IHEARTMEDIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The following table presents the Company's segment results for the Predecessor Company for the periods presented. The presentation of prior period amounts has been restated to conform to the presentation of the Successor period.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Predecessor Company | | | | | | | | | |
(In thousands) | Audio | | Audio and Media Services | | Corporate and other reconciling items | | Eliminations | | Consolidated |
Period from April 1, 2019 through May 1, 2019 | | | | | | | | | |
Revenue | $ | 260,461 | | | $ | 17,970 | | | $ | — | | | $ | (757) | | | $ | 277,674 | |
Direct operating expenses | 95,983 | | | 2,549 | | | — | | | (222) | | | 98,310 | |
Selling, general and administrative expenses | 91,551 | | | 11,276 | | | — | | | (531) | | | 102,296 | |
Corporate expenses | — | | | — | | | 14,510 | | | (4) | | | 14,506 | |
Depreciation and amortization | 11,749 | | | 1,204 | | | 1,591 | | | — | | | 14,544 | |
| | | | | | | | | |
Other operating expense, net | — | | | — | | | (127) | | | — | | | (127) | |
Operating income (loss) | $ | 61,178 | | | $ | 2,941 | | | $ | (16,228) | | | $ | — | | | $ | 47,891 | |
Intersegment revenues | $ | 56 | | | $ | 701 | | | $ | — | | | $ | — | | | $ | 757 | |
Capital expenditures | $ | 11,137 | | | $ | 576 | | | $ | 1,531 | | | $ | — | | | $ | 13,244 | |
Share-based compensation expense | $ | — | | | $ | — | | | $ | 105 | | | $ | — | | | $ | 105 | |
| | | | | | | | | |
Period from January 1, 2019 through May 1, 2019 | | | | | | | | | |
Revenue | $ | 1,006,677 | | | $ | 69,362 | | | $ | — | | | $ | (2,568) | | | $ | 1,073,471 | |
Direct operating expenses | 371,989 | | | 9,559 | | | — | | | (364) | | | 381,184 | |
Selling, general and administrative expenses | 383,342 | | | 46,072 | | | — | | | (2,184) | | | 427,230 | |
Corporate expenses | | | | | 53,667 | | | (20) | | | 53,647 | |
Depreciation and amortization | 41,233 | | | 5,266 | | | 6,335 | | | — | | | 52,834 | |
Impairment charges | — | | | — | | | 91,382 | | | — | | | 91,382 | |
Other operating expense, net | — | | | — | | | (154) | | | — | | | (154) | |
Operating income (loss) | $ | 210,113 | | | $ | 8,465 | | | $ | (151,538) | | | $ | — | | | $ | 67,040 | |
Intersegment revenues | $ | 243 | | | $ | 2,325 | | | $ | — | | | $ | — | | | $ | 2,568 | |
Capital expenditures | $ | 31,177 | | | $ | 1,263 | | | $ | 3,757 | | | $ | — | | | $ | 36,197 | |
Share-based compensation expense | $ | — | | | $ | — | | | $ | 498 | | | $ | — | | | $ | 498 | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
(In thousands) | iHM | | Americas Outdoor | | International Outdoor | | Other | | Corporate and other reconciling items | | Eliminations | | Consolidated |
Nine Months Ended September 30, 2017 | | | | | | | | | | |
Revenue | $ | 2,501,084 |
| | $ | 919,967 |
| | $ | 942,167 |
| | $ | 99,332 |
| | $ | — |
| | $ | (5,444 | ) | | $ | 4,457,106 |
|
Direct operating expenses | 773,327 |
| | 427,181 |
| | 607,023 |
| | 3 |
| | — |
| | — |
| | 1,807,534 |
|
Selling, general and administrative expenses | 894,669 |
| | 165,538 |
| | 204,531 |
| | 74,519 |
| | — |
| | (2,694 | ) | | 1,336,563 |
|
Corporate expenses | — |
| | — |
| | — |
| | — |
| | 236,237 |
| | (2,750 | ) | | 233,487 |
|
Depreciation and amortization | 174,946 |
| | 137,689 |
| | 95,149 |
| | 11,097 |
| | 24,769 |
| | — |
| | 443,650 |
|
Impairment charges | — |
| | — |
| | — |
| | — |
| | 7,631 |
| | — |
| | 7,631 |
|
Other operating income, net | — |
| | — |
| | — |
| | — |
| | 24,785 |
| | — |
| | 24,785 |
|
Operating income (loss) | $ | 658,142 |
| | $ | 189,559 |
| | $ | 35,464 |
| | $ | 13,713 |
| | $ | (243,852 | ) | | $ | — |
| | $ | 653,026 |
|
Intersegment revenues | $ | — |
| | $ | 5,444 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 5,444 |
|
Capital expenditures | $ | 44,353 |
| | $ | 48,749 |
| | $ | 83,851 |
| | $ | 551 |
| | $ | 7,440 |
| | $ | — |
| | $ | 184,944 |
|
Share-based compensation expense | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 9,020 |
| | $ | — |
| | $ | 9,020 |
|
| | | | | | | | | | | | | |
Nine Months Ended September 30, 2016 | | | | | | | | | | |
Revenue | $ | 2,463,899 |
| | $ | 931,058 |
| | $ | 1,035,263 |
| | $ | 114,663 |
| | $ | — |
| | $ | (2,031 | ) | | $ | 4,542,852 |
|
Direct operating expenses | 704,097 |
| | 421,039 |
| | 645,199 |
| | 1,255 |
| | — |
| | — |
| | 1,771,590 |
|
Selling, general and administrative expenses | 812,344 |
| | 167,660 |
| | 220,872 |
| | 82,394 |
| | — |
| | (1,421 | ) | | 1,281,849 |
|
Corporate expenses | — |
| | — |
| | — |
| | — |
| | 252,958 |
| | (610 | ) | | 252,348 |
|
Depreciation and amortization | 182,506 |
| | 140,883 |
| | 113,075 |
| | 12,809 |
| | 26,780 |
| | — |
| | 476,053 |
|
Impairment charges | — |
| | — |
| | — |
| | — |
| | 8,000 |
| | — |
| | 8,000 |
|
Other operating income, net | — |
| | — |
| | — |
| | — |
| | 219,768 |
| | — |
| | 219,768 |
|
Operating income (loss) | $ | 764,952 |
| | $ | 201,476 |
| | $ | 56,117 |
| | $ | 18,205 |
| | $ | (67,970 | ) | | $ | — |
| | $ | 972,780 |
|
Intersegment revenues | $ | — |
| | $ | 2,031 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 2,031 |
|
Capital expenditures | $ | 46,303 |
| | $ | 47,808 |
| | $ | 97,487 |
| | $ | 1,758 |
| | $ | 7,682 |
| | $ | — |
| | $ | 201,038 |
|
Share-based compensation expense | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 10,350 |
| | $ | — |
| | $ | 10,350 |
|
IHEARTMEDIA, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 911– CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONSREORGANIZATION ITEMS, NET
Reorganization items incurred as a result of the Chapter 11 Cases are presented separately in the accompanying statements of operations for the periods presented and were as follows:
| | | | | | | | | | | | | | | | | | | | |
(In thousands) | Successor Company | | | | | Predecessor Company |
| Three Months Ended June 30, | | Period from May 2, 2019 through June 30, | | | Period from April 1, 2019 through May 1, |
| 2020 | | 2019 | | | 2019 |
| | | | | | |
| | | | | | |
| | | | | | |
Professional fees and other bankruptcy related costs | $ | — | | | $ | — | | | | $ | (121,374) | |
Net gain on settlement of Liabilities subject to compromise | — | | | — | | | | 7,192,379 | |
Impact of fresh start adjustments | — | | | — | | | | 2,430,944 | |
Other items, net | — | | | — | | | | (4,005) | |
Reorganization items, net | $ | — | | | $ | — | | | | $ | 9,497,944 | |
| | | | | | |
Cash payments for Reorganization items, net | $ | 26 | | | $ | 13,049 | | | | $ | 149,346 | |
| | | | | | | | | | | | | | | | | | | | |
(In thousands) | Successor Company | | | | | Predecessor Company |
| Six Months Ended June 30, | | Period from May 2, 2019 through June 30, | | | Period from January 1, 2019 through May 1, |
| 2020 | | 2019 | | | 2019 |
| | | | | | |
| | | | | | |
| | | | | | |
Professional fees and other bankruptcy related costs | $ | — | | | $ | — | | | | $ | (157,487) | |
Net gain on settlement of Liabilities subject to compromise | — | | | — | | | | 7,192,374 | |
Impact of fresh start adjustments | — | | | — | | | | 2,430,944 | |
Other items, net | — | | | — | | | | (4,005) | |
Reorganization items, net | $ | — | | | $ | — | | | | $ | 9,461,826 | |
| | | | | | |
Cash payments for Reorganization items, net | $ | 443 | | | $ | 13,049 | | | | $ | 183,291 | |
Professional fees included in Reorganization items, net represent fees for post-petition expenses related to the Chapter 11 Cases.
The Company is a partyincurred additional professional fees related to a management agreement with certain affiliatesthe bankruptcy, post-emergence, of Bain Capital Partners, LLC and Thomas H. Lee Partners, L.P. (together, the "Sponsors") and certain other parties pursuant to which such affiliates of the Sponsors will provide management and financial advisory services until 2018. These agreements require management fees to be paid to such affiliates of the Sponsors for such services at a rate not greater than $15.0$1.9 million, per year, plus reimbursable expenses. For the three and nine months ended September 30, 2017, the Company recognized management fees and reimbursable expenses of $3.8$9.1 million and $11.4 million, and $3.9 million and $11.5$4.5 million for the three and nine months ended SeptemberJune 30, 2016, respectively.2020, the period from May 2, 2019 through June 30, 2019 and six months ended June 30, 2020, respectively, which are included within Other income (expense), net in the Company's Consolidated Statements of Comprehensive Income (Loss).
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Format of Presentation
Management’s discussion and analysis of our financial condition and results of operations (“MD&A”) should be read in conjunction with the consolidated financial statements and related footnotes contained in Item 1 of this Quarterly Report on Form 10-Q.
Our discussion is presented on both a consolidated and segment basis. Our reportable segments are iHeartMedia (“iHM”), Americas outdoor advertising (“Americas outdoor” or “Americas outdoor advertising”) and International outdoor advertising (“International outdoor” or “International outdoor advertising”). Our iHM 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 traditional display types. Included in the “Other” category isMedia Services segment, including our full-service media representation business, Katz Media Group which is ancillary(“Katz Media”) and our provider of scheduling and broadcast software and services, Radio Computing Services ("RCS").
Over the past ten years, we have transitioned our Audio business from a single platform radio broadcast operator to a company with multiple platforms including podcasting, networks and live events. We have also invested in numerous technologies and businesses to increase the competitiveness of our inventory with our advertisers and our audience. We believe that our ability to generate cash flow from operations from our business initiatives and our current cash on hand will provide sufficient resources to fund and operate our business, fund capital expenditures and other businesses.obligations and make interest payments on our long-term debt for at least the next 12 months.
We manageDescription of our operating segments by focusing primarily on their operating income, while Corporate expenses, Other operating income (expense), net, Interest expense, Gain on marketable securities, Equity in earnings (loss) of nonconsolidated affiliates, Loss on extinguishment of debt, Other income, net and Income tax expense are managed on a total company basis and are, therefore, included only in our discussion of consolidated results.
Certain prior period amounts have been reclassified to conform to the 2017 presentation.Business
Our iHMAudio strategy centers on delivering entertaining and informative content where our listeners want to find us across multiple platforms, including broadcast, mobiledigital and digital,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 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.
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. 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.
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 weU.S. economy may have operations.
Executive Summary
The key developments that impacteda 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 business are summarized below:
Consolidated revenue decreased $29.2 million duringfor the threesix months ended SeptemberJune 30, 20172020 has declined significantly compared to the samecomparable period of 2016. Excluding the $10.2 million impact from movements in foreign exchange rates, consolidated2019 and we expect our full year 2020 revenue decreased $39.4 million during the three months ended September 30, 2017to decline compared to 2019, largely as a result of a decline in consumer and business spending and the same period of 2016, primarily duerelated impact to the sales of certain outdoor businesses, which generated $2.6 milliondemand for advertising and $41.9 millionpricing pressure resulting from greater competition for available advertising dollars. Beginning in revenueMarch 2020 and continuing in the three months ended SeptemberJune 30, 20172020, we saw a sharp decline in each of our Broadcast radio, Networks, and 2016, respectively.Sponsorships revenue streams. We also saw a sharp decline in revenues from our Audio and Media Services, particularly in Katz Media, as a result of lower advertising spending. This decrease was partially offset by a $1.7 million increase in political revenue.
When the business environment recovers, we expect that the traditional promotional use of radio to 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 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. We anticipate to incur approximately $50 million of restructuring costs related to achieving our cost savings in 2020. Our investments in modernization are expected to deliver annualized run-rate cost savings of approximately $100 million by mid-year 2021, and we expect to achieve approximately 50% of our anticipated run-rate savings in 2020. In addition, in response to the COVID-19 pandemic, we have taken significant steps to significantly reduce our capital and operating expenditures for the remainder of 2020. These initiatives are expected to generate approximately $200 million in operating cost savings in 2020. For more information, please see the Liquidity and Capital Resources - Anticipated Cash Requirements section below.
On August 14, 2017, CCIBV,March 26, 2020, we announced the withdrawal of our indirect subsidiary,previously issued atfinancial guidance for the fiscal year ending December 31, 2020 due to heightened uncertainty related to COVID-19. As a $6.0 million premium $150.0precautionary measure to preserve financial flexibility in light of this uncertainty, we borrowed $350.0 million principal amount of 8.75% Senior Notes due 2020.
During the third quarter of 2017, Americas outdoor sold its ownership interest in a joint venture in Canada and recognized a net loss on sale of $12.1 million.
In October 2017, iHeartCommunications exchanged $45.0 million of 11.25% Priority Guarantee Notes due 2021 that were held by a subsidiary of iHeartCommunications for $45.0 million of 10.0% Senior Notes due 2018 that were held by unaffiliated third parties.
Revenues and expenses “excluding the impact of foreign exchange movements” in this Management’s Discussion & Analysis of Financial Condition and Results of Operations are presented because management believes that viewing certain financial results without the impact of fluctuations in foreign currency rates facilitates period to period comparisons of business performance and provides useful information to investors. 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 ofunder our historical results of operations for the three and nine months ended September 30, 2017 to the three and nine months ended September 30, 2016 is as follows:senior secured asset-
|
| | | | | | | | | | | | | | | | | | | |
(In thousands) | Three Months Ended September 30, | | % Change | | Nine Months Ended September 30, | | % Change |
| 2017 | | 2016 | | | 2017 | | 2016 | |
Revenue | $ | 1,537,416 |
| | $ | 1,566,582 |
| | (1.9)% | | $ | 4,457,106 |
| | $ | 4,542,852 |
| | (1.9)% |
Operating expenses: | | | | | | | | | | | |
Direct operating expenses (excludes depreciation and amortization) | 621,895 |
| | 591,740 |
| | 5.1% | | 1,807,534 |
| | 1,771,590 |
| | 2.0% |
Selling, general and administrative expenses (excludes depreciation and amortization) | 438,654 |
| | 421,700 |
| | 4.0% | | 1,336,563 |
| | 1,281,849 |
| | 4.3% |
Corporate expenses (excludes depreciation and amortization) | 77,967 |
| | 86,832 |
| | (10.2)% | | 233,487 |
| | 252,348 |
| | (7.5)% |
Depreciation and amortization | 149,749 |
| | 158,453 |
| | (5.5)% | | 443,650 |
| | 476,053 |
| | (6.8)% |
Impairment charges | 7,631 |
| | 8,000 |
| | (4.6)% | | 7,631 |
| | 8,000 |
| | (4.6)% |
Other operating income (expense), net | (13,215 | ) | | (505 | ) | | | | 24,785 |
| | 219,768 |
| | |
Operating income | 228,305 |
| | 299,352 |
| | (23.7)% | | 653,026 |
| | 972,780 |
| | (32.9)% |
Interest expense | 470,250 |
| | 459,852 |
| | | | 1,388,747 |
| | 1,389,793 |
| | |
Loss on investments, net | (2,173 | ) | | (13,767 | ) | | | | (2,433 | ) | | (13,767 | ) | | |
Equity in earnings (loss) of nonconsolidated affiliates | (2,238 | ) | | 1,117 |
| | | | (2,240 | ) | | (926 | ) | | |
Gain on extinguishment of debt | — |
| | 157,556 |
| | | | — |
| | 157,556 |
| | |
Other income (expense), net | 2,223 |
| | (7,323 | ) | | | | (11,244 | ) | | (47,054 | ) | | |
Loss before income taxes | (244,133 | ) | | (22,917 | ) | | | | (751,638 | ) | | (321,204 | ) | | |
Income tax expense | (2,051 | ) | | (5,613 | ) | | | | (50,143 | ) | | (42,243 | ) | | |
Consolidated net loss | (246,184 | ) | | (28,530 | ) | | | | (801,781 | ) | | (363,447 | ) | | |
Less amount attributable to noncontrolling interest | 1,993 |
| | 6,471 |
| | | | 8,648 |
| | 38,950 |
| | |
Net loss attributable to the Company | $ | (248,177 | ) | | $ | (35,001 | ) | | | | $ | (810,429 | ) | | $ | (402,397 | ) | | |
Consolidated Revenue
Consolidated revenue decreased $29.2 million duringbased revolving credit facility (the “ABL Facility”). During the three months ended SeptemberJune 30, 2017 compared2020, we repaid $115.0 million principal amount drawn under our ABL Facility, resulting in a balance outstanding of $235.0 million as of June 30, 2020.
In July 2020, iHeartCommunications issued $450.0 million of incremental term loans pursuant to an amendment (the “Amendment No. 2”) to the same periodcredit agreement (as amended, the “Credit Agreement”) with Capital I, as guarantor, certain subsidiaries of 2016. ExcludingiHeartCommunications, as guarantors, and Bank of America, N.A., as administrative agent, governing the $10.2Company’s $2.5 billion aggregate principal amount of senior secured term loans (the “Term Loan Facility”), resulting in net proceeds of $425.8 million, impact from movements in foreign exchange rates, consolidated revenue decreased $39.4after original issue discount and debt issuance costs. A portion of the proceeds was used to repay the remaining balance outstanding on our ABL Facility of $235.0 million, duringwith the three months ended September 30, 2017 comparedremaining $190.6 million of the proceeds available for general corporate purposes. For more information please refer to the same period of 2016. Revenue growth from our iHM business was offset by lower revenue generated by our International“Liquidity and Americas outdoor businesses as a result of the sales of our businessesCapital Resources section” in Canada in 2017 and Australia in 2016, which generated $2.6 million and $41.9 million in revenue in the three months ended September 30, 2017 and 2016, respectively.this MD&A.
