CC Media Holdings, Inc. — Form 10-Q Summary
Reporting period: Quarterly and six-month periods ended June 30, 2011. The filing issuer is CC Media Holdings, Inc., the predecessor corporate name associated with iHeartMedia. Results are unaudited and should be considered in light of seasonality, particularly weaker first-quarter performance in several segments.
Business Context and Financial Position
The company operates through Radio broadcasting, Americas outdoor advertising, International outdoor advertising and other media-related businesses. Advertising performance is sensitive to GDP, economic conditions, foreign exchange rates, competition, technology, regulation and consumer demand.
| Metric | June 30, 2011 | December 31, 2010 |
|---|---|---|
| Cash and cash equivalents | $1.219 billion | $1.921 billion |
| Total assets | $16.882 billion | $17.460 billion |
| Total debt, before cash | $20.175 billion | $20.607 billion |
| Net debt | $18.956 billion | $18.687 billion |
| Shareholders’ deficit | $7.270 billion | $7.205 billion |
Financial Performance
| Metric | Three months ended June 30, 2011 | Three months ended June 30, 2010 | Six months ended June 30, 2011 | Six months ended June 30, 2010 |
|---|---|---|---|---|
| Revenue | $1.604 billion | $1.490 billion | $2.925 billion | $2.754 billion |
| Operating income | $311.0 million | $267.4 million | $455.7 million | $342.5 million |
| Operating margin | 19.4% | 17.9% | 15.6% | 12.4% |
| Net loss attributable to company | $53.2 million | $86.3 million | $185.0 million | $261.7 million |
| Net loss per diluted share | $0.65 | $1.06 | $2.27 | $3.23 |
| Interest expense | $359.0 million | $385.6 million | $728.6 million | $771.4 million |
Revenue increased 8% in the second quarter and 6% in the first six months. Operating income improved despite continued net losses, while lower interest expense and improved operating performance reduced the company’s loss. The company continued to report a substantial accumulated deficit and negative shareholders’ equity.
Segment Performance and Material Changes
- Radio: Revenue increased 4% in both the quarter and six-month period. Six-month operating income increased to $395.9 million from $375.7 million, but second-quarter operating income declined to $238.8 million from $247.3 million. Results benefited from the Westwood One traffic-business acquisition and digital radio initiatives, while acquisition-related costs and higher digital spending increased expenses.
- Americas Outdoor: Revenue increased 5% in the quarter and 6% year to date. Operating income increased to $83.1 million from $59.7 million in the quarter and to $123.5 million from $97.4 million year to date. Growth was driven by digital, bulletin, airport and shelter displays, with 96 U.S. digital displays deployed during the first six months versus 65 in the prior-year period.
- International Outdoor: Revenue increased 19% in the quarter and 13% year to date. Operating income improved to $42.1 million from $19.9 million in the quarter and to $35.1 million from a $1.1 million loss year to date. Approximately $46.3 million of second-quarter and $54.3 million of six-month revenue growth came from foreign-exchange movements.
- Corporate: Corporate expenses declined 12% in the quarter and 15% year to date, mainly due to lower variable compensation and restructuring costs.
- Acquisitions and dispositions: The company purchased Westwood One’s traffic business for $24.3 million on April 29, 2011 and acquired a cloud-based music-technology business. The U.S. Department of Justice was reviewing the Westwood acquisition. Ten radio stations were sold during the first six months for approximately $28.5 million, producing a gain of approximately $6.6 million.
Cash Flow, Debt and Liquidity
| Six months ended June 30 | 2011 | 2010 |
|---|---|---|
| Cash provided by operating activities | $63.5 million | $52.8 million |
| Cash used in investing activities | $129.4 million | $105.6 million |
| Cash used in financing activities | $635.8 million | $326.5 million |
| Net decrease in cash | $701.8 million | $379.3 million |
| Capital expenditures | $140.5 million | $103.4 million |
- Clear Channel issued $1.75 billion of 9.0% Priority Guarantee Notes due 2021, including $750 million issued in June 2011. Proceeds were used or expected to be used for debt repayment, replenishing cash and general corporate purposes.
- Clear Channel repaid $500 million of its revolving credit facility, all amounts outstanding under its receivables-based facility, and approximately $140.2 million of 4.4% senior notes at maturity. The receivables-based facility remained available for reborrowing.
- Revolving-credit availability was $580.1 million at June 30, 2011. The receivables-based facility provided availability up to the lesser of $625 million or the borrowing base.
- The senior secured debt covenant limited consolidated secured net debt to consolidated EBITDA to 9.5:1 at the reporting date; the company reported a 7.1:1 ratio. Management expected compliance with covenants during 2011 but noted significant uncertainty.
- Management stated that cash on hand, borrowing availability and operating cash flow were expected to fund working capital, capital expenditures, debt service and other requirements for at least the next 12 months, subject to operating performance and market conditions.
Guidance, Outlook, Risks and Unusual Items
- No specific revenue, earnings or EBITDA guidance was provided. Management expected continued digital-display deployment during 2011 and continued investment in digital radio and related technology.
- Management identified substantial leverage and required debt service as key risks. A covenant breach could trigger defaults, acceleration, termination of revolving commitments and enforcement against pledged assets, with potential cross-default consequences.
- Approximately 50% of aggregate principal debt, after considering the interest-rate swap, carried floating rates. A 30% change in LIBOR was estimated to affect quarterly and year-to-date interest expense by approximately $1.4 million and $2.9 million, respectively.
- A $2.5 billion notional interest-rate swap effectively fixed part of floating-rate debt at 4.4% plus applicable margins; its fair value was a $194.0 million liability.
- Brazilian VAT disputes involving L&C and Klimes had reasonably possible losses of up to approximately $65.1 million and $38.4 million, respectively. No amounts were accrued because management believed losses were not probable.
- The Westwood acquisition was subject to U.S. Department of Justice review. The company also faced ordinary-course litigation and putative class actions related to live concerts, with certain liabilities subject to Live Nation indemnification.
- Results benefited from a $12.3 million net tax benefit from settlements of U.S. federal and state tax examinations during the first six months, as well as favorable foreign tax-loss utilization. The prior-year period benefited from a $60.3 million gain on debt repurchases, making comparisons of other income less favorable in 2011.
Investor Verification Items
- Verify the company’s current legal name, capital structure and debt obligations, given that this filing is for CC Media Holdings rather than the current iHeartMedia name.
- Reconcile total debt, cash, available revolver and receivables-based facility capacity against upcoming maturities and covenant requirements.
- Assess whether operating cash flow is sufficient for debt service and capital expenditures after the substantial first-half cash decline.
- Evaluate the sustainability of revenue growth excluding foreign-exchange effects, acquisitions and unusual tax or asset-sale items.
- Monitor the Department of Justice review and integration results for the Westwood traffic-business acquisition.
- Track the Brazilian VAT proceedings, live-concert litigation and other contingencies for potential changes in exposure.
- Confirm the impact of interest rates, foreign exchange, digital-display investment and advertising-market conditions on future margins and liquidity.