Form: 8-K

Current report filing

August 4, 2016

Exhibit 99.2

CLEAR CHANNEL INTERNATIONAL B.V.

CONSOLIDATED FINANCIAL STATEMENTS

Three and Six Months Ended June 30, 2016 and 2015


FINANCIAL INFORMATION

FINANCIAL STATEMENTS

CLEAR CHANNEL INTERNATIONAL B.V. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

 

(In thousands)    June 30, 2016
(unaudited)
    December 31,
2015
 

CURRENT ASSETS

    

Cash and cash equivalents

   $ 29,469      $ 47,869   

Accounts receivable, net of allowance of $11,331 in 2016 and $12,623 in 2015

     296,882        344,060   

Prepaid expenses

     54,855        46,905   

Other current assets

     27,784        28,688   
  

 

 

   

 

 

 

Total Current Assets

     408,990        467,522   

PROPERTY, PLANT AND EQUIPMENT

    

Property, plant and equipment, net

     331,126        343,131   

INTANGIBLE ASSETS AND GOODWILL

    

Intangible assets, net

     31,982        40,818   

Goodwill

     227,892        223,893   

OTHER ASSETS

    

Related party notes receivable

     227,955        229,734   

Other assets

     55,558        42,242   
  

 

 

   

 

 

 

Total Assets

   $ 1,283,503      $ 1,347,340   
  

 

 

   

 

 

 

CURRENT LIABILITIES

    

Accounts payable

   $ 75,823      $ 84,155   

Accrued expenses

     243,259        283,231   

Deferred income

     65,455        47,521   

Current portion of long-term debt

     2,187        2,077   
  

 

 

   

 

 

 

Total Current Liabilities

     386,724        416,984   

Long-term debt

     221,718        221,960   

Related party subordinated notes payable

     1,011,579        986,089   

Other long-term liabilities

     107,000        102,997   

Commitments and contingencies (Note 5)

    

SHAREHOLDER’S DEFICIT

    

Noncontrolling interest

     35,978        32,332   

Parent Company’s net investment

     (876,005     (753,062

Accumulated other comprehensive income

     396,509        340,040   
  

 

 

   

 

 

 

Total Shareholder’s Deficit

     (443,518     (380,690
  

 

 

   

 

 

 

Total Liabilities and Shareholder’s Deficit

   $ 1,283,503      $ 1,347,340   
  

 

 

   

 

 

 

See Notes to Consolidated Financial Statements

 

2


CLEAR CHANNEL INTERNATIONAL B.V. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(UNAUDITED)

 

(In thousands)    Three Months Ended June 30,     Six Months Ended June 30,  
     2016     2015     2016     2015  

Revenue

   $ 319,151        318,541      $ 580,259      $ 592,455   

Operating expenses:

        

Direct operating expenses (excludes depreciation and amortization)

     200,701        200,610        381,927        392,995   

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

     69,797        68,214        135,163        134,025   

Corporate expenses (excludes depreciation and amortization)

     7,007        4,490        12,389        12,335   

Depreciation and amortization

     24,605        28,469        48,534        57,749   

Other operating income (expense), net

     (56,136     515        (55,908     1,283   
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

     (39,095     17,273        (53,662     (3,366

Interest expense, net

     10,537        17,036        20,175        34,207   

Equity in loss of nonconsolidated affiliates

     (556     (755     (1,333     (788

Other income (expense), net

     (3,887     69        (6,839     1,294   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss before income taxes

     (54,075     (449     (82,009     (37,067

Income tax expense

     7,539        10,740        11,005        12,207   
  

 

 

   

 

 

   

 

 

   

 

 

 

Consolidated net loss

     (61,614     (11,189     (93,014     (49,274

Less amount attributable to noncontrolling interest

     1,502        1,615        2,919        2,468   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss attributable to the Company

   $ (63,116   $ (12,804   $ (95,933   $ (51,742
  

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive income (loss), net of tax:

        

Foreign currency translation adjustments

     28,382        (60,977     30,021        68,894   

Unrealized holding gain (loss) on marketable securities

     (1     16        (6     22   

Pension adjustments

     (3,746     —          (3,746     —     

Reclassification adjustment for realized cumulative translation adjustments on sale of businesses included in Other operating income (expense), net

     32,161        —          32,161        —     
  

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive income (loss), net of tax

     56,796        (60,961     58,430        68,916   
  

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income (loss)

     (6,320     (73,765     (37,503     17,174   

Less amount attributable to noncontrolling interest

     (339     (267     1,006        (2,671
  

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income (loss) attributable to the Company

   $ (5,981   $ (73,498   $ (38,509   $ 19,845   
  

 

 

   

 

 

   

 

 

   

 

 

 

See Notes to Consolidated Financial Statements

 

3


CLEAR CHANNEL INTERNATIONAL B.V. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

 

(In thousands)    Six Months Ended June 30,  
     2016     2015  

Cash flows from operating activities:

    

Consolidated net loss

   $ (93,014   $ (49,274

Reconciling items:

    

Depreciation and amortization

     48,534        57,749   

Deferred taxes

     720        (4,232

Provision for doubtful accounts

     1,630        1,807   

Amortization of deferred financing charges and note discounts, net

     892        —     

Share-based compensation

     2,839        1,161   

Loss (gain) on sale of operating assets

     55,908        (1,283

Equity in earnings of nonconsolidated affiliates

     1,333        788   

Noncash capitalized interest expense

     17,834        —     

Other reconciling items, net

     6,741        (1,497

Changes in operating assets and liabilities, net of effects of acquisitions and dispositions:

    

(Increase) decrease in accounts receivable

     34,832        (18,675

Decrease in accrued expenses

     (34,169     (18,435

Decrease in accounts payable

     (7,180     (4,722

Increase in deferred income

     18,157        24,253   

Changes in other operating assets and liabilities

     (31,581     (1,281
  

 

 

   

 

 

 

Net cash provided by (used for) operating activities

     23,476        (13,641
  

 

 

   

 

 

 

Cash flows from investing activities:

    

Purchases of property, plant and equipment

     (39,810     (22,049

Proceeds from disposal of assets

     (238     974   

Decrease in related party notes receivable, net

     1,779        1,960   

Other, net

     (1,585     (4,397
  

 

 

   

 

 

 

Net cash used for investing activities

     (39,854     (23,512
  

 

 

   

 

 

 

Cash flows from financing activities:

    

Payments on credit facilities

     —          (659

Payments on long-term debt

     (1,078     —     

Net transfers from related parties

     4,648        39,369   

Increase (decrease) in related party notes payable

     (4,443     4,894   

Dividends and other payments to noncontrolling interests

     (279     (4,244

Other, net

     (200     —     
  

 

 

   

 

 

 

Net cash provided by (used for) provided by financing activities

     (1,352     39,360   

Effect of exchange rate changes on cash

     (670     (2,039
  

 

 

   

 

 

 

Net increase (decrease) in cash and cash equivalents

     (18,400     168   

Cash and cash equivalents at beginning of period

     47,869        43,938   
  

 

 

   

 

 

 

Cash and cash equivalents at end of period

   $ 29,469      $ 44,106   
  

 

 

   

 

 

 

Cash paid for interest

     9,789        —     

Cash paid for income taxes

     11,070        12,880   

See Notes to Consolidated Financial Statements

 

4


CLEAR CHANNEL INTERNATIONAL B.V. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDER’S DEFICIT

(UNAUDITED)

 

(In thousands)    The Company     Non-controlling
Interest
    Consolidated  

Balance, January 1, 2015

   $ (1,117,047   $ 36,986      $ (1,080,061

Consolidated net income (loss)