Consolidated revenue decreased $85.7 million during the nine months ended September 30, 2017 compared to the same period of 2016. Excluding the $18.1 million impact from movements in foreign exchange rates, consolidated revenue decreased $67.6 million during the nine months ended September 30, 2017 compared to the same period of 2016. Revenue growth from our iHM business was offset by lower revenue generated by our International and Americas 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 $131.2 million in
revenue in the nine months ended September 30, 2017 and 2016, respectively.
Consolidated Direct Operating Expenses
Consolidated direct operating expenses increased $30.2 million during the three months ended September 30, 2017 compared to the same period of 2016. Excluding the $7.2 million impact from movements in foreign exchange rates, consolidated direct operating expenses increased $23.0 million during the three months ended September 30, 2017 compared to the same period of 2016. Higher direct operating expenses in our iHM business, due mostly to a $33.8 million prior year benefit resulting from the renegotiation of certain contracts, was partially offset by lower direct operating expenses in our International and Americas outdoor businesses as a result of the sales of our business in Australia in 2016 and Canada in 2017.
Consolidated direct operating expenses increased $35.9 million during the nine months ended September 30, 2017 compared to the same period of 2016. Excluding the $11.3 million impact from movements in foreign exchange rates, consolidated direct operating expenses increased $47.2 million during the nine months ended September 30, 2017 compared to the same period of 2016. Higher direct operating expenses in our iHM business, due mostly to a $33.8 million prior year benefit resulting from the renegotiation of certain contracts, were partially offset by the impact of the sale of our businesses in Australia and Turkey in 2016 and Canada in 2017.
Consolidated Selling, General and Administrative (“SG&A”) Expenses
Consolidated SG&A expenses increased $17.0 million during the three months ended September 30, 2017 compared to the same period of 2016. Excluding the $2.6 million impact from movements in foreign exchange rates, consolidated SG&A expenses increased $14.4 million during the three months ended September 30, 2017 compared to the same period of 2016. Higher SG&A expenses were primarily driven by trade and barter expenses in our iHM business.
Consolidated SG&A expenses increased $54.7 million during the nine months ended September 30, 2017 compared to the same period of 2016. Excluding the $3.0 million impact from movements in foreign exchange rates, consolidated SG&A expenses increased $57.7 million during the nine months ended September 30, 2017 compared to the same period of 2016. Higher SG&A expenses were primarily driven by trade and barter expenses in our iHM business and were partially offset by a decrease in SG&A expenses resulting primarily from the sales of our businesses in Australia and Turkey in 2016 and Canada in 2017.
Corporate Expenses
Corporate expenses decreased $8.9 million during the three months ended September 30, 2017 compared to the same period of 2016 primarily resulting from lower employee benefits and variable compensation expenses. For the three month period ended September 30, 2017, we incurred professional fees directly related to the notes exchange offers and term loan offers and, accordingly, such fees are reflected in Other Income (Expense), net as further discussed below.
Corporate expenses decreased $18.9 million during the nine months ended September 30, 2017 compared to the same period of 2016. Excluding the $1.9 million impact from movements in foreign exchange rates, corporate expenses decreased $17.0 million during the nine months ended September 30, 2017 compared to the same period of 2016. For the nine month period ended September 30, 2016, professional fees incurred in connection with our capital structure were reflected as part of corporate expenses. For the nine month period ended September 30, 2017, we incurred professional fees directly related to the notes exchange offers and term loan offers and, accordingly, such fees are reflected in Other Income (Expense), net as further discussed below. Employee benefit expense was also lower. The reduction in Corporate expenses was partially offset by higher spending on strategic revenue and efficiency initiatives.
Strategic Revenue and Efficiency Initiatives
Included in the amounts for direct operating expenses, SG&A and corporate expenses discussed above are expenses incurred in connection with our strategic revenue and efficiency initiatives. These costs consist primarily of severance related to workforce initiatives, consolidation of locations and positions, contract cancellation costs, consulting expenses, and other costs incurred in connection with improving our businesses. These costs are expected to provide benefits in future periods as the initiative results are realized.
Strategic revenue and efficiency costs were $6.0 million during the three months ended September 30, 2017. Of these expenses, $2.4 million was incurred by our iHM segment, $0.5 million was incurred by our Americas outdoor segment, $2.0 million was incurred by our International outdoor segment and $1.1 million was incurred by Corporate. Additionally, $1.8 million of these costs are reported within direct operating expenses, $3.1 million are reported within SG&A and $1.1 million are reported within corporate expenses.
Strategic revenue and efficiency costs were $6.0 million during the three months ended September 30, 2016. Of these expenses, $2.5 million was incurred by our iHM segment, $0.3 million was incurred by our Americas outdoor segment, $2.1 million was incurred by our International outdoor segment, $0.1 million was incurred by our Other category and $1.0 million was incurred by Corporate. Additionally, $1.9 million of these costs are reported within direct operating expenses, $3.1 million are reported within SG&A and $1.0 million are reported within corporate expenses.
Strategic revenue and efficiency costs were $31.0 million during the nine months ended September 30, 2017. Of these expenses, $14.4 million was incurred by our iHM segment, $1.4 million was incurred by our Americas outdoor segment, $6.0 million was incurred by our International outdoor segment, $4.1 million was incurred by our Other category and $5.1 million was incurred by Corporate. Additionally, $10.6 million of these costs are reported within direct operating expenses, $15.3 million are reported within SG&A and $5.1 million are reported within corporate expenses.
Strategic revenue and efficiency costs were $19.4 million during the nine months ended September 30, 2016. Of these expenses, $11.7 million was incurred by our iHM segment, $1.9 million was incurred by our Americas outdoor segment, $3.6 million was incurred by our International outdoor segment, $0.5 million was incurred by our Other segment and $1.7 million was incurred by Corporate. Additionally, $7.1 million of these costs are reported within direct operating expenses, $10.6 million are reported within SG&A and $1.7 million are reported within corporate expenses.
Depreciation and Amortization
Depreciation and amortization decreased $8.7 million during the three months ended September 30, 2017, compared to the same period of 2016. The decrease was primarily due to assets becoming fully depreciated or fully amortized and the disposal of assets related to the sale of our Australia business in 2016.
Depreciation and amortization decreased $32.4 million during the nine months ended September 30, 2017, compared to the same period of 2016. The decrease was primarily due to assets becoming fully depreciated or fully amortized and the disposal of assets related to the sale of our outdoor non-strategic U.S. markets and Australia and Turkey businesses in 2016.
Impairment Charges
The Company performs its annual impairment test on July 1 of each year. In addition, we test for impairment of property, plant and equipment whenever events and circumstances indicate that depreciable assets might be impaired. As a result of theseuncertainty 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 we recordedon our long-lived assets, intangible assets and indefinite-lived intangible assets as of March 31, 2020. The interim impairment chargestests resulted in a non-cash impairment of $7.6our 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 and nine months ended September 30, 2017, related to oneMarch 31, 2020.
Based on management’s forecasted future cash flows and assessment of market values of our iHM marketsdebt and oneequity securities, market interest rates affecting our weighted average cost of capital (WACC) and other economic factors, additional interim impairment testing of our International outdoor businesses. During the threeintangible assets and nine months ended Septemberindefinite-lived intangible was not required as of June 30, 2016, we recognized impairment charges of $8.0 million, related primarily to goodwill in one of our International outdoor businesses. Please2020. For more information, see Note 2 5, Property, Plant and Equipment, Intangible Assets and Goodwill to the Consolidated Financial Statementsconsolidated financial statements located in Item 1 of this Quarterly Report on Form 10-Q for a further description of the impairment charges.
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.
Emergence from Bankruptcy
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”). On April 28, 2018, the Debtors filed a plan of reorganization and a related disclosure statement (as amended, the “Disclosure Statement”) with the Bankruptcy Court, which was subsequently amended by filing the second, third, fourth and fifth amended Plan of Reorganization and amended versions of the Disclosure Statement. On January 22, 2019, the Modified Fifth Amended Joint Chapter 11 Plan of Reorganization of iHeartMedia, Inc. and Its Debtor Affiliates (as further modified, the “Plan of Reorganization”) was confirmed by the Bankruptcy Court.
On May 1, 2019 (the “Effective Date”), the “Debtors emerged from Chapter 11 through (a) a series of transactions (the “Separation”) through which Clear Channel Outdoor Holdings, Inc. (“CCOH”), its parent Clear Channel Holdings, Inc. (“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 (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 (“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 “debtor-in-possession” credit facility with a $450 million ABL Facility and (B) issuing to certain Claimholders, on account of their claims, the approximately $3.5 billion aggregate principal amount 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 existing equity of the Company was canceled on the Effective Date pursuant to the Plan of Reorganization.
Beginning on the Effective Date, the Company applied 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 May 1, 2019 are not comparable with the consolidated financial statements on or prior to that date.
Combined Results
Our financial results for the periods from April 1, 2019 through May 1, 2019 and from January 1, 2019 through May 1, 2019 are referred to as those of the “Predecessor” period. Our financial results for the period from May 2, 2019 through June 30, 2019, the three months ended June 30, 2020 and the six months ended June 30, 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 April 1, 2019 through May 1, 2019, from January 1, 2019 through May 1, 2019 and the period from May 2, 2019 through June 30, 2019 separately, management views the Company’s operating results for the three and six months ended June 30, 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 three and six months ended June 30, 2020.
The Company cannot adequately benchmark the operating results of the period from May 2, 2019 through June 30, 2019 against any of the current periods reported in its Consolidated Financial Statements without combining it with the period from April 1, 2019 through May 1, 2019 and 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 when combined with the Predecessor period 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 three and six months ended June 30, 2019.
The combined results for the three months ended June 30, 2019, which we refer to herein as the results for the "three months ended June 30, 2019" represent the sum of the reported amounts for the Predecessor period from April 1, 2019 through May 1, 2019 and the Successor period from May 2, 2019 through June 30, 2019.The combined results for the six months ended June 30, 2019, which we refer to herein as the results for the “six months ended June 30, 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 June 30, 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.
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 second quarter of 2020, including broadcast radio which is our largest revenue stream. A significant decline in advertising spend and the postponement or cancellation of certain tent-pole events drove an overall decrease in revenue for the three and six months ended June 30, 2020 compared to the three and six months ended June 30, 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 that impacted our business during the quarter are summarized below:
•Effects of the COVID-19 pandemic significantly adversely impacted revenue for all revenue streams, with the exception of digital and political revenue, which increased during the quarter.
•Revenue of $487.6 million decreased 46.6% during the quarter ended June 30, 2020 compared to Revenue of $913.3 million in the same period in 2019.
•Operating loss of $159.1 million was down from Operating income of $181.6 million in the prior year’s quarter.
•Net loss of $197.3 million decreased from Net income of $11,339.5 million in the prior year's quarter.
•Adjusted EBITDA(1) of $(29.3) million, was down from $262.9 million year-over-year.
•Cash flows provided by operating activities from continuing operations of $11.4 million increased from Cash flows used for operating activities of $61.0 million in the same period in 2019.
•Free cash flow(2) (used for) continuing operations of $(6.5) million decreased from $(91.6) million in the same period in 2019.
•Repaid $115.0 million of principal amount drawn under our ABL Facility, resulting in a balance outstanding of $235.0 million as of June 30, 2020.
•On July 16, 2020, we issued $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 was 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.
The table below presents a summary of our historical results of operations for the periods presented:
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(In thousands) | Successor Company | | Successor Company | | | Predecessor Company | | Non-GAAP Combined | | | | | | |
| Three Months Ended June 30, | | Period from May 2, 2019 through June 30, | | | Period from April 1, 2019 through May 1, | | Three Months Ended June 30, | | % | | | | |
| 2020 | | 2019 | | | 2019 | | 2019 | | Change | | | | |
Revenue | $ | 487,648 | | | $ | 635,646 | | | | $ | 277,674 | | | $ | 913,320 | | | (46.6) | % | | | | |
Operating income (loss) | $ | (159,087) | | | $ | 133,688 | | | | $ | 47,891 | | | $ | 181,579 | | | NM | | | | |
Net income (loss) | $ | (197,317) | | | $ | 38,793 | | | | $ | 11,300,714 | | | $ | 11,339,507 | | | NM | | | | |
Cash provided by (used for) operating activities from continuing operations | $ | 11,369 | | | $ | 83,201 | | | | $ | (144,171) | | | $ | (60,970) | | | NM | | | | |
| | | | | | | | | | | | | | |
Adjusted EBITDA(1) | $ | (29,283) | | | $ | 194,753 | | | | $ | 68,097 | | | $ | 262,850 | | | NM | | | | |
Free cash flow from (used for) continuing operations(2) | $ | (6,513) | | | $ | 65,766 | | | | $ | (157,415) | | | $ | (91,649) | | | NM | | | | |
| | | | | | | | | | | | | | |
(1) For a definition of Adjusted EBITDA and a reconciliation to Operating income (loss), 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 operating activities from continuing operations to Free cash flow from continuing operations” in this MD&A.
Results of Operations
The tables below present the comparison of our historical results of operations for the periods presented:
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(In thousands) | Successor Company | | Successor Company | | | Predecessor Company | | Non-GAAP Combined | | | | | | | | |
| Three Months Ended June 30, | | Period from May 2, 2019 through June 30, | | | Period from April 1, 2019 through May 1, | | Three Months Ended June 30, | | | | | | | | |
| 2020 | | 2019 | | | 2019 | | 2019 | | | | | | | | |
Revenue | $ | 487,648 | | | $ | 635,646 | | | | $ | 277,674 | | | $ | 913,320 | | | | | | | | | |
Operating expenses: | | | | | | | | | | | | | | | | |
Direct operating expenses (excludes depreciation and amortization) | 249,866 | | | 198,772 | | | | 98,310 | | | 297,082 | | | | | | | | | |
Selling, general and administrative expenses (excludes depreciation and amortization) | 261,219 | | | 220,231 | | | | 102,296 | | | 322,527 | | | | | | | | | |
Corporate expenses (excludes depreciation and amortization) | 26,419 | | | 26,818 | | | | 14,506 | | | 41,324 | | | | | | | | | |
Depreciation and amortization | 103,347 | | | 59,383 | | | | 14,544 | | | 73,927 | | | | | | | | | |
Impairment charges | 5,378 | | | — | | | | — | | | — | | | | | | | | | |
Other operating income (expense), net | (506) | | | 3,246 | | | | (127) | | | 3,119 | | | | | | | | | |
Operating income (loss) | (159,087) | | | 133,688 | | | | 47,891 | | | 181,579 | | | | | | | | | |
Interest expense (income), net | 81,963 | | | 69,711 | | | | (400) | | | 69,311 | | | | | | | | | |
Gain on investments, net | 1,280 | | | — | | | | — | | | — | | | | | | | | | |
Equity in loss of nonconsolidated affiliates | (31) | | | (24) | | | | (59) | | | (83) | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Other income (expense), net | (1,258) | | | (9,157) | | | | 150 | | | (9,007) | | | | | | | | | |
Reorganization items, net | — | | | — | | | | 9,497,944 | | | 9,497,944 | | | | | | | | | |
Income (loss) from continuing operations before income taxes | (241,059) | | | 54,796 | | | | 9,546,326 | | | 9,601,122 | | | | | | | | | |
Income tax benefit (expense) | 43,742 | | | (16,003) | | | | (100,289) | | | (116,292) | | | | | | | | | |
Income (loss) from continuing operations | (197,317) | | | 38,793 | | | | 9,446,037 | | | 9,484,830 | | | | | | | | | |
Income from discontinued operations, net of tax | — | | | — | | | | 1,854,677 | | | 1,854,677 | | | | | | | | | |
Net income (loss) | (197,317) | | | 38,793 | | | | 11,300,714 | | | 11,339,507 | | | | | | | | | |
Less amount attributable to noncontrolling interest | — | | | — | | | | 2,190 | | | 2,190 | | | | | | | | | |
Net income (loss) attributable to the Company | $ | (197,317) | | | $ | 38,793 | | | | $ | 11,298,524 | | | $ | 11,337,317 | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(In thousands) | | | | | | | Successor Company | | Successor Company | | | Predecessor Company | | Non-GAAP Combined |
| | | | | | | Six Months Ended June 30, | | Period from May 2, 2019 through June 30, | | | Period from January 1, 2019 through May 1, | | Six Months Ended June 30, |
| | | | | | | 2020 | | 2019 | | | 2019 | | 2019 |
Revenue | | | | | | | $ | 1,268,282 | | | $ | 635,646 | | | | $ | 1,073,471 | | | $ | 1,709,117 | |
Operating expenses: | | | | | | | | | | | | | | |
Direct operating expenses (excludes depreciation and amortization) | | | | | | | 551,498 | | | 198,772 | | | | 381,184 | | | 579,956 | |
Selling, general and administrative expenses (excludes depreciation and amortization) | | | | | | | 605,360 | | | 220,231 | | | | 427,230 | | | 647,461 | |
Corporate expenses (excludes depreciation and amortization) | | | | | | | 66,368 | | | 26,818 | | | | 53,647 | | | 80,465 | |
Depreciation and amortization | | | | | | | 200,115 | | | 59,383 | | | | 52,834 | | | 112,217 | |
Impairment charges | | | | | | | 1,733,235 | | | — | | | | 91,382 | | | 91,382 | |
Other operating income (expense), net | | | | | | | (1,572) | | | 3,246 | | | | (154) | | | 3,092 | |
Operating income (loss) | | | | | | | (1,889,866) | | | 133,688 | | | | 67,040 | | | 200,728 | |
Interest expense (income), net | | | | | | | 172,052 | | | 69,711 | | | | (499) | | | 69,212 | |
Loss on investments, net | | | | | | | (8,675) | | | — | | | | (10,237) | | | (10,237) | |
Equity in loss of nonconsolidated affiliates | | | | | | | (595) | | | (24) | | | | (66) | | | (90) | |
| | | | | | | | | | | | | | |
Other income (expense), net | | | | | | | (9,118) | | | (9,157) | | | | 23 | | | (9,134) | |
Reorganization items, net | | | | | | | — | | | — | | | | 9,461,826 | | | 9,461,826 | |
Income (loss) from continuing operations before income taxes | | | | | | | (2,080,306) | | | 54,796 | | | | 9,519,085 | | | 9,573,881 | |
Income tax benefit (expense) | | | | | | | 194,253 | | | (16,003) | | | | (39,095) | | | (55,098) | |
Income (loss) from continuing operations | | | | | | | (1,886,053) | | | 38,793 | | | | 9,479,990 | | | 9,518,783 | |
Income from discontinued operations, net of tax | | | | | | | — | | | — | | | | 1,685,123 | | | 1,685,123 | |
Net income (loss) | | | | | | | (1,886,053) | | | 38,793 | | | | 11,165,113 | | | 11,203,906 | |
Less amount attributable to noncontrolling interest | | | | | | | — | | | — | | | | (19,028) | | | (19,028) | |
Net income (loss) attributable to the Company | | | | | | | $ | (1,886,053) | | | $ | 38,793 | | | | $ | 11,184,141 | | | $ | 11,222,934 | |
The tables below present the comparison of our revenue streams for the periods presented:
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(In thousands) | | | | | | | Successor Company | | Successor Company | | | Predecessor Company | | Non-GAAP Combined | | |
| | | | | | | Three Months Ended June 30, | | Period from May 2, 2019 through June 30, | | | Period from April 1, 2019 through May 1, | | Three Months Ended June 30, | | % |
| | | | | | | 2020 | | 2019 | | | 2019 | | 2019 | | Change |
Broadcast Radio | | | | | | | $ | 244,035 | | | $ | 390,540 | | | | $ | 170,632 | | | $ | 561,172 | | | (56.5) | % |
Digital | | | | | | | 93,227 | | | 64,238 | | | | 26,840 | | | 91,078 | | | 2.4 | % |
Networks | | | | | | | 96,330 | | | 105,426 | | | | 50,889 | | | 156,315 | | | (38.4) | % |
Sponsorship and Events | | | | | | | 14,809 | | | 31,790 | | | | 10,617 | | | 42,407 | | | (65.1) | % |
Audio and Media Services | | | | | | | 39,251 | | | 40,537 | | | | 17,970 | | | 58,507 | | | (32.9) | % |
Other | | | | | | | 1,943 | | | 4,236 | | | | 1,483 | | | 5,719 | | | (66.0) | % |
Eliminations | | | | | | | (1,947) | | | (1,121) | | | | (757) | | | (1,878) | | | |
Revenue, total | | | | | | | $ | 487,648 | | | $ | 635,646 | | | | $ | 277,674 | | | $ | 913,320 | | | (46.6) | % |
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(In thousands) | | | | | | | Successor Company | | Successor Company | | | Predecessor Company | | Non-GAAP Combined | | |
| | | | | | | Six Months Ended June 30, | | Period from May 2, 2019 through June 30, | | | Period from January 1, 2019 through May 1, | | Six Months Ended June 30, | | % |
| | | | | | | 2020 | | 2019 | | | 2019 | | 2019 | | Change |
Broadcast Radio | | | | | | | $ | 705,695 | | | $ | 390,540 | | | | $ | 657,864 | | | $ | 1,048,404 | | | (32.7) | % |
Digital | | | | | | | 186,003 | | | 64,238 | | | | 102,789 | | | 167,027 | | | 11.4 | % |
Networks | | | | | | | 230,907 | | | 105,426 | | | | 189,088 | | | 294,514 | | | (21.6) | % |
Sponsorship and Events | | | | | | | 44,157 | | | 31,790 | | | | 50,330 | | | 82,120 | | | (46.2) | % |
Audio and Media Services | | | | | | | 99,478 | | | 40,537 | | | | 69,362 | | | 109,899 | | | (9.5) | % |
Other | | | | | | | 5,967 | | | 4,236 | | | | 6,606 | | | 10,842 | | | (45.0) | % |
Eliminations | | | | | | | (3,925) | | | (1,121) | | | | (2,568) | | | (3,689) | | | |
Revenue, total | | | | | | | $ | 1,268,282 | | | $ | 635,646 | | | | $ | 1,073,471 | | | $ | 1,709,117 | | | (25.8) | % |
Consolidated results for the three months ended June 30, 2020 compared to the combined results for the three months ended June 30, 2019 and consolidated results for the six months ended June 30, 2020 compared to the combined results for the six months ended June 30, 2019 were as follows:
Revenue
Revenue decreased $425.7 million during the three months ended June 30, 2020 compared to the same period of 2019. The decrease in Revenue is primarily attributable to the effects of COVID-19, which began to unfold into a global pandemic in early March of 2020, resulting in a significant economic downturn due to the shut-down of non-essential businesses and shelter-in-place orders. The impact continued through the second quarter of 2020, resulting in significant revenue declines impacting most of our revenue streams primarily as a result of a decrease in broadcast radio advertising spend. Broadcast revenue decreased $317.1 million, driven by a $188.7 million decrease in Local spot revenue and a $103.7 million decrease in National spot revenue. Revenue from our Network businesses, including both Premiere and Total Traffic & Weather, was also impacted by the downturn, resulting in a decrease of $60.0 million. Revenue from Sponsorship and Events decreased by $27.6 million, primarily as a result of the postponement or cancellations of events in response to the COVID-19 pandemic. Digital revenue increased $2.1 million, driven by continued growth in podcasting. Audio and Media Services revenue decreased $19.3 million primarily due to the effects of COVID-19 on advertising spend. This decrease was partially offset by a $1.7 million increase in political revenue as a result of 2020 being a presidential election year.
