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EX-31 - CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 302 - Clear Channel Outdoor Holdings, Inc.Exhibit31.1.htm
EX-32 - CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO SECTION 906 - Clear Channel Outdoor Holdings, Inc.Exhibit32.2.htm
EX-31 - CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO SECTION 302 - Clear Channel Outdoor Holdings, Inc.Exhibit31.2.htm
EX-32 - CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 906 - Clear Channel Outdoor Holdings, Inc.Exhibit32.1.htm
EX-11 - STATEMENT RE: COMPUTATION OF LOSS PER SHARE - Clear Channel Outdoor Holdings, Inc.Exhibit11.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-

(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, 2015

 

[  ]           TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM                          TO                           

 

Commission File Number

001‑32663

 

CLEAR CHANNEL OUTDOOR HOLDINGS, INC.

(Exact name of registrant as specified in its charter)

 

 

                                        Delaware                                                                                             86-0812139 

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

                     incorporation or organization)

 

                   200 East Basse Road, Suite 100                                                                             78209

                              San Antonio, Texas                                                                                    (Zip Code)

             (Address of principal executive offices)

 

(210) 832-3700

(Registrant’s telephone number, including area code)

 

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

 

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

 

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

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

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes [  ] No [X]

 

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

Class

- - - - - - - - - - - - - - - - - - - - - - - - - - - - - -

Outstanding at July 28, 2015

- - - - - - - - - - - - - - - - - - - - - - - - - -

Class A Common Stock, $.01 par value

Class B Common Stock, $.01 par value

46,381,597

315,000,000

  

 


 

CLEAR CHANNEL OUTDOOR HOLDINGS, INC.

 

INDEX

 

 

 

Page No.

Part I -- Financial Information

 

Item 1.       Financial Statements

1

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

1

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

2

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

3

Notes to Consolidated Financial Statements

4

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

20

Item 3.       Quantitative and Qualitative Disclosures About Market Risk

32

Item 4.       Controls and Procedures

33

Part II -- Other Information

 

Item 1.       Legal Proceedings

34

Item 1A.    Risk Factors

34

Item 2.       Unregistered Sales of Equity Securities and Use of Proceeds

35

Item 3.       Defaults Upon Senior Securities

35

Item 4.       Mine Safety Disclosures

35

Item 5.       Other Information

35

Item 6.       Exhibits

35

Signatures

37

  

 


PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

CONSOLIDATED BALANCE SHEETS
CLEAR CHANNEL OUTDOOR HOLDINGS, INC. AND SUBSIDIARIES

 

 

 

June 30,

 

 

 

(In thousands)

2015

 

December 31,

 

(Unaudited)

 

2014

CURRENT ASSETS

 

 

 

 

 

Cash and cash equivalents

$

 129,883  

 

$

 186,204  

Accounts receivable, net of allowance of $22,978 in 2015 and $24,308 in 2014

 

 711,862  

 

 

 697,811  

Prepaid expenses

 

 143,492  

 

 

 134,041  

Other current assets

 

 70,493  

 

 

 61,893  

 

Total Current Assets

 

 1,055,730  

 

 

 1,079,949  

PROPERTY, PLANT AND EQUIPMENT

 

 

 

 

 

Structures, net

 

 1,542,361  

 

 

 1,614,199  

Other property, plant and equipment, net

 

 267,586  

 

 

 291,452  

INTANGIBLE ASSETS AND GOODWILL

 

 

 

 

 

Indefinite-lived intangibles

 

 1,065,978  

 

 

 1,066,748  

Other intangibles, net

 

 382,840  

 

 

 412,064  

Goodwill

 

 807,460  

 

 

 817,112  

OTHER ASSETS

 

 

 

 

 

Due from iHeartCommunications

 

 936,931  

 

 

 947,806  

Other assets

 

 129,472  

 

 

 133,081  

Total Assets

$

 6,188,358  

 

$

 6,362,411  

CURRENT LIABILITIES

 

 

 

 

 

Accounts payable

$

 69,678  

 

$

 75,915  

Accrued expenses

 

 464,325  

 

 

 543,818  

Deferred income

 

 132,555  

 

 

 94,635  

Current portion of long-term debt

 

 2,573  

 

 

 3,461  

 

Total Current Liabilities

 

 669,131  

 

 

 717,829  

Long-term debt

 

 4,927,997  

 

 

 4,930,468  

Deferred tax liability

 

 618,071  

 

 

 620,255  

Other long-term liabilities

 

 236,504  

 

 

 234,800  

Commitments and Contingent liabilities (Note 4)

 

 

 

 

 

SHAREHOLDERS’ DEFICIT

 

 

 

 

 

Noncontrolling interest

 

 182,773  

 

 

 203,334  

Preferred stock, $.01 par value, 150,000,000 shares authorized, no shares issued and outstanding

 

 -  

 

