10-Q: Quarterly report pursuant to Section 13 or 15(d)
Published on August 1, 2019
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 JUNE 30, 2019
[ ] 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 |
88-0318078 |
|
(State or other jurisdiction of
incorporation or organization)
|
(I.R.S. Employer Identification No.) |
|
4830 North Loop 1604 West, Suite 111
San Antonio, Texas
|
78249 |
|
(Address of principal executive offices) |
(Zip Code) |
(210) 547-8800
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class |
Trading Symbol(s) |
Name of Exchange on Which Registered |
Common Stock, $0.01 par value per share |
"CCO" |
New York Stock Exchange |
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 every Interactive Data File required to be submitted 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 such files). Yes [X] No [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth 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 July 30, 2019 |
- - - - - - - - - - - - - - - - - - - - - - - - - - |
- - - - - - - - - - - - - - - - - - - - - - - - - - |
Common Stock, $0.01 par value per share |
465,981,195 |
CLEAR CHANNEL OUTDOOR HOLDINGS, INC.
INDEX
Page No. |
||
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 and per share data) |
June 30, 2019 |
December 31, 2018 |
|||||
(Unaudited) |
|||||||
CURRENT ASSETS |
|||||||
Cash and cash equivalents |
$ |
372,497 |
$ |
182,456 |
|||
Accounts receivable, net of allowance of $26,412 as of June 30, 2019 and $24,224 as of December 31, 2018 |
656,438 |
706,309 |
|||||
Prepaid expenses |
66,088 |
95,734 |
|||||
Other current assets |
33,709 |
31,301 |
|||||
Total Current Assets |
1,128,732 |
1,015,800 |
|||||
PROPERTY, PLANT AND EQUIPMENT |
|||||||
Structures, net |
970,649 |
1,053,016 |
|||||
Other property, plant and equipment, net |
246,058 |
235,922 |
|||||
INTANGIBLE ASSETS AND GOODWILL |
|||||||
Indefinite-lived permits |
971,163 |
971,163 |
|||||
Other intangibles, net |
327,318 |
252,862 |
|||||
Goodwill |
705,062 |
706,003 |
|||||
OTHER ASSETS |
|||||||
Operating lease right-of-use assets |
1,979,807 |
— |
|||||
Due from iHeartCommunications, net of allowance of $855,648 as of December 31, 2018 |
— |
154,758 |
|||||
Other assets |
99,168 |
132,504 |
|||||
Total Assets |
$ |
6,427,957 |
$ |
4,522,028 |
|||
CURRENT LIABILITIES |
|||||||
Accounts payable |
$ |
109,645 |
$ |
113,714 |
|||
Accrued expenses |
462,242 |
528,482 |
|||||
Current operating lease liabilities |
394,082 |
— |
|||||
Deferred revenue |
95,983 |
85,052 |
|||||
Accrued interest |
56,994 |
2,341 |
|||||
Current portion of long-term debt |
260 |
227 |
|||||
Total Current Liabilities |
1,119,206 |
729,816 |
|||||
NON-CURRENT LIABILITIES |
|||||||
Long-term debt |
5,296,096 |
5,277,108 |
|||||
Mandatorily redeemable preferred stock |
44,884 |
— |
|||||
Non-current operating lease liabilities |
1,620,190 |
— |
|||||
Deferred income taxes |
388,124 |
335,015 |
|||||
Due to iHeartCommunications |
— |
21,591 |
|||||
Other long-term liabilities |
174,382 |
260,150 |
|||||
Total Liabilities |
8,642,882 |
6,623,680 |
|||||
Commitments and Contingent liabilities (Note 6) |
|||||||
STOCKHOLDERS’ DEFICIT |
|||||||
Noncontrolling interest |
145,563 |
160,362 |
|||||
Class A common stock, par value $0.01 per share, 750,000,000 shares authorized and 51,559,633 shares issued as of December 31, 2018 |
— |
516 |
|||||
Class B common stock, par value $0.01 per share, 600,000,000 shares authorized and 315,000,000 shares issued and outstanding as of December 31, 2018 |
— |
3,150 |
|||||
Common stock, par value $0.01 per share, 2,350,000,000 shares authorized and 366,415,951 shares issued as of June 30, 2019 |
3,664 |
— |
|||||
Additional paid-in capital |
3,139,424 |
3,086,307 |
|||||
Accumulated deficit |
(5,161,413 |
) |
(5,000,920 |
) |
|||
Accumulated other comprehensive loss |
(339,739 |
) |
(344,489 |
) |
|||
Cost of shares (495,922 at June 30, 2019 and 1,108,538 as of December 31, 2018) held in treasury |
(2,424 |
) |
(6,578 |
) |
|||
Total Stockholders’ Deficit |
(2,214,925 |
) |
(2,101,652 |
) |
|||
Total Liabilities and Stockholders’ Deficit |
$ |
6,427,957 |
$ |
4,522,028 |
See Notes to Consolidated Financial Statements
1
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
CLEAR CHANNEL OUTDOOR HOLDINGS, INC. AND SUBSIDIARIES
(UNAUDITED)
(In thousands, except per share data) |
Three Months Ended |
Six Months Ended |
|||||||||||||
June 30, |
June 30, |
||||||||||||||
2019 |
2018 |
2019 |
2018 |
||||||||||||
Revenue |
$ |
698,015 |
$ |
711,980 |
$ |
1,285,131 |
$ |
1,310,378 |
|||||||
Operating expenses: |
|||||||||||||||
Direct operating expenses (excludes depreciation and amortization) |
363,029 |
372,936 |
710,856 |
734,225 |
|||||||||||
Selling, general and administrative expenses (excludes depreciation and amortization) |
134,721 |
125,289 |
257,687 |
252,697 |
|||||||||||
Corporate expenses (excludes depreciation and amortization) |
38,907 |
37,928 |
67,521 |
73,363 |
|||||||||||
Depreciation and amortization |
80,174 |
82,767 |
155,250 |
166,827 |
|||||||||||
Other operating income (expense), net |
1,270 |
929 |
(2,252 |
) |
875 |
||||||||||
Operating income |
82,454 |
93,989 |
91,565 |
84,141 |
|||||||||||
Interest expense, net |
107,971 |
96,777 |
222,834 |
194,041 |
|||||||||||
Loss on extinguishment of debt |
— |
— |
(5,474 |
) |
— |
||||||||||
Loss on Due from iHeartCommunications |
(5,778 |
) |
— |
(5,778 |
) |
— |
|||||||||
Other expense, net |
(9,203 |
) |
(35,402 |
) |
(9,768 |
) |
(15,761 |
) |
|||||||
Loss before income taxes |
(40,498 |
) |
(38,190 |
) |
(152,289 |
) |
(125,661 |
) |
|||||||
Income tax benefit (expense) |
29,093 |
(4,753 |
) |
(28,670 |
) |
(50,120 |
) |
||||||||
Consolidated net loss |
(11,405 |
) |
(42,943 |
) |
(180,959 |
) |
(175,781 |
) |
|||||||
Less amount attributable to noncontrolling interest |
(466 |
) |
7,440 |
(5,853 |
) |
3,024 |
|||||||||
Net loss attributable to the Company |
$ |
(10,939 |
) |
$ |
(50,383 |
) |
$ |
(175,106 |
) |
$ |
(178,805 |
) |
|||
Other comprehensive income (loss), net of tax: |
|||||||||||||||
Foreign currency translation adjustments |
172 |
(18,620 |
) |
2,721 |
(11,838 |
) |
|||||||||
Other adjustments to comprehensive income (loss) |
2,592 |
— |
2,592 |
— |
|||||||||||
Other comprehensive income (loss) |
2,764 |
(18,620 |
) |
5,313 |
(11,838 |
) |
|||||||||
Comprehensive loss |
(8,175 |
) |
(69,003 |
) |
(169,793 |
) |
(190,643 |
) |
|||||||
Less amount attributable to noncontrolling interest |
(3,021 |
) |
(7,919 |
) |
563 |
(2,683 |
) |
||||||||
Comprehensive loss attributable to the Company |
$ |
(5,154 |
) |
$ |
(61,084 |
) |
$ |
(170,356 |
) |
$ |
(187,960 |
) |
|||
Net loss attributable to the Company per common share: |
|||||||||||||||
Basic |
$ |
(0.03 |
) |
$ |
(0.14 |
) |
$ |
(0.48 |
) |
$ |
(0.49 |
) |
|||
Weighted average common shares outstanding – Basic |
362,409 |
361,708 |
362,225 |
361,612 |
|||||||||||
Diluted |
$ |
(0.03 |
) |
$ |
(0.14 |
) |
$ |
(0.48 |
) |
$ |
(0.49 |
) |
|||
Weighted average common shares outstanding – Diluted |
362,409 |
361,708 |
362,225 |
361,612 |
|||||||||||
Dividends declared per share |
$ |
— |
$ |
— |
$ |
— |
$ |
0.08 |
See Notes to Consolidated Financial Statements
2
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT
CLEAR CHANNEL OUTDOOR HOLDINGS, INC. AND SUBSIDIARIES
(UNAUDITED)
(In thousands, except share data) | ||||||||||||||||||||||||||||||||||||
Three Months Ended June 30, 2019 |
||||||||||||||||||||||||||||||||||||
Pre-Separation |
Post-Separation |
Non-controlling Interest |
Controlling Interest |
Total |
||||||||||||||||||||||||||||||||
Class A
Common
Shares
Issued
|
Class B Common Shares Issued |
Common Shares Issued |
Common
Stock
|
Additional Paid-in
Capital
|
Accumulated
Deficit
|
Accumulated Other Comprehensive Income (Loss) |
Treasury Stock |
|||||||||||||||||||||||||||||
Balances at March 31, 2019 |
51,709,760 |
315,000,000 |
— |
$ |
155,027 |
$ |
3,667 |
$ |
3,088,061 |
$ |
(5,150,474 |
) |
$ |
(345,524 |
) |
$ |
(6,587 |
) |
$ |
(2,255,830 |
) |
|||||||||||||||
Net loss |
(466 |
) |
— |
— |
(10,939 |
) |
— |
— |
(11,405 |
) |
||||||||||||||||||||||||||
Exercise of stock options and other |
36,993 |
797,340 |
— |
8 |
223 |
— |
— |
(2,423 |
) |
(2,192 |
) |
|||||||||||||||||||||||||
Share-based compensation |
(113 |
) |
— |
8,674 |
— |
— |
— |
8,561 |
||||||||||||||||||||||||||||
Dividends and other payments to noncontrolling interests |
(5,864 |
) |
— |
— |
— |
— |
— |
(5,864 |
) |
|||||||||||||||||||||||||||
Recapitalization of equity |
(51,746,753 |
) |
(315,000,000 |
) |
365,618,611 |
— |
(11 |
) |
(6,575 |
) |
— |
— |
6,586 |
— |
||||||||||||||||||||||
Capital contributions |
— |
— |
114,967 |
— |
— |
— |
114,967 |
|||||||||||||||||||||||||||||
Distributions |
— |
— |
(65,936 |
) |
— |
— |
— |
(65,936 |
) |
|||||||||||||||||||||||||||
Other |
— |
— |
10 |
— |
— |
— |
10 |
|||||||||||||||||||||||||||||
Other comprehensive income (loss) |
(3,021 |
) |
— |
— |
— |
5,785 |
— |
2,764 |
||||||||||||||||||||||||||||
Balances at June 30, 2019 |
— |
— |
366,415,951 |
$ |
145,563 |
$ |
3,664 |
$ |
3,139,424 |
$ |
(5,161,413 |
) |
$ |
(339,739 |
) |
$ |
(2,424 |
) |
$ |
(2,214,925 |
) |
(In thousands, except share data) | ||||||||||||||||||||||||||||||||||||
Six Months Ended June 30, 2019 |
||||||||||||||||||||||||||||||||||||
Pre-Separation |
Post-Separation |
