accounting and finance positions at Avaya, beginning in October 2004. Prior thereto, Mr. Hamilton was employed by PricewaterhouseCoopers from September 1992 until September 2004 in various roles including audit, transaction services and technical accounting consulting.
The following tables set forthBoard also has an Operating Committee, which currently is composed of James C. Carlisle, John P. Connaughton, Blair E. Hendrix and Scott M. Sperling. The purpose of the Operating Committee is to actively engage with management on strategy and execution of corporate and financial plans and goals, as well as such other responsibilities and duties as may be established by the Board from time to time.
The Audit Committee
The Audit Committee assists the Board in its general oversight of iHeartMedia’s financial reporting, internal control and audit functions. Audit Committee member Frederic F. Brace has been designated by our selected historical consolidatedBoard as an “Audit Committee Financial Expert,” as defined by the SEC. The Audit Committee met four times during 2017. Mr. Brace is independent for purposes of Audit Committee service, as defined by the standards of the rules and regulations of the SEC and iHeartMedia’s independence standards.
The Audit Committee’s primary responsibilities, which are discussed in detail within its charter, include the following:
select the independent registered public accounting firm;
approve orpre-approve all auditing andnon-audit services by the independent registered public accounting firm;
review, evaluate and discuss reports regarding the independent registered public accounting firm’s independence;
review with the internal auditors and the independent registered public accounting firm the scope and plan for audits;
review with management, the internal auditors and the independent registered public accounting firm iHeartMedia’s system of internal control, financial and other data as ofcritical accounting practices and its policies relating to risk assessment and risk management, including legal and ethical compliance programs;
review and discuss with management and the datesindependent registered public accounting firm the annual and forquarterly financial statements and the periods indicated. The selected historical financial data are derived from our audited consolidated financial statements. Certain prior period amounts have been reclassified to conform to the 2016 presentation. Historical results are not necessarily indicative of the results to be expected for future periods. Acquisitions and dispositions impact the comparability of the historical consolidated financial data reflected in this schedule of Selected Financial Data.
The selected historical consolidated financial and other data should be read in conjunction withspecific disclosures under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements andof the related notes thereto located within Item 8Company prior to the filing of Part II of thisthe Annual Report on Form 10-K.10-K and Quarterly Reports on Form10-Q; and
review material pending legal proceedings involving the Company and other contingent liabilities.
|
| | | | | | | | | | | | | | | | | | | |
(In thousands) | For the Years Ended December 31, |
| 2016 | | 2015 | | 2014 | | 2013 | | 2012 |
Results of Operations Data: | | | | | | | | | |
Revenue | $ | 6,273,573 |
| | $ | 6,241,516 |
| | $ | 6,318,533 |
| | $ | 6,243,044 |
| | $ | 6,246,884 |
|
Operating expenses: | | | | | | | | | |
Direct operating expenses (excludes depreciation and amortization) | 2,412,287 |
| | 2,471,113 |
| | 2,540,035 |
| | 2,560,028 |
| | 2,501,313 |
|
Selling, general and administrative expenses (excludes depreciation and amortization) | 1,725,899 |
| | 1,704,352 |
| | 1,680,938 |
| | 1,641,462 |
| | 1,661,604 |
|
Corporate expenses (excludes depreciation and amortization) | 341,025 |
| | 314,999 |
| | 320,931 |
| | 315,972 |
| | 295,108 |
|
Depreciation and amortization | 635,227 |
| | 673,991 |
| | 710,898 |
| | 730,828 |
| | 729,285 |
|
Impairment charges (1) | 8,000 |
| | 21,631 |
| | 24,176 |
| | 16,970 |
| | 37,651 |
|
Other operating income, net | 353,556 |
| | 94,001 |
| | 40,031 |
| | 22,998 |
| | 48,127 |
|
Operating income | 1,504,691 |
| | 1,149,431 |
| | 1,081,586 |
|
| 1,000,782 |
| | 1,070,050 |
|
Interest expense | 1,849,982 |
| | 1,805,496 |
| | 1,741,596 |
| | 1,649,451 |
| | 1,549,023 |
|
Gain (loss) on investments | (12,907 | ) | | (4,421 | ) | | — |
| | 130,879 |
| | (4,580 | ) |
Equity in earnings (loss) of nonconsolidated affiliates | (16,733 | ) | | (902 | ) | | (9,416 | ) | | (77,696 | ) | | 18,557 |
|
Gain (loss) on extinguishment of debt | 157,556 |
| | (2,201 | ) | | (43,347 | ) | | (87,868 | ) | | (254,723 | ) |
Other income (expense), net | (73,102 | ) | | 13,056 |
| | 9,104 |
| | (21,980 | ) | | 250 |
|
Loss before income taxes | (290,477 | ) | | (650,533 | ) | | (703,669 | ) | | (705,334 | ) | | (719,469 | ) |
Income tax benefit (expense) | 50,474 |
| | (86,957 | ) | | (58,489 | ) | | 121,817 |
| | 308,279 |
|
Consolidated net loss | (240,003 | ) | | (737,490 | ) | | (762,158 | ) | | (583,517 | ) | | (411,190 | ) |
Less amount attributable to noncontrolling interest | 56,315 |
| | 17,131 |
| | 31,603 |
| | 23,366 |
| | 13,289 |
|
Net loss attributable to the Company | $ | (296,318 | ) | | $ | (754,621 | ) | | $ | (793,761 | ) | | $ | (606,883 | ) | | $ | (424,479 | ) |
|
| | | | | | | | | | | | | | | | | | | |
| For the Years Ended December 31, |
| 2016 | | 2015 | | 2014 | | 2013 | | 2012 |
Net loss per common share: | | | | | | | | | |
Basic | | | | | | | | | |
Net loss attributable to the Company | $ | (3.50 | ) | | $ | (8.95 | ) | | $ | (9.46 | ) | | $ | (7.31 | ) | | $ | (5.23 | ) |
Diluted: | | | | | | | | | |
Net loss attributable to the Company | $ | (3.50 | ) | | $ | (8.95 | ) | | $ | (9.46 | ) | | $ | (7.31 | ) | | $ | (5.23 | ) |
| |
(1) | We recorded non-cash impairment charges of $8.0 million, $21.6 million, $24.2 million, $17.0 million and $37.7 million during 2016, 2015, 2014, 2013 and 2012, respectively. Our impairment charges are discussed more fully in Item 8 of Part II of this Annual Report on Form 10-K.
|
|
| | | | | | | | | | | | | | | | | | | |
(In thousands) | As of December 31, |
| 2016 | | 2015 | | 2014 | | 2013 | | 2012 |
Balance Sheet Data: | | | | | | | | | |
Current assets | $ | 2,504,687 |
| | $ | 2,778,115 |
| | $ | 2,109,748 |
| | $ | 2,431,162 |
| | $ | 2,943,307 |
|
Property, plant and equipment, net | 1,948,162 |
| | 2,212,556 |
| | 2,699,064 |
| | 2,897,630 |
| | 3,036,854 |
|
Total assets | 12,862,247 |
| | 13,673,115 |
| | 13,839,579 |
| | 14,871,407 |
| | 16,084,487 |
|
Current liabilities | 1,696,570 |
| | 1,659,228 |
| | 1,364,285 |
| | 1,763,618 |
| | 1,782,142 |
|
Long-term debt, net of current maturities | 20,022,080 |
| | 20,539,099 |
| | 20,159,545 |
| | 19,856,551 |
| | 20,163,197 |
|
Stockholders' deficit | (10,885,475 | ) | | (10,606,681 | ) | | (9,665,208 | ) | | (8,696,635 | ) | | (7,995,191 | ) |
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
FormatThe full text of Presentation
Management’s discussionthe Audit Committee’s charter can be found on our website atwww.iheartmedia.com.The Compensation Committee
The Compensation Committee determines compensation arrangements for executive officers, administers iHeartMedia’s performance-based cash compensation plans 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 contained in Item 8 of this Annual Report on Form 10-K. Our discussion is presented on both a consolidated and segment basis. Our reportable segments are iHeartMedia (“iHM”), Americas outdoor advertising (“Americas outdoor” or “Americas outdoor advertising”), and International outdoor advertising (“International outdoor” or “International outdoor advertising”). Our iHM segment provides media and entertainment services via live broadcast and digital delivery, and also includes our national syndication business. Our Americas outdoor and International outdoor segments provide outdoor advertising services in their respective geographic regions using various digital and printed display types. Included in the “Other” category are our media representation business, Katz Media Group, as well as other general support services and initiatives, which are ancillary to our other businesses.
We manage our operating segments primarily focusing on their operating income, while Corporate expenses, Depreciation and amortization, Impairment charges, Other operating income (expense), net, Interest expense, Gain (loss) on investments, net, Equity in earnings (loss) of nonconsolidated affiliates, Gain (loss) on extinguishment of debt, Other income (expense), net and Income tax benefit (expense) are managed on a total company basis and are, therefore, included only in our discussion of consolidated results.
Certain prior period amounts have been reclassified to conformmakes recommendations to the 2016 presentation.
iHM
Our iHM strategy centers on delivering entertainingBoard concerning the compensation, if any, of directors of iHeartMedia and informative content across multiple platforms, including broadcast, mobile and digital, as well as events. Our primary source of revenue is derived from selling local and national advertising time on our radio stations,its subsidiaries (except with contracts typically less than one year in duration. The programming formats of our radio stations are designedrespect to reach audiences with targeted demographic characteristics. We are working closely with our advertising and marketing partners to develop tools and leverage data to enable advertisers to effectively reach their desired audiences. We continue to expand the choices for listeners and we deliver our content and sell advertising across multiple distribution channels, including digitally via our iHeartRadio mobile application and other digital platforms which reach national, regional and local audiences. We also generate revenues from network syndication, our nationally recognized live events, our station websites and other miscellaneous transactions.
iHM management monitors average advertising rates and cost per minute (“CPM”), which are principally based on the length of the spot and how many people in a targeted audience listen to our stations, as measured by an independent ratings service. In addition, our advertising rates are influenced by the time of day the advertisement airs, with morning and evening drive-time hours typically priced the highest. Our price and yield information systems enable our station managers and sales teams to adjust commercial inventory and pricing based on local market demand, as well as to manage and monitor different commercial durations in order to provide more effective advertising for our customers at what we believe are optimal prices given market conditions. Yield is measured by management in a variety of ways, including revenue earned divided by minutes of advertising sold.
Management looks at our iHM operations’ overall revenue as well as the revenue from each type of advertising, including local advertising, which is sold predominately in a station’s local market, and national advertising, which is sold across multiple markets. Local advertising is sold by each radio station’s sales staff while national advertising is sold by our national sales team. Local advertising, which is our largest source of advertising revenue, and national advertising revenues are tracked separately because these revenue streams have different sales teams and respond differently to changes in the economic environment. We periodically review and refine our selling structures in all regions and markets in an effort to maximize the value of our offering to advertisers and, therefore, our revenue.
Management also looks at iHM revenue by region and market size. Typically, larger markets can reach larger audiences with wider demographics than smaller markets. Additionally, management reviews our share of iHM advertising revenues in markets where such information is available, as well as our share of target demographics listening in an average quarter hour. This metric gauges how well our formats are attracting and retaining listeners.
A portion of our iHM segment’s expenses vary in connection with changes in revenue. These variable expenses primarily relate to costs in our sales department, such as commissions, and bad debt. Our content costs, including music royalty and license fees for music delivered via broadcast or digital streaming, vary with the volume and mix of songs played on our stations and the listening hours on our digital platforms. Our programming and general and administrative departments incur most of our fixed
costs, such as utilities and office salaries. We incur discretionary costs in our advertising, marketing and promotions, which we primarily use in an effort to maintain and/or increase our audience share. Lastly, we have incentive systems in each of our departments which provide for bonus payments based on specific performance metrics, including ratings, revenue and overall profitability.
Outdoor Advertising
Our outdoor 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 for our outdoor advertising businesses 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. Management typically monitors our outdoor advertising business by reviewing the average rates, average revenue per display, occupancy and inventory levels of each of our display types by market.
We own the majority of our advertising displays, which typically are located on sites that we either lease or own or for which we have acquired permanent easements. Our advertising contracts with clients typically outline the number of displays reserved, the duration of the advertising campaign and the unit price per display.
The significant expenses associated with our operations include direct production, maintenance and installation expenses as well as site lease expenses for land under our displays including revenue-sharing or minimum guaranteed amounts payable under our billboard, street furniture and transit display contracts. Our direct production, maintenance and installation expenses include costs for printing, transporting and changing the advertising copy on our displays, the related labor costs, the vinyl and paper costs, electricity costs and the costs for cleaning and maintaining our displays. Vinyl and paper costs vary according to the complexity of the advertising copy and the quantity of displays. Our site lease expenses include lease payments for use of the land under our displays, as well as any revenue-sharing arrangements or minimum guaranteed amounts payable that we may have with the landlords. The terms of our site leases and revenue-sharing or minimum guaranteed contracts generally range from one to 20 years.
Americas Outdoor Advertising
Our advertising rates are based on a number of different factors including location, competition, type and size of display, illumination, market and gross ratings points. Gross ratings points are the total number of impressions delivered by a display or group of displays, expressed as a percentage of a market population. The number of impressions delivered by a display is measured by the number of people passing the site during a defined period of time. For all of our billboards in the United States, we use independent, third-party auditing companies to verify the number of impressions delivered by a display.
Client contract terms typically range from four weeks to one year for the majority of our display inventory in the United States. Generally, we own the street furniture structures and are responsible for their construction and maintenance. Contracts for the right to place our street furniture and transit displays and sell advertising space on them are awarded by municipal and transit authorities in competitive bidding processes governed by local law or are negotiated with private transit operators. Generally, these contracts have terms ranging from 10 to 20 years.
International Outdoor Advertising
Similar to our Americas outdoor business, advertising rates generally are based on the gross ratings points of a display or group of displays. The number of impressions delivered by a display, in some countries, is weighted to account for such factors as illumination, proximity to other displays and the speed and viewing angle of approaching traffic. In addition, because our International outdoor advertising operations are conducted in foreign markets, including Europe and Asia, management reviews the operating results from our foreign operations on a constant dollar basis. A constant dollar basis allows for comparison of operations independent of foreign exchange movements.
Our International display inventory is typically sold to clients through network packages, with client contract terms typically ranging from one to two weeks with terms of up to one year available as well. Internationally, contracts with municipal and transit authorities for the right to place our street furniture and transit displays typically provide for terms ranging up to 15 years. The major difference between our International and Americas street furniture businesses is in the nature of the municipal contracts. In our International outdoor business, these contracts typically require us to provide the municipality with a broader range of metropolitan amenities in exchange for which we are authorized to sell advertising space on certain sections of the structures we erect in the public domain. A different regulatory environment for billboards and competitive bidding for street furniture and transit display contracts, which constitute a larger portion of our business internationally, may result in higher site lease costs in our International business.
Macroeconomic Indicators
Our advertising revenue for all of 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. According to the U.S. Department of Commerce, estimated U.S. GDP growth for 2016 was 1.6%. Internationally, our results are impacted by fluctuations in foreign currency exchange rates as well as the economic conditions in the foreign markets in which we have operations.
Executive Summary
The key developments in our business for the year ended December 31, 2016 are summarized below:
Consolidated revenue increased $32.1 million during 2016 compared to 2015. Excluding the $47.6 million impact from movements in foreign exchange rates, consolidated revenue increased $79.7 million during 2016 compared to 2015.
We sold nine non-strategic U.S. outdoor markets in the first quarter of 2016. We sold our outdoor businesses in Turkey and Australia in the second and fourth quarters of 2016, respectively. These businesses had total revenues of $123.5 million in 2016 and $248.9 million in 2015, and we realized a net gain of $349.3 million on the sales.
We spent $30.9 million on strategic revenue and efficiency initiatives during 2016 to realign and improve our on-going business operations—a decrease of $11.9 million compared to 2015.
On July 15, 2016, Broader Media, LLC, our indirect wholly-owned subsidiary, repurchased approximately $383.0 million aggregate principal amount of iHeartCommunications’ 10.0% Senior Notes due 2018 for an aggregate purchase price of $222.2 million, resulting in a gain on extinguishment of debt of $157.6 million. The repurchase effectively reduces our consolidated annual cash interest obligations by $38.3 million.
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.
Consolidated Results of Operations
The comparison of our historical results of operations for the year ended December 31, 2016 to the year ended December 31, 2015 is as follows:
|
| | | | | | | | | |
(In thousands) | Years Ended December 31, | | % |
| 2016 | | 2015 | | Change |
Revenue | $ | 6,273,573 |
| | $ | 6,241,516 |
| | 0.5% |
Operating expenses: | | | | | |
Direct operating expenses (excludes depreciation and amortization) | 2,412,287 |
| | 2,471,113 |
| | (2.4)% |
Selling, general and administrative expenses (excludes depreciation and amortization) | 1,725,899 |
| | 1,704,352 |
| | 1.3% |
Corporate expenses (excludes depreciation and amortization) | 341,025 |
| | 314,999 |
| | 8.3% |
Depreciation and amortization | 635,227 |
| | 673,991 |
| | (5.8)% |
Impairment charges | 8,000 |
| | 21,631 |
| | (63.0)% |
Other operating income, net | 353,556 |
| | 94,001 |
| | 276.1% |
Operating income | 1,504,691 |
| | 1,149,431 |
| | 30.9% |
Interest expense | 1,849,982 |
| | 1,805,496 |
| | |
Loss on investments, net | (12,907 | ) | | (4,421 | ) | | |
Equity in loss of nonconsolidated affiliates | (16,733 | ) | | (902 | ) | | |
Gain (loss) on extinguishment of debt | 157,556 |
| | (2,201 | ) | | |
Other income (expense), net | (73,102 | ) | | 13,056 |
| | |
Loss before income taxes | (290,477 | ) | | (650,533 | ) | | |
Income tax (expense) benefit | 50,474 |
| | (86,957 | ) | | |
Consolidated net loss | (240,003 | ) | | (737,490 | ) | | |
Less amount attributable to noncontrolling interest | 56,315 |
| | 17,131 |
| | |
Net loss attributable to the Company | $ | (296,318 | ) | | $ | (754,621 | ) | | |
Consolidated Revenue
Consolidated revenue increased $32.1 million during the year ended December 31, 2016 compared to 2015. Excluding the $47.6 million impact from movements in foreign exchange rates, consolidated revenue increased $79.7 million during the year ended December 31, 2016 compared to 2015. Revenue growth from our iHM business was partially offset by lower revenue generated by our Americas and International outdoor businesses as a result of the sales of certain U.S. outdoor markets and international businesses which generated $248.9 million in revenue in the year ended December 31, 2015 compared to $123.5 million in the year ended December 31, 2016.
Consolidated Direct Operating Expenses
Consolidated direct operating expenses decreased $58.8 million during the year ended December 31, 2016 compared to 2015. Excluding the $29.0 million impact from movements in foreign exchange rates, consolidated direct operating expenses decreased $29.8 million during the year ended December 31, 2016 compared to 2015. Lower direct operating expenses in our iHM business were primarily driven by the impact of contract renegotiations, partially offset by increases primarily related to higher revenue. Lower direct operating expenses in our Americas outdoor business were primarily due to the sale of nine non-strategic U.S. outdoor markets in the first quarter of 2016. Lower direct operating expenses in our International outdoor business related primarily to the loss of the London bus contract and the sale of our businesses in Australia and Turkey, partially offset by increases in expenses related to higher revenues in other countries.
Consolidated Selling, General and Administrative (“SG&A”) Expenses
Consolidated SG&A expenses increased $21.5 million during the year ended December 31, 2016 compared to 2015. Excluding the $9.9 million impact from movements in foreign exchange rates, consolidated SG&A expenses increased $31.4 million during the year ended December 31, 2016 compared to 2015. Higher SG&A expenses driven primarily by investments in sales capabilities in our iHM business were partially offset by a decrease in SG&A expenses resulting from the sale of non-strategic U.S. outdoor markets in the first quarter of 2016.
Corporate Expenses
Corporate expenses increased $26.0 million during the year ended December 31, 2016 compared to 2015 primarily resulting from higher professional fees and higher expenses related to variable compensation plans, as well as higher employee health benefit costs. Excluding the $4.1 million impact from movements in foreign exchange rates, corporate expenses increased $30.1 million during the year ended December 31, 2016 compared to 2015.
Revenue and Efficiency Initiatives
Included in the amounts for direct operating expenses, SG&A and corporate expenses discussed above are expenses incurred in connection with our strategic revenue and efficiency initiatives. These costs consist primarily of severance related to workforce initiatives, consolidation of locations and positions, contract cancellation costs, consulting expenses, and other costs incurred in connection with improving our businesses. These costs are expected to provide benefits in future periods as the initiative results are realized.
Strategic revenue and efficiency costs were $30.9 million during the year ended December 31, 2016. Of these expenses, $15.5 million was incurred by our iHM segment, $3.1 million was incurred by our Americas outdoor segment, $7.4 million was incurred by our International outdoor segment, $1.3 million was incurred by our Other category and $3.6 million was incurred by Corporate. $10.9 million of these costs are reported within direct operating expenses, $16.4 million are reported within SG&A and $3.6 million are reported within corporate expenses.
Strategic revenue and efficiency costs were $42.8 million during the year ended December 31, 2015. Of these expenses, $11.8 million was incurred by our iHM segment, $2.4 million was incurred by our Americas outdoor segment, $11.1 million was incurred by our International outdoor segment, $3.7 million was incurred by our Other segment and $13.8 million was incurred by Corporate. $14.0 million of these costs are reported within direct operating expenses, $15.0 million are reported within SG&A and $13.8 million are reported within corporate expenses.
Depreciation and Amortization
Depreciation and amortization decreased $38.8 million during 2016 compared to 2015, primarily due to assets becoming fully depreciated or fully amortized, the sale of certain outdoor markets, as well as the impact of movements in foreign exchange rates.
Impairment Charges
We perform our annual impairment test on our goodwill, FCC licenses, billboard permits, and other intangible assets as of July 1 of each year. In addition, we test for impairment of property, plant and equipment whenever events and circumstances indicate that depreciable assets might be impaired. As a result of these impairment tests, during 2016 we recorded impairment charges of $8.0 million related primarily to goodwill in one of our International outdoor businesses. During 2015 we recorded impairment charges of $21.6 million related to billboard permits in one Americas outdoor market. Please see Note 2 to the Consolidated Financial Statements located in Item 8 of this Annual Report on Form 10-K for a further description of the impairment charges.
Other Operating Income, Net
Other operating income was $353.6 million in 2016, which primarilymatters related to the net gaincompensation of $278.3 million on sale of nine non-strategic outdoor markets in the first quarter of 2016 and the net gain of $127.6 million on sale on our outdoor Australia business in the fourth quarter of 2016, partially offset by the $56.6 million loss, which includes $32.2 million in cumulative translation adjustments, on the sale of our Turkey business in the second quarter of 2016. 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 $592.3 million in cashdirectors and certain advertising assets in Florida.
Other operating incomeofficers of $94.0 million in 2015 primarily related to the gain on the sale of radio towers which were subsequently leased back (see Note 2 to our Consolidated Financial Statements located in Item 8 of this Annual Report on Form 10-K).
Interest Expense
Interest expense increased $44.5 million during 2016 compared to 2015 due to higher interest rates on floating rate loans and new debt issuances. Please refer to “Sources of Capital” for additional discussion of debt issuances and exchanges. Our weighted average cost of debt during 2016 and 2015 was 8.5% and 8.5%, respectively.
Loss on Investments, Net
During the years ended December 31, 2016 and 2015, we recognized losses of $12.9 million and $4.4 million, respectively, related to cost-method investments. The loss in the year ended December 31, 2016 related primarily to a $14.5 million non-cash impairment recorded in connection with an other-than-temporary decline in the value of one of our cost investments.
Equity in Loss of Nonconsolidated Affiliates
During the years ended December 31, 2016 and 2015, we recognized losses of $16.7 million and $0.9 million respectively, related to equity-method investments. The loss in the year ended December 31, 2016 related primarily to a $15.0 million non-cash impairment recorded in connection with an other-than-temporary decline in the value of one of our equity investments.
Gain (loss) on Extinguishment of Debt
During the third quarter of 2016, Broader Media, LLC, aniHeartMedia’s publicly traded indirect wholly-owned subsidiary of the Company, repurchased approximately $383.0 million aggregate principal amount of iHeartCommunications’ 10.0% Senior Notes due 2018 for an aggregate purchase price of approximately $222.2 million. In connection with this repurchase, we recognized a gain of $157.6 million.
In connection with the first quarter 2015 prepayment of iHeartCommunications' Term Loan B facility and Term Loan C-asset sale facility, we recognized a loss of $2.2 million.
Other Income (Expense), Net
Other expense was $73.1 million for 2016. Other income was $13.1 million for 2015. These amounts relate primarily to net foreign exchange gains and losses recognized in connection with intercompany notes denominated in foreign currencies. The decline in value during 2016 of the British pound against the Euro impacted Euro-denominated notes payable by one of our UK subsidiaries, which was the primary driver of the foreign exchange loss in 2016.
Income Tax Expense
The effective tax rate for the year ended December 31, 2016 was 17.4% as compared to (13.4)% for the year ended December 31, 2015. The effective tax benefit rate for 2016 was impacted by the $43.3 million deferred tax benefit recorded in connection with the release of valuation allowance in France, which was offset by $54.7 million of tax expense attributable to the sale of our outdoor business in Australia. Additionally, the 2016 effective tax benefit rate was impacted by the $31.8 million valuation allowance recorded against a portion of current period federal and state deferred tax assets due to the uncertainty of the ability to realize those assets in future periods.
The effective tax rate for 2015 was impacted by the $305.3 million valuation allowance recorded against our current period federal and state net operating losses due to the uncertainty of the ability to utilize those losses in future periods. The valuation allowance was recorded against the Company’s current period federal and state net operating losses due to the uncertainty of the ability to utilize these losses in future periods.
iHM Results of Operations
Our iHM operating results were as follows:
|
| | | | | | | | | | |
(In thousands) | Years Ended December 31, | | % |
| 2016 | | 2015 | | Change |
Revenue | $ | 3,403,040 |
| | $ | 3,284,320 |
| | 3.6 | % |
Direct operating expenses | 975,463 |
| | 972,937 |
| | 0.3 | % |
SG&A expenses | 1,102,998 |
| | 1,065,066 |
| | 3.6 | % |
Depreciation and amortization | 243,964 |
| | 240,207 |
| | 1.6 | % |
Operating income | $ | 1,080,615 |
| | $ | 1,006,110 |
| | 7.4 | % |
iHM revenue increased $118.7 million during 2016 compared to 2015. Growth in broadcast radio and digital advertising was driven primarily by political advertising revenues resulting from 2016 being a presidential election year. In addition, we had growth in our traffic and weather business, sponsorship and other revenues surrounding our events and trade and barter. Trade and barter includes the impact of marketing partnerships with our advertisers on events, as well as revenue recognized in connection with advertising provided during the period in connection with investments made in certain non-public companies.
iHM direct operating expenses increased $2.5 million during 2016 compared to 2015 primarily driven by higher content and programming costs, as well as higher theater and event production costs. In addition, we incurred higher spending on strategic revenue and efficiency initiatives and lease expense was higher as a result of the sale and subsequent leaseback of broadcast communications tower sites in the second quarter of 2015. These costs were nearly offset by the $33.8 million benefit resulting from contract renegotiations completed in the third quarter. iHM SG&A expenses increased $37.9 million during 2016 compared to 2015 primarily due to investments in national and digital sales capabilities, higher promotion expense and higher variable compensation related to higher revenue.
Americas Outdoor Results of Operations
Our Americas outdoor operating results were as follows:
|
| | | | | | | | | |
(In thousands) | Years Ended December 31, | | % |
| 2016 | | 2015 | | Change |
Revenue | $ | 1,278,413 |
| | $ | 1,349,021 |
| | (5.2)% |
Direct operating expenses | 570,310 |
| | 597,382 |
| | (4.5)% |
SG&A expenses | 225,415 |
| | 233,254 |
| | (3.4)% |
Depreciation and amortization | 185,654 |
| | 204,514 |
| | (9.2)% |
Operating income | $ | 297,034 |
| | $ | 313,871 |
| | (5.4)% |
Americas outdoor revenue decreased $70.6 million during 2016 compared to 2015. Excluding the $7.7 million impact from movements in foreign exchange rates, Americas outdoor revenue decreased $62.9 million during 2016 compared to 2015. The decrease in revenue is due to the $102.7 million impact of the sale of nine non-strategic U.S. markets in the first quarter of 2016. The decrease in revenue resulting from these sales was partially offset by increased revenues from digital billboards from new deployments and higher occupancy on existing digital billboards, as well as new airport contracts, and higher revenues in Latin America.
Americas outdoor direct operating expenses decreased $27.1 million during 2016 compared to 2015. Excluding the $3.6 million impact from movements in foreign exchange rates, Americas outdoor direct operating expenses decreased $23.5 million during 2016 compared to 2015. The decrease in direct operating expenses was driven by a $35.4 million decrease in direct operating expenses resulting from the sale of the nine non-strategic markets in the first quarter of 2016, partially offset by higher site lease expenses related to new airport contracts. Americas outdoor SG&A expenses decreased $7.9 million during 2016 compared to 2015. Excluding the $2.1 million impact from movements in foreign exchange rates, Americas outdoor SG&A expenses decreased $5.8 million during 2016 compared to 2015. This decrease was due to a $20.4 million decrease in SG&A expenses resulting from the sale of the nine non-strategic U.S. markets in the first quarter of 2016, partially offset by higher variable compensation expense related to higher revenues.
Depreciation and amortization decreased $18.9 million. Excluding the $0.8 million impact from movements in foreign exchange rates, depreciation and amortization decreased $18.1 million primarily due to the sale of the nine non-strategic U.S. markets in the first quarter of 2016 and assets becoming fully depreciated or fully amortized.
International Outdoor Results of Operations
Our International outdoor operating results were as follows:
|
| | | | | | | | | |
(In thousands) | Years Ended December 31, | | % |
| 2016 | | 2015 | | Change |
Revenue | $ | 1,423,982 |
| | $ | 1,457,183 |
| | (2.3)% |
Direct operating expenses | 865,259 |
| | 897,520 |
| | (3.6)% |
SG&A expenses | 289,787 |
| | 298,250 |
| | (2.8)% |
Depreciation and amortization | 152,758 |
| | 166,060 |
| | (8.0)% |
Operating income | $ | 116,178 |
| | $ | 95,353 |
| | 21.8% |
International outdoor revenue decreased $33.2 million during 2016 compared to 2015. Excluding the $39.9 million impact from movements in foreign exchange rates, International outdoor revenue increased $6.7 million during 2016 compared to 2015. The increase in revenue is due to growth across most of our markets including China, Italy, Spain, Sweden, France and Belgium,
primarily from new digital assets and new contracts. This growth was partially offset by a $22.7 million decrease in revenue resulting from the sale of our businesses in Turkey and Australia in the second and fourth quarters of 2016, respectively, as well as lower revenue in the United Kingdom as a result of the London bus shelter contract not being renewed.
International outdoor direct operating expenses decreased $32.2 million during 2016 compared to 2015. Excluding the $25.4 million impact from movements in foreign exchange rates, International outdoor direct operating expenses decreased $6.8 million during 2016 compared to 2015. The decrease was driven by a $14.6 million decrease in direct operating expenses resulting from the sale of our businesses in Turkey and Australia and lower rent expense due to lower revenue in the United Kingdom as a result of the London bus shelter contract not being renewed. These decreases were partially offset by higher site lease and production expenses in countries experiencing revenue growth. International outdoor SG&A expenses decreased $8.5 million during 2016 compared to 2015. Excluding the $7.8 million impact from movements in foreign exchange rates, International outdoor SG&A expenses decreased $0.7 million during 2016 compared to 2015. The decrease in SG&A expenses was primarily due to a $3.0 million decrease resulting from the sale of our businesses in Turkey and Australia, partially offset by higher variable compensation expenses.
Included in 2015 International Outdoor direct operating expenses and SG&A expenses are $8.2 million and $3.2 million, respectively, recorded in the fourth quarter of 2015 to correct for accounting errors included in the results of our Netherlands subsidiary reported in prior years. Such corrections are not considered to be material to the prior year financial results.
Depreciation and amortization decreased $13.3 million. Excluding the $5.5 million impact from movements in foreign exchange rates, depreciation and amortization decreased $7.8 million primarily due to assets becoming fully depreciated or fully amortized.
Consolidated Results of Operations
The comparison of our historical results of operations for the year ended December 31, 2015 to the year ended December 31, 2014 is as follows:
|
| | | | | | | | | |
(In thousands) | Years Ended December 31, | | % |
| 2015 | | 2014 | | Change |
Revenue | $ | 6,241,516 |
| | $ | 6,318,533 |
| | (1.2)% |
Operating expenses: | | | | | |
Direct operating expenses (excludes depreciation and amortization) | 2,471,113 |
| | 2,540,035 |
| | (2.7)% |
Selling, general and administrative expenses (excludes depreciation and amortization) | 1,704,352 |
| | 1,680,938 |
| | 1.4% |
Corporate expenses (excludes depreciation and amortization) | 314,999 |
| | 320,931 |
| | (1.8)% |
Depreciation and amortization | 673,991 |
| | 710,898 |
| | (5.2)% |
Impairment charges | 21,631 |
| | 24,176 |
| | (10.5)% |
Other operating income, net | 94,001 |
| | 40,031 |
| | 134.8% |
Operating income | 1,149,431 |
| | 1,081,586 |
| | 6.3% |
Interest expense | 1,805,496 |
| | 1,741,596 |
| | |
Loss on investments, net | (4,421 | ) | | — |
| | |
Equity in earnings (loss) of nonconsolidated affiliates | (902 | ) | | (9,416 | ) | | |
Loss on extinguishment of debt | (2,201 | ) | | (43,347 | ) | | |
Other income, net | 13,056 |
| | 9,104 |
| | |
Loss before income taxes | (650,533 | ) | | (703,669 | ) | | |
Income tax expense | (86,957 | ) | | (58,489 | ) | | |
Consolidated net loss | (737,490 | ) | | (762,158 | ) | | |
Less amount attributable to noncontrolling interest | 17,131 |
| | 31,603 |
| | |
Net loss attributable to the Company | $ | (754,621 | ) | | $ | (793,761 | ) | | |
Consolidated Revenue
Consolidated revenue decreased $77.0 million during 2015 compared to 2014. Excluding the $229.0 million impact from movements in foreign exchange rates, consolidated revenue increased $152.0 million during 2015 compared to 2014. iHM revenue increased $122.8 million during 2015 compared to 2014 driven primarily by our core radio business, both broadcast and digital,
including the impact of marketing partnerships with our advertisers for live events and barter and trade revenue, partially offset by a decrease in political advertising revenues. Americas outdoor revenue decreased $1.6 million during 2015 compared to 2014. Excluding the $23.4 million impact from movements in foreign exchange rates, Americas outdoor revenue increased $21.8 million during 2015 compared to 2014 primarily driven by higher revenues from digital billboards and our Spectacolor business. International outdoor revenue decreased $153.4 million during 2015 compared to 2014. Excluding the $205.6 million impact from movements in foreign exchange rates, International outdoor revenue increased $52.2 million during 2015 compared to 2014 primarily driven by new contracts and the impact of sales initiatives. Other revenues decreased $48.8 million during 2015 compared to 2014 primarily as a result of lower political advertising revenues and lower contract termination fees earned by our media representation business.
Consolidated Direct Operating Expenses
Consolidated direct operating expenses decreased $68.9 million during 2015 compared to 2014. Excluding the $146.6 million impact from movements in foreign exchange rates, consolidated direct operating expenses increased $77.7 million during 2015 compared to 2014. iHM direct operating expenses increased $40.8 million during 2015 compared to 2014, primarily due to higher music license and performance royalties, higher lease expense as a result of the sale and subsequent leaseback of broadcast communication tower sites and higher compensation related to radio programming. Americas outdoor direct operating expenses decreased $8.4 million during 2015 compared to 2014. Excluding the $13.1 million impact from movements in foreign exchange rates, Americas outdoor direct operating expenses increased $4.7 million during 2015 compared to 2014 primarily due to higher variable site lease expenses related to the increase in revenues. International outdoor direct operating expenses decreased $93.6 million during 2015 compared to 2014. Excluding the $133.5 million impact from movements in foreign exchange rates, International outdoor direct operating expenses increased $39.9 million during 2015 compared to 2014 primarily as a result of higher variable costs associated with higher revenue, as well as higher spending on strategic efficiency initiatives.
Consolidated SG&A Expenses
Consolidated SG&A expenses increased $23.4 million during 2015 compared to 2014. Excluding the $51.1 million impact from movements in foreign exchange rates, consolidated SG&A expenses increased $74.5 million during 2015 compared to 2014. iHM SG&A expenses increased $51.7 million during 2015 compared to 2014 primarily due to higher barter and trade expenses, higher sales expense, including commissions related to higher revenue and higher bad debt expense. Americas outdoor SG&A expenses decreased $0.4 million during 2015 compared to 2014. Excluding the $6.0 million impact from movements in foreign exchange rates, Americas outdoor SG&A expenses increased $5.6 million during 2015 compared to 2014 primarily in Latin America. International outdoor SG&A expenses decreased $16.6 million during 2015 compared to 2014. Excluding the $45.0 million impact from movements in foreign exchange rates, International outdoor SG&A expenses increased $28.4 million during 2015 compared to 2014 primarily due to higher compensation expense, including commissions in connection with higher revenues.
Corporate Expenses
Corporate expenses decreased $5.9 million during 2015 compared to 2014. Excluding the $3.5 million impact from movements in foreign exchange rates, corporate expenses decreased $2.4 million during 2015 compared to 2014 primarily due to a $20.2 million decrease in spending related to our strategic revenue and efficiency initiatives. This was partially offset by the impact of an $8.5 million insurance recovery related to stockholder litigation recognized in 2014, higher variable compensation expense related to sales growth and higher legal fees related to the negotiation of digital royalty rates before the Copyright Royalty Board.
Revenue and Efficiency Initiatives
Included in the amounts for direct operating expenses, SG&A and corporate expenses discussed above are expenses of $42.8 million incurred in 2015 in connection with our strategic revenue and efficiency initiatives. The costs were incurred to improve revenue growth, enhance yield, reduce costs and organize each business to maximize performance and profitability. These costs consist primarily of consolidation of locations and positions, severance related to workforce initiatives, consulting expenses and other costs incurred in connection with streamlining our businesses. These costs are expected to provide benefits in future periods as the initiative results are realized.
Of the strategic revenue and efficiency costs for 2015, $14.0 million are reported within direct operating expenses, $15.0 million are reported within SG&A and $13.8 million are reported within corporate expense. In 2014, such costs totaled $13.0 million, $23.7 million, and $34.0 million, respectively.
Depreciation and Amortization
Depreciation and amortization decreased $36.9 million during 2015 compared to 2014, primarily due to assets becoming fully depreciated or fully amortized as well as the impact of movements in foreign exchange rates.
Impairment Charges
We performed our annual impairment test on our goodwill, FCC licenses, billboard permits, and other intangible assets as of July 1 of each year. In addition, we test for impairment of property, plant and equipment whenever events and circumstances indicate that depreciable assets might be impaired. As a result of these impairment tests, during 2015 we recorded impairment charges of $21.6 million related to billboard permits in one Americas outdoor market. During 2014, we recognized impairment charges of $24.2 million primarily related to the impairment of FCC licenses in eight markets due to changes in the discount rates and weighted-average cost of capital for those markets. Please see Note 2 to the Consolidated Financial Statements located in Item 8 of this Annual Report on Form 10-K for a further description of the impairment charges.
Other Operating Income, Net
Other operating income of $94.0 million in 2015 primarily related to the gain on the sale of radio towers which were subsequently leased back.
Other operating income of $40.0 million in 2014 primarily related to a non-cash gain of $43.5 million recognized on the sale of non-core radio stations in exchange for a portfolio of 29 stations in five markets.
Interest Expense
Interest expense increased $63.9 million during 2015 compared to 2014 primarily due to the weighted average cost of debt increasing due to debt refinancing transactions that resulted in higher interest rates. Please refer to "Sources of Capital" for additional discussion of debt issuances and exchanges. Our weighted average cost of debt during 2015 and 2014 was 8.5% and 8.1%, respectively.
Loss on Investments, Net
In 2015, we recognized a loss of $5.0 million related to cost method investments.
Equity in Loss of Nonconsolidated Affiliates
Equity in loss of nonconsolidated affiliates was $0.9 million for 2015.
Equity in loss of nonconsolidated affiliates of $9.4 million during 2014 primarily related to the $4.5 million gain on the sale of our 50% interest in Buspak, offset by the sale of our 50% interest in ARN, which included a loss on the sale of $2.4 million and $11.5 million of foreign exchange losses that were reclassified from accumulated other comprehensive income at the date of the sale.
Loss on Extinguishment of Debt
In connection with the first quarter 2015 prepayment of iHeartCommunications' Term Loan B facility and Term Loan C-asset sale facility, we recognized a loss of $2.2 million.
During the fourth quarter of 2014, CC Finco, LLC ("CC Finco"), an indirect wholly-owned subsidiary of ours, repurchased $57.1 million aggregate principal amount of iHeartCommunications' 5.5% Senior Notes due 2016 and $120.0 million aggregate principal amount of iHeartCommunications' 10.0% Senior Notes due 2018 for a total of $159.3 million, including accrued interest, through open market purchases. In connection with these transactions, we recognized a net gain of $12.9 million.
In September 2014, iHeartCommunications prepaid $974.9 million of the loans outstanding under its Term Loan B facility and $16.1 million of the loans outstanding under its Term Loan C-asset sale facility. In connection with these transactions, we recognized a loss of $4.8 million.
During June 2014, iHeartCommunications redeemed $567.1 million aggregate principal amount of its outstanding 5.5% Senior Notes due 2014 and $241.0 million aggregate principal amount of its outstanding 4.9% Senior Notes due 2015. In connection with these transactions, we recognized a loss of $47.5 million.
During the first quarter of 2014, CC Finco repurchased $52.9 million aggregate principal amount of iHeartCommunications' outstanding 5.5% Senior Notes due 2014 and $9.0 million aggregate principal amount of iHeartCommunications' outstanding 4.9% Senior Notes due 2015 for a total of $63.1 million, including accrued interest, through open market purchases. In connection with these transactions, we recognized a loss of $3.9 million.
Other Income (Expense), Net
Other income of $13.1 million and $9.1 million for 2015 and 2014, respectively, primarily related to gains on foreign exchange transactions.
Income Tax Expense
The effective tax rate for the year ended December 31, 2015 was (13.4%) as compared to (8.3%) for the year ended December 31, 2014. The effective tax rate for 2015 was impacted by the $305.3 million valuation allowance recorded against our current period federal and state net operating losses due to the uncertainty of the ability to utilize those losses in future periods. The valuation allowance was recorded against the Company's current period federal and state net operating losses due to the uncertainty of the ability to utilize these losses in future periods.
The effective tax rate for the year ended December 31, 2014 was primarily impacted by the $339.8 million valuation allowance recorded during the period as additional deferred tax expense. The valuation allowance was recorded against a portion of the U.S. Federal and State net operating losses due to the uncertainty of the ability to utilize those losses in future periods. This expense was partially offset by $28.9 million in net tax benefits associated with a decrease in unrecognized tax benefits resulting from the expiration of statutes of limitations to assess taxes in the United Kingdom and several state jurisdictions.
iHM Results of Operations
Our iHM operating results were as follows:
|
| | | | | | | | | |
(In thousands) | Years Ended December 31, | | % |
| 2015 | | 2014 | | Change |
Revenue | $ | 3,284,320 |
| | $ | 3,161,503 |
| | 3.9% |
Direct operating expenses | 972,937 |
| | 932,172 |
| | 4.4% |
SG&A expenses | 1,065,066 |
| | 1,013,407 |
| | 5.1% |
Depreciation and amortization | 240,207 |
| | 240,846 |
| | (0.3)% |
Operating income | $ | 1,006,110 |
| | $ | 975,078 |
| | 3.2% |
iHM revenue increased $122.8 million during 2015 compared to 2014 driven primarily by increases in our core radio business, both broadcast and digital, including the impact of marketing partnerships with our advertisers for live events, such as the iHeartRadio Music Festival, the iHeartRadio Music Awards, the iHeart Country Festival and iHeartRadio Jingle Balls concert tour, and barter and trade revenue. Revenue also increased for our traffic and weather business, as well as growth in our syndication business driven by growth in our news/talk format. Partially offsetting these increases were decreases in political advertising revenues as a result of 2015 not being a congressional election year.
iHM direct operating expenses increased $40.8 million during 2015 compared to 2014, primarily due to higher music license and performance royalties, higher lease expense as a result of the sale and subsequent leaseback of radio tower sites and higher radio programming costs. iHM SG&A expenses increased $51.7 million during 2015 compared to 2014 primarily due to higher barter and trade expenses, higher bad debt expense and investments in national and digital sales capabilities, partially offset by lower advertising and promotion expense and lower legal expense. Strategic revenue and efficiency spending included in SG&A expenses decreased $3.9 million compared to the same period last year.
Americas Outdoor Results of Operations
Our Americas outdoor operating results were as follows:
|
| | | | | | | | | |
(In thousands) | Years Ended December 31, | | % |
| 2015 | | 2014 | | Change |
Revenue | $ | 1,349,021 |
| | $ | 1,350,623 |
| | (0.1)% |
Direct operating expenses | 597,382 |
| | 605,771 |
| | (1.4)% |
SG&A expenses | 233,254 |
| | 233,641 |
| | (0.2)% |
Depreciation and amortization | 204,514 |
| | 203,928 |
| | 0.3% |
Operating income | $ | 313,871 |
| | $ | 307,283 |
| | 2.1% |
Americas outdoor revenue decreased $1.6 million during 2015 compared to 2014. Excluding the $23.4 million impact from movements in foreign exchange rates, Americas outdoor revenue increased $21.8 million during 2015 compared to 2014
driven primarily by an increase in revenues from digital billboards as a result of new deployments, as well as from our Spectacolor business, partially offset by lower advertising revenues from our static bulletins and posters, and our airports business.
Americas outdoor direct operating expenses decreased $8.4 million during 2015 compared to 2014. Excluding the $13.1 million impact from movements in foreign exchange rates, Americas outdoor direct operating expenses increased $4.7 million during 2015 compared to 2014 primarily due to higher variable site lease expenses related to the increase in revenues. Americas outdoor SG&A expenses decreased $0.4 million during 2015 compared to 2014. Excluding the $6.0 million impact from movements in foreign exchange rates, Americas outdoor SG&A expenses increased $5.6 million during 2015 compared to 2014 primarily due to higher expenses in Latin America.
International Outdoor Results of Operations
Our International outdoor operating results were as follows:
|
| | | | | | | | | |
(In thousands) | Years Ended December 31, | | % |
| 2015 | | 2014 | | Change |
Revenue | $ | 1,457,183 |
| | $ | 1,610,636 |
| | (9.5)% |
Direct operating expenses | 897,520 |
| | 991,117 |
| | (9.4)% |
SG&A expenses | 298,250 |
| | 314,878 |
| | (5.3)% |
Depreciation and amortization | 166,060 |
| | 198,143 |
| | (16.2)% |
Operating income | $ | 95,353 |
| | $ | 106,498 |
| | (10.5)% |
International outdoor revenue decreased $153.4 million during 2015 compared to 2014. Excluding the $205.6 million impact from movements in foreign exchange rates, International outdoor revenue increased $52.2 million during 2015 compared to 2014 primarily driven by new contracts along with higher occupancy and higher rates for our transit and street furniture products, particularly digital, in certain European countries, including Sweden, Norway, Italy and the UK, as well as from new contracts in Australia and China.
International outdoor direct operating expenses decreased $93.6 million during 2015 compared to 2014. Excluding the $133.5 million impact from movements in foreign exchange rates, International outdoor direct operating expenses increased $39.9 million during 2015 compared to 2014 primarily as a result of higher variable costs associated with higher revenue, as well as site lease termination fees on lower-margin boards incurred in connection with strategic revenue and efficiency initiatives. International outdoor SG&A expenses decreased $16.6 million during 2015 compared to 2014. Excluding the $45.0 million impact from movements in foreign exchange rates, International outdoor SG&A expenses increased $28.4 million during 2015 compared to 2014 primarily due to higher compensation expense, including commissions in connection with higher revenues.
Depreciation and amortization decreased $32.1 million. Excluding the $19.5 million impact from movements in foreign exchange rates, depreciation and amortization decreased $12.6 million primarily due to assets becoming fully depreciated or fully amortized.
Also included in International Outdoor direct operating expenses and SG&A expenses are $8.2 million and $3.2 million, respectively, recorded in the fourth quarter of 2015 to correct for accounting errors included in the results for our Netherlands subsidiary reported in prior years. Such corrections are not considered to be material to the current year or prior year financial results.
Reconciliation of Segment Operating Income to Consolidated Operating Income
|
| | | | | | | | | | | |
(In thousands) | Years Ended December 31, |
| 2016 | | 2015 | | 2014 |
iHM | $ | 1,080,615 |
| | $ | 1,006,110 |
| | $ | 975,078 |
|
Americas outdoor advertising | 297,034 |
| | 313,871 |
| | 307,283 |
|
International outdoor advertising | 116,178 |
| | 95,353 |
| | 106,498 |
|
Other | 43,411 |
| | 19,314 |
| | 36,359 |
|
Impairment charges | (8,000 | ) | | (21,631 | ) | | (24,176 | ) |
Corporate expense (1) | (378,103 | ) | | (357,587 | ) | | (359,487 | ) |
Other operating income, net | 353,556 |
| | 94,001 |
| | 40,031 |
|
Consolidated operating income | $ | 1,504,691 |
| | $ | 1,149,431 |
| | $ | 1,081,586 |
|
| |
(1) | Corporate expenses include expenses related to iHM, Americas outdoor, International outdoor and our Other category, as well as overall executive, administrative and support functions. |
Share-Based Compensation Expense
Share-based compensation expenses are recorded in corporate expenses and were $13.1 million, $10.9 million and $10.7 million for the years ended December 31, 2016, 2015 and 2014, respectively.
As of December 31, 2016, there was $21.0 million of unrecognized compensation cost, net of estimated forfeitures, 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 three years. In addition, as of December 31, 2016, there was $26.4 million of unrecognized compensation cost, net of estimated forfeitures, 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.
LIQUIDITY AND CAPITAL RESOURCES
Cash Flows
The following discussion highlights cash flow activities during the years ended December 31, 2016, 2015 and 2014:
|
| | | | | | | | | | | |
(In thousands) | Years Ended December 31, |
| 2016 | | 2015 | | 2014 |
Cash provided by (used for): | | | | | |
Operating activities | $ | (13,982 | ) | | $ | (77,304 | ) | | $ | 245,116 |
|
Investing activities | $ | 510,915 |
| | $ | 30,234 |
| | $ | (88,682 | ) |
Financing activities | $ | (418,231 | ) | | $ | 377,410 |
| | $ | (398,001 | ) |
Operating Activities
2016
Cash used for operating activities was $14.0 million in 2016 compared to $77.3 million of cash used for operating activities in 2015. Our consolidated net loss in 2016 and 2015 included non-cash items of $195.0 million and $700.7 million, respectively. Non-cash items affecting our net loss include impairment charges, depreciation and amortization, deferred taxes, provision for doubtful accounts, amortization of deferred financing charges and note discounts, net, share-based compensation, gain on disposal of operating and fixed assets, loss on investments, equity in loss of nonconsolidated affiliates, (gain) loss on extinguishment of debt, and other reconciling items, net as presented on the face of the consolidated statement of cash flows. The decrease in cash used for operating activities is primarily attributed to changes in working capital balances, particularly accounts receivable, which were driven primarily by improved collections. Cash paid for interest was $77.8 million higher in 2016 compared to the prior year due to the timing of accrued interest payments and higher interest rates as a result of financing transactions.
2015
Cash used for operating activities was $77.3 million in 2015 compared to $245.1 million of cash provided from operating activities in 2014. Our consolidated net loss in 2015 and 2014 included non-cash items of $700.7 million and $877.5 million, respectively. Non-cash items affecting our net loss include impairment charges, depreciation and amortization, deferred taxes, provision for doubtful accounts, amortization of deferred financing charges and note discounts, net, share-based compensation, gain on disposal of operating and fixed assets, gain on marketable securities, equity in (earnings) loss of nonconsolidated affiliates, loss on extinguishment of debt, and other reconciling items, net as presented on the face of the consolidated statement of cash flows. The increase in cash used for operating activities is primarily attributed to an increase of $146.1 million of cash interest payments in 2015 compared to 2014, as well as changes in working capital balances, particularly accounts receivable, which were driven primarily by an increase in revenues and slower collections, as well as prepaid and other current assets. Cash paid for interest was higher in 2015 compared to the prior year due to the timing of accrued interest payments and higher interest rates as a result of refinancing transactions.
2014
Cash provided by operating activities in 2014 was $245.1 million compared to $212.9 million of cash provided in 2013. Our consolidated net loss included $877.5 million of non-cash items in 2014. Our consolidated net loss in 2013 included $782.5 million of non-cash items. Non-cash items affecting our net loss include impairment charges, depreciation and amortization, deferred taxes, provision for doubtful accounts, amortization of deferred financing charges and note discounts, net, share-based compensation, gain on disposal of operating and fixed assets, gain on marketable securities, equity in (earnings) loss of nonconsolidated affiliates, loss on extinguishment of debt, and other reconciling items, net as presented on the face of the consolidated statement of cash flows. Cash paid for interest was $2.6 million lower in 2014 compared to the prior year due to the timing of accrued interest payments from refinancing transactions.
Investing Activities
2016
Cash provided by investing activities of $510.9 million in 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 of $592.3 million in cash and certain advertising assets in Florida, and the sale of our outdoor business in Australia for $195.7 million, net of cash retained by the purchaser and closing costs. Those sale proceeds were partially offset by $314.7 million used for capital expenditures. We spent $73.2 million for capital expenditures in our iHM segment primarily related to leasehold improvements and IT infrastructure, $81.4 million in our Americas outdoor segment primarily related to the construction of new advertising structures such as digital displays, $143.8 million in our International outdoor segment primarily related to street furniture advertising structures, $2.5 million in our Other category and $13.8 million by Corporate primarily related to equipment and software.
2015
Cash provided by investing activities of $30.2 million in 2015 primarily reflected proceeds of $369.9 million from the sale of broadcasting towers and related property and equipment, as well as proceeds of $34.3 million from the sale of our San Antonio office buildings, partially offset by closing costs incurred in relation to the sale of broadcasting towers of $10.0 million. We are leasing back a portion of the radio towers and related property and equipment, as well as the San Antonio office buildings, under long-term operating leases. Those sale proceeds were partially offset by $296.4 million used for capital expenditures and $85.8 million used to purchase businesses, investments and other operating assets. We spent $63.8 million for capital expenditures in our iHM segment primarily related to leasehold improvements and IT infrastructure, $82.2 million in our Americas outdoor segment primarily related to the construction of new advertising structures such as digital displays, $132.6 million in our International outdoor segment primarily related to street furniture advertising and digital billboard structures, $2.0 million in our Other category and $15.8 million by Corporate primarily related to equipment and software.
2014
Cash used for investing activities of $88.7 million in 2014 primarily reflected capital expenditures of $318.2 million, partially offset by proceeds of $236.6 million primarily from the sale of our 50% interest in ARN and the sale of our 50% interest in Buspak. We spent $53.9 million for capital expenditures in our iHM segment primarily related to leasehold improvements and IT infrastructure, $109.7 million in our Americas outdoor segment primarily related to the construction of new advertising structures such as digital displays, $117.5 million in our International outdoor segment primarily related to billboard and street furniture advertising structures, $2.2 million in our Other category, and $34.9 million by Corporate primarily related to equipment and software.
Financing Activities
2016
Cash used for financing activities of $418.2 million in 2016 primarily resulted from the purchase of iHeartCommunications' 10.0% Senior Notes due 2018 for an aggregate purchase price of $222.2 million, the payment at maturity of $192.9 million of 5.5% Senior Notes in December 2016, other payments on long-term debt and dividends paid to non-controlling interests, partially offset by net draws under iHeartCommunications' receivables based credit facility of $100.0 million.
2015
Cash provided by financing activities of $377.4 million in 2015 primarily resulted from net draws under iHeartCommunications' receivables based credit facility of $230.0 million, the net effect of the proceeds from the issuance of $950.0 million of 10.625% Priority Guarantee Notes due 2023 and proceeds from the issuance by CCIBV of $225.0 million of 8.75% Senior Notes due 2020, offset by the prepayment at par of $916.1 million of the loans outstanding under our term loan B facility, $15.2 million of the loans outstanding under our term loan C-asset sale facility and cash paid of $42.6 million to purchase CCOH’s Class A common stock.
2014
Cash used for financing activities of $398.0 million in 2014 primarily reflected payments on long-term debt and the payment by CCOH of a dividend to CCOH stockholders, partially offset by proceeds from the issuance of long-term debt. iHeartCommunications received cash proceeds from the issuance by CCU Escrow Corporation of 10% Senior Notes due 2018 ($850.0 million in aggregate principal amount), the sale by a subsidiary of iHeartCommunications of 14% Senior Notes due 2021 to private purchasers ($227.0 million in aggregate principal amount) and the issuance to private purchasers of 9% Priority Guarantee Notes due 2022 ($1,000.0 million in aggregate principal amount). This was partially offset by the redemption of $567.1 million principal amount outstanding of iHeartCommunications' 5.5% Senior Notes due 2014 (including $158.5 million principal amount of the notes held by a subsidiary of the Company) and $241.0 million principal amount outstanding of iHeartCommunications' 4.9% Senior Notes due 2015, the repayment of the full $247.0 million principal amount outstanding under iHeartCommunications' receivables-based credit facility, and the prepayment of $974.9 million aggregate principal amount of the Term B facility due 2016 and $16.1 million aggregate principal amount of the Term loan C facility due 2016. In addition, during 2014, CC Finco repurchased $239.0 million aggregate principal amount of notes, for a total purchase price of $222.4 million, including accrued interest.
Anticipated Cash Requirements
Our primary sources of liquidity are cash on hand, cash flow from operations, borrowing capacity under iHeartCommunications' domestic receivables based credit facility, subject to certain limitations contained in iHeartCommunications' material financing agreements and cash from liquidity-generating transactions. As of December 31, 2016, we had $845.0 million of cash on our balance sheet, including $542.0 million of cash held by our subsidiary, CCOH. Included in the cash held by CCOH is $180.1 million of cash held outside the U.S. It is our policy to permanently reinvest the earnings of our non-U.S. subsidiaries as these earnings are generally redeployed in those jurisdictions for operating needs and continued functioning of their businesses. 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 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. As of December 31, 2016, we had a borrowing base of $480.4 million under iHeartCommunications' receivables based credit facility, had $330.0 million of outstanding borrowings and had $36.8 million of outstanding letters of credit, resulting in $113.6 million of excess availability. However, any incremental borrowings under iHeartCommunications' receivables based credit facility may be further limited by the terms contained in iHeartCommunications' material financing agreements.
Since the beginning of 2016, we successfully completed several transactions that had a positive impact on our liquidity. In the first quarter of 2016, we received $196.3 million as a dividend from CCOH funded with the proceeds of the December 2015 issuance of 8.75% Senior Notes due 2020 by Clear Channel International B.V. (“CCIBV”), an indirect subsidiary of the Company and of CCOH, and $486.5 million as a dividend from CCOH ($186.5 million net of iHeartCommunications' concurrent repayment of the Revolving Promissory Note) funded with the proceeds of a $300.0 million repayment under the Revolving Promissory note and the sale of CCOH's outdoor business in non-strategic Americas outdoor markets. During the fourth quarter of 2016, CCOH sold its outdoor business in Australia for cash proceeds of $195.7 million, net of cash retained by the purchaser and closing costs and we incurred $100.0 million of additional borrowings under our receivables based credit facility. On February 9, 2017, CCOH declared a special dividend of $282.5 million using a portion of the proceeds from the sales of certain non-strategic U.S. outdoor markets and of our Australia outdoor business. We received on February 23, 2017 89.9% of the dividend or approximately $254.0
million, with the remaining 10.1% or approximately $28.5 million paid to public stockholders of CCOH. These transactions improved our liquidity position in the short term. We are currently exploring, and expect to continue to explore, a variety of other transactions to provide us with additional liquidity. We cannot assure you that we will enter into or consummate any such liquidity-generating transactions, or that such transactions will provide sufficient cash to satisfy our liquidity needs, and any such transactions, if consummated, could adversely affect us in other ways. Future liquidity-generating transactions could have the effect of further increasing our annual cash interest payment obligations, reducing our cash flow from operations or reducing cash available for capital expenditures and other business initiatives.
Our primary uses of liquidity are to fund our working capital, debt service, capital expenditures and other obligations. At December 31, 2016, we had debt maturities totaling $343.5 million, $559.1 million and $8,369.0 million in 2017, 2018 and 2019, respectively. On February 7, 2017, we exchanged $234.9 million of our 10.0% Senior Notes due 2018, net of $241.4 million of such notes held by our subsidiaries, for $234.9 million principal amount of newly-issued 11.25% Priority Guarantee Notes due 2021. A substantial amount of our cash requirements are for debt service obligations. During the year ended December 31, 2016, we spent $2,081.3 million of cash on payments of principal and interest on our debt, net of facility draws and proceeds received, compared to $1,219.5 million in the year ended December 31, 2015. We anticipate having approximately $1.7 billion of cash interest payment obligations in 2017, compared to $1.8 billion of cash interest payments in 2016. Our significant interest payment obligations reduce our financial flexibility, make us more vulnerable to changes in operating performance and economic downturns, reduce our liquidity over time and could negatively affect iHeartCommunications' ability to obtain additional financing in the future.
While we have been successful in accessing the capital markets on terms and in amounts adequate to refinance our indebtedness and meet our liquidity needs in the past, there can be no assurance that refinancing alternatives will be available in sufficient amounts or on terms acceptable to us in the future due to market conditions, our financial condition, our liquidity constraints or other factors, many of which are beyond our control. Even if refinancing alternatives are available to us, we may not find them suitable or at comparable interest rates to the indebtedness being refinanced, and our annual cash interest payment obligations could increase further. In addition, the terms of our existing or future debt agreements may restrict us from securing refinancing on terms that are available to us at that time. If we are unable to continue to obtain sources of refinancing or generate sufficient cash through our operations and liquidity-generating transactions, we could face substantial liquidity problems, which could have a material adverse effect on our financial condition and on our ability to meet iHeartCommunications' obligations.
On July 15, 2016, Broader Media, LLC, our indirect wholly-owned subsidiary, repurchased approximately $383.0 million aggregate principal amount of iHeartCommunications' 10.0% Senior Notes due 2018 for an aggregate purchase price of approximately $222.2 million. The repurchase effectively reduces the principal amount of our debt maturing in 2018 by $383.0 million and our consolidated annual cash interest obligations by $38.3 million, because principal and interest payments made to our wholly-owned subsidiary are eliminated in consolidation. On February 7, 2017, we completed an exchange offer of $476.4 million principal amount of our 10.0% Senior Notes due 2018 for $476.4 million principal amount of newly-issued 11.25% Priority Guarantee Notes due 2021. Of the $476.4 million principal amount of 11.25% Priority Guarantee Notes due 2021 issued in the exchange offer, $241.4 million principal amount was issued to subsidiaries of iHeartCommunications that exchanged 10.0% Senior Notes due 2018 in the exchange offer. We may make additional repurchases of indebtedness of iHeartCommunications in the future. In addition, we frequently evaluate strategic opportunities both within and outside our existing lines of business. We expect from time to time to pursue dispositions or acquisitions, which could be material. iHeartCommunications' and iHeartCommunications' subsidiaries’ significant amount of indebtedness may limit our ability to pursue dispositions or acquisitions. The terms of our existing or future debt agreements may also restrict our ability to engage in these transactions.
On November 17, 2016, we incurred $100.0 million of additional borrowings under our receivables based credit facility, and as of December 31, 2016, we had total outstanding borrowings of $330.0 million under this facility. Due to the seasonal variations in our business, we made a repayment of $25.0 million on January 31, 2017, and we expect our borrowing base and excess availability to decrease in the first quarter of 2017. As a result, we may be required to repay an additional portion of our outstanding borrowings under this facility during the first quarter of 2017. The receivables based credit facility has a maturity date of December 24, 2017.
During the second quarter of 2014, the FASB issued ASU No. 2014-15, Presentation of Financial Statements - Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity's Ability to Continue as a Going Concern. This update provides U.S. GAAP guidance on management’s responsibility in evaluating whether there is substantial doubt about a company’s ability to continue as a going concern and about related footnote disclosures. We adopted this standard for the year ended December 31, 2016. Under this standard, we are required to evaluate whether there is substantial doubt about our ability to continue as a going concern each reporting period, including interim periods.
In evaluating our ability to continue as a going concern, management considered the conditions and events that could raise substantial doubt about our ability to continue as a going concern within 12 months after our financial statements were issued
(February 23, 2017). Management considered our current financial condition and liquidity sources, including current funds available, forecasted future cash flows and our conditional and unconditional obligations due before February 23, 2018. Our forecast of future cash flows indicates that such cash flows would not be sufficient for us to meet our obligations, including payment of the outstanding receivables based credit facility balance at maturity, as they become due in the ordinary course of business for a period of 12 months following February 23, 2017. We plan to refinance or extend the receivables based credit facility to a date at least 12 months after February 23, 2017 with terms similar to the facility's current terms.
Management believes the refinancing or extension of the maturity of the receivables based credit facility is probable of being executed as we have successfully extended the maturity date of this receivables based credit facility in the past, and the facility has a first-priority lien on the accounts receivable of iHeartCommunications and certain of its subsidiaries. Management's plan to refinance or extend the due date of the receivables based credit facility, combined with current funds and expected future cash flows, are considered to be sufficient to enable us to meet our obligations as they become due in the ordinary course of business for a period of 12 months following the date these financial statements are issued. This belief assumes, among other things, that we will continue to be successful in implementing our business strategy and that there will be no material adverse developments in our business, liquidity or capital requirements, which include promoting spending in our industries and capitalizing on our diverse geographic and product opportunities, including the continued investment in our media and entertainment initiatives and continued deployment of digital displays. There is no assurance we will be able to achieve our forecasted operating cash flows or that the receivables based credit facility will be extended in a timely manner or on terms acceptable to us, or at all. If one or more of these factors do not occur as expected, it could cause a default under one or more of the agreements governing our indebtedness. In addition to the transactions described above, we have from time to time been engaged in discussions with some of the holders of our indebtedness regarding proposed modifications to the terms of that indebtedness and other changes to our capital structure, but those discussions have not resulted in any agreements to date. We have considered and will continue to evaluate potential transactions to improve our capital structure and address our liquidity constraints and we have retained advisers to assist with the assessment of a potential debt restructuring transaction. See "-Potential Restructuring of Our Indebtedness." If our future cash flows from operations, refinancing sources and liquidity-generating transactions are insufficient to service our debt or to fund our other liquidity needs, and if we are unable to refinancing or extend the maturity of the receivables based credit facility or complete a debt restructuring transaction, we may be forced to reduce or delay our business activities and capital expenditures, sell material assets, seek additional capital or be required to file for bankruptcy court protection. We cannot assure you that we would be able to accomplish any of these alternatives on a timely basis or on satisfactory terms, if at all.
Except as set forth below under "-Non-Payment of $57.1 million of iHeartCommunications Legacy Notes Held by an Affiliate," we were in compliance with the covenants contained in iHeartCommunications' material financing agreements as of December 31, 2016, including the maximum consolidated senior secured net debt to consolidated EBITDA limitation contained in iHeartCommunications' senior secured credit facilities. However, our future results are subject to significant uncertainty and there can be no assurance that we will be able to maintain compliance with these covenants. These covenants include a requirement in our senior secured credit facilities that we receive an opinion from our auditors in connection with our year-end audit that is not subject to a "going concern" or like qualification or exception. Our ability to comply with these covenants in the future may be affected by events beyond our control, including the uncertainties described above and prevailing economic, financial and industry conditions. The breach of any covenants set forth in iHeartCommunications' financing agreements would result in a default thereunder. An event of default would permit the lenders under a defaulted financing agreement to declare all indebtedness thereunder to be immediately due and payable. Moreover, the lenders under the receivables based credit facility under iHeartCommunications' senior secured credit facilities would have the option to terminate their commitments to make further extensions of credit thereunder. If we are unable to repay iHeartCommunications' obligations under any secured credit facility, the lenders could proceed against any assets that were pledged to secure such facility. In addition, a default or acceleration under any of iHeartCommunications' material financing agreements could cause a default under other of our obligations that are subject to cross-default and cross-acceleration provisions. The threshold amount for a cross-default under the senior secured credit facilities and the indentures governing our outstanding bonds is $100.0 million. The default resulting from non-payment of the $57.1 million of 5.50% Senior Notes described below is below the $100.0 million cross-default threshold in iHeartCommunications' debt documents.
Non-Payment of $57.1 Million of iHeartCommunications Legacy Notes Held by an Affiliate
Our wholly-owned subsidiary, Clear Channel Holdings, Inc. ("CCH"), owns $57.1 million aggregate principal amount of our 5.50% Senior Notes due 2016 (the "5.50% Senior Notes"). On December 9, 2016, a special committee of our independent directors decided to not repay the $57.1 million principal amount of the 5.50% Senior Notes held by CCH when the notes matured on December 15, 2016. On December 12, 2016, we informed CCH that we did not intend to repay the $57.1 million principal amount of the 5.50% Senior Notes held by CCH when the notes matured on December 15, 2016. CCH informed us that, while it retains its right to exercise remedies under the indenture governing the 5.50% Senior Notes (the "legacy notes indenture") in the future, it does not currently intend to, and it does not currently intend to request that the trustee, seek to collect principal amounts due or exercise or request enforcement of any remedy with respect to the nonpayment of such principal amount under the legacy
notes indenture. As a result, $57.1 million of the 5.50% Senior Notes remain outstanding. We repaid the other $192.9 million of 5.50% Senior Notes held by other holders, and we intend to continue to pay interest on the 5.50% Senior Notes held by CCH for so long as such notes continue to remain outstanding.
For as long as we have at least $500 million of legacy notes outstanding, including the $57.1 million of 5.50% Senior Notes currently held by CCH, we will not have an obligation to grant certain additional security interests in favor of certain of our lenders and holders of our existing priority guarantee notes or the holders of our legacy notes under the "springing lien" described in the agreements governing that indebtedness, and the limitations existing with respect to the existing security interests will remain in place until up to 60 days following the date on which not more than $500 million aggregate principal amount of the legacy notes remain outstanding.
Potential Restructuring of Our Indebtedness
We have been reviewing a number of potential alternatives regarding our outstanding indebtedness. These alternatives include refinancings, exchange offers, consent solicitations, the issuance of new indebtedness, amendments to the terms of our existing indebtedness and/or other transactions. We may enter into discussions with holders of our indebtedness with respect to these alternatives. Among these alternatives is a global restructuring that would, on a consensual basis, seek to modify the terms of substantially all of our outstanding indebtedness. We may offer to exchange the indebtedness under our senior secured credit facilities, all of our priority guarantee notes, our legacy notes and/or our senior notes due 2021 for new debt and/or equity securities of our parent and/or subsidiary companies. In conjunction with any such transactions, we may seek consents to amend the documents governing our indebtedness to amend or eliminate certain covenants or collateral provisions.
Because the terms of any such transactions will be subject to negotiations with the holders of our indebtedness, they may differ materially from those described above and are, to a large extent, outside of our control. There can be no assurance that we will be able to complete any such transactions, and, as no decision with respect to the terms of any such transactions has been made, we may decide not to pursue any such transactions. If we are unable to complete any such transactions, we may be required to file for bankruptcy court protection.
Although we will continue to have a substantial amount of indebtedness outstanding even if we are able to consummate a restructuring of our indebtedness, we believe that such a restructuring would benefit our stakeholders by significantly improving our capital structure and preventing us from having to file for bankruptcy. A bankruptcy filing could be more costly than a restructuring of our indebtedness and could significantly damage our key assets including our relationships with advertisers, consumers, business partners, suppliers, customers and creditors, and significantly harm our brand.
