — | | | 84 | | | 82 | | | 166 | |
| | | | | | | |
| | | | | | | |
Balance as of December 31, 2023 | $ | 1,340,459 | | | $ | 311,426 | | | $ | 69,598 | | | $ | 1,721,483 | |
1 Beginning goodwill balance is presented net of prior accumulated impairment losses of $1.2 billion related to the Multiplatform Group segment. Refer to the table above for impairments recorded in 2023.
Goodwill Impairment Test to Goodwill
The Company performs its annual impairment test on our goodwill as of July 1 of each year.
Each of the U.S. radio markets and outdoor advertising markets are components of the Company. The U.S. radio markets are aggregated into a single reporting unit and the U.S. outdoor advertising markets are aggregated into a single reporting unit for purposes of the goodwill impairment test using the guidance in ASC 350-20-55. The Company also determinedtests goodwill at interim dates if events or changes in circumstances indicate that each country withingoodwill might be impaired. The impairment testing performed as of June 30, 2023 indicated that carrying values of the Company's Multiplatform, Digital, and RCS reporting units exceeded their fair values. The fair value of our Katz reporting unit exceeded its Americas outdoor segmentcarrying value.
As discussed above, economic uncertainty has had a significant impact on the Company's revenue and International outdoor segment constitutescash flows, as well as the trading values of the Company's debt and equity securities for a separate reporting unit.
sustained period. The goodwillinterim impairment test isresulted in a two-step process. The first step, used to screen for potential $595.5 millionimpairment comparesof goodwill. In determining the fair value of our reporting units, the reporting unit withCompany considered industry and market factors including trading multiples of similar businesses and the trading prices of its carrying amount, including goodwill. If applicable,debt and equity securities. There were no significant changes to assumptions used for the second step, used2023 annual impairment test. No impairment was identified related to measure the amountour goodwill balance as a result of the 2023 annual impairment loss, comparestest performed during the implied fair value of the reporting unitthird quarter.
No goodwill with the carrying amount of that goodwill.impairment was recorded for 2022 or 2021.
Each of the Company’s reporting units is valued using a discounted cash flow model which requires estimating future cash flows expected to be generated from the reporting unit and discounting such cash flows to their present value using a risk-adjusted discount rate. Terminal values were 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.
IHEARTMEDIA, INC.AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company recognized goodwill impairment of $7.3 million during the year ended December 31, 2016 related to one market in the Company's International outdoor segment and concluded no goodwill impairment charge was required for the year ended December 31, 2015.
The following table presents the changes in the carrying amount of goodwill in each of the Company’s reportable segments:
|
| | | | | | | | | | | | | | | | | | | |
(In thousands) | iHM | | Americas Outdoor Advertising | | International Outdoor Advertising | | Other | | Consolidated |
Balance as of December 31, 2014 | $ | 3,288,481 |
| | $ | 584,574 |
| | $ | 232,538 |
| | $ | 81,831 |
| | $ | 4,187,424 |
|
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 | $ | 3,288,481 |
| | $ | 534,683 |
| | $ | 223,892 |
| | $ | 81,831 |
| | $ | 4,128,887 |
|
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 | $ | 3,288,481 |
| | $ | 515,414 |
| | $ | 180,849 |
| | $ | 81,831 |
| | $ | 4,066,575 |
|
The balance at December 31, 2014 is net of cumulative impairments of $3.5 billion, $2.6 billion, $326.6 million and $212.0 million in the Company’s iHM, Americas outdoor, International outdoor and Other segments, respectively.
IHEARTMEDIA, INC.AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 35 – INVESTMENTS
The following table summarizes the Company's investments in nonconsolidated affiliates and available-for-saleother securities:
|
| | | | | | | | | | | | | | | |
(In thousands) | Equity Method Investments | | Cost Method Investments | | Marketable Equity Securities | | Total Investments |
Balance at December 31, 2014 | $ | 9,493 |
| | $ | 16,269 |
| | $ | 1,978 |
| | $ | 27,740 |
|
Cash advances | 2,578 |
| | — |
| | — |
| | 2,578 |
|
Acquisitions of investments, net | 17,980 |
| | 47,546 |
| | — |
| | 65,526 |
|
Equity in earnings (loss) | (902 | ) | | — |
| | — |
| | (902 | ) |
Foreign currency translation adjustment | (89 | ) | | (13 | ) | | (205 | ) | | (307 | ) |
Distributions received | (1,350 | ) | | — |
| | — |
| | (1,350 | ) |
Loss on investments | — |
| | (5,000 | ) | | — |
| | (5,000 | ) |
Other | — |
| | — |
| | 553 |
| | 553 |
|
Balance at December 31, 2015 | $ | 27,710 |
| | $ | 58,802 |
| | $ | 2,326 |
| | $ | 88,838 |
|
Cash advances | 2,993 |
| | — |
| | — |
| | 2,993 |
|
Acquisitions of investments, net | 6,737 |
| | 26,086 |
| | — |
| | 32,823 |
|
Equity in loss | (16,733 | ) | | — |
| | — |
| | (16,733 | ) |
Disposals of investments, net | (2,476 | ) | | (1,000 | ) | | — |
| | (3,476 | ) |
Foreign currency transaction adjustment | (45 | ) | | (196 | ) | | (35 | ) | | (276 | ) |
Distributions received | (3,709 | ) | | — |
| | — |
| | (3,709 | ) |
Loss on investments | — |
| | (14,798 | ) | | — |
| | (14,798 | ) |
Other |
|
| | 2,772 |
| | (576 | ) | | 2,196 |
|
Balance at December 31, 2016 | $ | 14,477 |
| | $ | 71,666 |
| | $ | 1,715 |
| | $ | 87,858 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(In thousands) | Available-for-Sale Debt Securities | | Equity Method Investments | | Other Investments | | Marketable Equity Securities | | Total Investments |
Balance at December 31, 2021 | $ | 33,868 | | | $ | 10,617 | | | $ | 37,210 | | | $ | 4,230 | | | $ | 85,925 | |
| | | | | | | | | |
Purchases of investments | 13,458 | | | 2,813 | | | 25,102 | | | — | | | 41,373 | |
Equity in loss of nonconsolidated affiliates | — | | | (11) | | | — | | | — | | | (11) | |
Disposals | (239) | | | — | | | — | | | (326) | | | (565) | |
| | | | | | | | | |
| | | | | | | | | |