     (51,742     2,468        (49,274

Foreign currency translation adjustments

     71,565        (2,671     68,894   

Unrealized holding gain on marketable securities

     22        —          22   

Dividends and other payments to noncontrolling interests

     —          (4,244     (4,244

Net transfers from related parties

     39,369        —          39,369   

Capitalization of interest on related party subordinated notes payable

     (300,550     —          (300,550

Other, net

     1,159        —          1,159   
  

 

 

   

 

 

   

 

 

 

Balance, June 30, 2015

   $ (1,357,224   $ 32,539      $ (1,324,685
  

 

 

   

 

 

   

 

 

 
(In thousands)    The Company     Non-controlling
Interest
    Consolidated  

Balance, January 1, 2016

   $ (413,022   $ 32,332      $ (380,690

Consolidated net income (loss)

     (95,933     2,919        (93,014

Foreign currency translation adjustments

     29,015        1,006        30,021   

Unrealized holding loss on marketable securities

     (6     —          (6

Pension adjustments to comprehensive loss

     (3,746     —          (3,746

Dividends and other payments to non-controlling interests

     —          (279     (279

Net transfers from related parties

     4,648        —          4,648   

Capitalization of interest on related party subordinated notes payable

     (35,454     —          (35,454

Reclassification adjustment for realized cumulative translation adjustments on sale of businesses included in Other operating income (expense), net

     32,161        —          32,161   

Other, net

     2,841          2,841   
  

 

 

   

 

 

   

 

 

 

Balance, June 30, 2016

   $ (479,496   $ 35,978      $ (443,518
  

 

 

   

 

 

   

 

 

 

See Notes to Consolidated Financial Statements

 

5


CLEAR CHANNEL INTERNATIONAL B.V. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 1 – NATURE OF BUSINESS AND BASIS OF PRESENTATION

Nature of Business

Clear Channel Outdoor Holdings, Inc. (“CCOH” or the “Parent Company”) is an outdoor advertising company, which owns and operates advertising display faces in the United States and internationally. CCOH has two reportable business segments: Americas and International. CCOH’s International segment (“CCI”) operates across 21 countries in Europe, Asia, Australia and New Zealand and provides advertising on street furniture and transit displays, billboards, mall displays, Smartbike programs, wallscapes and other displays, which are owned or operated under lease agreements. Clear Channel International B.V. (“CCIBV” or the “Company”) is a subsidiary of the CCI business and consists of CCI operations primarily in Europe, Australia and Singapore. These consolidated financial statements represent the consolidated results of operations, financial position and cash flows of CCIBV.

History

On November 11, 2005, CCOH became a publicly traded company through an initial public offering (“IPO”), in which 10%, or 35.0 million shares, of CCOH’s Class A common stock was sold. Prior to the IPO, CCOH was an indirect wholly-owned subsidiary of iHeartCommunications, Inc. (“iHeartCommunications”), a diversified media and entertainment company. On July 30, 2008, iHeartCommunications completed its merger (the “Merger”) with a subsidiary of iHeartMedia, Inc. (“iHeartMedia”), a company formed by a group of private equity funds sponsored by Bain Capital Partners, LLC and Thomas H. Lee Partners, L.P. (together, the “Sponsors”). iHeartCommunications is now owned indirectly by iHeartMedia.

Agreements with iHeartCommunications

There are several agreements which govern the Company’s relationship with CCOH, CCI and the CCOH relationship with iHeartCommunications related to corporate, employee, tax and other services. Certain of these costs, as applicable, are allocated to the Company from CCOH. iHeartCommunications has the right to terminate these agreements in various circumstances. As of the date of the issuance of these consolidated financial statements, no notice of termination of any of these agreements has been received from iHeartCommunications.

Basis of Presentation

These consolidated financial statements are presented in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and have been derived from the accounting records of CCOH using the historical results of operations and historical bases of assets and liabilities of the Company. Assets and liabilities, revenues and expenses that pertain to the Company have been included in these consolidated financial statements. These consolidated financial statements include the results of operations in the following markets: Australia, Belgium, Denmark, Estonia, Finland, France, Holland, Hungary, Ireland, Italy, Latvia, Lithuania, New Zealand, Norway, Poland, Singapore, Spain, Sweden, Switzerland and the United Kingdom.

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 percent to 50 percent of the voting common stock or otherwise exercises significant influence over operating and financial policies of a company are accounted for using the equity method of accounting. All significant intercompany accounts have been eliminated.

The Company utilizes the services of CCOH and CCI for certain functions, such as certain legal, finance, internal audit, financial reporting, tax advisory, insurance, global information technology, environmental matters and human resources services, including various employee benefit programs. The cost of these services has been allocated to the Company and included in these consolidated financial statements. The Company’s management considers these allocations to have been made on a reasonable basis. A complete discussion of the relationship with CCOH, including a description of the costs that have been allocated to the Company, is included in Note 6, Related Party Transactions to the consolidated financial statements.

 

6


CLEAR CHANNEL INTERNATIONAL B.V. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

 

The preparation of the consolidated financial statements in conformity with U.S. GAAP requires management to make estimates, judgments, and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes including, but not limited to, legal, tax and insurance accruals. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. Actual results could differ from those estimates.

The consolidated financial statements included herein may not be indicative of the financial position, results of operations or cash flows had CCIBV operated as a separate entity during the periods presented or for future periods. As these consolidated financial statements present a portion of the businesses of CCOH, the net assets of CCIBV have been presented as CCOH’s net investment in CCIBV. CCOH’s investment in CCIBV includes the accumulated deficit of CCIBV net of cash transfers related to cash management functions performed by CCOH.

NOTE 2 – NEW ACCOUNTING PRONOUNCEMENTS

During the second quarter of 2014, the FASB issued ASU No. 2014-15, Presentation of Financial Statements - Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern. This update provides U.S. GAAP guidance on management’s responsibility in evaluating whether there is substantial doubt about a company’s ability to continue as a going concern and about related footnote disclosures. For each reporting period, the Company will be required to evaluate whether there are conditions or events that raise substantial doubt about a company’s ability to continue as a going concern within one year from the date the financial statements are issued. The amendments in this update are effective for annual periods ending after December 15, 2016, and for interim periods thereafter. Early application is permitted. The Company is currently evaluating the impact of the provisions of this new standard on its 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 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 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 issuances costs of $8.5 million as of December 31, 2015, which are now reflected as “Long-term debt fees” in Note 4.

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 consolidated financial statements.

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-

 

7


CLEAR CHANNEL INTERNATIONAL B.V. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

 

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 consolidated financial statements.

During the second quarter of 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326). The new standard changes the impairment model for most financial assets and certain other instruments. Entities will be required to use a model that will result in the earlier recognition of allowances for losses for trade and other receivables, held-to-maturity debt securities, loans and other instruments. For available-for-sale debt securities with unrealized losses, the losses will be recognized as allowances rather than as reductions in the amortized cost of the securities. The standard is effective for fiscal years beginning after the standard is effective for fiscal periods, and for interim periods within those fiscal periods, beginning after December 15, 2020. The Company is currently evaluating the impact of the provisions of this new standard on its consolidated financial statements.

NOTE 3 – PROPERTY, PLANT AND EQUIPMENT, INTANGIBLE ASSETS AND GOODWILL

Dispositions

During the second quarter of 2016, the Company sold its business in Turkey. As a result, the Company recognized a net loss of $56.6 million, which includes $32.2 million in cumulative translation adjustments that were recognized upon the sale of the Company’s subsidiaries in Turkey.

Property, Plant and Equipment

The Company’s property, plant and equipment consisted of the following classes of assets at June 30, 2016 and December 31, 2015, respectively:

 

     June 30,      December 31,  
(In thousands)    2016      2015  

Land, buildings and improvements

   $ 51,246       $ 50,863   

Structures

     569,660         616,991   

Furniture and other equipment

     89,077         90,910   

Construction in progress

     46,449         33,090   
  

 

 

    

 

 

 
     756,432         791,854   

Less: accumulated depreciation

     425,306         448,723   
  

 

 

    

 

 

 

Property, plant and equipment, net

   $ 331,126       $ 343,131   
  

 

 

    

 

 

 

Total depreciation expense related to property, plant and equipment for the three months ended June 30, 2016 and 2015 was $21.2 million and $22.9 million, respectively. Total depreciation expense related to property, plant and equipment for the six months ended June 30, 2016 and 2015 was $41.6 million and $45.2 million, respectively.

