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 1934FOR THE QUARTERLY PERIOD ENDED March 31, 2016
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO
Commission File Number
001‑32663
CLEAR CHANNEL OUTDOOR HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
(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 May 2, 2016
- - - - - - - - - - - - - - - - - - - - - - - - - -
Class A Common Stock, $.01 par value
Class B Common Stock, $.01 par value
46,618,104
315,000,000
INDEX
Page No.
Part I -- Financial Information
Item 1. Financial Statements
1
Consolidated Balance Sheets as of March 31, 2016 and December 31, 2015
Consolidated Statements of Comprehensive Income (Loss) for the three months ended March 31, 2016 and 2015
2
Consolidated Statements of Cash Flows for the three months ended March 31, 2016 and 2015
3
Notes to Consolidated Financial Statements
4
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
18
Item 3. Quantitative and Qualitative Disclosures About Market Risk
30
Item 4. Controls and Procedures
Part II -- Other Information
Item 1. Legal Proceedings
31
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Mine Safety Disclosures
Item 5. Other Information
32
Item 6. Exhibits
Signatures
33
ITEM 1. FINANCIAL STATEMENTS
(In thousands, except share data)
March 31, 2016
December 31,
(Unaudited)
2015
CURRENT ASSETS
Cash and cash equivalents
$
489,641
412,743
Accounts receivable, net of allowance of $27,687 in 2016 and $25,348 in 2015
625,713
697,583
Prepaid expenses
148,272
127,730
Assets held for sale
55,159
295,075
Other current assets
40,118
34,566
Total Current Assets
1,358,903
1,567,697
PROPERTY, PLANT AND EQUIPMENT
Structures, net
1,350,399
1,391,880
Other property, plant and equipment, net
227,696
236,106
INTANGIBLE ASSETS AND GOODWILL
Indefinite-lived intangibles
961,540
971,327
Other intangibles, net
333,902
342,864
Goodwill
749,928
758,575
OTHER ASSETS
Due from iHeartCommunications
640,089
930,799
Other assets
116,927
107,540
Total Assets
5,739,384
6,306,788
CURRENT LIABILITIES
Accounts payable
83,851
100,210
Accrued expenses
458,650
507,665
Dividends payable
-
217,017
Deferred income
119,092
91,411
Current portion of long-term debt
4,594
4,310
Total Current Liabilities
666,187
920,613
Long-term debt
5,108,621
5,106,513
Deferred tax liability
660,936
608,910
Other long-term liabilities
244,060
240,419
Commitments and Contingent liabilities (Note 4)
SHAREHOLDERS’ DEFICIT
Noncontrolling interest
191,606
187,775
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, 47,062,114 and
46,661,114 shares issued in 2016 and 2015, respectively
471
467
Class B common stock, $.01 par value, 600,000,000 shares authorized, 315,000,000 shares
issued and outstanding
3,150
Additional paid-in capital
3,423,014
3,961,515
Accumulated deficit
(4,128,537)
(4,268,637)
Accumulated other comprehensive loss
(427,024)
(451,833)
Cost of shares (453,262 shares in 2016 and 233,868 shares in 2015) held in treasury
(3,100)
(2,104)
Total Shareholders’ Deficit
(940,420)
(569,667)
Total Liabilities and Shareholders’ Deficit
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) CLEAR CHANNEL OUTDOOR HOLDINGS, INC. AND SUBSIDIARIES
(UNAUDITED)
(In thousands, except per share data)
Three Months Ended
March 31,
2016
Revenue
590,721
615,043
Operating expenses:
Direct operating expenses (excludes depreciation and amortization)
343,694
362,971
Selling, general and administrative expenses (excludes depreciation and amortization)
126,801
127,130
Corporate expenses (excludes depreciation and amortization)
28,239
28,753
Depreciation and amortization
85,395
94,094
Other operating income (expense), net
284,774
(5,444)
Operating income (loss)
291,366
(3,349)
Interest expense
93,873
89,416
Interest income on Due from iHeartCommunications
12,713
15,253
Equity in earnings (loss) of nonconsolidated affiliates
(415)
522
Other income (expense), net
(5,803)
19,938
Income (loss) before income taxes
203,988
(57,052)
Income tax benefit (expense)
(62,912)
24,099
Consolidated net income (loss)
141,076
(32,953)
Less amount attributable to noncontrolling interest
976
565
Net income (loss) attributable to the Company
140,100
(33,518)
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments
27,264
(81,487)
Unrealized holding gain (loss) on marketable securities
(36)
822
Other adjustments to comprehensive loss
(1,154)
Other comprehensive income (loss)
27,228
(81,819)
Comprehensive income (loss)
167,328
(115,337)
2,419
2,299
Comprehensive income (loss) attributable to the Company
164,909
(117,636)
Net income (loss) attributable to the Company per common share:
Basic
0.39
(0.09)
Weighted average common shares outstanding – Basic
359,915
359,093
Diluted
Weighted average common shares outstanding – Diluted
360,904
Dividends declared per share
1.49
See Notes to Consolidated Financial Statements
CONSOLIDATED STATEMENTS OF CASH FLOWSCLEAR CHANNEL OUTDOOR HOLDINGS, INC. AND SUBSIDIARIES
(In thousands)
Three Months Ended March 31,
Cash flows from operating activities:
Reconciling items:
Deferred taxes
52,649
4,737
Provision for doubtful accounts
2,018
2,525
Share-based compensation
2,385
1,925
Gain on sale of operating and other assets
(285,519)
(1,355)
Amortization of deferred financing charges and note discounts, net
2,613
2,171
Other reconciling items, net
5,372
(20,681)
Changes in operating assets and liabilities, net of effects of acquisitions
and dispositions:
Decrease in accounts receivable
80,033
34,095
Increase in prepaid expenses and other current assets
(19,331)
(56,109)
Decrease in accrued expenses
(60,951)
(59,575)
Increase (decrease) in accounts payable
(18,190)
4,362
Increase in deferred income
25,151
39,758
Changes in other operating assets and liabilities
3,469
(3,272)
Net cash provided by operating activities
16,170
9,722
Cash flows from investing activities:
Purchases of property, plant and equipment
(47,202)
(41,815)
Proceeds from disposal of assets
586,690
938
Purchases of other operating assets
(1,573)
(29)
Change in other, net
(14,371)
Net cash provided by (used for) investing activities
523,544
(40,906)
Cash flows from financing activities:
Payments on credit facilities
(577)
(1,859)
Payments on long-term debt
(517)
(13)
Net transfers from iHeartCommunications
290,711
61,485
Dividends and other payments to noncontrolling interests
(789)
(2,119)
Dividends paid
(754,217)
(1,079)
650
Net cash provided by (used for) financing activities
(466,468)
58,144
Effect of exchange rate changes on cash
3,652
(5,884)
Net increase in cash and cash equivalents
76,898
21,076
Cash and cash equivalents at beginning of period
186,204
Cash and cash equivalents at end of period
207,280
SUPPLEMENTAL DISCLOSURES:
Cash paid for interest
85,959
87,717
Cash paid for income taxes
14,632
9,643
CLEAR CHANNEL OUTDOOR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 2015 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 2016 presentation.
New Accounting Pronouncements
During the first quarter of 2015, the FASB issued ASU No. 2015-02,Consolidation (Topic 810), Amendments to the Consolidation Analysis. This new standard eliminates the deferral of FAS 167, which has allowed entities with interest in certain investment funds to follow the previous consolidation guidance in FIN 46(R) and makes other changes to both the variable interest model and the voting model. The standard is effective for annual periods, and for interim periods within those annual periods, beginning after December 15, 2015. The adoption of this guidance did not have a material effect on the Company’s consolidated financial statements.
During the second quarter of 2015, the FASB issued ASU No. 2015-03, Interest-Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs. This update simplifies the presentation of debt issuance costs as a deduction from the carrying value of the outstanding debt balance rather than showing the debt issuance costs as an asset. The standard is effective for annual periods, and for interim periods within those annual periods, beginning after December 15, 2015. The retrospective adoption of this guidance resulted in the reclassification of debt issuance costs of $48.2 million and $50.4 million as of March 31, 2016 and December 31, 2015, respectively, which are now reflected as “Long-term debt fees” in Note 3.
During the third quarter of 2015, the FASB issued ASU 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date. This update provides a one-year deferral of the effective date for ASU No. 2014-09, Revenue from Contracts with Customers. ASU No. 2014-09 provides guidance for the recognition, measurement and disclosure of revenue resulting from contracts with customers and will supersede virtually all of the current revenue recognition guidance under U.S. GAAP. The standard is effective for the first interim period within annual reporting periods beginning after December 15, 2017. The Company is currently evaluating the impact of the provisions of this new standard on its financial position and results of operations.