Gain (loss) on investments | (6,520) | | | — | | | 11,332 | | | (6,433) | | | (1,621) | |
| | | | | | | | | |
Conversions and other | (1,454) | | | — | | | (1,407) | | | 2,981 | | | 120 | |
Balance at December 31, 2022 | $ | 39,113 | | | $ | 13,419 | | | $ | 72,237 | | | $ | 452 | | | $ | 125,221 | |
| | | | | | | | | |
Purchases of investments | 39,775 | | | 796 | | | 1,937 | | | 341 | | | 42,849 | |
Equity in loss of nonconsolidated affiliates | — | | | (3,530) | | | — | | | — | | | (3,530) | |
Disposals | — | | | — | | | — | | | (3,864) | | | (3,864) | |
| | | | | | | | | |
| | | | | | | | | |
Loss on investments, net | (15,591) | | | — | | | (7,167) | | | (5,372) | | | (28,130) | |
| | | | | | | | | |
Conversions and other | (15,474) | | | — | | | 7,146 | | | 10,000 | | | 1,672 | |
Balance at December 31, 2023 | $ | 47,823 | | | $ | 10,685 | | | $ | 74,153 | | | $ | 1,557 | | | $ | 134,218 | |
Equity method investments in the table above are not consolidated, but are accounted for under the equity method of accounting, whereby theaccounting. The Company records its investments in these entities inon the balance sheet aswithin “Other assets.” The Company's interests in theirthe operations of equity method investments are recorded in the statement of comprehensive loss as “EquityEquity in earnings (loss)loss of nonconsolidated affiliates.” Other cost investments includeincludes various investments in companies for which there is no readily determinable market value.
During 2016, the The Company recorded $26.1 million in its iHM segment forenters into these investments made in four private companies in exchange for advertising services and cash. Two of these investments are being accounted for under the equity method of accounting, and two of these investments are being accounted for under the cost method. During the fourth quarter of 2015, the Company recorded $36.5 million in its iHM segment for investments made in three private companies in exchange for advertising services. One of these investments is being accounted for under the equity method of accounting, and two of these investments are being accounted for under the cost method. The Company recognized barter revenue of $15.6 million in the year ended December 31, 2015 and $36.6 million in the year ended December 31, 2016 as services were provided. The Company recognized a non-cash impairment of $14.5 million on one of these cost investments for the year ended December 31, 2016, which was recorded in “Loss on investments, net.” In addition, the Company recognized a non-cash impairment of $15.0 million on one of these equity investments for the year ended December 31, 2016, which was recorded in "Equity in loss of nonconsolidated affiliates."
The Company recognized a non-cash impairment of $5.0 million on a cost investment for the year ended December 31, 2015, which was recorded in “Loss on investments, net.”
Marketable Equity Securities
ASC 820-10-35 establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include: Level 1, defined as observable inputs such as quoted prices in active markets; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions.
IHEARTMEDIA, INC.AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company’s marketable equity securities are measured at fair value on each reporting date.
The marketable equity securities are measured at fair value using quoted prices in active markets. Due to the fact that the inputs used to measure the marketable equity securities at fair value are observable, the Company has categorized the fair value measurements of the securities as Level 1. As of December 31, 2016 and 2015, the Company held $1.7 million and $2.3 million in marketable equity securities, which are included within Other Assets.
NOTE 4 – ASSET RETIREMENT OBLIGATION
The Company’s asset retirement obligation is reported in “Other long-term liabilities” with the current portion recorded in “Accrued liabilities” and relates to its obligation to dismantle and remove outdoor advertising displays from leased land and to reclaim the site to its original condition upon the termination or non-renewal of a lease or contract. When the liability 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. 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.
The following table presents the activity related to the Company’s asset retirement obligation:
|
| | | | | | | |
(In thousands) | Years Ended December 31, |
| 2016 | | 2015 |
Beginning balance | $ | 48,056 |
| | $ | 54,211 |
|
Adjustment due to changes in estimates | (5,343 | ) | | 2,082 |
|
Accretion of liability | 5,090 |
| | 754 |
|
Liabilities settled | (4,310 | ) | | (6,105 | ) |
Foreign Currency | (1,002 | ) | | (2,886 | ) |
Ending balance | 42,491 |
| | 48,056 |
|
Less: current portion | 424 |
| | 482 |
|
Long-term portion of asset retirement obligation | $ | 42,067 |
| | $ | 47,574 |
|
IHEARTMEDIA, INC.AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 56 – LONG-TERM DEBT
Long-term debt at December 31, 2016 and 2015outstanding consisted of the following:
| | | | | | | | | | | |
(In thousands) | December 31, 2023 | | December 31, 2022 |
Term Loan Facility due 2026 | $ | 1,864,032 | | | $ | 1,864,032 | |
Incremental Term Loan Facility due 2026 | 401,220 | | | 401,220 | |
Asset-based Revolving Credit Facility due 2027(1) | — | | | — | |
6.375% Senior Secured Notes due 2026 | 800,000 | | | 800,000 | |
5.25% Senior Secured Notes due 2027 | 750,000 | | | 750,000 | |
4.75% Senior Secured Notes due 2028 | 500,000 | | | 500,000 | |
Other secured subsidiary debt(2) | 3,367 | | | 4,462 | |
Total consolidated secured debt | 4,318,619 | | | 4,319,714 | |
| | | |
8.375% Senior Unsecured Notes due 2027(3) | 916,357 | | | 1,120,366 | |
Other unsecured subsidiary debt | — | | | 52 | |
Original issue discount | (7,558) | | | (10,569) | |
Long-term debt fees | (12,268) | | | (15,396) | |
Total debt | 5,215,150 | | | 5,414,167 | |
Less: Current portion | 340 | | | 664 | |
Total long-term debt | $ | 5,214,810 | | | $ | 5,413,503 | |
|
| | | | | | | |
(In thousands) | December 31, | | December 31, |
| 2016 | | 2015 |
Senior Secured Credit Facilities | $ | 6,300,000 |
| | $ | 6,300,000 |
|
Receivables Based Credit Facility Due 2017 | 330,000 |
| | 230,000 |
|
Priority Guarantee Notes | 6,274,815 |