Non-controlling
Interest
|
Controlling Interest |
Total |
||||||||||||||||||||||||||||||||
Class A
Common
Shares
Issued
|
Class B Common Shares
Issued
|
Common Shares Issued |
Common
Stock
|
Additional Paid-in
Capital
|
Accumulated
Deficit
|
Accumulated Other Comprehensive Income (Loss) |
Treasury Stock |
|||||||||||||||||||||||||||||
Balances at December 31, 2018 |
51,559,633 |
315,000,000 |
— |
$ |
160,362 |
$ |
3,666 |
$ |
3,086,307 |
$ |
(5,000,920 |
) |
$ |
(344,489 |
) |
$ |
(6,578 |
) |
$ |
(2,101,652 |
) |
|||||||||||||||
Net loss |
(5,853 |
) |
— |
— |
(175,106 |
) |
— |
— |
(180,959 |
) |
||||||||||||||||||||||||||
Adoption of ASC 842, Leases |
— |
— |
— |
14,613 |
— |
— |
14,613 |
|||||||||||||||||||||||||||||
Exercise of stock options and other |
187,120 |
797,340 |
— |
9 |
295 |
— |
— |
(2,432 |
) |
(2,128 |
) |
|||||||||||||||||||||||||
Share-based compensation |
39 |
— |
10,356 |
— |
— |
— |
10,395 |
|||||||||||||||||||||||||||||
Dividends and other payments to noncontrolling interests |
(9,548 |
) |
— |
— |
— |
— |
— |
(9,548 |
) |
|||||||||||||||||||||||||||
Recapitalization of equity |
(51,746,753 |
) |
(315,000,000 |
) |
365,618,611 |
— |
(11 |
) |
(6,575 |
) |
— |
— |
6,586 |
— |
||||||||||||||||||||||
Capital contributions |
— |
— |
114,967 |
— |
— |
— |
114,967 |
|||||||||||||||||||||||||||||
Distributions |
— |
— |
(65,936 |
) |
— |
— |
— |
(65,936 |
) |
|||||||||||||||||||||||||||
Other |
— |
— |
10 |
— |
— |
— |
10 |
|||||||||||||||||||||||||||||
Other comprehensive income |
563 |
— |
— |
— |
4,750 |
— |
5,313 |
|||||||||||||||||||||||||||||
Balances at June 30, 2019 |
— |
— |
366,415,951 |
$ |
145,563 |
$ |
3,664 |
$ |
3,139,424 |
$ |
(5,161,413 |
) |
$ |
(339,739 |
) |
$ |
(2,424 |
) |
$ |
(2,214,925 |
) |
See Notes to Consolidated Financial Statements
3
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT
CLEAR CHANNEL OUTDOOR HOLDINGS, INC. AND SUBSIDIARIES
(UNAUDITED)
(In thousands, except share data) | |||||||||||||||||||||||||||||||||
Three Months Ended June 30, 2018 |
|||||||||||||||||||||||||||||||||
Pre-Separation |
Non-controlling Interest |
Controlling Interest |
Total |
||||||||||||||||||||||||||||||
Class A Common Shares Issued |
Class B Common Shares Issued |
Common Stock |
Additional Paid-in Capital |
Accumulated Deficit |
Accumulated Other Comprehensive Loss |
Treasury Stock |
|||||||||||||||||||||||||||
Balances at March 31, 2018 |
49,971,476 |
315,000,000 |
$ |
158,069 |
$ |
3,650 |
$ |
3,079,958 |
$ |
(4,911,102 |
) |
$ |
(337,113 |
) |
$ |
(5,815 |
) |
$ |
(2,012,353 |
) |
|||||||||||||
Net income (loss) |
7,440 |
— |
— |
(50,383 |
) |
— |
— |
(42,943 |
) |
||||||||||||||||||||||||
Exercise of stock options and other |
158,574 |
— |
1 |
1 |
— |
— |
(687 |
) |
(685 |
) |
|||||||||||||||||||||||
Share-based compensation |
293 |
— |
1,226 |
— |
— |
— |
1,519 |
||||||||||||||||||||||||||
Dividends and other payments to noncontrolling interests |
(5,927 |
) |
— |
— |
— |
— |
— |
(5,927 |
) |
||||||||||||||||||||||||
Other |
— |
— |
57 |
— |
— |
— |
57 |
||||||||||||||||||||||||||
Other comprehensive loss |
(7,919 |
) |
— |
— |
— |
(10,701 |
) |
— |
(18,620 |
) |
|||||||||||||||||||||||
Balances at June 30, 2018 |
50,130,050 |
315,000,000 |
$ |
151,956 |
$ |
3,651 |
$ |
3,081,242 |
$ |
(4,961,485 |
) |
$ |
(347,814 |
) |
$ |
(6,502 |
) |
$ |
(2,078,952 |
) |
(In thousands, except share data) | |||||||||||||||||||||||||||||||||
Six Months Ended June 30, 2018 |
|||||||||||||||||||||||||||||||||
Pre-Separation |
Non-controlling Interest |
Controlling Interest |
Total |
||||||||||||||||||||||||||||||
Class A Common Shares Issued |
Class B Common Shares Issued |
Common Stock |
Additional Paid-in Capital |
Accumulated Deficit |
Accumulated Other Comprehensive Income (Loss) |
Treasury Stock |
|||||||||||||||||||||||||||
Balances at December 31, 2017 |
49,955,300 |
315,000,000 |
$ |
157,040 |
$ |
3,650 |
$ |
3,108,148 |
$ |
(4,781,245 |
) |
$ |
(340,094 |
) |
$ |
(5,793 |
) |
$ |
(1,858,294 |
) |
|||||||||||||
Net income (loss) |
3,024 |
— |
— |
(178,805 |
) |
— |
— |
(175,781 |
) |
||||||||||||||||||||||||
Exercise of stock options and other |
174,750 |
— |
1 |
6 |
— |
— |
(709 |
) |
(702 |
) |
|||||||||||||||||||||||
Share-based compensation |
599 |
— |
3,026 |
— |
— |
— |
3,625 |
||||||||||||||||||||||||||
Dividends and other payments to noncontrolling interests |
(6,024 |
) |
— |
— |
— |
— |
— |
(6,024 |
) |
||||||||||||||||||||||||
Dividends declared and paid ($0.0824/share) |
— |
— |
(29,995 |
) |
— |
— |
— |
(29,995 |
) |
||||||||||||||||||||||||
Other |
— |
— |
57 |
(1,435 |
) |
1,435 |
— |
57 |
|||||||||||||||||||||||||
Other comprehensive loss |
(2,683 |
) |
— |
— |
— |
(9,155 |
) |
— |
(11,838 |
) |
|||||||||||||||||||||||
Balances at June 30, 2018 |
50,130,050 |
315,000,000 |
$ |
151,956 |
$ |
3,651 |
$ |
3,081,242 |
$ |
(4,961,485 |
) |
$ |
(347,814 |
) |
$ |
(6,502 |
) |
$ |
(2,078,952 |
) |
See Notes to Consolidated Financial Statements
4
CONSOLIDATED STATEMENTS OF CASH FLOWS
CLEAR CHANNEL OUTDOOR HOLDINGS, INC. AND SUBSIDIARIES
(UNAUDITED)
(In thousands) |
Six Months Ended June 30, |
||||||
2019 |
2018 |
||||||
Cash flows from operating activities: |
|||||||
Consolidated net loss |
$ |
(180,959 |
) |
$ |
(175,781 |
) |
|
Reconciling items: |
|||||||
Depreciation and amortization |
155,250 |
166,827 |
|||||
Deferred taxes |
(15,143 |
) |
46,501 |
||||
Provision for doubtful accounts |
4,417 |
3,317 |
|||||
Amortization of deferred financing charges and note discounts, net |
5,230 |
5,293 |
|||||
Share-based compensation |
10,395 |
3,625 |
|||||
(Gain) loss on disposal of operating and other assets |
2,090 |
(1,115 |
) |
||||
Loss on Due from iHeartCommunications |
5,778 |
— |
|||||
Loss on extinguishment of debt |
5,474 |
— |
|||||
Foreign exchange transaction loss |
3,625 |
14,535 |
|||||
Other reconciling items, net |
(2,787 |
) |
(1,098 |
) |
|||
Changes in operating assets and liabilities, net of effects of acquisitions and dispositions: |
|||||||
Decrease in accounts receivable |
44,823 |
7,842 |
|||||
Increase in prepaid expenses and other current assets |
(34,946 |
) |
(25,223 |
) |
|||
Decrease in accrued expenses |
(25,190 |
) |
(30,788 |
) |
|||
Increase (decrease) in accounts payable |
(3,364 |
) |
19,459 |
||||
Increase in accrued interest |
55,632 |
488 |
|||||
Increase in deferred revenue |
10,539 |
42,791 |
|||||
Changes in other operating assets and liabilities |
14,271 |
(10,805 |
) |
||||
Net cash provided by operating activities |
$ |
55,135 |
$ |
65,868 |
|||
Cash flows from investing activities: |
|||||||
Purchases of property, plant and equipment |
(79,281 |
) |
(61,315 |
) |
|||
Proceeds from disposal of assets |
2,518 |
3,040 |
|||||
Change in other, net |
76 |
12 |
|||||
Net cash used for investing activities |
$ |
(76,687 |
) |
$ |
(58,263 |
) |
|
Cash flows from financing activities: |
|||||||
Proceeds from long-term debt |
2,235,197 |
— |
|||||
Proceeds from issuance of mandatorily redeemable preferred stock |
43,798 |
— |
|||||
Payments on long-term debt |
(2,200,113 |
) |
(316 |
) |
|||
Net transfers from iHeartCommunications |
43,399 |
60,751 |
|||||
Proceeds from settlement of Due from iHeartCommunications |
115,798 |
— |
|||||
Dividends and other payments to noncontrolling interests |
(127 |
) |
(211 |
) |
|||
Dividends paid |
(701 |
) |
(30,624 |
) |
|||
Debt issuance costs |
(26,795 |
) |
(1,298 |
) |
|||
Change in other, net |
(2,128 |
) |
(702 |
) |
|||
Net cash provided by financing activities |
$ |
208,328 |
$ |
27,600 |
|||
Effect of exchange rate changes on cash, cash equivalents and restricted cash |
159 |
(4,319 |
) |
||||
Net increase in cash, cash equivalents and restricted cash |
186,935 |
30,886 |
|||||
Cash, cash equivalents and restricted cash at beginning of period |
202,869 |
188,310 |
|||||
Cash, cash equivalents and restricted cash at end of period |
$ |
389,804 |
$ |
219,196 |
|||
SUPPLEMENTAL DISCLOSURES: |
|||||||
Cash paid for interest |
$ |
161,184 |
$ |
187,302 |
|||
Cash paid for income taxes, net of refunds |
$ |
21,598 |
$ |
20,144 |
See Notes to Consolidated Financial Statements
5
CLEAR CHANNEL OUTDOOR HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED 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. On May 1, 2019, the Company separated (the “Separation”) from iHeartCommunications, Inc. ("iHeartCommunications"), a subsidiary of iHeartMedia, Inc. ("iHeartMedia"), upon the effective date of iHeartMedia's fifth amended Plan of Reorganization (the “iHeartMedia Plan of Reorganization”) and iHeartMedia's emergence from bankruptcy under Chapter 11 of the United States Bankruptcy Code. In connection with the consummation of the Separation, Clear Channel Outdoor Holdings, Inc. merged with and into the Company (previously known as Clear Channel Holdings, Inc. and previously the parent company of Clear Channel Outdoor Holdings, Inc.) (the “Merger”), with the Company surviving the Merger, becoming the successor to Clear Channel Outdoor Holdings, Inc. and changing its name to Clear Channel Outdoor Holdings, Inc. Additionally, pursuant to the Settlement and Separation Agreement (the "Separation Agreement") entered into with iHeartMedia and iHeartCommunications, the Intercompany Agreements (as defined below) with iHeartCommunications were terminated. Note 7 provides additional information about the Merger and Separation.