During the third quarter of 2015, the FASB issued ASU No. 2015-16,Business Combinations (Topic 805): Simplifying the Accounting for Measurement-Period Adjustments. This update eliminates the requirement for an acquirer in a business combination to account for measurement-period adjustments retrospectively. Instead, acquirers must recognize measurement-period adjustments during the period in which they determine the amounts, including the effect on earnings of any amounts they would have recorded in previous periods if the accounting had been completed at the acquisition date. The standard is effective for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. The adoption of this guidance did not have a material effect on the Company’s consolidated financial statements.
During the first quarter of 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). The new leasing standard presents significant changes to the balance sheets of lessees. Lessor accounting is updated to align with certain changes in the lessee model and the new revenue recognition standard which was issued in the third quarter of 2015. The standard is effective for annual periods, and
for interim periods within those annual periods, beginning after December 15, 2018. The Company is currently evaluating the impact of the provisions of this new standard on its financial position and results of operations.
NOTE 2 – PROPERTY, PLANT AND EQUIPMENT, INTANGIBLE ASSETS AND GOODWILL
Dispositions
During the first quarter of 2016, Americas outdoor sold nine non-strategic outdoor markets including Cleveland and Columbus, Ohio, Des Moines, Iowa, Ft. Smith, Arkansas, Memphis, Tennessee, Portland, Oregon, Reno, Nevada, Seattle, Washington and Wichita, Kansas for net proceeds, including cash and certain advertising assets in Florida, of $596.6 million. The Company recognized a net gain of $281.7 million related to the sale, which is included within Other operating income (expense), net.
During the first quarter of 2016, Americas outdoor also entered into an agreement to sell its Indianapolis, Indiana market in exchange for certain assets in Atlanta, Georgia, plus approximately $41.2 million in cash. The transaction is subject to regulatory approvals and is expected to close in 2016. This transaction has met the criteria to be classified as held-for-sale and as such, the related assets are separately presented on the face of the Consolidated Balance Sheet.
Property, Plant and Equipment
The Company’s property, plant and equipment consisted of the following classes of assets as of March 31, 2016 and December 31, 2015, respectively.
Land, buildings and improvements
163,733
167,739
Structures
2,799,699
2,824,794
Furniture and other equipment
157,479
156,046
Construction in progress
54,158
54,701
3,175,069
3,203,280
Less: accumulated depreciation
1,596,974
1,575,294
Property, plant and equipment, net
1,578,095
1,627,986
Intangible Assets
The Company’s indefinite-lived intangible assets consist primarily of billboard permits. 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 include definite-lived intangible assets and permanent easements. The Company’s definite-lived intangible assets primarily include transit and street furniture contracts, site-leases and other contractual rights, all of which are amortized over the shorter of either the respective lives of the agreements or over the period of time the assets are expected to contribute directly or indirectly to the Company’s future cash flows. Permanent easements are indefinite-lived intangible assets which include certain rights to use real property not owned by the Company. The Company periodically reviews the appropriateness of the amortization periods related to its definite-lived intangible assets. These assets are recorded at cost.
5
The following table presents the gross carrying amount and accumulated amortization for each major class of other intangible assets as of March 31, 2016 and December 31, 2015, respectively:
December 31, 2015
Gross Carrying Amount
Accumulated Amortization
Transit, street furniture and other outdoor
contractual rights
631,943
(458,829)
635,772
(457,060)
Permanent easements
157,313
156,349
Other
5,084
(1,609)
9,687
(1,884)
Total
794,340
(460,438)
801,808
(458,944)
Total amortization expense related to definite-lived intangible assets for the three months ended March 31, 2016 and 2015 was $9.8 million and $14.7 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:
2017
30,017
2018
21,053
2019
16,283
2020
13,785
2021
13,614
The following table presents the changes in the carrying amount of goodwill in each of the Company’s reportable segments:
Americas
International
Consolidated
Balance as of December 31, 2014
584,574
232,538
817,112
Acquisitions
10,998
Foreign currency
(709)
(19,644)
(20,353)
(49,182)
Balance as of December 31, 2015
534,683
223,892
(6,934)
(1,210)
9,834
8,624
(10,337)
Balance as of March 31, 2016
516,202
233,726
6
NOTE 3 – LONG-TERM DEBT
Long-term debt outstanding as of March 31, 2016 and December 31, 2015 consisted of the following:
Clear Channel Worldwide Holdings Senior Notes:
6.5% Series A Senior Notes Due 2022
735,750
6.5% Series B Senior Notes Due 2022
1,989,250
Clear Channel Worldwide Holdings Senior Subordinated Notes:
7.625% Series A Senior Subordinated Notes Due 2020
275,000
7.625% Series B Senior Subordinated Notes Due 2020
1,925,000
Senior Revolving Credit Facility Due 2018(1)
Clear Channel International B.V. Senior Notes Due 2020
225,000
Other debt
18,902
19,003
Original issue discount
(7,518)
(7,769)
Long-term debt fees
(48,169)
(50,411)
Total debt
5,113,215
5,110,823
Less: current portion
Total long-term debt
(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 $4.8 billion and $4.9 billion at March 31, 2016 and December 31, 2015, respectively. Under the fair value hierarchy established by ASC 820-10-35, the market value of the Company’s debt is classified as Level 1.
Surety Bonds, Letters of Credit and Guarantees
As of March 31, 2016, the Company had $50.1 million and $59.3 million in letters of credit and bank guarantees outstanding, respectively. Bank guarantees of $24.1 million were backed by cash collateral. Additionally, as of March 31, 2016, iHeartCommunications had outstanding commercial standby letters of credit and surety bonds of $1.2 million and $56.5 million, respectively, held on behalf of the Company. These surety bonds, letters of credit and bank guarantees relate to various operational matters, including insurance, bid and performance bonds, as well as other items.
NOTE 4 – COMMITMENTS AND CONTINGENCIES
The Company and its subsidiaries are involved in certain legal proceedings arising in the ordinary course of business and, as required, have accrued an estimate of the probable costs for the resolution of those claims for which the occurrence of loss is probable and the amount can be reasonably estimated. These estimates have been developed in consultation with counsel and are based upon an analysis of potential results, assuming a combination of litigation and settlement strategies. It is possible, however, that future results of operations for any particular period could be materially affected by changes in the Company’s assumptions or the effectiveness of its strategies related to these proceedings. Additionally, due to the inherent uncertainty of litigation, there can be no assurance that the resolution of any particular claim or proceeding would not have a material adverse effect on the Company’s financial condition or results of operations.
Although the Company is involved in a variety of legal proceedings in the ordinary course of business, a large portion of the Company’s litigation arises in the following contexts: commercial disputes; misappropriation of likeness and right of publicity claims; employment and benefits related claims; governmental fines; intellectual property claims; and tax disputes.
International Outdoor Investigation
On April 21, 2015, inspections were conducted at the premises of Clear Channel in Denmark and Sweden as part of an investigation by Danish competition authorities. Additionally, on the same day, Clear Channel UK received a communication from the UK competition authorities, also in connection with the investigation by Danish competition authorities. Clear Channel and its affiliates
7
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 March 31, 2016 and December 31, 2015, the asset recorded in “Due from iHeartCommunications” on the consolidated balance sheet was $640.1 million and $930.8 million, respectively. As of March 31, 2016, 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 income for the three months ended March 31, 2016 and 2015 was $12.7 million and $15.3 million, respectively. On February 4, the Company demanded the repayment of $300.0 million outstanding under the Due from iHeartCommunications note and used the repayment to partially fund a special cash dividend of $540.0 million, which was paid on February 4, 2016.
The Company provides advertising space on its billboards for radio stations owned by iHeartCommunications. For the three months ended March 31, 2016 and 2015, the Company recorded $0.3 million and $1.1 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 March 31, 2016 and 2015, the Company recorded $9.3 million and $7.9 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 the three months ended March 31, 2016 and 2015, the Company recorded $2.3 million and $2.7 million, respectively, as a component of selling, general and administrative expenses for these services.
8
NOTE 6 – INCOME TAXES
Income Tax Benefit (Expense)
The Company’s income tax benefit (expense) for the three months ended March 31, 2016 and 2015, respectively, consisted of the following components:
Current tax benefit (expense)
(10,263)
28,836
Deferred tax expense
(52,649)
(4,737)
The effective tax rate for the three months ended March 31, 2016 was 30.8%. The effective rate was primarily impacted by the reversal of the valuation allowance recorded in 2015 against net operating losses in U.S. federal and state jurisdictions due to taxable gains from the dispositions of nine outdoor markets during the period. Additionally, we were unable to benefit from losses in certain foreign jurisdictions due to the uncertainty of the ability to utilize those losses in future periods.