| | 6,274,815 |
|
Subsidiary Revolving Credit Facility Due 2018 | — |
| | — |
|
Other Secured Subsidiary Debt | 20,987 |
| | 25,228 |
|
Total Consolidated Secured Debt | 12,925,802 |
| | 12,830,043 |
|
| | | |
14.0% Senior Notes Due 2021 | 1,729,168 |
| | 1,695,097 |
|
Legacy Notes(1) | 475,000 |
| | 667,900 |
|
10.0% Senior Notes Due 2018 | 347,028 |
| | 730,000 |
|
Subsidiary Senior Notes | 5,150,000 |
| | 5,150,000 |
|
Other Subsidiary Debt | 27,954 |
| | 165 |
|
Purchase accounting adjustments and original issue discount | (166,961 | ) | | (204,611 | ) |
Long-term debt fees | (123,003 | ) | | (147,983 | ) |
| 20,364,988 |
| | 20,720,611 |
|
Less: current portion | 342,908 |
| | 181,512 |
|
Total long-term debt | $ | 20,022,080 |
| | $ | 20,539,099 |
|
| |
(1) | The Legacy Notes amount does not include $57.1 million aggregate principal amount of 5.5% Senior Notes due 2016, which matured on December 15, 2016 and continue to remain outstanding. These notes are held by a subsidiary of the Company and are eliminated for purposes of consolidation of the Company’s financial statements. |
(1)As of December 31, 2023, the ABL Facility had a facility size of $450.0 million, no outstanding borrowings and $24.3 million of outstanding letters of credit, resulting in $425.7 million of borrowing base availability.
(2)Other secured subsidiary debt consists of finance lease obligations maturing at various dates from 2024 through 2045.
(3)During the year ended December 31, 2023, we repurchased of $204.0 million aggregate principal amount of iHeartCommunications, Inc.'s 8.375% Senior Unsecured Notes due 2027 for $147.3 million in cash, excluding accrued interest. The repurchased notes were subsequently cancelled and retired, resulting in a gain on extinguishment of debt of $56.7 million.
The Company’s weighted average interest rate atwas 7.3% and 6.9% as of December 31, 20162023 and 2015 was 8.5%.December 31, 2022, respectively. The aggregate market value of the Company’s debt based on market prices for which quotes were available was approximately $16.7$4.2 billion and $15.2$4.8 billion atas of December 31, 20162023 and 2015,December 31, 2022, respectively. Under the fair value hierarchy established by ASC 820-10-35,Fair Value Measurement, the fair market value of the Company’s debt is classified as either Level 1 or Level 2.
Senior Secured Credit Facilities
As of December 31, 2016 and 2015, iHeartCommunications had senior secured credit facilities consisting of:
|
| | | | | | | | | |
(In thousands) | | | December 31, | | December 31, |
| Maturity Date | | 2016 | | 2015 |
Term Loan D | 1/30/2019 | | $ | 5,000,000 |
| | $ | 5,000,000 |
|
Term Loan E | 7/30/2019 | | 1,300,000 |
| | 1,300,000 |
|
Total Senior Secured Credit Facilities | | | $ | 6,300,000 |
| | $ | 6,300,000 |
|
iHeartCommunications is the primary borrower under the senior secured credit facilities, and certain of its domestic restricted subsidiaries are co-borrowers under a portion of the term loan facilities.
Interest Rate and Fees
Borrowings under iHeartCommunications' senior secured credit facilities bear interest at a rate equal to an applicable margin plus, at iHeartCommunications' option, either (i) a base rate determined by reference2023, we were in compliance with all covenants related to the higherCompany's debt agreements.
Asset-based Revolving Credit Facility due 2027
On May 17, 2022, iHeartCommunications, Inc. ("iHeartCommunications"), as borrower, entered into a Credit Agreement (the “ABL Credit Agreement”) with iHeartMedia Capital I, LLC, the direct parent of (A) the prime lending rate publicly announced by theiHeartCommunications, Inc., as parent guarantor, certain subsidiaries of iHeartCommunications, Inc. party thereto, Bank of America, N.A., as administrative and collateral agent, or (B) the Federal funds effective rateand each other lender party thereto from time to time, plus 0.50%, or (ii)governing a Eurocurrency
IHEARTMEDIA, INC.AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
rate determined by reference tonew $450.0 million ABL Facility, maturing in 2027, which refinanced and replaced in its entirety the costs of funds for deposits for the interest period relevant to such borrowing adjusted for certain additional costs.
prior ABL Facility. The margin percentages applicable to the term loan facilities are the following percentages per annum:
with respect to loans under the term loan D, (i) 5.75% in the case of base rate loans and (ii) 6.75% in the case of Eurocurrency rate loans; and
with respect to loans under the term loan E, (i) 6.50% in the case of base rate loans and (ii) 7.50% in the case of Eurocurrency rate loans.
The margin percentages are subject to adjustment based upon iHeartCommunications' leverage ratio.
Collateral and Guarantees
The senior secured credit facilities are guaranteed by iHeartCommunications and each of iHeartCommunications' existing and future material wholly-owned domestic restricted subsidiaries, subject to certain exceptions.
All obligations under the senior secured credit facilities, and the guarantees of those obligations, are secured, subject to permitted liens, including prior liens permitted by the indenture governing iHeartCommunications' legacy notes, and other exceptions, by:
a lien on the capital stock of iHeartCommunications;
100% of the capital stock of any future material wholly-owned domestic license subsidiary that is not a “Restricted Subsidiary” under the indenture governing iHeartCommunications' legacy notes;
certain assets that do not constitute “principal property” (as defined in the indenture governing iHeartCommunications' legacy notes);
certain specified assets of iHeartCommunications and the guarantors that constitute “principal property” (as defined in the indenture governing iHeartCommunications' legacy notes) securing obligations under the senior secured credit facilities up to the maximum amount permitted to be secured by such assets without requiring equal and ratable security under the indenture governing iHeartCommunications' legacy notes; and
a lien on the accounts receivable and related assets securing iHeartCommunications' receivables based credit facility that is junior to the lien securing iHeartCommunications' obligations under such credit facility.
