On the Effective Date, in accordance with the Plan of Reorganization, iHeart Operations issued 60,000 shares of its Series A Perpetual Preferred Stock, par value $0.001 per share (the "iHeart Operations Preferred Stock"), having an aggregate initial liquidation preference of $60.0 million for a cash purchase price of $60.0 million. The iHeart Operations Preferred Stock was purchased by a third party investor. As of June 30, 2019,2020, the liquidation preference of the iHeart Operations Preferred Stock was approximately $60.0 million.
Holders of the iHeart Operations Preferred Stock are entitled to receive, as declared by the board of directors of iHeart Operations, in respect of each share, cumulative dividends accruing daily and payable quarterly at a per annum rate equal to the sum of (1) the greater of (a) LIBOR and (b) two percent, plus (2) the applicable margin, which is calculated as a function of iHeartMedia’s consolidated total leverage ratio. Dividends will be payable on the liquidation preference. Unless all accrued and unpaid dividends on the iHeart Operations Preferred Stock are paid in full, no dividends or distributions may be paid on any equity interests of iHeartMedia or its subsidiaries other than iHeart Operations, and no such equity interests may be repurchased or redeemed (subject to certain exceptions that are specified in the certificate of designation for the iHeart Operations Preferred Stock).quarterly. Dividends, if declared, will be payable on March 31, June 30, September 30 and December 31 of each year (or on the next business day if such date is not a business day). During the three and six months ended June 30, 2020 the Company recognized $2.4 million and $4.2 million of interest expense related to dividends on mandatorily redeemable preferred stock.
Other than as set forth below, iHeart Operations may not redeem the iHeart Operations Preferred Stock at its option prior to the third anniversary of the issue date of the iHeart Operations Preferred Stock. Upon consummation of certain equity offerings, iHeart Operations may, at its option, redeem all or a part of the iHeart Operations Preferred Stock for the liquidation preference plus a make-whole premium. At any time on or after the third anniversary of the issue date, the iHeart Operations Preferred Stock may be redeemed at the option of iHeart Operations, in whole or in part, for cash at a redemption price equal to the liquidation preference per share.
The shares of iHeart Operations Preferred Stock include repurchase rights, pursuant to which the holders may require iHeartMedia or iHeartCommunications to purchase the iHeart Operations Preferred Stock after the fifth anniversary of the issue date.
On the tenth anniversary of the issue date, the shares of iHeart Operations Preferred Stock will be subject to mandatory redemption for an amount equal to the liquidation preference.
The Company and its subsidiaries are involved in certain legal proceedings arising in the ordinary course of business and, as required, have accrued an estimate of the probable costs for the resolution of those claims for which the occurrence of loss is probable and the amount can be reasonably estimated. These estimates have been developed in consultation with counsel and are based upon an analysis of potential results, assuming a combination of litigation and settlement strategies. It is possible, however, that future results of operations for any particular period could be materially affected by changes in the Company’s assumptions or the effectiveness of its strategies related to these proceedings. Additionally, due to the inherent uncertainty of litigation, there can be no assurance that the resolution of any particular claim or proceeding would not have a material adverse effect on the Company’s financial condition or results of operations.
Although the Company is involved in a variety of legal proceedings in the ordinary course of business, a large portion of the Company’s litigation arises in the following contexts: commercial disputes; defamation matters; employment and benefits related claims; governmental fines; intellectual property claims; and tax disputes.
of liabilities for unrecognized tax benefits that were discharged upon emergence; and (4) tax benefit for the reduction in valuation allowance resulting from the adjustments described above.The Company recorded income tax expense of $185.4 million for fresh start adjustments in the Predecessor period, consisting of $529.1 million tax expense for the increase in deferred tax liabilities resulting from fresh start accounting adjustments, which was partially offset by $343.7 million tax benefit for the reduction in the valuation allowance on our deferred tax assets.
Each Special Warrant issued under the special warrant agreement entered into in connection with the Reorganization may be exercised by its holder to purchase one share of Successor Class A common stock or Successor Class B common stock at an exercise price of $0.001 per share, unless the Company in its sole discretion believes such exercise would, alone or in combination with any other existing or proposed ownership of common stock, result in, subject to certain exceptions, (a) such exercising holder owning more than 4.99 percent of the Successor Company's outstanding Class A common stock, (b) more than 22.5 percent of the Successor Company's capital stock or voting interests being owned directly or indirectly by foreign individuals or entities, (c) the Company exceeding any foreign ownership threshold set by the FCC pursuant to a declaratory ruling or specific approval requirement or (d) the Company violating any provision of the Communications Act or restrictions
on ownership or transfer imposed by the Company's certificate of incorporation or the decisions, rules and policies of the FCC. Any holder exercising Special Warrants must complete and timely deliver to the warrant agent the required exercise forms and certifications required under the special warrant agreement.
The Company’s primary business is included in its Audio segment. Revenue and expenses earned and charged between Audio, Corporate and the Company's Audio & Media Services businesses are eliminated in consolidation. The Audio segment provides media and entertainment services via broadcast and digital delivery and also includes the Company’s events and national syndication businesses. The Audio & Media Services business provides other audio and media services, including the Company’s media representation business (Katz Media) and its provider of scheduling and broadcast software.software (RCS). Corporate includes infrastructure and support, including executive, information technology, human resources, legal, finance and administrative functions for the Company’s businesses. Share-based payments are recorded in corporate expense.
The following table presents the Company's segment results for the Successor Company for the Period from May 2, 2019 through June 30, 2019:periods presented:
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 noted.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 | |
|
| | | | | | | | | | | | | | | | | | | |
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 | 90,254 |
| | 2,549 |
| | — |
| | (222 | ) | | 92,581 |
|
Selling, general and administrative expenses | 93,880 |
| | 10,203 |
| | — |
| | (531 | ) | | 103,552 |
|
Corporate expenses | | | | | 18,983 |
| | (4 | ) | | 18,979 |
|
Depreciation and amortization | 11,682 |
| | 1,204 |
| | 1,658 |
| | — |
| | 14,544 |
|
Other operating expense, net | — |
| | — |
| | (127 | ) | | — |
| | (127 | ) |
Operating income (loss) | $ | 64,645 |
| | $ | 4,014 |
| | $ | (20,768 | ) | | $ | — |
| | $ | 47,891 |
|
Intersegment revenues | $ | 56 |
| | $ | 701 |
| | $ | — |
| | $ | — |
| | $ | 757 |
|
Capital expenditures | $ | 11,136 |
| | $ | 577 |
| | $ | 1,530 |
| | $ | — |
| | $ | 13,243 |
|
Share-based compensation expense | $ | — |
| | $ | — |
| | $ | 105 |
| | $ | — |
| | $ | 105 |
|
| | | | | | | | | |
Three Months Ended June 30, 2018 |
Revenue | $ | 831,948 |
| | $ | 61,417 |
| | $ | — |
| | $ | (1,601 | ) | | $ | 891,764 |
|
Direct operating expenses | 256,861 |
| | 6,930 |
| | — |
| | (39 | ) | | 263,752 |
|
Selling, general and administrative expenses | 298,644 |
| | 31,118 |
| | — |
| | (1,562 | ) | | 328,200 |
|
Corporate expenses | — |
| | — |
| | 52,478 |
| | — |
| | 52,478 |
|
Depreciation and amortization | 55,245 |
| | 4,508 |
| | 5,124 |
| | — |
| | 64,877 |
|
Other operating expense, net | — |
| | — |
| | (1,218 | ) | | — |
| | (1,218 | ) |
Operating income (loss) | $ | 221,198 |
| | $ | 18,861 |
| | $ | (58,820 | ) | | $ | — |
| | $ | 181,239 |
|
Intersegment revenues | $ | — |
| | $ | 1,601 |
| | $ | — |
| | $ | — |
| | $ | 1,601 |
|
Capital expenditures | $ | 14,877 |
| | $ | 654 |
| | $ | 1,744 |
| | $ | — |
| | $ | 17,275 |
|
Share-based compensation expense | $ | — |
| | $ | — |
| | $ | 594 |
| | $ | — |
| | $ | 594 |
|
| | | | | | | | | |
Period from January 1, 2019 through May 1, 2019 |
Revenue | $ | 1,006,677 |
| | $ | 69,362 |
| | $ | — |
| | $ | (2,568 | ) | | $ | 1,073,471 |
|
Direct operating expenses | 350,501 |
| | 9,559 |
| | — |
| | (364 | ) | | 359,696 |
|
Selling, general and administrative expenses | 396,032 |
| | 42,497 |
| | — |
| | (2,184 | ) | | 436,345 |
|
Corporate expenses | | | | | 66,040 |
| | (20 | ) | | 66,020 |
|
Depreciation and amortization | 40,982 |
| | 5,266 |
| | 6,586 |
| | — |
| | 52,834 |
|
Impairment charges | — |
| | — |
| | 91,382 |
| | — |
| | 91,382 |
|
Other operating expense, net | — |
| | — |
| | (154 | ) | | — |
| | (154 | ) |
Operating income (loss) | $ | 219,162 |
| | $ | 12,040 |
| | $ | (164,162 | ) | | $ | — |
| | $ | 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 |
|
| | | | | | | | | |
Six Months Ended June 30, 2018 |
Revenue | $ | 1,557,050 |
| | $ | 110,759 |
| | $ | — |
| | $ | (3,273 | ) | | $ | 1,664,536 |
|
Direct operating expenses | 490,802 |
| | 14,108 |
| | — |
| | (92 | ) | | 504,818 |
|
Selling, general and administrative expenses | 614,561 |
| | 62,898 |
| | — |
| | (3,167 | ) | | 674,292 |
|
Corporate expenses | — |
| | — |
| | 105,390 |
| | (14 | ) | | 105,376 |
|
Depreciation and amortization | 112,294 |
| | 9,558 |
| | 10,399 |
| | — |
| | 132,251 |
|
Other operating income, net | — |
| | — |
| | (4,450 | ) | | — |
| | (4,450 | ) |
Operating income (loss) | $ | 339,393 |
| | $ | 24,195 |
| | $ | (120,239 | ) | | $ | — |
| | $ | 243,349 |
|
Intersegment revenues | $ | — |
| | $ | 3,273 |
| | $ | — |
| | $ | — |
| | $ | 3,273 |
|
Capital expenditures | $ | 23,878 |
| | $ | 770 |
| | $ | 2,658 |
| | $ | — |
| | $ | 27,306 |
|
Share-based compensation expense | $ | — |
| | $ | — |
| | $ | 1,172 |
| | $ | — |
| | $ | 1,172 |
|
IHEARTMEDIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 11– REORGANIZATION 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 | |
NOTE 14– CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
iHeartCommunications Line | | | | | | | | | | | | | | | | | | | | |
(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 incurred additional professional fees related to the bankruptcy, post-emergence, of Credit
On$1.9 million, $9.1 million and $4.5 million for the Effective Date, iHeartCommunications entered into a revolving loan agreement with CCOL and Clear Channel International, Ltd., both subsidiaries of CCOH, governing a revolving credit facility that provides for borrowings of up to $200 million. The iHeartCommunications line of credit is unsecured. On Julythree months ended June 30, 2020, the period from May 2, 2019 in connection with the consummation of an underwritten public offering of common stock of CCOH, CCOL terminated the iHeartCommunications line of credit. As ofthrough June 30, 2019 and the date of termination, there were no amounts drawn under the facility.
Transition Services Agreement
Pursuant to the Transition Services Agreement between us, iHeartMedia Management Services, Inc. (‘‘iHM Management Services’’)six months ended June 30, 2020, respectively, which are included within Other income (expense), iHeartCommunications and CCOH, for one year from the Effective Date (subject to certain rights of New CCOH to extend up to one additional year, as described below), iHM Management Services has agreed to provide, or cause us, iHeartCommunications, iHeart Operations or any member of the iHeart Group to provide, CCH with certain administrative and support services and other assistance which CCH will utilizenet in the conductCompany's Consolidated Statements of its business as such business was conducted prior to the Separation. The transition services may include, among other things, (a) treasury, payroll and other financial related services, (b) certain executive officer services, (c) human resources and employee benefits, (d) legal and related services, (e) information systems, network and related services, (f) investment services and (g) procurement and sourcing support.Comprehensive Income (Loss).
The charges for the transition services will generally be intended to be consistent with the Corporate Services Agreement. The allocation of cost is based on various measures depending on the service provided, which measures include relative revenue, employee headcount or number of users of a service. New CCOH may request an extension of the term for all services or individual services for one-month periods for up to an additional 12 months, and the price for transition services provided during such extended term will be increased for any service other than those identified in the schedules to the Transition Services Agreement as an ‘‘IT Service’’ or any other service the use and enjoyment of which requires the use of another IT Service. New CCOH may terminate the Transition 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.
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 primary business provides media and entertainment services via broadcast and digital delivery, including our networks businesses, through our Audio segment. We also operate businesses that provide audio and media services, through our Audio and Media Services segment, including our full-service media representation business, Katz Media Group (“Katz Media”) and our provider of scheduling and broadcast software and services, Radio Computing ServicingServices ("RCS"). Following the Separation, we ceased to operate the outdoor business, which prior to the Separation was presented as our Americas outdoor segment and our International outdoor segment. The historical results of the outdoor business have been reclassified as results from discontinued operations.
On May 1, 2019, we consummated the Separation and Reorganization, resulting in a substantial reduction in our long-term indebtedness and corresponding cash interest expenses, and significantly extending the maturities of our outstanding indebtedness, as more fully described under “Liquidity and Capital Resources” below. 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 free cash flow from theseoperations from our business initiatives coupled with the significant reduction inand our current cash on hand will provide sufficient resources to fund and operate our business, fund capital expenditures and other obligations and make interest payments due toon our reduced level of indebtedness andlong-term debt for at least the elimination of the majority of our near-term debt maturities will enable us to generate sufficient cash flows to operate our businesses and de-lever our balance sheet over time.next 12 months.
Description of our Business
Our Audio 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 broadcast 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 our station websites and other digital platforms which reach national, regional and local audiences. We also generate revenuesrevenue from our networks, including Premiere and Total Traffic & Weather, as well as through sponsorships andnetwork syndication, our nationally recognized live events, our station websites and other revenue streams. We also generate revenue by providing audio and media services to radio and TV broadcast industry participants through our Katz Media and RCS businesses.miscellaneous transactions.
Our advertising revenue is highly correlated to changes in gross domestic product (“GDP”) as advertising spending has historically trended in line with GDP. Our broadcast nationalA recession or downturn in the U.S. economy may have a significant impact on the Company’s ability to generate revenue. In light of the novel coronavirus pandemic (“COVID-19”) and the resulting recession impacting the U.S. economy, our revenue for the six months ended June 30, 2020 has declined significantly compared to the comparable period in 2019 and we expect our full year 2020 revenue to decline compared to 2019, largely as a result of a decline in consumer and business spending and the related impact to the demand for advertising and pricing pressure resulting from greater competition for available advertising dollars. Beginning in March 2020 and continuing in the three months ended June 30, 2020, we saw a sharp decline in each of our Broadcast radio, Networks, and 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 revenue,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 March 26, 2020, we announced the withdrawal of our previously issued financial guidance for the fiscal year ending December 31, 2020 due to heightened uncertainty related to COVID-19. As a precautionary measure to preserve financial flexibility in light of this uncertainty, we borrowed $350.0 million principal amount under our senior secured asset-
based revolving credit facility (the “ABL Facility”). During the three months ended June 30, 2020, 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 credit agreement (as amended, the “Credit Agreement”) with Capital I, as guarantor, certain subsidiaries of iHeartCommunications, as guarantors, and Bank of America, N.A., as administrative agent, governing the Company’s $2.5 billion aggregate principal amount of senior secured term loans (the “Term Loan Facility”), resulting in net proceeds of $425.8 million, after 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, with the remaining $190.6 million of the proceeds available for general corporate purposes. For more information please refer to the “Liquidity and Capital Resources section” in this MD&A.
Impairment Charges
As a result of uncertainty related to COVID-19 and its negative impact on our business and the public trading values of our debt and equity, we were required to perform interim impairment tests on our long-lived assets, intangible assets and indefinite-lived intangible assets as of March 31, 2020. The interim impairment tests resulted in a non-cash impairment of our Federal Communication Commission (“FCC”) licenses of $502.7 million and a non-cash impairment charge of $1.2 billion to reduce goodwill during the three months ended March 31, 2020.
Based on management’s forecasted future cash flows and assessment of market values of our debt and equity securities, market interest rates affecting our weighted average cost of capital (WACC) and other economic factors, additional interim impairment testing of our intangible assets and indefinite-lived intangible was not required as of June 30, 2020. For more information, 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.
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 Katz Media revenue,actual results are generally impacted by political cycles.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 conditions to the effectiveness of the Plan of Reorganization were satisfied and the Company“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 senior secured asset-based revolving credit facility (the “ABL Facility”)ABL Facility and (B) issuing to certain Claimholders, on account of their claims, the approximately $3.5 billion aggregate principal amount of new senior secured term loans (the “TermTerm Loan Facility”),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 “Senior“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 SateDate 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. Refer to Note 3, "Fresh Start Accounting," to our Consolidated Financial Statements for further details.
Executive Summary
The key developments that impacted our business during the quarter are summarized below:
Our Plan of Reorganization became effective May 1, 2019 resulting in the Separation of the Outdoor business and emerging from the Chapter 11 Cases with a significantly de-leveraged capital structure.
As a result of our emergence from the Chapter 11 Cases, we reduced our long-term debt from approximately $16 billion to approximately $5.8 billion and reduced our leverage from approximately 13x to approximately 2.9x.
Revenue of $913.3 million increased $21.6 million or 2.4% during the Combined Predecessor and Successor three-month period ended June 30, 2019 compared to the same period of 2018.
Operating income of $181.6 million was up from $181.2 million in the prior year’s quarter.
Adjusted EBITDA of $262.9 million, up 3.2% year-over-year.
The table below presents a summary of our historical results of operations for the periods presented:
|
| | | | | | | | | | | | | | | | | | | |
(In thousands) | Successor Company | | | Predecessor Company | | Non-GAAP Combined | | Predecessor Company | | |
| Period from May 2, 2019 through June 30, | | | Period from April 1, 2019 through May 1, | | Three Months Ended June 30, | | Three Months Ended June 30, | | % |
| 2019 | | | 2019 | | 2019 | | 2018 | | Change |
Revenue | $ | 635,646 |
| | | $ | 277,674 |
| | $ | 913,320 |
| | $ | 891,764 |
| | 2.4 | % |
Operating income | $ | 133,688 |
| | | $ | 47,891 |
| | $ | 181,579 |
| | $ | 181,239 |
| | 0.2 | % |
Adjusted EBITDA | 194,753 |
| | | 68,097 |
| | 262,850 |
| | 254,784 |
| | 3.2 | % |
Net income (loss) | $ | 38,793 |
| | | 11,300,714 |
| | 11,339,507 |
| | (66,290 | ) | | nm |
|
As of June 30, 2019, we had 56,873,782 shares of Class A Common Stock, 6,947,567 shares of Class B Common Stock and 81,453,648 warrants convertible into Class A or Class B Common Stock outstanding.