The effective tax rate for the three months ended March 31, 2015 was 42.2%. The effective rate was primarily impacted by the uncertainty of the 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 were exceeded by deferred tax assets recognized on the additional net operating losses incurred in the current period.
9
NOTE 7 – SHAREHOLDERS’ EQUITY (DEFICIT)
The Company reports its noncontrolling interests in consolidated subsidiaries as a component of equity separate from the Company’s equity. The following table shows the changes in shareholders’ equity attributable to the Company and the noncontrolling interests of subsidiaries in which the Company has a majority, but not total, ownership interest:
The Company
Noncontrolling
Interests
Balances as of January 1, 2016
(757,442)
Net income
Dividends declared
(540,016)
24,845
Unrealized holding loss on marketable securities
Other, net
(1,862)
1,225
(637)
Balances as of March 31, 2016
(1,132,026)
Balances as of January 1, 2015
(344,275)
203,334
(140,941)
Net income (loss)
(83,786)
Unrealized holding gain on marketable securities
651
Balances as of March 31, 2015
(459,335)
204,079
(255,256)
10
NOTE 8 — OTHER INFORMATION
Other Comprehensive Income (Loss)
For the three months ended March 31, 2016 and 2015 the total increase (decrease) in deferred income tax liabilities of other comprehensive income (loss) related to pensions were ($0.0) million and ($0.6) 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 March 31, 2016 and 2015:
Corporate and other reconciling items
Three Months Ended March 31, 2016
282,528
308,193
Direct operating expenses
138,012
205,682
Selling, general and administrative expenses
55,329
71,472
Corporate expenses
46,116
37,880
1,399
Other operating income, net
43,071
(6,841)
255,136
Capital expenditures
11,292
34,913
997
47,202
Share-based compensation expense
Three Months Ended March 31, 2015
295,863
319,180
146,234
216,737
55,637
71,493
50,340
42,441
1,313
Other operating loss, net
43,652
(11,491)
(35,510)
16,695
25,105
15
41,815
11
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):
Parent
Subsidiary
Guarantor
Non-Guarantor
Company
Issuer
Subsidiaries
Eliminations
330,026
7,022
152,593
Accounts receivable, net of allowance
185,420
440,293
Intercompany receivables
470,441
2,489,586
7,595
(2,967,622)
2,825
65,492
79,955
5,824
34,294
332,851
2,808,503
714,730
815,441
534,958
117,846
109,850
951,692
9,848
269,090
64,812
505,479
244,449
Intercompany notes receivable
182,026
5,105,392
(5,287,418)
242,051
298,292
1,173,371
60,286
(1,657,073)
1,397,017
5,874,125
6,641,422
1,738,933
(9,912,113)
6,391
77,460
Intercompany payable
478,036
1,621
2,241
84,236
370,552
48,998
70,094
67
4,527
2,491,207
617,728
522,633
4,879,758
227,866
Intercompany notes payable
5,028,225
259,193
772
1,367
652,769
6,028
2,724
130,587
110,749
Total shareholders' equity (deficit)
(1,097,686)
990,759
211,116
612,464
Total Liabilities and Shareholders'
Equity (Deficit)
12
218,701
18,455
175,587
210,252
487,331
461,549
1,921,025
8,003
(2,390,577)
1,423
3,433
62,039
60,835
1,823
32,743
220,124
464,982
2,508,669
764,499
868,586
523,294
129,339
106,767
962,074
9,253
272,307
70,557
522,750
235,825
5,107,392
(5,289,418)
78,341
307,054
1,214,311
45,393
(1,537,559)
1,411,290
5,879,428
6,478,036
1,755,588
(9,217,554)
12,124
88,086
1,915,287
475,290
953
(707)
108,480
398,939
37,471
53,940
65
4,245
2,133,257
633,430
545,210
4,877,578
1,014
227,921
5,032,499
256,919
599,541
7,230
1,587
133,227
105,605
(724,326)
1,001,190
78,325
612,703
13
253,079
337,642
120,460
223,234
Selling, general and administrative
expenses
48,727
78,074
3,339
14,433
10,467
44,550
40,845
(116)
289,897
(5,007)
(3,455)
314,806
(19,985)
Interest (income) expense, net
(330)
88,078
436
5,689
Interest income on Due from
iHeartCommunications
Intercompany interest income
4,033
85,451
13,203
(102,687)
Intercompany interest expense
89,484
490
Equity in earnings (loss) of
nonconsolidated affiliates
138,901
(33,187)
(38,509)
(777)
(66,843)
Other income, net
629
(1,322)
(5,110)
140,438
(35,814)
198,258
(32,051)
Income tax (benefit) expense
(338)
958
(59,309)
(4,223)
(34,856)
138,949
(36,274)
Less amount attributable to
noncontrolling interest
48
928
Net income (loss) attributable to
the Company
(37,202)
(5,664)
32,928
Unrealized holding loss on marketable
securities
Equity in subsidiary comprehensive
income
24,809
24,425
30,473
(79,707)
(10,431)
163,710
(4,310)
(146,550)
Comprehensive income (loss) attributable
to the Company
(6,729)
14
256,711
358,332
123,610
239,361
46,989
80,141
3,253
13,681
11,819
48,432
45,662
(102)
(6,686)
1,344
(3,355)
17,313
(17,307)
88,080
765
4,001
85,096
15,326
(104,423)
89,097
73
(34,666)
(5,148)
(3,957)
(33)
44,326
747
614
18,577
(33,279)
(8,132)
(60,366)
399
(239)
994
25,700
(2,356)
(7,138)
(1,957)
(2,522)
(7,160)
(74,327)
Unrealized holding gain on marketable
Other adjustments to comprehensive
loss
(84,118)
(50,342)
(76,958)
211,418
Comprehensive loss
(57,480)
(118,784)
(77,181)
255,744
Comprehensive loss attributable to
(79,480)
53,227
(578)
1,497
521
1,031
1,354
Gain on sale of operating and fixed assets
(290,091)
4,572
Amortization of deferred financing
charges and note discounts, net
1,873
308
432
(138,901)
33,187
43,466
777
66,843
Changes in operating assets and liabilities, net
of effects of acquisitions and dispositions:
25,782
54,251
(Increase) decrease in prepaids and other
current assets
(1,402)
377
(18,306)
Increase (decrease) in accrued expenses
(615)
6,381
(29,009)
(37,708)
Decrease in accounts payable
(5,741)
(12,449)
11,277
13,874
2,830
639
Net cash provided by (used for) operating
activities
(818)
6,585
(1,547)
11,950
(11,023)
(36,179)
351,470
235,220
(1,357)
(216)
Decrease in intercompany notes receivable, net
2,000
(2,000)
Dividends from subsidiaries
234,554
(234,554)
(14,372)
Net cash provided by investing activities
573,645
184,453
(236,554)
(15)
(502)
Net transfers to iHeartCommunications
Dividends and other payments to
noncontrolling interests
Increase (decrease) in intercompany notes payable, net
(3,781)
1,781
Intercompany funding
576,608
(8,585)
(579,735)
11,712
(959)
(120)
112,143
(583,531)
(223,049)
236,554
Net increase (decrease) in cash and cash equivalents
111,325
(11,433)
(22,994)
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
16
6,411
(1,674)
834
1,691
1,300
625
(11)
(1,344)
1,863
34,666
5,148
1,000
(17,169)
(44,326)
(Increase) decrease in accounts receivable
8,820
25,275
(Increase) decrease in prepaids and other current assets
(1,530)
(33,883)
(20,696)
(228)
(1,270)
(19,725)
(38,352)
(19,049)
3,451
19,960
Increase (decrease) in deferred income
16,297
23,461
(3,714)
442
Net cash provided by (used for) operating activities
(610)
(1,397)
(27,646)
19,415
(12,759)
(29,056)
454
484
(20)
(9)
(2,518)
2,518
(907)
907
(15,750)
(28,581)
3,425
Decrease in intercompany notes payable, net
(61,525)
1,397
62,851
(2,723)
Net cash used for financing activities
610
62,838
(3,276)
(3,425)
Net decrease in cash and cash
equivalents
19,442
(18,326)
905
205,259
(19,960)
186,933
17
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Format of Presentation
Management’s discussion and analysis of our financial condition and results of operations (“MD&A”) should be read in conjunction with the consolidated financial statements and related footnotes. Our discussion is presented on both a consolidated and segment basis. All references in this Quarterly Report on Form 10-Q to “we,” “us” and “our” refer to Clear Channel Outdoor Holdings, Inc. and its consolidated subsidiaries. Our reportable segments are Americas outdoor advertising (“Americas”) and International outdoor advertising (“International”). Our Americas and International segments provide outdoor advertising services in their respective geographic regions using various digital and traditional display types. Certain prior period amounts have been reclassified to conform to the 2016 presentation.
