iHeartMedia, Inc. (the “Company,” “we” or “us”) is one of the leading global media and entertainment companies specializing in radio, digital, outdoor, mobile, live events, social and on-demand entertainment and information services for local communities and providing premier opportunities for advertisers.
Radio broadcasting is subject to the jurisdiction of the FCC under the Communications Act of 1934, as amended (the “Communications Act”). As described in “Regulation of Our iHeartMedia Business” below, the FCC grants us licenses in order to operate our radio stations. The following table provides the number of owned and operated radio stations in the top 25 Nielsen-ranked markets:
The Communications Act prohibits the assignment of a license or the transfer of control of an FCC licensee without prior FCC approval. In determining whether to grant such approval, the FCC considers a number of factors pertaining to the existing licensee and the proposed licensee, including compliance with FCC’ rules and the “character” of the proposed licensees. Applications for license assignments or transfers involving a substantial change in ownership are subject to a 30-day30‑day period for public comment, during which petitionsparties may petition to deny the application may be filed and considered by the FCC.such applications.
The FCC grants broadcast licenses for a term of up to eight years. The FCC will renew a license for an additional eight-yeareight‑year term if, after consideration of the renewal application and any objections thereto, it finds that the station has served the public interest, convenience and necessity and that, with respect to the station seeking renewal, there have been no serious violations of either the Communications Act or the FCC’s rules and regulations by the licensee and no other such violations which, taken together, constitute a pattern of abuse.abuse of the Communications Act or FCC rules. The FCC may grant the license renewal application with or without conditions, including renewal for a term less than eight years. The vast majority of radio licenses are renewed by the FCCyears, although renewal for less than the full eight-year term.eight‑year term is rare. While we cannot guarantee the unconditional grant of any future renewal application, our stations’ licenses historically have been renewed for the full eight-yeareight‑year term.
FCC rules and policies define the interests of individuals and entities, known as “attributable” interests, which implicate FCC rules governing ownership of broadcast stations. Under these rules, attributable interests generally include: (1) officers and directors of a licensee and of its direct and indirect parents;parent(s); (2) general partners;partners and limited liability company managers; (3) limited partners and limited liability company members, unless properly “insulated” from management activities; (4) a 5%5 percent or more direct or indirect voting stock interest in a corporate licensee or parent except(except that, for a narrowly defined class of passive investors, the attributiona 20 percent voting threshold is a 20% or more voting stock interest;applies); and (5) combined equity and debt interests in excess of 33%33 percent of a licensee’s total asset value, if the interest holder provides over 15% of the licensee station’s total weekly programming, or has an attributable same-service (radio or television) broadcast interest in the same marketcertain other conditions are met (the “EDP Rule”). An entity that owns one or more radio stations in a market and programs more than 15%15 percent of the broadcast time under a local marketing agreement (“LMA”), or sells more than 15%15 percent per week of the advertising time under a joint sales agreement (“JSA”), on a radio station in the same market is also generally deemed to have an attributable interest in that station.
The current FCC ownership rules relevant to our business are summarized below.
In December 2018, the FCC commenced its 2018 quadrennial review of its media ownership regulations. Among other things, the FCC is seeking comment on all aspects of the local radio ownership rule’s implementation andrule including whether the current version of the rule remains necessary in the public interest. We cannot predict the outcome of the FCC'sFCC’s media ownership proceedings or their effects on our business in the future.
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 could 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 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. The FCC is also considering the adoption of rules which may limit our ability to prevent interference by FM translators to the reception of our full-power radio stations.
We must pay royalties to copyright owners of musical compositions (typically, songwriters and publishers) whenever we broadcast or stream musical compositions. Copyright owners of musical compositions most often rely on intermediaries known as performing rights organizations (“PROs”) to negotiate licenses with copyright users for the public performance of their compositions, collect royalties under such licenses and distribute them to copyright owners. We have obtained public performance licenses from, and pay license fees to, the threefour major PROs in the United States,U.S., which are the American Society of Composers, Authors and Publishers (“ASCAP”), Broadcast Music, Inc. (“BMI”), SESAC LLC ("SESAC") and SESAC, Inc.Global Music Rights LLC (“SESAC”GMR”). There is no guarantee that a given songwriter or publisher will remain associated with ASCAP, BMI or SESAC or that additional PROs will not emerge. In 2013, a new PRO was formed named Global Music Rights (“GMR”). GMR has secured the rights to certain copyrights and is seeking to negotiate individual licensing agreements with radio stations for songs in its repertoire. GMR and the Radio Music License Committee, Inc. ("RMLC"),emerge, which negotiates music licensing fees with PROs on behalf of many U.S. radio stations, have instituted antitrust litigation against one another. The litigation is ongoing. The withdrawal of a significant number of musical composition copyright owners from the three established PROs; the emergence of one or more additional PROs; and the outcome of the GMR/RMLC litigation could impact, and in some circumstances increase, our royalty rates and negotiation costs.
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. From time to time, SoundExchange notifies us that certain calendar years are subject to routine audits of our royalty payments. The results of such audits could result in higher royalty payments for the subject years. Sound recordings fixed on or after February 15, 1972 are protected by federal copyright law. Sound recording copyright owners have asserted that state law provideshistorically provided copyright protection for 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. In October 2018, federal legislation was signed into law that applies a statutory licensing regime to pre-72 recordings similar to that which governs post-72 recordings. Among other things, the new law extends remedies for copyright infringement to owners of pre-72 recordings when recordings are used without authorization. The new law creates a public performance right for pre-72 recordings streamed online that may increase our licensing costs. It also preempts state law infringement claims both prospectively and, in certain circumstances, retrospectively.
The rates at which we pay royalties to copyright owners are privately negotiated or set pursuant to a regulatory process. In addition, we have business arrangements directly with some copyright owners to receive deliveries of and, in some cases, to directly license their sound recordings for use in our Internet operations. There is no guarantee that the licenses and associated royalty rates that currently are available to us will be available to us in the future. CongressIn addition, congress may consider and adopt legislation that would require us to pay royalties to sound recording copyright owners for broadcasting those recordings on our terrestrial radio stations. In addition, theThe CRB has issued a final determination establishing copyright royalty rates for the public performance and ephemeral reproduction of sound recordings by various non-interactivenon‑interactive webcasters, including radio broadcasters that simulcast their terrestrial programming online, to apply to the period January 1, 2016-December2016‑December 31, 2020 under the so-calledso‑called webcasting statutory license. A proceeding to establish the rates for 2021-2025 is2021‑2025 began in 2019, with a final, retroactively applicable determination expected to begin in 2019.on or before April 15, 2021. 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 certain of these conditions under certain circumstances for set periods of time. Some of these conditions may be inconsistent with customary radio broadcasting practices.
Congress, the FCC and other government agencies and regulatory bodies may in the future adopt new laws, regulations and policies that could affect, directly or indirectly, the operation, profitability and ownership of our broadcast stations and Internet-basedInternet‑based audio music services. In addition to the regulations, proceedings and procedures noted above, such matters may include, for example: proposals to impose spectrum use or other fees on FCC licensees; changes to the political broadcasting rules, including the adoption of proposals to provide free air time to candidates; restrictions on the advertising of certain products, such as beer and wine; frequency allocation, spectrum reallocations and changes in technical rules; and the adoption of significant new programming and operational requirements designed to increase local community-responsivecommunity‑responsive programming and enhance public interest reporting requirements.
We are subject to a number of laws and regulations relating to consumer protection, information security, data protection and privacy. Many of these laws and regulations are still evolving (such as the new California Consumer Privacy Act) and could be interpreted in ways that could harm our business or limit the services we are able to offer. In the area of information security and data protection, the laws in several states in the United States and most countries require companies to implement specific information security controls and legal protections to protect certain types of personally identifiable information. Likewise, most states in the United States and most countries have laws in place requiring companies to notify users if there is a security breach that compromises certain categories of their personally identifiable information. Any failure on our part to comply with these laws may subject us to significant liabilities. For example, the California Consumer Privacy Act (“CCPA”) establishes a new privacy framework that expands the definition of personal information, establishes new data privacy rights for consumers residing in the State of California, imposes special rules on the collection of consumer data from minors, creates new notice obligations and new limits on the sale of personal information, and creates a new and potentially severe statutory damages framework for (i) violations of the CCPA and (ii) businesses that fail to implement reasonable security procedures and practices to prevent data breaches.
We regularly review and implement commercially reasonable organizational and technical physical and electronic security measures that are designed to protect against the loss, misuse, and alteration of our listeners’, employees'employees’, clients'clients’ and customers'
CCOH’s substantial indebtedness could have a material adverse effect on CCOH’s performance and on our financial condition and liquidity.
Our subsidiary CCOH has a substantial amount of indebtedness. As of December 31, 2018, CCOH had $5.3 billion of total indebtedness outstanding, including: (1) $2,721 million aggregate principal amount of Clear Channel Worldwide Holdings, Inc.’s, a subsidiary of CCOH, (“CCWH”) senior notes, net of unamortized discounts of $3.4 million, which mature in November 2022; (2) $2,200 million aggregate principal amount of CCWH’s senior subordinated notes, which were scheduled to mature in March 2020 prior to their redemption in 2019; (3) $377.7 million aggregate principal amount outstanding of international subsidiary senior notes, net of unamortized premiums of $2.7 million, which mature in December 2020; and (4) $3.9 million of other debt. On February 12, 2019, CCWH refinanced its senior subordinated notes, which were scheduled to mature in March 2020, with an aggregate principal amount of $2,235 million of new senior subordinated notes, which mature in February 2024. CCOH’s ability to make scheduled payments on its debt obligations depends on its financial condition and operating performance, which are subject to prevailing economic and competitive conditions and to certain financial, business and other factors beyond its control. CCOH may not be able to maintain a level of cash flows from operating activities sufficient to permit it to pay the principal and interest on its indebtedness. CCOH’s operations and its ability to successfully refinance or extend its debt may also be negatively affected by our Chapter 11 Cases.
iHeartCommunications, which is a Debtor in the Chapter 11 Cases, provides the day-to-day cash management services for CCOH’s cash activities and balances in the U.S. pursuant to the Corporate Services Agreement between iHeartCommunications and CCOH, and is continuing to do so during the Chapter 11 Cases pursuant to a cash management order approved by the Bankruptcy Court. As of December 31, 2018, there was a balance of $21.6 million due by CCOH in this account, which the Debtors have agreed to waive upon emergence pursuant to the settlement entered into on December 16, 2018, by and among the Debtors, CCOH and certain other parties in connection with the Chapter 11 Cases (the “CCOH Separation Settlement”) as described under Item 3 “Legal Proceedings--Stockholder Litigation.” CCOH currently does not have any material committed external sources of capital other than iHeartCommunications. If CCOH has a significant need for capital prior to emergence, and iHeartCommunications is limited in its ability to provide such capital, there could be a material adverse effect on CCOH’s financial condition and liquidity. In addition, pursuant to the CCOH Separation Settlement, iHeartCommunications has agreed to provide an unsecured revolving line of credit in an aggregate amount not to exceed $200 million to CCOH for a period of no more than three years following the effective date of the Plan of Reorganization. If CCOH is unable to pay any borrowings due thereunder, our financial condition and liquidity could suffer.
Risks Related to Ownership of Our Class A Common Stock
Trading in our securities during the pendency of the Chapter 11 Cases is highly speculative and poses substantial risks.
Trading prices for our common stock are very volatile and may bear little or no relationship to the actual recovery by the holders of such securities in the Chapter 11 Cases. Although the terms of the Plan of Reorganization contemplate that our existing equity holders will collectively receive 1% of the equity in reorganized iHeartMedia upon completion of the Chapter 11 Cases, if the Plan of Reorganization does not become effective, it is possible that our common stock will be canceled and extinguished upon the approval of the Bankruptcy Court and the holders thereof would not be entitled to receive, and would not receive or retain, any property or interest in property on account of such equity interests. In the event of a cancellation of our common stock, amounts invested by such holders in our outstanding common stock will not be recoverable. Consequently, our currently outstanding common stock would have no value. Accordingly, we urge that extreme caution be exercised with respect to existing and future investments in our equity securities and any of our other securities.
Risks of trading in the Over-The-Counter Pink Market.
Shares of our Class A common stock are quoted in the Over-The-Counter Pink Market ("Pink Market"). The lack of an active market may impair the ability of holders of our Class A common stock to sell their shares of Class A common stock at the time they wish to sell them or at a price that they consider reasonable. The lack of an active market may also reduce the fair market value of the shares of our Class A common stock. Furthermore, because of the limited market and generally low volume of trading in our Class A common stock, the price of our Class A common stock could be more likely to be affected by broad market fluctuations, general market conditions, fluctuations in our operating results, changes in the markets' perception of our business, and announcements made by us, our competitors, parties with whom we have business relationships or third parties with interests in the Chapter 11 Cases.
The equity that our current equity holders and creditors will receive pursuant to the Plan of Reorganization will be subject to dilution as a result of future issuances of our common stock.
The terms of the Plan of Reorganization contemplate that our existing equity holders will collectively receive 1% of the equity in reorganized iHeartMedia with creditors collectively receiving the rest. The Plan of Reorganization also contemplates
that an equity-based incentive compensation plan pursuant to which certain of our directors, managers, officers and employees will be granted awards, will be adopted on the effective date of the Plan of Reorganization. Pursuant to the Plan of Reorganization, up to 8% of the common stock of reorganized iHeartMedia on a fully diluted basis, will be reserved under the equity-based incentive compensation plan. Current equity holders and creditors receiving a recovery under the Plan of Reorganization will be subject to dilution from issuances under the equity-based incentive compensation plan.
We may terminate our Exchange Act reporting, if permitted by applicable law.
If at any time our Class A common stock is held by fewer than 300 holders of record, we will be permitted to cease to be a reporting company under the Exchange Act to the extent we are not otherwise required to continue to report pursuant to any contractual agreements, including with respect to any of our indebtedness. If we were to cease filing reports under the Exchange Act, the information now available to our stockholders in the annual, quarterly and other reports we currently file with the SEC would not be available to them as a matter of right.
Risks Related to Our Business
Our results have been in the past, and could be in the future, adversely affected by economic uncertainty or deteriorations in economic conditions.
We derive revenues from the sale of advertising. Expenditures by advertisers tend to be cyclical, reflecting economic conditions and budgeting and buying patterns. Periods of a slowing economy or recession, or periods of economic uncertainty, may be accompanied by a decrease in advertising. For example, the globalGlobal economic downturn that began in 2008 resulted inactivity has declined as a decline inresult of COVID-19, which has significantly reduced our advertising and marketing by our customers, which resulted in a decline in advertising revenues across our businesses.revenues. This reduction in advertising revenues 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 or increases or economic conditions deteriorate, again,including due to the ongoing effect of the COVID-19 pandemic, global economic conditions may once againcontinue to adversely impact our revenue, profit margins, cash flow and liquidity. 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 face intense competition in our iHeartMedia and our outdoor advertising businesses.business.
We operate in a highly competitive industry, and we may not be able to maintain or increase our current audience ratings 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, such as streaming audio services, satellite radio, podcasts, other Internet-based streaming music services, television, live entertainment, newspapers, magazines television,and direct mail, portable digital audio players, mobile devices, satellite radio, Internet-based services and live entertainment, within their respective markets. 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. 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.
Our ability to compete effectively depends in part on our ability to achieve a competitive cost structure during the Chapter 11 Cases.structure. If we cannot do so, then our business, financial condition and operating results would be adversely affected.
Alternative media platforms and technologies may continue to increase competition with our broadcasting operations.
Our terrestrial radio broadcasting operations face increasing competition from alternative media platforms and technologies, such as broadband wireless, satellite radio, audio broadcasting by cable television systems, andother podcast streaming services, Internet-based streaming music services, as well as consumer products, such as portable digital audio players and other mobile devices, smart phones and tablets, gaming consoles, in-home entertainment and enhanced automotive platforms. These technologies and alternative media platforms, including those used by us, compete with our broadcast radio stations for audience share and advertising revenues. We are unable to predict the effect that such technologies and related services and products will have on our broadcasting and digital operations. The capital expenditures necessary to implement these or other technologies could be substantial and we cannot assure you that we will continue to have the resources to acquire new technologies or to introduce new services to compete with other new technologies or services, or that our investments in new technologies or services will provide the desired returns. Other
companies employing new technologies or services could more successfully implement such new technologies or services or otherwise increase competition with our businesses.
Our iHeartMedia business is dependent upon the performance of on-air talent and program hosts.
We employ or independently contract with many on-air personalities and hosts of syndicated radio programs, podcasts and other audio platforms, with significant loyal audiences in their respective markets. Although we have entered into long-term agreements with some of our key on-air talent and program hosts to protect our interests in those relationships, we can give no assurance that all or any of these persons will remain with us, orwill be able to continue to perform their duties, will retain their audiences.audiences or will continue to be profitable. Competition for these individuals is intense and many of these individuals are under no legal obligation to remain with us. Our competitors may choose to extend offers to any of these individuals on terms which we may be unwilling to meet. Furthermore, the popularity and audience loyalty of our key on-air talent and program hosts is
highly sensitive to rapidly changing public tastes. A loss of such popularity or audience loyalty is beyond our control and could have a material adverse effect on our ability to attract local and/or national advertisers and on our revenue and/or ratings, and could result in increased expenses.
If events occur that damage our reputation and brand, our ability to grow our user base, advertiser relationships, and partnerships may be impaired and our business may be harmed.
We have developed a brand that we believe has contributed to our success. We also believe that maintaining and enhancing our brand is critical to growing our user base, advertiser relationships and partnerships. The iHeartRadio master brand ties together our radio stations, digital platforms, social, podcasts and events in a unified manner that reflects the quality and compelling nature of our listener experiences. Maintaining and enhancing our brand depends on many factors, including factors that are not entirely within our control. If we fail to successfully promote and maintain our brand or if we suffer damage to the public perception of our brand, our business may be harmed.
Our business is dependent on our management team and other key individuals.
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 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.
Our financial performance may be adversely affected by many factors beyond our control.
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:
•unfavorable fluctuations in operating costs, which we may be unwilling or unable to pass through to our customers;
•our inability to successfully adopt or our being late in adopting technological changes and innovations that offer more attractive advertising or listening alternatives than what we offer, which could result in a loss of advertising customers or lower advertising rates, which could have a material adverse effect on our operating results and financial performance;
•a loss of advertising customers or lower advertising rates, which could have a material adverse effect on our operating results and financial performance;
•the impact of potential new or increased royalties or license fees charged for terrestrial radio broadcasting or the provision of our digital services, which could materially increase our expenses;
•unfavorable shifts in population and other demographics, which may cause us to lose advertising customers as people migrate to markets where we have a smaller presence or which may cause advertisers to be willing to pay less in advertising fees if the general population shifts into a less desirable age or geographical demographic from an advertising perspective;
•continued dislocation of advertising agency operations from new technologies and media buying trends;
•adverse political effects and acts or threats of terrorism or military conflicts; and
•unfavorable changes in labor conditions, which may impair our ability to operate or require us to spend more to retain and attract key employees.
In addition, on June 23, 2016, the United Kingdom (the "U.K.") held a referendum in which voters approved an exit of the U.K. from the European Union (the "E.U."), commonly referred to as "Brexit". International outdoor is currently headquartered in the U.K. and transacts business in many key European markets. The U.K. is currently negotiating the terms of its exit from the E.U. scheduled for March 29, 2019. In November 2018, the U.K. and the E.U. agreed upon a draft Withdrawal Agreement that sets out the terms of the U.K.’s departure. On January 15, 2019, the draft Withdrawal Agreement was rejected by the U.K. Parliament creating significant uncertainty about the terms (and timing) under which the U.K. will leave the E.U. and the consequent impact on the economies of the U.K., the E.U. and other countries. This uncertainty may cause our customers to closely monitor their costs and reduce the amount they spend on advertising. Any of these or similar effects of Brexit could adversely impact our business, operating results, cash flows and financial condition.
The success of our street furniture and transit products businesses is dependent on our obtaining key municipal concessions, which we may not be able to obtain on favorable terms.
Our street furniture and transit products businesses require us to obtain and renew contracts with municipalities and transit authorities. Many of these contracts, which require us to participate in competitive bidding processes at each renewal, typically have terms ranging up to 15 years and have revenue share, capital expenditure requirements and/or fixed payment components. Competitive bidding processes are complex and sometimes lengthy and substantial costs may be incurred in connection with preparing bids.
Our competitors, individually or through relationships with third parties, may be able to provide different or greater capabilities or prices or benefits than we can provide. In the past we have not been, and most likely in the future will not be, awarded all of the contracts on which we bid. The success of our business also depends generally on our ability to obtain and renew contracts with private landlords. There can be no assurance that we will win any particular bid, be able to renew existing contracts (on the same or better terms, or at all) or be able to replace any revenue lost upon expiration or completion of a contract. Our inability to renew existing contracts may also result in significant expenses from the removal of our displays. Furthermore, if and when we do obtain a contract, we are generally required to incur significant start-up expenses. The costs of bidding on contracts and the start-up costs associated with new contracts we may obtain may significantly reduce our cash flow and liquidity.
This competitive bidding process presents a number of risks, including the following:
we expend substantial cost and managerial time and effort to prepare bids and proposals for contracts that we may not win;
we may be unable to estimate accurately the revenue derived from and the resources and cost structure that will be required to service any contract we win or anticipate changes in the operating environment on which our financial proposal was based; and
we may encounter expenses and delays if our competitors challenge awards of contracts to us in competitive bidding, and any such challenge could result in the resubmission of bids on modified specifications, or in the termination, reduction or modification of the awarded contract.
Our inability to successfully negotiate, renew or complete these contracts due to third-party or governmental demands and delay and the highly competitive bidding processes for these contracts could affect our ability to offer these products to our clients, or to offer them to our clients at rates that are competitive to other forms of advertising, without adversely affecting our financial results.
FutureAcquisitions, dispositions acquisitions and other strategic transactions could pose risks.
We frequently evaluate strategic opportunities both within and outside our existing lines of business. We expect from time to time to pursue strategic dispositionsacquisitions of certain businesses as well as acquisitions.strategic dispositions. These dispositionsacquisitions or acquisitionsdispositions could be material. Dispositions and acquisitionsAcquisitions or dispositions involve numerous risks, including:
•our acquisitions may prove unprofitable and fail to generate anticipated cash flows:
•to successfully manage our business, we may need to:
•recruit additional senior management as we cannot be assured that senior management of acquired businesses will continue to work for us and we cannot be certain that our recruiting efforts will succeed, and
•expand corporate infrastructure to facilitate the integration of our operations with those of acquired businesses, because failure to do so may cause us to lose the benefits of any expansion that we decide to undertake by leading to disruptions in our ongoing businesses or by distracting our management;
•we may enter into markets and geographic areas where we have limited or no experience;
•we may encounter difficulties in the integration of new management teams, operations and systems;
•our management’s attention may be diverted from other business concerns;
•our dispositions may negatively impact revenues from our national, regional and other sales networks; and
•our dispositions may make it difficult to generate cash flows from operations sufficient to meet our anticipated cash requirements, including debt service requirements;requirements.
our acquisitions may prove unprofitable
Acquisitions and fail to generate anticipated cash flows:
to successfully manage our large portfolio of iHeartMedia, outdoor advertising and other businesses, we may need to:
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▪ | recruit additional senior management as we cannot be assured that senior management of acquired businesses will continue to work for us and we cannot be certain that our recruiting efforts will succeed, and |
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▪ | expand corporate infrastructure to facilitate the integration of our operations with those of acquired businesses, because failure to do so may cause us to lose the benefits of any expansion that we decide to undertake by leading to disruptions in our ongoing businesses or by distracting our management; |
we may enter into markets and geographic areas where we have limited or no experience;
we may encounter difficulties in the integration of operations and systems; and
our management’s attention may be diverted from other business concerns.
Dispositions and acquisitionsdispositions of media and entertainment businesses and outdoor advertising businesses may require antitrust review by U.S. federal antitrust agencies and may require review by foreign antitrust agencies under the antitrust laws of foreign jurisdictions.jurisdictions, including our proposed acquisition of Triton. We can give no assurances that the DOJ,Department of Justice (“DOJ”), the FTCU.S. Federal Trade Commission (“FTC”) or foreign antitrust agencies will not seek to bar us from acquiring or disposing of or acquiring media and entertainment businesses or outdoor advertising businesses or impose stringent undertakingundertakings on our business as a condition to the completion of an acquisition in any market where we already have a significant position.
Further, radio acquisitions are subject to FCC approval. Such transactions must comply with the Communications Act and FCC regulatory requirements and policies, including with respect to the number of broadcast facilities in which a person or entity may have an ownership or attributable interest in a given local market and the level of interest that may be held by a foreign individual or entity.policies. The FCC'sFCC’s media ownership rules remain subject to ongoing agency and court proceedings. Future changes could restrict our ability to dispose of or acquire new radio assets or businesses. See “Business-Regulation of our Business.”
If our security measures are breached, we could lose valuable information, suffer disruptions to our business, and incur expenses and liabilities including damages to our relationships with listeners, consumers, business partners, employees and advertisers.
We may be unable to anticipate or prevent unauthorized access. Our websites and digital platforms are vulnerable to software bugs, computer viruses, internet worms, break-ins, phishing attacks, attempts to overload servers with denial-of-service, or other attacks and similar disruptions from unauthorized use of our and third-party computer systems, any of which could lead to system interruptions, delays, or shutdowns, causing loss of critical data or the unauthorized access to personal data. A security breach could occur due to the actions of outside parties, employee error, malfeasance or a combination of these or other actions. Though it is difficult to determine what, if any, harm may directly result from any specific interruption or attack, any failure to maintain performance, reliability, security, and availability of our services and technical infrastructure to the satisfaction of our listeners may harm our reputation and our ability to retain existing listeners and attract new listeners. We cannot assure you that the systems and processes that we have designed to protect our data and our listeners’ data, to prevent data loss and to prevent or detect security breaches will provide absolute security, and we may incur significant costs in protecting against or remediating cyber-attacks. If an actual or perceived breach of our security occurs, we may face regulatory or civil liability, lose competitively sensitive business information or suffer disruptions to our business operations, information processes and internal controls. In addition, dispositions and acquisitions outsidethe public perception of the ordinary courseeffectiveness of our security measures or services could be harmed, we could lose listeners, consumers, business duringpartners and advertisers. In the Chapter 11 Casesevent of a security breach, we could suffer financial exposure in connection with penalties, remediation efforts, investigations and legal proceedings and changes in our security and system protection measures. In the event an E.U. regulator were to determine we had not adequately complied with E.U. General Data Protection Regulation (“GDPR”) standards, we may (i) incur regulatory financial penalties or (ii) be required to notify European Data Protection Authorities, within strict time periods, about any personal data breaches, unless the personal data breach is unlikely to result in a risk to the rights and freedoms of the affected individuals. We may also be required to notify the affected individuals of the personal data breach where there is a high risk to their rights and freedoms. If we suffer a personal data breach, we could be fined up to EUR 20 million or 4% of worldwide annual turnover of the preceding financial year, whichever is greater. Any data breach by service providers that are acting as data processors (i.e., processing personal data on our behalf) could also mean that we are subject to these fines and have to comply with the notification obligations set out above.
We have engaged in restructuring activities in the past, and may need to implement further restructurings in the future and our restructuring efforts may not be successful or generate expected cost savings.
We actively seek to adapt our cost structure to the changing economics of the industry. For example, in the first quarter of 2020, we announced our modernization initiatives, which will take advantage of the significant investments we have made in new technologies to build an operating infrastructure that provides better quality and newer products and delivers new cost efficiencies. In addition, in response to the COVID-19 pandemic, we have taken steps to significantly reduce our capital and operating expenditures. There can be no assurance that we will be successful in upgrading our systems and processes effectively or on the timetable and at the costs contemplated, or that we will achieve the expected long-term cost savings.
We may be required to implement further restructuring activities, make additions or other changes to our management or workforce based on other cost reduction measures or changes in the markets and industry in which we compete. Restructuring activities can create unanticipated consequences and negative impacts on the business, and we cannot be sure that any ongoing or future restructuring efforts will be successful or generate expected cost savings.
Risks Related to our Indebtedness
Our substantial indebtedness may adversely affect our financial health and operating flexibility.
We currently have a $450.0 million undrawn senior secured asset-based revolving credit facility, $4,600.8 million in principal amount of secured debt and $1,456.8 million in principal amount of unsecured debt. This substantial amount of indebtedness could have important consequences to us, including:
•increase our vulnerability to adverse general economic, industry, or competitive developments;
•require us to dedicate a more substantial portion of our cash flows from operations to payments on our indebtedness, thereby reducing the availability of our cash flows to fund working capital, investments, acquisitions, capital expenditures, and other general corporate purposes;
•limit our ability to make required payments under our existing contractual commitments, including our existing long-term indebtedness;
•require us to sell certain assets;
•restrict us from making strategic investments, including acquisitions, or causing us to make non-strategic divestitures;
•limit our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate;
•place us at a competitive disadvantage compared to our competitors that have less debt;
•cause us to incur substantial fees from time to time in connection with debt amendments or refinancings;
•increase our exposure to rising interest rates because a substantial portion of our borrowings is at variable interest rates; and
•limit our ability to borrow additional funds or to borrow on terms that are satisfactory to us.
Our financing agreements also contain covenants that may restrict our or our subsidiaries’ ability to, among other things, incur additional indebtedness, create liens on assets, engage in mergers, consolidations, liquidations and dissolutions, sell assets, pay dividends and distributions, 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. Although the covenants in our financing agreements are subject to various exceptions, we cannot assure you that these covenants will not adversely affect our ability to finance future operations, capital needs, or to engage in other activities that may be in our best interest. In addition, in certain circumstances, our long-term debt may require us to maintain specified financial ratios, which may require that we take action to reduce our debt or to act in a manner contrary to our business objectives. A breach of any of these covenants could result in a default under our financing agreements.
In addition, we may be able to incur additional indebtedness in the future. To the extent we incur additional indebtedness, the risks associated with our leverage described above would increase.
Uncertainty relating to the LIBOR calculation process and potential phasing out of LIBOR after 2021 may adversely affect the market value of our current or future debt obligations.
The London Inter-bank Offered Rate (“LIBOR”) and certain other interest “benchmarks” may be subject to Bankruptcy Court approval.regulatory guidance and/or reform that could cause interest rates under our current or future debt agreements to perform differently than in the past or cause other unanticipated consequences. Regulators that oversee LIBOR have announced that they intend to stop encouraging or requiring banks to submit data used to compile certain LIBOR rates after 2021 and, in some cases, by mid-2023, and it is unclear if LIBOR will cease to exist or if new methods of calculating LIBOR will evolve. If LIBOR ceases to exist or if the methods of calculating LIBOR change from their current form, interest rates on our debt obligations may be adversely affected.
Regulatory, Legislative and Litigation Risks
Extensive current government regulation, and future regulation, may limit our radio broadcasting and other iHeartMedia operations or adversely affect our business and financial results.
CongressThe domestic radio industry is heavily regulated by federal laws and regulations of several federal agencies, including the FCC, extensively regulate the domestic radio industry.FCC. For example, the FCC could impact our profitability by imposing large fines on us if, in response to pending or future complaints, it finds that we broadcast indecent programming or committed other violations ofviolated FCC regulations. The FCC’s enforcement priorities are subject to change, and we cannot predict which areas of legal compliance the FCC will focus on in the future. We have received, and may receive in the future, letters of inquiry and other notifications from the FCC concerning compliance with the Communications Act and FCC rules, and we cannot predict the outcome of any outstanding or future letters of inquiry and notifications from the FCC or the nature or extent of future FCC enforcement actions.
Additionally, we cannot be sure that the FCC will approve renewal of the licenses we must have in order to operate our stations. Nor can we be assured that our licenses will be renewed without conditions and for a full term. Beginning in June 2019 and continuing through April 2022, we (along with all other FCC radio broadcast licensees) are submitting applications to renew the FCC licenses for each of our broadcast radio stations on an every two-month rolling schedule by state. The non-renewal, or conditioned renewal, of a substantial number of ourthese FCC licenses could have a materially adverse impact on our operations. Furthermore, possible changes in interference protections, spectrum allocations and other technical rules may negatively affect the operation of our stations. For example, 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. The FCC is also considering the adoption of rules which may limit our ability to prevent interference by FM translators to the reception of our full-power radio stations. In addition, Congress, the FCC and other regulatory agencies have considered, and may in the future consider and adopt, new laws, regulations and policies that could, directly or indirectly, have an adverse effect on our business operations and financial performance. For example,
Legislation and certain ongoing litigation and royalty audits may require us to pay additional royalties, including to additional parties such as record labels or recording artists.
We currently pay royalties to composers and music publishers, including through BMI, ASCAP, SESAC and GMR. We also pay royalties to record companies and their representative, SoundExchange, for digital music transmissions. Currently, Congress may consider and adoptdoes not require that broadcasters pay royalties associated with the public performance of sound recordings for over-the-air transmissions. From time to time, however, Congress considers legislation that would impose an obligation upon all U.S. broadcasters to pay performing artists a royalty for the on-air broadcast of their sound recordings (this would be in addition to payments already made by broadcasters to owners of musical work rights, such as songwriters, composers and publishers). In October 2018, legislation was signed into law that creates a public performance right for pre-February 15, 1972 recordings streamed online. This law may increase our licensing costs. could change this.
Moreover, it is possible that our license fees and negotiating costs associated with obtaining rights to use musical compositions and sound recordings in our programming content could sharplymaterially increase as a result of private negotiations, one or more regulatory rate-setting processes, or administrative and court decisions. TheFor example, we are involved in pending litigation, royalty audits and/or negotiations with ASCAP and BMI related to royalty payments for the public performance of musical compositions, the outcome of which could cause us to owe increased royalty payments and adversely impact our business.
We are also involved in a proceeding before the CRB has issued a final determination establishing copyright royaltyto determine statutory rates and terms for the public performance and ephemeral reproduction of sound recordings by various non-interactive webcasters, including radio broadcasters that simulcast their terrestrial programming online, to apply toiHeart, for the period from January 1, 20162021 to December 31, 20202025. The outcome of this proceeding may result in an increase to our licensing costs. Also, in October 2018, legislation was signed into law that creates a public performance right under the webcasting statutory license. A proceeding to establish the ratesfederal law for 2021-2025 is expected to begin in 2019. pre-February 15, 1972 recordings streamed online. This law may increase our licensing costs.
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 for set periods of time. Some of these conditions may be inconsistent with customary radio broadcasting practices. Finally, variousoperations. Various other regulatory matters relating to our iHM 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.
Government regulation of outdoor advertising may restrict our outdoor advertising operations.
U.S. federal, state and local regulations have a significant impact on the outdoor advertising industry and our business. One of the seminal laws is the HBA, which regulates outdoor advertising on controlled roads in the United States. The HBA regulates the size and location of billboards, mandates a state compliance program, requires the development of state standards, promotes the expeditious removal of illegal signs and requires just compensation for takings. Construction, repair, maintenance, lighting, upgrading, height, size, spacing, the location and permitting of billboards and the use of new technologies for changing displays, such as digital displays, are regulated by federal, state and local governments. From time to time, states and municipalities have prohibited or significantly limited the construction of new outdoor advertising structures. Changes in laws and regulations affecting outdoor advertising, or changes in the interpretation of those laws and regulations, at any level of government, including the foreign jurisdictions in which we operate, could have a significant financial impact on us by requiring us to make significant expenditures or otherwise limiting or restricting some of our operations. Due to such regulations, it has become increasingly difficult to develop new outdoor advertising locations.
From time to time, certain state and local governments and third parties have attempted to force the removal of our displays under various state and local laws, including zoning ordinances, permit enforcement and condemnation. Similar risks also arise in certain of our international jurisdictions. Certain zoning ordinances provide for amortization, which is the required removal of legal non-conforming billboards (billboards which conformed with applicable laws and regulations when built, but which do not conform to current laws and regulations) or the commercial advertising placed on such billboards after a period of years. Pursuant to this concept, the governmental body asserts that just compensation is earned by continued operation of the billboard over that period of time. Although amortization is prohibited along all controlled roads, amortization has been upheld along non-controlled roads in limited instances where permitted by state and local law. Other regulations limit our ability to rebuild,
replace, repair, maintain and upgrade non-conforming displays. In addition, from time to time third parties or local governments assert that we own or operate displays that either are not properly permitted or otherwise are not in strict compliance with applicable law. If we are increasingly unable to resolve such allegations or obtain acceptable arrangements in circumstances in which our displays are subject to removal, modification or amortization, or if there occurs an increase in such regulations or their enforcement, our operating results could suffer.
A number of state and local governments have implemented or initiated taxes, fees and registration requirements in an effort to decrease or restrict the number of outdoor signs and/or to raise revenue. From time to time, legislation also has been introduced in international jurisdictions attempting to impose taxes on revenue from outdoor advertising or for the right to use outdoor advertising assets. In addition, a number of jurisdictions have implemented legislation or interpreted existing legislation to restrict or prohibit the installation of digital billboards, and we expect these efforts to continue. The increased imposition of these measures, and our inability to overcome any such measures, could reduce our operating income if those outcomes require removal or restrictions on the use of preexisting displays or limit growth of digital displays. In addition, if we are unable to pass on the cost of these items to our clients, our operating income could be adversely affected.
International regulation of the outdoor advertising industry can vary by municipality, region and country, but generally limits the size, placement, nature and density of out-of-home displays. Other regulations limit the subject matter, animation and language of out-of-home displays. Our failure to comply with these or any future international regulations could have an adverse impact on the effectiveness of our displays or their attractiveness to clients as an advertising medium and may require us to make significant expenditures to ensure compliance and avoid certain penalties or contractual breaches. As a result, we may experience a significant impact on our operations, revenue, international client base and overall financial condition.
Regulations and consumer concerns regarding data privacy and data protection, or any failure to comply with these regulations, could hinder our operations.
We utilize personal, demographic and other information from and about our listeners, consumers, business partners and advertisers as they interact with us. For example: (1) our broadcast radio station websites and our iHeartRadio digital platform collect personal information as users use our services register for our services, fill out their listener profiles, post comments, use our social networking features, participate in polls and contests and sign-up to receive email newsletters; (2) we use tracking technologies, such as “cookies,” to manage and track our listeners’ interactions with us so that we can deliver relevant music content and advertising; (3) we collectaccept credit card or debit card informationcards as a method of payment from consumers, business partners and advertisers who useadvertisers; however, the data collection related to processing such payments is handled by personal information compliant third-parties on our services;behalf; and (4) we collect precise location data about certain of our Platformplatform users for analytics, attribution and advertising purposes.
We are subject to numerous federal, state and foreign laws and regulations relating to consumer protection, information security, data protection and privacy, among other things. Many of these laws are still evolving, new laws may be enacted and any of these laws could be amended or interpreted by the courts or regulators in ways that could harm our business. For example, our ongoing efforts to comply with regulatory regimes such as the European General Data Protection Regulation,GDPR, effective as of May 2018, or the new California Consumer Privacy Act (“CCPA”), effective as of January 2020, may entailentails substantial expenses, may divertdiverts resources from other initiatives and projects, and could limit the services we are able to offer. The CCPA provides for a private right of action for unauthorized access, theft or disclosure of personal information in certain situations with possible damage awards of $100 to $750 per consumer per incident, or actual damages, whichever is greater, and also permits class action lawsuits. The California Attorney General may also impose penalties of up to $7,500 for each intentional violation of the CCPA. Additionally, a new California ballot initiative, the California Privacy Rights Act (the “CPRA”) passed in California in November 2020. The CPRA will impose additional data protection obligations on companies doing business in California, including additional consumer rights processes, limitations on data uses, new audit requirements for higher risk data, and opt outs for certain uses of sensitive data. It will also create a new California data protection agency authorized to issue substantive regulations and could result in increased privacy and information security enforcement. The majority of the provisions will go into effect on January 1, 2023, and additional compliance investment and potential business process changes may be required.
In addition, changes in consumer rights, expectations and demands regarding privacy and data protection could restrict our ability to collect, use, disclose and derive economic value from demographic and other information related to our listeners, consumers, business partners and advertisers, or to transfer employee data within the corporate group. New consumer rights, including the right for consumers to prevent the sale of their data or have their data deleted could lead to a depletion of our consumer database. Such new consumer rights and restrictions on our use of consumer data could limit our ability to provide customized music content to our listeners, interact directly with our listeners and consumers and offer targeted advertising opportunities to our business partners and advertisers. Although we have implemented and are implementing policies and procedures designed to comply with these laws and regulations, any failure or perceived failure by us to comply with our policies or applicable regulatory requirements related to consumer protection, information security, data protection and privacy could result in a loss of confidence in us, damage to our brands, the loss of listeners, consumers, business partners and advertisers, as well as proceedings against us by governmental authorities or others, which could hinder our operations and adversely affect our business.
If our security measures are breached, wecould lose valuable information, suffer disruptions to our business, and incur expenses and liabilities including damages to our relationships withlisteners, consumers, business partners and advertisers.
Although we have implemented physical and electronic security measures that are designed to protect against the loss, misuse and alteration of our websites, digital assets and proprietary business information as well as listener, consumer, business partner and advertiser personally identifiable information, no security measures are perfect and impenetrable and we may be unable to anticipate or prevent unauthorized access. A security breach could occur due to the actions of outside parties, employee error, malfeasance or a combination of these or other actions. If an actual or perceived breach of our security occurs, we could lose competitively sensitive business information or suffer disruptions to our business operations, information processes or internal controls. In addition, the public perception of the effectiveness of our security measures or services could be harmed, we could lose listeners, consumers, business partners and advertisers. In the event of a security breach, we could suffer financial exposure
in connection with penalties, remediation efforts, investigations and legal proceedings and changes in our security and system protection measures. Currently, not all of our systems are fully compliant with the new GDPR standards and, as a result, we may face additional liability in the event of a security breach. The scope of many of the requirements under the GDPR remain unclear. Future case law may determine that the steps we are taking to comply with the GDPR may not be sufficient.
Restrictions on outdoor advertising of certain products may restrict the categories of clients that can advertise using our products.
Out-of-court settlements between the major U.S. tobacco companies and all 50 states, the District of Columbia, the Commonwealth of Puerto Rico and other U.S. territories include a ban on the outdoor advertising of tobacco products. Other products and services may be targeted in the U.S. in the future, including alcohol products. Most E.U. countries, among other nations, also have banned outdoor advertisements for tobacco products and regulate alcohol advertising. Localized restrictions on the location of advertising for High Fat, Salt and Sugar (“HFSS”) foods have been implemented in the UK. Regulations vary across the countries in which we conduct business. Any significant reduction in advertising of products due to content-related restrictions could cause a reduction in our direct revenues from such advertisements and an increase in the available space on the existing inventory of billboards in the outdoor advertising industry.
Environmental, health, safety and land use laws and regulations may limit or restrict some of our operations.
As the owner or operator of various real properties and facilities, especially in our outdoor advertising operations, we must comply with various foreign, federal, state and local environmental, health, safety and land use laws and regulations. We and our properties are subject to such laws and regulations relating to the use, storage, disposal, emission and release of hazardous and non-hazardous substances and employee health and safety as well as zoning restrictions. Historically, we have not incurred significant expenditures to comply with these laws. However, additional laws which may be passed in the future, or a finding of a violation of or liability under existing laws, could require us to make significant expenditures and otherwise limit or restrict some of our operations.
WeRisks Related to our Recent Emergence from the Chapter 11 Cases
Our actual financial results following our emergence from the Chapter 11 Cases are exposednot comparable to foreign currency exchange risks becauseour historical financial information.
Following the Separation and Reorganization, we began to operate under a portion of our revenue is received in foreign currencies and translated to U.S. dollars for reporting purposes.
We generatenew capital structure. As a portion of our revenues in currencies other than U.S. dollars. Changes in economic or political conditions, including Brexit, in anyresult of the foreign countriesSeparation and Reorganization, we no longer include CCOH in our consolidated financial statements following the Effective Date. In addition, we adopted fresh-start accounting and, as a result, at the Effective Date, our assets and liabilities were
recorded at fair value, which we operate could resultresulted in exchange rate movement, new currency or exchange controls or other currency restrictions being imposed. Because we receive a portion ofvalues that are different than the values recorded in our revenues in currencies from the countries in which we operate, exchange rate fluctuations in any such currency could have an adverse effect on our profitability. A portion of our cash flows are generated in foreign currencies and translated to U.S. dollars for reporting purposes, and certain of the indebtedness held by our international subsidiaries is denominated in U.S. dollars, and, therefore, significant changes in the value of such foreign currencies relative to the U.S. dollar could have a material adverse effect onhistorical financial statements. Accordingly, our financial condition and our abilityresults of operations from and after the Effective Date are not comparable to meet interest and principal payments on our indebtedness.
Given the volatility of exchange rates, we cannot assure you that we will be able to effectively manage our currency transaction and/or translation risks. It is possible that volatility in currency exchange rates will have a material adverse effect on our financial condition or results of operations. operations reflected in our historical financial statements. As a result of all these factors, our historical financial information is not indicative of our future financial performance.
It is possible that the Chapter 11 Cases may give rise to unfavorable tax consequences for us.
The tax treatment of the transactions consummated in the Chapter 11 Cases, including the Separation and cancellation of existing indebtedness, is highly complex. The Separation resulted in the recognition of a loss for federal and most state income tax purposes and, therefore, such transactions did not result in material cash tax liability. However, the Internal Revenue Service or other taxing authorities could assert in connection with a subsequent audit that additional cash tax liabilities may have arisen in connection with such transactions. To the extent the transactions do give rise to any cash tax liability, CCOH, iHeartCommunications, the Company and various other entities would be jointly and severally liable under applicable law for any such amounts. The allocation of any such liabilities among the Company and its subsidiaries post-consummation of the Plan of Reorganization and CCOH are addressed by the new tax matters agreement that was entered into in connection with the Separation.
We expect to experience economic losses and gains and negative and positive impacts onhave substantially reduced or eliminated certain of our operating incometax attributes, including NOL carryforwards, as a result of foreign currency exchange rate fluctuations.any cancellation of indebtedness income realized in connection with the Chapter 11 Cases.
DoingThe consummation of the Chapter 11 Cases resulted in an “ownership change,” as defined in Section 382 of the U.S. Internal Revenue Code of 1986, as amended. As a result, even if any NOLs or other tax attributes are not eliminated by cancellation of indebtedness income arising as a result of the Chapter 11 Cases, our ability to utilize any such attributes may be limited in the future.
In connection with the Separation, the Outdoor Group agreed to indemnify us and we agreed to indemnify the Outdoor Group for certain liabilities. There can be no assurance that the indemnities from the Outdoor Group will be sufficient to insure us against the full amount of such liabilities.
Pursuant to agreements that we entered into with the Outdoor Group in connection with the Separation, the Outdoor Group agreed to indemnify us for certain liabilities, and we agreed to indemnify the Outdoor Group for certain liabilities. For example, we will indemnify the Outdoor Group for liabilities to the extent such liabilities related to the business, assets and liabilities of iHeartMedia as well as liabilities relating to a breach of the Separation Agreement. We will also indemnify the Outdoor Group for 50% of certain tax liabilities imposed on the Outdoor Group in foreign countries exposes usconnection with the Separation on or prior to the third anniversary of the Separation in excess of $5.0 million, with our aggregate liability limited to $15.0 million, and will reimburse the Outdoor Group for one-third of potential costs relating to certain risksagreements between the Outdoor Group and third parties in excess of $10.0 million up to the first $35.0 million of such costs such that we will not expectedbear more than $8.33 million of such costs. However, third parties might seek to occur when doing businesshold us responsible for liabilities that the Outdoor Group agreed to retain, and there can be no assurance that the Outdoor Group will be able to fully satisfy their respective indemnification obligations under these agreements. In addition, indemnities that we may be required to provide to the Outdoor Group could be significant and could adversely affect our business.
Risks Related to our Class A Common Stock
We do not intend to pay dividends on our Class A common stock for the foreseeable future.
We currently have no intention to pay dividends on our Class A common stock at any time in the United States.
Doing business in foreign countries carries with it certain risks that are not found when doing businessforeseeable future. Any decision to declare and pay dividends in the United States. These risks could result in losses against which we are not insured. Examplesfuture will be made at the discretion of these risks include:
potential adverse changes in the diplomatic relationsour Board and will depend on, among other things, our results of foreign countries with the United States;
hostility from local populations;
the adverse effect of foreign exchange controls;
government policies against businesses owned by foreigners;
investmentoperations, financial condition, cash requirements, contractual restrictions or requirements;
expropriations of property without adequate compensation;
the potential instability of foreign governments;
the risk of insurrections;
risks of renegotiation or modification of existing agreements with governmental authorities;
difficulties collecting receivables and otherwise enforcing contracts with governmental agencies and others in some foreign legal systems;
withholding and other taxesfactors that our Board may deem relevant.
We are a holding company and rely on remittancesdividends, distributions and other payments, by subsidiaries;advances and transfers of funds from our subsidiaries to meet our obligations.
changesWe are a holding company that does not conduct any business operations of our own. As a holding company, our investments in tax structure and level; and
changes in laws or regulations or the interpretation or application of laws or regulations.
Our International operations involve contracts with, and regulation by, foreign governments. We operate in many parts of the world that experience corruption to some degree. Although we have policies and procedures in place that are designed to promote legal and regulatory compliance (including with respect to the U.S. Foreign Corrupt Practices Act and the U.K. Bribery Act), our employees, subcontractors and agents could take actions that violate applicable anti-corruption laws or regulations. Violations of these laws, or allegations of such violations, could have a material adverse effect on our business, financial position and results of operations.
Equity investors continue to have influence on us.
Private equity funds sponsored by or co-investors with Bain Capital and THL currently holdoperating subsidiaries constitute all of our outstandingoperating assets. Our subsidiaries conduct all of our consolidated operations and own substantially all of our consolidated assets. As a result, we must rely on dividends and other advances, distributions and transfers of funds from our subsidiaries to meet our obligations. The ability of our subsidiaries to pay dividends or make other advances, distributions and transfers of funds will depend on their respective results of operations and
may be restricted by, among other things, applicable laws limiting the amount of funds available for payment of dividends and certain restrictive covenants contained in the agreements of those subsidiaries. The deterioration of income from, or other available assets of, our subsidiaries for any reason could limit or impair their ability to pay dividends or other distributions to us.
Conversion of shares of our Class B common stock and Special Warrants into our Class A common stock would cause significant dilution to our shareholders and may adversely impact the market price of our Class A common stock.
As of February 22, 2021, we had 110,923,534 shares of Class A common stock, 29,088,181 shares of Class B common stock and 6,201,453 Special Warrants outstanding. Each Special Warrant is currently exercisable for one share of Class CA common stock or Class B common stock and each share of Class B common stock is currently convertible into one share of Class A common stock, in each case subject to the Ownership Restrictions described in Part I, Item 1, “Business” of this report. Upon the exercise of any Special Warrants or the conversion of any shares of Class B common stock, your voting rights as a holder of Class A common stock will be proportionately diluted. The issuance of additional shares of Class A common stock would increase the number of our publicly traded shares, which collectively represent approximately 68%could depress the market price of our Class A common stock.
Delaware law and certain provisions in our certificate of incorporation may prevent efforts by our stockholders to change the direction or management of our company.
Our certificate of incorporation and our by-laws contain provisions that may make the acquisition of our company more difficult without the approval of our Board, including, but not limited to, the following:
•for the first three years following the Effective Date, our board of directors will be divided into three equal classes, with members of each class elected in different years for different terms, making it impossible for stockholders to change the composition of our entire Board in any given year;
•action by stockholders may only be taken at an annual or special meeting duly called by or at the direction of a majority of our Board;
•advance notice for all stockholder proposals is required;
•subject to the rights of holders of any outstanding shares of our preferred stock, for so long as our board remains classified our directors may only be removed for cause and upon the affirmative vote of holders of a majority of the voting power of allthe outstanding shares of our Class A common stock; and
•for the first three years following the Effective Date, any amendment, alteration, rescission or repeal of the anti-takeover provisions of the charter, requires the affirmative vote of at least 66 2/3% in voting power of the outstanding shares of our stock entitled to vote generally in the election of directors.
We are also subject to the anti-takeover provisions contained in Section 203 of the General Corporation Law of the State of Delaware. Under these provisions, a corporation may not, in general, engage in a business combination with any holder of 15% or more of its voting stock unless the holder has held the stock for three years or, among other exceptions, the board of directors has approved the business combination or the transaction by which the person became an interested stockholder.
In addition, we have adopted a stockholder rights plan that could make it more difficult for a third-party to acquire our Class A common stock, Class B common stock or Special Warrants without the approval of our Board.
These and other provisions in our certificate of incorporation, bylaws and Delaware law could make it more difficult for stockholders or potential acquirers to obtain control of our Board or initiate actions that are opposed by our Board, including actions to delay or impede a merger, tender offer or proxy contest involving our company. The existence of these provisions could negatively affect the price of our common stock and limit opportunities for you to realize value in a corporate transaction.
Our certificate of incorporation designates the Court of Chancery of the State of Delaware, subject to certain exceptions, as the sole and exclusive forum for certain types of actions and proceedings that may be initiated by our stockholders and our bylaws designate the federal district courts of the United States as the exclusive forum for actions arising under the Securities Act of 1933, as amended, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers or employees.
Our certificate of incorporation provides that the Court of Chancery of the State of Delaware, subject to certain exceptions, is the sole and exclusive forum for (i) any derivative action or proceeding brought on our behalf, (ii) any action asserting a claim of breach of a fiduciary duty owed by any of our directors, officers or other employees to us or our stockholders, (iii) any action asserting a claim against the company or any director or officer or employee of the company arising pursuant to any provision of the DGCL, our certificate of incorporation or our bylaws or (iv) any other action asserting a claim against us that is governed by the internal affairs doctrine. In addition, our bylaws provide that the federal district courts of the United States are the exclusive forum for any complaint raising a cause of action arising under the Securities Act of 1933, as amended. Any person or entity purchasing or otherwise acquiring any interest in shares of our capital stock shall be deemed to have notice of and to have consented to the provisions of our certificate of incorporation and bylaws described above. These choice of forum provisions may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers or other employee, which may discourage such lawsuits against us and our directors, officers and employees. Alternatively, if a court were to find these provisions of our certificate of incorporation or bylaws inapplicable to, or unenforceable in respect of, one or more of the specified types of actions or proceedings, we may incur additional costs associated with resolving such matters in other jurisdictions, which could adversely affect our business and financial condition.
Regulations imposed by the Communications Act and the FCC limit the amount of foreign individuals or entities that may invest in our capital stock without FCC approval.
The Communications Act and FCC regulations prohibit foreign entities or individuals from indirectly (i.e., through a parent company) owning or voting more than 25 percent of the equity in a corporation controlling the licensee of a radio broadcast station unless the FCC determines greater indirect foreign ownership is in the public. The FCC generally will not make such a determination absent favorable executive branch review.
The FCC calculates foreign voting rights separately from equity ownership, and both must be at or below the 25 percent threshold absent a foreign ownership declaratory ruling. To the extent that our aggregate foreign ownership or voting percentages exceeds 25 percent, any individual foreign holder of our common stock whose ownership or voting percentage would exceed 5 percent or 10 percent (with the applicable percentage determined pursuant to FCC rules) will additionally be required to obtain the FCC’s specific approval.
On November 5, 2020, the FCC issued the Declaratory Ruling which authorizes us to have aggregate foreign ownership and voting percentages of up to 100 percent and specifically approves certain of our stockholders that are deemed to be foreign under FCC rules, subject to certain conditions. Among those conditions is a requirement that we comply with the LOA that we entered into with the DOJ. The Declaratory Ruling also requires us to take our Special Warrants into account in determining our foreign ownership compliance. A direct or indirect owner of our securities that is deemed to be foreign under FCC rules could require us to take action under the Declaratory Ruling and the FCC’s foreign ownership rules if that owner acquires more than 5 percent, or more than 10 percent for certain “passive” investors, of our voting equity or total equity (including the Special Warrants on an as-exercised basis), without obtaining specific approval from the FCC through a new petition for declaratory ruling. On February 5, 2021, Honeycomb filed a Schedule 13D with the SEC reporting ownership of more than 5% of our voting stock and equity. Honeycomb acquired its interest without our knowledge or control, and we are fulfilling our obligations under the Declaratory Ruling and the FCC rules with respect to Honeycomb’s interest.
Direct or indirect ownership of our securities could result in the violation of the FCC’s media ownership rules by investors with “attributable interests” in other radio stations or in the same market as one or more of our broadcast stations.
Under the FCC’s media ownership rules, a direct or indirect owner of our securities could violate and/or cause us to violate the FCC’s structural media ownership limitations if that person owns or acquires an “attributable” interest in other radio stations in the same market as one or more of our radio stations. Under the FCC’s “attribution” policies the following relationships and interests generally are cognizable for purposes of the substantive media ownership restrictions: (1) ownership of 5 percent or more of a media company’s voting stock (except that, for a narrowly defined class of passive investors, the attribution threshold is 20 percent ); (2) officers and directors of a media company and its direct or indirect parent(s); (3) any general partnership or limited liability company manager interest; (4) any limited partnership interest or limited liability company member interest that is not “insulated,” pursuant to FCC-prescribed criteria, from material involvement in the
management or operations of the media company; (5) certain same-market time brokerage agreements; (6) certain same-market joint sales agreements; and (7) under the FCC’s “equity/debt plus” standard, otherwise non-attributable equity or debt interests in a media company if the holder’s combined equity and debt interests amount to more than 33 percent of the “total asset value” of the media company and the holder has certain other interests in the media company or in another media property in the same market. Under the FCC’s rules, discrete ownership interests under common ownership, management, or control must be aggregated to determine whether or not an interest is “attributable.”
Our certificate of incorporation grants us broad authority to comply with FCC Regulations.
To the extent necessary to comply with the Communications Act, FCC rules and policies, and the Declaratory Ruling, and in accordance with our certificate of incorporation, we may request information from any stockholder or proposed stockholder to determine whether such stockholder’s ownership of shares of capital stock may result in a violation of the Communications Act, FCC rules and policies, or any FCC declaratory ruling. We may further take the following actions, among others, to help ensure compliance with and to remedy any actual or potential violation of the Communications Act, FCC rules and policies, or any FCC declaratory ruling, or to prevent the loss or impairment of any of our FCC licenses: (i) prohibit, suspend or rescind the ownership, voting or transfer of any portion of our outstanding capital stock. As a result, Bain Capitalstock; (ii) redeem capital stock; and THL have the power(iii) exercise any and all appropriate remedies, at law or in equity, in any court of competent jurisdiction, against any stockholder, to elect all but two of our directors, appoint new management and approvecure any action requiring the approval of the holders of our capital stock. Although during the pendency of the Chapter 11 Cases, many material corporate actions outside of the ordinary course of businesssuch actual or potential violation or impairment.
FORWARD-LOOKING STATEMENTS
This report contains forward-looking statements that are subject to the approvalrisks and uncertainties. All statements other than statements of the Bankruptcy Court, Bain Capital and THL and the directors elected by Bain Capital and THL have had, and will continue to have, influence over decisions affecting us during the pendency of the Chapter 11 Cases.
Cautionary Statement Concerning Forward-Looking Statements
The Private Securities Litigation Reform Act of 1995 provides a safe harbor forhistorical fact included in this report are forward-looking statements. Forward-looking statements made by us or ongive our behalf. This report contains various forward-looking statements which represent our expectations or beliefs concerning future events, including, without limitation, our future operating and financial performance, our ability to comply with the covenants in the agreements governing our indebtedness and the availability of capital and the terms thereof. Statements expressingcurrent expectations and projections relating to our financial condition, results of operations, plans, objectives, our acquisition of Triton, future performance and business. You can identify forward-looking statements by the fact that they do not relate strictly to historical or current facts. These statements may include words such as “anticipate,” “estimate,” “expect,” “project,” “plan,” “intend,” “believe,” “may,” “will,” “should,” “can have,” “likely” and other words and terms of similar meaning in connection with respectany discussion of the timing or nature of future operating or financial performance or other events. For example, all statements we make relating to our estimated and projected costs, expenditures, cash flows, growth rates and financial results, our plans and objectives for future mattersoperations, growth or initiatives, strategies or the expected outcome or impact of pending or threatened litigation are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. We caution that thesestatements. All forward-looking statements involve a number ofare subject to risks and uncertainties and are subjectthat may cause actual results to many variables which could impact our future performance. These statements are made on the basis of management’s views and assumptions, as of the time the statements are made, regarding future events and performance. There can be no assurance, however, that management’s expectations will necessarily come to pass. Actual future events and performance may differ materially from the expectations reflected in our forward-looking statements. We do not intend, nor dothose that we undertake any duty, to update any forward-looking statements.expected, including:
A wide range of factors could materially affect future developments and performance, including but not limited to:
the risks and uncertainties associated with the Chapter 11 Cases;
our inability to consummate the confirmed Plan of Reorganization;
our ability to pursue our business strategies during the Chapter 11 Cases;
the diversion of management’s attention as a result of the Chapter 11 Cases;
increased levels of employee attrition as a result of the Chapter 11 Cases;
our ability to obtain sufficient exit financing to emerge from Chapter 11 and operate successfully;
the risk that third parties may propose competing Chapter 11 plans of reorganization
risks associated with us having been through Chapter 11 proceedings even if we are able to emerge successfully
volatility of our financial results as a result of the Chapter 11 Cases;
the risk that claims that are not discharged in the Chapter 11 Cases are material;
our inability to predict our long-term liquidity requirements and the adequacy of our capital resources;
the availability of cash to maintain our operations and fund our emergence costs;
our ability to continue as a going concern;
the impact of our substantial indebtedness upon emergence from Chapter 11, including the effect of our leverage on our financial position and earnings;
potential unfavorable tax consequences arising from the Chapter 11 Cases
impairment of our ability to utilize our NOL carryforwards in further years as a result of transfers of our equity and issuances of equity in connection with the Chapter 11 Cases;
the impact of CCOH's substantial indebtedness;
•risks associated with weak or uncertain global economic conditions and their impact on the level of expenditures for advertising;
•the impact of the COVID-19 pandemic on advertising;our business, financial position and results of operations;
industry conditions,•intense competition including competition;
increased competition from alternative media platforms and technologies;
changes in labor conditions, including programming,•dependence upon the performance of on-air talent, program hosts and management;management as well as maintaining or enhancing our master brand;
•fluctuations in operating costs;
•technological changes and innovations;
•shifts in population and other demographics;
our ability to obtain keep municipal concessions for our street furniture and transit products;
•the impact of futureour substantial indebtedness;
•the impact of acquisitions, dispositions acquisitions and other strategic transactions;
•legislative or regulatory requirements;
•the impact of legislation, ongoing litigation or royalty audits on music licensing and royalties;
•regulations and consumer concerns regarding privacy and data protection, and breaches of information security measures;
increases in tax rates or changes in tax laws or regulations;•risks associated with our recent emergence from the Chapter 11 Cases;
restrictions on outdoor advertising•risks related to our Class A common stock;
•regulations impacting our business and the ownership of certain products;our securities; and
fluctuations in exchange rates and currency values;
risks of doing business in foreign countries;
the identification of a material weakness in our internal control over financial reporting; and
certain •other factors set forthdisclosed in the section entitled “Risk Factors” and elsewhere in this report.
We derive many of our forward-looking statements from our operating budgets and forecasts, which are based on many detailed assumptions. While we believe that our assumptions are reasonable, we caution that it is very difficult to predict the impact of known factors, and it is impossible for us to anticipate all factors that could affect our actual results. Important factors that could cause actual results to differ materially from our expectations, or cautionary statements, are disclosed under the sections entitled “Risk Factors,” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this report. All written and oral forward-looking statements attributable to us, or persons acting on our behalf, are expressly qualified in their entirety by these cautionary statements as well as other cautionary statements that are made from time to time in our other SEC filings with the SEC.
This list of factors that may affect future performance and the accuracy of forward-looking statements is illustrative and is not intended to be exhaustive. Accordingly,public communications. You should evaluate all forward-looking statements should be evaluated withmade in this report in the understandingcontext of their inherent uncertainty.these risks and uncertainties.
We caution you that the important factors referenced above may not contain all of the factors that are important to you. In addition, we cannot assure you that we will realize the results or developments we expect or anticipate or, even if substantially realized, that they will result in the consequences or affect us or our operations in the way we expect. The forward-looking statements included in this report are made only as of the date hereof. We undertake no obligation to update or revise any forward-looking statement as a result of new information, future events or otherwise, except as otherwise required by law.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
Corporate
Our corporate headquarters are located in San Antonio, Texas, where we lease space for executive offices and 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.York.
iHMAudio
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.
Americas Outdoor and International Outdoor Advertising
The types of properties required to support each of our outdoor advertising branches include offices, production facilities and structure sites. An outdoor branch and production facility is generally located in an industrial or warehouse district.
With respect to each of the Americas outdoor and International outdoor segments, we primarily lease our outdoor display sites and own or have acquired permanent easements for relatively few parcels of real property that serve as the sites for our outdoor displays. Our leases generally range from month-to-month to year-to-year and can be for terms of 10 years or longer, and many provide for renewal options.
There is no significant concentration of displays under any one lease or subject to negotiation with any one landlord. We believe that an important part of our management activity is to negotiate suitable lease renewals and extensions.
Consolidated
The studios and offices of our radio stations and outdoor advertising branches are located in leased or owned facilities. These leases generally have expiration dates that range from one to 40 years. We do not anticipate any difficulties in renewing those leases that expire within the next several years or in leasing other space, if required. We lease substantially all of our towers and antennas and own substantially all of the other equipment used in our iHMAudio business. We own substantially all of the equipment used in our outdoor advertising businesses. For additional information regarding our iHM and outdoorAudio properties, see “Item 1. Business.”
ITEM 3. LEGAL PROCEEDINGS
We currently are involved in certain legal proceedings arising in the ordinary course of business and, as required, have accrued an estimate of the probable costs for the resolution of those claims for which the occurrence of loss is probable and the amount can be reasonably estimated. These estimates have been developed in consultation with counsel and are based upon an analysis of potential results, assuming a combination of litigation and settlement strategies. It is possible, however, that future results of operations for any particular period could be materially affected by changes in our assumptions or the effectiveness of our strategies related to these proceedings. Additionally, due to the inherent uncertainty of litigation, there can be no assurance that the resolution of any particular claim or proceeding would not have a material adverse effect on our financial condition or results of operations.
Although we are involved in a variety of legal proceedings in the ordinary course of business, a large portion of our litigation arises in the following contexts: commercial disputes; defamation matters; employment and benefits related claims; governmental fines; intellectual property claims; and tax disputes. The Plan of Reorganization provides for the treatment of claims against the Debtors' bankruptcy estates, including prepetition liabilities that have not otherwise been satisfied or addressed during the Chapter
For additional information regarding legal proceedings, refer to Note 10, Commitments and Contingencies “-Chapter 11 Cases.
Noteholder Litigation
iHeartCommunications' filing of the Chapter 11 Cases constitutes an event of default that accelerated its obligations under its debt agreements. Due to the Chapter 11 Cases, however, the creditors' ability to exercise remedies under iHeartCommunications' debt agreements were stayed as of March 14, 2018, the date of the Chapter 11 petition filing,Cases” and continue to be stayed. See Note 6 -Stockholder Litigation”to our consolidated financial statements locatedConsolidated Financial Statements included in Item 8, of Part II of this Annual Report on Form 10-K10-K.
Alien Ownership Restrictions and FCC Petition for Declaratory Ruling
The Communications Act and FCC regulation prohibit foreign entities and individuals from having direct or indirect ownership or voting rights of more information aboutthan 25 percent in a corporation controlling the debt agreements. On March 21, 2018, Wilmington Savings Fund Society, FSB ("WSFS"), solely in its capacity as successor indenture trusteelicensee of a radio broadcast station unless the FCC finds greater foreign ownership to the 6.875% Senior Notes due 2018 and 7.25% Senior Notes due 2027 (collectively with the 5.50% Senior Notes due 2016, the “Legacy Notes”), and not in its individual capacity, filed an adversary proceeding against usbe in the Chapter 11 Cases. Inpublic interest (the “Foreign Ownership Rule”). Under the complaint, WSFS alleged, among other things, thatPlan of
Reorganization, the "springing lien" provisions ofCompany committed to file the priority guarantee notes indentures andPDR requesting the priority guarantee notes security agreements amountedFCC to "hidden encumbrances" onpermit the Company's property,Company to whichbe up to 100% foreign-owned.
On November 5, 2020, the FCC issued the Declaratory Ruling granting the relief requested by the PDR, subject to certain conditions.
On November 9, 2020, the Company notified the holders of the 6.875% senior notes due 2018 and 7.25% senior notes due 2027 were entitled to "equal and ratable" treatment. On March 26, 2018, Delaware Trust Co. ("Delaware Trust"), in its capacity as successor indenture trustee to the 14.0% Senior Notes due 2021, filed a motion to intervene as a plaintiff in the adversary proceeding filed by WSFS. In the complaint, Delaware Trust alleged, among other things, that the indenture governing the 14.0% Senior Notes due 2021 also has its own "negative pledge" covenant, and, therefore, to the extent the relief sought by WSFS in its adversary proceeding is warranted, the holdersSpecial Warrants of the 14.0% Senior Notes due 2021 are also entitled tocommencement of an exchange process (the notification, the same "equal“Exchange Notice,” and ratable" liens on the same property. On April 6, 2018, we filed a motion to dismissexchange, the adversary proceeding and a hearing on such motion was held on May 7, 2018. We answered the complaint and completed discovery. The trial was held on October 24, 2018. On January 15, 2019, the Bankruptcy Court entered judgment in our favor denying all relief sought by WSFS and all other parties. Pursuant to a settlement (the “Legacy Plan Settlement”) with WSFS and certain consenting Legacy Noteholders of all issues related to confirmation of our Plan of Reorganization, upon our confirmed Plan of Reorganization becoming effective, this adversary proceeding shall be deemed withdrawn and/or dismissed, with respect to all parties thereto, with prejudice and in its entirety.
On October 9, 2018, WSFS, solely in its capacity as successor indenture trustee to the 6.875% Senior Notes due 2018 and 7.25% Senior Notes due 2027, and not in its individual capacity, filed an adversary proceeding against Clear Channel Holdings Inc. (“CCH”) and certain shareholders of iHeartMedia. The named shareholder defendants are Bain Capital LP; THL; Abrams Capital L.P. ("Abrams"); and Highfields Capital Management L.P. ("Highfields"“Exchange”). In the complaint, WSFS alleged, among other things, that the shareholder defendants engaged in a “pattern of inequitable and bad faith conduct, including the abuse of their insider positions to benefit themselves at the expense of third-party creditors including particularly the Legacy Noteholders.” The complaint asks the court to grant relief in the form of equitable subordination of the shareholder defendants’ term loan, Priority Guarantee Notes and 14.0% Senior Notes dueExchange, which took place on January 8, 2021, claims to any and all claims of the legacy noteholders. In addition, the complaint sought to have any votes to accept the fourth amended plan of reorganization by Abrams and Highfields on account of their 2021 notes claims, and any votes to accept the fourth amended plan of reorganization by the defendant Clear Channel Holdings, Inc., ("CCH") on account of its junior notes claims, to be designated and disqualified. The court held a pre-trial conference and oral argument on October 18, 2018. Pursuant to the Legacy Plan Settlement, upon our confirmed Plan of Reorganization becoming effective, this adversary proceeding shall be deemed withdrawn and/or dismissed, with respect to all parties thereto, with prejudice and in its entirety.
Stockholder Litigation
On May 9, 2016, a stockholder of CCOH filed a derivative lawsuit in the Court of Chancery of the State of Delaware, captioned GAMCO Asset Management Inc. v. iHeartMedia Inc. et al., C.A. No. 12312-VCS. The complaint names as defendants the Company iHeartCommunications, Bain Capital and THL (together, the "Sponsor Defendants"), the Company's private equity sponsors and majority owners, and the members of CCOH's board of directors. CCOH also is named asexchanged a nominal defendant. The complaint alleges that CCOH has been harmed by the intercompany agreements with iHeartCommunications, CCOH’s lack of autonomy over its own cash and the actions of the defendants in serving the interests of the Company, iHeartCommunications and the Sponsor Defendants to the detriment of CCOH and its minority stockholders. Specifically, the complaint alleges that the defendants have breached their fiduciary duties by causing CCOH to: (i) continue to loan cash to iHeartCommunications under the intercompany note at below-market rates; (ii) abandon its growth and acquisition strategies in favor of transactions that would provide cash to the Company and iHeartCommunications; (iii) issue new debt in Clear Channel International B.V.'s, an international subsidiary of ours, offering of 8.75% Senior Notes due 2020 (the "CCIBV Note Offering") to provide cash to the Company and iHeartCommunications through a dividend; and (iv) effect the sales of certain outdoor markets in the U.S. (the "Outdoor Asset Sales") allegedly to provide cash to the Company and iHeartCommunications through a dividend. The complaint also alleges that the Company, iHeartCommunications and the Sponsor Defendants aided and abetted the directors' breaches of their fiduciary duties. The complaint further alleges that the Company, iHeartCommunications and the Sponsor Defendants were unjustly enriched as a result of these transactions and that these transactions constituted a waste of corporate assets for which the defendants are liable to CCOH. The plaintiff sought, among other things, a ruling that the defendants breached their fiduciary duties to CCOH and that the Company, iHeartCommunications and the Sponsor Defendants aided and abetted the CCOH board of directors' breaches of fiduciary duty, rescission of payments made by CCOH to iHeartCommunications and its affiliates pursuant to dividends declared in connection with the CCIBV Note Offering and Outdoor Asset Sales, and an order requiring the Company, iHeartCommunications and the Sponsor Defendants to disgorge all profits they have received as a result of the alleged fiduciary misconduct.
On July 20, 2016, the defendants filed a motion to dismiss plaintiff's verified stockholder derivative complaint for failure to state a claim upon which relief can be granted. On November 23, 2016, the Court granted defendants’ motion to dismiss all claims brought by the plaintiff. On December 19, 2016, the plaintiff filed a notice of appeal of the ruling. The oral hearing on the appeal was held on October 11, 2017. On October 12, 2017, the Supreme Court of Delaware affirmed the lower court's ruling, dismissing the case.
On December 29, 2017, another stockholder of CCOH filed a derivative lawsuit in the Court of Chancery of the State of Delaware, captioned Norfolk County Retirement System, v. iHeartMedia, Inc., et al., C.A. No. 2017-0930-JRS. The complaint names as defendants the Company, iHeartCommunications, the Sponsor Defendants, and the members of CCOH's board of directors. CCOH is named as a nominal defendant. The complaint alleges that CCOH has been harmed by the CCOH board of directors' November 2017 decision to extend the maturity date of the intercompany revolving note (the “Third Amendment”) at what the complaint describes as far-below-market interest rates. Specifically, the complaint alleges that (i) the Company and Sponsor defendants breached their fiduciary duties by exploiting their position of control to require CCOH to enter the Third Amendment on terms unfair to CCOH; (ii) the CCOH board of directors breached their duty of loyalty by approving the Third Amendment and elevating the interests of the Company, iHeartCommunications and the Sponsor Defendants over the interests of CCOH and its minority unaffiliated stockholders; and (iii) the terms of the Third Amendment could not have been agreed to in good faith and represent a waste of corporate assets by the CCOH board of directors. The complaint further alleges that the Company, iHeartCommunications and the Sponsor defendants were unjustly enriched as a result of the unfairly favorable terms of the Third Amendment. The plaintiff sought, among other things, a ruling that the defendants breached their fiduciary duties to CCOH, a modification of the Third Amendment to bear a commercially reasonable rate of interest, and an order requiring disgorgement of all profits, benefits and other compensation obtained by defendants as a result of the alleged breaches of fiduciary duties.
On March 7, 2018, the defendants filed a motion to dismiss plaintiff's verified derivative complaint for failure to state a claim upon which relief can be granted. On March 16, 2018, the Company filed a Notice of Suggestion of Pendency of Bankruptcy and Automatic Stay of Proceedings. On May 4, 2018, plaintiff filed its response to the motion to dismiss. On June 26, 2018, the defendants filed a reply brief in further support of their motion to dismiss. Oral argument on the motion to dismiss was held on September 20, 2018. We are awaiting a ruling by the Court.
On August 27, 2018, the same stockholder of CCOH that had filed a derivative lawsuit against the Company and others in 2016 (GAMCO Asset Management Inc.) filed a putative class action lawsuit in the Court of Chancery of the State of Delaware, captioned GAMCO Asset Management, Inc. v. Hendrix, et al., C.A. No. 2018-0633-JRS. The complaint names as defendants the Sponsor Defendants and the members of CCOH’s board of directors. The complaint alleges that minority shareholders in CCOH during the period November 8, 2017 to March 14, 2018 were harmed by decisions of the CCOH board and the intercompany note committee of the board of directors relating to the Intercompany Note. Specifically, the complaint alleges that (i) the members
of the intercompany note committee breached their fiduciary duties by not demanding payment under the Intercompany Note and issuing a simultaneous dividend after a threshold tied to the Company’s liquidity had been reached; (ii) the CCOH board of directors breached their fiduciary duties by approving the Third Amendment rather than allowing the Intercompany Note to expire; (iii) the CCOH board breached their fiduciary duties by not demanding payment under the Intercompany Note and issuing a simultaneous dividend after a threshold tied to the Company’s liquidity had been reached; (iv) the Sponsor Defendants breached their fiduciary duties by not directing the CCOH board to permit the Intercompany Note to expire and to declare a dividend. The complaint further alleges that the Sponsor Defendants aided and abetted the board’s alleged breach of fiduciary duties. The plaintiff sought, among other things, a ruling that the CCOH board, the intercompany note committee, and the Sponsor Defendants breached their fiduciary duties and that the Sponsor Defendants aided and abetted the board of directors' breach of fiduciary duty; and an award of damages, together with pre- and post-judgment interests, to the putative class of minority shareholders.