In addition, on August 7, 2019, iHeartCommunications completed the sale of $750.0 million in aggregate principal amount of 5.25% Senior Secured Notes due 2027 (the "New Senior Secured Notes") in a private placement. We used the net proceeds from the New Senior Secured Notes, together with cash on hand, to prepay at par $740.0 million of borrowings outstanding under the Term Loan Facility.
Results of Operations
Our financial results for the periods from April 1, 2019 through May 1, 2019 and from January 1, 2019 through May 1, 2019 and for the three and six months ended June 30, 2018 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 ofto our results to prior periods.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 previouscurrent 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“six months ended June 30, 2019"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:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(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:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(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 | | | Predecessor Company | | Non-GAAP Combined | | Predecessor Company | (In thousands) | | Successor Company | | Successor Company | | | Predecessor Company | | Non-GAAP Combined |
| Period from May 2, 2019 through June 30, | | | Period from April 1, 2019 through May 1, | | Three Months Ended June 30, | | Three Months Ended June 30, | | | 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, |
| 2019 | | | 2019 | | 2019 | | 2018 | | | 2020 | | 2019 | | | 2019 | | 2019 |
Revenue | $ | 635,646 |
| | | $ | 277,674 |
| | $ | 913,320 |
| | $ | 891,764 |
| Revenue | | $ | 1,268,282 | | | $ | 635,646 | | | | $ | 1,073,471 | | | $ | 1,709,117 | |
Operating expenses: | | | | | | | | | Operating expenses: | | | | | | | |
Direct operating expenses (excludes depreciation and amortization) | 184,291 |
| | | 92,581 |
| | 276,872 |
| | 263,752 |
| Direct operating expenses (excludes depreciation and amortization) | | 551,498 | | | 198,772 | | | | 381,184 | | | 579,956 | |
Selling, general and administrative expenses (excludes depreciation and amortization) | 227,140 |
| | | 103,552 |
| | 330,692 |
| | 328,200 |
| Selling, general and administrative expenses (excludes depreciation and amortization) | | 605,360 | | | 220,231 | | | | 427,230 | | | 647,461 | |
Corporate expenses (excludes depreciation and amortization) | 34,390 |
| | | 18,979 |
| | 53,369 |
| | 52,478 |
| Corporate expenses (excludes depreciation and amortization) | | 66,368 | | | 26,818 | | | | 53,647 | | | 80,465 | |
Depreciation and amortization | 59,383 |
| | | 14,544 |
| | 73,927 |
| | 64,877 |
| Depreciation and amortization | | 200,115 | | | 59,383 | | | | 52,834 | | | 112,217 | |
Impairment charges | | Impairment charges | | 1,733,235 | | | — | | | | 91,382 | | | 91,382 | |
Other operating income (expense), net | 3,246 |
| | | (127 | ) | | 3,119 |
| | (1,218 | ) | Other operating income (expense), net | | (1,572) | | | 3,246 | | | | (154) | | | 3,092 | |
Operating income | 133,688 |
| | | 47,891 |
| | 181,579 |
| | 181,239 |
| |
Operating income (loss) | | Operating income (loss) | | (1,889,866) | | | 133,688 | | | | 67,040 | | | 200,728 | |
Interest expense (income), net | 69,711 |
| | | (400 | ) | | 69,311 |
| | 10,613 |
| Interest expense (income), net | | 172,052 | | | 69,711 | | | | (499) | | | 69,212 | |
Gain on investments, net | — |
| | | — |
| | — |
| | 9,175 |
| |
Loss on investments, net | | Loss on investments, net | | (8,675) | | | — | | | | (10,237) | | | (10,237) | |
Equity in loss of nonconsolidated affiliates | (24 | ) | | | (59 | ) | | (83 | ) | | (32 | ) | Equity in loss of nonconsolidated affiliates | | (595) | | | (24) | | | | (66) | | | (90) | |
| Other income (expense), net | (9,157 | ) | | | 150 |
| | (9,007 | ) | | (2,058 | ) | Other income (expense), net | | (9,118) | | | (9,157) | | | | 23 | | | (9,134) | |
Reorganization items, net | — |
| | | 9,497,944 |
| | 9,497,944 |
| | (68,740 | ) | Reorganization items, net | | — | | | — | | | | 9,461,826 | | | 9,461,826 | |
Income from continuing operations before income taxes | 54,796 |
| | | 9,546,326 |
| | 9,601,122 |
| | 108,971 |
| |
Income (loss) from continuing operations before income taxes | | Income (loss) from continuing operations before income taxes | | (2,080,306) | | | 54,796 | | | | 9,519,085 | | | 9,573,881 | |
Income tax benefit (expense) | (16,003 | ) | | | (100,289 | ) | | (116,292 | ) | | (142,032 | ) | Income tax benefit (expense) | | 194,253 | | | (16,003) | | | | (39,095) | | | (55,098) | |
Income (loss) from continuing operations | 38,793 |
| | | 9,446,037 |
| | 9,484,830 |
| | (33,061 | ) | Income (loss) from continuing operations | | (1,886,053) | | | 38,793 | | | | 9,479,990 | | | 9,518,783 | |
Income (loss) from discontinued operations, net of tax | — |
| | | 1,854,677 |
| | 1,854,677 |
| | (33,229 | ) | |
Income from discontinued operations, net of tax | | Income from discontinued operations, net of tax | | — | | | — | | | | 1,685,123 | | | 1,685,123 | |
Net income (loss) | 38,793 |
| | | 11,300,714 |
| | 11,339,507 |
| | (66,290 | ) | Net income (loss) | | (1,886,053) | | | 38,793 | | | | 11,165,113 | | | 11,203,906 | |
Less amount attributable to noncontrolling interest | — |
| | | 2,190 |
| | 2,190 |
| | 3,609 |
| Less amount attributable to noncontrolling interest | | — | | | — | | | | (19,028) | | | (19,028) | |
Net income (loss) attributable to the Company | $ | 38,793 |
| | | $ | 11,298,524 |
| | $ | 11,337,317 |
| | $ | (69,899 | ) | Net income (loss) attributable to the Company | | $ | (1,886,053) | | | $ | 38,793 | | | | $ | 11,184,141 | | | $ | 11,222,934 | |
|
| | | | | | | | | | | | | | | | |
(In thousands) | Successor Company | | | Predecessor Company | | Non-GAAP Combined | | Predecessor Company |
| Period from May 2, 2019 through June 30, | | | Period from January 1, 2019 through May 1, | | Six Months Ended June 30, | | Six Months Ended June 30, |
| 2019 | | | 2019 | | 2019 | | 2018 |
Revenue | $ | 635,646 |
| | | $ | 1,073,471 |
| | $ | 1,709,117 |
| | $ | 1,664,536 |
|
Operating expenses: | | | | | | | | |
Direct operating expenses (excludes depreciation and amortization) | 184,291 |
| | | 359,696 |
| | 543,987 |
| | 504,818 |
|
Selling, general and administrative expenses (excludes depreciation and amortization) | 227,140 |
| | | 436,345 |
| | 663,485 |
| | 674,292 |
|
Corporate expenses (excludes depreciation and amortization) | 34,390 |
| | | 66,020 |
| | 100,410 |
| | 105,376 |
|
Depreciation and amortization | 59,383 |
| | | 52,834 |
| | 112,217 |
| | 132,251 |
|
Impairment charges | — |
| | | 91,382 |
| | 91,382 |
| | — |
|
Other operating income (expense), net | 3,246 |
| | | (154 | ) | | 3,092 |
| | (4,450 | ) |
Operating income | 133,688 |
| | | 67,040 |
| | 200,728 |
| | 243,349 |
|
Interest expense (income), net | 69,711 |
| | | (499 | ) | | 69,212 |
| | 331,746 |
|
Gain (loss) on investments, net | — |
| | | (10,237 | ) | | (10,237 | ) | | 9,175 |
|
Equity in loss of nonconsolidated affiliates | (24 | ) | | | (66 | ) | | (90 | ) | | (63 | ) |
Other income (expense), net | (9,157 | ) | | | 23 |
| | (9,134 | ) | | (22,474 | ) |
Reorganization items, net | — |
| | | 9,461,826 |
| | 9,461,826 |
| | (260,795 | ) |
Income (loss) from continuing operations before income taxes | 54,796 |
| | | 9,519,085 |
| | 9,573,881 |
| | (362,554 | ) |
Income tax benefit (expense) | (16,003 | ) | | | (39,095 | ) | | (55,098 | ) | | 20,701 |
|
Income (loss) from continuing operations | 38,793 |
| | | 9,479,990 |
| | 9,518,783 |
| | (341,853 | ) |
Income (loss) from discontinued operations, net of tax | — |
| | | 1,685,123 |
| | 1,685,123 |
| | (157,477 | ) |
Net income (loss) | 38,793 |
| | | 11,165,113 |
| | 11,203,906 |
| | (499,330 | ) |
Less amount attributable to noncontrolling interest | — |
| | | (19,028 | ) | | (19,028 | ) | | (12,437 | ) |
Net income (loss) attributable to the Company | $ | 38,793 |
| | | $ | 11,184,141 |
| | $ | 11,222,934 |
| | $ | (486,893 | ) |
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) | % |
|
| | | | | | | | | | | | | | | | |
(In thousands) | Successor Company | | | Predecessor Company | | Non-GAAP Combined | | Predecessor Company |
| Period from May 2, 2019 through June 30, | | | Period from April 1, 2019 through May 1, | | Three Months Ended June 30, | | Three Months Ended June 30, |
| 2019 | | | 2019 | | 2019 | | 2018 |
Broadcast Radio | $ | 390,540 |
| | | $ | 170,632 |
| | $ | 561,172 |
| | $ | 568,968 |
|
Digital | 64,238 |
| | | 26,840 |
| | 91,078 |
| | 68,574 |
|
Networks | 105,426 |
| | | 50,889 |
| | 156,315 |
| | 146,981 |
|
Sponsorship and Events | 31,790 |
| | | 10,617 |
| | 42,407 |
| | 41,256 |
|
Audio and Media Services | 40,537 |
| | | 17,970 |
| | 58,507 |
| | 61,417 |
|
Other | 4,236 |
| | | 1,483 |
| | 5,719 |
| | 6,169 |
|
Eliminations | (1,121 | ) | | | (757 | ) | | (1,878 | ) | | (1,601 | ) |
Revenue, total | $ | 635,646 |
| | | $ | 277,674 |
| | $ | 913,320 |
| | $ | 891,764 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(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) | % |
|
| | | | | | | | | | | | | | | | |
(In thousands) | Successor Company | | | Predecessor Company | | Non-GAAP Combined | | Predecessor Company |
| Period from May 2, 2019 through June 30, | | | Period from January 1, 2019 through May 1, | | Six Months Ended June 30, | | Six Months Ended June 30, |
| 2019 | | | 2019 | | 2019 | | 2018 |
Broadcast Radio | $ | 390,540 |
| | | $ | 657,864 |
| | $ | 1,048,404 |
| | $ | 1,059,111 |
|
Digital | 64,238 |
| | | 102,789 |
| | 167,027 |
| | 127,941 |
|
Networks | 105,426 |
| | | 189,088 |
| | 294,514 |
| | 279,032 |
|
Sponsorship and Events | 31,790 |
| | | 50,330 |
| | 82,120 |
| | 79,148 |
|
Audio and Media Services | 40,537 |
| | | 69,362 |
| | 109,899 |
| | 110,759 |
|
Other | 4,236 |
| | | 6,606 |
| | 10,842 |
| | 11,818 |
|
Eliminations | (1,121 | ) | | | (2,568 | ) | | (3,689 | ) | | (3,273 | ) |
Revenue, total | $ | 635,646 |
| | | $ | 1,073,471 |
| | $ | 1,709,117 |
| | $ | 1,664,536 |
|
CombinedConsolidated results for the three months ended June 30, 2020 compared to the combined results for the three months ended June 30, 2019 compared to theand consolidated results for the threesix months ended June 30, 2018 and2020 compared to the combined results for the six months ended June 30, 2019 compared to the consolidated results for the six months ended June 30, 2018 were as follows:
Revenue
Revenue increased $21.6decreased $425.7 million during the three months ended June 30, 20192020 compared to the same period of 2018.2019. The decrease in Revenue increased asis primarily attributable to the effects of COVID-19, which began to unfold into a resultglobal pandemic in early March of higher digital2020, 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 which increased $22.5 million driven by growth in podcasting,declines impacting most of our revenue streams primarily as a result of our acquisition of Stuff Mediaa decrease in October 2018, as well as other digital revenue, including livebroadcast radio and other on-demand services.advertising spend. Broadcast spot revenue decreased $7.8$317.1 million, primarily driven by an $8.1a $188.7 million decrease in politicalLocal spot revenue asand a result of 2018 being a mid-term congressional election year, partially offset by increased programmatic buying by our national customers.$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 $8.9$2.1 million, anddriven by continued growth in podcasting. Audio and Media Services revenue decreased $2.9$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 $4.1 million decrease in political revenue.presidential election year.
Revenue increased $44.6decreased $440.8 million during the six months ended June 30, 20192020 compared to the same period of 2018.2019. The increasedecrease 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 is primarily due to higher digitalin March, which continued through the second quarter of 2020, resulting in significant revenue declines impacting most of $39.1 million driven by growth in podcasting,our revenue streams, primarily as a result of our acquisitiona 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 Stuff Media in October 2018, as well as other digital revenue, including live radio and other on-demand services and revenue2020 being a presidential election year. Revenue from our Network businesses, including both Premiere and Total Traffic & Weather, which increased $15.0was also impacted by the downturn, resulting in a decrease of $63.6 million. Broadcast spot revenueRevenue from Sponsorship and Events decreased $10.7by $38.0 million, primarily due to a $10.9 million decrease in political revenue as a result of 2018 being a mid-term congressional election year.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 $0.9$10.4 million primarily due to a $5.1the effects of COVID-19 on advertising spend. This decrease was offset by an $8.9 million decreaseincrease in political revenue.
Direct Operating Expenses
Direct operating expenses increased $13.1decreased $47.2 million during the three months ended June 30, 20192020 compared to the same period of 2018. Higher direct2019. The decrease in Direct operating expenses werewas driven primarily by higherlower employee compensation expenses resulting from cost reduction initiatives taken in response to the COVID-19 pandemic. In addition, variable operating expenses, including digital royalties, content costsmusic license and productionperformance royalty fees, decreased in relation to lower revenue recognized during the period. Variable expenses from higher podcasting and digital subscription revenue. Werelated to events also incurred a $1.2 million increasedecreased as a result of the applicationpostponement or cancellation of fresh start accounting, and a $1.2 million increase dueevents in response to the impact of the adoption of the new leasing standard in the first quarter of 2019.COVID-19 pandemic.
Direct operating expenses increased $39.2decreased $28.5 million during the six months ended June 30, 20192020 compared to the same period of 2018. Higher direct2019. The decrease in Direct operating expenses werewas 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 digital royalties, content costs and compensation-related expenses from higher podcasting and digital subscription revenue, as well as higher production costs related to our events, including the iHeartRadio Music Awards. We also incurred a $2.4 million increase in lease expense due to the impact of the adoption of the new leasing standard in the first quarter of 2019.revenue.
Selling, General and Administrative (“SG&A”) Expenses
SG&A expenses increased $2.5decreased $61.3 million during the three months ended June 30, 20192020 compared to the same period of 2018. Higher2019. The decrease in SG&A expenses was driven primarily by lower employee costs,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 the acquisitions of Stuff Media and Jellilower Local trade expenses, which declined in the fourth quarter of 2018, wereline with lower Trade revenue. The decrease in SG&A expenses was partially offset by lower commissions as a result of our revenue mix and by a $1.3 million impact as a result of the application of fresh start accounting.higher bad debt expense.
SG&A expenses decreased $10.8$42.1 million during the six months ended June 30, 20192020 compared to the same period of 2018.2019. The decrease in our SG&A expenses was duedriven primarily by lower employee compensation expenses resulting from cost reduction initiatives taken in response to the COVID-19 pandemic, along with lower tradesales commissions, which were impacted by the decrease in revenue. Trade and barter expenses also decreased primarily resulting from timing,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 employee costs primarily driven by the acquisitions of Stuff Media and Jelliincurred in relation to our modernization initiatives announced in the fourthfirst quarter of 2018. 2020 and higher bad debt expense.
Corporate Expenses
Corporate expenses decreased $0.9$14.9 million during the three months ended June 30, 20192020 compared to the same period of 2018, primarily2019, as a result of lower employee compensation, including variable incentive compensation expense, partially offset by higherexpenses and employee benefit costs and share-based compensation expense, which increased $2.5 million as a result of a new equity compensation plan enteredbenefits, resulting from cost reduction initiatives taken in connection with our Plan of Reorganization. response to the COVID-19 pandemic.
Corporate expenses decreased $5.0$14.1 million during the six months ended June 30, 20192020 compared to the same period of 2018, primarily2019, as a result of lower employee compensation, including variable incentive compensation,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 higher employee benefit costs incurred to support our modernization initiatives in January and February, as well as higher share-based compensation expense, which increased $2.3$5.3 million as a result of aour new post-emergence equity compensation plan entered in connection with our Plan of Reorganization.plan.
Depreciation and Amortization
Depreciation and amortization increased $9.1$29.4 million and $20.0$87.9 million during the three and six months ended June 30, 2019,2020, compared to the same periods of 2018,2019, 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 Federal Communication Commission ("FCC")and FCC licenses billboard permits, and other intangible assets 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 theour weighted average cost of capital used in performing the annual impairment test.capital. See Note 45, 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 of $0.5 million and Other operating income, net of $3.1 million and Other operating expense, net of $1.2 million for the three months ended June 30, 2020 and 2019, respectively, and 2018, respectively,Other operating expense, net of $1.6 million and Other operating income, net of $3.1 million and Other operating expense, net of $4.5 million for the six months ended June 30, 20192020 and 2018,2019, respectively, relate to net gains and losses recognized on asset disposals.
Interest Expense
Interest expense increased $58.7$12.7 million and $262.5$102.8 million during the three and six months ended June 30, 2019,2020, respectively, compared to the same periods of 20182019 as a result of the interest recognized on the new debt issued in connection with our emergence from the Chapter 11 Cases andCases. During the new debt issued upon emergence. 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 the Petition Date,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 and $373.9 million and $440.3 million in contractual interest not being accrued inrespectively.
Gain (Loss) on Investments, net
During the three and six months ended June 30, 2018,2020, 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.
Loss on Investments, net
During the six months ended June 30, 2019, we recognized a loss of $10.2 million, primarily in connection with other-than-temporary declines in the value of our investments. GainWe did not recognize any gain or loss on investments net was $9.2 million forduring the sixthree months ended June 30, 2018.2019.
Other Expense,Income (Expense), Net
Other expense, net was $9.0$1.3 million and $9.1 million for the three and six months ended June 30, 2019,2020, respectively, which related primarily 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 in the Predecessor period.period while the Company was a debtor-in-possession.
