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EX-31 - CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 302 - iHeartCommunications, Inc.Exhibit31.1.htm
EX-31 - CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO SECTION 302 - iHeartCommunications, Inc.Exhibit31.2.htm
EX-32 - CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO SECTION 906 - iHeartCommunications, Inc.Exhibit32.2.htm
EX-32 - CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 906 - iHeartCommunications, Inc.Exhibit32.1.htm

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

[X]          QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE

                ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2015

 

[   ]          TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE

                 ACT OF 1934 FOR THE TRANSITION PERIOD FROM _________ TO __________

 

Commission File Number

001-09645

 

iHeartCommunications, Inc.

(Exact name of registrant as specified in its charter)

 

                                                   Texas                                                                                                           74-1787539

                               (State or other jurisdiction of                                                                  (I.R.S. Employer Identification No.)

                             incorporation or organization)

 

                           200 East Basse Road, Suite 100

                                      San Antonio, Texas                                                                                                    78209

                     (Address of principal executive offices)                                                                               (Zip Code)

 

(210) 822-2828

(Registrant’s telephone number, including area code)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   Yes [   ] No [X]

 

(Explanatory Note: The registrant is a voluntary filer and is therefore not subject to the filing requirements of the Exchange Act. However, during the preceding 12 months and pursuant to the registrant’s bond indentures, the registrant has filed all reports that it would have been required to file by Section 13 or 15(d) of the Exchange Act if the registrant was subject to the filing requirements of the Exchange Act during such timeframe.)

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).   Yes [X] No [  ]

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer [   ]   Accelerated filer [   ]   Non-accelerated filer [X]  Smaller reporting company [   ]

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes [  ] No [X]

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

 

                                                Class                                                                                      Outstanding at July 28, 2015

                    ~~~~~~~~~~~~~~~~~~~~~~~~~                                                  ~~~~~~~~~~~~~~~~~~~~~~~~~

                       Common Stock, $.001 par value                                                                                 500,000,000

 

The registrant meets the conditions set forth in General Instructions H(1)(a) and (b) of Form 10-Q and is therefore filing this form in a reduced disclosure format permitted by General Instruction H(2).

  

 

 


 

IHEARTCOMMUNICATIONS, INC.
INDEX

 

 

 

Page No.

Part I – Financial Information

 

Item 1.       Financial Statements

1

                    Consolidated Balance Sheets as of June 30, 2015 and December 31, 2014

1

                    Consolidated Statements of Comprehensive Loss for the three and six months ended June 30, 2015 and 2014

2

                    Consolidated Statements of Cash Flows for the six months ended June 30, 2015 and 2014

3

                    Notes to Consolidated Financial Statements

4

Item 2.       Management’s Discussion and Analysis of Financial Condition and Results of Operations

15

Item 3.       Quantitative and Qualitative Disclosures About Market Risk

32

Item 4.       Controls and Procedures

32

Part II – Other Information

 

Item 1.       Legal Proceedings

34

Item 1A.    Risk Factors

34

Item 2.       Unregistered Sales of Equity Securities and Use of Proceeds (intentionally omitted pursuant to General Instruction H(2)(b) of Form 10-Q)

34

Item 3.       Defaults Upon Senior Securities (intentionally omitted pursuant to General Instruction H(2)(b) of Form 10-Q)

35

Item 4.       Mine Safety Disclosures

35

Item 5.       Other Information

35

Item 6.       Exhibits

35

Signatures

36

  

 


PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

iHeartCommunications, Inc. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

 

(In thousands, except share data)

June 30,

 

 

 

 

 

2015

 

December 31,

 

(Unaudited)

 

2014

CURRENT ASSETS

 

 

 

 

 

Cash and cash equivalents

$

 387,449  

 

$

 457,024  

Accounts receivable, net of allowance of $32,560 in 2015 and $32,396 in 2014

 

 1,434,232  

 

 

 1,395,248  

Prepaid expenses

 

 223,044  

 

 

 191,572  

Other current assets

 

 141,111  

 

 

 136,299  

 

Total Current Assets

 

 2,185,836  

 

 

 2,180,143  

PROPERTY, PLANT AND EQUIPMENT

 

 

 

 

 

Structures, net

 

 1,542,361  

 

 

 1,614,199  

Other property, plant and equipment, net

 

 862,565  

 

 

 1,084,865  

INTANGIBLE ASSETS AND GOODWILL

 

 

 

 

 

Indefinite-lived intangibles - licenses

 

 2,411,294  

 

 

 2,411,071  

Indefinite-lived intangibles - permits

 

 1,065,978  

 

 

 1,066,748  

Other intangibles, net

 

 1,083,979  

 

 

 1,206,727  

Goodwill

 

 4,177,772  

 

 

 4,187,424  

OTHER ASSETS

 

 

 

 

 

Other assets

 

 297,160  

 

 

 289,065  

Total Assets

$

 13,626,945  

 

$

 14,040,242  

CURRENT LIABILITIES

 

 

 

 

 

Accounts payable

$

 122,424  

 

$

 132,258  

Accrued expenses

 

 730,216  

 

 

 799,475  

Accrued interest

 

 286,892  

 

 

 252,900  

Deferred income

 

 227,042  

 

 

 176,048  

Current portion of long-term debt

 

 2,725  

 

 

 3,604  

 

Total Current Liabilities

 

 1,369,299  

 

 

 1,364,285  

Long-term debt

 

 20,371,803  

 

 

 20,322,414  

Deferred income taxes

 

