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

 

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 MARCH 31, 2016

 

[   ]          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 [X] No [   ]

 

(Explanatory Note: The registrant is a voluntary filer and is therefore not subject to the filing requirements of the Securities Exchange Act of 1934. However, during the preceding 12 months, and pursuant to the bond indentures of iHeartCommunications, Inc., the registrant has filed all reports that it would have been required to file by Section 13 or 15(d) of the Securities Exchange Act of 1934 if the registrant was subject to the filing requirements of the Securities Exchange Act of 1934 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 May 2, 2016

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

                   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 March 31, 2016 and December 31, 2015

1

                    Consolidated Statements of Comprehensive Loss for the three months ended March 31, 2016 and 2015

2

                    Consolidated Statements of Cash Flows for the three months ended March 31, 2016 and 2015

3

                    Notes to Consolidated Financial Statements

4

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

14

Item 3.       Quantitative and Qualitative Disclosures About Market Risk

27

Item 4.       Controls and Procedures

27

Part II – Other Information

 

Item 1.       Legal Proceedings

29

Item 1A.    Risk Factors

30

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

30

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

31

Item 4.       Mine Safety Disclosures

31

Item 5.       Other Information

31

Item 6.       Exhibits

31

Signatures

32

  

 


PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

iHeartCommunications, Inc. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

 

(In thousands, except share data)

March 31,

 

 

 

 

 

2016

 

December 31,

 

(Unaudited)

 

2015

CURRENT ASSETS

 

 

 

 

 

Cash and cash equivalents

$

978,536

 

$

772,678

Accounts receivable, net of allowance of $39,156 in 2016 and $34,889 in 2015

 

1,274,294

 

 

1,442,038

Prepaid expenses

 

239,336

 

 

189,055

Assets held for sale

 

55,159

 

 

295,075

Other current assets

 

71,068

 

 

79,269

 

Total Current Assets

 

2,618,393

 

 

2,778,115

PROPERTY, PLANT AND EQUIPMENT

 

 

 

 

 

Structures, net

 

1,350,399

 

 

1,391,880

Other property, plant and equipment, net

 

794,041

 

 

820,676

INTANGIBLE ASSETS AND GOODWILL

 

 

 

 

 

Indefinite-lived intangibles - licenses

 

2,413,790

 

 

2,413,483

Indefinite-lived intangibles - permits

 

961,540

 

 

971,327

Other intangibles, net

 

899,118

 

 

953,660

Goodwill

 

4,120,240

 

 

4,128,887

OTHER ASSETS

 

 

 

 

 

Other assets

 

225,149

 

 

215,087

Total Assets

$

13,382,670

 

$

13,673,115

CURRENT LIABILITIES

 

 

 

 

 

Accounts payable

$

117,171

 

$

153,276

Accrued expenses

 

702,667

 

 

834,416

Accrued interest

 

157,777

 

 

279,100

Deferred income

 

246,309

 

 

210,924

Current portion of long-term debt

 

185,549

 

 

181,512

 

Total Current Liabilities

 

1,409,473

 

 

1,659,228

Long-term debt

 

20,568,863

 

 

20,539,099

Deferred income taxes

 

1,553,018

 

 

1,554,898

Other long-term liabilities

 

541,161

 

 

526,571

Commitments and contingent liabilities (Note 4)

 

 

 

 

 

SHAREHOLDER'S DEFICIT

 

 

 

 

 

Noncontrolling interest

 

160,823

 

 

177,615

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

 

 

 

 

 

 

500,000,000 shares in 2016 and 2015, respectively

 

500

 

 

500

Additional paid-in capital

 

2,066,105

 

 

2,066,622

Accumulated deficit

 

(12,525,526)

 

 

(12,437,011)

Accumulated other comprehensive loss

 

(391,747)

 

 

(414,407)

 

Total Shareholder's Deficit

 

(10,689,845)

 

 

(10,606,681)

Total Liabilities and Shareholder's Deficit

$

13,382,670

 

$

13,673,115

  

 

See Notes to Consolidated Financial Statements

1


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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(In thousands)

 

 

Three Months Ended March 31,

 

 

 

 

 

2016

 

2015

Revenue

 

 

 

 

 

 

$

1,363,505

 