 

 -  

Class A common stock, $.01 par value, 750,000,000 shares authorized, 46,598,129 and

 

 

 

 

 

 

45,231,282 shares issued in 2015 and 2014, respectively

 

 466  

 

 

 452  

Class B common stock, $.01 par value, 600,000,000 shares authorized, 315,000,000 shares

 

 

 

 

 

 

issued and outstanding

 

 3,150  

 

 

 3,150  

Additional paid-in capital

 

 4,174,654  

 

 

 4,167,233  

Accumulated deficit

 

 (4,204,673) 

 

 

 (4,172,565) 

Accumulated other comprehensive loss

 

 (417,644) 

 

 

 (341,353) 

Cost of shares (229,943 in 2015 and 140,702 in 2014) held in treasury

 

 (2,071) 

 

 

 (1,192) 

 

Total Shareholders’ Deficit

 

 (263,345) 

 

 

 (140,941) 

 

Total Liabilities and Shareholders’ Deficit

$

 6,188,358  

 

$

 6,362,411  

  

 

See Notes to Consolidated Financial Statements

1


CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
CLEAR CHANNEL OUTDOOR HOLDINGS, INC. AND SUBSIDIARIES

(UNAUDITED)

 

 

(In thousands, except per share data)

Three Months Ended

 

Six Months Ended

 

 

 

June 30,

 

June 30,

 

2015

 

2014

 

2015

 

2014

Revenue

$

 722,819  

 

$

 781,205  

 

$

 1,337,862  

 

$

 1,416,456  

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

Direct operating expenses (excludes depreciation

  and amortization)

 

 372,342  

 

 

 413,144  

 

 

 735,313  

 

 

 794,657  

 

 

Selling, general and administrative expenses

  (excludes depreciation and amortization)

 

 132,522  

 

 

 140,271  

 

 

 259,652  

 

 

 273,221  

 

 

Corporate expenses (excludes depreciation

  and amortization)

 

 30,154  

 

 

 33,333  

 

 

 58,907  

 

 

 64,030  

 

 

Depreciation and amortization

 

 93,405  

 

 

 98,726  

 

 

 187,499  

 

 

 197,467  

 

 

Other operating income (expense), net

 

 659  

 

 

 247  

 

 

 (4,785) 

 

 

 2,901  

Operating income

 

 95,055  

 

 

 95,978  

 

 

 91,706  

 

 

 89,982  

Interest expense

 

 88,556  

 

 

 88,212  

 

 

 177,972  

 

 

 177,473  

Interest income on Due from iHeartCommunications

 

 15,049  

 

 

 15,227  

 

 

 30,302  

 

 

 29,900  

Equity in earnings (loss) of nonconsolidated affiliates

 

 (351) 

 

 

 327  

 

 

 171  

 

 

 (409) 

Other income, net

 

 15,276  

 

 

 11,983  

 

 

 35,214  

 

 

 13,880  

Income (loss) before income taxes

 

 36,473  

 

 

 35,303  

 

 

 (20,579) 

 

 

 (44,120) 

Income tax benefit (expense)

 

 (27,187) 

 

 

 24,820  

 

 

 (3,088) 

 

 

 7,875  

Consolidated net income (loss)

 

 9,286  

 

 

 60,123  

 

 

 (23,667) 

 

 

 (36,245) 

 

Less amount attributable to noncontrolling interest

 

 7,876  

 

 

 9,086  

 

 

 8,441  

 

 

 9,588  

Net income (loss) attributable to the Company

$

 1,410  

 

$

 51,037  

 

$

 (32,108) 

 

$

 (45,833) 

Other comprehensive income (loss), net of tax:

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustments

 

 2,900  

 

 

 (12,025) 

 

 

 (78,587) 

 

 

 (16,562) 

 

Unrealized holding gain (loss) on marketable securities

 

 (133) 

 

 

 (405) 

 

 

 689  

 

 

 679  

 

Other adjustments to comprehensive income (loss)

 

 -  

 

 

 -  

 

 

 (1,154) 

 

 

 -  

Other comprehensive income (loss)

 

 2,767  

 

 

 (12,430) 

 

 

 (79,052) 

 

 

 (15,883) 

Comprehensive income (loss)

 

 4,177  

 

 

 38,607  

 

 

 (111,160) 

 

 

 (61,716) 

 

 Less amount attributable to noncontrolling interest

 

 (5,060) 

 

 

 (554) 

 

 

 (2,761) 

 

 

 (3,451) 

Comprehensive income (loss) attributable to the Company

$

 9,237  

 

$

 39,161  

 

$

 (108,399) 

 

$

 (58,265) 

Net income (loss) attributable to the Company per common share:

 

 

 

 

 

 

 

 

 

 

 

Basic

$

0.00

 

$

 0.14  

 

$

 (0.09) 

 

$

 (0.13) 

 