 

8


CLEAR CHANNEL INTERNATIONAL B.V. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

 

Intangible Assets

The following table presents the gross carrying amount and accumulated amortization for each major class of intangible assets at June 30, 2016 and December 31, 2015, respectively:

 

     June 30, 2016      December 31, 2015  
(In thousands)    Gross Carrying
Amount
     Accumulated
Amortization
     Gross Carrying
Amount
     Accumulated
Amortization
 

Transit, street furniture and contractual rights

   $ 235,359       $ (203,752    $ 276,384       $ (240,844

Other

     955         (580      6,180         (902
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 236,314       $ (204,332    $ 282,564       $ (241,746
  

 

 

    

 

 

    

 

 

    

 

 

 

Total amortization expense related to definite-lived intangible assets for the three months ended June 30, 2016 and 2015 was $3.4 million and $5.6 million, respectively. Total amortization expense related to definite-lived intangible assets for the six months ended June 30, 2016 and 2015 was $7.0 million and $12.6 million, respectively.

The following table presents the Company’s estimate of amortization expense for each of the five succeeding fiscal years and thereafter for definite-lived intangible assets:

 

(In thousands)  

2016

   $ 6,399   

2017

     7,226   

2018

     3,604   

2019

     2,023   

2020

     1,659   

2021

     1,659   

Thereafter

     9,412   

Goodwill

The following table presents the changes in the carrying amount of goodwill. The provisions of ASC 350-20-50-1 require the disclosure of cumulative impairment. As a result of the Merger, a new basis in goodwill was recorded in accordance with ASC 805-10. All impairments shown in the table below have been recorded subsequent to the Merger and, therefore, do not include any pre-Merger impairment.

 

(In thousands)  

Balance as of December 31, 2014

   $ 232,539   

Additions

     10,998   

Foreign currency

     (19,644
  

 

 

 

Balance as of December 31, 2015

   $ 223,893   

Foreign currency

     3,999   
  

 

 

 

Balance as of June 30, 2016

   $ 227,892   
  

 

 

 

The beginning balance as of December 31, 2014 is net of cumulative impairments of $229.3 million.

 

9


CLEAR CHANNEL INTERNATIONAL B.V. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

 

NOTE 4 – LONG-TERM DEBT

Long-term debt outstanding as of June 30, 2016 and December 31, 2015 consisted of the following:

 

(In thousands)    June 30,      December 31,  
     2016      2015  

Clear Channel International B.V. Senior Notes

   $ 225,000       $ 225,000   

Other debt

     8,968         9,794   

Original issue discount

     (2,027      (2,208

Long-term debt fees

     (8,036      (8,549
  

 

 

    

 

 

 

Total debt

   $ 223,905       $ 224,037   

Less: current portion

     2,187         2,077   
  

 

 

    

 

 

 

Total long-term debt

   $ 221,718       $ 221,960   
  

 

 

    

 

 

 

On December 16, 2015, the Company issued $225.0 million in aggregate principal amount of Senior Notes due 2020 (the “Senior Notes”). The Senior Notes were issued at a discount and were priced at 99.012% of par, or $2.2 million total discount. As described in Note 2, the Company adopted new accounting guidance during the first quarter of 2016, which resulted in the reclassification of debt issuance costs of $8.5 million as a deduction from the carrying value of outstanding debt at December 31, 2015.

The aggregate market value of the Company’s debt based on market prices for which quotes were available was approximately $232.9 million and $223.9 million at June 30, 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 Level 2.

NOTE 5 – COMMITMENTS, CONTINGENCIES AND GUARANTEES

Legal Proceedings

The Company and its subsidiaries are involved in certain legal proceedings arising in the ordinary course of business and, as required, have accrued an estimate of the probable costs for the resolution of those claims for which the occurrence of loss is probable and the amount can be reasonably estimated. These estimates have been developed in consultation with counsel and are based upon an analysis of potential results, assuming a combination of litigation and settlement strategies. It is possible, however, that future results of operations for any particular period could be materially affected by changes in the Company’s assumptions or the effectiveness of its strategies related to these proceedings. Additionally, due to the inherent uncertainty of litigation, there can be no assurance that the resolution of any particular claim or proceeding would not have a material adverse effect on the Company’s financial condition or results of operations.

Although the Company is involved in a variety of legal proceedings in the ordinary course of business, a large portion of the Company’s litigation arises in the following contexts: commercial disputes; employment and benefits related claims; governmental fines; and tax disputes.

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. The Company and its affiliates are cooperating with the national competition authorities.

Guarantees

As of June 30, 2016, the Company had outstanding bank guarantees of $49.3 million, of which $16.0 million were backed by cash collateral. Additionally, as of June 30, 2016, Parent Company had outstanding commercial standby letters of credit of $15.2 million held on behalf of the Company and its subsidiaries.

 

10


CLEAR CHANNEL INTERNATIONAL B.V. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

 

NOTE 6 – RELATED PARTY TRANSACTIONS

The Company has unsecured subordinated notes payable to and receivables from other wholly-owned subsidiaries of CCOH.

Related Party Subordinated Notes Payable

The Company is the borrower of subordinated notes, which are payable to other wholly-owned subsidiaries of CCOH. These notes are subordinated and unsecured and bear interest at 3.40% plus three-month EUR, GBP or USD LIBOR, with exception to one of the Other Related Party Notes Payable outstanding as of June 30, 2016, which bears interest at a fixed rate of 0.32%.

Related party subordinated notes payable totaled approximately $1.0 billion at each of June 30, 2016 and December 31, 2015, respectively, and consisted of:

 

     June 30,      December 31,  
(In thousands)    2016      2015  

Notes due to Clear Channel C.V.

   $ 1,010,552       $ 984,826   

Other Related Party Notes Payable

     1,027         1,263   
  

 

 

    

 

 

 

Total Related Party Notes Payable

   $ 1,011,579       $ 986,089   
  

 

 

    

 

 

 

During the first six months of 2016, the Company capitalized $53.3 million in interest payable, which had been accrued in relation to related party subordinated notes payable. Of the amount capitalized, $17.8 million related to interest accrued during the six months ended June 30, 2016.

Related Party Notes Receivable

The Company, as lender, had two outstanding notes receivable balances with two related parties, CCO International Holdings B.V. and Clear Channel C.V., at June 30, 2016. The balances are unsecured and repayable on demand. The notes bear interest at fixed rates of 0.28% and 8.75%, respectively.

The balances outstanding at June 30, 2016 and December 31, 2015 on these Related Party Notes Receivable are as follows:

 

     June 30,      December 31,  
(In thousands)    2016      2015  

Note due from Clear Channel C.V.

   $ 222,777       $ 222,777   

Note due from CCO International Holdings B.V.

     5,178         6,957   
  

 

 

    

 

 

 

Total Related Party Notes Receivable

   $ 227,955       $ 229,734   
  

 

 

    

 

 

 

Cash Management Arrangement

iHeartCommunications provides cash management services to the Company and Parent Company. It is iHeartCommunications’ policy to permanently reinvest the earnings of its non-U.S. subsidiaries as these earnings are generally redeployed in those jurisdictions for operating needs and continued functioning of their businesses. The amount of any cash that is distributed is determined on a basis mutually agreeable to the Company and iHeartCommunications and not on a pre-determined basis. Excess cash from our operations, which is distributed to iHeartCommunications, is applied against principal or accrued interest on the notes payable to subsidiaries of Parent Company, including Clear Channel CV. See “Related Party Notes Payable” above.