On December 16, 2018, the Debtors, CCOH, GAMCO Asset Management, Inc., and Norfolk County Retirement System entered into the CCOH Separation Settlement to settle of all claims, objections, and other causes of action that have been or could be asserted by or on behalf of CCOH, GAMCO Asset Management, Inc., and/or Norfolk County Retirement System by and among the Debtors, CCOH, GAMCO Asset Management, Inc., certain individual defendants in the GAMCO Asset Management, Inc. action and/or the Norfolk County Retirement System action, and the private equity sponsor defendants in such actions. The CCOH Separation Settlement provides for the consensual separation of the Debtors and CCOH, including approximately $149.0 million of recovery to CCOH on account of its claim against iHeartCommunications in the Chapter 11 Cases, a $200 million unsecured revolving line of credit from certain of the Debtors to CCOH for a period of up to three years, the transfer of certain of the Debtors’ intellectual property to CCOH, the waiver by the Debtors of the setoff for the value of the transferred intellectual property, mutual releases, the termination of the cash sweep under the existing Corporate Services Agreement, the termination of any agreements or licenses requiring royalty payments from CCOH to the Debtors for trademarks or other intellectual property, the waiver of any post-petition amounts owed by CCOH relating to such trademarks or other intellectual property, and the execution of a new transition services agreement and other separation documents. The CCOH Separation Settlement was approved by the Bankruptcy Court and the United States District Court for the Southern District of Texas on January 22, 2019.
China Investigation
Several employees of Clear Media Limited, an indirect, non-wholly-owned subsidiary of the Company whose ordinary shares are listed on the Hong Kong Stock Exchange, are subject to an ongoing police investigation in China for misappropriation of funds. We are not aware of any litigation, claim or assessment pending against us in this investigation or otherwise. Based on information known to date, we believe any contingent liabilities arising from potential misconduct that has been or may be identified by the investigation in China are not material to our consolidated financial statements. The effect of the misappropriation of funds is reflected in these financial statements in the appropriate periods.
We advised both the SEC and the DOJ of the investigation at Clear Media Limited and we are cooperating to provide information in response to inquiries from the agencies. The Clear Media Limited investigation could implicate the books and records, internal controls and anti-bribery provisions of the U.S. Foreign Corrupt Practices Act, which statute and regulations provide for potential monetary penalties as well as criminal and civil sanctions. It is possible that monetary penalties and other sanctions could be assessed on the Company in connection with this matter. The nature and amount of any monetary penalty or other sanctions cannot reasonably be estimated at this time.
Italy Investigation
During the three months ended June 30, 2018, we identified misstatements associated with VAT obligations in our business in Italy, which resulted in an understatement of our VAT obligation. These misstatements resulted in an understatement of other long-term liabilities of $16.9 million as of December 31, 2017. The effect of these misstatements is reflected in the historical financial statements in the appropriate periods. Upon identification of these misstatements, we undertook certain procedures, including a forensic investigation, which is ongoing. In addition, we voluntarily disclosed the matter and preliminary findings to the Italian tax authorities in order to commence a discussion on the appropriate calculation of the VAT position. The current expectation is that we may have to repay to the Italian tax authority a substantial portion of the VAT previously applied as a creditoutstanding Special Warrants into Class A common stock or Class B common stock, in relation tocompliance with the transactions under investigation, amounting to approximately $17 million, including estimated possible penaltiesDeclaratory Ruling, the Communications Act and interest. We made a payment of $8.6 million duringFCC rules. Following the fourth quarter of 2018 and expect to payExchange, the remainder during the first half of 2019. The ultimate amountCompany’s remaining Special Warrants continue to be paid may differ from our estimates, and such differences may be material.exercisable for shares of Class A common stock or Class B common stock.
ITEM 4. MINE SAFETY DISCLOSURES
Not Applicable.
INFORMATION ABOUT OUR DIRECTORS & EXECUTIVE OFFICERS OF THE REGISTRANT
The following information with respect to our Board of Directors (the "Board") and executive officers is presented as of March 5, 2019:
|
| | | | | | | | | | | | | | | | | | | |
Name | | Age | | Position at iHeartMedia | | Principal Employment |
Robert W. Pittman | | 6567 | | Chairman and Chief Executive Officer | | Same |
Richard J. Bressler | | 6163 | | President, Chief Operating Officer, Chief Financial Officer and Director | | Same |
Scott R. WellsGary Barber | | 5063 | | Chief Executive Officer – Clear Channel Outdoor Americas |
C. William EccleshareDirector | | 63 | | Chairman and Chief Executive Officer – Clear Channel Outdoor Internationalof Spyglass Media Group, LLC, a premium content company |
Steven J. MacriBrad Gerstner | | 5049 | | Director | | Chief Executive Officer and Chief Investment Officer of Altimeter Capital Management, LP, an technology focused investment firm |
Sean Mahoney | | 58 | | Director | | Private investor |
Cheryl Mills | | 56 | | Director | | Founder and Chief Executive Officer of the BlackIvy Group LLC, a private holding company that grows and builds businesses in Sub-Saharan Africa |
James A. Rasulo | | 65 | | Director | | Former Chief Financial Officer and Senior Executive Vice President at Walt Disney Company, a global mass media and entertainment conglomerate |
Kamakshi Sivaramakrishnan | | 45 | | Director | | Leading an integration and identity charter at LinkedIn, an employment technology services company |
Michael B. McGuinness | | 44 | | Executive Vice President – Corporate Finance and Deputy Chief Financial Officer | | Same |
Scott D. Hamilton | | 4951 | | Senior Vice President, Chief Accounting Officer and Assistant Secretary |
Robert H. Walls, Jr. | | 58 | | Executive Vice President, General Counsel and SecretarySame |
The officers named above serve until their respective successors are chosen and qualified, in each case unless the officer sooner dies, resigns, is removed or becomes disqualified.
Robert W. Pittman is the Chairman and Chief Executive Officer of the Company, iHeartCommunications and iHeartMedia Capital I, LLC and the Chief Executive Officer of CCOH. Mr. Pittman was appointed as the Executive Chairman 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 Lupus Research Alliance, 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. Mr. Bressler was selected to serve as a member of our Board for his experience in and knowledge of the industry gained through his various positions with Viacom and Time Warner as well as his knowledge of finance and accounting gained from his experience at THL and Ernst & Young LLP.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 the Achievement Network (ANet), where he is Chairman, 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. It is expected that Mr. Eccleshare will become the Chief Executive Officer of CCOH upon effectiveness of the Plan of Reorganization and the Separation.
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. On November 28, 2018, the Company announced that Mr. Walls will step down from his position with the Company on the effective date of the Plan of Reorganization. Mr. Walls will be succeeded in the role of Executive Vice President, General Counsel and Secretary of the Company by Mr. Paul McNicol.
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 PinkNasdaq Global Select Market ("Nasdaq") under the symbol “IHRTQ.“IHRT.” There were 518604 stockholders of record of our Class A common stock as of February 28, 2019.22, 2021. 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.
There is no established public trading market for our Class B and Class C common stock. There were 555,55629,088,181 shares of our Class B common stock and 58,967,502 shares of our Class C common stock outstanding on February 28, 2019. All outstanding22, 2021. Holders of shares of the Successor 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 89 stockholders of record of our Class B common stock areas of February 22, 2021. 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 the Declaratory Ruling, which permits the Company to be up to 100% foreign-owned, subject to certain conditions. On January 8, 2021, the Company exchanged a portion of the outstanding shares of ourSpecial Warrants into Class CA common stock are held by Clear Channel Capital V, L.P.
On the effective date of the Plan of Reorganization, our outstandingor Class B common stock, willin compliance with the Declaratory Ruling, the Communications Act and FCC rules. Following the Exchange, the Company’s remaining Special Warrants continue to be canceled and reorganized iHeartMedia will issue newexercisable 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 6,201,453 Special Warrants outstanding on February 22, 2021.
For more information regarding our Class A common Stock, Class B common stock and warrantsSpecial Warrants, refer to purchase Class A or Class B common stock (or, if applicable, interests in an FCC Trust), which will be distributedNote 12, Stockholders' Equity to creditors of iHeartCommunications and the Company’s equityholders as further describedour consolidated financial statements in Item 7 “Management’s Discussion and Analysis8 of Financial Conditions and ResultsPart II of Operations.” Under the Plan of Reorganization, we are requiredthis Annual Report on Form 10-K.
We currently have no intention to use reasonable best efforts to obtain listing of thepay dividends on our Class A common stock at any time in the foreseeable future. Any decision to declare and pay dividends in the future will be made at the discretion of our Board and will depend on, among other things, our results of operations, financial condition, cash requirements, contractual restrictions and other factors that our Board may deem relevant.
Stock Performance Graph
The following chart provides a recognized U.S.comparison of the cumulative total returns, adjusted for any stock exchange as promptly as reasonably practicable on or aftersplits and dividends, 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 is issued. In the event that listing on such a stock exchange has not occurred by such date, we are required to use reasonable best efforts to qualify the Class A common stock forwas listed and began trading on the Pink Market until such time as the Class A common stock is listed onNasdaq, through December 31, 2020.
Indexed Stock Price Close
(Price Adjusted for Stock Splits and Dividends)
Source: Yahoo Finance
* We have constructed a recognized U.S. stock exchange.peer group index comprised of other radio companies that includes Cumulus Media, Beasley Broadcast Group and Entercom Communications. Our peer group index previously included Emmis Communications, which delisted from Nasdaq in 2020 and we have replaced with Beasley Broadcast Group.
Sales of Unregistered Securities
We did not sell any equity securities during 2018 that were not registered under the Securities Act of 1933. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 7/18/19 | | 9/30/19 | | 12/31/19 | | 3/31/20 | | 6/30/20 | | 9/30/20 | | 12/31/20 |
iHeartMedia, Inc. | | $ | 1,000 | | | $ | 909 | | | $ | 1,024 | | | $ | 443 | | | $ | 506 | | | $ | 492 | | | $ | 787 | |
Radio Index* | | $ | 1,000 | | | $ | 780 | | | $ | 860 | | | $ | 422 | | | $ | 439 | | | $ | 344 | | | $ | 489 | |
Nasdaq Stock Market Index | | $ | 1,000 | | | $ | 975 | | | $ | 1,093 | | | $ | 938 | | | $ | 1,226 | | | $ | 1,361 | | | $ | 1,570 | |
Purchases of Equity Securities
The following table sets forth the purchases made during the quarter ended December 31, 20182020 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 | 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 | | 4,897 |
| | $ | 0.37 |
| | — |
| | $ | — |
| October 1 through October 31 | | 759 | | | $ | 8.19 | | | — | | | $ | — | |
November 1 through November 30 | | — |
| | — |
| | — |
| | — |
| November 1 through November 30 | | 9,673 | | | 8.53 | | | — | | | — | |
December 1 through December 31 | | 7,117 |
| | 0.46 |
| | — |
| | — |
| December 1 through December 31 | | 6,923 | | | 8.35 | | | — | | | — | |
Total | | 12,014 |
| | $ | 0.42 |
| | — |
| | — |
| Total | | 17,355 | | | $ | 8.45 | | | — | | | — | |
(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, 20182020 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 20182020 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.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(In thousands, except per share data) | Successor Company | | | Predecessor Company |
| For the Year Ended December 31, | | Period from May 2, 2019 through December 31, | | | Period from January 1, 2019 through May 1, | | For the Years Ended December 31, |
| 2020 | | 2019 | | | 2019 | | 2018 | | 2017 | | 2016 | | |
Results of Operations Data: | | | | | | | | | | | | | | |
Revenue | $ | 2,948,218 | | | $ | 2,610,056 | | | | $ | 1,073,471 | | | $ | 3,611,323 | | | $ | 3,586,647 | | | $ | 3,574,633 | | | |
Operating expenses: | | | | | | | | | | | | | | |
Direct operating expenses (excludes depreciation and amortization) | 1,163,148 | | | 878,956 | | | | 381,184 | | | 1,132,439 | | | 1,121,088 | | | 1,024,402 | | | |
Selling, general and administrative expenses (excludes depreciation and amortization) | 1,225,097 | | | 897,670 | | | | 427,230 | | | 1,350,157 | | | 1,318,346 | | | 1,202,841 | | | |
Corporate expenses (excludes depreciation and amortization) | 144,572 | | | 136,171 | | | | 53,647 | | | 184,216 | | | 174,400 | | | 187,263 | | | |
Depreciation and amortization | 402,929 | | | 249,623 | | | | 52,834 | | | 211,951 | | | 275,304 | | | 291,103 | | | |
Impairment charges (1) | 1,738,752 | | | — | | | | 91,382 | | | 33,150 | | | 6,040 | | | 726 | | | |
Other operating (income) expense, net | 11,344 | | | 8,000 | | | | 154 | | | 9,266 | | | (9,313) | | | 1,132 | | | |
Operating income (loss) | (1,737,624) | | | 439,636 | | | | 67,040 | | | 690,144 | | | 700,782 | | | 867,166 | | | |
Interest expense (income), net | 343,745 | | | 266,773 | | | | (499) | | | 334,798 | | | 1,484,435 | | | 1,475,090 | | | |
Loss on investments | (9,346) | | | (20,928) | | | | (10,237) | | | (472) | | | (3,827) | | | (13,438) | | | |
Equity in earnings (loss) of nonconsolidated affiliates | (379) | | | (279) | | | | (66) | | | 116 | | | (1,865) | | | (15,044) | | | |
Gain on extinguishment of debt | — | | | — | | | | — | | | — | | | 1,271 | | | 157,556 | | | |
Other income (expense), net | (7,751) | | | (18,266) | | | | 23 | | | (23,007) | | | (45,122) | | | (2,420) | | | |
Reorganization items, net | — | | | — | | | | 9,461,826 | | | (356,119) | | | — | | | — | | | |
Income (loss) from continuing operations before income taxes | (2,098,845) | | | 133,390 | | | | 9,519,085 | | | (24,136) | | | (833,196) | | | (481,270) | | | |
Income tax benefit (expense) | 183,623 | | | (20,091) | | | | (39,095) | | | (13,836) | | | 177,188 | | | 127,130 | | | |
Income (loss) from continuing operations | (1,915,222) | | | 113,299 | | | | 9,479,990 | | | (37,972) | | | (656,008) | | | (354,140) | | | |
Income (loss) from discontinued operations, net of tax | — | | | — | | | | 1,685,123 | | | (164,667) | | | 197,297 | | | 107,568 | | | |
Net income (loss) | (1,915,222) | | | 113,299 | | | | 11,165,113 | | | (202,639) | | | (458,711) | | | (246,572) | | | |
Less amount attributable to noncontrolling interest | (523) | | | 751 | | | | (19,028) | | | (729) | | | (60,651) | | | 55,484 | | | |
Net income (loss) attributable to the Company | $ | (1,914,699) | | | $ | 112,548 | | | | $ | 11,184,141 | | | $ | (201,910) | | | $ | (398,060) | | | $ | (302,056) | | | |
|
| | | | | | | | | | | | | | | | | | | |
(In thousands, except per share data) | For the Years Ended December 31, |
| 2018 | | 2017 | | 2016 | | 2015 | | 2014 |
Results of Operations Data: | | | | | | | | | |
Revenue | $ | 6,325,780 |
| | $ | 6,168,431 |
| | $ | 6,251,000 |
| | $ | 6,241,516 |
| | $ | 6,318,381 |
|
Operating expenses: | | | | | | | | | |
Direct operating expenses (excludes depreciation and amortization) | 2,532,948 |
| | 2,468,724 |
| | 2,395,037 |
| | 2,462,046 |
| | 2,543,749 |
|
Selling, general and administrative expenses (excludes depreciation and amortization) | 1,896,503 |
| | 1,842,222 |
| | 1,726,118 |
| | 1,700,669 |
| | 1,683,526 |
|
Corporate expenses (excludes depreciation and amortization) | 337,218 |
| | 311,898 |
| | 341,072 |
| | 315,143 |
| | 321,023 |
|
Depreciation and amortization | 530,903 |
| | 601,295 |
| | 635,227 |
| | 673,991 |
| | 710,898 |
|
Impairment charges (1) | 40,922 |
| | 10,199 |
| | 8,000 |
| | 21,631 |
| | 24,176 |
|
Other operating income (expense), net | (6,768 | ) | | 35,704 |
| | 353,556 |
| | 94,001 |
| | 40,031 |
|
Operating income | 980,518 |
| | 969,797 |
| | 1,499,102 |
|
| 1,162,037 |
| | 1,075,040 |
|
Interest expense | 722,931 |
| | 1,864,136 |
| | 1,850,119 |
| | 1,805,744 |
| | 1,741,894 |
|
Equity in earnings (loss) of nonconsolidated affiliates | 1,020 |
| | (2,855 | ) | | (16,733 | ) | | (902 | ) | | (9,416 | ) |
Gain (loss) on extinguishment of debt | 100 |
| | 1,271 |
| | 157,556 |
| | (2,201 | ) | | (43,347 | ) |
Other income (expense), net | (58,876 | ) | | (20,194 | ) | | (86,009 | ) | | 8,635 |
| | 9,104 |
|
Reorganization items, net | 356,119 |
| | — |
| | — |
| | — |
| | — |
|
Loss before income taxes | (156,288 | ) | | (916,117 | ) | | (296,203 | ) | | (638,175 | ) | | (710,513 | ) |
Income tax benefit (expense) | (46,351 | ) | | 457,406 |
| | 49,631 |
| | (86,957 | ) | | (58,489 | ) |
Consolidated net loss | (202,639 | ) | | (458,711 | ) | | (246,572 | ) | | (725,132 | ) | | (769,002 | ) |
Less amount attributable to noncontrolling interest | (729 | ) | | (60,651 | ) | | 55,484 |
| | 18,269 |
| | 31,074 |
|
Net loss attributable to the Company | $ | (201,910 | ) | | $ | (398,060 | ) | | $ | (302,056 | ) | | $ | (743,401 | ) | | $ | (800,076 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(In thousands, except per share data) | Successor Company | | | Predecessor Company |
| For the Year Ended December 31, | | Period from May 2, 2019 through December 31, | | | Period from January 1, 2019 through May 1, | | For the Years Ended December 31, |
| 2020 | | 2019 | | | 2019 | | 2018 | | 2017 | | 2016 |
Net income (loss) per common share: | | | | | | | | | | | | |
Basic: | | | | | | | | | | | | |
From continuing operations | $ | (13.12) | | | $ | 0.77 | | | | $ | 109.92 | | | $ | (0.44) | | | $ | (7.71) | | | $ | (4.19) | |
From discontinued operations | — | | | — | | | | 19.76 | | | (1.93) | | | 3.02 | | | 0.62 | |
Basic net income (loss) per share | $ | (13.12) | | | $ | 0.77 | | | | $ | 129.68 | | | $ | (2.36) | | | $ | (4.68) | | | $ | (3.57) | |
Diluted: | | | | | | | | | | | | |
From continuing operations | $ | (13.12) | | | $ | 0.77 | | | | $ | 109.92 | | | $ | (0.44) | | | $ | (7.71) | | | $ | (4.19) | |
From discontinued operations | — | | | — | | | | 19.76 | | | (1.93) | | | 3.02 | | | 0.62 | |
Diluted net income (loss) per share | $ | (13.12) | | | $ | 0.77 | | | | $ | 129.68 | | | $ | (2.36) | | | $ | (4.68) | | | $ | (3.57) | |
| | | | | | | | | | | | |
(1)We recorded non-cash impairment charges of $1,738.8 million, $0.0 million, $91.4 million $33.2 million, $6.0 million and $0.7 million during 2020, the period from May 2, 2019 through December 31, 2019, the period from January 1, 2019 through May 1, 2019, 2018, 2017 and 2016, respectively. Our impairment charges are discussed more fully in Item 8 of Part II of this Annual Report on Form 10-K.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(In thousands) | Successor Company | | | Predecessor Company |
| As of December 31, | | | As of December 31, |
| 2020 | | 2019 | | | 2018 | | 2017 | | 2016 |
Balance Sheet Data: | | | | | | | | | | |
Current assets | $ | 1,618,976 | | | $ | 1,416,348 | | | | $ | 2,235,017 | | | $ | 2,067,347 | | | $ | 2,494,229 | |
Property, plant and equipment, net | 811,702 | | | 846,876 | | | | 502,202 | | | 489,685 | | | 535,329 | |
Total assets | 9,202,961 | | | 11,021,099 | | | | 12,269,515 | | | 12,260,431 | | | 12,851,789 | |
Current liabilities | 717,804 | | | 667,398 | | | | 1,247,649 | | | 16,354,597 | | | 1,674,574 | |
Long-term debt, net of current maturities | 5,982,155 | | | 5,756,504 | | | | — | | | 410,661 | | | 14,912,060 | |
Liabilities subject to compromise | — | | | — | | | | 16,480,256 | | | — | | | — | |
Stockholders' equity (deficit) | 1,050,817 | | | 2,945,441 | | | | (11,560,342) | | | (11,344,344) | | | (10,901,861) | |
|
| | | | | | | | | | | | | | | | | | | |
| For the Years Ended December 31, |
| 2018 | | 2017 | | 2016 | | 2015 | | 2014 |
Net loss per common share: | | | | | | | | | |
Basic: | | | | | | | | | |
Net loss attributable to the Company | $ | (2.36 | ) | | $ | (4.68 | ) | | $ | (3.57 | ) | | $ | (8.82 | ) | | $ | (9.53 | ) |
Diluted: | | | | | | | | | |
Net loss attributable to the Company | $ | (2.36 | ) | | $ | (4.68 | ) | | $ | (3.57 | ) | | $ | (8.82 | ) | | $ | (9.53 | ) |
| |
(1) | We recorded non-cash impairment charges of $40.9 million, $10.2 million, $8.0 million, $21.6 million and $24.2 million during 2018, 2017, 2016, 2015 and 2014, 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, |
| 2018 | | 2017 | | 2016 | | 2015 | | 2014 |
Balance Sheet Data: | | | | | | | | | |
Current assets | $ | 2,235,017 |
| | $ | 2,067,347 |
| | $ | 2,494,229 |
| | $ | 2,767,302 |
| | $ | 2,092,129 |
|
Property, plant and equipment, net | 1,791,140 |
| | 1,884,714 |
| | 1,948,162 |
| | 2,212,556 |
| | 2,699,064 |
|
Total assets | 12,269,515 |
| | 12,260,431 |
| | 12,851,789 |
| | 13,662,302 |
| | 13,821,961 |
|
Current liabilities | 1,247,649 |
| | 16,354,597 |
| | 1,674,574 |
| | 1,659,228 |
| | 1,369,928 |
|
Long-term debt, net of current maturities | 5,277,108 |
| | 5,676,814 |
| | 20,022,080 |
| | 20,539,099 |
| | 20,159,545 |
|
Stockholders' deficit | (11,560,342 | ) | | (11,344,344 | ) | | (10,901,861 | ) | | (10,617,494 | ) | | (9,688,470 | ) |
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 presented on both a consolidated and segment basis. Our reportable segments are10-Kof iHeartMedia, (“iHM”), Americas outdoor advertising (“Americas outdoor”Inc. (the "Company," "iHeartMedia," "we," or “Americas outdoor advertising”), and International outdoor advertising (“International outdoor” or “International outdoor advertising”"us").
Our iHM segmentprimary business provides media and entertainment services via live broadcast and digital delivery, including our networks businesses, through our Audio segment. We also operate businesses that provide audio and also includesmedia services through our national syndication business. Our Americas outdoorAudio and International outdoor segments provide outdoor advertising services in their respective geographic regions using various digital and printed display types. Included in the “Other” category isMedia Services segment, including our full-service media representation business, Katz Media Group (“Katz Media”) and our provider of scheduling and broadcast software and services, RCS. Following the Separation, we ceased to operate our former outdoor business, which is ancillaryprior to the Separation was presented as our other businesses.
We manage our operating segments primarily focusing on their operating income, while Corporate expenses, DepreciationAmericas outdoor segment 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 of 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.
We re-evaluated our segment reporting and determined that our Latin American operations should be managed by our International outdoor leadership team. As such, beginning January 1, 2018, our Latin American operations are included in our International outdoor segment. Accordingly, we recastThe historical results of the corresponding segment disclosures for prior periods to include Latin America within the International outdoor segment.
Immaterial Corrections to Prior Periods
During the second quarter of 2018, we identified corrections associated with VAT obligations in our International outdoor business that impacted prior periods. Accordingly,have been reclassified as results from discontinued operations.
Over the past ten years, we have revisedtransitioned our Audio business from a single platform radio broadcast operator to a company with multiple platforms including podcasting, networks and events. We have also invested in numerous technologies and businesses to increase the prior period financial statements presented hereincompetitiveness of our inventory with our advertisers and our audience. We believe that our ability to reflect these corrections. This Management’s Discussiongenerate cash flow from operations from our business initiatives and Analysis of Financial Conditionour current cash on hand will provide sufficient resources to fund and Results of Operations is basedoperate our businesses, fund capital expenditures and other obligations and make interest payments on our long-term debt for at least the revised financial results for the years ended December 31, 2018, 2017 and 2016. For further details, refer to Note 1 to our consolidated financial statements included in this Annual Report on Form 10-K.next 12 months.
Certain prior period amounts have been reclassified to conform to the 20182020 presentation.
Current Bankruptcy Proceedings
On March 14, 2018, iHeartMedia, Inc. (the “Company”, “iHeartMedia,” “we” or “us”), iHeartCommunications, Inc. (“iHeartCommunications”) and certain of the Company's direct and indirect domestic subsidiaries (collectively, the "Debtors") filed voluntary petitions for relief (the "Chapter 11 Cases") under Chapter 11 of the United States Bankruptcy Code (the "Bankruptcy Code"), in the United States Bankruptcy Court for the Southern District of Texas, Houston Division (the "Bankruptcy Court"). Clear Channel Outdoor Holdings, Inc. (“CCOH”) and its direct and indirect subsidiaries did not file voluntary petitions for reorganization under the Bankruptcy Code and are not Debtors in the Chapter 11 Cases.
The Chapter 11 Cases are being administered under the caption In re: iHeartMedia, Inc., et al. Case No. 18-31274 (MI). The Debtors continue to operate their businesses as “debtors-in-possession” under the jurisdiction of the Bankruptcy Court and in accordance with the applicable provisions of the Bankruptcy Code and orders of the Bankruptcy Court. On April 28, 2018, the Debtors filed a plan of reorganization (as amended, the “Plan of Reorganization”) and a related disclosure statement (as amended, the “Disclosure Statement”) with the Bankruptcy Court. On January 22, 2019, the Bankruptcy Court entered an order confirming the Plan of Reorganization. Effectiveness of the Plan of Reorganization is subject to certain conditions, including the receipt of certain governmental approvals. Although the timing of when and if all such conditions will be satisfied or otherwise waived is inherently uncertain, we currently anticipate the Plan of Reorganization will become effective and iHeartMedia will emerge from Chapter 11 during the second quarter of 2019.Under the terms of the Plan of Reorganization, the Company is expected to complete a comprehensive balance sheet restructuring that will reduce its debt from approximately $16 billion to $5.75 billion and will separate CCOH from the Company, creating two independent companies.
For more information regarding the impact of the Chapter 11 Cases, see “---Liquidity After Filing the Chapter 11 Cases.”
Description of ourOur Business
iHM
Our iHMAudio strategy centers on delivering entertaining and informative content where our listeners want to find us across multiple platforms, including broadcast, digital and live mobile, as well as events. Our primary source of revenue 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 radio, podcasting and other 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. We also generate revenuesrevenue from network syndication, our nationally recognized live events, our station websites and other miscellaneous transactions.
iHM managementManagement 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 iHMAudio 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 iHMAudio'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 iHMAudio 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, Soundpoint, and our data analytics advertising product, SmartAudio, 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.
A portion of our iHMAudio segment’s expenses vary in connection with changes in revenue. These variable expenses primarily relate to costs in our sales department, such as 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 stations and the listening hours on our digital platforms. Our programming and general and administrative departments incur most of our fixed 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 advertising revenue is derived from selling advertising space on the displays we own or operate in key markets worldwide, consisting primarily of billboards, street furniture and transit displays. Part of our long-term strategy for our 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 located on sites that we either lease or own or for which we have acquired permanent easements. Our advertising contracts with clients typically outline the number of displays reserved, the duration of the advertising campaign and the unit price per display.
The significant expenses associated with our operations include direct production, maintenance and installation expenses as well as site lease expenses for land under our displays including revenue-sharing or minimum guaranteed amounts payable under our billboard, street furniture and transit display contracts. Our direct production, maintenance and installation expenses include costs for printing, transporting and changing the advertising copy on our displays, the related labor costs, the vinyl costs, electricity costs and the costs for cleaning and maintaining our displays. Vinyl 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's 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, Asia and Latin America, 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 clients contracting for a day part, one or more days or one or more weeks (depending on the nature of the inventory), 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 outdoor and Americas outdoor 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 outdoor business.
Macroeconomic Indicators
Our advertising revenue for all 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. Internationally, our results are impacted by fluctuations in foreign currency exchange rates as well as the economic conditionsGDP. A recession or downturn in the foreign markets in which we have operations.
Executive Summary
The key developments inU.S. economy typically has a significant impact on the Company’s ability to generate revenue. In light of the novel coronavirus pandemic (“COVID-19”) and the resulting recession impacting the U.S. economy, our businessrevenue for the year ended December 31, 2018 are summarized below:
Consolidated revenue increased $157.3 million during 20182020 has declined significantly compared to 2017. Excluding the $30.5 million impact from movements in foreign exchange rates, consolidated revenue increased $126.8 million during 2018 compared to 2017.
As a result of our filing of the Chapter 11 Cases, we incurred $356.1 million of reorganization items during the year ended December 31, 2018 and reclassified to "Liabilities subject to compromise" on the Consolidated Balance Sheet $16.5 billion of prepetition claims that are not fully secured and that, as of December 31, 2018, had at least a possibility of not being repaid at the full amount claim.
The Chapter 11 Cases have resulted in disruption to certain of our business processes, and we believe the Chapter 11 Cases have had an adverse impact on our results of operations, particularly in our iHM business.
On June 14, 2018, we refinanced our receivables-based credit facility with a new $450.0 million debtors-in-possession credit facility (the "DIP Facility"), which matures on the earlier of the emergence date from the Chapter 11 Cases or June 14, 2019. The DIP Facility also includes a feature to convert into an exit facility at emergence, upon meeting certain conditions. The DIP Facility accrues interest at LIBOR plus 2.25%. At close, iHeartCommunications drew $125.0 million on the DIP Facility. On August 16, 2018 and September 17, 2018, iHeartCommunications repaid $100.0 million and $25.0 million, respectively, of the amount drawn under the DIP Facility. As of December 31, 2018, we had no borrowings under the DIP Facility.
As a result of our filing of the Chapter 11 Cases, we ceased accruing interest expense on long-term debt reclassified as Liabilities subject to compromise at March 14, 2018, (the "Petition Date"), resulting in a decrease in cash paid for interest of $1.4 billion during the year ended December 31, 2018, compared to the same period of 2017.
Revenues and expenses “excluding the impact of foreign exchange movements” in this Management’s Discussion and Analysis of Financial Condition and Results of Operations is presented because management believes that viewing certain financial results without the impact of fluctuations in foreign currency rates facilitates period to period comparisons of business performance and provides useful information to investors. Revenues and expenses “excluding the impact of foreign exchange movements” are calculated by converting the current period’s revenues and expenses in local currency to U.S. dollars using average foreign exchange rates for the prior period.
Consolidated Results of Operations
The comparison of our historical results of operations for the year ended December 31, 2018 to the year ended December 31, 2017 is as follows:
|
| | | | | | | | | |
(In thousands) | Years Ended December 31, | | % |
| 2018 | | 2017 | | Change |
Revenue | $ | 6,325,780 |
| | $ | 6,168,431 |
| | 2.6% |
Operating expenses: | | | | | |
Direct operating expenses (excludes depreciation and amortization) | 2,532,948 |
| | 2,468,724 |
| | 2.6% |
Selling, general and administrative expenses (excludes depreciation and amortization) | 1,896,503 |
| | 1,842,222 |
| | 2.9% |
Corporate expenses (excludes depreciation and amortization) | 337,218 |
| | 311,898 |
| | 8.1% |
Depreciation and amortization | 530,903 |
| | 601,295 |
| | (11.7)% |
Impairment charges | 40,922 |
| | 10,199 |
| | 301.2% |
Other operating income (expense), net | (6,768 | ) | | 35,704 |
| | (119.0)% |
Operating income | 980,518 |
| | 969,797 |
| | 1.1% |
Interest expense | 722,931 |
| | 1,864,136 |
| | |
Equity in earnings (loss) of nonconsolidated affiliates | 1,020 |
| | (2,855 | ) | | |
Gain on extinguishment of debt | 100 |
| | 1,271 |
| | |
Other expense, net | (58,876 | ) | | (20,194 | ) | | |
Reorganization items, net | 356,119 |
| | — |
| | |
Loss before income taxes | (156,288 | ) | | (916,117 | ) | | |
Income tax benefit (expense) | (46,351 | ) | | 457,406 |
| | |
Consolidated net loss | (202,639 | ) | | (458,711 | ) | | |
Less amount attributable to noncontrolling interest | (729 | ) | | (60,651 | ) | | |
Net loss attributable to the Company | $ | (201,910 | ) | | $ | (398,060 | ) | | |
Consolidated Revenue
Consolidated revenue increased $157.3 million during the year ended December 31, 2018 compared to 2017. Excluding the $30.5 million impact from movements in foreign exchange rates, consolidated revenue increased $126.8 million during the year ended December 31, 2018 compared to 2017. The increase in consolidated revenue is primarily due to higher revenue from our International outdoor business, driven by growth across our European and Asian businesses. Revenue was also higher in our Americas outdoor business.
Consolidated Direct Operating Expenses
Consolidated direct operating expenses increased $64.2 million during the year ended December 31, 2018 compared to 2017. Excluding the $23.1 million impact from movements in foreign exchange rates, consolidated direct operating expenses increased $41.1 million during the year ended December 31, 2018 compared to 2017. Higher direct operating expenses in our International outdoor business, driven by revenue growth in various countries, was partially offset by lower direct operating expenses in our Americas outdoor business,2019, largely as a result of a decline in consumer and business spending and the salerelated impact to the demand for advertising and pricing pressure resulting from greater competition for available advertising dollars. In the third and fourth quarters of our business2020, we experienced sequential increases in Canada in August 2017.
Consolidated Selling, General and Administrative (“SG&A”) Expenses
Consolidated SG&A expenses increased $54.3 million during the year ended December 31, 2018revenue compared to 2017. Excluding the $6.7 million impact from movements in foreign exchange rates, consolidated SG&A expenses increased $47.6 million during the year ended December 31, 2018 comparedsecond quarter of 2020, although we continued to 2017. The increasesee year-over-year declines in our SG&A expenses resulted primarilyBroadcast radio, Networks and Sponsorships revenue streams. Revenue from higher expenses in our iHM businessAudio and our International outdoor business.
Corporate Expenses
Corporate expensesMedia Services increased, $25.3 million during the year ended December 31, 2018 compared to 2017. Excluding the $1.0 million impact from movements in foreign exchange rates, corporate expenses increased $24.3 million during the year ended December 31, 2018 compared to 2017, primarily as a result of higher employee-related expenses, including variable incentive compensation resulting from higher profitability at eachpolitical revenue, which resulted in an increase of $61.8 million in revenue in the year ended December 31, 2020 compared to 2019.
When the business environment recovers, we expect that the traditional use of radio will be a strong benefit to us. As businesses reopen both nationally and locally, we believe that we are advantaged by our unparalleled reach and the live and local trusted voices that advertisers need to get their messages out quickly.
In the first quarter of 2020, we announced our modernization initiatives, which take advantage of the significant investments we have made in new technologies to build an operating infrastructure that provides new, high quality products while also unlocking cost efficiencies. These initiatives delivered the expected 2020 in-year savings of approximately $50 million and remain on track to deliver annualized run-rate cost savings of approximately $100 million by mid-year 2021. In addition, and as previously discussed, in response to the COVID-19 pandemic, we took steps to significantly reduce our capital and operating expenditures in 2020. These initiatives generated approximately $200 million of operating cost savings in 2020 and we have identified, and executed on, plans to make substantially all of those savings permanent in 2021 and beyond. For more information, please see the Liquidity and Capital Resources - Anticipated Cash Requirements section below.
On March 26, 2020, we announced the withdrawal of our segments, as well as employee benefits expense. These increases were partially offset by lower management fees and lower spending on efficiency initiatives.
Depreciation and Amortization
Depreciation and amortization decreased $70.4 million during 2018 compared to 2017, primarilypreviously issued financial guidance for the fiscal year ending December 31, 2020 due to assets becoming fully depreciated or fully amortized, including intangible assets that were recordedheightened uncertainty related to COVID-19. As a precautionary measure to preserve financial flexibility in light of this uncertainty, we borrowed $350.0 million principal amount under our senior secured asset-based revolving credit facility (the “ABL Facility”). During the second and third quarters of 2020, we repaid the amounts outstanding under our ABL Facility using cash on hand and the proceeds from the issuance of our Incremental Term Loan Facility (as defined below), resulting in no balance outstanding under the facility as partof December 31, 2020 and borrowing capacity of $172 million, as a result of restrictions in iHeartMedia’s debt and preferred stock agreements.
In July 2020, iHeartCommunications issued $450.0 million of incremental term loans pursuant to an amendment (the “Incremental Term Loan Facility”) to the credit agreement (as amended, the “Credit Agreement”) with iHeartMedia Capital I, LLC ("Capital I"), as guarantor, certain subsidiaries of iHeartCommunications, Inc. ("iHeartCommunications"), as guarantors, and Bank of America, N.A., as administrative agent, governing the Company’s $2.5 billion aggregate principal amount of senior secured term loans (the “Term Loan Facility”), resulting in net proceeds of $425.8 million, after original issue discount and debt issuance costs. A portion of the mergerproceeds was used to repay the balance outstanding on our ABL Facility of iHeartCommunications$235.0 million, with iHeartMedia, Inc.the remaining $190.6 million of the proceeds available for general corporate purposes. For more information please refer to the “Liquidity and Capital Resources section” in 2008.this MD&A.
Impairment Charges
WeAs a result of uncertainty related to COVID-19 and its negative impact on our business and the public trading values of our debt and equity, we were required to perform interim impairment tests on our long-lived assets, intangible assets and indefinite-lived intangible assets as of March 31, 2020. The interim impairment tests resulted in a non-cash impairment of our Federal Communication Commission (“FCC”) licenses of $502.7 million and a non-cash impairment charge of $1.2 billion to reduce goodwill during the three months ended March 31, 2020.
The Company performs its annual impairment test on our goodwill Federal Communication Commission ("FCC") licenses, billboard permits, and otherindefinite-lived intangible assets, including FCC licenses, as of July 1 of each year. No impairment was required as part of the 2020 annual impairment testing. In addition, we test forno further impairment was considered necessary in the fourth quarter of property, plant2020. For more information, see Note 5, Property, Plant and equipment whenever eventsEquipment, Intangible Assets and circumstances indicate that depreciable assets might be impaired. As a result of these impairment tests, during 2018 we recorded impairment charges of $40.9 million related primarily to several of our iHM markets and one of our Americas outdoor markets. During 2017, we recorded impairment charges of $7.6 million related primarily to one of our iHM markets and one of our International outdoor businesses. In addition, the Company recognized an impairment of $2.6 million during 2017 in relation to advertising assets that were no longer usable in one country in our International outdoor segment. See Note 3Goodwill 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 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 the magnitude of the economic downturn caused by the COVID-19 pandemic, as well as the timing of any recovery. 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.
Combined Results
Our financial results for the periods from January 1, 2019 through May 1, 2019 and the year ended December 31, 2018 are referred to as those of the “Predecessor” period. Our financial results for the period from May 2, 2019 through December 31, 2019 and the year ended December 31, 2020 are referred to as those of the “Successor” period. Our results of operations as reported in our Consolidated Financial Statements for these periods are prepared in accordance with GAAP. Although GAAP requires that we report on our results for the period from January 1, 2019 through May 1, 2019 and the period from May 2, 2019 through December 31, 2019 separately, management views the Company’s operating results for the year ended December 31, 2019 by combining the results of the applicable Predecessor and Successor periods because such presentation provides the most meaningful comparison to our results in the year ended December 31, 2020.
The Company cannot adequately benchmark the operating results of the period from May 2, 2019 through December 31, 2019 against any of the current or prior periods reported in its Consolidated Financial Statements without combining it with the period from January 1, 2019 through May 1, 2019 and does not believe that reviewing the results of this period in isolation would be useful in identifying trends in or reaching conclusions regarding the Company’s overall operating performance. Management believes that the key performance metrics such as revenue, operating income and Adjusted EBITDA for the Successor period in fiscal 2019 when combined with the Predecessor period in fiscal 2019 provides more meaningful comparisons to other periods and are useful in identifying current business trends. Accordingly, in addition to presenting our results of operations as reported in our Consolidated Financial Statements in accordance with GAAP, the tables and discussion below also present the combined results for the year ended December 31, 2019.
The combined results for the year ended December 31, 2019, which we refer to herein as the results for the “year ended December 31, 2019” represent the sum of the reported amounts for the Predecessor period from January 1, 2019 through May 1, 2019 and the Successor period from May 2, 2019 through December 31, 2019. These combined results are not considered to be prepared in accordance with GAAP and have not been prepared as pro forma results per applicable regulations. The combined operating results do not reflect the actual results we would have achieved absent our emergence from bankruptcy and may not be indicative of future results. Accordingly, the results for the years ended December 31, 2020, 2019 and 2018 may not be comparable, particularly for statement of operations line items significantly impacted by the Reorganization and Separation transactions, the impact of fresh start accounting on depreciation and amortization and the impact of interest expense not being recognized while we were in Chapter 11 bankruptcy protection from the Petition Date of March 14, 2018 to May 1, 2019.
Executive Summary
As 2020 began, we saw strong growth across our revenue streams in January and February, particularly from digital and from political advertising. However, while digital and political revenue continued to grow, the economic downturn as a result of the COVID-19 pandemic had a significant and negative impact on our other revenue streams beginning in March 2020 and continuing through the rest of 2020, including broadcast radio which is our largest revenue stream. Revenue from our Broadcast and Audio and Media Services revenue streams were positively impacted by political revenue as a result of 2020 being a presidential election year. Although revenue improved significantly from the low point through the remainder of 2020, we continued to experience a decline in advertising spend and the postponement or cancellation of certain tent-pole events drove an overall decrease in revenue for the year ended December 31, 2020 compared to the year ended December 31, 2019. The extent of the economic downturn and the timing of recovery, as well as the future impact on our operations, are subject to significant uncertainty. In an effort to further strengthen the Company's financial flexibility and efficiently manage through the COVID-19 pandemic, we implemented measures to cut costs and preserve cash. For additional information on these actions, see the Liquidity and Capital Resources - Anticipated Cash Requirements section below.
The key developments in our business for the year ended December 31, 2020 are summarized below:
•Effects of the COVID-19 pandemic adversely impacted revenue for all revenue streams, with the exception of political revenue.
•We achieved approximately $250 million of cost savings in 2020.
•Revenue of $2,948.2 million decreased 20.0% during 2020 compared to 2019.
•Revenue decreased 1.9%, 46.6%, 21.5% and 8.8% in the first, second, third and fourth quarters of 2020, respectively, compared to the respective quarters in 2019.
•Operating loss of $1,737.6 million was down from Operating income of $506.7 million in 2019.
•Net loss of $1.9 billion in 2020, driven primarily by an impairment of $1.7 billion in the first quarter of 2020, as compared to Net income of $11.3 billion in 2019.
•Adjusted EBITDA(1) of $538.7 million, was down from Adjusted EBITDA(1) of $1,000.7 million in 2019.
•Cash flows provided by operating activities from continuing operations of $215.9 million decreased $245.5 million or 53.2% compared to 2019.
•Free cash flow(2) of $130.7 million decreased $218.5 million or 62.6% compared to 2019.
The table below presents a summary of our historical results of operations for the periods presented:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(In thousands) | Successor Company | | Successor Company | | | Predecessor Company | | Non-GAAP Combined | | |
| Year Ended December 31, | | Period from May 2, 2019 through December 31, | | | Period from January 1, 2019 through May 1, | | Year Ended December 31, | | % |
| 2020 | | 2019 | | | 2019 | | 2019 | | Change |
Revenue | $ | 2,948,218 | | | $ | 2,610,056 | | | | $ | 1,073,471 | | | $ | 3,683,527 | | | (20.0) | % |
Operating income (loss) | $ | (1,737,624) | | | $ | 439,636 | | | | $ | 67,040 | | | $ | 506,676 | | | NM |
Net income (loss) | $ | (1,915,222) | | | $ | 113,299 | | | | $ | 11,165,113 | | | $ | 11,278,412 | | | NM |
Cash provided by (used for) operating activities from continuing operations | $ | 215,945 | | | $ | 468,905 | | | | $ | (7,505) | | | $ | 461,400 | | | (53.2) | % |
| | | | | | | | | | |
Adjusted EBITDA(1) | $ | 538,673 | | | $ | 775,549 | | | | $ | 225,149 | | | $ | 1,000,698 | | | (46.2) | % |
Free cash flow from (used for) continuing operations(2) | $ | 130,740 | | | $ | 392,912 | | | | $ | (43,702) | | | $ | 349,210 | | | (62.6) | % |
| | | | | | | | | | |
(1) For a definition of Adjusted EBITDA, and a reconciliation to Operating income, the most closely comparable GAAP measure, and to Net Income (Loss), please see “Reconciliation of Operating Income to Adjusted EBITDA” and “Reconciliation of Net Income (Loss) to EBITDA and Adjusted EBITDA” in this MD&A.
(2) For a definition of Free cash flow from continuing operations and a reconciliation to Cash provided by operating activities from continuing operations, the most closely comparable GAAP measure, please see “Reconciliation of Cash provided by (used for) operating activities from continuing operations to Free cash flow from (used for) continuing operations” in this MD&A.
Results of Operations
The table below presents the comparison of our historical results of operations for the periods presented:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(In thousands) | | | | | | | Successor Company | | Successor Company | | | Predecessor Company | | Non-GAAP Combined |
| | | | | Year Ended December 31, | | Period from May 2, 2019 through December 31, | | | Period from January 1, 2019 through May 1, | | Year Ended December 31, |
| | | | | | | 2020 | | 2019 | | | 2019 | | 2019 |
Revenue | | | | | | | $ | 2,948,218 | | | $ | 2,610,056 | | | | $ | 1,073,471 | | | $ | 3,683,527 | |
Operating expenses: | | | | | | | | | | | | | | |
Direct operating expenses (excludes depreciation and amortization) | | | | | | | 1,163,148 | | | 878,956 | | | | 381,184 | | | 1,260,140 | |
Selling, general and administrative expenses (excludes depreciation and amortization) | | | | | | | 1,225,097 | | | 897,670 | | | | 427,230 | | | 1,324,900 | |
Corporate expenses (excludes depreciation and amortization) | | | | | | | 144,572 | | | 136,171 | | | | 53,647 | | | 189,818 | |
Depreciation and amortization | | | | | | | 402,929 | | | 249,623 | | | | 52,834 | | | 302,457 | |
Impairment charges | | | | | | | 1,738,752 | | | — | | | | 91,382 | | | 91,382 | |
Other operating expense, net | | | | | | | 11,344 | | | 8,000 | | | | 154 | | | 8,154 | |
Operating income (loss) | | | | | | | (1,737,624) | | | 439,636 | | | | 67,040 | | | 506,676 | |
Interest expense (income), net | | | | | | | 343,745 | | | 266,773 | | | | (499) | | | 266,274 | |
Loss on investments, net | | | | | | | (9,346) | | | (20,928) | | | | (10,237) | | | (31,165) | |
Equity in loss of nonconsolidated affiliates | | | | | | | (379) | | | (279) | | | | (66) | | | (345) | |
| | | | | | | | | | | | | | |
Other income (expense), net | | | | | | | (7,751) | | | (18,266) | | | | 23 | | | (18,243) | |
Reorganization items, net | | | | | | | — | | | — | | | | 9,461,826 | | | 9,461,826 | |
Income (loss) from continuing operations before income taxes | | | | | | | (2,098,845) | | | 133,390 | | | | 9,519,085 | | | 9,652,475 | |
Income tax benefit (expense) | | | | | | | 183,623 | | | (20,091) | | | | (39,095) | | | (59,186) | |
Income (loss) from continuing operations | | | | | | | (1,915,222) | | | 113,299 | | | | 9,479,990 | | | 9,593,289 | |
Income from discontinued operations, net of tax | | | | | | | — | | | — | | | | 1,685,123 | | | 1,685,123 | |
Net income (loss) | | | | | | | (1,915,222) | | | 113,299 | | | | 11,165,113 | | | 11,278,412 | |
Less amount attributable to noncontrolling interest | | | | | | | (523) | | | 751 | | | | (19,028) | | | (18,277) | |
Net income (loss) attributable to the Company | | | | | | | $ | (1,914,699) | | | $ | 112,548 | | | | $ | 11,184,141 | | | $ | 11,296,689 | |
The table below presents the comparison of our revenue streams for the periods presented:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(In thousands) | | | | | | | Successor Company | | Successor Company | | | Predecessor Company | | Non-GAAP Combined | | |
| | | | | Year Ended December 31, | | Period from May 2, 2019 through December 31, | | | Period from January 1, 2019 through May 1, | | Year Ended December 31, | | % |
| | | | | | | 2020 | | 2019 | | | 2019 | | 2019 | | Change |
Broadcast Radio | | | | | | | $ | 1,604,880 | | | $ | 1,575,382 | | | | $ | 657,864 | | | $ | 2,233,246 | | | (28.1) | % |
Digital | | | | | | | 474,371 | | | 273,389 | | | | 102,789 | | | 376,178 | | | 26.1 | % |
Networks | | | | | | | 484,950 | | | 425,631 | | | | 189,088 | | | 614,719 | | | (21.1) | % |
Sponsorship and Events | | | | | | | 107,654 | | | 159,187 | | | | 50,330 | | | 209,517 | | | (48.6) | % |
Audio and Media Services | | | | | | | 274,749 | | | 167,292 | | | | 69,362 | | | 236,654 | | | 16.1 | % |
Other | | | | | | | 9,370 | | | 14,211 | | | | 6,606 | | | 20,817 | | | (55.0) | % |
Eliminations | | | | | | | (7,756) | | | (5,036) | | | | (2,568) | | | (7,604) | | | |
Revenue, total | | | | | | | $ | 2,948,218 | | | $ | 2,610,056 | | | | $ | 1,073,471 | | | $ | 3,683,527 | | | (20.0) | % |
Consolidated results for the year ended December 31, 2020 compared to the combined results for the year ended December 31, 2019 were as follows:
Revenue
Revenue decreased $735.3 million during the year ended December 31, 2020 compared to 2019. The decrease in Revenue is attributable to the macroeconomic effects of COVID-19, which began to unfold into a global pandemic in early March 2020, resulting in a significant economic downturn due to the shut-down of businesses and shelter-in-place orders. Strong revenue growth in January and February was followed by a sharp decline in revenue in March, which continued through the end of 2020, with the exception of October, which saw consolidated revenue growth as a result of strong political advertising spend, resulting in significant revenue declines impacting most of our revenue streams, primarily as a result of a decrease in broadcast radio advertising spend as a result of the COVID-19 pandemic. Broadcast revenue decreased $628.4 million, driven by a $432.7 million decrease in Local spot revenue and a $195.7 million decrease in National spot revenue. The decrease in Broadcast revenue was partially offset by a $70.5 million increase in political revenue as a result of 2020 being a presidential election year. Revenue from our Networks businesses, including both Premiere and Total Traffic & Weather, was also impacted by the downturn, resulting in a decrease of $129.8 million. Revenue from Sponsorship and Events decreased by $101.9 million, primarily as a result of the cancellations of events in response to the COVID-19 pandemic. Digital revenue increased $98.2 million, driven by continued growth in podcasting, including for both new and existing podcasts, which continued to experience increased advertiser demand. Audio and Media Services revenue increased $38.1 million primarily due to a $61.8 million increase in political revenue as a result of 2020 being a presidential election year, partially offset by the effects of COVID-19 on advertising spend.
Direct Operating Expenses
Direct operating expenses decreased $97.0 million during the year ended December 31, 2020 compared to 2019. The decrease in Direct operating expenses was driven primarily by lower employee compensation expenses resulting from our modernization initiatives and cost reduction initiatives taken in response to the COVID-19 pandemic. In addition, variable operating expenses, including music license and performance royalty fees, decreased in relation to lower revenue recognized during the year. Variable expenses related to events also decreased as a result of the postponement or cancellation of events in response to the COVID-19 pandemic. The decrease in Direct operating expenses was partially offset by severance payments and other costs specific to our modernization initiatives, as well as higher content costs from higher podcasting and digital subscription revenue.
Selling, General and Administrative (“SG&A”) Expenses
SG&A expenses decreased $99.8 million during the year ended December 31, 2020 compared to 2019. The decrease in SG&A expenses was driven primarily by lower employee compensation expenses resulting from cost reduction initiatives taken in response to the COVID-19 pandemic, along with lower sales commissions, which were impacted by the decrease in revenue. Travel and entertainment expenses also decreased primarily as a result of operating expense saving initiatives put into place in response to the COVID-19 pandemic, as well as trade and barter expenses primarily driven by lower Local trade expenses, which declined in line with lower trade revenue. The decrease in SG&A expenses was partially offset by costs incurred in relation to our modernization initiatives announced in the first quarter of 2020 and higher bad debt expense.
Corporate Expenses
Corporate expenses decreased $45.2 million during the year ended December 31, 2020 compared to 2019, as a result of lower employee compensation, including variable incentive expenses and employee benefits, resulting from cost reduction initiatives taken in response to the COVID-19 pandemic. The decrease in Corporate expenses was partially offset by costs incurred to support our modernization initiatives.
Depreciation and Amortization
Depreciation and amortization increased $100.5 million during 2020 compared to 2019, primarily as a result of the application of fresh start accounting, which resulted in significantly higher values of our tangible and intangible long-lived assets.
Impairment Charges
We perform our annual impairment test on our goodwill and FCC licenses as of July 1 of each year. In addition, we test for impairment of intangible assets whenever events and circumstances indicate that such assets might be impaired. As discussed above, as a result of the assumed potential adverse effects caused by the COVID-19 pandemic on estimated future cash flows, we performed an interim impairment test as of March 31, 2020 and we recognized non-cash impairment charges to our indefinite-lived intangible assets and goodwill of $1.7 billion in the first quarter of 2020. No impairment charges were recorded in the remainder of 2020 in connection with our annual impairment test which was performed in the third quarter of 2020.
We recognized non-cash impairment charges of $91.4 million in the first quarter of 2019 on our indefinite-lived FCC licenses as a result of an increase in our weighted average cost of capital. See Note 7, Property, Plant and Equipment, Intangible Assets and Goodwill, to the consolidated financial statements located in Item 8 of Part II of this Annual Report on Form 10-K for a further description of the impairment charges.
Other Operating Income (Expense),Expense, Net
Other operating expense, net of $6.8$11.3 million and $8.2 million in 2018,2020 and 2019, respectively, primarily related to asset acquisition costs and net losses recognized on the disposal of assets.
Other operating income, net of $35.7 million in 2017, primarily related to the $28.9 million gain on the sale of our Americas outdoor Indianapolis market exchanged for cash and certain assets in Atlanta, Georgia, a gain of $6.8 million recognized on the sale of our ownership interest in a joint venture in Belgium and a gain of $15.4 million recognized in relation to an exchange of four radio stations in Chattanooga, TN and six radio stations in Richmond, VA for four radio stations in Boston, MA and three radio stations in Seattle, WA. These gains were partially offset by the loss of $12.1 million, which includes $6.3 million in cumulative translation adjustments, recognized on the sale of our ownership interest in a joint venture in Canada.
Interest Expense, Net
Interest expense, decreased $1,141.2net increased $77.5 million during 20182020 compared to 20172019 as a result of the interest recognized on the new debt issued in connection with our emergence from the Chapter 11 Cases. During the period from March 14, 2018 to May 1, 2019, while the Company ceasingwas a debtor-in-possession, no interest expense was recognized on pre-petition debt. The increase was offset by a decrease in interest expense driven by the impact of lower LIBOR rates, as well as the impact of the amendment to the Term Loan Facility in the first quarter of 2020, resulting in a 1.00% reduction in the Term Loan Facility interest rate.
In the Predecessor period, we ceased to accrue interest expense on long-term debt, which was reclassified as Liabilities subject to compromise as of the Petition Date.Date, resulting in $533.4 million in contractual interest not being accrued on pre-petition indebtedness for the period from January 1, 2019 to May 1, 2019.
Equity in Loss of Nonconsolidated Affiliateson Investments, net
During the yearyears ended December 31, 20182020 and 2019, we recognized aloss on investments, net gain of $1.0$9.3 million related to equity-methodand $31.2 million, respectively, primarily in connection with other-than-temporary declines in the values of certain of our investments. During the year ended December 31, 2017, we recognized a net loss of $2.9 million related to equity-method investments.
Other Expense, Net
Other expense, net was $58.9$7.8 million for the year 2018,ended December 31, 2020, which relatesrelated primarily to net foreign exchange losses of $33.1 million recognized in connection with intercompany notes denominated in foreign currenciescosts incurred to amend our Term Loan Facility and expensesprofessional fees incurred in connection with negotiations with lenders and other activities related to our capital structure, which were incurred prior to the filing of the Chapter 11 Cases.Cases in the Successor period.
Other expense, net was $20.2$18.2 million for the year 2017,ended December 31, 2019, which related primarily to expensesprofessional fees incurred in connection with negotiations with lenders and other activities related to our capital structure, including the notes exchange offers and term loan offers of $41.8 million, partially offset byChapter 11 Cases in the Successor period. Such expenses were included within Reorganization items, net foreign exchange gains of $29.2 million recognized in connection with intercompany notes denominated in foreign currencies.the Predecessor period while the Company was a debtor-in-possession.
Reorganization Items, Net
During 2018,2019, we recognized Reorganization items, net of $356.1$9,461.8 million related to our emergence from the Chapter 11 Cases, consistingwhich consisted primarily of the write-offnet gain from the consummation of deferred long-term debt feesthe Plan of Reorganization and original issue discount on debt subject to compromise,the related settlement of liabilities. In addition, Reorganization items, net included professional fees recognized between the March 14, 2018 Petition Date and costs incurredthe May 1, 2019 Effective Date in connection with our DIP Facility.the Chapter 11 Cases. See Note 163, Fresh Start Accounting to our consolidated financial statements included in Item 8 of Part II of this Annual Report on Form 10-K.
Income Tax Expense (Benefit)
OnThe effective tax rate for the year ended December 22, 2017,31, 2020 was 8.7%. The effective tax rate for the U.S. government enacted comprehensiveyear ended December 31, 2020 was primarily impacted by the impairment charges discussed above. In addition, the Successor Company recorded deferred tax adjustments to state net operating losses and federal and state disallowed interest carryforwards as a result of the filing of 2019 tax returns and certain legal entity restructuring completed during the period. These deferred tax adjustments were partially offset by valuation allowances adjustments recorded during the year against certain federal and state deferred tax assets such as net operating loss carryforwards and disallowed interest carryforwards due to the uncertainty of the ability to utilize those assets in future periods.
The Successor Company’s effective tax rate for the period from May 2, 2019 through December 31, 2019 was 15.1%. The effective tax rate for the Successor period was primarily impacted by deferred tax benefits recorded for changes in estimates related to the carryforward tax attributes that are expected to survive the emergence from bankruptcy and deferred tax adjustments associated with the filing of the Company’s 2018 tax returns during the fourth quarter of 2019. The primary change to the 2018 tax return filings, when compared to the provision estimates, was the Company's decision to elect out of the first-year bonus depreciation rules for the 2018 year for all qualified capital expenditures. This resulted in less tax depreciation deductions for tax purposes for the 2018 year and higher adjusted tax basis for our fixed assets as of the Effective Date.
The Predecessor Company’s effective tax rate for the period from January 1, 2019 through May 1, 2019 was 0.4%. The income tax legislation, referred to as The Tax Cuts and Jobs Act (the Tax Act). The Tax Act reducedexpense for the U.S. federal corporate tax rateperiod from 35% to 21% effective January 1, 2018, required companies2019 through May 1, 2019 (Predecessor) primarily consisted of the income tax impacts from reorganization and fresh start adjustments, including adjustments to pay a one-time transitionour valuation allowance. The Company recorded income tax on earningsbenefits of certain foreign subsidiaries$102.9 million for reorganization adjustments in the Predecessor period, primarily consisting of: (1) tax expense for the reduction in federal and state net operating loss (“NOL”) carryforwards from the cancellation of debt income ("CODI") realized upon emergence; (2) tax benefit for the reduction in deferred tax liabilities attributed primarily to long-term debt that was discharged upon emergence; (3) tax benefit for the effective settlement of liabilities for unrecognized tax benefits that were previouslydischarged upon emergence; and (4) tax benefit for the reduction in valuation allowance resulting from the adjustments described above. The Company recorded income tax expense of $185.4 million for fresh start adjustments in the Predecessor period, consisting of $529.1 million tax expense for the increase in deferred and created new U.S. taxes on certain foreign earnings. To accounttax liabilities resulting from fresh start accounting adjustments, which was partially offset by $343.7 million tax benefit for the reduction in the U.S. federal corporate income tax rate, we remeasuredvaluation allowance on our deferred tax assets.
Net Income (Loss) Attributable to the Company
Net income (loss) attributable to the Company decreased $13.2 billion to a Net loss of $1.9 billion during the year ended December 31, 2020 compared to net income of $11.3 billion during the year ended December 31, 2019. The Net loss attributable to the Company for the year ended December 31, 2020 primarily related to the non-cash impairment charges to our indefinite-lived intangible assets and liabilities basedgoodwill of $1.7 billion recognized in the first quarter of 2020. In 2019, the Net income attributable to the Company primarily related to the recognition of net gain from the consummation of the Plan of Reorganization and the related settlement of liabilities.
The comparison of our combined results for the year ended December 31, 2019 to the consolidated results of year ended December 31, 2018 is as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(In thousands) | | | | | | | Successor Company | | | Predecessor Company | | Non-GAAP Combined | | Predecessor Company | | | | |
| | | | | Period from May 2, 2019 through December 31, | | | Period from January 1, 2019 through May 1, | | Year Ended December 31, | | Year Ended December 31, | | | | |
| | | | | | 2019 | | | 2019 | | 2019 | | 2018 | | | |
Revenue | | | | | | | $ | 2,610,056 | | | | $ | 1,073,471 | | | $ | 3,683,527 | | | $ | 3,611,323 | | | | | |
Operating expenses: | | | | | | | | | | | | | | | | | | |
Direct operating expenses (excludes depreciation and amortization) | | | | | | | 878,956 | | | | 381,184 | | | 1,260,140 | | | 1,132,439 | | | | | |
Selling, general and administrative expenses (excludes depreciation and amortization) | | | | | | | 897,670 | | | | 427,230 | | | 1,324,900 | | | 1,350,157 | | | | | |
Corporate expenses (excludes depreciation and amortization) | | | | | | | 136,171 | | | | 53,647 | | | 189,818 | | | 184,216 | | | | | |
Depreciation and amortization | | | | | | | 249,623 | | | | 52,834 | | | 302,457 | | | 211,951 | | | | | |
Impairment charges | | | | | | | — | | | | 91,382 | | | 91,382 | | | 33,150 | | | | | |
Other operating expense, net | | | | | | | 8,000 | | | | 154 | | | 8,154 | | | 9,266 | | | | | |
Operating income | | | | | | | 439,636 | | | | 67,040 | | | 506,676 | | | 690,144 | | | | | |
Interest expense (income), net | | | | | | | 266,773 | | | | (499) | | | 266,274 | | | 334,798 | | | | | |
Loss on investments, net | | | | | | | (20,928) | | | | (10,237) | | | (31,165) | | | (472) | | | | | |
Equity in earnings (loss) of nonconsolidated affiliates | | | | | | | (279) | | | | (66) | | | (345) | | | 116 | | | | | |
| | | | | | | | | | | | | | | | | | |
Other income (expense), net | | | | | | | (18,266) | | | | 23 | | | (18,243) | | | (23,007) | | | | | |
Reorganization items, net | | | | | | | — | | | | 9,461,826 | | | 9,461,826 | | | (356,119) | | | | | |
Income (loss) from continuing operations before income taxes | | | | | | | 133,390 | | | | 9,519,085 | | | 9,652,475 | | | (24,136) | | | | | |
Income tax expense | | | | | | | (20,091) | | | | (39,095) | | | (59,186) | | | (13,836) | | | | | |
Income (loss) from continuing operations | | | | | | | 113,299 | | | | 9,479,990 | | | 9,593,289 | | | (37,972) | | | | | |
Income (loss) from discontinued operations, net of tax | | | | | | | — | | | | 1,685,123 | | | 1,685,123 | | | (164,667) | | | | | |
Net income (loss) | | | | | | | 113,299 | | | | 11,165,113 | | | 11,278,412 | | | (202,639) | | | | | |
Less amount attributable to noncontrolling interest | | | | | | | 751 | | | | (19,028) | | | (18,277) | | | (729) | | | | | |
Net income (loss) attributable to the Company | | | | | | | $ | 112,548 | | | | $ | 11,184,141 | | | $ | 11,296,689 | | | $ | (201,910) | | | | | |
The table below presents the comparison of our revenue streams for the periods presented:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(In thousands) | | | | | | | Successor Company | | | Predecessor Company | | Non-GAAP Combined | | Predecessor Company | | |
| | | | | Period from May 2, 2019 through December 31, | | | Period from January 1, 2019 through May 1, | | Year Ended December 31, | | Year Ended December 31, | | % |
| | | | | | 2019 | | | 2019 | | 2019 | | 2018 | | Change |
Broadcast Radio | | | | | | | $ | 1,575,382 | | | | $ | 657,864 | | | $ | 2,233,246 | | | $ | 2,264,058 | | | (1.4) | % |
Digital | | | | | | | 273,389 | | | | 102,789 | | | 376,178 | | | 284,565 | | | 32.2 | % |
Networks | | | | | | | 425,631 | | | | 189,088 | | | 614,719 | | | 582,302 | | | 5.6 | % |
Sponsorship and Events | | | | | | | 159,187 | | | | 50,330 | | | 209,517 | | | 200,605 | | | 4.4 | % |
Audio and Media Services | | | | | | | 167,292 | | | | 69,362 | | | 236,654 | | | 264,061 | | | (10.4) | % |
Other | | | | | | | 14,211 | | | | 6,606 | | | 20,817 | | | 22,240 | | | (6.4) | % |
Eliminations | | | | | | | (5,036) | | | | (2,568) | | | (7,604) | | | (6,508) | | | |
Revenue, total | | | | | | | $ | 2,610,056 | | | | $ | 1,073,471 | | | $ | 3,683,527 | | | $ | 3,611,323 | | | 2.0 | % |
Revenue
Revenue increased $72.2 million during the year ended December 31, 2019 compared to 2018. The increase in revenue is primarily due to higher digital revenue of $91.6 million driven by growth in podcasting, including the impact of our acquisition of Stuff Media in October 2018, as well as other digital revenue, including live radio and other on-demand services, and revenue from our Network businesses, which increased $32.4 million. Broadcast revenue decreased $30.8 million, due to a $38.2 million decrease in political revenue as a result of 2018 being a mid-term congressional election year, partially offset by growth generated by our programmatic offerings. Audio and Media Services revenue decreased $27.4 million due to a $34.5 million decrease in political revenue. Political revenue for the years ended December 31, 2019 and 2018 was $28.8 million and $103.0 million, respectively.
Direct Operating Expenses
Direct operating expenses increased $127.7 million during the year ended December 31, 2019 compared to 2018. Higher direct operating expenses were driven primarily by higher compensation-related expenses, including from the acquisitions of Stuff Media and Jelli in the fourth quarter of 2018, as well as higher music license fees, digital royalties and content costs from higher podcasting, subscription and other digital revenue. Included in this increase is the impact of updated estimates to music license fee expenses primarily related to prior years for which payments were made under interim agreements with performance rights organizations and that are subject to ongoing negotiations. The increase in direct operating expenses also includes a $6.3 million increase in lease expense due to the impact of the adoption of the new leasing standard in the first quarter of 2019 and the adoption of fresh start accounting.
SG&A Expenses
SG&A expenses decreased $25.3 million during the year ended December 31, 2019 compared to 2018. The decrease in our SG&A expenses was due primarily to lower commissions as a result of our revenue mix, lower bad debt expense, resulting from improved collections, and lower trade and barter expenses, primarily resulting from timing. The decrease in SG&A expenses was partially offset by higher third-party digital fees, driven by the increase in digital revenue, along with higher employee costs, primarily resulting from the acquisitions of Stuff Media and Jelli in the fourth quarter of 2018.
Corporate Expenses
Corporate expenses increased $5.6 million during the year ended December 31, 2019 compared to 2018 as a result of higher share-based compensation expense, which increased $24.8 million as a result of our equity compensation plan entered into in connection with our Plan of Reorganization. This increase was partially offset by lower employee benefit costs and lower amortization of retention bonuses related to the bankruptcy for which amortization ceased on the rates at which they were expected to reverse in the future, generally 21%, which resulted in the recording of a provisional deferred tax benefit of $510.1Effective Date.
Depreciation and Amortization
Depreciation and amortization increased $90.5 million during 2017. To determine the impact from the one-time transition tax on accumulated foreign earnings, we analyzed our cumulative foreign earnings and profits in accordance with the rules provided in the Tax Act and determined that no transition tax was dueyear ended December 31, 2019 compared to 2018 primarily as a result of the application of fresh start accounting, which resulted in significantly higher values of our tangible and intangible long-lived assets.
Impairment Charges
We recognized non-cash impairment charges of $91.4 million in the first quarter of 2019 on our indefinite-lived FCC licenses as a result of an increase in the weighted average cost of capital. During 2018 we recorded impairment charges of $33.2 million related primarily to several of our Audio markets.
Other Operating Expense, Net
Other operating expense, net accumulated deficitof $8.2 million and $9.3 million in 2019 and 2018, respectively, was primarily related to net losses recognized on the disposal of assets.
Interest Expense, Net
Interest expense, net decreased $68.5 million during 2019 compared to 2018 as a result of the interest recognized in the period from January 1, 2018 to the March 14, 2018 petition date on our foreign earnings and profits. Aspre-petition debt exceeding the interest recognized in the period from May 2, 2019 to December 31, 2019 on our new debt issued in connection with our emergence from the Chapter 11 Cases. During the period from March 14, 2018 to May 1, 2019, while the Company was a debtor-in-possession, no interest expense was recognized on pre-petition debt.
Loss on Investments, net
During the year ended December 31, 2019, we recognized a loss of $31.2 million, primarily in connection with other-than-temporary declines in the values of certain of our investments.
Equity in Loss of Nonconsolidated Affiliates
During the year ended December 31, 2019 we recognized a net loss of $0.3 million related to equity-method investments. During the year ended December 31, 2018, we have completedrecognized net earnings of $0.1 million related to equity-method investments.
Other Expense, Net
Other expense, net was $18.2 million for the year ended December 31, 2019, which related primarily to professional fees incurred in connection with the Chapter 11 Cases in the Successor period. Such expenses were included within Reorganization items, net in the Predecessor period while the Company was a debtor-in-possession.
Other expense, net was $23.0 million for the year ended December 31, 2018, which related primarily to professional fees incurred directly in connection with the Chapter 11 Cases before the March 14, 2018 Petition Date. Such expenses were included within Reorganization items, net in the post-petition period while the Company was a debtor-in-possession.
Reorganization Items, Net
During 2019, we recognized Reorganization items, net of $9,461.8 million related to our accountingemergence from the Chapter 11 Cases, which consisted primarily of the net gain from the consummation of the Plan of Reorganization and the related settlement of liabilities. In addition, Reorganization items, net included professional fees recognized between the March 14, 2018 Petition Date and the May 1, 2019 Effective Date in connection with the Chapter 11 Cases. See Note 3 to our Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K.
Income Tax Benefit (Expense)
The Successor Company’s effective tax rate for the period from May 2, 2019 through December 31, 2019 was 15.1%. The effective tax rate for the Successor period was primarily impacted by deferred tax benefits recorded for changes in estimates related to the carryforward tax attributes that are expected to survive the emergence from bankruptcy and deferred tax adjustments associated with the filing of the Company’s 2018 tax returns during the fourth quarter of 2019. The primary change to the 2018 tax return filings, when compared to the provision estimates, was the Company's decision to elect out of the first-year bonus depreciation rules for the 2018 year for all qualified capital expenditures. This resulted in less tax depreciation deductions for tax purposes for the 2018 year and higher adjusted tax basis for our fixed assets as of the enactment-dateEffective Date.
The Predecessor Company’s effective tax rate for the period from January 1, 2019 through May 1, 2019 was 0.4%. The income tax effectsexpense for the period from January 1, 2019 through May 1, 2019 (Predecessor) primarily consisted of the Tax Actincome tax impacts from reorganization and determined that no materialfresh start adjustments, were requiredincluding adjustments to our provisional amountsvaluation allowance. The Company recorded asincome tax benefits of December 31, 2017.
$102.9 million for reorganization adjustments in the Predecessor period, primarily consisting of: (1) tax expense for the reduction in federal and state net operating loss (“NOL”) carryforwards from the cancellation of debt income ("CODI") realized upon emergence; (2) tax benefit for the reduction in deferred tax liabilities attributed primarily to long-term debt that was discharged upon emergence; (3) tax benefit for the effective settlement of liabilities for unrecognized tax benefits that were discharged upon emergence; and (4) tax benefit for the reduction in valuation allowance resulting from the adjustments described above. The Company recorded income tax expense of $185.4 million for fresh start adjustments in the Predecessor period, consisting of $529.1 million tax expense for the increase in deferred tax liabilities resulting from fresh start accounting adjustments, which was partially offset by $343.7 million tax benefit for the reduction in the valuation allowance on our deferred tax assets.
The effective tax rate for the year ended December 31, 2018 was (29.7)(57.3)% as compared to 49.9% for the year ended December 31, 2017.. The effective tax rate for 2018 was primarily impacted by the $61.5$11.3 million valuation allowance recorded against a portion of current period federal and state deferred tax assets dueexpense attributed to the uncertainty of the ability to realize those assets in future periods. In addition, losses in certain foreign jurisdictions were not benefited primarily due to the uncertainty of the ability to utilize those losses in future periods.
The effective tax rate for 2017 was impacted by the $510.1 million deferred tax benefit recorded in connection with enactment of the Tax Act which reduced the U.S. federal corporate income tax rate to 21% as mentioned above. In partial offset to this tax benefit, the company recorded tax expense of $387.7 million in connection with the valuation allowance recorded against federal and state deferred tax assets generated in the current period due to the uncertainty of the ability to realize those assets in future periods.
iHM ResultsNet Income (Loss) Attributable to the Company
Net income attributable to the Company increased $11.5 billion to $11.3 billion during the year ended December 31,
2019 compared to a net loss of Operations
Our iHM operating results were as follows:
|
| | | | | | | | | | |
(In thousands) | Years Ended December 31, | | % |
| 2018 | | 2017 | | Change |
Revenue | $ | 3,436,955 |
| | $ | 3,442,963 |
| | (0.2 | )% |
Direct operating expenses | 1,062,373 |
| | 1,059,123 |
| | 0.3 | % |
SG&A expenses | 1,271,152 |
| | 1,245,741 |
| | 2.0 | % |
Depreciation and amortization | 177,775 |
| | 233,757 |
| | (23.9 | )% |
Operating income | $ | 925,655 |
| | $ | 904,342 |
| | 2.4 | % |
iHM revenue decreased $6.0$201.9 million during 2018 compared to 2017, resulting primarily from lower local spot revenue, driven by lower local agency revenue, being partially offset by higher political revenue due to 2018 being a mid-term election
the year and higher digital revenue, including subscription revenue from our iHeartRadio on-demand service. We believe disruption to certain of our business processes resulting from the Chapter 11 Cases negatively impacted our revenue in the first half of the year.
iHM direct operating expenses increased $3.3 million duringended December 31, 2018, compared to 2017. Higher digital fees, driven primarily by revenue growth by our iHeartRadio on-demand service, and higher employee-related expenses were partially offset by lower music license fees. iHM SG&A expenses increased $25.4 million during 2018 compared to 2017, primarily due to higher third-party sales activation fees and trade and barter expenses, partially offset by lower bad debt.
