10-Q: Quarterly report pursuant to Section 13 or 15(d)
Published on November 8, 2017
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2017
[ ] 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
001‑32663
CLEAR CHANNEL OUTDOOR HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
Delaware |
86-0812139 |
|
|
(State or other jurisdiction of
incorporation or organization)
|
(I.R.S. Employer Identification No.) |
|
|
20880 Stone Oak Parkway
San Antonio, Texas
|
78258 |
|
(Address of principal executive offices) |
(Zip Code) |
|
(210) 832-3700
(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 [ ]
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 [X] Non-accelerated filer [ ] Smaller reporting company [ ] Emerging growth company [ ]
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [ ]
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 November 6, 2017 |
- - - - - - - - - - - - - - - - - - - - - - - - - - |
- - - - - - - - - - - - - - - - - - - - - - - - - - |
Class A Common Stock, $.01 par value |
48,984,920 |
Class B Common Stock, $.01 par value |
315,000,000 |
CLEAR CHANNEL OUTDOOR HOLDINGS, INC.
INDEX
Page No. |
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Part I -- Financial Information |
||
Item 1. |
||
Item 2. |
||
Item 3. |
||
Item 4. |
||
Part II -- Other Information |
||
Item 1. |
||
Item 1A. |
||
Item 2. |
||
Item 3. |
||
Item 4. |
||
Item 5. |
||
Item 6. |
||
PART I – FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
CLEAR CHANNEL OUTDOOR HOLDINGS, INC. AND SUBSIDIARIES
(In thousands, except share data) |
September 30, 2017 |
December 31, 2016 |
|||||
(Unaudited) |
|||||||
CURRENT ASSETS |
|||||||
Cash and cash equivalents |
$ |
222,387 |
$ |
541,995 |
|||
Accounts receivable, net of allowance of $25,038 in 2017 and $22,398 in 2016 |
632,963 |
593,070 |
|||||
Prepaid expenses |
131,806 |
111,569 |
|||||
Assets held for sale |
— |
55,602 |
|||||
Other current assets |
62,037 |
39,199 |
|||||
Total Current Assets |
1,049,193 |
1,341,435 |
|||||
PROPERTY, PLANT AND EQUIPMENT |
|||||||
Structures, net |
1,152,066 |
1,196,676 |
|||||
Other property, plant and equipment, net |
228,376 |
216,157 |
|||||
INTANGIBLE ASSETS AND GOODWILL |
|||||||
Indefinite-lived intangibles |
977,152 |
960,966 |
|||||
Other intangibles, net |
282,426 |
299,617 |
|||||
Goodwill |
713,277 |
696,263 |
|||||
OTHER ASSETS |
|||||||
Due from iHeartCommunications |
1,051,349 |
885,701 |
|||||
Other assets |
126,649 |
122,013 |
|||||
Total Assets |
$ |
5,580,488 |
$ |
5,718,828 |
|||
CURRENT LIABILITIES |
|||||||
Accounts payable |
$ |
88,022 |
$ |
86,870 |
|||
Accrued expenses |
532,247 |
480,872 |
|||||
Deferred income |
90,756 |
67,005 |
|||||
Current portion of long-term debt |
573 |
6,971 |
|||||
Total Current Liabilities |
711,598 |
641,718 |
|||||
Long-term debt |
5,264,290 |
5,110,020 |
|||||
Deferred tax liability |
601,887 |
638,705 |
|||||
Other long-term liabilities |
286,883 |
259,311 |
|||||
Commitments and Contingent liabilities (Note 4) |
|||||||
STOCKHOLDERS’ DEFICIT |
|||||||
Noncontrolling interest |
152,338 |
149,886 |
|||||
Preferred stock, $.01 par value, 150,000,000 shares authorized, no shares issued and outstanding |
— |
— |
|||||
Class A common stock, par value $.01 per share, authorized 750,000,000 shares, issued 49,921,834 and 47,947,123 shares in 2017 and 2016, respectively |
499 |
479 |
|||||
Class B common stock, $.01 par value, 600,000,000 shares authorized, 315,000,000 shares issued and outstanding |
3,150 |
3,150 |
|||||
Additional paid-in capital |
3,131,164 |
3,432,121 |
|||||
Accumulated deficit |
(4,221,215 |
) |
(4,125,798 |
) |
|||
Accumulated other comprehensive loss |
(344,361 |
) |
(386,658 |
) |
|||
Cost of shares (935,812 in 2017 and 633,851 in 2016) held in treasury |
(5,745 |
) |
(4,106 |
) |
|||
Total Stockholders’ Deficit |
(1,284,170 |
) |
(930,926 |
) |
|||
Total Liabilities and Stockholders’ Deficit |
$ |
5,580,488 |
$ |
5,718,828 |
|||
See Notes to Consolidated Financial Statements
1
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
CLEAR CHANNEL OUTDOOR HOLDINGS, INC. AND SUBSIDIARIES
(UNAUDITED)
(In thousands, except per share data) |
Three Months Ended |
Nine Months Ended |
|||||||||||||
September 30, |
September 30, |
||||||||||||||
2017 |
2016 |
2017 |
2016 |
||||||||||||
Revenue |
$ |
645,089 |
$ |
669,221 |
$ |
1,862,134 |
$ |
1,966,321 |
|||||||
Operating expenses: |
|||||||||||||||
Direct operating expenses (excludes depreciation and amortization) |
356,100 |
362,250 |
1,034,204 |
1,066,238 |
|||||||||||
Selling, general and administrative expenses (excludes depreciation and amortization) |
128,397 |
126,164 |
370,069 |
388,532 |
|||||||||||
Corporate expenses (excludes depreciation and amortization) |
35,333 |
28,103 |
105,213 |
86,000 |
|||||||||||
Depreciation and amortization |
81,096 |
85,780 |
236,880 |
258,149 |
|||||||||||
Impairment charges |
1,591 |
7,274 |
1,591 |
7,274 |
|||||||||||
Other operating income (expense), net |
(11,783 |
) |
1,095 |
28,657 |
226,485 |
||||||||||
Operating income |
30,789 |
60,745 |
142,834 |
386,613 |
|||||||||||
Interest expense |
95,467 |
93,313 |
282,730 |
281,836 |
|||||||||||
Interest income on Due from iHeartCommunications |
17,087 |
12,429 |
47,277 |
36,433 |
|||||||||||
Equity in loss of nonconsolidated affiliates |
(628 |
) |
(727 |
) |
(829 |
) |
(1,374 |
) |
|||||||
Other income (expense), net |
9,164 |
(6,524 |
) |
21,804 |
(46,198 |
) |
|||||||||
Income (loss) before income taxes |
(39,055 |
) |
(27,390 |
) |
(71,644 |
) |
93,638 |
||||||||
Income tax benefit (expense) |
(16,347 |
) |
3,619 |
(12,900 |
) |
(37,579 |
) |
||||||||
Consolidated net income (loss) |
(55,402 |
) |
(23,771 |
) |
(84,544 |
) |
56,059 |
||||||||
Less amount attributable to noncontrolling interest |
6,237 |
7,329 |
10,873 |
16,162 |
|||||||||||
Net income (loss) attributable to the Company |
$ |
(61,639 |
) |
$ |
(31,100 |
) |
$ |
(95,417 |
) |
$ |
39,897 |
||||
Other comprehensive income (loss), net of tax: |
|||||||||||||||
Foreign currency translation adjustments |
12,950 |
7,214 |
43,947 |
43,584 |
|||||||||||
Unrealized holding loss on marketable securities |
(320 |
) |
(290 |
) |
(218 |
) |
(635 |
) |
|||||||
Reclassification adjustments |
6,207 |
— |
4,563 |
32,823 |
|||||||||||
Other adjustments to comprehensive income (loss) |
— |
193 |
— |
(3,551 |
) |
||||||||||
Other comprehensive income |
18,837 |
7,117 |
48,292 |
72,221 |
|||||||||||
Comprehensive income (loss) |
(42,802 |
) |
(23,983 |
) |
(47,125 |
) |
112,118 |
||||||||
Less amount attributable to noncontrolling interest |
2,666 |
575 |
5,995 |
(984 |
) |
||||||||||
Comprehensive income (loss) attributable to the Company |
$ |
(45,468 |
) |
$ |
(24,558 |
) |
$ |
(53,120 |
) |
$ |
113,102 |
||||
Net income (loss) attributable to the Company per common share: |
|||||||||||||||
Basic |
$ |
(0.17 |
) |
$ |
(0.09 |
) |
$ |
(0.26 |
) |
$ |
0.11 |
||||
Weighted average common shares outstanding – Basic |
361,302 |
360,454 |
361,064 |
360,202 |
|||||||||||
Diluted |
$ |
(0.17 |
) |
$ |
(0.09 |
) |
$ |
(0.26 |
) |
$ |
0.11 |
||||
Weighted average common shares outstanding – Diluted |
361,302 |
360,454 |
361,064 |
361,417 |
|||||||||||
Dividends declared per share |
$ |
0.07 |
$ |
— |
$ |
0.85 |
$ |
1.49 |
|||||||
See Notes to Consolidated Financial Statements
2
CONSOLIDATED STATEMENTS OF CASH FLOWS