Sources of Capital
As of December 31, 2016 and 2015, we had the following debt outstanding, net of cash and cash equivalents:
|
| | | | | | | |
| December 31, |
(In millions) | 2016 | | 2015 |
Senior Secured Credit Facilities: | | | |
Term Loan D Facility Due 2019 | $ | 5,000.0 |
| | $ | 5,000.0 |
|
Term Loan E Facility Due 2019 | 1,300.0 |
| | 1,300.0 |
|
Receivables Based Credit Facility Due 2017(1) | 330.0 |
| | 230.0 |
|
9.0% Priority Guarantee Notes Due 2019 | 1,999.8 |
| | 1,999.8 |
|
9.0% Priority Guarantee Notes Due 2021 | 1,750.0 |
| | 1,750.0 |
|
11.25% Priority Guarantee Notes Due 2021(2) | 575.0 |
| | 575.0 |
|
9.0% Priority Guarantee Notes Due 2022 | 1,000.0 |
| | 1,000.0 |
|
10.625% Priority Guarantee Notes Due 2023 | 950.0 |
| | 950.0 |
|
Subsidiary Revolving Credit Facility due 2018(3) | — |
| | — |
|
Other Secured Subsidiary Debt | 21.0 |
| | 25.2 |
|
Total Secured Debt | $ | 12,925.8 |
| | $ | 12,830.0 |
|
| | | |
14.0% Senior Notes Due 2021 | 1,729.2 |
| | 1,695.1 |
|
iHeartCommunications Legacy Notes: | | | |
5.5% Senior Notes Due 2016(4) | — |
| | 192.9 |
|
6.875% Senior Notes Due 2018 | 175.0 |
| | 175.0 |
|
7.25% Senior Notes Due 2027 | 300.0 |
| | 300.0 |
|
10.0% Senior Notes Due 2018(2) | 347.0 |
| | 730.0 |
|
Subsidiary Senior Notes: | | | |
6.5% Series A Senior Notes Due 2022 | 735.8 |
| | 735.8 |
|
6.5% Series B Senior Notes Due 2022 | 1,989.2 |
| | 1,989.2 |
|
Subsidiary Senior Subordinated Notes: | | | |
7.625% Series A Senior Notes Due 2020 | 275.0 |
| | 275.0 |
|
7.625% Series B Senior Notes Due 2020 | 1,925.0 |
| | 1,925.0 |
|
Subsidiary 8.75% Senior Notes due 2020 | 225.0 |
| | 225.0 |
|
Other Subsidiary Debt | 28.0 |
| | 0.2 |
|
Purchase accounting adjustments and original issue discount | (167.0 | ) | | (204.6 | ) |
Long-term debt fees | (123.0 | ) | | (148.0 | ) |
Total Debt | $ | 20,365.0 |
| | $ | 20,720.6 |
|
Less: Cash and cash equivalents | 845.0 |
| | 772.7 |
|
| $ | 19,520.0 |
| | $ | 19,947.9 |
|
| |
(1) | The receivables based credit facility provides for borrowings of up to the lesser of $535.0 million (the revolving credit commitment) or the borrowing base amount, as defined under the receivables based credit facility, subject to certain limitations contained in iHeartCommunications' material financing agreements. As of December 31, 2016, we had $113.6 million of availability under the receivables based credit facility. |
| |
(2) | On July 15, 2016, Broader Media, LLC, our indirect wholly-owned subsidiary, repurchased approximately $383.0 million aggregate principal amount of iHeartCommunications' 10.0% Senior Notes due 2018 for an aggregate purchase price of approximately $222.2 million. On February 7, 2017, we completed an exchange offer of $476.4 million principal amount of our 10.0% Senior Notes due 2018 for $476.4 million principal amount of newly-issued 11.25% Priority Guarantee Notes due 2021, which were issued as “additional notes” under the indenture governing the 11.25% Priority Guarantee Notes due 2021. Of the $476.4 million principal amount of 11.25% Priority Guarantee Notes due 2021 issued in the exchange offer, $241.4 million principal amount was issued to subsidiaries of iHeartCommunications that exchanged 10.0% Senior Notes due 2018 in the exchange offer. |
| |
(3) | The subsidiary revolving credit facility provides for borrowings of up to $75.0 million (the revolving credit commitment). |
| |
(4) | In December 2016, iHeartCommunications repaid at maturity $192.9 million of 5.5% Senior Notes due 2016 and did not pay $57.1 million of the notes held by a subsidiary of the Company. The $57.1 million of aggregate principal amount remains outstanding and is eliminated for purposes of consolidation of the Company’s financial statements. |
Our subsidiaries have from time to time repurchased certain debt obligations of iHeartCommunications and our equity securities and equity securities outstanding of CCOH, and may in the future, as part of various financing and investment strategies, purchase additional outstanding indebtedness of iHeartCommunications or its subsidiaries or our outstanding equity securities or outstanding equity securities of CCOH, in tender offers, open market purchases, privately negotiated transactions or otherwise. We or our subsidiaries may also sell certain assets, securities, or properties. These purchases or sales, if any, could have a material positive or negative impact on our liquidity available to repay outstanding debt obligations or on our consolidated results of operations. These transactions could also require or result in amendments to the agreements governing outstanding debt obligations or changes in our leverage or other financial ratios, which could have a material positive or negative impact on our ability to comply with the covenants contained in iHeartCommunications' debt agreements. These transactions, if any, will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors. The amounts involved may be material.
On October 4, 2016, iHeartCommunications announced the successful completion of the solicitation of consents (the “Consent Solicitation”) from holders of its outstanding Senior Notes due 2021 (the “2021 Notes”) to an amendment to the indenture governing the 2021 Notes (the “2021 Notes Indenture”) to increase the aggregate principal amount of indebtedness under Credit Facilities (as defined in the 2021 Notes Indenture) permitted to be incurred under Section 4.09(b)(1) of the 2021 Notes Indenture by $500.0 million to $17.3 billion. iHeartCommunications paid an aggregate consent fee of $8.6 million to holders of the 2021 Notes that consented to the amendment in accordance with the terms of the Consent Solicitation.
On December 12, 2016, iHeartCommunications announced the results and expiration of the six separate consent solicitations (the "Consent Solicitations") with respect to its 2021 Notes and its five series of priority guarantee notes. Holders of 2021 Notes representing approximately 81.5% of the outstanding principal amount of the 2021 Notes (excluding any 2021 Notes held by the Company or its affiliates), consented to the proposed amendment (the "Proposed Amendment") to Section 9.07 of the indenture governing the 2021 Notes Indenture. The Proposed Amendment allows the Company to exclude, in any offer to consent, waive or amend any of the terms or provisions of the 2021 Notes Indenture or the Senior Notes in connection with an exchange offer, any holders of Notes who are not institutional “accredited investors,” who are not non-“U.S. persons”, or those in foreign jurisdictions whose inclusion would require the Company to comply with the registration requirements or other similar requirements under any securities laws of such foreign jurisdiction or would be unlawful. iHeartCommunications paid an aggregate consent fee of $1.7 million to holders of the 2021 Notes that consented to the amendment in accordance with the terms of the Consent Solicitation and will pay a contingent fee of $2.6 million to such holders upon the completion of an exchange offer in which the Company relies on the changes effected by the Proposed Amendment.
iHeartCommunications also announced the expiration of its consent solicitations with respect to its five series of priority guarantee notes. Because iHeartCommunications did not receive consents from holders representing a majority of the aggregate principal amount of each of its five series of priority guarantee notes outstanding, the Proposed Amendment was not effected with respect to the priority guarantee notes and no fixed fee or contingent fee will be paid to holders of such notes.
Senior Secured Credit Facilities
As of December 31, 2016, iHeartCommunications had a total of $6,300.0 million outstanding under its senior secured credit facilities, consisting of:
a $5.0 billion term loan D, which matures on January 30, 2019; and
a $1.3 billion term loan E, which matures on July 30, 2019.
iHeartCommunications may raise incremental term loans of up to (a) $1.5 billion, plus (b) the excess, if any, of (x) 0.65 times pro forma consolidated EBITDA (as calculated in the manner provided in the senior secured credit facilities documentation), over (y) $1.5 billion, plus (c) the aggregate amount of certain principal prepayments made in respect of the term loans under the senior secured credit facilities. Availability of such incremental term loans is subject, among other things, to the absence of any default, pro forma compliance with the financial covenant and the receipt of commitments by existing or additional lenders.
iHeartCommunications is the primary borrower under the senior secured credit facilities, and certain of its domestic restricted subsidiaries are co-borrowers under a portion of the term loan facilities.
Interest Rate and Fees
Borrowings under iHeartCommunications' senior secured credit facilities bear interest at a rate equal to an applicable margin plus, at iHeartCommunications' option, either (i) a base rate determined by reference to the higher of (A) the prime lending rate publicly announced by the administrative agent or (B) the Federal funds effective rate from time to time plus 0.50%, or (ii) a Eurocurrency rate determined by reference to the costs of funds for deposits for the interest period relevant to such borrowing adjusted for certain additional costs.
The margin percentages applicable to the term loan facilities are the following percentages per annum:
with respect to loans under the term loan D, (i) 5.75% in the case of base rate loans and (ii) 6.75% in the case of Eurocurrency rate loans; and
with respect to loans under the term loan E, (i) 6.50% in the case of base rate loans and (ii) 7.50% in the case of Eurocurrency rate loans.
The margin percentages are subject to adjustment based upon iHeartCommunications' leverage ratio.
Prepayments
The senior secured credit facilities require iHeartCommunications to prepay outstanding term loans, subject to certain exceptions, with:
50% (which percentage may be reduced to 25% and to 0% based upon iHeartCommunications' leverage ratio) of iHeartCommunications' annual excess cash flow (as calculated in accordance with the senior secured credit facilities), less any voluntary prepayments of term loans and subject to customary credits;
100% of the net cash proceeds of sales or other dispositions of specified assets being marketed for sale (including casualty and condemnation events), subject to certain exceptions;
100% (which percentage may be reduced to 75% and 50% based upon iHeartCommunications' leverage ratio) of the net cash proceeds of sales or other dispositions by iHeartCommunications or its wholly-owned restricted subsidiaries of assets other than specified assets being marketed for sale, subject to reinvestment rights and certain other exceptions;
100% of the net cash proceeds of (i) any incurrence of certain debt, other than debt permitted under iHeartCommunications' senior secured credit facilities, (ii) certain securitization financing, (iii) certain issuances of Permitted Additional Notes (as defined in the senior secured credit facilities) and (iv) certain issuances of Permitted Unsecured Notes and Permitted Senior Secured Notes (as defined in the senior secured credit facilities); and
Net cash proceeds received by iHeartCommunications as dividends or distributions from indebtedness incurred at CCOH provided that the Consolidated Leverage Ratio of CCOH is no greater than 7.00 to 1.00.
The foregoing prepayments will be applied at iHeartCommunications' option to the term loans (on a pro rata basis) in one of the following cases: (i) first to outstanding term loan D and second to outstanding term loan E, (ii) first to outstanding term loan E and second to outstanding term loan D or (iii) ratably to outstanding term loan D and term loan E.
iHeartCommunications may voluntarily repay outstanding loans under the senior secured credit facilities at any time without premium or penalty, other than customary “breakage” costs with respect to Eurocurrency rate loans.
Collateral and Guarantees
The senior secured credit facilities are guaranteed by iHeartCommunications and each of iHeartCommunications' existing and future material wholly-owned domestic restricted subsidiaries, subject to certain exceptions.
All obligations under the senior secured credit facilities, and the guarantees of those obligations, are secured, subject to permitted liens, including prior liens permitted by the indenture governing iHeartCommunications' legacy notes, and other exceptions, by:
a lien on the capital stock of iHeartCommunications;
100% of the capital stock of any future material wholly-owned domestic license subsidiary that is not a “Restricted Subsidiary” under the indenture governing iHeartCommunications' legacy notes;
certain assets that do not constitute “principal property” (as defined in the indenture governing iHeartCommunications' legacy notes);
certain specified assets of iHeartCommunications and the guarantors that constitute “principal property” (as defined in the indenture governing iHeartCommunications' legacy notes) securing obligations under the senior secured credit facilities up to the maximum amount permitted to be secured by such assets without requiring equal and ratable security under the indenture governing iHeartCommunications' legacy notes; and
a lien on the accounts receivable and related assets securing iHeartCommunications' receivables based credit facility that is junior to the lien securing iHeartCommunications' obligations under such credit facility.
Certain Covenants and Events of Default
The senior secured credit facilities require iHeartCommunications to comply on a quarterly basis with a financial covenant limiting the ratio of consolidated secured debt, net of cash and cash equivalents, to consolidated EBITDA (as defined by iHeartCommunications' senior secured credit facilities) for the preceding four quarters. iHeartCommunications' secured debt consists of the senior secured credit facilities, the receivables based credit facility, the priority guarantee notes and certain other secured subsidiary debt. As required by the definition of consolidated EBITDA in iHeartCommunications' senior secured credit facilities, iHeartCommunications' consolidated EBITDA for the preceding four quarters of $1.8 billion 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 items: (i) costs incurred in connection with 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 and severance; (iii) non-cash charges; (iv) cash received from nonconsolidated affiliates; and (v) various other items.
The following table reflects a reconciliation of consolidated EBITDA (as defined by iHeartCommunications' senior secured credit facilities) to operating income and net cash provided by operating activities for the four quarters ended December 31, 2016:
|
| | | |
| Four Quarters Ended |
(In Millions) | December 31, 2016 |
Consolidated EBITDA (as defined by iHeartCommunications' senior secured credit facilities) | $1,844.9 |
Less adjustments to consolidated EBITDA (as defined by iHeartCommunications' senior secured credit facilities): |
Costs incurred in connection with the closure and/or consolidation of facilities, retention charges, consulting fees and other permitted activities | (34.6 | ) |
Extraordinary, non-recurring or unusual gains or losses or expenses and severance (as referenced in the definition of consolidated EBITDA in iHeartCommunications' senior secured credit facilities) | (42.9 | ) |
Non-cash charges | (8.2 | ) |
Other items | 45.5 |
|
Less: Depreciation and amortization, Impairment charges, Other operating income (expense), net, and Share-based compensation expense | (300.0 | ) |
Operating income | 1,504.7 |
|
Plus: Depreciation and amortization, Impairment charges, Gain (loss) on disposal of operating and fixed assets, and Share-based compensation expense | 290.6 |
|
Less: Interest expense | (1,850.0 | ) |
Less: Current income tax expense | (47.7 | ) |
Plus: Other income (expense), net | (73.1 | ) |
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) | 130.5 |
|
Change in assets and liabilities, net of assets acquired and liabilities assumed | 31.0 |
|
Net cash used for operating activities | $ | (14.0 | ) |
The maximum ratio permitted under this financial covenant for the four quarters ended December 31, 2016 was 8.75:1. At December 31, 2016, the ratio was 6.6:1.
In addition, the senior secured credit facilities include negative covenants that, subject to significant exceptions, limit iHeartCommunications' ability and the ability of its restricted subsidiaries to, among other things:
incur additional indebtedness;
create liens on assets;
engage in mergers, consolidations, liquidations and dissolutions;
sell assets;
pay dividends and distributions or repurchase iHeartCommunications' capital stock;
make investments, loans, or advances;
prepay certain junior indebtedness;
engage in certain transactions with affiliates;
amend material agreements governing certain junior indebtedness; and
change lines of business.
The senior secured credit facilities include certain customary representations and warranties, affirmative covenants and events of default, including payment defaults, breach of representations and warranties, covenant defaults, cross-defaults to certain indebtedness, certain events of bankruptcy, certain events under ERISA, material judgments, the invalidity of material provisions of the senior secured credit facilities documentation, the failure of collateral under the security documents for the senior secured credit facilities, the failure of the senior secured credit facilities to be senior debt under the subordination provisions of certain of iHeartCommunications' subordinated debt and a change of control. If an event of default occurs, the lenders under the senior secured credit facilities will be entitled to take various actions, including the acceleration of all amounts due under the senior secured credit facilities and all actions permitted to be taken by a secured creditor.
Receivables Based Credit Facility
On November 17, 2016, we incurred $100.0 million of additional borrowings under our receivables based credit facility. As of December 31, 2016, there was $330.0 million aggregate principal amount outstanding under iHeartCommunications' receivables based credit facility. On January 31, 2017, iHeartCommunications prepaid $25.0 million of the amount borrowed under its receivables based credit facility, bringing its total outstanding borrowings under this facility to $305.0 million.
The receivables based credit facility provides revolving credit commitments of $535.0 million, subject to a borrowing base. The borrowing base at any time equals 90% of the eligible accounts receivable of iHeartCommunications and certain of its subsidiaries. The receivables based credit facility includes a letter of credit sub-facility and a swingline loan sub-facility.
iHeartCommunications and certain subsidiary borrowers are the borrowers under the receivables based credit facility. iHeartCommunications has the ability to designate one or more of its restricted subsidiaries as borrowers under the receivables based credit facility. The receivables based credit facility loans are available in U.S. dollars and letters of credit are available in a variety of currencies including U.S. dollars, Euros, Pounds Sterling, and Canadian dollars.
Interest Rate and Fees
Borrowings under the receivables based credit facility bear interest at a rate per annum equal to an applicable margin plus, at iHeartCommunications' option, either (i) a base rate determined by reference to the highest of (a) the prime rate of Citibank, N.A. and (b) the Federal Funds rate plus 0.50% or (ii) a Eurocurrency rate determined by reference to the rate (adjusted for statutory reserve requirements for Eurocurrency liabilities) for Eurodollar deposits for the interest period relevant to such borrowing. The applicable margin for borrowings under the receivables based credit facility ranges from 1.50% to 2.00% for Eurocurrency borrowings and from 0.50% to 1.00% for base-rate borrowings, depending on average daily excess availability under the receivables based credit facility during the prior fiscal quarter.
In addition to paying interest on outstanding principal under the receivables based credit facility, iHeartCommunications is required to pay a commitment fee to the lenders under the receivables based credit facility in respect of the unutilized commitments thereunder. The commitment fee rate ranges from 0.25% to 0.375% per annum dependent upon average unused commitments during the prior quarter. iHeartCommunications must also pay customary letter of credit fees.
Maturity
Borrowings under the receivables based credit facility will mature, and lending commitments thereunder will terminate, on the fifth anniversary of the effectiveness of the receivables based credit facility, which is December 24, 2017.
Prepayments
If at any time the sum of the outstanding amounts under the receivables based credit facility exceeds the lesser of (i) the borrowing base and (ii) the aggregate commitments under the facility, iHeartCommunications will be required to repay outstanding loans and cash collateralize letters of credit in an aggregate amount equal to such excess. iHeartCommunications may voluntarily repay outstanding loans under the receivables based credit facility at any time without premium or penalty, other than customary “breakage” costs with respect to Eurocurrency rate loans. Any voluntary prepayments iHeartCommunications makes will not reduce its commitments under the receivables based credit facility.
Guarantees and Security
The facility is guaranteed by, subject to certain exceptions, the guarantors of iHeartCommunications' senior secured credit facilities. All obligations under the receivables based credit facility, and the guarantees of those obligations, are secured by a perfected security interest in all of iHeartCommunications' and all of the guarantors’ accounts receivable and related assets and proceeds thereof that is senior to the security interest of iHeartCommunications' senior secured credit facilities in such accounts receivable and related assets and proceeds thereof, subject to permitted liens, including prior liens permitted by the indenture governing certain of iHeartCommunications' legacy notes, and certain exceptions.
Certain Covenants and Events of Default
If borrowing availability is less than the greater of (a) $50.0 million and (b) 10% of the aggregate commitments under the receivables based credit facility, in each case, for five consecutive business days (a “Liquidity Event”), iHeartCommunications will be required to comply with a minimum fixed charge coverage ratio of at least 1.00 to 1.00 for fiscal quarters ending on or after the occurrence of the Liquidity Event, and will be continued to comply with this minimum fixed charge coverage ratio until borrowing availability exceeds the greater of (x) $50.0 million and (y) 10% of the aggregate commitments under the receivables based credit facility, in each case, for 30 consecutive calendar days, at which time the Liquidity Event shall no longer be deemed to be occurring. In addition, the receivables based credit facility includes negative covenants that, subject to significant exceptions, limit iHeartCommunications' ability and the ability of its restricted subsidiaries to, among other things:
incur additional indebtedness;
create liens on assets;
engage in mergers, consolidations, liquidations and dissolutions;
sell assets;
pay dividends and distributions or repurchase capital stock;
make investments, loans, or advances;
prepay certain junior indebtedness;
engage in certain transactions with affiliates;
amend material agreements governing certain junior indebtedness; and
change lines of business.
The receivables based credit facility includes certain customary representations and warranties, affirmative covenants and events of default, including payment defaults, breach of representations and warranties, covenant defaults, cross-defaults to certain indebtedness, certain events of bankruptcy, certain events under ERISA, material judgments and a change of control. If an event of default occurs, the lenders under the receivables based credit facility will be entitled to take various actions, including the acceleration of all amounts due under iHeartCommunications' receivables based credit facility and all actions permitted to be taken by a secured creditor.
9.0% Priority Guarantee Notes due 2019
As of December 31, 2016, iHeartCommunications had outstanding $2.0 billion aggregate principal amount of 9.0% priority guarantee notes due 2019 (the “9.0% Priority Guarantee Notes due 2019”).
The 9.0% Priority Guarantee Notes due 2019 mature on December 15, 2019 and bear interest at a rate of 9.0% per annum, payable semi-annually in arrears on June 15 and December 15 of each year. The 9.0% Priority Guarantee Notes due 2019 are iHeartCommunications' senior obligations and are fully and unconditionally guaranteed, jointly and severally, on a senior basis by the guarantors named in the indenture. The 9.0% Priority Guarantee Notes due 2019 and the guarantors’ obligations under the guarantees are secured by (i) a lien on (a) the capital stock of iHeartCommunications and (b) certain property and related assets that do not constitute “principal property” (as defined in the indenture governing certain Legacy Notes of iHeartCommunications), in each case equal in priority to the liens securing the obligations under iHeartCommunications' senior secured credit facilities, the 9.0% Priority Guarantee Notes due 2021, the 11.25% Priority Guarantee Notes due 2021, 9.0% Priority Guarantee Notes due 2022 and the 10.625% Priority Guarantee Notes due 2023, subject to certain exceptions, and (ii) a lien on the accounts receivable and related assets securing iHeartCommunications' receivables based credit facility junior in priority to the lien securing iHeartCommunications' obligations thereunder, subject to certain exceptions. In addition to the collateral granted to secure the 9.0% Priority Guarantee Notes due 2019, the collateral agent and the trustee for the 9.0% Priority Guarantee Notes due 2019 entered into an agreement with the administrative agent for the lenders under the senior secured credit facilities to turn over to the trustee under the 9.0% Priority Guarantee Notes due 2019, for the benefit of the holders of the 9.0% Priority Guarantee Notes due 2019, a pro rata share of any recovery received on account of the principal properties, subject to certain terms and conditions.
iHeartCommunications may redeem the 9.0% Priority Guarantee Notes due 2019, in whole or in part, at the redemption prices set forth in the indenture plus accrued and unpaid interest to the redemption date.
The indenture governing the 9.0% Priority Guarantee Notes due 2019 contains covenants that limit iHeartCommunications' 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) modify any of iHeartCommunications' existing senior notes; (iv) transfer or sell assets; (v) engage in certain transactions with affiliates; (vi) create restrictions on dividends or other payments by the restricted subsidiaries; and (vii) merge, consolidate or sell substantially all of iHeartCommunications' assets. The indenture contains covenants that limit iHeartMedia Capital I, LLC’s ability, iHeartCommunications’ ability and the ability of their restricted subsidiaries to, among other things: (i) create liens on assets and (ii) materially impair the value of the security interests taken with respect to the collateral for the benefit of the notes collateral agent and the holders of the 9.0% Priority Guarantee Notes due 2019. The indenture also provides for customary events of default.
9.0% Priority Guarantee Notes due 2021
As of December 31, 2016, iHeartCommunications had outstanding $1.75 billion aggregate principal amount of 9.0% priority guarantee notes due 2021 (the “9.0% Priority Guarantee Notes due 2021”).
The 9.0% Priority Guarantee Notes due 2021 mature on March 1, 2021 and bear interest at a rate of 9.0% per annum, payable semi-annually in arrears on March 1 and September 1 of each year. The 9.0% Priority Guarantee Notes due 2021 are iHeartCommunications' senior obligations and are fully and unconditionally guaranteed, jointly and severally, on a senior basis by the guarantors named in the indenture. The 9.0% Priority Guarantee Notes due 2021 and the guarantors’ obligations under the guarantees are secured by (i) a lien on (a) the capital stock of iHeartCommunications and (b) certain property and related assets that do not constitute “principal property” (as defined in the indenture governing certain Legacy Notes of iHeartCommunications), in each case equal in priority to the liens securing the obligations under iHeartCommunications' senior secured credit facilities, the 9.0% Priority Guarantee Notes due 2019, the 11.25% Priority Guarantee Notes due 2021, the 9.0% Priority Guarantee Notes due 2022 and the 10.625% Priority Guarantee Notes due 2023, subject to certain exceptions and (ii) a lien on the accounts receivable and related assets securing iHeartCommunications' receivables based credit facility junior in priority to the lien securing iHeartCommunications' obligations thereunder, subject to certain exceptions.
iHeartCommunications may redeem the 9.0% Priority Guarantee Notes due 2021, in whole or part, at the redemption prices set forth in the indenture plus accrued and unpaid interest to the redemption date.
The indenture governing the 9.0% Priority Guarantee Notes due 2021 contains covenants that limit iHeartCommunications' 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) modify any of iHeartCommunications' existing senior notes; (iv) transfer or sell assets; (v) engage in certain transactions with affiliates; (vi) create restrictions on dividends or other payments by the restricted subsidiaries; and (vii) merge, consolidate or sell substantially all of iHeartCommunications' assets. The indenture contains covenants that limit iHeartMedia Capital I, LLC’s ability, iHeartCommunications’ ability and the ability of their restricted subsidiaries to, among other things: (i) create liens on assets and (ii) materially impair the value of the security interests taken with respect to the collateral for the benefit of the notes collateral agent and the holders of the 9.0% Priority Guarantee Notes due 2021. The indenture also provides for customary events of default.
11.25% Priority Guarantee Notes due 2021
As of December 31, 2016, iHeartCommunications had outstanding $575.0 million aggregate principal amount of 11.25% Priority Guarantee Notes due 2021 (the “11.25% Priority Guarantee Notes due 2021”). On February 7, 2017, we completed an exchange offer of $476.4 million principal amount of our 10.0% Senior Notes due 2018 for $476.4 million principal amount of newly-issued 11.25% Priority Guarantee Notes due 2021, which were issued as “additional notes” under the indenture governing the 11.25% Priority Guarantee Notes due 2021. Of the $476.4 million principal amount of 11.25% Priority Guarantee Notes due 2021 issued in the exchange offer, $241.4 million principal amount was issued to subsidiaries of iHeartCommunications that exchanged 10.0% Senior Notes due 2018 in the exchange offer.
The 11.25% Priority Guarantee Notes due 2021 mature on March 1, 2021 and bear interest at a rate of 11.25% per annum, payable semi-annually in arrears on March 1 and September 1 of each year. The 11.25% Priority Guarantee Notes due 2021 are iHeartCommunications' senior obligations and are fully and unconditionally guaranteed, jointly and severally, on a senior basis by the guarantors named in the indenture governing such notes. The 11.25% Priority Guarantee Notes due 2021 and the guarantors’ obligations under the guarantees are secured by (i) a lien on (a) the capital stock of iHeartCommunications and (b) certain property and related assets that do not constitute “principal property” (as defined in the indenture governing certain Legacy Notes of iHeartCommunications), in each case equal in priority to the liens securing the obligations under iHeartCommunications' senior secured credit facilities, the 9.0% Priority Guarantee Notes due 2019, the 9.0% Priority Guarantee Notes due 2021, the 9.0% Priority Guarantee Notes due 2022 and the 10.625% Priority Guarantee Notes due 2023, subject to certain exceptions, and (ii) a lien on the accounts receivable and related assets securing iHeartCommunications' receivables based credit facility junior in priority to the lien securing iHeartCommunications' obligations thereunder, subject to certain exceptions.
iHeartCommunications may redeem the 11.25% Priority Guarantee Notes due 2021, in whole or in part, at the redemption prices set forth in the indenture plus accrued and unpaid interest to the redemption date.
The indenture governing the 11.25% Priority Guarantee Notes due 2021 contains covenants that limit iHeartCommunications' 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) modify any of iHeartCommunications' existing senior notes; (iv) transfer or sell assets; (v) engage in certain transactions with affiliates; (vi) create restrictions on dividends or other payments by the restricted subsidiaries; and (vii) merge, consolidate or sell substantially all of iHeartCommunications' assets. The indenture contains covenants that limit iHeartMedia Capital I, LLC’s ability, iHeartCommunications’ ability and the ability of their restricted subsidiaries to, among other things: (i) create liens on assets and (ii) materially impair the value of the security interests taken with respect to the collateral for the benefit of the notes collateral agent and the holders of the 11.25% Priority Guarantee Notes due 2021. The indenture also provides for customary events of default.
9.0% Priority Guarantee Notes due 2022
As of December 31, 2016, iHeartCommunications had outstanding $1.0 billion aggregate principal amount of 9.0% priority guarantee notes due 2022 (the “9.0% Priority Guarantee Notes due 2022”).
The 9.0% Priority Guarantee Notes due 2022 mature on September 15, 2022 and bear interest at a rate of 9.0% per annum, payable semi-annually in arrears on March 15 and September 15 of each year. The 9.0% Priority Guarantee Notes due 2022 are iHeartCommunications senior obligations and are fully and unconditionally guaranteed, jointly and severally, on a senior basis by the guarantors named in the indenture. The 9.0% Priority Guarantee Notes due 2022 and the guarantors’ obligations under the guarantees are secured by (i) a lien on (a) the capital stock of iHeartCommunications and (b) certain property and related assets that do not constitute “principal property” (as defined in the indenture governing certain Legacy Notes of iHeartCommunications), in each case equal in priority to the liens securing the obligations under iHeartCommunications' senior secured credit facilities, the 9.0% Priority Guarantee Notes due 2019, the 9.0% Priority Guarantee Notes due 2021, the 11.25% Priority Guarantee Notes due 2021 and the 10.625% Priority Guarantee Notes due 2023, subject to certain exceptions, and (ii) a lien on the accounts receivable and related assets securing iHeartCommunications' receivables based credit facility junior in priority to the lien securing iHeartCommunications' obligations thereunder, subject to certain exceptions.
iHeartCommunications may redeem the 9.0% Priority Guarantee Notes due 2022 at its option, in whole or part, at any time prior to September 15, 2017, at a price equal to 100% of the principal amount of the 9.0% Priority Guarantee Notes due 2022 redeemed, plus accrued and unpaid interest to the redemption date and plus an applicable premium. iHeartCommunications may redeem the 9.0% Priority Guarantee Notes due 2022, in whole or in part, on or after September 15, 2017, at the redemption prices set forth in the indenture plus accrued and unpaid interest to the redemption date. At any time on or before September 15, 2017, iHeartCommunications may elect to redeem up to 40% of the aggregate principal amount of the 9.0% Priority Guarantee Notes due 2022 at a redemption price equal to 109.0% of the principal amount thereof, plus accrued and unpaid interest to the redemption date, with the net proceeds of one or more equity offerings.
The indenture governing the 9.0% Priority Guarantee Notes due 2022 contains covenants that limit iHeartCommunications' 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) modify any of iHeartCommunications' existing senior notes; (iv) transfer or sell assets; (v) engage in certain transactions with affiliates; (vi) create restrictions on dividends or other payments by the restricted subsidiaries; and (vii) merge, consolidate or sell substantially all of iHeartCommunications' assets. The indenture contains covenants that limit iHeartMedia Capital I, LLC’s ability, iHeartCommunications’ ability and the ability of their restricted subsidiaries to, among other things: (i) create liens on assets and (ii) materially impair the value of the security interests taken with respect to the collateral for the benefit of the notes collateral agent and the holders of the 9.0% Priority Guarantee Notes due 2022. The indenture also provides for customary events of default.
10.625% Priority Guarantee Notes due 2023
As of December 31, 2016, iHeartCommunications had outstanding $950.0 million aggregate principal amount of 10.625% priority guarantee notes due 2023 (the “10.625% Priority Guarantee Notes due 2023”).
The 10.625% Priority Guarantee Notes due 2023 mature on March 15, 2023 and bear interest at a rate of 10.625% per annum, payable semi-annually in arrears on March 15 and September 15 of each year. The 10.625% Priority Guarantee Notes due 2023 are iHeartCommunications' senior obligations and are fully and unconditionally guaranteed, jointly and severally, on a senior basis by the guarantors named in the indenture. The 10.625% Priority Guarantee Notes due 2023 and the guarantors’ obligations under the guarantees are secured by (i) a lien on (a) the capital stock of iHeartCommunications and (b) certain property and related
assets that do not constitute “principal property” (as defined in the indenture governing certain Legacy Notes of iHeartCommunications), in each case equal in priority to the liens securing the obligations under iHeartCommunications' senior secured credit facilities, the 9.0% Priority Guarantee Notes due 2019, the 9.0% Priority Guarantee Notes due 2021, the 11.25% Priority Guarantee Notes due 2021 and the 9.0% Priority Guarantee Notes due 2022, subject to certain exceptions, and (ii) a lien on the accounts receivable and related assets securing iHeartCommunications' receivables based credit facility junior in priority to the lien securing iHeartCommunications' obligations thereunder, subject to certain exceptions.
iHeartCommunications may redeem the 10.625% Priority Guarantee Notes due 2023 at its option, in whole or part, at any time prior to March 15, 2018, at a price equal to 100% of the principal amount of the 10.625% Priority Guarantee Notes due 2023 redeemed, plus accrued and unpaid interest to the redemption date and plus an applicable premium. iHeartCommunications may redeem the 10.625% Priority Guarantee Notes due 2023, in whole or in part, on or after March 15, 2018, at the redemption prices set forth in the indenture plus accrued and unpaid interest to the redemption date. At any time on or before March 15, 2018, iHeartCommunications may elect to redeem up to 40% of the aggregate principal amount of the 10.625% Priority Guarantee Notes due 2023 at a redemption price equal to 110.625% of the principal amount thereof, plus accrued and unpaid interest to the redemption date, with the net proceeds of one or more equity offerings.
The indenture governing the 10.625% Priority Guarantee Notes due 2023 contains covenants that limit iHeartCommunications' 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) modify any of iHeartCommunications' existing senior notes; (iv) transfer or sell assets; (v) engage in certain transactions with affiliates; (vi) create restrictions on dividends or other payments by the restricted subsidiaries; and (vii) merge, consolidate or sell substantially all of iHeartCommunications' assets. The indenture contains covenants that limit iHeartMedia Capital I, LLC’s ability, iHeartCommunications’ ability and the ability of their restricted subsidiaries to, among other things: (i) create liens on assets and (ii) materially impair the value of the security interests taken with respect to the collateral for the benefit of the notes collateral agent and the holders of the 10.625% Priority Guarantee Notes due 2023. The indenture also provides for customary events of default.
Subsidiary Senior Revolving Credit Facility due 2018
During the third quarter of 2013, CCOH 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. At December 31, 2016, there were no amounts outstanding under the revolving credit facility, and $65.4 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 CCOH 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 as of the end of the quarter. CCOH was in compliance with the secured leverage ratio covenant as of December 31, 2016.
14.0% Senior Notes due 2021
As of December 31, 2016, iHeartCommunications had outstanding approximately $1.7 billion of aggregate principal amount of 14.0% Senior Notes due 2021 (net of $440.6 million principal amount held by a subsidiary of iHeartCommunications).
On October 4, 2016, iHeartCommunications announced the successful completion of the solicitation of consents (the "Consent Solicitation") from holders of its outstanding Senior Notes due 2021 (the "2021 Notes") to an amendment to the indenture governing the 2021 Notes (the "2021 Notes Indenture") to increase the aggregate principal amount of indebtedness under Credit Facilities (as defined in the 2021 Notes Indenture) permitted to be incurred under Section 4.09(b)(1) of the 2021 Notes Indenture by $500.0 million to $17.3 billion. iHeartCommunications paid an aggregate consent fee of $8.6 million to holders of the 2021 Notes that consented to the amendment in accordance with the terms of the Consent Solicitation.
On December 12, 2016, iHeartCommunications announced the results and expiration of the six separate consent solicitations (the "Consent Solicitations") with respect to its 2021 Notes and its five series of priority guarantee notes. Holders of 2021 Notes representing approximately 81.5% of the outstanding principal amount of the 2021 Notes (excluding any 2021 Notes held by the Company or its affiliates), consented to the proposed amendment (the "Proposed Amendment") to Section 9.07 of the indenture governing the 2021 Notes Indenture. The Proposed Amendment allows the Company to exclude, in any offer to consent, waive or amend any of the terms or provisions of the 2021 Notes Indenture or the Senior Notes in connection with an exchange offer, any holders of Notes who are not institutional "accredited investors," who are not non-"U.S. persons", or those in foreign jurisdictions whose inclusion would require the Company to comply with the registration requirements or other similar requirements under any securities laws of such foreign jurisdiction or would be unlawful. iHeartCommunications paid an aggregate consent fee of $1.7 million to holders of the 2021 Notes that consented to the amendment in accordance with the terms of the Consent Solicitation
and will pay a contingent fee of $2.6 million to such holders upon the completion of an exchange offer in which the Company relies on the changes effected by the Proposed Amendment.
The 14% Senior Notes due 2021 mature on February 1, 2021. Interest on the 14% Senior Notes due 2021 is payable semi-annually on February 1 and August 1 of each year. Interest on the 14% Senior Notes due 2021 will be paid at the rate of (i) 12.0% per annum in cash and (ii) 2.0% per annum through the issuance of payment-in-kind notes (the “PIK Notes”). Any PIK Notes issued in certificated form will be dated as of the applicable interest payment date and will bear interest from and after such date. All PIK Notes issued will mature on February 1, 2021 and have the same rights and benefits as the 14% Senior Notes due 2021. Beginning with the interest payment due August 1, 2018 and continuing on each interest payment date thereafter, redemptions of a portion of the principal amount then outstanding will become due for purposes of applicable high yield discount obligation (“AHYDO”) catch-up payments.
The 14% Senior Notes due 2021 are fully and unconditionally guaranteed on a senior basis by the guarantors named in the indenture governing such notes. The guarantee is structurally subordinated to all existing and future indebtedness and other liabilities of any subsidiary of the applicable subsidiary guarantor that is not also a guarantor of the Senior Notes due 2021. The guarantees are subordinated to the guarantees of iHeartCommunications' senior secured credit facility and certain other permitted debt, but rank equal to all other senior indebtedness of the guarantors.
iHeartCommunications may redeem the 14% Senior Notes due 2021, in whole or in part at the redemption prices set forth in the indenture plus accrued and unpaid interest to the redemption date.
The indenture governing the 14% Senior Notes due 2021 contains covenants that limit iHeartCommunications' ability and the ability of its restricted subsidiaries to, among other things: (i) incur additional indebtedness or issue certain preferred stock; (ii) pay dividends on, or make distributions in respect of, iHeartCommunications' capital stock or repurchase iHeartCommunications' capital stock; (iii) make certain investments or other restricted payments; (iv) sell certain assets; (v) create liens or use assets as security in other transactions; (vi) merge, consolidate or transfer or dispose of substantially all of iHeartCommunications' assets; (vii) engage in transactions with affiliates; and (viii) designate iHeartCommunications' subsidiaries as unrestricted subsidiaries.
iHeartCommunications Legacy Notes
As of December 31, 2016, iHeartCommunications had approximately $475.0 million aggregate principal amount of senior notes outstanding (net of $57.1 million aggregate principal amount held by a subsidiary of iHeartCommunications). In December 2016, iHeartCommunications repaid at maturity $192.9 million of 5.5% Senior Notes due 2016 and did not pay $57.1 million of the notes held by a subsidiary of iHeartCommunications. Although the non-payment of the $57.1 million of 5.50% Senior Notes due 2016 is a default under the indenture governing the 5.50% Senior Notes due 2016 (the “legacy notes indenture”), the subsidiary that holds the notes informed us that, while it retains its right to exercise remedies under the legacy notes indenture in the future, it does not currently intend to, and it does not currently intend to request that the trustee, seek to collect principal amounts due or exercise or request enforcement of any remedy with respect to the nonpayment of such principal amount under the legacy notes indenture. The default resulting from non-payment of the $57.1 million of 5.50% Senior Notes is below the $100.0 million cross-default threshold in iHeartCommunications' debt documents. See “-Non-Payment of $57.1 Million of iHeartCommunications Legacy Notes Held by an Affiliate.” The $57.1 million of aggregate principal amount remains outstanding and is eliminated for purposes of consolidation of in our financial statements.
The senior notes were the obligations of iHeartCommunications prior to the merger in 2008. The senior notes are senior, unsecured obligations that are effectively subordinated to iHeartCommunications' secured indebtedness to the extent of the value of iHeartCommunications' assets securing such indebtedness and are not guaranteed by any of iHeartCommunications' subsidiaries and, as a result, are structurally subordinated to all indebtedness and other liabilities of iHeartCommunications' subsidiaries. The senior notes rank equally in right of payment with all of iHeartCommunications' existing and future senior indebtedness and senior in right of payment to all existing and future subordinated indebtedness.
10.0% Senior Notes due 2018
As of December 31, 2016, iHeartCommunications had outstanding $347.0 million aggregate principal amount of 10.0% Senior Notes due 2018 (net of $503.0 million aggregate principal amount held by certain subsidiaries of iHeartCommunications). On February 7, 2017, we completed an exchange offer of $476.4 million principal amount of our 10.0% Senior Notes due 2018 for $476.4 million principal amount of newly-issued 11.25% Priority Guarantee Notes due 2021, which were issued as “additional notes” under the indenture governing the 11.25% Priority Guarantee Notes due 2021. Of the $476.4 million principal amount of 10.0% Senior Notes due 2018 tendered and accepted for exchange, $241.4 million principal amount was tendered by subsidiaries of iHeartCommunications. After giving effect to the exchange offer, iHeartCommunications had outstanding $112.1 million
aggregate principal amount of 10.0% Senior Notes due 2018 (net of $261.5 million aggregate principal amount held by certain subsidiaries of iHeartCommunications). The 10.0% Senior Notes due 2018 mature on January 15, 2018 and bear interest at a rate of 10.0% per annum, payable semi-annually on January 15 and July 15 of each year.
The 10.0% Senior Notes due 2018 are senior, unsecured obligations that are effectively subordinated to iHeartCommunications' secured indebtedness to the extent of the value of iHeartCommunications' assets securing such indebtedness and are not guaranteed by any of iHeartCommunications' subsidiaries and, as a result, are structurally subordinated to all indebtedness and other liabilities of iHeartCommunications' subsidiaries. The 10.0% Senior Notes due 2018 rank equally in right of payment with all of iHeartCommunications' existing and future senior indebtedness and senior in right of payment to all existing and future subordinated indebtedness.
CCWH Senior Notes
As of December 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 Series A Senior Notes due 2022 (the “Series A CCWH Senior Notes”) and $1,989.25 million aggregate principal amount of Series B CCWH Senior Notes due 2022 (the “Series B CCWH Senior Notes”). The CCWH Senior Notes are guaranteed by CCOH, Clear Channel Outdoor, Inc. (“CCOI”) and certain of CCOH’s direct and indirect subsidiaries.
The CCWH Senior Notes are senior obligations that rank pari passu in right of payment to all unsubordinated indebtedness of CCWH and the guarantees of the CCWH Senior Notes rank pari passu in right of payment to all unsubordinated indebtedness of the guarantors. Interest on the CCWH Senior Notes is payable to the trustee weekly in arrears and to the noteholders on May 15 and November 15 of each year.
At any time prior to November 15, 2017, CCWH may redeem the CCWH Senior Notes, in whole or in part, at a price equal to 100% of the principal amount of the CCWH Senior Notes plus a “make-whole” premium, together with accrued and unpaid interest, if any, to the redemption date. CCWH may redeem the CCWH Senior Notes, in whole or in part, on or after November 15, 2017, at the redemption prices set forth in the applicable indenture governing the CCWH Senior Notes plus accrued and unpaid interest to the redemption date. Notwithstanding the foregoing, neither CCOH nor any of its subsidiaries is permitted to make any purchase of, or otherwise effectively cancel or retire any Series A CCWH Senior Notes or Series B CCWH Senior Notes if, after giving effect thereto and, if applicable, any concurrent purchase of or other addition with respect to any Series B CCWH Senior Notes or Series A CCWH Senior Notes, as applicable, the ratio of (a) the outstanding aggregate principal amount of the Series A CCWH Senior Notes to (b) the outstanding aggregate principal amount of the Series B CCWH Senior Notes shall be greater than 0.25, subject to certain exceptions.
The indenture governing the Series A CCWH Senior Notes contains covenants that limit CCOH and its restricted subsidiaries ability to, among other things:
incur or guarantee additional debt to persons other than iHeartCommunications and its subsidiaries (other than CCOH) or issue certain preferred stock;
create liens on its restricted subsidiaries’ assets to secure such debt;
create restrictions on the payment of dividends or other amounts to CCOH from its restricted subsidiaries that are not guarantors of the CCWH Senior Notes;
enter into certain transactions with affiliates; and
merge or consolidate with another person, or sell or otherwise dispose of all or substantially all of its assets.
In addition, the indenture governing the Series A CCWH Senior Notes provides that if CCWH (i) makes an optional redemption of the Series B CCWH Senior Notes or purchases or makes an offer to purchase the Series B CCWH Senior Notes at or above 100% of the principal amount thereof, then CCWH shall apply a pro rata amount to make an optional redemption or purchase a pro rata amount of the Series A CCWH Senior Notes or (ii) makes an asset sale offer under the indenture governing the Series B CCWH Senior Notes, then CCWH shall apply a pro rata amount to make an offer to purchase a pro rata amount of Series A CCWH Senior Notes.
The indenture governing the Series A CCWH Senior Notes does not include limitations on dividends, distributions, investments or asset sales.
The indenture governing the Series B CCWH Senior Notes contains covenants that limit CCOH and its restricted subsidiaries ability to, among other things:
incur or guarantee additional debt or issue certain preferred stock;
redeem, repurchase or retire CCOH’s subordinated debt;
make certain investments;
create liens on its or its restricted subsidiaries’ assets to secure debt;
create restrictions on the payment of dividends or other amounts to it from its restricted subsidiaries that are not guarantors of the CCWH Senior Notes;
enter into certain transactions with affiliates;
merge or consolidate with another person, or sell or otherwise dispose of all or substantially all of its assets;
sell certain assets, including capital stock of its subsidiaries;
designate its subsidiaries as unrestricted subsidiaries; and
pay dividends, redeem or repurchase capital stock or make other restricted payments.
The Series A CCWH Senior Notes indenture and Series B CCWH Senior Notes indenture restrict CCOH’s ability to incur additional indebtedness but permit CCOH to incur additional indebtedness based on an incurrence test. In order to incur (i) additional indebtedness under this test, CCOH’s 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 (ii) additional indebtedness that is subordinated to the CCWH Senior Notes under this test, CCOH’s debt to adjusted EBITDA ratios (as defined by the indentures) must be lower than 7.0:1 for total debt. The indentures contain certain other exceptions that allow CCOH to incur additional indebtedness. The Series B CCWH Senior Notes indenture also permits CCOH to pay dividends from the proceeds of indebtedness or the proceeds from asset sales if its debt to adjusted EBITDA ratios (as defined by the indentures) are lower than 7.0:1 and 5.0:1 for total debt and senior debt, respectively. The Series A CCWH Senior Notes indenture does not limit CCOH’s ability to pay dividends. Because our consolidated leverage ratio exceeded the limit in the incurrence tests described above, we are not currently permitted to incur additional indebtedness using the incurrence test in the Series A CCWH Senior Notes indenture and the Series B CCWH Senior Notes indenture, and we are not currently permitted to pay dividends from the proceeds of indebtedness or the excess proceeds from asset sales under the Series B CCWH Senior Notes indenture. There are other exceptions in these indentures that allow us to incur additional indebtedness and pay dividends. The exceptions in the Series B CCWH Senior Notes indenture that allow us to pay dividends include (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 CCOH.
CCWH Senior Subordinated Notes
As of December 31, 2016, CCWH Subordinated Notes represented $2.2 billion of 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”). Interest on the CCWH Subordinated Notes is payable to the trustee weekly in arrears and to the noteholders on March 15 and September 15 of each year.
The CCWH Subordinated Notes are CCWH’s senior subordinated obligations and are fully and unconditionally guaranteed, jointly and severally, on a senior subordinated basis by CCOH, CCOI and certain of CCOH’s other domestic subsidiaries. The CCWH Subordinated Notes are unsecured senior subordinated obligations that rank junior to all of CCWH’s existing and future senior debt, including the CCWH Senior Notes, equally with any of CCWH’s existing and future senior subordinated debt and ahead of all of CCWH’s existing and future debt that expressly provides that it is subordinated to the CCWH Subordinated Notes. The guarantees of the CCWH Subordinated Notes rank junior to each guarantor’s existing and future senior debt, including the CCWH Senior Notes, equally with each guarantor’s existing and future senior subordinated debt and ahead of each guarantor’s existing and future debt that expressly provides that it is subordinated to the guarantees of the CCWH Subordinated Notes.
CCWH may redeem the CCWH Subordinated Notes, in whole or in part, at the redemption prices set forth in the applicable indenture governing the CCWH Subordinated Notes plus accrued and unpaid interest to the redemption date. Neither CCOH nor any of its subsidiaries is permitted to make any purchase of, or otherwise effectively cancel or retire any Series A CCWH Subordinated Notes or Series B CCWH Subordinated Notes if, after giving effect thereto and, if applicable, any concurrent purchase of or other addition with respect to any Series B CCWH Subordinated Notes or Series A CCWH Subordinated Notes, as applicable, the ratio of (a) the outstanding aggregate principal amount of the Series A CCWH Subordinated Notes to (b) the outstanding aggregate principal amount of the Series B CCWH Subordinated Notes shall be greater than 0.25, subject to certain exceptions.
The indenture governing the Series A CCWH Subordinated Notes contains covenants that limit CCOH and its restricted subsidiaries ability to, among other things:
incur or guarantee additional debt to persons other than iHeartCommunications and its subsidiaries (other than CCOH) or issue certain preferred stock;
create restrictions on the payment of dividends or other amounts to CCOH from its restricted subsidiaries that are not guarantors of the notes;
enter into certain transactions with affiliates; and
merge or consolidate with another person, or sell or otherwise dispose of all or substantially all of CCOH’s assets.
In addition, the indenture governing the Series A CCWH Subordinated Notes provides that if CCWH (i) makes an optional redemption of the Series B CCWH Subordinated Notes or purchases or makes an offer to purchase the Series B CCWH Subordinated Notes at or above 100% of the principal amount thereof, then CCWH shall apply a pro rata amount to make an optional redemption or purchase a pro rata amount of the Series A CCWH Subordinated Notes or (ii) makes an asset sale offer under the indenture governing the Series B CCWH Subordinated Notes, then CCWH shall apply a pro rata amount to make an offer to purchase a pro rata amount of Series A CCWH Subordinated Notes.
The indenture governing the Series A CCWH Subordinated Notes does not include limitations on dividends, distributions, investments or asset sales.
The indenture governing the Series B CCWH Subordinated Notes contains covenants that limit CCOH and its restricted subsidiaries ability to, among other things:
incur or guarantee additional debt or issue certain preferred stock;
make certain investments;
create restrictions on the payment of dividends or other amounts to CCOH from its restricted subsidiaries that are not guarantors of the notes;
enter into certain transactions with affiliates;
merge or consolidate with another person, or sell or otherwise dispose of all or substantially all of CCOH’s assets;
sell certain assets, including capital stock of CCOH’s subsidiaries;
designate CCOH’s subsidiaries as unrestricted subsidiaries; and
pay dividends, redeem or repurchase capital stock or make other restricted payments.
The Series A CCWH Subordinated Notes indenture and Series B CCWH Subordinated Notes indenture restrict CCOH’s ability to incur additional indebtedness but permit CCOH to incur additional indebtedness based on an incurrence test. In order to incur additional indebtedness under this test, CCOH’s 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 CCOH to incur additional indebtedness. The Series B CCWH Subordinated Notes indenture also permits CCOH to pay dividends from the proceeds of indebtedness or the proceeds from asset sales if its debt to adjusted EBITDA ratio (as defined by the indentures) is lower than 7.0:1. The Series A CCWH Senior Subordinated Notes indenture does not limit CCOH’s ability to pay dividends. Because our consolidated leverage ratio exceeded the limit in the incurrence tests described above, we are not currently permitted to incur additional indebtedness using the incurrence test in the Series A CCWH Subordinated Notes indenture and the Series B CCWH Subordinated Notes indenture, and we are not currently permitted to pay dividends from the proceeds of indebtedness or the excess proceeds from asset sales under the Series B CCWH Subordinated Notes indenture. There are other exceptions in these indentures that allow us to incur additional indebtedness and pay dividends. The exceptions in the Series B CCWH Subordinated Notes indenture that allow us to pay dividends include (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 CCOH.
Clear Channel International B.V. Senior Notes
As of December 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 CCIBV Senior Notes mature on December 15, 2020 and bear interest at a rate of 8.75% per annum, payable semi-annually in arrears on June 15 and December 15 of each year. The CCIBV Senior Notes are guaranteed by certain of our International outdoor business’s existing and future subsidiaries. The Company does not guarantee or otherwise assume any liability for the CCIBV Senior Notes. The notes are senior unsecured obligations that rank pari passu in right of payment to all unsubordinated indebtedness of CCIBV, and the guarantees of the notes are senior unsecured obligations that rank pari passu in right of payment to all unsubordinated indebtedness of the guarantors of the notes.
Clear Channel International B.V. may redeem the notes at its option, in whole or part, at any time prior to December 15, 2017, at a price equal to 100% of the principal amount of the notes redeemed, plus a make-whole premium, plus accrued and unpaid interest to the redemption date. Clear Channel International B.V. may redeem the notes, in whole or in part, on or after December 15, 2017, at the redemption prices set forth in the indenture plus accrued and unpaid interest to the redemption date.
At any time on or before December 15, 2017, Clear Channel International B.V. may elect to redeem up to 40% of the aggregate principal amount of the notes at a redemption price equal to 108.75% of the principal amount thereof, plus accrued and unpaid interest to the redemption date, with the net proceeds of one or more equity offerings.
The indenture governing the 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 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 Clear Channel International B.V.’s assets.
Refinancing and Financing Transactions
2016 Refinancing and Financing Transactions
On July 15, 2016, Broader Media, LLC, our indirect wholly-owned subsidiary, repurchased approximately $383.0 million aggregate principal amount of iHeartCommunications' 10.0% Senior Notes due 2018 for an aggregate purchase price of approximately $222.2 million. Principal and interest payments made to our wholly-owned subsidiary are eliminated in consolidation.
On November 17, 2016, iHeartCommunications incurred $100.0 million of additional borrowings under its receivables based credit facility, bringing its total outstanding borrowings under this facility to $330.0 million. On January 31, 2017, iHeartCommunications prepaid $25.0 million of the amount borrowed under its receivables based credit facility, bringing its total outstanding borrowings under this facility to $305.0 million.
On December 20, 2016, iHeartCommunications commenced an offer to noteholders to exchange its 10.0% Senior Notes due 2018 for newly-issued 11.25% Priority Guarantee Notes which were issued as “additional notes” under the indenture governing iHeartCommunications' existing 11.25% Priority Guarantee Notes due 2021. On February 7, 2017, we completed the exchange offer and issued $476.4 million aggregate principal amount of 11.25% Priority Guarantee Notes due 2021 (including $241.4 million aggregate principal amount to certain subsidiaries of iHeartCommunications) to tendering holders in exchange for their $476.4 million principal amount of our 10.0% Senior Notes due 2018.
2015 Refinancing and Financing Transactions
On February 26, 2015, iHeartCommunications issued at par $950.0 million aggregate principal amount of 10.625% Priority Guarantee Notes due 2023 and used the net proceeds from the offering primarily to prepay its term loan facilities due 2016.
On December 16, 2015, Clear Channel International B.V. (“CCIBV”), an indirect subsidiary of the Company, issued $225.0 million in aggregate principal amount of 8.75% Senior Notes due 2020.
CCIBV used the net proceeds of the notes, together with cash on hand, to make a loan to its direct parent company, which used the proceeds to repay a loan and make a distribution to its parent company, which, in turn, made indirect distributions to CCOH. CCOH used the proceeds of the distribution to fund a special cash dividend paid on January 7, 2016 in an aggregate amount equal to approximately $217.8 million to its stockholders. We received $196.3 million of the dividend through three of our wholly-owned subsidiaries.
2014 Refinancing Transactions
On February 14, 2014, CC Finco, an indirect wholly-owned subsidiary of ours, sold $227.0 million in aggregate principal amount of 14.0% Senior Notes due 2021 issued by iHeartCommunications to private purchasers in a transaction exempt from registration under the Securities Act of 1933, as amended. This $227.0 million in aggregate principal amount of 14.0% Senior Notes due 2021, which was previously eliminated in consolidation because the notes were held by a subsidiary, is now reflected on our consolidated balance sheet. CC Finco contributed the net proceeds from the sale of the 14.0% Senior Notes due 2021 to iHeartCommunications.
On May 1, 2014, CCU Escrow Corporation issued $850.0 million in aggregate principal amount of 10.0% Senior Notes due 2018 in a private offer. On June 6, 2014, CCU Escrow Corporation merged into iHeartCommunications, and iHeartCommunications assumed CCU Escrow Corporation’s obligations under the 10.0% Senior Notes due 2018. Using the proceeds from the issuance of the 10.0% Senior Notes due 2018, iHeartCommunications redeemed $567.1 million aggregate principal amount of iHeartCommunications' 5.5% Senior Notes due 2014 (including $158.5 million principal amount of the notes held by a subsidiary of iHeartCommunications) and $241.0 million aggregate principal amount of iHeartCommunications' 4.9% Senior Notes due 2015.
On August 22, 2014, iHeartCommunications issued and sold $222.2 million in aggregate principal amount of new 14.0% Senior Notes due 2021 to CC Finco in a transaction exempt from registration under the Securities Act of 1933, as amended. The new 14.0% Senior Notes due 2021 were issued as additional notes under the indenture governing iHeartCommunications' existing 14.0% Senior Notes due 2021. On August 22, 2014, iHeartCommunications redeemed all of the outstanding $94.3 million aggregate principal amount of 10.75% Senior Cash Pay Notes due 2016 and $127.9 million aggregate principal amount of 11.00%/11.75% Senior Toggle Notes due 2016 using proceeds of the issuance of the new 14.0% Senior Notes due 2021.
On September 10, 2014, iHeartCommunications issued and sold $750.0 million in aggregate principal amount of 9% Priority Guarantee Notes due 2022 and used the net proceeds of such issuance to prepay at par $729.0 million of the loans outstanding under its term loan B facility and $12.1 million of the loans outstanding under its term loan C-asset sale facility, and to pay accrued and unpaid interest with regard to such loans to, but not including, the date of prepayment.
On September 29, 2014, iHeartCommunications issued an additional $250.0 million in aggregate principal amount of 9% Priority Guarantee Notes due 2022 and used the proceeds of such issuance to prepay at par $245.9 million of loans outstanding under its term loan B facility and $4.1 million of loans outstanding under its term loan C-asset sale facility, and to pay accrued and unpaid interest with regard to such loans to, but not including, the date of repayment.
Dispositions and Other
2016
In the first quarter of 2016, Americas outdoor sold 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 $592.3 million in cash and certain advertising assets in Florida. We recognized a net gain of $278.3 million related to the sale, which is included within Other operating income (expense), net.
In the second quarter of 2016, International outdoor sold its business in Turkey. As a result, we recognized a net loss of $56.6 million, which includes $32.2 million in cumulative translation adjustments that were recognized upon sale of the subsidiaries in Turkey.
In the fourth quarter of 2016, International outdoor sold its business in Australia, for cash proceeds of $195.7 million, net of cash retained by the purchaser and closing costs. As a result, we recognized a net gain of $127.6 million, which is net of $14.6 million in cumulative translation adjustments that were recognized upon the sale of our outdoor business in Australia.
2015
During the first quarter of 2015, the Company sold two office buildings located in San Antonio, Texas for $34.3 million. Concurrently with the sale of these properties, the Company entered into lease agreements for the continued use of the buildings, pursuant to which the Company will have annual lease payments of $2.6 million. The Company recognized a gain of $8.1 million on the sale of one of the buildings, which is being recognized over the term of the lease.
During 2015, we entered into a sale-leaseback arrangement, in which we sold 376 of our broadcast communication tower sites and related assets for $369.9 million. Simultaneous with the sales, we entered into lease agreements for the continued use of space on 367 of the towers sold. Upon completion of the transactions, we realized a net gain of $210.6 million, of which $109.0 million was deferred and will be recognized over the lease term. The Company incurred $13.3 million in operating lease expense in relation to these agreements in the year ended December 31, 2015. On January 15, 2016, we and certain of our subsidiaries completed the final closing for the sale of six of the Company’s broadcast communication tower sites and related assets for approximately $5.5 million. Simultaneous with the sales, we entered into lease agreements for the continued use of tower space. The leases entered into as a part of these transactions are for a term of fifteen years and include three optional five-year renewal periods.
2014
During 2014, the Company sold its 50% interest in Australian Radio Network (“ARN”), an Australian company that owns and operates radio stations in Australia and New Zealand. An impairment charge of $95.4 million was recorded during the fourth quarter of 2013 to write down the investment to its estimated fair value. Upon sale of ARN, the Company recognized a loss of $2.4 million and $11.5 million of foreign exchange losses, which were reclassified from accumulated other comprehensive income.
During 2014, our International outdoor segment sold its 50% interest in Buspak, a bus advertising company in Hong Kong and recognized a gain on sale of $4.5 million.
Uses of Capital
Debt Repurchases, Maturities and Other
2016
On July 15, 2016, Broader Media, LLC, our indirect wholly-owned subsidiary, repurchased approximately $383.0 million aggregate principal amount of iHeartCommunications' 10.0% Senior Notes due 2018 for an aggregate purchase price of approximately $222.2 million. Principal and interest payments made to our wholly-owned subsidiary are eliminated in consolidation.
On October 4, 2016, iHeartCommunications announced the successful completion of the solicitation of consents (the “Consent Solicitation”) from holders of its outstanding Senior Notes due 2021 (the “2021 Notes”) to an amendment to the indenture governing the 2021 Notes (the “2021 Notes Indenture”) to increase the aggregate principal amount of indebtedness under Credit Facilities (as defined in the 2021 Notes Indenture) permitted to be incurred under Section 4.09(b)(1) of the indenture by $500.0 million to $17.3 billion. iHeartCommunications paid an aggregate consent fee of $8.6 million to holders of the 2021 Notes that consented to the amendment in accordance with the terms of the Consent Solicitation.
On December 12, 2016, iHeartCommunications announced the results and expiration of the six separate consent solicitations (the "Consent Solicitations") with respect to its 2021 Notes and its five series of priority guarantee notes. Holders of 2021 Notes representing approximately 81.5% of the outstanding principal amount of the 2021 Notes (excluding any 2021 Notes held by the Company or its affiliates), consented to the proposed amendment (the "Proposed Amendment") to Section 9.07 of the indenture governing the 2021 Notes Indenture. The Proposed Amendment allows the Company to exclude, in any offer to consent, waive or amend any of the terms or provisions of the 2021 Notes Indenture or the Senior Notes in connection with an exchange offer, any holders of Notes who are not institutional “accredited investors,” who are not non-“U.S. persons”, or those in foreign jurisdictions whose inclusion would require the Company to comply with the registration requirements or other similar requirements under any securities laws of such foreign jurisdiction or would be unlawful. iHeartCommunications paid an aggregate consent fee of $1.7 million to holders of the 2021 Notes that consented to the amendment in accordance with the terms of the Consent Solicitation and will pay a contingent fee of $2.6 million to such holders upon the completion of an exchange offer in which the Company relies on the changes effected by the Proposed Amendment.
iHeartCommunications also announced the expiration of its consent solicitations with respect to its five series of priority guarantee notes. Because iHeartCommunications did not receive consents from holders representing a majority of the aggregate principal amount of each of its five series of priority guarantee notes outstanding, the Proposed Amendment was not effected with respect to the priority guarantee notes and no fixed fee or contingent fee will be paid to holders of such notes.
In December 2016, iHeartCommunications repaid at maturity $192.9 million of 5.5% Senior Notes due 2016 and did not pay $57.1 million of the notes held by a subsidiary of the Company. See "- Non-Payment of $57.1 Million of iHeartCommunications Legacy Notes Held by an Affiliate." The $57.1 million of aggregate principal amount remains outstanding and is eliminated for purposes of consolidation of the Company’s financial statements.
2015
On February 26, 2015, iHeartCommunications prepaid at par $916.1 million of loans outstanding under its term loan B facility and $15.2 million of loans outstanding under its term loan C-asset sale facility, using a portion of the net proceeds of the 10.625% Priority Guarantee Notes due 2023 issued on such date.
2014
During the period of October 1, 2014 through December 31, 2014, CC Finco repurchased via open market transactions a total of $177.1 million aggregate principal amount of notes, comprised of $57.1 million of iHeartCommunications' outstanding 5.5% Senior Notes due 2016 and $120.0 million of iHeartCommunications' outstanding 10.0% Senior Notes due 2018, for a total purchase price of $159.3 million, including accrued interest. The notes repurchased by CC Finco were not cancelled and remain outstanding.
On September 29, 2014, iHeartCommunications prepaid at par $245.9 million of the loans outstanding under its 9% term loan B facility and $4.1million of the loans outstanding under its term loan C-asset sale facility, using the net proceeds of the Priority Guarantee Notes due 2022 issued on such date.
On September 10, 2014, iHeartCommunications prepaid at par $729.0 million of the loans outstanding under its 9% term loan B facility and $12.1 million of the loans outstanding under its term loan C-asset sale facility, using the net proceeds of the Priority Guarantee Notes due 2022 issued on such date.
On August 22, 2014, iHeartCommunications redeemed all of the outstanding $94.3 million aggregate principal amount of 10.75% Senior Cash Pay Notes due 2016 and $127.9 million aggregate principal amount of 11.00%/11.75% Senior Toggle Notes due 2016 using proceeds of the issuance to CC Finco of new 14.0% Senior Notes due 2021.
On June 6, 2014, using the proceeds from the issuance of the 10.0% Senior Notes due 2018, iHeartCommunications redeemed $567.1 million aggregate principal amount of iHeartCommunications' 5.5% Senior Notes due 2014 (including $158.5 million principal amount of the notes held by a subsidiary of iHeartCommunications) and $241.0 million aggregate principal amount of iHeartCommunications' 4.9% Senior Notes due 2015.
During March 2014, CC Finco repurchased, through open market purchases, a total of $61.9 million aggregate principal amount of notes, comprised of $52.9 million of iHeartCommunications' outstanding 5.5% Senior Notes due 2014 and $9.0 million of iHeartCommunications' outstanding 4.9% Senior Notes due 2015, for a total purchase price of $63.1 million, including accrued interest. CC Finco contributed the notes to a subsidiary of ours and iHeartCommunications canceled these notes subsequent to the purchase.
Capital Expenditures
Capital expenditures for the years ended December 31, 2016, 2015 and 2014 were as follows:
|
| | | | | | | | |
(In millions) | Years Ended December 31, |
| 2016 | | 2015 | | 2014 |
iHM | 73.2 |
| | 63.8 |
| | 53.9 |
|
Americas outdoor advertising | 81.4 |
| | 82.2 |
| | 109.7 |
|
International outdoor advertising | 143.8 |
| | 132.6 |
| | 117.5 |
|
Corporate and Other | 16.3 |
| | 17.8 |
| | 37.1 |
|
Total capital expenditures | 314.7 |
| | 296.4 |
| | 318.2 |
|
See the Contractual Obligations table under “Commitments, Contingencies and Guarantees” and Note 6 to our Consolidated Financial Statements located in Item 8 of Part II of this Annual Report on Form 10-K for the Company's future capital expenditure commitments.
Stock Registration
On June 24, 2015, we registered 4,000,000 shares of our Class A common stock, par value $0.001 per share, for offer or sale under our 2015 Executive Long-Term Incentive Plan.
On July 27, 2015, the board of directors approved the issuance of 1,253,831 restricted shares pursuant to our 2015 Executive Long-term Incentive Plan.
Our capital expenditures are not of significant size individually and primarily relate to the ongoing deployment of digital displays and improvements to traditional displays in our Americas outdoor segment as well as new billboard and street furniture contracts and renewals of existing contracts in our International outdoor segment, studio and broadcast equipment at iHM and software at Corporate.
Dividends
We have never paid cash dividends on our Class A common stock. iHeartCommunications’ debt financing arrangements include restrictions on its ability to pay dividends as described in this MD&A, which in turn affects our ability to pay dividends.
Acquisitions
The Company is the beneficiary of Aloha Station Trust, LLC (the “Aloha Trust”), which owns and operates radio stations which the Aloha Trust is required to divest in order to comply with Federal Communication Commission (“FCC”) media ownership rules, and which are being marketed for sale. During 2014, the Aloha Trust completed a transaction in which it exchanged two radio stations for a portfolio of 29 radio stations. In this transaction the Company received 28 radio stations. One radio station was placed into the Brunswick Station Trust, LLC in order to comply with FCC media ownership rules where it is being marketed for sale, and the Company is the beneficiary of this trust. The exchange was accounted for at fair value in accordance with ASC 805, Business Combinations. The disposal of these radio stations resulted in a gain on sale of $43.5 million, which is included in other operating income. This acquisition resulted in an aggregate increase in net assets of $49.2 million, which includes $13.8 million in indefinite-lived intangible assets, $10.2 million in definite-lived intangibles, $8.1 million in property, plant and equipment and $0.8 million of assumed liabilities. In addition, the Company recognized $17.9 million of goodwill.
Stock Purchases
On August 9, 2010, iHeartCommunications announced that its board of directors approved a stock purchase program under which iHeartCommunications or its subsidiaries could purchase up to an aggregate of $100.0 million of our Class A common stock and/or the Class A common stock of CCOH. The stock purchase program did not have a fixed expiration date and could be modified, suspended or terminated at any time at iHeartCommunications' discretion. As of December 31, 2014, an aggregate $34.2 million was available under this program. In January 2015, CC Finco, LLC (“CC Finco”), an indirect wholly-owned subsidiary of the Company, purchased 2,000,000 shares of CCOH’s Class A common stock for $20.4 million. On April 2, 2015, CC Finco purchased an additional 2,172,946 shares of CCOH's Class A common stock for $22.2 million. As a result of this purchase, the stock purchase program concluded. The purchase of shares in excess of the amount available under the stock purchase program was separately approved by the board of directors. As of December 31, 2016, iHeartCommunications' and its subsidiaries held 10,726,917 shares of CCOH's Class A Common Stock and all of CCOH's Class B common stock, which collectively represent 89.9% of the outstanding shares of CCOH's common stock on a fully-diluted basis, assuming the conversion of all of CCOH's Class B common stock into Class A common stock.
On December 3, 2015, Clear Channel Holdings, Inc. contributed 100,000,000 shares of CCOH’s Class B Common Stock to Broader Media, LLC, an indirect wholly-owned subsidiary of the Company, as a capital contribution, to provide greater flexibility in support of future financing transactions, share dispositions and other similar transactions.
Certain Relationships with the Sponsors
iHeartCommunications is party to a management agreement with certain affiliates of Bain Capital Partners, LLC and Thomas H. Lee Partners, L.P. (together, the “Sponsors”) and certain other parties pursuant to which such affiliates of the Sponsors will provide management and financial advisory services until 2018. These arrangements require management fees to be paid to such affiliates of the Sponsors for such services at a rate not greater than $15.0 million per year, plus reimbursable expenses. During the years ended December 31, 2016, 2015 and 2014, we recognized management fees and reimbursable expenses of $15.3 million, $15.4 million and $15.2 million, respectively.