 1,562,081  

 

 

 1,563,888  

Other long-term liabilities

 

 564,538  

 

 

 454,863  

Commitments and contingent liabilities (Note 4)

 

 

 

 

 

SHAREHOLDER'S DEFICIT

 

 

 

 

 

Noncontrolling interest

 

 197,477  

 

 

 224,140  

Common stock, par value $.001 per share, authorized and issued

 

 

 

 

 

 

500,000,000 shares in 2015 and 2014, respectively

 

 500  

 

 

 500  

Additional paid-in capital

 

 2,065,781  

 

 

 2,101,132  

Accumulated deficit

 

 (12,121,822) 

 

 

 (11,682,390) 

Accumulated other comprehensive loss

 

 (382,712) 

 

 

 (308,590) 

 

Total Shareholder's Deficit

 

 (10,240,776) 

 

 

 (9,665,208) 

Total Liabilities and Shareholder's Deficit

$

 13,626,945  

 

$

 14,040,242  

  

 

See Notes to Consolidated Financial Statements

1


iHeartCommunications, Inc. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(UNAUDITED)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(In thousands)

Three Months Ended June 30,

 

Six Months Ended June 30,

 

2015

 

2014

 

2015

 

2014

Revenue

$

 1,599,859  

 

$

 1,630,154  

 

$

 2,944,423  

 

$

 2,972,702  

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Direct operating expenses (excludes depreciation

   and amortization)

 

 615,265  

 

 

 644,870  

 

 

 1,193,784  

 

 

 1,242,558  

 

Selling, general and administrative expenses (excludes

   depreciation and amortization)

 

 424,163  

 

 

 418,928  

 

 

 840,351  

 

 

 833,564  

 

Corporate expenses (excludes depreciation and amortization)

 

 80,592  

 

 

 82,197  

 

 

 157,880  

 

 

 154,902  

 

Depreciation and amortization

 

 168,394  

 

 

 174,062  

 

 

 338,847  

 

 

 348,933  

 

Impairment charges

 

 -  

 

 

 4,902  

 

 

 -  

 

 

 4,902  

 

Other operating income (expense), net

 

 100,754  

 

 

 (1,628) 

 

 

 91,780  

 

 

 (1,463) 

Operating income

 

 412,199  

 

 

 303,567  

 

 

 505,341  

 

 

 386,380  

Interest expense

 

 452,957  

 

 

 440,605  

 

 

 894,728  

 

 

 871,719  

Gain on marketable securities

 

 -  

 

 

 -  

 

 

 579  

 

 

 -  

Equity in loss of nonconsolidated affiliates

 

 (690) 

 

 

 (16) 

 

 

 (359) 

 

 

 (13,343) 

Loss on extinguishment of debt

 

 -  

 

 

 (47,503) 

 

 

 (2,201) 

 

 

 (51,419) 

Other income, net

 

 16,211  

 

 

 12,157  

 

 

 36,102  

 

 

 13,698  

Loss before income taxes

 

 (25,237) 

 

 

 (172,400) 

 

 

 (355,266) 

 

 

 (536,403) 

Income tax benefit (expense)

 

 (22,077) 

 

 

 621  

 

 

 (78,682) 

 

 

 (67,766) 

Consolidated net loss

 

 (47,314) 

 

 

 (171,779) 

 

 

 (433,948) 

 

 

 (604,169) 

 

Less amount attributable to noncontrolling interest

 

 7,152  

 

 

 14,852  

 

 

 5,484  

 

 

 6,651  

Net loss attributable to the Company

$

 (54,466) 

 

$

 (186,631) 

 

$

 (439,432) 

 

$

 (610,820) 

Other comprehensive income (loss), net of tax:

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustments

 

 2,278  

 

 

 (12,232) 

 

 

 (79,881) 

 

 

 (14,449) 

 

Unrealized gain on securities and derivatives:

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized holding gain (loss) on marketable securities

 

 (133) 

 

 

 (405) 

 

 

 689  

 

 

 679  

 

Other adjustments to comprehensive loss

 

 -  

 

 

 -  

 

 

 (1,154) 

 

 

 -  

 

Reclassification adjustment for realized gains on

   securities included in net loss

 

 -  

 

 

 -  

 

 

 -  

 

 

 3,309  

Other comprehensive income (loss)

 

 2,145  

 

 

 (12,637) 

 

 

 (80,346) 

 

 

 (10,461) 

Comprehensive loss

 

 (52,321) 

 

 

 (199,268) 

 

 

 (519,778) 

 

 

 (621,281) 

 

 Less amount attributable to noncontrolling interest

 

 (4,287) 

 

 

 (1,979) 

 

 

 (10,640) 

 

 

 (4,942) 

Comprehensive loss attributable to the Company

$

 (48,034) 

 

$

 (197,289) 

 

$

 (509,138) 

 

$

 (616,339) 

 

See Notes to Consolidated Financial Statements

2


iHeartCommunications, Inc. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)

 

(In thousands)

 

 

 

Six Months Ended June 30,

 

 

 

2015

 

2014

Cash flows from operating activities:

 

 

 

 

 

 

 

 

 

Consolidated net loss

 

 

 

$

 (433,948) 

 

$

 (604,169) 

Reconciling items:

 

 

 

 

 

 

 

 

 

Impairment charges

 

 

 

 

 -  

 

 

 4,902  

 

Depreciation and amortization

 

 

 

 

 338,847  

 

 

 348,933  

 

Deferred taxes

 

 

 

 

 14,988  

 