$

1,344,564

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Direct operating expenses (excludes depreciation and amortization)

 

 

568,371

 

 

577,692

 

Selling, general and administrative expenses (excludes depreciation and amortization)

 

 

425,568

 

 

416,881

 

Corporate expenses (excludes depreciation and amortization)

 

 

77,879

 

 

77,422

 

Depreciation and amortization

 

 

 

 

 

 

 

155,456

 

 

170,453

 

Other operating income (expense), net

 

 

 

 

 

 

 

284,463

 

 

(8,974)

Operating income

 

 

 

 

 

 

 

420,694

 

 

93,142

Interest expense

 

 

 

 

 

 

 

463,950

 

 

441,771

Gain on investments, net

 

 

 

 

 

 

 

-

 

 

579

Equity in earnings (loss) of nonconsolidated affiliates

 

 

 

 

 

 

 

(433)

 

 

331

Loss on extinguishment of debt

 

 

 

 

 

 

 

-

 

 

(2,201)

Other income (expense), net

 

 

 

 

 

 

 

(5,712)

 

 

19,891

Loss before income taxes

 

 

 

 

 

 

 

(49,401)

 

 

(330,029)

Income tax expense

 

 

 

 

 

 

 

(9,493)

 

 

(56,605)

Consolidated net loss

 

 

 

 

 

 

 

(58,894)

 

 

(386,634)

 

Less amount attributable to noncontrolling interest

 

 

 

 

 

 

 

29,621

 

 

(1,668)

Net loss attributable to the Company

 

 

 

 

 

 

$

(88,515)

 

$

(384,966)

Other comprehensive income (loss), net of tax:

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustments

 

 

 

 

 

 

 

27,577

 

 

(82,159)

 

Unrealized holding gain (loss) on marketable securities

 

 

 

 

 

 

 

(36)

 

 

822

 

Other adjustments to comprehensive loss

 

 

 

 

 

 

 

-

 

 

(1,154)

Other comprehensive income (loss)

 

 

 

 

 

 

 

27,541

 

 

(82,491)

Comprehensive loss

 

 

 

 

 

 

 

(60,974)

 

 

(467,457)

 

 Less amount attributable to noncontrolling interest

 

 

 

 

 

 

 

4,881

 

 

(6,353)

Comprehensive loss attributable to the Company

 

 

 

 

 

 

$

(65,855)

 

$

(461,104)

 

See Notes to Consolidated Financial Statements

2


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

 

(In thousands)

 

 

 

Three Months Ended March 31,

 

 

 

2016

 

2015

Cash flows from operating activities:

 

 

 

 

 

 

 

 

 

Consolidated net loss

 

 

 

$

(58,894)

 

$

(386,634)

Reconciling items:

 

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

 

 

155,456

 

 

170,453

 

Deferred taxes

 

 

 

 

(1,256)

 

 

16,220

 

Provision for doubtful accounts

 

 

 

 

5,824

 

 

6,448

 

Amortization of deferred financing charges and note discounts, net

 

 

 

 

17,098

 

 

15,602

 

Share-based compensation

 

 

 

 

3,094

 

 

2,524

 

(Gain) loss on disposal of operating and other assets

 

 

 

 

(285,857)

 

 

552

 

Gain on investments, net

 

 

 

 

-

 

 

(579)

 

Equity in (earnings) loss of nonconsolidated affiliates

 

 

 

 

433

 

 

(331)

 

Loss on extinguishment of debt

 

 

 

 

-

 

 

2,201

 

Other reconciling items, net

 

 

 

 

(6,630)

 

 

(20,033)

 

Changes in operating assets and liabilities, net of effects of

    acquisitions and dispositions:

 

 

 

 

 

 

 

 

 

 

Decrease in accounts receivable

 

 

 

 

172,023

 

 

114,083

 

 

Increase in prepaid expenses and other current assets

 

 

 

 

(35,061)

 

 

(80,416)

 

 

Decrease in accrued expenses

 

 

 

 

(125,163)

 

 

(63,457)

 

 

Increase (decrease) in accounts payable

 

 

 

 

(37,933)

 

 

6,284

 

 

Decrease in accrued interest

 

 

 

 

(104,364)

 

 

(73,316)

 

 

Increase in deferred income

 