Prior to the Separation, the historical financial statements of the Company consisted of the carve-out financial statements of the Outdoor Business (as defined below) of Clear Channel Holdings, Inc., which previously also owned a portion of the Radio business of iHeartMedia, the Company’s former indirect parent company. Upon the Separation and the transactions related thereto (the “Transactions”) on May 1, 2019, the Company’s only assets, liabilities and operations were those of the Outdoor Business.
The “Outdoor Business” refers to the assets that are primarily related to or are primarily used or held for use in connection with the business of any member of the Company and its subsidiaries. The carve-out financial statements excluded the radio businesses that had historically been reported as part of iHeartMedia’s iHM segment (the “Radio Businesses”) prior to the Separation. In addition, the carve-out financial statements excluded amounts attributable to Clear Channel Holdings, Inc., which was a holding company prior to the Separation with no independent assets or operations.
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 2018 Annual Report on Form 10-K and the Current Report on Form 8-K filed on May 2, 2019.
The consolidated financial statements include the accounts of the Company and its subsidiaries and, prior to the Separation, give effect to allocations of expenses from iHeartMedia. These allocations, which ceased at the time of Separation, 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 2019 presentation.
6
CLEAR CHANNEL OUTDOOR HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
New Accounting Pronouncements Recently Adopted
Leases
The Company adopted Accounting Standards Update ("ASU") No. 2016-02, which created Accounting Standards Codification ("ASC") Topic 842, Leases, and all subsequent ASUs relating to this Topic (collectively, "ASC Topic 842") as of January 1, 2019. This new lease accounting standard, which supersedes previous lease accounting guidance under U.S. GAAP (ASC Topic 840), results in significant changes to the balance sheets of lessees, most significantly by requiring the recognition of a right-of-use ("ROU") asset and lease liability by lessees for those leases classified as operating leases. Lessor accounting is also updated to align with certain changes in the lessee model and the revenue recognition standard (ASC Topic 606), which was adopted in 2018.
The Company applied the transition provisions of this standard at January 1, 2019 following the optional transition method provided by ASU No. 2018-11; consequently the consolidated financial statements and notes to the consolidated financial statements for periods before the date of adoption continue to be presented in accordance with ASC Topic 840. In addition, the Company elected the package of practical expedients permitted under the transition guidance within the new standard, which allowed us to not reassess whether expired or existing contracts are or contain leases and to carry forward the historical lease classification for those leases that commenced prior to the date of adoption.
Upon adoption of ASC Topic 842, prepaid and deferred rent balances, which were historically presented separately, were combined and presented net within the ROU asset. Additionally, deferred gains related to previous transactions that were historically accounted for as sale and operating leasebacks in accordance with ASC Topic 840 were recognized as a cumulative-effect adjustment to equity, resulting in an increase to equity, net of tax, of $14.6 million.
Adoption of the new standard had a material impact on our consolidated balance sheets, but it did not have a material impact on our other consolidated financial statements. Additionally, the standard requires disclosures to meet the objective of enabling users of the financial statements to assess the amount, timing, and uncertainty of cash flows arising from leases. Refer to Note 2, Revenue, and Note 3, Leases, for more information.
Intangible Assets and Goodwill
During the first quarter of 2017, the FASB issued ASU 2017-04, Intangibles - Goodwill and Other (Topic 350), which eliminates the requirement to calculate the implied fair value of goodwill to measure a goodwill impairment charge. Instead, entities shall record an impairment charge based on the excess of a reporting unit's carrying amount over its fair value. The standard is mandatory for annual and interim impairment tests performed for periods beginning after December 15, 2019; however, the Company early adopted the proposed guidance under ASU 2017-04 beginning on January 1, 2019 on a prospective basis. The implementation of ASU 2017-04 did not have a material impact on our consolidated financial statements and related disclosures.
During the third quarter of 2018, the FASB issued ASU 2018-15, Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40), Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract. This update requires that a customer in a cloud computing arrangement that is a service contract follow the internal-use software guidance in ASC 350-402 to determine which implementation costs to capitalize as assets. The standard is effective for fiscal years beginning after December 15, 2019; however, the Company early adopted the proposed guidance under ASU 2018-15 beginning on January 1, 2019 on a prospective basis. The implementation of ASU 2018-15 did not have a material impact on our consolidated financial statements and related disclosures.
7
CLEAR CHANNEL OUTDOOR HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 2 – REVENUE
The Company generates revenue primarily from the sale of advertising space on printed and digital out-of-home advertising displays. These contracts typically cover periods of a few weeks to one year, although there are some with longer terms. Americas contracts are generally cancelable after a specified notice period, while International contracts are generally non-cancelable or require the customer to pay a fee to terminate the contract. Certain of these revenue transactions are considered leases for accounting purposes as the contracts convey to customers the right to control the use of the Company’s advertising displays for a period of time. To qualify as a lease, fulfillment of the contract must be dependent upon the use of a specified advertising structure, the customer must have almost exclusive use of the advertising display throughout the contract term, and, upon adoption of the new leases standard (ASC Topic 842) on January 1, 2019, the customer must also have the right to change the advertisement that is displayed throughout the contract term.
The Company has elected a practical expedient to not separate non-lease components from associated lease components if certain criteria are met. As such, each right to control the use of an advertising display that meets the lease criteria is combined with the related installation and maintenance services provided under the contract into a single lease component. Production services, which do not meet the criteria to be combined, and each advertising display that does not meet the lease criteria (along with any related installation and maintenance services) are non-lease components. Consideration in outdoor advertising contracts is allocated between lease and non-lease components in proportion to their relative standalone selling prices, which are generally approximated by the contractual prices for each promised service. The Company accounts for revenue from leases, which are all classified as operating leases, in accordance with the lease accounting guidance (ASC Topic 840 or ASC Topic 842, depending on the advertising campaign start date), while the Company’s remaining revenue transactions are accounted for as revenue from contracts with customers (ASC Topic 606).
In accordance with the transition approach that the Company elected to adopt ASC Topic 842, as described in Note 1, revenue contracts with campaign start dates prior to January 1, 2019 were not reassessed to determine whether they qualify as a lease under the requirements of the new leasing standard. Instead, they continue to be accounted for as revenue from contracts with customers or revenue from leases based on the requirements of the previous standard (ASC Topic 840), and the new requirements have been applied to revenue contracts with campaign start dates on or after January 1, 2019. Because the definition of a lease is more restrictive under the new standard, fewer of our new revenue contracts meet the definition of a lease for accounting purposes, resulting in an increase in the percentage of revenue that is categorized as revenue from contracts with customers as compared to the prior year.
8
CLEAR CHANNEL OUTDOOR HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Disaggregation of Revenue
The following table shows, by segment, revenue from contracts with customers disaggregated by geographical region, revenue from leases and total revenue for the three and six months ended June 30, 2019 and 2018:
(In thousands) |
Americas |
International |
Consolidated |
||||||||
Three Months Ended June 30, 2019 | |||||||||||
Revenue from contracts with customers: |
|||||||||||
United States |
$ |
181,500 |
$ |
— |
$ |
181,500 |
|||||
Other Americas |
1,026 |
17,411 |
18,437 |
||||||||
Europe |
— |
252,106 |
252,106 |
||||||||
Asia-Pacific |
— |
59,986 |
59,986 |
||||||||
Total |
182,526 |
329,503 |
512,029 |
||||||||
Revenue from leases |
144,616 |
41,370 |
185,986 |
||||||||
Revenue, total |
$ |
327,142 |
$ |
370,873 |
$ |
698,015 |
|||||
Three Months Ended June 30, 2018 | |||||||||||
Revenue from contracts with customers: | |||||||||||
United States |
$ |
115,488 |
$ |
— |
$ |
115,488 |
|||||
Other Americas |
634 |
13,359 |
13,993 |
||||||||
Europe |
— |
226,577 |
226,577 |
||||||||
Asia-Pacific |
— |
2,613 |
2,613 |
||||||||
Total |
116,122 |
242,549 |
358,671 |
||||||||
Revenue from leases |
183,800 |
169,509 |
353,309 |
||||||||
Revenue, total |
$ |
299,922 |
$ |
412,058 |
$ |
711,980 |
|||||
Six Months Ended June 30, 2019 | |||||||||||
Revenue from contracts with customers: |
|||||||||||
United States |
$ |
312,931 |
$ |
— |
$ |
312,931 |
|||||
Other Americas |
1,922 |
31,056 |
32,978 |
||||||||
Europe |
— |
453,311 |
453,311 |
||||||||
Asia-Pacific |
— |
113,217 |
113,217 |
||||||||
Total |
314,853 |
597,584 |
912,437 |
||||||||
Revenue from leases |
285,011 |
87,683 |
372,694 |
||||||||
Revenue, total |
$ |
599,864 |
$ |
685,267 |
$ |
1,285,131 |
|||||
Six Months Ended June 30, 2018 | |||||||||||
Revenue from contracts with customers: | |||||||||||
United States |
$ |
211,635 |
$ |
— |
$ |
211,635 |
|||||
Other Americas |
1,284 |
25,482 |
26,766 |
||||||||
Europe |
— |
413,793 |
413,793 |
||||||||
Asia-Pacific |
— |
5,625 |
5,625 |
||||||||
Total |
212,919 |
444,900 |
657,819 |
||||||||
Revenue from leases |
342,850 |
309,709 |
652,559 |
||||||||
Revenue, total |
$ |
555,769 |
$ |
754,609 |
$ |
1,310,378 |
The Company’s advertising structures, which may be owned or leased, are used to generate revenue, and such revenue may be classified as revenue from contracts with customers or revenue from leases depending on the terms of the contract, as previously described.