Revenue decreased $440.8 million during the six months ended June 30, 2020 compared to the same period of 2019. The decrease in Revenue is primarily attributable to the effects of COVID-19, which began to unfold into a global pandemic in early March of 2020, resulting in a significant economic downturn due to the shut-down of non-essential 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 second quarter of 2020, resulting in significant revenue declines impacting most of our revenue streams, primarily as a result of a decrease in broadcast radio advertising spend. Broadcast revenue decreased $342.7 million, driven by a $214.7 million decrease in Local spot revenue and a $121.9 million decrease in National spot revenue. The decrease in Broadcast revenue was offset by a $15.5 million increase in political revenue as a result of 2020 being a presidential election year. Revenue from our Network businesses, including both Premiere and Total Traffic & Weather, was also impacted by the downturn, resulting in a decrease of $63.6 million. Revenue from Sponsorship and Events decreased by $38.0 million, primarily as a result of the postponement or cancellations of events in response to the COVID-19 pandemic. Digital revenue increased $19.0 million, driven by continued growth in podcasting. Audio and Media Services revenue decreased $10.4 million primarily due to the effects of COVID-19 on advertising spend. This decrease was offset by an $8.9 million increase in political revenue.
Direct Operating Expenses
Direct operating expenses decreased $47.2 million during the three months ended June 30, 2020 compared to the same period of 2019. The decrease in Direct operating expenses was driven primarily by lower employee compensation expenses resulting from 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 period. Variable expenses related to events also decreased as a result of the postponement or cancellation of events in response to the COVID-19 pandemic.
Direct operating expenses decreased $28.5 million during the six months ended June 30, 2020 compared to the same period of 2019. The decrease in Direct operating expenses was driven primarily by lower employee compensation expenses resulting from 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 period. 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, which were incurred mainly in January and February, as well as higher content costs from higher podcasting and digital subscription revenue.
Selling, General and Administrative (“SG&A”) Expenses
SG&A expenses decreased $61.3 million during the three months ended June 30, 2020 compared to the same period of 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. Trade and barter expenses also decreased 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 higher bad debt expense.
SG&A expenses decreased $42.1 million during the six months ended June 30, 2020 compared to the same period of 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. Trade and barter expenses also decreased 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 $14.9 million during the three months ended June 30, 2020 compared to the same period of 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.
Corporate expenses decreased $14.1 million during the six months ended June 30, 2020 compared to the same period of 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 in January and February, as well as higher share-based compensation expense, which increased $5.3 million as a result of our new post-emergence equity compensation plan.
Depreciation and Amortization
Depreciation and amortization increased $29.4 million and $87.9 million during the three and six months ended June 30, 2020, compared to the same periods of 2019, respectively, 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 recognized non-cash impairment charges to our indefinite-lived intangible assets and goodwill of $1.7 billion in the six months ended June 30, 2020.
We recognized non-cash impairment charges of $91.4 million in the six months ended June 30, 2019 on our indefinite-lived FCC licenses as a result of an increase in our weighted average cost of capital. See Note 5, Property, Plant and Equipment, Intangible Assets and Goodwill, to the consolidated financial statements located in Item 1 of this Quarterly Report on Form 10-Q for a further description of the impairment charges.
Other Operating Income (Expense), Net
Other operating expense, net was $13.2of $0.5 million and Other operating income, net of $3.1 million for the three months ended SeptemberJune 30, 2017, which primarily related to the $12.12020 and 2019, respectively, and Other operating expense, net of $1.6 million loss, which includes $6.3 million in cumulative translation adjustments, recognized on the sale of our ownership interest in a joint venture in Canada during the third quarter of 2017.and Other operating income, net of $24.8$3.1 million for the ninesix months ended SeptemberJune 30, 2017 primarily related2020 and 2019, respectively, relate to the sale in the first quarter of 2017 of the Americas outdoor Indianapolis market exchanged for certain assets in Atlanta, Georgia, plus $43.1 million in cash, net of closing costs, resulting in a net gain of $28.9 milliongains and a gain of $6.8 millionlosses recognized on the sale of our ownership interest in a joint venture in Belgium in the second quarter of 2017, offset by the loss of $12.1 million recognized on the sale of our ownership interest in a joint venture in Canada.
Other operating expense, net was $0.5 million for the three months ended September 30, 2016, which primarily related to net losses on the sale of operating assets. Other operating income, net was $219.8 million for the nine months ended September 30, 2016, which primarily related to the sale of nine non-strategic outdoor markets in the first quarter of 2016, partially offset by the loss on the sales of our Australia and Turkey businesses.asset disposals.
Interest Expense
Interest expense increased $10.4$12.7 million and $102.8 million during the three and six months ended June 30, 2020, respectively, compared to the same periods of 2019 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 was a debtor-in-possession, no interest expense was recognized on pre-petition debt.
In the Predecessor periods, we ceased to accrue interest expense on long-term debt, which was reclassified as Liabilities subject to compromise as of March 14, 2018 (the “Petition Date”), resulting in $135.9 million and $533.4 million in contractual interest not being accrued in the three and six months ended June 30, 2019, respectively.
Gain (Loss) on Investments, net
During the three and six months ended June 30, 2020, we recognized a gain on investments, net of $1.3 million and a loss on investments of $8.7 million, respectively. The gain on investments, net recognized during the quarter primarily related to a gain on one of our marketable equity securities. The loss on investments, net recognized during the six months ended June 30, 2020 was primarily in connection with estimated credit losses and declines in the value of our investments.
During the six months ended June 30, 2019, we recognized a loss of $10.2 million, primarily in connection with declines in the value of our investments. We did not recognize any gain or loss on investments during the three months ended SeptemberJune 30, 2017 compared to the same period of 2016 primarily due to an increase in variable interest rates. Interest expense decreased $1.0 million during the nine months ended September 30, 2017 compared to the same period of 2016. The decrease is primarily due to settlements of long-term debt in 2016, partially offset by an increase in variable interest rates, primarily as a result from an increase in LIBOR.2019.
Loss on Investments, net
During the three and nine months ended September 30, 2017, we recognized losses of $2.2 million and $2.4 million, respectively, related to our investments. During the three and nine months ended September 30, 2016, we recognized a loss of $13.8 million, related to cost-method investments.
Gain (Loss) on Extinguishment of Debt
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 Income (Expense), netNet
Other income, net was $2.2 million and other expense, net was $11.2$1.3 million and $9.1 million for the three and ninesix months ended SeptemberJune 30, 2017, respectively. These amounts relate primarily2020, respectively, which related to costs incurred to refinance our Term Loan Facility and professional fees incurred in connection with the Chapter 11 Cases in the Successor period. Such expenses were included within Reorganization items, net foreign exchange gains of $9.3in the Predecessor period while the Company was a debtor-in-possession.
Other expense, net was $9.0 million and $21.6$9.1 million for the three and ninesix months ended SeptemberJune 30, 2017, respectively, recognized2019, respectively. Amounts in connection with intercompany notes denominated in foreign currencies, partially offset by expensesthe six months ended June 30, 2019 related primarily to professional fees incurred directly in connection with the notes exchange offers and term loan offers of $7.2 million and $31.4 million forChapter 11 Cases before the 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 the three and ninesix months ended SeptemberJune 30, 2017, respectively, as described in "Liquidity and Capital Resources - Notes Exchange Offers and Term Loan Offers".
Other expense,2019, we recognized Reorganization items, net was $7.3of $9,497.9 million and $47.1$9,461.8 million for the three and nine months ended September 30, 2016, respectively, which primarily related to the Chapter 11 Cases, which consisted primarily of the net foreign exchange lossesgain 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 Petition Date and the Effective Date in connection with intercompany notes denominated in foreign currencies.the Chapter 11 Cases.
Income Tax ExpenseBenefit (Expense)
The effective tax rate for the Successor Company for the three and ninesix months ended SeptemberJune 30, 20172020 was (0.8)%18.1% and (6.7)%9.3%, respectively. The effective tax rate for the three and ninesix months ended SeptemberJune 30, 20162020 was (24.5)% and (13.2)%, respectively. The effective tax rates were primarily impacted by the impairment charges discussed above. The deferred tax benefit primarily consists of $125.5 million related to the FCC license impairment charges recorded during the period.
The effective tax rate for the Successor Company for the Period from May 2, 2019 through June 30, 2019 was 29.2%. The effective tax rate for continuing operations of the Predecessor Company for Period from April 1, 2019 through May 1, 2019 (Predecessor) and the Period from January 1, 2019 through May 1, 2019 (Predecessor) was 1.1% and 0.4%, respectively. The income tax expense for the Period from April 1, 2019 through May 1, 2019 (Predecessor) and 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 carryforwards from the cancellation of debt income 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 againstincome 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 assets originatingliabilities resulting from fresh start accounting adjustments, which was partially offset by $343.7 million tax benefit for the reduction in the periodvaluation allowance on our deferred tax assets.
Income from Discontinued Operations, Net
During the three and six months ended June 30, 2019, we recognized Income from discontinued operations, net operating losses in U.S. federal, stateof tax of $1,854.7 million and certain foreign jurisdictions. $1,685.1 million, respectively, related to the separation of our domestic and international outdoor advertising businesses, which were previously reported as the Americas outdoor and International outdoor segments prior to the Separation.
iHM Results of Operations
Our iHM operating results were as follows:Net Income (Loss) Attributable to the Company
|
| | | | | | | | | | | | | | | | | | | |
(In thousands) | Three Months Ended September 30, | | % Change | | Nine Months Ended September 30, | | % Change |
| 2017 | | 2016 | | | 2017 | | 2016 | |
Revenue | $ | 859,531 |
| | $ | 857,099 |
| | 0.3% | | $ | 2,501,084 |
| | $ | 2,463,899 |
| | 1.5% |
Direct operating expenses | 265,795 |
| | 229,668 |
| | 15.7% | | 773,327 |
| | 704,097 |
| | 9.8% |
SG&A expenses | 287,676 |
| | 268,612 |
| | 7.1% | | 894,669 |
| | 812,344 |
| | 10.1% |
Depreciation and amortization | 58,089 |
| | 60,691 |
| | (4.3)% | | 174,946 |
| | 182,506 |
| | (4.1)% |
Operating income | $ | 247,971 |
| | $ | 298,128 |
| | (16.8)% | | $ | 658,142 |
| �� | $ | 764,952 |
| | (14.0)% |
Three Months
iHM revenue increased $2.4 Net loss attributable to the Company decreased $11,534.6 million to $197.3 million during the three months ended SeptemberJune 30, 20172020 compared to the same period of 2016, with growth in national and digital revenue being partially offset by lower local revenue. National revenue grew due to an increase in national trade and barter, largely relatedNet income attributable to the iHeartMedia Music Festival, as well as increased national sales initiatives and investments, including our programmatic buying platforms, primarily offset by a decrease in national traffic and weather revenue. Local revenue decreased as a resultCompany of lower spot revenue, partially offset by an increase in local trade and barter.
iHM direct operating expenses increased $36.1$11,337.3 million during the three months ended SeptemberJune 30, 2017 compared to the same period of 2016 primarily driven by a $33.8 million prior year benefit resulting from the renegotiation of certain contracts. iHM SG&A expenses increased $19.1 million during the three months ended September 30, 2017 compared to the same period of 2016 primarily due to higher trade and barter expenses and higher variable expenses, including sales activation costs.
Nine Months
iHM revenue increased $37.2 million during the nine months ended September 30, 2017 compared to the same period of 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 increased sales in response to our national investments, including our programmatic buying platforms, primarily offset by a decrease in national traffic and weather revenue. Other revenue increased partially as a result of higher talent appearance fees. Local revenue decreased2019, primarily as a result of lower spot revenue, partially offset by an increasethe $9.5 billion gain from Reorganization items net related to the Chapter 11 Cases in local tradethe 2019 period, the $1.9 billion gain on disposal of our Outdoor business in the 2019 period and barter. due to the other factors discussed above.
iHM direct operating expenses increased $69.2
Net loss attributable to the Company decreased $13,109.0 million to $1,886.1 million during the ninesix months ended SeptemberJune 30, 20172020 compared to Net income attributable to the same periodCompany of 2016 primarily driven by a $33.8 million prior year benefit resulting from the renegotiation of certain contracts, as well as higher content and programming costs, including talent fees and music license fees. iHM SG&A expenses increased $82.3$11,222.9 million during the ninesix months ended SeptemberJune 30, 2017 compared2019, primarily as a result of the $9.5 billion gain from Reorganization items net related to the sameChapter 11 Cases in the 2019 period, of 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 Advertising Results of Operations
Our Americas outdoor operating results were as follows:
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| | | | | | | | | | | | | | | | | | | |
(In thousands) | Three Months Ended September 30, | | % Change | | Nine Months Ended September 30, | | % Change |
| 2017 | | 2016 | | | 2017 | | 2016 | |
Revenue | $ | 316,587 |
| | $ | 322,997 |
| | (2.0)% | | $ | 919,967 |
| | $ | 931,058 |
| | (1.2)% |
Direct operating expenses | 141,609 |
| | 142,989 |
| | (1.0)% | | 427,181 |
| | 421,039 |
| | 1.5% |
SG&A expenses | 54,689 |
| | 54,500 |
| | 0.3% | | 165,538 |
| | 167,660 |
| | (1.3)% |
Depreciation and amortization | 47,035 |
| | 47,242 |
| | (0.4)% | | 137,689 |
| | 140,883 |
| | (2.3)% |
Operating income | $ | 73,254 |
| | $ | 78,266 |
| | (6.4)% | | $ | 189,559 |
| | $ | 201,476 |
| | (5.9)% |
Three Months
Americas outdoor revenue decreased $6.4 million during the three months ended September 30, 2017 compared to the same period of 2016. Excluding the $0.9 million impact from movements in foreign exchange rates, Americas outdoor revenue decreased $7.3 million during the three months ended September 30, 2017 compared to the same period of 2016. The decrease in revenue is primarily due to a $4.2 million decrease in revenue resulting from the sale$1.7 billion gain on disposal of our Canadian outdoorOutdoor business higher revenue in the prior year2019 period and due to the 2016 Olympicsother factors discussed above.