CCOH Dividends
In connection with the cash management arrangements for CCOH, iHeartCommunications maintains an intercompany revolving promissory note payable by iHeartCommunications to CCOH (the “Note”), which consists of the net activities resulting from day-to-day cash management services provided by iHeartCommunications to CCOH. As of December 31, 2016, the balance of the Note was $885.7 million all of which is payable on demand. The Note is eliminated in consolidation in our consolidated financial statements.
The Note previously was the subject of litigation. Pursuant to the terms of the settlement of that litigation, CCOH’s board of directors established a committee for the specific purpose of monitoring the Note. That committee has the non-exclusive authority, pursuant to the terms of its charter, to demand payments under the Note under certain specified circumstances tied to the Company’s liquidity or the amount outstanding under the Note as long as CCOH makes a simultaneous dividend equal to the amount so demanded.
On August 11, 2014, in accordance with the terms of its charter, (i) that committee demanded repayment of $175 million outstanding under the Note on such date and (ii) CCOH paid a special cash dividend in aggregate amount equal to $175 million to CCOH’s stockholders of record as of August 4, 2014. As the indirect parent of CCOH, we were entitled to approximately 88% of the proceeds from such dividend through our wholly-owned subsidiaries. The remaining approximately 12% of the proceeds from the dividend, or approximately $21 million, was paid to the public stockholders of CCOH and is included in Dividends and other payments to noncontrolling interests in our consolidated statement of cash flows. We funded the net payment of this $21
million with cash on hand, which reduced the amount of cash available to fund our working capital needs, debt service obligations and other obligations. Following satisfaction of the demand, the balance outstanding under the Note was reduced by $175 million.
On December 16, 2015, CCIBV, an indirect subsidiary of the Company and of CCOH, issued $225.0 million in aggregate principal amount of 8.75% Senior Notes due 2020, the proceeds of which were used to fund a dividend by CCOH, which was paid on January 7, 2016. We received approximately $196.3 million of the dividend through three of our wholly-owned subsidiaries, and approximately $21.5 million was paid to the public stockholders of CCOH.
In the first quarter of 2016, CCOH sold non-strategic Americas outdoor markets for an aggregate purchase price of approximately $592.3 million in cash and certain advertising assets in Florida (the “Transactions”). Following the completion of the Transactions, the board of directors of CCOH made a demand for the repayment of $300.0 million outstanding on the Note and declared special cash dividends in an aggregate amount of $540.0 million, which were paid on February 4, 2016. A portion of the proceeds of the Transactions, together with the proceeds from the concurrent $300.0 million repayment of the Note, were used to fund the dividends. We received approximately $486.5 million of the dividend proceeds ($186.5 million net of iHeartCommunications' repayment of the Note) through three of our wholly-owned subsidiaries, and approximately $53.5 million was paid to the public stockholders of CCOH.
During the fourth quarter of 2016, CCOH sold its outdoor business in Australia for cash proceeds of $195.7 million, net of cash retained by the purchaser and closing costs. On February 9, 2017, CCOH declared a special dividend of $282.5 million using a portion of the cash proceeds from the sales of certain non-strategic U.S. outdoor markets and of our Australia outdoor business. On February 23, 2017, we received 89.9% of the dividend or approximately $254.0 million, with the remaining 10.1% or approximately $28.5 million paid to public stockholders of CCOH.
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 Item 3. “Legal Proceedings” within Part I of this Annual Report on Form 10-K.
Certain agreements relating to acquisitions provide for purchase price adjustments and other future contingent payments based on the financial performance of the acquired companies generally over a one to five-year period. The aggregate of these contingent payments, if performance targets are met, would not significantly impact our financial position or results of operations.
In addition to our scheduled maturities on our debt, we have future cash obligations under various types of contracts. We lease office space, certain broadcast facilities, equipment and the majority of the land occupied by our outdoor advertising structures under long-term operating leases. Some of our lease agreements contain renewal options and annual rental escalation clauses (generally tied to the consumer price index), as well as provisions for our payment of utilities and maintenance.
We have minimum franchise payments associated with non-cancelable contracts that enable us to display advertising on such media as buses, trains, bus shelters and terminals. The majority of these contracts contain rent provisions that are calculated as the greater of a percentage of the relevant advertising revenue or a specified guaranteed minimum annual payment. Also, we have non-cancelable contracts in our radio broadcasting operations related to program rights and music license fees.
In the normal course of business, our broadcasting operations have minimum future payments associated with employee and talent contracts. These contracts typically contain cancellation provisions that allow us to cancel the contract with good cause.
The scheduled maturities of iHeartCommunications' senior secured credit facilities, receivables based credit facility, priority guarantee notes, other long-term debt outstanding, and our future minimum rental commitments under non-cancelable lease agreements, minimum payments under other non-cancelable contracts, payments under employment/talent contracts, capital expenditure commitments and other long-term obligations as of December 31, 2016 are as follows:
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| | | | | | | | | | | | | | | | | | | |
(In thousands) | Payments due by Period |
Contractual Obligations | Total | | 2017 | | 2018-2019 | | 2020-2021 | | Thereafter |
Long-term Debt: | | | | | | | | | |
Secured Debt (1) | $ | 12,925,802 |
| | $ | 337,080 |
| | $ | 8,304,999 |
| | $ | 2,325,943 |
| | $ | 1,957,780 |
|
Senior Notes due 2021 (2) | 1,886,585 |
| | — |
| | 89,541 |
| | 1,797,044 |
| | — |
|
iHeartCommunications Legacy Notes: | 475,000 |
| | — |
| | 175,000 |
| | — |
| | 300,000 |
|
Senior Notes due 2018 (1) | 347,028 |
| | — |
| | 347,028 |
| | — |
| | — |
|
CCWH Senior Notes | 2,725,000 |
| | — |
| | — |
| | — |
| | 2,725,000 |
|
CCWH Senior Subordinated Notes | 2,200,000 |
| | — |
| | — |
| | 2,200,000 |
| | — |
|
CCIBV Senior Notes | 225,000 |
| | — |
| | — |
| | 225,000 |
| | — |
|
Other Long-term Debt | 27,954 |
| | 6,370 |
| | 11,557 |
| | 10,027 |
| | — |
|
Interest payments on long-term debt (3) | 6,809,024 |
| | 1,727,652 |
| | 3,040,297 |
| | 1,571,531 |
| | 469,544 |
|
Non-cancelable operating leases | 4,086,598 |
| | 464,877 |
| | 799,047 |
| | 674,732 |
| | 2,147,942 |
|
Non-cancelable contracts | 1,884,913 |
| | 435,186 |
| | 618,085 |
| | 420,301 |
| | 411,341 |
|
Employment/talent contracts | 216,199 |
| | 64,222 |
| | 100,227 |
| | 51,750 |
| | — |
|
Capital expenditures | 77,716 |
| | 49,618 |
| | 11,797 |
| | 4,059 |
| | 12,242 |
|
Unrecognized tax benefits (4) | 115,078 |
| | — |
| | — |
| | — |
| | 115,078 |
|
Other long-term obligations (5) | 334,646 |
| | (1,346 | ) | | 43,479 |
| | 31,200 |
| | 261,313 |
|
Total | $ | 34,336,543 |
| | $ | 3,083,659 |
| | $ | 13,541,057 |
| | $ | 9,311,587 |
| | $ | 8,400,240 |
|
| |
(1) | As of December 31, 2016, iHeartCommunications had outstanding $347.0 million aggregate principal amount of 10.0% Senior Notes due 2018. On February 7, 2017, we completed an exchange offer of $476.4 million principal amount of our 10.0% Senior Notes due 2018 for $476.4 million principal amount of newly-issued 11.25% Priority Guarantee Notes due 2021, which were issued as “additional notes” under the indenture governing the 11.25% Priority Guarantee Notes due 2021. Of the $476.4 million principal amount of 10.0% Senior Notes due 2018 tendered and accepted for exchange, $241.4 million principal amount was tendered by subsidiaries of iHeartCommunications. After giving effect to the exchange offer, iHeartCommunications had outstanding $112.1 million aggregate principal amount of 10.0% Senior Notes due 2018.
|
| |
(2) | Beginning on August 1, 2018 and continuing with each interest payment thereafter, we are required to make certain applicable high yield discount obligation (“AHYDO”) catch-up payments on the principal amount outstanding of Senior Notes due 2021. Contractual obligations due in the years 2018-2019 and 2020-2021 include $89.5 million and $68.4 million, respectively, related to the AHYDO payments. The table includes the current principal amount of Senior Notes due 2021 and reflects the assumption of additional PIK notes to be issued at each successive interest payment date in the future until maturity. |
| |
(3) | Interest payments on the senior secured credit facilities assume the interest rate is held constant over the remaining term. |
| |
(4) | The non-current portion of the unrecognized tax benefits is included in the “Thereafter” column as we cannot reasonably estimate the timing or amounts of additional cash payments, if any, at this time. For additional information, see Note 7 included in Item 8 of Part II of this Annual Report on Form 10-K. |
| |
(5) | Other long-term obligations includes $42.1 million related to asset retirement obligations recorded pursuant to ASC 410-20, which assumes the underlying assets will be removed at some period over the next 55 years. Also included are $0.1 million of contract payments in our syndicated radio and media representation businesses and $292.4 million of various other long-term obligations. |
SEASONALITY
Typically, the iHM, Americas outdoor and International outdoor segments experience their lowest financial performance in the first quarter of the calendar year, with International outdoor historically experiencing a loss from operations in that period. Our International outdoor 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. In addition, the majority of interest payments made in relation to long-term debt are paid in the first and third quarters of each calendar year.
MARKET RISK
We are exposed to market risks arising from changes in market rates and prices, including movements in interest rates, foreign currency exchange rates and inflation.
Interest Rate Risk
A significant amount of our long-term debt bears interest at variable rates. Accordingly, our earnings will be affected by changes in interest rates. As of December 31, 2016, approximately 32% of our aggregate principal amount of long-term debt bears interest at floating rates. Assuming the current level of borrowings and assuming a 100% change in LIBOR, it is estimated that our interest expense for the year ended December 31, 2016 would have changed by $35.4 million.
In the event of an adverse change in interest rates, management may take actions to mitigate our exposure. However, due to the uncertainty of the actions that would be taken and their possible effects, the preceding interest rate sensitivity analysis assumes no such actions. Further, the analysis does not consider the effects of the change in the level of overall economic activity that could exist in such an environment.
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 income of $122.6 million for year ended December 31, 2016. We estimate a 10% increase in the value of the U.S. dollar relative to foreign currencies would have decreased our net income for the year ended December 31, 2016 by $12.3 million. A 10% decrease in the value of the U.S. dollar relative to foreign currencies during the year ended December 31, 2016 would have increased our net income by a corresponding amount.
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 broadcasting stations and outdoor display faces in our iHM, Americas outdoor and International outdoor operations.
NEW ACCOUNTING PRONOUNCEMENTS
During the third quarter of 2015, the FASB issued ASU 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date. This update provides a one-year deferral of the effective date for ASU No. 2014-09, Revenue from Contracts with Customers. ASU No. 2014-09 provides guidance for the recognition, measurement and disclosure of revenue resulting from contracts with customers and will supersede virtually all of the current revenue recognition guidance under U.S. GAAP. The standard is effective for the first interim period within annual reporting periods beginning after December 15, 2017. The two permitted transition methods under the new standard are the full retrospective method, in which case the standard would be applied to each prior reporting period presented and the cumulative effect of applying the standard would be recognized at the earliest period shown, or the modified retrospective method, in which case the cumulative effect of applying the standard would be recognized at the date of initial application. The Company expects to utilize the full retrospective method. The Company has substantially completed its evaluation of the potential changes from adopting the new standard on its future financial reporting and disclosures which included reviews of contractual terms for all of the Company’s significant revenue streams and the development of an implementation plan. The Company continues to execute on its implementation plan, including detailed policy drafting and training of segment personnel. Based on its evaluation, the Company does not expect material changes to its 2016 or 2017 consolidated revenues, operating income or balance sheets as a result of the implementation of this standard.
During the first quarter of 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). The new leasing standard presents significant changes to the balance sheets of lessees. Lessor accounting is updated to align with certain changes in the lessee model and the new revenue recognition standard which was issued in the third quarter of 2015. The standard is effective for annual periods, and for interim periods within those annual periods, beginning after December 15, 2018. The Company is currently evaluating the impact of the provisions of this new standard on its consolidated financial statements.
During the second quarter of 2016, the FASB issued ASU No. 2016-09, Compensation - Stock Compensation (Topic 718). This update changes the accounting for certain aspects of share-based payments to employees. Income tax effects of share-based payment awards will be recognized in the income statement with the vesting or settlement of the awards and the record keeping for additional paid-in capital pools will no longer be necessary. Additionally, companies can make a policy election to either estimate forfeitures or recognize them as they occur. The standard is effective for annual periods, and for interim periods within those annual periods, beginning after December 15, 2016. The Company does not expect the provisions of this new standard to have a material impact on its consolidated financial statements.
During the second quarter of 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326). The new standard changes the impairment model for most financial assets and certain other instruments. Entities will be required to use a model that will result in the earlier recognition of allowances for losses for trade and other receivables, held-to-maturity debt securities, loans and other instruments. For available-for-sale debt securities with unrealized losses, the losses will be recognized as allowances rather than as reductions in the amortized cost of the securities. For an SEC filer, the standard is effective for annual periods, and for interim periods within those annual periods, beginning after December 15, 2019. The Company is currently evaluating the impact of the provisions of this new standard on its consolidated financial statements.
During the third quarter of 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230). The new standard addresses the classification of cash flows related to certain cash receipts and cash payments. Additionally, the standard clarifies how the predominance principle should be used when cash receipts and cash payments have aspects of more than one class of cash flows. First, an entity will apply the guidance in Topic 230 and other applicable topics. If there is no guidance for those cash receipts and cash payments, an entity will determine each separately identifiable source or use and classify the receipt or payment based on the nature of the cash flow. If a receipt or payment has aspects of more than one class of cash flows and cannot be separated, the classification will depend on the predominant source or use. The standard is effective for annual periods, and for interim periods within those annual periods, beginning after December 15, 2017. The Company is currently evaluating the impact of the provisions of this new standard on its consolidated financial statements.
CRITICAL ACCOUNTING ESTIMATES
The preparation of our financial statements in conformity with U.S. GAAP requires management to make estimates, judgments and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of expenses during the reporting period. On an ongoing basis, we evaluate our estimates that are based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. The result of these evaluations forms the basis for making judgments about the carrying values of assets and liabilities and the reported amount of expenses that are not readily apparent from other sources. Because future events and their effects cannot be determined with certainty, actual results could differ from our assumptions and estimates, and such difference could be material. Our significant accounting policies are discussed in the notes to our consolidated financial statements included in Item 8 of Part II of this Annual Report on Form 10-K. Management believes that the following accounting estimates are the most critical to aid in fully understanding and evaluating our reported financial results, and they require management’s most difficult, subjective or complex judgments, resulting from the need to make estimates about the effect of matters that are inherently uncertain. The following narrative describes these critical accounting estimates, the judgments and assumptions and the effect if actual results differ from these assumptions.
Allowance for Doubtful Accounts
We evaluate the collectability of our accounts receivable based on a combination of factors. In circumstances where we are aware of a specific customer’s inability to meet its financial obligations, we record a specific reserve to reduce the amounts recorded to what we believe will be collected. For all other customers, we recognize reserves for bad debt based on historical experience for each business unit, adjusted for relative improvements or deteriorations in the agings and changes in current economic conditions.
If our agings were to improve or deteriorate resulting in a 10% change in our allowance, we estimated that our bad debt expense for the year ended December 31, 2016 would have changed by approximately $3.4 million.
Leases
The most significant estimates used by management in accounting for leases and the impact of these estimates are as follows:
Expected lease term Our expected lease term includes both contractual lease periods and cancelable option periods where failure to exercise such options would result in an economic penalty. The expected lease term is used in determining whether the lease is accounted for as an operating lease or a capital lease. A lease is considered a capital lease if the lease term exceeds 75%
of the leased asset's useful life. The expected lease term is also used in determining the depreciable life of the asset. An increase in the expected lease term will increase the probability that a lease may be considered a capital lease and will generally result in higher interest and depreciation expense for a leased property recorded on our balance sheet.
Incremental borrowing rate The incremental borrowing rate is primarily used in determining whether the lease is accounted for as an operating lease or a capital lease. A lease is considered a capital lease if the net present value of the minimum lease payments is greater than 90% of the fair market value of the property. An increase in the incremental borrowing rate decreases the net present value of the minimum lease payments and reduces the probability that a lease will be considered a capital lease.
Fair market value of leased asset The fair market value of leased property is generally estimated based on comparable market data as provided by third-party sources. Fair market value is used in determining whether the lease is accounted for as an operating lease or a capital lease. A lease is considered a capital lease if the net present value of the minimum lease payments equals or exceeds 90% of the fair market value of the leased property. A higher fair market value reduces the likelihood that a lease will be considered a capital lease.
Long-lived Assets
Long-lived assets, including structures and other property, plant and equipment and definite-lived intangibles, are reported at historical cost less accumulated depreciation and amortization. We estimate the useful lives for various types of advertising structures and other long-lived assets based on our historical experience and our plans regarding how we intend to use those assets. Advertising structures have different lives depending on their nature, with large format bulletins generally having longer depreciable lives and posters and other displays having shorter depreciable lives. Street furniture and transit displays are depreciated over their estimated useful lives or appropriate contractual periods, whichever is shorter. Our experience indicates that the estimated useful lives applied to our portfolio of assets have been reasonable, and we do not expect significant changes to the estimated useful lives of our long-lived assets in the future. When we determine that structures or other long-lived assets will be disposed of prior to the end of their useful lives, we estimate the revised useful lives and depreciate the assets over the revised period. We also review long-lived assets for impairment when events and circumstances indicate that depreciable and amortizable long-lived assets might be impaired and the undiscounted cash flows estimated to be generated by those assets are less than the carrying amounts of those assets. When specific assets are determined to be unrecoverable, the cost basis of the asset is reduced to reflect the current fair market value.
We use various assumptions in determining the remaining useful lives of assets to be disposed of prior to the end of their useful lives and in determining the current fair market value of long-lived assets that are determined to be unrecoverable. Estimated useful lives and fair values are sensitive to factors including contractual commitments, regulatory requirements, future expected cash flows, industry growth rates and discount rates, as well as future salvage values. Our impairment loss calculations require management to apply judgment in estimating future cash flows, including forecasting useful lives of the assets and selecting the discount rate that reflects the risk inherent in future cash flows.
If actual results are not consistent with our assumptions and judgments used in estimating future cash flows and asset fair values, we may be exposed to future impairment losses that could be material to our results of operations.
Indefinite-lived Intangible Assets
In connection with the Merger Agreement pursuant to which we acquired iHeartCommunications in 2008, we allocated the purchase price to all of our assets and liabilities at estimated fair values, including our FCC licenses and our billboard permits. Indefinite-lived intangible assets, such as our FCC licenses and our billboard permits, are reviewed annually for possible impairment using the direct valuation method as prescribed in ASC 805-20-S99. Under the direct valuation method, the estimated fair value of the indefinite-lived intangible assets was calculated at the market level as prescribed by ASC 350-30-35.Under the direct valuation method, it is assumed that rather than acquiring indefinite-lived intangible assets as a part of a going concern business, the buyer hypothetically obtains indefinite-lived intangible assets and builds a new operation with similar attributes from scratch. Thus, the buyer incurs start-up costs during the build-up phase which are normally associated with going concern value. Initial capital costs are deducted from the discounted cash flows model which results in value that is directly attributable to the indefinite-lived intangible assets.
Our key assumptions using the direct valuation method are market revenue growth rates, market share, profit margin, duration and profile of the build-up period, estimated start-up capital costs and losses incurred during the build-up period, the risk-adjusted discount rate and terminal values. This data is populated using industry normalized information representing an average asset within a market.
On July 1, 2016, we performed our annual impairment test in accordance with ASC 350-30-35 and recognized an impairment of $0.7 million related to FCC Licenses in one market and did not recognize any aggregate impairment charges related to billboard permits.
In determining the fair value of our FCC licenses, the following key assumptions were used:
Revenue growth sales forecasts and published by BIA Financial Network, Inc. (“BIA”), varying by market, were used for the initial four-year period;
2.0% revenue growth was assumed beyond the initial four-year period;
Revenue was grown proportionally over a build-up period, reaching market revenue forecast by year 3;
Operating margins of 12.5% in the first year gradually climb to the industry average margin in year 3 of up to 26.5%, depending on market size; and
Assumed discount rates of 8.5% for the 13 largest markets and 9.0% for all other markets.
In determining the fair value of our billboard permits, the following key assumptions were used:
Industry revenue growth forecast at 3.0% was used for the initial four-year period;
3.0% revenue growth was assumed beyond the initial four-year period;
Revenue was grown over a build-up period, reaching maturity by year 2;
Operating margins gradually climb to the industry average margin of up to 56.1%, depending on market size, by year 3; and
Assumed discount rate of 7.5%.
While we believe we have made reasonable estimates and utilized appropriate assumptions to calculate the fair value of our indefinite-lived intangible assets, it is possible a material change could occur. If future results are not consistent with our assumptions and estimates, we may be exposed to impairment charges in the future. The following table shows the change in the fair value of our indefinite-lived intangible assets that would result from a 100 basis point decline in our discrete and terminal period revenue growth rate and profit margin assumptions and a 100 basis point increase in our discount rate assumption:
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| | | | | | | | | | | | |
(In thousands) | | Revenue | | Profit | | Discount |
Description | | Growth Rate | | Margin | | Rates |
FCC license | | $ | 465,102 |
| | $ | 158,468 |
| | $ | 495,326 |
|
Billboard permits | | $ | 1,138,600 |
| | $ | 162,800 |
| | $ | 1,162,700 |
|
The estimated fair value of our FCC licenses and billboard permits at July 1, 2016 was $7.1 billion ($3.1 billion for FCC licenses and $4.0 billion for billboard permits), while the carrying value was $3.4 billion. The estimated fair value of our FCC licenses and billboard permits at July 1, 2015 was $6.1 billion ($3.0 billion for FCC licenses and $3.1 billion for billboard permits), while the carrying value was $3.5 billion.
Goodwill
Goodwill represents the excess of the purchase price over the fair value of identifiable net assets acquired in business combinations. We test goodwill at interim dates if events or changes in circumstances indicate that goodwill might be impaired. The fair value of our reporting units is used to apply value to the net assets of each reporting unit. To the extent that the carrying amount of net assets would exceed the fair value, an impairment charge may be required to be recorded.
The discounted cash flow approach we use for valuing goodwill as part of the two-step impairment testing approach involves estimating future cash flows expected to be generated from the related assets, discounted to their present value using a risk-adjusted discount rate. Terminal values are also estimated and discounted to their present value.
On July 1, 2016, we performed our annual impairment test in accordance with ASC 350-30-35, resulting in a goodwill impairment charge of $7.3 million relating to one outdoor market. In determining the fair value of our reporting units, we used the following assumptions:
Expected cash flows underlying our business plans for the periods 2016 through 2020. Our cash flow assumptions are based on detailed, multi-year forecasts performed by each of our operating segments, and reflect the advertising outlook across our businesses.
Cash flows beyond 2020 are projected to grow at a perpetual growth rate, which we estimated at 2.0% for our iHM segment, 3.0% for our Americas outdoor and International outdoor segments, and 2.0% for our Other segment.
In order to risk adjust the cash flow projections in determining fair value, we utilized a discount rate of approximately 8.0% to 11.5% for each of our reporting units.
Based on our annual assessment using the assumptions described above, a hypothetical 10.0% reduction in the estimated fair value in each of our reporting units would not result in a material impairment condition.
While we believe we have made reasonable estimates and utilized appropriate assumptions to calculate the estimated fair value of our reporting units, it is possible a material change could occur. If future results are not consistent with our assumptions and estimates, we may be exposed to impairment charges in the future. The following table shows the decline in the fair value of each of our reportable segments that would result from a 100 basis point decline in our discrete and terminal period revenue growth rate and profit margin assumptions and a 100 basis point increase in our discount rate assumption:
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| | | | | | | | | | | | |
(In thousands) | | Revenue | | Profit | | Discount |
Description | | Growth Rate | | Margin | | Rates |
iHM | | $ | 1,080,000 |
| | $ | 280,000 |
| | $ | 1,050,000 |
|
Americas Outdoor | | $ | 860,000 |
| | $ | 180,000 |
| | $ | 820,000 |
|
International Outdoor | | $ | 330,000 |
| | $ | 210,000 |
| | $ | 260,000 |
|
Tax Provisions
Our estimates of income taxes and the significant items giving rise to the deferred tax assets and liabilities are shown in the notes to our consolidated financial statements and reflect our assessment of actual future taxes to be paid on items reflected in the financial statements, giving consideration to both timing and probability of these estimates. Actual income taxes could vary from these estimates due to future changes in income tax law or results from the final review of our tax returns by federal, state or foreign tax authorities.
We use our judgment to determine whether it is more likely than not that our deferred tax assets will be realized. Deferred tax assets are reduced by valuation allowances if the Company believes it is more than likely than not that some portion or the entire asset will not be realized.
We use our judgment to determine whether it is more likely than not that we will sustain positions that we have taken on tax returns and, if so, the amount of benefit to initially recognize within our financial statements. We regularly review our uncertain tax positions and adjust our unrecognized tax benefits (UTBs) in light of changes in facts and circumstances, such as changes in tax law, interactions with taxing authorities and developments in case law. These adjustments to our UTBs may affect our income tax expense. Settlement of uncertain tax positions may require use of our cash.
Litigation Accruals
We are currently involved in certain legal proceedings. Based on current assumptions, we 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. Future results of operations could be materially affected by changes in these assumptions or the effectiveness of our strategies related to these proceedings.
Management’s 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.
Insurance Accruals
We are currently self-insured beyond certain retention amounts for various insurance coverages, including general liability and property and casualty. Accruals are recorded based on estimates of actual claims filed, historical payouts, existing insurance coverage and projected future development of costs related to existing claims. Our self-insured liabilities contain uncertainties because management must make assumptions and apply judgment to estimate the ultimate cost to settle reported claims and claims incurred but not reported as of December 31, 2016.
If actual results are not consistent with our assumptions and judgments, we may be exposed to gains or losses that could be material. A 10% change in our self-insurance liabilities at December 31, 2016 would have affected our net loss by approximately $1.8 million for the year ended December 31, 2016.
Asset Retirement Obligations
ASC 410-20 requires us to estimate our obligation upon the termination or nonrenewal of a lease, to dismantle and remove our billboard structures from the leased land and to reclaim the site to its original condition.
Due to the high rate of lease renewals over a long period of time, our calculation assumes all related assets will be removed at some period over the next 55 years. An estimate of third-party cost information is used with respect to the dismantling of the structures and the reclamation of the site. The interest rate used to calculate the present value of such costs over the retirement period is based on an estimated risk-adjusted credit rate for the same period. If our assumption of the risk-adjusted credit rate used to discount current year additions to the asset retirement obligation decreased approximately 1%, our liability as of December 31, 2016 would not be materially impacted. Similarly, if our assumption of the risk-adjusted credit rate increased approximately 1%, our liability would not be materially impacted.
Share-Based Compensation
Under the fair value recognition provisions of ASC 718-10, share-based compensation cost is measured at the grant date based on the fair value of the award. Determining the fair value of share-based awards at the grant date requires assumptions and judgments about expected volatility and forfeiture rates, among other factors. If actual results differ significantly from these estimates, our results of operations could be materially impacted.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Required information is located within Item 7 of Part II of this Annual Report on Form 10-K.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
iHeartMedia, Inc.
We have audited the accompanying consolidated balance sheets of iHeartMedia, Inc. and subsidiaries (the Company) as of December 31, 2016 and 2015, and the related consolidated statements of comprehensive loss, changes in stockholders' deficit and cash flows for each of the three years in the period ended December 31, 2016. Our audits also included the financial statement schedule listed in the Index at Item 15(a)2. These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of iHeartMedia, Inc. and subsidiaries at December 31, 2016 and 2015, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2016, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company’s internal control over financial reporting as of December 31, 2016, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated February 23, 2017 expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
San Antonio, Texas
February 23, 2017
CONSOLIDATED BALANCE SHEETS OF
IHEARTMEDIA, INC. AND SUBSIDIARIES
|
| | | | | | | |
(In thousands) | December 31, | | December 31, |
| 2016 | | 2015 |
CURRENT ASSETS | | | |
Cash and cash equivalents | $ | 845,030 |
| | $ | 772,678 |
|
Accounts receivable, net of allowance of $33,882 in 2016 and $34,889 in 2015 | 1,364,404 |
| | 1,442,038 |
|
Prepaid expenses | 184,586 |
| | 189,055 |
|
Assets held for sale | 55,602 |
| | 295,075 |
|
Other current assets | 55,065 |
| | 79,269 |
|
Total Current Assets | 2,504,687 |
| | 2,778,115 |
|
PROPERTY, PLANT AND EQUIPMENT | | | |
Structures, net | 1,196,676 |
| | 1,391,880 |
|
Other property, plant and equipment, net | 751,486 |
| | 820,676 |
|
INTANGIBLE ASSETS AND GOODWILL | | | |
Indefinite-lived intangibles - licenses | 2,413,899 |
| | 2,413,483 |
|
Indefinite-lived intangibles - permits | 960,966 |
| | 971,327 |
|
Other intangibles, net | 740,508 |
| | 953,660 |
|
Goodwill | 4,066,575 |
| | 4,128,887 |
|
OTHER ASSETS | | | |
Other assets | 227,450 |
| | 215,087 |
|
Total Assets | $ | 12,862,247 |
| | $ | 13,673,115 |
|
CURRENT LIABILITIES | | | |
Accounts payable | $ | 146,772 |
| | $ | 153,276 |
|
Accrued expenses | 742,617 |
| | 834,416 |
|
Accrued interest | 264,170 |
| | 279,100 |
|
Deferred income | 200,103 |
| | 210,924 |
|
Current portion of long-term debt | 342,908 |
| | 181,512 |
|
Total Current Liabilities | 1,696,570 |
| | 1,659,228 |
|
Long-term debt | 20,022,080 |
| | 20,539,099 |
|
Deferred income taxes | 1,457,095 |
| | 1,554,898 |
|
Other long-term liabilities | 571,977 |
| | 526,571 |
|
Commitments and contingent liabilities (Note 6) |
|
| |
|
|
STOCKHOLDERS’ DEFICIT | | | |
Noncontrolling interest | 135,183 |
| | 177,615 |
|
Class A Common Stock, par value $.001 per share, authorized 400,000,000 shares, issued 31,502,448 and 30,295,457 shares in 2016 and 2015, respectively | 31 |
| | 30 |
|
Class B Common Stock, par value $.001 per share, authorized 150,000,000 shares, issued 555,556 shares in 2016 and 2015 | 1 |
| | 1 |
|
Class C Common Stock, par value $.001 per share, authorized 100,000,000 shares, issued 58,967,502 shares in 2016 and 2015 | 59 |
| | 59 |
|
Additional paid-in capital | 2,070,575 |
| | 2,068,949 |
|
Accumulated deficit | (12,733,329 | ) | | (12,437,011 | ) |
Accumulated other comprehensive loss | (355,876 | ) | | (414,407 | ) |
Cost of shares (389,920 in 2016 and 229,824 in 2015) held in treasury | (2,119 | ) | | (1,917 | ) |
Total Stockholders' Deficit | (10,885,475 | ) | | (10,606,681 | ) |
Total Liabilities and Stockholders' Deficit | $ | 12,862,247 |
| | $ | 13,673,115 |
|
See Notes to Consolidated Financial Statements
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS OF
IHEARTMEDIA, INC.AND SUBSIDIARIES
|
| | | | | | | | | | | |
(In thousands) | Years Ended December 31, |
| 2016 | | 2015 | | 2014 |
Revenue | $ | 6,273,573 |
| | $ | 6,241,516 |
| | $ | 6,318,533 |
|
Operating expenses: | | | | | |
Direct operating expenses (excludes depreciation and amortization) | 2,412,287 |
| | 2,471,113 |
| | 2,540,035 |
|
Selling, general and administrative expenses (excludes depreciation and amortization) | 1,725,899 |
| | 1,704,352 |
| | 1,680,938 |
|
Corporate expenses (excludes depreciation and amortization) | 341,025 |
| | 314,999 |
| | 320,931 |
|
Depreciation and amortization | 635,227 |
| | 673,991 |
| | 710,898 |
|
Impairment charges | 8,000 |
| | 21,631 |
| | 24,176 |
|
Other operating income, net | 353,556 |
| | 94,001 |
| | 40,031 |
|
Operating income | 1,504,691 |
| | 1,149,431 |
| | 1,081,586 |
|
Interest expense | 1,849,982 |
| | 1,805,496 |
| | 1,741,596 |
|
Loss on investments, net | (12,907 | ) | | (4,421 | ) | | — |
|
Equity in loss of nonconsolidated affiliates | (16,733 | ) | | (902 | ) | | (9,416 | ) |
Gain (loss) on extinguishment of debt | 157,556 |
| | (2,201 | ) | | (43,347 | ) |
Other income (expense), net | (73,102 | ) | | 13,056 |
| | 9,104 |
|
Loss before income taxes | (290,477 | ) | | (650,533 | ) | | (703,669 | ) |
Income tax benefit (expense) | 50,474 |
| | (86,957 | ) | | (58,489 | ) |
Consolidated net loss | (240,003 | ) | | (737,490 | ) | | (762,158 | ) |
Less amount attributable to noncontrolling interest | 56,315 |
| | 17,131 |
| | 31,603 |
|
Net loss attributable to the Company | $ | (296,318 | ) | | $ | (754,621 | ) | | $ | (793,761 | ) |
Other comprehensive income (loss), net of tax: | | | | | |
Foreign currency translation adjustments | 21,983 |
| | (114,906 | ) | | (121,878 | ) |
Unrealized gain on securities and derivatives: | | | | | |
Unrealized holding gain (loss) on marketable securities | (576 | ) | | 553 |
| | 327 |
|
Other adjustments to comprehensive income (loss) | (11,814 | ) | | (10,266 | ) | | (11,438 | ) |
Reclassification adjustments | 46,730 |
| | 808 |
| | 3,317 |
|
Other comprehensive income (loss) | 56,323 |
| | (123,811 | ) | | (129,672 | ) |
Comprehensive loss | (239,995 | ) | | (878,432 | ) | | (923,433 | ) |
Less amount attributable to noncontrolling interest | (2,208 | ) | | (22,410 | ) | | (21,080 | ) |
Comprehensive loss attributable to the Company | $ | (237,787 | ) | | $ | (856,022 | ) | | $ | (902,353 | ) |
| | | | | |
Net loss attributable to the Company per common share: | | | | | |
Basic | $ | (3.50 | ) | | $ | (8.95 | ) | | $ | (9.46 | ) |
Weighted average common shares outstanding - Basic | 84,569 |
| | 84,278 |
| | 83,941 |
|
Diluted | $ | (3.50 | ) | | $ | (8.95 | ) | | $ | (9.46 | ) |
Weighted average common shares outstanding - Diluted | 84,569 |
| | 84,278 |
| | 83,941 |
|
See Notes to Consolidated Financial Statements
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT OF
IHEARTMEDIA, INC. AND SUBSIDIARIES
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(In thousands, except share data) | | | | Controlling Interest | | |
| Common Shares | | Non- controlling Interest | | Common Stock | | Additional Paid-in Capital | | Accumulated Deficit | | Accumulated Other Comprehensive Income (Loss) | | Treasury Stock | | |
| Class C Shares | | Class B Shares | | Class A Shares | | | | | | | | Total |
Balances at December 31, 2013 | 58,967,502 |
| | 555,556 |
| | 29,504,379 |
| | $ | 245,531 |
| | $ | 89 |
| | $ | 2,148,303 |
| | $ | (10,888,629 | ) | | $ | (196,073 | ) | | $ | (5,856 | ) | | $ | (8,696,635 | ) |
Net income (loss) | | | | | | | 31,603 |
| | — |
| | — |
| | (793,761 | ) | | — |
| | — |
| | (762,158 | ) |
Issuance (forfeiture) of restricted stock | | | | | (196,796 | ) | | 2,237 |
| | — |
| | — |
| | — |
| | — |
| | (993 | ) | | 1,244 |
|
Amortization of share-based compensation | | | | | | | 7,743 |
| | — |
| | 2,970 |
| | — |
| | — |
| | — |
| | 10,713 |
|
Purchases of additional noncontrolling interest | | | | | | | (1,944 | ) | | — |
| | (42,881 | ) | | — |
| | (3,925 | ) | | — |
| | (48,750 | ) |
Dividend declared and paid to noncontrolling interests | | | | | | | (40,027 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | (40,027 | ) |
Other | | | | | | | 77 |
| | — |
| | (5,603 | ) | | — |
| | — |
| | 5,603 |
| | 77 |
|
Other comprehensive loss | | | | | | | (21,080 | ) | | — |
| | — |
| | — |
| | (108,592 | ) | | — |
| | (129,672 | ) |
Balances at December 31, 2014 | 58,967,502 |
| | 555,556 |
| | 29,307,583 |
| | $ | 224,140 |
| | $ | 89 |
| | $ | 2,102,789 |
| | $ | (11,682,390 | ) | | $ | (308,590 | ) | | $ | (1,246 | ) | | $ | (9,665,208 | ) |
Net income (loss) | | | | | | | 17,131 |
| | — |
| | — |
| | (754,621 | ) | | — |
| | — |
| | (737,490 | ) |
Issuance (forfeiture) of restricted stock | | | | | 987,874 |
| | 2,886 |
| | 1 |
| | (1 | ) | | — |
| | — |
| | (671 | ) | | 2,215 |
|
Amortization of share-based compensation | | | | | | | 8,359 |
| | — |
| | 2,564 |
| | — |
| | — |
| | — |
| | 10,923 |
|
Purchases of additional noncontrolling interest | | | | | | | (1,978 | ) | | — |
| | (36,403 | ) | | — |
| | (4,416 | ) | | — |
| | (42,797 | ) |
Dividend declared and paid to noncontrolling interests | | | | | | | (52,384 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | (52,384 | ) |
Other | | | | | | | 1,871 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 1,871 |
|
Other comprehensive loss | | | | | | | (22,410 | ) | | — |
| | — |
| | — |
| | (101,401 | ) | | — |
| | (123,811 | ) |
Balances at December 31, 2015 | 58,967,502 |
| | 555,556 |
| | 30,295,457 |
| | $ | 177,615 |
| | $ | 90 |
| | $ | 2,068,949 |
| | $ | (12,437,011 | ) | | $ | (414,407 | ) | | $ | (1,917 | ) | | $ | (10,606,681 | ) |
Net income (loss) | | | | | | | 56,315 |
| | — |
| | — |
| | (296,318 | ) | | — |
| | — |
| | (240,003 | ) |
Issuance (forfeiture) of restricted stock | | | | | 1,206,991 |
| | (1,366 | ) | | 1 |
| | (1 | ) | | — |
| | — |
| | (199 | ) | | (1,565 | ) |
Amortization of share-based compensation | | | | | | | 10,238 |
| | — |
| | 2,848 |
| | — |
| | — |
| | — |
| | 13,086 |
|
Purchases of additional noncontrolling interest | | | | | | | 1,224 |
| | — |
| | (1,224 | ) | | — |
| | — |
| | — |
| | — |
|
Disposal of noncontrolling interest | | | | | | | (36,846 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | (36,846 | ) |
Dividend declared and paid to noncontrolling interests | | | | | | | (70,412 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | (70,412 | ) |
Other | | | | | | | 623 |
| | — |
| | 3 |
| | — |
| | — |
| | (3 | ) | | 623 |
|
Other comprehensive income | | | | | | | (2,208 | ) | | — |
| | — |
| | — |
| | 58,531 |
| | — |
| | 56,323 |
|
Balances at December 31, 2016 | 58,967,502 |
| | 555,556 |
| | 31,502,448 |
| | $ | 135,183 |
| | $ | 91 |
| | $ | 2,070,575 |
| | $ | (12,733,329 | ) | | $ | (355,876 | ) | | $ | (2,119 | ) | | $ | (10,885,475 | ) |
See Notes to Consolidated Financial Statements
CONSOLIDATED STATEMENTS OF CASH FLOWS OF
IHEARTMEDIA, INC. AND SUBSIDIARIES
|
| | | | | | | | | | | |
(In thousands) | Years Ended December 31, |
| 2016 | | 2015 | | 2014 |
Cash flows from operating activities: | | | | | |
Consolidated net loss | $ | (240,003 | ) | | $ | (737,490 | ) | | $ | (762,158 | ) |
Reconciling items: | | | | | |
Impairment charges | 8,000 |
| | 21,631 |
| | 24,176 |
|
Depreciation and amortization | 635,227 |
| | 673,991 |
| | 710,898 |
|
Deferred taxes | (98,127 | ) | | 27,848 |
| | 33,923 |
|
Provision for doubtful accounts | 27,390 |
| | 30,579 |
| | 14,167 |
|
Amortization of deferred financing charges and note discounts, net | 69,951 |
| | 63,838 |
| | 89,701 |
|
Share-based compensation | 13,086 |
| | 10,923 |
| | 10,713 |
|
Gain on disposal of operating and other assets | (365,710 | ) | | (107,186 | ) | | (44,512 | ) |
Loss on investments | 12,907 |
| | 4,421 |
| | — |
|
Equity in loss of nonconsolidated affiliates | 16,733 |
| | 902 |
| | 9,416 |
|
(Gain) loss on extinguishment of debt | (157,556 | ) | | 2,201 |
| | 43,347 |
|
Other reconciling items, net | 33,120 |
| | (28,490 | ) | | (14,325 | ) |
Changes in operating assets and liabilities, net of effects of acquisitions and dispositions: | | | | | |
Increase in accounts receivable | (14,469 | ) | | (121,574 | ) | | (13,898 | ) |
(Increase) decrease in prepaid expenses and other current assets | (2,753 | ) | | (20,631 | ) | | 15,216 |
|
Increase (decrease) in accrued expenses | (2,862 | ) | | (15,841 | ) | | 31,049 |
|
Increase in accounts payable | 3,065 |
| | 27,385 |
| | 6,404 |
|
Increase in accrued interest | 20,809 |
| | 59,608 |
| | 88,560 |
|
Increase in deferred income | 23,661 |
| | 23,516 |
| | 11,288 |
|
Changes in other operating assets and liabilities | 3,549 |
| | 7,065 |
| | (8,849 | ) |
Net cash provided by (used for) operating activities | (13,982 | ) | | (77,304 | ) | | 245,116 |
|
Cash flows from investing activities: | | | | | |
Proceeds from sale of other investments | 5,367 |
| | 579 |
| | 236,618 |
|
Purchases of businesses | (500 | ) | | (27,588 | ) | | 841 |
|
Purchases of property, plant and equipment | (314,717 | ) | | (296,380 | ) | | (318,164 | ) |
Proceeds from disposal of assets | 856,981 |
| | 414,278 |
| | 10,273 |
|
Purchases of other operating assets | (4,414 | ) | | (29,159 | ) | | (4,541 | ) |
Purchases of investments | (29,031 | ) | | (29,006 | ) | | (8,520 | ) |
Change in other, net | (2,771 | ) | | (2,490 | ) | | (5,189 | ) |
Net cash provided by (used for) investing activities | 510,915 |
| | 30,234 |
| | (88,682 | ) |
Cash flows from financing activities: | | | | | |
Draws on credit facilities | 100,000 |
| | 350,000 |
| | 68,010 |
|
Payments on credit facilities | (2,100 | ) | | (123,849 | ) | | (315,682 | ) |
Proceeds from long-term debt | 6,856 |
| | 1,172,777 |
| | 2,062,475 |
|
Payments on long-term debt | (421,263 | ) | | (931,420 | ) | | (2,099,101 | ) |
Payments to repurchase noncontrolling interests | — |
| | (42,797 | ) | | (48,750 | ) |
Dividends and other payments to noncontrolling interests | (89,631 | ) | | (30,871 | ) | | (40,027 | ) |
Deferred financing charges | (10,529 | ) | | (18,644 | ) | | (26,169 | ) |
Change in other, net | (1,564 | ) | | 2,214 |
| | 1,243 |
|
Net cash provided by (used for) financing activities | (418,231 | ) | | 377,410 |
| | (398,001 | ) |
Effect of exchange rate changes on cash | (6,350 | ) | | (14,686 | ) | | (9,560 | ) |
Net increase (decrease) in cash and cash equivalents | 72,352 |
| | 315,654 |
| | (251,127 | ) |
Cash and cash equivalents at beginning of period | 772,678 |
| | 457,024 |
| | 708,151 |
|
Cash and cash equivalents at end of period | $ | 845,030 |
| | $ | 772,678 |
| | $ | 457,024 |
|
SUPPLEMENTAL DISCLOSURES: | | | | | |
Cash paid during the year for interest | $ | 1,764,776 |
| | $ | 1,686,988 |
| | $ | 1,540,860 |
|
Cash paid during the year for taxes | 44,844 |
| | 52,169 |
| | 53,074 |
|
See Notes to Consolidated Financial Statements
IHEARTMEDIA, INC.AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1–SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business
iHeartMedia, Inc. (the “Company”) was formed in May 2007 by private equity funds sponsored by Bain Capital Partners, LLC and Thomas H. Lee Partners, L.P. (together, the “Sponsors”) for the purpose of acquiring the business of iHeartCommunications, Inc., a Texas company (“iHeartCommunications”). The acquisition was completed on July 30, 2008 pursuant to the Agreement and Plan of Merger, dated November 16, 2006, as amended on April 18, 2007, May 17, 2007 and May 13, 2008 (the “Merger Agreement”).
The Company’s reportable segments are iHeartMedia (“iHM”), Americas outdoor advertising (“Americas outdoor”), and International outdoor advertising (“International outdoor”). The iHM segment provides media and entertainment services via broadcast and digital delivery. The Americas outdoor and International outdoor segments provide outdoor advertising services in their respective geographic regions using various digital and traditional display types. Included in the “Other” category are the Company’s media representation business, Katz Media Group, as well as other general support services and initiatives, which are ancillary to its other businesses.
Use of Estimates
The preparation of the consolidated financial statements in conformity with U.S. generally accepted accounting principles (“GAAP”) requires management to make estimates, judgments, and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes including, but not limited to, legal, tax and insurance accruals. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. Actual results could differ from those estimates.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and its subsidiaries. Also included in the consolidated financial statements are entities for which the Company has a controlling financial interest or is the primary beneficiary. Investments in companies in which the Company owns 20% to 50% of the voting common stock or otherwise exercises significant influence over operating and financial policies of the Company are accounted for using the equity method of accounting. All significant intercompany accounts have been eliminated in consolidation.
Certain prior period amounts have been reclassified to conform to the 2016 presentation. Included in International Outdoor Direct operating expenses and Selling, general and administrative expenses are $8.2 million and $3.2 million, respectively, recorded in the fourth quarter of 2015 to correct for accounting errors included in the results for our Netherlands subsidiary reported in prior years. Such corrections are not considered to be material to current year or prior year financial results.
The Company is the beneficiary of two trusts created to comply with Federal Communications Commission (“FCC”) ownership rules. The radio stations owned by the trusts are managed by independent trustees. The trustees are marketing these stations for sale, and the stations will have to be sold unless any stations may be owned by the Company under then-current FCC rules, in which case the trusts will be terminated with respect to such stations. The trust agreements stipulate that the Company must fund any operating shortfalls of the trust activities, and any excess cash flow generated by the trusts is distributed to the Company. The Company is also the beneficiary of proceeds from the sale of stations held in the trusts. The Company consolidates the trusts in accordance with ASC 810-10, which requires an enterprise involved with variable interest entities to perform an analysis to determine whether the enterprise’s variable interest or interests give it a controlling financial interest in the variable interest entity, as the trusts were determined to be a variable interest entity and the Company is the primary beneficiary under the trusts.
Going Concern Considerations
During the second quarter of 2014, the FASB issued ASU No. 2014-15, Presentation of Financial Statements - Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity's Ability to Continue as a Going Concern. This update provides U.S. GAAP guidance on management’s responsibility in evaluating whether there is substantial doubt about a company’s ability to continue as a going concern and about related footnote disclosures. The Company adopted this standard for the year ended December 31, 2016. Under this standard, the Company is required to evaluate whether there is substantial doubt about its ability to continue as a going concern each reporting period, including interim periods.
In evaluating the Company’s ability to continue as a going concern, management considered the conditions and events that could raise substantial doubt about the Company’s ability to continue as a going concern within 12 months after the Company’s financial
IHEARTMEDIA, INC.AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
statements were issued (February 23, 2017). Management considered the Company’s current financial condition and liquidity sources, including current funds available, forecasted future cash flows and the Company’s conditional and unconditional obligations due before February 23, 2018.
As of December 31, 2016, the Company had $845.0 million of cash on its balance sheet, including $542.0 million of cash held by the Company's subsidiary, Clear Channel Outdoor Holdings, Inc.
("CCOH"(“CCOH”)).
As of December 31, 2016,The Compensation Committee met 8 times during 2017. Compensation Committee member Jonathon S. Jacobson is independent as defined by iHeartMedia’s independence standards.5
The Compensation Committee has the Company had $113.6 million of excess availabilityability, under its receivables based credit facility. A substantial amount of the Company's cash requirements are for debt service obligations. The Company incurred net losses for the years ended December 31, 2016, 2015charter, to select and 2014 and had negative cash flows from operating activities for the years ended December 31, 2016 and 2015. The Company's current operating plan indicates it will continue to incur net losses and generate negative cash flows from operating activities given the Company's indebtedness and related interest expense. During the year ended December 31, 2016, the Company spent $2,081.3 million of cash on payments of principal and interest on its debt, net of facility draws and proceeds received, and anticipates having approximately $1.7 billion of cash interest payment obligations in 2017. At December 31, 2016, the Company had debt maturities totaling $343.5 million, $559.1 million (net of $503.0 million due to certain subsidiaries of iHeartCommunications) and $8,369.0 million in 2017, 2018 and 2019, respectively. The Company's debt maturities at December 31, 2016 include $330.0 million outstanding under a receivables based credit facility, which matures on December 24, 2017. These factors coupled with the Company's forecast of future cash flows indicates that such cash flows would not be sufficient for the Company to meet its obligations, including payment of the outstanding receivables based credit facility balance at maturity, as they become due in the ordinary course of business for a period of12 months following February 23, 2017.
The Company plans to refinance or extend the receivables based credit facility to a date at least 12 months after February 23, 2017 with terms similar to the facility’s current terms.
Management believes the refinancing or extension of the maturity of the receivables based credit facility is probable of being executed as the Company has successfully extended the maturity date of this receivables based credit facility in the past, and the facility has a first-priority lien on the accounts receivable of iHeartCommunications and certain of its subsidiaries (see Footnote 5). Management’s plan to refinance or extend the due date of the receivables based credit facility, combined with current funds and expected future cash flows, are considered to be sufficient to enable the Company to meet its obligations as they become due in the ordinary course of business for a period of 12 months following the date these financial statements are issued.
While management plans to refinance or extend the maturity of the receivables based credit facility and has begun discussing such extension with its receivables based credit facility lenders, there is no assurance that the receivables based credit facility will be refinanced or extended in a timely manner, in amounts that are sufficient to meet the Company's obligations as they become due, or on terms acceptable to the Company, or at all. The Company’s ability to meet its obligations as they become due in the ordinary course of business for the next 12 months will depend on its ability to achieve forecasted results and its ability to refinance or extend the maturity of its receivables based credit facility. Management's belief that the receivables based credit facility will be refinanced or extended and that such refinancing or extension, together with forecasted operating cash flow, will be sufficient to enable the Company to meet its obligations as they become due in the ordinary course of business for 12 months following the date these financial statements are issued assumes, among other things, that the Company will continue to be successful in implementing its business strategy and that there will be no material adverse developments in its business, liquidity or capital requirements. If one or more of these factors do not occur as expected, it could cause a default under one or more of the agreements governing the Company’s indebtedness.
The Company has been reviewing a number or potential alternatives regarding its outstanding indebtedness. These alternatives include refinancings, exchange offers, consent solicitations, the issuance of new indebtedness, amendments to the terms of the Company’s existing indebtedness and/or other transactions. The Company has considered and will continue to evaluate potential transactions to improve its capital structure and address its liquidity constraints.
Cash and Cash Equivalents
Cash and cash equivalents include all highly liquid investments with an original maturity of three months or less.
Accounts Receivable
Accounts receivable are recordedretain, at the invoiced amount, netexpense of reserves for sales returnsiHeartMedia, legal and allowances, and allowances for doubtful accounts. The Company evaluates the collectability of its accounts receivable based on a combination of factors. In circumstances where it is aware of a specific customer’s inability to meet its financial obligations, it records a specific reserve to
IHEARTMEDIA, INC.AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
reduce the amounts recorded to what it believes will be collected. For all other customers, it recognizes reserves for bad debt based on historical experience of bad debts as a percent of revenue for each business unit, adjusted for relative improvements or deteriorations in the agings and changes in current economic conditions. The Company believes its concentration of credit risk is limited due to the large number and the geographic diversification of its customers.
Business Combinations
The Company accounts for its business combinations under the acquisition method of accounting. The total cost of an acquisition is allocated to the underlying identifiable net assets, based on their respective estimated fair values. The excess of the purchase price over the estimated fair values of the net assets acquired is recorded as goodwill. Determining the fair value of assets acquired and liabilities assumed requires management's judgment and often involves the use of significant estimates and assumptions, including assumptions with respect to future cash inflows and outflows, discount rates, asset lives and market multiples, among other items. Various acquisition agreements may include contingent purchase consideration based on performance requirements of the investee. The Company accounts for these payments in conformity with the provisions of ASC 805-20-30, which establish the requirements related to recognition of certain assets and liabilities arising from contingencies.
Property, Plant and Equipment
Property, plant and equipment are stated at cost. Depreciation is computed using the straight-line method at rates that, in the opinion of management, are adequate to allocate the cost of such assets over their estimated useful lives, which are as follows:
Buildings and improvements – 10 to 39 years
Structures – 3 to 20 years
Towers, transmitters and studio equipment – 5 to 20 years
Furniturecounsel and other equipment – 2 to 20 years
Leasehold improvements – shorter of economic life or lease term assuming renewal periods, if appropriate
For assets associated with a lease or contract, the assets are depreciated at the shorter of the economic life or the lease or contract term, assuming renewal periods, if appropriate. Expenditures for maintenance and repairs are charged to operations as incurred, whereas expenditures for renewal and betterments are capitalized.
The Company tests for possible impairment of property, plant, and equipment whenever events and circumstances indicate that depreciable assets might be impaired and the undiscounted cash flows estimated to be generated by those assets are less than the carrying amounts of those assets. When specific assets are determined to be unrecoverable, the cost basis of the asset is reduced to reflect the current fair market value.
Assets and businesses are classified as held for sale if their carrying amount will be recovered or settled principally through a sale transaction rather than through continuing use. The asset or business must be available for immediate sale and the sale must be highly probable within one year.
Leases
Most of the Company’s outdoor advertising structures are located on leased land. Americas outdoor land leases are typically paid in advance for periods ranging from one to 12 months. International outdoor land leases are paid both in advance and in arrears, for periods ranging up to 12 months. Most international street furniture display faces are operated through contracts with municipalities for up to 15 years. The leased land and street furniture contracts often include a percent of revenue to be paid along with a base rent payment. Prepaid land leases are recorded as an asset and expensed ratably over the related rental term and rent payments in arrears are recorded as an accrued liability.
The Company has entered into leases for tower sites for most of its broadcasting locations. Tower site leases are typically paid monthly in advance, and have 30-year lease terms including annual rent escalations. Most tower site leases are operating leases, and operating lease expense is recognized straight-line based on the minimum lease payments for each lease.
Intangible Assets
The Company’s indefinite-lived intangible assets include FCC broadcast licenses in its iHM segment and billboard permits in its Americas outdoor advertising segment. The Company’s indefinite-lived intangible assets are not subject to amortization, but are tested for impairment at least annually. The Company tests for possible impairment of indefinite-lived intangible assets whenever
IHEARTMEDIA, INC.AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
events or changes in circumstances, such as a significant reduction in operating cash flow or a dramatic change in the manner for which the asset is intended to be used indicate that the carrying amount of the asset may not be recoverable.
The Company performs its annual impairment test for its FCC licenses and permits using a direct valuation technique as prescribed in ASC 805-20-S99. The Company engages a third party valuation firm, to assist the Company in the development of these assumptions and the Company’s determination of the fair value of its FCC licenses and permits.
Other intangible assets include definite-lived intangible assets and permanent easements. The Company’s definite-lived intangible assets include primarily transit and street furniture contracts, talent and representation contracts, customer and advertiser relationships, and site-leases, all of which are amortized over 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. The Company periodically reviews the appropriateness of the amortization periods related to its definite-lived intangible assets. These assets are recorded at cost. Permanent easements are indefinite-lived intangible assets which include certain rights to use real property not owned by the Company.
The Company tests for possible impairment of other intangible assets whenever events and circumstances indicate that they might be impaired and the undiscounted cash flows estimated to be generated by those assets are less than the carrying amounts of those assets. When specific assets are determined to be unrecoverable, the cost basis of the asset is reduced to reflect the current fair market value.
Goodwill
At least annually, the Company performs its impairment test for each reporting unit’s goodwill. The Company uses a discounted cash flow model to determine if the carrying value of the reporting unit, including goodwill, is less than the fair value of the reporting unit. The Company identified its reporting units in accordance with ASC 350-20-55. The U.S. radio markets are aggregated into a single reporting unit and the Company’s U.S. outdoor advertising markets are aggregated into a single reporting unit for purposes of the goodwill impairment test. The Company also determined that within its Americas outdoor segment, Canada constitutes a separate reporting unit and each country in its International outdoor segment constitutes a separate reporting unit. The Company recognized goodwill impairment of $7.3 million in 2016 related to one of our International outdoor markets and had no impairment of goodwill in 2015 and 2014.
Nonconsolidated Affiliates
In general, investments in which the Company owns 20% to 50% of the common stock or otherwise exercises significant influence over the investee are accounted for under the equity method. The Company does not recognize gains or losses upon the issuance of securities by any of its equity method investees. The Company reviews the value of equity method investments and records impairment charges in the statement of operations as a component of “Equity in earnings (loss) of nonconsolidated affiliates” for any decline in value that is determined to be other-than-temporary. The Company recognized other-than-temporary impairment of $15.0 million on an equity investment for the year ended December 31, 2016, which was recorded in "Equity in loss of nonconsolidated affiliates."
Other Investments
Other investments are composed primarily of equity securities. Securities for which fair value is determinable are classified as available-for-sale or trading and are carried at fair value based on quoted market prices. Securities are carried at historical cost when quoted market prices are unavailable. The net unrealized gains or losses on the available-for-sale securities, net of tax, are reported in accumulated other comprehensive loss as a component of stockholders' deficit.
The Company periodically assesses the value of available-for-sale and non-marketable securities and records impairment charges in the statement of comprehensive loss for any decline in value that is determined to be other-than-temporary. The average cost method is used to compute the realized gains and losses on sales of equity securities. Based on these assessments, the Company concluded that other-than-temporary impairments existed at December 31, 2016 and December 31, 2015 and recorded noncash impairment charges of $14.8 million and $5.0 million during 2016 and 2015, respectively. Such charge is recorded on the statement of comprehensive loss in “Loss on investments, net”. There were no impairment charges during the year ended December 31, 2014.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Financial Instruments
Due to their short maturity, the carrying amounts of accounts and notes receivable, accounts payable, accrued liabilities, and short-term borrowings approximated their fair values at December 31, 2016 and 2015.
Income Taxes
The Company accounts for income taxes using the liability method. Under this method, deferred tax assets and liabilities are determined based on differences between financial reporting bases and tax bases 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 that some portion or the entire asset will not be realized. Generally all earnings from the Company’s foreign operations are permanently reinvested and not distributed. The Company has not provided U.S. federal income taxes for temporary differences with respect to investments in foreign subsidiaries, which at December 31, 2016 currently result in tax basis amounts greater than the financial reporting basis. It is not apparent that these unrecognized deferred tax assets will reverse in the foreseeable future. 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 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. We regularly review our tax liabilities on amounts that may be distributed in future periods and provide for foreign withholding and other current and deferred taxes on any such amounts. The determination of the amount of federal income taxes, if any, that might become due in the event that our foreign earnings are distributed is not practicable.
Revenue Recognition
iHM revenue is recognized as advertisements or programs are broadcast and is generally billed monthly. Outdoor advertising contracts typically cover periods of a few weeks up to one year and are generally billed monthly. Revenue for outdoor advertising space rental is recognized ratably over the term of the contract. Advertising revenue is reported net of agency commissions. Agency commissions are calculated based on a stated percentage applied to gross billing revenue for the Company’s media and entertainment and outdoor operations. Payments received in advance of being earned are recorded as deferred income. Revenue arrangements may contain multiple products and services and revenues are allocated based on the relative fair value of each delivered item and recognized in accordance with the applicable revenue recognition criteria for the specific unit of accounting.
Barter transactions represent the exchange of advertising spots or display space for merchandise, services or other assets. These transactions are recorded at the estimated fair market value of the advertising spots or display space or the fair value of the merchandise or services or other assets received, whichever is most readily determinable. Revenue is recognized on barter and trade transactions when the advertisements are broadcasted or displayed. Expenses are recorded ratably over a period that estimates when the merchandise, service or other assets received is utilized, or when the event occurs. Barter and trade revenues and expenses from continuing operations are included in consolidated revenue and selling, general and administrative expenses, respectively. Barter and trade revenues and expenses from continuing operations were as follows:
|
| | | | | | | | | | | |
(In millions) | Years Ended December 31, |
| 2016 | | 2015 | | 2014 |
Barter and trade revenues | $ | 165.8 |
| | $ | 133.5 |
| | $ | 78.3 |
|
Barter and trade expenses | 112.2 |
| | 112.1 |
| | 75.1 |
|
Advertising Expense
The Company records advertising expense as it is incurred. Advertising expenses were $132.7 million, $129.1 million and $103.0 million for the years ended December 31, 2016, 2015 and 2014, respectively.
Share-Based Compensation
Under the fair value recognition provisions of ASC 718-10, share-based compensation cost is measured at the grant date based on the fair value of the award. For awards that vest based on service conditions, this cost is recognized as expense on a straight-line basis over the vesting period. For awards that will vest based on market or performance conditions, this cost will be recognized when it becomes probable that the performance conditions will be satisfied. Determining the fair value of share-based awards at the grant date requires assumptions and judgments about expected volatility and forfeiture rates, among other factors.
IHEARTMEDIA, INC.AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Foreign Currency
Results of operations for foreign subsidiaries and foreign equity investees are translated into U.S. dollars using the average exchange rates during the year. The assets and liabilities of those subsidiaries and investees are translated into U.S. dollars using the exchange rates at the balance sheet date. The related translation adjustments are recorded in a separate component of stockholders' deficit, “Accumulated other comprehensive loss”. Foreign currency transaction gains and losses are included in operations.
New Accounting Pronouncements
During the third quarter of 2015, the FASB issued ASU 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date. This update provides a one-year deferral of the effective date for ASU No. 2014-09, Revenue from Contracts with Customers. ASU No. 2014-09 provides guidance for the recognition, measurement and disclosure of revenue resulting from contracts with customers and will supersede virtually all of the current revenue recognition guidance under U.S. GAAP. The standard is effective for the first interim period within annual reporting periods beginning after December 15, 2017. The two permitted transition methods under the new standard are the full retrospective method, in which case the standard would be applied to each prior reporting period presented and the cumulative effect of applying the standard would be recognized at the earliest period shown, or the modified retrospective method, in which case the cumulative effect of applying the standard would be recognized at the date of initial application. The Company expects to utilize the full retrospective method. The Company has substantially completed its evaluation of the potential changes from adopting the new standard on its future financial reporting and disclosures which included reviews of contractual terms for all of the Company’s significant revenue streams and the development of an implementation plan. The Company continues to execute on its implementation plan, including detailed policy drafting and training of segment personnel. Based on its evaluation, the Company does not expect material changes to its 2016 or 2017 consolidated revenues, operating income or balance sheets as a result of the implementation of this standard.
During the 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 $148.0 million as of December 31, 2015, which are now reflected as “Long-term debt fees” in Note 5.
During the first quarter of 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). The new leasing standard presents significant changes to the balance sheets of lessees. Lessor accounting is updated to align with certain changes in the lessee model and the new revenue recognition standard which was issued in the third quarter of 2015. The standard is effective for annual periods, and for interim periods within those annual periods, beginning after December 15, 2018. The Company is currently evaluating the impact of the provisions of this new standard on its consolidated financial statements.
During the second quarter of 2016, the FASB issued ASU No. 2016-09, Compensation - Stock Compensation (Topic 718). This update changes the accounting for certain aspects of share-based payments to employees. Income tax effects of share-based payment awards will be recognized in the income statement with the vesting or settlement of the awards and the record keeping for additional paid-in capital pools will no longer be necessary. Additionally, companies can make a policy election to either estimate forfeitures or recognize them as they occur. The standard is effective for annual periods, and for interim periods within those annual periods, beginning after December 15, 2016. The Company does not expect the provisions of this new standard to have a material impact on its consolidated financial statements.
During the second quarter of 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326). The new standard changes the impairment model for most financial assets and certain other instruments. Entities will be required to use a model that will result in the earlier recognition of allowances for losses for trade and other receivables, held-to-maturity debt securities, loans and other instruments. For available-for-sale debt securities with unrealized losses, the losses will be recognized as allowances rather than as reductions in the amortized cost of the securities. For an SEC filer, the standard is effective for annual periods, and for interim periods within those annual periods, beginning after December 15, 2019. The Company is currently evaluating the impact of the provisions of this new standard on its consolidated financial statements.
During the third quarter of 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230). The new standard addresses the classification of cash flows related to certain cash receipts and cash payments. Additionally, the standard clarifies how the predominance principle should be used when cash receipts and cash payments have aspects of more than one class of cash flows. First, an entity will apply the guidance in Topic 230 and other applicable topics. If there is no guidance for those cash
IHEARTMEDIA, INC.AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
receipts and cash payments, an entity will determine each separately identifiable source or use and classify the receipt or payment based on the nature of the cash flow. If a receipt or payment has aspects of more than one class of cash flows and cannot be separated, the classification will depend on the predominant source or use. The standard is effective for annual periods, and for interim periods within those annual periods, beginning after December 15, 2017. The Company is currently evaluating the impact of the provisions of this new standard on its consolidated financial statements.
NOTE 2 –PROPERTY, PLANT AND EQUIPMENT, INTANGIBLEASSETS AND GOODWILL
Dispositions
During the first quarter of 2016, the Company and certain of its subsidiaries completed the final closing for the sale of six of the Company’s broadcast communication tower sites and related assets for approximately $5.5 million. Simultaneous with the sale, the Company entered into lease agreements for the continued use of space on all six of the towers sold. The Company realized a net gain of $2.7 million, of which $1.9 million was deferred and will be recognized over the lease term.
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, which included cash and certain advertising assets in Florida, totaling $592.3 million. The Company recognized a net gain of $278.3 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 closed in January 2017. The related net assets are separately presented and classified as held-for-sale on the face of the Consolidated Balance Sheet as of December 31, 2016.
During the second quarter of 2016, International outdoor sold its business in Turkey. As a result, the Company recognized a net loss of $56.6 million, which includes $32.2 million in cumulative translation adjustments that were recognized upon the sale of the Company's subsidiaries in Turkey.
During the fourth quarter of 2016, International outdoor sold its outdoor business in Australia for cash proceeds of $195.7 million, net of cash retained by the purchaser and closing costs. As a result, the Company recognized a net gain of $127.6 million, which is net of $14.6 million in cumulative translation adjustments that were recognized upon the sale of the Company's outdoor business in Australia.
Property, Plant and Equipment
The Company’s property, plant and equipment consisted of the following classes of assets as of December 31, 2016 and 2015, respectively:
|
| | | | | | | |
(In thousands) | December 31, | | December 31, |
| 2016 | | 2015 |
Land, buildings and improvements | $ | 570,566 |
| | $ | 603,234 |
|
Structures | 2,684,673 |
| | 2,824,794 |
|
Towers, transmitters and studio equipment | 350,760 |
| | 347,877 |
|
Furniture and other equipment | 622,848 |
| | 591,149 |
|
Construction in progress | 91,655 |
| | 69,042 |
|
| 4,320,502 |
| | 4,436,096 |
|
Less: accumulated depreciation | 2,372,340 |
| | 2,223,540 |
|
Property, plant and equipment, net | $ | 1,948,162 |
| | $ | 2,212,556 |
|
Indefinite-lived Intangible Assets
The Company’s indefinite-lived intangible assets consist of FCC broadcast licenses and billboard permits. FCC broadcast licenses are granted to radio stations for up to eight years under the Telecommunications Act of 1996 (the “Act”). The Act requires the FCC to renew a broadcast license if the FCC finds that the station has served the public interest, convenience and necessity, there
IHEARTMEDIA, INC.AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
have been no serious violations of either the Communications Act of 1934 or the FCC’s rules and regulations by the licensee, and there have been no other serious violations which taken together constitute a pattern of abuse. The licenses may be renewed indefinitely at little or no cost. The Company does not believe that the technology of wireless broadcasting will be replaced in the foreseeable future.
The Company’s billboard permits are granted for the right to operate an advertising structure at the specified location as long as the structure is in compliance with the laws and regulations of each jurisdiction. The Company’s permits are located on owned land, leased land or land for which we have acquired permanent easements. In cases where the Company’s permits are located on leased land, the leases typically have initial terms of between 10 and 20 years and renew indefinitely, with rental payments generally escalating at an inflation-based index. If the Company loses its lease, the Company will typically obtain permission to relocate the permit or bank it with the municipality for future use. Due to significant differences in both business practices and regulations, billboards in the International outdoor 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 outdoor segment.
Annual Impairment Test to Indefinite-lived Intangible Assets
The Company performs its annual impairment test on indefinite-lived intangible assets as of July 1 of each year.
The impairment tests for indefinite-lived intangible assets consist of a comparison between the fair value of the indefinite-lived intangible asset at the market level with its carrying amount. If the carrying amount of the indefinite-lived intangible asset exceeds its fair value, an impairment loss is recognized equal to that excess. After an impairment loss is recognized, the adjusted carrying amount of the indefinite-lived asset is its new accounting basis. The fair value of the indefinite-lived asset is determined using the direct valuation method as prescribed in ASC 805-20-S99. Under the direct valuation method, the fair value of the indefinite-lived assets is calculated at the market level as prescribed by ASC 350-30-35. The Company engaged a third-party valuation firm,consultants necessary to assist it in the development of the assumptions and the Company’s determination of the fair value of its indefinite-lived intangible assets.
The application of the direct valuation method attempts to isolate the income that is properly attributable to the indefinite-lived intangible asset alone (that is, apart from tangible and identified intangible assets and goodwill). It is based upon modeling a hypothetical “greenfield” build-up to a “normalized” enterprise that, by design, lacks inherent goodwill and whose only other assets have essentially been paid for (or added) as part of the build-up process. The Company forecasts revenue, expenses, and cash flows over a ten-year period for each of its marketsit may deem appropriate, in its application of the direct valuation method.sole discretion. The CompanyCompensation Committee also calculates a “normalized” residual year which represents the perpetual cash flows of each market. The residual year cash flow was capitalized to arrive at the terminal value of the licenses in each market.
Under the direct valuation method, it is assumed that rather than acquiring indefinite-lived intangible assets as part of a going concern business, the buyer hypothetically develops indefinite-lived intangible assets and builds a new operation with similar attributes from scratch. Thus, the buyer incurs start-up costs during the build-up phase which are normally associated with going concern value. Initial capital costs are deducted from the discounted cash flow model which results in value that is directly attributable to the indefinite-lived intangible assets.
The key assumptions using the direct valuation method are market revenue growth rates, market share, profit margin, duration and profile of the build-up period, estimated start-up capital costs and losses incurred during the build-up period, the risk-adjusted discount rate and terminal values. This data is populated using industry normalized information representing an average FCC license or billboard permit within a market.