9
CLEAR CHANNEL OUTDOOR HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Revenue from Contracts with Customers
The following tables show the Company’s beginning and ending accounts receivable and deferred revenue balances from contracts with customers:
Three Months Ended June 30, |
Six Months Ended June 30, |
||||||||||||||
(In thousands) |
2019 |
2018 |
2019 |
2018 |
|||||||||||
Accounts receivable, net of allowance, from contracts with customers: |
|||||||||||||||
Beginning balance |
$ |
418,916 |
$ |
305,030 |
$ |
367,918 |
$ |
346,323 |
|||||||
Ending balance |
$ |
509,129 |
$ |
322,084 |
$ |
509,129 |
$ |
322,084 |
|||||||
Deferred revenue from contracts with customers: |
|||||||||||||||
Beginning balance |
$ |
57,073 |
$ |
45,261 |
$ |
39,916 |
$ |
28,804 |
|||||||
Ending balance |
$ |
55,164 |
$ |
45,509 |
$ |
55,164 |
$ |
45,509 |
During the three months ended June 30, 2019 and 2018, respectively, the Company recognized $38.2 million and $30.3 million of revenue that was included in the deferred revenue from contracts with customers balance at the beginning of the quarter. During the six months ended June 30, 2019 and 2018, respectively, the Company recognized $32.3 million and $24.1 million of revenue that was included in the deferred revenue from contracts with customers balance at the beginning of the year.
As previously described, the Company’s contracts with customers generally have terms of one year or less; however, as of June 30, 2019, the Company expects to recognize $132.4 million of revenue in future periods for remaining performance obligations from current contracts with customers that have an original expected duration greater than one year, with the majority of this amount to be recognized over the next five years.
Revenue from Leases
As of June 30, 2019, future lease payments to be received by the Company are as follows
(In thousands) | |||
2019 |
$ |
304,445 |
|
2020 |
68,770 |
||
2021 |
20,869 |
||
2022 |
10,907 |
||
2023 |
2,800 |
||
Thereafter |
4,756 |
||
Total |
$ |
412,547 |
Note that the future lease payments disclosed are limited to the non-cancelable period of the lease and, for contracts that require the customer to pay a significant fee to terminate the contract such that the customer is considered reasonably certain not to exercise this option, periods beyond the termination option. Payments scheduled for periods beyond a termination option are not included for contracts that allow cancellation by the customer without a significant fee.
10
CLEAR CHANNEL OUTDOOR HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 3 – LEASES
The Company enters into contracts to use land, buildings and office space, structures, and other equipment such as automobiles and copiers. Such arrangements are evaluated at inception to determine whether they contain a lease. The majority of the Company's leases are operating leases, including land lease contracts and contracts for the use of space on floors, walls and exterior locations on buildings, assuming all required elements of a lease contract are present. The majority of the Company's transit contracts do not meet the definition of a lease under ASC Topic 842 due to substantive substitution rights within those contracts; however, in accordance with the transition approach that the Company elected to adopt ASC Topic 842 as described in Note 1, contracts that were historically determined to be leases under ASC Topic 840, including certain international transit contracts, are included in the Company’s balance sheet as of January 1, 2019.
Operating leases are reflected on the Company's balance sheet as Operating lease right-of-use ("ROU") assets, and the related short-term and long-term liabilities are included within Current and Noncurrent operating lease liabilities, respectively. ROU assets represent the right to use an underlying asset for the lease term, and lease liabilities represent the obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at lease commencement based on the present value of lease payments over the lease term, and lease expense is recognized on a straight-line basis over the lease term. The Company's finance leases are included within Property, plant and equipment, and the related short-term and long-term liabilities are included within the Current portion of long-term debt and Long-term debt, respectively.
Certain of the Company's operating lease agreements include rental payments that are based on a percentage of revenue, and others include rental payments that are adjusted periodically for inflationary changes. Percentage rent contracts, in which lease expense is calculated as a percentage of advertising revenue, and payments due to changes in inflationary adjustments are included within variable rent expense, which is accounted for separately from periodic straight-line lease expense. Amounts related to insurance and property taxes in lease arrangements when billed on a pass-through basis are allocated to the lease and non-lease components of the lease based on their relative standalone selling prices. The Company is commonly assessed VAT on its international contracts, which is treated as a non-lease component.
Many of the Company's operating lease contracts permit the Company to continue operating the leased assets after the rights and obligations of the lease agreements have expired. Such contracts are not considered to be leases after they expire, and future expected payments are not included in operating lease liabilities or ROU assets. Additionally, many of the Company's leases entered into in connection with advertising structures provide options to extend the terms of the agreements. Renewal periods are generally excluded from minimum lease payments when calculating the lease liabilities as the Company does not consider exercise of such options to be reasonably certain for most leases. Therefore, unless exercise of a renewal option is considered reasonably assured, the optional terms and payments are not included within the lease liability. The Company's lease agreements do not contain material residual value guarantees or material restrictive covenants.
The implicit rate within the Company's lease agreements is generally not determinable. As such, the Company uses the incremental borrowing rate ("IBR") to determine the present value of lease payments at the commencement of the lease. The IBR, as defined in ASC Topic 842, is "the rate of interest that a lessee would have to pay to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment."
The following table provides the components of lease expense included within the Consolidated Statement of Comprehensive Loss for the three and six months ended June 30, 2019:
(In thousands) |
Three Months Ended June 30, 2019 |
Six Months Ended June 30, 2019 |
|||||
Operating lease expense |
$ |
131,660 |
$ |
266,756 |
|||
Variable lease expense |
38,957 |
70,522 |
11
CLEAR CHANNEL OUTDOOR HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The following table provides the weighted average remaining lease term and the weighted average discount rate for the Company's leases as of June 30, 2019:
June 30, 2019 |
||
Operating lease weighted average remaining lease term (in years) |
10.4 |
|
Operating lease weighted average discount rate |
7.36 |
% |
As of June 30, 2019, the Company’s future maturities of operating lease liabilities were as follows:
(In thousands) | |||
2019 |
$ |
293,490 |
|
2020 |
427,209 |
||
2021 |
363,819 |
||
2022 |
284,964 |
||
2023 |
229,606 |
||
Thereafter |
1,377,210 |
||
Total lease payments |
$ |
2,976,298 |
|
Less: Effect of discounting |
962,026 |
||
Total operating lease liability |
$ |
2,014,272 |
The following table provides supplemental cash flow information related to leases:
(In thousands) |
Six Months Ended June 30, 2019 |
||
Cash paid for amounts included in measurement of operating lease liabilities |
$ |
289,146 |
|
Lease liabilities arising from obtaining right-of-use assets1
|
$ |
2,184,176 |
1 |
Includes transition liabilities upon adoption of ASC Topic 842, as well as new leases entered into during the six months ended June 30, 2019.
|
NOTE 4 – PROPERTY, PLANT AND EQUIPMENT, INTANGIBLE ASSETS AND GOODWILL
Property, Plant and Equipment
The Company’s property, plant and equipment consisted of the following classes of assets as of June 30, 2019 and December 31, 2018, respectively:
(In thousands) |
June 30, 2019 |
December 31, 2018 |
|||||
Land, buildings and improvements |
$ |
148,626 |
$ |
145,403 |
|||
Structures |
2,782,755 |
2,835,411 |
|||||
Furniture and other equipment |
210,217 |
202,155 |
|||||
Construction in progress |
81,848 |
73,030 |
|||||
3,223,446 |
3,255,999 |
||||||
Less: accumulated depreciation |
2,006,739 |
1,967,061 |
|||||
Property, plant and equipment, net |
$ |
1,216,707 |
$ |
1,288,938 |
12
CLEAR CHANNEL OUTDOOR HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Intangible Assets
The following table presents the gross carrying amount and accumulated amortization for each major class of intangible assets as of June 30, 2019 and December 31, 2018, respectively:
(In thousands) |
June 30, 2019 |
December 31, 2018 |
|||||||||||||
Gross Carrying Amount |
Accumulated Amortization |
Gross Carrying Amount |
Accumulated Amortization |
||||||||||||
Indefinite-lived permits |
$ |
971,163 |
$ |
— |
$ |
971,163 |
$ |
— |
|||||||
Transit, street furniture and other outdoor
contractual rights
|
526,837 |
(446,800 |
) |
528,185 |
(440,228 |
) |
|||||||||
Permanent easements |
163,341 |
— |
163,317 |
— |
|||||||||||
Trademarks |
83,569 |
(1,039 |
) |
409 |
(338 |
) |
|||||||||
Other |
5,499 |
(4,089 |
) |
5,510 |
(3,993 |
) |
|||||||||
Total intangible assets |
$ |
1,750,409 |
$ |
(451,928 |
) |
$ |
1,668,584 |
$ |
(444,559 |
) |
As part of the Separation Agreement, the Trademark License Agreement with iHeartCommunications was canceled, and the Company received the "Clear Channel" and "Clear Channel Outdoor" trademarks, among other Clear Channel marks, as a capital contribution from iHeartCommunications upon Separation on May 1, 2019. The trademarks have a gross carrying amount of $83.2 million and a remaining useful life of ten years.
Total amortization expense related to definite-lived intangible assets for the three months ended June 30, 2019 and 2018 was $4.7 million and $5.2 million, respectively. Total amortization expense related to definite-lived intangible assets for the six months ended June 30, 2019 and 2018 was $8.8 million and $10.3 million, respectively.