Reconciliation of Operating Income (Loss) to Adjusted EBITDA
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(In thousands) | Successor Company | | Successor Company | | | Predecessor Company | | Non-GAAP Combined | | |
| Three Months Ended June 30, | | Period from May 2, 2019 through June 30, | | | Period from April 1, 2019 through May 1, | | Three Months Ended June 30, | | |
| 2020 | | 2019 | | | 2019 | | 2019 | | |
Operating income (loss) | $ | (159,087) | | | $ | 133,688 | | | | $ | 47,891 | | | $ | 181,579 | | | |
Depreciation and amortization(1) | 103,347 | | | 59,383 | | | | 14,544 | | | 73,927 | | | |
Impairment charges | 5,378 | | | — | | | | — | | | — | | | |
Other operating (income) expense, net | 506 | | | (3,246) | | | | 127 | | | (3,119) | | | |
Share-based compensation expense(2) | 4,218 | | | 3,039 | | | | 105 | | | 3,144 | | | |
Restructuring and reorganization expenses | 16,355 | | | 1,889 | | | | 5,430 | | | 7,319 | | | |
| | | | | | | | | | |
Adjusted EBITDA(3) | $ | (29,283) | | | $ | 194,753 | | | | $ | 68,097 | | | $ | 262,850 | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(In thousands) | Successor Company | | Successor Company | | | Predecessor Company | | Non-GAAP Combined | | |
| Six Months Ended June 30, | | Period from May 2, 2019 through June 30, | | | Period from January 1, 2019 through May 1, | | Six Months Ended June 30, | | |
| 2020 | | 2019 | | | 2019 | | 2019 | | |
Operating income (loss) | $ | (1,889,866) | | | $ | 133,688 | | | | $ | 67,040 | | | $ | 200,728 | | | |
Depreciation and amortization(1) | 200,115 | | | 59,383 | | | | 52,834 | | | 112,217 | | | |
Impairment charges | 1,733,235 | | | — | | | | 91,382 | | | 91,382 | | | |
Other operating (income) expense, net | 1,572 | | | (3,246) | | | | 154 | | | (3,092) | | | |
Share-based compensation expense(2) | 8,843 | | | 3,039 | | | | 498 | | | 3,537 | | | |
Restructuring and reorganization expenses | 57,157 | | | 1,889 | | | | 13,241 | | | 15,130 | | | |
Adjusted EBITDA(3) | $ | 111,056 | | | $ | 194,753 | | | | $ | 225,149 | | | $ | 419,902 | | | |
Reconciliation of Net (Income) Loss to EBITDA and Adjusted EBITDA
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(In thousands) | Successor Company | | Successor Company | | | Predecessor Company | | Non-GAAP Combined | | | | |
| Three Months Ended June 30, | | Period from May 2, 2019 through June 30, | | | Period from April 1, 2019 through May 1, | | Three Months Ended June 30, | | | | |
| 2020 | | 2019 | | | 2019 | | 2019 | | | | |
Net income (loss) | $ | (197,317) | | | $ | 38,793 | | | | $ | 11,300,714 | | | $ | 11,339,507 | | | | | |
Income from discontinued operations, net of tax | — | | | — | | | | (1,854,677) | | | (1,854,677) | | | | | |
Income tax (benefit) expense | (43,742) | | | 16,003 | | | | 100,289 | | | 116,292 | | | | | |
Interest expense (income), net | 81,963 | | | 69,711 | | | | (400) | | | 69,311 | | | | | |
Depreciation and amortization(1) | 103,347 | | | 59,383 | | | | 14,544 | | | 73,927 | | | | | |
EBITDA | $ | (55,749) | | | $ | 183,890 | | | | $ | 9,560,470 | | | $ | 9,744,360 | | | | | |
Reorganization items, net | — | | | — | | | | (9,497,944) | | | (9,497,944) | | | | | |
Gain on investments, net | (1,280) | | | — | | | | — | | | — | | | | | |
Other expense (income), net | 1,258 | | | 9,157 | | | | (150) | | | 9,007 | | | | | |
Equity in loss of nonconsolidated affiliates | 31 | | | 24 | | | | 59 | | | 83 | | | | | |
Impairment charges | 5,378 | | | — | | | | — | | | — | | | | | |
Other operating (income) expense, net | 506 | | | (3,246) | | | | 127 | | | (3,119) | | | | | |
Share-based compensation expense(2) | 4,218 | | | 3,039 | | | | 105 | | | 3,144 | | | | | |
Restructuring and reorganization expenses | 16,355 | | | 1,889 | | | | 5,430 | | | 7,319 | | | | | |
| | | | | | | | | | | | |
Adjusted EBITDA(3) | $ | (29,283) | | | $ | 194,753 | | | | $ | 68,097 | | | $ | 262,850 | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(In thousands) | | | | | Successor Company | | Successor Company | | | Predecessor Company | | Non-GAAP Combined |
| | | | | Six Months Ended June 30, | | Period from May 2, 2019 through June 30, | | | Period from January 1, 2019 through May 1, | | Six Months Ended June 30, |
| | | | | 2020 | | 2019 | | | 2019 | | 2019 |
Net income (loss) | | | | | $ | (1,886,053) | | | $ | 38,793 | | | | $ | 11,165,113 | | | $ | 11,203,906 | |
Income from discontinued operations, net of tax | | | | | — | | | — | | | | (1,685,123) | | | (1,685,123) | |
Income tax (benefit) expense | | | | | (194,253) | | | 16,003 | | | | 39,095 | | | 55,098 | |
Interest expense (income), net | | | | | 172,052 | | | 69,711 | | | | (499) | | | 69,212 | |
Depreciation and amortization(1) | | | | | 200,115 | | | 59,383 | | | | 52,834 | | | 112,217 | |
EBITDA | | | | | $ | (1,708,139) | | | $ | 183,890 | | | | $ | 9,571,420 | | | $ | 9,755,310 | |
Reorganization items, net | | | | | — | | | — | | | | (9,461,826) | | | (9,461,826) | |
Loss on investments, net | | | | | 8,675 | | | — | | | | 10,237 | | | 10,237 | |
Other (income) expense, net | | | | | 9,118 | | | 9,157 | | | | (23) | | | 9,134 | |
Equity in loss of nonconsolidated affiliates | | | | | 595 | | | 24 | | | | 66 | | | 90 | |
Impairment charges | | | | | 1,733,235 | | | — | | | | 91,382 | | | 91,382 | |
Other operating (income) expense, net | | | | | 1,572 | | | (3,246) | | | | 154 | | | (3,092) | |
Share-based compensation expense(2) | | | | | 8,843 | | | 3,039 | | | | 498 | | | 3,537 | |
Restructuring and reorganization expenses | | | | | 57,157 | | | 1,889 | | | | 13,241 | | | 15,130 | |
Adjusted EBITDA(3) | | | | | $ | 111,056 | | | $ | 194,753 | | | | $ | 225,149 | | | $ | 419,902 | |
(1)Increase in BrazilDepreciation and amortization is driven by the exchangeapplication of outdoor marketsfresh start accounting, resulting in the first quartersignificantly higher value of 2017. This was partially offset by increased digital revenue fromour tangible and intangible assets.
(2)Increase in Share-based compensation expense is due to our new equity compensation plan entered into in connection with our Plan of Reorganization.
(3)We define Adjusted EBITDA as consolidated Operating income (loss) adjusted to exclude restructuring and existing airport contracts.
Americas outdoor directreorganization expenses included within Direct operating expenses, decreased $1.4 million during the three months ended September 30, 2017 compared to the same period of 2016. Excluding the $0.5 million impact from movements in foreign exchange rates, Americas outdoor direct operating expenses decreased $1.9 million during the three months ended September 30, 2017 compared to the same period of 2016. The decrease was driven by a $3.6 million decrease in direct operating expenses resulting from the sale of our Canadian outdoor market and lower variable expenses due to the 2016 Olympics in Brazil, partially offset by higher fixed site lease expenses. Americas outdoor SG&A expenses, increased $0.2 million during the three months ended September 30, 2017 compared to the same period of 2016. Excluding the $0.2 million impact from movements in foreign exchange rates, Americas outdoor SG&ACorporate expenses were flat during the three months ended September 30, 2017 compared to the same period of 2016.
Nine Months
Americas outdoor revenue decreased $11.1 million during the nine months ended September 30, 2017 compared to the same period of 2016. Excluding the $2.7 million impact from movements in foreign exchange rates, Americas outdoor revenue decreased $13.8 million during the nine months ended September 30, 2017 compared to the same period of 2016. The decrease in revenue was primarily due to a decrease in print display revenues,and share-based compensation expenses included within Corporate expenses, as well as the $10.9 million impact resultingfollowing line items presented in our Statements of Operations: Depreciation and amortization, Impairment charges and Other operating income (expense), net. Alternatively, Adjusted EBITDA is calculated as Net income (loss), adjusted to exclude (Income) loss from the salesdiscontinued operations, net of non-strategic outdoor marketstax, 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 (income) expense, net, Share-based compensation expense, and restructuring and reorganization expenses. Restructuring expenses primarily include severance expenses incurred in connection with cost saving initiatives, as well as certain expenses, which, in the first quarterview of 2016management, 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 the saleforecasting 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 Canadianoperational 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.
Reconciliation of Cash provided by operating activities from continuing operations to Free cash flow from continuing operations
| | | | | | | | | | | | | | | | | | | | | | | | | | |
(In thousands) | Successor Company | | Successor Company | | | Predecessor Company | | Non-GAAP Combined |
| Three Months Ended June 30, | | Period from May 2, 2019 through June 30, | | | Period from April 1, 2019 through May 1, | | Three Months Ended June 30, |
| 2020 | | 2019 | | | 2019 | | 2019 |
Cash provided by (used for) operating activities from continuing operations | $ | 11,369 | | | $ | 83,201 | | | | $ | (144,171) | | | $ | (60,970) | |
Purchases of property, plant and equipment by continuing operations | (17,882) | | | (17,435) | | | | (13,244) | | | (30,679) | |
Free cash flow from (used for) continuing operations(1) | $ | (6,513) | | | $ | 65,766 | | | | $ | (157,415) | | | $ | (91,649) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(In thousands) | | | | | Successor Company | | Successor Company | | | Predecessor Company | | Non-GAAP Combined |
| | | | | Six Months Ended June 30, | | Period from May 2, 2019 through June 30, | | | Period from January 1, 2019 through May 1, | | Six Months Ended June 30, |
| | | | | 2020 | | 2019 | | | 2019 | | 2019 |
Cash provided by (used for) operating activities from continuing operations | | | | | $ | 102,909 | | | $ | 83,201 | | | | $ | (7,505) | | | $ | 75,696 | |
Purchases of property, plant and equipment by continuing operations | | | | | (39,546) | | | (17,435) | | | | (36,197) | | | (53,632) | |
Free cash flow from (used for) continuing operations(1) | | | | | $ | 63,363 | | | $ | 65,766 | | | | $ | (43,702) | | | $ | 22,064 | |
(1)We define Free cash flow from (used for) continuing operations ("Free Cash Flow") as Cash provided by (used for) operating activities from continuing operations less capital expenditures, which is disclosed as Purchases of property, plant and equipment by continuing operations in the third quarterCompany's Consolidated Statements of 2017,Cash Flows. We use Free Cash Flow, among other measures, to evaluate the Company’s liquidity and the exchange of outdoor markets in the first quarter of 2017. This was partially offset by increased digital revenuesits ability to generate cash flow. We believe that Free Cash Flow is meaningful to investors because we review cash flows generated from new and existing airport contracts and deployments of new digital billboards.
Americas outdoor direct operating expenses increased $6.1 million during the nine months ended September 30, 2017 compared to the same period of 2016. Excluding the $1.5 million impact from movements in foreign exchange rates, Americas outdoor direct operating expenses increased $4.6 million during the nine months ended September 30, 2017 compared to the same period of 2016. The increase in direct operating expenses was driven by higher site lease expenses related to new and existing airport contracts and print displays, and the impact of a $2.9 million early termination lease payment received in 2016, partially offset by lower expenseoperations after taking into consideration capital expenditures due to the $8.7 million impact resulting from the salesfact that these expenditures are considered to be a necessary component of non-strategic outdoor marketsongoing operations. In addition, we believe 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 the first quarter
accordance with GAAP, it should not be considered in isolation of, 2016or as a substitute for, Cash provided by operating activities and the salemay not be comparable to similarly titled measures employed by other companies. Free Cash Flow is not necessarily a measure of our Canadian business in the third quarter of 2017, and the exchange of outdoor markets in the first quarter of 2017. Americas outdoor SG&A expenses decreased $2.1 million during the nine months ended September 30, 2017 comparedability to the same period of 2016. Excluding the $0.9 million impact from movements in foreign exchange rates, Americas outdoor SG&A expenses decreased $3.0 million during the nine months ended September 30, 2017 compared to the same period of 2016. The decrease in SG&A expenses was primarily due to lower bad debt expense and the $1.2 million impact resulting from the sales of non-strategic outdoor markets in the first quarter of 2016 and the sale offund our Canadian business in the third quarter of 2017, and the exchange of outdoor markets in the first quarter of 2017.cash needs.
International Outdoor Advertising Results of Operations
Our International outdoor operating results were as follows:
|
| | | | | | | | | | | | | | | | | | | |
(In thousands) | Three Months Ended September 30, | | % Change | | Nine Months Ended September 30, | | % Change |
| 2017 | | 2016 | | | 2017 | | 2016 | |
Revenue | $ | 328,502 |
| | $ | 346,224 |
| | (5.1)% | | $ | 942,167 |
| | $ | 1,035,263 |
| | (9.0)% |
Direct operating expenses | 214,491 |
| | 219,261 |
| | (2.2)% | | 607,023 |
| | 645,199 |
| | (5.9)% |
SG&A expenses | 73,708 |
| | 71,664 |
| | 2.9% | | 204,531 |
| | 220,872 |
| | (7.4)% |
Depreciation and amortization | 32,886 |
| | 37,018 |
| | (11.2)% | | 95,149 |
| | 113,075 |
| | (15.9)% |
Operating income | $ | 7,417 |
| | $ | 18,281 |
| | (59.4)% | | $ | 35,464 |
| | $ | 56,117 |
| | (36.8)% |
Three Months
International outdoor revenue decreased $17.7 million during the three months ended September 30, 2017 compared to the same period of 2016. Excluding the $9.3 million impact from movements in foreign exchange rates, International outdoor revenue decreased $27.0 million during the three months ended September 30, 2017 compared to the same period of 2016. The decrease in revenue is due to a $35.2 million decrease in revenue resulting from the sale of our business in Australia in 2016. This was partially offset by growth across other markets including China, Spain, Switzerland and the United Kingdom, primarily from new contracts and digital expansion.
International outdoor direct operating expenses decreased $4.8 million during the three months ended September 30, 2017 compared to the same period of 2016. Excluding the $6.8 million impact from movements in foreign exchange rates, International outdoor direct operating expenses decreased $11.6 million during the three months ended September 30, 2017 compared to the same period of 2016. The decrease was driven by a $20.1 million decrease in direct operating expenses resulting from the 2016 sale of our business in Australia, partially offset by higher site lease expense in certain countries experiencing revenue growth. International outdoor SG&A expenses increased $2.0 million during the three months ended September 30, 2017 compared to the same period of 2016. Excluding the $2.4 million impact from movements in foreign exchange rates, International outdoor SG&A expenses decreased $0.4 million during the three months ended September 30, 2017 compared to the same period of 2016. The decrease in SG&A expenses was primarily due to a $6.8 million decrease resulting from the sale of our business in Australia, partially offset by increases in bad debt expense primarily related to two specific accounts and employee-related expenses.
Nine Months
International outdoor revenue decreased $93.1 million during the nine months ended September 30, 2017 compared to the same period of 2016. Excluding the $20.8 million impact from movements in foreign exchange rates, International outdoor revenue decreased $72.3 million during the nine months ended September 30, 2017 compared to the same period of 2016. The decrease in revenue is due to a $106.5 million decrease in revenue resulting from the sale of our businesses in Australia and Turkey in 2016. This was partially offset by growth across other markets including Spain, the United Kingdom, Switzerland and China, primarily from new contracts and digital expansion.
International outdoor direct operating expenses decreased $38.2 million during the nine months ended September 30, 2017 compared to the same period of 2016. Excluding the $12.8 million impact from movements in foreign exchange rates, International outdoor direct operating expenses decreased $25.4 million during the nine months ended September 30, 2017 compared to the same period of 2016. The decrease was driven by a $64.5 million decrease in direct operating expenses resulting from the 2016 sales of our businesses in Australia and Turkey, partially offset by higher site lease and production expenses in countries experiencing revenue growth. International outdoor SG&A expenses decreased $16.3 million during the nine months ended September 30, 2017 compared to the same period of 2016. Excluding the $3.8 million impact from movements in foreign exchange rates, International outdoor SG&A expenses decreased $12.5 million during the nine months ended September 30, 2017
compared to the same period of 2016. The decrease in SG&A expenses was primarily due to a $20.6 million decrease resulting from the sale of our businesses in Australia and Turkey, partially offset by higher bad debt expense and higher spending related to growth in certain countries, as well as higher spending on strategic efficiency initiatives.
Reconciliation of Segment Operating Income to Consolidated Operating Income
|
| | | | | | | | | | | | | | | |
(In thousands) | Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
iHM | $ | 247,971 |
| | $ | 298,128 |
| | $ | 658,142 |
| | $ | 764,952 |
|
Americas outdoor | 73,254 |
| | 78,266 |
| | 189,559 |
| | 201,476 |
|
International outdoor | 7,417 |
| | 18,281 |
| | 35,464 |
| | 56,117 |
|
Other | 7,261 |
| | 9,643 |
| | 13,713 |
| | 18,205 |
|
Other operating income, net | (13,215 | ) | | (505 | ) | | 24,785 |
| | 219,768 |
|
Impairment charges | (7,631 | ) | | (8,000 | ) | | (7,631 | ) | | (8,000 | ) |
Corporate expense (1) | (86,752 | ) | | (96,461 | ) | | (261,006 | ) | | (279,738 | ) |
Consolidated operating income | $ | 228,305 |
| | $ | 299,352 |
| | $ | 653,026 |
| | $ | 972,780 |
|
| |
(1) | Corporate expenses include expenses related to iHM, Americas outdoor, International outdoor and our Other category, as well as overall executive, administrative and support functions. |
Share-Based Compensation Expense
WeHistorically, we had granted restricted shares of the Company's Class A common stock to certain key individuals. In connection with the effectiveness of our Plan of Reorganization, all unvested restricted shares were canceled.