 

 32,179  

 

Provision for doubtful accounts

 

 

 

 

 12,848  

 

 

 7,767  

 

Amortization of deferred financing charges and note discounts, net

 

 

 

 

 31,494  

 

 

 57,622  

 

Share-based compensation

 

 

 

 

 4,927  

 

 

 5,818  

 

(Gain) loss on disposal of operating and fixed assets

 

 

 

 

 (101,473) 

 

 

 1,463  

 

Gain on marketable securities

 

 

 

 

 (579) 

 

 

 -  

 

Equity in loss of nonconsolidated affiliates

 

 

 

 

 359  

 

 

 13,343  

 

Loss on extinguishment of debt

 

 

 

 

 2,201  

 

 

 51,419  

 

Other reconciling items, net

 

 

 

 

 (36,546) 

 

 

 (14,037) 

 

Changes in operating assets and liabilities, net of effects of

    acquisitions and dispositions:

 

 

 

 

 

 

 

 

 

 

(Increase) decrease in accounts receivable

 

 

 

 

 (73,764) 

 

 

 9,714  

 

 

Decrease in accrued expenses

 

 

 

 

 (61,342) 

 

 

 (15,820) 

 

 

Decrease in accounts payable

 

 

 

 

 (6,126) 

 

 

 (19,928) 

 

 

Increase in accrued interest

 

 

 

 

 50,620  

 

 

 31,816  

 

 

Increase in deferred income

 

 

 

 

 56,230  

 

 

 67,696  

 

 

Changes in other operating assets and liabilities

 

 

 

 

 (38,342) 

 

 

 (24,922) 

Net cash used in operating activities

 

 

 

 

 (239,606) 

 

 

 (46,204) 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

 

Proceeds from sale of other investments

 

 

 

 

 579  

 

 

 220,830  

 

Purchases of property, plant and equipment

 

 

 

 

 (124,877) 

 

 

 (141,421) 

 

Proceeds from disposal of assets

 

 

 

 

 393,637  

 

 

 5,899  

 

Purchases of other operating assets

 

 

 

 

 (3,970) 

 

 

 (1,733) 

 

Change in other, net

 

 

 

 

 (28,994) 

 

 

 (2,009) 

Net cash provided by investing activities

 

 

 

 

 236,375  

 

 

 81,566  

Cash flows from financing activities:

 

 

 

 

 

 

 

 

 

Draws on credit facilities

 

 

 

 

 120,000  

 

 

 820  

 

Payments on credit facilities

 

 

 

 

 (122,638) 

 

 

 (248,675) 

 

Proceeds from long-term debt

 

 

 

 

 950,000  

 

 

 1,059,975  

 

Payments on long-term debt

 

 

 

 

 (931,324) 

 

 

 (731,254) 

 

Payments to purchase noncontrolling interests

 

 

 

 

 (42,564) 

 

 

 -  

 

Dividends and other payments to noncontrolling interests

 

 

 

 

 (28,099) 

 

 

 (9,673) 

 

Deferred financing charges

 

 

 

 

 (10,021) 

 

 

 (15,526) 

 

Change in other, net

 

 

 

 

 2,602  

 

 

 (165) 

Net cash provided by (used for) financing activities

 

 

 

 

 (62,044) 

 

 

 55,502  

Effect of exchange rate changes on cash

 

 

 

 

 (4,300) 

 

 

 (577) 

Net increase (decrease) in cash and cash equivalents

 

 

 

 

 (69,575) 

 

 

 90,287  

Cash and cash equivalents at beginning of period

 

 

 

 

 457,024  

 

 

 708,151  

Cash and cash equivalents at end of period

 

 

 

$

 387,449  

 

$

 798,438  

SUPPLEMENTAL DISCLOSURES:

 

 

 

 

 

 

 

 

Cash paid for interest

 

 

 

$

 808,354  

 

$

 756,322  

Cash paid for taxes

 

 

 

 

 24,465  

 

 

 19,233  

 

See Notes to Consolidated Financial Statements

3


iHeartCommunications, Inc. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

 

NOTE 1 – BASIS OF PRESENTATION

Preparation of Interim Financial Statements

All references in this Quarterly Report on Form 10-Q to the “Company,” “we,” “us” and “our” refer to iHeartCommunications, Inc. and its consolidated subsidiaries.  The Company’s reportable segments are iHeartMedia (“iHM”), Americas outdoor advertising (“Americas outdoor” or “Americas outdoor advertising”) and International outdoor advertising (“International outdoor” or “International outdoor advertising”). 

 

The accompanying consolidated financial statements were prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) and, in the opinion of management, include all normal and recurring adjustments necessary to present fairly the results of the interim periods shown. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) have been condensed or omitted pursuant to such SEC rules and regulations. Management believes that the disclosures made are adequate to make the information presented not misleading. Due to seasonality and other factors, the results for the interim periods may not be indicative of results for the full year.  The financial statements contained herein should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s 2014 Annual Report on Form 10-K.

 

We are a holding company and have no significant assets other than the ownership interests in our subsidiaries. All of our operations and all of our operating assets are held by our subsidiaries.  Certain of our outstanding indebtedness is fully and unconditionally guaranteed on a joint and several basis by our parent, iHeartMedia Capital I, LLC (“Capital I”), and certain of our direct and indirect wholly-owned domestic subsidiaries.  Not all of our subsidiaries guarantee our obligations under such outstanding indebtedness.  For a presentation of the allocation of assets, liabilities, equity, revenues and expenses attributable to the guarantors of our indebtedness in conformity with the SEC’s Regulation S-X Rule 3-10(d), please refer to Note 10 to the consolidated financial statements of Parent as of and for the period ending June 30, 2015.