Weighted average common shares outstanding – Basic

 

 359,538  

 

 

 358,453  

 

 

 359,317  

 

 

 358,425  

 

Diluted

$

0.00

 

$

 0.14  

 

$

 (0.09) 

 

$

 (0.13) 

 

Weighted average common shares outstanding – Diluted

 361,063  

 

 

 359,832  

 

 

 359,317  

 

 

 358,425  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividends declared per share

$

 -  

 

$

 -  

 

$

 -  

 

$

 -  

 

See Notes to Consolidated Financial Statements

2


CONSOLIDATED STATEMENTS OF CASH FLOWS
CLEAR CHANNEL OUTDOOR HOLDINGS, INC. AND SUBSIDIARIES

(UNAUDITED)

(In thousands)

 

 

 

Six Months Ended June 30,

 

 

 

2015

 

2014

Cash flows from operating activities:

 

 

 

 

 

 

 

 

 

Consolidated net loss

 

 

 

$

 (23,667) 

 

$

 (36,245) 

Reconciling items:

 

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

 

 

 187,499  

 

 

 197,467  

 

Deferred taxes

 

 

 

 

 6,311  

 

 

 (27,723) 

 

Provision for doubtful accounts

 

 

 

 

 5,144  

 

 

 4,143  

 

Share-based compensation

 

 

 

 

 3,729  

 

 

 4,250  

 

Gain on sale of operating and fixed assets

 

 

 

 

 (2,602) 

 

 

 (2,901) 

 

Amortization of deferred financing charges and note discounts, net

 

 

 

 

 4,344  

 

 

 4,325  

 

Other reconciling items, net

 

 

 

 

 (35,777) 

 

 

 (14,212) 

 

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

   and dispositions:

 

 

 

 

 

 

 

 

 

 

Increase in accounts receivable

 

 

 

 

 (40,921) 

 

 

 (33,857) 

 

 

Decrease in accrued expenses

 

 

 

 

 (59,485) 

 

 

 (30,071) 

 

 

Decrease in accounts payable

 

 

 

 

 (2,539) 

 

 

 (18,495) 

 

 

Increase in deferred income

 

 

 

 

 40,740  

 

 

 43,277  

 

 

Changes in other operating assets and liabilities

 

 

 

 

 (28,317) 

 

 

 (9,432) 

Net cash provided by operating activities

 

 

 

 

 54,459  

 

 

 80,526  

Cash flows from investing activities:

 

 

 

 

 

 

 

 

 

Purchases of property, plant and equipment

 

 

 

 

 (90,033) 

 

 

 (92,967) 

 

Proceeds from disposal of assets

 

 

 

 

 2,129  

 

 

 6,888  

 

Purchases of other operating assets

 

 

 

 

 (853) 

 

 

 (175) 

 

Change in other, net

 

 

 

 

 (1,036) 

 

 

 (1,305) 

Net cash used for investing activities

 

 

 

 

 (89,793) 

 

 

 (87,559) 

Cash flows from financing activities:

 

 

 

 

 

 

 

 

 

Draws on credit facilities

 

 

 

 

 -  

 

 

 820  

 

Payments on credit facilities

 

 

 

 

 (2,638) 

 

 

 (1,675) 

 

Payments on long-term debt

 

 

 

 

 (27) 

 

 

 (23) 

 

Net transfers (to) from iHeartCommunications

 

 

 

 

 10,875  

 

 

 (71,045) 

 

Dividends and other payments to noncontrolling interests

 

 

 

 

 (28,099) 

 

 

 (9,673) 

 

Change in other, net

 

 

 

 

 2,825  

 

 

 695  

Net cash used for financing activities

 

 

 

 

 (17,064) 

 

 

 (80,901) 

Effect of exchange rate changes on cash

 

 

 

 

 (3,923) 

 

 

 (637) 

Net decrease in cash and cash equivalents

 

 

 

 

 (56,321) 

 

 

 (88,571) 

Cash and cash equivalents at beginning of period

 

 

 

 

 186,204  

 

 

 314,545  

Cash and cash equivalents at end of period

 

 

 

$

 129,883  

 

$

 225,974  

SUPPLEMENTAL DISCLOSURES:

 

 

 

 

 

 

 

 

Cash paid for interest

 

 

 174,631  

 

 

 176,217  

Cash paid for income taxes

 

 

 19,217  

 

 

 16,823  

 

See Notes to Consolidated Financial Statements

3


CLEAR CHANNEL OUTDOOR HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

NOTE 1 – BASIS OF PRESENTATION

Preparation of Interim Financial Statements

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

 

The consolidated financial statements include the accounts of the Company and its subsidiaries and give effect to allocations of expenses from the Company’s indirect parent entity, iHeartCommunications, Inc. (“iHeartCommunications”).  These allocations were made on a specifically identifiable basis or using relative percentages of headcount or other methods management considered to be a reasonable reflection of the utilization of services provided.  Also included in the consolidated financial statements are entities for which the Company has a controlling financial interest or is the primary beneficiary.  Investments in companies in which the Company owns 20% to 50% of the voting common stock or otherwise exercises significant influence over operating and financial policies of the company are accounted for under the equity method.  All significant intercompany transactions are eliminated in the consolidation process.  Certain prior-period amounts have been reclassified to conform to the 2015 presentation.