CLEAR CHANNEL OUTDOOR HOLDINGS, INC. AND SUBSIDIARIES
(UNAUDITED)
(In thousands) |
Nine Months Ended September 30, |
||||||
2017 |
2016 |
||||||
Cash flows from operating activities: |
|||||||
Consolidated net income (loss) |
$ |
(84,544 |
) |
$ |
56,059 |
||
Reconciling items: |
|||||||
Impairment charges |
1,591 |
7,274 |
|||||
Depreciation and amortization |
236,880 |
258,149 |
|||||
Deferred taxes |
(28,101 |
) |
28,575 |
||||
Provision for doubtful accounts |
6,328 |
8,444 |
|||||
Amortization of deferred financing charges and note discounts, net |
7,996 |
7,907 |
|||||
Share-based compensation |
7,153 |
8,191 |
|||||
Gain on disposal of operating and other assets |
(30,295 |
) |
(232,026 |
) |
|||
Equity in loss of nonconsolidated affiliates |
829 |
1,374 |
|||||
Foreign exchange transaction (gain) loss |
(22,266 |
) |
46,283 |
||||
Other reconciling items, net |
(4,930 |
) |
(968 |
) |
|||
Changes in operating assets and liabilities, net of effects of acquisitions and dispositions: |
|||||||
(Increase) decrease in accounts receivable |
(17,826 |
) |
49,690 |
||||
Increase in prepaid expenses and other current assets |
(16,177 |
) |
(39,653 |
) |
|||
Decrease in accrued expenses |
(8,810 |
) |
(22,053 |
) |
|||
Decrease in accounts payable |
(4,023 |
) |
(26,548 |
) |
|||
Increase in accrued interest |
6,031 |
5,057 |
|||||
Increase in deferred income |
18,718 |
8,509 |
|||||
Changes in other operating assets and liabilities |
3,515 |
25,893 |
|||||
Net cash provided by operating activities |
$ |
72,069 |
$ |
190,157 |
|||
Cash flows from investing activities: |
|||||||
Purchases of property, plant and equipment |
(134,868 |
) |
(148,005 |
) |
|||
Proceeds from disposal of assets |
71,034 |
591,764 |
|||||
Purchases of other operating assets |
(2,984 |
) |
(1,689 |
) |
|||
Change in other, net |
(20,289 |
) |
(30,349 |
) |
|||
Net cash provided by (used for) investing activities |
$ |
(87,107 |
) |
$ |
411,721 |
||
Cash flows from financing activities: |
|||||||
Payments on credit facilities |
(909 |
) |
(1,728 |
) |
|||
Proceeds from long-term debt |
156,000 |
800 |
|||||
Payments on long-term debt |
(604 |
) |
(1,976 |
) |
|||
Net transfers from (to) iHeartCommunications |
(165,650 |
) |
161,335 |
||||
Dividends and other payments to noncontrolling interests |
(12,027 |
) |
(21,046 |
) |
|||
Dividends paid |
(282,658 |
) |
(755,149 |
) |
|||
Change in other, net |
(6,234 |
) |
(1,479 |
) |
|||
Net cash used for financing activities |
$ |
(312,082 |
) |
$ |
(619,243 |
) |
|
Effect of exchange rate changes on cash |
7,512 |
(1,054 |
) |
||||
Net decrease in cash and cash equivalents |
(319,608 |
) |
(18,419 |
) |
|||
Cash and cash equivalents at beginning of period |
541,995 |
412,743 |
|||||
Cash and cash equivalents at end of period |
$ |
222,387 |
$ |
394,324 |
|||
SUPPLEMENTAL DISCLOSURES: |
|||||||
Cash paid for interest |
270,126 |
271,833 |
|||||
Cash paid for income taxes |
29,771 |
34,800 |
|||||
See Notes to Consolidated Financial Statements
3
CLEAR CHANNEL OUTDOOR HOLDINGS, 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 Clear Channel Outdoor Holdings, Inc. and its consolidated subsidiaries. Our reportable segments are Americas outdoor advertising (“Americas”) and International outdoor advertising (“International”). The accompanying consolidated financial statements were prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) and, in the opinion of management, include all normal and recurring adjustments necessary to present fairly the results of the interim periods shown. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) have been condensed or omitted pursuant to such SEC rules and regulations. Management believes that the disclosures made are adequate to make the information presented not misleading. Due to seasonality and other factors, the results for the interim periods may not be indicative of results for the full year. The financial statements contained herein should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s 2016 Annual Report on Form 10-K.
The consolidated financial statements include the accounts of the Company and its subsidiaries and give effect to allocations of expenses from the Company’s indirect parent entity, iHeartCommunications, Inc. (“iHeartCommunications”). These allocations were made on a specifically identifiable basis or using relative percentages of headcount or other methods management considered to be a reasonable reflection of the utilization of services provided. 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 2017 presentation.
New Accounting Pronouncements
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 two permitted transition methods under the new standard are the full retrospective method, in which case the standard would be applied to each prior reporting period presented and the cumulative effect of applying the standard would be recognized at the earliest period shown, or the modified retrospective method, in which case the cumulative effect of applying the standard would be recognized at the date of initial application. The Company expects to utilize the full retrospective method. The Company has substantially completed its evaluation of the potential changes from adopting the new standard on its future financial reporting and disclosures, which included reviews of contractual terms for all of the Company’s significant revenue streams and the development of an implementation plan. The Company continues to execute on its implementation plan, including detailed policy drafting and training of segment personnel. Based on its evaluation, the Company does not expect material changes to its 2016 or 2017 consolidated revenues, operating income or balance sheets as a result of the implementation of this standard.
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 first quarter of 2017, the FASB issued ASU 2017-04, Intangibles - Goodwill and Other (Topic 350). This update eliminates the requirement to calculate the implied fair value of goodwill to measure a goodwill impairment charge. Entities will record an impairment charge based on the excess of a reporting unit's carrying amount over its fair value. The standard is effective for annual and any interim impairment tests performed for periods beginning after December 15, 2019. The Company is currently evaluating the impact of the provisions of this new standard on its consolidated financial statements.
During the second quarter of 2017, the FASB issued ASU 2017-09, Compensation - Stock Compensation (Topic 718). This update mandates that entities will apply the modification accounting guidance if the value, vesting conditions or classification of the award changes. Entities will have to make all of the disclosures about modifications that are required today, in addition to disclosing that compensation expense hasn't changed. Additionally, the new guidance also clarifies that a modification to an award could be
4
CLEAR CHANNEL OUTDOOR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
significant and therefore require disclosure, even if the modification accounting is not required. The guidance will be applied prospectively to awards modified on or after the adoption date and is effective for annual periods, and interim periods within those annual 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.