Americas Outdoor Results of Operations
Our Americas outdoor operating results were as follows:
|
| | | | | | | | | |
(In thousands) | Years Ended December 31, | | % |
| 2018 | | 2017 | | Change |
Revenue | $ | 1,189,348 |
| | $ | 1,161,059 |
| | 2.4% |
Direct operating expenses | 524,659 |
| | 527,536 |
| | (0.5)% |
SG&A expenses | 199,688 |
| | 197,390 |
| | 1.2% |
Depreciation and amortization | 166,806 |
| | 179,119 |
| | (6.9)% |
Operating income | $ | 298,195 |
| | $ | 257,014 |
| | 16.0% |
Americas outdoor revenue increased $28.3 million during 2018 compared to 2017. The increase in revenue was due to increases in both digital and print revenue, partially offset by a $13.7 million decrease in revenue resultingthe net gain from the saleconsummation of the Plan of Reorganization and the related settlement of liabilities.
Non-GAAP Financial Measures
Reconciliations of Operating Income (Loss) to Adjusted EBITDA
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(In thousands) | Successor Company | | Successor Company | | | Predecessor Company | | Non-GAAP Combined | | | | | | |
| Year Ended December 31, | | Period from May 2, 2019 through December 31, | | | Period from January 1, 2019 through May 1, | | Year Ended December 31, | | | | | | |
| 2020 | | 2019 | | | 2019 | | 2019 | | | | | | |
Operating income (loss) | $ | (1,737,624) | | | $ | 439,636 | | | | $ | 67,040 | | | $ | 506,676 | | | | | | | |
Depreciation and amortization(1) | 402,929 | | | 249,623 | | | | 52,834 | | | 302,457 | | | | | | | |
Impairment charges | 1,738,752 | | | — | | | | 91,382 | | | 91,382 | | | | | | | |
Other operating expense, net | 11,344 | | | 8,000 | | | | 154 | | | 8,154 | | | | | | | |
Share-based compensation expense | 22,862 | | | 26,411 | | | | 498 | | | 26,909 | | | | | | | |
Restructuring and reorganization expenses | 100,410 | | | 51,879 | | | | 13,241 | | | 65,120 | | | | | | | |
| | | | | | | | | | | | | | |
Adjusted EBITDA(2) | $ | 538,673 | | | $ | 775,549 | | | | $ | 225,149 | | | $ | 1,000,698 | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(In thousands) | Successor Company | | | Predecessor Company | | Non-GAAP Combined2 | | Predecessor Company | | |
| Period from May 2, 2019 through December 31, | | | Period from January 1, 2019 through May 1, | | Year Ended December 31, | | Year Ended December 31, | | |
| 2019 | | | 2019 | | 2019 | | 2018 | | |
Operating income | $ | 439,636 | | | | $ | 67,040 | | | $ | 506,676 | | | $ | 690,144 | | | |
Depreciation and amortization(1) | 249,623 | | | | 52,834 | | | 302,457 | | | 211,951 | | | |
Impairment charges | — | | | | 91,382 | | | 91,382 | | | 33,150 | | | |
Other operating expense, net | 8,000 | | | | 154 | | | 8,154 | | | 9,266 | | | |
Share-based compensation expense(3) | 26,411 | | | | 498 | | | 26,909 | | | 2,066 | | | |
Restructuring and reorganization expenses | 51,879 | | | | 13,241 | | | 65,120 | | | 30,078 | | | |
| | | | | | | | | | |
Adjusted EBITDA(2) | $ | 775,549 | | | | $ | 225,149 | | | $ | 1,000,698 | | | $ | 976,655 | | | |
Reconciliations of Net Income (Loss) to EBITDA and Adjusted EBITDA
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(In thousands) | | | | | Successor Company | | Successor Company | | | Predecessor Company | | Non-GAAP Combined |
| | | Year Ended December 31, | | Period from May 2, 2019 through December 31, | | | Period from January 1, 2019 through May 1, | | Year Ended December 31, |
| | | | | 2020 | | 2019 | | | 2019 | | 2019 |
Net income (loss) | | | | | $ | (1,915,222) | | | $ | 113,299 | | | | $ | 11,165,113 | | | $ | 11,278,412 | |
Income from discontinued operations, net of tax | | | | | — | | | — | | | | (1,685,123) | | | (1,685,123) | |
Income tax (benefit) expense | | | | | (183,623) | | | 20,091 | | | | 39,095 | | | 59,186 | |
Interest expense (income), net | | | | | 343,745 | | | 266,773 | | | | (499) | | | 266,274 | |
Depreciation and amortization | | | | | 402,929 | | | 249,623 | | | | 52,834 | | | 302,457 | |
EBITDA | | | | | $ | (1,352,171) | | | $ | 649,786 | | | | $ | 9,571,420 | | | $ | 10,221,206 | |
Reorganization items, net | | | | | — | | | — | | | | (9,461,826) | | | (9,461,826) | |
Loss on investments, net | | | | | 9,346 | | | 20,928 | | | | 10,237 | | | 31,165 | |
Other (income) expense, net | | | | | 7,751 | | | 18,266 | | | | (23) | | | 18,243 | |
Equity in loss of nonconsolidated affiliates | | | | | 379 | | | 279 | | | | 66 | | | 345 | |
Impairment charges | | | | | 1,738,752 | | | — | | | | 91,382 | | | 91,382 | |
Other operating expense, net | | | | | 11,344 | | | 8,000 | | | | 154 | | | 8,154 | |
Share-based compensation expense | | | | | 22,862 | | | 26,411 | | | | 498 | | | 26,909 | |
Restructuring and reorganization expenses | | | | | 100,410 | | | 51,879 | | | | 13,241 | | | 65,120 | |
| | | | | | | | | | | | |
Adjusted EBITDA(2) | | | | | $ | 538,673 | | | $ | 775,549 | | | | $ | 225,149 | | | $ | 1,000,698 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(In thousands) | | | | | Successor Company | | | Predecessor Company | | Non-GAAP Combined | | Predecessor Company |
| | | Period from May 2, 2019 through December 31, | | | Period from January 1, 2019 through May 1, | | Year Ended December 31, | | Year Ended December 31, |
| | | | | 2019 | | | 2019 | | 2019 | | 2018 |
Net income (loss) | | | | | $ | 113,299 | | | | $ | 11,165,113 | | | $ | 11,278,412 | | | $ | (202,639) | |
(Income) loss from discontinued operations, net of tax | | | | | — | | | | (1,685,123) | | | (1,685,123) | | | 164,667 | |
Income tax expense | | | | | 20,091 | | | | 39,095 | | | 59,186 | | | 13,836 | |
Interest expense (income), net | | | | | 266,773 | | | | (499) | | | 266,274 | | | 334,798 | |
Depreciation and amortization(1) | | | | | 249,623 | | | | 52,834 | | | 302,457 | | | 211,951 | |
EBITDA | | | | | $ | 649,786 | | | | $ | 9,571,420 | | | $ | 10,221,206 | | | $ | 522,613 | |
Reorganization items, net | | | | | — | | | | (9,461,826) | | | (9,461,826) | | | 356,119 | |
Loss on investments, net | | | | | 20,928 | | | | 10,237 | | | 31,165 | | | 472 | |
Other income (expense), net | | | | | 18,266 | | | | (23) | | | 18,243 | | | 23,007 | |
Equity in (earnings) loss of nonconsolidated affiliates | | | | | 279 | | | | 66 | | | 345 | | | (116) | |
Impairment charges | | | | | — | | | | 91,382 | | | 91,382 | | | 33,150 | |
Other operating expense, net | | | | | 8,000 | | | | 154 | | | 8,154 | | | 9,266 | |
Share-based compensation expense | | | | | 26,411 | | | | 498 | | | 26,909 | | | 2,066 | |
Restructuring and reorganization expenses | | | | | 51,879 | | | | 13,241 | | | 65,120 | | | 30,078 | |
| | | | | | | | | | | | |
Adjusted EBITDA(2) | | | | | $ | 775,549 | | | | $ | 225,149 | | | $ | 1,000,698 | | | $ | 976,655 | |
(1)Increase in Depreciation and amortization is driven by the application of fresh start accounting, resulting in significantly higher values of our Canadian outdoor business in August 2017.tangible and intangible assets.
Americas outdoor direct(2)We define Adjusted EBITDA as consolidated Operating income (loss) adjusted to exclude restructuring and reorganization expenses included within Direct operating expenses, decreased $2.9 million during 2018 compared to 2017. The decrease was driven by a $10.3 million decrease in direct operating expenses resulting from the sale of our Canadian outdoor market, partially offset by higher site lease expenses. Americas outdoor SG&A expenses increased $2.3 million during 2018 comparedand Corporate expenses, and share-based compensation expenses included within Corporate expenses, as well as the following line items presented in our Statements of Operations: Depreciation and amortization, Impairment charges and Other operating expense (income), net. Alternatively, Adjusted EBITDA is calculated as Net income (loss), adjusted to 2017, primarily due to higher employeeexclude (Income) loss from discontinued operations, net of tax, Income tax (benefit) expense, Interest expense (income), net, Depreciation and amortization, Reorganization items, net, (Gain) Loss on investments, net, Other (income) expense, net, Equity in loss of nonconsolidated affiliates, net, Impairment charges, Other operating expense (income), net, Share-based compensation expense, including variable incentive compensation, partially offset by a $3.3 million decrease in SG&A expenses resulting from the sale of our Canadian outdoor market.
International Outdoor Results of Operations
Our International outdoor operating results were as follows:
|
| | | | | | | | | |
(In thousands) | Years Ended December 31, | | % |
| 2018 | | 2017 | | Change |
Revenue | $ | 1,532,357 |
| | $ | 1,427,643 |
| | 7.3% |
Direct operating expenses | 946,009 |
| | 882,231 |
| | 7.2% |
SG&A expenses | 323,230 |
| | 301,823 |
| | 7.1% |
Depreciation and amortization | 148,199 |
| | 141,812 |
| | 4.5% |
Operating income | $ | 114,919 |
| | $ | 101,777 |
| | 12.9% |
International outdoor revenue increased $104.7 million during 2018 compared to 2017. Excluding the $30.5 million impact from movements in foreign exchange rates, International outdoor revenue increased $74.2 million during 2018 compared to 2017. The increase in revenue is due to growth in multiple countries, including Sweden, China, Spain, Switzerland, Ireland, France, Finland and the United Kingdom, primarily from new deploymentsrestructuring and digital expansion.
International outdoor direct operating expenses increased $63.8 million during 2018 compared to 2017. Excluding the $23.1 million impact from movements in foreign exchange rates, International outdoor direct operating expenses increased $40.7 million during 2018 compared to 2017. The increase was driven by higher site lease expenses related to new contracts and higher revenues. International outdoor SG&A expenses increased $21.4 million during 2018 compared to 2017. Excluding the $6.7 million impact from movements in foreign exchange rates, International outdoor SG&A expenses increased $14.7 million during 2018 compared to 2017. The increase in SG&Areorganization expenses. Restructuring expenses primarily related to higher spending on strategic revenue and efficiencyinclude severance expenses incurred in connection with cost saving initiatives, as well as higher employee-relatedcertain expenses, which, in countries experiencing growth.
Consolidated Resultsthe view of Operations
The comparisonmanagement, are outside the ordinary course of business or otherwise not representative of the Company's operations during a normal business cycle. Reorganization expenses primarily include the amortization of retention bonus amounts paid or payable to certain members of management directly as a result of the Reorganization. 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 forecasting 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 historicaloperational 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 or net income (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 income (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 (used for) operating activities from continuing operations to Free cash flow from (used for) continuing operations
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(In thousands) | | | | | Successor Company | | Successor Company | | | Predecessor Company | | Non-GAAP Combined |
| | | Year Ended December 31, | | Period from May 2, 2019 through December 31, | | | Period from January 1, 2019 through May 1, | | Year Ended December 31, |
| | | | | 2020 | | 2019 | | | 2019 | | 2019 |
Cash provided by (used for) operating activities from continuing operations | | | | | $ | 215,945 | | | $ | 468,905 | | | | $ | (7,505) | | | $ | 461,400 | |
Purchases of property, plant and equipment by continuing operations | | | | | (85,205) | | | (75,993) | | | | (36,197) | | | (112,190) | |
Free cash flow from (used for) continuing operations(2) | | | | | $ | 130,740 | | | $ | 392,912 | | | | $ | (43,702) | | | $ | 349,210 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(In thousands) | | | | | Successor Company | | | Predecessor Company | | Non-GAAP Combined | | Predecessor Company |
| | | Period from May 2, 2019 through December 31, | | | Period from January 1, 2019 through May 1, | | Year Ended December 31, | | Year Ended December 31, |
| | | | | 2019 | | | 2019 | | 2019 | | 2018 |
Cash provided by (used for) operating activities from continuing operations(1) | | | | | $ | 468,905 | | | | $ | (7,505) | | | $ | 461,400 | | | $ | 741,219 | |
Less: Purchases of property, plant and equipment by continuing operations | | | | | (75,993) | | | | (36,197) | | | (112,190) | | | (85,245) | |
Free cash flow from (used for) continuing operations(2) | | | | | $ | 392,912 | | | | $ | (43,702) | | | $ | 349,210 | | | $ | 655,974 | |
(1)Cash provided by operating activities from continuing operations for the year ended December 31, 20172019 was impacted primarily by an increase of $165.1 million in cash paid for interest. Our debt issued upon emergence was outstanding from the period of May 2, 2019 to the year ended December 31, 2016 is as follows:
|
| | | | | | | | | |
(In thousands) | Years Ended December 31, | | % |
| 2017 | | 2016 | | Change |
Revenue | $ | 6,168,431 |
| | $ | 6,251,000 |
| | (1.3)% |
Operating expenses: | | | | | |
Direct operating expenses (excludes depreciation and amortization) | 2,468,724 |
| | 2,395,037 |
| | 3.1% |
Selling, general and administrative expenses (excludes depreciation and amortization) | 1,842,222 |
| | 1,726,118 |
| | 6.7% |
Corporate expenses (excludes depreciation and amortization) | 311,898 |
| | 341,072 |
| | (8.6)% |
Depreciation and amortization | 601,295 |
| | 635,227 |
| | (5.3)% |
Impairment charges | 10,199 |
| | 8,000 |
| | 27.5% |
Other operating income, net | 35,704 |
| | 353,556 |
| | (89.9)% |
Operating income | 969,797 |
| | 1,499,102 |
| | (35.3)% |
Interest expense | 1,864,136 |
| | 1,850,119 |
| | |
Equity in loss of nonconsolidated affiliates | (2,855 | ) | | (16,733 | ) | | |
Gain on extinguishment of debt | 1,271 |
| | 157,556 |
| | |
Other expense, net | (20,194 | ) | | (86,009 | ) | | |
Loss before income taxes | (916,117 | ) | | (296,203 | ) | | |
Income tax benefit | 457,406 |
| | 49,631 |
| | |
Consolidated net loss | (458,711 | ) | | (246,572 | ) | | |
Less amount attributable to noncontrolling interest | (60,651 | ) | | 55,484 |
| | |
Net loss attributable to the Company | $ | (398,060 | ) | | $ | (302,056 | ) | | |
Consolidated Revenue
Consolidated revenue decreased $82.62019, resulting in cash interest payments of $183.8 million. In 2018, we made cash interest payments of $22.5 million duringon our pre-petition debt, which was outstanding for the year ended December 31, 2017 comparedperiod from January 1, 2018 to 2016. Excluding the $8.6 million impact from movements in foreign exchange rates, consolidated revenue decreased $91.2 million during the year ended December 31, 2017 compared to 2016. Revenue growth from our iHM businessMarch 14, 2018. Cash provided by operating activities was offset by lower revenue generated by our Americas and International outdoor businesses as a result of the sales of our businesses in Canada in 2017 and Australia and Turkey in 2016, which generated $13.7 million and $149.4 million in revenue in the years ended December 31, 2017 and 2016, respectively.
Consolidated Direct Operating Expenses
Consolidated direct operating expenses increased $73.7 million during the year ended December 31, 2017 compared to 2016. Excluding the $4.0 million impact from movements in foreign exchange rates, consolidated direct operating expenses increased $69.7 million during the year ended December 31, 2017 compared to 2016. Higher direct operating expenses in our iHM business, including a $33.8 million prior year benefit resulting from the renegotiation of certain contracts, and higher direct operating expenses in our outdoor businesses, driven primarily by higher site lease expenses, were partially offset by the impact of the sale of our outdoor businesses in Australia and Turkey in 2016 and Canada in 2017.
Consolidated SG&A Expenses
Consolidated SG&A expenses increased $116.1 million during the year ended December 31, 2017 compared to 2016. Excluding the $2.8 million impact from movements in foreign exchange rates, consolidated SG&A expenses increased $113.3 million during the year ended December 31, 2017 compared to 2016. Higher SG&A expenses in our iHM business, primarily driven by higher trade and barter expenses, were partially offsetalso impacted by a decrease$97.9 million increase in SG&A expenses resultingcash payments for Reorganization items, which consisted primarily from the sales of our outdoor businesses in Australia and Turkey in 2016 and Canada in 2017.
Corporate Expenses
Corporate expenses decreased $29.2 million during the year ended December 31, 2017 compared to 2016. Excluding the $1.4 million impact from movements in foreign exchange rates, corporate expenses decreased $27.8 million during the year ended December 31, 2017 compared to 2016. In 2017, we incurredbankruptcy-related professional fees, directly related to negotiations with lenders andas well as payments for settlement of pre-petition liabilities upon our emergence from bankruptcy.
other(2)We define Free cash flow from (used for) continuing operations (“Free Cash Flow”) as Cash provided by (used for) operating activities related to ourfrom continuing operations less capital structure, including the notes exchange offers and term loan offers, and, accordingly, such fees are reflected in Other Income (Expense), netexpenditures, which is disclosed as further discussed below. In 2016, professional fees incurred in connection with our capital structure activities were reflected as part of corporate expenses. Employee benefit expense was also lower due to lower claims.
Depreciation and Amortization
Depreciation and amortization decreased $33.9 million during 2017 compared to 2016, primarily due to the sale of certain outdoor businesses and markets and assets becoming fully depreciated or fully amortized.
Impairment Charges
We perform our annual impairment test on our goodwill, FCC licenses, billboard permits, and other intangible assets as of July 1 of each year. In addition, we test for impairmentPurchases of property, plant and equipment whenever eventsby continuing operations in the Company's Consolidated Statements of Cash Flows. We use Free Cash Flow, among other measures, to evaluate the Company’s liquidity and circumstances indicateits ability to generate cash flow. We believe that depreciable assets mightFree Cash Flow is meaningful to investors because we review cash flows generated from operations after taking into consideration capital expenditures due to the fact that these expenditures are considered to be impaired. As a resultnecessary component of these impairment tests, during 2017ongoing operations. In addition, we recorded impairment chargesbelieve that Free Cash Flow helps improve investors' ability to compare 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, $7.6 million related primarilyor as a substitute for, Cash provided by operating activities and may not be comparable to onesimilarly titled measures employed by other companies. Free Cash Flow is not necessarily a measure of our iHM markets and one ofability to fund our International outdoor businesses. In addition, the Company recognized an impairment of $2.6 million during 2017 in relation to advertising assets that were no longer usable in one country in our International outdoor segment. During 2016cash needs.
Share-Based Compensation Expense
Historically, we recorded impairment charges of $8.0 million related primarily to goodwill for one International outdoor business. Please see Note 3 to the consolidated financial statements located in Item 8 of this Annual Report on Form 10-K for a further descriptionhad granted restricted shares of the impairment charges.
Other Operating Income, Net
Other operating income, net of $35.7 million in 2017 primarily relatedCompany's Class A common stock to the $28.9 million gain on the sale of our Americas outdoor Indianapolis market exchanged for cash and certain assets in Atlanta, Georgia, a gain of $6.8 million recognized on the sale of our ownership interest in a joint venture in Belgium and a gain of $15.4 million recognized in relation to an exchange of four radio stations in Chattanooga, TN and six radio stations in Richmond, VA for four radio stations in Boston, MA and three radio stations in Seattle, WA. These gains were partially offset by the loss of $12.1 million, which includes $6.3 million in cumulative translation adjustments, recognized on the sale of our ownership interest in a joint venture in Canada.
Other operating income of $353.6 million in 2016, primarily related to the net gain of $278.3 million on sale of nine non-strategic outdoor markets in the first quarter of 2016 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 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.
Interest Expense
Interest expense increased $14.0 million during 2017 compared to 2016 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 2017 and 2016 was 8.9% and 8.5%, respectively.
Equity in Loss of Nonconsolidated Affiliates
During the years ended December 31, 2017 and 2016, we recognized losses of $2.9 million and $16.7 million, respectively, related to equity-method investments. The loss in 2016 related primarily to a $15.0 million non-cash impairment recorded in connection with an other-than-temporary decline in the value of one of our equity investments.
Gain on Extinguishment of Debt
During the fourth quarter of 2017, Broader Media, LLC, an indirect wholly-owned subsidiary of the Company, repurchased approximately $4.0 million aggregate principal amount of iHeartCommunications' 10.0% Senior Notes due 2018 for an aggregate purchase price of approximately $2.7 million.key individuals. In connection with this repurchase, we recognized a gain of $1.3 million.
During the third quarter of 2016, Broader Media, LLC, an indirect wholly-owned subsidiary of the Company, 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. In connection with this repurchase, we recognized a gain of $157.6 million.
Other Expense, Net
Other expense, net was $20.2 million for the year 2017, which relates primarily to expenses incurred in connection with negotiations with lenders and other activities related to our capital structure, including the notes exchange offers and term loan
offers of $41.8 million, partially offset by net foreign exchange gains of $29.2 million recognized in connection with intercompany notes denominated in foreign currencies.
Other expense, net was $86.0 million for the year 2016 which primarily related 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 oneeffectiveness of our UK subsidiaries, which wasPlan of Reorganization, all unvested restricted shares were canceled.
Pursuant to the primary driver of the foreign exchange loss in 2016. Additionally,new equity incentive plan (the “Post-Emergence Equity Plan”) we recognized a loss on investments of $12.9 million in 2016 which primarily related to a $14.5 million non-cash impairment recorded in connection with an other-than-temporary decline in the value of one of our cost investments.
Income Tax Benefit (Expense)
On December 22, 2017, the U.S. government enacted the Tax Act. The Tax Act reduced the U.S. federal corporate tax rate from 35% to 21% effective January 1, 2018, required companies to pay a one-time transition tax on earnings of certain foreign subsidiaries that were previously tax deferred, and created new U.S. taxes on certain foreign earnings. To account for the reduction in the U.S. federal corporate income tax rate, we remeasured our deferred tax assets and liabilities based on the rates at which they were expected to reverse in the future, generally 21%, which resulted in the recording of a provisional deferred tax benefit of $510.1 million during 2017. To determine the impact from the one-time transition tax on accumulated foreign earnings, we analyzed our cumulative foreign earnings and profits in accordance with the rules provided in the Tax Act and determined that no transition tax was due as a result of the net accumulated deficit in our foreign earnings and profits. As of December 31, 2018, we have completed our accounting for all of the enactment-date income tax effects of the Tax Act and determined that no material adjustments were required to our provisional amounts recorded as of December 31, 2017.
The effective tax rate for the year ended December 31, 2017 was 49.9% as compared to 16.8% for the year ended December 31, 2016. The effective tax benefit rate for 2017 was primarily impacted by the $510.1 million provisional deferred tax benefit recorded in connection with enactment of the Tax Act which reduced the U.S. federal corporate income tax rate to 21% as mentioned above. In partial offset to this tax benefit, the company recorded tax expense of $387.7 millionadopted in connection with the valuation allowance recorded against federaleffectiveness of our Plan of Reorganization, we have granted restricted stock units and state deferred tax assets generated in the current period dueoptions to the uncertaintypurchase shares of the abilityCompany's Class A common stock to realize those assets in future periods.
The effective tax rate for 2016 was impacted by the $43.3 million deferred tax benefit recorded in connection with the release of valuation allowance in France, which was offset by $54.7 million of tax expense attributable to the sale of our outdoor business in Australia. Additionally, the 2016 effective tax benefit rate was impacted by the $31.8 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.
iHM Results of Operations
Our iHM operating results were as follows:
|
| | | | | | | | | |
(In thousands) | Years Ended December 31, | | % |
| 2017 | | 2016 | | Change |
Revenue | $ | 3,442,963 |
| | $ | 3,403,040 |
| | 1.2% |
Direct operating expenses | 1,059,123 |
| | 975,463 |
| | 8.6% |
SG&A expenses | 1,245,741 |
| | 1,102,998 |
| | 12.9% |
Depreciation and amortization | 233,757 |
| | 243,964 |
| | (4.2)% |
Operating income | $ | 904,342 |
| | $ | 1,080,615 |
| | (16.3)% |
iHM revenue increased $39.9 million during 2017 compared to 2016, with growth in national revenue and other revenue being partially offset by lower local revenue. National revenue grew due to an increase in national trade and barter, as well as higher spot sales in response to our national investments, including our programmatic buying platforms, primarily offset by a decrease in national traffic and weather revenue and political revenue. Other revenue increased primarily as a result of digital subscription revenue from our iHeartRadio on-demand service. Local revenue decreased primarily as a result of lower spot and political revenue, partially offset by an increase in local trade and barter.
iHM direct operating expenses increased $83.7 million during 2017 compared to 2016, including a $33.8 million prior year benefit resulting from the renegotiation of certain contracts, as well as higher content and programming costs, including employee compensation and music license and royalty fees. iHM SG&A expenses increased $142.7 million during 2017 compared
to 2016, primarily due to higher trade and barter expenses, investments in national and digital sales capabilities, and higher variable expenses, including sales activation costs and commissions.
Americas Outdoor Results of Operations
Our Americas outdoor operating results were as follows:
|
| | | | | | | | | |
(In thousands) | Years Ended December 31, | | % |
| 2017 | | 2016 | | Change |
Revenue | $ | 1,161,059 |
| | $ | 1,187,180 |
| | (2.2)% |
Direct operating expenses | 527,536 |
| | 528,769 |
| | (0.2)% |
SG&A expenses | 197,390 |
| | 203,427 |
| | (3.0)% |
Depreciation and amortization | 179,119 |
| | 175,438 |
| | 2.1% |
Operating income | $ | 257,014 |
| | $ | 279,546 |
| | (8.1)% |
Americas outdoor revenue decreased $26.1 million during 2017 compared to 2016. The decrease in revenue was primarily due to the $17.9 million impact resulting from the sales of non-strategic outdoor markets during the first quarter of 2016 and our Canadian outdoor business in the third quarter of 2017. The impact of exchanging our Indianapolis, Indiana outdoor market for cash and assets in Atlanta, Georgia in the first quarter of 2017 also contributed to the decrease in revenue. These decreases were partially offset by higher revenue from new and existing airport contracts.
Americas outdoor direct operating expenses decreased $1.2 million during 2017 compared to 2016. The decrease in direct operating expenses was driven primarily by the $13.2 million decrease in expense due to the impact of the sales of non-strategic outdoor markets during the first quarter of 2016 and our Canadian outdoor business in the third quarter of 2017, partially offset by higher site lease expenses related to new and existing airport contracts and print displays. Americas outdoor SG&A expenses decreased $6.0 million during 2017 compared to 2016. The decrease in SG&A expenses was primarily due to lower bad debt expense and the $2.5 million impact resulting from the sales of non-strategic outdoor markets in the first quarter of 2016 and the sale of our Canadian outdoor business in the third quarter of 2017, and the exchange of outdoor markets in the first quarter of 2017.
International Outdoor Results of Operations
Our International outdoor operating results were as follows:
|
| | | | | | | | | |
(In thousands) | Years Ended December 31, | | % |
| 2017 | | 2016 | | Change |
Revenue | $ | 1,427,643 |
| | $ | 1,492,642 |
| | (4.4)% |
Direct operating expenses | 882,231 |
| | 889,550 |
| | (0.8)% |
SG&A expenses | 301,823 |
| | 311,994 |
| | (3.3)% |
Depreciation and amortization | 141,812 |
| | 162,974 |
| | (13.0)% |
Operating income | $ | 101,777 |
| | $ | 128,124 |
| | (20.6)% |
International outdoor revenue decreased $65.0 million during 2017 compared to 2016. Excluding the $8.6 million impact from movements in foreign exchange rates, International outdoor revenue decreased $73.6 million during 2017 compared to 2016. The decrease in revenue is due to a $117.8 million decrease in revenue resulting from the sale of our outdoor businesses in Australia and Turkey in 2016. This was partially offset by growth across other outdoor markets including Spain, the United Kingdom (the "U.K."), Switzerland and China, primarily from new contracts and digital expansion.
International outdoor direct operating expenses decreased $7.3 million during 2017 compared to 2016. Excluding the $4.0 million impact from movements in foreign exchange rates, International outdoor direct operating expenses decreased $11.3 million during 2017 compared to 2016. The decrease was driven by a $70.3 million decrease in direct operating expenses resulting from the 2016 sales of our outdoor businesses in Australia and Turkey, partially offset by higher site lease and production expenses primarily in countries experiencing revenue growth. International outdoor SG&A expenses decreased $10.2 million during 2017 compared to 2016. Excluding the $2.8 million impact from movements in foreign exchange rates, International outdoor SG&A expenses decreased $13.0 million during 2017 compared to 2016. The decrease in SG&A expenses was primarily due to a $22.6
million decrease resulting from the sale of our outdoor businesses in Australia and Turkey, partially offset by higher spending related to growth in certain countries.
Depreciation and amortization decreased $21.2 million primarily due to the sale of our outdoor businesses in Australia and Turkey in 2016 and assets becoming fully depreciated or fully amortized.
Reconciliation of Segment Operating Income to Consolidated Operating Income
|
| | | | | | | | | | | |
(In thousands) | Years Ended December 31, |
| 2018 | | 2017 | | 2016 |
iHM | $ | 925,655 |
| | $ | 904,342 |
| | $ | 1,080,615 |
|
Americas outdoor | 298,195 |
| | 257,014 |
| | 279,546 |
|
International outdoor | 114,919 |
| | 101,777 |
| | 128,124 |
|
Other | 55,154 |
| | 28,395 |
| | 43,411 |
|
Impairment charges | (40,922 | ) | | (10,199 | ) | | (8,000 | ) |
Corporate expense (1) | (365,715 | ) | | (347,236 | ) | | (378,150 | ) |
Other operating income (expense), net | (6,768 | ) | | 35,704 |
| | 353,556 |
|
Consolidated operating income | $ | 980,518 |
| | $ | 969,797 |
| | $ | 1,499,102 |
|
| |
(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 Expensekey individuals.
Share-based compensation expenses are recorded in corporate expenses and were $10.6$22.9 million, $12.1$26.4 million and $13.1$2.1 million for the years ended December 31, 2020, 2019 and 2018, 2017respectively.
In August 2020, we issued performance-based restricted stock units (“Performance RSUs”) to certain key employees. Such Performance RSUs vest upon the achievement of critical operational (cost savings) improvements and 2016, respectively.specific environmental, social and governance initiatives, which are being measured over an approximately 18-month period from the date of issuance. In the year ended December 31, 2020, we recognized $3.4 million in relation to these performance-based RSUs.
As of December 31, 2018,2020, there was $17.5$54.0 million of unrecognized compensation cost related to unvested share-based compensation arrangements that will vestwith vesting based on service conditions. This cost is expected to be recognized over a weighted average period of approximately three2.8 years. In addition, as of December 31, 2018,2020, there was $15.1$1.6 million of unrecognized compensation cost related to unvested share-based compensation arrangements that will vest based on market, performance and service conditions. This cost will be recognized when it becomes probable that the performance condition will be satisfied.
LIQUIDITY AND CAPITAL RESOURCES
Cash Flows
The following discussion highlights cash flow activities during the years ended December 31, 2018, 2017periods presented:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(In thousands) | Successor Company | | Successor Company | | | Predecessor Company | | Non-GAAP Combined | | Predecessor Company |
| Year Ended December 31, | | Period from May 2, 2019 through December 31, | | | Period from January 1, 2019 through May 1, | | Year Ended December 31, | | Year Ended December 31, |
| 2020 | | 2019 | | | 2019 | | 2019 | | 2018 |
Cash provided by (used for): | | | | | | | | | | |
Operating activities | $ | 215,945 | | | $ | 468,905 | | | | $ | (40,186) | | | $ | 428,719 | | | $ | 966,672 | |
Investing activities | $ | (147,813) | | | $ | (73,278) | | | | $ | (261,144) | | | $ | (334,422) | | | $ | (345,478) | |
Financing activities | $ | 241,180 | | | $ | (58,033) | | | | $ | (55,557) | | | $ | (113,590) | | | $ | (491,799) | |
Free Cash Flow(1) | $ | 130,740 | | | $ | 392,912 | | | | $ | (43,702) | | | $ | 349,210 | | | $ | 655,974 | |
(1) For a definition of Free cash flow from continuing operations and 2016:
|
| | | | | | | | | | | |
(In thousands) | Years Ended December 31, |
| 2018 | | 2017 | | 2016 |
Cash provided by (used for): | | | | | |
Operating activities | $ | 966,672 |
| | $ | (491,210 | ) | | $ | (15,765 | ) |
Investing activities | $ | (345,478 | ) | | $ | (214,692 | ) | | $ | 533,496 |
|
Financing activities | $ | (491,799 | ) | | $ | 151,335 |
| | $ | (418,231 | ) |
a reconciliation to Cash provided by operating activities from continuing operations, the most closely comparable GAAP measure, please see “Reconciliation of Cash provided by (used for) operating activities from continuing operations to Free cash flow from (used for) continuing operations” in this MD&A.
Operating Activities
20182020
Cash provided by operating activities was $215.9 million in 2020 compared to $428.7 million of cash provided by operating activities in 2019.
Cash provided by operating activities from continuing operations decreased from $461.4 million in 2019 to $215.9 million in 2020 primarily as a result of a decrease in Revenue driven by the decline in advertising spend resulting from the economic slow-down caused by the COVID-19 pandemic. In addition, cash interest payments made by continuing operations increased $169.6 million in 2020 compared to 2019 as a result of interest payments on our debt issued upon our emergence. The Company ceased paying interest on long-term debt after the March 14, 2018 petition date until the Company emerged from bankruptcy on May 1, 2019. The decrease was partially offset by changes in working capital balances, particularly accounts receivable, which was impacted by improved collections, and accrued expenses, which was impacted by the timing of payments. In addition, payments made in relation to Reorganization items, net were $201.2 million lower in the year ended December 31, 2020 compared to the year ended December 31, 2019.
2019
Cash provided by operating activities was $428.7 million in 2019 compared to $966.7 million of cash provided by operating activities in 2018. The primary driver for the change in cash provided by operating activities was a $258.1 million decrease in operating cash flows provided by discontinued operations, which decreased from a cash inflow of $225.5 million in the year ended December 31, 2018 to a cash outflow of $32.7 million in the year ended December 31, 2019.
Cash provided by operating activities from continuing operations decreased from $741.2 million in 2018 to $461.4 million in 2019 primarily as a result of cash interest payments made by continuing operations, which increased $165.1 million as a result of interest payments on our debt issued upon our emergence compared to pre-petition interest payments made in the prior year. The Company ceased paying interest on long-term debt classified as Liabilities subject to compromise after the March 14, 2018 petition date. In addition, cash decreased as a result of cash payments for Reorganization items, including payments for prepetition liabilities and for bankruptcy-related professional fees, upon our emergence from bankruptcy on May 1, 2019. Such payments for Reorganization items were $97.9 million higher in the year ended December 31, 2019 compared to the year ended December 31, 2018.
2018
Cash provided by operating activities from continuing operations was $741.2 million in 2018 compared to $491.2$619.2 million of cash used for operating activities from continuing operations in 2017. Our consolidated net loss in 2018 and 2017 included non-cash items of $923.7 million and $123.1 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, Non-cash Reorganization items, net and other reconciling items, net as presented on the face of the consolidated statement of cash flows. The increase in cash provided by operating activities is primarily attributed to the $1,374.4 million decrease in cash paid for interest. Cash paid for interest was $398.0 million during 2018 compared to $1,772.4 million during 2017. Cash paid for Reorganization items, net was $103.7 million during 2018. In addition, cash provided by operating activities increased as a result of changes in working capital balances, particularly accounts receivable, which were affected by improved collections as well as accounts payable and accrued expenses which were impacted by the timing of payments. Cash paid for Reorganization items, net was $103.7 million during 2018. As part of our liquidity measures taken in anticipation of our March 14, 2018 bankruptcy filing, we did not make scheduled interest payments on our 9.0% Priority Guarantee Notes due 2021, 11.25% Priority Guarantee Notes due 2021 and 14.0% Senior Notes due 2021long-term debt and we extended certain accounts payable to conserve cash. Subsequent to the bankruptcy filing, interest payments on our debt classified as "Liabilities subject to compromise" were stayed and only limited pre-petition payments on accounts payable were made.
2017Investing Activities
2020
Cash used for operatinginvesting activities was $491.2of $147.8 million in 2017 compared2020 was driven primarily by capital expenditures of $85.2 million primarily related to $15.8IT software and infrastructure, reflecting a $27.0 million of cash used for operating activitiesdecrease in 2016. Our consolidated net loss in 2017 and 2016 included non-cash items of $123.1 million and $195.8 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 increase in cash used for operating activities is primarily attributed to lower operating income as well as changes in working capital balances, particularly accounts receivable, which was impacted by slower collections, and prepaid assets, partially offset by accrued interest and accounts payable due to the timing of payments. Cash paid for interest was $7.6 million higher in 2017expenditures compared to the prior year dueas a result of actions taken in response to higher variable interest rates and interest on new debt issuances.the COVID-19 pandemic. In addition, we used $62.1 million of cash to acquire certain strategic businesses including Voxnest which was acquired in the fourth quarter of 2020.
20162019
Cash used for operatinginvesting activities was $15.8of $334.4 million in 2016 compared to $77.32019 primarily reflects $222.4 million of cash used for operating activities in 2015. Our consolidated net loss in 2016 and 2015 included non-cash items of $195.8 million and $703.4 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 operatinginvesting activities isfrom discontinued operations. In addition, we used $112.2 million for capital expenditures, primarily attributedrelated 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 paymentsIT software and higher interest rates as a result of financing transactions.
Investing Activitiesinfrastructure.
2018
Cash used for investing activities of $345.5 million in 2018 reflected $296.3primarily reflects $203.6 million in cash used for capital expenditures and $74.3 millioninvesting activities from discontinued operations. In addition, we used for acquisitions, partially offset by net cash proceeds from the sale of assets of $10.4 million. We spent $75.4$85.2 million for capital expenditures, in our iHM segment primarily related to leasehold improvements, enhancements to our digital platformIT software and IT infrastructure, $76.8infrastructure.
Financing Activities
2020
Cash provided by financing activities of $241.2 million in 2020 primarily resulted from the net proceeds of $425.8 million from the issuance of incremental term loan commitments, offset by the $150.0 million prepayment on our Americas outdoor segment primarily related toTerm Loan Facility in the construction of new advertising structures such as digital displays, $130 million infirst quarter 2020, along with required quarterly principal payments made on our International outdoor segment primarily related to street furniture advertising structures, $3.0 million in our Other category and $11.1 million by Corporate primarily related to equipment and software. term loan credit facilities.
20172019
Cash used for investingfinancing activities of $214.7$113.6 million in 2017 reflected $292.0 million used for capital expenditures,2019 primarily resulted from the net payment by iHeartCommunications to CCOH as CCOH’s recovery of its claims under the Due from iHeartCommunications Note and settlement of the post-petition intercompany note balance, partially offset by net cash$60.0 million in proceeds received from the saleissuance of assets of $83.0 million, which included net cash proceeds from the sale of our Outdoor Indianapolis market of $43.1 million. We spent $58.1 million for capital expenditures in our iHM segment primarily related to leasehold improvements and IT infrastructure, $70.9 million in our Americas outdoor segment primarily related to the construction of new advertising structures such as digital displays, $150.0 million in our International outdoor segment primarily related to street furniture advertising structures, $1.0 million in our Other category and $12.0 million by Corporate primarily related to equipment and software.
2016
Cash provided by investing activities of $533.5 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 proceeds were partially offset by $314.7 million used for capital expenditures. We spent $73.2 million for capital expenditures in our iHM segment primarily related to leasehold improvements and IT infrastructure, $78.3 million in our Americas outdoor segment primarily related to the construction of new advertising structures such as digital displays, $146.9 million in our International outdoor segment primarily related to street furniture advertising structures, $2.5 million in our Other category and $13.8 million by Corporate primarily related to equipment and software.
Financing ActivitiesiHeart Operations Preferred Stock.
2018
Cash used for financing activities of $491.8 million in 2018 primarily resulted from payments on long-term debt and on our revolvingreceivables based credit facilities.facility. In connection with the replacement of the iHeartCommunications' receivables-basedreceivables based credit facility with a new Debtor-in-Possession Facility (“DIP FacilityFacility”) on June 14, 2018, we repaid the outstanding $306.4 million and $74.3 million balances of the receivables-basedreceivables based credit facility's term loan and revolving credit commitments, respectively. At closing, we drewAn additional $125.0 million onprincipal amount was repaid under the DIP Facility which was repaid in full during the third quarter of 2018.
2017Anticipated Cash Requirements
Cash provided by financing activities of $151.3 million in 2017 primarily resulted from proceeds from long-term debt issued by one of our international subsidiaries, as well as borrowings on our receivables-based credit facility. These proceeds were partially offset by dividends paid to non-controlling interests, which represents the portion of the dividends paid by CCOH to parties other than our subsidiaries that own CCOH stock, and a payment under our receivables-based credit facility.
2016
Cash used for financing activities of $418.2 million in 2016 primarily resulted from the purchase 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.
Liquidity After Filing the Chapter 11 Cases
iHeartCommunications' filing of the Chapter 11 Cases constituted an event of default that accelerated its obligations under its debt agreements. Due to the Chapter 11 Cases, however, the creditors' ability to exercise remedies under iHeartCommunications' debt agreements were stayed as of March 14, 2018, the date of the Chapter 11 petition filing, and continue to be stayed.
On March 16, 2018, the Debtors entered into a Restructuring Support Agreement (the “RSA”) with certain creditors and equityholders (the “Consenting Stakeholders”). The RSA contemplates the restructuring and recapitalization of the Debtors (the “Restructuring Transactions”), to be implemented through a plan of reorganization in the Chapter 11 Cases. Pursuant to the RSA, the Consenting Stakeholders agreed to, among other things, support the Restructuring Transactions and vote in favor of a plan of reorganization to effect the Restructuring Transactions.
The RSA provides certain milestones for the Restructuring Transactions. Failure of the Debtors to satisfy these milestones without a waiver or consensual amendment would provide the Consenting Stakeholders a termination right under the RSA. These milestones include (i) the filing of a plan of reorganization and disclosure statement, in form and substance reasonably acceptable to the Debtors and the Consenting Stakeholders, which were filed initially with the Bankruptcy Court on April 28, 2018, (ii) the filing of a motion for approval of the disclosure statement by May 31, 2018, which deadline was subsequently extended to June 22, 2018, and which motion was filed with the Bankruptcy Court on June 22, 2018, (iii) the entry of an order approving the disclosure statement by July 27, 2018 (subject to one additional 20-day extension on the terms set forth in the RSA), (iv) the entry of an order confirming the plan of reorganization within 75 days of the entry of an order approving the disclosure statement and (v) the effective date of the plan of reorganization occurring by March 14, 2019. The Debtors satisfied the first and second milestones, but did not satisfy the third or fourth milestones because the order approving the Disclosure Statement was not entered until September 20, 2018 and the entry into the order confirming the Plan of Reorganization was not entered until January 22, 2019. As a result, certain of the Consenting Stakeholders presently have the right to terminate the RSA, but as of the date hereof the RSA has not been terminated.
In general, as debtors-in-possession under the Bankruptcy Code, we are authorized to continue to operate as an ongoing business, but may not engage in transactions outside the ordinary course of business without the prior approval of the Bankruptcy Court. Pursuant to first day and second day motions filed with the Bankruptcy Court, the Bankruptcy Court authorized us to conduct our business activities in the ordinary course, including, among other things and subject to the terms and conditions of such orders, authorizing us to: (i) pay employees’ wages and related obligations; (ii) continue to operate our cash management system in a form substantially similar to prepetition practice; (iii) use cash collateral on an interim basis; (iv) continue to honor certain obligations related to on-air talent, station affiliates and royalty obligations; (v) continue to maintain certain customer programs; (vi) pay taxes in the ordinary course; (vii) continue our surety bond program; and (viii) maintain our insurance program in the ordinary course.
On April 28, 2018, the Debtors filed the Plan of Reorganization and related Disclosure Statement with the Bankruptcy Court. Thereafter, the Debtors filed a second, third and fourth amended Plan of Reorganization and amended versions of the Disclosure Statement. On September 20, 2018, the Bankruptcy Court entered an order approving the Disclosure Statement and related solicitation and notice procedures for voting on the Plan of Reorganization. On October 10, 2018, the Debtors filed a fifth amended Plan of Reorganization and the Disclosure Statement Supplement. On October 18, 2018, the Bankruptcy Court entered an order approving the Disclosure Statement Supplement and the continued solicitation of holders of general unsecured claims for voting on the Plan of Reorganization. The deadline for holders of claims and interests to vote on the Plan of Reorganization was November 16, 2018. More than 90% of the votes cast by holders of claims and interests entitled to vote thereon accepted the Plan of Reorganization.
On December 16, 2018, the Debtors, CCOH, GAMCO Asset Management, Inc., and Norfolk County Retirement System entered into a settlement (the “CCOH Separation Settlement”) resolving all claims, objections, and other causes of action that have been or could be asserted by or on behalf of CCOH, GAMCO Asset Management, Inc., and/or Norfolk County Retirement System by and among the Debtors, CCOH, GAMCO Asset Management, Inc., certain individual defendants in the GAMCO Asset Management, Inc. action and/or the Norfolk County Retirement System action, and the private equity sponsor defendants in such actions. In connection with the CCOH Separation Settlement, on December 17, 2018, the Debtors filed a modified fifth amended Plan of Reorganization. On January 10, 2019, hearings commenced to consider confirmation of the Plan of Reorganization, with further hearings to consider confirmation scheduled for January 17 and 22, 2019. On January 17, 2019, the Debtors came to agreement on the terms of a settlement (the "Legacy Plan Settlement") with Wilmington Savings Fund Society, FSB (“WSFS”), solely in its capacity as successor indenture trustee to the 6.875% Senior Notes due 2018 and 7.25% Senior Notes due 2027 (together with the 5.50% Senior Notes due 2016, the “Legacy Notes”), and not in its individual capacity, and certain consenting Legacy Noteholders of all issues related to confirmation of our plan of reorganization, and on January 21, 2019 and January 22, 2019, the Debtors filed further modified versions of the fifth amended Plan of Reorganization. On January 22, 2019, the Bankruptcy Court entered an order confirming the Plan of Reorganization.
The Plan of Reorganization contemplates a restructuring of the Debtors that will reduce iHeartCommunications’ debt from approximately $16 billion to $5.75 billion, and will result in the Separation of CCOH from the Company, creating two independent companies.
Pursuant to the Plan of Reorganization, iHeartMedia, Inc. or its successor or assignee on the effective date of the Plan of Reorganization (“Reorganized iHeart”) will issue new common stock (“Reorganized iHeart Common Stock”), special warrants to purchase Reorganized iHeart Common Stock (“Special Warrants”), or, if applicable, interests in a trust that may be created to hold Reorganized iHeart Common Stock and/or Special Warrants pending the FCC’s approval of the transactions contemplated by the Plan of Reorganization (the “FCC Trust,” and collectively with the Reorganized iHeart Common Stock and the Special Warrants, the “iHeart Equity Interests”), in exchange for claims against or interests in the Debtors. Holders of claims with respect to the iHeartCommunications’ term loan credit agreement, Priority Guarantee Notes, 14.0% Senior Notes due 2021 and Legacy Notes will collectively receive a distribution of new term loans and new senior secured notes and new senior notes of iHeartCommunications and 99.1% of the iHeart Equity Interests, subject to dilution by any Reorganized iHeart Common Stock issued pursuant to a post-emergence equity incentive plan, as set forth in the Plan of Reorganization. The preliminary terms of the new term loans and new senior secured notes and new senior notes are set forth in a supplement to the Plan of Reorganization. Holders of equity interests in iHeartMedia will receive their pro rata share of 1% of the iHeart Equity Interests, subject to dilution by any Reorganized iHeart Common Stock issued pursuant to a post-emergence equity incentive plan (provided that an amount equal to 0.1% of the iHeart Equity Interests that would have otherwise been distributed to certain affiliates of Bain Capital Partners, LLC, Thomas H. Lee Partners, L.P., and Abrams Capital Management, L.P. shall instead be distributed to holders of claims with respect to the Legacy Notes). On the effective date of the Plan of Reorganization, the applicable Debtors will execute documents to effect the Separation and the equity interests in CCOH (or its successor) currently held by subsidiaries of iHeartMedia will be distributed to holders of claims with respect to the term loan credit agreement and Priority Guarantee Notes.
Although the Bankruptcy Court entered an order confirming the Plan of Reorganization on January 22, 2019, the Plan of Reorganization is subject to certain conditions to its effectiveness, and there is no assurance that such conditions will be satisfied or otherwise waived. If the Plan of Reorganization does not become effective, we may seek confirmation of an alternative plan of reorganization, and there can be no assurance that any such alternative plan of reorganization will include any of the currently contemplated terms, or that any such alternative plan of reorganization will be implemented successfully.
During the pendency of the Chapter 11 Cases, iHeartCommunications' principalOur primary sources of liquidity have been and are expected to continue to be limited tocash on hand, which consisted of $720.7 million as of December 31, 2020, cash flow from operations cash on hand and borrowingsborrowing capacity under its DIP Facility. Our ability to maintain adequate liquidity through the reorganization process and beyond depends on successful operation of our business, appropriate management of operating expenses and capital spending, and access to financing if required. Our anticipated liquidity needs are highly sensitive to changes in each of these and other factors.
On January 18, 2018, iHeartCommunications incurred $25.0$450.0 million of additional borrowings under the revolving credit loan portion of its receivables based credit facility bringing its total outstanding borrowings under the facility to $430.0 million. In February 2018, iHeartCommunications prepaid $59.0 million on the revolving credit loan portion of this facility. On the Petition Date, we incurred a prepayment premium of $5.5 million upon acceleration of the loans and pre-petition accrued interest and fees totaling $2.4 million, which were added to the principal amount outstanding under the facility, bringing the total outstanding borrowings under the facility to $379.0 million. On June 14, 2018, iHeartCommunications entered into a Superpriority Secured Debtor-in-Possession Credit Agreement (the “DIP Credit Agreement”), as parent borrower, with Holdings, Subsidiary Borrowers, Citibank, N.A., as a lender and administrative agent, the swing line lenders and letter of credit issuers named therein and the other lenders from time to time party thereto. The entry into the DIP Credit Agreement was approved by an order of the Court (the “DIP Order”). We used proceeds from the DIP Facility and cash on hand to repay all amounts owed under and terminate iHeartCommunications' receivables-based credit facility. On August 16, 2018 and September 17, 2018, the Company repaid $100.0 million and $25.0 million, respectively, of the amount drawn under the DIPABL Facility. As of December 31, 2018,2020, iHeartCommunications had no principal amounts outstanding under the ABL Facility, a facility size of $450.0 million and $32.9 million in outstanding letters of credit, resulting in $417.1 million of excess availability. As a result of certain restrictions in the Company's debt and preferred stock agreements, as of December 31, 2020, approximately $172 million was available to be drawn upon under the ABL Facility.
In July 2020, the Company issued $450.0 million of incremental term loans, resulting in net proceeds of $425.8 million, after original issue discount and debt issuance costs. A portion of the proceeds from the issuance was used to repay all outstanding balances under the ABL Facility of $235.0 million, with the remaining $190.6 million of the proceeds available for general corporate purposes. Our cash balance was $720.7 million as of December 31, 2020. Together with our borrowing capacity under the ABL Facility, our total available liquidity1 was approximately $893 million.
We continue to evaluate the full extent of COVID-19’s impact on our business. While the challenges that COVID-19 has created for advertisers and consumers had a significant impact on our revenue for the year ended December 31, 2020 and has created a business outlook that is less clear in the near term, we had nobelieve that we have sufficient liquidity to continue to fund our operations for at least the next twelve months.
We expect that our primary anticipated uses of liquidity will be to fund our working capital, make interest payments, fund capital expenditures, pursue certain strategic opportunities and maintain operations in light of the COVID-19 pandemic and other obligations. We expect to have approximately $335 million of cash interest payments in 2021.
As a result of certain favorable tax provisions in the Coronavirus Aid, Relief and Economic Security (“CARES”) Act, our 2020 taxes were significantly reduced compared to what they would have been absent these provisions. Our cash income tax payments were $5.8 million primarily as a result of the provisions allowing for increased interest deductions, which resulted in additional tax deductible interest expense of $179.4 million during the year. In addition, the Company was able to defer the payment of $29.3 million in certain employment taxes during 2020, of which half will be due on December 31, 2021 and the other half will be due on December 31, 2022.
1 Total available liquidity defined as cash and cash equivalents plus available borrowings under the Company's DIPABL Facility. OnWe use total available liquidity to evaluate our capacity to access cash to meet obligations and fund operations.
Over the effective datepast ten years, we have transitioned our Audio business from a single platform radio broadcast operator to a company with multiple platforms, including digital, podcasting, networks and events. Early in the first quarter of 2020, we implemented our modernization initiatives to take advantage of the Plansignificant investments we have made in new technologies to build an operating infrastructure that provides better quality and newer products and delivers new cost efficiencies. Our investments in modernization delivered approximately $50 million of Reorganization, pursuantsavings in 2020 and are expected to deliver annualized run-rate cost savings of approximately $100 million by mid-year 2021. We have also invested in numerous technologies and businesses to increase the competitiveness of our inventory with our advertisers and our audience.
In response to the DIP Credit Agreement, the DIP Facility may convert into an exit facility substantially on the terms set forthCOVID-19 pandemic, in an exhibit thereto, uponeffort to further strengthen the satisfaction or waiverCompany's financial flexibility and efficiently manage through the period of economic slowdown and uncertainty, the conditions set forthCompany took the following measures, which generated approximately $200 million in the DIP Credit Agreement. The Plan of Reorganization also allowsoperating cost savings in 2020:
•Substantial reduction in certain operating expenses, such as new employee hiring, travel and entertainment expenses, 401(k) matching expenses, consulting fees and other discretionary expenses.
•Reduction in planned capital expenditures to a level that we believe will still enable the Company to make key investments to continue our strategic initiatives related to Smart Audio and Digital, including podcasting.
•Reduction in compensation for senior management and other employees of the Company, including a 100% reduction of the Company's Chief Executive Officer's annual base salary and bonus.
•In addition, as a result of the decrease in revenue as a result of the COVID-19 pandemic, certain variable expenses including event production costs and sales commissions, as well as other variable compensation, showed a corresponding decrease.
The Company has identified, and executed on, strategic initiatives to ensure that the majority of all of the $200 million in COVID-19 savings persist in 2021.
We believe that our cash balance, our cash flow from operations and availability under our ABL Facility provide us with sufficient liquidity to fund our core operations, maintain key personnel and meet our other material obligations. In addition, none of our long-term debt includes maintenance covenants that could trigger early repayment. We fully appreciate the unprecedented challenges posed by the COVID-19 pandemic, however, we remain confident in our business, our employees and our strategy. We believe that our ability to generate cash flow from operations from our business initiatives, our current cash on hand and availability under the ABL Facility will provide sufficient resources to continue to fund and operate our business, fund capital expenditures and other obligations and make interest payments on our long-term debt. If these sources of liquidity need to be augmented, additional cash requirements would likely be financed through the issuance of debt or equity securities; however, there can be no assurances that we will be able to obtain alternative exit financing.additional debt or equity financing on acceptable terms or at all in the future.
We frequently evaluate strategic opportunities, and we expect from time to time to pursue acquisitions or dispose of certain businesses, which may or may not be material. For example, on October 22, 2020, we used a portion of our cash on hand to complete the strategic acquisition of Voxnest, Inc., a provider of podcast analytics and programmatic ad serving tools, which we believe will be a transaction accretive to shareholder value. Specifically, as we continue to focus on operational efficiencies that drive greater margin and cash flow, we will continue to review and consider opportunities to unlock shareholder value and increase free cash flow.
On February 3, 2020, iHeartCommunications made a $150.0 million prepayment using cash on hand and entered into an agreement to amend the Term Loan Facility to reduce the interest rate to LIBOR plus a margin of 3.00%, or the Base Rate (as defined in the Credit Agreement) plus a margin of 2.00% and to modify certain covenants contained in the Credit Agreement.
As a precautionary measure to preserve financial flexibility in light of the uncertainty surrounding the COVID-19 pandemic, we borrowed $350.0 million principal amount under our ABL Facility. On July 16, 2020, iHeartCommunications entered into an additional amendment to the Credit Facility (“Amendment No. 2”) to provide for $450.0 million, resulting in net proceeds of $425.8 million, after original issue discount and debt issuance costs. A portion of the proceeds from the issuance was used to repay the then-remaining balance outstanding under the ABL Facility of $235.0 million, with the remaining $190.6 million of the proceeds available for general corporate purposes. The incremental term loans issued pursuant to Amendment No. 2 have an interest rate of 4.00% for Eurocurrency Rate Loans and 3.00% for Base Rate Loans (subject to a LIBOR floor of 0.75% and Base Rate floor of 1.75%). Amendment No. 2 also modifies certain other provisions of the Credit Agreement.
In connection with the cash management arrangements with CCOH, iHeartCommunications maintains an intercompany revolving promissory note payable by iHeartCommunications to CCOH (the "Intercompany Note"),Separation and Reorganization, we entered into the following transactions which matures on May 15, 2019. As of December 31, 2017, the principal amount outstanding under the Intercompany Note was $1,067.6 million. As a result of the Chapter 11 Cases, CCOH wrote down the balance of the note by $855.6 million during the fourth quarter of 2017 to reflect the estimated recoverable amount of the Intercompany Note as of December 31, 2017, based on CCOH management's best estimate of the cash settlement amount. As of the Petition Date, the principal amount outstanding under the Intercompany Note was $1,031.7 million. As of December 31, 2018, the asset recorded in respect of the Intercompany Note on CCOH's balance sheet was $154.8 million. In accordance with the CCOH Separation Settlement, the Plan of Reorganization provides that CCOH will recover 14.44%, or approximately $149.0 million, in cash on the Intercompany Note.may require ongoing capital commitments:
Transition Services Agreement
Pursuant to an order entered by the Bankruptcy Court, as of March 14, 2018, the balance of the Intercompany Note is frozen, and following March 14, 2018, intercompany allocations that would have been reflected in adjustments to the balance of the Intercompany Note are instead reflected in an intercompany balance that accrues interest at a rate equal to the interest under the Intercompany Note. As of December 31, 2018, the liability recorded in respect of the post-petition balance of the Due to iHeartCommunications Note on CCOH's balance sheet was $21.6 million. The Intercompany Note and Due to iHeartCommunications Note are eliminated in consolidation in our consolidated financial statements. The Bankruptcy Court approved a final order to allow us to continue to provide the day-to-day cash management services for CCOH during the Chapter 11 Cases. The Bankruptcy Court’s order also approved iHeartCommunications' continuing to provide services to CCOH pursuant to the CorporateTransition Services Agreement between us, iHeartMedia Management Services, Inc. (“iHM Management Services”), iHeartCommunications and CCOH, duringfor one year from the Chapter 11 Cases. In accordanceEffective Date, we agreed to provide CCOH with certain administrative and support services and other assistance which CCOH utilized in the CCOH Separation Settlement, the Planconduct of Reorganization contemplates that upon the Separation, the cash sweep arrangement under the Corporate Services Agreement will terminate and a new transition services agreement will supersede and replace the Corporate Services Agreement. Also in accordance with the CCOH Separation Settlement, the Plan of Reorganization contemplates that the Debtors will waive the repayment of the Due to iHeartCommunications Noteits business as of December 31, 2018.
In anticipation of the Chapter 11 Cases, we did not make interest payments of $78.8 million on the 9.0% Priority Guarantee Notes due 2021, $49.0 million on the 11.25% Priority Guarantee Notes due 2021 and $105.8 million on the 14.0% Senior Notes due 2021, which were duesuch business was conducted prior to the Petition Date. In addition, following the Chapter 11 Cases, all interest payments due on debt held by the Debtors were stayed, which included $578.1 million on the Senior Secured Credit Facilities, $180.0 million on the 9.0% Priority Guarantee Notes due 2019, $78.8 million on the 9.0% Priority Guarantee Notes due 2021, $90.0 million on the 9.0% Priority Guarantee Notes due 2022, $100.9 million on the 10.625% Priority Guarantee Notes due 2023, $49.0 million on
the 11.25% Priority Guarantee Notes due 2021, $33.8 million on the Legacy Notes and $124.7 million on the 14.0% Senior Notes due 2021 during the year ended December 31, 2018.Separation.
The Transition Services Agreement was terminated on August 31, 2020. For additional information, see Note 4, Discontinued Operations to the consolidated financial statements includedlocated in Item 8 of this Annual Report on Form 10-K have been preparedfor a further description.
New Tax Matters Agreement
In connection with the Separation, we entered into the New Tax Matters Agreement by and among iHeartMedia, iHeartCommunications, iHeart Operations, Inc., CCH, CCOH and Clear Channel Outdoor, Inc., to allocate the responsibility of iHeartMedia and its subsidiaries, on a going concernthe one hand, and CCOH and its subsidiaries, on the other, for the payment of taxes arising prior and subsequent to, and in connection with, the Separation.
The New Tax Matters Agreement requires that iHeartMedia and iHeartCommunications indemnify CCOH and its subsidiaries, and their respective directors, officers and employees, and hold them harmless, on an after-tax basis, from and against certain tax claims related to the Separation. In addition, the New Tax Matters Agreement requires that CCOH indemnify iHeartMedia for certain income taxes paid by iHeartMedia on behalf of accounting, which contemplates continuity of operations, realization of assets,CCOH and satisfaction of liabilities and commitments inits subsidiaries. For additional information, see Note 4, Discontinued Operations to the normal course of business. The consolidated financial statements do not reflect any adjustments that might result from the outcomelocated in Item 8 of the Chapter 11 Cases. We have significant indebtedness and we have reclassified allPart II of the Debtors' indebtedness other than the DIP Facility to Liabilities Subject to Compromise at December 31, 2018. Our levelthis Annual Report on Form 10-K for a further description.
Sources of indebtedness has adversely impacted and is continuing to adversely impact our financial condition. As a result of our financial condition, the defaults under our debt agreements, and the risks and uncertainties surrounding our ability or the timing to consummate the Plan of Reorganization, substantial doubt exists that we will be able to continue as a going concern.
Non-Payment of $57.1 Million of iHeartCommunications Legacy Notes Held by an Affiliate
Our wholly-owned subsidiary, CCH, owns $57.1 million aggregate principal amount of our 5.50% Senior Notes due 2016. 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 due 2016 held by CCH when the notes matured on December 15, 2016 and on December 12, 2016, we informed CCH of that decision. CCH informed us on that date that, while it retains its right to exercise remedies under the indenture governing the 5.50% Senior Notes due 2016 (the "legacy 5.50% notes indenture") in the future, it did not intend to, and it did not 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 5.50% notes indenture. As a result, $57.1 million of the 5.50% Senior Notes due 2016 remain outstanding. We repaid the other $192.9 million of 5.50% Senior Notes due 2016 held by other holders. Pursuant to the Plan of Reorganization, the 5.50% Senior Notes due 2016 held by CCH will be canceled without any distribution on account of such notes and the distribution that otherwise would have been made on account of such notes will be allocated, pro rata, to the other holders of Legacy Notes claims.
IndebtednessCapital
As of December 31, 2018,2020 and December 31, 2019, we had $20.5 billionthe following debt outstanding, net of consolidated indebtedness. The filingcash and cash equivalents:
| | | | | | | | | | | |
(In millions) | Successor Company |
| December 31, 2020 | | December 31, 2019 |
Term Loan Facility due 2026(1) | $ | 2,080.3 | | | $ | 2,251.3 | |
Incremental Term Loan Facility due 2026(2) | 447.8 | | | — | |
Asset-based Revolving Credit Facility due 2023(2)(3) | — | | | — | |
6.375% Senior Secured Notes due 2026 | 800.0 | | | 800.0 | |
5.25% Senior Secured Notes due 2027 | 750.0 | | | 750.0 | |
4.75% Senior Secured Notes due 2028 | 500.0 | | | 500.0 | |
Other Secured Subsidiary Debt | 22.7 | | | 21.0 | |
Total Secured Debt | 4,600.8 | | | 4,322.3 | |
| | | |
8.375% Senior Unsecured Notes due 2027 | 1,450.0 | | | 1,450.0 | |
Other Subsidiary Debt | 6.7 | | | 12.5 | |
Original issue discount | (18.8) | | | — | |
Long-term debt fees | (21.8) | | | (19.4) | |
| | | |
Total Debt | 6,016.9 | | | 5,765.4 | |
Less: Cash and cash equivalents | 720.7 | | | 400.3 | |
Net Debt | $ | 5,296.2 | | | $ | 5,365.1 | |
(1)On February 3, 2020, iHeartCommunications made a $150.0 million prepayment using cash on hand and entered into an agreement to amend the Term Loan Facility to reduce the interest rate to LIBOR plus a margin of 3.00%, or the Chapter 11 Cases constituted an eventBase Rate (as defined in the Credit Agreement) plus a margin of default with respect2.00% and to iHeartCommunications' existing debt obligations, or approximately $15.1 billionmodify certain covenants contained in the Credit Agreement.
(2)On July 16, 2020, iHeartCommunications issued $450.0 million of our consolidated debt. As a result of the filing of the Chapter 11 Cases, all of the indebtedness of the Debtors became immediately due and payable, but any efforts to enforce such payment obligations were automatically stayed as a result of the Chapter 11 Cases. These debt obligations and substantially all other pre-petition obligations of the Debtors are subject to settlement under a plan of reorganization which was confirmed by the Bankruptcy Court on January 22, 2019. The Chapter 11 Cases did not trigger any default or event of defaultincremental term loans under the Amendment No. 2, resulting in net proceeds of $425.8 million, after original issue discount and debt obligations of our subsidiaries Clear Channel Worldwide Holdings, Inc. and Clear Channel International B.V.
The balances of outstanding debt of the Debtors shown in the table below have been reclassified as current liabilities on the accompanying consolidated balance sheet as of December 31, 2017. Debt balances as of December 31, 2018 and 2017 consists of the following:
|
| | | | | | | |
| December 31, |
(In millions) | 2018 | | 2017 |
Senior Secured Credit Facilities: | | | |
Term Loan D Facility Due 2019 | $ | — |
| | $ | 5,000.0 |
|
Term Loan E Facility Due 2019 | — |
| | 1,300.0 |
|
Receivables Based Credit Facility(1) | — |
| | 405.0 |
|
Debtors-in-Possession Facility(1) | — |
| | — |
|
9.0% Priority Guarantee Notes Due 2019 | — |
| | 1,999.8 |
|
9.0% Priority Guarantee Notes Due 2021 | — |
| | 1,750.0 |
|
11.25% Priority Guarantee Notes Due 2021 | — |
| | 870.5 |
|
9.0% Priority Guarantee Notes Due 2022 | — |
| | 1,000.0 |
|
10.625% Priority Guarantee Notes Due 2023 | — |
| | 950.0 |
|
CCO Receivables Based Credit Facility Due 2023(2) | — |
| | — |
|
Other Secured Subsidiary Debt | 3.9 |
| | 8.5 |
|
Total Secured Debt | $ | 3.9 |
| | $ | 13,283.8 |
|
| | | |
14.0% Senior Notes Due 2021 | — |
| | 1,763.9 |
|
iHeartCommunications Legacy Notes: | | | |
6.875% Senior Notes Due 2018 | — |
| | 175.0 |
|
7.25% Senior Notes Due 2027 | — |
| | 300.0 |
|
10.0% Senior Notes Due 2018(3) | — |
| | 47.5 |
|
CCWH 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 |
|
CCWH Subordinated Notes: | | | |
7.625% Series A Senior Notes Due 2020(4) | 275.0 |
| | 275.0 |
|
7.625% Series B Senior Notes Due 2020(4) | 1,925.0 |
| | 1,925.0 |
|
Clear Channel International B.V. 8.75% Senior Notes due 2020 | 375.0 |
| | 375.0 |
|
Other Subsidiary Debt | 46.1 |
| | 24.6 |
|
Purchase accounting adjustments and original issue discount | (0.7 | ) | | (136.6 | ) |
Long-term debt fees | (25.9 | ) | | (109.0 | ) |
Liabilities subject to compromise(5) | 15,149.5 |
| | — |
|
Total Debt | $ | 20,472.9 |
| | $ | 20,649.2 |
|
Less: Cash and cash equivalents | 406.5 |
| | 267.1 |
|
| $ | 20,066.4 |
| | $ | 20,382.1 |
|
| |
(1) | On June 14, 2018, iHeartCommunications refinanced its receivables-based credit facility with the new $450.0 million DIP Facility, which matures on the earlier of the emergence date from the Chapter 11 Cases or June, 14, 2019. The DIP Facility also includes a feature to convert into an exit facility at emergence, upon meeting certain conditions. The DIP Facility accrues interest at LIBOR plus 2.25%. At close, iHeartCommunications drew $125.0 million on the DIP Facility. On June 14, 2018, we used proceeds from the DIP Facility and cash on hand to repay the outstanding $306.4 million and $74.3 million term loan and revolving credit commitments, respectively, of the iHeartCommunications receivables-based credit facility. On August 16, 2018 and September 17, 2018, the Company repaid $100.0 million and $25.0 million, respectively, of the amount drawn under the DIP Facility. As of December 31, 2018, iHeartCommunications had no borrowings under the DIP Facility. |
| |
(2) | On June 1, 2018, a subsidiary of the Company's Outdoor advertising subsidiary, Clear Channel Outdoor, Inc. ("CCO"), refinanced CCOH's senior revolving credit facility and replaced it with a receivables-based credit facility that provided for revolving credit commitments of up to $75.0 million. On June 29, 2018, CCO entered into an amendment providing for a $50.0 million incremental increase of the facility, bringing the aggregate revolving credit commitments to $125.0 million. The facility has a five-year term, maturing in 2023. As of December 31, 2018, the facility had $94.4 million of letters of credit outstanding and a borrowing limit of $125.0 million, resulting in $30.6 million of excess availability. Certain additional restrictions, including a springing financial covenant, take effect at decreased levels of excess availability. |
| |
(3) | On January 4, 2018, iHeartCommunications repurchased $5.4 million aggregate principal amount of 10.0% Senior Notes due 2018 that were held by unaffiliated third parties for $5.3 million in cash. On January 16, 2018, iHeartCommunications repaid the remaining balance of $42.1 million aggregate principal amount of 10.0% Senior Notes due 2018 at maturity. |
| |
(4) | On February 4, 2019, Clear Channel Worldwide Holdings, Inc., a subsidiary of the Company (“CCWH”), delivered a conditional notice of redemption calling all of its outstanding $275.0 million aggregate principal amount of 7.625% Seriesissuance costs. 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” and together with the Series A CCWH Subordinated Notes, the "CCWH Subordinated Notes") for redemption on March 6, 2019. The redemption was conditioned on the closing of the offering of $2,235.0 million of new 9.25% Senior Subordinated Notes due 2024 (the "New CCWH Subordinated Notes"). At the closing of such offering on February 12, 2019, CCWH deposited with the trustee for the CCWH Subordinated Notes a portion of the proceeds from the new notes in an amount sufficient to pay and discharge the principal amount outstanding, plus accrued and unpaid interest on the CCWH Subordinated Notes to, but not including, the redemption date. CCWH irrevocably instructed the trustee to apply such funds to the full payment of the CCWH Subordinated Notes on the redemption date. Concurrently therewith, CCWH elected to satisfy and discharge the indentures governing the CCWH Subordinated Notes in accordance with their terms and the trustee acknowledged such discharge and satisfaction. As a result of the satisfaction and discharge of the indentures, CCWH and the guarantors of the CCWH Subordinated Notes have been released from their remaining obligations under the indentures and the CCWH Subordinated Notes. |
| |
(5) | In connection with our Chapter 11 Cases, the $6.3 billion outstanding under the Senior Secured Credit Facilities, the $1,999.8 million outstanding under the 9.0% Priority Guarantee Notes due 2019, the $1,750.0 million outstanding under the 9.0% Priority Guarantee Notes due 2021, the $870.5 million of 11.25% Priority Guarantee Notes due 2021, the $1,000.0 million outstanding under the 9.0% Priority Guarantee Notes due 2022, the $950.0 million outstanding under the 10.625% Priority Guarantee Notes due 2023, $6.1 million outstanding Other Secured Subsidiary Debt, the $1,781.6 million outstanding under the 14.0% Senior Notes due 2021, the $475.0 million outstanding under the Legacy Notes and $16.5 million outstanding Other Subsidiary Debt have been reclassified to Liabilities subject to compromise in our Consolidated Balance Sheet as of December 31, 2018. As of the Petition Date, we ceased accruing interest expense in relation to long-term debt reclassified as Liabilities subject to compromise. |
Debtors-in-Possession Facility
On June 14, 2018, iHeartCommunications entered into the DIP Credit Agreement, as parent borrower, with iHeartMedia Capital I, LLC (“Holdings”), as guarantor, certain Debtor subsidiaries of iHeartCommunications named therein, as subsidiary borrowers (the “Subsidiary Borrowers”), Citibank, N.A., as a lender and administrative agent (in such capacity, the “Administrative Agent”), the swing line lenders and letter of credit issuers named therein and the other lenders from time to time party thereto.
Size and Availability
The DIP Credit Agreement provides for a first-out asset-based revolving credit facility in the aggregate principal amount of up to $450 million, with amounts available from time to time (including in respect of letters of credit) equal to the lesser of (i) the borrowing base, which equals 90.0% of the eligible accounts receivable of iHeartCommunications and the subsidiary guarantors, subject to customary reserves and eligibility criteria, and (ii) the aggregate revolving credit commitments. As of the DIP Closing Date, the aggregate revolving credit commitments were $450.0 million. Subject to certain conditions, iHeartCommunications may at any time request one or more increases in the amount of revolving credit commitments, in minimum amounts of $10.0 million and in an aggregate maximum amount of $100.0 million.
The proceeds from the DIP Facility were made availableissuance was used to repay the remaining balance outstanding on the DIP Closing Date, andCompany's ABL Facility of $235.0 million, with the remaining $190.6 million of the proceeds available for general corporate purposes.
(3)On March 13, 2020, iHeartCommunications borrowed $350.0 million under the ABL Facility, the proceeds of which were used in combination withinvested as cash on hand to fully pay off and terminate iHeartCommunications’ asset-based credit facility and all commitments thereunder governed by the credit agreement, dated as of NovemberBalance Sheet. During the three months ended June 30, 2017, by and among iHeartCommunications, Holdings, certain Debtor
subsidiaries of iHeartCommunications named therein, as subsidiary borrowers,2020 and the lenders and issuing banks from time to time party thereto and TPG Specialty Lending, Inc., as administrative agent and collateral agent.
three months ended September 30, 2020, iHeartCommunications voluntarily repaid the principal amount drawn under the ABL Facility. As of December 31, 2018,2020, the CompanyABL Facility had a borrowing limitfacility size of $450.0 million, under iHeartCommunications' DIP Facility, had no borrowings, had $70.2principal amounts outstanding and $32.9 million of outstanding letters of credit, and had an availability block requirement of $37.5 million, resulting in $342.3$417.1 million of excess availability.
Interest Rate and Fees
Borrowings under the DIP Credit Agreement bear interest at a rate per annum equal to the applicable rate plus, at iHeartCommunications’ option, either (1) a base rate determined by reference to the highest of (a) the rate announced from time to time by the Administrative Agent at its principal office, (b) the Federal Funds rate plus 0.50%, and (c) the Eurocurrency rate for an interest period of one month plus 1.00% or (2) a Eurocurrency rate that is the greater of (a) 1.00%, and (b) the quotient of (i) the ICE LIBOR rate, or if such rate is not available, the rate determined by the Administrative Agent, and (ii) one minus the maximum rate at which reserves are required to be maintained for Eurocurrency liabilities. The applicable rate for borrowings under the DIP Credit Agreement is 2.25% with respect to Eurocurrency rate loans and 1.25% with respect to base rate loans.
In addition to paying interest on outstanding principal under the DIP Credit Agreement, iHeartCommunications is required to pay a commitment fee of 0.50% per annum to the lenders under the DIP Credit Agreement in respect of the unutilized revolving commitments thereunder. iHeartCommunications must also pay a letter of credit fee equal to 2.25% per annum.
Maturity
Borrowings under the DIP Credit Agreement will mature, and lending commitments thereunder will terminate, upon the earliest to occur of: (a) June 14, 2019 (provided that to the extent the Consummation Date (as defined below) has not occurred solely as As a result of failure to obtain necessary regulatory approvals, the Scheduled Termination Date shall be September 16, 2019) and (b) the date of the substantial consummation (as definedcertain restrictions in the Bankruptcy Code)Company's debt and preferred stock agreements, as of a confirmed plan of reorganization pursuantDecember 31, 2020, approximately $172.0 million was available to an order of the Bankruptcy Court; provided, that if the DIP Facility is converted into an exit facility as described under “-Conversion to Exit Facility” below, then the borrowings will mature on the maturity date set forth in the credit agreement governing such exit facility.