Pursuant to the new equity incentive plan (the "Post-Emergence Equity Plan") we adopted in connection with the effectiveness of our Plan of Reorganization, we have granted restricted stock and CCOH has granted restricted stock, restricted stock units and options to purchase shares of CCOH'sthe Company's Class A common stock to certain key individuals.
Share-based compensation expenses are recorded in corporate expenses and were $3.5$4.2 million and $3.1 million for the three months ended June 30, 2020 and 2019, respectively, and $8.8 million and $3.5 million for the threesix months ended SeptemberJune 30, 20172020 and 2016, respectively, and $9.0 million and $10.4 million for the nine months ended September 30, 2017 and 2016,2019, respectively.
As of SeptemberJune 30, 2017,2020, there was $20.3$48.1 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 2.83 years. In addition, as of September 30, 2017, there was $26.6 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 nine months ended September 30, 2017periods presented:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
(In thousands) | Successor Company | | Successor Company | | | Predecessor Company | | Non-GAAP Combined |
| Six Months Ended June 30, | | Period from May 2, 2019 through June 30, | | | Period from January 1, 2019 through May 1, | | Six Months Ended June 30, |
| 2020 | | 2019 | | | 2019 | | 2019 |
Cash provided by (used for): | | | | | | | | |
Operating activities | $ | 102,909 | | | $ | 83,201 | | | | $ | (40,186) | | | $ | 43,015 | |
Investing activities | $ | (50,681) | | | $ | (17,787) | | | | $ | (261,144) | | | $ | (278,931) | |
Financing activities | $ | 65,512 | | | $ | (684) | | | | $ | (55,557) | | | $ | (56,241) | |
Free Cash Flow(1) | $ | 63,363 | | | $ | 65,766 | | | | $ | (43,702) | | | $ | 22,064 | |
(1) For a definition of Free cash flow from continuing operations and 2016, respectively:
|
| | | | | | | |
(In thousands) | Nine Months Ended September 30, |
| 2017 | | 2016 |
Cash provided by (used for): | | | |
Operating activities | $ | (558,717 | ) | | $ | (272,578 | ) |
Investing activities | $ | (144,980 | ) | | $ | 366,312 |
|
Financing activities | $ | 137,066 |
| | $ | (322,583 | ) |
a reconciliation to Cash provided by operating activities from continuing operations, the most closely comparable GAAP measure, please see “Reconciliation of Cash provided by operating activities from continuing operations to Free cash flow from continuing operations” in this MD&A.
Operating Activities
Cash used forprovided by operating activities was $558.7 million duringfor the ninesix months ended SeptemberJune 30, 20172020 was $102.9 million compared to $272.6$43.0 million of cash used forprovided by operating activities duringin the ninesix months ended SeptemberJune 30, 2016. The increase in cash used for2019.
Cash provided by operating activities isfrom continuing operations increased from $75.7 million in the six months ended June 30, 2019 to $102.9 million in the six months ended June 30, 2020 primarily attributed to lower operating income as well asa result of changes in working capital balances, particularly accounts receivable, as well as accounts payable and accrued expenses, which were affected by slower collections, and prepaid assets, partially offset by accounts payable due to the timing of payments. CashIn addition, we paid for interest$196.3 million during the ninesix months ended SeptemberJune 30, 20172019 in relation to Reorganization items, net. The increase in cash provided by operating activities was $1,426.4offset by a decrease in Revenue driven by the decline in advertising spend resulting from the economic slow-down impacted by the COVID-19 pandemic. In addition, cash interest payments made by continuing operations increased $181.2 million as a result of interest payments on our debt issued upon our emergence compared to $1,434.5 million paid duringpre-petition interest payments made in the nine months ended September 30, 2016.prior year. The Company ceased paying interest on long-term debt classified as Liabilities subject to compromise after the March 14, 2018 petition date.
Investing Activities
Cash used for investing activities of $145.0$50.7 million during the ninesix months ended SeptemberJune 30, 2017 reflected $184.92020 primarily reflects $39.5 million in cash used for capital expenditures, partially offset by net cash proceeds from the sale of assets of $71.3 million, which included net cash proceeds from the sale of our outdoor Indianapolis market of $43.1 million.expenditures. We spent $44.4$32.8 million for capital expenditures in our iHMAudio segment primarily related to IT infrastructure, $48.7$1.6 million in our Americas outdoorAudio & Media Services segment, primarily related to the construction of new advertising structures, such as digital boards, $83.9 million in our International outdoor segment primarily related to street furnitureacquired software and transit advertising structures, including digital displays, $0.5 million in our Other category and $7.4$5.1 million in Corporate primarily related to equipment and software purchases.
Cash provided byused for investing activities of $366.3$278.9 million during the ninesix months ended SeptemberJune 30, 2016 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 $592.32019 primarily reflects $222.4 million in cash and certain advertising assets in Florida. Those sale proceeds were partially offset by $201.0used for investing activities from discontinued operations. In addition, we used $53.6 million used for capital expenditures. We spent $46.3$44.7 million for capital expenditures in our iHMAudio segment primarily related to leasehold improvements and IT infrastructure, $47.8$2.1 million in our Americas outdoorAudio & Media Services segment, primarily related to the construction of new advertising structures, such as digital displays, $97.5 million in our International outdoor segment primarily related to billboardacquired software and street furniture advertising structures, $1.8 million in our Other category and $7.7$6.8 million in Corporate primarily related to equipment and software purchases.
Financing Activities
Cash provided by financing activities of $137.1$65.5 million during the ninesix months ended SeptemberJune 30, 20172020 primarily resulted from proceeds from long-term debt issued by one of our international subsidiaries, as well as borrowingsthe $350.0 million draw on our receivables-based credit facility. These proceeds wereABL Facility, partially offset by dividends paid to non-controlling interests, which represents the portion$150.0 million prepayment on our Term Loan Facility and repayments of $115.0 million of amounts drawn under the dividends paid by CCOH in February 2017 to parties other than our subsidiaries that own CCOH stock, and a payment under our receivables-based credit facility.ABL Facility.
Cash used for financing activities of $322.6was $56.2 million during the ninesix months ended SeptemberJune 30, 20162019 primarily resulted from the purchasepayment by iHeartCommunications to CCOH as CCOH's recovery of iHeartCommunications' 10.0% Senior Notes due 2018 for an aggregate purchase priceits claims under the Due from iHeartCommunications Note, partially offset by $60.0 million in proceeds received from the issuance of $222.2 million and dividends paid to non-controlling interests.the iHeart Operations Preferred Stock.
Anticipated Cash Requirements
Our primary sources of liquidity are cash on hand, which consisted of $517.7 million as of June 30, 2020, cash flow from operations and borrowing capacity under iHeartCommunications' domestic receivables-based credit facility, subjectour $450.0 million ABL Facility. On March 13, 2020, iHeartCommunications, Inc. (“iHeartCommunications”), our indirect wholly-owned subsidiary, borrowed $350.0 million principal amount under our $450.0 million ABL Facility as a precautionary measure to preserve iHeartCommunications’ financial flexibility in light of the limitations containeduncertainty in iHeartCommunications' material financing agreements, and cashthe global economy resulting from liquidity-generating transactions.the COVID-19 pandemic. During the three months ended June 30, 2020, we repaid $115.0 million principal amount drawn under our ABL Facility. As of SeptemberJune 30, 2017, we had $286.4 million of cash and cash equivalents on our balance sheet, including $222.4 million of cash and cash equivalents held by our subsidiary, CCOH. Included in the cash held by CCOH is $206.1 million of cash held outside the U.S. It is our policy to permanently reinvest the earnings of our non-U.S. subsidiaries as these earnings are generally redeployed in those jurisdictions for operating needs and continued functioning of their businesses. We have the ability and intent to indefinitely reinvest the undistributed earnings of consolidated subsidiaries based outside of the United States, except that excess cash from our foreign operations may be transferred to our operations in the United States if needed to fund operations in the United States, subject to the foreseeable cash needs of our foreign operations and the mutual agreement of us and CCOH. If any excess cash held by our foreign subsidiaries is needed to fund operations in the United States, we could presently repatriate available funds without a requirement to accrue or pay U.S. taxes. This is a result of significant deficits, as calculated for tax law purposes, in our foreign earnings and profits, which gives us flexibility to make future cash distributions as non-taxable returns of capital.
As of September 30, 2017, we2020, iHeartCommunications had a borrowing base of $499.1$289.4 million under iHeartCommunications' receivables-based credit facility, had $365.0and utilization of $235.0 million ofin outstanding borrowings and had $49.1$41.2 million ofin outstanding letters of credit, resulting in $85.0$13.2 million of excess availability. However, anyavailability, such availability being subject to further restrictions contained within the credit agreement governing 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 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. Following the repayment of all outstanding borrowings under iHeartCommunications' receivables-based credit facilitythe ABL Facility, due to restrictions contained primarily in our mandatorily redeemable preferred stock agreements, we had the ability to borrow approximately $160 million under the ABL Facility. Our cash balance was $517.7 million as of June 30, 2020. Together with our adjusted cash balance1 as of June 30, 2020 of approximately $708 million and our borrowing capacity under the ABL Facility, our total available liquidity2 was approximately $868 million. We will have the option to redeem the preferred stock beginning on May 1, 2022, or at an earlier date under certain circumstances in accordance with the documents governing the preferred stock instrument. We cannot determine the full extent of COVID-19’s impact on our business at this time and we are further limited bymonitoring this rapidly evolving situation closely. While the terms containedchallenges that COVID-19 has created for advertisers and consumers have had a significant impact on our revenue for the three and six months ended June 30, 2020 and has created a business outlook that is less clear in iHeartCommunications' material financing agreements.the near term, we believe that we have sufficient liquidity to fund our operations for at least the next twelve months.
OurWe expect that our primary anticipated uses of liquidity arewill be to fund our working capital, debt service,make interest payments, fund capital expenditures and maintain operations in light of the COVID-19 pandemic and other obligations. At September 30, 2017, we had debt maturities totaling $366.9 million, $308.5 million (net of $277.1 millionThese other obligations include dividend payments to be due to certain subsidiariesthe holder of iHeartCommunications) and $8,368.9 millioniHeart Operations Preferred Stock, the terms of which are further described in 2017, 2018 and 2019, respectively. A substantial amount of our cash requirements are for debt service obligations. We anticipate having approximately $344.6 million of cash interest payment obligations during the three months ending December 31, 2017. Our significant interest payment obligations reduce our financial flexibility, make us more vulnerableNote 6, Long-term Debt to changes in operating performance and economic downturns, reduce our liquidity and negatively affect iHeartCommunications' ability to obtain additional financing in the future.
During the second quarter of 2014, the FASB issued ASU No. 2014-15, Presentation of Financial Statements - Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity's Ability to Continue as a Going Concern. This update provides U.S. GAAP guidance on management's responsibility in evaluating whether there is substantial doubt about a company's ability to continue as a going concern and about related footnote disclosures. We adopted this standard for the year ended December 31, 2016. Under this standard, we are required to evaluate whether there is substantial doubt about our ability to continue as a going concern each reporting period, including interim periods.
In evaluating our ability to continue as a going concern, management considered the conditions and events that could raise substantial doubt about our ability to continue as a going concern for a period of 12 months following the date our financial statements were issued (November 8, 2017). Management considered our current financial condition and liquidity sources, including current funds available, forecasted future cash flows and our conditional and unconditional obligations due before November 8, 2018.
A substantial amount of our cash requirements are for debt service obligations. Although we have generated operating income in excess of $1.0 billion in each of the years ended December 31, 2016 and 2015, we incurred net losses and had negative cash flows from operations for each of these years as a result of significant cash interest payments arising from our substantial debt balance. For the nine months ended September 30, 2017, we used cash of $558.7 million for operating activities, which included cash paid for interest of $1,426.4 million. Our current forecast indicatesherein. We anticipate that we will continue to incur net losses and generate negative cash flows from operating activities as a result of our indebtedness and significant related interest expense. At September 30, 2017, the Company had debt maturities totaling $366.9 million, $308.5 million (net of $277.1 million due to certain of our subsidiaries) and $8,368.9 million in 2017, 2018 and 2019, respectively. In October 2017, we exchanged $45.0 million principal amount of 11.25% Priority Guarantee Notes due 2021 that were held by a subsidiary of iHeartCommunications for $45.0 million principal amount of 10.0% Senior Notes due 2018 that were held by unaffiliated third parties. After the exchanges, our debt maturities in the next 12 months include, (i) $365.0 million outstanding under iHeartCommunications' receivables-based credit facility, which matures on December 24, 2017, (ii) $51.5have approximately $84 million of 10% Senior Notes due January 15, 2018, (iii) $175.0 million of 6.875% Senior Notes due June 15, 2018 and (iv) $24.8 million of contractual AHYDO catch-up payments to be made on iHeartCommunications' 14% Senior Notes due 2021 on the interest payment due on August 1, 2018.Our forecast includes approximately $1.8 billion in cash interest payments in the next 12 months,third quarter of which $344.62020 and approximately $170 million is payableof cash interest payments in the fourth quarterremainder of 20172020.
As a result of certain favorable tax provisions in the Coronavirus Aid, Relief and $548.2Economic Security (“CARES”) Act, we expect our 2020 cash income tax payments to be insignificant. As a result of the provisions regarding interest deductions and the deferral of certain employment taxes into future periods, cash tax payments in 2020 are expected to be approximately $100 million is payablelower than they would been absent these favorable provisions.
Over the past ten years, we have transitioned our Audio business from a single platform radio broadcast operator to a company with multiple platforms, including podcasting, networks and live events. Early in the first quarter of 2018. In addition, in certain circumstances, a committee2020, we implemented our modernization initiatives to take advantage of the CCOH boardsignificant investments we have made in new technologies to build an operating infrastructure that provides better quality and newer products and delivers new cost efficiencies. We have also invested in numerous technologies and businesses to increase the competitiveness of directors formedour inventory with our advertisers and our audience.
1 Adjusted for the specific purpose of monitoring the Intercompany Note (the “CCOH Intercompany Note Committee”) has the non-exclusive authority to demand payments under the Intercompany Note, as long as the CCOH board of directors declares a simultaneous dividend equal to the amount so demanded. As of November 8, 2017, the CCOH Intercompany Note Committee has the right pursuant to the termsimpact of the settlementamendment entered into in July 2020 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 derivative litigation filed by CCOH’s stockholders regardingproceeds from the Intercompany Note but notissuance was used to repay the obligation, to make a demand on the Intercompany Note. If the CCOH Intercompany Note Committee exercises this right to demand a full repayment of the Intercompany Note and the CCOH board of directors declares a simultaneous dividend, based on theremaining balance of the Intercompany Note outstanding at September 30, 2017, approximately $110.4 million would be payable to the public stockholders of CCOH. If we are unable to refinance the amounts outstanding under the receivables-based credit facility,ABL Facility of $235.0 million, with the 10% Senior Notes due January 15, 2018 and/orremaining $190.6 million of the 6.875% Senior Notes due June 15, 2018proceeds available for general corporate purposes.
2 Total available liquidity defined as cash and take other stepscash equivalents plus available borrowings under the ABL Facility. We use total available liquidity to create additional liquidity, forecastedevaluate our capacity to access cash flows are not sufficient for us to meet our obligations including upcoming interest payments and maturities on our outstanding debt, as they become duefund operations.
In response to the COVID-19 pandemic, in an effort to further strengthen the ordinary course of business for aCompany's financial flexibility and efficiently manage through the period of 12 monthseconomic slowdown and uncertainty, the Company is continuing to take the following November 8, 2017. As discussed below,measures, which are expected to generate approximately $200 million in operating cost savings in 2020:
•Substantial reduction in certain operating expenses, such as suspension of 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 have plansbelieve will still enable the Company to reducemake key investments to continue our principalstrategic initiatives related to Smart Audio and interest obligationsDigital, including podcasting.
•Reduction in compensation for senior management and to create additional liquidity.other employees of the Company, including a 100% reduction of the Company's Chief Executive Officer's annual base salary and bonus.
We•Implementation of a furlough for certain employees that are in advanced negotiations with potential lenders to refinance the amounts outstanding under iHeartCommunications' receivables-based credit facility and currently expect to refinance the amounts outstanding under that facility prior to its maturity. In addition, we are taking actions to maximize cash available to meet our obligations as they become due in the ordinary course of business. non-essential at this time.
In addition, as more fully describeda result of the decrease in Note 3revenue 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.
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 financial statements,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 launched notes exchange offersremain confident in our business, our employees and term loan offers in March 2017, which notes exchange offers and term loan offers remain open as of November 8, 2017.our strategy. We have engaged in discussions with many of our lenders and noteholders regarding the terms of the global exchange offers and the term loan offers, which have been revised since launch and remain subject to substantial further revision, but no agreement has been reached with respect to those discussions and the discussions remain ongoing. These actions are intended to mitigate those
conditions which raise substantial doubt aboutbelieve that our ability to continue as a going concern for a period of 12 months following November 8, 2017.
While we continue to work toward completing the notes exchange offersgenerate cash flow from operations from our business initiatives, our current cash on hand and the term loan offers or other similar transactions, refinancing the amounts outstandingavailability under the receivables-based credit facilityABL Facility will provide sufficient resources to fund and takingoperate our business, fund capital expenditures and other actions to create additional liquidity, there is no assurance that the notes exchange offersobligations and the term loan offers or other similar transactions will be completed, that the amounts outstanding under the receivables-based credit facility will be refinanced or that we will be able to create additional liquidity. Our ability to meetmake interest payments on our obligations as they become due in the ordinary course of businesslong-term debt for at least the next 12 months will depend on our ability to achieve forecasted results, our ability to conserve cash, our ability to refinance the amounts outstanding under iHeartCommunications' receivables-based credit facility, our ability to successfully complete the notes exchange offers and the term loan offers or other similar transactions and achieve sufficient cash interest savings therefrom and our ability to complete other liquidity-generating transactions. Based on the uncertaintymonths. If these sources of achieving these actions and the significance of the forecasted future negative cash flows resulting from our substantial debt balance, including anticipated future cash interest payments (including interest due in the fourth quarter of 2017 and in 2018) and the maturities of the $365.0 million in current borrowings under iHeartCommunications' receivables-based credit facility that matures December 24, 2017, the $51.5 million aggregate principal amount of 10% Senior Notes due January 15, 2018, the $175.0 million aggregate principal amount of 6.875% Senior Notes due June 15, 2018 and the $24.8 million of contractual AHYDO catch-up paymentsliquidity need to be made on iHeartCommunications' 14% Senior Notes due 2021 beginning with the interest payment due on August 1, 2018, management has determined that there is substantial doubt as to our ability to continue as a going concern for a period of 12 months following November 8, 2017.