 

11


CLEAR CHANNEL INTERNATIONAL B.V. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

 

Management Services

iHeartCommunications and CCOH provide management services to the Company, which include, among other things: (i) treasury and other financial related services; (ii) certain executive officer services; (iii) legal and related services; and (iv) other general corporate services. These services are charged to the Company based on actual direct costs incurred or allocated by iHeartCommunications and CCOH based on headcount, revenue or other factors on a pro rata basis. For the three months ended June 30, 2016 and 2015, the Company recorded $1.6 million and $1.3 million, respectively, for these services. For the six months ended June 30, 2016 and 2015, the Company recorded $2.7 million and $2.5 million, respectively, for these services. Such costs are included in Corporate expenses in the Statement of Comprehensive Loss.

Royalty Fee

As part of a license agreement between Outdoor Management Services, Inc., an indirect wholly-owned subsidiary of CCOH, the Company is charged a royalty fee to license intellectual property, copyrights, trademarks and other intangible assets, which are held by iHM Identity, Inc., a direct wholly-owned subsidiary of iHeartCommunications. For the three months ended June 30, 2016 and 2015, the Company was charged a royalty fee of $3.8 million and $3.2 million, respectively, in relation to this agreement. For the six months ended June 30, 2016 and 2015, the Company was charged a royalty fee of $7.5 million and $7.4 million, respectively, in relation to this agreement. Such costs are included in Selling, general and administrative expenses in the Statement of Comprehensive Loss.

Stewardship Fee

As described in Note 1, the Company is a subsidiary of CCOH, a publicly traded company. As a result, the Company incurs certain costs related to quarterly and annual reporting in order for Parent Company to comply with the Securities and Exchange Commission (“SEC”) reporting requirements. In addition, the Company incurs costs related to the preparation of budgets, forecasts and other strategic initiatives of Parent Company. Such costs are charged back to CCOH on a quarterly basis (“Stewardship Fees”) based on the time incurred by employees of the Company to perform the work. Stewardship fees charged to CCOH during the three months ended June 30, 2016 and 2015 were $3.6 million and $7.6 million, respectively. Stewardship fees charged to CCOH during the six months ended June 30, 2016 and 2015 were $9.1 million and $11.6 million, respectively. Such costs are included as a reduction in Corporate expenses in the Statement of Comprehensive Loss.

Tax Services Agreement

Pursuant to the tax services agreement CCOH entered into with iHeartCommunications, the operations of the Company are included in a consolidated federal income tax return filed by iHeartMedia. The Company’s provision for income taxes has been computed on the basis that the operations of the Company are subject to current income taxes at the local country statutory rate where the income is being earned and in accordance with the rules established by the applicable jurisdiction taxation authorities.

NOTE 7 – INCOME TAXES

Significant components of the provision for income tax expense are as follows:

 

(In thousands)    Three Months Ended June 30,      Six Months Ended June 30,  
     2016      2015      2016      2015  

Current tax expense

   $ 7,506       $ 13,834       $ 10,285       $ 16,439   

Deferred tax expense / (benefit)

     33         (3,094      720         (4,232
  

 

 

    

 

 

    

 

 

    

 

 

 

Income tax expense

   $ 7,539       $ 10,740       $ 11,005       $ 12,207   
  

 

 

    

 

 

    

 

 

    

 

 

 

The effective tax rates for the three months ended June 30, 2016 and 2015 were (13.9%) and (2,391.9%), respectively. The effective tax rates for the six months ended June 30, 2016 and 2015 were (13.4%) and (32.9%), respectively. The effective rates

 

12


CLEAR CHANNEL INTERNATIONAL B.V. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

 

were primarily impacted by certain nondeductible interest and other intercompany charges and the Company’s inability to benefit from losses in certain jurisdictions. In addition, the effective rates for three and six months ended June 30, 2016 were impacted by the pre-tax loss from the sale of the Company’s outdoor advertising business in Turkey, which is non-deductible for income tax purposes due to the participation exemption on the sale of the shareholdings in the jurisdiction of the subsidiary holding company.

NOTE 8 — POSTRETIREMENT BENEFIT PLANS

Certain of the Company’s subsidiaries participate in defined benefit or defined contribution plans that cover substantially all regular employees. The Company deposits funds under various fiduciary-type arrangements or provides reserves for these plans. Benefits under the defined benefit plans are typically based either on years of service and the employee’s compensation (generally during a fixed number of years immediately before retirement) or on annual credits. The range of assumptions that are used for the defined benefit plans reflect the different economic environments within the various countries.

Defined Benefit Pension Plan Financial Information

The table below presents the components of net periodic cost recognized in the consolidated statement of comprehensive loss:

 

(In thousands)    Three Months Ended June 30,      Six Months Ended June 30,  
     2016      2015      2016      2015  

Service cost

   $ 432       $ 1,219       $ 1,293       $ 2,435   

Curtailment loss

     322         —           322         —     

Interest cost

     1,046         1,339         2,153         2,667   

Expected returns on plan assets

     (1,692      (1,816      (3,390      (3,612

Employee contributions

     (7      —           (14      —     

Amortization of actuarial gains

     212         224         642         228   

Amortization of prior service costs

     (44      (105      (90      8   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total net periodic pension expense

   $ 269       $ 861       $ 916       $ 1,726   
  

 

 

    

 

 

    

 

 

    

 

 

 

On April 1, 2016 the Company transitioned its defined benefit plan in its UK subsidiary to a defined contribution plan. As a part of the transition, the Company recognized a curtailment loss of $0.3 million.

Plan Contributions

It is the Company’s general practice to fund amounts for pensions sufficient to meet the minimum requirements set forth in applicable employee benefits laws and local tax laws. From time to time, the Company contributes additional amounts as it deems appropriate. The Company contributed $0.4 million and $0.6 million to defined benefit pension plans during the three months ended June 30, 2016 and 2015, respectively. The Company contributed $0.9 million and $1.2 million to defined benefit pension plans during the six months ended June 30, 2016 and 2015, respectively.

Defined Contribution Retirement Plans

The Company’s employees participate in retirement plans administered as a service by third-party administrators. Contributions to these plans totaled $3.9 million and $3.8 million for the three months ended June 30, 2016 and 2015, respectively. Contributions to these plans totaled $7.8 million and $7.9 million for the six months ended June 30, 2016 and 2015, respectively. Such costs were recorded as a component of operating expenses.

 

13


CLEAR CHANNEL INTERNATIONAL B.V. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

 

NOTE 9 — OTHER INFORMATION

The following table discloses the components of “Other assets” at:

 

     June 30,      December 31,  
(In thousands)    2016      2015  

Prepaid expenses

   $ 8,313       $ 9,196   

Deposits

     4,356         11,307   

Investments

     4,399         4,367   

Deferred income taxes

     11,912         13,097   

Other

     26,578         4,275   
  

 

 

    

 

 

 

Total other assets

   $ 55,558       $ 42,242   
  

 

 

    

 

 

 

The following table discloses the components of “Accrued expenses” at:

 

     June 30,      December 31,  
(In thousands)    2016      2015  

Accrued employee compensation and benefits

   $ 69,735       $ 77,743   

Accrued rent and lease

     90,549         100,641   

Accrued taxes

     16,931         21,409   

Accrued other

     66,044         83,438   
  

 

 

    

 

 

 

Total accrued expenses

   $ 243,259       $ 283,231   
  

 

 

    

 

 

 

The following table discloses the components of “Other long-term liabilities” at:

 

     June 30,      December 31,  
(In thousands)    2016      2015  

Unrecognized tax benefits

   $ 15,196       $ 15,035   

Asset retirement obligation

     23,506         23,565   

Postretirement benefit obligation (Note 8)

     52,612         45,933   

Other

     15,686         18,464   
  

 

 

    

 

 

 

Total other long-term liabilities

   $ 107,000       $ 102,997   
  

 

 

    

 

 

 

NOTE 10 — SUBSEQUENT EVENTS

In connection with the preparation of the financial statements and in accordance with Accounting Standards Codification 855-10, Subsequent Events – Overall, management has evaluated and reviewed the affairs of the Company for subsequent events that would impact the financial statements for the three and six months ended June 30, 2016 through August 4, 2016, the date the financial statements were available to be issued.

