CC Media Holdings, Inc. 2013 Form 10-K Summary
Filing identity: The supplied filing is for CC Media Holdings, Inc. (the predecessor corporate name associated with Clear Channel and iHeartMedia), not an entity named “iHeartMedia, Inc.” The reporting period is the fiscal year ended December 31, 2013.
Business Context and Reporting Period
The company is a diversified media and entertainment business with three reportable segments: Media and Entertainment (CCME), Americas outdoor advertising, and International outdoor advertising. Its operations include radio broadcasting, digital and mobile audio services, national syndication, traffic information, billboards, street furniture, transit displays and international outdoor advertising. Katz Media and other support activities are reported in Other.
- CCME operated 835 domestic radio stations as of December 31, 2013 and reported 50% of consolidated revenue.
- Americas outdoor operated approximately 105,000 display structures and reported 21% of revenue.
- International outdoor operated more than 570,000 displays across 28 countries and reported 27% of revenue.
- iHeartRadio had approximately 300 million application downloads, more than 76 million unique digital visitors in December 2013 and average monthly listening of 143 million hours.
Financial Performance and Key Metrics
| Metric | 2013 | 2012 | Change |
|---|---|---|---|
| Revenue | $6.243 billion | $6.247 billion | Down $3.8 million |
| Operating income | $1.001 billion | $1.070 billion | Down 6% |
| Operating margin | 16.0% | 17.1% | Down approximately 110 bps |
| Net loss attributable to the company | $606.9 million | $424.5 million | Loss increased $182.4 million |
| Net loss per share | $7.31 | $5.23 | Greater loss |
| Cash flow from operations | $212.9 million | $485.1 million | Down $272.3 million |
| Capital expenditures | $324.5 million | $390.3 million | Down $65.8 million |
| Cash and cash equivalents | $708.2 million | $1.225 billion | Down $516.9 million |
| Total debt | $20.484 billion | $20.747 billion | Down $262.9 million |
| Net debt | $19.776 billion | $19.522 billion | Up $253.9 million |
Interest expense was $1.649 billion, up 6% from 2012, and the weighted-average cost of debt increased to 7.6% from 6.7%. Cash interest paid was $1.543 billion. The company remained highly leveraged, with total debt materially exceeding total assets and shareholders’ deficit of $8.697 billion at year-end.
- CCME: Revenue was $3.132 billion, up 2%; operating income was $908.4 million, down 4%. Listening hours on iHeartRadio increased 29%, supporting higher digital revenue, but promotional, event, streaming and music royalty costs increased.
- Americas outdoor: Revenue was $1.290 billion, up 1%; operating income was $306.5 million, up 4%, driven by higher occupancy, capacity and rates.
- International outdoor: Revenue was $1.656 billion, down 1% as reported, but up $3.3 million excluding foreign exchange and the prior-year neon-business divestiture. Operating income increased 30% to $100.9 million, aided by lower SG&A and cost savings.
- Other: Revenue declined $54.0 million, primarily because of lower political advertising through Katz Media.
Material Changes Versus the Prior Comparable Period
- Reported revenue was essentially flat, but revenue increased $13.1 million excluding foreign exchange effects and the $20.4 million impact of the 2012 international neon divestiture.
- Operating income declined despite lower impairment charges, primarily because direct operating expenses and corporate expenses increased while revenue remained flat.
- Cash flow from operations fell sharply, partly because cash interest payments increased by $162.0 million.
- Corporate expenses increased $26.8 million, including executive transition costs and legal costs related to stockholder litigation.
- The company recorded $57.9 million of strategic revenue and cost-saving initiative expenses, compared with $76.2 million in 2012.
- Fourth-quarter items included a $95.4 million impairment of the investment in Australian Radio Network, a $84.0 million loss on a debt exchange and $17.0 million of annual impairment charges.
- The company sold its Sirius XM shares for $135.5 million and recognized a $130.9 million gain.
- Clear Channel refinanced or extended significant debt in 2013, including the issuance of $575.0 million of 11.25% notes, creation of $5.0 billion of Term Loan D due 2019, creation of $1.3 billion of Term Loan E due 2019 and exchanges of debt due 2016 into notes due 2021.
Guidance, Outlook, Management Commentary and Risks
The filing does not provide numerical revenue or earnings guidance. Management expects to continue investing in digital platforms, iHeartRadio and digital outdoor displays while managing expenses and pursuing operating efficiencies. Management stated that available cash, operating cash flow, borrowing capacity and other liquidity-generating transactions were expected to fund requirements for at least the next twelve months, subject to significant assumptions and risks.
- Cash interest requirements for 2014 were estimated at approximately $1.6 billion.
- Debt maturities were $484.4 million in 2014, $256.4 million in 2015 and $2.385 billion in 2016.
- The company was in compliance with its debt covenants at December 31, 2013. The secured-debt-to-EBITDA covenant ratio was 6.3x versus a maximum of 9.0x, scheduled to tighten to 8.75x for the four quarters ended December 31, 2014.
- Management was exploring additional liquidity-generating transactions and warned that refinancing may not be available on acceptable terms or at all.
- Key risks include cyclical advertising demand, intense competition from digital, mobile, satellite and other media, substantial interest obligations, refinancing risk, covenant restrictions, regulatory limits on radio licenses and outdoor displays, foreign exchange exposure, music royalties, privacy and cybersecurity obligations, litigation and the ability to retain key talent.
- The Los Angeles billboard litigation resulted in invalidation of 82 digital modernization permits, with 77 displays operating at the time. The structures remained in place, but the company was required to turn off affected digital displays and seek alternative permits or convert them to static displays.
- At February 18, 2014, a subsidiary sold its 50% interest in Australian Radio Network after a $95.4 million fourth-quarter impairment. This is a material subsequent event to verify.
Most Important Facts for Investors to Verify
- Confirm the issuer name and security structure: the filing is for CC Media Holdings, Inc., with Class A shares quoted on the OTC Bulletin Board under CCMO; Bain Capital and Thomas H. Lee Partners controlled approximately 68% of voting power.
- Reconcile the company’s ability to service approximately $20.5 billion of debt against only $708.2 million of cash and $212.9 million of 2013 operating cash flow.
- Review the 2014–2016 maturity schedule, refinancing plans, interest-rate increases and the 8.75x 2014 covenant threshold.
- Separate recurring operating performance from unusual items, including the Sirius XM gain, Australian Radio Network impairment, debt-exchange loss, impairment charges and strategic initiative costs.
- Assess whether iHeartRadio’s 29% increase in listening hours is translating into sustainable revenue and margins after streaming, royalty, promotional and event costs.
- Evaluate regulatory and litigation exposure affecting radio licenses, digital billboards, municipal concessions and the Los Angeles displays.
- Review subsequent events after December 31, 2013, including the Australian Radio Network sale and the February 2014 issuance of $227.0 million of Senior Notes due 2021 by CC Finco.