CC Media Holdings, Inc. Form 10-Q Summary
Business Context and Reporting Period
CC Media Holdings, Inc. filed this quarterly report for the quarter and six months ended June 30, 2014. The filing covers Media and Entertainment (CCME), Americas outdoor advertising, International outdoor advertising, and Other operations. The company was subsequently known as iHeartMedia, Inc.; the filing itself identifies the registrant as CC Media Holdings, Inc.
Results are subject to advertising seasonality, foreign-exchange movements, economic conditions, and the company’s highly leveraged capital structure. The financial statements are unaudited and include normal recurring adjustments.
Key Financial Metrics
| Metric | Three Months Ended June 30, 2014 | Three Months Ended June 30, 2013 | Six Months Ended June 30, 2014 | Six Months Ended June 30, 2013 |
|---|---|---|---|---|
| Revenue | $1.630 billion | $1.618 billion | $2.973 billion | $2.961 billion |
| Operating income | $303.6 million | $320.2 million | $386.4 million | $401.5 million |
| Net income (loss) attributable to company | $(186.6) million | $7.2 million | $(610.8) million | $(195.8) million |
| Basic and diluted loss per share | $(2.22) | $0.09 | $(7.28) | $(2.39) |
| Interest expense | $440.6 million | $407.5 million | $871.7 million | $793.0 million |
| Net cash used in operating activities | Not separately presented | Not separately presented | $(46.2) million | $(92.8) million |
| Capital expenditures | Not separately presented | Not separately presented | $141.4 million | $132.7 million |
Operating margin was approximately 18.6% in the second quarter and 13.0% for the first six months, compared with approximately 19.8% and 13.6%, respectively, in the comparable 2013 periods. The company reported a consolidated net loss for both 2014 periods, driven principally by interest expense, debt-extinguishment costs, and other unusual items.
Segment Performance
- CCME: Second-quarter revenue was $806.3 million, essentially flat year over year, while operating income increased 2% to $260.3 million. Six-month revenue increased 1% to $1.477 billion, but operating income declined 1% to $398.1 million. Digital, traffic and weather, political, and event revenue offset declines in core terrestrial radio and syndication.
- Americas outdoor: Second-quarter revenue declined 5% to $319.1 million and operating income declined 13% to $79.5 million. Six-month revenue declined 5% to $587.9 million and operating income declined 16% to $116.2 million. Lower national-account spending, nonrenewed airport contracts, and Los Angeles litigation affected results.
- International outdoor: Second-quarter revenue increased 7% to $462.1 million and operating income increased 9% to $50.6 million. Six-month revenue increased 4% to $828.6 million and operating income increased 49% to $36.6 million. Growth reflected new contracts in western Europe and emerging markets, including activity related to the FIFA World Cup.
Liquidity, Debt, and Cash Flow
- Cash and cash equivalents were $798.4 million at June 30, 2014, up from $708.2 million at December 31, 2013. Approximately $192.3 million was held outside the United States.
- Total debt was approximately $20.672 billion, compared with $20.484 billion at year-end 2013. Debt net of cash was approximately $19.874 billion.
- The weighted-average interest rate on debt was 7.9%, versus 7.6% at December 31, 2013. Approximately 39% of aggregate principal debt carried floating interest rates.
- Operating activities used $46.2 million of cash in the first six months, while investing activities provided $81.6 million and financing activities provided $55.5 million. The resulting increase in cash was $90.3 million.
- Management estimated cash interest requirements of approximately $791 million for the remainder of 2014. Debt maturities at June 30, 2014 were $18.5 million in 2014, $6.4 million in 2015, and approximately $2.4 billion in 2016.
- The company reported compliance with its financing covenants. The senior secured net debt-to-consolidated EBITDA covenant ratio was 6.4:1 versus a maximum permitted ratio of 9.0:1 at June 30, 2014; the maximum was scheduled to decline to 8.75:1 for the four quarters ending December 31, 2014.