 

14


CLEAR CHANNEL INTERNATIONAL B.V. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

 

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion of our results of operations and financial condition together with the consolidated financial statements and related notes included elsewhere in this document. This discussion contains forward-looking statements and involves numerous risks and uncertainties, including, but not limited to, those described under “Forward-Looking Statements.” Actual results may differ materially from those contained in any forward-looking statements.

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. Our discussion is presented on a consolidated basis. In this MD&A, references to (i) “we,” “us” or “our” are to Clear Channel International B.V. together with its consolidated subsidiaries, (ii) “Issuer” are to Clear Channel International B.V. without any of its subsidiaries, (iii) “Parent Company” are to Clear Channel Outdoor Holdings, Inc., our indirect parent company and (iv) “iHeartCommunications” are to iHeartCommunications, Inc., the indirect parent of Parent Company.

Relationship with iHeartCommunications

There are several agreements which govern our relationship with Parent Company and Parent Company’s relationship with iHeartCommunications including a Master Agreement, Corporate Services Agreement, Employee Matters Agreement and Tax Matters Agreement, which relate to corporate, employee, tax and other services provided by iHeartCommunications. iHeartCommunications has the right to terminate these agreements in various circumstances. As of August 3, 2016, no notice of termination of any of these agreements has been received from iHeartCommunications.

Under the Corporate Services Agreement, iHeartCommunications provides management services to Parent Company and its subsidiaries, including us. These services are allocated to us based on actual direct costs incurred or allocated by iHeartCommunications based on headcount, revenue or other factors on a pro rata basis. For the three months ended June 30, 2016 and 2015, we recorded approximately $1.6 million and $1.3 million, respectively. For the six months ended June 30, 2016 and 2015, we recorded approximately $2.7 million and $2.5 million, respectively. Such costs are a component of corporate expenses for these services.

Other Related Party Agreements

As part of a license agreement between Outdoor Management Services, Inc., an indirect wholly-owned subsidiary of Parent Company, we are charged a royalty fee to license intellectual property, copyrights, trademarks and other intangible assets, which are held by iHM Identity, Inc., a direct wholly-owned subsidiary of iHeartCommunications. For the three months ended June 30, 2016 and 2015, we were charged royalty fees of $3.8 million and $3.2 million, respectively, in relation to this agreement. For the six months ended June 30, 2016 and 2015, we were charged royalty fees of $7.5 million and $7.4 million, respectively, in relation to this agreement. Such costs are included in selling, general and administrative expenses.

We are a subsidiary of Parent Company, a publicly traded company. As a result, we incur certain costs related to quarterly and annual reporting in order for Parent Company to comply with SEC reporting requirements. In addition, we incur costs related to the preparation of budgets, forecasts and other strategic initiatives of Parent Company. Such costs are charged back to Parent Company on a quarterly basis based on the time incurred by our employees to perform the work. The fees that were charged to Parent Company in relation to these services during the three months ended June 30, 2016 and 2015 were $3.6 million and $7.6 million, respectively. The fees that were charged to Parent Company in relation to these services during the six months ended June 30, 2016 and 2015 were $9.1 million and $11.6 million, respectively. Such costs are included as a reduction in corporate expenses.

 

15


CLEAR CHANNEL INTERNATIONAL B.V. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

 

Consolidated Results of Operations

The comparison of our results of operations for the three months ended June 30, 2016 and 2015 is as follows:

 

(U.S. dollars in thousands)    Three Months Ended
June 30,
    %
Change
    Six Months Ended
June 30,
   

%

Change

 
     2016     2015       2016     2015    

Revenue

   $ 319,151      $ 318,541        0.2   $ 580,259      $ 592,455        (2.1 )% 

Operating expenses:

      

Direct operating expenses (excludes depreciation and amortization)

     200,701        200,610        —       381,927        392,995        (2.8 )% 

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

     69,797        68,214        2.3     135,163        134,025        0.8

Corporate expenses (excludes depreciation and amortization)

     7,007        4,490        56.1     12,389        12,335        0.4

Depreciation and amortization

     24,605        28,469        (13.6 )%      48,534        57,749        (16.0 )% 

Other operating income (expense), net

     (56,136     515          (55,908     1,283     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

     (39,095     17,273        (326.3 )%      (53,662     (3,366     1,494.2

Interest expense, net

     10,537        17,036          20,175        34,207     

Equity in loss of nonconsolidated affiliates

     (556     (755       (1,333     (788  

Other income (expense), net

     (3,887     69          (6,839     1,294     
  

 

 

   

 

 

     

 

 

   

 

 

   

Loss before income taxes

     (54,075     (449       (82,009     (37,067  

Income tax expense

     7,539        10,740          11,005        12,207     
  

 

 

   

 

 

     

 

 

   

 

 

   

Consolidated net loss

     (61,614     (11,189       (93,014     (49,274  

Less amount attributable to noncontrolling interest

     1,502        1,615          2,919        2,468     
  

 

 

   

 

 

     

 

 

   

 

 

   

Net loss attributable to the Company

   $ (63,116   $ (12,804     $ (95,933   $ (51,742  
  

 

 

   

 

 

     

 

 

   

 

 

   

Consolidated Revenue

For the three months ended June 30, 2016, revenue increased $0.6 million compared to the same period of 2015. Excluding the $3.1 million impact from movements in foreign exchange rates, revenues increased $3.7 million compared to the same period of 2015. The increase in revenue was primarily driven by revenue growth from new digital assets in Australia and new contracts and higher occupancy across several European countries including France, partially offset by lower revenue in the United Kingdom, as a result of the London bus shelter contract not being renewed.

For the six months ended June 30, 2016, revenue decreased $12.2 million compared to the same period of 2015. Excluding the $13.1 million impact from movements in foreign exchange rates, revenues increased $0.9 million compared to the same period of 2015. The increase in revenue was primarily driven by revenue growth from new digital assets in Australia and new contracts and higher occupancy in France, as well as growth across several European countries, partially offset by lower revenue in the United Kingdom as a result of the London bus shelter contract not being renewed, and decreases in Switzerland.

 

16


CLEAR CHANNEL INTERNATIONAL B.V. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

 

Consolidated Direct Operating Expenses

For the three months ended June 30, 2016, direct operating expenses increased $0.1 million compared to the same period of 2015. Excluding the $2.1 million impact from movements in foreign exchange rates, direct operating expenses increased $2.2 million compared to the same period of 2015. The increase in direct operating expenses was primarily a result of higher site lease and production expenses in countries experiencing revenue growth, partially offset by lower site lease expense due to lower revenue in the United Kingdom as a result of the London bus shelter contract not being renewed.

For the six months ended June 30, 2016, direct operating expenses decreased $11.1 million compared to the same period of 2015. Excluding the $9.7 million impact from movements in foreign exchange rates, direct operating expenses decreased $1.3 million compared to the same period of 2015. The decrease was primarily a result of lower site lease expense due to lower revenue in the United Kingdom as a result of the London bus shelter contract not being renewed, partially offset by higher site lease and production expenses in countries experiencing revenue growth.

Consolidated Selling, General and Administrative (“SG&A”) Expenses

For the three months ended June 30, 2016, SG&A expenses increased $1.6 million compared to the same period of 2015. Excluding the $0.1 million impact from movements in foreign exchange rates, SG&A expenses increased $1.5 million compared to the same period of 2015. The increase in SG&A expenses was primarily due to higher sales force costs in Australia and France and higher office expenses in the United Kingdom.