NOTE 2 – PROPERTY, PLANT AND EQUIPMENT, INTANGIBLE ASSETS AND GOODWILL
Dispositions
In January 2017, Americas sold its Indianapolis, Indiana market to Fairway Media Group, LLC in exchange for certain assets in Atlanta, Georgia with a fair value of $39.4 million, plus $43.1 million in cash, net of closing costs. The assets acquired as part of the transaction consisted of $9.9 million in fixed assets and $29.5 million in intangible assets (including $2.3 million in goodwill). The Company recognized a net gain of $28.9 million related to the sale, which is included within Other operating income (expense), net.
During the third quarter of 2017, Americas sold its ownership interest in a joint venture in Canada. As a result, the Company recognized a net loss on sale of $12.1 million, including a $6.3 million cumulative translation adjustment, which is included within Other operating income (expense), net.
Property, Plant and Equipment
The Company’s property, plant and equipment consisted of the following classes of assets as of September 30, 2017 and December 31, 2016, respectively:
(In thousands) |
September 30, 2017 |
December 31, 2016 |
|||||
Land, buildings and improvements |
$ |
145,531 |
$ |
152,775 |
|||
Structures |
2,807,023 |
2,684,673 |
|||||
Furniture and other equipment |
175,627 |
148,516 |
|||||
Construction in progress |
70,514 |
58,585 |
|||||
3,198,695 |
3,044,549 |
||||||
Less: accumulated depreciation |
1,818,253 |
1,631,716 |
|||||
Property, plant and equipment, net |
$ |
1,380,442 |
$ |
1,412,833 |
|||
Indefinite-lived Intangible Assets
The Company’s indefinite-lived intangible assets consist primarily of billboard permits in its Americas segment. Due to significant differences in both business practices and regulations, billboards in the International 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 segment.
Annual Impairment Test on Indefinite-lived Intangible Assets
The Company performs its annual impairment test on indefinite-lived intangible assets as of July 1 of each year.
The impairment tests for indefinite-lived intangible assets consist of a comparison between the fair value of the indefinite-lived intangible asset at the market level with its carrying amount. If the carrying amount of the indefinite-lived intangible asset exceeds its fair value, an impairment loss is recognized equal to that excess. After an impairment loss is recognized, the adjusted carrying amount of the indefinite-lived asset is its new accounting basis. The fair value of the indefinite-lived asset is determined using the direct valuation method as prescribed in ASC 805-20-S99. Under the direct valuation method, the fair value of the indefinite-lived assets is calculated at the market level as prescribed by ASC 350-30-35. The Company engaged a third-party valuation firm, to assist it in the development of the assumptions and the Company’s determination of the fair value of its indefinite-lived intangible assets.
5
CLEAR CHANNEL OUTDOOR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The application of the direct valuation method attempts to isolate the income that is attributable to the indefinite-lived intangible asset alone (that is, apart from tangible and identified intangible assets and goodwill). It is based upon modeling a hypothetical “greenfield” build-up to a “normalized” enterprise that, by design, lacks inherent goodwill and whose only other assets have essentially been paid for (or added) as part of the build-up process. The Company forecasts revenue, expenses and cash flows over a ten-year period for each of its markets in its application of the direct valuation method. The Company also calculates a “normalized” residual year which represents the perpetual cash flows of each market. The residual year cash flow was capitalized to arrive at the terminal value of the permits in each market.
Under the direct valuation method, it is assumed that rather than acquiring indefinite-lived intangible assets as part of a going concern business, the buyer hypothetically develops indefinite-lived intangible assets and builds a new operation with similar attributes from scratch. Thus, the buyer incurs start-up costs during the build-up phase which are normally associated with going concern value. Initial capital costs are deducted from the discounted cash flow model which results in value that is directly attributable to the indefinite-lived intangible assets.
The key assumptions using the direct valuation method are market revenue growth rates, market share, profit margin, duration and profile of the build-up period, estimated start-up capital costs and losses incurred during the build-up period, the risk-adjusted discount rate and terminal values. This data is populated using industry normalized information representing an average billboard permit within a market.
The Company concluded no impairment of indefinite-lived intangible assets was required for the three and nine months ended September 30, 2017 and 2016, respectively.
Other Intangible Assets
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, 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 September 30, 2017 and December 31, 2016, respectively:
(In thousands) |
September 30, 2017 |
December 31, 2016 |
|||||||||||||
Gross Carrying Amount |
Accumulated Amortization |
Gross Carrying Amount |
Accumulated Amortization |
||||||||||||
|
Transit, street furniture and other outdoor
contractual rights
|
$ |
587,099 |
$ |
(469,982 |
) |
$ |
563,863 |
$ |
(426,752 |
) |
|||||
Permanent easements |
162,919 |
— |
159,782 |
— |
|||||||||||
Other |
4,667 |
(2,277 |
) |
4,536 |
(1,812 |
) |
|||||||||
Total |
$ |
754,685 |
$ |
(472,259 |
) |
$ |
728,181 |
$ |
(428,564 |
) |
|||||
Total amortization expense related to definite-lived intangible assets for the three months ended September 30, 2017 and 2016 was $7.1 million and $9.3 million, respectively. Total amortization expense related to definite-lived intangible assets for the nine months ended September 30, 2017 and 2016 was $21.2 million and $29.2 million, respectively.
As acquisitions and dispositions occur in the future, amortization expense may vary. The following table presents the Company’s estimate of amortization expense for each of the five succeeding fiscal years for definite-lived intangible assets:
6
CLEAR CHANNEL OUTDOOR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(In thousands) |
|||
2018 |
$ |
19,389 |
|
2019 |
$ |
15,639 |
|
2020 |
$ |
13,356 |
|
2021 |
$ |
13,074 |
|
2022 |
$ |
11,603 |
|
Goodwill
Annual Impairment Test to Goodwill
The Company performs its annual impairment test on goodwill as of July 1 of each year.
Each of the Company’s advertising markets are components. The U.S. advertising markets are aggregated into a single reporting unit for purposes of the goodwill impairment test using the guidance in ASC 350-20-55. The Company also determined that each country within its Americas segment and its International segment constitutes a separate reporting unit.
The goodwill impairment test is a two-step process. The first step, used to screen for potential impairment, compares the fair value of the reporting unit with its carrying amount, including goodwill. If applicable, the second step, used to measure the amount of the impairment loss, compares the implied fair value of the reporting unit goodwill with the carrying amount of that goodwill.
Each of the Company’s reporting units is valued using a discounted cash flow model which requires estimating future cash flows expected to be generated from the reporting unit and discounting such cash flows to their present value using a risk-adjusted discount rate. Terminal values were also estimated and discounted to their present value. Assessing the recoverability of goodwill requires the Company to make estimates and assumptions about sales, operating margins, growth rates and discount rates based on its budgets, business plans, economic projections, anticipated future cash flows and marketplace data. There are inherent uncertainties related to these factors and management’s judgment in applying these factors.
The Company recognized goodwill impairment of $1.6 million during the three and nine months ended September 30, 2017 related to one market in the Company's International outdoor segment. The Company recognized goodwill impairment of $7.3 million during the three and nine months ended September 30, 2016 related to one market in the Company's International outdoor segment.