 

During the first quarter of 2015, and in connection with the appointment of a new chief executive officer for the Company and a new chief executive officer for Americas, the Company reevaluated its segment reporting and determined that its Latin American operations should be managed by its Americas leadership team.  As a result, the operations of Latin America are no longer reflected within the Company’s International segment and are included in the results of its Americas segment. Accordingly, the Company has recast the corresponding segment disclosures for prior periods to include Latin America within the Americas segment.

 

New Accounting Pronouncements

During the first quarter of 2015, the Company adopted the Financial Accounting Standards Board’s (“FASB”) ASU No. 2014-08, Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360), Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity.  This update provides guidance for the recognition, measurement and disclosure of discontinued operations. The update is effective for annual periods beginning on or after 15 December 2014 and interim periods within those years.  The adoption of this guidance did not have a material effect on the Company’s consolidated financial statements.

 

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

 

 

  

4


CLEAR CHANNEL OUTDOOR HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

NOTE 2 – 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, 2015 and December 31, 2014, respectively.

 

 

 

 

 

 

(In thousands)

June 30,

 

December 31,

 

2015

 

2014

Land, buildings and improvements

$

 198,076  

 

$

 198,280  

Structures

 

 3,005,159  

 

 

 2,999,582  

Furniture and other equipment

 

 149,387  

 

 

 152,084  

Construction in progress

 

 61,070  

 

 

 75,469  

 

 

 3,413,692  

 

 

 3,425,415  

Less: accumulated depreciation

 

 1,603,745  

 

 

 1,519,764  

Property, plant and equipment, net

$

 1,809,947  

 

$

 1,905,651  

 

Indefinite-lived Intangible Assets

The Company’s indefinite-lived intangible assets consist primarily of billboard permits in its Americas segment.  Due to significant differences in both business practices and regulations, billboards in the International segment are subject to long-term, finite contracts, unlike the Company’s permits in the United States and Canada.  Accordingly, there are no indefinite-lived intangible assets in the International segment.

 

Other Intangible Assets

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

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

(In thousands)

June 30, 2015

 

December 31, 2014

 

 

Gross Carrying Amount

 

Accumulated Amortization

 

Gross Carrying Amount

 

Accumulated Amortization

Transit, street furniture and other outdoor

   contractual rights

$

 675,465  

 

$

 (465,228) 

 

$

 716,722  

 

$

 (476,523) 

Permanent easements

 

 171,641  

 

 

 -    

 

 

 171,272  

 

 

 -    

Other

 

 2,826  

 

 

 (1,864) 

 

 

 2,912  

 

 

 (2,319) 

 

Total

$

 849,932  

 

$

 (467,092) 

 

$

 890,906  

 

$

 (478,842) 

 

Total amortization expense related to definite-lived intangible assets for the three months ended June 30, 2015 and 2014 was $12.5 million and $17.0 million, respectively. Total amortization expense related to definite-lived intangible assets for the six months ended June 30, 2015 and 2014 was $27.2 million and $34.1 million, respectively.

 

5


CLEAR CHANNEL OUTDOOR HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

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

 

 

 

 

 

(In thousands)

 

 

 

2016

$

 37,978  

 

2017

 

 29,948  

 

2018

 

 25,108  

 

2019

 

 16,192  

 

2020

 

 13,438  

 

 

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, 2013

$

 585,227  

 

$

 264,907  

 

$

 850,134  

 

Foreign currency

 

 (653) 

 

 

 (32,369) 

 

 

 (33,022) 

Balance as of December 31, 2014

$

 584,574  

 

$

 232,538  

 

$

 817,112  

 

Foreign currency

 

 (312) 

 

 

 (9,340) 

 

 

 (9,652) 

Balance as of June 30, 2015

$

 584,262  

 

$

 223,198  

 

$

 807,460  

 

NOTE 3 – LONG-TERM DEBT

 

 

 

 

 

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

 

 

 

 

 

 

 

(In thousands)

June 30,

 

December 31,

 

 

2015

 

2014

Clear Channel Worldwide Holdings Senior Notes:

 

 

 

 

 

 

6.5% Series A Senior Notes Due 2022

$

 735,750  

 

$

 735,750  

 

6.5% Series B Senior Notes Due 2022

 

 1,989,250  

 

 

 1,989,250  

Clear Channel Worldwide Holdings Senior Subordinated Notes:

 

 

 