During 2016, the Company recognized an impairment charge of $0.7 million related to FCC licenses in one market. During 2015, the Company recognized an impairment charge of $21.6 million related to billboard permits in one market. During 2014, the Company recognized a $15.7 million impairment charge related to FCC licenses in eleven markets due to changes in the revenue growth forecasts and margins for those markets.
Other Intangible Assets
Other intangible assets include definite-lived intangible assets and permanent easements. The Company’s definite-lived intangible assets primarily include transit and street furniture contracts, talent and representation contracts, customer and advertiser relationships, and 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
IHEARTMEDIA, INC.AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
cash flows. Permanent easements are indefinite-lived intangible assets which include certain rights to use real property not owned by the Company. The Company periodically reviews the appropriateness of the amortization periods related to its definite-lived intangible assets. These assets are recorded at cost.
The following table presents the gross carrying amount and accumulated amortization for each major class of other intangible assets as of December 31, 2016 and 2015, respectively:
|
| | | | | | | | | | | | | | | |
(In thousands) | December 31, 2016 | | December 31, 2015 |
| Gross Carrying Amount | | Accumulated Amortization | | Gross Carrying Amount | | Accumulated Amortization |
Transit, street furniture and other outdoor contractual rights | $ | 563,863 |
| | $ | (426,752 | ) | | $ | 635,772 |
| | $ | (457,060 | ) |
Customer / advertiser relationships | 1,222,519 |
| | (1,012,380 | ) | | 1,222,518 |
| | (891,488 | ) |
Talent contracts | 319,384 |
| | (281,060 | ) | | 319,384 |
| | (252,526 | ) |
Representation contracts | 253,511 |
| | (229,413 | ) | | 239,142 |
| | (217,770 | ) |
Permanent easements | 159,782 |
| | — |
| | 156,349 |
| | — |
|
Other | 390,171 |
| | (219,117 | ) | | 394,983 |
| | (195,644 | ) |
Total | $ | 2,909,230 |
| | $ | (2,168,722 | ) | | $ | 2,968,148 |
| | $ | (2,014,488 | ) |
Total amortization expense related to definite-lived intangible assets for the years ended December 31, 2016, 2015 and 2014 was $222.6 million, $237.5 million, and $263.4 million, respectively.
As acquisitions and dispositions occur in the future, amortization expense may vary. The following table presents the Company’s estimate of amortization expense for each of the five succeeding fiscal years for definite-lived intangible assets:
|
| | | |
(In thousands) | |
2017 | $ | 195,966 |
|
2018 | 128,279 |
|
2019 | 44,820 |
|
2020 | 38,199 |
|
2021 | 35,471 |
|
Annual Impairment Test to Goodwill
The Company performs its annual impairment test on goodwill as of July 1 of each year.
Each of the U.S. radio markets and outdoor advertising markets are components of the Company. The U.S. radio markets are aggregated into a single reporting unit and the U.S. outdoor advertising markets are aggregated into a single reporting unit for purposes of the goodwill impairment test using the guidance in ASC 350-20-55. The Company also determined that each country within its Americas outdoor segment and International outdoor segment constitutes a separate reporting unit.
The goodwill impairment test is a two-step process. The first step, used to screen for potential impairment, compares the fair value of the reporting unit with its carrying amount, including goodwill. If applicable, the second step, used to measure the amount of the impairment loss, compares the implied fair value of the reporting unit goodwill with the carrying amount of that goodwill.
Each of the Company’s reporting units is valued using a discounted cash flow model which requires estimating future cash flows expected to be generated from the reporting unit and discounting such cash flows to their present value using a risk-adjusted discount rate. Terminal values were also estimated and discounted to their present value. Assessing the recoverability of goodwill requires the Company to make estimates and assumptions about sales, operating margins, growth rates and discount rates based on its budgets, business plans, economic projections, anticipated future cash flows and marketplace data. There are inherent uncertainties related to these factors and management’s judgment in applying these factors.
IHEARTMEDIA, INC.AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company recognized goodwill impairment of $7.3 million during the year ended December 31, 2016 related to one market in the Company's International outdoor segment and concluded no goodwill impairment charge was required for the year ended December 31, 2015.
The following table presents the changes in the carrying amount of goodwill in each of the Company’s reportable segments:
|
| | | | | | | | | | | | | | | | | | | |
(In thousands) | iHM | | Americas Outdoor Advertising | | International Outdoor Advertising | | Other | | Consolidated |
Balance as of December 31, 2014 | $ | 3,288,481 |
| | $ | 584,574 |
| | $ | 232,538 |
| | $ | 81,831 |
| | $ | 4,187,424 |
|
Acquisitions | — |
| | — |
| | 10,998 |
| | — |
| | 10,998 |
|
Foreign currency | — |
| | (709 | ) | | (19,644 | ) | | — |
| | (20,353 | ) |
Assets held for sale | — |
| | (49,182 | ) | | — |
| | — |
| | (49,182 | ) |
Balance as of December 31, 2015 | $ | 3,288,481 |
| | $ | 534,683 |
| | $ | 223,892 |
| | $ | 81,831 |
| | $ | 4,128,887 |
|
Impairment | — |
| | — |
| | (7,274 | ) | | — |
| | (7,274 | ) |
Dispositions | — |
| | (6,934 | ) | | (30,718 | ) | | — |
| | (37,652 | ) |
Foreign currency | — |
| | (1,998 | ) | | (5,051 | ) | | — |
| | (7,049 | ) |
Assets held for sale | — |
| | (10,337 | ) | | — |
| | — |
| | (10,337 | ) |
Balance as of December 31, 2016 | $ | 3,288,481 |
| | $ | 515,414 |
| | $ | 180,849 |
| | $ | 81,831 |
| | $ | 4,066,575 |
|
The balance at December 31, 2014 is net of cumulative impairments of $3.5 billion, $2.6 billion, $326.6 million and $212.0 million in the Company’s iHM, Americas outdoor, International outdoor and Other segments, respectively.
IHEARTMEDIA, INC.AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 – INVESTMENTS
The following table summarizes the Company's investments in nonconsolidated affiliates and available-for-sale securities:
|
| | | | | | | | | | | | | | | |
(In thousands) | Equity Method Investments | | Cost Method Investments | | Marketable Equity Securities | | Total Investments |
Balance at December 31, 2014 | $ | 9,493 |
| | $ | 16,269 |
| | $ | 1,978 |
| | $ | 27,740 |
|
Cash advances | 2,578 |
| | — |
| | — |
| | 2,578 |
|
Acquisitions of investments, net | 17,980 |
| | 47,546 |
| | — |
| | 65,526 |
|
Equity in earnings (loss) | (902 | ) | | — |
| | — |
| | (902 | ) |
Foreign currency translation adjustment | (89 | ) | | (13 | ) | | (205 | ) | | (307 | ) |
Distributions received | (1,350 | ) | | — |
| | — |
| | (1,350 | ) |
Loss on investments | — |
| | (5,000 | ) | | — |
| | (5,000 | ) |
Other | — |
| | — |
| | 553 |
| | 553 |
|
Balance at December 31, 2015 | $ | 27,710 |
| | $ | 58,802 |
| | $ | 2,326 |
| | $ | 88,838 |
|
Cash advances | 2,993 |
| | — |
| | — |
| | 2,993 |
|
Acquisitions of investments, net | 6,737 |
| | 26,086 |
| | — |
| | 32,823 |
|
Equity in loss | (16,733 | ) | | — |
| | — |
| | (16,733 | ) |
Disposals of investments, net | (2,476 | ) | | (1,000 | ) | | — |
| | (3,476 | ) |
Foreign currency transaction adjustment | (45 | ) | | (196 | ) | | (35 | ) | | (276 | ) |
Distributions received | (3,709 | ) | | — |
| | — |
| | (3,709 | ) |
Loss on investments | — |
| | (14,798 | ) | | — |
| | (14,798 | ) |
Other |
|
| | 2,772 |
| | (576 | ) | | 2,196 |
|
Balance at December 31, 2016 | $ | 14,477 |
| | $ | 71,666 |
| | $ | 1,715 |
| | $ | 87,858 |
|
Equity method investments in the table above are not consolidated, but are accounted for under the equity method of accounting, whereby the Company records its investments in these entities in the balance sheet as “Other assets.” The Company's interests in their operations are recorded in the statement of comprehensive loss as “Equity in earnings (loss) of nonconsolidated affiliates.” Other cost investments include various investments in companies for which there is no readily determinable market value.
During 2016, the Company recorded $26.1 million in its iHM segment for investments made in four private companies in exchange for advertising services and cash. Two of these investments are being accounted for under the equity method of accounting, and two of these investments are being accounted for under the cost method. During the fourth quarter of 2015, the Company recorded $36.5 million in its iHM segment for investments made in three private companies in exchange for advertising services. One of these investments is being accounted for under the equity method of accounting, and two of these investments are being accounted for under the cost method. The Company recognized barter revenue of $15.6 million in the year ended December 31, 2015 and $36.6 million in the year ended December 31, 2016 as services were provided. The Company recognized a non-cash impairment of $14.5 million on one of these cost investments for the year ended December 31, 2016, which was recorded in “Loss on investments, net.” In addition, the Company recognized a non-cash impairment of $15.0 million on one of these equity investments for the year ended December 31, 2016, which was recorded in "Equity in loss of nonconsolidated affiliates."
The Company recognized a non-cash impairment of $5.0 million on a cost investment for the year ended December 31, 2015, which was recorded in “Loss on investments, net.”
Marketable Equity Securities
ASC 820-10-35 establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include: Level 1, defined as observable inputs such as quoted prices in active markets; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions.
IHEARTMEDIA, INC.AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company’s marketable equity securities are measured at fair value on each reporting date.
The marketable equity securities are measured at fair value using quoted prices in active markets. Due to the fact that the inputs used to measure the marketable equity securities at fair value are observable, the Company has categorized the fair value measurements of the securities as Level 1. As of December 31, 2016 and 2015, the Company held $1.7 million and $2.3 million in marketable equity securities, which are included within Other Assets.
NOTE 4 – ASSET RETIREMENT OBLIGATION
The Company’s asset retirement obligation is reported in “Other long-term liabilities” with the current portion recorded in “Accrued liabilities” and relates to its obligation to dismantle and remove outdoor advertising displays from leased land and to reclaim the site to its original condition upon the termination or non-renewal of a lease or contract. When the liability is recorded, the cost is capitalized as part of the related long-lived assets’ carrying value. Due to the high rate of lease renewals over a long period of time, the calculation assumes that all related assets will be removed at some period over the next 55 years. An estimate of third-party cost information is used with respect to the dismantling of the structures and the reclamation of the site. The interest rate used to calculate the present value of such costs over the retirement period is based on an estimated risk adjusted credit rate for the same period.
The following table presents the activity related to the Company’s asset retirement obligation:
|
| | | | | | | |
(In thousands) | Years Ended December 31, |
| 2016 | | 2015 |
Beginning balance | $ | 48,056 |
| | $ | 54,211 |
|
Adjustment due to changes in estimates | (5,343 | ) | | 2,082 |
|
Accretion of liability | 5,090 |
| | 754 |
|
Liabilities settled | (4,310 | ) | | (6,105 | ) |
Foreign Currency | (1,002 | ) | | (2,886 | ) |
Ending balance | 42,491 |
| | 48,056 |
|
Less: current portion | 424 |
| | 482 |
|
Long-term portion of asset retirement obligation | $ | 42,067 |
| | $ | 47,574 |
|
IHEARTMEDIA, INC.AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 – LONG-TERM DEBT
Long-term debt at December 31, 2016 and 2015 consisted of the following:
|
| | | | | | | |
(In thousands) | December 31, | | December 31, |
| 2016 | | 2015 |
Senior Secured Credit Facilities | $ | 6,300,000 |
| | $ | 6,300,000 |
|
Receivables Based Credit Facility Due 2017 | 330,000 |
| | 230,000 |
|
Priority Guarantee Notes | 6,274,815 |
| | 6,274,815 |
|
Subsidiary Revolving Credit Facility Due 2018 | — |
| | — |
|
Other Secured Subsidiary Debt | 20,987 |
| | 25,228 |
|
Total Consolidated Secured Debt | 12,925,802 |
| | 12,830,043 |
|
| | | |
14.0% Senior Notes Due 2021 | 1,729,168 |
| | 1,695,097 |
|
Legacy Notes(1) | 475,000 |
| | 667,900 |
|
10.0% Senior Notes Due 2018 | 347,028 |
| | 730,000 |
|
Subsidiary Senior Notes | 5,150,000 |
| | 5,150,000 |
|
Other Subsidiary Debt | 27,954 |
| | 165 |
|
Purchase accounting adjustments and original issue discount | (166,961 | ) | | (204,611 | ) |
Long-term debt fees | (123,003 | ) | | (147,983 | ) |
| 20,364,988 |
| | 20,720,611 |
|
Less: current portion | 342,908 |
| | 181,512 |
|
Total long-term debt | $ | 20,022,080 |
| | $ | 20,539,099 |
|
| |
(1) | The Legacy Notes amount does not include $57.1 million aggregate principal amount of 5.5% Senior Notes due 2016, which matured on December 15, 2016 and continue to remain outstanding. These notes are held by a subsidiary of the Company and are eliminated for purposes of consolidation of the Company’s financial statements. |
The Company’s weighted average interest rate at December 31, 2016 and 2015 was 8.5%. The aggregate market value of the Company’s debt based on market prices for which quotes were available was approximately $16.7 billion and $15.2 billion at December 31, 2016 and 2015, respectively. Under the fair value hierarchy established by ASC 820-10-35, the fair market value of the Company’s debt is classified as either Level 1 or Level 2.
Senior Secured Credit Facilities
As of December 31, 2016 and 2015, iHeartCommunications had senior secured credit facilities consisting of:
|
| | | | | | | | | |
(In thousands) | | | December 31, | | December 31, |
| Maturity Date | | 2016 | | 2015 |
Term Loan D | 1/30/2019 | | $ | 5,000,000 |
| | $ | 5,000,000 |
|
Term Loan E | 7/30/2019 | | 1,300,000 |
| | 1,300,000 |
|
Total Senior Secured Credit Facilities | | | $ | 6,300,000 |
| | $ | 6,300,000 |
|
iHeartCommunications is the primary borrower under the senior secured credit facilities, and certain of its domestic restricted subsidiaries are co-borrowers under a portion of the term loan facilities.
Interest Rate and Fees
Borrowings under iHeartCommunications' senior secured credit facilities bear interest at a rate equal to an applicable margin plus, at iHeartCommunications' option, either (i) a base rate determined by reference to the higher of (A) the prime lending rate publicly announced by the administrative agent or (B) the Federal funds effective rate from time to time plus 0.50%, or (ii) a Eurocurrency
IHEARTMEDIA, INC.AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
rate determined by reference to the costs of funds for deposits for the interest period relevant to such borrowing adjusted for certain additional costs.
The margin percentages applicable to the term loan facilities are the following percentages per annum:
with respect to loans under the term loan D, (i) 5.75% in the case of base rate loans and (ii) 6.75% in the case of Eurocurrency rate loans; and
with respect to loans under the term loan E, (i) 6.50% in the case of base rate loans and (ii) 7.50% in the case of Eurocurrency rate loans.
The margin percentages are subject to adjustment based upon iHeartCommunications' leverage ratio.
Collateral and Guarantees
The senior secured credit facilities are guaranteed by iHeartCommunications and each of iHeartCommunications' existing and future material wholly-owned domestic restricted subsidiaries, subject to certain exceptions.
All obligations under the senior secured credit facilities, and the guarantees of those obligations, are secured, subject to permitted liens, including prior liens permitted by the indenture governing iHeartCommunications' legacy notes, and other exceptions, by:
a lien on the capital stock of iHeartCommunications;
100% of the capital stock of any future material wholly-owned domestic license subsidiary that is not a “Restricted Subsidiary” under the indenture governing iHeartCommunications' legacy notes;
certain assets that do not constitute “principal property” (as defined in the indenture governing iHeartCommunications' legacy notes);
certain specified assets of iHeartCommunications and the guarantors that constitute “principal property” (as defined in the indenture governing iHeartCommunications' legacy notes) securing obligations under the senior secured credit facilities up to the maximum amount permitted to be secured by such assets without requiring equal and ratable security under the indenture governing iHeartCommunications' legacy notes; and
a lien on the accounts receivable and related assets securing iHeartCommunications' receivables based credit facility that is junior to the lien securing iHeartCommunications' obligations under such credit facility.
Certain Covenants
The senior secured credit facilities include negative covenants that, subject to significant exceptions, limit iHeartCommunications' ability and the ability of its restricted subsidiaries to, among other things:
incur additional indebtedness;
create liens on assets;
engage in mergers, consolidations, liquidations and dissolutions;
sell assets;
pay dividends and distributions or repurchase iHeartCommunications' capital stock;
make investments, loans, or advances;
prepay certain junior indebtedness;
engage in certain transactions with affiliates;
amend material agreements governing certain junior indebtedness; and
change lines of business.
Receivables Based Credit Facility
On November 17, 2016, iHeartCommunications' incurred $100.0 million of additional borrowings under its receivables based credit facility. As of December 31, 2016, there were borrowings of $330.0 million outstanding under iHeartCommunications' receivables based credit facility. On January 31, 2017, iHeartCommunications prepaid $25.0 million of the amount borrowed under its receivables based credit facility, bringing its total outstanding borrowings under this facility to $305.0 million.
IHEARTMEDIA, INC.AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The receivables based credit facility provides revolving credit commitments of $535.0 million, subject to a borrowing base. The borrowing base at any time equals 90% of the eligible accounts receivable of iHeartCommunications and certain of its subsidiaries. The receivables based credit facility includes a letter of credit sub-facility and a swingline loan sub-facility.
iHeartCommunications and certain subsidiary borrowers are the borrowers under the receivables based credit facility. iHeartCommunications has the ability to designate one or more of its restricted subsidiaries as borrowers under the receivables based credit facility. The receivables based credit facility loans are available in U.S. dollars and letters of credit are available in a variety of currencies including U.S. dollars, Euros, Pounds Sterling, and Canadian dollars.
Interest Rate and Fees
Borrowings under the receivables based credit facility bear interest at a rate per annum equal to an applicable margin plus, at iHeartCommunications' option, either (i) a base rate determined by reference to the highest of (a) the prime rate of Citibank, N.A. and (b) the Federal Funds rate plus 0.50% or (ii) a Eurocurrency rate determined by reference to the rate (adjusted for statutory reserve requirements for Eurocurrency liabilities) for Eurodollar deposits for the interest period relevant to such borrowing. The applicable margin for borrowings under the receivables based credit facility ranges from 1.50% to 2.00% for Eurocurrency borrowings and from 0.50% to 1.00% for base-rate borrowings, depending on average daily excess availability under the receivables based credit facility during the prior fiscal quarter.
In addition to paying interest on outstanding principal under the receivables based credit facility, iHeartCommunications is required to pay a commitment fee to the lenders under the receivables based credit facility in respect of the unutilized commitments thereunder. The commitment fee rate ranges from 0.25% to 0.375% per annum dependent upon average unused commitments during the prior quarter. iHeartCommunications must also pay customary letter of credit fees.
Maturity
Borrowings under the receivables based credit facility will mature, and lending commitments thereunder will terminate, on the fifth anniversary of the effectiveness of the receivables based credit facility, which is December 24, 2017.
Guarantees and Security
The facility is guaranteed by, subject to certain exceptions, the guarantors of iHeartCommunications' senior secured credit facilities. All obligations under the receivables based credit facility, and the guarantees of those obligations, are secured by a perfected security interest in all of iHeartCommunications' and all of the guarantors’ accounts receivable and related assets and proceeds thereof that is senior to the security interest of iHeartCommunications' senior secured credit facilities in such accounts receivable and related assets and proceeds thereof, subject to permitted liens, including prior liens permitted by the indenture governing certain of iHeartCommunications' legacy notes, and certain exceptions.
Certain Covenants
The receivables based credit facility includes negative covenants that, subject to significant exceptions, limit iHeartCommunications' ability and the ability of its restricted subsidiaries to, among other things:
incur additional indebtedness;
create liens on assets;
engage in mergers, consolidations, liquidations and dissolutions;
sell assets;
pay dividends and distributions or repurchase capital stock;
make investments, loans, or advances;
prepay certain junior indebtedness;
engage in certain transactions with affiliates;
amend material agreements governing certain junior indebtedness; and
change lines of business.
IHEARTMEDIA, INC.AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Priority Guarantee Notes
As of December 31, 2016 and 2015, iHeartCommunications had outstanding Priority Guarantee Notes consisting of:
|
| | | | | | | | | | | | | |
(In thousands) | | | | | | | December 31, | | December 31, |
| Maturity Date | | Interest Rate | | Interest Payment Terms | | 2016 | | 2015 |
9.0% Priority Guarantee Notes due 2019 | 12/15/2019 | | 9.0% | | Payable semi-annually in arrears on June 15 and December 15 of each year | | $ | 1,999,815 |
| | $ | 1,999,815 |
|
9.0% Priority Guarantee Notes due 2021 | 3/1/2021 | | 9.0% | | Payable semi-annually in arrears on March 1 and September 1 of each year | | 1,750,000 |
| | 1,750,000 |
|
11.25% Priority Guarantee Notes due 2021 | 3/1/2021 | | 11.25% | | Payable semi-annually in arrears on March 1 and September 1 of each year | | 575,000 |
| | 575,000 |
|
9.0% Priority Guarantee Notes due 2022 | 9/15/2022 | | 9.0% | | Payable semi-annually in arrears on March 15 and September 15 of each year | | 1,000,000 |
| | 1,000,000 |
|
10.625% Priority Guarantee Notes due 2023 | 3/15/2023 | | 10.625% | | Payable semi-annually in arrears on March 15 and September 15 of each year | | 950,000 |
| | 950,000 |
|
Total Priority Guarantee Notes | | | | | $ | 6,274,815 |
| | $ | 6,274,815 |
|
Guarantees and Security
The Priority Guarantee Notes are iHeartCommunications' senior obligations and are fully and unconditionally guaranteed, jointly and severally, on a senior basis by the guarantors named in the indentures. The Priority Guarantee Notes and the guarantors’ obligations under the guarantees are secured by (i) a lien on (a) the capital stock of iHeartCommunications and (b) certain property and related assets that do not constitute “principal property” (as defined in the indenture governing certain of iHeartCommunications' legacy notes), in each case equal in priority to the liens securing the obligations under iHeartCommunications' senior secured credit facilities, subject to certain exceptions, and (ii) a lien on the accounts receivable and related assets securing iHeartCommunications' receivables based credit facility junior in priority to the lien securing iHeartCommunications' obligations thereunder, subject to certain exceptions. In addition to the collateral granted to secure the Priority Guarantee Notes, the collateral agent and the trustee for the 9% Priority Guarantee Notes due 2019 entered into an agreement with the administrative agent for the lenders under the senior secured credit facilities to turn over to the trustee under the 9% Priority Guarantee Notes due 2019, for the benefit of the holders of the 9% Priority Guarantee Notes due 2019, a pro rata share of any recovery received on account of the principal properties, subject to certain terms and conditions.
Redemptions
iHeartCommunications may redeem the Priority Guarantee Notes at its option, in whole or in part, at redemption prices set forth in the indentures, plus accrued and unpaid interest to the redemption dates.
Certain Covenants
The indentures governing the Priority Guarantee Notes contain covenants that limit iHeartCommunications' 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) modify any of iHeartCommunications' existing senior notes; (iv) transfer or sell assets; (v) engage in certain transactions with affiliates; (vi) create restrictions on dividends or other payments by the restricted subsidiaries; and (vii) merge, consolidate or sell substantially all of iHeartCommunications' assets. The indentures contain covenants that limit the Company’s and iHeartCommunications' ability and the ability of their restricted subsidiaries to, among other things: (i) create liens on assets and (ii) materially impair the value of the security interests taken with respect to the collateral for the benefit of the notes collateral agent and the holders of the Priority Guarantee Notes. The indentures also provide for customary events of default.
IHEARTMEDIA, INC.AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Subsidiary Revolving Credit Facility Due 2018
During the third quarter of 2013, CCOH 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. At December 31, 2016, there were no amounts outstanding under the revolving credit facility, and $65.4 million of letters of credit under the revolving credit facility, which reduce availability under the facility.
14.0% Senior Notes due 2021
As of December 31, 2016, iHeartCommunications had outstanding approximately $1.7 billion of aggregate principal amount of 14.0% Senior Notes due 2021 (net of $440.6 million principal amount held by a subsidiary of iHeartCommunications).
The 14.0% Senior Notes due 2021 mature on February 1, 2021. Interest on the 14.0% Senior Notes due 2021 is payable semi-annually on February 1 and August 1 of each year. Interest on the 14.0% Senior Notes due 2021 will be paid at the rate of (i) 12.0% per annum in cash and (ii) 2.0% per annum through the issuance of payment-in-kind notes (the “PIK Notes”). Any PIK Notes issued in certificated form will be dated as of the applicable interest payment date and will bear interest from and after such date. All PIK Notes issued will mature on February 1, 2021 and have the same rights and benefits as the 14.0% Senior Notes due 2021. Beginning with the interest payment due August 1, 2018 and continuing on each interest payment date thereafter, redemptions of a portion of the principal amount then outstanding will become due for purposes of applicable high yield discount obligation (“AHYDO”) catch-up payments.
The 14.0% Senior Notes due 2021 are fully and unconditionally guaranteed on a senior basis by the guarantors named in the indenture governing such notes. The guarantee is structurally subordinated to all existing and future indebtedness and other liabilities of any subsidiary of the applicable subsidiary guarantor that is not also a guarantor of the 14.0%Senior Notes due 2021. The guarantees are subordinated to the guarantees of iHeartCommunications' senior secured credit facilities and certain other permitted debt, but rank equal to all other senior indebtedness of the guarantors.
iHeartCommunications may redeem the 14.0% Senior Notes due 2021, in whole or in part, within certain dates, at the redemption prices set forth in the indenture plus accrued and unpaid interest to the redemption date.
The indenture governing the 14.0% Senior Notes due 2021 contains covenants that limit iHeartCommunications' ability and the ability of its restricted subsidiaries to, among other things: (i) incur additional indebtedness or issue certain preferred stock; (ii) pay dividends on, or make distributions in respect of, iHeartCommunications' capital stock or repurchase iHeartCommunications' capital stock; (iii) make certain investments or other restricted payments; (iv) sell certain assets; (v) create liens or use assets as security in other transactions; (vi) merge, consolidate or transfer or dispose of substantially all of iHeartCommunications' assets; (vii) engage in transactions with affiliates; and (viii) designate iHeartCommunications' subsidiaries as unrestricted subsidiaries.
Legacy Notes
As of December 31, 2016 and 2015, iHeartCommunications had outstanding senior notes (net of $57.1 million aggregate principal amount held by a subsidiary of iHeartCommunications) consisting of:
|
| | | | | | | |
(In thousands) | December 31, | | December 31, |
| 2016 | | 2015 |
5.5% Senior Notes Due 2016(1) | $ | — |
| | $ | 192,900 |
|
6.875% Senior Notes Due 2018 | 175,000 |
| | 175,000 |
|
7.25% Senior Notes Due 2027 | 300,000 |
| | 300,000 |
|
Total Legacy Notes | $ | 475,000 |
| | $ | 667,900 |
|
| |
(1) | In December 2016, iHeartCommunications repaid at maturity $192.9 million of 5.5% Senior Notes due 2016 and did not pay $57.1 million of the notes held by a subsidiary of the Company. The $57.1 million of aggregate principal amount remains outstanding and is eliminated for purposes of consolidation of the Company’s financial statements. |
These senior notes were the obligations of iHeartCommunications prior to the merger in 2008. The senior notes are senior, unsecured obligations that are effectively subordinated to iHeartCommunications' secured indebtedness to the extent of the value of iHeartCommunications' assets securing such indebtedness and are not guaranteed by any of iHeartCommunications' subsidiaries
IHEARTMEDIA, INC.AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
and, as a result, are structurally subordinated to all indebtedness and other liabilities of iHeartCommunications' subsidiaries. The senior notes rank equally in right of payment with all of iHeartCommunications' existing and future senior indebtedness and senior in right of payment to all existing and future subordinated indebtedness.
10.0% Senior Notes due 2018
As of December 31, 2016, iHeartCommunications had outstanding $347.0 million aggregate principal amount of 10.0% Senior Notes due 2018 (net of $503.0 million aggregate principal amount held by certain subsidiaries of iHeartCommunications). The 10.0% Senior Notes due 2018 mature on January 15, 2018 and bear interest at a rate of 10.0% per annum, payable semi-annually on January 15 and July 15 of each year. On December 20, 2016, iHeartCommunications commenced an offer to noteholders to exchange its 10.0% Senior Notes due 2018 for newly-issued 11.25% Priority Guarantee Notes which will be issued as “additional notes” under the indenture governing iHeartCommunications' existing 11.25% Priority Guarantee Notes due 2021. On February 7, 2017, iHeartCommunications completed the exchange offer by issuing $476.4 million in aggregate principal amount of 11.25% Priority Guarantee Notes due 2021 in exchange for $476.4 million of aggregate principal amount outstanding of its 10.0% Senior Notes due 2018, of which $241.4 million is held by subsidiaries of iHeartCommunications.
The 10% Senior Notes due 2018 are senior, unsecured obligations that are effectively subordinated to iHeartCommunications' secured indebtedness to the extent of the value of iHeartCommunications' assets securing such indebtedness and are not guaranteed by any of iHeartCommunications' subsidiaries and, as a result, are structurally subordinated to all indebtedness and other liabilities of iHeartCommunications' subsidiaries. The 10.0% Senior Notes due 2018 rank equally in right of payment with all of iHeartCommunications' existing and future senior indebtedness and senior in right of payment to all existing and future subordinated indebtedness.
IHEARTMEDIA, INC.AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Subsidiary Senior Notes
As of December 31, 2016 and 2015, the Company's subsidiaries, Clear Channel Worldwide Holdings, Inc. ("CCWH") and Clear Channel International B.V. had outstanding notes consisting of:
|
| | | | | | | | | | | | | |
(In thousands) | | | | | | | December 31, | | December 31, |
| Maturity Date | | Interest Rate | | Interest Payment Terms | | 2016 | | 2015 |
CCWH Senior Notes: | | | | | | | | | |
6.5% Series A Senior Notes Due 2022 | 11/15/2022 | | 6.5% | | Payable to the trustee weekly in arrears and to noteholders on May 15 and November 15 of each year | | $ | 735,750 |
| | $ | 735,750 |
|
6.5% Series B Senior Notes Due 2022 | 11/15/2022 | | 6.5% | | Payable to the trustee weekly in arrears and to noteholders on May 15 and November 15 of each year | | 1,989,250 |
| | 1,989,250 |
|
CCWH Senior Subordinated Notes: | | | | | | | | |
7.625% Series A Senior Notes Due 2020 | 3/15/2020 | | 7.625% | | Payable to the trustee weekly in arrears and to noteholders on March 15 and September 15 of each year | | 275,000 |
| | 275,000 |
|
7.625% Series B Senior Notes Due 2020 | 3/15/2020 | | 7.625% | | Payable to the trustee weekly in arrears and to noteholders on March 15 and September 15 of each year | | 1,925,000 |
| | 1,925,000 |
|
Total CCWH Notes | | | | | | | $ | 4,925,000 |
| | $ | 4,925,000 |
|
Clear Channel International B.V. Senior Notes: | | | | | | |
8.75% Senior Notes Due 2020 | 12/15/2020 | | 8.75% | | Payable semi-annually in arrears on June 15 and December 15 of each year | | $ | 225,000 |
| | $ | 225,000 |
|
Total Subsidiary Senior Notes | | | | | | | $ | 5,150,000 |
| | $ | 5,150,000 |
|
CCWH Senior and Senior Subordinated Notes
The CCWH Senior Notes are guaranteed by CCOH, Clear Channel Outdoor, Inc. (“CCOI”) and certain of CCOH’s direct and indirect subsidiaries. The CCWH Senior Subordinated Notes are fully and unconditionally guaranteed, jointly and severally, on a senior subordinated basis by CCOH, CCOI and certain of CCOH’s other domestic subsidiaries and rank junior to each guarantor’s existing and future senior debt, including the CCWH Senior Notes, equally with each guarantor’s existing and future senior subordinated debt and ahead of each guarantor’s existing and future debt that expressly provides that it is subordinated to the guarantees of the CCWH Senior Subordinated Notes.
The CCWH Senior Notes are senior obligations that rank pari passu in right of payment to all unsubordinated indebtedness of CCWH and the guarantees of the CCWH Senior Notes rank pari passu in right of payment to all unsubordinated indebtedness of the guarantors. The CCWH Senior Subordinated Notes are unsecured senior subordinated obligations that rank junior to all of CCWH’s existing and future senior debt, including the CCWH Senior Notes, equally with any of CCWH’s existing and future senior subordinated debt and ahead of all of CCWH’s existing and future debt that expressly provides that it is subordinated to the CCWH Senior Subordinated Notes.
IHEARTMEDIA, INC.AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Redemptions
CCWH may redeem the CCWH Senior Notes and the CCWH Senior Subordinated Notes at its option, in whole or in part, at redemption prices set forth in the indentures plus accrued and unpaid interest to the redemption dates and plus an applicable premium.
Certain Covenants
The indentures governing the CCWH Senior Notes and the CCWH Senior Subordinated Notes contain covenants that limit CCOH and its restricted subsidiaries ability to, among other things:
incur or guarantee additional debt or issue certain preferred stock;
make certain investments;
in case of the Senior Notes, create liens on its restricted subsidiaries’ assets to secure such debt;
create restrictions on the payment of dividends or other amounts to it from its restricted subsidiaries that are not guarantors of the notes;
enter into certain transactions with affiliates;
merge or consolidate with another person, or sell or otherwise dispose of all or substantially all of its assets;
sell certain assets, including capital stock of its subsidiaries; and
in the case of the Series B CCWH Senior Notes and the Series B CCWH Senior Subordinated Notes, pay dividends, redeem or repurchase capital stock or make other restricted payments.
Clear Channel International B.V. Senior Notes
The Clear Channel International B.V. Senior Notes ("CCIBV Senior Notes") are guaranteed by certain of the International outdoor business’s existing and future subsidiaries. The Company does not guarantee or otherwise assume any liability for the CCIBV Senior Notes. The notes are senior unsecured obligations that rank pari passu in right of payment to all unsubordinated indebtedness of Clear Channel International B.V., and the guarantees of the notes are senior unsecured obligations that rank pari passu in right of payment to all unsubordinated indebtedness of the guarantors of the notes.
Redemptions
Clear Channel International B.V. may redeem the notes at its option, in whole or part, at the redemption prices set forth in the indenture plus accrued and unpaid interest to the redemption date.
Certain Covenants
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:
pay dividends, redeem stock or make other distributions or investments;
incur additional debt or issue certain preferred stock;
engage in certain transactions with affiliates;
create restrictions on dividends or other payments by the restricted subsidiaries; and
merge, consolidate or sell substantially all of Clear Channel International B.V.’s assets.
IHEARTMEDIA, INC.AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Future Maturities of Long-term Debt
Future maturities of long-term debt at December 31, 2016 are as follows:
|
| | | |
(in thousands) | |
2017 | $ | 343,450 |
|
2018 | 534,287 |
|
2019 | 8,304,297 |
|
2020 | 2,430,131 |
|
2021 | 4,060,007 |
|
Thereafter | 4,982,780 |
|
Total (1) (2) | $ | 20,654,952 |
|
| |
(1) | Excludes purchase accounting adjustments and original issue discount of $167.0 million and long-term debt fees of $123.0 million, which are amortized through interest expense over the life of the underlying debt obligations. |
| |
(2) | Excludes certain estimated applicable high yield discount obligation (“AHYDO”) catch-up payments on the principal amount outstanding of Senior Notes due 2021 of $24.8 million, $64.7 million, and $68.4 million in 2018, 2019 and 2020, respectively. |
Surety Bonds, Letters of Credit and Guarantees
As of December 31, 2016, iHeartCommunications had outstanding surety bonds, commercial standby letters of credit and bank guarantees of $60.0 million, $103.4 million and $35.7 million, respectively. Bank guarantees of $18.8 million were cash secured. These surety bonds, letters of credit and bank guarantees relate to various operational matters including insurance, bid, concession and performance bonds as well as other items.
NOTE 6 – COMMITMENTS AND CONTINGENCIES
Commitments and Contingencies
The Company accounts for its rentals that include renewal options, annual rent escalation clauses, minimum franchise payments and maintenance related to displays under the guidance in ASC 840.
The Company considers its non-cancelable contracts that enable it to display advertising on buses, bus shelters, trains, etc. to be leases in accordance with the guidance in ASC 840-10. These contracts may contain minimum annual franchise payments which generally escalate each year. The Company accounts for these minimum franchise payments on a straight-line basis. If the rental increases are not scheduled in the lease, such as an increase based on subsequent changes in the index or rate, those rents are considered contingent rentals and are recorded as expense when accruable. Other contracts may contain a variable rent component based on revenue. The Company accounts for these variable components as contingent rentals and records these payments as expense when accruable. No single contract or lease is material to the Company’s operations.
The Company accounts for annual rent escalation clauses included in the lease term on a straight-line basis under the guidance in ASC 840-20-25. The Company considers renewal periods in determining its lease terms if at inception of the lease there is reasonable assurance the lease will be renewed. Expenditures for maintenance are charged to operations as incurred, whereas expenditures for renewal and betterments are capitalized.
The Company leases office space, certain broadcasting facilities, equipment and the majority of the land occupied by its outdoor advertising structures under long-term operating leases. The Company accounts for these leases in accordance with the policies described above.
The Company’s contracts with municipal bodies or private companies relating to street furniture, billboards, transit and malls generally require the Company to build bus stops, kiosks and other public amenities or advertising structures during the term of the contract. The Company owns these structures and is generally allowed to advertise on them for the remaining term of the contract. Once the Company has built the structure, the cost is capitalized and expensed over the shorter of the economic life of the asset or the remaining life of the contract.
IHEARTMEDIA, INC.AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In addition, the Company has commitments relating to required purchases of property, plant and equipment under certain street furniture contracts. Certain of the Company’s contracts contain penalties for not fulfilling its commitments related to its obligations to build bus stops, kiosks and other public amenities or advertising structures. Historically, any such penalties have not materially impacted the Company’s financial position or results of operations.
As of December 31, 2016, the Company's future minimum rental commitments under non-cancelable operating lease agreements with terms in excess of one year, minimum payments under non-cancelable contracts in excess of one year, capital expenditure commitments and employment/talent contracts consist of the following:
|
| | | | | | | | | | | | | | | |
(In thousands) | | | | | Capital | | |
| Non-Cancelable | | Non-Cancelable | | Expenditure | | Employment/Talent |
| Operating Leases | | Contracts | | Commitments | | Contracts |
2017 | $ | 464,877 |
| | $ | 435,186 |
| | $ | 49,618 |
| | $ | 64,222 |
|
2018 | 414,790 |
| | 331,815 |
| | 7,348 |
| | 52,134 |
|
2019 | 384,257 |
| | 286,270 |
| | 4,449 |
| | 48,093 |
|
2020 | 353,934 |
| | 229,104 |
| | 1,962 |
| | 45,500 |
|
2021 | 320,798 |
| | 191,197 |
| | 2,097 |
| | 6,250 |
|
Thereafter | 2,147,942 |
| | 411,341 |
| | 12,242 |
| | — |
|
Total | $ | 4,086,598 |
| | $ | 1,884,913 |
| | $ | 77,716 |
| | $ | 216,199 |
|
Rent expense charged to operations for the years ended December 31, 2016, 2015 and 2014 was $1.12 billion, $1.14 billion and $1.17 billion, respectively.
In various areas in which the Company operates, outdoor advertising is the object of restrictive and, in some cases, prohibitive zoning and other regulatory provisions, either enacted or proposed. The impact to the Company of loss of displays due to governmental action has been somewhat mitigated by Federal and state laws mandating compensation for such loss and constitutional restraints.
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 its litigation arises in the following contexts: commercial disputes; defamation matters; employment and benefits related claims; governmental fines; intellectual property claims; and tax disputes.
International Outdoor Investigation
On April 21, 2015, inspections were conducted at the premises of Clear Channel in Denmark and Sweden as part of an investigation by Danish competition authorities. Additionally, on the same day, Clear Channel UK received a communication from the UK competition authorities, also in connection with the investigation by Danish competition authorities. Clear Channel and its affiliates are cooperating with the national competition authorities.
Stockholder Litigation
On May 9, 2016, a stockholder of CCOH filed a derivative lawsuit in the Court of Chancery of the State of Delaware, captioned GAMCO Asset Management Inc. v. iHeartMedia Inc. et al., C.A. No. 12312-VCS. The complaint names as defendants the Company, iHeartCommunications, Inc. ("iHeartCommunications"), an indirect subsidiary of the Company, Bain Capital Partners, LLC and Thomas H. Lee Partners, L.P. (together, the "Sponsor Defendants"), the Company's private equity sponsors and majority owners,
IHEARTMEDIA, INC.AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
and the members of CCOH's board of directors. CCOH also is named as a nominal defendant. The complaint alleges that the defendants have breached their fiduciary duties by causing CCOH to: (i) continue to loan cash to iHeartCommunications under the intercompany note at below-market rates; (ii) abandon its growth and acquisition strategies in favor of transactions that would provide cash to the Company and iHeartCommunications; (iii) issue new debt in the CCIBV note offering (the "CCIBV Note Offering") to provide cash to the Company and iHeartCommunications through a dividend; and (iv) effect the sales of certain outdoor markets in the U.S. (the "Outdoor Asset Sales") allegedly to provide cash to the Company and iHeartCommunications through a dividend. The complaint also alleges that the Company, iHeartCommunications and the Sponsor Defendants aided and abetted the directors' breaches of their fiduciary duties. The complaint further alleges that the Company, iHeartCommunications and the Sponsor Defendants were unjustly enriched as a result of these transactions and that these transactions constituted a waste of corporate assets for which the defendants are liable to CCOH. The plaintiff is seeking, among other things, a ruling that the defendants breached their fiduciary duties to CCOH and that the Company, iHeartCommunications and the Sponsor Defendants aided and abetted the CCOH board of directors' breaches of fiduciary duty, rescission of payments made by CCOH to iHeartCommunications and its affiliates pursuant to dividends declared in connection with the CCIBV Note Offering and Outdoor Asset Sales, and an order requiring the Company, iHeartCommunications and the Sponsor Defendants to disgorge all profits they have received as a result of the alleged fiduciary misconduct.
On July 20, 2016, the defendants filed a motion to dismiss plaintiff's verified stockholder derivative complaint for failure to state a claim upon which relief can be granted. On November 23, 2016, the Court granted defendants' motion to dismiss all claims brought by the plaintiff. On December 19, 2016, the plaintiff filed a notice of appeal of the ruling.
NOTE 7 – INCOME TAXES
Significant components of the provision for income tax benefit (expense) are as follows:
|
| | | | | | | | | | | |
(In thousands) | Years Ended December 31, |
| 2016 | | 2015 | | 2014 |
Current - Federal | $ | (190 | ) | | $ | (31 | ) | | $ | (503 | ) |
Current - foreign | (44,555 | ) | | (46,188 | ) | | (27,256 | ) |
Current - state | (2,908 | ) | | (12,890 | ) | | 3,193 |
|
Total current expense | (47,653 | ) | | (59,109 | ) | | (24,566 | ) |
| | | | | |
Deferred - Federal | 38,715 |
| | (30,719 | ) | | (29,284 | ) |
Deferred - foreign | 56,747 |
| | 5,269 |
| | 4,308 |
|
Deferred - state | 2,665 |
| | (2,398 | ) | | (8,947 | ) |
Total deferred benefit (expense) | 98,127 |
| | (27,848 | ) | | (33,923 | ) |
Income tax benefit (expense) | $ | 50,474 |
| | $ | (86,957 | ) | | $ | (58,489 | ) |
Current tax expense of $47.7 million was recorded for 2016 as compared to a current tax expense of $59.1 million for 2015. The current tax expense recorded in 2016 was primarily related to foreign income taxes on operating profits generated in certain foreign jurisdictions during the period. The decrease in current tax expense when compared to 2015 was primarily attributable to a decrease in state tax expense which resulted from a reduction in unrecognized tax benefits during 2016 in connection with the settlements of tax examinations during the period.
Current tax expense of $59.1 million was recorded for 2015 as compared to a current tax expense of $24.6 million for 2014. The change in current tax was primarily due to a reduction in unrecognized tax benefits during 2014, which resulted from the expiration of statutes of limitations to assess taxes in the United Kingdom and several state jurisdictions. This decrease in unrecognized tax benefits resulted in a reduction to current tax expense of $35.4 million during 2015.
Deferred tax benefit of $98.1 million was recorded for 2016 compared with deferred tax expense of $27.8 million for 2015. The federal and state deferred tax benefits recorded in 2016 were primarily attributable to the reversal of certain U.S. deferred tax liabilities attributable to indefinite-lived intangible assets that were disposed of in connections with the sale of nine non-strategic U.S. outdoor markets during the first quarter of 2016. In addition, the foreign deferred tax benefit recorded in 2016 was primarily related to the $43.3 million deferred tax benefit for the release of valuation allowance against certain net operating loss carryforwards
IHEARTMEDIA, INC.AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
in France. Due to positive evidence that now exists, the Company expects to realize the benefit of these net operating loss carryforwards in the future.
Deferred tax expense of $27.8 million was recorded for 2015 compared with deferred tax expense of $33.9 million for 2014. The change in deferred tax is primarily due to the valuation allowances recorded against the Company’s federal and state net operating losses during 2015.
Significant components of the Company's deferred tax liabilities and assets as of December 31, 2016 and 2015 are as follows:
|
| | | | | | | |
(In thousands) | 2016 | | 2015 |
Deferred tax liabilities: | | | |
Intangibles and fixed assets | $ | 2,016,861 |
| | $ | 2,173,491 |
|
Long-term debt | 37,205 |
| | 79,758 |
|
Investments | — |
| | 3,701 |
|
Other | 10,159 |
| | 11,540 |
|
Total deferred tax liabilities | 2,064,225 |
| | 2,268,490 |
|
| | | |
Deferred tax assets: | | | |
Accrued expenses | 155,037 |
| | 114,079 |
|
Investments | 5,458 |
| | — |
|
Net operating loss carryforwards | 1,384,175 |
| | 1,495,294 |
|
Bad debt reserves | 10,137 |
| | 9,256 |
|
Other | 43,545 |
| | 39,539 |
|
Total gross deferred tax assets | 1,598,352 |
| | 1,658,168 |
|
Less: Valuation allowance | 991,222 |
| | 944,576 |
|
Total deferred tax assets | 607,130 |
| | 713,592 |
|
Net deferred tax liabilities | $ | 1,457,095 |
| | $ | 1,554,898 |
|
During the fourth quarter of 2015, the Company elected early adoption of ASU No. 2015-17, Income Taxes (Topic 740), Balance Sheet Classification of Deferred Taxes. This update requires companies to classify all deferred tax assets and liabilities as noncurrent on the balance sheet instead of separating deferred taxes into current and noncurrent amounts.
The deferred tax liability related to intangibles and fixed assets primarily relates to the difference in book and tax basis of acquired FCC licenses, billboard permits and tax deductible goodwill created from the Company’s various stock acquisitions. In accordance with ASC 350-10, Intangibles—Goodwill and Other, the Company does not amortize FCC licenses and billboard permits. As a result, this deferred tax liability will not reverse over time unless the Company recognizes future impairment charges related to its FCC licenses, permits and tax deductible goodwill or sells its FCC licenses or permits. As the Company continues to amortize its tax basis in its FCC licenses, permits and tax deductible goodwill, the deferred tax liability will increase over time. The Company’s net foreign deferred tax assets for the period ending December 31, 2016 were $47.1 million and the net foreign tax liabilities for the period ending December 31, 2015 were $9.3 million.
At December 31, 2016, the Company had recorded net operating loss carryforwards (tax effected) for federal and state income tax purposes of approximately $1.2 billion, expiring in various amounts through 2035. The Company expects to realize the benefits of a portion of its deferred tax assets attributable to federal and state net operating losses based upon expected future taxable income from deferred tax liabilities that reverse in the relevant federal and state jurisdictions and carryforward periods. As of December 31, 2016, the Company had recorded a partial valuation allowance of $853.9 million against these deferred tax assets attributable to federal and state net operating losses, of which $61.5 million was recorded during the current period ended December 31, 2016. In addition, the Company recorded a net reduction of $14.8 million in valuation allowance against its foreign deferred tax assets during the year ended December 31, 2016. The net reduction is primarily due to a release of valuation allowances in France as a result of positive evidence that the net operating loss carryforwards are more likely than not to be utilized in future periods. At December 31, 2016, the Company had recorded $152.5 million (tax-effected) of deferred tax assets for foreign net operating loss carryforwards, which are offset in part by an associated valuation allowance of $103.3 million. Additional deferred tax valuation
IHEARTMEDIA, INC.AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
allowance of $34.0 million offsets other foreign deferred tax assets that are not expected to be realized. Realization of these foreign deferred tax assets is dependent upon the Company’s ability to generate future taxable income in appropriate tax jurisdictions and carryforward periods. Due to the Company’s evaluation of all available evidence, including significant negative evidence of cumulative losses in these jurisdictions, the Company continues to record valuation allowances on the foreign deferred tax assets that are not expected to be realized. The Company expects to realize its remaining gross deferred tax assets based upon its assessment of deferred tax liabilities that will reverse in the same carryforward period and jurisdiction and are of the same character as the net operating loss carryforwards and temporary differences that give rise to the deferred tax assets. Any deferred tax liabilities associated with acquired FCC licenses, billboard permits and tax-deductible goodwill intangible assets are not relied upon as a source of future taxable income, as these intangible assets have an indefinite life.
At December 31, 2016, net deferred tax liabilities include a deferred tax asset of $28.6 million relating to stock-based compensation expense under ASC 718-10, Compensation—Stock Compensation. Full realization of this deferred tax asset requires stock options to be exercised at a price equaling or exceeding the sum of the grant price plus the fair value of the option at the grant date and restricted stock to vest at a price equaling or exceeding the fair market value at the grant date. Accordingly, there can be no assurance that the stock price of the Company’s common stock will rise to levels sufficient to realize the entire deferred tax benefit currently reflected in its balance sheet.
Loss before income taxes:
|
| | | | | | | | | | | |
(In thousands) | Years Ended December 31, |
| 2016 | | 2015 | | 2014 |
US | $ | (349,829 | ) | | $ | (700,376 | ) | | $ | (800,879 | ) |
Foreign | 59,352 |
| | 49,843 |
| | 97,210 |
|
Total loss before income taxes | $ | (290,477 | ) | | $ | (650,533 | ) | | $ | (703,669 | ) |
The reconciliation of income tax computed at the U.S. federal statutory tax rates to the recorded income tax benefit (expense) is:
|
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
(In thousands) | 2016 | | 2015 | | 2014 |
| Amount | | Percent | | Amount | | Percent | | Amount | | Percent |
Income tax benefit at statutory rates | $ | 101,667 |
| | 35.0% | | $ | 227,686 |
| | 35.0% | | $ | 246,284 |
| | 35.0% |
State income taxes, net of federal tax effect | 6,372 |
| | 2.2% | | 17,795 |
| | 2.7% | | 26,518 |
| | 3.8% |
Foreign income taxes | (21,477 | ) | | (7.4)% | | (23,474 | ) | | (3.6)% | | 11,074 |
| | 1.6% |
Nondeductible items | (5,760 | ) | | (2.0)% | | (5,764 | ) | | (0.9)% | | (5,533 | ) | | (0.8)% |
Changes in valuation allowance and other estimates | (31,229 | ) | | (10.7)% | | (302,935 | ) | | (46.6)% | | (333,641 | ) | | (47.4)% |
Other, net | 901 |
| | 0.3% | | (265 | ) | | —% | | (3,191 | ) | | (0.5)% |
Income tax benefit (expense) | $ | 50,474 |
| | 17.4% | | $ | (86,957 | ) | | (13.4)% | | $ | (58,489 | ) | | (8.3)% |
The Company’s effective tax benefit rate for the year ended December 31, 2016 is 17.4%. The effective tax benefit rate for 2016 was impacted by the $43.3 million deferred tax benefit recorded in connection with the release of valuation allowance in France, which was offset by $54.7 million of tax expense attributable to the sale of our outdoor business in Australia. Additionally, the 2016 effective tax benefit rate was impacted by the $31.8 million valuation allowance recorded against a portion of current period federal and state deferred tax assets due to the uncertainty of the ability to realize those assets in future periods.
A tax expense was recorded for the year ended December 31, 2015 of (13.4)%. The effective tax rate for 2015 was impacted by the $305.3 million valuation allowance recorded during the period as additional deferred tax expense. The valuation allowance was recorded against a portion of the federal and state net operating losses due to the uncertainty of the ability to utilize those losses in future periods.
IHEARTMEDIA, INC.AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A tax expense was recorded for the year ended December 31, 2014 of (8.3)%. The effective tax rate for 2014 was impacted by the $339.8 million valuation allowance recorded during the period as additional deferred tax expense. The valuation allowance was recorded against a portion of the federal and state net operating losses due to the uncertainty of the ability to utilize those losses in future periods. This expense was partially offset by $28.9 million in net tax benefits associated with a decrease in unrecognized tax benefits resulting from the expiration of statute of limitations to assess taxes in the United Kingdom and several state jurisdictions.
The Company provides for any related tax liability on undistributed earnings that the Company does not intend to be indefinitely reinvested outside the United States or would otherwise become taxable upon remittance within our foreign structure. Substantially all of the Company’s undistributed international earnings are intended to be indefinitely reinvested in home country operations outside the United States. If any excess cash held by our foreign subsidiaries were needed to fund operations in the U.S., we could presently repatriate available funds without a requirement 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.
The Company continues to record interest and penalties related to unrecognized tax benefits in current income tax expense. The total amount of interest accrued at December 31, 2016 and 2015 was $47.5 million and $45.0 million, respectively. The total amount of unrecognized tax benefits including accrued interest and penalties at December 31, 2016 and 2015 was $145.4 million and $148.2 million, respectively, of which $115.1 million and $113.6 million is included in “Other long-term liabilities” on the Company’s consolidated balance sheets, respectively. In addition, $30.3 million and $34.6 million of unrecognized tax benefits are recorded net with the Company’s deferred tax assets for its net operating losses as opposed to being recorded in “Other long-term liabilities” at December 31, 2016 and 2015, respectively. The total amount of unrecognized tax benefits at December 31, 2016 and 2015 that, if recognized, would impact the effective income tax rate is $53.8 million and $54.3 million, respectively.
|
| | | | | | | |
(In thousands) | Years Ended December 31, |
Unrecognized Tax Benefits | 2016 | | 2015 |
Balance at beginning of period | $ | 103,208 |
| | $ | 106,914 |
|
Increases for tax position taken in the current year | 10,094 |
| | 9,856 |
|
Increases for tax positions taken in previous years | 3,024 |
| | 3,087 |
|
Decreases for tax position taken in previous years | (11,157 | ) | | (8,534 | ) |
Decreases due to settlements with tax authorities | (1,007 | ) | | (3,821 | ) |
Decreases due to lapse of statute of limitations | (6,200 | ) | | (4,294 | ) |
Balance at end of period | $ | 97,962 |
| | $ | 103,208 |
|
The Company and its subsidiaries file income tax returns in the United States federal jurisdiction and various state and foreign jurisdictions. During 2016, the company settled several tax examinations that resulted in the reduction of unrecognized tax benefits of $11.2 million, excluding interest, during the period. In addition, the statute of limitations for certain tax years expired in the United Kingdom and other jurisdictions resulting in the reduction to unrecognized tax benefits of $6.2 million, excluding interest. During 2015, the statute of limitations for certain tax years expired in the United Kingdom and several state jurisdictions resulting in a reduction to unrecognized tax benefits of $4.3 million, excluding interest. Also during 2015, the Company settled certain U.S. federal and state examinations with taxing authorities, resulting in decreases in unrecognized tax benefits relating to cash tax payments of $3.8 million. All federal income tax matters through 2010 are closed. The Company is currently in appeals with the IRS for the Company’s tax returns for the 2011 and 2012 periods. Substantially all material state, local, and foreign income tax matters have been concluded for years through 2008.
IHEARTMEDIA, INC.AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 – STOCKHOLDERS’ DEFICIT
The Company reports its noncontrolling interests in consolidated subsidiaries as a component of equity separate from the Company’s equity. The following table shows the changes in stockholders' deficit attributable to the Company and the noncontrolling interests of subsidiaries in which the Company has a majority, but not total, ownership interest:
|
| | | | | | | | | | | |
(In thousands) | The Company | | Noncontrolling Interests | | Consolidated |
Balances as of January 1, 2016 | $ | (10,784,296 | ) | | $ | 177,615 |
| | $ | (10,606,681 | ) |
Net income (loss) | (296,318 | ) | | 56,315 |
| | (240,003 | ) |
Dividends and other payments to noncontrolling interests | — |
| | (70,412 | ) | | (70,412 | ) |
Purchase of additional noncontrolling interests | (1,224 | ) | | 1,224 |
| | — |
|
Disposal of noncontrolling interests | — |
| | (36,846 | ) | | (36,846 | ) |
Share-based compensation | 2,848 |
| | 10,238 |
| | 13,086 |
|
Foreign currency translation adjustments | 27,343 |
| | (5,360 | ) | | 21,983 |
|
Unrealized holding loss on marketable securities | (518 | ) | | (58 | ) | | (576 | ) |
Other adjustments to comprehensive loss | (10,622 | ) | | (1,192 | ) | | (11,814 | ) |
Reclassifications adjustments | 42,328 |
| | 4,402 |
| | 46,730 |
|
Other, net | (199 | ) | | (743 | ) | | (942 | ) |
Balances as of December 31, 2016 | $ | (11,020,658 | ) | | $ | 135,183 |
| | $ | (10,885,475 | ) |
|
| | | | | | | | | | | |
(In thousands) | The Company | | Noncontrolling Interests | | Consolidated |
Balances as of January 1, 2015 | $ | (9,889,348 | ) | | $ | 224,140 |
| | $ | (9,665,208 | ) |
Net income (loss) | (754,621 | ) | | 17,131 |
| | (737,490 | ) |
Dividends and other payments to noncontrolling interests | — |
| | (52,384 | ) | | (52,384 | ) |
Purchase of additional noncontrolling interests | (40,819 | ) | | (1,978 | ) | | (42,797 | ) |
Share-based compensation | 2,564 |
| | 8,359 |
| | 10,923 |
|
Foreign currency translation adjustments | (93,377 | ) | | (21,529 | ) | | (114,906 | ) |
Unrealized holding gain on marketable securities | 495 |
| | 58 |
| | 553 |
|
Other adjustments to comprehensive loss | (9,253 | ) | | (1,013 | ) | | (10,266 | ) |
Reclassifications adjustments | 734 |
| | 74 |
| | 808 |
|
Other, net | (671 | ) | | 4,757 |
| | 4,086 |
|
Balances as of December 31, 2015 | $ | (10,784,296 | ) | | $ | 177,615 |
| | $ | (10,606,681 | ) |
Stock Registration
On June 24, 2015, we registered 4,000,000 shares of the Company’s Class A common stock, par value $0.001 per share, for offer or sale under our 2015 Executive Long-Term Incentive Plan.
On July 27, 2015, the board of directors approved the issuance of 1,253,831 restricted shares to certain key individuals pursuant to our 2015 Executive Long-term Incentive Plan.
Dividends
The Company has not paid cash dividends since its formation and its ability to pay dividends is subject to restrictions should it seek to do so in the future. iHeartCommunications' debt financing arrangements include restrictions on its ability to pay dividends thereby limiting the Company’s ability to pay dividends.
On December 20, 2015, the board of directors of CCOH declared a special cash dividend, which was paid on January 7, 2016 to its stockholders of record at the closing of business on January 4, 2016, in an aggregate amount equal to $217.8 million. Through
IHEARTMEDIA, INC.AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
our subsidiaries we received $196.3 million of this dividend. The remaining dividend was paid to CCOH’s public stockholders and was reflected as a use of cash for financing activities in the first quarter of 2016.
In the first quarter of 2016, CCOH sold nine non-strategic Americas outdoor markets for an aggregate purchase price of approximately $592.3 million in cash and certain advertising assets in Florida (the “Transactions”). On January 21, 2016, the board of directors of CCOH notified iHeartCommunications of its intent to make a demand for the repayment of $300.0 million outstanding on the Note (the “Demand”) and declared special cash dividends in an aggregate amount of $540.0 million. CCOH made the Demand and the special cash dividend was paid on February 4, 2016. A portion of the proceeds of the Transactions, together with the proceeds from the concurrent $300.0 million repayment of the Note, were used to fund the dividends. We received $486.5 million of the dividend proceeds ($186.5 million net of iHeartCommunications’ repayment of the Note) through three of our wholly-owned subsidiaries, and approximately $53.5 million was paid to the public stockholders of CCOH.
Share-Based Compensation
Stock Options
Prior to the merger, iHeartCommunications granted options to purchase its common stock to its employees and directors and its affiliates under its various equity incentive plans typically at no less than the fair value of the underlying stock on the date of grant. These options were granted for a term not exceeding ten years and were forfeited, except in certain circumstances, in the event the employee or director terminated his or her employment or relationship with iHeartCommunications or one of its affiliates. Prior to acceleration, if any, in connection with the merger, these options vested over a period of up to five years. All equity incentive plans contained anti-dilutive provisions that permitted an adjustment of the number of shares of iHeartCommunications' common stock represented by each option for any change in capitalization.
The Company has granted options to purchase its shares of Class A common stock to certain key executives under its equity incentive plan at no less than the fair value of the underlying stock on the date of grant. These options are granted for a term not to exceed ten years and are forfeited, except in certain circumstances, in the event the executive terminates his or her employment or relationship with the Company or one of its affiliates. Approximately three-fourths of the options outstanding at December 31, 2016 vest based solely on continued service over a period of up to five years with the remainder becoming eligible to vest over a period of up to five years if certain predetermined performance targets are met. The equity incentive plan contains antidilutive provisions that permit an adjustment for any change in capitalization.
The Company accounts for its share-based payments using the fair value recognition provisions of ASC 718-10. The fair value of the portion of options that vest based on continued service is estimated on the grant date using a Black-Scholes option-pricing model and the fair value of the remaining options which contain vesting provisions subject to service, market and performance conditions is estimated on the grant date using a Monte Carlo model. Expected volatilities were based on historical volatility of peer companies’ stock, including the Company, over the expected life of the options. The expected life of the options granted represents the period of time that the options granted are expected to be outstanding. The Company used historical data to estimate option exercises and employee terminations within the valuation model. The Company includes estimated forfeitures in its compensation cost and updates the estimated forfeiture rate through the final vesting date of awards. The risk free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant for periods equal to the expected life of the option. No options were granted during the years ended December 31, 2016, 2015 and 2014.
The following table presents a summary of the Company's stock options outstanding at and stock option activity during the year ended December 31, 2016 ("Price" reflects the weighted average exercise price per share):
IHEARTMEDIA, INC.AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
| | | | | | | | |
(In thousands, except per share data) | Options | | Price | | Weighted Average Remaining Contractual Term |
Outstanding, January 1, 2016 | 2,097 |
| | $ | 35.03 |
| | |
Granted | — |
| | — |
| | |
Exercised | — |
| | — |
| | |
Forfeited | (3 | ) | | 10.00 |
| | |
Expired | (2 | ) | | 10.00 |
| | |
Outstanding, December 31, 2016 (1) | 2,092 |
| | 35.09 |
| | 2.6 years |
Exercisable | 1,549 |
| | 35.14 |
| | 3.0 years |
Expected to Vest | 522 |
| | 35.93 |
| | 1.6 years |
| |
(1) | Non-cash compensation expense has not been recorded with respect to 0.5 million shares as the vesting of these options is subject to performance conditions that have not yet been determined probable to meet. |
A summary of the Company's unvested options and changes during the year ended December 31, 2016 is presented below:
|
| | | | | | |
(In thousands, except per share data) | Options | | Weighted Average Grant Date Fair Value |
Unvested, January 1, 2016 | 682 |
| | $ | 15.99 |
|
Granted | — |
| | — |
|
Vested (1) | (136 | ) | | 1.39 |
|
Forfeited | (3 | ) | | 10.00 |
|
Unvested, December 31, 2016 | 543 |
| | 19.74 |
|
| |
(1) | The total fair value of the options vested during the years ended December 31, 2016, 2015 and 2014 was $0.2 million, $0.3 million and $0.3 million, respectively. |
Restricted Stock Awards
The Company has granted restricted stock awards to certain of its employees and affiliates under its equity incentive plan. The restricted stock awards are restricted in transferability for a term of up to five years. Restricted stock awards are forfeited, except in certain circumstances, in the event the employee terminates his or her employment or relationship with the Company prior to the lapse of the restriction. Dividends or distributions paid in respect of unvested restricted stock awards will be held by the Company and paid to the recipients of the restricted stock awards upon vesting of the shares.
The following table presents a summary of the Company's restricted stock outstanding and restricted stock activity as of and during the year ended December 31, 2016 (“Price” reflects the weighted average share price at the date of grant):
|
| | | | | | |
(In thousands, except per share data) | Awards | | Price |
Outstanding, January 1, 2016 | 5,070 |
| | $ | 5.36 |
|
Granted | 1,408 |
| | 1.02 |
|
Vested (restriction lapsed) | (505 | ) | | 5.20 |
|
Forfeited | (201 | ) | | 5.07 |
|
Outstanding, December 31, 2016 | 5,772 |
| | 4.43 |
|
IHEARTMEDIA, INC.AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CCOH Share-Based Awards
CCOH Stock Options
The Company’s subsidiary, CCOH, has granted options to purchase shares of its Class A common stock to employees and directors of CCOH and its affiliates under its equity incentive plan at no less than the fair market value of the underlying stock on the date of grant. These options are granted for a term not exceeding ten years and are forfeited, except in certain circumstances, in the event the employee or director terminates his or her employment or relationship with CCOH or one of its affiliates. These options vest solely on continued service over a period of up to five years. The equity incentive stock plan contains anti-dilutive provisions that permit an adjustment for any change in capitalization.
The fair value of each option awarded on CCOH common stock is estimated on the date of grant using a Black-Scholes option-pricing model. Expected volatilities are based on historical volatility of CCOH’s stock over the expected life of the options. The expected life of options granted represents the period of time that options granted are expected to be outstanding. CCOH uses historical data to estimate option exercises and employee terminations within the valuation model. CCOH includes estimated forfeitures in its compensation cost and updates the estimated forfeiture rate through the final vesting date of awards. The risk free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant for periods equal to the expected life of the option.
The following assumptions were used to calculate the fair value of CCOH’s options on the date of grant:
|
| | | | | |
| Years Ended December 31, |
| 2016 | | 2015 | | 2014 |
Expected volatility | 42% - 44% | | 37% – 56% | | 54% – 56% |
Expected life in years | 6.3 | | 6.3 | | 6.3 |
Risk-free interest rate | 1.12% - 1.41% | | 1.70% – 2.07% | | 1.73% – 2.08% |
Dividend yield | —% | | —% | | —% |
The following table presents a summary of CCOH’s stock options outstanding at and stock option activity during the year ended December 31, 2016:
|
| | | | | | | | | | | | |
(In thousands, except per share data) | Options | | Price(3) | | Weighted Average Remaining Contractual Term | | Aggregate Intrinsic Value |
Outstanding, January 1, 2016 | 5,348 |
| | $ | 7.86 |
| | | | |
Granted (1) | 290 |
| | 6.43 |
| | | | |
Exercised (2) | (173 | ) | | 3.66 |
| | | | |
Forfeited | (159 | ) | | 7.25 |
| | | | |
Expired | (273 | ) | | 12.15 |
| | | | |
Outstanding, December 31, 2016 | 5,033 |
| | 7.71 |
| | 4.9 years | | $ | 2,539 |
|
Exercisable | 3,868 |
| | 7.86 |
| | 3.8 years | | $ | 2,526 |
|
Expected to vest | 1,042 |
| | 7.18 |
| | 8.4 years | | $ | 12 |
|
| |
(1) | The weighted average grant date fair value of CCOH options granted during the years ended December 31, 2016, 2015 and 2014 was $2.82, $4.25 and $4.69 per share, respectively. |
| |
(2) | Cash received from option exercises during the years ended December 31, 2016, 2015 and 2014 was $0.6 million, $3.8 million and $2.4 million, respectively. The total intrinsic value of the options exercised during the years ended December 31, 2016, 2015 and 2014 was $0.4 million, $2.8 million and $1.5 million, respectively. |
| |
(3) | Reflects the weighted average exercise price per share. |
IHEARTMEDIA, INC.AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A summary of CCOH’s unvested options at and changes during the year ended December 31, 2016 is presented below:
|
| | | | | | |
(In thousands, except per share data) | Options | | Weighted Average Grant Date Fair Value |
Unvested, January 1, 2016 | 1,690 |
| | $ | 4.27 |
|
Granted | 290 |
| | 2.82 |
|
Vested (1) | (657 | ) | | 4.18 |
|
Forfeited | (159 | ) | | 4.22 |
|
Unvested, December 31, 2016 | 1,164 |
| | 3.97 |
|
| |
(1) | The total fair value of CCOH options vested during the years ended December 31, 2016, 2015 and 2014 was $2.7 million, $4.2 million and $6.1 million, respectively. |
CCOH Restricted Stock Awards
CCOH has also granted both restricted stock and restricted stock unit awards to its employees and affiliates under its equity incentive plan. The restricted stock awards represent shares of Class A common stock that hold a legend which restricts their transferability for a term of up to five years. The restricted stock units represent the right to receive shares upon vesting, which is generally over a period of up to five years. Both restricted stock awards and restricted stock units are forfeited, except in certain circumstances, in the event the employee terminates his or her employment or relationship with CCOH prior to the lapse of the restriction.
The following table presents a summary of CCOH’s restricted stock and restricted stock units outstanding at and activity during the year ended December 31, 2016 ("Price" reflects the weighted average share price at the date of grant):
|
| | | | | | |
(In thousands, except per share data) | Awards | | Price |
Outstanding, January 1, 2016 | 2,762 |
| | $ | 8.43 |
|
Granted | 1,510 |
| | 5.67 |
|
Vested (restriction lapsed) | (1,198 | ) | | 6.85 |
|
Forfeited | (331 | ) | | 8.19 |
|
Outstanding, December 31, 2016 | 2,743 |
| | 7.63 |
|
Share-Based Compensation Cost
The share-based compensation cost is measured at the grant date based on the fair value of the award and is recognized as expense on a straight-line basis over the vesting period. Share-based compensation payments are recorded in corporate expenses and were $13.1 million, $10.9 million and $10.7 million, during the years ended December 31, 2016, 2015 and 2014, respectively.
The tax benefit related to the share-based compensation expense for the years ended December 31, 2016, 2015 and 2014 was $5.0 million, $4.2 million and $4.1 million, respectively.
As of December 31, 2016, there was $21.0 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 three years. In addition, as of December 31, 2016, there was $26.4 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.
IHEARTMEDIA, INC.AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Loss per Share
The following table presents the computation of loss per share for the years ended December 31, 2016, 2015 and 2014:
|
| | | | | | | | | | | |
(In thousands, except per share data) | Years Ended December 31, |
| 2016 | | 2015 | | 2014 |
NUMERATOR: | | | | | |
Net loss attributable to the Company – common shares | $ | (296,318 | ) | | $ | (754,621 | ) | | $ | (793,761 | ) |
| | | | | |
DENOMINATOR: | | | | | |
Weighted average common shares outstanding – basic | 84,569 |
| | 84,278 |
| | 83,941 |
|
Stock options and restricted stock(1): | — |
| | — |
| | — |
|
Weighted average common shares outstanding – diluted | 84,569 |
| | 84,278 |
| | 83,941 |
|
| | | | | |
Net loss attributable to the Company per common share: | | | | | |
Basic | $ | (3.50 | ) | | $ | (8.95 | ) | | $ | (9.46 | ) |
Diluted | $ | (3.50 | ) | | $ | (8.95 | ) | | $ | (9.46 | ) |
| |
(1) | 7.9 million, 7.2 million and 6.8 million stock options and restricted shares were outstanding at December 31, 2016, 2015 and 2014, respectively, that were not included in the computation of diluted earnings per share because to do so would have been anti-dilutive. |
Subsequent Event
In December 2016, the Board of Directors and the Company's stockholders holding a majority of the votes entitled to be cast by all outstanding common stock of the Company approved a Fourth Amended and Restated Certificate of Incorporation (the "New Charter"), and the New Charter became effective on January 26, 2017 following the mailing of an Information Statement on Schedule 14C to the Company's stockholders. The New Charter authorizes the issuance of 200,000,000 shares of a new class of non-voting Class D Common Stock, par value $0.001 per share (the "Class D Common Stock"). The shares of Class D Common Stock authorized by the New Charter may be issued without further approval from the Company's stockholders. The New Charter also authorizes the issuance of 150,000,000 shares of "blank check" preferred stock, par value $0.001 per share (the "Preferred Stock"). The Board of Directors has the authority to establish one or more series of Preferred Stockselect and fix relative rights and preferences of any series of Preferred Stock, without any further approval from the Company's stockholders.