Prepayments
If at any time (a) the revolving credit exposures exceed the revolving credit commitments (this clause (a)), or (b) the lesser of the borrowing base and the aggregate revolving credit commitments minus $37.5 million minus the aggregate revolving credit exposures (the clause (b)), is for any reason less than $0, iHeartCommunications will be required to repay all revolving loans outstanding, and cash collateralize letters of credit in an aggregate amount equal to such Excess or until Excess Availability is not less than $0, as applicable.
iHeartCommunications may voluntarily repay, without premium or penalty, outstanding amountsdrawn upon under the revolving credit facility at any time.ABL Facility.
Guarantees and Security
The facility is guaranteed by, subject to certain exceptions, iHeartCommunications’ Debtor subsidiaries. All obligations under the DIP Credit Agreement, and the guarantees of those obligations, are secured by a perfected first priority senior priming lien on all of iHeartCommunications’ and all of the subsidiary guarantors’ accounts receivable and related proceeds thereof, subject to certain exceptions.
Certain Covenants and Events of Default
The DIP Credit Agreement includes negative covenants that, subject to significant exceptions, limit iHeartCommunications’ ability and the ability of its restricted subsidiaries to, among other things:
•incurFor 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 DIP Credit Agreement includes certain customary representations and warranties, affirmative covenants and events of default,information regarding our debt, including but not limited to, payment defaults, breach of representations and warranties, covenant defaults, cross-defaults to certain indebtedness, certain bankruptcy-related events, certain events under ERISA, material judgments and a change of control. If an event of default occurs, the lenders under the DIP Credit Agreement will be entitled to take various actions, including the acceleration of all amounts due under the DIP Credit Agreement and all actions permitted to be taken under the loan documents or applicable law, subject to the terms of the DIP Order.governing documents, refer to Note 9, Long-Term Debt to our consolidated financial statements located in Item 8 of Part II of this Annual Report on Form 10-K.
ConversionExchange of Special Warrants
On July 25, 2019, the Company filed a PDR with the FCC to Exit Facility
Upon the satisfaction or waiverpermit up to 100% of the Company’s voting stock to be owned by non-U.S. individuals and entities. On November 5, 2020, the FCC issued the Declaratory Ruling granting the relief requested by the PDR, subject to certain conditions set forth in the DIP Credit Agreement,Declaratory Ruling.
On January 8, 2021, the DIP Facility may convert into an exit facility on substantially the terms set forth in an exhibit to the DIP Credit Agreement.
Senior Secured Credit Facilities
As of December 31, 2018, iHeartCommunications had a total of $6.3 billion outstanding under its senior secured credit facilities, consisting of:
a $5.0 billion term loan D, which was scheduled to mature on January 30, 2019; and
a $1.3 billion term loan E, which is scheduled to mature on July 30, 2019.
iHeartCommunications is the primary borrower under the senior secured credit facilities, and certain of its domestic restricted subsidiaries are co-borrowers underCompany exchanged a portion of the term loan facilities.outstanding Special Warrants into 45,133,811 shares of iHeartMedia Class A common stock, the Company’s publicly traded equity, and 22,337,312 Class B common stock in compliance with the 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. There
were 110,923,534 shares of Class A common stock, 29,088,181 shares of Class B common stock and 6,201,453 Special Warrants outstanding on February 22, 2021.
Supplemental Financial Information under Debt Agreements and Certificate of Designation Governing the Chapter 11 Cases triggered an eventiHeart Operations Preferred Stock
Pursuant to iHeartCommunications' material debt agreements, Capital I, the parent guarantor and a subsidiary of default that accelerated iHeartCommunications' obligations under the senior secured credit facilities. The credit agreement governing the senior secured credit facilities provides that upon acceleration of iHeartCommunications' obligations under the senior secured credit facilities, the outstanding balance of loans becomes due, unpaid interest accrued as of the time of acceleration becomes due, and any fees payable by or other obligations of iHeartCommunications become due. Under the Bankruptcy Code, the creditors under the senior secured credit facilities are stayed from taking any action against iHeartCommunications or any of the other Debtors as a result of the default.
Interest Rate and Fees
Prior to the filing of the Chapter 11 Cases, borrowings under iHeartCommunications' senior secured credit facilities bore 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 were 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 were subject to adjustment based upon iHeartCommunications' leverage ratio:
As a result of the default triggered by the filing of the Chapter 11 Cases, the senior secured credit facilities currently bear interest at a default rate equal to the rate otherwise applicable to the loans under the senior secured credit facilities
plus 2%. However, we are not currently paying interest on the senior secured credit facilities while the Chapter 11 Cases are pending.
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 thatiHeartMedia, 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 Eventsan explanation of Default
The senior secured credit facilities require iHeartCommunications to complythe material differences between iHeartMedia’s consolidated financial information, on the one hand, and the financial information of Capital I and its consolidated restricted subsidiaries, on the other hand. Because neither iHeartMedia nor iHeartMedia Capital II, LLC, a quarterly basis with awholly-owned direct subsidiary of iHeartMedia and the parent of Capital I, have any operations or material assets or liabilities, there are no material differences between iHeartMedia’s consolidated 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)information for the preceding four quarters. iHeartCommunications' secured debt consistsyear ended December 31, 2020, and Capital I’s and its consolidated restricted subsidiaries’ financial information for the same period.
According to the certificate of designation governing the iHeart Operations Preferred Stock, iHeart Operations is required to provide certain supplemental financial information of iHeart Operations in comparison to the Company and its consolidated subsidiaries. iHeart Operations and its subsidiaries comprised 84.8% of the senior secured credit facilities, the receivables-based credit facility, the Priority Guarantee Notes and certain other secured subsidiary debt. As required by the definition ofCompany's consolidated EBITDA in iHeartCommunications' senior secured credit facilities, iHeartCommunications' consolidated EBITDA for the preceding four quarters is calculatedassets 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.
Priority Guarantee Notes
The filing of the Chapter 11 Cases constituted an event of default that accelerated the Company's obligations under the 9.0% Priority Guarantee Notes due 2019, 9.0% Priority Guarantee Notes due 2021, 11.25% Priority Guarantee Notes due 2021, 9.0% Priority Guarantee Notes due 2022 and 10.625% Priority Guarantee Notes due 2023 (collectively, the "Priority Guarantee Notes"). Under the indentures pursuant to which the Priority Guarantee Notes were issued, upon the acceleration of iHeartCommunications' obligations under the Priority Guarantee Notes, the Priority Guarantee Notes are deemed to have matured, the unpaid principal balance of the Priority Guarantee Notes comes due, unpaid interest accrued as of the time of the acceleration comes due, and any applicable premiums (as determined pursuant to the applicable indentures) comes due. Under the Bankruptcy Code, the holders of the Priority Guarantee Notes are stayed from taking any action against the Debtors.
As a result of the default triggered by the filing of the Chapter 11 Cases, each issue of Priority Guarantee Notes currently bears interest at a default rate equal 1.0% per annum in excess of the applicable interest rate. However, we are not currently paying interest on the Priority Guarantee Notes while the Chapter 11 Cases are pending.
The Priority Guarantee Notes are iHeartCommunications' senior obligations and are fully and unconditionally guaranteed, jointly and severally, on a senior basis by the guarantors named in the applicable indenture. Each issue of Priority Guarantee Notes and the guarantors’ obligations under the respective 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 and the other Priority Guarantee Notes, subject to certain exceptions, and (ii) a lien on the accounts receivable and related assets securing iHeartCommunications' Facility (as defined below) junior in priority to the lien securing iHeartCommunications' obligations thereunder, subject to certain exceptions.
9.0% Priority Guarantee Notes due 2019
As of December 31, 2018, 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 are scheduled to mature on December 15, 2019 and, prior to2020. For the filing of the Chapter 11 Cases, bore interest at a rate of 9.0% per annum, payable semi-annually in arrears on June 15 and December 15 of each year. In addition to the collateral granted to secure the 9.0% Priority Guarantee Notes due 2019 described above under “--Priority Guarantee Notes,” 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.
9.0% Priority Guarantee Notes due 2021
As ofyear ended December 31, 2018, 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 are scheduled to mature on March 1, 2021 and, prior to the filing of the Chapter 11 Cases, bore interest at a rate of 9.0% per annum, payable semi-annually in arrears on March 1 and September 1 of each year.
11.25% Priority Guarantee Notes due 2021
As of December 31, 2018, iHeartCommunications had outstanding $870.5 million (net of $180.8 million aggregate principal amount held by certain subsidiaries of iHeartCommunications) aggregate principal amount of 11.25% Priority Guarantee Notes due 2021.
The 11.25% Priority Guarantee Notes due 2021 are scheduled to mature on March 1, 2021 and, prior to the filing of the Chapter 11 Cases, bore interest at a rate of 11.25% per annum, payable semi-annually in arrears on March 1 and September 1 of each year. In connection with the exchange offer that was completed on February 7, 2017, we entered into a registration rights agreement pursuant to which we agreed to use commercially reasonable efforts to file and cause to be declared effective a registration statement covering a registered offer to exchange the 11.25% Priority Guarantee Notes due 2021 issued in the exchange offer for exchange notes having substantially identical terms (except that they will have been registered pursuant to an effective registration statement under the Securities Act and will not contain provisions for special interest). Because such a registration statement did not become effective within 420 days of the February 7, 2017 closing of the exchange offer, commencing after April 3, 2018, the 11.25% Priority Guarantee Notes due 2021 issued in the exchange offer are subject to special interest that is accruing at a rate of 0.25% per annum during the first 90 days following April 3, 2018 and will accrue at a rate of 0.50% thereafter until the registration default is cured. We are not currently paying any interest or special interest on the 11.25% Priority Guarantee Notes due 2021 while the Chapter 11 Cases are pending.
9.0% Priority Guarantee Notes due 2022
As of December 31, 2018, 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 are scheduled to mature on September 15, 2022 and, prior to the filing of the Chapter 11 Cases, bore interest at a rate of 9.0% per annum, payable semi-annually in arrears on March 15 and September 15 of each year.
10.625% Priority Guarantee Notes due 2023
As of December 31, 2018, 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 are scheduled to mature on March 15, 2023 and, prior to the filing of the Chapter 11 Cases, bore interest at a rate of 10.625% per annum, payable semi-annually in arrears on March 15 and September 15 of each year.
CCO Receivables Based Credit Facility
On June 1, 2018 (the “Closing Date”), CCO, a subsidiary of CCOH, entered into a Credit Agreement (the “Credit Agreement”), as parent borrower, with certain of its subsidiaries named therein, as subsidiary borrowers (the “CCO Subsidiary Borrowers”), Deutsche Bank AG New York Branch, as administrative agent (the “CCO Facility Administrative Agent”) and swing line lender, and the other lenders from time to time party thereto. The Credit Agreement governs CCO’s new asset-based revolving credit facility and replaces CCOH’s prior credit agreement, dated as of August 22, 2013 (the “Prior Credit Agreement”), which was terminated on the Closing Date.
Size and Availability
The Credit Agreement provides for an asset-based revolving credit facility, with amounts available from time to time (including in respect of letters of credit) equal to the lesser of (i) the borrowing base, which equals 85.0% of the eligible accounts receivable of CCO and the subsidiary borrowers, subject to customary eligibility criteria minus any reserves, and (ii) the aggregate revolving credit commitments. As of the Closing Date, the aggregate revolving credit commitments were $75.0 million. On June 29, 2018, CCO entered into an amendment providing for a $50.0 million incremental increase of the facility, bringing the aggregate revolving credit commitments to $125.0 million. On the Closing Date, the revolving credit facility was used to replace and terminate the commitments under the Prior Credit Agreement and to replace the letters of credit outstanding under the Prior Credit Agreement.
As of December 31, 2018, the facility had $94.4 million of letters of credit outstanding and a borrowing limit of $125.0 million, resulting in $30.6 million of excess availability. Certain additional restrictions, including a springing financial covenant, take effect at decreased levels of excess availability.
Interest Rate and Fees
Borrowings under the Credit Agreement bear interest at a rate per annum equal to the Applicable Rate plus, at CCO’s option, either (1) a base rate determined by reference to the highest of (a) the Federal Funds Rate plus 0.50%, (b) the rate of interest in effect for such date as publicly announced from time to time by the Administrative Agent as its “prime rate” and (c) the Eurocurrency rate that would be calculated as of such day in respect of a proposed Eurocurrency rate loan with a one-month interest period plus 1.00%, or (2) a Eurocurrency rate that is equal to the LIBOR rate as published by Reuters two business days prior to the commencement of the interest period. The Applicable Rate for borrowings under the Credit Agreement is 1.00% with respect to base rate loans and 2.00% with respect to Eurocurrency loans.
In addition to paying interest on outstanding principal under the Credit Agreement, CCO is required to pay a commitment fee of 0.375% per annum to the lenders under the Credit Agreement in respect of the unutilized revolving commitments thereunder. CCO must also pay a letter of credit fee for each issued letter of credit equal to 2.00% per annum times the daily maximum amount then available to be drawn under such letter of credit.
Maturity
Borrowings under the Credit Agreement will mature, and lending commitments thereunder will terminate, on the earlier of (a) June 1, 2023 and (b) 90 days prior to the maturity date of any indebtedness of CCOH or any of its direct or indirect subsidiaries in an aggregate principal amount outstanding in excess of $250,000,000 (other than the 8.75% Senior Notes due 2020, issued by Clear Channel International, B.V. ("CCIBV"), an international subsidiary of ours).
Prepayments
If at any time, the outstanding amount under the revolving credit facility exceeds the lesser of (i) the aggregate amount committed by the revolving credit lenders and (ii) the borrowing base, CCO will be required to prepay first, any protective advances and second, any outstanding revolving loans and swing line loans and/or cash collateralize letters of credit in an aggregate amount equal to such excess, as applicable.
Subject to customary exceptions and restrictions, CCO may voluntarily repay outstanding amounts under the Credit Agreement at any time without premium or penalty. Any voluntary prepayments CCO makes will not reduce commitments under the Credit Agreement.
Guarantees and Security
The facility is guaranteed by the CCO Subsidiary Borrowers. All obligations under the Credit Agreement, and the guarantees of those obligations, are secured by a perfected security interest in all of CCO’s and the CCO Subsidiary Borrowers’ accounts receivable and related assets and proceeds thereof.
Certain Covenants and Events of Default
If borrowing availability is less than the greater of (a) $7.5 million and (b) 10.0% of the lesser of (i) the aggregate commitments at such time and (ii) the borrowing base then in effect at such time (the "Financial Covenant Triggering Event"), CCO will be required to comply with a minimum fixed charge coverage ratio of at least 1.00 to 1.00 for the most recent period of four consecutive fiscal quarters ended prior to the occurrence of the Financial Covenant Triggering Event, and will be required to continue to comply with this minimum fixed charge coverage ratio until borrowing availability exceeds the greater of (x) $7.5 million and (y) 10.0% of the lesser of (i) the aggregate commitments at such time and (ii) the borrowing base then in effect at such time, at which time the Financial Covenant Triggering Event will no longer be deemed to be occurring.
The Credit Agreement also includes negative covenants that, subject to significant exceptions, limit CCO and the CCO Subsidiary Borrowers’ ability and the ability of their 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 or;
•change lines of business.
The Credit Agreement 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, material judgments and a change of control. If an event of default occurs, the lenders under the Credit Agreement will be entitled to take various actions, including the acceleration of all amounts due under the Credit Agreement and all actions permitted to be taken by a secured creditor.
14.0% Senior Notes due 2021
As of December 31, 2018, iHeartCommunications had outstanding approximately $1.8 billion of aggregate principal amount of 14.0% Senior Notes due 2021 (net of $453.9 million principal amount held by a subsidiary of iHeartCommunications).
The filing of the Chapter 11 Cases constituted an event of default that accelerated the Company's obligations under the 14.0% Senior Notes due 2021. Other events of default are also present with respect to the 14.0% Senior Notes due 2021, including a failure to make an interest payment on February 1, 2018. Under the indenture pursuant to which the 14.0% Senior Notes due 2021 were issued, upon the acceleration of iHeartCommunications' obligations under the 14.0% Senior Notes due 2021, the 14.0% Senior Notes due 2021 are deemed to have matured, the unpaid principal balance of the 14.0% Senior Notes due 2021 comes due, unpaid interest accrued as of the time of the acceleration comes due, and any applicable premiums (as determined pursuant to the applicable indentures) comes due. Under the Bankruptcy Code, the holders of the 14.0% Senior Notes due 2021 are stayed from taking any action against the Debtors.
The 14.0% Senior Notes due 2021 are scheduled to mature on February 1, 2021. Interest on the 14.0% Senior Notes due 2021 is payable semi-annually 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.
On February 1, 2018, iHeartCommunications elected not to make the cash interest payment of approximately $106.0 million due on February 1, 2018 with respect to the 14.0% Senior Notes due 2021. Under the terms of the indenture governing the 14.0% Senior Notes due 2021, interest accrues on the overdue interest payment from February 1, 2018 at the rate applicable
to the 14.0% Senior Notes due 2021. However, we are not currently paying interest on the 14.0% Senior Notes due 2021 while the Chapter 11 Cases are pending.
The 14.0% Senior Notes due 2021 are fully and unconditionally guaranteed on a senior basis by the guarantors named in the indenture governing such notes. The guarantees are 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 Legacy Notes
As of December 31, 2018, iHeartCommunications had approximately $475.0 million aggregate principal amount of Legacy 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 5.50% Senior Notes due 2016 and did not pay $57.1 million of the 5.50% Senior Notes due 2016 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 Legacy Notes (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 due 2016 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 in our financial statements.
The filing of the Chapter 11 Cases constituted an event of default that accelerated the Company's obligations under the Legacy Notes. Under the Legacy Notes Indenture, upon the acceleration of iHeartCommunications' obligations under the Legacy Notes, the Legacy Notes are deemed to have matured, the unpaid principal balance of the Legacy Notes comes due, unpaid interest accrued as of the time of the acceleration comes due, and any applicable premiums (as determined pursuant to the applicable indentures) comes due. Under the Bankruptcy Code, the holders of the Legacy Notes are stayed from taking any action against the Debtors.
We are not currently paying interest on the Legacy Notes while the Chapter 11 Cases are pending.
The Legacy Notes were the obligations of iHeartCommunications prior to the merger in 2008. The Legacy 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 Legacy 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
On January 4, 2018, iHeartCommunications repurchased $5.4 million aggregate principal amount of 10.0% Senior Notes due 2018 that were held by unaffiliated third parties for $5.3 million in cash. On January 16, 2018, iHeartCommunications repaid the remaining balance of $42.1 million aggregate principal amount of 10.0% Senior Notes due 2018 that were held by unaffiliated third parties for $42.1 million in cash.
CCWH Senior Notes
As of December 31, 2018, senior notes of CCWH 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” and together with the Series A CCWH Notes, the "CCWH Senior Notes"). The CCWH Senior Notes are guaranteed by CCOH, CCO 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.
CCWH may redeem the CCWH Senior Notes, in whole or in part, 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 iHeartCommunicationsiHeart Operations 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 excess proceeds from asset sales after making an asset sale offer 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 CCOH's consolidated leverage ratio exceeded the limit in the incurrence tests described above, CCOH is 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 CCOH is 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 CCOH to incur additional indebtedness and pay dividends. The exceptions in the Series B CCWH Senior Notes indenture that allow CCOH 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 CCOH of amounts outstanding
under the revolving promissory note issued by iHeartCommunications to CCOH. CCOH has used substantially all of the $525.0 million general restricted payments basket capacity in the Series B CCWH Senior Notes indenture. The Series A CCWH Senior Notes indenture does not limit CCOH's ability to pay dividends.
CCWH Subordinated Notes
As of December 31, 2018, CCWH Subordinated Notes represented $2.2 billion of aggregate principal amount of indebtedness outstanding, which consisted of $275.0 million aggregate principal amount of Series A CCWH Subordinated Notes and $1,925.0 million aggregate principal amount of Series B CCWH Subordinated Notes. On February 4, 2019, CCWH delivered a conditional notice of redemption calling all of its outstanding CCWH Subordinated Notes for redemption on March 6, 2019. The redemption was conditioned on the closing of the offering of $2,235.0 million of New CCWH Subordinated Notes. At the closing of such offering on February 12, 2019, CCWH deposited with the trustee for the CCWH Subordinated Notes a portion of the proceeds from the new notes in an amount sufficient to pay and discharge the principal amount outstanding, plus accrued and unpaid interest on the CCWH Subordinated Notes to, but not including, the redemption date. CCWH irrevocably instructed the trustee to apply such funds to the full payment of the CCWH Subordinated Notes on the redemption date. Concurrently therewith, CCWH elected to satisfy and discharge the indentures governing the CCWH Subordinated Notes in accordance with their terms and the trustee acknowledged such discharge and satisfaction. As a result of the satisfaction and discharge of the indentures, CCWH and the guarantors of the CCWH Subordinated Notes have been released from their remaining obligations under the indentures and the 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 excess proceeds of indebtedness or the proceeds from asset sales after making an asset sale offer if its debt to adjusted EBITDA ratio (as defined by the indentures) is lower than 7.0:1. The Series A CCWH Subordinated Notes indenture does not limit CCOH’s ability to pay dividends. Because CCOH's consolidated leverage ratio exceeded the limit in the incurrence tests described above, CCOH is 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 CCOH is 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 CCOH to incur additional indebtedness and pay dividends. The exceptions in the Series B CCWH Subordinated Notes indenture that allow CCOH 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 CCOH of amounts outstanding under the revolving promissory note issued by iHeartCommunications to CCOH. CCOH has used substantially all of the $525.0 million general restricted payments basket capacity in the Series B CCWH Subordinated Notes indenture. The Series A CCWH Subordinated Notes indenture does not limit CCOH's ability to pay dividends.
The New 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, CCO and certain of CCOH's other domestic subsidiaries. The New 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 New CCWH Subordinated Notes. The guarantees of the New 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 New CCWH Subordinated Notes. Following the satisfaction of certain conditions, including that the CCWH Senior Notes are no longer outstanding and at least a portion of such notes has been refinanced with senior secured indebtedness, the New CCWH Notes and the guarantees of the New CCWH Subordinated Notes will cease to be subordinated obligations and thereafter will rank equally in right of payment with all senior indebtedness of CCWH and the guarantors (the “step-up”). There can be no assurance that the step-up will ever occur and that the Notes and the guarantees will ever cease to be subordinated indebtedness of CCWH and the guarantors.
CCWH may redeem the New CCWH Subordinated Notes at its option, in whole or part, at any time prior to February 15, 2021, at a price equal to 100% of the principal amount of the New CCWH Subordinated Notes redeemed, plus a make-whole premium, plus accrued and unpaid interest to the redemption date. CCWH may redeem the New CCWH Subordinated Notes, in whole or in part, on or after February 15, 2021, at the redemption prices set forth in the indenture governing the New CCWH Subordinated Notes, plus accrued and unpaid interest to the redemption date. At any time prior to February 15, 2021, CCWH may elect to redeem up to 40% of the aggregate principal amount of the New CCWH Subordinated Notes at a redemption price equal to 109.25% of the principal amount thereof, plus accrued and unpaid interest to the redemption date, with the net proceeds of one or more equity offerings. In addition, CCWH may redeem up to 20% of the aggregate principal amount of the New CCWH Subordinated Notes at any time prior to February 15, 2021, using the net proceeds from certain other equity offerings at 103% of the principal amount of the New CCWH Subordinated Notes. CCWH will be permitted to use these two redemption options concurrently but will not be permitted to redeem, in the aggregate, more than 40% of the principal amount of the New CCWH Subordinated Notes pursuant to these options.
The indenture governing the New CCWH Subordinated Notes contains covenants that limit us and our restricted subsidiaries ability to, among other things:
incur or guarantee additional debt or issue certain preferred stock;
redeem, purchase or retire subordinated debt;
make certain investments;
create restrictions on the payment of dividends or other amounts to us from our restricted subsidiaries that are not guarantors of the notes;
enter into certain transactions with affiliates;
merge or consolidate with another person, or sell or otherwise dispose of all or substantially all of CCOH’s assets;
designate CCOH’s subsidiaries as unrestricted subsidiaries;
pay dividends, redeem or repurchase capital stock or make other restricted payments; and
in the event that the step-up occurs and the New CCWH Subordinated Notes cease to be subordinated, incur certain liens.
Clear Channel International B.V. Senior Notes
As of December 31, 2018, CCIBV, an international subsidiary of ours, had $375.0 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, 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 CCIBV Senior Notes contains covenants that limit CCIBV’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 CCIBV’s assets.
Indebtedness Following Effectiveness of the Plan of Reorganization
Pursuant to the Plan of Reorganization, we expect to have an aggregate of approximately $5,750 million of indebtedness outstanding upon its effectiveness. We expect that such debt will consist of $3,500.0 million principal amount of new term loans, $800.0 million principal amount of new senior secured notes and $1,450 million principal amount of new senior notes that will be distributed to holders of Term Loans and Priority Guarantee Notes claims and holders of 14.0% Senior Notes due 2021 and Legacy Notes claims. The preliminary terms of the new term loans and new senior secured notes and senior notes are set forth in a supplement to the Plan of Reorganization.
In addition, upon the satisfaction or waiver of the conditions set forth in the DIP Credit Agreement, the DIP Facility may convert into an exit facility on substantially the terms set forth in an exhibit to the DIP Credit Agreement. The Plan of Reorganization also allows the Company to obtain alternative exit financing.
Following our Separation from CCOH, CCOH and its subsidiaries will no longer be consolidated with iHeartMedia and as a result, their indebtedness will not be reflected in our balance sheet or financial statements.
Refinancing and Financing Transactions
2018 Refinancing and Financing Transactions
On June 14, 2018, iHeartCommunications refinanced its receivables-based credit facility with the new $450.0 million DIP Facility, which matures on the earlier of the emergence date from the Chapter 11 Cases or June, 14, 2019. The DIP Facility also includes a feature to convert into an exit facility at emergence, upon meeting certain conditions. The DIP Facility accrues interest at LIBOR plus 2.25%. At close iHeartCommunications drew $125.0 million on the DIP Facility. On June 14, 2018, we used proceeds from the DIP Facility and cash on hand to repay the outstanding $306.4 million and $74.3 million term loan and revolving credit commitments, respectively, of the iHeartCommunications receivables-based credit facility. On August 16, 2018 and September 17, 2018, the Company repaid $100.0 million and $25.0 million, respectively, of the amount drawn under the DIP Facility. As of December 31, 2018, iHeartCommunications had no borrowings under the DIP Facility.
On June 1, 2018, a subsidiarycomprised 85.3% of the Company's Outdoor advertising subsidiary, CCO, refinanced CCOH's senior revolving credit facility and replaced it with an asset based credit facility that provided for revolving credit commitments of up to $75.0 million. On June 29, 2018, CCO entered into an amendment providing for a $50.0 million incremental increase of the facility, bringing the aggregate revolving credit commitments to $125.0 million. The facility has a five-year term, maturing in 2023. As of December 31, 2018, the facility had $94.4 million of letters of credit outstanding and a borrowing limit of $125.0 million, resulting in $30.6 million of excess availability.consolidated revenues.
2017 Refinancing and Financing Transactions
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 February 7, 2017, iHeartCommunications completed an exchange offer of $476.4 million principal amount of its 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 participated in the exchange offer.
On July 10, 2017, a subsidiary of iHeartCommunications exchanged $15.6 million aggregate principal amount outstanding of 10.0% Senior Notes due 2018 that were held by an unaffiliated third party for $15.6 million aggregate principal amount of its 11.25% Priority Guarantee Notes due 2021 that were held by a subsidiary of iHeartCommunications.
On July 31, 2017, iHeartCommunications borrowed an additional $60.0 million under its receivables-based credit facility.
On August 14, 2017, CCIBV, our indirect subsidiary, issued $150.0 million in aggregate principal amount of CCIBV Senior Notes (the “New CCIBV Notes”). The New CCIBV Notes were issued as additional notes under the indenture governing CCIBV’s existing CCIBV Senior Notes and were issued at a premium, which resulted in $156.0 million in proceeds. The New CCIBV 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.
In October 2017, a subsidiary of iHeartCommunications exchanged $45.0 million aggregate principal amount of 11.25% Priority Guarantee Notes due 2021 that were held by a subsidiary of iHeartCommunications for $45.0 million aggregate principal amount of 10.0% Senior Notes due 2018 that were held by unaffiliated third parties.
On November 30, 2017, iHeartCommunications refinanced its receivables-based credit facility and replaced it with a new facility providing for a $300.0 million term loan and revolving credit commitments of $250.0 million (together, the "Facility"). On November 30, 2017, iHeartCommunications drew $300.0 million on the term loan and $65.0 million under the revolver, for a total of $365.0 million in borrowings. On December 27, 2017, iHeartCommunications incurred $40.0 million of additional borrowings under the revolving credit loan portion of the Facility bringing its total outstanding borrowings under the Facility to $405.0 million.
2016 Refinancing and Financing Transactions
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.
Dispositions and Other
2017
In January 2017, Americas outdoor sold its Indianapolis, Indiana market to Fairway Media Group, LLC in exchange for certain assets in Atlanta, Georgia with a fair value of $39.4 million, plus $43.1 million in cash, net of closing costs. The assets acquired as part of the transaction consisted of $9.9 million in fixed assets and $29.5 million in intangible assets (including $2.3 million in goodwill). The Company recognized a net gain of $28.9 million related to the sale, which is included within Other operating income (expense), net.
During the third quarter of 2017, Americas outdoor sold its ownership interest in a joint venture in Canada. As a result, the Company recognized a net loss on sale of $12.1 million, including a $6.3 million cumulative translation adjustment, which is included within Other operating income (expense), net.
During the fourth quarter of 2017, we exchanged four radio stations in Chattanooga, Tennessee and six radio stations in Richmond, Virginia for four radio stations in Boston, Massachusetts and three radio stations in Seattle, Washington, owned by Entercom Communications Corp. We recognized a net gain of $15.4 million related to the sale, which is included within Other operating income, net.
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.
Uses of Capital
Debt Repurchases, Maturities and Other
2018
On January 4, 2018, a subsidiary of iHeartCommunications repurchased $5.4 million aggregate principal amount of 10.0% Senior Notes due 2018 that were held by unaffiliated third parties for $5.3 million in cash. On January 16, 2018, iHeartCommunications repaid the remaining balance of $42.1 million aggregate principal amount of 10.0% Senior Notes due 2018 at maturity.
On June 14, 2018, iHeartCommunications refinanced its receivables-based credit facility with the new $450.0 million DIP Facility, which matures on the earlier of the emergence date from the Chapter 11 Cases or June, 14, 2019. The DIP Facility also includes a feature to convert into an exit facility at emergence, upon meeting certain conditions. The DIP Facility accrues interest at LIBOR plus 2.25%. At close iHeartCommunications drew $125.0 million on the DIP Facility. On June 14, 2018, we used proceeds from the DIP Facility and cash on hand to repay the outstanding $306.4 million and $74.3 million term loan and revolving credit commitments, respectively, of the iHeartCommunications receivables-based credit facility. On August 16, 2018 and September 17, 2018, the Company repaid $100.0 million and $25.0 million, respectively, of the amount drawn under the DIP Facility. As of December 31, 2018, iHeartCommunications had no borrowings under the DIP Facility.
2017
On December 13, 2017 iHeartCommunications repurchased $4.0 million aggregate principal amount of 10.0% Senior Notes due 2018 that were held by unaffiliated third parties for $2.7 million in cash.
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 14.0% Senior Notes due 2021 to an amendment to the indenture governing the 14.0% Senior Notes due 2021 (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 14.0% Senior Notes due 2021 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 14.0% Senior Notes due 2021 and its five series of Priority Guarantee Notes. Holders of 14.0% Senior Notes due 2021 representing approximately 81.5% of the outstanding principal amount of the 14.0% Senior Notes due 2021 (excluding any 14.0% Senior Notes due 2021 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 14.0% Senior Notes due 2021 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 14.0% Senior Notes due 2021 that consented to the amendment in accordance with the terms of the Consent Solicitation.
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 was 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.
Capital Expenditures
Capital expenditures for the years ended December 31, 2018, 20172020, 2019 and 20162018 were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(In millions) | Successor Company | | | Predecessor Company | | Non-GAAP Combined | | Predecessor Company |
| Year Ended December 31, | | Period from May 2, 2019 through December 31, | | | Period from January 1, 2019 through May 1, | | Year Ended December 31, | | Year Ended December 31, |
| 2020 | | 2019 | | | 2019 | | 2019 | | 2018 |
Audio | $ | 73.9 | | | $ | 62.0 | | | | $ | 31.2 | | | $ | 93.2 | | | $ | 72.4 | |
Audio and Media Services | 5.1 | | | 4.0 | | | | 1.3 | | | 5.3 | | | 5.9 | |
Corporate | 6.2 | | | 10.0 | | | | 3.7 | | | 13.7 | | | 6.9 | |
Total capital expenditures | $ | 85.2 | | | $ | 76.0 | | | | $ | 36.2 | | | $ | 112.2 | | | $ | 85.2 | |
|
| | | | | | | | | | | |
(In millions) | Years Ended December 31, |
| 2018 | | 2017 | | 2016 |
iHM | $ | 75.4 |
| | $ | 58.1 |
| | $ | 73.2 |
|
Americas outdoor advertising | 76.8 |
| | 70.9 |
| | 78.3 |
|
International outdoor advertising | 130.0 |
| | 150.0 |
| | 146.9 |
|
Corporate and Other | 14.1 |
| | 13.0 |
| | 16.3 |
|
Total capital expenditures | $ | 296.3 |
| | $ | 292.0 |
| | $ | 314.7 |
|
See the Contractual Obligations table under “Commitments,“Commitments, Contingencies and Guarantees”Guarantees” and Note 710 to our consolidated financial statements located in Item 8 of Part II of this Annual Report on Form 10-K for the Company's future capital expenditure commitments.
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.software.
Dividends
We have never paid cash dividends onHolders of shares of our Class A common stock. iHeartCommunications’ debt financing arrangements have historically included restrictionsstock are entitled to receive dividends, on its abilitya per share basis, when and if declared by our Board out of funds legally available therefor and whenever any dividend is made on the shares of our Class B common stock subject to pay dividends, whichcertain exceptions set forth in turn affected our abilitycertificate. See Note 12 to pay dividends.our consolidated financial statements located in Item 8 of Part II of this Annual Report on Form 10-K.
Acquisitions
During the first quarter of 2021, we entered into a Share Purchase Agreement to acquire Triton Digital, a global leader in digital audio and podcast technology and measurement services, from The E.W. Scripps Company for $230 million in cash, subject to certain adjustments. The consummation of the proposed acquisition is subject to the satisfaction or waiver of customary closing conditions, including regulatory approval.
During the fourth quarter of 2020, we acquired Voxnest, Inc. for aggregate consideration of $50 million. The assets acquired primarily consisted of intangible assets valued at $53.2 million, including $36.6 million in goodwill.
During the fourth quarter of 2018, we acquired Stuff Media LLC and Jelli, Inc. for aggregate consideration of $120.3 million, of which $74.3 million was paid in cash in the fourth quarter of 2018 and $46.0 million, plus imputed interest, will bewas paid in cash in the fourth quarter of 2019. The assets acquired as part of these transactions consisted of $27.0 million in fixed assets and $35.2 million in intangible assets, primarily consisting of technology and content, along with $77.3 million in goodwill.
During the fourth quarter of 2017, we exchanged four radio stations in Chattanooga, Tennessee and six radio stations in Richmond, Virginia for four radio stations in Boston, Massachusetts and three radio stations in Seattle, Washington, owned by Entercom Communications Corp. The assets acquired as part of the transaction consisted of $8.1 million in fixed assets and $63.2 million in intangible assets (including $2.4 million in goodwill). The Company recognized a net gain of $15.4 million related to the sale, which is included within Other operating income (expense), net. Subsequent to the exchange, the Company placed two of the stations in Seattle and one station in Boston into a newly-formed trust, the Ocean Trust. The Ocean Trust is required to divest these stations in order to comply with FCC media ownership rules. These stations are being marketed for sale.
Certain Relationships with the Sponsors
We are party to a management agreement with Bain Capital Partners, LLC (“Bain Capital”) and Thomas H. Lee Partners, L.P. (“THL,” and together, the “Sponsors”) and certain other parties pursuant to which such affiliates of the Sponsors provided management and financial advisory services through December 31, 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. In connection with the Chapter 11 Cases, the Company is not recognizing management fees following the Petition Date. During the years ended December 31, 2018, 2017 and 2016, we recognized management fees and reimbursable expenses of $2.9 million, $15.2 million and $15.3 million, respectively. Pursuant to the Plan of Reorganization, as of the effective date, the Sponsors have agreed to withdraw any claim for accrued and unpaid management fees.
CCOH Dividends
In the first quarter of 2016, CCOH sold nine 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”). On January 21, 2016, the board of directors of CCOH notified iHeartCommunications of its intent to make a demand for the repayment of $300.0 million outstanding on the Note (the “Demand”) and declared special cash dividends in an aggregate amount of $540.0 million. CCOH made the Demand and the special cash dividend was 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 $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.
On September 14, 2017, (i) CCOH provided notice of its intent to make a demand (the “First Demand”) for repayment on October 5, 2017 of $25.0 million outstanding under the Intercompany Note, and (ii) the board of directors of CCOH declared a special cash dividend, which was paid on October 5, 2017 to CCOH’s Class A and Class B stockholders of record at the closing of business on October 2, 2017, in an aggregate amount equal to $25.0 million, funded with the proceeds of the First Demand. iHeartCommunications received approximately 89.5%, or approximately $22.4 million, of the proceeds of the dividend through its wholly-owned subsidiaries. The remaining approximately 10.5% of the proceeds of the dividend, or approximately $2.6 million, was paid to the public stockholders of CCOH.
On October 11, 2017, (i) CCOH provided notice of its intent to make a demand (the “Second Demand”) for repayment on October 31, 2017 of $25.0 million outstanding under the Intercompany Note, and (ii) the board of directors of CCOH declared a special cash dividend, which was paid on October 31, 2017 to CCOH’s Class A and Class B stockholders of record at the closing of business on October 26, 2017, in an aggregate amount equal to $25.0 million, funded with the proceeds of the Second Demand. iHeartCommunications received approximately 89.5%, or approximately $22.4 million, of the proceeds of the dividend through its wholly-owned subsidiaries. The remaining approximately 10.5% of the proceeds of the dividend, or approximately $2.6 million, was paid to the public stockholders of CCOH.
On January 5, 2018, (i) CCOH provided notice of its intent to make a demand (the "Demand") for repayment on January 24, 2018 of $30.0 million outstanding under the Intercompany Note, and (ii) the board of directors of CCOH declared a special cash dividend, which was paid on January 24, 2018 to CCOH’s Class A and Class B stockholders of record at the closing of business on January 19, 2018, in an aggregate amount equal to $30.0 million, funded with the proceeds of the Demand. iHeartCommunications received approximately 89.5%, or approximately $26.8 million, of the proceeds of the dividend through its wholly-owned subsidiaries. The remaining approximately 10.5% of the proceeds of the dividend, or approximately $3.2 million, was paid to the public stockholders of CCOH.
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” 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.
We 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 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,unsecured debt, mandatorily redeemable preferred stock, 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, 20182020 were as set forth in the table below.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(In thousands) | Payments due by Period |
Contractual Obligations | Total | | 2021 | | 2022-2023 | | 2024-2025 | | Thereafter |
Long-term debt: | | | | | | | | | |
Secured debt | $ | 4,600,762 | | | $ | 28,268 | | | $ | 56,372 | | | $ | 55,469 | | | $ | 4,460,653 | |
Unsecured debt | 1,456,782 | | | 6,507 | | | 275 | | | — | | | 1,450,000 | |
Mandatorily Redeemable Preferred Stock | 60,000 | | | — | | | — | | | — | | | 60,000 | |
Interest payments on long-term debt and preferred stock(1) | 2,054,956 | | | 335,267 | | | 665,929 | | | 657,395 | | | 396,365 | |
Non-cancelable operating leases | 1,293,645 | | | 126,732 | | | 253,211 | | | 207,230 | | | 706,472 | |
Non-cancelable contracts | 198,147 | | | 125,853 | | | 67,434 | | | 3,143 | | | 1,717 | |
Employment/talent contracts | 262,307 | | | 102,263 | | | 117,679 | | | 42,365 | | | — | |
Unrecognized tax benefits (2) | 18,183 | | | — | | | — | | | — | | | 18,183 | |
Other long-term obligations | 53,034 | | | — | | | 24,401 | | | 5,267 | | | 23,366 | |
Total | $ | 9,997,816 | | | $ | 724,890 | | | $ | 1,185,301 | | | $ | 970,869 | | | $ | 7,116,756 | |
(1)Interest payments on long-term debt and preferred stock reflect the Company's obligations as of December 31, 2020. Interest payments calculated based on floating rates assume rates are held constant over the remaining term.
(2)The table does not reflect any potential changes to our contractual obligations and other commitments that may result from the Chapter 11 process and activities contemplated by the Plan of Reorganization. For example, the Plan of Reorganization contemplates a restructuringnon-current portion of the Debtors thatunrecognized tax benefits is expected to reduce iHeartCommunications’ debt to approximately $5.75 billion.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 11 included in Item 8 of Part II of this Annual Report on Form 10-K.
OFF-BALANCE SHEET ARRANGEMENTS |
| | | | | | | | | | | | | | | | | | | |
(In thousands) | Payments due by Period |
Contractual Obligations | Total | | 2019 | | 2020-2021 | | 2022-2023 | | Thereafter |
Long-term debt: | | | | | | | | | |
Secured Debt | $ | 12,880,270 |
| | $ | 12,877,376 |
| | $ | 321 |
| | $ | 421 |
| | $ | 2,152 |
|
Senior Notes due 2021 (1) | 1,872,442 |
| | 1,872,442 |
| | — |
| | — |
| | — |
|
iHeartCommunications Legacy Notes: | 475,000 |
| | 475,000 |
| | — |
| | — |
| | — |
|
CCWH Senior Notes | 2,725,000 |
| | — |
| | — |
| | 2,725,000 |
| | — |
|
CCWH Subordinated Notes(2) | 2,200,000 |
| | — |
| | 2,200,000 |
| | — |
| | — |
|
CCIBV Senior Notes | 375,000 |
| | — |
| | 375,000 |
| | — |
| | — |
|
Other long-term debt | 62,630 |
| | 62,630 |
| | — |
| | — |
| | — |
|
Interest payments on long-term debt (3) | 4,345,851 |
| | 1,327,195 |
| | 1,944,680 |
| | 877,457 |
| | 196,519 |
|
Non-cancelable operating leases | 4,442,139 |
| | 636,556 |
| | 993,276 |
| | 657,308 |
| | 2,154,999 |
|
Non-cancelable contracts (4) | 1,339,567 |
| | 333,559 |
| | 452,758 |
| | 245,193 |
| | 308,057 |
|
Employment/talent contracts | 210,530 |
| | 74,432 |
| | 122,105 |
| | 13,993 |
| | — |
|
Capital expenditures | 61,352 |
| | 24,322 |
| | 18,511 |
| | 10,610 |
| | 7,909 |
|
Unrecognized tax benefits (5) | 113,487 |
| | 1,250 |
| | — |
| | — |
| | 112,237 |
|
Other long-term obligations (6) | 337,242 |
| | 97,458 |
| | 39,153 |
| | 29,686 |
| | 170,945 |
|
Total | $ | 31,440,510 |
| | $ | 17,782,220 |
| | $ | 6,145,804 |
| | $ | 4,559,668 |
| | $ | 2,952,818 |
|
| |
(1) | The table includes the current principal amount of 14.0% Senior Notes due 2021 and reflects the assumption of additional PIK notes of $90.9 million to be issued in total through maturity. Certain estimated applicable high yield discount obligation catch-up payments on the principal amount outstanding of Senior Notes due 2021 are excluded from the table. The 14.0% Senior Notes due 2021 balance reflects the Company's obligations as of December 31, 2018. |
| |
(2) | On February 4, 2019, CCWH delivered a conditional notice of redemption calling all of its outstanding CCWH Subordinated Notes for redemption on March 6, 2019. The redemption was conditioned on the closing of the offering of the New CCWH Subordinated Notes. At the closing of such offering on February 12, 2019, CCWH deposited with the trustee for the CCWH Subordinated Notes a portion of the proceeds from the new notes in an amount sufficient to pay and discharge the principal amount outstanding, plus accrued and unpaid interest on the CCWH Subordinated Notes to, but not including, the redemption date. CCWH irrevocably instructed the trustee to apply such funds to the full payment of the CCWH Subordinated Notes on the redemption date. Concurrently therewith, CCWH elected to satisfy and discharge the indentures governing the CCWH Subordinated Notes in accordance with their terms and the trustee acknowledged such discharge and satisfaction. As a result of the satisfaction and discharge of the indentures, CCWH and the guarantors of the CCWH Subordinated Notes have been released from their remaining obligations under the indentures and the CCWH Subordinated Notes. |
| |
(3) | Interest payments on long-term debt reflect the Company's obligations as of December 31, 2018. Interest payments on the senior secured credit facilities assume the interest rate is held constant over the remaining term. During the Chapter 11 Cases interest obligations will not be paid on the Debtors' debt agreements. The table above reflects the impact of the refinancing, which occurred in February of 2019, of the CCWH Subordinated Notes, which were scheduled to mature in March 2020, with an aggregate principal amount of $2,235.0 million of New CCWH Subordinated Notes, which mature in February 2024. |
| |
(4) | Non-cancelable contracts that provide the lessor with a right to fulfill the arrangement with property, plant and equipment not specified within the contract are not a lease and have been included within non-cancelable contracts. |
As of December 31, 2020, we did not have any off-balance sheet arrangements.
| |
(5) | 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 8 included in Item 8 of Part II of this Annual Report on Form 10-K. |
| |
(6) | Other long-term obligations includes $44.0 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 $87.1 million other long-term obligations which have been reclassified to Liabilities subject to compromise and $206.1 million of various other long-term obligations. |
SEASONALITY
Typically, the iHM, Americas outdoor and International outdoor segments experience theirAudio segment experiences its 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 majorityour Audio segment and our Audio and Media Services segment are impacted by political cycles and generally experience higher revenues in congressional election years, and particularly in presidential election years. This cyclicality 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
A significant amount of our long-term debt bears interest at variable rates. Accordingly, our earnings arewill be affected by changes in interest rates. As of December 31, 2018,2020, approximately 31%43% of our aggregate principal amount of long-term debt bore interest at floating rates. Assuming the current level of borrowings and assuming a 50% change in LIBOR, disregarding the impact of the Chapter 11 Cases on our requirement to pay interest on our long-term debt, it is estimated that our interest expense for the year ended December 31, 20182020 would have increasedchanged by $69.6$8.2 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 losses of $34.8 million for year ended December 31, 2018. We estimate a 10% increase in the value of the U.S. dollar relative to foreign currencies would have decreased our net losses for the year ended December 31, 2018 by $3.5 million. A 10% increase in the value of the U.S. dollar relative to foreign currencies during the year ended December 31, 2018 would have increased our net loss 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, salaries and equipment. We believe the effects of inflation, if any, on our historical results of operations and financial condition have been immaterial. Although the exact impact of inflation is indeterminable, we believe we have offset these higher costs by increasing the effective advertising rates of most of our broadcasting stations and outdoor display faces in our iHM, Americas outdoor and International outdoorAudio operations.
NEW ACCOUNTING PRONOUNCEMENTS
As of January 1, 2018, the Company adopted theFor information regarding new accounting standard, ASC 606, Revenue from Contracts with Customers. This standard provides guidance for the recognition, measurement and disclosure of revenue from contracts with customers and supersedes previous revenue recognition guidance under U.S. generally accepted accounting principles ("U.S. GAAP"). The Company has applied this standard using the full retrospective method and concluded that its adoption did not have a material impact on the Company’s Consolidated Balance Sheets, Consolidated Statements of Comprehensive Income (Loss), Consolidated Statements of Changes in Stockholders’ Deficit, or Consolidated Statements of Cash Flows for prior periods. As a result of adopting this new accounting standard, the Company has updated its significant accounting policies on accounts receivable, revenue recognition, and contract costs, as described inpronouncements, refer to Note 1, to our consolidated financial statements located in Part IISummary of this Annual Report on Form 10-K.Significant Accounting Policies.
In November 2016, the FASB issued ASU 2016-18, Restricted Cash, which requires that restricted cash be presented with cash and cash equivalents in the statement of cash flows. Restricted cash is recorded in Other current assets and in Other assets in the Company's Consolidated Balance Sheets. The Company adopted ASU 2016-18 in the first quarter of 2018 using the retrospective transition method, and accordingly, revised prior period amounts as shown in the Company's Consolidated Statements of Cash Flows.
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. The most significant change to the standard includes the recognition of right-of-use assets and lease liabilities by lessees for those leases classified as operating leases. Lessor accounting also is updated to align with certain changes in the lessee model and the new revenue recognition standard which was adopted this year. The standard is effective for annual periods, and for interim periods within those annual periods, beginning after December 15, 2018. The Company plans to elect the package of practical expedients permitted under the new standard’s transition guidance for leases that commenced before the standard’s effective date, which, among other things, allows the Company to not reassess whether any expired or existing contracts are or contain leases and to carry forward the historical lease classification. The standard is expected to have a material impact on our consolidated balance sheet, but is not expected to materially impact our consolidated statement of comprehensive loss or cash flows. In accordance with the transition guidance, the Company will recognize upon adoption its deferred gains on sale and leaseback transactions, which were not a result of off-market terms, as a cumulative-effect adjustment to equity. The Company also expects to conclude that fewer revenue contracts meet the definition of a lease for accounting purposes, and therefore more of our revenue transactions will be accounted for as revenue from contracts with customers. The Company is in the process of finalizing its implementation of this standard.
In July 2018, The FASB issued ASU No. 2018-11, Leases (Topic 842) - Targeted Improvements. The update provides an additional (optional) transition method to adopt the new lease standard, allowing entities to apply the new lease standard at the adoption date. The Company plans to adopt Topic 842 following this optional transition method. The update also provides lessors a practical expedient to allow them to not separate non-lease components from the associated lease component and instead to account for those components as a single component if certain criteria are met. The updated practical expedient for lessors will not have a material effect to the Company’s consolidated financial statements.
During the first quarter of 2017, the FASB issued ASU 2017-04, Intangibles - Goodwill and Other (Topic 350). This update eliminates the requirement to calculate the implied fair value of goodwill to measure a goodwill impairment charge. Entities will record an impairment charge based on the excess of a reporting unit's carrying amount over its fair value. The standard is effective for annual and any interim impairment tests performed for 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 2018, the FASB issued ASU 2018-15, Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40), Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract. This update requires that a customer in a cloud computing arrangement that is a service contract follow the internal use software guidance in Accounting Standards Codification (ASC) 350-402 to determine which implementation costs to capitalize as assets. The standard is effective for fiscal years beginning after December 15, 2019. 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 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.
The consolidated financial statements and related notes have been prepared assuming that the Company will continue as a going concern, although the Chapter 11 Cases filed on March 14, 2018 raises substantial doubt about the Company’s ability to continue as a going concern. The consolidated financial statements do not include any adjustments related to the recoverability and classification of recorded assets or to the amounts and classification of liabilities or any other adjustments that might be necessary should the Company be unable to continue as a going concern.
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, 20182020 would have changed by approximately $5.1$3.9 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 cancelablecancellable 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 capitalfinance lease. A lease is considered a capitalfinance 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 capitalfinance 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 capitalfinance lease. A lease is considered a capitalfinance 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 capitalfinance 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 capitalfinance lease. A lease is considered a capitalfinance lease if the net present value of the minimum lease payments equals or exceeds 90% of the fair market value of the leased property. A higher fair market value reduces the likelihood that a lease will be considered a capitalfinance lease.
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.
Annual Impairment Test
The Company performs its annual impairment tests on goodwill and indefinite-lived intangible assets as of July 1 of each year.
Indefinite-lived Intangible Assets
In connection with the Agreement andour Plan of Merger, dated November 16, 2006,Reorganization, we applied fresh start accounting as amended on April 18, 2007, May 17, 2007required by ASC 852 and May 13, 2008 (the “Merger Agreement”) pursuant to which we acquired iHeartCommunications in 2008, we allocated the purchase price torecorded all of our assets and liabilities at estimated fair values, including our FCC licenses, andwhich are included within our billboard permits.Audio reporting unit. 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, market share, profit margin, duration and profile of the build-up period, estimated start-up capital costs, and losses incurred during the build-up period, the risk-adjusted discount rate and terminal values. This data is populated using industry normalized information representing an average asset within a market.
On July 1, 2018,2020, we performed our annual impairment test in accordance with ASC 350-30-35 and recognizedwe concluded no impairment charges of $33.1 million related to FCC licenses in several iHM radio markets and an impairment charge of $7.8 million related to permits in one Americas outdoor market.
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, were used for the initial four-year period;
•2.0% revenue growth was assumed beyond the initial four-year 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 25.0%21.0%, depending on market size; and
•Assumed discount rates of 8.0%8.5% for the 1315 largest markets and 8.5%9.0% for all other markets.
In determining the fair value of our billboard permits, the following key assumptions were used:
Industry revenue growth forecasts between 1.9% and 4.0% were 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 54.7%, depending on market size, by year 3; and
Assumed discount rate of 8.0%.
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 change 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:
| | (In thousands) | | Revenue | | Profit | | Discount | (In thousands) | |
Description | | Growth Rate | | Margin | | Rates | Description | | Revenue Growth Rate | | Profit Margin | | Discount Rate |
FCC licenses | | $ | 510,163 |
| | $ | 175,133 |
| | $ | 436,203 |
| |
Billboard permits | | $ | 1,077,700 |
| | $ | 166,000 |
| | $ | 1,059,700 |
| |
FCC license | | FCC license | | $ | 343,517 | | | $ | 184,986 | | | $ | 542,741 | |
The estimated fair value of our FCC licenses and billboard permits at July 1, 20182020 was $6.7$2.0 billion, ($2.7 billion for FCC licenses and $3.9 billion for billboard permits), while the carrying value was $3.4$1.8 billion. The
Goodwill
Upon application of fresh start accounting in accordance with ASC 852 in connection with our emergence from bankruptcy, we recorded goodwill of $3.3 billion, which represented the excess of estimated enterprise fair value over the estimated fair value of our FCC licensesassets and billboard permits at Julyliabilities. Goodwill was further allocated to our reporting units based on the relative fair values of our reporting units as of May 1, 2017 was $7.0 billion ($3.2 billion for FCC licenses and $3.7 billion for billboard permits), while the carrying value was $3.4 billion.2019.
Goodwill
Goodwill represents the excess of the purchase price over the fair value of identifiable net assets acquired in business combinations. We test goodwill at interim dates if events or changes in circumstances indicate that goodwill might be impaired. The fair value of our reporting units is used to apply 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 discounted cash flow approach we use for valuing goodwill as part of the two-step impairment testing approach involves estimating future cash flows expected to be generated from the related assets, discounted to their present value using a risk-adjusted discount rate. Terminal values are also estimated and discounted to their present value.
On July 1, 2018,2020, we performed our annual impairment test in accordance with ASC 350-30-35, resulting in no goodwill impairment charges.of goodwill. In determining the fair value of our reporting units, we used the following assumptions:
•Expected cash flows underlying our business plans for the periods 20182020 through 2022.2024. 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 beyond 20222024 are projected to grow at a perpetual growth rate, which we estimated at 2.0% for our iHM segment, 3.0% for our Americas outdoorAudio and International outdoor segments,digital reporting units and 2.0% for our Other segmentKatz Media reporting unit (beyond 2024)2028).
•In order to risk adjust the cash flow projections in determining fair value, we utilized a discount rate of approximately 8.0% to 11.0%14.0% for each of our reporting units.
Based on our annual assessment using the assumptions described above, the excess of fair value of the Audio and RCS reporting units compared to its carrying value is approximately 10% or less; however, a hypothetical 5.0%5% reduction in the estimated fair value in each of our reporting units would not result in a material impairment condition.
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) | | Revenue | | Profit | | Discount |
Description | | Growth Rate | | Margin | | Rates |
iHM | | $ | 840,000 |
| | $ | 300,000 |
| | $ | 800,000 |
|
Americas Outdoor | | $ | 770,000 |
| | $ | 170,000 |
| | $ | 720,000 |
|
International Outdoor | | $ | 340,000 |
| | $ | 230,000 |
| | $ | 300,000 |
|
| | | | | | | | | | | | | | | | | | | | |
(In thousands) | | | | | | |
Description | | Revenue Growth Rate | | Profit Margin | | Discount Rate |
Audio | | $ | 590,000 | | | $ | 233,000 | | | $ | 671,000 | |
Katz Media | | $ | 28,000 | | | $ | 13,000 | | | $ | 31,000 | |
Other | | $ | 16,000 | | | $ | 6,000 | | | $ | 16,000 | |
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) 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.
On December 22, 2017, the U.S. government enacted the Tax Act. The Tax Act reduced the U.S. federal corporate tax rate from 35% to 21% effective January 1, 2018, required companies to pay a one-time transition tax on earnings of certain foreign subsidiaries that were previously tax deferred, and created new U.S. taxes on certain foreign earnings. To account for the reduction in the U.S. federal corporate income tax rate, we remeasured our deferred tax assets and liabilities based on the rates at which they were expected to reverse in the future, generally 21%, which resulted in the recording of a provisional deferred tax benefit of $510.1 million during 2017. To determine the impact from the one-time transition tax on accumulated foreign earnings, we analyzed our cumulative foreign earnings and profits in accordance with the rules provided in the Tax Act and determined that no transition tax was due as a result of the net accumulated deficit in our foreign earnings and profits. As of December 31, 2018, we have completed our accounting for all of the enactment-date income tax effects of the Tax Act and determined that no material adjustments were required to our provisional amounts recorded as of December 31, 2017.
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, 2018.2020.
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, 20182020 would have affected our net loss by approximately $1.7$2.0 million for the year ended December 31, 2018.2020.
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, 2018 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, such as expected volatility, 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 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
To the Stockholders and the Board of Directors 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, 20182020 and 2017,2019 (Successor), the related consolidated statements of comprehensive loss,income (loss), changes in stockholders' deficitequity (deficit) and cash flows for each of the three years in the periodyear ended December 31, 2020 (Successor), the period from May 2, 2019 through December 31, 2019 (Successor), the period from January 1, 2019 through May 1, 2019 (Predecessor), and the year ended December 31, 2018 (Predecessor), and the related notes and the financial statement schedule listed in the Index at Item 15(a)2 (collectively referred to as the "consolidated“consolidated financial statements"statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 20182020 and 2017,2019 (Successor), and the results of its operations and its cash flows for each of the three years in the periodyear ended December 31, 2020 (Successor), the period from May 2, 2019 through December 31, 2019 (Successor), the period from January 1, 2019 through May 1, 2019 (Predecessor), and the year ended December 31, 2018 (Predecessor) 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, 2018,2020, based on the criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 Framework)framework), and our report dated March 5, 2019February 25, 2021 expressed an unqualified opinion thereon.
The Company's Ability to Continue as a Going ConcernAdoption of New Accounting Standard
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, on March 14, 2018, the Company and certain subsidiaries, excluding Clear Channel Outdoor Holdings, Inc. andchanged its subsidiaries, filed voluntary petitionsmethod of accounting for relief under Chapter 11 of the United States Bankruptcy Code and has stated that substantial doubt exists about the Company's ability to continue as a going concern. Management's evaluation of the events and conditions and management's plans regarding these matters are also describedleases in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.2019.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company'sCompany’s financial statements 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 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, 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 regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
| | | | | | | | |
| | Valuation of Goodwill and Indefinite-Lived Intangibles |
| | |
Description of the Matter | | As described in Note 7 to the consolidated financial statements, at December 31, 2020 the Company’s goodwill was $2.1 billion and FCC licenses with indefinite lives were $1.8 billion. Management conducts impairment tests for goodwill and indefinite-lived intangibles annually during the third quarter, or more frequently, if events or circumstances indicate the carrying value of goodwill or indefinite-lived intangibles may be impaired. In the first quarter, the Company performed an interim impairment test which resulted in a goodwill impairment charge of $1.2 billion related to the Audio reporting unit within the Audio segment, and FCC license impairment charges of $502.7 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. In particular for goodwill, the fair value estimates in the discounted cash flow models of reporting units are sensitive to assumptions such as changes in projected cash flows, including due to the impacts of COVID-19, and discount rate. For FCC Licenses, the fair value estimates in the discounted cash flow models are sensitive to changes to the discount rate assumption. All of these assumptions are sensitive to and affected by expected future market or economic conditions, and industry factors. |
| | |
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 such as estimation of discount rates.
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 and estimates. We compared the projected cash flows to the Company’s historical cash flows and other available industry and market forecast information, including third-party industry projections for the advertising industry. We involved our valuation specialists to assist in reviewing the valuation methodology and testing the terminal growth rates and 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. For FCC licenses, we also assessed whether the assumptions used were consistent with those used in the goodwill impairment review process. |
/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
March 5, 2019
February 25, 2021
CONSOLIDATED BALANCE SHEETS OF
IHEARTMEDIA, INC. AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION) | | | | | | | | | | | |
(In thousands, except share and per share data) | Successor Company |
| December 31, 2020 | | December 31, 2019 |
Cash and cash equivalents | $ | 720,662 | | | $ | 400,300 | |
Accounts receivable, net of allowance of $38,777 in 2020 and $12,629 in 2019 | 801,380 | | | 902,908 | |
Prepaid expenses | 79,508 | | | 71,764 | |
| | | |
Other current assets | 17,426 | | | 41,376 | |
| | | |
Total Current Assets | 1,618,976 | | | 1,416,348 | |
PROPERTY, PLANT AND EQUIPMENT | | | |
| | | |
Property, plant and equipment, net | 811,702 | | | 846,876 | |
INTANGIBLE ASSETS AND GOODWILL | | | |
Indefinite-lived intangibles - licenses | 1,770,345 | | | 2,277,735 | |
| | | |
Other intangibles, net | 1,924,492 | | | 2,176,540 | |
Goodwill | 2,145,935 | | | 3,325,622 | |
OTHER ASSETS | | | |
Operating lease right-of-use assets | 825,887 | | | 881,762 | |
Other assets | 105,624 | | | 96,216 | |
Total Assets | $ | 9,202,961 | | | $ | 11,021,099 | |
CURRENT LIABILITIES | | | |
Accounts payable | $ | 149,333 | | | $ | 117,282 | |
Current operating lease liabilities | 76,503 | | | 77,756 | |
Accrued expenses | 265,651 | | | 240,151 | |
Accrued interest | 68,054 | | | 83,768 | |
Deferred revenue | 123,488 | | | 139,529 | |
Current portion of long-term debt | 34,775 | | | 8,912 | |
Total Current Liabilities | 717,804 | | | 667,398 | |
Long-term debt | 5,982,155 | | | 5,756,504 | |
Series A Mandatorily Redeemable Preferred Stock, par value $0.001, authorized 60,000 shares, 60,000 shares issued in 2020 and 2019, respectively | 60,000 | | | 60,000 | |
Noncurrent operating lease liabilities | 764,491 | | | 796,203 | |
Deferred income taxes | 556,477 | | | 737,443 | |
Other long-term liabilities | 71,217 | | | 58,110 | |
Commitments and contingent liabilities (Note 10) | | | 0 |
STOCKHOLDERS’ EQUITY | | | |
Noncontrolling interest | 8,350 | | | 9,123 | |
Preferred stock, par value $.001 per share, 100,000,000 shares authorized, 0 shares issued and outstanding | 0 | | | 0 | |
Class A Common Stock, par value $.001 per share, authorized 1,000,000,000 shares, issued and outstanding 64,726,864 and 57,776,204 shares in 2020 and 2019, respectively | 65 | | | 58 | |
Class B Common Stock, par value $.001 per share, authorized 1,000,000,000 shares, issued and outstanding 6,886,925 and 6,904,910 shares in 2020 and 2019, respectively | 7 | | | 7 | |
Special Warrants, 74,835,899 and 81,046,593 issued and outstanding in 2020 and 2019, respectively | 0 | | | 0 | |
Additional paid-in capital | 2,849,020 | | | 2,826,533 | |
| | | |
| | | |
Retained earnings (Accumulated deficit) | (1,803,620) | | | 112,548 | |
Accumulated other comprehensive income (loss) | 194 | | | (750) | |
Cost of shares (254,066 in 2020 and 128,074 in 2019) held in treasury | (3,199) | | | (2,078) | |
Total Stockholders' Equity | 1,050,817 | | | 2,945,441 | |
Total Liabilities and Stockholders' Equity | $ | 9,202,961 | | | $ | 11,021,099 | |
|
| | | | | | | |
(In thousands) | December 31, | | December 31, |
| 2018 | | 2017 |
CURRENT ASSETS | | | |
Cash and cash equivalents | $ | 406,493 |
| | $ | 267,109 |
|
Accounts receivable, net of allowance of $50,808 in 2018 and $48,450 in 2017 | 1,575,170 |
| | 1,508,370 |
|
Prepaid expenses | 195,266 |
| | 209,330 |
|
Other current assets | 58,088 |
| | 82,538 |
|
Total Current Assets | 2,235,017 |
| | 2,067,347 |
|
PROPERTY, PLANT AND EQUIPMENT | | | |
Structures, net | 1,053,016 |
| | 1,180,882 |
|
Other property, plant and equipment, net | 738,124 |
| | 703,832 |
|
INTANGIBLE ASSETS AND GOODWILL | | | |
Indefinite-lived intangibles - licenses | 2,417,915 |
| | 2,451,813 |
|
Indefinite-lived intangibles - permits | 971,163 |
| | 977,152 |
|
Other intangibles, net | 453,284 |
| | 550,056 |
|
Goodwill | 4,118,756 |
| | 4,051,082 |
|
OTHER ASSETS | | | |
Other assets | 282,240 |
| | 278,267 |
|
Total Assets | $ | 12,269,515 |
| | $ | 12,260,431 |
|
CURRENT LIABILITIES | | | |
Accounts payable | $ | 163,149 |
| | $ | 163,449 |
|
Accrued expenses | 826,865 |
| | 769,128 |
|
Accrued interest | 3,108 |
| | 268,102 |
|
Deferred income | 208,195 |
| | 181,551 |
|
Current portion of long-term debt | 46,332 |
| | 14,972,367 |
|
Total Current Liabilities | 1,247,649 |
| | 16,354,597 |
|
Long-term debt | 5,277,108 |
| | 5,676,814 |
|
Deferred income taxes | 335,015 |
| | 962,725 |
|
Other long-term liabilities | 489,829 |
| | 610,639 |
|
Liabilities subject to compromise | 16,480,256 |
| | — |
|
Commitments and contingent liabilities (Note 7) |
|
| |
|
|
STOCKHOLDERS’ DEFICIT | | | |
Noncontrolling interest | 30,868 |
| | 41,191 |
|
Class A Common Stock, par value $.001 per share, authorized 400,000,000 shares, issued 32,292,944 and 32,626,168 shares in 2018 and 2017, respectively | 32 |
| | 32 |
|
Class B Common Stock, par value $.001 per share, authorized 150,000,000 shares, issued 555,556 shares in 2018 and 2017 | 1 |
| | 1 |
|
Class C Common Stock, par value $.001 per share, authorized 100,000,000 shares, issued 58,967,502 shares in 2018 and 2017 | 59 |
| | 59 |
|
Class D Common Stock, par value $.001 per share, authorized 200,000,000 shares, no shares issued in 2018 and 2017 | — |
| | — |
|
Additional paid-in capital | 2,074,632 |
| | 2,072,566 |
|
Accumulated deficit | (13,345,346 | ) | | (13,142,001 | ) |
Accumulated other comprehensive loss | (318,030 | ) | | (313,718 | ) |
Cost of shares (805,982 in 2018 and 610,991 in 2017) held in treasury | (2,558 | ) | | (2,474 | ) |
Total Stockholders' Deficit | (11,560,342 | ) | | (11,344,344 | ) |
Total Liabilities and Stockholders' Deficit | $ | 12,269,515 |
| | $ | 12,260,431 |
|
See Notes to Consolidated Financial Statements
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS OF
IHEARTMEDIA, INC.AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
|
| | | | | | | | | | | |
(In thousands, except per share data) | Years Ended December 31, |
| 2018 | | 2017 | | 2016 |
Revenue | $ | 6,325,780 |
| | $ | 6,168,431 |
| | $ | 6,251,000 |
|
Operating expenses: | | | | | |
Direct operating expenses (excludes depreciation and amortization) | 2,532,948 |
| | 2,468,724 |
| | 2,395,037 |
|
Selling, general and administrative expenses (excludes depreciation and amortization) | 1,896,503 |
| | 1,842,222 |
| | 1,726,118 |
|
Corporate expenses (excludes depreciation and amortization) | 337,218 |
| | 311,898 |
| | 341,072 |
|
Depreciation and amortization | 530,903 |
| | 601,295 |
| | 635,227 |
|
Impairment charges | 40,922 |
| | 10,199 |
| | 8,000 |
|
Other operating income (expense), net | (6,768 | ) | | 35,704 |
| | 353,556 |
|
Operating income | 980,518 |
| | 969,797 |
| | 1,499,102 |
|
Interest expense (excludes contractual interest of $1,189,132 for the year ended December 31, 2018) | 722,931 |
| | 1,864,136 |
| | 1,850,119 |
|
Equity in earnings (loss) of nonconsolidated affiliates | 1,020 |
| | (2,855 | ) | | (16,733 | ) |
Gain on extinguishment of debt | 100 |
| | 1,271 |
| | 157,556 |
|
Other expense, net | (58,876 | ) | | (20,194 | ) | | (86,009 | ) |
Reorganization items, net | 356,119 |
| | — |
| | — |
|
Loss before income taxes | (156,288 | ) | | (916,117 | ) | | (296,203 | ) |
Income tax benefit (expense) | (46,351 | ) | | 457,406 |
| | 49,631 |
|
Consolidated net loss | (202,639 | ) | | (458,711 | ) | | (246,572 | ) |
Less amount attributable to noncontrolling interest | (729 | ) | | (60,651 | ) | | 55,484 |
|
Net loss attributable to the Company | $ | (201,910 | ) | | $ | (398,060 | ) | | $ | (302,056 | ) |
Other comprehensive income (loss), net of tax: | | | | | |
Foreign currency translation adjustments | (15,924 | ) | | 43,851 |
| | 22,932 |
|
Other adjustments to comprehensive income (loss) | (1,498 | ) | | 6,306 |
| | (12,390 | ) |
Reclassification adjustments | 2,962 |
| | 5,441 |
| | 46,730 |
|
Other comprehensive income (loss) | (14,460 | ) | | 55,598 |
| | 57,272 |
|
Comprehensive loss | (216,370 | ) | | (342,462 | ) | | (244,784 | ) |
Less amount attributable to noncontrolling interest | (8,713 | ) | | 13,847 |
| | (1,787 | ) |
Comprehensive loss attributable to the Company | $ | (207,657 | ) | | $ | (356,309 | ) | | $ | (242,997 | ) |
| | | | | |
Net loss attributable to the Company per common share: | | | | | |
Basic | $ | (2.36 | ) | | $ | (4.68 | ) | | $ | (3.57 | ) |
Weighted average common shares outstanding - Basic | 85,412 |
| | 84,967 |
| | 84,569 |
|
Diluted | $ | (2.36 | ) | | $ | (4.68 | ) | | $ | (3.57 | ) |
Weighted average common shares outstanding - Diluted | 85,412 |
| | 84,967 |
| | 84,569 |
|
See Notes to Consolidated Financial Statements
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) OF
IHEARTMEDIA, INC.AND SUBSIDIARIES
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Successor Company | | | Predecessor Company |
(In thousands, except per share data) | Year Ended December 31, | | Period from May 2, 2019 through December 31, | | | Period from January 1, 2019 through May 1, | | Year Ended December 31, |
| 2020 | | 2019 | | | 2019 | | 2018 |
Revenue | $ | 2,948,218 | | | $ | 2,610,056 | | | | $ | 1,073,471 | | | $ | 3,611,323 | |
Operating expenses: | | | | | | | | |
Direct operating expenses (excludes depreciation and amortization) | 1,163,148 | | | 878,956 | | | | 381,184 | | | 1,132,439 | |
Selling, general and administrative expenses (excludes depreciation and amortization) | 1,225,097 | | | 897,670 | | | | 427,230 | | | 1,350,157 | |
Corporate expenses (excludes depreciation and amortization) | 144,572 | | | 136,171 | | | | 53,647 | | | 184,216 | |
Depreciation and amortization | 402,929 | | | 249,623 | | | | 52,834 | | | 211,951 | |
Impairment charges | 1,738,752 | | | 0 | | | | 91,382 | | | 33,150 | |
Other operating expense, net | 11,344 | | | 8,000 | | | | 154 | | | 9,266 | |
Operating income (loss) | (1,737,624) | | | 439,636 | | | | 67,040 | | | 690,144 | |
Interest expense (income), net | 343,745 | | | 266,773 | | | | (499) | | | 334,798 | |
Loss on investments, net | (9,346) | | | (20,928) | | | | (10,237) | | | (472) | |
Equity in earnings (loss) of nonconsolidated affiliates | (379) | | | (279) | | | | (66) | | | 116 | |
| | | | | | | | |
Other income (expense), net | (7,751) | | | (18,266) | | | | 23 | | | (23,007) | |
Reorganization items, net | 0 | | | 0 | | | | 9,461,826 | | | (356,119) | |
Income (loss) from continuing operations before income taxes | (2,098,845) | | | 133,390 | | | | 9,519,085 | | | (24,136) | |
Income tax benefit (expense) | 183,623 | | | (20,091) | | | | (39,095) | | | (13,836) | |
Income (loss) from continuing operations | (1,915,222) | | | 113,299 | | | | 9,479,990 | | | (37,972) | |
Income (loss) from discontinued operations, net of tax | 0 | | | 0 | | | | 1,685,123 | | | (164,667) | |
Net income (loss) | (1,915,222) | | | 113,299 | | | | 11,165,113 | | | (202,639) | |
Less amount attributable to noncontrolling interest | (523) | | | 751 | | | | (19,028) | | | (729) | |
Net income (loss) attributable to the Company | $ | (1,914,699) | | | $ | 112,548 | | | | $ | 11,184,141 | | | $ | (201,910) | |
Other comprehensive income (loss), net of tax: | | | | | | | | |
Foreign currency translation adjustments | 945 | | | (750) | | | | (1,175) | | | (15,924) | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
Other adjustments to comprehensive income (loss) | 0 | | | 0 | | | | 0 | | | (1,498) | |
Reclassification adjustments | 0 | | | 0 | | | | 0 | | | 2,962 | |
Other comprehensive income (loss) | 945 | | | (750) | | | | (1,175) | | | (14,460) | |
Comprehensive income (loss) | (1,913,754) | | | 111,798 | | | | 11,182,966 | | | (216,370) | |
Less amount attributable to noncontrolling interest | 0 | | | 0 | | | | 2,784 | | | (8,713) | |
Comprehensive income (loss) attributable to the Company | $ | (1,913,754) | | | $ | 111,798 | | | | $ | 11,180,182 | | | $ | (207,657) | |
| | | | | | | | |
Basic net income (loss) per share | | | | | | | | |
From continuing operations | $ | (13.12) | | | $ | 0.77 | | | | $ | 109.92 | | | $ | (0.44) | |
From discontinued operations | 0 | | | 0 | | | | 19.76 | | | (1.93) | |
Basic net income (loss) per share | $ | (13.12) | | | $ | 0.77 | | | | $ | 129.68 | | | $ | (2.36) | |
Weighted average common shares outstanding - Basic | 145,979 | | | 145,608 | | | | 86,241 | | | 85,412 | |
Diluted net income (loss) per share | | | | | | | | |
From continuing operations | $ | (13.12) | | | $ | 0.77 | | | | $ | 109.92 | | | $ | (0.44) | |
From discontinued operations | 0 | | | 0 | | | | 19.76 | | | (1.93) | |
Diluted net income (loss) per share | $ | (13.12) | | | $ | 0.77 | | | | $ | 129.68 | | | $ | (2.36) | |
Weighted average common shares outstanding - Diluted | 145,979 | | | 145,795 | | | | 86,241 | | | 85,412 | |
See Notes to Consolidated Financial Statements
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICITEQUITY (DEFICIT) OF
IHEARTMEDIA, INC. AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(In thousands, except share data) | | | | | | | | | Controlling Interest | | |
| Common Shares(1) | | Non- controlling Interest | | Common Stock | | Additional Paid-in Capital | | Retained Earnings (Accumulated Deficit) | | Accumulated Other Comprehensive Income (Loss) | | Treasury Stock | | |
| Class A Shares | | Class B Shares | | Special Warrants | | | | | | | | Total |
Balances at December 31, 2019 (Successor) | 57,776,204 | | | 6,904,910 | | | 81,046,593 | | | $ | 9,123 | | | $ | 65 | | | $ | 2,826,533 | | | $ | 112,548 | | | $ | (750) | | | $ | (2,078) | | | $ | 2,945,441 | |
Net loss | | | | | | | (523) | | | — | | | — | | | (1,914,699) | | | — | | | — | | | (1,915,222) | |
Vesting of restricted stock and other | 724,963 | | | | | | | — | | | 7 | | | (29) | | | — | | | — | | | (1,121) | | | (1,143) | |
| | | | | | | | | | | | | | | | | | | |
Share-based compensation | | | | | | | — | | | — | | | 22,516 | | | — | | | — | | | — | | | 22,516 | |
Conversion of Special Warrants to Class A and Class B Shares | 6,205,617 | | | 2,095 | | | (6,207,712) | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Conversion of Class B Shares to Class A Shares | 20,080 | | | (20,080) | | | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Cancellation of Special Warrants | | | | | (2,982) | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Other | | | | | | | (250) | | | — | | | — | | | (1,469) | | | (1) | | | — | | | (1,720) | |
Other comprehensive income | | | | | | | — | | | — | | | — | | | — | | | 945 | | | — | | | 945 | |
Balances at December 31, 2020 (Successor) | 64,726,864 | | | 6,886,925 | | | 74,835,899 | | | $ | 8,350 | | | $ | 72 | | | $ | 2,849,020 | | | $ | (1,803,620) | | | $ | 194 | | | $ | (3,199) | | | $ | 1,050,817 | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(In thousands, except share and per 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 C Shares | | Class B Shares | | Class A Shares | | | | | | | | Total |
Balances at December 31, 2015 | 58,967,502 |
| | 555,556 |
| | 30,295,457 |
| | $ | 171,763 |
| | $ | 90 |
| | $ | 2,068,983 |
| | $ | (12,441,885 | ) | | $ | (414,528 | ) | | $ | (1,917 | ) | | $ | (10,617,494 | ) |
Consolidated net income (loss) | | | | | | | 55,484 |
| | — |
| | — |
| | (302,056 | ) | | — |
| | — |
| | (246,572 | ) |
Issuance of restricted stock | | | | | 1,206,991 |
| | (1,366 | ) | | 1 |
| | (1 | ) | | — |
| | — |
| | (199 | ) | | (1,565 | ) |
Amortization of share-based compensation | | | | | | | 10,291 |
| | — |
| | 2,842 |
| | — |
| | — |
| | — |
| | 13,133 |
|
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 (loss) | | | | | | | (1,787 | ) | | — |
| | — |
| | — |
| | 59,059 |
| | — |
| | 57,272 |
|
Balances at December 31, 2016 | 58,967,502 |
| | 555,556 |
| | 31,502,448 |
| | $ | 128,974 |
| | $ | 91 |
| | $ | 2,070,603 |
| | $ | (12,743,941 | ) | | $ | (355,469 | ) | | $ | (2,119 | ) | | $ | (10,901,861 | ) |
Consolidated net loss | | | | | | | (60,651 | ) | | — |
| | — |
| | (398,060 | ) | | — |
| | — |
| | (458,711 | ) |
Issuance of restricted stock | | | | | 1,123,720 |
| | (1,468 | ) | | 1 |
| | (1 | ) | | — |
| | — |
| | (355 | ) | | (1,823 | ) |
Amortization of share-based compensation | | | | | | | 9,590 |
| | — |
| | 2,488 |
| | — |
| | — |
| | — |
| | 12,078 |
|
Purchases of additional noncontrolling interest | | | | | | | (703 | ) | | — |
| | (524 | ) | | — |
| | — |
| | — |
| | (1,227 | ) |
Disposal of noncontrolling interest | | | | | | | (2,439 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | (2,439 | ) |
Dividend declared and paid to noncontrolling interests | | | | | | | (46,151 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | (46,151 | ) |
Other | | | | | | | 192 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 192 |
|
Other comprehensive income | | | | | | | 13,847 |
| | — |
| | — |
| | — |
| | 41,751 |
| | — |
| | 55,598 |
|
Balances at December 31, 2017 | 58,967,502 |
| | 555,556 |
| | 32,626,168 |
| | $ | 41,191 |
| | $ | 92 |
| | $ | 2,072,566 |
| | $ | (13,142,001 | ) | | $ | (313,718 | ) | | $ | (2,474 | ) | | $ | (11,344,344 | ) |
Consolidated net loss | | | | | | | (729 | ) | | — |
| | — |
| | (201,910 | ) | | — |
| | — |
| | (202,639 | ) |
Issuance of restricted stock and other | | | | | (333,224 | ) | | (713 | ) | |
|
| |
|
| | — |
| | — |
| | (84 | ) | | (797 | ) |
Amortization of share-based compensation | | | | | | | 8,517 |
| | — |
| | 2,066 |
| | — |
| | — |
| | — |
| | 10,583 |
|
Dividend declared and paid to noncontrolling interests | | | | | | | (8,742 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | (8,742 | ) |
Other | | | | | | | 57 |
| | — |
| | — |
| | (1,435 | ) | | 1,435 |
| | — |
| | 57 |
|
Other comprehensive loss | | | | | | | (8,713 | ) | | — |
| | — |
| | — |
| | (5,747 | ) | | — |
| | (14,460 | ) |
Balances at December 31, 2018 | 58,967,502 |
| | 555,556 |
| | 32,292,944 |
| | $ | 30,868 |
| | $ | 92 |
| | $ | 2,074,632 |
| | $ | (13,345,346 | ) | | $ | (318,030 | ) | | $ | (2,558 | ) | | $ | (11,560,342 | ) |
(1) The Successor Company's Class D CommonPreferred Stock is not presented in the data above as there were no shares issued and outstanding in 2018, 2017 and 2016, respectively.2020 or 2019.