 

 

 

7.625% Series A Senior Subordinated Notes Due 2020

 

 275,000  

 

 

 275,000  

 

7.625% Series B Senior Subordinated Notes Due 2020

 

 1,925,000  

 

 

 1,925,000  

Senior revolving credit facility due 2018(1)

 

 -  

 

 

 -  

Other debt

 

 11,444  

 

 

 15,107  

Original issue discount

 

 (5,874) 

 

 

 (6,178) 

Total debt

$

 4,930,570  

 

$

 4,933,929  

 

Less: current portion

 

 2,573  

 

 

 3,461  

Total long-term debt

$

 4,927,997  

 

$

 4,930,468  

 

 

 

 

 

 

 

(1)

The Senior revolving credit facility provides for borrowings up to $75.0 million (the revolving credit commitment).

 

The aggregate market value of the Company’s debt based on market prices for which quotes were available was approximately $5.1 billion at both June 30, 2015 and December 31, 2014. Under the fair value hierarchy established by ASC 820-10-35, the market value of the Company’s debt is classified as Level 1.

 

 

Surety Bonds, Letters of Credit and Guarantees

As of June 30, 2015, the Company had $56.3 million and $54.2 million in letters of credit and bank guarantees outstanding, respectively. Bank guarantees of $13.2 million were backed by cash collateral. Additionally, as of June 30, 2015, iHeartCommunications had outstanding commercial standby letters of credit and surety bonds of $1.2 million and $56.1 million,

6


CLEAR CHANNEL OUTDOOR HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

respectively, held on behalf of the Company.  These letters of credit, bank guarantees and surety bonds relate to various operational matters, including insurance, bid and performance bonds, as well as other items.

 

NOTE 4 – COMMITMENTS AND CONTINGENCIES

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

 

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

 

Los Angeles Litigation

 

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

 

International Outdoor Investigation

 

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

 

NOTE 5 — RELATED PARTY TRANSACTIONS

The Company records net amounts due from or to iHeartCommunications as “Due from/to iHeartCommunications” on the consolidated balance sheets.  The accounts represent the revolving promissory note issued by the Company to iHeartCommunications and the revolving promissory note issued by iHeartCommunications to the Company in the face amount of $1.0 billion, or if more or less than such amount, the aggregate unpaid principal amount of all advances.  The accounts accrue interest pursuant to the terms of the promissory notes and are generally payable on demand or when they mature on December 15, 2017.

 

Included in the accounts are the net activities resulting from day-to-day cash management services provided by iHeartCommunications.  As a part of these services, the Company maintains collection bank accounts swept daily into accounts of iHeartCommunications (after satisfying the funding requirements of the Trustee Accounts under the CCWH Senior Notes and the CCWH Subordinated Notes).  In return, iHeartCommunications funds the Company’s controlled disbursement accounts as checks or electronic payments are presented for payment.  The Company’s claim in relation to cash transferred from its concentration account is on an unsecured basis and is limited to the balance of the “Due from iHeartCommunications” account.

 

As of June 30, 2015 and December 31, 2014, the asset recorded in “Due from iHeartCommunications” on the consolidated balance sheet was $936.9 million and $947.8 million, respectively.  As of June 30, 2015, the fixed interest rate on the “Due from iHeartCommunications” account was 6.5%, which is equal to the fixed interest rate on the CCWH Senior Notes.  The net interest

7


CLEAR CHANNEL OUTDOOR HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

income for the three months ended June 30, 2015 and 2014 was $15.0 million and $15.2 million, respectively.  The net interest income for the six months ended June 30, 2015 and 2014 was $30.3 million and $29.9 million, respectively. 

 

The Company provides advertising space on its billboards for radio stations owned by iHeartCommunications.  For the three months ended June 30, 2015 and 2014, the Company recorded $1.1 million and $1.1 million, respectively, in revenue for these advertisements.  For the six months ended June 30, 2015 and 2014, the Company recorded $2.2 million and $2.1 million, respectively, in revenue for these advertisements.

 

Under the Corporate Services Agreement between iHeartCommunications and the Company, iHeartCommunications provides management services to the Company, which include, among other things: (i) treasury, payroll and other financial related services; (ii) certain executive officer services; (iii) human resources and employee benefits services; (iv) legal and related services; (v) information systems, network and related services; (vi) investment services; (vii) procurement and sourcing support services; and (viii) other general corporate services.  These services are charged to the Company based on actual direct costs incurred or allocated by iHeartCommunications based on headcount, revenue or other factors on a pro rata basis. For the three months ended June 30, 2015 and 2014, the Company recorded $8.0 million and $7.1 million, respectively, as a component of corporate expenses for these services.  For the six months ended June 30, 2015 and 2014, the Company recorded $15.9 million and $16.3 million, respectively, as a component of corporate expenses for these services.