Certain Covenants
The senior secured credit facilities include negative covenants that, subject to significant exceptions, limit iHeartCommunications' 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 iHeartCommunications' capital stock;
make investments, loans, or advances;
prepay certain junior indebtedness;
engage in certain transactions with affiliates;
amend material agreements governing certain junior indebtedness; and
change lines of business.
Receivables Based CreditABL Facility
On November 17, 2016, iHeartCommunications' incurred $100.0 million of additional borrowings under its receivables based credit facility. As of December 31, 2016, there were borrowings of $330.0 million outstanding under iHeartCommunications' receivables based credit facility. On January 31, 2017, iHeartCommunications prepaid $25.0 million of the amount borrowed under its receivables based credit facility, bringing its total outstanding borrowings under this facility to $305.0 million.
IHEARTMEDIA, INC.AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The receivables based credit facility provides revolving credit commitments of $535.0 million, subject to a borrowing base. The borrowing base at any time equals 90% of the eligible accounts receivable of iHeartCommunications and certain of its subsidiaries. The receivables based credit facility includes a letter of credit sub-facility and a swingline loan sub-facility.
Size and Availability
The ABL Facility provides for a senior secured asset-based revolving credit facility in the aggregate principal amount of up to $450.0 million, with amounts available from time to time (including in respect of letters of credit) equal to the lesser of (A) the borrowing base, which equals the sum of (i) 90.0% of the eligible accounts receivable of iHeartCommunications and the subsidiary guarantors and (ii) 100% of qualified cash, each subject to customary reserves and eligibility criteria, and (B) the
IHEARTMEDIA, INC.AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
aggregate revolving credit commitments. Subject to certain subsidiary borrowers are the borrowers under the receivables based credit facility.conditions, iHeartCommunications has the ability to designatemay at any time request one or more increases in the amount of its restricted subsidiaries as borrowersrevolving credit commitments, in an amount up to the sum of (x) $150.0 million and (y) the amount by which the borrowing base exceeds the aggregate revolving credit commitments. As of December 31, 2023, iHeartCommunications had no principal amounts outstanding under the receivables based credit facility. The receivables based creditABL Facility, a facility loans are availablesize of $450.0 million and $24.3 million in U.S. dollars andoutstanding letters of credit, are availableresulting in a variety$425.7 million of currencies including U.S. dollars, Euros, Pounds Sterling, and Canadian dollars.borrowing base availability.
Interest Rate and Fees
Borrowings under the receivables based credit facilityABL Facility bear interest at a rate per annum equal to anthe applicable marginrate plus, at iHeartCommunications'iHeartCommunications’ option, either (i)(1) a base rate, determined by reference to the highest(2) a term Secured Overnight Financing Rate (“SOFR”) rate (which includes a credit spread adjustment of (a) the prime rate of Citibank, N.A. and (b) the Federal Funds rate plus 0.50%10 basis points), or (ii)(3) for certain foreign currencies, a Eurocurrency rate determined by reference to the rate (adjusted for statutory reserve requirements for Eurocurrency liabilities) for Eurodollar deposits for the interest period relevant to such borrowing.eurocurrency rate. The applicable margin for borrowings under the receivables based credit facility rangesABL Facility range from 1.50%1.25% to 2.00%1.75% for Eurocurrencyboth term SOFR and eurocurrency borrowings and from 0.50%0.25% to 1.00%0.75% for base-rate borrowings, in each case, depending on average daily excess availability under the receivablesABL Facility based credit facility duringon the priormost recent fiscal quarter.
In addition to paying interest on outstanding principal under the receivables based credit facility,ABL Facility, iHeartCommunications is required to pay a commitment fee to the lenders under the receivables based credit facilityABL Facility in respect of the unutilized commitments thereunder. The commitment fee rate ranges from 0.25% to 0.375% per annum dependent upon average unused commitments during the prior quarter. iHeartCommunications mustmay also pay customary letter of credit fees.
Maturity
Borrowings under the receivables based credit facilityABL Facility will mature, and lending commitments thereunder will terminate on May 17, 2027.
Prepayments
If at any time, the fifth anniversarysum of the effectivenessoutstanding amounts under the ABL Facility exceeds the lesser of (i) the receivables basedborrowing base and (ii) the aggregate commitments under the facility (such lesser amount, the “line cap”), iHeartCommunications is required to repay outstanding loans and cash collateralize letters of credit facility, which is December 24, 2017.in an aggregate amount equal to such excess. iHeartCommunications may voluntarily repay outstanding loans under the ABL Facility at any time without premium or penalty, other than customary “breakage” costs with respect to eurocurrency rate loans. Any voluntary prepayments made by iHeartCommunications will not reduce iHeartCommunications’ commitments under the ABL Facility.
Guarantees and Security
The facilityABL Facility is guaranteed by, subject to certain exceptions, the guarantors of iHeartCommunications' senior secured credit facilities.iHeartCommunications’ Term Loan Facility (as defined below). All obligations under the receivables based credit facility,ABL Facility, and the guarantees of those obligations, are secured by a perfected security interest in allthe accounts receivable and related assets of iHeartCommunications'iHeartCommunications’ and all of the guarantors’ accounts receivable, qualified cash and related assets and proceeds thereof that is senior to the security interest of iHeartCommunications' senior secured credit facilitiesiHeartCommunications’ Term Loan Facility in such accounts receivable, qualified cash and related assets and proceeds thereof, subject to permitted liens including prior liens permitted by the indenture governing certain of iHeartCommunications' legacy notes, and certain exceptions.