The following table presents the changes in the carrying amount of goodwill in each of the Company’s reportable segments:
(In thousands) |
Americas |
International |
Consolidated |
||||||||
Balance as of December 31, 2015 |
$ |
534,683 |
$ |
223,892 |
$ |
758,575 |
|||||
Impairment |
— |
(7,274 |
) |
(7,274 |
) |
||||||
Dispositions |
(6,934 |
) |
(30,718 |
) |
(37,652 |
) |
|||||
Foreign currency |
(1,998 |
) |
(5,051 |
) |
(7,049 |
) |
|||||
Assets held for sale |
(10,337 |
) |
— |
(10,337 |
) |
||||||
Balance as of December 31, 2016 |
$ |
515,414 |
$ |
180,849 |
$ |
696,263 |
|||||
Impairment |
— |
(1,591 |
) |
(1,591 |
) |
||||||
Acquisitions |
2,252 |
— |
2,252 |
||||||||
Dispositions |
— |
(1,817 |
) |
(1,817 |
) |
||||||
Foreign currency |
654 |
17,427 |
18,081 |
||||||||
Assets held for sale |
89 |
— |
89 |
||||||||
Balance as of September 30, 2017 |
$ |
518,409 |
$ |
194,868 |
$ |
713,277 |
|||||
7
CLEAR CHANNEL OUTDOOR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 3 – LONG-TERM DEBT
Long-term debt outstanding as of September 30, 2017 and December 31, 2016 consisted of the following:
(In thousands) |
September 30, 2017 |
December 31, 2016 |
|||||
Clear Channel Worldwide Holdings Senior Notes: |
|||||||
6.5% Series A Senior Notes Due 2022 |
$ |
735,750 |
$ |
735,750 |
|||
6.5% Series B Senior Notes Due 2022 |
1,989,250 |
1,989,250 |
|||||
Clear Channel Worldwide Holdings Senior Subordinated Notes: |
|||||||
7.625% Series A Senior Subordinated Notes Due 2020 |
275,000 |
275,000 |
|||||
7.625% Series B Senior Subordinated Notes Due 2020 |
1,925,000 |
1,925,000 |
|||||
Senior Revolving Credit Facility Due 2018(1)
|
— |
— |
|||||
Clear Channel International B.V. Senior Notes Due 2020 |
375,000 |
225,000 |
|||||
Other debt |
2,529 |
14,798 |
|||||
Original issue discount |
(123 |
) |
(6,738 |
) |
|||
Long-term debt fees |
(37,543 |
) |
(41,069 |
) |
|||
Total debt |
$ |
5,264,863 |
$ |
5,116,991 |
|||
Less: current portion |
573 |
6,971 |
|||||
Total long-term debt |
$ |
5,264,290 |
$ |
5,110,020 |
|||
(1) |
The Senior revolving credit facility provides for borrowings up to $75.0 million (the revolving credit commitment). As of September 30, 2017, we had $72.7 million of letters of credit outstanding, and $2.3 million of availability, under the senior revolving credit facility.
|
The aggregate market value of the Company’s debt based on market prices for which quotes were available was approximately $5.4 billion and $5.2 billion as of September 30, 2017 and December 31, 2016, respectively. Under the fair value hierarchy established by ASC 820-10-35, the market value of the Company’s debt is classified as Level 1.
On August 14, 2017, Clear Channel International B.V. (“CCIBV”), an indirect subsidiary of the Company, issued $150.0 million in aggregate principal amount of 8.75% Senior Notes due 2020 (the “New CCIBV Notes”). The New CCIBV Notes were issued as additional notes under the indenture governing CCIBV’s existing 8.75% Senior Notes due 2020 and were issued at a premium, resulting in $156.0 million in proceeds. The New CCIBV 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.
Surety Bonds, Letters of Credit and Guarantees
As of September 30, 2017, the Company had $95.4 million and $36.6 million in letters of credit and bank guarantees outstanding, respectively. Bank guarantees and letters of credit of $17.3 million and $23.5 million, respectively, were backed by cash collateral. Additionally, as of September 30, 2017, iHeartCommunications had outstanding commercial standby letters of credit and surety bonds of $12.1 million and $54.3 million, respectively, held on behalf of the Company. These surety bonds, letters of credit and bank guarantees relate to various operational matters, including insurance, bid 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 its strategies related to these proceedings. Additionally, due to the inherent uncertainty of litigation, there
8
CLEAR CHANNEL OUTDOOR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
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; misappropriation of likeness and right of publicity claims; 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.
Stockholder Litigation
On May 9, 2016, a stockholder of the Company filed a derivative lawsuit in the Court of Chancery of the State of Delaware, captioned GAMCO Asset Management Inc. v. iHeartMedia Inc. et al., C.A. No. 12312-VCS. The complaint names as defendants iHeartCommunications, Inc. (“iHeartCommunications”), the Company’s indirect parent company, iHeartMedia, Inc. (“iHeartMedia”), the parent company of iHeartCommunications, Bain Capital Partners, LLC and Thomas H. Lee Partners, L.P. (together, the “Sponsor Defendants”), iHeartMedia’s private equity sponsors and majority owners, and the members of the Company’s board of directors. The Company also is named as a nominal defendant. The complaint alleges that the Company has been harmed by the intercompany agreements with iHeartCommunications, the Company’s lack of autonomy over its own cash and the actions of the defendants in serving the interests of iHeartMedia, iHeartCommunications and the Sponsor Defendants to the detriment of the Company and its minority stockholders. Specifically, the complaint alleges that the defendants have breached their fiduciary duties by causing the Company to: (i) continue to loan cash to iHeartCommunications under the intercompany note at below-market rates; (ii) abandon its growth and acquisition strategies in favor of transactions that would provide cash to iHeartMedia and iHeartCommunications; (iii) issue new debt in the CCIBV note offering (the “CCIBV Note Offering”) to provide cash to iHeartMedia and iHeartCommunications through a dividend; and (iv) effect the sales of certain outdoor markets in the U.S. (the “Outdoor Asset Sales”) allegedly to provide cash to iHeartMedia and iHeartCommunications through a dividend. The complaint also alleges that iHeartMedia, iHeartCommunications and the Sponsor Defendants aided and abetted the directors’ breaches of their fiduciary duties. The complaint further alleges that iHeartMedia, iHeartCommunications and the Sponsor Defendants were unjustly enriched as a result of these transactions and that these transactions constituted a waste of corporate assets for which the defendants are liable to the Company. The plaintiff is seeking, among other things, a ruling that the defendants breached their fiduciary duties to the Company and that iHeartMedia, iHeartCommunications and the Sponsor Defendants aided and abetted the board of directors’ breaches of fiduciary duty, rescission of payments to iHeartCommunications and its affiliates pursuant to dividends declared in connection with the CCIBV Note Offering and Outdoor Asset Sales, and an order requiring iHeartMedia, iHeartCommunications and the Sponsor Defendants to disgorge all profits they have received as a result of the alleged fiduciary misconduct.
On July 20, 2016, the defendants filed a motion to dismiss plaintiff's verified stockholder derivative complaint for failure to state a claim upon which relief can be granted. On November 23, 2016, the Court granted defendants’ motion to dismiss all claims brought by the plaintiff. On December 19, 2016, the plaintiff filed a notice of appeal of the ruling. The oral hearing on the appeal was held on October 11, 2017. On October 12, 2017, the Supreme Court of Delaware affirmed the lower court's ruling, dismissing the case.
NOTE 5 — RELATED PARTY TRANSACTIONS
The Company records net amounts due from iHeartCommunications as “Due from iHeartCommunications” on the consolidated balance sheets. The accounts represent the revolving promissory note issued by the Company to iHeartCommunications and the revolving promissory note issued by iHeartCommunications to the Company in the face amount of $1.0 billion, or if more or less than such amount, the aggregate unpaid principal amount of all advances. The accounts accrue interest pursuant to the terms of the promissory notes and are generally payable on demand or when they mature on December 15, 2017.
Included in the accounts are the net activities resulting from day-to-day cash management services provided by iHeartCommunications. As a part of these services, the Company maintains collection bank accounts swept daily into accounts
9
CLEAR CHANNEL OUTDOOR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
of iHeartCommunications (after satisfying the funding requirements of the Trustee Accounts under the CCWH Senior Notes and the CCWH Subordinated Notes). In return, iHeartCommunications funds the Company’s controlled disbursement accounts as checks or electronic payments are presented for payment. The Company’s claim in relation to cash transferred from its concentration account is on an unsecured basis and is limited to the balance of the “Due from iHeartCommunications” account.