 

 

 

47,720

 

 

48,623

 

 

Changes in other operating assets and liabilities

 

 

 

 

13,018

 

 

5,564

Net cash used in operating activities

 

 

 

 

(240,492)

 

 

(236,212)

Cash flows from investing activities:

 

 

 

 

 

 

 

 

 

Proceeds from sale of other investments

 

 

 

 

-

 

 

579

 

Purchases of businesses

 

 

 

 

(500)

 

 

-

 

Purchases of property, plant and equipment

 

 

 

 

(56,779)

 

 

(56,455)

 

Proceeds from disposal of assets

 

 

 

 

592,590

 

 

32,603

 

Purchases of other operating assets

 

 

 

 

(1,573)

 

 

(1,964)

 

Change in other, net

 

 

 

 

(16,897)

 

 

(5,331)

Net cash provided by (used for) investing activities

 

 

 

 

516,841

 

 

(30,568)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

 

Draws on credit facilities

 

 

 

 

-

 

 

120,000

 

Payments on credit facilities

 

 

 

 

(577)

 

 

(1,859)

 

Proceeds from long-term debt

 

 

 

 

-

 

 

950,000

 

Payments on long-term debt

 

 

 

 

(551)

 

 

(931,274)

 

Payments to purchase noncontrolling interests

 

 

 

 

-

 

 

(20,400)

 

Dividends and other payments to noncontrolling interests

 

 

 

 

(72,182)

 

 

(2,119)

 

Change in other, net

 

 

 

 

(1,080)

 

 

(9,367)

Net cash provided by (used for) financing activities

 

 

 

 

(74,390)

 

 

104,981

Effect of exchange rate changes on cash

 

 

 

 

3,899

 

 

(6,211)

Net increase (decrease) in cash and cash equivalents

 

 

 

 

205,858

 

 

(168,010)

Cash and cash equivalents at beginning of period

 

 

 

 

772,678

 

 

457,024

Cash and cash equivalents at end of period

 

 

 

$

978,536

 

$

289,014

SUPPLEMENTAL DISCLOSURES:

 

 

 

 

 

 

 

 

Cash paid for interest

 

 

 

$

549,437

 

$

495,007

Cash paid for taxes

 

 

 

 

15,441

 

 

9,858

 

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 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 2015 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 Capital I as of and for the period ending March 31, 2016.

 

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 2016 presentation.

 

During the first quarter of 2016, the Company reevaluated its segment reporting and determined that its iHeartMedia Revenue Platform (iHMRP) business, an information technology group dedicated to system development, implementation and maintenance of the Company’s radio revenue platforms, should be managed by its Corporate leadership team.  As a result, the operations of the iHMRP business are no longer reflected within the Other segment and are included in the results of its Corporate segment.  Accordingly, the Company has recast the corresponding prior year segment disclosures to reflect the current year presentation.

 

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 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 adoption of this guidance did not have a material effect on the Company’s consolidated financial statements.

 

During the second quarter of 2015, the FASB issued ASU No. 2015-03, Interest-Imputation of Interest (Subtopic 835-30): Simplifying

4


iHeartCommunications, Inc. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

the Presentation of Debt Issuance Costs. This update simplifies the presentation of debt issuance costs as a deduction from the carrying value of the outstanding debt balance rather than showing the debt issuance costs as an asset.  The standard is effective for annual periods, and for interim periods within those annual periods, beginning after December 15, 2015.  The retrospective adoption of this guidance resulted in the reclassification of debt issuance costs of $140.0 million and $148.0 million as of March 31, 2016 and December 31, 2015, respectively, which are now reflected as “Long-term debt fees” in Note 3.

 

During the third quarter of 2015, the FASB issued ASU 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date. This update provides a one-year deferral of the effective date for ASU No. 2014-09, Revenue from Contracts with Customers.  ASU No. 2014-09 provides guidance for the recognition, measurement and disclosure of revenue resulting from contracts with customers and will supersede virtually all of the current revenue recognition guidance under U.S. GAAP.  The standard is effective for the first interim period within annual reporting periods beginning after December 15, 2017.  The Company is currently evaluating the impact of the provisions of this new standard on its financial position and results of operations.