NOTE 9 – EMPLOYEE STOCK AND SAVINGS PLANS
iHeartCommunications has various 401(k) savings and other plans for the purpose of providing retirement benefits for substantially all employees. Under these plans, an employee can make pre-tax contributions and iHeartCommunications will matchretain a portion of such an employee’s contribution. Employees vest in these iHeartCommunications matching contributions based upon their years of servicecompensation consultant to iHeartCommunications. Contributions of $30.9 million, $28.9 million and $32.1 million to these plans for the years ended December 31, 2016, 2015 and 2014, respectively, were expensed.
iHeartCommunications offers a non-qualified deferred compensation plan for a select group of management or highly compensated employees, under which such employees were able to make an annual election to defer up to 50% of their annual salary and up to 80% of their bonus before taxes. iHeartCommunications suspended all salary and bonus deferrals and company matching contributions to the deferred compensation plan on January 1, 2010. iHeartCommunications accounts for the plan in accordance with the provisions of ASC 710-10. Matching credits on amounts deferred may be made in iHeartCommunications' sole discretion and iHeartCommunications retains ownership of all assets until distributed. Participants in the plan have the opportunity to allocate their deferrals and any iHeartCommunications matching credits among different investment options, the performance of which is used to determinesurvey the amountscompensation practices in iHeartMedia’s industry and to be paidprovide advice so that iHeartMedia can maintain its competitive ability to participants underrecruit and retain highly qualified personnel. The Compensation Committee has the plan. In accordance withsole authority to approve related fees and retention terms for any of its counsel and consultants. The Compensation Committee also has the provisions of ASC 710-10, the assets and liabilitiesauthority to delegate to subcommittees of the non-qualified deferred compensation plan are presented in “Other assets” and “Other long-term liabilities” in the accompanying consolidated balance sheets, respectively. The asset and liability under the deferred compensation plan at December 31, 2016 was approximately $10.7 million recorded in “Other assets” and $10.7 million recorded in “Other long-term
IHEARTMEDIA, INC.AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
liabilities”, respectively. The asset and liability under the deferred compensation plan at December 31, 2015 was approximately $10.4 million recorded in “Other assets” and $10.4 million recorded in “Other long-term liabilities”, respectively.
NOTE 10 — OTHER INFORMATION
The following table discloses the components of "Other income (expense)" for the years ended December 31, 2016, 2015 and 2014, respectively:
|
| | | | | | | | | | | |
(In thousands) | Years Ended December 31, |
| 2016 | | 2015 | | 2014 |
Foreign exchange gain (loss) | $ | (69,880 | ) | | $ | 15,468 |
| | $ | 15,554 |
|
Other | (3,222 | ) | | (2,412 | ) | | (6,450 | ) |
Total other income (expense), net | $ | (73,102 | ) | | $ | 13,056 |
| | $ | 9,104 |
|
The following table discloses the increase (decrease) in other comprehensive income (loss) related to deferred income tax liabilities for the years ended December 31, 2016, 2015 and 2014, respectively:
|
| | | | | | | | | | | |
(In thousands) | Years Ended December 31, |
| 2016 | | 2015 | | 2014 |
Foreign currency translation adjustments and other | $ | (1,044 | ) | | $ | 1,585 |
| | $ | 2,559 |
|
Total increase in deferred tax liabilities | $ | (1,044 | ) | | $ | 1,585 |
| | $ | 2,559 |
|
The following table discloses the components of “Other current assets” as of December 31, 2016 and 2015, respectively:
|
| | | | | | | |
(In thousands) | As of December 31, |
| 2016 | | 2015 |
Inventory | $ | 22,068 |
| | $ | 24,833 |
|
Deposits | 2,717 |
| | 3,184 |
|
Other | 30,280 |
| | 51,252 |
|
Total other current assets | $ | 55,065 |
| | $ | 79,269 |
|
The following table discloses the components of “Other assets” as of December 31, 2016 and 2015, respectively:
|
| | | | | | | |
(In thousands) | As of December 31, |
| 2016 | | 2015 |
Investments in, and advances to, nonconsolidated affiliates | $ | 14,477 |
| | $ | 27,710 |
|
Other investments | 73,381 |
| | 61,128 |
|
Notes receivable | 132 |
| | 156 |
|
Prepaid expenses | — |
| | 7,932 |
|
Deposits | 20,963 |
| | 26,025 |
|
Prepaid rent | 70,603 |
| | 74,114 |
|
Non-qualified plan assets | 10,733 |
| | 10,385 |
|
Other | 37,161 |
| | 7,637 |
|
Total other assets | $ | 227,450 |
| | $ | 215,087 |
|
IHEARTMEDIA, INC.AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table discloses the components of “Other long-term liabilities” as of December 31, 2016 and 2015, respectively:
|
| | | | | | | |
(In thousands) | As of December 31, |
| 2016 | | 2015 |
Unrecognized tax benefits | $ | 115,078 |
| | $ | 113,563 |
|
Asset retirement obligation | 42,067 |
| | 47,574 |
|
Non-qualified plan liabilities | 10,733 |
| | 10,385 |
|
Deferred income | 154,246 |
| | 137,942 |
|
Deferred rent | 155,339 |
| | 141,911 |
|
Employee related liabilities | 55,460 |
| | 47,491 |
|
Other | 39,054 |
| | 27,705 |
|
Total other long-term liabilities | $ | 571,977 |
| | $ | 526,571 |
|
The following table discloses the components of “Accumulated other comprehensive loss,” net of tax, as of December 31, 2016 and 2015, respectively:
|
| | | | | | | |
(In thousands) | As of December 31, |
| 2016 | | 2015 |
Cumulative currency translation adjustment | $ | (319,696 | ) | | $ | (389,367 | ) |
Cumulative unrealized gain on securities | 1,428 |
| | 1,946 |
|
Cumulative other adjustments | (37,608 | ) | | (26,986 | ) |
Total accumulated other comprehensive loss | $ | (355,876 | ) | | $ | (414,407 | ) |
NOTE 11 – SEGMENT DATA
The Company’s reportable segments, which it believes best reflect how the Company is currently managed, are iHM, Americas outdoor advertising and International outdoor advertising. Revenue and expenses earned and charged between segments are recorded at estimated fair value and eliminated in consolidation. The iHM segment provides media and entertainment services via broadcast and digital delivery and also includes the Company’s events and national syndication businesses. The Americas outdoor advertising segment consists of operations primarily in the United States, Canada and Latin America. The International outdoor advertising segment primarily includes operations in Europe and Asia. The Other category includes the Company’s media representation business as well as other general support services and initiatives that are ancillary to the Company’s other businesses. Corporate includes infrastructure and support, including information technology, human resources, legal, finance and administrative functions for eachCompensation Committee any of the Company’s reportable segments, as well as overall executive, administrative and support functions. Share-based payments are recorded in corporate expense.
IHEARTMEDIA, INC.AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
(In thousands) | iHM | | Americas Outdoor Advertising | | International Outdoor Advertising | | Other | | Corporate and other reconciling items | | Eliminations | | Consolidated |
Year Ended December 31, 2016 |
Revenue | $ | 3,403,040 |
| | $ | 1,278,413 |
| | $ | 1,423,982 |
| | $ | 171,593 |
| | $ | — |
| | $ | (3,455 | ) | | $ | 6,273,573 |
|
Direct operating expenses | 975,463 |
| | 570,310 |
| | 865,259 |
| | 1,255 |
| | — |
| | — |
| | 2,412,287 |
|
Selling, general and administrative expenses | 1,102,998 |
| | 225,415 |
| | 289,787 |
| | 109,623 |
| | — |
| | (1,924 | ) | | 1,725,899 |
|
Corporate expenses | — |
| | — |
| | — |
| | — |
| | 342,556 |
| | (1,531 | ) | | 341,025 |
|
Depreciation and amortization | 243,964 |
| | 185,654 |
| | 152,758 |
| | 17,304 |
| | 35,547 |
| | — |
| | 635,227 |
|
Impairment charges | — |
| | — |
| | — |
| | — |
| | 8,000 |
| | — |
| | 8,000 |
|
Other operating income, net | — |
| | — |
| | — |
| | — |
| | 353,556 |
| | — |
| | 353,556 |
|
Operating income (loss) | $ | 1,080,615 |
| | $ | 297,034 |
| | $ | 116,178 |
| | $ | 43,411 |
| | $ | (32,547 | ) | | $ | — |
| | $ | 1,504,691 |
|
Intersegment revenues | $ | — |
| | $ | 3,455 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 3,455 |
|
Segment assets | $ | 7,392,872 |
| | $ | 3,175,355 |
| | $ | 1,342,356 |
| | $ | 237,435 |
| | $ | 714,445 |
| | $ | (216 | ) | | $ | 12,862,247 |
|
Capital expenditures | $ | 73,221 |
| | $ | 81,401 |
| | $ | 143,788 |
| | $ | 2,460 |
| | $ | 13,847 |
| | $ | — |
| | $ | 314,717 |
|
Share-based compensation expense | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 13,086 |
| | $ | — |
| | $ | 13,086 |
|
Year Ended December 31, 2015 |
Revenue | $ | 3,284,320 |
| | $ | 1,349,021 |
| | $ | 1,457,183 |
| | $ | 153,736 |
| | $ | — |
| | $ | (2,744 | ) | | $ | 6,241,516 |
|
Direct operating expenses | 972,937 |
| | 597,382 |
| | 897,520 |
| | 3,274 |
| | — |
| | — |
| | 2,471,113 |
|
Selling, general and administrative expenses | 1,065,066 |
| | 233,254 |
| | 298,250 |
| | 110,526 |
| | — |
| | (2,744 | ) | | 1,704,352 |
|
Corporate expenses | — |
| | — |
| | — |
| | — |
| | 314,999 |
| | — |
| | 314,999 |
|
Depreciation and amortization | 240,207 |
| | 204,514 |
| | 166,060 |
| | 20,622 |
| | 42,588 |
| | — |
| | 673,991 |
|
Impairment charges | — |
| | — |
| | — |
| | — |
| | 21,631 |
| | — |
| | 21,631 |
|
Other operating income, net | — |
| | — |
| | — |
| | — |
| | 94,001 |
| | — |
| | 94,001 |
|
Operating income (loss) | $ | 1,006,110 |
| | $ | 313,871 |
| | $ | 95,353 |
| | $ | 19,314 |
| | $ | (285,217 | ) | | $ | — |
| | $ | 1,149,431 |
|
Intersegment revenues | $ | — |
| | $ | 2,744 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 2,744 |
|
Segment assets | $ | 7,522,998 |
| | $ | 3,567,764 |
| | $ | 1,573,161 |
| | $ | 229,067 |
| | $ | 976,417 |
| | $ | (196,292 | ) | | $ | 13,673,115 |
|
Capital expenditures | $ | 63,814 |
| | $ | 82,165 |
| | $ | 132,554 |
| | $ | 2,039 |
| | $ | 15,808 |
| | $ | — |
| | $ | 296,380 |
|
Share-based compensation expense | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 10,923 |
| | $ | — |
| | $ | 10,923 |
|
Year Ended December 31, 2014 |
Revenue | $ | 3,161,503 |
| | $ | 1,350,623 |
| | $ | 1,610,636 |
| | $ | 202,497 |
| | $ | — |
| | $ | (6,726 | ) | | $ | 6,318,533 |
|
Direct operating expenses | 932,172 |
| | 605,771 |
| | 991,117 |
| | 14,255 |
| | — |
| | (3,280 | ) | | 2,540,035 |
|
Selling, general and administrative expenses | 1,013,407 |
| | 233,641 |
| | 314,878 |
| | 122,448 |
| | — |
| | (3,436 | ) | | 1,680,938 |
|
Corporate expenses | — |
| | — |
| | — |
| | — |
| | 320,941 |
| | (10 | ) | | 320,931 |
|
Depreciation and amortization | 240,846 |
| | 203,928 |
| | 198,143 |
| | 29,435 |
| | 38,546 |
| | — |
| | 710,898 |
|
Impairment charges | — |
| | — |
| | — |
| | — |
| | 24,176 |
| | — |
| | 24,176 |
|
Other operating income, net | — |
| | — |
| | — |
| | — |
| | 40,031 |
| | — |
| | 40,031 |
|
Operating income (loss) | $ | 975,078 |
| | $ | 307,283 |
| | $ | 106,498 |
| | $ | 36,359 |
| | $ | (343,632 | ) | | $ | — |
| | $ | 1,081,586 |
|
Intersegment revenues | $ | 10 |
| | $ | 3,436 |
| | $ | — |
| | $ | 3,280 |
| | $ | — |
| | $ | — |
| | $ | 6,726 |
|
Segment assets | $ | 7,700,435 |
| | $ | 3,648,735 |
| | $ | 1,680,598 |
| | $ | 266,880 |
| | $ | 542,931 |
| | $ | — |
| | $ | 13,839,579 |
|
Capital expenditures | $ | 53,914 |
| | $ | 109,727 |
| | $ | 117,480 |
| | $ | 2,233 |
| | $ | 34,810 |
| | $ | — |
| | $ | 318,164 |
|
Share-based compensation expense | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 10,713 |
| | $ | — |
| | $ | 10,713 |
|
Revenue of $1.6 billion, $1.6 billion and $1.8 billion derived from the Company’s foreign operations are included in the data above for the years ended December 31, 2016, 2015 and 2014, respectively. Revenue of $4.7 billion, $4.6 billion and $4.5 billion derived
IHEARTMEDIA, INC.AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
from the Company’s U.S. operations are included in the data above for the years ended December 31, 2016, 2015 and 2014, respectively.
Identifiable long-lived assets of $540.4 million, $629.5 million and $682.7 million derived from the Company’s foreign operations are included in the data above for the years ended December 31, 2016, 2015 and 2014, respectively. Identifiable long-lived assets of $1.4 billion, $1.6 billion and $2.0 billion derived from the Company’s U.S. operations are included in the data above for the years ended December 31, 2016, 2015 and 2014, respectively.
IHEARTMEDIA, INC.AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12 — QUARTERLY RESULTS OF OPERATIONS (Unaudited)
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(In thousands, except per share data) |
| Three Months Ended March 31, | | Three Months Ended June 30, | | Three Months Ended September 30, | | Three Months Ended December 31, |
| 2016 | | 2015 | | 2016 | | 2015 | | 2016 | | 2015 | | 2016 | | 2015 |
Revenue | $ | 1,363,505 |
| | $ | 1,344,564 |
| | $ | 1,618,532 |
| | $ | 1,599,859 |
| | $ | 1,570,418 |
| | $ | 1,579,514 |
| | $ | 1,721,118 |
| | $ | 1,717,579 |
|
Operating expenses: | | | | | | | | | | | | | | | |
Direct operating expenses | 568,371 |
| | 577,692 |
| | 617,246 |
| | 615,163 |
| | 595,576 |
| | 627,150 |
| | 631,094 |
| | 651,108 |
|
Selling, general and administrative expenses | 425,568 |
| | 416,881 |
| | 434,581 |
| | 424,562 |
| | 421,700 |
| | 429,426 |
| | 444,050 |
| | 433,483 |
|
Corporate expenses | 77,879 |
| | 77,422 |
| | 87,650 |
| | 80,295 |
| | 86,779 |
| | 74,775 |
| | 88,717 |
| | 82,507 |
|
Depreciation and amortization | 155,456 |
| | 170,453 |
| | 162,144 |
| | 168,394 |
| | 158,453 |
| | 166,320 |
| | 159,174 |
| | 168,824 |
|
Impairment charges | — |
| | — |
| | — |
| | — |
| | 8,000 |
| | 21,631 |
| | — |
| | — |
|
Other operating income, net | 284,463 |
| | (8,974 | ) | | (64,190 | ) | | 100,754 |
| | (505 | ) | | 6,914 |
| | 133,788 |
| | (4,693 | ) |
Operating income | 420,694 |
| | 93,142 |
| | 252,721 |
| | 412,199 |
| | 299,405 |
| | 267,126 |
| | 531,871 |
| | 376,964 |
|
Interest expense | 463,950 |
| | 441,771 |
| | 465,991 |
| | 452,957 |
| | 459,852 |
| | 453,921 |
| | 460,189 |
| | 456,847 |
|
Gain (loss) on investments, net | — |
| | 579 |
| | — |
| | — |
| | (13,767 | ) | | (5,000 | ) | | 860 |
| | — |
|
Equity in earnings (loss) of nonconsolidated affiliates | (433 | ) | | 331 |
| | (1,610 | ) | | (690 | ) | | 1,117 |
| | (857 | ) | | (15,807 | ) | | 314 |
|
Gain (loss) on extinguishment of debt | — |
| | (2,201 | ) | | — |
| | — |
| | 157,556 |
| | — |
| | — |
| | — |
|
Other income (expense), net | (5,712 | ) | | 19,891 |
| | (34,019 | ) | | 16,211 |
| | (7,323 | ) | | (17,976 | ) | | (26,048 | ) | | (5,070 | ) |
Income (loss) before income taxes | (49,401 | ) | | (330,029 | ) | | (248,899 | ) | | (25,237 | ) | | (22,864 | ) | | (210,628 | ) | | 30,687 |
| | (84,639 | ) |
Income tax benefit (expense) | (9,493 | ) | | (56,605 | ) | | (27,137 | ) | | (22,077 | ) | | (5,613 | ) | | (2,841 | ) | | 92,717 |
| | (5,434 | ) |
Consolidated net income (loss) | (58,894 | ) | | (386,634 | ) | | (276,036 | ) | | (47,314 | ) | | (28,477 | ) | | (213,469 | ) |
| 123,404 |
| | (90,073 | ) |
Less amount attributable to noncontrolling interest | 29,621 |
| | (1,668 | ) | | 2,858 |
| | 7,152 |
| | 6,474 |
| | 8,448 |
| | 17,362 |
| | 3,199 |
|
Net income (loss)attributable to the Company | $ | (88,515 | ) | | $ | (384,966 | ) | | $ | (278,894 | ) | | $ | (54,466 | ) | | $ | (34,951 | ) | | $ | (221,917 | ) | | $ | 106,042 |
| | $ | (93,272 | ) |
| | | | | | | | | | | | | | | |
Net income (loss) to the Company per common share: |
Basic | $ | (1.05 | ) | | $ | (4.58 | ) | | $ | (3.30 | ) | | $ | (0.65 | ) | | $ | (0.41 | ) | | $ | (2.63 | ) | | $ | 1.25 |
| | $ | (1.11 | ) |
Diluted | $ | (1.05 | ) | | $ | (4.58 | ) | | $ | (3.30 | ) | | $ | (0.65 | ) | | $ | (0.41 | ) | | $ | (2.63 | ) | | $ | 1.24 |
| | $ | (1.11 | ) |
The Company's Class A common shares are quoted for trading on the OTC / Pink Sheets Bulletin Board under the symbol IHRT. |
IHEARTMEDIA, INC.AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 13– CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
iHeartCommunications is a party to a management agreement with certain affiliates of Bain Capital Partners, LLC and Thomas H. Lee Partners, L.P. (together, the “Sponsors”) and certain other parties pursuant to which such affiliatesresponsibilities of the Sponsors will provide management and financial advisory services until 2018. These agreements require management fees to be paid to such affiliatesfull Compensation Committee; provided, however, that as long as one of the Sponsors for such services at a rate not greater than $15.0 million per year, plus reimbursable expenses. Forpublic directors elected by the years ended December 31, 2016, 2015 and 2014, the Company recognized management fees and reimbursable expensesholders of $15.3 million, $15.4 million and $15.2 million, respectively.
Stock Purchases
On August 9, 2010, iHeartCommunications announced that its board of directors approved a stock purchase program under which iHeartCommunications or its subsidiaries could purchase up to an aggregate of $100.0 million of the Company's Class A common stock and/or the Class A common stock of CCOH. The stock purchase program did not have a fixed expiration date and could be modified, suspended or terminated at any time at iHeartCommunications' discretion. As of December 31, 2014, an aggregate $34.2 million was available under this program. In January 2015, CC Finco, LLC (“CC Finco”), an indirect wholly-owned subsidiary of the Company, purchased 2,000,000 shares of CCOH’s Class A common stock for $20.4 million. On April 2, 2015, CC Finco purchased an additional 2,172,946 shares of CCOH’s Class A common stock for $22.2 million. As a result of this purchase, the stock purchase program concluded. The purchase of shares in excess of the amount available under the stock purchase program was separately approved by the board of directors. As of December 31, 2016, iHeartCommunications and its subsidiaries held 10,726,917 shares of CCOH's Class A Common Stock and all of CCOH's Class B common stock, which collectively represented 89.9% of the outstanding shares of CCOH’s common stock on a fully-diluted basis, assuming the conversion of all of CCOH’s Class B common stock into Class A common stock.
On December 3, 2015, Clear Channel Holdings, Inc. contributed 100,000,000 shares of CCOH’s Class B Common Stock to Broader Media, LLC, an indirect wholly-owned subsidiary of the Company, as a
capital contribution,separate class is on the Board, at least one of such public directors will serve on any subcommittee at all times.The Compensation Committee’s primary responsibilities, which are discussed in detail within its charter, are to:
review and approve corporate goals and objectives relevant to provide greater flexibility in support of future financing transactions, share dispositions and other similar transactions.
ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Not Applicable
ITEM 9A. Controls and Procedures
Disclosure 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 ourother executive officer compensation, evaluate the Chief Financial Officer, we have carried out an evaluationExecutive Officer’s and other executive officers’ performance in light of those goals and objectives and, either as a committee or together with the other independent directors (as directed by the Board), determine and approve the Chief Executive Officer’s and other executive officers’ compensation level based on this evaluation;
approve all awards to executive officers under iHeartMedia’s incentive compensation plans, as well as adopt, administer, amend or terminate such plans;
perform tasks similar to those in the two preceding bullets with respect to those other members of senior management whose compensation is the responsibility of the effectivenessBoard or whose compensation the Chief Executive Officer requests the Compensation Committee to review and affirm;
recommend to the Board all awards under iHeartMedia’s equity-based plans and recommend to the Board the adoption, amendment or termination of any compensation plan under which stock may be issued;
assist the Board in developing and evaluating potential candidates for executive positions (including the Chief Executive Officer) and oversee the development of executive succession plans;
obtain through discussions with management an understanding of iHeartMedia’s risk management practices and policies in order to appropriately evaluate whether iHeartMedia’s compensation policies or practices create incentives that affect risk taking;
review and discuss with management the Compensation Discussion and Analysis and, based on that review and discussion, recommend to the Board that the Compensation Discussion and Analysis be included in the proxy statement;
produce a Compensation Committee report on executive compensation for inclusion in the proxy statement; and
make recommendations to the Board regarding compensation, if any, of the designBoard.
The full text of the Compensation Committee’s charter can be found on our website atwww.iheartmedia.com.
The Nominating and operationCorporate Governance Committee
The Nominating and Corporate Governance Committee’s primary responsibilities, which are discussed in detail within its charter, include the following:
identify individuals qualified to become Board members;
receive nominations for qualified individuals and review recommendations put forward by the Chief Executive Officer or recommended by stockholders;
establish any qualifications, desired background, expertise and other selection criteria for members of the Board and any committee; and
recommend to the Board the director nominees for the next annual meeting of stockholders.
The Nominating and Corporate Governance Committee met one time in 2017. Committee member Jonathon S. Jacobson is independent as defined by iHeartMedia’s independence standards. The full text of the Nominating and Corporate Governance Committee’s charter can be found on our website atwww.iheartmedia.com.
Our directors play a critical role in guiding iHeartMedia’s strategic direction and overseeing the management of iHeartMedia. iHeartMedia does not have a formal policy with regard to the consideration of diversity in identifying director nominees, but the Nominating and Corporate Governance Committee strives to recommend the nomination of directors with a variety of complementary skills so that, as a group, the Board will possess the appropriate mix of experience, skills and expertise to oversee iHeartMedia’s businesses. Director candidates should have experience in positions with a high degree of responsibility, be leaders in the organizations with which they are affiliated and have the time, energy, interest and willingness to serve as a member of the Board.
6
The Nominating and Corporate Governance Committee evaluates each individual in the context of the Board as a whole, with the objective of recommending a group that can best perpetuate the success of our disclosure controlsbusiness and procedures (as defined in Rule 13a-15(e) underrepresent stockholder interests through the Exchange Act)exercise of sound judgment using its diversity of experience. The Nominating and Corporate Governance Committee evaluates each incumbent director to determine whether he or she should be nominated to stand forre-election, based on the types of criteria outlined above as well as the director’s contributions to the Board during their current term.
The Nominating and Corporate Governance Committee will consider as potential nominees individuals properly recommended by stockholders. Recommendations concerning individuals proposed for consideration should be addressed to the Board, c/o Secretary, iHeartMedia, Inc., 20880 Stone Oak Parkway, San Antonio, Texas 78258. Each recommendation should include a personal biography of the endsuggested nominee, an indication of the period coveredbackground or experience that qualifies the person for consideration and a statement that the person has agreed to serve if nominated and elected. The Board evaluates candidates recommended by this report. Our disclosure controls and procedures are designedstockholders in the same manner in which it evaluates other nominees. Stockholders who themselves wish to provide reasonable assurance that information weeffectively nominate a person for election to the Board, as contrasted with recommending a potential nominee to the Board for its consideration, are required to disclose in reports that are filed or submitted undercomply with the Exchange Act is accumulatedadvance notice 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 December 31, 2016 at the reasonable assurance level.
Management’s Annual Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Our internal control over financial reporting is a process designed under the supervision of our Chief Executive Officer and Chief Financial Officer to provide reasonable assurance regarding the preparation and reliability of financial reporting and preparation of our financial statements for external purposes in accordance with generally accepted accounting principles.
There are inherent limitations to the effectiveness of any control system, however well designed, including the possibility of human error and the possible circumvention or overriding of controls. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Management must make judgments with respect to the relative cost and expected benefits of any specific control measure. The design of a control system also is based in part upon assumptions and judgments made by management about the likelihood of future events, and there can be no assurance that a control will be effective under all potential future conditions. As a result, even an effective system of internal control over financial reporting can provide no more than reasonable assurance with respect to the fair presentation of financial statements and the processes under which they were prepared.
As of December 31, 2016, management assessed the effectiveness of our internal control over financial reporting based on the criteria for effective internal control over financial reporting established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 Framework). Based on the assessment, management determined that we maintained effective internal control over financial reporting as of December 31, 2016, based on those criteria.
Ernst & Young LLP, the independent registered public accounting firm that audited our consolidated financial statements included in this Annual Report on Form 10-K, has issued an attestation report on the effectiveness of our internal control over financial reporting as of December 31, 2016. The report, which expresses an unqualified opinion on the effectiveness of our internal control over financial reporting as of December 31, 2016, is included in this Item under the heading “Report of Independent Registered Public Accounting Firm.”
Changes in Internal Control Over Financial Reporting
There were no changesother requirements set forth in our internal control over financial reporting that occurred during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Reportbylaws.Code of Independent Registered Public Accounting Firm
The Board of DirectorsBusiness Conduct and Stockholders
iHeartMedia, Inc.
We have audited iHeartMedia, Inc. and subsidiaries’ (the Company) internal control over financial reporting as of December 31, 2016, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). The Company’s management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Annual Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2016, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of the Company as of December 31, 2016 and 2015, and the related consolidated statements of comprehensive loss, changes in stockholders' deficit and cash flows for each of the three years in the period ended December 31, 2016 and our report dated February 23, 2017 expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
San Antonio, Texas
February 23, 2017
ITEM 9B. Other Information
Not Applicable
PART III
ITEM 10. Directors, Executive Officers and Corporate Governance
The information required by this item with respect to our executive officers is set forth at the end of Part I of this Annual Report on Form 10-K.
EthicsOur Code of Business Conduct and Ethics (the “Code of Conduct”) applies to all of our officers, directors and employees, including our principal executive officer, principal financial officer and principal accounting officer. Our Code of Conduct constitutes a “code of ethics” as defined by Item 406(b) ofRegulation S-K.The Code of Conduct is publicly available on our internetInternet website at www.iheartmedia.com.www.iheartmedia.com. We intend to satisfy the disclosure requirements of Item 5.05 of Form8-K regarding any amendment to, or waiver from, a provision of the Code of Conduct that applies to our principal executive officer, principal financial officer or principal accounting officer and relates to any element of the definition of code of ethics set forth in Item 406(b) of RegulationS-K by posting such information on our website,www.iheartmedia.com.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act requires iHeartMedia’s directors, executive officers and beneficial owners of more than 10% of any class of equity securities of iHeartMedia to file reports of ownership and changes in ownership with the SEC. Directors, executive officers and greater than 10% stockholders are required to furnish iHeartMedia with copies of all Section 16(a) forms they file.
To our knowledge, based solely on review of the copies of such reports furnished to us and written representations that no other reports were required, during the fiscal year ended December 31, 2017, our officers, directors and greater than 10% beneficial owners timely filed all required Section 16(a) reports.
ITEM 11. EXECUTIVE COMPENSATION
COMPENSATION DISCUSSION AND ANALYSIS
The following Compensation Discussion and Analysis contains statements regarding Company and individual performance measures and other goals. These goals are disclosed in the limited context of our executive compensation program and should not be understood to be statements of management’s expectations or estimates of results or other guidance. Further, the Company performance measures used for purposes of executive compensation, as described more fully below, differ from segment results reported in our financial statements. Segment results are used to measure the overall financial performance of the Company’s segments, while the performance measures used for compensation purposes are used in connection with assessing the performance of executives. We specifically caution investors not to apply the following discussion to other contexts.
OVERVIEW AND OBJECTIVES OF OUR COMPENSATION PROGRAM
We believe that compensation of our named executive officers should be directly and materially linked to operating performance. The fundamental objective of our compensation program is to attract, retain and motivate top quality executives through compensation and incentives which are competitive within the various labor markets and industries in which we compete for talent and which align the interests of our executives with the interests of our stockholders.
Overall, we have designed our compensation program to:
support our business strategy and business plan by clearly communicating what is expected of executives with respect to goals and results and by rewarding achievement;
recruit, motivate and retain executive talent; and
align executive performance with stockholder interests.
7
We seek to achieve these objectives through a variety of compensation elements, as summarized below:
| | | | |
Element | | Form | | Purpose |
Base salary | | Cash | | Provide a competitive level of base compensation in recognition of responsibilities, value to the Company and individual performance |
| | |
Bonus | | Cash | | Through annual incentive bonuses, discretionary bonuses and SIP bonus opportunities, recognize and provide an incentive for performance that achieves specific corporate and/or individual goals intended to correlate closely with the growth of long-term stockholder value, and, through special retention bonuses for key employees, incentivize and retain top talent |
| | |
Long-Term Incentive Compensation | | Generally stock options, restricted stock, restricted stock units or other equity-based compensation | | Incentivize achievement of long-term goals, enable retention and/or recognize achievements and promotions—in each case aligning compensation over a multi-year period directly with the interests of stockholders by creating an equity stake |
| | |
Other benefits and prerequisites | | Retirement plans, health and welfare plans and certain perquisites (such as relocation benefits and payment of legal fees in connection with promotions/new hires, personal use of aircraft, transportation and other services) | | Provide tools for employees to pursue financial security through retirement benefits, promote the health and welfare of all employees and provide other specific benefits of value to individual executive officers |
| | |
Severance | | Varies by circumstances of separation | | Facilitate an orderly transition in the event of management changes |
In May 2017, we held a stockholder advisory vote on the compensation of our named executive officers. Approximately 93% of the votes cast on the matter approved the compensation of our named executive officers as disclosed in our 2017 proxy statement. Accordingly, we made no significant changes to the objectives or structure of our executive compensation program. We currently hold oursay-on-pay vote once every three years.
COMPENSATION PRACTICES
Our named executive officers for fiscal year 2017 are as follows:
Robert W. Pittman, our Chairman and Chief Executive Officer (Principal Executive Officer);
Richard J. Bressler, our President, Chief Operating Officer and Chief Financial Officer (Principal Financial Officer);
C. William Eccleshare, our Chairman and Chief Executive Officer of CCOH’s International division (“CCI”);
Scott R. Wells, our Chief Executive Officer of CCOH’s Americas division (“CCOA”); and
Robert H. Walls, Jr., our Executive Vice President, General Counsel and Secretary.
iHeartMedia’s Compensation Committee typically determines total compensation, as well as the individual components of such compensation, of our named executive officers on an annual basis. However, because Mr. Eccleshare’s and Mr. Wells’ responsibilities relate to our Outdoor divisions, iHeartMedia’s Compensation Committee only reviews their compensation, with final determination and approval of their compensation made by the Compensation Committee of the board of directors of our subsidiary, CCOH. For purposes of this Compensation Discussion and Analysis, we sometimes refer to iHeartMedia’s Compensation Committee and CCOH’s Compensation Committee collectively as the “Compensation Committee.” All compensation decisions are made within the scope of each named executive officer’s employment agreement.
8
In making decisions with respect to each element of executive compensation, the applicable Compensation Committee considers the total compensation that may be awarded to the executive, including salary, annual incentive bonus and long-term incentive compensation. Multiple factors are considered in determining the amount of total compensation awarded to the named executive officers, including:
the terms of our named executive officers’ employment agreements;
the Chief Executive Officer’s recommendations (other than for himself);
the value of previous equity awards;
internal pay equity considerations; and
broad trends in executive compensation generally.
The goal is to award compensation that is reasonable when all elements of potential compensation are considered.
ELEMENTS OF COMPENSATION
As described above, we believe that a combination of various elements of compensation best serves the interests of iHeartMedia and its stockholders. Having a variety of compensation elements enables us to meet the requirements of the highly competitive environment in which we operate while ensuring that our named executive officers are compensated in a way that advances the interests of all stockholders. Under this approach, executive compensation generally involves a significant portion of pay that is “at risk,” namely, the annual incentive bonus. The annual incentive bonus is based entirely on financial performance, individual performance or a combination of both. In conjunction with the annual incentive bonus awards, the applicable Compensation Committee also may provide annual discretionary bonuses or additional bonus opportunities to our named executive officers, which also would be based on financial performance, individual performance or a combination of both. Equity awards constitute a significant portion of long-term remuneration that is tied directly to stock price appreciation, which benefits all stockholders.
Our practices with respect to each of the elements of executive compensation are set forth below, followed by a discussion of the specific factors relevant to the named executive officers.
Base Salary
Administration. Base salaries for executive officers typically are reviewed on an annual basis and at www.iheartmedia.com.
the time of promotion or other change in responsibilities. In general, any increases in salary will be based on the subjective evaluation of factors such as the level of responsibility, individual performance, level of pay both of the executive in question and other similarly situated executives and competitive pay practices. All
decisions regarding increasing or decreasing an executive officer’s base salary are made within the scope of the executive’s respective employment agreement. In the case of our named executive officers, each of their employment agreements contains a minimum level of base salary, as described below under “—Employment Agreements with the Named Executive Officers.”In reviewing base salaries, the applicable Compensation Committee considers the importance of linking a significant proportion of the named executive officer’s compensation to performance in the form of the annual incentive bonus (plus any annual discretionary bonuses or additional bonus opportunities), which is tied to financial performance measures, individual performance, or a combination of both, as well as long-term incentive compensation.
Analysis. Our named executive officers are eligible for annual raises commensurate with Company policy.
Mr. Pittman became our Chief Executive Officer on October 2, 2011, after serving as our Chairman of Media and Entertainment Platforms pursuant to a consulting agreement since November 15, 2010. Under his October 2, 2011 employment agreement, Mr. Pittman was provided an initial base salary of $1,000,000. As described under “Employment Agreements with the Named Executive Officers,” on January 13, 2014, iHeartMedia and Mr. Pittman amended and restated his employment agreement, extending the initial term of his service until January 13, 2019. In connection with the amended and restated employment agreement, on January 13, 2014, Mr. Pittman’s base salary increased to $1,200,000. iHeartMedia’s Compensation Committee felt that this base salary, together with the restricted stock and other benefits and perquisites provided to Mr. Pittman under his amended and restated employment agreement, represented a competitive compensation package for Mr. Pittman.
Mr. Bressler became our President and Chief Financial Officer on July 29, 2013 and our Chief Operating Officer on February 18, 2015. Under his July 29, 2013 employment agreement, Mr. Bressler was provided with an initial base salary of $1,200,000. iHeartMedia’s Compensation Committee felt that this base salary, together with the restricted stock and other benefits and perquisites provided to Mr. Bressler under his employment agreement, represented a competitive compensation package for Mr. Bressler.
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Mr. Eccleshare’s base salary increased to $1,000,000 in connection with his promotion to serve as our Chief Executive Officer—Outdoor and Chief Executive Officer of our subsidiary, CCOH, on January 24, 2012. Mr. Eccleshare’s base salary remained at that level for 2017.
In March 2015, we hired Mr. Wells as Chief Executive Officer—Clear Channel Outdoor Americas. Under his employment agreement, Mr. Wells was provided an initial base salary of $750,000. His base salary remained at that level for 2017.
At the beginning of 2010, we hired Mr. Walls. Under his employment agreement, Mr. Walls was provided an initial base salary of $550,000, consistent with our view of market rates for his position at the time. In November 2011 the Compensation Committee approved an increase in the annual base salary of Mr. Walls from $550,000 to $750,000, effective as of October 1, 2011, in recognition of his continued contribution and value to the organization, including his service in the Office of the Chief Executive Officer during 2011. Mr. Walls’ base salary remained at that level for 2017.
For a more detailed description of the employment agreements for our named executive officers, please refer to “Executive Compensation—Employment Agreements with the Named Executive Officers.”
Annual Incentive Plan
Administration. Messrs. Pittman, Bressler and Walls and other key executives of iHeartMedia participate in the iHeartMedia 2015 Executive Incentive Plan (the “iHeartMedia Annual Incentive Plan”). Mr. Eccleshare, Mr. Wells and other key executives of CCOH participate in the CCOH 2015 Executive Incentive Plan (the “CCOH Annual Incentive Plan”). iHeartMedia’s stockholders approved the iHeartMedia Annual Incentive Plan and CCOH’s stockholders approved the CCOH Annual Incentive Plan in May 2015.
The iHeartMedia Annual Incentive Plan is administered by iHeartMedia’s Compensation Committee and the CCOH Annual Incentive Plan is administered by CCOH’s Compensation Committee (collectively, both plans are referred to in this Compensation Discussion and Analysis as the “Annual Incentive Plans”). The Annual Incentive Plans are intended to provide an incentive to the named executive officers and other selected key executives to contribute to the growth, profitability and increased stockholder value and to retain such executives. Under the Annual Incentive Plans, participants are eligible for performance-based awards, which represent the conditional right to receive cash or other property based upon the achievement ofpre-established performance goals within a specified performance period. No single participant may receive more than $15,000,000 in awards in any calendar year. The Annual Incentive Plans were designed to allow awards to qualify for the performance-based compensation exception under Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Code”).
The performance goals for each named executive officer (other than Mr. Eccleshare and Mr. Wells) are set pursuant to an extensive annual operating plan developed by the Chief Executive Officer of iHeartMedia in consultation with iHeartMedia’s Board, the President, Chief Operating Officer and Chief Financial Officer of iHeartMedia and other senior executive officers of iHeartMedia within any parameters specified within each executive’s employment agreement. The Chief Executive Officer of iHeartMedia makes recommendations as to the compensation levels and performance goals of our named executive officers (other than his own) to iHeartMedia’s Compensation Committee for its review, consideration and approval. iHeartMedia’s Compensation Committee has complete discretion to accept, reject or modify the recommendations of the Chief Executive Officer of iHeartMedia. CCOH’s Compensation Committee determines the compensation levels and performance goals of Mr. Eccleshare and Mr. Wells, which are reviewed by iHeartMedia’s Compensation Committee.
The 2017 annual incentive bonuses were based on the following performance goals (as further described below): (1) the performance goals for Messrs. Pittman, Bressler and Walls were based on achievement of a targeted OIBDAN level on a Company-wide basis and certain qualitative performance objectives, which were directly relevant to their respective positions and responsibilities; (2) Mr. Eccleshare’s performance goals were based upon achievement of a targeted OIBDAN level for CCI and certain qualitative performance objectives, which contributed to CCI’s performance; and (3) Mr. Wells’ performance goals were based on the achievement of a targeted OIBDAN level for CCOA, excluding Latin America, and Latin America and certain qualitative performance objectives, which contributed to CCOA’s performance.
The annual incentive bonus amounts are determined according to the level of achievement of the objective OIBDAN-based performance goals and the individual qualitative performance goals. No award is earned under the objective performance goal below a minimum threshold of performance (90% of the applicable target OIBDAN for each individual) and a maximum amount is earned under the objective performance goal for performance at or above a maximum level (115% of the applicable target OIBDAN for each individual). The applicable Compensation Committee may, in its discretion, reduce the awards earned pursuant to either the objective or individual qualitative performance goals, as applicable.
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The Compensation Committee follows the process set forth below to determine the annual incentive bonuses and the additional bonus opportunities for the named executive officers:
at the outset of the fiscal year:
set performance goals for the year for iHeartMedia, CCOH and the operating divisions;
set individual performance goals for each participant; and
set a target and maximum annual incentive bonus and a maximum additional bonus opportunity for each applicable participant; and
after the end of the fiscal year, determine the earned amounts by measuring actual performance against the predetermined goals of iHeartMedia, CCOH and the operating divisions, as well as any individual performance goals.
Analysis. In determining whether the 2017 financial performance goals were met, the Compensation Committee considered the financial results of iHeartMedia, CCOH and the operating divisions from January 1, 2017 to December 31, 2017. For 2017, the individual performance-based goals applicable to the named executive officers are set forth under “—Summary of 2017 Cash Incentive Payments for each Named Executive Officer” below.
For 2017, iHeartMedia’s OIBDAN performance was negatively impacted by the macroeconomic environment and iHeartMedia’s liquidity contraints. As a result, iHeartMedia and its operating divisions did not meet their OIBDAN targets and the annual incentive bonus awards were paid below the target bonus levels. Taking into account revenues, OIBDAN, operating efficiencies and other operational strategic and financing achievements during 2017, iHeartMedia’s Compensation Committee awarded additional bonuses to Messrs. Pittman, Bressler and Walls and CCOH’s Compensation Committee awarded an additional bonus to Mr. Eccleshare. The additional bonus awards in respect of 2017 performance were paid in cash at the same time as the annual incentive bonus awards, and are included in the Bonus column of the Summary Compensation Table.
Supplemental Incentive Plan
Administration. Messrs. Pittman and Bressler and other key executives of iHeartMedia participate in the iHeartMedia 2015 Supplemental Incentive Plan (the “iHeartMedia SIP”). Mr. Eccleshare participates in the CCOH 2015 Supplemental Incentive Plan (the “CCOH SIP”). iHeartMedia’s stockholders approved the iHeartMedia SIP and CCOH’s stockholders approved the CCOH SIP in May 2015.
The iHeartMedia SIP is administered by iHeartMedia’s Compensation Committee and the CCOH SIP is administered by CCOH’s Compensation Committee (collectively, both plans are referred to in this Compensation Discussion and Analysis as the “SIPs”). The SIPs are intended to provide an incentive to the named executive officers and other selected key executives to contribute to the growth, profitability and increased stockholder value of the applicable company and for the retention of such executives. Under the SIPs, participants are eligible for performance-based awards, which represent the conditional right to receive cash or other property based upon the achievement ofpre-established performance goals within a specified performance period. No single participant may receive more than $15,000,000 in awards in any calendar year. The performance period for awards under the SIPs is twelve months. The achievement of an earned award is determined as soon as practicable after the end of the applicable performance period. Unless otherwise communicated to a participant in a written agreement, payment of the awards shall not occur until the90-day period following the third anniversary of the beginning of the applicable performance period, subject to the participant’s continued employment through such payment date. In the case of Mr. Eccleshare, pursuant to the terms of his employment agreement, his earned SIP bonuses are paid by CCOH in equal cash installments on or about the first, second and third anniversary of the beginning of the applicable performance period, in each case upon his continued employment through the applicable payment date.
In 2017, Messrs. Pittman and Bressler received SIP bonus opportunities based on certain qualitative performance objectives, which were directly relevant to their respective positions and responsibilities, and Mr. Eccleshare received a SIP bonus opportunity based on certain qualitative performance objectives, which contributed to CCI’s performance.
Analysis. For 2017, the individual performance-based goals applicable to the named executive officers are set forth under “—Summary of 2017 Cash Incentive Payments for each Named Executive Officer” below. Following the end of 2017, iHeartMedia’s Compensation Committee determined that Messrs. Pittman and Bressler met their performance objectives, and their 2017 SIP bonuses were earned at 100% of target. Following the end of 2017, CCOH’s Compensation Committee determined that Mr. Eccleshare met his performance objectives, and Mr. Eccleshare’s 2017 SIP bonus was earned at 100% of target. iHeartMedia’s Compensation Committee believed that the three-year service requirement would enhance the retention value of these awards. CCOH’s Compensation Committee believed that the payment of SIP awards in increments over a three-year period, subject to continued employment, would enhance the retention value of these awards.
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On February 23, 2018, iHeartMedia’s compensation committee accelerated the payments of bonuses earned under the iHeartMedia SIP during 2016 and 2017, which were scheduled to be paid in 2019 and 2020, respectively. The recipients of the accelerated SIP bonuses are required to repay theafter-tax value of the relevant portion of these SIP payments upon any termination of employment if the recipient would have forfeited such portion if payment of these SIP payments had not been accelerated.
2017 Retention Bonus Awards
On January 10, 2017, three of the named executive officers received retention bonuses as follows: Mr. Pittman—$1,750,000; Mr. Bressler—$1,750,000; and Mr. Walls—$500,000. The retention bonuses were paid on or about January 13, 2017 (the “Effective Date”). Except as set forth below, recipients are required to repay 100% of theafter-tax value of their retention bonus if the recipient’s employment terminates before the second anniversary of the Effective Date, or January 13, 2019. In the event of termination of a recipient’s employment by iHeartMedia without cause, by the recipient for “good reason,” or due to death or disability (each, a “Qualifying Termination”) on or after the first anniversary of the Effective Date, or if the recipient remains employed until the second anniversary of the Effective Date, the recipient will retain the entire retention bonus. Theafter-tax value of the retention bonus will be determined by the Company as the applicable portion of the retention bonus, net of any taxes the recipient is required to pay in respect thereof, and taking into account any tax benefit that may be available to the recipient in respect of such repayment. In consideration of the retention bonus, each recipient released certain claims against iHeartMedia and acknowledged certain confidentiality andnon-disparagement agreements.
Pursuant to an amendment to his employment agreement in December 2017, Mr. Eccleshare was paid a retention award of $875,000 on January 1, 2018, which will be reflected as compensation in the Summary Compensation Table for 2018. This retention award is subject to his continued employment through June 30, 2019. He will also receive an additional retention payment of $875,000 on January 1, 2020 subject to his continued employment through June 30, 2020. Half of the retention bonus for Mr. Eccleshare will be paid after 2018, subject to continued employment, which the Compensation Committee of CCOH believed would enhance the retention value of the bonus.
2017 Key Employee Incentive Plan
On January 10, 2017, the Board approved the Key Employee Incentive Plan (the “2017 KEIP”), pursuant to which Mr. Pittman and Mr. Bressler were eligible to earn an aggregate bonus of $7,000,000 and $3,000,000, respectively (each, a “Target Bonus”). The 2017 KEIP commenced as of January 1, 2017 and continued until December 31, 2017. Each participant in the 2017 KEIP had the opportunity to earn (i) a quarterly performance bonus of 25% of the applicable Target Bonus for each quarter in 2017, depending upon the extent to which a quarterly performance goal (the “Quarterly Performance Goal”) was achieved for such quarter, and (ii) in the second, third and fourth quarters of 2017, if the target Quarterly Performance Goal for that quarter was exceeded, a “catch up” payment, depending upon the extent to which a cumulative performance goal based on the relevant qualitative or quantitative metric was achieved for the portion of the year through the end of such quarter. The Quarterly Performance Goals for under the 2017 KEIP for Messers. Pittman and Bressler were as follows: (i) for the first quarter of 2017, supporting iHeartMedia’s efforts to successfully execute liquidity generating initiatives in the first quarter of 2017 sufficient to achieve iHeartMedia’s liquidity goals in 2017 and the first quarter of 2018; (ii) for the second quarter of 2018, (a) identifying and implementing annualized cost savings of at least $25 million for 2017, (b) driving additional free cash flow improvements to improve iHeartMedia’s then-current liquidity forecast and (c) presenting iHeartMedia’s plans for its digital assets and the integration of these assets into iHeartMedia’s operating plan to enhance enterprise value; (iii) for the third quarter of 2017, (a) maximizing free cash flow through expense, working capital and capital expenditure management and implementing cash tracking and improved weekly cash forecasting and (b) implementing account management structure within iHeartMedia’s sales organization; and (iv) for the fourth quarter of 2017 (a) maintaining flat fourth quarter expenses against year-over-year fourth quarter expenses for 2016, except for agreed upon investments and expenditures, (b) implementing a restructuring of the division president model and executive roles and responsibilities and (c) continuing to maximize free cash flow based on expense, working capital and capital expenditure management. The applicable metrics were established by the Compensation Committee after consultation with Mr. Pittman. The “catch up” payments allowed participants to earn any portion of the quarterly bonus that was not fully earned in a prior quarter, but not more. In order to earn any quarterly performance bonus, a participant must have remained employed by iHeartMedia through the end of the applicable quarter. Based on 2017 quarterly performance, each of Messrs. Pittman and Bressler earned their full $7,000,000 and $3,000,000 2017 KEIP bonuses, respectively, which are reflected in theNon-Equity Incentive Plan Compensation column of the Summary Compensation Table for 2017.
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Summary of 2017 Cash Incentive Payments for each Named Executive Officer
Robert W. Pittman
Mr. Pittman’s target bonus for 2017 under the iHeartMedia Annual Incentive Plan was $1,800,000 with 70% based on the achievement of a Company-wide OIBDAN of $1.96 billion and 30% based on the achievement of the other qualitative performance objectives described below. His maximum bonus for 2017 was set at $3,600,000. For purposes of calculating Mr. Pittman’s bonus, OIBDAN was calculated in the same manner as iHeartMedia’s reportable OIBDAN, with further adjustments to calculate on a constant currency basis and to exclude restructuring expenses and rent expense related to iHM tower sale-leaseback expenses. iHeartMedia’s reportable OIBDAN is defined as consolidated operating income adjusted to excludenon-cash compensation expenses, included within corporate expenses, as well as the following line items presented in its Statement of Comprehensive Loss: Depreciation and amortization; Impairment charges; and Other operating income (expense), net. Mr. Pittman’s individual qualitative performance objectives for 2017 consisted of: (1) improving monetization; (2) continuing the focus on the Company’s cost base; (3) growing enhanced product offerings; (4) developing personnel; (5) capital management; (6) enhancing the reputation of iHeartMedia, Inc.; (7) furthering the implementation of the IT security plan; and (8) increasing employee engagement, depth of leadership and performance capability. Our achieved OIBDAN for 2017 was approximately $1.65 billion, which was below the OIBDAN minimum. Based on Mr. Pittman’s level of achievement of his qualitative performance objectives described above, Mr. Pittman received an annual incentive bonus of $540,000. In addition, based on the subjective review of Mr. Pittman’s performance by iHeartMedia’s Compensation Committee, Mr. Pittman received an additional $1,260,000 bonus in respect of 2017 performance, for an aggregate 2017 annual bonus of $1,800,000. The annual incentive bonus of $540,000 is reflected in theNon-Equity Incentive Plan Compensation column of the Summary Compensation Table, and the additional $1,260,000 bonus is reflected in the Bonus column of the Summary Compensation Table for 2017.
In early 2018, Mr. Pittman was paid an additional bonus of $500,000, which was pursuant to a SIP award approved for him by the iHeartMedia Compensation Committee with respect to 2015 performance. This amount is reflected in theNon-Equity Incentive Plan Compensation column of the Summary Compensation Table for 2017. In addition, Mr. Pittman was awarded a SIP bonus opportunity with a target of $500,000 with respect to 2017 performance based on the following performance objectives established by iHeartMedia’s Compensation Committee: (1) supporting the liquidity and restructuring efforts of iHeartMedia and managing related operational challenges; (2) continuing the transformation of the business to a multi-platform, digitally rich, modern entertainment business; (3) establishing a coordinated account management sales approach and systems throughout iHeartMedia; (4) focusing on the improvement of weaker performing countries in Clear Channel Outdoor’s business; (5) managing Clear Channel Outdoor’s investment in new boards and tenders and (6) supporting senior management of Clear Channel Outdoor during restructuring transactions. Subsequent to December 31, 2017, the iHeartMedia Compensation Committee determined that these performance goals were met, and 100% of Mr. Pittman’s 2017 SIP bonus was earned.
Mr. Pittman’s retention bonus of $1,750,000 was paid in January 2017, as described under “—2017 Retention Bonus Awards,” and is reflected in the Bonus column of the Summary Compensation Table for 2017. Mr. Pittman’s 2017 KEIP bonus of $7,000,000 was paid in quarterly installments as described under “—2017 Key Employee Incentive Plan,” and is reflected in theNon-Equity Incentive Plan Compensation column of the Summary Compensation Table for 2017.
Richard J. Bressler
Mr. Bressler’s target bonus for 2017 under the iHeartMedia Annual Incentive Plan was set at $1,800,000, with 70% based on the achievement of a Company-wide OIBDAN of $1.96 billion and 30% based on the achievement of the other qualitative performance objectives described below. His maximum bonus for 2017 was set at $3,600,000. For purposes of calculating Mr. Bressler’s bonus, OIBDAN was calculated in the manner described above for Mr. Pittman. Mr. Bressler’s individual qualitative performance objectives for 2017 consisted of: (1) improving monetization; (2) continuing the focus on the Company’s cost base; (3) growing enhanced product offerings; (4) developing personnel; (5) capital management; (6) enhancing the reputation of iHeartMedia, Inc.; (7) furthering the implementation of the IT security plan; and (8) increasing employee engagement, depth of leadership and performance capability. Our achieved OIBDAN for 2017 was approximately $1.65 billion, which was below the OIBDAN minimum. Based on Mr. Bressler’s level of achievement of his qualitative performance objectives described above, Mr. Bressler received an annual incentive bonus of $540,000. In addition, based on the subjective review of Mr. Bressler’s performance by iHeartMedia’s Compensation Committee, Mr. Bressler received an additional $1,260,000 bonus in respect of 2017 performance, for an aggregate 2017 annual bonus of $1,800,000. The annual incentive bonus of $540,000 is reflected in theNon-Equity Incentive Plan Compensation column and the additional $1,260,000 bonus is reflected in the Bonus column of the Summary Compensation Table for 2017.
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In early 2018, Mr. Bressler was paid an additional bonus of $500,000, which was pursuant to a SIP award approved for him by the iHeartMedia Compensation Committee with respect to 2015 performance. This amount is reflected in theNon-Equity Incentive Plan Compensation column of the Summary Compensation Table for 2017. In addition, Mr. Bressler was awarded a SIP bonus opportunity with a target of $500,000 with respect to 2017 performance based on the following performance objectives established by iHeartMedia’s Compensation Committee: (1) supporting the liquidity and restructuring efforts of iHeartMedia and managing related operational challenges; (2) continuing the transformation of the business to a multi-platform, digitally rich, modern entertainment business; (3) establishing a coordinated account management sales approach and systems throughout iHeartMedia; (4) focusing on the improvement of weaker performing countries in Clear Channel Outdoor’s business; (5) managing Clear Channel Outdoor’s investment in new boards and tenders and (6) supporting senior management of Clear Channel Outdoor during restructuring transactions. After the end of 2017, the iHeartMedia Compensation Committee determined that these performance goals were met, and 100% of Mr. Bressler’s 2017 SIP bonus was earned.
Mr. Bressler’s retention bonus of $1,750,000 was paid in January 2017, as described under “—2017 Retention Bonus Awards,” and is reflected in the Bonus column of the Summary Compensation Table for 2017. Mr. Bressler’s 2017 KEIP bonus of $3,000,000 was paid in quarterly installments as described under “—2017 Key Employee Incentive Plan,” and is reflected in theNon-Equity Incentive Plan Compensation column of the Summary Compensation Table for 2017.
C. William Eccleshare
Mr. Eccleshare’s target bonus for 2017 under the CCOH Annual Incentive Plan was set at $1,000,000, with 70% based on the achievement of OIBDAN at CCI of $246.5 million and 30% based on the achievement of the other qualitative performance objectives described below. His maximum bonus for 2017 was set at $2,000,000. For purposes of calculating Mr. Eccleshare’s bonus, OIBDAN was calculated in the same manner as CCI’s reportable OIBDAN, with further adjustments to calculate on a constant currency basis, to exclude restructuring expenses, and to allocate the applicable corporate expenses to CCI. CCI’s reportable OIBDAN is defined as CCI’s operating income adjusted to excludenon-cash compensation expenses, included within corporate expenses, as well as Depreciation and amortization; Impairment charges; and Other operating income (expense), net. Mr. Eccleshare’s individual qualitative performance objectives for 2017 consisted of:(1) re-shaping CCI’s operating model; (2) talent and succession planning; (3) continuing to outperform theout-of-home market (4) increasing digital revenue; (5) remaining focused on compliance and regulation. The 2017 CCI OIBDAN was approximately $208.5 million, which was below the OIBDAN minimum. Based on the achieved OIBDAN level, together with Mr. Eccleshare’s level of achievement of his qualitative performance objectives described above, Mr. Eccleshare received an annual incentive bonus of $300,000. In addition, based on the subjective review of Mr. Eccleshare’s performance by CCOH’s Compensation Committee, Mr. Eccleshare received an additional $250,000 bonus in respect of 2017 performance, for an aggregate 2017 annual bonus of $550,000. The annual incentive bonus of $300,000 is reflected in theNon-Equity Incentive Plan Compensation column and the additional $250,000 bonus is reflected in the Bonus column of the Summary Compensation Table.
Pursuant to a SIP bonus opportunity approved for Mr. Eccleshare by CCOH’s Compensation Committee with respect to 2017 performance, Mr. Eccleshare also earned an additional $300,000 supplemental bonus based on achieving the following additional performance objectives established by CCOH’s Compensation Committee for Mr. Eccleshare with respect to the Outdoor business: (1) positioning CCI at the forefront of programmatic delivery in theout-of-home environment; and (2) partnering with iHeartMedia on restructuring transactions and managing any impact on CCI. Of the $300,000 SIP bonus earned with respect to 2017 performance, $100,000 was paid at the end of February 2018, and the remaining $200,000 will be paid in equal installments of $100,000 each at the same time as the annual incentive bonus payments in 2019 and 2020 if Mr. Eccleshare remains employed on the applicable payment dates. In addition, at the end of February 2018, Mr. Eccleshare was paid the third of three $80,000 installments earned pursuant to his 2015 SIP bonus. He was also paid the second of three $90,000 installments pursuant to his 2016 SIP bonus. The final $90,000 installment of the 2016 SIP bonus will be paid at the same time as the annual incentive bonus payments are paid generally in 2019 if Mr. Eccleshare remains employed on the payment date. The $80,000 payment of the 2015 SIP bonus, the $90,000 payment of the 2016 SIP bonus and the $100,000 payment of the 2017 SIP bonus are reflected in theNon-Equity Incentive Plan Compensation column of the Summary Compensation Table for 2017.
In March 2017, in accordance with his amended employment agreement, Mr. Eccleshare received a cash payment of $1.1 million as a bonus in lieu of the severance payment Mr. Eccleshare would have been entitled to pursuant to a prior employment agreement, which payment was conditioned on his continued employment through March 2017. This payment is reflected in the Bonus column of the Summary Compensation Table for 2017.
Pursuant to an amendment to his employment agreement in December 2017, Mr. Eccleshare was paid a retention award of $875,000 on January 1, 2018, which will be reflected as compensation in the Summary Compensation Table for 2018. This retention award is subject to his continued employment through June 30, 2019. He will also receive an additional retention payment of $875,000 on January 1, 2020 subject to his continued employment through June 30, 2020.
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Scott Wells
Mr. Wells’ target bonus for 2017 under the CCOH Annual Incentive Plan was set at $750,000, with 65% based on the achievement of OIBDAN at CCOA, excluding Latin America, of $443.9 million, 5% based on the achievement of Latin America OIBDAN of $24.1 million and 30% based on the achievement of the other qualitative performance objectives described below. His maximum bonus for 2017 was set at $1,500,000. For purposes of calculating Mr. Wells’ bonus, OIBDAN was calculated in the same manner as CCOA’s reportable OIBDAN, with further adjustments to calculate on a constant currency basis, to exclude restructuring expenses and to allocate the applicable corporate expenses to CCOA. CCOA’s reportable OIBDAN is defined as CCOA’s operating income adjusted to excludenon-cash compensation expenses, included within corporate expenses, as well as Depreciation and amortization; Impairment charges; and Other operating income (expense), net. Mr. Wells’ individual qualitative performance objectives for 2017 consisted of: (1) proactively managing liquidity levers while still strategically driving footprint growth; (2) driving national sales group growth; (3) driving customer valued innovation to increase use of Outdoor by national advertisers; (4) embedding solution-selling techniques and digital fluency in our local markets and reducing customer churn; (5) continuing to drive winning culture and high talent standards; (6) resolving our L.A. digital billboard litigation; and (7) continuing to raise the bar for a winning culture at CCOA. The 2017 CCOA OIBDAN, excluding Latin America, was approximately $409.9 million which was below the OIBDAN target but above the OIBDAN minimum. The Latin America OIBDAN was approximately $22.6 million which was below the OIBDAN target, but above the OIBDAN minimum. Based on the achieved OIBDAN levels, together with Mr. Wells’ level of achievement of his qualitative performance objectives described above, Mr. Wells received an annual incentive bonus of $551,396. The annual incentive bonus is reflected in theNon-Equity Incentive Plan Compensation column of the Summary Compensation Table for 2017.
Robert H. Walls, Jr.
Mr. Walls’ target bonus for 2017 under the iHeartMedia Annual Incentive Plan was set at $900,000, with 50% based on the achievement of a Company-wide OIBDAN of $1.96 billion and 50% based on the achievement of the other qualitative performance objectives described below. His maximum bonus for 2017 was set at $1,800,000. For purposes of calculating Mr. Walls’ bonus, OIBDAN was calculated in the manner described above for Mr. Pittman. Mr. Walls’ individual qualitative performance objectives for 2017 consisted of: (1) providing legal support for capital structure initiatives; (2) providing legal, corporate governance and business advice to iHeartMedia and CCOH boards and committees; (3) managing advertising relationships and DMCA and FCC compliance (4) government affairs; and (5) increasing the leadership capability and performance of the legal and government affairs groups. Our achieved OIBDAN for 2017 was approximately $1.65 billion, which was below the OIBDAN minimum. Based on Mr. Walls’ level of achievement of his qualitative performance objectives described above, Mr. Walls received an annual incentive bonus of $427,500. In addition, based on the subjective review of Mr. Walls’ performance by iHeartMedia’s Compensation Committee, Mr. Walls received an additional $365,000 bonus in respect of 2017 performance, for an aggregate 2017 annual bonus of $792,500. The annual incentive bonus of $427,500 is reflected in theNon-Equity Incentive Plan Compensation column and the additional $365,000 bonus is reflected in the Bonus column of the Summary Compensation Table for 2017.
Mr. Walls’ retention bonus of $500,000 was paid in January 2017, as described under “—2017 Retention Bonus Awards,” and is reflected in the Bonus column of the Summary Compensation Table for 2017. In February 2017, the iHeartMedia Compensation Committee approved an additional special retention bonus of $250,000 for Mr. Walls. The special retention bonus was subject to Mr. Walls’ remaining employed with iHeartMedia through June 30, 2017 and was paid on June 30, 2017. In November 2017, Mr. Walls received a completion bonus in the amount of $2,325,000; provided, that if Mr. Walls’ employment with iHeartMedia is terminated before June 30, 2018 by iHeartMedia for “Cause” (as defined in Mr. Walls’ employment agreement) or by Mr. Walls for any reason, Mr. Walls will be required to repay theafter-tax value of such bonus to iHeartMedia within 10 days of such termination. Mr. Walls’ retention bonuses and completion bonus are reflected in the Bonus column of the Summary Compensation Table for 2017.
Summary of 2018 Cash Incentive Payments for each Named Executive Officer
On February 23, 2018, iHeartMedia’s Compensation Committee approved bonus payments for the first quarter of 2018 for Messrs. Pittman, Bressler and Walls. On May 1, 2018, iHeartMedia’s Compensation Committee approved the terms and conditions governing the iHeartMedia, Inc. 2018 Key Employee Incentive Plan (the “2018 KEIP”) and quarterly bonus opportunities for the second, third and fourth quarters of 2018 for certain key employees of the Company. The 2018 KEIP and the quarterly bonus opportunities described below are subject to approval by the United States Bankruptcy Court for the Southern District of Texas.
Under the 2018 KEIP, each participant is eligible to earn a performance bonus in cash at the end of each of the second, third and fourth quarters of 2018 (the “Quarterly Bonuses”), depending upon the extent to which certain performance goals have been achieved for each such quarter. In addition to being measured on a quarterly basis, the performance goals will be measured cumulatively from April 1, 2018 through the end of each of the third and fourth quarters of 2018 and a participant will be eligible to earn, in addition to the Quarterly Bonuses for the third and fourth quarters, an amount equal to the Quarterly Bonuses based on achievement of the cumulative performance goals minus the Quarterly Bonuses actually paid for each such quarter. In order to earn a Quarterly Bonus for any quarter, a participant must generally remain employed by the Company through the end of the applicable quarter. A participant whose employment with the Company terminates due to death or disability or by the Company without “cause” or by the participant for “good reason” prior to the end of the applicable quarter will receive a pro-rated portion of the bonus that would otherwise have been earned for that quarter.
Robert W. Pittman. iHeartMedia’s Compensation Committee approved a payment of $2,325,000 to Mr. Pittman on February 23, 2018; provided that Mr. Pittman is required to repay theafter-tax value of this payment if he were to be terminated for “cause” or voluntarily resign without “good reason” before March 31, 2019. In addition, iHeartMedia’s Compensation Committee accelerated the payments of bonuses Mr. Pittman previously earned during 2016 ($500,000) and 2017 ($500,000) under the iHeartMedia SIP. Mr. Pittman is required to repay theafter-tax value of the relevant portion of these SIP payments upon any termination of his employment if he would have forfeited such portion if payment of these SIP payments had not been accelerated. Mr. Pittman’s Quarterly Bonus opportunity under the 2018 KEIP for each of the second, third and fourth quarters of 2018 is $2,325,000.
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Richard J. Bressler. iHeartMedia’s Compensation Committee approved a payment of $1,325,000 to Mr. Bressler on February 23, 2018; provided that Mr. Bressler is required to repay theafter-tax value of this payment if he were to be terminated for “cause” or voluntarily resign without “good reason” before March 31, 2019. In addition, iHeartMedia’s Compensation Committee accelerated the payments of bonuses Mr. Bressler previously earned during 2016 ($500,000) and 2017 ($500,000) under the iHeartMedia SIP. Mr. Bressler is required to repay theafter-tax value of the relevant portion of these SIP payments upon any termination of his employment if he would have forfeited such portion if payment of these SIP payments had not been accelerated. Mr. Bressler’s Quarterly Bonus opportunity under the 2018 KEIP for each of the second, third and fourth quarters of 2018 is $1,325,000.
Robert H. Walls, Jr. iHeartMedia’s Compensation Committee approved a payment of $225,000 to Mr. Walls on February 23, 2018; provided that Mr. Walls is required to repay theafter-tax value of this payment if he were to be terminated for “cause” or voluntarily resign without “good reason” before March 31, 2019. Mr. Walls’ Quarterly Bonus opportunity under the 2018 KEIP for each of the second, third and fourth quarters of 2018 is $225,000.
The first quarter payments will be reflected in the Bonus column of the Summary Compensation Table for 2018. The accelerated SIP payments and the earned Quarterly Bonuses for the second, third and fourth quarters of 2018 will be reflected in theNon-Equity Incentive Plan Compensation column of the Summary Compensation Table for 2018.
Long-Term Incentive Compensation
Administration. Our named executive officers participate in the 2015 Executive Long Term Incentive Plan or iHeartMedia’s previous 2008 Executive Incentive Plan (collectively, the 2015 Executive Long Term Incentive Plan and the 2008 Executive Incentive Plan are referred to as the “iHeartMedia LTIP”) and/or CCOH’s 2012 Amended and Restated Stock Incentive Plan or CCOH’s previous 2005 Stock Incentive Plan (collectively, the CCOH 2005 Stock Incentive Plan and the CCOH 2012 Amended and Restated Stock Incentive Plan are referred to as the “CCOH Stock Incentive Plan”), which allow for the issuance of incentive andnon-statutory stock options, restricted stock and other equity awards. The iHeartMedia LTIP is administered by iHeartMedia’s Board of Directors. The CCOH Stock Incentive Plan is administered by CCOH’s Compensation Committee. See “Executive Compensation—Grants of Plan-Based Awards” for a more detailed description of the iHeartMedia LTIP and the CCOH Stock Incentive Plan. As of December 31, 2017, there were 284 employees holding outstanding stock incentive awards under the iHeartMedia LTIP and 247 employees holding outstanding stock incentive awards under the CCOH Stock Incentive Plan. In general, the level of long-term incentive compensation is determined based on an evaluation of competitive factors in conjunction with total compensation provided to the executive officers and the overall goals of the compensation program described above. Long-term incentive compensation historically has been paid in stock options and/or restricted stock or restricted stock units with time-vesting conditions and/or vesting conditions tied to predetermined performance goals. The Board believes equity ownership is important for purposes of executive retention and alignment of interests with stockholders.
Stock Options, Restricted Stock and Restricted Stock Units. Long-term incentive compensation may be granted to our named executive officers in the form of stock options, with exercise prices of not less than fair market value of iHeartMedia or CCOH stock, as applicable, on the date of grant. We typically define fair market value as the closing price on the date of grant; however, in certain cases, the iHeartMedia Board has determined an alternative fair market value in excess of the closing price of iHeartMedia stock on the date of grant. Long-term incentive compensation also may be granted to our named executive officers in the form of restricted stock or restricted stock unit awards. Vesting schedules are set by the iHeartMedia Board of Directors or the CCOH Compensation Committee, as applicable, in their discretion and vary on a case by case basis. All vesting is contingent on continued employment, with rare exceptions made by the applicable Board or Compensation Committee. See “Executive Compensation—Potential Post-Employment Payments” set forth below in this Annual Report on Form10-K/A for a description of the treatment of the named executive officers’ equity awards upon termination or change in control. All decisions to award the named executive officers stock options, restricted stock or restricted stock units are in the sole discretion of the iHeartMedia Board of Directors or the CCOH Compensation Committee, as applicable.
Analysis. Effective as of February 24, 2017, in lieu of dividends that were paid to stockholders, CCOH’s Compensation Committee granted Mr. Eccleshare (i) an award of 20,719 restricted stock units which vest based on time according to the original vesting schedules of the outstanding restricted stock unit awards; and (ii) 2,702 shares of CCOH Class A common stock. Also, on June 30, 2017, the Compensation Committee granted Mr. Eccleshare an award of 70,588 restricted stock units, which will vest based on time.