See Notes to Consolidated Financial Statements
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT) OF
IHEARTMEDIA, INC. AND SUBSIDIARIES
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(In thousands, except share data) | | | | | | Controlling Interest | | |
| Common Shares(1) | | Non- controlling Interest | | Common Stock | | Additional Paid-in Capital | | Retained Earnings (Accumulated Deficit) | | Accumulated Other Comprehensive Loss | | Treasury Stock | | |
| Class A Shares | | Class B Shares | | Class C Shares | | Special Warrants | | | | | | | | Total |
Balances at December 31, 2018 (Predecessor) | 32,292,944 | | | 555,556 | | | 58,967,502 | | | 0 | | | $ | 30,868 | | | $ | 92 | | | $ | 2,074,632 | | | $ | (13,345,346) | | | $ | (318,030) | | | $ | (2,558) | | | $ | (11,560,342) | |
Net income (loss) | | | | | | | | | (19,028) | | | — | | | — | | | 11,184,141 | | | — | | | — | | | 11,165,113 | |
Non-controlling interest - Separation | | | | | | | | | (13,199) | | | — | | | — | | | — | | | — | | | — | | | (13,199) | |
Accumulated other comprehensive loss - Separation | | | | | | | | | — | | | — | | | — | | | — | | | 307,813 | | | — | | | 307,813 | |
Adoption of ASC 842, Leases | | | | | | | | | — | | | — | | | — | | | 128,908 | | | — | | | — | | | 128,908 | |
Issuance of restricted stock | | | | | | | | | 196 | | | — | | | — | | | — | | | — | | | (4) | | | 192 | |
Forfeitures of restricted stock | (110,333) | | | | | | | | | — | | | — | | | — | | | — | | | — | | | — | | | 0 | |
Share-based compensation | | | | | | | | | — | | | — | | | 2,028 | | | — | | | — | | | — | | | 2,028 | |
Share-based compensation - discontinued operations | | | | | | | | | 2,449 | | | — | | | — | | | — | | | — | | | — | | | 2,449 | |
Payments to non-controlling interests | | | | | | | | | (3,684) | | | — | | | — | | | — | | | — | | | — | | | (3,684) | |
Other | | | | | | | | | — | | | — | | | — | | | — | | | 1 | | | — | | | 1 | |
Other comprehensive income (loss) | | | | | | | | | 2,784 | | | — | | | — | | | — | | | (3,959) | | | — | | | (1,175) | |
Cancellation of Predecessor equity | (32,182,611) | | | (555,556) | | | (58,967,502) | | | | | (386) | | | (92) | | | (2,076,660) | | | 2,059,998 | | | 14,175 | | | 2,562 | | | (403) | |
Issuance of Successor common stock and warrants | 56,861,941 | | | 6,947,567 | | | 0 | | | 81,453,648 | | | 8,943 | | | 64 | | | 2,770,108 | | | (27,701) | | | — | | | — | | | 2,751,414 | |
Balances at May 1, 2019 (Predecessor) | 56,861,941 | | | 6,947,567 | | | 0 | | | 81,453,648 | | | $ | 8,943 | | | $ | 64 | | | $ | 2,770,108 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 2,779,115 | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
Balances at May 2, 2019 (Successor) | 56,861,941 | | | 6,947,567 | | | 0 | | | 81,453,648 | | | $ | 8,943 | | | $ | 64 | | | $ | 2,770,108 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 2,779,115 | |
Net income | | | | | | | | | 751 | | | — | | | — | | | 112,548 | | | — | | | — | | | 113,299 | |
Vesting of restricted stock | 644,025 | | | | | | | | | — | | | 1 | | | (1) | | | — | | | — | | | (2,078) | | | (2,078) | |
| | | | | | | | | | | | | | | | | | | | | |
Share-based compensation | | | | | | | | | — | | | — | | | 26,377 | | | — | | | — | | | — | | | 26,377 | |
Conversion of Special Warrants to Class A and Class B Shares | 216,921 | | | 10,660 | | | | | (227,581) | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Conversion of Class B Shares to Class A Shares | 53,317 | | | (53,317) | | | | | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Cancellation of Special Warrants and other | | | | | | | (179,474) | | | (571) | | | — | | | 30,049 | | | — | | | — | | | — | | | 29,478 | |
Other comprehensive loss | | | | | | | | | — | | | — | | | — | | | — | | | (750) | | | — | | | (750) | |
Balances at December 31, 2019 (Successor) | 57,776,204 | | | 6,904,910 | | | 0 | | | 81,046,593 | | | $ | 9,123 | | | $ | 65 | | | $ | 2,826,533 | | | $ | 112,548 | | | $ | (750) | | | $ | (2,078) | | | $ | 2,945,441 | |
(1) The Predecessor Company's Class D Common Stock and Preferred Stock are not presented in the data above as there were no shares issued and outstanding in 2019 or 2018..
See Notes to Consolidated Financial Statements
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT) OF
IHEARTMEDIA, INC. AND SUBSIDIARIES
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(In thousands, except per share data) | | | | Controlling Interest | | |
| Common Shares(1) | | Non- controlling Interest | | Common Stock | | Additional Paid-in Capital | | Accumulated Deficit | | Accumulated Other Comprehensive Loss | | Treasury Stock | | |
| Class A Shares | | Class B Shares | | Class C Shares | | | | | | | | Total |
Balances at December 31, 2017 (Predecessor) | 32,626,168 | | | 555,556 | | | 58,967,502 | | | $ | 41,191 | | | $ | 92 | | | $ | 2,072,566 | | | $ | (13,142,001) | | | $ | (313,718) | | | $ | (2,474) | | | $ | (11,344,344) | |
Net loss | | | | | | | (729) | | | — | | | — | | | (201,910) | | | — | | | — | | | (202,639) | |
Issuance of restricted stock and other | (333,224) | | | | | | | (713) | | | — | | | — | | | — | | | — | | | (84) | | | (797) | |
Share-based compensation | | | | | | | — | | | — | | | 2,066 | | | — | | | — | | | — | | | 2,066 | |
Share-based compensation - discontinued operations | | | | | | | 8,517 | | | — | | | — | | | — | | | — | | | — | | | 8,517 | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
Payments to non-controlling interests | | | | | | | (8,742) | | | — | | | — | | | — | | | — | | | — | | | (8,742) | |
Other | | | | | | | 57 | | | — | | | — | | | (1,435) | | | 1,435 | | | — | | | 57 | |
Other comprehensive loss | | | | | | | (8,713) | | | — | | | — | | | — | | | (5,747) | | | — | | | (14,460) | |
Balances at December 31, 2018 (Predecessor) | 32,292,944 | | | 555,556 | | | 58,967,502 | | | $ | 30,868 | | | $ | 92 | | | $ | 2,074,632 | | | $ | (13,345,346) | | | $ | (318,030) | | | $ | (2,558) | | | $ | (11,560,342) | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
(1) The Company's Class D Common Stock and Preferred Stock are not presented in the data above as there were no shares issued and outstanding in2018 and 2017, respectively.
See Notes to Consolidated Financial Statements
CONSOLIDATED STATEMENTS OF CASH FLOWS OF
IHEARTMEDIA, INC. AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
| | | | | | | | | | Successor Company | | | Predecessor Company |
(In thousands) | Years Ended December 31, | (In thousands) | Year Ended December 31, | | Period from May 2, 2019 through December 31, | | | Period from January 1, 2019 through May 1, | | Year Ended December 31, |
| 2018 | | 2017 | | 2016 | | 2020 | | 2019 | | | 2019 | | 2018 |
Cash flows from operating activities: | | | | | | Cash flows from operating activities: | | | | | | | | |
Consolidated net loss | $ | (202,639 | ) | | $ | (458,711 | ) | | $ | (246,572 | ) | |
Net income (loss) | | Net income (loss) | $ | (1,915,222) | | | $ | 113,299 | | | | $ | 11,165,113 | | | $ | (202,639) | |
(Income) loss from discontinued operations | | (Income) loss from discontinued operations | 0 | | | 0 | | | | (1,685,123) | | | 164,667 | |
Reconciling items: | | | | | | Reconciling items: | | | |
Impairment charges | 40,922 |
| | 10,199 |
| | 8,000 |
| Impairment charges | 1,738,752 | | | 0 | | | | 91,382 | | | 33,150 | |
Depreciation and amortization | 530,903 |
| | 601,295 |
| | 635,227 |
| Depreciation and amortization | 402,929 | | | 249,623 | | | | 52,834 | | | 211,951 | |
Deferred taxes | 18,038 |
| | (488,190 | ) | | (97,416 | ) | Deferred taxes | (184,269) | | | 9,120 | | | | 115,839 | | | 3,643 | |
Provision for doubtful accounts | 28,429 |
| | 38,944 |
| | 27,390 |
| Provision for doubtful accounts | 38,273 | | | 14,088 | | | | 3,268 | | | 21,042 | |
Amortization of deferred financing charges and note discounts, net | 22,601 |
| | 57,474 |
| | 69,951 |
| Amortization of deferred financing charges and note discounts, net | 4,758 | | | 1,295 | | | | 512 | | | 11,871 | |
Non-cash Reorganization items, net | 252,392 |
| | — |
| | — |
| Non-cash Reorganization items, net | 0 | | | 0 | | | | (9,619,236) | | | 252,392 | |
Share-based compensation | 10,583 |
| | 12,078 |
| | 13,133 |
| Share-based compensation | 22,516 | | | 26,377 | | | | 498 | | | 2,066 | |
Gain on disposal of operating and other assets | (131 | ) | | (44,461 | ) | | (365,710 | ) | |
(Gain) loss on disposal of operating and other assets | | (Gain) loss on disposal of operating and other assets | 6,986 | | | 4,539 | | | | (143) | | | 3,233 | |
Loss on investments | | Loss on investments | 9,346 | | | 20,928 | | | | 10,237 | | | 472 | |
Equity in (earnings) loss of nonconsolidated affiliates | (1,020 | ) | | 2,855 |
| | 16,733 |
| Equity in (earnings) loss of nonconsolidated affiliates | 379 | | | 279 | | | | 66 | | | (116) | |
Gain on extinguishment of debt | (100 | ) | | (1,271 | ) | | (157,556 | ) | |
| Barter and trade income | (15,733 | ) | | (42,210 | ) | | (38,323 | ) | Barter and trade income | (10,502) | | | (12,961) | | | | (5,947) | | | (10,873) | |
Other reconciling items, net | 36,860 |
| | (23,576 | ) | | 84,350 |
| Other reconciling items, net | 656 | | | (9,154) | | | | (65) | | | (596) | |
Changes in operating assets and liabilities, net of effects of acquisitions and dispositions: | | | | | | Changes in operating assets and liabilities, net of effects of acquisitions and dispositions: | | | |
Increase in accounts receivable | (110,062 | ) | | (149,347 | ) | | (14,469 | ) | |
(Increase) decrease in accounts receivable | | (Increase) decrease in accounts receivable | 77,335 | | | (179,479) | | | | 117,263 | | | (35,464) | |
(Increase) decrease in prepaid expenses and other current assets | 22 |
| | (28,377 | ) | | (3,114 | ) | (Increase) decrease in prepaid expenses and other current assets | 2,447 | | | 15,288 | | | | (24,044) | | | (2,055) | |
Increase (decrease) in accrued expenses | 40,075 |
| | 4,133 |
| | (2,862 | ) | |
Increase in accounts payable | 38,265 |
| | 15,736 |
| | 3,065 |
| |
Increase in accrued interest | 304,729 |
| | 41,006 |
| | 20,809 |
| |
(Increase) decrease in other long-term assets | | (Increase) decrease in other long-term assets | (1,119) | | | 7,924 | | | | (7,098) | | | (13,755) | |
| Increase (decrease) in accounts payable and accrued expenses | | Increase (decrease) in accounts payable and accrued expenses | 52,354 | | | 127,150 | | | | (156,885) | | | 23,699 | |
Increase (decrease) in accrued interest | | Increase (decrease) in accrued interest | (15,714) | | | 84,523 | | | | 256 | | | 303,344 | |
Increase (decrease) in deferred income | 19,892 |
| | (26,533 | ) | | 23,661 |
| Increase (decrease) in deferred income | (21,859) | | | (8,441) | | | | 13,377 | | | (21,455) | |
Changes in other operating assets and liabilities | (47,354 | ) | | (12,254 | ) | | 7,938 |
| |
Increase (decrease) in other long-term liabilities | | Increase (decrease) in other long-term liabilities | 7,899 | | | 4,507 | | | | (79,609) | | | (3,358) | |
Cash provided by (used for) operating activities from continuing operations | | Cash provided by (used for) operating activities from continuing operations | 215,945 | | | 468,905 | | | | (7,505) | | | 741,219 | |
Cash provided by (used for) operating activities from discontinued operations | | Cash provided by (used for) operating activities from discontinued operations | 0 | | | 0 | | | | (32,681) | | | 225,453 | |
Net cash provided by (used for) operating activities | 966,672 |
| | (491,210 | ) | | (15,765 | ) | Net cash provided by (used for) operating activities | 215,945 | | | 468,905 | | | | (40,186) | | | 966,672 | |
Cash flows from investing activities: | | | | | | Cash flows from investing activities: | | | | | | | | |
Purchases of other investments | (892 | ) | | (1,068 | ) | | (6,450 | ) | |
Proceeds from sale of other investments | 18,969 |
| | 628 |
| | 5,367 |
| |
| Proceeds from disposal of assets | | Proceeds from disposal of assets | 3,041 | | | 8,046 | | | | 99 | | | 19,152 | |
Purchases of businesses | (74,272 | ) | | — |
| | (500 | ) | Purchases of businesses | (62,050) | | | 0 | | | | (1,998) | | | (74,272) | |
Purchases of property, plant and equipment | (296,324 | ) | | (291,966 | ) | | (314,717 | ) | Purchases of property, plant and equipment | (85,205) | | | (75,993) | | | | (36,197) | | | (85,245) | |
Proceeds from disposal of assets | 10,422 |
| | 82,987 |
| | 856,981 |
| |
Purchases of other operating assets | (2,138 | ) | | (1,213 | ) | | (4,414 | ) | |
| Change in other, net | (1,243 | ) | | (4,060 | ) | | (2,771 | ) | Change in other, net | (3,599) | | | (5,331) | | | | (682) | | | (1,521) | |
Net cash provided by (used for) investing activities | (345,478 | ) | | (214,692 | ) | | 533,496 |
| |
Cash used for investing activities from continuing operations | | Cash used for investing activities from continuing operations | (147,813) | | | (73,278) | | | | (38,778) | | | (141,886) | |
Cash used for investing activities from discontinued operations | | Cash used for investing activities from discontinued operations | 0 | | | 0 | | | | (222,366) | | | (203,592) | |
Net cash used for investing activities | | Net cash used for investing activities | (147,813) | | | (73,278) | | | | (261,144) | | | (345,478) | |
Cash flows from financing activities: | | | | | | Cash flows from financing activities: | | | | | | | | |
Draws on revolving credit facilities | 143,332 |
| | 100,000 |
| | 100,000 |
| |
Payments on revolving credit facilities | (258,308 | ) | | (25,909 | ) | | (2,100 | ) | |
Proceeds from long-term debt | — |
| | 156,000 |
| | 6,856 |
| |
Payments on long-term debt | (365,001 | ) | | (9,946 | ) | | (421,263 | ) | |
Dividends and other payments to noncontrolling interests | (9,421 | ) | | (46,477 | ) | | (89,631 | ) | |
| Proceeds from long-term debt and credit facilities | | Proceeds from long-term debt and credit facilities | 779,750 | | | 1,250,007 | | | | 269 | | | 143,332 | |
Payments on long-term debt and credit facilities | | Payments on long-term debt and credit facilities | (532,392) | | | (1,285,408) | | | | (8,294) | | | (622,677) | |
Proceeds from Mandatorily Redeemable Preferred Stock | | Proceeds from Mandatorily Redeemable Preferred Stock | 0 | | | 0 | | | | 60,000 | | | 0 | |
Settlement of intercompany related to discontinued operations | | Settlement of intercompany related to discontinued operations | 0 | | | 0 | | | | (159,196) | | | 0 | |
| Debt issuance costs | | Debt issuance costs | (4,786) | | | (19,983) | | | | 0 | | | 0 | |
Change in other, net | (2,401 | ) | | (22,333 | ) | | (12,093 | ) | Change in other, net | (1,392) | | | (2,649) | | | | (5) | | | (1,157) | |
Cash provided by (used for) financing activities from continuing operations | | Cash provided by (used for) financing activities from continuing operations | 241,180 | | | (58,033) | | | | (107,226) | | | (480,502) | |
Cash provided by (used for) financing activities from discontinued operations | | Cash provided by (used for) financing activities from discontinued operations | 0 | | | 0 | | | | 51,669 | | | (11,297) | |
Net cash provided by (used for) financing activities | (491,799 | ) | | 151,335 |
| | (418,231 | ) | Net cash provided by (used for) financing activities | 241,180 | | | (58,033) | | | | (55,557) | | | (491,799) | |
Effect of exchange rate changes on cash | (10,361 | ) | | 10,141 |
| | (5,639 | ) | Effect of exchange rate changes on cash | 257 | | | 15 | | | | 562 | | | (10,361) | |
Net increase (decrease) in cash, cash equivalents and restricted cash | 119,034 |
| | (544,426 | ) | | 93,861 |
| Net increase (decrease) in cash, cash equivalents and restricted cash | 309,569 | | | 337,609 | | | | (356,325) | | | 119,034 | |
Cash, cash equivalents and restricted cash at beginning of period | 311,300 |
| | 855,726 |
| | 761,865 |
| Cash, cash equivalents and restricted cash at beginning of period | 411,618 | | | 74,009 | | | | 430,334 | | | 311,300 | |
Cash, cash equivalents and restricted cash at end of period | $ | 430,334 |
| | $ | 311,300 |
| | $ | 855,726 |
| Cash, cash equivalents and restricted cash at end of period | 721,187 | | | 411,618 | | | | 74,009 | | | 430,334 | |
Less cash, cash equivalents and restricted cash of discontinued operations at end of period | | Less cash, cash equivalents and restricted cash of discontinued operations at end of period | 0 | | | 0 | | | | 0 | | | 202,869 | |
Cash, cash equivalents and restricted cash of continuing operations at end of period | | Cash, cash equivalents and restricted cash of continuing operations at end of period | $ | 721,187 | | | $ | 411,618 | | | | $ | 74,009 | | | $ | 227,465 | |
SUPPLEMENTAL DISCLOSURES: | | | | | | SUPPLEMENTAL DISCLOSURES: | | | | | | | | |
Cash paid during the year for interest | $ | 397,984 |
| | $ | 1,772,405 |
| | $ | 1,764,776 |
| Cash paid during the year for interest | $ | 357,168 | | | $ | 183,806 | | | | $ | 137,042 | | | $ | 397,984 | |
Cash paid during the year for taxes | 34,203 |
| | 35,505 |
| | 44,844 |
| Cash paid during the year for taxes | 5,844 | | | 5,759 | | | | 22,092 | | | 34,203 | |
Cash paid for Reorganization items, net | 103,727 |
| | — |
| | — |
| Cash paid for Reorganization items, net | 443 | | | 18,360 | | | | 183,291 | | | 103,727 | |
See Notes to Consolidated Financial Statements
IHEARTMEDIA, INC.AND SUBSIDIARIES (DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1–SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business
iHeartMedia, Inc. (the “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.
On March 14, 2018 (the “Petition Date”), the Company, iHeartCommunications and certain of Merger, dated November 16, 2006,the Company’s direct and indirect domestic subsidiaries (collectively, the “Debtors”)) filed voluntary petitions for relief (the "Chapter 11 Cases") under Chapter 11 of the United States Bankruptcy Code (the "Bankruptcy Code"), in the United States Bankruptcy Court for the Southern District of Texas, Houston Division (the "Bankruptcy Court"). On May 1, 2019 (the “Effective Date”), the conditions to the effectiveness of the Debtors plan of reorganization, as amended, on April 18, 2007, May 17, 2007were satisfied and May 13, 2008the Company emerged from Chapter 11 through (a) a series of transactions (the “Merger Agreement”“Separation”).
The Company’s reportable segments are iHeartMedia through which Clear Channel Outdoor Holdings, Inc. (“iHM”CCOH”), Americas outdoor advertisingits parent Clear Channel Holdings, Inc. (“Americas outdoor”CCH”) and its subsidiaries (collectively with CCOH and CCH, the “Outdoor Group”) were separated from, and ceased to be controlled by, the Company and its subsidiaries (the “iHeart Group”), and International outdoor advertising(b) a series of transactions (the “Reorganization”) through which iHeartCommunications’ debt was reduced from approximately $16 billion to approximately $5.8 billion and a global compromise and settlement among holders of claims (“International outdoor”Claimholders”) in connection with the Chapter 11 Cases was effected (collectively, the “Plan of Reorganization”).
Unless otherwise indicated, information in these notes to the consolidated financial statements relates to continuing operations. The iHMoperations of the Outdoor Group have been presented as discontinued. The Company presents businesses that represent components as discontinued operations when the components meet the criteria for held for sale, are sold, or spun-off and their disposal represents a strategic shift that has, or will have, a major effect on its operations and financial results. See Note 4, Discontinued Operations.
As part of the Separation and Reorganization (as defined below), the Company reevaluated its segment reporting, resulting in the presentation of 2 reportable segments:
▪Audio, which provides media and entertainment services via broadcast and digital delivery. The Americas outdoordelivery and International outdoor segments provide outdoor advertisingalso includes the Company’s events and national syndication businesses and
▪Audio and Media Services, which provides other audio and media services, in their respective geographic regions using various digital and traditional display types. Included in the “Other” category isincluding the Company’s media representation business, Katz Media Group (“Katz Media”) and the Company's provider of scheduling and broadcast software, RCS.
COVID-19
Our business has been adversely impacted by the novel coronavirus pandemic (“COVID-19”), its impact on the operating and economic environment and related, near-term advertiser spending decisions. iHeartCommunications borrowed $350.0 million principal amount under its $450.0 million senior secured asset-based revolving credit facility (the “ABL Facility”) as a precautionary measure to preserve iHeartCommunications’ financial flexibility in light of this uncertainty. The Company repaid the amounts borrowed under the ABL Facility during the second and third quarters of 2020 using cash on hand and the proceeds from the issuance of the incremental term loan (as discussed below). As of December 31, 2020, the ABL Facility had a facility size of $450.0 million, 0 principal amounts outstanding and $32.9 million of outstanding letters of credit, resulting in $417.1 million of excess availability. As a result of certain restrictions in the Company's debt and preferred stock agreements, as of December 31, 2020, approximately $172 million was available to be drawn upon under the ABL Facility.
In July 2020, iHeartCommunications issued $450.0 million of incremental term loans pursuant to an amendment (the “Amendment No. 2”) to the credit agreement (as amended, the “Credit Agreement”) with iHeartMedia Capital I, LLC as guarantor, certain subsidiaries of iHeartCommunications, as guarantors, and Bank of America, N.A., as administrative agent, governing the Company’s $2.5 billion aggregate principal amount of senior secured term loans (the “Term Loan Facility”) and used a portion of the proceeds to repay the $235.0 million outstanding balance under the ABL Facility.
IHEARTMEDIA, INC.AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company's revenue in the latter half of the month ended March 31, 2020 and in the remainder of 2020 was significantly and negatively impacted as a result of a decline in advertising spend driven by COVID-19, and the Company's management took proactive actions during the year to expand the Company’s financial flexibility by reducing expenses and preserving cash as a result of such impact.
On March 27, 2020, President Trump signed into law the Coronavirus Aid, Relief, and Economic Security (“CARES Act”). The CARES Act, among other things, 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 technical corrections to tax depreciation methods for qualified improvement property. The Company continues to examine the impacts the CARES Act may have on its business. For more information on the expected benefits of the CARES Act on the Company's income tax liabilities, see Note 11, Income Taxes.
As of December 31, 2020, the Company had approximately $720.7 million in cash and cash equivalents. While the Company expects COVID-19 to continue to negatively impact the results of operations, cash flows and financial position of the Company for some time into the future, the related financial impact cannot be reasonably estimated at this time. Based on current available liquidity, the Company expects to be able to meet its obligations as they become due over the coming year.
As a result of uncertainty related to COVID-19 and its negative impact on the Company's business and the public trading values of its debt and equity, the Company was required to perform interim impairment tests on its long-lived assets, intangible assets and indefinite-lived intangible assets as of March 31, 2020. The interim impairment tests resulted in a non-cash impairment of the Company's Federal Communication Commission (“FCC”) licenses of $502.7 million and a non-cash impairment charge of $1.2 billion to reduce goodwill.
The Company performed its annual impairment testing of goodwill and indefinite-lived intangible assets as of July 1, 2020.No additional impairment charges were recorded as a result of this assessment. For more information, see Note 7, Property, Plant and Equipment, Intangible Assets and Goodwill.
Voluntary Filing under Chapter 11
On the Petition Date, the Debtors filed the Chapter 11 Cases. Clear Channel Outdoor Holdings, Inc. (“CCOH”) and its direct and indirect subsidiaries did not file voluntary petitions for reorganization under the Bankruptcy Code and were not Debtors in the Chapter 11 Cases.
On the Effective Date, the conditions to the effectiveness of the Plan of Reorganization were satisfied and the Company emerged from Chapter 11 through (a) a series of transactions (through which is ancillarythe Outdoor Group was were separated from, and ceased to be controlled by, the iHeart Group, and (b) the Reorganization of transactions through which iHeartCommunications’ debt was reduced from approximately $16 billion to approximately $5.8 billion and a global compromise and settlement among Claimholders in connection with the Chapter 11 Cases was effected. The compromise and settlement involved, among others, (i) the restructuring of iHeartCommunications’ indebtedness by (A) replacing its other businesses.“debtor-in-possession” credit facility with a $450 million ABL Facility and (B) issuing to certain Claimholders, on account of their claims, approximately $3.5 billion aggregate principal amount of new senior secured term loans (the “Term Loan Facility”), approximately $1.45 billion aggregate principal amount of new 8.375% Senior Notes due 2027 (the “Senior Unsecured Notes”) and approximately $800 million aggregate principal amount of new 6.375% Senior Secured Notes due 2026 (the “6.375% Senior Secured Notes”), (ii) the Company’s issuance of new Class A common stock, new Class B common stock and special warrants to purchase shares of new Class A common stock and Class B common stock (“Special Warrants”) to Claimholders, subject to ownership restrictions imposed by the Federal Communications Commission (“FCC”), (iii) the settlement of certain intercompany transactions, and (iv) the sale of the preferred stock (the “iHeart Operations Preferred Stock”) of the Company’s wholly-owned subsidiary iHeart Operations, Inc. (“iHeart Operations”) in connection with the Separation.
All of the Company's equity existing as of the Effective Date was canceled on such date pursuant to the Plan of Reorganization.
Upon the Company's emergence from the Chapter 11 Cases, the Company adopted fresh start accounting, which resulted in a new basis of accounting and the Company becoming a new entity for financial reporting purposes. As a result of the application of fresh start accounting and the effects of the implementation of the Plan of Reorganization, the consolidated financial statements after the Effective Date, are not comparable with the consolidated financial statements on or before that date. Refer to Note 3, Fresh Start Accounting, for additional information.
IHEARTMEDIA, INC.AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
References to “Successor” or “Successor Company” relate to the financial position and results of operations of the Company after the Effective Date. References to "Predecessor" or "Predecessor Company" refer to the financial position and results of operations of the Company on or before the Effective Date.
During the first quarter of 2018,Predecessor period, the Company reevaluated its segmentapplied Accounting Standards Codification (“ASC”) 852 - Reorganizations (“ASC 852”) in preparing the consolidated financial statements. ASC 852 requires the financial statements, for periods subsequent to the commencement of the Chapter 11 Cases, to distinguish transactions and events that are directly associated with the reorganization from the ongoing operations of the business. Accordingly, certain charges incurred during 2018 and 2019 related to the Chapter 11 Cases, including the write-off of unamortized long-term debt fees and discounts associated with debt classified as liabilities subject to compromise, and professional fees incurred directly as a result of the Chapter 11 Cases are recorded as Reorganization items, net in the Predecessor period.
ASC 852 requires certain additional reporting for financial statements prepared between the bankruptcy filing date and the date of emergence from bankruptcy, including:
•Reclassification of Debtor pre-petition liabilities that are unsecured, under-secured or where it cannot be determined that its Latin America operations should be managed by its International outdoor leadership team. As such, beginning January 1, 2018, our Latin American operations has beenthe liabilities are fully secured, to a separate line item in the Consolidated Balance Sheet called, "Liabilities subject to compromise"; and
•Segregation of Reorganization items, net as a separate line in the Consolidated Statement of Comprehensive Loss, included in our International outdoor segment. Accordingly, the Company has recast the corresponding segment disclosures for prior periods to include Latin America within the International outdoor segment.income from continuing operations.
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 20182020 presentation.
The Company is the beneficiary of two2 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.
IHEARTMEDIA, INC.AND SUBSIDIARIES (DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Immaterial Corrections to Prior Periods
During the three months ended June 30, 2018, the Company identified misstatements associated with VAT obligations in its International Outdoor segment which resulted in an understatement of the Company's VAT obligation. The Company evaluated the effects of these misstatements on prior periods’ consolidated financial statements, individually and in the aggregate, in accordance with the guidance in SEC Staff Bulletins ("SAB") 99, Materiality, SAB 108, Considering the Effects of Prior year Misstatements when Quantifying Misstatements in the Current Year Financial Statements and Accounting Standards Codification 250, Accounting Changes and Error Corrections, and concluded that no prior period is materially misstated. However, the Company has determined to revise the Company's consolidated financial statements for the VAT misstatements, as well as other previously identified immaterial errors, for the prior periods presented herein.
A summary of the effect of the corrections on the Consolidated Statements of Comprehensive Income (Loss) for the years ended December 31, 2017 and 2016 is as follows:
|
| | | | | | | | | | | |
| Year Ended December 31, 2017 |
(In thousands) | As Reported | | Correction | | Revised |
Revenue | $ | 6,170,994 |
| | $ | (2,563 | ) | | $ | 6,168,431 |
|
Direct operating expenses (excludes depreciation and amortization) | 2,461,722 |
| | 7,002 |
| | 2,468,724 |
|
Selling, general and administrative expenses (excludes depreciation and amortization) | 1,851,646 |
| | (9,424 | ) | | 1,842,222 |
|
Operating income | 969,938 |
| | (141 | ) | | 969,797 |
|
Interest expense | 1,865,584 |
| | (1,448 | ) | | 1,864,136 |
|
Loss before income taxes | (917,424 | ) | | 1,307 |
| | (916,117 | ) |
Consolidated net loss | (460,018 | ) | | 1,307 |
| | (458,711 | ) |
Less amount attributable to noncontrolling interest | (66,127 | ) | | 5,476 |
| | (60,651 | ) |
Net loss attributable to the Company | (393,891 | ) | | (4,169 | ) | | (398,060 | ) |
Foreign currency translation adjustments | 45,661 |
| | (1,810 | ) | | 43,851 |
|
Other comprehensive income | 57,408 |
| | (1,810 | ) | | 55,598 |
|
Comprehensive loss | (336,483 | ) | | (5,979 | ) | | (342,462 | ) |
Less amount attributable to noncontrolling interest | 14,092 |
| | (245 | ) | | 13,847 |
|
Comprehensive loss attributable to the Company | (350,575 | ) | | (5,734 | ) | | (356,309 | ) |
Basic loss per share | (4.64 | ) | | (0.04 | ) | | (4.68 | ) |
Diluted loss per share | (4.64 | ) | | (0.04 | ) | | (4.68 | ) |
IHEARTMEDIA, INC.AND SUBSIDIARIES (DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
| | | | | | | | | | | |
| Year Ended December 31, 2016 |
(In thousands) | As Reported | | Correction | | Revised |
Revenue | $ | 6,260,062 |
| | $ | (9,062 | ) | | $ | 6,251,000 |
|
Direct operating expenses (excludes depreciation and amortization) | 2,398,776 |
| | (3,739 | ) | | 2,395,037 |
|
Selling, general and administrative expenses (excludes depreciation and amortization) | 1,725,899 |
| | 219 |
| | 1,726,118 |
|
Operating income | 1,504,644 |
| | (5,542 | ) | | 1,499,102 |
|
Interest expense | 1,849,982 |
| | 137 |
| | 1,850,119 |
|
Loss before income taxes | (290,524 | ) | | (5,679 | ) | | (296,203 | ) |
Income tax benefit | 50,474 |
| | (843 | ) | | 49,631 |
|
Consolidated net loss | (240,050 | ) | | (6,522 | ) | | (246,572 | ) |
Less amount attributable to noncontrolling interest | 56,312 |
| | (828 | ) | | 55,484 |
|
Net loss attributable to the Company | (296,362 | ) | | (5,694 | ) | | (302,056 | ) |
Foreign currency translation adjustments | 21,983 |
| | 949 |
| | 22,932 |
|
Other comprehensive income | 56,323 |
| | 949 |
| | 57,272 |
|
Comprehensive loss | (240,039 | ) | | (4,745 | ) | | (244,784 | ) |
Less amount attributable to noncontrolling interest | (2,208 | ) | | 421 |
| | (1,787 | ) |
Comprehensive loss attributable to the Company | (237,831 | ) | | (5,166 | ) | | (242,997 | ) |
Basic loss per share | (3.50 | ) | | (0.07 | ) | | (3.57 | ) |
Diluted loss per share | (3.50 | ) | | (0.07 | ) | | (3.57 | ) |
Voluntary Filing under Chapter 11
On March 14, 2018, the Company, iHeartCommunications and certain of the Company's direct and indirect domestic subsidiaries (collectively, the "Debtors") filed voluntary petitions for relief (the "Chapter 11 Cases") under Chapter 11 of the United States Bankruptcy Code (the "Bankruptcy Code"), in the United States Bankruptcy Court for the Southern District of Texas, Houston Division (the "Bankruptcy Court"). Clear Channel Outdoor Holdings, Inc. (“CCOH”) and its direct and indirect subsidiaries did not file voluntary petitions for reorganization under the Bankruptcy Code and are not Debtors in the Chapter 11 Cases.
The Chapter 11 Cases are being administered under the caption In re: iHeartMedia, Inc., et. al, Case No. 18-31274 (MI). The Debtors continue to operate their businesses as “debtors-in-possession” under the jurisdiction of the Bankruptcy Court and in accordance with the applicable provisions of the Bankruptcy Code and orders of the Bankruptcy Court.
iHeartCommunications, which is a Debtor in the Chapter 11 Cases, provides the day-to-day cash management services for CCOH’s cash activities and balances in the U.S. pursuant to the Corporate Services Agreement between iHeartCommunications and CCOH, and is continuing to do so during the Chapter 11 Cases pursuant to a cash management order approved by the Bankruptcy Court. CCOH does not have any material committed external sources of capital other than iHeartCommunications.
iHeartCommunications' filing of the Chapter 11 Cases constituted an event of default that accelerated its obligations under its debt agreements. Due to the Chapter 11 Cases, however, the creditors’ ability to exercise remedies under iHeartCommunications' debt agreements were stayed as of March 14, 2018, the date of the Chapter 11 petition filing, and continue to be stayed.
The Company has applied Accounting Standards Codification (“ASC”) 852 - Reorganizations in preparing the consolidated financial statements. ASC 852 requires the financial statements, for periods subsequent to the commencement of the Chapter 11 Cases, to distinguish transactions and events that are directly associated with the reorganization from the ongoing operations of the business. Accordingly, certain charges incurred during 2018 related to the bankruptcy proceedings, including unamortized long-term debt fees and discounts associated with debt classified as liabilities subject to compromise, are recorded as Reorganization items, net. In addition, pre-petition Debtor obligations that may be impacted by the Chapter 11 Cases have been classified on the Consolidated Balance Sheet at December 31, 2018 as Liabilities subject to compromise. These liabilities are reported at the amounts
IHEARTMEDIA, INC.AND SUBSIDIARIES (DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
the Company anticipates will be allowed by the Bankruptcy Court, even if they may be settled for lesser amounts. See below for more information regarding Reorganization items.
ASC 852 requires certain additional reporting for financial statements prepared between the bankruptcy filing date and the date of emergence from bankruptcy, including:
Reclassification of Debtor pre-petition liabilities that are unsecured, under-secured or where it cannot be determined that the liabilities are fully secured, to a separate line item in the Consolidated Balance Sheet called, "Liabilities subject to compromise"; and
Segregation of Reorganization items, net as a separate line in the Consolidated Statement of Comprehensive Loss, outside of income from continuing operations.
Debtor-In-Possession
In general, as debtors-in-possession under the Bankruptcy Code, the Debtors are authorized to continue to operate as an ongoing business, but may not engage in transactions outside the ordinary course of business without the prior approval of the Bankruptcy Court. Pursuant to first day motions filed with the Bankruptcy Court, the Bankruptcy Court authorized the Debtors to conduct their business activities in the ordinary course, including, among other things and subject to the terms and conditions of such orders, authorizing the Debtors to: (i) pay employees’ wages and related obligations; (ii) continue to operate their cash management system in a form substantially similar to prepetition practice; (iii) use cash collateral on an interim basis; (iv) continue to honor certain obligations related to on-air talent, station affiliates and royalty obligations; (v) continue to maintain certain customer programs; (vi) pay taxes in the ordinary course; (vii) continue our surety bond program; and (viii) maintain their insurance program in the ordinary course.
Automatic Stay
Subject to certain specific exceptions under the Bankruptcy Code, the Chapter 11 Cases automatically stayed most judicial or administrative actions against the Debtors and efforts by creditors to collect on or otherwise exercise rights or remedies with respect to pre-petition claims. Absent an order from the Bankruptcy Court, substantially all of the Debtors’ pre-petition liabilities are subject to settlement under the Bankruptcy Code. See Note 13, Condensed Combined Debtor-In-Possession Financial Information.
Executory Contracts
Subject to certain exceptions, under the Bankruptcy Code, the Debtors may assume, amend or reject certain executory contracts and unexpired leases subject to the approval of the Bankruptcy Court and certain other conditions. Generally, the rejection of an executory contract or unexpired lease is treated as a pre-petition breach of such executory contract or unexpired lease and, subject to certain exceptions, relieves the Debtors from performing their future obligations under such executory contract or unexpired lease but entitles the contract counterparty or lessor to a pre-petition general unsecured claim for damages caused by such deemed breach. Generally, the assumption of an executory contract or unexpired lease requires the Debtors to cure existing monetary defaults under such executory contract or unexpired lease and provide adequate assurance of future performance. Accordingly, any description of an executory contract or unexpired lease with the Debtors in this document, including where applicable a quantification of the Company’s obligations under any such executory contract or unexpired lease of the Debtors, is qualified by any overriding rejection rights the Company has under the Bankruptcy Code.
Potential Claims
The Debtors have filed with the Bankruptcy Court schedules and statements setting forth, among other things, the assets and liabilities of each of the Debtors, subject to the assumptions filed in connection therewith. These schedules and statements may be subject to further amendment or modification after filing. Certain holders of pre-petition claims that are not governmental units were required to file proofs of claim by the deadline for general claims, which was on June 29, 2018 (the “Bar Date”).
The Debtors' have received approximately 4,300proofs of claim as of February 28, 2019 for an amount of approximately $808.4 billion. Such amount includes duplicate claims across multiple debtor legal entities. These claims will be reconciled to amounts recorded in the Company's accounting records. Differences in amounts recorded and claims filed by creditors will be investigated and resolved, including through the filing of objections with the Bankruptcy Court, where appropriate. The Bankruptcy Court does not allow for claims that have been acknowledged as duplicates. Approximately 1,500 claims totaling approximately $7.0
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
billion have been disallowed, modified or withdrawn and the Debtors have filed additional claim objections with the Bankruptcy Court for approximately 180 claims totaling approximately $9.9 million in additional reductions and modifications. The Company may ask the Bankruptcy Court to disallow claims that the Company believes have been later amended or superseded, are without merit, are overstated or should be disallowed for other reasons. In addition, as a result of this process, the Company may identify additional liabilities that will need to be recorded or reclassified to Liabilities subject to compromise. In light of the substantial number of claims filed, and expected to be filed, the claims resolution process may take considerable time to complete and likely will continue after the Debtors emerge from bankruptcy.
Reorganization Items, Net
The Debtors have incurred and will continue to incur significant costs associated with the reorganization, including the write-off of original issue discount and deferred long-term debt fees on debt subject to compromise, costs of debtor-in-possession refinancing, legal and professional fees. The amount of these charges, which since the Petition Date are being expensed as incurred, are expected to significantly affect the Company’s results of operations. In accordance with applicable guidance, costs associated with the bankruptcy proceedings have been recorded as Reorganization items, net within the Company's accompanying Consolidated Statements of Comprehensive Income (Loss) for the twelve months ended December 31, 2018. See Note 16, Reorganization Items, Net.
Financial Statement Classification of Liabilities Subject to Compromise
The accompanying Consolidated Balance Sheet as of December 31, 2018 includes amounts classified as Liabilities subject to compromise, which represent liabilities the Company anticipates will be allowed as claims in the Chapter 11 Cases. These amounts represent the Debtors’ current estimate of known or potential obligations to be resolved in connection with the Chapter 11 Cases, and may differ from actual future settlement amounts paid. Differences between liabilities estimated and claims filed, or to be filed, will be investigated and resolved in connection with the claims resolution process. The Company will continue to evaluate these liabilities throughout the Chapter 11 process and adjust amounts as necessary. Such adjustments may be material. See Note 15, Liabilities Subject to Compromise.
Plan of Reorganization
On April 28, 2018, the Debtors filed a plan of reorganization (as amended, the “Plan of Reorganization”) and a related disclosure statement (as amended, the “Disclosure Statement”) with the Bankruptcy Court. Thereafter, the Debtors filed a second, third and fourth amended Plan of Reorganization and amended versions of the Disclosure Statement. On September 20, 2018, the Bankruptcy Court entered an order approving the Disclosure Statement and related solicitation and notice procedures for voting on the Plan of Reorganization. On October 10, 2018, the Debtors filed a fifth amended Plan of Reorganization and the Disclosure Statement Supplement. On October 18, 2018, the Bankruptcy Court entered an order approving the Disclosure Statement Supplement and the continued solicitation of holders of general unsecured claims for voting on the Plan of Reorganization. The deadline for holders of claims and interests to vote on the Plan of Reorganization was November 16, 2018. More than 90% of the votes cast by holders of claims and interests entitled to vote thereon accepted the Plan of Reorganization.
On December 16, 2018, the Debtors, CCOH, GAMCO Asset Management, Inc., and Norfolk County Retirement System entered into the CCOH Separation Settlement (as defined below) resolving all claims, objections, and other causes of action that have been or could be asserted by or on behalf of CCOH, GAMCO Asset Management, Inc., and/or Norfolk County Retirement System by and among the Debtors, CCOH, GAMCO Asset Management, Inc., certain individual defendants in the GAMCO Asset Management, Inc. action and/or the Norfolk County Retirement System action, and the private equity sponsor defendants in such actions. In connection with the CCOH Separation Settlement, on December 17, 2018, the Debtors filed a modified fifth amended Plan of Reorganization. On January 10, 2019, hearings commenced to consider confirmation of the Plan of Reorganization, with further hearings to consider confirmation scheduled for January 17 and 22, 2019. On January 17, 2019, the Debtors came to agreement on the terms of the Legacy Plan Settlement (as defined below) with Wilmington Savings Fund Society, FSB (“WSFS”), solely in its capacity as successor indenture trustee to the 6.875% Senior Notes due 2018 and 7.25% Senior Notes due 2027 (together with the 5.50% Senior Notes due 2016, the “Legacy Notes”), and not in its individual capacity, and certain consenting Legacy Noteholders of all issues related to confirmation of our plan of reorganization, and on January 21, 2019 and January 22, 2019, the Debtors filed further modified versions of the fifth amended Plan of Reorganization. On January 22, 2019, the Bankruptcy Court entered an order confirming the Plan of Reorganization.
IHEARTMEDIA, INC.AND SUBSIDIARIES (DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Plan of Reorganization contemplates a restructuring of the Debtors that will reduce iHeartCommunications’ debt from approximately $16 billion to $5.75 billion, and will result in the Separation of CCOH from the Company, creating two independent companies.
Going Concern
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern and contemplate the realization of assets and the satisfaction of liabilities in the normal course of business. The Company’s ability to continue as a going concern is contingent upon the Company’s ability to successfully implement the Company’s Plan of Reorganization, among other factors. As a result of the Chapter 11 Cases, the realization of assets and the satisfaction of liabilities are subject to uncertainty. As discussed above, the Company's Plan of Reorganization was confirmed on January 22, 2019.The Plan of Reorganization could materially change the amounts and classifications of assets and liabilities reported in the consolidated financial statements. The accompanying consolidated financial statements do not include any adjustments related to the recoverability and classification of assets or the amounts and classification of liabilities or any other adjustments that might be necessary should the Company be unable to continue as a going concern or as a consequence of the Chapter 11 Cases. As a result of our financial condition, the defaults under our debt agreements, and the risks and uncertainties surrounding our ability or the timing to consummate the Plan of Reorganization, substantial doubt exists that we will be able to continue as a going concern.
Cash and Cash Equivalents
Cash and cash equivalents include all highly liquid investments with an original maturity of three months or less.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 allowances and allowances for doubtful accounts. The Company evaluates the collectability of its accounts receivable based on a combination of factors. In circumstances where it is aware of a specific customer’s inability to meet its financial obligations, it records a specific reserve to reduce the amounts recorded to what it believes will be collected. For all other customers, it recognizes reserves for bad debt based on historical experience of bad debts as a percent of accounts receivable for each business unit, adjusted for relative improvements or deteriorations 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.
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
Furniture and other equipment – 23 to 207 years
Leasehold improvements – shorter of economic life or lease term assuming renewal periods, if appropriate
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
Most of the Company’s outdoor advertising structures are located on leased land. Americas outdoor land leases are typically paid in advance for periods ranging from one to 12 months. International outdoor land leases are paid both in advance and in arrears, for periods ranging up to 12 months. Most international street furniture display faces are operated through contracts with municipalities, which typically have terms ranging from 1 to 15 years. The leased land and street furniture contracts can include a percent of revenue to be paid along with a base rent payment. Prepaid land leases are recorded as an asset and expensed ratably over the related rental term and rent payments in arrears are recorded as an accrued liability.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Leases
The Company has enteredenters 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 rental of office space, but may also include leases of other equipment, including automobiles and copiers. Operating leases are reflected 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 included within Property, plant and equipment with the related liabilities included within Long-term debt or within Liabilities subject to compromise (see Note 3, Fresh Start Accounting).
ROU assets represent the right to use an underlying asset for tower sitesthe 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 inflationary adjustments are included within variable rent expense, which is accounted for separately from periodic straight-line lease expense. Amounts related to insurance and property taxes in lease arrangements when billed on a pass-through basis are allocated to the lease and non-lease components of the lease based on their relative standalone selling prices.
Certain of the Company's leases provide options to extend the terms of the agreements. Generally, renewal periods are excluded from minimum lease payments when calculating the lease liabilities as, for most leases, the Company does not consider exercise of such options to be reasonably certain. As a result, unless a renewal option is considered reasonably assured, the optional terms and related payments are not included within the lease liability. The Company's lease agreements do not contain any material residual value guarantees or material restrictive covenants.
The implicit rate within the Company's lease agreements is generally not determinable. As such, the Company uses the incremental borrowing rate ("IBR") to determine the present value of lease payments at the commencement of the lease. The IBR, as defined in ASC 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." In connection with the Company's emergence from bankruptcy and in accordance with ASC 852, the Company applied the provisions of fresh start accounting to 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,Consolidated Financial Statements on the Effective Date. As a result, the Company adjusted the IBR used to value the Company's ROU assets and operating lease expense is recognized straight-line basedliabilities at the Effective Date (see Note 3, Fresh Start Accounting). Upon adoption of ASC 852 in the first quarter of 2019, the Company did not elect the practical expedient to combine non-lease components with the associated lease components. Upon application of fresh start accounting on the minimumEffective Date, the Company elected to use the practical expedient to not separate non-lease components from the associated lease paymentscomponent for each lease.all classes of the Company's assets.
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 advertisingAudio segment. The Company’s indefinite-lived intangible assets are not subject to amortization, but are tested for impairment at least annually. The Company tests for possible impairment of indefinite-lived intangible assets whenever events or changes in circumstances, such as a significant reduction in operating cash flow or a dramatic 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. In connection with the Company's emergence from bankruptcy and in accordance with ASC 852, the Company applied the provisions of fresh start accounting to its Consolidated Financial Statements on the Effective Date. As a result, the Company adjusted its FCC licenses to their respective estimated fair values as of the Effective Date of $2,281.7 million (see Note 3, Fresh Start Accounting).
The Company normally 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. As discussed above, as a result of uncertainty related to COVID-19 and its negative impact on the Company's business and the public trading values of its debt and equity, the Company performed interim impairment tests on its indefinite-lived intangible assets as of March 31, 2020. The
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
interim impairment tests resulted in a non-cash impairment of the Company's FCC licenses of $502.7 million. The Company performed its annual impairment testing of indefinite-lived intangible assets as of July 1, 2020 and permits.no additional impairment charges were recorded. See Note 7, Property, Plant and Equipment, Intangible Assets and Goodwill.
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-livedIn connection with the Company's emergence from bankruptcy and in accordance with ASC 852, the Company applied the provisions of fresh start accounting to its Consolidated Financial Statements on the Effective Date. As a result, the Company adjusted Other intangible assets which include certain rights to use real property not owned bytheir respective fair values at the Company.Effective Date (see Note 3, Fresh Start Accounting).
The Company tests for possible impairment of other intangible assets whenever events and circumstances indicate that they might be impaired and the undiscounted cash flows estimated to be generated by those assets are less than the carrying amounts of those assets. When specific assets are determined to be unrecoverable, the cost basis of the asset is reduced to reflect the current fair market value.
Goodwill
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 intoGenerally, the Company's annual impairment test includes a singlefull quantitative assessment, which involves the preparation of a fair value estimate for each reporting unit based on the most recent projected financial results, market and industry factors, including comparison to peer companies and the Company’s U.S. outdoor advertising markets are aggregated into a single reporting unit for purposesapplication of the Company's current estimated WACC. However, in connection with emergence from bankruptcy, the Company qualified for and adopted fresh start accounting on the Effective Date. As of May 1, 2019, the Company allocated its estimated enterprise fair value to its individual assets and liabilities based on their estimated fair values in conformity with ASC 805, "Business Combinations."
Upon application of fresh start accounting in accordance with ASC 852 in connection with the emergence from bankruptcy, the Company recorded goodwill of $3.3 billion, which represented the excess of Reorganization Value over the estimated fair value of the Company's assets and liabilities. Goodwill was further allocated to reporting units based on the relative fair values of the Company's reporting units as of May 1, 2019.
As discussed above, as a result of uncertainty related to COVID-19 and its negative impact on the Company's business and the public trading values of its debt and equity, the Company performed interim impairment test.tests on its long-lived assets, intangible assets and indefinite-lived intangible assets as of March 31, 2020. The interim impairment tests resulted in a non-cash impairment of the Company's goodwill of $1.2 billion. The Company also determined that withinperformed its Americas segmentannual impairment testing of goodwill and its International
IHEARTMEDIA, INC.AND SUBSIDIARIES (DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
outdoor segment each country constitutes a separate reporting unit. The Company concludedindefinite-lived intangible assets as of July 1, 2020 and no goodwilladditional impairment charges were recorded. In addition, no further impairment was required in 2018. The Company recognized goodwill impairment of $1.6 million in 2017 related to one of our International outdoor markets. The Company recognized goodwill impairment of $7.3 million in 2016 related to one marketconsidered necessary in the Company's International outdoor segment.fourth quarter of 2020. For more information, see Note 7, Property, Plant and Equipment, Intangible Assets and Goodwill.
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 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."
IHEARTMEDIA, INC.AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Other Investments
Effective January 1, 2018, we adoptedWe apply Accounting Standards Update ("ASU") 2016-01 Financial Instruments - Overall: Recognition and Measurement of Financial Assets and Financial Liabilities ("ASU 2016-01"), which requires us to measure all equity investments that do not result in consolidation and are not accounted for under the equity method at fair value and 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. Prior to the adoption of ASU 2016-01, marketable equity securities not accounted for under the equity method were classified as available-for-sale. For equity securities classified as available-for-sale, realized gains and losses were included in net income. Unrealized gains and losses on equity securities classified as available-for-sale were recognized in accumulated other comprehensive income (loss) ("AOCI"), net of tax. Equity securities without readily determinable fair values were recorded at cost.
The Company concluded that impairments existed at December 31, 2018, 2017 and 2016 and recorded noncash impairment charges of $14.4$0.9 million, $4.2$21.0 million, $8.3 million and $14.8$14.2 million during the year ended December 31, 2020 (Successor), the period from May 2, 2019 through December 31, 2019 (Successor) the period from January 1, 2019 through May 1, 2019 (Predecessor) and the year ended 2018 2017 and 2016,(Predecessor), respectively. Such charge is recorded on the statementStatement of comprehensive lossComprehensive Income (Loss) in “Other expense,“Loss on investments, net”.
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, 20182020 and 2017.2019.
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. The Company has not provided U.S. federal income taxes for temporary differences with respect to investments in foreign subsidiaries, which at December 31, 2018 currently result in tax basis amounts greater than the financial reporting basis.subsidiaries. It is not apparent that these temporary differences will reverse in the foreseeable future. If any excess cash held by our foreign subsidiaries were needed to fund operations in the U.S., the Company could presently repatriate available funds without a requirement to accrue or pay U.S. taxes. The Company regularly reviews its tax liabilities on amounts that may be distributed in future periods and provides for foreign withholding and other current and deferred taxes on any such amounts, where applicable.
IHEARTMEDIA, INC.AND SUBSIDIARIES (DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Revenue Recognition
The 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 at the gross amount of consideration the Company expects to receive if the Company controls the promised good or service 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 iHMAudio segment is the sale of advertising on the Company’s broadcast radio stations, its iHeartRadio mobile application and website, station websites, and national and local live and virtual events. Revenues for advertising spots are recognized at the point in time when the advertisement is broadcast or streamed, while revenues for online display advertisements are recognized over time based on impressions delivered or time elapsed, depending upon the terms of the contract. Revenues for event sponsorships are recognized over the period of the event. iHMAudio 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. iHM’sAudio's contracts with advertisers are typically a year or less in duration and are generally billed monthly upon satisfaction of the performance obligations.
The Americas outdoor and International outdoor segments generate revenue primarily from the sale of advertising space on printed and digital displays, including billboards, street furniture displays, transit displays and retail displays, which may be sold as individual units or as a network package. Revenues from these contracts, which typically cover periods of a few weeks to one year, are generally recognized ratably over the term of the contract as the advertisement is displayed. These segments also generate revenue from production and creative services, which are distinct from the advertising display services, and related revenue is recognized at the point in time the Company installs the advertising copy at the display site. Americas outdoor contracts are generally billed monthly in advance, and International outdoor includes a combination of advance billings and billings upon completion of service.
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 inpart of the Company’s Other segment.Audio and
IHEARTMEDIA, INC.AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Media Services business. Revenues from these contracts are recognized at the point in time when the advertisements are broadcast. 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 services to customers, excluding sales taxes and other similar taxes collected on behalf of governmental authorities (the "transaction price”). When this consideration includes a variable amount, the Company estimates the amount of consideration it expects to receive and only recognizes revenue to the extent that it is probable it will not be reversed in a future reporting period. Because the transfer of promised goods and services to the customer is generally within a year of scheduled payment from the customer, the Company is not typically required to consider the effects of the time value of money when determining the transaction price. Advertising revenue is reported net of agency commissions.
Trade and barter transactions represent the exchange of advertising spots or display space for merchandise, services 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 or display space promised to the customer. Revenue is recognized on trade and barter transactions when the advertisements are broadcasted or displayed, and expenses are recorded ratably over a period that estimates when the merchandise, services or other assets received are utilized, or when the event occurs. Trade and barter revenues and expenses from continuing operations are included in consolidated revenue and selling, general and administrative expenses, respectively. Trade and barter revenues and expenses from continuing operations were as follows:
IHEARTMEDIA, INC.AND SUBSIDIARIES (DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
| | | | | | | | | | | |
| Year Ended December 31, |
(In thousands) | 2018 | | 2017 | | 2016 |
Consolidated: | | | | | |
Trade and barter revenues | $ | 218,595 |
| | $ | 244,116 |
| | $ | 165,847 |
|
Trade and barter expenses | 210,677 |
| | 202,251 |
| | 115,078 |
|
| | | | | |
iHM Segment: | | | | | |
Trade and barter revenues | $ | 202,674 |
| | $ | 226,737 |
| | $ | 153,331 |
|
Trade and barter expenses | 199,982 |
| | 190,906 |
| | 103,129 |
|
In order to appropriately identify the unit of accounting for revenue recognition, the Company determines which promised goods and services in a contract with a customer are distinct and are therefore separate performance obligations. If a promised good or service does not meet the criteria to be considered distinct, it is combined with other promised goods or services until a distinct bundle of goods or services exists. Certain of the Company’s contracts with customers include options for the customer to acquire additional goods or services for free or at a discount, and management judgment is required to determine whether these options are material rights that are separate performance obligations.
For revenue arrangements that contain multiple distinct goods or services, the Company allocates the transaction price to these performance obligations in proportion to their relative standalone selling prices.prices or the best estimate of their fair values. The Company has concluded that the contractual prices for the promised goods and services in its standard contracts generally approximate management’s best estimate of standalone selling price as the rates reflect various factors such as the size and characteristics of the target audience, market location and size, and recent market selling prices. However, where the Company provides customers with free or discounted services as part of contract negotiations, management uses judgment to determine how much of the transaction price to allocate to these performance obligations.
Contract Costs
Incremental costs of obtaining a contract primarily relate to sales commissions, which are included in selling, general and administrative expenses and 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 $213.8$167.2 million, $201.5$126.0 million, $59.6 million and $132.7$201.2 million for the yearsyear ended December 31, 2020 (Successor), the period from May 2, 2019 through December 31, 2019 (Successor), the period from January 1, 2019 through May 1, 2019 (Predecessor) and the year ended December 31, 2018 2017 and 2016,(Predecessor), respectively, which include $155.2$133.0 million, $146.1$105.0 million, $46.0 million and $68.9$155.2 million in barter advertising, respectively.
Share-Based Compensation
Under the fair value recognition provisions of ASC 718-10, share-based compensation cost is measured at the grant date based on the fair value of the award. For awards that vest based on service conditions, this cost is recognized as expense on a straight-line basis over the vesting period. For awards that will vest based on market or performance conditions, this cost will 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, such as expected volatility, 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 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,equity, “Accumulated other comprehensive loss”income (loss)”. Foreign currency transaction gains and losses are included in Other income (expense), net in the Statement of Comprehensive Loss.Income (Loss).
Reclassifications
Certain prior period amounts have been reclassified to conform to the 2020 presentation. In the first quarter of 2020, in connection with a reorganization of the Company’s management structure after the Separation and emergence from the Chapter 11 cases, the Company reevaluated the classification of certain expenses to determine whether such expenses should be included within Direct operating expenses, Selling, general & administrative (“SG&A”) expenses or Corporate expenses. As a result, certain expenses were reclassified from Corporate expenses to Direct operating or SG&A expenses. In addition, certain expenses were reclassified from SG&A expenses to Direct operating expenses. The reclassifications had no impact on the Company's Operating Income (Loss) or Net Income (Loss). Accordingly, the Company recast the corresponding amounts in the prior period to conform to the current expense classifications. The corresponding current and prior period segment disclosures were recast to reflect the current expense classifications. See Note 15, Segment Data.
New Accounting Pronouncements Recently Adopted
During the second quarter of 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments and finalized amendments to FASB ASC Subtopic 825-15, Financial Instruments-Credit Losses ("ASC 326"). The amendments of ASU 2016-13 are intended to provide financial statement users with more decision-useful information related to expected credit losses on financial instruments and other commitments to extend credit by replacing the current incurred loss impairment methodology with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to determine credit loss estimates. The amendments of ASU 2016-13 eliminate the probable initial recognition threshold and, in turn, reflect an entity’s current estimate of all expected credit losses. ASU 2016-13 does not specify the method for measuring expected credit losses, and an entity is allowed to apply methods that reasonably reflect its expectations of the credit loss estimate. Additionally, the amendments of ASU 2016-13 require that credit losses on available for sale debt securities be presented as an allowance rather than as a write-down. The Company adopted the updated guidance in the first quarter of 2020 utilizing the modified retrospective approach, which resulted in the recognition of estimated credit loss reserves against certain available-for-sale debt securities from third-parties held by the Company.
Upon adoption, the Company recognized a $1.5 million cumulative-effect adjustment to opening retained earnings to reflect expected credit losses in relation to notes receivable held by the Company. In addition, the Company evaluated the potential impact of the COVID-19 pandemic on the collectability of its notes receivable from third-parties. To develop an estimate of the present value of expected cash flows of notes receivable, the Company used a probability-weighted discounted cash flow model. As a result of this analysis, the Company recognized an additional credit loss reserve against available-for-sale debt securities of $5.6 million, which was recognized within Loss on investments, net in the Company's Statement of Comprehensive Loss for the year ended December 31, 2020. The Company will continue to actively monitor the impact of the COVID-19 pandemic on expected credit losses.
The FASB issued ASU No. 2019-12, Simplifying the Accounting for Income Taxes (Topic 740). The new guidance simplifies the accounting for income taxes by eliminating certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period, hybrid taxes and the recognition of deferred tax liabilities for outside basis differences. It also clarifies and simplifies other aspects of the accounting for income taxes. For public companies, the amendments in this ASU are effective for fiscal years beginning after December 15, 2020 and interim periods within those fiscal years. Early adoption is permitted in interim or annual periods with any adjustments reflected as of the beginning of the annual period that includes that interim period. Additionally, entities that elect early adoption must adopt all the amendments in the same period. Amendments are to be applied prospectively, except for certain amendments that are to be applied either retrospectively or with a modified retrospective approach through a cumulative effect adjustment recorded to retained earnings. The Company early adopted this standard, which did not have significant impact on our financial position, results of operations or cash flows.
IHEARTMEDIA, INC.AND SUBSIDIARIES (DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
New Accounting Pronouncements Recently Adopted
AsIn March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of January 1, 2018, the Company adoptedEffects of Reference Rate Reform on Financial Reporting. This guidance provides temporary optional expedients and exceptions to accounting guidance on contract modifications and hedge accounting to ease entities’ financial reporting burdens as the new accounting standard, ASC 606, Revenuemarket transitions from Contracts with Customers. This standard providesthe London Interbank Offered Rate (“LIBOR”) and other interbank offered rates to alternative reference rates. The guidance for the recognition, measurementwas effective upon issuance and disclosuregenerally can be applied through December 31, 2022. The adoption of revenue from contracts with customers and supersedes previous revenue recognition guidance under U.S. GAAP. The Company has applied this standard using the full retrospective method and concluded that its adoption did not have a materialsignificant impact on the Company’s Consolidated Balance Sheets, Consolidated Statementsour financial position, results of Comprehensive Loss, Consolidated Statements of Changes in Stockholders’ Deficit,operations or Consolidated Statements of Cash Flows for prior periods. As a result of adopting this new accounting standard, the Company has updated its significant accounting policies on accounts receivable, revenue recognition, and contract costs, as described herein. Please refer to Note 2, Revenues, for more information.cash flows.
In November 2016, the FASB issued ASU 2016-18,
Restricted Cash which requires that restricted cash be presented with cash and cash equivalents in the statement of cash flows. Restricted cash is recorded in Other current assets and in Other assets in the Company's Consolidated Balance Sheets. The Company adopted ASU 2016-18 in the first quarter of 2018 using the retrospective transition method, and accordingly, revised prior period amounts as shown in the Company's Consolidated Statements of Cash Flows.
The following table provides a reconciliation of cash, cash equivalents and restricted cash reported in the Consolidated Balance SheetSheets to the total of the amounts reported in the Consolidated StatementStatements of Cash Flows:
| | | | | | | | | | | |
(In thousands) | Successor Company |
| December 31, 2020 | | December 31, 2019 |
Cash and cash equivalents | $ | 720,662 | | | $ | 400,300 | |
Restricted cash included in: | | | |
Other current assets(1) | 0 | | | 11,318 | |
Other assets | 525 | | | 0 | |
Total cash, cash equivalents and restricted cash in the Statement of Cash Flows | $ | 721,187 | | | $ | 411,618 | |
(1) During the quarter ended December 31, 2020, the Successor Company settled the remaining claims outstanding and provided a final distribution to all General Unsecured Claimholders. As a result the remaining balance held in the Guarantor General Unsecured Recovery Cash Pool pursuant to the terms of the Plan of Reorganization of $9.9M was released and was reclassified as cash and cash equivalents available for general use.
NOTE 2 - EMERGENCE FROM VOLUNTARY REORGANIZATION UNDER CHAPTER 11 PROCEEDINGS
|
| | | | | | | |
(In thousands) | December 31, 2018 | | December 31, 2017 |
Cash and cash equivalents | $ | 406,493 |
| | $ | 267,109 |
|
Restricted cash included in: | | | |
Other current assets | 7,649 |
| | 26,096 |
|
Other assets | 16,192 |
| | 18,095 |
|
Total cash, cash equivalents and restricted cash in the Statement of Cash Flows | $ | 430,334 |
| | $ | 311,300 |
|
Plan of ReorganizationAs described in Note 1, on May 1, 2019, the Company and the other Debtors emerged from bankruptcy pursuant to the Plan of Reorganization. Capitalized terms not defined in this note are defined in the Plan of Reorganization.
On or following the Effective Date and pursuant to the Plan of Reorganization, the following occurred:
▪CCOH was separated from and ceased to be controlled by iHeartCommunications and its subsidiaries.
▪The existing indebtedness of iHeartCommunications of approximately $16 billion was discharged, the Company entered into the Term Loan Facility ($3,500 million) and issued the 6.375% Senior Secured Notes ($800 million) and the Senior Unsecured Notes ($1,450 million), collectively the “Successor Emergence Debt.”
▪The Company adopted an amended and restated certificate of incorporation and bylaws.
▪Shares of the Predecessor Company’s issued and outstanding common stock immediately prior to the Effective Date were canceled, and on the Effective Date, reorganized iHeartMedia issued an aggregate of 56,861,941 shares of iHeartMedia Class A common stock, 6,947,567 shares of Class B common stock and special warrants to purchase 81,453,648 shares of Class A common stock or Class B common stock to holders of claims pursuant to the Plan of Reorganization.
▪The following table provides a reconciliationclasses of cash, cash equivalentsclaims received the Successor Emergence Debt and restricted cash reported99.1% of the new equity, as defined in the Debtors' Balance Sheet to the totalPlan of the amounts reported in the Debtors' Statement of Cash Flows:Reorganization:
▪Secured Term Loan / 2019 PGN Claims (Class 4)
▪Secured Non-9.0% PGN Due 2019 Claims Other Than Exchange 11.25% PGN Claims (Class 5A)
|
| | | |
(In thousands) | December 31, 2018 |
Cash and cash equivalents | $ | 178,924 |
|
Restricted cash included in: | |
Other current assets | 3,428 |
|
Total cash, cash equivalents and restricted cash in the Statement of Cash Flows | $ | 182,352 |
|
New Accounting Pronouncements Not Yet Adopted
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. The most significant change to the standard includes the recognition of right-of-use assets and lease liabilities by lessees for those leases classified as operating leases. Lessor accounting also is updated to align with certain changes in the lessee model and the new revenue recognition standard which was adopted this year. The standard is effective for annual periods, and for interim periods within those annual periods, beginning after December 15, 2018. The Company plans to elect the package of practical expedients permitted under the new standard’s transition guidance for leases that commenced before the standard’s effective date, which, among other things, allows the Company to not reassess whether any expired or existing contracts are or contain leases and to carry forward the historical lease classification. The standard is expected to have a material impact on our consolidated balance sheet, but is not expected to materially impact our consolidated statement of comprehensive loss or cash flows. In accordance with the transition guidance, the Company will recognize upon adoption its deferred gains on sale and leaseback transactions, which were not a result of off-market terms, as a cumulative-effect adjustment to equity. The Company also expects to conclude that fewer revenue contracts meet the definition of a lease for accounting purposes, and therefore more of our revenue transactions will be accounted for as revenue from contracts with customers. The Company is in the process of finalizing its implementation of this standard.
IHEARTMEDIA, INC.AND SUBSIDIARIES (DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
▪Secured Exchange 11.25% PGN Claims (Class 5B)
▪iHC 2021 / Legacy Notes Claims (Class 6)
▪Guarantor Funded Debt against other Guarantor Debtors Other than CCH and TTWN (Class 7)
▪The holders of the Guarantor Funded Debt Unsecured Claims Against CCH (Class 7F) received their Pro Rata share of 100 percent of the CCOH Interests held by the Debtors and CC Finco, LLC and Broader Media, LLC. Refer to the discussion below regarding the Separation Transaction.
▪ Settled the following classes of claims in cash:
•General Unsecured Claims Against Non-Obligor Debtors (Class 7A); paid in full
•General Unsecured Claims Against TTWN Debtors (Class 7B); paid in full
•iHC Unsecured Claims (Class 7D); paid 14.44% of allowed claim
•Guarantor General Unsecured Claims (Class 7G); paid minimum of 45% and maximum of 55% of allowed claim
▪The CCOH Due From Claims (Class 8) represent the negotiated claim between iHeartMedia and CCOH, which was settled in cash on the date of emergence at 14.44%.
▪The Predecessor Company’s common stockholders (Class 9) received their pro rata share of 1% of the new common stock; provided that 0.1% of the new common stock that otherwise would have been distributed to the Company's former sponsors was instead distributed to holders of Legacy Notes Claims.
▪The Company entered into a new $450.0 million ABL Facility, which was undrawn at emergence.
▪The Company funded the Guarantor General Unsecured Recovery Cash Pool for $17.5 million in order to settle the Class 7G General Unsecured Claims.
▪The Company funded the Professional Fee Escrow Account.
▪On the Effective Date, the iHeartMedia, Inc. 2019 Equity Incentive Plan (the “Post-Emergence Equity Plan”) became effective. The Post-Emergence Equity Plan allows the Company to grant stock options and restricted stock units representing up to 12,770,387 shares of Class A common stock for key members of management and service providers and up to 1,596,298 for non-employee members of the board of directors. The amounts of Class A common stock reserved under the Post-Emergence Equity Plan were equal to 8% and 1%, respectively, of the Company’s fully-diluted and distributed shares of Class A common stock as of the Effective Date.
In addition, as part of the Separation, iHeartCommunications and CCOH consummated the following transactions:
▪the cash sweep agreement under the then-existing corporate services agreement and any agreements or licenses requiring royalty payments to iHeartMedia by CCOH for trademarks or other intellectual property (“Trademark License Fees”) were terminated;
▪iHeartCommunications, iHeartMedia, iHeartMedia Management Services, Inc. (“iHM Management Services”) and CCOH entered into a transition services agreement (the “Transition Services Agreement”) pursuant to which, the Company or its subsidiaries will provide administrative services historically provided to CCOH by iHeartCommunications for a period of one year after the Effective Date, which was terminated on August 31, 2020;
▪the Trademark License Fees charged to CCOH during the post-petition period were waived by iHeartMedia;
▪iHeartMedia contributed the rights, title and interest in and to all tradenames, trademarks, service marks, common law marks and other rights related to the Clear Channel tradename (the “CC Intellectual Property”) to CCOH;
IHEARTMEDIA, INC.AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
▪iHeartMedia paid $115.8 million to CCOH, which consisted of the $149.0 million payment by iHeartCommunications to CCOH as CCOH’s recovery of its claims under the Due from iHeartCommunications Note, partially offset by the $33.2 million net amount payable to iHeartCommunications under the post-petition intercompany balance between iHeartCommunications and CCOH after adjusting for the post-petition Trademark License Fees which were waived as part of the settlement agreement;
▪iHeartCommunications entered into a revolving loan agreement with Clear Channel Outdoor, LLC (“CCOL”) and Clear Channel International, Ltd., wholly-owned subsidiaries of CCOH, to provide a line of credit in an aggregate amount not to exceed $200 million at the prime rate of interest, which was terminated by the borrowers on July 2018,30, 2019 in connection with the closing of an underwritten public offering of common stock by CCOH; and
▪iHeart Operations, Inc. issued $60.0 million in preferred stock to a third party for cash (see Note 9, Long-Term Debt).