As acquisitions and dispositions occur in the future, amortization expense may vary. The following table presents the Company’s estimate of amortization expense for each of the five succeeding fiscal years for definite-lived intangible assets:
(In thousands) |
|||
2020 |
$ |
18,395 |
|
2021 |
18,093 |
||
2022 |
16,293 |
||
2023 |
11,893 |
||
2024 |
11,787 |
Goodwill
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, 2018 |
$ |
507,819 |
$ |
198,184 |
$ |
706,003 |
|||||
Foreign currency |
— |
(941 |
) |
(941 |
) |
||||||
Balance as of June 30, 2019 |
$ |
507,819 |
$ |
197,243 |
$ |
705,062 |
13
CLEAR CHANNEL OUTDOOR HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 5 – LONG-TERM DEBT
Long-term debt outstanding as of June 30, 2019 and December 31, 2018 consisted of the following:
(In thousands) |
June 30, 2019 |
December 31, 2018 |
|||||
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(1)
|
— |
275,000 |
|||||
7.625% Series B Senior Subordinated Notes Due 2020(1)
|
— |
1,925,000 |
|||||
9.25% Senior Subordinated Notes Due 2024(1)
|
2,235,000 |
— |
|||||
Receivables-based Credit Facility Due 2023(2)
|
— |
— |
|||||
Revolving Credit Facility with iHeartCommunications Due 2022(3)
|
— |
— |
|||||
Clear Channel International B.V. Senior Notes Due 2020 |
375,000 |
375,000 |
|||||
Other debt |
4,003 |
3,882 |
|||||
Original issue discount |
(999 |
) |
(739 |
) |
|||
Long-term debt fees |
(41,648 |
) |
(25,808 |
) |
|||
Total debt |
$ |
5,296,356 |
$ |
5,277,335 |
|||
Less: current portion |
260 |
227 |
|||||
Total long-term debt |
$ |
5,296,096 |
$ |
5,277,108 |
(1) |
On February 4, 2019, Clear Channel Worldwide Holdings, Inc., a subsidiary of the Company (“CCWH” or the "Subsidiary Issuer"), delivered a conditional notice of redemption calling all of its outstanding $275.0 million aggregate principal amount of 7.625% Series A Senior Subordinated Notes due 2020 (the “Series A CCWH Subordinated Notes”) and $1,925.0 million aggregate principal amount of 7.625% Series B Senior Subordinated Notes due 2020 (the “Series B CCWH Subordinated Notes”) for redemption on March 6, 2019. The redemption was conditioned on the closing of the offering of $2,235.0 million of new 9.25% Senior Subordinated Notes due 2024 (the “New CCWH Subordinated Notes”). At the closing of such offering on February 12, 2019, CCWH deposited with the trustee for the CCWH Subordinated Notes a portion of the proceeds from the new notes in an amount sufficient to pay and discharge the principal amount outstanding, plus accrued and unpaid interest on the CCWH Subordinated Notes to, but not including, the redemption date. CCWH irrevocably instructed the trustee to apply such funds to the full payment of the CCWH Subordinated Notes on the redemption date. Concurrently therewith, CCWH elected to satisfy and discharge the indentures governing the CCWH Subordinated Notes in accordance with their terms, and the trustee acknowledged such discharge and satisfaction. As a result of the satisfaction and discharge of the indentures, CCWH and the guarantors of the CCWH Subordinated Notes have been released from their remaining obligations under the indentures and the CCWH Subordinated Notes. On July 23, 2019, CCWH issued a conditional notice of redemption to redeem a portion of the New CCWH Subordinated Notes using the proceeds of a public offering of common stock. On July 30, 2019, the conditions to the redemption were satisfied, and the notice of redemption became irrevocable. Pursuant to the notice of redemption, as amended at the closing of the offering, approximately $333.5 million aggregate principal amount of New CCWH Subordinated Notes will be redeemed on August 22, 2019.
|
(2) |
As of June 30, 2019, the receivables-based credit facility had $80.7 million of letters of credit outstanding and a borrowing limit of $125.0 million, resulting in $44.3 million of excess availability. Certain additional restrictions, including a springing financial covenant, take effect at decreased levels of excess availability.
|
(3) |
On May 1, 2019, in accordance with the Separation Agreement, Clear Channel Outdoor, LLC and Clear Channel International, Ltd. entered into a three-year unsecured $200.0 million revolving credit facility with iHeartCommunications (the "iHeartCommunications Line of Credit"). As of June 30, 2019, no amounts were drawn under the iHeartCommunications Line of Credit. On July 30, 2019, in connection with the consummation of a public offering of common stock, we terminated the iHeartCommunications Line of Credit.
|
The aggregate market value of the Company’s debt based on market prices for which quotes were available was approximately $5.6 billion and $5.2 billion as of June 30, 2019 and December 31, 2018, 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.
14
CLEAR CHANNEL OUTDOOR HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
9.25% Senior Subordinated Notes Due 2024
On February 12, 2019, CCWH, an indirect, wholly-owned subsidiary of the Company, completed the sale of $2,235.0 million in aggregate principal amount of New CCWH Subordinated Notes in a private placement to qualified institutional buyers under Rule 144A under the Securities Act of 1933, as amended (the “Securities Act”), and to persons outside the United States pursuant to Regulation S under the Securities Act.
The New CCWH Subordinated Notes were issued pursuant to an indenture, dated as of February 12, 2019 (the “New CCWH Notes Indenture”), among CCWH, the Company, Clear Channel Outdoor, Inc. (“CCOI”) and the other guarantors party thereto (collectively with the Company and CCOI, the “Guarantors”), and U.S. Bank National Association, as trustee, paying agent, registrar and transfer agent (the “Trustee”). The New CCWH Subordinated Notes mature on February 15, 2024 and bear interest at a rate of 9.25% per annum. Interest is payable to the Trustee semi-annually. In each case, interest will be payable to the holders of the New CCWH Subordinated Notes semi-annually on February 15 and August 15 of each year, beginning on August 15, 2019.
The New CCWH Subordinated Notes and the guarantees of the New CCWH Subordinated Notes are unsecured senior subordinated obligations that rank pari passu in right of payment to all senior subordinated indebtedness of Clear Channel Worldwide and the Guarantors, junior to all senior indebtedness of CCWH and the Guarantors, including CCWH's outstanding 6.5% Series A Senior Notes and Series B Senior Notes due 2022 (the “Senior Notes”), and senior to all future subordinated indebtedness of CCWH and the Guarantors that expressly provides that it is subordinated to the New CCWH Subordinated Notes. Following the satisfaction of certain conditions, including that the Senior Notes are no longer outstanding and at least a portion of such notes has been refinanced with senior secured indebtedness, the New CCWH Subordinated Notes and the guarantees of the New CCWH Subordinated Notes will cease to be subordinated obligations and thereafter will rank pari passu in right of payment with all senior indebtedness of CCWH and the Guarantors (the “step-up”). There can be no assurance that the step-up will ever occur and that the New CCWH Subordinated Notes and the guarantees will ever cease to be subordinated indebtedness of CCWH and the Guarantors.
CCWH may redeem the New CCWH Subordinated Notes at its option, in whole or part, at any time prior to February 15, 2021, at a price equal to 100% of the principal amount of the New CCWH Subordinated Notes redeemed, plus a make-whole premium, plus accrued and unpaid interest to the redemption date. CCWH may redeem the New CCWH Subordinated Notes, in whole or in part, on or after February 15, 2021, at the redemption prices set forth in the Indenture plus accrued and unpaid interest to the redemption date. At any time prior to February 15, 2021, CCWH may elect to redeem up to 40% of the aggregate principal amount of the New CCWH Subordinated Notes at a redemption price equal to 109.25% of the principal amount thereof, plus accrued and unpaid interest to the redemption date, with the net proceeds of one or more equity offerings. In addition, CCWH may redeem up to 20% of the aggregate principal amount of the New CCWH Subordinated Notes at any time prior to February 15, 2021, using the net proceeds from certain other equity offerings at 103% of the principal amount of the New CCWH Subordinated Notes. CCWH will be permitted to use these two redemption options concurrently but will not be permitted to redeem, in the aggregate, more than 40% of the principal amount of the New CCWH Subordinated Notes pursuant to these options.
The New CCWH Notes Indenture contains covenants that limit the Company’s ability and the ability of its restricted subsidiaries to, among other things: (i) incur or guarantee additional debt or issue certain preferred stock; (ii) redeem, purchase or retire subordinated debt; (iii) make certain investments; (iv) create restrictions on the payment of dividends or other amounts from the Company’s restricted subsidiaries that are not Guarantors; (v) enter into certain transactions with affiliates; (vi) merge or consolidate with another person, or sell or otherwise dispose of all or substantially all of the Company’s assets; (vii) sell certain assets, including capital stock of the Company’s subsidiaries; (viii) designate the Company’s subsidiaries as unrestricted subsidiaries, (ix) pay dividends, redeem or repurchase capital stock or make other restricted payments; and (x) in the event that the step-up occurs and the New CCWH Subordinated Notes cease to be subordinated, incur certain liens.
Surety Bonds, Letters of Credit and Guarantees
As of June 30, 2019, the Company had $68.2 million, $80.7 million and $35.1 million in surety bonds, letters of credit and bank guarantees outstanding, respectively. A portion of the outstanding bank guarantees was supported by $15.7 million of cash collateral. Additionally, as of June 30, 2019, iHeartCommunications had outstanding commercial standby letters of credit of $1.6 million held on behalf of the Company. These letters of credit, surety bonds and bank guarantees relate to various operational matters, including insurance, bid, concession and performance bonds, as well as other items.
15
CLEAR CHANNEL OUTDOOR HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 6 – 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 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.
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 (the “Delaware Chancery Court”), captioned GAMCO Asset Management Inc. v. iHeartMedia Inc. et al., C.A. No. 12312-VCS. The complaint named 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 “Former Sponsor Defendants”), iHeartMedia’s pre-bankruptcy private equity sponsors and pre-bankruptcy majority owners, and the members of the Company’s board of directors. The Company also was named as a nominal defendant. The complaint alleged that the Company had 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 Former Sponsor Defendants to the detriment of the Company and its minority stockholders. The plaintiff sought, among other things, a ruling that the defendants breached their fiduciary duties to the Company and that iHeartMedia, iHeartCommunications and the Former 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 Former 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 Delaware Chancery 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.
On December 29, 2017, another stockholder of the Company filed a derivative lawsuit (the "Norfolk Lawsuit") in the Delaware Chancery Court captioned Norfolk County Retirement System, v. iHeartMedia, Inc., et al., C.A. No. 2017-0930-JRS. The complaint names as defendants iHeartMedia, iHeartCommunications, the Former Sponsor Defendants, and the members of the Company's board of directors. The Company is named as a nominal defendant. The complaint alleges that the Company has been harmed by the Company Board’s November 2017 decision to extend the maturity date of the intercompany revolving note (the “Third Amendment”) at what the complaint describes as far-below-market interest rates. The plaintiff sought, among other things, a ruling that the defendants breached their fiduciary duties to the Company, a modification of the Third Amendment to bear a commercially reasonable rate of interest, and an order requiring disgorgement of all profits, benefits and other compensation obtained by defendants as a result of the alleged breaches of fiduciary duties.