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On June 28, 2017, the Compensation Committee granted Mr. Wells an award of 88,235 restricted shares, which will vest based on time. Also, on September 7, 2017, the Compensation Committee granted Mr. Wells an award of 208,333 restricted shares, which shall vest based on time.
As mentioned above, iHeartMedia’s Board of Directors and CCOH’s Compensation Committee typically consider internal pay equity when determining the amount of long-term incentive compensation to grant to our named executive officers. However, they do so broadly and do not have a specific policy, or seek to follow established guidelines or formulas, to maintain a particular ratio of long-term incentive compensation among the named executive officers or other executives. For further information about the 2017 long-term incentive awards, please refer to the “Grants of Plan-Based Awards” and the “Employment Agreements with the Named Executive Officers” sections appearing below in this Annual Report on Form10-K/A.
Equity Award Grant Timing Practices
Regular Annual Equity Award Grant Dates. The grant date for regular annual stock options and other equity awards, as applicable, for employees, including the named executive officers, typically is in the first half of the year, other than 2017 when the grant date was in August.
Employee New Hires/Promotions Grant Dates. Grants of stock options and other equity awards, if any, to newly-hired or newly promoted employees generally are made at the time of hire or promotion or at the regularly scheduled meeting of the applicable Board of Directors or Compensation Committee immediately following the hire or promotion. However, timing may vary as provided in a particular employee’s agreement or to accommodate the Board of Directors or Compensation Committee.
Equity Awards for Directors. Due to the ownership structure of iHeartMedia and the representation on the Board of designees of the Sponsors and two other large stockholders, iHeartMedia historically has not provided equity awards to any members of the Board for their service as directors.
Timing of Equity Awards. We do not have a formal policy on the timing of equity awards in connection with the release of materialnon-public information to affect the value of compensation. In the event that materialnon-public information becomes known to the applicable Board or Compensation Committee prior to granting equity awards, the Board or Compensation Committee will take the existence of such information under advisement and make an assessment in its business judgment regarding whether to delay the grant of the equity award in order to avoid any potential impropriety.
Executive Benefits and Perquisites
Each of the named executive officers are entitled to participate in all pension, profit sharing and other retirement plans, and all group health, hospitalization, disability and other insurance and employee welfare benefit plans in which other similarly situated employees may participate. Mr. Eccleshare, who is a citizen of the United Kingdom, also is provided with private medical insurance and we contribute a portion of his salary to a private pension scheme in which he participates in the United Kingdom (or provide the cash benefits to him as salary in lieu of such contribution). We also provide certain other perquisites to the named executive officers.
Aircraft Benefits. From time to time, our officers use Company aircraft for personal air travel, pursuant to the Company’s Aircraft Policy. In addition, during the term of his employment, iHeartMedia agreed to make an aircraft available to Mr. Pittman for his business and personal use (including flights on which Mr. Pittman is not present) and will pay all costs associated with the provision of the aircraft. iHeartMedia currently leases an airplane for Mr. Pittman’s use, as described in “Certain Relationships and Related Party Transactions.”
Automotive Benefits and Other Services. iHeartMedia also has agreed to make a car and driver available for Mr. Pittman’s business and personal use in and around the New York area as well as anywhere else on Company business. Mr. Eccleshare receives an automobile allowance in the United Kingdom and we have agreed to make a car service available for his business use in the United States. In addition, we provide private medical insurance and supplemental life insurance benefits to Mr. Eccleshare.
Relocation, Housing, Tax and Legal Review Benefits. Since 2009, we have recruited and hired several new executive officers and have promoted and relocated executive officers, as well as other officers and key employees. As part of this process, the iHeartMedia and CCOH Compensation Committees considered the benefits that would be appropriate to provide to facilitate and/or accelerate their relocation to our corporate locations. After experience recruiting and hiring several new executive officers and other key personnel since 2009, in October 2010 the iHeartMedia and CCOH Compensation Committees adopted new Company-wide tiered relocation policies reflecting these types of relocation benefits. The new relocation policies apply only in the case of a Company-requested relocation and provide different levels of benefits based on the employee’s level within the organization. In connection with his promotion to serve as the Chief Executive Officer of CCOH, Mr. Eccleshare relocated from our offices in London
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to our offices in New York City and then relocated back to London upon his transition to Chairman and Chief Executive Officer of CCI in March 2015. Through the negotiation of his employment agreement, CCOH agreed to provide Mr. Eccleshare with certain additional benefits in consideration of his international relocation. See “Executive Compensation—Employment Agreements with the Named Executive Officers” below in this Annual Report on Form10-K/A for a description of these additional benefits.
iHeartMedia’s Compensation Committee believes that the above benefits provide a more tangible incentive than an equivalent amount of cash compensation. In determining the named executive officers’ total compensation, the Compensation Committee will consider these benefits. However, as these benefits and perquisites represent a relatively small portion of the named executive officers’ total compensation (or, in the case of benefits such as relocation benefits, are not intended to occur frequently for each named executive officer), it is unlikely that they will materially influence the Compensation Committee’s decision in setting such named executive officers’ total compensation. For further discussion of these benefits and perquisites, including the methodology for computing their costs, please refer to the Summary Compensation Table included in this Annual Report on Form10-K/A, as well as the All Other Compensation table included in footnote (d) to the Summary Compensation Table. For further information about other benefits provided to the named executive officers, please refer to “Executive Compensation—Employment Agreements with the Named Executive Officers” set forth below in this Annual Report on Form10-K/A.
Severance Arrangements
Pursuant to their respective employment agreements, each of our named executive officers is entitled to certain payments and benefits in certain termination situations or upon a change in control. We believe that our severance arrangements facilitate an orderly transition in the event of changes in management. For further discussion of severance payments and benefits, see “Executive Compensation—Potential Post-Employment Payments” set forth below in this Annual Report on Form10-K/A.
Roles and Responsibilities
Role of the Compensation Committee. As described above, iHeartMedia’s Compensation Committee primarily is responsible for conducting reviews of iHeartMedia’s executive compensation policies and strategies, overseeing and evaluating iHeartMedia’s overall compensation structure and programs, setting executive compensation and setting performance goals and evaluating the performance of executive officers against those goals, with the full Board approving equity awards. With respect to executive officers who are employed exclusively by our Outdoor divisions, iHeartMedia’s Compensation Committee reviews compensation; however, CCOH’s Compensation Committee has the responsibility for conducting reviews of CCOH’s executive compensation policies and strategies, overseeing and evaluating CCOH’s overall compensation structure and programs, setting executive compensation, setting performance goals and evaluating the performance of executive officers against those goals and approving equity awards. The responsibilities of iHeartMedia’s Compensation Committee are described above under “The Board of Directors—Committees of the Board.”
Role of Executive Officers. iHeartMedia’s Chief Executive Officer provides reviews and recommendations regarding iHeartMedia’s executive compensation programs, policies and governance for iHeartMedia’s Compensation Committee’s consideration. Our Chief Executive Officer’s responsibilities include, but are not limited to:
providing an ongoing review of the effectiveness of the compensation programs, including their level of competitiveness and their alignment with iHeartMedia’s objectives;
recommending changes and new programs, if necessary, to ensure achievement of all program objectives; and
recommending pay levels, payout and awards for the named executive officers other than himself.
Use of Compensation Consultants. During 2017, management engaged Willis Towers Watson (“Willis”) to provide (1) executive compensation benchmarking data, and (2) incentive and retention compensation design advice.
iHeartMedia requested and received responses from Willis addressing its independence, including the following factors: (1) other services provided to iHeartMedia and its subsidiaries by Willis; (2) fees paid iHeartMedia and its subsidiaries as a percentage of Willis’ total revenue; (3) policies or procedures maintained by Willis that are designed to prevent a conflict of interest; (4) any business or personal relationships between the individual consultants involved in the engagements and a member of the Compensation Committee; (5) any iHeartMedia or CCOH stock owned by the individual consultants involved in the engagements; and (6) any business or personal relationships between our executive officers and Willis or the individual consultants involved in the engagements. The Compensation Committee reviewed these considerations and concluded that Willis’ work does not raise any conflict of interest.
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TAX AND ACCOUNTING TREATMENT
Deductibility of Executive Compensation
Section 162(m) of the Code places a limit of $1,000,000 on the amount of compensation a publicly held corporation may deduct for Federal income tax purposes in any one year with respect to certain senior executives, who we refer to herein as “Covered Employees.” In 2014, iHeartMedia became a “publicly held corporation” within the meaning of applicable provisions of Section 162(m) of the Code and Treasury regulations. The exemption from Section 162(m)’s deduction limit for performance-based compensation has been repealed, effective for taxable years beginning after December 31, 2017, such that compensation paid to our covered executive officers in excess of $1 million will not be deductible unless it qualifies for transition relief applicable to certain arrangements in place as of November 2, 2017.
In reviewing the effectiveness of the executive compensation program, the Compensation Committee considers the anticipated tax treatment to iHeartMedia and to the Covered Employees of various payments and benefits. To maintain flexibility in compensating the named executive officers in a manner designed to promote varying corporate goals, the Compensation Committee will not necessarily limit executive compensation to that which is deductible under Section 162(m) of the Code and has not adopted a policy requiring all compensation to be deductible. The Compensation Committee will consider various alternatives to preserving the deductibility of compensation payments and may award compensation that is not deductible to the extent consistent with its other compensation objectives.
Accounting for Stock-Based Compensation
iHeartMedia accounts for stock-based payments, including awards under the iHeartMedia LTIP and the CCOH Stock Incentive Plan, in accordance with the requirements of FASB ASC 718 (formerly Statement of Financial Accounting Standards No. 123(R)).
CORPORATE SERVICES AGREEMENT
In connection with CCOH’s initial public offering, CCOH entered into a corporate services agreement (the “Corporate Services Agreement”) with iHeartMedia Management Services, Inc. (“iHMMS”), an indirect subsidiary of iHeartMedia. Under the terms of the agreement, iHMMS provides, among other things, certain executive officer services to CCOH. These executive officer services are allocated to CCOH based on CCOH’s OIBDAN as a percentage of iHeartCommunications’ total OIBDAN for the prior year, each as reported in connection withyear-end financial results. For purposes of these allocations, CCOH OIBDAN is defined as: consolidated net income (loss) adjusted to excludenon-cash compensation expenses and amortization of deferred system implementation costs as well as the following line items presented in the Statement of Operations: income tax benefit (expense); other income (expense), net; equity in earnings (loss) of nonconsolidated affiliates; interest expense; interest income on due from iHeartCommunications; other operating income, net; depreciation and amortization; and impairment charges.
For 2017, CCOH was allocated 35.66% of certain personnel costs for Mr. Bressler for the portion of the year during which he served as Chief Financial Officer. iHeartMedia and CCOH considered these allocations to be a reflection of the utilization of services provided based on 2017 OIBDAN. Please refer to footnote (g) to the Summary Compensation Table in this Annual Report on Form10-K/A for the allocations for 2017, 2016 and 2015. For additional information regarding the Corporate Services Agreement, see “Certain Relationships and Related Party Transactions—Corporate Services Agreement.”
EXECUTIVE COMPENSATION
The Summary Compensation Table below provides compensation information for the years ended December 31, 2017, 2016 and 2015 for the principal executive officer (“PEO”) and the principal financial officers (“PFO”) serving during 2017, each of the three next most highly compensated executive officers of iHeartMedia for services rendered in all capacities (collectively, the “named executive officers”).
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SUMMARY COMPENSATION TABLE
Summary Compensation Table
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Name and Principal Position | | Year | | | Salary ($) | | | Bonus(a) ($) | | | Stock Awards(b) ($) | | | Option Awards(b) ($) | | | Non-Equity Incentive Plan Compensation(c) ($) | | | All Other Compensation(d) ($) | | | Total ($) | |
Robert W. Pittman Chairman and Chief Executive Officer (PEO)(e) | |
| 2017
2016 2015 |
| |
| 1,200,000
1,200,000 1,200,000 |
| |
| 3,010,000
165,816 174,932 |
| |
| —
— 857,082 |
| |
| —
— — |
| |
| 8,040,000
1,634,184 1,525,068 |
| |
| 1,152,112
1,654,672 698,919 |
| |
| 13,402,112
4,654,672 4,456,001 |
|
Richard J. Bressler President, Chief Operating Officer and Chief Financial Officer (PFO)(f) | |
| 2017
2016 2015 |
| |
| 1,200,000
1,200,000 1,200,000 | (g)
(g) (g) | |
| 3,010,000
165,816 174,932 |
(g) | |
| —
— 321,397 |
| |
| —
— — |
| |
| 4,040,000
1,634,184 1,525,068 |
(g) | |
| 602,889
453,809 44,633 |
(g) | |
| 8,852,889
3,453,809 3,266,030 |
|
C. William Eccleshare Chief Executive Officer CCI(h) | |
| 2017
2016 2015 |
| |
| 964,948
927,601 1,043,630 |
| |
| 1,350,000
1,200,000 — |
| |
| 451,259
554,296 — |
| |
| —
— — |
| |
| 570,000
955,190 961,686 |
| |
| 251,240
255,721 372,670 |
| |
| 3,587,447
3,892,808 2,377,986 |
|
Scott R. Wells. Chief Executive Officer—CCOA(i) | |
| 2017
2016 2015 |
| |
| 750,000
750,000 621,875 |
| |
| —
50,000 — |
| |
| 1,262,865
532,067 485,340 |
| |
| —
72,857 1,664,649 |
| |
| 551,396
784,385 483,067 |
| |
| 5,000
5,000 5,000 |
| |
| 2,569,261
2,194,309 3,259,931 |
|
Robert H. Walls, Jr. Executive Vice President, General Counsel and Secretary(j) | |
| 2017
2016 2015 |
| |
| 750,000
750,000 750,000 |
| |
| 3,440,000
750,000 — |
| |
| —
288,131 — |
| |
| —
— — |
| |
| 427,500
818,280 668,175 |
| |
| 5,000
5,000 5,000 |
| |
| 4,622,500
2,611,411 1,423,175 |
|
For Messrs. Pittman and Bressler, (1) cash payments for 2017, 2016 and 2015 as additional bonus awards from iHeartMedia in respect of 2017, 2016 and 2015 performance, respectively, and (2) cash payments related to the 2017 retention awards;
For Mr. Walls, (1) a cash payment in 2017 as an additional bonus award from iHeartMedia in respect of 2017 performance; (2) cash payments related to the 2017 retention awards and (3) a cash payment related to the special completion bonus paid in November 2017;
For Mr. Eccleshare, (1) a cash payment of $250,000 as an additional bonus award in respect of 2017 performance from CCOH and (2) a cash payment of $1,100,000 related to a severance payment Mr. Eccleshare would have been entitled to pursuant to his prior employment agreement; and
See “—Compensation Discussion and Analysis—Elements of Compensation—Annual Incentive Bonus.”
(b) | CCOH Stock Awards. The amounts shown in the Stock Awards column for Mr. Pittman for 2015 ($857,082), for Mr. Bressler for 2015 ($321,397), and for Mr. Wells for 2017, 2016 and 2015 ($1,262,865, $532,067 and $485,340, respectively) represent the full grant date fair value of time-vesting restricted stock awarded to them by CCOH (on February 24, 2015 for Messrs. Pittman and Bressler; and on September 7, 2017, June 28, 2017, June 3, 2016 and June 15, 2015, respectively, for Mr. Wells), computed in accordance with the requirements of FASB ASC Topic 718, but excluding any impact of estimated forfeiture rates as required by SEC regulations. For time-vesting restricted stock awards, the grant date fair value is based on the closing price of CCOH’s Class A common stock on the date of grant. See “Grants of Plan Based Awards” for additional details. |
The amounts shown in the Stock Awards column for Mr. Eccleshare for 2017 and 2016 and Mr. Walls for 2016 represent the full grant date fair value of time-vesting restricted stock units awarded to them by CCOH (on February 24, 2017, June 30, 2017, January 8, 2016, February 5, 2016 and September 21, 2016, respectively, for Mr. Eccleshare and on January 8, 2016 and February 5, 2016, respectively, for Mr. Walls), computed in accordance with the requirements of FASB ASC Topic 718, but excluding any impact of estimated forfeiture rates as required by this item is incorporatedSEC regulations
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CCOH Option Awards. The amount shown in the Option Awards column for 2016 and 2015 for Mr. Wells reflects the full grant date fair value of time-vesting stock options awarded to Mr. Wells by referenceCCOH in 2016 and 2015 (on June 3, 2016 and March 3, 2015 and June 15, 2015, in the aggregate), computed in accordance with the requirements of FASB ASC Topic 718, but excluding any impact of estimated forfeiture rates as required by SEC regulations. See “Grants of Plan Based Awards” for additional details.
For further discussion of the assumptions made in valuation, see also Note8-Stockholders’ Deficit in Item 8 of the Original 2017 Form10-K.
For Messrs. Pittman, Bressler and Walls, 2017, 2016 and 2015 annual incentive plan awards under the iHeartMedia 2015 Executive Incentive Plan pursuant topre-established performance goals.
For Messrs. Pittman and Bressler, (1) cash payments in 2018 of $500,000 earned pursuant to an iHeartMedia SIP bonus based onpre-established performance goals with respect to 2015 and (2) aggregate cash payments of $7,000,000 and $3,000,000, respectively, related to the 2017 KEIP.
For Mr. Eccleshare, (1) awards for 2017, 2016 and 2015 under the 2015 Executive Incentive Plan pursuant topre-established performance goals; (2) for 2017, a cash payment in 2018 of (a) the finalone-third ($80,000) of the $240,000 earned pursuant to the 2015 CCOH SIP bonus, (b) the secondone-third ($90,000) of the $270,000 earned pursuant to the 2016 CCOH SIP bonus, and(c) one-third ($100,000) of the $300,000 earned pursuant to the 2017 CCOH SIP bonus; (3) for 2016, a cash payment in 2017 of (a) the finalone-third ($85,000) of the $255,000 earned pursuant to the 2014 CCOH SIP bonus, (b) a secondone-third ($80,000) of the $240,000 earned pursuant to the 2015 CCOH SIP bonus, and(c) one-third ($90,000) of the $270,000 earned pursuant to the 2016 CCOH SIP bonus; and (4) for 2015, a cash payment in 2016 of (a) the finalone-third ($84,000) of the $252,000 earned pursuant to the 2013 CCOH SIP bonus, (b) asecond one-third ($85,000) of the $255,000 earned pursuant to the 2014 CCOH SIP bonus, and(c) one-third ($80,000) of the $240,000 earned pursuant to the 2015 CCOH SIP bonus. The remaining $90,000 of 2016 CCOH SIP bonus will be paid in 2019 and the remaining $200,000 of the 2017 CCOH SIP bonus will be paid in equal installments in 2019 and 2020, in each case if Mr. Eccleshare remains employed at the payment dates.
For Mr. Wells, cash payments from CCOH as annual incentive plan awards for 2017, 2016 and 2015 under the CCOH 2015 Executive Incentive Plan pursuant topre-established performance goals.
With respect to 2017, Messrs. Pittman and Bressler each earned an additional $500,000 SIP bonus from iHeartMedia, in each case based onpre-established performance goals with respect to 2017. These amounts were not reflected in theNon-Equity Incentive Plan Compensation column with respect to 2017 because they were paid in February 2018 and have a clawback provision, which requires them to repay theafter-tax value of the bonus if certain termination events occur prior to January 1, 2020.
(d) | As described below, for 2017 the All Other Compensation column reflects: |
amounts we contributed under our 401(k) plan as a matching contribution for the benefit of the named executive officers in the United States or payments in lieu of pension contributions for the benefit of Mr. Eccleshare in the United Kingdom;
the value of personal use of company aircraft by Messrs. Pittman & Bressler;
security services for Mr. Pittman;
personal tax services for Mr. Eccleshare paid by us;
taxgross-ups on tax services for Mr. Eccleshare;
legal expenses in connection with employment and other related matters for Mr. Eccleshare;
the cost of private medical insurance for the benefit of Mr. Eccleshare;
an automobile allowance for the benefit of Mr. Eccleshare in the United Kingdom;
amounts reimbursed for car service expenses incurred by Messrs. Pittman and Bressler;
the cost of premiums for a supplemental life insurance benefit for Mr. Eccleshare; and
accrued dividends paid on CCOH restricted shares that vested during 2017 for Messrs. Pittman and Bressler.
| | | | | | | | | | | | | | | | | | | | |
| | Pittman | | | Bressler | | | Eccleshare | | | Wells | | | Walls | |
Plan contributions (or payment in lieu thereof) | | $ | 5,000 | | | $ | 5,000 | | | $ | 130,772 | | | $ | 5,000 | | | $ | 5,000 | |
Aircraft usage | | | 540,705 | | | | 11,107 | | | | — | | | | — | | | | — | |
Security services | | | 700 | | | | — | | | | — | | | | — | | | | — | |
Tax services | | | — | | | | — | | | | 33,310 | | | | — | | | | — | |
Tax services taxgross-up | | | — | | | | — | | | | 20,438 | | | | — | | | | — | |
Legal fees | | | 4,659 | | | | 4,659 | | | | 4,926 | | | | — | | | | — | |
Private medical insurance | | | — | | | | — | | | | 27,891 | | | | — | | | | — | |
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| | | | | | | | | | | | | | | | | | | | |
| | Pittman | | | Bressler | | | Eccleshare | | | Wells | | | Walls | |
Automobile allowance/transportation | | | — | | | | — | | | | 23,181 | | | | — | | | | — | |
Car service | | | 66,579 | | | | 27,370 | | | | — | | | | — | | | | — | |
Supplemental life insurance | | | — | | | | — | | | | 10,722 | | | | — | | | | — | |
Accrued dividends | | | 534,469 | | | | 554,753 | | | | — | | | | — | | | | — | |
| | | | | | | | | | | | | | | | | | | | |
Total | | $ | 1,152,112 | | | $ | 602,889 | | | $ | 251,240 | | | $ | 5,000 | | | $ | 5,000 | |
| | | | | | | | | | | | | | | | | | | | |
Except as described below with respect to aircraft usage, the value of all benefits included in the All Other Compensation column is based on iHeartMedia’s actual costs.
As a result of iHeartMedia’s high public profile and due in part to threats against iHeartMedia, its operations and management, iHeartMedia engaged an outside security consultant to assess security risks to iHeartMedia’s physical plant and operations, as well as Mr. Pittman. Based upon the findings and recommendation of this security consultant, iHeartMedia’s management and Board of Directors implemented, and iHeartMedia’s management and Board intend to continue the implementation of, numerous security measures for iHeartMedia’s operations and Mr. Pittman.
Pursuant to his employment agreement, for security purposes and at the direction of the Board, during the term of his employment, iHeartMedia agreed to make an aircraft available to Mr. Pittman for his business and personal use (including flights on which Mr. Pittman is not present) and will pay all costs associated with the provision of the aircraft. iHeartMedia currently leases an airplane for Mr. Pittman’s use, as described in “Certain Relationships and Related Party Transactions.” Pursuant to the security assessment and at the direction of the Board, Mr. Pittman’s spouse and dependents also travel by private aircraft for all personal and business travel. From time to time, our other officers also use the Company aircraft for personal air travel, pursuant to the Company’s Aircraft Policy.
The value of personal aircraft usage reported above is based on iHeartMedia’s direct variable operating costs. This methodology calculates an average variable cost per hour of flight. iHeartMedia applies the same methodology to aircraft that are covered by contracts with an outside aircraft management company under which iHeartMedia reimburses the aircraft management company for costs that would otherwise be incurred directly by iHeartMedia (including crew salaries, insurance, fuel and hangar rent) and pays them a monthly management fee for the oversight and administrative services that would otherwise have to be provided by iHeartMedia. On certain occasions, an executive’s spouse or other family members and guests may accompany the executive on a flight and the additional direct operating cost incurred in such situations is included under the foregoing methodology.
Mr. Pittman is reimbursed for car services used for commuting and other personal purposes.
(e) | Mr. Pittman became our Chief Executive Officer on October 2, 2011. The summary compensation information presented above for Mr. Pittman reflects his service in that capacity during the periods presented. |
(f) | Mr. Bressler became our President and Chief Financial Officer on July 29, 2013. The summary compensation information presented above for Mr. Bressler reflects his service in that capacity during 2015, 2016 and 2017. Mr. Bressler also became our Chief Operating Officer on February 18, 2015. |
(g) | As described above under “Compensation Discussion and Analysis—Corporate Services Agreement,” iHMMS provides, among other things, certain executive officer services to CCOH. The Salary, Bonus,Non-Equity Incentive Plan Compensation and All Other Compensation columns presented above reflect 100% of the amounts for Mr. Bressler. However, pursuant to the Corporate Services Agreement, based on CCOH’s OIBDAN as a percentage of iHeartCommunications’ total OIBDAN, CCOH was allocated 35.66% of certain amounts for Mr. Bressler for 2017, 37.71% for 2016 and 38.72% for 2015. |
| | | | | | | | | | | | |
| | Salary Allocated to CCOH | |
| | 2017 | | | 2016 | | | 2015 | |
Richard J. Bressler | | $ | 427,920 | | | $ | 452,520 | | | $ | 464,640 | |
| |
| | Bonus and Non-Equity Incentive Plan Compensation Allocated to CCOH | |
| | 2017 | | | 2016 | | | 2015 | |
Richard J. Bressler | | $ | 2,514,030 | | | $ | 829,620 | | | $ | 658,240 | |
| |
| | All Other Compensation Allocated to CCOH | |
| | 2017 | | | 2016 | | | 2015 | |
Richard J. Bressler | | $ | 571,919 | | | $ | 450,695 | | | $ | 17,282 | |
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(h) | On January 24, 2012, Mr. Eccleshare was promoted to Chief Executive Officer of CCOH, overseeing both CCOA and CCI and served in that position until March 2, 2015, when he transitioned to become Chairman and Chief Executive Officer of CCI. The summary compensation information presented above for Mr. Eccleshare reflects his compensation from CCOH for service in those capacities during the relevant periods of 2017, 2016 and 2015. Mr. Eccleshare is a citizen of the United Kingdom and his compensation from CCOH reported in the Summary Compensation Table that was originally denominated in British pounds have been converted to U.S. dollars using the average exchange rates of £1=$1.2878, £=$1.3495 and £1=$1.5281 for the years ended December 31, 2017, 2016 and 2015, respectively. |
In addition to his compensation paid by CCOH, the amounts in the Salary column for Mr. Eccleshare include $25,660 paid in 2017, $21,896 paid in 2016 and $18,060 paid in 2015 by our majority-owned subsidiary, Clear Media Limited, for his service as a director of Clear Media Limited. Clear Media Limited is listed on the Hong Kong Stock Exchange. The amounts paid by Clear Media Limited have been converted from Hong Kong dollars to U.S. dollars using the average exchange rate of HK$1=$0.1283 for the year ended December 31, 2017, HK$1=$0.1288 for the year ended December 31, 2016 and HK$1=$0.1290 for the year ended December 31, 2015.
(i) | Mr. Wells became the Chief Executive Officer of CCOA on March 3, 2015. The summary compensation information presented above for Mr. Wells reflects his service in that capacity during the periods presented. |
(j) | Mr. Walls became our Executive Vice President, General Counsel and Secretary on January 1, 2010. The summary compensation information presented above for Mr. Walls reflects his service in that capacity during the periods presented. |
EMPLOYMENT AGREEMENTS WITH THE NAMED EXECUTIVE OFFICERS
Certain elements of the compensation of the named executive officers are determined based on their respective employment agreements. The descriptions of the employment agreements set forth below do not purport to be complete and are qualified in their entirety by the employment agreements. For further discussion of the amounts of salary and bonus and other forms of compensation, see “Compensation Discussion and Analysis” above. Each of the employment agreements discussed below provides for severance and change in control payments as more fully described under “—Potential Post-Employment Payments” in this Annual Report on Form10-K/A, which descriptions are incorporated herein by reference.
Robert W. Pittman
On October 2, 2011, iHeartMedia entered into an employment agreement with Robert W. Pittman, pursuant to which he serves as Chief Executive Officer of iHeartMedia and served as Executive Chairman of the Board of Directors of CCOH. On March 2, 2015, Mr. Pittman became the Chairman and Chief Executive Officer of CCOH. The October 2, 2011 employment agreement superseded the consulting agreement that Mr. Pittman previously entered into with iHeartMedia and Pilot Group Manager LLC, dated November 15, 2010, and had an initial term ending on December 31, 2016, with automatic12-month extensions thereafter unless either party provided prior notice electing not to extend the employment agreement. On January 13, 2014, iHeartMedia entered into an amended and restated employment agreement with Mr. Pittman. The amended and restated employment agreement has an initial five-year term ending on January 13, 2019, with automatic12-month extensions thereafter unless either party gives prior notice electing not to extend the agreement.
Pursuant to his amended and restated employment agreement, Mr. Pittman’s minimum base salary increased from $1,000,000 per year under his previous employment agreement to $1,200,000 per year. His base salary may be increased at the discretion of iHeartMedia’s Board or its compensation committee. Mr. Pittman also has the opportunity to earn an annual performance bonus for the achievement of reasonable performance goals established annually by iHeartMedia’s Board or its compensation committee after consultation with Mr. Pittman. Under Mr. Pittman’s previous employment agreement, his aggregate target annual bonus that could be earned upon achievement of all of his performance objectives was not less than $1,650,000. Under the amended and restated employment agreement, beginning in 2014, Mr. Pittman’s aggregate target annual performance bonus is 150% of his annual base salary. For 2017, Mr. Pittman received an annual incentive bonus of $1,800,000, which included an additional bonus in respect of 2017 performance of $1,260,000. See “Compensation Discussion and Analysis—Elements of Compensation—Annual Incentive Bonus.”
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Mr. Pittman is entitled to participate in all pension, profit sharing and other retirement plans, all incentive compensation plans, all group health, hospitalization and disability or other insurance plans, paid vacation, sick leave and other employee welfare benefit plans in which other similarly situated employees of iHeartMedia may participate. In addition, during the term of his employment, iHeartMedia will make an aircraft (which, to the extent available, will be a Dassault-Breguet Mystere Falcon 900) available to Mr. Pittman for his business and personal use and will pay all costs associated with the provision of the aircraft. iHeartMedia leases this aircraft from a company controlled by Mr. Pittman. See “Certain Relationships and Related Party Transactions—Commercial Transactions.” If a company aircraft is not available due to service or maintenance issues, iHeartMedia will charter a comparable aircraft for Mr. Pittman’s business and personal use. iHeartMedia also will make a car and driver available for Mr. Pittman’s business and personal use in and around the New York area as well as anywhere else on company business. During 2014, iHeartMedia reimbursed Mr. Pittman for legal fees incurred by Mr. Pittman in connection with the negotiation of the amended and restated employment agreement.
Pursuant to his previous employment agreement, on October 2, 2011, Mr. Pittman was granted a stock option to purchase 830,000 shares of iHeartMedia’s Class A common stock. See “—Outstanding Equity Awards at FiscalYear-End” below. In connection with the amended and restated employment agreement, on January 13, 2014, iHeartMedia and Mr. Pittman amended his stock option to terminate and forfeit 200,000 of the options. The termination and forfeiture applied ratably such that, effective January 13, 2014, 252,000 of the options were vested and 378,000 of the options vest ratably on the third, fourth and fifth anniversary of the October 2, 2011 grant date.
Pursuant to the amended and restated employment agreement, on January 13, 2014, iHeartMedia granted Mr. Pittman 350,000 restricted shares of iHeartMedia’s Class A common stock. Mr. Pittman’s iHeartMedia restricted stock award is divided into two tranches consisting of: (1) 100,000 shares (the “Tranche 1 Shares”) and (2) 250,000 shares (the “Tranche 2 Shares”). The Tranche 1 Shares vest in two equal parts on each of December 31, 2017 and December 31, 2018. The Tranche 2 Shares vest only if the Sponsors receive a 100% return on their investment in iHeartMedia in the form of cash returns. In addition, as provided in the amended and restated employment agreement, on January 13, 2014, CCOH granted Mr. Pittman 271,739 restricted shares of CCOH’s Class A common stock. Mr. Pittman’s CCOH restricted stock award vested in two equal parts on each of December 31, 2016 and December 31, 2017.
Mr. Pittman’s amended and restated employment agreement contains a 280G“gross-up” provision that applies in certain circumstances in which any payments (the “Company Payments”) received by Mr. Pittman are deemed to be “excess parachute payments” subject to excise taxes under Section 4999 of the Code. If, at the time any such excise tax is imposed, the stockholder approval rules of Q&A 6 in the applicable Section 280G regulations (the “Cleansing Vote Rules”) are applicable and Mr. Pittman declines to submit such excess parachute payments for approval by iHeartMedia’s stockholders, iHeartMedia will pay to Mr. Pittman an amount equal to the excise tax imposed by Section 4999 of the Code. If, at the time any excise tax is imposed, the Cleansing Vote Rules are not applicable, Mr. Pittman will be entitled to agross-up payment equal to (1) the excise tax and (2) any U.S. Federal, state and local income or payroll tax imposed on thegross-up payment (excluding any U.S. Federal, state and local income or payroll taxes otherwise imposed on the Company Payments); provided that if the Company Payments are found to be equal to or less than 110% of the “safe harbor” amount referenced in the amended and restated employment agreement, the Company Payments will be reduced to equal the safe harbor amount, such that no excise tax will be imposed by Section 4999 of the Code.
Under the employment agreement, Mr. Pittman is required to protect the secrecy of the confidential information of iHeartMedia, CCOH and the subsidiaries of each (the “Company Group”). He also is prohibited by the agreement from engaging in certain activities that compete with the Company Group during employment and for 18 months after his employment terminates, and he is prohibited from soliciting employees or customers of the Company Group during employment and for 18 months after termination of employment. iHeartMedia agreed to defend and indemnify Mr. Pittman for acts committed in the course and scope of his employment.
Richard J. Bressler
On July 29, 2013, iHeartMedia entered into an employment agreement with Mr. Bressler. The employment agreement has an initial term ending on December 31, 2018, with automatic12-month extensions beginning on January 1, 2019 unless either party gives prior notice electing not to extend the employment agreement.
Under the employment agreement, Mr. Bressler receives a base salary at a rate no less than $1,200,000 per year, subject to increase at the discretion of iHeartMedia’s Board or its compensation committee. Mr. Bressler also has the opportunity to earn an annual performance bonus for the achievement of reasonable performance goals established annually by iHeartMedia’s Board or its compensation committee after consultation with Mr. Bressler. The annual target performance bonus that may be earned when all of Mr. Bressler’s performance objectives are achieved will be not less than 150% of Mr. Bressler’s base salary amount. In addition to the annual bonus, Mr. Bressler is also eligible for a SIP bonus opportunity of up to $500,000, based on the achievement of one or more
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annual performance goals determined by iHeartMedia’s chief executive officer and approved by iHeartMedia’s Board or a committee thereof. Any SIP bonus amounts will be paid during the quarter that follows the third anniversary of the beginning of the applicable performance period and will be contingent in each case upon Mr. Bressler’s continued employment through the applicable payment date. For 2017, Mr. Bressler received an annual bonus of $1,800,000, which included an additional bonus in respect of 2017 performance of $1,260,000. Mr. Bressler also earned an additional bonus of $500,000 under the iHeartMedia SIP with respect to 2017. Mr. Bressler also is entitled to participate in all pension, profit sharing and other retirement plans, all incentive compensation plans, all group health, hospitalization and disability or other insurance plans, paid vacation, sick leave and other employee welfare benefit plans in which other similarly situated employees of iHeartMedia may participate.
During the term of his employment, iHeartMedia will make a car service available for Mr. Bressler’s business use.
Mr. Bressler’s employment agreement contains a 280G“gross-up” provision that applies in certain circumstances in which any Company Payments received by Mr. Bressler are deemed to be “excess parachute payments” subject to excise taxes under Section 4999 of the Code. If, at the time any such excise tax is imposed, the Cleansing Vote Rules are applicable and Mr. Bressler declines to submit the excess parachute payments for approval by iHeartMedia’s stockholders, iHeartMedia will pay to Mr. Bressler an amount equal to the excise tax imposed by Section 4999 of the Code. If, at the time any excise tax is imposed, the Cleansing Vote Rules are not applicable, Mr. Bressler will be entitled to agross-up payment equal to (1) the excise tax and (2) any U.S. Federal, state and local income or payroll tax imposed on suchgross-up payment (excluding any U.S. Federal, state and local income or payroll taxes otherwise imposed on the Company Payments); provided that if the Company Payments are found to be equal to or less than 110% of the “safe harbor” amount referenced in Mr. Bressler’s employment agreement, the Company Payments will be reduced to equal the safe harbor amount, such that no excise tax will be imposed by Section 4999 of the Code.
Pursuant to Mr. Bressler’s employment agreement, on July 29, 2013, iHeartMedia granted Mr. Bressler 910,000 restricted shares of iHeartMedia’s Class A common stock. In addition, as provided in the employment agreement, on July 29, 2013, CCOH granted Mr. Bressler 271,739 restricted shares of the Class A common stock of CCOH. See “—Outstanding Equity Awards at FiscalYear-End” below.
Under the employment agreement, Mr. Bressler is required to protect the secrecy of the confidential information of the Company Group. He also is prohibited by the agreement from engaging in certain activities that compete with the Company Group during employment and for 18 months after his employment terminates, and he is prohibited from soliciting employees or customers of the Company Group during employment and for 18 months after termination of employment. iHeartMedia agreed to defend and indemnify Mr. Bressler for acts committed in the course and scope of his employment.
C. William Eccleshare
January 24, 2012 Employment Agreement. On January 24, 2012, Mr. Eccleshare was promoted to serve as Chief Executive Officer of CCOH, overseeing both our Americas and International outdoor divisions. In connection with his promotion, CCOH and Mr. Eccleshare entered into a new employment agreement. Mr. Eccleshare’s employment agreement has an initial term beginning on January 24, 2012 and continuing until December 31, 2014, with automatic12-month extensions thereafter, beginning on January 1, 2015, unless either CCOH or Mr. Eccleshare gives prior notice electing not to extend the employment agreement. The employment agreement replaces Mr. Eccleshare’s Contract of Employment dated August 31, 2009.
As Chief Executive Officer of CCOH, Mr. Eccleshare relocated from CCOH’s offices in London to CCOH’s offices in New York City in 2012. In his position as Chief Executive Officer of CCOH and in his current position as Chairman and Chief Executive Officer of CCI, Mr. Eccleshare receives an annual base salary from CCOH of $1,000,000; provided, however, that until Mr. Eccleshare relocated to the United States, his base salary was to be paid in British pounds (using an exchange rate of £1=$1.49). His salary will be reviewed at least annually for possible increase by the CCOH Board. During the term of the employment agreement, Mr. Eccleshare is eligible to receive an annual performance bonus from CCOH with a target of not less than $1,000,000 and the opportunity to earn up to 200% of the target amount based on the achievement of the performance goals specified in his employment agreement for 2012 and the performance goals to be set by CCOH’s Compensation Committee for years after 2012. In addition to the annual bonus, Mr. Eccleshare is eligible to receive a SIP Bonus from CCOH of up to $300,000, based on the achievement of one or more annual performance goals determined by CCOH’s Board of Directors or a subcommittee thereof. Any bonus earned under the SIP bonus opportunity will be paid by CCOH in equal cash installments on or about the first, second and third anniversary of the beginning of the applicable performance period and will be contingent in each case upon his continued employment through the applicable payment date. For 2017, Mr. Eccleshare received an annual bonus of $550,000, including an additional bonus in respect of 2017 performance of $250,000. Mr. Eccleshare also (1) received an additional bonus payment of $80,000 provided pursuant to his 2015 CCOH SIP bonus, (2) received an additional bonus payment of $90,000 provided pursuant to his 2016 CCOH SIP bonus and (3) earned an additional bonus of $300,000 with respect to his 2017 CCOH SIP bonus, $100,000 of which was paid in February 2018 and $180,000 of which will be paid in equal installments in 2019 and 2020 when performance bonuses are generally paid if he remains employed on the applicable payment dates. See “—Compensation Discussion and Analysis—Elements of Compensation—Annual Incentive Bonus.”
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CCOH continues to contribute to Mr. Eccleshare’s personal pension plan registered under Chapter 2, Part 4 of the Finance Act of 2004 in the United Kingdom, as provided in his previous Contract of Employment. CCOH also agreed to reimburse Mr. Eccleshare for the reasonable costs and expenses (not to exceed $25,000 annually, fullygrossed-up for applicable taxes) associated with filing his U.S. and U.K. personal income tax returns, as applicable. If Mr. Eccleshare’s actual U.S. and U.K. income tax and Social Security/National Insurance in a given year exceeds the tax obligations that he would have incurred on the same income (excluding all taxable income not paid by CCOH or a subsidiary or affiliate) had he remained subject only to U.K. income tax and National Insurance over the same period, CCOH will reimburse this excess tax on a fully-grossed up basis for applicable taxes. CCOH also agreed to make a car service available for Mr. Eccleshare’s business use and paid all fees associated with the immigration applications for Mr. Eccleshare and his spouse. Mr. Eccleshare is eligible to receive health, medical, welfare and life insurance benefits and paid vacation on a basis no less favorable than provided to similarly-situated senior executives of CCOH; provided, however, that his life insurance benefit shall be for an amount equal to four times his annual base salary. Further, CCOH agreed to make a car service available to Mr. Eccleshare for his business use. Mr. Eccleshare is also to be reimbursed for travel and entertainment related expenses, consistent with past practices pursuant to CCOH policy.
As provided in the employment agreement, Mr. Eccleshare was awarded 506,329 CCOH restricted stock units on July 26, 2012 in connection with his promotion. See “—Outstanding Equity Awards at FiscalYear-End” below.
During Mr. Eccleshare’s employment with CCOH and for 18 months thereafter, Mr. Eccleshare is subject tonon-competition,non-interference andnon-solicitation covenants substantially consistent with other senior executives of CCOH. Mr. Eccleshare also is subject to customary confidentiality, work product and trade secret provisions. During the term of the employment agreement, Mr. Eccleshare may continue to performnon-executive services with Centaur plc. Upon his service with Centaur plc ceasing, Mr. Eccleshare will be permitted to perform anothernon-executive role at any time with a business that does not compete with CCOH or its affiliates, subject to CCOH’s prior written consent that will not be unreasonably withheld.
March 2, 2015 Amendment to January 24, 2012 Employment Agreement. Effective March 2, 2015, Mr. Eccleshare and CCOH entered into an amendment (the “First Eccleshare Amendment”) to Mr. Eccleshare’s employment agreement dated January 24, 2012 (the “Prior Employment Agreement”). Pursuant to the terms of the First Eccleshare Amendment, (1) Mr. Eccleshare’s title was amended to be Chairman and Chief Executive Officer of CCI, (2) the definition of Good Reason was amended to provide that Mr. Eccleshare may not trigger Good Reason as a result of the change in position and duties related to the First Eccleshare Amendment for a period of one (1) year after the effective date of the First Eccleshare Amendment, after which Mr. Eccleshare can exercise the right to trigger Good Reason as a result of the change in position and duties related to the First Eccleshare Amendment for thirty (30) days as provided for and in accordance with the terms of his Prior Employment Agreement, (3) CCOH agreed to continue to reimburse Mr. Eccleshare for the reasonable costs and expenses (not to exceed $25,000 annually, fullygrossed-up for applicable taxes) associated with filing his U.S. and U.K. personal income tax returns, as applicable, both during the remainder of his employment with CCOH and for a period of twelve (12) months thereafter, and (4) CCOH agreed to reimburse Mr. Eccleshare for certain relocation costs associated with the relocation of Mr. Eccleshare and his family from New York City to London in connection with a termination due to death, “disability,” by CCOH without “cause” or by Mr. Eccleshare for Good Reason (as such terms are defined in the Prior Employment Agreement), whether such costs are incurred during his employment with CCOH or during the12-month period thereafter (previously, Mr. Eccleshare would only be entitled to such reimbursement if the relevant costs were incurred during the12-month period following termination of his employment with CCOH).
December 17, 2015 Amendment to January 24, 2012 Employment Agreement. Effective December 17, 2015, Mr. Eccleshare and CCOH entered into an amendment (the “Second Eccleshare Amendment”) to Mr. Eccleshare’s Prior Employment Agreement. Pursuant to the terms of the Second Eccleshare Amendment, (1) Mr. Eccleshare’s term of employment was extended until December 31, 2017 and thereafter provided for automaticone-year extensions, unless either CCOH or Mr. Eccleshare gives prior notice electing not to extend the agreement, (2) in the event there is a disposition of the European assets of CCI, Mr. Eccleshare will be considered for a cash payment in an amount to be determined by CCOH in its sole discretion, (3) the definition of Good Reason was amended to provide that Mr. Eccleshare may not trigger Good Reason if, after a restructuring or reorganization of CCOH or a sale or spinoff of all or a portion of CCOH’s operations, he continues as Chief Executive Officer of CCI (or any of its successors), (4) commencing in 2016, Mr. Eccleshare is eligible for an additional long-term incentive opportunity from CCOH, consistent with other comparable positions pursuant to the terms of the award agreement(s), taking into consideration demonstrated performance and potential, and subject to approval by Mr. Eccleshare’s manager and the board of directors or the compensation committee of CCOH, and (5) in consideration of Mr. Eccleshare entering into the First Eccleshare Amendment and the Second Eccleshare Amendment and as a result of the change in his position and duties related to the First Eccleshare Amendment, Mr. Eccleshare received, subject to certain conditions, (a) the severance payment he would have been entitled to pursuant to the Prior Employment Agreement paid in two annual installments of $1.1 million on March 1, 2016 and $1.1 million on March 1, 2017 and (b) vesting ofone-half of any then unvested restricted stock units on March 1, 2016 and vesting of the other half of such restricted stock units on March 1, 2017.
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May 10, 2017 Amendment to January 24, 2012 Employment Agreement. On May 10, 2017, Mr. Eccleshare and CCOH entered into an amendment (the “Third Eccleshare Amendment”) to the Prior Employment Agreement. Pursuant to the terms of the Third Eccleshare Amendment, beginning January 1, 2017, the calculation of all cash payments related to Mr. Eccleshare’s base salary, annual bonus, additional bonus or any other compensation or cash payments or reimbursements owed to Mr. Eccleshare or contributed on behalf of Mr. Eccleshare, shall be paid based upon the prior calendar year’s average exchange rate.
December 5, 2017 Amendment to January 24, 2012 Employment Agreement. On December 5, 2017, Mr. Eccleshare and CCOH entered into an amendment (the “Fourth Eccleshare Amendment”) to the Prior Employment Agreement. Pursuant to the terms of the Fourth Eccleshare Amendment, (1) Mr. Eccleshare’s term of employment was extended until December 31, 2020 and thereafter provided for automaticone-year extensions, unless either CCOH or Mr. Eccleshare gives prior notice electing not to extend the Prior Employment Agreement, (2) beginning on January 1, 2018, the calculation of all cash payments related to base salary, annual bonus, additional bonus or any other compensation or cash payments or reimbursements owed to Mr. Eccleshare or contributed on behalf of Mr. Eccleshare shall be paid based on the average exchange rate for 2017 and (3) Mr. Eccleshare will receive a first retention bonus payment (the “First Retention Bonus Payment”) of $875,000 if he remains employed by the Company on January 1, 2018 (payable on CCOH’s first scheduled payroll following such date) and Mr. Eccleshare will receive a second retention bonus payment of $875,000 (the “Second Retention Bonus Payment”) if he remains employed by CCOH on January 1, 2020 (payable on CCOH’s first scheduled payroll following such date).
In the event Mr. Eccleshare’s employment is terminated by CCOH for Cause pursuant to the terms and conditions of the Prior Employment Agreement or Mr. Eccleshare resigns without Good Reason and the date of such termination is on or before June 30, 2019, Mr. Eccleshare shall repay to CCOH the“After-Tax Value” of the First Retention Bonus Payment within 10 days of his termination. In the event Mr. Eccleshare is terminated by CCOH for Cause pursuant to the terms and conditions of the Employment Agreement or Mr. Eccleshare resigns without Good Reason and the date of such termination is on or between July 1, 2019 and June 30, 2020, Mr. Eccleshare shall repay to CCOH the“After-Tax Value” of the Second Retention Bonus Payment (if so received) within 10 days of his termination. For the purposes of the Fourth Eccleshare Amendment,“After-Tax Value” means the applicable portion of the retention bonus payment net of any and all taxes and social security contributions, determined taking into account any tax benefit available in respect of such repayment.
Scott R. Wells
Effective March 3, 2015, CCOH entered into an employment agreement (the “Wells Employment Agreement”) with Mr. Wells. The Wells Employment Agreement has an initial term (the “Initial Term”) that ends on March 2, 2019 and thereafter provides for automatic four-year extensions, unless either CCOH or Mr. Wells gives prior notice electing not to extend the agreement. Subject to the termination provisions described below, Mr. Wells will receive a base salary from CCOH at a rate no less than $750,000 per year, which shall be increased at CCOH’s discretion. Mr. Wells will also have the opportunity to earn an annual performance bonus (the “Performance Bonus”) from CCOH for the achievement of financial and performance criteria established by CCOH and approved in the annual budget. The target performance bonus that may be earned will be not less than 100% of Mr. Wells’ base salary amount (the “Target Bonus”). For 2017, Mr. Wells received an annual bonus of $551,396. In addition to the annual bonus, Mr. Wells is also eligible for an additional long-term incentive opportunity (the “Long-Term Incentive Amount”) from CCOH with an approximate value of $1,000,000 for each award, consistent with other comparable positions pursuant to the terms of the award agreement(s), taking into consideration demonstrated performance and potential, and subject to approval by the board of directors or the compensation committee of CCOH, as applicable. The Wells Employment Agreement also entitles Mr. Wells to participate in all employee welfare benefit plans in which other similarly situated employees of CCOH may participate. CCOH will reimburse Mr. Wells for the attorneys’ fees incurred by Mr. Wells in connection with the negotiation of the Wells Employment Agreement and ancillary documents, up to a maximum reimbursement of $25,000 in the aggregate. The Wells Employment Agreement also contains a customary confidentiality provision that survives Mr. Wells’ termination of employment, as well as customarynon-competition andnon-solicitation provisions that apply during employment and for the12-month period thereafter.
If Mr. Wells’ employment with CCOH is terminated by CCOH without Cause (as defined in the Wells Employment Agreement), if Mr. Wells terminates his employment for Good Reason (as defined in the Wells Employment Agreement) or if Mr. Wells’ employment is terminated following CCOH’s notice ofnon-renewal, CCOH shall pay to Mr. Wells: (i) Mr. Wells’ accrued and unpaid base salary; (ii) any earned but unpaid prior year bonus, if any, through the date of termination; (iii) any unreimbursed business expenses; and (iv) any payments to which he may be entitled under any applicable employee benefit plan according to the terms of such plans and policies (collectively, the “Accrued Obligations”). In addition, if Mr. Wells has signed and returned (and has not revoked) a general release of claims in a form satisfactory to CCOH by the thirtieth (30th) day following the date of his termination, CCOH will: (i) pay to Mr. Wells, in periodic payments over a period of 18 months following such date of termination in
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accordance with ordinary payroll practices and deductions in effect on the date of termination, Mr. Wells’ base salary; (ii) pay Mr. Wells in a lump sum an amount equal to the COBRA premium payments Mr. Wells would be required to pay for continuation of healthcare coverage during the12-month period following the date of Mr. Wells’ termination (less the amount that Mr. Wells would have had to pay for such coverage as an active employee); (iii) pay to Mr. Wells a prorated bonus, calculated based upon performance as of the termination date as related to overall performance at the end of the calendar year; (iv) pay to Mr. Wells a separation bonus in an amount equal to the Target Bonus to which Mr. Wells would be entitled for the year in which Mr. Wells’ employment terminates; and (v) any unvested Time Vesting Options (as defined below) scheduled to vest within the twelve (12) month period following the date of termination will vest in full on the date of termination and any unvested Performance Vesting Options (as defined below) will remain eligible to vest for the three (3) month period following the date of termination.
If Mr. Wells’ employment with CCOH is terminated due to Mr. Wells’ death or disability or Mr. Wells elects not to renew his employment, CCOH will pay to Mr. Wells or to his designee or estate the Accrued Obligations.
As provided in the Wells Employment Agreement, the compensation committee of the board of directors of CCOH approved an award by CCOH, effective as of March 3, 2015, of options to purchase shares of CCOH’s Class A common stock having a value equal to $1,500,000 as of the award date (based on the Black-Scholes valuation method). Fifty percent of the award has performance-based vesting (the “Performance Vesting Options”) and fifty percent of the award vests over time (the “Time Vesting Options”). The Time Vesting Options will vest in equal amounts on the first, second, third and fourth anniversaries of the effective date, so long as Mr. Wells remains employed on the vesting date (except as previously set forth in the event of a termination by CCOH without Cause (as defined in the Wells Employment Agreement), if Mr. Wells terminates his employment for Good Reason (as defined in the Wells Employment Agreement) or if Mr. Wells’ employment is terminated following CCOH’s notice ofnon-renewal). The Performance Vesting Options will vest on the date that CCOA achieves certain financial and performance criteria, so long as Mr. Wells remains employed on the vesting date (except as previously set forth in the event of a termination by CCOH without Cause (as defined in the Wells Employment Agreement), if Mr. Wells terminates his employment for Good Reason (as defined in the Wells Employment Agreement) or if Mr. Wells’ employment is terminated following CCOH’s notice ofnon-renewal).
Robert H. Walls, Jr.
Effective January 1, 2010, Robert H. Walls, Jr. entered into an employment agreement with iHMMS. Pursuant to his agreement, Mr. Walls will serve as Executive Vice President, General Counsel and Secretary until his agreement is terminated by either party as permitted in the agreement.
Under his agreement, Mr. Walls receives compensation consisting of a base salary, incentive awards and other benefits and perquisites. Mr. Walls’ annual base salary initially was set at $550,000, with eligibility for additional annual raises commensurate with company policy. Mr. Walls’ current annual base salary is $750,000. No later than March 15 of each calendar year, Mr. Walls is eligible to receive a performance bonus. For 2017, Mr. Walls’ target bonus was set at $900,000, with 50% based on the achievement of a Company-wide OIBDAN of $1.969 billion and 50% based on the achievement of the other qualitative performance objectives. For purposes of his agreement, (1) EBITDA-based means performance criteria selected by the Board with respect to the annual bonus and with target performance determined on the same basis as determined for other similarly situated employees of iHMMS and its affiliates and(2) MBO-based means the subjective performance criteria agreed to on an annual basis between the Chief Executive Officer and Mr. Walls at about the same time as established for other similarly situated employees. For 2012 and thereafter, Mr. Walls’ target bonus will be no less than his base salary for the year to which the bonus relates and the criteria will be set by management in consultation with Mr. Walls. For 2017, Mr. Walls received an annual bonus of $792,500, which included an additional bonus in respect of 2017 performance of $365,000. See “—Compensation Discussion and Analysis—Elements of Compensation—Annual Incentive Bonus.” He is entitled to participate in all employee benefit plans and perquisites in which other similarly situated employees may participate.
Additionally, pursuant to his employment agreement, on December 31, 2010, Mr. Walls was granted a stock option to purchase 100,000 shares of iHeartMedia’s Class A common stock, which Mr. Walls exchanged for shares of restricted stock in 2012.
Under the employment agreement, Mr. Walls is required to protect the secrecy of confidential information of iHMMS and its affiliates and to assign certain intellectual property rights. He also is prohibited by the agreement from engaging in certain activities that compete with iHMMS and its affiliates during employment and for 12 months after his employment terminates, and he is prohibited from soliciting employees for employment during employment and for 12 months after termination of employment. iHMMS agreed to defend and indemnify Mr. Walls for acts committed in the course and scope of his employment.
November 10, 2017 Amendment to Employment Agreement. On November 10, 2017, iHeartMedia and Mr. Walls entered into an amendment to Mr. Walls’ employment agreement, pursuant to which Mr. Walls agreed to continue his employment with the Company through June 30, 2018 (the “Completion Date”). Mr. Walls will continue performing his duties and responsibilities and to
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cooperate in transitioning his duties and responsibilities to other employees of iHeartMedia. Effective on the Completion Date, Mr. Walls’ employment agreement with the Company will automatically terminate, and if Mr. Walls’ employment also terminates, such termination will be considered to be a voluntary termination of employment without “Good Cause” for purposes of his such that Mr. Walls will not be eligible for severance or termination pay.
Mr. Walls received a completion bonus in the amount of $2,325,000; provided, that if Mr. Walls’ employment with iHeartMedia is terminated before the Completion Date by iHeartMedia for “Cause” or by Mr. Walls for any reason, Mr. Walls will be required to repay theafter-tax value of such bonus to iHeartMedia within 10 days of such termination. If Mr. Walls is terminated by iHeartMedia without “Cause” or Mr. Walls terminates for “Good Cause,” in each case, before the Completion Date, Mr. Walls will be entitled to the following payments: (i) any portion of his 2017 annual bonus to the extent that it is earned and unpaid as of the date of termination, and (ii) his base salary through the Completion Date.
GRANTS OF PLAN-BASED AWARDS
Stock Incentive Plans
2015 Long-Term Incentive Plan. iHeartMedia grants equity incentive awards to named executive officers and other eligible participants under the iHeartMedia LTIP. The iHeartMedia LTIP is intended to advance the interests of iHeartMedia and its affiliates by providing for the grant of stock-based and other incentive awards to the key employees and directors of, and consultants and advisors to, iHeartMedia or its affiliates who are in a position to make a significant contribution to the success of iHeartMedia and its affiliates.
The iHeartMedia LTIP allows for the issuance of restricted stock, restricted stock units, incentive andnon-statutory stock options, cash awards and stock appreciation rights to eligible participants, who include the key employees of iHeartMedia and its subsidiaries in the case of incentive stock options, and the key employees and directors of, and consultants and advisors to, iHeartMedia or any of its affiliates in the case of other awards.
The iHeartMedia LTIP is administered by the Board. The Board determines which eligible persons receive an award and the types of awards to be granted as well as the amounts, terms and conditions of each award including, if relevant, the exercise price, the form of payment of the exercise price, the number of shares, cash or other consideration subject to the award and the vesting schedule. These terms and conditions will be set forth in the award agreement furnished to each participant at the time an award is granted to him or her under the iHeartMedia LTIP. The Board also makes other determinations and interpretations necessary to carry out the purposes of the iHeartMedia LTIP. For a description of the treatment of awards upon a participant’s termination of employment or change in control, see “—Potential Post-Employment Payments.”
Certain key participants who receive equity awards under the iHeartMedia LTIP are subject to additional restrictions on their ability to transfer the shares they receive pursuant to awards granted under the iHeartMedia LTIP. In addition, all participants in the iHeartMedia LTIP would be required to enter into a “lock up” or similar agreement with respect to the shares they receive pursuant to awards granted under the iHeartMedia LTIP in connection with a public offering of iHeartMedia’s shares on terms and conditions requested by iHeartMedia or its underwriters.
CCOH Stock Incentive Plans. CCOH grants equity incentive awards to named executive officers in our Definitive Proxy Statementoutdoor businesses and other eligible participants under the 2012 Amended and Restated Stock Incentive Plan and, prior to obtaining stockholder approval of the 2012 Stock Incentive Plan on May 18, 2012, the 2005 Stock Incentive Plan (collectively, the “CCOH Stock Incentive Plan”). The CCOH Stock Incentive Plan is intended to facilitate the ability of CCOH to attract, motivate and retain employees, directors and other personnel through the use of equity-based and other incentive compensation opportunities.
The CCOH Stock Incentive Plan allows for the issuance of restricted stock, restricted stock units, incentive andnon-statutory stock options, stock appreciation rights, director shares, deferred stock rights and other types of stock-based and/or performance-based awards to any present or future director, officer, employee, consultant or advisor of or to CCOH or its subsidiaries.
The CCOH Stock Incentive Plan is administered by CCOH’s Compensation Committee, except that the entire CCOH Board has sole authority for granting and administering awards to CCOH’snon-employee directors. The CCOH Compensation Committee determines which eligible persons receive an award and the types of awards to be granted as well as the amounts, terms and conditions of each award including, if relevant, the exercise price, the form of payment of the exercise price, the number of shares, cash or other consideration subject to the award and the vesting schedule. These terms and conditions will be set forth in the award agreement furnished to each participant at the time an award is granted to him or her under the CCOH Stock Incentive Plan. The CCOH Compensation Committee also makes other determinations and interpretations necessary to carry out the purposes of the CCOH Stock Incentive Plan. For a description of the treatment of awards upon a participant’s termination of employment or change in control, see “—Potential Post-Employment Payments.”
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Cash Incentive Plans
As discussed above, iHeartMedia historically has provided awards to Messrs. Pittman, Bressler and Walls under the iHeartMedia Executive Incentive Plan and CCOH has provided awards to Mr. Eccleshare and Mr. Wells under the CCOH Executive Incentive Plan. In addition, Messrs. Pittman, Bressler and Eccleshare received additional bonus opportunities under the iHeartMedia SIP and CCOH SIP, as applicable, with respect to performance in 2017. See “Compensation Discussion and Analysis—Elements of Compensation—Annual Incentive Bonus” for a more detailed description of the iHeartMedia Executive Incentive Plan, the CCOH Executive Incentive Plan and the grant of awards to the named executive officers thereunder, and “Compensation Discussion and Analysis—Supplemental Incentive Plan” for a more detailed description of the additional bonus opportunities under the iHeartMedia SIP and CCOH SIP, as applicable, available to Messrs. Pittman, Bressler and Eccleshare.
The following table sets forth certain information concerning plan-based awards granted to the named executive officers during the year ended December 31, 2017.
Grants of Plan-Based Awards During 2017
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Name | | Grant Date | | Estimated Possible Payouts UnderNon-Equity Incentive Plan Awards | | | Estimated Future Payouts Under Equity Incentive Plan Awards | | | All Other Stock Awards: Number of Shares of Stock or Units (#) | | | All Other Option Awards: Number of Securities Underlying Options (#) | | | Exercise or Base Price of Option Awards ($/Sh) | | | Grant Date Fair Value of Stock and Option Awards(a) ($) | |
| | Threshold ($) | | | Target ($) | | | Max. ($) | | | Threshold (#) | | | Target (#) | | | Max. (#) | | | | | | | | | | | | | |
Robert W. Pittman | | N/A(b) | | | — | | | | 1,800,000 | | | | 3,600,000 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | |
| | N/A(b) | | | — | | | | 500,000 | | | | 500,000 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | |
| | N/A(b) | | | — | | | | 7,000,000 | | | | 7,000,000 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | |
Richard J. Bressler | | N/A(b) | | | — | | | | 1,800,000 | | | | 3,600,000 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | |
| | N/A(b) | | | — | | | | 500,000 | | | | 500,000 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | |
| | N/A(b) | | | — | | | | 3,000,000 | | | | 3,000,000 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
C. William Eccleshare | | N/A(b) | | | — | | | | 1,000,000 | | | | 2,000,000 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | |
| | N/A(b) | | | — | | | | 300,000 | | | | 300,000 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | |
| | 2/24/17(c) | | | | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 23,421 | | | | — | | | | — | | | | 108,908 | |
| | 6/30/17(d) | | | | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 70,588 | | | | — | | | | — | | | | 342,352 | |
Scott R. Wells. | | N/A(b) | | | — | | | | 750,000 | | | | 1,500,000 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | |
| | 6/28/17 | | | | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 88,235 | | | | — | | | | — | | | | 419,116 | |
| | 9/7/17 | | | | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 208,333 | | | | — | | | | — | | | | 843,749 | |
| | | | | | | | | — | | | | — | | | | — | | | | — | | | | — | | | | | | | | | | | | | | | | | |
Robert H. Walls, Jr. | | N/A(b) | | | — | | | | 900,000 | | | | 1,800,000 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | |
(a) | The amounts in the table reflect the full grant date fair value of time-vesting restricted stock awards computed in accordance with the requirements of ASC Topic 718, but excluding any impact of estimated forfeiture rates as required by SEC regulations. For assumptions made in the valuation, see footnote (b) to the Summary Compensation Table above and Note10-Shareholders’ Interest in Item 8 of the Original 2017 Form10-K. |
(b) | Each of Messrs. Pittman, Bressler and Walls was granted a cash incentive award by iHeartMedia under the iHeartMedia Executive Incentive Plan based on the achievement ofpre-established performance goals. Each of Messrs. Eccleshare and Wells were granted a cash incentive award by CCOH under the CCOH Annual Incentive Plan based on the achievement ofpre-established performance goals. In addition, each of Messrs. Pittman, Bressler and Eccleshare were eligible to participate in a SIP bonus opportunity with respect to iHeartMedia’s 2017 performance in the case of Messrs. Pittman and Bressler and CCOH’s 2017 performance in the case of Mr. Eccleshare. For 2017, each of Messrs. Pittman and Bressler |
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| had the opportunity to earn up to $500,000 from iHeartMedia under the iHeartMedia SIP bonus opportunity and earned the full $500,000 based on 2017 performance, which was paid by iHeartMedia in February 2018 and contains a clawback prevision which requires them to repay theafter-tax value of the bonus if termination events occur prior to January 1, 2020. Mr. Eccleshare had the opportunity to earn up to $300,000 from CCOH under his CCOH SIP bonus opportunity and earned the full $300,000 based on 2017 performance, of which $100,000 was paid at the end of February 2018 and is included under theNon-Equity Incentive Plan Compensation column in the Summary Compensation Table, and the remaining $200,000 of which will be paid in equal installments of $100,000 each at the same time as the annual incentive bonus payments are paid generally in 2019 and 2020 if Mr. Eccleshare remains employed at that time. In addition, Messrs. Pittman and Bressler had the opportunity to earn up to $7,000,000 and $3,000,000, respectively, under the 2017 KEIP and each of Messrs. Pittman and Bressler earned the full $7,000,000 and $3,000,000, respectively, based on quarterly goals for 2017 and are included under theNon-Equity Incentive Plan Compensation column in the Summary Compensation Table. For further discussion of the 2017 cash incentive awards, see “Compensation Discussion and Analysis—Elements of Compensation—Annual Incentive Bonus.” |
(c) | On February 24, 2017, Mr. Eccleshare, in lieu of dividends, received a grant of 2,702 shares of Clear Channel Outdoor’s Class A common stock which was immediately vested. He also received a restricted stock unit award with respect to 20,719 shares of Clear Channel Outdoor’s Class A common stock under the Amended and Restated 2012 Stock Incentive Plan. The restricted stock units vested with respect to 16,528 of the shares on March 1, 2017. The remaining shares will vest with respect to 2,095 shares on September 21, 2019 and 2,096 shares on September 21, 2020. |
(d) | On June 30, 2017, Mr. Eccleshare was granted a restricted stock unit award with respect to 70,588 shares of Clear Channel Outdoor’s Class A common stock under the Amended and Restated 2012 Stock Incentive Plan. All of the restricted stock units will vest on June 28, 2019. |
(e) | On June 28, 2017, Mr. Wells was granted a restricted stock award with respect to 88,235 shares of Clear Channel Outdoor’s Class A common stock under the Amended and Restated 2012 Stock Incentive Plan. All of the restricted stock units will vest on June 28, 2019. |
(f) | On September 7, 2017, Mr. Wells was granted a restricted stock award with respect to 208,333 shares of Clear Channel Outdoor��s Class A common stock under the Amended and Restated 2012 Stock Incentive Plan. The restricted stock will vest 50% on September 7, 2020 and 50% on September 7, 2021. |
For further discussion of the equity awards, see “Compensation Discussion and Analysis—Elements of Compensation—Long-Term Incentive Compensation.”
OUTSTANDING EQUITY AWARDS AT FISCALYEAR-END
The following table sets forth certain information concerning outstanding equity awards of the named executive officers at December 31, 2017.
In connection with the payment of a special cash dividend of $0.7797 per share on February 23, 2017 to CCOH’s stockholders of record as of February 20, 2017, CCOH adjusted the exercise price of options outstanding under the CCOH 2012 Amended and Restated Stock Incentive Plan and the CCOH 2005 Stock Incentive Plan as of February 24, 2017 downward by $0.7797. All other terms and conditions governing each such option remained unchanged. The table below reflects the terms of each option outstanding at December 31, 2017 and, accordingly, reflects such adjustments. In addition, CCOH issued additional restricted stock units to holders of restricted stock units in lieu of the special dividends that were paid to stockholders. The additional restricted stock units vest based on time according to the original vesting schedules of the underlying restricted stock unit awards. Mr. Eccleshare’s additional restricted stock units are included in the table below.
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Outstanding Equity Awards at December 31, 2017
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Option Awards | | | Stock Awards | |
| | Number of Securities Underlying Unexercised Options | | | | | | | | | Number of Shares or Units of Stock That Have Not Vested (#) | | | Market Value of Shares or Units of Stock That Have Not Vested(a) ($) | | | Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (#) | | | Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested(a) ($) | |
Name | | (#) Exercisable | | | (#) Unexercisable | | | Option Exercise Price ($) | | | Option Expiration Date | | | | | |
Robert W. Pittman | | | 630,000 | (b) | | | — | | | | 36.00 | | | | 10/02/21 | | | | — | | | | — | | | | — | | | | — | |
| | | — | | | | — | | | | — | | | | — | | | | | | | | — | | | | 100,000 | (c) | | | 50,000 | |
| | | — | | | | — | | | | — | | | | — | | | | 50,000 | (d) | | | 25,000 | | | | 250,000 | (d) | | | 125,000 | |
| | | — | | | | — | | | | — | | | | — | | | | 28,967 | (e) | | | 133,248 | | | | — | | | | — | |
Richard J. Bressler | | | — | | | | — | | | | — | | | | — | | | | 50,000 | (f) | | | 25,000 | | | | 660,000 | (f) | | | 330,000 | |
| | | — | | | | — | | | | — | | | | — | | | | 10,863 | (g) | | | 49,970 | | | | — | | | | | |
C. William Eccleshare | | | 164,907 | (h) | | | — | | | | 1.17 | | | | 09/10/19 | | | | — | | | | — | | | | — | | | | — | |
| | | 22,500 | (i) | | | — | | | | 1.16 | | | | 02/24/20 | | | | — | | | | — | | | | — | | | | — | |
| | | 63,583 | (j) | | | — | | | | 1.43 | | | | 09/10/20 | | | | — | | | | — | | | | — | | | | — | |
| | | 15,360 | (k) | | | — | | | | 4.78 | | | | 12/13/20 | | | | — | | | | — | | | | — | | | | — | |
| | | 90,000 | (l) | | | — | | | | 6.09 | | | | 02/21/21 | | | | — | | | | — | | | | — | | | | — | |
| | | 90,000 | (m) | | | — | | | | 5.02 | | | | 03/26/22 | | | | — | | | | — | | | | — | | | | — | |
| | | — | | | | — | | | | — | | | | — | | | | 25,000 | (n) | | | 115,000 | | | | — | | | | — | |
| | | — | | | | — | | | | — | | | | — | | | | 4,191 | (o) | | | 19,279 | | | | — | | | | — | |
| | | — | | | | — | | | | — | | | | — | | | | 70,588 | (p) | | | 324,705 | | | | — | | | | — | |
Scott R. Wells | | | 84,650 | (q) | | | 253,950 | (q) | | | 6.85 | | | | 03/03/25 | | | | — | | | | — | | | | — | | | | — | |
| | | 18,882 | (r) | | | 18,882 | (r) | | | 7.71 | | | | 06/15/25 | | | | — | | | | — | | | | — | | | | — | |
| | | 6,413 | (s) | | | 19,241 | (s) | | | 5.69 | | | | 06/03/26 | | | | — | | | | — | | | | — | | | | — | |
| | | — | | | | — | | | | — | | | | — | | | | 45,830 | (t) | | | 210,818 | | | | — | | | | — | |
| | | — | | | | — | | | | — | | | | — | | | | 82,236 | (u) | | | 378,286 | | | | — | | | | — | |
| | | — | | | | — | | | | — | | | | — | | | | 88,235 | (v) | | | 405,881 | | | | — | | | | — | |
| | | — | | | | — | | | | — | | | | — | | | | 208,333 | (w) | | | 958,332 | | | | — | | | | — | |
Robert H. Walls, Jr | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 30,000 | (x) | | | 15,000 | |
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(a) | For equity awards with respect to the Class A common stock of iHeartMedia, this value is based upon the closing sale price of iHeartMedia’s Class A common stock on December 29, 2017 of $0.50. For equity awards with respect to the Class A common stock of CCOH, this value is based upon the closing sale price of CCOH’s Class A common stock on December 29, 2017 of $4.60. |
(b) | Mr. Pittman’s grant of options to purchase 166,000 shares of iHeartMedia’s Class A common stock vested on each of October 2, 2012 and October 2, 2013. However, in connection with his amended and restated employment agreement, iHeartMedia and Mr. Pittman amended this stock option on January 13, 2014 to terminate and forfeit 200,000 of the options. The termination and forfeiture applied ratably such that, as of December 31, 2017, all 630,000 of the options were vested. |
(c) | Mr. Pittman’s unvested restricted stock award representing 100,000 shares of iHeartMedia’s Class A common stock will vest only if the Sponsors receive a 100% return on their investment in iHeartMedia in the form of cash returns. |
(d) | Mr. Pittman’s unvested restricted stock award representing 300,000 shares of iHeartMedia’s Class A common stock vests as follows: (1) 50,000 shares of the award are time-vesting, and will vest on December 31, 2018; and (2) 250,000 shares of the award will vest only if the Sponsors receive a 100% return on their investment in iHeartMedia in the form of cash returns. |
(e) | Mr. Pittman’s restricted stock award representing 85,197 shares of CCOH’s Class A common stock vested 28,115 shares on February 12, 2016. 28,115 shares on February 12, 2017, and 28,967 shares on February 12, 2018. |
(f) | Mr. Bressler’s unvested restricted stock award representing 710,000 shares of iHeartMedia’s Class A common stock vests as follows: (1) 50,000 shares of the award vesting on July 29, 2018; (2) 360,000 shares of the award will vest only if the Sponsors receive a 100% return on their investment in iHeartMedia in the form of cash returns; and (3) 300,000 shares of the award will vest on a pro rata basis (using straight line linear interpolation) only if the Sponsors receive between 200% and 278% return on their investment in iHeartMedia in the form of cash returns. |
(g) | Mr. Bressler’s restricted stock award representing 31,948 shares of CCOH’s Class A common stock vested 10,542 shares on February 12, 2016, 10,543 shares on February 12, 2017 and 10,863 shares on February 12, 2018. |
(h) | Mr. Eccleshare’s grant of options to purchase 202,813 shares of CCOH’s Class A common stock vested as follows: (1) options with respect to 48,062 shares vested on September 10, 2010; (2) options with respect to 74,736 shares vested on September 10, 2011; (3) options with respect to 40,006 shares vested on September 10, 2012; and (4) options with respect to 40,009 shares vested on September 10, 2013. |
(i) | Mr. Eccleshare’s grant of options to purchase 62,094 shares of CCOH’s Class A common stock vested as follows: (1) options with respect to 15,523 shares vested on February 24, 2011; (2) options with respect to 15,524 shares vested on February 24, 2012; (3) options with respect to 15,523 shares vested on February 24, 2013; and (4) options with respect to 15,524 shares vested on February 24, 2014. |
(j) | Mr. Eccleshare’s grant of options to purchase 63,583 shares of CCOH’s Class A common stock vested as follows: (1) options with respect to 15,895 shares vested on September 10, 2011; (2) options with respect to 15,896 shares vested on September 10, 2012; (3) options with respect to 15,895 shares vested on September 10, 2013; and (4) options with respect to 15,897 shares vested on September 10, 2014. |
(k) | Mr. Eccleshare’s grant of options to purchase 15,360 shares of CCOH’s Class A common stock vested in three equal annual installments beginning on September 10, 2011. |
(l) | Mr. Eccleshare’s grant of options to purchase 90,000 shares of CCOH’s Class A common stock vested in four equal installments beginning on February 21, 2012. |
(m) | Mr. Eccleshare’s grant of options to purchase 90,000 shares of CCOH’s Class A common stock vested in four equal installments beginning on March 26, 2013. |
(n) | Mr. Eccleshare’s unvested restricted stock unit award representing 25,000 shares of CCOH’s Class A common stock vests 50% on September 21, 2019 and 50% on September 21, 2020. |
(o) | Mr. Eccleshare’s unvested restricted stock unit award representing 4,191 shares of CCOH’s Class A common stock will vest 50% on September 21, 2019 and 50% on September 21, 2020. |
(p) | Mr. Eccleshare’s unvested restricted stock unit award with respect to 70,588 shares of CCOH’s Class A common stock will vest on June 28, 2019 provided Mr. Eccleshare is still employed by or provided services to CCOH on such date. |
(q) | Mr. Wells’ grant of options to purchase 338,600 shares of CCOH’s Class A common stock vest as follows: (1) 169,300 of the shares of the award are time-vesting, with 25% vesting annually beginning March 3, 2016; and (2) 169,300 shares of the award will vest upon achievement of OIBDAN targets to be specified by the Board. |
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(r) | Mr. Wells’ grant of options to purchase 37,764 shares of CCOH’s Class A common stock vest in four equal installments beginning June 15, 2016. |
(s) | Mr. Wells’ grant of options to purchase 25,654 shares of CCOH’s Class A common stock vest in four equal installments beginning June 3, 2017. |
(t) | Mr. Wells’ unvested restricted stock award representing 45,830 shares of CCOH’s Class A common stock vests 50% on June 15, 2018 and 50% on June 15, 2019. |
(u) | Mr. Wells’ unvested restricted stock award representing 82,236 shares of CCOH’s Class A common stock vests 50% on June 3, 2019 and 50% on June 3, 2020. |
(v) | Mr. Wells’ unvested restricted stock award representing 88,235 shares of CCOH’s Class A common stock will vest on June 28, 2019 provided Mr. Wells is employed by or providing services to Clear Channel Outdoor on such date. |
(w) | Mr. Wells’ unvested restricted stock award representing 208,333 shares of CCOH’s Class A common stock will vest 50% on September 7, 2020 and 50% on September 7, 2021. |
(x) | Mr. Walls’ unvested restricted stock award representing 30,000 shares of iHeartMedia’s Class A common stock will vest only if the Sponsors receive a 100% return on their investment in iHeartMedia in the form of cash returns. |
OPTION EXERCISES AND STOCK VESTED
The following table sets forth certain information concerning option exercises by and stock vesting for the named executive officers during the year ended December 31, 2017.
Option Exercises and Stock Vested During 2017
| | | | | | | | | | | | | | | | |
| | Option Awards | | | Stock Awards | |
Name | | Number of Shares Acquired on Exercise (#) | | | Value Realized on Exercise ($) | | | Number of Shares Acquired on Vesting(a) (#) | | | Value Realized on Vesting(b) ($) | |
Robert W. Pittman | | | — | | | | — | | | | 263,985 | | | | 855,766 | |
Richard J. Bressler | | | — | | | | — | | | | 196,413 | | | | 827,978 | |
C. William Eccleshare | | | — | | | | — | | | | 117,807 | | | | 582,334 | |
Scott R. Wells | | | — | | | | — | | | | — | | | | — | |
Robert H. Walls, Jr | | | — | | | | — | | | | 6,000 | | | | 8,160 | |
(a) | Represents the gross number of shares acquired on vesting of iHeartMedia restricted stock by Messrs. Pittman, Bressler and Walls and the gross number of shares acquired on vesting of CCOH restricted stock units by Messrs. Pittman, Bressler and Eccleshare, without taking into account any shares withheld to satisfy applicable tax obligations. |
(b) | Represents the value of the vested restricted stock or restricted stock units, as applicable, calculated by multiplying (1) the number of vested shares of restricted stock or the number of vested restricted stock units, as applicable, by (2) the closing price on the vesting date or, if the vesting date is not a trading day, the previous trading day. |
PENSION BENEFITS
iHeartMedia, iHeartCommunications and CCOH do not sponsor any pension plans in which the named executive officers participate.
NONQUALIFIED DEFERRED COMPENSATION PLANS
iHeartMedia historically has offered a nonqualified deferred compensation plan for a select group of management or highly compensated employees, but none of our named executive officers participates in such plan.
POTENTIAL POST-EMPLOYMENT PAYMENTS
The following narrative and table describe the potential payments or benefits upon termination, change in control or other post-employment scenarios for each of our named executive officers, using an assumed December 31, 2017 trigger event for each scenario.
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Robert W. Pittman
Termination by iHeartMedia for Cause, by Mr. Pittman without Good Cause or UponNon-Renewal of the Agreement by Mr. Pittman. Robert W. Pittman’s employment agreement provides for the following payments and benefits upon termination by us for “Cause,” by Mr. Pittman without “Good Cause” or due to thenon-renewal of the agreement by Mr. Pittman.
Under the agreement, “Cause” is defined as: (1) conduct by Mr. Pittman constituting a material act of willful misconduct in connection with the performance of his duties; (2) continued, willful and deliberatenon-performance by Mr. Pittman of his duties under the agreement (other than by reason of physical or mental illness, incapacity or disability) where suchnon-performance has continued for more than 15 business days after written notice; (3) Mr. Pittman’s refusal or failure to follow lawful directives consistent with his job responsibilities where such refusal or failure has continued for more than 15 business days after written notice; (4) a criminal conviction of, or plea of nolo contendere by, Mr. Pittman for a felony or material violation of any securities law including, without limitation, a conviction of fraud, theft or embezzlement or a crime involving moral turpitude; (5) a material breach of the agreement by Mr. Pittman; or (6) a material violation by Mr. Pittman of iHeartMedia’s employment policies regarding harassment. In the case of (1), (3), (5) or (6), those acts will not constitute Cause unless Mr. Pittman has been given written notice specifying the conduct qualifying for Cause and Mr. Pittman fails to cure within 15 business days after receipt of the notice.
The term “Good Cause” includes, subject to certain exceptions: (1) a repeated willful failure by iHeartMedia to comply with a material term of the agreement after written notice by Mr. Pittman specifying the alleged failure; (2) a substantial and adverse change in Mr. Pittman’s position, material duties, responsibilities or authority; or (3) a material reduction in Mr. Pittman’s base salary, performance bonus opportunity or additional bonus opportunity. To terminate for Good Cause, Mr. Pittman must provide iHeartMedia with 30 days’ notice, after which iHeartMedia has 15 days to cure.
If iHeartMedia terminates Mr. Pittman’s employment for Cause, iHeartMedia will pay Mr. Pittman a lump sum cash payment equal to Mr. Pittman’s accrued and unpaid base salary through the date of termination and any payments to which he may be entitled under applicable employee benefit plans (“Accrued Amounts”). If Mr. Pittman terminates his employment without Good Cause or elects not to renew his employment agreement, iHeartMedia will pay Mr. Pittman a lump sum cash payment equal to his Accrued Amounts and any earned but unpaid annual bonus with respect to a previous year (“Earned Prior Year Annual Bonus”).
Termination by iHeartMedia without Cause, by Mr. Pittman for Good Cause, UponNon-Renewal of the Agreement by iHeartMedia or Upon Change in Control. If iHeartMedia terminates Mr. Pittman’s employment without Cause, if Mr. Pittman terminates his employment for Good Cause or if iHeartMedia gives Mr. Pittman a notice ofnon-renewal, Mr. Pittman will receive alump-sum cash payment equal to his Accrued Amounts and any Earned Prior Year Annual Bonus. In addition, provided he signs and returns a release of claims in the time period required, iHeartMedia will: (1) pay Mr. Pittman, over a period of two years, an amount equal to two times the sum of his base salary and target bonus; (2) reimburse Mr. Pittman for all COBRA premium payments paid by Mr. Pittman for continuation of healthcare coverage during the18-month period following the date of Mr. Pittman’s termination; and (3) pay Mr. Pittman a prorated annual bonus with respect to the days he was employed in the year that includes the termination, calculated as if he had remained employed through the normal payment date (“Prorated Annual Bonus”). Mr. Pittman’s employment agreement does not provide for payments or benefits upon a change in control. Accordingly, if he is terminated without Cause after a change in control, Mr. Pittman will be entitled to the benefits described for a termination without Cause.
Termination due to Death or Disability. If Mr. Pittman is unable to perform his duties under the agreement on a full-time basis for more than 180 days in any12-month period, iHeartMedia may terminate his employment. If Mr. Pittman’s employment is terminated due to death or disability, iHeartMedia will pay to Mr. Pittman or his designee or estate: (1) a lump sum cash payment equal to his Accrued Amounts; (2) any Earned Prior Year Annual Bonus; and (3) a Prorated Annual Bonus. If a release of claims is signed and returned in the time period required, iHeartMedia will reimburse Mr. Pittman or his estate for all COBRA premium payments paid by Mr. Pittman or his estate for continuation of healthcare coverage during the18-month period following Mr. Pittman’s date of termination.
Impact of Termination on October 2, 2011 and October 15, 2012 Equity Awards. Except as described below, upon termination of Mr. Pittman’s employment, all of his outstanding and unvested iHeartMedia stock options granted on October 2, 2011 and restricted stock granted on October 15, 2012 will be cancelled. If Mr. Pittman’s employment is terminated by iHeartMedia without Cause or by Mr. Pittman for Good Cause within 12 months after a change of control of iHeartMedia where the Sponsors do not receive cash as a direct result of such transaction in an amount equal to at least 75% of their equity interest in iHeartMedia immediately prior to the transaction, his unvested options will vest and become immediately exercisable. If Mr. Pittman’s employment is terminated by iHeartMedia without Cause or by Mr. Pittman for Good Cause (in circumstances other than as described in the previous sentence), the portion of his unvested options that would have vested within 12 months after the date of termination will vest on the date of termination and become immediately exercisable. Upon termination of his employment due to death or disability, Mr. Pittman’s vested stock options will continue to be exercisable for the shorter of one year or the remaining10-year term of the
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options. In the case of any termination of employment for a reason other than death or disability, Mr. Pittman’s vested stock options will continue to be exercisable for the shorter of six months or the remaining10-year term of the options. If both of the following conditions occur during thesix-month period after termination of Mr. Pittman’s employment, the period in which to exercise a vested option will be extended by an additional six months (in no event beyond the10-year term of the options): (1) the average closing value of the Dow Jones Industrial Average for the 10 consecutive trading days immediately prior to the date the options would otherwise expire pursuant to the previous two sentences (the “Exercise Measurement Period”) is at least 20% less than for the 10 consecutive trading days ending on the date Mr. Pittman’s employment terminated (the “Base Measurement Period”) and (2) the average closing price of the Class A common stock as reported on the principle exchange on which it is listed for trading during the Exercise Measurement Period is at least 25% less than the average closing price of the Class A common stock reported on such exchange for the Base Measurement Period. If Mr. Pittman’s employment is terminated by iHeartMedia without Cause within 12 months after a change of control, his time-vesting iHeartMedia restricted stock granted on October 15, 2012 will vest.
On January 13, 2014, Mr. Pittman and iHeartMedia amended and restated Mr. Pittman’s employment agreement, providing certain additional benefits to Mr. Pittman, as described below.
Impact of Termination on Equity Awards Granted on January 13, 2014. In connection with Mr. Pittman’s amended and restated employment agreement, he was granted awards of restricted stock by iHeartMedia and CCOH on January 13, 2014.
The iHeartMedia restricted stock award granted on January 13, 2014 is divided into the Tranche 1 Shares and the Tranche 2 Shares. The Tranche 1 Shares will: (1) continue to vest in accordance with the terms of the award agreement upon a Change in Control (as defined in the award agreement); (2) vest with respect to 50,000 shares in the event Mr. Pittman’s employment is terminated by iHeartMedia without Cause, because iHeartMedia does not renew his employment agreement or because of Mr. Pittman’s death or disability (each, a “Good Leaver Termination”); and (3) vest with respect to 100% of any unvested shares if a Good Leaver Termination occurs within 90 days of a Change in Control. The Tranche 2 Shares will: (1) in the case of a Good Leaver Termination, be subject to continued vesting for thesix-month period following such termination in accordance with the Qualifying Return to Investor metrics set forth in the award agreement; (2) in the case of a Standalone CIC (defined as a Change in Control that the Board determines is not effected by an entity with material operating assets and after which the business and assets of iHeartMedia continue on a standalone basis materially consistent with immediately prior to the Change in Control), be converted to a dollar vesting schedule such that the Tranche 2 Shares will vest, if at all, at 100% on the date that the Fair Market Value (as defined in the award agreement) of one share of iHeartMedia’s Class A common stock reaches $36; (3) in the case of a Good Leaver Termination that occurs during the18-month period following a Standalone CIC, vest as to 75% of any unvested Tranche 2 Shares if such Standalone CIC takes place prior to the first anniversary of the grant date; vest as to 50% of any unvested Tranche 2 Shares if such Standalone CIC takes place on or after the first anniversary of the grant date but prior to the second anniversary of the grant date; and vest as to 25% of any unvested Tranche 2 if such Standalone CIC takes place on or after the second anniversary of the grant date but prior to the fifth anniversary of the grant date; and (4) in the case of a Change of Control that is not a Standalone CIC, vest as to 75% of any unvested Tranche 2 Shares if such Change in Control takes place prior to the first anniversary of the grant date; vest as to 50% of any unvested Tranche 2 Shares if such Change in Control takes place on or after the first anniversary of the grant date but prior to the second anniversary of the grant date; and vest as to 25% of any unvested Tranche 2 Shares if such Change in Control takes place on or after the second anniversary of the grant date but prior to the third anniversary of the grant date. Any unvested shares that do not vest as described above will terminate on the date his employment terminates.
With respect to the CCOH restricted stock, in the event that Mr. Pittman’s employment with iHeartMedia and its subsidiaries is terminated by iHeartMedia for a reason other than Cause or by Mr. Pittman for Good Cause, 50% of any shares of CCOH restricted stock that would otherwise vest within 12 months after such termination will remain outstanding and vest on the date such shares would otherwise have vested, except that if such termination occurs during the90-day period prior to or the12-month period following a Change in Control (as defined in the award agreement), 100% of any unvested CCOH restricted stock will vest upon the consummation of such Change in Control (or on the termination date in the case of a termination following a Change in Control). If Mr. Pittman ceases to be Executive Chairman of the Board of CCOH but continues to be employed by iHeartMedia, all unvested shares of CCOH restricted stock outstanding as of such termination will be converted into a number of shares of restricted stock of iHeartMedia having an aggregate Fair Market Value (as defined in iHeartMedia’s Stock Incentive Plan) equal to the aggregate Fair Market Value of such unvested shares, in each case, as of the date of such termination, with such iHeartMedia restricted stock vesting on the terms and conditions as are set forth in the CCOH award agreement (substituting iHeartMedia for CCOH). In the event of Mr. Pittman’s termination of employment or service from iHeartMedia for any other reason, then all unvested shares of CCOH restricted stock will be immediately forfeited.
Gross-Up Provisions under Mr. Pittman’s January 13, 2014 Amended and Restated Employment Agreement. Mr. Pittman’s amended and restated employment agreement contains a 280G“gross-up” provision that applies in certain circumstances in which any Company Payments received by Mr. Pittman are deemed to be “excess parachute payments” subject to excise taxes under Section 4999 of the Code. If, at the time any excise tax is imposed, the Cleansing Vote Rules are applicable and
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Mr. Pittman declines to submit such excess parachute payments for approval by iHeartMedia’s stockholders, iHeartMedia will pay to Mr. Pittman an amount equal to the excise tax imposed by Section 4999 of the Code. If, at the time any excise tax is imposed, the Cleansing Vote Rules are not applicable, Mr. Pittman will be entitled to agross-up payment equal to (1) the excise tax and (2) any U.S. Federal, state and local income or payroll tax imposed on thegross-up payment (excluding any U.S. Federal, state and local income or payroll taxes otherwise imposed on the Company Payments); provided that if the Company Payments are found to be equal to or less than 110% of the “safe harbor” amount referenced in Mr. Pittman’s employment agreement, the Company Payments will be reduced to equal the safe harbor amount, such that no excise tax will be imposed by Section 4999 of the Code.
In the event that Mr. Pittman’s employment is terminated due to his death, disability or retirement, iHeartMedia will pay him a lump sum amount equal to any taxes paid by Mr. Pittman in accordance with Section 83(b) of the Code with respect to the iHeartMedia restricted stock awarded on January 13, 2014 that, at the time of such death, disability or retirement, remains unvested. For purposes of Mr. Pittman’s employment agreement, retirement is deemed to occur if, for the12-month period following Mr. Pittman’s termination by reason ofnon-renewal of the employment agreement by either party (excluding termination by iHeartMedia for Cause or due to disability) or by Mr. Pittman without Good Cause, Mr. Pittman does not commence employment with or provide significant services as an advisor or consultant to iHeartMedia or any unaffiliated companies.
Richard J. Bressler
Termination by iHeartMedia for Cause, by Mr. Bressler without Good Cause or UponNon-Renewal of the Agreement by Mr. Bressler. Richard J. Bressler’s employment agreement provides for the following payments and benefits upon termination by us for “Cause,” by Mr. Bressler without “Good Cause” or due to thenon-renewal of the agreement by Mr. Bressler.
Under the agreement, “Cause” is defined as: (1) conduct by Mr. Bressler constituting a material act of willful misconduct in connection with the performance of his duties; (2) continued, willful and deliberatenon-performance by Mr. Bressler of his duties under the agreement (other than by reason of physical or mental illness, incapacity or disability) where suchnon-performance has continued for more than 15 business days after written notice; (3) Mr. Bressler’s refusal or failure to follow lawful directives consistent with his job responsibilities where such refusal or failure has continued for more than 15 business days after written notice; (4) a criminal conviction of, or plea of nolo contendere by, Mr. Bressler for a felony or material violation of any securities law including, without limitation, a conviction of fraud, theft or embezzlement or a crime involving moral turpitude; (5) a material breach of the agreement by Mr. Bressler; or (6) a material violation by Mr. Bressler of iHeartMedia’s employment policies regarding harassment. In the case of (1), (3), (5) or (6), those acts will not constitute Cause unless Mr. Bressler has been given written notice specifying the conduct qualifying for Cause and Mr. Bressler fails to cure within 15 business days after receipt of the notice.
The term “Good Cause” includes, subject to certain exceptions: (1) a repeated willful failure by iHeartMedia to comply with a material term of the agreement after written notice by Mr. Bressler specifying the alleged failure; (2) a substantial and adverse change in Mr. Bressler’s position, material duties, responsibilities or authority; or (3) a material reduction in Mr. Bressler’s base salary, performance bonus opportunity or additional bonus opportunity. The removal of Mr. Bressler from the position of Chief Financial Officer of CCOH will not constitute Good Cause. To terminate for Good Cause, Mr. Bressler must provide iHeartMedia with 30 days notice, after which iHeartMedia has 30 days to cure.
If iHeartMedia terminates Mr. Bressler’s employment for Cause, iHeartMedia will pay Mr. Bressler a lump sum cash payment equal to Mr. Bressler’s Accrued Amounts. If Mr. Bressler terminates his employment without Good Cause or elects not to renew his employment agreement, iHeartMedia will pay Mr. Bressler a lump sum cash payment equal to his Accrued Amounts and any earned but unpaid annual bonus and additional bonus opportunity with respect to a previous year (“Earned Prior Year Annual and Additional Bonus”).
Termination by iHeartMedia without Cause, by Mr. Bressler for Good Cause, UponNon-Renewal of the Agreement by iHeartMedia or Upon Change in Control. If iHeartMedia terminates Mr. Bressler’s employment without Cause, if Mr. Bressler terminates his employment for Good Cause or if Mr. Bressler’s employment is terminated following iHeartMedia’s notice ofnon-renewal after the initial term of the employment agreement, iHeartMedia will pay to Mr. Bressler a lump sum amount equal to: (1) Mr. Bressler’s Accrued Amounts; and (2) any Earned Prior Year Annual and Additional Bonus. In addition, provided he signs and returns a release of claims in the time period required, iHeartMedia will: (1) pay to Mr. Bressler, in periodic ratable installment payments twice per month over a period of 18 months following the date of termination, an aggregate amount equal to 1.5 times the sum of Mr. Bressler’s base salary and target annual bonus; (2) reimburse Mr. Bressler for all COBRA premium payments paid by Mr. Bressler for continuation of healthcare coverage during the18-month period following the date of Mr. Bressler’s termination; (3) pay to Mr. Bressler a Prorated Annual Bonus; and (4) pay to Mr. Bressler a prorated bonus under his iHeartMedia SIP bonus opportunity, based on actual results for such year (the “Prorated Additional Bonus”).
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Termination due to Death or Disability. If Mr. Bressler is unable to perform his duties under the agreement on a full-time basis for more than 180 days in any 12 month period, iHeartMedia may terminate his employment. If Mr. Bressler’s employment is terminated due to death or disability, iHeartMedia will pay to Mr. Bressler or to his designee or estate: (1) a lump sum equal to Mr. Bressler’s Accrued Amounts; (2) any Earned Prior Year Annual and Additional Bonus; (3) Mr. Bressler’s Prorated Annual Bonus; and (4) Mr. Bressler’s Prorated Additional Bonus. If a release of claims is signed and returned in the time period required, iHeartMedia will reimburse Mr. Bressler or his estate for all COBRA premium payments paid by Mr. Bressler or his estate for continuation of healthcare coverage during the18-month period following Mr. Bressler’s date of termination.
Gross-Up Provisions. Mr. Bressler’s employment agreement contains a 280G“gross-up” provision that applies in certain circumstances in which any Company Payments received by Mr. Bressler are deemed to be “excess parachute payments” subject to excise taxes under Section 4999 of the Code. If, at the time any excise tax is imposed, the Cleansing Vote Rules are applicable and Mr. Bressler declines to submit the excess parachute payments for approval by iHeartMedia’s stockholders, iHeartMedia will pay to Mr. Bressler an amount equal to the excise tax imposed by Section 4999 of the Code. If, at the time any excise tax is imposed, the Cleansing Vote Rules are not applicable, Mr. Bressler will be entitled to agross-up payment equal to (1) the excise tax and (2) any U.S. Federal, state and local income or payroll tax imposed on thegross-up payment (excluding any U.S. Federal, state and local income or payroll taxes otherwise imposed on the Company Payments); provided that if the Company Payments are found to be equal to or less than 110% of the “safe harbor” amount referenced in Mr. Bressler’s employment agreement, the Company Payments will be reduced to equal the safe harbor amount, such that no excise tax will be imposed by Section 4999 of the Code.
Impact of Termination on Equity Awards. In connection with Mr. Bressler’s employment agreement, he was granted awards of restricted stock by iHeartMedia and CCOH on July 29, 2013.
The iHeartMedia award of 910,000 restricted shares of iHeartMedia’s Class A common stock is divided into three tranches consisting of: (1) 250,000 shares (the “Bressler Tranche 1 Shares”); (2) 360,000 shares (the “Bressler Tranche 2 Shares”); and 300,000 shares (the “Bressler Tranche 3 Shares”). The Bressler Tranche 1 Shares will: (1) continue to vest in accordance with the terms of the award agreement upon a Change in Control (as defined in the award agreement); (2) vest with respect to 50,000 shares in the event of a Good Leaver Termination; and (3) vest with respect to 100% of any unvested shares if a Good Leaver Termination occurs within the90-day period prior to a Change in Control or following a Change in Control. The Bressler Tranche 2 Shares and Bressler Tranche 3 Shares will: (1) in the case of a Good Leaver Termination, be subject to continued vesting for thesix-month period following such termination in accordance with the Qualifying Return to Investor metrics set forth in the award agreement; (2) in the case of a Standalone CIC, be converted to a dollar vesting schedule such that the Bressler Tranche 2 Shares will vest, if at all, at 100% on the date that the Fair Market Value (as defined in the award agreement) of one share of iHeartMedia’s Class A common stock reaches $36, and the Bressler Tranche 3 Shares will vest, if at all, on a pro rated basis (using straight line linear interpolation) upon the achievement, if any, of a Fair Market Value of iHeartMedia Class A common stock of between $72 and $100.08; (3) in the case of a Good Leaver Termination that occurs during the18-month period following a Standalone CIC, vest as to 75% of any unvested Bressler Tranche 2 Shares and Bressler Tranche 3 Shares if such Standalone CIC takes place prior to the first anniversary of the grant date; vest as to 50% of any unvested Bressler Tranche 2 Shares and Bressler Tranche 3 Shares if such Standalone CIC takes place on or after the first anniversary of the grant date but prior to the second anniversary of the grant date; and vest as to 25% of any unvested Bressler Tranche 2 Shares and Bressler Tranche 3 Shares if such Standalone CIC takes place on or after the second anniversary of the grant date but prior to the fifth anniversary of the grant date; and (4) in the case of a Change of Control that is not a Standalone CIC, vest as to 75% of any unvested Bressler Tranche 2 Shares and Bressler Tranche 3 Shares if such Change in Control takes place prior to the first anniversary of the grant date; vest as to 50% of any unvested Bressler Tranche 2 Shares and Bressler Tranche 3 Shares if such Change in Control takes place on or after the first anniversary of the grant date but prior to the second anniversary of the grant date; and vest as to 25% of any unvested Bressler Tranche 2 Shares and Bressler Tranche 3 Shares if such Change in Control takes place on or after the second anniversary of the grant date but prior to the third anniversary of the grant date. Any unvested shares that do not vest as described above will terminate on the date his employment terminates.
On July 29, 2013, CCOH granted Mr. Bressler 271,739 restricted shares of Class A common stock of CCOH. In the event of Mr. Bressler’s termination of employment or service for any reason, then, except as otherwise provided in the award agreement, all unvested shares of CCOH restricted stock will be immediately forfeited. In the event that Mr. Bressler’s employment with iHeartMedia, CCOH and its subsidiaries is terminated by iHeartMedia or CCOH for a reason other than Cause or by Mr. Bressler for Good Cause, 50% of any shares of CCOH restricted stock that would otherwise vest within 12 months after such termination will remain outstanding and vest on the date such shares would otherwise have vested, except that if such termination occurs during the90-day period prior to or the12-month period following a Change in Control (as defined in the award agreement), 100% of any unvested CCOH restricted stock will vest upon the consummation of such Change in Control (or on the termination date in the case of a termination following a Change in Control). If Mr. Bressler ceases to be employed by CCOH and its subsidiaries by reason of termination by CCOH with or without Cause or at the written request of iHeartMedia but continues to be employed by iHeartMedia, all unvested shares of CCOH restricted stock outstanding as of such termination will be converted into a number of shares of restricted stock of iHeartMedia having an aggregate Fair Market Value (as defined in the iHeartMedia LTIP) equal to the aggregate Fair Market Value of such unvested shares, in each case, as of the date of such termination, with such iHeartMedia restricted stock vesting on the terms and conditions as are set forth in the CCOH award agreement (substituting iHeartMedia for CCOH).
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C. William Eccleshare
Termination by CCOH for Cause or by Mr. Eccleshare without Good Reason. Mr. Eccleshare’s employment agreement provides for the following payments and benefits upon termination by CCOH for “Cause” or by Mr. Eccleshare without “Good Reason.”
Under the agreement, “Cause” is defined as: (1) conduct by Mr. Eccleshare constituting a material act of willful misconduct in connection with the performance of his duties; (2) continued, willful and deliberatenon-performance by Mr. Eccleshare of his duties (other than by reason of physical or mental illness, incapacity or disability) where suchnon-performance has continued for more than 15 business days following written notice of suchnon-performance; (3) Mr. Eccleshare’s refusal or failure to follow lawful and reasonable directives consistent with his job responsibilities where such refusal or failure has continued for more than 15 business days following written notice of such refusal or failure; (4) a criminal conviction of, or a plea of nolo contendere by, Mr. Eccleshare for a felony or material violation of any securities law including, without limitation, conviction of fraud, theft or embezzlement or a crime involving moral turpitude; (5) a material breach by Mr. Eccleshare of any of the provisions of his employment agreement; or (6) a material violation by Mr. Eccleshare of CCOH’s employment policies regarding harassment; provided, however, that Cause shall not exist under clauses (1), (3), (5) or (6) unless Mr. Eccleshare has been given written notice specifying the act, omission or circumstances alleged to constitute Cause and he fails to cure or remedy such act, omission or circumstances within 15 business days after receipt of such notice.
The term “Good Reason” includes: (1) a change in Mr. Eccleshare’s reporting line; (2) a material change in his titles, duties or authorities (provided that Mr. Eccleshare shall not have Good Reason to terminate employment if, after a restructuring or reorganization of CCOH or a sale or spinoff of all or a portion of CCOH’s operations, Mr. Eccleshare continues as Chief Executive Officer of Clear Channel International (or any of its successors)); (3) a reduction in Mr. Eccleshare’s base salary or target bonus, other than anacross-the-board reduction applicable to all senior executive officers of CCOH; (4) a required relocation within the domestic United States of more than 50 miles of his primary place of employment; or (5) a material breach by CCOH of the terms of the employment agreement. To terminate for Good Reason, Mr. Eccleshare must provide CCOH with 30 days’ written notice, after which CCOH has 30 days to cure, and Mr. Eccleshare must terminate employment within ten (10) days following the expiration of CCOH’s cure period, if he still intends to terminate.
If Mr. Eccleshare’s employment is terminated by CCOH for Cause or by Mr. Eccleshare without Good Reason, CCOH will pay to Mr. Eccleshare his Accrued Amounts. In addition, if Mr. Eccleshare terminates his employment without Good Reason and he signs and returns a release of claims in the time period required, CCOH will pay to Mr. Eccleshare any Earned Prior Year Annual and Additional Bonus and, if CCOH terminates Mr. Eccleshare’s employment after receipt of Mr. Eccleshare’s notice of termination, CCOH will pay any base salary for any remaining portion of the90-day advance notice period.
If Mr. Eccleshare is terminated for Cause, his CCOH stock options will be cancelled and any unvested CCOH restricted stock units will be forfeited. If Mr. Eccleshare terminates his employment without Good Reason, any unvested CCOH stock options will be cancelled, he will have three months to exercise any vested CCOH stock options and any unvested CCOH restricted stock units will be forfeited. If his employment is terminated due to retirement (resignation from employment when the sum of his full years of age and full years of service equals at least 70, and he is at least 60 years of age with five full years of service at the time), all of his issued CCOH stock options will continue to vest for the shorter of five years or the remainder of their original10-year terms, and any unvested CCOH restricted stock units will continue to vest as if he were employed.
Termination by CCOH without Cause, by Mr. Eccleshare for Good Reason, UponNon-Renewal of the Agreement by CCOH or Upon Change in Control. If CCOH terminates Mr. Eccleshare’s employment without Cause (and not by reason of disability), if CCOH does not renew the initial term or any subsequent renewal terms of the employment agreement or if Mr. Eccleshare terminates his employment for Good Reason, CCOH will pay to Mr. Eccleshare any Accrued Amounts. In addition, if Mr. Eccleshare signs and returns a release of claims in the time period required, CCOH will: (1) pay to Mr. Eccleshare a severance payment in an amount equal to 120% of his then-applicable base salary and 100% of his then-applicable target annual bonus in respect of the year of termination (the “Severance Payment”), with such Severance Payment to be paid in equal monthly installments for a period of 12 months after such termination; (2) reimburse his family’s reasonable relocation expenses from New York City to London that are incurred during employment or within 12 months after his termination, including reimbursement of the New York City apartment lease breakage fee, subject to submission of expenses in accordance with the CCOH’s reimbursement policy (the “Relocation Fee”); (3) pay to Mr. Eccleshare the Earned Prior Year Annual and Additional Bonus; (4) pay to Mr. Eccleshare a Prorated Annual Bonus; and (5) provide for him and his dependents continued participation in CCOH’s group health plan that covers Mr. Eccleshare at CCOH’s expense for a period of three months as long as he timely elects continued coverage and continues to pay copayment premiums at the same level and cost as Mr. Eccleshare paid immediately prior to the termination (the “COBRA Coverage Benefit”). If Mr. Eccleshare violates thenon-competition,non-interference ornon-solicitation covenants contained in the employment
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agreement (after being provided a10-day cure opportunity to the extent such violation is curable), Mr. Eccleshare will forfeit any right to the pro rata portion of the Severance Payment for the number of months remaining in the18-monthnon-compete period after termination. In addition, no Relocation Fee or COBRA Coverage Benefit will be paid in the event of a violation of thenon-competition,non-interference ornon-solicitation covenants contained in the employment agreement (after being provided a10-day cure opportunity to the extent such violation is curable) and Mr. Eccleshare will reimburse CCOH for any forfeitedpro-rata portion of the Severance Payment, Relocation Fee and/or COBRA Coverage Benefit already paid.
Furthermore, in the event that Mr. Eccleshare’s employment is terminated by CCOH without Cause or by Mr. Eccleshare for Good Reason, his unvested CCOH restricted stock units awarded on July 26, 2012 will vest, his unvested CCOH stock options will be cancelled and his vested CCOH stock options will continue to be exercisable for three months. Mr. Eccleshare’s employment agreement does not provide for payments or benefits upon a change in control. Accordingly, if he is terminated without Cause after a change in control, Mr. Eccleshare will be entitled to the benefits described for a termination without Cause. Mr. Eccleshare’s unvested CCOH stock options and CCOH restricted stock units will vest upon a change in control, with or without termination. Further in this event, Mr. Eccleshare shall receive any unpaid portion of the payment to which he is entitled as a result of the Second Eccleshare Amendment, and any unvested restricted stock units shall automatically vest on his last day of employment.
Termination due to Disability. If Mr. Eccleshare is unable to perform the essential functions of his full-time position for more than 180 consecutive days in any 12 month period, CCOH may terminate his employment. If Mr. Eccleshare’s employment is terminated, CCOH will pay to Mr. Eccleshare or his designee any Accrued Amounts and the Relocation Fee for Mr. Eccleshare and his family. In addition, if Mr. Eccleshare signs and returns a release of claims in the time period required, CCOH will pay to Mr. Eccleshare or his designee any Earned Prior Year Annual and Additional Bonus, Prorated Annual Bonus and the COBRA Coverage Benefit. If his employment is terminated due to disability, his unvested CCOH stock options will continue to vest for the shorter of five years or the remainder of their original10-year terms, and any unvested CCOH restricted stock units will continue to vest as if he were employed.
Termination due to Death. If Mr. Eccleshare’s employment is terminated by his death, CCOH will pay to his designee or estate: (1) the Accrued Amounts; (2) any Earned Prior Year Annual and Additional Bonus; (3) the Prorated Annual Bonus; (4) the Relocation Fee; and (5) the COBRA Coverage Benefit. If Mr. Eccleshare is terminated due to his death, his unvested CCOH stock options will vest and continue to be exercisable for the shorter of one year or the remainder of the original10-year term and his unvested CCOH restricted stock units will vest.
Scott R. Wells
Termination by CCOH for Cause or by Mr. Wells without Good Reason. Mr. Wells’ employment agreement provides for the following payments and benefits upon termination by CCOH for “Cause” or by Mr. Wells without “Good Reason.”
Under the agreement, “Cause” is defined as Mr. Wells’: (1) willful misconduct; (2) willful refusal or repeated failure to perform his duties (other than due to disability); (3) willful refusal or repeated failure to follow lawful directives; (4) felony conviction, a plea of nolo contendere, or other criminal conduct that has or would result in material injury to CCOH; (5) a material breach of his employment agreement; or (6) a material violation of CCOH’s written employment and management policies that has or would result in material injury to CCOH. In the case of (2), (3), (5), or (6), unless the action by its nature is not curable or is a recurrence of a previously cured act with respect to which Mr. Wells has previously been provided notice, those acts will not constitute Cause unless Mr. Wells is provided with 15 days to cure after written notice.
The term “Good Reason” includes: (1) a material reduction in Mr. Wells’ base compensation; (2) a required relocation of Mr. Wells’ residence to a location more than 35 miles from its current location; (3) a material reduction in duties, authority or responsibilities; (4) a requirement that Mr. Wells report to any person of lesser authority than the Chairman and Chief Executive Officer of CCOH or the Chief Financial Officer of CCOH; or (5) a material breach by CCOH of the terms of the employment agreement. To terminate for Good Reason, Mr. Wells must provide CCOH with 30 days’ written notice, after which CCOH has 30 days to cure.
If Mr. Wells is terminated with Cause, he will receive alump-sum cash payment equal to his Accrued Amounts and any Earned Prior Year Annual Bonus.
Termination by CCOH without Cause, by Mr. Wells for Good Reason or UponNon-Renewal of the Agreement by CCOH. If Mr. Wells is terminated by CCOH without Cause, Mr. Wells resigns for Good Reason or the agreement is not renewed by CCOH: (1) he will receive alump-sum cash payment equal to his Accrued Amounts and any Earned Prior Year Annual Bonus; and (2) provided he signs and returns a severance agreement and general release of claims in the time period required, he will receive (a) in periodic payments in accordance with ordinary payroll practices and deductions, his base salary on the date of termination for 18
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months (the “Wells Severance Payments”); (b) a Prorated Annual Bonus; (c) a separation bonus in an amount equal to 100% of his then-applicable target annual bonus in respect of the year of termination (the “Separation Bonus”), with such Separation Bonus to be paid in a lump sum; (d) a lump sum equal to the product of (i) 12 and (ii) the COBRA premiums Mr. Wells would be required to pay if he elected to continue the health benefits coverage he had prior to the termination date (less the amount Mr. Wells would have to pay for such coverage as an active employee); and (e) any unvested time vesting options scheduled to vest within the twelve month period following the date of termination, which options shall be considered fully vested on the date of termination and any unvested performance vesting options shall remain eligible to vest for the three month period following the date of termination. If Mr. Wells violates the terms of severance agreement and general release of claims, the Wells Severance Payments shall cease.
Termination due to Disability. If Mr. Wells is unable to perform the essential functions of his full-time position for more than 180 days in any 12 month period, CCOH may terminate his employment. If Mr. Wells’ employment is terminated, he will receive: (1) alump-sum cash payment equal to his Accrued Amounts and (2) any Earned Prior Year Annual Bonus.
Termination due to Death. If Mr. Wells’ employment is terminated by his death, CCOH will pay in a lump sum to his designee or, if no designee, to his estate: (1) his Accrued Amounts and (2) any Earned Prior Year Annual Bonus.
Robert H. Walls, Jr.
Termination by iHMMS for Cause or by Mr. Walls without Good Cause. Mr. Walls’ employment agreement provides for the following payments and benefits upon termination by iHMMS for “Cause” or by Mr. Walls without “Good Cause.”
Under the agreement, “Cause” is defined as Mr. Walls’: (1) willful and material misconduct that causes material and demonstrable injury, monetarily or otherwise, to iHMMS or its affiliates; (2) willful and material nonperformance of his duties (other than due to disability), willful and material failure to follow lawful directives consistent with his obligations under the agreement or other willful and material breach of the agreement, in each case after written notice specifying the failure; (3) conviction of, or plea of nolo contendere to, a felony or misdemeanor involving moral turpitude; or (4) fraud, embezzlement, theft or other act of dishonesty that causes material and demonstrable injury, monetarily or otherwise, to iHMMS or its affiliates. In the case of (1) or (2), unless the action by its nature is not curable or is a recurrence of a previously cured act with respect to which Mr. Walls has previously been provided notice, those acts will not constitute Cause unless Mr. Walls is provided with 10 days to cure after written notice and has an opportunity to address the Board upon his written request during the cure period.
The term “Good Cause” includes, subject to certain exceptions: (1) iHMMS’ material breach of the agreement after written notice from Mr. Walls specifying the alleged failure; (2) a material diminution in Mr. Walls’ base compensation; (3) a material diminution in his authority, duties or responsibilities; (4) a material diminution in the authority, duties or responsibilities of the Chief Executive Officer; or (5) a change in the place of Mr. Walls’ performance of more than 50 miles. To terminate for Good Cause, Mr. Walls must provide iHMMS with 30 days notice, after which iHMMS has 30 days to cure. If iHMMS has not cured and Mr. Walls elects to terminate his employment, he must do so within ten days after the end of the cure period.
If Mr. Walls is terminated for Cause, he will receive alump-sum cash payment equal to his Accrued Amounts. If Mr. Walls resigns without Good Cause, he will receive his base salary for the60-day notice period and any Accrued Amounts and Earned Prior Year Annual Bonus. If he is terminated with Cause or if he resigns without Good Cause, his unvested iHeartMedia restricted stock and his unvested CCOH restricted stock units will be forfeited. If Mr. Walls’ employment is terminated due to retirement (resignation from employment when the sum of his full years of age and full years of service equals at least 70, and he is at least 60 years of age with five full years of service at the time), his unvested CCOH restricted stock units will continue to vest as if he were employed.
Termination by iHMMS without Cause, by Mr. Walls for Good Cause or Upon Change in Control. If Mr. Walls is terminated by iHMMS without Cause or if Mr. Walls resigns for Good Cause: (1) he will receive alump-sum cash payment equal to his Accrued Amounts and Earned Prior Year Annual Bonus; and (2) provided he signs and returns a release of claims in the time period required, he will receive a lump sum cash payment equal to (a) 1.5 times the sum of his annual rate of base salary on the date of termination plus his target bonus for the year of termination and (b) a Prorated Annual Bonus. However, if Mr. Walls violates thenon-compete provisions of his agreement, he will forfeit a prorata portion of the amount described in (a) above for the amount of time remaining under thenon-compete provisions.
Termination due to Disability. If Mr. Walls is unable to perform the essential functions of his full-time position for more than 180 days in any 12 month period, iHMMS may terminate his employment. If Mr. Walls’ employment is terminated, he will receive: (1) alump-sum cash payment equal to his Accrued Amounts; (2) a lump sum cash payment equal to any Earned Prior Year Annual Bonus; and (3) provided he signs and returns a release of claims in the time period required, a Prorated Annual Bonus. In addition, Mr. Walls’ unvested CCOH restricted stock units will continue to vest as if he were employed if his employment is terminated due to disability. His unvested iHeartMedia restricted stock will be forfeited.
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Termination due to Death. If Mr. Walls’s employment is terminated by his death, iHMMS will pay in a lump sum to his designee or, if no designee, to his estate: (1) his Accrued Amounts; (2) any Earned Prior Year Annual Bonus; and (3) a Prorated Annual Bonus. In addition, his unvested CCOH restricted stock units will vest if his employment is terminated due to death. His unvested iHeartMedia restricted stock will be forfeited.
Limitation on Benefits. To the extent that any of the payments and benefits under the agreement or otherwise would be subject to an excise tax under Section 4999 of the Code, then the payments will be payable either in full or as to such lesser amounts as would result in no portion of the payments being subject to an excise tax, whichever amount results in Mr. Walls’ receiving the greatestafter-tax amount.
Post-Employment Table
With respect to all other named executive officers, the following table describes the potential payments or benefits upon termination, other post-employment scenarios or change in control for each of those named executive officers, as if the triggering event occurred on December 31, 2017. The amounts in the table below show only the value of amounts payable or benefits due to enhancements in connection with each scenario, and do not reflect amounts otherwise payable or benefits otherwise due as a result of employment. In addition, the table does not include amounts payable pursuant to plans that are available generally to all salaried employees. The actual amounts to be paid out can only be determined at the time of such change in control or such executive officer’s termination of service.
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Potential Payments Upon Termination or Change in Control(a)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Name | | Benefit | | Termination with “Cause” | | | Termination without “Cause” or Resignation for “Good Cause” or “Good Reason” | | | Termination due to “Disability” | | | Termination due to Death | | | Retirement or Resignation without “Good Cause” or “Good Reason” | | | “Change in Control” without Termination(b) | | | “Change in Control” with Termination | |
Robert W. Pittman | | Cash payment | | | — | | | $ | 8,675,000 | (c) | | $ | 3,675,000 | (d) | | $ | 3,675,000 | (d) | | | — | | | | — | | | $ | 9,675,000 | (e) |
| | Value of benefits(f) | | | — | | | | 27,167 | | | | 27,167 | | | | 27,167 | | | | — | | | | — | | | | 27,167 | |
| | Vesting of
equity awards(g) | | | — | | | | 25,000 | | | | 25,000 | | | | 25,000 | | | | — | | | | — | | | | 245,584 | (h) |
| | Gross-up payment | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | (i) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | TOTAL | | | — | | | $ | 8,727,167 | | | $ | 3,727,167 | | | $ | 3,727,167 | | | | — | | | $ | — | | | $ | 9,947,751 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Richard J. Bressler(j) | | Cash payment | | | — | | | $ | 7,675,000 | (k) | | $ | 3,175,000 | (l) | | $ | 3,175,000 | (l) | | | — | | | | — | | | $ | 7,675,000 | (k) |
| | Value of benefits(f) | | | — | | | | 27,167 | | | | 27,167 | | | | 27,167 | | | | — | | | | — | | | | 27,167 | |
| | Vesting of equity awards(g) | | | — | | | | 25,000 | | | | 25,000 | | | | 25,000 | | | | — | | | | — | | | | 107,722 | (m) |
| | Gross-up payment | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | (i) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | TOTAL | | | — | | | $ | 7,727,167 | | | $ | 3,227,167 | | | $ | 3,727,167 | | | | — | | | $ | — | | | $ | 7,809,889 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
C. William Eccleshare | | Cash payment | | | — | | | $ | 3,010,000 | (m) | | $ | 810,000 | (o) | | $ | 810,000 | (o) | | $ | 506,575 | (p) | | | — | | | | — | |
| | Vesting of equity awards(g) | | | — | | | | — | | | | — | | | | 458,983 | | | | — | | | | 458,983 | | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | TOTAL | | | — | | | $ | 3,010,000 | | | $ | 810,000 | | | $ | 1,268,983 | | | $ | 506,575 | | | $ | 458,933 | | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Scott R. Wells. | | Cash payment | | | — | | | $ | 2,426,396 | (q) | | | — | | | | — | | | | — | | | | — | | | | — | |
| | Value of benefits(f) | | | — | | | | 6,915 | | | | — | | | | — | | | | — | | | | — | | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | TOTAL | | | — | | | $ | 2,433,311 | | | | — | | | | — | | | | — | | | | — | | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Robert H. Walls, Jr. | | Cash payment | | | — | | | $ | 3,267,500 | (r) | | | 792,500 | (s) | | | 792,500 | (s) | | | 123,288 | (t) | | | — | | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | TOTAL | | | — | | | $ | 3,267,500 | | | $ | 792,500 | | | $ | 792,500 | | | $ | 123,288 | | | | — | | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(a) | Amounts reflected in the table were calculated assuming the triggering event occurred on December 31, 2017. |
(b) | Amounts reflected in the “Change in Control without Termination” column were calculated assuming that no termination occurred after the change in control. The values of any benefits to the named executive officers that would arise only if a termination were to occur after a change in control are disclosed in the footnotes to the “Change in Control with Termination” or other applicable columns. |
(c) | Represents (1) two times the sum of Mr. Pittman’s base salary at termination and annual bonus target for the year ended December 31, 2017; (2) an annual bonus for the year ended December 31, 2017; and (3) the half of the retention bonus that Mr. Pittman will not be required to repay upon involuntary termination without cause prior to the first anniversary of the effective date of the award. |
(d) | Represents (1) an annual bonus for the year ended December 31, 2017 pursuant to Pittman’s employment agreement; (2) his earned but unpaid iHeartMedia SIP bonuses; and (3) the half of the retention bonus that Mr. Pittman will not be required to repay upon involuntary termination without cause prior to the first anniversary of the effective date of the award. |
(e) | Represents (1) two times the sum of Mr. Pittman’s base salary at termination and annual bonus target for the year ended December 31, 2017; (2) an annual bonus for the year ended December 31, 2017; (3) his earned but unpaid prior year iHeartMedia SIP bonus; and (4) the half of the retention bonus that Mr. Pittman will not be required to repay upon involuntary termination without cause prior to the first anniversary of the effective date of the award. |
(f) | The values associated with the continued provision of health benefits are based on the 2017 premiums for insurance multiplied by the amount of time Messrs. Pittman, Bressler and Wells are entitled to those benefits pursuant to their respective employment agreements. |
(g) | Amounts reflect the value of unvested iHeartMedia equity awards held by the respective named executive officers on December 31, 2017 that would be subject to accelerated vesting. This value is based upon the closing price of iHeartMedia’s Class A common stock on December 31, 2017 of $0.50, but it excludes stock options with an exercise price exceeding the closing price of iHeartMedia’s Class A common stock on December 31, 2017. Also, in the case of Messrs. Pittman, Bressler and Eccleshare, the amounts reflect the value of unvested CCOH equity awards on December 31, 2017, based upon the closing price of CCOH’s Class A common stock on December 31, 2017 of $4.60 and excluding any stock options with an exercise price exceeding the closing price of CCOH’s Class A common stock on December 31, 2017. The value of vested equity awards and equity awards that continue to vest and/or remain exercisable following termination (but vesting is not accelerated) are not included in this table. |
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| (h) | If Mr. Pittman’s employment had been terminated on December 31, 2017, in connection with the change of control transactions described in the table below, his restricted stock with the values set forth below at December 31, 2017, would have vested: |
| | | | |
Event | | Value of Restricted Stock at 12/31/17 | |
Pittman 2014 Tranche 1 of iHeartMedia restricted stock vests 100% if a Good Leaver Termination occurs within 90 days before a change in control or after a change in control | | $ | 25,000 | |
CCOH restricted stock vests 100% along with accumulated dividends if a termination occurs within 90 days before or 12 months after a change in control | | $ | 220,584 | |
| | | | |
Mr. Pittman was also granted stock options for iHeartMedia in 2011. However, as of the change in control date, the options were underwater. Therefore no value for the options was included in this table. See “—Robert W. Pittman” for further information regarding the vesting of Mr. Pittman’s equity awards.
(i) | In certain circumstances described under “—Robert W. Pittman” and “—Richard J. Bressler” above, Messrs. Pittman and Bressler would be eligible to receive an excise taxgross-up payment under the terms of their employment agreement. For purposes of calculating thegross-up amount shown in the table, the Company has assumed the termination and change in control scenario that would generate the largestgross-up payment for Messrs. Pittman and Bressler if they were terminated on December 31, 2017, which would be a Good Leaver Termination that occurs within 90 days after a change in control that also constitutes a Standalone Change in Control under their agreements. |
(j) | Amounts reflected in the table represent the entire portion of post-employment payments for Mr. Bressler. Pursuant to the Corporate Services Agreement, a percentage of payments made to Mr. Bressler, other than payments with respect to the vesting of any iHeartMedia equity awards, would be allocated to CCOH. For 2017, this allocation is based on CCOH’s 2017 OIBDAN as a percentage of iHeartCommunications’ 2017 OIBDAN. For a further discussion of the Corporate Services Agreement, please refer to “Compensation Discussion and Analysis—Corporate Services Agreement” or “Certain Relationships and Related Party Transactions—Corporate Services Agreement.” |
(k) | Represents (1) 1.5 times the sum of Mr. Bressler’s base salary at termination and annual bonus target for the year ended December 31, 2017, (2) an annual bonus for the year ended December 31, 2017; (3) an iHeartMedia SIP bonus for the year ended December 31, 2017 pursuant to Mr. Bressler’s employment agreement; and (4) the half of the retention bonus that Mr. Bressler will not be required to repay upon involuntary termination without cause prior to the first anniversary of the effective date of the award. |
(l) | Represents (1) an annual bonus for the year ended December 31, 2017; (2) an iHeartMedia SIP bonus for the year ended December 31, 2017 pursuant to Mr. Bressler’s employment agreement; and (3) the first half of the retention bonus that Mr. Bressler will not be required to repay upon involuntary termination prior to the first anniversary of the effective date of the award. |
(m) | If Mr. Bressler’s employment had been terminated on December 31, 2017, in connection with the change in control transactions described in the table below, his restricted stock with the values set forth below at December 31, 2017 would have vested: |
| | | | |
Event | | Value of Restricted Stock at 12/31/17 | |
Bressler Tranche 1 of iHeartMedia restricted stock vests 100% if a Good Leaver Termination occurs within 90 days before a change in control or after a change in control | | $ | 25,000 | |
CCOH restricted stock vests 100% along with any accumulated dividends if a termination occurs within 90 days before or 12 months after a change in control | | $ | 82,722 | |
| | | | |
See “—Richard J. Bressler” for further information regarding the vesting of Mr. Bressler’s equity awards.
(n) | Represents (1) the sum of 1.2 times Mr. Eccleshare’s base salary at termination and 1.0 times Mr. Eccleshare’s annual bonus target for the year ended December 31, 2017, (2) an annual bonus for the year ended December 31, 2017, (3) $80,000 previously earned pursuant to the 2015 CCOH SIP bonus, and (4) $180,000 previously earned pursuant to the 2016 CCOH SIP bonus, pursuant to Mr. Eccleshare’s employment agreement. |
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(o) | Represents (1) an annual bonus for the year ended December 31, 2017, (2) $80,000 previously earned pursuant to the 2015 CCOH SIP bonus, and (3) $180,000 previously earned pursuant to the 2016 CCOH SIP bonus, pursuant to Mr. Eccleshare’s employment agreement. |
(p) | Represents (1) $80,000 previously earned pursuant to the 2015 CCOH SIP bonus, (2) $180,000 previously earned pursuant to the 2016 CCOH SIP bonus, pursuant to Mr. Eccleshare’s employment agreement, and (3) base salary during the required90-day notice period under Mr. Eccleshare’s employment agreement. |
(q) | Represents the amount payable to Mr. Wells pursuant to his employment agreement, which includes (1) 1.5 times his base salary at termination, (2) his annual bonus target for the year ended December 31, 2017, and (3) a prorated annual bonus for the year ended December 31, 2017. If Mr. Wells were terminated without cause, any time-vesting CCOH options that would vest within one year following the termination date would vest. Also, any performance-vesting options would remain eligible to vest for 3 months following the termination date. |
(r) | Represents the amount payable to Mr. Walls pursuant to his employment agreement, which includes (1) 1.5 times the sum of his base salary at termination and annual bonus target for the year ended December 31, 2017 and (2) a prorated annual bonus for the year ended December 31, 2017. |
(s) | Represents the annual bonus for the year ended December 31, 2017 for Mr. Walls. |
(t) | Represents the base salary under the required60-day notice period under Mr. Walls’ employment agreement. |
DIRECTOR COMPENSATION
The individuals who served as members of our Board during 2017 are set forth in the table below. Thenon-employee directors of iHeartMedia are reimbursed for their expenses associated with their service as directors of iHeartMedia, but currently do not receive compensation for their service as directors of iHeartMedia (other than Messrs. Brace and Cremens). Robert W. Pittman and Richard J. Bressler are employees of iHeartMedia. They do not receive any additional compensation from us for their service on our Board. Mr. Pittman’s compensation for his service as iHeartMedia’s Chief Executive Officer and Mr. Bressler’s compensation for his service as iHeartMedia’s President, Chief Operating Officer and Chief Financial Officer is included in the Summary Compensation Table above.
Messrs. Brace and Cremens were appointed to our Board as independent directors in May 2016. The Board’s compensation structure for Messrs. Brace and Cremens consists of the following components: (1) an annual cash retainer of $200,000, payable quarter in arrears; (2) a per diem fee of $5,000 for days on which they devote substantially all of their time working on matters relating to iHeartMedia; and (3) an additional annual cash retainer of $30,000 for Mr. Brace as Chairman of the Audit Committee. Messrs. Brace and Cremens are also reimbursed for their expenses associated with their service as directors of iHeartMedia.
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Director Compensation Table
| | | | | | | | | | | | |
| | Fees Earned or Paid in Cash ($) | | | All Other Compensation ($) | | | Total ($) | |
David C. Abrams | | | — | | | | — | | | | — | |
Irving L. Azoff(a) | | | — | | | | — | | | | — | |
John N. Belitsos | | | — | | | | — | | | | — | |
Frederic F. Brace | | | 376,003 | | | | — | | | | 376,003 | |
Richard J. Bressler | | | — | | | | — | | | | — | |
James C. Carlisle | | | — | | | | — | | | | — | |
John P. Connaughton | | | — | | | | — | | | | — | |
Charles H. Cremens | | | 341,176 | | | | — | | | | 341,176 | |
Laura A. Grattan | | | — | | | | — | | | | — | |
Blair E. Hendrix | | | — | | | | — | | | | — | |
Matthew J. Freeman | | | — | | | | — | | | | — | |
Jonathon S. Jacobson | | | — | | | | — | | | | — | |
Robert W. Pittman | | | — | | | | — | | | | — | |
Scott M. Sperling | | | — | | | | — | | | | — | |
(a) | Mr. Azoff resigned from our Board on May 3, 2017. |
RELATIONSHIP OF COMPENSATION POLICIES AND PROGRAMS TO RISK MANAGEMENT
In consultation with iHeartMedia’s Compensation Committee, management conducted an assessment of whether iHeartMedia’s compensation policies and practices encourage excessive or inappropriate risk taking by our employees, including employees other than our named executive officers. This assessment included discussions with members of the corporate Human Resources, Legal and Finance departments, as well as personnel in the business units, and a review of corporate and operational compensation arrangements. The assessment analyzed the risk characteristics of our business and the design and structure of our incentive plans and policies. Although a significant portion of our executive compensation program is performance-based, iHeartMedia’s Compensation Committee has focused on aligning iHeartMedia’s compensation policies with the long-term interests of iHeartMedia and avoiding rewards or incentive structures that could create unnecessary risks to iHeartMedia.
Management reported its findings to iHeartMedia’s Compensation Committee, which agreed with management’s assessment that our plans and policies do not encourage excessive or inappropriate risk taking and determined such policies or practices are not reasonably likely to have a material adverse effect on iHeartMedia.
PAY RATIO
As required by Item 402(u) of RegulationS-K, we are providing pay ratio information about the relationship of the annual total compensation of our employees and the annual total compensation of Mr. Robert W. Pittman, our Chief Executive Officer. For 2017, our last completed fiscal year:
the median of the annual total compensation of all employees of our company (other than our CEO), was $48,186; and
the annual total compensation of our CEO, as reported in the Summary Compensation Table presented elsewhere in this Annual Report on Form10-K/A, was $13,402,112.
Based on this information, for 2017 the ratio of the annual total compensation of our CEO to the median of the annual total compensation of all employees was 278 to 1.
Methodology, Assumptions and Estimates Used in Determining our Pay Ratio Disclosure
In determining the pay ratio calculation, we used the methodology, assumptions and estimates set forth below. We believe the pay ratio included in this information is a reasonable estimate calculated in a manner consistent with Item 402(u) of RegulationS-K.
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1. We selected October 1, 2017, which is within the last three months of 2017, as the date upon which we would identify the median employee, to allow sufficient time to identify the median employee given the global scope of our operations.
2. We determined that, as of October 1, 2017, our employee population consisted of approximately 17,711 individuals working at iHeartMedia and its consolidated subsidiaries.
3. Of our employee population as of October 1, 2017, 13,472 were U.S. employees and 4,239 werenon-U.S. employees. We excluded employees who are located in the jurisdictions set forth below from the determination of median employee, under thede minimis exception in the SEC rules.
| | | | |
Country | | Number of Employees | |
Hungary | | | 1 | |
Estonia, Lithuania, Latvia and Russia | | | 24 | |
Denmark | | | 29 | |
Finland | | | 49 | |
Poland | | | 67 | |
Total Excluded Employees | | | 170 | |
In total, the excluded employees represented 1.0% of our combined U.S. andnon-U.S. workforce.
4. For purposes of measuring the compensation of our employee population, we selected total cash compensation. Total cash compensation includes base salary, hourly pay, overtime, bonuses and commissions, as reported on our payroll records. We measured total cash compensation of the employees included in the calculation over the nine-month period ended September 30, 2017. While some of our highly compensated employees are eligible to receive cash bonuses in the first quarter of the year under our annual cash bonus plan, the majority of our employees are not eligible to receive annual cash bonuses and instead earn quarterly cash bonuses or commissions, or are not eligible for any bonus. Consequently, we believe that total cash compensation for the nine-month period ended September 30, 2017 reasonably reflects the annual total compensation of our employee population for purposes of identifying our median employee.
5. We gathered our total cash compensation information for the nine-month period ended September 30, 2017 from payroll records of each of our business units and applied this compensation measure consistently to all of our employees included in the calculation. We annualized the total cash compensation of permanent employees hired during the year. We did not make any other annualizing adjustments, and we did not make anycost-of-living adjustments in identifying the median employee. Amounts in foreign currency were converted from local currency to U.S. dollars using the average daily exchange rate of each country’s respective currency to U.S. dollars for the twelve months ended December 31, 2017.
6. Once we identified the median employee, we identified and calculated the elements of such employee’s compensation for 2017 in accordance with the requirements of Item 402(c)(2)(x) of RegulationS-K, resulting in annual total compensation of $48,186. With respect to the annual total compensation of our CEO, we used the amount reported in the “Total” column of our 2017 Summary Compensation Table included in this Annual MeetingReport on Form10-K/A.
COMPENSATION COMMITTEE INTERLOCKS
AND INSIDER PARTICIPATION
During 2017, Messrs. Abrams, Carlisle, Connaughton, Hendrix and Jacobson served as the members of Stockholders (the “Definitive Proxy Statement”our Compensation Committee. There were no “interlocks” among any of the directors who served as members of our Compensation Committee and any of our executive officers during 2017 and as of the date of this Annual Report on Form10-K/A During 2017, no member of the Compensation Committee simultaneously served as an executive officer of iHeartMedia. For relationships between members of the Compensation Committee and iHeartMedia requiring disclosure under the SEC’s rules governing disclosure of transactions with related persons, see “Certain Relationships and Related Party Transactions” below.
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COMPENSATION COMMITTEE REPORT
The Compensation Committee of the Board has reviewed and discussed the Compensation Discussion and Analysis included in this Annual Report on Form10-K/A with management. Based on such review and discussion, the Compensation Committee recommended to the Board that the Compensation Discussion and Analysis be included in this Annual Report on Form10-K/A.
|
Respectfully submitted, |
THE COMPENSATION COMMITTEE |
John P. Connaughton, Chairman |
David C. Abrams |
James C. Carlisle |
Blair E. Hendrix |
Jonathon S. Jacobson |
ITEM 12. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT |
Except as otherwise stated, the table below sets forth information concerning the beneficial ownership of iHeartMedia’s common stock as of April 5, 2018 for: (1) each director currently serving on our Board and each of the nominees for director; (2) each of our named executive officers; (3) our directors and executive officers as a group; and (4) each person known to iHeartMedia to beneficially own more than 5% of any class of iHeartMedia’s outstanding shares of common stock. At the close of business on April 5, 2018, there were 31,936,055 shares of iHeartMedia’s Class A common stock (of which 31,824,764 were entitled to vote and 111,291 shares were held by CC Finco, a subsidiary of iHeartMedia), 555,556 shares of iHeartMedia’s Class B common stock, 58,967,502 shares of iHeartMedia’s Class C common stock and 0 shares of iHeartMedia’s Class D common stock outstanding. In addition, information concerning the beneficial ownership of common stock of our indirect subsidiary, CCOH, by: (1) each director currently serving on our Board and each of the nominees for director; (2) each of our named executive officers; and (3) our directors and executive officers as a group is set forth in the footnotes to the table below. At the close of business on April 5, 2018, there were 48,997,188 shares of CCOH’s Class A common stock outstanding and 315,000,000 shares of CCOH’s Class B common stock outstanding. Except as otherwise noted, each stockholder has sole voting and investment power with respect to the shares beneficially owned.
All of our outstanding shares of Class B common stock are held by Clear Channel Capital IV, LLC (“CC IV”) and all of our outstanding shares of Class C common stock are held by Clear Channel Capital V, L.P. (“CC V”), each of which ultimately is controlled jointly by funds affiliated with the Sponsors. These shares represent in the aggregate approximately 65.1% (whether measured by voting power or economic interest) of the equity of iHeartMedia.
Subject to certain limitations set forth in the Fourth Amended and Restated Certificate of Incorporation of iHeartMedia, each share of Class B common stock and each share of Class C common stock is convertible, at the election of the holder thereof, into one share of Class A common stock at any time. Each holder of shares of Class B common stock is entitled to 107.14 votes per share, which is the number of votes per share equal to the number obtained by dividing (a) the sum of the total number of shares of Class B common stock outstanding as of the Record Date and the number of shares of Class C common stock outstanding as of the Record Date by (b) the number of shares of Class B common stock outstanding as of the Record Date. Except as otherwise required by law, the holders of outstanding shares of Class C common stock and Class D common stock are not entitled to any votes upon any proposals presented to stockholders of iHeartMedia. Each share of common stock is currently entitled to share on a pro rata basis in any distributions by iHeartMedia, except that the Class D common stock may be excluded from share distributions in certain circumstances.