Other expense, net was $2.1$9.0 million and $22.5$9.1 million for the three and six months ended June 30, 2018,2019, respectively. Amounts in the six months ended June 30, 20182019 related primarily to professional fees incurred directly in connection with the Chapter 11 Cases before the March 14, 2018 Petition Date. Such expenses were included within Reorganization items, net in the post-petition period.period while the Company was a debtor-in-possession.
Reorganization Items, Net
During the three and six months ended June 30, 2019, we recognized Reorganization items, net of $9,497.9 million and $9,461.8 million respectively, related to our emergence from the Chapter 11 Cases, which consisted primarily of the net gain from the consummation of the Plan of Reorganization and the related settlement of liabilities.In addition, Reorganization items, net included professional fees recognized between the March 14, 2018 Petition Date and the May 1, 2019 Effective Date in connection with the Chapter 11 Cases. See Note 3 to our Consolidated Financial Statements included in Part I of this Quarterly Report on Form 10-Q.
DuringIncome Tax Benefit (Expense)
The effective tax rate for the Successor Company for the three and six months ended June 30, 2018, we recognized Reorganization items, net2020 was 18.1% and 9.3%, respectively. The effective tax rate for the six months ended June 30, 2020 was primarily impacted by the impairment charges discussed above. The deferred tax benefit primarily consists of $(68.7)$125.5 million and $(260.8) million, respectively, related to the Chapter 11 Cases, consisting ofFCC license impairment charges recorded during the write-off of long-term debt fees and original issue discounts on debt subject to compromise, costs incurred in connection with our DIP facility and professional fees. See Note 3 to our Consolidated Financial Statements included in Part I of this Quarterly Report on Form 10-Q.period.
Income Tax Benefit (Expense)
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 (“NOL”) carryforwards from the cancellation of debt income ("CODI") realized upon emergence; (2) tax benefit for the reduction in deferred tax liabilities attributed primarily to long-term debt that was discharged upon emergence; (3) tax benefit for the effective settlement of liabilities for unrecognized tax benefits that were discharged upon emergence; and (4) tax benefit for the reduction in valuation allowance resulting from the adjustments described above. The Company recorded income tax expense of $185.4 million for fresh start adjustments in the Predecessor period, consisting of $529.1 million tax expense for the increase in deferred tax liabilities resulting from fresh start accounting adjustments, which was partially offset by $343.7 million tax benefit for the reduction in the valuation allowance on our deferred tax assets.
The effective tax rate for continuing operations for
Income from Discontinued Operations, Net
During the three and six months ended June 30, 2018 was 130.3%2019, we recognized Income from discontinued operations, net of tax of $1,854.7 million and 5.7%, respectively. The 2018 effective tax rates$1,685.1 million, respectively, related to the separation of our domestic and international outdoor advertising businesses, which were primarily impacted bypreviously reported as the valuation allowance recorded against deferred tax assets resulting from current period interest expense limitation carryforward in U.S. federalAmericas outdoor and certain state jurisdictions dueInternational outdoor segments prior to uncertainty regarding our abilitythe Separation.
Net Income (Loss) Attributable to realize those assets in future periods.the Company
As a result of the Plan of Reorganization, Net loss attributable to the Company expectsdecreased $11,534.6 million to $197.3 million during the majoritythree months ended June 30, 2020 compared to Net income attributable to the Company of its federal NOL carryforwards and certain state NOL carryforwards to be reduced or eliminated$11,337.3 million during the three months ended June 30, 2019, primarily as a result of the CODI realized$9.5 billion gain from the bankruptcy emergence. PursuantReorganization items net related to the attribute reduction and ordering rules set forthChapter 11 Cases in the Internal Revenue Code2019 period, the $1.9 billion gain on disposal of 1986, as amended (the “Code”), the reductionour Outdoor business in the Company’s tax attributes for excludible CODI does not occur until2019 period and due to the last day ofother factors discussed above.
Net loss attributable to the Company’s tax year, December 31, 2019. Accordingly,Company decreased $13,109.0 million to $1,886.1 million during the tax adjustments recorded in the Predecessor period represent our best estimate using all available information atsix months ended June 30, 2019. Additionally,2020 compared to Net income attributable to the Company recognized a capital loss for tax purposesof $11,222.9 million during the six months ended June 30, 2019, primarily as a result of the series of transactions$9.5 billion gain from Reorganization items net related to effect the Plan of Reorganization. This capital loss may be carried forward to offset capital gains recognized by the CompanyChapter 11 Cases in the next five years, subject to annual limitations under Section 3822019 period, the $1.7 billion gain on disposal of our Outdoor business in the Code. The deferred tax asset associated with the capital loss carryforward is offset by a valuation allowance2019 period and due to significant uncertainty regarding the Company’s abilityother factors discussed above.
Reconciliation of Operating Income (Loss) to utilize the carryforward prior to its expiration. The final tax impacts of the bankruptcy emergence, as well as the Plan of Reorganization’s overall effect on the Company’s tax attributes and tax basis in assets will be refined based on the Company’s final December 31, 2019 financial position as required under the Code. The final tax impacts on the companies tax attributes could change significantly from the current estimates.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 | | | |
The table below presents the comparison of our historical results of operations for the periods presented: | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(In thousands) | Successor Company | | Successor Company | | | Predecessor Company | | Non-GAAP Combined | | |
| 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 | | | |
|
| | | | | | | | | | | | | | | | |
(In thousands) | Successor Company | | | Predecessor Company | | Non-GAAP Combined | | Predecessor Company |
| Period from May 2, 2019 through June 30, | | | Period from April 1, 2019 through May 1, | | Three Months Ended June 30, | | Three Months Ended June 30, |
| 2019 | | | 2019 | | 2019 | | 2018 |
Revenue | $ | 635,646 |
| | | $ | 277,674 |
| | $ | 913,320 |
| | $ | 891,764 |
|
Operating expenses: | | | | | | | | |
Direct operating expenses (excludes depreciation and amortization) | 184,291 |
| | | 92,581 |
| | 276,872 |
| | 263,752 |
|
Selling, general and administrative expenses (excludes depreciation and amortization) | 227,140 |
| | | 103,552 |
| | 330,692 |
| | 328,200 |
|
Corporate expenses (excludes depreciation and amortization) | 34,390 |
| | | 18,979 |
| | 53,369 |
| | 52,478 |
|
Depreciation and amortization | 59,383 |
| | | 14,544 |
| | 73,927 |
| | 64,877 |
|
Other operating income (expense), net | 3,246 |
| | | (127 | ) | | 3,119 |
| | (1,218 | ) |
Operating income | 133,688 |
| | | 47,891 |
| | 181,579 |
| | 181,239 |
|
Interest expense (income), net | 69,711 |
| | | (400 | ) | | 69,311 |
| | 10,613 |
|
Gain on investments, net | — |
| | | — |
| | — |
| | 9,175 |
|
Equity in loss of nonconsolidated affiliates | (24 | ) | | | (59 | ) | | (83 | ) | | (32 | ) |
Other income (expense), net | (9,157 | ) | | | 150 |
| | (9,007 | ) | | (2,058 | ) |
Reorganization items, net | — |
| | | 9,497,944 |
| | 9,497,944 |
| | (68,740 | ) |
Income from continuing operations before income taxes | 54,796 |
| | | 9,546,326 |
| | 9,601,122 |
| | 108,971 |
|
Income tax benefit (expense) | (16,003 | ) | | | (100,289 | ) | | (116,292 | ) | | (142,032 | ) |
Income (loss) from continuing operations | 38,793 |
| | | 9,446,037 |
| | 9,484,830 |
| | (33,061 | ) |
Income (loss) from discontinued operations, net of tax | — |
| | | 1,854,677 |
| | 1,854,677 |
| | (33,229 | ) |
Net income (loss) | 38,793 |
| | | 11,300,714 |
| | 11,339,507 |
| | (66,290 | ) |
Less amount attributable to noncontrolling interest | — |
| | | 2,190 |
| | 2,190 |
| | 3,609 |
|
Net income (loss) attributable to the Company | $ | 38,793 |
| | | $ | 11,298,524 |
| | $ | 11,337,317 |
| | $ | (69,899 | ) |
|
| | | | | | | | | | | | | | | | |
(In thousands) | Successor Company | | | Predecessor Company | | Non-GAAP Combined | | Predecessor Company |
| Period from May 2, 2019 through June 30, | | | Period from January 1, 2019 through May 1, | | Six Months Ended June 30, | | Six Months Ended June 30, |
| 2019 | | | 2019 | | 2019 | | 2018 |
Revenue | $ | 635,646 |
| | | $ | 1,073,471 |
| | $ | 1,709,117 |
| | $ | 1,664,536 |
|
Operating expenses: | | | | | | | | |
Direct operating expenses (excludes depreciation and amortization) | 184,291 |
| | | 359,696 |
| | 543,987 |
| | 504,818 |
|
Selling, general and administrative expenses (excludes depreciation and amortization) | 227,140 |
| | | 436,345 |
| | 663,485 |
| | 674,292 |
|
Corporate expenses (excludes depreciation and amortization) | 34,390 |
| | | 66,020 |
| | 100,410 |
| | 105,376 |
|
Depreciation and amortization | 59,383 |
| | | 52,834 |
| | 112,217 |
| | 132,251 |
|
Impairment charges | — |
| | | 91,382 |
| | 91,382 |
| | — |
|
Other operating income (expense), net | 3,246 |
| | | (154 | ) | | 3,092 |
| | (4,450 | ) |
Operating income | 133,688 |
| | | 67,040 |
| | 200,728 |
| | 243,349 |
|
Interest expense (income), net | 69,711 |
| | | (499 | ) | | 69,212 |
| | 331,746 |
|
Gain (loss) on investments, net | — |
| | | (10,237 | ) | | (10,237 | ) | | 9,175 |
|
Equity in loss of nonconsolidated affiliates | (24 | ) | | | (66 | ) | | (90 | ) | | (63 | ) |
Other income (expense), net | (9,157 | ) | | | 23 |
| | (9,134 | ) | | (22,474 | ) |
Reorganization items, net | — |
| | | 9,461,826 |
| | 9,461,826 |
| | (260,795 | ) |
Income (loss) from continuing operations before income taxes | 54,796 |
| | | 9,519,085 |
| | 9,573,881 |
| | (362,554 | ) |
Income tax benefit (expense) | (16,003 | ) | | | (39,095 | ) | | (55,098 | ) | | 20,701 |
|
Income (loss) from continuing operations | 38,793 |
| | | 9,479,990 |
| | 9,518,783 |
| | (341,853 | ) |
Income (loss) from discontinued operations, net of tax | — |
| | | 1,685,123 |
| | 1,685,123 |
| | (157,477 | ) |
Net income (loss) | 38,793 |
| | | 11,165,113 |
| | 11,203,906 |
| | (499,330 | ) |
Less amount attributable to noncontrolling interest | — |
| | | (19,028 | ) | | (19,028 | ) | | (12,437 | ) |
Net income (loss) attributable to the Company | $ | 38,793 |
| | | $ | 11,184,141 |
| | $ | 11,222,934 |
| | $ | (486,893 | ) |
The tables below present the comparison of our revenue streams for the periods presented:
|
| | | | | | | | | | | | | | | | |
(In thousands) | Successor Company | | | Predecessor Company | | Non-GAAP Combined | | Predecessor Company |
| Period from May 2, 2019 through June 30, | | | Period from April 1, 2019 through May 1, | | Three Months Ended June 30, | | Three Months Ended June 30, |
| 2019 | | | 2019 | | 2019 | | 2018 |
Broadcast Radio | $ | 390,540 |
| | | $ | 170,632 |
| | $ | 561,172 |
| | $ | 568,968 |
|
Digital | 64,238 |
| | | 26,840 |
| | 91,078 |
| | 68,574 |
|
Networks | 105,426 |
| | | 50,889 |
| | 156,315 |
| | 146,981 |
|
Sponsorship and Events | 31,790 |
| | | 10,617 |
| | 42,407 |
| | 41,256 |
|
Audio and Media Services | 40,537 |
| | | 17,970 |
| | 58,507 |
| | 61,417 |
|
Other | 4,236 |
| | | 1,483 |
| | 5,719 |
| | 6,169 |
|
Eliminations | (1,121 | ) | | | (757 | ) | | (1,878 | ) | | (1,601 | ) |
Revenue, total | $ | 635,646 |
| | | $ | 277,674 |
| | $ | 913,320 |
| | $ | 891,764 |
|
|
| | | | | | | | | | | | | | | | |
(In thousands) | Successor Company | | | Predecessor Company | | Non-GAAP Combined | | Predecessor Company |
| Period from May 2, 2019 through June 30, | | | Period from January 1, 2019 through May 1, | | Six Months Ended June 30, | | Six Months Ended June 30, |
| 2019 | | | 2019 | | 2019 | | 2018 |
Broadcast Radio | $ | 390,540 |
| | | $ | 657,864 |
| | $ | 1,048,404 |
| | $ | 1,059,111 |
|
Digital | 64,238 |
| | | 102,789 |
| | 167,027 |
| | 127,941 |
|
Networks | 105,426 |
| | | 189,088 |
| | 294,514 |
| | 279,032 |
|
Sponsorship and Events | 31,790 |
| | | 50,330 |
| | 82,120 |
| | 79,148 |
|
Audio and Media Services | 40,537 |
| | | 69,362 |
| | 109,899 |
| | 110,759 |
|
Other | 4,236 |
| | | 6,606 |
| | 10,842 |
| | 11,818 |
|
Eliminations | (1,121 | ) | | | (2,568 | ) | | (3,689 | ) | | (3,273 | ) |
Revenue, total | $ | 635,646 |
| | | $ | 1,073,471 |
| | $ | 1,709,117 |
| | $ | 1,664,536 |
|
Reconciliation of Net Income (Loss)(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 | |
|
| | | | | | | | | | | | | | | | |
(In thousands) | Successor Company | | | Predecessor Company | | Non-GAAP Combined | | Predecessor Company |
| Period from May 2, 2019 through June 30, | | | Period from April 1, 2019 through May 1, | | Three Months Ended June 30, | | Three Months Ended June 30, |
| 2019 | | | 2019 | | 2019 | | 2018 |
Net income (loss) | $ | 38,793 |
| | | $ | 11,300,714 |
| | $ | 11,339,507 |
| | $ | (66,290 | ) |
(Income) loss from discontinued operations, net of tax | — |
| | | (1,854,677 | ) | | (1,854,677 | ) | | 33,229 |
|
Income tax expense | 16,003 |
| | | 100,289 |
| | 116,292 |
| | 142,032 |
|
Interest expense (income), net | 69,711 |
| | | (400 | ) | | 69,311 |
| | 10,613 |
|
Depreciation and amortization | 59,383 |
| | | 14,544 |
| | 73,927 |
| | 64,877 |
|
EBITDA from continuing operations | $ | 183,890 |
| | | $ | 9,560,470 |
| | $ | 9,744,360 |
| | $ | 184,461 |
|
Reorganization items, net | — |
| | | (9,497,944 | ) | | (9,497,944 | ) | | 68,740 |
|
Gain on investments, net | — |
| | | — |
| | — |
| | (9,175 | ) |
Other (income) expense, net | 9,157 |
| | | (150 | ) | | 9,007 |
| | 2,058 |
|
Equity in loss of nonconsolidated affiliates | 24 |
| | | 59 |
| | 83 |
| | 32 |
|
Other operating (income) expense, net | (3,246 | ) | | | 127 |
| | (3,119 | ) | | 1,218 |
|
Share-based compensation | 3,039 |
| | | 105 |
| | 3,144 |
| | 594 |
|
Restructuring and reorganization expenses | 1,889 |
| | | 5,430 |
| | 7,319 |
| | 6,856 |
|
Adjusted EBITDA from continuing operations(1) | $ | 194,753 |
| | | $ | 68,097 |
| | $ | 262,850 |
| | $ | 254,784 |
|
|
| | | | | | | | | | | | | | | | |
(In thousands) | Successor Company | | | Predecessor Company | | Non-GAAP Combined | | Predecessor Company |
| Period from May 2, 2019 through June 30, | | | Period from January 1, 2019 through May 1, | | Six Months Ended June 30, | | Six Months Ended June 30, |
| 2019 | | | 2019 | | 2019 | | 2018 |
Net income (loss) | $ | 38,793 |
| | | $ | 11,165,113 |
| | $ | 11,203,906 |
| | $ | (499,330 | ) |
(Income) loss from discontinued operations, net of tax | — |
| | | (1,685,123 | ) | | (1,685,123 | ) | | 157,477 |
|
Income tax (benefit) expense | 16,003 |
| | | 39,095 |
| | 55,098 |
| | (20,701 | ) |
Interest expense (income), net | 69,711 |
| | | (499 | ) | | 69,212 |
| | 331,746 |
|
Depreciation and amortization | 59,383 |
| | | 52,834 |
| | 112,217 |
| | 132,251 |
|
EBITDA from continuing operations | $ | 183,890 |
| | | $ | 9,571,420 |
| | $ | 9,755,310 |
| | $ | 101,443 |
|
Reorganization items, net | — |
| | | (9,461,826 | ) | | (9,461,826 | ) | | 260,795 |
|
(Gain) loss on investments, net | — |
| | | 10,237 |
| | 10,237 |
| | (9,175 | ) |
Other (income) expense, net | 9,157 |
| | | (23 | ) | | 9,134 |
| | 22,474 |
|
Equity in loss of nonconsolidated affiliates | 24 |
| | | 66 |
| | 90 |
| | 63 |
|
Impairment charges | — |
| | | 91,382 |
| | 91,382 |
| | — |
|
Other operating (income) expense, net | (3,246 | ) | | | 154 |
| | (3,092 | ) | | 4,450 |
|
Share-based compensation | 3,039 |
| | | 498 |
| | 3,537 |
| | 1,172 |
|
Restructuring and reorganization expenses | 1,889 |
| | | 13,241 |
| | 15,130 |
| | 13,536 |
|
Adjusted EBITDA from continuing operations(1) | $ | 194,753 |
| | | $ | 225,149 |
| | $ | 419,902 |
| | $ | 394,758 |
|
| |
(1) | We define Adjusted EBITDA as consolidated Operating income adjusted to exclude restructuring and reorganization expenses included within Direct operating expenses, Selling, General and Administrative expenses, (“SG&A”) and Corporate expenses and non-cash compensation expenses included within Corporate expenses, as well as the following line items presented(1)Increase in our Statements of Operations: |
Depreciation and amortization;amortization is driven by the application of fresh start accounting, resulting in significantly higher value of our 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 reorganization expenses included within Direct operating expenses, SG&A expenses, Corporate expenses and share-based compensation expenses included within Corporate expenses, as well as the following line items presented in our Statements of Operations: Depreciation and amortization, Impairment charges;charges and Other operating income (expense), net. Alternatively, Adjusted EBITDA is calculated as Net income (loss), adjusted to exclude (Income) loss from discontinued operations, net of tax, Income tax (benefit) expense, Interest expense (income), net, Depreciation and amortization, Reorganization items, net, Other (income) expense, net, Gain (loss)(Gain) Loss on investments, net, Other (income) expense, net, Equity in earnings (loss)loss of nonconsolidated affiliates, net, Impairment charges, Other operating (income) expense, net, Share-based compensation expense, and Restructuringrestructuring and reorganization expenses. Restructuring expenses primarily include severance expenses incurred in connection with cost saving initiatives.initiatives, as well as certain expenses, which, in the view of management, are outside the ordinary course of business or otherwise not representative of the Company's operations during a normal business cycle. Reorganization expenses primarily include the amortization of retention bonus amounts paid or payable to certain members of management directly as a result of the Reorganization. We use Adjusted EBITDA, among other measures, to evaluate the Company’s operating performance. This measure is among the primary measures used by management for the planning and forecasting of future periods, as well as for measuring performance for compensation of executives and other members of management. We believe this measure is an important indicator of our operational strength and performance of our business because it provides a link between operational performance and operating income. It is also a primary measure used by management in evaluating companies as potential acquisition targets. We believe the presentation of this measure is relevant and useful for investors because it allows investors to view performance in a manner similar to the method used by management. We believe it helps improve investors’ ability to understand our operating performance and makes it easier to compare our results with other companies that have different capital structures or tax rates. In addition, we believe this measure is also among the primary measures used externally by our investors, analysts and peers in our industry for purposes of valuation and comparing our operating performance to other companies in our industry. Since Adjusted EBITDA is not a measure calculated in accordance with GAAP, it should not be considered in isolation of, or as a substitute for, operating income 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 measure,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 Company's Consolidated Statements of Cash Flows. We use Free Cash Flow, among other measures, to evaluate the Company’s liquidity and its ability to generate cash flow. We believe that Free Cash Flow is meaningful to investors because we review cash flows generated from operations after taking into consideration capital expenditures due to the fact that these expenditures are considered to be a necessary component of ongoing 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 accordance with GAAP, it should not be considered in isolation of, or as a substitute for, Cash provided by operating activities and may not be comparable to similarly titled measures employed by other companies. Free Cash Flow is not necessarily a measure of our ability to fund our cash needs.