If we are unable to complete any of the actions described in the paragraph above, or if there are material adverse developments in our business, results of operations or liquidity, we mayaugmented, additional cash requirements would likely be forced to further reduce or delay our business activities and capital expenditures, sell material assets, seek additional capital or file for bankruptcy court protection. We cannot assure you that we would be able to accomplish any of these actions on a timely basis or on satisfactory terms, if at all.
In connection with the cash management arrangements for CCOH, iHeartCommunications maintains an intercompany revolving promissory note payable by iHeartCommunications to CCOH (the "Intercompany Note"), which matures on December 15, 2017. As of September 30, 2017, the balance of the Note was $1,051.3 million, all of which is payable on demand. While we intend to extend the maturity of the Intercompany Note prior to its maturity, the principal amount outstanding under the Intercompany Note is subject to demand by CCOH or the CCOH Intercompany Note Committee. See "--CCOH Dividends" below.
The covenants in iHeartCommunications' senior secured credit facilities include a requirement that we receive an opinion from our auditors in connection with our year-end audit that is not subject to a “going concern” or like qualification or exception. Even if we are able to successfully refinance the amounts outstanding under iHeartCommunications' receivables-based credit facility and manage our liquidity challengesfinanced through the endissuance of 2017, if we are unable to improve our liquidity forecast for 2018 and refinancedebt or extend a significant portion of our substantial 2019 debt maturities prior to the completion of the audit of our 2017 financial statements, we anticipate that our auditor’s year-end opinion will contain a “going concern” qualification, and, if we are unable to obtain a waiver or amendment of the covenant in the senior secured credit facilities that requires us to deliver an unqualified auditor’s opinion, it will trigger a default under the senior secured credit facilities. We cannot assure youequity securities; however, there can be no assurances that we will be able to obtain suchadditional debt or equity financing on acceptable terms or at all in the future.
On February 3, 2020, iHeartCommunications made a waiver$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 amendment.
Except as set forth below under "Non-Paymentthe Base Rate (as defined in the Credit Agreement plus a margin of $57.1 Million of iHeartCommunications' Legacy Notes Held by an Affiliate," we were in compliance with the2.00% and to modify certain covenants contained in iHeartCommunications' material financing agreements as of September 30, 2017, including the maximum consolidated senior secured net debt to consolidated EBITDA limitation contained in iHeartCommunications' senior secured credit facilities. However, our future results are subject to significant uncertainty and there can be no assurance that we will be able to maintain compliance with these covenants. Our ability to comply with these covenants in the future may be affected by events beyond our control, including the uncertainties described above and prevailing economic, financial and industry conditions. The breach of any covenants set forth in iHeartCommunications' financing agreements would result in a default thereunder. An event of default would permit the lenders under a defaulted financing agreement to declare all indebtedness thereunder to be immediately due and payable. Moreover, the lenders under the receivables-based credit facility under iHeartCommunications' senior secured credit facilities would have the option to terminate their commitments to make further extensions of credit thereunder. If we are unable to repay iHeartCommunications' obligations under any secured credit facility, the lenders could proceed against any assets that were pledged to secure such facility. In addition, a default or acceleration under any of iHeartCommunications' material financing agreements could cause a default under other of our obligations that are subject to cross-default and cross-acceleration provisions. The threshold amount for a cross-default under the senior secured credit facilities and the indentures governing our outstanding bonds is $100.0 million. The default resulting from non-payment of the $57.1 millionCredit Agreement.
of 5.50% Senior Notes described below is below the $100.0 million cross-default threshold in iHeartCommunications' debt documents but will be included in any determination as to whether that threshold has been met so long as that default is continuing.
Recent Liquidity-Generating Transactions
On February 7, 2017,July 16, 2020, iHeartCommunications completedentered into an exchange offeradditional amendment to the Credit Facility (“Amendment No. 2”) to provide for $450.0 million, resulting in net proceeds of $476.4$425.8 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 February 9, 2017, CCOH declared a special dividend of $282.5 million using aafter original issue discount and debt issuance costs. A portion of the proceeds from the salesissuance was used to repay the remaining balance outstanding under the ABL Facility of certain non-strategic U.S. outdoor markets and of our Australia outdoor business. On February 23, 2017, we received 89.9% of that dividend, or approximately $254.0$235.0 million, with the remaining 10.1%$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 Separation and Reorganization, we entered into the following transactions which may require ongoing capital commitments:
Transition Services Agreement
Pursuant to the Transition Services Agreement between us, iHeartMedia Management Services, Inc. (“iHM Management Services”), or approximately $28.5 million, paidiHeartCommunications and CCOH, for one year from the Effective Date, we have agreed to public stockholders of CCOH. This transaction improved our liquidity positionprovide, CCOH with certain administrative and support services and other assistance which CCOH will utilize in the short term. We cannot assure you that we will enter into or consummate any liquidity-generating transactions, or thatconduct of its business as such transactions willbusiness was conducted prior to the Separation. As of June 30, 2020, most of these services have been successfully transitioned to CCOH. The Company continues to provide sufficient cash to satisfy our liquidity needs, and any such transactions, if consummated, could adversely affect us in other ways. Future liquidity-generating transactions could have the effect of further increasing our annual cash interest payment obligations, reducing our cash flow from operations or reducing cash available for capital expenditurescertain information systems and other business initiatives.
On July 10, 2017, a subsidiarylimited support services. CCOH has requested extensions of iHeartCommunications exchanged $15.6 million aggregate principal amount outstanding of 10.0% Senior Notes due 2018 that were held by an unaffiliated third partythe term 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 Julycertain individual services, primarily related to information systems, for one-month periods through August 31, 2017, iHeartCommunications borrowed an additional $60.0 million under its receivables-based credit facility.
On August 14, 2017, Clear Channel International B.V. ("CCIBV"), our indirect subsidiary, issued $150,000,000.0 million in aggregate principal amount of 8.75% Senior Notes due 2020 (the “New CCIBV Notes”). The New CCIBV Notes were issued as additional notes under the indenture governing CCIBV’s existing 8.75% Senior Notes due 2020 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 ratemay request further one-month extensions of 8.75% per annum, payable semi-annually in arrears on June 15 and December 15 of each year.such services up to May 1, 2021.
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.
We have made andCCOH may interminate the future make repurchases and exchanges of indebtedness of iHeartCommunications. In addition, we frequently evaluate strategic opportunities both within and outside our existing lines of business. We expect from time to time to pursue dispositions or acquisitions, which could be material. iHeartCommunications' and its subsidiaries’ significant amount of indebtedness may limit our ability to pursue dispositions or acquisitions. The terms of our existing or future debt agreements may also restrict our ability to engage in these transactions.
Non-Payment of $57.1 Million of iHeartCommunications Legacy Notes Held by an Affiliate
Our wholly-owned subsidiary, Clear Channel Holdings, Inc. ("CCH"), owns $57.1 million aggregate principal amount of our 5.50% Senior Notes due 2016 (the "5.50% Senior Notes"). On December 9, 2016, a special committee of our independent directors decided to not repay the $57.1 million principal amount of the 5.50% Senior Notes held by CCH when the notes matured on December 15, 2016 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 (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 remedyTransition Services Agreement with respect to all or any individual service, in whole or in part, upon 30 days’ prior written notice, provided that any co-dependent services must be terminated concurrently. For
additional information, see Note 2, Discontinued Operations to the nonpaymentconsolidated financial statements located in Item 1 of such principal amount underthis Quarterly Report on Form 10-Q for a further description.
New Tax Matters Agreement
In connection with the legacy notes indenture. As a result, $57.1 millionSeparation, 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 the 5.50% Senior Notes remain outstanding. We repaidone hand, and CCOH and its subsidiaries, on the other, $192.9 millionfor the payment of 5.50% Senior Notes held by other holders,taxes arising prior and we intendsubsequent to, continue to pay interestand 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 the 5.50% Senior Notes held by CCH for so long as such notes continue to remain outstanding.
For as long as we have at least $500 million of legacy notes outstanding, including the $57.1 million of 5.50% Senior Notes currently held by CCH, we will not have an obligation to grantafter-tax basis, from and against certain additional security interests in favor of certain of our lenders and holders of our existing priority guarantee notes or the holders of our legacy notes under the "springing lien" described in the agreements governing that indebtedness, and the limitations existing with respecttax claims related to the existing security interests will remain in place until up to 60 days followingSeparation. In addition, the dateNew Tax Matters Agreement requires that CCOH indemnify iHeartMedia for certain income taxes paid by iHeartMedia on which not more than $500 million aggregate principal amountbehalf of the legacy notes remain outstanding.
Notes Exchange OffersCCOH and Term Loan Offers
On March 15, 2017, iHeartCommunications commenced exchange offers (the “notes exchange offers”) to exchange certain series of its outstanding debt securities (the “Existing Notes”) for new securities of the Company, iHeartCommunications and CC Outdoor Holdings, Inc., a wholly-owned subsidiary of the Company, and concurrent consent solicitations with respect to the terms of the Existing Notes. On March 15, 2017, the Company also commenced offers (the “term loan offers”) to amend its outstanding Term Loan D and Term Loan E borrowings under its senior secured credit facilities and/or to issue new securities of the Company, CC Outdoor Holdings, Inc., Broader Media, LLC and/or iHeartCommunications to the lenders depending on the scenario in which the notes exchange offers and the term loan offers close. The notes exchange offers were amended on April 14, 2017. Both the notes exchange offers and the term loan offers were open as of November 8, 2017. The terms of the notes exchange offers and the term loan offers have been revised and are subject to substantial further revision, and the offers may never be consummated, on the terms currently proposed or otherwise.subsidiaries.
Sources of Capital
As of SeptemberJune 30, 20172020 and December 31, 2016,2019, we had the following debt outstanding, net of cash and cash equivalents:
| | | | | | | | | | | |
(In millions) | Successor Company | | |
| June 30, 2020 | | December 31, 2019 |
Term Loan Facility due 2026(1)(3) | $ | 2,090.8 | | | $ | 2,251.3 | |
Asset-based Revolving Credit Facility due 2023(2)(3) | 235.0 | | | — | |
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 | 23.6 | | | 21.0 | |
Total Secured Debt | 4,399.4 | | | 4,322.3 | |
| | | |
8.375% Senior Unsecured Notes due 2027 | 1,450.0 | | | 1,450.0 | |
Other Subsidiary Debt | 6.3 | | | 12.5 | |
| | | |
Long-term debt fees | (18.6) | | | (19.4) | |
Total Debt | 5,837.1 | | | 5,765.4 | |
Less: Cash and cash equivalents | 517.7 | | | 400.3 | |
| $ | 5,319.4 | | | $ | 5,365.1 | |
|
| | | | | | | |
(In millions) | September 30, 2017 | | December 31, 2016 |
Senior Secured Credit Facilities: | | | |
Term Loan D Facility Due 2019 | 5,000.0 |
| | 5,000.0 |
|
Term Loan E Facility Due 2019 | 1,300.0 |
| | 1,300.0 |
|
Receivables Based Credit Facility Due 2017 (1) | 365.0 |
| | 330.0 |
|
9.0% Priority Guarantee Notes Due 2019 | 1,999.8 |
| | 1,999.8 |
|
9.0% Priority Guarantee Notes Due 2021 | 1,750.0 |
| | 1,750.0 |
|
11.25% Priority Guarantee Notes Due 2021(2) | 825.5 |
| | 575.0 |
|
9.0% Priority Guarantee Notes Due 2022 | 1,000.0 |
| | 1,000.0 |
|
10.625% Priority Guarantee Notes Due 2023 | 950.0 |
| | 950.0 |
|
Subsidiary Revolving Credit Facility due 2018(3) | — |
| | — |
|
Other Secured Subsidiary Debt | 8.7 |
| | 21.0 |
|
Total Secured Debt | 13,199.0 |
| | 12,925.8 |
|
| | | |
14.0% Senior Notes Due 2021 | 1,763.9 |
| | 1,729.2 |
|
Legacy Notes: | | | |
5.5% Senior Notes Due 2016(4) | — |
| | — |
|
6.875% Senior Notes Due 2018 | 175.0 |
| | 175.0 |
|
7.25% Senior Notes Due 2027 | 300.0 |
| | 300.0 |
|
10.0% Senior Notes Due 2018(2) | 96.5 |
| | 347.0 |
|
Subsidiary Senior Notes: | | | |
6.5% Series A Senior Notes Due 2022 | 735.8 |
| | 735.8 |
|
6.5% Series B Senior Notes Due 2022 | 1,989.2 |
| | 1,989.2 |
|
Subsidiary Senior Subordinated Notes: | | | |
7.625% Series A Senior Notes Due 2020 | 275.0 |
| | 275.0 |
|
7.625% Series B Senior Notes Due 2020 | 1,925.0 |
| | 1,925.0 |
|
Subsidiary 8.75% Senior Notes due 2020(5) | 375.0 |
| | 225.0 |
|
Other Subsidiary Debt | 25.6 |
| | 28.0 |
|
Purchase accounting adjustments and original issue discount | (142.8 | ) | | (167.0 | ) |
Long-term debt fees | (102.3 | ) | | (123.0 | ) |
Total Debt | 20,614.9 |
| | 20,365.0 |
|
Less: Cash and cash equivalents | 286.4 |
| | 845.0 |
|
| $ | 20,328.5 |
| | $ | 19,520.0 |
|
| |
(1) | The receivables-based credit facility provides for borrowings of up to the lesser of $535.0 million (the revolving credit commitment) or the borrowing base amount, as(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 under the receivables-based credit facility, subject to certain limitations contained in |
iHeartCommunications' material financing agreements. As of September 30, 2017, we had $85.0 million of availability under the receivables-based credit facility.
| |
(2) | 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, which were issued as "additional notes" under the indenture governing the 11.25% Priority Guarantee Notes due 2021. Of the $476.4 million principal amount of 11.25% Priority Guarantee Notes due 2021 issued in the exchange offer, $241.4 million principal amount was issued to subsidiaries of iHeartCommunications that participated in the exchange offer. On July 10, 2017, iHeartCommunications exchanged $15.6 million principal amount of its 10.0% Senior Notes due 2018 that were held by an unaffiliated third party for $15.6 million principal amount of its 11.25% Priority Guarantee Notes due 2021 that were held by a subsidiary of iHeartCommunications. In October 2017, iHeartCommunications exchanged $45.0 million principal amount of its 10.0% Senior Notes due 2018 that were held by unaffiliated third parties for $45.0 million principal amount of its 11.25% Priority Guarantee Notes due 2021 that were held by a subsidiary of iHeartCommunications. |
| |
(3) | The subsidiary revolving credit facility provides for borrowings of up to $75.0 million (the revolving credit commitment). |
| |
(4) | In December 2016, iHeartCommunications repaid at maturity $192.9 million of 5.5% Senior Notes due 2016 and did not pay $57.1 million of the notes held by a subsidiary of the Company. The $57.1 million of aggregate principal amount remains outstanding and is eliminated for purposes of consolidation of the Company's financial statements. |
| |
(5) | On August 14, 2017, CCIBV, our indirect subsidiary, issued $150,000,000.0 million in aggregate principal amount of 8.75% Senior Notes due 2020 (the “New CCIBV Notes”). The New CCIBV Notes were issued as additional notes under the indenture governing CCIBV’s existing 8.75% Senior Notes due 2020. |
Our subsidiaries have from time to time repurchased certain debt obligations of iHeartCommunications and our equity securities and equity securities outstanding of CCOH, and may in the future, as partCredit Agreement) plus a margin of various financing2.00% and investment strategies, purchase additional outstanding indebtedness of iHeartCommunications or its subsidiaries or our equity securities and equity securities outstanding of CCOH, in tender offers, open market purchases, privately negotiated transactions or otherwise. We or our subsidiaries may also sellto modify certain assets, securities or properties. These purchases or sales, if any, could have a material positive or negative impact on our liquidity available to repay outstanding debt obligations or on our consolidated results of operations. These transactions could also require or result in amendments to the agreements governing outstanding debt obligations or changes in our leverage or other financial ratios, which could have a material positive or negative impact on our ability to comply with the covenants contained in iHeartCommunications' debt agreements. These transactions, if any, will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors. The amounts involved may be material.the Credit Agreement.
Senior Secured Credit Facilities
The senior secured credit facilities require(2)On March 13, 2020, iHeartCommunications to comply on a quarterly basis with a financial covenant limiting the ratio of consolidated secured debt, net of cash and cash equivalents, to consolidated EBITDA (as defined by iHeartCommunications' senior secured credit facilities) for the preceding four quarters. iHeartCommunications' secured debt consists of the senior secured credit facilities, the receivables-based credit facility, the priority guarantee notes and certain other secured subsidiary debt. As required by the definition of consolidated EBITDA in iHeartCommunications' senior secured credit facilities, iHeartCommunications' consolidated EBITDA for the preceding four quarters of $1.7 billion is calculated as operating income (loss) before depreciation, amortization, impairment charges and other operating income (expense), net plus share-based compensation and is further adjusted for the following items: (i) costs incurred in connection with the closure and/or consolidation of facilities, retention charges, consulting fees and other permitted activities; (ii) extraordinary, non-recurring or unusual gains or losses or expenses and severance; (iii) non-cash charges; (iv) cash received from nonconsolidated affiliates; and (v) various other items.