NOTE 3 - FRESH START ACCOUNTING
Fresh Start
In connection with the Company's emergence from bankruptcy and in accordance with ASC 852, the Company qualified for and adopted fresh start accounting on the Effective Date. The FASB issued ASU No. 2018-11, Leases (Topic 842) - Targeted Improvements. The update provides an additional (optional) transition methodCompany was required to adopt fresh start accounting because (i) the new lease standard, allowing entitiesholders of existing voting shares of the Predecessor Company received less than 50% of the voting shares of the Successor Company and (ii) the reorganization value of the Company's assets immediately prior to applyconfirmation of the new lease standardPlan of Reorganization was less than the post-petition liabilities and allowed claims.
In accordance with ASC 852, with the application of fresh start accounting, the Company allocated its reorganization value to its individual assets based on their estimated fair values in conformity with ASC 805, "Business Combinations." The reorganization value represents the fair value of the Successor Company's assets before considering liabilities. The excess reorganization value over the fair value of identified tangible and intangible assets is reported as goodwill. As a result of the application of fresh start accounting and the effects of the implementation of the Plan of Reorganization, the consolidated financial statements after May 1, 2019 are not comparable with the consolidated financial statements as of or prior to that date.
Reorganization Value
As set forth in the Plan of Reorganization and the Disclosure Statement, the enterprise value of the Successor Company was estimated to be between $8.0 billion and $9.5 billion. Based on the estimates and assumptions discussed below, the Company estimated the enterprise value to be $8.75 billion, which was the mid-point of the range of enterprise value as of the Effective Date.
Management and its valuation advisors estimated the enterprise value of the Successor Company, which was approved by the Bankruptcy Court. The selected publicly traded companies analysis approach, the discounted cash flow analysis approach and the selected transactions analysis approach were all utilized in estimating the enterprise value. The use of each approach provides corroboration for the other approaches. To estimate enterprise value utilizing the selected publicly traded companies analysis method, valuation multiples derived from the operating data of publicly-traded benchmark companies to the same operating data of the Company were applied. The selected publicly traded companies analysis identified a group of comparable companies giving consideration to lines of business and markets served, size and geography. The valuation multiples were derived based on historical and projected financial measures of revenue and earnings before interest, taxes, depreciation and amortization and applied to projected operating data of the Company.
To estimate enterprise value utilizing the discounted cash flow method, an estimate of future cash flows for the period 2019 to 2022 with a terminal value was determined and discounted the estimated future cash flows to present value. The expected cash flows for the period 2019 to 2022 with a terminal value were based upon certain financial projections and assumptions provided to the Bankruptcy Court. The expected cash flows for the period 2019 to 2022 were derived from earnings forecasts and assumptions regarding growth and margin projections, as applicable. A terminal value was included, calculated using the terminal multiple method, which estimates a range of values at which the Successor Company will be valued at the adoption date.end of the Projection Period based on applying a terminal multiple to final year Adjusted EBITDA (referred to as "OIBDAN" in the
IHEARTMEDIA, INC.AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
documents filed with the Bankruptcy Court), which is defined as consolidated operating income adjusted to exclude non-cash compensation expenses included within corporate expenses, as well as Depreciation and amortization, Impairment charges and Other operating income (expense), net.
To estimate enterprise value utilizing the selected transactions analysis, valuation multiples were derived from an analysis of consideration paid and net debt assumed from publicly disclosed merger or acquisition transactions, and such multiples were applied to the broadcast cash flows of the Successor Company. The selected transactions analysis identified companies and assets involved in publicly disclosed merger and acquisition transactions for which the targets had operating and financial characteristics comparable in certain respects to the Successor Company.
The following table reconciles the enterprise value per the Plan of Reorganization to the implied value (for fresh start accounting purposes) of the Successor Company's common stock as of the Effective Date:
| | | | | |
(In thousands, except per share data) | |
Enterprise Value | $ | 8,750,000 | |
Plus: | |
Cash and cash equivalents | 63,142 | |
Less: | |
Debt issued upon emergence | (5,748,178) | |
Finance leases and short-term notes | (61,939) | |
Mandatorily Redeemable Preferred Stock | (60,000) | |
Changes in deferred tax liabilities(1) | (163,910) | |
Noncontrolling interest | (8,943) | |
Implied value of Successor Company common stock | $ | 2,770,172 | |
| |
Shares issued upon emergence (2) | 145,263 | |
Per share value | $ | 19.07 | |
(1) Difference in the assumed effect of deferred taxes in the calculation of enterprise value versus the actual effect of deferred taxes as of May 1.
(2) Includes the Class A Common Stock, Class B Common Stock and Special Warrants issued at emergence.
The reconciliation of the Company’s enterprise value to reorganization value as of the Effective Date is as follows:
| | | | | |
(In thousands) | |
Enterprise Value | $ | 8,750,000 | |
Plus: | |
Cash and cash equivalents | 63,142 | |
Current liabilities (excluding Current portion of long-term debt) | 426,944 | |
Deferred tax liability | 596,850 | |
Other long-term liabilities | 54,393 | |
Noncurrent operating lease obligations | 818,879 | |
Reorganization value | $ | 10,710,208 | |
IHEARTMEDIA, INC.AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Balance Sheet
The adjustments set forth in the following consolidated balance sheet as of May 1, 2019 reflect the effect of the Separation (reflected in the column "Separation of CCOH Adjustments"), the consummation of the transactions contemplated by the Plan of Reorganization that are incremental to the Separation (reflected in the column "Reorganization Adjustments") and the fair value adjustments as a result of applying fresh start accounting (reflected in the column "Fresh Start Adjustments"). The explanatory notes highlight methods used to determine fair values or other amounts of the assets and liabilities, as well as significant assumptions or inputs.
IHEARTMEDIA, INC.AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(In thousands) | | | Separation of CCOH Adjustments | | Reorganization Adjustments | | Fresh Start Adjustments | | |
| Predecessor | | (A) | | (B) | | (C) | | Successor |
CURRENT ASSETS | | | | | | | | | |
Cash and cash equivalents | $ | 175,811 | | | $ | — | | | $ | (112,669) | | (1) | $ | — | | | $ | 63,142 | |
Accounts receivable, net | 748,326 | | | — | | | — | | | (10,810) | | (1) | 737,516 | |
Prepaid expenses | 127,098 | | | — | | | — | | | (24,642) | | (2) | 102,456 | |
Other current assets | 22,708 | | | — | | | 8,125 | | (2) | (1,668) | | (3) | 29,165 | |
Current assets of discontinued operations | 1,000,753 | | | (1,000,753) | | (1) | — | | | — | | | — | |
Total Current Assets | 2,074,696 | | | (1,000,753) | | | (104,544) | | | (37,120) | | | 932,279 | |
PROPERTY, PLANT AND EQUIPMENT | | | | | | | | | |
| | | | | | | | | |
Property, plant and equipment, net | 499,001 | | | — | | | — | | | 333,991 | | (4) | 832,992 | |
INTANGIBLE ASSETS AND GOODWILL | | | | | | | | | |
Indefinite-lived intangibles - licenses | 2,326,626 | | | — | | | — | | | (44,906) | | (5) | 2,281,720 | |
| | | | | | | | | |
Other intangibles, net | 104,516 | | | — | | | — | | | 2,240,890 | | (5) | 2,345,406 | |
Goodwill | 3,415,492 | | | — | | | — | | | (92,127) | | (5) | 3,323,365 | |
OTHER ASSETS | | | | | | | | | |
Operating lease right-of-use assets | 355,826 | | | — | | | — | | | 554,278 | | (6) | 910,104 | |
Other assets | 139,409 | | | — | | | (384) | | (3) | (54,683) | | (2) | 84,342 | |
Long-term assets of discontinued operations | 5,351,513 | | | (5,351,513) | | (1) | — | | | — | | | — | |
Total Assets | $ | 14,267,079 | | | $ | (6,352,266) | | | $ | (104,928) | | | $ | 2,900,323 | | | $ | 10,710,208 | |
CURRENT LIABILITIES | | | | | | | | | |
Accounts payable | $ | 41,847 | | | $ | — | | | $ | 3,061 | | (4) | $ | — | | | $ | 44,908 | |
Current operating lease liabilities | 470 | | | — | | | 31,845 | | (7) | 39,092 | | (6) | 71,407 | |
Accrued expenses | 208,885 | | | — | | | (32,250) | | (5) | 2,328 | | (9) | 178,963 | |
Accrued interest | 462 | | | — | | | (462) | | (6) | — | | | — | |
Deferred revenue | 128,452 | | | — | | | — | | | 3,214 | | (7) | 131,666 | |
Current portion of long-term debt | 46,618 | | | — | | | 6,529 | | (7) | 40 | | (6) | 53,187 | |
Current liabilities of discontinued operations | 999,778 | | | (999,778) | | (1) | — | | | — | | | — | |
Total Current Liabilities | 1,426,512 | | | (999,778) | | | 8,723 | | | 44,674 | | | 480,131 | |
Long-term debt | — | | | — | | | 5,758,516 | | (8) | (1,586) | | (8) | 5,756,930 | |
Series A Mandatorily Redeemable Preferred Stock | — | | | — | | | 60,000 | | (9) | — | | | 60,000 | |
Noncurrent operating lease liabilities | 828 | | | — | | | 398,154 | | (7) | 419,897 | | (6) | 818,879 | |
Deferred income taxes | 0 | | | — | | | 575,341 | | (10) | 185,419 | | (10) | 760,760 | |
Other long-term liabilities | 121,081 | | | — | | | (64,524) | | (11) | (2,164) | | (7) | 54,393 | |
Liabilities subject to compromise | 16,770,266 | | | — | | | (16,770,266) | | (7) | — | | | — | |
Long-term liabilities of discontinued operations | 7,472,633 | | | (7,472,633) | | (1) | — | | | — | | | — | |
Commitments and contingent liabilities (Note 10) | | | | | | | | | |
STOCKHOLDERS’ EQUITY (DEFICIT) | | | | | | | | | |
Noncontrolling interest | 13,584 | | | (13,199) | | (1) | — | | | 8,558 | | (11) | 8,943 | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
Predecessor common stock | 92 | | | — | | | (92) | | (12) | — | | | — | |
Successor Class A Common Stock | — | | | — | | | 57 | | (13) | — | | | 57 | |
Successor Class B Common Stock | — | | | — | | | 7 | | (13) | — | | | 7 | |
Predecessor additional paid-in capital | 2,075,130 | | | — | | | (2,075,130) | | (12) | — | | | — | |
Successor additional paid-in capital | — | | | | | 2,770,108 | | (13) | — | | | 2,770,108 | |
Accumulated deficit | (13,288,497) | | | 1,825,531 | | (1) | 9,231,616 | | (14) | 2,231,350 | | (12) | — | |
Accumulated other comprehensive loss | (321,988) | | | 307,813 | | (1) | — | | | 14,175 | | (12) | — | |
Cost of share held in treasury | (2,562) | | | — | | | 2,562 | | (12) | — | | | — | |
Total Stockholders' Equity (Deficit) | (11,524,241) | | | 2,120,145 | | | 9,929,128 | | | 2,254,083 | | | 2,779,115 | |
Total Liabilities and Stockholders' Equity (Deficit) | $ | 14,267,079 | | | $ | (6,352,266) | | | $ | (104,928) | | | $ | 2,900,323 | | | $ | 10,710,208 | |
IHEARTMEDIA, INC.AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. Separation of CCOH Adjustments
(1) On May 1, 2019, as part of the Separation, the outstanding shares of both classes of CCOH common stock were consolidated such that CCH held all of the outstanding CCOH Class A common stock that was held by subsidiaries of iHeartCommunications, through a series of share distributions by other subsidiaries that held CCOH common stock and a conversion of CCOH Class B common stock that CCH held to CCOH Class A common stock. Prior to the Separation, iHeartCommunications owned approximately 89.1% of the economic rights and approximately 99% of the voting rights of CCOH. To complete the Separation, CCOH merged with and into CCH, with CCH surviving the merger and changing its name to Clear Channel Outdoor Holdings, Inc. (“New CCOH”), and pre-merger shares of CCOH Class A common stock (other than shares of CCOH Class A common stock held by CCH or any direct or indirect wholly-owned subsidiary of CCH) were converted into an equal number of shares of post-merger common stock of New CCOH. iHeartCommunications transferred the post-merger common stock of New CCOH it held to Claimholders pursuant to the Plan of Reorganization but retained 31,269,762 shares. Such retained shares were distributed to two affiliated Claimholders on July 18, 2019. Upon completion of the merger and Separation, New CCOH became an independent public company. Upon distribution of the shares held by iHeartCommunications, the Company does not hold any ownership interest in CCOH.
The assets and liabilities of CCOH have been classified as discontinued operations. The discontinued operations reflect the assets and liabilities of CCOH, which are presented as discontinued operations as of the Effective Date. CCOH’s assets and liabilities are adjusted to: (1) eliminate the balance on the Due from iHeartCommunications Note and the balance on the intercompany payable due to iHeartCommunications from CCOH’s consolidated balance sheet, which are intercompany amounts that were eliminated in consolidation; (2) eliminate CCOH’s Noncontrolling interest and treasury shares; and (3) eliminate other intercompany balances.
B. Reorganization Adjustments
In accordance with the Plan of Reorganization, the following adjustments were made:
(1) The table below reflects the sources and uses of cash on the Effective Date from implementation of the Plan:
| | | | | | | | |
(In thousands) | | |
Cash at May 1, 2019 (excluding discontinued operations) | $ | 175,811 | | |
Sources: | | |
Proceeds from issuance of Mandatorily Redeemable Preferred Stock | $ | 60,000 | | |
Release of restricted cash from other assets into cash | 3,428 | | |
Total sources of cash | $ | 63,428 | | |
Uses: | | |
Payment of Mandatorily Redeemable Preferred Stock issuance costs | $ | (1,513) | | |
Payment of New Term Loan Facility to settle certain creditor claims | (1,822) | | |
Payments for Emergence debt issuance costs | (7,213) | | |
Funding of the Guarantor General Unsecured Recovery Cash Pool | (17,500) | | |
Payments for fully secured claims and general unsecured claims | (1,990) | | |
Payment of contract cure amounts | (15,763) | | |
Payment of consenting stakeholder fees | (4,000) | | |
Payment of professional fees | (85,091) | | (a) |
Funding of Professional Fees Escrow Account | (41,205) | | (a) |
Total uses of cash | $ | (176,097) | | |
Net uses of cash | $ | (112,669) | | |
Cash upon emergence | $ | 63,142 | | |
IHEARTMEDIA, INC.AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(a) Approximately $30.5 million of professional fees paid at emergence were accrued as of May 1, 2019. These payments also reflect both the payment of success fees for $86.1 million and other professionals paid directly at emergence.
(2) Pursuant to the terms of the Plan of Reorganization, on the Effective Date, the Company funded the Guarantor General Unsecured Recovery Cash Pool account in the amount of $17.5 million, which was reclassified as restricted cash within Other current assets. The Company plansmade payments of $6.0 million through the Cash Pool at the time of emergence. Additionally, $3.4 million of restricted cash previously held to adopt Topic 842 following this optional transition method. pay critical utility vendors was reclassified to cash.
(3) Reflects the write-off of prepaid expenses related to the $2.3 million of prepaid premium for Predecessor Company's director and officer insurance policy, offset by the accrual of future reimbursements of $1.9 million for negotiated discounts related to the professional fee escrow account.
(4) Reflects the reinstatement of $3.1 million of accounts payable included within Liabilities subject to compromise to be satisfied in the ordinary course of business.
IHEARTMEDIA, INC.AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(5) Reflects the reduction of accrued expenses related to the $21.2 million of professional fees paid directly, $9.3 million of professional fees paid through the Professional Fee Escrow Account and other accrued expense items. Additionally, the Company reinstated accrued expenses included within Liabilities subject to compromise to be satisfied in the ordinary course of business.
| | | | | |
(In thousands) | |
Reinstatement of accrued expenses | $ | 551 | |
Payment of professional fees | (21,177) | |
Payment of professional fees through the escrow account | (9,260) | |
Impact on other accrued expenses | (2,364) | |
Net impact on Accrued expenses | $ | (32,250) | |
(6) Reflects the write-off of the DIP facility accrued interest associated with the DIP facility fees paid at emergence.
(7) As part of the Plan of Reorganization, the Bankruptcy Court approved the settlement of claims reported within Liabilities subject to compromise in the Company's Consolidated balance sheet at their respective allowed claim amounts.
The update also provides lessors a practical expedienttable below indicates the disposition of Liabilities subject to allow them to not separate non-lease componentscompromise:
| | | | | | | | |
(In thousands) | | |
Liabilities subject to compromise pre-emergence | $ | 16,770,266 | | |
To be reinstated on the Effective Date: | | |
Deferred taxes | $ | (596,850) | | |
Accrued expenses | (551) | | |
Accounts payable | (3,061) | | |
Finance leases and other debt | (16,867) | | (a) |
Current operating lease liabilities | (31,845) | | |
Noncurrent operating lease liabilities | (398,154) | | |
Other long-term liabilities | (14,518) | | (b) |
Total liabilities reinstated | $ | (1,061,846) | | |
Less amounts settled per the Plan of Reorganization | | |
Issuance of new debt | $ | (5,750,000) | | |
Payments to cure contracts | (15,763) | | |
Payments for settlement of general unsecured claims from escrow account | (5,822) | | |
Payments for fully secured and other claim classes at emergence | (1,990) | | |
Equity issued at emergence to creditors in settlement of Liabilities subject to Compromise | (2,742,471) | | |
Total amounts settled | (8,516,046) | | |
Gain on settlement of Liabilities Subject to Compromise | $ | 7,192,374 | | |
(a) Includes finance lease liabilities and other debt of $6.6 million and $10.3 million classified as current and long-term debt, respectively.
(b) Reinstatement of Other long-term liabilities were as follows:
| | | | | |
(In thousands) | |
Reinstatement of long-term asset retirement obligations | $ | 3,527 | |
Reinstatement of non-qualified deferred compensation plan | 10,991 | |
Total reinstated Other long-term liabilities | $ | 14,518 | |
IHEARTMEDIA, INC.AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(8) The exit financing consists of the Term Loan Facility of approximately $3.5 billion and 6.375% Senior Secured Notes totaling $800 million, both maturing seven years from the associated lease componentdate of issuance, the Senior Unsecured Notes totaling $1.45 billion, maturing eight years from the date of issuance, and insteada $450 million ABL Facility with no amount drawn at emergence, which matures on June 14, 2023.
Upon emergence, the Company paid cash of $1.8 million to accountsettle certain creditor claims for those componentswhich claims were designated to receive term loans pursuant to the Plan of Reorganization.
The remaining $10.3 million is related to the reinstatement of the Long-term portion of finance leases and other debt as described above.
| | | | | | | | | | | | | | | | | |
(In thousands) | Term | | Interest Rate | | Amount |
Term Loan Facility | 7 years | | Libor + 4.00% | | $ | 3,500,000 | |
6.375% Senior Secured Notes | 7 years | | 6.375% | | 800,000 | |
Senior Unsecured Notes | 8 years | | 8.375% | | 1,450,000 | |
Asset-based Revolving Credit Facility | 4 years | | Varies(a) | | 0 | |
Total Long-Term Debt - Exit Financing | | | | | $ | 5,750,000 | |
Less: | | | | | |
Payment of Term Loan Facility to settle certain creditor claims | | | | | (1,822) | |
Net proceeds from exit financing at emergence | | | | | $ | 5,748,178 | |
Long-term portion of finance leases and other debt reinstated | | | | | 10,338 | |
Net impact on Long-term debt | | | | | $ | 5,758,516 | |
(a) Borrowings under the ABL Facility bear interest at a rate per annum equal to the applicable rate plus, at iHeartCommunications’ option, either (x) a eurocurrency rate or (y) a base rate. The applicable margin for borrowings under the ABL Facility range from 1.25% to 1.75% for eurocurrency borrowings and from 0.25% to 0.75% for base-rate borrowings, in each case, depending on average excess availability under the ABL Facility based on the most recently ended fiscal quarter.
(9) Reflects the issuance by iHeart Operations of $60.0 million in aggregate liquidation preference of its Series A Perpetual Preferred Stock, par value $0.001 per share. On May 1, 2029, the shares of the Preferred Stock will be subject to mandatory redemption for $60.0 million in cash, plus any accrued and unpaid dividends, unless waived by the holders of the Preferred Stock.
(10) Reflects the reinstatement of deferred tax liabilities included within Liabilities subject to compromise of $596.9 million, offset by an adjustment to net deferred tax liabilities of $21.5 million. Upon emergence from the Chapter 11 Cases, iHeartMedia’s federal and state net operating loss carryforwards were reduced in accordance with Section 108 of the U.S. Internal Revenue Code of 1986, as amended (the “Code”), due to cancellation of debt income, which is excluded from U.S. federal taxable income. The estimated remaining deferred tax assets attributed to federal and state net operating loss carryforwards upon emergence totaled $114.9 million. The adjustments reflect a reduction in deferred tax assets for federal and state net operating loss carryforwards as described above, a reduction in deferred tax liabilities attributed to long-term debt as a singleresult of the restructuring of our indebtedness upon emergence and a reduction in valuation allowance.
(11) Reflects the reinstatement of Other long-term liabilities from Liabilities subject to compromise, offset by the reduction of liabilities for unrecognized tax benefits classified as Other long-term liabilities that were discharged and effectively settled upon emergence.
IHEARTMEDIA, INC.AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
| | | | | |
(In thousands) | |
Reinstatement of long-term asset retirement obligations | $ | 3,527 | |
Reinstatement of non-qualified pension plan | 10,991 | |
Reduction of liabilities for unrecognized tax benefits | (79,042) | |
Net impact to Other long-term liabilities | $ | (64,524) | |
(12) Pursuant to the terms of the Plan of Reorganization, as of the Effective Date, all Predecessor common stock and stock-based compensation awards were canceled without any distribution. As a result of the cancellation, the Company recognized $1.5 million in compensation expense related to the unrecognized portion of share-based compensation as of the Effective Date.
(13) Reflects the issuance of Successor Company equity, including the issuance of 56,861,941 shares of iHeartMedia Class A common stock, 6,947,567 shares of Class B common stock and special warrants to purchase 81,453,648 shares of Class A common stock or Class B common stock in exchange for claims against or interests in iHeartMedia pursuant to the Plan of Reorganization.
| | | | | | |
(In thousands) | | |
Equity issued to Class 9 Claimholders (prior equity holders) | $ | 27,701 | | |
Equity issued to creditors in settlement of Liabilities subject to compromise | 2,742,471 | | |
Total equity issued at emergence | $ | 2,770,172 | | |
(14) The table reflects the cumulative impact of the reorganization adjustments discussed above:
| | | | | | | | |
(In thousands)
| | |
Gain on settlement of Liabilities subject to compromise | $ | 7,192,374 | | |
Payment of professional fees upon emergence | (11,509) | | |
Payment of success fees upon emergence | (86,065) | | |
Cancellation of unvested stock-based compensation awards | (1,530) | | |
Cancellation of Predecessor prepaid director and officer insurance policy | (2,331) | | |
Write-off of debt issuance and Mandatorily Redeemable Preferred Stock costs incurred at emergence | (8,726) | | |
Total Reorganization items, net | $ | 7,082,213 | | |
| | |
Income tax benefit | $ | 102,914 | | |
Cancellation of Predecessor Equity | 2,074,190 | | (a) |
Issuance of Successor Equity to prior equity holders | (27,701) | | |
Net Impact on Accumulated deficit | $ | 9,231,616 | | |
(a) This value is reflective of Predecessor common stock, Additional paid in capital and the recognition of $1.5 million in compensation expense related to the unrecognized portion of share-based compensation, less Treasury stock.
C. Fresh Start Adjustments
We have applied fresh start accounting in accordance with ASC 852. Fresh start accounting requires the revaluation of our assets and liabilities to fair value, including both existing and new intangible assets, such as FCC licenses, developed technology, customer relationships and tradenames. Fresh start accounting also requires the elimination of all predecessor earnings or deficits in Accumulated deficit and Accumulated other comprehensive loss. These adjustments reflect the actual amounts recorded as of the Effective Date.
(1) Reflects the fair value adjustment as of May 1, 2019 made to accounts receivable to reflect management's best estimate of the expected collectability of accounts receivable balances.
IHEARTMEDIA, INC.AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(2) Reflects the fair value adjustment as of May 1, 2019 to eliminate certain prepaid expenses related to software implementation costs and other upfront payments. The Company historically incurred third-party implementation fees in connection with installing various cloud-based software products, and these amounts were recorded as prepaid expenses and recognized as a component ifof selling, general and administrative expense over the term of the various contracts. The Company determined that the remaining unamortized costs related to such implementation fees do not provide any rights that result in future economic benefits. In addition, the Company pays signing bonuses to certain criteria are met. The updated practical expedientof its on-air personalities, and these amounts were recorded as prepaid expenses and recognized as a component of Direct operating expenses over the terms of the various contracts. To the extent these contracts do not contain substantive claw-back provisions, these prepaid amounts do not provide any enforceable rights that result in future economic benefits. Accordingly, the balances related to these contracts as of May 1, 2019 were adjusted to zero.
(3) Reflects the fair value adjustment to eliminate receivables related to tenant allowances per certain lease agreements. These receivables were incorporated into the recalculated lease obligations per ASC 842.
(4) Reflects the fair value adjustment to recognize the Company’s property, plant and equipment as of May 1, 2019 based on the fair values of such property, plant and equipment. Property was valued using a market approach comparing similar properties to recent market transactions. Equipment and towers were valued primarily using a replacement cost approach. Internally-developed and owned software technology assets were valued primarily using the Royalty Savings Method, similar to the approach used in valuing the Company’s tradenames and trademarks. Estimated royalty rates were determined for lessors will not have a material effecteach of the software technology assets considering the relative contribution to the Company’s consolidatedoverall profitability as well as available public market information regarding market royalty rates for similar assets. The selected royalty rates were applied to the revenue generated by the software technology assets. The forecasted cash flows expected to be generated as a result of the royalty savings were discounted to present value utilizing a discount rate considering overall business risks and risks associated with the asset being valued. For certain of the software technology assets, the Company used the cost approach which utilized historical financial statements.data regarding development costs and expected future profit associated with the assets. The adjustment to the Company’s property, plant and equipment consists of a $182.9 million increase in tangible property and equipment and a $151.0 million increase in software technology assets
During
(5) Historical goodwill and other intangible assets have been eliminated and the first quarterCompany has recognized certain intangible assets at estimated current fair values as part of 2017, the FASB issued ASU 2017-04, Intangibles - Goodwillapplication of fresh start accounting, with the most material intangible assets being the FCC licenses related to the Company’s 854 radio stations. The Company has also recorded customer-related and Other (Topic 350). This update eliminatesmarketing-related intangible assets, including the requirement to calculateiHeart tradename.
The following table sets forth estimated fair values of the impliedcomponents of these intangible assets and their estimated useful lives:
| | | | | | | | | | | |
(In thousands) | Estimated Fair Value | | Estimated Useful Life |
FCC licenses | $ | 2,281,720 | | (a) | Indefinite |
Customer / advertiser relationships | 1,643,670 | | (b) | 5 - 15 years |
Talent contracts | 373,000 | | (b) | 2 - 10 years |
Trademarks and tradenames | 321,928 | | (b) | 7 - 15 years |
Other | 6,808 | | (c) | |
Total intangible assets upon emergence | $ | 4,627,126 | | | |
Elimination of historical acquired intangible assets | (2,431,142) | | | |
Fresh start adjustment to acquired intangible assets | $ | 2,195,984 | | | |
(a) FCC licenses. The fair value of the indefinite-lived FCC licenses was determined primarily using the direct valuation method of the Income Approach and, for smaller markets a combination of the Income approach and the Market Approach. 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 FCC licenses.
Under the direct valuation method, the fair value of the FCC licenses was calculated at the market level as prescribed by ASC 350. The application of the direct valuation method attempts to isolate the income that is
IHEARTMEDIA, INC.AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
properly attributable to the FCC licenses 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. Under the direct valuation method, it is assumed that rather than acquiring FCC licenses as part of a going concern business, the buyer hypothetically obtains FCC licenses 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 measurethe FCC licenses. In applying the direct valuation method to the Company’s FCC licenses, the licenses are grouped by type (e.g. FM licenses vs. AM licenses) and market size in order to ensure appropriate assumptions are used in valuing the various FCC licenses based on population and demographics that influence the level of revenues generated by each FCC license, using industry projections. The key assumptions used in applying the direct valuation method include market revenue growth rates, market share, profit margin, duration and profile of the build-up period, estimated start-up capital costs and losses incurred during the build-up period, the risk-adjusted discount rate (“WACC”) and terminal values. The WACC was calculated by weighting the required returns on interest-bearing debt and common equity capital in proportion to their estimated percentages based on a goodwill impairment charge. Entities will record an impairment chargemarket participant capital structure.
For licenses valued using the Market Transaction Method, the Company used publicly available data, which included sales of comparable radio stations and FCC auction data involving radio broadcast licenses to estimate the fair value of FCC licenses. Similar to the application of the Income approach for the FCC licenses, the Company grouped licenses by type and market size for comparison to historical market transactions.
The historical book value of the FCC licenses as of May 1, 2019 was subtracted from the fair value of the FCC licenses to determine the adjustment to decrease the value of Indefinite-lived intangible assets-licenses by $44.9 million.
(b) Other intangible assets. Definite-lived intangible assets include customer/advertiser relationships, talent contracts for on-air personalities, trademarks and tradenames and other intangible assets. The Company engaged a third-party valuation firm to assist in developing the assumptions and determining the fair values of each of these assets.
For purposes of estimating the fair values of customer/advertiser relationships and talent contracts, the Company primarily utilized the Income Approach (specifically, the multi-period excess earnings method, or MPEEM) to estimate fair value based on the excesspresent value of the incremental after-tax cash flows attributable only to the subject intangible assets after deducting contributory asset charges. The cash flows attributable to each grouping of customer/advertiser relationships were adjusted for the appropriate contributory asset charges (e.g., FCC licenses, working capital, tradenames, technology, workforce, etc.). The discount rate utilized to present-value the after-tax cash flows was selected based on consideration of the overall business risks and the risks associated with the specific assets being valued. Additionally, for certain advertiser relationships the Company used the Cost Approach using historical financial data regarding the sales, administrative and overhead expenses related to the Company’s selling efforts associated with revenue for both existing and new advertisers. The ratio of expenses for selling efforts to revenue was applied to total revenue from new customers to determine an estimated cost per revenue dollar of revenue generated by new customers. This ratio was applied to total revenue from existing customers to estimate the replacement cost of existing customer/advertiser relationships. The historical book value of customer/advertiser relationships as of May 1, 2019 was subtracted from the fair value of the customer/advertiser relationships determined as described above to determine the adjustment to increase the value of the customer/advertiser relationship intangible assets by $1,604.1 million.
For purposes of estimating the fair value of trademarks and tradenames, the Company primarily used the Royalty Savings Method, a variation of the Income approach. Estimated royalty rates were determined for each of the trademarks and tradenames considering the relative contribution to the Company’s overall profitability as well as available public information regarding market royalty rates for similar assets. The selected royalty rates were applied to the revenue generated by the trademarks and tradenames to determine the amount of royalty payments saved as a result of owning these assets. The forecasted cash flows expected to be generated as a result of the royalty savings were discounted to present value utilizing a discount rate considering overall business risks and risks associated with the asset being valued. The historical book values of talent contracts, trademarks and
IHEARTMEDIA, INC.AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
tradenames and other intangible assets as of May 1, 2019 were subtracted from the fair values determined as described above to determine the adjustments as follows:
| | | | | | | | |
(In millions) | | |
Customer/advertiser relationships | $ | 1,604.1 | | increase in value |
Talent contracts | 361.6 | | increase in value |
Trademarks and tradenames | 274.4 | | increase in value |
Other | 0.8 | | increase in value |
Total fair value adjustment | $ | 2,240.9 | | increase in value |
(c) Included within other intangible assets are permanent easements, which have an indefinite useful life. All other intangible assets are amortized over the respective lives of the agreements, or over the period of time the assets are expected to contribute directly or indirectly to the Company’s future cash flows.
The following table sets forth the adjustments to goodwill:
| | | | | |
(In thousands) | |
Reorganization value | $ | 10,710,208 | |
Less: Fair value of assets (excluding goodwill) | (7,386,843) | |
Total goodwill upon emergence | 3,323,365 | |
Elimination of historical goodwill | (3,415,492) | |
Fresh start adjustment to goodwill | $ | (92,127) | |
(6) The operating lease obligation as of May 1, 2019 had been calculated using an incremental borrowing rate applicable to the Company while it was a debtor-in-possession before its emergence from bankruptcy. Upon application of fresh start accounting, the lease obligation was recalculated using the incremental borrowing rate applicable to the Company after emergence from bankruptcy and commensurate to its new capital structure. The incremental borrowing rate used decreased from 12.44% as of March 31, 2019 to 6.54% as of May 1, 2019. As a result of this decrease, the Company's Operating lease liabilities and corresponding Operating lease right-of-use assets increased by $541.2 million to reflect the higher balances resulting from the application of a reporting unit's carrying amount overlower incremental borrowing rate. The Operating lease right-of-use-assets were further adjusted to reflect the resetting of the Company's straight-line lease calculation. In addition, the Company increased the Operating lease right-of-use assets to recognize $13.1 million related to the favorable lease contracts.
(7) Reflects the fair value adjustment to adjust deferred revenue and other liabilities as of May 1, 2019 to its estimated fair value. The standard is effectivefair value of the deferred revenue was determined using the market approach and the cost approach. The market approach values deferred revenue based on the amount an acquirer would be required to pay a third party to assume the remaining performance obligations. The cost approach values deferred revenue utilizing estimated costs that will be incurred to fulfill the obligation plus a normal profit margin for annual and any interim impairment tests performed for periods beginning after December 15,the level of effort or assumption of risk by the acquirer. Additionally, a deferred gain was recorded at the time of the certain historical sale-leaseback transaction. During the implementation of ASC 842, the operating portion was written off as of January 1, 2019. The financing lease deferred gain remained. As part of fresh start accounting, this balance of $0.9 million was written off.
(8) Reflects the fair value adjustment to adjust Long-term debt as of May 1, 2019. This adjustment is to state the Company's finance leases and other pre-petition debt at estimated fair values.
(9) Reflects the fair value adjustment to adjust Accrued expenses as of May 1, 2019. This adjustment primarily relates to adjusting vacation accruals to estimated fair values.
IHEARTMEDIA, INC.AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(10) Reflects a net increase to deferred tax liabilities for fresh start adjustments attributed primarily to property, plant and equipment and intangible assets, the effects of which are partially offset by a decrease in the valuation allowance. The Company believes it is currently evaluatingmore likely than not that its deferred tax assets remaining after the Reorganization and emergence will be realized based on taxable income from reversing deferred tax liabilities primarily attributable to property, plant and equipment and intangible assets.
(11) Reflects the adjustment as of May 1, 2019 to state the noncontrolling interest balance at estimated fair value.
IHEARTMEDIA, INC.AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(12) The table below reflects the cumulative impact of the provisionsfresh start adjustments as discussed above:
| | | | | | |
(In thousands) | | |
Fresh start adjustment to Accounts receivable, net | $ | (10,810) | | |
Fresh start adjustment to Other current assets | (1,668) | | |
Fresh start adjustment to Prepaid expenses | (24,642) | | |
Fresh start adjustment to Property, plant and equipment, net | 333,991 | | |
Fresh start adjustment to Intangible assets | 2,195,984 | | |
Fresh start adjustment to Goodwill | (92,127) | | |
Fresh start adjustment to Operating lease right-of-use assets | 554,278 | | |
Fresh start adjustment to Other assets | (54,683) | | |
Fresh start adjustment to Accrued expenses | (2,328) | | |
Fresh start adjustment to Deferred revenue | (3,214) | | |
Fresh start adjustment to Debt | 1,546 | | |
Fresh start adjustment to Operating lease obligations | (458,989) | | |
Fresh start adjustment to Other long-term liabilities | 2,164 | | |
Fresh start adjustment to Noncontrolling interest | (8,558) | | |
Total Fresh Start Adjustments impacting Reorganization items, net | $ | 2,430,944 | | |
Reset of Accumulated other comprehensive income | (14,175) | | |
Income tax expense | (185,419) | | |
Net impact to Accumulated deficit | $ | 2,231,350 | | |
Reorganization Items, Net
The tables below present the Reorganization items incurred and cash paid for Reorganization items as a result of thisthe Chapter 11 Cases during the periods presented:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
(In thousands) | Successor Company | | | Predecessor Company |
| Year Ended December 31, | | Period from May 2, 2019 through December 31, | | | Period from January 1, 2019 through May 1, | | Year Ended December 31, |
| 2020 | | 2019 | | | 2019 | | 2018 |
Write-off of deferred loans costs | $ | 0 | | | $ | 0 | | | | $ | 0 | | | $ | (67,079) | |
Write-off of original issue discount | 0 | | | 0 | | | | 0 | | | (131,100) | |
Debtor-in-possession refinancing costs | 0 | | | 0 | | | | 0 | | | (10,546) | |
Professional fees and other bankruptcy related costs | 0 | | | 0 | | | | (157,487) | | | (147,119) | |
Net gain on settlement of Liabilities subject to compromise | 0 | | | 0 | | | | 7,192,374 | | | (275) | |
Impact of fresh start adjustments | 0 | | | 0 | | | | 2,430,944 | | | 0 | |
Other items, net | 0 | | | 0 | | | | (4,005) | | | 0 | |
Reorganization items, net | $ | 0 | | | $ | 0 | | | | $ | 9,461,826 | | | $ | (356,119) | |
| | | | | | | | |
Cash payments for Reorganization items, net | $ | 443 | | | $ | 18,360 | | | | $ | 183,291 | | | $ | 103,727 | |
The Company incurred additional professional fees related to the bankruptcy, post-emergence, of $6.3 million and $26.5 million for the year ended December 31, 2020 and the period from May 2, 2019 through December 31, 2019, respectively,
IHEARTMEDIA, INC.AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
which are included within Other income (expense), net in the Company's Consolidated Statements of Comprehensive Income (Loss).
NOTE 4 - DISCONTINUED OPERATIONS
Discontinued operations relate to our domestic and international outdoor advertising businesses and were previously reported as the Americas outdoor and International outdoor segments prior to the Separation. Revenue, expenses and cash flows for these businesses are separately reported as revenue, expenses and cash flows from discontinued operations in the Company's financial statements for all periods presented.
Financial Information for Discontinued Operations
Income Statement Information
The following shows the revenue, income (loss) from discontinued operations and gain on disposal of the Predecessor Company's discontinued operations for the periods presented:
| | | | | | | | | | | |
(In thousands) | Predecessor Company |
| Period from January 1, 2019 through May 1, | | Year Ended December 31, |
| 2019 | | 2018 |
Revenue | $ | 804,566 | | | $ | 2,721,705 | |
| | | |
Loss from discontinued operations before income taxes | $ | (133,475) | | | $ | (132,152) | |
Income tax expense | (6,933) | | | (32,515) | |
Loss from discontinued operations, net of taxes | $ | (140,408) | | | $ | (164,667) | |
| | | |
Gain on disposals before income taxes | $ | 1,825,531 | | | $ | 0 | |
Income tax expense | 0 | | | 0 | |
Gain on disposals, net of taxes | $ | 1,825,531 | | | $ | 0 | |
| | | |
Income from discontinued operations, net of taxes | $ | 1,685,123 | | | $ | (164,667) | |
In connection with the Separation, the Company and its subsidiaries entered into the agreements described below.
Transition Services Agreement
On the Effective Date, the Company, iHM Management Services, iHeartCommunications and CCOH entered into a transition services agreement (the “Transition Services Agreement”), pursuant to which iHM Management Services agreed to provide, or cause the Company and its subsidiaries to provide, CCOH with certain administrative and support services and other assistance which CCOH utilized in the conduct of its business as such business was conducted prior to the Separation, for one year from the Effective Date (subject to certain rights of CCOH to extend up to one additional year).
The allocation of cost was based on various measures depending on the service provided, which measures include relative revenue, employee headcount, number of users of a service or other factors.
CCOH terminated the Transition Services Agreement on August 31, 2020.
New Tax Matters Agreement
On the Effective Date, the Company entered into a new standardtax matters agreement (the “New Tax Matters Agreement”) by and among the Company, iHeartCommunications, iHeart Operations, CCH, CCOH and CCOL, to allocate the responsibility of the
IHEARTMEDIA, INC.AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Company and its subsidiaries, on the one hand, and the Outdoor Group, on the other, for the payment of taxes arising prior and subsequent to, and in connection with, the Separation.
The New Tax Matters Agreement requires that the Company and iHeartCommunications indemnify CCOH and its consolidated financial statements.
Duringsubsidiaries, and their respective directors, officers and employees, and hold them harmless, on an after-tax basis, from and against (i) any taxes other than transfer taxes or indirect gains taxes imposed on the Company or any of its subsidiaries (other than CCOH and its subsidiaries) in connection with the Separation, (ii) any transfer taxes and indirect gains taxes arising in connection with the Separation, and (iii) fifty percent of the amount by which the amount of taxes (other than transfer taxes or indirect gains taxes) imposed on CCOH or any of its subsidiaries in connection with the Separation that are paid to the applicable taxing authority on or before the third quarteranniversary of 2018, the FASB issued ASU 2018-15, Intangibles - Goodwillseparation of CCOH exceeds $5 million, provided that, the obligations of the Company and Other - Internal-Use Software (Subtopic 350-40), Customer's Accounting for Implementation Costs IncurrediHeartCommunications to indemnify CCOH and its subsidiaries with respect taxes (other than transfer taxes or indirect gains taxes) imposed on CCOH or any of its subsidiaries in connection with the Separation will not exceed $15 million. In addition, if the Company or its subsidiaries use certain tax attributes of CCOH and its subsidiaries (including net operating losses, foreign tax credits and other credits) and such use results in a Cloud Computing Arrangementdecrease in the tax liability of the Company or its subsidiaries, then the Company is required to reimburse CCOH for the use of such attributes based on the amount of tax benefit realized. The New Tax Matters Agreement provides that any reduction of the tax attributes of CCOH and its subsidiaries as a result of cancellation of indebtedness income realized in connection with the Chapter 11 Cases is not treated as a Service Contract. This updateuse of such attributes (and therefore does not require the Company or iHeartCommunications to reimburse CCOH for such reduction).
The New Tax Matters Agreement also requires that (i) CCOH indemnify the Company for any income taxes paid by the Company on behalf of CCOH and its subsidiaries or, with respect to any income tax return for which CCOH or any of its subsidiaries joins with the Company or any of subsidiaries in filing a customerconsolidated, combined or unitary return, the amount of taxes that would have been incurred by CCOH and its subsidiaries if they had filed a separate return, and (ii) except as described in a cloud computing arrangement that is a service contract follow the internal use software guidancepreceding paragraph, CCOH indemnify the Company and its subsidiaries, and their respective directors, officers and employees, and hold them harmless, on an after-tax basis, from and against any taxes other than transfer taxes or indirect gains taxes imposed on CCOH or any of its subsidiaries in Accounting Standards Codification (ASC) 350-402connection with the Separation.
Any tax liability of CCH attributable to determine which implementation costs to capitalize as assets. The standard is effective for fiscal years beginning after December 15, 2019. The Company is currently evaluatingany taxable period ending on or before the impactdate of the provisionscompletion of this new standard onthe Separation, other than any such tax liability resulting from CCH’s being a successor of CCOH in connection with the merger of CCOH with and into CCOH or arising from the operation of the business of CCOH and its consolidated financial statements.subsidiaries after the merger of CCOH with and into CCH, will not be treated as a liability of CCOH and its subsidiaries for purposes of the New Tax Matters Agreement.
NOTE 25 – REVENUESREVENUE
The Company generates revenue from several sources:
•The primary source of revenue in the iHMAudio segment is the sale of advertising on the Company’s radio stations, its iHeartRadio mobile application and website, station websites, and live and virtual events. This segment also generates revenues from programming talent, network syndication, traffic and weather data, and other miscellaneous transactions.
The Americas outdoor and International outdoor segments generate revenue primarily from the sale of advertising space on printed and digital out-of-home advertising displays.
•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 OtherAudio and Media Services segment.
Certain of the revenue transactions in the Americas outdoor and International outdoor segments are considered leases, for accounting purposes, as the agreements convey to customers the right to use the Company’s advertising structures for a stated period of time. In order for a transaction with a customer to qualify as a lease, the arrangement must be dependent on the use of a specified advertising structure, and the customer must have almost exclusive use of that structure during the term of the arrangement. Therefore, arrangements that do not involve the use of a specified advertising structure, where the Company can substitute the advertising structure that is used to display the customer’s advertisement, or where the advertising structure displays advertisements for multiple customers throughout the day are not leases. The Company accounts for revenue from leases, which are all classified as operating leases, in accordance with the lease accounting guidance (Topic 840). All of the Company’s revenue transactions that do not qualify as a lease are accounted for as revenue from contracts with customers (Topic 606).
IHEARTMEDIA, INC.AND SUBSIDIARIES (DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Disaggregation of Revenue
The following table shows by segment, revenue from contracts with customers disaggregated by geographical region, revenue from leases and total revenuestreams for the yearsSuccessor Company for the year ended December 31, 2018, 20172020 and 2016:the period from May 2, 2019 through December 31, 2019:
| | | | | | | | | | | | | | | | | | | | | | | |
Successor Company |
(In thousands) | Audio | | Audio and Media Services | | Eliminations | | Consolidated |
Year Ended December 31, 2020 |
Revenue from contracts with customers: | | | | | | | |
Broadcast Radio(1) | $ | 1,604,880 | | | $ | 0 | | | $ | 0 | | | $ | 1,604,880 | |
Digital(2) | 474,371 | | | 0 | | | 0 | | | 474,371 | |
Networks(3) | 484,950 | | | 0 | | | 0 | | | 484,950 | |
Sponsorship and Events(4) | 107,654 | | | 0 | | | 0 | | | 107,654 | |
Audio and Media Services(5) | 0 | | | 274,749 | | | (7,086) | | | 267,663 | |
Other(6) | 7,276 | | | 0 | | | (670) | | | 6,606 | |
Total | 2,679,131 | | | 274,749 | | | (7,756) | | | 2,946,124 | |
Revenue from leases(7) | 2,094 | | | 0 | | | 0 | | | $ | 2,094 | |
Revenue, total | $ | 2,681,225 | | | $ | 274,749 | | | $ | (7,756) | | | $ | 2,948,218 | |
| | | | | | | |
Period from May 2, 2019 through December 31, 2019 |
Revenue from contracts with customers: | | | | | | | |
Broadcast Radio(1) | $ | 1,575,382 | | | $ | 0 | | | $ | 0 | | | $ | 1,575,382 | |
Digital(2) | 273,389 | | | 0 | | | 0 | | | 273,389 | |
Networks(3) | 425,631 | | | 0 | | | 0 | | | 425,631 | |
Sponsorship and Events(4) | 159,187 | | | 0 | | | 0 | | | 159,187 | |
Audio and Media Services(5) | 0 | | | 167,292 | | | (4,589) | | | 162,703 | |
Other(6) | 13,017 | | | 0 | | | (447) | | | 12,570 | |
Total | 2,446,606 | | | 167,292 | | | (5,036) | | | 2,608,862 | |
Revenue from leases(7) | 1,194 | | | 0 | | | 0 | | | 1,194 | |
Revenue, total | $ | 2,447,800 | | | $ | 167,292 | | | $ | (5,036) | | | $ | 2,610,056 | |
|
| | | | | | | | | | | | | | | | | | | | | | | |
(In thousands) | iHM | | Americas Outdoor(1) | | International Outdoor(1) | | Other | | Eliminations | | Consolidated |
Year Ended December 31, 2018 |
Revenue from contracts with customers: | | | | | | | | | | | |
United States | $ | 3,408,563 |
| | $ | 462,614 |
| | $ | — |
| | $ | 174,435 |
| | $ | (1,851 | ) | | $ | 4,043,761 |
|
Other Americas | 4,416 |
| | 2,693 |
| | 53,186 |
| | — |
| | — |
| | 60,295 |
|
Europe | 9,953 |
| | — |
| | 856,479 |
| | — |
| | — |
| | 866,432 |
|
Asia-Pacific and other | 11,229 |
| | — |
| | 11,943 |
| | — |
| | — |
| | 23,172 |
|
Total | 3,434,161 |
| | 465,307 |
| | 921,608 |
| | 174,435 |
| | (1,851 | ) | | 4,993,660 |
|
Revenue from leases | 2,794 |
| | 724,041 |
| | 610,749 |
| | — |
| | (5,464 | ) | | 1,332,120 |
|
Revenue, total | $ | 3,436,955 |
| | $ | 1,189,348 |
| | $ | 1,532,357 |
| | $ | 174,435 |
| | $ | (7,315 | ) | | $ | 6,325,780 |
|
| | | | | | | | | | | |
Year Ended December 31, 2017 |
Revenue from contracts with customers: |
United States | $ | 3,413,716 |
| | $ | 429,475 |
| | $ | — |
| | $ | 143,684 |
| | $ | (1,961 | ) | | $ | 3,984,914 |
|
Other Americas | 3,368 |
| | 10,927 |
| | 57,738 |
| | — |
| | — |
| | 72,033 |
|
Europe | 9,705 |
| | — |
| | 772,056 |
| | — |
| | — |
| | 781,761 |
|
Asia-Pacific and other | 11,872 |
| | 578 |
| | 9,966 |
| | — |
| | — |
| | 22,416 |
|
Total | 3,438,661 |
| | 440,980 |
| | 839,760 |
| | 143,684 |
| | (1,961 | ) | | 4,861,124 |
|
Revenue from leases | 4,302 |
| | 720,079 |
| | 587,883 |
| | — |
| | (4,957 | ) | | 1,307,307 |
|
Revenue, total | $ | 3,442,963 |
| | $ | 1,161,059 |
| | $ | 1,427,643 |
| | $ | 143,684 |
| | $ | (6,918 | ) | | $ | 6,168,431 |
|
| | | | | | | | | | | |
Year Ended December 31, 2016 |
Revenue from contracts with customers: |
United States | $ | 3,374,866 |
| | $ | 418,378 |
| | $ | — |
| | $ | 171,593 |
| | $ | (1,093 | ) | | $ | 3,963,744 |
|
Other Americas | 3,279 |
| | 19,191 |
| | 47,313 |
| | — |
| | — |
| | 69,783 |
|
Europe | 9,417 |
| | — |
| | 715,431 |
| | — |
| | — |
| | 724,848 |
|
Asia-Pacific and other | 11,374 |
| | 842 |
| | 117,251 |
| | — |
| | — |
| | 129,467 |
|
Total | 3,398,936 |
| | 438,411 |
| | 879,995 |
| | 171,593 |
| | (1,093 | ) | | 4,887,842 |
|
Revenue from leases | 4,104 |
| | 748,769 |
| | 612,647 |
| | — |
| | (2,362 | ) | | 1,363,158 |
|
Revenue, total | $ | 3,403,040 |
| | $ | 1,187,180 |
| | $ | 1,492,642 |
| | $ | 171,593 |
| | $ | (3,455 | ) | | $ | 6,251,000 |
|
(1)DueBroadcast Radio revenue is generated through the sale of advertising time on the Company’s domestic radio stations.
(2)Digital revenue is generated through the sale of streaming and display advertisements on digital platforms, subscriptions to iHeartRadio streaming services, podcasting and the dissemination of other digital content.
(3)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.
(4)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.
(5)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 re-evaluationmedia representation firm, Katz Media generates revenue via commissions on media sold on behalf of the Company’s segment reporting in 2018, its operations in Latin America are included in the International outdoor segment resultsradio and television stations that it represents, while RCS generates revenue by providing broadcast and webcast software and technology and services to radio stations, television music channels, cable companies, satellite music networks and Internet stations worldwide.
(6)Other revenue represents fees earned for all periods presented. See Note 1, Summary of Significant Accounting Policies.miscellaneous services, including on-site promotions, activations, and local marketing agreements.
All of the Company’s advertising structures are used to generate revenue. Such revenue may be classified as revenue from contracts with customers or revenue(7)Revenue from leases depending onis primarily generated by the termslease of the contract,towers to other media companies, which are all categorized as previously described.operating leases.
IHEARTMEDIA, INC.AND SUBSIDIARIES (DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table shows revenue streams from continuing operations for the Predecessor Company. The presentation of amounts in the Predecessor periods has been revised to conform to the Successor period presentation.
Revenue | | | | | | | | | | | | | | | | | | | | | | | |
Predecessor Company |
(In thousands) | Audio | | Audio and Media Services | | Eliminations | | Consolidated |
Period from January 1, 2019 through May 1, 2019 |
Revenue from contracts with customers: | | | | | | | |
Broadcast Radio | $ | 657,864 | | | $ | 0 | | | $ | 0 | | | $ | 657,864 | |
Digital | 102,789 | | | 0 | | | 0 | | | 102,789 | |
Networks | 189,088 | | | 0 | | | 0 | | | 189,088 | |
Sponsorship and Events | 50,330 | | | 0 | | | 0 | | | 50,330 | |
Audio and Media Services | 0 | | | 69,362 | | | (2,325) | | | 67,037 | |
Other | 5,910 | | | 0 | | | (243) | | | 5,667 | |
Total | 1,005,981 | | | 69,362 | | | (2,568) | | | 1,072,775 | |
Revenue from leases | 696 | | | 0 | | | 0 | | | 696 | |
Revenue, total | $ | 1,006,677 | | | $ | 69,362 | | | $ | (2,568) | | | $ | 1,073,471 | |
| | | | | | | |
|
|
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Year Ended December 31, 2018 |
Revenue from contracts with customers: |
Broadcast Radio | $ | 2,264,058 | | | $ | 0 | | | $ | 0 | | | $ | 2,264,058 | |
Digital | 284,565 | | | 0 | | | 0 | | | 284,565 | |
Networks | 582,302 | | | 0 | | | 0 | | | 582,302 | |
Sponsorship and Events | 200,605 | | | 0 | | | 0 | | | 200,605 | |
Audio and Media Services | 0 | | | 264,061 | | | (6,508) | | | 257,553 | |
Other | 19,446 | | | 0 | | | 0 | | | 19,446 | |
Total | 3,350,976 | | | 264,061 | | | (6,508) | | | 3,608,529 | |
Revenue from leases | 2,794 | | | 0 | | | 0 | | | 2,794 | |
Revenue, total | $ | 3,353,770 | | | $ | 264,061 | | | $ | (6,508) | | | $ | 3,611,323 | |
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 to the customer. Trade and barter revenues and expenses from Contractscontinuing operations, which are included in consolidated revenue and selling, general and administrative expenses, respectively, were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Successor Company | | | Predecessor Company |
| Year Ended December 31, | | Period from May 2, 2019 through December 31, | | | Period from January 1, 2019 through May 1, | | Year Ended December 31, |
(In thousands) | 2020 | | 2019 | | | 2019 | | 2018 |
Consolidated: | | | | | | | | |
Trade and barter revenues | $ | 158,383 | | | $ | 151,497 | | | | $ | 65,934 | | | $ | 202,674 | |
Trade and barter expenses | 154,715 | | | 134,865 | | | | 58,330 | | | 199,982 | |
IHEARTMEDIA, INC.AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Successor Company recognized barter revenue of $10.5 million and $13.0 million for the year ended December 31, 2020 and the period from May 2, 2019 through December 31, 2019, respectively, in connection with Customersinvestments made in companies in exchange for advertising services. The Predecessor Company recognized barter revenue of $5.9 million and $10.9 million in the period from January 1, 2019 through May 1, 2019 and the year ended December 31, 2018 in connection with investments made in companies in exchange for advertising services.
Deferred Revenue
The following tables show the changes in the Company’s contract balancesdeferred revenue balance from contracts with customers, for the years ended December 31, 2018 and 2017 and provide a reconciliation of the ending balances to the Consolidated Balance Sheets:excluding discontinued operations:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Successor Company | | | Predecessor Company |
| | | Year Ended December 31, | | Period from May 2, 2019 through December 31, | | | Period from January 1, 2019 through May 1, | | Year Ended December 31, |
(In thousands) | | | | | 2020 | | 2019 | | | 2019 | | 2018 |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
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| | | | | | | | | |
| | | | | | | | | | | | |
Deferred revenue from contracts with customers: | | | | | | | | | | | | |
Beginning balance(1) | | | | | $ | 162,068 | | | $ | 151,475 | | | | $ | 148,720 | | | $ | 155,228 | |
Impact of fresh start accounting | | | | | 0 | | | 298 | | | | 0 | | | 0 | |
Revenue recognized, included in beginning balance | | | | | (95,531) | | | (102,237) | | | | (76,473) | | | (115,930) | |
Additions, net of revenue recognized during period, and other | | | | | 78,956 | | | 112,532 | | | | 79,228 | | | 109,422 | |
Ending balance | | | | | $ | 145,493 | | | $ | 162,068 | | | | $ | 151,475 | | | $ | 148,720 | |
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|
| | | | | | | |
| Year Ended December 31, |
(In thousands) | 2018 | | 2017 |
Accounts receivable from contracts with customers: | | | |
Beginning balance, net of allowance | $ | 1,195,145 |
| | $ | 1,067,382 |
|
Additions, net of collections, and other | 66,232 |
| | 162,668 |
|
Bad debt, net of recoveries(1) | (24,598 | ) | | (34,905 | ) |
Ending balance, net of allowance | 1,236,779 |
| | 1,195,145 |
|
Accounts receivable from leases, net of allowance | 338,391 |
| | 313,225 |
|
Total accounts receivable, net of allowance | $ | 1,575,170 |
| | $ | 1,508,370 |
|
(1)Bad debt, net of recoveries, related to accounts receivableDeferred revenue from contracts with customers, was $20.3 million duringwhich 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 year ended December 31, 2016.
|
| | | | | | | |
| Year Ended December 31, |
(In thousands) | 2018 | | 2017 |
Deferred revenue from contracts with customers: | | | |
Beginning balance | $ | 184,000 |
| | $ | 193,913 |
|
Revenue recognized, included in beginning balance(1) | (142,346 | ) | | (147,698 | ) |
Additions, net of revenue recognized during period, and other | 146,950 |
| | 137,785 |
|
Ending balance | 188,604 |
| | 184,000 |
|
Deferred revenue from leases | 49,703 |
| | 38,027 |
|
Total deferred revenue | 238,307 |
| | 222,027 |
|
Less: Non-current portion, included in other long-term liabilities | 30,112 |
| | 40,476 |
|
Total deferred revenue, current portion | $ | 208,195 |
| | $ | 181,551 |
|
(1) Revenue recognized duringConsolidated Balance Sheets, depending upon when revenue is expected to be recognized. As described in Note 3, as part of the year ended December 31, 2016 that was included in the balance offresh start accounting adjustments on May 1, 2019, deferred revenue from contracts with customers at the beginning of that year was $149.6 million.adjusted to its estimated fair value.
The Company’s contracts with customers generally have a term of one year or less; however, as of December 31, 2018,2020, the Company expects to recognize $298.7$270.9 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.
Revenue from Leases
As part of December 31, 2020, the transitionfuture lease payments to be received by the new revenue standard,Successor Company are as follows:
| | | | | |
(In thousands) |
|
2021 | $ | 1,841 | |
2022 | 1,128 | |
2023 | 1,082 | |
2024 | 946 | |
2025 | 764 | |
Thereafter | 11,169 | |
Total minimum future rentals | $ | 16,930 | |
NOTE 6 – LEASES
The following tables provide the Company is not required to disclose information about remaining performance obligationscomponents of lease expense included within the Consolidated Statement of Comprehensive Income (Loss) for periods prior to the date of initial application.year ended December 31, 2020 (Successor), the period from May 2, 2019 through December 31, 2019 (Successor) and the period from January 1, 2019 through May 1, 2019 (Predecessor):
IHEARTMEDIA, INC.AND SUBSIDIARIES (DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
| | | | | | | | | | | | | | | | | | | | |
| Successor Company | | | Predecessor Company |
| Year Ended December 31, | | Period from May 2, 2019 through December 31, | | | Period from January 1, 2019 through May 1, |
(In thousands) | 2020 | | 2019 | | | 2019 |
Operating lease expense | $ | 151,448 | | | $ | 100,835 | | | | $ | 44,667 | |
Variable lease expense | $ | 31,451 | | | $ | 15,940 | | | | $ | 476 | |
Revenue from Leases
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, 2020 (Successor):
| | | | | |
| December 31, 2020 |
Operating lease weighted average remaining lease term (in years) | 13.3 |
Operating lease weighted average discount rate | 6.6 | % |
As of December 31, 2018,2020 (Successor), the Company’s future minimum rentals under non-cancelablematurities of operating leaseslease liabilities were as follows:
| | | | | |
(In thousands) |
2021 | $ | 126,732 | |
2022 | 133,086 | |
2023 | 120,125 | |
2024 | 109,958 | |
2025 | 97,272 | |
Thereafter | 706,472 | |
Total lease payments | $ | 1,293,645 | |
Less: Effect of discounting | 452,651 | |
Total operating lease liability | $ | 840,994 | |
The following table provides supplemental cash flow information related to leases for the year ended December 31, 2020 (Successor), the period from May 2, 2019 through December 31, 2019 (Successor) and the period from January 1, 2019 through May 1, 2019 (Predecessor):
| | | | | | | | | | | | | | | | | | | | |
| Successor Company | | | Predecessor Company |
| Year Ended December 31, | | Period from May 2, 2019 through December 31, | | | Period from January 1, 2019 through May 1, |
(In thousands) | 2020 | | 2019 | | | 2019 |
Cash paid for amounts included in measurement of operating lease liabilities | $ | 139,507 | | | $ | 89,567 | | | | $ | 44,888 | |
Lease liabilities arising from obtaining right-of-use assets(1) | $ | 56,243 | | | $ | 29,498 | | | | $ | 913,598 | |
(1) Lease liabilities from obtaining right-of-use assets include transition liabilities upon adoption of ASC 842, as well as new leases entered into during the year ended December 31, 2020 (Successor), the period from May 2, 2019 through December 31,
IHEARTMEDIA, INC.AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
| | | |
(In thousands) |
2019 | $ | 317,860 |
|
2020 | 36,552 |
|
2021 | 18,075 |
|
2022 | 10,740 |
|
2023 | 3,877 |
|
Thereafter | 15,477 |
|
Total minimum future rentals | $ | 402,581 |
|
2019 (Successor) and the period from January 1, 2019 through May 1, 2019 (Predecessor). Upon adoption of fresh start accounting upon emergence from the Chapter 11 Cases, the Company increased its operating lease obligation by $459.0 million to reflect its operating lease obligation as estimated fair value (see Note 3, Fresh Start Accounting).
The Company reflects changes in the lease liability and changes in the ROU asset on a net basis in the Statements of Cash Flows. The non-cash operating lease expense was $103.4 million, $61.6 million and $14.3 million for the year ended December 31, 2020 (Successor), the period from May 2, 2019 through December 31, 2019 (Successor) and the period from January 1, 2019 through May 1, 2019 (Predecessor), respectively.
NOTE 37 –PROPERTY, PLANT AND EQUIPMENT, INTANGIBLE ASSETS AND GOODWILL
Property, Plant and Equipment
Acquisitions
On October 22, 2020, the Company acquired Voxnest, Inc. ("Voxnest") for approximately $50 million. Voxnest is the leading consolidated marketplace for podcasts and podcast analytics, enterprise publishing tools, programmatic integration and targeted ad serving and will be included within the Company's Audio segment.
During the fourthfirst quarter of 2018, the2021, we entered into a Share Purchase Agreement to acquire Triton Digital, a global leader in digital audio and podcast technology and measurement services, from The E.W. Scripps Company acquired Stuff Media LLC and Jelli, Inc. for aggregate consideration of $120.3$230 million of which $74.3 million was paid in cash, insubject to certain adjustments. The consummation of the fourth quarterproposed acquisition is subject to the satisfaction or waiver of 2018 and $46.0 million, plus imputed interest, will be paid in cash in the fourth quarter of 2019. The assets acquired as part of these transactions consisted of $27.0 million in fixed assets and $35.2 million in intangible assets, consisting primarily of technology and content, along with $77.3 million in goodwill.customary closing conditions, including regulatory approval.
Property, Plant and Equipment
The Company’s property, plant and equipment consisted of the following classes of assets as of December 31, 20182020 (Successor) and 2017,2019 (Successor), respectively:
| | | | | | | | | | | |
(In thousands) | Successor Company |
| December 31, 2020 | | December 31, 2019 |
Land, buildings and improvements | $ | 386,980 | | | $ | 385,017 | |
Towers, transmitters and studio equipment | 169,788 | | | 156,739 | |
Computer equipment and software | 398,084 | | | 321,936 | |
Furniture and other equipment | 45,711 | | | 39,591 | |
Construction in progress | 25,073 | | | 21,287 | |
| 1,025,636 | | | 924,570 | |
Less: accumulated depreciation | 213,934 | | | 77,694 | |
Property, plant and equipment, net | $ | 811,702 | | | $ | 846,876 | |
|
| | | | | | | |
(In thousands) | December 31, | | December 31, |
| 2018 | | 2017 |
Land, buildings and improvements | $ | 572,904 |
| | $ | 562,702 |
|
Structures | 2,835,411 |
| | 2,864,442 |
|
Towers, transmitters and studio equipment | 365,991 |
| | 356,664 |
|
Furniture and other equipment | 793,756 |
| | 707,163 |
|
Construction in progress | 116,839 |
| | 74,810 |
|
| 4,684,901 |
| | 4,565,781 |
|
Less: accumulated depreciation | 2,893,761 |
| | 2,681,067 |
|
Property, plant and equipment, net | $ | 1,791,140 |
| | $ | 1,884,714 |
|
The Company recognized an impairment of $2.6 million during the year ended December 31, 2017 in relation to advertising assets that were no longer usable in one country in the Company's International outdoor segment.
Indefinite-lived Intangible Assets
The Company’s indefinite-lived intangible assets consist of FCC broadcast licenses and billboard permits.in its Audio segment. 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 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 In connection with the lawsCompany's emergence from bankruptcy and regulationsin accordance with ASC 852, the Company applied the provisions of each jurisdiction. The Company’s permits are locatedfresh start accounting to its Consolidated Financial Statements 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,Effective Date. As a result, the leases typically have initial termsCompany adjusted its FCC licenses to their respective estimated fair values as of between 10 and 20 years and renew indefinitely, with rental paymentsthe Effective Date of $2,281.7 million (see Note 3, Fresh Start Accounting).
IHEARTMEDIA, INC.AND SUBSIDIARIES (DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 toon Indefinite-lived Intangible Assets
The Company performs its annual impairment test on goodwill and indefinite-lived intangible assets, including FCC licenses, as of July 1 of each year. In addition, the Company tests for impairment of intangible assets whenever events and circumstances indicate that such assets might be impaired.
The Company applied fresh start accounting as of May 1, 2019 in connection with its emergence from Chapter 11 bankruptcy, which required stating the Company’s intangible assets at estimated fair value. Such fair values recorded in fresh start accounting reflected the economic conditions in place at the time of emergence. The economic downturn starting in March 2020 and the COVID-19 pandemic had an adverse impact on the trading values of the Company’s publicly-traded debt and equity and on the Company's first quarter 2020 results, and the continuing uncertainty surrounding the duration and magnitude of the economic impact of the pandemic had a negative impact on the Company's forecasted future cash flows. As a result, the Company performed an interim impairment test as of March 31, 2020 on its indefinite-lived FCC licenses.
For purposes of initial recording in fresh start accounting and for annual impairment testing purposes, our FCC licenses are valued using the direct valuation approach, with the key assumptions being forecasted market revenue growth rates, market share, profit margin, duration and profile of the build-up period, estimated start-up capital costs and losses incurred during the build-up period, the risk-adjusted discount rate and terminal values. This data is populated using industry normalized information representing an average asset within a market.
In estimating the fair value of its FCC licenses, the Company obtained the most recent broadcast radio industry revenue projections which considered the impact of COVID-19 on future broadcast radio advertising revenue. Such projections reflected a significant and negative impact from COVID-19. In addition to using these broadcast radio industry revenue projections at the time, the Company used various sources to analyze media and broadcast industry market forecasts and other data in developing the assumptions used for purposes of performing impairment testing on our FCC licenses as of March 31, 2020. As a result of COVID-19, the United States economy was undergoing a period of economic disruption and uncertainty, which had caused, among other things, lower consumer and business spending. The uncertainty surrounding the projected demand for advertising negatively impacted the key assumptions used in the discounted cash flow models used to value the Company's FCC licenses. Considerations in developing these assumptions included the extent of the economic downturn, ranges of expected timing of recovery, discount rates and other factors. As a result of the Company’s assessment, the estimated fair value of FCC licenses was determined to be below their carrying values as of March 31, 2020. As a result, during the three months ended March 31, 2020, the Successor Company recognized a non-cash impairment charge of $502.7 million on its FCC licenses.
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 properly attributable to the indefinite-lived intangible asset alone (that is, apart from tangible and identified intangible assets and goodwill). It is based upon modeling a hypothetical “greenfield” build-up to a “normalized” enterprise that, by design, lacks inherent goodwill and whose only other assets have essentially been paid for (or added) as part of the build-up process. The Company forecasts revenue, expenses, and cash flows over a ten-year period for each of its markets in its application of the direct valuation method. The Company also calculates a “normalized” residual year which represents the perpetual cash flows of each market. The residual year cash flow was capitalized to arrive at the terminal value of the 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.
IHEARTMEDIA, INC.AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The key assumptions using the direct valuation method are market revenue growth rates, market share, profit margin, duration and profile of the build-up period, estimated start-up capital costs and losses incurred during the build-up period, the risk-adjusted discount rate and terminal values. This data is populated using industry normalized information representing an average FCC license or billboard permit within a market.
No further impairment was recognized as a result of the Company's annual impairment test on indefinite-lived intangible assets.
During 2018, the period from January 1, 2019 through May 1, 2019, the Predecessor Company recognized non-cash impairment charges of $91.4 million in relation to indefinite-lived FCC licenses as a result of an increase in the WACC used in performing the annual impairment chargetest. As a result of $33.1 millionthe fair value exercise applied in connection with fresh start accounting, the Successor Company opted to use a qualitative assessment as permitted by ASC 350, "Intangibles - Goodwill and Other" as of July 1, 2019 and no additional impairment charges were recorded. The Predecessor Company recognized impairment charges related to FCC licenses inits indefinite-lived intangible assets within several iHM radio markets and an impairment charge of $7.8$33.2 million related to billboard permits in one market. During 2017, during the Company recognized an impairment charge of $6.0 million related to FCC licenses in one market. During 2016, the Company recognized an impairment charge of $0.7 million related to FCC licenses in one market.year ended December 31, 2018.
Other Intangible Assets
Other intangible assets includeconsists of definite-lived intangible assets, and permanent easements. The Company’s definite-lived intangible assetswhich primarily include transitcustomer and street furniture contracts,advertiser relationships, talent and representation contracts, customertrademarks and advertiser relationships, and site-leasestradenames 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 that the assets are expected to contribute directly or indirectly to the Company’s future cash flows. Permanent easements are indefinite-lived intangible assets which include certain rights to use real property not owned by the Company. The Company periodically reviews the appropriateness of the amortization periods related to its definite-lived intangible assets. These assets are recorded at amortized cost.
The Company tests for possible impairment of other intangible assets whenever events and circumstances indicate that they might be impaired and the undiscounted cash flows estimated to be generated by those assets are less than the carrying amounts of those assets. When specific assets are determined to be unrecoverable, the cost basis of the asset is reduced to reflect the current fair market value.
IHEARTMEDIA, INC.AND SUBSIDIARIES (DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company applied fresh start accounting as of May 1, 2019 in connection with its emergence from Chapter 11 bankruptcy which required stating the Company’s intangible assets at estimated fair value. Such fair values recorded in fresh start accounting reflected the economic conditions in place at the time of emergence. The economic downturn in March 2020 and the COVID-19 pandemic had an adverse impact on the Company's first quarter 2020 results, and the continuing uncertainty surrounding the duration and magnitude of the economic impact of the pandemic has had a negative impact on the Company's forecasted future cash flows. As a result, the Company performed interim impairment tests as of March 31, 2020 on its other intangible assets. Based on the Company’s test of recoverability using estimated undiscounted future cash flows, the carrying values of the Company’s definite-lived intangible assets were determined to be recoverable, and no impairment was recognized.
The following table presents the gross carrying amount and accumulated amortization for each major class of other intangible assets as of December 31, 20182020 (Successor) and 2017,December 31, 2019 (Successor), respectively:
| | (In thousands) | December 31, 2018 | | December 31, 2017 | (In thousands) | Successor Company |
| Gross Carrying Amount | | Accumulated Amortization | | Gross Carrying Amount | | Accumulated Amortization | | December 31, 2020 | | December 31, 2019 |
Transit, street furniture and other outdoor contractual rights | $ | 528,185 |
| | $ | (440,228 | ) | | $ | 548,918 |
| | $ | (440,284 | ) | |
| | | Gross Carrying Amount | | Accumulated Amortization | | Gross Carrying Amount | | Accumulated Amortization |
Customer / advertiser relationships | 1,249,128 |
| | (1,208,056 | ) | | 1,226,314 |
| | (1,133,251 | ) | Customer / advertiser relationships | $ | 1,620,509 | | | $ | (286,066) | | | $ | 1,629,236 | | | $ | (114,280) | |
Talent contracts | 164,933 |
| | (148,578 | ) | | 161,962 |
| | (138,728 | ) | |
Representation contracts | 77,508 |
| | (70,829 | ) | | 77,507 |
| | (62,753 | ) | |
Permanent easements | 163,317 |
| | — |
| | 162,920 |
| | — |
| |
Talent and other contracts | | Talent and other contracts | 375,900 | | | (84,065) | | | 375,399 | | | (33,739) | |
Trademarks and tradenames | | Trademarks and tradenames | 326,061 | | | (54,358) | | | 321,977 | | | (21,661) | |
| Other | 382,897 |
| | (244,993 | ) | | 372,292 |
| | (224,841 | ) | Other | 31,351 | | | (4,840) | | | 21,394 | | | (1,786) | |
Total | $ | 2,565,968 |
| | $ | (2,112,684 | ) | | $ | 2,549,913 |
| | $ | (1,999,857 | ) | Total | $ | 2,353,821 | | | $ | (429,329) | | | $ | 2,348,006 | | | $ | (171,466) | |
Total amortization expense related to definite-lived intangible assets for the yearsSuccessor Company for the year ended December 31, 2020 and the period from May 2, 2019 through December 31, 2019 was $258.9 million and $171.5 million, respectively. Total amortization expense related to definite-lived intangible assets for the Predecessor Company for the period
IHEARTMEDIA, INC.AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
from January 1, 2019 through May 1, 2019 and the year ended December 31, 2018 2017 and 2016 was $130.9 million, $197.2$12.7 million and $222.6$110.9 million, respectively.
As acquisitions and dispositions occur in the future, amortization expense may vary. The following table presents the Company’s estimate of amortization expense for each of the five succeeding fiscal years for definite-lived intangible assets:
| | | | | |
(In thousands) | |
2021 | $ | 260,976 | |
2022 | 259,364 | |
2023 | 250,153 | |
2024 | 249,116 | |
2025 | 211,262 | |
|
| | | |
(In thousands) | |
2019 | $ | 49,470 |
|
2020 | 43,291 |
|
2021 | 37,702 |
|
2022 | 32,675 |
|
2023 | 24,844 |
|
AnnualGoodwill
The following table presents the changes in the carrying amount of goodwill:
| | | | | | | | | | | | | | | | | |
(In thousands) | Audio | | Audio & Media Services | | Consolidated |
Balance as of December 31, 2018 (Predecessor) | $ | 3,330,922 | | | $ | 81,831 | | | $ | 3,412,753 | |
| | | | | |
Acquisitions | 0 | | | 2,767 | | | 2,767 | |
| | | | | |
Foreign currency | 0 | | | (28) | | | (28) | |
| | | | | |
| | | | | |
Balance as of May 1, 2019 (Predecessor) | $ | 3,330,922 | | | $ | 84,570 | | | $ | 3,415,492 | |
Impact of fresh start accounting | (111,712) | | | 19,585 | | | (92,127) | |
| | | | | |
| | | | | |
| | | | | |
Balance as of May 2, 2019 (Successor) | $ | 3,219,210 | | | $ | 104,155 | | | $ | 3,323,365 | |
Acquisitions | 4,637 | | | 0 | | | 4,637 | |
Dispositions | (9,466) | | | 0 | | | (9,466) | |
Foreign currency | 0 | | | (1) | | | (1) | |
Other | 7,087 | | | 0 | | | 7,087 | |
Balance as of December 31, 2019 (Successor) | $ | 3,221,468 | | | $ | 104,154 | | | $ | 3,325,622 | |
Impairment | (1,224,374) | | | 0 | | | (1,224,374) | |
Acquisitions | 44,606 | | | 0 | | | 44,606 | |
Dispositions | (164) | | | 0 | | | (164) | |
Foreign currency | 0 | | | 245 | | | 245 | |
| | | | | |
| | | | | |
Balance as of December 31, 2020 (Successor) | $ | 2,041,536 | | | $ | 104,399 | | | $ | 2,145,935 | |
The balance at December 31, 2018 (Predecessor) is net of cumulative impairments of$3.5 billion and $212.0 million in the Company’s Audio and Audio and Media Services segments, respectively.