Share-Based Compensation Expense
Historically, 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 entered intoadopted in connection with the effectiveness of our Plan of Reorganization, we have granted restricted stock units and options to purchase shares of the Company's Class A common stock to certain key individuals.
Share-based compensation expenses are recorded in corporate expenses and were $3.1$4.2 million and $0.6$3.1 million for the three months ended June 30, 20192020 and 2018,2019, respectively, and $3.5$8.8 million and $1.2$3.5 million for the six months ended June 30, 20182020 and 2017,2019, respectively.
As of June 30, 2019,2020, there was $79.0$48.1 million of unrecognized compensation cost related to unvested share-based compensation arrangements with vesting based on service conditions. This cost is expected to be recognized over a weighted average period of approximately 3.93 years. In addition, as of June 30, 2019, there was $3.4 million of unrecognized compensation cost related to unvested share-based compensation arrangements with vesting 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 periods 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 | |
|
| | | | | | | | | | | | | | | | |
(In thousands) | Successor Company | | | Predecessor Company | | Non-GAAP Combined | | Predecessor Company |
| Period from May 2, 2019 through June 30, | | | Period from January 1, 2019 through May 1, | | Six Months Ended June 30, | | Six Months Ended June 30, |
| 2019 | | | 2019 | | 2019 | | 2018 |
Cash provided by (used for): | | | | | | | | |
Operating activities | $ | 83,201 |
| | | $ | (40,186 | ) | | $ | 43,015 |
| | $ | 444,357 |
|
Investing activities | $ | (17,787 | ) | | | $ | (261,144 | ) | | $ | (278,931 | ) | | $ | (78,285 | ) |
Financing activities | $ | (684 | ) | | | $ | (55,557 | ) | | $ | (56,241 | ) | | $ | (360,821 | ) |
(1) 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.
Operating Activities
Cash provided by operating activities for the six months ended June 30, 2020 was $102.9 million compared to $43.0 million duringof cash provided by operating activities in the six months ended June 30, 2019.
Cash provided by operating activities from continuing operations increased from $75.7 million in the six months ended June 30, 2019 compared to $444.4$102.9 million of cash provided by operating activities duringin the six months ended June 30, 2018. The decrease2020 primarily as a result of changes in cash providedworking capital balances, particularly accounts receivable, as well as accounts payable and accrued expenses, which were affected by operating activities is primarily attributed to cashthe timing of payments. In addition, we paid in relation to Reorganization items, net of $196.3 million during the six months ended June 30, 2019 the impact of Separation of CCOH of $115.9 million and changes in working capital balances, particularly accounts payable, which were affectedrelation to Reorganization items, net. The increase in cash provided by operating activities was offset by a decrease in Revenue driven by the timingdecline 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 payments. Cash paid for interest was $137.5 million during the six months ended June 30, 2019payments on our debt issued upon our emergence compared to $206.9 million during the six months ended June 30, 2018. The decrease of $69.5 million in cash paid forpre-petition interest is due primarily to the interest paid on long-term debtpayments made in the Predecessor period prior to the Petition Date.year. The Company ceased to paypaying interest on long-term debt classified as Liabilities subject to compromise fromafter the Petition Date.March 14, 2018 petition date.
Investing Activities
Cash used for investing activities of $50.7 million during the six months ended June 30, 2020 primarily reflects $39.5 million in cash used for capital expenditures. We spent $32.8 million for capital expenditures in our Audio segment primarily related to IT infrastructure, $1.6 million in our Audio & Media Services segment, primarily related to acquired software and $5.1 million in Corporate primarily related to equipment and software purchases.
Cash used for investing activities of $278.9 million during the six months ended June 30, 2019 primarily reflects $222.4 million in cash used for investing activities from discontinued operations. In addition, we used $53.6 million for capital expenditures. We spent $44.7 million for capital expenditures in our Audio segment primarily related to IT infrastructure, $2.1 million in our Audio & Media Services segment, primarily related to acquired software and $6.8 million in Corporate primarily related to equipment and software purchases.
Financing Activities
Cash used for investingprovided by financing activities of $78.3$65.5 million during the six months ended June 30, 20182020 primarily reflects $58.3resulted from the $350.0 million in cash used for investing activities from discontinued operations. In addition, we used $27.3draw on our ABL Facility, partially offset by the $150.0 million for capital expenditures. We spent $23.9 prepayment on our Term Loan Facility and repayments of $115.0 million for capital expenditures in our Audio segment primarily related to IT infrastructure, $0.8 million in our Audio & Media Services segment, primarily related to acquired software and $2.7 million in Corporate primarily related to equipment and software purchases.
Financing Activities of amounts drawn under the ABL Facility.
Cash used for financing activities ofwas $56.2 million during the six months ended June 30, 2019 primarily resulted from the payment by iHeartCommunications to CCOH as CCOH's recovery of its claims under the Due from iHeartCommunications Note, partially offset by $60.0 million in proceeds received from the issuance of the iHeart Operations Preferred Stock.
Cash used for financing activities of $360.8 million during the six months ended June 30, 2018 primarily resulted from payments on long-term debt and on our receivables based credit facility. In connection with the replacement of the iHeartCommunications' receivables based credit facility with a new DIP Facility on June 14, 2018, we repaid the outstanding $306.4 million and $74.3 million balances of the receivables based credit facility's term loan and revolving credit commitments, respectively.
Anticipated Cash Requirements
The Separation and Reorganization resulted in a new capital structure with significantly lower levels of long-term debt and a corresponding decrease in debt service requirements after emergence compared to historical debt levels. As a result of the Separation and Reorganization, our consolidated long-term debt decreased from approximately $16 billion to $5.8 billion. In the six months ended June 30, 2019, we paid $137.5 million of cash interest, and incurred contractual interest of $533.4 million that was not paid.
In connection with the Separation and Reorganization, we paid CCOH $115.8 million in settlement of intercompany payable balances, including settlement of the Due from iHeartCommunications Note and post-petition intercompany balances, $15.8 million to cure contracts, $17.5 million for general unsecured claims, and $196.3 million for professional fees (of which $125 million was paid on the Effective Date).
Our primary sources of liquidity are cash on hand, which consisted of $127.2$517.7 million as of June 30, 2019,2020, cash flow from operations and borrowing capacity under our $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 uncertainty in the global economy resulting from 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 June 30, 2019, we2020, iHeartCommunications had a facility sizeborrowing base of $450.0$289.4 million under iHeartCommunications' ABL Facility, had noand utilization of $235.0 million in outstanding borrowings outstanding and $59.2$41.2 million ofin outstanding letters of credit, resulting in $390.8$13.2 million of excess availability.availability, 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 the 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 monitoring this rapidly evolving situation closely. While the challenges 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 the near term, we believe that we have sufficient liquidity to fund our operations for at least the next twelve months.
We expect that our primary anticipated uses of liquidity will be to fund our working capital, make interest payments, and voluntary prepayments of principal on our long-term debt and to fund capital expenditures and maintain operations in light of the COVID-19 pandemic and other obligations. These other obligations include dividend payments to be due to the investor of preferred stockholder of iHeart Operations Preferred Stock, the terms of which are further described in Note 86, Long-term Debt to our financial statements included herein. For 2019, weWe anticipate that we will have approximately
$400 $84 million of annual cash interest payments. payments in the third quarter of 2020 and approximately $170 million of cash interest payments in the remainder of 2020.
As a result of certain favorable tax provisions in the Coronavirus Aid, Relief and Economic 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 lower 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 2020, we implemented our modernization initiatives to 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 have also invested in numerous technologies and businesses to increase the competitiveness of our inventory with our advertisers and our audience.
1 Adjusted for the impact of the amendment 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 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.
2 Total available liquidity defined as cash and cash equivalents plus available borrowings under the ABL Facility. We use total available liquidity to evaluate our capacity to access cash to meet obligations and fund operations.
In response to the COVID-19 pandemic, in an effort to further strengthen the Company's financial flexibility and efficiently manage through the period of economic slowdown and uncertainty, the Company is continuing to take the following 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 believe will still enable the Company to make key investments to continue our strategic initiatives related to Smart Audio and Digital, including podcasting.
•Reduction in compensation for senior management and other employees of the Company, including a 100% reduction of the Company's Chief Executive Officer's annual base salary and bonus.
•Implementation of a furlough for certain employees that are non-essential at this time.
In addition, as a result of the decrease in revenue as a result of the COVID-19 pandemic, certain variable expenses including event production costs and sales commissions, as well as other variable compensation, showed a corresponding decrease.
We believe that our cash balance, our cash flow from operations and availability under our ABL Facility provide us with sufficient liquidity to fund our core operations, maintain key personnel and meet our other material obligations. In addition, none of our long-term debt includes maintenance covenants that could trigger early repayment. We fully appreciate the unprecedented challenges posed by the COVID-19 pandemic, however, we remain confident in our business, our employees and our strategy. We believe that our ability to generate cash flow from operations from theseour business initiatives, our current cash on hand and borrowing capacityavailability under ourthe ABL Facility taken together, will provide sufficient resources to fund and operate our business, fund capital expenditures and other obligations and make interest payments and voluntary prepayments of principal on our long-term debt for at least the next 12 months and thereafter formonths. If these sources of liquidity need to be augmented, additional cash requirements would likely be financed through the foreseeableissuance of debt or equity securities; however, there can be no assurances that we will be able to obtain additional debt or equity financing on acceptable terms or at all in the future.
On August 7, 2019,February 3, 2020, iHeartCommunications completed the sale of $750.0made a $150.0 million in aggregate principal amount of 5.25% Senior Secured Notes due 2027 (the "New Senior Secured Notes") in a private placement. We used the net proceeds from the New Senior Secured Notes, together withprepayment using cash on hand and entered into an agreement to prepay at par $740.0 million of borrowings outstanding under our Term Loan Facility. Our Term Loan Facility called for quarterly principal payments of approximately $8.75 million in addition to interest payments at LIBOR + 4.00%. As a result of our $740 million prepayment, no such principal payments are required for the remaining term ofamend the Term Loan Facility -to reduce the interest rate to LIBOR plus a margin of 3.00%, or the Base Rate (as defined in the Credit Agreement plus a margin of 2.00% and to modify certain covenants contained in the Credit Agreement.
On July 16, 2020, iHeartCommunications entered into an additional amendment to the Credit Facility (“Amendment No. 2”) to provide for $450.0 million, resulting in net proceeds of $425.8 million, after original issue discount and debt issuance costs. A portion of the proceeds from the issuance was used to repay the remaining balance outstanding under the ABL Facility of $235.0 million, with the remaining $190.6 million of the proceeds available for general corporate purposes. The incremental term loans issued pursuant to Amendment No. 2 have an approximately $35 million annual reductioninterest 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”), iHeartCommunications and CCOH, for one year from the Effective Date, we have agreed to provide, CCOH with certain administrative and support services and other assistance which CCOH will utilize in required debtthe conduct of its business as such business 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 certain information systems and other limited support services. CCOH has requested extensions of the term for certain individual services, primarily related to information systems, for one-month periods through August 31, 2020 and may request further one-month extensions of such services up to May 1, 2021.
CCOH may terminate the Transition Services Agreement with respect to all or any individual service, payments.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 consolidated financial statements located in Item 1 of this Quarterly Report on Form 10-Q for a further description.
New Tax Matters Agreement
In connection with the Separation, we entered into the New Tax Matters Agreement by and among iHeartMedia, iHeartCommunications, iHeart Operations, Inc., CCH, CCOH and Clear Channel Outdoor, Inc., to allocate the responsibility of iHeartMedia and its subsidiaries, on the one hand, and CCOH and its subsidiaries, on the other, for the payment of taxes arising prior and subsequent to, and in connection with, the Separation.
The New Tax Matters Agreement requires that iHeartMedia and iHeartCommunications indemnify CCOH and its subsidiaries, and their respective directors, officers and employees, and hold them harmless, on an after-tax basis, from and against certain tax claims related to the Separation. In addition, annual cash interest payments are expected to be approximately $7 million lower than would have been required before the refinancing transaction.New Tax Matters Agreement requires that CCOH indemnify iHeartMedia for certain income taxes paid by iHeartMedia on behalf of CCOH and its subsidiaries.
Sources of Capital
As of June 30, 20192020 and December 31, 2018,2019, 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) | Successor Company | | | Predecessor Company |
| June 30, 2019 | | | December 31, 2018 |
Term Loan Facility due 2026(1) | $ | 3,498.2 |
| | | $ | — |
|
Debtors-in-Possession Facility(2) | — |
| | | — |
|
Asset-based Revolving Credit Facility due 2023(2) | — |
| | | — |
|
6.375% Senior Secured Notes due 2026 | 800.0 |
| | | — |
|
Other Secured Subsidiary Debt | 4.4 |
| | | — |
|
Total Secured Debt | 4,302.6 |
| | | — |
|
| | | | |
8.375% Senior Unsecured Notes due 2027 | 1,450.0 |
| | | — |
|
Other Subsidiary Debt | 57.9 |
| | | 46.1 |
|
Liabilities subject to compromise(3) | — |
| | | 15,149.5 |
|
Total Debt | 5,810.5 |
| | | 15,195.6 |
|
Less: Cash and cash equivalents | 127.2 |
| | | 224.0 |
|
| $ | 5,683.3 |
| | | $ | 14,971.6 |
|
| |
(1) | On August 7, 2019, iHeartCommunications issued the New Senior Secured Notes, the proceeds of which were used, together with(1)On February 3, 2020, iHeartCommunications made a $150.0 million prepayment using cash on hand to prepay at par $740.0 million of borrowings outstanding under the Term Loan Facility, plus approximately $0.8 million of accrued and unpaid interest to, but not including, the date of prepayment. |
| |
(2) | The Debtors-in-Possession Facility (the "DIP" Facility), which terminated with our emergence from the Chapter 11 Cases, provided for borrowings of up to $450.0 million. On the Effective Date, the DIP Facility was repaid and canceled and we entered into the ABL Facility. As of June 30, 2019, we had a facility size of $450.0 million under iHeartCommunications' ABL Facility, had no outstanding borrowings and had $59.2 million of outstanding letters of credit, resulting in $390.8 million of excess availability. |
| |
(3) | In connection with our Chapter 11 Cases, the $6.3 billion outstanding under the Senior Secured Credit Facilities, the $1,999.8 million outstanding under the 9.0% Priority Guarantee Notes due 2019, the $1,750.0 million outstanding under the 9.0% Priority Guarantee Notes due 2021, the $870.5 million of 11.25% Priority Guarantee Notes due 2021, the $1,000.0 million outstanding under the 9.0% Priority Guarantee Notes due 2022, the $950.0 million outstanding under the 10.625% Priority Guarantee Notes due 2023, $6.0 million outstanding Other Secured Subsidiary Debt, the $1,781.6 million outstanding under the 14.0% Senior Notes due 2021, the $475.0 million outstanding under the Legacy Notes and $10.8 million outstanding Other Subsidiary Debt were reclassified to Liabilities subject to compromise in our Consolidated Balance Sheet as of December 31, 2018. As of the Petition Date, we ceased accruing interest expense in relation to long-term debt reclassified as Liabilities subject to compromise. |
Asset-based Revolving Credit Facility due 2023
On the Effective Date, iHeartCommunications, as borrower, entered into a Credit Agreement (the “ABL Credit Agreement”) with iHeartMedia Capital I, LLC, the direct parent of iHeartCommunications (“Capital I”), as guarantor, certain subsidiaries of iHeartCommunications, as guarantors, Citibank, N.A., as administrative and collateral agent, and the lenders party thereto from timean agreement to time, governing the ABL Facility. The ABL Facility includes a letter of credit sub-facility and a swingline loan sub-facility.
Size and Availability
The ABL Facility provides for a senior secured asset-based revolving credit facility in the aggregate principal amount of up to $450.0 million, with amounts available from time to time (including in respect of letters of credit) equal to the lesser of (A) the borrowing base, which equals the sum of (i) 90.0% of the eligible accounts receivable of iHeartCommunications and the subsidiary guarantors and (ii) 100% of qualified cash, each subject to customary reserves and eligibility criteria, and (B) the aggregate revolving credit commitments. Subject to certain conditions, iHeartCommunications may at any time request one or more increases in the amount of revolving credit commitments, in an amount up to the sum of (x) $150.0 million and (y) the amount by which the borrowing base exceeds the aggregate revolving credit commitments.
Interest Rate and Fees
Borrowings under the ABL Facility bear interest at a rate per annum equal to the applicable rate plus, at iHeartCommunications’ option, either (1) a eurocurrency rate or (2) a base rate. The applicable margin for borrowings under the ABL Facility range from 1.25% to 1.75% for eurocurrency borrowings and from 0.25% to 0.75% for base-rate borrowings, in each case, depending on average excess availability under the ABL Facility based on the most recently delivered borrowing base certificate.
In addition to paying interest on outstanding principal under the ABL Facility, iHeartCommunications is required to pay a commitment fee to the lenders under the ABL Facility in respect of the unutilized commitments thereunder. The commitment fee rate ranges from 0.25% to 0.375% per annum dependent upon average unused commitments during the prior quarter. iHeartCommunications may also pay customary letter of credit fees.
Maturity
Borrowings under the ABL Facility will mature, and lending commitments thereunder will terminate on June 14, 2023.