 

During the third quarter of 2015, the FASB issued ASU No. 2015-16, Business Combinations (Topic 805): Simplifying the Accounting for Measurement-Period Adjustments. This update eliminates the requirement for an acquirer in a business combination to account for measurement-period adjustments retrospectively. Instead, acquirers must recognize measurement-period adjustments during the period in which they determine the amounts, including the effect on earnings of any amounts they would have recorded in previous periods if the accounting had been completed at the acquisition date. The standard is effective for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. The adoption of this guidance did not have a material effect on the Company’s consolidated financial statements.

 

During the first quarter of 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). The new leasing standard presents significant changes to the balance sheets of lessees. Lessor accounting is updated to align with certain changes in the lessee model and the new revenue recognition standard which was issued in the third quarter of 2015. The standard is effective for annual periods, and for interim periods within those annual periods, beginning after December 15, 2018.  The Company is currently evaluating the impact of the provisions of this new standard on its financial position and results of operations.

  

 

NOTE 2 – PROPERTY, PLANT AND EQUIPMENT, INTANGIBLE ASSETS AND GOODWILL

Dispositions

On January 15, 2016, Parent and certain of the Company’s subsidiaries completed the final closing for the sale of six of the Company’s broadcast communication tower sites and related assets for approximately $5.5 million.  Simultaneous with the sale, the Company entered into lease agreements for the continued use of space on all six of the towers sold. The Company realized a net gain of $2.7 million, of which $1.9 million was deferred and will be recognized over the lease term. 

 

During the first quarter of 2016, Americas outdoor sold nine non-strategic outdoor markets including Cleveland and Columbus, Ohio, Des Moines, Iowa, Ft. Smith, Arkansas, Memphis, Tennessee, Portland, Oregon, Reno, Nevada, Seattle, Washington and Wichita, Kansas for net proceeds, which included cash and certain advertising assets in Florida, totaling $596.6 million.  The Company recognized a net gain of $281.7 million related to the sale, which is included within Other operating income (expense), net.

 

During the first quarter of 2016, Americas outdoor also entered into an agreement to sell its Indianapolis, Indiana market in exchange for certain assets in Atlanta, Georgia, plus approximately $41.2 million in cash. The transaction is subject to regulatory approval and is expected to close in 2016. This transaction has met the criteria to be classified as held-for-sale and as such, the related assets are separately presented on the face of the Consolidated Balance Sheet.   

 

5


iHeartCommunications, Inc. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

Property, Plant and Equipment

The Company’s property, plant and equipment consisted of the following classes of assets as of March 31, 2016 and December 31, 2015, respectively:

 

 

 

 

 

 

(In thousands)

March 31,

 

December 31,

 

2016

 

2015

Land, buildings and improvements

$

600,582

 

$

603,234

Structures

 

2,799,699

 

 

2,824,794

Towers, transmitters and studio equipment

 

345,240

 

 

347,877

Furniture and other equipment

 

600,067

 

 

591,149

Construction in progress

 

66,110

 

 

69,042

 

 

4,411,698

 

 

4,436,096

Less: accumulated depreciation

 

2,267,258

 

 

2,223,540

Property, plant and equipment, net

$

2,144,440

 

$

2,212,556

 

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

 

Other intangible assets include definite-lived intangible assets and permanent easements.  The Company’s definite-lived intangible assets primarily include transit and street furniture contracts, talent and representation contracts, customer and advertiser relationships, and site-leases and other contractual rights, all of which are amortized over the shorter of either the respective lives of the agreements or over the period of time the assets are expected to contribute directly or indirectly to the Company’s future 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 March 31, 2016 and December 31, 2015, respectively:

 

 

 

 

 

 

 

 

 

 

 

 

 

(In thousands)

March 31, 2016

 

December 31, 2015

 

Gross Carrying Amount

 

Accumulated Amortization

 

Gross Carrying Amount

 

Accumulated Amortization

Transit, street furniture and other outdoor

   contractual rights

$

631,943

 

$

(458,829)

 

$

635,772

 

$

(457,060)

Customer / advertiser relationships

 

1,222,518

 

 

(921,759)

 

 

1,222,518

 

 

(891,488)

Talent contracts

 

319,384

 

 

(259,674)

 

 

319,384

 

 

(252,526)

Representation contracts

 

239,142

 

 

(220,109)

 

 

239,142

 

 

(217,770)

Permanent easements

 

157,314

 

 

-

 

 

156,349

 

 

-

Other

 

390,379

 

 

(201,191)

 

 

394,983

 

 

(195,644)

 

Total

$

2,960,680

 

$

(2,061,562)

 

$

2,968,148

 

$

(2,014,488)

 

Total amortization expense related to definite-lived intangible assets for the three months ended March 31, 2016 and 2015 was $55.3 million and $62.9 million, respectively.