As of September 30, 2017 and December 31, 2016, the asset recorded in “Due from iHeartCommunications” on the consolidated balance sheet was $1,051.3 million and $885.7 million, respectively. The terms of the "Due from iHeartCommuniations" Note provide that any balance over $1.0 billion accrues at an interest rate equal to the average yield of the nearest dated reference security, capped at 20%. As of September 30, 2017, the balance outstanding on the "Due from iHeartCommunications" exceeded $1.0 billion and therefore the interest rate applied to $1.0 billion of the balance outstanding was 6.5%, which is equal to the fixed interest rate on the CCWH Senior Notes. The interest rate applied to the remaining balance was 20.0%. The net interest income for the three months ended September 30, 2017 and 2016 was $17.1 million and $12.4 million, respectively, and $47.3 million and $36.4 million for the nine months ended September 30, 2017 and 2016, respectively.
On October 5, 2017, the Company made a demand for repayment of $25.0 million outstanding under the "Due from iHeartCommunications" Note and simultaneously paid a special cash dividend of $25.0 million. On October 31, 2017, the Company made a demand for repayment of $25.0 million outstanding under the "Due from iHeartCommunications" Note and simultaneously paid a special cash dividend of $25.0 million.
In its Quarterly Report on Form 10-Q filed with the SEC on November 8, 2017, iHeartCommunications stated that its forecast of future cash flows indicates that such cash flows would not be sufficient for it to meet its obligations, as they become due in the ordinary course of business for a period of 12 months following November 8, 2017, including interest payments on its outstanding debt and payment of the $365.0 million outstanding under the receivables based credit facility at maturity on December 24, 2017, payment of the $51.5 million principal amount of 10% Senior Notes due January 15, 2018 (after giving effect to certain debt exchanges that occurred after September 30, 2017), the payment of the $175.0 million principal amount of 6.875% Senior Notes due June 15, 2018 and the payment of $24.8 million of contractual AHYDO catch-up payments to be made on the Company’s 14% Senior Notes due 2021 beginning with the interest payment due on August 1, 2018. iHeartCommunications further stated that management has determined that there is substantial doubt as to iHeartCommunications’ ability to continue as a going concern for a period of 12 months following November 8, 2017.
If iHeartCommunications were to become insolvent or file for bankruptcy, the Company would be an unsecured creditor of iHeartCommunications. In such event, the Company would be treated the same as other unsecured creditors of iHeartCommunications and, if the Company were not entitled to amounts outstanding under the "Due from iHeartCommunications Note", or could not obtain such cash on a timely basis or return cash previously received from iHeartCommunications, the Company could experience a liquidity shortfall.
The Company provides advertising space on its billboards for iHeartMedia, Inc. and for radio stations owned by iHeartMedia, Inc. For the three months ended September 30, 2017 and 2016, the Company recorded $1.7 million and $1.2 million, respectively, and $5.4 million and $2.0 million for the nine months ended September 30, 2017 and 2016, respectively, in revenue for these advertisements.
Under the Corporate Services Agreement between iHeartCommunications and the Company, iHeartCommunications provides management services to the Company, which include, among other things: (i) treasury, payroll and other financial related services; (ii) certain executive officer services; (iii) human resources and employee benefits services; (iv) legal and related services; (v) information systems, network and related services; (vi) investment services; (vii) procurement and sourcing support services; and (viii) other general corporate services. These services are charged to the Company 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 September 30, 2017 and 2016, the Company recorded $16.7 million and $7.6 million, respectively, and $50.3 million and $26.0 million for the nine months ended September 30, 2017 and 2016, respectively, as a component of corporate expenses for these services. Financial distress at iHeartCommunications could impact its ability to provide these services to us, and if iHeartCommunications was to become insolvent or file a bankruptcy petition, such event could cause significant uncertainties and disrupt our operations and/or adversely affect our rights under the Corporate Services Agreement and the other intercompany agreements.
In February 2017, the Company and its indirect parent company, iHeartMedia, Inc., entered into an agreement related to the potential purchase of the Clear Channel registered trademarks and domain names. The agreements provide that CCOH will pay a
10
CLEAR CHANNEL OUTDOOR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
license fee to iHeartMedia, Inc. in 2017 based on revenues of entities using the Clear Channel name, pursuant to the Amended and Restated License Agreement, dated November 10, 2005, by and between iHM Identity, Inc. and Outdoor Management Services, Inc. Included within the management services expense recognized in the three and nine months ended September 30, 2017 is an additional expense related to this license of $9.2 million and $26.4 million, respectively.
Pursuant to the Tax Matters Agreement between iHeartCommunications and the Company, the operations of the Company are included in a consolidated federal income tax return filed by iHeartCommunications. The Company’s provision for income taxes has been computed on the basis that the Company files separate consolidated federal income tax returns with its subsidiaries. Tax payments are made to iHeartCommunications on the basis of the Company’s separate taxable income. Tax benefits recognized on the Company’s employee stock option exercises are retained by the Company.
The Company computes its deferred income tax provision using the liability method in accordance with the provisions of ASC 740-10, as if the Company was a separate taxpayer. Deferred tax assets and liabilities are determined based on differences between the financial reporting basis and tax basis of assets and liabilities and are measured using the enacted tax rates expected to apply to taxable income in the periods in which the deferred tax asset or liability is expected to be realized or settled. Deferred tax assets are reduced by valuation allowances if the Company believes it is more likely than not some portion or all of the asset will not be realized.
Pursuant to the Employee Matters Agreement, the Company’s employees participate in iHeartCommunications’ employee benefit plans, including employee medical insurance and a 401(k) retirement benefit plan. For the three months ended September 30, 2017 and 2016, the Company recorded $2.3 million and $2.3 million, respectively, and $7.1 million and $7.0 million for the nine months ended September 30, 2017 and 2016, respectively, as a component of selling, general and administrative expenses for these services.
NOTE 6 – INCOME TAXES
Income Tax Benefit (Expense)
The Company’s income tax benefit (expense) for the three and nine months ended September 30, 2017 and 2016, respectively, consisted of the following components:
(In thousands) |
Three Months Ended September 30, |
Nine Months Ended September 30, |
|||||||||||||
2017 |
2016 |
2017 |
2016 |
||||||||||||
Current tax benefit (expense) |
$ |
(21,094 |
) |
$ |
(10,260 |
) |
$ |
(41,001 |
) |
$ |
(9,004 |
) |
|||
Deferred tax benefit (expense) |
4,747 |
13,879 |
28,101 |
(28,575 |
) |
||||||||||
Income tax benefit (expense) |
$ |
(16,347 |
) |
$ |
3,619 |
$ |
(12,900 |
) |
$ |
(37,579 |
) |
||||
The effective tax rates for the three and nine months ended September 30, 2017 were (41.9)% and (18.0)%. The effective rates were primarily impacted by the mix of earnings within the various jurisdictions in which the Company operates and the benefits and charges from tax amounts associated with its foreign earnings that are taxed at rates different from the federal statutory rate. In addition, we were unable to record benefits on losses in certain foreign jurisdictions due to the uncertainty of the ability to utilize those losses in future periods.
The effective tax rates for the three and nine months ended September 30, 2016 were 13.2% and 40.1%. The effective rates were primarily impacted by the reversal of the valuation allowance recorded in 2015 against net operating losses in U.S. federal and state jurisdictions due to taxable gains from the dispositions of nine outdoor markets during the period. Additionally, we were unable to benefit from losses in certain foreign jurisdictions due to the uncertainty of the ability to utilize those losses in future periods.