On March 7, 2018, the defendants filed a motion to dismiss plaintiff's verified derivative complaint for failure to state a claim upon which relief can be granted. On March 16, 2018, iHeartMedia filed a Notice of Suggestion of Pendency of Bankruptcy and Automatic Stay of Proceedings. On May 4, 2018, plaintiff filed its response to the motion to dismiss. On June 26, 2018, the defendants filed a reply brief in further support of their motion to dismiss. Oral argument on the motion to dismiss was held on September 20, 2018.
16
CLEAR CHANNEL OUTDOOR HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
On August 27, 2018, the same stockholder of the Company that had filed a derivative lawsuit against iHeartMedia and others in 2016 (GAMCO Asset Management Inc.) filed a putative class action lawsuit (the "GAMCO II Lawsuit") in the Delaware Chancery Court, captioned GAMCO Asset Management, Inc. v. Hendrix, et al., C.A. No. 2018-0633-JRS. The complaint names as defendants the Former Sponsor Defendants and the members of the Company’s board of directors. The complaint alleges that minority shareholders in the Company during the period November 8, 2017 to March 14, 2018 were harmed by decisions of the Company's board of directors and the intercompany note committee of the board of directors relating to the intercompany note. The plaintiff sought, among other things, a ruling that the Company's board of directors, the intercompany note committee, and the Sponsor Defendants breached their fiduciary duties and that the Sponsor Defendants aided and abetted the Board’s breach of fiduciary duty; and an award of damages, together with pre- and post-judgment interests, to the putative class of minority shareholders.
On December 16, 2018, the Debtors, the Company, GAMCO Asset Management, Inc., and Norfolk County Retirement System entered into a settlement agreement (the "Settlement Agreement"), which resolves all claims, objections, and other causes of action that have been or could be asserted by or on behalf of the Company, GAMCO Asset Management, Inc., and/or Norfolk County Retirement System by and among the Debtors, the Company, GAMCO Asset Management, Inc., certain individual defendants in the GAMCO Asset Management, Inc. action and/or the Norfolk County Retirement System action, and the private equity sponsor defendants in such actions. The Settlement Agreement provides for the consensual separation of the Debtors and the Company, including approximately $149.0 million of recovery to CCOH on account of its claim against iHeartCommunications in the Chapter 11 cases, an unsecured revolving line of credit in an aggregate amount not to exceed $200 million from iHeartCommunications (the “iHeart Line of Credit”), the transfer of certain of the Debtors’ intellectual property to the Company, the waiver by the Debtors of the setoff for the value of the transferred intellectual property, mutual releases, the termination of the cash sweep under the existing Corporate Services Agreement, the termination of any agreements or licenses requiring royalty payments from the Company to the Debtors for trademarks or other intellectual property, the waiver of any post-petition amounts owed by the Company relating to such trademarks or other intellectual property, and the execution of a new transition services agreement and other separation documents. The Settlement Agreement was approved by the Bankruptcy Court and the United States District Court for the Southern District of Texas in connection with the confirmation of the iHeartMedia Chapter 11 Cases on January 22, 2019. On May 1, 2019, the Debtors' plan of reorganization went effective, and the Norfolk Lawsuit and GAMCO II Lawsuit were each subsequently dismissed with prejudice.
China Investigation
Two former employees of Clear Media Limited, an indirect, non-wholly-owned subsidiary of the Company whose ordinary shares are listed on the Hong Kong Stock Exchange, have been convicted in China of certain crimes, including the crime of misappropriation of funds, and sentenced to imprisonment. One of those former employees has appealed his conviction. The Company is not aware of any litigation, claim or assessment pending against the Company in relation to this investigation. Based on information known to date, the Company believes any contingent liabilities arising from potential misconduct that has been or may be identified by the investigation in China are not material to the Company’s consolidated financial statements. The effect of the misappropriation of funds is reflected in these financial statements in the appropriate periods.
The Company advised both the United States Securities and Exchange Commission and the United States Department of Justice of the investigation at Clear Media Limited and is cooperating to provide documents, interviews and information in response to inquiries from the agencies. The Clear Media Limited investigation could implicate the books and records, internal controls and anti-bribery provisions of the U.S. Foreign Corrupt Practices Act, which statute and regulations provide for potential monetary penalties as well as criminal and civil sanctions. It is possible that monetary penalties and other sanctions could be assessed on the Company in connection with this matter. The nature and amount of any monetary penalty or other sanctions cannot reasonably be estimated at this time and could be qualitatively or quantitatively material to the Company.
17
CLEAR CHANNEL OUTDOOR HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Italy Investigation
During the three months ended June 30, 2018, the Company identified misstatements associated with VAT obligations in its business in Italy, which resulted in an understatement of its VAT obligation. These misstatements resulted in an understatement of other long-term liabilities of $16.9 million as of December 31, 2017. The effect of these misstatements is reflected in the historical financial statements in the appropriate periods. Upon identification of these misstatements, the Company undertook certain procedures, including a forensic investigation. In addition, the Company voluntarily disclosed the matter and findings to the Italian tax authorities in order to commence a discussion on the appropriate calculation of the VAT position. The current expectation is that the Company may have to repay to the Italian tax authority a substantial portion of the VAT previously applied as a credit in relation to the transactions under investigation, amounting to approximately $17 million, including estimated possible penalties and interest. The Company made a payment of approximately $6.9 million, net of VAT recoverable, during the fourth quarter of 2018 and expects to pay the remainder during the last half of 2019 or the first quarter of 2020. The ultimate amount to be paid may differ from the estimates, and such differences may be material.
NOTE 7 — RELATED PARTY TRANSACTIONS
Merger Agreement
On March 27, 2019, as contemplated by the Settlement Agreement and iHeartMedia’s modified fifth amended Plan of Reorganization (the “iHeart Plan of Reorganization”), which was confirmed by the United States Bankruptcy Court for the Southern District of Texas (the "Bankruptcy Court") on January 22, 2019, the Company (then known as Clear Channel Holdings, Inc.) and its subsidiary, Clear Channel Outdoor Holdings, Inc., entered into an Agreement and Plan of Merger (the “Merger Agreement”). On May 1, 2019, Clear Channel Outdoor Holdings, Inc. merged with and into the Company, with the Company surviving the Merger and changing its name to Clear Channel Outdoor Holdings, Inc.
Prior to the Merger, the old CCOH Class B Common Stock held by Clear Channel Holdings, Inc., was converted into shares of Clear Channel Outdoor Holdings, Inc.'s Class A Common Stock (the "Old CCOH Class A Common Stock"). At the effective time of the Merger, each share of Old CCOH Class A Common Stock issued and outstanding (other than shares of Old CCOH Class A Common Stock held by Clear Channel Holdings, Inc.) converted into one share of common stock of the Company (the "Common Stock”). The shares of the Old CCOH Class A Common Stock held by Clear Channel Holdings, Inc. were canceled and retired, and no shares of Common Stock were exchanged for such shares. All outstanding shares of common stock of Clear Channel Holdings, Inc., all held by iHeartCommunications immediately before the Merger, were converted into 325,726,917 shares of Common Stock and transferred to certain holders of claims in iHeart Chapter 11 Cases pursuant to the iHeartMedia Plan of Reorganization. As a result, immediately after the Merger, Clear Channel Holdings, Inc. had a single class of common stock, and the pre-Merger Old CCOH Class A common stockholders owned the same percentage of Clear Channel Holdings, Inc. that they owned of Clear Channel Outdoor Holdings, Inc. immediately before the Merger. At the effective time of the Merger, Clear Channel Holdings, Inc. changed its name to Clear Channel Outdoor Holdings, Inc.
Separation Agreement
On March 27, 2019, the Company, Clear Channel Outdoor Holdings, Inc., iHeartMedia and iHeartCommunications entered into a Settlement and Separation Agreement (the “Separation Agreement”) governing the terms of the separation of the Company as the surviving corporation under the Merger and each subsidiary of the Company after giving effect to the Transactions (the Company together with its subsidiaries, the “Outdoor Group”) from iHeartMedia and each of its subsidiaries immediately after giving effect to the Transactions (iHeartMedia together with its subsidiaries, the “iHeart Group”).
Pursuant to the Separation Agreement on May 1, 2019, (i) iHeartMedia and iHeartCommunications caused each relevant member of the iHeart Group to assign, transfer, convey and deliver to iHeartCommunications, and iHeartCommunications transfered to the Company or the relevant member of the Outdoor Group, any and all direct or indirect title and interest in the assets that are primarily related to or used primarily in connection with the Outdoor Business (after giving effect to the Transactions) (such assets, the “Outdoor Assets”), excluding certain excluded assets, and (ii) the Company and Clear Channel Outdoor Holdings, Inc. caused each relevant member of the Outdoor Group to transfer to the relevant member of the iHeart Group any and all direct or indirect title and interest in the assets of the business conducted by the iHeart Group after giving effect to the Transactions, including the radio business (the “iHeart Business” and such assets, the “iHeart Assets”).
18
CLEAR CHANNEL OUTDOOR HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
At the same time as the transfer of the Outdoor Assets from the iHeart Group to the Outdoor Group, the members of the Outdoor Group assumed the liabilities associated with the Outdoor Business, subject to certain exceptions as set forth in the Separation Agreement. At the same time as the transfer of the iHeart Assets from the Outdoor Group to the iHeart Group, the members of the iHeart Group assumed the liabilities associated with the iHeart Business, subject to certain exceptions as set forth in the Separation Agreement.
In connection with the cash management arrangements with CCOH, iHeartCommunications maintained an intercompany revolving promissory note payable by iHeartCommunications to CCOH (the "Due from iHeartCommunications Note"). The Separation Agreement provided for cancellation of the Due from iHeartCommunications Note and that any agreements or licenses requiring royalty payments to the iHeart Group by the Outdoor Group for trademarks or other intellectual property terminated effective as of December 31, 2018. It also provided for (i) the repayment of the post-petition intercompany balance outstanding in favor of the Debtors as of December 31, 2018, which was equal to $21.6 million as of that date and (ii) the waiver of the set-off value of any royalties and IP license fees owed to iHeartCommunications equal to approximately $31.8 million from March 14, 2018 through December 31, 2018, such that the resulting intercompany balance on such date was $10.2 million in favor of the Company. Pursuant to an amendment to the Separation Agreement, the Company offset the $149.0 million amount owed to us by the iHeart Group on the Effective Date by $52.1 million (which is the additional intercompany liability incurred from January 1, 2019 through March 31, 2019), resulting in a total net payment to the Company of approximately $107.0 million on May 1, 2019 (including the $10.2 million payment discussed above). iHeartCommunications paid the Company the intercompany liability incurred from April 1, 2019 through May 1, 2019 of $8.8 million after the Separation. In addition, pursuant to the Separation Agreement, the Company received (i) the trademarks listed on the schedules to the Separation Agreement and (ii) reimbursement of the reasonable expenses of legal counsel and financial advisors incurred on or prior to May 1, 2019 of the Company’s board of directors or the special committee of the Company’s board of directors, in each case, to the extent incurred in connection with the Separation.