 

6


iHeartCommunications, Inc. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

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)

 

 

 

2017

$

197,498

 

2018

 

127,246

 

2019

 

43,476

 

2020

 

36,735

 

2021

 

33,333

 

7


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, 2014

$

3,288,481

 

$

584,574

 

$

232,538

 

$

81,831

 

$

4,187,424

 

Acquisitions

 

-

 

 

-

 

 

10,998

 

 

-

 

 

10,998

 

Foreign currency

 

-

 

 

(709)

 

 

(19,644)

 

 

-

 

 

(20,353)

 

Assets held for sale

 

-

 

 

(49,182)

 

 

-

 

 

-

 

 

(49,182)

Balance as of December 31, 2015

$

3,288,481

 

$

534,683

 

$

223,892

 

$

81,831

 

$

4,128,887

 

Dispositions

 

-

 

 

(6,934)

 

 

-

 

 

-

 

 

(6,934)

 

Foreign currency

 

-

 

 

(1,210)

 

 

9,834

 

 

-

 

 

8,624

 

Assets held for sale

 

-

 

 

(10,337)

 

 

-

 

 

-

 

 

(10,337)

Balance as of March 31, 2016

$

3,288,481

 

$

516,202

 

$

233,726

 

$

81,831

 

$

4,120,240

 

8


iHeartCommunications, Inc. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

NOTE 3 – LONG-TERM DEBT

Long-term debt outstanding as of March 31, 2016 and December 31, 2015 consisted of the following:

 

 

 

 

 

 

 

(In thousands)

March 31,

 

December 31,

 

 

2016

2015

Senior Secured Credit Facilities(1)

 

$6,300,000

 

 

$6,300,000

Receivables Based Credit Facility Due 2017(2)

 

230,000

 

 

230,000

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

 

 

950,000

Subsidiary Revolving Credit Facility Due 2018(3)

 

-

 

 

-

Other secured subsidiary debt(4)

 

25,111

 

 

25,228

Total consolidated secured debt

 

12,829,926

 

 

12,830,043

 

 

 

 

 

 

 

14.0% Senior Notes Due 2021(5)

 

1,712,048

 

 

1,695,097

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

Clear Channel International B.V. Senior Notes due 2020

 

225,000

 

 

225,000

Other subsidiary debt

 

154

 

 

165

Purchase accounting adjustments and original issue discount

 

(195,677)

 

 

(204,611)

Long-term debt fees

 

(139,939)

 

 

(147,983)

Total debt

 

20,754,412

 

 

20,720,611

Less: current portion

 

185,549

 

 

181,512

Total long-term debt

$

20,568,863

 

$

20,539,099

 

 

 

 

 

 

 

(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 2016 through 2045.

(5)

The 14.0% Senior Notes due 2021 are subject to required payments at various dates from 2018 through 2021.  2.0% per annum of the interest is paid through the issuance of payment-in-kind notes in the first and third quarters.

(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 March 31, 2016 and December 31, 2015 were 8.5% at both dates.  The aggregate market value of the Company’s debt based on market prices for which quotes were available was approximately $14.9 billion and $15.2 billion as of March 31, 2016 and December 31, 2015, 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.

 

Surety Bonds, Letters of Credit and Guarantees

As of March 31, 2016, the Company had outstanding surety bonds, commercial standby letters of credit and bank guarantees of $62.6 million, $94.1 million and $59.3 million, respectively. Bank guarantees of $24.1 million were backed by cash collateral.  These

9


iHeartCommunications, Inc. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

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.

 

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.