We manage our operating segments primarily focusing on their operating income, while Corporate expenses, Other operating income (expense), net, Interest expense, Interest income on the Revolving Promissory Note issued by iHeartCommunications to the Company (the “Due from iHeartCommunications Note”), Equity in earnings (loss) of nonconsolidated affiliates, Other income, net and Income tax benefit (expense) are managed on a total company basis and are, therefore, included only in our discussion of consolidated results.
Management typically monitors our businesses by reviewing the average rates, average revenue per display, occupancy and inventory levels of each of our display types by market. Our advertising revenue is derived from selling advertising space on the displays we own or operate in key markets worldwide, consisting primarily of billboards, street furniture and transit displays. Part of our long-term strategy is to pursue the technology of digital displays, including flat screens, LCDs and LEDs, as additions to traditional methods of displaying our clients’ advertisements. We are currently installing these technologies in certain markets, both domestically and internationally.
Advertising revenue for our segments is highly correlated to changes in gross domestic product (“GDP”) as advertising spending has historically trended in line with GDP, both domestically and internationally. Internationally, our results are impacted by fluctuations in foreign currency exchange rates as well as economic conditions in the foreign markets in which we have operations.
Executive Summary
The key developments in our business for the three months ended March 31, 2016 are summarized below:
· Consolidated revenue decreased $24.3 million during the three months ended March 31, 2016 compared to the same period of 2015. Excluding a $15.1 million impact from movements in foreign exchange rates, consolidated revenue decreased $9.2 million during the three months ended March 31, 2016 compared to the same period of 2015.
· We sold our business in nine non-strategic U.S. outdoor markets for net proceeds of $596.6 million in cash and certain advertising assets in Florida. These markets generated revenue of $2.5 million in the three months ended March 31, 2016, and $22.3 million in the three months ended March 31, 2015. We recognized a net gain of $281.7 million related to the sales.
· We spent $2.3 million on strategic revenue and efficiency initiatives during 2016 to realign and improve our on-going business operations—a decrease of $1.4 million compared to 2015.
Revenues and expenses “excluding the impact of foreign exchange movements” in this Management’s Discussion & Analysis of Financial Condition and Results of Operations is presented because management believes that viewing certain financial results without the impact of fluctuations in foreign currency rates facilitates period to period comparisons of business performance and provides useful information to investors. Revenues and expenses “excluding the impact of foreign exchange movements” are calculated by converting the current period’s revenues and expenses in local currency to U.S. dollars using average foreign exchange rates for the prior period.
RESULTS OF OPERATIONS
Consolidated Results of Operations
The comparison of our historical results of operations for the three months ended March 31, 2016 to the three months ended March 31, 2015 is as follows:
%
Change
(4%)
(5%)
Selling, general and administrative expenses (excludes depreciation and
amortization)
(0%)
(2%)
(9%)
Loss before income taxes
Consolidated net loss
Net loss attributable to the Company
Consolidated Revenue
Consolidated revenue decreased $24.3 million during the three months ended March 31, 2016 compared to the same period of 2015. Excluding a $15.1 million impact from movements in foreign exchange rates, consolidated revenue decreased $9.2 million during the three months ended March 31, 2016 compared to the same period of 2015. Primarily due to the $19.8 million impact of the sale of nine non-strategic U.S. markets in the first quarter of 2016, Americas revenue decreased $13.3 million during the three months ended March 31, 2016 compared to the same period of 2015. Excluding the $5.0 million impact from movements in foreign exchange rates, Americas revenue decreased $8.3 million during the three months ended March 31, 2016 compared to the same period of 2015. International revenue decreased $11.0 million during the three months ended March 31, 2016 compared to the same period of 2015. Excluding the $10.1 million impact from movements in foreign exchange rates, International revenue decreased $0.9 million during the three months ended March 31, 2016 compared to the same period of 2015. Revenue growth in certain countries including Australia, China and France was offset by decreases in other countries including the United Kingdom and Switzerland.
Consolidated Direct Operating Expenses
Consolidated direct operating expenses decreased $19.3 million during the three months ended March 31, 2016 compared to the same period of 2015. Excluding a $10.4 million impact from movements in foreign exchange rates, consolidated direct operating expenses decreased $8.9 million during the three months ended March 31, 2016 compared to the same period of 2015. Americas direct operating expenses decreased $8.2 million during the three months ended March 31, 2016 compared to the same period of 2015. Excluding the $2.6 million impact from movements in foreign exchange rates, Americas direct operating expenses decreased $5.6 million during the three months ended March 31, 2016 compared to the same period of 2015 primarily driven by a $7.7 million decrease in direct expenses resulting from the sale of the nine non-strategic markets at the beginning of the year, partially offset by higher variable site lease expenses related to the increase in revenues from remaining markets. International direct operating expenses decreased $11.1 million during the three months ended March 31, 2016 compared to the same period of 2015. Excluding the $7.8 million impact from movements in foreign exchange rates, International direct operating expenses decreased $3.3 million during the three months ended March 31, 2016 compared to the same period of 2015 primarily as a result of lower rent expense due to lower revenue in the United Kingdom, partially offset by higher variable site lease and maintenance expenses in countries experiencing revenue growth.
19
Consolidated Selling, General and Administrative (“SG&A”) Expenses
Consolidated SG&A expenses decreased $0.3 million during the three months ended March 31, 2016 compared to the same period of 2015. Excluding a $3.8 million impact from movements in foreign exchange rates, consolidated SG&A expenses increased $3.5 million during the three months ended March 31, 2016 compared to the same period of 2015. Americas SG&A expenses decreased $0.3 million during the three months ended March 31, 2016 compared to the same period of 2015. Excluding the $1.3 million impact from movements in foreign exchange rates, Americas SG&A expenses increased $1.0 million, net of a $4.5 million decrease in expenses resulting from the sale of the nine non-strategic markets at the beginning of the year, during the three months ended March 31, 2016 compared to the same period of 2015 primarily due to higher variable compensation expense related to higher revenues, and higher expenses in Latin America. International SG&A expenses were flat during the three months ended March 31, 2016 compared to the same period of 2015. Excluding the $2.6 million impact from movements in foreign exchange rates, International SG&A expenses increased $2.6 million during the three months ended March 31, 2016 compared to the same period of 2015 primarily due to increased expenses in the United Kingdom.
Corporate Expenses
Corporate expenses decreased $0.5 million during the three months ended March 31, 2016 compared to the same period of 2015. Excluding the $0.4 million impact from movements in foreign exchange rates, corporate expenses decreased $0.1 million during the three months ended March 31, 2016 compared to the same period of 2015.
Revenue and Efficiency Initiatives
Included in the amounts for direct operating expenses, SG&A and corporate expenses discussed above are expenses of $2.3 million incurred in connection with our strategic revenue and efficiency initiatives during the three months ended March 31, 2016. The costs were incurred to improve revenue growth, enhance yield, reduce costs and organize each business to maximize performance and profitability. These costs consist primarily of severance related to workforce initiatives, consolidation of locations and positions, consulting expenses and other costs incurred in connection with streamlining our businesses. These costs are expected to provide benefits in future periods as the initiative results are realized. Of these costs during the first quarter of 2016, $0.7 million are reported within direct operating expenses, $1.3 million are reported within SG&A and $0.3 million are reported within corporate expense. In the first quarter of 2015, such costs totaled $0.4 million, $0.8 million and $2.5 million, respectively.
Depreciation and Amortization
Depreciation and amortization decreased $8.7 million during the three months ended March 31, 2016 compared to the same period in 2015 primarily due to assets becoming fully depreciated or fully amortized and the sale of the non-strategic outdoor markets, as well as the impact of movements in foreign exchange rates.
Other operating income (loss), net
Other operating income was $284.8 million for the three months ended March 31, 2016, which primarily related to the sale of nine non-strategic outdoor markets at the beginning of the year. In the first quarter of 2016, Americas outdoor sold nine non-strategic outdoor markets including Cleveland and Columbus, Ohio, Des Moines, Iowa, Ft. Smith, Arkansas, Memphis, Tennessee, Portland, Oregon, Reno, Nevada, Seattle, Washington and Wichita, Kansas for net proceeds of $596.6 million in cash and certain advertising assets in Florida. The Company recognized a net gain of $281.7 million. These markets generated revenue of $2.5 million in the three months ended March 31, 2016 and $22.3 million in the three months ended March 31, 2015.