Certain Covenants and Events of Default
If borrowing availability is less than the greater of (a) $40.0 million and (b) 10% of the aggregate commitments under the ABL Facility, in each case, for two consecutive business days (a “Trigger Event”), iHeartCommunications will be required to comply with a minimum fixed charge coverage ratio of at least 1.00 to 1.00, and must continue to comply with this minimum fixed charge coverage ratio for fiscal quarters ending after the occurrence of the Trigger Event until borrowing availability exceeds the greater of (x) $40.0 million and (y) 10% of the aggregate commitments under the ABL Facility, in each case, for 20 consecutive calendar days, at which time the Trigger Event shall no longer be deemed to be occurring.
IHEARTMEDIA, INC.AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Term Loan Facility due 2026
On May 1, 2019 (the "Effective Date"), iHeartCommunications, as borrower, entered into a Credit Agreement (the “Term Loan Credit Agreement”) with Capital I, as guarantor, certain subsidiaries of iHeartCommunications, as guarantors, and Bank of America, N.A., as successor administrative and collateral agent, governing our term loan credit facility (the “Term Loan Facility”). On the Effective Date, iHeartCommunications issued an aggregate of approximately $3.5 billion principal amount of senior secured term loans under the Term Loan Facility to certain holders of claims against the Company (“Claimholders”) in connection with the Company's voluntary petitions for relief under Chapter 11 of the U.S. Bankruptcy Code (“Chapter 11 Cases”) pursuant to the series of transactions that reduced iHeartCommunications' debt and allowed the Company to emerge from Chapter 11 bankruptcy (the “Plan of Reorganization”). The Term Loan Facility matures on May 1, 2026.
As described below, on August 7, 2019, the proceeds from the issuance of $750.0 million in aggregate principal amount of 5.25% Senior Secured Notes due 2027 were used, together with cash on hand, to prepay at par $740.0 million of borrowings outstanding under the Term Loan Facility. On November 22, 2019, the proceeds from the issuance of $500.0 million in aggregate principal amount of 4.75% Senior Secured Notes due 2028 were used, together with cash on hand, to prepay at par $500.0 million of borrowings outstanding under the Term Loan Facility.
On February 3, 2020, iHeartCommunications entered into an amendment to the Term Loan Credit Agreement which reduced the interest rate to LIBOR plus a margin of 3.00% (from LIBOR plus a margin of 4.00%), or the Base Rate (as defined in the Term Loan Credit Agreement) plus a margin of 2.00% (from Base Rate plus a margin of 3.00%) and modified certain covenants contained in the Term Loan Credit Agreement. In connection with the Term Loan Facility amendment in February 2020, iHeartCommunications also prepaid at par $150.0 million of borrowings outstanding under the Term Loan Facility with cash on hand.
On July 16, 2020, iHeartCommunications entered into Amendment No. 2 to issue $450.0 million of incremental term loan commitments (the “Incremental Term Loan Facility”), resulting in net proceeds of $425.8 million, after original issue discount and debt issuance costs. A portion of the proceeds from the issuance were used to repay the balance outstanding under the ABL Facility of $235.0 million, with the remaining $190.6 million of the proceeds available for general corporate purposes.
On July 16, 2021, iHeartCommunications, Inc. entered into Amendment No. 3 which reduced the interest rate of its Incremental Term Loan Facility due 2026 to a Eurocurrency Rate of LIBOR plus a margin of 3.25% and floor of 0.50% (from LIBOR plus a margin of 4.00% and floor of 0.75%). The Base Rate interest amount was reduced to Base Rate plus a margin of 2.25% and floor of 1.50%. In connection with the amendment, iHeartCommunications voluntarily prepaid $250.0 million of borrowings outstanding under the Term Loan credit facilities with cash on hand, resulting in a reduction of $44.3 million of the existing Incremental Term Loan Facility due 2026 and $205.7 million of the Term Loan Facility due 2026.
Under the terms of the Term Loan Credit Agreement, iHeartCommunications made quarterly principal payments of $6.4 million during the three months ended September 30, 2020, December 31, 2020, March 31, 2021 and June 30, 2021, and previously made payments of $5.25 million during the three months ended March 31, 2020 and June 30, 2020. Following the prepayment of $250.0 million of borrowings outstanding under the Term Loan credit facilities on July 16, 2021, iHeartCommunications is no longer required to make such quarterly payments.
Interest Rate and Fees
On June 15, 2023, iHeartCommunications entered into Amendment No. 4 to the Term Loan Facility. The amendment replaces the prior Eurocurrency interest rate, based upon LIBOR, with the SOFR successor rate plus a SOFR adjustment as specified in the credit agreement. The Term Loan Facility margins remain the same with the Term Loan Facility due 2026 containing margins of 3.00% for Term SOFR Loans (as defined in the credit agreement) and 2.00% for Base Rate Loans (as defined in the credit agreement), and the incremental Term Loan Facility due 2026 containing margins of 3.25% for Term SOFR Loans with a floor of 0.50% and 2.25% for Base Rate Loans with a floor of 1.50%.
Collateral and Guarantees
The receivablesTerm Loan Facility is guaranteed by Capital I and each of iHeartCommunications’ existing and future material wholly-owned restricted subsidiaries, subject to certain exceptions. All obligations under the Term Loan Facility, and the guarantees of those obligations, are secured, subject to permitted liens and other exceptions, by a first priority lien in substantially all of the
IHEARTMEDIA, INC.AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
assets of iHeartCommunications and all of the guarantors’ assets, including a lien on the capital stock of iHeartCommunications and certain of its subsidiaries owned by a guarantor, other than the accounts receivable and related assets of iHeartCommunications and all of the subsidiary guarantors, and by a second priority lien on accounts receivable and related assets securing iHeartCommunications’ ABL Facility.
Prepayments
iHeartCommunications is required to prepay outstanding term loans under the Term Loan Facility, subject to certain exceptions, with:
• 50% (which percentage may be reduced to 25% and to 0% based credit facilityupon iHeartCommunications’ first lien leverage ratio) of iHeartCommunications’ annual excess cash flow, subject to customary credits, reductions and exclusions;
• 100% (which percentage may be reduced to 50% and 0% based upon iHeartCommunications’ first lien leverage ratio) of the net cash proceeds of sales or other dispositions of the assets of iHeartCommunications or its wholly owned restricted subsidiaries, subject to reinvestment rights and certain other exceptions; and
• 100% of the net cash proceeds of any incurrence of debt, other than debt permitted under the Term Loan Facility.
iHeartCommunications may voluntarily repay outstanding loans under the Term Loan Facility at any time, without prepayment premium or penalty, subject to customary “breakage” costs with respect to eurocurrency loans.