For the six months ended June 30, 2016, SG&A expenses increased $1.1 million compared to the same period of 2015. Excluding the $1.9 million impact from movements in foreign exchange rates, SG&A expenses increased $3.0 million compared to the same period of 2015. The increase in SG&A expenses was primarily due to higher sales force and office renovation costs in Australia and the United Kingdom.

Corporate Expenses

For the three months ended June 30, 2016, Corporate expenses increased $2.5 million compared to the same period of 2015. Excluding the $0.5 million impact from movements in foreign exchange rates, corporate expenses increased $3.0 million compared to the same period of 2015.

For the six months ended June 30, 2016, Corporate expenses increased $0.1 million compared to the same period of 2015. Excluding the $0.9 million impact from movements in foreign exchange rates, corporate expenses increased $1.0 million compared to the same period of 2015.

Strategic Revenue and Efficiency Initiatives

Included in the amounts for direct operating expenses, SG&A and corporate expenses discussed above are expenses incurred in connection with our strategic revenue and efficiency initiatives. The costs were incurred to improve revenue growth, enhance yield, reduce costs, and organize each business to maximize performance and profitability. These costs consist primarily of consolidation of locations and positions, severance related to workforce initiatives, consulting expenses and other costs incurred in connection with improving our businesses. These costs are expected to provide benefits in future periods as the initiative results are realized.

Strategic revenue and efficiency costs were $0.9 million and $3.8 million during the three months ended June 30, 2016 and 2015, respectively. Of these costs, $0.6 million are reported within SG&A and $0.3 million are reported within corporate expense for the three months ended June 30, 2016 compared to $0.6 million within direct operating expenses, $0.7 million within SG&A and $2.5 million within corporate expense for the three months ended June 30, 2015.

Strategic revenue and efficiency costs were $1.8 million and $6.6 million during the six months ended June 30, 2016 and 2015, respectively. Of these costs, $0.4 million are reported within direct operating expenses, $1.1 million are reported within SG&A and $0.3 million are reported within corporate expense for the six months ended June 30, 2016 compared to $0.6 million, $1.2 million and $4.8 million, respectively, for the six months ended June 30, 2015.

 

17


CLEAR CHANNEL INTERNATIONAL B.V. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

 

Depreciation and Amortization

Depreciation and amortization decreased $3.9 million and $9.2 million during the three and six months ended June 30, 2016, respectively, compared to the same periods of 2015 primarily due to the impact of movements in foreign exchange rates and assets becoming fully depreciated or amortized.

Other Operating Income (Expense), Net

Other operating expense, net of $56.1 million and $55.9 million for the three and six months ended June 30, 2016, respectively, primarily related to the loss on the sale of the Turkey business in the second quarter of 2016. The Company recognized a net loss of $56.6 million which includes cumulative translation adjustments of $32.2 million.

Other operating income, net of $0.5 million and $1.3 million for the three and six months ended June 30, 2015, respectively, primarily related to the net gains recognized from the disposal of operating and fixed assets.

Interest Expense, Net

Interest expense, net decreased $6.5 million and $14.0 million during the three and six months ended June 30, 2016, respectively, compared to the same periods of 2015. Interest expense related to the Senior Notes issued in December 2015 was offset by lower average outstanding balances on related party notes payable.

Equity in Earnings (Loss) of Nonconsolidated Affiliates

Equity in loss of nonconsolidated affiliates of $0.6 million and $1.3 million for three and six months ended June 30, 2016, respectively, included the loss from our equity investments.

Equity in loss of nonconsolidated affiliates of $0.8 million and $0.8 million for three and six months ended June 30, 2015, respectively, included the loss from our equity investments.

Income Tax Benefit (Expense)

Our operations are included in a consolidated income tax return filed by iHeartMedia. However, for purposes of our financial statements, our provision for income taxes was computed assuming that we filed separate consolidated income tax returns together with our subsidiaries.

The effective tax rates for the three months ended June 30, 2016 and 2015 were (13.9%) and (2,391.9%), respectively. The effective tax rates for the six months ended June 30, 2016 and 2015 were (13.4%) and (32.9%), respectively. The effective rates were primarily impacted by certain nondeductible interest and other intercompany charges and the Company’s inability to benefit from losses in certain jurisdictions. In addition, the effective rates for the three and six months ended June 30, 2016 were impacted by the pre-tax loss from the sale of the Company’s outdoor advertising business in Turkey, which is non-deductible for income tax purposes due to the participation exemption on the sale of shareholdings in the jurisdiction of the subsidiary holding company.

LIQUIDITY AND CAPITAL RESOURCES

Cash Flows

The following discussion highlights our cash flow activities during the six months ended June 30, 2016 and 2015:

 

18


CLEAR CHANNEL INTERNATIONAL B.V. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

 

(U.S. dollars in thousands)    Six Months Ended June 30,  
     2016      2015  

Cash provided by (used for):

     

Operating activities

   $ 23,476       $ (13,641

Investing activities

     (39,854      (23,512

Financing activities

     (1,352      39,360   

Operating Activities

Cash provided by operating activities was $23.5 million during the six months ended June 30, 2016 compared to $13.6 million of cash used during the six months ended June 30, 2015. The increase in cash provided by operating activities is primarily attributed to changes in working capital balances, particularly accounts receivable, which was driven primarily by improved collections.

Investing Activities

Cash used for investing activities of $39.9 million during the six months ended June 30, 2016 primarily reflected capital expenditures of $39.8 million primarily related to new advertising structures such as billboards and street furniture and renewals of existing contracts.

Cash used for investing activities of $23.5 million during the six months ended June 30, 2015 primarily reflected capital expenditures of $22.0 million primarily related to new advertising structures such as billboards and street furniture and renewals of existing contracts.

Financing Activities

Cash used for financing activities of $1.4 million during the six months ended June 30, 2016 primarily reflected the net payments of related parties notes payable of $4.4 million and payments of long-term debt of $1.1 million, partially offset by net transfers from related parties of $4.6 million.

Cash provided by financing activities of $39.4 million during the six months ended June 30, 2015 primarily reflected net transfers from related parties of $39.4 million,

Cash Paid for Interest on Related Party Subordinated Notes Payable and Long-term Debt

During the six months ended June 30, 2016 we made an interest payment of $9.8 million on the 8.75% Senior Notes due 2020. We made no cash interest payments in relation to interest incurred on related party subordinated notes payable or long-term debt during the six months ended June 30, 2015.

Anticipated Cash Requirements

Our primary sources of liquidity are cash on hand and cash flow from operations. Based on our current and anticipated levels of operations and conditions in our markets, we believe that cash on hand and cash flows from operations will enable us to meet our working capital, capital expenditure and other funding requirements. We believe our long-term plans, which include promoting outdoor media spending and capitalizing on our diverse geographic and product opportunities, including the continued deployment of digital displays, will enable us to continue to generate cash flows from operations sufficient to meet our liquidity and funding requirements long term. However, significant assumptions underlie this belief, including, among other things, that we will continue to be successful in implementing our business strategy and that there will be no material adverse developments in our business, liquidity or capital requirements. Our anticipated results are subject to significant uncertainty and may be affected by events beyond our control, including prevailing economic, financial and industry conditions. At

 

19


CLEAR CHANNEL INTERNATIONAL B.V. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

 

June 30, 2016, we had $29.5 million of cash on our balance sheet, a portion of which is held by non-wholly owned subsidiaries or is otherwise subject to certain restrictions and not readily accessible to us. Our policy is to permanently reinvest the earnings of our subsidiaries as these earnings generally remain in those jurisdictions for operating needs and continued functioning of their businesses. However, if any excess cash held by us and our subsidiaries were needed to fund operations in the United States, Parent Company has the ability to cause us to make distributions and repatriate available funds.