11
CLEAR CHANNEL OUTDOOR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 7 – STOCKHOLDERS’ EQUITY (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 stockholders’ equity (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, 2017 |
$ |
(1,080,812 |
) |
$ |
149,886 |
$ |
(930,926 |
) |
|||
Net income (loss) |
(95,417 |
) |
10,873 |
(84,544 |
) |
||||||
Dividends declared |
(307,492 |
) |
— |
(307,492 |
) |
||||||
Payments to noncontrolling interests |
— |
(12,027 |
) |
(12,027 |
) |
||||||
Share-based compensation |
6,529 |
624 |
7,153 |
||||||||
Disposal of noncontrolling interest |
— |
(2,438 |
) |
(2,438 |
) |
||||||
Foreign currency translation adjustments |
37,952 |
5,995 |
43,947 |
||||||||
Unrealized holding loss on marketable securities |
(218 |
) |
— |
(218 |
) |
||||||
Reclassification adjustments |
4,563 |
— |
4,563 |
||||||||
Other, net |
(1,613 |
) |
(575 |
) |
(2,188 |
) |
|||||
Balances as of September 30, 2017 |
$ |
(1,436,508 |
) |
$ |
152,338 |
$ |
(1,284,170 |
) |
|||
Balances as of January 1, 2016 |
$ |
(755,599 |
) |
$ |
187,775 |
$ |
(567,824 |
) |
|||
Net income |
39,897 |
16,162 |
56,059 |
||||||||
Dividends declared |
(540,034 |
) |
— |
(540,034 |
) |
||||||
Dividends and other payments to noncontrolling interests |
— |
(21,046 |
) |
(21,046 |
) |
||||||
Share-based compensation |
8,191 |
— |
8,191 |
||||||||
Foreign currency translation adjustments |
45,230 |
(1,646 |
) |
43,584 |
|||||||
Unrealized holding loss on marketable securities |
(635 |
) |
— |
(635 |
) |
||||||
Reclassification adjustments |
32,161 |
662 |
32,823 |
||||||||
Other adjustments to comprehensive loss |
(3,551 |
) |
— |
(3,551 |
) |
||||||
Other, net |
(2,028 |
) |
1,299 |
(729 |
) |
||||||
Balances as of September 30, 2016 |
$ |
(1,176,368 |
) |
$ |
183,206 |
$ |
(993,162 |
) |
|||
The Company has granted restricted stock, restricted stock units and options to purchase shares of its Class A common stock to certain key individuals.
On February 23, 2017, the Company paid a special cash dividend to our stockholders of $282.5 million, using proceeds from the sales of certain non-strategic U.S. markets and of our business in Australia. iHeartCommunications received 89.9%, or approximately $254.0 million, with the remaining 10.1%, or approximately $28.5 million, paid to our public stockholders. The payment of these special dividends reduces the amount of cash available to us for future working capital, capital expenditure, debt service and other funding requirements.
On September 14, 2017, the board of directors of the Company declared a special cash dividend paid on October 5, 2017 to Class A and Class B stockholders of record at the closing of business on October 2, 2017, in an aggregate amount equal to $25.0 million.
12
CLEAR CHANNEL OUTDOOR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
COMPUTATION OF LOSS PER SHARE
(In thousands, except per share data) |
Three Months Ended September 30, |
Nine Months Ended September 30, |
|||||||||||||
2017 |
2016 |
2017 |
2016 |
||||||||||||
NUMERATOR: |
|||||||||||||||
Net income (loss) attributable to the Company – common shares |
$ |
(61,639 |
) |
$ |
(31,100 |
) |
$ |
(95,417 |
) |
$ |
39,897 |
||||
DENOMINATOR: |
|||||||||||||||
Weighted average common shares outstanding - basic |
361,302 |
360,454 |
361,064 |
360,202 |
|||||||||||
Stock options and restricted stock(1)
|
— |
— |
— |
1,215 |
|||||||||||
Weighted average common shares outstanding - diluted |
361,302 |
360,454 |
361,064 |
361,417 |
|||||||||||
Net income (loss) attributable to the Company per common share: |
|||||||||||||||
Basic |
$ |
(0.17 |
) |
$ |
(0.09 |
) |
$ |
(0.26 |
) |
$ |
0.11 |
||||
Diluted |
$ |
(0.17 |
) |
$ |
(0.09 |
) |
$ |
(0.26 |
) |
$ |
0.11 |
||||
(1) |
Outstanding equity awards of 8.3 million and 8.1 million for the three months ended September 30, 2017 and 2016, respectively, 8.3 million and 5.4 million for the nine months ended September 30, 2017 and 2016, respectively, were not included in the computation of diluted earnings per share because to do so would have been antidilutive.
|
NOTE 8 — OTHER INFORMATION
Other Comprehensive Income (Loss)
There was no change in deferred income tax liabilities resulting from adjustments to comprehensive loss for the three and nine months ended September 30, 2017. The total increase (decrease) in deferred income tax liabilities of other adjustments to comprehensive loss for the three and nine months ended September 30, 2016 was $0.1 million and $(0.7) million.
NOTE 9 – SEGMENT DATA
The Company has two reportable segments, which it believes best reflect how the Company is currently managed – Americas and International. The Americas segment consists of operations primarily in the United States, Canada and Latin America and the International segment primarily includes operations in Europe and Asia. The Americas and International display inventory consists primarily of billboards, street furniture displays and transit displays. Corporate includes infrastructure and support including information technology, human resources, legal, finance and administrative functions of each of the Company’s reportable segments, as well as overall executive, administrative and support functions. Share-based payments are recorded in corporate expenses.