Certain Covenants and Events of Default
The Term Loan Facility does not include any financial covenants. However, the Term Loan Facility includes negative covenants that, subject to significant exceptions, limit iHeartCommunications'Capital I’s ability and the ability of its restricted subsidiaries (including iHeartCommunications) 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 I’s capital stock;
• make investments, loans, or advances;
• prepay certain junior indebtedness;
• engage in certain transactions with affiliates;
• amend material agreements governing certain junior indebtedness; and
• change lines of business.
IHEARTMEDIA, INC.AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Priority Guarantee Notes
As of December 31, 2016 and 2015, iHeartCommunications had outstanding Priority Guarantee Notes consisting of:
|
| | | | | | | | | | | | | |
(In thousands) | | | | | | | December 31, | | December 31, |
| Maturity Date | | Interest Rate | | Interest Payment Terms | | 2016 | | 2015 |
9.0% Priority Guarantee Notes due 2019 | 12/15/2019 | | 9.0% | | Payable semi-annually in arrears on June 15 and December 15 of each year | | $ | 1,999,815 |
| | $ | 1,999,815 |
|
9.0% Priority Guarantee Notes due 2021 | 3/1/2021 | | 9.0% | | Payable semi-annually in arrears on March 1 and September 1 of each year | | 1,750,000 |
| | 1,750,000 |
|
11.25% Priority Guarantee Notes due 2021 | 3/1/2021 | | 11.25% | | Payable semi-annually in arrears on March 1 and September 1 of each year | | 575,000 |
| | 575,000 |
|
9.0% Priority Guarantee Notes due 2022 | 9/15/2022 | | 9.0% | | Payable semi-annually in arrears on March 15 and September 15 of each year | | 1,000,000 |
| | 1,000,000 |
|
10.625% Priority Guarantee Notes due 2023 | 3/15/2023 | | 10.625% | | Payable semi-annually in arrears on March 15 and September 15 of each year | | 950,000 |
| | 950,000 |
|
Total Priority Guarantee Notes | | | | | $ | 6,274,815 |
| | $ | 6,274,815 |
|
Guarantees and Security
The Priority Guarantee Notes are iHeartCommunications' senior obligationsTerm Loan Facility includes certain customary representations and are fullywarranties, affirmative covenants and unconditionally guaranteed, jointlyevents of default, including but not limited to, payment defaults, breach of representations and severally, on a senior basis by the guarantors named in the indentures. The Priority Guarantee Notes and the guarantors’ obligations under the guarantees are secured by (i) a lien on (a) the capital stock of iHeartCommunications and (b) certain property and related assets that do not constitute “principal property” (as defined in the indenture governing certain of iHeartCommunications' legacy notes), in each case equal in priority to the liens securing the obligations under iHeartCommunications' senior secured credit facilities, subjectwarranties, covenant defaults, cross defaults to certain exceptions,indebtedness, certain bankruptcy-related events, certain events under ERISA, material judgments and (ii) a lien on the accounts receivable and related assets securing iHeartCommunications' receivables based credit facility junior in priority to the lien securing iHeartCommunications' obligations thereunder, subject to certain exceptions. In addition to the collateral granted to secure the Priority Guarantee Notes, the collateral agent and the trustee for the 9% Priority Guarantee Notes due 2019 entered intochange of control. If an agreement with the administrative agent forevent of default occurs, the lenders under the senior secured credit facilitiesTerm Loan Facility are entitled to turn over totake various actions, including the trusteeacceleration of all amounts due under the 9% Priority GuaranteeTerm Loan Facility and all actions permitted to be taken under the loan documents relating thereto or applicable law.
6.375% Senior Secured Notes due 2019, for2026
On the benefit ofEffective Date, iHeartCommunications entered into an indenture (the “Senior Secured Notes Indenture”) with Capital I, as guarantor, the holders of the 9% Priority Guarantee Notes due 2019, a pro rata share of any recovery received on account of the principal properties, subject to certain termssubsidiary guarantors party thereto, and conditions.
Redemptions
iHeartCommunications may redeem the Priority Guarantee Notes at its option, in whole or in part, at redemption prices set forth in the indentures, plus accruedU.S. Bank National Association, as trustee and unpaid interest to the redemption dates.
Certain Covenants
The indenturescollateral agent, governing the Priority Guarantee Notes contain covenants that limit iHeartCommunications' 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) modify any of iHeartCommunications' existing senior notes; (iv) transfer or sell 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 iHeartCommunications' assets. The indentures contain covenants that limit the Company’s and iHeartCommunications' ability and the ability of their restricted subsidiaries to, among other things: (i) create liens on assets and (ii) materially impair the value of the security interests taken with respect to the collateral for the benefit of the notes collateral agent and the holders of the Priority Guarantee Notes. The indentures also provide for customary events of default.
IHEARTMEDIA, INC.AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Subsidiary Revolving Credit Facility Due 2018
During the third quarter of 2013, CCOH entered into a five-year senior secured revolving credit facility with an$800.0 million 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. At 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.
14.0%6.375% Senior Secured Notes due 2021
As2026 that were issued to certain Claimholders pursuant to the Plan of December 31, 2016, iHeartCommunications had outstanding approximately $1.7 billion of aggregate principal amount of 14.0%Reorganization. The 6.375% Senior Secured Notes due 2021 (net of $440.6 million principal amount held by a subsidiary of iHeartCommunications).