The following table reflects a reconciliation of consolidated EBITDA (as defined by iHeartCommunications' senior secured credit facilities) to operating income and net cash provided by operating activities for the four quarters ended September 30, 2017:
|
| | | |
| Four Quarters Ended |
(In Millions) | September 30, 2017 |
Consolidated EBITDA (as defined by iHeartCommunications' senior secured credit facilities) | $ | 1,661.9 |
|
Less adjustments to consolidated EBITDA (as defined by iHeartCommunications' senior secured credit facilities): | |
Costs incurred in connection with the closure and/or consolidation of facilities, retention charges, consulting fees and other permitted activities | (44.9 | ) |
Extraordinary, non-recurring or unusual gains or losses or expenses and severance (as referenced in the definition of consolidated EBITDA in iHeartCommunications' senior secured credit facilities) | (38.3 | ) |
Non-cash charges | (1.9 | ) |
Other items | 68.9 |
|
Less: Depreciation and amortization, Impairment charges, Other operating income (expense), net and Share-based compensation expense | (460.8 | ) |
Operating income | 1,184.9 |
|
Plus: Depreciation and amortization, Impairment charges, Gain (loss) on disposal of operating and fixed assets, and Share-based compensation expense | 454.2 |
|
Less: Interest expense | (1,848.9 | ) |
Less: Current income tax expense | (29.0 | ) |
Plus: Other income (expense), net | (37.3 | ) |
Adjustments to reconcile consolidated net loss to net cash provided by operating activities (including Provision for doubtful accounts, Amortization of deferred financing charges and note discounts, net and Other reconciling items, net) | 43.3 |
|
Change in assets and liabilities, net of assets acquired and liabilities assumed | (67.3 | ) |
Net cash used for operating activities | $ | (300.1 | ) |
The maximum ratio permitted under this financial covenant was 8.75:1 for the four quarters ended September 30, 2017. As of September 30, 2017, our ratio was 7.8:1.
In addition, 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.
The senior secured credit facilities include certain customary representations and warranties, affirmative covenants and events of default, including payment defaults, breach of representations and warranties, covenant defaults, cross-defaults to certain indebtedness, certain events of bankruptcy, certain events under ERISA, material judgments, the invalidity of material provisions of the senior secured credit facilities documentation, the failure of collateralborrowed $350.0 million under the security documents forABL Facility, the senior secured credit facilities,proceeds of which were invested as cash on the failure of the senior secured credit facilities to be senior debt under the subordination provisions of certain of iHeartCommunications' subordinated debt and a change of control. If an event of default occurs, the lenders under the senior secured credit facilities will be entitled to take various actions, including the acceleration of all amounts due under the senior secured credit facilities and all actions permitted to be taken by a secured creditor.
Disposals
In January 2017, we sold our Indianapolis, Indiana outdoor market in exchange for certain assets in Atlanta, Georgia, plus approximately $43.1 million in cash, net of closing costs. A net gain of $28.9 million was recognized related to the sale.
Balance Sheet. 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.
Uses of Capital
Debt Repayments, Maturities and Other
On February 7, 2017,three months ended June 30, 2020, iHeartCommunications completed an exchange offer of $476.4voluntarily repaid $115.0 million principal amount of iHeartCommunications' 10.0% Senior Notes due 2018 for $476.4 million principal amount of newly-issued 11.25% Priority Guarantee Notes due 2021, which were issued as “additional notes”drawn under the indenture governingABL Facility. As of June 30, 2020, the 11.25% Priority Guarantee Notes due 2021. OfABL Facility had a borrowing base of $289.4 million and $235.0 million of outstanding borrowings and $41.2 million of outstanding letters of credit, resulting in $13.2 million of availability. Amounts available under the $476.4 million principal amount of 11.25% Priority Guarantee Notes due 2021 issuedABL Facility are calculated using a borrowing base calculated by reference to our outstanding accounts receivable. To the extent decreases in our accounts receivable result in the exchange offer, $241.4borrowing base decreasing to an amount below the amount drawn, we may be required to make a partial repayment of amounts outstanding under our ABL Facility.
(3)On July 16, 2020, iHeartCommunications issued $450.0 million principal amountof incremental term loans under the Amendment No. 2, 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 issuedused to subsidiariesrepay the remaining balance outstanding on the Company's ABL Facility of iHeartCommunications that participated in$235.0 million, with the exchange offer.
On January 31, 2017, iHeartCommunications repaid $25.0remaining $190.6 million of the amount borrowedproceeds available for general corporate purposes.
For additional information regarding our debt refer to Note 6, Long-Term Debt.
Supplemental Financial Information under its receivables-based credit facilityDebt Agreements and on July 31, 2017, we borrowed an additional $60.0 million under our receivables-based credit facility, resulting in total outstanding borrowings under this facilityCertificate of $365.0 million as of September 30, 2017.Designation Governing the iHeart Operations Preferred Stock
On July 10, 2017,Pursuant to iHeartCommunications' material debt agreements, Capital I, the parent guarantor and a subsidiary of iHeartCommunications exchanged $15.6 million principal amountiHeartMedia, is permitted to satisfy its reporting obligations under such agreements by furnishing iHeartMedia’s consolidated financial information and an explanation of iHeartCommunications' 11.25% Priority Guarantee Notes due 2021 that were held bythe 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 wholly-owned direct subsidiary of iHeartCommunicationsiHeartMedia and the parent of Capital I, have any operations or material assets or liabilities, there are no material differences between iHeartMedia’s consolidated financial information for $15.6 million principal amountthe three and six months ended June 30, 2020, and Capital I’s and its consolidated restricted subsidiaries’ financial information for the same periods.
According to the certificate of iHeartCommunications' 10.0% Senior Notes due 2018 that were held by an unaffiliated third party.
In October 2017, iHeartCommunications exchanged $45.0 million principal amountdesignation governing the iHeart Operations Preferred Stock, iHeart Operations is required to provide certain supplemental financial information of 11.25% Priority Guarantee Notes due 2021 that were held by a subsidiary of iHeartCommunications for $45.0 million principal amount of iHeartCommunications' 10.0% Senior Notes due 2018 that were held by unaffiliated third parties.
Certain Relationships withiHeart Operations in comparison to the Sponsors
We are party to a management agreement with certain affiliatesCompany and its consolidated subsidiaries. iHeart Operations and its subsidiaries comprised 86.3% of the Sponsors and certain other parties pursuant to which such affiliatesCompany's consolidated assets as of the Sponsors will provide management and financial advisory services until 2018. These arrangements require management fees to be paid to such affiliates of the Sponsors for such services at a rate not greater than $15.0 million per year, plus reimbursable expenses.June 30, 2020. For the three and ninesix months ended SeptemberJune 30, 2017, the Company recognized management fees2020, iHeart Operations and reimbursable expenses of $3.8 millionits subsidiaries comprised 83.6% and $11.4 million, respectively, and $3.9 million and $11.5 million for the three and nine months ended September 30, 2016, respectively.
CCOH Dividends
In connection with the cash management arrangements for CCOH, iHeartCommunications maintains an intercompany revolving promissory note payable by iHeartCommunications to CCOH (the “Intercompany Note”), which consists85.0% of the net activities resulting from day-to-day cash management services provided by iHeartCommunications to CCOH. As of September 30, 2017, the balance of the Note was $1,051.3 million, all of which is payable on demand. The Intercompany Note is eliminated in consolidation in ourCompany's consolidated financial statements.
The Intercompany Note previously was the subject of litigation. Pursuant to the terms of the settlement of that litigation, CCOH’s board of directors established an intercompany note committee for the specific purpose of monitoring the Intercompany Note. The CCOH Intercompany Note Committee has the non-exclusive authority, pursuant to the terms of its charter, to demand payments under the Intercompany Note under certain specified circumstances tied to the Company’s liquidity or the amount
outstanding under the Intercompany Note as long as CCOH makes a simultaneous dividend equal to the amount so demanded. If the specified circumstances tied to the Company’s liquidity occur, the CCOH Intercompany Note Committee is authorized to demand repayment of up to the full principal amount of the Intercompany Note, if it declares a simultaneous dividend to CCOH’s stockholders in the same amount. As of November 8, 2017, the CCOH Intercompany Note Committee has the right pursuant to the terms of the settlement of the derivative litigation filed by CCOH’s stockholders regarding the Intercompany Note but not the obligation, to make a demand on the Intercompany Note. Based on the $1,051.3 million balance of the Intercompany Note and the ownership of CCOH as of September 30, 2017, if the CCOH Intercompany Note Committee were to demand repayment of the Intercompany Note in full, we would be required to use cash to fund approximately $110.4 million, or 10.5% of the dividend, to be paid to the public stockholders of CCOH. We cannot assure you that we will have sufficient cash available to make such a payment if the liquidity trigger occurs.
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. As discussed above under "Recent Liquidity-Generating Transactions," 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.
revenue, respectively.
Commitments, Contingencies and Guarantees
We are currently involved in certain legal proceedings arising in the ordinary course of business and, as required, have accrued our estimate of the probable costs for resolution of those claims for which the occurrence of loss is probable and the amount can be reasonably estimated. These estimates have been developed in consultation with counsel and are based upon an analysis of potential results, assuming a combination of litigation and settlement strategies. It is possible, however, that future results of operations for any particular period could be materially affected by changes in our assumptions or the effectiveness of our strategies related to these proceedings. Please refer to “Legal Proceedings” in Part II, Item 1 of this Quarterly Report on Form 10-Q.
SEASONALITY
Typically, the iHM, Americas outdoor and International outdoor segments experience 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. In addition, the majority of interest payments made in relation to long-term debt are paid in the first and third quarters of each calendar year. 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, our Audio segment and our Audio and media representation business 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 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 will be affected by changes in interest rates. As of SeptemberJune 30, 2017,2020, approximately 32%41% of our aggregate principal amount of long-term debt bearsbore interest at floating rates. Assuming the current level of borrowings and assuming a 50% change in LIBOR, it is estimated that our interest expense for the ninesix months ended SeptemberJune 30, 20172020 would have changed by $26.2$6.6 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 $15.2 million and $15.4 million for three and nine months ended September 30, 2017, respectively. 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 three and nine months ended September 30, 2017 by $1.5 million, respectively. A 10% decrease in the value of the U.S. dollar relative to foreign currencies during the three and nine months ended September 30, 2017 would have increased our net losses for the three and nine months ended September 30, 2017 by corresponding amounts.
This analysis does not consider the implications that such currency fluctuations could have on the overall economic activity that could exist in such an environment in the U.S. or the foreign countries or on the results of operations of these foreign entities.
Inflation
Inflation is a factor in the economies in which we do business and we continue to seek ways to mitigate its effect. Inflation has affected our performance in terms of higher costs for wages, salaries and equipment. Although the exact impact of inflation is indeterminable, we believe we have offset these higher costs by increasing the effective advertising rates of most of our broadcasting stations and outdoor display faces in our iHM, Americas outdoor and International outdoorAudio operations.
CRITICAL ACCOUNTING ESTIMATESCritical 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. OurThere have been no significant changes to our critical accounting policies are discussedand estimates disclosed in “Critical Accounting Estimates” of Item 7, Management’s Discussion and Analysis of our Annual Report on Form 10-K for the notesyear ended December 31, 2019 except as disclosed in Note 1, Basis of Presentation to our consolidated financial statements included in Note 1 of this Quarterly Report on Form 10-Q. 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.statements.
The Company performs its annual impairment test on goodwill and indefinite-lived intangible assets as of July 1 of each year.
Indefinite-lived Intangible Assets
In connection with the Merger Agreement pursuant to which we acquired iHeartCommunications in 2008, we allocated the purchase price to all of our assets and liabilities at estimated fair values, including our FCC licenses and our billboard permits. Indefinite-lived intangible assets, such as our FCC licenses and our billboard permits, are reviewed annually for possible impairment using the direct valuation method as prescribed in ASC 805-20-S99. Under the direct valuation method, the estimated fair value of the indefinite-lived intangible assets was calculated at the market level as prescribed by ASC 350-30-35. 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, 2017, we performed our annual impairment test in accordance with ASC 350-30-35 and recognized impairment charges of $6.0 million related to FCC Licenses and no impairment related to outdoor billboard permits.
In determining the fair value of our FCC licenses, the following key assumptions were used:
Revenue growth sales forecasts 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% in the first year gradually climb to the industry average margin in year 3 of up to 25.0%, depending on market size; and
Assumed discount rates of 8.0% for the 13 largest markets and 8.5% for all other markets.
In determining the fair value of our billboard permits, the following key assumptions were used:
Industry revenue growth forecasts between 0.5% and 3.5% 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 55.9%, depending on market size, by year 3; and
Assumed discount rate of 7.5%.
While we believe we have made reasonable estimates and utilized appropriate assumptions to calculate the fair value of our indefinite-lived intangible assets, it is possible a material change could occur. If future results are not consistent with our assumptions and estimates, we may be exposed to impairment charges in the future. The following table shows the 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 |
Description | | Growth Rate | | Margin | | Rates |
FCC license | | $ | 485,735 |
| | $ | 183,700 |
| | $ | 549,775 |
|
Billboard permits | | $ | 1,107,600 |
| | $ | 161,800 |
| | $ | 1,118,300 |
|
The estimated fair value of our FCC licenses and billboard permits at July 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. The estimated fair value of our FCC licenses and billboard permits at July 1, 2016 was $7.1 billion ($3.1 billion for FCC licenses and $4.0 billion for billboard permits), while the carrying value was $3.4 billion.
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, 2017, we performed our annual impairment test in accordance with ASC 350-30-35, resulting in a goodwill impairment charge of $1.6 million related to one of our International outdoor markets. In determining the fair value of our reporting units, we used the following assumptions:
Expected cash flows underlying our business plans for the periods 2017 through 2021. Our cash flow assumptions are based on detailed, multi-year forecasts performed by each of our operating segments, and reflect the advertising outlook across our businesses.
Cash flows beyond 2021 are projected to grow at a perpetual growth rate, which we estimated at 2.0% for our iHM segment, 3.0% for our Americas outdoor and International outdoor segments, and 2.0% for our Other segment (beyond 2024).
In order to risk adjust the cash flow projections in determining fair value, we utilized a discount rate of approximately 8.0% to 11.5% for each of our reporting units.
Based on our annual assessment using the assumptions described above, a hypothetical 10% 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 segments 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 | | $ | 1,180,000 |
| | $ | 310,000 |
| | $ | 1,150,000 |
|
Americas Outdoor | | $ | 820,000 |
| | $ | 170,000 |
| | $ | 780,000 |
|
International Outdoor | | $ | 260,000 |
| | $ | 210,000 |
| | $ | 220,000 |
|
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements made by us or on our behalf. Except for the historical information, thisThis report contains various forward-looking statements which represent our expectations or beliefs concerning future events, including, without limitation, our future operating and financial performance, the anticipated impacts of the COVID-19 pandemic on our liquidity,business, financial position and results of operations, our ability to comply with the covenants in the agreements governingRights Plan, our indebtednessexpected costs, savings and the availabilitytiming of our modernization initiatives and other capital and the terms thereof.operating expense reduction initiatives, our business plans, strategies and initiatives, our expectations about certain markets, our expectations regarding our FCC petition for declaratory ruling and our anticipated financial performance and liquidity. Statements expressing expectations and projections with respect to future matters are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. We caution that these forward-looking statements involve a number of risks and uncertainties and are subject to many variables which could impact our future performance. These statements are made on the basis of management’s views and assumptions, as of the time the statements are made, regarding future events and performance. There can be no assurance, however, that management’s expectations will necessarily come to pass. Actual future events and performance may differ materially from the expectations reflected in our forward-looking statements. We do not intend, nor do we undertake any duty, to update any forward-looking statements.
A wide range of factors could materially affect future developments and performance, including but not limited to:
our ability to continue as a going concern;
the impact of our substantial indebtedness, including the effect of our leverage on our financial position and earnings;
our ability to generate sufficient cash from operations and liquidity-generating transactions and our need to allocate significant amounts of our cash to make payments on our indebtedness, which in turn could reduce our financial flexibility and ability to fund other activities;
•risks associated with weak or uncertain global economic conditions and their impact on the capital markets;
other general economic and political conditions in the United States and in other countries in which we currently do business, including those resulting from recessions, political events and acts or threats of terrorism or military conflicts;
industry conditions, including competition;
the level of expenditures for advertising;
•the impact of the COVID-19 pandemic on advertising;our business, financial position and results of operations;
legislative•intense competition including increased competition from alternative media platforms and technologies;
•dependence upon the performance of on-air talent, program hosts and management as well as maintaining or regulatory requirements;enhancing our master brand;
•fluctuations in operating costs;
•technological changes and innovations;
changes in labor conditions, including programming, program hosts and management;
capital expenditure requirements;
risks of doing business in foreign countries;
fluctuations in exchange rates and currency values;
the outcome of pending and future litigation;
taxes and tax disputes;
changes in interest rates;
•shifts in population and other demographics;
access•the impact of our substantial indebtedness;
•the impact of future acquisitions, dispositions and other strategic transactions;
•legislative or regulatory requirements;
•the impact of legislation or ongoing litigation on music licensing and royalties;
•regulations and consumer concerns regarding privacy and data protection, and breaches of information security measures;
•risks associated with our recent emergence from the Chapter 11 Cases;
•risks related to capital markets and borrowed indebtedness;our Class A common stock, including our significant number of outstanding warrants;
our ability to implement•regulations impacting our business strategies;and the ownership of our securities; and
the risk that we may not be able to integrate the operations of acquired businesses successfully;
the risk that our strategic revenue and efficiency initiatives may not be entirely successful or that any cost savings achieved from such strategic revenue and efficiency initiatives may not persist; and
•certain other factors set forth in our other filings with the SEC.
This list of factors that may affect future performance and the accuracy of forward-looking statements is illustrative and is not intended to be exhaustive. Accordingly, all forward-looking statements should be evaluated with the understanding of their inherent uncertainty.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Required information is presented under “Market Risk” within Item 2 of this Part I.
ITEM 4. CONTROLS AND PROCEDURES
AsDisclosure Controls and Procedures
Limitations on Effectiveness of Controls and Procedures
In designing and evaluating our disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect that there are resource constraints and that management is required by Rule 13a-15(b)to apply judgment in evaluating the benefits of the Securities Exchange Actpossible controls and procedures relative to their costs.
Evaluation of 1934, as amended (the “Exchange Act”), under the supervisionDisclosure Controls and Procedures
Our management, with the participation of management, including our Chief Executive Officer and our Chief Financial Officer, we have carried outconducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as such term is defined in RuleRules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this report. Our disclosure controls and procedures are designed to provide reasonable assurance that information we are required to disclose in reports that are filed or submitted under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and our Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure and is recorded, processed, summarized and reported within the time periods specified by the SEC.. Based on thatthis evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that our disclosure controls and procedures were effective as of September 30, 2017 at the reasonable assurance level.level as of June 30, 2020.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting that occurred during the quarter ended SeptemberJune 30, 20172020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II-- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
We currently are involved in certain legal proceedings arising in the ordinary course of business and, as required, have accrued an estimate of the probable costs for the resolution of those claims for which the occurrence of loss is probable and the amount can be reasonably estimated. These estimates have been developed in consultation with counsel and are based upon an analysis of potential results, assuming a combination of litigation and settlement strategies. It is possible, however, that future results of operations for any particular period could be materially affected by changes in our assumptions or the effectiveness of our strategies related to these proceedings. Additionally, due to the inherent uncertainty of litigation, there can be no assurance that the resolution of any particular claim or proceeding would not have a material adverse effect on our financial condition or results of operations.