Goodwill Impairment Test to Goodwill
The Company performs its annual impairment test on 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.
As described in Note 1, the economic disruption as a result of COVID-19 had a significant impact to the trading values of the Company’s publicly-traded debt and equity and on the Company's results in the latter half of the month ended March 31, 2020. In addition, the Company expected that the pandemic would continue to impact the operating and economic environment of our
IHEARTMEDIA, INC.AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
customers and would impact the near-term spending decisions of advertisers. As a result, the Company performed an interim impairment test on its Americas outdoor segment and International outdoor segment constitutes a separate reporting unit.
indefinite-lived intangible assets as of March 31, 2020.
The goodwill impairment test is a two-step process. The first step, used to screen for potential impairment, comparesrequires measurement of the fair value of the Company's reporting unit with itsunits, which is compared to the carrying amount, including goodwill. If applicable, the second step, used to measure the amount of the impairment loss, compares the implied fair value of the reporting unit goodwill with the carrying amount of thatunits, including goodwill.
Each of the Company’s reporting unitsunit 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 flowsdiscounted to their present value using a risk-adjusted discount rate. Terminal values wereare also estimated and discounted to their present value. Assessing the recoverability of goodwill requires the Company to make estimates and assumptions about sales, operating margins, growth rates and discount rates based on its budgets, business plans, economic projections, anticipated future cash flows and marketplace data. As with the impairment testing performed on the Company’s FCC licenses described above, the significant deterioration in market conditions and uncertainty in the markets impacted the assumptions used to estimate the discounted future cash flows of the Company’s reporting units for purposes of performing the interim goodwill impairment test. There are inherent uncertainties related to these factors and management’s judgment in applying these factors.
As discussed above, the carrying values of the Company’s reporting units were based on estimated fair values determined upon our emergence from bankruptcy on May 1, 2019, and the rapid deterioration in economic conditions resulting from the COVID-19 pandemic resulted in lower estimated fair values determined in connection with our interim goodwill impairment testing as of March 31, 2020. The estimated fair value of one of the Company's reporting units was below its carrying value, including goodwill. The macroeconomic factors discussed above had an adverse effect on the Company's estimated cash flows used in the discounted cash flow model. As a result, the Company recognized a non-cash impairment charge of $1.2 billion in the first quarter of 2020 to reduce goodwill.
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 reporting units as of July 1, 2020 as part of the annual impairment test. No further impairment was recognized no goodwillas a result of the Company's annual impairment test on goodwill.
While management believes the estimates and assumptions utilized to calculate the fair value of during the year ended December 31, 2018. The Company recognized goodwill impairmentCompany's tangible and intangible long-lived assets, indefinite-lived FCC licenses and reporting units are reasonable, it is possible a material change could occur to the estimated fair value of $1.6 million duringthese assets. Uncertainty regarding the year ended December 31, 2017 related to one marketfull extent of the economic downturn as a result of COVID-19, as well as the timing of any recovery, may result in the Company's International outdoor segment. Theactual results not being consistent with its estimates, and the Company recognized goodwillcould be exposed to future impairment losses that could be material to its results of $7.3 million during the year ended December 31, 2016 related to one market in the Company's International outdoor segment.operations.
IHEARTMEDIA, INC.AND SUBSIDIARIES (DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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, 2016 | $ | 3,288,481 |
| | $ | 505,478 |
| | $ | 190,785 |
| | $ | 81,831 |
| | $ | 4,066,575 |
|
Impairment | — |
| | — |
| | (1,591 | ) | | — |
| | (1,591 | ) |
Acquisitions | 2,442 |
| | 2,252 |
| | — |
| | — |
| | 4,694 |
|
Dispositions | (35,715 | ) | | — |
| | (1,817 | ) | | — |
| | (37,532 | ) |
Foreign currency | — |
| | — |
| | 18,847 |
| | — |
| | 18,847 |
|
Assets held for sale | — |
| | 89 |
| | — |
| | — |
| | 89 |
|
Balance as of December 31, 2017 | $ | 3,255,208 |
| | $ | 507,819 |
| | $ | 206,224 |
| | $ | 81,831 |
| | $ | 4,051,082 |
|
Acquisitions | 77,320 |
| | — |
| | — |
| | — |
| | 77,320 |
|
Dispositions | (1,606 | ) | | — |
| | — |
| | — |
| | (1,606 | ) |
Foreign currency | — |
| | — |
| | (8,040 | ) | | — |
| | (8,040 | ) |
Balance as of December 31, 2018 | $ | 3,330,922 |
| | $ | 507,819 |
| | $ | 198,184 |
| | $ | 81,831 |
| | $ | 4,118,756 |
|
The balance at December 31, 2016 is net of cumulative impairments of $3.5 billion, $2.6 billion, $270.5 million and $212.0 million in the Company’s iHM, Americas outdoor, International outdoor and Other segments, respectively.
IHEARTMEDIA, INC.AND SUBSIDIARIES (DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 48 – INVESTMENTS
The following table summarizes the Company's investments in nonconsolidated affiliates and other securities:
|
| | | | | | | | | | | | | | | | | | | |
(In thousands) | Notes Receivable | | Equity Method Investments | | Other Investments | | Marketable Equity Securities | | Total Investments |
Balance at December 31, 2016 | $ | 132 |
| | $ | 14,477 |
| | $ | 71,666 |
| | $ | 1,715 |
| | $ | 87,990 |
|
Cash contributions | — |
| | 2,248 |
| | — |
| | — |
| | 2,248 |
|
Acquisitions | 13,602 |
| | 10,361 |
| | 11,560 |
| | — |
| | 35,523 |
|
Equity in loss | — |
| | (2,855 | ) | | — |
| | — |
| | (2,855 | ) |
Disposals | (188 | ) | | — |
| | (628 | ) | | — |
| | (816 | ) |
Foreign currency translation adjustment | — |
| | 145 |
| | 380 |
| | 243 |
| | 768 |
|
Distributions received | — |
| | (775 | ) | | — |
| | — |
| | (775 | ) |
Impairment of investments | (671 | ) | | — |
| | (4,202 | ) | | — |
| | (4,873 | ) |
Unrealized holding loss on marketable securities | — |
| | — |
| | — |
| | (414 | ) | | (414 | ) |
Other | 917 |
| | 794 |
| | — |
| | — |
| | 1,711 |
|
Balance at December 31, 2017 | $ | 13,792 |
| | $ | 24,395 |
| | $ | 78,776 |
| | $ | 1,544 |
| | $ | 118,507 |
|
Cash advances | — |
| | 1,051 |
| | — |
| | — |
| | 1,051 |
|
Acquisitions | 15,076 |
| | 3,732 |
| | 4,550 |
| | — |
| | 23,358 |
|
Equity in earnings | — |
| | 1,020 |
| | — |
| | — |
| | 1,020 |
|
Disposals | (728 | ) | | (33 | ) | | (28,826 | ) | | — |
| | (29,587 | ) |
Foreign currency translation adjustment | — |
| | (29 | ) | | (256 | ) | | (67 | ) | | (352 | ) |
Distributions received | — |
| | (2,500 | ) | | — |
| | — |
| | (2,500 | ) |
Impairment of investments | (2,064 | ) | | — |
| | (14,370 | ) | | — |
| | (16,434 | ) |
Fair value adjustments | — |
| | — |
| | 4,389 |
| | (571 | ) | | 3,818 |
|
Balance at December 31, 2018 | $ | 26,076 |
| | $ | 27,636 |
| | $ | 44,263 |
| | $ | 906 |
| | $ | 98,881 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(In thousands) | Available-for-Sale Debt Securities | | Equity Method Investments | | Other Investments | | Marketable Equity Securities | | Total Investments |
Balance at December 31, 2018 (Predecessor) | $ | 25,823 | | | $ | 24,104 | | | $ | 38,813 | | | $ | 0 | | | $ | 88,740 | |
| | | | | | | | | |
| | | | | | | | | |
Purchases of investments | 0 | | | 591 | | | 103 | | | 0 | | | 694 | |
Equity in loss | 0 | | | (66) | | | 0 | | | 0 | | | (66) | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
Loss on investments | (1,895) | | | 0 | | | (8,342) | | | 0 | | | (10,237) | |
Other | (3) | | | 0 | | | 0 | | | 0 | | | (3) | |
Balance at May 1, 2019 (Predecessor) | $ | 23,925 | | | $ | 24,629 | | | $ | 30,574 | | | $ | 0 | | | $ | 79,128 | |
Impact of fresh start accounting | (8,842) | | | (14,986) | | | (1,062) | | | 0 | | | (24,890) | |
| | | | | | | | | |
| | | | | | | | | |
Balance at May 2, 2019 (Successor) | $ | 15,083 | | | $ | 9,643 | | | $ | 29,512 | | | $ | 0 | | | $ | 54,238 | |
| | | | | | | | | |
Purchases of investments | 24,103 | | | 1,588 | | | 2,425 | | | 3,440 | | | 31,556 | |
Equity in loss | 0 | | | (279) | | | 0 | | | 0 | | | (279) | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
Loss on investments | 0 | | | 0 | | | (21,003) | | | (740) | | | (21,743) | |
| | | | | | | | | |
Other | (6,058) | | | 0 | | | 6,055 | | | 0 | | | (3) | |
Balance at December 31, 2019 (Successor) | $ | 33,128 | | | $ | 10,952 | | | $ | 16,989 | | | $ | 2,700 | | | $ | 63,769 | |
| | | | | | | | | |
Purchases of investments | 9,595 | | | 1,523 | | | 7,629 | | | 0 | | | 18,747 | |
Equity in loss | 0 | | | (379) | | | 0 | | | 0 | | | (379) | |
Disposals | (194) | | | (1,000) | | | 0 | | | 0 | | | (1,194) | |
| | | | | | | | | |
Distributions received | 0 | | | (31) | | | 0 | | | 0 | | | (31) | |
Loss on investments, net | (7,116) | | | 0 | | | (959) | | | (1,271) | | | (9,346) | |
| | | | | | | | | |
Other | (3,957) | | | 0 | | | 2,965 | | | 0 | | | (992) | |
Balance at December 31, 2020 (Successor) | $ | 31,456 | | | $ | 11,065 | | | $ | 26,624 | | | $ | 1,429 | | | $ | 70,574 | |
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 lossincome (loss) as “Equity in earnings (loss) of nonconsolidated affiliates.” Other investments includeincludes various investments in companies for which there is no readily determinable market value.
During 2018,2020, the Successor Company recorded $20.8$15.0 million in its iHMAudio segment for investments made in twelve private7 companies in exchange for advertising services and cash. Oneservices. NaN of these investments is being accounted for under the equity method of accounting, six2 of these investments are being accounted for at amortized cost and five4 of these investments are notes receivable that are convertible into cash or equity. During 2017, the period from May 2, 2019 through December 31, 2019, the Successor Company recorded $34.7$30.0 million in its iHMAudio segment for investments made in thirteen private10 companies in exchange for advertising services and cash. TwoNaN of these investments are being accounted for under the equity method of accounting, six1 of these investments areis being accounted for at amortized cost, 1 of these investments is being accounted for as an available-for-sale security and five6 of these investments are notes receivable that are convertible into cash or equity.
The Successor Company recognized barter revenue of $10.8$10.5 million and $13.0 million in the year ended December 31, 20182020 and $35.2the period from May 2, 2019 through December 31, 2019, respectively. The Predecessor Company recognized barter revenue of $6.0 million in the year ended December 31, 2017,period from January 1, 2019 through May 1, 2019 in connection with these investments as services were provided.provided. The Successor Company recognized a non-cash impairment of $11.9 investment impairments totaling $5.7 million and $21.0
IHEARTMEDIA, INC.AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
million on one of the otherour investments for the year ended December 31, 2018,2020 and the period from May 2, 2019 through December 31, 2019, respectively, which waswere recorded in “Other expense,“Loss on investments, net.” The Predecessor Company recognized non-cash investment impairments totaling $10.2 million on our investments for the period from January 1, 2019 through May 1, 2019, which were recorded in “Loss on investments, net.”
NOTE 9 – LONG-TERM DEBT
Long-term debt outstanding as of December 31, 2020 (Successor) and December 31, 2019 (Successor) consisted of the following:
| | | | | | | | | | | |
(In thousands) | Successor Company |
| December 31, 2020 | | December 31, 2019 |
Term Loan Facility due 2026(1) | $ | 2,080,259 | | | $ | 2,251,271 | |
Incremental Term Loan Facility due 2026(2) | 447,750 | | | 0 | |
Asset-based Revolving Credit Facility due 2023(2)(3) | 0 | | | 0 | |
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) | 22,753 | | | 20,992 | |
Total consolidated secured debt | 4,600,762 | | | 4,322,263 | |
| | | |
8.375% Senior Unsecured Notes due 2027 | 1,450,000 | | | 1,450,000 | |
Other unsecured subsidiary debt | 6,782 | | | 12,581 | |
Original issue discount | (18,817) | | | 0 | |
Long-term debt fees | (21,797) | | | (19,428) | |
Total debt | 6,016,930 | | | 5,765,416 | |
Less: Current portion | 34,775 | | | 8,912 | |
Total long-term debt | $ | 5,982,155 | | | $ | 5,756,504 | |
(1)On February 3, 2020, iHeartCommunications made a $150.0 million prepayment using cash on hand and entered into an agreement to amend the Term Loan Facility to reduce the interest rate to LIBOR plus a margin of 3.00%, or the Base Rate (as defined in the Credit Agreement) plus a margin of 2.00% and to modify certain covenants contained in the Credit Agreement.
(2)On July 16, 2020, iHeartCommunications issued $450.0 million of incremental term loans under the Amendment No. 2, resulting in net gainproceeds of $4.4$425.8 million, related toafter original issue discount and debt issuance costs. A portion of the sale of its investment in Jelli, Inc., whichproceeds from the Company acquired during the fourth quarter of 2018 (see Note 3). The gain is included within Other expense, net.
IHEARTMEDIA, INC.AND SUBSIDIARIES (DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
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 inputsissuance was used to measurerepay the marketable equity securities at fair value are observable,remaining balance outstanding on the Company has categorizedCompany's ABL Facility of $235.0 million, with the fair value measurementsremaining $190.6 million of the securitiesproceeds available for general corporate purposes.
(3)On March 13, 2020, iHeartCommunications borrowed $350.0 million under the ABL Facility, the proceeds of which were invested as Level 1.cash on the Balance Sheet. During the second and third quarters of 2020, iHeartCommunications voluntarily repaid principal amounts outstanding under the ABL Facility. As of December 31, 20182020, the ABL Facility had a facility size of $450.0 million, no principal amounts outstanding and 2017,$32.9 million of outstanding letters of credit, resulting in $417.1 million of excess availability. As a result of certain restrictions in the Company held $0.9 millionCompany's debt and $1.5 million, respectively, in marketable equity securities, which are included within Other Assets.
NOTE 5 – 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, |
| 2018 | | 2017 |
Beginning balance | $ | 47,984 |
| | $ | 42,491 |
|
Adjustment due to changes in estimates | 1,297 |
| | 2,317 |
|
Accretion of liability | 3,273 |
| | 3,555 |
|
Liabilities settled | (3,389 | ) | | (2,880 | ) |
Foreign Currency | (1,394 | ) | | 2,501 |
|
Ending balance | 47,771 |
| | 47,984 |
|
Less: current portion | 445 |
| | 891 |
|
Long-term portion of asset retirement obligation(1) | $ | 47,326 |
| | $ | 47,093 |
|
(1) Balancepreferred stock agreements, as of December 31, 2018 includes $3.32020, approximately $172 million which has been reclassifiedwas available to Liabilities subject to compromise.
be drawn upon under the ABL Facility.
(4)Other secured subsidiary debt consists of finance lease obligations maturing at various dates from 2021 through 2045.
IHEARTMEDIA, INC.AND SUBSIDIARIES (DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 – LONG-TERM DEBT
In connection with the Company's Chapter 11 Cases, the indebtedness of the Debtors was reclassified to current liabilities at December 31, 2017 and has been reclassified to Liabilities subject to compromise at December 31, 2018. The Plan of Reorganization contemplates a restructuring of the Debtors that is expected to reduce iHeartCommunications’ debt to approximately $5.75 billion.
Outstanding debt at December 31, 2018 and 2017 consisted of the following:
|
| | | | | | | |
(In thousands) | December 31, | | December 31, |
| 2018 | | 2017 |
Senior Secured Credit Facilities | $ | — |
| | $ | 6,300,000 |
|
Receivables Based Credit Facility Due 2020(1) | — |
| | 405,000 |
|
Debtors-in-Possession Facility(1) | — |
| | — |
|
Priority Guarantee Notes | — |
| | 6,570,361 |
|
CCO Receivables Based Credit Facility Due 2023(2) | — |
| | — |
|
Other Secured Subsidiary Debt(3) | 3,882 |
| | 8,522 |
|
Total Consolidated Secured Debt | 3,882 |
| | 13,283,883 |
|
| | | |
14.0% Senior Notes Due 2021 | — |
| | 1,763,925 |
|
Legacy Notes(4) | — |
| | 475,000 |
|
10.0% Senior Notes Due 2018(5) | — |
| | 47,482 |
|
Subsidiary Senior Notes(6) | 5,300,000 |
| | 5,300,000 |
|
Other Subsidiary Debt | 46,105 |
| | 24,615 |
|
Purchase accounting adjustments and original issue discount(7) | (739 | ) | | (136,653 | ) |
Long-term debt fees(7) | (25,808 | ) | | (109,071 | ) |
Liabilities subject to compromise(8) | 15,149,477 |
| | — |
|
Total debt, prior to reclassification to Liabilities subject to compromise | 20,472,917 |
| | 20,649,181 |
|
Less: current portion | 46,332 |
| | 14,972,367 |
|
Less: Amounts reclassified to Liabilities subject to compromise | 15,149,477 |
| | — |
|
Total long-term debt | $ | 5,277,108 |
| | $ | 5,676,814 |
|
| |
(1) | On June 14, 2018 (the “DIP Closing Date”), iHeartCommunications refinanced its receivables-based credit facility with the new $450.0 million debtors-in-possession credit facility (the "DIP Facility"), which matures on the earlier of the emergence date from the Chapter 11 Cases or June 14, 2019. The DIP Facility also includes a feature to convert into an exit facility at emergence, upon meeting certain conditions. The DIP Facility accrues interest at LIBOR plus 2.25%. At closing, iHeartCommunications drew $125.0 million on the DIP Facility. On June 14, 2018, the Company used proceeds from the DIP Facility and cash on hand to repay the outstanding $306.4 million and $74.3 million term loan and revolving credit commitments, respectively, of the iHeartCommunications receivables-based credit facility. Long-term debt fees incurred in relation to the DIP Facility were expensed as incurred and are reflected within Reorganization items, net in the Company's Consolidated Statement of Comprehensive Income (Loss). On August 16, 2018 and September 17, 2018, the Company repaid $100.0 million and $25.0 million, respectively, of the amount drawn under the DIP Facility. As of December 31, 2018, the Company had a borrowing limit of $450.0 million under iHeartCommunications' DIP Facility, had no outstanding borrowings, had $70.2 million of outstanding letters of credit and had an availability block requirement of $37.5 million, resulting in $342.3 million of excess availability. |
| |
(2) | On June 1, 2018, a subsidiary of the Company's Outdoor advertising subsidiary, Clear Channel Outdoor, Inc. ("CCO"), refinanced CCOH's senior revolving credit facility and replaced it with a receivables-based credit facility that provided for revolving credit commitments of up to $75.0 million. On June 29, 2018, CCO entered into an amendment providing for a $50.0 million incremental increase of the facility, bringing the aggregate revolving credit commitments to $125.0 million. The facility has a five-year term, maturing in 2023. As of December 31, 2018, the facility had $94.4 million of letters of credit outstanding and a borrowing limit of $125.0 million, resulting in $30.6 million of excess availability. Certain additional restrictions, including a springing financial covenant, take effect at decreased levels of excess availability. |
| |
(3) | Other secured subsidiary debt matures at various dates from 2019 through 2045. |
IHEARTMEDIA, INC.AND SUBSIDIARIES (DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
| |
(4) | iHeartCommunications' Legacy Notes, all of which were issued prior to the acquisition of iHeartCommunications by the Company in 2008, consist of $175.0 million of 6.875% Senior Notes due 2018 that matured on June 15, 2018, $300.0 million of 7.25% Senior Notes due 2027 that mature in 2027 and $57.1 million of 5.50% Senior Notes due 2016 held by a subsidiary of the Company that remain outstanding but are eliminated for purposes of consolidation of the Company’s financial statements. |
| |
(5) | On January 4, 2018, a subsidiary of iHeartCommunications repurchased $5.4 million aggregate principal amount of 10.0% Senior Notes due 2018 that were held by unaffiliated third parties for $5.3 million in cash. On January 16, 2018, iHeartCommunications repaid the remaining balance of $42.1 million aggregate principal amount of 10.0% Senior Notes due 2018 at maturity. |
| |
(6) | On February 4, 2019, Clear Channel Worldwide Holdings, Inc., a subsidiary of CCOH (“CCWH”), delivered a conditional notice of redemption calling all of its outstanding $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” and together with the Series A CCWH Subordinated Notes, the “CCWH Subordinated Notes”) for redemption on March 6, 2019. The redemption was conditioned on the closing of the offering of $2,235.0 million of newly-issued 9.25% Senior Subordinated Notes due 2024 (the "New CCWH Subordinated Notes"). At the closing of such offering on February 12, 2019, CCWH deposited with the trustee for the CCWH Subordinated Notes a portion of the proceeds from the new notes in an amount sufficient to pay and discharge the principal amount outstanding, plus accrued and unpaid interest on the CCWH Subordinated Notes to, but not including, the redemption date. CCWH irrevocably instructed the trustee to apply such funds to the full payment of the CCWH Subordinated Notes on the redemption date. Concurrently therewith, CCWH elected to satisfy and discharge the indentures governing the CCWH Subordinated Notes in accordance with their terms and the trustee acknowledged such discharge and satisfaction. As a result of the satisfaction and discharge of the indentures, CCWH and the guarantors of the CCWH Subordinated Notes have been released from their remaining obligations under the indentures and the CCWH Subordinated Notes. |
| |
(7) | As a result of the Company's Chapter 11 Cases, the Company expensed $67.1 million of deferred long-term debt fees and $131.1 million of original issue discount to Reorganization items, net, in the Consolidated Statement of Comprehensive Loss for the year ended December 31, 2018. |
| |
(8) | In connection with the Company's Chapter 11 Cases, the $6.3 billion outstanding under the Senior Secured Credit Facilities, the $1,999.8 million outstanding under the 9.0% Priority Guarantee Notes due 2019, the $1,750.0 million outstanding under the 9.0% Priority Guarantee Notes due 2021, the $870.5 million of 11.25% Priority Guarantee Notes due 2021, the $1,000.0 million outstanding under the 9.0% Priority Guarantee Notes due 2022, the $950.0 million outstanding under the 10.625% Priority Guarantee Notes due 2023, $6.1 million outstanding Other Secured Subsidiary debt, the $1,781.6 million outstanding under the 14.0% Senior Notes due 2021, the $475.0 million outstanding under the Legacy Notes and $16.5 million outstanding Other Subsidiary Debt have been reclassified to Liabilities subject to compromise in the Company's Consolidated Balance Sheet as of December 31, 2018. As of the Petition Date, the Company ceased making principal and interest payments, and ceased accruing interest expense in relation to long-term debt reclassified as Liabilities subject to compromise. |
TheSuccessor Company’s weighted average interest rate atwas 5.5% and 6.4% as of December 31, 20182020 and 2017 was 9.2% and 8.9%,December 31, 2019, respectively. The aggregate market value of the Successor Company’s debt based on market prices for which quotes were available was approximately $14.0$6.2 billion and $15.4$6.1 billion atas of December 31, 20182020 and 2017,December 31, 2019, respectively. Under the fair value hierarchy established by ASC 820-10-35, the fair market value of the Successor Company’s debt is classified as either Level 1 or Level 2.
On March 14, 2018, the Company and certain of the Company's direct and indirect domestic subsidiaries, not including CCOH or any of its subsidiaries, filed voluntary petitions for relief under Chapter 11, in the Bankruptcy Court. The filing of the voluntary petitions triggered an event of default under the Company's debt agreements. As a result, $14.7 billion in aggregate principal amount outstanding on the Company's long-term debt was classified as current as of December 31, 2017.
Debtors-in-Possession
IHEARTMEDIA, INC.AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Asset-based Revolving Credit Facility due 2023
On June 14, 2018,the Effective Date, iHeartCommunications, an indirect subsidiary of the Company,as borrower, entered into the DIP Facility, as parent borrower,a Credit Agreement (the “ABL Credit Agreement”) with iHeartMedia Capital I, LLC, the direct parent of iHeartCommunications (“Holdings”Capital I”), as guarantor, certain Debtor subsidiaries of iHeartCommunications, named therein, as subsidiary borrowers (the “Subsidiary Borrowers”),guarantors, Citibank, N.A., as a lenderadministrative and administrativecollateral agent, (the "DIP Administrative Agent"), the swing line lenders and letter of credit issuers named therein and the other lenders party thereto from time to time, party thereto.governing the ABL Facility. The ABL Facility includes a letter of credit sub-facility and a swingline loan sub-facility.
Size and Availability
The DIP Credit AgreementABL Facility provides for a first-outsenior secured asset-based revolving credit facility in the aggregate principal amount of up to $450$450.0 million, with amounts available from time to time (including in respect of letters of credit) equal to the lesser of (i)(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 (ii)(B) the aggregate revolving credit commitments. As of the DIP Closing Date, the aggregate revolving credit commitments were $450.0 million. Subject to certain conditions, iHeartCommunications may
IHEARTMEDIA, INC.AND SUBSIDIARIES (DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
at any time request one or more increases in the amount of revolving credit commitments, in minimum amountsan amount up to the sum of $10.0(x) $150.0 million and (y) the amount by which the borrowing base exceeds the aggregate revolving credit commitments. As of December 31, 2020, iHeartCommunications had no principal amounts outstanding under the ABL Facility, a facility size of $450.0 million and $32.9 million in an aggregate maximum amountoutstanding letters of $100.0 million.
The proceeds fromcredit, resulting in $417.1 million of excess availability. As a result of certain restrictions in the DIP Facility were made available on the DIP Closing Date,Company's debt and were used in combination with cash on hand to fully pay off and terminate iHeartCommunications’ asset-based credit facility and all commitments thereunder governed by the credit agreement, datedpreferred stock agreements, as of November 30, 2017, by and among iHeartCommunications, Holdings,December 31, 2020, approximately $172.0 million was available to be drawn upon under the Subsidiary Borrowers, and the lenders and issuing banks from time to time party thereto and TPG Specialty Lending, Inc., as administrative agent and collateral agent.ABL Facility.
Interest Rate and Fees
Borrowings under the DIP Credit AgreementABL Facility bear interest at a rate per annum equal to the applicable ratemargin plus, at iHeartCommunications’ option, either (1) a baseeurocurrency rate determined by reference to the highest of (a) the rate announced from time to time by the Administrative Agent at its principal office, (b) the Federal Funds rate plus 0.50%, and (c) the Eurocurrency rate for an interest period of one month plus 1.00% or (2) a Eurocurrency rate that is the greater of (a) 1.00%, and (b) the quotient of (i) the ICE LIBOR rate, or if such rate is not available, the rate determined by the DIP Administrative Agent, and (ii) one minus the maximum rate at which reserves are required to be maintained for Eurocurrency liabilities.base rate. The applicable ratemargin for borrowings under the DIP Credit Agreement is 2.25% with respectABL Facility range from 1.25% to Eurocurrency rate loans1.75% for eurocurrency borrowings and 1.25% with respectfrom 0.25% to base rate loans.0.75% for base-rate borrowings, in each case, depending on average excess availability under the ABL Facility based on the most recently ended fiscal quarter.
In addition to paying interest on outstanding principal under the DIP Credit Agreement,ABL Facility, iHeartCommunications is required to pay a commitment fee of 0.50% per annum to the lenders under the DIP Credit AgreementABL Facility in respect of the unutilized revolving 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 acustomary letter of credit fee equal to 2.25% per annum.fees.
Maturity
Borrowings under the DIP Credit AgreementABL Facility will mature, and lending commitments thereunder will terminate upon the earliest to occur of: (a)on June 14, 2019 (the “Scheduled Termination Date”) (provided that to the extent the Consummation Date (as defined below) has not occurred solely as a result of failure to obtain necessary regulatory approvals, the Scheduled Termination Date shall be September 16, 2019) and (b) the date of the substantial consummation (as defined in the Bankruptcy Code) of the Plan of Reorganization (the “Consummation Date”); provided, that if the DIP Facility is converted into an exit facility as described under “Conversion to Exit Facility” below, then the borrowings will mature on the maturity date set forth in the credit agreement governing such exit facility.2023.
Prepayments
If at any time, (a) the revolving credit exposures exceedsum of the revolving credit commitments (this clause (a),outstanding amounts under the “Excess”) or (b)ABL Facility exceeds the lesser of (i) the borrowing base and (ii) the aggregate revolving credit commitments minus $37.5 million minusunder the aggregate revolving credit exposures (the clause (b),facility (such lesser amount, the “Excess Availability”“line cap”), is for any reason less than $0, iHeartCommunications will beis required to repay all revolvingoutstanding loans outstanding, and cash collateralize letters of credit in an aggregate amount equal to such Excess or until Excess Availability is not less than $0, as applicable.
excess. iHeartCommunications may voluntarily repay outstanding loans under the ABL Facility at any time without premium or penalty, outstanding amountsother than customary “breakage” costs with respect to eurocurrency rate loans. Any voluntary prepayments made by iHeartCommunications will not reduce iHeartCommunications’ commitments under the revolving credit facility at any time.ABL Facility.
Guarantees and Security
The facilityABL Facility is guaranteed by, subject to certain exceptions, Holdings andthe guarantors of iHeartCommunications’ Debtor subsidiaries.Term Loan Facility. All obligations under the DIP Credit Agreement,ABL Facility, and the guarantees of those obligations, are secured by a perfected first priority senior priming lien on all of iHeartCommunications’ and all ofsecurity interest in the subsidiary guarantors’ accounts receivable and related assets of iHeartCommunications’ and the guarantors’ accounts receivable, qualified cash and related assets and proceeds thereof that is senior to the security interest of iHeartCommunications’ Term Loan Facility in such accounts receivable, qualified cash and related assets and proceeds thereof, subject to permitted liens and certain exceptions.
IHEARTMEDIA, INC.AND SUBSIDIARIES (DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Certain Covenants and Events of Default
The DIP
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.
Term Loan Facility due 2026
On 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 Citibank N.A., as administrative and collateral agent, governing 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 Claimholders pursuant to the Plan of Reorganization. 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 due 2026. 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 due 2026. The Term Loan Facility matures on May 1, 2026.
On February 3, 2020, iHeartCommunications entered into an amendment to the Credit Agreement governing its Term Loan Facility due 2026. The amendment reduces 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 Credit Agreement) plus a margin of 2.00% (from Base Rate plus a margin of 3.00%) and modifies certain covenants contained in the 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, 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 remaining balance outstanding under the ABL Facility of $235.0 million, with the remaining $190.6 million of the proceeds available for general corporate purposes.
Under the terms of the Term Loan Facility Credit Agreement, iHeartCommunications made quarterly principal payments totaling $23.3 million during the year ended December 31, 2020.
Interest Rate and Fees
Following the amendment made on February 3, 2020, the Term loans under the Term Loan Facility bear interest at a rate per annum equal to LIBOR plus a margin of 3.00%, or the Base Rate plus a margin of 2.00%. The incremental term loans issued pursuant to Amendment No. 2 have an interest rate of 4.00% for Eurocurrency Rate Loans and 3.00% for Base Rate Loans (subject to a LIBOR floor of 0.75% and Base Rate floor of 1.75%). Amendment No. 2 also modifies certain other provisions of the Credit Agreement.
Collateral and Guarantees
The Term 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 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.
IHEARTMEDIA, INC.AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 upon 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 iHeartCommunications'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.
The DIP Credit AgreementTerm Loan Facility includes certain customary representations and warranties, affirmative covenants and events of default, including but not limited to, payment defaults, breach of representations and warranties, covenant defaults, cross-defaultscross defaults to certain indebtedness, certain bankruptcy-related events, certain events under ERISA, material judgments and a change of control. If an event of default occurs, the lenders under the DIP Credit Agreement will beTerm Loan Facility are entitled to take various actions, including the acceleration of all amounts due under the DIP Credit AgreementTerm Loan Facility and all actions permitted to be taken under the loan documents relating thereto or applicable law, subjectlaw.
6.375% Senior Secured Notes due 2026
On the Effective Date, iHeartCommunications entered into an indenture (the “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 $800.0 million aggregate principal amount of 6.375% Senior Secured Notes due 2026 that were issued to certain Claimholders pursuant to the termsPlan of the DIP Order.
Conversion to Exit Facility
Upon the satisfaction or waiver of the conditions set forth in the DIP Credit Agreement, the DIP Facility may convert into an exit facility on substantially the terms set forth in an exhibit to the DIP Credit Agreement.
Reorganization. The 6.375% Senior Secured Credit Facilities
As of December 31, 2018Notes mature on May 1, 2026 and 2017, iHeartCommunications had senior secured credit facilities consisting of:
|
| | | | | | | | | |
(In thousands) | | | December 31, | | December 31, |
| Maturity Date | | 2018 | | 2017 |
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 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.
IHEARTMEDIA, INC.AND SUBSIDIARIES (DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The margin percentages applicable to the term loan facilities are the following percentages6.375% 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.
IHEARTMEDIA, INC.AND SUBSIDIARIES (DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Priority Guarantee Notes
As of December 31, 2018 and 2017, iHeartCommunications had outstanding 9.0% Priority Guarantee Notes due 2019, 9.0% Priority Guarantee Notes due 2021, 11.25% Priority Guarantee Notes due 2021, 9.0% Priority Guarantee Notes due 2022 and 10.625% Priority Guarantee Notes due 2023 (collectively, the “Priority Guarantee Notes”) (net of $180.8 million principal amount held by a subsidiary of iHeartCommunications) consisting of:
|
| | | | | | | | | | | | | |
(In thousands) | | | | | | | December 31, | | December 31, |
| Maturity Date | | Interest Rate | | Interest Payment Terms | | 2018 | | 2017 |
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 | | 870,546 |
| | 870,546 |
|
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 | | | | | $ | 6,570,361 |
| | $ | 6,570,361 |
|
Guarantees and Security
The Priority Guarantee Notes are iHeartCommunications' senior obligations and are fully and unconditionally guaranteed, jointly 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, 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 Priority Guarantee Notes, the collateral agent and the trustee for the 9% 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% Priority Guarantee Notes due 2019, for the benefit of 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 terms 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 accrued and unpaid interest to the redemption dates.
IHEARTMEDIA, INC.AND SUBSIDIARIES (DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Certain Covenants
The indentures 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.
14.0% Senior Notes due 2021
As of December 31, 2018, iHeartCommunications had outstanding approximately $1,781.6 million of aggregate principal amount of 14.0% Senior Notes due 2021 (net of $453.9 million principal amount held by a subsidiary of iHeartCommunications).
The 14.0% Senior Notes due 2021 mature on February 1, 2021. Interest on the 14.0% Senior Notes due 2021 isannum, 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 matureyear, beginning on February 1, 2021 and have the same rights and benefits as the 14.0% Senior Notes due 2021.2020.
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’
IHEARTMEDIA, INC.AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 to all other senior indebtedness ofexceptions, by a first priority lien on the guarantors.
iHeartCommunications may redeem the 14.0% Senior Notes due 2021, in whole or in part, within certain dates, at the redemption prices set forth in the indenture plus accrued and unpaid interest to the redemption date.
The indenture governing the 14.0% 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 iHeartCommunications and 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, 2018 and 2017, iHeartCommunications had outstanding Legacy Notes (net of $57.1 million aggregate principal amount held by a subsidiary of iHeartCommunications) consisting of:
|
| | | | | | | |
(In thousands) | December 31, | | December 31, |
| 2018 | | 2017 |
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 |
| | $ | 475,000 |
|
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 Legacy Notes were the obligationsassets of iHeartCommunications prior to the merger in 2008. The Legacy Notes are senior, unsecured obligations that are effectively subordinated to iHeartCommunications' secured indebtedness to the extent of the value
IHEARTMEDIA, INC.AND SUBSIDIARIES (DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 Legacy 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
On January 4, 2018, iHeartCommunications repurchased $5.4 million aggregate principal amount of 10.0% Senior Notes due 2018 that were held by unaffiliated third parties for $5.3 million in cash. On January 16, 2018, iHeartCommunications repaid the remaining balance of $42.1 million aggregate principal amount of 10.0% Senior Notes due 2018 that were held by unaffiliated third parties for $42.1 million in cash.
CCO Receivables Based Credit Facility Due 2023
On June 1, 2018, (the "Closing Date"), CCO, a subsidiary Company's Outdoor advertising subsidiary, entered into a Credit Agreement as parent borrower, with certain of its subsidiaries named therein (the “CCO Subsidiary Borrowers”), as subsidiary borrowers, Deutsche Bank AG New York Branch as administrative agent (the “CCO Facility Administrative Agent”) and swing line lender, and the guarantors, other lenders from time to time party thereto. The Credit Agreement governs CCO’s new asset-based revolving credit facility and replaced the CCOH's prior credit agreement, which was terminated on the Closing Date.
Size and Availability
The Credit Agreement provides for an asset-based revolving credit facility, with amounts available from time to time (including in respect of letters of credit) equal to the lesser of (i) the borrowing base, which equals 85.0% of the eligible accounts receivable of CCO and the subsidiary borrowers, subject to customary eligibility criteria minus any reserves, and (ii) the aggregate revolving credit commitments. As of the Closing Date, the aggregate revolving credit commitments were $75.0 million. On June 29, 2018, CCO entered into an amendment providing for a $50.0 million incremental increase of the facility, bringing the aggregate revolving credit commitments to $125.0 million. On the Closing Date, the revolving credit facility was used to replace and terminate the commitments under the Prior Credit Agreement, dated as of August 22, 2013 (the “Prior Credit Agreement”) and to replace the letters of credit outstanding under the Prior Credit Agreement.
As of December 31, 2018, the facility had $94.4 million of letters of credit outstanding and a borrowing limit of $125.0 million, resulting in $30.6 million of excess availability. Certain additional restrictions, including a springing financial covenant, take effect at decreased levels of excess availability.
Interest Rate and Fees
Borrowings under the Credit Agreement bear interest at a rate per annum equal to the Applicable Rate plus, at CCO’s option, either (1) a base rate determined by reference to the highest of (a) the Federal Funds Rate plus 0.50%, (b) the rate of interest in effect for such date as publicly announced from time to time by the CCO Facility Administrative Agent as its “prime rate” and (c) the Eurocurrency rate that would be calculated as of such day in respect of a proposed Eurocurrency rate loan with a one-month interest period plus 1.00%, or (2) a Eurocurrency rate that is equal to the LIBOR rate as published by Reuters two business days prior to the commencement of the interest period. The Applicable Rate for borrowings under the Credit Agreement is 1.00% with respect to base rate loans and 2.00% with respect to Eurocurrency loans.
In addition to paying interest on outstanding principal under the Credit Agreement, CCO is required to pay a commitment fee of 0.375% per annum to the lenders under the Credit Agreement in respect of the unutilized revolving commitments thereunder. CCO must also pay a letter of credit fee for each issued letter of credit equal to 2.00% per annum times the daily maximum amount then available to be drawn under such letter of credit.
Maturity
Borrowings under the Credit Agreement will mature, and lending commitments thereunder will terminate, on the earlier of (a) June 1, 2023 and (b) 90 days prior to the maturity date of any indebtedness of CCOH or any of its direct or indirect subsidiaries in an aggregate principal amount outstanding in excess of $250,000,000 (other than the 8.75% Senior Notes due 2020 issued by Clear Channel International, B.V. ("CCIBV")).
IHEARTMEDIA, INC.AND SUBSIDIARIES (DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Prepayments
If at any time, the outstanding amount under the revolving credit facility exceeds the lesser of (i) the aggregate amount committed by the revolving credit lenders and (ii) the borrowing base, CCO will be required to prepay first, any protective advances and second, any outstanding revolving loans and swing line loans and/or cash collateralize letters of credit in an aggregate amount equal to such excess, as applicable.
Subject to customary exceptions and restrictions, CCO may voluntarily repay outstanding amounts under the Credit Agreement at any time without premium or penalty. Any voluntary prepayments CCO makes will not reduce commitments under the Credit Agreement.
Guarantees and Security
The facility is guaranteed by the CCO Subsidiary Borrowers. All obligations under the Credit Agreement, and the guarantees of those obligations, are secured by a perfected security interest in all of CCO’s and the CCO Subsidiary Borrowers’ accounts receivable and related assets, and proceeds thereof.
Certain Covenants and Events of Default
If borrowing availability is less than the greater of (a) $7.5 million and (b) 10.0% of the lesser of (i) the aggregate commitments at such time and (ii) the borrowing base then in effect at such time (the “Financial Covenant Triggering Event”), CCO will be required to comply with a minimum fixed charge coverage ratio of at least 1.00 to 1.00 for the most recent period of four consecutive fiscal quarters ended prior to the occurrence of the Financial Covenant Triggering Event, and will be required to continue to comply with this minimum fixed charge coverage ratio until borrowing availability exceeds the greater of (x) $7.5 million and (y) 10.0% of the lesser of (i) the aggregate commitments at such time and (ii) the borrowing base then in effect at such time, at which time the Financial Covenant Triggering Event will no longer be deemed to be occurring.
The Credit Agreement also includes negative covenants that, subject to significant exceptions, limit the Borrowers’ ability and the ability of their 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 or;
change lines of business.
The Credit Agreement 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, material judgments and a change of control. If an event of default occurs, the lenders under the Credit Agreement will be entitled to take various actions, including the acceleration of all amounts due under the Credit Agreement and all actions permitted to be taken by a secured creditor.second priority lien on accounts receivable and related assets securing the ABL Facility.
IHEARTMEDIA, INC.AND SUBSIDIARIES (DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Subsidiary Senior Notes
As of December 31, 2018 and 2017, the Company's subsidiaries, CCWH and CCIBV had outstanding notes consisting of:
|
| | | | | | | | | | | | | |
(In thousands) | | | | | | | December 31, | | December 31, |
| Maturity Date | | Interest Rate | | Interest Payment Terms | | 2018 | | 2017 |
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 Subordinated Notes(1): | | | | | | | | |
7.625% Series A Senior Subordinated 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 Subordinated 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 | | $ | 375,000 |
| | $ | 375,000 |
|
Total Subsidiary Senior Notes | | | | | | | $ | 5,300,000 |
| | $ | 5,300,000 |
|
| |
(1) | On February 4, 2019, CCWH, delivered a conditional notice of redemption calling all of its outstanding $275.0 million aggregate principal amount of Series A CCWH Subordinated Notes and $1,925.0 million aggregate principal amount of Series B Subordinated Notes for redemption on March 6, 2019. The redemption was conditioned on the closing of the offering of $2,235.0 million of the New CCWH Subordinated Notes. At the closing of such offering on February 12, 2019, CCWH deposited with the trustee for the CCWH Subordinated Notes a portion of the proceeds from the new notes in an amount sufficient to pay and discharge the principal amount outstanding, plus accrued and unpaid interest on the CCWH Subordinated Notes to, but not including, the redemption date. CCWH irrevocably instructed the trustee to apply such funds to the full payment of the CCWH Subordinated Notes on the redemption date. Concurrently therewith, CCWH elected to satisfy and discharge the indentures governing the CCWH Subordinated Notes in accordance with their terms and the trustee acknowledged such discharge and satisfaction. As a result of the satisfaction and discharge of the indentures, CCWH and the guarantors of the CCWH Subordinated Notes have been released from their remaining obligations under the indentures and the CCWH Subordinated Notes. |
CCWH Senior and Senior Subordinated Notes
The senior notes of CCWH (the "CCWH Senior Notes") are guaranteed by CCOH, CCO and certain of CCOH’s direct and indirect subsidiaries. The CCWH 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 Subordinated Notes.
IHEARTMEDIA, INC.AND SUBSIDIARIES (DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 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.
Redemptions
CCWHiHeartCommunications may redeem the CCWH6.375% Senior Notes and the CCWH SubordinatedSecured Notes at its option, in whole or in part, at redemption prices set forth inany time prior to May 1, 2022, at a price equal to 100% of the indenturesprincipal amount of the 6.375% Senior Secured Notes being redeemed, plus an applicable premium and plus accrued and unpaid interest to the redemption datesdate. iHeartCommunications may redeem the 6.375% Senior Secured Notes at its option, in whole or in part, on or after May 1, 2022, at the redemption prices set forth in the 6.375% Senior Secured Notes Indenture plus accrued and unpaid interest to the redemption date. At any time prior to May 1, 2022, iHeartCommunications may redeem at its option, up to 40% of the aggregate principal amount of the 6.375% Senior Secured Notes at a redemption price equal to 106.375% of the principal amount thereof, plus an applicable premium.accrued and unpaid interest to the redemption date, with the proceeds of one or more equity offerings.
Certain Covenants
The indentures governing the CCWH6.375% Senior Secured Notes and the CCWH Subordinated Notes containIndenture contains covenants that limit CCOHthe ability of Capital 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 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
The senior notes of CCIBV (the "CCIBV Senior Notes") are guaranteed by certain of the International outdoor business’s existing and future subsidiaries. The Company does not guarantee or otherwise assume any liability for the CCIBV Senior Notes. The notes are senior unsecured obligations that rank pari passu in right of payment to all unsubordinated indebtedness of Clear Channel International B.V., and the guarantees of the notes are senior unsecured obligations that rank pari passu in right of payment to all unsubordinated indebtedness of the guarantors of the notes.
On August 14, 2017, CCIBV issued $150.07, 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 in aggregate principal amount of 8.75%5.25% Senior Secured Notes due 2020 (the “New Notes”). The New Notes2027 that were issued as additional notesin a private placement to qualified institutional buyers under Rule 144A under the indenture governing CCIBV’s existing CCIBVSecurities Act, and to persons outside the United States pursuant to Regulation S under the Securities Act. The 5.25% Senior Notes due 2020 and were issued at a premium, resulting in $156.0 million in proceeds. The NewSecured Notes mature on DecemberAugust 15, 20202027 and bear interest at a rate of 8.75%5.25% per annum,annum. Interest is payable semi-annually in arrears on JuneFebruary 15 and DecemberAugust 15 of each year.year, beginning on February 15, 2020.
Redemptions
CCIBVThe 5.25% Senior Secured Notes are guaranteed on a senior secured basis by Capital I and the subsidiaries of iHeartCommunications that guarantee the Term Loan Facility. The 5.25% Senior Secured Notes and the related guarantees rank equally 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
IHEARTMEDIA, INC.AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Secured Notes, effectively subordinated 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 5.25% Senior Secured Notes, to the extent of the value of such collateral, and structurally subordinated to all existing and future indebtedness and other liabilities of any subsidiary of iHeartCommunications that is not a guarantor of the 5.25% 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 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 notes5.25% Senior Secured Notes at its option, in whole or part, at any time prior to August 15, 2022, at a price equal to 100% of the redemption prices set forth inprincipal amount of the indenture5.25% Senior Secured Notes redeemed, plus a make-whole premium, plus accrued and unpaid interest to the redemption date. iHeartCommunications may redeem the 5.25% Senior Secured Notes, in whole or in part, on or after August 15, 2022, at the redemption prices set forth in the 5.25% Senior Secured Notes Indenture plus accrued and unpaid interest to the redemption date. At any time on or before August 15, 2022, iHeartCommunications may elect to redeem up to 40% of the aggregate principal amount of the 5.25% Senior Secured Notes at a redemption price equal to 105.25% of the principal amount thereof, plus accrued and unpaid interest to the redemption date, with the net proceeds of one or more equity offerings.
Certain Covenants
The indenture governing the CCIBV5.25% Senior Secured Notes Indenture contains covenants that limit CCIBV’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;
incurguarantee additional debt or issue certain preferred stock;
•create liens on certain assets;
•redeem, purchase or retire subordinated debt;
•make certain investments;
•create restrictions on the payment of dividends or other amounts from iHeartCommunications’ restricted subsidiaries;
•enter into certain transactions with affiliates;
•merge or consolidate with another person, or sell or otherwise dispose of all or substantially all of iHeartCommunications’ assets;
•sell certain assets, including capital stock of iHeartCommunications’ subsidiaries;
•designate iHeartCommunications’ subsidiaries as unrestricted subsidiaries, and
•pay dividends, redeem or repurchase capital stock or make other restricted payments.
4.75% Senior Secured Notes due 2028
On November 22, 2019, iHeartCommunications entered into an indenture (the “4.75% 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 $500.0 million aggregate principal amount of 4.75% Senior Secured Notes due 2028 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 4.75% Senior Secured Notes mature on January 15, 2028 and bear interest at a rate of 4.75% per annum. Interest is payable semi-annually on January 15 and July 15 of each year, beginning on July 15, 2020.
The 4.75% Senior Secured Notes are guaranteed on a senior secured basis by Capital I and the subsidiaries of iHeartCommunications that guarantee the Term Loan Facility. The 4.75% Senior Secured Notes and the related guarantees rank equally in right of payment with all of iHeartCommunications’ and the guarantors’ existing and future indebtedness that is not expressly subordinated to the 4.75% Senior Secured Notes (including the Term Loan Facility, the 6.375% Senior Secured Notes, the 5.25% 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 4.75% Senior Secured Notes, effectively subordinated 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 4.75% Senior Secured Notes, to the extent of the value of such collateral, and structurally subordinated to all existing and future indebtedness and other liabilities of any subsidiary of iHeartCommunications that is not a guarantor of the 4.75% Senior Secured Notes.
IHEARTMEDIA, INC.AND SUBSIDIARIES (DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The 4.75% 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 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.
engage
iHeartCommunications may redeem the 4.75% Senior Secured Notes at its option, in whole or part, at any time prior to January 15, 2023, at a price equal to 100% of the principal amount of the 4.75% Senior Secured Notes redeemed, plus a make-whole premium, plus accrued and unpaid interest to the redemption date. iHeartCommunications may redeem the 4.75% Senior Secured Notes, in whole or in part, on or after January 15, 2023, at the redemption prices set forth in the 4.75% Senior Secured Notes Indenture plus accrued and unpaid interest to the redemption date. At any time on or before November 15, 2022, iHeartCommunications may elect to redeem up to 40% of the aggregate principal amount of the 4.75% Senior Secured Notes at a redemption price equal to 104.75% 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 4.75% Senior Secured Notes Indenture contains covenants that limit the ability of iHeartCommunications and its restricted subsidiaries, to, among other things:
•incur or guarantee additional debt or issue certain preferred stock;
•create liens on certain assets;
•redeem, purchase or retire subordinated debt;
•make certain investments;
•create restrictions on the payment of dividends or other amounts from iHeartCommunications’ restricted subsidiaries;
•enter into certain transactions with affiliates;
•merge or consolidate with another person, or sell or otherwise dispose of all or substantially all of iHeartCommunications’ assets;
•sell certain assets, including capital stock of iHeartCommunications’ subsidiaries;
•designate iHeartCommunications’ subsidiaries as unrestricted subsidiaries, and
•pay dividends, redeem or repurchase capital stock or make other restricted payments.
8.375% Senior Unsecured Notes due 2027
On the Effective Date, iHeartCommunications entered into an indenture (the “Senior Unsecured Notes Indenture”) with Capital I, as guarantor, the subsidiary guarantors party thereto, and U.S. Bank National Association, as trustee, governing the $1,450.0 million aggregate principal amount of 8.375% Senior Notes due 2027 that were issued to certain Claimholders pursuant to the Plan of Reorganization. The Senior Unsecured Notes mature on May 1, 2027 and bear interest at a rate of 8.375% per annum, payable semi-annually in arrears on May 1 and November 1 of each year, beginning on November 1, 2019.
The Senior Unsecured Notes are guaranteed on a senior unsecured basis by Capital I and the subsidiaries of iHeartCommunications that guarantee the Term Loan Facility or other credit facilities or capital markets debt securities. The Senior Unsecured Notes and the related guarantees rank equally in right of payment with all of iHeartCommunications’ and the guarantors’ existing and future indebtedness that is not expressly subordinated to the Senior Unsecured Notes, effectively subordinated to all of iHeartCommunications’ and the guarantors’ existing and future indebtedness that is secured (including the 6.375% Senior Secured Notes, the 5.25% Senior Secured Notes, the 4.75% Senior Secured Notes and borrowings under the ABL Facility and the Term Loan Facility), to the extent of the value of the collateral securing such indebtedness, and structurally subordinated to all existing and future indebtedness and other liabilities of any subsidiary of iHeartCommunications that is not a guarantor of the Senior Unsecured Notes.
iHeartCommunications may redeem the Senior Unsecured Notes at its option, in whole or in part, at any time prior to May 1, 2022, at a price equal to 100% of the principal amount of the Senior Unsecured Notes being redeemed, plus an applicable premium and plus accrued and unpaid interest to the redemption date. iHeartCommunications may redeem the Senior Unsecured Notes at its option, in whole or in part, on or after May 1, 2022, at the redemption prices set forth in the Senior Unsecured Notes Indenture plus accrued and unpaid interest to the redemption date. At any time prior to May 1, 2022, iHeartCommunications redeem at its option, up to 40% of the aggregate principal amount of the Senior Unsecured Notes at a
IHEARTMEDIA, INC.AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
redemption price equal to 108.375% of the principal amount thereof, plus accrued and unpaid interest to the redemption date, with the proceeds of one or more equity offerings.
The Senior Unsecured Notes Indenture contains covenants that limit the ability of Capital I and its restricted subsidiaries, including iHeartCommunications, to, among other things:
•incur or guarantee additional debt or issue certain preferred stock;
•create liens on certain assets;
•redeem, purchase or retire subordinated debt;
•make certain investments;
•create restrictions on the payment of dividends or other payments by theamounts from iHeartCommunications’ restricted subsidiaries; and
•enter into certain transactions with affiliates;
•merge or consolidate with another person, or sell or otherwise dispose of all or substantially all of Clear Channel International B.V.’s assets.iHeartCommunications’ assets;
•sell certain assets, including capital stock of iHeartCommunications’ subsidiaries;
•designate iHeartCommunications’ subsidiaries as unrestricted subsidiaries, and
•pay dividends, redeem or repurchase capital stock or make other restricted payments.
Mandatorily Redeemable Preferred Stock
On the Effective Date, in accordance with the Plan of Reorganization, iHeart Operations issued 60,000 shares of its Series A Perpetual Preferred Stock, par value $0.001 per share (the "iHeart Operations Preferred Stock"), having an aggregate initial liquidation preference of $60.0 million for a cash purchase price of $60.0 million. The iHeart Operations Preferred Stock was purchased by a third party investor. As of December 31, 2020, the liquidation preference of the iHeart Operations Preferred Stock was $60.0 million. As further described below, the iHeart Operations Preferred Stock is mandatorily redeemable for cash at a date certain and therefore is classified as a liability in the Company's balance sheet.
There are no sinking fund provisions applicable to the iHeart Operations Preferred Stock. Shares of the iHeart Operations Preferred Stock, upon issuance, were fully paid and non-assessable. The shares of the iHeart Operations Preferred Stock are not convertible into, or exchangeable for, shares of any other class or series of stock or other securities of iHeart Operations. The holders of shares of the iHeart Operations Preferred Stock have no pre-emptive rights with respect to any shares of our capital stock or any of iHeart Operations’ other securities convertible into or carrying rights or options to purchase any such capital stock.
Holders of the iHeart Operations Preferred Stock are entitled to receive, as declared by the board of directors of iHeart Operations, in respect of each share, cumulative dividends accruing daily and payable quarterly at a per annum rate equal to the sum of (1) the greater of (a) LIBOR and (b) 2 percent, plus (2) the applicable margin, which is calculated as a function of iHeartMedia’s consolidated total leverage ratio. Dividends are payable on the liquidation preference. Unless all accrued and unpaid dividends on the iHeart Operations Preferred Stock are paid in full, no dividends or distributions may be paid on any equity interests of iHeartMedia or its subsidiaries other than iHeart Operations, and no such equity interests may be repurchased or redeemed (subject to certain exceptions that are specified in the certificate of designation for the iHeart Operations Preferred Stock). Dividends, if declared, will be payable on March 31, June 30, September 30 and December 31 of each year (or on the next business day if such date is not a business day). During the year ended December 31, 2020 and the period from May 1, 2019 through December 31, 2019, the Successor Company recognized $9.3 million and $5.5 million, respectively, of interest expense related to dividends on mandatorily redeemable preferred stock.
Other than as set forth below, iHeart Operations may not redeem the iHeart Operations Preferred Stock at its option prior to the third anniversary of the issue date of the iHeart Operations Preferred Stock. Upon consummation of certain equity offerings, iHeart Operations may, at its option, redeem all or a part of the iHeart Operations Preferred Stock for the liquidation preference plus a make-whole premium. At any time on or after the third anniversary of the issue date, the iHeart Operations Preferred Stock may be redeemed at the option of iHeart Operations, in whole or in part, for cash at a redemption price equal to the liquidation preference per share.
IHEARTMEDIA, INC.AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Upon (i) a liquidation, dissolution or winding up of iHeart Operations, iHeartMedia or iHeartCommunications, together with the subsidiaries of such entity, taken as a whole, (ii) a bankruptcy event, (iii) a change of control, (iv) a sale or transfer of all or substantially all of iHeart Operations’, iHeartMedia’s or iHeartCommunications’ assets and the assets of such entity’s subsidiaries, taken as a whole in a single transaction (other than to iHeartMedia or any of its subsidiaries), or a series of transactions, (v) an acceleration or payment default of indebtedness of iHeart Operations, iHeartMedia or any of its subsidiaries of $100 million or more or (vi) consummation of certain equity offerings of iHeartMedia, iHeart Operations or iHeartCommunications or certain significant subsidiaries, then any holder of shares of iHeart Operations Preferred Stock may require iHeartMedia to purchase such holder’s shares of iHeart Operations Preferred Stock at a purchase price equal to (a) the liquidation preference plus a make-whole premium, if such purchase is consummated prior to the third anniversary of the issue date or (b) the liquidation preference, if the purchase is consummated on or after the third anniversary of the issue date.
The shares of iHeart Operations Preferred Stock include repurchase rights, pursuant to which the holders may require iHeartMedia or iHeartCommunications to purchase the iHeart Operations Preferred Stock after the fifth anniversary of the issue date.
On the tenth anniversary of the issue date, the shares of iHeart Operations Preferred Stock will be subject to mandatory redemption for an amount equal to the liquidation preference.
If a default occurs or dividends payable on the shares of iHeart Operations Preferred Stock have not been paid in cash for twelve consecutive quarters, the holders of the iHeart Operations Preferred Stock will have the right, voting as a class, to elect one director to iHeartMedia’s Board of Directors. Upon any termination of the rights of the holders of shares of the iHeart Operations Preferred Stock as a class to vote for a director as described above, the director so elected to iHeartMedia’s Board of Directors will cease to be qualified as a director and the term of such director’s office shall terminate immediately.
Future Maturities of Long-term Debt
Future maturities of long-term debt at December 31, 20182020 are as follows:
| | | | | |
(in thousands) | |
2021 | $ | 34,775 | |
2022 | 28,514 | |
2023 | 28,133 | |
2024 | 28,051 | |
2025 | 27,418 | |
Thereafter | 5,910,653 | |
Total (1)(2) | $ | 6,057,544 | |
|
| | | |
(in thousands) | |
2019 | $ | 15,196,570 |
|
2020 | 2,575,147 |
|
2021 | 174 |
|
2022 | 2,725,199 |
|
2023 | 222 |
|
Thereafter | 2,152 |
|
Total (1) | $ | 20,499,464 |
|
(1)Excludes purchase accounting adjustments and original issue discount of $18.8 million and long-term debt fees of $21.8 million, which are amortized through interest expense over the life of the underlying debt obligations. | |
(1) | Excludes purchase accounting adjustments and original issue discount of $0.7 million and long-term debt fees of $25.8 million, which are amortized through interest expense over the life of the underlying debt obligations. |
(2)Under the terms of the Term Loan Facility and Incremental Term Loan Facility, the Company is required to make quarterly prepayments of $6.4 million. Such prepayments are reflected in the table above.
Surety Bonds and Letters of Credit and Guarantees
As of December 31, 2018,2020, iHeartCommunications had outstanding surety bonds and commercial standby letters of credit and bank guarantees of $77.0 million, $164.6$9.1 million and $37.6$33.3 million, respectively. A portion of the outstanding bank guarantees was supported by $17.4 million of cash collateral. These surety bonds and letters of credit and bank guarantees relate to various operational matters including insurance, bid, concessionlease and performance bonds as well as other items.
IHEARTMEDIA, INC.AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 710 – COMMITMENTS AND CONTINGENCIES
Commitments and Contingencies
The Company accounts for its rentals that include renewal options, annual rent escalation clauses, minimum franchise payments and maintenance related to displays under the guidance in ASC 840.
The Company considers its non-cancelable contracts that enable it to display advertising on buses, bus shelters, trains, etc. to be leases in accordance with the guidance in ASC 840-10. These contracts may contain minimum annual franchise payments which generally escalate each year. The Company accounts for these minimum franchise payments on a straight-line basis. If the rental increases are not scheduled in the lease, such as an increase based on subsequent changes in the index or rate, those rents are considered contingent rentals and are recorded as expense when accruable. Other contracts may contain a variable rent component based on revenue. The Company accounts for these variable components as contingent rentals and records these payments as expense when accruable. No single contract or lease is material to the Company’s operations.842.
The Company accounts for annual rent escalation clauses included in the lease term on a straight-line basis under the guidance in ASC 840-20-25. The Company considers renewal periods in determining its lease terms if at inception of the lease there is reasonable assurance the lease will be renewed. Expenditures for maintenance are charged to operations as incurred, whereas expenditures for renewal and betterments are capitalized. Non-cancelable contracts that provide the lessor with a right to fulfill the arrangement with property, plant and equipment not specified within the contract are not a lease and have been included within non-cancelable contracts within the table below.
The Company leases office space, certain broadcasting facilities equipment and the majority of the land occupied by its outdoor advertising structuresequipment under long-term operating leases. The Company accounts for these leases in accordance with the policies described above.
IHEARTMEDIA, INC.AND SUBSIDIARIES (DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company’s contracts with municipal bodies or private companies relating to street furniture, billboards, transit and malls generally require the Company to build bus stops, kiosks and other public amenities or advertising structures during the term of the contract. The Company generally owns these structures and is generally allowed to advertise on them for the remaining term of the contract. Once the Company has built the structure, the cost is capitalized and expensed over the shorter of the economic life of the asset or the remaining life of the contract.
In addition, the Company has commitments relating to required purchases of property, plant and equipment under certain street furniture contracts. Certain of the Company’s contracts contain penalties for not fulfilling its commitments related to its obligations to build bus stops, kiosks and other public amenities or advertising structures. Historically, any such penalties have not materially impacted the Company’s financial position or results of operations.
As of December 31, 2018,2020, the Company's future minimum rental commitments under non-cancelable operating lease agreements with terms in excess of one year, minimum payments under non-cancelable contracts in excess of one year, capital expenditure commitments and employment/talent contracts consist of the following:
| | (In thousands) | | | | | Capital | | | (In thousands) | |
| Non-Cancelable | | Non-Cancelable | | Expenditure | | Employment/Talent | | Non-Cancelable | | Non-Cancelable | | Employment/Talent |
| Operating Leases | | Contracts | | Commitments | | Contracts | | Operating Leases | | Contracts | | Contracts |
2019 | $ | 636,556 |
| | $ | 333,559 |
| | $ | 24,322 |
| | $ | 74,432 |
| |
2020 | 533,097 |
| | 249,239 |
| | 7,408 |
| | 75,502 |
| |
2021 | 460,179 |
| | 203,519 |
| | 11,103 |
| | 46,603 |
| 2021 | $ | 126,732 | | | $ | 125,853 | | | $ | 102,263 | |
2022 | 370,303 |
| | 139,785 |
| | 4,179 |
| | 13,993 |
| 2022 | 133,086 | | | 50,736 | | | 75,944 | |
2023 | 287,005 |
| | 105,408 |
| | 6,431 |
| | — |
| 2023 | 120,125 | | | 16,698 | | | 41,735 | |
2024 | | 2024 | 109,958 | | | 2,424 | | | 41,336 | |
2025 | | 2025 | 97,272 | | | 719 | | | 1,029 | |
Thereafter | 2,154,999 |
| | 308,057 |
| | 7,909 |
| | — |
| Thereafter | 706,472 | | | 1,717 | | | 0 | |
Total | $ | 4,442,139 |
| | $ | 1,339,567 |
| | $ | 61,352 |
| | $ | 210,530 |
| Total | $ | 1,293,645 | | | $ | 198,147 | | | $ | 262,307 | |
The Company and its subsidiaries are involved in certain legal proceedings arising in the ordinary course of business and, as required, have accrued an estimate of the probable costs for the resolution of those claims for which the occurrence of loss is probable and the amount can be reasonably estimated. These estimates have been developed in consultation with counsel and are based upon an analysis of potential results, assuming a combination of litigation and settlement strategies. It is possible, however, that future results of operations for any particular period could be materially affected by changes in the Company’s assumptions or the effectiveness of its strategies related to these proceedings. Additionally, due to the inherent uncertainty of litigation, there can be no assurance that the resolution of any particular claim or proceeding would not have a material adverse effect on the Company’s financial condition or results of operations.
Although the Company is involved in a variety of legal proceedings in the ordinary course of business, a large portion of its litigation arises in the following contexts: commercial disputes; defamation matters; employment and benefits related claims; governmental fines; intellectual property claims; and tax disputes.
Alien Ownership Restrictions and FCC Petition for Declaratory Ruling
The Communications Act and FCC regulation prohibit foreign entities and individuals from having direct or indirect ownership or voting rights of more than 25 percent in a corporation controlling the licensee of a radio broadcast station unless the FCC finds greater foreign ownership to be in the public interest (the “Foreign Ownership Rule”). Under the Plan of Reorganization, the Company committed to file the PDR requesting the FCC to permit the Company to be up to 100% foreign-owned.
IHEARTMEDIA, INC.AND SUBSIDIARIES (DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
On November 5, 2020, the FCC issued the Declaratory Ruling, which granted the relief requested by the PDR, subject to certain conditions.
Chapter 11 Cases
iHeartCommunications' filingOn November 9, 2020, the Company notified the holders of Special Warrants of the Chapter 11 Cases constitutescommencement of an event of default that accelerated its obligations under its debt agreements. Due toexchange process (the notification, the Chapter 11 Cases, however,“Exchange Notice,” and the creditors' ability to exercise remedies under iHeartCommunications' debt agreements were stayed as of March 14, 2018,exchange, the date“Exchange”). In the Exchange, which took place on January 8, 2021, the Company exchanged a portion of the Chapter 11 petition filing,outstanding Special Warrants into Class A common stock or Class B common stock, in compliance with the Declaratory Ruling, the Communications Act and FCC rules. Following the Exchange, the Company’s remaining Special Warrants continue to be stayed. exercisable for shares of Class A common stock or Class B common stock. See “Item 1. Business – Regulation of Our Business, Alien Ownership Restrictions” and “Item 1A. Risk Factors - Regulatory, Legislative and Litigation Risks, Regulations imposed by the Communications Act and the FCC limit the amount of foreign individuals or entities that may invest in our capital stock without FCC approval.”
NOTE 11 – INCOME TAXES
On March 21, 2018, WSFS, solely in its capacity as successor indenture trustee to27, 2020 the Legacy Notes, and not in its individual capacity, filed an adversary proceeding against the Company in the Chapter 11 Cases. In the complaint, WSFS alleged, among other things, that the "springing lien"CARES Act, which included numerous tax provisions, of the indentures governing the Priority Guarantee Notes indentures and the security agreementswas signed into law. The CARES Act included certain temporary relief provisions with respect to the Priority Guarantee Notes amounted to "hidden encumbrances" on the Company's property, to which the holdersapplication of the 6.875% Senior Notes due 2018Section 163(j) interest deduction limitation including the ability to elect to use the Company’s 2019 Adjusted Taxable Income (as defined under Section 163(j)) for purposes of calculating the 2020 interest deduction limitation. This provision of the CARES Act resulted in an increase to allowable interest deductions of $179.4 million during 2020. The other federal income tax provisions within the CARES Act did not materially impact the Company’s financial statements.
On December 27, 2020, the Consolidated Appropriations Act was signed into law in order to provide further stimulus and 7.25% Senior Notes due 2027 were entitledsupport to "equal and ratable" treatment. On March 26, 2018, Delaware Trust Co. ("Delaware Trust"), in its capacity as successor indenture trustee tothose affected by the 14.0% Senior Notes due 2021, filed a motion to intervene as a plaintiffCOVID-19 pandemic. The tax provisions included within the Consolidated Appropriations Act did not materially impact the Company’s financial statements in the adversary proceeding filed by WSFS. In the complaint, Delaware Trust alleged, among other things, that the indenture governing the 14.0% Senior Notes due 2021 also has its own "negative pledge" covenant, and, therefore, to the extent the relief sought by WSFS in its adversary proceeding is warranted, the holderscurrent year.
As a result of the 14.0% Senior Notes due 2021 are also entitled to the same "equal and ratable" liens on the same property. On April 6, 2018, the Company filed a motion to dismiss the adversary proceeding and a hearing on such motion was held on May 7, 2018. We answered the complaint and completed discovery. The trial was held on October 24, 2018. On January 15, 2019, the Bankruptcy Court entered judgmentsteps in the Company's favor denying all relief sought by WSFS and all other parties. Pursuant to a settlement (the “Legacy Plan Settlement”) with WSFS and certain consenting Legacy Noteholders of all issues related to confirmation of the Company's plan of reorganization, upon the Company's confirmed plan of reorganization becoming effective, this adversary proceeding shall be deemed withdrawn and/or dismissed, with respect to all parties thereto, with prejudice and in its entirety.
On October 9, 2018, WSFS, solely in its capacity as successor indenture trustee to the 6.875% Senior Notes due 2018 and 7.25% Senior Notes due 2027, and not in its individual capacity, filed an adversary proceeding against Clear Channel Holdings Inc. (“CCH”) and certain shareholders of iHeartMedia. The named shareholder defendants are Bain Capital LP; Thomas H. Lee Partners L.P.; Abrams Capital L.P. ("Abrams"); and Highfields Capital Management L.P. ("Highfields"). In the complaint, WSFS alleged, among other things, that the shareholder defendants engaged in a “pattern of inequitable and bad faith conduct, including the abuse of their insider positions to benefit themselves at the expense of third-party creditors including particularly the Legacy Noteholders.” The complaint asks the court to grant relief in the form of equitable subordination of the shareholder defendants’ term loan, Priority Guarantee Notes and 14.0% Senior Notes due 2021 claims to any and all claims of the Legacy Noteholders. In addition, the complaint seeks to have any votes to accept the Fourth Amended Plan of Reorganization described in Note 2 and the fresh start accounting adjustments described in Note 3, there were significant tax adjustments recorded in the period from January 1, 2019 through May 1, 2019. The Company recorded income tax benefits of $102.9 million for reorganization adjustments in the Predecessor period ended May 1, 2019, primarily consisting of: (1) $483.0 million in tax expense for the reduction in federal and state net operating loss (“NOL”) carryforwards from the cancellation of debt income ("CODI") realized upon emergence; (2) $275.2 million in tax benefit for the reduction in deferred tax liabilities attributed primarily to long-term debt that was discharged upon emergence; (3) $62.3 million in tax benefit for the effective settlement of liabilities for unrecognized tax benefits that were discharged upon emergence; and (4) $263.8 million in tax benefit for the reduction in valuation allowance resulting from the adjustments described above. The Company recorded income tax expense of $185.4 million for fresh start adjustments in the Predecessor period ended May 1, 2019, consisting of $529.1 million tax expense for the increase in deferred tax liabilities resulting from fresh start accounting adjustments, which was partially offset by Abrams and Highfields$343.7 million tax benefit for the reduction in the valuation allowance on account of their 14.0% Senior Notes due 2021 claims, and any votes to accept the Fourth Amended Plan of Reorganization by the defendant CCH on account of its junior notes claims, to be designated and disqualified. The Court held a pre-trial conference and oral argument on October 18, 2018. Pursuant to the Legacy Plan Settlement, upon the Company's confirmed Plan of Reorganization becoming effective, this adversary proceeding shall be deemed withdrawn and/or dismissed, with respect to all parties thereto, with prejudice and in its entirety.our deferred tax assets.
IHEARTMEDIA, INC.AND SUBSIDIARIES (DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Stockholder Litigation
On May 9, 2016, a stockholder of CCOH filed a derivative lawsuit in the Court of Chancery of the State of Delaware, captioned GAMCO Asset Management Inc. v. iHeartMedia Inc. et al., C.A. No. 12312-VCS. The complaint names as defendants the Company, iHeartCommunications, Bain Capital Partners, LLC and Thomas H. Lee Partners, L.P. (together, the "Sponsor Defendants"), the Company's private equity sponsors and majority owners, and the members of CCOH's board of directors. CCOH also is named as a nominal defendant. The complaint alleges that CCOH has been harmed by the intercompany agreements with iHeartCommunications, CCOH’s lack of autonomy over its own cash and the actions of the defendants in serving the interests of the Company, iHeartCommunications and the Sponsor Defendants to the detriment of CCOH and its minority stockholders. Specifically, the complaint alleges that the defendants have breached their fiduciary duties by causing CCOH to: (i) continue to loan cash to iHeartCommunications under the intercompany note at below-market rates; (ii) abandon its growth and acquisition strategies in favor of transactions that would provide cash to the Company and iHeartCommunications; (iii) issue new debt in Clear Channel International B.V.’s (“CCIBV”), an international subsidiary of ours, offering of 8.75% Senior Notes due 2020 (the "CCIBV Note Offering") to provide cash to the Company and iHeartCommunications through a dividend; and (iv) effect the sales of certain outdoor markets in the U.S. (the "Outdoor Asset Sales") allegedly to provide cash to the Company and iHeartCommunications through a dividend. The complaint also alleges that the Company, iHeartCommunications and the Sponsor Defendants aided and abetted the directors' breaches of their fiduciary duties. The complaint further alleges that the Company, iHeartCommunications and the Sponsor Defendants were unjustly enriched as a result of these transactions and that these transactions constituted a waste of corporate assets for which the defendants are liable to CCOH. The plaintiff is seeking, among other things, a ruling that the defendants breached their fiduciary duties to CCOH and that the Company, iHeartCommunications and the Sponsor Defendants aided and abetted the CCOH board of directors' breaches of fiduciary duty, rescission of payments made by CCOH to iHeartCommunications and its affiliates pursuant to dividends declared in connection with the CCIBV Note Offering and Outdoor Asset Sales, and an order requiring the Company, iHeartCommunications and the Sponsor Defendants to disgorge all profits they have received as a result of the alleged fiduciary misconduct.
On July 20, 2016, the defendants filed a motion to dismiss plaintiff's verified stockholder derivative complaint for failure to state a claim upon which relief can be granted. On November 23, 2016, the Court granted defendants’ motion to dismiss all claims brought by the plaintiff. On December 19, 2016, the plaintiff filed a notice of appeal of the ruling. The oral hearing on the appeal was held on October 11, 2017. On October 12, 2017, the Supreme Court of Delaware affirmed the lower court's ruling, dismissing the case.
On December 29, 2017, another stockholder of CCOH filed a derivative lawsuit in the Court of Chancery of the State of Delaware, captioned Norfolk County Retirement System, v. iHeartMedia, Inc., et al., C.A. No. 2017-0930-JRS. The complaint names as defendants the Company, iHeartCommunications, the Sponsor Defendants, and the members of CCOH's board of directors. CCOH is named as a nominal defendant. The complaint alleges that CCOH has been harmed by the CCOH board of directors' November 2017 decision to extend the maturity date of the intercompany revolving note (the “Third Amendment”) at what the complaint describes as far-below-market interest rates. Specifically, the complaint alleges that (i) the Company and Sponsor defendants breached their fiduciary duties by exploiting their position of control to require CCOH to enter the Third Amendment on terms unfair to CCOH; (ii) the CCOH board of directors breached their duty of loyalty by approving the Third Amendment and elevating the interests of the Company, iHeartCommunications and the Sponsor Defendants over the interests of CCOH and its minority unaffiliated stockholders; and (iii) the terms of the Third Amendment could not have been agreed to in good faith and represent a waste of corporate assets by the CCOH board of directors. The complaint further alleges that the Company, iHeartCommunications and the Sponsor defendants were unjustly enriched as a result of the unfairly favorable terms of the Third Amendment. The plaintiff sought, among other things, a ruling that the defendants breached their fiduciary duties to CCOH, a modification of the Third Amendment to bear a commercially reasonable rate of interest, and an order requiring disgorgement of all profits, benefits and other compensation obtained by defendants as a result of the alleged breaches of fiduciary duties.