13
CLEAR CHANNEL OUTDOOR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The following table presents the Company's reportable segment results for the three and nine months ended September 30, 2017 and 2016:
(In thousands) |
Americas |
International |
Corporate and other reconciling items |
Consolidated |
|||||||||||
Three Months Ended September 30, 2017 |
|||||||||||||||
Revenue |
$ |
316,587 |
$ |
328,502 |
$ |
— |
$ |
645,089 |
|||||||
Direct operating expenses |
141,609 |
214,491 |
— |
356,100 |
|||||||||||
Selling, general and administrative expenses |
54,689 |
73,708 |
— |
128,397 |
|||||||||||
Corporate expenses |
— |
— |
35,333 |
35,333 |
|||||||||||
Depreciation and amortization |
47,035 |
32,886 |
1,175 |
81,096 |
|||||||||||
Impairment charges |
— |
— |
1,591 |
1,591 |
|||||||||||
Other operating expense, net |
— |
— |
(11,783 |
) |
(11,783 |
) |
|||||||||
Operating income (loss) |
$ |
73,254 |
$ |
7,417 |
$ |
(49,882 |
) |
$ |
30,789 |
||||||
Capital expenditures |
$ |
5,118 |
$ |
26,211 |
$ |
460 |
$ |
31,789 |
|||||||
Share-based compensation expense |
$ |
— |
$ |
— |
$ |
2,894 |
$ |
2,894 |
|||||||
Three Months Ended September 30, 2016 |
|||||||||||||||
Revenue |
$ |
322,997 |
$ |
346,224 |
$ |
— |
$ |
669,221 |
|||||||
Direct operating expenses |
142,989 |
219,261 |
— |
362,250 |
|||||||||||
Selling, general and administrative expenses |
54,500 |
71,664 |
— |
126,164 |
|||||||||||
Corporate expenses |
— |
— |
28,103 |
28,103 |
|||||||||||
Depreciation and amortization |
47,242 |
37,018 |
1,520 |
85,780 |
|||||||||||
Impairment charges |
— |
— |
7,274 |
7,274 |
|||||||||||
Other operating income, net |
— |
— |
1,095 |
1,095 |
|||||||||||
Operating income (loss) |
$ |
78,266 |
$ |
18,281 |
$ |
(35,802 |
) |
$ |
60,745 |
||||||
Capital expenditures |
$ |
19,114 |
$ |
30,803 |
$ |
1,033 |
$ |
50,950 |
|||||||
Share-based compensation expense |
$ |
— |
$ |
— |
$ |
2,742 |
$ |
2,742 |
|||||||
14
CLEAR CHANNEL OUTDOOR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(In thousands) |
Americas |
International |
Corporate and other reconciling items |
Consolidated |
|||||||||||
Nine Months Ended September 30, 2017 |
|||||||||||||||
Revenue |
$ |
919,967 |
$ |
942,167 |
$ |
— |
$ |
1,862,134 |
|||||||
Direct operating expenses |
427,181 |
607,023 |
— |
1,034,204 |
|||||||||||
Selling, general and administrative expenses |
165,538 |
204,531 |
— |
370,069 |
|||||||||||
Corporate expenses |
— |
— |
105,213 |
105,213 |
|||||||||||
Depreciation and amortization |
137,689 |
95,149 |
4,042 |
236,880 |
|||||||||||
Impairment Charges |
— |
— |
1,591 |
1,591 |
|||||||||||
Other operating income, net |
— |
— |
28,657 |
28,657 |
|||||||||||
Operating income (loss) |
$ |
189,559 |
$ |
35,464 |
$ |
(82,189 |
) |
$ |
142,834 |
||||||
Capital expenditures |
$ |
48,749 |
$ |
83,851 |
$ |
2,268 |
$ |
134,868 |
|||||||
Share-based compensation expense |
$ |
— |
$ |
— |
$ |
7,153 |
$ |
7,153 |
|||||||
Nine Months Ended September 30, 2016 |
|||||||||||||||
Revenue |
$ |
931,058 |
$ |
1,035,263 |
$ |
— |
$ |
1,966,321 |
|||||||
Direct operating expenses |
421,039 |
645,199 |
— |
1,066,238 |
|||||||||||
Selling, general and administrative expenses |
167,660 |
220,872 |
— |
388,532 |
|||||||||||
Corporate expenses |
— |
— |
86,000 |
86,000 |
|||||||||||
Depreciation and amortization |
140,883 |
113,075 |
4,191 |
258,149 |
|||||||||||
Impairment charges |
— |
— |
7,274 |
7,274 |
|||||||||||
Other operating income, net |
— |
— |
226,485 |
226,485 |
|||||||||||
Operating income |
$ |
201,476 |
$ |
56,117 |
$ |
129,020 |
$ |
386,613 |
|||||||
Capital expenditures |
$ |
47,808 |
$ |
97,487 |
$ |
2,710 |
$ |
148,005 |
|||||||
Share-based compensation expense |
$ |
— |
$ |
— |
$ |
8,191 |
$ |
8,191 |
|||||||
15
CLEAR CHANNEL OUTDOOR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 10 – GUARANTOR SUBSIDIARIES
The Company and certain of the Company’s direct and indirect wholly-owned domestic subsidiaries (the “Guarantor Subsidiaries”) fully and unconditionally guarantee on a joint and several basis certain of the outstanding indebtedness of Clear Channel Worldwide Holdings, Inc. ("CCWH" or the “Subsidiary Issuer”). The following consolidating schedules present financial information on a combined basis in conformity with the SEC’s Regulation S-X Rule 3-10(d):
(In thousands) |
September 30, 2017 |
||||||||||||||||||||||
Parent |
Subsidiary |
Guarantor |
Non-Guarantor |
||||||||||||||||||||
Company |
Issuer |
Subsidiaries |
Subsidiaries |
Eliminations |
Consolidated |
||||||||||||||||||
Cash and cash equivalents |
$ |
2,359 |
$ |
— |
$ |
13,830 |
$ |
206,198 |
$ |
— |
$ |
222,387 |
|||||||||||
Accounts receivable, net of allowance |
— |
— |
189,217 |
443,746 |
— |
632,963 |
|||||||||||||||||
Intercompany receivables |
— |
726,495 |
2,862,295 |
93,497 |
(3,682,287 |
) |
— |
||||||||||||||||
Prepaid expenses |
318 |
3,433 |
61,312 |
66,743 |
— |
131,806 |
|||||||||||||||||
Other current assets |
23,464 |
— |
3,705 |
34,868 |
— |
62,037 |
|||||||||||||||||
Total Current Assets |
26,141 |
729,928 |
3,130,359 |
845,052 |
(3,682,287 |
) |
1,049,193 |
||||||||||||||||
Structures, net |
— |
— |
690,930 |
461,136 |
— |
1,152,066 |
|||||||||||||||||
Other property, plant and equipment, net |
— |
— |
125,704 |
102,672 |
— |
228,376 |
|||||||||||||||||
Indefinite-lived intangibles |
— |
— |
977,152 |
— |
— |
977,152 |
|||||||||||||||||
Other intangibles, net |
— |
— |
252,186 |
30,240 |
— |
282,426 |
|||||||||||||||||
Goodwill |
— |
— |
507,819 |
205,458 |
— |
713,277 |
|||||||||||||||||
Due from iHeartCommunications |
1,051,349 |
— |
— |
— |
— |
1,051,349 |
|||||||||||||||||
Intercompany notes receivable |
182,026 |
4,857,393 |
12,437 |
74,107 |
(5,125,963 |
) |
— |
||||||||||||||||
Other assets |
224,750 |
431,992 |
1,312,735 |
71,635 |
(1,914,463 |
) |
126,649 |
||||||||||||||||
Total Assets |
$ |
1,484,266 |
$ |
6,019,313 |
$ |
7,009,322 |
$ |
1,790,300 |
$ |
(10,722,713 |
) |
$ |
5,580,488 |
||||||||||
Accounts payable |
$ |
— |
$ |
— |
$ |
13,810 |
$ |
74,212 |
$ |
— |
$ |
88,022 |
|||||||||||
Intercompany payable |
2,862,295 |
— |
819,992 |
— |
(3,682,287 |
) |
— |
||||||||||||||||
Accrued expenses |
23,378 |
1,711 |
94,033 |
413,125 |
— |
532,247 |
|||||||||||||||||
Deferred income |
— |
— |
39,874 |
50,882 |
— |
90,756 |
|||||||||||||||||
Current portion of long-term debt |
— |
— |
112 |
461 |
— |
573 |
|||||||||||||||||
Total Current Liabilities |
2,885,673 |
1,711 |
967,821 |
538,680 |
(3,682,287 |
) |
711,598 |
||||||||||||||||
Long-term debt |
— |
4,892,903 |
1,850 |