Prepayments
If at any time, the sum of the outstanding amounts under the ABL Facility exceeds the lesser of (i) the borrowing base and (ii) the aggregate commitments under the facility (such lesser amount, the “line cap”), iHeartCommunications is required to repay outstanding loans and cash collateralize letters of credit in an aggregate amount equal to such excess. iHeartCommunications may voluntarily repay outstanding loans under the ABL Facility at any time without premium or penalty, other than customary “breakage” costs with respect to eurocurrency rate loans. Any voluntary prepayments made by iHeartCommunications will not reduce iHeartCommunications’ commitments under the ABL Facility.
Guarantees and Security
The ABL Facility is guaranteed by, subject to certain exceptions, the guarantors of iHeartCommunications’ Term Loan Facility. All obligations under the ABL Facility, and the guarantees of those obligations, are secured by a perfected security interest in the accounts receivable and related assets of iHeartCommunications’ and the guarantors’ accounts receivable, qualified cash and related assets and proceeds thereof that is senior to the security interest of iHeartCommunications’ Term Loan Facility in such accounts receivable, qualified cash and related assets and proceeds thereof, subject to permitted liens and certain exceptions.
Certain Covenants and Events of Default
If borrowing availability is less than the greater of (a) $40.0 million and (b) 10% of the aggregate commitments under the ABL Facility, in each case, for two consecutive business days (a “Trigger Event”), iHeartCommunications will be required to comply with a minimum fixed charge coverage ratio of at least 1.00 to 1.00 for fiscal quarters ending on or after the occurrence of the Trigger Event, and must continue to comply with this minimum fixed charge coverage ratio until borrowing availability exceeds the greater of (x) $40.0 million and (y) 10% of the aggregate commitments under the ABL Facility, in each case, for 20 consecutive calendar days, at which time the Trigger Event shall no longer be deemed to be occurring.
Term Loan Facility due 2026
On the Effective Date, iHeartCommunications, as borrower, entered into a Credit Agreement (the “Term Loan Credit Agreement”) with Capital I, as guarantor, certain subsidiaries of iHeartCommunications, as guarantors, and Citibank N.A., as administrative and collateral agent, governing the approximately $3.5 billion Term Loan Facility. On the Effective Date, iHeartCommunications issued an aggregate of approximately $3.5 billion principal amount of senior secured term loans underamend the Term Loan Facility to reduce the interest rate to LIBOR plus a margin of 3.00%, or the Base Rate (as defined in the Credit Agreement) plus a margin of 2.00% and to modify certain Claimholders pursuant tocovenants contained in the Plan of Reorganization. The Term Loan Facility matures on May 1, 2026.Credit Agreement.
Interest Rate and Fees
Term loans(2)On March 13, 2020, iHeartCommunications borrowed $350.0 million under the Term LoanABL Facility, bear interest at a rate per annum equal to the applicable rate plus, at iHeartCommunications’ option, either (1) a base rate or (2) a eurocurrency rate. The applicable rate for such term loans is 3.00% with respect to base rate loans and 4.00% with respect to eurocurrency rate loans.
Collateral and Guarantees
The Term Loan Facility is guaranteed by Capital I and eachproceeds of iHeartCommunications’ existing and future material wholly-owned restricted subsidiaries, subject to certain exceptions. All obligationswhich were invested as cash on the Balance Sheet. During the three months ended June 30, 2020, iHeartCommunications voluntarily repaid $115.0 million principal amount drawn under the Term LoanABL Facility. As of June 30, 2020, the ABL 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 guarantees of those obligations,ABL Facility are secured, subjectcalculated using a borrowing base calculated by reference to permitted liens and other exceptions, by a first priority lienour outstanding accounts receivable. To the extent decreases in substantially all of the assets of iHeartCommunications and all of the guarantors’ assets, including a lien on the capital stock of iHeartCommunications and certain of its subsidiaries owned by a guarantor, other than theour accounts receivable and related assets of iHeartCommunications and all ofresult in the subsidiary guarantors, and by a second priority lien on accounts receivable and related assets securing iHeartCommunications’ ABL Facility.
Prepayments
iHeartCommunications isborrowing base decreasing to an amount below the amount drawn, we may be required to prepaymake a partial repayment of amounts outstanding under our ABL Facility.
(3)On July 16, 2020, iHeartCommunications issued $450.0 million of incremental term loans under the Term Loan Facility, subject to certain exceptions, with:
50% (which percentage may be reduced to 25% and to 0% based upon iHeartCommunications’ first lien leverage ratio) of iHeartCommunications’ annual excess cash flow, subject to customary credits, reductions and exclusions;
100% (which percentage may be reduced to 50% and 0% based upon iHeartCommunications’ first lien leverage ratio) of the net cash proceeds of sales or other dispositions of the assets of iHeartCommunications or its wholly owned restricted subsidiaries, subject to reinvestment rights and certain other exceptions; and
100% of the net cash proceeds of any incurrence of debt, other than debt permitted under the Term Loan Facility.
iHeartCommunications may voluntarily repay outstanding loans under the Term Loan Facility at any time, without prepayment premium or penalty, exceptAmendment No. 2, resulting in connection with a repricing event within nine months of the Effective Date and subject to customary “breakage” costs with respect to eurocurrency loans.
Certain Covenants and Events of Default
The Term Loan Facility does not include any financial covenants. However, the Term Loan Facility includes negative covenants that, subject to significant exceptions, limit Capital I’s ability and the ability of its restricted subsidiaries (including iHeartCommunications) to, among other things:
incur additional indebtedness;
create liens on assets;
engage in mergers, consolidations, liquidations and dissolutions;
sell assets;
pay dividends and distributions or repurchase Capital I’s capital stock;
make investments, loans, or advances;
prepay certain junior indebtedness;
engage in certain transactions with affiliates;
amend material agreements governing certain junior indebtedness; and
change lines of business.
The Term Loan Facility includes certain customary representations and warranties, affirmative covenants and events of default, including but not limited to, payment defaults, breach of representations and warranties, covenant defaults, cross defaults to certain indebtedness, certain bankruptcy-related events, certain events under ERISA, material judgments and a change of control. If an event of default occurs, the lenders under the Term Loan Facility are entitled to take various actions, including the acceleration of all amounts due under the Term Loan Facility and all actions permitted to be taken under the loan documents relating thereto or applicable law.
6.375% Senior Secured Notes due 2026
On the Effective Date, iHeartCommunications entered into an indenture (the “Senior Secured Notes Indenture”) with Capital I, as guarantor, the subsidiary guarantors party thereto, and U.S. Bank National Association, as trustee and collateral agent, governing the $800.0 million aggregate principal amount of 6.375% Senior Secured Notes due 2026 that were issued to certain Claimholders pursuant to the Plan of Reorganization. The Senior Secured Notes mature on May 1, 2026 and bear interest at a rate of 6.375% per annum, payable semi-annually in arrears on February 1 and August 1 of each year, beginning on February 1, 2020.
The Senior Secured Notes are guaranteed on a senior secured basis by Capital I and the subsidiaries of iHeartCommunications that guarantee the Term Loan Facility or other credit facilities or capital markets debt securities. The Senior Secured Notes and the related guarantees rank equally in right of payment with all of iHeartCommunications’ and the guarantors’ existing and future indebtedness that is not expressly subordinated to the Senior Secured Notes (including the Senior Unsecured Notes), effectively equal with iHeartCommunications’ and the guarantors’ existing and future indebtedness secured by a first priority lien on the collateral securing the Senior Secured Notes, effectively subordinated in right of payment to all of iHeartCommunications’ and the guarantors’ existing and future indebtedness that is secured by assets that are not part of the collateral securing the Senior Secured Notes, to the extent of the value of such assets, and structurally subordinated in right of payment to all existing and future indebtedness and other liabilities of any subsidiary of iHeartCommunications that is not a guarantor of the Senior Secured Notes.
The Senior Secured Notes and the related guarantees are secured, subject to permitted liens and certain other exceptions, by a first priority lien on the capital stock of iHeartCommunications and substantially all of the assets of iHeartCommunications and the guarantors, other than accounts receivable and related assets, and by a second priority lien on accounts receivable and related assets securing the ABL Facility.
iHeartCommunications may redeem the Senior Secured Notes at its option, in whole or in part, at any time prior to May 1, 2022, at a price equal to 100% of the principal amount of the Senior Secured Notes being redeemed, plus an applicable premium and plus accrued and unpaid interest to the redemption date. iHeartCommunications may redeem the Senior Secured Notes at its option, in whole or in part, on or after May 1, 2022, at the redemption prices set forth in the Senior Secured Notes Indenture plus accrued and unpaid interest to the redemption date. At any time prior to May 1, 2022, iHeartCommunications may redeem at its option, up to 40% of the aggregate principal amount of the Senior Secured Notes at a redemption price equal to 106.375% of the principal amount thereof, plus accrued and unpaid interest to the redemption date, with the proceeds of one or more equity offerings.
The Senior Secured Notes Indenture contains covenants that limit the ability of Capital I and its restricted subsidiaries, including iHeartCommunications, to, among other things:
incur or guarantee additional debt or issue certain preferred stock;
make certain restricted payments;
create restrictions on distributions to iHeartCommunications or Capital I;
sell certain assets;
create liens on certain assets;
enter into certain transactions with affiliates; and
merge or consolidate with another person, or sell or otherwise dispose of all or substantially all of its assets.
8.375% Senior Unsecured Notes due 2027
On the Effective Date, iHeartCommunications entered into an indenture (the “Senior Unsecured Notes Indenture”) with Capital I, as guarantor, the subsidiary guarantors party thereto, and U.S. Bank National Association, as trustee, governing the $1,450.0 million aggregate principal amount of 8.375% Senior Notes due 2027 that were issued to certain Claimholders pursuant to the Plan of Reorganization. The Senior Unsecured Notes mature on May 1, 2027 and bear interest at a rate of 8.375% per annum, payable semi-annually in arrears on May 1 and November 1 of each year, beginning on November 1, 2019.
The Senior Unsecured Notes are guaranteed on a senior unsecured basis by Capital I and the subsidiaries of iHeartCommunications that guarantee the Term Loan Facility or other credit facilities or capital markets debt securities. The Senior Unsecured Notes and the related guarantees rank equally in right of payment with all of iHeartCommunications’ and the guarantors’ existing and future indebtedness that is not expressly subordinated to the Senior Unsecured Notes, effectively subordinated in right of payment to all of iHeartCommunications’ and the guarantors’ existing and future indebtedness that is secured (including the Senior Secured Notes and borrowings under the ABL Facility and the Term Loan Facility), to the extent of the value of the collateral securing such indebtedness, and structurally subordinated in right of payment to all existing and future indebtedness and other liabilities of any subsidiary of iHeartCommunications that is not a guarantor of the Senior Unsecured Notes.
iHeartCommunications may redeem the Senior Unsecured Notes at its option, in whole or in part, at any time prior to May 1, 2022, at a price equal to 100% of the principal amount of the Senior Unsecured Notes being redeemed, plus an applicable premium and plus accrued and unpaid interest to the redemption date. iHeartCommunications may redeem the Senior Unsecured Notes at its option, in whole or in part, on or after May 1, 2022, at the redemption prices set forth in the Senior Unsecured Notes Indenture plus accrued and unpaid interest to the redemption date. At any time prior to May 1, 2022, iHeartCommunications may redeem at its option, up to 40% of the aggregate principal amount of the Senior Unsecured Notes at a redemption price equal to 108.375% of the principal amount thereof, plus accrued and unpaid interest to the redemption date, with the proceeds of one or more equity offerings.
The Senior Unsecured Notes Indenture contains covenants that limit the ability of Capital I and its restricted subsidiaries, including iHeartCommunications, to, among other things:
incur or guarantee additional debt or issue certain preferred stock;
make certain restricted payments;
create restrictions on distributions to iHeartCommunications or Capital I;
sell certain assets;
create liens on certain assets;
enter into certain transactions with affiliates; and
merge or consolidate with another person, or sell or otherwise dispose of all or substantially all of its assets.
5.25% Senior Secured Notes due 2027
On August 7, 2019, iHeartCommunications entered into an indenture (the “New Senior Secured Notes Indenture”) with the guarantors party thereto, and U.S. Bank National Association, as trustee and collateral agent, governing the $750.0 million aggregate principal amount of 5.25% Senior Secured Notes due 2027 that were issued in a private placement to qualified institutional buyers under Rule 144A under the Securities Act, and to persons outside the United States pursuant to Regulation S under the Securities Act. The New Senior Secured Notes mature on August 15, 2027 and bear interest at a rate of 5.25% per annum. Interest will be payable semi-annually on February 15 and August 15 of each year, beginning on February 15, 2020.
The New Senior Secured Notes are guaranteed on a senior secured basis by Capital I and the subsidiaries of iHeartCommunications that guarantee the Term Loan Facility. The New Senior Secured Notes and the related guarantees rank equally in right of payment with all of iHeartCommunications’ and the guarantors’ existing and future indebtedness that is not expressly subordinated to the New Senior Secured Notes (including the Term Loan Facility, the Senior Secured Notes and the Senior Unsecured Notes), effectively equal with iHeartCommunications’ and the guarantors’ existing and future indebtedness secured by a first priority lien on the collateral securing the New Senior Secured Notes, effectively subordinated to all of iHeartCommunications’ and the guarantors’ existing and future indebtedness that is secured by assets that are not part of the collateral securing the New Senior Secured Notes, to the extent of the value of such collateral, and structurally subordinated to all existing and future indebtedness and other liabilities of any subsidiary of iHeartCommunications that is not a guarantor of the New Senior Secured Notes.
The New Senior Secured Notes and the related guarantees are secured, subject to permitted liens and certain other exceptions, by a first priority lien on the capital stock of iHeartCommunications and substantially all of the assets of iHeartCommunications and the guarantors, other than accounts receivable and related assets, and by a second priority lien on accounts receivable and related assets securing the ABL Facility.
iHeartCommunications may redeem the New Senior Secured Notes at its option, in whole or part, at any time prior to August 15, 2022, at a price equal to 100% of the principal amount of the New Senior Secured Notes redeemed, plus a make-whole premium, plus accrued and unpaid interest to the redemption date. iHeartCommunications may redeem the New Senior Secured Notes, in whole or in part, on or after August 15, 2022, at the redemption prices set forth in the New Senior Secured Notes Indenture plus accrued and unpaid interest to the redemption date. At any time on or before August 15, 2022, iHeartCommunications may elect to redeem up to 40% of the aggregate principal amount of the New Senior Secured Notes at a redemption price equal to 105.25% of the principal amount thereof, plus accrued and unpaid interest to the redemption date, with the net proceeds of one or more equity offerings.
The New Senior Secured Notes Indenture contains covenants that limit$425.8 million, after original issue discount and debt issuance costs. A portion of the ability of iHeartCommunications and its restricted subsidiaries,proceeds from the issuance was used to among other things:
incur or guarantee additional debt or issue certain preferred stock;
redeem, purchase or retire subordinated debt;
make certain investments;
create restrictionsrepay the remaining balance outstanding on the paymentCompany's ABL Facility of dividends or other amounts from iHeartCommunications’ restricted subsidiaries;
enter into certain transactions with affiliates;
merge or consolidate with another person, or sell or otherwise dispose of all or substantially all of iHeartCommunications’ assets;
sell certain assets, including capital stock of iHeartCommunications’ subsidiaries;
designate iHeartCommunications’ subsidiaries as unrestricted subsidiaries, and
pay dividends, redeem or repurchase capital stock or make other restricted payments.
Mandatorily Redeemable Preferred Stock
On the Effective Date, in accordance$235.0 million, with the Planremaining $190.6 million of Reorganization, iHeart Operations issued 60,000 sharesthe proceeds available for general corporate purposes.
For additional information regarding our debt refer to Note 6, Long-Term Debt.
Supplemental Financial Information under Debt Agreements and Certificate of its Series A Perpetual Preferred Stock, par value $0.001 per share (the "iHeart Operations Preferred Stock"), having an aggregate initial liquidation preference of $60.0 million for a cash purchase price of $60.0 million. The iHeart Operations Preferred Stock was purchased by a third party investor. As of June 30, 2019, the liquidation preference ofDesignation Governing the iHeart Operations Preferred Stock was approximately $60.0 million.
There are no sinking fund provisions applicable to the iHeart Operations Preferred Stock. Shares of the iHeart Operations Preferred Stock, upon issuance, were fully paid and non-assessable. The iHeart Operations Preferred Stock are not convertible into, or exchangeable for, shares of any other class or series of stock or other securities of iHeart Operations. The holders of shares of the iHeart Operations Preferred Stock have no pre-emptive rights with respect to any shares of our capital stock or any of iHeart Operations’ other securities convertible into or carrying rights or options to purchase any such capital stock.
Holders of the iHeart Operations Preferred Stock are entitled to receive, as declared by the board of directors of iHeart Operations, in respect of each share, cumulative dividends accruing daily and payable quarterly at a per annum rate equal to the sum of (1) the greater of (a) LIBOR and (b) two percent, plus (2) the applicable margin, which is calculated as a function of iHeartMedia’s consolidated total leverage ratio. Dividends will be payable on the liquidation preference. Unless all accrued and unpaid dividends on the iHeart Operations Preferred Stock are paid in full, no dividends or distributions may be paid on any equity interests of iHeartMedia or its subsidiaries other than iHeart Operations, and no such equity interests may be repurchased or redeemed (subject to certain exceptions that are specified in the certificate of designation for the iHeart Operations Preferred Stock). Dividends, if declared, will be payable on March 31, June 30, September 30 and December 31 of each year (or on the next business day if such date is not a business day).
Other than as set forth below, iHeart Operations may not redeem the iHeart Operations Preferred Stock at its option prior to the third anniversary of the issue date of the iHeart Operations Preferred Stock. Upon consummation of certain equity offerings, iHeart Operations may, at its option, redeem all or a part of the iHeart Operations Preferred Stock for the liquidation preference plus a make-whole premium. At any time on or after the third anniversary of the issue date, the iHeart Operations Preferred Stock may be redeemed at the option of iHeart Operations, in whole or in part, for cash at a redemption price equal to the liquidation preference per share.
Upon (i) a liquidation, dissolution or winding up of iHeart Operations, iHeartMedia or iHeartCommunications, together with the subsidiaries of such entity, taken as a whole, (ii) a bankruptcy event, (iii) a change of control, (iv) a sale or transfer of all or substantially all of iHeart Operations’, iHeartMedia’s or iHeartCommunications’ assets and the assets of such entity’s subsidiaries, taken as a whole in a single transaction (other than to iHeartMedia or any of its subsidiaries), or a series of transactions, (v) an acceleration or payment default of indebtedness of iHeart Operations, iHeartMedia or any of its subsidiaries of $100 million or more or (vi) consummation of certain equity offerings of iHeartMedia, iHeart Operations or iHeartCommunications or certain significant subsidiaries, then any holder of shares of iHeart Operations Preferred Stock may require iHeartMedia to purchase such holder’s shares of iHeart Operations Preferred Stock at a purchase price equal to (a) the liquidation preference plus a make-whole premium, if such purchase is consummated prior to the third anniversary of the issue date or (b) the liquidation preference, if the purchase is consummated on or after the third anniversary of the issue date.