 

The consolidated financial statements include the accounts of the Company and its subsidiaries.  Also included in the consolidated financial statements are entities for which the Company has a controlling financial interest or is the primary beneficiary.  Investments in companies in which the Company owns 20% to 50% of the voting common stock or otherwise exercises significant influence over operating and financial policies of the company are accounted for under the equity method.  All significant intercompany transactions are eliminated in the consolidation process.  Certain prior-period amounts have been reclassified to conform to the 2015 presentation.

 

During the first quarter of 2015, in connection with the appointment of the new chief executive officer for Clear Channel Outdoor Holdings, Inc. (“CCOH”) and a new chief executive officer for the Americas outdoor business, the Company reevaluated its segment reporting and determined that its Latin American operations should be managed by its Americas outdoor leadership team.  As a result, the operations of Latin America are no longer reflected within the Company’s International outdoor segment and are included in the results of its Americas outdoor segment.  In addition, the Company reorganized a portion of its national representation business such that the cost of sales personnel for iHM radio stations are now included in the iHM segment and its national representation business no longer charges iHM for intercompany cost allocations.  Accordingly, the Company has recast the corresponding segment disclosures for prior periods to include Latin America within the Americas outdoor segment and has also recast the corresponding segment disclosures to reflect internal representation services as direct expenses of iHM.

 

The Company is a Texas corporation with all of its common stock being held by Capital I.  All of Capital I’s interests are held by iHeartMedia Capital II, LLC, a direct, wholly-owned subsidiary of iHeartMedia, Inc. (“Parent”). Parent was formed in May 2007 by private equity funds sponsored by Bain Capital Partners, LLC and Thomas H. Lee Partners, L.P. (together, the “Sponsors”) for the purpose of acquiring the business of the Company.

 

Omission of Per Share Information

Net loss per share information is not presented as Capital I owns 100% of the Company’s common stock. The Company does not have any publicly traded common stock.

 

New Accounting Pronouncements

During the first quarter of 2015, the Company adopted the Financial Accounting Standards Board’s (“FASB”) ASU No. 2014-08, Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360), Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity.  This update provides guidance for the recognition,

4


iHeartCommunications, Inc. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

measurement and disclosure of discontinued operations. The update is effective for annual periods beginning on or after 15 December 2014 and interim periods within those years.  The adoption of this guidance did not have a material effect on the Company’s consolidated financial statements.

 

During the first quarter of 2015, the FASB issued ASU No. 2015-02, Consolidation (Topic 810), Amendments to the Consolidation Analysis. This new standard eliminates the deferral of FAS 167, which has allowed entities with interest in certain investment funds to follow the previous consolidation guidance in FIN 46(R) and makes other changes to both the variable interest model and the voting model. The standard is effective for annual periods, and for interim periods within those annual periods, beginning after December 15, 2015.  The Company is currently evaluating the impact of the provisions of this new standard on its financial position and results of operations.

   

 

NOTE 2 – Property, plant and equipment, INTANGIBLE ASSETS AND GOODWILL

Dispositions

During the first quarter of 2015, the Company sold two office buildings located in San Antonio, Texas for $34.3 million.  Concurrently with the sale of these properties, the Company entered into lease agreements for the continued use of the buildings, pursuant to which the Company will have annual lease payments of $2.6 million.  The Company recognized a gain of $8.1 million on the sale of one of the buildings, which is being recognized over the term of the lease. 

 

On December 11, 2014, Parent announced that its subsidiary had entered into an agreement with Vertical Bridge Holdings, LLC (“Vertical Bridge”) for the sale of up to 411 of our broadcast communications tower sites.  On April 3, 2015, an affiliate of Parent and certain of the Company’s subsidiaries completed the first closing for the sale of 367 of the Company’s broadcast communications tower sites and related assets for $369.2 million. Simultaneous with the sale, the Company entered into lease agreements for the continued use of 360 of the towers sold.  The Company incurred $5.1 million in relation to these lease agreements in the three months ended June 30, 2015.  Upon completion of the transaction, the Company realized a net gain of $207.2 million, of which $108.1 million will be deferred and recognized over the lease term.  On July 16, 2015, Parent and certain of the Company’s subsidiaries completed the second closing for the sale of an additional nine of the Company’s broadcast communication tower sites and related assets for approximately $5.9 million. Simultaneous with the sale, the Company entered into lease agreements for the continued use of seven of the towers, pursuant to which the Company will have annual lease payments of $0.3 million.  The leases entered into as a part of these transactions are for a term of fifteen years and include three optional five-year renewal periods    

 

Property, Plant and Equipment

The Company’s property, plant and equipment consisted of the following classes of assets as of June 30, 2015 and December 31, 2014, respectively:

 

 

 

 

 

 

(In thousands)

June 30,

 

December 31,

 

2015

 

2014

Land, buildings and improvements

$

 626,050  

 

$

 731,925  

Structures

 

 3,005,159  

 

 

 2,999,582  

Towers, transmitters and studio equipment

 

 341,815  

 

 

 453,044  

Furniture and other equipment

 

 563,168  

 

 

 536,255  

Construction in progress

 

 70,953  

 

 

 95,671  

 

 

 4,607,145  

 

 

 4,816,477  

Less: accumulated depreciation

 

 2,202,219  

 

 

 2,117,413  

Other property, plant and equipment, net

$

 2,404,926  

 

$

 2,699,064  

 

Indefinite-lived Intangible Assets

The Company’s indefinite-lived intangible assets consist of Federal Communications Commission (“FCC”) broadcast licenses in its iHM segment and billboard permits in its Americas outdoor advertising segment. Due to significant differences in both business practices and regulations, billboards in the International outdoor advertising segment and in Latin America are subject to long-term,

5


iHeartCommunications, Inc. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

finite contracts, unlike the Company’s permits in the United States and Canada. Accordingly, there are no indefinite-lived intangible assets in the International outdoor advertising segment.