 

NOTE 5 – INCOME TAXES

 

 

 

 

 

 

 

 

 

 

 

 

Income Tax Expense

The Company’s income tax expense for the three months ended March 31, 2016 and 2015, respectively, consisted of the following components:

 

 

 

 

 

 

 

 

 

 

 

 

(In thousands)

 

 

Three Months Ended March 31,

 

 

 

 

 

2016

 

2015

Current tax expense

 

 

 

 

 

 

$

(10,749)

 

$

(40,385)

Deferred tax benefit (expense)

 

 

 

 

 

 

 

1,256

 

 

(16,220)

Income tax expense

 

 

 

 

 

 

$

(9,493)

 

$

(56,605)

 

The effective tax rate for the three months ended March 31, 2016 was (19.2)% and for the three months ended March 31, 2015 was (17.2)%. The 2016 and 2015 effective tax rates were primarily impacted by the valuation allowance recorded against deferred tax assets resulting from current 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.

 

10


iHeartCommunications, Inc. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

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, 2016

$

(10,784,296)

 

$

177,615

 

$

(10,606,681)

 

Net income (loss)

 

(88,515)

 

 

29,621

 

 

(58,894)

 

Dividends and other payments to noncontrolling interests

 

-

 

 

(54,267)

 

 

(54,267)

 

Share-based compensation

 

709

 

 

2,385

 

 

3,094

 

Foreign currency translation adjustments

 

22,692

 

 

4,885

 

 

27,577

 

Unrealized holding loss on marketable securities

 

(32)

 

 

(4)

 

 

(36)

 

Other, net

 

(1,226)

 

 

588

 

 

(638)

Balances as of March 31, 2016

$

(10,850,668)

 

$

160,823

 

$

(10,689,845)

 

(In thousands)

The Company

 

Noncontrolling

Interests

 

Consolidated

Balances as of January 1, 2015

$

(9,889,348)

 

$

224,140

 

$

(9,665,208)

 

Net loss

 

(384,966)

 

 

(1,668)

 

 

(386,634)

 

Dividends and other payments to noncontrolling interests

 

-

 

 

(2,119)

 

 

(2,119)

 

Purchase of additional noncontrolling interests

 

(19,264)

 

 

(1,136)

 

 

(20,400)

 

Share-based compensation

 

599

 

 

1,925

 

 

2,524

 

Foreign currency translation adjustments

 

(75,840)

 

 

(6,319)

 

 

(82,159)

 

Unrealized holding gain on marketable securities

 

738

 

 

84

 

 

822

 

Other adjustments to comprehensive loss

 

(1,036)

 

 

(118)

 

 

(1,154)

 

Other, net

 

(6)

 

 

651

 

 

645

Balances as of March 31, 2015

$

(10,369,123)

 

$

215,440

 

$

(10,153,683)

 

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 March 31, 2016 and 2015 were $0.0 million and ($0.6) 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 $46.3 million and $32.7 million for the three months ended March 31, 2016 and 2015, respectively.  Barter and trade expenses were $34.3 million and $28.8 million for the three months ended March 31, 2016 and 2015, respectively.

 

Barter and trade revenues include $11.7 million of revenue recognized in connection with advertising provided in the three months ended March 31, 2016 in exchange for equity interests in certain non-public companies. There is no offsetting barter expense associated with these non-cash transactions.

 

11


iHeartCommunications, Inc. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

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.

 

During the first quarter of 2016, the Company revised its segment reporting as discussed in Note 1.  The following table presents the Company's reportable segment results for the three months ended March 31, 2016 and 2015: 

(In thousands)

iHM

 

Americas Outdoor Advertising

 

International Outdoor Advertising

 

Other

 

Corporate and other reconciling items

 

Eliminations

 

Consolidated

Three Months Ended March 31, 2016

Revenue

$

738,886

 

$

282,528

 

$

308,193

 

$

34,183

 

$

-

 

$

(285)

 

$

1,363,505

Direct operating expenses

 

224,062

 

 

138,012

 

 

205,682

 

 

615

 

 

-

 

 

-

 

 

568,371

Selling, general and

   administrative expenses

 

272,013

 

 

55,329

 

 

71,472

 

 

27,039

 

 

-

 

 

(285)

 

 

425,568

Depreciation and

   amortization

 

58,817

 

 

46,116

 

 

37,880

 

 

3,616

 

 

9,027

 

 

-

 

 

155,456

Corporate expenses

 