Although weWe are involved in a variety of legal proceedings in the ordinary course of business and 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.
Stockholder LitigationAlien Ownership Restrictions and FCC Petition for Declaratory Ruling
On May 9, 2016,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 stockholdercorporation controlling the licensee of Clear Channel Outdoor Holdings, Inc. ("CCOH") filed a derivative lawsuitradio broadcast station unless the FCC finds greater foreign ownership is in the Courtpublic interest (the “Foreign Ownership Rule”). Under our Plan of ChanceryReorganization, we committed to file a Petition for Declaratory Ruling ("PDR") requesting the FCC to permit up to 100% of the StateCompany's voting and equity to be owned by non-U.S. individuals and entities, but the FCC’s granting our PDR was not a condition to our emergence.
The equity allocation mechanism (“Equity Allocation Mechanism”) set forth in the Plan of Delaware, captioned GAMCO Asset Management Inc. v. iHeartMedia Inc. et al., C.A. No. 12312-VCS.Reorganization was intended to enable us to comply with the Foreign Ownership Rule and other FCC ownership restrictions in connection with our emergence. The complaint names as defendants the Company, iHeartCommunications, Inc. ("iHeartCommunications"),Equity Allocation Mechanism imposed an indirect subsidiaryobligation on each of the Company, 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 the CCIBV note offering (the "CCIBV Note Offering")Claimholders to provide cashwritten certification sufficient for us to determine whether issuance of common stock to such Claimholder would cause us to violate the CompanyForeign Ownership Rule, and iHeartCommunications throughrestricted us from issuing common stock to Claimholders such that it would cause us to exceed an aggregate alien ownership or voting percentage of 22.5 percent (the “22.5 Percent Threshold”).
After emerging from bankruptcy, we discovered that a dividend; and (iv) effect the salesgroup of certain outdoor markets in the U.S. (the "Outdoor Asset Sales") allegedlyClaimholders that had certified 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 declaredhaving no foreign ownership or voting control 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 asEquity Allocation Mechanism had subsequently undergone a separate merger transaction without our knowledge or control. As a result of this merger, these Claimholders’ interests in iHeartMedia (amounting to approximately nine percent of our issued and outstanding Class A common stock) can be voted by a U.S. subsidiary of a foreign parent. We notified the alleged fiduciary misconduct.
FCC of this development in writing promptly after discovering and confirming it. The FCC responded to our notification on July 9, 2019, indicating that (1) the FCC has not determined that this development is contrary to the public interest, and (2) the FCC has deemed us to be in compliance with the FCC’s foreign ownership reporting rules, pending its decision on our PDR. On July 20, 2016,25, 2019 we filed our PDR. The FCC requested public comment on the defendants filed a motionPDR, which comment period closed on March 26, 2020. The FCC subsequently referred our PDR to dismiss plaintiff's verified stockholder derivative complaintTeam Telecom - the interagency federal government group that analyzes requests for failurenational security, law enforcement, and public safety issues. On June 29, 2020, Team Telecom indicated its consent to state a claim upon which relief can be granted. On November 23, 2016, the Court granted defendants’ motion to dismiss all claims broughtgrant by the plaintiff. On December 19, 2016, the plaintiff filed a notice of appealFCC of the ruling. The oral hearing onPDR. We cannot predict whether the appeal was held on October 11, 2017. On October 12, 2017,FCC will issue a ruling granting the Supreme CourtPDR, the amount of Delaware affirmed the lower court'sforeign equity and voting rights any such a ruling dismissing the case.will allow us to have, or how long it will take to obtain such a ruling.
International Outdoor Investigation
On April 21, 2015, inspections were conducted at the premises of Clear Channel in Denmark and Sweden as part of an investigation by Danish competition authorities. Additionally, on the same day, Clear Channel UK received a communication from the UK competition authorities, also in connection with the investigation by Danish competition authorities. Clear Channel and its affiliates are cooperating with the national competition authorities.
ITEM 1A. RISK FACTORS
For information regardingExcept for the risk factors disclosed in Part II, Item 1A of our Quarterly Report on Form 10-Q for the quarter ended March 31, 2020, which are hereby incorporated by reference into this Part II, Item IA of this Form 10-Q, there have been no material changes in our risk factors please refer to Item 1Afrom those disclosed in our Annual Report on Form 10-K for the year ended December 31, 2016 (the "Annual Report")2019, except as discussed below. The COVID-19 pandemic has adversely impacted, and our Quarterly Reports on Form 10-Q. There have not been any material changes
in the risk factors disclosed in our Annual Report and Quarterly Reports, except that we are updating the risk factor entitled "To service our debt obligations and to fund our operations and our capital expenditures, we require a significant amount of cash to meet our needs, which depends on many factors beyond our control" as set forth below:
To service our debt obligations and to fund our operations and our capital expenditures, we require a significant amount of cash to meet our needs, which depends on many factors beyond our control, and management has determined that there is substantial doubt as to our abilityexpected to continue as a going concern for a period within 12 months following November 8, 2017 based on the uncertainty about these factors
To service our debt obligations and to fund our operations and our capital expenditures, we require a significant amount of cash. Our primary sources of liquidity are cash on hand, cash flow from operations, borrowing capacity under iHeartCommunications' domestic receivables-based credit facility, subject to the limitations contained in iHeartCommunications' material financing agreements, and cash from liquidity-generating transactions. As of September 30, 2017, we had $286.4 million of cash and cash equivalents on our balance sheet, including $222.4 million of cash and cash equivalents held by our subsidiary, CCOH. As of September 30, 2017, we had a borrowing base of $499.1 million under iHeartCommunications' receivables-based credit facility, had $365.0 million of outstanding borrowings and $49.1 million of outstanding letters of credit, resulting in $85.0 million of excess availability. However, any incremental borrowings under iHeartCommunications' receivables-based credit facility may be further limited by the terms contained in iHeartCommunications' material financing agreements.
During the second quarter of 2014, the FASB issued ASU No. 2014-15, Presentation of Financial Statements - Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity's Ability to Continue as a Going Concern. This update provides U.S. GAAP guidance on management's responsibility in evaluating whether there is substantial doubt about a company's ability to continue as a going concern and about related footnote disclosures. We adopted this standard for the year ended December 31, 2016. Under this standard, we are required to evaluate whether there is substantial doubt about our ability to continue as a going concern each reporting period, including interim periods. In evaluating our ability to continue as a going concern, management considered the conditions and events that could raise substantial doubt about our ability to continue as a going concern for a period of 12 months following the date our financial statements were issued (November 8, 2017). Management considered our current financial condition and liquidity sources, including current funds available, forecasted future cash flows and our conditional and unconditional obligations due before November 8, 2018.
A substantial amount of our cash requirements are for debt service obligations. Our current forecast indicates we will continue to incur net losses and generate negative cash flows from operating activities as a result of our indebtedness and significant related interest expense. At September 30, 2017, the Company had debt maturities totaling $366.9 million, $308.5 million (net of $277.1 million due to certain of our subsidiaries) and $8,368.9 million in 2017, 2018 and 2019, respectively. In October 2017, iHeartCommunications exchanged $45.0 million principal amount of 11.25% Priority Guarantee Notes due 2021 that were held by a subsidiary of iHeartCommunications for $45.0 million principal amount of 10.0% Senior Notes due 2018 that were held by unaffiliated third parties. After the exchanges, our debt maturities in the next 12 months include, (i) $365.0 million outstanding under iHeartCommunications' receivables-based credit facility, which matures on December 24, 2017, (ii) $51.5 million of 10% Senior Notes due January 15, 2018, (iii) $175.0 million of 6.875% Senior Notes due June 15, 2018, (iv) $24.8 million of contractual AHYDO catch-up payments to be made on iHeartCommunications' 14% Senior Notes due 2021 on the interest payment due on August 1, 2018.Our forecast includes approximately $1.8 billion in cash interest payments in the next 12 months, of which $344.6 million is payable in the fourth quarter of 2017 and $548.2 million is payable in the first quarter of 2018. In addition, in certain circumstances, a committee of the CCOH board of directors formed for the specific purpose of monitoring the Intercompany Note (the “CCOH Intercompany Note Committee”) has the non-exclusive authority to demand payments under the Intercompany Note, as long as the CCOH board of directors declares a simultaneous dividend equal to the amount so demanded. As of November 8, 2017, the CCOH Intercompany Note Committee has the right pursuant to the terms of the settlement of the derivative litigation filed by CCOH’s stockholders regarding the Intercompany Note but not the obligation, to make a demand on the Intercompany Note. If the CCOH Intercompany Note Committee exercises this right to demand a full repayment of the Intercompany Note and the CCOH board of directors declares a simultaneous dividend, based on the balance of the Intercompany Note outstanding at September 30, 2017, approximately $110.4 million would be payable to the public stockholders of CCOH. If we are unable to refinance the amounts outstanding under the receivables-based credit facility, the 10% Senior Notes due January 15, 2018, and/or the 6.875% Senior Notes due June 15, 2018 and take other steps to create additional liquidity, forecasted cash flows are not sufficient for us to meet our obligations, including upcoming interest payments and maturities on our outstanding debt, as they become due in the ordinary course of business for a period of 12 months following November 8, 2017.
While we continue to work toward completing the notes exchange offers and the term loan offers or other similar transactions, refinancing the maturity of the receivables-based credit facility and taking other actions to create additional liquidity, there is no assurance that the notes exchange offers and the term loan offers or other similar transactions will be completed, that the amounts outstanding under the receivables-based credit facility will be refinanced or that we will be able to create additional
liquidity. Our ability to meet our obligations as they become due in the ordinary course of business for the next 12 months will depend on our ability to achieve forecasted results, our ability to conserve cash, our ability to refinance the amounts outstanding under the receivables-based credit facility, our ability to successfully complete the notes exchange offers and the term loan offers or other similar transactions and achieve sufficient cash interest savings therefrom and our ability to complete other liquidity-generating transactions. Based on the uncertainty of achieving these actions and the significance of the forecasted future negative cash flows resulting from our substantial debt balance, including anticipated future interest cash payments (including interest due in the fourth quarter of 2017 and in 2018) and the maturities of the $365.0 million in current borrowings under iHeartCommunications' receivables-based credit facility that matures December 24, 2017, the $51.5 million aggregate principal amount of 10% Senior Notes due January 15, 2018, the $175.0 million aggregate principal amount of 6.875% Senior Notes due June 15, 2018 and the $24.8 million of contractual AHYDO catch-up payments to be made on iHeartCommunications' 14% Senior Notes due 2021 beginning with the interest payment due on August 1, 2018, management has determined that there is substantial doubt as to our ability to continue as a going concern for a period of 12 months following November 8, 2017.
If we are unable to complete any of the actions described in the paragraph above, or otherwise generate incremental liquidity, or if there are material adverse developments inadversely impact, our business, results of operations or liquidity,and financial position.
In December 2019, a strain of novel coronavirus disease, COVID-19, was identified in Wuhan, China. This virus has been declared a pandemic and has spread around the world, including throughout the United States. The outbreak and
government measures taken in response have also had a significant impact, both direct and indirect, on our businesses and the economy generally, as supply chains have been disrupted; facilities and production have been suspended; and demand for many goods and services has fallen. In response to the spread of COVID-19, including shelter-in-place and stay-at-home orders, we implemented a work-from-home policy that remains in place for most of our employees and have restricted on-site activities.
As a result of the COVID-19 pandemic, we have experienced and may be forcedcontinue to further reduce or delayexperience disruptions that have adversely impacted our business, activitiesresults of operations and capital expenditures, sell material assets, seek additional capital orfinancial position. The extent of future disruptions will depend on numerous evolving factors, which are highly uncertain, rapidly changing and cannot be required to filepredicted, and could result in significantly more severe impacts in the future, including:
•reduced ad budgets and spend, order cancellations and increased competition for bankruptcy court protection. We cannot assure you that we would be able to accomplish any of these alternatives on a timely basis or on satisfactory terms, if at all.advertising revenue;
In connection with •the cash management arrangements for CCOH, iHeartCommunications maintains an intercompany revolving promissory note payable by iHeartCommunications to CCOH (the "Intercompany Note"), which matures on December 15, 2017. As of September 30, 2017, the balanceeffect of the Note was $1,051.3 million, alloutbreak on our customers and other business partners and vendors;
•changes in how we conduct operations, including our events;
•increased competition with alternative media platforms and technologies;
•the inability of which is payablecustomers to pay amounts owed to the Company, or delays in collections of such amounts;
•additional goodwill or other impairment charges;
•limitations on demand. While we intendour employee resources, including because of work-from-home, stay-at-home and shelter-in-place orders from federal or state governments, employee furloughs, or sickness of employees or their families;
•diversion of management resources to extendfocus on mitigating the maturityimpacts of the Intercompany Note priorCOVID-19 pandemic;
•reduced capital expenditures; and
•impacts from prolonged remote work arrangements, including increased cybersecurity risks.
These disruptions have negatively impacted our revenue, results of operations and financial position for the three and six months ended June 30, 2020 and we expect these disruptions to its maturity,continue to have a negative impact for the principal amount outstanding underremainder of 2020.
The COVID-19 pandemic continues to evolve. The extent to which the Intercompany Note is subjectoutbreak continues to demand by CCOH orimpact our business, liquidity and financial results will depend on future developments, which are highly uncertain and cannot be predicted with confidence, such as the CCOH Intercompany Note Committee. We cannot assure you that we will have sufficient cash to make such a payment if CCOH or the CCOH Independent Note Committee demanded paymentduration of the Intercompany Notepandemic, stay-at-home and shelter-in-place orders, travel restrictions and social distancing throughout the United States, the duration and extent of business closures or business disruptions and the effectiveness of actions taken to contain and treat the disease. If we or our customers continue to experience prolonged shutdowns or other business disruptions beyond current expectations, our ability to conduct our business in full.
The covenants in iHeartCommunications' senior secured credit facilities include a requirement that we receive an opinion fromthe manner and within planned timelines could be materially and adversely impacted, and our auditors in connection with our year-end audit that is not subject to a “going concern” or like qualification or exception. Even if we are able to successfully refinancebusiness, liquidity and financial results will be adversely affected. Additionally, concerns over the amounts outstanding under iHeartCommunications' receivables-based credit facility and manage our liquidity challenges through the end of 2017, if we are unable to improve our liquidity forecast for 2018 and refinance or extend a significant portion of our substantial 2019 debt maturities prior to the completioneconomic impact of the audit ofCOVID-19 pandemic caused extreme volatility in financial and other capital markets, which has adversely affected our 2017 financial statements, we anticipate thatstock price and credit rating and could impact our auditor’s year-end opinion will contain a “going concern” qualification, and, if we are unableability to obtain a waiver ofaccess the covenantcapital markets in the senior secured credit facilities that requires us to deliver an unqualified auditor’s opinion, it will trigger a default under the senior secured credit facilities. We cannot assure you that we will be able to obtain such a waiver or amendment.future.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
The following table sets forth theour purchases of shares of our Class A common stock made during the quarter ended SeptemberJune 30, 20172020:
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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 |
April 1 through April 30 | — | | | $ | — | | | — | | | $ | — | |
May 1 through May 31 | 88,738 | | | 8.70 | | | — | | | — | |
June 1 through June 30 | 10,846 | | | 7.46 | | | — | | | — | |
Total | 99,584 | | | $ | 8.57 | | | — | | | $ | — | |
(1)The shares indicated consist of shares of our Class A common stock tendered by oremployees to us during the three months ended June 30, 2020 to satisfy the employees’ tax withholding obligation in connection with the vesting and release of restricted stock, which are repurchased by us based on behalf of us or an affiliated purchaser:their fair market value on the date the relevant transaction occurs.
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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 |
July 1 through July 31 | 103,987 |
| | $ | 1.40 |
| | — |
| | $ | — |
|
August 1 through August 31 | 182 |
| | 1.75 |
| | — |
| | — |
|
September 1 through September 30 | 548 |
| | 1.63 |
| | — |
| | — |
|
Total | 104,717 |
| | $ | 1.33 |
| | — |
| | $ | — |
|
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(1) | The shares indicated consist of shares of our Class A common stock tendered by employees to us during the three months ended September 30, 2017 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 3. DEFAULTS UPON SENIOR SECURITIES
None.
Not applicable.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS
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Exhibit Number | | Description | |
4.12.1 | | Supplemental Indenture,Modified Fifth Amended Joint Chapter 11 Plan of Reorganization of iHeartMedia, Inc. and its Debtor Affiliates Pursuant to Chapter 11 of the Bankruptcy Code, dated as of August 14, 2017, among Clear Channel International B.V., the guarantors party thereto, and U.S. Bank National Association, as trustee, paying agent, registrar and transfer agentJanuary 22, 2019 (incorporated by reference to Exhibit 4.1 to Clear Channel Outdoor Holdings,2.1 of iHeartMedia Inc.’s Current Report on Form 8-K filed on August 14, 2017)January 28, 2019).
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10.13.1 | |
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3.2 | |
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3.3 | |
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3.4 | |
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4.1 | |
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10.1 | |
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10.2 | |
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10.3 | | Amendment No. 2, dated as of May 1, 2017, between Scott D. HamiltonJuly 16, 2020, by and among iHeartCommunications, Inc., iHeartMedia Management Services,Capital I, LLC, certain subsidiary guarantors party thereto, Bank of America, N.A. and the other lenders party thereto (Incorporated by reference to Exhibit 10.1 to the Form 8-K filed by iHeartMedia, Inc. on July 16, 2020).
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31.1* | | | |
31.2* | | | |
32.1** | | | |
32.2** | | | |
101*101.INS* | | Inline XBRL Instance Document - the instance document does not appear in the Interactive Data Files.File because its XBRL tags are embedded within the Inline XBRL document.
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101.SCH* | | Inline XBRL Taxonomy Extension Schema Document
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101.CAL* | | Inline XBRL Taxonomy Extension Calculation Linkbase Document
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101.LAB* | | Inline XBRL Taxonomy Extension Label Linkbase Document
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101.PRE* | | Inline XBRL Taxonomy Extension Presentation Linkbase Document
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101.DEF* | | Inline XBRL Taxonomy Extension Definition Document
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104* | | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)
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____________
* Filed herewith.
** Furnished herewith.
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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| IHEARTMEDIA, INC. |
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August 6, 2020 | IHEARTMEDIA, INC. |
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November 8, 2017 | |
| /s/ SCOTT D. HAMILTON |
| Scott D. Hamilton |
| Senior Vice President, Chief Accounting Officer and Assistant Secretary |