369,537 |
— |
5,264,290 |
|||||||||||||||||
Intercompany notes payable |
— |
74,107 |
5,039,418 |
12,438 |
(5,125,963 |
) |
— |
||||||||||||||||
Deferred tax liability |
772 |
1,367 |
662,316 |
(62,568 |
) |
— |
601,887 |
||||||||||||||||
Other long-term liabilities |
1,019 |
— |
143,119 |
142,745 |
— |
286,883 |
|||||||||||||||||
Total stockholders' equity (deficit) |
(1,403,198 |
) |
1,049,225 |
194,798 |
789,468 |
(1,914,463 |
) |
(1,284,170 |
) |
||||||||||||||
Total Liabilities and Stockholders' Equity (Deficit) |
$ |
1,484,266 |
$ |
6,019,313 |
$ |
7,009,322 |
$ |
1,790,300 |
$ |
(10,722,713 |
) |
$ |
5,580,488 |
||||||||||
16
CLEAR CHANNEL OUTDOOR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(In thousands) |
December 31, 2016 |
||||||||||||||||||||||
Parent |
Subsidiary |
Guarantor |
Non-Guarantor |
||||||||||||||||||||
Company |
Issuer |
Subsidiaries |
Subsidiaries |
Eliminations |
Consolidated |
||||||||||||||||||
Cash and cash equivalents |
$ |
300,285 |
$ |
— |
$ |
61,542 |
$ |
180,168 |
$ |
— |
$ |
541,995 |
|||||||||||
Accounts receivable, net of allowance |
— |
— |
193,474 |
399,596 |
— |
593,070 |
|||||||||||||||||
Intercompany receivables |
— |
687,043 |
2,694,094 |
99,431 |
(3,480,568 |
) |
— |
||||||||||||||||
Prepaid expenses |
1,363 |
3,433 |
51,751 |
55,022 |
— |
111,569 |
|||||||||||||||||
Assets held for sale |
— |
— |
55,602 |
— |
— |
55,602 |
|||||||||||||||||
Other current assets |
— |
— |
6,873 |
32,326 |
— |
39,199 |
|||||||||||||||||
Total Current Assets |
301,648 |
690,476 |
3,063,336 |
766,543 |
(3,480,568 |
) |
1,341,435 |
||||||||||||||||
Structures, net |
— |
— |
746,877 |
449,799 |
— |
1,196,676 |
|||||||||||||||||
Other property, plant and equipment, net |
— |
— |
124,138 |
92,019 |
— |
216,157 |
|||||||||||||||||
Indefinite-lived intangibles |
— |
— |
951,439 |
9,527 |
— |
960,966 |
|||||||||||||||||
Other intangibles, net |
— |
— |
259,915 |
39,702 |
— |
299,617 |
|||||||||||||||||
Goodwill |
— |
— |
505,478 |
190,785 |
— |
696,263 |
|||||||||||||||||
Due from iHeartCommunications |
885,701 |
— |
— |
— |
— |
885,701 |
|||||||||||||||||
Intercompany notes receivable |
182,026 |
4,887,354 |
— |
— |
(5,069,380 |
) |
— |
||||||||||||||||
Other assets |
280,435 |
418,658 |
1,320,838 |
65,589 |
(1,963,507 |
) |
122,013 |
||||||||||||||||
Total Assets |
$ |
1,649,810 |
$ |
5,996,488 |
$ |
6,972,021 |
$ |
1,613,964 |
$ |
(10,513,455 |
) |
$ |
5,718,828 |
||||||||||
Accounts payable |
$ |
— |
$ |
— |
$ |
14,897 |
$ |
71,973 |
$ |
— |
$ |
86,870 |
|||||||||||
Intercompany payable |
2,694,094 |
— |
786,474 |
— |
(3,480,568 |
) |
— |
||||||||||||||||
Accrued expenses |
2,223 |
58,652 |
35,509 |
384,488 |
— |
480,872 |
|||||||||||||||||
Dividends payable |
— |
— |
|||||||||||||||||||||
Deferred income |
— |
— |
33,471 |
33,534 |
— |
67,005 |
|||||||||||||||||
Current portion of long-term debt |
— |
— |
89 |
6,882 |
— |
6,971 |
|||||||||||||||||
Total Current Liabilities |
2,696,317 |
58,652 |
870,440 |
496,877 |
(3,480,568 |
) |
641,718 |
||||||||||||||||
Long-term debt |
— |
4,886,318 |
1,711 |
221,991 |
— |
5,110,020 |
|||||||||||||||||
Intercompany notes payable |
— |
5,000 |
5,027,681 |
36,699 |
(5,069,380 |
) |
— |
||||||||||||||||
Deferred tax liability |
772 |
1,367 |
685,780 |
(49,214 |
) |
— |
638,705 |
||||||||||||||||
Other long-term liabilities |
1,055 |
— |
135,094 |
123,162 |
— |
259,311 |
|||||||||||||||||
Total stockholders' equity (deficit) |
(1,048,334 |
) |
1,045,151 |
251,315 |
784,449 |
(1,963,507 |
) |
(930,926 |
) |
||||||||||||||
Total Liabilities and Stockholders' Equity (Deficit) |
$ |
1,649,810 |
$ |
5,996,488 |
$ |
6,972,021 |
$ |
1,613,964 |
$ |
(10,513,455 |
) |
$ |
5,718,828 |
||||||||||
17
CLEAR CHANNEL OUTDOOR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(In thousands) |
Three Months Ended September 30, 2017 |
||||||||||||||||||||||
Parent |
Subsidiary |
Guarantor |
Non-Guarantor |
||||||||||||||||||||
Company |
Issuer |
Subsidiaries |
Subsidiaries |
Eliminations |
Consolidated |
||||||||||||||||||
Revenue |
$ |
— |
$ |
— |
$ |
288,433 |
$ |
356,656 |
$ |
— |
$ |
645,089 |
|||||||||||
Operating expenses: |
|||||||||||||||||||||||
Direct operating expenses |
— |
— |
126,536 |
229,564 |
— |
356,100 |
|||||||||||||||||
Selling, general and administrative expenses |
— |
— |
47,994 |
80,403 |
— |
128,397 |
|||||||||||||||||
Corporate expenses |
3,602 |
— |
22,658 |
9,073 |
— |
35,333 |
|||||||||||||||||
Depreciation and amortization |
— |
— |
45,180 |
35,916 |
— |
81,096 |
|||||||||||||||||
Impairment charges |
— |
— |
— |
1,591 |
— |
1,591 |
|||||||||||||||||
Other operating income (expense), net |
(102 |
) |
— |
1,876 |
(13,557 |
) |
— |
(11,783 |
) |
||||||||||||||
Operating income (loss) |
(3,704 |
) |
— |
47,941 |
(13,448 |
) |
— |
30,789 |
|||||||||||||||
Interest (income) expense, net |
(20 |
) |
88,232 |
126 |
7,129 |
— |
95,467 |
||||||||||||||||
Interest income on Due from iHeartCommunications |
17,087 |
— |
— |
— |
— |
17,087 |
|||||||||||||||||
Intercompany interest income |
4,090 |
85,067 |
17,316 |
43 |
(106,516 |
) |
— |
||||||||||||||||
Intercompany interest expense |
17,087 |
203 |
89,200 |
26 |
(106,516 |
) |
— |
||||||||||||||||
Equity in loss of nonconsolidated affiliates |
(57,326 |
) |
(15,720 |
) |
(32,846 |
) |
(838 |
) |
106,102 |
(628 |
) |
||||||||||||
Other income (expense), net |
(7,517 |
) |
— |
9,958 |
6,723 |
— |
9,164 |
||||||||||||||||
Loss before income taxes |
(64,437 |
) |
(19,088 |
) |
(46,957 |
) |
(14,675 |
) |
106,102 |
(39,055 |
) |
||||||||||||
Income tax benefit (expense) |
2,798 |
(1,711 |
) |
(10,369 |
) |
(7,065 |
) |
— |
(16,347 |
) |
|||||||||||||
Consolidated net loss |
(61,639 |
) |
(20,799 |
) |
(57,326 |
) |
(21,740 |
) |
106,102 |
(55,402 |
) |
||||||||||||
Less amount attributable to noncontrolling interest |
— |
— |
— |
6,237 |
— |
6,237 |
|||||||||||||||||
Net loss attributable to the Company |
$ |
(61,639 |
) |
$ |
(20,799 |
) |
$ |
(57,326 |
) |
$ |
(27,977 |
) |
$ |
106,102 |
$ |
(61,639 |
) |
||||||
Other comprehensive income (loss), net of tax: |
|||||||||||||||||||||||
Foreign currency translation adjustments |
— |
— |
712 |
12,238 |
— |
12,950 |
|||||||||||||||||
Unrealized holding loss on marketable securities |
— |
— |
— |
(320 |
) |
— |
(320 |
) |
|||||||||||||||
Reclassification adjustments |
— |
— |
— |
6,207 |
— |
6,207 |
|||||||||||||||||
Equity in subsidiary comprehensive income |
16,171 |
7,963 |
15,459 |
— |
(39,593 |
) |
— |
||||||||||||||||
Comprehensive loss |
(45,468 |
) |
(12,836 |
) | |||||||||||||||||||