Our ability to fund our working capital, capital expenditures and other obligations depends on our future operating performance and cash from operations. If our future operating performance does not meet our expectations or our plans materially change in an adverse manner or prove to be materially inaccurate, we may need additional financing. We may not be able to secure any such additional financing on terms favorable to us or at all.

We were in compliance with the covenants contained in our financing agreements as of June 30, 2016.

We frequently evaluate strategic opportunities both within and outside our existing lines of business. We expect from time to time to pursue acquisitions and may decide to dispose of certain businesses. These acquisitions or dispositions could be material.

Cash Management Arrangement

iHeartCommunications provides cash management services to us and Parent Company. It is iHeartCommunications’ policy to permanently reinvest the earnings of its non-U.S. subsidiaries as these earnings are generally redeployed in those jurisdictions for operating needs and to maintain the continued function of such subsidiaries’ businesses. The amount of any cash that is distributed is determined on a basis mutually agreeable to us and iHeartCommunications, and not on a predetermined basis. Excess cash from our operations which is distributed to iHeartCommunications is applied against principal or accrued interest on the subordinated notes payable to subsidiaries of Parent Company, including Clear Channel C.V.

Senior Notes

As of June 30, 2016, we had $225.0 million aggregate principal amount outstanding of 8.75% Senior Notes due 2020.

The Senior Notes mature on December 15, 2020 and bear interest at a rate of 8.75% per annum, payable semi-annually in arrears on June 15 and December 15 of each year, beginning on June 15, 2016. The Senior Notes are guaranteed by certain of our existing and future subsidiaries. The Senior Notes are senior unsecured obligations that rank pari passu in right of payment to all of our unsubordinated indebtedness, and the guarantees of the Senior Notes are senior unsecured obligations that rank pari passu in right of payment to all unsubordinated indebtedness of the guarantors of the Senior Notes.

We may redeem the Senior Notes at our option, in whole or part, at any time prior to December 15, 2017, at a price equal to 100% of the principal amount of the notes redeemed, plus a make-whole premium, plus accrued and unpaid interest to the redemption date. We may redeem the Senior Notes, in whole or in part, on or after December 15, 2017, at the redemption prices set forth in the indenture plus accrued and unpaid interest to the redemption date. At any time on or before December 15, 2017, we may elect to redeem up to 40% of the aggregate principal amount of the Senior Notes at a redemption price equal to 108.75% of the principal amount thereof, plus accrued and unpaid interest to the redemption date, with the net proceeds of one or more equity offerings.

The indenture governing the Senior Notes contains covenants that limit our ability and the ability of our restricted subsidiaries to, among other things: (i) pay dividends, redeem stock or make other distributions or investments; (ii) incur additional debt or issue certain preferred stock; (iii) transfer or sell assets; (iv) create liens on assets; (v) engage in certain transactions with affiliates; (vi) create restrictions on dividends or other payments by the restricted subsidiaries; and (vii) merge, consolidate or sell substantially all of our assets.

 

20


CLEAR CHANNEL INTERNATIONAL B.V. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

 

Related Party Notes Payable

As of June 30, 2016 and December 31, 2015, we had related party notes payable balances outstanding of $1.0 billion and $1.0 billion, respectively. The unsecured subordinated notes payable are owed to other wholly-owned subsidiaries of Parent Company and bear interest at 0.3%—3.4% plus three-month EUR, GBP or USD LIBOR. In December 2015, we entered into an agreement with Clear Channel C.V., whereby we were discharged from our obligations under several related party subordinated notes payable with an aggregate principal amount of $909.5 million (including accrued interest of $29.6 million).

Subsidiary Credit Facilities

Certain of our subsidiaries are the primary borrowers under various credit and overdraft facilities with European banks. These facilities are denominated primarily in Euros. As of June 30, 2016, there was $0.0 million outstanding under these facilities and there were approximately $4.7 million available for borrowings.

Commitments, Contingencies and Guarantees

We are currently involved in certain legal proceedings arising in the ordinary course of business and, as required, have accrued our estimate of the probable costs for resolution of those claims for which the occurrence of loss is probable and the amount can be reasonably estimated. These estimates have been developed in consultation with counsel and are based upon an analysis of potential results, assuming a combination of litigation and settlement strategies. It is possible, however, that future results of operations for any particular period could be materially affected by changes in our assumptions or the effectiveness of our strategies related to these proceedings. See “Business—Legal Proceedings”.

SEASONALITY

Typically, we experience our lowest financial performance in the first quarter of the calendar year, resulting in a loss from operations in that period. We typically experience our strongest performance in the second and fourth quarters of the calendar year. We expect this trend to continue in the future. Due to this seasonality and certain other factors, the results for the interim periods may not be indicative of results for the full year.

MARKET RISK

We are exposed to market risks arising from changes in market rates and prices, including movements in foreign currency exchange rates and inflation.

On June 23, 2016, the United Kingdom (the “U.K.”) held a referendum in which voters approved an exit from the European Union (the “E.U.”), commonly referred to as “Brexit”. We are currently headquartered in the U.K. and we transact business in many key European markets. The announcement of Brexit caused the British pound currency rate to weaken against the U.S. dollar. Further, Brexit may create global economic uncertainty, which may cause our customers to closely monitor their costs and reduce the amount they spend on advertising. Any of these effects of Brexit, among others, could adversely affect our business, financial condition, operating results and cash flows.

Foreign Currency Exchange Rate Risk

We have operations in several countries in Europe and in Australia, New Zealand and Singapore. Operations in these countries are measured in their local currencies, and our consolidated financial statements are presented in U.S. dollars. As a result, our financial results could be affected by factors such as changes in foreign currency exchange rates or weak economic

 

21


CLEAR CHANNEL INTERNATIONAL B.V. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

 

conditions in the foreign markets in which we have operations. We believe we mitigate a small portion of our exposure to foreign currency fluctuations with a natural hedge through borrowings in currencies other than the U.S. dollar. We estimate a 10% increase in the value of the U.S. dollar relative to foreign currencies would have decreased our net loss for the three and six months ended June 30, 2016 by $2.9 million and $6.1 million, respectively. We estimate a 10% decrease in the value of the U.S. dollar relative to foreign currencies during the three and six months ended June 30, 2016 would have increased our net loss for the three and six months ended June 30, 2016 by corresponding amounts.

This analysis does not consider the implications that such currency fluctuations could have on the overall economic activity that could exist in such an environment in the United States or the foreign countries or on the results of operations of these foreign entities.

Inflation

Inflation is a factor in the economies in which we do business and we continue to seek ways to mitigate its effect. Inflation has affected our performance in terms of higher costs for wages, salaries and equipment. Although the exact impact of inflation is indeterminable, we believe we have offset these higher costs by increasing the effective advertising rates of most of our outdoor display faces.

SELECTED ISSUER, GUARANTOR AND NON-GUARANTOR FINANCIAL DATA

Certain of our subsidiaries organized under the laws of Belgium, England and Wales, the Netherlands, Sweden and Switzerland guarantee the Senior Notes. Certain of our subsidiaries organized under the other jurisdictions where we conduct operations do not guarantee the notes. The following tables set forth unaudited selected separate historical financial data for us, the guarantors and non-guarantor subsidiaries for the three and six months ended June 30, 2016 and 2015 and at June 30, 2016 and December 31, 2015. The selected historical financial data for the three and six months ended June 30, 2016 and 2015 and at June 30, 2016 and December 31, 2015 are derived from our unaudited consolidated financial statements and related notes included herein. Historical results are not necessarily indicative of the results to be expected for future periods.