 

Other Intangible Assets

Other intangible assets include definite-lived intangible assets and permanent easements.  The Company’s definite-lived intangible assets include primarily transit and street furniture contracts, talent and representation contracts, customer and advertiser relationships, and site-leases, all of which are amortized over the respective lives of the agreements or over the period of time the assets are expected to contribute directly or indirectly to the Company’s future cash flows. Permanent easements are indefinite-lived intangible assets which include certain rights to use real property not owned by the Company.  The Company periodically reviews the appropriateness of the amortization periods related to its definite-lived intangible assets.  These assets are recorded at cost.

 

The following table presents the gross carrying amount and accumulated amortization for each major class of other intangible assets as of June 30, 2015 and December 31, 2014, respectively:

 

 

 

 

 

 

 

 

 

 

 

 

 

(In thousands)

June 30, 2015

 

December 31, 2014

 

 

Gross Carrying Amount

 

Accumulated Amortization

 

Gross Carrying Amount

 

Accumulated Amortization

Transit, street furniture and other outdoor

   contractual rights

$

 675,466  

 

$

 (465,228) 

 

$

 716,723  

 

$

 (476,523) 

Customer / advertiser relationships

 

 1,222,518  

 

 

 (831,137) 

 

 

 1,222,518  

 

 

 (765,596) 

Talent contracts

 

 319,384  

 

 

 (238,231) 

 

 

 319,384  

 

 

 (223,936) 

Representation contracts

 

 241,158  

 

 

 (215,977) 

 

 

 238,313  

 

 

 (206,338) 

Permanent easements

 

 171,641  

 

 

 -    

 

 

 171,271  

 

 

 -    

Other

 

 388,122  

 

 

 (183,737) 

 

 

 388,160  

 

 

 (177,249) 

 

Total

$

 3,018,289  

 

$

 (1,934,310) 

 

$

 3,056,369  

 

$

 (1,849,642) 

 

Total amortization expense related to definite-lived intangible assets for the three months ended June 30, 2015 and 2014 was $60.7 million and $66.3 million, respectively. Total amortization expense related to definite-lived intangible assets for the six months ended June 30, 2015 and 2014 was $123.6 million and $133.2 million, respectively.

 

As acquisitions and dispositions occur in the future, amortization expense may vary.  The following table presents the Company’s estimate of amortization expense for each of the five succeeding fiscal years for definite-lived intangible assets:

 

 

 

 

 

(In thousands)

 

 

 

2016

$

 220,130  

 

2017

 

 197,105  

 

2018

 

 130,993  

 

2019

 

 43,102  

 

2020

 

 36,115  

 

 

6


iHeartCommunications, Inc. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

Goodwill

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The following table presents the changes in the carrying amount of goodwill in each of the Company’s reportable segments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(In thousands)

iHM

 

Americas Outdoor Advertising

 

International Outdoor Advertising

 

Other

 

Consolidated

Balance as of December 31, 2013

$

 3,234,807  

 

$

 585,227  

 

$

 264,907  

 

$

 117,246  

 

$

 4,202,187  

 

Acquisitions

 

 17,900  

 

 

 -  

 

 

 -  

 

 

 299  

 

 

 18,199  

 

Foreign currency

 

 -  

 

 

 (653) 

 

 

 (32,369) 

 

 

 -  

 

 

 (33,022) 

 

Other

 

 60  

 

 

 -  

 

 

 -  

 

 

 -  

 

 

 60  

Balance as of December 31, 2014

$

 3,252,767  

 

$

 584,574  

 

$

 232,538  

 

$

 117,545  

 

$

 4,187,424  

 

Acquisitions

 

 -    

 

 

 -    

 

 

 -    

 

 

 -    

 

 

 -  

 

Foreign currency

 

 -    

 

 

 (312) 

 

 

 (9,340) 

 

 

 -    

 

 

 (9,652) 

 

Other

 

 -    

 

 

 -    

 

 

 -    

 

 

 -    

 

 

 -  

Balance as of June 30, 2015

$

 3,252,767  

 

$

 584,262  

 

$

 223,198  

 

$

 117,545  

 

$

 4,177,772  

 

7


iHeartCommunications, Inc. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

NOTE 3 – LONG-TERM DEBT

Long-term debt outstanding as of June 30, 2015 and December 31, 2014 consisted of the following:

 

 

 

 

 

 

 

(In thousands)

June 30,

 

December 31,

 

 

2015

2014

Senior Secured Credit Facilities(1)

 

 $6,300,000  

 

 

 $7,231,222  

Receivables Based Credit Facility Due 2017(2)

 

 -    

 

 

 -    

9.0% Priority Guarantee Notes Due 2019

 

 1,999,815  

 

 

 1,999,815  

9.0% Priority Guarantee Notes Due 2021

 

 1,750,000  

 

 

 1,750,000  

11.25% Priority Guarantee Notes Due 2021

 