-

 

 

-

 

 

-

 

 

-

 

 

77,879

 

 

-

 

 

77,879

Other operating income, net

 

-

 

 

-

 

 

-

 

 

-

 

 

284,463

 

 

-

 

 

284,463

Operating income (loss)

$

183,994

 

$

43,071

 

$

(6,841)

 

$

2,913

 

$

197,557

 

$

-

 

$

420,694

Intersegment revenues

$

-

 

$

285

 

$

-

 

$

-

 

$

-

 

$

-

 

$

285

Capital expenditures

$

8,790

 

$

11,292

 

$

34,913

 

$

65

 

$

1,719

 

$

-

 

$

56,779

Share-based compensation

   expense

$

-

 

$

-

 

$

-

 

$

-

 

$

3,094

 

$

-

 

$

3,094

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31, 2015

Revenue

$

697,801

 

$

295,863

 

$

319,180

 

$

32,821

 

$

-

 

$

(1,101)

 

$

1,344,564

Direct operating expenses

 

213,829

 

 

146,234

 

 

216,737

 

 

892

 

 

-

 

 

-

 

 

577,692

Selling, general and

   administrative expenses

 

261,080

 

 

55,637

 

 

71,493

 

 

29,772

 

 

-

 

 

(1,101)

 

 

416,881

Depreciation and

   amortization

 

60,735

 

 

50,340

 

 

42,441

 

 

6,323

 

 

10,614

 

 

-

 

 

170,453

Corporate expenses

 

-

 

 

-

 

 

-

 

 

-

 

 

77,422

 

 

-

 

 

77,422

Other operating expense, net

 

-

 

 

-

 

 

-

 

 

-

 

 

(8,974)

 

 

-

 

 

(8,974)

Operating income (loss)

$

162,157

 

$

43,652

 

$

(11,491)

 

$

(4,166)

 

$

(97,010)

 

$

-

 

$

93,142

Intersegment revenues

$

-

 

$

1,101

 

$

-

 

$

-

 

$

-

 

$

-

 

$

1,101

Capital expenditures

$

12,818

 

$

16,695

 

$

25,105

 

$

146

 

$

1,691

 

$

-

 

$

56,455

Share-based compensation

   expense

$

-

 

$

-

 

$

-

 

$

-

 

$

2,524

 

$

-

 

$

2,524

 

NOTE 9 – CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

Parent is a party to a management agreement with certain affiliates of the Sponsors and certain other parties pursuant to which such affiliates of the Sponsors will provide management and financial advisory services until 2018. These agreements require management fees to be paid to such affiliates of the Sponsors for such services at a rate not greater than $15.0 million per year, plus reimbursable

12


iHeartCommunications, Inc. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

expenses. For the three months ended March 31, 2016 and 2015, the Company recognized management fees and reimbursable expenses of $3.8 million and $3.9 million, respectively.

 

On December 3, 2015, Clear Channel Holdings, Inc., a wholly-owned subsidiary of the Company, contributed 100,000,000 shares of CCOH’s Class B Common Stock to Broader Media, LLC, an indirect wholly-owned subsidiary of the Company, as a capital contribution, to provide greater flexibility in support of future financing transactions, share dispositions and other similar transactions.

    

 

13


  

ITEM 2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Format of Presentation

Management’s discussion and analysis of our financial condition and results of operations (“MD&A”) should be read in conjunction with the consolidated financial statements and related footnotes contained in Item 1 of this Quarterly Report on Form 10-Q.  Our discussion is presented on both a consolidated and segment basis.  Our reportable segments are iHeartMedia (“iHM”), Americas outdoor advertising (“Americas outdoor” or “Americas outdoor advertising”) and International outdoor advertising (“International outdoor” or “International outdoor advertising”).  Our iHM segment provides media and entertainment services via live broadcast and digital delivery, and also includes our national syndication business.  Our Americas outdoor and International outdoor segments provide outdoor advertising services in their respective geographic regions using various digital and traditional display types. Included in the “Other” category are our media representation business, Katz Media Group, as well as other general support services and initiatives, which are ancillary to our other businesses.