Other operating expense was $5.4 million for the three months ended March 31, 2015, which primarily related to acquisition/disposition transaction costs.
Interest Income on Due from iHeartCommunications
Interest income decreased $2.5 million during the three months ended March 31, 2016 compared to the same period of 2015 due to a lower average outstanding balance as a result of the $300.0 million demand and repayment under the Due from iHeartCommunications note in February 2016.
Other income of $5.8 million for the first quarter of 2016 primarily related to foreign exchange gains on short-term intercompany accounts.
20
Other income of $19.9 million for the first quarter of 2015 primarily related to foreign exchange gains on short-term intercompany accounts.
Income tax expense
Our operations are included in a consolidated income tax return filed by iHeartMedia. However, for our financial statements, our provision for income taxes was computed as if we file separate consolidated federal income tax returns with our subsidiaries.
The effective tax rate for the three months ended March 31, 2016 was 30.8%, and was primarily impacted by the reversal of the valuation allowance recorded in 2015 against net operating losses in U.S. federal and state jurisdictions due to taxable gains from the dispositions of nine outdoor markets during the period. In addition, we were unable to record benefits on losses in certain foreign jurisdictions due to the uncertainty of the ability to utilize those losses in future periods.
The effective tax rate for the three months ended March 31, 2015 was 42.2%, and was primarily impacted by the valuation allowance recorded against current period net operating losses in U.S. federal, state and certain foreign jurisdiction due to the uncertainty of the ability to utilize those assets in future periods. In addition, the current tax benefit for the three months ended March 31, 2015 was the result of applying the estimated annual effective tax rate for the year to the pre-tax losses incurred during the period.
Americas Outdoor Advertising Results of Operations
Our Americas outdoor operating results were as follows:
(6%)
SG&A expenses
(1%)
(8%)
Operating income
Americas revenue decreased $13.3 million during the three months ended March 31, 2016 compared to the same period of 2015. Excluding the $5.0 million impact from movements in foreign exchange rates, Americas revenue decreased $8.3 million during the three months ended March 31, 2016 compared to the same period of 2015. In the first quarter of 2016, we sold nine non-strategic markets for net proceeds of $596.6 million in cash and certain assets in Florida. These non-strategic markets generated revenues of $2.5 million in the first quarter of 2016 compared to $22.3 million in the first quarter of 2015. The decrease resulting from the disposal of the nine non-strategic markets was partially offset by increased revenues from digital billboards as a result of new deployments, organic growth and higher occupancy, as well as higher revenues from static bulletins as a result of higher occupancy.
Americas direct operating expenses decreased $8.2 million during the three months ended March 31, 2016 compared to the same period of 2015. Excluding the $2.6 million impact from movements in foreign exchange rates, Americas direct operating expenses decreased $5.6 million during the three months ended March 31, 2016 compared to the same period of 2015 primarily driven by a $7.7 million decrease in direct expenses resulting from the sale of the nine non-strategic markets at the beginning of the year, partially offset by higher variable site lease expenses related to the increase in revenues from remaining markets. Americas SG&A expenses decreased $0.3 million during the three months ended March 31, 2016 compared to the same period of 2015. Excluding the $1.3 million impact from movements in foreign exchange rates, Americas SG&A expenses increased $1.0 million, net of a $4.5 million decrease in expenses resulting from the sale of the nine non-strategic markets at the beginning of the year, during the three months ended March 31, 2016 compared to the same period of 2015 primarily due to higher variable compensation expense related to higher revenues, and higher expenses in Latin America.
21
International Outdoor Advertising Results of Operations
Our International operating results were as follows:
(3%)
(11%)
(40%)
International revenue decreased $11.0 million during the three months ended March 31, 2016 compared to the same period of 2015. Excluding the $10.1 million impact from movements in foreign exchange rates, International revenue decreased $0.9 million during the three months ended March 31, 2016 compared to the same period of 2015 primarily driven by lower revenue in the United Kingdom as a result of the London bus shelter contract not being renewed, and decreases in Switzerland, almost entirely offset by revenue growth from new digital assets in Australia and new contracts and higher occupancy in China and across several European countries including France and Belgium.
International direct operating expenses decreased $11.1 million during the three months ended March 31, 2016 compared to the same period of 2015. Excluding the $7.8 million impact from movements in foreign exchange rates, International direct operating expenses decreased $3.3 million during the three months ended March 31, 2016 compared to the same period of 2015 primarily as a result of lower rent expense due to lower revenue in the United Kingdom as a result of the London bus shelter contract not being renewed, partially offset by higher variable site lease and maintenance expenses in countries experiencing revenue growth. International SG&A expenses were flat during the three months ended March 31, 2016 compared to the same period of 2015. Excluding the $2.6 million impact from movements in foreign exchange rates, International SG&A expenses increased $2.6 million during the three months ended March 31, 2016 compared to the same period of 2015 primarily due to increased expenses in the United Kingdom.
Reconciliation of Segment Operating Income to Consolidated Operating Income (Loss)
Americas Outdoor Advertising
International Outdoor Advertising
Corporate and other(1)
(29,638)
(30,066)
Consolidated operating income (loss)
Corporate and other includes expenses related to Americas and International and as well as overall executive, administrative and support functions.
Share-Based Compensation Expense
Certain employees receive equity awards from our equity incentive plans. As of March 31, 2016, there was $15.8 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 2.5 years. In addition, as of March 31, 2016, there was $0.6 million of unrecognized compensation cost related to unvested share-based compensation arrangements that will vest based on market, performance and service conditions. This cost will be recognized when it becomes probable that the performance condition will be satisfied.
Share-based compensation expenses are recorded in corporate expenses and were $2.4 million and $1.9 million for the three months ended March 31, 2016 and 2015, respectively.
22
LIQUIDITY AND CAPITAL RESOURCES
Cash Flows
The following discussion highlights cash flow activities during the three months ended March 31, 2016 and 2015:
Cash provided by (used for):
Operating activities
Investing activities
Financing activities
Operating Activities
Cash provided by operating activities was $16.2 million during the three months ended March 31, 2016 compared to $9.7 million of cash provided during the three months ended March 31, 2015. Our consolidated net loss for the three months ended March 31, 2016 and 2015 included non-cash items of ($135.1) million and $83.4 million, respectively. Non-cash items affecting our net loss include depreciation and amortization, deferred taxes, provision for doubtful accounts, share-based compensation, (gain) loss on sale of operating and fixed assets, amortization of deferred financing charges and note discounts, net and other reconciling items, net as presented on the face of the consolidated statement of cash flows.
Investing Activities
Cash provided by investing activities of $523.5 million during the three months ended March 31, 2016 primarily reflected net cash proceeds from the sale of nine non-strategic outdoor markets including Cleveland and Columbus, Ohio, Des Moines, Iowa, Ft. Smith, Arkansas, Memphis, Tennessee, Portland, Oregon, Reno, Nevada, Seattle, Washington and Wichita, Kansas for net proceeds of $596.6 million in cash and certain advertising assets in Florida. Those sale proceeds were partially offset by our capital expenditures of $47.2 million. We spent $11.3 million in our Americas segment primarily related to the construction of new advertising structures such as digital displays and $34.9 million in our International segment primarily related to new advertising structures such as billboards and street furniture and renewals of existing contracts.
Cash used for investing activities of $40.9 million during 2015 reflected our capital expenditures of $41.8 million. We spent $16.7 million in our Americas segment primarily related to the construction of new advertising structures such as digital displays and $25.1 million in our International segment primarily related to new advertising structures such as billboards and street furniture and renewals of existing contracts. Other cash provided by investing activities were $0.9 million of proceeds from sales of other operating and fixed assets.
Financing Activities
Cash used for financing activities of $466.5 million during the three months ended March 31, 2016 primarily reflected two cash dividends paid in the aggregate amount of $754.2 million, partially offset by net transfers of $290.7 million in cash from iHeartCommunications, which represents the activity in the “Due from/to iHeartCommunications” account.
Cash provided by financing activities of $58.1 million during the first quarter of 2015 primarily reflected the net transfers of $61.5 million in cash from iHeartCommunications, which represents the activity in the “Due from/to iHeartCommunications” account. Other cash used for financing activities included net payments to noncontrolling interests of $2.1 million.