 575,000  

 

 

 575,000  

9.0% Priority Guarantee Notes Due 2022

 

 1,000,000  

 

 

 1,000,000  

10.625% Priority Guarantee Notes Due 2023

 

 950,000  

 

 

 -    

Subsidiary Revolving Credit Facility Due 2018(3)

 

 -    

 

 

 -    

Other Secured Subsidiary Debt(4)

 

 17,404  

 

 

 19,257  

Total Consolidated Secured Debt

 

 12,592,219  

 

 

 12,575,294  

 

 

 

 

 

 

 

14.0% Senior Notes Due 2021(5)

 

 1,678,314  

 

 

 1,661,697  

The Company's Legacy Notes(6)

 

 667,900  

 

 

 667,900  

10.0% Senior Notes Due 2018

 

 730,000  

 

 

 730,000  

Subsidiary Senior Notes due 2022

 

 2,725,000  

 

 

 2,725,000  

Subsidiary Senior Subordinated Notes due 2020

 

 2,200,000  

 

 

 2,200,000  

Other Subsidiary Debt

 

 302  

 

 

 1,024  

Purchase accounting adjustments and original issue discount

 

 (219,207) 

 

 

 (234,897) 

Total debt

 

 20,374,528  

 

 

 20,326,018  

Less: current portion

 

 2,725  

 

 

 3,604  

Total long-term debt

$

 20,371,803  

 

$

 20,322,414  

 

 

 

 

 

 

 

(1)

Term Loan D and Term Loan E mature in 2019.

(2)

The Receivables Based Credit Facility provides for borrowings up to the lesser of $535.0 million (the revolving credit commitment) or the borrowing base, subject to certain limitations contained in the Company's material financing agreements.

(3)

The Subsidiary Revolving Credit Facility provides for borrowings up to $75.0 million (the revolving credit commitment).

(4)

Other secured subsidiary debt matures at various dates from 2015 through 2045.

(5)

The 14.0% Senior Notes due 2021are subject to required payments at various dates from 2018 through 2021.

(6)

The Company's Legacy Notes, all of which were issued prior to the acquisition of the Company by Parent in 2008, consist of Senior Notes maturing at various dates in 2016, 2018 and 2027.

 

The Company’s weighted average interest rates as of June 30, 2015 and December 31, 2014 were 8.4% and 8.1%, respectively.  The aggregate market value of the Company’s debt based on market prices for which quotes were available was approximately $19.2 billion and $19.7 billion as of June 30, 2015 and December 31, 2014, respectively.  Under the fair value hierarchy established by ASC 820-10-35, the market value of the Company’s debt is classified as either Level 1 or Level 2.

 

Debt Issuance

 

On February 26, 2015, the Company issued at par $950.0 million aggregate principal amount of 10.625% Priority Guarantee Notes due 2023.  The notes mature on March 15, 2023 and bear interest at a rate of 10.625% per annum, payable semi-annually in arrears on March 15 and September 15 of each year, beginning on September 15, 2015.  The Company used the net proceeds from the offering primarily to prepay its term loan facilities due 2016.

 

8


iHeartCommunications, Inc. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

During the first quarter of 2015, the Company borrowed $120.0 million principal amount under its receivables based credit facility due 2017. During the second quarter of 2015, all outstanding amounts under the receivables based credit facility were repaid.

 

Debt Repayments, Maturities and Other

 

On February 26, 2015, the Company prepaid at par $916.1 million of loans outstanding under its Term Loan B facility and $15.2 million of loans outstanding under its Term Loan C asset sale facility, using the net proceeds of the Priority Guarantee Notes due 2023 issued on such date.

 

Surety Bonds, Letters of Credit and Guarantees

As of June 30, 2015, the Company had outstanding surety bonds, commercial standby letters of credit and bank guarantees of $57.8 million, $108.6 million and $54.2 million, respectively. Bank guarantees of $13.2 million were cash secured.  These surety bonds, letters of credit and bank guarantees relate to various operational matters including insurance, bid, concession and performance bonds as well as other items.

 

NOTE 4 – COMMITMENTS AND CONTINGENCIES

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 the Company’s 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.

 

Los Angeles Litigation

In 2008, Summit Media, LLC, one of the Company’s competitors, sued the City of Los Angeles (the “City”), Clear Channel Outdoor, Inc. (“CCOI”) and OUTFRONT Media Inc. (formerly CBS Outdoor Americas Inc.) in Los Angeles Superior Court (Case No. BS116611) challenging the validity of a settlement agreement that had been entered into in November 2006 among the parties and pursuant to which CCOI had taken down existing billboards and converted 83 existing signs from static displays to digital displays.  In 2009, the Los Angeles Superior Court ruled that the settlement agreement constituted an ultra vires act of the City, and nullified its existence.  After further proceedings, on April 12, 2013, the Los Angeles Superior Court invalidated 82 digital modernization permits issued to CCOI (77 of which displays were operating at the time of the ruling) and CCOI was required to turn off the electrical power to all affected digital displays on April 15, 2013.  The digital display structures remain intact but digital displays are currently prohibited in the City.  CCOI is seeking permits under the existing City sign code to either wrap the LED faces with vinyl or convert the LED faces to traditional static signs and has obtained a number of such permits.  CCOI is also pursuing a new ordinance to permit digital signage in the City.