The 14.0% Senior Notes due 2021 mature on FebruaryMay 1, 2021. Interest on the 14.0% Senior Notes due 2021 is2026 and bear interest at a rate of 6.375% per annum, payable semi-annually in arrears on February 1 and August 1 of each year. Interest on the 14.0% Senior Notes due 2021 will be paid at the rate of (i) 12.0% per annum in cash and (ii) 2.0% per annum through the issuance of payment-in-kind notes (the “PIK Notes”). Any PIK Notes issued in certificated form will be dated as of the applicable interest payment date and will bear interest from and after such date. All PIK Notes issued will mature on February 1, 2021 and have the same rights and benefits as the 14.0% Senior Notes due 2021. Beginning with the interest payment due August 1, 2018 and continuing on each interest payment date thereafter, redemptions of a portion of the principal amount then outstanding will become due for purposes of applicable high yield discount obligation (“AHYDO”) catch-up payments.
IHEARTMEDIA, INC.AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The 14.0%6.375% Senior Secured Notes due 2021 are fully and unconditionally guaranteed on a senior secured basis by Capital I and the guarantors namedsubsidiaries of iHeartCommunications that guarantee the Term Loan Facility or other credit facilities or capital markets debt securities. The 6.375% Senior Secured Notes and the related guarantees rank equally in right of payment with all of iHeartCommunications’ and the indenture governingguarantors’ existing and future indebtedness that is not expressly subordinated to the 6.375% Senior Secured Notes (including the Term Loan Facility, the 5.25% Senior Secured Notes, the 4.75% Senior Secured Notes and the Senior Unsecured Notes), effectively equal with iHeartCommunications’ and the guarantors’ existing and future indebtedness secured by a first priority lien on the collateral securing the 6.375% Senior Secured Notes, effectively subordinated in right of payment to all of iHeartCommunications’ and the guarantors’ existing and future indebtedness that is secured by assets that are not part of the collateral securing the 6.375% Senior Secured Notes, to the extent of the value of such notes. The guarantee isassets, and structurally subordinated in right of payment to all existing and future indebtedness and other liabilities of any subsidiary of the applicable subsidiary guarantoriHeartCommunications that is not also a guarantor of the 14.0%6.375% Senior Secured Notes.
The 6.375% Senior Secured Notes due 2021. Theand the related guarantees are subordinatedsecured, subject to the guarantees of iHeartCommunications' senior secured credit facilitiespermitted liens and certain other permitted debt, but rank equal toexceptions, by a first priority lien on the capital stock of iHeartCommunications and substantially all other senior indebtedness of the guarantors.assets of iHeartCommunications and the guarantors, other than accounts receivable and related assets, and by a second priority lien on accounts receivable and related assets securing the ABL Facility.
iHeartCommunications may redeem the 14.0%6.375% Senior Secured Notes due 2021,at its option, in whole or in part, within certain dates, at the redemption prices set forth in the indenture6.375% Senior Secured Notes Indenture plus accrued and unpaid interest to the redemption date.
The indenture governing the 14.0%6.375% Senior Secured Notes due 2021Indenture contains covenants that limit iHeartCommunications' ability and the ability of its restricted subsidiaries to, among other things: (i) incur additional indebtedness or issue certain preferred stock; (ii) pay dividends on, or make distributions in respect of, iHeartCommunications' capital stock or repurchase iHeartCommunications' capital stock; (iii) make certain investments or other restricted payments; (iv) sell certain assets; (v) create liens or use assets as security in other transactions; (vi) merge, consolidate or transfer or dispose of substantially all of iHeartCommunications' assets; (vii) engage in transactions with affiliates; and (viii) designate iHeartCommunications' subsidiaries as unrestricted subsidiaries.
Legacy Notes
As of December 31, 2016 and 2015, iHeartCommunications had outstanding senior notes (net of $57.1 million aggregate principal amount held by a subsidiary of iHeartCommunications) consisting of:
|
| | | | | | | |
(In thousands) | December 31, | | December 31, |
| 2016 | | 2015 |
5.5% Senior Notes Due 2016(1) | $ | — |
| | $ | 192,900 |
|
6.875% Senior Notes Due 2018 | 175,000 |
| | 175,000 |
|
7.25% Senior Notes Due 2027 | 300,000 |
| | 300,000 |
|
Total Legacy Notes | $ | 475,000 |
| | $ | 667,900 |
|
| |
(1) | In December 2016, iHeartCommunications repaid at maturity $192.9 million of 5.5% Senior Notes due 2016 and did not pay $57.1 million of the notes held by a subsidiary of the Company. The $57.1 million of aggregate principal amount remains outstanding and is eliminated for purposes of consolidation of the Company’s financial statements. |
These senior notes were the obligations of iHeartCommunications prior to the merger in 2008. The senior notes are senior, unsecured obligations that are effectively subordinated to iHeartCommunications' secured indebtedness to the extent of the value of iHeartCommunications' assets securing such indebtedness and are not guaranteed by any of iHeartCommunications' subsidiaries
IHEARTMEDIA, INC.AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
and, as a result, are structurally subordinated to all indebtedness and other liabilities of iHeartCommunications' subsidiaries. The senior notes rank equally in right of payment with all of iHeartCommunications' existing and future senior indebtedness and senior in right of payment to all existing and future subordinated indebtedness.
10.0% Senior Notes due 2018
As of December 31, 2016, iHeartCommunications had outstanding $347.0 million aggregate principal amount of 10.0% Senior Notes due 2018 (net of $503.0 million aggregate principal amount held by certain subsidiaries of iHeartCommunications). The 10.0% Senior Notes due 2018 mature on January 15, 2018 and bear interest at a rate of 10.0% per annum, payable semi-annually on January 15 and July 15 of each year. On December 20, 2016, iHeartCommunications commenced an offer to noteholders to exchange its 10.0% Senior Notes due 2018 for newly-issued 11.25% Priority Guarantee Notes which will be issued as “additional notes” under the indenture governing iHeartCommunications' existing 11.25% Priority Guarantee Notes due 2021. On February 7, 2017, iHeartCommunications completed the exchange offer by issuing $476.4 million in aggregate principal amount of 11.25% Priority Guarantee Notes due 2021 in exchange for $476.4 million of aggregate principal amount outstanding of its 10.0% Senior Notes due 2018, of which $241.4 million is held by subsidiaries of iHeartCommunications.