Anticipated Cash Requirements
Our primary sources of liquidity are cash on hand, cash flow from operations, the revolving promissory note with iHeartCommunications and our senior revolving credit facility. As of March 31, 2016, we had $489.6 million of cash on our balance sheet, including $152.5 million of cash held outside the U.S. by our subsidiaries, a portion of which is held by non-wholly owned subsidiaries or is otherwise subject to certain restrictions and not readily accessible to us. Also as of March 31, 2016, we had $640.1 million due to us under the Due from iHeartCommunications note. We have the ability and intent to indefinitely reinvest the undistributed earnings of consolidated subsidiaries based outside of the United States. If any excess cash held by our foreign subsidiaries were needed to fund operations in the United States, we could presently repatriate available funds without a requirement
23
to accrue or pay U.S. taxes. This is a result of significant deficits, as calculated for tax law purposes, in our foreign earnings and profits, which gives us flexibility to make future cash distributions as non-taxable returns of capital.
Our primary uses of liquidity are for our working capital, capital expenditure, debt service and other funding requirements. Based on our current and anticipated levels of operations and conditions in our markets, we believe that cash on hand, cash flows from operations, borrowing capacity under or repayment of amounts outstanding under the revolving promissory note with iHeartCommunications and borrowing capacity under our senior revolving credit facility will enable us to meet our working capital, capital expenditure, debt service, special dividend and other funding requirements, including the debt service on the CCWH Senior Notes, the CCWH Subordinated Notes and the CCIBV Senior Notes for at least the next 12 months. We believe our long-term plans, which include promoting outdoor media spending, capitalizing on our diverse geographic and product opportunities and the continued deployment of digital displays, will enable us to continue generating cash flows from operations sufficient to meet our liquidity and funding requirements long term. However, our anticipated results are subject to significant uncertainty. Our ability to fund our working capital, capital expenditures, debt service and other obligations depends on our future operating performance and cash from operations. If our future operating performance does not meet our expectations or our plans materially change in an adverse manner or prove to be materially inaccurate, we may need additional financing. We may not be able to secure any such additional financing on terms favorable to us or at all.
We recently paid special cash dividends to our stockholders. On December 16, 2015, CCIBV issued $225.0 million in aggregate principal amount of 8.75% Senior Notes due 2020. We used the proceeds of the offering to pay a special dividend in an aggregate amount of $217.8 million to our stockholders on January 7, 2016. In the first quarter of 2016, we sold our business in nine non-strategic markets within our Americas segment for net proceeds, including cash and certain advertising assets in Florida, of $596.6 million (the “Americas Transactions”). Following the sale on February 4, 2016, we made a demand for repayment of $300.0 million outstanding under the Due from iHeartCommunications note and simultaneously paid a special cash dividend of $540.0 million. We used the $300.0 million from the repayment and $240.0 million of the proceeds of the Americas Transactions to fund the special dividend. The repayment of the $300.0 million under the Due from iHeartCommunications note reduced the amount of the Due from iHeartCommunications note asset that is available to us as a source of liquidity for future working capital, capital expenditure, debt service, special dividend and other funding requirements. In addition, the interest payments that we receive under the Due from iHeartCommunications note are expected to be lower in 2016 than in 2015 as a result of the lower outstanding indebtedness on the note. Future special cash dividends will be dependent upon us having sufficient available cash.
In addition to any special dividends that our board of directors may declare using the proceeds of any liquidity-generating transactions or other available cash, we may declare special dividends using the proceeds of payments from iHeartCommunications under the Due from iHeartCommunications note. Our board of directors has established a committee that has the non-exclusive authority to demand payments under the Due from iHeartCommunications note under certain specified circumstances tied to iHeartCommunications’ liquidity or the amount outstanding under the Due from iHeartCommunications note, as long as our board of directors declares a simultaneous dividend equal to the amount so demanded. Any future repayments and dividends would further reduce the amount of the Due from iHeartCommunications note asset that is available to us as a source of liquidity for ongoing working capital, capital expenditure, debt service and other funding requirements.
As our controlling stockholder, iHeartCommunications may cause us to engage in transactions for the purpose of supporting its liquidity needs, such as financings or asset sales, which may negatively affect our business operations or our capital structure. In its Quarterly Report on Form 10-Q filed with the SEC on May 4, 2016, iHeartCommunications stated that its ability to fund its ongoing capital needs depends on its future operating performance, cash from operations and its ability to generate cash from additional liquidity-generating transactions. These liquidity-generating transactions may involve us or our assets. As of March 31, 2016, iHeartCommunications had $978.5 million recorded as “Cash and cash equivalents” on its consolidated balance sheets, of which $489.6 million was held by us and our subsidiaries. Further deterioration in the financial condition of iHeartCommunications could also have the effect of increasing our borrowing costs or impairing our access to capital markets.
In its Quarterly Report on Form 10-Q filed with the SEC on May 4, 2016, iHeartCommunications stated that it was in compliance with the covenants contained in its material financing agreements as of March 31, 2016. iHeartCommunications similarly stated in its Quarterly Report that its anticipated results are also subject to significant uncertainty and there can be no assurance that actual results will be in compliance with the covenants. Moreover, iHeartCommunications stated in its Quarterly Report that its ability to comply with the covenants in its material financing agreements may be affected by events beyond its control, including prevailing economic, financial and industry conditions. As discussed therein, the breach of any covenants set forth in iHeartCommunications’ financing agreements would result in a default thereunder, and an event of default would permit the lenders under a defaulted financing agreement to declare all indebtedness thereunder to be due and payable prior to maturity. In addition, iHeartCommunications stated in its Quarterly Report that if iHeartCommunications is unable to repay its obligations under any secured credit facility, the lenders could proceed against any assets that were pledged to secure such facility. Finally,
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iHeartCommunications stated in its Quarterly Report that a default or acceleration under any of its material financing agreements could cause a default under other obligations that are subject to cross-default and cross-acceleration provisions. If iHeartCommunications were to become insolvent, we would be an unsecured creditor of iHeartCommunications. In that event, we would be treated the same as other unsecured creditors of iHeartCommunications and, if we were not entitled to the cash previously transferred to iHeartCommunications, or could not obtain such cash on a timely basis, we could experience a liquidity shortfall.
We frequently evaluate strategic opportunities both within and outside our existing lines of business. We expect from time to time to pursue additional acquisitions and may decide to dispose of certain businesses. These acquisitions or dispositions could be material.
Sources of Capital
As of March 31, 2016 and December 31, 2015, we had the following debt outstanding, cash and cash equivalents and amounts due from iHeartCommunications:
(In millions)
Clear Channel Worldwide Holdings Senior Notes due 2022
2,725.0
Clear Channel Worldwide Holdings Senior Subordinated Notes due 2020
2,200.0
Senior Revolving Credit Facility due 2018
Clear Channel International B.V. Senior Notes due 2020
225.0
18.9
19.0
(7.5)
(7.8)
(48.2)
(50.4)
5,113.2
5,110.8
Less: Cash and cash equivalents
489.6
412.7
Less: Due from iHeartCommunications
640.1
930.8
3,983.5
3,767.3
We may from time to time repay our outstanding debt or seek to purchase our outstanding equity securities. Such transactions, if any, will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors.
Promissory Notes with iHeartCommunications
We maintain accounts that represent net amounts due to or from iHeartCommunications, which are recorded as “Due from/to iHeartCommunications” on our consolidated balance sheets. The accounts represent our revolving promissory note issued by us to iHeartCommunications and the Due from iHeartCommunications note, in each case 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. Such day-to-day cash management services relate only to our cash activities and balances in the U.S. and exclude any cash activities and balances of our non-U.S. subsidiaries. As of March 31, 2016 and December 31, 2015, the asset recorded in “Due from iHeartCommunications” on our consolidated balance sheet was $640.1 million and $930.8 million, respectively. As of March 31, 2016, we had no borrowings under the cash management note to iHeartCommunications.
In accordance with the terms of the settlement for the derivative litigation filed by our stockholders regarding the Due from iHeartCommunications note, as previously disclosed, we established a committee of our board of directors, consisting of our independent and disinterested directors, for the specific purpose of monitoring the Due from iHeartCommunications note. This committee has the non-exclusive authority to demand payments under the Due from iHeartCommunications note under certain specified circumstances tied to iHeartCommunications’ liquidity or the amount outstanding under the Due from iHeartCommunications note, as long as our board of directors declares a simultaneous dividend equal to the amount so demanded. The committee last made a demand under the Due from iHeartCommunications note on August 11, 2014. If future demands are made in accordance with the terms of the committee charter, we will declare a simultaneous dividend equal to the amount so demanded, which would further reduce the amount of the “Due from iHeartCommunications” asset that is available to us as a source of liquidity for ongoing working capital, capital expenditure, debt service and other funding requirements.