 

Pursuant to the Tax Matters Agreement between iHeartCommunications and the Company, the operations of the Company are included in a consolidated federal income tax return filed by iHeartCommunications.  The Company’s provision for income taxes has been computed on the basis that the Company files separate consolidated federal income tax returns with its subsidiaries.  Tax payments are made to iHeartCommunications on the basis of the Company’s separate taxable income.  Tax benefits recognized on the Company’s employee stock option exercises are retained by the Company.

 

The Company computes its deferred income tax provision using the liability method in accordance with the provisions of ASC 740-10, as if the Company was a separate taxpayer.  Deferred tax assets and liabilities are determined based on differences between financial reporting basis and tax basis of assets and liabilities and are measured using the enacted tax rates expected to apply to taxable income in the periods in which the deferred tax asset or liability is expected to be realized or settled.  Deferred tax assets are reduced by valuation allowances if the Company believes it is more likely than not some portion or all of the asset will not be realized.

 

Pursuant to the Employee Matters Agreement, the Company’s employees participate in iHeartCommunications’ employee benefit plans, including employee medical insurance and a 401(k) retirement benefit plan.  For each of the three month periods ended June 30, 2015 and 2014, the Company recorded $2.7 million, as a component of selling, general and administrative expenses for these services.  For each of the six month periods ended June 30, 2015 and 2014, the Company recorded $5.3 million, as a component of selling, general and administrative expenses for these services.

 

Stock Purchases

On August 9, 2010, iHeartCommunications announced that its board of directors approved a stock purchase program under which iHeartCommunications or its subsidiaries may purchase up to an aggregate of $100 million of the Company’s Class A common stock and/or the Class A common stock of iHeartMedia, Inc. (“iHeartMedia”). The stock purchase program did not have a fixed expiration date and could be modified, suspended or terminated at any time at iHeartCommunications’ discretion. As of December 31, 2014, an aggregate $34.2 million was available under this program.  In January 2015, CC Finco, LLC (“CC Finco”), an indirect wholly-owned subsidiary of iHeartCommunications, purchased an additional 2,000,000 shares of the Company’s Class A common stock for $20.4 million.  On April 2, 2015, CC Finco purchased an additional 2,172,946 shares of the Company’s Class A common stock for $22.2 million, increasing iHeartCommunications’ collective holdings to represent slightly more than 90% of the outstanding shares of the Company’s common stock on a fully-diluted basis, assuming the conversion of all of the Company’s Class B common stock into Class A common stock. As a result of this purchase, the stock purchase program concluded. The purchase of shares in excess of the amount available under the stock purchase program was separately approved by the iHeartCommunications’ board of directors.

   

 

8


CLEAR CHANNEL OUTDOOR HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

NOTE 6 – INCOME TAXES

Income Tax Benefit (Expense)

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

(In thousands)

Three Months Ended June 30,

 

Six Months Ended June 30,

 

2015

 

2014

 

2015

 

2014

Current tax benefit (expense)

$

 (25,613) 

 

$

 19,563  

 

$

 3,223  

 

$

 (19,848) 

Deferred tax benefit (expense)

 

 (1,574) 

 

 

 5,257  

 

 

 (6,311) 

 

 

 27,723  

Income tax benefit (expense)

$

 (27,187) 

 

$

 24,820  

 

$

 (3,088) 

 

$

 7,875  

 

The effective tax rates for the three and six months ended June 30, 2015 were 74.5% and (15.0)%, respectively. The effective rates were primarily impacted by the Company’s uncertainty of an ability to recognize the future benefit of certain deferred tax assets that consists of current period net operating losses in U.S. federal, state and certain foreign jurisdictions.  The Company has recorded a valuation allowance against these deferred tax assets as the reversing deferred tax liabilities and other sources of taxable income that may be available to realize the deferred tax assets was exceeded by the additional net operating losses in the current period.

 

The effective tax rates for the three and six months ended June 30, 2014 were (70.3)% and 17.8%, respectively.  The effective rates were primarily impacted by the Company’s inability to record tax benefits on tax losses in certain foreign jurisdictions due to the uncertainty of the ability to utilize those losses in future years. In addition, the effective tax rates were impacted by the timing and mix of earnings in the various jurisdictions in which the Company operates.

