CC Media Holdings, Inc. Form 10-Q Summary
Reporting period: Quarter and nine months ended September 30, 2011. The supplied filing identifies the registrant as CC Media Holdings, Inc.; the request metadata refers to iHeartMedia, Inc. The filing covers radio, Americas outdoor advertising, international outdoor advertising and related businesses.
Financial performance and liquidity
| Metric | Q3 2011 | Q3 2010 | 9M 2011 | 9M 2010 |
|---|---|---|---|---|
| Revenue | $1.583 billion | $1.477 billion | $4.509 billion | $4.231 billion |
| Operating income | $268.8 million | $221.1 million | $724.5 million | $563.6 million |
| Operating margin | 17.0% | 15.0% | 16.1% | 13.3% |
| Net loss attributable to company | $74.1 million | $154.7 million | $259.1 million | $416.4 million |
| Loss per share | $0.91 | $1.91 | $3.17 | $5.14 |
| Operating cash flow | Not provided for the quarter | Not provided for the quarter | $121.4 million | $316.5 million |
| Capital expenditures | Not provided for the quarter | Not provided for the quarter | $218.1 million | $169.4 million |
At September 30, 2011, cash and cash equivalents were $1.165 billion, compared with $1.921 billion at December 31, 2010. Total debt was $20.180 billion, versus $20.607 billion at year-end 2010, producing net debt of approximately $19.014 billion. Shareholders’ deficit was $7.456 billion.
Cash used in investing activities was $212.3 million and cash used in financing activities was $664.7 million during the first nine months. The company reported $535.8 million of availability under its revolving credit facility and availability under its receivables-based facility of up to the lesser of $625 million or the borrowing base.
Material changes versus the prior comparable period
- Revenue increased 7% in both the quarter and nine-month period.
- Operating income increased 22% in the quarter and 29% for the first nine months, with operating margin improving by approximately 2.0 and 2.8 percentage points, respectively.
- Net loss attributable to the company declined by $80.6 million in the quarter and $157.4 million year to date.
- Interest expense declined $20.0 million in the quarter and $62.7 million year to date, primarily due to debt repayments and refinancing activity.
- Operating cash flow declined $195.2 million year to date, primarily because the prior-year period included a $132.3 million federal tax refund and 2011 included higher incentive compensation payments.
- Radio revenue increased 7% in the quarter and 5% year to date, aided by the April 2011 Westwood One traffic-business acquisition and digital initiatives.
- Americas outdoor revenue increased 4% in the quarter and 5% year to date, supported by digital-display deployments and higher rates. International outdoor revenue increased 11% and 12%, respectively, including significant foreign-exchange benefits.
Debt, refinancing and unusual items
- Clear Channel issued $1.75 billion of 9.0% Priority Guarantee Notes due 2021. Proceeds were used for debt repayment, general corporate purposes and anticipated repayment of 2012 maturities.
- During the third quarter, CC Finco repurchased $80.0 million principal amount of 5.5% senior notes for $57.1 million, including accrued interest, generating an aggregate gain of approximately $4.3 million.
- The company’s senior secured net debt to consolidated EBITDA covenant ratio was 7.1:1 at September 30, 2011, against a maximum permitted ratio of 9.5:1. Management expected compliance with covenants during 2011 but noted significant uncertainty.
- A $2.5 billion interest-rate swap effectively fixed part of floating-rate debt at 4.4% plus applicable margins. Approximately 50% of aggregate principal debt remained floating-rate after considering the swap.
- Other unusual items included a $4.9 million gain on sales of stations held in a divestiture trust, a $5.7 million accelerated write-off of loan fees, and increased depreciation and amortization associated with billboard conversions and asset removals.
Outlook, risks and contingencies
Management stated that cash on hand, available borrowing capacity and operating cash flow were expected to fund working capital, capital expenditures, debt service and other requirements for at least the next twelve months. No formal revenue or earnings guidance was provided.
- Advertising revenue is sensitive to GDP, economic conditions, competition and industry trends. International results are exposed to foreign-exchange movements.
- Substantial leverage requires significant cash flow for interest and principal payments and limits financial flexibility. Covenant breaches could trigger defaults, acceleration and loss of revolving commitments.
- Two Brazilian VAT disputes had reasonably possible loss ranges of up to approximately $58 million and $34 million, respectively. No amounts were accrued because management considered loss not probable.
- The company had $136.9 million of standby letters of credit, $49.3 million of surety bonds and $58.3 million of bank guarantees outstanding at September 30, 2011.
- Management identified risks related to interest rates, currency movements, litigation, taxes, regulation, technology, acquisitions, capital expenditures and retention of key personnel. Robert W. Pittman became chief executive officer on October 2, 2011.
- On October 14, 2011, a subsidiary acquired a Dutch street-furniture business for $12.5 million.
Investor verification priorities
- Confirm the registrant identity and the relationship between CC Media Holdings, Clear Channel and the iHeartMedia name in the request metadata.
- Review debt maturities, refinancing terms, interest-rate exposure and covenant calculations, particularly the 7.1:1 leverage ratio and 2014–2016 term-loan maturities.
- Assess whether operating cash flow is sufficient after capital expenditures and required debt service, given the decline in year-to-date operating cash flow.
- Separate organic revenue growth from the Westwood acquisition and foreign-exchange effects, especially in radio and international outdoor advertising.
- Monitor the Brazilian VAT proceedings, letters of credit, guarantees and other contingent liabilities.
- Evaluate the carrying values of goodwill, FCC licenses and billboard permits, which totaled approximately $7.7 billion at September 30, 2011, for impairment risk.