On March 7, 2018, the defendants filed a motion to dismiss plaintiff's verified derivative complaint for failure to state a claim upon which relief can be granted. On March 16, 2018, the Company filed a Notice of Suggestion of Pendency of Bankruptcy and Automatic Stay of Proceedings. On May 4, 2018, plaintiff filed its response to the motion to dismiss. On June 26, 2018, the defendants filed a reply brief in further support of their motion to dismiss. Oral argument on the motion to dismiss was held on September 20, 2018. We are awaiting a ruling by the Court.
On August 27, 2018, the same stockholder of CCOH that had filed a derivative lawsuit against the Company and others in 2016 (GAMCO Asset Management Inc.) filed a putative class action lawsuit in the Court of Chancery of the State of Delaware, captioned GAMCO Asset Management, Inc. v. Hendrix, et al., C.A. No. 2018-0633-JRS. The complaint names as defendants the Sponsor
IHEARTMEDIA, INC.AND SUBSIDIARIES (DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Defendants and the members of CCOH’s board of directors. The complaint alleges that minority shareholders in CCOH during the period November 8, 2017 to March 14, 2018 were harmed by decisions of the CCOH board of directors and the intercompany note committee of the board of directors relating to the Intercompany Note (as defined below). Specifically, the complaint alleges that (i) the members of the intercompany note committee breached their fiduciary duties by not demanding payment under the Intercompany Note and issuing a simultaneous dividend after a threshold tied to the Company’s liquidity had been reached; (ii) the CCOH Board breached their fiduciary duties by approving the Third Amendment rather than allowing the Intercompany Note to expire; (iii) the CCOH Board breached their fiduciary duties by not demanding payment under the Intercompany Note and issuing a simultaneous dividend after a threshold tied to the Company’s liquidity had been reached; (iv) the Sponsor Defendants breached their fiduciary duties by not directing the CCOH Board to permit the Intercompany Note to expire and to declare a dividend. The complaint further alleges that the Sponsor Defendants aided and abetted the Board’s alleged breach of fiduciary duties. The plaintiff seeks, among other things, a ruling that the CCOH Board, the intercompany note committee, and the Sponsor Defendants breached their fiduciary duties and that the Sponsor Defendants aided and abetted the Board’s breach of fiduciary duty; and an award of damages, together with pre- and post-judgment interests, to the putative class of minority shareholders.
On December 16, 2018, the Debtors, CCOH, GAMCO Asset Management, Inc., and Norfolk County Retirement System entered into a settlement (the “CCOH Separation Settlement”) of all claims, objections, and other causes of action that have been or could be asserted by or on behalf of CCOH, GAMCO Asset Management, Inc., and/or Norfolk County Retirement System by and among the Debtors, CCOH, GAMCO Asset Management, Inc., certain individual defendants in the GAMCO Asset Management, Inc. action and/or the Norfolk County Retirement System action, and the private equity sponsor defendants in such actions. The CCOH Separation Settlement provides for the consensual separation of the Debtors and CCOH, including approximately $149.0 million of recovery to CCOH on account of its claim against iHeartCommunications in the Chapter 11 cases, a $200 million unsecured revolving line of credit from certain of the Debtors to CCOH for a period of up to three years, the transfer of certain of the Debtors’ intellectual property to CCOH, the waiver by the Debtors of the setoff for the value of the transferred intellectual property, mutual releases, the termination of the cash sweep under the existing Corporate Services Agreement, the termination of any agreements or licenses requiring royalty payments from CCOH to the Debtors for trademarks or other intellectual property, the waiver of any post-petition amounts owed by CCOH relating to such trademarks or other intellectual property, and the execution of a new transition services agreement and other separation documents. The CCOH Separation Settlement was approved by the Bankruptcy Court and the United States District Court for the Southern District of Texas on January 22, 2019.
China Investigation
Several employees of Clear Media Limited, an indirect, non-wholly-owned subsidiary of the Company whose ordinary shares are listed on the Hong Kong Stock Exchange, are subject to an ongoing police investigation in China for misappropriation of funds. The Company is not aware of any litigation, claim or assessment pending against the Company in this investigation or otherwise. Based on information known to date, the Company believes any contingent liabilities arising from potential misconduct that has been or may be identified by the investigation in China are not material to the Company’s consolidated financial statements. The effect of the misappropriation of funds is reflected in these financial statements in the appropriate periods.
The Company advised both the United States Securities and Exchange Commission and the United States Department of Justice of the investigation at Clear Media Limited and is cooperating to provide information in response to inquiries from the agencies. The Clear Media Limited investigation could implicate the books and records, internal controls and anti-bribery provisions of the U.S. Foreign Corrupt Practices Act, which statute and regulations provide for potential monetary penalties as well as criminal and civil sanctions. It is possible that monetary penalties and other sanctions could be assessed on the Company in connection with this matter. The nature and amount of any monetary penalty or other sanctions cannot reasonably be estimated at this time.
Italy Investigation
During the three months ended June 30 2018, the Company identified misstatements associated with VAT obligations in its business in Italy, which resulted in an understatement of its VAT obligation. These misstatements resulted in an understatement of other long-term liabilities of $16.9 million as of December 31, 2017. The effect of these misstatements is reflected in the historical financial statements in the appropriate periods. Upon identification of these misstatements, the Company undertook certain procedures, including a forensic investigation, which is ongoing. In addition, the Company voluntarily disclosed the matter and preliminary findings to the Italian tax authorities in order to commence a discussion on the appropriate calculation of the VAT position. The current expectation is that the Company may have to repay to the Italian tax authority a substantial portion of the VAT previously applied as a credit in relation to the transactions under investigation, amounting to approximately $17 million, including estimated possible penalties and interest. The Company made a payment of approximately $8.6 million during the fourth
IHEARTMEDIA, INC.AND SUBSIDIARIES (DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
quarter of 2018 and expects to pay the remainder during the first half of 2019. The ultimate amount to be paid may differ from the estimates, and such differences may be material.
NOTE 8 – INCOME TAXES
On December 22, 2017, the U.S. government enacted the Tax Act. The Tax Act reduced the U.S. federal corporate tax rate from 35% to 21% effective January 1, 2018, required companies to pay a one-time transition tax on earnings of certain foreign subsidiaries that were previously tax deferred, and created new U.S. taxes on certain foreign earnings. To account for the reduction in the U.S. federal corporate income tax rate, we remeasured our deferred tax assets and liabilities based on the rates at which they were expected to reverse in the future, generally 21%, which resulted in the recording of a provisional deferred tax benefit of $510.1 million during 2017. To determine the impact from the one-time transition tax on accumulated foreign earnings, we analyzed our cumulative foreign earnings and profits in accordance with the rules provided in the Tax Act and determined that no transition tax was due as a result of the net accumulated deficit in our foreign earnings and profits. As of December 31, 2018, we have completed our accounting for all of the enactment-date income tax effects of the Tax Act and determined that no material adjustments were required to our provisional amounts recorded as of December 31, 2017.
Significant components of the provision for income tax benefit (expense) from continuing operations are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
(In thousands) | Successor Company | | | Predecessor Company |
| Year Ended December 31, | | Period from May 2, 2019 through December 31, | | | Period from January 1, 2019 through May 1, | | Year Ended December 31, |
| 2020 | | 2019 | | | 2019 | | 2018 |
Current - Federal | $ | (652) | | | $ | (172) | | | | $ | 2,264 | | | $ | 1 | |
Current - foreign | (1,674) | | | (754) | | | | (282) | | | (969) | |
Current - state | 1,680 | | | (10,045) | | | | 74,762 | | | (9,225) | |
Total current benefit (expense) | (646) | | | (10,971) | | | | 76,744 | | | (10,193) | |
| | | | | | | | |
Deferred - Federal | 172,302 | | | (14,470) | | | | (109,511) | | | 1,276 | |
Deferred - foreign | 28 | | | 23 | | | | (8) | | | (1) | |
Deferred - state | 11,939 | | | 5,327 | | | | (6,320) | | | (4,918) | |
Total deferred benefit (expense) | 184,269 | | | (9,120) | | | | (115,839) | | | (3,643) | |
Income tax benefit (expense) | $ | 183,623 | | | $ | (20,091) | | | | $ | (39,095) | | | $ | (13,836) | |
|
| | | | | | | | | | | |
(In thousands) | Years Ended December 31, |
| 2018 | | 2017 | | 2016 |
Current - Federal | $ | 1 |
| | $ | (2,136 | ) | | $ | (190 | ) |
Current - foreign | (18,535 | ) | | (30,132 | ) | | (44,687 | ) |
Current - state | (9,779 | ) | | 1,484 |
| | (2,908 | ) |
Total current expense | (28,313 | ) | | (30,784 | ) | | (47,785 | ) |
| | | | | |
Deferred - Federal | (4,397 | ) | | 491,239 |
| | 38,715 |
|
Deferred - foreign | (6,531 | ) | | (2,560 | ) | | 56,036 |
|
Deferred - state | (7,110 | ) | | (489 | ) | | 2,665 |
|
Total deferred benefit (expense) | (18,038 | ) | | 488,190 |
| | 97,416 |
|
Income tax benefit (expense) | $ | (46,351 | ) | | $ | 457,406 |
| | $ | 49,631 |
|
The current tax expense recorded in the Successor period ended December 31, 2020 was primarily related to local country foreign tax expense in certain jurisdictions partially offset by adjustments to the Company’s reserves for unrecognized tax benefits in certain state jurisdictions.
The current tax expense of $11.0 million recorded in the Successor period from May 2, 2019 through December 31, 2019 was primarily related to state income taxes on operating profits generated in certain state jurisdictions during the period. The federal current tax expense for the Successor period was not significant due to the net operating loss carryforwards that were available to offset taxable income.
The current tax benefit of $76.7 million recorded for the Predecessor period from January 1, 2019 through May 1, 2019 relates primarily to the effective settlement of liabilities for unrecognized tax benefits that were discharged upon the Company's emergence from bankruptcy for certain state jurisdictions.
Current tax expense of $28.3 millionfor the Predecessor period ended December 31, 2018 was recorded for 2018 as compared to a current tax expense of $30.8 million for 2017.$10.2 million. The current tax expense recorded in 2018 was primarily related to foreignstate income taxes on operating profits generated in certain foreign jurisdictionstax expense incurred during the period. The decrease in current tax expense when compared to 2017 was primarily attributable to a decrease in foreign tax expense which resulted primarily from a decrease in foreign earnings in certain jurisdictions during 2018. Current tax expense for state increased in 2018 primarily as a result of increased operating profits in certain state jurisdictions during the period.
Current tax expense of $30.8 million wasperiod and reserves recorded for 2017 as compared to a currentunrecognized state tax expense of $47.8 million for 2016. The current tax expense recorded in 2017 was primarily related to foreign income taxes on operating profits generated in certain foreign jurisdictions during the period. The decrease in current tax expense when compared to 2016 was primarily attributable to a decrease in foreign tax expense which resulted primarily from a decrease in foreign earnings in certain jurisdictions during 2017.benefits.
Deferred tax expense of $18.0 million was recorded for 2018 compared with
The deferred tax benefit of $488.2$184.3 million for 2017. The decreaserecorded in the Successor period ended December 31, 2020 related primarily to the current period net operating losses and a reduction in deferred tax benefit during 2018 was primarily attributed to the $510.1 million provisional deferred tax benefitliabilities recorded in connection with the remeasurementimpairment of our U.S.FCC licenses discussed in Note 7.
The deferred tax balances uponexpense of $9.1 million recorded in the enactmentSuccessor period from May 2, 2019 through December 31, 2019 related primarily to the utilization of federal and state net operating loss carryforwards which offset taxable income during the Tax Act described above in 2017.period.
Deferred tax benefit of $488.2 million was recorded for 2017 compared withThe deferred tax benefitexpense of $97.4$115.8 million for 2016. The increaserecorded in deferred tax benefit during 2017 wasthe Predecessor period from January 1, 2019 through May 1, 2019 related primarily attributed to the $510.1 million provisional deferred tax benefit recorded in connection with the remeasurementimpact of our U.S. deferred tax balances upon the enactment of the Tax Actreorganization and fresh start adjustments described above. In
IHEARTMEDIA, INC.AND SUBSIDIARIES (DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
addition, the change in foreign deferred tax benefit recorded primarily related to the $43.3 million deferred tax benefit recorded in 2016 for the release of valuation allowance against certain net operating loss carryforwards in France.
Significant components of the Successor Company's deferred tax liabilities and assets as of December 31, 20182020 and 20172019 are as follows:
| | | | | | | | | | | |
| Successor Company |
(In thousands) | 2020 | | 2019 |
Deferred tax liabilities: | | | |
Intangibles and fixed assets | $ | 1,005,116 | | | $ | 1,163,310 | |
| | | |
| | | |
Operating lease right-of-use assets | 204,953 | | | 130,123 | |
| | | |
Total deferred tax liabilities | 1,210,069 | | | 1,293,433 | |
| | | |
Deferred tax assets: | | | |
Accrued expenses | 23,052 | | | 24,525 | |
| | | |
| | | |
Net operating loss carryforwards | 218,290 | | | 167,008 | |
Interest expense carryforwards | 315,304 | | | 324,481 | |
Operating lease liabilities | 209,010 | | | 109,503 | |
Capital loss carryforwards | 1,662,174 | | | 601,309 | |
Investments | 15,378 | | | 26,071 | |
Bad debt reserves | 15,247 | | | 9,916 | |
Other | 13,228 | | | 13,799 | |
Total gross deferred tax assets | 2,471,683 | | | 1,276,612 | |
Less: Valuation allowance | 1,818,091 | | | 720,622 | |
Total deferred tax assets | 653,592 | | | 555,990 | |
Net deferred tax liabilities | $ | 556,477 | | | $ | 737,443 | |
|
| | | | | | | |
(In thousands) | 2018 | | 2017 |
Deferred tax liabilities: | | | |
Intangibles and fixed assets | $ | 1,167,903 |
| | $ | 1,285,330 |
|
Long-term debt | 259,324 |
| | — |
|
Investments | 2,733 |
| | 16,484 |
|
Other | 15,605 |
| | 9,868 |
|
Total deferred tax liabilities | 1,445,565 |
| | 1,311,682 |
|
| | | |
Deferred tax assets: | | | |
Accrued expenses | 101,207 |
| | 105,823 |
|
Long-term debt | — |
| | 49,767 |
|
Net operating loss carryforwards | 985,403 |
| | 1,106,319 |
|
Interest expense carryforwards | 347,843 |
| | — |
|
Bad debt reserves | 12,820 |
| | 11,731 |
|
Other | 28,574 |
| | 27,654 |
|
Total gross deferred tax assets | 1,475,847 |
| | 1,301,294 |
|
Less: Valuation allowance | 1,010,223 |
| | 952,337 |
|
Total deferred tax assets | 465,624 |
| | 348,957 |
|
Net deferred tax liabilities | $ | 979,941 |
| | $ | 962,725 |
|
Net deferred tax liabilities includes $644.9 million of deferred tax liabilities included in Liabilities subject to compromise at December 31, 2018. The deferred tax liability related to intangibles and fixed assets primarily relates to the difference in book and tax basis of acquired FCC licenses billboard permits and tax deductible goodwill created fromother intangible assets that were adjusted for book purposes to estimated fair values as part of the Company’s various stock acquisitions.application of fresh start accounting, and were further adjusted in the first quarter of 2020 upon recognition of an impairment as discussed in Note 7. In accordance with ASC 350-10, Intangibles—Goodwill and Other, the Company does not amortize FCC licenses and billboard permits.licenses. As a result, this deferred tax liability will not reverse over time unless the Company recognizes future impairment charges related to its FCC licenses, permits and tax deductible goodwill or sells its FCC licenses or permits.licenses. As the Company continues to amortize its tax basis in its FCC licenses, permits and tax deductible goodwill, the deferred tax liability will increase over time. The Company’s net foreign deferred tax assetsliabilities for the periods ending December 31, 20182020 and 2017December 31, 2019 were $45.0 million and $50.7 million, respectively.$0.3 million.
At December 31, 2018,2020, the Successor Company had recorded net operating loss and tax credit carryforwards (tax effected) for federal and state income tax purposes of approximately $858.3$218.3 million, expiring in various amounts through 2037. The Tax Act amended2040 or in some cases with no expiration date. In connection with the tax reform legislation passed in December of 2017, Section 163(j) of the Internal Revenue Code was amended, thereby establishing new rules governing a U.S. taxpayer’s ability to deduct interest expense beginning in 2018. Section 163(j), as amended, generally limits the deduction for business interest expense to thirty percent of adjusted taxable income (notwithstanding the temporary provisions described above from the enactment of the CARES Act), and provides that any disallowed interest expense may be carried forward indefinitely. In applying the new rules under Section 163(j), theThe Successor Company recorded an interest expense limitation and carryforward deferred tax assetassets for federal and state purposesinterest limitation carryforwards of $347.8$315.3 million as of December 31, 2018.2020. In connection with the taxable separation of the Outdoor division as part of the bankruptcy restructuring, the Successor Company realized a $7.2 billion capital loss (gross after attribute reduction calculations). For federal tax purposes the capital loss can be carried forward 5 years and only be used to offset capital gains. For state tax purposes, the capital loss has various carryforward periods. The Successor Company has recorded a full valuation allowance against the deferred tax asset associated with the federal and state capital loss carryforward as it is not expected to be realized. The Successor Company expects to realize the benefits of a portion of its remaining deferred tax assets based upon expected future taxable income from deferred tax liabilities that reverse in the relevant federal and state jurisdictions and carryforward periods. As of December 31, 2018,2020, the Successor Company had recorded a valuation allowance of $893.0 million$1.8 billion against a portion of these U.S. federal and state deferred tax assets which it does not expect to realize. After considering the deferred tax adjustments in connection with the utilization ofrealize, relating primarily to capital loss carryforwards and certain state net operating losses and the creation of interest limitation carryforwards theloss
IHEARTMEDIA, INC.AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
carryforwards. The Successor Company's U.S. federal and state deferred tax valuation allowance increased by $61.5 million$1.1 billion during the current period. In addition, the Company recorded a net reduction of $7.8 million in valuation allowance against its foreign deferred tax assets during the year endedSuccessor period ending December 31, 2018. At December 31, 2018,2020 primarily due to an increase in the Company had recorded $127.1 million (tax-effected) of deferred tax assets for foreign net operatingcapital loss carryforwards, which are offset in part by an associated valuation allowance of $79.3 million. Additional deferred tax valuation allowance of $38.0 million offsets other foreign deferred tax assets that are not expected to be realized. Realization of these foreign deferred tax assets is dependent upon the Company’s ability to generate
IHEARTMEDIA, INC.AND SUBSIDIARIES (DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
future taxable income in appropriate tax jurisdictions and carryforward periods. Due to the Company’s evaluation of all available evidence, including significant negative evidence of cumulative losses in these jurisdictions, the Company continues to record valuation allowancesas determined on the foreign deferredCompany's 2019 income tax assets that are not expected to be realized. The Company expects to realize its remaining gross deferred tax assets based upon its assessment of deferred tax liabilities that will reverse in the same carryforward period and jurisdiction and are of the same character as the net operating loss carryforwards and temporary differences that give rise to the deferred tax assets.filings. Any deferred tax liabilities associated with acquired FCC licenses billboard permits and tax-deductible goodwill intangible assets are notnow relied upon as a sourcesources of future taxable income as these intangiblefor purposes of realizing deferred tax assets attributed to carryforwards that have an indefinite life.life such as the Section 163(j) interest carryforward.
At December 31, 2018,2020, net deferred tax liabilities include a deferred tax asset of $10.5$3.5 million relating to stock-based compensation expense under ASC 718-10, Compensation—Stock Compensation. Full realization of this deferred tax asset requires stock options to be exercised at a price equalingequal to or exceeding the sum of the grant price plus the fair value of the option at the grant date and restricted stock to vest at a price equaling or exceeding the fair market value at the grant date. Accordingly, there can be no assurance that the stock price of the Successor Company’s common stock will rise to levels sufficient to realize the entire deferred tax benefit currently reflected in its balance sheet.
Loss before income taxes:
|
| | | | | | | | | | | |
(In thousands) | Years Ended December 31, |
| 2018 | | 2017 | | 2016 |
US | $ | (134,893 | ) | | $ | (952,436 | ) | | $ | (349,876 | ) |
Foreign | (21,395 | ) | | 36,319 |
| | 53,673 |
|
Total loss before income taxes | $ | (156,288 | ) | | $ | (916,117 | ) | | $ | (296,203 | ) |
The reconciliationreconciliations of income tax on income (loss) from continuing operations computed at the U.S. federal statutory tax rates to the recorded income tax benefit (expense) is:for the Successor Company and Predecessor Company are:
| | | | | | | | | | | | | | | | | | | | | | | |
Successor Company |
| Year Ended December 31, | | Period from May 2, 2019 through December 31, |
(In thousands) | 2020 | | 2019 |
| Amount | | Percent | | Amount | | Percent |
Income tax benefit (expense) at statutory rates | $ | 440,758 | | | 21.0 | % | | $ | (28,012) | | | 21.0 | % |
State income taxes, net of federal tax effect | 13,619 | | | 0.7 | % | | (4,718) | | | 3.5 | % |
Foreign income taxes | (1,187) | | | (0.1) | % | | (1,593) | | | 1.2 | % |
Nondeductible items | (8,928) | | | (0.4) | % | | (7,345) | | | 5.5 | % |
Changes in valuation allowance and other estimates | (30,531) | | | (1.5) | % | | 24,439 | | | (18.2) | % |
Impairment charges | (257,119) | | | (12.3) | % | | 0 | | | 0 | % |
Other, net | 27,011 | | | 1.3 | % | | (2,862) | | | 2.1 | % |
Income tax benefit (expense) | $ | 183,623 | | | 8.7 | % | | $ | (20,091) | | | 15.1 | % |
| | | | | | | | | | | | | | | | | | | | | | | |
Predecessor Company |
| Period from January 1, 2019 through May 1, | | Year Ended December 31, |
(In thousands) | 2019 | | 2018 |
| Amount | | Percent | | Amount | | Percent |
Income tax benefit (expense) at statutory rates | $ | (1,999,008) | | | 21.0 | % | | $ | 5,069 | | | 21.0 | % |
State income taxes, net of federal tax effect | 68,442 | | | (0.7) | % | | (14,958) | | | (62.0) | % |
Foreign income taxes | (270) | | | 0 | % | | (3,076) | | | (12.7) | % |
Nondeductible items | (1,793) | | | 0 | % | | (4,834) | | | (20.0) | % |
Changes in valuation allowance and other estimates | 648,384 | | | (6.8) | % | | 10,958 | | | 45.4 | % |
| | | | | | | |
Tax impact of outdoor charges eliminated in discontinued operations | 0 | | | 0 | % | | (8,017) | | | (33.2) | % |
Reorganization and fresh start adjustments | 1,245,282 | | | (13.1) | % | | 0 | | | 0 | % |
Other, net | (132) | | | 0 | % | | 1,022 | | | 4.2 | % |
Income tax expense | $ | (39,095) | | | 0.4 | % | | $ | (13,836) | | | (57.3) | % |
The Successor Company’s effective tax rate for the year ended December 31, 2020 is 8.7%. The effective tax rate for this period was primarily impacted by the impairment charges to non-deductible goodwill discussed in Note 7. In addition, the Company recorded deferred tax adjustments to state net operating losses and federal and state disallowed interest carryforwards
IHEARTMEDIA, INC.AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
| | | | | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
(In thousands) | 2018 | | 2017 | | 2016 |
| Amount | | Percent | | Amount | | Percent | | Amount | | Percent |
Income tax benefit at statutory rates | $ | 32,821 |
| | 21.0 | % | | $ | 320,641 |
| | 35.0 | % | | $ | 103,670 |
| | 35.0 | % |
State income taxes, net of federal tax effect | 21,137 |
| | 13.5 | % | | 7,667 |
| | 0.8 | % | | 6,372 |
| | 2.2 | % |
Foreign income taxes | (29,559 | ) | | (18.9 | )% | | (19,981 | ) | | (2.2 | )% | | (24,307 | ) | | (8.2 | )% |
Nondeductible items | (5,400 | ) | | (3.5 | )% | | (6,659 | ) | | (0.7 | )% | | (5,760 | ) | | (1.9 | )% |
Changes in valuation allowance and other estimates | (64,913 | ) | | (41.5 | )% | | (350,407 | ) | | (38.2 | )% | | (31,229 | ) | | (10.6 | )% |
U.S. tax reform | — |
| | — | % | | 510,064 |
| | 55.6 | % | | — |
| | — | % |
Other, net | (437 | ) | | (0.3 | )% | | (3,919 | ) | | (0.4 | )% | | 885 |
| | 0.3 | % |
Income tax benefit (expense) | $ | (46,351 | ) | | (29.7 | )% | | $ | 457,406 |
| | 49.9 | % | | $ | 49,631 |
| | 16.8 | % |
as a result of the filing of 2019 tax returns and certain legal entity restructuring completed during the period. These adjustments were partially offset by valuation allowance adjustments recorded during the year against certain federal and state deferred tax assets such as net operating loss carryforwards and disallowed interest carryforwards due to the uncertainty of the ability to realize those assets in future periods.The Successor Company’s effective tax rate for the period from May 2, 2019 through December 31, 2019 was 15.1%. The effective rate for the Successor period was primarily impacted by deferred tax benefits recorded for changes in estimates related to the carryforward tax attributes that survived the emergence from bankruptcy and deferred tax adjustments associated with the filing of the Company’s 2018 tax returns during the fourth quarter of 2019. The primary change to the 2018 tax return filings, when compared to the provision estimates, was the Company's decision to elect out of the first-year bonus depreciation rules for the 2018 year for all qualified capital expenditures. This resulted in less tax depreciation deductions for tax purposes for the 2018 year and higher adjusted tax basis for our fixed assets as of the Effective Date.
The Predecessor Company’s effective tax rate for the period from January 1, 2019 through May 1, 2019 was 0.4%. The income tax expense for the period from January 1, 2019 through May 1, 2019 (Predecessor) primarily consists of the income tax impacts from reorganization and fresh start adjustments, including adjustments to our valuation allowance. The Company recorded income tax benefits of $102.9 million for reorganization adjustments in the Predecessor period, primarily consisting of: (1) tax expense for the reduction in federal and state net operating loss (“NOL”) carryforwards from the cancellation of debt income ("CODI") realized upon emergence; (2) tax benefit for the reduction in deferred tax liabilities attributed primarily to long-term debt that was discharged upon emergence; (3) tax benefit for the effective settlement of liabilities for unrecognized tax benefits that were discharged upon emergence; and (4) tax benefit for the reduction in valuation allowance resulting from the adjustments described above. The Company recorded income tax expense of $185.4 million for fresh start adjustments in the Predecessor period, consisting of $529.1 million tax expense for the increase in deferred tax liabilities resulting from fresh start accounting adjustments, which was partially offset by $343.7 million tax benefit for the reduction in the valuation allowance on our deferred tax assets. In addition to the above mentioned adjustments, the Reorganization and fresh start adjustments line above includes the reversal of the $2.0 billion in tax benefits that are presented in the reconciliation table in the Income tax benefit at statutory rates line.
The Predecessor Company’s effective tax rate for the year ended December 31, 2018 is (29.7)was (57.3)%. The effective tax rate for 2018 was primarily impacted by $61.5$11.3 million of deferred tax expense attributed to the valuation allowance recorded against federal and state deferred tax assets generated in the current period due to the uncertainty of the ability to realize those assets in future periods. In addition, losses in certain foreign jurisdictionsthe Company did not record a tax effect for charges between the iHeartMedia group and the Outdoor Group that were not benefited primarily due to the uncertainty of the ability to utilize those losses in future periods.
A tax benefit was recorded for the year ended December 31, 2017 of 49.9%. The effective tax benefit rate for 2017 was impacted by the effects of U.S. corporate tax reform which resulted in a provisional tax benefit of $510.1 million recorded in connection with the reductioneliminated in the U.S. federal corporatepresentation of discontinued operations as these charges are respected for income tax rate. In partial offset to this tax benefit,purposes under the Company recorded tax expense of $387.7 million in connection with the valuation allowance recorded against federal and state deferred tax assets generated in the current period due to the uncertainty of the ability to realize those assets in future periods.
IHEARTMEDIA, INC.AND SUBSIDIARIES (DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A tax benefit was recorded for the year ended December 31, 2016 of 16.8%. The effective tax benefit rate for 2016 was impacted by the $43.3 million deferred tax benefit recorded in connection with the release of valuation allowance in France, which was offset by $54.7 million of tax expense attributable to the sale of our outdoor business in Australia. Additionally, the 2016 effective tax benefit rate was impacted by the $31.8 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.Tax Matters Agreement.
The Company provides for any related tax liability on undistributed earnings that the Company does not intend to be indefinitely reinvested outside the United States and that would become taxable upon remittance within our foreign structure. The Company has not provided U.S. federal income taxes for temporary differences with respect to investments in our foreign subsidiaries, which at December 31, 2018 currently result in tax basis amounts greater than the financial reporting basis. If any excess cash held by our foreign subsidiaries were needed to fund operations in the U.S., we could presently repatriate available funds without a requirement to accrue or pay U.S. taxes.
TheSuccessor Company continues to record interest and penalties related to unrecognized tax benefits in current income tax expense. The total amount of interest accrued at December 31, 20182020 and 20172019 was $53.8$5.3 million and $48.6$6.9 million, respectively. The total amount of unrecognized tax benefits including accrued interest and penalties at December 31, 20182020 and 20172019 was $135.3$20.0 million and $136.3$20.5 million, respectively, of which $112.2$18.2 million and $110.1$20.3 million is included in “Other long-term liabilities” and $1.3. In addition, $1.8 million and $0.0 million is included in “Accrued expenses” on the Company’s consolidated balance sheets, respectively. In addition, $21.8 million and $26.2$0.2 million of unrecognized tax benefits are recorded net with the Company’s deferred tax assets for its net operating losses as opposed to being recorded in “Other long-term liabilities” at December 31, 20182020 and 2017,2019, respectively. The total amount of unrecognized tax benefits at December 31, 20182020 and 20172019 that, if recognized, would impact the effective income tax rate is $73.6$13.8 million and $71.6$15.5 million, respectively.
| | | | | | | | | | | |
(In thousands) | Successor Company |
| Years Ended December 31, |
Unrecognized Tax Benefits | 2020 | | 2019 |
Balance at beginning of period | $ | 13,664 | | | $ | 53,156 | |
Increases for tax position taken in the current year | 2,325 | | | 4,070 | |
Increases for tax positions taken in previous years | 453 | | | 2,534 | |
Decreases for tax position taken in previous years | (1,566) | | | (2,948) | |
Decreases due to settlements with tax authorities | 0 | | | (1,183) | |
Decreases due to lapse of statute of limitations | (195) | | | (41,965) | |
Balance at end of period | $ | 14,681 | | | $ | 13,664 | |
IHEARTMEDIA, INC.AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
| | | | | | | |
(In thousands) | Years Ended December 31, |
Unrecognized Tax Benefits | 2018 | | 2017 |
Balance at beginning of period | $ | 87,665 |
| | $ | 98,804 |
|
Increases for tax position taken in the current year | 7,109 |
| | 7,366 |
|
Increases for tax positions taken in previous years | 1,007 |
| | 2,291 |
|
Decreases for tax position taken in previous years | (7,120 | ) | | (5,307 | ) |
Decreases due to settlements with tax authorities | — |
| | (225 | ) |
Decreases due to lapse of statute of limitations | (7,159 | ) | | (15,264 | ) |
Balance at end of period | $ | 81,502 |
| | $ | 87,665 |
|
The Company and its subsidiaries file income tax returns in the U.S. federal jurisdiction and various state and foreign jurisdictions. During 20182019 the Company settled several state and local tax and foreign tax examinations resulting is a reduction of unrecognized tax benefits of $7.1$1.2 million, excluding interest. In addition, during 20182019 the statute of limitations for certain tax years expired in the U.S., certain states, the United Kingdom and other jurisdictionsupon our emergence from bankruptcy resulting in the reduction to unrecognized tax benefits of $7.2 million, excluding interest. During 2017, the Company settled all outstanding U.S. federal income tax matters for tax years 2011 and 2012, which resulted in a reduction of unrecognized tax benefits of $4.7 million. In addition, during 2017 the statute of limitations for certain tax years expired in the U.S., certain states, the United Kingdom and other jurisdictions resulting in the reduction to unrecognized tax benefits of $15.3$42.0 million, excluding interest. All federal income tax matters through 20142016 are closed. The majority of all material state, local, and foreign income tax matters have been concluded for years through 2011.2017 with the exception of a current examination in Texas that covers the 2007-2016 tax years.
NOTE 12 – STOCKHOLDERS’ EQUITY
As described in Note 2 - Emergence from Voluntary Reorganization under Chapter 11 Proceedings and Note 3 - Fresh Start Accounting, the Company emerged from bankruptcy upon the effectiveness of the Plan of Reorganization on May 1, 2019, at which time all shares of the Predecessor Company’s issued and outstanding common stock immediately prior to the Effective Date were canceled, and reorganized iHeartMedia issued an aggregate of 56,861,941 shares of iHeartMedia Class A common stock, 6,947,567 shares of Class B common stock and special warrants to purchase 81,453,648 shares of Class A common stock or Class B common stock to holders of claims pursuant to the Plan of Reorganization. The value of these shares and warrants issued to claimholders in settlement of Liabilities subject to compromise was based on the difference between the Enterprise Value of the Company and the and new debt and mandatorily redeemable preferred stock issued upon emergence, adjusted as necessary for cash and cash equivalents, noncontrolling interest and changes in deferred taxes. The impact of finalization of deferred tax amounts related to the Reorganization is reflected within the Consolidated Statement of Changes in Stockholders’ Equity (Deficit).
Historically, the Company granted restricted shares of the Company's Class A common stock to certain key individuals. In connection with the effectiveness of the Plan of Reorganization, all unvested restricted shares were canceled.
Pursuant to the Post-Emergence Equity Plan the Company adopted in connection with the effectiveness of our Plan of Reorganization, the Company has granted restricted stock units and options to purchase shares of the Company's Class A common stock to certain key individuals.
This Post-Emergence Equity Plan is designed to provide an incentive to certain key members of management and service providers of the Company or any of its subsidiaries and non-employee members of the Board of Directors and to offer an additional inducement in obtaining the services of such individuals. The Post-Emergence Equity Plan provides for the grant of (a) options and (b) restricted stock units, which, in each case, may be subject to contingencies or restrictions as set forth under the plan and applicable award agreement.
The aggregate number of shares of Class A common stock that may be issued or used for reference purposes with respect to which awards may be granted under the plan shall be equal to the sum of (a) 12,770,387 shares of Class A common stock for awards to key members of management and service providers plus (b) 1,596,298 shares of Class A common stock for awards to non-employee members of the Board. Such shares of common stock may, in the discretion of the Board of Directors, consist either in whole or in part of authorized but unissued shares of common stock or shares of common stock held in the treasury of the Company. The Company shall at all times during the term of the plan reserve and keep available such number of shares of common stock as will be sufficient to satisfy the requirements of the plan.
The Company granted 5,542,668 stock options and 3,205,360 restricted stock units on May 30, 2019 in connection with the Company's emergence from bankruptcy (the "Emergence Awards").
Share-Based Compensation
Successor
Stock Options
IHEARTMEDIA, INC.AND SUBSIDIARIES (DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9 – STOCKHOLDERS’ DEFICIT
The Company reports its noncontrolling interests in consolidated subsidiaries as a componentterm of equity separate from the Company’s equity. The following table shows the changes in stockholders' deficit attributableeach option granted pursuant to the Company and the noncontrolling interests of subsidiaries in which the Company has a majority, butplan may not total, ownership interest:
|
| | | | | | | | | | | |
(In thousands) | The Company | | Noncontrolling Interests | | Consolidated |
Balances as of January 1, 2018 | $ | (11,385,535 | ) | | $ | 41,191 |
| | $ | (11,344,344 | ) |
Net loss | (201,910 | ) | | (729 | ) | | (202,639 | ) |
Dividends and other payments to noncontrolling interests | — |
| | (8,742 | ) | | (8,742 | ) |
Share-based compensation | 2,066 |
| | 8,517 |
| | 10,583 |
|
Foreign currency translation adjustments | (7,161 | ) | | (8,763 | ) | | (15,924 | ) |
Other adjustments to comprehensive loss | (1,250 | ) | | (248 | ) | | (1,498 | ) |
Reclassifications adjustments | 2,664 |
| | 298 |
| | 2,962 |
|
Other, net | (84 | ) | | (656 | ) | | (740 | ) |
Balances as of December 31, 2018 | $ | (11,591,210 | ) | | $ | 30,868 |
| | $ | (11,560,342 | ) |
|
| | | | | | | | | | | |
(In thousands) | The Company | | Noncontrolling Interests | | Consolidated |
Balances as of January 1, 2017 | $ | (11,030,835 | ) | | $ | 128,974 |
| | $ | (10,901,861 | ) |
Net loss | (398,060 | ) | | (60,651 | ) | | (458,711 | ) |
Dividends and other payments to noncontrolling interests | — |
| | (46,151 | ) | | (46,151 | ) |
Purchase of additional noncontrolling interests | (524 | ) | | (703 | ) | | (1,227 | ) |
Disposal of noncontrolling interests | — |
| | (2,439 | ) | | (2,439 | ) |
Share-based compensation | 2,488 |
| | 9,590 |
| | 12,078 |
|
Foreign currency translation adjustments | 31,244 |
| | 12,607 |
| | 43,851 |
|
Unrealized holding loss on marketable securities | (370 | ) | | (44 | ) | | (414 | ) |
Other adjustments to comprehensive loss | 6,013 |
| | 707 |
| | 6,720 |
|
Reclassifications adjustments | 4,864 |
| | 577 |
| | 5,441 |
|
Other, net | (355 | ) | | (1,276 | ) | | (1,631 | ) |
Balances as of December 31, 2017 | $ | (11,385,535 | ) | | $ | 41,191 |
| | $ | (11,344,344 | ) |
Stock Registration
On June 24, 2015, we registered 4,000,000 shares of the Company’s Class A common stock, par value $0.001 per share, for offer or sale under our 2015 Executive Long-Term Incentive Plan.
On July 27, 2015, the Board of Directors approved the issuance of 1,253,831 restricted shares to certain key individuals pursuant to our 2015 Executive Long-term Incentive Plan.
Dividends
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 proceedsexceed (a) six (6) years from the sales of certain nonstrategic 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.
IHEARTMEDIA, INC.AND SUBSIDIARIES (DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
On September 14, 2017, (i) CCOH provided notice of its intent to make a demand (the “First Demand”) for repayment on October 5, 2017 of $25.0 million outstanding under the Intercompany Note, and (ii) the board of directors of CCOH declared a special cash dividend, which was paid on October 5, 2017 to CCOH’s Class A and Class B stockholders of record at the closing of business on October 2, 2017, in an aggregate amount equal to $25.0 million, funded with the proceeds of the First Demand. The Company received approximately 89.5%, or approximately $22.4 million, of the proceeds of the dividend through its wholly-owned subsidiaries. The remaining approximately 10.5% of the proceeds of the dividend, or approximately $2.6 million, was paid to the public stockholders of CCOH.
On October 11, 2017, (i) CCOH provided notice of its intent to make a demand (the “Second Demand”) for repayment on October 31, 2017 of $25.0 million outstanding under the Intercompany Note, and (ii) the board of directors of CCOH declared a special cash dividend, which was paid on October 31, 2017 to CCOH’s Class A and Class B stockholders of record at the closing of business on October 26, 2017, in an aggregate amount equal to $25.0 million, funded with the proceeds of the Second Demand. The Company received approximately 89.5%, or approximately $22.4 million, of the proceeds of the dividend through its wholly-owned subsidiaries. The remaining approximately 10.5% of the proceeds of the dividend, or approximately $2.6 million, was paid to the public stockholders of CCOH.
On January 5, 2018, (i) CCOH provided notice of its intent to make a demand (the "Demand") for repayment on January 24, 2018 of $30.0 million outstanding under the Intercompany Note, and (ii) the board of directors of CCOH declared a special cash dividend, which was paid on January 24, 2018 to CCOH’s Class A and Class B stockholders of record at the closing of business on January 19, 2018, in an aggregate amount equal to $30.0 million, funded with the proceeds of the Demand. The Company received approximately 89.5%, or approximately $26.8 million, of the proceeds of the dividend through its wholly-owned subsidiaries. The remaining approximately 10.5% of the proceeds of the dividend, or approximately $3.2 million, was paid to the public stockholders of CCOH.
Share-Based Compensation
Stock Options
Prior to the merger, iHeartCommunications granted options to purchase its common stock to its employees and directors and its affiliates under its various equity incentive plans typically at no less than the fair value of the underlying stock on the date of grant. These options were granted for a term not exceeding ten years and were forfeited, except in certain circumstances,grant thereof in the event the employee or director terminated his or her employment or relationship with iHeartCommunications or one of its affiliates. Prior to acceleration, if any, in connection with the merger, these options vested over a period of up to five years. All equity incentive plans contained anti-dilutive provisions that permitted an adjustmentcase of the number of shares of iHeartCommunications' common stock represented by each option for any change in capitalization.
The Company hasawards granted options to purchase its shares of Class A common stock to certain key executives under its equity incentive plan at no less than the fair value of the underlying stock onupon emergence and (b) ten (10) years from the date of grant. These options are granted for a term not to exceed ten years and are forfeited, except in certain circumstances,grant thereof in the eventcase of all other options; subject, however, in either case, to earlier termination as hereinafter provided.
Options granted under the executive terminates hisplan are exercisable at such time or hertimes and subject to such terms and conditions as shall be determined by the Compensation Committee of the Board (the "Committee") at the time of grant.
The options granted as Emergence Awards vest (or vested, as applicable), subject to a participant’s continued full-time employment or relationshipservice with the Company or one of its affiliates. Approximately three-fourthsthrough each applicable vesting date, (a) 20% on July 22, 2019, and (b) an additional 20% vesting on each of the next four anniversaries of the grant date.
No options outstanding at December 31, 2016 vest based solely on continued service over a period of up to five years withgranted under the remainder becoming eligible to vest over a period of up to five years if certain predetermined performance targets are met. The equity incentive plan contains antidilutive provisions that permit an adjustmentwill provide for any change in capitalization.dividends or dividend equivalents thereon.
The Company accounts for its share-based payments using the fair value recognition provisions of ASC 718-10. The fair value of the portion of options that vest based on continued service is estimated on the grant date using a Black-Scholes option-pricing model and the fair value of the remaining options which contain vesting provisions subject to service, market and performance conditions is estimated on the grant date using a Monte Carlo model. Expected volatilities were based on historical volatility of peer companies’ stock, including the Company, over the expected life of the options. The expected life of the options granted represents the period of time that the options granted are expected to be outstanding. The Company used historical data to estimate option exercises and employee terminations within the valuation model. The risk free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant for periods equal to the expected life of the option. The Company does not estimate forfeitures at grant date, but rather has elected to account for forfeitures when they occur. No
The following assumptions were used to calculate the fair value of the Successor Company's options were granted duringon the years ended December 31, 2018, 2017 and 2016.date of grant:
| | | | | | | | | | | |
| Year Ended December 31, | | Period from May 2, 2019 through December 31, |
| 2020 | | 2019 |
Expected volatility | 44% – 57% | | 44% – 45% |
Expected life in years | 6.0 – 6.3 | | 4.0 – 4.1 |
Risk-free interest rate | 0.35% – 1.41% | | 1.40% – 2.02% |
Dividend yield | 0% | | 0% |
IHEARTMEDIA, INC.AND SUBSIDIARIES (DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table presents a summary of the Successor Company's stock options outstanding at and stock option activity during the year ended December 31, 20182020 ("Price" reflects the weighted average exercise price per share):
| | | | | | | | | | | | | | | | | |
(In thousands, except per share data) | Options | | Price | | Weighted Average Remaining Contractual Term |
Outstanding, January 1, 2020 | 5,645 | | | $ | 18.93 | | | 5.4 years |
Granted | 2,292 | | | 9.05 | | | |
| | | | | |
Forfeited | (161) | | | 16.42 | | | |
Expired | (81) | | | 19.00 | | | |
Outstanding, December, 31, 2020 | 7,695 | | | 16.01 | | | 5.9 years |
Exercisable | 2,204 | | | 18.87 | | | 4.3 years |
Expected to Vest | 5,491 | | | 14.87 | | | 6.5 years |
|
| | | | | | | | |
(In thousands, except per share data) | Options | | Price | | Weighted Average Remaining Contractual Term |
Outstanding, January 1, 2018 | 2,092 |
| | $ | 35.09 |
| | 2.6 years |
Granted | — |
| |
|
| | |
Exercised | — |
| |
|
| | |
Forfeited | (529 | ) | | 35.60 |
| | |
Expired | (872 | ) | | 35.88 |
| | |
Outstanding, December 31, 2017 (1) | 691 |
| | 33.70 |
| | 2.8 years |
Exercisable | 677 |
| | 33.47 |
| | 2.8 years |
Expected to Vest | 14 |
| | 44.87 |
| | 2.1 years |
| |
(1) | Non-cash compensation expense has not been recorded with respect to 0.1 million shares as the vesting of these options is subject to performance conditions that have not yet been determined probable to meet. |
IHEARTMEDIA, INC.AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A summary of the Successor Company's unvested options and changes during the year ended December 31, 20182020 is presented below:
| | | | | | | | | | | |
(In thousands, except per share data) | Options | | Weighted Average Grant Date Fair Value |
Unvested, January 1, 2020 | 4,517 | | | $ | 5.28 | |
Granted | 2,292 | | | 4.76 | |
Vested (1) | (1,157) | | | 5.29 | |
Forfeited | (161) | | | 5.20 | |
Unvested, December 31, 2020 | 5,491 | | | 5.06 | |
(1)The total fair value of the options vested during the year ended December 31, 2020 (Successor) was$6.1 million.
Restricted Stock Units (“RSUs”)
RSUs may be issued either alone or in addition to other awards granted under the plan.
The RSUs granted in respect of the Emergence Awards vest or vested (as applicable), subject to a participant’s continued full-time employment or service with the Company through each applicable vesting date, (a) 20% on July 22, 2019, and (b) an additional 20% vesting on each of the next four anniversaries of the grant date.
Each RSU (representing one share of common stock) awarded to a participant will be credited with dividends paid in respect of one share of common stock (“Dividend Equivalents”). Dividend Equivalents will be withheld by the Company for the participant’s account, and interest may be credited on the amount of cash Dividend Equivalents withheld at a rate and subject to such terms as determined by the Committee. Dividend Equivalents credited to a participant’s account and attributable to any particular RSU (and earnings thereon, if applicable) shall be distributed to the participant upon settlement of such RSU and, if such RSU is forfeited, the participant shall have no right to such Dividend Equivalents.
The following table presents a summary of the Successor Company's restricted stock outstanding and restricted stock activity as of and during the year ended December 31, 2020 (“Price” reflects the weighted average share price at the date of grant):
| | | | | | | | | | | |
(In thousands, except per share data) | Awards | | Price |
Outstanding, January 1, 2020 | 2,648 | | | $ | 16.47 | |
Granted | 752 | | | 9.31 | |
Vested (restriction lapsed) | (725) | | | 16.32 | |
Forfeited | (97) | | | 16.50 | |
Outstanding, December 31, 2020 | 2,578 | | | 14.42 | |
Performance-based Restricted Stock Units (“Performance RSUs”)
In August 2020, the Company issued Performance RSUs to certain key employees. Such Performance RSUs vest upon the achievement of critical operational (cost savings) improvements and specific environmental, social and governance initiatives, which are being measured over an approximately 18-month period from the date of issuance. In the year ended December 31, 2020, the Company recognized $3.4 million in relation to these Performance RSUs.
IHEARTMEDIA, INC.AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
| | | | | | |
(In thousands, except per share data) | Options | | Weighted Average Grant Date Fair Value |
Unvested, January 1, 2018 | 543 |
| | $ | 19.61 |
|
Granted | — |
| |
|
|
Vested (1) | — |
| |
|
|
Forfeited | (529 | ) | | 18.94 |
|
Unvested, December 31, 2018 | 14 |
| | 44.87 |
|
The following table presents a summary of the Successor Company's Performance RSUs outstanding and activity as of and during the year ended December 31, 2020 (“Price” reflects the weighted average share price at the date of grant): | |
(1) | The total fair value of the options vested during the years ended December 31, 2018, 2017 and 2016 was $0.0 million, $0.0 million and $0.2 million, respectively. |
| | | | | | | | | | | |
(In thousands, except per share data) | Awards | | Price |
Outstanding, January 1, 2020 | 0 | | | $ | 0 | |
Granted | 556 | | | 8.98 | |
Vested (restriction lapsed) | 0 | | | 0 | |
Forfeited | 0 | | | 0 | |
Outstanding, December 31, 2020 | 556 | | | $ | 8.98 | |
Predecessor
Prior to the Emergence Date, the Predecessor Company had granted share-based awards that were canceled upon emergence from bankruptcy. In conjunction with the cancellation, the Predecessor Company accelerated the unrecognized share-based compensation expense and recorded $1.5 million of compensation expense in the period from January 1, 2019 through May 1, 2019 (Predecessor), principally reflected in Reorganization costs, net.
Stock Options
The Predecessor Company granted options to purchase its shares of Class A common stock to certain key executives under its equity incentive plan at no less than the fair value of the underlying stock on the date of grant. These options were granted for a term not to exceed ten years and were forfeited, except in certain circumstances, in the event the executive terminated his or her employment or relationship with the Predecessor Company or one of its affiliates. Approximately three-fourths of the options outstanding at December 31, 2017 vested based solely on continued service over a period of up to five years with the remainder becoming eligible to vest over a period of up to five years if certain predetermined performance targets are met. The equity incentive plan contains antidilutive provisions that permitted an adjustment for any change in capitalization.
As of December 31, 2018, the Predecessor Company had 690,994 options outstanding with a weighted average exercise price of $33.70. During the period from January 1, 2019 through May 1, 2019 (Predecessor) and the year ended December 31, 2018 there were no options vested, granted or exercised and the 690,994 options outstanding were canceled upon the Company’s emergence from bankruptcy.
Restricted Stock Awards (RSAs)
The Predecessor Company has granted restricted stock awards to certain of its employees and affiliates under its equity incentive plan. The restricted stock awards arewere restricted in transferability for a term of up to five years. Restricted stock awards arewere forfeited, except in certain circumstances, in the event the employee terminates his or her employment or relationship with the Company prior to the lapse of the restriction. Dividends or distributions paid in respect
As of unvested restricted stock awards will be held by the Company and paid to the recipients of the restricted stock awards upon vesting of the shares.
The following table presents a summary of the Company's restricted stock outstanding and restricted stock activity as of and during the year ended December 31, 2018, (“Price” reflects the Predecessor Company had 5,258,526 RSAs outstanding with a weighted average share price at the date of grant):
|
| | | | | | |
(In thousands, except per share data) | Awards | | Price |
Outstanding, January 1, 2018 | 6,219 |
| | $ | 3.81 |
|
Granted | 70 |
| | 0.52 |
|
Vested (restriction lapsed) | (627 | ) | | 4.26 |
|
Forfeited | (403 | ) | | 3.39 |
|
Outstanding, December 31, 2018 | 5,259 |
| | 3.74 |
|
IHEARTMEDIA, INC.AND SUBSIDIARIES (DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CCOH Share-Based Awards
CCOH Stock Options
The Company’s subsidiary, CCOH, has granted options to purchase sharesthe grant of its Class A common stock to employees and directors of CCOH and its affiliates under its equity incentive plan at no less than the fair market value of the underlying stock on the date of grant. These options are granted for a term not exceeding ten years and are forfeited, except in certain circumstances, in the event the employee or director terminates his or her employment or relationship with CCOH or one of its affiliates. These options vest solely on continued service over a period of up to five years. The equity incentive stock plan contains anti-dilutive provisions that permit an adjustment for any change in capitalization.
The fair value of each option awarded on CCOH common stock is estimated on the date of grant using a Black-Scholes option-pricing model. Expected volatilities are based on historical volatility of CCOH’s stock over the expected life of the options. The expected life of options granted represents$3.74. During the period of time that options granted are expected to be outstanding. CCOH uses historical data to estimate option exercises and employee terminations within the valuation model. CCOH does not estimate forfeituresfrom January 1, 2019 through May 1, 2019 (Predecessor), there were 18,600 RSA's vested at grant date, but rather has elected to account for forfeitures when they occur. The risk free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant for periods equal to the expected life of the option.
The following assumptions were used to calculate the fair value of CCOH’s options on the date of grant:
|
| | | | | |
| Years Ended December 31, |
| 2018 | | 2017 | | 2016 |
Expected volatility | 44% | | 42% | | 42% – 44% |
Expected life in years | 6.3 | | 6.3 | | 6.3 |
Risk-free interest rate | 2.76% | | 2.12% | | 1.12% – 1.41% |
Dividend yield | —% | | —% | | —% |
The following table presents a summary of CCOH’s stock options outstanding at and stock option activity during the year ended December 31, 2018:
|
| | | | | | | | | | | | |
(In thousands, except per share data) | Options | | Price(3) | | Weighted Average Remaining Contractual Term | | Aggregate Intrinsic Value |
Outstanding, January 1, 2018 | 4,110 |
| | $ | 6.10 |
| | 4.1 years | | $ | 2,378 |
|
Granted (1) | 1 |
| | 5.10 |
| | | | |
Exercised (2) | (31 | ) | | 2.37 |
| | | | |
Forfeited | (26 | ) | | 6.56 |
| | | | |
Expired | (809 | ) | | 10.73 |
| | | | |
Outstanding, December 31, 2018 | 3,245 |
| | 4.97 |
| | 3.8 years | | $ | 2,938 |
|
Exercisable | 2,822 |
| | 5.10 |
| | 3.4 years | | $ | 2,915 |
|
Expected to vest | 423 |
| | 4.15 |
| | 6.6 years | | $ | 23 |
|
| |
(1) | The weighted average grant date fair value of CCOH options granted during the years ended December 31, 2018, 2017 and 2016 was $2.39, $2.04 and $2.82 per share, respectively. |
| |
(2) | Cash received from option exercises during the years ended December 31, 2018, 2017 and 2016 was $0.1 million, $0.2 million and $0.6 million, respectively. The total intrinsic value of the options exercised during the years ended December 31, 2018, 2017 and 2016 was $0.1 million, $0.2 million and $0.4 million, respectively. |
| |
(3) | Reflects the weighted average exercise price per share. |
IHEARTMEDIA, INC.AND SUBSIDIARIES (DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A summary of CCOH’s unvested options at and changes during the year ended December 31, 2018 is presented below:
|
| | | | | | |
(In thousands, except per share data) | Options | | Weighted Average Grant Date Fair Value |
Unvested, January 1, 2018 | 718 |
| | $ | 4.19 |
|
Granted | 1 |
| | 2.39 |
|
Vested (1) | (274 | ) | | 4.28 |
|
Forfeited | (22 | ) | | 3.90 |
|
Unvested, December 31, 2018 | 423 |
| | 4.15 |
|
| |
(1) | The total fair value of CCOH options vested during the years ended December 31, 2018, 2017 and 2016 was $1.2 million, $1.6 million and $2.7 million, respectively. |
CCOH Restricted Stock Awards
CCOH has also granted both restricted stock and restricted stock unit awards to its employees and affiliates under its equity incentive plan. The restricted stock awards represent shares of Class A common stock that hold a legend which restricts their transferability for a term of up to five years. The restricted stock units represent the right to receive shares upon vesting, which is generally over a period of up to five years. Both restricted stock awards and restricted stock units are forfeited, except in certain circumstances, in the event the employee terminates his or her employment or relationship with CCOH prior to the lapse of the restriction.
The following table presents a summary of CCOH’s restricted stock and restricted stock units outstanding at and activity during the year ended December 31, 2018 ("Price" reflects the weighted average share price at the date of grant):the grant of $1.42 and 110,333 RSA's forfeited at a weighted average share price at the date of the grant of $3.16. Outstanding RSA's of 5,129,593 were canceled upon the Company’s emergence from bankruptcy.
Successor Common Stock and Special Warrants
The following table presents the Successor Company's Class A Common Stock, Class B Common Stock and Special Warrants issued and outstanding as of December 31, 2020:
| | | | | | | | |
(In thousands, except share and per share data) | December 31, 2020 | | | |
Successor Class A Common Stock, par value $.001 per share, 1,000,000,000 shares authorized | 64,726,864 | | | | |
Successor Class B Common Stock, par value $.001 per share, 1,000,000,000 shares authorized | 6,886,925 | | | | |
Successor Special Warrants | 74,835,899 | | | | |
Total Successor Class A Common Stock, Class B Common Stock and Special Warrants issued and outstanding | 146,449,688 | | | | |
IHEARTMEDIA, INC.AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
| | | | | | |
(In thousands, except per share data) | Awards | | Price |
Outstanding, January 1, 2018 | 3,900 |
| | $ | 5.61 |
|
Granted | 2,054 |
| | 5.37 |
|
Vested (restriction lapsed) | (592 | ) | | 8.09 |
|
Forfeited | (229 | ) | | 5.64 |
|
Outstanding, December 31, 2018 | 5,133 |
| | 5.23 |
|
Class A Common Stock
Holders of shares of the Successor Company's Class A common stock are entitled to one vote for each share held of record on all matters submitted to a vote of stockholders. Holders of the Successor Company's Class A common stock will have the exclusive right to vote for the election of directors. There will be no cumulative voting rights in the election of directors.
Holders of shares of the Successor Company's Class A common stock are entitled to receive dividends, on a per share basis, when and if declared by the Company's Board out of funds legally available therefor and whenever any dividend is made on the shares of the Successor Company's Class B common stock subject to certain exceptions set forth in our certificate.
The Successor Company may not subdivide or combine (by stock split, reverse stock split, recapitalization, merger, consolidation or any other transaction) its shares of Class A common stock or Class B common stock without subdividing or combining its shares of Class B common stock or Class A common stock, respectively, in a similar manner.
Upon our dissolution or liquidation or the sale of all or substantially all of the Successor Company's assets, after payment in full of all amounts required to be paid to creditors and to the holders of preferred stock having liquidation preferences, if any, the holders of shares of the Successor Company's Class A common stock will be entitled to receive pro rata together with holders of the Successor Company's Class B common stock our remaining assets available for distribution.
New Class A common stock certificates issued upon transfer or new issuance of Class A common stock shares will contain a legend stating that such shares of Class A common stock are subject to the provisions of our amended and restated certificate of incorporation, including but not limited to provisions governing compliance with requirements of the Communications Act and regulations thereunder, including, without limitation, those concerning foreign ownership and media ownership.
On July 18, 2019, the Company’s Class A common stock was listed and began trading on the Nasdaq Global Select Market ("Nasdaq") under the ticker symbol “IHRT”.
Class B Common Stock
Holders of shares of the Successor Company's Class B common stock are not entitled to vote for the election of directors or, in general, on any other matter submitted to a vote of the Company’s stockholders, but are entitled to one vote per share on the following matters: (a) any amendment or modification of any specific rights or obligations of the holders of Class B common stock that does not similarly affect the rights or obligations of the holders of Class A common stock, in which case the holders of Class B Common Stock will be entitled to a separate class vote, with each share of Class B common stock having one vote; and (b) to the extent submitted to a vote of our stockholders, (i) the retention or dismissal of outside auditors by the Company, (ii) any dividends or distributions to our stockholders, (ii) any material sale of assets, recapitalization, merger, business combination, consolidation, exchange of stock or other similar reorganization of the Company or any of its subsidiaries, (iv) the adoption of any amendment to our certificate of incorporation, (v) other than in connection with any management equity or similar plan adopted by the Company's Board, any authorization or issuance of equity interests, or any security or instrument convertible into or exchangeable for equity interests, in the Company or any of its subsidiaries, and (vi) the liquidation of the Company, in which case in respect to any such vote concerning the matters described in clause (b), the holders of Class B common stock are entitled to vote with the holders of the Class A common stock, with each share of common stock having one vote and voting together as a single class.
Holders of shares of the Successor 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 and FCC regulations.
Holders of shares of the Successor Company's Class B common stock are entitled to receive dividends when and if declared by the Company's Board out of funds legally available therefor and whenever any dividend is made on the shares of the Successor Company's Class A common stock subject to certain exceptions set forth in our certificate of incorporation. Upon our dissolution or liquidation or the sale of all or substantially all of our assets, after payment in full of all amounts required to be paid to creditors and to the holders of preferred stock having liquidation preferences, if any, the holders of shares of the Successor Company's Class B common stock will be entitled to receive pro rata with holders of the Successor Company's Class A common stock our remaining assets available for distribution.
IHEARTMEDIA, INC.AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
During the year ended December 31, 2020, 20,080 shares of the Class B common stock were converted into Class A common stock. During the period from May 2, 2019 to December 31, 2019, 53,317 shares of the Class B common stock were converted into Class A common stock.
Special Warrants
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 Successor Class A common stock or Successor Class B common stock at an exercise price of $0.001 per share, 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, subject to certain exceptions, (a) such exercising holder owning more than 4.99 percent of the Successor Company's outstanding Class A common stock, (b) more than 22.5 percent of the Successor Company's capital stock or voting interests being owned directly or indirectly by foreign individuals or entities, (c) the Company exceeding any foreign ownership threshold set by the FCC pursuant to a declaratory ruling or specific approval requirement or (d) 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.
To the extent there are any dividends declared or distributions made with respect to the Successor Class A common stock or Successor Class B common stock, those dividends or distributions will also be made to holders of Special Warrants concurrently and on a pro rata basis based on their ownership of common stock underlying their Special Warrants on an as-exercised basis; provided, that no such distribution will be made to holders of Special Warrants if (x) the Communications Act or an FCC rule prohibits such distribution to holders of Special Warrants or (y) our FCC counsel opines that such distribution is reasonably likely to cause (i) the Company to violate the Communications Act or any applicable FCC rule or (ii) any such holder not to be deemed to hold a noncognizable (under FCC rules governing foreign ownership) future equity interest in the Company; provided further, that, if any distribution of common stock or any other securities to a holder of Special Warrants is not permitted pursuant to clauses (x) or (y), the Company will cause economically equivalent warrants to be distributed to such holder in lieu thereof, to the extent that such distribution of warrants would not violate the Communications Act or any applicable FCC rules.
The Special Warrants will expire on the earlier of the twentieth anniversary of the issuance date and the occurrence of a change in control of the Company.
During the year ended December 31, 2020, stockholders exercised 6,205,617 and 2,095 Special Warrants for an equivalent number of shares of Class A common stock and Class B common stock, respectively. During the period from May 2, 2019 through ended December 31, 2019, stockholders exercised 216,921 and 10,660 Special Warrants for an equivalent number of Class A common stock and Class B common stock, respectively.
January 2021 Exchange Substantially Expanding Class A and Class B Shares Outstanding
On January 8, 2021, the Company completed an exchange of 67,471,123 Special Warrants into 45,133,811 shares of Class A common stock, the Company’s publicly traded equity, and 22,337,312 shares of Class B common stock. The exchange was authorized by a previously issued Declaratory Ruling from the Federal Communications Commission approving an increase in iHeartMedia’s authorized aggregate foreign ownership from 25% to 100%, subject to certain conditions set forth in the Declaratory Ruling. Certain shares of Class B common stock and Special Warrants were not converted into Class A Common Stock due to current regulatory restrictions applicable to certain shareholders. There were 6,201,453 Special Warrants outstanding on February 22, 2021.
Share-Based Compensation Cost
The share-based compensation cost is measured at the grant date based on the fair value of the award and is recognized as expense on a straight-line basis over the vesting period. Share-based compensation payments are recorded in corporate expenses and were $10.6 million, $12.1$22.9 million and $13.1$26.4 million for the Successor Company for the year ended December 31, 2020 and the period from May 2, 2019 through December 31, 2019, respectively. Share-based compensation expenses for the Predecessor Company were $0.5 million and $2.1 million during the yearsperiod from January 1, 2019 through May 1, 2019 and the year ended December 31, 2018, 2017 and 2016, respectively.
IHEARTMEDIA, INC.AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The tax benefit related to the share-based compensation expense for the yearsSuccessor Company for the year ended December 31, 2020 and the period from May 1, 2019 through December 31, 2019 was $5.7 million and $4.1 million, respectively. The tax benefit related to the share-based compensation expense for the Predecessor Company for the period from January 1, 2019 through May 1, 2019 and the year ended December 31, 2018 2017 and 2016 was $2.6 million, $4.2$0.1 million and $5.0$0.5 million, respectively.
As of December 31, 2018,2020, there was $17.5$54.0 million of unrecognized compensation cost related to unvested share-based compensation arrangements that will vest based on service conditions. This cost is expected to be recognized over a weighted average period of approximately three2.8 years. In addition, as of December 31, 2018,2020, there was $15.1$1.6 million of unrecognized compensation cost related to unvested share-based compensation arrangements that will vest based on market,certain performance conditions.
Income (Loss) per Share
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(In thousands, except per share data) | | | | | Successor Company | | | Predecessor Company |
| | | Year Ended December 31, | | Period from May 2, 2019 through December 31, | | | Period from January 1, 2019 through May 1, | | Year Ended December 31, |
| | | | | 2020 | | 2019 | | | 2019 | | 2018 |
NUMERATOR: | | | | | | | | | | | | |
Net income (loss) attributable to the Company – common shares | | | | | $ | (1,914,699) | | | $ | 112,548 | | | | $ | 11,184,141 | | | $ | (201,910) | |
Exclude: | | | | | | | | | | | | |
Income (loss) from discontinued operations, net of tax | | | | | $ | 0 | | | $ | 0 | | | | $ | 1,685,123 | | | $ | (164,667) | |
Noncontrolling interest from discontinued operations, net of tax - common shares | | | | | 0 | | | 0 | | | | 19,028 | | | 124 | |
Total income (loss) from discontinued operations, net of tax - common shares | | | | | $ | 0 | | | $ | 0 | | | | $ | 1,704,151 | | | $ | (164,543) | |
Total income (loss) from continuing operations | | | | | $ | (1,914,699) | | | $ | 112,548 | | | | $ | 9,479,990 | | | $ | (37,367) | |
Noncontrolling interest from continuing operations, net of tax - common shares | | | | | 523 | | | (751) | | | | 0 | | | 605 | |
Income (loss) from continuing operations | | | | | $ | (1,915,222) | | | $ | 113,299 | | | | $ | 9,479,990 | | | $ | (37,972) | |
| | | | | | | | | | | | |
DENOMINATOR(1): | | | | | | | | | | | | |
Weighted average common shares outstanding - basic | | | | | 145,979 | | | 145,608 | | | | 86,241 | | | 85,412 | |
Stock options and restricted stock(2): | | | | | 0 | | | 187 | | | | 0 | | | 0 | |
Weighted average common shares outstanding - diluted | | | | | 145,979 | | | 145,795 | | | | 86,241 | | | 85,412 | |
| | | | | | | | | | | | |
Net income (loss) attributable to the Company per common share: | | | | | | | | | | | | |
From continuing operations - Basic | | | | | $ | (13.12) | | | $ | 0.77 | | | | $ | 109.92 | | | $ | (0.44) | |
From discontinued operations - Basic | | | | | $ | 0 | | | $ | 0 | | | | $ | 19.76 | | | $ | (1.93) | |
| | | | | | | | | | | | |
From continuing operations - Diluted | | | | | $ | (13.12) | | | $ | 0.77 | | | | $ | 109.92 | | | $ | (0.44) | |
From discontinued operations - Diluted | | | | | $ | 0 | | | $ | 0 | | | | $ | 19.76 | | | $ | (1.93) | |
| | | | | | | | | | | | |
(1)All of the outstanding Special Warrants are included in both the basic and service conditions. This cost will be recognized when it becomes probable thatdiluted weighted average common shares outstanding of the performance condition will be satisfied.Successor Company for the year ended December 31, 2020 and the period from May 2, 2019 through December 31, 2019.
(2)Outstanding equity awards representing 9.1 million and 5.9 million shares of Class A common stock of the Successor Company for the year ended December 31, 2020 and the period from May 2, 2019 through December 31, 2019, respectively, were not included in the computation of diluted earnings per share because to do so would have been antidilutive. Outstanding equity awards representing 5.9 million and 7.2 million shares of Class A common stock of the Predecessor Company for the period for the period from January 1, 2019 through May 1, 2019 and the year ended December 31, 2018, respectively, were not included in the computation of diluted earnings per share because to do so would have been antidilutive.
Stockholder Rights Plan
On May 5, 2020, the Board approved the adoption of a short-term stockholder rights plan (the “Stockholder Rights Plan”).
IHEARTMEDIA, INC.AND SUBSIDIARIES (DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Loss per SharePursuant to the stockholder rights plan, the Board declared a dividend distribution of 1 right on each outstanding share of Class A common stock, share of Class B common stock and special warrant issued in connection with the Plan of Reorganization. The record date for such dividend distribution was May 18, 2020.
Under the Stockholder Rights Plan, subject to certain exceptions, the rights will generally be exercisable only if, in a transaction not approved by the Board, a person or group acquires beneficial ownership of 10% or more of the Company’s Class A common stock (or 20% in the case of certain passive investors), including through such person’s ownership of the convertible Class B common stock and/or special warrants, as further detailed in the Stockholder Rights Plan. In that situation, each holder of a right (other than the acquiring person or group) will have the right to purchase, upon payment of the exercise price, a number of shares of the Company’s Class A common stock, Class B common stock or special warrants, as applicable, having a market value of twice such price. In addition, the Stockholder Rights Plan contains a similar provision if the Company is acquired in a merger or other business combination after an acquiring person acquires beneficial ownership of 10% or more of the Company’s Class A common stock (or 20% in the case of certain passive investors).
The following table presentsStockholder Rights Plan has a duration of less than one year, expiring on May 5, 2021. The Stockholder Rights Plan may also be terminated, or the computation of loss per share for the years ended December 31, 2018, 2017 and 2016:
|
| | | | | | | | | | | |
(In thousands, except per share data) | Years Ended December 31, |
| 2018 | | 2017 | | 2016 |
NUMERATOR: | | | | | |
Net loss attributable to the Company – common shares | $ | (201,910 | ) | | $ | (398,060 | ) | | $ | (302,056 | ) |
| | | | | |
DENOMINATOR: | | | | | |
Weighted average common shares outstanding – basic | 85,412 |
| | 84,967 |
| | 84,569 |
|
Stock options and restricted stock(1): | — |
| | — |
| | — |
|
Weighted average common shares outstanding – diluted | 85,412 |
| | 84,967 |
| | 84,569 |
|
| | | | | |
Net loss attributable to the Company per common share: | | | | | |
Basic | $ | (2.36 | ) | | $ | (4.68 | ) | | $ | (3.57 | ) |
Diluted | $ | (2.36 | ) | | $ | (4.68 | ) | | $ | (3.57 | ) |
| |
(1) | Outstanding stock options and restricted shares of 7.2 million, 8.3 million and 7.9 million for the years ended December 31, 2018, 2017 and 2016, respectively, were not included in the computation of diluted earnings per share because to do so would have been anti-dilutive. |
In December 2016, the Board of Directors and the Company's stockholders holding a majority of the votes entitled torights may be castredeemed, by all outstanding common stockaction of the Company approved a Fourth Amended and Restated Certificate of Incorporation (the "New Charter"), and the New Charter became effective on January 26, 2017 following the mailing of an Information Statement on Schedule 14Cprior to the Company's stockholders.scheduled expiration date under certain circumstances, including if the Board determines that market and other conditions warrant, which the Board intends to monitor. The New Charter authorizesadoption of the issuance of 200,000,000 shares ofStockholder Rights Plan is not a new class of non-voting Class D Common Stock, par value $0.001 per share (the "Class D Common Stock"). The shares of Class D Common Stock authorized bytaxable event and does not have any impact on the New Charter may be issued without further approval from the Company's stockholders. The New Charter also authorizes the issuance of 150,000,000 shares of "blank check" preferred stock, par value $0.001 per share (the "Preferred Stock"). The Board of Directors has the authority to establish one or more series of Preferred Stock and fix relative rights and preferences of any series of Preferred Stock, without any further approval from the Company's stockholders.Company’s financial reporting.
NOTE 1013 – EMPLOYEE STOCK AND SAVINGS PLANS
iHeartCommunications has various 401(k) savings and other plans for the purpose of providing retirement benefits for substantially all employees. Under these plans, an employee can make pre-tax contributions and iHeartCommunications will match a portion of such an employee’s contribution. Employees vest in these iHeartCommunications matching contributions based upon their years of service to iHeartCommunications. In April 2020, the Company announced incremental operating-expense-saving initiatives in response to the economic environment resulting from the COVID-19 pandemic, which included a temporary suspension of the Company's 401(k) matching program. Contributions of $27.0$4.5 million, $29.0$8.6 million, $6.1 million and $30.9$13.5 million were made to these plans for the yearsyear ended December 31, 2020 (Successor), the period from May 2, 2019 through December 31, 2019 (Successor), the period from January 1, 2019 through May 1, 2019 (Predecessor) and the year ended December 31, 2018 2017 and 2016,(Predecessor), respectively, were expensed.
iHeartCommunications offers a non-qualified deferred compensation plan for a select group of management or highly compensated employees, under which such employees were able to make an annual election to defer up to 50% of their annual salary and up to 80% of their bonus before taxes. iHeartCommunications suspended all salary and bonus deferrals and company matching contributions to the deferred compensation plan on January 1, 2010. iHeartCommunications accounts for the plan in accordance with the provisions of ASC 710-10. Matching credits on amounts deferred may be made in iHeartCommunications' sole discretion and iHeartCommunications retains ownership of all assets until distributed. Participants in the plan have the opportunity to allocate their deferrals and any iHeartCommunications matching credits among different investment options, the performance of which is used to determine the amounts to be paid to participants under the plan. In accordance with the provisions of ASC 710-10, the assets and liabilities of the non-qualified deferred compensation plan are presented in “Other assets” and “Other long-term liabilities” in the accompanying consolidated balance sheets, respectively. The asset and liability under the deferred compensation plan at December 31, 20182020 (Successor) was approximately $11.2$12.3 million recorded in “Other assets” and $11.2$12.3 million recorded in “Liabilities subject
IHEARTMEDIA, INC.AND SUBSIDIARIES (DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
to compromise”“Other long-term liabilities”, respectively. The asset and liability under the deferred compensation plan at December 31, 20172019 (Successor) was approximately $12.1$11.3 million recorded in “Other assets” and $12.1$11.3 million recorded in “Other long-term liabilities”, respectively.
NOTE 1114 — OTHER INFORMATION
OTHER INCOME (EXPENSE), NET
The following table discloses the components of "Other income (expense)", net" for the yearsyear ended December 31, 2020 (Successor), the period from May 2, 2019 through December 31, 2019 (Successor), the period from January 1, 2019 through May 1, 2019 (Predecessor) and the year ended December 31, 2018 2017 and 2016,(Predecessor), respectively:
IHEARTMEDIA, INC.AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
| | (In thousands) | Years Ended December 31, | (In thousands) | Successor Company | | | Predecessor Company |
| 2018 | | 2017 | | 2016 | | Year Ended December 31, | | Period from May 2, 2019 through December 31, | | | Period from January 1, 2019 through May 1, | | Year Ended December 31, |
Foreign exchange gain (loss) | $ | (33,084 | ) | | $ | 29,223 |
| | $ | (69,880 | ) | |
Loss on investments, net | (1,276 | ) | | (4,872 | ) | | (12,907 | ) | |
| | | 2020 | | 2019 | | | 2019 | | 2018 |
| Professional fees | | Professional fees | $ | (6,278) | | | $ | (26,487) | | | | $ | (156) | | | $ | (23,100) | |
Other | (24,516 | ) | | (44,545 | ) | | (3,222 | ) | Other | (1,473) | | | 8,221 | | | | 179 | | | 93 | |
Total other income (expense), net | $ | (58,876 | ) | | $ | (20,194 | ) | | $ | (86,009 | ) | Total other income (expense), net | $ | (7,751) | | | $ | (18,266) | | | | $ | 23 | | | $ | (23,007) | |
The following table discloses the components of “Other current assets” as of December 31, 20182020 and 2017,2019, respectively:
The following table discloses the components of “Other assets” as of December 31, 20182020 and 2017,2019, respectively:
The following table discloses the components of “Other long-term liabilities” as of December 31, 20182020 and 2017,2019, respectively:
The following table discloses the components of “Accumulated other comprehensive loss,income (loss),” net of tax, as of December 31, 20182020 and 2017,2019, respectively: