CC Media Holdings, Inc. — Form 10-Q Summary
Reporting period: Three and nine months ended September 30, 2012. The filing is by CC Media Holdings, Inc., the predecessor corporate entity associated with today’s iHeartMedia, Inc. Results are unaudited and should be considered in light of seasonality.
Business Context
The company operated through Media and Entertainment (CCME), Americas outdoor advertising, International outdoor advertising, and Other segments. CCME generated revenue from broadcast, digital and syndicated media; outdoor segments generated revenue from billboard, street furniture and transit displays. Latin American operations were recast into International outdoor advertising for segment comparability.
Financial Performance and Liquidity
| Metric | Q3 2012 | Q3 2011 | 9M 2012 | 9M 2011 |
|---|---|---|---|---|
| Revenue | $1,587.3 million | $1,583.4 million | $4,550.5 million | $4,508.6 million |
| Operating income | $331.9 million | $268.8 million | $759.3 million | $724.5 million |
| Operating margin | 20.9% | 17.0% | 16.7% | 16.1% |
| Net loss attributable to company | $50.6 million | $74.1 million | $233.2 million | $259.1 million |
| Net loss per diluted share | $0.61 | $0.91 | $2.92 | $3.17 |
| Operating cash flow | Not separately provided | Not separately provided | $156.2 million | $121.4 million |
- Q3 revenue was essentially flat year over year, while nine-month revenue increased 0.9%. Excluding foreign-exchange effects, revenue increased $28.9 million in Q3 and $115.7 million for the nine months.
- Operating income increased 23% in Q3 and 5% for the nine months. Lower direct operating expenses, lower depreciation and amortization, and $42.1 million of other operating income in Q3 contributed to the improvement.
- Interest expense increased to $388.2 million in Q3 and $1.148 billion for the nine months, reflecting the 2011 Priority Guarantee Notes and the 2012 subordinated notes.
- Cash and cash equivalents were $1.297 billion at September 30, 2012, compared with $1.229 billion at December 31, 2011.
- Total debt was $20.738 billion, up from $20.207 billion at year-end 2011. Net debt was approximately $19.441 billion, compared with $18.979 billion at year-end.
- Capital expenditures were $260.5 million for the nine months, compared with $218.1 million in the prior-year period. Investing cash outflow was $245.1 million.
- Financing activities generated $156.9 million, including issuance of $2.2 billion of subordinated notes, debt repayments of approximately $2.1 billion under senior secured facilities, and a $244.7 million dividend paid to noncontrolling stockholders.
- The company had access to a receivables-based facility with a commitment of up to $625 million, subject to borrowing-base limitations. The revolving credit facility had only $10 million of capacity and was fully drawn at quarter-end.
Material Changes Versus Prior Comparable Period
- CCME: Revenue increased 1% in Q3 and 3% for the nine months; operating income increased 3% and 7%, respectively. Growth reflected national and local advertising, political advertising, digital listenership and iHeartRadio-related activity, partly offset by weaker acquired traffic operations.
- Americas outdoor: Revenue increased 2% in both periods, while operating income increased 15% in Q3 and 12% for the nine months. Digital billboard deployments and airport advertising supported growth.
- International outdoor: Revenue declined 6% in Q3 and 5% for the nine months, and operating income declined 21% and 59%, respectively. Foreign-exchange effects, weaker European conditions, litigation-related costs and divestitures affected results.
- Other: Revenue increased $15.9 million in Q3 and $21.3 million for the nine months, primarily from political advertising commissions.
- SG&A increased 4% in both comparative periods, while corporate expenses increased 31% in Q3 and 29% for the nine months.
- Q3 and nine-month net losses narrowed despite higher interest expense, supported by improved operating income, lower depreciation and amortization, tax benefits and other operating gains.
Guidance, Outlook, Risks and Unusual Items
- Management expected cash on hand, operating cash flow and available receivables-based borrowing capacity to meet working capital, capital expenditure, debt service and other funding needs for at least the next 12 months. Management also expected covenant compliance during 2012, while noting significant uncertainty and no assurance that compliance would continue.
- The senior secured debt covenant limited secured net debt to trailing four-quarter consolidated EBITDA. Reported covenant EBITDA was $1.993 billion, the maximum ratio was 9.5:1, and the reported September 30 ratio was 6.1:1. The covenant becomes more restrictive beginning in the second quarter of 2013.
- On October 25, 2012, after quarter-end, Clear Channel amended its senior secured facilities and exchanged $2.0 billion of term loans for 9.0% priority guarantee notes due 2019. Management expected the refinancing to increase annual interest expense by approximately $100 million.
- The company issued $2.2 billion of 7.625% senior subordinated notes in the first quarter and used related proceeds, along with cash, to repay senior secured debt and fund a $2.170 billion special dividend at the CCOH subsidiary level.
- Other operating income included a gain primarily related to the August 2012 sale of the international neon business. The company also recorded a $15.2 million loss from accelerated expensing of loan fees following debt prepayments.
- Brazilian tax litigation was resolved through a state amnesty payment of $10.9 million. Separately, derivative lawsuits involving CCOH directors, Clear Channel and sponsor affiliates remained subject to review by a special litigation committee.
- Key risks include substantial leverage and refinancing needs, high interest expense, covenant compliance, advertising-market sensitivity, foreign-exchange volatility, weak European markets, litigation, regulatory and tax matters, technology and competitive changes, and the availability of future financing.
- A $2.5 billion interest-rate swap effectively fixed part of floating-rate debt at 4.4% plus applicable margins. Approximately 42% of aggregate debt principal remained floating-rate after considering the swap.
Important Facts Investors Should Verify
- Reconcile the company’s historical CC Media Holdings reporting entity with the current iHeartMedia corporate structure and subsequent name, ownership and debt changes.
- Review the October 2012 refinancing, including the $2.0 billion term-loan exchange, revised maturities and expected $100 million annual interest expense increase.
- Assess liquidity after considering $20.7 billion of debt, only $10 million of revolving capacity, the $625 million receivables facility and required debt maturities.
- Evaluate whether operating cash flow and covenant EBITDA can support debt service, capital expenditures and future refinancing requirements.
- Separate recurring operating performance from political advertising, foreign-exchange effects, asset-sale gains, tax benefits, litigation costs and other unusual items.
- Monitor International outdoor advertising trends, European economic conditions, currency movements and unresolved litigation or regulatory exposure.