The shares of iHeart Operations Preferred Stock include repurchase rights, pursuant to which the holders may require iHeartMedia or iHeartCommunications to purchase the iHeart Operations Preferred Stock after the fifth anniversary of the issue date.
On the tenth anniversary of the issue date, the shares of iHeart Operations Preferred Stock will be subject to mandatory redemption for an amount equal to the liquidation preference.
If a default occurs or dividends payable on the shares of iHeart Operations Preferred Stock have not been paid in cash for twelve consecutive quarters, the holders of the iHeart Operations Preferred Stock will have the right, voting as a class, to elect one director to iHeartMedia’s Board of Directors. Upon any termination of the rights of the holders of shares of the iHeart Operations Preferred Stock as a class to vote for a director as described above, the director so elected to iHeartMedia’s Board of Directors will cease to be qualified as a director and the term of such director’s office shall terminate immediately.
iHeart Operations and its subsidiaries comprised 89% of our consolidated assets as of June 30, 2019 and 86% of our consolidated revenues for the Period from May 2, 2019 through June 30, 2019.
Material Differences between the Financial Information Relating to iHeartMedia and Capital I and its Subsidiaries
Pursuant to iHeartCommunications' material debt agreements, Capital I, the parent guarantor and a subsidiary of iHeartMedia, is permitted to satisfy its reporting obligations under such agreements by furnishing iHeartMedia’s consolidated financial information and an explanation of the 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 iHeartMedia and the parent of Capital I, have any operations or material assets or liabilities, there are no material differences between iHeartMedia’s consolidated financial information for the three and six months ended June 30, 2019,2020, and Capital I’s and its consolidated restricted subsidiaries’ financial information for the same periods.
Uses of Capital
Debt Repayments, Maturities and Other
On August 7, 2019, iHeartCommunications completed the sale of $750.0 million in aggregate principal amount of 5.25% Senior Secured Notes due 2027 in a private placement to qualified institutional buyers under Rule 144A under the Securities Act of 1933, as amended (the “Securities Act”), and to persons outside the United States pursuant to Regulation S under the Securities Act. iHeartCommunications used the net proceeds from the New Senior Secured Notes, together with cash on hand, to prepay at par $740.0 million of borrowings outstanding under the Term Loan Facility due 2026.
Certain Relationships with Related Parties
Prior According to the Effective Date, we were partycertificate of designation governing the iHeart Operations Preferred Stock, iHeart Operations is required to a management agreement withprovide certain affiliatessupplemental financial information of iHeart Operations in comparison to the Company 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 provided management and financial advisory services until December 31, 2018. These arrangements required 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. The Company did not recognize management fees following the Petition Date. The Company recognized management fees and reimbursable expenses of $3.1 million forJune 30, 2020. For the three and six months ended June 30, 2018. As2020, iHeart Operations and its subsidiaries comprised 83.6% and 85.0% of the Effective Date, these management fees were waived.
Company's consolidated 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 Audio segment experiences its lowest financial performance in the first quarter of the calendar year. We expect this trend to continue in the future. Due to this seasonality and certain other factors, the results for the interim periods may not be indicative of results for the full year. In addition, 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 and inflation.
Interest Rate Risk
A significant amount of our long-term debt bears interest at variable rates. Accordingly, our earnings will be affected by changes in interest rates. As of June 30, 2019,2020, approximately 61%41% of our aggregate principal amount of long-term debt bore interest at floating rates. Assuming the current level of borrowings and assuming a 50% change in LIBOR, it is estimated that our interest expense for the Period from May 2, 2019 throughsix months ended June 30, 20192020 would have changed by $7.6$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.
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 in our Audio operations.
Critical Accounting Estimates The preparation of our financial statements in conformity with U.S. GAAP requires management to make estimates, judgments and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of expenses during the reporting period. On an ongoing basis, we evaluate our estimates that are based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. The result of these evaluations forms the basis for making judgments about the carrying values of assets and liabilities and the reported amount of expenses that are not readily apparent from other sources. Because future events and their effects cannot be determined with certainty, actual results could differ from our assumptions and estimates, and such difference could be material. There have been no significant changes to our critical accounting policies and estimates disclosed in “Critical Accounting Estimates” of Item 7, Management’s Discussion and Analysis of our Annual Report on Form 10-K for the year ended December 31, 2019 except as disclosed in Note 1, Basis of Presentation to our consolidated financial statements.
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. This report contains various forward-looking statements which represent our expectations or beliefs concerning future events, including, without limitation, our future operating and financial performance, the anticipated impacts of the COVID-19 pandemic on our ability to comply with the covenants in the agreements governingbusiness, financial position and results of operations, our indebtednessRights Plan, our expected 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:
•risks associated with weak or uncertain global economic conditions and their impact on the level of expenditures for advertising;
•the impact of the COVID-19 pandemic on advertising;our business, financial position and results of operations;
•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 enhancing our master brand;
•fluctuations in operating costs;
•technological changes and innovations;
•shifts in population and other demographics;
•the impact of our substantial indebtedness;
•the impact of future acquisitions, dispositions acquisitions 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;
volatility in the trading price of•risks related to our Class A common stock, which has a limited trading history;including our significant number of outstanding warrants;
substantial market overhang from securities issued in the Reorganization;
•regulations impacting our business and the ownership of our securities; 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 at the reasonable assurance level as of June 30, 2019 at the reasonable assurance level.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 June 30, 20192020 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.
Chapter 11 CasesAlien Ownership Restrictions and FCC Petition for Declaratory Ruling
iHeartCommunications' filingThe Communications Act and FCC regulation prohibit foreign entities and individuals from having direct or indirect ownership or voting rights of more than 25 percent in a corporation controlling the Chapter 11 Cases constituted an eventlicensee of default that accelerated its obligations under its debt agreements. Due toa radio broadcast station unless the Chapter 11 Cases, however, the creditors' ability to exercise remedies under iHeartCommunications' debt agreements were stayed as of March 14, 2018, the date of the Chapter 11 petition filing, and continue to be stayed. See Note 6 to our consolidated financial statements located in Item 8 of Part II of this Annual Report on Form 10-K for more information about the debt agreements. On March 21, 2018, Wilmington Savings Fund Society, FSB ("WSFS"), solely in its capacity as successor indenture trustee to the 6.875% Senior Notes due 2018 and 7.25% Senior Notes due 2027 (collectively with the 5.50% Senior Notes due 2016, the “Legacy Notes”), and not in its individual capacity, filed an adversary proceeding against usFCC finds greater foreign ownership is in the Chapter 11 Cases. In the complaint, WSFS alleged, among other things, that the "springing lien" provisions of the priority guarantee notes indentures and the priority guarantee notes security agreements amounted to "hidden encumbrances" on the Company's property, to which the holders of the 6.875% senior notes due 2018 and 7.25% senior notes due 2027 were entitled to "equal and ratable" treatment. On March 26, 2018, Delaware Trust Co. ("Delaware Trust"), in its capacity as successor indenture trustee to the 14.0% Senior Notes due 2021, filed a motion to intervene as a plaintiff in the adversary proceeding filed by WSFS. In the complaint, Delaware Trust alleged, among other things, that the indenture governing the 14.0% Senior Notes due 2021 also has its own "negative pledge" covenant, and, therefore, to the extent the relief sought by WSFS in its adversary proceeding is warranted, the holders of the 14.0% Senior Notes due 2021 are also entitled to the same "equal and ratable" liens on the same property. On April 6, 2018, we filed a motion to dismiss the adversary proceeding and a hearing on such motion was held on May 7, 2018. We answered the complaint and completed discovery. The trial was held on October 24, 2018. On January 15, 2019, the Bankruptcy Court entered judgment in our favor denying all relief sought by WSFS and all other parties. Pursuant to a settlementpublic interest (the “Legacy Plan Settlement”“Foreign Ownership Rule”) with WSFS and certain consenting Legacy Noteholders of all issues related to confirmation of. Under our Plan of Reorganization, on May 1, 2019 uponwe committed to file a Petition for Declaratory Ruling ("PDR") requesting the FCC to permit up to 100% of the Company's voting and equity to be owned by non-U.S. individuals and entities, but the FCC’s granting our confirmedPDR was not a condition to our emergence.
The equity allocation mechanism (“Equity Allocation Mechanism”) set forth in the Plan of Reorganization becoming effective, this adversary proceeding was deemed withdrawn and/or dismissed,intended to enable us to comply with respect to all parties thereto,the Foreign Ownership Rule and other FCC ownership restrictions in connection with prejudice and in its entirety.
On October 9, 2018, WSFS, solely in its capacity as successor indenture trustee to the 6.875% Senior Notes due 2018 and 7.25% Senior Notes due 2027, and not in its individual capacity, filedour emergence. The Equity Allocation Mechanism imposed an adversary proceeding against Clear Channel Holdings Inc. (“CCH”) and certain shareholders of iHeartMedia. The named shareholder defendants are Bain Capital LP; THL; Abrams Capital L.P. ("Abrams"); and Highfields Capital Management L.P. ("Highfields"). In the complaint, WSFS alleged, among other things, that the shareholder defendants engaged in a “pattern of inequitable and bad faith conduct, including the abuse of their insider positions to benefit themselves at the expense of third-party creditors including particularly the Legacy Noteholders.” The complaint asks the court to grant relief in the form of equitable subordinationobligation on each of the shareholder defendants’ term loan, Priority Guarantee NotesCompany's Claimholders to provide written certification sufficient for us to determine whether issuance of common stock to such Claimholder would cause us to violate the Foreign Ownership Rule, and 14.0% Senior Notes due 2021 claimsrestricted us from issuing common stock to any and all claimsClaimholders such that it would cause us to exceed an aggregate alien ownership or voting percentage of the legacy noteholders. In addition, the complaint sought22.5 percent (the “22.5 Percent Threshold”).
After emerging from bankruptcy, we discovered that a group of Claimholders that had certified to have any votes to accept the fourth amended plan of reorganization by Abrams and Highfields on account of their 2021 notes claims, and any votes to accept the fourth amended plan of reorganization by the defendant Clear Channel Holdings, Inc., ("CCH") on account of its junior notes claims, to be designated and disqualified. The court held a pre-trial conference and oral argument on October 18, 2018. Pursuant to the Legacy Plan Settlement, on May 1, 2019 upon our confirmed Plan of Reorganization becoming effective, this adversary proceeding was deemed withdrawn and/having no foreign ownership or dismissed, with respect to all parties thereto, with prejudice and in its entirety.
Stockholder Litigation
On May 9, 2016, a stockholder of CCOH filed a derivative lawsuit in the Court of Chancery of the State of Delaware, captioned GAMCO Asset Management Inc. v. iHeartMedia Inc. et al., C.A. No. 12312-VCS. The complaint names as defendants the Company, iHeartCommunications, Bain Capital and THL (together, the "Former Sponsor Defendants"), the Company's pre-bankruptcy private equity sponsors and pre-bankruptcy 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 Former Sponsor Defendants to the detriment of CCOH and its minority stockholders. The plaintiff sought, among other things, a ruling that the defendants breached their fiduciary duties to CCOH and that the Company, iHeartCommunications and the Former 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 declaredvoting control in connection with the CCIBV Note Offering and Outdoor Asset Sales, and an order requiring the Company, iHeartCommunications and the Former 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, the Supreme Court of Delaware affirmed the lower court's ruling, dismissing the case.
On December 29, 2017, another stockholder of CCOH filed a derivative lawsuit (the “Norfolk Lawsuit”) in the Court of Chancery of the State of Delaware, captioned Norfolk County Retirement System, v. iHeartMedia, Inc., et al., C.A. No. 2017-0930-JRS. The complaint names as defendants the Company, iHeartCommunications, the Former Sponsor Defendants, and the members of CCOH's board of directors. CCOH is named as a nominal defendant. The complaint alleges that CCOH has been harmed by the CCOH board of directors' November 2017 decision to extend the maturity date of the intercompany revolving note (the “Third Amendment”) at what the complaint describes as far-below-market interest rates. The plaintiff sought, among other things,FCC will issue a ruling thatgranting the defendants breached their fiduciary duties to CCOH, a modificationPDR, the amount of the Third Amendment to bear a commercially reasonable rate of interest,foreign equity and an order requiring disgorgement of all profits, benefits and other compensation obtained by defendants as a result of the alleged breaches of fiduciary duties.
On March 7, 2018, the defendants filed a motion to dismiss plaintiff's verified derivative complaint for failure to state a claim upon which relief can be granted. On March 16, 2018, the Company filed a Notice of Suggestion of Pendency of Bankruptcy and Automatic Stay of Proceedings. On May 4, 2018, plaintiff filed its response to the motion to dismiss. On June 26, 2018, the defendants filed a reply brief in further support of their motion to dismiss. Oral argument on the motion to dismiss was held on September 20, 2018.
On August 27, 2018, the same stockholder of CCOH that had filed a derivative lawsuit against the Company and others in 2016 (GAMCO Asset Management Inc.) filed a putative class action lawsuit (the “GAMCO II Lawsuit”) in the Court of Chancery of the State of Delaware, captioned GAMCO Asset Management, Inc. v. Hendrix, et al., C.A. No. 2018-0633-JRS. The complaint names as defendants the Former Sponsor Defendants and the members of CCOH’s board of directors. The complaint alleges that minority shareholders in CCOH during the period November 8, 2017 to March 14, 2018 were harmed by decisions of the CCOH board and the intercompany note committee of the board of directors relating to the Intercompany Note. The plaintiff sought, among other things,voting rights any such a ruling that the CCOH board, the intercompany note committee, and the Sponsor Defendants breached their fiduciary duties and that the Sponsor Defendants aided and abetted the board of directors' breach of fiduciary duty; and an award of damages, together with pre- and post-judgment interests,will allow us to the putative class of minority shareholders.have, or how long it will take to obtain such a ruling.
On December 16, 2018, the Debtors, CCOH, GAMCO Asset Management, Inc., and Norfolk County Retirement System entered into the CCOH Separation Settlement to settle of all claims, objections, and other causes of action that have been or could be asserted by or on behalf of CCOH, GAMCO Asset Management, Inc., and/or Norfolk County Retirement System by and among the Debtors, CCOH, GAMCO Asset Management, Inc., certain individual defendants in the GAMCO Asset Management, Inc. action and/or the Norfolk County Retirement System action, and the private equity sponsor defendants in such actions. The CCOH Separation Settlement provides for the consensual separation of the Debtors and CCOH, including approximately $149.0 million of recovery to CCOH on account of its claim against iHeartCommunications in the Chapter 11 Cases, a $200 million unsecured revolving line of credit from certain of the Debtors to CCOH for a period of up to three years, the transfer of certain of the Debtors’ intellectual property to CCOH, the waiver by the Debtors of the setoff for the value of the transferred intellectual property, mutual releases, the termination of the cash sweep under the existing Corporate Services Agreement, the termination of any agreements or licenses requiring royalty payments from CCOH to the Debtors for trademarks or other intellectual property, the waiver of any post-petition amounts owed by CCOH relating to such trademarks or other intellectual property, and the execution of a new transition services agreement and other separation documents. The CCOH Separation Settlement was approved by the Bankruptcy
Court and the United States District Court for the Southern District of Texas on January 22, 2019. On May 1, 2019, the Debtors’ plan of reorganization went effective, and the Norfolk Lawsuit and GAMCO II Lawsuit were each subsequently dismissed with prejudice.
ITEM 1A. RISK FACTORS
There have not been any material changes toExcept for the risk factors disclosed under the caption “Liquidity Risk” and “Risks Related toin Part II, Item 1A of our Business”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 Part I, Item 1A ofour risk factors from those disclosed in our Annual Report on Form 10-K for the year ended December 31, 2018 (the “Annual Report”),2019, except that we are updating the risk factors entitled “We face intense competition in our iHeartMedia and our outdoor advertising businesses,” “Our business is dependent on our management team and other key individuals,” “Our financial performance may be adversely affected by many factors beyond our control,” Future acquisitions, dispositions and other strategic transactions could pose risks,” “Extensive current government regulation, and future regulation, may limit our radio broadcasting and other iHeartMedia operations or adversely affect our business and financial results,” “If our security measures are breached, wecould lose valuable information, suffer disruptions to our business, and incur expenses and liabilities including damages to our relationships withlisteners, consumers, business partners and advertisers,” and “Transfers of our equity and issuances of equity in connection with the Chapter 11 Cases may impair our ability to utilize our federal income tax NOL carryforwards in future years” as set forth below, and we are supplementing these risk factors with the risk factor entitled “We face intense competition in our business,” “If events occur that damage our reputation and brand, our ability to grow our user base, advertiser relationships, and partnerships may be impaired and our business may be harmed,” “The Separation could result in significant tax liability or other unfavorable tax consequences to us” and “Transfers of iHeartMedia’s equity in connection with iHeartMedia’s Chapter 11 proceedings and cancellation of indebtedness income realized by the debtors in the iHeartMedia Chapter 11 proceedings may impair the iHeartMedia Group’s ability to utilize its U.S. federal income tax NOL carryforwards in future years” as set forth below:We face intense competition in our business.
We operate in a highly competitive industry, and we may not be able to maintain or increase our current audience ratings and advertising revenues. Our business competes for audiences and advertising revenues with other radio businesses, as well as with other media, such as newspapers, magazines, television, direct mail, portable digital audio players, mobile devices, satellite radio, Internet-based services and live entertainment, within their respective markets. Audience ratings and market shares are subject to change for various reasons, including through consolidation of our competitors through processes such as mergers and acquisitions, which could have the effect of reducing our revenues in a specific market. Our competitors may develop technology, services or advertising media that are equal or superior to those we provide or that achieve greater market acceptance and brand recognition than we achieve. For example, our competitors may develop analytic products for programmatic advertising, and data and research tools that are superior to those that we provide or that achieve greater market acceptance. It also is possible that new competitors may emerge and rapidly acquire significant market share in our business, or make it more difficult for us to increase our share of advertising partners' budgets. The advertiser/agency ecosystem is diverse and dynamic, with advertiser/agency relationships subject to change. This could have an adverse effect on us if an advertiser client shifts its relationship to an agency with whom we do not have as good a relationship. An increased level of competition for advertising dollars may lead to lower advertising rates as we attempt to retain customers or may cause us to lose customers to our competitors who offer lower rates that we are unable or unwilling to match.
Our ability to compete effectively depends in part on our ability to achieve a competitive cost structure. If we cannot do so, then our business, financial condition and operating results would be adversely affected.
If events occur that damage our reputation and brand, our ability to grow our user base, advertiser relationships, and partnerships may be impaired and our business may be harmed.
We have developed a brand that we believe has contributed to our success. We also believe that maintaining and enhancing our brand is critical to growing our user base, advertiser relationships and partnerships. The iHeartRadio master brand ties together our radio stations, digital platforms, social, podcasts and live events in a unified manner that reflects the quality and compelling nature of our listener experiences. Maintaining and enhancing our brand depends on many factors, including factors that are not entirely within our control. If we fail to successfully promote and maintain our brand or if we suffer damage to the public perception of our brand, our business may be harmed.