Due from iHeartCommunications
Prior to the Separation, the Company recorded net amounts due from or to iHeartCommunications as “Due from/to iHeartCommunications” on the consolidated balance sheets, net of allowance for credit losses. The accounts represented 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.
Pursuant to an order entered by the Bankruptcy Court, as of March 14, 2018, the balance of the Due from iHeartCommunications Note was frozen, and following March 14, 2018, intercompany allocations that were reflected in adjustments to the balance of the Due from iHeartCommunications Note were instead reflected in an intercompany balance that accrued interest at a rate equal to the interest under the Due from iHeartCommunications Note.
The Company did not expect to recover all of the amounts owed under the Due from iHeartCommunications Note upon the implementation of the iHeart Plan of Reorganization (as defined below). As a result, the Company recognized a loss of $855.6 million on the Due from iHeartCommunications Note during the fourth quarter of 2017 to reflect the estimated recoverable amount of the note as of December 31, 2017, based on management's best estimate of the cash settlement amount, and the outstanding principal amount of $1,031.7 million was reduced to $154.8 million as of March 31, 2019 on the consolidated balance sheet. In addition, upon the filing of the iHeart Chapter 11 Cases on March 14, 2018, the Company ceased recording interest income on the pre-petition balance due from iHeartCommunications as the collectability of the interest was not considered probable. Pursuant to the Settlement Agreement, the Company recovered 14.44% of the outstanding principal amount, or approximately $149.0 million, in cash on the allowed claim of $1,031.7 million under the Due from iHeartCommunications Note. As of June 30, 2019, the asset recorded in "Due from iHeartCommunications" on the consolidated balance sheet is $0.0 million.
19
CLEAR CHANNEL OUTDOOR HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Other Related Party Transactions
Prior to the Separation, under the Corporate Services Agreement between iHeartCommunications and the Company, iHeartCommunications provided management services to the Company, which included, 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; (viii) licensing of intellectual property, copyrights, trademarks and other intangible assets and (ix) other general corporate services. These services were 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. Upon consummation of the Separation, the Corporate Services Agreement was terminated and iHeartMedia Management Services, Inc. (“iHM Management Services”), iHeartCommunications and the Company entered into a transition services agreement (the “Transition Services Agreement”). Pursuant to the Transition Services Agreement, iHM Management Services provides, or causes, iHeartMedia, iHeartCommunications, iHeart Operations, Inc. (“iHeart Operations”) or any member of the iHeart Group to provide, the Company with certain administrative and support services and other assistance which the Company will utilize in the conduct of its business as such business was conducted prior to the Separation, for one year from May 1, 2019 (subject to certain rights of the Company to extend up to one additional year, as described below). The transition services may include, among other things, (a) treasury, payroll and other financial related services, (b) certain executive officer services, (c) human resources and employee benefits, (d) legal and related services, (e) information systems, network and related services, (f) investment services and (g) procurement and sourcing support.
The charges for the transition services under the Transition Services Agreement are generally consistent with the Corporate Services Agreement. The allocation of cost is based on various measures depending on the service provided, which measures include relative revenue, employee headcount, number of users of a service or other factors. The Company may request an extension of the term for all services or individual services for one-month periods for up to an additional 12 months, and the price for transition services provided during such extended term will be increased for any service other than those identified in the schedules to the Transition Services Agreement as an “IT Service” or any other service the use and enjoyment of which requires the use of another IT Service.
For the three months ended June 30, 2019 and 2018, the Company recorded $4.6 million and $16.9 million, respectively, and $12.0 million and $34.1 million for the six months ended June 30, 2019 and 2018, respectively, under the Corporate Services Agreement through May 1, 2019 and under the Transition Services Agreement following May 1, 2019, as a component of corporate expenses for these services. The lower management services costs in 2019 primarily resulted from iHeartCommunications no longer charging the trademark license fee in 2019.
The Company may terminate the Transition Services Agreement with respect to all or any individual service, in whole or in part, upon 30 days’ prior written notice, provided that any co-dependent services must be terminated concurrently.
Pursuant to the tax matters agreement, as in existence prior to the Separation (the "Old Tax Matters Agreement") between iHeartCommunications and the Company, the operations of the Company were included in a consolidated federal income tax return filed by iHeartCommunications. The Company’s provision for income taxes has historically been computed on the basis that the Company files separate consolidated federal income tax returns with its subsidiaries. Tax payments were made to iHeartCommunications on the basis of the Company’s separate taxable income. Tax benefits recognized on the Company’s employee stock option exercises were retained by the Company. In addition, if iHeartCommunications or its subsidiaries used certain of our tax attributes (including net operating losses, foreign tax credits and other credits) and such use resulted in a decrease in tax liability for iHeartCommunications or its subsidiaries, then iHeartCommunications would reimburse us for the use of such attributes based on the amount of tax benefit realized. Upon consummation of the Separation, the Tax Matters Agreement was terminated and replaced with a new tax matters agreement (the "New Tax Matters Agreement") by and among iHeartMedia, iHeartCommunications, iHeart Operations, Inc., the Company and Clear Channel Outdoor, LLC to allocate the responsibility of the iHeart Group, on the one hand, and the Outdoor Group, on the other, for the payment of taxes arising prior to and subsequent to, and/or in connection with the iHeart Plan of Reorganization. The New Tax Matters Agreement provides that any reduction of our tax attributes as a result of cancellation of indebtedness income realized in connection with the iHeart Chapter 11 Cases is not treated as a use of such tax attributes and, therefore, does not require iHeartMedia to reimburse us for such reduction.
20
CLEAR CHANNEL OUTDOOR HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The Company computes its deferred income tax provision using the liability method in accordance with the provisions of ASC Subtopic 740-10. 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.
Prior to the Separation, pursuant to the Employee Matters Agreement, the Company’s employees participated in iHeartCommunications’ employee benefit plans, including employee medical insurance and a 401(k) retirement benefit plan. For the three and six months ended June 30, 2018, the Company recorded $2.3 million and $4.6 million, respectively, as a component of selling, general and administrative expenses for these services. On January 1, 2019, the Company's employees began participation in the Company's separate employee benefit plans, including employee medical insurance and a 401(k) retirement benefit plan. Upon consummation of the Separation, the Employee Matters Agreement was terminated; however, under the Transition Services Agreement, the Company continues to receive administrative assistance from iHeartCommunications.
The Company provides advertising space on its billboards for iHeartMedia, Inc. and for radio stations owned by iHeartMedia, Inc. This arrangement will continue through the term of the Transition Services Agreement. For the three months ended June 30, 2019 and 2018, the Company recorded $1.3 million and $2.9 million, respectively, and $2.3 million and $4.4 million for the six months ended June 30, 2019 and 2018, respectively, in revenue for these advertisements. The majority of these agreements are leasing transactions as they convey to iHeartMedia, Inc. the right to control the use of the Company's advertising structures for a stated period of time.
NOTE 8 – INCOME TAXES
Income Tax Benefit (Expense)
The Company’s income tax benefit (expense) for the three and six months ended June 30, 2019 and 2018 consisted of the following components:
(In thousands) |
Three Months Ended June 30, |
Six Months Ended June 30, |
|||||||||||||
2019 |
2018 |
2019 |
2018 |
||||||||||||
Current tax benefit (expense) |
$ |
27,907 |
$ |
24,837 |
$ |
(43,813 |
) |
$ |
(3,619 |
) |
|||||
Deferred tax benefit (expense) |
1,186 |
(29,590 |
) |
15,143 |
(46,501 |
) |
|||||||||
Income tax benefit (expense) |
$ |
29,093 |
$ |
(4,753 |
) |
$ |
(28,670 |
) |
$ |
(50,120 |
) |
The effective tax rates for the three and six months ended June 30, 2019 were 71.8% and (18.8)%, respectively. The effective rate was primarily impacted by the valuation allowance recorded against deferred tax assets resulting from losses in the U.S. and certain foreign jurisdictions due to uncertainty regarding the Company's ability to realize those assets in future periods. The income tax benefit recorded for the three months ended June 30, 2019 is attributed to changes in the Company's estimated annual effective tax rate, driven primarily by changes in forecasted earnings at certain international locations.
The effective tax rates for the three and six months ended June 30, 2018 were (12.4)% and (39.9)%, respectively. The effective rate was primarily impacted by the valuation allowance recorded against deferred tax assets resulting from losses in the U.S. and certain foreign jurisdictions due to uncertainty regarding the Company's ability to realize those assets in future periods.
21
CLEAR CHANNEL OUTDOOR HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
As a result of the Separation from iHeartMedia, certain deferred tax attributes of the Company were reduced as a result of cancellation of indebtedness income realized in connection with the iHeart Plan of Reorganization. As discussed in Note 7, the Company was not reimbursed for the reduction of its tax attributes under the terms of the New Tax Matters Agreement. The reorganization adjustments resulted in a reduction to deferred tax assets for all U.S. federal net operating loss carryforwards and certain state net operating loss carryforwards. These adjustments were partially offset by the reduction of valuation allowances recorded by the Company as of the Separation date. The net tax impact of the reorganization adjustments, which was approximately $65.9 million, was reflected in the equity section of the balance sheet as a dividend. Additionally, the Company recognized a capital loss for tax purposes as a result of the series of transactions to effect the Separation. To the extent the capital loss is not subject to reduction as a result of cancellation of indebtedness income, it may be carried forward to offset capital gains recognized by the Company in the next five years, subject to annual limitations under Section 382 of the Internal Revenue Code. The deferred tax asset associated with the capital loss carryforward is offset by a valuation allowance due to significant uncertainty regarding the Company's ability to utilize the carryforward prior to its expiration.
NOTE 9 – STOCKHOLDERS' EQUITY (DEFICIT)
Common Stock
At the effective time of the Merger, each share of Old CCOH Class A Common Stock issued and outstanding (other than shares of Old CCOH Class A Common Stock held by Clear Channel Holdings, Inc.) converted into one share of common stock of the Company (the "Common Stock”). The shares of the Old CCOH Class A Common Stock held by Clear Channel Holdings, Inc. were canceled and retired, and no shares of Common Stock were exchanged for such shares. All outstanding shares of common stock of Clear Channel Holdings, Inc., all held by iHeartCommunications immediately before the Merger, were converted into 325,726,917 shares of Common Stock and transferred to certain holders of claims in iHeart Chapter 11 Cases pursuant to the iHeartMedia Plan of Reorganization. As a result, immediately after the Merger, Clear Channel Holdings, Inc. had a single class of common stock, and the pre-Merger Old CCOH Class A common stockholders owned the same percentage of Clear Channel Holdings, Inc. that they owned of Clear Channel Outdoor Holdings, Inc. immediately before the Merger.