The 10% Senior Notes due 2018 are senior, unsecured obligations that are effectively subordinated to iHeartCommunications' secured indebtedness to the extent of the value of iHeartCommunications' assets securing such indebtedness and are not guaranteed by any of iHeartCommunications' subsidiaries and, as a result, are structurally subordinated to all indebtedness and other liabilities of iHeartCommunications' subsidiaries. The 10.0% Senior Notes due 2018 rank equally in right of payment with all of iHeartCommunications' existing and future senior indebtedness and senior in right of payment to all existing and future subordinated indebtedness.
IHEARTMEDIA, INC.AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Subsidiary Senior Notes
As of December 31, 2016 and 2015, the Company's subsidiaries, Clear Channel Worldwide Holdings, Inc. ("CCWH") and Clear Channel International B.V. had outstanding notes consisting of:
|
| | | | | | | | | | | | | |
(In thousands) | | | | | | | December 31, | | December 31, |
| Maturity Date | | Interest Rate | | Interest Payment Terms | | 2016 | | 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 | | 8.75% | | Payable semi-annually in arrears on June 15 and December 15 of each year | | $ | 225,000 |
| | $ | 225,000 |
|
Total Subsidiary Senior Notes | | | | | | | $ | 5,150,000 |
| | $ | 5,150,000 |
|
CCWH Senior and Senior Subordinated Notes
The CCWH Senior Notes are guaranteed by CCOH, Clear Channel Outdoor, Inc. (“CCOI”) 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 other 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 CCWH Senior Subordinated Notes.
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. The CCWH Senior 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 Senior Subordinated Notes.
IHEARTMEDIA, INC.AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Redemptions
CCWH may redeem the CCWH Senior Notes and the CCWH Senior Subordinated Notes at its option, in whole or in part, at redemption prices set forth in the indentures plus accrued and unpaid interest to the redemption dates and plus an applicable premium.
Certain Covenants
The indentures governing the CCWH Senior Notes and the CCWH Senior Subordinated Notes contain covenants that limit CCOHCapital I and its restricted subsidiaries, abilityincluding iHeartCommunications, to, among other things:
•incur or guarantee additional debt or issue certain preferred stock;
make certain investments;
in case of the Senior Notes, •create liens on its restricted subsidiaries’ assets to secure suchcertain assets;
•redeem, purchase or retire subordinated debt;
•make certain investments;
•create restrictions on the payment of dividends or other amounts to it from itsiHeartCommunications’ restricted subsidiaries that are not guarantors of the notes;subsidiaries;
•enter into certain transactions with affiliates;
•merge or consolidate with another person, or sell or otherwise dispose of all or substantially all of itsiHeartCommunications’ assets;
•sell certain assets, including capital stock of itsiHeartCommunications’ subsidiaries;
•designate iHeartCommunications’ subsidiaries as unrestricted subsidiaries, and
in the case of the Series B CCWH Senior Notes and the Series B CCWH Senior Subordinated Notes, •pay dividends, redeem or repurchase capital stock or make other restricted payments.
Clear Channel International B.V.
5.25% Senior Secured Notes due 2027
On August 7, 2019, iHeartCommunications entered into an indenture (the “5.25% Senior Secured Notes Indenture”) with Capital I, as guarantor, the subsidiary guarantors party thereto, and U.S. Bank National Association, as trustee and collateral agent, governing the $750.0 million aggregate principal amount of 5.25% Senior Secured Notes due 2027 that were issued in a private placement to qualified institutional buyers under Rule 144A under the Securities Act, and to persons outside the United States pursuant to Regulation S under the Securities Act. The 5.25% Senior Secured Notes mature on August 15, 2027 and bear interest at a rate of 5.25% per annum. Interest is payable semi-annually on February 15 and August 15 of each year.
The Clear Channel International B.V.5.25% Senior Secured Notes ("CCIBV Senior Notes") are guaranteed on a senior secured basis by certainCapital I and the subsidiaries of iHeartCommunications that guarantee the International outdoor business’s existingTerm Loan Facility. The 5.25% Senior Secured Notes and future subsidiaries. The Company does not guarantee or otherwise assume any liability for the CCIBV Senior Notes. The notes are senior unsecured obligations thatrelated guarantees rank pari passuequally in right of payment with all of iHeartCommunications’ and the guarantors’ existing and future indebtedness that is not expressly subordinated to the 5.25% Senior Secured Notes (including the Term Loan Facility, the 6.375% Senior Secured Notes, the 4.75% Senior Secured Notes and the Senior Unsecured Notes), effectively equal with iHeartCommunications’ and the guarantors’ existing and future indebtedness secured by a first priority lien on the collateral securing the 5.25% Senior Secured Notes, effectively subordinated to all unsubordinated indebtedness of Clear Channel International B.V.,iHeartCommunications’ and the guaranteesguarantors’ existing and future indebtedness that is secured by assets that are not part of the notes are senior unsecured obligations that rank pari passu in rightcollateral securing the 5.25% Senior Secured Notes, to the extent of paymentthe value of
IHEARTMEDIA, INC.AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
such collateral, and structurally subordinated to all unsubordinatedexisting and future indebtedness and other liabilities of any subsidiary of iHeartCommunications that is not a guarantor of the guarantors5.25% Senior Secured Notes.
The 5.25% Senior Secured Notes and the related guarantees are secured, subject to permitted liens and certain other exceptions, by a first priority lien on the capital stock of iHeartCommunications and substantially all of the notes.assets of iHeartCommunications and the guarantors, other than accounts receivable and related assets, and by a second priority lien on accounts receivable and related assets securing the ABL Facility.
Redemptions
Clear Channel International B.V.iHeartCommunications may redeem the notes5.25% Senior Secured Notes at its option, in whole or part, at the redemption prices set forth in the indenture5.25% Senior Secured Notes Indenture plus accrued and unpaid interest to the redemption date.
Certain Covenants
The indenture governing the CCIBV5.25% Senior Secured Notes Indenture contains covenants that limit Clear Channel International B.V.’s ability and the ability of iHeartCommunications and its restricted subsidiaries, to, among other things:
pay dividends, redeem stock•incur or make other distributions or investments;