Our business is dependent on our management team and other key individuals.
Our business is dependent upon the performance of our management team and other key individuals. Although we have entered into agreements with members of our senior management team and certain other key individuals, we can give no assurance that any or all of them will remain with us, or that we will be able to extend the terms of our agreements with them. We may also
continue to make changes to the composition of, and the roles and responsibilities of, our management team. Competition for these individuals is intense and many of our key employees are at-will employees who are under no obligation to remain with us, and may decide to leave for a variety of personal or other reasons beyond our control. We also experienced management transition in connection with the Separation and Reorganization. For instance, our former treasurer became the Chief Financial Officer of CCOH, and we have a relatively new General Counsel. If members of our management or key individuals decide to leave us in the future, if we decide to make further changes to the composition of, or the roles and responsibilities of, these individuals, or if we are not successful in attracting, motivating and retaining other key employees, our business could be adversely affected.
Our financial performance may be adversely affected by many factors beyond our control.
Certain factors that could adversely affect our financial performance by, among other things, decreasing overall revenues, the numbers of advertising customers, advertising fees or profit margins include:
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▪ | unfavorable fluctuations in operating costs, which we may be unwilling or unable to pass through to our customers; |
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▪ | our inability to successfully adopt or our being late in adopting technological changes and innovations that offer more attractive advertising or listening alternatives than what we offer, which could result in a loss of advertising customers or lower advertising rates, which could have a material adverse effect on our operating results and financial performance; |
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▪ | our inability to realize or maintain cost savings from the Separation or other expense discipline and cost management initiatives; |
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▪ | the impact of potential new or increased royalties or license fees charged for terrestrial radio broadcasting or the provision of our digital services, which could materially increase our expenses; |
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▪ | unfavorable shifts in population and other demographics, which may cause us to lose advertising customers as people migrate to markets where we have a smaller presence or which may cause advertisers to be willing to pay less in advertising fees if the general population shifts into a less desirable age or geographical demographic from an advertising perspective; |
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▪ | continued dislocation of advertising agency operations from new technologies and media buying trends; |
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▪ | adverse political effects and acts or threats of terrorism or military conflicts; and |
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▪ | unfavorable changes in labor conditions, which may impair our ability to operate or require us to spend more to retain and attract key employees. |
Future acquisitions, dispositions and other strategic transactions could pose risks.
We frequently evaluate strategic opportunities both within and outside our existing lines of business. We expect from time to time to pursue acquisitions of certain businesses as well as strategic dispositions. These acquisitions or dispositions could be material. Acquisitions or dispositions involve numerous risks, including:
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▪ | our acquisitions may prove unprofitable and fail to generate anticipated cash flows: |
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▪ | to successfully manage our business, we may need to: |
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– | recruit additional senior management as we cannot be assured that senior management of acquired businesses will continue to work for us and we cannot be certain that our recruiting efforts will succeed, and |
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– | expand corporate infrastructure to facilitate the integration of our operations with those of acquired businesses, because failure to do so may cause us to lose the benefits of any expansion that we decide to undertake by leading to disruptions in our ongoing businesses or by distracting our management; |
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▪ | we may enter into markets and geographic areas where we have limited or no experience; |
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▪ | we may encounter difficulties in the integration of new management teams, operations and systems; |
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▪ | our management's attention may be diverted from other business concerns; |
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▪ | our dispositions may negatively impact revenues from our national, regional and other sales networks; and |
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▪ | our dispositions may make it difficult to generate cash flows from operations sufficient to meet our anticipated cash requirements, including debt service requirements. |
Acquisitions and dispositions of media and entertainment businesses may require antitrust review by U.S. federal antitrust agencies and may require review by foreign antitrust agencies under the antitrust laws of foreign jurisdictions. We can give no assurances that the Department of Justice ("DOJ"), the U.S. Federal Trade Commission ("FTC") or foreign antitrust agencies will not seek to bar us from acquiring or disposing of media and entertainment businesses or impose stringent undertaking on our business as a condition to the completion of an acquisition in any market where we already have a significant position.
Further, radio acquisitions are subject to FCC approval. Such transactions must comply with the Communications Act and FCC regulatory requirements and policies, including with respect to the number of broadcast licenses in which a person or entity may have an ownership or attributable interest in a given local market and the level of interest that may be held by foreign individuals or entities. The FCC's media ownership rules remain subject to ongoing agency and court proceedings. Future changes could restrict our ability to dispose of or acquire new radio assets or businesses.
Extensive current government regulation, and future regulation, may limit our radio broadcasting and other operations or adversely affect our business and financial results.discussed below.
The U.S. Congress (the "Congress")COVID-19 pandemic has adversely impacted, and several federal agencies, including the FCC, extensively regulate the domestic radio broadcasting industry. For example, the FCC could impact our profitability by imposing large fines on us if, in response to pending or future complaints, it finds that we committed violations of FCC regulations governing programming or other matters. For instance, FCC regulations prohibit the broadcast of "obscene" material at any time, and "indecent" material between the hours of 6:00 a.m. and 10:00 p.m. The FCC has historically enforced licensee compliance in this area through the assessment of monetary forfeitures. Such forfeitures may include: (i) imposition of the maximum authorized fine for egregious cases ($407,270 for a single violation, up to a maximum of $3,759,410 for a continuing violation); and (ii) imposition of fines on a per utterance basis instead of a single fine for an entire program. The FCC has also recently increased its enforcement of regulations requiring a radio station to include an on-air announcement which identifies the sponsor of all advertisements and other matter broadcast by any radio station for which any money, service or other valuable consideration is received. Similarly, the FCC has recently sought to impose substantial fines on broadcasters who transmit EAS codes, or simulations thereof, in the absence of an actual emergency or authorized test of the EAS.
Additionally, we cannot be sure that the FCC will approve renewal of the licenses we must have in order to operate our stations. Nor can we be assured that our licenses will be renewed without conditions and for a full term. Beginning in June 2019 and continuing through April 2022, we (along with all other FCC radio broadcast licensees) are submitting applications to renew the FCC licenses for each of our broadcast radio stations on an every two-month rolling schedule by state. The non-renewal, or conditioned renewal, of a substantial number of these FCC licenses could have a materially adverse impact on our operations. Furthermore, possible changes in interference protections, spectrum allocations and other technical rules may negatively affect the operation of our stations. For example, in October 2015, the FCC proposed rules which could reduce the degree of interference protection afforded to certain of our AM radio stations that serve wide areas. The FCC has adopted rules which may limit our ability to prevent interference by FM translators to the reception of our full-power radio stations. In addition, Congress, the FCC and other regulatory agencies have considered, and may in the future consider and adopt, new laws, regulations and policies that could, directly or indirectly, have an adverse effect on our business operations and financial performance. For example, Congress may consider and adopt legislation that would impose an obligation upon all U.S. broadcasters to pay performing artists a royalty for the on-air broadcast of their sound recordings (this would be in addition to payments already made by broadcasters to owners of musical work rights, such as songwriters, composers and publishers). In October 2018, legislation was signed into law that creates a public performance right for pre-February 15, 1972 recordings streamed online. This law may increase our licensing costs. Moreover, it is possible that our license fees and negotiating costs associated with obtaining rights to use musical compositions and sound recordings in our programming content could sharply increase as a result of private negotiations, one or more regulatory rate-setting processes, or administrative and court decisions. The Copyright Royalty Board ("CRB") has issued a final determination establishing copyright royalty rates for the public performance and ephemeral reproduction of sound recordings by various non-interactive webcasters, including radio broadcasters that simulcast their terrestrial programming online, to apply to the period from January 1, 2016 to December 31, 2020 under the webcasting statutory license. A proceeding to establish the rates for 2021 to 2025 began in 2019. Increased royalty rates could significantly increase our expenses, which could adversely affect our business. Additionally, there are conditions applicable to the webcasting statutory license. Some, but not all, record companies have agreed to waive or provide limited relief from certain of these conditions under certain circumstances for set periods of time. Some of these conditions may be inconsistent with customary radio broadcasting practices and various regulatory matters relating to our business are now, or may become, the subject of court litigation, and we cannot predict the outcome of any such litigation or its impact on our business.
If our security measures are breached, we could lose valuable information, suffer disruptions to our business, and incur expenses and liabilities including damages to our relationships with listeners, consumers, business partners, employees and advertisers.
Although we have implemented physical and electronic security measures that are designed to protect against the loss, misuse and alteration of our websites, digital assets and proprietary business information as well as listener, consumer, business partner and advertiser personally identifiable information, no security measures are perfect and impenetrable and we may be unable to anticipate or prevent unauthorized access. Our websites and digital platforms are vulnerable to software bugs, computer viruses, Internet worms, break-ins, phishing attacks, attempts to overload servers with denial-of-service, or other attacks and similar disruptions from unauthorized use of our and third-party computer systems, any of which could lead to system interruptions, delays, or shutdowns, causing loss of critical data or the unauthorized access to personal data. A security breach could occur due to the actions of outside parties, employee error, malfeasance or a combination of these or other actions. Though it is difficult to determine what, if any, harm may directly result from any specific interruption or attack, any failure to maintain performance, reliability, security, and availability of our services and technical infrastructure to the satisfaction of our listeners may harm our reputation and our ability to retain existing listeners and attract new listeners. We cannot assure you that the systems and processes that we have designed to protect our data and our listeners' data, to prevent data loss and to prevent or detect security breaches will provide absolute security, and we may incur significant costs in protecting against or remediating cyber-attacks. If an actual or perceived breach of our security occurs, we may face regulatory or civil liability, lose competitively sensitive business information or suffer disruptions to our business operations, information processes and internal controls. In addition, the public perception of the effectiveness of our security measures or services could be harmed, we could lose listeners, consumers, business partners and advertisers. In the event of a security breach, we could suffer financial exposure in connection with penalties, remediation efforts, investigations and legal proceedings and changes in our security and system protection measures. Currently, not all of our systems are fully compliant with the new E.U. GDPR standards and, as a result, we may face additional liability in the event of a security breach. In Europe, we may be required to notify European Data Protection Authorities, within strict time periods, about any personal data breaches, unless the personal data breach is unlikely to result in a risk to the rights and freedoms of the affected individuals. We may also be required to notify the affected individuals of the personal data breach where there is a high risk to their rights and freedoms. If we suffer a personal data breach, we could be fined up to EUR 20 million or 4% of worldwide annual turnover of the preceding financial year, whichever is greater. Any data breach by service providers that are acting as data processors (i.e., processing personal data on our behalf) could also mean that we are subject to these fines and have to comply with the notification obligations set out above.
The Separation could result in significant tax liability or other unfavorable tax consequences to us.
The transactions related to the Separation were intended to be taxable transactions. The gain or loss recognized with respect to these transactions will depend on, among other things: (a) the value and tax basis of the assets transferred in the distribution of the radio business and the value and tax basis of the CCOH common stock on the Effective Date (such values will be determined by reference to, among other things, the trading value of the iHeartMedia equity and the CCOH common stock following the Effective Date); (b) complex modeling considerations under certain U.S. Treasury regulations; (c) the amount of cancellation of indebtedness income realized in connection with the iHeartMedia's Chapter 11 proceedings; and (d) the extent to which any "excess loss accounts" (as defined under applicable U.S. Treasury regulations) are taken into account. The extent to which any related taxable gain or loss will result in any cash tax liabilities will depend on whether the tax attributes of iHeartMedia and its subsidiaries, including the net operating losses ("NOLs") of iHeartMedia and its subsidiaries (including CCOH and its subsidiaries), are sufficient to offset any net taxable gain and income attributable to the transactions related to the Separation.
In addition, the merger of CCOH into CCH (the "Merger") was intended to qualify as a "reorganization" within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended (the "Code"), and the obligation of each of the parties thereto to effect the Merger was conditioned upon the receipt of U.S. federal income tax opinions to that effect from their respective tax counsels. These tax opinions represent the legal judgment of counsel who rendered the opinions and are not binding on the Internal Revenue Service (the "IRS") or the courts. If the IRS makes a subsequent determination that the Merger does not qualify as a "reorganization," then additional tax liability could arise.
Based on our analysis to date of the various factors that will influence whether the Separation resulted in material cash tax liabilities, we do not expect any material cash tax liability resulting from the Separation. However, the analysis of the Separation will continue until the tax return for the 2019 tax year is filed. In addition, there may be some uncertainty with respect to the factors that determine whether the Separation gave rise to cash tax liability, even after appropriate tax returns are filed. Accordingly, we cannot say with certainty that no material cash tax liability will be owed as a result of the Separation and the transactions related thereto. To the extent the Separation and the transactions related thereto do give rise to any cash tax liability, CCOH, iHeartCommunications, iHeartMedia and various other entities would be jointly and severally liable under applicable law for any such amounts.
The allocation of such liabilities among iHeartMedia and its subsidiaries (the "iHeartMedia Group") and CCOH are addressed by a Tax Matters Agreement that was entered into in connection with the Separation.
In addition, we expect that, as a result of the cancellation of indebtedness income realized by the debtors in connection with iHeartMedia's Chapter 11 proceeds, certain of the iHeartMedia Group's tax attributes will be subject to significant reduction or elimination.
Transfers of iHeartMedia's equity in connection with iHeartMedia's Chapter 11 proceedings and cancellation of indebtedness income realized by the debtors in the iHeartMedia Chapter 11 proceedings may impair the iHeartMedia Group's ability to utilize its U.S. federal income tax NOL carryforwards in future years.
Under U.S. federal income tax law, a corporation is generally permitted to deduct from taxable income NOLs carried forward from prior years. To the extent any such tax attributes survive the reduction in tax attributes described above, the iHeartMedia Group's ability to utilize these tax attributes to offset future taxable income and to reduce U.S. federal income tax liability is subject to certain requirements and restrictions. Specifically, iHeartMedia experienced an "ownership change," as defined in Section 382 of the Code, in connection with the Chapter 11 proceedings. Accordingly, the iHeartMedia Group's ability to use any surviving tax attributes may be substantially limited, which could have a negative impact on our financial position and results of operations. Under Section 382 of the Code, absent an applicable exception, if a corporation undergoes an "ownership change," the amount of U.S. federal income tax attributes existing prior to the change that it can utilize to offset its taxable income in future taxable years generally is subject to an annual limitation in an amount equal to the value of its stock immediately prior to the ownership change multiplied by the long-term tax-exempt rate, subject to adjustments to reflect the differences between the fair market value of the corporation's assets and the tax basis in such assets and various other complex rules and adjustments.
Additionally, as noted above, we expect that certain of the iHeartMedia Group's tax attributes will be subject to significant reduction or elimination as a result of the cancellation of indebtedness income realized by the debtors in connection with iHeartMedia's Chapter 11 proceedings.
Accordingly, there can be no assurance that the iHeartMedia Group will be able to utilize the iHeartMedia Group's U.S. federal income tax NOL carryforwards or certain of the iHeartMedia Group's other tax attributes to offset future taxable income.
Chapter 11 Reorganization Risks
The following risk factors disclosed under the caption “Chapter 11 Reorganization Risks” below amend, restate and replace all of the risk factors under the caption “Chapter 11 Reorganization Risks” in Item 1A of our Annual Report:
The ongoing effects of the Chapter 11 Cases following our emergence could adversely affect our business and relationships.
We have only recently emerged from bankruptcy. Our ability to change the public perception relating to our recently consummated Chapter 11 Cases may have an impact on our abilityexpected to continue to attractadversely impact, our audience, which is critical to our ability to achieve long-term profitability, and a negative public perception of our business, due to our recently consummated bankruptcy proceedings may have a materially adverse effect on our results of operations and financial condition, particularly because our ability to achieve long-term profitability dependsposition.
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 abilitybusinesses 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 reachthe 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 audience.employees and have restricted on-site activities.
Furthermore, we may be subject to ongoing claims that were not discharged in the Chapter 11 Cases and such claims may be significant.
Our actual financial results following our emergence from the Chapter 11 Cases will not be comparable to our historical financial information.
Following the Separation and Reorganization, we began to operate under a new capital structure. As a result of the Separation and Reorganization,COVID-19 pandemic, we will not include CCOH in our consolidated financial statements following the Effective Date. In addition, we adopted fresh-start accounting and, as a result, at the Effective Date, our assets and liabilities were recorded at fair value, which resulted in values that are different than the values recorded in our historical financial statements. Accordingly, our financial condition and results of operations from and after the Effective Date are not comparable to the financial condition or results of operations reflected in our historical financial statements. As a result of all these factors, our historical financial information is not indicative of our future financial performance.
In connection with the Separation, the Outdoor Group agreed to indemnify us and we agreed to indemnify the Outdoor Group for certain liabilities. There can be no assurance that the indemnities from the Outdoor Group will be sufficient to insure us against the full amount of such liabilities.
Pursuant to agreements that we entered into with the Outdoor Group in connection with the Separation, the Outdoor Group agreed to indemnify us for certain liabilities, and we agreed to indemnify the Outdoor Group for certain liabilities. For example, we will indemnify the Outdoor Group for liabilities to the extent such liabilities related to the business, assets and liabilities of the iHeartMedia as well as liabilities relating to a breach of the Separation Agreement. We will also indemnify the Outdoor Group for 50% of certain tax liabilities imposed on the Outdoor Group in connection with the Separation on or prior to the third anniversary of the Separation in excess of $5.0 million, with our aggregate liability limited to $15.0 million, and will reimburse the Outdoor Group for one-third of potential costs relating to certain agreements between the Outdoor Group and third parties in excess of $10.0 million up to the first $35.0 million of such costs such that we will not bear more than $8.33 million of such costs. However, third parties might seek to hold us responsible for liabilities that the Outdoor Group agreed to retain, and there can be no assurance that the Outdoor Group will be able to fully satisfy their respective indemnification obligations under these agreements. In addition, indemnities that we may be required to provide to the Outdoor Group could be significant and could adversely affect our business.
The transition of our board of directors following our emergence from bankruptcy may compromise our ability to compete effectively.
The new directors who began serving on our board of directors on the Effective Date have different backgrounds, experiences and perspectives from those individuals who have historically served on our board of directorsexperienced and may continue to experience disruptions that have different views on the direction ofadversely impacted our business, and the issues that will determine our future. The effect of implementation of those views may be difficult to predict and may, in the short term, result in disruption to the strategic direction of the business.
Additionally, the ability of our new directors to quickly expand their knowledge of our operations will be critical to their ability to make informed decisions about our business and strategies, particularly given the competitive environment in which we operate. The transition of our board of directors may, during the period of transition, compromise our ability to compete effectively.
Risks Related to Ownership of our Class A Common Stock
The following risk factors disclosed under the caption “Risks Related to Ownership of our Class A Common Stock” below amend, restate and replace all of the risk factors under the caption “Risks Related to Ownership of Our Class A Common Stock” in Part I, Item 1A of our Annual Report:
Our Class A common stock price may be volatile or may decline regardless of our operating performance and you may not be able to resell your shares at or above the public offering price.