On July 30, 2019, the Company issued 100 million shares of common stock in a public offering which resulted in net proceeds of $333.5 million, net of underwriting discounts and offering expenses. The Company intends to use the net proceeds from this offering to redeem approximately $333.5 million aggregate principal amount of New CCWH Subordinated Notes on August 22, 2019.
Share-Based Compensation Expense
We have granted restricted stock, restricted stock units and options to purchase shares of our common stock to certain employees under our equity incentive plans. Share-based compensation expense, which is recorded in corporate expenses, was $8.6 million and $1.5 million for the three months ended June 30, 2019 and 2018, respectively, and $10.4 million and $3.6 million for the six months ended June 30, 2019 and 2018, respectively. The increase in share-based compensation expense relates to new equity awards granted in the second quarter of 2019, which were expensed immediately as they do not contain a service condition for vesting.
As of June 30, 2019, there was $13.2 million of unrecognized compensation cost related to unvested share-based compensation arrangements that will vest based on service conditions. This cost is expected to be recognized over a weighted average period of approximately 2.8 years.
22
CLEAR CHANNEL OUTDOOR HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Computation of Net Loss Per Share
The following table presents the computation of net loss per share or the three and six months ended June 30, 2019 and 2018:
(In thousands, except per share data) |
Three Months Ended June 30, |
Six Months Ended June 30, |
|||||||||||||
2019 |
2018 |
2019 |
2018 |
||||||||||||
NUMERATOR: |
|||||||||||||||
Net loss attributable to the Company – common shares |
$ |
(10,939 |
) |
$ |
(50,383 |
) |
$ |
(175,106 |
) |
$ |
(178,805 |
) |
|||
DENOMINATOR: |
|||||||||||||||
Weighted average common shares outstanding - basic |
362,409 |
361,708 |
362,225 |
361,612 |
|||||||||||
Weighted average common shares outstanding - diluted(1)
|
362,409 |
361,708 |
362,225 |
361,612 |
|||||||||||
Net loss attributable to the Company per common share: |
|||||||||||||||
Basic |
$ |
(0.03 |
) |
$ |
(0.14 |
) |
$ |
(0.48 |
) |
$ |
(0.49 |
) |
|||
Diluted |
$ |
(0.03 |
) |
$ |
(0.14 |
) |
$ |
(0.48 |
) |
$ |
(0.49 |
) |
(1) |
Outstanding equity awards of 8.4 million and 6.7 million for the three months ended June 30, 2019 and 2018, respectively, and 8.3 million and 6.7 million for the six months ended June 30, 2019 and 2018, respectively, were not included in the computation of diluted earnings per share because to do so would have been anti-dilutive.
|
NOTE 10 — OTHER INFORMATION
Other Comprehensive Income (Loss)
For the three and six months ended June 30, 2019, the total increase in other comprehensive income related to the impact of pensions on deferred income tax liabilities was $0.6 million. There was no change in deferred income tax liabilities resulting from adjustments to comprehensive loss for the three and six months ended June 30, 2018.
Restricted Cash
The following table provides a reconciliation of cash, cash equivalents and restricted cash reported in the Consolidated Balance Sheet to the total of the amounts reported in the Consolidated Statement of Cash Flows:
(In thousands) |
June 30, 2019 |
December 31, 2018 |
|||||
Cash and cash equivalents |
$ |
372,497 |
$ |
182,456 |
|||
Restricted cash included in: |
|||||||
Other current assets |
4,145 |
4,221 |
|||||
Other assets |
13,162 |
16,192 |
|||||
Total cash, cash equivalents and restricted cash in the Statement of Cash Flows |
$ |
389,804 |
$ |
202,869 |
23
CLEAR CHANNEL OUTDOOR HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Mandatorily Redeemable Preferred Stock
On May 1, 2019, the Company issued 45,000 shares of Series A Perpetual Preferred Stock, par value $0.01 per share ("Preferred Stock"), with the Company having an aggregate initial liquidation preference of $45.0 million, for a cash purchase price of $45.0 million, before fees and expenses. As of June 30, 2019, the liquidation preference of the Preferred Stock was approximately $46.1 million.
The terms and conditions of the Preferred Stock and the rights of its holders are set forth in the Certificate of Designation of Series A Perpetual Preferred Stock (the “Certificate of Designation”) of the Company filed with the office of the Secretary of State of the State of Delaware on May 1, 2019, and the Series A Investors Rights Agreement, dated as of May 1, 2019, by and among the Company, CCWH, and the purchaser listed therein (the “Investors Rights Agreement”).
Shares of the Preferred Stock rank senior and in priority of payment to our common equity interests and preferred stock junior to the Preferred Stock and other equity interests and preferred stock that does not expressly provide that such equity interest ranks senior to or pari passu with the Preferred Stock in any liquidation or winding up of the Company.
Dividends on the Preferred Stock accrue on a daily basis at the applicable dividend rate on the then-current liquidation preference of the Preferred Stock, as and when declared by the board of directors. Dividends will either (a) be payable in cash, if and to the extent declared by the board of directors, or (b) be added to the liquidation preference. The dividend rate will be equal to (i) the greater of (a) a published LIBOR rate or (b) two percent (2%) plus (ii) either a cash dividend margin or an accruing dividend margin, in each case based on the Company's consolidated leverage ratio, subject to certain adjustments. At any leverage ratio, the accruing dividend margin will exceed the cash dividend margin by 1.5%. Dividends, if declared, will be payable on March 31, June 30, September 30 and December 31 of each year (or on the next business day if such date is not a business day). No dividend may be declared unless paid immediately in cash (it being understood that no dividends may be declared and paid in securities or otherwise "in kind").
The Company may redeem any of the Preferred Stock, at its option, at any time on or after the third anniversary of the Issue Date, in each case, in cash at a redemption price equal to the Liquidation Preference per share. Upon consummation of certain equity offerings, the Company may, at its option, redeem all or a part of the Preferred Stock for the Liquidation Preference plus a make-whole premium. In addition, upon the occurrence of, among other things (i) any change of control, (ii) a liquidation, dissolution, or winding up or (iii) certain insolvency events, each holder may require the Company to redeem for cash all of the then outstanding shares of Preferred Stock. In addition, the holders of Preferred Shares may require a designated subsidiary of the Company to purchase the shares after the fifth anniversary of issuance.
On the tenth anniversary of the issue date of the Preferred Stock, the shares of Preferred Stock will be subject to mandatory redemption for an amount equal to the liquidation preference.
The certificate of designations for the Preferred Stock limit the Company's ability to incur additional debt or any other security ranking pari passu with or senior to the Preferred Stock, other than in (a) an amount not to exceed $300 million on a cumulative basis or (b) subject to an incurrence-based leverage test, subject to other customary carve-outs.
Subject to certain exceptions, the holders of shares of Preferred Stock have no voting power, and no right to vote on any matter at any time, either as a separate series or class or together with any other series or class of shares of capital stock, and are not be entitled to call a meeting of such holders for any purpose, nor are they entitled to participate in any meeting of the holders of the Company’s Common Stock. However, if dividends on the Preferred Stock have not been paid, in cash, for twelve consecutive quarters, the holders of the Preferred Stock shall have the right to designate one member to the Company’s board of directors.
Should the Company default or fail to pay dividends, in cash, on the Preferred Stock for twelve consecutive quarters, the holders of the Preferred Stock will have the right to appoint one director to the Company’s board of directors.
24
CLEAR CHANNEL OUTDOOR HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 11 – 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, and the International segment primarily includes operations in Europe, Asia and Latin America. 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.
The following table presents the Company's reportable segment results for the three and six months ended June 30, 2019 and 2018:
(In thousands) |
Americas |
International |
Corporate and other reconciling items |
Consolidated |
|||||||||||
Three Months Ended June 30, 2019 |
|||||||||||||||
Revenue |
$ |
327,142 |
$ |
370,873 |
$ |
— |
$ |
698,015 |
|||||||
Direct operating expenses |
135,974 |
227,055 |
— |
363,029 |
|||||||||||
Selling, general and administrative expenses |
55,482 |
79,239 |
— |
134,721 |
|||||||||||
Corporate expenses |
— |
— |
38,907 |
38,907 |
|||||||||||
Depreciation and amortization |
44,558 |
33,812 |
1,804 |
80,174 |
|||||||||||
Other operating income, net |
— |
— |
1,270 |
1,270 |
|||||||||||
Operating income (loss) |
$ |
91,128 |
$ |
30,767 |
$ |
(39,441 |
) |
$ |
82,454 |
||||||
Segment assets |
$ |
3,664,135 |
$ |
2,446,789 |
$ |
317,033 |
$ |
6,427,957 |
|||||||
Capital expenditures |
$ |
15,930 |
$ |
28,665 |
$ |
6,513 |
$ |
51,108 |
|||||||
Share-based compensation expense |
$ |
— |
$ |
— |
$ |
8,561 |
$ |
8,561 |
|||||||
Three Months Ended June 30, 2018 |
|||||||||||||||
Revenue |
$ |
299,922 |
$ |
412,058 |
$ |
— |
$ |
711,980 |
|||||||
Direct operating expenses |
130,313 |
242,623 |
— |
372,936 |
|||||||||||
Selling, general and administrative expenses |
47,824 |
77,465 |
— |
125,289 |
|||||||||||
Corporate expenses |
— |
— |
37,928 |
37,928 |
|||||||||||
Depreciation and amortization |
43,123 |
38,683 |
961 |
82,767 |
|||||||||||
Other operating income, net |
— |
— |
929 |
929 |
|||||||||||
Operating income (loss) |
$ |
78,662 |
$ |
53,287 |
$ |
(37,960 |
) |
$ |
93,989 |
||||||
Segment assets |
$ |
2,798,237 |
$ |
1,527,312 |
$ |
195,503 |
$ |
4,521,052 |
|||||||
Capital expenditures |
$ |
11,481 |
$ |
20,294 |
$ |
868 |
$ |
32,643 |
|||||||
Share-based compensation expense |
$ |
— |
$ |
— |
$ |
1,519 |
$ |
1,519 |
25
CLEAR CHANNEL OUTDOOR HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(In thousands) |
Americas |
International |
Corporate and other reconciling items |
Consolidated |
|||||||||||
Six Months Ended June 30, 2019 |
|||||||||||||||
Revenue |
$ |
599,864 |
$ |
685,267 |
$ |
— |
$ |
1,285,131 |
|||||||
Direct operating expenses |
266,493 |
444,363 |
— |
710,856 |
|||||||||||