 

We manage our operating segments primarily focusing on their operating income, while Corporate expenses, Other operating income (expense), net, Interest expense, Gain on marketable securities, Equity in earnings (loss) of nonconsolidated affiliates, Loss on extinguishment of debt, Other income, net and Income tax benefit are managed on a total company basis and are, therefore, included only in our discussion of consolidated results.

 

Certain prior period amounts have been reclassified to conform to the 2016 presentation.

 

Our iHM strategy centers on delivering entertaining and informative content across multiple platforms, including broadcast, mobile and digital, as well as events.  Our primary source of revenue is derived from selling local and national advertising time on our radio stations, with contracts typically less than one year in duration. The programming formats of our radio stations are designed to reach audiences with targeted demographic characteristics.  We are working closely with our advertising and marketing partners to develop tools and leverage data to enable advertisers to effectively reach their desired audiences. We continue to expand the choices for listeners and we deliver our content and sell advertising across multiple distribution channels including digitally via our iHeartRadio mobile application and other digital platforms which reach national, regional and local audiences.  We also generate revenues from network syndication, our nationally recognized live events, our station websites and other miscellaneous transactions. 

 

Our outdoor advertising revenue is derived from selling advertising space on the displays we own or operate in key markets worldwide, consisting primarily of billboards, street furniture and transit displays.  Part of our long-term strategy for our outdoor advertising businesses is to pursue the technology of digital displays, including flat screens, LCDs and LEDs, as additions to traditional methods of displaying our clients’ advertisements. We are currently installing these technologies in certain markets, both domestically and internationally. Management typically monitors our outdoor advertising business by reviewing the average rates, average revenue per display, occupancy and inventory levels of each of our display types by market.

 

Our advertising revenue for all of our segments is highly correlated to changes in gross domestic product (“GDP”) as advertising spending has historically trended in line with GDP, both domestically and internationally.  Internationally, our results are impacted by fluctuations in foreign currency exchange rates as well as the economic conditions in the foreign markets in which we have operations.

 

Executive Summary

The key developments in our business for the three months ended March 31, 2016 are summarized below:

·         Consolidated revenue increased $18.9 million during the three months ended March 31, 2016 compared to the same period of 2015. Excluding the $15.1 million impact from movements in foreign exchange rates, consolidated revenue increased $34.0 million during the three months ended March 31, 2016 compared to the same period of 2015.

·         We sold nine non-strategic U.S. outdoor markets for net proceeds of $596.6 million in cash and certain advertising assets in Florida. These markets generated revenue of $2.5 million in the three months ended March 31, 2016 and $22.3 million in the three months ended March 31, 2015.  We recognized a net gain of $281.7 million related to the sales.

·         We spent $6.5 million on strategic revenue and efficiency initiatives during 2016 to realign and improve our on-going business operations—a decrease of $3.6 million compared to the same period of 2015.

 

Revenues and expenses “excluding the impact of foreign exchange movements” in this Management’s Discussion & Analysis of Financial Condition and Results of Operations is presented because management believes that viewing certain financial results without the impact of fluctuations in foreign currency rates facilitates period to period comparisons of business performance and provides useful information to investors.  Revenues and expenses “excluding the impact of foreign exchange movements” are

14


  

calculated by converting the current period’s revenues and expenses in local currency to U.S. dollars using average foreign exchange rates for the prior period. 

 

Consolidated Results of Operations

 

 

 

 

 

 

 

 

               The comparison of our historical results of operations for the three months ended March 31, 2016 to the three months ended March 31, 2015 is as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(In thousands)

 

 

 

 

Three Months Ended

 

 

 

 

 

 

 

March 31,

 

%

 

 

 

 

 

 

 

 

2016

 

2015

 

Change

Revenue

 

 

 

 

 

 

 

 

$

1,363,505

 

$

1,344,564

 

1.4%

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Direct operating expenses (excludes depreciation and amortization)

 

 

568,371

 

 

577,692

 

(1.6%)

 

 Selling, general and administrative expenses (excludes depreciation and amortization)

 

 

425,568

 

 

416,881

 

2.1%

 

Corporate expenses (excludes depreciation and amortization)

 

 

77,879

 

 

77,422

 

0.6%

 

Depreciation and amortization

 

 

 

 

 

 

 

 

 

155,456

 

 

170,453

 

(8.8%)

 

Other operating income (expense), net

 

 </