Volatility in the market price of our Class A common stock may prevent you from being able to sell your shares at or above the price you paid for them. Many factors, which are outside our control, may cause the market price of our Class A common stock to fluctuate significantly, including those described elsewhere in the “Risk Factors” section, as well as the following:
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▪ | our operating and financial performance and prospects; |
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▪ | our quarterly or annual earnings or those of other companies in our industry compared to market expectations; |
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▪ | future announcements concerning our business or our competitors’ businesses; |
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▪ | the public’s reaction to our press releases, other public announcements and filings with the SEC; |
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▪ | the composition of our public float, including substantial holdings by former creditors that may wish to dispose of our securities; |
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▪ | coverage by or changes in financial estimates by securities analysts or failure to meet their expectations; |
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▪ | market and industry perception of our success, or lack thereof, in pursuing our growth strategy; |
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▪ | strategic actions by us or our competitors, such as acquisitions or restructurings; |
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▪ | changes in laws or regulations which adversely affect our industry or us; |
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▪ | changes in accounting standards, policies, guidance, interpretations or principles; |
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▪ | changes in senior management or key personnel; |
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▪ | issuances, exchanges or sales, or expected issuances, exchanges or sales of our capital stock; |
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▪ | adverse resolution of new or pending litigation against us; and |
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▪ | changes in general market, economic and political conditions in the United States and global economies or financial markets, including those resulting from natural disasters, terrorist attacks, acts of war and responses to such events. |
These broad market and industry factors may materially reduce the market price of our Class A common stock, regardless of our operating performance. In addition, price volatility may be greater if the public float and trading volume of our Class A common stock is low. As a result, you may suffer a loss on your investment.
Substantial blocks of our outstanding shares may be sold into the market in this offering. If there are substantial sales of shares of our Class A common stock, the price of our Class A common stock could decline.
The price of our Class A common stock could decline if there are substantial sales of our Class A common stock, particularly sales by our directors, executive officers and significant stockholders. The market price of the shares of our Class A common stock could decline as a result of the sale of a substantial number of our shares of Class A common stock in the public market, or the perception in the market that the holders of a large number of such shares, or securities convertible or exercisable into such shares, intend to sell their shares or such other securities.
Your voting rights as a holder of Class A common stock will be diluted upon the exercise of Special Warrants or the conversion of Class B common stock.
A majority of our equity was issued in the form of Special Warrants, which have no voting rights, and Class B common stock, which have only limited voting rights. The Special Warrants are currently exercisable into Class A common stock or Class B common stock at an exercise price of $0.001 per share, and the Class B common stock is currently convertible into Class A common stock on a share-for-share basis, in each case subject to certain ownership restrictions. Upon the exercise of any Special Warrants or the conversion of any shares of Class B common stock, your voting rights as a holder of Class A common stock will be proportionately diluted.
We do not intend to pay dividends on our Class A common stock for the foreseeable future.
We currently have no intention to pay dividends on our Class A common stock at any time in the foreseeable future. Any decision to declare and pay dividends in the future will be made at the discretion of our board of directors and will depend on, among other things, our results of operations, financial condition, cash requirements, contractual restrictions and other factors that our board of directors may deem relevant. Certain of our debt instruments contain covenants that restrict the ability of our subsidiaries to pay dividends to us.
We are a holding company and rely on dividends, distributions and other payments, advances and transfers of funds from our subsidiaries to meet our obligations.
We are a holding company that does not conduct any business operations of our own. As a holding company, our investments in our operating subsidiaries constitute all of our operating assets. Our subsidiaries conduct all of our consolidated operations and own substantially all of our consolidated assets. As a result, we must rely on dividends and other advances, distributions and transfers of funds from our subsidiaries to meet our obligations. The ability of our subsidiaries to pay dividends or make other advances, distributions and transfers of funds will depend on their respective results of operations and mayfinancial position. The extent of future disruptions will depend on numerous evolving factors, which are highly uncertain, rapidly changing and cannot be restricted by, among other things, applicable laws limiting the amount of funds available for payment of dividendspredicted, and certain restrictive covenants containedcould result in significantly more severe impacts in the agreementsfuture, including:
•reduced ad budgets and spend, order cancellations and increased competition for advertising revenue;
•the effect of those subsidiaries. The deteriorationthe outbreak 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 income from,customers to pay amounts owed to the Company, or delays in collections of such amounts;
•additional goodwill or other available assetsimpairment charges;
•limitations on our 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 focus on mitigating the impacts of the COVID-19 pandemic;
•reduced capital expenditures; and
•impacts from prolonged remote work arrangements, including increased cybersecurity risks.
These disruptions have negatively impacted our subsidiariesrevenue, results of operations and financial position for any reason could limitthe three and six months ended June 30, 2020 and we expect these disruptions to continue to have a negative impact for the remainder of 2020.
The COVID-19 pandemic continues to evolve. The extent to which the outbreak continues to impact our business, liquidity and financial results will depend on future developments, which are highly uncertain and cannot be predicted with confidence, such as the duration of the pandemic, 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 impair theirbusiness 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 pay dividends or other distributions to us.
Delaware lawconduct our business in the manner and certain provisions in our certificate of incorporation may prevent efforts by our stockholders to change the direction or management of our company.
Our certificate of incorporationwithin planned timelines could be materially and adversely impacted, and our by-laws contain provisions that may makebusiness, liquidity and financial results will be adversely affected. Additionally, concerns over the acquisitioneconomic impact of our company more difficult without the approval of our Board, including, but not limited to, the following:
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▪ | for the first three years following the Effective Date, our board of directors will be divided into three equal classes, with members of each class elected in different years for different terms, making it impossible for stockholders to change the composition of our entire Board in any given year; |
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▪ | action by stockholders may only be taken at an annual or special meeting duly called by or at the direction of a majority of our Board; |
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▪ | advance notice for all stockholder proposals is required; |
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▪ | subject to the rights of holders of any outstanding shares of our preferred stock, for so long as our board remains classified, our directors may only be removed for cause and upon the affirmative vote of holders of a majority of the voting power of the outstanding shares of our Class A common stock; and |
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▪ | for the first three years following the Effective Date, any amendment, alteration, rescission or repeal of the anti-takeover provisions of our certificate of incorporation requires the affirmative vote of at least 66 2/3% in voting power of the outstanding shares of our stock entitled to vote generally in the election of directors. |
TheseCOVID-19 pandemic caused extreme volatility in financial and other provisions in our certificate of incorporation, bylaws and Delaware law could make it more difficult for stockholders or potential acquirers to obtain control of our board of directors or initiate actions that are opposed by our board of directors, including actions to delay or impede a merger, tender offer or proxy contest involving our company. The existence of these provisions could negatively affect the price of our common stock and limit opportunities for you to realize value in a corporate transaction.
Our certificate of incorporation designates the Court of Chancery of the State of Delaware, subject to certain exceptions, as the sole and exclusive forum for certain types of actions and proceedings that may be initiated by our stockholders,capital markets, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers or employees.
Our certificate of incorporation provides that the Court of Chancery of the State of Delaware, subject to certain exceptions, is the sole and exclusive forum for (i) any derivative action or proceeding brought on our behalf, (ii) any action asserting a claim of breach of a fiduciary duty owed by any of our directors, officers or other employees to us or our stockholders, (iii) any action asserting a claim against the company or any director or officer or employee of the company arising pursuant to any provision of the DGCL, our certificate of incorporation or our bylaws or (iv) any other action asserting a claim against us that is governed by the internal affairs doctrine. Any person or entity purchasing or otherwise acquiring any interest in shares of our capital stock shall be deemed to have notice of and to have consented to the provisions of our certificate of incorporation described above. This choice of forum provision may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers or other employee, which may discourage such lawsuits against us and our directors, officers and employees. Alternatively, if a court were to find these provisions of our certificate of incorporation inapplicable to, or unenforceable in respect of, one or more of the specified types of actions or proceedings, we may incur additional costs associated with resolving such matters in other jurisdictions, which couldhas adversely affect our business and financial condition.
If securities or industry analysts do not publish or cease publishing research or reports about us, our business or our industry, or if they adversely change their recommendations regarding our stock,affected our stock price and trading volumecredit rating and could decline.
The trading market forimpact our common stock is influenced byability to access the research and reports that industry or securities analysts may publish about us, our business, our industry or our competitors. If we do not maintain adequate research coverage or if any of the analysts who may cover us downgrade our stock, publish inaccurate or unfavorable research about our business or provide relatively more favorable recommendations about our competitors, our stock price could decline. If any analyst who may cover us were to cease coverage of our company or fail to regularly publish reports about us, we could lose visibilitycapital markets in the financial markets, which in turn could cause our stock price or trading volume to decline.future.
Regulations imposed by the Communications Act and the FCC limit the amount of foreign individuals or entities that may invest in our capital stock.The Communications Act and FCC regulations restrict foreign ownership or control of any entity licensed to provide broadcast and certain other communications services. Among other prohibitions, foreign entities may not have direct or indirect ownership or voting rights of more than 25 percent in a corporation controlling the licensee of a radio broadcast station if the FCC finds that the public interest will be served by the refusal or revocation of such a license due to foreign ownership or voting rights exceeding that threshold. The FCC has interpreted this provision to mean that it must make an affirmative public interest finding before a broadcast license may be held by a corporation that is more than 25 percent owned or controlled, directly or indirectly, by foreign persons or other non-U.S. entities.
We have filed a petition for declaratory ruling (“Declaratory Ruling”) requesting FCC consent to exceed the 25 percent foreign ownership and voting benchmarks that currently apply to us, but we cannot predict whether the FCC will grant a Declaratory
Ruling, the amount of foreign equity and voting rights such a ruling will allow us to have if one is granted, or how long it will take to obtain such a ruling.
The FCC calculates foreign voting rights separately from equity ownership, and both must be at or below the 25 percent threshold unless the FCC has issued a declaratory ruling allowing foreign ownership or voting in excess of that threshold. Warrants and other future interests typically are not taken into account in determining foreign ownership compliance. To the extent that our aggregate foreign ownership or voting percentages would exceed 25 percent, any individual foreign holder of our common stock whose ownership or voting percentage would exceed 5 percent or 10 percent (with the applicable percentage determined pursuant to FCC rules) will additionally be required to obtain the FCC’s specific approval.
Direct or indirect ownership of our securities could result in the violation of the FCC’s media ownership rules by investors with “attributable interests” in other radio stations or in the same market as one or more of our broadcast stations.
Under the FCC’s media ownership rules, a direct or indirect owner of our securities could violate and/or cause us to violate the FCC’s structural media ownership limitations if that person owns or acquires an “attributable” interest in other radio stations in the same market as one or more of our radio stations. Under the FCC’s “attribution” policies the following relationships and interests generally are cognizable for purposes of the substantive media ownership restrictions: (1) ownership of 5 percent or more of a media company’s voting stock (except for “investment companies” as defined in 15 U.S.C. § 80a-3, insurance companies and bank trust departments, whose holdings are subject to a 20 percent voting stock benchmark); (2) officers and directors of a media company and its direct or indirect parent(s); (3) any general partnership or limited liability company manager interest; (4) any limited partnership interest or limited liability company member interest that is not “insulated,” pursuant to FCC-prescribed criteria, from material involvement in the management or operations of the media company; (5) certain same-market time brokerage agreements; (6) certain same-market joint sales agreements; and (7) under the FCC’s “equity/debt plus” standard, otherwise non-attributable equity or debt interests in a media company if the holder’s combined equity and debt interests amount to more than 33 percent of the “total asset value” of the media company and the holder has certain other interests in the media company or in another media property in the same market. Under the FCC’s rules, discrete ownership interests under common ownership, management, or control must be aggregated to determine whether or not an interest is “attributable.”
Our certificate of incorporation grants us broad authority to comply with FCC Regulations.
To the extent necessary to comply with the Communications Act, FCC rules and policies, and any FCC declaratory ruling, and in accordance with our certificate of incorporation, we may request information from any stockholder or proposed stockholder to determine whether such stockholder’s ownership of shares of capital stock may result in a violation of the Communications Act, FCC rules and policies, or any FCC declaratory ruling. We may further take the following actions, among others, to help ensure compliance with and to remedy any actual or potential violation of the Communications Act, FCC rules and policies, or any FCC declaratory ruling, or to prevent the loss or impairment of any of our FCC licenses: (i) prohibit, suspend or rescind the ownership, voting or transfer of any portion of our outstanding capital stock; (ii) redeem capital stock; and (iii) exercise any and all appropriate remedies, at law or in equity, in any court of competent jurisdiction, against any stockholder, to cure any such actual or potential violation or impairment.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
The following table sets forth our purchases of shares of our Class A common stock made during the quarter ended June 30, 2019:2020:
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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 employees 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 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 |
April 1 through April 30 | 512 |
| | $ | 1.25 |
| | — |
| | $ | — |
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| | | | | | | |
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May 1 through May 31 | — |
| | — |
| | — |
| | — |
|
June 1 through June 30 | — |
| | — |
| | — |
| | — |
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Total | 512 |
| | $ | 1.25 |
| | — |
| | $ | — |
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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 June 30, 2019 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
Not applicable.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
On August 14, 2019, the Company and Steven J. Macri, SVP - Finance, entered into a fourth amendment (the “Fourth Amendment”) to his employment agreement, (as so amended, the Employment Agreement”). Pursuant to the Fourth Amendment, the term of Mr. Macri’s Employment Agreement, which was previously scheduled to expire on June 30, 2019, was extended through December 31, 2019. In addition, the Fourth Amendment reflected a one-time award of 52,500 restricted stock unit awards and 97,500 options to purchase shares of the Company’s class A common stock, which were made on May 30, 2019 in connection with the Company’s Reorganization. Of these awards, 20% vested on July 22, 2019, two business days following the listing of the Company’s class A common stock on the NASDAQ Global Select Market, and the remaining awards will vest equally on each of the next four anniversaries of the grant date, subject to the provisions of the applicable award agreement. In addition, the Fourth Amendment increased the amount of any severance payments to be made pursuant to his employment agreement from $1.4 million to $2.0 million over a 12 month period.None.
ITEM 6. EXHIBITS
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Exhibit Number
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2.1 | |
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3.1 | |
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3.2 | |
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4.13.3 | |
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3.4 | |
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4.1 | | Rights Agreement, dated as of May 1, 2019,6, 2020, between iHeartMedia, Inc. and Computershare Trust Company, N.A., as Rights Agent (Incorporated by reference to Exhibit 4.1 to the Form 8-K filed by iHeartMedia, Inc. on May 8, 2020).
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10.1 | |
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10.2 | |
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10.3 | | Amendment No. 2, dated as of July 16, 2020, by and among iHeartCommunications, Inc., iHeartMedia Capital I, LLC, as guarantor, thecertain subsidiary guarantors party thereto, Bank of America, N.A. and U.S. Bank National Association, as trustee and collateral agent, governing the 6.375% Senior Secured Notes due 2026 (incorporated by reference to Exhibit 4.1 to iHeartMedia, Inc.’s Current Report on Form 8-K filed on May 2, 2019).
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4.2 | |
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4.3 | | Indenture, dated as of May 1, 2019, by and among iHeartCommunications, Inc., iHeartMedia Capital I, LLC, as guarantor, the subsidiary guarantorsother lenders party thereto and U.S. Bank National Association, as trustee, governing the 8.375% Senior Notes due 2027 (incorporated by reference to Exhibit 4.3 to iHeartMedia, Inc.’s Current Report on Form 8-K filed on May 2, 2019).
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4.4 | |
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4.5 | |
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4.6 | |
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4.7 | |
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10.1 | | Settlement and Separation Agreement, dated as of March 27, 2019, between iHeartMedia, Inc., iHeartCommunications, Inc., Clear Channel Holdings, Inc. and Clear Channel Outdoor Holdings, Inc. (incorporated by reference to Exhibit 10.1 of Clear Channel Outdoor Holdings, Inc.’s Current Report on Form 8-K filed on March 28, 2019).
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10.2 | | Transition Services Agreement, dated as of May 1, 2019, by and among iHeartMedia, Inc., iHeartMedia Management Services, Inc., iHeartCommunications, Inc. and Clear Channel Outdoor Holdings, Inc. (incorporated(Incorporated by reference to Exhibit 10.1 to Clear Channel Outdoor Holdings, Inc.’s Current Report onthe Form 8-K filed on May 2, 2019).
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10.3 | | Tax Matters Agreement, dated as of May 1, 2019, by and among iHeartMedia, Inc., iHeartCommunications, Inc., iHeart Operations, Inc., Clear Channel Holdings, Inc., Clear Channel Outdoor Holdings, Inc. and Clear Channel Outdoor, LLC. (incorporated by reference to Exhibit 10.2 to Clear Channel Outdoor Holdings, Inc.’s Current Report on Form 8-K filed on May 2, 2019)July 16, 2020). |
10.4 | | ABL Credit Agreement, dated as of May 1, 2019, by and among iHeartMedia Capital I, LLC, iHeartCommunications, Inc., as borrower, the other guarantors party thereto from time to time, Citibank, N.A., as Administrative Agent and Collateral Agent, and the lenders party thereto, governing the New ABL Facility (incorporated by reference to Exhibit 10.5 to iHeartMedia, Inc.’s Current Report on Form 8-K filed on May 2, 2019). |
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10.5 | | ABL Intercreditor Agreement, dated as of May 1, 2019, by and among Citibank, N.A., as Tern Loan Collateral Agent and Designated Junior Priority Representative, U.S. National Bank Association, as Notes Collateral Agent, each additional junior priority representative party thereto, iHeartMedia Capital I, LLC, iHeartCommunications, Inc. and the other grantors party thereto (incorporated by reference to Exhibit 10.6 to iHeartMedia, Inc.’s Current Report on Form 8-K filed on May 2, 2019).
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10.6 | | Credit Agreement, dated as of May 1, 2019, by and among iHeartMedia Capital I, LLC, iHeartCommunications, Inc., as borrower, the other guarantors party thereto from time to time, Citibank, N.A., as Administrative Agent and Collateral Agent, and the lenders party thereto, governing the New Term Loan Facility (incorporated by reference to Exhibit 10.7 to iHeartMedia, Inc.’s Current Report on Form 8-K filed on May 2, 2019).
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10.7 | | First Lien Intercreditor Agreement, dated as of the Effective date, by and among Citibank, N.A., as Credit Agreement Agent, U.S. National Bank Association, as Senior Notes Collateral Agent and each additional collateral agent from time to time party thereto, iHeartMedia Capital I, LLC, iHeartCommunications, Inc. and the other grantors party thereto (incorporated by reference to Exhibit 10.8 to iHeartMedia, Inc.’s Current Report on Form 8-K filed on May 2, 2019).
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10.8 | |
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10.9 | | |
10.10 | |
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10.11 | |
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10.12 | | |
10.13 | |
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10.14 | |
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10.15 | |
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10.16 | |
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10.17 | |
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10.18 | |
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10.19 | |
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31.1* | | |
10.20* | | |
31.1* | |
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31.2* | |
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32.1** | |
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32.2** | |
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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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August 14, 2019 | /s/ SCOTT D. HAMILTON |
| Scott D. Hamilton |
| Senior Vice President, Chief Accounting Officer and Assistant Secretary |