 

NOTE 7 – SHAREHOLDERS’ EQUITY

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

 

 

 

 

 

 

 

 

 

 

(In thousands)

The Company

 

Noncontrolling

Interests

 

Consolidated

Balances as of January 1, 2015

$

 (344,275) 

 

 

 203,334  

 

 

 (140,941) 

 

Net income (loss)

 

 (32,108) 

 

 

 8,441  

 

 

 (23,667) 

 

Dividends and other payments to noncontrolling interests

 

 -    

 

 

 (28,099) 

 

 

 (28,099) 

 

Foreign currency translation adjustments

 

 (75,826) 

 

 

 (2,761) 

 

 

 (78,587) 

 

Unrealized holding gain on marketable securities

 

 689  

 

 

 -    

 

 

 689  

 

Other adjustments to comprehensive loss

 

 (1,154) 

 

 

 -    

 

 

 (1,154) 

 

Other, net

 

 6,556  

 

 

 1,858  

 

 

 8,414  

Balances as of June 30, 2015

$

(446,118)

 

$

182,773

 

$

(263,345)

 

 

 

 

 

 

 

 

 

 

Balances as of January 1, 2014

$

(41,938)

 

$

 202,046  

 

$

160,108

 

Net income (loss)

 

 (45,833) 

 

 

 9,588  

 

 

 (36,245) 

 

Foreign currency translation adjustments

 

 (13,111) 

 

 

 (3,451) 

 

 

 (16,562) 

 

Unrealized holding gain on marketable securities

 

 679  

 

 

 -    

 

 

 679  

 

Other, net

 

 4,991  

 

 

 (9,673) 

 

 

 (4,682) 

Balances as of June 30, 2014

$

 (95,212) 

 

$

 198,510  

 

$

 103,298  

9


CLEAR CHANNEL OUTDOOR HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

NOTE 8 — OTHER INFORMATION

 

Other Comprehensive Income (Loss) 

For the three months ended June 30, 2015 and 2014 the total increase (decrease) in deferred income tax liabilities of other comprehensive income (loss) related to pensions were $0.0 million and $0.0 million, respectively.  For the six months ended June 30, 2015 and 2014 the total increase (decrease) in deferred income tax liabilities of other comprehensive income (loss) related to pensions were $(0.6) million and $0.0 million, respectively.

  

 

NOTE 9 – SEGMENT DATA

The Company has two reportable segments, which it believes best reflect how the Company is currently managed – Americas and International.  The Americas segment consists of operations primarily in the United States, Canada and Latin America and the International segment primarily includes operations in Europe, Asia and Australia.  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 months ended June 30, 2015 and 2014:

 

 

 

 

 

 

 

 

 

 

 

 

 

(In thousands)

Americas Outdoor Advertising

 

International Outdoor Advertising

 

Corporate and other reconciling items

 

Consolidated

Three months ended June 30, 2015

 

 

 

 

 

 

 

 

 

 

 

Revenue

$

 341,286  

 

$

 381,533  

 

$

 -    

 

$

 722,819  

Direct operating expenses

 

 149,712  

 

 

 222,630  

 

 

 -    

 

 

 372,342  

Selling, general and administrative expenses

 

 57,346  

 

 

 75,176  

 

 

 -    

 

 

 132,522  

Corporate expenses

 

 -    

 

 

 -    

 

 

 30,154  

 

 

 30,154  

Depreciation and amortization

 

 51,113  

 

 

 40,956  

 

 

 1,336  

 

 

 93,405  

Other operating income, net

 

 -    

 

 

 -    

 

 

 659  

 

 

 659  

Operating income (loss)

$

 83,115  

 

$

 42,771  

 

$

 (30,831) 

 

$

 95,055  

 

 

 

 

 

 

 

 

 

 

 

 

 

Capital expenditures

$

 15,664  

 

$

 31,752  

 

$

 802  

 

$

 48,218  

Share-based compensation expense

$

 -    

 

$

 -    

 

$

 1,804  

 

$

 1,804  

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended June 30, 2014

 

 

 

 

 

 

 

 

 

 

 

Revenue

$

 344,346  

 

$

 436,859  

 

$

 -    

 

$

 781,205  

Direct operating expenses

 

 153,875  

 

 

 259,269  

 

 

 -    

 

 

 413,144  

Selling, general and administrative expenses

 

 58,448  

 

 

 81,823  

 

 

 -    

 

 

 140,271  

Corporate expenses

 

 -    

 

 

 -    

 

 

 33,333  

 

 

 33,333  

Depreciation and amortization

 

 49,848  

 

 

 47,889  

 

 

 989  

 

 

 98,726  

Other operating income, net

 

 -    

 

 

 -    

 

 

 247  

 

 

 247  

Operating income (loss)

$

 82,175  

 

$

 47,878  

 

$

 (34,075) 

 

$

 95,978  

 

 

 

 

 

 

 

 

 

 

 

 

 

Capital expenditures

$

 21,683  

 

$

 31,776  

 

$

 880  

 

$

 54,339  

Share-based compensation expense

$

 -    

 

$

 -    

 

$

 2,240  

 

$

 2,240  

 

10


CLEAR CHANNEL OUTDOOR HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

(In thousands)

Americas Outdoor Advertising

 

International Outdoor Advertising

 

Corporate and other reconciling items

 

Consolidated

Six Months Ended June 30, 2015

 

 

 

 

 

 

 

 

 

 

 

Revenue

$

 637,149  

 