The net interest income for the three months ended March 31, 2016 and 2015 was $12.7 million and $15.3 million, respectively. At March 31, 2016 and December 31, 2015, the fixed interest rate on the “Due from iHeartCommunications” account
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was 6.5%, which is equal to the fixed interest rate on the CCWH senior notes. If the outstanding balance on the Due from iHeartCommunications Note exceeds $1.0 billion and under certain other circumstances tied to iHeartCommunications’ liquidity, the rate will be variable but will in no event be less than 6.5% nor greater than 20%.
Our working capital requirements and capital for general corporate purposes, including acquisitions and capital expenditures, may be provided to us by iHeartCommunications, in its sole discretion, pursuant to a revolving promissory note issued by us to iHeartCommunications or pursuant to repayment of the Due from iHeartCommunications note. If we are unable to obtain financing from iHeartCommunications, we may need to obtain additional financing from banks or other lenders, or through public offerings or private placements of debt or equity, strategic relationships or other arrangements at some future date. As stated above, we may be unable to successfully obtain additional debt or equity financing on satisfactory terms or at all.
As long as iHeartCommunications maintains a significant interest in us, pursuant to the Master Agreement between iHeartCommunications and us, iHeartCommunications will have the option to limit our ability to incur debt or issue equity securities, among other limitations, which could adversely affect our ability to meet our liquidity needs. Under the Master Agreement with iHeartCommunications, we are limited in our borrowings from third parties to no more than $400.0 million at any one time outstanding, without the prior written consent of iHeartCommunications.
Clear Channel Worldwide Holdings Senior Notes
As of March 31, 2016, CCWH senior notes represented $2.7 billion aggregate principal amount of indebtedness outstanding, which consisted of $735.75 million aggregate principal amount of 6.5% Series A Senior Notes due 2022 (the “Series A CCWH Senior Notes”) and $1,989.25 million aggregate principal amount of 6.5% Series B CCWH Senior Notes due 2022 (the “Series B CCWH Senior Notes” and, together with the Series A CCWH Senior Notes, the “CCWH Senior Notes”). The CCWH Senior Notes are guaranteed by us, Clear Channel Outdoor, Inc. (“CCOI”) and certain of our direct and indirect subsidiaries.
The Series A CCWH Senior Notes indenture and Series B CCWH Senior Notes indenture restrict our ability to incur additional indebtedness but permit us to incur additional indebtedness based on an incurrence test. Under this test, in order to incur additional indebtedness, our debt to adjusted EBITDA ratios (as defined by the indentures) must be lower than 7.0:1 and 5.0:1 for total debt and senior debt, respectively, and in order to incur additional indebtedness that is subordinated to the CCWH Senior Notes, our debt to adjusted EBITDA ratios (as defined by the indentures) must be lower than 7.0:1. The indentures contain certain other exceptions that allow us to incur additional indebtedness. The Series B CCWH Senior Notes indenture also permits us to pay dividends from the proceeds of indebtedness or the proceeds from asset sales if our debt to adjusted EBITDA ratios (as defined by the indenture) are lower than 7.0:1 and 5.0:1 for total debt and senior debt, respectively. The Series B CCWH Senior Notes indenture also contains certain other exceptions that allow us to pay dividends, including (i) $525.0 million of dividends made pursuant to general restricted payment baskets and (ii) dividends made using proceeds received upon a demand by us of amounts outstanding under the Due from iHeartCommunications Note. The Series A CCWH Senior Notes indenture does not limit our ability to pay dividends.
Our consolidated leverage ratio, defined as total debt divided by EBITDA (as defined by the CCWH Senior Notes indentures) for the preceding four quarters was 7.6:1 as of March 31, 2016, and senior leverage ratio, defined as senior debt divided by EBITDA (as defined by the CCWH Senior Notes indentures) for the preceding four quarters was 4.0:1 as of March 31, 2016. As required by the definition of EBITDA in the CCWH Senior Notes indentures, our EBITDA for the preceding four quarters of $681.7 million is calculated as operating income (loss) before depreciation, amortization, impairment charges and other operating income (expense), net, plus share-based compensation and is further adjusted for the following: (i) costs incurred in connection with severance, the closure and/or consolidation of facilities, retention charges, consulting fees and other permitted activities; (ii) extraordinary, non-recurring or unusual gains or losses or expenses; (iii) non-cash charges; and (iv) various other items.
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The following table reflects a reconciliation of EBITDA (as defined by the CCWH Senior Notes indentures) to operating income and net cash provided by operating activities for the four quarters ended March 31, 2016:
Four Quarters Ended
EBITDA (as defined by the CCWH Senior Notes indentures)
681.7
Less adjustments to EBITDA (as defined by the CCWH Senior Notes indentures):
Costs incurred in connection with severance, the closure and/or consolidation of facilities, retention charges,
consulting fees and other permitted activities
(20.6)
Extraordinary, non-recurring or unusual gains or losses or expenses (as referenced in the definition of
EBITDA in the CCWH Senior Notes indentures)
(11.0)
Non-cash charges
(17.5)
Other items
34.9
Less: Depreciation and amortization, Impairment charges, Other operating income, net and Share-based
compensation expense
(111.8)
555.7
Plus: Depreciation and amortization, Impairment charges, Gain (loss) on disposal of operating and fixed assets
and Share-based compensation expense
108.1
Less: Interest expense
(360.1)
Plus: Interest income on Due from iHeartCommunications
58.9
Less: Current income tax expense
(85.7)
Plus: Other income, net
(13.4)
Adjustments to reconcile consolidated net loss to net cash provided by operating activities (including Provision
for doubtful accounts, Amortization of deferred financing charges and note discounts, net and Other
reconciling items, net)
33.8
Change in assets and liabilities, net of assets acquired and liabilities assumed
8.1
305.4
Clear Channel Worldwide Holdings Senior Subordinated Notes
As of March 31, 2016, CCWH Subordinated Notes represented $2.2 billion aggregate principal amount of indebtedness outstanding, which consist of $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”).
The Series A CCWH Subordinated Notes indenture and Series B CCWH Subordinated Notes indenture restrict our ability to incur additional indebtedness but permit us to incur additional indebtedness based on an incurrence test. In order to incur additional indebtedness under this test, our debt to adjusted EBITDA ratio (as defined by the indentures) must be lower than 7.0:1. The indentures contain certain other exceptions that allow us to incur additional indebtedness. The Series B CCWH Subordinated Notes indenture also permits us to pay dividends from the proceeds of indebtedness or the proceeds from asset sales if our debt to adjusted EBITDA ratios (as defined by the indenture) is lower than 7.0:1. The Series B CCWH Subordinated Notes indenture also contains certain other exceptions that allow us to pay dividends, including (i) $525.0 million of dividends made pursuant to general restricted payment baskets and (ii) dividends made using proceeds received upon a demand by us of amounts outstanding under the Revolving Promissory Note issued by iHeartCommunications to us. The Series A CCWH Subordinated Notes indenture does not limit our ability to pay dividends.
CCIBV Senior Notes
As of March 31, 2016, Clear Channel International B.V., an international subsidiary of ours, had $225.0 million aggregate principal amount outstanding of its 8.75% Senior Notes due 2020 (“CCIBV Senior Notes”).
The indenture governing the CCIBV Senior Notes contains covenants that limit Clear Channel International B.V.’s ability and the ability of its restricted subsidiaries to, among other things: (i) pay dividends, redeem stock or make other distributions or investments; (ii) incur additional debt or issue certain preferred stock; (iii) transfer or sell assets; (iv) create liens on assets; (v) engage
27
in certain transactions with affiliates; (vi) create restrictions on dividends or other payments by the restricted subsidiaries; and (vii) merge, consolidate or sell substantially all of CCIBV’s assets.
Senior Revolving Credit Facility Due 2018
During the third quarter of 2013, we entered into a five-year senior secured revolving credit facility with an aggregate principal amount of $75.0 million. The revolving credit facility may be used for working capital needs, to issue letters of credit and for other general corporate purposes. As of March 31, 2016, there were no amounts outstanding under the revolving credit facility, and $49.5 million of letters of credit under the revolving credit facility which reduce availability under the facility. The revolving credit facility contains a springing covenant that requires us to maintain a secured leverage ratio (as defined in the revolving credit facility) of not more than 1.5:1 that is tested at the end of a quarter if availability under the facility is less than 75% of the aggregate commitments under the facility. We were in compliance with the secured leverage ratio covenant as of March 31, 2016.