We are not subject to the reporting requirements of the SEC. The financial information included herein is not intended to comply with the requirements of Regulation S-X under the Securities Act of 1933, as amended, and the rules and regulations of the SEC promulgated thereunder. Specifically, we have not included any separate financial statements for the guarantors or a footnote to our consolidated financial statements showing financial information for the guarantors and the non-guarantor subsidiaries as would be required if we had registered the Senior Notes with the SEC. The information set forth below will be the only information presenting separate financial data for us, the guarantors and the non-guarantors that you will receive.

You should read the information presented below in conjunction with our historical consolidated financial statements and related notes herein, as well as the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

 

22


CLEAR CHANNEL INTERNATIONAL B.V. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

 

(In millions)    Three Months Ended June 30, 2016  
                 Non-Guarantor
Subsidiaries
        
     Issuer     Guarantor
Subsidiaries
    Europe     Non-Europe (1)      Eliminations     Consolidated  

Results of Operations Data:

           

Revenue

   $ —        $ 118.4      $ 164.8      $ 36.0       $ —        $ 319.2   

Direct operating, SG&A and Corporate expenses

     0.3        103.5        143.8        30.0         —          277.6   

Depreciation and amortization

     —          8.8        12.2        3.6         —          24.6   

Other operating (expense) income

     —          (0.8     (55.3     —           —          (56.1
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Operating income (loss)

   $ (0.3   $ 5.3      $ (46.5   $ 2.4       $ —        $ (39.1
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Other Financial Data:

           

Capital expenditures

   $ —        $ 6.5      $ 7.5      $ 6.7       $ —        $ 20.7   
     Six Months Ended June 30, 2016  

Results of Operations Data:

           

Revenue

   $ —        $ 219.3      $ 290.1      $ 70.9       $ —        $ 580.3   

Direct operating, SG&A and Corporate expenses

     0.4        197.1        273.0        59.0         —          529.5   

Depreciation and amortization

     —          17.0        24.7        6.9         —          48.6   

Impairment

     —          —          —          —           —          —     

Other operating (expense) income

     —          (0.9     (55.0     —           —          (55.9
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Operating income (loss)

   $ (0.4   $ 4.3      $ (62.6   $ 5.0       $ —        $ (53.7
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Other Financial Data:

           

Capital expenditures

   $ —        $ 14.7      $ 12.3      $ 12.8       $ —        $ 39.8   

Balance Sheet Data (at end of period):

           

Cash and cash equivalents

   $ 0.8      $ 14.6      $ 9.3      $ 4.8       $ —        $ 29.5   

Current assets

     0.8        138.9        214.2        55.1         —          409.0   

Property, plant and equipment, net

     —          110.4        162.4        58.3         —          331.1   

Intercompany assets

     (210.3     397.2        196.8        46.4         (430.1     —     

Total assets

     (209.5     1,019.1        705.7        198.3         (430.1     1,283.5   

Current liabilities

     0.9        145.6        210.6        29.6         —          386.7   

Long-term debt, less current maturities

     214.9        —          —          6.8         —          221.7   

Related party subordinated notes payable

     —          1,011.6        —          —           —          1,011.6   

 

(1) Includes subsidiaries organized under the laws of Australia, New Zealand and Singapore and certain other immaterial or dormant subsidiaries.

 

23


CLEAR CHANNEL INTERNATIONAL B.V. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

 

(In millions)    Three Months Ended June 30, 2015  
                  Non-Guarantor
Subsidiaries
        
     Issuer     Guarantor
Subsidiaries
     Europe     Non-Europe (1)      Eliminations     Consolidated  

Results of Operations Data:

            

Revenue

   $ —        $ 124.2       $ 161.2      $ 33.1       $ —        $ 318.5   

Operating expenses

     0.2        105.9         138.9        28.3         —          273.3   

Depreciation and amortization

     —          10.9         15.2        2.4         —          28.5   

Impairment

     —          —           —          —           —          —     

Other operating (expense) income

     —          0.4         0.2        —           —          0.6   
  

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Operating income (loss)

   $ (0.2   $ 7.8       $ 7.3      $ 2.4       $ —        $ 17.3   
  

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Other Financial Data:

            

Capital expenditures

   $ —        $ 5.3       $ 7.9      $ 0.6       $ —        $ 13.8   
     Six Months Ended June 30, 2015  

Results of Operations Data:

            

Revenue

   $ —        $ 238.3       $ 288.4      $ 65.8       $ —        $ 592.5   

Operating expenses

     0.2        211.1         271.1        57.0         —          539.4   

Depreciation and amortization

     —          21.2         31.4        5.2         —          57.8   

Impairment

     —          —           —          —           —          —     

Other operating (expense) income

     —          0.7         0.6        —           —          1.3   
  

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Operating income (loss)

   $ (0.2   $ 6.7       $ (13.5   $ 3.6       $ —        $ (3.4
  

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Other Financial Data:

            

Capital expenditures

   $ —        $ 8.2       $ 12.8      $ 1.0       $ —        $ 22.0   

Balance Sheet Data (at December 31, 2015):

            

Cash and cash equivalents

   $ 2.0      $ 19.2       $ 15.4      $ 11.3       $ —        $ 47.9   

Current assets

     1.9        174.9         232.2        58.5         —          467.5   

Property, plant and equipment, net

     —          113.7         179.9        49.5         —          343.1   

Intercompany assets

     (157.2     402.2         190.5        45.4         (480.9     —     

Total assets

     (155.2     1,067.8         727.6        188.0         (480.9     1,347.3   

Current liabilities

     0.9        173.0         215.0        28.1         —          417.0   

Long-term debt, net of current maturities

     222.0        —           —          —           —          222.0   

Related party subordinated notes payable

     —          986.1         —          —           —          986.1   

 

(1) Includes subsidiaries organized under the laws of Australia, New Zealand and Singapore and certain other immaterial or dormant subsidiaries.

FORWARD LOOKING STATEMENTS

This document includes “forward-looking statements.” Forward-looking statements include statements concerning future events or our future financial performance that is not historical information. Words such as “estimates,” “expects,” “anticipates,” “projects,” “plans,” “intends,” “believes,” “forecasts” and variations of such words or similar expressions that predict or indicate future events or trends, or that do not relate to historical matters, identify forward-looking statements. All forward-looking statements attributable to us apply only as of the date hereof. Our expectations, beliefs and projections are expressed in good faith, and we believe there is a reasonable basis for them. However, there can be no assurance that management’s expectations, beliefs and projections will result or be achieved. Uncertainties and other factors that could cause actual results to differ materially from our expectations include, but are not limited to:

 

24


CLEAR CHANNEL INTERNATIONAL B.V. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

 

  •   risks associated with weak or uncertain global economic conditions and their impact on the capital markets, including any impact as a result of Brexit;

 

  •   industry conditions, including competition;

 

  •   legislative or regulatory requirements;

 

  •   restrictions on outdoor advertising of certain products;

 

  •   our dependence on Clear Channel Outdoor Holdings, Inc.’s management team and key individuals;

 

  •   regulations and consumer concerns regarding privacy and data protection;

 

  •   the possibility of a breach of our security measures;

 

  •   environmental, health, safety and land use legislation and regulations;

 

  •   risks of doing business in multiple jurisdictions;

 

  •   fluctuations in exchange rates and currency values;

 

  •   our ability to obtain or retain key concessions and contracts;

 

  •   risks associated with many factors, including technological, general economic and political conditions in the countries in which we currently do business;

 

  •   the risk that we may not be able to integrate the operations of acquired businesses successfully;

 

  •   the restrictions imposed by the financing agreements of iHeartCommunications, Inc. and Clear Channel Outdoor Holdings, Inc.; and

 

  •   the restrictions imposed by other operating agreements between iHeartCommunications, Inc. and Clear Channel Outdoor Holdings, Inc.

The foregoing factors are not exhaustive and new factors may emerge or changes to the foregoing factors may occur that could impact our business. Except to the extent required by law, we undertake no obligation to publicly update or revise any forward-looking statements whether as a result of new information, future events, or otherwise.

 

25