$

 700,713  

 

$

 -    

 

$

 1,337,862  

Direct operating expenses

 

 295,946  

 

 

 439,367  

 

 

 -    

 

 

 735,313  

Selling, general and administrative expenses

 

 112,983  

 

 

 146,669  

 

 

 -    

 

 

 259,652  

Corporate expenses

 

 -    

 

 

 -    

 

 

 58,907  

 

 

 58,907  

Depreciation and amortization

 

 101,453  

 

 

 83,397  

 

 

 2,649  

 

 

 187,499  

Other operating loss, net

 

 -    

 

 

 -    

 

 

 (4,785) 

 

 

 (4,785) 

Operating income (loss)

$

 126,767  

 

$

 31,280  

 

$

 (66,341) 

 

$

 91,706  

 

 

 

 

 

 

 

 

 

 

 

 

 

Capital expenditures

$

 32,359  

 

$

 56,857  

 

$

 817  

 

$

 90,033  

Share-based compensation expense

$

 -    

 

$

 -    

 

$

 3,729  

 

$

 3,729  

 

 

 

 

 

 

 

 

 

 

 

 

 

Six Months Ended June 30, 2014

 

 

 

 

 

 

 

 

 

 

 

Revenue

$

 634,956  

 

$

 781,500  

 

$

 -    

 

$

 1,416,456  

Direct operating expenses

 

 297,239  

 

 

 497,418  

 

 

 -    

 

 

 794,657  

Selling, general and administrative expenses

 

 114,817  

 

 

 158,404  

 

 

 -    

 

 

 273,221  

Corporate expenses

 

 -    

 

 

 -    

 

 

 64,030  

 

 

 64,030  

Depreciation and amortization

 

 99,559  

 

 

 96,220  

 

 

 1,688  

 

 

 197,467  

Other operating income, net

 

 -    

 

 

 -    

 

 

 2,901  

 

 

 2,901  

Operating income (loss)

$

 123,341  

 

$

 29,458  

 

$

 (62,817) 

 

$

 89,982  

 

 

 

 

 

 

 

 

 

 

 

 

 

Capital expenditures

$

 38,127  

 

$

 52,638  

 

$

 2,202  

 

$

 92,967  

Share-based compensation expense

$

 -    

 

$

 -    

 

$

 4,250  

 

$

 4,250  

 

11


CLEAR CHANNEL OUTDOOR HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

NOTE 10 – GUARANTOR SUBSIDIARIES

The Company and certain of the Company’s direct and indirect wholly-owned domestic subsidiaries (the “Guarantor Subsidiaries”) fully and unconditionally guarantee on a joint and several basis certain of the outstanding indebtedness of Clear Channel Worldwide Holdings, Inc. ("CCWH" or the “Subsidiary Issuer”).  The following consolidating schedules present financial information on a combined basis in conformity with the SEC’s Regulation S-X Rule 3-10(d):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(In thousands)

June 30, 2015

 

 

Parent

 

Subsidiary

 

Guarantor

 

Non-Guarantor

 

 

 

 

 

 

 

 

Company

 

Issuer

 

Subsidiaries

 

Subsidiaries

 

Eliminations

 

Consolidated

Cash and cash equivalents

$

 905  

 

$

 -  

 

$

 -  

 

$

 138,473  

 

$

 (9,495) 

 

$

 129,883  

Accounts receivable, net of allowance

 

 -  

 

 

 -  

 

 

 213,532  

 

 

 498,330  

 

 

 -  

 

 

 711,862  

Intercompany receivables

 

 -  

 

 

 249,683  

 

 

 1,711,541  

 

 

 9,208  

 

 

 (1,970,432) 

 

 

 -  

Prepaid expenses

 

 1,340  

 

 

 -  

 

 

 64,807  

 

 

 77,345  

 

 

 -  

 

 

 143,492  

Other current assets

 

 (485) 

 

 

 (451) 

 

 

 56,633  

 

 

 14,796  

 

 

 -  

 

 

 70,493  

 

Total Current Assets

 

 1,760  

 

 

 249,232  

 

 

 2,046,513  

 

 

 738,152  

 

 

 (1,979,927) 

 

 

 1,055,730  

Structures, net

 

 -  

 

 

 -  

 

 

 1,006,154  

 

 

 536,207  

 

 

 -  

 

 

 1,542,361  

Other property, plant and equipment, net

 

 -  

 

 

 -  

 

 

 154,366  

 

 

 113,220  

 

 

 -  

 

 

 267,586  

Indefinite-lived intangibles

 

 -  

 

 

 -  

 

 

 1,055,728  

 

 

 10,250  

 

 

 -  

 

 

 1,065,978  

Other intangibles, net

 

 -  

 

 

 -  

 

 

 313,943  

 

 

 68,897  

 

 

 -  

 

 

 382,840  

Goodwill

 

 -