Material Changes and Unusual Items
- Revenue increased only modestly year over year: 0.7% in the second quarter and 0.4% for the first six months. Foreign exchange contributed $10.5 million and $11.0 million, respectively; excluding foreign exchange, growth was approximately $1.6 million and $0.5 million.
- Operating income declined 5.2% in the second quarter and 3.8% for the first six months as operating costs grew faster than revenue.
- Interest expense increased $33.1 million in the quarter and $78.7 million in the first six months, primarily because refinancing activity increased the weighted-average cost of debt.
- The company recorded a $47.5 million second-quarter loss on extinguishment of debt and a $51.4 million six-month loss, following redemptions and repurchases of Clear Channel debt.
- Clear Channel issued $850 million of 10.0% Senior Notes due 2018 and used the proceeds to redeem $567.1 million of notes due 2014 and $241.0 million of notes due 2015. A subsidiary also sold $227 million of Senior Notes due 2021 previously eliminated in consolidation.
- Strategic revenue and efficiency initiatives generated expenses of $20.5 million in the quarter and $33.7 million in the first six months, including severance, consulting, location and workforce consolidation, and other restructuring-related costs. Six-month corporate expenses included $6.3 million related to the separation of the former CCME chief executive officer.
- The company sold its 50% interest in Australian Radio Network in February 2014, generating $221.0 million of investing cash proceeds and a six-month equity loss of $13.3 million, including a $2.4 million sale loss and $11.5 million of foreign-exchange losses reclassified from accumulated other comprehensive income.
- Shareholders’ deficit increased to $9.315 billion at June 30, 2014 from $8.697 billion at year-end 2013, primarily reflecting the six-month net loss.
Outlook, Risks, and Contingencies
Management stated that available cash, operating cash flow, borrowing capacity under the receivables-based facility, and anticipated liquidity-generating transactions were expected to fund requirements for at least the next 12 months. However, this expectation depended on operating performance, covenant compliance, capital-market access, and the timely completion of additional liquidity transactions. The filing provided no formal revenue or earnings guidance.
- Substantial leverage and significant scheduled debt maturities create refinancing and liquidity risk. Management warned that refinancing may not be available on acceptable terms or at all.
- Advertising demand is sensitive to GDP, economic conditions, competition, and political and regulatory developments.
- Foreign-exchange movements affect international revenue, earnings, and comprehensive income. A 10% strengthening of the U.S. dollar was estimated to reduce six-month net income by approximately $1.0 million.
- Interest-rate exposure is material; a 30% change in LIBOR was estimated to change six-month interest expense by approximately $3.8 million.
- The Los Angeles outdoor advertising litigation resulted in invalidation of 82 digital modernization permits. Appeals remained pending, and the matter contributed to lower Americas outdoor revenue.
- Outstanding guarantees included $45.5 million of surety bonds, $113.3 million of commercial standby letters of credit, and $59.5 million of international bank guarantees.
- On July 21, 2014, after quarter-end, Clear Channel announced plans to issue approximately $222.2 million of Senior Notes due 2021 and redeem $222.2 million of notes due 2016, with the transactions expected to close August 22, 2014.
- Also after quarter-end, a subsidiary’s board demanded $175 million under an intercompany note and declared a corresponding special cash dividend. Clear Channel expected to fund approximately $21 million payable to public shareholders with cash on hand.
Investor Verification Points
- Verify the company’s current legal name, capital structure, and debt ownership because this filing is for CC Media Holdings, Inc., not a registrant named iHeartMedia, Inc.
- Reconcile total debt, debt maturities, interest requirements, covenant ratios, and available borrowing capacity with subsequent filings.
- Assess whether operating cash flow can cover interest, capital expenditures, working capital, and near-term maturities without asset sales or refinancing.
- Monitor Americas outdoor performance, the Los Angeles litigation and permit status, and the sustainability of International outdoor growth.
- Separate recurring operating performance from foreign-exchange effects, strategic initiative costs, debt-extinguishment losses, asset-sale results, and other unusual items.
- Review subsequent filings for completion and terms of the planned 2021 note issuance, 2016 note redemption, and $175 million intercompany-note demand.