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| | | | | | | | | | | | | | | | |
Name and Address of Beneficial Owner(a) | | Number of Shares of Class A Common Stock | | | Number of Shares of Class B Common Stock | | | Number of Shares of Class C Common Stock | | | Percentage of Outstanding Common Stock on an As-Converted Bases(b) | |
Holders of More than 5%: | | | | | | | | | | | | | | | | |
Bain Capital Investors, LLC and related investment funds | | | — | | | | 555,556 | (c) | | | 58,967,502 | (d) | | | 65.1 | % |
Thomas H. Lee Partners, L.P. and related investment entities | | | — | | | | 555,556 | (e) | | | 58,967,502 | (f) | | | 65.1 | % |
Highfields Capital Management LP and managed investment funds(g) | | | 9,950,510 | | | | — | | | | — | | | | 10.9 | % |
Abrams Capital Management, L.P. and affiliates(h) | | | 6,811,407 | | | | — | | | | — | | | | 7.4 | % |
Named Executive Officers, Executive Officers and Directors: | | | | | | | | | |
David C. Abrams(h) | | | 6,811,407 | | | | — | | | | — | | | | 7.4 | % |
John N. Belitsos(i) | | | — | | | | — | | | | — | | | | — | |
Frederic F. Brace | | | — | | | | — | | | | — | | | | — | |
Richard J. Bressler(j) | | | 872,323 | | | | — | | | | — | | | | 1.0 | % |
James C. Carlisle(k) | | | — | | | | — | | | | — | | | | — | |
John P. Connaughton(i) | | | — | | | | — | | | | — | | | | — | |
Charles H. Cremens | | | — | | | | — | | | | — | | | | — | |
C. William Eccleshare(l) | | | — | | | | — | | | | — | | | | — | |
Matthew J. Freeman(i) | | | — | | | | — | | | | — | | | | — | |
Laura A. Grattan(k) | | | — | | | | — | | | | — | | | | — | |
Blair E. Hendrix(i) | | | — | | | | — | | | | — | | | | — | |
Jonathon S. Jacobson(g) | | | 9,950,510 | | | | — | | | | — | | | | 10.9 | % |
Robert W. Pittman(m) | | | 1,990,198 | | | | — | | | | — | | | | 2.2 | % |
Scott M. Sperling(n) | | | — | | | | — | | | | — | | | | — | |
Robert H. Walls, Jr.(o) | | | 139,167 | | | | — | | | | — | | | | * | |
Scott R. Wells(p) | | | — | | | | — | | | | — | | | | — | |
All directors and executive officers as a group (18 individuals)(q) | | | 19,992,232 | | | | — | | | | — | | | | 21.9 | % |
(a) | Unless otherwise indicated, the address for all beneficial owners is c/o iHeartMedia, Inc., 20880 Stone Oak Parkway, San Antonio, Texas 78258. |
(b) | Percentage of ownership calculated in accordance with Rule13d-3(d)(1) under the Securities Exchange Act of 1934, as amended (the “Securities Exchange Act”). |
(c) | Represents the 555,556 shares of Class B common stock of iHeartMedia owned by CC IV, which represents 100% of the outstanding shares of our Class B common stock. Bain Capital Investors, LLC (“BCI”) is the general partner of Bain Capital Partners (CC) IX, L.P. (“BCP IX”), which is the general partner of Bain Capital (CC) IX, L.P. (“Bain Fund IX”), which holds 50% of the limited liability company interests in CC IV. BCI disclaims beneficial ownership of such securities except to the extent of its pecuniary interest therein. The business address of CC IV is c/o Bain Capital Private Equity, L.P., 200 Clarendon Street, Boston, Massachusetts 02116 and c/o Thomas H. Lee Partners, L.P., 100 Federal Street, Boston, Massachusetts 02110. |
(d) | Represents the 58,967,502 shares of Class C common stock of iHeartMedia owned by CC V, which represents 100% of the outstanding shares of our Class C common stock. BCI is the sole member of Bain Capital CC Partners, LLC (“Bain CC Partners”), which is the general partner of Bain Capital CC Investors, L.P. (“Bain CC Investors”), which holds 50% of the limited partnership interests in CC V. Bain CC Investors expressly disclaims beneficial ownership of any securities owned beneficially or of record by any person or persons other than itself for purposes of Section 13(d)(3) and Rule13d-3 of the Securities Exchange Act. BCI disclaims beneficial ownership of such securities except to the extent of its pecuniary interest therein. The business address of CC V is c/o Bain Capital Private Equity, L.P., 200 Clarendon Street, Boston, Massachusetts 02116 and c/o Thomas H. Lee Partners, L.P., 100 Federal Street, Boston, Massachusetts 02110. |
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(e) | Represents the 555,556 shares of iHeartMedia’s Class B common stock owned by CC IV, which represents 100% of the outstanding shares of our Class B common stock. Thomas H. Lee Equity Fund VI, L.P. (“THL Fund VI”) holds 50% of the limited liability company interests in CC IV. THL Holdco, LLC (“THL Holdco”) is the managing member of Thomas H. Lee Advisors, LLC, which is the general partner of Thomas H. Lee Partners, L.P., which is the sole member of THL Equity Advisors VI, LLC (“THL Advisors”), which is the general partner of THL Fund VI. Voting and investment determinations with respect to the securities held by THL Fund VI are made by the private equity management committee of THL Holdco (the “THL Committee”) consisting of Todd M. Abbrecht, Anthony J. DiNovi, Thomas M. Hagerty, Soren L. Oberg, Scott M. Sperling and Kent R. Weldon, and as such each member of the THL Committee may be deemed to share beneficial ownership of the securities held or controlled by THL Fund VI. Each of THL Holdco and each member of the THL Committee disclaims beneficial ownership of such securities except to the extent of its or his pecuniary interest therein. The business address of CC IV is c/o Thomas H. Lee Partners, L.P., 100 Federal Street, Boston, Massachusetts 02110 and c/o Bain Capital Private Equity, L.P., 200 Clarendon Street, Boston, Massachusetts 02116. |
(f) | Represents the 58,967,502 shares of iHeartMedia’s Class C common stock owned by CC V, which represents 100% of the outstanding shares of our Class C common stock. THL Fund VI and THL Equity Fund VI Investors (Clear Channel), L.P. collectively hold 50% of the limited partnership interests in CC V. THL Advisors is the general partner of THL Fund VI and THL Equity Fund VI Investors (Clear Channel), L.P. Voting and investment determinations with respect to the securities held by THL Fund VI and THL Equity Fund VI Investors (Clear Channel), L.P. are made by the THL Committee, and as such each member of the THL Committee may be deemed to share beneficial ownership of the securities held or controlled by such entities. Each of THL Holdco and each member of the THL Committee disclaims beneficial ownership of such securities, except to the extent of its or his pecuniary interest therein. The business address of CC V is c/o Thomas H. Lee Partners, L.P., 100 Federal Street, Boston, Massachusetts 02110 and c/o Bain Capital Private Equity, L.P., 200 Clarendon Street, Boston, Massachusetts 02116. |
(g) | As reported on a Schedule 13G/A filed with respect to iHeartMedia’s Class A common stock on February 14, 2014, Highfields Capital Management is the investment manager to each of Highfields Capital I LP, a Delaware limited partnership (“Highfields I”), Highfields Capital II LP, a Delaware limited partnership (“Highfields II”), and Highfields Capital III L.P., an exempted limited partnership organized under the laws of the Cayman Islands, B.W.I. (“Highfields III”). Highfields GP LLC, a Delaware limited liability company (“Highfields GP”), is the general partner of Highfields Capital Management. Highfields Associates LLC, a Delaware limited liability company (“Highfields Associates”), is the general partner of each of Highfields I, Highfields II and Highfields III. Mr. Jacobson is the managing member of Highfields GP and the senior managing member of Highfields Associates. Each of Highfields Capital Management, Highfields GP, Highfields Associates and Mr. Jacobson has the power to direct the receipt of dividends from or the proceeds from the sale of the shares owned by Highfields I, Highfields II and Highfields III. Each of the above disclaims beneficial ownership of any securities owned beneficially by any other person or persons. Mr. Jacobson has indicated that a portion or all of the securities described in the Schedule 13G/A may be held in margin accounts from time to time. The business address of Mr. Jacobson, Highfields Capital Management, Highfields GP, Highfields Associates, Highfields I and Highfields II is c/o Highfields Capital Management LP, 200 Clarendon Street, 59th Floor, Boston, Massachusetts 02116. The business address of Highfields III is c/o State Street (Cayman) Trust LTD IFS, a State Street Company, Suite 3307, Gardenia Court, 45 Market Street, Camana Bay, P.O. Box 896, Grand CaymanKY1-1103, Cayman Islands. As of April 5, 2018, the shares of iHeartMedia’s Class A common stock reported on the Schedule 13G/A represented 31.2% of the outstanding shares of iHeartMedia’s Class A common stock. |
(h) | As reported on a Schedule 13D filed with respect to iHeartMedia’s Class A common stock on November 29, 2011. The iHeartMedia shares reported in the Schedule 13D for Abrams Capital Partners II, L.P. (“ACP II”) represent shares beneficially owned by ACP II. Shares reported in the Schedule 13D for Abrams Capital, LLC (“Abrams Capital”) represent shares beneficially owned by ACP II and other private investment vehicles for which Abrams Capital serves as general partner. Shares reported in the Schedule 13D for Abrams Capital Management, L.P. (“Abrams CM LP”) and Abrams Capital Management, LLC (“Abrams CM LLC”) represent shares beneficially owned by Abrams Capital and another private investment vehicle for which Abrams CM LP serves as investment manager. Abrams CM LLC is the general partner of Abrams CM LP. The iHeartMedia shares reported in the Schedule 13D for Mr. Abrams represent the above-referenced shares reported for Abrams Capital and Abrams CM LLC. Mr. Abrams is the managing member of Abrams Capital and Abrams CM LLC. The business address of each reporting person is c/o Abrams Capital Management, L.P., 222 Berkley Street, 21st Floor, Boston, Massachusetts 02116. As of April 5, 2018, the shares of iHeartMedia’s Class A common stock reported on the Schedule 13D represented 21.3% of the outstanding shares of iHeartMedia’s Class A common stock. |
As reported on a Schedule 13G/A filed with respect to CCOH’s Class A common stock on February 13, 2013, ACP II and affiliates beneficially owned 3,354,390 shares of CCOH’s Class A common stock, which represented, as of April 5, 2018, 6.8% of CCOH’s outstanding Class A common stock and less than 1.0% of CCOH’s outstanding Class A common stock assuming all shares of CCOH’s Class B common stock are converted to shares of CCOH’s Class A common stock. Shares of CCOH’s Class A common stock reported in the Schedule 13G/A for ACP II represent shares beneficially owned by ACP II. Shares reported in the Schedule 13G/A for Abrams Capital represent shares beneficially owned by ACP II and other private investment funds for which Abrams Capital serves as general partner. Shares reported in the Schedule 13G/A for Abrams CM LP and Abrams CM LLC represent the above-referenced shares beneficially owned by Abrams Capital and shares beneficially owned
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by another private investment fund for which Abrams CM LP serves as investment manager. Abrams CM LLC is the general partner of Abrams CM LP. Shares reported in the Schedule 13G/A for Mr. Abrams represent the above-referenced shares reported for Abrams Capital and Abrams CM LLC. Mr. Abrams is the managing member of Abrams Capital and Abrams CM LLC. Each disclaims beneficial ownership of the shares reported except to the extent of its or his pecuniary interest therein. The business address of each reporting person is c/o Abrams Capital Management, L.P., 222 Berkley Street, 21st Floor, Boston, Massachusetts 02116.
(i) | John N. Belitsos, John P. Connaughton, Matthew J. Freeman and Blair E. Hendrix are managing directors or principals of BCI and members of BCI and, by virtue of this and the relationships described in footnotes (c) and (d) above, may be deemed to share voting and dispositive power with respect to all of the shares of iHeartMedia’s Class B common stock held by CC IV and all of the shares of iHeartMedia’s Class C common stock held by CC V. Each of Messrs. Belitsos, Connaughton, Freeman and Hendrix expressly disclaims beneficial ownership of any securities owned beneficially or of record by any person or persons other than himself, including, without limitation, CC IV or CC V, for purposes of Section 13(d)(3) and Rule13d-3 of the Securities Exchange Act, except to the extent of his pecuniary interest therein. The business address of each of Messrs. Belitsos, Connaughton, Freeman and Hendrix is c/o Bain Capital Private Equity, L.P., 200 Clarendon Street, Boston, Massachusetts 02116. |
(j) | Includes 162,323 shares of Class A common stock of iHeartMedia and 710,000 shares of unvested restricted Class A common stock of iHeartMedia held by Mr. Bressler. Mr. Bressler’s holdings represented 2.7% of iHeartMedia’s outstanding Class A common stock as of April 5, 2018. |
As of April 5, 2018, Mr. Bressler also held 146,219 shares of Class A common stock of CCOH, which represented less than 1% of CCOH’s outstanding Class A common stock and less than 1% of CCOH’s outstanding Class A common stock assuming all shares of CCOH’s Class B common stock are converted to shares of CCOH’s Class A common stock.
(k) | James C. Carlisle and Laura A. Grattan are managing directors of THL. Each of them disclaims beneficial ownership of the securities listed in footnotes (e) and (f) except to the extent of his or her pecuniary interest therein. Their addresses are c/o Thomas H. Lee Partners, L.P., 100 Federal Street, Boston, Massachusetts 02110. |
(l) | As of April 5, 2018, Mr. Eccleshare held 287,209 shares of CCOH’s Class A common stock and vested stock options representing 446,350 shares of CCOH’s Class A common stock. As of April 5, 2018, Mr. Eccleshare’s holdings collectively represented 1.5% of CCOH’s outstanding Class A common stock and less than 1.0% of CCOH’s outstanding Class A common stock assuming all shares of CCOH’s Class B common stock are converted to shares of CCOH’s Class A common stock. |
(m) | As of April 5, 2018, Mr. Pittman held 253,983 shares of iHeartMedia’s Class A common stock, 400,000 unvested restricted shares of iHeartMedia’s Class A common stock and vested stock options to purchase 630,000 shares of iHeartMedia’s Class A common stock, and Pittman CC LLC, a limited liability company controlled by Mr. Pittman, beneficially owned 706,215 shares of iHeartMedia’s Class A common stock. As of April 5, 2018, these holdings collectively represented 6.2% of iHeartMedia’s outstanding Class A common stock. |
As of April 5, 2018, Mr. Pittman also held 356,936 shares of Class A common stock of CCOH, which represented less than 1% of CCOH’s outstanding Class A common stock and less than 1% of CCOH’s outstanding Class A common stock assuming all shares of CCOH’s Class B common stock are converted to shares of CCOH’s Class A common stock.
(n) | Scott M. Sperling is a member of THL Holdco and, by virtue of this and the relationships described in footnotes (e) and (f) above, may be deemed to share voting and dispositive power with respect to all of the shares of iHeartMedia’s Class B common stock held by CC IV and all of the shares of iHeartMedia’s Class C common stock held by CC V. Mr. Sperling expressly disclaims beneficial ownership of any securities owned beneficially or of record by any person or persons other than himself, including, without limitation, CC IV or CC V, for purposes of Section 13(d)(3) and Rule13d-3 of the Securities Exchange Act, except to the extent of his pecuniary interest therein. The business address of Mr. Sperling is c/o Thomas H. Lee Partners, L.P., 100 Federal Street, Boston, Massachusetts 02110. |
(o) | As of April 5, 2018, Mr. Walls held 109,167 shares of iHeartMedia’s Class A common stock and 30,000 unvested restricted shares of iHeartMedia’s Class A common stock. As of April 5, 2018, these holdings collectively represented less than 1% of iHeartMedia’s outstanding Class A common stock. |
As of April 5, 2018, Mr. Walls also held 250,668 shares of Class A common stock of CCOH, which represented less than 1% of CCOH’s outstanding Class A common stock and less than 1% of CCOH’s outstanding Class A common stock assuming all shares of CCOH’s Class B common stock are converted to shares of CCOH’s Class A common stock.
(p) | As of April 5, 2018, Mr. Wells held 5,000 shares of Class A common stock of CCOH, 424,634 shares of unvested restricted Class A common stock of CCOH and vested stock options and stock options that will vest within 60 days after April 5, 2018, collectively representing 158,683 shares of CCOH’s Class A common stock. As of April 5, 2018, these holdings represented 1.2% of CCOH’s outstanding Class A common stock and less than 1% of CCOH’s outstanding Class A common stock assuming all shares of CCOH’s Class B common stock are converted to shares of CCOH’s Class A common stock. |
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(q) | Includes: (1) 6,811,407 shares of iHeartMedia’s Class A common stock beneficially owned by Abrams CM LP and affiliates (Mr. Abrams is one of our directors and the managing member of Abrams Capital and Abrams CM LLC); (2) 9,950,510 shares of iHeartMedia’s Class A common stock beneficially owned by Highfields Capital Management and managed investment funds (Mr. Jacobson is one of our directors and the managing member of Highfields GP and the senior managing member of Highfields Associates); (3) vested stock options representing 630,000 shares of iHeartMedia’s Class A common stock held by our directors and executive officers as a group; (4) 1,315,825 restricted shares of Class A common stock of iHeartMedia held by such persons; (5) 578,275 shares of iHeartMedia’s Class A common stock held by such persons; and (6) 706,215 shares of iHeartMedia’s Class A common stock held by Pittman CC LLC. As of April 5, 2018, the holdings of our directors and executive officers collectively represented 62.6% of iHeartMedia’s outstanding Class A common stock. |
As of April 5, 2018, all of iHeartMedia’s directors and executive officers as a group also were the beneficial owners of CCOH’s Class A common stock as follows: (1) 1,046,032 shares of CCOH’s Class A common stock held by such persons; (2) vested stock options and stock options that will vest within 60 days after April 5, 2018 collectively representing 605,033 shares of CCOH’s Class A common stock; (3) 424,634 shares of unvested restricted Class A common stock of CCOH held by such persons; and (4) 3,354,390 shares of CCOH’s Class A common stock beneficially owned by Abrams CM LP and affiliates. As of April 5, 2018, these holdings collectively represented 11.1% of CCOH’s outstanding Class A common stock and 1.5% of CCOH’s outstanding Class A common stock assuming all shares of CCOH’s Class B common stock are converted to shares of CCOH’s Class A common stock.
ITEM 13. | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE |
Certain Relationships and Related Party Transactions
The Merger and the Management Agreement
In connection with our incorporation by the Sponsors for the purpose of acquiring iHeartCommunications pursuant to the Agreement and Plan of Merger, dated November 16, 2006, as amended on April 18, 2007, May 17, 2007 and May 13, 2008 (the “Merger Agreement”), we expectbecame party to filea management agreement with the Sponsors and certain other parties thereto, pursuant to which the Sponsors provide management and financial advisory services to us and our wholly owned subsidiaries until 2018, at a rate not greater than $15.0 million per year, plus reimbursable expenses. For the year ended December 31, 2017, we incurred an aggregate of $15.2 million in management fees and reimbursable expenses.
Stockholders Agreements
We are party to a stockholders agreement with CC IV, CC V, Mark P. Mays, Randall T. Mays, L. Lowry Mays and certain other parties. The stockholders agreement, among other things: (1) specifies how the parties vote in elections to our Board; (2) restricts the transfer of shares subject to the agreement; (3) includes the ability of CC IV to compel the parties to sell their shares in a change of control transaction or participate in a recapitalization of iHeartMedia; (4) gives the parties the right to subscribe for their pro rata share of proposed future issuances of equity securities by iHeartMedia or its subsidiaries to the Sponsors or their affiliates; (5) requires the parties to agree to customarylock-up agreements in connection with underwritten public offerings; and (6) provides the parties with customary demand and “piggy-back” registration rights. We, CC IV and CC V also entered into a separate agreement with Mark P. Mays, Randall T. Mays, L. Lowry Mays and certain other parties that set forth terms and conditions under which certain of their shares of our common stock would be repurchased by us following the termination of their employment (through the exercise of a “call option” by us or a “put option” by Mark P. Mays, Randall T. Mays and L. Lowry Mays, as applicable). Any shares of our common stock that Mark P. Mays, Randall T. Mays, L. Lowry Mays or their estate-planning entities acquired pursuant to stock elections are not subject to the stockholders agreement.
Affiliate Transaction Agreement
We, the Sponsors and iHeartCommunications are party to an agreement under which iHeartMedia agreed that neither it nor any of its subsidiaries will enter into or effect any affiliate transaction between iHeartMedia or one of its subsidiaries, on the one hand, and any Sponsor or any other private investment fund under common control with either Sponsor (collectively, the “principal investors”), on the other hand, without the prior approval of either a majority of the independent directors of iHeartMedia or a majority of the then-outstanding shares of our Class A common stock (excluding for purposes of such calculation from both (1) the votes cast and (2) of the outstanding shares of Class A common stock, all shares held at that time by any principal investor, any affiliate of a principal investor, or members of management and directors of iHeartMedia whose beneficial ownership information is required to be disclosed in filings with the SEC pursuant to Item 403 of RegulationS-K (the “public shares”)). That agreement expires
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upon the earlier of (1) an underwritten public offering and sale of our common stock which results in aggregate proceeds in excess of $250 million to us and after which our common stock is listed on NASDAQ’s National Market System or another national securities exchange (a “qualified public offering”) and (2) the consummation of a certain transaction resulting in a change of control (as defined in the agreement and summarized below) of iHeartMedia.
The following are not deemed to be affiliate transactions for purposes of the affiliate transaction agreement: (1) any commercial transaction between iHeartMedia or any of its subsidiaries, on the one hand, and any portfolio company in which any principal investor or any affiliate of a principal investor has a direct or indirect equity interest, on the other, so long as such transaction was entered into on an arms-length basis; (2) any purchase of bank debt or securities by a principal investor or an affiliate of a principal investor or any transaction between a principal investor or affiliate of a principal investor on the one hand, and iHeartMedia or one of its subsidiaries, on the other hand, related to the ownership of bank debt or securities, provided such purchase or transaction is on terms (except with respect to relief from all or part of any underwriting or placement fee applicable thereto) comparable to those consummated within 120 days after our fiscal year end.
ITEM 11. Executive Compensation
The information requiredan offering made to unaffiliated third parties; (3) the payment by
this item is incorporated by referenceiHeartMedia or one of its subsidiaries of up to
our Definitive Proxy Statement, which we expect$87.5 million in transaction fees to
filethe principal investors or their affiliates in connection with the
transactions contemplated by the Merger Agreement; (4) any payment of management, transaction, monitoring, or any other fees to the principal investors or their affiliates pursuant to an arrangement or structure whereby the holders of public shares of iHeartMedia are made whole for the portion of such fees paid by iHeartMedia that would otherwise be proportionate to their share holdings; and (5) any transaction to which a principal investor or an affiliate thereof is a party in its capacity as a stockholder of iHeartMedia that is offered generally to other stockholders of iHeartMedia (including the holders of shares of Class A common stock) on comparable or more favorable terms.A change of control of iHeartMedia will be deemed to have occurred upon the occurrence of any of the following: (1) any consolidation or merger of iHeartMedia with or into any other corporation or other entity, or any other corporate reorganization or transaction (including the acquisition of stock of iHeartMedia), in which the direct and indirect stockholders of iHeartMedia immediately prior to such consolidation, merger, reorganization or transaction, own stock either representing less than 50% of the economic interests in and less than 50% of the voting power of iHeartMedia or other surviving entity immediately after such consolidation, merger, reorganization or transaction or that does not have, through the ownership of voting securities, by agreement or otherwise, the power to elect a majority of the entire board of directors of iHeartMedia or other surviving entity immediately after such consolidation, merger, reorganization or transaction, excluding any bona fide primary or secondary public offering; (2) any stock sale or other transaction or series of related transactions, after giving effect to which in excess of 50% of iHeartMedia’s voting power is owned by any person or entity and its “affiliates” or “associates” (as such terms are defined in the rules adopted by the SEC within 120 daysunder the Securities Exchange Act), other than the principal investors and their respective affiliates, excluding any bona fide primary or secondary public offering; or (3) a sale, lease or other disposition of all or substantially all of the assets of iHeartMedia.
The agreement described above terminates upon the earlier of a qualified public offering and the consummation of a change of control (as defined therein). Other than as described in the prior sentence, the agreement may not be terminated, amended, supplemented or otherwise modified without the prior written approval of either (1) a majority of the independent directors of iHeartMedia elected by the holders of Class A common stock of iHeartMedia or (2) a majority of the then-outstanding public shares.
Corporate Services Agreement
iHMMS has entered into a Corporate Services Agreement with CCOH to provide CCOH certain administrative and support services and other assistance. Pursuant to the Corporate Services Agreement, as long as iHeartCommunications continues to own greater than 50% of the total voting power of CCOH’s common stock, iHMMS will provide CCOH with such services and other assistance, which CCOH must accept. These include, among other things, the following:
treasury, payroll and other financial related services;
certain executive officer services;
human resources and employee benefits;
legal and related services;
information systems, network and related services;
investment services;
corporate services; and
procurement and sourcing support.
The charges for the corporate services generally are intended to allow iHMMS to fully recover the allocated direct costs of providing the services, plus allout-of-pocket costs and expenses, generally without profit. The allocation of cost is based on various measures depending on the service provided, which measures include relative revenue, employee headcount or number of users of a service.
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Under the Corporate Services Agreement, iHMMS and CCOH each have the right to purchase goods or services, use intellectual property licensed from third parties and realize other benefits and rights under the other party’s agreements with third-party vendors to the extent allowed by such vendor agreements. The agreement also provides for the lease or sublease of certain facilities used in the operation of our respective businesses and for access to each other’s computing and telecommunications systems to the extent necessary to perform or receive the corporate services.
The Corporate Services Agreement provides that certain executive officers of iHeartCommunications will be made available to CCOH, and CCOH will be obligated to utilize those executive officers, to serve as CCOH’s executive officers. The Corporate Services Agreement may be terminated by mutual agreement or, after the date iHeartCommunications owns shares of CCOH’s common stock representing less than 50% of the total voting power of CCOH’s common stock, upon six months written notice by CCOH. iHMMS charges an allocable portion of the compensation and benefits costs of such persons based on a ratio of CCOH’s financial performance to the financial performance of iHeartCommunications. The compensation and benefits costs allocated to CCOH include such executives’ base salary, bonus and other standard employee benefits, but exclude equity-based compensation. See “Compensation Discussion and Analysis—Corporate Services Agreement” and footnote (g) to the Summary Compensation Table for additional information regarding the allocations. For the year ended December 31, 2017, charges for the corporate and executive services provided to CCOH under the Corporate Services Agreement totaled $68.7 million.
Commercial Transactions
As described elsewhere in this Annual report on Form10-K/A, entities controlled by the Sponsors hold all of the shares of our fiscal year end.
ITEM 12. SecurityClass B common stock and Class C common stock, representing a majority (whether measured by voting power or economic interest) of our equity. Seven of our current directors (John N. Belitsos, James C. Carlisle, John P. Connaughton, Matthew J. Freeman, Laura A. Grattan, Blair E. Hendrix and Scott M. Sperling) are affiliated with the Sponsors. Prior to becoming our President and Chief Financial Officer on July 29, 2013, Richard J. Bressler was a managing director at THL. In addition, director David C. Abrams is the managing member of the investment firm Abrams Capital, which beneficially owned 21.3% of our outstanding Class A common stock as of April 5, 2018, and director Jonathon S. Jacobson is the founder and Chief Investment Officer of the investment firm Highfields Capital Management, which beneficially owned 31.2% of our outstanding Class A common stock as of April 5, 2018. See “Security Ownership of Certain Beneficial Owners and ManagementManagement.”We are a leading global media and Related Stockholder Mattersentertainment company specializing in radio, digital,out-of-home,
|
| | | | | | | | | | |
Plan Category | | Number of Securities to be issued upon exercise of outstanding options, warrants and rights | | Weighted-Average exercise price of outstanding options, warrants and rights (1) | | Number of Securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (A)) |
Equity Compensation Plans approved by security holders(2) | | 7,870,234(3) |
| | $ | 35.09 |
| | 3,161,342 |
|
Equity Compensation Plans not approved by security holders | | — | | — | | — |
Total | | 7,870,234 |
| | $ | 35.09 |
| | 3,161,342 |
|
| |
(1) | The weighted-average exercise price is calculated based solely on the exercise prices of the outstanding options and does not reflect the shares that will be issued upon the vesting of outstanding awards of restricted stock, which have no exercise price. |
| |
(2) | Represents the 2008 Executive Incentive Plan and the 2015 Executive Long-Term Incentive Plan. The 2008 Executive Incentive Plan automatically terminated (other than with respect to outstanding awards) upon stockholder approval of the 2015 Executive Long-Term Incentive Plan at our Annual Stockholder Meeting held on May 18, 2015 and, as a result, there are no shares available for grant under the 2008 Executive Incentive Plan. |
| |
(3) | This number includes shares subject to outstanding awards granted, of which 2,092,126 shares are subject to outstanding options and 5,778,108 shares are subject to outstanding restricted shares. |
All mobile andon-demand entertainment and information services for national audiences and local communities and provide premiere opportunities for advertisers. We operate in more than 35 countries across five continents. The Sponsors are private equity firms and Mr. Abrams and Mr. Jacobson are affiliated with investment firms, each of which has investments in many companies. As a result of our worldwide reach, the nature of our business and the breadth of investments by the Sponsors and the investment firms affiliated with Mr. Abrams and Mr. Jacobson, it is not unusual for us to engage in ordinary course of business transactions with entities in which one of our directors, executive officers, greater than 5% stockholders or an immediate family member of any of them, may also be a director, executive officer, partner or investor or have some other
informationdirect or indirect interest.During 2017, we provided ordinary course of business advertising and other services and/or received ordinary course of business services related to our media and entertainment and outdoor businesses exceeding $120,000 in value with respect to 11 companies in which one or both of the Sponsors or Abrams Capital directly or indirectly owned a greater than 10% equity interest. These transactions were negotiated on an arms-length basis and, in the aggregate, we were paid $4.4 million by these entities and we paid $1.1 million to these entities with respect to these 2017 transactions, including to an entity in which THL directly or indirectly owns a greater than 10% equity interest that provided us with commercial credit card processing services and payroll tax services pursuant to an arms-length agreement at competitive market rates. During 2017, we paid approximately $135,000 pursuant to this agreement.
During 2017, Broader Media, LLC, an indirect wholly-owned subsidiary of the Company (“Broader Media”), repurchased from unaffiliated third parties approximately $4.0 million aggregate principal amount of iHeartCommunications’ 10.0% Senior Notes due 2018 (the “2018 Notes”) for an aggregate purchase price of approximately $2.7 million.
From time to time the Sponsors or their affiliates or the investment firms affiliated with Mr. Abrams and Mr. Jacobson may acquire loans or debt securities (collectively, the “iHeartCommunications Debt Securities”) issued by iHeartCommunications either directly from iHeartCommunications, in open market transactions or through loan syndications. As of December 31, 2017, the Sponsors collectively owned approximately $1.1 billion of term loans under iHeartCommunications’ senior secured credit facilities and the investment firms affiliated with Mr. Abrams and Mr. Jacobson owned approximately $17.8 million of term loans under iHeartCommunications’ senior secured credit facilities, and Bain Capital owned approximately $98.6 million of other iHeartCommunications debt securities and the investment firms affiliated with Mr. Abrams and Mr. Jacobson owned approximately $187.9 million of other iHeartCommunications debt securities. As of March 12, 2018, the Sponsors collectively owned approximately
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$952.7 million of term loans under iHeartCommunications’ senior secured credit facilities and the investment firms affiliated with Mr. Abrams and Mr. Jacobson owned approximately $17.8 million of term loans under iHeartCommunications’ senior secured credit facilities, and Bain Capital owned approximately $101.6 million of other iHeartCommunications debt securities and the investment firms affiliated with Mr. Abrams and Mr. Jacobson owned approximately $187.9 million of other iHeartCommunications debt securities. During 2017, iHeartCommunications also paid an aggregate of approximately $114.0 million in interest and an aggregate of approximately $0 in principal on the iHeartCommunications Debt Securities owned by the Sponsors and an aggregate of approximately $4.6 million in interest and an aggregate of approximately $0 in principal on the iHeartCommunications Debt Securities owned by the investment firms affiliated with Mr. Abrams and Mr. Jacobson. The largest principal amount of the iHeartCommunications Debt Securities owned by the Sponsors collectively and owned by the investment firms affiliated with Mr. Abrams and Mr. Jacobson collectively was approximately $1.4 billion and $202.7 million, respectively, during 2017. As of December 31, 2017, the iHeartCommunications term loans owned by the Sponsors and the investment firm affiliated with Mr. Jacobson bear interest at various rates between LIBOR + 3.65% and LIBOR + 7.50%. The other iHeartCommunications Debt Securities owned by the Sponsors bear interest at 9.0% and the other iHeartCommunications Debt Securities owned by the investment firms affiliated with Mr. Abrams and Mr. Jacobson bear interest at 14.0% and 9.0%, respectively.
In September 2016, iHeartCommunications completed a consent solicitation (the “September 2016 Consent Solicitation”) with respect to its outstanding Senior Notes due 2021 (the “2021 Notes”), and in December 2016, iHeartCommunications completed another consent solicitation (the “December 2016 Consent Solicitation”) with respect to the 2021 Notes. Funds affiliated with Mr. Abrams were holders of the 2021 Notes and received consent payments of approximately $916,113 in the September 2016 Consent Solicitation and approximately $180,800 in the December 2016 Consent Solicitation. In addition, funds affiliated with Mr. Abrams will be entitled to an additional consent payment of $271,201 if we complete an exchange offer in which iHeartCommunications relies on the changes effected by the indenture amendment that was approved in the December 2016 Consent Solicitation.
During 2012, iHeartCommunications offered eligible lenders under its senior secured credit facility the opportunity to exchange certain outstanding term loans for newly issued iHeartCommunications 9.0% Priority Guarantee Notes due 2019 (the “Priority Guarantee Notes”). As part of that transaction, the Sponsors and investment firms affiliated with Mr. Abrams and Mr. Jacobson exchanged term loans held by them for the same principal amount of iHeartCommunications’ Priority Guarantee Notes. Similarly, during 2013, iHeartCommunications offered to eligible holders of its outstanding 10.75% Senior Cash Pay Notes due 2016 and 11.00%/11.75% Senior Toggle Notes due 2016 (collectively, the “Outstanding Senior Notes”) the opportunity to exchange Outstanding Senior Notes for newly issued iHeartCommunications Senior Notes due 2021 (the “New Senior Notes”). Investment firms affiliated with Mr. Abrams exchanged Outstanding Senior Notes for New Senior Notes as part of that transaction. Because these entities are affiliates of iHeartCommunications’, they were not eligible to participate in the “A/B exchange offers” with respect to the Priority Guarantee Notes and the New Senior Notes that were required by this item is incorporated by referencethe registration rights agreements relating to our Definitive Proxy Statement, which we expectsuch notes. Under the terms of the registration rights agreements relating to the Priority Guarantee Notes and the New Senior Notes, these affiliates holding the unregistered Priority Guarantee Notes had the right to require iHeartCommunications to file a shelf registration statement for the resale of their Priority Guarantee Notes by giving notice by August 2013 and investment firms affiliated with Mr. Abrams had the right to require iHeartCommunications to file a shelf registration statement for the resale of their New Senior Notes by giving notice by March 2014. In exchange for the agreement of these affiliates still holding unregistered Priority Guarantee Notes or unregistered New Senior Notes not to trigger the requirement to file a shelf registration statement by the applicable deadlines and waive their existing rights, in August 2013 iHeartCommunications agreed to extend the time period that these affiliates may trigger their rights to require us to file a shelf registration statement for the Priority Guarantee Notes and in March 2014 iHeartCommunications agreed to extend the time period that the investment firms affiliated with Mr. Abrams may trigger their rights to require us to file a shelf registration statement for the New Senior Notes. To date, none of these affiliates has triggered these rights.
As part of the employment agreement for Robert W. Pittman, who became our Chief Executive Officer and a member of our Board on October 2, 2011, we agreed to provide him with an aircraft for his personal and business use during the term of his employment. For a description of Mr. Pittman’s employment agreement, see “Executive Compensation—Employment Agreements with the SECNamed Executive Officers.” Subsequently, one of our subsidiaries entered into asix-year aircraft lease with Yet Again Inc., a company controlled by Mr. Pittman, to lease an airplane for his use in exchange for aone-time upfront lease payment of $3.0 million during 2011.
On December 13, 2013 we terminated the lease agreement with Yet Again Inc. Pursuant to the terms of the original lease, Yet Again Inc. refunded to us $1,953,427 of theone-time upfront lease payment, based upon the period remaining in the term. On December 23, 2013, one of our subsidiaries entered into an aircraft lease with FalconAgain, Inc., a company controlled by Mr. Pittman (“FalconAgain”), to lease an airplane for his use in exchange for aone-time payment of $1,953,427, which our subsidiary paid in 2013. On November 1, 217, we extended the lease with FalconAgain until January 13, 2019 (the “Lease Extension”). The Lease
55
Extension provided that we pay a monthly lease payment of $41,476.66 during the term of the Lease Extension, prorated as applicable, for the first and last month of the Lease Extension. Our subsidiary also is responsible for all related taxes, insurance and maintenance costs during the lease term (other than discretionary upgrades, capital improvements or refurbishment). In addition, we paid Mr. Pittman $48,653 and $32,581, respectively, during 2017 and 2016 as reimbursement for Mr. Pittman’s business use of a helicopter. In 2015, pursuant to an agreement made in 2014, we subleased 10,000 square feet of unused space within 120 days afterone of our fiscal year end.
ITEM 13. Certain Relationshipsoffice leases in New York City (midtown Manhattan) to North American Membership Group, Inc., (“NAMG”) a portfolio company of Pilot Group II LP, an entity in which Mr. Pittman is an investor and Related Transactions,in which he controls the general partner (“Pilot Group”). Fixed rent during 2015 was approximately $400,000 plus a proportionate share of building expenses. We also subleased 5,000 square feet within that same lease to Pilot Group Manager LLC, the management company for the Pilot Group and Director Independence
The information required by this iteman entity in which Mr. Pittman is incorporated by referencea member, for fixed rent during 2015 of approximately $158,000 plus a proportionate share of building expenses. While both subleases contained annual renewal clauses, neither Pilot Group Manager LLC, nor NAMG, opted to exercise their renewal options for 2016, electing instead to downsize their respective subspaces within our Definitive Proxy Statement, which we expect to file withleasehold. Effective January 1, 2016, NAMG subleased 3,000 square feet within that same leasehold for a fixed rent of $94,530 annually plus a proportionate share of building expenses, from us and the SEC within 120 days after our fiscal year end.
ITEM 14. Principal Accounting FeesPilot Group subleased 1,800 square feet for a fixed rent of $56,718 annually plus a proportionate share of building expenses. During 2016, neither NAMG nor Pilot Group Manager LLC renewed their respective subleases for 2017 and Services
The information required by this item is incorporated by reference to our Definitive Proxy Statement, which we expect to file with the SEC within 120 days after our fiscal year end.
PART IV
ITEM 15. Exhibits and Financial Statement Schedules
(a)1. Financial Statements.
The following consolidated financial statements are included in Item 8:
Consolidated Balance Sheetssubleases were both terminated as of December 31, 20162016. In addition, on November 15, 2010, we issued and 2015.
Consolidated Statementssold 706,215 shares of
Comprehensive Lossour Class A common stock to Pittman CC LLC, a Delaware limited liability company controlled by Mr. Pittman, for $5,000,000 in cash, pursuant to a Stock Purchase Agreement dated November 15, 2010 by and among Pittman CC LLC, CC IV and CC V. Fifty percent of the shares were vested upon issuance and the remaining shares will vest upon certain liquidity transactions initiated by the Sponsors.Policy on Review, Approval or Ratification of Transactions with Related Persons
We have adopted formal written policies and procedures for the Years Ended December 31, 2016, 2015review, approval or ratification of certain related party transactions involving us and 2014.
Consolidated Statementsone of
Changesour executive officers, directors or nominees for director, or owner of more than 5% of any class of iHeartMedia’s voting securities, and which may be required to be reported under the SEC disclosure rules. Such transactions must bepre-approved by the Audit Committee of our Board (other than the directors involved, if any) or by a majority of disinterested directors, except that no suchpre-approval shall be required for an agreement, or series of related agreements, providing solely for ordinary course of business transactions made on standard terms and conditions where the aggregate amount to be paid to us is less than $20 million or the aggregate amount paid by us is less than $500,000. In addition, if our management, in
Stockholders' Deficitconsultation with our Chief Executive Officer or Chief Financial Officer, determines that it is not practicable to wait until the next Audit Committee meeting to approve or ratify a particular transaction, then the Board has delegated authority to the Chairman of the Audit Committee to approve or ratify such transactions. The Chairman of the Audit Committee reports to the Audit Committee any transactions reviewed by him or her pursuant to this delegated authority at the next Audit Committee meeting. The primary consideration with respect to the approval of related party transactions is the overall fairness of the terms of the transaction to us. The related person transactions described above in this Annual Report on Form10-K/A were ratified or approved by the Audit Committee or Board pursuant to these policies and procedures, to the extent required. We generally expect transactions of a similar nature to occur during 2017.Independence of Directors
The Board has adopted the listing standards of the NASDAQ Stock Market LLC (“NASDAQ”) for determining the Years Ended December 31, 2016, 2015independence of its members. To be considered independent under NASDAQ rules, a director may not be employed by iHeartMedia or engage in certain types of business dealings with iHeartMedia. As required, the Board has made a determination as to each independent director that no relationship exists which, in the opinion of the Board, would interfere with the exercise of independent judgment in carrying out the responsibilities of a director.
Our Board has affirmatively determined that Frederic F. Brace, Charles H. Cremens and 2014.
Consolidated StatementsJonathon S. Jacobson are independent directors under the listing standards of
Cash FlowsNASDAQ. In making these determinations, the Board reviewed information provided by the directors and by iHeartMedia with regard to the directors’ business and personal activities as they relate to iHeartMedia and its affiliates. In the ordinary course of business during 2017, we entered into various transactions with certain entities affiliated with members of our Board. Our Board considered the following transactions and relationships in making their independence determinations with respect to Messrs. Brace, Cremens and Jacobson:A corporation for which Mr. Cremens serves as a director paid us approximately $955,000 during 2017 for radio advertising services.
A corporation for which Mr. Brace serves as a director paid us approximately $43,000 during 2017 for radio advertising services.
During 2017, our affiliates donated radio and outdoor public service announcements to a charity for which an immediate family member of Mr. Jacobson serves as a director (approximately $11,000 in aggregate value).
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Funds affiliated with Mr. Jacobson also own certain term loans and other debt securities of our indirect wholly owned subsidiary, iHeartCommunications, Inc. (“iHeartCommunications”), as described in “Certain Relationships and Related Party Transactions—Commercial Transactions.”
The transactions described above are arms-length, ordinary course of business commercial, charitable or financing transactions and we generally expect transactions of a similar nature to occur during 2018. Our Board has concluded that such transactions or relationships do not impair the Years Ended December 31, 2016, 2015 and 2014.
Notes to Consolidated Financial Statements
2. Financial Statement Schedule.
independence of the director.ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
Auditor Fees
The following financial statement schedulefees for services provided by Ernst & Young LLP were incurred by iHeartMedia with respect to the years ended December 31, 2016, 20152017 and 2014 and related report of independent auditors is filed as part of this report and should be read in conjunction with the consolidated financial statements.
Schedule II Valuation and Qualifying Accounts
All other schedules for which provision is made in the applicable accounting regulation of the Securities and Exchange Commission are not required under the related instructions or are inapplicable, and therefore have been omitted.
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
Allowance for Doubtful Accounts
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| | | | | | | | | | | | | | | | | | | | |
(In thousands) | | | | Charges | | | | | | |
| | Balance at | | to Costs, | | Write-off | | | | Balance |
| | Beginning | | Expenses | | of Accounts | | | | at End of |
Description | | of period | | and other | | Receivable | | Other (1) | | Period |
Year ended December 31, 2014 | | $ | 47,745 |
| | $ | 14,167 |
| | $ | 27,014 |
| | $ | (2,502 | ) | | $ | 32,396 |
|
Year ended December 31, 2015 | | $ | 32,396 |
| | $ | 30,579 |
| | $ | 26,310 |
| | $ | (1,776 | ) | | $ | 34,889 |
|
Year ended December 31, 2016 | | $ | 34,889 |
| | $ | 27,390 |
| | $ | 27,898 |
| | $ | (499 | ) | | $ | 33,882 |
|
2016: | | | | | | | | |
| | Years Ended December 31, | |
(In thousands) | | 2017 | | | 2016 | |
Audit fees(a) | | $ | 9,281 | | | $ | 8,848 | |
Audit-Related Fees(b) | | | 97 | | | | 99 | |
Tax Fees(c) | | | 1,836 | | | | 1,260 | |
All Other Fees(d) | | | 340 | | | | 255 | |
| | | | | | | | |
Total Fees for Services | | $ | 11,554 | | | $ | 10,462 | |
| | | | | | | | |
(a) | |
(1) | Primarily foreign currency adjustmentsAudit Fees include professional services rendered for the audit of annual financial statements and acquisition and/reviews of quarterly financial statements. This category also includes fees for statutory audits required internationally, services associated with documents filed with the SEC and in connection with securities offerings and private placements, work performed by tax professionals in connection with the audit or divestiture activity. |
Deferred Tax Asset Valuation Allowance
|
| | | | | | | | | | | | | | | | | | | | |
(In thousands) | | | | Charges | | | | | | |
| | Balance at | | to Costs, | | | | | | Balance |
| | Beginning | | Expenses | | | | | | at end of |
Description | | of Period | | and other (1) | | Reversal (2) | | Adjustments (3) | | Period |
Year ended December 31, 2014 | | $ | 327,623 |
| | $ | 356,583 |
| | $ | (230 | ) | | $ | (28,318 | ) | | $ | 655,658 |
|
Year ended December 31, 2015 | | $ | 655,658 |
| | $ | 314,098 |
| | $ | (457 | ) | | $ | (24,723 | ) | | $ | 944,576 |
|
Year ended December 31, 2016 | | $ | 944,576 |
| | $ | 109,285 |
| | $ | (49,577 | ) | | $ | (13,062 | ) | | $ | 991,222 |
|
| |
(1) | During 2014, 2015quarterly reviews, and 2016, the Company recorded valuation allowances on deferred tax assets attributableaccounting consultation and research work necessary to net operating losses in certain foreign jurisdictions. In addition, during 2015comply with financial reporting and 2016 the Company recorded a valuation allowance of $305.3 million and $61.5 million, respectively, on a portion of its deferred tax assets attributable to federal and state net operating loss carryforwards due to the uncertainty of the ability to utilize those losses in future periods.accounting standards. |
(b) | |
(2) | During 2014, 2015Audit-Related Fees include assurance and 2016,related services not reported under annual Audit Fees that reasonably relate to the Company realizedperformance of the tax benefits associated with certain foreign deferred tax assets, primarilyaudit or review of our financial statements and are not reported under Audit Fees, including attest and agreed-upon procedures services not required by statute or regulations, information systems reviews, due diligence related to foreign loss carryforwards, on which a valuation allowance was previously recorded. The associated valuation allowance was reversed in the period in which, based on the weight of available evidence, it is more-likely-than-not that the deferred tax asset will be realized. During 2016, the Company released valuation allowances in France in the amount of $43.3 million.mergers and acquisitions and employee benefit plan audits required internationally. |
(c) | |
(3) | During 2014, 2015Tax Fees include professional services rendered for tax compliance and tax planning advice provided domestically and internationally, except those provided in connection with the audit or quarterly reviews. Of the $1,835,900 in Tax Fees with respect to 2017 and $1,259,500 in Tax Fees with respect to 2016, the Company adjusted certain valuation allowances as a result of changes in$63,500 and $44,300, respectively, was related to tax rates in certain jurisdictions and as a result of the expiration of carryforward periods for net operating loss carryforwards.compliance services. |
3. Exhibits.
(d) | All Other Fees include fees for products and services other than those in the above three categories. This category includes permitted corporate finance services and certain advisory services. |
iHeartMedia’s Audit Committee has considered whether Ernst & Young LLP’s provision ofnon-audit services to iHeartMedia is compatible with maintaining Ernst & Young LLP’s independence.
The Audit Committeepre-approves all audit and permittednon-audit services (including the fees and terms thereof) to be performed for iHeartMedia by its independent auditor. The Chairman of the Audit Committee may represent the entire Audit Committee for the purposes ofpre-approving permissiblenon-audit services, provided that the decision topre-approve any service is disclosed to the Audit Committee no later than its next scheduled meeting.
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PART IV
ITEM 15. | EXHIBITS AND FINANCIAL STATEMENT SCHEDULES |
(a)3. Exhibits
| | |
| | Description |
3.1* | |
3.1 | | (Incorporated by reference to Exhibit 3.1 to the iHeartMedia, Inc. Annual Report on Form10-K for the year ended December 31, 2016.) |
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3.2 | | |
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4.1 | | |
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4.2 | | |
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4.3 | | |
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4.4 | | Indenture, dated as of February 23, 2011, to Indenture dated as of February 23, 2011, among iHeartCommunications, Inc., iHeartMedia Capital I, LLC, the other guarantors party thereto, Wilmington Trust FSB, as Trustee, and the other agents party thereto (Incorporated by reference to Exhibit 4.1 to the iHeartCommunications, Inc. Current Report on Form8-K filed on February 24, 2011). |
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4.5 | | |
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4.6 | | Indenture, dated as of October 25, 2012, among iHeartCommunications, Inc., iHeartMedia Capital I, LLC, as guarantor, the other guarantors party thereto, U.S. Bank National Association, as trustee, and Deutsche Bank Trust Company Americas, as collateral agent (Incorporated by reference to Exhibit 4.1 to the iHeartCommunications, Inc. Current Report on Form8-K filed on October 25, 2012). |
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4.7 | | Indenture, dated as of February 28, 2013, among iHeartCommunications, Inc., iHeartMedia Capital I, LLC, as guarantor, the other guarantors party thereto, U.S. Bank National Association, as trustee, and Deutsche Bank Trust Company Americas, as collateral agent (Incorporated by reference to Exhibit 4.1 to the iHeartCommunications, Inc. Current Report on Form8-K filed on March 1, 2013). |
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4.8 | | Indenture, dated as of June 21, 2013, among iHeartCommunications, Inc., iHeartMedia Capital I, LLC, as guarantor, the other guarantors party thereto, Law Debenture Trust Company of New York, as trustee, and Deutsche Bank Trust Company Americas, as paying agent, registrar and transfer agent (Incorporated by reference to Exhibit 4.1 to the iHeartCommunications, Inc. Current Report on Form8-K filed on June 21, 2013). |
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4.9 | | First Supplemental Indenture, dated as of December 16, 2013, to Indenture dated as of June 21, 2013, by and among iHeartCommunications, Inc., iHeartMedia Capital I, LLC, as guarantor, the other guarantors party thereto, Law Debenture Trust Company of New York, as trustee, and Deutsche Bank Trust Company Americas, as paying agent, registrar and transfer agent (Incorporated by reference to Exhibit 4.26 to Amendment No. 1 to the iHeartCommunications, Inc. Registration Statement on FormS-4 (FileNo. 333-192614) filed on December 16, 2013). |
58
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4.10 | | Second Supplemental Indenture, dated as of December 24, 2013, to Indenture dated as of June 21, 2013, by and among iHeartCommunications, Inc., iHeartMedia Capital I, LLC, as guarantor, the other guarantors party thereto, Law Debenture Trust Company of New York, as trustee, and Deutsche Bank Trust Company Americas, as paying agent, registrar and transfer agent (Incorporated by reference to Exhibit 4.28 to Amendment No. 2 to the iHeartCommunications, Inc. Registration Statement on FormS-4 (FileNo. 333-192614) filed on December 24, 2013). |
|
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4.11 | | Indenture with respect to 7.625% Series A Senior Subordinated Notes due 2020, dated as of March 15, 2012, by and among Clear Channel Worldwide Holdings, Inc., Clear Channel Outdoor Holdings, Inc., Clear Channel Outdoor, Inc., the other guarantors party thereto and U.S. Bank National Association, as trustee (Incorporated by reference to Exhibit 4.1 to the Clear Channel Outdoor Holdings, Inc. Current Report on Form8-K filed on March 16, 2012). |
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4.12 | | Indenture with respect to 7.625% Series B Senior Subordinated Notes due 2020, dated as of March 15, 2012, by and among Clear Channel Worldwide Holdings, Inc., Clear Channel Outdoor Holdings, Inc., Clear Channel Outdoor, Inc., the other guarantors party thereto and U.S. Bank National Association, as trustee (Incorporated by reference to Exhibit 4.2 to the Clear Channel Outdoor Holdings, Inc. Current Report on Form8-K filed on March 16, 2012). |
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4.13 | | Indenture with respect to 6.50% Series A Senior Notes due 2022, dated as of November 19, 2012, by and among Clear Channel Worldwide Holdings, Inc., Clear Channel Outdoor Holdings, Inc., Clear Channel Outdoor, Inc., the other guarantors party thereto and U.S. Bank National Association, as trustee (Incorporated by reference to Exhibit 4.1 to the Clear Channel Outdoor Holdings, Inc. Current Report on Form8-K filed on November 19, 2012). |
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4.14 | | Indenture with respect to 6.50% Series B Senior Notes due 2022, dated as of November 19, 2012, by and among Clear Channel Worldwide Holdings, Inc., Clear Channel Outdoor Holdings, Inc., Clear Channel Outdoor, Inc., the other guarantors party thereto and U.S. Bank National Association, as trustee (Incorporated by reference to Exhibit 4.2 to the Clear Channel Outdoor Holdings, Inc. Current Report on Form8-K filed on November 19, 2012). |
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4.15 | | |
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4.16 | | |
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4.17 | | Third Supplemental Indenture, dated as of August 22, 2014, by and among iHeartCommunications, Inc., iHeartMedia Capital I, LLC, as guarantor, the other guarantors party thereto, and Law Debenture Trust Company of New York, as trustee (incorporated by reference to Exhibit 4.1 to the iHeartCommunications, Inc. Form8-K filed on August 22, 2014). |
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4.18 | | Indenture, dated as of September 10, 2014, among iHeartCommunications, Inc., iHeartMedia Capital I, LLC, as guarantor, the other guarantors party thereto, U.S. Bank National Association, as trustee, paying agent, registrar, authentication agent and transfer agent, and Deutsche Bank Trust Company Americas, as collateral agent (incorporated by reference to Exhibit 4.1 to iHeartCommunications, Inc.’s Current Report on Form8-K filed on September 10, 2014). |
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4.19 | | First Supplemental Indenture, dated as of September 29, 2014, to Indenture dated as of September 10, 2014, among iHeartCommunications, Inc., iHeartMedia Capital I, LLC, as guarantor, certain subsidiary guarantors named therein, U.S. Bank National Association, as trustee, paying agent, registrar, authentication agent and transfer agent and Deutsche Bank Trust Company Americas, as the collateral agent (incorporated by reference to Exhibit 4.1 to the iHeartCommunications, Inc. Current Report on Form8-K filed on September 29, 2014). |
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4.20 | | Indenture, dated as of February 26, 2015, among iHeartCommunications, Inc., iHeartMedia Capital I, LLC, as guarantor, the other guarantors party thereto, U.S. Bank National Association, as trustee, paying agent, registrar, authentication agent and transfer agent, and Deutsche Bank Trust Company Americas, as collateral agent (Incorporated by reference to Exhibit 4.1 to the iHeartCommunications, Inc. Current Report on Form8-K filed on February 26, 2015). |
59
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4.21 | | Indenture, dated as of December 16, 2015, among Clear Channel International B.V., the guarantors party thereto, and U.S. Bank National Association, as trustee, paying agent, registrar, authentication agent and transfer agent (incorporated by reference to Exhibit 4.1 to Clear Channel Outdoor Holdings, Inc.’s Current Report on Form8-K filed on December 16, 2015). |
|
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4.22 | | Fourth Supplemental Indenture, dated as of October 3, 2016, to Indenture dated as of June 21, 2013, between iHeartCommunications, Inc. and Law Debenture Trust Company of New York, as trustee (Incorporated by reference to Exhibit 4.1 to the iHeartCommunications, Inc. Current Report on Form8-K filed on October 4, 2016). |
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4.23 | | Second Supplemental Indenture, dated as of November 28, 2016, to Indenture dated as of February 23, 2011, among certain subsidiary guarantors named therein, Wilmington Trust, National Association, as trustee, and Deutsche Bank Trust Company Americas, as collateral agent, paying agent, registrar, authentication agent and transfer agent (Incorporated by reference to Exhibit 4.23 to the iHeartCommunications, Inc. Annual Report on Form10-K for the year ended December 31, 2016).
|
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4.24 | | First Supplemental Indenture, dated as of November 28, 2016, to Indenture dated as of October 25, 2012, among certain subsidiary guarantors named therein, U.S. Bank National Association, as trustee, paying agent, registrar, and transfer agent and Deutsche Bank Trust Company Americas, as collateral agent (Incorporated by reference to Exhibit 4.24 to the iHeartCommunications, Inc. Annual Report on Form10-K for the year ended December 31, 2016).
|
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4.25 | | First Supplemental Indenture, dated as of November 28, 2016, to Indenture dated as of February 28, 2013, among certain subsidiary guarantors named therein, U.S. Bank National Association, as trustee, paying agent, registrar, authentication agent and transfer agent and Deutsche Bank Trust Company Americas, as collateral agent (Incorporated by reference to Exhibit 4.25 to the iHeartCommunications, Inc. Annual Report on Form10-K for the year ended December 31, 2016).
|
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4.26 | | Second Supplemental Indenture, dated as of November 28, 2016, to Indenture dated as of September 10, 2014, among certain subsidiary guarantors named therein, U.S. Bank National Association, as trustee, paying agent, registrar, authentication agent and transfer agent and Deutsche Bank Trust Company Americas, as collateral agent (Incorporated by reference to Exhibit 4.26 to the iHeartCommunications, Inc. Annual Report on Form10-K for the year ended December 31, 2016).
|
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4.27 | | First Supplemental Indenture, dated as of November 28, 2016, to Indenture dated as of February 26, 2015, among certain subsidiary guarantors named therein, U.S. Bank National Association, as trustee, paying agent, registrar, authentication agent and transfer agent and Deutsche Bank Trust Company Americas, as collateral agent (Incorporated by reference to Exhibit 4.27 to the iHeartCommunications, Inc. Annual Report on Form10-K for the year ended December 31, 2016).
|
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4.28 | | Fifth Supplemental Indenture, dated as of November 28, 2016, to Indenture dated as of June 21, 2013, among certain subsidiary guarantors named therein and Law Debenture Trust Company of New York, as trustee (Incorporated by reference to Exhibit 4.28 to the iHeartCommunications, Inc. Annual Report on Form10-K for the year ended December 31, 2016). |
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4.29 | |
|
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4.30 | | Second Supplemental Indenture, dated as of February 7, 2017, to Indenture dated as of February 28, 2013, among iHeartCommunications, Inc., iHeartMedia Capital I, LLC, as guarantor, the other guarantors party thereto, and UMB Bank, National Association, as trustee (Incorporated by reference to Exhibit 4.1 to the iHeartCommunications, Inc. Current Report on Form8-K filed on February 7, 2017). |
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4.31 | | Supplemental Indenture, dated as of August 14, 2017, among Clear Channel International B.V., the guarantors party thereto, and U.S. Bank National Association, as trustee, paying agent, registrar and transfer agent (incorporated by reference to Exhibit 4.1 to Clear Channel Outdoor Holdings, Inc.’s Current Report on Form8-K filed on August 14, 2017). |
60
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4.32 | | Registration Rights Agreement, dated February 7, 2017, by and among iHeartCommunications, Inc., iHeartMedia Capital I, LLC as guarantor, the subsidiary guarantors party thereto, and Moelis & Company LLC, as dealer manager (Incorporated by reference to Exhibit 4.2 to the iHeartCommunications, Inc. Current Report on Form8-K filed on February 7, 2017).
|
| |
10.1 | | Amended and Restated Credit Agreement, dated as of February 23, 2011, by and among iHeartCommunications, Inc., the subsidiaryco-borrowers and foreign subsidiary revolving borrowers party thereto, iHeartMedia Capital I, LLC, Citibank, N.A., as Administrative Agent, the lenders from time to time party thereto and the other agents party thereto (Incorporated by reference to Exhibit 10.1 to the iHeartCommunications, Inc. Current Report on Form8-K filed on February 24, 2011). |
|
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10.2 | | Amendment No. 1 to Amended and Restated Credit Agreement, dated as of October 25, 2012, by and among iHeartCommunications, Inc., iHeartMedia Capital I, LLC, the subsidiaryco-borrowers party thereto, the foreign subsidiary revolving borrowers thereto, Citibank, N.A. as Administrative Agent, the lenders from time to time party thereto and the other agents party thereto (Incorporated by reference to Exhibit 10.1 to the iHeartCommunications, Inc. Current Report on Form8-K filed on October 25, 2012). |
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10.3 | | |
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10.4 | | Amendment No. 2 to Amended and Restated Credit Agreement, dated as of May 31, 2013, by and among iHeartCommunications, Inc., iHeartMedia Capital I, LLC, the subsidiaryco-borrowers party thereto, the foreign subsidiary revolving borrowers thereto, Citibank, N.A. as Administrative Agent, the lenders from time to time party thereto and the other agents party thereto (Incorporated by reference to Exhibit 10.1 to the iHeartCommunications, Inc. Current Report on Form8-K filed on June 4, 2013). |
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10.5 | | Amendment No. 3 to Amended and Restated Credit Agreement, dated as of December 18, 2013, by and among iHeartCommunications, Inc., iHeartMedia Capital I, LLC, the subsidiaryco-borrowers party thereto, the foreign subsidiary revolving borrowers thereto, Citibank, N.A., as Administrative Agent, the lenders from time to time party thereto and the other agents party thereto (Incorporated by reference to Exhibit 10.1 to the iHeartCommunications, Inc. Current Report on Form8-K filed on December 18, 2013). |
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10.6 | | Amended and Restated Credit Agreement, dated as of December 24, 2012, by and among iHeartCommunications, Inc., iHeartMedia Capital I, LLC, the subsidiary borrowers party thereto, Citibank, N.A., as Administrative Agent, the lenders from time to time party thereto and the other agents party thereto (Incorporated by reference to Exhibit 10.1 to the iHeartCommunications, Inc. Current Report on Form8-K filed on December 27, 2012). |
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10.7 | | |
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10.8 | | First Amendment, dated as of December 23, 2009, to the Revolving Promissory Note, dated as of November 10, 2005, by iHeartCommunications, Inc., as Maker, to Clear Channel Outdoor Holdings, Inc. (Incorporated by reference to Exhibit 10.41 to the iHeartMedia, Inc. Annual Report on Form10-K for the year ended December 31, 2009). |
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10.9 | | Second Amendment, dated as of October 23, 2013, to the Revolving Promissory Note, dated as of November 10, 2005, by iHeartCommunications, Inc., as Maker, to Clear Channel Outdoor Holdings, Inc. (Incorporated by reference to Exhibit 10.1 to the iHeartCommunications, Inc. Current Report on Form8-K filed on October 23, 2013). |
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10.10 | | |
61
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10.11 | | First Amendment, dated as of December 23, 2009, to the Revolving Promissory Note, dated as of November 10, 2005, by Clear Channel Outdoor Holdings, Inc., as Maker, to iHeartCommunications, Inc. (Incorporated by reference to Exhibit 10.42 to the iHeartMedia, Inc. Annual Report on Form10-K for the year ended December 31, 2009). |
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10.12 | | |
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10.13 | | |
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10.14 | | |
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10.15 | | |
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10.16 | | |
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10.17 | | First Amended and Restated Management Agreement, dated as of July 28, 2008, by and among iHeartMedia, Inc., BT Triple Crown Merger Co., Inc., B Triple Crown Finco, LLC, T Triple Crown Finco, LLC, THL Managers VI, LLC and Bain Capital Partners, LLC (Incorporated by reference to Exhibit 10.1 to the iHeartMedia, Inc. Current Report on Form8-K filed on July 30, 2008). |
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10.18 | | Amended and Restated Voting Agreement dated as of May 13, 2008 by and among BT Triple Crown Merger Co., Inc., B Triple Crown Finco, LLC, T Triple Crown Finco, LLC, iHeartMedia, Inc., Highfields Capital I LP, Highfields Capital II LP, Highfields Capital III LP and Highfields Capital Management LP (Incorporated by reference to Annex E to the iHeartMedia, Inc. Registration Statement on FormS-4 (FileNo. 333-151345) filed on June 2, 2008). |
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10.19 | | Voting Agreement dated as of May 13, 2008 by and among BT Triple Crown Merger Co., Inc., B Triple Crown Finco, LLC, T Triple Crown Finco, LLC, iHeartMedia, Inc., Abrams Capital Partners I, LP, Abrams Capital Partners II, LP, Whitecrest Partners, LP, Abrams Capital International, Ltd. and Riva Capital Partners, LP (Incorporated by reference to Annex F to the iHeartMedia, Inc. Registration Statement on FormS-4 (FileNo. 333-151345) filed on June 2, 2008). |
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10.20§ | | Stockholders Agreement, dated as of July 29, 2008, by and among iHeartMedia, Inc., BT Triple Crown Merger Co., Inc., Clear Channel Capital IV, LLC, Clear Channel Capital V, L.P., L. Lowry Mays, Randall T. Mays, Mark P. Mays, LLM Partners, Ltd., MPM Partners, Ltd. and RTM Partners, Ltd. (Incorporated by reference to Exhibit 10.2 to the iHeartMedia, Inc. Annual Report on Form10-K for the year ended December 31, 2009). |
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10.21§ | | Side Letter Agreement, dated as of July 29, 2008, among iHeartMedia, Inc., Clear Channel Capital IV, LLC, Clear Channel Capital V, L.P., L. Lowry Mays, Mark P. Mays, Randall T. Mays, LLM Partners, Ltd., MPM Partners Ltd. and RTM Partners, Ltd. (Incorporated by reference to Exhibit 10.3 to the iHeartMedia, Inc. Annual Report on Form10-K for the year ended December 31, 2009). |
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10.22 | | Affiliate Transactions Agreement, dated as of July 30, 2008, by and among iHeartMedia, Inc., Bain Capital Fund IX, L.P., Thomas H. Lee Equity Fund VI, L.P. and BT Triple Crown Merger Co., Inc. (Incorporated by reference to Exhibit 99.6 to the iHeartMedia, Inc. Form8-A Registration Statement filed on July 30, 2008). |
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10.23§ | | Side Letter Agreement, dated as of December 22, 2009, by and among iHeartMedia, Inc., Clear Channel Capital IV, LLC, Clear Channel Capital V, L.P., Randall T. Mays and RTM Partners, Ltd. (Incorporated by reference to Exhibit 99.3 to the iHeartCommunications, Inc. Current Report on Form8-K filed on December 29, 2009). |
62
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10.24§ | | |
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10.25§ | | |
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10.26§ | | |
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10.27§ | | |
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10.28§ | | |
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10.29§ | | |
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10.30§ | | |
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10.31§ | | |
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10.32§ | | |
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10.33§ | | |
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10.34§ | | |
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10.35§ | | |
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10.36§ | | |
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10.37§ | | |
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10.38§ | | |
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10.39§ | | |
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10.40§ | | |
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10.41§ | | |
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10.42§ | | |
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10.43§ | | |
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10.44§ | | |
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10.45§ | | |
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10.46§ | | |
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10.47§ | | |
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10.48§ | | |
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10.49§ | | |
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10.50§ | | |
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10.51§ | | |
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10.52§ | | |
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10.53§ | | |
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10.54§ | | |
64
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10.55§ | | |
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10.56§ | | |
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10.57§ | | |
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10.58§ | | |
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10.59§ | | |
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10.60§ | | |
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10.61§ | | |
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10.62§ | | |
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10.63§ | | |
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10.64§ | | |
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10.65§ | | |
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10.66§ | | |
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10.67§ | | |
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10.68§ | | |
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10.69§ | | |
65
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10.70§ | | |
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10.71§ | | |
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10.72§ | | |
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10.73§ | | |
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10.74§ | | |
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10.75§ | | |
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10.76§ | | |
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10.77§ | | |
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10.78§ | | |
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10.79 | | |
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10.80§ | | |
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10.81§ | | 2013 (Incorporated by reference to Exhibit 10.81 to the iHeartMedia, Inc. Annual Report on Form10-K for the year ended December 31, 2015). |
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10.82§ | | |
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10.83 | | |
66
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10.84§ | | |
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10.85§ | | |
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10.86§ | | |
10.87*§ | |
10.87§ | | Form of Retention Bonus Agreement.Agreement (Incorporated by reference to Exhibit 10.87 to the iHeartMedia, Inc. Annual Report on Form10-K for the year ended December 31, 2016). |
10.88*§ | |
10.88§ | | iHeartMedia, Inc. 2017 Key Employee Incentive Plan.Plan (Incorporated by reference to Exhibit 10.88 to the iHeartMedia, Inc. Annual Report on Form10-K for the year ended December 31, 2016). |
21* | |
10.89 | | Subsidiaries.Credit Agreement, dated as of November 30, 2017, by and among iHeartCommunications, Inc., iHeartMedia Capital I, LLC, the subsidiary borrowers party thereto, TPG Specialty Lending, Inc., as Administrative Agent and Sole Lead Arranger, the other lenders and letter of credit issuers from time to time party thereto and the other agents party thereto (Incorporated by reference to Exhibit 10.1 to iHeartCommunications, Inc.’s Current Report on Form8-K filed on December 1, 2017). |
23* | |
10.90 | | Third Amendment, dated November 29, 2017, to the Revolving Promissory Note dated November 10, 2005, by iHeartCommunications, Inc., as maker, and Clear Channel Outdoor Holdings, Inc., as payee (Incorporated by reference to Exhibit 10.2 to iHeartCommunications, Inc.’s Current Report on Form8-K filed on December 1, 2017). |
| |
10.91 | | Second Amendment, dated November 29, 2017, to the Revolving Promissory Note dated November 10, 2005, by Clear Channel Outdoor Holdings, Inc., as maker, and iHeartCommunications, Inc., as payee (Incorporated by reference to Exhibit 10.3 to iHeartCommunications, Inc.’s Current Report on Form8-K filed on December 1, 2017). |
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10.92§ | | Employment Agreement Amendment, dated as of November 10, 2017, by and between Robert H. Walls, Jr. and iHeartMedia, Inc. (incorporated by reference to Exhibit 10.1 to iHeartMedia, Inc.’s Current Report on Form8-K filed on November 16, 2017). |
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10.93§ | | First Amendment to Employment Agreement, effective as of July 3, 2017, between Steven J. Macri and iHeartMedia, Inc. (incorporated by reference to Exhibit 10.3 to Clear Channel Outdoor Holdings, Inc.’s Current Report on Form8-K filed on July 5, 2017). |
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10.94 | | Binding Option and Letter of Intent, dated February 9, 2017, between iHeartMedia, Inc. and Clear Channel Outdoor Holdings, Inc. (incorporated by reference to Exhibit 10.1 of Clear Channel Outdoor Holdings, Inc.’s Quarterly Report on Form10-Q filed May 4, 2017). |
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10.95§ | | Amendment No. 3 to Employment Agreement, dated as of May 20, 2017, between C. William Eccleshare and Clear Channel Outdoor Holdings, Inc. (incorporated by reference to Exhibit 10.1 to Clear Channel Outdoor Holdings, Inc.’s Quarterly Report on Form10-Q filed on August 3, 2017). |
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10.96§ | | First Amendment to Employment Agreement, effective as of May 1, 2017, between Scott D. Hamilton and iHeartMedia Management Services, Inc. (incorporated by reference to Exhibit 10.1 to iHeartMedia, Inc.’s Quarterly Report on Form10-Q filed on November 8, 2017). |
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10.97 | | Restructuring Support Agreement, dated March 16, 2018, by and among iHeartMedia, Inc., the subsidiaries party thereto, and the creditors and equityholders party thereto (incorporated by reference to Exhibit 10.1 to iHeartMedia’s Current Report on Form8-K filed on March 19, 2018). |
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21† | | Subsidiaries. |
67
2002, relating to the Registrant’s Amendment No. 1 to the Annual Report on Form 10-K/A for the year ended December 31, 2017. |
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32.1** | | |
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32.2** | | |
101.INS* | |
101.INS† | | XBRL Instance Document. |
101.SCH* | |
101.SCH† | | XBRL Taxonomy Extension Schema Document. |
101.CAL* | |
101.CAL† | | XBRL Taxonomy Extension Calculation Linkbase Document. |
101.DEF* | |
101.DEF† | | XBRL Taxonomy Extension Definition Linkbase Document. |
101.LAB* | |
101.LAB† | | XBRL Taxonomy Extension Label Linkbase Document. |
101.PRE* | |
101.PRE† | | XBRL Taxonomy Extension Presentation Linkbase Document. |
_________________
* Filed herewith.
** This exhibit is furnished herewith and shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, or otherwise subject to the liability of that section, and shall not be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934.
§ A management contract or compensatory plan or arrangement required to be filed as an exhibit pursuant to Item 601 of Regulation S-K.
** | This exhibit was furnished with the Original 2017 Form10-K and shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, or otherwise subject to the liability of that section, and shall not be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934. |
† | Filed as an exhibit to the Original 2017 Form10-K. |
§ | A management contract or compensatory plan or arrangement required to be filed as an exhibit pursuant to Item 601 of RegulationS-K. |
68
ITEM 16. Form 10-K Summary
None.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, on February 23, 2017.
IHEARTMEDIA, INC.
May 11, 2018. | | |
| | IHEARTMEDIA, INC. |
| |
| By: /s/ Robert W. Pittman
|
| Robert W. Pittman |
| Chairman and Chief Executive Officer |
Power of Attorney
Each person whose signature appears below authorizes Robert W. Pittman, Richard J. Bressler and Scott D. Hamilton, or any one of them, each of whom may act without joinder of the others, to execute in the name of each such person who is then an officer or director of the Registrant and to file any amendments to this Annual Report on Form 10-K necessary or advisable to enable the Registrant to comply with the Securities Exchange Act of 1934, as amended, and any rules, regulations and requirements of the Securities and Exchange Commission in respect thereof, which amendments may make such changes in such report as such attorney-in-fact may deem appropriate.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
By: /s/ Scott D. Hamilton |
| | |
Name | Title | Date |
/s/ Robert W. Pittman
Robert W. Pittman
| Chairman and Chief Executive Officer (Principal Executive Officer) and Director | February 23, 2017 |
/s/ Richard J. Bressler
Richard J. Bressler
| President, Chief Operating Officer, Chief Financial Officer (Principal Financial Officer) and Director | February 23, 2017 |
/s/ Scott D. Hamilton
Scott D. Hamilton
|
| | Senior Vice President, Chief Accounting Officer (Principal Accounting Officer) and Assistant Secretary | February 23, 2017 |
/s/ David C. Abrams
David C. Abrams
| Director | February 23, 2017 |
/s/ Irving L. Azoff
Irving L. Azoff
| Director | February 23, 2017 |
/s/ Jonathan Belitsos
Jonathan Belitsos
| Director | February 23, 2017 |
/s/ Frederic F. Brace
Frederic F. Brace
| Director | February 23, 2017 |
/s/ James C. Carlisle
James C. Carlisle
| Director | February 23, 2017 |
/s/ John P. Connaughton
John P. Connaughton
| Director | February 23, 2017 |
/s/ Charles H. Cremens
Charles H. Cremens
| Director | February 23, 2017 |
/s/ Matthew J. Freeman
Matthew J. Freeman
| Director | February 23, 2017 |
/s/ Laura Grattan
Laura Grattan
| Director | February 23, 2017 |
/s/ Blair E. Hendrix
Blair E. Hendrix
| Director | February 23, 2017 |
/s/ Jonathon S. Jacobson
Jonathon S. Jacobson
| Director | February 23, 2017 |
/s/ Scott M. Sperling
Scott M. Sperling
| Director | February 23, 2017 |
69