Other debt consists primarily of loans with international banks. As of March 31, 2016, approximately $18.9 million was outstanding as other debt.
iHeartCommunications’ Debt Covenants
iHeartCommunications’ senior secured credit facility contains a significant financial covenant which must be tested quarterly and requires iHeartCommunications to limit the ratio of its consolidated secured debt, net of cash and cash equivalents, to consolidated EBITDA (as defined by iHeartCommunications’ senior secured credit facility) for the preceding four quarters. The maximum ratio permitted under this financial covenant was 8.75:1 for the four quarters ended March 31, 2016. In its Quarterly Report on Form 10-Q filed with the SEC on May 4, 2016, iHeartCommunications stated that it was in compliance with this covenant as of March 31, 2016.
Commitments, Contingencies and Guarantees
We are currently involved in certain legal proceedings arising in the ordinary course of business and, as required, have accrued our estimate of the probable costs for resolution of those claims for which the occurrence of loss is probable and the amount can be reasonably estimated. These estimates have been developed in consultation with counsel and are based upon an analysis of potential results, assuming a combination of litigation and settlement strategies. It is possible, however, that future results of operations for any particular period could be materially affected by changes in our assumptions or the effectiveness of our strategies related to these proceedings. Please refer to “Legal Proceedings” in Part II, Item 1 of this Quarterly Report on Form 10-Q.
Seasonality
Typically, both our Americas and International segments experience their lowest financial performance in the first quarter of the calendar year, with International historically experiencing a loss from operations in that period. Our International segment typically experiences its strongest performance in the second and fourth quarters of the calendar year. We expect this trend to continue in the future. Due to this seasonality and certain other factors, the results for the interim periods may not be indicative of results for the full year.
MARKET RISK
We are exposed to market risks arising from changes in market rates and prices, including movements in equity security prices and foreign currency exchange rates.
Foreign Currency Exchange Rate Risk
We have operations in countries throughout the world. Foreign operations are measured in their local currencies. As a result, our financial results could be affected by factors such as changes in foreign currency exchange rates or weak economic conditions in the foreign markets in which we have operations. We believe we mitigate a small portion of our exposure to foreign currency fluctuations with a natural hedge through borrowings in currencies other than the U.S. dollar. Our foreign operations reported net loss of $30.9 million for three months ended March 31, 2016. We estimate a 10% increase in the value of the U.S. dollar relative to foreign currencies would have increased our net loss for the three months ended March 31, 2016 by $3.1 million. A 10% decrease in the value of the U.S. dollar relative to foreign currencies during the three months ended March 31, 2016 would have decreased our net loss by a corresponding amount.
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This analysis does not consider the implications that such currency fluctuations could have on the overall economic activity that could exist in such an environment in the U.S. or the foreign countries or on the results of operations of these foreign entities.
Inflation
Inflation is a factor in the economies in which we do business and we continue to seek ways to mitigate its effect. Inflation has affected our performance in terms of higher costs for wages, salaries and equipment. Although the exact impact of inflation is indeterminable, we believe we have offset these higher costs by increasing the effective advertising rates of most of our outdoor display faces.
Cautionary Statement Concerning Forward-Looking Statements
The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements made by us or on our behalf. Except for the historical information, this report contains various forward-looking statements which represent our expectations or beliefs concerning future events, including, without limitation, our future operating and financial performance, our ability to comply with the covenants in the agreements governing our indebtedness and the availability of capital and the terms thereof. Statements expressing expectations and projections with respect to future matters are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. We caution that these forward-looking statements involve a number of risks and uncertainties and are subject to many variables which could impact our future performance. These statements are made on the basis of management’s views and assumptions, as of the time the statements are made, regarding future events and performance. There can be no assurance, however, that management’s expectations will necessarily come to pass. Actual future events and performance may differ materially from the expectations reflected in our forward-looking statements. We do not intend, nor do we undertake any duty, to update any forward-looking statements.
A wide range of factors could materially affect future developments and performance, including but not limited to:
· risks associated with weak or uncertain global economic conditions and their impact on the capital markets;
· other general economic and political conditions in the United States and in other countries in which we currently do business, including those resulting from recessions, political events and acts or threats of terrorism or military conflicts;
· industry conditions, including competition;
· the level of expenditures on advertising;
· legislative or regulatory requirements;
· fluctuations in operating costs;
· technological changes and innovations;
· changes in labor conditions and management;
· capital expenditure requirements;
· risks of doing business in foreign countries;
· fluctuations in exchange rates and currency values;
· the outcome of pending and future litigation;
· taxes and tax disputes;
· changes in interest rates;
· shifts in population and other demographics;
· access to capital markets and borrowed indebtedness;
· our ability to implement our business strategies;
· the risk that we may not be able to integrate the operations of acquired businesses successfully;
· the risk that our strategic revenue and efficiency initiatives may not be entirely successful or that any cost savings achieved from such strategic revenue and efficiency initiatives may not persist;
· the impact of our substantial indebtedness, including the effect of our leverage on our financial position and earnings;
· our ability to generate sufficient cash from operations or other liquidity-generating transactions and our need to allocate significant amounts of our cash to make payments on our indebtedness, which in turn could reduce our financial flexibility and ability to fund other activities;
· our relationship with iHeartCommunications, including its ability to elect all of the members of our Board of Directors and its ability as our controlling stockholder to determine the outcome of matters submitted to our stockholders and certain additional matters governed by intercompany agreements between us;
· the impact of the above and similar factors on iHeartCommunications, our primary direct or indirect external source of capital, which could have a significant need for capital in the future; and
· certain other factors set forth in our other filings with the SEC.
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This list of factors that may affect future performance and the accuracy of forward-looking statements is illustrative and is not intended to be exhaustive. Accordingly, all forward-looking statements should be evaluated with the understanding of their inherent uncertainty.
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk
Required information is presented under “Market Risk” within Item 2 of this Part I.
ITEM 4. Controls and Procedures
As required by Rule 13a-15(b) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), under the supervision and with the participation of management, including our Chief Executive Officer and our Chief Financial Officer, we have carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) as of the end of the period covered by this report. Our disclosure controls and procedures are designed to provide reasonable assurance that information we are required to disclose in reports that are filed or submitted under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and our Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure and is recorded, processed, summarized and reported within the time periods specified by the SEC. Based on that evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that our disclosure controls and procedures were effective as of March 31, 2016 at the reasonable assurance level.
There were no changes in our internal control over financial reporting that occurred during the quarter ended March 31, 2016 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II -- OTHER INFORMATION
We currently 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 our assumptions or the effectiveness of our 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 our financial condition or results of operations.
Although we are involved in a variety of legal proceedings in the ordinary course of business, a large portion of our 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.
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.
For information regarding our risk factors, please refer to Item 1A in our Annual Report on Form 10-K for the year ended December 31, 2015. There have not been any material changes in the risk factors disclosed in the Form 10-K.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
The following table sets forth the purchases of shares of our Class A common stock made during the quarter ended March 31, 2016 by or on behalf of us or an affiliated purchaser:
Period
Total Number of Shares Purchased(1)
Average Price Paid per Share(1)
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs
Maximum Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased Under the Plans or Programs
January 1 through January 31
89,241
4.96
February 1 through February 29
10,756
March 1 through March 31
119,397
4.19
219,394
4.54
The shares indicated consist of shares of our Class A common stock tendered by employees to us during the three months ended March 31, 2016 to satisfy the employees’ tax withholding obligation in connection with the vesting and release of restricted shares, which are repurchased by us based on their fair market value on the date the relevant transaction occurs.
None.
Not applicable.
ITEM 6. EXHIBITS
Exhibit
Number
Description
3.1
Amended and Restated Certificate of Incorporation of Clear Channel Outdoor Holdings, Inc. (Incorporated by reference to Exhibit 3.1 to the Clear Channel Outdoor Holdings, Inc. Annual Report on Form 10-K for the year ended December 31, 2005).
3.2
Amended and Restated Bylaws of Clear Channel Outdoor Holdings, Inc. as amended (Incorporated by reference to Exhibit 3.2 to the Clear Channel Outdoor Holdings, Inc. Annual Report on Form 10-K for the year ended December 31, 2007).
11*
Statement re: Computation of Income (Loss) Per Share.
31.1*
Certification Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*
32.1**
Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2**
101*
Interactive Data Files.
__________________
* Filed herewith.
** Furnished herewith.
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
May 4, 2016 /s/ SCOTT D. HAMILTON
Scott D. Hamilton
Senior Vice President, Chief Accounting Officer and
Assistant Secretary