 

International Outdoor Investigation

 

On April 21, 2015, inspections were conducted at the premises of Clear Channel in Denmark and Sweden as part of an investigation by Danish competition authorities.  Additionally, on the same day, Clear Channel UK received a communication from the UK competition authorities, also in connection with the investigation by Danish competition authorities. Clear Channel and its affiliates are cooperating with the national competition authorities.

 

 

 

 

  

 

9


iHeartCommunications, Inc. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

NOTE 5 – INCOME TAXES

 

 

 

 

 

 

 

 

 

 

 

 

Income Tax Benefit (Expense)

The Company’s income tax benefit (expense) for the three and six months ended June 30, 2015 and 2014, respectively, consisted of the following components:

 

 

 

 

 

 

 

 

 

 

 

 

(In thousands)

Three Months Ended June 30,

 

Six Months Ended June 30,

 

2015

 

2014

 

2015

 

2014

Current tax benefit (expense)

$

 (23,309) 

 

$

 7,492  

 

$

 (63,694) 

 

$

 (35,587) 

Deferred tax benefit (expense)

 

 1,232  

 

 

 (6,871) 

 

 

 (14,988) 

 

 

 (32,179) 

Income tax benefit (expense)

$

 (22,077) 

 

$

 621  

 

$

 (78,682) 

 

$

 (67,766) 

 

The effective tax rates for the three and six months ended June 30, 2015 were (87.5)% and (22.2)%, respectively.  The effective tax rates for the three and six months ended June 30, 2014 were 0.4% and (12.6)%, respectively.  The effective tax rates for the three and six months ended June 30, 2015 and 2014 were primarily impacted by the valuation allowance recorded against deferred tax assets resulting from applicable period net operating losses in U.S. federal, state and certain foreign jurisdictions due to the uncertainty of the ability to utilize those assets in future periods.

 

NOTE 6 – SHAREHOLDER’S DEFICIT

The Company reports its noncontrolling interests in consolidated subsidiaries as a component of equity separate from the Company’s equity.  The following table shows the changes in shareholder’s deficit attributable to the Company and the noncontrolling interests of subsidiaries in which the Company has a majority, but not total, ownership interest:

 

 

 

 

 

 

 

 

 

 

(In thousands)

The Company

 

Noncontrolling

Interests

 

Consolidated

Balances as of January 1, 2015

$

 (9,889,348) 

 

$

 224,140  

 

$

 (9,665,208) 

 

Net income (loss)

 

 (439,432) 

 

 

 5,484  

 

 

 (433,948) 

 

Dividends and other payments to noncontrolling interests

 

 -    

 

 

 (28,099) 

 

 

 (28,099) 

 

Purchase of additional noncontrolling interests

 

 (40,742) 

 

 

 (1,822) 

 

 

 (42,564) 

 

Foreign currency translation adjustments

 

 (69,288) 

 

 

 (10,593) 

 

 

 (79,881) 

 

Unrealized holding gain on marketable securities

 

 618  

 

 

 71  

 

 

 689  

 

Other adjustments to comprehensive loss

 

 (1,036) 

 

 

 (118) 

 

 

 (1,154) 

 

Reclassifications

 

 -    

 

 

 -    

 

 

 -    

 

Other, net

 

 975  

 

 

 8,414  

 

 

 9,389  

Balances as of June 30, 2015

$

(10,438,253)

 

$

197,477

 

$

(10,240,776)

 

(In thousands)

The Company

 

Noncontrolling

Interests

 

Consolidated

Balances as of January 1, 2014

$

(8,942,166)

 

$

 245,531  

 

$

(8,696,635)

 

Net income (loss)

 

 (610,820) 

 

 

 6,651  

 

 

 (604,169) 

 

Dividends and other payments to noncontrolling interests

 

 -    

 

 

 (9,673) 

 

 

 (9,673) 

 

Foreign currency translation adjustments

 

 (9,426) 

 

 

 (5,023) 

 

 

 (14,449) 

 

Unrealized holding gain on marketable securities

 

 598  

 

 

 81  

 

 

 679  

 

Reclassifications

 

 3,309  

 

 

 -    

 

 

 3,309  

 

Other, net

 

 705  

 

 

 4,991  

 

 

 5,696  

Balances as of June 30, 2014

$

 (9,557,800) 

 

$

 242,558  

 

$

 (9,315,242) 

 

10


iHeartCommunications, Inc. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

The Company does not have any compensation plans under which it grants awards to employees. Parent and CCOH have granted restricted stock, restricted stock units and options to purchase shares of their Class A common stock to certain key individuals.

 

NOTE 7 — OTHER INFORMATION

 

Other Comprehensive Income (Loss)

The total (decrease) increase in deferred income tax liabilities of other comprehensive income (loss) related to foreign currency translation adjustments and other for the quarters ended June 30, 2015 and 2014 were $0.0 million and $0.0 million, respectively. The total (decrease) increase in deferred income tax liabilities of other comprehensive income (loss) related to foreign currency translation adjustments and other for the six months ended June 30, 2015 and 2014 were $(0.6) million and $8.2 million, respectively.   

 

Barter and Trade

Barter and trade revenues and expenses from continuing operations are included in consolidated revenue and selling, general and administrative expenses, respectively.  Barter and trade revenues were $22.2 million and $17.9 million for the three months ended June 30, 2015 and 2014, respectively, and $52.2 million and $31.5 million for the six months ended June 30, 2015 and 2014, respectively.  Barter and trade expenses were $23.4 million and $16.4 million for the three months ended June 30, 2015 and 2014, respectively, and $51.5 million and $29.9 million for the six months ended June 30, 2015 and 2014, respectively.  

 

NOTE 8 – SEGMENT DATA

The Company’s reportable segments, which it believes best reflect how the Company is currently managed, are iHM, Americas outdoor advertising and International outdoor advertising.  Revenue and expenses earned and charged between segments are recorded at estimated fair value and eliminated in consolidation.  The iHM segment provides media and entertainment services via broadcast and digital delivery and also includes the Company’s events and national syndication businesses.  The Americas outdoor advertising segment consists of operations primarily in the United States, Canada and Latin America.  The International outdoor advertising segment primarily includes operations in Europe, Asia and Australia.  The Other category includes the Company’s media representation business as well as other general support services and initiatives that are ancillary to the Company’s other businesses.  Corporate includes infrastructure and support, including information technology, human resources, legal, finance and administrative functions for each of the Company’s reportable segments, as well as overall executive, administrative and support functions. Share-based payments are recorded in corporate expense.

 

11


iHeartCommunications, Inc. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

During the first quarter of 2015, the Company revised its segment reporting, as discussed in Note 1.  The following table presents the Company’s reportable segment results for the three and six months ended June 30, 2015 and 2014:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(In thousands)

iHM

 

Americas Outdoor Advertising

 

International Outdoor Advertising

 

Other

 

Corporate and other reconciling items

 

Eliminations

 

Consolidated

Three Months Ended June 30, 2015

Revenue

$

 840,701  

 

$

 341,286  

 

$

 381,533  

 

$

 40,040  

 

$

 -    

 

$

 (3,701) 

 

$

 1,599,859  

Direct operating expenses

 

 241,826  

 

 

 149,712  

 

 

 222,630  

 

 

 3,039  

 

 

 -    

 

 

 (1,942) 

 

 

 615,265  

Selling, general and

   administrative expenses

 

 266,523  

 

 

 57,346  

 

 

 75,176  

 

 

 26,877  

 

 

 -    

 

 

 (1,759) 

 

 

 424,163  

Depreciation and

   amortization

 

 59,571  

 

 

 51,113  

 

 

 40,956  

 

 

 7,611  

 

 

 9,143  

 

 

 -    

 

 

 168,394  

Corporate expenses

 

 -    

 

 

 -    

 

 

 -    

 

 

 -    

 

 

 80,592  

 

 

 -    

 

 

 80,592  

Other operating income, net

 

 -    

 

 

 -    

 

 

 -    

 

 

 -    

 

 

 100,754  

 

 

 -    

 

 

 100,754  

Operating income

$

 272,781  

 

$

 83,115  

 

$

 42,771  

 

$

 2,513  

 

$

 11,019  

 

$

 -    

 

$

 412,199  

Intersegment revenues

$

 -    

 

$

 1,062  

 

$

 -    

 

$

 2,639  

 

$

 -    

 

$

 -    

 

$

 3,701  

Capital expenditures

$

 15,414  

 

$

 15,664  

 

$

 31,752  

 

$

 2,097  

 

$

 3,495  

 

$

 -    

 

$

 68,422  

Share-based compensation

   expense

$

 -    

 

$

 -    

 

$

 -    

 

$

 -    

 

$

 2,403  

 

$

 -    

 

$

 2,403  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended June 30, 2014

Revenue

$

 806,337  

 

$

 344,346  

 

$

 436,859  

 

$

 47,227  

 

$

 -    

 

$

 (4,615) 

 

$

 1,630,154  

Direct operating expenses

 

 227,059  

 

 

 153,875  

 

 

 259,269  

 

 

 6,348  

 

 

 -    

 

 

 (1,681) 

 

 

 644,870  

Selling, general and

   administrative expenses

 

 250,681  

 

 

 58,448  

 

 

 81,823  

 

 

 30,910  

 

 

 -    

 

 

 (2,934) 

 

 

 418,928  

Depreciation and

   amortization

 

 59,230  

 

 

 49,848  

 

 

 47,889  

 

 

 8,655  

 

 

 8,440  

 

 

 -    

 

 

 174,062  

Impairment charges

 

 -    

 

 

 -    

 

 

 -    

 

 

 -    

 

 

 4,902  

 

 

 -    

 

 

 4,902  

Corporate expenses

 

 -    

 

 

 -    

 

 

 -    

 

 

 -    

 

 

 82,197  

 

 

 -    

 

 

 82,197  

Other operating expense, net

 

 -    

 

 

 -    

 

 

 -    

 

 

 -    

 

 

 (1,628) 

 

 

 -    

 

 

 (1,628) 

Operating income (loss)

$

 269,367  

 

$

 82,175  

 

$

 47,878  

 

$

 1,314  

 

$

 (97,167) 

 

$

 -    

 

$

 303,567  

Intersegment revenues

$

 -    

 

$

 1,094  

 

$

 -    

 

$

 3,521  

 

$

 -    

 

$

 -    

 

$

 4,615  

Capital expenditures

$

 10,392  

 

$

 21,683  

 

$

 31,776  

 

$

 1,079  

 

$

 9,083  

 

$

 -    

 

$

 74,013  

Share-based compensation

   expense

$

 -    

 

$

 -    

 

$

 -    

 

$

 -    

 

$

 2,782  

 

$

 -    

 

$

 2,782  

 

12


iHeartCommunications, Inc. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(In thousands)

iHM

 

Americas Outdoor Advertising

 

International Outdoor Advertising

 

Other

 

Corporate and other reconciling items

 

Eliminations

 

Consolidated

Six Months Ended June 30, 2015